Edgar Filing: SLM CORP

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018


¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-13251

SLM Corporation

(Exact name of registrant as specified in its charter)



Delaware	52-2013874
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

300 Continental Drive, Newark, Delaware	19713
(Address of principal executive offices)	(Zip Code)

(302) 451-0200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	þ		Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:



Class	Outstanding at March 31, 2018
Common Stock, $0.20 par value	435,196,223 shares

SLM CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

INDEX



Part I. Financial Information
Item 1.	Financial Statements	3
Item 1.	Notes to the Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	63
Item 4.	Controls and Procedures	67
PART II. Other Information
Item 1.	Legal Proceedings	68
Item 1A.	Risk Factors	69
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	71

SLM CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)



	March 31,			December 31,
	2018			2017
Assets
Cash and cash equivalents	$	1,435,649		$	1,534,339
Available-for-sale investments at fair value (cost of $236,761 and $247,607, respectively)	229,114			244,088
Loans held for investment (net of allowance for losses of $272,123 and $251,475, respectively)	20,166,604			18,567,641
Restricted cash	120,084			101,836
Other interest-earning assets	31,637			21,586
Accrued interest receivable	1,063,449			967,482
Premises and equipment, net	97,211			89,748
Tax indemnification receivable	169,242			168,011
Other assets	93,332			84,853
Total assets	$	23,406,322		$	21,779,584

Liabilities
Deposits	$	16,498,646		$	15,505,383
Long-term borrowings	3,744,345			3,275,270
Income taxes payable, net	145,167			102,285
Upromise member accounts	233,015			243,080
Other liabilities	175,316			179,310
Total liabilities	20,796,489			19,305,328

Commitments and contingencies

Equity
Preferred stock, par value $0.20 per share, 20 million shares authorized:
Series B: 4 million and 4 million shares issued, respectively, at stated value of $100 per share	400,000			400,000
Common stock, par value $0.20 per share, 1.125 billion shares authorized: 449.0 million and 443.5 million shares issued, respectively	89,805			88,693
Additional paid-in capital	1,252,609			1,222,277
Accumulated other comprehensive income (net of tax expense of $5,005 and $1,696, respectively)	15,601			2,748
Retained earnings	990,447			868,182
Total SLM Corporation stockholders’ equity before treasury stock	2,748,462			2,581,900
Less: Common stock held in treasury at cost: 13.8 million and 11.1 million shares, respectively	(138,629		)	(107,644		)
Total equity	2,609,833			2,474,256
Total liabilities and equity	$	23,406,322		$	21,779,584

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended
	March 31,
	2018		2017
Interest income:
Loans	$	430,048	$	324,757
Investments	1,947		2,143
Cash and cash equivalents	5,236		2,588
Total interest income	437,231		329,488
Interest expense:
Deposits	77,456		44,853
Interest expense on short-term borrowings	2,393		1,236
Interest expense on long-term borrowings	24,768		15,323
Total interest expense	104,617		61,412
Net interest income	332,614		268,076
Less: provisions for credit losses	53,931		25,296
Net interest income after provisions for credit losses	278,683		242,780
Non-interest income:
Gains (losses) on derivatives and hedging activities, net	3,892		(5,378		)
Other income	9,642		11,346
Total non-interest income	13,534		5,968
Non-interest expenses:
Compensation and benefits	68,317		55,464
FDIC assessment fees	8,796		7,229
Other operating expenses	47,761		39,984
Total operating expenses	124,874		102,677
Acquired intangible asset amortization expense	92		117
Total non-interest expenses	124,966		102,794
Income before income tax expense	167,251		145,954
Income tax expense	40,997		51,011
Net income	126,254		94,943
Preferred stock dividends	3,397		5,575
Net income attributable to SLM Corporation common stock	$	122,857	$	89,368
Basic earnings per common share attributable to SLM Corporation	$	0.28	$	0.21
Average common shares outstanding	433,952		429,891
Diluted earnings per common share attributable to SLM Corporation	$	0.28	$	0.20
Average common and common equivalent shares outstanding	438,977		438,735

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)



	Three Months Ended
	March 31,
	2018			2017
Net income	$	126,254		$	94,943
Other comprehensive income (loss):
Unrealized losses on investments	(4,127		)	(1,567		)
Unrealized gains on cash flow hedges	20,290			4,779
Total unrealized gains	16,163			3,212
Income tax expense	(3,902		)	(1,232		)
Other comprehensive income, net of tax expense	12,261			1,980
Total comprehensive income	$	138,515		$	96,923

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except share and per share amounts)

(Unaudited)



		Common Stock Shares
	Preferred Stock Shares	Issued	Treasury		Outstanding		Preferred Stock		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Retained Earnings			Treasury Stock			Total Equity
Balance at December 31, 2016	7,300,000	436,632,479	(7,728,920	)	428,903,559		$	565,000	$	87,327	$	1,175,564	$	(8,671	)	$	595,322		$	(67,484	)	$	2,347,058
Net income	—	—	—		—		—		—		—		—			94,943			—			94,943
Other comprehensive income, net of tax	—	—	—		—		—		—		—		1,980			—			—			1,980
Total comprehensive income	—	—	—		—		—		—		—		—			—			—			96,923
Cumulative effect of the adoption of the new stock compensation standard amendment	—	—	—		—		—		—		594		—			(429		)	—			165
Cash dividends:
Preferred Stock, Series A ($0.87 per share)	—	—	—		—		—		—		—		—			(2,875		)	—			(2,875		)
Preferred Stock, Series B ($0.67 per share)	—	—	—		—		—		—		—		—			(2,700		)	—			(2,700		)
Dividend equivalent units related to employee stock-based compensation plans	—	—	—		—		—		—		96		—			(96		)	—			—
Issuance of common shares	—	3,738,717	—		3,738,717		—		748		5,787		—			—			—			6,535
Tax benefit related to employee stock-based compensation	—	—	—		—		—		—		—		—			—			—			—
Stock-based compensation expense	—	—	—		—		—		—		9,425		—			—			—			9,425
Shares repurchased related to employee stock-based compensation plans	—	—	(1,603,487	)	(1,603,487	)	—		—		—		—			—			(19,175		)	(19,175		)
Balance at March 31, 2017	7,300,000	440,371,196	(9,332,407	)	431,038,789		$	565,000	$	88,075	$	1,191,466	$	(6,691	)	$	684,165		$	(86,659	)	$	2,435,356

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except share and per share amounts)

(Unaudited)



		Common Stock Shares
	Preferred Stock Shares	Issued	Treasury		Outstanding		Preferred Stock		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings			Treasury Stock			Total Equity
Balance at December 31, 2017	4,000,000	443,463,587	(11,087,337	)	432,376,250		$	400,000	$	88,693	$	1,222,277	$	2,748	$	868,182		$	(107,644	)	$	2,474,256
Net income	—	—	—		—		—		—		—		—		126,254			—			126,254
Other comprehensive income, net of tax	—	—	—		—		—		—		—		12,261		—			—			12,261
Total comprehensive income	—	—	—		—		—		—		—		—		—			—			138,515
Reclassification resulting from the adoption of ASU No. 2018-02	—	—	—		—		—		—		—		592		(592		)	—			—
Cash dividends:
Preferred Stock, Series B ($0.83 per share)	—	—	—		—		—		—		—		—		(3,397		)	—			(3,397		)
Issuance of common shares	—	5,559,991			5,559,991		—		1,112		15,587		—		—			—			16,699
Stock-based compensation expense	—	—	—		—		—		—		14,745		—		—			—			14,745
Shares repurchased related to employee stock-based compensation plans	—	—	(2,740,018	)	(2,740,018	)	—		—		—		—		—			(30,985		)	(30,985		)
Balance at March 31, 2018	4,000,000	449,023,578	(13,827,355	)	435,196,223		$	400,000	$	89,805	$	1,252,609	$	15,601	$	990,447		$	(138,629	)	$	2,609,833

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Three Months Ended
	March 31,
	2018			2017
Operating activities
Net income	$	126,254		$	94,943
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provisions for credit losses	53,931			25,296
Income tax expense	40,997			51,011
Amortization of brokered deposit placement fee	2,789			2,130
Amortization of ABCP Facility upfront fee	301			352
Amortization of deferred loan origination costs and loan premium/(discounts), net	2,607			1,777
Net amortization of discount on investments	475			452
Income on tax indemnification receivable	(1,231		)	(1,501		)
Depreciation of premises and equipment	3,117			2,585
Amortization of acquired intangibles	92			117
Stock-based compensation expense	14,745			9,425
Unrealized (gains) losses on derivatives and hedging activities, net	(3,879		)	5,364
Other adjustments to net income, net	1,763			1,258
Changes in operating assets and liabilities:
Increase in accrued interest receivable	(201,776		)	(153,055		)
Increase in other interest-earning assets	(10,051		)	(1,228		)
Increase in other assets	(35,716		)	(13,435		)
Decrease in income taxes payable, net	(1,159		)	(1,689		)
Increase in accrued interest payable	11,034			6,146
Increase in payable due to entity that is a subsidiary of Navient	422			227
Decrease in other liabilities	(18,873		)	(39,424		)
Total adjustments	(140,412		)	(104,192		)
Total net cash used in operating activities	(14,158		)	(9,249		)
Investing activities
Loans acquired and originated	(2,300,135		)	(1,892,697		)
Net proceeds from sales of loans held for investment	820			1,972
Proceeds from claim payments	12,084			11,932
Net decrease in loans held for investment	735,894			506,637
Purchases of available-for-sale securities	—			(18,481		)
Proceeds from sales and maturities of available-for-sale securities	10,371			8,170
Total net cash used in investing activities	(1,540,966		)	(1,382,467		)
Financing activities
Brokered deposit placement fee	(7,055		)	(2,084		)
Net increase (decrease) in certificates of deposit	694,982			(151,003		)
Net increase in other deposits	323,614			83,018
Borrowings collateralized by loans in securitization trusts - issued	667,848			767,994
Borrowings collateralized by loans in securitization trusts - repaid	(200,247		)	(99,884		)
Issuance costs for unsecured debt offering	—			(23		)
Borrowings under ABCP Facility	300,000			—
Repayment of borrowings under ABCP Facility	(300,000		)	—
Fees paid on ABCP Facility	(1,063		)	(1,515		)
Preferred stock dividends paid	(3,397		)	(5,575		)
Net cash provided by financing activities	1,474,682			590,928
Net decrease in cash, cash equivalents and restricted cash	(80,442		)	(800,788		)
Cash, cash equivalents and restricted cash at beginning of period	1,636,175			1,972,510



Cash, cash equivalents and restricted cash at end of period	$	1,555,733		$	1,171,722
Cash disbursements made for:
Interest	$	94,737		$	54,648
Income taxes paid	$	1,894		$	1,426
Income taxes refunded	$	(990	)	$	(32	)
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets
Cash and cash equivalents	$	1,435,649		$	1,077,576
Restricted cash	120,084			94,146
Total cash, cash equivalents and restricted cash	$	1,555,733		$	1,171,722

See accompanying notes to consolidated financial statements.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, unless otherwise noted)

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, consolidated financial statements of SLM Corporation (“Sallie Mae,” “SLM,” the “Company,” “we,” or “us”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements include the accounts of SLM Corporation and its majority-owned and controlled subsidiaries after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results for the year ending December 31, 2018 or for any other period. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”).

Consolidation

The consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries after eliminating the effects of intercompany accounts and transactions.

We consolidate any variable interest entity (“VIE”) where we have determined we are the primary beneficiary. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.

Recently Issued and Adopted Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” Whereas restricted cash balances have traditionally been excluded from the statement of cash flows, this ASU requires restricted cash and restricted cash equivalents to be included within the beginning and ending totals of cash, cash equivalents and restricted cash presented on the statement of cash flows for all periods presented. Restricted cash and restricted cash equivalent inflows and outflows with external parties are required to be classified within the operating, investing, and/or financing activity sections of the statement of cash flows, whereas transfers between cash and cash equivalents and restricted cash and restricted cash equivalents should no longer be presented on the statement of cash flows. ASU No. 2016-18 also requires (a) the nature of the restrictions to be disclosed to help provide information about the sources and uses of these balances during a reporting period and (b) a reconciliation of the cash, cash equivalents and restricted cash totals on the statement of cash flows to the related balance sheet line items when cash, cash equivalents, and restricted cash are presented in more than one line item on the balance sheet. The reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements and must be provided for each period that a balance sheet is presented. We adopted the new accounting pronouncement on January 1, 2018, and the adoption did not have a material impact to our statement of cash flows.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the tax law and tax rate changes under the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) enacted on December 22, 2017. Under the Tax Act, deferred taxes were adjusted to reflect the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate, which left the tax effects on items within accumulated other comprehensive income stranded at an

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



1.	Significant Accounting Policies (Continued)

inappropriate tax rate. This guidance is effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years, with early adoption permitted. We adopted this standard effective January 1, 2018 and recorded a $0.6 million reclass from accumulated other comprehensive income to retained earnings in the first quarter of 2018.

2. Loans Held for Investment

Loans held for investment consist of Private Education Loans, FFELP Loans and Personal Loans. We use “Private Education Loans” to mean education loans to students or their families that are not made, insured or guaranteed by any state or federal government. Private Education Loans do not include loans insured or guaranteed under the previously existing Federal Family Education Loan Program (“FFELP”). We use “Personal Loans” to mean those unsecured loans to individuals that may be used for non-educational purposes. We began to opportunistically acquire Personal Loans in the fourth quarter of 2016.

Our Private Education Loans are made largely to bridge the gap between the cost of higher education and the amount funded through financial aid, government loans and customers’ resources. Private Education Loans bear the full credit risk of the customer. We manage this risk through risk-performance underwriting strategies and qualified cosigners. Private Education Loans may be fixed rate or may carry a variable interest rate indexed to LIBOR. As of March 31, 2018 and December 31, 2017, 74 percent and 77 percent, respectively, of all of our Private Education Loans were indexed to LIBOR. We provide incentives for customers to include a cosigner on the loan, and the vast majority of loans in our portfolio are cosigned. We also encourage customers to make payments while in school.

FFELP Loans are insured as to their principal and accrued interest in the event of default, subject to a risk-sharing level based on the date of loan disbursement. These insurance obligations are supported by contractual rights against the United States. For loans disbursed on or after July 1, 2006, we receive 97 percent reimbursement on all qualifying claims. For loans disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement on all qualifying claims. For loans disbursed prior to October 1, 1993, we receive 100 percent reimbursement on all qualifying claims.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



2.	Loans Held for Investment (Continued)

Loans held for investment are summarized as follows:



	March 31,			December 31,
	2018			2017
Private Education Loans	$	18,794,012		$	17,432,167
Deferred origination costs and unamortized premium/(discount)	58,814			56,378
Allowance for loan losses	(252,103		)	(243,715		)
Total Private Education Loans, net	18,600,723			17,244,830

FFELP Loans	907,842			927,660
Deferred origination costs and unamortized premium/(discount)	2,566			2,631
Allowance for loan losses	(1,113		)	(1,132		)
Total FFELP Loans, net	909,295			929,159

Personal Loans	675,656			400,280
Deferred origination costs and unamortized premium/(discount)	(163		)	—
Allowance for loan losses	(18,907		)	(6,628		)
Total Personal Loans, net	656,586			393,652

Loans held for investment, net	$	20,166,604		$	18,567,641

The estimated weighted average life of education loans in our portfolio was approximately 5.4 years and 5.5 years at March 31, 2018 and December 31, 2017, respectively.

The average balance and the respective weighted average interest rates of loans in our portfolio are summarized as follows:



	Three Months Ended
	March 31,
	2018				2017
	Average Balance		Weighted Average Interest Rate		Average Balance		Weighted Average Interest Rate
Private Education Loans	$	18,659,717	8.84	%	$	15,449,555	8.26	%
FFELP Loans	919,717		4.25		1,003,128		3.69
Personal Loans	528,644		10.64		35,830		9.16
Total portfolio	$	20,108,078			$	16,488,513

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

3. Allowance for Loan Losses

Our provision for credit losses represents the periodic expense of maintaining an allowance sufficient to absorb incurred probable losses in the held-for-investment loan portfolios. The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates that may be susceptible to significant changes. We believe the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios.

Allowance for Loan Losses Metrics



	Allowance for Loan Losses
	Three Months Ended March 31, 2018
	FFELP Loans			Private Education Loans			Personal Loans			Total
Allowance for Loan Losses
Beginning balance	$	1,132		$	243,715		$	6,628		$	251,475
Total provision	231			41,870			13,448			55,549
Net charge-offs:
Charge-offs	(250		)	(37,353		)	(1,200		)	(38,803		)
Recoveries	—			5,087			31			5,118
Net charge-offs	(250		)	(32,266		)	(1,169		)	(33,685		)
Loan sales⁽¹⁾	—			(1,216		)	—			(1,216		)
Ending Balance	$	1,113		$	252,103		$	18,907		$	272,123
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	101,824		$	—		$	101,824
Ending balance: collectively evaluated for impairment	$	1,113		$	150,279		$	18,907		$	170,299
Loans:
Ending balance: individually evaluated for impairment	$	—		$	1,043,103		$	—		$	1,043,103
Ending balance: collectively evaluated for impairment	$	907,842		$	17,750,909		$	675,656		$	19,334,407
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.14		%	1.01		%	0.88		%
Allowance as a percentage of the ending total loan balance	0.12		%	1.34		%	2.80		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.16		%	1.95		%	2.80		%
Allowance coverage of net charge-offs (annualized)	1.11			1.95			4.04
Ending total loans, gross	$	907,842		$	18,794,012		$	675,656
Average loans in repayment⁽²⁾	$	718,311		$	12,747,929		$	531,889
Ending loans in repayment⁽²⁾	$	702,965		$	12,958,742		$	675,656

____________

⁽¹⁾ Represents fair value adjustments on loans sold.

⁽²⁾ Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



3.	Allowance for Loan Losses (Continued)



	Allowance for Loan Losses
	Three Months Ended March 31, 2017
	FFELP Loans			Private Education Loans			Personal Loans			Total
Allowance for Loan Losses
Beginning balance	$	2,171		$	182,472		$	58		$	184,701
Total provision	(316		)	26,820			288			26,792
Net charge-offs:
Charge-offs	(218		)	(26,227		)	—			(26,445		)
Recoveries	—			3,259			—			3,259
Net charge-offs	(218		)	(22,968		)	—			(23,186		)
Loan sales⁽¹⁾	—			(1,221		)	—			(1,221		)
Ending Balance	$	1,637		$	185,103		$	346		$	187,086
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	87,150		$	—		$	87,150
Ending balance: collectively evaluated for impairment	$	1,637		$	97,953		$	346		$	99,936
Loans:
Ending balance: individually evaluated for impairment	$	—		$	701,860		$	—		$	701,860
Ending balance: collectively evaluated for impairment	$	989,393		$	14,952,994		$	55,502		$	15,997,889
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.11		%	0.89		%	—		%
Allowance as a percentage of the ending total loan balance	0.17		%	1.18		%	0.62		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.22		%	1.76		%	0.62		%
Allowance coverage of net charge-offs (annualized)	1.88			2.01			—
Ending total loans, gross	$	989,393		$	15,654,854		$	55,502
Average loans in repayment⁽²⁾	$	771,435		$	10,265,530		$	35,830
Ending loans in repayment⁽²⁾	$	757,052		$	10,526,782		$	55,502

____________

⁽¹⁾ Represents fair value adjustments on loans sold.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



3.	Allowance for Loan Losses (Continued)

Troubled Debt Restructurings (“TDRs”)

All of our loans are collectively assessed for impairment, except for loans classified as TDRs (where we conduct individual assessments of impairment). We modify the terms of loans for certain borrowers when we believe such modifications may increase the ability and willingness of a borrower to make payments and thus increase the ultimate overall amount collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. The majority of our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan. Once a loan qualifies for TDR status, it remains a TDR for allowance purposes for the remainder of its life. As of March 31, 2018 and December 31, 2017, approximately 62 percent and 66 percent, respectively, of TDRs were classified as such due to their forbearance status. For additional information, see Note 6, “Allowance for Loan Losses” in our 2017 Form 10-K.

Within the Private Education Loan portfolio, loans greater than 90 days past due are considered to be nonperforming. FFELP Loans are at least 97 percent guaranteed as to their principal and accrued interest by the federal government in the event of default and, therefore, we do not deem FFELP Loans as nonperforming from a credit risk perspective at any point in their life cycle prior to claim payment, and continue to accrue interest on those loans through the date of claim.

At March 31, 2018 and December 31, 2017, all TDR loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our TDR loans.



	Recorded Investment		Unpaid Principal Balance		Allowance

March 31, 2018
TDR Loans	$	1,061,046	$	1,043,103	$	101,824

December 31, 2017
TDR Loans	$	1,007,141	$	990,351	$	94,682

The following table provides the average recorded investment and interest income recognized for our TDR loans.



	Three Months Ended March 31,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

TDR Loans	$	1,032,232	$	17,847	$	669,606	$	12,257

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



3.	Allowance for Loan Losses (Continued)

The following table provides information regarding the loan status and aging of TDR loans.



	March 31,				December 31,
	2018				2017
	Balance		%		Balance		%
TDR loans in in-school/grace/deferment⁽¹⁾	$	58,939			$	51,745
TDR loans in forbearance⁽²⁾	65,036				69,652
TDR loans in repayment⁽³⁾ and percentage of each status:
Loans current	823,813		89.7	%	774,222		89.1	%
Loans delinquent 31-60 days⁽⁴⁾	47,127		5.1		48,377		5.6
Loans delinquent 61-90 days⁽⁴⁾	31,463		3.4		28,778		3.3
Loans delinquent greater than 90 days⁽⁴⁾	16,725		1.8		17,577		2.0
Total TDR loans in repayment	919,128		100.0	%	868,954		100.0	%
Total TDR loans, gross	$	1,043,103			$	990,351

_____


⁽¹⁾	Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on the loans (e.g., residency periods for medical students or a grace period for bar exam preparation).


⁽²⁾	Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.


⁽³⁾	Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.


⁽⁴⁾	The period of delinquency is based on the number of days scheduled payments are contractually past due.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



3.	Allowance for Loan Losses (Continued)

The following table provides the amount of modified loans (which include forbearance and reductions in interest rates) that became TDRs in the periods presented. Additionally, for the periods presented, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the relevant period presented and within 12 months of the loan first being designated as a TDR. We define payment default as more than 60 days past due for this disclosure.



	Three Months Ended March 31, 2018						Three Months Ended March 31, 2017
	Modified Loans⁽¹⁾		Charge-offs		Payment- Default		Modified Loans⁽¹⁾		Charge-offs		Payment- Default

TDR Loans	$	84,174	$	15,460	$	29,757	$	112,206	$	10,523	$	25,526

_____


⁽¹⁾	Represents the principal balance of loans that have been modified during the period and resulted in a TDR.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



3.	Allowance for Loan Losses (Continued)

Private Education Loan Key Credit Quality Indicators

FFELP Loans are at least 97 percent insured and guaranteed as to their principal and accrued interest in the event of default; therefore, there are no key credit quality indicators associated with FFELP Loans.

For Private Education Loans, the key credit quality indicators are FICO scores, the existence of a cosigner, the loan status and loan seasoning. The FICO scores are assessed at original approval and periodically refreshed/updated through the loan’s term. The following table highlights the gross principal balance of our Private Education Loan portfolio stratified by key credit quality indicators.



	Private Education Loans
	Credit Quality Indicators
	March 31, 2018				December 31, 2017
Credit Quality Indicators:	Balance⁽¹⁾		% of Balance		Balance⁽¹⁾		% of Balance

Cosigners:
With cosigner	$	16,889,477	90	%	$	15,658,539	90	%
Without cosigner	1,904,535		10		1,773,628		10
Total	$	18,794,012	100	%	$	17,432,167	100	%

FICO at Original Approval⁽²⁾:
Less than 670	$	1,257,596	6	%	$	1,153,591	6	%
670-699	2,810,526		15		2,596,959		15
700-749	6,168,342		33		5,714,554		33
Greater than or equal to 750	8,557,548		46		7,967,063		46
Total	$	18,794,012	100	%	$	17,432,167	100	%

Seasoning⁽³⁾:
1-12 payments	$	4,754,416	25	%	$	4,256,592	24	%
13-24 payments	3,256,637		17		3,229,465		19
25-36 payments	2,492,490		13		2,429,238		14
37-48 payments	1,583,375		9		1,502,327		9
More than 48 payments	1,337,110		7		1,256,813		7
Not yet in repayment	5,369,984		29		4,757,732		27
Total	$	18,794,012	100	%	$	17,432,167	100	%


⁽¹⁾	Balance represents gross Private Education Loans.


⁽²⁾	Represents the higher credit score of the cosigner or the borrower.


⁽³⁾	Number of months in active repayment (whether interest only payment, fixed payment, or full principal and interest payment status) for which a scheduled payment was due.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



3.	Allowance for Loan Losses (Continued)

The following table provides information regarding the loan status of our Private Education Loans. Loans in repayment include loans making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.



	Private Education Loans
	March 31,					December 31,
	2018					2017
	Balance			%		Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	5,369,984				$	4,757,732
Loans in forbearance⁽²⁾	465,286					468,402
Loans in repayment and percentage of each status:
Loans current	12,635,627			97.5	%	11,911,128			97.6	%
Loans delinquent 31-60 days⁽³⁾	179,989			1.4		179,002			1.5
Loans delinquent 61-90 days⁽³⁾	95,974			0.7		78,292			0.6
Loans delinquent greater than 90 days⁽³⁾	47,152			0.4		37,611			0.3
Total Private Education Loans in repayment	12,958,742			100.0	%	12,206,033			100.0	%
Total Private Education Loans, gross	18,794,012					17,432,167
Private Education Loans deferred origination costs and unamortized premium/(discount)	58,814					56,378
Total Private Education Loans	18,852,826					17,488,545
Private Education Loans allowance for losses	(252,103		)			(243,715		)
Private Education Loans, net	$	18,600,723				$	17,244,830
Percentage of Private Education Loans in repayment				69.0	%				70.0	%
Delinquencies as a percentage of Private Education Loans in repayment				2.5	%				2.4	%
Loans in forbearance as a percentage of Private Education Loans in repayment and forbearance				3.5	%				3.7	%


⁽¹⁾	Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on the loans (e.g., residency periods for medical students or a grace period for bar exam preparation).


⁽²⁾	Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.


⁽³⁾	The period of delinquency is based on the number of days scheduled payments are contractually past due.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



3.	Allowance for Loan Losses (Continued)

Personal Loan Key Credit Quality Indicators

For Personal Loans, the key credit quality indicators are FICO scores and loan seasoning. The FICO scores are assessed at original approval and periodically refreshed/updated through the loan’s term. The following table highlights the gross principal balance of our Personal Loan portfolio stratified by key credit quality indicators.



	Personal Loans
	Credit Quality Indicators
	March 31, 2018				December 31, 2017
Credit Quality Indicators:	Balance⁽¹⁾		% of Balance		Balance⁽¹⁾		% of Balance

FICO at Original Approval:
Less than 670	$	52,417	8	%	$	32,156	8	%
670-699	193,246		29		114,731		29
700-749	307,539		45		182,025		45
Greater than or equal to 750	122,454		18		71,368		18
Total	$	675,656	100	%	$	400,280	100	%

Seasoning⁽²⁾:
0-12 payments	$	649,996	96	%	$	400,280	100	%
13-24 payments	25,660		4		—		—
25-36 payments	—		—		—		—
37-48 payments	—		—		—		—
More than 48 payments	—		—		—		—
Total	$	675,656	100	%	$	400,280	100	%


⁽¹⁾	Balance represents gross Personal Loans.


⁽²⁾	Number of months in active repayment for which a scheduled payment was due.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



3.	Allowance for Loan Losses (Continued)

Accrued Interest Receivable

The following table provides information regarding accrued interest receivable on our Private Education Loans. The table also discloses the amount of accrued interest on loans greater than 90 days past due as compared to our allowance for uncollectible interest. The allowance for uncollectible interest exceeds the amount of accrued interest on our 90 days past due Private Education Loan portfolio for all periods presented.



	Private Education Loans
	Accrued Interest Receivable
	Total Interest Receivable		Greater Than 90 Days Past Due		Allowance for Uncollectible Interest

March 31, 2018	$	1,045,577	$	1,783	$	4,694
December 31, 2017	$	951,138	$	1,372	$	4,664

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

4. Deposits

The following table summarizes total deposits at March 31, 2018 and December 31, 2017.



	March 31,		December 31,
	2018		2017
Deposits - interest bearing	$	16,497,006	$	15,504,330
Deposits - non-interest bearing	1,640		1,053
Total deposits	$	16,498,646	$	15,505,383

Our total deposits of $16.5 billion were comprised of $8.6 billion in brokered deposits and $7.9 billion in retail and other deposits at March 31, 2018, compared to total deposits of $15.5 billion, which were comprised of $8.2 billion in brokered deposits and $7.3 billion in retail and other deposits, at December 31, 2017.

Interest bearing deposits as of March 31, 2018 and December 31, 2017 consisted of retail and brokered non-maturity savings deposits, retail and brokered non-maturity money market deposits (“MMDAs”) and retail and brokered certificates of deposit (“CDs”). Interest bearing deposits include deposits from Educational 529 and Health Savings plans that diversify our funding sources and additional deposits we consider to be core. These and other large omnibus accounts, aggregating the deposits of many individual depositors, represented $5.8 billion of our deposit total as of March 31, 2018, compared with $5.5 billion at December 31, 2017.

Some of our deposit products are serviced by third-party providers. Placement fees associated with the brokered CDs are amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $2.8 million and $2.1 million in the three months ended March 31, 2018 and 2017, respectively. Fees paid to third-party brokers related to brokered CDs were $7.1 million and $2.1 million for the three months ended March 31, 2018 and 2017, respectively.

Interest bearing deposits at March 31, 2018 and December 31, 2017 are summarized as follows:



	March 31, 2018				December 31, 2017
	Amount		Qtr.-End Weighted Average Stated Rate⁽¹⁾		Amount		Year-End Weighted Average Stated Rate⁽¹⁾

Money market	$	8,107,996	2.01	%	$	7,731,966	1.80	%
Savings	681,024		1.40		738,243		1.10
Certificates of deposit	7,707,986		2.13		7,034,121		1.93
Deposits - interest bearing	$	16,497,006			$	15,504,330

____________

⁽¹⁾ Includes the effect of interest rate swaps in effective hedge relationships.

As of March 31, 2018 and December 31, 2017, there were $404.5 million and $395.5 million, respectively, of deposits exceeding Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Accrued interest on deposits was $36.8 million and $27.8 million at March 31, 2018 and December 31, 2017, respectively.