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EX-32.2 - EXHIBIT 32.2 - SLM Corpslm20150930ex322.htm
EX-32.1 - EXHIBIT 32.1 - SLM Corpslm20150930ex321.htm
EX-31.2 - EXHIBIT 31.2 - SLM Corpslm20150930ex312.htm
EX-31.1 - EXHIBIT 31.1 - SLM Corpslm20150930ex311.htm
EX-12.1 - EXHIBIT 12.1 - SLM Corpslm20150930ex121.htm



 
 
 
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 September 30, 2015
or
¨
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
  þ
 
Accelerated filer
  ¨ 
 
 
 
 
 
Non-accelerated filer
  ¨ 
(Do not check if a smaller reporting company)
Smaller reporting company
  ¨ 
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 September 30, 2015
Common Stock, $0.20 par value
426,108,435 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
 
40

Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
65

Item 4.
Controls and Procedures
 
68

PART II. Other Information
 
 
Item 1.
Legal Proceedings
 
69

Item 1A.
Risk Factors
 
70

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




1



SLM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
 
September 30,
 
December 31,
 
 
2015
 
2014
Assets
 
 
 
 
Cash and cash equivalents
 
$
1,281,797

 
$
2,359,780

Available-for-sale investments at fair value (cost of $190,249 and $167,740, respectively)
 
190,944

 
168,934

Loans held for investment (net of allowance for losses of $104,203 and $83,842, respectively)
 
11,909,148

 
9,509,786

Restricted cash and investments
 
25,605

 
4,804

Other interest-earning assets
 
47,604

 
72,479

Accrued interest receivable
 
634,423

 
469,697

Premises and equipment, net
 
80,224

 
78,470

Acquired intangible assets, net
 
2,115

 
3,225

Tax indemnification receivable
 
200,704

 
240,311

Other assets
 
77,980

 
64,757

Total assets
 
$
14,450,544

 
$
12,972,243

 
 
 
 
 
Liabilities
 
 
 
 
Deposits
 
$
10,610,879

 
$
10,540,555

Short-term borrowings
 
710,005

 

Long-term borrowings
 
593,687

 

Income taxes payable, net
 
117,531

 
191,499

Upromise related liabilities
 
283,688

 
293,004

Other liabilities
 
137,420

 
117,227

Total liabilities
 
12,453,210

 
11,142,285

 
 
 
 
 
Commitments and contingencies
 

 

 
 
 
 
 
Equity
 
 
 
 
Preferred stock, par value $0.20 per share, 20 million shares authorized
 
 
 
 
Series A: 3.3 million and 3.3 million shares issued, respectively, at stated value of $50 per share
 
165,000

 
165,000

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: 430 million and 425 million shares issued, respectively
 
86,075

 
84,961

Additional paid-in capital
 
1,128,494

 
1,090,511

Accumulated other comprehensive loss (net of tax benefit of $14,847 and $7,186, respectively)
 
(23,515
)
 
(11,393
)
Retained earnings
 
281,761

 
113,066

Total SLM Corporation stockholders' equity before treasury stock
 
2,037,815

 
1,842,145

Less: Common stock held in treasury at cost: 4 million and 1 million shares, respectively
 
(40,481
)
 
(12,187
)
Total equity
 
1,997,334

 
1,829,958

Total liabilities and equity
 
$
14,450,544

 
$
12,972,243


See accompanying notes to consolidated financial statements.

2



SLM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
205,274

 
$
164,106

 
$
598,417

 
$
486,379

Investments
 
2,640

 
2,917

 
7,746

 
6,121

Cash and cash equivalents
 
987

 
1,180

 
2,568

 
3,145

Total interest income
 
208,901

 
168,203

 
608,731

 
495,645

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
29,110

 
24,177

 
86,961

 
67,842

Interest expense on short-term borrowings
 
1,951

 

 
4,719

 

Interest expense on long-term borrowings
 
2,398

 

 
2,398

 

Total interest expense
 
33,459

 
24,177

 
94,078

 
67,842

Net interest income
 
175,442

 
144,026

 
514,653

 
427,803

Less: provisions for loan losses
 
27,497

 
14,898

 
59,673

 
55,071

Net interest income after provisions for loan losses
 
147,945

 
129,128

 
454,980

 
372,732

Noninterest income:
 
 
 
 
 
 
 
 
Gains on sales of loans, net
 

 
85,147

 
76,874

 
120,963

(Losses) gains on derivatives and hedging activities, net
 
(547
)
 
5,401

 
4,347

 
(4,821
)
Other
 
10,455

 
5,461

 
29,374

 
28,826

Total noninterest income
 
9,908

 
96,009

 
110,595

 
144,968

Expenses:
 
 
 
 
 
 
 
 
Compensation and benefits
 
39,304

 
31,597

 
119,079

 
92,931

Other operating expenses
 
53,560

 
40,482

 
144,771

 
103,226

Total operating expenses
 
92,864

 
72,079

 
263,850

 
196,157

Acquired intangible asset amortization expense
 
370

 
1,150

 
1,110

 
4,145

Restructuring and other reorganization expenses
 
910

 
14,079

 
6,311

 
27,828

Total expenses
 
94,144

 
87,308

 
271,271

 
228,130

Income before income tax expense
 
63,709

 
137,829

 
294,304

 
289,570

Income tax expense
 
17,985

 
54,903

 
109,865

 
115,502

Net income
 
45,724

 
82,926

 
184,439

 
174,068

Less: net loss attributable to noncontrolling interest
 

 

 

 
(434
)
Net income attributable to SLM Corporation
 
45,724

 
82,926

 
184,439

 
174,502

Preferred stock dividends
 
4,913

 
4,850

 
14,606

 
8,078

Net income attributable to SLM Corporation common stock
 
$
40,811

 
$
78,076

 
$
169,833

 
$
166,424

 
 
 
 
 
 
 
 
 
Basic earnings per common share attributable to SLM Corporation
 
$
0.10

 
$
0.18

 
$
0.40

 
$
0.39

Average common shares outstanding
 
426,019

 
423,079

 
425,384

 
424,187

Diluted earnings per common share attributable to SLM Corporation
 
$
0.09

 
$
0.18

 
$
0.39

 
$
0.38

Average common and common equivalent shares outstanding
 
432,547

 
431,604

 
432,531

 
432,324



See accompanying notes to consolidated financial statements.

3



SLM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
45,724

 
$
82,926

 
$
184,439

 
$
174,068

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gains (losses) on investments
 
2,008

 
(525
)
 
(499
)
 
3,629

Unrealized losses on cash flow hedges
 
(21,751
)
 
(1,883
)
 
(19,284
)
 
(1,883
)
Total unrealized (losses) gains
 
(19,743
)
 
(2,408
)
 
(19,783
)
 
1,746

Income tax benefit (expense)
 
7,676

 
921

 
7,661

 
(574
)
Other comprehensive (loss) income, net of tax benefit (expense)
 
(12,067
)
 
(1,487
)
 
(12,122
)
 
1,172

Comprehensive income
 
33,657

 
81,439

 
172,317

 
175,240

Less: comprehensive loss attributable to noncontrolling interest
 

 

 

 
(434
)
Total comprehensive income attributable to SLM Corporation
 
$
33,657

 
$
81,439

 
$
172,317

 
$
175,674


















See accompanying notes to consolidated financial statements.

4



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
 
Navient's Subsidiary Investment
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total SLM Corporation Equity
 
Non-controlling interest
 
Total Equity
Balance at December 31, 2013
 

 

 

 

 
$

 
$

 
$

 
$
1,164,495

 
$
(3,024
)
 
$

 
$

 
$
1,161,471

 
$
4,672

 
$
1,166,143

Net income (loss)
 

 

 

 

 

 

 

 
68,173

 

 
106,329

 

 
174,502

 
(434
)
 
174,068

Other comprehensive income, net of tax
 

 

 

 

 

 

 

 

 
1,172

 

 

 
1,172

 

 
1,172

Total comprehensive income (loss)
 

 

 

 

 

 

 

 

 

 

 

 
175,674

 
(434
)
 
175,240

Net transfers from affiliate
 

 

 

 

 

 

 

 
479,409

 

 

 

 
479,409

 

 
479,409

Separation adjustments related to Spin-Off of Navient Corporation
 
7,300,000

 
422,790,320

 

 
422,790,320

 
565,000

 
84,558

 
1,062,519

 
(1,712,077
)
 

 

 

 

 

 

Sale of non-controlling interest
 

 

 

 

 

 

 

 

 

 

 

 

 
(4,238
)
 
(4,238
)
Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock, series A ($.87 per share)
 

 

 

 

 

 

 

 

 

 
(4,792
)
 

 
(4,792
)
 

 
(4,792
)
Preferred Stock, series B ($.49 per share)
 

 

 

 

 

 

 

 

 

 
(3,286
)
 

 
(3,286
)
 

 
(3,286
)
Dividend equivalent units related to employee stock-based compensation plans
 

 

 

 

 

 

 
41

 

 

 
(41
)
 
 
 

 

 

Issuance of common shares
 

 
1,089,716

 

 
1,089,716

 

 
219

 
4,391

 

 

 

 

 
4,610

 

 
4,610

Stock-based compensation expense
 

 

 

 

 

 

 
11,550

 

 

 

 

 
11,550

 

 
11,550

Shares repurchased related to employee stock-based compensation plans
 

 

 
(715,393
)
 
(715,393
)
 

 

 

 

 

 

 
(6,208
)
 
(6,208
)
 

 
(6,208
)
Balance at September 30, 2014
 
7,300,000

 
423,880,036

 
(715,393
)
 
423,164,643

 
$
565,000

 
$
84,777

 
$
1,078,501

 
$

 
$
(1,852
)
 
$
98,210

 
$
(6,208
)
 
$
1,818,428

 
$

 
$
1,818,428

See accompanying notes to consolidated financial statements.

5




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 (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total SLM Corporation Equity
Balance at December 31, 2014
 
7,300,000

 
424,804,125

 
(1,365,277
)
 
423,438,848

 
$
565,000

 
$
84,961

 
$
1,090,511

 
$
(11,393
)
 
$
113,066

 
$
(12,187
)
 
$
1,829,958

Net income
 

 

 

 

 

 

 

 

 
184,439

 

 
184,439

Other comprehensive loss, net of tax
 

 

 

 

 

 

 

 
(12,122
)
 

 

 
(12,122
)
Total comprehensive income
 

 

 

 

 

 

 

 

 

 

 
172,317

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock, series A ($.87 per share)
 

 

 

 

 

 

 

 

 
(8,625
)
 

 
(8,625
)
Preferred Stock, series B ($.51 per share)
 

 

 

 

 

 

 

 

 
(5,981
)
 

 
(5,981
)
Dividend equivalent units related to employee stock-based compensation plans
 

 

 

 

 

 

 
1,138

 

 
(1,138
)
 

 

Issuance of common shares
 

 
5,569,853

 

 
5,569,853

 

 
1,114

 
14,329

 

 

 

 
15,443

Tax benefit related to employee stock-based compensation
 

 

 

 

 

 

 
6,093

 

 

 

 
6,093

Stock-based compensation expense
 

 

 

 

 

 

 
16,423

 

 

 

 
16,423

Shares repurchased related to employee stock-based compensation plans
 

 

 
(2,900,266
)
 
(2,900,266
)
 

 

 

 

 

 
(28,294
)
 
(28,294
)
Balance at September 30, 2015
 
7,300,000

 
430,373,978

 
(4,265,543
)
 
426,108,435

 
$
565,000

 
$
86,075

 
$
1,128,494

 
$
(23,515
)
 
$
281,761

 
$
(40,481
)
 
$
1,997,334
















See accompanying notes to consolidated financial statements.

6



SLM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


 
 
Nine Months Ended
 
 
September
 
 
2015
 
2014
Operating activities
 
 
 
 
Net income
 
$
184,439

 
$
174,068

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
Provisions for loan losses
 
59,673

 
55,071

Income tax expense
 
109,865

 
115,502

Amortization of brokered deposit placement fee
 
8,006

 
7,548

Amortization of asset-backed commercial paper upfront fee
 
1,790

 

Amortization of deferred loan origination costs and fees, net
 
2,563

 
1,446

Net accretion of discount on borrowings
 
108

 

Net accretion of underwriter fees on borrowings
 
108

 

Net amortization of discount on investments
 
1,332

 
433

Depreciation of premises and equipment
 
5,427

 
4,289

Amortization of acquired intangibles
 
1,110

 
2,783

Stock-based compensation expense
 
16,423

 
20,127

Unrealized (gains)/losses on derivative and hedging activities, net
 
(1,985
)
 
1,307

Gains on sale of loans, net
 
(76,874
)
 
(120,963
)
Changes in operating assets and liabilities:
 
 
 
 
Net decrease in loans held for sale
 
55

 
6,448

Origination of loans held for sale
 
(55
)
 
(6,448
)
Increase in accrued interest receivable
 
(316,263
)
 
(220,273
)
Increase in restricted cash and investments - other
 
(2,596
)
 
(1,503
)
Decrease (increase) in other interest-earning assets
 
24,875

 
(46,333
)
Decrease in tax indemnification receivable
 
39,607

 
29,816

Increase in other assets
 
(18,022
)
 
(18,918
)
Decrease in income tax payable, net
 
(176,172
)
 
(294,116
)
Increase in accrued interest payable
 
7,227

 
2,639

(Decrease) increase in payable due to entity that is a subsidiary of Navient
 
(5,368
)
 
18,114

Increase in other liabilities
 
5,895

 
30,741

Total adjustments
 
(313,271
)
 
(412,290
)
Total net cash used in operating activities
 
(128,832
)
 
(238,222
)
Investing activities
 
 
 
 
Loans acquired and originated
 
(3,786,946
)
 
(3,535,740
)
Net proceeds from sales of loans held for investment
 
790,094

 
1,994,017

Proceeds from claim payments
 
91,000

 
88,251

Net decrease (increase) in loans held for investment
 
672,665

 
476,955

Increase in restricted cash and investments - variable interest entities
 
(18,205
)
 

Purchases of available-for-sale securities
 
(50,062
)
 
(55,928
)
Proceeds from sales and maturities of available-for-sale securities
 
26,222

 
7,337

Total net cash used in investing activities
 
(2,275,232
)
 
(1,025,108
)
Financing activities
 
 
 
 
Brokered deposit placement fee
 
(477
)
 
(5,533
)
Net increase (decrease) in certificates of deposit
 
161,096

 
(614,953
)
Net (decrease) increase in other deposits
 
(129,412
)
 
804,874

Borrowings collateralized by loans in securitization trusts - issued
 
620,681

 

Borrowings collateralized by loans in securitization trusts - repaid
 
(27,195
)
 

Borrowings under ABCP facility
 
713,746

 


7



Repayment of borrowings under ABCP facility
 
(3,741
)
 

Fees paid on ABCP facility
 
(104
)
 

Net decrease in deposits with entity that is a subsidiary of Navient
 

 
(5,633
)
Special cash contribution from Navient
 

 
472,718

Net capital contributions from entity that is a subsidiary of Navient
 

 
7,448

Excess tax benefit from the exercise of stock-based awards
 
6,093

 

Preferred stock dividends paid
 
(14,606
)
 
(8,078
)
Net cash provided by financing activities
 
1,326,081

 
650,843

Net decrease in cash and cash equivalents
 
(1,077,983
)
 
(612,487
)
Cash and cash equivalents at beginning of period
 
2,359,780

 
2,182,865

Cash and cash equivalents at end of period
 
$
1,281,797

 
$
1,570,378

Cash disbursements made for:
 
 
 
 
Interest
 
$
79,917

 
$
64,987

Income taxes paid
 
$
171,114

 
$
294,116

See accompanying notes to consolidated financial statements.

8




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 (“we,” “us,” “our,” “Sallie Mae,” or the “Company”) 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 and nine months ended September 30, 2015 are not necessarily indicative of the results for the year ending December 31, 2015 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, 2014 (the “2014 Form 10-K”).
On April 30, 2014, we completed our plan to legally separate into two distinct publicly traded entities - an education loan management, servicing and asset recovery business, Navient Corporation (“Navient”), and a consumer banking business, SLM Corporation. The separation of Navient from SLM Corporation (the “Spin-Off”) was preceded by an internal corporate reorganization, which was the first step to separate the education loan management, servicing and asset recovery business from the consumer banking business.
For periods before the Spin-Off, the financial statements are presented on a basis of accounting that reflects a change in reporting entity and have been adjusted for the effects of the Spin-Off. These carved-out financial statements and selected financial information represent only those operations, assets, liabilities and equity that form Sallie Mae on a stand-alone basis. Because the Spin-Off occurred on April 30, 2014, the balances before that date include the carved-out financial results.
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.
Restricted Cash and Investments
Restricted cash and investments primarily includes amounts held in student loan securitization trusts and other secured borrowings. This cash must be used to make payments related to trust obligations. Amounts on deposit in these accounts are primarily the result of timing differences between when principal and interest is collected on the trust assets and when principal and interest is paid on trust liabilities.
Recently Issued Accounting Pronouncements
On February 18, 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which amends the current consolidation guidance. The amendments reduce the number of consolidation models through the elimination of the indefinite deferral of ASC 810 and place more emphasis on risk of loss when determining a controlling financial interest.  The standard is effective January 1, 2016, with early adoption permitted during an interim period in fiscal year 2015. In the third quarter of 2015, we elected to early adopt the new accounting guidance retrospectively to July 1, 2015. The early adoption of this standard had no impact on our consolidated financial statements.



9




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)

2. Loans Held for Investment
Loans Held for Investment consist of Private Education Loans and FFELP Loans.
“Private Education Loans” are education loans to students or their families that are not issued, insured, or guaranteed by any state or federal government. 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, or customers’ resources. Private Education Loans bear the full credit risk of the borrower and any cosigners. We manage this risk through risk-performance underwriting strategies and the addition of qualified cosigners. Our Private Education Loans generally carry a variable interest rate indexed to LIBOR. As of September 30, 2015, 82 percent of all Private Education Loans were indexed to LIBOR. We provide incentives for customers to include a cosigner on our Private Education Loans, and the vast majority of Private Education Loans in our portfolio are cosigned. We also encourage our Private Education Loan customers to make payments while in school.
FFELP Loans are insured by the federal government 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.
Loans held for investment are summarized as follows:
 
 
September 30,
 
December 31,
 
 
2015
 
2014
Private Education Loans
 
$
10,840,261

 
$
8,311,376

Deferred origination costs
 
26,283

 
13,845

Allowance for loan losses
 
(100,033
)
 
(78,574
)
Total Private Education Loans, net
 
10,766,511

 
8,246,647

 
 
 
 
 
FFELP Loans
 
1,143,595

 
1,264,807

Unamortized acquisition costs, net
 
3,212

 
3,600

Allowance for loan losses
 
(4,170
)
 
(5,268
)
Total FFELP Loans, net
 
1,142,637

 
1,263,139

 
 
 
 
 
Loans held for investment, net
 
$
11,909,148

 
$
9,509,786


 
The estimated weighted average life of education loans in our portfolio was approximately 6.3 years and 6.2 years at September 30, 2015 and December 31, 2014, respectively.

10




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Loans Held for Investment (Continued)
 


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


 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
Private Education Loans
 
$
9,869,025

 
7.87
%
 
$
7,407,774

 
8.20
%
 
$
9,563,290

 
7.96
%
 
$
7,394,985

 
8.19
%
FFELP Loans
 
1,161,288

 
3.27

 
1,339,748

 
3.23

 
1,196,491

 
3.22

 
1,373,945

 
3.25

Total portfolio
 
$
11,030,313

 
 
 
$
8,747,522

 
 
 
$
10,759,781

 
 
 
$
8,768,930

 
 



11




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)

3. Allowance for Loan Losses
Our provision for loan 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 September 30, 2015
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
4,556

 
$
87,310

 
$
91,866

Total provision
 
143

 
27,354

 
27,497

Net charge-offs:
 
 
 
 
 
 
Charge-offs
 
(529
)
 
(14,121
)
 
(14,650
)
Recoveries
 

 
1,361

 
1,361

Net charge-offs
 
(529
)
 
(12,760
)
 
(13,289
)
Loan sales(1)
 

 
(1,871
)
 
(1,871
)
Ending Balance
 
$
4,170

 
$
100,033

 
$
104,203

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
43,001

 
$
43,001

Ending balance: collectively evaluated for impairment
 
$
4,170

 
$
57,032

 
$
61,202

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
231,286

 
$
231,286

Ending balance: collectively evaluated for impairment
 
$
1,143,595

 
$
10,608,975

 
$
11,752,570

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.25
%
 
0.83
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.36
%
 
0.92
%
 
 
Allowance as a percentage of the ending loans in repayment(2)
 
0.50
%
 
1.50
%
 
 
Allowance coverage of net charge-offs (annualized)
 
1.97

 
1.96

 
 
Ending total loans, gross
 
$
1,143,595

 
$
10,840,261

 
 
Average loans in repayment(2)
 
$
839,090

 
$
6,118,678

 
 
Ending loans in repayment(2)
 
$
836,585

 
$
6,657,228

 
 

____________
(1) Represents fair value write-downs on loans sold.
(2) Loans in repayment include loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.

12




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 September 30, 2014
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
6,212

 
$
54,315

 
$
60,527

Total provision
 
291

 
14,607

 
14,898

Net charge-offs:
 
 
 
 
 
 
Charge-offs
 
(761
)
 
(4,378
)
 
(5,139
)
Recoveries
 

 

 

Net charge-offs
 
(761
)
 
(4,378
)
 
(5,139
)
Loan sales(1)
 

 
(4,571
)
 
(4,571
)
Ending Balance
 
$
5,742

 
$
59,973

 
$
65,715

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
2,966

 
$
2,966

Ending balance: collectively evaluated for impairment
 
$
5,742

 
$
57,007

 
$
62,749

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
13,115

 
$
13,115

Ending balance: collectively evaluated for impairment
 
$
1,317,963

 
$
7,816,305

 
$
9,134,268

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.32
%
 
0.39
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.44
%
 
0.77
%
 
 
Allowance as a percentage of the ending loans in repayment(2)
 
0.61
%
 
1.31
%
 
 
Allowance coverage of net charge-offs (annualized)
 
1.89

 
3.42

 
 
Ending total loans, gross
 
$
1,317,963

 
$
7,829,420

 
 
Average loans in repayment(2)
 
$
953,620

 
$
4,453,775

 
 
Ending loans in repayment(2)
 
$
945,230

 
$
4,575,143

 
 
____________
    
(1) Represents fair value write-downs on loans sold.
(2) Loans in repayment include loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.




13




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
3.
Allowance for Loan Losses (Continued)
 

 
 
Allowance for Loan Losses
 
 
Nine Months Ended September 30, 2015
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
5,268

 
$
78,574

 
$
83,842

Total provision
 
1,044

 
58,629

 
59,673

Net charge-offs:
 
 
 
 
 
 
Charge-offs
 
(2,142
)
 
(36,127
)
 
(38,269
)
Recoveries
 

 
4,529

 
4,529

Net charge-offs
 
(2,142
)
 
(31,598
)
 
(33,740
)
Loan sales(1)
 

 
(5,572
)
 
(5,572
)
Ending Balance
 
$
4,170

 
$
100,033

 
$
104,203

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
43,001

 
$
43,001

Ending balance: collectively evaluated for impairment
 
$
4,170

 
$
57,032

 
$
61,202

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
231,286

 
$
231,286

Ending balance: collectively evaluated for impairment
 
$
1,143,595

 
$
10,608,975

 
$
11,752,570

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.33
%
 
0.72
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.36
%
 
0.92
%
 
 
Allowance as a percentage of the ending loans in repayment(2)
 
0.50
%
 
1.50
%
 
 
Allowance coverage of net charge-offs (annualized)
 
1.46

 
2.37

 
 
Ending total loans, gross
 
$
1,143,595

 
$
10,840,261

 
 
Average loans in repayment(2)
 
$
868,649

 
$
5,848,345

 
 
Ending loans in repayment(2)
 
$
836,585

 
$
6,657,228

 
 
____________
(1) Represents fair value write-downs on loans sold.
(2) Loans in repayment include loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.

14




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
3.
Allowance for Loan Losses (Continued)
 

 
 
Allowance for Loan Losses
 
 
Nine Months Ended September 30, 2014
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
6,318

 
$
61,763

 
$
68,081

Total provision
 
1,482

 
53,589

 
55,071

Charge-offs
 
(2,058
)
 
(4,378
)
 
(6,436
)
Loan sales(1)
 

 
(51,001
)
 
(51,001
)
Ending Balance
 
$
5,742

 
$
59,973

 
$
65,715

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
2,966

 
$
2,966

Ending balance: collectively evaluated for impairment
 
$
5,742

 
$
57,007

 
$
62,749

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
13,115

 
$
13,115

Ending balance: collectively evaluated for impairment
 
$
1,317,963

 
$
7,816,305

 
$
9,134,268

Charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.28
%
 
0.13
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.44
%
 
0.77
%
 
 
Allowance as a percentage of the ending loans in repayment(2)
 
0.61
%
 
1.31
%
 
 
Allowance coverage of charge-offs (annualized)
 
2.09

 
10.27

 
 
Ending total loans, gross
 
$
1,317,963

 
$
7,829,420

 
 
Average loans in repayment(2)
 
$
980,733

 
$
4,408,852

 
 
Ending loans in repayment(3)
 
$
945,230

 
$
4,575,143

 
 
____________
    
(1) Represents fair value write-downs on loans sold.
(2) Loans in repayment include loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.


15




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. In the first nine months after a loan enters full principal and interest repayment, the loan may be in forbearance for up to six months without it being classified as a TDR. Once the initial nine-month period described above is over, however, any loan that receives more than three months of forbearance in a twenty-four month period is classified as a TDR. Also, a loan becomes a TDR when it is modified to reduce the interest rate on the loan (regardless of when such modification occurs and/or whether such interest rate reduction is temporary). 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. Approximately 22 percent and 10 percent of the loans granted forbearance as of September 30, 2015 and December 31, 2014, respectively, have been classified as TDRs due to their forbearance status.
Prior to the Spin-Off, we did not have TDR loans because the loans generally were sold to a now unrelated affiliate in the same month that the terms were restructured. Subsequent to May 1, 2014, we have individually assessed $251 million of Private Education Loans as TDRs. When these TDR loans are determined to be impaired, we provide for an allowance for losses sufficient to cover life-of-loan expected losses through an impairment calculation based on the difference between the loan's basis and the present value of expected future cash flows (which would include life-of-loan default and recovery assumptions) discounted at the loan's original effective interest rate.
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 we continue to accrue interest on those loans through the date of claim.
At September 30, 2015 and December 31, 2014, all our 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
 
 
 
 
 
 
 
September 30, 2015
 
 
 
 
 
 
TDR Loans
 
$
234,360

 
$
231,286

 
$
43,001

 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
TDR Loans
 
$
60,278

 
$
59,402

 
$
9,815


The following table provides the average recorded investment and interest income recognized for our TDR loans.
 
 
Three Months Ended
 
Three Months Ended
 
 
September 30, 2015
 
September 30, 2014
 
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
210,039

 
$
4,198

 
$
8,740

 
$
129



16




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
3.
Allowance for Loan Losses (Continued)
 

 
 
Nine Months Ended
 
Nine Months Ended
 
 
September 30, 2015
 
September 30, 2014
 
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
150,240

 
$
9,314

 
$
3,958

 
$
160

    


The following table provides information regarding the loan status of TDR loans and the aging of TDR loans that are past due.
 
 
September 30,
 
December 31,
 
 
2015
 
2014
 
 
Balance
 
%
 
Balance
 
%
TDR loans in in-school/grace/deferment(1)
 
$
4,940

 
 
 
$
2,915

 
 
TDR loans in forbearance(2)
 
50,878

 
 
 
18,620

 
 
TDR loans in repayment and percentage of each status:
 
 
 
 
 
 
 
 
Loans current
 
154,984

 
88.3
%
 
34,554

 
91.2
%
Loans delinquent 31-60 days(3)
 
11,042

 
6.3

 
1,953

 
5.2

Loans delinquent 61-90 days(3)
 
6,336

 
3.6

 
983

 
2.6

Loans delinquent greater than 90 days(3)
 
3,106

 
1.8

 
377

 
1.0

Total TDR loans in repayment
 
175,468

 
100.0
%
 
37,867

 
100.0
%
Total TDR loans, gross
 
$
231,286

 
 
 
$
59,402

 
 
_____
(1) 
Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to mak