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EX-32.2 - EXHIBIT 32.2 - SLM Corpslm20160331ex322.htm
EX-10.1 - EXHIBIT 10.1 - SLM Corpslm20160331ex101.htm
EX-12.1 - EXHIBIT 12.1 - SLM Corpslm20160331ex121.htm
EX-10.5 - EXHIBIT 10.5 - SLM Corpslm20160331ex105.htm
EX-10.2 - EXHIBIT 10.2 - SLM Corpslm20160331ex102.htm
EX-10.4 - EXHIBIT 10.4 - SLM Corpslm20160331ex104.htm
EX-10.3 - EXHIBIT 10.3 - SLM Corpslm20160331ex103.htm
EX-32.1 - EXHIBIT 32.1 - SLM Corpslm20160331ex321.htm
EX-31.1 - EXHIBIT 31.1 - SLM Corpslm20160331ex311.htm
EX-31.2 - EXHIBIT 31.2 - SLM Corpslm20160331ex312.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 March 31, 2016
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 March 31, 2016
Common Stock, $0.20 par value
427,915,514 shares
 
 







SLM CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS
INDEX
 

Part I. Financial Information
 
 

Item 1.
Financial Statements
 
2

Item 1.
Notes to the Financial Statements
 
9

Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
36

Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
60

Item 4.
Controls and Procedures
 
64

PART II. Other Information
 
 
Item 1.
Legal Proceedings
 
65

Item 1A.
Risk Factors
 
66

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
66

Item 3.
Defaults Upon Senior Securities
 
66

Item 4.
Mine Safety Disclosures
 
66

Item 5.
Other Information
 
66

Item 6.
Exhibits
 
67




1



SLM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
 
March 31,
 
December 31,
 
 
2016
 
2015
Assets
 
 
 
 
Cash and cash equivalents
 
$
938,480

 
$
2,416,219

Available-for-sale investments at fair value (cost of $201,585 and $196,402, respectively)
 
203,597

 
195,391

Loans held for investment (net of allowance for losses of $126,249 and $112,507, respectively)
 
13,108,425

 
11,630,591

Restricted cash and investments
 
24,612

 
27,980

Other interest-earning assets
 
58,451

 
54,845

Accrued interest receivable
 
650,813

 
564,496

Premises and equipment, net
 
81,261

 
81,273

Acquired intangible assets, net
 
1,485

 
1,745

Tax indemnification receivable
 
187,156

 
186,076

Other assets
 
70,493

 
55,482

Total assets
 
$
15,324,773

 
$
15,214,098

 
 
 
 
 
Liabilities
 
 
 
 
Deposits
 
$
11,543,355

 
$
11,487,707

Short-term borrowings
 
526,500

 
500,175

Long-term borrowings
 
558,513

 
579,101

Income taxes payable, net
 
142,410

 
166,662

Upromise related liabilities
 
263,899

 
275,384

Other liabilities
 
146,171

 
108,746

Total liabilities
 
13,180,848

 
13,117,775

 
 
 
 
 
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: 433.4 million and 430.7 million shares issued, respectively
 
86,684

 
86,136

Additional paid-in capital
 
1,142,502

 
1,135,860

Accumulated other comprehensive loss (net of tax benefit of $18,089 and $9,949, respectively)
 
(29,269
)
 
(16,059
)
Retained earnings
 
426,986

 
366,609

Total SLM Corporation stockholders' equity before treasury stock
 
2,191,903

 
2,137,546

Less: Common stock held in treasury at cost: 5.5 million and 4.4 million shares, respectively
 
(47,978
)
 
(41,223
)
Total equity
 
2,143,925

 
2,096,323

Total liabilities and equity
 
$
15,324,773

 
$
15,214,098


See accompanying notes to consolidated financial statements.

2



SLM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Interest income:
 
 
 
 
Loans
 
$
245,230

 
$
197,856

Investments
 
2,591

 
2,720

Cash and cash equivalents
 
1,634

 
780

Total interest income
 
249,455

 
201,356

Interest expense:
 
 
 
 
Deposits
 
34,012

 
29,570

Interest expense on short-term borrowings
 
2,163

 
832

Interest expense on long-term borrowings
 
3,415

 

Other interest expense
 
2

 

Total interest expense
 
39,592

 
30,402

Net interest income
 
209,863

 
170,954

Less: provisions for credit losses
 
32,602

 
16,618

Net interest income after provisions for credit losses
 
177,261

 
154,336

Non-interest income:
 
 
 
 
(Losses) gains on derivatives and hedging activities, net
 
(354
)
 
3,292

Other
 
21,028

 
8,007

Total non-interest income
 
20,674

 
11,299

Expenses:
 
 
 
 
Compensation and benefits
 
50,209

 
41,203

Other operating expenses
 
42,676

 
39,984

Total operating expenses
 
92,885

 
81,187

Acquired intangible asset amortization expense
 
260

 
370

Restructuring and other reorganization expenses
 

 
4,657

Total expenses
 
93,145

 
86,214

Income before income tax expense
 
104,790

 
79,421

Income tax expense
 
38,875

 
31,722

Net income attributable to SLM Corporation
 
65,915

 
47,699

Preferred stock dividends
 
5,139

 
4,823

Net income attributable to SLM Corporation common stock
 
$
60,776

 
$
42,876

Basic earnings per common share attributable to SLM Corporation
 
$
0.14

 
$
0.10

Average common shares outstanding
 
427,111

 
424,428

Diluted earnings per common share attributable to SLM Corporation
 
$
0.14

 
$
0.10

Average common and common equivalent shares outstanding
 
430,903

 
432,302



See accompanying notes to consolidated financial statements.

3



SLM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Net income attributable to SLM Corporation
 
$
65,915

 
$
47,699

Other comprehensive income (loss):
 
 
 
 
Unrealized gains on investments
 
3,024

 
673

Unrealized losses on cash flow hedges
 
(24,374
)
 
(15,689
)
Total unrealized losses
 
(21,350
)
 
(15,016
)
Income tax benefit
 
8,140

 
5,825

Other comprehensive loss, net of tax benefit
 
(13,210
)
 
(9,191
)
Total comprehensive income attributable to SLM Corporation
 
$
52,705

 
$
38,508


















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
 
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
 

 

 

 

 

 

 

 

 
47,699

 

 
47,699

Other comprehensive income, net of tax
 

 

 

 

 

 

 

 
(9,191
)
 

 

 
(9,191
)
Total comprehensive income (loss)
 

 

 

 

 

 

 

 

 

 

 
38,508

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

 

 

 

 

 

 

 

 
(2,875
)
 

 
(2,875
)
Preferred Stock, series B ($.49 per share)
 

 

 

 

 

 

 

 

 
(1,948
)
 

 
(1,948
)
Dividend equivalent units related to employee stock-based compensation plans
 

 

 

 

 

 

 
1,118

 

 
(1,118
)
 
 
 

Issuance of common shares
 

 
3,130,839

 

 
3,130,839

 

 
626

 
4,050

 

 

 

 
4,676

Tax benefit related to employee stock-based compensation
 

 

 

 

 

 

 
4,596

 

 

 

 
4,596

Stock-based compensation expense
 

 

 

 

 

 

 
6,140

 

 

 

 
6,140

Shares repurchased related to employee stock-based compensation plans
 

 

 
(1,389,096
)
 
(1,389,096
)
 

 

 

 

 

 
(13,142
)
 
(13,142
)
Balance at March 31, 2015
 
7,300,000

 
427,934,964

 
(2,754,373
)
 
425,180,591

 
$
565,000

 
$
85,587

 
$
1,106,415

 
$
(20,584
)
 
$
154,824

 
$
(25,329
)
 
$
1,865,913














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, 2015
 
7,300,000

 
430,677,434

 
(4,374,190
)
 
426,303,244

 
$
565,000

 
$
86,136

 
$
1,135,860

 
$
(16,059
)
 
$
366,609

 
$
(41,223
)
 
$
2,096,323

Net income
 

 

 

 

 

 

 

 

 
65,915

 

 
65,915

Other comprehensive loss, net of tax
 

 

 

 

 

 

 

 
(13,210
)
 

 

 
(13,210
)
Total comprehensive income
 

 

 

 

 

 

 

 

 

 

 
52,705

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock, series A ($0.87 per share)
 

 

 

 

 

 

 

 

 
(2,875
)
 

 
(2,875
)
Preferred Stock, series B ($0.56 per share)
 

 

 

 

 

 

 

 

 
(2,264
)
 

 
(2,264
)
Dividend equivalent units related to employee stock-based compensation plans
 

 

 

 

 

 

 
399

 

 
(399
)
 

 

Issuance of common shares
 

 
2,740,979

 

 
2,740,979

 

 
548

 
2,159

 

 

 

 
2,707

Tax benefit related to employee stock-based compensation
 

 

 

 

 

 

 
(2,132
)
 

 

 

 
(2,132
)
Stock-based compensation expense
 

 

 

 

 

 

 
6,216

 

 

 

 
6,216

Shares repurchased related to employee stock-based compensation plans
 

 

 
(1,128,709
)
 
(1,128,709
)
 

 

 

 

 

 
(6,755
)
 
(6,755
)
Balance at March 31, 2016
 
7,300,000

 
433,418,413

 
(5,502,899
)
 
427,915,514

 
$
565,000

 
$
86,684

 
$
1,142,502

 
$
(29,269
)
 
$
426,986

 
$
(47,978
)
 
$
2,143,925













See accompanying notes to consolidated financial statements.

6



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


 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Operating activities
 
 
 
 
Net income
 
$
65,915

 
$
47,699

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
Provisions for credit losses
 
32,602

 
16,618

Income tax expense
 
38,875

 
31,722

Amortization of brokered deposit placement fee
 
2,615

 
2,695

Amortization of ABCP Facility upfront fee
 
122

 

Amortization of deferred loan origination costs and fees, net
 
1,223

 
641

Net amortization of discount on investments
 
342

 
324

Interest income on tax indemnification receivable
 
(1,080
)
 
(1,754
)
Depreciation of premises and equipment
 
2,104

 
1,659

Amortization of acquired intangibles
 
260

 
370

Stock-based compensation expense
 
6,216

 
6,140

Unrealized (gains)/losses on derivative and hedging activities, net
 
832

 
(2,417
)
Other adjustments to net income, net
 
250

 

Changes in operating assets and liabilities:
 
 
 
 
Net decrease in loans held for sale
 

 
55

Origination of loans held for sale
 

 
(55
)
Increase in accrued interest receivable
 
(147,257
)
 
(121,815
)
Decrease in restricted cash and investments - other
 
6,778

 
1,046

(Increase) decrease in other interest-earning assets
 
(3,606
)
 
13,854

Decrease in tax indemnification receivable
 

 
14,908

Increase in other assets
 
(11,391
)
 
(2,079
)
Decrease in income tax payable, net
 
(54,987
)
 
(23,049
)
Increase in accrued interest payable
 
9,079

 
6,541

Increase (decrease) in payable due to entity that is a subsidiary of Navient
 
1,169

 
(1,655
)
Increase (decrease) in other liabilities
 
2,159

 
(10,629
)
Total adjustments
 
(113,695
)
 
(66,880
)
Total net cash used in operating activities
 
(47,780
)
 
(19,181
)
Investing activities
 
 
 
 
Loans acquired and originated
 
(1,806,583
)
 
(1,663,149
)
Net proceeds from sales of loans held for investment
 
3,365

 
6,387

Proceeds from claim payments
 
18,528

 
46,442

Net decrease (increase) in loans held for investment
 
332,414

 
243,990

Increase in restricted cash and investments - variable interest entities
 
(3,410
)
 

Purchases of available-for-sale securities
 
(12,090
)
 
(8,178
)
Proceeds from sales and maturities of available-for-sale securities
 
6,566

 
6,630

Total net cash used in investing activities
 
(1,461,210
)
 
(1,367,878
)
Financing activities
 
 
 
 
Brokered deposit placement fee
 
(2,759
)
 

Net decrease in certificates of deposit
 
(209,411
)
 
(74,457
)
Net increase (decrease) increase in other deposits
 
245,893

 
(22,415
)
Borrowings collateralized by loans in securitization trusts - repaid
 
(20,276
)
 

Borrowings under ABCP facility
 
26,325

 

Fees paid on ABCP facility
 
(1,250
)
 

Excess tax (expense) benefit from the exercise of stock-based awards
 
(2,132
)
 
4,596


7



Preferred stock dividends paid
 
(5,139
)
 
(4,823
)
Net cash provided by (used in) financing activities
 
31,251

 
(97,099
)
Net decrease in cash and cash equivalents
 
(1,477,739
)
 
(1,484,158
)
Cash and cash equivalents at beginning of period
 
2,416,219

 
2,359,780

Cash and cash equivalents at end of period
 
$
938,480

 
$
875,622

Cash disbursements made for:
 
 
 
 
Interest
 
$
32,766

 
$
25,368

Income taxes paid
 
$
56,077

 
$
17,811

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 (“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, 2016 are not necessarily indicative of the results for the year ending December 31, 2016 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, 2015 (the “2015 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 but Not Yet Adopted Accounting Pronouncements
On February 25, 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases,” a comprehensive new lease standard which will supersede previous lease guidance. The standard requires a lessee to recognize in its balance sheet assets and liabilities related to long-term leases that were classified as operating leases under previous guidance. An asset will be recognized related to the right to use the underlying asset and a liability will be recognized related to the obligation to make lease payments over the term of the lease. The standard also requires expanded disclosures surrounding leases. The standard is effective for fiscal periods beginning after December 15, 2018, and requires modified retrospective adoption, with early adoption permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.
On March 30, 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which amends the current stock compensation guidance. The amendments simplify the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company's payments for tax withholdings should be classified. The standard is effective for fiscal periods beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the impact of the adoption of this standard 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. 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”).
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 generally carry a variable rate indexed to LIBOR. As of March 31, 2016, 81 percent 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.
Loans held for investment are summarized as follows:
 
 
March 31,
 
December 31,
 
 
2016
 
2015
Private Education Loans
 
$
12,111,870

 
$
10,596,437

Deferred origination costs
 
31,772

 
27,884

Allowance for loan losses
 
(122,620
)
 
(108,816
)
Total Private Education Loans, net
 
12,021,022

 
10,515,505

 
 
 
 
 
FFELP Loans
 
1,088,026

 
1,115,663

Unamortized acquisition costs, net
 
3,006

 
3,114

Allowance for loan losses
 
(3,629
)
 
(3,691
)
Total FFELP Loans, net
 
1,087,403

 
1,115,086

 
 
 
 
 
Loans held for investment, net
 
$
13,108,425

 
$
11,630,591


 
The estimated weighted average life of education loans in our portfolio was approximately 6.2 years at both March 31, 2016 and December 31, 2015, 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
 
 
March 31,
 
 
2016
 
2015
 
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
Private Education Loans
 
$
11,817,708

 
8.03
%
 
$
9,454,579

 
8.07
%
FFELP Loans
 
1,103,253

 
3.42

 
1,234,682

 
3.19

Total portfolio
 
$
12,920,961

 
 
 
$
10,689,261

 
 



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 March 31, 2016
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
3,691

 
$
108,816

 
$
112,507

Total provision
 
321

 
33,839

 
34,160

Net charge-offs:
 
 
 
 
 
 
Charge-offs
 
(383
)
 
(19,004
)
 
(19,387
)
Recoveries
 

 
1,044

 
1,044

Net charge-offs
 
(383
)
 
(17,960
)
 
(18,343
)
Loan sales(1)
 

 
(2,075
)
 
(2,075
)
Ending Balance
 
$
3,629

 
$
122,620

 
$
126,249

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
49,212

 
$
49,212

Ending balance: collectively evaluated for impairment
 
$
3,629

 
$
73,408

 
$
77,037

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
318,094

 
$
318,094

Ending balance: collectively evaluated for impairment
 
$
1,088,026

 
$
11,793,776

 
$
12,881,802

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.19
%
 
0.95
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.33
%
 
1.01
%
 
 
Allowance as a percentage of the ending loans in repayment(2)
 
0.45
%
 
1.56
%
 
 
Allowance coverage of net charge-offs (annualized)
 
2.37

 
1.71

 
 
Ending total loans, gross
 
$
1,088,026

 
$
12,111,870

 
 
Average loans in repayment(2)
 
$
804,690

 
$
7,534,234

 
 
Ending loans in repayment(2)
 
$
803,378

 
$
7,843,076

 
 

____________
(1) Represents fair value adjustments on loans sold.
(2) Loans in repayment include loans on which borrowers are 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 March 31, 2015
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
5,268

 
$
78,574

 
$
83,842

Total provision
 
435

 
16,183

 
16,618

Net charge-offs:
 
 
 
 
 
 
Charge-offs
 
(1,134
)
 
(8,727
)
 
(9,861
)
Recoveries
 

 
1,387

 
1,387

Net charge-offs
 
(1,134
)
 
(7,340
)
 
(8,474
)
Loan sales(1)
 

 
(2,181
)
 
(2,181
)
Ending Balance
 
$
4,569

 
$
85,236

 
$
89,805

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
20,105

 
$
20,105

Ending balance: collectively evaluated for impairment
 
$
4,569

 
$
65,131

 
$
69,700

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
122,120

 
$
122,120

Ending balance: collectively evaluated for impairment
 
$
1,208,977

 
$
9,646,641

 
$
10,855,618

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.50
%
 
0.51
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.38
%
 
0.87
%
 
 
Allowance as a percentage of the ending loans in repayment(2)
 
0.52
%
 
1.42
%
 
 
Allowance coverage of net charge-offs (annualized)
 
1.01

 
2.90

 
 
Ending total loans, gross
 
$
1,208,977

 
$
9,768,761

 
 
Average loans in repayment(2)
 
$
898,360

 
$
5,705,067

 
 
Ending loans in repayment(2)
 
$
872,579

 
$
5,995,121

 
 
____________
    
(1) Represents fair value adjustments on loans sold.
(2) Loans in repayment include loans on which borrowers 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)
 


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. Approximately 22 percent and 23 percent of the loans granted forbearance as of March 31, 2016 and December 31, 2015, respectively, have been classified as TDRs due to their forbearance status. For additional information, see Note 6, “Allowance for Loan Losses” in our 2015 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, 2016 and December 31, 2015, all of 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
 
 
 
 
 
 
 
March 31, 2016
 
 
 
 
 
 
TDR Loans
 
$
322,744

 
$
318,094

 
$
49,212

 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
TDR Loans
 
$
269,628

 
$
265,831

 
$
43,480


The following table provides the average recorded investment and interest income recognized for our TDR loans.
 
 
Three Months Ended
 
Three Months Ended
 
 
March 31, 2016
 
March 31, 2015
 
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
297,315

 
$
5,583

 
$
88,120

 
$
2,396


    


    

14




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 TDR loans.

 
 
March 31,
 
December 31,
 
 
2016
 
2015
 
 
Balance
 
%
 
Balance
 
%
TDR loans in in-school/grace/deferment(1)
 
$
10,738

 
 
 
$
6,869

 
 
TDR loans in forbearance(2)
 
42,699

 
 
 
43,756

 
 
TDR loans in repayment(3) and percentage of each status:
 
 
 
 
 
 
 
 
Loans current
 
232,720

 
88.0
%
 
185,936

 
86.4
%
Loans delinquent 31-60 days(4)
 
13,610

 
5.1

 
14,948

 
6.9

Loans delinquent 61-90 days(4)
 
11,109

 
4.2

 
9,239

 
4.3

Loans delinquent greater than 90 days(4)
 
7,218

 
2.7

 
5,083

 
2.4

Total TDR loans in repayment
 
264,657

 
100.0
%
 
215,206

 
100.0
%
Total TDR loans, gross
 
$
318,094

 
 
 
$
265,831

 
 
_____
(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 and fixed payments as well as loans that have entered full principal and interest repayment status.
(4) 
The period of delinquency is based on the number of days scheduled payments are contractually past due.

    

15




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 includes 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 60 days past due for this disclosure.
 
 
Three Months Ended
 
Three Months Ended
 
 
March 31, 2016
 
March 31, 2015
 
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
 
 
 
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
61,006

 
$
4,968

 
$
25,671

 
$
122,120

 
$
930

 
$
4,785


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



16




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


Key Credit Quality Indicators
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 origination 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, 2016
 
December 31, 2015
Credit Quality Indicators:
 
Balance(1)
 
% of Balance
 
Balance(1)
 
% of Balance
 
 
 
 
 
 
 
 
 
Cosigners:
 
 
 
 
 
 
 
 
With cosigner
 
$
10,914,736

 
90
%
 
$
9,515,136

 
90
%
Without cosigner
 
1,197,134

 
10

 
1,081,301

 
10

Total
 
$
12,111,870

 
100
%
 
$
10,596,437

 
100
%
 
 
 
 
 
 
 
 
 
FICO at Origination:
 
 
 
 
 
 
 
 
Less than 670
 
$
781,804

 
6
%
 
$
700,779

 
7
%
670-699
 
1,768,651

 
15

 
1,554,959

 
15

700-749
 
3,909,444

 
32

 
3,403,823

 
32

Greater than or equal to 750
 
5,651,971

 
47

 
4,936,876

 
46

Total
 
$
12,111,870

 
100
%
 
$
10,596,437

 
100
%
 
 
 
 
 
 
 
 
 
Seasoning(2):
 
 
 
 
 
 
 
 
1-12 payments
 
$
3,664,441

 
30
%
 
$
3,059,901

 
29
%
13-24 payments
 
2,255,999

 
19

 
2,096,412

 
20

25-36 payments
 
1,171,202

 
10

 
1,084,818

 
10

37-48 payments
 
549,855

 
4

 
513,125

 
5

More than 48 payments
 
443,041

 
4

 
414,217

 
4

Not yet in repayment
 
4,027,332

 
33

 
3,427,964

 
32

Total
 
$
12,111,870

 
100
%
 
$
10,596,437

 
100
%
(1) 
Balance represents gross Private Education Loans.
(2) 
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.


17




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 and fixed payments as well as loans that have entered full principal and interest repayment status.


 
 
Private Education Loans
 
 
 
March 31,
 
December 31,
 
 
 
2016
 
2015
 
 
 
Balance
 
%
 
Balance
 
%
 
Loans in-school/grace/deferment(1)
 
$
4,027,332

 
 
 
$
3,427,964

 
 
 
Loans in forbearance(2)
 
241,462

 
 
 
241,207

 
 
 
Loans in repayment and percentage of each status:
 
 
 
 
 
 
 
 
 
Loans current
 
7,678,446

 
97.9
%
 
6,773,095

 
97.8
%
 
Loans delinquent 31-60 days(3)
 
78,242

 
1.0

 
91,129

 
1.3

 
Loans delinquent 61-90 days(3)
 
56,906

 
0.7

 
42,048

 
0.6

 
Loans delinquent greater than 90 days(3)
 
29,482

 
0.4

 
20,994

 
0.3

 
Total Private Education Loans in repayment
 
7,843,076

 
100.0
%
 
6,927,266

 
100.0
%
 
Total Private Education loans, gross
 
12,111,870

 
 
 
10,596,437

 
 
 
Private Education Loans deferred origination costs
 
31,772

 
 
 
27,884

 
 
 
Total Private Education Loans
 
12,143,642

 
 
 
10,624,321

 
 
 
Private Education Loans allowance for losses
 
(122,620
)
 
 
 
(108,816
)
 
 
 
Private Education Loans, net
 
$
12,021,022

 
 
 
$
10,515,505

 
 
 
Percentage of Private Education Loans in repayment
 
 
 
64.8
%
 
 
 
65.4
%
 
Delinquencies as a percentage of Private Education Loans in repayment
 
 
 
2.1
%
 
 
 
2.2
%
 
Loans in forbearance as a percentage of Private Education Loans in repayment and forbearance
 
 
 
3.0
%
 
 
 
3.4
%
 
(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.
 




18




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 Loan
 
 
Accrued Interest Receivable
 
 
Total Interest Receivable
 
Greater Than 90 Days Past Due
 
Allowance for Uncollectible Interest
 
 
 
 
 
 
 
March 31, 2016
 
$
619,226

 
$
1,034

 
$
3,074

December 31, 2015
 
$
542,919

 
$
791

 
$
3,332



19




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, 2016 and December 31, 2015.
 
 
March 31,
 
December 31,
 
 
 
2016
 
2015
 
Deposits - interest bearing
 
$
11,542,392

 
$
11,487,006

 
Deposits - non-interest bearing
 
963

 
701

 
Total deposits
 
$
11,543,355

 
$
11,487,707

 
Interest Bearing
Interest bearing deposits as of March 31, 2016 and December 31, 2015 consisted of non-maturity savings and money market deposits, brokered and retail certificates of deposit (“CDs”), and brokered money market deposits (“MMDAs”). Included in these accounts are what we consider to be core deposits from various sources. 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 $2.6 million and $2.7 million in the three months ended March 31, 2016 and 2015, respectively. Fees paid to third-party brokers related to these CDs were $2.8 million for the three months ended March 31, 2016. There were no such fees paid in the three months ended March 31, 2015.
Interest bearing deposits at March 31, 2016 and December 31, 2015 are summarized as follows:
 
 
 
March 31, 2016
 
December 31, 2015
 
 
 
Amount
 
Qtr.-End Weighted Average Stated Rate(1)
 
Amount
 
Year-End Weighted Average Stated Rate(1)
 
 
 
 
 
 
 
 
 
 
 
Money market
 
$
5,125,507

 
1.22
%
 
$
4,886,299

 
1.19
%
 
Savings
 
679,511

 
0.82

 
669,254

 
0.82

 
Certificates of deposit
 
5,737,374

 
1.19

 
5,931,453

 
0.98

 
Deposits - interest bearing
 
$
11,542,392

 
 
 
$
11,487,006

 


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


 As of March 31, 2016 and December 31, 2015, there were $251.5 million and $709.9 million, respectively, of deposits exceeding Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Accrued interest on deposits was $24.6 million and $15.7 million at March 31, 2016 and December 31, 2015, respectively.

Non-Interest Bearing

Non-interest bearing deposits were $1.0 million and $0.7 million as of March 31, 2016 and December 31, 2015, respectively. For both periods, these were comprised of money market accounts related to our Employee Stock Purchase Plan account.



20




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

5. Borrowings

Outstanding borrowings consist of secured borrowings issued through our term asset-backed securitization (“ABS”) program and our asset-backed commercial paper (“ABCP”) funding facility (the “ABCP Facility”). The following table summarizes our secured borrowings at March 31, 2016 and December 31, 2015.

 
 
March 31, 2016
 
December 31, 2015
 
 
Short-Term
 
Long-Term
 
Total
 
Short-Term
 
Long-Term
 
Total
Secured borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
Private Education Loan term securitization
 
$

 
$
558,513

 
$
558,513

 
$

 
$
579,101

 
$
579,101

ABCP Facility
 
526,500

 

 
526,500

 
500,175

 

 
500,175

Total
 
$
526,500

 
$
558,513

 
$
1,085,013

 
$
500,175

 
$
579,101

 
$
1,079,276



Short-term Borrowings    
Asset-Backed Commercial Paper Funding Facility
On December 19, 2014, we closed on a $750.0 million ABCP Facility. We retained a 5 percent or $37.5 million participation interest in the ABCP Facility, resulting in $712.5 million of funds available for us to draw under the ABCP Facility. During 2015, we incurred financing costs under the ABCP Facility of approximately 0.40 percent on average on unused borrowing capacity and approximately 3 month LIBOR plus 0.80 percent on outstandings under the ABCP Facility.
On February 25, 2016, we amended and extended the maturity of our ABCP Facility. The amended ABCP Facility is a $750.0 million ABCP Facility, in which we no longer hold a participation interest. As a result, the full $750.0 million is available for us to draw. We hold 100 percent of the residual interest in the ABCP Facility trust. Under the amended ABCP Facility, we incur financing costs of between 0.35 percent and 0.45 percent on unused borrowing capacity and approximately 3 month LIBOR plus 1.00 percent on outstandings. The amended ABCP Facility extends the revolving period, during which we may borrow, repay and reborrow funds, until February 23, 2017. The scheduled amortization period, during which amounts outstanding under the ABCP Facility must be repaid, ends on February 23, 2018 (or earlier, if certain material adverse events occur). At March 31, 2016, $526.5 million was outstanding under the ABCP Facility. At March 31, 2016, $902.0 million of our Private Education Loans were encumbered to support outstandings under the ABCP Facility.
Short-term borrowings have a remaining term to maturity of one year or less. The ABCP Facility's contractual maturity is two years from the date of inception or renewal (one year revolving period plus a one year amortization period); however, we classify advances under our ABCP Facility as short-term borrowings because it is our intention to repay those advances within one-year.

21




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
5.
Borrowings (Continued)


Long-term Borrowings    

Secured Financings at Issuance
Issue
 
Date Issued
 
Total Issued To Third Parties
 
Weighted Average Cost of Funds(1)
 
Weighted Average Life
 
 
 
 
 
 
 
 
 
Private Education:
 
 
 
 
 
 
2015-B
 
July 2015
 
$
630,800

 
1 month LIBOR plus 1.53%
 
4.82
Total notes issued in 2015
 
$
630,800

 
 
 
 
 
 
 
 
 
 
 
 
 
Total loan amount securitized at inception of the above on-balance sheet term securitization
 
$
745,580

 
 
 
 
 
 
 
 
 
 
 
 
 
____________
(1) Represents LIBOR equivalent cost of funds for floating and fixed rate bonds, excluding issuance costs.

Consolidated Funding Vehicles

We consolidate our financing entities that are VIEs as a result of our being the entities’ primary beneficiary. As a result, these financing VIEs are accounted for as secured borrowings. We consolidate the following financing VIEs as of March 31, 2016 and December 31, 2015, respectively:

 
 
March 31, 2016
 
 
Debt Outstanding
 
Carrying Amount of Assets Securing Debt Outstanding
 
 
Short-Term
 
Long-Term
 
Total
 
Loans
 
Restricted Cash
 
Other Assets(1)
 
Total