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EX-32.2 - EXHIBIT 32.2 - SLM Corpslm20180630ex322.htm
EX-32.1 - EXHIBIT 32.1 - SLM Corpslm20180630ex321.htm
EX-31.2 - EXHIBIT 31.2 - SLM Corpslm20180630ex312.htm
EX-31.1 - EXHIBIT 31.1 - SLM Corpslm20180630ex311.htm
EX-12.1 - EXHIBIT 12.1 - SLM Corpslm20180630ex121.htm
EX-10.1 - EXHIBIT 10.1 - SLM Corpslm20180630ex101.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 June 30, 2018
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, 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 June 30, 2018
Common Stock, $0.20 par value
435,380,601 shares
 
 






SLM CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS
INDEX





2



SLM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
 
June 30,
 
December 31,
 
 
2018
 
2017
Assets
 
 
 
 
Cash and cash equivalents
 
$
2,043,789

 
$
1,534,339

Available-for-sale investments at fair value (cost of $185,749 and $247,607, respectively)
 
178,145

 
244,088

Loans held for investment (net of allowance for losses of $295,277 and $251,475, respectively)
 
20,308,581

 
18,567,641

Restricted cash
 
114,659

 
101,836

Other interest-earning assets
 
28,385

 
21,586

Accrued interest receivable
 
1,161,161

 
967,482

Premises and equipment, net
 
101,335

 
89,748

Tax indemnification receivable
 
153,470

 
168,011

Other assets
 
99,651

 
84,853

Total assets
 
$
24,189,176

 
$
21,779,584

 
 
 
 
 
Liabilities
 
 
 
 
Deposits
 
$
16,745,957

 
$
15,505,383

Long-term borrowings
 
4,217,119

 
3,275,270

Income taxes payable, net
 
79,772

 
102,285

Upromise member accounts
 
230,228

 
243,080

Other liabilities
 
187,398

 
179,310

Total liabilities
 
21,460,474

 
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: 449.4 million and 443.5 million shares issued, respectively
 
89,882

 
88,693

Additional paid-in capital
 
1,260,201

 
1,222,277

Accumulated other comprehensive income (net of tax expense of $7,448 and $1,696, respectively)
 
23,216

 
2,748

Retained earnings
 
1,096,359

 
868,182

Total SLM Corporation stockholders’ equity before treasury stock
 
2,869,658

 
2,581,900

Less: Common stock held in treasury at cost: 14.0 million and 11.1 million shares, respectively
 
(140,956
)
 
(107,644
)
Total equity
 
2,728,702

 
2,474,256

Total liabilities and equity
 
$
24,189,176

 
$
21,779,584


See accompanying notes to consolidated financial statements.

3



SLM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
454,045

 
$
336,739

 
$
884,093

 
$
661,496

Investments
 
1,694

 
2,201

 
3,641

 
4,344

Cash and cash equivalents
 
6,572

 
3,155

 
11,808

 
5,743

Total interest income
 
462,311

 
342,095

 
899,542

 
671,583

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
90,605

 
50,730

 
168,061

 
95,583

Interest expense on short-term borrowings
 
1,128

 
1,194

 
3,521

 
2,430

Interest expense on long-term borrowings
 
29,628

 
20,278

 
54,396

 
35,601

Total interest expense
 
121,361

 
72,202

 
225,978

 
133,614

Net interest income
 
340,950

 
269,893

 
673,564

 
537,969

Less: provisions for credit losses
 
63,267

 
50,215

 
117,198

 
75,511

Net interest income after provisions for credit losses
 
277,683

 
219,678

 
556,366

 
462,458

Non-interest income:
 
 
 
 
 
 
 
 
Gains on sales of loans, net
 
2,060

 

 
2,060

 

Losses on sales of securities, net
 
(1,549
)
 

 
(1,549
)
 

Losses on derivatives and hedging activities, net
 
(5,268
)
 
(3,609
)
 
(1,376
)
 
(8,987
)
Other income
 
12,295

 
10,629

 
21,937

 
21,975

Total non-interest income
 
7,538

 
7,020

 
21,072

 
12,988

Non-interest expenses:
 
 
 
 
 
 
 
 
Compensation and benefits
 
60,245

 
51,007

 
128,562

 
106,471

FDIC assessment fees
 
8,001

 
6,622

 
16,797

 
13,851

Other operating expenses
 
66,977

 
53,622

 
114,738

 
93,606

Total operating expenses
 
135,223

 
111,251

 
260,097

 
213,928

Acquired intangible asset amortization expense
 
92

 
117

 
184

 
234

Total non-interest expenses
 
135,315

 
111,368

 
260,281

 
214,162

Income before income tax expense
 
149,906

 
115,330

 
317,157

 
261,284

Income tax expense
 
40,074

 
44,713

 
81,071

 
95,724

Net income
 
109,832

 
70,617

 
236,086

 
165,560

Preferred stock dividends
 
3,920

 
3,974

 
7,317

 
9,549

Net income attributable to SLM Corporation common stock
 
$
105,912

 
$
66,643

 
$
228,769

 
$
156,011

Basic earnings per common share attributable to SLM Corporation
 
$
0.24

 
$
0.15

 
$
0.53

 
$
0.36

Average common shares outstanding
 
435,187

 
431,245

 
434,573

 
430,572

Diluted earnings per common share attributable to SLM Corporation
 
$
0.24

 
$
0.15

 
$
0.52

 
$
0.35

Average common and common equivalent shares outstanding
 
439,445

 
438,115

 
439,212

 
438,424





See accompanying notes to consolidated financial statements.

4



SLM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
Net income
 
$
109,832

 
$
70,617

 
$
236,086

 
$
165,560

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gains (losses) on investments
 
42

 
167

 
(4,085
)
 
(1,400
)
Unrealized gains (losses) on cash flow hedges
 
10,014

 
(2,029
)
 
30,304

 
2,750

Total unrealized gains (losses)
 
10,056

 
(1,862
)
 
26,219

 
1,350

Income tax (expense) benefit
 
(2,441
)
 
701

 
(6,343
)
 
(531
)
Other comprehensive income (loss), net of tax (expense) benefit
 
7,615

 
(1,161
)
 
19,876

 
819

Total comprehensive income
 
$
117,447

 
$
69,456

 
$
255,962

 
$
166,379


















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
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
 

 

 

 

 

 

 

 

 
165,560

 

 
165,560

Other comprehensive income, net of tax
 

 

 

 

 

 

 

 
819

 

 

 
819

Total comprehensive income
 

 

 

 

 

 

 

 

 

 

 
166,379

Cumulative effect of the adoption of the stock compensation standard amendment
 

 

 

 

 

 

 
429

 

 
(264
)
 

 
165

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock, Series A ($1.74 per share)
 

 

 

 

 

 

 

 

 
(3,961
)
 

 
(3,961
)
Preferred Stock, Series B ($1.39 per share)
 

 

 

 

 

 

 

 

 
(5,588
)
 

 
(5,588
)
Redemption of Series A Preferred Stock
 
(3,300,000
)
 

 

 

 
(165,000
)
 

 

 

 

 

 
(165,000
)
Dividend equivalent units related to employee stock-based compensation plans
 

 

 

 

 

 

 
96

 

 
(96
)
 

 

Issuance of common shares
 

 
5,229,774

 

 
5,229,774

 

 
1,046

 
13,448

 

 

 

 
14,494

Stock-based compensation expense
 

 

 

 

 

 

 
15,500

 

 

 

 
15,500

Shares repurchased related to employee stock-based compensation plans
 

 

 
(2,584,964
)
 
(2,584,964
)
 

 

 

 

 

 
(31,337
)
 
(31,337
)
Balance at June 30, 2017
 
4,000,000

 
441,862,253

 
(10,313,884
)
 
431,548,369

 
$
400,000

 
$
88,373

 
$
1,205,037

 
$
(7,852
)
 
$
750,973

 
$
(98,821
)
 
$
2,337,710









See accompanying notes to consolidated financial statements.

6




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
 

 

 

 

 

 

 

 

 
236,086

 

 
236,086

Other comprehensive income, net of tax
 

 

 

 

 

 

 

 
19,876

 

 

 
19,876

Total comprehensive income
 

 

 

 

 

 

 

 

 

 

 
255,962

Reclassification resulting from the adoption of ASU No. 2018-02
 

 

 

 

 

 

 

 
592

 
(592
)
 

 

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock, Series B ($1.81 per share)
 

 

 

 

 

 

 

 

 
(7,317
)
 

 
(7,317
)
Issuance of common shares
 

 
5,944,946

 

 
5,944,946

 

 
1,189

 
17,663

 

 

 

 
18,852

Stock-based compensation expense
 

 

 

 

 

 

 
20,261

 

 

 

 
20,261

Shares repurchased related to employee stock-based compensation plans
 

 

 
(2,940,595
)
 
(2,940,595
)
 

 

 

 

 

 
(33,312
)
 
(33,312
)
Balance at June 30, 2018
 
4,000,000

 
449,408,533

 
(14,027,932
)
 
435,380,601

 
$
400,000

 
$
89,882

 
$
1,260,201

 
$
23,216

 
$
1,096,359

 
$
(140,956
)
 
$
2,728,702
















See accompanying notes to consolidated financial statements.

7



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

 
 
Six Months Ended
 
 
June 30,
 
 
2018
 
2017
Operating activities
 
 
 
 
Net income
 
$
236,086

 
$
165,560

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
Provisions for credit losses
 
117,198

 
75,511

Income tax expense
 
81,071

 
95,724

Amortization of brokered deposit placement fee
 
5,847

 
4,339

Amortization of ABCP Facility upfront fee
 
575

 
668

Amortization of deferred loan origination costs and loan premium/(discounts), net
 
5,115

 
4,069

Net amortization of discount on investments
 
985

 
872

Income on tax indemnification receivable
 
(3,453
)
 
(3,427
)
Depreciation of premises and equipment
 
6,475

 
5,365

Amortization of acquired intangibles
 
184

 
234

Stock-based compensation expense
 
20,261

 
15,500

Unrealized losses on derivatives and hedging activities, net
 
1,175

 
10,833

Gains on sales of loans, net
 
(2,060
)
 

Losses on sales of securities, net
 
1,549

 

Other adjustments to net income, net
 
3,296

 
2,998

Changes in operating assets and liabilities:
 
 
 
 
Increase in accrued interest receivable
 
(407,813
)
 
(324,684
)
(Increase) decrease in other interest-earning assets
 
(6,799
)
 
588

Decrease in tax indemnification receivable
 
17,994

 
29,817

Increase in other assets
 
(51,451
)
 
(20,586
)
Decrease in income taxes payable, net
 
(107,973
)
 
(139,775
)
Increase in accrued interest payable
 
11,295

 
3,275

Decrease in payable due to entity that is a subsidiary of Navient
 
(763
)
 
(1,244
)
Decrease in other liabilities
 
(8,288
)
 
(35,267
)
Total adjustments
 
(315,580
)
 
(275,190
)
Total net cash used in operating activities
 
(79,494
)
 
(109,630
)
Investing activities
 
 
 
 
Loans acquired and originated
 
(3,162,764
)
 
(2,347,344
)
Net proceeds from sales of loans held for investment
 
44,832

 
3,472

Proceeds from claim payments
 
27,000

 
24,907

Net decrease in loans held for investment
 
1,442,627

 
980,234

Purchases of available-for-sale securities
 
(2,914
)
 
(40,124
)
Proceeds from sales and maturities of available-for-sale securities
 
62,237

 
16,976

Total net cash used in investing activities
 
(1,588,982
)
 
(1,361,879
)
Financing activities
 
 
 
 
Brokered deposit placement fee
 
(18,885
)
 
(5,329
)
Net increase in certificates of deposit
 
947,437

 
308,069

Net increase in other deposits
 
331,926

 
51,447

Borrowings collateralized by loans in securitization trusts - issued
 
1,350,587

 
767,244

Borrowings collateralized by loans in securitization trusts - repaid
 
(411,904
)
 
(262,567
)
Issuance costs for unsecured debt offering
 

 
(423
)
Unsecured debt issued
 

 
197,000

Borrowings under ABCP Facility
 
300,000

 

Repayment of borrowings under ABCP Facility
 
(300,000
)
 

Fees paid on ABCP Facility
 
(1,095
)
 
(1,259
)

8



Redemption of Preferred Stock Series A
 

 
(165,000
)
Preferred stock dividends paid
 
(7,317
)
 
(9,549
)
Net cash provided by financing activities
 
2,190,749

 
879,633

Net increase (decrease) in cash, cash equivalents and restricted cash
 
522,273

 
(591,876
)
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
 
$
2,158,448

 
$
1,380,634

Cash disbursements made for:
 
 
 
 
Interest
 
$
207,872

 
$
121,601

Income taxes paid
 
$
111,173

 
$
139,828

Income taxes refunded
 
$
(3,790
)
 
$
(833
)
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets:
 
 
 
 
Cash and cash equivalents
 
$
2,043,789

 
$
1,318,168

Restricted cash
 
114,659

 
62,466

Total cash, cash equivalents and restricted cash
 
$
2,158,448

 
$
1,380,634

See accompanying notes to consolidated financial statements.

9





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 and six months ended June 30, 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

10





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. Investments

The amortized cost and fair value of securities available for sale are as follows:

 
 
June 30, 2018
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Available for sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
167,203

 
$
119

 
$
(6,906
)
 
$
160,416

Utah Housing Corporation bonds
 
18,546

 

 
(817
)
 
17,729

Total
 
$
185,749

 
$
119

 
$
(7,723
)
 
$
178,145

 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Available for sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
227,607

 
$
650

 
$
(3,210
)
 
$
225,047

Utah Housing Corporation bonds
 
20,000

 

 
(959
)
 
19,041

Total
 
$
247,607

 
$
650

 
$
(4,169
)
 
$
244,088




11





SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Investments (Continued)
 

The following table summarizes the amount of gross unrealized losses for our mortgage-backed securities and Utah Housing Corporation bonds and the estimated fair value for securities having gross unrealized losses, categorized by length of time the securities have been in an unrealized loss position:
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Gross Unrealized Losses
 
Estimated Fair Value
 
Gross Unrealized Losses
 
Estimated Fair Value
 
Gross Unrealized Losses
 
Estimated Fair Value
As of June 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
(1,568
)
 
$
49,747

 
$
(5,338
)
 
$
107,182

 
$
(6,906
)
 
$
156,929

Utah Housing Corporation bonds
 

 

 
(817
)
 
17,729

 
(817
)
 
17,729

Total
 
$
(1,568
)
 
$
49,747

 
$
(6,155
)
 
$
124,911

 
$
(7,723
)
 
$
174,658

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
(772
)
 
$
77,356

 
$
(2,438
)
 
$
110,500

 
$
(3,210
)
 
$
187,856

Utah Housing Corporation bonds
 
(77
)
 
4,923

 
(882
)
 
14,118

 
(959
)
 
19,041

Total
 
$
(849
)
 
$
82,279

 
$
(3,320
)
 
$
124,618

 
$
(4,169
)
 
$
206,897


Our investment portfolio is comprised primarily of mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, with amortized costs of $72 million, $49 million, and $46 million, respectively, at June 30, 2018. We own these securities to meet our requirements under the Community Reinvestment Act. In the second quarter of 2018, we elected to sell nine securities totaling $41 million to better align the portfolio with the Community Reinvestment Act requirements, and we recognized a $2 million loss upon the sale of those securities. As of June 30, 2018, 75 of the 84 separate mortgage-backed securities in our investment portfolio had unrealized losses, and 35 of the 75 securities in a net loss position were issued under Ginnie Mae programs that carry a full faith and credit guarantee from the U.S. Government. The remaining securities in a net loss position carry a principal and interest guarantee by Fannie Mae or Freddie Mac, respectively. We have the ability and the intent to hold these securities for a period of time sufficient for the market price to recover to at least the adjusted amortized cost of the security. As of December 31, 2017, 62 of the 92 separate mortgage-backed securities in our investment portfolio had unrealized losses, and 31 of the 62 securities in a net loss position were issued under Ginnie Mae programs that carry a full faith and credit guarantee from the U.S. Government. The remainder carried a principal and interest guarantee by Fannie Mae or Freddie Mac, respectively.
We also invest in Utah Housing Corporation bonds for the purpose of complying with the Community Reinvestment Act. These bonds are Aa3 rated by Moody’s Investors Service. The amortized cost of the investment on the consolidated balance sheet at June 30, 2018 and December 31, 2017 was $19 million and $20 million, respectively. We have the intent and ability to hold these bonds for a period of time sufficient for the market price to recover to at least the adjusted amortized cost of the security.


12





SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Investments (Continued)
 

As of June 30, 2018, the amortized cost and fair value of securities, by contractual maturities, are summarized below. Contractual maturities versus actual maturities may differ due to the effect of prepayments.
Year of Maturity
 
Amortized Cost
 
Estimated Fair Value
2038
 
$
269

 
$
284

2039
 
3,099

 
3,203

2042
 
10,099

 
9,381

2043
 
15,371

 
14,823

2044
 
24,183

 
23,464

2045
 
28,117

 
26,883

2046
 
41,807

 
39,789

2047
 
59,890

 
57,416

2048
 
2,914

 
2,902

Total
 
$
185,749

 
$
178,145


The mortgage-backed securities have been pledged to the Federal Reserve Bank (the “FRB”) as collateral against any advances and accrued interest under the Primary Credit lending program sponsored by the FRB. We had $161 million and $218 million par value of mortgage-backed securities pledged to this borrowing facility at June 30, 2018 and December 31, 2017, respectively, as discussed further in Note 6, “Borrowings.”


3. 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 acquiring Personal Loans from third parties in the fourth quarter of 2016 and originating Personal Loans in the first quarter of 2018.
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 June 30, 2018, and December 31, 2017, 73 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.
In connection with the separation of Navient Corporation (“Navient”) from SLM (the “Spin-Off”), we retained the right to require Navient to purchase delinquent loans (at fair value) when the borrower has a lending relationship with both us and Navient (“Split Loans”). In the second quarter of 2018, we sold our remaining $43 million portfolio of Split Loans (both current and non-current loans) to Navient and recognized a net gain of $2 million.
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.

13





SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
3.
Loans Held for Investment (Continued)
 

Loans held for investment are summarized as follows:
 
 
June 30,
 
December 31,
 
 
2018
 
2017
Private Education Loans:
 

 

Fixed rate
 
$
5,086,329

 
$
4,000,447

Variable rate
 
13,601,698

 
13,431,720

Total Private Education Loans, gross
 
18,688,027

 
17,432,167

Deferred origination costs and unamortized premium/(discount)
 
61,908

 
56,378

Allowance for loan losses
 
(261,695
)
 
(243,715
)
Total Private Education Loans, net
 
18,488,240

 
17,244,830

 
 
 
 
 
FFELP Loans
 
885,357

 
927,660

Deferred origination costs and unamortized premium/(discount)
 
2,496

 
2,631

Allowance for loan losses
 
(1,073
)
 
(1,132
)
Total FFELP Loans, net
 
886,780

 
929,159

 
 
 
 
 
Personal Loans (fixed rate)
 
966,080

 
400,280

Deferred origination costs and unamortized premium/(discount)
 
(10
)
 

Allowance for loan losses
 
(32,509
)
 
(6,628
)
Total Personal Loans, net
 
933,561

 
393,652

 
 
 
 
 
Loans held for investment, net
 
$
20,308,581

 
$
18,567,641


 
The estimated weighted average life of education loans in our portfolio was approximately 5.3 years and 5.5 years at June 30, 2018 and December 31, 2017, respectively.


14





SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
3.
Loans Held for Investment (Continued)
 

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


 
 
Three Months Ended
 
 
June 30,
 
 
2018
 
2017
 
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
Private Education Loans
 
$
18,764,768

 
9.03
%
 
$
15,687,803

 
8.33
%
FFELP Loans
 
898,095

 
4.51

 
980,478

 
3.87

Personal Loans
 
815,356

 
10.65

 
60,910

 
9.28

Total portfolio
 
$
20,478,219

 
 
 
$
16,729,191

 
 
 
 
Six Months Ended
 
 
June 30,
 
 
2018
 
2017
 
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
Private Education Loans
 
$
18,712,533

 
8.93
%
 
$
15,569,337

 
8.30
%
FFELP Loans
 
908,846

 
4.38

 
991,740

 
3.78

Personal Loans
 
672,792

 
10.65

 
48,464

 
9.24

Total portfolio
 
$
20,294,171

 
 
 
$
16,609,541

 
 


15





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

4. 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 June 30, 2018
 
 
FFELP
Loans
 
Private Education
Loans
 
Personal
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
 
 
Beginning balance
 
$
1,113

 
$
252,103

 
$
18,907

 
$
272,123

Total provision
 
252

 
46,264

 
16,378

 
62,894

Net charge-offs:
 


 


 


 


Charge-offs
 
(292
)
 
(42,270
)
 
(2,872
)
 
(45,434
)
Recoveries
 

 
5,598

 
96

 
5,694

Net charge-offs
 
(292
)
 
(36,672
)
 
(2,776
)
 
(39,740
)
Loan sales(1)
 

 

 

 

Ending Balance
 
$
1,073

 
$
261,695

 
$
32,509

 
$
295,277

Allowance:
 

 

 

 

Ending balance: individually evaluated for impairment
 
$

 
$
113,343

 
$

 
$
113,343

Ending balance: collectively evaluated for impairment
 
$
1,073

 
$
148,352

 
$
32,509

 
$
181,934

Loans:
 

 

 

 

Ending balance: individually evaluated for impairment
 
$

 
$
1,121,816

 
$

 
$
1,121,816

Ending balance: collectively evaluated for impairment
 
$
885,357

 
$
17,566,211

 
$
966,080

 
$
19,417,648

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.17
%
 
1.14
%
 
1.36
%
 

Allowance as a percentage of the ending total loan balance
 
0.12
%
 
1.40
%
 
3.37
%
 

Allowance as a percentage of the ending loans in repayment(2)
 
0.16
%
 
2.02
%
 
3.37
%
 

Allowance coverage of net charge-offs (annualized)
 
0.92

 
1.78

 
2.93

 

Ending total loans, gross
 
$
885,357

 
$
18,688,027

 
$
966,080

 

Average loans in repayment(2)
 
$
698,197

 
$
12,909,623

 
$
815,741

 

Ending loans in repayment(2)
 
$
680,802

 
$
12,979,523

 
$
966,080

 

____________
(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.


16





SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
4.
Allowance for Loan Losses (Continued)
 


 
 
Allowance for Loan Losses
 
 
Three Months Ended June 30, 2017
 
 
FFELP
Loans
 
Private Education
Loans
 
Personal
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
 
 
Beginning balance
 
$
1,637

 
$
185,103

 
$
346

 
$
187,086

Total provision
 
228

 
49,166

 
492

 
49,886

Net charge-offs:
 
 
 
 
 
 
 
 
Charge-offs
 
(259
)
 
(32,728
)
 
(20
)
 
(33,007
)
Recoveries
 

 
4,396

 

 
4,396

Net charge-offs
 
(259
)
 
(28,332
)
 
(20
)
 
(28,611
)
Loan sales(1)
 

 
(913
)
 

 
(913
)
Ending Balance
 
$
1,606

 
$
205,024

 
$
818

 
$
207,448

Allowance:
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
95,177

 
$

 
$
95,177

Ending balance: collectively evaluated for impairment
 
$
1,606

 
$
109,847

 
$
818

 
$
112,271

Loans:
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
803,456

 
$

 
$
803,456

Ending balance: collectively evaluated for impairment
 
$
967,237

 
$
14,876,001

 
$
69,508

 
$
15,912,746

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.14
%
 
1.08
%
 
0.13
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.17
%
 
1.31
%
 
1.18
%
 
 
Allowance as a percentage of the ending loans in repayment(2)
 
0.21
%
 
1.93
%
 
1.18
%
 
 
Allowance coverage of net charge-offs (annualized)
 
1.55

 
1.81

 
10.23

 
 
Ending total loans, gross
 
$
967,237

 
$
15,679,457

 
$
69,508

 
 
Average loans in repayment(2)
 
$
757,186

 
$
10,523,225

 
$
61,439

 
 
Ending loans in repayment(2)
 
$
765,980

 
$
10,615,105

 
$
69,508

 
 
____________
(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.


17





SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
4.
Allowance for Loan Losses (Continued)
 

     
 
 
Allowance for Loan Losses
 
 
Six Months Ended June 30, 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
 
483

 
88,134

 
29,826

 
118,443

Net charge-offs:
 
 
 
 
 
 
 
 
Charge-offs
 
(542
)
 
(79,623
)
 
(4,072
)
 
(84,237
)
Recoveries
 

 
10,685

 
127

 
10,812

Net charge-offs
 
(542
)
 
(68,938
)
 
(3,945
)
 
(73,425
)
Loan sales(1)
 

 
(1,216
)
 

 
(1,216
)
Ending Balance
 
$
1,073

 
$
261,695

 
$
32,509

 
$
295,277

Allowance:
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
113,343

 
$

 
$
113,343

Ending balance: collectively evaluated for impairment
 
$
1,073

 
$
148,352

 
$
32,509

 
$
181,934

Loans:
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$

 
$
1,121,816

 
$

 
$
1,121,816

Ending balance: collectively evaluated for impairment
 
$
885,357

 
$
17,566,211

 
$
966,080

 
$
19,417,648

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.15
%
 
1.08
%
 
1.17
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.12
%
 
1.40
%
 
3.37
%
 
 
Allowance as a percentage of the ending loans in repayment(2)
 
0.16
%
 
2.02
%
 
3.37
%
 
 
Allowance coverage of net charge-offs (annualized)
 
0.99

 
1.90

 
4.12

 
 
Ending total loans, gross
 
$
885,357

 
$
18,688,027

 
$
966,080

 
 
Average loans in repayment(2)
 
$
709,010

 
$
12,810,072

 
$
673,552

 
 
Ending loans in repayment(2)
 
$
680,802

 
$
12,979,523

 
$
966,080

 
 
____________
(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.












18





SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
4.
Allowance for Loan Losses (Continued)
 

 
 
Allowance for Loan Losses
 
 
Six Months Ended June 30, 2017
 
 
FFELP
Loans
 
Private Education
Loans
 
Personal
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
 
 
Beginning balance
 
$
2,171

 
$
182,472

 
$
58