UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30,
2009
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number:
001-13251
SLM Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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52-2013874
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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12061 Bluemont Way, Reston, Virginia
(Address of principal
executive offices)
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20190
(Zip
Code)
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(703) 810-3000
(Registrants telephone
number, including area code)
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
o
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):
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Large
accelerated
filer
þ
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Accelerated
filer
o
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Non-accelerated
filer
o
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Smaller
reporting
company
o
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(Do not check if a 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
o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date:
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Class
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Outstanding at September 30, 2009
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Voting common stock, $.20 par value
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474,590,764 shares
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SLM
CORPORATION
FORM 10-Q
INDEX
September 30, 2009
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(1)
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Definitions for capitalized terms
used in this document can be found in the Glossary
at the end of this document.
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1
PART I.
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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SLM
CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands, except per
share amounts)
(Unaudited)
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September 30,
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December 31,
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2009
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2008
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Assets
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FFELP Stafford and Other Student Loans (net of allowance for
losses of $101,343 and $90,906, respectively)
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$
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43,257,743
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$
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44,025,361
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FFELP Stafford Loans
Held-for-Sale
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23,846,566
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8,450,976
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FFELP Consolidation Loans (net of allowance for losses of
$54,384 and $46,637, respectively)
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69,246,231
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71,743,435
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Private Education Loans (net of allowance for losses of
$1,401,496 and $1,308,043, respectively)
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22,494,955
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20,582,298
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Other loans (net of allowance for losses of $74,057 and $58,395,
respectively)
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454,557
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729,380
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Investments:
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Available-for-sale
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984,669
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861,008
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Other
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850,141
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180,397
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Total investments
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1,834,810
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1,041,405
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Cash and cash equivalents
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5,186,998
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4,070,002
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Restricted cash and investments
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5,760,583
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3,535,286
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Retained Interest in off-balance sheet securitized loans
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1,838,203
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2,200,298
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Goodwill and acquired intangible assets, net
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1,224,272
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1,249,219
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Other assets
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11,299,006
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11,140,777
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Total assets
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$
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186,443,924
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$
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168,768,437
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Liabilities
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Short-term borrowings
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$
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53,406,554
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$
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41,933,043
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Long-term borrowings
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124,647,818
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118,224,794
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Other liabilities
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3,400,527
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3,604,260
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Total liabilities
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181,454,899
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163,762,097
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Commitments and contingencies
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Equity
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Preferred stock, par value $.20 per share, 20,000 shares
authorized:
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Series A: 3,300 and 3,300 shares, respectively, issued
at stated value of $50 per share
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165,000
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165,000
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Series B: 4,000 and 4,000 shares, respectively, issued
at stated value of $100 per share
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400,000
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400,000
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Series C: 7.25% mandatory convertible preferred stock;
1,012 and 1,150 shares, respectively, issued at liquidation
preference of $1,000 per share
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1,012,370
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1,149,770
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Common stock, par value $.20 per share, 1,125,000 shares
authorized: 541,849 and 534,411 shares issued, respectively
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108,362
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106,883
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Additional paid-in capital
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4,862,071
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4,684,112
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Accumulated other comprehensive loss (net of tax benefit of
$25,176 and $43,202, respectively)
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(44,143
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)
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(76,476
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)
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Retained earnings
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346,347
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426,175
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Total SLM Corporation stockholders equity before treasury
stock
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6,850,007
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6,855,464
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Common stock held in treasury at cost: 67,159 and
66,958 shares, respectively
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1,860,989
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1,856,394
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Total SLM Corporation stockholders equity
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4,989,018
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4,999,070
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Noncontrolling interest
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7
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7,270
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Total equity
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4,989,025
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5,006,340
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Total liabilities and equity
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$
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186,443,924
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$
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168,768,437
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See accompanying notes to consolidated financial statements.
2
SLM
CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands, except per
share amounts)
(Unaudited)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2009
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2008
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2009
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2008
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Interest income:
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FFELP Stafford and Other Student Loans
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$
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303,192
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$
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516,116
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$
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969,947
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$
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1,478,190
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FFELP Consolidation Loans
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481,592
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830,566
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1,431,644
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2,436,886
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Private Education Loans
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396,339
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445,572
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1,176,399
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1,298,417
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Other loans
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11,042
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19,874
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45,930
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64,573
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Cash and investments
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6,881
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|
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57,154
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19,896
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251,491
|
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|
|
|
|
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|
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|
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Total interest income
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1,199,046
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1,869,282
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3,643,816
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5,529,557
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Total interest expense
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|
673,870
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|
|
1,394,533
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2,519,876
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4,375,896
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|
|
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|
|
|
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|
|
|
|
|
|
|
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Net interest income
|
|
|
525,176
|
|
|
|
474,749
|
|
|
|
1,123,940
|
|
|
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1,153,661
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Less: provisions for loan losses
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|
321,127
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|
|
|
186,909
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|
|
|
849,518
|
|
|
|
467,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net interest income after provisions for loan losses
|
|
|
204,049
|
|
|
|
287,840
|
|
|
|
274,422
|
|
|
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686,426
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Servicing and securitization revenue
|
|
|
155,065
|
|
|
|
64,990
|
|
|
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147,248
|
|
|
|
174,262
|
|
Gains (losses) on sales of loans and securities, net
|
|
|
12,452
|
|
|
|
(43,899
|
)
|
|
|
12,752
|
|
|
|
(122,148
|
)
|
Gains (losses) on derivative and hedging activities, net
|
|
|
(111,556
|
)
|
|
|
(241,757
|
)
|
|
|
(569,326
|
)
|
|
|
(152,510
|
)
|
Contingency fee revenue
|
|
|
82,200
|
|
|
|
89,418
|
|
|
|
230,383
|
|
|
|
258,514
|
|
Collections revenue (loss)
|
|
|
15,580
|
|
|
|
(170,692
|
)
|
|
|
16,318
|
|
|
|
(87,088
|
)
|
Guarantor servicing fees
|
|
|
48,087
|
|
|
|
36,848
|
|
|
|
106,867
|
|
|
|
95,164
|
|
Other
|
|
|
150,006
|
|
|
|
93,096
|
|
|
|
741,229
|
|
|
|
295,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
351,834
|
|
|
|
(171,996
|
)
|
|
|
685,471
|
|
|
|
461,551
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
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Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
142,435
|
|
|
|
157,408
|
|
|
|
418,775
|
|
|
|
504,925
|
|
Other operating expenses
|
|
|
176,185
|
|
|
|
209,744
|
|
|
|
516,513
|
|
|
|
571,563
|
|
Restructuring expenses
|
|
|
3,592
|
|
|
|
10,508
|
|
|
|
12,795
|
|
|
|
77,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
322,212
|
|
|
|
377,660
|
|
|
|
948,083
|
|
|
|
1,154,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income tax benefit
|
|
|
233,671
|
|
|
|
(261,816
|
)
|
|
|
11,810
|
|
|
|
(6,437
|
)
|
Income tax expense (benefit)
|
|
|
74,363
|
|
|
|
(103,819
|
)
|
|
|
(3,884
|
)
|
|
|
(13,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
159,308
|
|
|
|
(157,997
|
)
|
|
|
15,694
|
|
|
|
6,796
|
|
Less: net income attributable to noncontrolling interest
|
|
|
198
|
|
|
|
544
|
|
|
|
690
|
|
|
|
3,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to SLM Corporation
|
|
|
159,110
|
|
|
|
(158,541
|
)
|
|
|
15,004
|
|
|
|
3,391
|
|
Preferred stock dividends
|
|
|
42,627
|
|
|
|
27,474
|
|
|
|
94,822
|
|
|
|
83,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to SLM Corporation common stock
|
|
$
|
116,483
|
|
|
$
|
(186,015
|
)
|
|
$
|
(79,818
|
)
|
|
$
|
(80,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share attributable to SLM
Corporation common shareholders
|
|
$
|
.25
|
|
|
$
|
(.40
|
)
|
|
$
|
(.17
|
)
|
|
$
|
(.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
470,280
|
|
|
|
466,646
|
|
|
|
467,960
|
|
|
|
466,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share attributable to SLM
Corporation common shareholders
|
|
$
|
.25
|
|
|
$
|
(.40
|
)
|
|
$
|
(.17
|
)
|
|
$
|
(.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common and common equivalent shares outstanding
|
|
|
471,058
|
|
|
|
466,646
|
|
|
|
467,960
|
|
|
|
466,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share attributable to SLM Corporation
common shareholders
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
SLM
CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY
(Dollars in thousands, except share and per
share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Common Stock Shares
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Issued
|
|
|
Treasury
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Stock
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
Balance at June 30, 2008
|
|
|
8,450,000
|
|
|
|
534,010,178
|
|
|
|
(66,444,785
|
)
|
|
|
467,565,393
|
|
|
$
|
1,715,000
|
|
|
$
|
106,802
|
|
|
$
|
4,637,731
|
|
|
$
|
61,994
|
|
|
$
|
855,527
|
|
|
$
|
(1,842,050
|
)
|
|
$
|
5,535,004
|
|
|
$
|
9,480
|
|
|
$
|
5,544,484
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(158,541
|
)
|
|
|
|
|
|
|
(158,541
|
)
|
|
|
544
|
|
|
|
(157,997
|
)
|
Noncontrolling interest other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,483
|
)
|
|
|
(1,483
|
)
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,686
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,686
|
)
|
|
|
|
|
|
|
(4,686
|
)
|
Change in unrealized gains (losses) on derivatives, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,338
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,338
|
)
|
|
|
|
|
|
|
(10,338
|
)
|
Defined benefit pension plans adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
|
|
|
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(173,848
|
)
|
|
|
(939
|
)
|
|
|
(174,787
|
)
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, series A ($.87 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,875
|
)
|
|
|
|
|
|
|
(2,875
|
)
|
|
|
|
|
|
|
(2,875
|
)
|
Preferred stock, series B ($.89 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,592
|
)
|
|
|
|
|
|
|
(3,592
|
)
|
|
|
|
|
|
|
(3,592
|
)
|
Preferred stock, series C ($18.13 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,843
|
)
|
|
|
|
|
|
|
(20,843
|
)
|
|
|
|
|
|
|
(20,843
|
)
|
Restricted stock dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
Issuance of common shares
|
|
|
|
|
|
|
399,904
|
|
|
|
525
|
|
|
|
400,429
|
|
|
|
|
|
|
|
80
|
|
|
|
11,654
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
11,743
|
|
|
|
|
|
|
|
11,743
|
|
Issuance of preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
|
|
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred shares
|
|
|
(230
|
)
|
|
|
9,595
|
|
|
|
|
|
|
|
9,595
|
|
|
|
(230
|
)
|
|
|
2
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit related to employee stock option and purchase plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,342
|
)
|
|
|
|
|
|
|
(3,342
|
)
|
Stock-based compensation cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,179
|
|
|
|
|
|
|
|
19,179
|
|
Repurchase of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit plans
|
|
|
|
|
|
|
|
|
|
|
(507,731
|
)
|
|
|
(507,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,299
|
)
|
|
|
(14,299
|
)
|
|
|
|
|
|
|
(14,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
|
8,449,770
|
|
|
|
534,419,677
|
|
|
|
(66,951,991
|
)
|
|
|
467,467,686
|
|
|
$
|
1,714,770
|
|
|
$
|
106,884
|
|
|
$
|
4,665,614
|
|
|
$
|
46,687
|
|
|
$
|
669,509
|
|
|
$
|
(1,856,340
|
)
|
|
$
|
5,347,124
|
|
|
$
|
8,541
|
|
|
$
|
5,355,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
|
8,449,770
|
|
|
|
534,841,879
|
|
|
|
(67,128,199
|
)
|
|
|
467,713,680
|
|
|
$
|
1,714,770
|
|
|
$
|
106,969
|
|
|
$
|
4,709,053
|
|
|
$
|
(48,683
|
)
|
|
$
|
229,865
|
|
|
$
|
(1,860,440
|
)
|
|
$
|
4,851,534
|
|
|
$
|
5
|
|
|
$
|
4,851,539
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,110
|
|
|
|
|
|
|
|
159,110
|
|
|
|
198
|
|
|
|
159,308
|
|
Noncontrolling interest other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(196
|
)
|
|
|
(196
|
)
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,420
|
|
|
|
|
|
|
|
|
|
|
|
1,420
|
|
|
|
|
|
|
|
1,420
|
|
Change in unrealized gains (losses) on derivatives, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,346
|
|
|
|
|
|
|
|
|
|
|
|
3,346
|
|
|
|
|
|
|
|
3,346
|
|
Defined benefit pension plans adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
(226
|
)
|
|
|
|
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,650
|
|
|
|
2
|
|
|
|
163,652
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, series A ($.87 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,875
|
)
|
|
|
|
|
|
|
(2,875
|
)
|
|
|
|
|
|
|
(2,875
|
)
|
Preferred stock, series B ($.34 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,299
|
)
|
|
|
|
|
|
|
(1,299
|
)
|
|
|
|
|
|
|
(1,299
|
)
|
Preferred stock, series C ($18.13 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,906
|
)
|
|
|
|
|
|
|
(17,906
|
)
|
|
|
|
|
|
|
(17,906
|
)
|
Restricted stock dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Issuance of common shares
|
|
|
|
|
|
|
15,048
|
|
|
|
|
|
|
|
15,048
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
274
|
|
|
|
|
|
|
|
274
|
|
Issuance of preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
|
|
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred shares
|
|
|
(137,400
|
)
|
|
|
6,992,368
|
|
|
|
|
|
|
|
6,992,368
|
|
|
|
(137,400
|
)
|
|
|
1,398
|
|
|
|
146,423
|
|
|
|
|
|
|
|
(20,383
|
)
|
|
|
|
|
|
|
(9,962
|
)
|
|
|
|
|
|
|
(9,962
|
)
|
Tax benefit related to employee stock option and purchase plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,843
|
)
|
|
|
|
|
|
|
(2,843
|
)
|
Stock-based compensation cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,995
|
|
|
|
|
|
|
|
8,995
|
|
Repurchase of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit plans
|
|
|
|
|
|
|
|
|
|
|
(30,876
|
)
|
|
|
(30,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(549
|
)
|
|
|
(549
|
)
|
|
|
|
|
|
|
(549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
|
8,312,370
|
|
|
|
541,849,295
|
|
|
|
(67,159,075
|
)
|
|
|
474,690,220
|
|
|
$
|
1,577,370
|
|
|
$
|
108,362
|
|
|
$
|
4,862,071
|
|
|
$
|
(44,143
|
)
|
|
$
|
346,347
|
|
|
$
|
(1,860,989
|
)
|
|
$
|
4,989,018
|
|
|
$
|
7
|
|
|
$
|
4,989,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
SLM
CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY
(Dollars in thousands, except share and per
share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Common Stock Shares
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Issued
|
|
|
Treasury
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Stock
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
Balance at December 31, 2007
|
|
|
8,300,000
|
|
|
|
532,493,081
|
|
|
|
(65,951,394
|
)
|
|
|
466,541,687
|
|
|
$
|
1,565,000
|
|
|
$
|
106,499
|
|
|
$
|
4,590,174
|
|
|
$
|
236,364
|
|
|
$
|
557,204
|
|
|
$
|
(1,831,706
|
)
|
|
$
|
5,223,535
|
|
|
$
|
11,360
|
|
|
$
|
5,234,895
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,391
|
|
|
|
|
|
|
|
3,391
|
|
|
|
3,405
|
|
|
|
6,796
|
|
Acquisition of noncontrolling interest in Purchased Paper
business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,355
|
)
|
|
|
(4,355
|
)
|
Noncontrolling interest other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,869
|
)
|
|
|
(1,869
|
)
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,199
|
)
|
|
|
|
|
|
|
|
|
|
|
(26,199
|
)
|
|
|
|
|
|
|
(26,199
|
)
|
Change in unrealized gains (losses) on derivatives, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,932
|
|
|
|
|
|
|
|
|
|
|
|
31,932
|
|
|
|
|
|
|
|
31,932
|
|
Defined benefit pension plans adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(755
|
)
|
|
|
|
|
|
|
|
|
|
|
(755
|
)
|
|
|
|
|
|
|
(755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,369
|
|
|
|
(2,819
|
)
|
|
|
5,550
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, series A ($2.61 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,625
|
)
|
|
|
|
|
|
|
(8,625
|
)
|
|
|
|
|
|
|
(8,625
|
)
|
Preferred stock, series B ($3.20 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,489
|
)
|
|
|
|
|
|
|
(12,489
|
)
|
|
|
|
|
|
|
(12,489
|
)
|
Preferred stock, series C ($51.36 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,289
|
)
|
|
|
|
|
|
|
(62,289
|
)
|
|
|
|
|
|
|
(62,289
|
)
|
Restricted stock dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,851
|
)
|
|
|
|
|
|
|
(1,851
|
)
|
|
|
|
|
|
|
(1,851
|
)
|
Issuance of common shares
|
|
|
|
|
|
|
1,917,001
|
|
|
|
3,667
|
|
|
|
1,920,668
|
|
|
|
|
|
|
|
383
|
|
|
|
30,358
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
|
|
30,820
|
|
|
|
|
|
|
|
30,820
|
|
Issuance of preferred shares
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
(4,168
|
)
|
|
|
|
|
|
|
(487
|
)
|
|
|
|
|
|
|
145,345
|
|
|
|
|
|
|
|
145,345
|
|
Conversion of preferred shares
|
|
|
(230
|
)
|
|
|
9,595
|
|
|
|
|
|
|
|
9,595
|
|
|
|
(230
|
)
|
|
|
2
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit related to employee stock option and purchase plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,358
|
)
|
|
|
|
|
|
|
(13,358
|
)
|
Stock-based compensation cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,380
|
|
|
|
|
|
|
|
62,380
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(194,655
|
)
|
|
|
194,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit plans
|
|
|
|
|
|
|
|
|
|
|
(1,004,264
|
)
|
|
|
(1,004,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,713
|
)
|
|
|
(24,713
|
)
|
|
|
|
|
|
|
(24,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
|
8,449,770
|
|
|
|
534,419,677
|
|
|
|
(66,951,991
|
)
|
|
|
467,467,686
|
|
|
$
|
1,714,770
|
|
|
$
|
106,884
|
|
|
$
|
4,665,614
|
|
|
$
|
46,687
|
|
|
$
|
669,509
|
|
|
$
|
(1,856,340
|
)
|
|
$
|
5,347,124
|
|
|
$
|
8,541
|
|
|
$
|
5,355,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
8,449,770
|
|
|
|
534,411,271
|
|
|
|
(66,958,400
|
)
|
|
|
467,452,871
|
|
|
$
|
1,714,770
|
|
|
$
|
106,883
|
|
|
$
|
4,684,112
|
|
|
$
|
(76,476
|
)
|
|
$
|
426,175
|
|
|
$
|
(1,856,394
|
)
|
|
$
|
4,999,070
|
|
|
$
|
7,270
|
|
|
$
|
5,006,340
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,004
|
|
|
|
|
|
|
|
15,004
|
|
|
|
690
|
|
|
|
15,694
|
|
Sale of international Purchased Paper Non-Mortgage
business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,257
|
)
|
|
|
(7,257
|
)
|
Noncontrolling interest other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(696
|
)
|
|
|
(696
|
)
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,689
|
|
|
|
|
|
|
|
|
|
|
|
3,689
|
|
|
|
|
|
|
|
3,689
|
|
Change in unrealized gains (losses) on derivatives, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,361
|
|
|
|
|
|
|
|
|
|
|
|
29,361
|
|
|
|
|
|
|
|
29,361
|
|
Defined benefit pension plans adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(717
|
)
|
|
|
|
|
|
|
|
|
|
|
(717
|
)
|
|
|
|
|
|
|
(717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,337
|
|
|
|
(7,263
|
)
|
|
|
40,074
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, series A ($2.61 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,625
|
)
|
|
|
|
|
|
|
(8,625
|
)
|
|
|
|
|
|
|
(8,625
|
)
|
Preferred stock, series B ($1.51 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,742
|
)
|
|
|
|
|
|
|
(5,742
|
)
|
|
|
|
|
|
|
(5,742
|
)
|
Preferred stock, series C ($54.38 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,586
|
)
|
|
|
|
|
|
|
(59,586
|
)
|
|
|
|
|
|
|
(59,586
|
)
|
Restricted stock dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
Issuance of common shares
|
|
|
|
|
|
|
445,656
|
|
|
|
98
|
|
|
|
445,754
|
|
|
|
|
|
|
|
81
|
|
|
|
2,505
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
2,591
|
|
|
|
|
|
|
|
2,591
|
|
Issuance of preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
486
|
|
|
|
|
|
|
|
(486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred shares
|
|
|
(137,400
|
)
|
|
|
6,992,368
|
|
|
|
|
|
|
|
6,992,368
|
|
|
|
(137,400
|
)
|
|
|
1,398
|
|
|
|
146,423
|
|
|
|
|
|
|
|
(20,383
|
)
|
|
|
|
|
|
|
(9,962
|
)
|
|
|
|
|
|
|
(9,962
|
)
|
Tax benefit related to employee stock option and purchase plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,662
|
)
|
|
|
|
|
|
|
(8,662
|
)
|
Stock-based compensation cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,207
|
|
|
|
|
|
|
|
37,207
|
|
Repurchase of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit plans
|
|
|
|
|
|
|
|
|
|
|
(200,773
|
)
|
|
|
(200,773
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,600
|
)
|
|
|
(4,600
|
)
|
|
|
|
|
|
|
(4,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
|
8,312,370
|
|
|
|
541,849,295
|
|
|
|
(67,159,075
|
)
|
|
|
474,690,220
|
|
|
$
|
1,577,370
|
|
|
$
|
108,362
|
|
|
$
|
4,862,071
|
|
|
$
|
(44,143
|
)
|
|
$
|
346,347
|
|
|
$
|
(1,860,989
|
)
|
|
$
|
4,989,018
|
|
|
$
|
7
|
|
|
$
|
4,989,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
SLM
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,694
|
|
|
$
|
6,796
|
|
Adjustments to reconcile net income to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
(Gains) losses on sales of loans and securities, net
|
|
|
(12,752
|
)
|
|
|
122,148
|
|
Stock-based compensation cost
|
|
|
40,073
|
|
|
|
69,937
|
|
Unrealized (gains)/losses on derivative and hedging activities
|
|
|
491,644
|
|
|
|
125,457
|
|
Provisions for loan losses
|
|
|
849,518
|
|
|
|
467,235
|
|
Decrease in purchased paper mortgages, net
|
|
|
233,130
|
|
|
|
200,098
|
|
Student loans originated for sale, net
|
|
|
(15,846,043
|
)
|
|
|
(4,102,691
|
)
|
Decrease in restricted cash other
|
|
|
44,201
|
|
|
|
61,131
|
|
Decrease (increase) in accrued interest receivable
|
|
|
241,377
|
|
|
|
(240,906
|
)
|
(Decrease) in accrued interest payable
|
|
|
(439,920
|
)
|
|
|
(192,335
|
)
|
Adjustment for non-cash loss related to Retained Interest
|
|
|
333,951
|
|
|
|
361,141
|
|
Decrease in other assets, goodwill and acquired intangible
assets, net
|
|
|
91,405
|
|
|
|
361,804
|
|
Increase (decrease) in other liabilities
|
|
|
40,870
|
|
|
|
(149,966
|
)
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(13,932,546
|
)
|
|
|
(2,916,947
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(13,916,852
|
)
|
|
|
(2,910,151
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Student loans acquired
|
|
|
(7,211,675
|
)
|
|
|
(20,527,609
|
)
|
Loans purchased from securitized trusts
|
|
|
(5,030
|
)
|
|
|
(1,201,058
|
)
|
Reduction of student loans:
|
|
|
|
|
|
|
|
|
Installment payments, claims and other
|
|
|
7,997,484
|
|
|
|
7,997,789
|
|
Proceeds from sales of student loans
|
|
|
515,140
|
|
|
|
25,844
|
|
Other loans originated
|
|
|
(2,818
|
)
|
|
|
(1,097,231
|
)
|
Other loans repaid
|
|
|
237,980
|
|
|
|
1,470,040
|
|
Other investing activities, net
|
|
|
(676,612
|
)
|
|
|
(67,006
|
)
|
Purchases of
available-for-sale
securities
|
|
|
(104,663,811
|
)
|
|
|
(93,787,195
|
)
|
Proceeds from sales of
available-for-sale
securities
|
|
|
100,056
|
|
|
|
|
|
Proceeds from maturities of
available-for-sale
securities
|
|
|
104,417,273
|
|
|
|
95,830,890
|
|
Purchase of
held-to-maturity
and other securities
|
|
|
|
|
|
|
(500,255
|
)
|
Proceeds from maturities of
held-to-maturity
securities and other securities
|
|
|
68,991
|
|
|
|
12,502
|
|
(Increase) decrease in restricted cash on-balance
sheet trusts
|
|
|
(1,318,410
|
)
|
|
|
629,001
|
|
Return of investment from Retained Interest
|
|
|
16,361
|
|
|
|
352,633
|
|
Purchase of subsidiaries, net of cash acquired
|
|
|
|
|
|
|
(37,868
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(525,071
|
)
|
|
|
(10,899,523
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Borrowings collateralized by loans in trust issued
|
|
|
11,572,592
|
|
|
|
17,986,955
|
|
Borrowings collateralized by loans in trust repaid
|
|
|
(4,196,889
|
)
|
|
|
(4,819,485
|
)
|
Asset-backed commercial paper conduits, net
|
|
|
(15,504,025
|
)
|
|
|
(1,733,537
|
)
|
ED Participation Program, net
|
|
|
15,499,015
|
|
|
|
3,554,618
|
|
ED Conduit Program facility, net
|
|
|
14,189,923
|
|
|
|
|
|
Other short-term borrowings issued
|
|
|
298,294
|
|
|
|
2,001,875
|
|
Other short-term borrowings repaid
|
|
|
(1,198,661
|
)
|
|
|
(1,067,281
|
)
|
Other long-term borrowings issued
|
|
|
4,333,173
|
|
|
|
2,437,226
|
|
Other long-term borrowings repaid
|
|
|
(8,335,181
|
)
|
|
|
(8,495,343
|
)
|
Other financing activities, net
|
|
|
(1,006,261
|
)
|
|
|
195,843
|
|
Excess tax benefit from the exercise of stock-based awards
|
|
|
|
|
|
|
281
|
|
Common stock issued
|
|
|
6
|
|
|
|
5,983
|
|
Preferred stock issued
|
|
|
|
|
|
|
145,345
|
|
Preferred dividends paid
|
|
|
(83,915
|
)
|
|
|
(83,403
|
)
|
Noncontrolling interest, net
|
|
|
(9,152
|
)
|
|
|
(5,581
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
15,558,919
|
|
|
|
10,123,496
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,116,996
|
|
|
|
(3,686,178
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
4,070,002
|
|
|
|
7,582,031
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
5,186,998
|
|
|
$
|
3,895,853
|
|
|
|
|
|
|
|
|
|
|
Cash disbursements made for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,070,349
|
|
|
$
|
4,801,466
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
292,115
|
|
|
$
|
697,146
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
6
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
1.
|
Significant
Accounting Policies
|
Basis
of Presentation
The accompanying unaudited, consolidated financial statements of
SLM Corporation (the Company or Sallie
Mae) 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 of the information and
footnotes required by GAAP for complete consolidated financial
statements. 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 September 30, 2009 are
not necessarily indicative of the results for the year ending
December 31, 2009. These unaudited financial statements
should be read in conjunction with the audited financial
statements and related notes included in the Companys 2008
Annual Report on
Form 10-K.
Management has evaluated subsequent events, and the impact on
the reported results and disclosures, through November 4,
2009, which is the date these financial statements were issued.
Reclassifications
Certain reclassifications have been made to the balances as of
and for the three and nine months ended September 30, 2008
to be consistent with classifications adopted for 2009, and had
no effect on net income, total assets, or total liabilities.
Recently
Issued Accounting Pronouncements
FASB
Accounting Standards Codification
The Company adopted, as of July 1, 2009, the Financial
Accounting Standards Boards (FASBs)
Accounting Standards Codification (ASC) as the
source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP. The
ASC does not change authoritative guidance. Accordingly,
implementing the ASC did not change any of the Companys
accounting, and therefore, did not have an impact on the
consolidated results of the Company. References to authoritative
GAAP literature have been updated accordingly.
Transfers
of Financial Assets and the Variable Interest Entity
(VIE) Consolidation Model
In June 2009, the FASB issued topic updates to ASC 860,
Transfers and Servicing, and to ASC 810,
Consolidation.
The topic update to ASC 860, among other things,
(1) eliminates the concept of a Qualifying Special Purpose
Entity (QSPE), (2) changes the requirements for
derecognizing financial assets, (3) changes the amount of
the recognized gain/loss on a transfer accounted for as a sale
when beneficial interests are received by the transferor, and
(4) requires additional disclosure. The topic update to ASC
860 is effective for fiscal years beginning after
November 15, 2009.
The topic update to ASC 810 significantly changes the
consolidation model for Variable Interest Entities
(VIEs). The topic update amends ASC 810 and, among
other things, (1) eliminates the exemption for QSPEs,
(2) provides a new approach for determining who should
consolidate a VIE, that is more focused on control rather than
economic interest, (3) changes when it is necessary to
reassess who should consolidate a
7
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
1.
|
Significant
Accounting Policies (Continued)
|
VIE and (4) requires additional disclosure. The topic
update to ASC 810 is effective for the first annual reporting
period beginning after November 15, 2009.
The Company is currently evaluating the impact of these topic
updates to its consolidated financial statements. Based on the
Companys preliminary review, management expects these
changes will lead to the consolidation of QSPEs that are
currently not consolidated by the Company. Assuming no changes
to the Companys current business model, the Company will
consolidate its securitization trusts that are currently
off-balance sheet on January 1, 2010 at their historical
cost basis. The historical cost basis is the basis that would
exist if these securitization trusts had remained on balance
sheet since they settled. These new accounting rules would also
be applied to new transactions entered into from January 1,
2010 forward. If these topic updates had been adopted as of
September 30, 2009, the Company would have removed the
$1.8 billion of Residual Interests associated with these
trusts from the consolidated balance sheet and the Company would
have consolidated $36.1 billion of assets and
$35.4 billion of liabilities, which would have resulted in
an approximate $0.7 billion after-tax reduction of
stockholders equity as of September 30, 2009.
Management allocates capital on a Managed Basis. This change
will not impact managements view of capital adequacy.
Subsequent
Events
In May 2009, the FASB issued a topic update on ASC 855,
Subsequent Events. This topic update is intended to
establish general standards of accounting for, and disclosure
of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
Specifically, this topic update sets forth the period after the
balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements,
the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should
make about events or transactions that occurred after the
balance sheet date. The topic update to ASC 855 is effective for
fiscal years and interim periods ending after June 15,
2009. The Company adopted this topic update effective
June 15, 2009 and has evaluated any events subsequent to
September 30, 2009, and their impact on the reported
results and disclosures, through the date of this filing.
Fair
Value Measurements
In August 2009, the FASB issued a topic update to ASC 820,
Fair Value Measurements and Disclosures. The update
provides clarification for the valuation of liabilities when a
quoted price in an active market for the liability does not
exist, and clarifies that a quoted price for the liability when
traded as an asset (when no adjustments are required) is a
Level 1 fair value measurement. In addition, it also
clarifies that an entity is not required to adjust the value of
a liability for the existence of a restriction that prevents the
transfer of the liability. This topic update is effective for
the Company beginning October 1, 2009 and will not be
material to the Company.
On April 9, 2009, the FASB issued three ASC topic updates
regarding fair value measurements and recognition of impairment.
Under ASC 320, Investments Debt and Equity
Securities, impairment must be recorded within the
consolidated statements of income for debt securities if there
exists a fair value loss and the entity intends to sell the
security or it is more likely than not the entity will be
required to sell the security before recovery of the loss.
Additionally, expected credit losses must be recorded through
income regardless of the impairment determination above.
Remaining fair value losses are recorded to other comprehensive
income. ASC 825, Financial Instruments, requires
interim disclosures of the fair value of financial
8
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
1.
|
Significant
Accounting Policies (Continued)
|
instruments that were previously only required annually.
Finally, the topic update to ASC 820, Fair Value
Measurements and Disclosures, provides guidance for
determining when a significant decrease in market activity has
occurred and when a transaction is not orderly. It further
reiterates that prices from inactive markets or disorderly
transactions should carry less weight, if any, to the
determination of fair value. These topic updates were effective
for the Company beginning April 1, 2009. The adoption of
these topic updates was not material to the Company.
On February 12, 2008, the FASB issued another topic update
on ASC 820, which defers the effective date of the topic for
nonfinancial assets and liabilities, except for such items that
are recognized or disclosed at fair value in the financial
statements on a recurring basis. This topic update delayed the
implementation of these areas of ASC 820 for the Companys
accounting of goodwill, acquired intangibles, and other
nonfinancial assets and liabilities that are measured at the
lower of cost or market until January 1, 2009. Adoption of
this topic update was not material to the Company.
Business
Combinations
In December 2007, the FASB issued a topic update to ASC 805,
Business Combinations. The update requires the
acquiring entity in a business combination to recognize the
entire acquisition-date fair value of assets acquired and
liabilities assumed in both full and partial acquisitions;
changes the recognition of assets acquired and liabilities
assumed related to contingencies; changes the recognition and
measurement of contingent consideration; requires expensing of
most transaction and restructuring costs; and requires
additional disclosures to enable the users of the financial
statements to evaluate and understand the nature and financial
effect of the business combination. The ASC 805 topic update
applies to all transactions or other events in which the Company
obtains control of one or more businesses. The ASC topic update
applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the reporting
period beginning on or after December 15, 2008, which for
the Company was January 1, 2009. The adoption of this topic
update on January 1, 2009 did not have a material effect on
the Companys results of operations or financial position.
In February 2009, the FASB issued another topic update to ASC
805. This additional update amends the provisions related to the
initial recognition and measurement, subsequent measurement and
disclosure of assets and liabilities arising from contingencies
in a business combination under ASC 805. The ASC topic update
had the same effective date as the topic update to ASC 805
referenced above. The adoption of this topic update did not have
a material effect on the Companys results of operations or
financial position.
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued a topic update to ASC 810,
Consolidation. This update requires reporting
entities to present noncontrolling (minority) interests as
equity (as opposed to presentation as a liability or mezzanine
equity) and provides guidance on the accounting for transactions
between an entity and noncontrolling interests. On
January 1, 2009, the Company adopted this ASC topic update,
the provisions of which, among other things, require that
minority interests be renamed noncontrolling
interests and that a company present a consolidated net
income (loss) measure that includes the amount attributable to
such noncontrolling interests for all periods
presented. The topic update to ASC 810 applies prospectively for
reporting periods beginning on or after December 15, 2008,
except for the presentation and disclosure requirements which
are applied retrospectively for all periods presented. The
Company has reclassified financial statement line items within
its consolidated balance sheets, statements of income,
statements of
9
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
1.
|
Significant
Accounting Policies (Continued)
|
changes in stockholders equity and statements of cash
flows for the prior period to conform to this topic update.
Other than the change in presentation of noncontrolling
interests, the adoption of this topic update had no impact on
the consolidated financial statements.
Disclosures
about Derivative Investments and Hedging Activities
In March 2008, the FASB updated ASC 815, Derivatives and
Hedging. This topic update requires enhanced disclosures
about an entitys derivative and hedging activities,
including (1) how and why an entity uses derivative
instruments, (2) how derivative instruments and related
hedged items are accounted for under ASC 815 and its related
interpretations, and (3) how derivative instruments and
related hedged items affect an entitys financial position,
financial performance, and cash flows. To meet those objectives,
the topic update requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts and gains and losses on
derivative instruments, and disclosures about
credit-risk-related contingent features in derivative
agreements. This ASC topic update is effective for financial
statements issued for fiscal years and interim periods beginning
after November 15, 2008. The Company adopted this topic
update on January 1, 2009.
|
|
2.
|
Allowance
for Loan Losses
|
The Companys provisions for loan losses represent the
periodic expense of maintaining an allowance sufficient to
absorb incurred losses, net of recoveries, in the
held-for-investment
loan portfolios. The evaluation of the provisions for loan
losses is inherently subjective as it requires material
estimates that may be susceptible to significant changes. The
Company believes that the allowance for loan losses is
appropriate to cover probable losses incurred in the loan
portfolios.
The following table summarizes the total loan provisions for the
three and nine months ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Private Education Loans
|
|
$
|
287,315
|
|
|
$
|
135,813
|
|
|
$
|
732,619
|
|
|
$
|
374,262
|
|
FFELP Stafford and Other Student Loans
|
|
|
20,918
|
|
|
|
40,407
|
|
|
|
80,911
|
|
|
|
75,805
|
|
Mortgage and consumer loans
|
|
|
12,894
|
|
|
|
10,689
|
|
|
|
35,988
|
|
|
|
17,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provisions for loan losses
|
|
$
|
321,127
|
|
|
$
|
186,909
|
|
|
$
|
849,518
|
|
|
$
|
467,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
2.
|
Allowance
for Loan Losses (Continued)
|
Allowance
for Private Education Loan Losses
The following table summarizes changes in the allowance for loan
losses for Private Education Loans for the three and nine months
ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Allowance at beginning of period
|
|
$
|
1,396,707
|
|
|
$
|
1,129,000
|
|
|
$
|
1,308,043
|
|
|
$
|
1,003,964
|
|
Provision for Private Education Loan losses
|
|
|
287,315
|
|
|
|
135,813
|
|
|
|
732,619
|
|
|
|
374,262
|
|
Charge-offs
|
|
|
(292,845
|
)
|
|
|
(76,312
|
)
|
|
|
(670,603
|
)
|
|
|
(205,913
|
)
|
Reclassification of interest
reserve
(1)
|
|
|
10,319
|
|
|
|
8,393
|
|
|
|
31,437
|
|
|
|
24,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of period
|
|
$
|
1,401,496
|
|
|
$
|
1,196,894
|
|
|
$
|
1,401,496
|
|
|
$
|
1,196,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs as a percentage of average loans in repayment
(annualized)
|
|
|
9.6
|
%
|
|
|
3.5
|
%
|
|
|
7.7
|
%
|
|
|
3.5
|
%
|
Charge-offs as a percentage of average loans in repayment and
forbearance (annualized)
|
|
|
8.9
|
%
|
|
|
3.1
|
%
|
|
|
7.1
|
%
|
|
|
3.0
|
%
|
Allowance as a percentage of the ending total loan balance
|
|
|
5.7
|
%
|
|
|
5.6
|
%
|
|
|
5.7
|
%
|
|
|
5.6
|
%
|
Allowance as a percentage of ending loans in repayment
|
|
|
11.4
|
%
|
|
|
13.3
|
%
|
|
|
11.4
|
%
|
|
|
13.3
|
%
|
Allowance coverage of charge-offs (annualized)
|
|
|
1.2
|
|
|
|
3.9
|
|
|
|
1.6
|
|
|
|
4.4
|
|
Ending total
loans
(2)
|
|
$
|
24,439,749
|
|
|
$
|
21,548,294
|
|
|
$
|
24,439,749
|
|
|
$
|
21,548,294
|
|
Average loans in repayment
|
|
$
|
12,082,965
|
|
|
$
|
8,703,525
|
|
|
$
|
11,633,640
|
|
|
$
|
7,933,067
|
|
Ending loans in repayment
|
|
$
|
12,254,212
|
|
|
$
|
9,015,795
|
|
|
$
|
12,254,212
|
|
|
$
|
9,015,795
|
|
|
|
|
(1)
|
|
Represents the additional allowance
related to the amount of uncollectible interest reserved within
interest income that is transferred in the period to the
allowance for loan losses when interest is capitalized to a
loans principal balance.
|
|
(2)
|
|
Ending total loans represents gross
Private Education Loans, plus the receivable for partially
charged-off loans.
|
11
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
2.
|
Allowance
for Loan Losses (Continued)
|
Private
Education Loan Delinquencies
The table below presents the Companys Private Education
Loan delinquency trends as of September 30, 2009,
December 31, 2008, and September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loan Delinquencies
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
September 30, 2008
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
|
Loans
in-school/grace/deferment
(1)
|
|
$
|
10,899
|
|
|
|
|
|
|
$
|
10,159
|
|
|
|
|
|
|
$
|
11,263
|
|
|
|
|
|
Loans in
forbearance
(2)
|
|
|
851
|
|
|
|
|
|
|
|
862
|
|
|
|
|
|
|
|
1,085
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
10,458
|
|
|
|
85.3
|
%
|
|
|
9,748
|
|
|
|
87.2
|
%
|
|
|
7,902
|
|
|
|
87.6
|
%
|
Loans delinquent
31-60 days
(3)
|
|
|
551
|
|
|
|
4.5
|
|
|
|
551
|
|
|
|
4.9
|
|
|
|
393
|
|
|
|
4.4
|
|
Loans delinquent
61-90 days
(3)
|
|
|
353
|
|
|
|
2.9
|
|
|
|
296
|
|
|
|
2.6
|
|
|
|
249
|
|
|
|
2.8
|
|
Loans delinquent greater than
90 days
(3)
|
|
|
892
|
|
|
|
7.3
|
|
|
|
587
|
|
|
|
5.3
|
|
|
|
472
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans in repayment
|
|
|
12,254
|
|
|
|
100
|
%
|
|
|
11,182
|
|
|
|
100
|
%
|
|
|
9,016
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans, gross
|
|
|
24,004
|
|
|
|
|
|
|
|
22,203
|
|
|
|
|
|
|
|
21,364
|
|
|
|
|
|
Private Education Loan unamortized discount
|
|
|
(543
|
)
|
|
|
|
|
|
|
(535
|
)
|
|
|
|
|
|
|
(514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans
|
|
|
23,461
|
|
|
|
|
|
|
|
21,668
|
|
|
|
|
|
|
|
20,850
|
|
|
|
|
|
Private Education Loan receivable for partially charged-off loans
|
|
|
435
|
|
|
|
|
|
|
|
222
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
Private Education Loan allowance for losses
|
|
|
(1,401
|
)
|
|
|
|
|
|
|
(1,308
|
)
|
|
|
|
|
|
|
(1,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans, net
|
|
$
|
22,495
|
|
|
|
|
|
|
$
|
20,582
|
|
|
|
|
|
|
$
|
19,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Private Education Loans in repayment
|
|
|
|
|
|
|
51.1
|
%
|
|
|
|
|
|
|
50.4
|
%
|
|
|
|
|
|
|
42.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of Private Education Loans in
repayment
|
|
|
|
|
|
|
14.7
|
%
|
|
|
|
|
|
|
12.8
|
%
|
|
|
|
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in forbearance as a percentage of loans in repayment and
forbearance
|
|
|
|
|
|
|
6.5
|
%
|
|
|
|
|
|
|
7.2
|
%
|
|
|
|
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Loans for borrowers who may be
attending school or engaging in other permitted educational
activities and are not yet required to make payments on their
loans, e.g., residency periods for medical students or a grace
period for bar exam preparation.
|
|
(2)
|
|
Loans for borrowers who have used
their allowable deferment time or do not qualify for deferment
and need additional time to obtain employment or who have
temporarily ceased making full payments due to hardship or other
factors consistent with the established loan program servicing
procedures and policies.
|
|
(3)
|
|
The period of delinquency is based
on the number of days scheduled payments are contractually past
due.
|
12
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
2.
|
Allowance
for Loan Losses (Continued)
|
Allowance
for FFELP Loan Losses
The following table summarizes changes in the allowance for loan
losses for the FFELP loan portfolio for the three and nine
months ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Allowance at beginning of period
|
|
$
|
153,038
|
|
|
$
|
97,693
|
|
|
$
|
137,543
|
|
|
$
|
88,729
|
|
Provision for FFELP loan losses
|
|
|
20,918
|
|
|
|
40,407
|
|
|
|
80,911
|
|
|
|
75,805
|
|
Charge-offs
|
|
|
(16,977
|
)
|
|
|
(15,932
|
)
|
|
|
(60,708
|
)
|
|
|
(42,643
|
)
|
Increase (decrease) for student loan sales and other
|
|
|
(1,252
|
)
|
|
|
1,087
|
|
|
|
(2,019
|
)
|
|
|
1,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of period
|
|
$
|
155,727
|
|
|
$
|
123,255
|
|
|
$
|
155,727
|
|
|
$
|
123,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs as a percentage of average loans in repayment
(annualized)
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
Charge-offs as a percentage of average loans in repayment and
forbearance (annualized)
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
Allowance as a percentage of the ending total loan balance
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
Allowance as a percentage of ending loans in repayment
|
|
|
.2
|
%
|
|
|
.2
|
%
|
|
|
.2
|
%
|
|
|
.2
|
%
|
Allowance coverage of charge-offs (annualized)
|
|
|
2.3
|
|
|
|
1.9
|
|
|
|
1.9
|
|
|
|
2.2
|
|
Ending total loans
|
|
$
|
134,087,420
|
|
|
$
|
119,165,201
|
|
|
$
|
134,087,420
|
|
|
$
|
119,165,201
|
|
Average loans in repayment
|
|
$
|
69,679,688
|
|
|
$
|
66,858,709
|
|
|
$
|
69,195,627
|
|
|
$
|
65,691,920
|
|
Ending loans in repayment
|
|
$
|
69,832,792
|
|
|
$
|
67,074,302
|
|
|
$
|
69,832,792
|
|
|
$
|
67,074,302
|
|
The Company maintains an allowance for Risk Sharing loan losses
on its FFELP loan portfolio. The level of Risk Sharing has
varied over the past few years with legislative changes. As of
September 30, 2009, 55 percent of the on-balance sheet
FFELP loan portfolio was subject to three-percent Risk Sharing,
44 percent was subject to two-percent Risk Sharing and the
remaining 1 percent was not subject to any Risk Sharing.
13
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
2.
|
Allowance
for Loan Losses (Continued)
|
FFELP
Loan Delinquencies
The table below shows the Companys FFELP loan delinquency
trends as of September 30, 2009, December 31, 2008 and
September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loan Delinquencies
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
September 30, 2008
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
|
Loans
in-school/grace/deferment
(1)
|
|
$
|
50,795
|
|
|
|
|
|
|
$
|
39,270
|
|
|
|
|
|
|
$
|
40,056
|
|
|
|
|
|
Loans in
forbearance
(2)
|
|
|
13,459
|
|
|
|
|
|
|
|
12,483
|
|
|
|
|
|
|
|
12,035
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
57,934
|
|
|
|
83.0
|
%
|
|
|
58,811
|
|
|
|
83.8
|
%
|
|
|
56,874
|
|
|
|
84.8
|
%
|
Loans delinquent
31-60 days
(3)
|
|
|
4,225
|
|
|
|
6.0
|
|
|
|
4,044
|
|
|
|
5.8
|
|
|
|
3,707
|
|
|
|
5.5
|
|
Loans delinquent
61-90 days
(3)
|
|
|
2,041
|
|
|
|
2.9
|
|
|
|
2,064
|
|
|
|
2.9
|
|
|
|
1,683
|
|
|
|
2.5
|
|
Loans delinquent greater than
90 days
(3)
|
|
|
5,633
|
|
|
|
8.1
|
|
|
|
5,255
|
|
|
|
7.5
|
|
|
|
4,810
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP loans in repayment
|
|
|
69,833
|
|
|
|
100
|
%
|
|
|
70,174
|
|
|
|
100
|
%
|
|
|
67,074
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP loans, gross
|
|
|
134,087
|
|
|
|
|
|
|
|
121,927
|
|
|
|
|
|
|
|
119,165
|
|
|
|
|
|
FFELP loan unamortized premium
|
|
|
2,419
|
|
|
|
|
|
|
|
2,431
|
|
|
|
|
|
|
|
2,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP loans
|
|
|
136,506
|
|
|
|
|
|
|
|
124,358
|
|
|
|
|
|
|
|
121,614
|
|
|
|
|
|
FFELP loan allowance for losses
|
|
|
(156
|
)
|
|
|
|
|
|
|
(138
|
)
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP loans, net
|
|
$
|
136,350
|
|
|
|
|
|
|
$
|
124,220
|
|
|
|
|
|
|
$
|
121,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of FFELP loans in repayment
|
|
|
|
|
|
|
52.1
|
%
|
|
|
|
|
|
|
57.6
|
%
|
|
|
|
|
|
|
56.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of FFELP loans in repayment
|
|
|
|
|
|
|
17.0
|
%
|
|
|
|
|
|
|
16.2
|
%
|
|
|
|
|
|
|
15.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP loans in forbearance as a percentage of loans in repayment
and forbearance
|
|
|
|
|
|
|
16.2
|
%
|
|
|
|
|
|
|
15.1
|
%
|
|
|
|
|
|
|
15.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Loans for borrowers who may be
attending school or engaging 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, as well as loans for borrowers
who have requested extension of grace period during employment
transition or who have temporarily ceased making full payments
due to hardship or other factors.
|
|
(2)
|
|
Loans for borrowers who have used
their allowable deferment time or do not qualify for deferment,
and need additional time to obtain employment or who have
temporarily ceased making full payments due to hardship or other
factors, consistent with the 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.
|
14
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
A summary of investments and restricted investments as of
September 30, 2009 and December 31, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and other U.S. government agency
obligations
|
|
$
|
7,029
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
7,037
|
|
Other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
113,096
|
|
|
|
689
|
|
|
|
(56
|
)
|
|
|
113,729
|
|
Commercial paper and asset-backed commercial paper
|
|
|
849,985
|
|
|
|
|
|
|
|
|
|
|
|
849,985
|
|
Municipal bonds
|
|
|
10,298
|
|
|
|
2,255
|
|
|
|
|
|
|
|
12,553
|
|
Other
|
|
|
1,547
|
|
|
|
|
|
|
|
(182
|
)
|
|
|
1,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
$
|
981,955
|
|
|
$
|
2,952
|
|
|
$
|
(238
|
)
|
|
$
|
984,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and other U.S. government agency
obligations
|
|
$
|
27,366
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
27,368
|
|
Guaranteed investment contracts
|
|
|
34,619
|
|
|
|
|
|
|
|
|
|
|
|
34,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted investments
available-for-sale
|
|
$
|
61,985
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
61,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed investment contracts
|
|
$
|
3,963
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,963
|
|
Other
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted investments
held-to-maturity
|
|
$
|
4,178
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
3.
|
Investments
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and other U.S. government agency
obligations
|
|
$
|
8,908
|
|
|
$
|
195
|
|
|
$
|
|
|
|
$
|
9,103
|
|
Other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
40,907
|
|
|
|
13
|
|
|
|
(4,299
|
)
|
|
|
36,621
|
|
Commercial paper and asset-backed commercial paper
|
|
|
801,169
|
|
|
|
|
|
|
|
|
|
|
|
801,169
|
|
Municipal bonds
|
|
|
10,883
|
|
|
|
1,924
|
|
|
|
|
|
|
|
12,807
|
|
Other
|
|
|
1,673
|
|
|
|
|
|
|
|
(365
|
)
|
|
|
1,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
$
|
863,540
|
|
|
$
|
2,132
|
|
|
$
|
(4,664
|
)
|
|
$
|
861,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed investment contracts
|
|
$
|
31,914
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted investments
available-for-sale
|
|
$
|
31,914
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed investment contracts
|
|
$
|
5,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,500
|
|
Other
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted investments
held-to-maturity
|
|
$
|
5,715
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the restricted investments detailed above, at
September 30, 2009 and December 31, 2008, the Company
had restricted cash of $5.7 billion and $3.5 billion,
respectively.
As of September 30, 2009 and December 31, 2008,
$2 million and $(2) million, respectively, of the net
unrealized gain (loss) (after tax) related to
available-for-sale
investments was included in accumulated other comprehensive
income. As of September 30, 2009 and December 31,
2008, $54 million ($28 million of this is in
restricted cash and investments on the balance sheet) and
$26 million (none of which is in restricted cash and
investments on the balance sheet), respectively, of
available-for-sale
investment securities were pledged as collateral.
There were no sales of investments during the three-months ended
September 30, 2009. In the nine months ended
September 30, 2009, the Company sold
available-for-sale
securities with a fair value of $100 million, resulting in
no realized gain or loss. There were no sales of securities in
the three and nine months ended September 30, 2008. The
cost basis for these securities was determined through specific
identification of the securities sold.
16
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
3.
|
Investments
(Continued)
|
As of September 30, 2009, the stated maturities for the
investments (including restricted investments) are shown in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
Held-to-
|
|
|
Available-for-
|
|
|
|
|
|
|
Maturity
|
|
|
Sale
(1)
|
|
|
Other
|
|
|
Year of Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
|
|
|
$
|
885,755
|
|
|
$
|
779,144
|
|
2010
|
|
|
215
|
|
|
|
|
|
|
|
6,872
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
5,125
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
838
|
|
|
|
|
|
2014-2018
|
|
|
|
|
|
|
12,553
|
|
|
|
30,607
|
|
After 2018
|
|
|
3,963
|
|
|
|
147,510
|
|
|
|
28,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,178
|
|
|
$
|
1,046,656
|
|
|
$
|
850,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Available-for-sale
securities are stated at fair value.
|
At September 30, 2009 and December 31, 2008, the
Company also had other investments of $850 million and
$180 million, respectively. At September 30, 2009,
other investments included a $737 million receivable for
cash collateral posted to derivative counterparties. Other
investments also included leveraged leases which at
September 30, 2009 and December 31, 2008, totaled
$66 million and $76 million, respectively, that are
general obligations of American Airlines and Federal Express
Corporation. At September 30, 2009 and December 31,
2008, other investments also included the Companys
remaining investment in The Reserve Primary Fund totaling
$42 million and $97 million, respectively.
|
|
4.
|
Goodwill
and Acquired Intangible Assets
|
Goodwill
All acquisitions must be assigned to a reporting unit or units.
A reporting unit is the same as or one level below an operating
segment. The following table summarizes the Companys
allocation of goodwill to its reporting units.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
Lending
|
|
$
|
388
|
|
|
$
|
388
|
|
Asset Performance Group
|
|
|
401
|
|
|
|
401
|
|
Guarantor services
|
|
|
62
|
|
|
|
62
|
|
Upromise
|
|
|
140
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
991
|
|
|
$
|
991
|
|
|
|
|
|
|
|
|
|
|
17
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
4.
|
Goodwill
and Acquired Intangible Assets (Continued)
|
Impairment
Testing
The Company performs goodwill impairment testing annually in the
fourth quarter as of a September 30 valuation date or more
frequently if an event occurs or circumstances change such that
there is a potential that the fair value of a reporting unit or
reporting units may be below their respective carrying values.
On February 26, 2009, the Obama Administration (the
Administration) issued its 2010 budget request to
Congress, which included provisions that could significantly
impact the FFELP. In light of the potential implications of the
Administrations 2010 budget proposal to the Companys
business model, as well as continued uncertainty in the economy,
the tight credit markets and the Companys decline in
market capitalization during the first quarter of 2009, the
Company assessed goodwill impairment as of March 31, 2009.
This assessment resulted in estimated fair values of the
Companys reporting units in excess of their carrying
values. Accordingly, no goodwill impairment was recorded in the
first quarter.
On September 17, 2009, the House of Representatives passed
H.R. 3221, The Student Aid and Fiscal Responsibility Act
(SAFRA), which was consistent with the
Administrations 2010 budget request to Congress. SAFRA
would eliminate the FFELP and require that, after July 1,
2010, all new federal student loans be made through the Direct
Student Loan Program. The Senate has yet to take up the
legislation. In addition to reform included in the House-passed
legislation, there are several other reforms that may be
considered as the legislation moves forward. These include a
possible extension of The Ensuring Continued Access to Student
Loans Act of 2008 (ECASLA), which expires on
July 1, 2010, and the Student Loan Community Proposal, an
alternative student loan proposal endorsed by a cross-section of
FFELP service providers (including Sallie Mae).
During the third quarter, no new unfavorable events or changes
in circumstances occurred to warrant an impairment assessment as
of September 30, 2009, as SAFRA was consistent with the
Administrations 2010 budget request which was submitted to
Congress in the first quarter of 2009. Nevertheless, in light of
ongoing uncertainties associated with the Administrations
proposed budget and the economic conditions described above, the
Company continues to monitor the fair value of goodwill for each
of its reporting units on a quarterly basis. Based on the
Companys assessment that there have been no change in
circumstances associated with any of its reporting units during
the third quarter and based on its aforementioned monitoring
process, the Company concluded that goodwill was not impaired as
of September 30, 2009.
However, the Company notes that due to the uncertainties
surrounding the ongoing legislative process, there is potential
that some of its goodwill and intangible assets may be impaired,
based on the final form of legislation, if any.
18
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
4.
|
Goodwill
and Acquired Intangible Assets (Continued)
|
Acquired
Intangible Assets
Acquired intangible assets include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
As of September 30, 2009
|
|
|
|
Amortization
|
|
|
|
|
|
Accumulated
|
|
|
|
|
(Dollars in millions)
|
|
Period
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer, services, and lending relationships
|
|
|
12 years
|
|
|
$
|
332
|
|
|
$
|
(199
|
)
|
|
$
|
133
|
|
Software and technology
|
|
|
7 years
|
|
|
|
98
|
|
|
|
(88
|
)
|
|
|
10
|
|
Non-compete agreements
|
|
|
2 years
|
|
|
|
11
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
441
|
|
|
|
(298
|
)
|
|
|
143
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name and trademark
|
|
|
Indefinite
|
|
|
|
91
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired intangible assets
|
|
|
|
|
|
$
|
532
|
|
|
$
|
(298
|
)
|
|
$
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
As of December 31, 2008
|
|
|
|
Amortization
|
|
|
|
|
|
Accumulated
|
|
|
|
|
(Dollars in millions)
|
|
Period
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer, services, and lending relationships
|
|
|
13 years
|
|
|
$
|
332
|
|
|
$
|
(173
|
)
|
|
$
|
159
|
|
Software and technology
|
|
|
7 years
|
|
|
|
93
|
|
|
|
(85
|
)
|
|
|
8
|
|
Non-compete agreements
|
|
|
2 years
|
|
|
|
11
|
|
|
|
(10
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
436
|
|
|
|
(268
|
)
|
|
|
168
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name and trademark
|
|
|
Indefinite
|
|
|
|
91
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired intangible assets
|
|
|
|
|
|
$
|
527
|
|
|
$
|
(268
|
)
|
|
$
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded amortization of acquired intangible assets
totaling $10 million and $14 million for the three
months ended September 30, 2009 and 2008, respectively, and
$29 million and $44 million for the nine months ended
September 30, 2009 and 2008, respectively. In the third
quarter of 2008, the Company decided to wind down its purchased
paper businesses. As a result, in the third quarter of 2008, the
Company recorded an aggregate amount of $36 million of
impairment of acquired intangible assets, of which
$28 million related to the impairment of two trade names
and $8 million related to certain banking customer
relationships. The Company will continue to amortize its
intangible assets with definite useful lives over their
remaining estimated useful lives.
19
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
The following table summarizes the Companys borrowings as
of September 30, 2009 and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Short
|
|
|
Long
|
|
|
|
|
|
Short
|
|
|
Long
|
|
|
|
|
(Dollars in millions)
|
|
Term
|
|
|
Term
|
|
|
Total
|
|
|
Term
|
|
|
Term
|
|
|
Total
|
|
|
Unsecured borrowings
|
|
$
|
4,330
|
|
|
$
|
24,869
|
|
|
$
|
29,199
|
|
|
$
|
6,794
|
|
|
$
|
31,182
|
|
|
$
|
37,976
|
|
Unsecured term bank deposits
|
|
|
762
|
|
|
|
5,129
|
|
|
|
5,891
|
|
|
|
1,148
|
|
|
|
1,108
|
|
|
|
2,256
|
|
ED Participation Program facility
|
|
|
22,864
|
|
|
|
|
|
|
|
22,864
|
|
|
|
7,365
|
|
|
|
|
|
|
|
7,365
|
|
ED Conduit Program facility
|
|
|
14,190
|
|
|
|
|
|
|
|
14,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Asset-Backed Financing Facilities
|
|
|
9,434
|
|
|
|
|
|
|
|
9,434
|
|
|
|
24,768
|
|
|
|
|
|
|
|
24,768
|
|
On-balance sheet securitizations
|
|
|
|
|
|
|
88,961
|
|
|
|
88,961
|
|
|
|
|
|
|
|
80,601
|
|
|
|
80,601
|
|
Indentured trusts
|
|
|
66
|
|
|
|
1,629
|
|
|
|
1,695
|
|
|
|
31
|
|
|
|
1,972
|
|
|
|
2,003
|
|
Other
|
|
|
1,732
|
|
|
|
|
|
|
|
1,732
|
|
|
|
1,827
|
|
|
|
|
|
|
|
1,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before fair value adjustments
|
|
|
53,378
|
|
|
|
120,588
|
|
|
|
173,966
|
|
|
|
41,933
|
|
|
|
114,863
|
|
|
|
156,796
|
|
ASC 815 fair value adjustments
|
|
|
28
|
|
|
|
4,060
|
|
|
|
4,088
|
|
|
|
|
|
|
|
3,362
|
|
|
|
3,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
53,406
|
|
|
$
|
124,648
|
|
|
$
|
178,054
|
|
|
$
|
41,933
|
|
|
$
|
118,225
|
|
|
$
|
160,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009, the Company had $3.5 billion
in unsecured revolving credit facilities which provide liquidity
support for general corporate purposes. The Company has never
drawn on these facilities. These facilities include a
$1.9 billion revolving credit facility maturing in October
2010 and a $1.6 billion revolving credit facility maturing
in October 2011. These figures do not include a
$215 million commitment from Aurora Bank, FSB, formerly
known as Lehman Brothers Bank, a subsidiary of Lehman Brothers
Holdings Inc, which declared bankruptcy on September 15,
2008. The Company is operating under the assumption that the
lending commitment of Aurora Bank, FSB, will not be honored if
drawn upon. While the Company continues to explore various
options, it does not anticipate replacing its commitment from
Aurora Bank, FSB.
On April 24, 2009, in conjunction with the extension of the
2008 ABCP Facilities, a $1.4 billion revolving credit
facility maturing in October 2009 was retired and a
$1.9 billion revolving credit facility maturing in October
2011 was reduced to $1.6 billion. In connection with the
early termination of the unsecured revolving credit facilities,
interest on these facilities, if drawn, increases to LIBOR plus
450 basis points.
The principal financial covenants in the unsecured revolving
credit facilities require the Company to maintain consolidated
tangible net worth of at least $1.38 billion at all times.
Consolidated tangible net worth as calculated for purposes of
this covenant was $3.1 billion as of September 30,
2009. The covenants also require the Company to meet either a
minimum interest coverage ratio or a minimum net adjusted
revenue test based on the four preceding quarters adjusted
Core Earnings financial performance. The Company was
compliant with both the minimum interest coverage ratio and the
minimum net adjusted revenue tests as of the quarter ended
September 30, 2009. Failure to meet these covenants would
result in the facilities being withdrawn. In the past, the
Company has not relied upon its unsecured revolving credit
facilities as a primary source of liquidity. Although the
Company has never borrowed under these facilities, they are
available to be drawn upon for general corporate purposes.
20
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
5.
|
Borrowings
(Continued)
|
Secured
Borrowings
Variable Interest Entities (VIEs) are required to be
consolidated by their primary beneficiaries. A VIE exists when
either the total equity investment at risk is not sufficient to
permit the entity to finance its activities by itself, or the
equity investors lack one of three characteristics associated
with owning a controlling financial interest. Those
characteristics are the direct or indirect ability to make
decisions about an entitys activities that have a
significant impact on the success of the entity, the obligation
to absorb the expected losses of an entity, and the rights to
receive the expected residual returns of the entity.
The Company currently consolidates a number of financing
entities that are VIEs as a result of being the entities
primary beneficiary. As a result, these financing VIEs are
accounted for as secured borrowings. The process of identifying
the primary beneficiary involves identifying all other parties
that hold variable interests in the entity and determining which
of the parties, including the Company, has the responsibility to
absorb the majority of the entitys expected losses or the
rights to its expected residual returns. The Company is the
primary beneficiary of and currently consolidates the following
financing VIEs as of September 30, 2009 and
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
Debt Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
|
|
|
Long
|
|
|
|
|
|
Carrying Amount of Assets Securing Debt Outstanding
|
|
(Dollars in millions)
|
|
Term
|
|
|
Term
|
|
|
Total
|
|
|
Loans
|
|
|
Cash
|
|
|
Other Assets
|
|
|
Total
|
|
|
Secured Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ED Participation Program facility
|
|
$
|
22,864
|
|
|
$
|
|
|
|
$
|
22,864
|
|
|
$
|
23,226
|
|
|
$
|
206
|
|
|
$
|
371
|
|
|
$
|
23,803
|
|
ED Conduit Program facility
|
|
|
14,190
|
|
|
|
|
|
|
|
14,190
|
|
|
|
14,396
|
|
|
|
438
|
|
|
|
423
|
|
|
|
15,257
|
|
2008 Asset-Backed Financing
Facilities
(1)
|
|
|
9,434
|
|
|
|
|
|
|
|
9,434
|
|
|
|
10,819
|
|
|
|
233
|
|
|
|
90
|
|
|
|
11,142
|
|
On-balance sheet securitizations
|
|
|
|
|
|
|
88,961
|
|
|
|
88,961
|
|
|
|
92,274
|
|
|
|
3,588
|
|
|
|
3,425
|
|
|
|
99,287
|
|
Indentured trusts
|
|
|
66
|
|
|
|
1,629
|
|
|
|
1,695
|
|
|
|
2,177
|
|
|
|
193
|
|
|
|
26
|
|
|
|
2,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,554
|
|
|
|
90,590
|
|
|
|
137,144
|
|
|
|
142,892
|
|
|
|
4,658
|
|
|
|
4,335
|
|
|
|
151,885
|
|
ASC 815 fair value adjustment
|
|
|
|
|
|
|
1,632
|
|
|
|
1,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46,554
|
|
|
$
|
92,222
|
|
|
$
|
138,776
|
|
|
$
|
142,892
|
|
|
$
|
4,658
|
|
|
$
|
4,335
|
|
|
$
|
151,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes $253 million of
assets within the facility that can be released to the Company.
|
21
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
5.
|
Borrowings
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Debt Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
|
|
|
Long
|
|
|
|
|
|
Carrying Amount of Assets Securing Debt Outstanding
|
|
(Dollars in millions)
|
|
Term
|
|
|
Term
|
|
|
Total
|
|
|
Loans
|
|
|
Cash
|
|
|
Other Assets
|
|
|
Total
|
|
|
Secured Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ED Participation Program facility
|
|
$
|
7,365
|
|
|
$
|
|
|
|
$
|
7,365
|
|
|
$
|
7,733
|
|
|
$
|
88
|
|
|
$
|
85
|
|
|
$
|
7,906
|
|
2008 Asset-Backed Financing Facilities
|
|
|
24,768
|
|
|
|
|
|
|
|
24,768
|
|
|
|
31,953
|
|
|
|
462
|
|
|
|
816
|
|
|
|
33,231
|
|
On-balance sheet securitizations
|
|
|
|
|
|
|
80,601
|
|
|
|
80,601
|
|
|
|
81,547
|
|
|
|
2,632
|
|
|
|
999
|
|
|
|
85,178
|
|
Indentured trusts
|
|
|
31
|
|
|
|
1,972
|
|
|
|
2,003
|
|
|
|
2,199
|
|
|
|
236
|
|
|
|
40
|
|
|
|
2,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,164
|
|
|
|
82,573
|
|
|
|
114,737
|
|
|
|
123,432
|
|
|
|
3,418
|
|
|
|
1,940
|
|
|
|
128,790
|
|
ASC 815 fair value adjustment
|
|
|
|
|
|
|
872
|
|
|
|
872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,164
|
|
|
$
|
83,445
|
|
|
$
|
115,609
|
|
|
$
|
123,432
|
|
|
$
|
3,418
|
|
|
$
|
1,940
|
|
|
$
|
128,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed
Financing Facilities
During the first quarter of 2008, the Company entered into three
new asset-backed financing facilities (the 2008
Asset-Backed Financing Facilities): (i) a
$26.0 billion FFELP student loan ABCP conduit facility (the
2008 FFELP ABCP Facility); (ii) a
$5.9 billion Private Education Loan ABCP conduit facility
(the 2008 Private Education Loan ABCP Facility)
(collectively, the 2008 ABCP Facilities); and
(iii) a $2.0 billion secured FFELP loan facility (the
2008 Asset-Backed Loan Facility). The initial term
of the 2008 Asset-Backed Financing Facilities was 364 days.
The underlying cost of borrowing under the 2008 ABCP Facilities
was approximately LIBOR plus 0.68 percent for the FFELP
loan facilities and LIBOR plus 1.55 percent for the Private
Education Loan facility, excluding upfront and unused commitment
fees. All-in pricing on the 2008 ABCP Facilities varies based on
usage. For the full year 2008, the combined, all-in cost of
borrowings related to the 2008 Asset-Backed Financing
Facilities, including amortized upfront fees and unused
commitment fees, was three-month LIBOR plus 2.47 percent.
The primary use of the 2008 Asset-Backed Financing Facilities
was to refinance comparable ABCP facilities incurred in
connection with the Proposed Merger, with the expectation that
outstanding balances under the 2008 Asset-Backed Financing
Facilities would be reduced through securitization of the
underlying student loan collateral in the term ABS market.
On February 2, 2009, the Company extended the maturity date
of the 2008 ABCP Facilities from February 28, 2009 to
April 28, 2009 for a $61 million upfront fee. The
other terms of the facilities remained materially unchanged.
On February 27, 2009, the Company extended the maturity
date of the 2008 Asset-Backed Loan Facility from
February 28, 2009 to April 28, 2009 for a
$4 million upfront fee. The other terms of this facility
remained materially unchanged.
On April 24, 2009, the Company extended the maturity of
$21.8 billion of the 2008 FFELP ABCP Facility for one year
to April 23, 2010. The Company also extended its 2008
Asset-Backed Loan Facility in the amount of $1.5 billion.
The extended 2008 Asset-Backed Loan Facility matured on
June 26, 2009 and was paid in full. A
22
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
5.
|
Borrowings
(Continued)
|
total of $86 million in fees were paid related to these
extensions. The 2008 Private Education Loan ABCP Facility was
paid off and terminated on April 24, 2009. The stated
borrowing rate of the 2008 FFELP ABCP Facility is the applicable
funding rate plus 130 basis points excluding upfront fees.
The applicable funding rate generally will be either a LIBOR or
commercial paper rate. The terms of the 2008 FFELP ABCP Facility
call for an increase in the applicable funding spread to
300 basis points if the outstanding borrowing amount was
not reduced to $15.2 billion and $10.9 billion as of
June 30, 2009 and September 30, 2009, respectively.
The outstanding borrowings were reduced to $12.5 billion
and $9.4 billion on June 30, 2009 and
September 30, 2009, respectively. If the Company does not
negotiate an extension or pay off all outstanding amounts of the
2008 FFELP ABCP Facility at maturity, the facility will extend
by 90 days with the interest rate generally increasing from
LIBOR plus 250 basis points to 550 basis points over
the 90 day period. The other terms of the facilities
remained materially unchanged.
The maximum amount the Company may borrow under the 2008 FFELP
ABCP Facility is limited based on certain factors, including
market conditions and the fair value of student loans in the
facility. As of September 30, 2009, the maximum borrowing
amount was approximately $10.5 billion. Funding under the
2008 FFELP ABCP Facility is subject to usual and customary
conditions. The 2008 FFELP ABCP Facility is subject to
termination under certain circumstances, including the
Companys failure to comply with the principal financial
covenants in its unsecured revolving credit facilities.
Borrowings under the 2008 FFELP ABCP Facility are nonrecourse to
the Company. As of September 30, 2009, the Company had
$9.4 billion outstanding in connection with the 2008 FFELP
ABCP Facility. The book basis of the assets securing this
facility as of September 30, 2009 was $10.9 billion.
The
Department of Education (ED) Funding
Programs
In August 2008, ED implemented the Loan Purchase Commitment
Program (Purchase Program) and the Loan Purchase
Participation Program (Participation Program)
pursuant to ECASLA. Under the Purchase Program, ED purchases
eligible FFELP loans at a price equal to the sum of (i) par
value, (ii) accrued interest, (iii) the one-percent
origination fee paid to ED, and (iv) a fixed amount of $75
per loan. Under the Participation Program, ED provides
short-term liquidity to FFELP lenders by purchasing
participation interests in pools of FFELP loans. FFELP lenders
are charged a rate of the preceding quarter commercial paper
rate plus 0.50 percent on the principal amount of
participation interests outstanding. Under the terms of the
Participation Program, on September 30, 2010, AY
2009-2010
loans funded under the Participation Program must be either
repurchased by the Company or sold to ED pursuant to the
Participation Program, which has identical economics to the
Purchase Program. Loans eligible for the Participation or
Purchase Programs were originally limited to FFELP Stafford or
PLUS, first disbursed on or after May 1, 2008 but no later
than July 1, 2009, with no ongoing borrower benefits other
than permitted rate reductions of 0.25 percent for
automatic payment processing. On October 7, 2008,
legislation was enacted extending EDs authority to finance
and purchase FFELP Stafford and PLUS loans made for AYs
2009-2010,
and allowing for the extension of EDs Purchase and
Participation Programs from September 30, 2009 to
September 30, 2010. On November 8, 2008, ED formally
announced new purchase and participation programs which cover
eligible loans originated for the AY
2009-2010.
On January 15, 2009, ED announced that the terms of the
programs for AY
2009-2010
will replicate in all material respects the terms of the
programs for AY
2008-2009.
The Company applied for these AY
2009-2010
funding programs in June 2009 and its participation was approved
on July 31, 2009.
On August 14, 2008, the Company received its initial
advance under the Participation Program. As of
September 30, 2009, the Company had $22.9 billion of
advances outstanding under the Participation Program. Through
October 15, 2009, the Company has sold to ED approximately
$18.5 billion face amount of loans as
23
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
5.
|
Borrowings
(Continued)
|
part of the Purchase Program (approximately $840 million
face amount was sold in the third quarter of 2009). Outstanding
debt of $18.5 billion has been paid down related to the
Participation Program in connection with these loan sales.
Also pursuant to ECASLA, on January 15, 2009, ED published
summary terms under which it will purchase eligible FFELP
Stafford and PLUS loans from a conduit vehicle established to
provide funding for eligible student lenders (the ED
Conduit Program). Loans eligible for the ED Conduit
Program must be first disbursed on or after October 1,
2003, but not later than July 1, 2009, and fully disbursed
before September 30, 2009, and meet certain other
requirements including with respect to borrower benefits. The ED
Conduit Program was launched on May 11, 2009 and will
accept eligible loans through July 1, 2010. The ED Conduit
Program has a term of five years and will expire on
January 19, 2014. Funding for the ED Conduit Program is
provided by the capital markets at a cost based on market rates,
with the Company being advanced 97 percent of the student
loan face amount. The Student Loan Short-Term Notes (SLST
Notes), issued by the ED Conduit, are supported by a
combination of i) Funding Notes backed by FFELP student
loans, ii) the Liquidity Agreement with the Federal
Financing Bank (FFB), and iii) the Put
Agreement provided by ED. If the conduit does not have
sufficient funds to pay all SLST Notes, then those SLST Notes
will be repaid with funds from the FFB. The FFB will hold the
notes for a short period of time and, if at the end of that
time, the SLST Notes still cannot be paid off, the underlying
FFELP loans that serve as collateral to the ED Conduit will be
sold to ED through the Put Agreement at a price of
97 percent of the face amount of the loans. As of
September 30, 2009, approximately $14.1 billion face
amount of the Companys Stafford and PLUS loans were funded
through the ED Conduit Program with a weighted average issuance
cost of approximately 0.87 percent. As of
September 30, 2009, there are approximately
$1.1 billion face amount of additional FFELP Stafford and
PLUS loans (excluding loans currently in the Participation
Program) that can be funded through the ED Conduit Program.
Term
Asset-Backed Securities Loan Facility
(TALF)
On February 6, 2009, the Federal Reserve Bank of New York
published proposed terms for a program designed to facilitate
renewed issuance of consumer and small business ABS at lower
interest rate spreads. TALF was initiated on March 17, 2009
and currently provides investors who purchase eligible ABS with
funding of up to five years. Eligible ABS include
AAA rated student loan ABS backed by FFELP and
private student loans first disbursed since May 1, 2007. As
of September 30, 2009, the Company had approximately
$10.6 billion book basis of student loans (including
$7.3 billion book basis of Private Education Loans and
$3.3 billion book basis of Consolidation Loans) eligible to
serve as collateral for ABS funded under TALF; this amount does
not include loans eligible for ECASLA financing programs. For
student loan collateral, TALF is scheduled to expire on
March 31, 2010.
On May 5, 2009, the Company priced a $2.6 billion
Private Education Loan securitization which closed on
May 12, 2009. The issue bears a coupon of
1-month
LIBOR plus 6.0 percent and is callable at the issuers
option at 93 percent of the outstanding balance of the ABS
between November 15, 2011 and April 16, 2012. If the
issue is called on November 15, 2011, which the Company
believes is probable; the effective cost of the financing will
be approximately
1-month
LIBOR plus 3.7 percent. This transaction was TALF-eligible.
On July 2, 2009, the Company priced a $1.1 billion
Private Education Loan securitization which closed on
July 14, 2009. The issue bears a coupon of Prime plus
1.25 percent and is callable at the issuers option at
94 percent of the outstanding balance of the ABS between
January 16, 2012 and June 15, 2012. If the issue is
24
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
5.
|
Borrowings
(Continued)
|
called on January 16, 2012, which the Company believes is
probable; the effective cost of the financing will be
approximately Prime minus 0.71 percent. This transaction
was TALF-eligible.
On August 5, 2009, the Company priced a $1.7 billion
Private Education Loan securitization which closed on
August 13, 2009. The issue bears a coupon of Prime plus
0.25 percent and is callable at the issuers option at
94 percent of the outstanding balance of the ABS between
August 15, 2013 and July 15, 2014. If the issue is
called on August 15, 2013, which the Company believes is
probable; the effective cost of the financing will be
approximately Prime minus 0.55 percent. This transaction
was TALF-eligible.
These securitizations are accounted for as secured borrowings.
The Company has concluded that it is probable it will call these
bonds at the call date at the respective discount. Probability
is based on the Companys assessment of whether these bonds
can be refinanced at the call date at or lower than a breakeven
cost of funds based on the call discount. As a result, the
Company is accreting this call discount as a reduction to
interest expense through the call date. If it becomes less than
probable the Company will call these bonds at a future date it
will result in the Company reversing this prior accretion as a
cumulative catch up. The Company has accreted approximately
$33 million as a reduction of interest expense through
September 30, 2009.
Consolidation
of Off-Balance Sheet Securitizations
In the second quarter of 2009, three of the Companys
off-balance sheet securitization trusts were re-evaluated and it
was determined that they no longer met the criteria to be
considered QSPEs. These trusts were then evaluated as VIEs and
it was determined that they should be consolidated and accounted
for as secured borrowings as the Company is the primary
beneficiary. These trusts had reached their 10 percent
clean-up
call levels but the call was not exercised by the Company.
Because the Company can now exercise that option at its
discretion going forward, the Company effectively controls the
assets of the trusts. This resulted in the Company consolidating
at fair value $454 million in assets and $432 million
in liabilities related to these trusts. This resulted in an
$11 million gain being recognized during the second quarter
of 2009.
|
|
6.
|
Student
Loan Securitization
|
The Company securitizes its FFELP Stafford loans, FFELP
Consolidation Loans and Private Education Loan assets and, for
transactions qualifying as sales, retains a Residual Interest
and servicing rights (as the Company retains the servicing
responsibilities), all of which are referred to as the
Companys Retained Interest in off-balance sheet
securitized loans. The Residual Interest is the right to receive
cash flows from the student loans and reserve accounts in excess
of the amounts needed to pay servicing, derivative costs (if
any), other fees, and the principal and interest on the bonds
backed by the student loans.
25
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
6.
|
Student
Loan Securitization (Continued)
|
Securitization
Activity
The following table summarizes the Companys securitization
activity for the three and nine months ended September 30,
2009 and 2008. Those securitizations listed as sales are
off-balance sheet transactions and those listed as financings
remain on-balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Loan
|
|
|
Pre-
|
|
|
|
|
|
|
|
|
Loan
|
|
|
Pre-
|
|
|
|
|
|
|
No. of
|
|
|
Amount
|
|
|
Tax
|
|
|
|
|
|
No. of
|
|
|
Amount
|
|
|
Tax
|
|
|
|
|
(Dollars in millions)
|
|
Transactions
|
|
|
Securitized
|
|
|
Gain
|
|
|
Gain %
|
|
|
Transactions
|
|
|
Securitized
|
|
|
Gain
|
|
|
Gain %
|
|
|
Securitizations sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford/PLUS loans
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
FFELP Consolidation Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitizations sales
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitizations financings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford/PLUS
Loans
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
6,721
|
|
|
|
|
|
|
|
|
|
FFELP Consolidation
Loans
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education
Loans
(1)
|
|
|
2
|
|
|
|
3,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitizations financings
|
|
|
2
|
|
|
|
3,766
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
6,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitizations
|
|
|
2
|
|
|
$
|
3,766
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
$
|
6,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Loan
|
|
|
Pre-
|
|
|
|
|
|
|
|
|
Loan
|
|
|
Pre-
|
|
|
|
|
|
|
No. of
|
|
|
Amount
|
|
|
Tax
|
|
|
|
|
|
No. of
|
|
|
Amount
|
|
|
Tax
|
|
|
|
|
(Dollars in millions)
|
|
Transactions
|
|
|
Securitized
|
|
|
Gain
|
|
|
Gain %
|
|
|
Transactions
|
|
|
Securitized
|
|
|
Gain
|
|
|
Gain %
|
|
|
Securitizations sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford/PLUS loans
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
FFELP Consolidation Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitizations sales
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitizations financings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford/PLUS
Loans
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
18,546
|
|
|
|
|
|
|
|
|
|
FFELP Consolidation
Loans
(1)
|
|
|
2
|
|
|
|
4,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education
Loans
(1)
|
|
|
4
|
|
|
|
10,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitizations financings
|
|
|
6
|
|
|
|
14,708
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
18,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitizations
|
|
|
6
|
|
|
$
|
14,708
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
$
|
18,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In certain securitizations there
are terms within the deal structure that result in such
securitizations not qualifying for sale treatment and
accordingly, they are accounted for on-balance sheet as VIEs.
Terms that prevent sale treatment include: (1) allowing the
Company to hold certain rights that can affect the remarketing
of certain bonds, (2) allowing the trust to enter into
interest rate cap agreements after the initial settlement of the
securitization, which do not relate to the reissuance of third
party beneficial interests or (3) allowing the Company to
hold an unconditional call option related to a certain
percentage of the securitized assets.
|
26
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
6.
|
Student
Loan Securitization (Continued)
|
The following table summarizes cash flows received from or paid
to the off-balance sheet securitization trusts during the three
and nine months ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net proceeds from new securitizations completed during the period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Cash distributions from trusts related to Residual Interests
|
|
|
100
|
|
|
|
237
|
|
|
|
368
|
|
|
|
753
|
|
Servicing fees
received
(1)
|
|
|
55
|
|
|
|
61
|
|
|
|
171
|
|
|
|
187
|
|
Purchases of previously transferred financial assets for
representation and warranty violations
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
(15
|
)
|
Reimbursements of borrower
benefits
(2)
|
|
|
(9
|
)
|
|
|
(7
|
)
|
|
|
(26
|
)
|
|
|
(21
|
)
|
Purchases of delinquent Private Education Loans from
securitization trusts using delinquent loan call option
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
(152
|
)
|
Purchases of loans using
clean-up
call option
|
|
|
|
|
|
|
584
|
|
|
|
|
|
|
|
697
|
|
|
|
|
(1)
|
|
The Company receives annual
servicing fees of 90 basis points, 50 basis points and
70 basis points of the outstanding securitized loan balance
related to its FFELP Stafford, FFELP Consolidation Loan and
Private Education Loan securitizations, respectively.
|
|
(2)
|
|
Under the terms of the
securitizations, the transaction documents require that the
Company reimburse the trusts for any borrower benefits afforded
the borrowers of the underlying securitized loans.
|
27
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
6.
|
Student
Loan Securitization (Continued)
|
Retained
Interest in Securitized Receivables
The following tables summarize the fair value of the
Companys Residual Interests, included in the
Companys Retained Interest (and the assumptions used to
value such Residual Interests), along with the underlying
off-balance sheet student loans that relate to those
securitizations in transactions that were treated as sales as of
September 30, 2009 and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009
|
|
|
|
FFELP
|
|
|
Consolidation
|
|
|
Private
|
|
|
|
|
|
|
Stafford and
|
|
|
Loan
|
|
|
Education
|
|
|
|
|
(Dollars in millions)
|
|
PLUS
|
|
|
Trusts
(1)
|
|
|
Loan Trusts
|
|
|
Total
|
|
|
Fair value of Residual Interests
|
|
$
|
254
|
|
|
$
|
858
|
|
|
$
|
726
|
|
|
$
|
1,838
|
|
Underlying securitized loan balance
|
|
|
5,810
|
|
|
|
14,551
|
|
|
|
13,079
|
|
|
|
33,440
|
|
Weighted average life
|
|
|
3.2 yrs.
|
|
|
|
9.1 yrs.
|
|
|
|
6.3 yrs.
|
|
|
|
|
|
Prepayment speed (annual
rate)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim status
|
|
|
0
|
%
|
|
|
N/A
|
|
|
|
0
|
%
|
|
|
|
|
Repayment status
|
|
|
0-14
|
%
|
|
|
2-4
|
%
|
|
|
2-15
|
%
|
|
|
|
|
Life of loan repayment status
|
|
|
9
|
%
|
|
|
3
|
%
|
|
|
6
|
%
|
|
|
|
|
Expected remaining credit losses (% of outstanding student loan
principal)
(3)(4)
|
|
|
.10
|
%
|
|
|
.25
|
%
|
|
|
5.57
|
%
|
|
|
|
|
Residual cash flows discount rate
|
|
|
10.6
|
%
|
|
|
12.1
|
%
|
|
|
32.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
FFELP
|
|
|
Consolidation
|
|
|
Private
|
|
|
|
|
|
|
Stafford and
|
|
|
Loan
|
|
|
Education
|
|
|
|
|
(Dollars in millions)
|
|
PLUS
|
|
|
Trusts
(1)
|
|
|
Loan Trusts
|
|
|
Total
|
|
|
Fair value of Residual Interests
|
|
$
|
250
|
|
|
$
|
918
|
|
|
$
|
1,032
|
|
|
$
|
2,200
|
|
Underlying securitized loan balance
|
|
|
7,057
|
|
|
|
15,077
|
|
|
|
13,690
|
|
|
|
35,824
|
|
Weighted average life
|
|
|
3.0 yrs.
|
|
|
|
8.1 yrs.
|
|
|
|
6.4 yrs.
|
|
|
|
|
|
Prepayment speed (annual
rate)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim status
|
|
|
0
|
%
|
|
|
N/A
|
|
|
|
0
|
%
|
|
|
|
|
Repayment status
|
|
|
2-19
|
%
|
|
|
1-6
|
%
|
|
|
2-15
|
%
|
|
|
|
|
Life of loan repayment status
|
|
|
12
|
%
|
|
|
4
|
%
|
|
|
6
|
%
|
|
|
|
|
Expected remaining credit losses (% of outstanding student loan
principal)
(3)(4)
|
|
|
.11
|
%
|
|
|
.23
|
%
|
|
|
5.22
|
%
|
|
|
|
|
Residual cash flows discount rate
|
|
|
13.1
|
%
|
|
|
11.9
|
%
|
|
|
26.3
|
%
|
|
|
|
|
|
|
|
|
(1)
|
Includes $641 million and $762 million related to the
fair value of the Embedded Floor Income as of September 30,
2009 and December 31, 2008, respectively. Changes in the
fair value of the Embedded Floor Income are primarily due to
changes in the interest rates and the paydown of the underlying
loans.
|
|
|
(2)
|
The Company uses CPR curves for Residual Interest valuations
that are based on seasoning (the number of months since entering
repayment). Under this methodology, a different CPR is applied
to each year of a loans seasoning. Repayment status CPR
used is based on the number of months since first entering
repayment (seasoning). Life of loan CPR is related to repayment
status only and does not include the impact of the loan while in
interim status. The CPR assumption used for all periods includes
the impact of projected defaults.
|
|
|
(3)
|
Remaining expected credit losses as of the respective balance
sheet date.
|
|
|
(4)
|
For Private Education Loan trusts, estimated defaults from
settlement to maturity are 11.6 percent and
9.1 percent at September 30, 2009 and
December 31, 2008, respectively. These estimated defaults
do not include recoveries related to defaults but do include
prior purchases of loans at par by the Company when loans
reached 180 days delinquent (prior to default) under a
contingent call option. Although these loan purchases do not
result in a realized loss to the trust, the Company has included
them here. Not including these purchases in the disclosure would
result in estimated defaults of 8.7 percent and
6.1 percent at September 30, 2009 and
December 31, 2008, respectively.
|
28
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
6.
|
Student
Loan Securitization (Continued)
|
The Company recorded net unrealized
mark-to-market
gains/(losses) in servicing and securitization revenue
(loss) of $13 million and $(81) million for the
three months ended September 30, 2009 and 2008,
respectively, and $(338) million and $(361) million in
the nine months ended September 30, 2009 and 2008,
respectively, related to the Residual Interests.
The tables above disclose the assumptions that are used to value
the Residual Interests. As of September 30, 2009, the
Company changed the following significant assumptions compared
to those used as of June 30, 2009, to determine the fair
value of the Residual Interests:
|
|
|
|
|
Prepayment speed assumptions on FFELP Stafford and Consolidation
Loans were decreased. This change reflects the significant
decrease in prepayment activity experienced since 2008. This
decrease in prepayment activity, which the Company expects will
continue into the foreseeable future, was primarily due to a
reduction in third-party consolidation activity as a result of
the CCRAA and the current U.S. economic and credit
environment.
|
|
|
|
The discount rate assumption related to FFELP Residual Interests
decreased by 75 basis points. The Company assessed the
appropriateness of the current risk premium, which is added to
the risk free rate, for the purpose of arriving at a discount
rate in light of the current economic and credit uncertainty
that exists in the market as of September 30, 2009. The
Company reduced the risk premium to reflect improved conditions
in the credit markets. This discount rate is applied to the
projected cash flows to arrive at a fair value representative of
the current economic conditions.
|
The following table reflects the sensitivity of the current fair
value of the Residual Interests to adverse changes in the key
economic assumptions used in the valuation of the Residual
Interest at September 30, 2009, discussed in detail in the
preceding table. The effect of a variation in a particular
assumption on the fair value of the Residual Interest is
calculated without changing any other assumption. In reality,
changes in one factor may result in changes in another (for
example, increases in market interest rates may result in lower
prepayments and increased credit losses), which might magnify or
counteract the sensitivities. These sensitivities are
hypothetical, as the actual results could be materially
different than these estimates.
29
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
6.
|
Student
Loan Securitization (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
|
Stafford/PLUS
|
|
|
Consolidation
|
|
|
Private Education
|
|
(Dollars in millions)
|
|
Loan
Trusts
(5)
|
|
|
Loan
Trusts
(5)
|
|
|
Loan
Trusts
(5)
|
|
|
Fair value of Residual Interest
|
|
$
|
254
|
|
|
$
|
858
|
(1)
|
|
$
|
726
|
|
Weighted-average life
|
|
|
3.2 yrs.
|
|
|
|
9.1 yrs.
|
|
|
|
6.3 yrs.
|
|
Prepayment speed
assumptions
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim status
|
|
|
0
|
%
|
|
|
N/A
|
|
|
|
0
|
%
|
Repayment status
|
|
|
0-14
|
%
|
|
|
2-4
|
%
|
|
|
2-15
|
%
|
Life of loan repayment status
|
|
|
9
|
%
|
|
|
3
|
%
|
|
|
6
|
%
|
Impact on fair value of 5% absolute increase
|
|
$
|
(29
|
)
|
|
$
|
(104
|
)
|
|
$
|
(107
|
)
|
Impact on fair value of 10% absolute increase
|
|
$
|
(51
|
)
|
|
$
|
(184
|
)
|
|
$
|
(193
|
)
|
Expected credit losses (as a % of student loan principal)
|
|
|
.10
|
%
|
|
|
.25
|
%
|
|
|
5.57
|
%
(3)
|
Impact on fair value of 5% absolute increase in default rate
|
|
$
|
(5
|
)
|
|
$
|
(9
|
)
|
|
$
|
(165
|
)
|
Impact on fair value of 10% absolute increase in default rate
|
|
$
|
(10
|
)
|
|
$
|
(17
|
)
|
|
$
|
(326
|
)
|
Residual cash flows discount rate
|
|
|
10.6
|
%
|
|
|
12.1
|
%
|
|
|
32.0
|
%
|
Impact on fair value of 5% absolute increase
|
|
$
|
(30
|
)
|
|
$
|
(144
|
)
|
|
$
|
(92
|
)
|
Impact on fair value of 10% absolute increase
|
|
$
|
(54
|
)
|
|
$
|
(247
|
)
|
|
$
|
(165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 month LIBOR forward curve
at September 30, 2009 plus contracted spreads
|
Difference between Asset and Funding underlying
indices
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on fair value of 0.25% absolute increase in funding index
compared to asset index
|
|
$
|
(43
|
)
|
|
$
|
(177
|
)
|
|
$
|
(2
|
)
|
Impact on fair value of 0.50% absolute increase in funding index
compared to asset index
|
|
$
|
(86
|
)
|
|
$
|
(354
|
)
|
|
$
|
(4
|
)
|
|
|
|
(1)
|
|
Certain consolidation trusts have
$3.3 billion of
non-U.S.
dollar (Euro denominated) bonds outstanding. To convert these
non-U.S.
dollar denominated bonds into U.S. dollar liabilities, the
trusts have entered into foreign-currency swaps with certain
counterparties. Additionally, certain Private Education Loan
trusts contain interest rate swaps that hedge the basis and
reset risk between the Prime indexed assets and LIBOR index
notes. As of September 30, 2009, these swaps are in a
$959 million gain position (in the aggregate) and the
trusts had $633 million of exposure to counterparties (gain
position less collateral posted) primarily as a result of the
decline in the exchange rates between the U.S. dollar and the
Euro. This unrealized market value gain is not part of the fair
value of the Residual Interest in the table above. Not all
derivatives within the trusts require the swap counterparties to
post collateral to the respective trust for changes in market
value, unless the trusts swap counterpartys credit
rating has been withdrawn or has been downgraded below a certain
level. If the swap counterparty does not post the required
collateral or is downgraded further, the counterparty must find
a suitable replacement counterparty or provide the trust with a
letter of credit or a guaranty from an entity that has the
required credit ratings. Ultimately, the Companys exposure
related to a swap counterparty failing to make its payments is
limited to the fair value of the related trusts Residual
Interest which was $1.3 billion as of September 30,
2009.
|
|
(2)
|
|
See previous table for details on
CPR. Impact on fair value due to increase in prepayment speeds
only increases the repayment status speeds. Interim status CPR
remains 0%.
|
|
(3)
|
|
Expected credit losses are used to
project future cash flows related to the Private Education Loan
securitizations Residual Interest. However, until the
fourth quarter of 2008 when it ceased this activity for all
trusts settling prior to September 30, 2005, the Company
purchased loans at par when the loans reached 180 days
delinquent prior to default under a contingent call option,
resulting in no credit losses at the trust nor related to the
Companys Residual Interest. When the Company exercised its
contingent call option and purchased the loans from the trust at
par, the Company recorded a loss related to these loans that are
now on the Companys balance sheet. The Company recorded
losses of $44 million and $124 million, respectively,
for the three and nine months ended September 30, 2008, and
did not record any losses for the three and nine months ended
September 30, 2009, related to this activity. For all
trusts settling after October 1, 2005, the Company does not
hold this contingent call option.
|
|
(4)
|
|
Student loan assets are primarily
indexed to a Treasury bill, commercial paper or a prime index.
Funding within the trust is primarily indexed to a LIBOR index.
Sensitivity analysis increases funding indices as indicated
while keeping assets underlying indices fixed.
|
|
(5)
|
|
In addition to the assumptions in
the table above, the Company also projects the reduction in
distributions that will result from the various benefit programs
that exist related to consecutive on-time payments by borrowers.
Related to the entire $1.8 billion Residual Interest, there
are $223 million (present value) of benefits projected
which reduce the fair value.
|
30
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
6.
|
Student
Loan Securitization (Continued)
|
The table below shows the Companys off-balance sheet
Private Education Loan delinquency trends as of
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Private Education Loan Delinquencies
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
|
Loans
in-school/grace/deferment
(1)
|
|
$
|
3,148
|
|
|
|
|
|
|
$
|
4,259
|
|
|
|
|
|
Loans in
forbearance
(2)
|
|
|
474
|
|
|
|
|
|
|
|
1,159
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
8,516
|
|
|
|
90.0
|
%
|
|
|
7,733
|
|
|
|
93.9
|
%
|
Loans delinquent
31-60 days
(3)
|
|
|
312
|
|
|
|
3.3
|
|
|
|
217
|
|
|
|
2.6
|
|
Loans delinquent
61-90 days
(3)
|
|
|
161
|
|
|
|
1.7
|
|
|
|
103
|
|
|
|
1.3
|
|
Loans delinquent greater than
90 days
(3)
|
|
|
469
|
|
|
|
5.0
|
|
|
|
177
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet Private Education Loans in repayment
|
|
|
9,458
|
|
|
|
100
|
%
|
|
|
8,230
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet Private Education Loans, gross
|
|
$
|
13,080
|
|
|
|
|
|
|
$
|
13,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Loans for borrowers who may be attending school or engaging in
other permitted educational activities and are not yet required
to make payments on their loans, e.g., residency periods for
medical students or a grace period for bar exam preparation.
|
|
|
(2)
|
Loans for borrowers who have used their allowable deferment time
or do not qualify for deferment, and need additional time to
obtain employment or who have temporarily ceased making full
payments due to hardship or other factors consistent with the
established loan program servicing procedures and programs.
|
|
|
(3)
|
The period of delinquency is based on the number of days
scheduled payments are contractually past due.
|
The following table summarizes charge-off activity for Private
Education Loans in the off-balance sheet trusts for the three
and nine months ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Charge-offs
|
|
$
|
150
|
|
|
$
|
36
|
|
|
$
|
329
|
|
|
$
|
109
|
|
Charge-offs as a percentage of average loans in repayment
(annualized)
|
|
|
6.2
|
%
|
|
|
1.8
|
%
|
|
|
4.6
|
%
|
|
|
1.9
|
%
|
Charge-offs as a percentage of average loans in repayment and
forbearance (annualized)
|
|
|
5.9
|
%
|
|
|
1.5
|
%
|
|
|
4.3
|
%
|
|
|
1.6
|
%
|
Ending off-balance sheet total Private Education
Loans
(1)
|
|
$
|
13,280
|
|
|
$
|
13,721
|
|
|
$
|
13,280
|
|
|
$
|
13,721
|
|
Average off-balance sheet Private Education Loans in repayment
|
|
$
|
9,585
|
|
|
$
|
8,103
|
|
|
$
|
9,543
|
|
|
$
|
7,794
|
|
Ending off-balance sheet Private Education Loans in repayment
|
|
$
|
9,458
|
|
|
$
|
8,230
|
|
|
$
|
9,458
|
|
|
$
|
8,230
|
|
|
|
|
(1)
|
|
Ending total loans represents gross
Private Education Loans, plus the receivable for partially
charged-off loans (see Note 2, Allowance for Loan
Losses).
|
|
|
7.
|
Derivative
Financial Instruments
|
Derivative instruments that are used as part of the
Companys interest rate and foreign currency risk
management strategy include interest rate swaps, basis swaps,
cross-currency interest rate swaps, interest rate futures
contracts, and interest rate floor and cap contracts with
indices that relate to the pricing of specific balance sheet
assets and liabilities including the Residual Interests from
off-balance sheet securitizations. (For a full discussion of the
Companys risk management strategy and use of derivatives,
please see the Companys
31
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
7.
|
Derivative
Financial Instruments (Continued)
|
2008
Form 10-K,
Note 9, Derivative Financial Instruments, to
the consolidated financial statements.) The accounting of the
Companys derivatives requires that every derivative
instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an
asset or liability measured at its fair value. The
Companys derivative instruments are classified and
accounted for by the Company as fair value hedges, cash flow
hedges or trading activities.
Fair
Value Hedges
Fair value hedges are generally used by the Company to hedge the
exposure to changes in fair value of a recognized fixed rate
asset or liability. The Company enters into interest rate swaps
to convert fixed rate assets into variable rate assets and fixed
rate debt into variable rate debt. The Company also enters into
cross-currency interest rate swaps to convert foreign currency
denominated fixed and floating debt to U.S. dollar
denominated variable debt. Changes in value for both the hedge
and the hedged item are recorded to earnings. These amounts
offset each other with the net amount representing the
ineffectiveness of the relationship.
Cash Flow
Hedges
Cash flow hedges are used by the Company to hedge the exposure
to variability in cash flows for a forecasted debt issuance and
for exposure to variability in cash flows of floating rate debt.
This strategy is used primarily to minimize the exposure to
volatility from future changes in interest rates. Gains and
losses on the effective portion of a qualifying hedge are
accumulated in other comprehensive income and ineffectiveness is
recorded immediately to earnings.
Trading
Activities
When instruments do not qualify as hedges, they are accounted
for as trading where all changes in fair value of the
derivatives are recorded through earnings. In general,
derivative instruments included in trading activities include
Floor Income Contracts, basis swaps and various other
derivatives that do not qualify for hedge accounting under ASC
815.
32
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
7.
|
Derivative
Financial Instruments (Continued)
|
Summary
of Derivative Financial Statement Impact
The following tables summarize the fair values and notional
amounts of all derivative instruments at September 30, 2009
and December 31, 2008, and their impact on other
comprehensive income and earnings for the three and nine months
ended September 30, 2009 and 2008.
Impact of
Derivatives on Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
|
|
|
Fair Value
|
|
|
Trading
|
|
|
Total
|
|
|
|
Hedged Risk
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
(Dollars in millions)
|
|
Exposure
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Fair
Values
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest rate
|
|
$
|
|
|
|
$
|
|
|
|
$
|
930
|
|
|
$
|
1,529
|
|
|
$
|
114
|
|
|
$
|
323
|
|
|
$
|
1,044
|
|
|
$
|
1,852
|
|
Cross currency interest rate swaps
|
|
Foreign currency
and interest rate
|
|
|
|
|
|
|
|
|
|
|
3,377
|
|
|
|
2,743
|
|
|
|
55
|
|
|
|
13
|
|
|
|
3,432
|
|
|
|
2,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative
assets
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
4,307
|
|
|
|
4,272
|
|
|
|
169
|
|
|
|
336
|
|
|
|
4,476
|
|
|
|
4,608
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest rate
|
|
|
(90
|
)
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
(605
|
)
|
|
|
(332
|
)
|
|
|
(695
|
)
|
|
|
(478
|
)
|
Floor/Cap contracts
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,390
|
)
|
|
|
(1,466
|
)
|
|
|
(1,390
|
)
|
|
|
(1,466
|
)
|
Futures
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
Cross currency interest rate swaps
|
|
Foreign currency
and interest rate
|
|
|
|
|
|
|
|
|
|
|
(275
|
)
|
|
|
(640
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(276
|
)
|
|
|
(640
|
)
|
Other
(2)
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative
liabilities
(3)
|
|
|
|
|
(90
|
)
|
|
|
(146
|
)
|
|
|
(275
|
)
|
|
|
(640
|
)
|
|
|
(2,024
|
)
|
|
|
(1,801
|
)
|
|
|
(2,389
|
)
|
|
|
(2,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net total derivatives
|
|
|
|
$
|
(90
|
)
|
|
$
|
(146
|
)
|
|
$
|
4,032
|
|
|
$
|
3,632
|
|
|
$
|
(1,855
|
)
|
|
$
|
(1,465
|
)
|
|
$
|
2,087
|
|
|
$
|
2,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Fair values reported are exclusive
of collateral held and pledged and accrued interest. Assets and
liabilities are presented without consideration of master
netting agreements. Derivatives are carried on the balance sheet
based on net position by counterparty under master netting
agreements, and classified in other assets or other liabilities
depending on whether in a net positive or negative position.
|
|
(2)
|
|
Other includes the fair
value of the embedded derivatives in asset-backed financings.
The embedded derivatives are required to be accounted for as
derivatives.
|
|
(3)
|
|
The following table reconciles
gross positions without the impact of master netting agreements
to the balance sheet classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
Other Liabilities
|
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Gross position
|
|
$
|
4,476
|
|
|
$
|
4,608
|
|
|
$
|
(2,389
|
)
|
|
$
|
(2,587
|
)
|
Impact of master netting agreements
|
|
|
(1,197
|
)
|
|
|
(1,594
|
)
|
|
|
1,197
|
|
|
|
1,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative values with impact of master netting agreements
|
|
$
|
3,279
|
|
|
$
|
3,014
|
|
|
$
|
(1,192
|
)
|
|
$
|
(993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
7.
|
Derivative
Financial Instruments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
|
|
|
Fair Value
|
|
|
Trading
|
|
|
Total
|
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
(Dollars in billions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Notional Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
1.7
|
|
|
$
|
4.8
|
|
|
$
|
10.4
|
|
|
$
|
13.4
|
|
|
$
|
156.0
|
|
|
$
|
159.3
|
|
|
$
|
168.1
|
|
|
$
|
177.5
|
|
Floor/Cap contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47.2
|
|
|
|
32.4
|
|
|
|
47.2
|
|
|
|
32.4
|
|
Futures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.2
|
|
|
|
.2
|
|
|
|
.2
|
|
|
|
.2
|
|
Cross currency interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
20.6
|
|
|
|
23.1
|
|
|
|
.3
|
|
|
|
.1
|
|
|
|
20.9
|
|
|
|
23.2
|
|
Other
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9
|
|
|
|
.7
|
|
|
|
7.9
|
|
|
|
.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
$
|
1.7
|
|
|
$
|
4.8
|
|
|
$
|
31.0
|
|
|
$
|
36.5
|
|
|
$
|
211.6
|
|
|
$
|
192.7
|
|
|
$
|
244.3
|
|
|
$
|
234.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Other includes embedded
derivatives bifurcated from newly issued on-balance sheet
securitization debt, as well as embedded derivatives in the
total return swap discussed in footnote 2 to the table above.
|
Impact of
Derivatives on Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
Realized Gain
|
|
|
|
|
|
|
|
|
|
Unrealized Gain
|
|
|
(Loss)
|
|
|
Unrealized Gain
|
|
|
|
|
|
|
(Loss) on
|
|
|
on
|
|
|
(Loss)
|
|
|
Total Gain
|
|
|
|
Derivatives
(1)(2)
|
|
|
Derivatives
(3)
|
|
|
on Hedged
Item
(1)
|
|
|
(Loss)
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Fair Value Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
121
|
|
|
$
|
136
|
|
|
$
|
111
|
|
|
$
|
53
|
|
|
$
|
(132
|
)
|
|
$
|
(138
|
)
|
|
$
|
100
|
|
|
$
|
51
|
|
Cross currency interest rate swaps
|
|
|
813
|
|
|
|
(2,715
|
)
|
|
|
124
|
|
|
|
(3
|
)
|
|
|
(807
|
)
|
|
|
2,759
|
|
|
|
130
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value derivatives
|
|
|
934
|
|
|
|
(2,579
|
)
|
|
|
235
|
|
|
|
50
|
|
|
|
(939
|
)
|
|
|
2,621
|
|
|
|
230
|
|
|
|
92
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flow derivatives
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
(10
|
)
|
Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
91
|
|
|
|
(211
|
)
|
|
|
70
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
161
|
|
|
|
(187
|
)
|
Floor/Cap contracts
|
|
|
(80
|
)
|
|
|
(33
|
)
|
|
|
(189
|
)
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
(269
|
)
|
|
|
(108
|
)
|
Futures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency interest rate swaps
|
|
|
18
|
|
|
|
12
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
11
|
|
Other
|
|
|
(18
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading derivatives
|
|
|
11
|
|
|
|
(232
|
)
|
|
|
(118
|
)
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
(107
|
)
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
945
|
|
|
|
(2,811
|
)
|
|
|
79
|
|
|
|
(12
|
)
|
|
|
(939
|
)
|
|
|
2,621
|
|
|
|
85
|
|
|
|
(202
|
)
|
Less: realized gains (losses) recorded in interest expense
|
|
|
|
|
|
|
|
|
|
|
197
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
197
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on derivative and hedging activities, net
|
|
$
|
945
|
|
|
$
|
(2,811
|
)
|
|
$
|
(118
|
)
|
|
$
|
(52
|
)
|
|
$
|
(939
|
)
|
|
$
|
2,621
|
|
|
$
|
(112
|
)
|
|
$
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Recorded in Gains (losses) on
derivative and hedging activities, net in the consolidated
statements of income.
|
|
(2)
|
|
Represents ineffectiveness related
to cash flow hedges.
|
|
(3)
|
|
For fair value and cash flow
hedges, recorded in interest expense. For trading derivatives,
recorded in Gains (losses) on derivative and hedging
activities, net.
|
34
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
7.
|
Derivative
Financial Instruments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
Realized Gain
|
|
|
|
|
|
|
|
|
|
Unrealized Gain
|
|
|
(Loss)
|
|
|
Unrealized Gain
|
|
|
|
|
|
|
(Loss) on
|
|
|
on
|
|
|
(Loss)
|
|
|
Total Gain
|
|
|
|
Derivatives
(1)(2)
|
|
|
Derivatives
(3)
|
|
|
on Hedged
Item
(1)
|
|
|
(Loss)
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Fair Value Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(549
|
)
|
|
$
|
176
|
|
|
$
|
287
|
|
|
$
|
102
|
|
|
$
|
583
|
|
|
$
|
(182
|
)
|
|
$
|
321
|
|
|
$
|
96
|
|
Cross currency interest rate swaps
|
|
|
1,054
|
|
|
|
(1,218
|
)
|
|
|
320
|
|
|
|
73
|
|
|
|
(1,308
|
)
|
|
|
1,365
|
|
|
|
66
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value derivatives
|
|
|
505
|
|
|
|
(1,042
|
)
|
|
|
607
|
|
|
|
175
|
|
|
|
(725
|
)
|
|
|
1,183
|
|
|
|
387
|
|
|
|
316
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flow derivatives
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
|
|
(30
|
)
|
Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
(511
|
)
|
|
|
(513
|
)
|
|
|
418
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
(93
|
)
|
|
|
(151
|
)
|
Floor/Cap contracts
|
|
|
323
|
|
|
|
240
|
|
|
|
(500
|
)
|
|
|
(390
|
)
|
|
|
|
|
|
|
|
|
|
|
(177
|
)
|
|
|
(150
|
)
|
Futures
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Cross currency interest rate swaps
|
|
|
(15
|
)
|
|
|
8
|
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
6
|
|
Other
|
|
|
(69
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading derivatives
|
|
|
(271
|
)
|
|
|
(267
|
)
|
|
|
(78
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
(349
|
)
|
|
|
(294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
234
|
|
|
|
(1,309
|
)
|
|
|
452
|
|
|
|
118
|
|
|
|
(725
|
)
|
|
|
1,183
|
|
|
|
(39
|
)
|
|
|
(8
|
)
|
Less: realized gains (losses) recorded in interest expense
|
|
|
|
|
|
|
|
|
|
|
530
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
530
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on derivative and hedging activities, net
|
|
$
|
234
|
|
|
$
|
(1,309
|
)
|
|
$
|
(78
|
)
|
|
$
|
(27
|
)
|
|
$
|
(725
|
)
|
|
$
|
1,183
|
|
|
$
|
(569
|
)
|
|
$
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Recorded in Gains (losses) on
derivative and hedging activities, net in the consolidated
statements of income.
|
|
(2)
|
|
Represents ineffectiveness related
to cash flow hedges.
|
|
(3)
|
|
For fair value and cash flow
hedges, recorded in interest expense. For trading derivatives,
recorded in Gains (losses) on derivative and hedging
activities, net.
|
Impact of
Derivatives on Consolidated Statements of Changes in
Stockholders Equity (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Total gains (losses) on cash flow hedges
|
|
$
|
(21
|
)
|
|
$
|
(17
|
)
|
|
$
|
(20
|
)
|
|
$
|
13
|
|
Realized (gains) losses reclassified to interest
expense
(1)(2)(3)
|
|
|
24
|
|
|
|
7
|
|
|
|
49
|
|
|
|
19
|
|
Hedge ineffectiveness reclassified to
earnings
(1)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in stockholders equity for unrealized gains
(losses) on derivatives
|
|
$
|
3
|
|
|
$
|
(10
|
)
|
|
$
|
29
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Amounts included in Realized
gain (loss) on derivatives in the Impact of
Derivatives on Consolidated Statements of Income table
above.
|
|
(2)
|
|
Includes net settlement
income/expense.
|
|
(3)
|
|
The Company expects to reclassify
$10.9 million of after-tax net losses from accumulated
other comprehensive income to earnings during the next
12 months related to net settlement accruals on interest
rate swaps.
|
|
(4)
|
|
Recorded in Gains (losses)
derivatives and hedging activities, net in the
consolidated statements of income.
|
35
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
7.
|
Derivative
Financial Instruments (Continued)
|
Collateral
Collateral held and pledged at September 30, 2009 and
December 31, 2008 related to derivative exposures between
the Company and its derivative counterparties are detailed in
the following table:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
Collateral held:
|
|
|
|
|
|
|
|
|
Cash (obligation to return cash collateral is recorded in
short-term
borrowings)
(1)
|
|
$
|
1,511
|
|
|
$
|
1,624
|
|
Securities at fair value corporate derivatives (not
recorded in financial
statements)
(2)
|
|
|
265
|
|
|
|
689
|
|
Securities at fair value on-balance sheet
securitization derivatives (not recorded in financial
statements)
(3)
|
|
|
792
|
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
Total collateral held
|
|
$
|
2,568
|
|
|
$
|
3,001
|
|
|
|
|
|
|
|
|
|
|
Derivative asset at fair value including accrued interest
|
|
$
|
3,704
|
|
|
$
|
3,741
|
|
|
|
|
|
|
|
|
|
|
Collateral pledged to others:
|
|
|
|
|
|
|
|
|
Cash (right to receive return of cash collateral is recorded in
investments)
|
|
$
|
737
|
|
|
$
|
|
|
Securities at fair value (recorded in
investments)
(4)
|
|
|
26
|
|
|
|
26
|
|
Securities at fair value (recorded in restricted
investments)
(5)
|
|
|
28
|
|
|
|
|
|
Securities at fair value re-pledged (not recorded in financial
statements)
(5)(6)
|
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
Total collateral pledged
|
|
$
|
791
|
|
|
$
|
217
|
|
|
|
|
|
|
|
|
|
|
Derivative liability at fair value including accrued interest
and premium receivable
|
|
$
|
856
|
|
|
$
|
677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
At September 30, 2009 and
December 31, 2008, $903 million and $0 million,
respectively, was held in restricted cash accounts.
|
|
(2)
|
|
Effective with the downgrade in the
Companys unsecured credit ratings on May 13, 2009,
the Company does not have the ability to sell or re-pledge
securities it holds as collateral.
|
|
(3)
|
|
The trusts do not have the ability
to sell or re-pledge securities they hold as collateral.
|
|
(4)
|
|
Counterparty does not have the
right to sell or re-pledge securities.
|
|
(5)
|
|
Counterparty has the right to sell
or re-pledge securities.
|
|
(6)
|
|
Represents securities the Company
holds as collateral that have been pledged to other
counterparties.
|
Additionally, as of September 30, 2009 and
December 31, 2008, $424 million and $340 million,
respectively, in collateral related to off-balance sheet trust
derivatives were held by these off-balance sheet trusts.
Collateral posted by third parties to the off-balance sheet
trusts cannot be sold or re-pledged by the trusts.
36
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
The following table provides detail on the Companys other
assets at September 30, 2009 and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Ending
|
|
|
% of
|
|
|
Ending
|
|
|
% of
|
|
|
|
Balance
|
|
|
Balance
|
|
|
Balance
|
|
|
Balance
|
|
|
Accrued interest receivable
|
|
$
|
3,234,017
|
|
|
|
29
|
%
|
|
$
|
3,466,404
|
|
|
|
31
|
%
|
Derivatives at fair value
|
|
|
3,279,255
|
|
|
|
29
|
|
|
|
3,013,644
|
|
|
|
27
|
|
Income tax asset
|
|
|
1,929,868
|
|
|
|
17
|
|
|
|
1,661,039
|
|
|
|
15
|
|
APG purchased paper receivables and real estate owned
|
|
|
749,858
|
|
|
|
7
|
|
|
|
1,222,345
|
|
|
|
11
|
|
Benefit and insurance-related investments
|
|
|
479,517
|
|
|
|
4
|
|
|
|
472,899
|
|
|
|
4
|
|
Fixed assets, net
|
|
|
312,401
|
|
|
|
3
|
|
|
|
313,059
|
|
|
|
3
|
|
Accounts receivable general
|
|
|
852,530
|
|
|
|
8
|
|
|
|
712,854
|
|
|
|
6
|
|
Other
|
|
|
461,560
|
|
|
|
3
|
|
|
|
278,533
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,299,006
|
|
|
|
100
|
%
|
|
$
|
11,140,777
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Derivatives at fair value line in the above
table includes the fair value of the Companys derivatives
in a gain position by counterparty exclusive of accrued interest
and collateral. At September 30, 2009 and December 31,
2008, these balances included cross-currency interest rate swaps
and interest rate swaps designated as fair value hedges that
were offset by an increase in interest-bearing liabilities
related to the hedged debt. As of September 30, 2009 and
December 31, 2008, the cumulative
mark-to-market
adjustment to the hedged debt was $(4.0) billion and
$(3.4) billion, respectively.
The following table summarizes the Companys common share
repurchases and issuances for the three and nine months ended
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(Shares in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Common shares repurchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
plans
(1)
|
|
|
.1
|
|
|
|
.5
|
|
|
|
.2
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares repurchased
|
|
|
.1
|
|
|
|
.5
|
|
|
|
.2
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average purchase price per share
|
|
$
|
17.81
|
|
|
$
|
28.20
|
|
|
$
|
22.91
|
|
|
$
|
24.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued
|
|
|
7.0
|
|
|
|
.4
|
|
|
|
7.4
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authority remaining at end of period for repurchases
|
|
|
38.8
|
|
|
|
38.8
|
|
|
|
38.8
|
|
|
|
38.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes shares withheld from stock
option exercises and vesting of restricted stock for
employees tax withholding obligations and shares tendered
by employees to satisfy option exercise costs.
|
The closing price of the Companys common stock on
September 30, 2009 was $8.72.
37
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
9.
|
Stockholders
Equity (Continued)
|
During the third quarter of 2009, the Company converted
approximately $137 million of its Series C Preferred
Stock to common stock. As part of this conversion, the Company
delivered to the holders of the preferred stock:
(1) approximately 7 million shares (the number of
common shares they would most likely receive if the preferred
stock they held mandatorily converted to common shares in the
fourth quarter of 2010) plus (2) a discounted amount of the
preferred stock dividends the holders of the preferred stock
would have received if they held the preferred stock through the
mandatory conversion date. The accounting treatment for this
conversion resulted in a loss recorded in preferred stock
dividends for the period of approximately $20 million.
Accumulated
Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) includes the
after-tax change in unrealized gains and losses on
available-for-sale
investments, unrealized gains and losses on derivatives, and the
defined benefit pension plans adjustment. The following table
presents the cumulative balances of the components of other
comprehensive income (loss) as of September 30, 2009,
December 31, 2008 and September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
Net unrealized gains (losses) on
investments
(1)
|
|
$
|
2,446
|
|
|
$
|
(1,243
|
)
|
|
$
|
17,918
|
|
Net unrealized gains (losses) on
derivatives
(2)
|
|
|
(64,625
|
)
|
|
|
(93,986
|
)
|
|
|
9,358
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain
|
|
|
18,036
|
|
|
|
18,753
|
|
|
|
19,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total defined benefit pension
plans
(3)
|
|
|
18,036
|
|
|
|
18,753
|
|
|
|
19,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$
|
(44,143
|
)
|
|
$
|
(76,476
|
)
|
|
$
|
46,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net of tax expense of $1,358 as of September 30, 2009, tax
benefit of $750 as of December 31, 2008, and tax expense of
$10,100 as of September 30, 2008.
|
|
|
(2)
|
Net of tax benefit of $37,195, and $53,419 as of
September 30, 2009 and December 31, 2008,
respectively, and tax expense of $5,319 as of September 30,
2008.
|
|
|
(3)
|
Net of tax expense of $10,661, $10,967 and $11,347 as of
September 30, 2009, December 31, 2008 and
September 30, 2008, respectively.
|
38
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
10.
|
Earnings
(Loss) per Common Share
|
Basic earnings (loss) per common share (EPS) are
calculated using the weighted average number of shares of common
stock outstanding during each period. A reconciliation of the
numerators and denominators of the basic and diluted EPS
calculations follows for the three and nine months ended
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stock
|
|
$
|
116,483
|
|
|
$
|
(186,015
|
)
|
|
$
|
(79,818
|
)
|
|
$
|
(80,499
|
)
|
Adjusted for dividends of convertible preferred stock
series C
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stock, adjusted
|
|
$
|
116,483
|
|
|
$
|
(186,015
|
)
|
|
$
|
(79,818
|
)
|
|
$
|
(80,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
(shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute basic EPS
|
|
|
470,280
|
|
|
|
466,646
|
|
|
|
467,960
|
|
|
|
466,625
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of convertible preferred stock
series C
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options, nonvested deferred
compensation, nonvested restricted stock, restricted stock units
and Employee Stock Purchase Plan
(ESPP)
(2)
|
|
|
778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common
shares
(3)
|
|
|
778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute diluted EPS
|
|
|
471,058
|
|
|
|
466,646
|
|
|
|
467,960
|
|
|
|
466,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
.25
|
|
|
$
|
(.40
|
)
|
|
$
|
(.17
|
)
|
|
$
|
(.17
|
)
|
Dilutive effect of convertible preferred stock
series C
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options, nonvested deferred
compensation, nonvested restricted stock, restricted stock
units, and
ESPP
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
.25
|
|
|
$
|
(.40
|
)
|
|
$
|
(.17
|
)
|
|
$
|
(.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Companys
7.25 percent mandatory convertible preferred stock
Series C was issued on December 31, 2007. The
mandatory convertible preferred stock will automatically convert
on December 15, 2010, into between approximately
42 million shares and 52 million shares of common
stock, depending upon the Companys stock price at that
time. Depending upon the amount of the mandatory convertible
preferred stock outstanding as of that date, the actual number
of shares of common stock issued may be less. These instruments
were anti-dilutive for the three months ended September 30,
2009. These instruments were anti-dilutive for the three and
nine months ended September 30, 2008, and the nine months
ended September 30, 2009, due to the net losses
attributable to common stock for those periods.
|
|
(2)
|
|
Includes the potential dilutive
effect of additional common shares that are issuable upon
exercise of outstanding stock options, non-vested deferred
compensation and restricted stock, restricted stock units, and
the outstanding commitment to issue shares under the ESPP,
determined by the treasury stock method.
|
|
(3)
|
|
For the three and nine months ended
September 30, 2009, stock options covering approximately
43 million shares for each period, were outstanding but not
included in the computation of diluted earnings per share
because they were anti-dilutive. For the three and nine months
ended September 30, 2008, stock options covering
approximately 41 million and 38 million shares,
respectively, were outstanding but not included in the
computation of diluted earnings per share because they were
anti-dilutive.
|
39
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
The following table summarizes the components of Other
income in the consolidated statements of income for the
three and nine months ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Gains on debt repurchases
|
|
$
|
74,367
|
|
|
$
|
15,911
|
|
|
$
|
463,416
|
|
|
$
|
37,195
|
|
Late fees and forbearance fees
|
|
|
38,588
|
|
|
|
35,528
|
|
|
|
107,351
|
|
|
|
106,713
|
|
Asset servicing and other transaction fees
|
|
|
27,872
|
|
|
|
28,026
|
|
|
|
79,318
|
|
|
|
79,961
|
|
Loan servicing fees
|
|
|
16,677
|
|
|
|
6,414
|
|
|
|
35,410
|
|
|
|
18,682
|
|
Foreign currency translation gains (losses), net
|
|
|
(23,164
|
)
|
|
|
(12,989
|
)
|
|
|
10,828
|
|
|
|
(8,863
|
)
|
Other
|
|
|
15,666
|
|
|
|
20,206
|
|
|
|
44,906
|
|
|
|
61,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
150,006
|
|
|
$
|
93,096
|
|
|
$
|
741,229
|
|
|
$
|
295,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in other income over all periods presented is
primarily the result of the gains on debt repurchases. The
Company began repurchasing its outstanding debt in the second
quarter of 2008. The Company repurchased $1.4 billion and
$580 million face amount of its senior unsecured notes for
the three months ended September 30, 2009 and 2008,
respectively, and repurchased $2.7 billion and
$1.8 billion face amount of its senior unsecured notes for
the nine months ended September 30, 2009 and 2008,
respectively. The increase in the gain on debt repurchases
between 2009 and 2008 was the result of differences in the
characteristics of debt repurchased and larger unsecured credit
spreads in 2009. Since the second quarter of 2008, the Company
repurchased $4.6 billion face amount of its senior
unsecured notes in the aggregate, with maturity dates ranging
from 2008 to 2014.
|
|
12.
|
Restructuring
Activities
|
In response to the College Cost Reduction and Access Act of 2007
(CCRAA) and challenges in the capital markets, the
Company initiated a restructuring plan in the fourth quarter of
2007. The plan focused on conforming the Companys lending
activities to the economic environment, exiting certain customer
relationships and product lines, winding down the Companys
debt purchased paper businesses, and significantly reducing its
operating expenses. The restructuring plan is essentially
completed and the Companys objectives have been met.
During 2008, the Company reduced the run-rate of its operating
expenses by 20 percent versus the end of 2007, after
adjusting for restructuring costs, growth and other investments.
As part of the Companys cost reduction efforts,
restructuring expenses of $4 million were recognized in
both the current quarter and prior quarter. Restructuring
expenses from the fourth quarter of 2007 through the third
quarter of 2009 totaled $119 million. The majority of these
restructuring expenses were severance costs related to the
completed and planned elimination of approximately 2,800
positions, or approximately 25 percent of the workforce.
The Company estimates approximately $7 million of
additional restructuring expenses associated with its current
cost reduction efforts will be incurred. These estimated
additional restructuring costs relate primarily to position
eliminations and resulting employee terminations, as well as
lease termination costs in the Companys Asset Performance
Group (APG) business segment.
On September 17, 2009 the House passed the SAFRA which
would eliminate FFELP and require that, after July 1, 2010,
all new federal loans be made through the Direct Lending
program. The Senate has yet to take up the legislation. If this
legislation is signed into law, the Company will undertake
another significant
40
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
12.
|
Restructuring
Activities (Continued)
|
restructuring to conform its infrastructure to the elimination
of the FFELP and achieve additional expense reduction.
The following table summarizes the restructuring expenses
incurred during the quarters ended September 30, 2009 and
2008 and cumulative restructuring expenses incurred through
September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
Expense as of
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
Severance costs
|
|
$
|
3,472
|
|
|
$
|
9,917
|
|
|
$
|
10,429
|
|
|
$
|
59,000
|
|
|
$
|
95,792
|
|
Lease and other contract termination costs
|
|
|
(12
|
)
|
|
|
(86
|
)
|
|
|
730
|
|
|
|
8,983
|
|
|
|
10,247
|
|
Exit and other costs
|
|
|
132
|
|
|
|
677
|
|
|
|
1,636
|
|
|
|
9,943
|
|
|
|
13,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
(1)
|
|
$
|
3,592
|
|
|
$
|
10,508
|
|
|
$
|
12,795
|
|
|
$
|
77,926
|
|
|
$
|
119,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Aggregate restructuring expenses
incurred across the Companys reportable segments during
the three months ended September 30, 2009 and 2008 totaled
$2 million and $(.2) million, respectively, in the
Companys Lending reportable segment, $1 million and
$4 million, respectively, in the Companys APG
reportable segment, and $1 million and $7 million,
respectively, in the Companys Corporate and Other
reportable segment.
|
As of September 30, 2009 and 2008, severance costs were
incurred in conjunction with aggregate completed and planned
position eliminations of approximately 2,800 and 2,500
positions, respectively, across all of the Companys
reportable segments, with position eliminations ranging from
senior executives to clerical personnel. Lease and other
contract termination costs and exit and other costs incurred
during the three months ended September 30, 2009 and 2008,
respectively, related primarily to terminated or abandoned
facility leases and consulting costs incurred in conjunction
with various cost reduction and exit strategies.
The following table summarizes the restructuring liability
balance, which is included in other liabilities in the
accompanying consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Termination
|
|
|
Exit and
|
|
|
|
|
|
|
Costs
|
|
|
Costs
|
|
|
Other Costs
|
|
|
Total
|
|
|
Balance at December 31, 2007
|
|
$
|
18,329
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,329
|
|
Net accruals
|
|
|
62,858
|
|
|
|
9,517
|
|
|
|
11,400
|
|
|
|
83,775
|
|
Cash paid
|
|
|
(66,063
|
)
|
|
|
(6,719
|
)
|
|
|
(11,340
|
)
|
|
|
(84,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
15,124
|
|
|
|
2,798
|
|
|
|
60
|
|
|
|
17,982
|
|
Net accruals
|
|
|
10,429
|
|
|
|
730
|
|
|
|
1,636
|
|
|
|
12,795
|
|
Cash paid
|
|
|
(19,870
|
)
|
|
|
(1,388
|
)
|
|
|
(1,696
|
)
|
|
|
(22,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
$
|
5,683
|
|
|
$
|
2,140
|
|
|
$
|
|
|
|
$
|
7,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Fair
Value Measurements
|
The Company uses estimates of fair value in applying various
accounting standards for its financial statements. Under GAAP,
fair value measurements are used in one of four ways:
|
|
|
|
|
In the consolidated balance sheet with changes in fair value
recorded in the consolidated statement of income;
|
41
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
13.
|
Fair
Value Measurements (Continued)
|
|
|
|
|
|
In the consolidated balance sheet with changes in fair value
recorded in the accumulated other comprehensive income section
of the consolidated statement of changes in stockholders
equity;
|
|
|
|
In the consolidated balance sheet for instruments carried at
lower of cost or fair value with impairment charges recorded in
the consolidated statement of income; and
|
|
|
|
In the notes to the financial statements.
|
Fair value is defined as the price to sell an asset or transfer
a liability in an orderly transaction between willing and able
market participants. In general, the Companys policy in
estimating fair values is to first look at observable market
prices for identical assets and liabilities in active markets,
where available. When these are not available, other inputs are
used to model fair value such as prices of similar instruments,
yield curves, volatilities, prepayment speeds, default rates and
credit spreads (including for the Companys liabilities),
relying first on observable data from active markets. Additional
adjustments may be made for factors including liquidity, credit,
bid/offer spreads, etc., depending on current market conditions.
Transaction costs are not included in the determination of fair
value. When possible, the Company seeks to validate the
models output to market transactions. Depending on the
availability of observable inputs and prices, different
valuation models could produce materially different fair value
estimates. The values presented may not represent future fair
values and may not be realizable.
The Company categorizes its fair value estimates based on a
hierarchical framework associated with three levels of price
transparency utilized in measuring financial instruments at fair
value. Classification is based on the lowest level of input that
is significant to the fair value of the instrument. The three
levels are as follows:
|
|
|
|
|
Level 1 Quoted prices (unadjusted) in active
markets for identical assets or liabilities that the reporting
entity has the ability to access at the measurement date. The
types of financial instruments included in level 1 are
highly liquid instruments with quoted prices;
|
|
|
|
Level 2 Inputs from active markets, other than
quoted prices for identical instruments, are used to model fair
value. Significant inputs are directly observable from active
markets for substantially the full term of the asset or
liability being valued; and
|
|
|
|
Level 3 Pricing inputs significant to the
valuation are unobservable. Inputs are developed based on the
best information available; however, significant judgment is
required by management in developing the inputs.
|
Student
Loans
The Companys FFELP loans and Private Education Loans are
accounted for at cost or at the lower of cost or market if the
loan is
held-for-sale
(see the Companys 2008 Annual Report on
Form 10-K,
Note 2, Significant Accounting Policies
Loans, to the consolidated financial
statements for a discussion of the accounting treatment);
however, the fair value is disclosed in compliance with GAAP.
FFELP loans classified as
held-for-sale
are those which the Company has the ability and intent to sell
under various ED loan purchase programs. In these instances, the
FFELP loans are valued using the committed sales price under the
programs. For all other FFELP loans and Private Education Loans,
fair value was determined by modeling loan level cash flows
using stated terms of the assets and internally-developed
assumptions to determine aggregate portfolio yield, net present
value and average life. The significant assumptions used to
project cash flows are prepayment speeds, default rates, cost of
funds, required return on equity, and expected Repayment
Borrower Benefits to be earned. In addition, the Floor Income
component of the Companys FFELP loan portfolio is
42
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
13.
|
Fair
Value Measurements (Continued)
|
valued through discounted cash flow and option models using both
observable market inputs and internally developed inputs. A
number of significant inputs into the models are not observable.
Other
Loans
Facilities financings, and mortgage and consumer loans held for
investment are accounted for at cost with fair values being
disclosed. Mortgage loans held for sale are accounted for at
lower of cost or market. Fair value was determined with
discounted cash flow models using the stated terms of the loans
and observable market yield curves. In addition, adjustments and
assumptions were made for credit spreads, liquidity, prepayment
speeds and defaults. A number of significant inputs into the
models are not observable.
Cash
and Investments (Including Restricted)
Cash and cash equivalents are carried at cost. Carrying value
approximated fair value for disclosure purposes. Investments are
classified as trading or
available-for-sale
are carried at fair value in the financial statements.
Investments in U.S. Treasury securities and securities
issued by U.S. government agencies that are traded in
active markets were valued using observable market prices. Other
investments for which observable prices from active markets are
not available were valued through standard bond pricing models
using observable market yield curves adjusted for credit and
liquidity spreads. The fair value of investments in Commercial
Paper, Asset Backed Commercial Paper, or Demand Deposits that
have a remaining term of less than 90 days when purchased
are estimated at cost and when needed, adjustments for liquidity
and credit spreads are made depending on market conditions and
counterparty credit risks. These investments consist of mostly
overnight/weekly maturity instruments with highly-rated
counterparties.
Borrowings
Borrowings are accounted for at cost in the financial statements
except when denominated in a foreign currency or when designated
as the hedged item in a fair value hedge relationship. When the
hedged risk is the benchmark interest rate and not full fair
value, the cost basis is adjusted for changes in value due to
benchmark interest rates only. Additionally, foreign currency
denominated borrowings are re-measured at current spot rates in
the financial statements. The full fair value of all borrowings
is disclosed. Fair value was determined through standard bond
pricing models and option models (when applicable) using the
stated terms of the borrowings, and observable yield curves,
foreign currency exchange rates and volatilities from active
markets; or from quotes from broker-dealers. Credit adjustments
for unsecured corporate debt are made based on indicative quotes
from observable trades and spreads on credit default swaps
specific to the Company. Credit adjustments for secured
borrowings are based on indicative quotes from broker-dealers.
These adjustments for both secured and unsecured borrowings are
material to the overall valuation of these items and, currently,
are based on inputs from inactive markets.
Derivative
Financial Instruments
All derivatives are accounted for at fair value in the financial
statements. The fair values of a majority of derivative
financial instruments, including swaps and floors, were
determined by standard derivative pricing and option models
using the stated terms of the contracts and observable yield
curves, forward foreign currency exchange rates and volatilities
from active markets. In some cases, management utilized
internally developed amortization streams to model the fair
value for swaps whose notional amounts contractually amortizes
with securitized asset balances. Complex structured derivatives
or derivatives that trade in less liquid
43
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
13.
|
Fair
Value Measurements (Continued)
|
markets require significant adjustments and judgment in
determining fair value that cannot be corroborated with market
transactions. When determining the fair value of derivatives,
the Company takes into account counterparty credit risk for
positions where it is exposed to the counterparty on a net basis
by assessing exposure net of collateral held. The net exposures
for each counterparty are adjusted based on market information
available for the specific counterparty including spreads from
credit default swaps. Additionally, when the counterparty has
exposure to the Company related to SLM Corporation derivatives,
the Company fully collateralizes the exposure minimizing the
adjustment necessary to the derivative valuations for the
Companys credit risk. While trusts that contain
derivatives are not required to post collateral to
counterparties, the credit quality and securitized nature of the
trusts minimizes any adjustments for the counterpartys
exposure to the trusts. It is the Companys policy to
compare its derivative fair values to those received by its
counterparties in order to validate the models outputs.
The carrying value of borrowings designated as the hedged item
in an ASC 815 fair value hedge are adjusted for changes in fair
value due to benchmark interest rates and foreign-currency
exchange rates. These valuations are determined through standard
bond pricing models and option models (when applicable) using
the stated terms of the borrowings, and observable yield curves,
foreign currency exchange rates, and volatilities.
During 2008 and 2009, the bid/ask spread widened significantly
for derivatives indexed to certain interest rate indices as a
result of market inactivity. As such, significant adjustments
for the bid/ask spread and unobservable inputs were used in the
fair value calculation resulting in these instruments being
classified as level 3 in the fair value hierarchy.
Additionally, significant unobservable inputs were used to model
the amortizing notional of some swaps tied to securitized asset
balances and as such, these derivatives have been classified as
level 3 in the fair value hierarchy.
Residual
Interests
The Residual Interests are carried at fair value in the
financial statements. No active market exists for student loan
Residual Interests; as such, the fair value is calculated using
discounted cash flow models and option models. Observable inputs
from active markets are used where available, including yield
curves and volatilities. Significant unobservable inputs such as
prepayment speeds, default rates, certain bonds costs of
funds and discount rates, are used in determining the fair value
and require significant judgment. These unobservable inputs are
internally determined based upon analysis of historical data and
expected industry trends. On a quarterly basis the Company back
tests its prepayment speed, default rates and costs of funds
assumptions by comparing those assumptions to actuals
experienced. Additionally, the Company uses non-binding broker
quotes and industry analyst reports which show changes in the
indicative prices of the asset-backed securities tranches
immediately senior to the Residual Interest as an indication of
potential changes in the discount rate used to value the
Residual Interests. Market transactions are not available to
validate the models results. An analysis of the impact of
changes to significant inputs is addressed further in
Note 6, Student Loan Securitization.
44
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
13.
|
Fair
Value Measurements (Continued)
|
The following tables summarize the valuation of the
Companys financial instruments that are
marked-to-market
on a recurring basis in the consolidated financial statements as
of September 30, 2009 and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements on a Recurring
|
|
|
|
Basis as of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
(Dollars in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Collateral
|
|
|
Net
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale investments
|
|
$
|
|
|
|
$
|
1,051
|
|
|
$
|
|
|
|
$
|
1,051
|
|
|
$
|
|
|
|
$
|
1,051
|
|
Retained Interest in off-balance sheet securitized loans
|
|
|
|
|
|
|
|
|
|
|
1,838
|
|
|
|
1,838
|
|
|
|
|
|
|
|
1,838
|
|
Derivative
instruments
(1)(2)
|
|
|
|
|
|
|
2,001
|
|
|
|
1,278
|
|
|
|
3,279
|
|
|
|
(1,511
|
)
|
|
|
1,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
|
|
|
$
|
3,052
|
|
|
$
|
3,116
|
|
|
$
|
6,168
|
|
|
$
|
(1,511
|
)
|
|
$
|
4,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments
(1)(2)
|
|
$
|
(2
|
)
|
|
$
|
(1,190
|
)
|
|
$
|
|
|
|
$
|
(1,192
|
)
|
|
$
|
737
|
|
|
$
|
(455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(2
|
)
|
|
$
|
(1,190
|
)
|
|
$
|
|
|
|
$
|
(1,192
|
)
|
|
$
|
737
|
|
|
$
|
(455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements on a Recurring
|
|
|
|
Basis as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
(Dollars in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Collateral
|
|
|
Net
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale investments
|
|
$
|
|
|
|
$
|
899
|
|
|
$
|
|
|
|
$
|
899
|
|
|
$
|
|
|
|
$
|
899
|
|
Retained Interest in off-balance sheet securitized loans
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
|
|
2,200
|
|
|
|
|
|
|
|
2,200
|
|
Derivative
instruments
(1)(2)
|
|
|
|
|
|
|
3,014
|
|
|
|
|
|
|
|
3,014
|
|
|
|
(1,624
|
)
|
|
|
1,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
|
|
|
$
|
3,913
|
|
|
$
|
2,200
|
|
|
$
|
6,113
|
|
|
$
|
(1,624
|
)
|
|
$
|
4,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments
(1)(2)
|
|
$
|
(3
|
)
|
|
$
|
(648
|
)
|
|
$
|
(341
|
)
|
|
$
|
(992
|
)
|
|
$
|
|
|
|
$
|
(992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(3
|
)
|
|
$
|
(648
|
)
|
|
$
|
(341
|
)
|
|
$
|
(992
|
)
|
|
$
|
|
|
|
$
|
(992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Fair value of derivative instruments is comprised of market
value less accrued interest and excludes collateral.
|
|
|
(2)
|
Level 1 derivatives include euro-dollar futures contracts.
Level 2 derivatives include derivatives indexed to interest
rate indices and currencies that are considered liquid.
Level 3 derivatives include derivatives indexed to illiquid
interest rate indices and derivatives for which significant
adjustments were made to observable inputs.
|
|
|
(3)
|
Borrowings which are the hedged items in a fair value hedge
relationship and which are adjusted for changes in value due to
benchmark interest rates only are not carried at full fair value
and are not reflected in this table.
|
45
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
13.
|
Fair
Value Measurements (Continued)
|
The following table summarizes the change in balance sheet
carrying value associated with Level 3 financial
instruments carried at fair value on a recurring basis during
the three and nine months ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Residual
|
|
|
Derivative
|
|
|
|
|
|
Residual
|
|
|
Derivative
|
|
|
|
|
(Dollars in millions)
|
|
Interests
|
|
|
Instruments
|
|
|
Total
|
|
|
Interests
|
|
|
Instruments
|
|
|
Total
|
|
|
Balance, beginning of period
|
|
$
|
1,821
|
|
|
$
|
790
|
|
|
$
|
2,611
|
|
|
$
|
2,545
|
|
|
$
|
(121
|
)
|
|
$
|
2,424
|
|
Total gains/(losses) (realized and unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in
earnings
(1)
|
|
|
117
|
|
|
|
357
|
|
|
|
474
|
|
|
|
21
|
|
|
|
(303
|
)
|
|
|
(282
|
)
|
Included in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, issuances and settlements
|
|
|
(100
|
)
|
|
|
131
|
|
|
|
31
|
|
|
|
(243
|
)
|
|
|
18
|
|
|
|
(225
|
)
|
Transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
1,838
|
|
|
$
|
1,278
|
|
|
$
|
3,116
|
|
|
$
|
2,323
|
|
|
$
|
(397
|
)
|
|
$
|
1,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains/(losses) relating to instruments
still held at the reporting date
|
|
$
|
13
|
(2)
|
|
$
|
474
|
(3)
|
|
$
|
487
|
|
|
$
|
(81
|
)
(2)
|
|
$
|
(282
|
)
(3)
|
|
$
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Residual
|
|
|
Derivative
|
|
|
|
|
|
Residual
|
|
|
Derivative
|
|
|
|
|
(Dollars in millions)
|
|
Interests
|
|
|
Instruments
|
|
|
Total
|
|
|
Interests
|
|
|
Instruments
|
|
|
Total
|
|
|
Balance, beginning of period
|
|
$
|
2,200
|
|
|
$
|
(341
|
)
|
|
$
|
1,859
|
|
|
$
|
3,044
|
|
|
$
|
(71
|
)
|
|
$
|
2,973
|
|
Total gains/(losses) (realized and unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in
earnings
(1)
|
|
|
18
|
|
|
|
233
|
|
|
|
251
|
|
|
|
38
|
|
|
|
(365
|
)
|
|
|
(327
|
)
|
Included in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, issuances and settlements
|
|
|
(380
|
)
|
|
|
318
|
|
|
|
(62
|
)
|
|
|
(759
|
)
|
|
|
30
|
|
|
|
(729
|
)
|
Transfers in and/or out of Level 3
|
|
|
|
|
|
|
1,068
|
|
|
|
1,068
|
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
1,838
|
|
|
$
|
1,278
|
|
|
$
|
3,116
|
|
|
$
|
2,323
|
|
|
$
|
(397
|
)
|
|
$
|
1,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains/(losses) relating to instruments
still held at the reporting date
|
|
$
|
(338
|
)
(2)
|
|
$
|
552
|
(3)
|
|
$
|
214
|
|
|
$
|
(361
|
)
(2)
|
|
$
|
(324
|
)
(3)
|
|
$
|
(685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in earnings is comprised of the following
amounts recorded in the specified line item in the consolidated
statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Servicing and securitization revenue
|
|
$
|
117
|
|
|
$
|
21
|
|
|
$
|
18
|
|
|
$
|
38
|
|
Gains (losses) on derivative and hedging activities, net
|
|
|
414
|
|
|
|
(303
|
)
|
|
|
386
|
|
|
|
(365
|
)
|
Interest expense
|
|
|
(57
|
)
|
|
|
|
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
474
|
|
|
$
|
(282
|
)
|
|
$
|
251
|
|
|
$
|
(327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
Recorded in servicing and securitization revenue
(loss) in the consolidated statements of income.
|
|
|
(3)
|
Recorded in gains (losses) on derivative and hedging
activities, net in the consolidated statements of income.
|
46
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
13.
|
Fair
Value Measurements (Continued)
|
In addition, at September 30, 2009, the Company had real
estate owned assets, related to its Purchased Paper
Mortgage/Properties business, held on its balance sheet at fair
value totaling $96 million. These assets are carried at the
lower of cost or fair value and as such are
marked-to-market
on a non-recurring basis. Fair value is determined using
significant unobservable inputs primarily based on broker price
opinions and are considered Level 3 valuations.
The following table summarizes the fair values of the
Companys financial assets and liabilities, including
derivative financial instruments, as of September 30, 2009
and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Fair
|
|
|
Carrying
|
|
|
|
|
|
Fair
|
|
|
Carrying
|
|
|
|
|
(Dollars in millions)
|
|
Value
|
|
|
Value
|
|
|
Difference
|
|
|
Value
|
|
|
Value
|
|
|
Difference
|
|
|
Earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP loans
|
|
$
|
133,756
|
|
|
$
|
136,351
|
|
|
$
|
(2,595
|
)
|
|
$
|
107,319
|
|
|
$
|
124,220
|
|
|
$
|
(16,901
|
)
|
Private Education Loans
|
|
|
19,872
|
|
|
|
22,494
|
|
|
|
(2,622
|
)
|
|
|
14,141
|
|
|
|
20,582
|
|
|
|
(6,441
|
)
|
Other loans
|
|
|
308
|
|
|
|
454
|
|
|
|
(146
|
)
|
|
|
619
|
|
|
|
729
|
|
|
|
(110
|
)
|
Cash and investments
|
|
|
12,782
|
|
|
|
12,782
|
|
|
|
|
|
|
|
8,646
|
|
|
|
8,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
166,718
|
|
|
|
172,081
|
|
|
|
(5,363
|
)
|
|
|
130,725
|
|
|
|
154,177
|
|
|
|
(23,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
53,211
|
|
|
|
53,407
|
|
|
|
196
|
|
|
|
41,608
|
|
|
|
41,933
|
|
|
|
325
|
|
Long-term borrowings
|
|
|
111,395
|
|
|
|
124,648
|
|
|
|
13,253
|
|
|
|
93,462
|
|
|
|
118,225
|
|
|
|
24,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
164,606
|
|
|
|
178,055
|
|
|
|
13,449
|
|
|
|
135,070
|
|
|
|
160,158
|
|
|
|
25,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor Income/Cap contracts
|
|
|
(1,390
|
)
|
|
|
(1,390
|
)
|
|
|
|
|
|
|
(1,466
|
)
|
|
|
(1,466
|
)
|
|
|
|
|
Interest rate swaps
|
|
|
349
|
|
|
|
349
|
|
|
|
|
|
|
|
1,374
|
|
|
|
1,374
|
|
|
|
|
|
Cross currency interest rate swaps
|
|
|
3,156
|
|
|
|
3,156
|
|
|
|
|
|
|
|
2,116
|
|
|
|
2,116
|
|
|
|
|
|
Futures contracts
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
Other
|
|
|
(26
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residual interest in securitized assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of net asset fair value over carrying value
|
|
|
|
|
|
|
|
|
|
$
|
8,086
|
|
|
|
|
|
|
|
|
|
|
$
|
1,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
14.
|
Commitments
and Contingencies
|
On August 3, 2009, the Company received the final audit
report of EDs Office of the Inspector General
(OIG) related to the Companys billing
practices for special allowance payments. Among other things,
the OIG recommended that ED instruct the Company to return
approximately $22 million in alleged special allowance
overpayments. The Company continues to believe that its
practices were consistent with longstanding ED guidance and all
applicable rules and regulations and intends to continue
disputing these findings. The OIG has audited other industry
participants with regard to special allowance payments for loans
funded by tax exempt obligations and in certain cases the
Secretary of ED has disagreed with the OIGs
recommendations.
In the ordinary course of business, the Company and its
subsidiaries are defendants in or parties to pending and
threatened legal actions and proceedings including actions
brought on behalf of various classes of claimants. These actions
and proceedings may be based on alleged violations of consumer
protection, securities, employment or other laws. In certain of
these actions and proceedings, claims for substantial monetary
damage are asserted against the Company and its subsidiaries.
In the ordinary course of business, the Company and its
subsidiaries also are subject to regulatory examinations,
information gathering requests, inquiries and investigations. In
connection with formal and informal inquiries in these cases,
the Company and its subsidiaries receive numerous requests,
subpoenas and orders for documents, testimony and information in
connection with various aspects of the Companys regulated
activities.
In view of the inherent difficulty of predicting the outcome of
such litigation and regulatory matters, the Company cannot
predict what the eventual outcome of the pending matters will
be, what the timing or the ultimate resolution of these matters
will be, or what the eventual loss, fines or penalties related
to each pending matter may be.
The Company is required to establish reserves for litigation and
regulatory matters when those matters present loss contingencies
that are both probable and estimable. When loss contingencies
are not both probable and estimable, the Company does not
establish reserves.
Based on current knowledge, no reserves have been established
for any pending litigation or regulatory matters. Based on
current knowledge, management does not believe that loss
contingencies, if any, arising from pending litigation or
regulatory matters will have a material adverse effect on the
consolidated financial position or liquidity of the Company.
For the nine months ended September 30, 2009 and 2008, the
Company reported an income tax benefit of $4 million and
$13 million, respectively, representing effective tax rates
of (33) percent and 206 percent, respectively. The
movement in the effective tax rate was primarily driven by the
reduction of tax and interest on U.S. federal and state
uncertain tax positions in both periods, as well as the
permanent tax impact of deducting Proposed Merger-related
transaction costs in the nine months ended September 30,
2008.
Accounting
for Uncertainty in Income Taxes
The unrecognized tax benefits changed from $86 million at
December 31, 2008 to $83 million at September 30,
2009, and accrued interest and penalties changed from
$10 million at December 31, 2008 to $7 million at
September 30, 2009. Included in the $83 million are
$18 million of unrecognized tax benefits that if
recognized, would favorably impact the effective tax rate.
48
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
15.
|
Income
Taxes (Continued)
|
These changes result primarily from adding a new issue that was
identified during the first quarter of 2009 while completing the
2008 U.S. federal income tax return, as well as adjusting
the
2003-2007
unrecognized tax benefits to incorporate the net impact of IRS
and state tax authority examinations of several of the
Companys income tax returns. New information was received
from the IRS during the first quarter as part of the IRS
examination of Companys 2005 and 2006 U.S. federal
income tax returns and the examination was ultimately concluded
during the second quarter. During the third quarter of 2009, the
IRS concluded the examination of the 2003 and 2004
U.S. federal income tax returns of an entity in which the
company is an investor, and the Virginia tax authority concluded
the examination of the Companys 2005 through 2007 income
tax returns. Several other less significant amounts of uncertain
tax benefits were also added during the quarter.
The Company has two primary operating segments the
Lending operating segment and the APG, formerly known as DMO,
operating segment. The Lending and APG operating segments meet
the quantitative thresholds for reportable segments.
Accordingly, the results of operations of the Companys
Lending and APG segments are presented below. The Company has
smaller operating segments including the Guarantor Servicing,
Loan Servicing, and Upromise operating segments, as well as
certain other products and services provided to colleges and
universities which do not meet the required quantitative
thresholds. Therefore, the results of operations for these
operating segments and the revenues and expenses associated with
these other products and services are combined with corporate
overhead and other corporate activities within the Corporate and
Other reportable segment.
The management reporting process measures the performance of the
Companys operating segments based on the management
structure of the Company, as well as the methodology used by
management to evaluate performance and allocate resources.
Management, including the Companys chief operating
decision makers, evaluates the performance of the Companys
operating segments based on their profitability. As discussed
further below, management measures the profitability of the
Companys operating segments based on Core
Earnings net income. Accordingly, information regarding
the Companys reportable segments is provided based on a
Core Earnings basis. The Companys Core
Earnings performance measures are not defined terms within
GAAP and may not be comparable to similarly titled measures
reported by other companies. Core Earnings net
income reflects only current period adjustments to GAAP net
income as described below. Unlike financial accounting, there is
no comprehensive, authoritative guidance for management
reporting. The management reporting process measures the
performance of the operating segments based on the management
structure of the Company and is not necessarily comparable with
similar information for any other financial institution. The
Companys operating segments are defined by the products
and services they offer or the types of customers they serve,
and they reflect the manner in which financial information is
currently evaluated by management. Intersegment revenues and
expenses are netted within the appropriate financial statement
line items consistent with the income statement presentation
provided to management. Changes in management structure or
allocation methodologies and procedures may result in changes in
reported segment financial information.
The Companys principal operations are located in the
United States, and its results of operations and long-lived
assets in geographic regions outside of the United States are
not significant. In the Lending segment, no individual customer
accounted for more than 10 percent of its total revenue
during the three months ended September 30, 2009 and 2008.
United Student Aid Funds, Inc. (USA Funds) is the
Companys largest customer in both the APG and Corporate
and Other segments. During the nine months ended
49
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
16.
|
Segment
Reporting (Continued)
|
September 30, 2009 and 2008, USA Funds accounted for
17 percent and 45 percent, respectively, of the
aggregate revenues generated by the Companys APG and
Corporate and Other segments. No other customers accounted for
more than 10 percent of total revenues in those segments
for the years mentioned.
Lending
In the Companys Lending operating segment, the Company
originates and acquires both FFELP loans and Private Education
Loans. As of September 30, 2009, the Company managed
$192.2 billion of student loans, of which
$157.3 billion or 82 percent are federally insured,
and has 10 million student and parent customers. In the
nine months ended September 30, 2009, the Company
originated $4 million in mortgage loans which were sold.
The Companys mortgage and other consumer loan portfolio
totaled $393 million at September 30, 2009.
Private Education Loans consist of two general types:
(1) those that are designed to bridge the gap between the
cost of higher education and the amount financed through either
capped federally insured loans or the borrowers resources,
and (2) those that are used to meet the needs of students
in alternative learning programs such as career training,
distance learning and lifelong learning programs. Most higher
education Private Education Loans are made in conjunction with a
FFELP loan and as such are marketed through the same channel as
FFELP loans by the same sales force. Unlike FFELP loans, Private
Education Loans are subject to the full credit risk of the
borrower. The Company manages this additional risk through
historical risk-performance underwriting strategies, the
addition of qualified cosigners and a combination of higher
interest rates and loan origination fees that compensate the
Company for the higher risk.
APG
The Companys APG operating segment provides a wide range
of accounts receivable and collections services including
student loan default aversion services, defaulted student loan
portfolio management services, contingency collections services
for student loans and other asset classes, and accounts
receivable management and collection for purchased portfolios of
receivables that are delinquent or have been charged off by
their original creditors, and
sub-performing
and non-performing mortgage loans. The Companys APG
operating segment serves the student loan marketplace through a
broad array of default management services on a contingency fee
or other
pay-for-performance
basis to 13 FFELP Guarantors and for campus-based programs.
In addition to collecting on its own purchased receivables and
mortgage loans, the APG operating segment provides receivable
management and collection services for federal agencies, credit
card clients and other holders of consumer debt.
The Company concluded in 2008 that its APG purchased paper
business no longer produced a strategic fit, and the Company
decided to wind down this business. Due to the continued
weakening of the U.S. economy, during the third quarter of
2009, the Company recorded $12 million of impairment
related to declines in the fair value of mortgage loans and real
estate held by the Companys mortgage purchased paper
subsidiary and $9 million of impairment related to the
Companys non-mortgage purchase paper subsidiary. These
impairments are recorded within collections revenue (loss) as
they are not considered restructuring expenses.
50
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
16.
|
Segment
Reporting (Continued)
|
Corporate
and Other
The Companys Corporate and Other segment includes the
aggregate activity of its smaller operating segments, primarily
its Guarantor Servicing, Loan Servicing and Upromise operating
segments. Corporate and Other also includes several smaller
products and services, as well as corporate overhead.
In the Guarantor Servicing operating segment, the Company
provides a full complement of administrative services to FFELP
Guarantors including guarantee issuance, account maintenance,
and guarantee fulfillment. In the Loan Servicing operating
segment, the Company provides a full complement of activities
required to service student loans on behalf of lenders who are
unrelated to the Company. Such servicing activities generally
commence once a loan has been fully disbursed and include
sending out payment coupons to borrowers, processing borrower
payments, originating and disbursing FFELP Consolidation Loans
on behalf of the lender, and other administrative activities
required by ED.
Upromise markets and administers a consumer savings network and
also provides program management, transfer and servicing agent
services, and administration services for 529 college-savings
plans. The Companys other products and services include
comprehensive financing and loan delivery solutions that it
provides to college financial aid offices and students to
streamline the financial aid process. Corporate overhead
includes all of the typical headquarter functions such as
executive management, accounting and finance, human resources
and marketing.
Measure
of Profitability
The tables below include the condensed operating results for
each of the Companys reportable segments. Management,
including the chief operating decision makers, evaluates the
Company on certain performance measures that the Company refers
to as Core Earnings performance measures for each
operating segment. While Core Earnings results are
not a substitute for reported results under GAAP, the Company
relies on Core Earnings performance measures to
manage each operating segment because it believes these measures
provide additional information regarding the operational and
performance indicators that are most closely assessed by
management.
Core Earnings performance measures are the primary
financial performance measures used by management to develop the
Companys financial plans, track results, and establish
corporate performance targets and incentive compensation.
Management believes this information provides additional insight
into the financial performance of the core business activities
of its operating segments. Accordingly, the tables presented
below reflect Core Earnings operating measures
reviewed and utilized by management to manage the business.
Reconciliation of the Core Earnings segment totals
to the Companys consolidated operating results in
accordance with GAAP is also included in the tables below.
51
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
16.
|
Segment
Reporting (Continued)
|
Segment
Results and Reconciliations to GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Total Core
|
|
|
|
|
|
Total
|
|
(Dollars in millions)
|
|
Lending
|
|
|
APG
|
|
|
and Other
|
|
|
Earnings
|
|
|
Adjustments
(2)
|
|
|
GAAP
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford and Other Student Loans
|
|
$
|
340
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
340
|
|
|
$
|
(37
|
)
|
|
$
|
303
|
|
FFELP Consolidation Loans
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
|
430
|
|
|
|
52
|
|
|
|
482
|
|
Private Education Loans
|
|
|
561
|
|
|
|
|
|
|
|
|
|
|
|
561
|
|
|
|
(165
|
)
|
|
|
396
|
|
Other loans
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
Cash and investments
|
|
|
3
|
|
|
|
|
|
|
|
5
|
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
1,345
|
|
|
|
|
|
|
|
5
|
|
|
|
1,350
|
|
|
|
(151
|
)
|
|
|
1,199
|
|
Total interest expense
|
|
|
652
|
|
|
|
5
|
|
|
|
3
|
|
|
|
660
|
|
|
|
14
|
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
693
|
|
|
|
(5
|
)
|
|
|
2
|
|
|
|
690
|
|
|
|
(165
|
)
|
|
|
525
|
|
Less: provisions for loan losses
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
448
|
|
|
|
(127
|
)
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
245
|
|
|
|
(5
|
)
|
|
|
2
|
|
|
|
242
|
|
|
|
(38
|
)
|
|
|
204
|
|
Contingency fee revenue
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
82
|
|
Collections revenue
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
Guarantor servicing fees
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
48
|
|
|
|
|
|
|
|
48
|
|
Other income
|
|
|
129
|
|
|
|
|
|
|
|
56
|
|
|
|
185
|
|
|
|
21
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
129
|
|
|
|
98
|
|
|
|
104
|
|
|
|
331
|
|
|
|
21
|
|
|
|
352
|
|
Restructuring expenses
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Operating expenses
|
|
|
154
|
|
|
|
80
|
|
|
|
75
|
|
|
|
309
|
|
|
|
9
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
156
|
|
|
|
81
|
|
|
|
76
|
|
|
|
313
|
|
|
|
9
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense (benefit)
|
|
|
218
|
|
|
|
12
|
|
|
|
30
|
|
|
|
260
|
|
|
|
(26
|
)
|
|
|
234
|
|
Income tax
expense
(1)
|
|
|
80
|
|
|
|
5
|
|
|
|
11
|
|
|
|
96
|
|
|
|
(21
|
)
|
|
|
75
|
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to SLM Corporation
|
|
$
|
138
|
|
|
$
|
7
|
|
|
$
|
19
|
|
|
$
|
164
|
|
|
$
|
(5
|
)
|
|
$
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Floor Income (net of tax) not included in Core
Earnings
|
|
$
|
23
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Income taxes are based on a
percentage of net income before tax for each individual
reportable segment.
|
|
(2)
|
|
Core Earnings
adjustments to GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
Net Impact of
|
|
|
Net Impact of
|
|
|
|
|
|
Net Impact
|
|
|
|
|
|
|
Securitization
|
|
|
Derivative
|
|
|
Net Impact of
|
|
|
of Acquired
|
|
|
|
|
(Dollars in millions)
|
|
Accounting
|
|
|
Accounting
|
|
|
Floor Income
|
|
|
Intangibles
|
|
|
Total
|
|
|
Net interest income (loss)
|
|
$
|
(232
|
)
|
|
$
|
75
|
|
|
$
|
(8
|
)
|
|
$
|
|
|
|
$
|
(165
|
)
|
Less: provisions for loan losses
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
(105
|
)
|
|
|
75
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(38
|
)
|
Contingency fee revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collections revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor servicing fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss)
|
|
|
133
|
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
133
|
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Restructuring expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax Core Earnings adjustments to GAAP
|
|
$
|
28
|
|
|
$
|
(37
|
)
|
|
$
|
(8
|
)
|
|
$
|
(10
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
16.
|
Segment
Reporting (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Total Core
|
|
|
|
|
|
Total
|
|
(Dollars in millions)
|
|
Lending
|
|
|
APG
|
|
|
and Other
|
|
|
Earnings
|
|
|
Adjustments
(2)
|
|
|
GAAP
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford and Other Student Loans
|
|
$
|
612
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
612
|
|
|
$
|
(96
|
)
|
|
$
|
516
|
|
FFELP Consolidation Loans
|
|
|
995
|
|
|
|
|
|
|
|
|
|
|
|
995
|
|
|
|
(164
|
)
|
|
|
831
|
|
Private Education Loans
|
|
|
678
|
|
|
|
|
|
|
|
|
|
|
|
678
|
|
|
|
(233
|
)
|
|
|
445
|
|
Other loans
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
20
|
|
Cash and investments
|
|
|
62
|
|
|
|
|
|
|
|
7
|
|
|
|
69
|
|
|
|
(12
|
)
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
2,367
|
|
|
|
|
|
|
|
7
|
|
|
|
2,374
|
|
|
|
(505
|
)
|
|
|
1,869
|
|
Total interest expense
|
|
|
1,651
|
|
|
|
6
|
|
|
|
5
|
|
|
|
1,662
|
|
|
|
(268
|
)
|
|
|
1,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
716
|
|
|
|
(6
|
)
|
|
|
2
|
|
|
|
712
|
|
|
|
(237
|
)
|
|
|
475
|
|
Less: provisions for loan losses
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
263
|
|
|
|
(76
|
)
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
453
|
|
|
|
(6
|
)
|
|
|
2
|
|
|
|
449
|
|
|
|
(161
|
)
|
|
|
288
|
|
Contingency fee revenue
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
89
|
|
Collections revenue
|
|
|
|
|
|
|
(169
|
)
|
|
|
|
|
|
|
(169
|
)
|
|
|
(2
|
)
|
|
|
(171
|
)
|
Guarantor servicing fees
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Other income
|
|
|
55
|
|
|
|
|
|
|
|
51
|
|
|
|
106
|
|
|
|
(233
|
)
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
55
|
|
|
|
(80
|
)
|
|
|
88
|
|
|
|
63
|
|
|
|
(235
|
)
|
|
|
(172
|
)
|
Restructuring expenses
|
|
|
|
|
|
|
4
|
|
|
|
7
|
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
Operating expenses
|
|
|
142
|
|
|
|
106
|
|
|
|
68
|
|
|
|
316
|
|
|
|
51
|
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
142
|
|
|
|
110
|
|
|
|
75
|
|
|
|
327
|
|
|
|
51
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
366
|
|
|
|
(196
|
)
|
|
|
15
|
|
|
|
185
|
|
|
|
(447
|
)
|
|
|
(262
|
)
|
Income tax expense
(benefit)
(1)
|
|
|
134
|
|
|
|
(73
|
)
|
|
|
6
|
|
|
|
67
|
|
|
|
(171
|
)
|
|
|
(104
|
)
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to SLM Corporation
|
|
$
|
232
|
|
|
$
|
(124
|
)
|
|
$
|
9
|
|
|
$
|
117
|
|
|
$
|
(276
|
)
|
|
$
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Floor Income (net of tax) not included in Core
Earnings
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Income taxes are based on a
percentage of net income before tax for each individual
reportable segment.
|
|
(2)
|
|
Core Earnings
adjustments to GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008
|
|
|
|
Net Impact of
|
|
|
Net Impact of
|
|
|
|
|
|
Net Impact
|
|
|
|
|
|
|
Securitization
|
|
|
Derivative
|
|
|
Net Impact of
|
|
|
of Acquired
|
|
|
|
|
(Dollars in millions)
|
|
Accounting
|
|
|
Accounting
|
|
|
Floor Income
|
|
|
Intangibles
|
|
|
Total
|
|
|
Net interest income (loss)
|
|
$
|
(230
|
)
|
|
$
|
36
|
|
|
$
|
(43
|
)
|
|
$
|
|
|
|
$
|
(237
|
)
|
Less: provisions for loan losses
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
(154
|
)
|
|
|
36
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
(161
|
)
|
Contingency fee revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collections revenue (loss)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Guarantor servicing fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss)
|
|
|
9
|
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
7
|
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
|
(235
|
)
|
Restructuring expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax Core Earnings adjustments to GAAP
|
|
$
|
(148
|
)
|
|
$
|
(206
|
)
|
|
$
|
(43
|
)
|
|
$
|
(50
|
)
|
|
|
(447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(171
|
)
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
16.
|
Segment
Reporting (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Total Core
|
|
|
|
|
|
Total
|
|
(Dollars in millions)
|
|
Lending
|
|
|
APG
|
|
|
and Other
|
|
|
Earnings
|
|
|
Adjustments
(2)
|
|
|
GAAP
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford and Other Student Loans
|
|
$
|
1,012
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,012
|
|
|
$
|
(42
|
)
|
|
$
|
970
|
|
FFELP Consolidation Loans
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
|
1,263
|
|
|
|
169
|
|
|
|
1,432
|
|
Private Education Loans
|
|
|
1,683
|
|
|
|
|
|
|
|
|
|
|
|
1,683
|
|
|
|
(507
|
)
|
|
|
1,176
|
|
Other loans
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
46
|
|
Cash and investments
|
|
|
8
|
|
|
|
|
|
|
|
14
|
|
|
|
22
|
|
|
|
(2
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
4,012
|
|
|
|
|
|
|
|
14
|
|
|
|
4,026
|
|
|
|
(382
|
)
|
|
|
3,644
|
|
Total interest expense
|
|
|
2,424
|
|
|
|
15
|
|
|
|
11
|
|
|
|
2,450
|
|
|
|
70
|
|
|
|
2,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
1,588
|
|
|
|
(15
|
)
|
|
|
3
|
|
|
|
1,576
|
|
|
|
(452
|
)
|
|
|
1,124
|
|
Less: provisions for loan losses
|
|
|
1,199
|
|
|
|
|
|
|
|
|
|
|
|
1,199
|
|
|
|
(349
|
)
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
389
|
|
|
|
(15
|
)
|
|
|
3
|
|
|
|
377
|
|
|
|
(103
|
)
|
|
|
274
|
|
Contingency fee revenue
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
230
|
|
Collections revenue
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
Guarantor servicing fees
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
107
|
|
|
|
|
|
|
|
107
|
|
Other income (loss)
|
|
|
591
|
|
|
|
|
|
|
|
152
|
|
|
|
743
|
|
|
|
(410
|
)
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
591
|
|
|
|
246
|
|
|
|
259
|
|
|
|
1,096
|
|
|
|
(410
|
)
|
|
|
686
|
|
Restructuring expenses
|
|
|
7
|
|
|
|
3
|
|
|
|
3
|
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Operating expenses
|
|
|
435
|
|
|
|
260
|
|
|
|
211
|
|
|
|
906
|
|
|
|
29
|
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
442
|
|
|
|
263
|
|
|
|
214
|
|
|
|
919
|
|
|
|
29
|
|
|
|
948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
538
|
|
|
|
(32
|
)
|
|
|
48
|
|
|
|
554
|
|
|
|
(542
|
)
|
|
|
12
|
|
Income tax expense
(benefit)
(1)
|
|
|
199
|
|
|
|
(12
|
)
|
|
|
18
|
|
|
|
205
|
|
|
|
(209
|
)
|
|
|
(4
|
)
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to SLM Corporation
|
|
$
|
339
|
|
|
$
|
(21
|
)
|
|
$
|
30
|
|
|
$
|
348
|
|
|
$
|
(333
|
)
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Floor Income (net of tax) not included in Core
Earnings
|
|
$
|
191
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Income taxes are based on a
percentage of net income before tax for each individual
reportable segment.
|
|
(2)
|
|
Core Earnings
adjustments to GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
Net Impact of
|
|
|
Net Impact of
|
|
|
|
|
|
Net Impact
|
|
|
|
|
|
|
Securitization
|
|
|
Derivative
|
|
|
Net Impact of
|
|
|
of Acquired
|
|
|
|
|
(Dollars in millions)
|
|
Accounting
|
|
|
Accounting
|
|
|
Floor Income
|
|
|
Intangibles
|
|
|
Total
|
|
|
Net interest income (loss)
|
|
$
|
(705
|
)
|
|
$
|
92
|
|
|
$
|
161
|
|
|
$
|
|
|
|
$
|
(452
|
)
|
Less: provisions for loan losses
|
|
|
(349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
(356
|
)
|
|
|
92
|
|
|
|
161
|
|
|
|
|
|
|
|
(103
|
)
|
Contingency fee revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collections revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor servicing fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss)
|
|
|
159
|
|
|
|
(569
|
)
|
|
|
|
|
|
|
|
|
|
|
(410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
159
|
|
|
|
(569
|
)
|
|
|
|
|
|
|
|
|
|
|
(410
|
)
|
Restructuring expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax Core Earnings adjustments to GAAP
|
|
$
|
(197
|
)
|
|
$
|
(477
|
)
|
|
$
|
161
|
|
|
$
|
(29
|
)
|
|
|
(542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(209
|
)
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
16.
|
Segment
Reporting (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Total Core
|
|
|
|
|
|
Total
|
|
(Dollars in millions)
|
|
Lending
|
|
|
APG
|
|
|
and Other
|
|
|
Earnings
|
|
|
Adjustments
(2)
|
|
|
GAAP
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford and Other Student Loans
|
|
$
|
1,630
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,630
|
|
|
$
|
(152
|
)
|
|
$
|
1,478
|
|
FFELP Consolidation Loans
|
|
|
2,891
|
|
|
|
|
|
|
|
|
|
|
|
2,891
|
|
|
|
(454
|
)
|
|
|
2,437
|
|
Private Education Loans
|
|
|
2,093
|
|
|
|
|
|
|
|
|
|
|
|
2,093
|
|
|
|
(795
|
)
|
|
|
1,298
|
|
Other loans
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
65
|
|
Cash and investments
|
|
|
284
|
|
|
|
|
|
|
|
18
|
|
|
|
302
|
|
|
|
(51
|
)
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
6,963
|
|
|
|
|
|
|
|
18
|
|
|
|
6,981
|
|
|
|
(1,452
|
)
|
|
|
5,529
|
|
Total interest expense
|
|
|
5,080
|
|
|
|
20
|
|
|
|
15
|
|
|
|
5,115
|
|
|
|
(739
|
)
|
|
|
4,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
1,883
|
|
|
|
(20
|
)
|
|
|
3
|
|
|
|
1,866
|
|
|
|
(713
|
)
|
|
|
1,153
|
|
Less: provisions for loan losses
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
636
|
|
|
|
(169
|
)
|
|
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
1,247
|
|
|
|
(20
|
)
|
|
|
3
|
|
|
|
1,230
|
|
|
|
(544
|
)
|
|
|
686
|
|
Contingency fee revenue
|
|
|
|
|
|
|
259
|
|
|
|
|
|
|
|
259
|
|
|
|
|
|
|
|
259
|
|
Collections revenue
|
|
|
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
(85
|
)
|
|
|
(2
|
)
|
|
|
(87
|
)
|
Guarantor servicing fees
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
95
|
|
|
|
|
|
|
|
95
|
|
Other income
|
|
|
161
|
|
|
|
|
|
|
|
147
|
|
|
|
308
|
|
|
|
(113
|
)
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
161
|
|
|
|
174
|
|
|
|
242
|
|
|
|
577
|
|
|
|
(115
|
)
|
|
|
462
|
|
Restructuring expenses
|
|
|
46
|
|
|
|
10
|
|
|
|
22
|
|
|
|
78
|
|
|
|
|
|
|
|
78
|
|
Operating expenses
|
|
|
460
|
|
|
|
322
|
|
|
|
213
|
|
|
|
995
|
|
|
|
82
|
|
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
506
|
|
|
|
332
|
|
|
|
235
|
|
|
|
1,073
|
|
|
|
82
|
|
|
|
1,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
902
|
|
|
|
(178
|
)
|
|
|
10
|
|
|
|
734
|
|
|
|
(741
|
)
|
|
|
(7
|
)
|
Income tax expense
(benefit)
(1)
|
|
|
332
|
|
|
|
(65
|
)
|
|
|
3
|
|
|
|
270
|
|
|
|
(283
|
)
|
|
|
(13
|
)
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to SLM Corporation
|
|
$
|
570
|
|
|
$
|
(116
|
)
|
|
$
|
7
|
|
|
$
|
461
|
|
|
$
|
(458
|
)
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Floor Income (net of tax) not included in Core
Earnings
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Income taxes are based on a
percentage of net income before tax for each individual
reportable segment.
|
|
(2)
|
|
Core Earnings
adjustments to GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
Net Impact of
|
|
|
Net Impact of
|
|
|
|
|
|
Net Impact
|
|
|
|
|
|
|
Securitization
|
|
|
Derivative
|
|
|
Net Impact of
|
|
|
of Acquired
|
|
|
|
|
(Dollars in millions)
|
|
Accounting
|
|
|
Accounting
|
|
|
Floor Income
|
|
|
Intangibles
|
|
|
Total
|
|
|
Net interest income (loss)
|
|
$
|
(680
|
)
|
|
$
|
34
|
|
|
$
|
(67
|
)
|
|
$
|
|
|
|
$
|
(713
|
)
|
Less: provisions for loan losses
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
(511
|
)
|
|
|
34
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
(544
|
)
|
Contingency fee revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collections revenue
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Guarantor servicing fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
40
|
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
38
|
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
(115
|
)
|
Restructuring expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax Core Earnings adjustments to GAAP
|
|
$
|
(474
|
)
|
|
$
|
(119
|
)
|
|
$
|
(67
|
)
|
|
$
|
(81
|
)
|
|
|
(741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
SLM
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2009 and for the three and
nine months ended
September 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless
otherwise noted)
|
|
16.
|
Segment
Reporting (Continued)
|
Summary
of Core Earnings Adjustments to GAAP
The adjustments required to reconcile from the Companys
Core Earnings results to its GAAP results of
operations relate to differing treatments for securitization
transactions, derivatives, Floor Income, and certain other items
that management does not consider in evaluating the
Companys operating results. The following table reflects
aggregate adjustments associated with these areas for the three
and nine months ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Core Earnings adjustments to GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of securitization
accounting
(1)
|
|
$
|
28
|
|
|
$
|
(148
|
)
|
|
$
|
(197
|
)
|
|
$
|
(474
|
)
|
Net impact of derivative
accounting
(2)
|
|
|
(37
|
)
|
|
|
(206
|
)
|
|
|
(477
|
)
|
|
|
(119
|
)
|
Net impact of Floor
Income
(3)
|
|
|
(8
|
)
|
|
|
(43
|
)
|
|
|
161
|
|
|
|
(67
|
)
|
Net impact of acquired
intangibles
(4)
|
|
|
(10
|
)
|
|
|
(50
|
)
|
|
|
(29
|
)
|
|
|
(81
|
)
|
Net tax
effect
(5)
|
|
|
22
|
|
|
|
171
|
|
|
|
209
|
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
(5
|
)
|
|
$
|
(276
|
)
|
|
$
|
(333
|
)
|
|
$
|
(458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Securitization:
Under
GAAP, certain securitization transactions in the Companys
Lending operating segment are accounted for as sales of assets.
Under the Companys Core Earnings presentation
for the Lending operating segment, the Company presents all
securitization transactions on a Core Earnings basis
as long-term non-recourse financings. The upfront
gains on sale from securitization transactions, as
well as ongoing servicing and securitization revenue
presented in accordance with GAAP are excluded from Core
Earnings net income and replaced by the interest income,
provisions for loan losses, and interest expense as they are
earned or incurred on the securitization loans. The Company also
excludes transactions with its off-balance sheet trusts from
Core Earnings net income as they are considered
intercompany transactions on a Core Earnings basis.
|
|
(2)
|
|
Derivative
accounting:
Core
Earnings net income excludes periodic unrealized gains and
losses arising primarily in the Companys Lending operating
segment, and to a lesser degree in the Companys Corporate
and Other reportable segment, that are caused primarily by the
one-sided
mark-to-market
derivative valuations prescribed by ASC 815 on derivatives that
do not qualify for hedge treatment under GAAP. Under
the Companys Core Earnings presentation, the
Company recognizes the economic effect of these hedges, which
generally results in any cash paid or received being recognized
ratably as an expense or revenue over the hedged items
life.
|
|
(3)
|
|
Floor
Income:
The
timing and amount (if any) of Floor Income earned in the
Companys Lending operating segment is uncertain and in
excess of expected spreads. Therefore, the Company only includes
such income in Core Earnings when it is Fixed Rate
Floor Income that is economically hedged. The Company employs
derivatives, primarily Floor Income Contracts, to economically
hedge Floor Income. As discussed above in Derivative
Accounting, these derivatives do not qualify as effective
accounting hedges, and therefore, under GAAP, they are
marked-to-market
through the gains (losses) on derivative and hedging
activities, net line in the consolidated statement of
income with no offsetting gain or loss recorded for the
economically hedged items. For Core Earnings, the
Company reverses the fair value adjustments on the Floor Income
Contracts economically hedging Floor Income and includes in
income the amortization of net premiums received on contracts
economically hedging Fixed Rate Floor Income.
|
|
(4)
|
|
Acquired
Intangibles:
The
Company excludes goodwill and intangible impairment and
amortization of acquired intangibles.
|
|
(5)
|
|
Net Tax
Effect:
Such
tax effect is based upon the Companys Core
Earnings effective tax rate for the year.
|
On October 22, 2009, GRP Loan, LLC and GRP Strategies, LLC,
wholly-owned subsidiaries of the Company, entered into a
definitive sale agreement to sell $367 million in assets,
which is substantially all of the mortgage loan and real estate
assets of the Purchased Paper Mortgage/Properties
business, for $279 million. The transaction closed on
October 26, 2009. In connection with this transaction, the
Company will recognize an after tax loss of approximately
$85 million to $95 million in the fourth quarter of
2009.
56
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three and nine months ended September 30, 2009 and 2008
(Dollars in millions, except per share amounts, unless otherwise
noted)
FORWARD-LOOKING
AND CAUTIONARY STATEMENTS
This quarterly report contains forward-looking statements and
information based on managements current expectations as
of the date of this document. Statements that are not historical
facts, including statements about our beliefs or expectations
and statements that assume or are dependent upon future events,
are forward-looking statements. Forward-looking statements are
subject to risks, uncertainties, assumptions and other factors
that may cause actual results to be materially different from
those reflected in such forward-looking statements. These
factors include, among others, the occurrence of any event,
change or other circumstances that could affect our ability to
cost-effectively refinance asset-backed financing facilities due
April 2010, (collectively, the 2008 Asset-Backed Financing
Facilities), including any potential foreclosure on the
student loans under those facilities following their
termination; increased financing costs; limited liquidity; any
adverse outcomes in any significant litigation to which we are a
party; our derivative counterparties terminating their positions
with the Company if permitted by their contracts and the Company
substantially incurring additional costs to replace any
terminated positions; changes in the terms of student loans and
the educational credit marketplace (including changes resulting
from new laws, such as any laws enacted to implement the
Administrations 2010 budget proposals as they relate to
the Federal Family Education Loan Program (FFELP)
and from the implementation of applicable laws and regulations)
which, among other things, may change the volume, average term
and yields on student loans under the FFELP, may result in loans
being originated or refinanced under non-FFELP programs, or may
affect the terms upon which banks and others agree to sell FFELP
loans to the Company. The Company could be affected by: various
liquidity programs being implemented by the federal government;
changes in the demand for educational financing or in financing
preferences of lenders, educational institutions, students and
their families; changes in the composition of our Managed FFELP
and Private Education Loan portfolios; changes in the general
interest rate environment, including the rate relationships
among relevant money-market instruments, and in the
securitization markets for education loans, which may increase
the costs or limit the availability of financings necessary to
initiate, purchase or carry education loans; changes in
projections of losses from loan defaults; changes in general
economic conditions; changes in prepayment rates and credit
spreads; and changes in the demand for debt management services
and new laws or changes in existing laws that govern debt
management services. The preparation of our consolidated
financial statements also requires management to make certain
estimates and assumptions including estimates and assumptions
about future events. These estimates or assumptions may prove to
be incorrect. All forward-looking statements contained in this
quarterly report are qualified by these cautionary statements
and are made only as of the date of this document. The Company
does not undertake any obligation to update or revise these
forward-looking statements to conform the statement to actual
results or changes in the Companys expectations.
Definitions for capitalized terms used in this document can be
found in the Glossary at the end of this document.
RECENT
DEVELOPMENTS
Department
of Education Federal Student Aid Title IV Student Loan
Management/Servicing Contract (the ED Servicing
Contract)
In the second quarter of 2009, the Department of Education
(ED) named Sallie Mae as one of four private sector
servicers awarded a servicing contract (the ED Servicing
Contract) to service loans we sell to ED plus a portion of
the loans others sell to ED, existing Direct Student Loan
Program loans, and loans originated in the future. The contract
specifically covers the servicing of all federally-owned student
loans, including the servicing of FFELP loans purchased by ED as
part of the Purchase Program pursuant to The
57
Ensuring Continued Access to Student Loans Act of 2008
(ECASLA). See LIQUIDITY AND CAPITAL
RESOURCES ED Funding Programs for a further
discussion. Beginning in 2010, the contract will also cover the
servicing of new Direct Loans. The contract will span five years
with one, five-year renewal at the option of ED.
Through October 15, 2009, the Company has sold to ED
approximately $18.5 billion face amount of loans as part of
the Purchase Program (approximately $840 million face
amount of this amount was sold in the third quarter of 2009).
Outstanding debt of $18.5 billion has been paid down
related to the Participation Program in connection with these
loan sales. The Company is servicing approximately
$19 billion of loans under the ED Servicing Contract as of
October 15, 2009.
Legislative
and Regulatory Developments
On September 17, 2009, the House of Representatives passed
H.R. 3221, the Student Aid and Fiscal Responsibility Act
(SAFRA), which would eliminate the FFELP and require
that, after July 1, 2010, all new federal student loans be
made through the Direct Student Loan Program. The Senate has yet
to take up the legislation. In addition to reform included in
the House-passed legislation, there are several other reforms
that may be considered as the legislation moves forward. These
include a possible extension of ECASLA, which expires on
July 1, 2010, and the Student Loan Community Proposal, an
alternative student loan proposal endorsed by a cross-section of
FFELP service providers (including Sallie Mae).
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
A discussion of the Companys critical accounting policies,
which include allowance for loan losses, premium and discount
amortization related to our loan portfolio, fair value
measurement, securitization and Retained Interest accounting,
and derivative accounting can be found in the Companys
Annual Report on
Form 10-K
for the year ended December 31, 2008.
Fair
Value Measurements
In August 2009, the Financial Accounting Standards Board
(FASB) issued a topic update to Accounting Standards
Codification (ASC) 820, Fair Value
Measurements and Disclosures. The update provides
clarification for the valuation of liabilities when a quoted
price in an active market for the liability does not exists and
clarifies that a quoted price for the liability when traded as
an asset (when no adjustments are required) are Level 1
fair value measurements. In addition, it also clarifies that an
entity is not required to adjust the value of a liability for
the existence of a restriction that prevents the transfer of the
liability. This topic update is effective for the Company
beginning October 1, 2009 and will not be material to the
Company.
On April 9, 2009, the FASB issued three ASC topic updates
regarding fair value measurements and recognition of impairment.
Under ASC 320, Investments Debt and Equity
Securities, impairment must be recorded within the
consolidated statements of income for debt securities if there
exists a fair value loss and the entity intends to sell the
security or it is more likely than not the entity will be
required to sell the security before recovery of the loss.
Additionally, expected credit losses must be recorded through
income regardless of the impairment determination above.
Remaining fair value losses are recorded to other comprehensive
income. ASC 825, Financial Instruments, requires
interim disclosures of the fair value of financial instruments
that were previously only required annually. Finally, the update
to ASC 820, Fair Value Measurements and Disclosures,
provides guidance for determining when a significant decrease in
market activity has occurred and when a transaction is not
orderly. It further reiterates that prices from inactive markets
or disorderly transactions should carry less weight, if any, to
the determination of fair value. These topic updates were
effective for the Company beginning April 1, 2009. The
adoption of these updates was not material to the Company.
58
Significant assumptions used in fair value measurements
including those related to credit and liquidity risk are as
follows:
|
|
|
|
1.
|
Investments
Our investments primarily consist
of overnight/weekly maturity instruments with high credit
quality counterparties. However, we have considered credit and
liquidity risk involving specific instruments. These assumptions
have further been validated by the successful maturity of these
investments in the period immediately following the end of the
reporting period. In the fourth quarter 2008, we recorded an
impairment of $8 million related to our investment in the
Reserve Primary Fund based on an internal assessment of the
collectability of our remaining investment. See LIQUIDITY
AND CAPITAL RESOURCES Counterparty Exposure
for a further discussion.
|
|
|
2.
|
Derivatives
When determining the fair value
of derivatives, we take into account counterparty credit risk
for positions where we are exposed to the counterparty on a net
basis by assessing exposure net of collateral held. The net
exposures for each counterparty are adjusted based on market
information available for the specific counterparty including
spreads from credit default swaps. Additionally, when the
counterparty has exposure to the Company related to SLM
Corporation derivatives, we fully collateralize the exposure
minimizing the adjustment necessary to the derivative valuations
for our credit risk. Trusts that contain derivatives are not
required to post collateral to counterparties as the credit
quality and securitized nature of the trusts minimizes any
adjustments for the counterpartys exposure to the trusts.
Adjustments related to credit risk reduced the overall value of
our derivatives by $81 million as of September 30,
2009. We also take into account changes in liquidity when
determining the fair value of derivative positions. We adjusted
the fair value of certain less liquid positions downward by
approximately $202 million to take into account a
significant reduction in liquidity as of September 30,
2009, related primarily to basis swaps indexed to interest rate
indices with inactive markets. A major indicator of market
inactivity is the widening of the bid/ask spread in these
markets. In general, the widening of counterparty credit spreads
and reduced liquidity for derivative instruments as indicated by
wider bid/ask spreads will reduce the fair value of derivatives.
In addition, certain cross-currency interest rate swaps hedging
foreign currency denominated reset rate notes in the
Companys on-balance sheet trusts contain extension
features that coincide with the remarketing dates of the notes.
The valuation of the extension feature requires significant
judgment based on internally developed inputs. These swaps were
transferred into Level 3 during the first quarter of 2009
due to a change in the assumption regarding successful
remarketing. These swaps were carried at $1.7 billion as of
September 30, 2009.
|
|
|
3.
|
Residual Interests
We have never sold our
Residual Interests. We do not consider our Residual Interests to
be liquid, which we take into account when valuing our Residual
Interests. We use non-binding broker quotes and industry analyst
reports which show changes in the indicative prices of the
asset-backed securities tranches immediately senior to the
Residual Interest as an indication of potential changes in the
discount rate used to value the Residual Interest. We also use
the most current prepayment and default rate assumptions to
project the cash flows used to value Residual Interests. These
assumptions are internally developed and primarily based on
analyzing the actual results of loan performance from past
periods. See Note 6, Student Loan
Securitization, to the consolidated financial statements
for a discussion of all assumption changes made during the
quarter to properly determine the fair value of the Residual
Interests, as well as a shock analysis to fair value related to
all significant assumptions.
|
|
|
4.
|
Student Loans
Our FFELP loans and Private
Education Loans are accounted for at cost or at the lower of
cost or fair value if the loan is
held-for-sale.
The fair value is disclosed in compliance with ASC No. 825,
Financial Instruments. For both FFELP loans and
Private Education Loans accounted for at cost, fair value is
determined by modeling loan level cash flows using stated terms
of the assets and internally-developed assumptions to determine
aggregate portfolio yield, net present value and average life.
The significant assumptions used to project cash flows are
prepayment speeds, default rates, cost of funds, and required
return on equity. In addition, the Floor Income component of our
FFELP loan portfolio is valued through discounted cash flow and
option models using both observable market inputs and internally
developed inputs. Significant inputs into the models are not
generally
|
59
|
|
|
|
|
market observable. They are either derived internally through a
combination of historical experience and managements
qualitative expectation of future performance (in the case of
prepayment speeds, default rates, and capital assumptions), or
are obtained through external broker quotes (as in the case of
cost of funds). When possible, market transactions are used to
validate the model. In most cases these are either infrequent or
not observable. For FFELP loans classified as
held-for-sale
and accounted for at the lower of cost or market, the fair value
is based on the committed sales price of the various loan
purchase programs established by ED.
|
For further information regarding the impact of Level 3 fair
values to the results of operations, see Note 13,
Fair Value Measurements, to the consolidated
financial statements.
SELECTED
FINANCIAL DATA
Condensed
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
Increase
|
|
|
Ended
|
|
|
Increase
|
|
|
|
September 30,
|
|
|
(Decrease)
|
|
|
September 30,
|
|
|
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
Net interest income
|
|
$
|
525
|
|
|
$
|
475
|
|
|
$
|
50
|
|
|
|
11
|
%
|
|
$
|
1,124
|
|
|
$
|
1,153
|
|
|
$
|
(29
|
)
|
|
|
(3
|
)%
|
Less: provisions for loan losses
|
|
|
321
|
|
|
|
187
|
|
|
|
134
|
|
|
|
72
|
|
|
|
850
|
|
|
|
467
|
|
|
|
383
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
204
|
|
|
|
288
|
|
|
|
(84
|
)
|
|
|
(29
|
)
|
|
|
274
|
|
|
|
686
|
|
|
|
(412
|
)
|
|
|
(60
|
)
|
Servicing and securitization revenue (loss)
|
|
|
155
|
|
|
|
65
|
|
|
|
90
|
|
|
|
138
|
|
|
|
147
|
|
|
|
174
|
|
|
|
(27
|
)
|
|
|
(16
|
)
|
Gains (losses) on loans and securities, net
|
|
|
12
|
|
|
|
(44
|
)
|
|
|
56
|
|
|
|
(127
|
)
|
|
|
13
|
|
|
|
(122
|
)
|
|
|
135
|
|
|
|
(111
|
)
|
Gains (losses) on derivative and hedging activities, net
|
|
|
(112
|
)
|
|
|
(242
|
)
|
|
|
130
|
|
|
|
(54
|
)
|
|
|
(569
|
)
|
|
|
(153
|
)
|
|
|
(416
|
)
|
|
|
272
|
|
Contingency fee revenue
|
|
|
82
|
|
|
|
89
|
|
|
|
(7
|
)
|
|
|
(8
|
)
|
|
|
230
|
|
|
|
259
|
|
|
|
(29
|
)
|
|
|
(11
|
)
|
Collections revenue (loss)
|
|
|
16
|
|
|
|
(171
|
)
|
|
|
187
|
|
|
|
(109
|
)
|
|
|
16
|
|
|
|
(87
|
)
|
|
|
103
|
|
|
|
(118
|
)
|
Guarantor servicing fees
|
|
|
48
|
|
|
|
37
|
|
|
|
11
|
|
|
|
30
|
|
|
|
107
|
|
|
|
95
|
|
|
|
12
|
|
|
|
13
|
|
Other income
|
|
|
151
|
|
|
|
94
|
|
|
|
57
|
|
|
|
61
|
|
|
|
742
|
|
|
|
296
|
|
|
|
446
|
|
|
|
151
|
|
Restructuring expenses
|
|
|
4
|
|
|
|
11
|
|
|
|
(7
|
)
|
|
|
(64
|
)
|
|
|
13
|
|
|
|
78
|
|
|
|
(65
|
)
|
|
|
(83
|
)
|
Operating expenses
|
|
|
318
|
|
|
|
367
|
|
|
|
(49
|
)
|
|
|
(13
|
)
|
|
|
935
|
|
|
|
1,077
|
|
|
|
(142
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income tax benefit
|
|
|
234
|
|
|
|
(262
|
)
|
|
|
496
|
|
|
|
(189
|
)
|
|
|
12
|
|
|
|
(7
|
)
|
|
|
19
|
|
|
|
(271
|
)
|
Income tax expense (benefit)
|
|
|
75
|
|
|
|
(104
|
)
|
|
|
179
|
|
|
|
(172
|
)
|
|
|
(4
|
)
|
|
|
(13
|
)
|
|
|
9
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
159
|
|
|
|
(158
|
)
|
|
|
317
|
|
|
|
(201
|
)
|
|
|
16
|
|
|
|
6
|
|
|
|
10
|
|
|
|
167
|
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(100
|
)
|
|
|
1
|
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to SLM Corporation
|
|
|
159
|
|
|
|
(159
|
)
|
|
|
318
|
|
|
|
(200
|
)
|
|
|
15
|
|
|
|
3
|
|
|
|
12
|
|
|
|
400
|
|
Preferred stock dividends
|
|
|
43
|
|
|
|
27
|
|
|
|
16
|
|
|
|
59
|
|
|
|
95
|
|
|
|
84
|
|
|
|
11
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to SLM Corporation common stock
|
|
$
|
116
|
|
|
$
|
(186
|
)
|
|
$
|
302
|
|
|
|
(162
|
)%
|
|
$
|
(80
|
)
|
|
$
|
(81
|
)
|
|
$
|
1
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share attributable to SLM
Corporation common shareholders
|
|
$
|
.25
|
|
|
$
|
(.40
|
)
|
|
$
|
.65
|
|
|
|
163
|
%
|
|
$
|
(.17
|
)
|
|
$
|
(.17
|
)
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share attributable to SLM
Corporation common shareholders
|
|
$
|
.25
|
|
|
$
|
(.40
|
)
|
|
$
|
.65
|
|
|
|
163
|
%
|
|
$
|
(.17
|
)
|
|
$
|
(.17
|
)
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share attributable to SLM Corporation
common shareholders
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
Condensed
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford and Other Student Loans, net
|
|
$
|
43,258
|
|
|
$
|
44,025
|
|
|
$
|
(767
|
)
|
|
|
(2
|
)%
|
FFELP Stafford Loans
Held-for-Sale
|
|
|
23,846
|
|
|
|
8,451
|
|
|
|
15,395
|
|
|
|
182
|
|
FFELP Consolidation Loans, net
|
|
|
69,246
|
|
|
|
71,744
|
|
|
|
(2,498
|
)
|
|
|
(3
|
)
|
Private Education Loans, net
|
|
|
22,495
|
|
|
|
20,582
|
|
|
|
1,913
|
|
|
|
9
|
|
Other loans, net
|
|
|
455
|
|
|
|
729
|
|
|
|
(274
|
)
|
|
|
(38
|
)
|
Cash and investments
|
|
|
7,022
|
|
|
|
5,112
|
|
|
|
1,910
|
|
|
|
37
|
|
Restricted cash and investments
|
|
|
5,761
|
|
|
|
3,535
|
|
|
|
2,226
|
|
|
|
63
|
|
Retained Interest in off-balance sheet securitized loans
|
|
|
1,838
|
|
|
|
2,200
|
|
|
|
(362
|
)
|
|
|
(16
|
)
|
Goodwill and acquired intangible assets, net
|
|
|
1,224
|
|
|
|
1,249
|
|
|
|
(25
|
)
|
|
|
(2
|
)
|
Other assets
|
|
|
11,299
|
|
|
|
11,141
|
|
|
|
158
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
186,444
|
|
|
$
|
168,768
|
|
|
$
|
17,676
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
53,407
|
|
|
$
|
41,933
|
|
|
$
|
11,474
|
|
|
|
27
|
%
|
Long-term borrowings
|
|
|
124,648
|
|
|
|
118,225
|
|
|
|
6,423
|
|
|
|
5
|
|
Other liabilities
|
|
|
3,400
|
|
|
|
3,604
|
|
|
|
(204
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
181,455
|
|
|
|
163,762
|
|
|
|
17,693
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLM Corporation stockholders equity before treasury stock
|
|
|
6,850
|
|
|
|
6,855
|
|
|
|
(5
|
)
|
|
|
|
|
Common stock held in treasury
|
|
|
1,861
|
|
|
|
1,856
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLM Corporation stockholders equity
|
|
|
4,989
|
|
|
|
4,999
|
|
|
|
(10
|
)
|
|
|
|
|
Noncontrolling interest
|
|
|
|
|
|
|
7
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
4,989
|
|
|
|
5,006
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
186,444
|
|
|
$
|
168,768
|
|
|
$
|
17,676
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
RESULTS
OF OPERATIONS
Three
Months Ended September 30, 2009 Compared to Three Months
Ended September 30, 2008
For the three months ended September 30, 2009, net income
attributable to SLM Corporation was $159 million or $.25
diluted earnings per common share attributable to SLM
Corporation common shareholders, compared to net loss of
$159 million, or $.40 diluted loss per common share
attributable to SLM Corporation common shareholders, for the
three months ended September 30, 2008. The effective tax
rate for those periods was 32 percent and 40 percent,
respectively. The movement in the effective tax rate was
primarily driven by the reduction of tax and interest on
U.S. federal and state uncertain tax positions. For the
three months ended September 30, 2009, the Companys
pre-tax income was $234 million compared to pre-tax loss of
$262 million in the year-ago quarter. The increase in
pre-tax income of $496 million was primarily due to a
decrease in net losses on derivative and hedging activities of
$130 million in the third quarter of 2009 from
$242 million net losses in the third quarter of 2008 to
$112 million net losses in the third quarter of 2009, along
with an increase in collections revenue of $187 million,
and an increase in gains on debt repurchases of $58 million.
Net interest income after provisions for loan losses decreased
by $84 million in the third quarter from the year-ago
quarter. This decrease was due to a $134 million increase
in provisions for loan losses offset by a $50 million
increase in net interest income. The increase in net interest
income was primarily due to a decrease in the 2008 Asset Backed
Financing Facilities fees and an $18.9 billion increase in
the average balance of on-balance sheet student loans (see
LENDING BUSINESS SEGMENT Net Interest
Income
Net Interest Margin On-Balance
Sheet
). The increase in provisions for loan losses
relates primarily to the increase in charge-off expectations on
Private Education Loans from the year-ago period, primarily as a
result of the continued weakening of the U.S. economy (see
LENDING BUSINESS SEGMENT Private Education
Loan Losses
Private Education Loan Delinquencies
and Forbearance
and
Allowance for
Private Education Loan Losses
).
There were no gains on student loan securitizations in either
the third quarter of 2009 or the year-ago quarter as the Company
did not complete any off-balance sheet securitizations in those
periods. Servicing and securitization revenue increased by
$90 million from revenue of $65 million in the third
quarter of 2008 to $155 million in the third quarter of
2009. This increase was primarily due to a
current-quarters unrealized
mark-to-market
gain of $13 million on the Companys Residual
Interests compared to a year-ago quarters unrealized
mark-to-market
loss of $81 million. See LIQUIDITY AND CAPITAL
RESOURCES
Retained Interest in Securitized
Receivables
for further discussion of the factors
impacting the fair values.
The $12 million of gains on sales of loans and securities,
net, in the third quarter 2009 related to the gain on sale of
approximately $840 million face amount of FFELP loans to
the ED as part of the Purchase Program. Approximately
$17.6 billion face amount of additional FFELP loans were
sold to the ED on October 15, 2009. There were net losses
of $44 million on sales of loans and securities in the
year-ago quarter. Prior to the fourth quarter of 2008, these
losses were primarily the result of the Companys
repurchase of delinquent Private Education Loans from the
Companys off-balance sheet securitization trusts. When
Private Education Loans in the Companys off-balance sheet
securitization trusts that settled before September 30,
2005, became 180 days delinquent, the Company previously
exercised its contingent call option to repurchase these loans
at par value out of the trusts and recorded a loss for the
difference in the par value paid and the fair market value of
the loans at the time of purchase. The Company does not hold the
contingent call option for any trusts that settled after
September 30, 2005. In October 2008, the Company decided to
no longer exercise its contingent call option.
In the third quarter of 2009, contingency fee, collections and
guarantor servicing fee revenue totaled $146 million, a
$190 million increase from a loss of $44 million in
the year-ago quarter. This increase was primarily due to a
reduction in impairment recognized on our purchased paper
portfolios, which was partially offset by a decline in revenue
due to significantly smaller portfolios in our purchased paper
businesses
year-over-year,
as a result of winding down these businesses. In the third
quarter of 2009, total impairment of $21 million was
comprised of $12 million of impairment related to declines
in the fair value of mortgage loans and real estate held by the
Companys mortgage purchased paper subsidiary and
$9 million of
62
impairment related to the Companys non-mortgage purchased
paper subsidiary, compared to $242 million of total
impairment recorded in the third quarter of 2008, of which
$147 million of impairment related to declines in the fair
value of mortgage loans and real estate held by the
Companys mortgage purchased paper subsidiary and
$95 million, including a loss on the sale of the
Companys international purchased paper business, related
to the Companys non-mortgage purchased paper subsidiary
(see ASSET PERFORMANCE GROUP BUSINESS SEGMENT).
In response to the College Cost Reduction and Access Act of 2007
(CCRAA) and challenges in the capital markets, the
Company initiated a restructuring plan in the fourth quarter of
2007. The plan focused on conforming our lending activities to
the economic environment, exiting certain customer relationships
and product lines, winding down our debt purchased paper
businesses, and significantly reducing our operating expenses.
The restructuring plan is essentially completed and our
objectives have been met. During 2008, we reduced the run-rate
of our operating expenses by 20 percent versus the end of
2007, after adjusting for restructuring costs, growth and other
investments. As part of the Companys cost reduction
efforts, restructuring expenses of $4 million and
$11 million were recognized in the third quarters of 2009
and 2008, respectively. Restructuring expenses from the fourth
quarter of 2007 through the third quarter of 2009 totaled
$119 million. The majority of these restructuring expenses
were severance costs related to the completed and planned
elimination of approximately 2,800 positions, or approximately
25 percent of the workforce. We estimate approximately
$7 million of additional restructuring expenses associated
with our current cost reduction efforts will be incurred. On
September 17, 2009 the House passed the SAFRA which would
eliminate FFELP and require that, after July 1, 2010, all
new federal loans be made through the Direct Lending program.
The Senate has yet to take up the legislation. If this
legislation is signed into law, the Company will undertake
another significant restructuring to conform its infrastructure
to the elimination of the FFELP and achieve additional expense
reduction. See RECENT DEVELOPMENTS Legislative
and Regulatory Developments for a further discussion of
SAFRA.
Operating expenses were $318 million in the third quarter
of 2009 compared to $367 million in the third quarter of
2008. As previously discussed, in 2008 the Company decided to
wind down its purchased paper businesses. This decision resulted
in a $36 million impairment of intangible assets in the
third quarter of 2008. The remaining $13 million decrease
in operating expenses was primarily due to the Companys
cost reduction efforts discussed above. The amortization and
impairment of acquired intangibles totaled $10 million and
$50 million for the third quarters of 2009 and 2008,
respectively.
During the third quarter of 2009, the Company converted
approximately $137 million of its Series C Preferred
Stock to common stock. As part of this conversion, the Company
delivered to the holders of the preferred stock:
(1) approximately 7 million shares (the number of
common shares they would most likely receive if the preferred
stock they held mandatorily converted to common shares in the
fourth quarter of 2010) plus (2) a discounted amount of the
preferred stock dividends the holders of the preferred stock
would have received if they held the preferred stock through the
mandatory conversion date. The accounting treatment for this
conversion resulted in a loss recorded in preferred stock
dividends for the period of approximately $20 million.
Nine
Months Ended September 30, 2009 Compared to Nine Months
Ended September 30, 2008
For the nine months ended September 30, 2009, net income
attributable to SLM Corporation was $15 million or $.17
diluted loss per common share attributable to SLM Corporation
common shareholders, compared to net income of $3 million,
or $.17 diluted loss per common share attributable to SLM
Corporation common shareholders, for the nine months ended
September 30, 2008. The effective tax rate for those
periods was (33) percent and 206 percent,
respectively. The movement in the effective tax rate was
primarily driven by the reduction of tax and interest on
U.S. federal and state uncertain tax positions in both
periods, as well as the permanent tax impact of deducting
Proposed Merger-related transaction costs in the nine months
ended September 30, 2008. For the nine months ended
September 30, 2009, the Companys pre-tax income was
$12 million compared to pre-tax loss of $7 million in
the year-ago period. The increase in pre-tax income of
$19 million was primarily due an increase in gains on debt
repurchases of $426 million, offset by an increase of
$417 million in net losses on derivative and hedging
activities.
63
There were no gains on student loan securitizations in either
the nine months ended September 30, 2009 or the year-ago
period as the Company did not complete any off-balance sheet
securitizations in those periods. Servicing and securitization
revenue decreased by $27 million from $174 million in
the nine months ended September 30, 2008 to
$147 million in the nine months ended September 30,
2009. This decrease was primarily due to a decrease in net
Embedded Floor Income. See LIQUIDITY AND CAPITAL
RESOURCES
Retained Interest in Securitized
Receivables
for further discussion of the factors
impacting the fair values.
Net interest income after provisions for loan losses decreased
by $412 million in the nine months ended September 30,
2009 from the year-ago period. This decrease was due to a
$383 million increase in provisions for loan losses and to
a $29 million decrease in net interest income. The decrease
in net interest income was primarily due to a decrease in the
student loan spread and other asset spread partially offset by a
$19.7 billion increase in the average balance of on-balance
sheet student loans (see LENDING BUSINESS
SEGMENT Net Interest Income
Net
Interest Margin On-Balance Sheet
). The
increase in provisions for loan losses related primarily to
increases in charge-off expectations on Private Education Loans
primarily as a result of the continued weakening of the
U.S. economy (see LENDING BUSINESS
SEGMENT Private Education Loan Losses
Private Education Loan Delinquencies and
Forbearance
and
Allowance for
Private Education Loan Losses
)
There were $12 million in net gains on sales of loans and
securities in the nine months ended September 30, 2009
related to the ED Purchase Program as previously discussed,
compared to net losses of $122 million incurred in the nine
months ended September 30, 2008. Prior to the fourth
quarter of 2008, these losses were primarily the result of the
Companys repurchase of delinquent Private Education Loans
from the Companys off-balance sheet securitization trusts.
As previously discussed, the Company no longer repurchases these
loans.
For the nine months ended September 30, 2009, contingency
fee, collections and guarantor servicing fee revenue totaled
$353 million, an $86 million increase from
$267 million in the year-ago period. This increase was
primarily due to a reduction in impairment recognized on our
purchased paper portfolios, which was partially offset by a
decline in revenue due to significantly smaller portfolios in
our purchased paper businesses, as a result of winding down
these businesses. In the nine months ended September 30,
2009, total impairment of $118 million was comprised of
$93 million of impairment related to declines in the fair
value of mortgage loans and real estate held by the
Companys mortgage purchased paper subsidiary and
$25 million of impairment related to the Companys
non-mortgage purchased paper subsidiary, compared to
$323 million of total impairment recorded in the nine
months ended September 30, 2008, of which $212 million
of impairment related to declines in the fair value of mortgage
loans and real estate held by the Companys mortgage
purchased paper subsidiary and $111 million, including a
loss on the sale of the Companys international purchased
paper business, related to the Companys non-mortgage
purchased paper subsidiary (see ASSET PERFORMANCE GROUP
BUSINESS SEGMENT).
Restructuring expenses of $13 million and $78 million
were recognized in the nine months ended September 30, 2009
and 2008, respectively, as previously discussed.
Operating expenses were $935 million for the nine months
ended September 30, 2009 compared to $1.1 billion in
the year-ago period. The decrease in operating expenses was
primarily due to the Companys cost reduction efforts
discussed above. The amortization and impairment of acquired
intangibles totaled $29 million and $81 million
(including a $36 million impairment of intangible assets in
the third quarter of 2008 as discussed above) for the nine
months ended September 30, 2009 and 2008, respectively.
As previously discussed, preferred stock dividends for the nine
months ended September 30, 2009 included a loss of
$20 million due to the conversion of $137 million of
Series C Preferred Stock to common stock in the third
quarter of 2009.
64
Other
Income
The following table summarizes the components of Other
income in the consolidated statements of income for the
three and nine months ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Gains on debt repurchases
|
|
$
|
74
|
|
|
$
|
16
|
|
|
$
|
463
|
|
|
$
|
37
|
|
Late fees and forbearance fees
|
|
|
39
|
|
|
|
36
|
|
|
|
107
|
|
|
|
107
|
|
Asset servicing and other transaction fees
|
|
|
28
|
|
|
|
28
|
|
|
|
79
|
|
|
|
80
|
|
Loan servicing fees
|
|
|
17
|
|
|
|
6
|
|
|
|
35
|
|
|
|
19
|
|
Foreign currency translation gains (losses)
|
|
|
(23
|
)
|
|
|
(13
|
)
|
|
|
11
|
|
|
|
(9
|
)
|
Other
|
|
|
16
|
|
|
|
21
|
|
|
|
47
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
151
|
|
|
$
|
94
|
|
|
$
|
742
|
|
|
$
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in other income over all periods presented is
primarily the result of the gains on debt repurchases. The
Company began repurchasing its outstanding debt in the second
quarter of 2008. The Company repurchased $1.4 billion and
$580 million face amount of its senior unsecured notes for
the quarters ended September 30, 2009 and 2008,
respectively, and repurchased $2.7 billion and
$1.8 billion face amount of its senior unsecured notes for
the nine months ended September 30, 2009 and 2008,
respectively. The increase in the gain on debt repurchases
between 2009 and 2008 was the result of differences in the
characteristics of debt repurchased and larger unsecured credit
spreads in 2009. Since the second quarter of 2008, the Company
repurchased $4.6 billion face amount of its senior
unsecured notes in the aggregate, with maturity dates ranging
from 2008 to 2014.
65
BUSINESS
SEGMENTS
The results of operations of the Companys Lending and
Asset Performance Group (APG) operating segments are
presented below. These defined business segments operate in
distinct business environments and are considered reportable
segments under ASC 280, Segment Reporting, based on
quantitative thresholds applied to the Companys financial
statements. In addition, we provide other complementary products
and services, including guarantor and student loan servicing,
through smaller operating segments that do not meet such
thresholds and are aggregated in the Corporate and Other
reportable segment for financial reporting purposes.
The management reporting process measures the performance of the
Companys operating segments based on the management
structure of the Company, as well as the methodology used by
management to evaluate performance and allocate resources. In
accordance with the Rules and Regulations of the Securities and
Exchange Commission (SEC), we prepare financial
statements in accordance with GAAP. In addition to evaluating
the Companys GAAP-based financial information, management,
including the Companys chief operating decision makers,
evaluates the performance of the Companys operating
segments based on their profitability on a basis that, as
allowed under ASC 280, differs from GAAP. We refer to
managements basis of evaluating our segment results as
Core Earnings presentations for each business
segment and we refer to these performance measures in our
presentations with credit rating agencies and lenders.
Accordingly, information regarding the Companys reportable
segments is provided herein based on Core Earnings,
which are discussed in detail below.
Our Core Earnings are not defined terms within GAAP
and may not be comparable to similarly titled measures reported
by other companies. Core Earnings net income
reflects only current period adjustments to GAAP net income as
described below. Unlike financial accounting, there is no
comprehensive, authoritative guidance for management reporting
and as a result, our management reporting is not necessarily
comparable with similar information for any other financial
institution. The Companys operating segments are defined
by the products and services they offer or the types of
customers they serve, and they reflect the manner in which
financial information is currently evaluated by management.
Intersegment revenues and expenses are netted within the
appropriate financial statement line items consistent with the
income statement presentation provided to management. Changes in
management structure or allocation methodologies and procedures
may result in changes in reported segment financial information.
Core Earnings are the primary financial performance
measures used by management to develop the Companys
financial plans, track results, and establish corporate
performance targets. While Core Earnings are not a
substitute for reported results under GAAP, the Company relies
on Core Earnings in operating its business because
Core Earnings permit management to make meaningful
period-to-period
comparisons of the operational and performance indicators that
are most closely assessed by management. Management believes
this information provides additional insight into the financial
performance of the core business activities of our operating
segments. Accordingly, the tables presented below reflect
Core Earnings which is reviewed and utilized by
management to manage the business for each of the Companys
reportable segments. A further discussion regarding Core
Earnings is included under Limitations of Core
Earnings and Pre-tax Differences between
Core Earnings and GAAP by Business Segment.
The LENDING BUSINESS SEGMENT section includes all
discussion of income and related expenses associated with the
net interest margin, the student loan spread and its components,
the provisions for loan losses, and other fees earned on our
Managed portfolio of student loans. The APG BUSINESS
SEGMENT section reflects the fees earned and expenses
incurred in providing accounts receivable management and
collection services. The CORPORATE AND OTHER BUSINESS
SEGMENT section includes our remaining fee businesses and
other corporate expenses that do not pertain directly to the
primary operating segments identified above.
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30, 2009
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
Lending
|
|
|
APG
|
|
|
and Other
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford and Other Student Loans
|
|
$
|
340
|
|
|
$
|
|
|
|
$
|
|
|
FFELP Consolidation Loans
|
|
|
430
|
|
|
|
|
|
|
|
|
|
Private Education Loans
|
|
|
561
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Cash and investments
|
|
|
3
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
1,345
|
|
|
|
|
|
|
|
5
|
|
Total interest expense
|
|
|
652
|
|
|
|
5
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
693
|
|
|
|
(5
|
)
|
|
|
2
|
|
Less: provisions for loan losses
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
245
|
|
|
|
(5
|
)
|
|
|
2
|
|
Contingency fee revenue
|
|
|
|
|
|
|
82
|
|
|
|
|
|
Collections revenue
|
|
|
|
|
|
|
16
|
|
|
|
|
|
Guarantor servicing fees
|
|
|
|
|
|
|
|
|
|
|
48
|
|
Other income
|
|
|
129
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
129
|
|
|
|
98
|
|
|
|
104
|
|
Restructuring expenses
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
Operating expenses
|
|
|
154
|
|
|
|
80
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
156
|
|
|
|
81
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
218
|
|
|
|
12
|
|
|
|
30
|
|
Income tax
expense
(1)
|
|
|
80
|
|
|
|
5
|
|
|
|
11
|
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings net income attributable to SLM
Corporation
|
|
$
|
138
|
|
|
$
|
7
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Floor Income (net of tax) not included in Core
Earnings
|
|
$
|
23
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Income taxes are based on a
percentage of net income before tax for each individual
reportable segment.
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30, 2008
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
Lending
|
|
|
APG
|
|
|
and Other
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford and Other Student Loans
|
|
$
|
612
|
|
|
$
|
|
|
|
$
|
|
|
FFELP Consolidation Loans
|
|
|
995
|
|
|
|
|
|
|
|
|
|
Private Education Loans
|
|
|
678
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Cash and investments
|
|
|
62
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
2,367
|
|
|
|
|
|
|
|
7
|
|
Total interest expense
|
|
|
1,651
|
|
|
|
6
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
716
|
|
|
|
(6
|
)
|
|
|
2
|
|
Less: provisions for loan losses
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
453
|
|
|
|
(6
|
)
|
|
|
2
|
|
Contingency fee revenue
|
|
|
|
|
|
|
89
|
|
|
|
|
|
Collections revenue
|
|
|
|
|
|
|
(169
|
)
|
|
|
|
|
Guarantor servicing fees
|
|
|
|
|
|
|
|
|
|
|
37
|
|
Other income
|
|
|
55
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
55
|
|
|
|
(80
|
)
|
|
|
88
|
|
Restructuring expenses
|
|
|
|
|
|
|
4
|
|
|
|
7
|
|
Operating expenses
|
|
|
142
|
|
|
|
106
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
142
|
|
|
|
110
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
366
|
|
|
|
(196
|
)
|
|
|
15
|
|
Income tax expense
(benefit)
(1)
|
|
|
134
|
|
|
|
(73
|
)
|
|
|
6
|
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings net income (loss) attributable to SLM
Corporation
|
|
$
|
232
|
|
|
$
|
(124
|
)
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Floor Income (net of tax) not included in Core
Earnings
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Income taxes are based on a
percentage of net income before tax for each individual
reportable segment.
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2009
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
Lending
|
|
|
APG
|
|
|
and Other
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford and Other Student Loans
|
|
$
|
1,012
|
|
|
$
|
|
|
|
$
|
|
|
FFELP Consolidation Loans
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
Private Education Loans
|
|
|
1,683
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
46
|
|
|
|
|
|
|
|
|
|
Cash and investments
|
|
|
8
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
4,012
|
|
|
|
|
|
|
|
14
|
|
Total interest expense
|
|
|
2,424
|
|
|
|
15
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
1,588
|
|
|
|
(15
|
)
|
|
|
3
|
|
Less: provisions for loan losses
|
|
|
1,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
389
|
|
|
|
(15
|
)
|
|
|
3
|
|
Contingency fee revenue
|
|
|
|
|
|
|
230
|
|
|
|
|
|
Collections revenue
|
|
|
|
|
|
|
16
|
|
|
|
|
|
Guarantor servicing fees
|
|
|
|
|
|
|
|
|
|
|
107
|
|
Other income
|
|
|
591
|
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
591
|
|
|
|
246
|
|
|
|
259
|
|
Restructuring expenses
|
|
|
7
|
|
|
|
3
|
|
|
|
3
|
|
Operating expenses
|
|
|
435
|
|
|
|
260
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
442
|
|
|
|
263
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
538
|
|
|
|
(32
|
)
|
|
|
48
|
|
Income tax expense
(benefit)
(1)
|
|
|
199
|
|
|
|
(12
|
)
|
|
|
18
|
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings net income (loss) attributable to SLM
Corporation
|
|
$
|
339
|
|
|
$
|
(21
|
)
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Floor Income (net of tax) not included in Core
Earnings
|
|
$
|
191
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Income taxes are based on a
percentage of net income before tax for each individual
reportable segment.
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2008
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
Lending
|
|
|
APG
|
|
|
and Other
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford and Other Student Loans
|
|
$
|
1,630
|
|
|
$
|
|
|
|
$
|
|
|
FFELP Consolidation Loans
|
|
|
2,891
|
|
|
|
|
|
|
|
|
|
Private Education Loans
|
|
|
2,093
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
65
|
|
|
|
|
|
|
|
|
|
Cash and investments
|
|
|
284
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
6,963
|
|
|
|
|
|
|
|
18
|
|
Total interest expense
|
|
|
5,080
|
|
|
|
20
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
1,883
|
|
|
|
(20
|
)
|
|
|
3
|
|
Less: provisions for loan losses
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
1,247
|
|
|
|
(20
|
)
|
|
|
3
|
|
Contingency fee revenue
|
|
|
|
|
|
|
259
|
|
|
|
|
|
Collections revenue
|
|
|
|
|
|
|
(85
|
)
|
|
|
|
|
Guarantor servicing fees
|
|
|
|
|
|
|
|
|
|
|
95
|
|
Other income
|
|
|
161
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
161
|
|
|
|
174
|
|
|
|
242
|
|
Restructuring expenses
|
|
|
46
|
|
|
|
10
|
|
|
|
22
|
|
Operating expenses
|
|
|
460
|
|
|
|
322
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
506
|
|
|
|
332
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
902
|
|
|
|
(178
|
)
|
|
|
10
|
|
Income tax expense
(benefit)
(1)
|
|
|
332
|
|
|
|
(65
|
)
|
|
|
3
|
|
Less: net income attributable to noncontrolling interest
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings net income (loss) attributable to SLM
Corporation
|
|
$
|
570
|
|
|
$
|
(116
|
)
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Floor Income (net of tax) not included in Core
Earnings
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Income taxes are based on a
percentage of net income before tax for each individual
reportable segment.
|
Limitations
of Core Earnings
While GAAP provides a uniform, comprehensive basis of
accounting, for the reasons described above, management believes
that Core Earnings are an important additional tool
for providing a more complete understanding of the
Companys results of operations. Nevertheless, Core
Earnings are subject to certain general and specific
limitations that investors should carefully consider. For
example, as stated above, unlike financial accounting, there is
no comprehensive, authoritative guidance for management
reporting. Our Core Earnings are not defined terms
within GAAP and may not be comparable to similarly titled
measures reported by other companies. Unlike GAAP, Core
Earnings reflect only current period adjustments to GAAP.
Accordingly, the Companys Core Earnings
presentation does not represent a comprehensive basis of
accounting. Investors, therefore, may not compare our
Companys performance with that of other financial services
companies based upon Core Earnings. Core
Earnings results are only meant to supplement GAAP results
by providing additional information regarding the operational
and performance indicators that are most closely used by
management, the Companys board of directors, rating
agencies and lenders to assess performance.
70
Other limitations arise from the specific adjustments that
management makes to GAAP results to derive Core
Earnings results. For example, in reversing the unrealized
gains and losses that result from ASC 815, Derivatives and
Hedging, on derivatives that do not qualify for
hedge treatment, as well as on derivatives that do
qualify but are in part ineffective because they are not perfect
hedges, we focus on the long-term economic effectiveness of
those instruments relative to the underlying hedged item and
isolate the effects of interest rate volatility and changing
credit spreads on the fair value of such instruments during the
period. Under GAAP, the effects of these factors on the fair
value of the derivative instruments (but not on the underlying
hedged item) tend to show more volatility in the short term.
While our presentation of our results on a Core
Earnings basis provides important information regarding
the performance of our Managed portfolio, a limitation of this
presentation is that we are presenting the ongoing spread income
on loans that have been sold to a trust managed by us. While we
believe that our Core Earnings presentation presents
the economic substance of our Managed loan portfolio, it
understates earnings volatility from securitization gains. Our
Core Earnings results exclude certain Floor Income,
which is real cash income, from our reported results and
therefore may understate earnings in certain periods.
Managements financial planning and valuation of operating
results, however, does not take into account Floor Income
because of its inherent uncertainty, except when it is Fixed
Rate Floor Income that is economically hedged through Floor
Income Contracts.
Pre-Tax
Differences between Core Earnings and GAAP by
Business Segment
Our Core Earnings are the primary financial
performance measures used by management to evaluate performance
and to allocate resources. Accordingly, financial information is
reported to management on a Core Earnings basis by
reportable segment, as these are the measures used regularly by
our chief operating decision makers. Our Core
Earnings are used in developing our financial plans and
tracking results, and also in establishing corporate performance
targets and incentive compensation. Management believes this
information provides additional insight into the financial
performance of the Companys core business activities.
Core Earnings net income reflects only current
period adjustments to GAAP net income, as described in the more
detailed discussion of the differences between Core
Earnings and GAAP that follows, which includes further
detail on each specific adjustment required to reconcile our
Core Earnings segment presentation to our GAAP
earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
Lending
|
|
|
APG
|
|
|
and Other
|
|
|
Lending
|
|
|
APG
|
|
|
and Other
|
|
|
Core Earnings adjustments to GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of securitization accounting
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(148
|
)
|
|
$
|
|
|
|
$
|
|
|
Net impact of derivative accounting
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
(206
|
)
|
|
|
|
|
|
|
|
|
Net impact of Floor Income
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
Net impact of acquired intangibles
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
(41
|
)
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
(20
|
)
|
|
$
|
(2
|
)
|
|
$
|
(5
|
)
|
|
$
|
(438
|
)
|
|
$
|
(7
|
)
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
Lending
|
|
|
APG
|
|
|
and Other
|
|
|
Lending
|
|
|
APG
|
|
|
and Other
|
|
|
Core Earnings adjustments to GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of securitization accounting
|
|
$
|
(197
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(474
|
)
|
|
$
|
|
|
|
$
|
|
|
Net impact of derivative accounting
|
|
|
(477
|
)
|
|
|
|
|
|
|
|
|
|
|
(119
|
)
|
|
|
|
|
|
|
|
|
Net impact of Floor Income
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
Net impact of acquired intangibles
|
|
|
(8
|
)
|
|
|
(5
|
)
|
|
|
(16
|
)
|
|
|
(51
|
)
|
|
|
(17
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
(521
|
)
|
|
$
|
(5
|
)
|
|
$
|
(16
|
)
|
|
$
|
(711
|
)
|
|
$
|
(17
|
)
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
1)
Securitization Accounting:
Under GAAP,
certain securitization transactions in our Lending operating
segment are accounted for as sales of assets. Under Core
Earnings for the Lending operating segment, we present all
securitization transactions on a Core Earnings basis
as long-term non-recourse financings. The upfront
gains on sale from securitization transactions, as
well as ongoing servicing and securitization revenue
presented in accordance with GAAP, are excluded from Core
Earnings and are replaced by interest income, provisions
for loan losses, and interest expense as earned or incurred on
the securitization loans. We also exclude transactions with our
off-balance sheet trusts from Core Earnings as they
are considered intercompany transactions on a Core
Earnings basis.
The following table summarizes the securitization adjustments in
our Lending operating segment for the three and nine months
ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Core Earnings securitization adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on securitized loans, before provisions for
loan losses and before intercompany transactions
|
|
$
|
(254
|
)
|
|
$
|
(245
|
)
|
|
$
|
(693
|
)
|
|
$
|
(694
|
)
|
Provisions for loan losses
|
|
|
127
|
|
|
|
76
|
|
|
|
349
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on securitized loans, after provisions for
loan losses, before intercompany transactions
|
|
|
(127
|
)
|
|
|
(169
|
)
|
|
|
(344
|
)
|
|
|
(525
|
)
|
Intercompany transactions with off-balance sheet trusts
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on securitized loans, after provisions for
loan losses
|
|
|
(127
|
)
|
|
|
(213
|
)
|
|
|
(344
|
)
|
|
|
(648
|
)
|
Servicing and securitization revenue
|
|
|
155
|
|
|
|
65
|
|
|
|
147
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings securitization
adjustments
(1)
|
|
$
|
(28
|
)
|
|
$
|
(148
|
)
|
|
$
|
(197
|
)
|
|
$
|
(474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Negative amounts are subtracted
from Core Earningsnet income to arrive at GAAP net
income and positive amounts are added to Core
Earnings net income to arrive at GAAP net income.
|
Intercompany transactions with off-balance sheet
trusts in the above table relate primarily to losses that
result from the repurchase of delinquent loans from our
off-balance sheet securitization trusts. When Private Education
Loans in our securitization trusts settling before
September 30, 2005 became 180 days delinquent, we
previously exercised our contingent call option to repurchase
these loans at par value out of the trust and recorded a loss
for the difference in the par value paid and the fair market
value of the loan at the time of purchase. We do not hold the
contingent call option for any trusts settled after
September 30, 2005. In October 2008, the Company decided to
no longer exercise its contingent call option.
2)
Derivative Accounting:
Core
Earnings exclude periodic unrealized gains and losses that
are caused primarily by the one-sided
mark-to-market
derivative valuations prescribed by ASC 815 on derivatives that
do not qualify for hedge treatment under GAAP. These
unrealized gains and losses occur in our Lending operating
segment. In our Core Earnings presentation, we
recognize the economic effect of these hedges, which generally
results in any cash paid or received being recognized ratably as
an expense or revenue over the hedged items life.
ASC 815 requires that changes in the fair value of derivative
instruments be recognized currently in earnings unless specific
hedge accounting criteria, as specified by ASC 815, are met. We
believe that our derivatives are effective economic hedges, and
as such, are a critical element of our interest rate risk
management strategy. However, some of our derivatives, primarily
Floor Income Contracts and certain basis swaps, do not qualify
for hedge treatment as defined by ASC 815, and the
stand-alone derivative must be
marked-to-market
in the income statement with no consideration for the
corresponding change in fair value of the hedged item. The gains
and losses described in Gains (losses) on derivative and
hedging activities, net are primarily caused by interest
rate and foreign currency exchange rate volatility, and changing
credit spreads during the period, as well as the volume and term
of derivatives not receiving hedge treatment.
72
Our Floor Income Contracts are written options that must meet
more stringent requirements than other hedging relationships to
achieve hedge effectiveness under ASC 815. Specifically, our
Floor Income Contracts do not qualify for hedge accounting
treatment because the pay down of principal of the student loans
underlying the Floor Income embedded in those student loans does
not exactly match the change in the notional amount of our
written Floor Income Contracts. Under ASC 815, the upfront
payment is deemed a liability and changes in fair value are
recorded through income throughout the life of the contract. The
change in the value of Floor Income Contracts is primarily
caused by changing interest rates that cause the amount of Floor
Income earned on the underlying student loans and paid to the
counterparties to vary. This is economically offset by the
change in value of the student loan portfolio, including our
Retained Interests, earning Floor Income but that offsetting
change in value is not recognized under ASC 815. We believe the
Floor Income Contracts are economic hedges because they
effectively fix the amount of Floor Income earned over the
contract period, thus eliminating the timing and uncertainty
that changes in interest rates can have on Floor Income for that
period. Prior to ASC 815, we accounted for Floor Income
Contracts as hedges and amortized the upfront cash compensation
ratably over the lives of the contracts.
Basis swaps are used to convert floating rate debt from one
floating interest rate index to another to better match the
interest rate characteristics of the assets financed by that
debt. We primarily use basis swaps to change the index of our
floating rate debt to better match the cash flows of our student
loan assets that are primarily indexed to a commercial paper,
Prime or Treasury bill index. In addition, we use basis swaps to
convert debt indexed to the Consumer Price Index to three-month
month LIBOR debt. ASC 815 requires that when using basis swaps,
the change in the cash flows of the hedge effectively offset
both the change in the cash flows of the asset and the change in
the cash flows of the liability. Our basis swaps hedge variable
interest rate risk; however, they generally do not meet this
effectiveness test because the index of the swap does not
exactly match the index of the hedged assets as required by ASC
815. Additionally, some of our FFELP loans can earn at either a
variable or a fixed interest rate depending on market interest
rates. We also have basis swaps that do not meet the ASC 815
effectiveness test that economically hedge off-balance sheet
instruments. As a result, under GAAP these swaps are recorded at
fair value with changes in fair value reflected currently in the
income statement.
The table below quantifies the adjustments for derivative
accounting under ASC 815 on net income for the quarters ended
September 30, 2009 and 2008, and for the nine months ended
September 30, 2009 and 2008, when compared with the
accounting principles employed in all years prior to the ASC 815
implementation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
September 30,
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
Nine Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Core Earnings derivative adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on derivative and hedging activities, net,
included in other
income
(1)
|
|
$
|
(112
|
)
|
|
$
|
(242
|
)
|
|
$
|
(569
|
)
|
|
$
|
(153
|
)
|
Less: Realized (gains) losses on derivative and hedging
activities,
net
(1)
|
|
|
118
|
|
|
|
41
|
|
|
|
120
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative and hedging activities,
net
(1)
|
|
|
6
|
|
|
|
(201
|
)
|
|
|
(449
|
)
|
|
|
(114
|
)
|
Other pre-ASC 815 accounting adjustments
|
|
|
(43
|
)
|
|
|
(5
|
)
|
|
|
(28
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net impact of ASC 815 derivative
accounting
(2)
|
|
$
|
(37
|
)
|
|
$
|
(206
|
)
|
|
$
|
(477
|
)
|
|
$
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
See
Reclassification of
Realized Gains (Losses) on Derivative and Hedging
Activities
below for a detailed breakdown of the
components of both the realized and unrealized losses on
derivative and hedging activities.
|
|
(2)
|
|
Negative amounts are subtracted
from Core Earningsnet income to arrive at GAAP net
income and positive amounts are added to Core
Earnings net income to arrive at GAAP net income.
|
Reclassification
of Realized Gains (Losses) on Derivative and Hedging
Activities
ASC 815 requires net settlement income/expense on derivatives
and realized gains/losses related to derivative dispositions
(collectively referred to as realized gains (losses) on
derivative and hedging activities)
73
that do not qualify as hedges under ASC 815 to be recorded in a
separate income statement line item below net interest income.
The table below summarizes the realized losses on derivative and
hedging activities, and the associated reclassification on a
Core Earnings basis for the quarters ended
September 30, 2009 and 2008 and for the nine months ended
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Reclassification of realized gains (losses) on derivative and
hedging activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement expense on Floor Income Contracts reclassified to
net interest income
|
|
$
|
(189
|
)
|
|
$
|
(75
|
)
|
|
$
|
(500
|
)
|
|
$
|
(390
|
)
|
Net settlement income (expense) on interest rate swaps
reclassified to net interest income
|
|
|
72
|
|
|
|
22
|
|
|
|
396
|
|
|
|
339
|
|
Foreign exchange derivatives gains (losses) reclassified to
other income
|
|
|
|
|
|
|
12
|
|
|
|
(14
|
)
|
|
|
8
|
|
Net realized gains (losses) on terminated derivative contracts
reclassified to other income
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications of realized (gains) losses on derivative
and hedging activities
|
|
|
(118
|
)
|
|
|
(41
|
)
|
|
|
(120
|
)
|
|
|
(39
|
)
|
Add: Unrealized gains (losses) on derivative and hedging
activities,
net
(1)
|
|
|
6
|
|
|
|
(201
|
)
|
|
|
(449
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on derivative and hedging activities, net
|
|
$
|
(112
|
)
|
|
$
|
(242
|
)
|
|
$
|
(569
|
)
|
|
$
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Unrealized gains (losses) on
derivative and hedging activities, net is comprised of the
following unrealized
mark-to-market
gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Floor Income Contracts
|
|
$
|
(80
|
)
|
|
$
|
(33
|
)
|
|
$
|
323
|
|
|
$
|
240
|
|
Basis swaps
|
|
|
97
|
|
|
|
(210
|
)
|
|
|
(435
|
)
|
|
|
(498
|
)
|
Foreign currency hedges
|
|
|
24
|
|
|
|
44
|
|
|
|
(256
|
)
|
|
|
147
|
|
Other
|
|
|
(35
|
)
|
|
|
(2
|
)
|
|
|
(81
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized gains (losses) on derivative and hedging
activities, net
|
|
$
|
6
|
|
|
$
|
(201
|
)
|
|
$
|
(449
|
)
|
|
$
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on Floor Income Contracts are
primarily caused by changes in interest rates and the forward
interest rate curve. In general, an increase in interest rates,
or a steepening of the forward interest rate curve, results in
an unrealized gain and vice versa. Unrealized gains and losses
on basis swaps result from changes in the spread between indices
and on changes in the forward interest rate curves that impact
basis swaps hedging repricing risk between quarterly reset debt
and daily reset assets. Unrealized gains (losses) on foreign
currency hedges are primarily the result of ineffectiveness on
cross-currency interest rate swaps hedging foreign currency
denominated debt related to differences between forward and spot
foreign currency exchange rates.
3)
Floor Income:
The timing and amount
(if any) of Floor Income earned in our Lending operating segment
is uncertain and in excess of expected spreads. Therefore, we
only include such income in Core Earnings when it is
Fixed Rate Floor Income that is economically hedged. We employ
derivatives, primarily Floor Income Contracts, to economically
hedge Floor Income. As discussed above in Derivative
Accounting, these derivatives do not qualify as effective
accounting hedges, and therefore, under GAAP, they are
marked-to-market
through the gains (losses) on derivative and hedging
activities, net line in the consolidated statement of
income with no offsetting gain or loss recorded for the
economically hedged items. For Core Earnings, we
reverse the fair value adjustments on the Floor Income Contracts
economically hedging Floor
74
Income and include in income the amortization of net premiums
received on contracts economically hedging Fixed Rate Floor
Income.
The following table summarizes the Floor Income adjustments in
our Lending operating segment for the three and nine months
ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Core Earnings Floor Income adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor Income earned on Managed loans, net of payments on Floor
Income Contracts
|
|
$
|
36
|
|
|
$
|
1
|
|
|
$
|
263
|
|
|
$
|
60
|
|
Amortization of net premiums on Floor Income Contracts and
futures in net interest income
|
|
|
(44
|
)
|
|
|
(44
|
)
|
|
|
(102
|
)
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings Floor Income
adjustments
(1)(2)
|
|
$
|
(8
|
)
|
|
$
|
(43
|
)
|
|
$
|
161
|
|
|
$
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Negative amounts are subtracted
from Core Earningsnet income to arrive at GAAP net
income and positive amounts are added to Core
Earnings net income to arrive at GAAP net income.
|
|
(2)
|
|
The following table summarizes the
amount of Economic Floor Income earned during the three and nine
months ended September 30, 2009 and 2008 that is not
included in Core Earnings net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Floor Income earned on Managed loans, net of payments on Floor
Income Contracts, not included in Core Earnings
|
|
$
|
36
|
|
|
$
|
1
|
|
|
$
|
263
|
|
|
$
|
60
|
|
Amortization of net premiums on Variable Rate Floor Income
Contracts not included in Core Earnings
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
20
|
|
Amortization of net premiums on Fixed Rate Floor Income
Contracts included in Core Earnings
|
|
|
44
|
|
|
|
44
|
|
|
|
102
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Economic Floor Income earned
|
|
|
80
|
|
|
|
45
|
|
|
|
405
|
|
|
|
207
|
|
Less: Amortization of net premiums on Fixed Rate Floor Income
Contracts included in Core Earnings
|
|
|
(44
|
)
|
|
|
(44
|
)
|
|
|
(102
|
)
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Economic Floor Income earned, not included in Core
Earnings
|
|
$
|
36
|
|
|
$
|
1
|
|
|
$
|
303
|
|
|
$
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4)
Acquired Intangibles:
Our Core
Earnings exclude goodwill and intangible impairment and
the amortization of acquired intangibles. For the quarters ended
September 30, 2009 and 2008, goodwill and intangible
impairment and the amortization of acquired intangibles totaled
$10 million and $50 million, respectively, and for the
nine months ended September 30, 2009 and 2008, totaled
$29 million and $81 million, respectively. In the
third quarter of 2008, the Company decided to wind down its
purchased paper businesses. This decision resulted in
$36 million of impairment of intangible assets in the
quarter ended September 30, 2008.
LENDING
BUSINESS SEGMENT
In our Lending business segment, we originate and acquire
federally guaranteed student loans and Private Education Loans
that are not federally guaranteed. Typically a Private Education
Loan is made in conjunction with a FFELP Stafford loan and as a
result is marketed through the same marketing channels as FFELP
loans. While FFELP loans and Private Education Loans have
different overall risk profiles due to the federal guarantee of
the FFELP loans, they currently share many of the same
characteristics such as similar repayment terms, the same
marketing channel and sales force, and are originated and
serviced on the same servicing platform. Finally, where
possible, the borrower receives a single bill for both FFELP and
Private Education Loans.
On a Managed Basis, the Company had $108.9 billion,
$113.9 billion, and $127.2 billion as of
September 30, 2009, June 30, 2009, and
December 31, 2008, respectively, of FFELP loans indexed to
three-
75
month financial commercial paper rate (CP) funded
with debt indexed to LIBOR. Due to the unintended consequences
of government actions in other areas of the capital markets and
limited issuances of qualifying financial commercial paper, the
historical relationship between CP and LIBOR has been broken
recently. For the fourth quarter of 2008, ED announced that for
purposes of calculating the FFELP loan index from
October 27, 2008 to the end of the fourth quarter, the
Federal Reserves Commercial Paper Funding Facility rates
(CPFF) would be used for those days in which no CP
was available. This resulted in a CP/LIBOR spread of
21 basis points in the fourth quarter of 2008. The CP/LIBOR
spread would have been 62 basis points in the fourth
quarter of 2008 if ED had not addressed this issue by using the
CPFF. ED has decided that no such correction was required during
2009. This resulted in a CP/LIBOR spread of 52 basis
points, 45 basis points, and 13 basis points, in the
first, second and third quarters of 2009, respectively, compared
to the CP/LIBOR spread of 21 basis points in the fourth
quarter of 2008 and the historic average spread through the
third quarter of 2008 of approximately 10 basis points.
Core Earnings net interest income would have been
$139 million, $105 million, and $5 million higher
in the first, second and third quarters of 2009, respectively,
at a historical CP/LIBOR spread of 10 basis points. Because
of the low interest rate environment, the Company earned
additional Economic Floor Income not included in Core
Earnings of $126 million, $141 million, and
$36 million in the first, second, and third quarters of
2009, respectively. Although we exclude these amounts from our
Core Earnings presentation, the levels earned in
2009 quarters can be viewed as offsets to the CP/LIBOR basis
exposure in low interest rate environments where we earn Floor
Income.
Additionally, the index paid on borrowings under EDs
Participation Program is based on the prior quarters CP
rates, whereas the index earned on the underlying loans is based
on the current quarters CP rates. The declines in CP rates
during the first, second, and third quarters of 2009 resulted in
$40 million, $13 million, and $6 million of
higher interest expense in the first, second, and third quarters
of 2009, respectively.
76
The following table summarizes the Core Earnings
results of operations for our Lending business segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Increase
|
|
|
Nine Months
|
|
|
Increase
|
|
|
|
Ended
|
|
|
(Decrease)
|
|
|
Ended
|
|
|
(Decrease)
|
|
|
|
September 30,
|
|
|
2009 vs.
|
|
|
September 30,
|
|
|
2009 vs.
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
Core Earnings interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford and Other Student Loans
|
|
$
|
340
|
|
|
$
|
612
|
|
|
|
(44
|
)%
|
|
$
|
1,012
|
|
|
$
|
1,630
|
|
|
|
(38
|
)%
|
FFELP Consolidation Loans
|
|
|
430
|
|
|
|
995
|
|
|
|
(57
|
)
|
|
|
1,263
|
|
|
|
2,891
|
|
|
|
(56
|
)
|
Private Education Loans
|
|
|
561
|
|
|
|
678
|
|
|
|
(17
|
)
|
|
|
1,683
|
|
|
|
2,093
|
|
|
|
(20
|
)
|
Other loans
|
|
|
11
|
|
|
|
20
|
|
|
|
(45
|
)
|
|
|
46
|
|
|
|
65
|
|
|
|
(29
|
)
|
Cash and investments
|
|
|
3
|
|
|
|
62
|
|
|
|
(95
|
)
|
|
|
8
|
|
|
|
284
|
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings interest income
|
|
|
1,345
|
|
|
|
2,367
|
|
|
|
(43
|
)
|
|
|
4,012
|
|
|
|
6,963
|
|
|
|
(42
|
)
|
Total Core Earnings interest expense
|
|
|
652
|
|
|
|
1,651
|
|
|
|
(61
|
)
|
|
|
2,424
|
|
|
|
5,080
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Core Earnings interest income
|
|
|
693
|
|
|
|
716
|
|
|
|
(3
|
)
|
|
|
1,588
|
|
|
|
1,883
|
|
|
|
(16
|
)
|
Less: provisions for loan losses
|
|
|
448
|
|
|
|
263
|
|
|
|
70
|
|
|
|
1,199
|
|
|
|
636
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Core Earnings interest income after provisions
for loan losses
|
|
|
245
|
|
|
|
453
|
|
|
|
(46
|
)
|
|
|
389
|
|
|
|
1,247
|
|
|
|
(69
|
)
|
Other income
|
|
|
129
|
|
|
|
55
|
|
|
|
135
|
|
|
|
591
|
|
|
|
161
|
|
|
|
267
|
|
Restructuring expenses
|
|
|
2
|
|
|
|
|
|
|
|
100
|
|
|
|
7
|
|
|
|
46
|
|
|
|
(85
|
)
|
Operating expenses
|
|
|
154
|
|
|
|
142
|
|
|
|
8
|
|
|
|
435
|
|
|
|
460
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
156
|
|
|
|
142
|
|
|
|
10
|
|
|
|
442
|
|
|
|
506
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest in net earnings
of subsidiaries
|
|
|
218
|
|
|
|
366
|
|
|
|
(40
|
)
|
|
|
538
|
|
|
|
902
|
|
|
|
(40
|
)
|
Income tax expense
|
|
|
80
|
|
|
|
134
|
|
|
|
(40
|
)
|
|
|
199
|
|
|
|
332
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings net income
|
|
$
|
138
|
|
|
$
|
232
|
|
|
|
(41
|
)%
|
|
$
|
339
|
|
|
$
|
570
|
|
|
|
(41
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Floor Income (net of tax) not included in Core
Earnings
|
|
$
|
23
|
|
|
$
|
1
|
|
|
|
2,200
|
%
|
|
$
|
191
|
|
|
$
|
50
|
|
|
|
282
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income
Changes to net interest income are primarily due to fluctuations
in the student loan and other asset spread discussed below, the
growth of our student loan portfolio, and changes in the level
of cash and investments we hold on our balance sheet for
liquidity purposes.
77
Average
Balance Sheets On-Balance Sheet
The following table reflects the rates earned on
interest-earning assets and paid on interest-bearing liabilities
for the three and nine months ended September 30, 2009 and
2008. This table reflects the net interest margin for the entire
Company for our on-balance sheet assets. It is included in the
Lending business segment discussion because this segment
includes substantially all interest-earning assets and
interest-bearing liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Average Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford and Other Student Loans
|
|
$
|
64,673
|
|
|
|
1.86
|
%
|
|
$
|
45,804
|
|
|
|
4.48
|
%
|
|
$
|
60,190
|
|
|
|
2.15
|
%
|
|
$
|
41,954
|
|
|
|
4.71
|
%
|
FFELP Consolidation Loans
|
|
|
69,643
|
|
|
|
2.74
|
|
|
|
72,926
|
|
|
|
4.53
|
|
|
|
70,464
|
|
|
|
2.72
|
|
|
|
73,410
|
|
|
|
4.43
|
|
Private Education Loans
|
|
|
23,214
|
|
|
|
6.77
|
|
|
|
19,876
|
|
|
|
8.92
|
|
|
|
22,968
|
|
|
|
6.85
|
|
|
|
18,551
|
|
|
|
9.35
|
|
Other loans
|
|
|
469
|
|
|
|
9.33
|
|
|
|
859
|
|
|
|
9.21
|
|
|
|
602
|
|
|
|
10.20
|
|
|
|
1,023
|
|
|
|
8.43
|
|
Cash and investments
|
|
|
13,694
|
|
|
|
.20
|
|
|
|
7,964
|
|
|
|
2.85
|
|
|
|
10,518
|
|
|
|
.25
|
|
|
|
9,762
|
|
|
|
3.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
171,693
|
|
|
|
2.77
|
%
|
|
|
147,429
|
|
|
|
5.04
|
%
|
|
|
164,742
|
|
|
|
2.96
|
%
|
|
|
144,700
|
|
|
|
5.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets
|
|
|
8,686
|
|
|
|
|
|
|
|
10,035
|
|
|
|
|
|
|
|
9,015
|
|
|
|
|
|
|
|
9,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
180,379
|
|
|
|
|
|
|
$
|
157,464
|
|
|
|
|
|
|
$
|
173,757
|
|
|
|
|
|
|
$
|
154,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
50,700
|
|
|
|
1.31
|
%
|
|
$
|
34,050
|
|
|
|
4.93
|
%
|
|
$
|
46,389
|
|
|
|
2.05
|
%
|
|
$
|
35,169
|
|
|
|
4.85
|
%
|
Long-term borrowings
|
|
|
121,060
|
|
|
|
1.66
|
|
|
|
114,046
|
|
|
|
3.39
|
|
|
|
118,479
|
|
|
|
2.04
|
|
|
|
110,368
|
|
|
|
3.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
171,760
|
|
|
|
1.56
|
%
|
|
|
148,096
|
|
|
|
3.75
|
%
|
|
|
164,868
|
|
|
|
2.04
|
%
|
|
|
145,537
|
|
|
|
4.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities
|
|
|
3,679
|
|
|
|
|
|
|
|
3,812
|
|
|
|
|
|
|
|
3,822
|
|
|
|
|
|
|
|
3,718
|
|
|
|
|
|
Equity
|
|
|
4,940
|
|
|
|
|
|
|
|
5,556
|
|
|
|
|
|
|
|
5,067
|
|
|
|
|
|
|
|
5,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
180,379
|
|
|
|
|
|
|
$
|
157,464
|
|
|
|
|
|
|
$
|
173,757
|
|
|
|
|
|
|
$
|
154,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
1.21
|
%
|
|
|
|
|
|
|
1.28
|
%
|
|
|
|
|
|
|
.91
|
%
|
|
|
|
|
|
|
1.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate/Volume
Analysis On-Balance Sheet
The following rate/volume analysis illustrates the relative
contribution of changes in interest rates and asset volumes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
(Decrease)
|
|
|
|
|
|
|
Attributable to
|
|
|
|
Increase
|
|
|
Change in
|
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
Three Months Ended September 30, 2009 vs. 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(670
|
)
|
|
$
|
(958
|
)
|
|
$
|
288
|
|
Interest expense
|
|
|
(720
|
)
|
|
|
(991
|
)
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
50
|
|
|
$
|
33
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 vs. 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(1,885
|
)
|
|
$
|
(2,726
|
)
|
|
$
|
841
|
|
Interest expense
|
|
|
(1,856
|
)
|
|
|
(2,486
|
)
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
(29
|
)
|
|
$
|
(240
|
)
|
|
$
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
Net
Interest Margin On-Balance Sheet
The following table reflects the net interest margin of our
on-balance sheet interest-earning assets, before provisions for
loan losses. (Certain percentages do not add or subtract down as
they are based on average balances.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Student loan
spread
(1)(2)
|
|
|
1.58
|
%
|
|
|
1.71
|
%
|
|
|
1.29
|
%
|
|
|
1.41
|
%
|
Other asset
spread
(1)(3)
|
|
|
(2.07
|
)
|
|
|
.06
|
|
|
|
(2.10
|
)
|
|
|
.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin, before the impact of 2008 Asset-Backed
Financing Facilities
fees
(1)
|
|
|
1.28
|
|
|
|
1.61
|
|
|
|
1.06
|
|
|
|
1.32
|
|
Less: 2008 Asset-Backed Financing Facilities fees
|
|
|
(.07
|
)
|
|
|
(.33
|
)
|
|
|
(.15
|
)
|
|
|
(.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
1.21
|
%
|
|
|
1.28
|
%
|
|
|
.91
|
%
|
|
|
1.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Before commitment and liquidity fees associated with the 2008
Asset-Backed Financing Facilities, which are referred to as the
2008 Asset-Backed Financing Facilities fees (see
LIQUIDITY AND CAPITAL RESOURCES Additional
Funding for General Corporate Purposes
Asset-Backed Financing Facilities
for a further
discussion).
|
|
|
(2)
|
Composition of student loan spread:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loan yield, before Floor Income
|
|
|
3.12
|
%
|
|
|
5.57
|
%
|
|
|
3.29
|
%
|
|
|
5.74
|
%
|
Gross Floor Income
|
|
|
.43
|
|
|
|
.16
|
|
|
|
.49
|
|
|
|
.31
|
|
Consolidation Loan Rebate Fees
|
|
|
(.45
|
)
|
|
|
(.54
|
)
|
|
|
(.48
|
)
|
|
|
(.57
|
)
|
Repayment Borrower Benefits
|
|
|
(.10
|
)
|
|
|
(.12
|
)
|
|
|
(.09
|
)
|
|
|
(.12
|
)
|
Premium and discount amortization
|
|
|
(.03
|
)
|
|
|
.07
|
|
|
|
(.10
|
)
|
|
|
(.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loan net yield
|
|
|
2.97
|
|
|
|
5.14
|
|
|
|
3.11
|
|
|
|
5.20
|
|
Student loan cost of funds
|
|
|
(1.39
|
)
|
|
|
(3.43
|
)
|
|
|
(1.82
|
)
|
|
|
(3.79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loan spread, before 2008 Asset-Backed Financing
Facilities fees
|
|
|
1.58
|
%
|
|
|
1.71
|
%
|
|
|
1.29
|
%
|
|
|
1.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Comprised of investments, cash and other loans.
|
Student
Loan Spread On-Balance Sheet
The student loan spread is impacted by changes in its various
components, as reflected in footnote (2) to the
Net Interest Margin On-Balance Sheet
table above. Gross Floor Income is impacted by interest
rates and the percentage of the FFELP portfolio eligible to earn
Floor Income. Floor Income Contracts used to economically hedge
Gross Floor Income do not qualify as ASC 815 hedges and as a
result the net settlements on such contracts are not recorded in
net interest margin but rather in gains (losses) on
derivative and hedging activities, net line in the
consolidated statements of income. The spread impact from
Consolidation Loan Rebate Fees fluctuates as a function of the
percentage of FFELP Consolidation Loans on our balance sheet.
Repayment Borrower Benefits are generally impacted by the terms
of the Repayment Borrower Benefits being offered, as well as the
payment behavior of the underlying loans. Premium and discount
amortization is generally impacted by the prices previously paid
for loans and amounts capitalized related to such purchases or
originations. Premium and discount amortization is also impacted
by prepayment behavior of the underlying loans.
The student loan spread, before 2008 Asset-Backed Financing
Facilities fees, for the third quarter of 2009 decreased
13 basis points from the year-ago quarter. This decrease
was primarily due an increase in the credit spreads on the
Companys ABS and unsecured debt issued in the last two
years due to the current credit environment, a 5 basis
point widening of the CP/LIBOR spread, a higher cost of funds
due to the impact of ASC 815 (discussed below) and an increase
in premium amortization of 10 basis points between the
current and year-ago quarters. The increase in premium expense
was primarily due to both quarters having changes to prepayment
assumptions used to amortize premiums on FFELP Stafford and
Consolidation Loans. The
79
decreases made to these prepayment speed assumptions were larger
in the third quarter of 2008 than the third quarter of 2009 (see
Core Earnings Net Interest
Margin Core Earnings Basis Student Loan
Spread
for further discussion). Partially offsetting
these decreases to the student loan spread was an increase in
Gross Floor Income.
The cost of funds for on-balance sheet student loans excludes
the impact of basis swaps that are intended to economically
hedge the re-pricing and basis mismatch between our funding and
student loan asset indices, but do not receive hedge accounting
treatment under ASC 815. We use basis swaps to manage the basis
risk associated with our interest rate sensitive assets and
liabilities. These swaps generally do not qualify as accounting
hedges, and as a result, are required to be accounted for in the
gains (losses) on derivatives and hedging activities,
net line on the income statement, as opposed to being
accounted for in interest expense. As a result, these basis
swaps are not considered in the calculation of the cost of funds
in the table above and therefore, in times of volatile movements
of interest rates like those experienced in 2008 and 2009, the
student loan spread can be volatile. See the
Core
Earnings Net Interest Margin
table below, which
reflects these basis swaps in interest expense and demonstrates
the economic hedge effectiveness of these basis swaps.
Other
Asset Spread On-Balance Sheet
The other asset spread is generated from cash and investments
(both restricted and unrestricted) primarily in our liquidity
portfolio and other loans. The Company invests its liquidity
portfolio primarily in short-term securities with maturities of
one week or less in order to manage counterparty credit risk and
maintain available cash balances. The other asset spread for the
third quarter of 2009 decreased 213 basis points from the
year-ago quarter. Changes in the other asset spread primarily
relate to differences in the index basis and reset frequency
between the asset indices and funding indices. A portion of this
risk is hedged with derivatives that do not receive hedge
accounting treatment under ASC 815 and will impact the other
asset spread in a similar fashion as the impact to the
on-balance sheet student loan spread as discussed above. In
volatile interest rate environments, these spreads may move
significantly from period to period and differ from the
Core Earnings basis other asset spread discussed
below.
Net
Interest Margin On-Balance Sheet
The net interest margin, before 2008 Asset-Backed Financing
Facilities fees, for the third quarter of 2009 decreased
33 basis points from the year-ago quarter. These changes
primarily relate to the previously discussed changes in the
on-balance sheet student loan and other asset spreads. The
student loan portfolio as a percentage of the overall
interest-earning asset portfolio did not change substantially
between the periods.
See LIQUIDITY AND CAPITAL RESOURCES
Additional Funding Sources for General
Corporate Purposes
Asset-Backed Financing
Facilities
for a discussion of the 2008 Asset-Backed
Financing Facilities fees and related extensions.
Core
Earnings Net Interest Margin
The following table analyzes the earnings from our portfolio of
Managed interest-earning assets on a Core Earnings
basis (see BUSINESS SEGMENTS Pre-tax
Differences between Core Earnings and GAAP by
Business Segment). The
Core Earnings
Net Interest Margin
presentation and certain
components used in the calculation differ from the
Net
Interest Margin On-Balance Sheet
presentation. The Core Earnings presentation,
when compared to our on-balance sheet presentation, is different
in that it:
|
|
|
|
|
Includes the net interest margin related to our off-balance
sheet student loan securitization trusts. This includes any
related fees or costs such as the Consolidation Loan Rebate
Fees, premium/discount amortization and Repayment Borrower
Benefits yield adjustments;
|
|
|
|
Includes the reclassification of certain derivative net
settlement amounts. The net settlements on certain derivatives
that do not qualify as ASC 815 hedges are recorded as part of
the gain (loss) on derivative and hedging activities,
net line in the consolidated statements of income and are
therefore not recognized in the on-balance sheet student loan
spread. Under this presentation, these gains and losses
|
80
|
|
|
|
|
are reclassified to the income statement line item of the
economically hedged item. For our Core Earnings net
interest margin, this would primarily include:
(a) reclassifying the net settlement amounts related to our
written Floor Income Contracts to student loan interest income
and (b) reclassifying the net settlement amounts related to
certain of our basis swaps to debt interest expense;
|
|
|
|
|
|
Excludes unhedged Floor Income and hedged Variable Rate Floor
Income earned on the Managed student loan portfolio; and
|
|
|
|
Includes the amortization of upfront payments on Fixed Rate
Floor Income Contracts in student loan income that we believe
are economically hedging the Floor Income.
|
The following table reflects the Core Earnings net
interest margin, before provisions for loan losses. (Certain
percentages do not add or subtract down as they are based on
average balances.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Core Earnings basis
student loan
spread
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP loan spread
|
|
|
.90
|
%
|
|
|
1.13
|
%
|
|
|
.56
|
%
|
|
|
.87
|
%
|
Private Education Loan
spread
(2)
|
|
|
4.45
|
|
|
|
5.20
|
|
|
|
4.54
|
|
|
|
5.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings
basis student loan
spread
(3)
|
|
|
1.56
|
|
|
|
1.90
|
|
|
|
1.32
|
|
|
|
1.68
|
|
Core Earnings basis
other asset
spread
(1)(4)
|
|
|
(.93
|
)
|
|
|
(.12
|
)
|
|
|
(.98
|
)
|
|
|
(.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings net
interest margin, before 2008 Asset-Backed Financing Facilities
fees
(1)
|
|
|
1.38
|
|
|
|
1.78
|
|
|
|
1.18
|
|
|
|
1.54
|
|
Less: 2008 Asset-Backed Financing
Facilities fees
|
|
|
(.06
|
)
|
|
|
(.26
|
)
|
|
|
(.13
|
)
|
|
|
(.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings net
interest margin
|
|
|
1.32
|
%
|
|
|
1.52
|
%
|
|
|
1.05
|
%
|
|
|
1.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Before commitment and liquidity fees associated with the 2008
Asset-Backed Financing Facilities, which are referred to as the
2008 Asset-Backed Financing Facilities fees (see
LIQUIDITY AND CAPITAL RESOURCES Additional
Funding for General Corporate Purposes
Asset-Backed Financing Facilities
for a further
discussion).
|
(2)
|
|
Core Earnings basis Private Education Loan Spread,
before 2008 Asset-Backed Financing Facilities fees and after
provision for loan losses
|
|
|
(.10
|
)%
|
|
|
2.76
|
%
|
|
|
.55
|
%
|
|
|
3.02
|
%
|
(3)
|
|
Composition of Core Earnings basis student loan
spread:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings basis student loan yield
|
|
|
3.29
|
%
|
|
|
5.72
|
%
|
|
|
3.45
|
%
|
|
|
5.94
|
%
|
|
|
Consolidation Loan Rebate Fees
|
|
|
(.45
|
)
|
|
|
(.52
|
)
|
|
|
(.47
|
)
|
|
|
(.54
|
)
|
|
|
Repayment Borrower Benefits
|
|
|
(.10
|
)
|
|
|
(.11
|
)
|
|
|
(.09
|
)
|
|
|
(.11
|
)
|
|
|
Premium and discount amortization
|
|
|
.01
|
|
|
|
.09
|
|
|
|
(.08
|
)
|
|
|
(.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings basis student loan net yield
|
|
|
2.75
|
|
|
|
5.18
|
|
|
|
2.81
|
|
|
|
5.14
|
|
|
|
Core Earnings basis student loan cost of funds
|
|
|
(1.19
|
)
|
|
|
(3.28
|
)
|
|
|
(1.49
|
)
|
|
|
(3.46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings basis student loan spread, before 2008
Asset-Backed Financing Facilities fees
|
|
|
1.56
|
%
|
|
|
1.90
|
%
|
|
|
1.32
|
%
|
|
|
1.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
Comprised of investments, cash and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
The average balances of our Managed interest-earning assets for
the respective periods are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP loans
|
|
$
|
155,434
|
|
|
$
|
142,372
|
|
|
$
|
152,468
|
|
|
$
|
140,060
|
|
|
|
Private Education Loans
|
|
|
36,025
|
|
|
|
33,098
|
|
|
|
35,951
|
|
|
|
31,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total student loans
|
|
|
191,459
|
|
|
|
175,470
|
|
|
|
188,419
|
|
|
|
171,979
|
|
|
|
Other interest-earning assets
|
|
|
15,378
|
|
|
|
10,829
|
|
|
|
12,466
|
|
|
|
13,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed interest-earning assets
|
|
$
|
206,837
|
|
|
$
|
186,299
|
|
|
$
|
200,885
|
|
|
$
|
185,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
Core
Earnings Basis Student Loan Spread
The Core Earnings basis student loan spread, before
the 2008 Asset-Backed Financing Facilities fees, for the third
quarter of 2009 decreased 34 basis points from the year-ago
quarter. The Core Earnings basis student loan spread
was negatively impacted by an increase in the credit spreads on
the Companys ABS and unsecured debt issued in the last two
years due to the current credit environment, a 5 basis
point widening of the CP/LIBOR spread, and an increase in
premium amortization of 8 basis points between the current
and year-ago quarters. The increase in premium expense was
primarily due to both quarters having changes to prepayment
assumptions used to amortize premiums on FFELP Stafford and
Consolidation Loans. The decreases made to these prepayment
speed assumptions were larger in the third quarter of 2008 than
the third quarter of 2009. The Company decreased prepayment
speed assumptions in both quarters as a result of a significant
decrease in prepayment activity experienced since 2008. This
decrease in prepayment activity, which the Company expects will
continue into the foreseeable future, was primarily due to a
reduction in third-party consolidation activity as a result of
the CCRAA and the current U.S. economic and credit
environment. Decreasing the prepayment speeds has the effect of
lengthening the assumed lives of these loans and resulted in a
one-time, cumulative
catch-up
adjustment to reverse prior premium expense. Partially
offsetting these decreases to the Core Earnings
basis student loan spread was lower cost of funds related to the
ED Conduit Program which began in May 2009.
The Core Earnings basis FFELP loan spread for the
third quarter of 2009 decreased from the year-ago quarter due to
the same reasons discussed above related to the entire
Core Earnings basis student loan spread, as well as
the mix of the FFELP portfolio shifting towards loans originated
subsequent to October 1, 2007, which have lower yields as a
result of the CCRAA. The Core Earnings basis Private
Education Loan spread before provision for loan losses for the
third quarter of 2009 was negatively impacted by the increase in
the cost of funds discussed previously. The changes in the
Core Earnings basis Private Education Loan spread
after provision for loan losses for all periods presented was
primarily due to the timing and amount of provision associated
with our allowance for Private Education Loan Losses as
discussed below (see Private Education Loan
Losses
Allowance for Private Education Loan
Losses
).
Core
Earnings Basis Other Asset Spread
The Core Earnings basis other asset spread is
generated from cash and investments (both restricted and
unrestricted) primarily in our liquidity portfolio, and other
loans. The Company invests its liquidity portfolio primarily in
short-term securities with maturities of one week or less in
order to manage counterparty credit risk and maintain available
cash balances. The Core Earnings basis other asset
spread for the third quarter of 2009 decreased 81 basis
points from the year-ago quarter. Changes in this spread
primarily relate to differences between the index basis and
reset frequency of the asset indices and funding indices. In
volatile interest rate environments, the asset and debt reset
frequencies will lag each other. Changes in this spread are also
a result of the increase in our cost of funds as previously
discussed.
Core
Earnings Net Interest Margin
The Core Earnings net interest margin, before the
2008 Asset-Backed Financing Facilities fees, for the third
quarter of 2009 decreased 40 basis points from the year-ago
quarter. These changes primarily relate to the previously
discussed changes in the Core Earnings basis student
loan and other asset spreads. The Managed student loan portfolio
as a percentage of the overall interest-earning asset portfolio
did not change substantially between the periods.
See LIQUIDITY AND CAPITAL RESOURCES Additional
Funding Sources for General Corporate Purposes
Asset-Backed Financing Facilities
for a discussion
of the 2008 Asset-Backed Financing Facilities fees and related
extensions.
82
Summary
of our Managed Student Loan Portfolio
The following tables summarize the components of our Managed
student loan portfolio and show the changing composition of our
portfolio.
Ending
Managed Student Loan Balances, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Private
|
|
|
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Total
|
|
|
On-balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-school
|
|
$
|
23,741
|
|
|
$
|
|
|
|
$
|
23,741
|
|
|
$
|
6,568
|
|
|
$
|
30,309
|
|
Grace and repayment
|
|
|
42,272
|
|
|
|
68,075
|
|
|
|
110,347
|
|
|
|
17,436
|
|
|
|
127,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet, gross
|
|
|
66,013
|
|
|
|
68,075
|
|
|
|
134,088
|
|
|
|
24,004
|
|
|
|
158,092
|
|
On-balance sheet unamortized premium (discount)
|
|
|
1,193
|
|
|
|
1,225
|
|
|
|
2,418
|
|
|
|
(543
|
)
|
|
|
1,875
|
|
On-balance sheet receivable for partially charged-off loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435
|
|
|
|
435
|
|
On-balance sheet allowance for losses
|
|
|
(101
|
)
|
|
|
(54
|
)
|
|
|
(155
|
)
|
|
|
(1,402
|
)
|
|
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet, net
|
|
|
67,105
|
|
|
|
69,246
|
|
|
|
136,351
|
|
|
|
22,494
|
|
|
|
158,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-school
|
|
|
272
|
|
|
|
|
|
|
|
272
|
|
|
|
871
|
|
|
|
1,143
|
|
Grace and repayment
|
|
|
5,538
|
|
|
|
14,551
|
|
|
|
20,089
|
|
|
|
12,208
|
|
|
|
32,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet, gross
|
|
|
5,810
|
|
|
|
14,551
|
|
|
|
20,361
|
|
|
|
13,079
|
|
|
|
33,440
|
|
Off-balance sheet unamortized premium (discount)
|
|
|
141
|
|
|
|
447
|
|
|
|
588
|
|
|
|
(346
|
)
|
|
|
242
|
|
Off-balance sheet receivable for partially charged-off loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
200
|
|
Off-balance sheet allowance for losses
|
|
|
(16
|
)
|
|
|
(9
|
)
|
|
|
(25
|
)
|
|
|
(521
|
)
|
|
|
(546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet, net
|
|
|
5,935
|
|
|
|
14,989
|
|
|
|
20,924
|
|
|
|
12,412
|
|
|
|
33,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed
|
|
$
|
73,040
|
|
|
$
|
84,235
|
|
|
$
|
157,275
|
|
|
$
|
34,906
|
|
|
$
|
192,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of on-balance sheet FFELP
|
|
|
49
|
%
|
|
|
51
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of Managed FFELP
|
|
|
46
|
%
|
|
|
54
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of total
|
|
|
38
|
%
|
|
|
44
|
%
|
|
|
82
|
%
|
|
|
18
|
%
|
|
|
100
|
%
|
|
|
|
(1)
|
|
FFELP category is primarily
Stafford loans, but also includes federally insured PLUS and
HEAL loans.
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Private
|
|
|
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Total
|
|
|
On-balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-school
|
|
$
|
18,961
|
|
|
$
|
|
|
|
$
|
18,961
|
|
|
$
|
7,972
|
|
|
$
|
26,933
|
|
Grace and repayment
|
|
|
32,455
|
|
|
|
70,511
|
|
|
|
102,966
|
|
|
|
14,231
|
|
|
|
117,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet, gross
|
|
|
51,416
|
|
|
|
70,511
|
|
|
|
121,927
|
|
|
|
22,203
|
|
|
|
144,130
|
|
On-balance sheet unamortized premium (discount)
|
|
|
1,151
|
|
|
|
1,280
|
|
|
|
2,431
|
|
|
|
(535
|
)
|
|
|
1,896
|
|
On-balance sheet receivable for partially charged-off loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222
|
|
|
|
222
|
|
On-balance sheet allowance for losses
|
|
|
(91
|
)
|
|
|
(47
|
)
|
|
|
(138
|
)
|
|
|
(1,308
|
)
|
|
|
(1,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet, net
|
|
|
52,476
|
|
|
|
71,744
|
|
|
|
124,220
|
|
|
|
20,582
|
|
|
|
144,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-school
|
|
|
473
|
|
|
|
|
|
|
|
473
|
|
|
|
1,629
|
|
|
|
2,102
|
|
Grace and repayment
|
|
|
6,583
|
|
|
|
15,078
|
|
|
|
21,661
|
|
|
|
12,062
|
|
|
|
33,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet, gross
|
|
|
7,056
|
|
|
|
15,078
|
|
|
|
22,134
|
|
|
|
13,691
|
|
|
|
35,825
|
|
Off-balance sheet unamortized premium (discount)
|
|
|
105
|
|
|
|
462
|
|
|
|
567
|
|
|
|
(361
|
)
|
|
|
206
|
|
Off-balance sheet receivable for partially charged-off loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
92
|
|
Off-balance sheet allowance for losses
|
|
|
(18
|
)
|
|
|
(9
|
)
|
|
|
(27
|
)
|
|
|
(505
|
)
|
|
|
(532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet, net
|
|
|
7,143
|
|
|
|
15,531
|
|
|
|
22,674
|
|
|
|
12,917
|
|
|
|
35,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed
|
|
$
|
59,619
|
|
|
$
|
87,275
|
|
|
$
|
146,894
|
|
|
$
|
33,499
|
|
|
$
|
180,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of on-balance sheet FFELP
|
|
|
42
|
%
|
|
|
58
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of Managed FFELP
|
|
|
41
|
%
|
|
|
59
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of total
|
|
|
33
|
%
|
|
|
48
|
%
|
|
|
81
|
%
|
|
|
19
|
%
|
|
|
100
|
%
|
|
|
|
(1)
|
|
FFELP category is primarily
Stafford loans, but also includes federally insured PLUS and
HEAL loans.
|
Student
Loan Average Balances (net of unamortized
premium/discount)
The following tables summarize the components of our Managed
student loan portfolio and show the changing composition of our
portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Private
|
|
|
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Total
|
|
|
On-balance sheet
|
|
$
|
64,673
|
|
|
$
|
69,643
|
|
|
$
|
134,316
|
|
|
$
|
23,214
|
|
|
$
|
157,530
|
|
Off-balance sheet
|
|
|
6,052
|
|
|
|
15,066
|
|
|
|
21,118
|
|
|
|
12,811
|
|
|
|
33,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed
|
|
$
|
70,725
|
|
|
$
|
84,709
|
|
|
$
|
155,434
|
|
|
$
|
36,025
|
|
|
$
|
191,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of on-balance sheet FFELP
|
|
|
48
|
%
|
|
|
52
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of Managed FFELP
|
|
|
46
|
%
|
|
|
54
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of total
|
|
|
37
|
%
|
|
|
44
|
%
|
|
|
81
|
%
|
|
|
19
|
%
|
|
|
100
|
%
|
|
|
|
(1)
|
|
FFELP category is primarily
Stafford loans, but also includes federally insured PLUS and
HEAL loans.
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Private
|
|
|
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Total
|
|
|
On-balance sheet
|
|
$
|
45,804
|
|
|
$
|
72,926
|
|
|
$
|
118,730
|
|
|
$
|
19,876
|
|
|
$
|
138,606
|
|
Off-balance sheet
|
|
|
7,848
|
|
|
|
15,794
|
|
|
|
23,642
|
|
|
|
13,222
|
|
|
|
36,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed
|
|
$
|
53,652
|
|
|
$
|
88,720
|
|
|
$
|
142,372
|
|
|
$
|
33,098
|
|
|
$
|
175,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of on-balance sheet FFELP
|
|
|
39
|
%
|
|
|
61
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of Managed FFELP
|
|
|
38
|
%
|
|
|
62
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of total
|
|
|
31
|
%
|
|
|
50
|
%
|
|
|
81
|
%
|
|
|
19
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Private
|
|
|
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Total
|
|
|
On-balance sheet
|
|
$
|
60,190
|
|
|
$
|
70,464
|
|
|
$
|
130,654
|
|
|
$
|
22,968
|
|
|
$
|
153,622
|
|
Off-balance sheet
|
|
|
6,567
|
|
|
|
15,247
|
|
|
|
21,814
|
|
|
|
12,983
|
|
|
|
34,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed
|
|
$
|
66,757
|
|
|
$
|
85,711
|
|
|
$
|
152,468
|
|
|
$
|
35,951
|
|
|
$
|
188,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of on-balance sheet FFELP
|
|
|
46
|
%
|
|
|
54
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of Managed FFELP
|
|
|
44
|
%
|
|
|
56
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of total
|
|
|
35
|
%
|
|
|
46
|
%
|
|
|
81
|
%
|
|
|
19
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Private
|
|
|
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Total
|
|
|
On-balance sheet
|
|
$
|
41,954
|
|
|
$
|
73,410
|
|
|
$
|
115,364
|
|
|
$
|
18,551
|
|
|
$
|
133,915
|
|
Off-balance sheet
|
|
|
8,612
|
|
|
|
16,084
|
|
|
|
24,696
|
|
|
|
13,368
|
|
|
|
38,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed
|
|
$
|
50,566
|
|
|
$
|
89,494
|
|
|
$
|
140,060
|
|
|
$
|
31,919
|
|
|
$
|
171,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of on-balance sheet FFELP
|
|
|
36
|
%
|
|
|
64
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of Managed FFELP
|
|
|
36
|
%
|
|
|
64
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of total
|
|
|
29
|
%
|
|
|
52
|
%
|
|
|
81
|
%
|
|
|
19
|
%
|
|
|
100
|
%
|
|
|
|
(1)
|
|
FFELP category is primarily
Stafford loans, but also includes federally insured PLUS and
HEAL loans.
|
85
Floor
Income Managed Basis
The following table analyzes the ability of the FFELP loans in
our Managed portfolio to earn Floor Income after
September 30, 2009 and 2008, based on interest rates as of
those dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
Fixed
|
|
|
Variable
|
|
|
|
|
|
Fixed
|
|
|
Variable
|
|
|
|
|
|
|
Borrower
|
|
|
Borrower
|
|
|
|
|
|
Borrower
|
|
|
Borrower
|
|
|
|
|
(Dollars in billions)
|
|
Rate
|
|
|
Rate
|
|
|
Total
|
|
|
Rate
|
|
|
Rate
|
|
|
Total
|
|
|
Student loans eligible to earn Floor Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-balance sheet student loans
|
|
$
|
118.1
|
|
|
$
|
15.2
|
|
|
$
|
133.3
|
|
|
$
|
102.1
|
|
|
$
|
16.1
|
|
|
$
|
118.2
|
|
Off-balance sheet student loans
|
|
|
14.5
|
|
|
|
5.8
|
|
|
|
20.3
|
|
|
|
15.2
|
|
|
|
7.6
|
|
|
|
22.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed student loans eligible to earn Floor Income
|
|
|
132.6
|
|
|
|
21.0
|
|
|
|
153.6
|
|
|
|
117.3
|
|
|
|
23.7
|
|
|
|
141.0
|
|
Less: post-March 31, 2006 disbursed loans required to
rebate Floor Income
|
|
|
(79.1
|
)
|
|
|
(1.3
|
)
|
|
|
(80.4
|
)
|
|
|
(60.9
|
)
|
|
|
(1.4
|
)
|
|
|
(62.3
|
)
|
Less: economically hedged Floor Income Contracts
|
|
|
(39.9
|
)
|
|
|
|
|
|
|
(39.9
|
)
|
|
|
(25.7
|
)
|
|
|
|
|
|
|
(25.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Managed student loans eligible to earn Floor Income
|
|
$
|
13.6
|
|
|
$
|
19.7
|
|
|
$
|
33.3
|
|
|
$
|
30.7
|
|
|
$
|
22.3
|
|
|
$
|
53.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Managed student loans earning Floor Income
|
|
$
|
13.6
|
|
|
$
|
3.3
|
|
|
$
|
16.9
|
|
|
$
|
0.2
|
|
|
$
|
3.4
|
|
|
$
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have sold Floor Income Contracts to hedge the potential Floor
Income from specifically identified pools of FFELP Consolidation
Loans that are eligible to earn Floor Income.
The following table presents a projection of the average Managed
balance of FFELP Consolidation Loans for which Fixed Rate Floor
Income has already been economically hedged through Floor Income
Contracts for the period from April 1, 2009 to
September 30, 2013. These loans are both on-balance sheet
and off-balance sheet, and the related hedges do not qualify
under ASC 815 accounting as effective hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1, 2009 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in billions)
|
|
December 31, 2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Average balance of FFELP Consolidation Loans whose Floor Income
is economically hedged (Managed Basis)
|
|
$
|
40
|
|
|
$
|
37
|
|
|
$
|
25
|
|
|
$
|
16
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Education Loan Losses
On-Balance
Sheet versus Managed Basis Presentation
All Private Education Loans are initially acquired on-balance
sheet. The securitization of Private Education Loans prior to
2009 has been accounted for off-balance sheet. For our Managed
Basis presentation in the table below, when loans are
securitized, we reduce the on-balance sheet allowance for loan
losses for amounts previously provided and then increase the
allowance for loan losses for these loans off-balance sheet,
with the total of both on-balance sheet and off-balance sheet
being the Managed Basis allowance for loan losses.
When Private Education Loans in our securitized trusts settling
before September 30, 2005, became 180 days delinquent,
we previously exercised our contingent call option to repurchase
these loans at par value out of the trust and recorded a loss
for the difference in the par value paid and the fair market
value of the loan at the time of purchase. Revenue is recognized
over the anticipated remaining life of the loan based upon the
amount and timing of anticipated cash flows. Beginning in
October 2008, the Company decided to no longer exercise its
contingent call option. On a Managed Basis, the losses recorded
under GAAP for loans repurchased at day 180 were reversed and
the full amount is charged-off at day 212 of delinquency. We do
not hold the contingent call option for any trusts settled after
September 30, 2005.
86
When measured as a percentage of ending loans in repayment, the
off-balance sheet allowance for loan losses percentage is lower
than the on-balance sheet percentage because of the different
mix and aging of loans on-balance sheet and off-balance sheet.
Private
Education Loan Delinquencies and Forbearance
The tables below present our Private Education Loan delinquency
trends as of September 30, 2009 and 2008. Delinquencies
have the potential to adversely impact earnings as they are an
initial indication of the borrowers potential to possibly
default and as a result command a higher loan loss reserve than
loans in current status. Delinquent loans also require increased
servicing and collection efforts, resulting in higher operating
costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet Private Education
|
|
|
|
Loan Delinquencies
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
|
Loans
in-school/grace/deferment
(1)
|
|
$
|
10,899
|
|
|
|
|
|
|
$
|
11,263
|
|
|
|
|
|
Loans in
forbearance
(2)
|
|
|
851
|
|
|
|
|
|
|
|
1,085
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
10,458
|
|
|
|
85.3
|
%
|
|
|
7,902
|
|
|
|
87.6
|
%
|
Loans delinquent
31-60 days
(3)
|
|
|
551
|
|
|
|
4.5
|
|
|
|
393
|
|
|
|
4.4
|
|
Loans delinquent
61-90 days
(3)
|
|
|
353
|
|
|
|
2.9
|
|
|
|
249
|
|
|
|
2.8
|
|
Loans delinquent greater than
90 days
(3)
|
|
|
892
|
|
|
|
7.3
|
|
|
|
472
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans in repayment
|
|
|
12,254
|
|
|
|
100
|
%
|
|
|
9,016
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans, gross
|
|
|
24,004
|
|
|
|
|
|
|
|
21,364
|
|
|
|
|
|
Private Education Loan unamortized discount
|
|
|
(543
|
)
|
|
|
|
|
|
|
(514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans
|
|
|
23,461
|
|
|
|
|
|
|
|
20,850
|
|
|
|
|
|
Private Education Loan receivable for partially charged-off loans
|
|
|
435
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
Private Education Loan allowance for losses
|
|
|
(1,401
|
)
|
|
|
|
|
|
|
(1,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans, net
|
|
$
|
22,495
|
|
|
|
|
|
|
$
|
19,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Private Education Loans in repayment
|
|
|
|
|
|
|
51.1
|
%
|
|
|
|
|
|
|
42.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of Private Education Loans in
repayment
|
|
|
|
|
|
|
14.7
|
%
|
|
|
|
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in forbearance as a percentage of loans in repayment and
forbearance
|
|
|
|
|
|
|
6.5
|
%
|
|
|
|
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Loans for borrowers who may be
attending school or engaging 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 borrowers who have used
their allowable deferment time or do not qualify for deferment,
and need additional time to obtain employment or who have
temporarily ceased making full payments due to hardship or other
factors, consistent with the 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.
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Private Education
|
|
|
|
Loan Delinquencies
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
|
Loans
in-school/grace/deferment
(1)
|
|
$
|
3,148
|
|
|
|
|
|
|
$
|
4,259
|
|
|
|
|
|
Loans in
forbearance
(2)
|
|
|
474
|
|
|
|
|
|
|
|
1,159
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
8,516
|
|
|
|
90.0
|
%
|
|
|
7,733
|
|
|
|
93.9
|
%
|
Loans delinquent
31-60 days
(3)
|
|
|
312
|
|
|
|
3.3
|
|
|
|
217
|
|
|
|
2.6
|
|
Loans delinquent
61-90 days
(3)
|
|
|
161
|
|
|
|
1.7
|
|
|
|
103
|
|
|
|
1.3
|
|
Loans delinquent greater than
90 days
(3)
|
|
|
469
|
|
|
|
5.0
|
|
|
|
177
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans in repayment
|
|
|
9,458
|
|
|
|
100
|
%
|
|
|
8,230
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans, gross
|
|
|
13,080
|
|
|
|
|
|
|
|
13,648
|
|
|
|
|
|
Private Education Loan unamortized discount
|
|
|
(347
|
)
|
|
|
|
|
|
|
(349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans
|
|
|
12,733
|
|
|
|
|
|
|
|
13,299
|
|
|
|
|
|
Private Education Loan receivable for partially charged-off loans
|
|
|
200
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
Private Education Loan allowance for losses
|
|
|
(522
|
)
|
|
|
|
|
|
|
(409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans, net
|
|
$
|
12,411
|
|
|
|
|
|
|
$
|
12,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Private Education Loans in repayment
|
|
|
|
|
|
|
72.3
|
%
|
|
|
|
|
|
|
60.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of Private Education Loans in
repayment
|
|
|
|
|
|
|
10.0
|
%
|
|
|
|
|
|
|
6.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in forbearance as a percentage of loans in repayment and
forbearance
|
|
|
|
|
|
|
4.8
|
%
|
|
|
|
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Basis Private Education
|
|
|
|
Loan Delinquencies
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
|
Loans
in-school/grace/deferment
(1)
|
|
$
|
14,047
|
|
|
|
|
|
|
$
|
15,522
|
|
|
|
|
|
Loans in
forbearance
(2)
|
|
|
1,325
|
|
|
|
|
|
|
|
2,244
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
18,974
|
|
|
|
87.4
|
%
|
|
|
15,635
|
|
|
|
90.6
|
%
|
Loans delinquent
31-60 days
(3)
|
|
|
863
|
|
|
|
4.0
|
|
|
|
610
|
|
|
|
3.6
|
|
Loans delinquent
61-90 days
(3)
|
|
|
514
|
|
|
|
2.4
|
|
|
|
352
|
|
|
|
2.0
|
|
Loans delinquent greater than
90 days
(3)
|
|
|
1,361
|
|
|
|
6.2
|
|
|
|
649
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans in repayment
|
|
|
21,712
|
|
|
|
100
|
%
|
|
|
17,246
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans, gross
|
|
|
37,084
|
|
|
|
|
|
|
|
35,012
|
|
|
|
|
|
Private Education Loan unamortized discount
|
|
|
(890
|
)
|
|
|
|
|
|
|
(863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans
|
|
|
36,194
|
|
|
|
|
|
|
|
34,149
|
|
|
|
|
|
Private Education Loan receivable for partially charged-off loans
|
|
|
635
|
|
|
|
|
|
|
|
257
|
|
|
|
|
|
Private Education Loan allowance for losses
|
|
|
(1,923
|
)
|
|
|
|
|
|
|
(1,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans, net
|
|
$
|
34,906
|
|
|
|
|
|
|
$
|
32,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Private Education Loans in repayment
|
|
|
|
|
|
|
58.6
|
%
|
|
|
|
|
|
|
49.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of Private Education Loans in
repayment
|
|
|
|
|
|
|
12.6
|
%
|
|
|
|
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in forbearance as a percentage of loans in repayment and
forbearance
|
|
|
|
|
|
|
5.8
|
%
|
|
|
|
|
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Loans for borrowers who may be
attending school or engaging 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 borrowers who have used
their allowable deferment time or do not qualify for deferment,
and need additional time to obtain employment or who have
temporarily ceased making full payments due to hardship or other
factors, consistent with the 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.
|
88
Allowance
for Private Education Loan Losses
The following table summarizes changes in the allowance for
Private Education Loan losses for the three and nine months
ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in Allowance for Private Education Loan Losses
|
|
|
|
On-Balance Sheet
|
|
|
Off-Balance Sheet
|
|
|
Managed Basis
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Allowance at beginning of period
|
|
$
|
1,396
|
|
|
$
|
1,129
|
|
|
$
|
544
|
|
|
$
|
377
|
|
|
$
|
1,940
|
|
|
$
|
1,506
|
|
Provision for Private Education
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan losses
|
|
|
287
|
|
|
|
136
|
|
|
|
126
|
|
|
|
66
|
|
|
|
413
|
|
|
|
202
|
|
Charge-offs
|
|
|
(293
|
)
|
|
|
(76
|
)
|
|
|
(150
|
)
|
|
|
(36
|
)
|
|
|
(443
|
)
|
|
|
(112
|
)
|
Reclassification of interest
reserve
(1)
|
|
|
11
|
|
|
|
8
|
|
|
|
2
|
|
|
|
2
|
|
|
|
13
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of period
|
|
$
|
1,401
|
|
|
$
|
1,197
|
|
|
$
|
522
|
|
|
$
|
409
|
|
|
$
|
1,923
|
|
|
$
|
1,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs as a percentage of average loans in repayment
(annualized)
|
|
|
9.6
|
%
|
|
|
3.5
|
%
|
|
|
6.2
|
%
|
|
|
1.8
|
%
|
|
|
8.1
|
%
|
|
|
2.7
|
%
|
Charge-offs as a percentage of average loans in repayment and
forbearance (annualized)
|
|
|
8.9
|
%
|
|
|
3.1
|
%
|
|
|
5.9
|
%
|
|
|
1.5
|
%
|
|
|
7.6
|
%
|
|
|
2.3
|
%
|
Allowance as a percentage of the ending total loan balance
|
|
|
5.7
|
%
|
|
|
5.6
|
%
|
|
|
3.9
|
%
|
|
|
3.0
|
%
|
|
|
5.1
|
%
|
|
|
4.6
|
%
|
Allowance as a percentage of ending loans in repayment
|
|
|
11.4
|
%
|
|
|
13.3
|
%
|
|
|
5.5
|
%
|
|
|
5.0
|
%
|
|
|
8.9
|
%
|
|
|
9.3
|
%
|
Average coverage of charge-offs (annualized)
|
|
|
1.2
|
|
|
|
3.9
|
|
|
|
.9
|
|
|
|
2.9
|
|
|
|
1.1
|
|
|
|
3.6
|
|
Ending total
loans
(2)
|
|
$
|
24,439
|
|
|
$
|
21,548
|
|
|
$
|
13,280
|
|
|
$
|
13,721
|
|
|
$
|
37,719
|
|
|
$
|
35,269
|
|
Average loans in repayment
|
|
$
|
12,083
|
|
|
$
|
8,703
|
|
|
$
|
9,585
|
|
|
$
|
8,103
|
|
|
$
|
21,668
|
|
|
$
|
16,806
|
|
Ending loans in repayment
|
|
$
|
12,254
|
|
|
$
|
9,016
|
|
|
$
|
9,458
|
|
|
$
|
8,230
|
|
|
$
|
21,712
|
|
|
$
|
17,246
|
|
|
|
|
(1)
|
|
Represents the additional allowance
related to the amount of uncollectible interest reserved within
interest income that is transferred in the period to the
allowance for loan losses when interest is capitalized to a
loans principal balance.
|
|
(2)
|
|
Ending total loans represents gross
Private Education Loans, plus the receivable for partially
charged-off loans.
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in Allowance for Private Education Loan Losses
|
|
|
|
On-Balance Sheet
|
|
|
Off-Balance Sheet
|
|
|
Managed Basis
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Allowance at beginning of period
|
|
$
|
1,308
|
|
|
$
|
1,004
|
|
|
$
|
505
|
|
|
$
|
362
|
|
|
$
|
1,813
|
|
|
$
|
1,366
|
|
Provision for Private Education
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan losses
|
|
|
733
|
|
|
|
374
|
|
|
|
339
|
|
|
|
152
|
|
|
|
1,072
|
|
|
|
526
|
|
Charge-offs
|
|
|
(671
|
)
|
|
|
(206
|
)
|
|
|
(329
|
)
|
|
|
(109
|
)
|
|
|
(1,000
|
)
|
|
|
(315
|
)
|
Reclassification of interest
reserve
(1)
|
|
|
31
|
|
|
|
25
|
|
|
|
7
|
|
|
|
4
|
|
|
|
38
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of period
|
|
$
|
1,401
|
|
|
$
|
1,197
|
|
|
$
|
522
|
|
|
$
|
409
|
|
|
$
|
1,923
|
|
|
$
|
1,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs as a percentage of average loans in repayment
(annualized)
|
|
|
7.7
|
%
|
|
|
3.5
|
%
|
|
|
4.6
|
%
|
|
|
1.9
|
%
|
|
|
6.3
|
%
|
|
|
2.7
|
%
|
Charge-offs as a percentage of average loans in repayment and
forbearance (annualized)
|
|
|
7.1
|
%
|
|
|
3.0
|
%
|
|
|
4.3
|
%
|
|
|
1.6
|
%
|
|
|
5.9
|
%
|
|
|
2.3
|
%
|
Allowance as a percentage of the ending total loan balance
|
|
|
5.7
|
%
|
|
|
5.6
|
%
|
|
|
3.9
|
%
|
|
|
3.0
|
%
|
|
|
5.1
|
%
|
|
|
4.6
|
%
|
Allowance as a percentage of ending loans in repayment
|
|
|
11.4
|
%
|
|
|
13.3
|
%
|
|
|
5.5
|
%
|
|
|
5.0
|
%
|
|
|
8.9
|
%
|
|
|
9.3
|
%
|
Average coverage of charge-offs (annualized)
|
|
|
1.6
|
|
|
|
4.4
|
|
|
|
1.2
|
|
|
|
2.8
|
|
|
|
1.4
|
|
|
|
3.8
|
|
Ending total
loans
(2)
|
|
$
|
24,439
|
|
|
$
|
21,548
|
|
|
$
|
13,280
|
|
|
$
|
13,721
|
|
|
$
|
37,719
|
|
|
$
|
35,269
|
|
Average loans in repayment
|
|
$
|
11,634
|
|
|
$
|
7,933
|
|
|
$
|
9,543
|
|
|
$
|
7,794
|
|
|
$
|
21,177
|
|
|
$
|
15,727
|
|
Ending loans in repayment
|
|
$
|
12,254
|
|
|
$
|
9,016
|
|
|
$
|
9,458
|
|
|
$
|
8,230
|
|
|
$
|
21,712
|
|
|
$
|
17,246
|
|
|
|
|
(1)
|
|
Represents the additional allowance
related to the amount of uncollectible interest reserved within
interest income that is transferred in the period to the
allowance for loan losses when interest is capitalized to a
loans principal balance.
|
|
(2)
|
|
Ending total loans represents gross
Private Education Loans, plus the receivable for partially
charged-off loans.
|
90
The following table provides the detail for our traditional and
non-traditional Managed Private Education Loans at
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Traditional
|
|
|
Traditional
|
|
|
Total
|
|
|
Traditional
|
|
|
Traditional
|
|
|
Total
|
|
|
Ending total
loans
(1)
|
|
$
|
32,891
|
|
|
$
|
4,828
|
|
|
$
|
37,719
|
|
|
$
|
30,177
|
|
|
$
|
5,092
|
|
|
$
|
35,269
|
|
Ending loans in repayment
|
|
|
18,922
|
|
|
|
2,790
|
|
|
|
21,712
|
|
|
|
14,605
|
|
|
|
2,641
|
|
|
|
17,246
|
|
Private Education Loan allowance for losses
|
|
|
1,005
|
|
|
|
918
|
|
|
|
1,923
|
|
|
|
681
|
|
|
|
925
|
|
|
|
1,606
|
|
Charge-offs as a percentage of average loans in repayment
(annualized)
|
|
|
5.1
|
%
|
|
|
28.5
|
%
|
|
|
8.1
|
%
|
|
|
1.4
|
%
|
|
|
10.0
|
%
|
|
|
2.7
|
%
|
Allowance as a percentage of ending total loan balance
|
|
|
3.1
|
%
|
|
|
19.0
|
%
|
|
|
5.1
|
%
|
|
|
2.3
|
%
|
|
|
18.2
|
%
|
|
|
4.6
|
%
|
Allowance as a percentage of ending loans in repayment
|
|
|
5.3
|
%
|
|
|
32.9
|
%
|
|
|
8.9
|
%
|
|
|
4.7
|
%
|
|
|
35.0
|
%
|
|
|
9.3
|
%
|
Average coverage of charge-offs (annualized)
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
3.5
|
|
|
|
3.7
|
|
|
|
3.6
|
|
Delinquencies as a percentage of Private Education Loans in
repayment
|
|
|
9.7
|
%
|
|
|
32.2
|
%
|
|
|
12.6
|
%
|
|
|
6.3
|
%
|
|
|
26.3
|
%
|
|
|
9.4
|
%
|
Delinquencies greater than 90 days as a percentage of
Private Education Loans in repayment
|
|
|
4.6
|
%
|
|
|
17.8
|
%
|
|
|
6.3
|
%
|
|
|
2.3
|
%
|
|
|
11.9
|
%
|
|
|
3.8
|
%
|
Loans in forbearance as a percentage of loans in repayment and
forbearance
|
|
|
5.4
|
%
|
|
|
8.1
|
%
|
|
|
5.8
|
%
|
|
|
11.0
|
%
|
|
|
14.4
|
%
|
|
|
11.5
|
%
|
Percentage of Private Education Loans with a cosigner
|
|
|
61
|
%
|
|
|
27
|
%
|
|
|
57
|
%
|
|
|
59
|
%
|
|
|
26
|
%
|
|
|
54
|
%
|
Average FICO at origination
|
|
|
725
|
|
|
|
623
|
|
|
|
713
|
|
|
|
723
|
|
|
|
622
|
|
|
|
710
|
|
|
|
|
(1)
|
|
Ending total loans represents gross
Private Education Loans, plus the receivable for partially
charged-off loans.
|
Managed provision expense was $202 million in the third
quarter of 2008, $362 million in the second quarter of 2009
and $413 million in the third quarter of 2009. The increase
in provision expense from the year-ago period relates primarily
to an increase in charge-off expectations as a result of the
continued weakening of the U.S. economy. Provision expense
remained elevated in the third quarter of 2009 compared to the
prior quarter due to the continued uncertainty of the
U.S. economy. The Private Education Loan portfolio had
experienced a significant increase in delinquencies through the
first quarter of 2009; however, delinquencies declined in the
second and third quarters of 2009. The Company believes
charge-offs peaked in the third quarter of 2009 and will decline
in future quarters. The increase in charge-off levels through
the third quarter of 2009 was generally anticipated and was
previously reflected in our Allowance for Loan Losses. As of
September 30, 2009, the Managed Private Education Loan
allowance coverage of annualized current-quarter charge-offs
ratio was 1.1 compared to 3.6 as of September 20, 2008. The
decrease in the allowance coverage ratio to 1.1 was expected as
the Company believes charge-offs peaked in the third quarter of
2009 and will decline in future quarters. The Allowance for Loan
Losses as a percentage of ending Private Education Loans in
repayment has remained relatively consistent at approximately
9 percent between September 30, 2008 and
September 30, 2009, despite the very high levels of
charge-offs over the last year. Managed delinquencies as a
percentage of Private Education Loans in repayment decreased
from 12.7 percent as of June 30, 2009 to
12.6 percent as of September 30, 2009. Managed Private
Education Loans in forbearance as a percentage of loans in
repayment and forbearance decreased from 6.5 percent as of
June 30, 2009 to 5.8 percent at September 30,
2009. On a
year-over-year
basis, overall delinquencies as a percentage of loans in
repayment increased from 9.4 percent to 12.6 percent,
while forbearances decreased from 11.5 percent to
5.8 percent. As part of concluding that the Allowance for
Loan Losses for Private Education Loan losses is appropriate as
of September 30, 2009, the Company analyzed changes in the
key ratios disclosed in the table above.
Borrowers use the proceeds of Private Education Loans to obtain
higher education, which increases the likelihood of obtaining
employment at higher income levels than would be available
without the additional education. As a result, borrowers
repayment capability is expected to improve between the time the
loan is
91
made and the time they enter the post-education work force.
Consistent with FFELP loans, we formerly allowed the loan
repayment period on higher education Private Education Loans to
begin six months after the borrower graduates (or grace
period). This provides the borrower time after graduation
to obtain a job to service the debt. For the Companys
Smart Option Student Loan product, borrowers are required to
begin making interest only payments within 60 days of
disbursements. For borrowers that need more time or experience
hardships, we offer periods of forbearance similar to that
provided to borrowers in the FFELP.
Forbearance involves granting the borrower a temporary cessation
of payments (or temporary acceptance of smaller than scheduled
payments) for a specified period of time. Using forbearance in
this manner effectively extends the original term of the loan.
Forbearance does not grant any reduction in the total repayment
obligation (principal or interest). While a loan is in
forbearance status, interest continues to accrue and is
capitalized to principal when the loan re-enters repayment
status. Our forbearance policies include limits on the number of
forbearance months granted consecutively and the total number of
forbearance months granted over the life of the loan. In some
instances, we require good-faith payments before granting the
forbearance. Exceptions to forbearance policies are permitted
when such exceptions are judged to increase the likelihood of
ultimate collection of the loan. Forbearance as a collection
tool is used most effectively when applied based on a
borrowers unique situation, including assumptions based on
historical information and judgments. We combine borrower
information with a risk-based segmentation model to assist in
our decision making as to who will be granted forbearance based
on our expectation as to a borrowers ability and
willingness to repay their obligation. This strategy is aimed at
mitigating the overall risk of the portfolio, as well as
encouraging cash resolution of delinquent loans.
Forbearance may be granted to borrowers who are exiting their
grace period to provide additional time to obtain employment and
income to support their obligations, or to current borrowers who
are faced with a hardship and request forbearance time to
provide temporary payment relief. In these circumstances, a
borrowers loan is placed into a forbearance status in
limited monthly increments and is reflected in the forbearance
status at month-end during this time. At the end of their
granted forbearance period, the borrower will enter repayment
status as current and is expected to begin making their
scheduled monthly payments on a go-forward basis.
Forbearance may also be granted to borrowers who are delinquent
in their payments. In these circumstances, the forbearance cures
the delinquency and the borrower is returned to a current
repayment status. In more limited instances, delinquent
borrowers will also be granted additional forbearance time. As
we have obtained further experience about the effectiveness of
forbearance, we have reduced the amount of time a loan will
spend in forbearance, thereby increasing our ongoing contact
with the borrower to encourage consistent repayment behavior
once the loan is returned to a current repayment status. As a
result, the balance of loans in a forbearance status as of month
end has decreased over the course of 2008 and 2009. In addition,
the monthly average amount of loans granted forbearance as a
percentage of loans in repayment and forbearance declined to
5.5 percent for the third quarter of 2009 compared to the
year-ago quarter of 6.1 percent. As of September 30,
2009, 3 percent of loans in current status were delinquent
as of the end of the prior month, but were granted a forbearance
that made them current during September. The majority of these
borrowers would have previously received a forbearance which
resulted in their loan being reflected in the forbearance status
at month end, and eventually entering repayment status as
current at the end of the forbearance period. These borrowers
are now being placed in repayment status earlier than they
previously would have been.
92
The table below reflects the historical effectiveness of using
forbearance. Our experience has shown that three years after
being granted forbearance for the first time, over
70 percent of the loans are current, paid in full, or
receiving an in-school grace or deferment, and 14 percent
have defaulted. The default experience associated with loans
which utilize forbearance is considered in our allowance for
loan losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
Tracking by First Time in Forbearance Compared to All Loans
Entering Repayment
|
|
|
|
Status distribution
|
|
|
|
|
|
Status distribution
|
|
|
|
36 months after
|
|
|
Status distribution
|
|
|
36 months after
|
|
|
|
being granted
|
|
|
36 months after
|
|
|
entering repayment for
|
|
|
|
forbearance for the
|
|
|
entering repayment
|
|
|
loans never entering
|
|
|
|
first time
|
|
|
(all loans)
|
|
|
forbearance
|
|
|
In-school/grace/deferment
|
|
|
8.2
|
%
|
|
|
8.1
|
%
|
|
|
3.0
|
%
|
Current
|
|
|
52.9
|
|
|
|
58.5
|
|
|
|
64.7
|
|
Delinquent
31-60 days
|
|
|
3.2
|
|
|
|
2.0
|
|
|
|
.5
|
|
Delinquent
61-90 days
|
|
|
1.9
|
|
|
|
1.1
|
|
|
|
.2
|
|
Delinquent greater than 90 days
|
|
|
3.9
|
|
|
|
2.3
|
|
|
|
.3
|
|
Forbearance
|
|
|
6.3
|
|
|
|
4.5
|
|
|
|
|
|
Defaulted
|
|
|
13.8
|
|
|
|
7.2
|
|
|
|
5.1
|
|
Paid
|
|
|
9.8
|
|
|
|
16.3
|
|
|
|
26.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below show the composition and status of the Managed
Private Education Loan portfolio aged by number of months in
active repayment status (months for which a scheduled monthly
payment was due). As indicated in the tables, the percentage of
loans in forbearance status decreases the longer the loans have
been in active repayment status. At September 30, 2009,
loans in forbearance status as a percentage of loans in
repayment and forbearance are 7.6 percent for loans that
have been in active repayment status for less than
25 months. The percentage drops to 2.6 percent for
loans that have been in active repayment status for more than
48 months. Approximately 86 percent of our Managed
Private Education Loans in forbearance status have been in
active repayment status less than 25 months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly Scheduled Payments Due
|
|
|
Not Yet in
|
|
|
|
|
September 30, 2009
|
|
0 to 24
|
|
|
25 to 48
|
|
|
More than 48
|
|
|
Repayment
|
|
|
Total
|
|
|
Loans in-school/grace/deferment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,047
|
|
|
$
|
14,047
|
|
Loans in forbearance
|
|
|
1,135
|
|
|
|
133
|
|
|
|
57
|
|
|
|
|
|
|
|
1,325
|
|
Loans in repayment current
|
|
|
11,594
|
|
|
|
4,685
|
|
|
|
2,695
|
|
|
|
|
|
|
|
18,974
|
|
Loans in repayment delinquent
31-60 days
|
|
|
696
|
|
|
|
114
|
|
|
|
53
|
|
|
|
|
|
|
|
863
|
|
Loans in repayment delinquent
61-90 days
|
|
|
422
|
|
|
|
63
|
|
|
|
29
|
|
|
|
|
|
|
|
514
|
|
Loans in repayment delinquent greater than
90 days
|
|
|
1,124
|
|
|
|
162
|
|
|
|
75
|
|
|
|
|
|
|
|
1,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,971
|
|
|
$
|
5,157
|
|
|
$
|
2,909
|
|
|
$
|
14,047
|
|
|
|
37,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(890
|
)
|
Receivable for partially charged-off loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
635
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed Private Education Loans, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in forbearance as a percentage of loans in repayment and
forbearance
|
|
|
7.6
|
%
|
|
|
2.6
|
%
|
|
|
2.0
|
%
|
|
|
|
%
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly Scheduled Payments Due
|
|
|
Not Yet in
|
|
|
|
|
September 30, 2008
|
|
0 to 24
|
|
|
25 to 48
|
|
|
More than 48
|
|
|
Repayment
|
|
|
Total
|
|
|
Loans in-school/grace/deferment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,522
|
|
|
$
|
15,522
|
|
Loans in forbearance
|
|
|
2,078
|
|
|
|
117
|
|
|
|
49
|
|
|
|
|
|
|
|
2,244
|
|
Loans in repayment current
|
|
|
10,421
|
|
|
|
3,308
|
|
|
|
1,906
|
|
|
|
|
|
|
|
15,635
|
|
Loans in repayment delinquent
31-60 days
|
|
|
499
|
|
|
|
71
|
|
|
|
40
|
|
|
|
|
|
|
|
610
|
|
Loans in repayment delinquent
61-90 days
|
|
|
302
|
|
|
|
33
|
|
|
|
17
|
|
|
|
|
|
|
|
352
|
|
Loans in repayment delinquent greater than
90 days
|
|
|
544
|
|
|
|
68
|
|
|
|
37
|
|
|
|
|
|
|
|
649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,844
|
|
|
$
|
3,597
|
|
|
$
|
2,049
|
|
|
$
|
15,522
|
|
|
|
35,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(863
|
)
|
Receivable for partially charged-off loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed Private Education Loans, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in forbearance as a percentage of loans in repayment and
forbearance
|
|
|
15.0
|
%
|
|
|
3.3
|
%
|
|
|
2.4
|
%
|
|
|
|
%
|
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below stratifies the portfolio of Managed Private
Education Loans in forbearance status as of the dates indicated
by the cumulative number of months the borrower has used
forbearance. As detailed in the table below, 4 percent of
loans currently in forbearance have cumulative forbearance of
more than 24 months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
Forbearance
|
|
|
% of
|
|
|
Forbearance
|
|
|
% of
|
|
Cumulative number of months borrower has used forbearance
|
|
Balance
|
|
|
Total
|
|
|
Balance
|
|
|
Total
|
|
|
Up to 12 months
|
|
$
|
928
|
|
|
|
70
|
%
|
|
$
|
1,520
|
|
|
|
67
|
%
|
13 to 24 months
|
|
|
344
|
|
|
|
26
|
|
|
|
598
|
|
|
|
27
|
|
More than 24 months
|
|
|
53
|
|
|
|
4
|
|
|
|
126
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,325
|
|
|
|
100
|
%
|
|
$
|
2,244
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has also begun using loan modifications, in the form
of interest rate reductions, as a collections tool to assist
borrowers who may need temporary payment relief during this
economic downturn. If the Company believes a loan modification
may result in the borrower eventually being able to resume
making full monthly payments, then the Company may temporarily
reduce the borrowers interest rate for up to one year. The
borrower continues to make monthly payments during this period
at a reduced interest rate. As of September 30, 2009,
approximately $100 million of Private Education Loans have
been modified under this loan modification program, of which
approximately 50 percent were non-traditional Private
Education Loans.
94
FFELP
Loan Losses
FFELP
Delinquencies and Forbearance
The tables below present our FFELP loan delinquency trends as of
September 30, 2009 and 2008. Delinquencies have the
potential to adversely impact earnings as they are an initial
indication of the borrowers potential to possibly default
and as a result command a higher loan loss reserve than loans in
current status. Delinquent loans also require increased
servicing and collection efforts, resulting in higher operating
costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet FFELP
|
|
|
|
Loan Delinquencies
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
|
Loans
in-school/grace/deferment
(1)
|
|
$
|
50,795
|
|
|
|
|
|
|
$
|
40,056
|
|
|
|
|
|
Loans in
forbearance
(2)
|
|
|
13,459
|
|
|
|
|
|
|
|
12,035
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
57,934
|
|
|
|
83.0
|
%
|
|
|
56,874
|
|
|
|
84.8
|
%
|
Loans delinquent
31-60 days
(3)
|
|
|
4,225
|
|
|
|
6.0
|
|
|
|
3,707
|
|
|
|
5.5
|
|
Loans delinquent
61-90 days
(3)
|
|
|
2,041
|
|
|
|
2.9
|
|
|
|
1,683
|
|
|
|
2.5
|
|
Loans delinquent greater than
90 days
(3)
|
|
|
5,633
|
|
|
|
8.1
|
|
|
|
4,810
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP loans in repayment
|
|
|
69,833
|
|
|
|
100
|
%
|
|
|
67,074
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP loans, gross
|
|
|
134,087
|
|
|
|
|
|
|
|
119,165
|
|
|
|
|
|
FFELP loan unamortized premium
|
|
|
2,419
|
|
|
|
|
|
|
|
2,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP loans
|
|
|
136,506
|
|
|
|
|
|
|
|
121,614
|
|
|
|
|
|
FFELP loan allowance for losses
|
|
|
(156
|
)
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP loans, net
|
|
$
|
136,350
|
|
|
|
|
|
|
$
|
121,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of FFELP loans in repayment
|
|
|
|
|
|
|
52.1
|
%
|
|
|
|
|
|
|
56.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of FFELP loans in repayment
|
|
|
|
|
|
|
17.0
|
%
|
|
|
|
|
|
|
15.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP loans in forbearance as a percentage of loans in repayment
and forbearance
|
|
|
|
|
|
|
16.2
|
%
|
|
|
|
|
|
|
15.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Loans for borrowers who may be
attending school or engaging 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, as well as, loans for borrowers
who have requested extension of grace period during employment
transition or who have temporarily ceased making full payments
due to hardship or other factors.
|
|
(2)
|
|
Loans for borrowers who have used
their allowable deferment time or do not qualify for deferment,
and need additional time to obtain employment or who have
temporarily ceased making full payments due to hardship or other
factors, consistent with the 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.
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet FFELP
|
|
|
|
Loan Delinquencies
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
|
Loans
in-school/grace/deferment
(1)
|
|
$
|
3,705
|
|
|
|
|
|
|
$
|
4,479
|
|
|
|
|
|
Loans in
forbearance
(2)
|
|
|
2,715
|
|
|
|
|
|
|
|
2,869
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
11,584
|
|
|
|
83.1
|
%
|
|
|
12,743
|
|
|
|
82.2
|
%
|
Loans delinquent
31-60 days
(3)
|
|
|
816
|
|
|
|
5.9
|
|
|
|
893
|
|
|
|
5.8
|
|
Loans delinquent
61-90 days
(3)
|
|
|
393
|
|
|
|
2.8
|
|
|
|
422
|
|
|
|
2.7
|
|
Loans delinquent greater than
90 days
(3)
|
|
|
1,148
|
|
|
|
8.2
|
|
|
|
1,446
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP loans in repayment
|
|
|
13,941
|
|
|
|
100
|
%
|
|
|
15,504
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP loans, gross
|
|
|
20,361
|
|
|
|
|
|
|
|
22,852
|
|
|
|
|
|
FFELP loan unamortized premium
|
|
|
588
|
|
|
|
|
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP loans
|
|
|
20,949
|
|
|
|
|
|
|
|
23,428
|
|
|
|
|
|
FFELP loan allowance for losses
|
|
|
(25
|
)
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP loans, net
|
|
$
|
20,924
|
|
|
|
|
|
|
$
|
23,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of FFELP loans in repayment
|
|
|
|
|
|
|
68.5
|
%
|
|
|
|
|
|
|
67.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of FFELP loans in repayment
|
|
|
|
|
|
|
16.9
|
%
|
|
|
|
|
|
|
17.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP loans in forbearance as a percentage of loans in repayment
and forbearance
|
|
|
|
|
|
|
16.3
|
%
|
|
|
|
|
|
|
15.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Basis FFELP
|
|
|
|
Loan Delinquencies
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
|
Loans
in-school/grace/deferment
(1)
|
|
$
|
54,500
|
|
|
|
|
|
|
$
|
44,535
|
|
|
|
|
|
Loans in
forbearance
(2)
|
|
|
16,174
|
|
|
|
|
|
|
|
14,904
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
69,518
|
|
|
|
83.0
|
%
|
|
|
69,617
|
|
|
|
84.3
|
%
|
Loans delinquent
31-60 days
(3)
|
|
|
5,041
|
|
|
|
6.0
|
|
|
|
4,600
|
|
|
|
5.6
|
|
Loans delinquent
61-90 days
(3)
|
|
|
2,434
|
|
|
|
2.9
|
|
|
|
2,105
|
|
|
|
2.5
|
|
Loans delinquent greater than
90 days
(3)
|
|
|
6,781
|
|
|
|
8.1
|
|
|
|
6,256
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP loans in repayment
|
|
|
83,774
|
|
|
|
100
|
%
|
|
|
82,578
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP loans, gross
|
|
|
154,448
|
|
|
|
|
|
|
|
142,017
|
|
|
|
|
|
FFELP loan unamortized premium
|
|
|
3,007
|
|
|
|
|
|
|
|
3,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP loans
|
|
|
157,455
|
|
|
|
|
|
|
|
145,042
|
|
|
|
|
|
FFELP loan allowance for losses
|
|
|
(181
|
)
|
|
|
|
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP loans, net
|
|
$
|
157,274
|
|
|
|
|
|
|
$
|
144,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of FFELP loans in repayment
|
|
|
|
|
|
|
54.2
|
%
|
|
|
|
|
|
|
58.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of FFELP loans in repayment
|
|
|
|
|
|
|
17.0
|
%
|
|
|
|
|
|
|
15.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP loans in forbearance as a percentage of loans in repayment
and forbearance
|
|
|
|
|
|
|
16.2
|
%
|
|
|
|
|
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Loans for borrowers who may be
attending school or engaging 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, as well as, loans for borrowers
who have requested extension of grace period during employment
transition or who have temporarily ceased making full payments
due to hardship or other factors.
|
|
(2)
|
|
Loans for borrowers who have used
their allowable deferment time or do not qualify for deferment,
and need additional time to obtain employment or who have
temporarily ceased making full payments due to hardship or other
factors, consistent with the 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.
|
96
Allowance
for FFELP Loan Losses
The provision for FFELP loan losses represents the periodic
expense of maintaining an allowance sufficient to absorb
incurred Risk Sharing losses in the portfolio of FFELP loans.
The following table summarizes changes in the allowance for
FFELP loan losses for the three and nine months ended
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in Allowance for FFELP Loan Losses
|
|
|
|
On-Balance Sheet
|
|
|
Off-Balance Sheet
|
|
|
Managed Basis
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Allowance at beginning of period
|
|
$
|
153
|
|
|
$
|
98
|
|
|
$
|
27
|
|
|
$
|
25
|
|
|
$
|
180
|
|
|
$
|
123
|
|
Provision for FFELP loan losses
|
|
|
21
|
|
|
|
40
|
|
|
|
1
|
|
|
|
10
|
|
|
|
22
|
|
|
|
50
|
|
Charge-offs
|
|
|
(17
|
)
|
|
|
(16
|
)
|
|
|
(3
|
)
|
|
|
(5
|
)
|
|
|
(20
|
)
|
|
|
(21
|
)
|
Increase (decrease) for student loan sales and other
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of period
|
|
$
|
156
|
|
|
$
|
123
|
|
|
$
|
25
|
|
|
$
|
29
|
|
|
$
|
181
|
|
|
$
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs as a percentage of average loans in repayment
(annualized)
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
Charge-offs as a percentage of average loans in repayment and
forbearance (annualized)
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
Allowance as a percentage of the ending total loan balance
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
Allowance as a percentage of ending loans in repayment
|
|
|
.2
|
%
|
|
|
.2
|
%
|
|
|
.2
|
%
|
|
|
.2
|
%
|
|
|
.2
|
%
|
|
|
.2
|
%
|
Average coverage of charge-offs (annualized)
|
|
|
2.3
|
|
|
|
1.9
|
|
|
|
2.0
|
|
|
|
1.3
|
|
|
|
2.3
|
|
|
|
1.8
|
|
Ending total loans, gross
|
|
$
|
134,087
|
|
|
$
|
119,165
|
|
|
$
|
20,361
|
|
|
$
|
22,852
|
|
|
$
|
154,448
|
|
|
$
|
142,017
|
|
Average loans in repayment
|
|
$
|
69,680
|
|
|
$
|
66,859
|
|
|
$
|
14,032
|
|
|
$
|
15,687
|
|
|
$
|
83,712
|
|
|
$
|
82,546
|
|
Ending loans in repayment
|
|
$
|
69,833
|
|
|
$
|
67,074
|
|
|
$
|
13,941
|
|
|
$
|
15,504
|
|
|
$
|
83,774
|
|
|
$
|
82,578
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in Allowance for FFELP Loan Losses
|
|
|
|
On-Balance Sheet
|
|
|
Off-Balance Sheet
|
|
|
Managed Basis
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Allowance at beginning of period
|
|
$
|
138
|
|
|
$
|
89
|
|
|
$
|
27
|
|
|
$
|
29
|
|
|
$
|
165
|
|
|
$
|
118
|
|
Provision for FFELP loan losses
|
|
|
81
|
|
|
|
76
|
|
|
|
10
|
|
|
|
18
|
|
|
|
91
|
|
|
|
94
|
|
Charge-offs
|
|
|
(61
|
)
|
|
|
(43
|
)
|
|
|
(11
|
)
|
|
|
(17
|
)
|
|
|
(72
|
)
|
|
|
(60
|
)
|
Student loan sales and securitization activity
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of period
|
|
$
|
156
|
|
|
$
|
123
|
|
|
$
|
25
|
|
|
$
|
29
|
|
|
$
|
181
|
|
|
$
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs as a percentage of average loans in repayment
(annualized)
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
Charge-offs as a percentage of average loans in repayment and
forbearance (annualized)
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
Allowance as a percentage of the ending total loan balance
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
|
|
.1
|
%
|
Allowance as a percentage of ending loans in repayment
|
|
|
.2
|
%
|
|
|
.2
|
%
|
|
|
.2
|
%
|
|
|
.2
|
%
|
|
|
.2
|
%
|
|
|
.2
|
%
|
Average coverage of charge-offs (annualized)
|
|
|
1.9
|
|
|
|
2.2
|
|
|
|
1.6
|
|
|
|
1.2
|
|
|
|
1.9
|
|
|
|
1.9
|
|
Ending total loans, gross
|
|
$
|
134,087
|
|
|
$
|
119,165
|
|
|
$
|
20,361
|
|
|
$
|
22,852
|
|
|
$
|
154,448
|
|
|
$
|
142,017
|
|
Average loans in repayment
|
|
$
|
69,196
|
|
|
$
|
65,692
|
|
|
$
|
14,455
|
|
|
$
|
16,325
|
|
|
$
|
83,651
|
|
|
$
|
82,017
|
|
Ending loans in repayment
|
|
$
|
69,833
|
|
|
$
|
67,074
|
|
|
$
|
13,941
|
|
|
$
|
15,504
|
|
|
$
|
83,774
|
|
|
$
|
82,578
|
|
Total
Provisions for Loan Losses
The following tables summarize the total provisions for loan
losses on both an on-balance sheet basis and a Managed Basis for
the three and nine months ended September 30, 2009 and 2008.
Total
on-balance sheet loan provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Private Education Loans
|
|
$
|
287
|
|
|
$
|
136
|
|
|
$
|
733
|
|
|
$
|
374
|
|
FFELP Loans
|
|
|
21
|
|
|
|
40
|
|
|
|
81
|
|
|
|
76
|
|
Mortgage and consumer loans
|
|
|
13
|
|
|
|
11
|
|
|
|
36
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet provisions for loan losses
|
|
$
|
321
|
|
|
$
|
187
|
|
|
$
|
850
|
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
Total
Managed Basis loan provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Private Education Loans
|
|
$
|
413
|
|
|
$
|
202
|
|
|
$
|
1,072
|
|
|
$
|
526
|
|
FFELP Loans
|
|
|
22
|
|
|
|
50
|
|
|
|
91
|
|
|
|
94
|
|
Mortgage and consumer loans
|
|
|
13
|
|
|
|
11
|
|
|
|
36
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed Basis provisions for loan losses
|
|
$
|
448
|
|
|
$
|
263
|
|
|
$
|
1,199
|
|
|
$
|
637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision expense for Private Education Loans was previously
discussed above (see Private Education Loan Losses
Allowance for Private Education Loan
Losses
).
Total
Loan Charge-offs
The following tables summarize the total loan charge-offs on
both an on-balance sheet basis and a Managed Basis for the three
and nine months ended September 30, 2009 and 2008.
Total
on-balance sheet loan charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Private Education Loans
|
|
$
|
293
|
|
|
$
|
76
|
|
|
$
|
671
|
|
|
$
|
206
|
|
FFELP Loans
|
|
|
17
|
|
|
|
16
|
|
|
|
61
|
|
|
|
43
|
|
Mortgage and consumer loans
|
|
|
9
|
|
|
|
4
|
|
|
|
24
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet loan net charge-offs
|
|
$
|
319
|
|
|
$
|
96
|
|
|
$
|
756
|
|
|
$
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Managed loan charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Private Education Loans
|
|
$
|
443
|
|
|
$
|
112
|
|
|
$
|
1,000
|
|
|
$
|
315
|
|
FFELP Loans
|
|
|
20
|
|
|
|
21
|
|
|
|
72
|
|
|
|
60
|
|
Mortgage and consumer loans
|
|
|
9
|
|
|
|
4
|
|
|
|
24
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed loan charge-offs
|
|
$
|
472
|
|
|
$
|
137
|
|
|
$
|
1,096
|
|
|
$
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
for Partially Charged-Off Private Education Loans
The Company charges off the estimated loss of a defaulted loan
balance. Actual recoveries are applied against the remaining
loan balance that was not charged off. We refer to this
remaining loan balance as the receivable for partially
charged off loans. If actual periodic recoveries are less
than expected, the difference is charged off and immediately
included in provision expense.
99
The following tables summarize the activity in the receivable
for partially charged-off loans (see
Allowance for
Private Education Loan Losses
above for a further
discussion) for the three and nine months ended
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in Receivable for Partially Charged-Off Loans
|
|
|
|
On-balance sheet
|
|
|
Off-balance sheet
|
|
|
Managed Basis
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Receivable at beginning of period
|
|
$
|
338
|
|
|
$
|
159
|
|
|
$
|
149
|
|
|
$
|
58
|
|
|
$
|
487
|
|
|
$
|
217
|
|
Expected future recoveries of current period defaults
|
|
|
108
|
|
|
|
34
|
|
|
|
55
|
|
|
|
17
|
|
|
|
163
|
|
|
|
51
|
|
Recoveries
|
|
|
(11
|
)
|
|
|
(9
|
)
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(15
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable at end of period
|
|
$
|
435
|
|
|
$
|
184
|
|
|
$
|
200
|
|
|
$
|
73
|
|
|
$
|
635
|
|
|
$
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in Receivable for Partially Charged-Off Loans
|
|
|
|
On-balance sheet
|
|
|
Off-balance sheet
|
|
|
Managed Basis
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Receivable at beginning of period
|
|
$
|
222
|
|
|
$
|
118
|
|
|
$
|
92
|
|
|
$
|
28
|
|
|
$
|
314
|
|
|
$
|
146
|
|
Expected future recoveries of current period defaults
|
|
|
243
|
|
|
|
93
|
|
|
|
119
|
|
|
|
51
|
|
|
|
362
|
|
|
|
144
|
|
Recoveries
|
|
|
(30
|
)
|
|
|
(27
|
)
|
|
|
(11
|
)
|
|
|
(6
|
)
|
|
|
(41
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable at end of period
|
|
$
|
435
|
|
|
$
|
184
|
|
|
$
|
200
|
|
|
$
|
73
|
|
|
$
|
635
|
|
|
$
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
Loan Acquisitions
The following tables summarize the components of our student
loan acquisition activity for the three and nine months ended
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30, 2009
|
|
|
|
FFELP
|
|
|
Private
|
|
|
Total
|
|
|
Internal lending brands and Lender Partners
|
|
$
|
6,778
|
|
|
$
|
1,077
|
|
|
$
|
7,855
|
|
Other commitment clients
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
Spot purchases
|
|
|
456
|
|
|
|
|
|
|
|
456
|
|
Consolidations and
clean-up
calls of off-balance sheet securitized loans
|
|
|
1,201
|
|
|
|
130
|
|
|
|
1,331
|
|
Capitalized interest, premiums and discounts
|
|
|
647
|
|
|
|
158
|
|
|
|
805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet student loan acquisitions
|
|
|
9,162
|
|
|
|
1,365
|
|
|
|
10,527
|
|
Consolidations and
clean-up
calls of off-balance sheet securitized loans
|
|
|
(1,201
|
)
|
|
|
(130
|
)
|
|
|
(1,331
|
)
|
Capitalized interest, premiums and discounts
off-balance sheet securitized trusts
|
|
|
93
|
|
|
|
81
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed student loan acquisitions
|
|
$
|
8,054
|
|
|
$
|
1,316
|
|
|
$
|
9,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30, 2008
|
|
|
|
FFELP
|
|
|
Private
|
|
|
Total
|
|
|
Internal lending brands and Lender Partners
|
|
$
|
6,187
|
|
|
$
|
2,151
|
|
|
$
|
8,338
|
|
Other commitment clients
|
|
|
193
|
|
|
|
|
|
|
|
193
|
|
Spot purchases
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
Consolidations from third parties
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Consolidations and
clean-up
calls of off-balance sheet securitized loans
|
|
|
591
|
|
|
|
11
|
|
|
|
602
|
|
Capitalized interest, premiums and discounts
|
|
|
618
|
|
|
|
187
|
|
|
|
805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet student loan acquisitions
|
|
|
7,631
|
|
|
|
2,352
|
|
|
|
9,983
|
|
Consolidations and
clean-up
calls of off-balance sheet securitized loans
|
|
|
(591
|
)
|
|
|
(11
|
)
|
|
|
(602
|
)
|
Capitalized interest, premiums and discounts
off-balance sheet securitized trusts
|
|
|
128
|
|
|
|
123
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed student loan acquisitions
|
|
$
|
7,168
|
|
|
$
|
2,464
|
|
|
$
|
9,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2009
|
|
|
|
FFELP
|
|
|
Private
|
|
|
Total
|
|
|
Internal lending brands and Lender Partners
|
|
$
|
17,985
|
|
|
$
|
2,971
|
|
|
$
|
20,956
|
|
Other commitment clients
|
|
|
283
|
|
|
|
|
|
|
|
283
|
|
Spot purchases
|
|
|
1,441
|
|
|
|
|
|
|
|
1,441
|
|
Consolidations and
clean-up
calls of off-balance sheet securitized loans
|
|
|
3,155
|
|
|
|
797
|
|
|
|
3,952
|
|
Capitalized interest, premiums and discounts
|
|
|
1,853
|
|
|
|
591
|
|
|
|
2,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet student loan acquisitions
|
|
|
24,717
|
|
|
|
4,359
|
|
|
|
29,076
|
|
Consolidations and
clean-up
calls of off-balance sheet securitized loans
|
|
|
(3,155
|
)
|
|
|
(797
|
)
|
|
|
(3,952
|
)
|
Capitalized interest, premiums and discounts
off-balance sheet securitized trusts
|
|
|
268
|
|
|
|
325
|
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed student loan acquisitions
|
|
$
|
21,830
|
|
|
$
|
3,887
|
|
|
$
|
25,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2008
|
|
|
|
FFELP
|
|
|
Private
|
|
|
Total
|
|
|
Internal lending brands and Lender Partners
|
|
$
|
15,209
|
|
|
$
|
5,567
|
|
|
$
|
20,776
|
|
Other commitment clients
|
|
|
637
|
|
|
|
|
|
|
|
637
|
|
Spot purchases
|
|
|
197
|
|
|
|
|
|
|
|
197
|
|
Consolidations from third parties
|
|
|
461
|
|
|
|
149
|
|
|
|
610
|
|
Consolidations and
clean-up
calls of off-balance sheet securitized loans
|
|
|
711
|
|
|
|
256
|
|
|
|
967
|
|
Capitalized interest, premiums and discounts
|
|
|
1,748
|
|
|
|
570
|
|
|
|
2,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet student loan acquisitions
|
|
|
18,963
|
|
|
|
6,542
|
|
|
|
25,505
|
|
Consolidations and
clean-up
calls of off-balance sheet securitized loans
|
|
|
(711
|
)
|
|
|
(256
|
)
|
|
|
(967
|
)
|
Capitalized interest, premiums and discounts
off-balance sheet securitized trusts
|
|
|
347
|
|
|
|
477
|
|
|
|
824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed student loan acquisitions
|
|
$
|
18,599
|
|
|
$
|
6,763
|
|
|
$
|
25,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
Total
On-Balance Sheet Assets Lending Business
Segment
The following table includes on-balance sheet asset information
for our Lending business segment.
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
FFELP Stafford and Other Student Loans, net
|
|
$
|
43,258
|
|
|
$
|
44,025
|
|
FFELP Stafford Loans
Held-for-Sale
|
|
|
23,846
|
|
|
|
8,451
|
|
FFELP Consolidation Loans, net
|
|
|
69,246
|
|
|
|
71,744
|
|
Private Education Loans, net
|
|
|
22,495
|
|
|
|
20,582
|
|
Other loans, net
|
|
|
455
|
|
|
|
729
|
|
Investments
(1)
|
|
|
12,422
|
|
|
|
8,445
|
|
Retained Interest in off-balance sheet securitized loans
|
|
|
1,838
|
|
|
|
2,200
|
|
Other
(2)
|
|
|
10,520
|
|
|
|
9,947
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
184,080
|
|
|
$
|
166,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Investments include cash and cash
equivalents, short and long-term investments, restricted cash
and investments, leveraged leases, and municipal bonds.
|
|
(2)
|
|
Other assets include accrued
interest receivable, goodwill and acquired intangible assets,
and other non-interest earning assets.
|
Loan
Originations
The Company originates loans under its own brand names, which we
refer to as internal lending brands, and also through Lender
Partners under forward contracts to purchase loans at
contractual prices.
Our FFELP internal brand originations were up sharply in the
third quarter of 2009, increasing 28 percent from the
year-ago quarter. Our FFELP Lender Partner originations
increased 10 percent over the same period. A number of
these Lender Partners, including some of our largest
originators, have converted to third-party servicing
arrangements in which we service loans on their behalf.
Private Education Loan originations declined 58 percent
from the year-ago period to $893 million in the quarter
ended September 30, 2009, as a result of a continued
tightening of our underwriting criteria, an increase in
guaranteed student loan limits and the Companys withdrawal
from certain markets.
At September 30, 2009, the Company was committed to
purchase $1.3 billion of loans originated by our Lender
Partners ($0.8 billion of FFELP loans and $0.5 billion
of Private Education Loans). Approximately $0.3 billion of
these FFELP loans were originated prior to CCRAA. Approximately
$0.4 billion of these FFELP loans are eligible for
EDs Purchase and Participation Programs (see
LIQUIDITY AND CAPITAL RESOURCES ED Funding
Programs).
102
The following tables summarize our loan originations by type of
loan and source.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Loan Originations Internal lending brands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stafford
|
|
$
|
5,134
|
|
|
$
|
4,002
|
|
|
$
|
13,068
|
|
|
$
|
8,511
|
|
PLUS
|
|
|
582
|
|
|
|
502
|
|
|
|
1,341
|
|
|
|
1,175
|
|
GradPLUS
|
|
|
443
|
|
|
|
319
|
|
|
|
878
|
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP
|
|
|
6,159
|
|
|
|
4,823
|
|
|
|
15,287
|
|
|
|
10,312
|
|
Private Education Loans
|
|
|
871
|
|
|
|
1,934
|
|
|
|
2,599
|
|
|
|
5,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,030
|
|
|
$
|
6,757
|
|
|
$
|
17,886
|
|
|
$
|
15,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Loan Originations Lender Partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stafford
|
|
$
|
703
|
|
|
$
|
655
|
|
|
$
|
1,826
|
|
|
$
|
3,275
|
|
PLUS
|
|
|
51
|
|
|
|
45
|
|
|
|
118
|
|
|
|
335
|
|
GradPLUS
|
|
|
27
|
|
|
|
11
|
|
|
|
54
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP
|
|
|
781
|
|
|
|
711
|
|
|
|
1,998
|
|
|
|
3,669
|
|
Private Education Loans
|
|
|
22
|
|
|
|
183
|
|
|
|
196
|
|
|
|
473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
803
|
|
|
$
|
894
|
|
|
$
|
2,194
|
|
|
$
|
4,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
Student
Loan Activity
The following tables summarize the activity in our on-balance
sheet, off-balance sheet and Managed portfolios of FFELP loans
and Private Education Loans and highlight the effects of
Consolidation Loan activity on our FFELP loan portfolios.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Total Private
|
|
|
Total On-
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
Balance Sheet
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Portfolio
|
|
|
Beginning balance
|
|
$
|
62,204
|
|
|
$
|
70,102
|
|
|
$
|
132,306
|
|
|
$
|
21,851
|
|
|
$
|
154,157
|
|
Net consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental consolidations from third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidations to third parties
|
|
|
(384
|
)
|
|
|
(191
|
)
|
|
|
(575
|
)
|
|
|
(2
|
)
|
|
|
(577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net consolidations
|
|
|
(384
|
)
|
|
|
(191
|
)
|
|
|
(575
|
)
|
|
|
(2
|
)
|
|
|
(577
|
)
|
Acquisitions
|
|
|
7,645
|
|
|
|
316
|
|
|
|
7,961
|
|
|
|
1,235
|
|
|
|
9,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquisitions
|
|
|
7,261
|
|
|
|
125
|
|
|
|
7,386
|
|
|
|
1,233
|
|
|
|
8,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal
consolidations
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization-related
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments/claims/resales/other
|
|
|
(2,360
|
)
|
|
|
(981
|
)
|
|
|
(3,341
|
)
|
|
|
(589
|
)
|
|
|
(3,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
67,105
|
|
|
$
|
69,246
|
|
|
$
|
136,351
|
|
|
$
|
22,495
|
|
|
$
|
158,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Total Private
|
|
|
Total Off-
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
Balance Sheet
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Portfolio
|
|
|
Beginning balance
|
|
$
|
6,170
|
|
|
$
|
15,170
|
|
|
$
|
21,340
|
|
|
$
|
12,621
|
|
|
$
|
33,961
|
|
Net consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental consolidations from third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidations to third parties
|
|
|
(135
|
)
|
|
|
(56
|
)
|
|
|
(191
|
)
|
|
|
(4
|
)
|
|
|
(195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net consolidations
|
|
|
(135
|
)
|
|
|
(56
|
)
|
|
|
(191
|
)
|
|
|
(4
|
)
|
|
|
(195
|
)
|
Acquisitions
|
|
|
30
|
|
|
|
63
|
|
|
|
93
|
|
|
|
81
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquisitions
|
|
|
(105
|
)
|
|
|
7
|
|
|
|
(98
|
)
|
|
|
77
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal
consolidations
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization-related
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments/claims/resales/other
|
|
|
(130
|
)
|
|
|
(188
|
)
|
|
|
(318
|
)
|
|
|
(287
|
)
|
|
|
(605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,935
|
|
|
$
|
14,989
|
|
|
$
|
20,924
|
|
|
$
|
12,411
|
|
|
$
|
33,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Portfolio
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Total Private
|
|
|
Total
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
Managed Basis
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Portfolio
|
|
|
Beginning balance
|
|
$
|
68,374
|
|
|
$
|
85,272
|
|
|
$
|
153,646
|
|
|
$
|
34,472
|
|
|
$
|
188,118
|
|
Net consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental consolidations from third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidations to third parties
|
|
|
(519
|
)
|
|
|
(247
|
)
|
|
|
(766
|
)
|
|
|
(6
|
)
|
|
|
(772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net consolidations
|
|
|
(519
|
)
|
|
|
(247
|
)
|
|
|
(766
|
)
|
|
|
(6
|
)
|
|
|
(772
|
)
|
Acquisitions
|
|
|
7,675
|
|
|
|
379
|
|
|
|
8,054
|
|
|
|
1,316
|
|
|
|
9,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquisitions
|
|
|
7,156
|
|
|
|
132
|
|
|
|
7,288
|
|
|
|
1,310
|
|
|
|
8,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal
consolidations
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization-related
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments/claims/resales/other
|
|
|
(2,490
|
)
|
|
|
(1,169
|
)
|
|
|
(3,659
|
)
|
|
|
(876
|
)
|
|
|
(4,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
(4)
|
|
$
|
73,040
|
|
|
|
84,235
|
|
|
$
|
157,275
|
|
|
$
|
34,906
|
|
|
$
|
192,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed
Acquisitions
(5)
|
|
$
|
7,675
|
|
|
$
|
379
|
|
|
$
|
8,054
|
|
|
$
|
1,316
|
|
|
$
|
9,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
FFELP category is primarily
Stafford loans and also includes PLUS and HEAL loans.
|
|
(2)
|
|
Represents loans that we either own
on-balance sheet or loans that we consolidated from our
off-balance sheet securitization trusts.
|
|
(3)
|
|
Represents loans within
securitization trusts that we are required to consolidate under
GAAP once the trusts loan balances are below the
clean-up
call threshold.
|
|
(4)
|
|
As of September 30, 2009, the
ending balance includes $29.7 billion of FFELP Stafford and
Other Loans and $2.6 billion of FFELP Consolidation Loans
disbursed on or after October 1, 2007, which are impacted
by CCRAA legislation.
|
|
(5)
|
|
The Total Managed Acquisitions line
includes incremental consolidations from third parties and
acquisitions.
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
|
Three Months Ended September 30, 2008
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Total Private
|
|
|
Total On-
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
Balance Sheet
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Portfolio
|
|
|
Beginning balance
|
|
$
|
43,147
|
|
|
$
|
73,171
|
|
|
$
|
116,318
|
|
|
$
|
17,971
|
|
|
$
|
134,289
|
|
Net consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental consolidations from third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Consolidations to third parties
|
|
|
(178
|
)
|
|
|
(148
|
)
|
|
|
(326
|
)
|
|
|
(9
|
)
|
|
|
(335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net consolidations
|
|
|
(178
|
)
|
|
|
(148
|
)
|
|
|
(326
|
)
|
|
|
(6
|
)
|
|
|
(332
|
)
|
Acquisitions
|
|
|
6,641
|
|
|
|
398
|
|
|
|
7,039
|
|
|
|
2,338
|
|
|
|
9,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquisitions
|
|
|
6,463
|
|
|
|
250
|
|
|
|
6,713
|
|
|
|
2,332
|
|
|
|
9,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal
consolidations
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Repayments/claims/resales/other
|
|
|
(685
|
)
|
|
|
(855
|
)
|
|
|
(1,540
|
)
|
|
|
(469
|
)
|
|
|
(2,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
48,925
|
|
|
$
|
72,566
|
|
|
$
|
121,491
|
|
|
$
|
19,837
|
|
|
$
|
141,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet
|
|
|
|
Three Months Ended September 30, 2008
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Total Private
|
|
|
Total Off-
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
Balance Sheet
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Portfolio
|
|
|
Beginning balance
|
|
$
|
8,475
|
|
|
$
|
16,042
|
|
|
$
|
24,517
|
|
|
$
|
13,098
|
|
|
$
|
37,615
|
|
Net consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental consolidations from third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidations to third parties
|
|
|
(108
|
)
|
|
|
(34
|
)
|
|
|
(142
|
)
|
|
|
(8
|
)
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net consolidations
|
|
|
(108
|
)
|
|
|
(34
|
)
|
|
|
(142
|
)
|
|
|
(8
|
)
|
|
|
(150
|
)
|
Acquisitions
|
|
|
61
|
|
|
|
68
|
|
|
|
129
|
|
|
|
123
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquisitions
|
|
|
(47
|
)
|
|
|
34
|
|
|
|
(13
|
)
|
|
|
115
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal
consolidations
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Repayments/claims/resales/other
|
|
|
(745
|
)
|
|
|
(360
|
)
|
|
|
(1,105
|
)
|
|
|
(247
|
)
|
|
|
(1,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
7,683
|
|
|
$
|
15,716
|
|
|
$
|
23,399
|
|
|
$
|
12,963
|
|
|
$
|
36,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Portfolio
|
|
|
|
Three Months Ended September 30, 2008
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Total Private
|
|
|
Total
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
Managed Basis
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Portfolio
|
|
|
Beginning balance
|
|
$
|
51,622
|
|
|
$
|
89,213
|
|
|
$
|
140,835
|
|
|
$
|
31,069
|
|
|
$
|
171,904
|
|
Net consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental consolidations from third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Consolidations to third parties
|
|
|
(286
|
)
|
|
|
(182
|
)
|
|
|
(468
|
)
|
|
|
(17
|
)
|
|
|
(485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net consolidations
|
|
|
(286
|
)
|
|
|
(182
|
)
|
|
|
(468
|
)
|
|
|
(14
|
)
|
|
|
(482
|
)
|
Acquisitions
|
|
|
6,702
|
|
|
|
466
|
|
|
|
7,168
|
|
|
|
2,461
|
|
|
|
9,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquisitions
|
|
|
6,416
|
|
|
|
284
|
|
|
|
6,700
|
|
|
|
2,447
|
|
|
|
9,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal
consolidations
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments/claims/resales/other
|
|
|
(1,430
|
)
|
|
|
(1,215
|
)
|
|
|
(2,645
|
)
|
|
|
(716
|
)
|
|
|
(3,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
(3)
|
|
$
|
56,608
|
|
|
$
|
88,282
|
|
|
$
|
144,890
|
|
|
$
|
32,800
|
|
|
$
|
177,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed
Acquisitions
(4)
|
|
$
|
6,702
|
|
|
$
|
466
|
|
|
$
|
7,168
|
|
|
$
|
2,464
|
|
|
$
|
9,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
FFELP category is primarily
Stafford loans and also includes PLUS and HEAL loans.
|
|
(2)
|
|
Represents loans that we either own
on-balance sheet or loans that we consolidated from our
off-balance sheet securitization trusts.
|
|
(3)
|
|
As of September 30, 2008, the
ending balance includes $10.6 billion of FFELP Stafford and
Other Loans and $2.6 billion of FFELP Consolidation Loans
disbursed on or after October 1, 2007, which are impacted
by CCRAA legislation.
|
|
(4)
|
|
The Total Managed Acquisitions line
includes incremental consolidations from third parties and
acquisitions.
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Total Private
|
|
|
Total On-
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
Balance Sheet
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Portfolio
|
|
|
Beginning balance
|
|
$
|
52,476
|
|
|
$
|
71,744
|
|
|
$
|
124,220
|
|
|
$
|
20,582
|
|
|
$
|
144,802
|
|
Net consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental consolidations from third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidations to third parties
|
|
|
(790
|
)
|
|
|
(385
|
)
|
|
|
(1,175
|
)
|
|
|
(5
|
)
|
|
|
(1,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net consolidations
|
|
|
(790
|
)
|
|
|
(385
|
)
|
|
|
(1,175
|
)
|
|
|
(5
|
)
|
|
|
(1,180
|
)
|
Acquisitions
|
|
|
20,691
|
|
|
|
871
|
|
|
|
21,562
|
|
|
|
3,562
|
|
|
|
25,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquisitions
|
|
|
19,901
|
|
|
|
486
|
|
|
|
20,387
|
|
|
|
3,557
|
|
|
|
23,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal
consolidations
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization-related
(3)
|
|
|
425
|
|
|
|
|
|
|
|
425
|
|
|
|
|
|
|
|
425
|
|
Repayments/claims/resales/other
|
|
|
(5,697
|
)
|
|
|
(2,984
|
)
|
|
|
(8,681
|
)
|
|
|
(1,644
|
)
|
|
|
(10,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
67,105
|
|
|
$
|
69,246
|
|
|
$
|
136,351
|
|
|
$
|
22,495
|
|
|
$
|
158,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Total Private
|
|
|
Total Off-
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
Balance Sheet
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Portfolio
|
|
|
Beginning balance
|
|
$
|
7,143
|
|
|
$
|
15,531
|
|
|
$
|
22,674
|
|
|
$
|
12,917
|
|
|
$
|
35,591
|
|
Net consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental consolidations from third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidations to third parties
|
|
|
(317
|
)
|
|
|
(99
|
)
|
|
|
(416
|
)
|
|
|
(12
|
)
|
|
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net consolidations
|
|
|
(317
|
)
|
|
|
(99
|
)
|
|
|
(416
|
)
|
|
|
(12
|
)
|
|
|
(428
|
)
|
Acquisitions
|
|
|
107
|
|
|
|
161
|
|
|
|
268
|
|
|
|
325
|
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquisitions
|
|
|
(210
|
)
|
|
|
62
|
|
|
|
(148
|
)
|
|
|
313
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal
consolidations
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization-related
(3)
|
|
|
(425
|
)
|
|
|
|
|
|
|
(425
|
)
|
|
|
|
|
|
|
(425
|
)
|
Repayments/claims/resales/other
|
|
|
(573
|
)
|
|
|
(604
|
)
|
|
|
(1,177
|
)
|
|
|
(819
|
)
|
|
|
(1,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,935
|
|
|
$
|
14,989
|
|
|
$
|
20,924
|
|
|
$
|
12,411
|
|
|
$
|
33,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Portfolio
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Total Private
|
|
|
Total
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
Managed Basis
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Portfolio
|
|
|
Beginning balance
|
|
$
|
59,619
|
|
|
$
|
87,275
|
|
|
$
|
146,894
|
|
|
$
|
33,499
|
|
|
$
|
180,393
|
|
Net consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental consolidations from third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidations to third parties
|
|
|
(1,107
|
)
|
|
|
(484
|
)
|
|
|
(1,591
|
)
|
|
|
(17
|
)
|
|
|
(1,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net consolidations
|
|
|
(1,107
|
)
|
|
|
(484
|
)
|
|
|
(1,591
|
)
|
|
|
(17
|
)
|
|
|
(1,608
|
)
|
Acquisitions
|
|
|
20,798
|
|
|
|
1,032
|
|
|
|
21,830
|
|
|
|
3,887
|
|
|
|
25,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquisitions
|
|
|
19,691
|
|
|
|
548
|
|
|
|
20,239
|
|
|
|
3,870
|
|
|
|
24,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal
consolidations
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization-related
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments/claims/resales/other
|
|
|
(6,270
|
)
|
|
|
(3,588
|
)
|
|
|
(9,858
|
)
|
|
|
(2,463
|
)
|
|
|
(12,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
(4)
|
|
$
|
73,040
|
|
|
|
84,235
|
|
|
$
|
157,275
|
|
|
$
|
34,906
|
|
|
$
|
192,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed
Acquisitions
(5)
|
|
$
|
20,798
|
|
|
$
|
1,032
|
|
|
$
|
21,830
|
|
|
$
|
3,887
|
|
|
$
|
25,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
FFELP category is primarily
Stafford loans and also includes PLUS and HEAL loans.
|
|
(2)
|
|
Represents loans that we either own
on-balance sheet or loans that we consolidated from our
off-balance sheet securitization trusts.
|
|
(3)
|
|
Represents loans within
securitization trusts that we are required to consolidate under
GAAP once the trusts loan balances are below the
clean-up
call threshold.
|
|
(4)
|
|
As of September 30, 2009, the
ending balance includes $29.7 billion of FFELP Stafford and
Other Loans and $2.6 billion of FFELP Consolidation Loans
disbursed on or after October 1, 2007, which are impacted
by CCRAA legislation.
|
|
(5)
|
|
The Total Managed Acquisitions line
includes incremental consolidations from third parties and
acquisitions.
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Total Private
|
|
|
Total On-
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
Balance Sheet
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Portfolio
|
|
|
Beginning balance
|
|
$
|
35,726
|
|
|
$
|
73,609
|
|
|
$
|
109,335
|
|
|
$
|
14,818
|
|
|
$
|
124,153
|
|
Net consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental consolidations from third parties
|
|
|
|
|
|
|
461
|
|
|
|
461
|
|
|
|
149
|
|
|
|
610
|
|
Consolidations to third parties
|
|
|
(519
|
)
|
|
|
(270
|
)
|
|
|
(789
|
)
|
|
|
(34
|
)
|
|
|
(823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net consolidations
|
|
|
(519
|
)
|
|
|
191
|
|
|
|
(328
|
)
|
|
|
115
|
|
|
|
(213
|
)
|
Acquisitions
|
|
|
16,702
|
|
|
|
1,088
|
|
|
|
17,790
|
|
|
|
6,137
|
|
|
|
23,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquisitions
|
|
|
16,183
|
|
|
|
1,279
|
|
|
|
17,462
|
|
|
|
6,252
|
|
|
|
23,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal
consolidations
(2)
|
|
|
(409
|
)
|
|
|
529
|
|
|
|
120
|
|
|
|
228
|
|
|
|
348
|
|
Off-balance sheet securitizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments/claims/resales/other
|
|
|
(2,575
|
)
|
|
|
(2,851
|
)
|
|
|
(5,426
|
)
|
|
|
(1,461
|
)
|
|
|
(6,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
48,925
|
|
|
$
|
72,566
|
|
|
$
|
121,491
|
|
|
$
|
19,837
|
|
|
$
|
141,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Total Private
|
|
|
Total Off-
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
Balance Sheet
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Portfolio
|
|
|
Beginning balance
|
|
$
|
9,472
|
|
|
$
|
16,441
|
|
|
$
|
25,913
|
|
|
$
|
13,510
|
|
|
$
|
39,423
|
|
Net consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental consolidations from third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidations to third parties
|
|
|
(190
|
)
|
|
|
(57
|
)
|
|
|
(247
|
)
|
|
|
(51
|
)
|
|
|
(298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net consolidations
|
|
|
(190
|
)
|
|
|
(57
|
)
|
|
|
(247
|
)
|
|
|
(51
|
)
|
|
|
(298
|
)
|
Acquisitions
|
|
|
183
|
|
|
|
165
|
|
|
|
348
|
|
|
|
477
|
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquisitions
|
|
|
(7
|
)
|
|
|
108
|
|
|
|
101
|
|
|
|
426
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal
consolidations
(2)
|
|
|
(84
|
)
|
|
|
(36
|
)
|
|
|
(120
|
)
|
|
|
(228
|
)
|
|
|
(348
|
)
|
Off-balance sheet securitizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments/claims/resales/other
|
|
|
(1,698
|
)
|
|
|
(797
|
)
|
|
|
(2,495
|
)
|
|
|
(745
|
)
|
|
|
(3,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
7,683
|
|
|
$
|
15,716
|
|
|
$
|
23,399
|
|
|
$
|
12,963
|
|
|
$
|
36,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Portfolio
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
FFELP
|
|
|
FFELP
|
|
|
|
|
|
Total Private
|
|
|
Total
|
|
|
|
Stafford and
|
|
|
Consolidation
|
|
|
Total
|
|
|
Education
|
|
|
Managed Basis
|
|
|
|
Other
(1)
|
|
|
Loans
|
|
|
FFELP
|
|
|
Loans
|
|
|
Portfolio
|
|
|
Beginning balance
|
|
$
|
45,198
|
|
|
$
|
90,050
|
|
|
$
|
135,248
|
|
|
$
|
28,328
|
|
|
$
|
163,576
|
|
Net consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental consolidations from third parties
|
|
|
|
|
|
|
461
|
|
|
|
461
|
|
|
|
149
|
|
|
|
610
|
|
Consolidations to third parties
|
|
|
(709
|
)
|
|
|
(327
|
)
|
|
|
(1,036
|
)
|
|
|
(85
|
)
|
|
|
(1,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net consolidations
|
|
|
(709
|
)
|
|
|
134
|
|
|
|
(575
|
)
|
|
|
64
|
|
|
|
(511
|
)
|
Acquisitions
|
|
|
16,885
|
|
|
|
1,253
|
|
|
|
18,138
|
|
|
|
6,614
|
|
|
|
24,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquisitions
|
|
|
16,176
|
|
|
|
1,387
|
|
|
|
17,563
|
|
|
|
6,678
|
|
|
|
24,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal
consolidations
(2)
|
|
|
(493
|
)
|
|
|
493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet securitizations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments/claims/resales/other
|
|
|
(4,273
|
)
|
|
|
(3,648
|
)
|
|
|
(7,921
|
)
|
|
|
(2,206
|
)
|
|
|
(10,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
(3)
|
|
$
|
56,608
|
|
|
$
|
88,282
|
|
|
$
|
144,890
|
|
|
$
|
32,800
|
|
|
$
|
177,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed
Acquisitions
(4)
|
|
$
|
16,885
|
|
|
$
|
1,714
|
|
|
$
|
18,599
|
|
|
$
|
6,763
|
|
|
$
|
25,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
FFELP category is primarily
Stafford loans and also includes PLUS and HEAL loans.
|
|
(2)
|
|
Represents loans that we either own
on-balance sheet or loans that we consolidated from our
off-balance sheet securitization trusts.
|
|
(3)
|
|
As of September 30, 2008, the
ending balance includes $10.6 billion of FFELP Stafford and
Other Loans and $2.6 billion of FFELP Consolidation Loans
disbursed on or after October 1, 2007, which are impacted
by CCRAA legislation.
|
|
(4)
|
|
The Total Managed Acquisitions line
includes incremental consolidations from third parties and
acquisitions.
|
107
Other
Income Lending Business Segment
The following table summarizes the components of Core
Earnings other income, net, for our Lending business
segment for the three and nine months ended September 30,
2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Gains on debt repurchases
|
|
$
|
74
|
|
|
$
|
16
|
|
|
$
|
463
|
|
|
$
|
37
|
|
Late fees and forbearance fees
|
|
|
39
|
|
|
|
36
|
|
|
|
107
|
|
|
|
107
|
|
Gains on sales of loans
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
|
|
1
|
|
Other
|
|
|
4
|
|
|
|
3
|
|
|
|
9
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net
|
|
$
|
129
|
|
|
$
|
55
|
|
|
$
|
591
|
|
|
$
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in other income over the prior periods presented is
primarily the result of the gains on debt repurchased. The
Company began repurchasing its outstanding debt in the second
quarter of 2008. The Company repurchased $1.4 billion and
$580 million face amount of its senior unsecured notes for
the quarters ended September 30, 2009 and 2008,
respectively, and repurchased $2.7 billion and
$1.8 billion face amount of its senior unsecured notes for
the nine months ended September 30, 2009 and 2008,
respectively. Since the second quarter of 2008, the Company
repurchased $4.6 billion face amount of its senior
unsecured notes in the aggregate, with maturity dates ranging
from 2008 to 2014.
The $12 million of gains on sales of loans in the third
quarter 2009 related to the gain on sale of approximately
$840 million face amount of FFELP loans to the ED as part
of the ED Purchase Program.
Operating
Expense Lending Business Segment
The following table summarizes the components of operating
expenses for our Lending business segment for the three and nine
months ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Sales and originations
|
|
$
|
60
|
|
|
$
|
57
|
|
|
$
|
156
|
|
|
$
|
195
|
|
Servicing
|
|
|
71
|
|
|
|
59
|
|
|
|
202
|
|
|
|
181
|
|
Corporate overhead
|
|
|
23
|
|
|
|
26
|
|
|
|
77
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
154
|
|
|
$
|
142
|
|
|
$
|
435
|
|
|
$
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses for our Lending business segment include
costs incurred to acquire student loans and to service our
Managed student loan portfolio, as well as other general and
administrative expenses. For the quarters ended
September 30, 2009 and 2008, operating expenses for the
Lending business segment totaled $154 million and
$142 million, respectively. Operating expenses were
32 basis points of average Managed student loans in both
the third quarters of 2009 and 2008.
108
ASSET
PERFORMANCE GROUP (APG) BUSINESS SEGMENT
The following table includes the Core Earnings
results of operations for our APG business segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
Purchased
|
|
|
Purchased
|
|
|
|
|
|
|
|
|
|
Paper-
|
|
|
Paper-
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
Mortgage/
|
|
|
Contingency
|
|
|
|
|
|
|
Mortgage
|
|
|
Properties
|
|
|
& Other
|
|
|
Total APG
|
|
|
Contingency fee income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
82
|
|
|
$
|
82
|
|
Collections revenue (loss)
|
|
|
21
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss)
|
|
|
21
|
|
|
|
(5
|
)
|
|
|
82
|
|
|
|
98
|
|
Restructuring expenses
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Operating expenses
|
|
|
33
|
|
|
|
6
|
|
|
|
41
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
33
|
|
|
|
7
|
|
|
|
41
|
|
|
|
81
|
|
Net interest expense
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit) and
noncontrolling interest
|
|
|
(14
|
)
|
|
|
(13
|
)
|
|
|
39
|
|
|
|
12
|
|
Income tax expense (benefit)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
15
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before noncontrolling interest
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
|
24
|
|
|
|
7
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings net income (loss)
|
|
$
|
(9
|
)
|
|
$
|
(8
|
)
|
|
$
|
24
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008
|
|
|
|
Purchased
|
|
|
Purchased
|
|
|
|
|
|
|
|
|
|
Paper-
|
|
|
Paper-
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
Mortgage/
|
|
|
Contingency
|
|
|
|
|
|
|
Mortgage
|
|
|
Properties
|
|
|
& Other
|
|
|
Total APG
|
|
|
Contingency fee income
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
87
|
|
|
$
|
89
|
|
Collections revenue (loss)
|
|
|
(39
|
)
|
|
|
(130
|
)
|
|
|
|
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss)
|
|
|
(37
|
)
|
|
|
(130
|
)
|
|
|
87
|
|
|
|
(80
|
)
|
Restructuring expenses
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Operating expenses
|
|
|
52
|
|
|
|
9
|
|
|
|
45
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
56
|
|
|
|
9
|
|
|
|
45
|
|
|
|
110
|
|
Net interest expense
|
|
|
3
|
|
|
|
1
|
|
|
|
2
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit) and
noncontrolling interest
|
|
|
(96
|
)
|
|
|
(140
|
)
|
|
|
40
|
|
|
|
(196
|
)
|
Income tax expense (benefit)
|
|
|
(36
|
)
|
|
|
(51
|
)
|
|
|
14
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before noncontrolling interest
|
|
|
(60
|
)
|
|
|
(89
|
)
|
|
|
26
|
|
|
|
(123
|
)
|
Noncontrolling interest
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings net income (loss)
|
|
$
|
(61
|
)
|
|
$
|
(89
|
)
|
|
$
|
26
|
|
|
$
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
Purchased
|
|
|
Purchased
|
|
|
|
|
|
|
|
|
|
Paper-
|
|
|
Paper-
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
Mortgage/
|
|
|
Contingency
|
|
|
|
|
|
|
Mortgage
|
|
|
Properties
|
|
|
& Other
|
|
|
Total APG
|
|
|
Contingency fee income
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
228
|
|
|
$
|
230
|
|
Collections revenue (loss)
|
|
|
88
|
|
|
|
(72
|
)
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss)
|
|
|
90
|
|
|
|
(72
|
)
|
|
|
228
|
|
|
|
246
|
|
Restructuring expenses
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Operating expenses
|
|
|
108
|
|
|
|
20
|
|
|
|
132
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
108
|
|
|
|
23
|
|
|
|
132
|
|
|
|
263
|
|
Net interest expense
|
|
|
7
|
|
|
|
3
|
|
|
|
5
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit) and
noncontrolling interest
|
|
|
(25
|
)
|
|
|
(98
|
)
|
|
|
91
|
|
|
|
(32
|
)
|
Income tax expense (benefit)
|
|
|
(9
|
)
|
|
|
(36
|
)
|
|
|
33
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before noncontrolling interest
|
|
|
(16
|
)
|
|
|
(62
|
)
|
|
|
58
|
|
|
|
(20
|
)
|
Noncontrolling interest
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings net income (loss)
|
|
$
|
(17
|
)
|
|
$
|
(62
|
)
|
|
$
|
58
|
|
|
$
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
Purchased
|
|
|
Purchased
|
|
|
|
|
|
|
|
|
|
Paper-
|
|
|
Paper-
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
Mortgage/
|
|
|
Contingency
|
|
|
|
|
|
|
Mortgage
|
|
|
Properties
|
|
|
& Other
|
|
|
Total APG
|
|
|
Contingency fee income
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
250
|
|
|
$
|
259
|
|
Collections revenue (loss)
|
|
|
70
|
|
|
|
(155
|
)
|
|
|
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss)
|
|
|
79
|
|
|
|
(155
|
)
|
|
|
250
|
|
|
|
174
|
|
Restructuring expenses
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
10
|
|
Operating expenses
|
|
|
156
|
|
|
|
28
|
|
|
|
138
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
161
|
|
|
|
28
|
|
|
|
143
|
|
|
|
332
|
|
Net interest expense
|
|
|
10
|
|
|
|
4
|
|
|
|
6
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit) and
noncontrolling interest
|
|
|
(92
|
)
|
|
|
(187
|
)
|
|
|
101
|
|
|
|
(178
|
)
|
Income tax expense (benefit)
|
|
|
(33
|
)
|
|
|
(69
|
)
|
|
|
37
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before noncontrolling interest
|
|
|
(59
|
)
|
|
|
(118
|
)
|
|
|
64
|
|
|
|
(113
|
)
|
Noncontrolling interest
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings net income (loss)
|
|
$
|
(62
|
)
|
|
$
|
(118
|
)
|
|
$
|
64
|
|
|
$
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has concluded that its APG purchased paper
businesses are no longer a strategic fit. The Company sold its
international Purchased Paper Non-Mortgage business
in the first quarter of 2009. The Company continues to wind down
the domestic side of its Purchased Paper
Non-Mortgage and Purchased Paper
Mortgage/Properties businesses. The Company will continue to
consider opportunities to sell these businesses at acceptable
prices in the future.
The Companys domestic Purchased Paper
Non-Mortgage business has certain forward purchase obligations
under which the Company was committed to buy purchased paper
through April 2009. The Company has not bought any additional
purchased paper in excess of these obligations. The Company
recognized $9 million and $39 million of impairment in
the third quarter of 2009 and 2008, respectively. The total
impairment for the year ended December 31, 2008 was
$55 million.
110
The Companys Purchased Paper
Mortgage/Properties business has not purchased any new
mortgage/property assets since March 2008 and will work-out and
liquidate its portfolio as quickly and economically as possible.
During 2009, real estate values continued to decline as a result
of the weakening U.S. economy and expected future
resolution time-frames were extended. As a result, the Company
recorded impairment of $12 million and $147 million in
the third quarter of 2009 and 2008, respectively. The total
impairment for the year ended December 31, 2008 was
$262 million.
On October 22, 2009, GRP Loan, LLC and GRP Strategies, LLC,
wholly-owned subsidiaries of the Company, entered into a
definitive sale agreement to sell $367 million in assets,
which is substantially all of the mortgage loan and real estate
assets of the Purchased Paper Mortgage/Properties
business, for $279 million. The transaction closed on
October 26, 2009. In connection with this transaction, the
Company will recognize an after-tax loss of approximately
$85 million to $95 million in the fourth quarter of
2009.
Purchased
Paper Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Face value of purchases for the period
|
|
$
|
|
|
|
$
|
1,496
|
|
|
$
|
390
|
|
|
$
|
4,375
|
|
Purchase price for the period
|
|
|
|
|
|
|
116
|
|
|
|
30
|
|
|
|
384
|
|
Purchase price as a percentage of face value purchased
|
|
|
|
%
|
|
|
7.8
|
%
|
|
|
7.6
|
%
|
|
|
8.8
|
%
|
Gross Cash Collections (GCC)
|
|
$
|
72
|
|
|
$
|
166
|
|
|
$
|
315
|
|
|
$
|
497
|
|
Collections revenue (loss)
|
|
|
21
|
|
|
|
(39
|
)
|
|
|
88
|
|
|
|
70
|
|
Collections revenue (loss) as a percentage of GCC
|
|
|
34
|
%
|
|
|
(23
|
)%
|
|
|
29
|
%
|
|
|
14
|
%
|
Carrying value of purchased paper
|
|
$
|
373
|
|
|
$
|
544
|
|
|
$
|
373
|
|
|
$
|
544
|
|
Purchased
Paper Mortgage/Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Face value of purchases for the period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
39
|
|
Collections revenue (loss), net of impairments
|
|
|
(5
|
)
|
|
|
(130
|
)
|
|
|
(72
|
)
|
|
|
(155
|
)
|
Collateral value of purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Purchase price for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Purchase price as a percentage of collateral fair value
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
66
|
%
|
Carrying value of purchased paper
|
|
$
|
375
|
|
|
$
|
798
|
|
|
$
|
375
|
|
|
$
|
798
|
|
Carrying value of purchased paper as a percentage of collateral
fair value
|
|
|
68
|
%
|
|
|
69
|
%
|
|
|
68
|
%
|
|
|
69
|
%
|
The carrying value of purchased paper (the basis we carry on our
balance sheet) as a percentage of collateral fair value has
decreased in the third quarter of 2009 as a result of the
impairment recognized this quarter.
111
Contingency
Inventory
The following table presents the outstanding inventory of
receivables that are currently being serviced through our APG
business segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
Contingency:
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loans
|
|
$
|
9,191
|
|
|
$
|
8,498
|
|
|
$
|
9,482
|
|
Other
|
|
|
1,472
|
|
|
|
1,752
|
|
|
|
1,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,663
|
|
|
$
|
10,250
|
|
|
$
|
11,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses APG Business Segment
For the quarters ended September 30, 2009 and
September 30, 2008, operating expenses for the APG business
segment totaled $80 million and $106 million,
respectively. The decrease in operating expenses from the
year-ago quarter was primarily due to the Companys
continued cost reduction efforts and the reduction in the size
of the purchased paper portfolios.
Total
On-Balance Sheet Assets APG Business
Segment
At September 30, 2009 and December 31, 2008, the APG
business segment had total assets of $1.4 billion and
$2.1 billion, respectively.
CORPORATE
AND OTHER BUSINESS SEGMENT
The following table includes Core Earnings results
of operations for our Corporate and Other business segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Increase
|
|
|
|
|
|
|
|
|
% Increase
|
|
|
|
Three Months
|
|
|
(Decrease)
|
|
|
Nine Months
|
|
|
(Decrease)
|
|
|
|
Ended September 30,
|
|
|
2009 vs.
|
|
|
Ended September 30,
|
|
|
2009 vs.
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
Net interest income after provisions for loan losses
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
|
%
|
|
$
|
3
|
|
|
$
|
3
|
|
|
|
|
%
|
Guarantor servicing fees
|
|
|
48
|
|
|
|
37
|
|
|
|
30
|
|
|
|
107
|
|
|
|
95
|
|
|
|
13
|
|
Loan servicing fees
|
|
|
17
|
|
|
|
6
|
|
|
|
183
|
|
|
|
35
|
|
|
|
17
|
|
|
|
106
|
|
Upromise
|
|
|
28
|
|
|
|
28
|
|
|
|
|
|
|
|
79
|
|
|
|
80
|
|
|
|
(1
|
)
|
Other
|
|
|
11
|
|
|
|
17
|
|
|
|
(35
|
)
|
|
|
38
|
|
|
|
50
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
104
|
|
|
|
88
|
|
|
|
18
|
|
|
|
259
|
|
|
|
242
|
|
|
|
7
|
|
Restructuring expenses
|
|
|
1
|
|
|
|
7
|
|
|
|
(86
|
)
|
|
|
3
|
|
|
|
22
|
|
|
|
(86
|
)
|
Operating expenses
|
|
|
75
|
|
|
|
68
|
|
|
|
10
|
|
|
|
211
|
|
|
|
213
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
76
|
|
|
|
75
|
|
|
|
1
|
|
|
|
214
|
|
|
|
235
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
30
|
|
|
|
15
|
|
|
|
100
|
|
|
|
48
|
|
|
|
10
|
|
|
|
380
|
|
Income tax expense (benefit)
|
|
|
11
|
|
|
|
6
|
|
|
|
83
|
|
|
|
18
|
|
|
|
3
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings net income (loss)
|
|
$
|
19
|
|
|
$
|
9
|
|
|
|
111
|
%
|
|
$
|
30
|
|
|
$
|
7
|
|
|
|
329
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing fees increased in the third quarter 2009 over the
year-ago quarters primarily due to additional loan conversion
fees that were earned by the Company when third-party servicing
clients sold their FFELP loans to ED under the ED Purchase
Program in the third quarter of 2009.
112
United Student Aid Funds, Inc. (USA Funds), the
nations largest guarantee agency, accounted for
85 percent and 81 percent, respectively, of guarantor
servicing fees and 3 percent and 12 percent,
respectively, of revenues associated with other products and
services for the quarters ended September 30, 2009 and 2008.
Operating
Expenses Corporate and Other Business
Segment
The following table summarizes the components of operating
expenses for our Corporate and Other business segment for the
three and nine months ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Operating expenses
|
|
$
|
30
|
|
|
$
|
26
|
|
|
$
|
79
|
|
|
$
|
69
|
|
Upromise
|
|
|
22
|
|
|
|
22
|
|
|
|
66
|
|
|
|
70
|
|
General and administrative expenses
|
|
|
23
|
|
|
|
20
|
|
|
|
66
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
75
|
|
|
$
|
68
|
|
|
$
|
211
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses for our Corporate and Other business segment
include direct costs incurred to service loans for unrelated
third parties, perform guarantor servicing on behalf of
guarantor agencies, operate our Upromise subsidiary, as well as
information technology expenses related to these functions.
Operating expenses also include unallocated corporate overhead
expenses for centralized headquarters functions. For the
quarters ended September 30, 2009 and 2008, operating
expenses for the Corporate and Other business segment totaled
$75 million and $68 million, respectively. The
increase in operating expenses for the third quarter of 2009
versus the year-ago quarter was primarily due to higher expenses
incurred to reconfigure the Companys servicing system to
meet the requirements of the ED Servicing Contract awarded to
the Company on June 17, 2009 to service FFELP loans that
will be sold to ED.
Total
On-Balance Sheet Assets Corporate and Other Business
Segment
At September 30, 2009 and December 31, 2008, the
Corporate and Other business segment had total assets of
$946 million and $685 million, respectively.
LIQUIDITY
AND CAPITAL RESOURCES
The following LIQUIDITY AND CAPITAL RESOURCES
discussion concentrates on our Lending business segment. Our APG
contingency collections and Corporate and Other business
segments are not capital intensive businesses and, as such, a
minimal amount of debt capital is allocated to these segments.
Historically, we funded new loan originations with a combination
of term unsecured debt and student loan asset-backed securities.
Following the Proposed Merger announcement in April 2007, we
temporarily suspended issuance of unsecured debt and began
funding loan originations primarily through the issuance of
student loan asset-backed securities and short-term secured
student loan financing facilities. In June 2008, the Company
accessed the corporate bond market with a $2.5 billion
issue of
10-year
senior unsecured notes. In August 2008, we began funding new
FFELP Stafford and PLUS student loan originations for AY
2008-2009
pursuant to EDs Loan Participation Program. During the
fourth quarter of 2008, the Company began retaining its Private
Education Loan originations in its banking subsidiary, Sallie
Mae Bank, and funding these assets with term bank deposits. In
May 2009, we began using the ED Conduit Program to fund FFELP
Stafford and PLUS loans. We discuss these liquidity sources
below.
In the near term, we expect to continue to use EDs
Purchase and Participation Programs to fund future FFELP
Stafford and PLUS loan originations and to use deposits at
Sallie Mae Bank and potentially term asset-backed securities to
fund Private Education Loan originations. We plan to use
term asset-backed securities, asset-backed financing facilities,
cash flows provided by earnings and repayment of principal on
our unencumbered student loan assets, as well as other sources,
to refinance maturing debt and provide cash for operations and
other needs.
113
ED
Funding Programs
In August 2008, ED implemented the Loan Purchase Commitment
Program (Purchase Program) and the Loan Purchase
Participation Program (Participation Program)
pursuant to ECASLA. Under the Purchase Program, ED purchases
eligible FFELP loans at a price equal to the sum of (i) par
value, (ii) accrued interest, (iii) the one-percent
origination fee paid to ED, and (iv) a fixed amount of $75
per loan. Under the Participation Program, ED provides
short-term liquidity to FFELP lenders by purchasing
participation interests in pools of FFELP loans. FFELP lenders
are charged a rate of the preceding quarter commercial paper
rate plus 0.50 percent on the principal amount of
participation interests outstanding. Under the terms of the
Participation Program, on September 30, 2010, AY 2009-2010
loans funded under the Participation Program must be either
repurchased by the Company or sold to ED pursuant to the
Participation Program, which has identical economics to the
Purchase Program. Given the state of the credit markets, we
currently expect to sell all of the loans we fund under the
Participation Program to ED. Loans eligible for the
Participation or Purchase Programs were originally limited to
FFELP Stafford or PLUS, first disbursed on or after May 1,
2008 but no later than July 1, 2009, with no ongoing
borrower benefits other than permitted rate reductions of
0.25 percent for automatic payment processing. On
October 7, 2008, legislation was enacted extending
EDs authority to finance and purchase FFELP Stafford and
PLUS loans made for AYs
2009-2010,
and allowing for the extension of EDs Purchase and
Participation Programs from September 30, 2009 to
September 30, 2010. On November 8, 2008, ED formally
announced new purchase and participation programs which cover
eligible loans originated for the AY
2009-2010.
On January 15, 2009, ED announced that the terms of the
programs for AY
2009-2010
will replicate in all material respects the terms of the
programs for AY
2008-2009.
The Company applied for these AY
2009-2010
funding programs in June 2009 and its participation was approved
on July 31, 2009.
On August 14, 2008, the Company received its initial
advance under the Participation Program. As of
September 30, 2009, the Company had $22.9 billion of
advances outstanding under the Participation Program. Through
October 15, 2009, the Company has sold to ED approximately
$18.5 billion face amount of loans as part of the Purchase
Program (approximately $840 million face amount was sold in
the third quarter of 2009). Outstanding debt of
$18.5 billion has been paid down related to the
Participation Program in connection with these loan sales. The
remaining loans are part of the AY
2009-2010
funding program and, given current market conditions, we expect
to sell these loans in the third quarter of 2010.
Also pursuant to ECASLA, on January 15, 2009, ED published
summary terms under which it will purchase eligible FFELP
Stafford and PLUS loans from a conduit vehicle established to
provide funding for eligible student lenders (the ED
Conduit Program). Loans eligible for the ED Conduit
Program must be first disbursed on or after October 1,
2003, but not later than July 1, 2009, and fully disbursed
before September 30, 2009, and meet certain other
requirements including with respect to borrower benefits. The ED
Conduit Program was launched on May 11, 2009 and will
accept eligible loans through July 1, 2010. The ED Conduit
Program has a term of five years and will expire on
January 19, 2014. Funding for the ED Conduit Program is
provided by the capital markets at a cost based on market rates,
with the Company being advanced 97 percent of the student
loan face amount. The Student Loan Short-Term Notes (SLST
Notes), issued by the ED Conduit, are supported by a
combination of i) Funding Notes backed by FFELP student
loans, ii) the Liquidity Agreement with the Federal
Financing Bank (FFB), and iii) the Put
Agreement provided by ED. If the conduit does not have
sufficient funds to pay all SLST Notes, then those SLST Notes
will be repaid with funds from the FFB. The FFB will hold the
notes for a short period of time and, if at the end of that
time, the SLST Notes still cannot be paid off, the underlying
FFELP loans that serve as collateral to the ED Conduit will be
sold to ED through the Put Agreement at a price of
97 percent of the face amount of the loans. As of
September 30, 2009, approximately $14.1 billion face
amount of our Stafford and PLUS loans were funded through the ED
Conduit Program with a weighted average issuance cost of
approximately 0.87 percent. As of September 30, 2009,
there are approximately $1.1 billion face amount of
additional FFELP Stafford and PLUS loans (excluding loans
currently in the Participation Program) that can be funded
through the ED Conduit Program.
Additional
Funding Sources for General Corporate Purposes
In addition to funding FFELP loans through EDs
Participation and Purchase Programs and the ED Conduit Program,
the Company employs other financing sources for general
corporate purposes, which includes originating Private Education
Loans, repurchases and repayments of unsecured debt obligations.
114
Secured borrowings, including securitizations, asset-backed
commercial paper (ABCP) borrowings and indentured
trusts, comprised 82 percent of our Managed debt
outstanding at September 30, 2009 versus 78 percent at
September 30, 2008.
Sallie
Mae Bank
During the fourth quarter of 2008, Sallie Mae Bank, our Utah
industrial bank subsidiary, began expanding its deposit base to
fund new Private Education Loan originations. Sallie Mae Bank
raises deposits primarily through intermediaries in the retail
brokered CD market. Given the disruptions in the capital markets
during the first half of 2009, Sallie Mae Bank raised deposits
in excess of loan growth for that period to prefund expected
asset growth in the second half of 2009. As a result, in the
third quarter of 2009, Sallie Mae Bank did not raise additional
deposits. As of September 30, 2009, total term bank
deposits were $5.9 billion. As of September 30, 2009,
$4.2 billion of Private Education Loans were held at Sallie
Mae Bank. We ultimately expect to raise additional long-term
financing, through Private Education Loan securitizations or
other financings, to fund these loans. In the near term, we
expect Sallie Mae Bank to continue to fund newly originated
Private Education Loans through long-term bank deposits.
ABS
Transactions
On January 6, 2009, we closed a $1.5 billion
12.5 year asset-backed securities (ABS) based
facility. This facility is used to provide up to
$1.5 billion term financing for Private Education Loans.
The fully-utilized cost of financing obtained under this
facility is expected to be LIBOR plus 5.75 percent. In
connection with this facility, we completed one Private
Education Loan term ABS transaction totaling $1.5 billion
in the first quarter of 2009. The net funding received under the
asset-backed securities based facility for this issuance was
$1.1 billion.
In April 2009, we completed three FFELP long-term ABS
transactions totaling $5.1 billion. The FFELP transactions
were composed primarily of FFELP consolidation loans which were
not eligible for the ED Conduit Program or the Term Asset-Backed
Securities Loan Facility (TALF) discussed below.
Although we have demonstrated our access to the ABS market in
2009 and we expect ABS financing to remain a primary source of
funding over the long term, we expect our transaction volumes to
be more limited and pricing less favorable than prior to the
credit market dislocation that began in the summer of 2007, with
significantly reduced opportunities to place subordinated
tranches of ABS with investors. At present, while the markets
have demonstrated some signs of recovery, we are unable to
predict when market conditions will allow for more regular,
reliable and cost-effective access to the term ABS market. In
May 2009, we completed a $2.6 billion Private Education
Loan term ABS issue. In July 2009, we completed a
$1.1 billion Private Education Loan term ABS issue. In
August 2009, we completed a $1.7 billion Private Education
Loan term ABS issue. These transactions were private placements
and TALF-eligible. See
Term Asset-Backed Securities
Loan Facility (TALF)
below for additional
details.
Asset-Backed
Financing Facilities
During the first quarter of 2008, the Company entered into three
new asset-backed financing facilities (the 2008
Asset-Backed Financing Facilities): (i) a
$26.0 billion FFELP student loan ABCP conduit facility (the
2008 FFELP ABCP Facility); (ii) a
$5.9 billion Private Education Loan ABCP conduit facility
(the 2008 Private Education Loan ABCP Facility)
(collectively, the 2008 ABCP Facilities); and
(iii) a $2.0 billion secured FFELP loan facility (the
2008 Asset-Backed Loan Facility). The initial term
of the 2008 Asset-Backed Financing Facilities was 364 days.
The underlying cost of borrowing under the 2008 ABCP Facilities
was approximately LIBOR plus 0.68 percent for the FFELP
loan facilities and LIBOR plus 1.55 percent for the Private
Education Loan facility, excluding upfront and unused commitment
fees. All-in pricing on the 2008 ABCP Facilities varies based on
usage. For the full year 2008, the combined, all-in cost of
borrowings related to the 2008 Asset-Backed Financing
Facilities, including amortized upfront fees and unused
commitment fees, was three-month LIBOR plus 2.47 percent.
The primary use of the 2008 Asset-Backed Financing Facilities
was to refinance comparable ABCP facilities incurred in
connection with the Proposed Merger, with the expectation that
outstanding balances under the 2008 Asset-Backed Financing
Facilities would be reduced through securitization of the
underlying student loan collateral in the term ABS market.
115
On February 2, 2009, the Company extended the maturity date
of the 2008 ABCP Facilities from February 28, 2009 to
April 28, 2009 for a $61 million upfront fee. The
other terms of the facilities remained materially unchanged.
On February 27, 2009, the Company extended the maturity
date of the 2008 Asset-Backed Loan Facility from
February 28, 2009 to April 28, 2009 for a
$4 million upfront fee. The other terms of this facility
remained materially unchanged.
On April 24, 2009, the Company extended the maturity of
$21.8 billion of the 2008 FFELP ABCP Facility for one year
to April 23, 2010. The Company also extended its 2008
Asset-Backed Loan Facility in the amount of $1.5 billion.
The extended 2008 Asset-Backed Loan Facility matured on
June 26, 2009 and was paid in full. A total of
$86 million in fees were paid related to these extensions.
The 2008 Private Education Loan ABCP Facility was paid off and
terminated on April 24, 2009. The stated borrowing rate of
the 2008 FFELP ABCP Facility is the applicable funding rate plus
130 basis points excluding upfront fees. The applicable
funding rate generally will be either a LIBOR or commercial
paper rate. The terms of the 2008 FFELP ABCP Facility call for
an increase in the applicable funding spread to 300 basis
points if the outstanding borrowing amount is not reduced to
$15.2 billion and $10.9 billion as of June 30,
2009 and September 30, 2009, respectively. The outstanding
borrowings were reduced to $12.5 billion and
$9.4 billion on June 30, 2009 and September 30,
2009, respectively. If the Company does not negotiate an
extension or pay off all outstanding amounts of the 2008 FFELP
ABCP Facility at maturity, the facility will extend by
90 days with the interest rate generally increasing from
LIBOR plus 250 basis points to 550 basis points over
the 90 day period. The other terms of the facilities
remained materially unchanged.
The maximum amount the Company may borrow under the 2008 FFELP
ABCP Facility is limited based on certain factors, including
market conditions and the fair value of student loans in the
facility. As of September 30, 2009, the maximum borrowing
amount was approximately $10.5 billion. Funding under the
2008 FFELP ABCP Facility is subject to usual and customary
conditions. The 2008 FFELP ABCP Facility is subject to
termination under certain circumstances, including the
Companys failure to comply with the principal financial
covenants in its unsecured revolving credit facilities.
Borrowings under the 2008 FFELP ABCP Facility are nonrecourse to
the Company. As of September 30, 2009, the Company had
$9.4 billion outstanding in connection with the 2008 FFELP
ABCP Facility. The book basis of the assets securing this
facility as of September 30, 2009 was $10.9 billion.
Term
Asset-Backed Securities Loan Facility
(TALF)
On February 6, 2009, the Federal Reserve Bank of New York
published proposed terms for a program designed to facilitate
renewed issuance of consumer and small business ABS at lower
interest rate spreads. TALF was initiated on March 17, 2009
and currently provides investors who purchase eligible ABS with
funding of up to five years. Eligible ABS include
AAA rated student loan ABS backed by FFELP and
private student loans first disbursed since May 1, 2007. As
of September 30, 2009, we had approximately
$10.6 billion book basis of student loans (including
$7.3 billion book basis of Private Education Loans and
$3.3 billion book basis of Consolidation Loans) eligible to
serve as collateral for ABS funded under TALF; this amount does
not include loans eligible for ECASLA financing programs. While
TALF has improved our access to and reduced our cost of ABS
funding relative to 2009 pre-TALF levels, we are unable to
predict, at this time, the full impact TALF will ultimately have
on our funding activities. For student loan collateral, TALF is
scheduled to expire on March 31, 2010.
On May 5, 2009, we priced a $2.6 billion Private
Education Loan securitization which closed on May 12, 2009.
The issue bears a coupon of
1-month
LIBOR plus 6.0 percent and is callable at the issuers
option at 93 percent of the outstanding balance of the ABS
between November 15, 2011 and April 16, 2012. If the
issue is called on November 15, 2011, we expect the
effective cost of the financing will be approximately
1-month
LIBOR plus 3.7 percent. This transaction was TALF-eligible.
On July 2, 2009, we priced a $1.1 billion Private
Education Loan securitization which closed on July 14,
2009. The issue bears a coupon of Prime plus 1.25 percent
and is callable at the issuers option at 94 percent
of the outstanding balance of the ABS between January 16,
2012 and June 15, 2012. If the issue is called on
116
January 16, 2012, we expect the effective cost of the
financing will be approximately Prime minus 0.71 percent.
This transaction was TALF-eligible.
On August 5, 2009, we priced a $1.7 billion Private
Education Loan securitization which closed on August 13,
2009. The issue bears a coupon of Prime plus 0.25 percent
and is callable at the issuers option at 94 percent
of the outstanding balance of the ABS between August 15,
2013 and July 15, 2014. If the issue is called on
August 15, 2013, we expect the effective cost of the
financing will be approximately Prime minus 0.55 percent.
This transaction was TALF-eligible.
Auction
Rate Securities
At September 30, 2009, we had $3.3 billion of taxable
and $1.2 billion of tax-exempt auction rate securities
outstanding in securitizations and indentured trusts,
respectively, on a Managed Basis. Since February 2008, problems
in the auction rate securities market as a whole led to failures
of the auctions pursuant to which certain of our auction rate
securities interest rates are set. As a result, all of the
Companys auction rate securities as of September 30,
2009 bore interest at the maximum rate allowable under their
terms. The maximum allowable interest rate on our
$3.3 billion of taxable auction rate securities is
generally LIBOR plus 1.50 percent. The maximum allowable
interest rate on many of the Companys $1.2 billion of
tax-exempt auction rate securities is a formula driven rate,
which produced various maximum rates up to 2.25 percent
during the third quarter of 2009.
Reset
Rate Notes
Certain tranches of our term ABS are reset rate notes. Reset
rate notes are subject to periodic remarketing, at which time
the interest rates on the reset rate notes are reset. The
Company also has the option to repurchase the reset rate note
prior to a failed remarketing and hold it as an investment until
such time it can be remarketed. In the event a reset rate note
cannot be remarketed on its remarketing date, and is not
repurchased, the interest rate generally steps up to and remains
at LIBOR plus 0.75 percent, until such time as the bonds
are successfully remarketed or repurchased. The Companys
repurchase of a reset rate note requires additional funding, the
availability and pricing of which may be less favorable to the
Company than it was at the time the reset rate note was
originally issued. Unlike the repurchase of a reset rate note,
the occurrence of a failed remarketing does not require
additional funding. As a result of the ongoing dislocation in
the capital markets, at September 30, 2009,
$1.8 billion of our reset rate notes bore interest at, or
were swapped to LIBOR plus 0.75 percent due to a failed
remarketing. Until capital markets conditions improve, it is
possible additional reset rate notes will experience failed
remarketings. On October 26, 2009, the Company successfully
remarketed a $590 million reset rate note at LIBOR plus 0.40
percent to maturity. This note had a short average life; other
notes which were due to reset in October 2009 with longer
average lives failed remarketing. As of September 30, 2009,
on a Managed Basis, the Company had $2.4 billion and
$2.5 billion of reset rate notes due to be remarketed in
2009 and 2010, respectively, and an additional $8.5 billion
to be remarketed thereafter.
Primary
Sources of Liquidity and Available Capacity
We expect to fund our ongoing liquidity needs, including the
origination of new loans and the repayment of $0.5 billion
of senior unsecured notes maturing in the remainder of 2009,
through our current cash and investment portfolio, cash flow
provided by earnings and repayment of principal on unencumbered
student loan assets and distributions from our securitization
trusts, the liquidity facilities made available by ED, TALF, the
2008 Asset-Backed Financing Facilities, the issuance of term
ABS, term bank deposits, and, to a lesser extent, if possible,
unsecured debt and other sources.
To supplement our funding sources, we maintained an additional
$3.5 billion in unsecured revolving credit facilities as of
September 30, 2009; $1.9 billion of our unsecured
revolving facilities matures in October 2010 and
$1.6 billion matures in October 2011. These figures do not
include a $215 million commitment from Aurora Bank, FSB,
formerly known as Lehman Brothers Bank, FSB, a subsidiary of
Lehman Brothers Holdings Inc. (see Counterparty
Exposure, below). On April 24, 2009, in conjunction
with the extension of the 2008 ABCP Facilities, a
$1.4 billion revolving credit facility maturing in October
2009 was retired and the $1.9 billion revolving credit
facility maturing in October 2011 was reduced to
$1.6 billion. The principal financial covenants
117
in the unsecured revolving credit facilities require the Company
to maintain consolidated tangible net worth of at least
$1.38 billion at all times. Consolidated tangible net worth
as calculated for purposes of this covenant was
$3.1 billion as of September 30, 2009. The covenants
also require the Company to meet either a minimum interest
coverage ratio or a minimum net adjusted revenue test based on
the four preceding quarters adjusted Core
Earnings financial performance. The Company was compliant
with both of the minimum interest coverage ratio and the minimum
net adjusted revenue tests as of the quarter ended
September 30, 2009. In the past, we have not relied upon
our unsecured revolving credit facilities as a primary source of
liquidity. Even though we have never borrowed under these
facilities, they are available to be drawn upon for general
corporate purposes.
During the quarter, the Companys new financing
transactions generated excess liquidity, some of which was used
to repurchase $1.4 billion of the Companys short-term
senior unsecured notes, generating pre-tax gains of
$74 million.
The following table details our primary sources of primary and
stand-by liquidity and the available capacity at
September 30, 2009 and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Available Capacity
|
|
|
Available Capacity
|
|
|
Sources of primary liquidity available for new FFELP Stafford
and PLUS loan originations:
|
|
|
|
|
|
|
|
|
ED Purchase and Participation
Programs
(1)
|
|
|
Unlimited
|
(1)
|
|
|
Unlimited
|
(1)
|
Sources of primary liquidity for general corporate purposes:
|
|
|
|
|
|
|
|
|
Unrestricted cash and liquid investments:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,187
|
|
|
$
|
4,070
|
|
Commercial paper and asset-backed commercial paper
|
|
|
850
|
|
|
|
801
|
|
Other
(2)
|
|
|
151
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
Total unrestricted cash and liquid
investments
(3)(4)(5)
|
|
|
6,188
|
|
|
|
5,004
|
|
Unused commercial paper and bank lines of
credit
(6)
|
|
|
3,485
|
|
|
|
5,192
|
|
2008 FFELP ABCP Facilities
|
|
|
1,057
|
|
|
|
807
|
|
2008 Private Education Loan ABCP Facility
|
|
|
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
Total sources of primary liquidity for general corporate purposes
|
|
|
10,730
|
|
|
|
11,335
|
|
Sources of stand-by liquidity:
|
|
|
|
|
|
|
|
|
Unencumbered FFELP loans,
net
(7)
|
|
|
2,660
|
|
|
|
5,366
|
|
|
|
|
|
|
|
|
|
|
Total sources of primary and stand-by liquidity for general
corporate
purposes
(8)
|
|
$
|
13,390
|
|
|
$
|
16,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The ED Purchase and Participation
Programs provide unlimited funding for eligible FFELP Stafford
and PLUS loans made by the Company for the academic years
2008-2009
and
2009-2010.
See ED Funding Programs discussed earlier in this
section.
|
|
(2)
|
|
At September 30, 2009 and
December 31, 2008, includes $42 million and
$97 million, respectively, due from The Reserve Primary
Fund (see Counterparty Exposure below).
|
|
(3)
|
|
At both September 30, 2009 and
December 31, 2008, excludes $26 million of investments
pledged as collateral related to certain derivative positions
and $808 million and $82 million, respectively, of
other non-liquid investments, classified as cash and investments
on our balance sheet in accordance with GAAP.
|
|
(4)
|
|
At September 30, 2009 and
December 31, 2008, includes $608 million and
$1.6 billion, respectively, of cash collateral pledged by
derivative counterparties and held by the Company in
unrestricted cash.
|
|
(5)
|
|
At September 30, 2009 and
December 31, 2008, includes $2.8 billion and
$1.1 billion, respectively, of cash and liquid investments
at Sallie Mae Bank, which Sallie Mae Bank is not authorized to
dividend to the Company without FDIC approval. This cash will be
used primarily to originate or acquire student loans.
|
|
(6)
|
|
At September 30, 2009 and
December 31, 2008, excludes commitments of
$215 million and $308 million, respectively, from
Aurora Bank, FSB, formerly known as Lehman Brothers Bank, FSB, a
subsidiary of Lehman Brothers Holdings Inc., which declared
bankruptcy on September 15, 2008.
|
|
(7)
|
|
The balance at September 30,
2009 and December 31, 2008 included approximately
$0.7 billion and $0.2 billion, respectively, of
unencumbered FFELP loans qualified to be financed by EDs
Participation Program. Additionally, at September 30, 2009,
$0.4 billion of loans qualified to be financed in the ED
Conduit Program.
|
|
(8)
|
|
General corporate purposes
primarily include originating Private Education Loans and
repaying unsecured debt as it matures.
|
In addition to the assets listed in the table above, we hold
on-balance sheet a number of other unencumbered assets,
consisting primarily of Private Education Loans, Retained
Interests and other assets. At
118
September 30, 2009, we had a total of $32.2 billion of
unencumbered assets, including goodwill and acquired
intangibles. Total student loans, net, comprised
$16.0 billion of this unencumbered asset total. Private
Education Student Loans, net, comprised $13.3 billion of
this unencumbered asset total.
Counterparty
Exposure
Counterparty exposure related to financial instruments arises
from the risk that a lending, investment or derivative
counterparty will not be able to meet its obligations to the
Company.
Aurora Bank, FSB, formerly known as Lehman Brothers Bank, FSB, a
subsidiary of Lehman Brothers Holdings Inc., is a party to the
Companys unsecured revolving credit facilities under which
they provide the Company with commitments totaling
$215 million as of September 30, 2009. Lehman Brothers
Holdings Inc. declared bankruptcy on September 15, 2008.
The Company is operating under the assumption that the lending
commitments of Aurora Bank, FSB, will not be honored if drawn
upon.
To provide liquidity for future cash needs, SLM invests in high
quality money market investments. At September 30, 2009,
the Company had investments of $42 million with The Reserve
Primary Fund (The Fund). In September 2008, the
Company requested redemption of all monies invested in The Fund
prior to The Funds announcement that it suspended
distributions as a result of The Funds exposure to Lehman
Brothers Holdings Inc.s bankruptcy filing and The
Funds net asset value being below one dollar per share.
The Company was originally informed by The Fund that the Company
would receive its entire investment amount. Subsequently, the
SEC granted The Fund an indefinite extension to pay
distributions as The Fund is being liquidated. The Company has
received, to date, a total of $450 million of an initial
investment of $500 million from The Fund. The Company
anticipates further delay of remaining distributions and a
potential loss on its investments, even though the Company is
legally entitled to receive 100 percent of its remaining
investment amount. In the fourth quarter of 2008, we recorded an
impairment of $8 million related to our investment in the
Fund.
Protection against counterparty risk in derivative transactions
is generally provided by International Swaps and Derivatives
Association, Inc. (ISDA) Credit Support Annexes
(CSAs). CSAs require a counterparty to post
collateral if a potential default would expose the other party
to a loss. The Company is a party to derivative contracts for
its corporate purposes and also within its securitization
trusts. The Company has CSAs and collateral requirements with
all of its corporate derivative counterparties requiring
collateral to be exchanged based on the net fair value of
derivatives with each counterparty above a threshold.
Additionally, credit downgrades below a preset level can
eliminate this threshold. The Companys securitization
trusts require collateral in all cases if the
counterpartys credit rating is withdrawn or downgraded
below a certain level. If the counterparty does not post the
required collateral or is downgraded further, the counterparty
must find a suitable replacement counterparty or provide the
trust with a letter of credit or a guaranty from an entity that
has the required credit ratings. Failure to post the collateral
or find a replacement counterparty could result in a termination
event under the derivative contract. The Company considers
counterparties credit risk when determining the fair value
of derivative positions on its exposure net of collateral.
Securitizations involving foreign currency notes issued after
November 2005 also require the counterparty to post collateral
to the trust based on the fair value of the derivative
regardless of credit rating. The trusts are not required to post
collateral to the counterparties. If we were unable to collect
from a counterparty related to SLM Corporation and on-balance
sheet trust derivatives, we would have a loss equal to the
amount the derivative is recorded on our balance sheet. If we
were unable to collect from a counterparty related to an
off-balance sheet trust derivative, the value of our Residual
Interest on our balance sheet would be reduced through earnings.
The Company has liquidity exposure related to collateral
movements between SLM Corporation and its derivative
counterparties. The collateral movements can increase or
decrease our primary liquidity depending on the nature of the
collateral (whether cash or securities), the Companys and
counterparties credit ratings and on movements in the
value of the derivatives, which are primarily impacted by
changes in interest rate and foreign exchange rates. These
movements may require the Company to return cash collateral
posted or may require the Company to access primary liquidity to
post collateral to counterparties. As of September 30,
2009, the Company held $608 million cash collateral in
unrestricted cash accounts. If the Companys credit
119
ratings are downgraded from current levels, it may be required
to segregate such collateral in restricted accounts.
The table below highlights exposure related to our derivative
counterparties at September 30, 2009.
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|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
Off-Balance Sheet
|
|
|
|
SLM Corporation
|
|
|
Securitizations
|
|
|
Securitizations
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Exposure, net of collateral
|
|
$
|
360
|
|
|
$
|
1,247
|
|
|
$
|
633
|
|
Percent of exposure to counterparties with credit ratings below
S&P AA- or Moodys Aa3
|
|
|
59
|
%
|
|
|
42
|
%
|
|
|
29
|
%
|
Percent of exposure to counterparties with credit ratings below
S&P A- or Moodys A3
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Managed
Borrowings
The following tables present the ending balances of our Managed
borrowings at September 30, 2009 and 2008, and the average
balances and average interest rates of our Managed borrowings
for the three and nine months ended September 30, 2009 and
2008. The average interest rates include derivatives that are
economically hedging the underlying debt but do not qualify for
hedge accounting treatment under ASC 815. (See BUSINESS
SEGMENTS Pre-tax Differences between Core
Earnings and GAAP by Business Segment
Derivative Accounting
Reclassification of
Realized Gains (Losses) on Derivative and Hedging
Activities
.)
Ending
Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Ending Balance
|
|
|
Ending Balance
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Short
|
|
|
Long
|
|
|
Managed
|
|
|
Short
|
|
|
Long
|
|
|
Managed
|
|
|
|
Term
|
|
|
Term
|
|
|
Basis
|
|
|
Term
|
|
|
Term
|
|
|
Basis
|
|
|
Unsecured borrowings
|
|
$
|
4,330
|
|
|
$
|
24,869
|
|
|
$
|
29,199
|
|
|
$
|
7,262
|
|
|
$
|
31,796
|
|
|
$
|
39,058
|
|
Unsecured term bank deposits
|
|
|
762
|
|
|
|
5,129
|
|
|
|
5,891
|
|
|
|
744
|
|
|
|
|
|
|
|
744
|
|
Indentured trusts (on-balance sheet)
|
|
|
66
|
|
|
|
1,629
|
|
|
|
1,695
|
|
|
|
44
|
|
|
|
2,207
|
|
|
|
2,251
|
|
ED Participation Program facility (on-balance
sheet)
(1)
|
|
|
22,864
|
|
|
|
|
|
|
|
22,864
|
|
|
|
3,555
|
|
|
|
|
|
|
|
3,555
|
|
ED Conduit Program facility (on-balance sheet)
|
|
|
14,190
|
|
|
|
|
|
|
|
14,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABCP borrowings (on-balance
sheet)
(2)
|
|
|
9,434
|
|
|
|
|
|
|
|
9,434
|
|
|
|
24,684
|
|
|
|
|
|
|
|
24,684
|
|
Securitizations (on-balance sheet)
|
|
|
|
|
|
|
88,961
|
|
|
|
88,961
|
|
|
|
|
|
|
|
81,554
|
|
|
|
81,554
|
|
Securitizations (off-balance sheet)
|
|
|
|
|
|
|
34,534
|
|
|
|
34,534
|
|
|
|
|
|
|
|
38,333
|
|
|
|
38,333
|
|
Other
|
|
|
1,732
|
|
|
|
|
|
|
|
1,732
|
|
|
|
1,979
|
|
|
|
|
|
|
|
1,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
53,378
|
|
|
$
|
155,122
|
|
|
$
|
208,500
|
|
|
$
|
38,268
|
|
|
$
|
153,890
|
|
|
$
|
192,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Company has the option of
paying off this amount with cash or by putting the loans to ED
as previously discussed.
|
|
(2)
|
|
Includes $1.9 billion
outstanding in the 2008 Asset-Backed Loan Facility at
September 30, 2008. There was no balance outstanding at
September 30, 2009.
|
120
Average
Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Unsecured borrowings
|
|
$
|
30,524
|
|
|
|
1.79
|
%
|
|
$
|
38,744
|
|
|
|
3.71
|
%
|
|
$
|
33,021
|
|
|
|
2.03
|
%
|
|
$
|
40,466
|
|
|
|
3.75
|
%
|
Unsecured term bank deposits
|
|
|
5,971
|
|
|
|
3.48
|
|
|
|
703
|
|
|
|
3.83
|
|
|
|
4,419
|
|
|
|
3.61
|
|
|
|
616
|
|
|
|
4.13
|
|
Indentured trusts (on-balance sheet)
|
|
|
1,743
|
|
|
|
.90
|
|
|
|
2,337
|
|
|
|
3.18
|
|
|
|
1,861
|
|
|
|
1.17
|
|
|
|
2,430
|
|
|
|
3.98
|
|
ED Participation Program facility (on-balance sheet)
|
|
|
19,886
|
|
|
|
.93
|
|
|
|
960
|
|
|
|
3.38
|
|
|
|
15,698
|
|
|
|
1.56
|
|
|
|
322
|
|
|
|
3.38
|
|
ED Conduit Program facility (on-balance sheet)
|
|
|
12,219
|
|
|
|
.87
|
|
|
|
|
|
|
|
|
|
|
|
5,037
|
|
|
|
.85
|
|
|
|
|
|
|
|
|
|
ABCP Borrowings(on-balance
sheet)
(1)
|
|
|
11,639
|
|
|
|
2.68
|
|
|
|
23,611
|
|
|
|
5.65
|
|
|
|
18,935
|
|
|
|
2.98
|
|
|
|
24,954
|
|
|
|
5.39
|
|
Securitizations (on-balance sheet)
|
|
|
88,301
|
|
|
|
1.22
|
|
|
|
79,223
|
|
|
|
3.18
|
|
|
|
84,657
|
|
|
|
1.48
|
|
|
|
74,385
|
|
|
|
3.29
|
|
Securitizations (off-balance sheet)
|
|
|
34,813
|
|
|
|
.48
|
|
|
|
38,889
|
|
|
|
2.91
|
|
|
|
35,843
|
|
|
|
.89
|
|
|
|
40,253
|
|
|
|
3.30
|
|
Other
|
|
|
1,477
|
|
|
|
.25
|
|
|
|
2,518
|
|
|
|
2.12
|
|
|
|
1,240
|
|
|
|
.38
|
|
|
|
2,363
|
|
|
|
2.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
206,573
|
|
|
|
1.27
|
%
|
|
$
|
186,985
|
|
|
|
3.54
|
%
|
|
$
|
200,711
|
|
|
|
1.63
|
%
|
|
$
|
185,789
|
|
|
|
3.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes the 2008 Asset-Backed Loan
Facility.
|
Unsecured
On-Balance Sheet Financing Activities
The following table presents the senior unsecured credit ratings
assigned by major rating agencies as of November 3, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moodys
|
|
|
S&P
|
|
|
Fitch
|
|
|
Short-term unsecured debt
|
|
|
Not Prime
|
(1)
|
|
|
A-3
|
(1)
|
|
|
F3
|
|
Long-term senior unsecured debt
|
|
|
Ba1
|
(1)
|
|
|
BBB -
|
(1)
|
|
|
BBB -
|
|
|
|
|
|
(1)
|
Under review for potential downgrade.
|
The table below presents our unsecured on-balance sheet funding
by funding source for the three and nine months ended
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Issued For
|
|
|
Debt Issued For
|
|
|
|
|
|
|
the Three Months
|
|
|
the Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Outstanding at
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Retail notes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,633
|
|
|
$
|
4,101
|
|
Foreign currency denominated
notes
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,900
|
|
|
|
12,139
|
|
Extendible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,249
|
|
Global notes (Institutional)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,437
|
|
|
|
15,080
|
|
|
|
19,972
|
|
Medium-term notes (Institutional)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
586
|
|
|
|
597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unsecured corporate borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,437
|
|
|
|
29,199
|
|
|
|
39,058
|
|
Unsecured term bank deposits
|
|
|
|
|
|
|
495
|
|
|
|
4,531
|
|
|
|
1,198
|
|
|
|
5,891
|
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
495
|
|
|
$
|
4,531
|
|
|
$
|
3,635
|
|
|
$
|
35,090
|
|
|
$
|
39,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
All foreign currency denominated
notes are hedged using derivatives that exchange the foreign
denomination for U.S. dollars.
|
121
Securitization
Activities
Securitization
Program
The following table summarizes our securitization activity for
the three and nine months ended September 30, 2009 and
2008. Those securitizations listed as sales are off-balance
sheet transactions and those listed as financings remain
on-balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
|
|
|
|
No. of
|
|
|
Amount
|
|
|
Pre-Tax
|
|
|
|
|
|
No. of
|
|
|
Amount
|
|
|
Pre-Tax
|
|
|
|
|
|
|
Transactions
|
|
|
Securitized
|
|
|
Gain
|
|
|
Gain %
|
|
|
Transactions
|
|
|
Securitized
|
|
|
Gain
|
|
|
Gain %
|
|
|
Securitizations sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford/PLUS loans
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
FFELP Consolidation Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitizations sales
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitizations financings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford/PLUS
loans
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
6,721
|
|
|
|
|
|
|
|
|
|
FFELP Consolidation
Loans
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education
Loans
(1)
|
|
|
2
|
|
|
|
3,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitizations financings
|
|
|
2
|
|
|
|
3,766
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
6,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitizations
|
|
|
2
|
|
|
$
|
3,766
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
$
|
6,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
|
|
|
|
No. of
|
|
|
Amount
|
|
|
Pre-Tax
|
|
|
|
|
|
No. of
|
|
|
Amount
|
|
|
Pre-Tax
|
|
|
|
|
|
|
Transactions
|
|
|
Securitized
|
|
|
Gain
|
|
|
Gain %
|
|
|
Transactions
|
|
|
Securitized
|
|
|
Gain
|
|
|
Gain %
|
|
|
Securitizations sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford/PLUS loans
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
FFELP Consolidation Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitizations sales
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitizations financings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Stafford/PLUS
loans
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
18,546
|
|
|
|
|
|
|
|
|
|
FFELP Consolidation
Loans
(1)
|
|
|
2
|
|
|
|
4,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education
Loans
(1)
|
|
|
4
|
|
|
|
10,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitizations financings
|
|
|
6
|
|
|
|
14,708
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
18,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitizations
|
|
|
6
|
|
|
$
|
14,708
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
$
|
18,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In certain securitizations there
are terms within the deal structure that result in such
securitizations not qualifying for sale treatment and
accordingly, they are accounted for on-balance sheet as variable
interest entities (VIEs). Terms that prevent sale
treatment include: (1) allowing the Company to hold certain
rights that can affect the remarketing of certain bonds,
(2) allowing the trust to enter into interest rate cap
agreements after initial settlement of the securitization, which
do not relate to the reissuance of third-party beneficial
interests or (3) allowing the Company to hold an
unconditional call option related to a certain percentage of the
securitized assets.
|
122
Retained
Interest in Securitized Receivables
The following tables summarize the fair value of the
Companys Residual Interests, included in the
Companys Retained Interest (and the assumptions used to
value such Residual Interests), along with the underlying
off-balance sheet student loans that relate to those
securitizations in transactions that were treated as sales as of
September 30, 2009, December 31, 2008 and
September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009
|
|
|
|
FFELP
|
|
|
Consolidation
|
|
|
Private
|
|
|
|
|
|
|
Stafford and
|
|
|
Loan
|
|
|
Education
|
|
|
|
|
|
|
PLUS
|
|
|
Trusts
(1)
|
|
|
Loan Trusts
|
|
|
Total
|
|
|
Fair value of Residual Interests
|
|
$
|
254
|
|
|
$
|
858
|
|
|
$
|
726
|
|
|
$
|
1,838
|
|
Underlying securitized loan balance
|
|
|
5,810
|
|
|
|
14,551
|
|
|
|
13,079
|
|
|
|
33,440
|
|
Weighted average life
|
|
|
3.2 yrs.
|
|
|
|
9.1 yrs.
|
|
|
|
6.3 yrs.
|
|
|
|
|
|
Prepayment speed (annual
rate)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim status
|
|
|
0
|
%
|
|
|
N/A
|
|
|
|
0
|
%
|
|
|
|
|
Repayment status
|
|
|
0-14
|
%
|
|
|
2-4
|
%
|
|
|
2-15
|
%
|
|
|
|
|
Life of loan repayment status
|
|
|
9
|
%
|
|
|
3
|
%
|
|
|
6
|
%
|
|
|
|
|
Expected remaining credit losses (% of outstanding student loan
principal)
(3)(4)
|
|
|
.10
|
%
|
|
|
.25
|
%
|
|
|
5.57
|
%
|
|
|
|
|
Residual cash flows discount rate
|
|
|
10.6
|
%
|
|
|
12.1
|
%
|
|
|
32.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
FFELP
|
|
|
Consolidation
|
|
|
Private
|
|
|
|
|
|
|
Stafford and
|
|
|
Loan
|
|
|
Education
|
|
|
|
|
|
|
PLUS
|
|
|
Trusts
(1)
|
|
|
Loan Trusts
|
|
|
Total
|
|
|
Fair value of Residual Interests
|
|
$
|
250
|
|
|
$
|
918
|
|
|
$
|
1,032
|
|
|
$
|
2,200
|
|
Underlying securitized loan balance
|
|
|
7,057
|
|
|
|
15,077
|
|
|
|
13,690
|
|
|
|
35,824
|
|
Weighted average life
|
|
|
3.0 yrs.
|
|
|
|
8.1 yrs.
|
|
|
|
6.4 yrs.
|
|
|
|
|
|
Prepayment speed (annual
rate)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim status
|
|
|
0
|
%
|
|
|
N/A
|
|
|
|
0
|
%
|
|
|
|
|
Repayment status
|
|
|
2-19
|
%
|
|
|
1-6
|
%
|
|
|
2-15
|
%
|
|
|
|
|
Life of loan repayment status
|
|
|
12
|
%
|
|
|
4
|
%
|
|
|
6
|
%
|
|
|
|
|
Expected remaining credit losses (% of outstanding student loan
principal)
(3)(4)
|
|
|
.11
|
%
|
|
|
.23
|
%
|
|
|
5.22
|
%
|
|
|
|
|
Residual cash flows discount rate
|
|
|
13.1
|
%
|
|
|
11.9
|
%
|
|
|
26.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2008
|
|
|
|
FFELP
|
|
|
Consolidation
|
|
|
Private
|
|
|
|
|
|
|
Stafford and
|
|
|
Loan
|
|
|
Education
|
|
|
|
|
|
|
PLUS
|
|
|
Trusts
(1)
|
|
|
Loan Trusts
|
|
|
Total
|
|
|
Fair value of Residual Interests
|
|
$
|
309
|
|
|
$
|
612
|
|
|
$
|
1,402
|
|
|
$
|
2,323
|
|
Underlying securitized loan balance
|
|
|
7,600
|
|
|
|
15,252
|
|
|
|
13,648
|
|
|
|
36,500
|
|
Weighted average life
|
|
|
3.0 yrs.
|
|
|
|
8.2 yrs.
|
|
|
|
6.6 yrs.
|
|
|
|
|
|
Prepayment speed (annual
rate)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim status
|
|
|
0
|
%
|
|
|
N/A
|
|
|
|
0
|
%
|
|
|
|
|
Repayment status
|
|
|
2-19
|
%
|
|
|
1-6
|
%
|
|
|
2-15
|
%
|
|
|
|
|
Life of loan repayment status
|
|
|
12
|
%
|
|
|
4
|
%
|
|
|
6
|
%
|
|
|
|
|
Expected remaining credit losses (% of outstanding student loan
principal)
(3)
|
|
|
.11
|
%
|
|
|
.23
|
%
|
|
|
5.59
|
%
|
|
|
|
|
Residual cash flows discount rate
|
|
|
12.7
|
%
|
|
|
11.3
|
%
|
|
|
18.3
|
%
|
|
|
|
|
|
|
|
(1)
|
|
Includes $641 million,
$762 million, and $333 million related to the fair
value of the Embedded Floor Income as of September 30,
2009, December 31, 2008, and September 30, 2008,
respectively. Changes in the fair value of the Embedded Floor
Income are primarily due to changes in the interest rates and
the paydown of the underlying loans.
|
|
(2)
|
|
The Company uses CPR curves for
Residual Interest valuations that are based on seasoning (the
number of months since entering repayment). Under this
methodology, a different CPR is applied to each year of a
loans seasoning. Repayment status CPR used is based on the
number of months since first entering repayment (seasoning).
Life of loan CPR is related to repayment status only and does
not include the impact of the loan while in interim status. The
CPR assumption used for all periods includes the impact of
projected defaults.
|
|
(3)
|
|
Remaining expected credit losses as
of the respective balance sheet date.
|
|
(4)
|
|
For Private Education Loan trusts,
estimated defaults from settlement to maturity are
11.6 percent and 9.1 percent at September 30,
2009 and December 31, 2008, respectively. These estimated
defaults do not include recoveries related to defaults but do
include prior purchases of loans at par by the Company when
loans reached 180 days delinquent (prior to default) under
a contingent call option. Although these loan purchases do not
result in a realized loss to the trust, the Company has included
them here. Not including these purchases in the disclosure would
result in estimated defaults of 8.7 percent and
6.1 percent at September 30, 2009 and
December 31, 2008, respectively.
|
123
Off-Balance
Sheet Net Assets
The following table summarizes our off-balance sheet net assets
at September 30, 2009 and December 31, 2008 on a basis
equivalent to our GAAP on-balance sheet trusts, which presents
the assets and liabilities in the off-balance sheet trusts as if
they were being accounted for on-balance sheet rather than
off-balance sheet. This presentation, therefore, includes a
theoretical calculation of the premiums on student loans, the
allowance for loan losses, and the discounts and deferred
financing costs on the debt. However, this presentation does not
include any impact of accounting under ASC 815 or ASC 830 for
trust derivatives or foreign currency denominated debt. This
presentation is not, nor is it intended to be, a liquidation
basis of accounting. (See also LENDING BUSINESS
SEGMENT Summary of our Managed Student Loan
Portfolio
Ending Managed Student Loan Balances,
net
and LIQUIDITY AND CAPITAL
RESOURCES Managed Borrowings
Ending
Balances
earlier in this section.)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Off-Balance Sheet Assets:
|
|
|
|
|
|
|
|
|
Total student loans, net
|
|
$
|
33,321
|
|
|
$
|
35,591
|
|
Restricted cash and investments
|
|
|
1,154
|
|
|
|
1,557
|
|
Accrued interest receivable
|
|
|
673
|
|
|
|
937
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet assets
|
|
|
35,148
|
|
|
|
38,085
|
|
Off-Balance Sheet Liabilities:
|
|
|
|
|
|
|
|
|
Debt, par value
|
|
|
34,514
|
|
|
|
37,228
|
|
Debt, unamortized discount and deferred issuance costs
|
|
|
(51
|
)
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
34,463
|
|
|
|
37,159
|
|
Accrued interest payable
|
|
|
33
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet liabilities
|
|
|
34,496
|
|
|
|
37,325
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Net Assets
|
|
$
|
652
|
|
|
$
|
760
|
|
|
|
|
|
|
|
|
|
|
Servicing
and Securitization Revenue
Servicing and securitization revenue, the ongoing revenue from
securitized loan pools accounted for off-balance sheet as
Qualifying Special Purpose Entities (QSPEs),
includes the interest earned on the Residual Interest asset and
the revenue we receive for servicing the loans in the
securitization trusts. Interest income recognized on the
Residual Interest is based on our anticipated yield determined
by estimating future cash flows each quarter.
124
The following table summarizes the components of servicing and
securitization revenue for the three and nine months ended
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Servicing revenue
|
|
$
|
55
|
|
|
$
|
61
|
|
|
$
|
171
|
|
|
$
|
188
|
|
Securitization revenue, before net Embedded Floor Income,
impairment and unrealized fair value adjustment
|
|
|
80
|
|
|
|
80
|
|
|
|
239
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing and securitization revenue, before net Embedded Floor
Income, impairment and unrealized fair value adjustment
|
|
|
135
|
|
|
|
141
|
|
|
|
410
|
|
|
|
430
|
|
Embedded Floor Income
|
|
|
62
|
|
|
|
23
|
|
|
|
220
|
|
|
|
159
|
|
Less: Floor Income previously recognized in gain calculation
|
|
|
(55
|
)
|
|
|
(18
|
)
|
|
|
(156
|
)
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Embedded Floor Income
|
|
|
7
|
|
|
|
5
|
|
|
|
64
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing and securitization revenue, before impairment and
unrealized fair value adjustment
|
|
|
142
|
|
|
|
146
|
|
|
|
474
|
|
|
|
535
|
|
Unrealized fair value adjustment
|
|
|
13
|
|
|
|
(81
|
)
|
|
|
(338
|
)
|
|
|
(361
|
)
|
Gain on consolidation of off-balance sheet trusts
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
Retained Interest impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total servicing and securitization revenue
|
|
$
|
155
|
|
|
$
|
65
|
|
|
$
|
147
|
|
|
$
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average off-balance sheet student loans
|
|
$
|
33,929
|
|
|
$
|
36,864
|
|
|
$
|
34,797
|
|
|
$
|
38,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance of Retained Interest
|
|
$
|
1,819
|
|
|
$
|
2,426
|
|
|
$
|
1,943
|
|
|
$
|
2,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing and securitization revenue as a percentage of the
average balance of off-balance sheet student loans (annualized)
|
|
|
1.81
|
%
|
|
|
.70
|
%
|
|
|
.57
|
%
|
|
|
.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing and securitization revenue is primarily driven by the
average balance of off-balance sheet student loans, the amount
of and the difference in the timing of Embedded Floor Income
recognition on off-balance sheet student loans and the
unrealized fair value adjustments.
The Company recorded net unrealized
mark-to-market
gains/(losses) of $13 million and $(81) million in the
third quarter of 2009 and 2008, respectively, related to the
Residual Interest.
As of September 30, 2009, the Company changed the following
significant assumptions compared to those used as of
June 30, 2009, to determine the fair value of the Residual
Interests:
|
|
|
|
|
Prepayment speed assumptions on FFELP Stafford and Consolidation
Loans were decreased. This change reflects the significant
decrease in prepayment activity experienced since 2008. This
decrease in prepayment activity, which the Company expects will
continue into the foreseeable future, was primarily due to a
reduction in third-party consolidation activity as a result of
the CCRAA and the current U.S. economic and credit
environment.
|
|
|
|
The discount rate assumption related to FFELP Residual Interests
decreased by 75 basis points. The Company assessed the
appropriateness of the current risk premium, which is added to
the risk free rate, for the purpose of arriving at a discount
rate in light of the current economic and credit uncertainty
that exists in the market as of September 30, 2009. The
Company reduced the risk premium to reflect
|
125
|
|
|
|
|
improved conditions in the credit markets. This discount rate is
applied to the projected cash flows to arrive at a fair value
representative of the current economic conditions.
|
Interest
Rate Risk Management
Asset
and Liability Funding Gap
The tables below present our assets and liabilities (funding)
arranged by underlying indices as of September 30, 2009. In
the following GAAP presentation, the funding gap only includes
derivatives that qualify as effective ASC 815 hedges (those
derivatives which are reflected in net interest margin, as
opposed to those reflected in the gains/(losses) on
derivatives and hedging activities, net line on the
consolidated statements of income). The difference between the
asset and the funding is the funding gap for the specified
index. This represents our exposure to interest rate risk in the
form of basis risk and repricing risk, which is the risk that
the different indices may reset at different frequencies or may
not move in the same direction or at the same magnitude.
Management analyzes interest rate risk on a Managed Basis, which
consists of both on-balance sheet and off-balance sheet assets
and liabilities and includes all derivatives that are
economically hedging our debt whether they qualify as effective
hedges under ASC 815 or not. Accordingly, we are also presenting
the asset and liability funding gap on a Managed Basis in the
table that follows the GAAP presentation.
GAAP Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
Frequency of
|
|
|
|
|
|
|
|
Funding
|
|
(Dollars in billions)
|
|
Variable Resets
|
|
Assets
|
|
|
Funding
(1)
|
|
|
Gap
|
|
|
3-month
Commercial
paper
(2)
|
|
daily
|
|
$
|
127.4
|
|
|
$
|
22.9
|
|
|
$
|
104.5
|
|
3-month
Treasury bill
|
|
weekly
|
|
|
6.6
|
|
|
|
.1
|
|
|
|
6.5
|
|
Prime
|
|
annual
|
|
|
.5
|
|
|
|
|
|
|
|
.5
|
|
Prime
|
|
quarterly
|
|
|
1.3
|
|
|
|
|
|
|
|
1.3
|
|
Prime
|
|
monthly
|
|
|
17.0
|
|
|
|
|
|
|
|
17.0
|
|
Prime
|
|
daily
|
|
|
|
|
|
|
2.8
|
|
|
|
(2.8
|
)
|
PLUS Index
|
|
annual
|
|
|
.5
|
|
|
|
|
|
|
|
.5
|
|
3-month
LIBOR
|
|
daily
|
|
|
|
|
|
|
|
|
|
|
|
|
3-month
LIBOR
|
|
quarterly
|
|
|
.1
|
|
|
|
105.6
|
|
|
|
(105.5
|
)
|
1-month
LIBOR
|
|
monthly
|
|
|
4.8
|
|
|
|
2.6
|
|
|
|
2.2
|
|
CMT/CPI Index
|
|
monthly/quarterly
|
|
|
|
|
|
|
2.7
|
|
|
|
(2.7
|
)
|
Non Discrete
reset
(3)
|
|
monthly
|
|
|
|
|
|
|
25.8
|
|
|
|
(25.8
|
)
|
Non Discrete
reset
(4)
|
|
daily/weekly
|
|
|
12.6
|
|
|
|
2.2
|
|
|
|
10.4
|
|
Fixed
Rate
(5)
|
|
|
|
|
15.6
|
|
|
|
21.7
|
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
186.4
|
|
|
$
|
186.4
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Funding includes all derivatives
that qualify as hedges under ASC 815.
|
|
(2)
|
|
Funding includes $22.9 billion
of ED Participation Program facility which resets based on the
prior quarter student loan commercial paper index.
|
|
(3)
|
|
Funding consists of auction rate
securities, the 2008 ABCP Facilities and the ED Conduit Program
facility.
|
|
(4)
|
|
Assets include restricted and
non-restricted cash equivalents and other overnight type
instruments.
|
|
(5)
|
|
Assets include receivables and
other assets (including Retained Interests, goodwill and
acquired intangibles). Funding includes other liabilities and
stockholders equity (excluding series B Preferred
Stock).
|
The Funding Gaps in the above table are primarily
interest rate mismatches in short-term indices between our
assets and liabilities. We address this issue typically through
the use of basis swaps that typically convert quarterly
three-month LIBOR to other indices that are more correlated to
our asset indices. These
126
basis swaps do not qualify as effective hedges under ASC 815 and
as a result the effect on the funding index is not included in
our interest margin and is therefore excluded from the GAAP
presentation.
Managed
Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
Frequency of
|
|
|
|
|
|
|
|
Funding
|
|
(Dollars in billions)
|
|
Variable Resets
|
|
Assets
|
|
|
Funding
(1)
|
|
|
Gap
|
|
|
3-month
Commercial
paper
(2)
|
|
daily
|
|
$
|
146.0
|
|
|
$
|
22.9
|
|
|
$
|
123.1
|
|
3-month
Treasury bill
|
|
weekly
|
|
|
8.9
|
|
|
|
5.9
|
|
|
|
3.0
|
|
Prime
|
|
annual
|
|
|
.9
|
|
|
|
|
|
|
|
.9
|
|
Prime
|
|
quarterly
|
|
|
6.1
|
|
|
|
1.5
|
|
|
|
4.6
|
|
Prime
|
|
monthly
|
|
|
24.3
|
|
|
|
13.1
|
|
|
|
11.2
|
|
Prime
|
|
daily
|
|
|
|
|
|
|
2.8
|
|
|
|
(2.8
|
)
|
PLUS Index
|
|
annual
|
|
|
.6
|
|
|
|
.1
|
|
|
|
.5
|
|
3-month
LIBOR
(3)
|
|
daily
|
|
|
|
|
|
|
89.4
|
|
|
|
(89.4
|
)
|
3-month
LIBOR
|
|
quarterly
|
|
|
|
|
|
|
22.3
|
|
|
|
(22.3
|
)
|
1-month
LIBOR
|
|
monthly
|
|
|
4.8
|
|
|
|
10.5
|
|
|
|
(5.7
|
)
|
1-month
LIBOR
|
|
daily
|
|
|
|
|
|
|
2.0
|
|
|
|
(2.0
|
)
|
Non Discrete
reset
(4)
|
|
monthly
|
|
|
|
|
|
|
26.8
|
|
|
|
(26.8
|
)
|
Non Discrete
reset
(5)
|
|
daily/weekly
|
|
|
13.8
|
|
|
|
1.7
|
|
|
|
12.1
|
|
Fixed
Rate
(6)
|
|
|
|
|
11.7
|
|
|
|
18.1
|
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
217.1
|
|
|
$
|
217.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Funding includes all derivatives
that management considers economic hedges of interest rate risk
and reflects how we internally manage our interest rate exposure.
|
|
(2)
|
|
Funding includes $22.9 billion
of ED Participation Program facility which resets based on the
prior quarter student loan commercial paper index.
|
|
(3)
|
|
Funding includes $1.4 billion
of auction rate securities.
|
|
(4)
|
|
Funding consists of auction rate
securities, the 2008 ABCP Facilities and the ED Conduit Program
facility.
|
|
(5)
|
|
Assets include restricted and
non-restricted cash equivalents and other overnight type
instruments.
|
|
(6)
|
|
Assets include receivables and
other assets (including Retained Interests, goodwill and
acquired intangibles). Funding includes other liabilities and
stockholders equity (excluding series B Preferred
Stock).
|
We use interest rate swaps and other derivatives to achieve our
risk management objectives. To the extent possible, we fund our
assets with debt (in combination with derivatives) that has the
same underlying index (index type and index reset frequency).
When it is more economical, we also fund our assets with debt
that has a different index
and/or
reset
frequency than the asset, but only in instances where we believe
there is a high degree of correlation between the interest rate
movement of the two indices. For example, we use daily reset
three-month LIBOR to fund a large portion of our daily reset
three-month commercial paper indexed assets. In addition, we use
quarterly reset three-month LIBOR to fund a portion of our
quarterly reset Prime rate indexed Private Education Loans. We
also use our monthly Non Discrete reset and
1-month
LIBOR funding to fund various asset types. In using different
index types and different index reset frequencies to fund our
assets, we are exposed to interest rate risk in the form of
basis risk and repricing risk, which is the risk that the
different indices that may reset at different frequencies will
not move in the same direction or at the same magnitude. While
we believe that this risk is low as all of these indices are
short-term with rate movements that are highly correlated over a
long period of time, market disruptions can lead to a temporary
divergence between indices as was experienced beginning in the
second half of 2007 through the second quarter of 2009 with the
commercial paper and LIBOR indices. As of September 30,
2009, on a Managed Basis, we have approximately
$108.9 billion of FFELP loans indexed to three-month
commercial paper (3M CP) that are funded with debt
indexed to LIBOR. See LENDING BUSINESS SEGMENT in
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS for further discussion
of this CP/LIBOR relationship.
127
When compared with the GAAP presentation, the Managed Basis
presentation includes all of our off-balance sheet assets and
funding, and also includes basis swaps that primarily convert
quarterly three-month LIBOR to other indices that are more
correlated to our asset indices.
Weighted
Average Life
The following table reflects the weighted average life of our
Managed earning assets and liabilities at September 30,
2009.
|
|
|
|
|
|
|
|
|
|
|
On-Balance
|
|
|
|
|
(Averages in years)
|
|
Sheet
|
|
|
Managed
|
|
|
Earning assets
|
|
|
|
|
|
|
|
|
Student loans
|
|
|
7.8
|
|
|
|
7.8
|
|
Other loans
|
|
|
6.4
|
|
|
|
6.4
|
|
Cash and investments
|
|
|
.1
|
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
7.2
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
.4
|
|
|
|
.4
|
|
Long-term borrowings
|
|
|
7.1
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
|
5.0
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
Long-term debt issuances likely to be called by us or putable by
the investor have been categorized according to their call or
put dates rather than their maturity dates.
COMMON
STOCK
The following table summarizes the Companys common share
repurchases and issuances for the three and nine months ended
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(Shares in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Common shares repurchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
plans
(1)
|
|
|
.1
|
|
|
|
.5
|
|
|
|
.2
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares repurchased
|
|
|
.1
|
|
|
|
.5
|
|
|
|
.2
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average purchase price per share
|
|
$
|
17.81
|
|
|
$
|
28.20
|
|
|
$
|
22.91
|
|
|
$
|
24.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued
|
|
|
7.0
|
|
|
|
.4
|
|
|
|
7.4
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authority remaining at end of period for repurchases
|
|
|
38.8
|
|
|
|
38.8
|
|
|
|
38.8
|
|
|
|
38.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes shares withheld from stock
option exercises and vesting of restricted stock for
employees tax withholding obligations and shares tendered
by employees to satisfy option exercise costs.
|
The closing price of the Companys common stock on
September 30, 2009 was $8.72.
During the third quarter of 2009, the Company converted
approximately $137 million of its Series C Preferred
Stock to common stock. As part of this conversion, the Company
delivered to the holders of the preferred stock: (1)
approximately 7 million shares (the number of common shares
they would most likely receive if the preferred stock they held
mandatorily converted to common shares in the fourth quarter of
2010) plus (2) a discounted amount of the preferred stock
dividends the holders of the preferred stock would have received
if they held the preferred stock through the mandatory
conversion date. The accounting treatment for this conversion
resulted in a loss recorded in preferred stock dividends for the
period of approximately $20 million.
128
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Interest
Rate Sensitivity Analysis
The Companys interest rate risk management seeks to limit
the impact of short-term movements in interest rates on our
results of operations and financial position. The following
tables summarize the effect on earnings for the three and nine
months ended September 30, 2009 and 2008 and the effect on
fair values at September 30, 2009 and December 31,
2008, based upon a sensitivity analysis performed by management
assuming a hypothetical increase in market interest rates of
100 basis points and 300 basis points while funding
spreads remain constant. Additionally, as it relates to the
effect on earnings, a sensitivity analysis was performed
assuming the funding index increases 25 basis points while
holding the asset index constant, if the funding index is
different than the asset index. Both of these analyses do not
consider any potential
mark-to-market
losses that may occur related to our Residual Interests that may
result from asset and funding basis divergence or a higher
discount rate that would be used to compute the present value of
the cash flows if long-term interest rates increased. See
Note 6, Student Loan Securitization, to the
consolidated financial statements, which details the potential
decrease to the fair value of the Residual Interest that could
occur under the referenced interest rate environment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding
|
|
|
|
Interest Rates:
|
|
|
Index
|
|
|
|
Change from
|
|
|
Change from
|
|
|
Mismatches
(1)
|
|
|
|
Increase of
|
|
|
Increase of
|
|
|
Increase of
|
|
|
|
100 Basis
|
|
|
300 Basis
|
|
|
25 Basis
|
|
|
|
Points
|
|
|
Points
|
|
|
Points
|
|
(Dollars in millions, except per share amounts)
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Effect on Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in pre-tax net income before unrealized
gains (losses) on derivative and hedging activities
|
|
$
|
8
|
|
|
|
3
|
%
|
|
$
|
37
|
|
|
|
16
|
%
|
|
$
|
(82
|
)
|
|
|
(36
|
)%
|
Unrealized gains (losses) on derivative and hedging activities
|
|
|
232
|
|
|
|
4,065
|
|
|
|
337
|
|
|
|
5,898
|
|
|
|
104
|
|
|
|
1,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in net income before taxes
|
|
$
|
240
|
|
|
|
103
|
%
|
|
$
|
374
|
|
|
|
160
|
%
|
|
$
|
22
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in diluted earnings per common share
|
|
$
|
.509
|
|
|
|
204
|
%
|
|
$
|
.794
|
|
|
|
318
|
%
|
|
$
|
.046
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding
|
|
|
|
Interest Rates:
|
|
|
Index
|
|
|
|
Change from
|
|
|
Change from
|
|
|
Mismatches
(1)
|
|
|
|
Increase of
|
|
|
Increase of
|
|
|
Increase of
|
|
|
|
100 Basis
|
|
|
300 Basis
|
|
|
25 Basis
|
|
|
|
Points
|
|
|
Points
|
|
|
Points
|
|
(Dollars in millions, except per share amounts)
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Effect on Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in pre-tax net income before unrealized
gains (losses) on derivative and hedging activities
|
|
$
|
1
|
|
|
|
2
|
%
|
|
$
|
5
|
|
|
|
7
|
%
|
|
$
|
(76
|
)
|
|
|
(106
|
)%
|
Unrealized gains (losses) on derivative and hedging activities
|
|
|
203
|
|
|
|
107
|
|
|
|
382
|
|
|
|
201
|
|
|
|
92
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in net income before taxes
|
|
$
|
204
|
|
|
|
78
|
%
|
|
$
|
387
|
|
|
|
148
|
%
|
|
$
|
16
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in diluted earnings per common share
|
|
$
|
.438
|
|
|
|
110
|
%
|
|
$
|
.830
|
|
|
|
207
|
%
|
|
$
|
.033
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
If an asset is not funded with the
same index/frequency reset of the asset then it is assumed the
funding index increases 25 basis points while holding the
asset index constant.
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding
|
|
|
|
Interest Rates:
|
|
|
Index
|
|
|
|
Change from
|
|
|
Change from
|
|
|
Mismatches
(1)
|
|
|
|
Increase of
|
|
|
Increase of
|
|
|
Increase of
|
|
|
|
100 Basis
|
|
|
300 Basis
|
|
|
25 Basis
|
|
|
|
Points
|
|
|
Points
|
|
|
Points
|
|
(Dollars in millions, except per share amounts)
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Effect on Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in pre-tax net income before unrealized
gains (losses) on derivative and hedging activities
|
|
$
|
(89
|
)
|
|
|
(18
|
)%
|
|
$
|
(84
|
)
|
|
|
(17
|
)%
|
|
$
|
(241
|
)
|
|
|
(48
|
)%
|
Unrealized gains (losses) on derivative and hedging activities
|
|
|
232
|
|
|
|
47
|
|
|
|
337
|
|
|
|
69
|
|
|
|
104
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in net income before taxes
|
|
$
|
143
|
|
|
|
1,210
|
%
|
|
$
|
253
|
|
|
|
2,139
|
%
|
|
$
|
(137
|
)
|
|
|
(1,157
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in diluted earnings per common share
|
|
$
|
.305
|
|
|
|
180
|
%
|
|
$
|
.540
|
|
|
|
318
|
%
|
|
$
|
(.292
|
)
|
|
|
(172
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding
|
|
|
|
Interest Rates:
|
|
|
Index
|
|
|
|
Change from
|
|
|
Change from
|
|
|
Mismatches
(1)
|
|
|
|
Increase of
|
|
|
Increase of
|
|
|
Increase of
|
|
|
|
100 Basis
|
|
|
300 Basis
|
|
|
25 Basis
|
|
|
|
Points
|
|
|
Points
|
|
|
Points
|
|
(Dollars in millions, except per share amounts)
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Effect on Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in pre-tax net income before unrealized
gains (losses) on derivative and hedging activities
|
|
$
|
(2
|
)
|
|
|
(2
|
)%
|
|
$
|
10
|
|
|
|
9
|
%
|
|
$
|
(218
|
)
|
|
|
(183
|
)%
|
Unrealized gains (losses) on derivative and hedging activities
|
|
|
203
|
|
|
|
162
|
|
|
|
382
|
|
|
|
305
|
|
|
|
92
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in net income before taxes
|
|
$
|
201
|
|
|
|
3,125
|
%
|
|
$
|
392
|
|
|
|
6,097
|
%
|
|
$
|
(126
|
)
|
|
|
(1,956
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in diluted earnings per common share
|
|
$
|
.431
|
|
|
|
254
|
%
|
|
$
|
.841
|
|
|
|
495
|
%
|
|
$
|
(.270
|
)
|
|
|
(159
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
If an asset is not funded with the
same index/frequency reset of the asset then it is assumed the
funding index increases 25 basis points while holding the
asset index constant.
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2009
|
|
|
|
|
|
|
Interest Rates:
|
|
|
|
|
|
|
Change from
|
|
|
Change from
|
|
|
|
|
|
|
Increase of
|
|
|
Increase of
|
|
|
|
|
|
|
100 Basis
|
|
|
300 Basis
|
|
|
|
|
|
|
Points
|
|
|
Points
|
|
(Dollars in millions)
|
|
Fair Value
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Effect on Fair Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP student loans
|
|
$
|
133,756
|
|
|
$
|
(516
|
)
|
|
|
|
%
|
|
$
|
(1,063
|
)
|
|
|
(1
|
)%
|
Private Education Loans
|
|
|
19,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other earning assets
|
|
|
13,090
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
Other assets
|
|
|
14,361
|
|
|
|
(778
|
)
|
|
|
(5
|
)
|
|
|
(1,549
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
181,079
|
|
|
$
|
(1,298
|
)
|
|
|
(1
|
)%
|
|
$
|
(2,623
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities
|
|
$
|
164,606
|
|
|
$
|
(794
|
)
|
|
|
|
%
|
|
$
|
(2,014
|
)
|
|
|
(1
|
)%
|
Other liabilities
|
|
|
3,401
|
|
|
|
(196
|
)
|
|
|
(6
|
)
|
|
|
63
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
168,007
|
|
|
$
|
(990
|
)
|
|
|
(1
|
)%
|
|
$
|
(1,951
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
Interest Rates:
|
|
|
|
|
|
|
Change from
|
|
|
Change from
|
|
|
|
|
|
|
Increase of
|
|
|
Increase of
|
|
|
|
|
|
|
100 Basis
|
|
|
300 Basis
|
|
|
|
|
|
|
Points
|
|
|
Points
|
|
(Dollars in millions)
|
|
Fair Value
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Effect on Fair Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP student loans
|
|
$
|
107,319
|
|
|
$
|
(758
|
)
|
|
|
(1
|
)%
|
|
$
|
(1,602
|
)
|
|
|
(1
|
)%
|
Private Education Loans
|
|
|
14,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other earning assets
|
|
|
9,265
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
Other assets
|
|
|
14,590
|
|
|
|
(848
|
)
|
|
|
(6
|
)
|
|
|
(2,108
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
145,315
|
|
|
$
|
(1,615
|
)
|
|
|
(1
|
)%
|
|
$
|
(3,735
|
)
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities
|
|
$
|
135,070
|
|
|
$
|
(837
|
)
|
|
|
(1
|
)%
|
|
$
|
(2,500
|
)
|
|
|
(2
|
)%
|
Other liabilities
|
|
|
3,604
|
|
|
|
(293
|
)
|
|
|
(8
|
)
|
|
|
(273
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
138,674
|
|
|
$
|
(1,130
|
)
|
|
|
(1
|
)%
|
|
$
|
(2,773
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A primary objective in our funding is to minimize our
sensitivity to changing interest rates by generally funding our
floating rate student loan portfolio with floating rate debt.
However, as discussed under LENDING BUSINESS
SEGMENT Summary of our Managed Student Loan
Portfolio
Floor Income Managed
Basis
, we can have a fixed versus floating mismatch in
funding if the student loan earns at the fixed borrower rate and
the funding remains floating. In addition, we can have a
mismatch in the index (including the frequency of reset) of
floating rate debt versus floating rate assets.
During the three and nine months ended September 30, 2009
and 2008, certain FFELP loans were earning Floor Income and we
locked in a portion of that Floor Income through the use of
Floor Income Contracts. The result of these hedging transactions
was to convert a portion of the fixed rate nature of student
131
loans to variable rate, and to fix the relative spread between
the student loan asset rate and the variable rate liability.
In the above table, under the scenario where interest rates
increase 100 and 300 basis points, the change in pre-tax
net income before the unrealized gains (losses) on derivative
and hedging activities is primarily due to the impact of
(i) our unhedged on-balance sheet loans being in a fixed
rate mode due to the Embedded Floor Income, while being funded
with variable debt in low interest rate environments; and
(ii) a portion of our variable assets being funded with
fixed debt. Item (i) will generally cause income to
decrease when interest rates increase from a low interest rate
environment, whereas, item (ii) will generally offset this
decrease. In the 100 and 300 basis point scenario for the
three months ended September 30, 2009 and 2008, the
increase in income resulted from item (ii) above that more
than offset the impact of the low interest rate environment on
item (i). The decrease in income for the nine months ended
September 30, 2009, resulted from item (i) and its
impact on Variable Rate Floor Income in the first half of the
year. These loans reset to current market rates effective
July 1, 2009.
Under the scenario in the tables above, called Asset and
Funding Index Mismatches, the main driver of the decrease
in pre-tax income before unrealized gains (losses) on derivative
and hedging activities is the result of LIBOR-based debt funding
commercial paper-indexed assets. See LIQUIDITY AND CAPITAL
RESOURCES Interest Rate Risk Management
Asset and Liability Funding Gap
for a
further discussion. Increasing the spread between indices will
also impact the unrealized gains (losses) on derivatives and
hedging activities as it relates to basis swaps. Basis swaps
used to convert LIBOR-based debt to indices that we believe are
economic hedges of the indices of the assets being funded
resulted in an unrealized loss of $(114) million for the
three and nine months ended September 30, 2009, and an
unrealized loss of $(98) million for the three and nine
months ended September 30, 2008. Offsetting this unrealized
loss, are basis swaps that economically hedge our off-balance
sheet Private Education Loan securitization trusts. Unrealized
gains for these basis swaps totaled $218 million for the
three and nine months ended September 30, 2009, and
$190 million for the three and nine months ended
September 30, 2008. The net impact of both of these items
was an unrealized gain for all periods presented.
In addition to interest rate risk addressed in the preceding
tables, the Company is also exposed to risks related to foreign
currency exchange rates. Foreign currency exchange risk is
primarily the result of foreign currency denominated debt issued
by the Company. As it relates to the Companys corporate
unsecured and securitization debt programs used to fund the
Companys business, the Companys policy is to use
cross currency interest rate swaps to swap all foreign currency
denominated debt payments (fixed and floating) to
U.S. dollar LIBOR using a fixed exchange rate. In the
tables above, there would be an immaterial impact on earnings if
exchange rates were to decrease or increase, due to the terms of
the hedging instrument and hedged items matching. The balance
sheet interest bearing liabilities would be affected by a change
in exchange rates; however, the change would be materially
offset by the cross currency interest rate swaps in other assets
or other liabilities. In the current economic environment,
volatility in the spread between spot and forward foreign
exchange rates has resulted in material
mark-to-market
impacts to current-period earnings which have not been factored
into the above analysis. The earnings impact is noncash, and at
maturity of the instruments, the cumulative
mark-to-market
impact will be zero.
132
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 1, Significant Accounting
Policies
Recently Issued Accounting
Pronouncements
, to the consolidated financial
statements.
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Item 4.
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Controls
and Procedures
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Disclosure
Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of September 30, 2009. Based
on this evaluation, our Chief Executive Officer and Chief
Financial Officer, concluded that, as of September 30,
2009, our disclosure controls and procedures were effective to
ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is
(a) recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms and
(b) accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding
required disclosure.
Changes
in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) occurred during the fiscal quarter ended
September 30, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
133
PART II.
OTHER INFORMATION
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Item 1.
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Legal
Proceedings
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On April 20, 2009, the Company received a letter on behalf
of a shareholder, SEIU Pension Plans Master Trust, demanding,
among other things, that the Companys Board of Directors
take action to recover Company funds it alleges were
unjustly paid to certain current and former employees and
executive officers of the Company from 2005 to the
present, file civil lawsuits against former and current
executives, revise the executive compensation structure, and
offer shareholders an annual nonbinding say on pay.
Twenty-nine financial services companies received similar
letters that same week. This letter was referred to the Board of
Directors.
On August 3, 2009, the Company received the final audit
report of EDs Office of the Inspector General
(OIG) related to the Companys billing
practices for Special Allowance Payments. Among other things,
the OIG recommended that ED instruct the Company to return
approximately $22 million in alleged special allowance
overpayments. The Company continues to believe that its
practices were consistent with longstanding ED guidance and all
applicable rules and regulations and intends to continue
disputing these findings. The OIG has audited other industry
participants with regard to Special Allowance Payments for loans
funded by tax exempt obligations and in certain cases the
Secretary of ED has disagreed with the OIGs
recommendations.
We are also subject to various claims, lawsuits and other
actions that arise in the normal course of business. Most of
these matters are claims by borrowers disputing the manner in
which their loans have been processed or the accuracy of our
reports to credit bureaus. In addition, the collections
subsidiaries in our APG segment are routinely named in
individual plaintiff or class action lawsuits in which the
plaintiffs allege that we have violated a federal or state law
in the process of collecting their accounts. Management believes
that these claims, lawsuits and other actions will not have a
material adverse effect on our business, financial condition or
results of operations. Finally, from time to time, we receive
information and document requests from state attorneys general
and Congressional committees concerning certain of our business
practices. Our practice has been and continues to be to
cooperate with the state attorneys general and Congressional
committees and to be responsive to any such requests.
There have been no material changes from the risk factors
previously disclosed in our Annual Report on
Form 10-K
for the year ended December 31, 2008.
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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The following table summarizes the Companys common share
repurchases during the third quarter of 2009 in connection with
the exercise of stock options and vesting of restricted stock to
satisfy minimum statutory tax withholding obligations and shares
tendered by employees to satisfy option exercise costs. See
Note 9, Stockholders Equity, to the
consolidated financial statements.
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Maximum Number
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Total Number of
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of Shares That
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Shares Purchased
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May Yet Be
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Total Number
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Average Price
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as Part of Publicly
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Purchased Under
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of Shares
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Paid per
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Announced Plans
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the Plans or
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(Common shares in millions)
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Purchased
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Share
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or Programs
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Programs
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Period:
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July 1 July 31, 2009
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$
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38.8
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August 1 August 31, 2009
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38.8
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September 1 September 30, 2009
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38.8
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Total third quarter of 2009
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$
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134
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Item 3.
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Defaults
upon Senior Securities
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Nothing to report.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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Nothing to report.
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Item 5.
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Other
Information
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Nothing to report.
The following exhibits are furnished or filed, as applicable:
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10.5
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SLM Corporation Directors Equity Plan, Non-Employee Director
Restricted Stock Agreement 2009
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10.6
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SLM Corporation Directors Equity Plan, Non-Employee Director
Stock Option Agreement 2009
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31.1
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Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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31.2
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Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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32.1
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Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
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32.2
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Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
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101
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The following materials from SLM Corporations Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2009, formatted in XBRL
(Extensible Business Reporting Language):
(i) the Consolidated Balance Sheets; (ii) the
Consolidated Statements of Income; (iii) the Consolidated
Statements of Changes in Stockholders Equity;
(iv) the Consolidated Statements of Cash Flows;
and (v) Notes to the Consolidated Financial
Statements, tagged as blocks of text.
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135
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
SLM CORPORATION
(Registrant)
John F. Remondi
Vice Chairman and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: November 4, 2009
136
GLOSSARY
Listed below are definitions of key terms that are used
throughout this document. See also APPENDIX A,
FEDERAL FAMILY EDUCATION LOAN PROGRAM, included in
SLM Corporations (the Companys) 2008
Annual Report on
Form 10-K,
filed with the Securities and Exchange Commission
(SEC) on March 2, 2009, for a further
discussion of the FFELP.
Consolidation Loan Rebate Fee
All holders of
FFELP Consolidation Loans are required to pay to the
U.S. Department of Education (ED) an annual
105 basis point Consolidation Loan Rebate Fee on all
outstanding principal and accrued interest balances of FFELP
Consolidation Loans purchased or originated after
October 1, 1993, except for loans for which consolidation
applications were received between October 1, 1998 and
January 31, 1999, where the Consolidation Loan Rebate Fee
is 62 basis points.
Constant Prepayment Rate (CPR)
A
variable in
life-of-loan
estimates that measures the rate at which loans in the portfolio
prepay before their stated maturity. The CPR is directly
correlated to the average life of the portfolio. CPR equals the
percentage of loans that prepay annually as a percentage of the
beginning of period balance.
Core Earnings
The Company
prepares financial statements in accordance with generally
accepted accounting principles in the United States of America
(GAAP). In addition to evaluating the Companys
GAAP-based financial information, management evaluates the
Companys business segments on a basis that, as allowed
under the Financial Accounting Standards Boards
(FASB) Accounting Standards Codification
(ASC) 280, Segment Reporting, differs
from GAAP. The Company refers to managements basis of
evaluating its segment results as Core Earnings
presentations for each business segment and refers to these
performance measures in its presentations with credit rating
agencies and lenders. While Core Earnings results
are not a substitute for reported results under GAAP, the
Company relies on Core Earnings performance measures
in operating each business segment because it believes these
measures provide additional information regarding the
operational and performance indicators that are most closely
assessed by management.
Core Earnings performance measures are the primary
financial performance measures used by management to evaluate
performance and to allocate resources. Accordingly, financial
information is reported to management on a Core
Earnings basis by reportable segment, as these are the
measures used regularly by the Companys chief operating
decision makers. Core Earnings performance measures
are used in developing the Companys financial plans,
tracking results, and establishing corporate performance targets
and incentive compensation. Management believes this information
provides additional insight into the financial performance of
the Companys core business activities. Core
Earnings performance measures are not defined terms within
GAAP and may not be comparable to similarly titled measures
reported by other companies. Core Earnings net
income reflects only current period adjustments to GAAP net
income. Accordingly, the Companys Core
Earnings presentation does not represent another
comprehensive basis of accounting.
See Note 16, Segment Reporting, to the
consolidated financial statements and MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS BUSINESS SEGMENTS Limitations
of Core Earnings and
Pre-tax Differences between Core
Earnings and GAAP by Business Segment for further
discussion of the differences between Core Earnings
and GAAP, as well as reconciliations between Core
Earnings and GAAP.
In prior filings with the SEC of SLM Corporations Annual
Report on
Form 10-K
and quarterly reports on
Form 10-Q,
Core Earnings has been labeled as
Core net income or Managed net
income in certain instances.
Direct Loans
Educational loans provided by
the FDLP (see definition, below) to students and parent
borrowers directly through ED (see definition below) rather than
through a bank or other lender.
Economic Floor Income
Economic Floor Income
equals Gross Floor Income earned on Managed loans, minus the
payments on Floor Income Contracts, plus the amortization of net
premiums on both Fixed Rate and Variable Rate Floor Income
Contracts (see definitions for capitalized terms, below).
ED
The U.S. Department of Education.
137
Embedded Floor Income
Embedded Floor Income
is Floor Income (see definition below) that is earned on
off-balance sheet student loans that are in securitization
trusts sponsored by the Company. At the time of the
securitization, the value of Embedded Fixed Rate Floor Income is
included in the initial valuation of the Residual Interest (see
definition below) and the gain or loss on sale of the student
loans. Embedded Floor Income is also included in the quarterly
fair value adjustments of the Residual Interest.
Exceptional Performer (EP)
The EP
designation is determined by ED in recognition of a servicer
meeting certain performance standards set by ED in servicing
FFELP Loans. Upon receiving the EP designation, the EP servicer
receives reimbursement on default claims higher than the
legislated Risk Sharing (see definition below) levels on
federally guaranteed student loans for all loans serviced for a
period of at least 270 days before the date of default. The
EP servicer is entitled to receive this benefit as long as it
remains in compliance with the required servicing standards,
which are assessed on an annual and quarterly basis through
compliance audits and other criteria. The annual assessment is
in part based upon subjective factors which alone may form the
basis for an ED determination to withdraw the designation. If
the designation is withdrawn, Risk Sharing may be applied
retroactively to the date of the occurrence that resulted in
noncompliance. The College Cost Reduction Act of 2007
(CCRAA) eliminated the EP designation effective
October 1, 2007. See also Appendix A, FEDERAL
FAMILY EDUCATION LOAN PROGRAM, included in the
Companys 2008 Annual Report on
Form 10-K,
filed with the SEC on March 2, 2009.
FDLP
The William D. Ford Federal Direct Loan
Program.
FFELP
The Federal Family Education Loan
Program, formerly the Guaranteed Student Loan Program.
FFELP Consolidation Loans
Under the FFELP,
borrowers with multiple eligible student loans may consolidate
them into a single student loan with one lender at a fixed rate
for the life of the loan. The new loan is considered a FFELP
Consolidation Loan. Typically a borrower may consolidate his
student loans only once unless the borrower has another eligible
loan to consolidate with the existing FFELP Consolidation Loan.
The borrower rate on a FFELP Consolidation Loan is fixed for the
term of the loan and is set by the weighted average interest
rate of the loans being consolidated, rounded up to the nearest
1/8th of a percent, not to exceed 8.25 percent. In low
interest rate environments, FFELP Consolidation Loans provide an
attractive refinancing opportunity to certain borrowers because
they allow borrowers to consolidate variable rate loans into a
long-term fixed rate loan. Holders of FFELP Consolidation Loans
are eligible to earn interest under the Special Allowance
Payment (SAP) formula (see definition below). In
April 2008, the Company suspended its participation in the FFELP
Consolidation Loan program.
FFELP Stafford and Other Student Loans
Education loans to students or parents of students that are
guaranteed or reinsured under FFELP. The loans are primarily
Stafford loans but also include PLUS and HEAL loans.
Fixed Rate Floor Income
Fixed Rate Floor
Income is Floor Income (see definition below) associated with
student loans with borrower rates that are fixed to term
(primarily FFELP Consolidation Loans and Stafford Loans
originated on or after July 1, 2006).
Floor Income
FFELP loans generally earn
interest at the higher of either the borrower rate, which is
fixed over a period of time, or a floating rate based on the SAP
formula (see definition below). The Company generally finances
its student loan portfolio with floating rate debt whose
interest is matched closely to the floating nature of the
applicable SAP formula. If interest rates decline to a level at
which the borrower rate exceeds the SAP formula rate, the
Company continues to earn interest on the loan at the fixed
borrower rate while the floating rate interest on our debt
continues to decline. In these interest rate environments, the
Company refers to the additional spread it earns between the
fixed borrower rate and the SAP formula rate as Floor Income.
Depending on the type of student loan and when it was
originated, the borrower rate is either fixed to term or is
reset to a market rate each July 1. As a result, for loans
where the borrower rate is fixed to term, the Company may earn
Floor Income for an extended period of time, and for those loans
where the borrower interest rate is reset annually on
July 1, the Company may earn Floor Income to the next reset
date.
138
In accordance with legislation enacted in 2006, lenders are
required to rebate Floor Income to ED for all FFELP loans
disbursed on or after April 1, 2006.
The following example shows the mechanics of Floor Income for a
typical fixed rate FFELP Consolidation Loan (with a commercial
paper-based SAP spread of 2.64 percent):
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Fixed Borrower Rate
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7.25
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%
|
SAP Spread over Commercial Paper Rate
|
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(2.64
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)%
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Floor Strike
Rate
(1)
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4.61
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%
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(1)
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The interest rate at which the
underlying index (Treasury bill or commercial paper) plus the
fixed SAP spread equals the fixed borrower rate. Floor Income is
earned anytime the interest rate of the underlying index
declines below this rate.
|
Based on this example, if the quarterly average commercial paper
rate is over 4.61 percent, the holder of the student loan
will earn at a floating rate based on the SAP formula, which in
this example is a fixed spread to commercial paper of
2.64 percent. On the other hand, if the quarterly average
commercial paper rate is below 4.61 percent, the SAP
formula will produce a rate below the fixed borrower rate of
7.25 percent and the loan holder earns at the borrower rate
of 7.25 percent.
Graphic
Depiction of Floor Income:
Floor Income Contracts
The Company enters
into contracts with counterparties under which, in exchange for
an upfront fee representing the present value of the Floor
Income that the Company expects to earn on a notional amount of
underlying student loans being economically hedged, the Company
will pay the counterparties the Floor Income earned on that
notional amount over the life of the Floor Income Contract.
Specifically, the Company agrees to pay the counterparty the
difference, if positive, between the fixed borrower rate less
the SAP (see definition below) spread and the average of the
applicable interest rate index on that notional amount,
regardless of the actual balance of underlying student loans,
over the life of the contract. The contracts generally do not
extend over the life of the underlying student loans. This
contract effectively locks in the amount of Floor Income the
Company will earn over the period of the contract. Floor Income
Contracts are not considered effective hedges under ASC 815,
Derivatives and Hedging, and each quarter the
Company must record the change in fair value of these contracts
through income.
Gross Floor Income
Floor Income earned before
payments on Floor Income Contracts.
Guarantors
State agencies or non-profit
companies that guarantee (or insure) FFELP loans made by
eligible lenders under The Higher Education Act of 1965
(HEA), as amended.
Lender Partners
Lender Partners are lenders
who originate loans under forward purchase commitments under
which the Company owns the loans from inception or, in most
cases, acquires the loans soon after origination.
139
Managed Basis
The Company generally analyzes
the performance of its student loan portfolio on a Managed
Basis. The Company views both on-balance sheet student loans and
off-balance sheet student loans owned by the securitization
trusts as a single portfolio, and the related on-balance sheet
financings are combined with off-balance sheet debt. When the
term Managed is capitalized in this document, it is referring to
Managed Basis.
Private Education Loans
Education loans to
students or parents of students that are not guaranteed under
the FFELP. Private Education Loans include loans for higher
education (undergraduate and graduate degrees) and for
alternative education, such as career training, private
kindergarten through secondary education schools and tutorial
schools. Higher education loans have repayment terms similar to
FFELP loans, whereby repayments begin after the borrower leaves
school. The Companys higher education Private Education
Loans are not dischargeable in bankruptcy, except in certain
limited circumstances. Repayment for alternative education
generally begins immediately.
In the context of the Companys Private Education Loan
business, the Company uses the term non-traditional
loans to describe education loans made to certain
borrowers that have or are expected to have a high default rate
as a result of a number of factors, including having a lower
tier credit rating, low program completion and graduation rates
or, where the borrower is expected to graduate, a low expected
income relative to the borrowers cost of attendance.
Proposed Merger
On April 16, 2007, the
Company announced that a buyer group (Buyer Group)
led by J.C. Flowers & Co. (J.C. Flowers),
Bank of America, N.A. and JPMorgan Chase, N.A. (the
Merger) signed a definitive agreement (Merger
Agreement) to acquire the Company for approximately
$25.3 billion or $60.00 per share of common stock. (See
also Merger Agreement filed with the SEC on the
Companys Current Report on
Form 8-K,
dated April 18, 2007.) On January 25, 2008, the
Company, Mustang Holding Company Inc. (Mustang
Holding), Mustang Merger Sub, Inc. (Mustang
Sub), J.C. Flowers, Bank of America, N.A. and JPMorgan
Chase Bank, N.A. entered into a Settlement, Termination and
Release Agreement (the Agreement). Under the
Agreement, a lawsuit filed by the Company related to the Merger,
as well as all counterclaims, was dismissed.
Repayment Borrower Benefits
Financial
incentives offered to borrowers based on pre-determined
qualifying factors, which are generally tied directly to making
on-time monthly payments. The impact of Repayment Borrower
Benefits is dependent on the estimate of the number of borrowers
who will eventually qualify for these benefits and the amount of
the financial benefit offered to the borrower. The Company
occasionally changes Repayment Borrower Benefits programs in
both amount and qualification factors. These programmatic
changes must be reflected in the estimate of the Repayment
Borrower Benefits discount when made.
Residual Interest
When the Company
securitizes student loans, it retains the right to receive cash
flows from the student loans sold to trusts that it sponsors in
excess of amounts needed to pay servicing, derivative costs (if
any), other fees, and the principal and interest on the bonds
backed by the student loans. The Residual Interest, which may
also include reserve and other cash accounts, is the present
value of these future expected cash flows, which includes the
present value of any Embedded Fixed Rate Floor Income described
above. The Company values the Residual Interest at the time of
sale of the student loans to the trust and as of the end of each
subsequent quarter.
Retained Interest
The Retained Interest
includes the Residual Interest (defined above) and servicing
rights (as the Company retains the servicing responsibilities)
for our securitization transactions accounted for as sales.
Risk Sharing
When a FFELP loan first
disbursed on and after July 1, 2006 defaults, the federal
government guarantees 97 percent of the principal balance
plus accrued interest (98 percent on loans disbursed before
July 1, 2006) and the holder of the loan is at risk
for the remaining amount not guaranteed as a Risk Sharing loss
on the loan. FFELP loans originated after October 1, 1993
are subject to Risk Sharing on loan default claim payments
unless the default results from the borrowers death,
disability or bankruptcy. FFELP loans serviced by a servicer
that has Exceptional Performer designation from ED were subject
to one-percent
140
Risk Sharing for claims filed on or after July 1, 2006 and
before October 1, 2007. The CCRAA reduces default insurance
to 95 percent of the unpaid principal and accrued interest
for loans first disbursed on or after October 1, 2012.
Special Allowance Payment (SAP)
FFELP loans disbursed prior to April 1, 2006 (with the
exception of certain PLUS and SLS loans discussed below)
generally earn interest at the greater of the borrower rate or a
floating rate determined by reference to the average of the
applicable floating rates
(91-day
Treasury bill rate or commercial paper) in a calendar quarter,
plus a fixed spread that is dependent upon when the loan was
originated and the loans repayment status. If the
resulting floating rate exceeds the borrower rate, ED pays the
difference directly to the Company. This payment is referred to
as the Special Allowance Payment or SAP and the formula used to
determine the floating rate is the SAP formula. The Company
refers to the fixed spread to the underlying index as the SAP
spread. For loans disbursed after April 1, 2006, FFELP
loans effectively only earn at the SAP rate, as the excess
interest earned when the borrower rate exceeds the SAP rate
(Floor Income) must be refunded to ED.
Variable rate PLUS Loans and SLS Loans earn SAP only if the
variable rate, which is reset annually, exceeds the applicable
maximum borrower rate. For PLUS loans disbursed on or after
January 1, 2000, this limitation on SAP was repealed
effective April 1, 2006.
A schedule of SAP rates is set forth on pages
A-7
and
A-8
of the
Companys 2008 Annual Report on
Form 10-K.
Variable Rate Floor Income
Variable Rate
Floor Income is Floor Income that is earned only through the
next reset date. For FFELP Stafford loans whose borrower
interest rate resets annually on July 1, the Company may
earn Floor Income or Embedded Floor Income based on a
calculation of the difference between the borrower rate and the
then current interest rate (see definitions for capitalized
terms, above).
141