UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2013
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-13251
SLM Corporation
(Exact name of registrant as specified in its charter)
Delaware | 52-2013874 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
300 Continental Drive, Newark, Delaware | 19713 | |
(Address of principal executive offices) | (Zip Code) |
(302) 283-8000
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | |||||
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:
Class |
Outstanding at March 31, 2013 |
|
Common Stock, $0.20 par value | 444,210,360 shares |
SLM CORPORATION
Item 1. |
2 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
37 | ||||
Item 3. |
77 | |||||
Item 4. |
82 | |||||
Item 1. |
83 | |||||
Item 1A. |
83 | |||||
Item 2. |
83 | |||||
Item 3. |
84 | |||||
Item 4. |
84 | |||||
Item 5. |
84 | |||||
Item 6. |
84 |
1
Item 1. | Financial Statements |
SLM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts)
(Unaudited)
March 31,
2013 |
December 31,
2012 |
|||||||
Assets |
||||||||
FFELP Loans (net of allowance for losses of $147 and $159, respectively) |
$ | 119,195 | $ | 125,612 | ||||
Private Education Loans (net of allowance for losses of $2,170 and $2,171 respectively) |
37,465 | 36,934 | ||||||
Investments |
||||||||
Available-for-sale |
77 | 72 | ||||||
Other |
929 | 1,010 | ||||||
|
|
|
|
|||||
Total investments |
1,006 | 1,082 | ||||||
Cash and cash equivalents |
3,685 | 3,900 | ||||||
Restricted cash and investments |
4,828 | 5,011 | ||||||
Goodwill and acquired intangible assets, net |
444 | 448 | ||||||
Other assets |
7,463 | 8,273 | ||||||
|
|
|
|
|||||
Total assets |
$ | 174,086 | $ | 181,260 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Short-term borrowings |
$ | 17,254 | $ | 19,856 | ||||
Long-term borrowings |
147,887 | 152,401 | ||||||
Other liabilities |
3,791 | 3,937 | ||||||
|
|
|
|
|||||
Total liabilities |
168,932 | 176,194 | ||||||
|
|
|
|
|||||
Commitments and contingencies |
||||||||
Equity |
||||||||
Preferred stock, par value $0.20 per share, 20 million shares authorized |
||||||||
Series A: 3.3 million and 3.3 million shares issued, respectively, at stated value of $50 per share |
165 | 165 | ||||||
Series B: 4 million and 4 million shares issued, respectively, at stated value of $100 per share |
400 | 400 | ||||||
Common stock, par value $0.20 per share, 1.125 billion shares authorized: 540 million and 536 million shares issued, respectively |
108 | 107 | ||||||
Additional paid-in capital |
4,291 | 4,237 | ||||||
Accumulated other comprehensive loss (net of tax benefit of $2 and $3, respectively) |
(4 | ) | (6 | ) | ||||
Retained earnings |
1,723 | 1,451 | ||||||
|
|
|
|
|||||
Total SLM Corporation stockholders equity before treasury stock |
6,683 | 6,354 | ||||||
Less: Common stock held in treasury at cost: 95 million and 83 million shares, respectively |
(1,535 | ) | (1,294 | ) | ||||
|
|
|
|
|||||
Total SLM Corporation stockholders equity |
5,148 | 5,060 | ||||||
Noncontrolling interest |
6 | 6 | ||||||
|
|
|
|
|||||
Total equity |
5,154 | 5,066 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
$ | 174,086 | $ | 181,260 | ||||
|
|
|
|
Supplemental information assets and liabilities of consolidated variable interest entities:
March 31,
2013 |
December 31,
2012 |
|||||||
FFELP Loans |
$ | 114,621 | $ | 121,059 | ||||
Private Education Loans |
26,310 | 26,072 | ||||||
Restricted cash and investments |
4,648 | 4,826 | ||||||
Other assets |
1,726 | 2,312 | ||||||
Short-term borrowings |
7,506 | 9,551 | ||||||
Long-term borrowings |
126,697 | 131,518 | ||||||
|
|
|
|
|||||
Net assets of consolidated variable interest entities |
$ | 13,102 | $ | 13,200 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
2
SLM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Ended
March 31, |
||||||||
2013 | 2012 | |||||||
Interest income: |
||||||||
FFELP Loans |
$ | 735 | $ | 842 | ||||
Private Education Loans |
623 | 625 | ||||||
Other loans |
3 | 5 | ||||||
Cash and investments |
5 | 5 | ||||||
|
|
|
|
|||||
Total interest income |
1,366 | 1,477 | ||||||
Total interest expense |
571 | 666 | ||||||
|
|
|
|
|||||
Net interest income |
795 | 811 | ||||||
Less: provisions for loan losses |
241 | 253 | ||||||
|
|
|
|
|||||
Net interest income after provisions for loan losses |
554 | 558 | ||||||
|
|
|
|
|||||
Other income (loss): |
||||||||
Losses on derivative and hedging activities, net |
(31 | ) | (372 | ) | ||||
Servicing revenue |
96 | 97 | ||||||
Contingency revenue |
99 | 90 | ||||||
Gains on debt repurchases |
23 | 37 | ||||||
Other |
90 | 40 | ||||||
|
|
|
|
|||||
Total other income (loss) |
277 | (108 | ) | |||||
|
|
|
|
|||||
Expenses: |
||||||||
Salaries and benefits |
138 | 127 | ||||||
Other operating expenses |
132 | 135 | ||||||
|
|
|
|
|||||
Total operating expenses |
270 | 262 | ||||||
Goodwill and acquired intangible assets impairment and amortization expense |
4 | 5 | ||||||
Restructuring expenses |
| 5 | ||||||
|
|
|
|
|||||
Total expenses |
274 | 272 | ||||||
|
|
|
|
|||||
Income before income tax expense |
557 | 178 | ||||||
Income tax expense |
211 | 67 | ||||||
|
|
|
|
|||||
Net income |
346 | 111 | ||||||
Less: net loss attributable to noncontrolling interest |
| (1 | ) | |||||
|
|
|
|
|||||
Net income attributable to SLM Corporation |
346 | 112 | ||||||
Preferred stock dividends |
5 | 5 | ||||||
|
|
|
|
|||||
Net income attributable to SLM Corporation common stock |
$ | 341 | $ | 107 | ||||
|
|
|
|
|||||
Basic earnings per common share attributable to SLM Corporation |
$ | .76 | $ | .21 | ||||
|
|
|
|
|||||
Average common shares outstanding |
451 | 503 | ||||||
|
|
|
|
|||||
Diluted earnings per common share attributable to SLM Corporation |
$ | .74 | $ | .21 | ||||
|
|
|
|
|||||
Average common and common equivalent shares outstanding |
458 | 510 | ||||||
|
|
|
|
|||||
Dividends per common share attributable to SLM Corporation |
$ | .15 | $ | .125 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
3
SLM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Three Months Ended
March 31, |
||||||||
2013 | 2012 | |||||||
Net income |
$ | 346 | $ | 111 | ||||
Other comprehensive income (loss): |
||||||||
Unrealized gains (losses) on derivatives: |
||||||||
Unrealized hedging gains (losses) on derivatives |
1 | (2 | ) | |||||
Reclassification adjustments for derivative losses included in net income (interest expense) |
3 | 10 | ||||||
|
|
|
|
|||||
Total unrealized gains on derivatives |
4 | 8 | ||||||
Unrealized losses on investments |
(1 | ) | | |||||
Income tax expense |
(1 | ) | (3 | ) | ||||
|
|
|
|
|||||
Other comprehensive income, net of tax |
2 | 5 | ||||||
|
|
|
|
|||||
Comprehensive income |
348 | 116 | ||||||
Less: comprehensive loss attributable to noncontrolling interest |
| (1 | ) | |||||
|
|
|
|
|||||
Total comprehensive income attributable to SLM Corporation |
$ | 348 | $ | 117 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
4
SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Dollars in millions, except share and per share amounts)
(Unaudited)
Preferred
Stock Shares |
Common Stock Shares |
Preferred
Stock |
Common
Stock |
Additional
Paid-In Capital |
Accumulated
Other Comprehensive Income (Loss) |
Retained
Earnings |
Treasury
Stock |
Total
Stockholders Equity |
Noncontrolling
Interest |
Total
Equity |
||||||||||||||||||||||||||||||||||||||||||
Issued | Treasury | Outstanding | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2011 |
7,300,000 | 529,075,322 | (20,323,997 | ) | 508,751,325 | $ | 565 | $ | 106 | $ | 4,136 | $ | (14 | ) | $ | 770 | $ | (320 | ) | $ | 5,243 | $ | 8 | $ | 5,251 | |||||||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) |
112 | 112 | (1 | ) | 111 | |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
5 | 5 | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income |
117 | (1 | ) | 116 | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock ($0.125 per share) |
(63 | ) | (63 | ) | (63 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock, series A ($0.87 per share) |
(3 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock, series B ($0.57 per share) |
(2 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares |
3,171,484 | 3,171,484 | 27 | 27 | 27 | |||||||||||||||||||||||||||||||||||||||||||||||
Tax benefit related to employee stock-based
|
(3 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
22 | 22 | 22 | |||||||||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased |
(16,703,182 | ) | (16,703,182 | ) | (268 | ) | (268 | ) | (268 | ) | ||||||||||||||||||||||||||||||||||||||||||
Shares repurchased related to employee
|
(2,056,977 | ) | (2,056,977 | ) | (32 | ) | (32 | ) | (32 | ) | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Balance at March 31, 2012 |
7,300,000 | 532,246,806 | (39,084,156 | ) | 493,162,650 | $ | 565 | $ | 106 | $ | 4,182 | $ | (9 | ) | $ | 814 | $ | (620 | ) | $ | 5,038 | $ | 7 | $ | 5,045 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Balance at December 31, 2012 |
7,300,000 | 535,507,965 | (82,910,021 | ) | 452,597,944 | $ | 565 | $ | 107 | $ | 4,237 | $ | (6 | ) | $ | 1,451 | $ | (1,294 | ) | $ | 5,060 | $ | 6 | $ | 5,066 | |||||||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
346 | 346 | 346 | |||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
2 | 2 | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income |
348 | 348 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock ($0.15 per share) |
(68 | ) | (68 | ) | (68 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock, series A ($0.87 per share) |
(3 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock, series B ($0.49 per share) |
(2 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Dividend equivalent units related to
|
(1 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares |
4,157,795 | 4,157,795 | 1 | 33 | 34 | 34 | ||||||||||||||||||||||||||||||||||||||||||||||
Tax benefit related to employee stock-based
|
2 | 2 | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
19 | 19 | 19 | |||||||||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased |
(10,220,804 | ) | (10,220,804 | ) | (199 | ) | (199 | ) | (199 | ) | ||||||||||||||||||||||||||||||||||||||||||
Shares repurchased related to employee stock-based
|
(2,324,575 | ) | (2,324,575 | ) | (42 | ) | (42 | ) | (42 | ) | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Balance at March 31, 2013 |
7,300,000 | 539,665,760 | (95,455,400 | ) | 444,210,360 | $ | 565 | $ | 108 | $ | 4,291 | $ | (4 | ) | $ | 1,723 | $ | (1,535 | ) | $ | 5,148 | $ | 6 | $ | 5,154 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
SLM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Three Months Ended
March 31, |
||||||||
2013 | 2012 | |||||||
Operating activities |
||||||||
Net income |
$ | 346 | $ | 111 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Gains on debt repurchases and loan sales |
(78 | ) | (37 | ) | ||||
Goodwill and acquired intangible assets impairment and amortization expense |
4 | 5 | ||||||
Stock-based compensation expense |
19 | 22 | ||||||
Unrealized (gains) losses on derivative and hedging activities |
(138 | ) | 193 | |||||
Provisions for loan losses |
241 | 253 | ||||||
(Increase) decrease in restricted cash other |
(3 | ) | 29 | |||||
Decrease in accrued interest receivable |
19 | 5 | ||||||
Increase in accrued interest payable |
2 | 39 | ||||||
Decrease in other assets |
292 | 109 | ||||||
Decrease in other liabilities |
(175 | ) | (138 | ) | ||||
|
|
|
|
|||||
Total adjustments |
183 | 480 | ||||||
|
|
|
|
|||||
Total net cash provided by operating activities |
529 | 591 | ||||||
|
|
|
|
|||||
Investing activities |
||||||||
Student loans acquired and originated |
(1,559 | ) | (1,658 | ) | ||||
Reduction of student loans: |
||||||||
Installment payments, claims and other |
3,349 | 3,391 | ||||||
Proceeds from sales of student loans |
226 | 135 | ||||||
Other investing activities, net |
65 | 121 | ||||||
Purchases of available-for-sale securities |
(14 | ) | (14 | ) | ||||
Proceeds from maturities of available-for-sale securities |
9 | 12 | ||||||
Purchases of other securities |
(93 | ) | (80 | ) | ||||
Proceeds from maturities of other securities |
94 | 78 | ||||||
Decrease (increase) in restricted cash variable interest entities |
107 | (44 | ) | |||||
|
|
|
|
|||||
Total net cash provided by investing activities |
2,184 | 1,941 | ||||||
|
|
|
|
|||||
Financing activities |
||||||||
Borrowings collateralized by loans in trust issued |
2,588 | 2,115 | ||||||
Borrowings collateralized by loans in trust repaid |
(3,182 | ) | (3,817 | ) | ||||
Asset-backed commercial paper conduits, net |
427 | 1,728 | ||||||
ED Conduit Program facility, net |
(2,583 | ) | (3,198 | ) | ||||
Other short-term borrowings issued |
| 23 | ||||||
Other short-term borrowings repaid |
(114 | ) | (23 | ) | ||||
Other long-term borrowings issued |
1,489 | 1,584 | ||||||
Other long-term borrowings repaid |
(1,319 | ) | (454 | ) | ||||
Other financing activities, net |
(358 | ) | (93 | ) | ||||
Retail and other deposits, net |
396 | 188 | ||||||
Common stock repurchased |
(199 | ) | (268 | ) | ||||
Common stock dividends paid |
(68 | ) | (63 | ) | ||||
Preferred stock dividends paid |
(5 | ) | (5 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities |
(2,928 | ) | (2,283 | ) | ||||
|
|
|
|
|||||
Net (decrease) increase in cash and cash equivalents |
(215 | ) | 249 | |||||
Cash and cash equivalents at beginning of period |
3,900 | 2,794 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 3,685 | $ | 3,043 | ||||
|
|
|
|
|||||
Supplemental disclosures of cash flow information: |
||||||||
Cash disbursements made (refunds received) for: |
||||||||
Interest |
$ | 568 | $ | 632 | ||||
|
|
|
|
|||||
Income taxes paid |
$ | 15 | $ | 46 | ||||
|
|
|
|
|||||
Income taxes received |
$ | (1 | ) | $ | (5 | ) | ||
|
|
|
|
|||||
Noncash activity: |
||||||||
Investing activity Student loans and other assets acquired |
$ | | $ | 402 | ||||
|
|
|
|
|||||
Student loans and other assets removed related to sale of Residual Interest in securitization |
$ | (3,665 | ) | $ | | |||
|
|
|
|
|||||
Financing activity Borrowings assumed in acquisition of student loans and other assets |
$ | | $ | 425 | ||||
|
|
|
|
|||||
Borrowings removed related to sale of Residual Interest in securitization |
$ | (3,681 | ) | $ | | |||
|
|
|
|
See accompanying notes to consolidated financial statements.
6
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2013 and for the three months ended
March 31, 2013 and 2012 is unaudited)
1. | Significant Accounting Policies |
Basis of Presentation
The accompanying unaudited, consolidated financial statements of SLM Corporation (we, us, our, or the Company) have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements include the accounts of SLM Corporation and its majority-owned and controlled subsidiaries and those Variable Interest Entities (VIEs) for which we are the primary beneficiary, after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results for the year ending December 31, 2013 or for any other period. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the 2012 Form 10-K).
Consolidation
In first-quarter 2013 we sold the Residual Interest in a FFELP Loan securitization trust to a third party. We will continue to service the student loans in the trust under existing agreements. Prior to the sale of the Residual Interest we had consolidated the trust as a VIE because we had met the two criteria for consolidation of a VIE. We had determined we were the primary beneficiary because (1) as servicer to the trust we had the power to direct the activities of the VIE that most significantly affected its economic performance and (2) as the residual holder of the trust we had an obligation to absorb losses or receive benefits of the trust that could potentially be significant. Upon the sale of the Residual Interest we are no longer the residual holder, thus we determined we no longer met criterion (2) above and deconsolidated the trust. As a result of this transaction we removed trust assets of $3.8 billion and the related liabilities of $3.7 billion from the balance sheet and recorded a $55 million gain as part of other income.
Reclassifications
Certain reclassifications have been made to the balances as of and for the three months ended March 31, 2012 to be consistent with classifications adopted for 2013, and had no effect on net income, total assets, or total liabilities.
Recently Adopted Accounting Standards
Accumulated Other Comprehensive Income
On January 1, 2013, we adopted Accounting Standards Update No. 2013-02, Comprehensive Income (Topic 220), Reporting Amounts Reclassified out of Accumulated Other Comprehensive Income. The objective of this new guidance is to improve the reporting of reclassifications out of accumulated other comprehensive income. The impact of adopting this new guidance was immaterial and there was no impact on our results of operations.
7
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Allowance for Loan Losses |
Our provisions for loan losses represent the periodic expense of maintaining an allowance sufficient to absorb incurred probable losses, net of expected 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. We believe that the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios. We segregate our Private Education Loan portfolio into two classes of loans traditional and non-traditional. Non-traditional loans are loans to (i) customers attending for-profit schools with an original Fair Isaac and Company (FICO) score of less than 670 and (ii) customers attending not-for-profit schools with an original FICO score of less than 640. The FICO score used in determining whether a loan is non-traditional is the greater of the customer or cosigner FICO score at origination. Traditional loans are defined as all other Private Education Loans that are not classified as non-traditional.
Allowance for Loan Losses Metrics
Allowance for Loan Losses
|
||||||||||||||||
Three Months Ended March 31, 2013 | ||||||||||||||||
(Dollars in millions) |
FFELP Loans |
Private Education
Loans |
Other
Loans |
Total | ||||||||||||
Allowance for Loan Losses |
||||||||||||||||
Beginning balance |
$ | 159 | $ | 2,171 | $ | 47 | $ | 2,377 | ||||||||
Total provision |
16 | 225 | | 241 | ||||||||||||
Charge-offs (1) |
(22 | ) | (232 | ) | (5 | ) | (259 | ) | ||||||||
Student loan sales |
(6 | ) | | | (6 | ) | ||||||||||
Reclassification of interest reserve (2) |
| 6 | | 6 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 147 | $ | 2,170 | $ | 42 | $ | 2,359 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Allowance: |
||||||||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | 1,157 | $ | 31 | $ | 1,188 | ||||||||
Ending balance: collectively evaluated for impairment |
$ | 147 | $ | 1,013 | $ | 11 | $ | 1,171 | ||||||||
Loans: |
||||||||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | 8,018 | $ | 65 | $ | 8,083 | ||||||||
Ending balance: collectively evaluated for impairment |
$ | 118,058 | $ | 32,389 | $ | 106 | $ | 150,553 | ||||||||
Charge-offs as a percentage of average loans in repayment (annualized) |
.10 | % | 2.97 | % | 10.95 | % | ||||||||||
Charge-offs as a percentage of average loans in repayment and forbearance (annualized) |
.09 | % | 2.87 | % | 10.95 | % | ||||||||||
Allowance as a percentage of the ending total loan balance |
.12 | % | 5.37 | % | 24.55 | % | ||||||||||
Allowance as a percentage of the ending loans in repayment |
.17 | % | 6.88 | % | 24.55 | % | ||||||||||
Allowance coverage of charge-offs (annualized) |
1.6 | 2.3 | 2.1 | |||||||||||||
Ending total loans (3) |
$ | 118,058 | $ | 40,407 | $ | 171 | ||||||||||
Average loans in repayment |
$ | 87,256 | $ | 31,645 | $ | 179 | ||||||||||
Ending loans in repayment |
$ | 85,304 | $ | 31,533 | $ | 171 |
(1) |
Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See Receivable for Partially Charged-Off Private Education Loans for further discussion. |
(2) |
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. |
(3) |
Ending total loans for Private Education Loans includes the receivable for partially charged-off loans. |
8
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Allowance for Loan Losses (continued) |
Allowance for Loan Losses
|
||||||||||||||||
Three Months Ended March 31, 2012 | ||||||||||||||||
(Dollars in millions) |
FFELP Loans |
Private Education
Loans |
Other
Loans |
Total | ||||||||||||
Allowance for Loan Losses |
||||||||||||||||
Beginning balance |
$ | 187 | $ | 2,171 | $ | 69 | $ | 2,427 | ||||||||
Total provision |
18 | 235 | | 253 | ||||||||||||
Charge-offs (1) |
(23 | ) | (224 | ) | (5 | ) | (252 | ) | ||||||||
Student loan sales |
(2 | ) | | | (2 | ) | ||||||||||
Reclassification of interest reserve (2) |
| 8 | | 8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 180 | $ | 2,190 | $ | 64 | $ | 2,434 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Allowance: |
||||||||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | 853 | $ | 48 | $ | 901 | ||||||||
Ending balance: collectively evaluated for impairment |
$ | 180 | $ | 1,337 | $ | 16 | $ | 1,533 | ||||||||
Loans: |
||||||||||||||||
Ending balance: individually evaluated for impairment |
$ | | $ | 6,030 | $ | 88 | $ | 6,118 | ||||||||
Ending balance: collectively evaluated for impairment |
$ | 134,490 | $ | 33,745 | $ | 160 | $ | 168,395 | ||||||||
Charge-offs as a percentage of average loans in repayment (annualized) |
.10 | % | 2.96 | % | 7.17 | % | ||||||||||
Charge-offs as a percentage of average loans in repayment and forbearance (annualized) |
.08 | % | 2.84 | % | 7.17 | % | ||||||||||
Allowance as a percentage of the ending total loan balance |
.13 | % | 5.51 | % | 26.0 | % | ||||||||||
Allowance as a percentage of the ending loans in repayment |
.20 | % | 7.24 | % | 26.0 | % | ||||||||||
Allowance coverage of charge-offs (annualized) |
2.0 | 2.4 | 3.6 | |||||||||||||
Ending total loans (3) |
$ | 134,490 | $ | 39,775 | $ | 248 | ||||||||||
Average loans in repayment |
$ | 93,150 | $ | 30,378 | $ | 252 | ||||||||||
Ending loans in repayment |
$ | 92,224 | $ | 30,236 | $ | 248 |
(1) |
Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See Receivable for Partially Charged-Off Private Education Loans for further discussion. |
(2) |
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. |
(3) |
Ending total loans for Private Education Loans includes the receivable for partially charged-off loans. |
9
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Allowance for Loan Losses (continued) |
Key Credit Quality Indicators
FFELP Loans are substantially insured and guaranteed as to their principal and accrued interest in the event of default; therefore, the key credit quality indicator for this portfolio is loan status. The impact of changes in loan status is incorporated quarterly into the allowance for loan losses calculation.
For Private Education Loans, the key credit quality indicators are school type, FICO scores, the existence of a cosigner, the loan status and loan seasoning. The school type/FICO score are assessed at origination and maintained through the traditional/non-traditional loan designation. The other Private Education Loan key quality indicators can change and are incorporated quarterly into the allowance for loan losses calculation. The following table highlights the principal balance (excluding the receivable for partially charged-off loans) of our Private Education Loan portfolio stratified by the key credit quality indicators.
Private Education Loans
Credit Quality Indicators |
||||||||||||||||
March 31, 2013 | December 31, 2012 | |||||||||||||||
(Dollars in millions) |
Balance (3) | % of Balance | Balance (3) | % of Balance | ||||||||||||
Credit Quality Indicators |
||||||||||||||||
School Type/FICO Scores: |
||||||||||||||||
Traditional |
$ | 35,947 | 92 | % | $ | 35,347 | 92 | % | ||||||||
Non-Traditional (1) |
3,121 | 8 | 3,207 | 8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 39,068 | 100 | % | $ | 38,554 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cosigners: |
||||||||||||||||
With cosigner |
$ | 25,646 | 66 | % | $ | 24,907 | 65 | % | ||||||||
Without cosigner |
13,422 | 34 | 13,647 | 35 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 39,068 | 100 | % | $ | 38,554 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Seasoning (2) : |
||||||||||||||||
1-12 payments |
$ | 7,186 | 19 | % | $ | 7,371 | 19 | % | ||||||||
13-24 payments |
5,834 | 15 | 6,137 | 16 | ||||||||||||
25-36 payments |
5,908 | 15 | 6,037 | 16 | ||||||||||||
37-48 payments |
4,838 | 12 | 4,780 | 12 | ||||||||||||
More than 48 payments |
8,868 | 23 | 8,325 | 22 | ||||||||||||
Not yet in repayment |
6,434 | 16 | 5,904 | 15 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 39,068 | 100 | % | $ | 38,554 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
(1) |
Defined as loans to customers attending for-profit schools (with a FICO score of less than 670 at origination) and customers attending not-for-profit schools (with a FICO score of less than 640 at origination). |
(2) |
Number of months in active repayment for which a scheduled payment was due. |
(3) |
Balance represents gross Private Education Loans. |
10
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Allowance for Loan Losses (continued) |
The following tables provide information regarding the loan status and aging of past due loans.
FFELP Loan Delinquencies | ||||||||||||||||
March 31,
2013 |
December 31,
2012 |
|||||||||||||||
(Dollars in millions) |
Balance | % | Balance | % | ||||||||||||
Loans in-school/grace/deferment (1) |
$ | 17,324 | $ | 17,702 | ||||||||||||
Loans in forbearance (2) |
15,430 | 15,902 | ||||||||||||||
Loans in repayment and percentage of each status: |
||||||||||||||||
Loans current |
71,792 | 84.2 | % | 75,499 | 83.2 | % | ||||||||||
Loans delinquent 31-60 days (3) |
4,186 | 4.9 | 4,710 | 5.2 | ||||||||||||
Loans delinquent 61-90 days (3) |
2,441 | 2.9 | 2,788 | 3.1 | ||||||||||||
Loans delinquent greater than 90 days (3) |
6,885 | 8.0 | 7,734 | 8.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total FFELP Loans in repayment |
85,304 | 100 | % | 90,731 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total FFELP Loans, gross |
118,058 | 124,335 | ||||||||||||||
FFELP Loan unamortized premium |
1,284 | 1,436 | ||||||||||||||
|
|
|
|
|||||||||||||
Total FFELP Loans |
119,342 | 125,771 | ||||||||||||||
FFELP Loan allowance for losses |
(147 | ) | (159 | ) | ||||||||||||
|
|
|
|
|||||||||||||
FFELP Loans, net |
$ | 119,195 | $ | 125,612 | ||||||||||||
|
|
|
|
|||||||||||||
Percentage of FFELP Loans in repayment |
72.3 | % | 73.0 | % | ||||||||||||
|
|
|
|
|||||||||||||
Delinquencies as a percentage of FFELP Loans in repayment |
15.8 | % | 16.8 | % | ||||||||||||
|
|
|
|
|||||||||||||
FFELP Loans in forbearance as a percentage of loans in repayment and forbearance |
15.3 | % | 14.9 | % | ||||||||||||
|
|
|
|
(1) |
Loans for customers who may still 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, as well as loans for customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships. |
(2) |
Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making full payments due to hardship or other factors. |
(3) |
The period of delinquency is based on the number of days scheduled payments are contractually past due. |
11
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Allowance for Loan Losses (continued) |
Private Education Traditional Loan
Delinquencies |
||||||||||||||||
March 31,
2013 |
December 31,
2012 |
|||||||||||||||
(Dollars in millions) |
Balance | % | Balance | % | ||||||||||||
Loans in-school/grace/deferment (1) |
$ | 5,959 | $ | 5,421 | ||||||||||||
Loans in forbearance (2) |
966 | 996 | ||||||||||||||
Loans in repayment and percentage of each status: |
||||||||||||||||
Loans current |
27,072 | 93.2 | % | 26,597 | 91.9 | % | ||||||||||
Loans delinquent 31-60 days (3) |
597 | 2.1 | 837 | 2.9 | ||||||||||||
Loans delinquent 61-90 days (3) |
393 | 1.4 | 375 | 1.3 | ||||||||||||
Loans delinquent greater than 90 days (3) |
960 | 3.3 | 1,121 | 3.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total traditional loans in repayment |
29,022 | 100 | % | 28,930 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total traditional loans, gross |
35,947 | 35,347 | ||||||||||||||
Traditional loans unamortized discount |
(691 | ) | (713 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total traditional loans |
35,256 | 34,634 | ||||||||||||||
Traditional loans receivable for partially charged-off loans |
799 | 797 | ||||||||||||||
Traditional loans allowance for losses |
(1,643 | ) | (1,637 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Traditional loans, net |
$ | 34,412 | $ | 33,794 | ||||||||||||
|
|
|
|
|||||||||||||
Percentage of traditional loans in repayment |
80.7 | % | 81.9 | % | ||||||||||||
|
|
|
|
|||||||||||||
Delinquencies as a percentage of traditional loans in repayment |
6.7 | % | 8.1 | % | ||||||||||||
|
|
|
|
|||||||||||||
Loans in forbearance as a percentage of loans in repayment and forbearance |
3.2 | % | 3.3 | % | ||||||||||||
|
|
|
|
(1) |
Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation. |
(2) |
Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures. |
(3) |
The period of delinquency is based on the number of days scheduled payments are contractually past due. |
12
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Allowance for Loan Losses (continued) |
Private Education Non-Traditional
Loan Delinquencies |
||||||||||||||||
March 31,
2013 |
December 31,
2012 |
|||||||||||||||
(Dollars in millions) |
Balance | % | Balance | % | ||||||||||||
Loans in-school/grace/deferment (1) |
$ | 475 | $ | 483 | ||||||||||||
Loans in forbearance (2) |
135 | 140 | ||||||||||||||
Loans in repayment and percentage of each status: |
||||||||||||||||
Loans current |
1,997 | 79.6 | % | 1,978 | 76.5 | % | ||||||||||
Loans delinquent 31-60 days (3) |
134 | 5.3 | 175 | 6.8 | ||||||||||||
Loans delinquent 61-90 days (3) |
98 | 3.9 | 106 | 4.1 | ||||||||||||
Loans delinquent greater than 90 days (3) |
282 | 11.2 | 325 | 12.6 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-traditional loans in repayment |
2,511 | 100 | % | 2,584 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-traditional loans, gross |
3,121 | 3,207 | ||||||||||||||
Non-traditional loans unamortized discount |
(81 | ) | (83 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total non-traditional loans |
3,040 | 3,124 | ||||||||||||||
Non-traditional loans receivable for partially charged-off loans |
540 | 550 | ||||||||||||||
Non-traditional loans allowance for losses |
(527 | ) | (534 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Non-traditional loans, net |
$ | 3,053 | $ | 3,140 | ||||||||||||
|
|
|
|
|||||||||||||
Percentage of non-traditional loans in repayment |
80.4 | % | 80.6 | % | ||||||||||||
|
|
|
|
|||||||||||||
Delinquencies as a percentage of non-traditional loans in repayment |
20.5 | % | 23.4 | % | ||||||||||||
|
|
|
|
|||||||||||||
Loans in forbearance as a percentage of loans in repayment and forbearance |
5.1 | % | 5.1 | % | ||||||||||||
|
|
|
|
(1) |
Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation. |
(2) |
Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures. |
(3) |
The period of delinquency is based on the number of days scheduled payments are contractually past due. |
13
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Allowance for Loan Losses (continued) |
Receivable for Partially Charged-Off Private Education Loans
At the end of each month, for loans that are 212 days past due, we charge 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 immediately charged off through the allowance for loan losses with an offsetting reduction in the receivable for partially charged-off Private Education Loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. Private Education Loans which defaulted between 2008 and 2012 for which we have previously charged off estimated losses have, to varying degrees, not met our post-default recovery expectations to date and may continue not to do so. According to our policy, we have been charging off these periodic shortfalls in expected recoveries against our allowance for Private Education Loan losses and the related receivable for partially charged-off Private Education Loans and we will continue to do so. There was $209 million and $151 million in allowance for Private Education Loan losses at March 31, 2013 and 2012, respectively, providing for possible additional future charge-offs related to the receivable for partially charged-off Private Education Loans.
The following table summarizes the activity in the receivable for partially charged-off loans.
Three Months Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Receivable at beginning of period |
$ | 1,347 | $ | 1,241 | ||||
Expected future recoveries of current period defaults (1) |
78 | 69 | ||||||
Recoveries (2) |
(68 | ) | (50 | ) | ||||
Charge-offs (3) |
(18 | ) | (10 | ) | ||||
|
|
|
|
|||||
Receivable at end of period |
1,339 | 1,250 | ||||||
Allowance for estimated recovery shortfalls (4) |
(209 | ) | (151 | ) | ||||
|
|
|
|
|||||
Net receivable at end of period |
$ | 1,130 | $ | 1,099 | ||||
|
|
|
|
(1) |
Represents the difference between the loan balance and our estimate of the amount to be collected in the future. |
(2) |
Current period cash collections. |
(3) |
Represents the current period recovery shortfall the difference between what was expected to be collected and what was actually collected. These amounts are included in the Private Education Loan total charge-offs as reported in the Allowance for Loan Losses Metrics tables. |
(4) |
The allowance for estimated recovery shortfalls of the receivable for partially charged-off Private Education Loans is a component of the $2.2 billion overall allowance for Private Education Loan losses as of March 31, 2013 and 2012, respectively. |
Troubled Debt Restructurings (TDRs)
We modify the terms of loans for certain customers when we believe such modifications may increase the ability and willingness of a customer to make payments and thus increase the ultimate overall amount collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. For customers experiencing financial difficulty, certain Private Education Loans for
14
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Allowance for Loan Losses (continued) |
which we have granted either cumulative forbearance of greater than three months, an interest rate reduction or an extended repayment plan are classified as TDRs. Forbearance provides customers the ability to defer payments for a period of time, but does not result in the forgiveness of any principal or interest. While in forbearance status, interest continues to accrue and is capitalized to principal when the loan re-enters repayment status. The recorded investment of loans granted a forbearance that were classified as TDRs was $6.8 billion and $6.4 billion at March 31, 2013 and December 31, 2012, respectively. The recorded investment for TDRs from loans granted interest rate reductions or extended repayment plans was $0.9 billion at both March 31, 2013 and December 31, 2012. At March 31, 2013 and December 31, 2012, the percentage of loans granted forbearance that have migrated to a TDR classification due to the extension of the original forbearance period was 45 percent and 43 percent, respectively.
At March 31, 2013 and December 31, 2012, all of our TDR loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our TDR loans.
TDR Loans | ||||||||||||
(Dollars in millions) |
Recorded
Investment (1) |
Unpaid
Principal Balance |
Related
Allowance |
|||||||||
March 31, 2013 |
||||||||||||
Private Education Loans Traditional |
$ | 6,379 | $ | 6,460 | $ | 874 | ||||||
Private Education Loans Non-Traditional |
1,335 | 1,345 | 283 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 7,714 | $ | 7,805 | $ | 1,157 | ||||||
|
|
|
|
|
|
|||||||
December 31, 2012 |
||||||||||||
Private Education Loans Traditional |
$ | 5,999 | $ | 6,074 | $ | 844 | ||||||
Private Education Loans Non-Traditional |
1,295 | 1,303 | 282 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 7,294 | $ | 7,377 | $ | 1,126 | ||||||
|
|
|
|
|
|
(1) |
The recorded investment is equal to the unpaid principal balance and accrued interest receivable net of unamortized deferred fees and costs. |
The following table provides the average recorded investment and interest income recognized for our troubled debt restructuring loans.
Three Months Ended March 31, | ||||||||||||||||
2013 | 2012 | |||||||||||||||
(Dollars in millions) |
Average
Recorded Investment |
Interest
Income Recognized |
Average
Recorded Investment |
Interest
Income Recognized |
||||||||||||
Private Education Loans Traditional |
$ | 6,328 | $ | 96 | $ | 4,507 | $ | 73 | ||||||||
Private Education Loans Non-Traditional |
1,370 | 27 | 1,110 | 25 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 7,698 | $ | 123 | $ | 5,617 | $ | 98 | ||||||||
|
|
|
|
|
|
|
|
15
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Allowance for Loan Losses (continued) |
The following tables provide information regarding the loan status and aging of TDR loans that are past due.
TDR Loan Delinquencies | ||||||||||||||||
March 31, 2013 | December 31, 2012 | |||||||||||||||
(Dollars in millions) |
Balance | % | Balance | % | ||||||||||||
Loans in deferment (1) |
$ | 687 | $ | 574 | ||||||||||||
Loans in forbearance (2) |
565 | 544 | ||||||||||||||
Loans in repayment and percentage of each status: |
||||||||||||||||
Loans current |
5,073 | 77.4 | % | 4,619 | 73.8 | % | ||||||||||
Loans delinquent 31-60 days (3) |
397 | 6.1 | 478 | 7.6 | ||||||||||||
Loans delinquent 61-90 days (3) |
293 | 4.5 | 254 | 4.1 | ||||||||||||
Loans delinquent greater than 90 days (3) |
790 | 12.0 | 908 | 14.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total TDR loans in repayment |
6,553 | 100 | % | 6,259 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total TDR loans, gross |
$ | 7,805 | $ | 7,377 | ||||||||||||
|
|
|
|
(1) |
Loans for customers who have requested and qualify for permitted program deferments such as military, unemployment, or economic hardships. |
(2) |
Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making full payments due to hardship or other factors. |
(3) |
The period of delinquency is based on the number of days scheduled payments are contractually past due. |
The following table provides the amount of modified loans that resulted in a TDR in the periods presented. Additionally, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the current period within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure. The majority of our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan.
Three Months Ended March 31, | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
(Dollars in millions) |
Modified
Loans (1) |
Charge-
Offs (2) |
Payment
Default |
Modified
Loans (1) |
Charge-
Offs (2) |
Payment
Default |
||||||||||||||||||
Private Education Loans Traditional |
$ | 545 | $ | 97 | $ | 216 | $ | 657 | $ | 65 | $ | 404 | ||||||||||||
Private Education Loans Non-Traditional |
90 | 34 | 57 | 140 | 29 | 128 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 635 | $ | 131 | $ | 273 | $ | 797 | $ | 94 | $ | 532 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents period ending balance of loans that have been modified during the period and resulted in a TDR. |
(2) |
Represents loans that charged off that were classified as TDRs. |
16
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Allowance for Loan Losses (continued) |
Accrued Interest Receivable
The following table provides information regarding accrued interest receivable on our Private Education Loans. The table also discloses the amount of accrued interest on loans greater than 90 days past due as compared to our allowance for uncollectible interest. The allowance for uncollectible interest exceeds the amount of accrued interest on our 90 days past due portfolio for all periods presented.
Accrued Interest Receivable | ||||||||||||
(Dollars in millions) |
Total |
Greater Than
90 Days Past Due |
Allowance for
Uncollectible Interest |
|||||||||
March 31, 2013 |
||||||||||||
Private Education Loans Traditional |
$ | 822 | $ | 34 | $ | 47 | ||||||
Private Education Loans Non-Traditional |
96 | 14 | 21 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 918 | $ | 48 | $ | 68 | ||||||
|
|
|
|
|
|
|||||||
December 31, 2012 |
||||||||||||
Private Education Loans Traditional |
$ | 798 | $ | 39 | $ | 45 | ||||||
Private Education Loans Non-Traditional |
106 | 16 | 22 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 904 | $ | 55 | $ | 67 | ||||||
|
|
|
|
|
|
17
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. | Borrowings |
The following table summarizes our borrowings.
March 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
(Dollars in millions) |
Short
Term |
Long
Term |
Total |
Short
Term |
Long
Term |
Total | ||||||||||||||||||
Unsecured borrowings: |
||||||||||||||||||||||||
Senior unsecured debt |
$ | 2,778 | $ | 15,167 | $ | 17,945 | $ | 2,319 | $ | 15,446 | $ | 17,765 | ||||||||||||
Brokered deposits |
1,170 | 2,782 | 3,952 | 979 | 3,088 | 4,067 | ||||||||||||||||||
Retail and other deposits |
3,643 | | 3,643 | 3,247 | | 3,247 | ||||||||||||||||||
Other (1) |
1,240 | | 1,240 | 1,609 | | 1,609 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total unsecured borrowings |
8,831 | 17,949 | 26,780 | 8,154 | 18,534 | 26,688 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Secured borrowings: |
||||||||||||||||||||||||
FFELP Loan securitizations |
| 100,750 | 100,750 | | 105,525 | 105,525 | ||||||||||||||||||
Private Education Loan securitizations |
| 20,252 | 20,252 | | 19,656 | 19,656 | ||||||||||||||||||
ED Conduit Program Facility |
6,967 | | 6,967 | 9,551 | | 9,551 | ||||||||||||||||||
FFELP ABCP Facility |
| 5,114 | 5,114 | | 4,154 | 4,154 | ||||||||||||||||||
Private Education Loan ABCP Facility |
539 | | 539 | | 1,070 | 1,070 | ||||||||||||||||||
Acquisition financing (2) |
| 576 | 576 | | 673 | 673 | ||||||||||||||||||
FHLB-DM Facility |
880 | 1,220 | 2,100 | 2,100 | | 2,100 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total secured borrowings |
8,386 | 127,912 | 136,298 | 11,651 | 131,078 | 142,729 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total before hedge accounting adjustments |
17,217 | 145,861 | 163,078 | 19,805 | 149,612 | 169,417 | ||||||||||||||||||
Hedge accounting adjustments |
37 | 2,026 | 2,063 | 51 | 2,789 | 2,840 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 17,254 | $ | 147,887 | $ | 165,141 | $ | 19,856 | $ | 152,401 | $ | 172,257 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Other primarily consists of the obligation to return cash collateral held related to derivative exposures. |
(2) |
Relates to the acquisition of $25 billion of student loans at the end of 2010. |
18
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. | Borrowings (continued) |
Secured Borrowings
The tables below summarize all of our financing entities that are VIEs which we consolidate as a result of being the entities primary beneficiary. As such, these financing VIEs are accounted for as secured borrowings. We consolidate the following financing VIEs:
March 31, 2013 | ||||||||||||||||||||||||||||
Debt Outstanding |
Carrying Amount of Assets Securing
Debt Outstanding |
|||||||||||||||||||||||||||
(Dollars in millions) |
Short
Term |
Long
Term |
Total | Loans | Cash | Other Assets | Total | |||||||||||||||||||||
Secured Borrowings VIEs: |
||||||||||||||||||||||||||||
ED Conduit Program Facility |
$ | 6,967 | $ | | $ | 6,967 | $ | 7,056 | $ | 295 | $ | 99 | $ | 7,450 | ||||||||||||||
FFELP ABCP Facility |
| 5,114 | 5,114 | 5,430 | 108 | 76 | 5,614 | |||||||||||||||||||||
Private Education Loan ABCP Facility |
539 | | 539 | 989 | 173 | 21 | 1,183 | |||||||||||||||||||||
Securitizations FFELP Loans |
| 100,750 | 100,750 | 102,135 | 3,618 | 575 | 106,328 | |||||||||||||||||||||
Securitizations Private Education Loans |
| 20,252 | 20,252 | 25,321 | 454 | 550 | 26,325 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total before hedge accounting adjustments |
7,506 | 126,116 | 133,622 | 140,931 | 4,648 | 1,321 | 146,900 | |||||||||||||||||||||
Hedge accounting adjustments |
| 581 | 581 | | | 405 | 405 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 7,506 | $ | 126,697 | $ | 134,203 | $ | 140,931 | $ | 4,648 | $ | 1,726 | $ | 147,305 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
December 31, 2012 | ||||||||||||||||||||||||||||
Debt Outstanding |
Carrying Amount of Assets Securing
Debt Outstanding |
|||||||||||||||||||||||||||
(Dollars in millions) |
Short
Term |
Long
Term |
Total | Loans | Cash | Other Assets | Total | |||||||||||||||||||||
Secured Borrowings VIEs: |
||||||||||||||||||||||||||||
ED Conduit Program Facility |
$ | 9,551 | $ | | $ | 9,551 | $ | 9,645 | $ | 410 | $ | 134 | $ | 10,189 | ||||||||||||||
FFELP ABCP Facility |
| 4,154 | 4,154 | 4,405 | 77 | 63 | 4,545 | |||||||||||||||||||||
Private Education Loan ABCP Facility |
| 1,070 | 1,070 | 1,454 | 302 | 33 | 1,789 | |||||||||||||||||||||
Securitizations FFELP Loans |
| 105,525 | 105,525 | 107,009 | 3,652 | 608 | 111,269 | |||||||||||||||||||||
Securitizations Private Education Loans |
| 19,656 | 19,656 | 24,618 | 385 | 545 | 25,548 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total before hedge accounting adjustments |
9,551 | 130,405 | 139,956 | 147,131 | 4,826 | 1,383 | 153,340 | |||||||||||||||||||||
Hedge accounting adjustments |
| 1,113 | 1,113 | | | 929 | 929 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 9,551 | $ | 131,518 | $ | 141,069 | $ | 147,131 | $ | 4,826 | $ | 2,312 | $ | 154,269 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. | Borrowings (continued) |
Securitizations
The following table summarizes the securitization transactions that occurred during the year ended December 31, 2012 and the three months ended March 31, 2013.
(Dollars in millions) |
AAA-rated bonds | |||||||||||||||
Issue |
Date Issued |
Total
Issued |
Weighted Average
Interest Rate |
Weighted
Average Life |
||||||||||||
FFELP: |
||||||||||||||||
2012-1 |
January 2012 | $ | 765 | 1 month LIBOR plus 0.91% | 4.6 years | |||||||||||
2012-2 |
March 2012 | 824 | 1 month LIBOR plus 0.70% | 4.7 years | ||||||||||||
2012-3 |
May 2012 | 1,252 | 1 month LIBOR plus 0.65% | 4.6 years | ||||||||||||
2012-4 |
June 2012 | 1,491 | (1) | 1 month LIBOR plus 1.10% | 8.2 years | |||||||||||
2011-3 |
July 2012 | 24 | N/A (Retained B Notes sold) | |||||||||||||
2012-4 |
July 2012 | 45 | N/A (Retained B Notes sold) | |||||||||||||
2012-5 |
July 2012 | 1,252 | 1 month LIBOR plus 0.67% | 4.5 years | ||||||||||||
2012-6 |
September 2012 | 1,249 | 1 month LIBOR plus 0.62% | 4.6 years | ||||||||||||
2012-7 |
November 2012 | 1,251 | 1 month LIBOR plus 0.55% | 4.5 years | ||||||||||||
2012-8 |
December 2012 | 1,527 | 1 month LIBOR plus 0.90% | 7.8 years | ||||||||||||
|
|
|||||||||||||||
Total bonds issued in 2012 |
$ | 9,680 | ||||||||||||||
|
|
|||||||||||||||
Total loan amount securitized in 2012 |
$ | 9,565 | ||||||||||||||
|
|
|||||||||||||||
2013-1 |
February 2013 | $ | 1,249 | 1 month LIBOR plus 0.46% | 4.3 years | |||||||||||
|
|
|||||||||||||||
Total bonds issued in first-quarter 2013 |
$ | 1,249 | ||||||||||||||
|
|
|||||||||||||||
Total loan amount securitized in first-quarter 2013 |
$ | 1,250 | ||||||||||||||
|
|
|||||||||||||||
Private Education: |
||||||||||||||||
2012-A |
February 2012 | $ | 547 | 1 month LIBOR plus 2.17% | 3.0 years | |||||||||||
2012-B |
April 2012 | 891 | 1 month LIBOR plus 2.12% | 2.9 years | ||||||||||||
2012-C |
May 2012 | 1,135 | 1 month LIBOR plus 1.77% | 2.6 years | ||||||||||||
2012-D |
July 2012 | 640 | 1 month LIBOR plus 1.69% | 2.5 years | ||||||||||||
2012-E |
October 2012 | 976 | 1 month LIBOR plus 1.22% | 2.6 years | ||||||||||||
|
|
|||||||||||||||
Total bonds issued in 2012 |
$ | 4,189 | ||||||||||||||
|
|
|||||||||||||||
Total loan amount securitized in 2012 |
$ | 5,557 | ||||||||||||||
|
|
|||||||||||||||
2013-R1 |
January 2013 | $ | 254 | 1 month LIBOR plus 1.75% | 6.3 years | |||||||||||
2013-A |
March 2013 | 1,108 | 1 month LIBOR plus 0.81% | 2.6 years | ||||||||||||
|
|
|||||||||||||||
Total bonds issued in first-quarter 2013 |
$ | 1,362 | ||||||||||||||
|
|
|||||||||||||||
Total loan amount securitized in first-quarter 2013 |
$ | 1,307 | ||||||||||||||
|
|
(1) |
Total size excludes subordinated tranche that was retained at issuance totaling $45 million. |
20
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. | Borrowings (continued) |
2013 Sale of FFELP Securitization Trust Residual Interest
On February 13, 2013, we sold the Residual Interest in a FFELP Loan securitization trust to a third party. We will continue to service the student loans in the trust under existing agreements. The sale removed student loan assets of $3.8 billion and related liabilities of $3.7 billion from our balance sheet.
Additional, Recent Borrowing-Related Transactions
Senior Unsecured Debt
On January 28, 2013, we issued $1.5 billion of senior unsecured bonds.
4. | Derivative Financial Instruments |
Our risk management strategy and use of and accounting for derivatives have not materially changed from that discussed in our 2012 Form 10-K. Please refer to Note 7 Derivative Financial Instruments in our 2012 Form 10-K for a full discussion.
Summary of Derivative Financial Statement Impact
The following tables summarize the fair values and notional amounts of all derivative instruments at March 31, 2013 and December 31, 2012, and their impact on other comprehensive income and earnings for the three months ended March 31, 2013 and 2012.
21
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. | Derivative Financial Instruments (continued) |
Impact of Derivatives on Consolidated Balance Sheet
Cash Flow | Fair Value | Trading | Total | |||||||||||||||||||||||||||||||
(Dollars in millions) |
Hedged Risk
|
Mar. 31,
2013 |
Dec. 31,
2012 |
Mar. 31,
2013 |
Dec. 31,
2012 |
Mar. 31,
2013 |
Dec. 31,
2012 |
Mar. 31,
2013 |
Dec. 31,
2012 |
|||||||||||||||||||||||||
Fair Values (1) |
||||||||||||||||||||||||||||||||||
Derivative Assets: |
||||||||||||||||||||||||||||||||||
Interest rate swaps |
Interest rate | $ | 1 | $ | | $ | 1,237 | $ | 1,396 | $ | 127 | $ | 150 | $ | 1,365 | $ | 1,546 | |||||||||||||||||
Cross-currency interest rate swaps |
Foreign currency
& interest rate |
| | 731 | 1,165 | 23 | 70 | 754 | 1,235 | |||||||||||||||||||||||||
Other (2) |
Interest rate | | | | | | 4 | | 4 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total derivative assets (3) |
1 | | 1,968 | 2,561 | 150 | 224 | 2,119 | 2,785 | ||||||||||||||||||||||||||
Derivative Liabilities: |
||||||||||||||||||||||||||||||||||
Interest rate swaps |
Interest rate | (8 | ) | (11 | ) | (14 | ) | (1 | ) | (193 | ) | (197 | ) | (215 | ) | (209 | ) | |||||||||||||||||
Floor Income Contracts |
Interest rate | | | | | (1,969 | ) | (2,154 | ) | (1,969 | ) | (2,154 | ) | |||||||||||||||||||||
Cross-currency interest rate swaps |
Foreign currency
& interest rate |
| | (258 | ) | (136 | ) | | | (258 | ) | (136 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total derivative liabilities (3) |
(8 | ) | (11 | ) | (272 | ) | (137 | ) | (2,162 | ) | (2,351 | ) | (2,442 | ) | (2,499 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net total derivatives |
$ | (7 | ) | $ | (11 | ) | $ | 1,696 | $ | 2,424 | $ | (2,012 | ) | $ | (2,127 | ) | $ | (323 | ) | $ | 286 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 embedded derivatives bifurcated from securitization debt as well as derivatives related to our Total Return Swap Facility. |
(3) |
The following table reconciles gross positions with the impact of master netting agreements to the balance sheet classification: |
Other Assets | Other Liabilities | |||||||||||||||
(Dollar in millions) |
March 31,
2013 |
December 31,
2012 |
March 31,
2013 |
December 31,
2012 |
||||||||||||
Gross position |
$ | 2,119 | $ | 2,785 | $ | (2,442 | ) | $ | (2,499 | ) | ||||||
Impact of master netting agreements |
(435 | ) | (544 | ) | 435 | 544 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative values with impact of master netting agreements (as carried on balance sheet) |
1,684 | 2,241 | (2,007 | ) | (1,955 | ) | ||||||||||
Cash collateral (held) pledged |
(1,239 | ) | (1,423 | ) | 893 | 973 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net position |
$ | 445 | $ | 818 | $ | (1,114 | ) | $ | (982 | ) | ||||||
|
|
|
|
|
|
|
|
22
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. | Derivative Financial Instruments (continued) |
The above fair values include adjustments for counterparty credit risk both for when we are exposed to the counterparty, net of collateral postings, and when the counterparty is exposed to us, net of collateral postings. The net adjustments decreased the overall net asset positions at March 31, 2013 and December 31, 2012 by $71 million and $111 million, respectively. In addition, the above fair values reflect adjustments for illiquid derivatives as indicated by a wide bid/ask spread in the interest rate indices to which the derivatives are indexed. These adjustments decreased the overall net asset positions at March 31, 2013 and December 31, 2012 by $102 million and $107 million, respectively.
Cash Flow | Fair Value | Trading | Total | |||||||||||||||||||||||||||||
(Dollars in billions) |
Mar. 31,
2013 |
Dec. 31,
2012 |
Mar. 31,
2013 |
Dec. 31,
2012 |
Mar. 31,
2013 |
Dec. 31,
2012 |
Mar. 31,
2013 |
Dec. 31,
2012 |
||||||||||||||||||||||||
Notional Values: |
||||||||||||||||||||||||||||||||
Interest rate swaps |
$ | 0.7 | $ | 0.7 | $ | 15.8 | $ | 15.8 | $ | 55.5 | $ | 56.9 | $ | 72.0 | $ | 73.4 | ||||||||||||||||
Floor Income Contracts |
| | | | 36.8 | 51.6 | 36.8 | 51.6 | ||||||||||||||||||||||||
Cross-currency interest rate swaps |
| | 12.5 | 13.7 | .3 | 0.3 | 12.8 | 14.0 | ||||||||||||||||||||||||
Other (1) |
| | | | 1.2 | 1.4 | 1.2 | 1.4 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total derivatives |
$ | 0.7 | $ | 0.7 | $ | 28.3 | $ | 29.5 | $ | 93.8 | $ | 110.2 | $ | 122.8 | $ | 140.4 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Other includes embedded derivatives bifurcated from securitization debt, as well as derivatives related to our Total Return Swap Facility. |
Impact of Derivatives on Consolidated Statements of Income
Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
Unrealized
Gain (Loss) on Derivatives (1)(2) |
Realized
Gain (Loss) on Derivatives (3) |
Unrealized
Gain (Loss) on Hedged Item (1) |
Total Gain
(Loss) |
|||||||||||||||||||||||||||||
(Dollars in millions) |
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||||||||
Fair Value Hedges: |
||||||||||||||||||||||||||||||||
Interest rate swaps |
$ | (172 | ) | $ | (148 | ) | $ | 109 | $ | 113 | $ | 195 | $ | 156 | $ | 132 | $ | 121 | ||||||||||||||
Cross-currency interest rate swaps |
(556 | ) | 192 | 21 | 61 | 552 | (453 | ) | 17 | (200 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total fair value derivatives |
(728 | ) | 44 | 130 | 174 | 747 | (297 | ) | 149 | (79 | ) | |||||||||||||||||||||
Cash Flow Hedges: |
||||||||||||||||||||||||||||||||
Interest rate swaps |
| | (3 | ) | (7 | ) | | | (3 | ) | (7 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total cash flow derivatives |
| | (3 | ) | (7 | ) | | | (3 | ) | (7 | ) | ||||||||||||||||||||
Trading: |
||||||||||||||||||||||||||||||||
Interest rate swaps |
(19 | ) | (39 | ) | 24 | 35 | | | 5 | (4 | ) | |||||||||||||||||||||
Floor Income Contracts |
189 | 136 | (213 | ) | (215 | ) | | | (24 | ) | (79 | ) | ||||||||||||||||||||
Cross-currency interest rate swaps |
(47 | ) | (33 | ) | 20 | 2 | | | (27 | ) | (31 | ) | ||||||||||||||||||||
Other |
(4 | ) | (4 | ) | | (1 | ) | | | (4 | ) | (5 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total trading derivatives |
119 | 60 | (169 | ) | (179 | ) | | | (50 | ) | (119 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
(609 | ) | 104 | (42 | ) | (12 | ) | 747 | (297 | ) | 96 | (205 | ) | |||||||||||||||||||
Less: realized gains (losses) recorded in interest expense |
| | 127 | 167 | | | 127 | 167 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Gains (losses) on derivative and hedging activities, net |
$ | (609 | ) | $ | 104 | $ | (169 | ) | $ | (179 | ) | $ | 747 | $ | (297 | ) | $ | (31 | ) | $ | (372 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
23
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. | Derivative Financial Instruments (continued) |
Collateral
Collateral held and pledged related to derivative exposures between us and our derivative counterparties are detailed in the following table:
(Dollars in millions) |
March 31,
2013 |
December 31,
2012 |
||||||
Collateral held: |
||||||||
Cash (obligation to return cash collateral is recorded in short-term borrowings) (1) |
$ | 1,239 | $ | 1,423 | ||||
Securities at fair value on-balance sheet securitization derivatives (not recorded in financial statements) (2) |
488 | 613 | ||||||
|
|
|
|
|||||
Total collateral held |
$ | 1,727 | $ | 2,036 | ||||
|
|
|
|
|||||
Derivative asset at fair value including accrued interest |
$ | 1,972 | $ | 2,570 | ||||
|
|
|
|
|||||
Collateral pledged to others: |
||||||||
Cash (right to receive return of cash collateral is recorded in investments) |
$ | 893 | $ | 973 | ||||
|
|
|
|
|||||
Total collateral pledged |
$ | 893 | $ | 973 | ||||
|
|
|
|
|||||
Derivative liability at fair value including accrued interest and premium receivable |
$ | 1,231 | $ | 1,204 | ||||
|
|
|
|
(1) |
At March 31, 2013 and December 31, 2012, $0 and $9 million, respectively, were held in restricted cash accounts. |
(2) |
The trusts do not have the ability to sell or re-pledge securities they hold as collateral. |
Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully collateralized our corporate derivative liability position (including accrued interest and net of premiums receivable) of $940 million with our counterparties. Further downgrades would not result in any additional collateral requirements, except to increase the frequency of collateral calls. Two counterparties have the right to terminate the contracts with further downgrades. We currently have a liability position with these derivative counterparties (including accrued interest and net of premiums receivable) of $254 million and have posted $251 million of collateral to these counterparties. If the credit contingent feature was triggered for these two counterparties and the counterparties exercised their right to terminate, we would be required to deliver additional assets of $3 million to settle the contracts. Trust related derivatives do not contain credit contingent features related to our or the trusts credit ratings.
5. | Other Assets |
The following table provides the detail of our other assets.
March 31, 2013 | December 31, 2012 | |||||||||||||||
(Dollars in millions) |
Ending
Balance |
% of
Balance |
Ending
Balance |
% of
Balance |
||||||||||||
Accrued interest receivable, net |
$ | 2,129 | 29 | % | $ | 2,147 | 26 | % | ||||||||
Derivatives at fair value |
1,684 | 23 | 2,241 | 27 | ||||||||||||
Income tax asset, net current and deferred |
1,280 | 17 | 1,478 | 18 | ||||||||||||
Accounts receivable |
1,099 | 15 | 1,111 | 13 | ||||||||||||
Benefit and insurance-related investments |
475 | 6 | 474 | 6 | ||||||||||||
Fixed assets, net |
226 | 3 | 215 | 3 | ||||||||||||
Other loans, net |
129 | 2 | 137 | 2 | ||||||||||||
Other |
441 | 5 | 470 | 5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 7,463 | 100 | % | $ | 8,273 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
24
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Derivatives at fair value line in the above table represents the fair value of our derivatives in a gain position by counterparty, exclusive of accrued interest and collateral. At March 31, 2013 and December 31, 2012, these balances included $1.7 billion and $2.4 billion, respectively, of 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 March 31, 2013 and December 31, 2012, the cumulative mark-to-market adjustment to the hedged debt was $(2.1) billion and $(2.8) billion, respectively.
6. | Stockholders Equity |
The following table summarizes our common share repurchases and issuances.
Three Months Ended
March 31, |
||||||||
2013 | 2012 | |||||||
Common shares repurchased (1) |
10,220,804 | 16,703,182 | ||||||
Average purchase price per share (2) |
$ | 19.49 | $ | 16.04 | ||||
Shares repurchased related to employee stock-based compensation plans (3) |
2,324,575 | 2,056,977 | ||||||
Average purchase price per share |
$ | 18.11 | $ | 15.33 | ||||
Common shares issued (4) |
4,157,795 | 3,171,484 |
(1) |
Common shares purchased under our share repurchase program, of which $201 million remains available as of March 31, 2013. |
(2) |
Average purchase price per share includes purchase commission costs. |
(3) |
Comprises 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. |
(4) |
Common shares issued under our various compensation and benefit plans. |
The closing price of our common stock on March 28, 2013 was $20.50.
Dividend and Share Repurchase Program
In the first-quarter 2013, we paid a common stock dividend of $0.15 per common share, up from $0.125 per common share in the prior year.
For the first-quarter 2013, we repurchased 10 million shares of common stock for $199 million. The shares were repurchased under the Companys February 2013 share repurchase program that authorizes up to $400 million of share repurchases.
In 2012, we authorized the repurchase of up to $900 million of outstanding common stock in open market transactions and we repurchased 58 million shares for an aggregate purchase price of $900 million.
25
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. | Earnings per Common Share |
Basic earnings 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.
Three Months Ended
March 31, |
||||||||
(In millions, except per share data) |
2013 | 2012 | ||||||
Numerator: |
||||||||
Net income attributable to SLM Corporation |
$ | 346 | $ | 112 | ||||
Preferred stock dividends |
5 | 5 | ||||||
|
|
|
|
|||||
Net income attributable to SLM Corporation common stock |
$ | 341 | $ | 107 | ||||
|
|
|
|
|||||
Denominator: |
||||||||
Weighted average shares used to compute basic EPS |
451 | 503 | ||||||
Effect of dilutive securities: |
||||||||
Dilutive effect of stock options, non-vested deferred compensation and restricted stock, restricted stock units and Employee Stock Purchase Plan (ESPP) (1) |
7 | 7 | ||||||
|
|
|
|
|||||
Dilutive potential common shares (2) |
7 | 7 | ||||||
|
|
|
|
|||||
Weighted average shares used to compute diluted EPS |
458 | 510 | ||||||
|
|
|
|
|||||
Basic earnings per common share attributable to SLM Corporation |
$ | .76 | $ | .21 | ||||
|
|
|
|
|||||
Diluted earnings per common share attributable to SLM Corporation |
$ | .74 | $ | .21 | ||||
|
|
|
|
(1) |
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. |
(2) |
For the three months ended March 31, 2013 and 2012, securities covering approximately 5 million and 12 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive. |
8. | Fair Value Measurements |
We use estimates of fair value in applying various accounting standards in our financial statements.
We categorize our fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. Please refer to Note 13 Fair Value Measurements in our 2012 Form 10-K for a full discussion.
During the three months ended March 31, 2013, there were no significant transfers of financial instruments between levels, or changes in our methodology or assumptions used to value our financial instruments.
26
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. | Fair Value Measurements (continued) |
The following table summarizes the valuation of our financial instruments that are marked-to-market on a recurring basis.
Fair Value Measurements on a Recurring Basis | ||||||||||||||||||||||||||||||||
March 31, 2013 | December 31, 2012 | |||||||||||||||||||||||||||||||
(Dollars in millions) |
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||
Available-for-sale investments: |
||||||||||||||||||||||||||||||||
Agency residential mortgage-backed securities |
$ | | $ | 67 | $ | | $ | 67 | $ | | $ | 63 | $ | | $ | 63 | ||||||||||||||||
Guaranteed investment contracts |
| 8 | | 8 | | 9 | | 9 | ||||||||||||||||||||||||
Other |
| 10 | | 10 | | 9 | | 9 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total available-for-sale investments |
| 85 | | 85 | | 81 | | 81 | ||||||||||||||||||||||||
Derivative instruments: (1) |
||||||||||||||||||||||||||||||||
Interest rate swaps |
| 1,275 | 90 | 1,365 | | 1,444 | 102 | 1,546 | ||||||||||||||||||||||||
Cross-currency interest rate swaps |
| 26 | 728 | 754 | | 48 | 1,187 | 1,235 | ||||||||||||||||||||||||
Other |
| | | | | | 4 | 4 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total derivative assets (3) |
| 1,301 | 818 | 2,119 | | 1,492 | 1,293 | 2,785 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | | $ | 1,386 | $ | 818 | $ | 2,204 | $ | | $ | 1,573 | $ | 1,293 | $ | 2,866 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Liabilities (2) |
||||||||||||||||||||||||||||||||
Derivative instruments (1) |
||||||||||||||||||||||||||||||||
Interest rate swaps |
$ | | $ | (49 | ) | $ | (166 | ) | $ | (215 | ) | $ | | $ | (34 | ) | $ | (175 | ) | $ | (209 | ) | ||||||||||
Floor Income Contracts |
| (1,969 | ) | | (1,969 | ) | | (2,154 | ) | | (2,154 | ) | ||||||||||||||||||||
Cross-currency interest rate swaps |
| | (258 | ) | (258 | ) | | (2 | ) | (134 | ) | (136 | ) | |||||||||||||||||||
Other |
| | | | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total derivative liabilities (3) |
| (2,018 | ) | (424 | ) | (2,442 | ) | | (2,190 | ) | (309 | ) | (2,499 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | | $ | (2,018 | ) | $ | (424 | ) | $ | (2,442 | ) | $ | | $ | (2,190 | ) | $ | (309 | ) | $ | (2,499 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Fair value of derivative instruments excludes accrued interest and the value of collateral. |
(2) |
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. |
(3) |
See Note 4 Derivative Financial Instruments for a reconciliation of gross positions without the impact of master netting agreements to the balance sheet classification. |
27
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. | Fair Value Measurements (continued) |
The following tables summarize the change in balance sheet carrying value associated with level 3 financial instruments carried at fair value on a recurring basis.
Three Months Ended March 31, 2013 | ||||||||||||||||
Derivative Instruments | ||||||||||||||||
(Dollars in millions) |
Interest
Rate Swaps |
Cross-
Currency Interest Rate Swaps |
Other |
Total
Derivative Instruments |
||||||||||||
Balance, beginning of period |
$ | (73 | ) | $ | 1,053 | $ | 4 | $ | 984 | |||||||
Total gains/(losses) (realized and unrealized): |
||||||||||||||||
Included in earnings (1) |
5 | (546 | ) | (5 | ) | (546 | ) | |||||||||
Included in other comprehensive income |
| | | | ||||||||||||
Settlements |
(8 | ) | (37 | ) | 1 | (44 | ) | |||||||||
Transfers in and/or out of level 3 |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | (76 | ) | $ | 470 | $ | | $ | 394 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Change in unrealized gains/(losses) relating to instruments still held at the reporting date (2) |
$ | (3 | ) | $ | (514 | ) | $ | (5 | ) | $ | (522 | ) | ||||
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2012 | ||||||||||||||||
Derivative instruments | ||||||||||||||||
(Dollars in millions) |
Interest
Rate Swaps |
Cross-
Currency Interest Rate Swaps |
Other |
Total
Derivative Instruments |
||||||||||||
Balance, beginning of period |
$ | (40 | ) | $ | 1,021 | $ | 1 | $ | 982 | |||||||
Total gains/(losses) (realized and unrealized): |
||||||||||||||||
Included in earnings (1) |
(4 | ) | 170 | (5 | ) | 161 | ||||||||||
Included in other comprehensive income |
| | | | ||||||||||||
Settlements |
(12 | ) | (46 | ) | | (58 | ) | |||||||||
Transfers in and/or out of level 3 |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | (56 | ) | $ | 1,145 | $ | (4 | ) | $ | 1,085 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Change in unrealized gains/(losses) relating to instruments still held at the reporting date (2) |
$ | (16 | ) | $ | 124 | $ | (4 | ) | $ | 104 | ||||||
|
|
|
|
|
|
|
|
(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
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Gains (losses) on derivative and hedging activities, net |
$ | (562 | ) | $ | 116 | |||
Interest expense |
16 | 45 | ||||||
|
|
|
|
|||||
Total |
$ | (546 | ) | $ | 161 | |||
|
|
|
|
(2) |
Recorded in gains (losses) on derivative and hedging activities, net in the consolidated statements of income. |
28
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. | Fair Value Measurements (continued) |
The following table presents the significant inputs that are unobservable or from inactive markets used in the recurring valuations of the level 3 financial instruments detailed above.
(Dollars in millions) |
Fair Value at
March 31, 2013 |
Valuation
Technique |
Input |
Range
(Weighted Average) |
||||||
Derivatives |
||||||||||
Consumer Price Index/LIBOR basis swaps |
$ | 81 | Discounted cash flow |
Bid/ask adjustment
to discount rate |
0.03% 0.05%
(0.04%) |
|||||
Prime/LIBOR basis swaps |
(157) | Discounted cash flow | Constant prepayment rate | 4.3% | ||||||
Bid/ask adjustment to
discount rate |
0.08% 0.08%
(0.08%) |
|||||||||
Cross-currency interest rate swaps |
470 | Discounted cash flow | Constant prepayment rate | 2.6% | ||||||
|
|
|||||||||
Total |
$ | 394 | ||||||||
|
|
The significant inputs that are unobservable or from inactive markets related to our level 3 derivatives detailed in the table above would be expected to have the following impacts to the valuations:
|
Consumer Price Index/LIBOR basis swaps These swaps do not actively trade in the markets as indicated by a wide bid/ask spread. A wider bid/ask spread will result in a decrease in the overall valuation. |
|
Prime/LIBOR basis swaps These swaps do not actively trade in the markets as indicated by a wide bid/ask spread. A wider bid/ask spread will result in a decrease in the overall valuation. In addition, the unobservable inputs include constant prepayment rates of the underlying securitization trust the swap references. A decrease in this input will result in a longer weighted average life of the swap which will increase the value for swaps in a gain position and decrease the value for swaps in a loss position, everything else equal. The opposite is true for an increase in the input. |
|
Cross-currency interest rate swaps The unobservable inputs used in these valuations are constant prepayment rates of the underlying securitization trust the swap references. A decrease in this input will result in a longer weighted average life of the swap. All else equal in a typical currency market, this will result in a decrease to the valuation due to the delay in the cash flows of the currency exchanges as well as diminished liquidity in the forward exchange markets as you increase the term. The opposite is true for an increase in the input. |
29
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. | Fair Value Measurements (continued) |
The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.
March 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
(Dollars in millions) |
Fair
Value |
Carrying
Value |
Difference |
Fair
Value |
Carrying
Value |
Difference | ||||||||||||||||||
Earning assets |
||||||||||||||||||||||||
FFELP Loans |
$ | 119,294 | $ | 119,195 | $ | 99 | $ | 125,042 | $ | 125,612 | $ | (570 | ) | |||||||||||
Private Education Loans |
37,214 | 37,465 | (251 | ) | 36,081 | 36,934 | (853 | ) | ||||||||||||||||
Cash and investments (1) |
9,519 | 9,519 | | 9,994 | 9,994 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total earning assets |
166,027 | 166,179 | (152 | ) | 171,117 | 172,540 | (1,423 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Interest-bearing liabilities |
||||||||||||||||||||||||
Short-term borrowings |
17,250 | 17,254 | 4 | 19,861 | 19,856 | (5 | ) | |||||||||||||||||
Long-term borrowings |
144,203 | 147,887 | 3,684 | 146,210 | 152,401 | 6,191 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest-bearing liabilities |
161,453 | 165,141 | 3,688 | 166,071 | 172,257 | 6,186 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Derivative financial instruments |
||||||||||||||||||||||||
Floor Income Contracts |
(1,969 | ) | (1,969 | ) | | (2,154 | ) | (2,154 | ) | | ||||||||||||||
Interest rate swaps |
1,150 | 1,150 | | 1,337 | 1,337 | | ||||||||||||||||||
Cross-currency interest rate swaps |
496 | 496 | | 1,099 | 1,099 | | ||||||||||||||||||
Other |
| | | 4 | 4 | | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Excess of net asset fair value over carrying value |
$ | 3,536 | $ | 4,763 | ||||||||||||||||||||
|
|
|
|
(1) |
Cash and investments includes available-for-sale investments that consist of investments that are primarily agency securities whose cost basis is $83 million and $78 million at March 31, 2013 and December 31, 2012, respectively, versus a fair value of $85 million and $81 million at March 31, 2013 and December 31, 2012, respectively. |
The following includes a discussion of financial instruments whose fair value is included for disclosure purposes only in the table above along with their level in the fair value hierarchy.
Student Loans
FFELP Loans
Fair values for FFELP Loans were determined by modeling loan cash flows using stated terms of the loans and internally-developed assumptions. The significant assumptions used to determine fair value are prepayment speeds, default rates, cost of funds, capital levels, and expected Repayment Borrower Benefits to be earned. In addition, the Floor Income component of our FFELP Loan portfolio is valued with option models using both observable market inputs and internally developed inputs. A number of significant inputs into the models are internally derived and not observable to market participants. While the resulting fair value can be validated against market transactions where we are a participant, these markets are not considered active. As such, these are level 3 valuations.
Private Education Loans
Fair values for Private Education Loans were determined by modeling loan cash flows using stated terms of the loans and internally-developed assumptions. The significant assumptions used to determine fair value are
30
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. | Fair Value Measurements (continued) |
prepayment speeds, default rates, recovery rates, cost of funds and capital levels. A number of significant inputs into the models are internally derived and not observable to market participants nor can the resulting fair values be validated against market transactions. As such, these are level 3 valuations.
Cash and Investments (Including Restricted Cash and Investments)
Cash and cash equivalents are carried at cost. Carrying value approximated fair value. These are level 2 valuations.
Borrowings
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, observable yield curves, foreign currency exchange rates, volatilities from active markets or from quotes from broker-dealers. Fair value adjustments for unsecured corporate debt are made based on indicative quotes from observable trades and spreads on credit default swaps specific to the Company. Fair value adjustments for secured borrowings are based on indicative quotes from broker-dealers. These fair value adjustments are based on inputs from inactive markets. As such, these are level 3 valuations.
9. | Commitments and Contingencies |
In the ordinary course of business, we and our 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 and other laws. In certain of these actions and proceedings, claims for substantial monetary damage are asserted against us and our subsidiaries.
In the ordinary course of business, we and our subsidiaries are subject to regulatory examinations, information gathering requests, inquiries and investigations. In connection with formal and informal inquiries in these cases, we and our subsidiaries receive numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of our regulated activities.
In view of the inherent difficulty of predicting the outcome of such litigation and regulatory matters, we 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.
We are required to establish reserves for litigation and regulatory matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, we do not establish reserves.
Based on current knowledge, reserves have been established for certain litigation or regulatory matters where the loss is both probable and estimable. Based on current knowledge, management does not believe that loss contingencies, if any, arising from pending investigations, litigation or regulatory matters will have a material adverse effect on our consolidated financial position, liquidity, results of operations or cash flows.
31
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. | Segment Reporting |
Consumer Lending Segment
In this segment, we originate, acquire, finance and service Private Education Loans. The Private Education Loans we make are primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans or customers resources. In this segment, we earn net interest income on the Private Education Loan portfolio (after provision for loan losses) as well as servicing fees, primarily consisting of late fees.
The following table includes asset information for our Consumer Lending segment.
(Dollars in millions) |
March 31,
2013 |
December 31,
2012 |
||||||
Private Education Loans, net |
$ | 37,465 | $ | 36,934 | ||||
Cash and investments (1) |
3,107 | 2,731 | ||||||
Other |
3,095 | 3,275 | ||||||
|
|
|
|
|||||
Total assets |
$ | 43,667 | $ | 42,940 | ||||
|
|
|
|
(1) |
Includes restricted cash and investments. |
Business Services Segment
Our Business Services segment generates the majority of its revenue from servicing our FFELP Loan portfolio. We also provide servicing, loan default aversion and defaulted loan collection services for loans on behalf of Guarantors of FFELP Loans and other institutions, including ED, as well as processing capabilities to educational institutions and 529 college-savings plan programs. We also operate a consumer savings network that provides financial rewards on everyday purchases to help families save for college.
At March 31, 2013 and December 31, 2012, the Business Services segment had total assets of $883 million and $867 million, respectively.
FFELP Loans Segment
Our FFELP Loans segment consists of our $119.2 billion FFELP Loan portfolio at March 31, 2013 and underlying debt and capital funding these loans. FFELP Loans are no longer originated but we continue to seek to acquire FFELP Loan portfolios to leverage our servicing scale to generate incremental earnings and cash flow. This segment is expected to generate significant amounts of cash as the FFELP portfolio amortizes.
The following table includes asset information for our FFELP Loans segment.
(Dollars in millions) |
March 31,
2013 |
December 31,
2012 |
||||||
FFELP Loans, net |
$ | 119,195 | $ | 125,612 | ||||
Cash and investments (1) |
5,489 | 5,766 | ||||||
Other |
3,703 | 4,286 | ||||||
|
|
|
|
|||||
Total assets |
$ | 128,387 | $ | 135,664 | ||||
|
|
|
|
(1) |
Includes restricted cash and investments. |
32
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. | Segment Reporting (continued) |
Other Segment
Our Other segment primarily consists of activities of our holding company, including the repurchase of debt, the corporate liquidity portfolio and all overhead. We also include results from smaller wind-down and discontinued operations within this segment
At March 31, 2013 and December 31, 2012, the Other segment had total assets of $1.1 billion and $1.8 billion, respectively.
Measure of Profitability
The tables below include the condensed operating results for each of our reportable segments. Management, including the chief operating decision makers, evaluates the Company on certain performance measures that we refer to as Core Earnings performance measures for each operating segment. We use Core Earnings to manage each business segment because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that Core Earnings provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information as we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. The two items adjusted for in our Core Earnings presentations are (1) our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness and (2) the accounting for goodwill and acquired intangible assets. 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 our consolidated operating results in accordance with GAAP is also included in the tables below.
Our Core Earnings performance measures are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. 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. Our 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.
33
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. | Segment Reporting (continued) |
Segment Results and Reconciliations to GAAP
Three Months Ended March 31, 2013 | ||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) |
Consumer
Lending |
Business
Services |
FFELP
Loans |
Other | Eliminations (1) |
Total
Core Earnings |
Adjustments |
Total
GAAP |
||||||||||||||||||||||||||||||||
Reclassifications |
Additions/
(Subtractions) |
Total
Adjustments (2) |
||||||||||||||||||||||||||||||||||||||
Interest income: |
||||||||||||||||||||||||||||||||||||||||
Student loans |
$ | 623 | $ | | $ | 599 | $ | | $ | | $ | 1,222 | $ | 212 | $ | (76 | ) | $ | 136 | $ | 1,358 | |||||||||||||||||||
Other loans |
| | | 3 | | 3 | | | | 3 | ||||||||||||||||||||||||||||||
Cash and investments |
1 | 2 | 2 | 2 | (2 | ) | 5 | | | | 5 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total interest income |
624 | 2 | 601 | 5 | (2 | ) | 1,230 | 212 | (76 | ) | 136 | 1,366 | ||||||||||||||||||||||||||||
Total interest expense |
204 | | 340 | 13 | (2 | ) | 555 | 18 | (2 | ) (4) | 16 | 571 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net interest income (loss) |
420 | 2 | 261 | (8 | ) | | 675 | 194 | (74 | ) | 120 | 795 | ||||||||||||||||||||||||||||
Less: provisions for loan losses |
225 | | 16 | | | 241 | | | | 241 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net interest income (loss) after provisions for loan losses |
195 | 2 | 245 | (8 | ) | | 434 | 194 | (74 | ) | 120 | 554 | ||||||||||||||||||||||||||||
Servicing revenue |
10 | 212 | 23 | | (149 | ) | 96 | | | | 96 | |||||||||||||||||||||||||||||
Contingency revenue |
| 99 | | | | 99 | | | | 99 | ||||||||||||||||||||||||||||||
Gains on debt repurchases |
| | | 29 | | 29 | (6 | ) | | (6 | ) | 23 | ||||||||||||||||||||||||||||
Other income |
| 8 | 55 | | | 63 | (188 | ) | 184 | (5) | (4 | ) | 59 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total other income (loss) |
10 | 319 | 78 | 29 | (149 | ) | 287 | (194 | ) | 184 | (10 | ) | 277 | |||||||||||||||||||||||||||
Expenses: |
||||||||||||||||||||||||||||||||||||||||
Direct operating expenses |
66 | 122 | 157 | | (149 | ) | 196 | | | | 196 | |||||||||||||||||||||||||||||
Overhead expenses |
| | | 74 | | 74 | | | | 74 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Operating expenses |
66 | 122 | 157 | 74 | (149 | ) | 270 | | | | 270 | |||||||||||||||||||||||||||||
Goodwill and acquired intangible assets impairment and amortization |
| | | | | | | 4 | 4 | 4 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total expenses |
66 | 122 | 157 | 74 | (149 | ) | 270 | | 4 | 4 | 274 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Income (loss) before income tax expense (benefit) |
139 | 199 | 166 | (53 | ) | | 451 | | 106 | 106 | 557 | |||||||||||||||||||||||||||||
Income tax expense (benefit) (3) |
51 | 75 | 62 | (20 | ) | | 168 | | 43 | 43 | 211 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) |
$ | 88 | $ | 124 | $ | 104 | $ | (33 | ) | $ | | $ | 283 | $ | | $ | 63 | $ | 63 | $ | 346 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment. |
(2) |
Core Earnings adjustments to GAAP: |
Three Months Ended March 31, 2013 | ||||||||||||
(Dollars in millions) |
Net Impact of
Derivative Accounting |
Net Impact of
Goodwill andAcquired Intangibles |
Total | |||||||||
Net interest income after provisions for loan losses |
$ | 120 | $ | | $ | 120 | ||||||
Total other loss |
(10 | ) | | (10 | ) | |||||||
Goodwill and acquired intangible assets impairment and amortization |
| 4 | 4 | |||||||||
|
|
|
|
|
|
|||||||
Total Core Earnings adjustments to GAAP |
$ | 110 | $ | (4 | ) | 106 | ||||||
|
|
|
|
|||||||||
Income tax expense |
43 | |||||||||||
|
|
|||||||||||
Net income |
$ | 63 | ||||||||||
|
|
(3) |
Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
(4) |
Represents a portion of the $29 million of other derivative accounting adjustments. |
(5) |
Represents the $157 million of unrealized gains on derivative and hedging activities, net as well as the remaining portion of the $29 million of other derivative accounting adjustments. |
34
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. | Segment Reporting (continued) |
Three Months Ended March 31, 2012 | ||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) |
Consumer
Lending |
Business
Services |
FFELP
Loans |
Other | Eliminations (1) |
Total
Core Earnings |
Adjustments |
Total
GAAP |
||||||||||||||||||||||||||||||||
Reclassifications |
Additions/
(Subtractions) |
Total
Adjustments (2) |
||||||||||||||||||||||||||||||||||||||
Interest income: |
||||||||||||||||||||||||||||||||||||||||
Student loans |
$ | 625 | $ | | $ | 725 | $ | | $ | | $ | 1,350 | $ | 215 | $ | (98 | ) | $ | 117 | $ | 1,467 | |||||||||||||||||||
Other loans |
| | | 5 | | 5 | | | | 5 | ||||||||||||||||||||||||||||||
Cash and investments |
2 | 3 | 3 | | (3 | ) | 5 | | | | 5 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total interest income |
627 | 3 | 728 | 5 | (3 | ) | 1,360 | 215 | (98 | ) | 117 | 1,477 | ||||||||||||||||||||||||||||
Total interest expense |
202 | | 424 | 5 | (3 | ) | 628 | 36 | 2 | (4) | 38 | 666 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net interest income (loss) |
425 | 3 | 304 | | | 732 | 179 | (100 | ) | 79 | 811 | |||||||||||||||||||||||||||||
Less: provisions for loan losses |
235 | | 18 | | | 253 | | | | 253 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net interest income (loss) after provisions for loan losses |
190 | 3 | 286 | | | 479 | 179 | (100 | ) | 79 | 558 | |||||||||||||||||||||||||||||
Servicing revenue |
12 | 236 | 25 | | (176 | ) | 97 | | | | 97 | |||||||||||||||||||||||||||||
Contingency revenue |
| 90 | | | | 90 | | | | 90 | ||||||||||||||||||||||||||||||
Gains on debt repurchases |
| | | 37 | | 37 | | | | 37 | ||||||||||||||||||||||||||||||
Other income (loss) |
| 8 | | 3 | | 11 | (179 | ) | (164 | ) (5) | (343 | ) | (332 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total other income (loss) |
12 | 334 | 25 | 40 | (176 | ) | 235 | (179 | ) | (164 | ) | (343 | ) | (108 | ) | |||||||||||||||||||||||||
Expenses: |
||||||||||||||||||||||||||||||||||||||||
Direct operating expenses |
69 | 120 | 185 | | (176 | ) | 198 | | | | 198 | |||||||||||||||||||||||||||||
Overhead expenses |
| | | 64 | | 64 | | | | 64 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Operating expenses |
69 | 120 | 185 | 64 | (176 | ) | 262 | | | | 262 | |||||||||||||||||||||||||||||
Goodwill and acquired intangible assets impairment and amortization |
| | | | | | | 5 | 5 | 5 | ||||||||||||||||||||||||||||||
Restructuring expenses |
1 | 1 | | 3 | | 5 | | | | 5 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total expenses |
70 | 121 | 185 | 67 | (176 | ) | 267 | | 5 | 5 | 272 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Income (loss) before income tax expense (benefit) |
132 | 216 | 126 | (27 | ) | | 447 | | (269 | ) | (269 | ) | 178 | |||||||||||||||||||||||||||
Income tax expense (benefit) (3) |
48 | 80 | 46 | (10 | ) | | 164 | | (97 | ) | (97 | ) | 67 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) |
84 | 136 | 80 | (17 | ) | | 283 | | (172 | ) | (172 | ) | 111 | |||||||||||||||||||||||||||
Less: net loss attributable to noncontrolling interest |
| (1 | ) | | | | (1 | ) | | | | (1 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) attributable to SLM Corporation |
$ | 84 | $ | 137 | $ | 80 | $ | (17 | ) | $ | | $ | 284 | $ | | $ | (172 | ) | $ | (172 | ) | $ | 112 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment. |
(2) |
Core Earnings adjustments to GAAP: |
Three Months Ended March 31, 2012 | ||||||||||||
(Dollars in millions) |
Net Impact of
Derivative Accounting |
Net Impact of
Goodwill and Acquired Intangibles |
Total | |||||||||
Net interest income after provisions for loan losses |
$ | 79 | $ | | $ | 79 | ||||||
Total other loss |
(343 | ) | | (343 | ) | |||||||
Goodwill and acquired intangible assets impairment and amortization |
| 5 | 5 | |||||||||
|
|
|
|
|
|
|||||||
Total Core Earnings adjustments to GAAP |
$ | (264 | ) | $ | (5 | ) | (269 | ) | ||||
|
|
|
|
|||||||||
Income tax benefit |
(97 | ) | ||||||||||
|
|
|||||||||||
Net loss |
$ | (172 | ) | |||||||||
|
|
(3) |
Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
(4) |
Represents a portion of the $27 million of other derivative accounting adjustments. |
(5) |
Represents the $193 million of unrealized losses on derivative and hedging activities, net as well as the remaining portion of the $27 million of other derivative accounting adjustments. |
35
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. | Segment Reporting (continued) |
Summary of Core Earnings Adjustments to GAAP
The two adjustments required to reconcile from our Core Earnings results to our GAAP results of operations relate to differing treatments for: (1) our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness and (2) the accounting for goodwill and acquired intangible assets. The following table reflects aggregate adjustments associated with these areas.
Three months ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Core Earnings adjustments to GAAP: |
||||||||
Net impact of derivative accounting (1) |
$ | 110 | $ | (264 | ) | |||
Net impact of goodwill and acquired intangible assets (2) |
(4 | ) | (5 | ) | ||||
Net tax effect (3) |
(43 | ) | 97 | |||||
|
|
|
|
|||||
Total Core Earnings adjustments to GAAP |
$ | 63 | $ | (172 | ) | |||
|
|
|
|
(1) |
Derivative accounting: Core Earnings exclude periodic unrealized gains and losses that are caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP as well as the periodic unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. These unrealized gains and losses occur in our Consumer Lending, FFELP Loans and Other business segments. Under GAAP, for our derivatives that are held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0 except for Floor Income Contracts where the cumulative unrealized gain will equal the amount for which we sold the contract. In our Core Earnings presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged items life. |
(2) |
Goodwill and acquired intangible assets: Our Core Earnings exclude goodwill and intangible asset impairment and amortization of acquired intangible assets. |
(3) |
Net tax effect: Such tax effect is based upon our Core Earnings effective tax rate for the year. |
11. Subsequent Event
On April 11, 2013, we sold the Residual Interest in a FFELP Loan securitization trust to a third party. We will continue to service the student loans in the trust under existing agreements. The sale will remove student loan assets of approximately $2.03 billion and related liabilities of approximately $1.99 billion from our balance sheet.
36
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and our Audited Consolidated Financial Statements and related Notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the 2012 Form 10-K).
This 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, opinions, 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 risks and uncertainties set forth in Item 1A Risk Factors and elsewhere in our 2012 Form 10-K and subsequent filings with the Securities and Exchange Commission (SEC); increases in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; changes in accounting standards and the impact of related changes in significant accounting estimates; any adverse outcomes in any significant litigation to which we are a party; credit risk associated with our exposure to third parties, including counterparties to our derivative transactions; and changes in the terms of student loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws). We could also be affected by, among other things: changes in our funding costs and availability; reductions to our credit ratings or the credit ratings of the United States of America; failures of our operating systems or infrastructure, including those of third-party vendors; damage to our reputation; failures to successfully implement cost-cutting and restructuring initiatives and adverse effects of such initiatives on our business; changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students and their families; changes in law and regulations with respect to the student lending business and financial institutions generally; increased competition from banks and other consumer lenders; the creditworthiness of our customers; changes in the general interest rate environment, including the rate relationships among relevant money-market instruments and those of our earning assets versus our funding arrangements; changes in general economic conditions; our ability to successfully effectuate any acquisitions and other strategic initiatives; and changes in the demand for 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 report are qualified by these cautionary statements and are made only as of the date of this document. We do not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in our expectations.
Definitions for certain capitalized terms used in this document can be found in the 2012 Form 10-K.
Certain reclassifications have been made to the balances as of and for the three months ended March 31, 2012 to be consistent with classifications adopted for 2013, and had no effect on net income, total assets, or total liabilities.
Through this discussion and analysis, we intend to provide the reader with some narrative context for how our management views our consolidated financial statements, additional context within which to assess our operating results, and information on the quality and variability of our earnings, liquidity and cash flows.
37
Selected Financial Information and Ratios
Three Months Ended
March 31, |
||||||||
(In millions, except per share data) |
2013 | 2012 | ||||||
GAAP Basis |
||||||||
Net income attributable to SLM Corporation |
$ | 346 | $ | 112 | ||||
Diluted earnings per common share attributable to SLM Corporation |
$ | .74 | $ | .21 | ||||
Weighted average shares used to compute diluted earnings per share |
458 | 510 | ||||||
Return on assets |
.82 | % | .24 | % | ||||
Core Earnings Basis (1) |
||||||||
Core Earnings attributable to SLM Corporation |
$ | 283 | $ | 284 | ||||
Core Earnings diluted earnings per common share attributable to SLM Corporation |
$ | .61 | $ | .55 | ||||
Weighted average shares used to compute diluted earnings per share |
458 | 510 | ||||||
Core Earnings return on assets |
.67 | % | .62 | % | ||||
Other Operating Statistics |
||||||||
Ending FFELP Loans, net |
$ | 119,195 | $ | 135,934 | ||||
Ending Private Education Loans, net |
37,465 | 36,732 | ||||||
|
|
|
|
|||||
Ending total student loans, net |
$ | 156,660 | $ | 172,666 | ||||
|
|
|
|
|||||
Average student loans |
$ | 160,261 | $ | 174,942 |
(1) |
Core Earnings are non-GAAP financial measures and do not represent a comprehensive basis of accounting. For a greater explanation of Core Earnings, see the section titled Core Earnings Definition and Limitations and subsequent sections. |
Overview
Our primary business is to originate, service and collect loans we make to students and their families to finance the cost of education. The core of our marketing strategy is to generate student loan originations by promoting our products on campus through the financial aid office and through direct marketing to students and their families. We also provide servicing, loan default aversion and defaulted loan collection services for loans owned by other institutions, including ED, as well as providing processing capabilities to educational institutions, 529 college-savings plan program management services and a consumer savings network.
In addition we are the largest holder, servicer and collector of loans made under FFELP, a program that was discontinued in 2010.
We monitor and assess our ongoing operations and results based on the following four reportable segments:
(1) Consumer Lending, (2) Business Services, (3) FFELP Loans and (4) Other.
Consumer Lending Segment
In this segment, we originate, acquire, finance and service Private Education Loans. The Private Education Loans we make are primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans or customers resources. In this segment, we earn net interest income on the Private Education Loan portfolio (after provision for loan losses) as well as servicing fees, primarily consisting of late fees.
38
Business Services Segment
Our Business Services segment generates the majority of its revenue from servicing our FFELP Loan portfolio. We also provide servicing, loan default aversion and defaulted loan collection services for loans on behalf of Guarantors of FFELP Loans and other institutions, including ED, as well as processing capabilities to educational institutions and 529 college-savings plan programs. We also operate a consumer savings network that provides financial rewards on everyday purchases to help families save for college.
FFELP Loans Segment
Our FFELP Loans segment consists of our $119.2 billion FFELP Loan portfolio at March 31, 2013 and underlying debt and capital funding these loans. FFELP Loans are no longer originated but we continue to seek to acquire FFELP Loan portfolios to leverage our servicing scale to generate incremental earnings and cash flow. This segment is expected to generate significant amounts of cash as the FFELP portfolio amortizes.
Other
Our Other segment primarily consists of activities of our holding company, including the repurchase of debt, the corporate liquidity portfolio and all overhead. We also include results from smaller wind-down and discontinued operations within this segment.
Recent Developments
Many aspects of our businesses are subject to federal and state regulation and administrative oversight, including by the Consumer Financial Protection Bureau (the CFPB). We expect the CFPB and other regulatory agencies will continue proposing new or additional regulatory requirements or oversight over our various businesses (most notably, private student lending and servicing, default aversion and debt collection), or, generally to large nonbank financial services companies. Additional information on supervision and regulation of our businesses can be found in Item 1, Business Supervision and Regulation in our 2012 Form 10-K.
CFPB Oversight of Nonbank Student Loan Servicers
On March 14, 2013, the CFPB proposed a new rule allowing the CFPB to federally supervise certain nonbank student loan servicers for the first time. As proposed, the CFPB will have supervisory authority over any nonbank student loan servicer that services more than one million borrower accounts, including accounts for both Private Education Loans and federal student loans. We would be subject to this new oversight. Under the proposal, the CFPBs supervision would include gathering reports, conducting examinations for compliance with federal consumer financial laws and taking enforcement actions as appropriate, similar to the CFPBs current supervisory authority over large bank student loan servicers. The CFPB expects to issue a final rule by the end of this year.
Key Financial Measures
Our operating results are primarily driven by net interest income from our student loan portfolios (which include financing costs), provision for loan losses, the revenues and expenses generated by our service businesses, and gains and losses on loan sales and debt repurchases. We manage and assess the performance of each business segment separately as each is focused on different customers and each derives its revenue from different activities and services. A brief summary of our key financial measures (net interest income; provisions for loan losses; charge-offs and delinquencies; servicing and contingency revenues; other income (loss); operating expenses; and Core Earnings) can be found in Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations in our 2012 Form 10-K.
39
First-Quarter 2013 Summary of Results
We operate in a challenging economic environment marked by continued high unemployment resulting in uncertainty to Private Education Loan collectibility.
Our first-quarter 2013 accomplishments are discussed below.
We report financial results on a GAAP basis and also present certain Core Earnings performance measures. Our management, equity investors, credit rating agencies and debt capital providers use these Core Earnings measures to monitor our business performance. See Core Earnings Definition and Limitations for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.
First-quarter 2013 GAAP net income was $346 million ($0.74 diluted earnings per share), versus net income of $112 million ($0.21 diluted earnings per share) in the first-quarter 2012. The changes in GAAP net income are driven by the same types of Core Earnings items discussed below as well as changes in mark-to-market unrealized gains and losses on derivative contracts and amortization and impairment of goodwill and intangible assets that are recognized in GAAP but not in Core Earnings results. First-quarter 2013 results included a $110 million gain from derivative accounting treatment that is excluded from Core Earnings results. In the year-ago period, these amounts were losses of $264 million.
Core Earnings for the quarter were $283 million ($0.61 diluted earnings per share), compared with $284 million ($0.55 diluted earnings per share) in the year-ago period. The improvement in Core Earnings earnings per share was primarily the result of a $55 million gain from the sale of the Residual Interest in a FFELP Loan securitization trust, a $12 million decline in the provision for loan losses and a decline in the number of common shares outstanding, which more than offset lower net interest income before provision for loan losses of $57 million and lower debt repurchase gains of $8 million.
During the first quarter of 2013, we:
|
issued $1.2 billion of FFELP asset-backed securities (ABS), $1.4 billion of Private Education Loan ABS and $1.5 billion of unsecured bonds; |
|
repurchased $927 million of debt and realized Core Earnings gains of $29 million, compared with $204 million of debt repurchased and $37 million of gains in the first quarter of 2012; |
|
repurchased 10 million common shares for $199 million on the open market as part of our previously announced share repurchase program authorization of up to $400 million; |
|
increased our regular quarterly common stock dividend to $0.15 per share, up from $0.125 per share in the prior quarter. We paid our quarterly dividend on March 15, 2013; and |
|
sold the Residual Interest in a FFELP Loan securitization trust to a third party. We will continue to service the student loans in the trust under existing agreements. The sale removed student loan assets of $3.8 billion and related liabilities of $3.7 billion from our balance sheet. |
2013 Management Objectives
In 2013 we have set out five major goals to create shareholder value. They are: (1) prudently grow Consumer Lending segment assets and revenues; (2) maximize cash flows from FFELP Loans; (3) reduce operating expenses while improving efficiency and customer experience; (4) maintain our financial strength; and (5) expand the Banks capabilities. Here is how we plan to achieve these objectives and the progress we have made to date:
40
Prudently Grow Consumer Lending Segment Assets and Revenues
We will continue to pursue managed growth in our Private Education Loan portfolio in 2013 by leveraging our Sallie Mae and Upromise brand while sustaining the credit quality of, and percentage of cosigners for, new originations. We are currently targeting at least $4 billion in new loan originations for 2013, compared with $3.3 billion in 2012. We will also continue to help our customers manage their borrowings and succeed in its payoff, which we expect will result in lower charge-offs and provision for loan losses. Originations were 22 percent higher in the first quarter of 2013 compared with the year-ago quarter. Charge-offs remained unchanged at 3.0 percent in both quarters. Provision for Private Education Loan losses decreased $10 million from the year-ago quarter.
Maximize Cash Flows from FFELP Loans
In 2013, we will continue to purchase additional FFELP Loan portfolios. In February 2013, we sold our ownership interest in one of our FFELP Loan securitization trusts. We will continue to explore alternative transactions and structures that can increase our ability to maximize the value of our ownership interests in these trusts and allow us to diversify our holdings while maintaining servicing fee income. We must also continue to reduce operating and overhead costs attributable to the maintenance and management of this segment. During the first quarter of 2013, we purchased $154 million of FFELP Loans.
Reduce Operating Expenses While Improving Efficiency and Customer Experience
For 2013, we will reduce unit costs, and balance our Private Education Loan growth and the challenge of increased regulatory oversight. We also plan to improve efficiency and customer experience by replacing certain of our legacy systems and making enhancements to our self-service platform and call centers (including improved call segmentation that routes an in-bound customer call directly to the appropriate agent who can answer the customers inquiry). First-quarter 2013 operating expenses were $270 million compared with $262 million in the year-ago quarter. Excluding the result of a non-recurring $8 million pension termination gain in first-quarter 2012, operating expenses were unchanged.
Maintain Our Financial Strength
In January 2013, we announced an increase in our quarterly common stock dividend to $0.15 per share and a new $400 million common share repurchase program. It is managements objective for 2013 to provide these shareholder distributions while ending 2013 with capital and reserve positions as strong as those with which we ended 2012. We also plan to continue to issue FFELP ABS primarily to refinance our remaining FFELP Loans in EDs Conduit Program prior to the Conduit Programs January 19, 2014 maturity date. During the first quarter of 2013, $2.3 billion in principal amount of FFELP Loans were refinanced out of the ED Conduit Program leaving $6.9 billion in principal amount of FFELP Loans remaining in the ED Conduit Program as of March 31, 2013. During the first quarter of 2013, we repurchased 10 million shares of common stock at an aggregate purchase price of $199 million.
Expand Bank Capabilities
The Bank will fund our Private Education Loan originations in 2013. We are continuing to evolve the operational and enterprise risk oversight program at the Bank in preparation for expected growth and designation as a large bank, which will entail enhanced regulatory scrutiny. In addition, we plan to voluntarily make similar changes at SLM Corporation. See the 2012 10-K, Item 1 Business Supervision and Regulation Regulatory Outlook Evolving Regulation of the Bank for additional information about the Banks regulatory environment once it becomes a large bank.
41
RESULTS OF OPERATIONS
We present the results of operations below first on a consolidated basis in accordance with GAAP. Following our discussion of consolidated earnings results on a GAAP basis, we present our results on a segment basis. We have four business segments: FFELP Loans, Consumer Lending, Business Services and Other. Since these segments operate in distinct business environments and we manage and evaluate the financial performance of these segments using non-GAAP financial measures, these segments are presented on a Core Earnings basis (see Core Earnings Definition and Limitations).
GAAP Statements of Income (Unaudited)
Three Months
Ended March 31, |
Increase
(Decrease) |
|||||||||||||||
(Dollars in millions, except per share data) |
2013 | 2012 | $ | % | ||||||||||||
Interest income: |
||||||||||||||||
FFELP Loans |
$ | 735 | $ | 842 | $ | (107 | ) | (13 | )% | |||||||
Private Education Loans |
623 | 625 | (2 | ) | | |||||||||||
Other loans |
3 | 5 | (2 | ) | (40 | ) | ||||||||||
Cash and investments |
5 | 5 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest income |
1,366 | 1,477 | (111 | ) | (8 | ) | ||||||||||
Total interest expense |
571 | 666 | (95 | ) | (14 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income |
795 | 811 | (16 | ) | (2 | ) | ||||||||||
Less: provisions for loan losses |
241 | 253 | (12 | ) | (5 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income after provisions for loan losses |
554 | 558 | (4 | ) | (1 | ) | ||||||||||
Other income (loss): |
||||||||||||||||
Losses on derivative and hedging activities, net |
(31 | ) | (372 | ) | 341 | (92 | ) | |||||||||
Servicing revenue |
96 | 97 | (1 | ) | (1 | ) | ||||||||||
Contingency revenue |
99 | 90 | 9 | 10 | ||||||||||||
Gains on debt repurchases |
23 | 37 | (14 | ) | (38 | ) | ||||||||||
Other income |
90 | 40 | 50 | 125 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other income (loss) |
277 | (108 | ) | 385 | 356 | |||||||||||
Expenses: |
||||||||||||||||
Operating expenses |
270 | 262 | 8 | 3 | ||||||||||||
Goodwill and acquired intangible assets impairment and amortization expense |
4 | 5 | (1 | ) | (20 | ) | ||||||||||
Restructuring expenses |
| 5 | (5 | ) | (100 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses |
274 | 272 | 2 | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income tax expense |
557 | 178 | 379 | 213 | ||||||||||||
Income tax expense |
211 | 67 | 144 | 215 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
346 | 111 | 235 | 212 | ||||||||||||
Less: net loss attributable to noncontrolling interest |
| (1 | ) | 1 | (100 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to SLM Corporation |
346 | 112 | 234 | 209 | ||||||||||||
Preferred stock dividends |
5 | 5 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to SLM Corporation common stock |
$ | 341 | $ | 107 | $ | 234 | 219 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic earnings per common share attributable to SLM Corporation |
$ | .76 | $ | .21 | $ | .55 | 262 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted earnings per common share attributable to SLM Corporation |
$ | .74 | $ | .21 | $ | .53 | 252 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Dividends per common share attributable to SLM Corporation |
$ | .15 | $ | .125 | $ | .025 | 20 | % | ||||||||
|
|
|
|
|
|
|
|
42
Consolidated Earnings Summary GAAP-basis
Three Months Ended March 31, 2013 Compared with Three Months Ended March 31, 2012
For the three months ended March 31, 2013, net income was $346 million, or $0.74 diluted earnings per common share, compared with net income of $112 million, or $0.21 diluted earnings per common share, for the three months ended March 31, 2012. The increase in net income was primarily due to a $341 million decrease in net losses on derivative and hedging activities, a $50 million increase in other income and a $12 million decrease in provisions for loan losses, which were partially offset by a $16 million decrease in net interest income and a $14 million decrease in gains on debt repurchases.
The primary contributors to each of the identified drivers of changes in net income for the current quarter compared with the year-ago quarter are as follows:
|
Net interest income declined by $16 million primarily due to a $15.3 billion decline in average FFELP Loans outstanding. The decline in average FFELP Loans outstanding was driven by normal loan amortization as well as $5.2 billion of loans that were consolidated by the U. S. Department of Education (ED) in 2012 under their Special Direct Consolidation Loan Initiative (SDCL). |
|
Provisions for loan losses declined $12 million compared with the year-ago quarter primarily as a result of the overall improvement in Private Education Loans credit quality and delinquency trends as well as expected decreases in future charge-offs. |
|
Other income increased by $50 million primarily as a result of a $55 million gain on the sale of the Residual Interest in a FFELP Loan securitization trust. See FFELP Loans Segment for further discussion. |
|
Gains (losses) on derivative and hedging activities resulted in a net loss of $31 million in the current quarter compared with a net loss of $372 million in the year-ago quarter. The primary factors affecting the change were interest rate and foreign currency fluctuations, which primarily affected the valuations of our Floor Income Contracts, basis swaps and foreign currency hedges during each period. Valuations of derivative instruments vary based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivative and hedging activities may continue to vary significantly in future periods. |
|
Gains on debt repurchases decreased $14 million. Debt repurchase activity will fluctuate based on market fundamentals and our liability management strategy. |
|
First-quarter 2013 operating expenses were $270 million compared with $262 million in the year-ago quarter. Excluding the result of a non-recurring $8 million pension termination gain in first-quarter 2012, operating expenses were unchanged. |
In addition, we repurchased 10 million shares of our common stock during the first-quarter 2013 as part of a common share repurchase program. Primarily as a result of ongoing common share repurchases, our average outstanding diluted shares decreased by 52 million shares from the year-ago quarter.
Core Earnings Definition and Limitations
We prepare financial statements in accordance with GAAP. However, we also evaluate our business segments on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide Core Earnings disclosure in the notes to our consolidated financial statements for our business segments. For additional information, see Note 10 Segment Reporting.
43
Core Earnings are not a substitute for reported results under GAAP. We use Core Earnings to manage each business segment because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that Core Earnings provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information as we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. The two items for which we adjust our Core Earnings presentations are (1) our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness and (2) the accounting for goodwill and acquired intangible assets.
While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our Core Earnings basis of presentation does not. Core Earnings are subject to certain general and specific limitations that investors should carefully consider. For example, 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. Accordingly, our Core Earnings presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not be able to compare our 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, our board of directors, rating agencies, lenders and investors to assess performance.
Specific adjustments that management makes to GAAP results to derive our Core Earnings basis of presentation are described in detail in the section titled Core Earnings Definition and Limitations Differences between Core Earnings and GAAP of this Item 2.
The following tables show Core Earnings for each business segment and our business as a whole along with the adjustments made to the income/expense items to reconcile the amounts to our reported GAAP results as required by GAAP and reported in Note 10 Segment Reporting.
44
Three Months Ended March 31, 2013 | ||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) |
Consumer
Lending |
Business
Services |
FFELP
Loans |
Other | Eliminations (1) |
Total
Core Earnings |
Adjustments |
Total
GAAP |
||||||||||||||||||||||||||||||||
Reclassifications |
Additions/
(Subtractions) |
Total
Adjustments (2) |
||||||||||||||||||||||||||||||||||||||
Interest income: |
||||||||||||||||||||||||||||||||||||||||
Student loans |
$ | 623 | $ | | $ | 599 | $ | | $ | | $ | 1,222 | $ | 212 | $ | (76 | ) | $ | 136 | $ | 1,358 | |||||||||||||||||||
Other loans |
| | | 3 | | 3 | | | | 3 | ||||||||||||||||||||||||||||||
Cash and investments |
1 | 2 | 2 | 2 | (2 | ) | 5 | | | | 5 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total interest income |
624 | 2 | 601 | 5 | (2 | ) | 1,230 | 212 | (76 | ) | 136 | 1,366 | ||||||||||||||||||||||||||||
Total interest expense |
204 | | 340 | 13 | (2 | ) | 555 | 18 | (2 | ) (4) | 16 | 571 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net interest income (loss) |
420 | 2 | 261 | (8 | ) | | 675 | 194 | (74 | ) | 120 | 795 | ||||||||||||||||||||||||||||
Less: provisions for loan losses |
225 | | 16 | | | 241 | | | | 241 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net interest income (loss) after provisions for loan losses |
195 | 2 | 245 | (8 | ) | | 434 | 194 | (74 | ) | 120 | 554 | ||||||||||||||||||||||||||||
Servicing revenue |
10 | 212 | 23 | | (149 | ) | 96 | | | | 96 | |||||||||||||||||||||||||||||
Contingency revenue |
| 99 | | | | 99 | | | | 99 | ||||||||||||||||||||||||||||||
Gains on debt repurchases |
| | | 29 | | 29 | (6 | ) | | (6 | ) | 23 | ||||||||||||||||||||||||||||
Other income |
| 8 | 55 | | | 63 | (188 | ) | 184 | (5) | (4 | ) | 59 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total other income (loss) |
10 | 319 | 78 | 29 | (149 | ) | 287 | (194 | ) | 184 | (10 | ) | 277 | |||||||||||||||||||||||||||
Expenses: |
||||||||||||||||||||||||||||||||||||||||
Direct operating expenses |
66 | 122 | 157 | | (149 | ) | 196 | | | | 196 | |||||||||||||||||||||||||||||
Overhead expenses |
| | | 74 | | 74 | | | | 74 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Operating expenses |
66 | 122 | 157 | 74 | (149 | ) | 270 | | | | 270 | |||||||||||||||||||||||||||||
Goodwill and acquired intangible assets impairment and amortization |
| | | | | | | 4 | 4 | 4 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total expenses |
66 | 122 | 157 | 74 | (149 | ) | 270 | | 4 | 4 | 274 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Income (loss) before income tax expense (benefit) |
139 | 199 | 166 | (53 | ) | | 451 | | 106 | 106 | 557 | |||||||||||||||||||||||||||||
Income tax expense (benefit) (3) |
51 | 75 | 62 | (20 | ) | | 168 | | 43 | 43 | 211 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) |
$ | 88 | $ | 124 | $ | 104 | $ | (33 | ) | $ | | $ | 283 | $ | | $ | 63 | $ | 63 | $ | 346 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment. |
(2) |
Core Earnings adjustments to GAAP: |
Three Months Ended March 31, 2013 | ||||||||||||
(Dollars in millions) |
Net Impact
of
Derivative Accounting |
Net Impact of
Goodwill and Acquired Intangibles |
Total | |||||||||
Net interest income after provisions for loan losses |
$ | 120 | $ | | $ | 120 | ||||||
Total other loss |
(10 | ) | | (10 | ) | |||||||
Goodwill and acquired intangible assets impairment and amortization |
| 4 | 4 | |||||||||
|
|
|
|
|
|
|||||||
Total Core Earnings adjustments to GAAP |
$ | 110 | $ | (4 | ) | 106 | ||||||
|
|
|
|
|||||||||
Income tax expense |
43 | |||||||||||
|
|
|||||||||||
Net income |
$ | 63 | ||||||||||
|
|
(3) |
Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
(4) |
Represents a portion of the $29 million of other derivative accounting adjustments. |
(5) |
Represents the $157 million of unrealized gains on derivative and hedging activities, net as well as the remaining portion of the $29 million of other derivative accounting adjustments. |
45
Three Months Ended March 31, 2012 | ||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) |
Consumer
Lending |
Business
Services |
FFELP
Loans |
Other | Eliminations (1) |
Total
Core Earnings |
Adjustments |
Total
GAAP |
||||||||||||||||||||||||||||||||
Reclassifications |
Additions/
(Subtractions) |
Total
Adjustments (2) |
||||||||||||||||||||||||||||||||||||||
Interest income: |
||||||||||||||||||||||||||||||||||||||||
Student loans |
$ | 625 | $ | | $ | 725 | $ | | $ | | $ | 1,350 | $ | 215 | $ | (98 | ) | $ | 117 | $ | 1,467 | |||||||||||||||||||
Other loans |
| | | 5 | | 5 | | | | 5 | ||||||||||||||||||||||||||||||
Cash and investments |
2 | 3 | 3 | | (3 | ) | 5 | | | | 5 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total interest income |
627 | 3 | 728 | 5 | (3 | ) | 1,360 | 215 | (98 | ) | 117 | 1,477 | ||||||||||||||||||||||||||||
Total interest expense |
202 | | 424 | 5 | (3 | ) | 628 | 36 | 2 | (4) | 38 | 666 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net interest income (loss) |
425 | 3 | 304 | | | 732 | 179 | (100 | ) | 79 | 811 | |||||||||||||||||||||||||||||
Less: provisions for loan losses |
235 | | 18 | | | 253 | | | | 253 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net interest income (loss) after provisions for loan losses |
190 | 3 | 286 | | | 479 | 179 | (100 | ) | 79 | 558 | |||||||||||||||||||||||||||||
Servicing revenue |
12 | 236 | 25 | | (176 | ) | 97 | | | | 97 | |||||||||||||||||||||||||||||
Contingency revenue |
| 90 | | | | 90 | | | | 90 | ||||||||||||||||||||||||||||||
Gains on debt repurchases |
| | | 37 | | 37 | | | | 37 | ||||||||||||||||||||||||||||||
Other income (loss) |
| 8 | | 3 | | 11 | (179 | ) | (164 | ) (5) | (343 | ) | (332 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total other income (loss) |
12 | 334 | 25 | 40 | (176 | ) | 235 | (179 | ) | (164 | ) | (343 | ) | (108 | ) | |||||||||||||||||||||||||
Expenses: |
||||||||||||||||||||||||||||||||||||||||
Direct operating expenses |
69 | 120 | 185 | | (176 | ) | 198 | | | | 198 | |||||||||||||||||||||||||||||
Overhead expenses |
| | | 64 | | 64 | | | | 64 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Operating expenses |
69 | 120 | 185 | 64 | (176 | ) | 262 | | | | 262 | |||||||||||||||||||||||||||||
Goodwill and acquired intangible assets impairment and amortization |
| | | | | | | 5 | 5 | 5 | ||||||||||||||||||||||||||||||
Restructuring expenses |
1 | 1 | | 3 | | 5 | | | | 5 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total expenses |
70 | 121 | 185 | 67 | (176 | ) | 267 | | 5 | 5 | 272 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Income (loss) before income tax expense (benefit) |
132 | 216 | 126 | (27 | ) | | 447 | | (269 | ) | (269 | ) | 178 | |||||||||||||||||||||||||||
Income tax expense (benefit) (3) |
48 | 80 | 46 | (10 | ) | | 164 | | (97 | ) | (97 | ) | 67 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) |
84 | 136 | 80 | (17 | ) | | 283 | | (172 | ) | (172 | ) | 111 | |||||||||||||||||||||||||||
Less: net loss attributable to noncontrolling interest |
| (1 | ) | | | | (1 | ) | | | | (1 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) attributable to SLM Corporation |
$ | 84 | $ | 137 | $ | 80 | $ | (17 | ) | $ | | $ | 284 | $ | | $ | (172 | ) | $ | (172 | ) | $ | 112 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment. |
(2) |
Core Earnings adjustments to GAAP: |
Three Months Ended March 31, 2012 | ||||||||||||
(Dollars in millions) |
Net Impact
of
Derivative Accounting |
Net Impact of
Goodwill and Acquired Intangibles |
Total | |||||||||
Net interest income after provisions for loan losses |
$ | 79 | $ | | $ | 79 | ||||||
Total other loss |
(343 | ) | | (343 | ) | |||||||
Goodwill and acquired intangible assets impairment and amortization |
| 5 | 5 | |||||||||
|
|
|
|
|
|
|||||||
Total Core Earnings adjustments to GAAP |
$ | (264 | ) | $ | (5 | ) | (269 | ) | ||||
|
|
|
|
|||||||||
Income tax benefit |
(97 | ) | ||||||||||
|
|
|||||||||||
Net loss |
$ | (172 | ) | |||||||||
|
|
(3) |
Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
(4) |
Represents a portion of the $27 million of other derivative accounting adjustments. |
(5) |
Represents the $193 million of unrealized losses on derivative and hedging activities, net as well as the remaining portion of the $27 million of other derivative accounting adjustments. |
46
Differences between Core Earnings and GAAP
The two adjustments required to reconcile from our Core Earnings results to our GAAP results of operations relate to differing treatments for: (1) our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness and (2) the accounting for goodwill and acquired intangible assets. The following table reflects aggregate adjustments associated with these areas.
Three Months Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Core Earnings adjustments to GAAP: |
||||||||
Net impact of derivative accounting |
$ | 110 | $ | (264 | ) | |||
Net impact of goodwill and acquired intangible assets |
(4 | ) | (5 | ) | ||||
Net income tax effect |
(43 | ) | 97 | |||||
|
|
|
|
|||||
Total Core Earnings adjustments to GAAP |
$ | 63 | $ | (172 | ) | |||
|
|
|
|
1) Derivative Accounting: Core Earnings exclude periodic unrealized gains and losses that are caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP as well as the periodic unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. These unrealized gains and losses occur in our Consumer Lending, FFELP Loans and Other business segments. Under GAAP, for our derivatives that are held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0 except for Floor Income Contracts where the cumulative unrealized gain will equal the amount for which we sold the contract. In our Core Earnings presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged items life.
The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria are met. We believe that our derivatives are effective economic hedges, and as such, are a critical element of our interest rate and foreign currency risk management strategy. However, some of our derivatives, primarily Floor Income Contracts and certain basis swaps, do not qualify for hedge accounting treatment 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. These gains and losses recorded 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 accounting treatment.
Our Floor Income Contracts are written options that must meet more stringent requirements than other hedging relationships to achieve hedge effectiveness. 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. Additionally, the term, the interest rate index, and the interest rate index reset frequency of the Floor Income Contract can be different than that of the student loans. Under derivative accounting treatment, 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 earning Floor Income but that offsetting change in value is not recognized. 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. Therefore, for purposes of Core Earnings, we have removed the unrealized gains and losses related to these contracts and
47
added back the amortization of the net premiums received on the Floor Income Contracts. The amortization of the net premiums received on the Floor Income Contracts for Core Earnings is reflected in student loan interest income. Under GAAP accounting, the premiums received on the Floor Income Contracts are recorded as revenue in the losses on derivative and hedging activities, net line item by the end of the contracts lives.
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 hedge our student loan assets that are primarily indexed to LIBOR, Prime or Treasury bill index (for $128 billion of our FFELP assets as of April 1, 2012, we elected to change the index from commercial paper to LIBOR. In addition, we use basis swaps to convert debt indexed to the Consumer Price Index to three-month LIBOR debt. The accounting for derivatives 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 for hedge accounting treatment. Additionally, some of our FFELP Loans can earn at either a variable or a fixed interest rate depending on market interest rates and therefore swaps economically hedging these FFELP Loans do not meet the criteria for hedge accounting treatment. 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 between GAAP and Core Earnings net income.
Three Months Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Core Earnings derivative adjustments: |
||||||||
Losses on derivative and hedging activities, net, included in other income (1) |
$ | (31 | ) | $ | (372 | ) | ||
Plus: Realized losses on derivative and hedging activities, net (1) |
188 | 179 | ||||||
|
|
|
|
|||||
Unrealized gains (losses) on derivative and hedging activities, net (2) |
157 | (193 | ) | |||||
Amortization of net premiums on Floor Income Contracts in net interest income for Core Earnings |
(76 | ) | (98 | ) | ||||
Other derivative accounting adjustments (3) |
29 | 27 | ||||||
|
|
|
|
|||||
Total net impact of derivative accounting (4) |
$ | 110 | $ | (264 | ) | |||
|
|
|
|
(1) |
See Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities below for a detailed breakdown of the components of realized losses on derivative and hedging activities. |
(2) |
Unrealized gains (losses) on derivative and hedging activities, net comprises the following unrealized mark-to-market gains (losses): |
Three Months
Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Floor Income Contracts |
$ | 189 | $ | 136 | ||||
Basis swaps |
(4 | ) | (22 | ) | ||||
Foreign currency hedges |
(32 | ) | (294 | ) | ||||
Other |
4 | (13 | ) | |||||
|
|
|
|
|||||
Total unrealized gains (losses) on derivative and hedging activities, net |
$ | 157 | $ | (193 | ) | |||
|
|
|
|
(3) |
Other derivative accounting adjustments consist of adjustments related to: (1) foreign currency denominated debt that is adjusted to spot foreign exchange rates for GAAP where such adjustment are reversed for Core Earnings and (2) certain terminated derivatives that did not receive hedge accounting treatment under GAAP but were economic hedges under Core Earnings and, as a result, such gains or losses amortized into Core Earnings over the life of the hedged item. |
(4) |
Negative amounts are subtracted from Core Earnings net income to arrive at GAAP net income and positive amounts are added to Core Earnings net income to arrive at GAAP net income. |
48
Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities
Derivative accounting 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) that do not qualify as hedges to be recorded in a separate income statement line item below net interest income. Under our Core Earnings presentation, these gains and losses 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 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. The table below summarizes the realized losses on derivative and hedging activities and the associated reclassification on a Core Earnings basis.
Three
Months
Ended March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Reclassification of realized gains (losses) on derivative and hedging activities: |
||||||||
Net settlement expense on Floor Income Contracts reclassified to net interest income |
$ | (212 | ) | $ | (215 | ) | ||
Net settlement income on interest rate swaps reclassified to net interest income |
18 | 36 | ||||||
Net realized gains on terminated derivative contracts reclassified to other income |
6 | | ||||||
|
|
|
|
|||||
Total reclassifications of realized losses on derivative and hedging activities |
$ | (188 | ) | $ | (179 | ) | ||
|
|
|
|
Cumulative Impact of Derivative Accounting under GAAP compared to Core Earnings
As of March 31, 2013, derivative accounting has reduced GAAP equity by approximately $1.0 billion as a result of cumulative net unrealized losses (after tax) recognized under GAAP, but not in Core Earnings. The following table rolls forward the cumulative impact to GAAP equity due to these unrealized after tax net losses related to derivative accounting.
Three Months Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Beginning impact of derivative accounting on GAAP equity |
$ | (1,080 | ) | $ | (977 | ) | ||
Net impact of net unrealized gains (losses) under derivative accounting (1) |
53 | (172 | ) | |||||
|
|
|
|
|||||
Ending impact of derivative accounting on GAAP equity |
$ | (1,027 | ) | $ | (1,149 | ) | ||
|
|
|
|
(1) |
Net impact of net unrealized gains (losses) under derivative accounting is composed of the following: |
Three Months
Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Total pre-tax net impact of derivative accounting recognized in net income (a) |
$ | 110 | $ | (264 | ) | |||
Tax impact of derivative accounting adjustment recognized in net income |
(60 | ) | 87 | |||||
Change in unrealized gains on derivatives, net of tax recognized in Other Comprehensive Income |
3 | 5 | ||||||
|
|
|
|
|||||
Net impact of net unrealized gains (losses) under derivative accounting |
$ | 53 | $ | (172 | ) | |||
|
|
|
|
(a) |
See Core Earnings derivative adjustments table above. |
Net Floor premiums received on Floor Income Contracts that have not been amortized into Core Earnings as of the respective year-ends are presented in the table below. These net premiums will be recognized in Core Earnings in future periods and are presented net of tax. As of March 31, 2013, the remaining amortization term of the net floor premiums was approximately 3.25 years for existing contracts. Historically, we have sold Floor Income Contracts on a periodic basis and depending upon market conditions and pricing, we may enter into
49
additional Floor Income Contracts in the future. The balance of unamortized Floor Income Contracts will increase as we sell new contracts and decline due to the amortization of existing contracts.
March 31, | ||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Unamortized net Floor premiums (net of tax) |
$ | (498 | ) | $ | (711 | ) |
2) Goodwill and Acquired Intangible Assets: Our Core Earnings exclude goodwill and intangible asset impairment and the amortization of acquired intangible assets. The following table summarizes the goodwill and acquired intangible asset adjustments.
Three Months Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Core Earnings goodwill and acquired intangible asset adjustments (1) |
$ | (4 | ) | $ | (5 | ) |
(1) |
Negative amounts are subtracted from Core Earnings net income to arrive at GAAP net income. |
Business Segment Earnings Summary Core Earnings Basis
Consumer Lending Segment
The following table includes Core Earnings results for our Consumer Lending segment.
Three Months Ended
March 31, |
% Increase
(Decrease) |
|||||||||||
(Dollars in millions) |
2013 | 2012 |
March 31, 2013
vs. March 31, 2012 |
|||||||||
Core Earnings interest income: |
||||||||||||
Private Education Loans |
$ | 623 | $ | 625 | | % | ||||||
Cash and investments |
1 | 2 | (50 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total Core Earnings interest income |
624 | 627 | | |||||||||
Total Core Earnings interest expense |
204 | 202 | 1 | |||||||||
|
|
|
|
|
|
|||||||
Net Core Earnings interest income |
420 | 425 | (1 | ) | ||||||||
Less: provision for loan losses |
225 | 235 | (4 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net Core Earnings interest income after provisions for loan losses |
195 | 190 | 3 | |||||||||
Servicing revenue |
10 | 12 | (17 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total other income |
10 | 12 | (17 | ) | ||||||||
Direct operating expenses |
66 | 69 | (4 | ) | ||||||||
Restructuring expenses |
| 1 | (100 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total expenses |
66 | 70 | (6 | ) | ||||||||
|
|
|
|
|
|
|||||||
Income before income tax expense |
139 | 132 | 5 | |||||||||
Income tax expense |
51 | 48 | 6 | |||||||||
|
|
|
|
|
|
|||||||
Core Earnings |
$ | 88 | $ | 84 | 5 | % | ||||||
|
|
|
|
|
|
Core Earnings were $88 million for the three months ended March 31, 2013, compared with $84 million in the year-ago period. This improvement was primarily the result of reduced loan loss provision.
Highlights compared to first-quarter 2012 included:
|
Loan originations of $1.4 billion, up 22 percent. |
|
Delinquencies of 90 days or more of 3.9 percent of loans in repayment, down from 4.4 percent. |
50
|
Loans in forbearance of 3.4 percent of loans in repayment and forbearance, down from 4.3 percent. |
|
Annualized charge-off rate of 3.0 percent of average loans in repayment for both the current and year-ago quarters. |
|
Provision for Private Education Loan losses of $225 million, down from $235 million. |
|
Core net interest margin, before loan loss provision, of 4.15 percent, down from 4.26 percent. |
|
The portfolio balance, net of loan loss allowance, totaled $37 billion, a $733 million increase over the year-ago quarter. |
Consumer Lending Net Interest Margin
The following table shows the Core Earnings basis Consumer Lending net interest margin along with reconciliation to the GAAP-basis Consumer Lending net interest margin before provision for loan losses.
Three Months
Ended March 31, |
||||||||
2013 | 2012 | |||||||
Core Earnings basis Private Education Loan yield |
6.35 | % | 6.42 | % | ||||
Discount amortization |
.23 | .24 | ||||||
|
|
|
|
|||||
Core Earnings basis Private Education Loan net yield |
6.58 | 6.66 | ||||||
Core Earnings basis Private Education Loan cost of funds |
(2.02 | ) | (2.01 | ) | ||||
|
|
|
|
|||||
Core Earnings basis Private Education Loan spread |
4.56 | 4.65 | ||||||
Core Earnings basis other interest-earning asset spread impact |
(.41 | ) | (.39 | ) | ||||
|
|
|
|
|||||
Core Earnings basis Consumer Lending net interest margin (1) |
4.15 | % | 4.26 | % | ||||
|
|
|
|
|||||
|
||||||||
Core Earnings basis Consumer Lending net interest margin (1) |
4.15 | % | 4.26 | % | ||||
Adjustment for GAAP accounting treatment |
(.03 | ) | (.13 | ) | ||||
|
|
|
|
|||||
GAAP-basis Consumer Lending net interest margin (1) |
4.12 | % | 4.13 | % | ||||
|
|
|
|
(1) |
The average balances of our Consumer Lending Core Earnings basis interest-earning assets for the respective periods are: |
(Dollars in millions) |
||||||||
Private Education Loans |
$ | 38,406 | $ | 37,749 | ||||
Other interest-earning assets |
2,662 | 2,327 | ||||||
|
|
|
|
|||||
Total Consumer Lending Core Earnings basis interest-earning assets |
$ | 41,068 | $ | 40,076 | ||||
|
|
|
|
Private Education Loan Provision for Loan Losses and Charge-Offs
The following table summarizes the total Private Education Loan provision for loan losses and charge-offs.
Three Months Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Private Education Loan provision for loan losses |
$ | 225 | $ | 235 | ||||
Private Education Loan charge-offs |
$ | 232 | $ | 224 |
In establishing the allowance for Private Education Loan losses as of March 31, 2013, we considered several factors with respect to our Private Education Loan portfolio. In particular, as compared with the year-ago period, we continue to see improving credit quality and continuing positive delinquency, forbearance and charge-off
51
trends in connection with this portfolio. Improving credit quality is seen in higher FICO scores and cosigner rates as well as a more seasoned portfolio. Total loans delinquent (as a percentage of loans in repayment) has decreased to 7.8 percent from 9.1 percent in the year-ago quarter. Loans greater than 90 days delinquent (as a percentage of loans in repayment) has decreased to 3.9 percent from 4.4 percent in the year-ago quarter. Loans in forbearance (as a percentage of loans in repayment and forbearance) have decreased to 3.4 percent from 4.3 percent in the year-ago quarter. The charge-off rate remained unchanged at 3.0 percent in both quarters.
Additionally, Private Education Loans that have defaulted between 2008 and 2012 for which we have previously charged off estimated losses have, to varying degrees, not met our post-default recovery expectations to date and may continue to not do so. Our allowance for loan losses takes into account these potential recovery uncertainties.
The Private Education Loan provision for loan losses was $225 million in the first quarter of 2013, down $10 million from the first quarter of 2012, as a result of the overall improvement in credit quality and delinquency trends as well as expected decreases in future charge-offs.
For a more detailed discussion of our policy for determining the collectability of Private Education Loans and maintaining our allowance for Private Education Loan losses, see Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and Estimates Allowance for Loan Losses in our Annual Report on Form 10-K for the year ended December 31, 2012.
Operating Expenses Consumer Lending Segment
Operating expenses for our Consumer Lending segment include costs incurred to originate Private Education Loans and to service and collect on our Private Education Loan portfolio. The decrease in operating expenses in the quarter ended March 31, 2013 compared with the quarter ended March 31, 2012 was primarily the result of continued management focus on expense control and operating efficiencies. Operating expenses were 70 basis points and 77 basis points of average Private Education Loans in the quarters ended March 31, 2013 and 2012, respectively.
52
Business Services Segment
The following table includes Core Earnings results for our Business Services segment.
Three Months Ended
March 31, |
% Increase
(Decrease) |
|||||||||||
(Dollars in millions) |
2013 | 2012 | 2013 vs. 2012 | |||||||||
Net interest income |
$ | 2 | $ | 3 | (33 | )% | ||||||
Servicing revenue: |
||||||||||||
Intercompany loan servicing |
149 | 176 | (15 | ) | ||||||||
Third-party loan servicing |
27 | 22 | 23 | |||||||||
Guarantor servicing |
10 | 11 | (9 | ) | ||||||||
Other servicing |
26 | 27 | (4 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total servicing revenue |
212 | 236 | (10 | ) | ||||||||
Contingency revenue |
99 | 90 | 10 | |||||||||
Other Business Services revenue |
8 | 8 | | |||||||||
|
|
|
|
|
|
|||||||
Total other income |
319 | 334 | (4 | ) | ||||||||
Direct operating expenses |
122 | 120 | 2 | |||||||||
Restructuring expenses |
| 1 | (100 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total expenses |
122 | 121 | 1 | |||||||||
|
|
|
|
|
|
|||||||
Income before income tax expense |
199 | 216 | (8 | ) | ||||||||
Income tax expense |
75 | 80 | (6 | ) | ||||||||
|
|
|
|
|
|
|||||||
Core Earnings |
124 | 136 | (9 | ) | ||||||||
Less: net loss attributable to noncontrolling interest |
| (1 | ) | (100 | ) | |||||||
|
|
|
|
|
|
|||||||
Core Earnings attributable to SLM Corporation |
$ | 124 | $ | 137 | (9 | )% | ||||||
|
|
|
|
|
|
Core Earnings were $124 million in the first quarter of 2013, compared to $137 million in the year-ago quarter. The decrease was primarily due to the lower balance of FFELP Loans serviced.
Our Business Services segment includes intercompany loan servicing fees from servicing the FFELP Loans in our FFELP Loans segment. The average balance of this portfolio was $121 billion and $135 billion for the quarters ended March 31, 2013 and 2012, respectively. The decline in intercompany loan servicing revenue from the year-ago period is primarily the result of a lower outstanding principal balance in the underlying portfolio.
We are servicing approximately 4.8 million accounts under the ED Servicing Contract as of March 31, 2013, compared with 3.7 million accounts serviced at March 31, 2012. Third-party loan servicing fees in the quarters ended March 31, 2013 and 2012 included $23 million and $17 million, respectively, of servicing revenue related to the ED Servicing Contract. This increase in ED loan servicing fees was driven by the increase in the number of accounts serviced as well as an increase in ancillary servicing fees earned.
Third-party loan servicing income increased $5 million from the year-ago quarter primarily due to the increase in ED servicing revenue (discussed above) as well as a result of the sale of a Residual Interest in a FFELP Loan securitization trust in the first quarter of 2013. (See FFELP Loans Segment for further discussion.) When we sold this Residual Interest, we retained the right to service the trust. As such, servicing income that had previously been recorded as intercompany loan servicing will now be recognized as third-party loan servicing income.
Other servicing revenue includes account asset servicing revenue and Campus Solutions revenue. Account asset servicing revenue represents fees earned on program management, transfer and servicing agent services and administration services for our various 529 college-savings plans. Assets under administration of 529 college-savings plans totaled $47.9 billion as of March 31, 2013, a 16 percent increase from the year-ago quarter. Campus Solutions revenue is earned from our Campus Solutions business whose services include comprehensive
53
financing and transaction processing solutions that we provide to college financial aid offices and students to streamline the financial aid process.
Our contingency revenue consists of fees we receive for collections of delinquent debt on behalf of third-party clients performed on a contingent basis. Contingency revenue increased $9 million in the current quarter compared with the year-ago quarter as a result of the higher volume of collections.
The following table presents the outstanding inventory of contingent collections receivables that our Business Services segment will collect on behalf of others. We expect the inventory of contingent collections receivables to decline over time as a result of the elimination of FFELP.
(Dollars in millions) |
March 31,
2013 |
December 31,
2012 |
March 31,
2012 |
|||||||||
Contingency: |
||||||||||||
Student loans |
$ | 13,549 | $ | 13,189 | $ | 11,004 | ||||||
Other |
2,239 | 2,139 | 1,752 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 15,788 | $ | 15,328 | $ | 12,756 | ||||||
|
|
|
|
|
|
Other Business Services revenue is primarily transaction fees that are earned in conjunction with our rewards program from participating companies based on member purchase activity, either online or in stores, depending on the contractual arrangement with the participating company.
Revenues related to services performed on FFELP Loans accounted for 74 percent and 76 percent of total segment revenues for the quarters ended March 31, 2013 and 2012, respectively.
Operating Expenses Business Services Segment
Operating expenses for the quarter ended March 31, 2013 remained consistent with the year-ago quarter.
FFELP Loans Segment
The following table includes Core Earnings results for our FFELP Loans segment.
Three Months Ended
March 31, |
% Increase
(Decrease) |
|||||||||||
(Dollars in millions) |
2013 | 2012 | 2013 vs. 2012 | |||||||||
Core Earnings interest income: |
||||||||||||
FFELP Loans |
$ | 599 | $ | 725 | (17 | )% | ||||||
Cash and investments |
2 | 3 | (33 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total Core Earnings interest income |
601 | 728 | (17 | ) | ||||||||
Total Core Earnings interest expense |
340 | 424 | (20 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net Core Earnings interest income |
261 | 304 | (14 | ) | ||||||||
Less: provision for loan losses |
16 | 18 | (11 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net Core Earnings interest income after provision for loan losses |
245 | 286 | (14 | ) | ||||||||
Servicing revenue |
23 | 25 | (8 | ) | ||||||||
Other income |
55 | | 100 | |||||||||
|
|
|
|
|
|
|||||||
Total other income |
78 | 25 | 212 | |||||||||
Direct operating expenses |
157 | 185 | (15 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total expenses |
157 | 185 | (15 | ) | ||||||||
|
|
|
|
|
|
|||||||
Income before income tax expense |
166 | 126 | 32 | |||||||||
Income tax expense |
62 | 46 | 35 | |||||||||
|
|
|
|
|
|
|||||||
Core Earnings |
$ | 104 | $ | 80 | 30 | % | ||||||
|
|
|
|
|
|
54
Core Earnings from the FFELP Loans segment were $104 million in the first quarter of 2013, compared with $80 million in the year-ago quarter. The increase was the result of a $55 million gain from the sale of the Residual Interest in a FFELP Loan securitization trust, which more than offset the decline in net interest income from the amortizing FFELP portfolio. Key financial measures include:
|
Net interest margin of .83 percent in the first quarter of 2013 compared with .85 percent in the year-ago quarter (see FFELP Loan Net Interest Margin for a further discussion of this decrease). |
|
The provision for loan losses of $16 million in the first quarter of 2013 decreased from $18 million in the year-ago quarter. |
FFELP Loan Net Interest Margin
The following table includes the Core Earnings basis FFELP Loan net interest margin along with reconciliation to the GAAP-basis FFELP Loan net interest margin.
Three Months Ended
March 31, |
||||||||
2013 | 2012 | |||||||
Core Earnings basis FFELP Loan yield |
2.61 | % | 2.67 | % | ||||
Hedged Floor Income |
.25 | .28 | ||||||
Unhedged Floor Income |
.06 | .11 | ||||||
Consolidation Loan Rebate Fees |
(.68 | ) | (.66 | ) | ||||
Repayment Borrower Benefits |
(.11 | ) | (.13 | ) | ||||
Premium amortization |
(.14 | ) | (.14 | ) | ||||
|
|
|
|
|||||
Core Earnings basis FFELP Loan net yield |
1.99 | 2.13 | ||||||
Core Earnings basis FFELP Loan cost of funds |
(1.06 | ) | (1.17 | ) | ||||
|
|
|
|
|||||
Core Earnings basis FFELP Loan spread |
.93 | .96 | ||||||
Core Earnings basis FFELP other interest-earning asset spread impact |
(.10 | ) | (.11 | ) | ||||
|
|
|
|
|||||
Core Earnings basis FFELP Loan net interest margin (1) |
.83 | % | .85 | % | ||||
|
|
|
|
|||||
|
||||||||
Core Earnings basis FFELP Loan net interest margin (1) |
.83 | % | .85 | % | ||||
Adjustment for GAAP accounting treatment |
.40 | .27 | ||||||
|
|
|
|
|||||
GAAP-basis FFELP Loan net interest margin (1) |
1.23 | % | 1.12 | % | ||||
|
|
|
|
(1) |
The average balances of our FFELP Core Earnings basis interest-earning assets for the respective periods are: |
(Dollars in millions) |
||||||||
FFELP Loans |
$ | 121,855 | $ | 137,193 | ||||
Other interest-earning assets |
5,555 | 6,427 | ||||||
|
|
|
|
|||||
Total FFELP Core Earnings basis interest-earning assets |
$ | 127,410 | $ | 143,620 | ||||
|
|
|
|
The decrease in the Core Earnings basis FFELP Loan net interest margin of 2 basis points for the quarter ended March 31, 2013 compared with the quarter ended March 31, 2012 was primarily the result of a general increase in our funding costs related to unsecured and ABS debt issuances over the last year.
As of March 31, 2013, our FFELP Loan portfolio totaled approximately $119.2 billion, comprised of $43.0 billion of FFELP Stafford and $76.2 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios is 4.9 years and 9.9 years, respectively, assuming a Constant Prepayment Rate (CPR) of 4 percent and 3 percent, respectively.
55
Floor Income
The following table analyzes the ability of the FFELP Loans in our portfolio to earn Floor Income after March 31, 2013 and 2012, based on interest rates as of those dates.
March 31, 2013 | March 31, 2012 | |||||||||||||||||||||||
(Dollars in billions) |
Fixed
Borrower Rate |
Variable
Borrower Rate |
Total |
Fixed
Borrower Rate |
Variable
Borrower Rate |
Total | ||||||||||||||||||
Student loans eligible to earn Floor Income |
$ | 102.9 | $ | 14.6 | $ | 117.5 | $ | 116.7 | $ | 17.1 | $ | 133.8 | ||||||||||||
Less: post-March 31, 2006 disbursed loans required to rebate Floor Income |
(52.9 | ) | (1.0 | ) | (53.9 | ) | (62.0 | ) | (1.2 | ) | (63.2 | ) | ||||||||||||
Less: economically hedged Floor Income Contracts |
(31.7 | ) | | (31.7 | ) | (41.5 | ) | | (41.5 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Student loans eligible to earn Floor Income |
$ | 18.3 | $ | 13.6 | $ | 31.9 | $ | 13.2 | $ | 15.9 | $ | 29.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Student loans earning Floor Income |
$ | 18.3 | $ | 1.9 | $ | 20.2 | $ | 13.2 | $ | 1.0 | $ | 14.2 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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 balance of FFELP Consolidation Loans for which Fixed Rate Floor Income has been economically hedged through Floor Income Contracts for the period April 1, 2013 to June 30, 2016. The hedges related to these loans do not qualify as effective hedges.
(Dollars in billions) |
April 1, 2013 to
December 31, 2013 |
2014 | 2015 | 2016 | ||||||||||||
Average balance of FFELP Consolidation Loans whose Floor Income is economically hedged |
$ | 31.7 | $ | 28.3 | $ | 27.2 | $ | 10.4 | ||||||||
|
|
|
|
|
|
|
|
FFELP Loan Provision for Loan Losses and Charge-Offs
The following table summarizes the total FFELP Loan provision for loan losses and charge-offs for the three months March 31, 2013 and 2012.
Three Months Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
FFELP Loan provision for loan losses |
$ | 16 | $ | 18 | ||||
FFELP Loan charge-offs |
22 | 23 |
Other Income
The increase in other income from the year-ago quarter is the result of a $55 million gain from the sale of the Residual Interest in a FFELP Loan securitization trust. We will continue to service the student loans in the trust that was sold under existing agreements. The sale removed student loan assets of $3.8 billion and related liabilities of $3.7 billion from the balance sheet.
Operating Expenses FFELP Loans Segment
Operating expenses for our FFELP Loans segment primarily include the contractual rates we pay to service loans in term asset-backed securitization trusts or a similar rate if a loan is not in a term financing facility (which is presented as an intercompany charge from the Business Services segment who services the loans), the fees we pay for third-party loan servicing and costs incurred to acquire loans. The intercompany revenue charged by the Business Services segment and included in those amounts was $149 million and $176 million for the quarters ended March 31, 2013 and 2012, respectively. These amounts exceed the actual cost of servicing the loans. Operating expenses were 52 basis points and 53 basis points of average FFELP Loans in the quarters ended March 31, 2013 and 2012, respectively. The decline in operating expenses from the prior-year quarter was primarily the result of the reduction in the average outstanding balance of our FFELP Loans portfolio.
56
Other Segment
The following table includes Core Earnings results of our Other segment.
Three Months Ended
March 31, |
% Increase
(Decrease) |
|||||||||||
(Dollars in millions) |
2013 | 2012 | 2013 vs. 2012 | |||||||||
Net interest loss after provision for loan losses |
$ | (8 | ) | $ | | 100 | % | |||||
Gains on debt repurchases |
29 | 37 | (22 | ) | ||||||||
Other income |
| 3 | (100 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total other income |
29 | 40 | (28 | ) | ||||||||
Overhead expenses: |
||||||||||||
Corporate overhead |
46 | 36 | 28 | |||||||||
Unallocated information technology costs |
28 | 28 | | |||||||||
|
|
|
|
|
|
|||||||
Total overhead expenses |
74 | 64 | 16 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
74 | 64 | 16 | |||||||||
Restructuring expenses |
| 3 | (100 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total expenses |
74 | 67 | 10 | |||||||||
|
|
|
|
|
|
|||||||
Loss before income tax benefit |
(53 | ) | (27 | ) | 96 | |||||||
Income tax benefit |
(20 | ) | (10 | ) | 100 | |||||||
|
|
|
|
|
|
|||||||
Core Earnings (loss) |
$ | (33 | ) | $ | (17 | ) | 94 | % | ||||
|
|
|
|
|
|
Net Interest Loss after Provision for Loan Losses
Net interest loss after provision for loan losses includes net interest income related to our corporate liquidity portfolio as well as net interest income and provision expense related to our mortgage and consumer loan portfolios.
Gains on Debt Repurchases
We repurchased $927 million and $204 million face amount of our debt for the quarters ended March 31, 2013 and 2012, respectively.
Overhead
Corporate overhead is comprised of costs related to executive management, the board of directors, accounting, finance, legal, human resources and stock-based compensation expense. Unallocated information technology costs are related to infrastructure and operations.
The increase in overhead for the quarter ended March 31, 2013 compared with the year-ago period was primarily the result of a non-recurring $8 million pension termination gain in first-quarter 2012.
57
Financial Condition
This section provides additional information regarding the changes in our loan portfolio assets and related liabilities as well as credit quality and performance indicators related to our loan portfolio.
Average Balance Sheets GAAP
The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities and reflects our net interest margin on a consolidated basis.
Three Months Ended March 31, | ||||||||||||||||
2013 | 2012 | |||||||||||||||
(Dollars in millions) |
Balance | Rate | Balance | Rate | ||||||||||||
Average Assets |
||||||||||||||||
FFELP Loans |
$ | 121,855 | 2.45 | % | $ | 137,193 | 2.47 | % | ||||||||
Private Education Loans |
38,406 | 6.58 | 37,749 | 6.66 | ||||||||||||
Other loans |
133 | 9.36 | 187 | 9.67 | ||||||||||||
Cash and investments |
9,878 | .19 | 9,198 | .22 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest-earning assets |
170,272 | 3.25 | % | 184,327 | 3.22 | % | ||||||||||
|
|
|
|
|||||||||||||
Non-interest-earning assets |
4,567 | 4,768 | ||||||||||||||
|
|
|
|
|||||||||||||
Total assets |
$ | 174,839 | $ | 189,095 | ||||||||||||
|
|
|
|
|||||||||||||
Average Liabilities and Equity |
||||||||||||||||
Short-term borrowings |
$ | 19,070 | 1.03 | % | $ | 29,037 | .93 | % | ||||||||
Long-term borrowings |
146,977 | 1.44 | 151,081 | 1.59 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest-bearing liabilities |
166,047 | 1.39 | 180,118 | 1.49 | ||||||||||||
|
|
|
|
|||||||||||||
Non-interest-bearing liabilities |
3,674 | 3,904 | ||||||||||||||
Equity |
5,118 | 5,073 | ||||||||||||||
|
|
|
|
|||||||||||||
Total liabilities and equity |
$ | 174,839 | $ | 189,095 | ||||||||||||
|
|
|
|
|||||||||||||
Net interest margin |
1.89 | % | 1.77 | % | ||||||||||||
|
|
|
|
Rate/Volume Analysis GAAP
The following rate/volume analysis shows the relative contribution of changes in interest rates and asset volumes.
(Dollars in millions) |
Increase
(Decrease) |
Change Due To (1) | ||||||||||
Rate | Volume | |||||||||||
Three Months Ended March 31, 2013 vs. 2012 |
||||||||||||
Interest income |
$ | (111 | ) | $ | 14 | $ | (125 | ) | ||||
Interest expense |
(95 | ) | (40 | ) | (55 | ) | ||||||
|
|
|
|
|
|
|||||||
Net interest income |
$ | (16 | ) | $ | 54 | $ | (70 | ) | ||||
|
|
|
|
|
|
(1) |
Changes in income and expense due to both rate and volume have been allocated in proportion to the relationship of the absolute dollar amounts of the change in each. The changes in income and expense are calculated independently for each line in the table. The totals for the rate and volume columns are not the sum of the individual lines. |
58
Summary of our Student Loan Portfolio
Ending Student Loan Balances, net
March 31, 2013 | ||||||||||||||||||||
(Dollars in millions) |
FFELP
Stafford and Other |
FFELP
Consolidation Loans |
Total
FFELP Loans |
Private
Education Loans |
Total
Portfolio |
|||||||||||||||
Total student loan portfolio: |
||||||||||||||||||||
In-school (1) |
$ | 1,350 | $ | | $ | 1,350 | $ | 2,546 | $ | 3,896 | ||||||||||
Grace, repayment and other (2) |
41,080 | 75,628 | 116,708 | 36,522 | 153,230 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total, gross |
42,430 | 75,628 | 118,058 | 39,068 | 157,126 | |||||||||||||||
Unamortized premium/(discount) |
667 | 617 | 1,284 | (772 | ) | 512 | ||||||||||||||
Receivable for partially charged-off loans |
| | | 1,339 | 1,339 | |||||||||||||||
Allowance for loan losses |
(92 | ) | (55 | ) | (147 | ) | (2,170 | ) | (2,317 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total student loan portfolio |
$ | 43,005 | $ | 76,190 | $ | 119,195 | $ | 37,465 | $ | 156,660 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
% of total FFELP |
36 | % | 64 | % | 100 | % | ||||||||||||||
% of total |
27 | % | 49 | % | 76 | % | 24 | % | 100 | % |
December 31, 2012 | ||||||||||||||||||||
(Dollars in millions) |
FFELP
Stafford and Other |
FFELP
Consolidation Loans |
Total
FFELP Loans |
Private
Education Loans |
Total
Portfolio |
|||||||||||||||
Total student loan portfolio: |
||||||||||||||||||||
In-school (1) |
$ | 1,506 | $ | | $ | 1,506 | $ | 2,194 | $ | 3,700 | ||||||||||
Grace, repayment and other (2) |
42,189 | 80,640 | 122,829 | 36,360 | 159,189 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total, gross |
43,695 | 80,640 | 124,335 | 38,554 | 162,889 | |||||||||||||||
Unamortized premium/(discount) |
691 | 745 | 1,436 | (796 | ) | 640 | ||||||||||||||
Receivable for partially charged-off loans |
| | | 1,347 | 1,347 | |||||||||||||||
Allowance for loan losses |
(97 | ) | (62 | ) | (159 | ) | (2,171 | ) | (2,330 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total student loan portfolio |
$ | 44,289 | $ | 81,323 | $ | 125,612 | $ | 36,934 | $ | 162,546 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
% of total FFELP |
35 | % | 65 | % | 100 | % | ||||||||||||||
% of total |
27 | % | 50 | % | 77 | % | 23 | % | 100 | % |
(1) |
Loans for customers still attending school and are not yet required to make payments on the loan. |
(2) |
Includes loans in deferment or forbearance. |
Average Student Loan Balances (net of unamortized premium/discount)
Three Months Ended March 31, 2013 | ||||||||||||||||||||
(Dollars in millions) |
FFELP
Stafford and Other |
FFELP
Consolidation Loans |
Total
FFELP |
Private
Education Loans |
Total | |||||||||||||||
Total |
$ | 43,721 | $ | 78,134 | $ | 121,855 | $ | 38,406 | $ | 160,261 | ||||||||||
% of FFELP |
36 | % | 64 | % | 100 | % | ||||||||||||||
% of total |
27 | % | 49 | % | 76 | % | 24 | % | 100 | % | ||||||||||
Three Months Ended March 31, 2012 | ||||||||||||||||||||
(Dollars in millions) |
FFELP
Stafford and Other |
FFELP
Consolidation Loans |
Total
FFELP |
Private
Education Loans |
Total | |||||||||||||||
Total |
$ | 50,149 | $ | 87,044 | $ | 137,193 | $ | 37,749 | $ | 174,942 | ||||||||||
% of FFELP |
37 | % | 63 | % | 100 | % | ||||||||||||||
% of total |
28 | % | 50 | % | 78 | % | 22 | % | 100 | % |
59
Student Loan Activity
Three Months Ended March 31, 2013 | ||||||||||||||||||||
(Dollars in millions) |
FFELP
Stafford and Other |
FFELP
Consolidation Loans |
Total
FFELP |
Total Private
Education Loans |
Total
Portfolio |
|||||||||||||||
Beginning balance |
$ | 44,289 | $ | 81,323 | $ | 125,612 | $ | 36,934 | $ | 162,546 | ||||||||||
Acquisitions and originations |
101 | 53 | 154 | 1,405 | 1,559 | |||||||||||||||
Capitalized interest and premium/discount amortization |
295 | 313 | 608 | 200 | 808 | |||||||||||||||
Consolidations to third parties |
(445 | ) | (275 | ) | (720 | ) | (24 | ) | (744 | ) | ||||||||||
Sales (1) |
(72 | ) | (3,749 | ) | (3,821 | ) | | (3,821 | ) | |||||||||||
Repayments and other |
(1,163 | ) | (1,475 | ) | (2,638 | ) | (1,050 | ) | (3,688 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance |
$ | 43,005 | $ | 76,190 | $ | 119,195 | $ | 37,465 | $ | 156,660 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Three Months Ended March 31, 2012 | ||||||||||||||||||||
(Dollars in millions) |
FFELP
Stafford and Other |
FFELP
Consolidation Loans |
Total
FFELP |
Total Private
Education Loans |
Total
Portfolio |
|||||||||||||||
Beginning balance |
$ | 50,440 | $ | 87,690 | $ | 138,130 | $ | 36,290 | $ | 174,420 | ||||||||||
Acquisitions and originations |
819 | 78 | 897 | 1,151 | 2,048 | |||||||||||||||
Capitalized interest and premium/discount amortization |
335 | 398 | 733 | 245 | 978 | |||||||||||||||
Consolidations to third parties |
(719 | ) | (225 | ) | (944 | ) | (23 | ) | (967 | ) | ||||||||||
Sales |
(135 | ) | | (135 | ) | | (135 | ) | ||||||||||||
Repayments and other |
(1,232 | ) | (1,515 | ) | (2,747 | ) | (931 | ) | (3,678 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance |
$ | 49,508 | $ | 86,426 | $ | 135,934 | $ | 36,732 | $ | 172,666 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
Includes $3.7 billion of student loans in connection with the sale of the Residual Interest in a FFELP Loan securitization trust. |
60
Student Loan Allowance for Loan Losses Activity
Three Months Ended March 31, | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
(Dollars in millions) |
FFELP
Loans |
Private
Education Loans |
Total
Portfolio |
FFELP
Loans |
Private
Education Loans |
Total
Portfolio |
||||||||||||||||||
Beginning balance |
$ | 159 | $ | 2,171 | $ | 2,330 | $ | 187 | $ | 2,171 | $ | 2,358 | ||||||||||||
Less: |
||||||||||||||||||||||||
Charge-offs (1) |
(22 | ) | (232 | ) | (254 | ) | (23 | ) | (224 | ) | (247 | ) | ||||||||||||
Student loan sales |
(6 | ) | | (6 | ) | (2 | ) | | (2 | ) | ||||||||||||||
Plus: |
||||||||||||||||||||||||
Provision for loan losses |
16 | 225 | 241 | 18 | 235 | 253 | ||||||||||||||||||
Reclassification of interest reserve (2) |
| 6 | 6 | | 8 | 8 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
$ | 147 | $ | 2,170 | $ | 2,317 | $ | 180 | $ | 2,190 | $ | 2,370 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Troubled debt restructuring (3) |
$ | | $ | 7,714 | $ | 7,714 | $ | | $ | 5,957 | $ | 5,957 |
(1) |
Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See Receivable for Partially Charged-Off Private Education Loans for further discussion. |
(2) |
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. |
(3) |
Represents the recorded investment of loans classified as troubled debt restructuring. |
Private Education Loan Originations
The following table summarizes our Private Education Loan originations.
Three Months Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Smart Option interest only (1) |
$ | 365 | $ | 358 | ||||
Smart Option fixed pay (1) |
439 | 345 | ||||||
Smart Option deferred (1) |
590 | 432 | ||||||
Other |
17 | 25 | ||||||
|
|
|
|
|||||
Total Private Education Loan originations |
$ | 1,411 | $ | 1,160 | ||||
|
|
|
|
(1) |
Interest only, fixed pay and deferred describe the payment option while in school or in grace period. See Consumer Lending Portfolio Performance Private Education Loan Repayment Options for further discussion. |
61
Consumer Lending Portfolio Performance
Private Education Loan Delinquencies and Forbearance
The table below presents our Private Education Loan delinquency trends.
Private Education Loan Delinquencies | ||||||||||||||||
March 31,
2013 |
March 31,
2012 |
|||||||||||||||
(Dollars in millions) |
Balance | % | Balance | % | ||||||||||||
Loans in-school/grace/deferment (1) |
$ | 6,434 | $ | 6,917 | ||||||||||||
Loans in forbearance (2) |
1,101 | 1,372 | ||||||||||||||
Loans in repayment and percentage of each status: |
||||||||||||||||
Loans current |
29,069 | 92.2 | % | 27,499 | 90.9 | % | ||||||||||
Loans delinquent 31-60 days (3) |
731 | 2.3 | 859 | 2.8 | ||||||||||||
Loans delinquent 61-90 days (3) |
491 | 1.6 | 544 | 1.9 | ||||||||||||
Loans delinquent greater than 90 days (3) |
1,242 | 3.9 | 1,334 | 4.4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Private Education Loans in repayment |
31,533 | 100 | % | 30,236 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Private Education Loans, gross |
39,068 | 38,525 | ||||||||||||||
Private Education Loan unamortized discount |
(772 | ) | (853 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total Private Education Loans |
38,296 | 37,672 | ||||||||||||||
Private Education Loan receivable for partially charged-off loans |
1,339 | 1,250 | ||||||||||||||
Private Education Loan allowance for losses |
(2,170 | ) | (2,190 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Private Education Loans, net |
$ | 37,465 | $ | 36,732 | ||||||||||||
|
|
|
|
|||||||||||||
Percentage of Private Education Loans in repayment |
80.7 | % | 78.5 | % | ||||||||||||
|
|
|
|
|||||||||||||
Delinquencies as a percentage of Private Education Loans in repayment |
7.8 | % | 9.1 | % | ||||||||||||
|
|
|
|
|||||||||||||
Loans in forbearance as a percentage of loans in repayment and forbearance |
3.4 | % | 4.3 | % | ||||||||||||
|
|
|
|
|||||||||||||
Loans in repayment greater than 12 months as a percentage of loans in repayment (4) |
79.1 | % | 74.1 | % | ||||||||||||
|
|
|
|
(1) |
Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation. |
(2) |
Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures. |
(3) |
The period of delinquency is based on the number of days scheduled payments are contractually past due. |
(4) |
Based on number of months in an active repayment status for which a scheduled monthly payment was due. |
62
Allowance for Private Education Loan Losses
The following table summarizes changes in the allowance for Private Education Loan losses.
Three Months Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Allowance at beginning of period |
$ | 2,171 | $ | 2,171 | ||||
Provision for Private Education Loan losses |
225 | 235 | ||||||
Charge-offs (1) |
(232 | ) | (224 | ) | ||||
Reclassification of interest reserve (2) |
6 | 8 | ||||||
|
|
|
|
|||||
Allowance at end of period |
$ | 2,170 | $ | 2,190 | ||||
|
|
|
|
|||||
Charge-offs as a percentage of average loans in repayment (annualized) |
2.97 | % | 2.96 | % | ||||
Charge-offs as a percentage of average loans in repayment and forbearance (annualized) |
2.87 | % | 2.84 | % | ||||
Allowance as a percentage of the ending total loan balance |
5.37 | % | 5.51 | % | ||||
Allowance as a percentage of ending loans in repayment |
6.88 | % | 7.24 | % | ||||
Average coverage of charge-offs (annualized) |
2.3 | 2.4 | ||||||
Ending total loans (3) |
$ | 40,407 | $ | 39,775 | ||||
Average loans in repayment |
$ | 31,645 | $ | 30,378 | ||||
Ending loans in repayment |
$ | 31,533 | $ | 30,236 |
(1) |
Charge-offs are reported net of expected recoveries. The expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See Receivable for Partially Charged-Off Private Education Loans for further discussion. |
(2) |
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. |
(3) |
Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans. |
63
The following table provides the detail for our traditional and non-traditional Private Education Loans.
March 31, 2013 | March 31, 2012 | |||||||||||||||||||||||
(Dollars in millions) |
Traditional |
Non-
Traditional |
Total | Traditional |
Non-
Traditional |
Total | ||||||||||||||||||
Ending total loans (1) |
$ | 36,746 | $ | 3,661 | $ | 40,407 | $ | 35,755 | $ | 4,020 | $ | 39,775 | ||||||||||||
Ending loans in repayment |
29,022 | 2,511 | 31,533 | 27,588 | 2,648 | 30,236 | ||||||||||||||||||
Private Education Loan allowance for losses |
1,643 | 527 | 2,170 | 1,587 | 603 | 2,190 | ||||||||||||||||||
Charge-offs as a percentage of average loans in repayment (annualized) |
2.5 | % | 8.7 | % | 3.0 | % | 2.3 | % | 10.3 | % | 3.0 | % | ||||||||||||
Allowance as a percentage of ending total loan balance |
4.5 | % | 14.4 | % | 5.4 | % | 4.4 | % | 15.0 | % | 5.5 | % | ||||||||||||
Allowance as a percentage of ending loans in repayment |
5.7 | % | 21.0 | % | 6.9 | % | 5.8 | % | 22.8 | % | 7.2 | % | ||||||||||||
Average coverage of charge-offs (annualized) |
2.3 | 2.4 | 2.3 | 2.5 | 2.2 | 2.4 | ||||||||||||||||||
Delinquencies as a percentage of Private Education Loans in repayment |
6.7 | % | 20.5 | % | 7.8 | % | 7.7 | % | 23.3 | % | 9.1 | % | ||||||||||||
Delinquencies greater than 90 days as a percentage of Private Education Loans in repayment |
3.3 | % | 11.2 | % | 3.9 | % | 3.6 | % | 12.5 | % | 4.4 | % | ||||||||||||
Loans in forbearance as a percentage of loans in repayment and forbearance |
3.2 | % | 5.1 | % | 3.4 | % | 4.1 | % | 6.8 | % | 4.3 | % | ||||||||||||
Loans that entered repayment during the period (2) |
$ | 553 | $ | 23 | $ | 576 | $ | 729 | $ | 54 | $ | 783 | ||||||||||||
Percentage of Private Education Loans with a cosigner |
69 | % | 30 | % | 66 | % | 66 | % | 29 | % | 63 | % | ||||||||||||
Average FICO at origination |
728 | 624 | 720 | 727 | 624 | 718 |
(1) |
Ending total loans represent gross Private Education Loans, plus the receivable for partially charged-off loans. |
(2) |
Includes loans that are required to make a payment for the first time. |
As part of concluding on the adequacy of the allowance for loan losses, we review key allowance and loan metrics. The most significant of these metrics considered are the allowance coverage of charge-offs ratio; the allowance as a percentage of total loans and of loans in repayment; and delinquency and forbearance percentages.
Receivable for Partially Charged-Off Private Education Loans
At the end of each month, for loans that are 212 days past due, we charge 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 immediately charged off through the allowance for loan losses with an offsetting reduction in the receivable for partially charged-off Private Education Loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. Private Education Loans which defaulted between 2008 and 2012 for which we have previously charged off estimated losses have, to varying degrees, not met our post-default recovery expectations to date and may continue not to do so. According to our policy, we have been charging off these periodic shortfalls in expected recoveries against our allowance for Private Education Loan losses and the related receivable for partially charged-off Private Education Loans and we will continue to do so. There was $209 million and $151 million in allowance for Private Education Loan losses at March 31, 2013 and 2012, respectively, providing for
64
possible additional future charge-offs related to the receivable for partially charged-off Private Education Loans (see Consumer Lending Segment Private Education Loan Provision for Loan Losses and Charge-Offs for a further discussion).
The following table summarizes the activity in the receivable for partially charged-off Private Education Loans.
Three Months Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Receivable at beginning of period |
$ | 1,347 | $ | 1,241 | ||||
Expected future recoveries of current period defaults (1) |
78 | 69 | ||||||
Recoveries (2) |
(68 | ) | (50 | ) | ||||
Charge-offs (3) |
(18 | ) | (10 | ) | ||||
|
|
|
|
|||||
Receivable at end of period |
1,339 | 1,250 | ||||||
Allowance for estimated recovery shortfalls (4) |
(209 | ) | (151 | ) | ||||
|
|
|
|
|||||
Net receivable at end of period |
$ | 1,130 | $ | 1,099 | ||||
|
|
|
|
(1) |
Represents the difference between the defaulted loan balance and our estimate of the amount to be collected in the future. |
(2) |
Current period cash collections. |
(3) |
Represents the current period recovery shortfall the difference between what was expected to be collected and what was actually collected. These amounts are included in total charge-offs as reported in the Allowance for Private Education Loan Losses table. |
(4) |
The allowance for estimated recovery shortfalls of the receivable for partially charged-off Private Education Loans is a component of the $2.2 billion overall allowance for Private Education Loan losses as of March 31, 2013 and 2012. |
Use of Forbearance as a Private Education Loan Collection Tool
Forbearance involves granting the customer a temporary cessation of payments (or temporary acceptance of smaller than scheduled payments) for a specified period of time. Using forbearance extends the original term of the loan. Forbearance does not grant any reduction in the total repayment obligation (principal or interest). While 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 forbearance. Exceptions to forbearance policies are permitted when such exceptions are judged to increase the likelihood of collection of the loan. Forbearance as a collection tool is used most effectively when applied based on a customers unique situation, including historical information and judgments. We leverage updated customer information and other decision support tools to best determine who will be granted forbearance based on our expectations as to a customers 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 customers who are exiting their grace period to provide additional time to obtain employment and income to support their obligations, or to current customers who are faced with a hardship and request forbearance time to provide temporary payment relief. In these circumstances, a customers 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 customer 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 customers who are delinquent in their payments. In these circumstances, the forbearance cures the delinquency and the customer is returned to a current repayment status. In more limited instances, delinquent customers will also be granted additional forbearance time.
65
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, 66 percent of the loans are current, paid in full, or receiving an in-school grace or deferment, and 20 percent have defaulted. The default experience associated with loans which utilize forbearance is considered in our allowance for loan losses. The number of loans in a forbearance status as a percentage of loans in repayment and forbearance decreased to 3.4 percent in the first quarter of 2013 compared with 4.3 percent in the year-ago quarter. As of March 31, 2013, 2.2 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 as of March 31, 2013 (customers made payments on approximately 37 percent of these loans as a prerequisite to being granted forbearance).
Tracking by First Time in Forbearance Compared to All Loans Entering Repayment Portfolio data through March 31, 2013 |
||||||||||||
Status distribution
36 months after being granted forbearance for the first time |
Status distribution
36 months after entering repayment (all loans) |
Status distribution
36 months after entering repayment for loans never entering forbearance |
||||||||||
In-school/grace/deferment |
9.6 | % | 9.0 | % | 5.5 | % | ||||||
Current |
50.7 | 59.1 | 66.8 | |||||||||
Delinquent 31-60 days |
3.2 | 2.0 | .4 | |||||||||
Delinquent 61-90 days |
1.9 | 1.2 | .2 | |||||||||
Delinquent greater than 90 days |
4.8 | 2.8 | .3 | |||||||||
Forbearance |
4.0 | 3.1 | | |||||||||
Defaulted |
20.0 | 11.4 | 7.3 | |||||||||
Paid |
5.8 | 11.4 | 19.5 | |||||||||
|
|
|
|
|
|
|||||||
Total |
100 | % | 100 | % | 100 | % | ||||||
|
|
|
|
|
|
The tables below show the composition and status of the 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 March 31, 2013, loans in forbearance status as a percentage of loans in repayment and
66
forbearance was 5.9 percent for loans that have been in active repayment status for less than 25 months. The percentage drops to 1.2 percent for loans that have been in active repayment status for more than 48 months. Approximately 70 percent of our Private Education Loans in forbearance status has been in active repayment status less than 25 months.
(Dollars in millions)
March 31, 2013 |
Monthly Scheduled Payments Due |
Not Yet in
Repayment |
Total | |||||||||||||||||||||||||
0 to 12 | 13 to 24 | 25 to 36 | 37 to 48 | More than 48 | ||||||||||||||||||||||||
Loans in-school/grace/deferment |
$ | | $ | | $ | | $ | | $ | | $ | 6,434 | $ | 6,434 | ||||||||||||||
Loans in forbearance |
587 | 184 | 145 | 79 | 106 | | 1,101 | |||||||||||||||||||||
Loans in repayment current |
5,645 | 5,156 | 5,345 | 4,505 | 8,418 | | 29,069 | |||||||||||||||||||||
Loans in repayment delinquent 31-60 days |
252 | 139 | 132 | 85 | 123 | | 731 | |||||||||||||||||||||
Loans in repayment delinquent 61-90 days |
189 | 95 | 82 | 54 | 71 | | 491 | |||||||||||||||||||||
Loans in repayment delinquent greater than 90 days |
513 | 260 | 204 | 115 | 150 | | 1,242 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 7,186 | $ | 5,834 | $ | 5,908 | $ | 4,838 | $ | 8,868 | $ | 6,434 | 39,068 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Unamortized discount |
(772 | ) | ||||||||||||||||||||||||||
Receivable for partially charged-off loans |
1,339 | |||||||||||||||||||||||||||
Allowance for loan losses |
(2,170 | ) | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Total Private Education Loans, net |
$ | 37,465 | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Loans in forbearance as a percentage of loans in repayment and forbearance |
8.2 | % | 3.2 | % | 2.5 | % | 1.6 | % | 1.2 | % | | % | 3.4 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
March 31, 2012 |
Monthly Scheduled Payments Due |
Not Yet in
Repayment |
Total | |||||||||||||||||||||||||
0 to 12 | 13 to 24 | 25 to 36 | 37 to 48 | More than 48 | ||||||||||||||||||||||||
Loans in-school/grace/deferment |
$ | | $ | | $ | | $ | | $ | | $ | 6,917 | $ | 6,917 | ||||||||||||||
Loans in forbearance |
892 | 198 | 132 | 64 | 86 | | 1,372 | |||||||||||||||||||||
Loans in repayment current |
6,529 | 5,920 | 5,204 | 3,626 | 6,220 | | 27,499 | |||||||||||||||||||||
Loans in repayment delinquent 31-60 days |
381 | 171 | 136 | 72 | 99 | | 859 | |||||||||||||||||||||
Loans in repayment delinquent 61-90 days |
265 | 107 | 79 | 39 | 54 | | 544 | |||||||||||||||||||||
Loans in repayment delinquent greater than 90 days |
663 | 270 | 186 | 93 | 122 | | 1,334 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 8,730 | $ | 6,666 | $ | 5,737 | $ | 3,894 | $ | 6,581 | $ | 6,917 | 38,525 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Unamortized discount |
(853 | ) | ||||||||||||||||||||||||||
Receivable for partially charged-off loans |
1,250 | |||||||||||||||||||||||||||
Allowance for loan losses |
(2,190 | ) | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Total Private Education Loans, net |
$ | 36,732 | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Loans in forbearance as a percentage of loans in repayment and forbearance |
10.2 | % | 3.0 | % | 2.3 | % | 1.7 | % | 1.3 | % | | % | 4.3 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
The table below stratifies the portfolio of Private Education Loans in forbearance by the cumulative number of months the customer has used forbearance as of the dates indicated. As detailed in the table below, 5 percent of loans currently in forbearance have cumulative forbearance of more than 24 months.
March 31, 2013 | March 31, 2012 | |||||||||||||||
(Dollars in millions) |
Forbearance
Balance |
% of
Total |
Forbearance
Balance |
% of
Total |
||||||||||||
Cumulative number of months customer has used forbearance |
||||||||||||||||
Up to 12 months |
$ | 867 | 79 | % | $ | 839 | 61 | % | ||||||||
13 to 24 months |
178 | 16 | 477 | 35 | ||||||||||||
More than 24 months |
56 | 5 | 56 | 4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,101 | 100 | % | $ | 1,372 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
Private Education Loan Repayment Options
Certain loan programs allow customers to select from a variety of repayment options depending on their loan type and their enrollment/loan status, which include the ability to extend their repayment term or change their monthly payment. The chart below provides the optional repayment offerings in addition to the standard level principal and interest payments as of March 31, 2013.
Loan Program | ||||||||||||||||
(Dollars in millions) |
Signature and
Other |
Smart Option |
Career
Training |
Total | ||||||||||||
$ in repayment |
$23,701 | $6,421 | $ 1,411 | $31,533 | ||||||||||||
$ in total |
28,943 | 8,658 | 1,467 | 39,068 | ||||||||||||
Payment method by enrollment status: |
||||||||||||||||
In-school/grace |
Deferred (1) |
|
Deferred
(1)
,
interest-only or fixed
|
|
|
Interest-only or fixed
$25/month |
|
|||||||||
Repayment |
|
Level principal and
interest or graduated |
|
|
Level principal and
interest |
|
|
Level principal and
interest |
|
(1) |
Deferred includes loans for which no payments are required and interest charges are capitalized into the loan balance. |
The graduated repayment program that is part of Signature and Other Loans includes an interest-only payment feature that may be selected at the option of the customer. Customers elect to participate in this program at the time they enter repayment following their grace period. This program is available to customers in repayment, after their grace period, who would like a temporary lower payment from the required principal and interest payment amount. Customers participating in this program pay monthly interest with no amortization of their principal balance for up to 48 payments after entering repayment (dependent on the loan product type). The maturity date of the loan is not extended when a customer participates in this program. As of March 31, 2013 and 2012, customers in repayment owing approximately $6.1 billion (19 percent of loans in repayment) and $7.0 billion (23 percent of loans in repayment), respectively, were enrolled in the interest-only program. Of these amounts, 10 percent and 11 percent were non-traditional loans as of March 31, 2013 and 2012, respectively.
Accrued Interest Receivable
The following table provides information regarding accrued interest receivable on our Private Education Loans. The table also discloses the amount of accrued interest on loans greater than 90 days past due as
68
compared to our allowance for uncollectible interest. The allowance for uncollectible interest exceeds the amount of accrued interest on our 90 days past due portfolio for all periods presented.
Accrued Interest Receivable
|
||||||||||||
(Dollars in millions) |
Total |
Greater Than
90 Days Past Due |
Allowance for
Uncollectible Interest |
|||||||||
March 31, 2013 |
$ | 918 | $ | 48 | $ | 68 | ||||||
December 31, 2012 |
$ | 904 | $ | 55 | $ | 67 | ||||||
March 31, 2012 |
$ | 1,007 | $ | 50 | $ | 71 |
FFELP Loan Portfolio Performance
FFELP Loan Delinquencies and Forbearance
The table below presents our FFELP Loan delinquency trends.
FFELP Loan Delinquencies | ||||||||||||||||
March 31, | ||||||||||||||||
2013 | 2012 | |||||||||||||||
(Dollars in millions) |
Balance | % | Balance | % | ||||||||||||
Loans in-school/grace/deferment (1) |
$ | 17,324 | $ | 22,788 | ||||||||||||
Loans in forbearance (2) |
15,430 | 19,478 | ||||||||||||||
Loans in repayment and percentage of each status: |
||||||||||||||||
Loans current |
71,792 | 84.2 | % | 77,099 | 83.6 | % | ||||||||||
Loans delinquent 31-60 days (3) |
4,186 | 4.9 | 5,173 | 5.6 | ||||||||||||
Loans delinquent 61-90 days (3) |
2,441 | 2.9 | 2,666 | 2.9 | ||||||||||||
Loans delinquent greater than 90 days (3) |
6,885 | 8.0 | 7,286 | 7.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total FFELP Loans in repayment |
85,304 | 100 | % | 92,224 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total FFELP Loans, gross |
118,058 | 134,490 | ||||||||||||||
FFELP Loan unamortized premium |
1,284 | 1,624 | ||||||||||||||
|
|
|
|
|||||||||||||
Total FFELP Loans |
119,342 | 136,114 | ||||||||||||||
FFELP Loan allowance for losses |
(147 | ) | (180 | ) | ||||||||||||
|
|
|
|
|||||||||||||
FFELP Loans, net |
$ | 119,195 | $ | 135,934 | ||||||||||||
|
|
|
|
|||||||||||||
Percentage of FFELP Loans in repayment |
72.3 | % | 68.6 | % | ||||||||||||
|
|
|
|
|||||||||||||
Delinquencies as a percentage of FFELP Loans in repayment |
15.8 | % | 16.4 | % | ||||||||||||
|
|
|
|
|||||||||||||
FFELP Loans in forbearance as a percentage of loans in repayment and forbearance |
15.3 | % | 17.4 | % | ||||||||||||
|
|
|
|
(1) |
Loans for customers who may still 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 customers who have requested extension of grace period during employment transition or who have temporarily ceased making payments due to hardship or other factors. |
(2) |
Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making payments due to hardship or other factors. |
(3) |
The period of delinquency is based on the number of days scheduled payments are contractually past due. |
69
Allowance for FFELP Loan Losses
The following table summarizes changes in the allowance for FFELP Loan losses.
Three Months Ended
March 31, |
||||||||
(Dollars in millions) |
2013 | 2012 | ||||||
Allowance at beginning of period |
$ | 159 | $ | 187 | ||||
Provision for FFELP Loan losses |
16 | 18 | ||||||
Charge-offs |
(22 | ) | (23 | ) | ||||
Student loan sales |
(6 | ) | (2 | ) | ||||
|
|
|
|
|||||
Allowance at end of period |
$ | 147 | $ | 180 | ||||
|
|
|
|
|||||
Charge-offs as a percentage of average loans in repayment (annualized) |
.10 | % | .10 | % | ||||
Charge-offs as a percentage of average loans in repayment and forbearance (annualized) |
.09 | % | .08 | % | ||||
Allowance as a percentage of the ending total loans, gross |
.12 | % | .13 | % | ||||
Allowance as a percentage of ending loans in repayment |
.17 | % | .20 | % | ||||
Allowance coverage of charge-offs (annualized) |
1.6 | 2.0 | ||||||
Ending total loans, gross |
$ | 118,058 | $ | 134,490 | ||||
Average loans in repayment |
$ | 87,256 | $ | 93,150 | ||||
Ending loans in repayment |
$ | 85,304 | $ | 92,224 |
Liquidity and Capital Resources
Funding and Liquidity Risk Management
The following Liquidity and Capital Resources discussion concentrates on our Consumer Lending and FFELP Loans segments. Our Business Services and Other segments require minimal capital and funding.
We define liquidity risk as the potential inability to meet our obligations when they become due without incurring unacceptable losses, such as the ability to fund liability maturities and deposit withdrawals, or invest in future asset growth and business operations at reasonable market rates, as well as the potential inability to fund Private Education Loan originations. Our three primary liquidity needs include our ongoing ability to meet our funding needs for our businesses throughout market cycles, including during periods of financial stress and to avoid any mismatch between the maturity of assets and liabilities, our ongoing ability to fund originations of Private Education Loans and servicing our indebtedness and bank deposits. To achieve these objectives we analyze and monitor our liquidity needs, maintain excess liquidity and access diverse funding sources including the issuance of unsecured debt, the issuance of secured debt primarily through asset-backed securitizations and/or other financing facilities and through deposits at the Bank.
We define liquidity as cash and high-quality liquid securities that we can use to meet our funding requirements. Our primary liquidity risk relates to our ability to fund new originations and raise replacement funding at a reasonable cost as our unsecured debt and bank deposits mature. In addition, we must continue to obtain funding at reasonable rates to meet our other business obligations and to continue to grow our business. Key risks associated with our liquidity relate to our ability to access the capital markets and bank deposits and access them at reasonable rates. This ability may be affected by our credit ratings, as well as the overall availability of funding sources in the marketplace. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter derivatives.
Credit ratings and outlooks are opinions subject to ongoing review by the ratings agencies and may change from time to time based on our financial performance, industry dynamics and other factors. Other factors that
70
influence our credit ratings include the ratings agencies assessment of the general operating environment, our relative positions in the markets in which we compete, reputation, liquidity position, the level and volatility of earnings, corporate governance and risk management policies, capital position and capital management practices. A negative change in our credit rating could have a negative effect on our liquidity because it would raise the cost and availability of funding and potentially require additional cash collateral or restrict cash currently held as collateral on existing borrowings or derivative collateral arrangements. It is our objective to improve our credit ratings so that we can continue to efficiently access the capital markets even in difficult economic and market conditions.
We expect to fund our ongoing liquidity needs, including the origination of new Private Education Loans and the repayment of $2.8 billion of senior unsecured notes that mature in the next twelve months, primarily through our current cash and investment portfolio, the issuance of additional bank deposits and unsecured debt, the predictable operating cash flows provided by earnings, the repayment of principal on unencumbered student loan assets and the distributions from our securitization trusts (including servicing fees which are priority payments within the trusts). We may also draw down on our FFELP ABCP Facilities and the facility with the Federal Home Loan Bank in Des Moines (the FHLB-DM Facility); and we may also issue term ABS.
Currently, new Private Education Loan originations are initially funded through deposits and subsequently securitized to term. We have $1.4 billion of cash at the Bank as of March 31, 2013 available to fund future originations. We no longer originate FFELP Loans and therefore no longer have liquidity requirements for new FFELP Loan originations.
We will continue to opportunistically purchase FFELP Loan portfolios from others. Additionally, we still expect to redeem all remaining FFELP Loans we currently finance in the ED Conduit Program on or before the programs anticipated January 19, 2014, maturity date (the ED Maturity Date). We plan to rely primarily on securitizing these loans to term through securitization trusts. However, we may also utilize existing FFELP ABCP and FHLB-DM Facility capacities, as well as additional capital markets funding sources.
Since December 31, 2010, we have refinanced approximately $11.6 billion in principal amount of our FFELP Loans previously financed through the ED Conduit Program, most being funded to term through the use of securitization trusts. As of March 31, 2013, we have $6.9 billion in principal amount of FFELP Loans remaining in the ED Conduit Program. If we cannot obtain sufficient cost-effective funding to finance any or all of the FFELP Loans remaining in the ED Conduit Program on or before the ED Maturity Date, any remaining FFELP Loans still in the program must be put to ED at 97 percent of their principal balance which results in us forfeiting three percent of the principal amount of those loans. In addition, we will also no longer collect future servicing revenues or interest income on any loans put to ED.
71
Sources of Liquidity and Available Capacity
Ending Balances
(Dollars in millions) |
March 31, 2013 | December 31, 2012 | ||||||
Sources of primary liquidity: |
||||||||
Unrestricted cash and liquid investments: |
||||||||
Holding Company and other non-bank subsidiaries |
$ | 2,290 | $ | 2,376 | ||||
Sallie Mae Bank (1) |
1,472 | 1,598 | ||||||
|
|
|
|
|||||
Total unrestricted cash and liquid investments |
$ | 3,762 | $ | 3,974 | ||||
|
|
|
|
|||||
Unencumbered FFELP Loans |
$ | 1,753 | $ | 1,656 |
Average Balances
Three Months Ended | ||||||||
(Dollars in millions) |
March 31, 2013 | March 31, 2012 | ||||||
Sources of primary liquidity: |
||||||||
Unrestricted cash and liquid investments: |
||||||||
Holding Company and other non-bank subsidiaries |
$ | 2,820 | $ | 1,656 | ||||
Sallie Mae Bank (1) |
1,229 | 880 | ||||||
|
|
|
|
|||||
Total unrestricted cash and liquid investments |
$ | 4,049 | $ | 2,536 | ||||
|
|
|
|
|||||
Unencumbered FFELP Loans |
$ | 1,695 | $ | 1,080 |
(1) | This amount will be used primarily to originate or acquire student loans at the Bank. See discussion below on restrictions on the Bank to pay dividends. |
Liquidity may also be available under secured credit facilities to the extent we have eligible collateral and capacity available. Maximum borrowing capacity under the FFELP ABCP Facility and FHLB-DM Facility will vary and be subject to each agreements borrowing conditions, including, among others, facility size, current usage and availability of qualifying collateral from unencumbered FFELP Loans. As of March 31, 2013 and December 31, 2012, the maximum additional capacity under these facilities was $9.8 billion and $11.8 billion, respectively. For the three months ended March 31, 2013 and 2012, the average maximum additional capacity under these facilities was $10.8 billion and $12.1 billion, respectively.
We also hold a number of other unencumbered assets, consisting primarily of Private Education Loans and other assets. Total unencumbered student loans, net, comprised $12.5 billion of our unencumbered assets of which $10.8 billion and $1.7 billion related to Private Education Loans, net and FFELP Loans, net, respectively. At March 31, 2013, we had a total of $21.2 billion of unencumbered assets inclusive of those described above as sources of primary liquidity and exclusive of goodwill and acquired intangible assets.
The Banks ability to pay dividends is subject to the laws of Utah and the regulations of the FDIC. Generally, under Utahs industrial bank laws and regulations as well as FDIC regulations, the Bank may pay dividends from its net profits without regulatory approval if, following the payment of the dividend, the Banks capital and surplus would not be impaired. While applicable Utah and FDIC regulations differ in approach as to determinations of impairment of capital and surplus, neither method of determination has historically required the Bank to obtain consent to the payment of dividends. For the three months ended March 31, 2013 and 2012, the Bank paid dividends of $120 million and $50 million, respectively.
For further discussion of our various sources of liquidity, such as the ED Conduit Program, the FFELP ABCP Facility, the Bank, our continued access to the ABS market, our asset-backed financing facilities, the lending agreement we entered into with the FHLB-DM and our issuance of unsecured debt, see Note 6 Borrowings in our Annual Report on Form 10-K for the year ended December 31, 2012.
72
The following table reconciles encumbered and unencumbered assets and their net impact on total tangible equity.
(Dollars in billions) |
March 31,
2013 |
December 31,
2012 |
||||||
Net assets of consolidated variable interest entities (encumbered assets) FFELP Loans |
$ | 6.4 | $ | 6.6 | ||||
Net assets of consolidated variable interest entities (encumbered assets) Private Education Loans |
6.7 | 6.6 | ||||||
Tangible unencumbered assets (1) |
21.2 | 21.2 | ||||||
Unsecured debt |
(26.7 | ) | (26.7 | ) | ||||
Mark-to-market on unsecured hedged debt (2) |
(1.5 | ) | (1.7 | ) | ||||
Other liabilities, net |
(1.4 | ) | (1.4 | ) | ||||
|
|
|
|
|||||
Total tangible equity |
$ | 4.7 | $ | 4.6 | ||||
|
|
|
|
(1) |
Excludes goodwill and acquired intangible assets. |
(2) |
At March 31, 2013 and December 31, 2012, there were $1.2 billion and $1.4 billion, respectively, of net gains on derivatives hedging this debt in unencumbered assets, which partially offset these losses. |
Transactions during the First-Quarter 2013
The following financing transactions have taken place in the first quarter of 2013:
Unsecured Financings:
|
January 28, 2013 issued $1.5 billion senior unsecured bonds. |
FFELP Financings:
|
February 14, 2013 issued $1.2 billion FFELP ABS. |
Private Education Loan Financings:
|
January 31, 2013 issued $0.3 billion Private Education Loan subordinate ABS previously retained. |
|
March 7, 2013 issued $1.1 billion Private Education Loan ABS. |
Shareholder Distributions
On February 5, 2013, we increased our quarterly dividend on our common stock from $0.125 per common share to $0.15 per common share. The Board of Directors also authorized a $400 million share repurchase program for our outstanding common stock. The program does not have an expiration date. For the first-quarter 2013, we repurchased 10 million shares of common stock for $199 million.
2013 Sale of FFELP Securitization Trust Residual Interest
On February 13, 2013, we sold the Residual Interest in a FFELP Loan securitization trust to a third party. We will continue to service the student loans in the trust under existing agreements. The sale removed student loan assets of $3.8 billion and related liabilities of $3.7 billion from our balance sheet. The gain from the transaction added $0.08 to our first-quarter 2013 GAAP and Core Earnings diluted earnings per share.
Recent Second-Quarter 2013 Transactions
On April 11, 2013, we sold the Residual Interest in a FFELP Loan securitization trust to a third party. We will continue to service the student loans in the trust under existing agreements. The sale will remove student loan assets of approximately $2.03 billion and related liabilities of approximately $1.99 billion from our balance sheet. The gain from the transaction will add approximately $0.13 to our second-quarter 2013 GAAP and Core Earnings diluted earnings per share.
73
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 us. Risks associated with our lending portfolio are discussed in Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations Financial Condition Consumer Lending Portfolio Performance and FFELP Loan Portfolio Performance.
Our investment portfolio is composed of very short-term securities issued by a diversified group of highly rated issuers, limiting our counterparty exposure. Additionally, our investing activity is governed by Board approved limits on the amount that is allowed to be invested with any one issuer based on the credit rating of the issuer, further minimizing our counterparty exposure. Counterparty credit risk is considered when valuing investments and considering impairment.
Related to derivative transactions, protection against counterparty risk 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. All derivative contracts entered into by SLM Corporation and the Bank are covered under such agreements and require collateral to be exchanged based on the net fair value of derivatives with each counterparty. Our securitization trusts require collateral in all cases if the counterpartys credit rating is withdrawn or downgraded below a certain level. Additionally, 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. In all cases, our exposure is limited to the value of the derivative contracts in a gain position net of any collateral we are holding. We consider counterparties credit risk when determining the fair value of derivative positions on our exposure net of collateral.
We have liquidity exposure related to collateral movements between us and our derivative counterparties. Movements in the value of the derivatives, which are primarily affected by changes in interest rate and foreign exchange rates, may require us to return cash collateral held or may require us to access primary liquidity to post collateral to counterparties. If our credit ratings are downgraded from current levels, we may be required to segregate additional unrestricted cash collateral into restricted accounts.
The table below highlights exposure related to our derivative counterparties at March 31, 2013.
(Dollars in millions) |
SLM Corporation
and Sallie Mae Bank Contracts |
Securitization
Trust
Contracts |
||||||
Exposure, net of collateral (1) |
$ | 83 | $ | 587 | ||||
Percent of exposure to counterparties with credit ratings below S&P AA- or Moodys Aa3 |
88 | % | 31 | % | ||||
Percent of exposure to counterparties with credit ratings below S&P A- or Moodys A3 |
0 | % | 0 | % |
(1) |
Recent turmoil in the European markets has led to increased disclosure of exposure to those markets. Our securitization trusts had total net exposure of $519 million related to financial institutions located in France; of this amount, $400 million carries a guaranty from the French government. The total exposure relates to $5.8 billion notional amount of cross-currency interest rate swaps held in our securitization trusts, of which $3.5 billion notional amount carries a guaranty from the French government. Counterparties to the cross currency interest rate swaps are required to post collateral when their credit rating is withdrawn or downgraded below a certain level. As of March 31, 2013, no collateral was required to be posted and we are not holding any collateral related to these contracts. Adjustments are made to our derivative valuations for counterparty credit risk. The adjustments made at March 31, 2013 related to derivatives with French financial institutions (including those that carry a guaranty from the French government) decreased the derivative asset value by $53 million. Credit risks for all derivative counterparties are assessed internally on a continual basis. |
74
Core Earnings Basis Borrowings
The following tables present the ending balances of our Core Earnings basis borrowings at March 31, 2013 and December 31, 2012, and average balances and average interest rates of our Core Earnings basis borrowings for the three months ended March 31, 2013 and 2012. The average interest rates include derivatives that are economically hedging the underlying debt but do not qualify for hedge accounting treatment. (See Core Earnings Definition and Limitations Differences between Core Earnings and GAAP Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities of this Item 2).
Ending Balances
March 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
(Dollars in millions) |
Short
Term |
Long
Term |
Total |
Short
Term |
Long
Term |
Total | ||||||||||||||||||
Unsecured borrowings: |
||||||||||||||||||||||||
Senior unsecured debt |
$ | 2,778 | $ | 15,167 | $ | 17,945 | $ | 2,319 | $ | 15,446 | $ | 17,765 | ||||||||||||
Brokered deposits |
1,170 | 2,782 | 3,952 | 979 | 3,088 | 4,067 | ||||||||||||||||||
Retail and other deposits |
3,643 | | 3,643 | 3,247 | | 3,247 | ||||||||||||||||||
Other (1) |
1,240 | | 1,240 | 1,609 | | 1,609 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total unsecured borrowings |
8,831 | 17,949 | 26,780 | 8,154 | 18,534 | 26,688 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Secured borrowings: |
||||||||||||||||||||||||
FFELP Loan securitizations |
| 100,750 | 100,750 | | 105,525 | 105,525 | ||||||||||||||||||
Private Education Loan securitizations |
| 20,252 | 20,252 | | 19,656 | 19,656 | ||||||||||||||||||
ED Conduit Program Facility |
6,967 | | 6,967 | 9,551 | | 9,551 | ||||||||||||||||||
FFELP ABCP Facility |
| 5,114 | 5,114 | | 4,154 | 4,154 | ||||||||||||||||||
Private Education Loan ABCP Facility |
539 | | 539 | | 1,070 | 1,070 | ||||||||||||||||||
Acquisition financing (2) |
| 576 | 576 | | 673 | 673 | ||||||||||||||||||
FHLB-DM Facility |
880 | 1,220 | 2,100 | 2,100 | | 2,100 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total secured borrowings |
8,386 | 127,912 | 136,298 | 11,651 | 131,078 | 142,729 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Core Earnings basis |
17,217 | 145,861 | 163,078 | 19,805 | 149,612 | 169,417 | ||||||||||||||||||
Hedge accounting adjustments |
37 | 2,026 | 2,063 | 51 | 2,789 | 2,840 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total GAAP basis |
$ | 17,254 | $ | 147,887 | $ | 165,141 | $ | 19,856 | $ | 152,401 | $ | 172,257 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Other primarily consists of the obligation to return cash collateral held related to derivative exposure. |
(2) |
Relates to the acquisition of $25 billion of student loans at the end of 2010. |
Secured borrowings comprised 84 percent of our Core Earnings basis debt outstanding at both March 31, 2013 and December 31, 2012.
75
Average Balances
Three Months Ended March 31, | ||||||||||||||||
2013 | 2012 | |||||||||||||||
(Dollars in millions) |
Average
Balance |
Average
Rate |
Average
Balance |
Average
Rate |
||||||||||||
Unsecured borrowings: |
||||||||||||||||
Senior unsecured debt |
$ | 18,324 | 3.17 | % | $ | 18,004 | 2.88 | % | ||||||||
Brokered deposits |
4,012 | 1.56 | 3,515 | 2.08 | ||||||||||||
Retail and other deposits |
3,540 | .83 | 2,283 | .95 | ||||||||||||
Other (1) |
1,396 | .22 | 1,400 | .11 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total unsecured borrowings |
27,272 | 2.48 | 25,202 | 2.44 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Secured borrowings: |
||||||||||||||||
FFELP Loan securitizations |
102,532 | .97 | 107,230 | 1.14 | ||||||||||||
Private Education Loan securitizations |
19,712 | 2.06 | 18,577 | 2.09 | ||||||||||||
ED Conduit Program Facility |
8,446 | .94 | 20,515 | .81 | ||||||||||||
FFELP ABCP Facility |
4,464 | .99 | 4,018 | 1.19 | ||||||||||||
Private Education Loan ABCP Facility |
919 | 1.74 | 2,633 | 1.69 | ||||||||||||
Acquisition financing (2) |
602 | 4.79 | 872 | 4.85 | ||||||||||||
FHLB-DM Facility |
2,100 | .30 | 1,071 | .29 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total secured borrowings |
138,775 | 1.13 | 154,916 | 1.23 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 166,047 | 1.35 | % | $ | 180,118 | 1.40 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Core Earnings average balance and rate |
$ | 166,047 | 1.35 | % | $ | 180,118 | 1.40 | % | ||||||||
Adjustment for GAAP accounting treatment |
| .04 | | .09 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
GAAP-basis average balance and rate |
$ | 166,047 | 1.39 | % | $ | 180,118 | 1.49 | % | ||||||||
|
|
|
|
|
|
|
|
(1) |
Other primarily consists of the obligation to return cash collateral held related to derivative exposure. |
(2) |
Relates to the acquisition of $25 billion of student loans at the end of 2010. |
Critical Accounting Policies and Estimates
Managements Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. A discussion of our critical accounting policies, which include allowance for loan losses, premium and discount amortization related to our loan portfolio, fair value measurement, transfers of financial assets and the VIE consolidation model, derivative accounting and goodwill and intangible assets can be found in our 2012 Form 10-K. There were no significant changes to these critical accounting policies during the first quarter of 2013.
76
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Interest Rate Sensitivity Analysis
Our 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 potential effect on earnings over the next 12 months and the potential effect on fair values of balance sheet assets and liabilities at March 31, 2013 and December 31, 2012, 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. The earnings sensitivity is applied only to financial assets and liabilities, including hedging instruments, that existed at the balance sheet date and does not take into account new assets, liabilities or hedging instruments that may arise in 2013.
As of March 31, 2013 | As of March 31, 2012 | |||||||||||||||||||||||
Impact on Annual Earnings If: | Impact on Annual Earnings If: | |||||||||||||||||||||||
Interest Rates | Funding Indices | Interest Rates | Funding Indices | |||||||||||||||||||||
(Dollars in millions, except per share amounts) |
Increase
100 Basis Points |
Increase
300 Basis Points |
Increase
25 Basis Points (1) |
Increase
100 Basis Points |
Increase
300 Basis Points |
Increase
25 Basis Points (1) |
||||||||||||||||||
Effect on Earnings: |
||||||||||||||||||||||||
Change in pre-tax net income before unrealized gains (losses) on derivative and hedging activities |
$ | (32 | ) | $ | (17 | ) | $ | (281 | ) | $ | (19 | ) | $ | 8 | $ | (343 | ) | |||||||
Unrealized gains (losses) on derivative and hedging activities |
368 | 593 | (2 | ) | 503 | 857 | (12 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Increase in net income before taxes |
$ | 336 | $ | 576 | $ | (283 | ) | $ | 484 | $ | 865 | $ | (355 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Increase in diluted earnings per common share |
$ | .733 | $ | 1.257 | $ | (.618 | ) | $ | .949 | $ | 1.697 | $ | (.696 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
77
At March 31, 2013 | ||||||||||||||||||||
Interest Rates: | ||||||||||||||||||||
Change from
Increase of 100 Basis Points |
Change from
Increase of 300 Basis Points |
|||||||||||||||||||
(Dollars in millions) |
Fair Value | $ | % | $ | % | |||||||||||||||
Effect on Fair Values: |
||||||||||||||||||||
Assets |
||||||||||||||||||||
FFELP Loans |
$ | 119,294 | $ | (672 | ) | (1 | )% | $ | (1,317 | ) | (1 | )% | ||||||||
Private Education Loans |
37,214 | | | | | |||||||||||||||
Other earning assets |
9,519 | | | (1 | ) | | ||||||||||||||
Other assets |
7,907 | (461 | ) | (6 | ) | (936 | ) | (12 | )% | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets gain/(loss) |
$ | 173,934 | $ | (1,133 | ) | (1 | )% | $ | (2,254 | ) | (1 | )% | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||||||
Interest-bearing liabilities |
$ | 161,453 | $ | (855 | ) | (1 | )% | $ | (2,371 | ) | (1 | )% | ||||||||
Other liabilities |
3,791 | (213 | ) | (6 | ) | 195 | 5 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities (gain)/loss |
$ | 165,244 | $ | (1,068 | ) | (1 | )% | $ | (2,176 | ) | (1 | )% | ||||||||
|
|
|
|
|
|
|
|
|
|
At December 31, 2012 | ||||||||||||||||||||
Interest Rates: | ||||||||||||||||||||
Change from
Increase of 100 Basis Points |
Change from
Increase of 300 Basis Points |
|||||||||||||||||||
(Dollars in millions) |
Fair Value | $ | % | $ | % | |||||||||||||||
Effect on Fair Values: |
||||||||||||||||||||
Assets |
||||||||||||||||||||
FFELP Loans |
$ | 125,042 | $ | (738 | ) | (1 | )% | $ | (1,438 | ) | (1 | )% | ||||||||
Private Education Loans |
36,081 | | | | | |||||||||||||||
Other earning assets |
9,994 | | | (1 | ) | | ||||||||||||||
Other assets |
8,721 | (560 | ) | (6 | ) | (1,187 | ) | (14 | )% | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets gain/(loss) |
$ | 179,838 | $ | (1,298 | ) | (1 | )% | $ | (2,626 | ) | (1 | )% | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||||||
Interest-bearing liabilities |
$ | 166,071 | $ | (829 | ) | | % | $ | (2,298 | ) | (1 | )% | ||||||||
Other liabilities |
3,937 | (422 | ) | (11 | ) | (274 | ) | (7 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities (gain)/loss |
$ | 170,008 | $ | (1,251 | ) | (1 | )% | $ | (2,572 | ) | (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, due to the ability of some FFELP loans to earn Floor Income, 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 months ended March 31, 2013 and 2012, 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 loans to variable rate, and to fix the relative spread between the student loan asset rate and the variable rate liability.
In the preceding tables, 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
78
the impact of (i) our unhedged loans being in a fixed-rate mode due to 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 rate liabilities and equity. 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.
Under the scenario in the tables above labeled Impact on Annual Earnings If: Funding Indices Increase 25 Basis Points, the main driver of the decrease in pre-tax income before unrealized gains (losses) on derivative and hedging activities in both the March 31, 2013 and March 31, 2012 analyses is the result of one-month LIBOR-indexed FFELP Loans (loans formerly indexed to commercial paper) being funded with three-month LIBOR and other non-discrete indexed liabilities. See Asset and Liability Funding Gap of this Item 7A for a further discussion. Increasing the spread between indices will also impact the unrealized gains (losses) on derivative and hedging activities as it relates to basis swaps that hedge the mismatch between the asset and funding indices.
In addition to interest rate risk addressed in the preceding tables, we are 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 us. When we issue foreign denominated corporate unsecured and securitization debt, our 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.
79
Asset and Liability Funding Gap
The tables below present our assets and liabilities (funding) arranged by underlying indices as of March 31, 2013. In the following GAAP presentation, the funding gap only includes derivatives that qualify as effective 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 and in doing so includes all derivatives that are economically hedging our debt whether they qualify as effective hedges or not (Core Earnings basis). Accordingly, we are also presenting the asset and liability funding gap on a Core Earnings basis in the table that follows the GAAP presentation.
GAAP-Basis
(Dollars in billions) Index |
Frequency of
Variable Resets |
Assets (1) | Funding (2) |
Funding
Gap |
||||||||||
3-month Treasury bill |
weekly | $ | 6.0 | $ | | $ | 6.0 | |||||||
Prime |
annual | 0.6 | | 0.6 | ||||||||||
Prime |
quarterly | 4.2 | | 4.2 | ||||||||||
Prime |
monthly | 19.1 | | 19.1 | ||||||||||
Prime |
daily | | 1.3 | (1.3 | ) | |||||||||
PLUS Index |
annual | 0.4 | | 0.4 | ||||||||||
3-month LIBOR |
daily | | | | ||||||||||
3-month LIBOR |
quarterly | | 100.4 | (100.4 | ) | |||||||||
1-month LIBOR |
monthly | 12.8 | 32.2 | (19.4 | ) | |||||||||
1-month LIBOR daily |
daily | 112.0 | | 112.0 | ||||||||||
CMT/CPI Index |
monthly/quarterly | | 1.3 | (1.3 | ) | |||||||||
Non-Discrete reset (3) |
monthly | | 17.6 | (17.6 | ) | |||||||||
Non-Discrete reset (4) |
daily/weekly | 9.5 | 4.9 | 4.6 | ||||||||||
Fixed Rate (5) |
9.5 | 16.4 | (6.9 | ) | ||||||||||
|
|
|
|
|
|
|||||||||
Total |
$ | 174.1 | $ | 174.1 | $ | | ||||||||
|
|
|
|
|
|
(1) |
FFELP Loans of $51.9 billion ($47.1 billion LIBOR index and $4.8 billion Treasury bill index) are currently earning a fixed rate of interest as a result of the low interest rate environment. |
(2) |
Funding (by index) includes all derivatives that qualify as hedges. |
(3) |
Funding consists of auction rate securities, the ABCP Facilities, the ED Conduit Program Facility and the FHLB-DM Facility. |
(4) |
Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes retail and other deposits and the obligation to return cash collateral held related to derivatives exposures. |
(5) |
Assets include receivables and other assets (including 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 reset three-month LIBOR to other indices that are more correlated to our asset indices. These basis swaps do not qualify as effective hedges 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.
80
Core Earnings Basis
(Dollars in billions) Index |
Frequency of
Variable Resets |
Assets (1) | Funding (2) |
Funding
Gap |
||||||||||
3-month Treasury bill |
weekly | $ | 6.0 | $ | | $ | 6.0 | |||||||
Prime |
annual | .6 | | .6 | ||||||||||
Prime |
quarterly | 4.2 | | 4.2 | ||||||||||
Prime |
monthly | 19.1 | 4.5 | 14.6 | ||||||||||
Prime |
daily | | 1.3 | (1.3 | ) | |||||||||
PLUS Index |
annual | .4 | | .4 | ||||||||||
3-month LIBOR |
daily | | 6.0 | (6.0 | ) | |||||||||
3-month LIBOR |
quarterly | | 78.8 | (78.8 | ) | |||||||||
1-month LIBOR |
monthly | 12.8 | 41.9 | (29.1 | ) | |||||||||
1-month LIBOR |
daily | 112.0 | 5.0 | 107.0 | ||||||||||
Non-Discrete reset (3) |
monthly | | 17.6 | (17.6 | ) | |||||||||
Non-Discrete reset (4) |
daily/weekly | 9.5 | 4.9 | 4.6 | ||||||||||
Fixed Rate (5) |
7.2 | 11.8 | (4.6 | ) | ||||||||||
|
|
|
|
|
|
|||||||||
Total |
$ | 171.8 | $ | 171.8 | $ | | ||||||||
|
|
|
|
|
|
(1) |
FFELP Loans of $20.2 billion ($18.5 billion LIBOR index and $1.7 billion Treasury bill index) are currently earning a fixed rate of interest as a result of the low interest rate environment. |
(2) |
Funding (by index) includes all derivatives that management considers economic hedges of interest rate risk and reflects how we internally manage our interest rate exposure. |
(3) |
Funding consists of auction rate securities, the ABCP Facilities, the ED Conduit Program Facility and the FHLB-DM Facility. |
(4) |
Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes retail and other deposits and the obligation to return cash collateral held related to derivatives exposures. |
(5) |
Assets include receivables and other assets (including 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. Our asset liability management strategy is to match assets with debt (in combination with derivatives) that have the same underlying index and reset frequency or, when economical, have interest rate characteristics that we believe are highly correlated. The use of funding with index types and reset frequencies that are different from our assets exposes us to interest rate risk in the form of basis and repricing risk. This could result in our cost of funds not moving in the same direction or with the same magnitude as the yield on our assets. While we believe 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 (which have occurred in recent years) can lead to a temporary divergence between indices resulting in a negative impact to our earnings.
81
Weighted Average Life
The following table reflects the weighted average life of our earning assets and liabilities at March 31, 2013.
(Averages in Years) |
Weighted Average
Life |
|||
Earning assets |
||||
Student loans |
7.9 | |||
Other loans |
7.2 | |||
Cash and investments |
.1 | |||
|
|
|||
Total earning assets |
7.5 | |||
|
|
|||
Borrowings |
||||
Short-term borrowings |
.3 | |||
Long-term borrowings |
6.7 | |||
|
|
|||
Total borrowings |
6.0 | |||
|
|
Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
Our management, with the participation of our chief principal executive and principal financial officers, 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 March 31, 2013. Based on this evaluation, our chief principal executive and principal financial officers concluded that, as of March 31, 2013, 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 principal executive and principal financial officers 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 March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
82
Item 1. | Legal Proceedings |
We and our subsidiaries and affiliates also are 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, our collections subsidiaries are routinely named in individual plaintiff or class action lawsuits in which the plaintiffs allege that those subsidiaries have violated a federal or state law in the process of collecting their accounts. We believe 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 and our subsidiaries and affiliates receive information and document requests from state attorneys general, legislative committees and administrative agencies concerning certain business practices. Our practice has been and continues to be to cooperate with these bodies and to be responsive to any such requests.
For a description of these items and other litigation to which we are a party, see our 2012 Form 10-K and subsequent filings with the SEC.
Item 1A. | Risk Factors |
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, 2012.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Share Repurchases
The following table provides information relating to our purchase of shares of our common stock in the three months ended March 31, 2013.
(In millions, except per share data) |
Total Number
of Shares Purchased (1) |
Average Price
Paid per Share |
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
Approximate Dollar
Value of Shares That May Yet Be Purchased Under Publicly Announced Plans or Programs (2) |
||||||||||||
Period: |
||||||||||||||||
January 1 January 31, 2013 |
.6 | $ | 16.99 | | $ | | ||||||||||
February 1 February 28, 2013 |
3.9 | 18.74 | 2.6 | 351 | ||||||||||||
March 1 March 31, 2013 |
8.0 | 19.65 | 7.6 | 201 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total first-quarter 2013 |
12.5 | $ | 19.23 | 10.2 | ||||||||||||
|
|
|
|
|
|
(1) |
The total number of shares purchased includes: (i) shares purchased under the stock repurchase program discussed below, and (ii) shares of our common stock tendered to us to satisfy the exercise price in connection with cashless exercise of stock options, and tax withholding obligations in connection with exercise of stock options and vesting of restricted stock and restricted stock units. |
(2) |
In February 2013, our board of directors authorized us to purchase up to $400 million of shares of our common stock. |
The closing price of our common stock on the NASDAQ Global Select Market on March 28, 2013 was $20.50.
83
Item 3. | Defaults upon Senior Securities |
Nothing to report.
Item 4. | Mine Safety Disclosures |
Nothing to report.
Item 5. | Other Information |
Nothing to report.
Item 6. | Exhibits |
The following exhibits are furnished or filed, as applicable:
10.1 |
Form of SLM Corporation 2012 Omnibus Incentive Plan, Performance Stock Unit Term Sheet 2013 |
|
10.2 |
Form of SLM Corporation 2012 Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet 2013 |
|
10.3 |
Form of SLM Corporation 2012 Omnibus Incentive Plan, Stock Option Agreement, Net Settled Options2013 |
|
10.4 |
Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement 2013 |
|
10.5 |
Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Stock Option Agreement 2013 |
|
12.1 |
Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends |
|
31.1 |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.2 |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.2 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
101.INS |
XBRL Instance Document. |
|
101.SCH |
XBRL Taxonomy Extension Schema Document. |
|
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document. |
|
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document. |
|
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document. |
| Management Contract or Compensatory Plan or Arrangement |
84
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) |
||
By: | /s/ JOSEPH A. DEPAULO | |
Joseph A. DePaulo Executive Vice President - Banking and Finance (Principal Financial Officer) |
Date: May 3, 2013
85
Exhibit 10.1
SLM Corporation 2012 Omnibus Incentive Plan
Performance Stock Unit Term Sheet
2013 Long-Term Incentive Award
Pursuant to the terms and conditions of the SLM Corporation 2012 Omnibus Incentive Plan (the Plan), the Compensation and Personnel Committee (the Committee) of the SLM Corporation Board of Directors hereby grants to (the Grantee) on February 7, 2013 (the Grant Date) an award (the Award) of shares of Performance Stock Units (PSUs), which represent the right to acquire shares of common stock of SLM Corporation (the Corporation) subject to the following terms and conditions (this Agreement):
1. | Vesting Schedule . Unless vested earlier as set forth below, the Award will vest, and will be settled in shares of the Corporations common stock, based on the following vesting terms: |
|
A specified number of the total PSUs granted to each executive shall vest in amounts based on the amount of Cumulative Core Net Income (as that term is defined below) achieved by the Corporation for years 2013, 2014 and 2015 in the aggregate, as shown on the attached chart, and on the date specified in this Agreement below. Each vested PSU will be settled in shares of the Corporations common stock. |
|
Cumulative Core Net Income shall be defined as the Corporations aggregate core earnings net income for the fiscal years 2013, 2014 and 2015, using yearly core earnings net income as shown in the segment reporting footnote in the Corporations audited financial statements as published in the Corporations annual report on Form 10-K. |
|
PSUs shall vest on the second business day after the Corporations annual report on Form 10-K for the fiscal year 2015 is filed, and in no event later than March 15, 2016. |
|
The Committee has discretion to decrease the shares issuable pursuant to any PSU award, but may not increase the shares issuable in a manner inconsistent with the requirements for qualified performance-based compensation under section 162(m) of the Internal Revenue Code (Section 162(m)). |
|
Cumulative Core Net Income Chart: |
Cumulative Core Net Income (C.C.N.I.) 2013-2015 (in Billions) |
Percentage of
Target |
Percentage of Award |
Percentage Increase
in Award Per Percentage Increase in C.C.N.I. |
|||
$2.7 or less |
79% | No Award | ||||
$3.0 or less, but more than $2.7 |
88% | 50% | ||||
$3.1 |
91% | 80% | 3.33% | |||
$3.2 |
94% | 90% | 3.33% | |||
$3.3 |
97% | 95% | 1.66% | |||
$3.4 (Target) |
100% | 100% | 1.66% | |||
$3.5 |
103% | 110% | 3.33% | |||
$3.6 |
106% | 120% | 3.33% | |||
$3.7 or more |
109% |
130%
(Maximum Award) |
If compensation paid to the Grantee might be subject to the tax deduction limitations of Section 162(m), the vesting of the Award is contingent upon certification by the Committee that the applicable Section 162(m) performance targets have been met on or prior to the applicable vesting event; provided, however, that in no event will the conversion of the Award into shares of the Corporations common stock occur after the end of the calendar year following the calendar year in which ends the performance period described in this Section 1.
2. | Employment Termination; Death; Disability . Except as provided below, if the Grantee voluntarily ceases to be an employee of the Corporation (or one of its subsidiaries) for any reason or his or her employment is terminated by the Corporation (or one of its subsidiaries) for Misconduct, as determined by the Corporation in its sole discretion, he/she shall forfeit any portion of the Award that has not vested as of the date of such termination of employment. |
Page 1 of 4
SLM Corporation 2012 Omnibus Incentive Plan
Performance Stock Unit Term Sheet
2013 Long-Term Incentive Award
If not previously vested, the Award will continue to vest, and will be settled in shares of the Corporations common stock, subject to the original performance goals and performance period set forth above on the original vesting terms and vesting dates set forth above in the event that (i) the Grantees employment is terminated by the Corporation (or one of its subsidiaries) for any reason other than for Misconduct, as determined by the Corporation in its sole discretion, or (ii) the Grantee voluntarily ceases to be an employee of the Corporation (or one of its subsidiaries) and meets the Corporations retirement eligibility requirements under the Corporations then current retirement eligibility policy, which shall be determined by the Corporation in its sole discretion.
If not previously vested, the Award will vest, and will be settled in shares of the Corporations common stock, at the target levels set forth above, upon death or Disability (provided that such Disability qualifies as a disability within the meaning of Treasury Regulation Section 1.409A-3(i)(4)).
The Award shall be forfeited upon termination of employment due to Misconduct, as determined by the Corporation in its sole discretion.
Notwithstanding anything stated herein, the Plan or in the SLM Corporation Change in Control Severance Plan for Senior Officers, this Award shall not be subject to the terms set forth in the SLM Corporation Change in Control Severance Plan for Senior Officers.
3. | Change in Control . Notwithstanding anything to the contrary in this Agreement: |
(a) | In the event of a Change in Control in which the acquiring or surviving company in the transaction does not assume or continue outstanding Awards upon the Change in Control, then any portion of the Award that is not vested shall vest at the 100% target level set forth in the vesting schedule herein; provided, however, the settlement of the accelerated portion of the PSUs into shares of the Corporations common stock (i.e., the settlement of the Award) will nevertheless be made at the same time or times as if such PSUs had vested in accordance with the vesting schedule set forth in Section 1 or, if earlier, upon the termination of Grantees employment for reasons other than Misconduct. |
(b) | If Grantees employment shall terminate within twenty-four months following a Change in Control for any reason other than (i) by the Corporation for Misconduct, as determined by the Corporation in its sole discretion or (ii) by Grantees voluntary termination of employment that is not a Termination of Employment for Good Reason, as defined in the Change of Control Severance Plan for Senior Officers (if applicable to Grantee), any portion of the Award not previously vested shall immediately become vested, and shall be settled in shares of the Corporations common stock, upon such employment termination. |
4. | Taxes; Dividends . The Grantee of the Award shall make such arrangements as may reasonably be required by the Corporation, including transferring a sufficient number of shares of the Corporations stock, to satisfy the income and employment tax withholding requirements that accrue upon the Award becoming vested or, if applicable, settled in shares of the Corporations common stock (by approving this Agreement, the Committee hereby approves the transfer of such shares to the Corporation for purposes of SEC Rule 16b-3). Dividends declared on an unvested Award will not be paid currently. Instead, amounts equal to such dividends will be credited to an account established on behalf of the Grantee and such amounts will be deemed to be invested in additional shares of the Corporations common stock (Dividend Equivalents). Such Dividend Equivalents will be subject to the same vesting schedule to which the Award is subject. Upon vesting of any portion of the Award, the amount of Dividend Equivalents allocable to such Award (and any fractional share amount) will also vest and will be converted into shares of the Corporations common stock (provided that any fractional share amount shall be paid in cash). |
5. |
Section 409A . For purposes of section 409A of the Internal Revenue Code, the regulations and other guidance thereunder and any state law of similar effect (collectively Section 409A ), each payment and benefit payable under this Agreement is hereby designated as a separate payment. The parties intend that all PSUs provided under this Agreement and shares issuable hereunder comply with the requirements of Section 409A so that none of the payments or benefits will be subject to the adverse tax penalties imposed under Section 409A, and any |
Page 2 of 4
SLM Corporation 2012 Omnibus Incentive Plan
Performance Stock Unit Term Sheet
2013 Long-Term Incentive Award
ambiguities herein will be interpreted to so comply. Notwithstanding anything in the Plan or this Agreement to the contrary, if the vesting of the balance, or some lesser portion of the balance, of the PSUs is to be accelerated in connection with the Grantees termination of service, such accelerated PSUs will not be settled by virtue of such acceleration until and unless the Grantee has a separation from service within the meaning of Section Treasury Regulation 1-409A-1(h), as determined by the Corporation, in its sole discretion. Further, and notwithstanding anything in the Plan or this Agreement to the contrary, if (x) any of the PSUs to be provided in connection with the Grantees separation from service do not qualify for any reason to be exempt from Section 409A, (y) the Grantee is, at the time of such separation from service, a specified employee (as defined in Treasury Regulation Section 1.409A-1(i)) and (z) the settlement of such PSUs would result in the imposition of additional tax under Section 409A if such settlement occurs on or within the six (6) month period following the Grantees separation from service, then, to the extent necessary to avoid the imposition of such additional taxation, the settlement of any such PSUs during such six (6) month period will accrue and will not be settled until the date six (6) months and one (1) day following the date of the Grantees separation from service and on such date (or, if earlier, the date of the Grantees death), such PSUs will be settled. |
6. | Clawback Provision . Notwithstanding anything to the contrary herein, if the Board of Directors of the Corporation, or an appropriate committee thereof, determines that, any material misstatement of financial results or a performance metric criteria has occurred as a result of the Grantees conduct or the Grantee has committed a material violation of corporate policy or has committed fraud or misconduct, and the Grantee at the time of such violation, fraud or misconduct (or at any time thereafter) was an officer of the Corporation (or its subsidiaries) at the Senior Vice President level or above, then the Board or committee shall consider all factors, with particular scrutiny when one of the top 20 members of management are involved, and the Board or such committee, may in its sole discretion require reimbursement of any compensation resulting from the vesting, exercise or settlement of Options and/or Restricted Stock/PSUs and the cancellation of any outstanding Options and/or Restricted Stock/PSUs from the Grantee (whether or not such individual is currently employed by the Corporation (or its subsidiaries)) during the three-year period following the date the Board first learns of the violation, fraud or misconduct. |
7. | Securities Law Compliance . The Corporation may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any transfer or sale by the Grantee of any shares of Common Stock, including without limitation (a) restrictions under an insider trading policy and (b) restrictions that may be necessary in the absence of an effective registration statement under the Securities Act of 1933, as amended, covering the shares of the Corporations common stock. The sale of the shares must also comply with other applicable laws and regulations governing the sale of such shares. |
8. | Data Privacy . As an essential term of this award, the Grantee consents to the collection, use and transfer, in electronic or other form, of personal data as described herein for the exclusive purpose of implementing, administering and managing Grantees participation in the Plan. By accepting this award, the Grantee acknowledges that the Corporation holds certain personal information about the Grantee, including, but not limited to, name, home address and telephone number, date of birth, social security number or other identification number, salary, tax rates and amounts, nationality, job title, any shares of stock held in the Corporation, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding, for the purpose of implementing, administering and managing the Plan (Data). Grantee acknowledges that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in jurisdictions that may have different data privacy laws and protections, and Grantee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Grantee or the Corporation may elect to deposit any shares of the Corporations common stock. Grantee acknowledges that Data may be held to implement, administer and manage the Grantees participation in the Plan as determined by the Corporation, and that Grantee may request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, provided however, that refusing or withdrawing Grantees consent may adversely affect Grantees ability to participate in the Plan. |
Page 3 of 4
SLM Corporation 2012 Omnibus Incentive Plan
Performance Stock Unit Term Sheet
2013 Long-Term Incentive Award
9. | Electronic Delivery . The Corporation may, in its sole discretion, decide to deliver any documents related to any awards granted under the Plan by electronic means or to request Grantees consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Corporation or another third party designated by the Corporation, and such consent shall remain in effect throughout Grantees term of service with the Corporation (or one of its subsidiaries) and thereafter until withdrawn in writing by Grantee. |
10. | Definitions . Capitalized terms not otherwise defined herein are defined in the Plan. |
Page 4 of 4
Exhibit 10.2
SLM Corporation 2012 Omnibus Incentive Plan
Bonus Restricted Stock Unit Term Sheet
2012 Management Incentive Plan Award
Pursuant to the terms and conditions of the SLM Corporation 2012 Omnibus Incentive Plan (the Plan), the Compensation and Personnel Committee (the Committee) of the SLM Corporation Board of Directors hereby grants to (the Grantee) on February 7, 2013 (the Grant Date) an award (the Award) of shares of Bonus Restricted Stock Units (Bonus RSUs), which represent the right to acquire shares of common stock of SLM Corporation (the Corporation) subject to the following terms and conditions (this Agreement):
1. | Restrictions on Transfer . The Award is fully vested at grant, but subject to transfer restrictions (Transfer Restrictions), with such restrictions to lapse ratably over three years in one-third increments on February 7 in each of 2014, 2015 and 2016 and upon such lapsing the subject portion of the Award shall be settled in shares of the Corporations common stock. |
2. | Employment Termination; Death; Disability . If not previously lapsed, the Transfer Restrictions will remain, and the Award will be converted into shares of common stock on the original terms and dates set forth above in the event that (i) the Grantees employment is terminated by the Corporation (or its subsidiaries) for any reason other than for Misconduct, as determined by the Corporation in its sole discretion, or (ii) the Grantee voluntarily ceases to be an employee of the Corporation (or its subsidiaries) for any reason. |
If not previously lapsed, the Transfer Restrictions will lapse and the Award will be settled in shares of the Corporations common stock, upon death or Disability (provided that such Disability qualifies as a disability within the meaning of Treasury Regulation Section 1.409A-3(i)(4)).
The Award shall be forfeited upon termination of employment due to Misconduct, as determined by the Corporation in its sole discretion.
Notwithstanding anything stated herein, the Plan or in the SLM Corporation Change in Control Severance Plan for Senior Officers, this Award shall not be subject to the terms set forth in the SLM Corporation Change in Control Severance Plan for Senior Officers.
3. | Taxes; Dividends . The Grantee of the Award shall make such arrangements as may reasonably be required by the Corporation, including transferring a sufficient number of shares of the Corporations stock, to satisfy the income and employment tax withholding requirements that accrue upon the Award becoming vested or, if applicable, settled in shares of the Corporations common stock (by approving this Agreement, the Committee hereby approves the transfer of such shares to the Corporation for purposes of SEC Rule 16b-3). Dividends declared on vested Awards subject to transfer restrictions will not be paid currently. Instead, amounts equal to such dividends will be credited to an account established on behalf of the Grantee and such amounts will be deemed to be invested in additional shares of the Corporations common stock (Dividend Equivalents). Such Dividend Equivalents will be subject to the same schedule regarding the lapsing of transfer restrictions to which the Award is subject. Upon such lapsing of any portion of the Award, the amount of Dividend Equivalents allocable to such Award (and any fractional share amount) will also be converted into shares of the Corporations common stock (provided that any fractional share amount shall be paid in cash). |
4. |
Section 409A . For purposes of section 409A of the Internal Revenue Code, the regulations and other guidance thereunder and any state law of similar effect (collectively Section 409A ), each payment and benefit payable under this Agreement is hereby designated as a separate payment. The parties intend that all Bonus RSUs provided under this Agreement and shares issuable hereunder comply with the requirements of Section 409A so that none of the payments or benefits will be subject to the adverse tax penalties imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. Notwithstanding anything in the Plan or this Agreement to the contrary, if the vesting of the balance, or some lesser portion of the balance, of the Bonus RSUs is to be accelerated in connection with the Grantees termination of service, such accelerated Bonus RSUs will not be settled by virtue of such acceleration until and unless the Grantee has a separation from service within the meaning of Section Treasury Regulation 1-409A-1(h), as determined by the Corporation, in its sole discretion. Further, and notwithstanding anything in the Plan or this Agreement to the contrary, if (x) any of the Bonus RSUs to be provided in connection with the Grantees separation from service do not qualify for any reason to be exempt from Section 409A, (y) the Grantee is, at the time of such separation from service, a |
Page 1 of 3
SLM Corporation 2012 Omnibus Incentive Plan
Bonus Restricted Stock Unit Term Sheet
2012 Management Incentive Plan Award
specified employee (as defined in Treasury Regulation Section 1.409A-1(i)) and (z) the settlement of such Bonus RSUs would result in the imposition of additional tax under Section 409A if such settlement occurs on or within the six (6) month period following the Grantees separation from service, then, to the extent necessary to avoid the imposition of such additional taxation, the settlement of any such Bonus RSUs during such six (6) month period will accrue and will not be settled until the date six (6) months and one (1) day following the date of the Grantees separation from service and on such date (or, if earlier, the date of the Grantees death), such Bonus RSUs will be settled. |
5. | Clawback Provision . Notwithstanding anything to the contrary herein, if the Board of Directors of the Corporation, or an appropriate committee thereof, determines that, any material misstatement of financial results or a performance metric criteria has occurred as a result of the Grantees conduct or the Grantee has committed a material violation of corporate policy or has committed fraud or misconduct, and the Grantee at the time of such violation, fraud or misconduct (or at any time thereafter) was an officer of the Corporation (or its subsidiaries) at the Senior Vice President level or above, then the Board or committee shall consider all factors, with particular scrutiny when one of the top 20 members of management are involved, and the Board or such committee, may in its sole discretion require reimbursement of any compensation resulting from the vesting, exercise or settlement of Options and/or Restricted Stock/RSUs/Bonus RSUs and the cancellation of any outstanding Options and/or Restricted Stock/RSUs/Bonus RSUs from the Grantee (whether or not such individual is currently employed by the Corporation (or its subsidiaries)) during the three-year period following the date the Board first learns of the violation, fraud or misconduct. |
6. | Securities Law Compliance . The Corporation may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any transfer or sale by the Grantee of any shares of Common Stock, including without limitation (a) restrictions under an insider trading policy and (b) restrictions that may be necessary in the absence of an effective registration statement under the Securities Act of 1933, as amended, covering the shares of the Corporations common stock. The sale of the shares must also comply with other applicable laws and regulations governing the sale of such shares. |
7. | Data Privacy . As an essential term of this award, the Grantee consents to the collection, use and transfer, in electronic or other form, of personal data as described herein for the exclusive purpose of implementing, administering and managing Grantees participation in the Plan. By accepting this award, the Grantee acknowledges that the Corporation holds certain personal information about the Grantee, including, but not limited to, name, home address and telephone number, date of birth, social security number or other identification number, salary, tax rates and amounts, nationality, job title, any shares of stock held in the Corporation, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding, for the purpose of implementing, administering and managing the Plan (Data). Grantee acknowledges that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in jurisdictions that may have different data privacy laws and protections, and Grantee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Grantee or the Corporation may elect to deposit any shares of the Corporations common stock. Grantee acknowledges that Data may be held to implement, administer and manage the Grantees participation in the Plan as determined by the Corporation, and that Grantee may request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, provided however, that refusing or withdrawing Grantees consent may adversely affect Grantees ability to participate in the Plan. |
8. | Electronic Delivery . The Corporation may, in its sole discretion, decide to deliver any documents related to any awards granted under the Plan by electronic means or to request Grantees consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Corporation or another third party designated by the Corporation, and such consent shall remain in effect throughout Grantees term of service with the Corporation (or its subsidiaries) and thereafter until withdrawn in writing by Grantee. |
Page 2 of 3
SLM Corporation 2012 Omnibus Incentive Plan
Bonus Restricted Stock Unit Term Sheet
2012 Management Incentive Plan Award
9. | Definitions . Capitalized terms not otherwise defined herein are defined in the Plan. |
Page 3 of 3
Exhibit 10.3
SLM Corporation 2012 Omnibus Incentive Plan
Net-Settled Options - Stock Option Agreement
2013 Long-Term Incentive Award
A. | Option Grant . Net-Settled Stock Options (the Options) to purchase a total of shares of Common Stock, par value $.20 per share, of SLM Corporation (the Corporation) are hereby granted to (the Grantee) subject in all respects to the terms and provisions of the SLM Corporation 2012 Omnibus Incentive Plan (the Plan), which is incorporated herein by reference, and this Stock Option Agreement (this Agreement). The Options are non-qualified stock options and are not intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended, and will be interpreted accordingly. |
B. | Option Price . The purchase price per share is $17.91 (the Option Price), which is the fair market value per share of Common Stock on the Grant Date. |
C. | Grant Date . The date of grant of these Options is February 7, 2013 (the Grant Date). |
D. | Vesting; Exercisability . The Options are not vested as of the Grant Date. Unless vested earlier as set forth below, the Options will vest as follows: one-third of the Options shall vest on each of the first, second, and third anniversary of the Grant Date, subject in all respects to the following additional vesting provisions: (i) the first one-third of the Options will have no additional vesting target other than the passage of the one-year period from the Grant Date; (ii) the second one-third of the Options will vest if the closing price of the Corporations common stock on the NASDAQ meets or exceeds $19.00 per share for any five (5) consecutive trading days at any time after the Grant Date and (iii) the third one-third of the Options will vest if the closing price of the Corporations common stock on the NASDAQ meets or exceeds $21.00 per share for any five (5) consecutive trading days at any time after the Grant Date. |
|
Except as set forth below, if the Grantee ceases to be an employee of the Corporation (or its subsidiaries) for any reason, he/she will forfeit any unvested Options as of the date of such termination of employment. |
|
Except as otherwise set forth herein, including Section H, if the Grantees employment with the Corporation (or its subsidiaries) is terminated by the Corporation for any reason other than for Misconduct, as determined by the Corporation in its sole discretion, or if the Grantee voluntarily ceases to be an employee of the Corporation (or its subsidiaries) and meets the Corporations retirement eligibility requirements under the Corporations then current retirement eligibility policy, which shall be determined by the Corporation in its sole discretion, all unvested Options will continue to vest based on their original vesting terms and each vested portion of the Options will be exercisable for one year from the date such portion vests, but in no event later than the Expiration Date (as defined below). |
|
Upon termination of employment for death, Disability or as provided for under the SLM Corporation Change in Control Severance Plan for Senior Officers, all unvested Options will vest and will be exercisable for one year from the date of such vesting. |
|
Except as otherwise set forth herein and except as otherwise provided in the SLM Corporation Change in Control Severance Plan, vested Options (taking into account any vesting acceleration, if any) are exercisable until the earlier of: (1) the Expiration Date; or (2) three months from the date of termination. |
|
Upon termination of employment for Misconduct or for cause, as determined by the Corporation in its sole discretion, all Options, vested or unvested, are forfeited. |
E. | Expiration . These Options expire five years from the Grant Date (the Expiration Date), subject to the provisions of the Plan and this Agreement, which may provide for earlier expiration in certain instances, including Grantees termination of employment. |
F. | Non-Transferable; Binding Effect . These Options may not be transferred except as provided for herein. All or any part of these Options may be transferred by the Grantee by will or by the laws of descent and distribution. In addition, Grantee may transfer all or any part of any Option to Immediate Family Members. Immediate Family Members means children, grandchildren, spouse or common law spouse, siblings or parents of the Grantee or bona fide trusts, partnerships or other entities controlled by and of which all beneficiaries are Immediate Family Members of the Grantee. Any Options that are transferred are further conditioned on the Grantees transferees and Immediate Family Members agreeing to abide by the Corporations then current stock option transfer guidelines. The terms of these Options shall be binding upon the executors, administrators, heirs, and successors of the Grantee. |
Page 1 of 4
SLM Corporation 2012 Omnibus Incentive Plan
Net-Settled Options - Stock Option Agreement
2013 Long-Term Incentive Award
G. | Net-Settlement upon Option Exercise; Taxes . These Options shall be exercised only in accordance with the terms of this Agreement. Each exercise must be for no fewer than fifty (50) Options, other than an exercise for all remaining Options. Upon exercise of all or part of the Options, the Grantee shall receive from the Corporation the number of shares of Common Stock resulting from the following formula: the total number of Options exercised less the sum of Shares for the Option Cost and Shares for Taxes, rounded up to the nearest whole share. Shares for the Option Cost equals the Option Price multiplied by the number of Options exercised divided by the fair market value of SLM common stock at the time of exercise. Shares for Taxes equals the tax liability (the statutory withholding minimum) divided by the fair market value of the Corporations common stock at the time of exercise. Grantee shall receive cash for any resulting fractional share amount. As a condition to the issuance of shares of Common Stock of the Corporation pursuant to these Options, the Grantee agrees to remit to the Corporation (through the procedure described in this paragraph) at the time of any exercise of these Options any taxes required to be withheld by the Corporation under federal, state, or local law as a result of the exercise of these Options. |
H. | Vesting Upon Change In Control . Notwithstanding anything to the contrary in this Agreement, including Section (D): |
(I) | In the event of a Change in Control in which the acquiring or surviving company in the transaction does not assume or continue outstanding Awards upon the Change in Control, then any portion of these Options that were not vested shall become 100 percent vested and exercisable effective immediately prior to the consummation of such Change in Control; and |
(II) | If Grantees employment shall terminate within twenty-four months following a Change in Control other than for (i) Misconduct or for cause, as determined by the Corporation in its sole discretion, or (ii) voluntary termination, any Options not previously vested shall immediately become vested and exercisable upon such employment termination and such Options shall be exercisable until the earlier of: (1) the Expiration Date; or (2) one year from the date of termination. |
I. | Clawback Provision . Notwithstanding anything to the contrary herein, if the Board of Directors (the Board) of the Corporation, or an appropriate committee thereof, determines that, any material misstatement of financial results or a performance metric criteria has occurred as a result of the Grantees conduct or the Grantee has committed a material violation of corporate policy or has committed fraud or misconduct, and the Grantee at the time of such violation, fraud or misconduct (or at any time thereafter) was an officer of the Corporation (or its subsidiaries) at the Senior Vice President level or above, then the Board or committee shall consider all factors, with particular scrutiny when one of the top 20 members of management are involved, and the Board or such committee, may in its sole discretion require reimbursement of any compensation resulting from the vesting and exercise of Options and the cancellation of any outstanding Options from the Grantee (whether or not such individual is currently employed by the Corporation (or its subsidiaries)) during the three-year period following the date the Board first learns of the violation, fraud or misconduct. |
J. | Board Interpretation . The Grantee hereby agrees to accept as binding, conclusive, and final all decisions and interpretations of the Board and, where applicable, the Compensation and Personnel Committee of the Board (the Committee) concerning any questions arising under this Agreement or the Plan. |
K. | Stockholder Rights . The Grantee shall not be deemed a stockholder of the Corporation with respect to any of the shares of Common Stock subject to the Options, except to the extent that such shares shall have been purchased and transferred to the Grantee. The Corporation shall not be required to issue or transfer any shares of Common Stock purchased upon exercise of the Options until all applicable requirements of law have been complied with and such shares shall have been duly listed on any securities exchange on which the Common Stock may then be listed. |
L. | No Right to Continued Employment . Nothing in the Plan, in this Agreement or any other instrument executed pursuant thereto or hereto shall confer upon the Grantee any right to continued employment with the Corporation or any of its subsidiaries or affiliates. |
Page 2 of 4
SLM Corporation 2012 Omnibus Incentive Plan
Net-Settled Options - Stock Option Agreement
2013 Long-Term Incentive Award
M. | Amendments for Accounting Charges. The Committee reserves the right to unilaterally amend this Agreement to reflect any changes in applicable law or financial accounting standards. |
N. | Securities Law Compliance; Restrictions on Resales of Option Shares . The Corporation may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any exercise of the Option and/or any resales by the Grantee or other subsequent transfers by the Grantee of any shares of Common Stock issued as a result of the exercise of the Option, including without limitation (a) restrictions under an insider trading policy, (b) restrictions that may be necessary in the absence of an effective registration statement under the Securities Act of 1933, as amended, covering the Option and/or the Common Stock underlying the Option and (c) restrictions as to the use of a specified brokerage firm or other agent for exercising the Option and/or for such resales or other transfers. The sale of the shares of Common Stock underlying the Option must also comply with other applicable laws and regulations governing the sale of such shares. |
O. | Data Privacy . As an essential term of this Option, the Grantee consents to the collection, use and transfer, in electronic or other form, of personal data as described in this Agreement for the exclusive purpose of implementing, administering and managing Grantees participation in the Plan. By entering into this Agreement and accepting the Option, the Grantee acknowledges that the Corporation holds certain personal information about the Grantee, including, but not limited to, name, home address and telephone number, date of birth, social security number or other identification number, salary, tax rates and amounts, nationality, job title, any shares of stock held in the Corporation, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding, for the purpose of implementing, administering and managing the Plan (Data). Grantee acknowledges that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in jurisdictions that may have different data privacy laws and protections, and Grantee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Grantee or the Corporation may elect to deposit any shares of Common Stock acquired upon exercise of the Option. Grantee acknowledges that Data may be held to implement, administer and manage the Grantees participation in the Plan as determined by the Corporation, and that Grantee may request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, provided however, that refusing or withdrawing Grantees consent may adversely affect Grantees ability to participate in the Plan. |
P. | Electronic Delivery . The Corporation may, in its sole discretion, decide to deliver any documents related to any awards granted under the Plan by electronic means or to request Grantees consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Corporation or another third party designated by the Corporation, and such consent shall remain in effect throughout Grantees term of service with the Corporation and thereafter until withdrawn in writing by Grantee. |
Q. | Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. |
R. | Notices . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered, telefaxed or telecopied to, or, if mailed, when received by, the other party at the following addresses: |
If to the Corporation to:
Human Resources Department HR Compensation & Workforce Analytics
ATTN: Equity Plan Administration
300 Continental Drive
Newark, DE 19713
Page 3 of 4
SLM Corporation 2012 Omnibus Incentive Plan
Net-Settled Options - Stock Option Agreement
2013 Long-Term Incentive Award
If to the Grantee, to (i) the last address maintained in the Corporations Human Resources files for the Grantee or (ii) the Grantees mail delivery code or place of work at the Corporation (or its subsidiaries).
S. | Plan Controls; Entire Agreement; Capitalized Terms . In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the terms of the Plan control, except as expressly stated otherwise herein. This Agreement and the Plan together set forth the entire agreement and understanding between the parties as to the subject matter hereof and supersede all prior oral and written and all contemporaneous or subsequent oral discussions, agreements and understandings of any kind or nature. Capitalized terms not defined herein shall have the meanings as described in the Plan. |
T. | Miscellaneous . In the event that any provision of this Agreement is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable, or otherwise deleted, and the remainder of this Agreement shall not be affected except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision. The headings in this Agreement are solely for convenience of reference, and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. The Grantee shall cooperate and take such actions as may be reasonably requested by the Corporation in order to carry out the provisions and purposes of the Agreement. The Grantee is responsible for complying with all laws applicable to Grantee, including federal and state securities reporting laws. |
The Grantee must contact Merrill Lynch to accept the terms of this grant. Merrill Lynch can be contacted at www.benefits.ml.com or by phone at 1-877-SLM-ESOP. If Grantee fails to accept the terms of this grant, the Options may not be exercised.
SLM CORPORATION | ||
BY: | Albert L. Lord | |
Chief Executive Officer |
Accepted by: |
|
|
Date |
Page 4 of 4
Exhibit 10.4
SLM Corporation 2012 Omnibus Incentive Plan
Independent Director Restricted Stock Agreement 2013
Pursuant to the terms and conditions of the SLM Corporation 2012 Omnibus Incentive Plan (the Plan), SLM Corporation (the Corporation) hereby grants to (the Grantee) shares of common stock of the Corporation, par value $0.20 (the Restricted Stock), on , 2013 (the Grant Date) subject to the terms and conditions below. All capitalized terms used herein that are not defined shall have the meanings as set forth in the Plan.
|
100 percent of the Restricted Stock is subject to a risk of forfeiture and is non-transferable on the Grant Date. |
|
Upon the Grantees re-election to the Board of Directors of the Corporation at the 2013 annual meeting of shareholders, currently scheduled for May 30, 2013 (the Vesting Event), 100 percent of the Restricted Stock will vest and become transferable unless vested earlier as set forth below. |
|
The Restricted Stock will vest and become transferable prior to the Vesting Event upon any of the following events: (i) the Grantees death or Disability or (ii) upon a Change in Control. |
|
100 percent of the Restricted Stock will be forfeited if (i) the Grantee is no longer a director of the Corporations Board of Directors prior to the Vesting Event for reasons other than death, Disability (as defined below), or a Change in Control, or (ii) the Vesting Event does not occur for any reason. |
|
The Restricted Stock will be held in an account in the Grantees name at the Corporations transfer agent, currently Computershare. The Grantee is entitled to vote the shares of Restricted Stock. |
|
Dividends declared on unvested shares of Restricted Stock will not be paid currently. Instead, amounts equal to such dividends will be credited to an account established on behalf of the Grantee and such amounts will be deemed to be invested in additional shares of the Corporations common stock (Dividend Equivalents). Such Dividend Equivalents will be subject to the same vesting schedule to which the Restricted Stock is subject. At the time that the underlying Restricted Stock vests, the amount of Dividend Equivalents allocable to such Restricted Stock will also vest and will be settled in shares of the Corporations common stock (provided that any fractional share amount shall be paid in cash). Dividend Equivalents declared on unvested shares of Restricted Stock are not subject to income tax until vesting, at which time they are taxed as ordinary income. |
|
The Corporation may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any transfer or sale by the Grantee of any shares of Common Stock, including without limitation (a) restrictions under an insider trading policy and (b) restrictions that may be necessary in the absence of an effective registration statement under the Securities Act of 1933, as amended, covering the shares of the Corporations common stock. The sale of the shares must also comply with other applicable laws and regulations governing the sale of such shares. |
|
As an essential term of this award, the Grantee consents to the collection, use and transfer, in electronic or other form, of personal data as described herein for the exclusive purpose of implementing, administering and managing Grantees participation in the Plan. By accepting this award, the Grantee acknowledges that the Corporation holds certain personal information about the Grantee, including, but not limited to, name, home address and telephone number, date of birth, social security number or other identification number, salary, tax rates and amounts, nationality, job title, any shares of stock held in the Corporation, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding, for the purpose of implementing, administering and managing the Plan (Data). Grantee acknowledges that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in jurisdictions that may have different data privacy laws and protections, and Grantee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Grantee or the Corporation may elect to deposit any shares of the |
- 1 -
SLM Corporation 2012 Omnibus Incentive Plan
Independent Director Restricted Stock Agreement 2013
Corporations common stock. Grantee acknowledges that Data may be held to implement, administer and manage the Grantees participation in the Plan as determined by the Corporation, and that Grantee may request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, provided however, that refusing or withdrawing Grantees consent may adversely affect Grantees ability to participate in the Plan. |
|
The Corporation may, in its sole discretion, decide to deliver any documents related to any awards granted under the Plan by electronic means or to request Grantees consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Corporation or another third party designated by the Corporation, and such consent shall remain in effect throughout Grantees term of service with the Corporation and thereafter until withdrawn in writing by Grantee. |
|
Disability means the absence of the Grantee from the Corporations Board of Directors duties for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Corporation or its insurers and reasonably acceptable to the Grantee or the Grantees legal representative. |
|
||
Signature: | ||
|
||
Date Signed |
SLM CORPORATION | ||
BY: | Albert L. Lord | |
Chief Executive Officer |
- 2 -
Exhibit 10.5
SLM Corporation 2012 Omnibus Incentive Plan
Independent Director Stock Option Agreement 2013
FOR GOOD AND VALUABLE CONSIDERATION, SLM Corporation (the Corporation) hereby grants to Optionee named below non-qualified stock options (the Options) to purchase any part or all of the number of shares of the Corporations common stock, par value $0.20 per share (the Common Stock), specified below, at the Exercise Price per share specified below and upon the terms and conditions set forth in this agreement (Agreement) and the SLM Corporation 2012 Omnibus Incentive Plan (the Plan), each as may be amended from time to time. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the terms of the Plan shall control, except as expressly stated otherwise herein.
Name of Optionee: |
Grant Date: |
February 7, 2013 |
Number of Shares covered by Option: |
Exercise Price Per Share: |
$17.91 |
Expiration Date: |
February 7, 2018 |
Vesting: |
The Options are not vested or exercisable as of the Grant Date. Subject to the provisions herein, all Options vest and become exercisable upon the Optionees re-election to the Board of Directors of the Corporation at the 2013 annual meeting of shareholders currently scheduled for May 30, 2013 (the Vesting Event). All Options are forfeited if the Vesting Event does not occur for any reason. |
Exercise Right Upon Termination: |
Vested Options must be exercised within three years after the date Optionee ceases to be a member of the Board of Directors of the Corporation or the Expiration Date, whichever occurs first. |
1. | Definitions . Capitalized terms used herein are defined in the Plan or herein. |
2. | Vesting Upon Change In Control . Notwithstanding anything to the contrary in this Agreement, in the event of a Change in Control, all Options subject to this Agreement that were not previously vested and exercisable shall become immediately vested and exercisable in full. In addition, if upon the announcement of a Change in Control transaction no provision is made for the exercise, payment or lapse of conditions or restrictions on the Award, or other procedure whereby the Optionee may realize the full benefit of the Award, then all Options granted hereunder that were not previously vested and exercisable, shall immediately become vested and exercisable. |
3. | Non-Transferable; Binding Effect . These Options may not be transferred except as provided for herein. All or any part of these Options may be transferred by Optionee by will or by the laws of descent and distribution. In addition, Optionee may transfer all or any part of any Option to Immediate Family Members pursuant to a gift (a transfer that is not for value) or a domestic relations order, as defined in the General Instructions to Form S-8 under the Securities Act of 1933. Immediate Family Members means children, grandchildren, spouse or common law spouse, siblings or parents of the Optionee or bona fide trusts, partnerships or other entities controlled by and of which all beneficiaries are Immediate Family Members of the Optionee. Any Options that are transferred are further conditioned on the Optionee and the Optionees transferees and Immediate Family Members agreeing to abide by the Corporations then current stock option transfer guidelines. The terms of these Options shall be binding upon the executors, administrators, heirs, and successors of the Optionee. |
- 1 -
4. | Net-Settlement upon Exercise of the Option . These Options shall be exercised only in accordance with the terms of the Plan and this Agreement. Each exercise shall be for no fewer than fifty (50) shares, other than an exercise for all remaining Option shares. Upon exercise of all or part of these Options, the Optionee shall receive from the Corporation the number of shares of Common Stock resulting from the following formula: the total number of Options exercised less shares for the option cost. Shares for the option cost equals the Exercise Price multiplied by the number of Options exercised divided by the Fair Market Value of Common Stock at the time of exercise, rounded up to the nearest whole share. The Corporation shall pay the Optionee in cash the amount, if any, by which the Fair Market Value of the shares for the option cost exceeds the Exercise Price multiplied by the number of Options exercised. |
5. | Notices . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered, telefaxed or telecopied to, or, if mailed, when received by, the other party at the following addresses: |
If to the Corporation to:
Human Resources Department HR Compensation & Workforce Analytics
ATTN: Equity Plan Administration
300 Continental Drive
Newark, DE 19713
If to the Optionee, to the last address maintained in the Corporations Human Resources files for the Optionee.
6. | Board Interpretation . The Optionee hereby agrees to accept as binding, conclusive, and final all decisions and interpretations of the Board and, where applicable, the Committee, concerning any questions arising under this Agreement or the Plan. |
7. | Amendments for Accounting Charges . The Committee reserves the right to unilaterally amend this Agreement to reflect any changes in applicable law or financial accounting standards. |
8. | Securities Law Compliance; Restrictions on Resales of Option Shares . The Corporation may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any exercise of these Options and/or any resales by the Optionee or other subsequent transfers by the Optionee of any shares of Common Stock issued as a result of the exercise of the Options, including without limitation (a) restrictions under an insider trading policy, (b) restrictions that may be necessary in the absence of an effective registration statement under the Securities Act of 1933, as amended, covering the Options and/or the Common Stock underlying the Options and (c) restrictions as to the use of a specified brokerage firm or other agent for exercising the Options and/or for such resales or other transfers. The sale of the shares underlying the Options must also comply with other applicable laws and regulations governing the sale of such shares. |
9. |
Data Privacy . As an essential term of this Option, the Optionee consents to the collection, use and transfer, in electronic or other form, of personal data as described in this Agreement for the exclusive purpose of implementing, administering and managing Optionees participation in the Plan. By entering into this Agreement and accepting the Option, the Optionee acknowledges that the Corporation holds certain personal information about the Optionee, including, but not limited to, name, home address and telephone number, date of birth, social security number or other identification number, salary, tax rates and amounts, nationality, job title, any shares of stock held in the Corporation, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding, for the purpose of implementing, administering and managing the Plan (Data). Optionee acknowledges that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in jurisdictions that may have different data privacy laws and protections, and Optionee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Plan, including any requisite transfer of such Data as may be required to a broker or other |
- 2 -
third party with whom the Optionee or the Corporation may elect to deposit any shares of Common Stock acquired upon exercise of the Option. Optionee acknowledges that Data may be held to implement, administer and manage the Optionees participation in the Plan as determined by the Corporation, and that Optionee may request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, provided however, that refusing or withdrawing Optionees consent may adversely affect Optionees ability to participate in the Plan.
10. | Electronic Delivery . The Corporation may, in its sole discretion, decide to deliver any documents related to any options granted under the Plan by electronic means or to request Optionees consent to participate in the Plan by electronic means. Optionee hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Corporation or another third party designated by the Corporation, and such consent shall remain in effect throughout Optionees term of service with the Corporation and thereafter until withdrawn in writing by Optionee. |
11. | Stockholder Rights . The Optionee shall not be deemed a stockholder of the Corporation with respect to any of the shares of Common Stock subject to the Options, except to the extent that such shares shall have been purchased and transferred to the Optionee. The Corporation shall not be required to issue or transfer any shares of Common Stock purchased upon exercise of the Options until all applicable requirements of law have been complied with and such shares shall have been duly listed on any securities exchange on which the Common Stock may then be listed. |
12. | Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. |
13. | Entire Agreement; Capitalized Terms . This Agreement and the Plan together set forth the entire agreement and understanding between the parties as to the subject matter hereof and supersede all prior oral and written and all contemporaneous or subsequent oral discussions, agreements and understandings of any kind or nature. Capitalized terms not defined herein shall have the meanings as described in the Plan. |
14. | Miscellaneous . In the event that any provision of this Agreement is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable, or otherwise deleted, and the remainder of this Agreement shall not be affected except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision. The headings in this Agreement are solely for convenience of reference, and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. The Optionee shall cooperate and take such actions as may be reasonably requested by the Corporation in order to carry out the provisions and purposes of the Agreement. The Optionee is responsible for complying with all laws applicable to Optionee, including federal and state securities reporting laws. |
By accepting this Agreement, Optionee acknowledges that he or she has received and read, and agrees that these Options shall be subject to this Agreement and the Plan. At any time, copies of the Plan may be obtained by contacting the Director, Executive Compensation at (703) 984-6892.
|
Signature:
|
Date Signed |
SLM CORPORATION |
BY: Albert L. Lord |
Chief Executive Officer |
- 3 -
Exhibit 12.1
SLM CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars in thousands)
Years Ended | Three Months Ended Mar 31, | |||||||||||||||||||||||||||
2008 | 2009 | 2010 | 2011 | 2012 | 2012 | 2013 | ||||||||||||||||||||||
Income (loss) from continuing operations before income taxes |
$ | (34,213 | ) | $ | 807,878 | $ | 1,090,299 | $ | 927,454 | $ | 1,432,004 | $ | 178,098 | $ | 557,370 | |||||||||||||
Add: Fixed charges |
5,909,338 | 3,037,524 | 2,279,139 | 2,404,340 | 2,564,952 | 666,674 | 572,169 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total earnings |
$ | 5,875,125 | $ | 3,845,402 | $ | 3,369,438 | $ | 3,331,794 | $ | 3,996,956 | $ | 844,772 | $ | 1,129,539 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Interest expense |
$ | 5,905,418 | $ | 3,035,639 | $ | 2,274,771 | $ | 2,400,914 | $ | 2,561,671 | $ | 665,430 | $ | 570,872 | ||||||||||||||
Rental expense, net of income |
3,920 | 1,885 | 4,368 | 3,426 | 3,281 | 1,244 | 1,297 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total fixed charges |
5,909,338 | 3,037,524 | 2,279,139 | 2,404,340 | 2,564,952 | 666,674 | 572,169 | |||||||||||||||||||||
Preferred stock dividends |
110,556 | 172,799 | 130,635 | 27,411 | 31,211 | 8,292 | 7,881 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total fixed charges and preferred stock dividends |
$ | 6,019,894 | $ | 3,210,323 | $ | 2,409,774 | $ | 2,431,751 | $ | 2,596,163 | $ | 674,966 | $ | 580,050 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Ratio of earnings to fixed charges (1)(2) |
| 1.27 | 1.48 | 1.39 | 1.56 | 1.27 | 1.97 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Ratio of earnings to fixed charges and preferred stock dividends (1)(3) |
| 1.20 | 1.40 | 1.37 | 1.54 | 1.25 | 1.95 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | For purposes of computing these ratios, earnings represent income (loss) from continuing operations before income tax expense plus fixed charges. Fixed charges represent interest expensed and capitalized plus one-third (the proportion deemed representative of the interest factor) of rents, net of income from subleases. |
(2) | Due to a pre-tax loss from continuing operations of $34 million for the year ended December 31, 2008, the ratio coverage was less than 1:1. We would have needed to generate $34 million of additional earnings in the year ended December 31, 2008 for the ratio coverage to equal 1:1. |
(3) | Due to a pre-tax loss from continuing operations of $34 million for the year ended December 31, 2008, the ratio coverage was less than 1:1. We would have needed to generate $145 million of additional earnings in the year ended December 31, 2008 for the ratio coverage to equal 1:1. |
Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Albert L. Lord, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of SLM Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ ALBERT L. LORD |
Albert L. Lord |
Vice Chairman and Chief Executive Officer |
(Principal Executive Officer) |
May 3, 2013 |
Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Joseph A. DePaulo, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of SLM Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ JOSEPH A. DEPAULO |
Joseph A. DePaulo |
Executive Vice President Banking and Finance |
(Principal Financial Officer) |
May 3, 2013 |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SLM Corporation (the Company) on Form 10-Q for the quarter ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Albert L. Lord, Vice Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
/s/ ALBERT L. LORD |
Albert L. Lord |
Vice Chairman and Chief Executive Officer |
(Principal Executive Officer) |
May 3, 2013 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SLM Corporation (the Company) on Form 10-Q for the quarter ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Joseph A. DePaulo, Executive Vice President Banking and Finance of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
/s/ JOSEPH A. DEPAULO |
Joseph A. DePaulo |
Executive Vice President Banking and Finance |
(Principal Financial Officer) |
May 3, 2013 |