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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 
(Mark One)
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-13251
 
SLM Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
 
52-2013874
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
300 Continental Drive
Newark,
Delaware
19713
(Address of principal executive offices)
 
(Zip Code)
(302) 451-0200
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $.20 per share
SLM
The NASDAQ Global Select Market
Floating Rate Non-Cumulative Preferred Stock, Series B, par value $.20 per share
SLMBP
The NASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
☑
 
Accelerated filer
☐
Non-accelerated filer
☐
(Do not check if a smaller reporting company)
Smaller reporting company
☐
Emerging growth company
☐
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐ No þ 
As of June 30, 2019, there were 426,594,990 shares of common stock outstanding.
 





SLM CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS
INDEX


Part I. Financial Information
 
 
Item 1.
 
Item 1.
 
Item 2.
 
Item 3.
 
Item 4.
 
PART II. Other Information
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.
 



2


SLM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
 
June 30,
 
December 31,
 
 
2019
 
2018
Assets
 
 
 
 
Cash and cash equivalents
 
$
3,998,514

 
$
2,559,106

Available-for-sale investments at fair value (cost of $331,519 and $182,325, respectively)
 
331,541

 
176,245

Loans held for investment (net of allowance for losses of $383,997 and $341,121, respectively)
 
23,268,646

 
22,270,919

Restricted cash
 
141,441

 
122,789

Other interest-earning assets
 
65,187

 
27,157

Accrued interest receivable
 
1,401,618

 
1,191,981

Premises and equipment, net
 
129,658

 
105,504

Income taxes receivable, net
 
93,489

 
41,570

Tax indemnification receivable
 
38,925

 
39,207

Other assets
 
116,207

 
103,695

Total assets
 
$
29,585,226

 
$
26,638,173

 
 
 
 
 
Liabilities
 
 
 
 
Deposits
 
$
21,178,134

 
$
18,943,158

Long-term borrowings
 
4,862,763

 
4,284,304

Upromise member accounts
 
200,676

 
213,104

Other liabilities
 
246,337

 
224,951

Total liabilities
 
26,487,910

 
23,665,517

 
 
 
 
 
Commitments and contingencies
 

 

 
 
 
 
 
Equity
 
 
 
 
Preferred stock, par value $0.20 per share, 20 million shares authorized:
 
 
 
 
Series B: 4 million and 4 million shares issued, respectively, at stated value of $100 per share
 
400,000

 
400,000

Common stock, par value $0.20 per share, 1.125 billion shares authorized: 453.5 million and 449.9 million shares issued, respectively
 
90,702

 
89,972

Additional paid-in capital
 
1,296,409

 
1,274,635

Accumulated other comprehensive income (loss) (net of tax expense (benefit) of $(4,390) and $3,436, respectively)
 
(13,579
)
 
10,623

Retained earnings
 
1,600,855

 
1,340,017

Total SLM Corporation stockholders’ equity before treasury stock
 
3,374,387

 
3,115,247

Less: Common stock held in treasury at cost: 26.9 million and 14.2 million shares, respectively
 
(277,071
)
 
(142,591
)
Total equity
 
3,097,316

 
2,972,656

Total liabilities and equity
 
$
29,585,226

 
$
26,638,173


See accompanying notes to consolidated financial statements.

3


SLM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
553,905

 
$
454,045

 
$
1,107,384

 
$
884,093

Investments
 
1,706

 
1,694

 
3,127

 
3,641

Cash and cash equivalents
 
18,111

 
6,572

 
29,664

 
11,808

Total interest income
 
573,722

 
462,311

 
1,140,175

 
899,542

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
136,597

 
90,605

 
262,584

 
168,061

Interest expense on short-term borrowings
 
1,135

 
1,128

 
2,300

 
3,521

Interest expense on long-term borrowings
 
39,122

 
29,628

 
76,142

 
54,396

Total interest expense
 
176,854

 
121,361

 
341,026

 
225,978

Net interest income
 
396,868

 
340,950

 
799,149

 
673,564

Less: provisions for credit losses
 
93,375

 
63,267

 
157,165

 
117,198

Net interest income after provisions for credit losses
 
303,493

 
277,683

 
641,984

 
556,366

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

 
2,060

 
—

 
2,060

Losses on sales of securities, net
 
—

 
(1,549
)
 
—

 
(1,549
)
Gains (losses) on derivatives and hedging activities, net
 
16,736

 
(5,268
)
 
19,499

 
(1,376
)
Other income
 
2,655

 
12,295

 
16,033

 
21,937

Total non-interest income
 
19,391

 
7,538

 
35,532

 
21,072

Non-interest expenses:
 
 
 
 
 
 
 
 
Compensation and benefits
 
66,495

 
60,245

 
145,233

 
128,562

FDIC assessment fees
 
7,356

 
8,001

 
14,974

 
16,797

Other operating expenses
 
64,955

 
67,069

 
118,746

 
114,922

Total non-interest expenses
 
138,806

 
135,315

 
278,953

 
260,281

Income before income tax expense
 
184,078

 
149,906

 
398,563

 
317,157

Income tax expense
 
33,801

 
40,074

 
90,097

 
81,071

Net income
 
150,277

 
109,832

 
308,466

 
236,086

Preferred stock dividends
 
4,331

 
3,920

 
8,799

 
7,317

Net income attributable to SLM Corporation common stock
 
$
145,946

 
$
105,912

 
$
299,667

 
$
228,769

Basic earnings per common share attributable to SLM Corporation
 
$
0.34

 
$
0.24

 
$
0.69

 
$
0.53

Average common shares outstanding
 
429,278

 
435,187

 
431,911

 
434,573

Diluted earnings per common share attributable to SLM Corporation
 
$
0.34

 
$
0.24

 
$
0.69

 
$
0.52

Average common and common equivalent shares outstanding
 
432,253

 
439,445

 
435,233

 
439,212

Dividends per common share attributable to SLM Corporation
 
$
0.06

 
$
—

 
$
0.09

 
$
—





See accompanying notes to consolidated financial statements.

4


SLM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
Net income
 
$
150,277

 
$
109,832

 
$
308,466

 
$
236,086

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gains (losses) on investments
 
3,164

 
42

 
6,102

 
(4,085
)
Unrealized gains (losses) on cash flow hedges
 
(24,013
)
 
10,014

 
(38,130
)
 
30,304

Total unrealized gains (losses)
 
(20,849
)
 
10,056

 
(32,028
)
 
26,219

Income tax benefit (expense)
 
5,093

 
(2,441
)
 
7,826

 
(6,343
)
Other comprehensive income (loss), net of tax benefit (expense)
 
(15,756
)
 
7,615

 
(24,202
)
 
19,876

Total comprehensive income
 
$
134,521

 
$
117,447

 
$
284,264

 
$
255,962


















See accompanying notes to consolidated financial statements.

5



SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)
(Unaudited)


 
 
 
 
Common Stock Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock Shares
 
Issued
 
Treasury
 
Outstanding
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained Earnings
 
Treasury Stock
 
Total Equity
Balance at March 31, 2018
 
4,000,000

 
449,023,578

 
(13,827,355
)
 
435,196,223

 
$
400,000

 
$
89,805

 
$
1,252,609

 
$
15,601

 
$
990,447

 
$
(138,629
)
 
$
2,609,833

Net income
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
109,832

 
—

 
109,832

Other comprehensive income, net of tax
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
7,615

 
—

 
—

 
7,615

Total comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
117,447

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock, Series B ($0.98 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,920
)
 
—

 
(3,920
)
Issuance of common shares
 
—

 
384,955

 
 
 
384,955

 
—

 
77

 
2,076

 
—

 
—

 
—

 
2,153

Stock-based compensation expense
 
—

 
—

 
—

 
—

 
—

 
—

 
5,516

 
—

 
—

 
—

 
5,516

Shares repurchased related to employee stock-based compensation plans
 
—

 
—

 
(200,577
)
 
(200,577
)
 
—

 
—

 
—

 
—

 
—

 
(2,327
)
 
(2,327
)
Balance at June 30, 2018
 
4,000,000

 
449,408,533

 
(14,027,932
)
 
435,380,601

 
$
400,000

 
$
89,882

 
$
1,260,201

 
$
23,216

 
$
1,096,359

 
$
(140,956
)
 
$
2,728,702



















See accompanying notes to consolidated financial statements.

6



SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)
(Unaudited)


 
 
 
 
 
Common Stock Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock Shares
 
Issued
 
Treasury
 
Outstanding
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total Equity
Balance at March 31, 2019
 
4,000,000

 
453,326,885

 
(20,899,600
)
 
432,427,285

 
$
400,000

 
$
90,666

 
$
1,290,683

 
$
2,177

 
$
1,480,718

 
$
(216,710
)
 
$
3,047,534

Net income
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
150,277

 
—

 
150,277

Other comprehensive loss, net of tax
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(15,756
)
 
—

 
—

 
(15,756
)
Total comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
134,521

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock ($0.06 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(25,804
)
 
—

 
(25,804
)
Preferred Stock, Series B ($1.08 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(4,331
)
 
—

 
(4,331
)
Dividend equivalent units related to employee stock-based compensation plans
 
—

 
—

 
—

 
—

 
—

 
—

 
5

 
—

 
(5
)
 
—

 
—

Issuance of common shares
 
—

 
181,020

 
 
 
181,020

 
—

 
36

 
139

 
—

 
—

 
—

 
175

Stock-based compensation expense
 
—

 
—

 
—

 
—

 
—

 
—

 
5,582

 
—

 
—

 
—

 
5,582

Common stock repurchased
 
—

 
—

 
(5,989,279
)
 
(5,989,279
)
 
—

 
—

 
—

 
—

 
—

 
(60,120
)
 
(60,120
)
Shares repurchased related to employee stock-based compensation plans
 
—

 
—

 
(24,036
)
 
(24,036
)
 
—

 
—

 
—

 
—

 
—

 
(241
)
 
(241
)
Balance at June 30, 2019
 
4,000,000

 
453,507,905

 
(26,912,915
)
 
426,594,990

 
$
400,000

 
$
90,702

 
$
1,296,409

 
$
(13,579
)
 
$
1,600,855

 
$
(277,071
)
 
$
3,097,316















See accompanying notes to consolidated financial statements.

7



SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)
(Unaudited)


 
 
 
 
Common Stock Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock Shares
 
Issued
 
Treasury
 
Outstanding
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained Earnings
 
Treasury Stock
 
Total Equity
Balance at December 31, 2017
 
4,000,000

 
443,463,587

 
(11,087,337
)
 
432,376,250

 
$
400,000

 
$
88,693

 
$
1,222,277

 
$
2,748

 
$
868,182

 
$
(107,644
)
 
$
2,474,256

Net income
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
236,086

 
—

 
236,086

Other comprehensive income, net of tax
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
19,876

 
—

 
—

 
19,876

Total comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
255,962

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

 
—

 
—

 
—

 
—

 
—

 
—

 
592

 
(592
)
 
—

 
—

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

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(7,317
)
 
—

 
(7,317
)
Issuance of common shares
 
—

 
5,944,946

 
—

 
5,944,946

 
—

 
1,189

 
17,663

 
—

 
—

 
—

 
18,852

Stock-based compensation expense
 
—

 
—

 
—

 
—

 
—

 
—

 
20,261

 
—

 
—

 
—

 
20,261

Shares repurchased related to employee stock-based compensation plans
 
—

 
—

 
(2,940,595
)
 
(2,940,595
)
 
—

 
—

 
—

 
—

 
—

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

 
449,408,533

 
(14,027,932
)
 
435,380,601

 
$
400,000

 
$
89,882

 
$
1,260,201

 
$
23,216

 
$
1,096,359

 
$
(140,956
)
 
$
2,728,702

















See accompanying notes to consolidated financial statements.

8



SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)
(Unaudited)


 
 
 
 
 
Common Stock Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock Shares
 
Issued
 
Treasury
 
Outstanding
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total Equity
Balance at December 31, 2018
 
4,000,000

 
449,856,221

 
(14,174,733
)
 
435,681,488

 
$
400,000

 
$
89,972

 
$
1,274,635

 
$
10,623

 
$
1,340,017

 
$
(142,591
)
 
$
2,972,656

Net income
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
308,466

 
—

 
308,466

Other comprehensive loss, net of tax
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(24,202
)
 
—

 
—

 
(24,202
)
Total comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
284,264

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock ($0.09 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(38,824
)
 
—

 
(38,824
)
Preferred Stock, Series B ($2.20 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(8,799
)
 
—

 
(8,799
)
Dividend equivalent units related to employee stock-based compensation plans
 
—

 
—

 
—

 
—

 
—

 
—

 
5

 
—

 
(5
)
 
—

 
—

Issuance of common shares
 
—

 
3,651,684

 

 
3,651,684

 
—

 
730

 
2,296

 
—

 
—

 
—

 
3,026

Stock-based compensation expense
 
—

 
—

 
—

 
—

 
—

 
—

 
19,473

 
—

 
—

 
—

 
19,473

Common stock repurchased
 
—

 
—

 
(11,424,755
)
 
(11,424,755
)
 
—

 
—

 
—

 
—

 
—

 
(120,120
)
 
(120,120
)
Shares repurchased related to employee stock-based compensation plans
 
—

 
—

 
(1,313,427
)
 
(1,313,427
)
 
—

 
—

 
—

 
—

 
—

 
(14,360
)
 
(14,360
)
Balance at June 30, 2019
 
4,000,000

 
453,507,905

 
(26,912,915
)
 
426,594,990

 
$
400,000

 
$
90,702

 
$
1,296,409

 
$
(13,579
)
 
$
1,600,855

 
$
(277,071
)
 
$
3,097,316















See accompanying notes to consolidated financial statements.

9


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


 
 
Six Months Ended
 
 
June 30,
 
 
2019
 
2018
Operating activities
 
 
 
 
Net income
 
$
308,466

 
$
236,086

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Provisions for credit losses
 
157,165

 
117,198

Income tax expense
 
90,097

 
81,071

Amortization of brokered deposit placement fee
 
7,625

 
5,847

Amortization of Secured Borrowing Facility upfront fee
 
559

 
575

Amortization of deferred loan origination costs and loan premium/(discounts), net
 
6,426

 
5,115

Net amortization of discount on investments
 
493

 
985

Increase (reduction) in tax indemnification receivable
 
282

 
(3,453
)
Depreciation of premises and equipment
 
6,968

 
6,475

Stock-based compensation expense
 
19,473

 
20,261

Unrealized gains (losses) on derivatives and hedging activities, net
 
(21,950
)
 
1,175

Gains on sales of loans, net
 
—

 
(2,060
)
Losses on sales of securities, net
 
—

 
1,549

Other adjustments to net income, net
 
3,851

 
3,480

Changes in operating assets and liabilities:
 
 
 
 
Increase in accrued interest receivable
 
(478,886
)
 
(407,813
)
Increase in other interest-earning assets
 
(38,030
)
 
(6,799
)
Decrease in tax indemnification receivable
 
—

 
17,994

Increase in other assets
 
(28,297
)
 
(51,448
)
Decrease in income taxes payable, net
 
(132,250
)
 
(107,973
)
Increase in accrued interest payable
 
7,037

 
11,295

Increase (decrease) in other liabilities
 
27,927

 
(9,054
)
Total adjustments
 
(371,510
)
 
(315,580
)
Total net cash used in operating activities
 
(63,044
)
 
(79,494
)
Investing activities
 
 
 
 
Loans acquired and originated
 
(2,919,389
)
 
(3,162,764
)
Net proceeds from sales of loans held for investment
 
—

 
44,832

Proceeds from claim payments
 
21,356

 
27,000

Net decrease in loans held for investment
 
2,004,272

 
1,442,627

Purchases of available-for-sale securities
 
(160,317
)
 
(2,914
)
Proceeds from sales and maturities of available-for-sale securities
 
10,629

 
62,237

Total net cash used in investing activities
 
(1,043,449
)
 
(1,588,982
)
Financing activities
 
 
 
 
Brokered deposit placement fee
 
(15,380
)
 
(18,885
)
Net increase in certificates of deposit
 
1,787,511

 
947,437

Net increase in other deposits
 
373,452

 
331,926

Borrowings collateralized by loans in securitization trusts - issued
 
1,105,594

 
1,350,587

Borrowings collateralized by loans in securitization trusts - repaid
 
(530,765
)
 
(411,904
)
Borrowings under Secured Borrowing Facility
 
—

 
300,000

Repayment of borrowings under Secured Borrowing Facility
 
—

 
(300,000
)
Fees paid on Secured Borrowing Facility
 
(1,116
)
 
(1,095
)
Common stock dividends paid
 
(25,824
)
 
—

Preferred stock dividends paid
 
(8,799
)
 
(7,317
)
Common stock repurchased
 
(120,120
)
 
—


10


Net cash provided by financing activities
 
2,564,553

 
2,190,749

Net increase in cash, cash equivalents and restricted cash
 
1,458,060

 
522,273

Cash, cash equivalents and restricted cash at beginning of period
 
2,681,895

 
1,636,175

Cash, cash equivalents and restricted cash at end of period
 
$
4,139,955

 
$
2,158,448

Cash disbursements made for:
 
 
 
 
Interest
 
$
323,278

 
$
207,872

Income taxes paid
 
$
132,036

 
$
111,173

Income taxes refunded
 
$
(718
)
 
$
(3,790
)
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets:
 
 
 
 
Cash and cash equivalents
 
$
3,998,514

 
$
2,043,789

Restricted cash
 
141,441

 
114,659

Total cash, cash equivalents and restricted cash
 
$
4,139,955

 
$
2,158,448

See accompanying notes to consolidated financial statements.

11




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


1. Significant Accounting Policies

Basis of Presentation
The accompanying unaudited, consolidated financial statements of SLM Corporation (“Sallie Mae,” “SLM,” the “Company,” “we,” or “us”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements include the accounts of SLM Corporation and its majority-owned and controlled subsidiaries after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results for the year ending December 31, 2019 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, 2018 (the “2018 Form 10-K”).
Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries after eliminating the effects of intercompany accounts and transactions.
We consolidate any variable interest entity (“VIE”) where we have determined we are the primary beneficiary. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.
Reclassifications
Certain reclassifications have been made to the balances for the three and six months ended June 30, 2018, to be consistent with classifications adopted in 2019, which had no effect on net income, total assets or total liabilities.
Recently Issued and Adopted Accounting Pronouncements
ASU No. 2016-02, “Leases”
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases,” a comprehensive new lease standard which supersedes previous lease guidance. The standard requires a lessee to recognize in its balance sheet assets and liabilities related to long-term leases that were classified as operating leases under previous guidance. An asset will be recognized related to the right to use the underlying asset and a liability will be recognized related to the obligation to make lease payments over the term of the lease. The standard also requires expanded disclosures surrounding leases. The standard is effective for fiscal periods beginning after December 15, 2018, and requires modified retrospective adoption, with early adoption permitted. We adopted this guidance on January 1, 2019. In doing so, we identified and evaluated the related lease contracts and revised our controls and processes to address the lease standard. The adoption of this guidance resulted in the recognition of less than $34 million of right of use asset and lease liability, which did not have a material impact on our consolidated financial statements.

12




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
1.
Significant Accounting Policies (Continued)
 


Recently Issued but Not Yet Adopted Accounting Pronouncements
ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which will become effective for us on January 1, 2020. This ASU eliminates the current accounting guidance for the recognition of credit impairment. Under the new guidance, for all loans carried at amortized cost, upon loan origination we will be required to measure our allowance for loan losses based on our estimate of all current expected credit losses (“CECL”) over the remaining contractual term of the assets. Updates to that estimate each period will be recorded through provision expense. The estimate of loan losses must be based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU does not mandate the use of any specific method for estimating credit loss, permitting companies to use judgment in selecting the approach that is most appropriate in their circumstances. Upon adoption, a cumulative effect adjustment to retained earnings will be recorded as of the beginning of the first reporting period in which the guidance is effective in an amount necessary to adjust the allowance for loan losses to equal the current estimate of expected losses on financial assets held at that date.
We have evaluated the standard and initiated implementation efforts. We have identified the loss forecasting approach and have built the loss models for our Private Education Loans (as hereinafter defined) and our Personal Loans (as hereinafter defined) acquired from third-parties. For our Private Education Loan and total Personal Loan portfolios, we will be using the discounted cash flow approach to calculate our current expected credit losses. We estimate the CECL allowance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. We have determined that, for modeling current expected credit losses, we can reasonably estimate expected losses that incorporate the current and forecasted economic conditions over a two-year period, after which the model will immediately revert to our long-term expected loss rates. During the remainder of 2019, we plan to complete our loss models for Personal Loans we originate and credit card receivables and complete the testing and validation for all the models to be used to implement CECL. During the second quarter of 2019, we performed a dry run of our CECL solution for our Private Education Loan and purchased Personal Loan portfolios to test the end-to-end implementation of the new solution. The loss and other models that will be used in our CECL solution are currently undergoing validation or will be in the coming months.
Adoption of the standard will have a material impact on how we record and report our financial condition and results of operations, and on regulatory capital. The extent of the impact upon adoption at January 1, 2020 will likely depend on the characteristics of our loan portfolio and economic conditions at that date, as well as forecasted conditions thereafter.



13




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

2. Investments

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

 
 
June 30, 2019
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Available for sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
233,210

 
$
1,196

 
$
(1,445
)
 
$
232,961

Utah Housing Corporation bonds
 
21,136

 
181

 
(70
)
 
21,247

U.S. government-sponsored enterprises
 
77,173

 
160

 
—

 
77,333

Total
 
$
331,519

 
$
1,537

 
$
(1,515
)
 
$
331,541

 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Available for sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
159,937

 
$
155

 
$
(5,517
)
 
$
154,575

Utah Housing Corporation bonds
 
22,388

 
23

 
(741
)
 
21,670

Total
 
$
182,325

 
$
178

 
$
(6,258
)
 
$
176,245





14




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

The following table summarizes the amount of gross unrealized losses for our available for sale securities and the estimated fair value for securities having gross unrealized loss positions, categorized by length of time the securities have been in an unrealized loss position:
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
As of June 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
(6
)
 
$
10,815

 
$
(1,439
)
 
$
101,969

 
$
(1,445
)
 
$
112,784

Utah Housing Corporation bonds
 
—

 
—

 
(70
)
 
11,955

 
(70
)
 
11,955

U.S. government-sponsored enterprises
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
(6
)
 
$
10,815

 
$
(1,509
)
 
$
113,924

 
$
(1,515
)
 
$
124,739

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
(228
)
 
$
16,948

 
$
(5,289
)
 
$
125,537

 
$
(5,517
)
 
$
142,485

Utah Housing Corporation bonds
 
—

 
—

 
(741
)
 
16,647

 
(741
)
 
16,647

Total
 
$
(228
)
 
$
16,948

 
$
(6,030
)
 
$
142,184

 
$
(6,258
)
 
$
159,132



Our investment portfolio is comprised primarily of mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, with amortized costs of $62 million, $110 million, and $60 million, respectively, at June 30, 2019. We own these securities to meet our requirements under the Community Reinvestment Act. As of June 30, 2019, 47 of the 101 separate mortgage-backed securities in our investment portfolio had unrealized losses, and 19 of the 47 securities in a net loss position were issued under Ginnie Mae programs that carry a full faith and credit guarantee from the U.S. Government. The remaining securities in a net loss position carry a principal and interest guarantee by Fannie Mae or Freddie Mac, respectively. We have the ability and the intent to hold each of these securities for a period of time sufficient for the market price to recover to at least the adjusted amortized cost of the security. As of December 31, 2018, 74 of the 86 separate mortgage-backed securities in our investment portfolio had unrealized losses, and 34 of the 74 securities in a net loss position were issued under Ginnie Mae programs that carry a full faith and credit guarantee from the U.S. Government. The remainder carried a principal and interest guarantee by Fannie Mae or Freddie Mac, respectively.
We also invest in Utah Housing Corporation bonds for the purpose of complying with the Community Reinvestment Act. These bonds are rated Aa3 by Moody’s Investors Service. As of June 30, 2019, one of the three separate bonds was in a net loss position. We have the intent and ability to hold each of these bonds for a period of time sufficient for the market price to recover to at least the adjusted amortized cost of the security.
In the second quarter of 2018, we elected to sell nine securities totaling $41 million to better align the portfolio with the Community Reinvestment Act requirements, and we recognized a $2 million loss upon the sale of those securities.

15




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

Beginning in the second quarter of 2019, we began investing in U.S. government-sponsored enterprise securities issued by the Federal Home Loan Bank (“FHLB”) and Freddie Mac. These bonds are rated AA+ by Moody’s Investors Services and are currently in an unrealized gain position.
As of June 30, 2019, the amortized cost and fair value of securities, by contractual maturities, are summarized below. Contractual maturities versus actual maturities may differ due to the effect of prepayments.
Year of Maturity
 
Amortized Cost
 
Estimated Fair Value
2020
 
$
39,484

 
$
39,545

2021
 
37,689

 
37,787

2038
 
262

 
282

2039
 
2,907

 
3,065

2042
 
8,021

 
7,800

2043
 
13,727

 
13,776

2044
 
20,078

 
20,090

2045
 
22,915

 
22,728

2046
 
35,609

 
35,195

2047
 
53,183

 
52,759

2048
 
15,159

 
15,511

2049
 
82,485

 
83,003

Total
 
$
331,519

 
$
331,541



The mortgage-backed securities have been pledged to the Federal Reserve Bank (the “FRB”) as collateral against any advances and accrued interest under the Primary Credit lending program sponsored by the FRB. We had $233 million and $147 million par value of mortgage-backed securities pledged to this borrowing facility at June 30, 2019 and December 31, 2018, respectively, as discussed further in Note 6, “Borrowings.”



16




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

3. Loans Held for Investment
Loans held for investment consist of Private Education Loans, FFELP Loans and Personal Loans. We use “Private Education Loans” to mean education loans to students or their families that are not made, insured or guaranteed by any state or federal government. Private Education Loans do not include loans insured or guaranteed under the previously existing Federal Family Education Loan Program (“FFELP”). We use “Personal Loans” to mean those unsecured loans to individuals that may be used for non-educational purposes.
Our Private Education Loans are made largely to bridge the gap between the cost of higher education and the amount funded through financial aid, government loans and customers’ resources. Private Education Loans bear the full credit risk of the customer. We manage this risk through risk-performance underwriting strategies and qualified cosigners. Private Education Loans may be fixed-rate or may carry a variable interest rate indexed to LIBOR. As of June 30, 2019 and December 31, 2018, 62 percent and 67 percent, respectively, of all of our Private Education Loans were indexed to LIBOR. We provide incentives for customers to include a cosigner on the loan, and the vast majority of Private Education Loans in our portfolio are cosigned. We also encourage customers to make payments while in school.
FFELP Loans are insured as to their principal and accrued interest in the event of default, subject to a risk-sharing level based on the date of loan disbursement. These insurance obligations are supported by contractual rights against the United States. For loans disbursed on or after July 1, 2006, we receive 97 percent reimbursement on all qualifying claims. For loans disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement on all qualifying claims. For loans disbursed prior to October 1, 1993, we receive 100 percent reimbursement on all qualifying claims.
Prior to July 2018, we acquired Personal Loans from a marketplace lender. In 2018, we began to originate and service Personal Loans.

17




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


Loans held for investment are summarized as follows:
 
 
June 30,
 
December 31,
 
 
2019
 
2018
Private Education Loans:
 

 

Fixed-rate
 
$
8,231,177

 
$
6,759,019

Variable-rate
 
13,397,670

 
13,745,446

Total Private Education Loans, gross
 
21,628,847

 
20,504,465

Deferred origination costs and unamortized premium/(discount)
 
73,902

 
68,321

Allowance for loan losses
 
(307,968
)
 
(277,943
)
Total Private Education Loans, net
 
21,394,781

 
20,294,843

 
 
 
 
 
FFELP Loans
 
812,500

 
846,487

Deferred origination costs and unamortized premium/(discount)
 
2,262

 
2,379

Allowance for loan losses
 
(1,734
)
 
(977
)
Total FFELP Loans, net
 
813,028

 
847,889

 
 
 
 
 
Personal Loans (fixed-rate)
 
1,134,637

 
1,190,091

Deferred origination costs and unamortized premium/(discount)
 
495

 
297

Allowance for loan losses
 
(74,295
)
 
(62,201
)
Total Personal Loans, net
 
1,060,837

 
1,128,187

 
 
 
 
 
Loans held for investment, net
 
$
23,268,646

 
$
22,270,919


 
The estimated weighted average life of education loans in our portfolio was approximately 5.3 years and 5.4 years at June 30, 2019 and December 31, 2018, respectively.

18




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

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

 
 
Three Months Ended
 
 
June 30,
 
 
2019
 
2018
 
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
Private Education Loans
 
$
21,748,247

 
9.39
%
 
$
18,764,768

 
9.03
%
FFELP Loans
 
821,138

 
5.01

 
898,095

 
4.51

Personal Loans
 
1,149,247

 
12.00

 
815,356

 
10.65

Total portfolio
 
$
23,718,632

 
 
 
$
20,478,219

 
 

 
 
Six Months Ended
 
 
June 30,
 
 
2019
 
2018
 
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
Private Education Loans
 
$
21,740,579

 
9.44
%
 
$
18,712,533

 
8.93
%
FFELP Loans
 
829,497

 
4.98

 
908,846

 
4.38

Personal Loans
 
1,162,782

 
11.90

 
672,792

 
10.65

Total portfolio
 
$
23,732,858

 
 
 
$
20,294,171

 
 


Certain Collection Tools - Private Education Loans
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. We grant forbearance in our servicing centers if a borrower who is current requests it for increments of three months at a time, for up to 12 months. Forbearance as a collection tool is used most effectively when applied based on a customer’s 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 customer’s 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. 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 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 customer’s 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 the

19




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

granted forbearance period, the customer will enter repayment status as current and is expected to begin making scheduled monthly payments on a go-forward basis.
Forbearance may also be granted to customers who are delinquent in their payments. If specific requirements are met, the forbearance can cure 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. We review our forbearance policies and practices from time to time and update them as circumstances warrant.
We also have an interest rate reduction program to assist customers in repaying their Private Education Loans through reduced payments, while continuing to reduce their outstanding principal balance. This program is offered in situations where the potential for principal recovery, through an interest rate reduction that results in a lower monthly payment amount, is more suitable than other alternatives currently available. As part of demonstrating the ability and willingness to pay, the customer must make three consecutive monthly payments at the reduced rate to qualify for the program. Once the customer has made the initial three payments, the loan’s status is returned to current and the interest rate is reduced (currently, to 4.0 percent; previously to 2.0 percent or 4.0 percent) for a 24 month period and, in the vast majority of cases, the final maturity date of the loan is permanently extended.


20




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

4. Allowance for Loan Losses
Our provision for credit losses represents the periodic expense of maintaining an allowance sufficient to absorb incurred probable losses in the held-for-investment loan portfolios. The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates that may be susceptible to significant changes. We believe the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios. See Note 2, “Significant Accounting Policies — Allowance for Loan Losses — Allowance for Private Education Loan Losses, — Allowance for Personal Loans, and — Allowance for FFELP Loan Losses” in our 2018 Form 10-K for additional details.

Allowance for Loan Losses Metrics
 
 
Allowance for Loan Losses
 
 
Three Months Ended June 30, 2019
 
 
FFELP
Loans
 
Private Education
Loans
 
Personal
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
 
 
Beginning balance
 
$
1,760

 
$
285,946

 
$
70,619

 
$
358,325

Total provision
 
145

 
71,296

 
21,474

 
92,915

Net charge-offs:
 


 


 


 


Charge-offs
 
(171
)
 
(55,382
)
 
(19,074
)
 
(74,627
)
Recoveries
 
—

 
6,108

 
1,276

 
7,384

Net charge-offs
 
(171
)
 
(49,274
)
 
(17,798
)
 
(67,243
)
Ending Balance
 
$
1,734

 
$
307,968

 
$
74,295

 
$
383,997

Allowance:
 

 

 

 

Ending balance: individually evaluated for impairment
 
$
—

 
$
146,403

 
$
—

 
$
146,403

Ending balance: collectively evaluated for impairment
 
$
1,734

 
$
161,565

 
$
74,295

 
$
237,594

Loans:
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
1,411,189

 
$
—

 
$
1,411,189

Ending balance: collectively evaluated for impairment
 
$
812,500

 
$
20,217,658

 
$
1,134,637

 
$
22,164,795

Net charge-offs as a percentage of average loans in repayment (annualized)(1)
 
0.11
%
 
1.29
%
 
6.20
%
 

Allowance as a percentage of the ending total loan balance
 
0.21
%
 
1.42
%
 
6.55
%
 

Allowance as a percentage of the ending loans in repayment(1)
 
0.28
%
 
2.01
%
 
6.55
%
 

Allowance coverage of net charge-offs (annualized)
 
2.54

 
1.56

 
1.04

 

Ending total loans, gross
 
$
812,500

 
$
21,628,847

 
$
1,134,637

 

Average loans in repayment(1)
 
$
634,932

 
$
15,241,574

 
$
1,148,444

 

Ending loans in repayment(1)
 
$
620,292

 
$
15,332,251

 
$
1,134,637

 

____________
(1) Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.


21




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


 
 
Allowance for Loan Losses
 
 
Three Months Ended June 30, 2018
 
 
FFELP
Loans
 
Private Education
Loans
 
Personal
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
 
 
Beginning balance
 
$
1,113

 
$
252,103

 
$
18,907

 
$
272,123

Total provision
 
252

 
46,264

 
16,378

 
62,894

Net charge-offs:
 
 
 
 
 
 
 
 
Charge-offs
 
(292
)
 
(42,270
)
 
(2,872
)
 
(45,434
)
Recoveries
 
—

 
5,598

 
96

 
5,694

Net charge-offs
 
(292
)
 
(36,672
)
 
(2,776
)
 
(39,740
)
Ending Balance
 
$
1,073

 
$
261,695

 
$
32,509

 
$
295,277

Allowance:
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
113,343

 
$
—

 
$
113,343

Ending balance: collectively evaluated for impairment
 
$
1,073

 
$
148,352

 
$
32,509

 
$
181,934

Loans:
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
1,121,816

 
$
—

 
$
1,121,816

Ending balance: collectively evaluated for impairment
 
$
885,357

 
$
17,566,211

 
$
966,080

 
$
19,417,648

Net charge-offs as a percentage of average loans in repayment (annualized)(1)
 
0.17
%
 
1.14
%
 
1.36
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.12
%
 
1.40
%
 
3.37
%
 
 
Allowance as a percentage of the ending loans in repayment(1)
 
0.16
%
 
2.02
%
 
3.37
%
 
 
Allowance coverage of net charge-offs (annualized)
 
0.92

 
1.78

 
2.93

 
 
Ending total loans, gross
 
$
885,357

 
$
18,688,027

 
$
966,080

 
 
Average loans in repayment(1)
 
$
698,197

 
$
12,909,623

 
$
815,741

 
 
Ending loans in repayment(1)
 
$
680,802

 
$
12,979,523

 
$
966,080

 
 
____________
(1) Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.

    




22




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

 
 
Allowance for Loan Losses
 
 
Six Months Ended June 30, 2019
 
 
FFELP
Loans
 
Private Education
Loans
 
Personal
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
 
 
Beginning balance
 
$
977

 
$
277,943

 
$
62,201

 
$
341,121

Total provision
 
1,162

 
113,179

 
44,234

 
158,575

Net charge-offs:
 
 
 


 
 
 
 
Charge-offs
 
(405
)
 
(94,959
)
 
(34,325
)
 
(129,689
)
Recoveries
 
—

 
11,805

 
2,185

 
13,990

Net charge-offs
 
(405
)
 
(83,154
)
 
(32,140
)
 
(115,699
)
Ending Balance
 
$
1,734

 
$
307,968

 
$
74,295

 
$
383,997

Allowance:
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
146,403

 
$
—

 
$
146,403

Ending balance: collectively evaluated for impairment
 
$
1,734

 
$
161,565

 
$
74,295

 
$
237,594

Loans:
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
1,411,189

 
$
—

 
$
1,411,189

Ending balance: collectively evaluated for impairment
 
$
812,500

 
$
20,217,658

 
$
1,134,637

 
$
22,164,795

Net charge-offs as a percentage of average loans in repayment (annualized)(1)
 
0.13
%
 
1.09
%
 
5.53
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.21
%
 
1.42
%
 
6.55
%
 
 
Allowance as a percentage of the ending loans in repayment(1)
 
0.28
%
 
2.01
%
 
6.55
%
 
 
Allowance coverage of net charge-offs (annualized)
 
2.14

 
1.85

 
1.16

 
 
Ending total loans, gross
 
$
812,500

 
$
21,628,847

 
$
1,134,637

 
 
Average loans in repayment(1)
 
$
642,693

 
$
15,188,003

 
$
1,161,761

 
 
Ending loans in repayment(1)
 
$
620,292

 
$
15,332,251

 
$
1,134,637

 
 
____________
     
(1) Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.








23




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

 
 
Allowance for Loan Losses
 
 
Six Months Ended June 30, 2018
 
 
FFELP
Loans
 
Private Education
Loans
 
Personal
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
 
 
Beginning balance
 
$
1,132

 
$
243,715

 
$
6,628

 
$
251,475

Total provision
 
483

 
88,134

 
29,826

 
118,443

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

 
10,685

 
127

 
10,812

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

 
(1,216
)
 
—

 
(1,216
)
Ending Balance
 
$
1,073

 
$
261,695

 
$
32,509

 
$
295,277

Allowance:
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
113,343

 
$
—

 
$
113,343

Ending balance: collectively evaluated for impairment
 
$
1,073

 
$
148,352

 
$
32,509

 
$
181,934

Loans:
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
1,121,816

 
$
—

 
$
1,121,816

Ending balance: collectively evaluated for impairment
 
$
885,357

 
$
17,566,211

 
$
966,080

 
$
19,417,648

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

 
1.90

 
4.12

 
 
Ending total loans, gross
 
$
885,357

 
$
18,688,027

 
$
966,080

 
 
Average loans in repayment(2)
 
$
709,010

 
$
12,810,072

 
$
673,552

 
 
Ending loans in repayment(2)
 
$
680,802

 
$
12,979,523

 
$
966,080

 
 
____________
(1) Represents fair value adjustments on loans sold.
(2) Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.


24




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


Troubled Debt Restructurings (“TDRs”)
All of our loans are collectively assessed for impairment, except for loans classified as TDRs (where we conduct individual assessments of impairment). We modify the terms of loans for certain borrowers when we believe such modifications may increase the collectability of the loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. The majority of our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan. When we give a borrower facing financial difficulty an interest rate reduction, we temporarily reduce the rate to 2.0 percent or 4.0 percent for a two-year period and, in the vast majority of cases, permanently extend the final maturity of the loan. The combination of these two loan term changes helps reduce the monthly payment due from the borrower and increases the likelihood the borrower will remain current during the interest rate modification period as well as when the loan returns to its original contractual interest rate. At June 30, 2019 and June 30, 2018, 7.7 percent and 6.8 percent, respectively, of our loans then currently in full principal and interest repayment status were subject to interest rate reductions made under our rate modification program. Once a loan qualifies for TDR status, it remains a TDR for allowance purposes for the remainder of its life. As of June 30, 2019 and December 31, 2018, approximately 53 percent and 57 percent, respectively, of TDRs were classified as such due to their forbearance status. For additional information, see Note 2, “Significant Accounting Policies —Allowance for Loan Losses,” and Note 6, “Allowance for Loan Losses” in our 2018 Form 10-K.
Within the Private Education Loan portfolio, loans greater than 90 days past due are considered to be nonperforming. FFELP Loans are at least 97 percent guaranteed as to their principal and accrued interest by the federal government in the event of default and, therefore, we do not deem FFELP Loans as nonperforming from a credit risk perspective at any point in their life cycle prior to claim payment and continue to accrue interest on those loans through the date of claim.
At June 30, 2019 and December 31, 2018, all of our TDR loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our TDR loans.
 
 
Recorded Investment
 
Unpaid Principal Balance
 
Allowance
 
 
 
 
 
 
 
June 30, 2019
 
 
 
 
 
 
TDR Loans
 
$
1,437,986

 
$
1,411,189

 
$
146,403

 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
TDR Loans
 
$
1,280,713

 
$
1,257,856

 
$
120,110



The following table provides the average recorded investment and interest income recognized for our TDR loans.
 
 
Three Months Ended 
 June 30,
 
 
2019
 
2018
 
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
1,395,756

 
$
22,954

 
$
1,105,042

 
$
18,718




25




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

 
 
Six Months Ended 
 June 30,
 
 
2019
 
2018
 
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
1,354,467

 
$
44,520

 
$
1,069,721

 
$
36,565



    
The following table provides information regarding the loan status and aging of TDR loans.

 
 
June 30,
 
December 31,
 
 
2019
 
2018
 
 
Balance
 
%
 
Balance
 
%
TDR loans in in-school/grace/deferment(1)
 
$
76,393

 
 
 
$
69,212

 
 
TDR loans in forbearance(2)
 
84,991

 
 
 
69,796

 
 
TDR loans in repayment(3) and percentage of each status:
 
 
 
 
 
 
 
 
Loans current
 
1,114,734

 
89.2
%
 
994,411

 
88.9
%
Loans delinquent 31-60 days(4)
 
60,656

 
4.9

 
63,074

 
5.6

Loans delinquent 61-90 days(4)
 
46,771

 
3.7

 
36,804

 
3.3

Loans delinquent greater than 90 days(4)
 
27,644

 
2.2

 
24,559

 
2.2

Total TDR loans in repayment
 
1,249,805

 
100.0
%
 
1,118,848

 
100.0
%
Total TDR loans, gross
 
$
1,411,189

 
 
 
$
1,257,856

 
 
_____
(1) 
Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on the loans (e.g., residency periods for medical students or a grace period for bar exam preparation).
(2) 
Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.
(3) 
Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.
(4) 
The period of delinquency is based on the number of days scheduled payments are contractually past due.


26




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


The following table provides the amount of modified loans (which include forbearance and reductions in interest rates) that became TDRs in the periods presented. Additionally, for the periods presented, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the relevant period presented and within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure.

 
 
Three Months Ended 
 June 30, 2019
 
Three Months Ended 
 June 30, 2018
 
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
 
 
 
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
131,273

 
$
17,076

 
$
30,309

 
$
116,478

 
$
12,764

 
$
18,254


 
 
Six Months Ended 
 June 30, 2019
 
Six Months Ended 
 June 30, 2018
 
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
 
 
 
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
242,481

 
$
33,081

 
$
55,755

 
$
200,652

 
$
28,224

 
$
47,988

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



Private Education Loan Key Credit Quality Indicators
FFELP Loans are at least 97 percent insured and guaranteed as to their principal and accrued interest in the event of default; therefore, there are no key credit quality indicators associated with FFELP Loans.
For Private Education Loans, the key credit quality indicators are FICO scores, the existence of a cosigner, the loan status and loan seasoning. The FICO scores are assessed at original approval and periodically refreshed/updated through the loan’s term. The following table highlights the gross principal balance of our Private Education Loan portfolio stratified by key credit quality indicators.


27




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

 
 
Private Education Loans
 
 
Credit Quality Indicators
 
 
June 30, 2019
 
December 31, 2018
Credit Quality Indicators:
 
Balance(1)
 
% of Balance
 
Balance(1)
 
% of Balance
 
 
 
 
 
 
 
 
 
Cosigners:
 
 
 
 
 
 
 
 
With cosigner
 
$
19,335,960

 
89
%
 
$
18,378,398

 
90
%
Without cosigner
 
2,292,887

 
11

 
2,126,067

 
10

Total
 
$
21,628,847

 
100
%
 
$
20,504,465

 
100
%
 
 
 
 
 
 
 
 
 
FICO at Original Approval(2):
 
 
 
 
 
 
 
 
Less than 670
 
$
1,517,608

 
7
%
 
$
1,409,789

 
7
%
670-699
 
3,298,903

 
15

 
3,106,983

 
15

700-749
 
7,146,638

 
33

 
6,759,721

 
33

Greater than or equal to 750
 
9,665,698

 
45

 
9,227,972

 
45

Total
 
$
21,628,847

 
100
%
 
$
20,504,465

 
100
%
 
 
 
 
 
 
 
 
 
FICO-Refreshed(2)(3):
 
 
 
 
 
 
 
 
Less than 670
 
$
2,697,197

 
13
%
 
$
2,416,979

 
12
%
670-699
 
2,616,109

 
12

 
2,504,467

 
12

700-749
 
6,339,380

 
29

 
6,144,489

 
30

Greater than or equal to 750
 
9,976,161

 
46

 
9,438,530

 
46

Total
 
$
21,628,847

 
100
%
 
$
20,504,465

 
100
%
 
 
 
 
 
 
 
 
 
Seasoning(4):
 
 
 
 
 
 
 
 
1-12 payments
 
$
5,508,604

 
26
%
 
$
4,969,334

 
24
%
13-24 payments
 
3,527,814

 
16

 
3,481,235

 
17

25-36 payments
 
2,674,655

 
12

 
2,741,954

 
13

37-48 payments
 
1,993,995

 
9

 
1,990,049

 
10

More than 48 payments
 
2,201,198

 
10

 
2,061,448

 
10

Not yet in repayment
 
5,722,581

 
27

 
5,260,445

 
26

Total
 
$
21,628,847

 
100
%
 
$
20,504,465

 
100
%
______
(1) 
Balance represents gross Private Education Loans.
(2) 
Represents the higher credit score of the cosigner or the borrower.
(3) 
Represents the FICO score updated as of the second-quarter 2019.
(4) 
Number of months in active repayment (whether interest only payment, fixed payment, or full principal and interest payment status) for which a scheduled payment was due.

28




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

Private Education Loan Delinquencies

The following table provides information regarding the loan status of our Private Education Loans. Loans in repayment include loans making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.

 
 
Private Education Loans
 
 
June 30,
 
December 31,
 
 
2019
 
2018
 
 
Balance
 
%
 
Balance
 
%
Loans in-school/grace/deferment(1)
 
$
5,722,581

 
 
 
$
5,260,445

 
 
Loans in forbearance(2)
 
574,015

 
 
 
577,164

 
 
Loans in repayment and percentage of each status:
 
 
 
 
 
 
 
 
Loans current
 
14,920,746

 
97.3
%
 
14,289,705

 
97.4
%
Loans delinquent 31-60 days(3)
 
222,448

 
1.5

 
231,216

 
1.6

Loans delinquent 61-90 days(3)
 
123,473

 
0.8

 
95,105

 
0.7

Loans delinquent greater than 90 days(3)
 
65,584

 
0.4

 
50,830

 
0.3

Total Private Education Loans in repayment
 
15,332,251

 
100.0
%
 
14,666,856

 
100.0
%
Total Private Education Loans, gross
 
21,628,847

 
 
 
20,504,465

 
 
Private Education Loans deferred origination costs and unamortized premium/(discount)
 
73,902

 
 
 
68,321

 
 
Total Private Education Loans
 
21,702,749

 
 
 
20,572,786

 
 
Private Education Loans allowance for losses
 
(307,968
)
 
 
 
(277,943
)
 
 
Private Education Loans, net
 
$
21,394,781

 
 
 
$
20,294,843

 
 
Percentage of Private Education Loans in repayment
 
 
 
70.9
%
 
 
 
71.5
%
Delinquencies as a percentage of Private Education Loans in repayment
 
 
 
2.7
%
 
 
 
2.6
%
Loans in forbearance as a percentage of Private Education Loans in repayment and forbearance
 
 
 
3.6
%
 
 
 
3.8
%
_______
(1) 
Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on the loans (e.g., residency periods for medical students or a grace period for bar exam preparation).
(2) 
Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.
(3) 
The period of delinquency is based on the number of days scheduled payments are contractually past due.


29




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

Personal Loan Key Credit Quality Indicators
For Personal Loans, the key credit quality indicators are FICO scores, loan seasoning and loan delinquency status. The FICO scores are assessed at original approval and periodically refreshed/updated through the loan’s term. The following table highlights the gross principal balance of our Personal Loan portfolio stratified by key credit quality indicators.

 
 
Personal Loans
 
 
Credit Quality Indicators
 
 
June 30, 2019
 
December 31, 2018
Credit Quality Indicators:
 
Balance(1)
 
% of Balance
 
Balance(1)
 
% of Balance
 
 
 
 
 
 
 
 
 
FICO at Original Approval:
 
 
 
 
 
 
 
 
Less than 670
 
$
63,155

 
6
%
 
$
77,702

 
7
%
670-699
 
303,193

 
27

 
339,053

 
28

700-749
 
547,280

 
48

 
554,700

 
47

Greater than or equal to 750
 
221,009

 
19

 
218,636

 
18

Total
 
$
1,134,637

 
100
%
 
$
1,190,091

 
100
%
 
 
 
 
 
 
 
 
 
Seasoning(2):
 
 
 
 
 
 
 
 
0-12 payments
 
$
669,391

 
59
%
 
$
1,008,758

 
85
%
13-24 payments
 
452,428

 
40

 
181,333

 
15

25-36 payments
 
12,818

 
1

 
—

 
—

37-48 payments
 
—

 
—

 
—

 
—

More than 48 payments
 
—

 
—

 
—

 
—

Total
 
$
1,134,637

 
100
%
 
$
1,190,091

 
100
%
______
(1) 
Balance represents gross Personal Loans.
(2) 
Number of months in active repayment for which a scheduled payment was due.
















30




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

Personal Loan Delinquencies

The following table provides information regarding the loan status of our Personal Loans.

 
 
Personal Loans
 
 
June 30,
 
December 31,
 
 
2019
 
2018
 
 
Balance
 
%
 
Balance
 
%
Loans in repayment and percentage of each status:
 
 
 
 
 
 
 
 
Loans current
 
$
1,113,730

 
98.2
%
 
$
1,172,776

 
98.5
%
Loans delinquent 31-60 days(1)
 
6,704

 
0.6

 
6,722

 
0.6

Loans delinquent 61-90 days(1)
 
7,393

 
0.6

 
5,416

 
0.5

Loans delinquent greater than 90 days(1)
 
6,810

 
0.6

 
5,177

 
0.4

Total Personal Loans in repayment
 
1,134,637

 
100.0
%
 
1,190,091

 
100.0
%
Total Personal Loans, gross
 
1,134,637

 
 
 
1,190,091

 
 
Personal Loans deferred origination costs and unamortized premium/(discount)
 
495

 
 
 
297

 
 
Total Personal Loans
 
1,135,132

 
 
 
1,190,388

 
 
Personal Loans allowance for losses
 
(74,295
)
 
 
 
(62,201
)
 
 
Personal Loans, net
 
$
1,060,837

 
 
 
$
1,128,187

 
 
Delinquencies as a percentage of Personal Loans in repayment
 
 
 
1.8
%
 
 
 
1.5
%
_______
(1) 
The period of delinquency is based on the number of days scheduled payments are contractually past due.


 Accrued Interest Receivable
The following table provides information regarding accrued interest receivable on our Private Education Loans. The table also discloses the amount of accrued interest on loans greater than 90 days past due as compared to our allowance for uncollectible interest. The allowance for uncollectible interest exceeds the amount of accrued interest on our 90 days past due Private Education Loan portfolio for all periods presented.
 
 
Private Education Loans
 
 
Accrued Interest Receivable
 
 
Total Interest Receivable
 
Greater Than 90 Days Past Due
 
Allowance for Uncollectible Interest
 
 
 
 
 
 
 
June 30, 2019
 
$
1,376,715

 
$
2,589

 
$
5,673

December 31, 2018
 
$
1,168,823

 
$
1,920

 
$
6,322



 

31




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

5. Deposits

The following table summarizes total deposits at June 30, 2019 and December 31, 2018.
 
 
June 30,
 
December 31,
 
 
 
2019
 
2018
 
Deposits - interest bearing
 
$
21,176,022

 
$
18,942,082

 
Deposits - non-interest bearing
 
2,112

 
1,076

 
Total deposits
 
$
21,178,134

 
$
18,943,158

 


Our total deposits of $21.2 billion were comprised of $11.8 billion in brokered deposits and $9.4 billion in retail and other deposits at June 30, 2019, compared to total deposits of $18.9 billion, which were comprised of $10.3 billion in brokered deposits and $8.6 billion in retail and other deposits, at December 31, 2018.
Interest bearing deposits as of June 30, 2019 and December 31, 2018 consisted of retail and brokered non-maturity savings deposits, retail and brokered non-maturity money market deposits (“MMDAs”) and retail and brokered certificates of deposit (“CDs”). Interest bearing deposits include deposits from Educational 529 and Health Savings plans that diversify our funding sources and additional deposits we consider to be core. These and other large omnibus accounts, aggregating the deposits of many individual depositors, represented $6.2 billion of our deposit total as of June 30, 2019, compared with $5.9 billion at December 31, 2018.
Some of our deposit products are serviced by third-party providers. Placement fees associated with the brokered CDs are amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $4 million and $3 million in the three months ended June 30, 2019 and 2018, respectively, and placement fee expense of $8 million and $6 million in the six months ended June 30, 2019 and 2018, respectively. Fees paid to third-party brokers related to brokered CDs were $14 million and $12 million for the three months ended June 30, 2019 and 2018, respectively, and fees paid to third-party brokers related to brokered CDs were $15 million and $19 million for the six months ended June 30, 2019 and 2018, respectively.
Interest bearing deposits at June 30, 2019 and December 31, 2018 are summarized as follows:
 
 
 
June 30, 2019
 
December 31, 2018
 
 
 
Amount
 
Qtr.-End Weighted Average Stated Rate(1)
 
Amount
 
Year-End Weighted Average Stated Rate(1)
 
 
 
 
 
 
 
 
 
 
 
Money market
 
$
9,079,766

 
2.56
%
 
$
8,687,766

 
2.46
%
 
Savings
 
704,259

 
2.04

 
702,342

 
2.00

 
Certificates of deposit
 
11,391,997

 
2.85

 
9,551,974

 
2.74

 
Deposits - interest bearing
 
$
21,176,022

 
 
 
$
18,942,082

 


 

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


 As of June 30, 2019, and December 31, 2018, there were $693 million and $523 million, respectively, of deposits exceeding Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Accrued interest on deposits was $60 million and $53 million at June 30, 2019 and December 31, 2018, respectively.

32




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

6. Borrowings

Outstanding borrowings consist of unsecured debt and secured borrowings issued through our term asset-backed securitization (“ABS”) program and our Private Education Loan multi-lender secured borrowing facility (the “Secured Borrowing Facility,” which was previously called the asset-backed commercial paper facility or ABCP Facility). The following table summarizes our borrowings at June 30, 2019 and December 31, 2018.

 
 
June 30, 2019
 
December 31, 2018
 
 
Short-Term
 
Long-Term
 
Total
 
Short-Term
 
Long-Term
 
Total
Unsecured borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured debt (fixed-rate)
 
$
—

 
$
197,753

 
$
197,753

 
$
—

 
$
197,348

 
$
197,348

Total unsecured borrowings
 
—

 
197,753

 
197,753

 
—

 
197,348

 
197,348

Secured borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
Private Education Loan term securitizations:
 

 

 

 

 

 

Fixed-rate
 
—

 
2,758,872

 
2,758,872

 
—

 
2,284,347

 
2,284,347

Variable-rate
 
—

 
1,906,138

 
1,906,138

 
—

 
1,802,609

 
1,802,609

Total Private Education Loan term securitizations
 
—

 
4,665,010

 
4,665,010

 
—

 
4,086,956

 
4,086,956

Secured Borrowing Facility
 
—

 
—

 
—

 
—

 
—

 
—

Total secured borrowings
 
—

 
4,665,010

 
4,665,010

 
—

 
4,086,956

 
4,086,956

Total
 
$
—

 
$
4,862,763

 
$
4,862,763

 
$
—

 
$
4,284,304

 
$
4,284,304


Short-term Borrowings    
Secured Borrowing Facility
On February 20, 2019, we amended and extended the maturity of our $750 million Secured Borrowing Facility. We hold 100 percent of the residual interest in the Secured Borrowing Facility trust. Under the amended Secured Borrowing Facility, we incur financing costs of between 0.35 percent and 0.45 percent on unused borrowing capacity and approximately 3-month LIBOR plus 0.85 percent on outstandings. The amended Secured Borrowing Facility extends the revolving period, during which we may borrow, repay and reborrow funds, until February 19, 2020. The scheduled amortization period, during which amounts outstanding under the Secured Borrowing Facility must be repaid, ends on February 19, 2021 (or earlier, if certain material adverse events occur). At both June 30, 2019 and December 31, 2018, there were no borrowings outstanding under the Secured Borrowing Facility.

Long-term Borrowings    

Unsecured Debt
On April 5, 2017, we issued an unsecured debt offering of $200 million of 5.125 percent Senior Notes due April 5, 2022 at par. At June 30, 2019, the outstanding balance was $198 million.

33




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
6.
Borrowings (Continued)


Secured Financings
On March 13, 2019, we executed our $453 million SMB Private Education Loan Trust 2019-A term ABS transaction, which was accounted for as a secured financing. We sold $453 million of notes to third parties and retained a 100 percent interest in the residual certificates issued in the securitization, raising approximately $451 million of gross proceeds. The Class A and Class B notes had a weighted average life of 4.26 years and priced at a weighted average LIBOR equivalent cost of 1-month LIBOR plus 0.92 percent. At June 30, 2019, $479 million of our Private Education Loans, including $446 million of principal and $33 million in capitalized interest, were encumbered because of this transaction.
On June 12, 2019, we executed our $657 million SMB Private Education Loan Trust 2019-B term ABS transaction, which was accounted for as a secured financing. We sold $657 million of notes to third parties and retained a 100 percent interest in the residual certificates issued in the securitization, raising approximately $655 million of gross proceeds. The Class A and Class B notes had a weighted average life of 4.41 years and priced at a weighted average LIBOR equivalent cost of 1-month LIBOR plus 1.01 percent. At June 30, 2019, $705 million of our Private Education Loans, including $661 million of principal and $44 million in capitalized interest, were encumbered because of this transaction.

Secured Financings at Issuance
Issue
 
Date Issued
 
Total Issued
 
Weighted Average Cost of Funds(1)
 
Weighted Average Life
 (in years)
 
 
 
 
 
 
 
 
 
Private Education:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017-A
 
February 2017
 
$
772,000

 
1-month LIBOR plus 0.93%
 
4.27
2017-B
 
November 2017
 
676,000

 
1-month LIBOR plus 0.80%
 
4.07
Total notes issued in 2017
 
$
1,448,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Total loan and accrued interest amount securitized at inception in 2017
 
$
1,606,804

 
 
 
 
 
 
 
 
 
 
 
 
 
2018-A
 
March 2018
 
$
670,000

 
1-month LIBOR plus 0.78%
 
4.43
2018-B
 
June 2018
 
686,500

 
1-month LIBOR plus 0.76%
 
4.40
2018-C
 
September 2018
 
544,000

 
1-month LIBOR plus 0.77%
 
4.32
Total notes issued in 2018
 
$
1,900,500

 
 
 
 
 
 
 
 
 
 
 
 
 
Total loan and accrued interest amount securitized at inception in 2018
 
$
2,101,644

 
 
 
 
 
 
 
 
 
 
 
 
 
2019-A
 
March 2019
 
453,000

 
1-month LIBOR plus 0.92%
 
4.26
2019-B
 
June 2019
 
657,000

 
1-month LIBOR plus 1.01%
 
4.41
Total notes issued in 2019
 
$
1,110,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Total loan and accrued interest amount securitized at inception in 2019
 
$
1,208,963

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

34




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
6.
Borrowings (Continued)

Consolidated Funding Vehicles

We consolidate our financing entities that are VIEs as a result of our being the entities’ primary beneficiary. As a result, these financing VIEs are accounted for as secured borrowings. We consolidate the following financing VIEs as of June 30, 2019 and December 31, 2018, respectively:

 
 
June 30, 2019
 
 
Debt Outstanding
 
Carrying Amount of Assets Securing Debt Outstanding
 
 
Short-Term
 
Long-Term
 
Total
 
Loans
 
Restricted Cash
 
Other Assets(1)
 
Total
Secured borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Education Loan term securitizations
 
$
—

 
$
4,665,010

 
$
4,665,010

 
$
5,691,009

 
$
134,607

 
$
403,697

 
$
6,229,313

Secured Borrowing Facility
 
—

 
—

 
—

 
—

 
—

 
714

 
714

Total
 
$
—

 
$
4,665,010

 
$
4,665,010

 
$
5,691,009

 
$
134,607

 
$
404,411

 
$
6,230,027


 
 
December 31, 2018
 
 
Debt Outstanding
 
Carrying Amount of Assets Securing Debt Outstanding
 
 
Short-Term
 
Long-Term
 
Total
 
Loans
 
Restricted Cash
 
Other
Assets(1)
 
Total
Secured borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Education Loan term securitizations
 
$
—

 
$
4,086,956

 
$
4,086,956

 
$
5,030,837

 
$
113,431

 
$
326,570

 
$
5,470,838

Secured Borrowing Facility
 
—

 
—

 
—

 
—

 
—

 
157

 
157

Total
 
$
—

 
$
4,086,956

 
$
4,086,956

 
$
5,030,837

 
$
113,431

 
$
326,727

 
$
5,470,995

____
(1) Other assets primarily represent accrued interest receivable.

Other Borrowing Sources
We maintain discretionary uncommitted Federal Funds lines of credit with various correspondent banks, which totaled $125 million at June 30, 2019. The interest rate we are charged on these lines of credit is priced at Fed Funds plus a spread at the time of borrowing and is payable daily. We did not utilize these lines of credit in the six months ended June 30, 2019 or in the year ended December 31, 2018.
We established an account at the FRB to meet eligibility requirements for access to the Primary Credit borrowing facility at the FRB’s Discount Window (the “Window”). The Primary Credit borrowing facility is a lending program available to depository institutions that are in generally sound financial condition. All borrowings at the Window must be fully collateralized. We can pledge asset-backed and mortgage-backed securities, as well as FFELP Loans and Private Education Loans, to the FRB as collateral for borrowings at the Window. Generally, collateral value is assigned based on the estimated fair value of the pledged assets. At June 30, 2019 and December 31, 2018, the value of our pledged collateral at the FRB totaled $3.4 billion and $3.1 billion, respectively. The interest rate charged to us is the discount rate set by the FRB. We did not utilize this facility in the six months ended June 30, 2019 or in the year ended December 31, 2018.

35




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

7. Derivative Financial Instruments

Risk Management Strategy

We maintain an overall interest rate risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate changes. Our goal is to manage interest rate sensitivity by modifying the repricing frequency and underlying index characteristics of certain balance sheet assets or liabilities, so any adverse impacts related to movements in interest rates are managed within low to moderate limits. As a result of interest rate fluctuations, hedged balance sheet positions will appreciate or depreciate in market value or create variability in cash flows. Income or loss on the derivative instruments linked to the hedged item will generally offset the effect of this unrealized appreciation or depreciation or volatility in cash flows for the period the item is being hedged. We view this strategy as a prudent management of interest rate risk. Please refer to Note 10, “Derivative Financial Instruments” in our 2018 Form 10-K for a full discussion of our risk management strategy.
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) requires all standardized derivatives, including most interest rate swaps, to be submitted for clearing to central counterparties to reduce counterparty risk. Two of the central counterparties we use are the Chicago Mercantile Exchange (“CME”) and the London Clearing House (“LCH”). All variation margin payments on derivatives cleared through the CME and LCH are accounted for as legal settlement. As of June 30, 2019, $8.5 billion notional of our derivative contracts were cleared on the CME and $0.5 billion were cleared on the LCH. The derivative contracts cleared through the CME and LCH represent 94.0 percent and 6.0 percent respectively, of our total notional derivative contracts of $9.0 billion at June 30, 2019.
For derivatives cleared through the CME and LCH, the net gain (loss) position includes the variation margin amounts as settlement of the derivative and not collateral against the fair value of the derivative. The amount of variation margin included as settlement as of June 30, 2019 was $(106.4) million and $8.5 million for the CME and LCH, respectively. Interest income (expense) related to variation margin on derivatives that are not designated as hedging instruments or are designated as fair value relationships is recognized as a gain (loss) rather than as interest income (expense). Changes in fair value for derivatives not designated as hedging instruments will be presented as realized gains (losses).
Our exposure is limited to the value of the derivative contracts in a gain position less any collateral held and plus any collateral posted. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At June 30, 2019 and December 31, 2018, we had a net positive exposure (derivative gain positions to us, less collateral held by us and plus collateral posted with counterparties) related to derivatives of $66 million and $27 million, respectively.

Summary of Derivative Financial Statement Impact
The following tables summarize the fair values and notional amounts of all derivative instruments at June 30, 2019 and December 31, 2018, and their impact on earnings and other comprehensive income for the six months ended June 30, 2019 and 2018. Please refer to Note 10, “Derivative Financial Instruments” in our 2018 Form 10-K for a full discussion of cash flow hedges, fair value hedges, and trading activities.


36




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
7.
Derivative Financial Instruments (Continued)
 

Impact of Derivatives on the Consolidated Balance Sheets
 
 
 
Cash Flow Hedges
 
Fair Value Hedges
 
Trading
 
Total
 
 
 
June 30,
 
December
31,
 
June 30,
 
December
31,
 
June 30,
 
December
31,
 
June 30,
 
December
31,
 
 
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Fair Values(1)
Hedged Risk Exposure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Assets:(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Interest rate
 
$
772

 
$
—

 
$
—

 
$
2,000

 
$
—

 
$
90

 
$
772

 
$
2,090

Derivative Liabilities:(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Interest rate
 
—

 
(2,032
)
 
(248
)
 
—

 
(111
)
 
—

 
(359
)
 
(2,032
)
Total net derivatives
 
 
$
772

 
$
(2,032
)
 
$
(248
)
 
$
2,000

 
$
(111
)
 
$
90

 
$
413

 
$
58

     ___________
(1)
Fair values reported include variation margin as legal settlement of the derivative contract. 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)
The following table reconciles gross positions with the impact of master netting agreements to the balance sheet classification:    
 
 
Other Assets
 
Other Liabilities
 
 
June 30,
 
December 31,
 
June 30,
 
December 31,
 
 
2019
 
2018
 
2019
 
2018
Gross position(1)
 
$
772

 
$
2,090

 
$
(359
)
 
$
(2,032
)
Impact of master netting agreement
 
(359
)
 
(1,389
)
 
359

 
1,389

Derivative values with impact of master netting agreements (as carried on balance sheet)
 
413

 
701

 
—

 
(643
)
Cash collateral pledged(2)
 
65,183

 
27,151

 
—

 
—

Net position
 
$
65,596

 
$
27,852

 
$
—

 
$
(643
)

__________
(1)
Gross position amounts include accrued interest and variation margin as legal settlement of the derivative contract.
(2)
Cash collateral pledged excludes amounts that represent legal settlement of the derivative contracts.


 
 
Cash Flow
 
Fair Value
 
Trading
 
Total
 
 
June 30,
 
December 31,
 
June 30,
 
December 31,
 
June 30,
 
December 31,
 
June 30,
 
December 31,
 
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Notional Values
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
1,215,781

 
$
1,280,367

 
$
4,712,793

 
$
3,137,965

 
$
3,117,717

 
$
1,577,978

 
$
9,046,291

 
$
5,996,310





37




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
7.
Derivative Financial Instruments (Continued)
 

As of June 30, 2019 and December 31, 2018, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustments for fair value hedges:
Line Item in the Balance Sheet in Which the Hedged Item is Included:
 
Carrying Amount of the Hedged Assets/(Liabilities)
 
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
 
 
June 30,
 
December 31,
 
June 30,
 
December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Deposits
 
$
(4,768,445
)
 
$
(3,114,304
)
 
$
(67,500
)
 
$
14,202





Impact of Derivatives on the Consolidated Statements of Income
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Fair Value Hedges
 
 
 
 
 
 
 
 
Interest rate swaps:
 
 
 
 
 
 
 
 
Interest recognized on derivatives
 
$
(4,061
)
 
$
(2,914
)
 
$
(7,888
)
 
$
2,939

Hedged items recorded in interest expense
 
(57,717
)
 
7,451

 
(81,703
)
 
22,717

Derivatives recorded in interest expense
 
57,449

 
(7,630
)
 
81,337

 
(22,877
)
Total
 
$
(4,329
)
 
$
(3,093
)
 
$
(8,254
)
 
$
2,779

 
 
 
 
 
 
 
 
 
Cash Flow Hedges
 
 
 
 
 
 
 
 
Interest rate swaps:
 
 
 
 
 
 
 
 
Amount of gain (loss) reclassified from accumulated other comprehensive income into interest expense
 
$
1,189

 
$
(579
)
 
$
2,485

 
$
(2,122
)
Total
 
$
1,189

 
$
(579
)
 
$
2,485

 
$
(2,122
)
 
 
 
 
 
 
 
 
 
Trading
 
 
 
 
 
 
 
 
Interest rate swaps:
 
 
 
 
 
 
 
 
Change in fair value of future interest payments recorded in earnings
 
$
18,242

 
$
(2,180
)
 
$
22,444

 
$
(6,935
)
Total
 
18,242

 
(2,180
)
 
22,444

 
(6,935
)
Total
 
$
15,102

 
$
(5,852
)
 
$
16,675

 
$
(6,278
)


    

38




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
7.
Derivative Financial Instruments (Continued)
 


Impact of Derivatives on the Statements of Changes in Stockholders’ Equity
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Amount of gain recognized in other comprehensive income (loss)
 
$
(22,824
)
 
$
9,471

 
$
(35,645
)
 
$
28,200

Less: amount of loss reclassified in interest expense
 
1,189

 
(543
)
 
2,485

 
(2,104
)
Total change in other comprehensive income (loss) for unrealized gains (losses) on derivatives, before income tax (expense) benefit
 
$
(24,013
)
 
$
10,014

 
$
(38,130
)
 
$
30,304


    
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate deposits. During the next 12 months, we estimate that $2.4 million will be reclassified as an increase to interest expense.
Cash Collateral
As of June 30, 2019, cash collateral held and pledged excludes amounts that represent legal settlement of the derivative contracts held with the CME and LCH. There was no cash collateral held related to derivative exposure between us and our derivatives counterparties at June 30, 2019 and December 31, 2018, respectively. Cash collateral pledged related to derivative exposure between us and our derivatives counterparties was $65 million and $27 million at June 30, 2019 and December 31, 2018, respectively. Collateral pledged is recorded in “Other interest-earning assets” on the consolidated balance sheets.


39




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

8. Stockholders’ Equity

The following table summarizes our common share repurchases and issuances.
 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(Shares and per share amounts in actuals)
 
2019
 
2018
 
2019
 
2018
Common stock repurchased under repurchase program(1)
 
5,989,279

 
—

 
11,424,755

 
—

Average purchase price per share(2)
 
$
10.04

 
$
—

 
$
10.51

 
$
—

Shares repurchased related to employee stock-based compensation plans(3)
 
24,036

 
200,577

 
1,313,427

 
2,940,595

Average purchase price per share
 
$
10.05

 
$
11.60

 
$
10.93

 
$
11.33

Common shares issued(4)
 
181,020

 
384,955

 
3,651,684

 
5,944,946

             
__________________
(1) 
Common shares purchased under our share repurchase program. $80 million of capacity under the program remained available as of June 30, 2019.
(2) 
Average purchase price per share includes purchase commission costs.
(3) 
Comprised of 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 June 28, 2019 was $9.72.

Dividend and Share Repurchases

In both June 2019 and March 2019, we paid a common stock dividend of $0.03 per common share. In addition, we declared a common stock dividend of $0.03 per common share in June 2019 for payment in the third quarter of 2019. We did not pay common stock dividends in the six months ended June 30, 2018.

Under our share repurchase program, we repurchased 6 million shares of common stock for $60 million in the three months ended June 30, 2019 and 11 million shares of common stock for $120 million in the six months ended June 30, 2019. Our share repurchase program permits us to repurchase from time to time shares of our common stock up to an aggregate repurchase price not to exceed $200 million and expires on January 22, 2021. In the three and six months ended June 30, 2018, we only repurchased common stock acquired in connection with taxes withheld resulting from award exercises and vesting under our employee stock-based compensation plans.


40




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

9. 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
 
Six Months Ended
 
 
June 30,
 
June 30,
(In thousands, except per share data)
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
 
Net income
 
$
150,277

 
$
109,832

 
$
308,466

 
$
236,086

Preferred stock dividends
 
4,331

 
3,920

 
8,799

 
7,317

Net income attributable to SLM Corporation common stock
 
$
145,946

 
$
105,912

 
$
299,667

 
$
228,769

Denominator:
 
 
 
 
 
 
 
 
Weighted average shares used to compute basic EPS
 
429,278

 
435,187

 
431,911

 
434,573

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Dilutive effect of stock options, restricted stock, restricted stock units, performance stock units and Employee Stock Purchase Plan (“ESPP”) (1)(2)
 
2,975

 
4,258

 
3,322

 
4,639

Weighted average shares used to compute diluted EPS
 
432,253

 
439,445

 
435,233

 
439,212

 
 
 
 
 
 
 
 
 
Basic earnings per common share attributable to SLM Corporation
 
$
0.34

 
$
0.24

 
$
0.69

 
$
0.53

 
 
 
 
 
 
 
 
 
Diluted earnings per common share attributable to SLM Corporation
 
$
0.34

 
$
0.24

 
$
0.69

 
$
0.52



________________             
(1) 
Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options, restricted stock, restricted stock units, performance stock units and the outstanding commitment to issue shares under the ESPP, determined by the treasury stock method.
(2) 
For the three months ended June 30, 2019 and 2018, securities covering less than 1 million shares, and for the six months ended June 30, 2019 and 2018, securities covering less than 1 million shares, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.
 


41




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

10. Fair Value Measurements

We use estimates of fair value in applying various accounting standards for our consolidated 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. For additional information regarding our policies for determining fair value and the hierarchical framework, see Note 2, “Significant Accounting Policies - Fair Value Measurement” in our 2018 Form 10-K.

During the six months ended June 30, 2019, there were no significant transfers of financial instruments between levels or changes in our methodology or assumptions used to value our financial instruments.

The following table summarizes the valuation of our financial instruments that are marked to fair value on a recurring basis.

 
 
Fair Value Measurements on a Recurring Basis
 
 
June 30, 2019
 
December 31, 2018
 
 
Level 1 
 
Level 2 
 
Level 3 
 
Total 
 
Level 1 
 
Level 2 
 
Level 3 
 
Total 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale investments
 
$
—

 
$
331,541

 
$
—

 
$
331,541

 
$
—

 
$
176,245

 
$
—

 
$
176,245

Derivative instruments
 
—

 
772

 
—

 
772

 
—

 
2,090

 
—

 
2,090

Total
 
$
—

 
$
332,313

 
$
—

 
$
332,313

 
$
—

 
$
178,335

 
$
—

 
$
178,335

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments
 
$
—

 
$
(359
)
 
$
—

 
$
(359
)
 
$
—

 
$
(2,032
)
 
$
—

 
$
(2,032
)
Total
 
$
—

 
$
(359
)
 
$
—

 
$
(359
)
 
$
—

 
$
(2,032
)
 
$
—

 
$
(2,032
)





 

42




SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
10.
Fair Value Measurements (Continued)
 



The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.

 
 
June 30, 2019
 
December 31, 2018
 
 
Fair
Value
 
Carrying
Value
 
Difference
 
Fair
Value
 
Carrying
Value
 
Difference
Earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment, net:
 
 
 
 
 
 
 
 
 
 
 
 
Private Education Loans
 
$
23,609,477

 
$
21,394,781

 
$
2,214,696

 
$
22,313,419

 
$
20,294,843

 
$
2,018,576

FFELP Loans
 
824,687

 
813,028

 
11,659

 
859,185

 
847,889

 
11,296

Personal Loans
 
1,120,227

 
1,060,837

 
59,390

 
1,156,531

 
1,128,187

 
28,344

Cash and cash equivalents
 
3,998,514

 
3,998,514

 
—

 
2,559,106

 
2,559,106

 
—

Available-for-sale investments
 
331,541

 
331,541

 
—

 
176,245

 
176,245

 
—

Accrued interest receivable
 
1,516,824

 
1,401,618

 
115,206

 
1,285,842

 
1,191,981

 
93,861

Tax indemnification receivable
 
38,925

 
38,925

 
—

 
39,207

 
39,207

 
—

Derivative instruments
 
772

 
772

 
—

 
2,090

 
2,090

 
—

Total earning assets
 
$
31,440,967

 
$
29,040,016

 
$
2,400,951

 
$
28,391,625

 
$
26,239,548

 
$
2,152,077

Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Money-market and savings accounts
 
$
9,803,941

 
$
9,784,025

 
$
(19,916
)
 
$
9,370,957

 
$
9,390,108

 
$
19,151

Certificates of deposit
 
11,479,318

 
11,391,997

 
(87,321
)
 
9,513,194

 
9,551,974

 
38,780

Long-term borrowings
 
4,924,239

 
4,862,763

 
(61,476
)
 
4,278,931

 
4,284,304

 
5,373

Accrued interest payable
 
68,379

 
68,379

 
—

 
61,341

 
61,341

 
—

Derivative instruments
 
359

 
359

 
—

 
2,032

 
2,032

 
—

Total interest-bearing liabilities
 
$
26,276,236

 
$
26,107,523

 
$
(168,713
)
 
$
23,226,455

 
$
23,289,759

 
$
63,304

 
 
 
 
 
 
 
 
 
 
 
 
 
Excess of net asset fair value over carrying value
 
 
 
 
 
$
2,232,238

 
 
 
 
 
$
2,215,381



Please refer to Note 14, “Fair Value Measurements” in our 2018 Form 10-K for a full discussion of the methods and assumptions used to estimate the fair value of each class of financial instruments.


43




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

11. Regulatory Capital
    
Sallie Mae Bank (the “Bank”) is subject to various regulatory capital requirements administered by the FDIC and the Utah Department of Financial Institutions (the “UDFI”). Failure to meet minimum capital requirements and any applicable buffers can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on our business, results of operation and financial condition. Under the FDIC’s regulations implementing the Basel III capital framework (“U.S. Basel III”) and the regulatory framework for prompt corrective action, the Bank must meet specific capital standards that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s regulatory capital amounts and its classification under the prompt corrective action framework are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors.

Under U.S. Basel III, the Bank is required to maintain minimum risk-based and leverage-based capital ratios. In addition, as of January 1, 2019, the Bank is subject to a fully phased-in Common Equity Tier 1 capital conservation buffer of greater than 2.5 percent. (As of December 31, 2018, the Bank was subject to a Common Equity Tier 1 capital conservation buffer of greater than 1.875 percent.) Failure to maintain the buffer will result in restrictions on the Bank’s ability to make capital distributions, including the payment of dividends, and to pay discretionary bonuses to executive officers. The Bank’s required and actual regulatory capital amounts and ratios under U.S. Basel III are shown in the following table.

 
 
Actual
 
U.S. Basel III
Regulatory Requirements(1)
 
 
Amount
Ratio
 
Amount
 
Ratio
As of June 30, 2019:
 
 
 
 
 
 
 
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
 
$
3,008,318

11.9
%
 
$
1,765,971

>
7.0
%
Tier 1 Capital (to Risk-Weighted Assets)
 
$
3,008,318

11.9
%
 
$
2,144,394

>
8.5
%
Total Capital (to Risk-Weighted Assets)
 
$
3,324,527

13.2
%
 
$
2,648,957

>
10.5
%
Tier 1 Capital (to Average Assets)
 
$
3,008,318

10.6
%
(2) 
$
1,133,551

>
4.0
%
 
 
 
 
 
 
 
 
As of December 31, 2018:
 
 
 
 
 
 
 
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
 
$
2,896,091

12.1
%
 
$
1,528,209

>
6.375
%
Tier 1 Capital (to Risk-Weighted Assets)
 
$
2,896,091

12.1
%
 
$
1,887,787

>
7.875
%
Total Capital (to Risk-Weighted Assets)
 
$
3,196,279

13.3
%
 
$
2,367,226

>
9.875
%
Tier 1 Capital (to Average Assets)
 
$
2,896,091

11.1
%
 
$
1,039,226

>
4.0
%

________________             
(1) 
Required risk-based capital ratios include the capital conservation buffer.
(2) 
The Bank’s Tier 1 leverage ratio exceeds the 5 percent well-capitalized standard for the Tier 1 leverage ratio under the prompt corrective action framework.
 



44



SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
11.
Regulatory Capital (Continued)
 

Bank Dividends

The Bank is chartered under the laws of the State of Utah and its deposits are insured by the FDIC. The Bank’s ability to pay dividends is subject to the laws of Utah and the regulations of the FDIC. Generally, under Utah’s 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 Bank’s capital and surplus would not be impaired. The Bank declared $136 million and $221 million in dividends to the Company for the three and six months ended June 30, 2019, respectively, and no dividends for the three and six months ended June 30, 2018. In the future, we expect that the Bank will pay dividends to the Company as may be necessary to enable the Company to pay any declared dividends on its Series B Preferred Stock and common stock and to consummate any common share repurchases by the Company under its share repurchase program.

45




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

12. Commitments, Contingencies and Guarantees
Commitments
When we approve a Private Education Loan at the beginning of an academic year, that approval may cover the borrowing for the entire academic year. As such, we do not always disburse the full amount of the loan at the time of such approval, but instead have a commitment to fund a portion of the loan at a later date (usually at the start of the second semester or subsequent trimesters). At June 30, 2019, we had $1.3 billion of outstanding contractual loan commitments which we expect to fund during the remainder of the 2019/2020 academic year. At June 30, 2019, we had a $0.7 million reserve recorded in “Other Liabilities” to cover expected losses that may occur during the one-year loss emergence period on these unfunded commitments.
Contingencies
In the ordinary course of business, we and our subsidiaries are routinely 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 damages may be asserted against us and our subsidiaries.
It is common for the Company, our subsidiaries and affiliates to receive information and document requests and investigative demands from state attorneys general, legislative committees, and administrative agencies. These requests may be for informational or regulatory purposes and may relate to our business practices, the industries in which we operate, or other companies with whom we conduct business. Our practice has been and continues to be to cooperate with these bodies and be responsive to any such requests.
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, management does not believe there are loss contingencies, if any, arising from pending investigations, litigation or regulatory matters for which reserves should be established.


46

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

The following information is current as of July 24, 2019 (unless otherwise noted) and should be read in connection with SLM Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018 (filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2019) (the “2018 Form 10-K”), and subsequent reports filed with the SEC. Definitions for capitalized terms used in this report not defined herein can be found in the 2018 Form 10-K.

References in this Form 10-Q to “we,” “us,” “our,” “Sallie Mae,” “SLM” and the “Company” refer to SLM Corporation and its subsidiaries, except as otherwise indicated or unless the context otherwise requires.
    
This report contains “forward-looking” statements and information based on management’s current expectations as of the date of this report. 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. This includes, but is not limited to, our expectation and ability to pay a quarterly cash dividend on our common stock in the future, subject to the determination by our Board of Directors, and based on an evaluation of our earnings, financial condition and requirements, business conditions, capital allocation determinations, and other factors, risks and uncertainties, and also includes any estimates related to pending accounting standard changes. 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 2018 Form 10-K and subsequent filings with the SEC; increases in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; failure to comply with consumer protection, banking and other laws; changes in accounting standards and the impact of related changes in significant accounting estimates, including any regarding the measurement of our allowance for loan losses and the related provision expense; 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 education 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; cybersecurity incidents, cyberattacks, and other failures or breaches of our operating systems or infrastructure, including those of third-party vendors; damage to our reputation; risks associated with restructuring initiatives, including failures to successfully implement cost-cutting programs and the 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; changes in banking rules and regulations, including increased capital requirements; 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; rates of prepayment on the loans that we own; changes in general economic conditions and our ability to successfully effectuate any acquisitions; and other strategic initiatives. The preparation of our consolidated financial statements also requires management to make certain estimates and assumptions, including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect. All forward-looking statements contained in this quarterly report on Form 10-Q are qualified by these cautionary statements and are made only as of the date of this report. We do not undertake any obligation to update or revise these forward-looking statements to conform such statements to actual results or changes in our expectations.

We report financial results on a GAAP basis and also provide certain non-GAAP core earnings performance measures. The difference between our “Core Earnings” and GAAP results for the periods presented were the unrealized, mark-to-market gains/losses on derivative contracts (excluding current period accruals on the derivative instruments), net of tax. These are recognized in GAAP, but not in “Core Earnings” results. We provide “Core Earnings” measures because this is what management uses when making management decisions regarding our performance and the allocation of corporate resources. Our “Core Earnings” are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. For additional information, see “Key Financial Measures” and “ ‘Core Earnings’ ” in this Form 10-Q for the quarter ended June 30, 2019 for a further discussion and a complete reconciliation between GAAP net income and “Core Earnings.” In addition, upon the adoption of the current expected credit loss methodology for recognition of credit losses on January 1, 2020, we plan to use a new, adjusted non-GAAP measure to help investors better understand how we will internally view and measure our performance by, among other things, recognizing all loan losses upon actual charge-off of those loans,

47

rather than using current expected losses. See “— ‘Adjusted Core Earnings’ upon the Adoption of ASU No. 2016-13, ‘Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.’ ”

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.

48



Selected Financial Information and Ratios
 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(In thousands, except per share data and percentages) 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net income attributable to SLM Corporation common stock
 
$
145,946

 
$
105,912

 
$
299,667

 
$
228,769

Diluted earnings per common share attributable to SLM Corporation
 
$
0.34

 
$
0.24

 
$
0.69

 
$
0.52

Weighted average shares used to compute diluted earnings per share
 
432,253

 
439,445

 
435,233

 
439,212

Return on assets(1)
 
2.1
%
 
1.9
%
 
2.2
%
 
2.1
%
Non-GAAP operating efficiency ratio(2)
 
34.9
%
 
38.3
%
 
34.3
%
 
37.4
%
 
 
 
 
 
 
 
 
 
Other Operating Statistics
 
 
 
 
 
 
 
 
Ending Private Education Loans, net
 
$
21,394,781

 
$
18,488,240

 
$
21,394,781

 
$
18,488,240

Ending FFELP Loans, net
 
813,028

 
886,780

 
813,028

 
886,780

Ending total education loans, net
 
$
22,207,809

 
$
19,375,020

 
$
22,207,809

 
$
19,375,020

 
 
 
 
 
 
 
 
 
Ending Personal Loans, net
 
$
1,060,837

 
$
933,561

 
$
1,060,837

 
$
933,561

 
 
 
 
 
 
 
 
 
Average education loans
 
$
22,569,385

 
$
19,662,863

 
$
22,570,076

 
$
19,621,379

Average Personal Loans
 
$
1,149,247

 
$
815,356

 
$
1,162,782

 
$
672,792

__________
 
 
 
 
 
 
 
 
(1) We calculate and report our Return on Assets as the ratio of (a) GAAP net income numerator (annualized) to (b) the GAAP total average assets denominator.
 
(2) We calculate and report our non-GAAP operating efficiency ratio as the ratio of (a) the total non-interest expense numerator to (b) the net revenue denominator (which consists of the sum of net interest income, before provision for credit losses, and non-interest income, excluding any gains and losses on sales of loans and securities, net and the net impact of derivative accounting as defined in the “Core Earnings” adjustments to GAAP table set forth in this Form 10-Q). We believe doing so provides useful information to investors because it is a measure used by our management team to monitor our effectiveness in managing operating expenses. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate our ratio. Accordingly, our non-GAAP operating efficiency ratio may not be comparable to similar measures used by other companies.
 
Overview
The following discussion and analysis presents a review of our business and operations as of and for the three and six months ended June 30, 2019.
Key Financial Measures
Our operating results are primarily driven by net interest income from our Private Education Loan portfolio, provision expense for credit losses, and operating expenses. The growth of our business and the strength of our financial condition are primarily driven by our ability to achieve our annual Private Education Loan origination goals while sustaining credit quality and maintaining cost-efficient funding sources to support our originations. A brief summary of our key financial measures (net interest income; allowance for loan losses; charge-offs and delinquencies; operating expenses; “Core Earnings;” Private Education Loan originations; and funding sources) can be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Form 10-K.



49


GAAP Results of Operations
We present the results of operations below first on a consolidated basis in accordance with GAAP.
 
GAAP Statements of Income (Unaudited)
 
 
Three Months Ended 
 June 30,
 
Increase
(Decrease) 
 
Six Months Ended 
 June 30,
 
Increase
(Decrease) 
(In millions, except per share data)
 
2019
 
2018
 
$
 
%
 
2019
 
2018
 
$
 
%
Interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
$
554

 
$
454

 
$
100

 
22
 %
 
$
1,107

 
$
884

 
$
223

 
25
 %
Investments
 
2

 
2

 
—

 
—

 
3

 
3

 
—

 
—

Cash and cash equivalents
 
18

 
6

 
12

 
200

 
30

 
12

 
18

 
150

Total interest income
 
574

 
462

 
112

 
24

 
1,140

 
899

 
241

 
27

Total interest expense
 
177

 
121

 
56

 
46

 
341

 
226

 
115

 
51

Net interest income
 
397

 
341

 
56

 
16

 
799

 
673

 
126

 
19

Less: provisions for credit losses
 
93

 
63

 
30

 
48

 
157

 
117

 
40

 
34

Net interest income after provisions for credit losses
 
304

 
278

 
26

 
9

 
642

 
556

 
86

 
15

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

 
2

 
(2
)
 
(100
)
 
—

 
2

 
(2
)
 
(100
)
Losses on sales of securities, net
 
—

 
(2
)
 
2

 
100

 
—

 
(2
)
 
2

 
100

Gains (losses) on derivatives and hedging activities, net
 
17

 
(5
)
 
22

 
440

 
19

 
(1
)
 
20

 
2,000

Other income
 
2

 
12

 
(10
)
 
(83
)
 
16

 
22

 
(6
)
 
(27
)
Total non-interest income
 
19

 
7

 
12

 
171

 
35

 
21

 
14

 
67

Non-interest expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total non-interest expenses
 
139

 
135

 
3

 
2

 
279

 
260

 
19

 
7

Income before income tax expense
 
184

 
150

 
34

 
23

 
398

 
317

 
81

 
26

Income tax expense
 
34

 
40

 
(6
)
 
(15
)
 
90

 
81

 
9

 
11

Net income
 
150

 
110

 
40

 
36

 
308

 
236

 
72

 
31

Preferred stock dividends
 
4

 
4

 
—

 
—

 
8

 
7

 
1

 
14

Net income attributable to SLM Corporation common stock
 
$
146

 
$
106

 
$
40

 
38
 %
 
$
300

 
$
229

 
$
71

 
31
 %
Basic earnings per common share attributable to SLM Corporation
 
$
0.34

 
$
0.24

 
$
0.10

 
42
 %
 
$
0.69

 
$
0.53

 
$
0.16

 
30
 %
Diluted earnings per common share attributable to SLM Corporation
 
$
0.34

 
$
0.24

 
$
0.10

 
42
 %
 
$
0.69

 
$
0.52

 
$
0.17

 
33
 %
Dividends per common share attributable to SLM Corporation
 
$
0.06

 
$
—

 
$
0.06

 
100
 %
 
$
0.09

 
$
—

 
$
0.09

 
100
 %

50

 GAAP Consolidated Earnings Summary
Three Months Ended June 30, 2019 Compared with Three Months Ended June 30, 2018
For the three months ended June 30, 2019, net income was $150 million, or $0.34 diluted earnings per common share, compared with net income of $110 million, or $0.24 diluted earnings per common share, for the three months ended June 30, 2018. The year-over-year increase in net income was due to a $56 million increase in net interest income, a $12 million increase in non-interest income and a $6 million decrease in income tax expense, which were offset by a $30 million increase in provisions for credit losses and a $3 million increase in total non-interest expenses.
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 increased by $56 million in the current quarter compared with the year-ago quarter due to a $3.2 billion increase in average loans outstanding, which helped offset a 26 basis point decrease in net interest margin. Net interest margin decreased primarily as a result of higher cash and cash equivalents balances associated with our efforts to increase overall liquidity levels for risk management purposes. As a result, average cash and other short-term investments increased $1.6 billion compared with the year-ago quarter. In 2019, we began increasing the amount of cash and cash equivalents held to increase overall liquidity levels for risk management purposes. Yields on cash and other short-term investments are much lower than yields on consumer loans, which reduces the weighted average yield on our interest-earning assets and our net interest margin. In addition to the impact of our increased liquidity, our cost of funds increased more than the yields on our education loan portfolio because of an increase in rates during 2018, which increased the cost of our deposits and other interest-bearing liabilities more than it increased the yield on our variable-rate Private Education Loan portfolio.
•Provisions for credit losses in the current quarter increased $30 million compared with the year-ago quarter. This increase was primarily the result of an 18 percent growth in Private Education Loans in repayment, higher delinquencies, and growth in the provision for our Personal Loan portfolio. The provision for Personal Loans grew due to the portfolio increasing from $966 million at June 30, 2018 to $1.1 billion at June 30, 2019, as well as a deterioration in credit performance.
•Gains on sales of loans, net, decreased in the second quarter of 2019 as there were no loans sales in the period. In the second quarter of 2018, we sold the $43 million Split Loan portfolio, which resulted in a net gain of $2 million.
•Losses on sales of securities, net, were $2 million in the second quarter of 2018 due to the sale of $41 million of mortgage-backed securities. There were no sales of securities in the second quarter of 2019.
•Gains on derivatives and hedging activities, net, increased $22 million in the second quarter of 2019 compared with the year-ago quarter. The increase was driven by several factors, including an additional $1.6 billion of notional derivative contracts entered into during the second quarter of 2019 that were economic hedges but did not receive hedge accounting treatment. These derivatives, as well as other derivative contracts that did not receive hedge accounting treatment, were favorably affected by interest rates during the second quarter of 2019.
•Other income in the current quarter decreased $10 million from the year-ago quarter primarily due to a $4 million reduction in the tax indemnification receivable related to uncertain tax positions, compared with a $2 million increase in the year-ago quarter, and lower revenue in our Upromise business in the current quarter.
•Second-quarter 2019 non-interest expenses were $139 million, compared with $135 million in the year-ago quarter. The increase in non-interest expenses was primarily driven by growth in the portfolio and costs related to product diversification. Our non-GAAP operating efficiency ratio improved to 34.9 percent for the quarter ended June 30, 2019 from 38.3 percent for the quarter ended June 30, 2018. The decline was primarily the result of net interest income increasing 16 percent while non-interest expenses only increased 3 percent compared to the year-ago quarter.
•Second-quarter 2019 income tax expense was $34 million, compared with $40 million in the year-ago quarter. The effective tax rate decreased in the second quarter of 2019 to 18.4 percent from 26.7 percent in the year-ago quarter. The decrease in the effective tax rate was primarily driven by tax credits recorded in the second quarter of 2019. Of the $11 million of tax credits recorded in the second quarter of 2019, $9 million related to prior year tax filings.




51

Six Months Ended June 30, 2019 Compared with Six Months Ended June 30, 2018
For the six months ended June 30, 2019, net income was $308 million, or $0.69 diluted earnings per common share, compared with net income of $236 million, or $0.52 diluted earnings per common share, for the six months ended June 30, 2018. The year-over-year increase in net income was due to a $126 million increase in net interest income and a $14 million increase in non-interest income, which were offset by a $40 million increase in provisions for credit losses, a $19 million increase in total non-interest expenses, and a $9 million increase in income tax expense.
The primary contributors to each of the identified drivers of changes in net income for the first six months of 2019 compared with the year-ago period are as follows:
•Net interest income increased by $126 million in the first six months of 2019 compared with the year-ago period primarily due to a $3.4 billion increase in average loans outstanding, which helped offset an 8 basis point decrease in net interest margin. Net interest margin decreased primarily as a result of an additional $1.1 billion in average cash and other short-term investments held in the first six months of 2019 compared to the year-ago period. In 2019, we began increasing the amount of cash and cash equivalents held to increase overall liquidity levels for risk management purposes. Yields on cash and other short-term investments are much lower than yields on consumer loans, which reduces the weighted average yield on our interest-earning assets and our net interest margin. The increase in yield on our education loan portfolios in the first six months of 2019 compared to the year-ago period was primarily due to the benefit from an increase in LIBOR rates during 2018, which increased the yield on our variable-rate Private Education Loan and FFELP portfolios. The increase in our cost of funds in the first six months of 2019 compared to the year-ago period was also due to the increasing rates that occurred in the latter half of 2018.
•Provisions for credit losses increased $40 million in the first six months of 2019 compared with the year-ago period. This increase was primarily the result of an 18 percent growth in Private Education Loans in repayment, higher delinquencies, and growth in the provision for our Personal Loan portfolio. The provision for Personal Loans grew due to the portfolio increasing from $966 million at June 30, 2018 to $1.1 billion at June 30, 2019, as well as a deterioration in credit performance.
•Gains on sales of loans, net, decreased in the first six months of 2019 compared with the year-ago period as there were no loans sales in 2019. In the second quarter of 2018, we sold the $43 million Split Loan portfolio, which resulted in a net gain of $2 million.
•Losses on sales of securities, net, were $2 million in the first six months of 2018 due to the sale of $41 million of mortgage-backed securities. There were no sales of securities in the first six months of 2019.
•Gains on derivatives and hedging activities, net, increased $21 million in the six months of 2019 compared with the year-ago period. The increase was driven by several factors, including an additional $1.7 billion of notional derivative contracts entered into during the first six months of 2019 that were economic hedges but did not receive hedge accounting treatment. These derivatives, as well as other derivative contracts that did not receive hedge accounting treatment, were favorably affected by interest rates during the first six months of 2019.
•In the first six months of 2019, other income decreased $6 million from the year-ago period primarily due to no change in the current year tax indemnification receivable related to uncertain tax positions compared with a $3 million increase in the year-ago period, and lower revenue in our Upromise business.
•First-half 2019 non-interest expenses were $279 million, compared with $260 million in the year-ago period. The increase in non-interest expenses was primarily driven by growth in the portfolio and costs related to product diversification. Our non-GAAP operating efficiency ratio improved to 34.3 percent for the six months ended June 30, 2019 from 37.4 percent for the six months ended June 30, 2018. The decline was primarily the result of net interest income increasing 19 percent while non-interest expenses only increased 7 percent compared to the year-ago period.
•First-half 2019 income tax expense was $90 million, compared with $81 million in the year-ago period. The effective tax rate decreased in the first six months of 2019 to 22.6 percent from 25.6 percent in the year-ago period. The decrease in the effective tax rate was primarily driven by tax credits recorded in 2019, $9 million of which related to prior year tax filings.


52

“Core Earnings”
We prepare financial statements in accordance with GAAP. However, we also produce and report our after-tax earnings on a separate basis that we refer to as “Core Earnings.” The difference between our “Core Earnings” and GAAP results for periods presented generally is driven by the unrealized, mark-to-fair value gains (losses) on derivatives contracts recognized in GAAP, but not in “Core Earnings.”
“Core Earnings” recognizes the difference in accounting treatment based upon whether a derivative qualifies for hedge accounting treatment. We enter into derivative instruments to economically hedge interest rate and cash flow risk associated with our portfolio. We believe that our derivatives are effective economic hedges, and as such, are a critical element of our interest rate risk management strategy. Those derivative instruments that qualify for hedge accounting treatment have their related cash flows recorded in interest income or interest expense along with the hedged item. Some of our derivatives do not qualify for hedge accounting treatment and the stand-alone derivative must be marked-to-fair value 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 derivatives and hedging activities, net,” are primarily caused by interest rate volatility and changing credit spreads during the period as well as the volume and term of derivatives not receiving hedge accounting treatment. Cash flows on derivative instruments that do not qualify for hedge accounting are not recorded in interest income and interest expense; they are recorded in non-interest income: “Gains (losses) on derivatives and hedging activities, net.”
For periods prior to July 1, 2018, the amount recorded in “Gains (losses) on derivatives and hedging activities, net” includes (a) the accrual of the current payment on those interest rate swaps that do not qualify for hedge accounting treatment, (b) the change in fair values related to future expected cash flows for derivatives that do not qualify for hedge accounting treatment, and (c) ineffectiveness on derivatives that receive hedge accounting treatment. For purposes of “Core Earnings” in those periods prior to July 1, 2018, we include in GAAP earnings the current period accrual amounts (interest reclassification) on the swaps and exclude the remaining ineffectiveness (and change in fair values for those derivatives not qualifying for hedge accounting treatment). “Core Earnings” in those periods is meant to represent what earnings would have been had these derivatives qualified for hedge accounting and there was no ineffectiveness.
In the third quarter of 2018, we changed our definition of “Core Earnings” to no longer exclude ineffectiveness related to derivative instruments that are receiving hedge accounting treatment. Accordingly, the only adjustments required to reconcile from our “Core Earnings” results to our GAAP results of operations, net of tax, relate to differing treatments for our derivative instruments used to hedge our economic risks that do not qualify for hedge accounting treatment. For periods beginning July 1, 2018, the amount recorded in “Gains (losses) on derivatives and hedging activities, net” includes (a) the accrual of the current payment on the interest rate swaps that do not qualify for hedge accounting treatment and (b) the change in fair values related to future expected cash flows for derivatives that do not qualify for hedge accounting treatment. For purposes of “Core Earnings”, we include in GAAP earnings the current period accrual amounts (interest reclassification) on the swaps and exclude the change in fair values for those derivatives not qualifying for hedge accounting treatment. “Core Earnings” is meant to represent what earnings would have been had these derivatives qualified for hedge accounting and there was no ineffectiveness.
“Core Earnings” are not a substitute for reported results under GAAP. We provide a “Core Earnings” basis of presentation because (i) earnings per share computed on a “Core Earnings” basis is one of several measures we utilize in establishing management incentive compensation, and (ii) we believe it better reflects the financial results for derivatives that are economic hedges of interest rate risk, but which do not qualify for hedge accounting treatment.
GAAP provides a uniform, comprehensive basis of accounting. Our “Core Earnings” basis of presentation differs from GAAP in the way it treats derivatives as described above.

53

The following table shows the amount in “Gains (losses) on derivatives and hedging activities, net” that relates to the interest reclassification on the derivative contracts.
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(Dollars in thousands)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Hedge ineffectiveness gains (losses) prior to adoption of ASU No. 2017-12
 
$
—

 
$
(2,849
)
 
$
—

 
$
5,688

Unrealized gains (losses) on instruments not in a hedging relationship
 
18,242

 
(2,180
)
 
22,444

 
(6,935
)
Interest reclassification
 
(1,506
)
 
(239
)
 
(2,945
)
 
(129
)
Gains (losses) on derivatives and hedging activities, net
 
$
16,736

 
$
(5,268
)
 
$
19,499

 
$
(1,376
)


The following table reflects adjustments associated with our derivative activities.
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(Dollars in thousands, except per share amounts)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
“Core Earnings” adjustments to GAAP:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income
 
$
150,277

 
$
109,832

 
$
308,466

 
$
236,086

Preferred stock dividends
 
4,331

 
3,920

 
8,799

 
7,317

GAAP net income attributable to SLM Corporation common stock
 
$
145,946

 
$
105,912

 
$
299,667

 
$
228,769

 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
 
Net impact of derivative accounting(1)
 
(18,242
)
 
5,029

 
(22,444
)
 
1,247

Net tax expense (benefit)(2)
 
(4,458
)
 
1,222

 
(5,485
)
 
303

Total “Core Earnings” adjustments to GAAP
 
(13,784
)
 
3,807

 
(16,959
)
 
944

 
 
 
 
 
 
 
 
 
“Core Earnings” attributable to SLM Corporation common stock
 
$
132,162

 
$
109,719

 
$
282,708

 
$
229,713

 
 
 
 
 
 
 
 
 
GAAP diluted earnings per common share
 
$
0.34

 
$
0.24

 
$
0.69

 
$
0.52

Derivative adjustments, net of tax
 
(0.03
)
 
0.01

 
(0.04
)
 
—

“Core Earnings” diluted earnings per common share
 
$
0.31

 
$
0.25

 
$
0.65

 
$
0.52

______
(1) Derivative Accounting: “Core Earnings” exclude periodic unrealized gains and losses caused by the mark-to-fair value valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, but include current period accruals on the derivative instruments. For periods prior to July 1, 2018, “Core Earnings” also exclude the periodic unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP, net of tax. Under GAAP, for our derivatives held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0.
 
(2) “Core Earnings” tax rate is based on the effective tax rate at the Bank where the derivative instruments are held.

54

“Adjusted Core Earnings” upon the Adoption of ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
In June 2016, the FASB issued ASU No. 2016-13, which will become effective for us on January 1, 2020, and will eliminate the current accounting guidance for the recognition of credit impairment. Under the new guidance, for all loans carried at amortized cost, upon loan origination we will be required to measure our allowance for losses based on our estimate of all current expected credit losses (“CECL”) over the remaining contractual term of the assets. Updates to that estimate each period will be recorded through provision expense. For additional information regarding our adoption efforts related to the new standard, see the “Recently Issued but Not Yet Adopted Accounting Pronouncements” section of Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q.
Under the new CECL standard, when a loan is originated, we will record, through the provision for loan losses, an allowance for loan losses that represents an estimate of the life of loan losses expected for that loan. Each period thereafter, we will update our estimate of expected losses and adjust the allowance for loan losses through an increase or decrease in the provision for loan losses. Because the new CECL standard will require us to record all expected losses on a loan at the loan’s origination, we do not believe the standard will reflect the underlying economic performance of our business. For example, under CECL, in a period when we have growth in loan originations greater than the comparable prior period, which is a positive sign of our underlying economic performance, we likely would record lower GAAP net income than in the prior period (even if the credit characteristics of the loans originated in the two periods are similar and all other factors in the periods are equal and constant). Conversely, if we had lower loan growth in the current period than in the comparable prior period, which would be a negative sign of our underlying economic performance, we likely would record higher GAAP net income than in the prior period (even if the credit characteristics of the loans originated in the two periods are similar and all other factors in the periods are equal and constant). Moreover, the significant mismatch in timing under CECL between when all expected losses will be recorded (at loan origination), actual losses will occur (at varying times over the life of the loan - at June 30, 2019 our current portfolio of education loans had a weighted average life of 5.3 years), and loan income will be recorded (as earned over the life of the loan) does not reflect how our management views and measures our economic performance. We believe a metric that reflects losses and income as they occur or are earned, respectively, is more indicative of our economic performance and will be one of the measures used by management in assessing overall performance of the Company and establishing management’s executive compensation. Therefore, upon the adoption of the CECL standard on January 1, 2020, we plan to use a new non-GAAP measure (“Adjusted Core Earnings”) to help investors better understand how we will internally view and measure our performance.
Effective January 1, 2020, the definition of “Adjusted Core Earnings” for a period will be GAAP net income, net of the impact of the unrealized, mark-to-fair value gains (losses) on our derivatives, increased by the provision for credit losses recorded under the CECL framework, decreased by the net charge-offs recorded and the net tax impact of these adjustments. This non-GAAP metric will recognize all loan losses upon actual charge-off of those loans (when a loan reaches 120 days delinquent it is charged against the allowance for loan losses), rather than using current expected losses (as under CECL) or deemed probable losses (as under the current standard).
The following tables reconcile and show how GAAP net income for periods in 2017, 2018, and year-to-date 2019 would compare to the non-GAAP “Adjusted Core Earnings” measure for those periods if we had been using that measure during those periods. In addition, the tables also show how the non-GAAP “Adjusted Core Earnings” measure for those periods would compare to the historical non-GAAP “Core Earnings” we reported for those periods. Because, among other factors, our loan portfolio has been growing over the periods covered in the following tables and the loan loss provision under the current standard accounts for losses expected over the succeeding twelve months, “Adjusted Core Earnings” generally are higher than GAAP net income in every quarter shown. Upon the adoption of CECL, it is likely that “Adjusted Core Earnings” will be significantly higher than GAAP net income during key origination quarters because of the requirement to record life of loan losses at the time of loan origination.


55

 
 
Three Months Ended
 
Year Ended
 
Three Months Ended
 
Year Ended
(Dollars in thousands, except per share amounts)
 
Mar. 31, 2017
 
June 30, 2017
 
Sept. 30, 2017
 
Dec. 31, 2017
 
Dec. 31, 2017
 
Mar. 31, 2018
 
June 30, 2018
 
Sept. 30, 2018
 
Dec. 31, 2018
 
Dec. 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income
 
$
94,943

 
$
70,617

 
$
76,371

 
$
47,003

 
$
288,934

 
$
126,254

 
$
109,832

 
$
103,878

 
$
147,512

 
$
487,476

Preferred stock dividends
 
5,575

 
3,974

 
3,028

 
3,137

 
15,714

 
3,397

 
3,920

 
4,124

 
4,199

 
15,640

GAAP net income attributable to SLM Corporation common stock
 
$
89,368

 
$
66,643

 
$
73,343

 
$
43,866

 
$
273,220

 
$
122,857

 
$
105,912

 
$
99,754

 
$
143,313

 
$
471,836

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
“Adjusted Core Earnings” adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net impact of derivative accounting(1)
 
5,458

 
3,508

 
(1,475
)
 
706

 
8,197

 
(3,782
)
 
5,029

 
4,561

 
(7,092
)
 
(1,284
)
Add: provisions for credit losses
 
25,296

 
50,215

 
54,930

 
55,324

 
185,765

 
53,931

 
63,267

 
70,047

 
57,619

 
244,864

Less: net charge-offs
 
(23,186
)
 
(28,611
)
 
(30,119
)
 
(32,035
)
 
(113,950
)
 
(33,685
)
 
(39,740
)
 
(35,199
)
 
(45,098
)
 
(153,722
)
Net tax expense (benefit)(2)
 
2,891

 
9,580

 
8,892

 
9,199

 
30,562

 
3,998

 
6,935

 
9,571

 
1,330

 
21,834

Total adjustments to GAAP
 
4,677

 
15,532

 
14,444

 
14,796

 
49,450

 
12,466

 
21,621

 
29,838

 
4,099

 
68,024

“Adjusted Core Earnings” attributable to SLM Corporation common stock
 
$
94,045

 
$
82,175

 
$
87,787

 
$
58,662

 
$
322,670

 
$
135,323

 
$
127,533

 
$
129,592

 
$
147,412

 
$
539,860

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP diluted earnings per common share
 
$
0.20

 
$
0.15

 
$
0.17

 
$
0.10

 
$
0.62

 
$
0.28

 
$
0.24

 
$
0.23

 
$
0.33

 
$
1.07

Total adjustments, net of tax
 
0.01

 
0.04

 
0.03

 
0.03

 
0.11

 
0.03

 
0.05

 
0.06

 
—

 
0.16

“Adjusted Core Earnings” diluted earnings per common share
 
$
0.21

 
$
0.19

 
$
0.20

 
$
0.13

 
$
0.73

 
$
0.31

 
$
0.29

 
$
0.29

 
$
0.33

 
$
1.23

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Historical “Core Earnings” diluted earnings per common share
 
$
0.21

 
$
0.16

 
$
0.17

 
$
0.10

 
$
0.63

 
$
0.27

 
$
0.25

 
$
0.23

 
$
0.31

 
$
1.07

Growth rate in “Adjusted Core Earnings” diluted earnings per common share (period vs. year-ago period)
 
31.3
%
 
26.7
%
 
33.3
%
 
(27.8
)%
 
12.3
%
 
47.6
%
 
52.6
%
 
45.0
%
 
153.8
%
 
68.5
%
Growth rate in historical “Core Earnings” diluted earnings per common share (period vs. year-ago period)
 
50.0
%
 
33.3
%
 
41.7
%
 
(33.3
)%
 
18.9
%
 
28.6
%
 
56.3
%
 
35.3
%
 
210.0
%
 
69.8
%

56

 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
(Dollars in thousands, except per share amounts)
 
Mar. 31, 2019
 
June 30, 2019
 
June 30, 2019
 
 
 
 
 
 
 
GAAP net income
 
$
158,189

 
$
150,277

 
$
308,466

Preferred stock dividends
 
4,468

 
4,331

 
8,799

GAAP net income attributable to SLM Corporation common stock
 
$
153,721

 
$
145,946

 
$
299,667

 
 
 
 
 
 
 
“Adjusted Core Earnings” adjustments to GAAP:
 
 
 
 
 
 
Net impact of derivative accounting(1)
 
(4,202
)
 
(18,242
)
 
(22,444
)
Add: provisions for credit losses
 
63,790

 
93,375

 
157,165

Less: net charge-offs
 
(48,456
)
 
(67,243
)
 
(115,699
)
Net tax expense(2)
 
2,721

 
1,927

 
4,648

Total adjustments to GAAP
 
8,411

 
5,963

 
14,374

 
 
 
 
 
 
 
“Adjusted Core Earnings" attributable to SLM Corporation common stock
 
$
162,132

 
$
151,909

 
$
314,041

 
 
 
 
 
 
 
GAAP diluted earnings per common share
 
$
0.35

 
$
0.34

 
$
0.69

Total adjustments, net of tax
 
0.02

 
0.01

 
0.03

“Adjusted Core Earnings” diluted earnings per common share
 
$
0.37

 
$
0.35

 
$
0.72

 
 
 
 
 
 
 
Historical “Core Earnings” diluted earnings per common share
 
$
0.34

 
$
0.31

 
$
0.65

 
 
 
 
 
 
 
Growth rate in “Adjusted Core Earnings” diluted earnings per common share (period vs. year-ago period)
 
19.4
%
 
20.7
%
 
20.0
%
Growth rate in historical “Core Earnings” diluted earnings per common share (period vs. year-ago period)
 
25.9
%
 
24.0
%
 
25.0
%
______
(1) Derivative Accounting: “Core Earnings” and “Adjusted Core Earnings” in these tables exclude periodic unrealized gains and losses caused by the mark-to-fair value valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, but include current period accruals on the derivative instruments. For periods prior to July 1, 2018, “Core Earnings” and “Adjusted Core Earnings” in these tables also exclude the periodic unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP, net of tax. Under GAAP, for our derivatives held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0.
 
(2) “Core Earnings” and “Adjusted Core Earnings” tax rate in these tables is based on the effective tax rate at the Bank where the derivative instruments are held.


57

We believe that, upon the adoption of CECL, “Adjusted Core Earnings” will better represent how management views its performance in the reporting period. In addition, while “Adjusted Core Earnings” will reflect a change from GAAP in the timing of when loan losses are recorded, over the life of a pool of loans, the amount of provision recorded in GAAP net income will equal the amount of net charge-offs reported in “Adjusted Core Earnings” because the allowance for loan losses under GAAP upon CECL implementation represents total expected future net charge-offs.
“Adjusted Core Earnings” are not a substitute for reported results under GAAP. We will provide an “Adjusted Core Earnings” basis of presentation because (i) earnings per share computed on an “Adjusted Core Earnings” basis will be one of several measures we will utilize in establishing management incentive compensation and (ii) we believe it will better reflect the financial results for derivatives that are economic hedges of interest rate risk, but which do not qualify for hedge accounting treatment, as well as the timing and treatment of loan losses.
GAAP provides a uniform, comprehensive basis of accounting. Our new “Adjusted Core Earnings” basis of presentation will differ from GAAP in the way it treats derivatives and loan losses as described above.
    




58

Financial Condition
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 June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
(Dollars in thousands)
 
Balance
 
Rate
 
Balance
 
Rate
 
Balance
 
Rate
 
Balance
 
Rate
Average Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Education Loans
 
$
21,748,247

 
9.39
%
 
$
18,764,768

 
9.03
%
 
$
21,740,579

 
9.44
%
 
$
18,712,533

 
8.93
%
FFELP Loans
 
821,138

 
5.01

 
898,095

 
4.51

 
829,497

 
4.98

 
908,846

 
4.38

Personal Loans
 
1,149,247

 
12.00

 
815,356

 
10.65

 
1,162,782

 
11.90

 
672,792

 
10.65

Taxable securities
 
237,031

 
2.91

 
261,066

 
2.60

 
212,919

 
2.97

 
278,691

 
2.63

Cash and other short-term investments
 
3,122,740

 
2.33

 
1,527,147

 
1.73

 
2,581,071

 
2.32

 
1,489,501

 
1.60

Total interest-earning assets
 
27,078,403

 
8.50
%
 
22,266,432

 
8.33
%
 
26,526,848

 
8.67
%
 
22,062,363

 
8.22
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest-earning assets
 
1,377,427

 
 
 
1,154,314

 
 
 
1,271,729

 
 
 
1,132,991

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
28,455,830

 
 
 
$
23,420,746

 
 
 
$
27,798,577

 
 
 
$
23,195,354

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brokered deposits
 
$
11,169,067

 
2.78
%
 
$
8,561,328

 
2.37
%
 
$
10,856,381

 
2.75
%
 
$
8,616,985

 
2.21
%
Retail and other deposits
 
9,244,655

 
2.57

 
8,011,142

 
2.00

 
9,081,000

 
2.54

 
7,870,136

 
1.89

Other interest-bearing liabilities(1)
 
4,522,248

 
3.57

 
3,720,997

 
3.32

 
4,396,946

 
3.60

 
3,591,742

 
3.26

Total interest-bearing liabilities
 
24,935,970

 
2.84
%
 
20,293,467

 
2.40
%
 
24,334,327

 
2.83
%
 
20,078,863

 
2.27
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing liabilities
 
439,133

 
 
 
455,555

 
 
 
417,618

 
 
 
508,258

 
 
Equity
 
3,080,727

 
 
 
2,671,724

 
 
 
3,046,632

 
 
 
2,608,233

 
 
Total liabilities and equity
 
$
28,455,830

 
 
 
$
23,420,746

 
 
 
$
27,798,577

 
 
 
$
23,195,354

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin
 
 
 
5.88
%
 
 
 
6.14
%
 
 
 
6.08
%
 
 
 
6.16
%
 

_________________
(1) 
Includes the average balance of our unsecured borrowing, as well as secured borrowings and amortization expense of transaction costs related to our term asset-backed securitizations and our Secured Borrowing Facility.





59


Rate/Volume Analysis - GAAP

The following rate/volume analysis shows the relative contribution of changes in interest rates and asset volumes.
 
(Dollars in thousands)
 
Increase
 
Change Due To(1)
 
Rate 
 
Volume
Three Months Ended June 30, 2019 vs. 2018
 
 
 
 
 
 
Interest income
 
$
111,411

 
$
9,635

 
$
101,776

Interest expense
 
55,493

 
24,881

 
30,612

Net interest income
 
$
55,918

 
$
(15,129
)
 
$
71,047

 
 
 
 
 
 
 
Six Months Ended June 30, 2019 vs. 2018
 
 
 
 
 
 
Interest income
 
$
240,633

 
$
50,824

 
$
189,809

Interest expense
 
115,048

 
61,710

 
53,338

Net interest income
 
$
125,585

 
$
(9,023
)
 
$
134,608

 
_________________
(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.
Summary of Our Loan Portfolio
Ending Loan Balances, net
 
 
 
June 30, 2019
(Dollars in thousands)
 
Private
Education
Loans 
 
FFELP
Loans
 
Personal
Loans
 
Total
Portfolio
Total loan portfolio:
 
 
 
 
 
 
 
 
In-school(1)
 
$
3,658,099

 
$
122

 
$
—

 
$
3,658,221

Grace, repayment and other(2)
 
17,970,748

 
812,378

 
1,134,637

 
19,917,763

Total, gross
 
21,628,847

 
812,500

 
1,134,637

 
23,575,984

Deferred origination costs and unamortized premium/(discount)
 
73,902

 
2,262

 
495

 
76,659

Allowance for loan losses
 
(307,968
)
 
(1,734
)
 
(74,295
)
 
(383,997
)
Total loan portfolio, net
 
$
21,394,781

 
$
813,028

 
$
1,060,837

 
$
23,268,646

 
 
 
 
 
 
 
 
 
% of total
 
92
%
 
3
%
 
5
%
 
100
%
____________ 
(1) 
Loans for customers still attending school and who are not yet required to make payments on the loans.
(2) 
Includes loans in deferment or forbearance. Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.


60

 
 
December 31, 2018
(Dollars in thousands)
 
Private
Education
Loans
 
FFELP
Loans
 
Personal
Loans
 
Total
Portfolio
Total loan portfolio:
 
 
 
 
 
 
 
 
In-school(1)
 
$
4,037,125

 
$
163

 
$
—

 
$
4,037,288

Grace, repayment and other(2)
 
16,467,340

 
846,324

 
1,190,091

 
18,503,755

Total, gross
 
20,504,465

 
846,487

 
1,190,091

 
22,541,043

Deferred origination costs and unamortized premium/(discount)
 
68,321

 
2,379

 
297

 
70,997

Allowance for loan losses
 
(277,943
)
 
(977
)
 
(62,201
)
 
(341,121
)
Total loan portfolio, net
 
$
20,294,843

 
$
847,889

 
$
1,128,187

 
$
22,270,919

 
 
 
 
 
 
 
 
 
% of total
 
91
%
 
4
%
 
5
%
 
100
%
____________ 
(1) 
Loans for customers still attending school and who are not yet required to make payments on the loans.
(2) 
Includes loans in deferment or forbearance. Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.



Average Loan Balances (net of unamortized premium/discount)

 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(Dollars in thousands)
 
2019
 
2018
 
2019
 
2018
Private Education Loans
 
$
21,748,247

 
92
%
 
$
18,764,768

 
92
%
 
$
21,740,579

 
92
%
 
$
18,712,533

 
92
%
FFELP Loans
 
821,138

 
3

 
898,095

 
4

 
829,497

 
3

 
908,846

 
5

Personal Loans
 
1,149,247

 
5

 
815,356

 
4

 
1,162,782

 
5

 
672,792

 
3

Total portfolio
 
$
23,718,632

 
100
%
 
$
20,478,219

 
100
%
 
$
23,732,858

 
100
%
 
$
20,294,171

 
100
%




61

Loan Activity
 
 
 
Three Months Ended June 30, 2019
(Dollars in thousands)
 
 Private
Education
Loans
 
FFELP
Loans
 
Personal
Loans
 
Total
Portfolio
Beginning balance
 
$
21,576,534

 
$
829,203

 
$
1,092,649

 
$
23,498,386

Acquisitions and originations:
 
 
 
 
 
 
 


Fixed-rate
 
348,690

 
—

 
126,660

 
475,350

Variable-rate
 
190,415

 
—

 
—

 
190,415

Total acquisitions and originations
 
539,105

 
—

 
126,660

 
665,765

Capitalized interest and deferred origination cost premium amortization
 
127,494

 
6,920

 
(74
)
 
134,340

Sales
 
—

 
—

 
—

 
—

Loan consolidations to third-parties
 
(313,607
)
 
(7,138
)
 
—

 
(320,745
)
Allowance
 
(22,022
)
 
26

 
(3,676
)
 
(25,672
)
Repayments and other
 
(512,723
)
 
(15,983
)
 
(154,722
)
 
(683,428
)
Ending balance
 
$
21,394,781

 
$
813,028

 
$
1,060,837

 
$
23,268,646


 
 
Three Months Ended June 30, 2018
(Dollars in thousands)
 
Private
Education
Loans
 
FFELP
Loans
 
Personal
Loans
 
Total
Portfolio
Beginning balance
 
$
18,600,723

 
$
909,295

 
$
656,586

 
$
20,166,604

Acquisitions and originations:
 
 
 
 
 
 
 


Fixed-rate
 
273,346

 
—

 
370,177

 
643,523

Variable-rate
 
219,107

 
—

 
—

 
219,107

Total acquisitions and originations
 
492,453

 
—

 
370,177

 
862,630

Capitalized interest and deferred origination cost premium amortization
 
98,364

 
7,443

 
—

 
105,807

Sales
 
(41,952
)
 
—

 
—

 
(41,952
)
Loan consolidations to third-parties
 
(221,320
)
 
(7,969
)
 
—

 
(229,289
)
Allowance
 
(9,592
)
 
40

 
(13,602
)
 
(23,154
)
Repayments and other
 
(430,436
)
 
(22,029
)
 
(79,600
)
 
(532,065
)
Ending balance
 
$
18,488,240

 
$
886,780

 
$
933,561

 
$
20,308,581



62

 
 
Six Months Ended June 30, 2019
(Dollars in thousands)
 
 Private
Education
Loans
 
FFELP
Loans
 
Personal
Loans
 
Total
Portfolio
Beginning balance
 
$
20,294,843

 
$
847,889

 
$
1,128,187

 
$
22,270,919

Acquisitions and originations:
 
 
 
 
 
 
 
 
Fixed-rate
 
1,792,643

 
—

 
247,550

 
2,040,193

Variable-rate
 
879,196

 
—

 
—

 
879,196

Total acquisitions and originations
 
2,671,839

 
—

 
247,550

 
2,919,389

Capitalized interest and deferred origination cost premium amortization
 
248,599

 
14,352

 
(132
)
 
262,819

Sales
 
—

 
—

 
—

 
—

Loan consolidations to third-parties
 
(699,756
)
 
(15,169
)
 
—

 
(714,925
)
Allowance
 
(30,025
)
 
(757
)
 
(12,094
)
 
(42,876
)
Repayments and other
 
(1,090,719
)
 
(33,287
)
 
(302,674
)
 
(1,426,680
)
Ending balance
 
$
21,394,781

 
$
813,028

 
$
1,060,837

 
$
23,268,646


 
 
Six Months Ended June 30, 2018
(Dollars in thousands)
 
Private
Education
Loans
 
FFELP
Loans
 
Personal
Loans
 
Total
Portfolio
Beginning balance
 
$
17,244,830

 
$
929,159

 
$
393,652

 
$
18,567,641

Acquisitions and originations:
 
 
 
 
 
 
 
 
Fixed-rate
 
1,214,554

 
—

 
697,357

 
1,911,911

Variable-rate
 
1,250,853

 
—

 
—

 
1,250,853

Total acquisitions and originations
 
2,465,407

 
—

 
697,357

 
3,162,764

Capitalized interest and deferred origination cost premium amortization
 
193,762

 
15,220

 
—

 
208,982

Sales
 
(43,988
)
 
—

 
—

 
(43,988
)
Loan consolidations to third-parties
 
(445,071
)
 
(15,398
)
 
—

 
(460,469
)
Allowance
 
(17,980
)
 
59

 
(25,881
)
 
(43,802
)
Repayments and other
 
(908,720
)
 
(42,260
)
 
(131,567
)
 
(1,082,547
)
Ending balance
 
$
18,488,240

 
$
886,780

 
$
933,561

 
$
20,308,581


“Loan consolidations to third-parties” and “Repayments and other” are both significantly affected by the volume of loans in our portfolio in full principal and interest repayment status. Loans in full principal and interest repayment status in our Private Education Loan portfolio at June 30, 2019 increased by 24 percent compared with June 30, 2018, and now total 42 percent of our Private Education Loan portfolio at June 30, 2019.

“Loan consolidations to third-parties” for the three months ended June 30, 2019 total 3.5 percent of our Private Education Loan portfolio in full principal and interest repayment status at June 30, 2019, or 1.5 percent of our total Private Education Loan portfolio at June 30, 2019, compared with the year-ago period of 3.0 percent of our Private Education Loan portfolio in full principal and interest repayment status, or 1.2 percent of our total Private Education Loan portfolio, respectively. Historical experience has shown that loan consolidation activity is heightened in the period when the loan initially enters full principal and interest repayment status and then subsides over time.

The “Repayments and other” category includes all scheduled repayments, as well as voluntary prepayments, made on loans in repayment (including loans in full principal and interest repayment status) and also includes charge-offs. Consequently, this category can be significantly affected by the volume of loans in repayment. The increase in the volume of loans in repayment accounts for the majority of the aggregate increase in loan consolidations, scheduled repayments, unscheduled prepayments and capitalized interest set forth above.

63

Private Education Loan Originations
The following table summarizes our Private Education Loan originations. Originations represent loans that were funded or acquired during the period presented.
 
 
 
Three Months Ended 
 June 30,
(Dollars in thousands)
 
2019
 
%
 
2018
 
%
Smart Option - interest only(1)
 
$
102,265

 
19
%
 
$
97,440

 
20
%
Smart Option - fixed pay(1)
 
133,990

 
25

 
111,154

 
23

Smart Option - deferred(1)
 
171,054

 
32

 
158,845

 
33

Smart Option - principal and interest
 
1,381

 
—

 
1,391

 
—

Graduate Loan
 
116,619

 
22

 
112,202

 
23

Parent Loan
 
6,824

 
2

 
6,181

 
1

Total Private Education Loan originations
 
$
532,133

 
100
%
 
$
487,213


100
%
 
 
 
 
 
 
 
 
 
Percentage of loans with a cosigner
 
76.5
%
 
 
 
76.0
%
 
 
Average FICO at approval(2)
 
745

 
 
 
744

 
 

 
 
Six Months Ended 
 June 30,
(Dollars in thousands)
 
2019
 
%
 
2018
 
%
Smart Option - interest only(1)
 
$
582,977

 
22
%
 
$
543,160

 
22
%
Smart Option - fixed pay(1)
 
728,451

 
27

 
629,001

 
25

Smart Option - deferred(1)
 
990,847

 
37

 
956,270

 
39

Smart Option - principal and interest
 
5,339

 
—

 
3,659

 
—

Graduate Loan
 
298,297

 
11

 
284,814

 
12

Parent Loan
 
57,290

 
3

 
42,478

 
2

Total Private Education Loan originations
 
$
2,663,201

 
100
%
 
$
2,459,382

 
100
%
 
 
 
 
 
 
 
 
 
Percentage of loans with a cosigner
 
86.2
%
 
 
 
86.6
%
 
 
Average FICO at approval(2)
 
746

 
 
 
746

 
 
      
     _____________
(1) Interest only, fixed pay and deferred describe the payment option while in school or in grace period.
(2) Represents the higher credit score of the cosigner or the borrower.




64

Allowance for Loan Losses

Allowance for Loan Losses Activity
  
 
 
Three Months Ended June 30,
 
 
2019
 
2018
(Dollars in thousands)
 
Private
Education
Loans
 
FFELP
Loans
 
Personal Loans
 
Total
Portfolio
 
Private
Education
Loans
 
FFELP
Loans
 
Personal Loans
 
Total
Portfolio
Beginning balance
 
$
285,946

 
$
1,760

 
$
70,619

 
$
358,325

 
$
252,103

 
$
1,113

 
$
18,907

 
$
272,123

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Charge-offs
 
(55,382
)
 
(171
)
 
(19,074
)
 
(74,627
)
 
(42,270
)
 
(292
)
 
(2,872
)
 
(45,434
)
Loan sales(1)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Plus:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recoveries
 
6,108

 
—

 
1,276

 
7,384

 
5,598

 
—

 
96

 
5,694

Provision for loan losses
 
71,296

 
145

 
21,474

 
92,915

 
46,264

 
252

 
16,378

 
62,894

Ending balance
 
$
307,968

 
$
1,734

 
$
74,295

 
$
383,997

 
$
261,695

 
$
1,073

 
$
32,509

 
$
295,277

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Troubled debt restructurings(2)
 
$
1,411,189

 
$
—

 
$
—

 
$
1,411,189

 
$
1,121,816

 
$
—

 
$
—

 
$
1,121,816


 
 
Six Months Ended June 30,
 
 
2019
 
2018
(Dollars in thousands)
 
Private
Education
Loans
 
FFELP
Loans
 
Personal Loans
 
Total
Portfolio
 
Private
Education
Loans
 
FFELP
Loans
 
Personal Loans
 
Total
Portfolio
Beginning balance
 
$
277,943

 
$
977

 
$
62,201

 
$
341,121

 
$
243,715

 
$
1,132

 
$
6,628

 
$
251,475

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Charge-offs
 
(94,959
)
 
(405
)
 
(34,325
)
 
(129,689
)
 
(79,623
)
 
(542
)
 
(4,072
)
 
(84,237
)
Loan sales(1)
 
—

 
—

 
—

 
—

 
(1,216
)
 
—

 
—

 
(1,216
)
Plus:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recoveries
 
11,805

 
—

 
2,185

 
13,990

 
10,685

 
—

 
127

 
10,812

Provision for loan losses
 
113,179

 
1,162

 
44,234

 
158,575

 
88,134

 
483

 
29,826

 
118,443

Ending balance
 
$
307,968

 
$
1,734

 
$
74,295

 
$
383,997

 
$
261,695

 
$
1,073

 
$
32,509

 
$
295,277

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Troubled debt restructurings(2)
 
$
1,411,189

 
$
—

 
$
—

 
$
1,411,189

 
$
1,121,816

 
$
—

 
$
—

 
$
1,121,816


_________
(1) 
Represents fair value adjustments on loans sold.
(2) 
Represents the unpaid principal balance of loans classified as troubled debt restructurings.



65

Private Education Loan Allowance for Loan Losses
In establishing the allowance for Private Education Loan losses as of June 30, 2019, we considered several factors with respect to our Private Education Loan portfolio, in particular, credit quality and delinquency, forbearance and charge-off trends.
Private Education Loans in full principal and interest repayment status were 42 percent of our total Private Education Loan portfolio at June 30, 2019, compared with 39 percent at June 30, 2018.
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. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Allowance for Loan Losses” in the 2018 Form 10-K.
The table below presents our Private Education Loan delinquency trends. Loans in repayment include loans making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.

 
 
Private Education Loans
 
 
June 30,
 
 
2019
 
2018
(Dollars in thousands)
 
Balance
 
%
 
Balance
 
%
Loans in-school/grace/deferment(1)
 
$
5,722,581

 
 
 
$
5,250,393

 
 
Loans in forbearance(2)
 
574,015

 
 
 
458,111

 
 
Loans in repayment and percentage of each status:
 
 
 
 
 
 
 
 
Loans current
 
14,920,746

 
97.3
%
 
12,697,362

 
97.8
%
Loans delinquent 31-60 days(3)
 
222,448

 
1.5

 
166,322

 
1.3

Loans delinquent 61-90 days(3)
 
123,473

 
0.8

 
75,534

 
0.6

Loans delinquent greater than 90 days(3)
 
65,584

 
0.4

 
40,305

 
0.3

        Total Private Education Loans in repayment
 
15,332,251

 
100.0
%
 
12,979,523

 
100.0
%
Total Private Education Loans, gross
 
21,628,847

 
 
 
18,688,027

 
 
Private Education Loans deferred origination costs and unamortized premium/(discount)
 
73,902

 
 
 
61,908

 
 
Total Private Education Loans
 
21,702,749

 
 
 
18,749,935

 
 
Private Education Loans allowance for losses
 
(307,968
)
 
 
 
(261,695
)
 
 
Private Education Loans, net
 
$
21,394,781

 
 
 
$
18,488,240

 
 
 
 
 
 
 
 
 
 
 
Percentage of Private Education Loans in repayment
 
 
 
70.9
%
 
 
 
69.5
%
 
 
 
 
 
 
 
 
 
Delinquencies as a percentage of Private Education Loans in repayment
 
 
 
2.7
%
 
 
 
2.2
%
 
 
 
 
 
 
 
 
 
Loans in forbearance as a percentage of Private Education Loans in repayment and forbearance
 
 
 
3.6
%
 
 
 
3.4
%
________
(1) 
Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on the loans (e.g., residency periods for medical students or a grace period for bar exam preparation).
(2) 
Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.
(3) 
The period of delinquency is based on the number of days scheduled payments are contractually past due.


 

66

Changes in Allowance for Private Education Loan Losses
The following table summarizes changes in the allowance for Private Education Loan losses.
 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(Dollars in thousands)
 
2019
 
2018
 
2019
 
2018
Beginning balance
 
$
285,946

 
$
252,103

 
$
277,943

 
$
243,715

Total provision
 
71,296

 
46,264

 
113,179

 
88,134

Net charge-offs:
 
 
 
 
 
 
 
 
Charge-offs
 
(55,382
)
 
(42,270
)
 
(94,959
)
 
(79,623
)
Recoveries
 
6,108

 
5,598

 
11,805

 
10,685

Net charge-offs
 
(49,274
)
 
(36,672
)
 
(83,154
)
 
(68,938
)
Loan sales(1)
 
—

 
—

 
—

 
(1,216
)
Allowance at end of period
 
$
307,968

 
$
261,695

 
$
307,968

 
$
261,695

 
 
 
 
 
 
 
 
 
Allowance as a percentage of the ending total loan balance
 
1.42
%
 
1.40
%
 
1.42
%
 
1.40
%
Allowance as a percentage of the ending loans in repayment(2)
 
2.01
%
 
2.02
%
 
2.01
%
 
2.02
%
Allowance coverage of net charge-offs (annualized)
 
1.56

 
1.78

 
1.85

 
1.90

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
1.29
%
 
1.14
%
 
1.09
%
 
1.08
%
Delinquencies as a percentage of ending loans in repayment(2)
 
2.68
%
 
2.17
%
 
2.68
%
 
2.17
%
Loans in forbearance as a percentage of ending loans in repayment and forbearance(2)
 
3.61
%
 
3.41
%
 
3.61
%
 
3.41
%
Ending total loans, gross
 
$
21,628,847

 
$
18,688,027

 
$
21,628,847

 
$
18,688,027

Average loans in repayment(2)
 
$
15,241,574

 
$
12,909,623

 
$
15,188,003

 
$
12,810,072

Ending loans in repayment(2)
 
$
15,332,251

 
$
12,979,523

 
$
15,332,251

 
$
12,979,523

_______
(1) 
Represents fair value adjustments on loans sold.
(2) 
Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.
 
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 net charge-offs ratio; the allowance as a percentage of ending total loans and of ending loans in repayment; and delinquency and forbearance percentages.

67

Use of Forbearance and Rate Modifications as a Private Education Loan Collection Tool
We modify the terms of loans for certain borrowers when we believe such modifications will increase the collectability of the loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. The majority of our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan.
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 a loan is in forbearance status, interest continues to accrue and is capitalized to principal when the loan re-enters repayment status. Our forbearance policies include limits on the number of forbearance months granted consecutively and the total number of forbearance months granted over the life of the loan. We grant forbearance in our servicing centers if a borrower who is current requests it for increments of three months at a time, for up to 12 months. Forbearance as a collection tool is used most effectively when applied based on a customer’s 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 customer’s 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. 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 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 customer’s 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 scheduled monthly payments on a go-forward basis.
Forbearance may also be granted to customers who are delinquent in their payments. If specific requirements are met, the forbearance can cure 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. We review our forbearance policies and practices from time to time and update them as circumstances warrant.
When we give a borrower facing financial difficulty an interest rate reduction, currently we temporarily reduce the rate to 4.0 percent (previously, to 2.0 percent or 4.0 percent) for a two-year period and, in the vast majority of cases, permanently extend the final maturity of the loan. As part of demonstrating the ability and willingness to pay, the customer must make three consecutive monthly payments at the reduced rate to qualify for the program. The combination of the rate reduction and maturity extension helps reduce the monthly payment due from the borrower and increases the likelihood the borrower will remain current during the interest rate modification period as well as when the loan returns to its original contractual interest rate. At June 30, 2019 and June 30, 2018, 7.7 percent and 6.8 percent, respectively, of our loans then currently in full principal and interest repayment status were subject to interest rate reductions made under our rate modification program.
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). Active repayment status includes loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period. Our experience shows that the percentage of loans in forbearance status generally decreases the longer the loans have been in active repayment status. At June 30, 2019, loans in forbearance status as a percentage of total loans in repayment and forbearance were 2.5 percent for Private Education Loans that have been in active repayment status for fewer than 25 months. Approximately 70 percent of our Private Education Loans in forbearance status have been in active repayment status fewer than 25 months.


68

(Dollars in millions)
June 30, 2019
 
Private Education Loans 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
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
5,723

 
$
5,723

Loans in forbearance
 
319

 
82

 
67

 
52

 
54

 
—

 
574

Loans in repayment - current
 
5,019

 
3,366

 
2,546

 
1,897

 
2,093

 
—

 
14,921

Loans in repayment - delinquent 31-60 days
 
89

 
43

 
34

 
25

 
31

 
—

 
222

Loans in repayment - delinquent 61-90 days
 
52

 
25

 
18

 
13

 
15

 
—

 
123

Loans in repayment - delinquent greater than 90 days
 
29

 
12

 
10

 
7

 
8

 
—

 
66

Total
 
$
5,508

 
$
3,528

 
$
2,675

 
$
1,994

 
$
2,201

 
$
5,723

 
21,629

Deferred origination costs and unamortized premium/(discount)
 
 
 
 
 
 
 
 
 
 
 
 
 
74

Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
(308
)
Total Private Education Loans, net
 
 
 
 
 
 
 
 
 
 
 
 
 
$
21,395

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans in forbearance as a percentage of total Private Education Loans in repayment and forbearance
 
2.01
%
 
0.51
%
 
0.42
%
 
0.33
%
 
0.34
%
 
—
%
 
3.61
%
 

(Dollars in millions)
June 30, 2018
 
Private Education Loans 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
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
5,250

 
$
5,250

Loans in forbearance
 
264

 
70

 
54

 
36

 
34

 
—

 
458

Loans in repayment - current
 
4,448

 
3,083

 
2,375

 
1,518

 
1,274

 
—

 
12,698

Loans in repayment - delinquent 31-60 days
 
72

 
33

 
26

 
18

 
17

 
—

 
166

Loans in repayment - delinquent 61-90 days
 
36

 
15

 
10

 
7

 
8

 
—

 
76

Loans in repayment - delinquent greater than 90 days
 
18

 
8

 
6

 
4

 
4

 
—

 
40

Total
 
$
4,838

 
$
3,209

 
$
2,471

 
$
1,583

 
$
1,337

 
$
5,250

 
18,688

Deferred origination costs and unamortized premium/(discount)
 
 
 
 
 
 
 
 
 
 
 
 
 
62

Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
(262
)
Total Private Education Loans, net
 
 
 
 
 
 
 
 
 
 
 
 
 
$
18,488

 
 


 

 

 

 

 

 

Loans in forbearance as a percentage of total Private Education Loans in repayment and forbearance
 
1.97
%
 
0.52
%
 
0.40
%
 
0.27
%
 
0.25
%
 
—
%
 
3.41
%



69

Private Education Loan Types
The following table provides information regarding the loans in repayment balance and total loan balance by Private Education Loan product type at June 30, 2019 and December 31, 2018.
 
 
 
June 30, 2019
(Dollars in thousands)
 
Signature and
Other
 
Parent Loan
 
Smart Option
 
Career
Training
 
Graduate
Loan
 
Total
$ in repayment(1)
 
$
218,467

 
$
211,440

 
$
14,663,616

 
$
11,990

 
$
226,738

 
$
15,332,251

$ in total
 
$
348,836

 
$
213,726

 
$
20,683,230

 
$
12,445

 
$
370,610

 
$
21,628,847

 
 
 
 
December 31, 2018
(Dollars in thousands)
 
Signature and
Other
 
Parent Loan
 
Smart Option
 
Career
Training
 
Graduate
Loan
 
Total
$ in repayment(1)
 
$
185,795

 
$
175,885

 
$
14,180,350

 
$
12,777

 
$
112,049

 
$
14,666,856

$ in total
 
$
333,222

 
$
177,750

 
$
19,801,184

 
$
13,272

 
$
179,037

 
$
20,504,465

_______
(1) 
Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.

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.
 
 
 
 
Private Education Loans
 
 
Accrued Interest Receivable 
(Dollars in thousands)
 
Total Interest Receivable
 
Greater Than
90 Days
Past Due
 
Allowance for
Uncollectible
Interest
June 30, 2019
 
$
1,376,715

 
$
2,589

 
$
5,673

December 31, 2018
 
$
1,168,823

 
$
1,920

 
$
6,322

June 30, 2018
 
$
1,141,135

 
$
1,530

 
$
5,852

 

70


Personal Loan Delinquencies

The following table provides information regarding the loan status of our Personal Loans.
 
 
Personal Loans
 
 
June 30,
 
 
2019
 
2018
(Dollars in thousands)
 
Balance
 
%
 
Balance
 
%
Loans in repayment and percentage of each status:
 
 
 
 
 
 
 
 
Loans current
 
$
1,113,730

 
98.2
%
 
$
960,865

 
99.5
%
Loans delinquent 31-60 days(1)
 
6,704

 
0.6

 
2,376

 
0.2

Loans delinquent 61-90 days(1)
 
7,393

 
0.6

 
1,594

 
0.2

Loans delinquent greater than 90 days(1)
 
6,810

 
0.6

 
1,245

 
0.1

Total Personal Loans in repayment
 
1,134,637

 
100.0
%
 
966,080

 
100.0
%
Total Personal Loans, gross
 
1,134,637

 
 
 
966,080

 
 
Personal Loans deferred origination costs and unamortized premium/(discount)
 
495

 
 
 
(10
)
 
 
Total Personal Loans
 
1,135,132

 
 
 
966,070

 
 
Personal Loans allowance for losses
 
(74,295
)
 
 
 
(32,509
)
 
 
Personal Loans, net
 
$
1,060,837

 
 
 
$
933,561

 
 
Delinquencies as a percentage of Personal Loans in repayment
 
 
 
1.8
%
 
 
 
0.5
%
_______
(1) 
The period of delinquency is based on the number of days scheduled payments are contractually past due.

71

Liquidity and Capital Resources
Funding and Liquidity Risk Management
Our primary liquidity needs include our ongoing ability to fund our businesses throughout market cycles, including during periods of financial stress, our ongoing ability to fund originations of Private Education Loans and Personal Loans, and servicing our Bank deposits. To achieve these objectives, we analyze and monitor our liquidity needs, maintain excess liquidity and access diverse funding sources, such as deposits at the Bank, issuance of secured debt primarily through asset-backed securitizations and other financing facilities. It is our policy to manage operations so liquidity needs are fully satisfied through normal operations to avoid unplanned asset sales under emergency conditions. Our liquidity management is governed by policies approved by our Board of Directors. Oversight of these policies is performed in the Asset and Liability Committee, a management-level committee.
These policies take into account the volatility of cash flow forecasts, expected maturities, anticipated loan demand and a variety of other factors to establish minimum liquidity guidelines.
Key risks associated with our liquidity relate to our ability to access the capital markets and the markets for bank deposits at reasonable rates. This ability may be affected by our performance, competitive pressures, the macroeconomic environment, and the impact they have on the availability of funding sources in the marketplace. We target maintaining sufficient on-balance sheet and contingent sources of liquidity to enable us to meet all contractual and contingent obligations under various stress scenarios, including severe macroeconomic stresses as well as specific stresses that test the resiliency of our balance sheet. As the Bank has grown, we have improved our liquidity stress testing practices to align more closely with the industry, which has resulted in our adopting increased liquidity requirements. During 2019, we have increased our liquidity levels by increasing cash and cash equivalents and investments held as part of our ongoing efforts to enhance our ability to maintain a strong risk management position. We expect to carry the additional liquidity levels on an ongoing basis.
Sources of Liquidity and Available Capacity
Ending Balances  
(Dollars in thousands)
 
June 30, 2019
 
December 31, 2018
Sources of primary liquidity:
 
 
 
 
Unrestricted cash and liquid investments:
 
 
 
 
Holding Company and other non-bank subsidiaries
 
$
38,835

 
$
25,990

Sallie Mae Bank(1)
 
3,959,679

 
2,533,116

Available-for-sale investments
 
331,541

 
176,245

Total unrestricted cash and liquid investments
 
$
4,330,055

 
$
2,735,351

____
(1) This amount will be used primarily to originate Private Education Loans and Personal Loans at the Bank.
Average Balances
 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(Dollars in thousands)
 
2019
 
2018
 
2019
 
2018
Sources of primary liquidity:
 
 
 
 
 
 
 
 
Unrestricted cash and liquid investments:
 
 
 
 
 
 
 
 
Holding Company and other non-bank subsidiaries
 
$
39,149

 
$
23,103

 
$
33,449

 
$
20,945

Sallie Mae Bank(1)
 
2,889,757

 
1,362,595

 
2,367,024

 
1,332,814

Available-for-sale investments
 
233,371

 
222,360

 
210,965

 
230,276

Total unrestricted cash and liquid investments
 
$
3,162,277

 
$
1,608,058

 
$
2,611,438

 
$
1,584,035

 
____
(1) This amount will be used primarily to originate Private Education Loans and Personal Loans at the Bank.

72

Deposits
The following table summarizes total deposits.
 
 
June 30,
 
December 31,
(Dollars in thousands)
 
2019
 
2018
Deposits - interest bearing
 
$
21,176,022

 
$
18,942,082

Deposits - non-interest bearing
 
2,112

 
1,076

Total deposits
 
$
21,178,134

 
$
18,943,158


Our total deposits of $21.2 billion were comprised of $11.8 billion in brokered deposits and $9.4 billion in retail and other deposits at June 30, 2019, compared to total deposits of $18.9 billion, which were comprised of $10.3 billion in brokered deposits and $8.6 billion in retail and other deposits, at December 31, 2018.
Interest bearing deposits as of June 30, 2019 and December 31, 2018 consisted of retail and brokered non-maturity savings deposits, retail and brokered non-maturity MMDAs and retail and brokered CDs. Interest bearing deposits include deposits from Educational 529 and Health Savings plans that diversify our funding sources and additional deposits we consider to be core. These and other large omnibus accounts, aggregating the deposits of many individual depositors, represented $6.2 billion of our deposit total as of June 30, 2019, compared with $5.9 billion at December 31, 2018.
Some of our deposit products are serviced by third-party providers. Placement fees associated with the brokered CDs are amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $4 million and $3 million in the three months ended June 30, 2019 and 2018, respectively, and placement fee expense of $8 million and $6 million in the six months ended June 30, 2019 and 2018, respectively. Fees paid to third-party brokers related to brokered CDs were $14 million and $12 million for the three months ended June 30, 2019 and 2018, respectively, and fees paid to third party brokers related to brokered CDs were $15 million and $19 million for the six months ended June 30, 2019 and 2018, respectively.
Interest bearing deposits at June 30, 2019 and December 31, 2018 are summarized as follows:
 
 
 
June 30, 2019
 
December 31, 2018
 
(Dollars in thousands)
 
Amount
 
Qtr.-End
Weighted
Average
Stated Rate(1)
 
Amount
 
Year-End
Weighted
Average
Stated Rate(1)
 
 
 
 
 
 
 
 
 
 
 
Money market
 
$
9,079,766

 
2.56
%
 
$
8,687,766

 
2.46
%
 
Savings
 
704,259

 
2.04

 
702,342

 
2.00

 
Certificates of deposit
 
11,391,997

 
2.85

 
9,551,974

 
2.74

 
Deposits - interest bearing
 
$
21,176,022

 
 
 
$
18,942,082

 


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

As of June 30, 2019, and December 31, 2018, there were $693 million and $523 million, respectively, of deposits exceeding FDIC insurance limits. Accrued interest on deposits was $60 million and $53 million at June 30, 2019 and December 31, 2018, respectively.


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.
Excess cash is generally invested with the FRB on an overnight basis or in the FRB’s Term Deposit Facility, minimizing counterparty exposure on cash balances.
Our investment portfolio is primarily comprised of a small portfolio of mortgage-backed securities issued by government agencies and government-sponsored enterprises that are purchased to meet Community Reinvestment Act targets. 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. Credit Support Annexes (“CSAs”), or clearinghouses for over-the-counter derivatives. 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 the Bank are covered under CSAs or clearinghouse agreements and require collateral to be exchanged based on the net fair value of derivatives with each counterparty. Our exposure is limited to the value of the derivative contracts in a gain position, less any collateral held by us and plus collateral posted with the counterparty.
Title VII of the Dodd-Frank Act requires all standardized derivatives, including most interest rate swaps, to be submitted for clearing to central counterparties to reduce counterparty risk. Two of the central counterparties we use are the CME and the LCH. All variation margin payments on derivatives cleared through the CME and LCH are accounted for as legal settlement. As of June 30, 2019, $8.5 billion notional of our derivative contracts were cleared on the CME and $0.5 billion were cleared on the LCH. The derivative contracts cleared through the CME and LCH represent 94.0 percent and 6.0 percent, respectively, of our total notional derivative contracts of $9.0 billion at June 30, 2019.
For derivatives cleared through the CME and LCH, the net gain (loss) position includes the variation margin amounts as settlement of the derivative and not collateral against the fair value of the derivative. The amount of variation margin included as settlement as of June 30, 2019 was $(106.4) million and $8.5 million for the CME and LCH, respectively. Interest income (expense) related to variation margin on derivatives that are not designated as hedging instruments or are designated as fair value relationships is recognized as a gain (loss) rather than as interest income (expense). Changes in fair value for derivatives not designated as hedging instruments will be presented as realized gains (losses).
Our exposure is limited to the value of the derivative contracts in a gain position less any collateral held and plus any collateral posted. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At June 30, 2019 and December 31, 2018, we had a net positive exposure (derivative gain positions to us, less collateral held by us and plus collateral posted with counterparties) related to derivatives of $66 million and $27 million, respectively.
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 rates, may require us to return cash collateral held or may require us to access primary liquidity to post collateral to counterparties.
As of June 30, 2019, LCH was not rated by any of the major rating agencies. However, all derivative counterparties are evaluated internally for credit worthiness. LCH has been deemed by management to have strong liquidity and robust capital levels as of our most recent credit review and has been assigned our strongest risk rating.

74

The table below highlights exposure related to our derivative counterparties as of June 30, 2019.

(Dollars in thousands)
 
SLM Corporation
and Sallie Mae Bank
Contracts
Total exposure, net of collateral
 
$
65,596

Exposure to counterparties with credit ratings, net of collateral
 
$
58,265

Percent of exposure to counterparties with credit ratings below S&P AA- or Moody’s Aa3
 
—
%
Percent of exposure to counterparties with credit ratings below S&P A- or Moody’s A3
 
—
%

Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI. Failure to meet minimum capital requirements and any applicable buffers can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on our business, results of operations and financial condition. Under U.S. Basel III and the regulatory framework for prompt corrective action, the Bank must meet specific capital standards that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s regulatory capital amounts and its classification under the prompt corrective action framework are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors.
 Capital Management
The Bank intends to maintain at all times regulatory capital levels that meet both the minimum levels required under U.S. Basel III (including applicable buffers) and the levels necessary to be considered “well capitalized” under the FDIC’s prompt corrective action framework, in order to support asset growth and operating needs, address unexpected credit risks and protect the interests of depositors and the Deposit Insurance Fund administered by the FDIC. The Bank’s Capital Policy requires management to monitor these capital standards and the Bank’s compliance with them. The Board of Directors and management periodically evaluate the quality of assets, the stability of earnings, and the adequacy of the allowance for loan losses for the Bank. The Company is a source of strength for the Bank and will provide additional capital if necessary.
We believe that current and projected capital levels are appropriate for the remainder of 2019. As of June 30, 2019, the Bank’s risk-based and leverage capital ratios exceed the required minimum ratios and the applicable buffers under the fully phased-in U.S. Basel III standards as well as the “well capitalized” standards under the prompt corrective action framework. As our balance sheet continues to grow in 2019, these ratios will be stable as we now expect to generate earnings and capital sufficient to cover growth in our risk-weighted assets and remain significantly in excess of these regulatory capital standards for 2019.
Under U.S. Basel III, the Bank is required to maintain the following minimum regulatory capital ratios: a Common Equity Tier 1 risk-based capital ratio of 4.5 percent, a Tier 1 risk-based capital ratio of 6.0 percent, a Total risk-based capital ratio of 8.0 percent, and a Tier 1 leverage ratio of 4.0 percent. In addition, as of January 1, 2019, the Bank is subject to a fully phased-in Common Equity Tier 1 capital conservation buffer of greater than 2.5 percent. (As of December 31, 2018, the Bank was subject to a Common Equity Tier 1 capital conservation buffer of greater than 1.875 percent.) Failure to maintain the buffer will result in restrictions on the Bank’s ability to make capital distributions, including the payment of dividends, and to pay discretionary bonuses to executive officers.

75


The Bank’s required and actual regulatory capital amounts and ratios under U.S. Basel III are shown in the following table.
 
 
Actual
 
U.S. Basel III
Regulatory Requirements(1)
 
 
Amount
Ratio
 
Amount
 
Ratio
As of June 30, 2019:
 
 
 
 
 
 
 
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
 
$
3,008,318

11.9
%
 
$
1,765,971

>
7.0
%
Tier 1 Capital (to Risk-Weighted Assets)
 
$
3,008,318

11.9
%
 
$
2,144,394

>
8.5
%
Total Capital (to Risk-Weighted Assets)
 
$
3,324,527

13.2
%
 
$
2,648,957

>
10.5
%
Tier 1 Capital (to Average Assets)
 
$
3,008,318

10.6
%
(2) 
$
1,133,551

>
4.0
%
 
 
 
 
 
 
 
 
As of December 31, 2018:
 
 
 
 
 
 
 
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
 
$
2,896,091

12.1
%
 
$
1,528,209

>
6.375
%
Tier 1 Capital (to Risk-Weighted Assets)
 
$
2,896,091

12.1
%
 
$
1,887,787

>
7.875
%
Total Capital (to Risk-Weighted Assets)
 
$
3,196,279

13.3
%
 
$
2,367,226

>
9.875
%
Tier 1 Capital (to Average Assets)
 
$
2,896,091

11.1
%
 
$
1,039,226

>
4.0
%
________________             
(1) 
Required risk-based capital ratios include the capital conservation buffer.
(2) 
The Bank’s Tier 1 leverage ratio exceeds the 5 percent well-capitalized standard for the Tier 1 leverage ratio under the prompt corrective action framework.
 
Dividends
The Bank is chartered under the laws of the State of Utah and its deposits are insured by the FDIC. The Bank’s ability to pay dividends is subject to the laws of Utah and the regulations of the FDIC. Generally, under Utah’s industrial bank laws and regulations as well as FDIC regulations, the Bank may pay dividends to the Company from its net profits without regulatory approval if, following the payment of the dividend, the Bank’s capital and surplus would not be impaired. The Bank declared $136 million and $221 million in dividends to the Company for the three and six months ended June 30, 2019, respectively, and no dividends for the three and six months ended June 30, 2018. In the future, we expect that the Bank will pay dividends to the Company as may be necessary to enable the Company to pay any declared dividends on its Series B Preferred Stock and common stock and to consummate any common share repurchases by the Company under its share repurchase program.

76

Borrowings

Outstanding borrowings consist of unsecured debt and secured borrowings issued through our term ABS program and our Secured Borrowing Facility. The issuing entities for those secured borrowings are VIEs and are consolidated for accounting purposes. The following table summarizes our borrowings at June 30, 2019 and December 31, 2018, respectively. For additional information, see Notes to Consolidated Financial Statements, Note 6, “Borrowings.”

 
 
June 30, 2019
 
December 31, 2018
 
 
Short-Term
 
Long-Term
 
Total
 
Short-Term
 
Long-Term
 
Total
Unsecured borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured debt (fixed-rate)
 
$
—

 
$
197,753

 
$
197,753

 
$
—

 
$
197,348

 
$
197,348

Total unsecured borrowings
 
—

 
197,753

 
197,753

 
—

 
197,348

 
197,348

Secured borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
Private Education Loan term securitizations:
 

 

 

 

 

 

Fixed-rate
 
—

 
2,758,872

 
2,758,872

 
—

 
2,284,347

 
2,284,347

Variable-rate
 
—

 
1,906,138

 
1,906,138

 
—

 
1,802,609

 
1,802,609

Total Private Education Loan term securitizations
 
—

 
4,665,010

 
4,665,010

 
—

 
4,086,956

 
4,086,956

Secured Borrowing Facility
 
—

 
—

 
—

 
—

 
—

 
—

Total secured borrowings
 
—

 
4,665,010

 
4,665,010

 
—

 
4,086,956

 
4,086,956

Total
 
$
—

 
$
4,862,763

 
$
4,862,763

 
$
—

 
$
4,284,304

 
$
4,284,304


Other Borrowing Sources
We maintain discretionary uncommitted Federal Funds lines of credit with various correspondent banks, which totaled $125 million at June 30, 2019. The interest rate we are charged on these lines of credit is priced at Fed Funds plus a spread at the time of borrowing and is payable daily. We did not utilize these lines of credit in the six months ended June 30, 2019 or in the year ended December 31, 2018.
We established an account at the FRB to meet eligibility requirements for access to the Primary Credit borrowing facility at the FRB’s Window. The Primary Credit borrowing facility is a lending program available to depository institutions that are in generally sound financial condition. All borrowings at the Window must be fully collateralized. We can pledge asset-backed and mortgage-backed securities, as well as FFELP Loans and Private Education Loans, to the FRB as collateral for borrowings at the Window. Generally, collateral value is assigned based on the estimated fair value of the pledged assets. At June 30, 2019 and December 31, 2018, the value of our pledged collateral at the FRB totaled $3.4 billion and $3.1 billion, respectively. The interest rate charged to us is the discount rate set by the FRB. We did not utilize this facility in the six months ended June 30, 2019 or in the year ended December 31, 2018.
Contractual Loan Commitments
When we approve a Private Education Loan at the beginning of an academic year, that approval may cover the borrowing for the entire academic year. As such, we do not always disburse the full amount of the loan at the time of such approval, but instead have a commitment to fund a portion of the loan at a later date (usually at the start of the second semester or subsequent trimesters). At June 30, 2019, we had $1.3 billion of outstanding contractual loan commitments which we expect to fund during the remainder of the 2019/2020 academic year. At June 30, 2019, we had a $0.7 million reserve recorded in “Other Liabilities” to cover expected losses that may occur during the one-year loss emergence period on these unfunded commitments.
 


77

Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with GAAP. A discussion of our critical accounting policies, which include allowance for loan losses, derivative accounting, and transfers of financial assets and the VIE consolidation model, can be found in our 2018 Form 10-K. There were no significant changes to these critical accounting policies during the six months ended June 30, 2019.

Recently Issued but Not Yet Adopted Accounting Pronouncements
ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which will become effective for us on January 1, 2020. This ASU eliminates the current accounting guidance for the recognition of credit impairment. Under the new guidance, for all loans carried at amortized cost, upon loan origination we will be required to measure our allowance for loan losses based on our estimate of all current expected credit losses over the remaining contractual term of the assets. Updates to that estimate each period will be recorded through provision expense. The estimate of loan losses must be based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU does not mandate the use of any specific method for estimating credit loss, permitting companies to use judgment in selecting the approach that is most appropriate in their circumstances. Upon adoption, a cumulative effect adjustment to retained earnings will be recorded as of the beginning of the first reporting period in which the guidance is effective in an amount necessary to adjust the allowance for loan losses to equal the current estimate of expected losses on financial assets held at that date.
We have evaluated the standard and initiated implementation efforts. We have identified the loss forecasting approach and have built the loss models for our Private Education Loans and our Personal Loans acquired from third-parties. For our Private Education Loan and total Personal Loan portfolios, we will be using the discounted cash flow approach to calculate our current expected credit losses. We estimate the CECL allowance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. We have determined that, for modeling current expected credit losses, we can reasonably estimate expected losses that incorporate the current and forecasted economic conditions over a two-year period, after which the model will immediately revert to our long-term expected loss rates. During the remainder of 2019, we plan to complete our loss models for Personal Loans we originate and credit card receivables and complete the testing and validation for all the models to be used to implement CECL. During the second quarter of 2019, we performed a dry run of our CECL solution for our Private Education Loan and purchased Personal Loan portfolios to test the end-to-end implementation of the new solution. The loss and other models that will be used in our CECL solution are currently undergoing validation or will be in the coming months. As such, the estimated CECL impacts described below are our best estimates at June 30, 2019, but could be materially different as we complete our testing, validation and other efforts to adopt the new standard.
Adoption of the standard will have a material impact on how we record and report our financial condition and results of operations, and on regulatory capital. If we had adopted the standard at June 30, 2019, we estimate the reported allowance for loan losses would have increased by between $0.9 billion and $1.1 billion, and $0.05 billion and $0.1 billion on that date for Private Education Loans and Personal Loans, respectively. In addition, we estimate that our reported total equity would have been reduced by between $0.7 billion and $0.9 billion on that date. Banking regulators have provided an optional three-year phase-in for the initial impact of adopting the new standard for regulatory capital adequacy purposes. We intend to avail ourselves of the phase-in option and, upon adoption of the new standard, we expect to meet or exceed all applicable regulatory capital levels. The extent of the impact upon adoption at January 1, 2020 will likely depend on the characteristics of our loan portfolio and economic conditions at that date, as well as forecasted conditions thereafter.



78

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity Analysis
Our interest rate risk management program seeks to manage and control interest rate risk, thereby reducing our exposure to fluctuations in interest rates and achieving consistent and acceptable levels of profit in any rate environment and sustainable growth in net interest income over the long term. We evaluate and monitor interest rate risk through two primary methods:
•
Earnings at Risk (“EAR”), which measures the impact of hypothetical changes in interest rates on net interest income; and
•
Economic Value of Equity (“EVE”), which measures the sensitivity or change in the economic value of equity to changes in interest rates.
A number of potential interest rate scenarios are simulated using our asset liability management system. The Bank is the primary source of interest rate risk within the Company. At present, a significant portion of the Bank’s earning assets are priced off of 1-month LIBOR. Therefore, 1-month LIBOR is considered a core rate in our interest rate risk analysis. Other interest rate changes are correlated to changes in 1-month LIBOR for analytic purposes, to achieve a parallel yield curve shock for most rates. Some rates are shocked at higher or lower correlations based on historical relationships. In addition, key rates are modeled with a floor, which indicates how low each specific rate is likely to move in practice. Rates are adjusted up or down via a set of scenarios that includes both rate shocks and ramps. Rate shocks represent an immediate and sustained change in 1-month LIBOR, with the resulting changes in other indices correlated accordingly. Interest rate ramps represent a linear increase in 1-month LIBOR over the course of 12 months, with the resulting changes in other indices correlated accordingly.
The following tables summarize the potential effect on earnings over the next 24 months and the potential effect on market values of balance sheet assets and liabilities at June 30, 2019 and 2018, based upon a sensitivity analysis performed by management assuming a hypothetical increase or decrease in market interest rates of 100 basis points and a hypothetical increase in market interest rates of 300 basis points while funding spreads remain constant. The EVE 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, commitments or hedging instruments that may arise in the future.
With increases in the level of interest rates, it became possible in the first quarter of 2017 to measure meaningfully the impact of a downward rate shock of 100 basis points. At today’s levels of interest rates, a 300 basis point downward rate shock does not provide a meaningful indication of interest rate sensitivity. These results indicate that our market risk profile has been managed to be less rate sensitive. Both EAR and EVE results show lower sensitivity than at June 30, 2018. The EVE analysis indicates a change in the direction of rate sensitivity, due primarily to a balance sheet mix change toward more fixed-rate Private Education Loans. This leads the overall change in value in response to an upward rate shock to have a minor negative impact on EVE. The baseline valuation of equity showed a higher relative value in 2018 and a lower relative valuation in 2019, due to the significant changes in the shape of the yield curve used for discounting purposes between the fourth quarter of 2018 and the first quarter of 2019. Both EAR and EVE analyses continue to indicate a relatively low level of interest rate sensitivity.
 
June 30,
 
2019
 
2018
 
+300
Basis Points
 
+100
Basis Points
 
-100
Basis Points
 
+300
Basis Points
 
+100
Basis Points
 
-100
Basis Points
 
 
 
 
 
 
 
 
 
 
 
 
EAR - Shock
+5.8%
 
+1.9%
 
-1.9%
 
+10.3%
 
+3.6%
 
-2.8%
EAR - Ramp
+4.3%
 
+1.3%
 
-1.4%
 
+9.4%
 
+3.5%
 
-2.1%
EVE
-0.8%
 
-0.3%
 
+0.3%
 
+7.5%
 
+2.5%
 
-2.4%
            
The EVE results in the table above reflect a change in the calculation of the 2019 and 2018 rate sensitivities. A modification of the discounting methodology resulted in a higher baseline EVE measurement, which results in lower sensitivities. The actual dollar changes in EVE in response to interest rate shocks has changed only slightly. Prior to the change

79

in calculation, the EVE sensitivities at June 30, 2018 were +11.6 percent for “+300 basis points”, +3.9 percent for “+100 basis points” and -4.1 percent for “-100 basis points.”
A primary objective in our funding is to manage our sensitivity to changing interest rates by generally funding our assets with liabilities of similar interest rate repricing characteristics. This funding objective is frequently obtained through the use of derivatives. Uncertainty in loan repayment cash flows and the pricing behavior of our non-maturity retail deposits pose challenges in achieving our interest rate risk objectives. In addition to these considerations, we can have a mismatch in the index (including the frequency of reset) of floating-rate debt versus floating-rate assets.
As part of its suite of financial products, the Bank offers fixed-rate Private Education Loans. As with other Private Education Loans, the term to maturity is lengthy, and the customer has the option to repay the loan faster than the promissory note requires. Asset securitization and fixed-rate CDs provide intermediate to long-term fixed-rate funding for some of these assets. Additionally, a portion of the fixed-rate loans have been hedged with derivatives, which have been used to convert a portion of variable-rate funding to fixed-rate to match the anticipated cash flows of these loans. Any unhedged position arising from the fixed-rate loan portfolio is monitored and modeled to ensure that the interest rate risk does not cause the Company to exceed its policy limits for earnings at risk or for the value of equity at risk.
In the preceding tables, the interest rate sensitivity analysis reflects the heavy balance sheet mix of fully variable LIBOR-based loans and cash invested at variable rates, which slightly exceeds the mix of fully variable funding, including brokered CDs that have been converted to LIBOR through derivative transactions. The analysis does not anticipate that retail MMDAs or retail savings balances, while relatively sensitive to interest rate changes, will reprice to the full extent of interest rate shocks or ramps. Also considered is (i) the impact of FFELP loans, which receive floor income in low interest rate environments, and will therefore not reprice fully with interest rate shocks and (ii) the impact of fixed-rate loans that have not been fully match-funded through derivative transactions and fixed-rate funding from CDs and asset securitization. An additional consideration is the implementation of a loan cap of 25 percent on variable-rate loans originated on and after September 25, 2016. As of June 30, 2019, there were $10.7 billion of loans with 25 percent interest rate caps on the balance sheet. The less asset-sensitive position at the end of the second quarter of 2019 results in a more balanced interest rate risk profile, leaving the Bank positioned more defensively against potential rate decreases. This sensitivity position will fluctuate somewhat during the year, depending on the funding mix in place at the time of the analysis.
Although we believe that these measurements provide an estimate of our interest rate sensitivity, they do not account for potential changes in credit quality, balance sheet mix and size of our balance sheet. They also do not account for other business developments that could affect net income, or for management actions that could affect net income or could be taken to change our risk profile. Accordingly, we can give no assurance that actual results would not differ materially from the estimated outcomes of our simulations. Further, such simulations do not represent our current view of expected future interest rate movements.


80

Asset and Liability Funding Gap
The table below presents our assets and liabilities (funding) arranged by underlying indices as of June 30, 2019. In the following GAAP presentation, the funding gap only includes derivatives that qualify as effective hedges (those derivatives which are reflected in net interest income, 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 at a high level 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. (Note that all fixed-rate assets and liabilities are aggregated into one line item, which does not capture the differences in time due to maturity.)


(Dollars in millions)
Index
 
Frequency of
Variable
Resets
 
Assets
 
Funding (1) 
 
Funding
Gap
Fed Funds Effective Rate
 
daily/weekly/monthly
 
$
—

 
$
435.0

 
$
(435.0
)
3-month Treasury bill
 
weekly
 
119.0

 
—

 
119.0

Prime
 
monthly
 
2.0

 
—

 
2.0

3-month LIBOR
 
quarterly
 
—

 
400.0

 
(400.0
)
1-month LIBOR
 
monthly
 
13,395.6

 
9,860.0

 
3,535.6

1-month LIBOR
 
daily
 
693.5

 
—

 
693.5

Non-Discrete reset(2)
 
daily/weekly
 
4,140.0

 
3,618.3

 
521.7

Fixed-Rate(3)
 
 
 
11,235.1

 
15,271.9

 
(4,036.8
)
Total
 
 
 
$
29,585.2

 
$
29,585.2

 
$
—

          ______________________
(1) 
Funding (by index) includes the impact of all derivatives that qualify as effective hedges.
(2) 
Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes liquid retail deposits and the obligation to return cash collateral held related to derivatives exposures.
(3) 
Assets include receivables and other assets (including premiums and reserves). Funding includes unswapped time deposits, liquid MMDAs swapped to fixed-rates and stockholders' equity.

The “Funding Gap” in the above table shows primarily mismatches in the 1-month LIBOR, fixed-rate and Non-Discrete reset categories. Changes in the Fed Funds Effective Rate, 3-month LIBOR and 1-Month LIBOR daily categories are generally quite highly correlated, and should offset each other relatively effectively. We consider the overall risk to be moderate since the funding in the Non-Discrete bucket is our liquid retail portfolio, for which the rates offered are quite highly correlated to changes in the 1-month LIBOR on a monthly basis. The funding in the fixed-rate bucket includes $2.7 billion of equity and $0.5 billion of non-interest bearing liabilities.
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 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 lives of our earning assets and liabilities at June 30, 2019.
 
 
Weighted
 
Average
(Averages in Years)
Life
Earning assets
 
Education loans
5.30

Personal loans
1.35

Cash and investments
0.34

Total earning assets
4.34

 
 
Deposits
 
Short-term deposits
0.59

Long-term deposits
2.63

Total deposits
1.25

 
 
Borrowings
 
Long-term borrowings
4.08

Total borrowings
4.08






82

Item 4.
Controls and Procedures

Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2019. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2019, 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 SEC’s rules and forms and (b) accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


83

PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
For information, see Item 3. “Legal Proceedings” in our 2018 Form 10-K.
Item 1A. Risk Factors
Our business activities involve a variety of risks. Readers should carefully consider the risk factors disclosed in Item 1A. “Risk Factors” of our 2018 Form 10-K.

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 June 30, 2019.
 
(In thousands, 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:
 
 
 
 
 
 
 
April 1 - April 30, 2019
1,125

 
$
10.13

 
1,110

 
$
129,000

May 1 - May 31, 2019
4,106

 
$
10.04

 
4,100

 
$
88,000

June 1 - June 30, 2019
782

 
$
9.87

 
779

 
$
80,000

Total second-quarter 2019
6,013

 
$
10.04

 
5,989

 
 
_________
(1) 
The total number of shares purchased includes: (i) shares purchased under the stock repurchase program discussed herein, and (ii) shares of our common stock tendered to us to satisfy the exercise price in connection with cashless exercises of stock options, and tax withholding obligations in connection with exercises of stock options and vesting of restricted stock, restricted stock units and performance stock units.
(2) 
In January 2019, our Board of Directors authorized us to repurchase shares of our common stock up to an aggregate repurchase price not to exceed $200 million. The share repurchase program expires on January 22, 2021.

The closing price of our common stock on the Nasdaq Global Select Market on June 28, 2019 was $9.72.

Item 3.
Defaults Upon Senior Securities
Nothing to report.
Item 4.
Mine Safety Disclosures
Not applicable.



84

Item 5.
Other Information
Nothing to report.

Item 6.
Exhibits
The following exhibits are furnished or filed, as applicable:
 
 
10.1
 
 
31.1
 
 
31.2
 
 
32.1
 
 
32.2
 
 
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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.
 




85

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/ STEVEN J. MCGARRY
 
Steven J. McGarry
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
 
Date: July 24, 2019


86


EXHIBIT 10.1

SLM Corporation 2012 Omnibus Incentive Plan

2019 Independent Director Restricted Stock Agreement

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 June 20, 2019 (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 Corporation’s 2020 annual meeting of stockholders (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 Grantee’s death or Disability or (ii) upon a Change in Control.

100 percent of the Restricted Stock will be forfeited if the Grantee ceases to be a director of the Corporation’s Board of Directors prior to the Vesting Event for any reason other than death, Disability (as defined below) or a Change in Control.

The Restricted Stock will be held in an account in the Grantee’s name at the Corporation’s 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 in cash currently except in the case of fractional shares as set forth below. Instead, an account established on behalf of the Grantee will be credited with an amount equal to such dividends, which amount shall be reinvested in additional shares of the Corporation’s common stock (“Dividend Equivalent”). The value of the Dividend Equivalents will be calculated in the same manner as dividends paid to holders of common stock. Such Dividend Equivalents will be subject to the same vesting schedule to which the Restricted Stock is subject. Upon vesting of any portion of the Restricted Stock, the amount of Dividend Equivalents allocable to such Restricted Stock (and any fractional share amount) will also vest and will be converted into shares of the Corporation’s 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 Corporation’s 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 the Grantee’s 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”). The 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 the Grantee authorizes the recipients to receive, possess, use, retain and transfer 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 Corporation’s common stock. The Grantee acknowledges that Data may be held to implement, administer and manage the Grantee’s participation in the Plan as determined by the Corporation, and that the 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 the Grantee’s consent may adversely affect the Grantee’s 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 Grantee’s 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 Grantee’s term of service with the Corporation and thereafter until withdrawn in writing by Grantee.

“Disability” means the absence of the Grantee from the Corporation’s 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 Grantee’s legal representative.

The Grantee is deemed to accept this award of Restricted Stock under this Agreement and to agree that such award is subject to the terms and conditions set forth in this Agreement and the Plan unless the Grantee provides the Corporation written notification of the Grantee’s rejection of this award of Restricted Stock not later than 30 days after the Grantee’s receipt of notice of the posting of this Agreement on-line or through electronic means (in which case such award will be forfeited and the Grantee shall have no further right or interest therein as of such date).















Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Raymond J. Quinlan, 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

            
/s/ RAYMOND J. QUINLAN
Raymond J. Quinlan
Executive Chairman and Chief Executive Officer
(Principal Executive Officer)
July 24, 2019







Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Steven J. McGarry, 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

                    
/s/ STEVEN J. MCGARRY
Steven J. McGarry
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
July 24, 2019



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 June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Raymond J. Quinlan, Executive 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/ RAYMOND J. QUINLAN
Raymond J. Quinlan
Executive Chairman and Chief Executive Officer
(Principal Executive Officer)
July 24, 2019


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 June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven J. McGarry, Executive Vice President and Chief Financial 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/ STEVEN J. MCGARRY
Steven J. McGarry
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
July 24, 2019