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The following table presents the carrying value of loans that experienced a payment default during the year ended
November 30, 2011 and that had been modified in a troubled debt restructuring during the fifteen months preceding the end of
each quarterly period (dollars in thousands):
Troubled debt restructurings that subsequently defaulted:
Credit Card (1)(2):
Internal Programs
External Programs
Student Loans
Personal Loans
For the year ended
November 30, 2011
Number of
Accounts
18,354
11,974
19
17
Aggregated
Outstanding
Balances Upon
Default
$ 130,636
$ 61,959
$ 667
$ 216
(1) The outstanding balance upon default is the loan balance at the end of the month prior to default.
(2) A customer defaults from a modification program after two consecutive missed payments.
(3) Terms revert back to the pre-modification terms for customers who default from a temporary program and charging privileges remain revoked.
Of the account balances that defaulted as shown above, approximately 40% of the total balances charged off at the end
of the month in which they defaulted. For accounts that have defaulted from a loan modification program and that have not
subsequently charged off, the balances are included in the allowance for loan loss analysis discussed under the above section
entitled "Allowance for Loan Losses".
Purchased Credit-Impaired Loans. Purchased loans with evidence of credit deterioration since origination for which it
is probable that not all contractually required payments will be collected are considered impaired at acquisition and are reported
as PCI loans. The private student loans acquired in the SLC transaction as well as the private student loans acquired from Citi
comprise the Company’s only PCI loans at November 30, 2011. Total PCI student loans had an outstanding balance of $5.7
billion, including accrued interest, and a related carrying amount of $5.3 billion as of November 30, 2011.
Management concluded it is probable that it will be unable to collect all contractually required payments due but it is
unable to specifically identify which loans it will be unable to collect. Therefore, the Company has elected to apply ASC
310-30 by analogy to the entire pool of acquired loans.
At the time of these acquisitions, these loans were recorded at fair value. The Company estimated the initial fair value of
the acquired loans based on the cash flows expected to be collected, discounted at a market rate of interest. Expected cash flows
used in the initial fair value measurements reflect the effect of expected losses and prepayments as well as anticipated changes
in the interest rate indices applicable to these variable rate loans.
As of the acquisition date of December 31, 2010, the PCI student loans acquired in the SLC transaction had an aggregate
outstanding balance of approximately $3.8 billion, including accrued interest, and a fair value (initial carrying value) of
approximately $3.1 billion. Of the $3.8 billion aggregate outstanding balance of loans acquired, loans with an aggregate
outstanding balance of approximately $31 million were non-performing as of the acquisition date.
As of the acquisition date of September 30, 2011, the private student loans acquired from Citibank had an aggregate
outstanding balance and an estimated fair value of approximately $2.4 billion . These loans were acquired at a discount which
reflects a decline in the credit quality of the loans after their origination that is partially offset by a premium which reflects the
value in certain loans that carry interest rates above prevailing market rates at the acquisition date. Of the $2.4 billion
aggregate outstanding balance of loans acquired, loans with an outstanding balance of approximately $16 million were non-
performing as of the acquisition date. There has not been any significant incremental credit deterioration on either portfolio
since the respective acquisition dates, and therefore no allowance has been established for the PCI student loans at
November 30, 2011.
Certain PCI student loans in one of the three SLC securitization trusts are covered by an indemnification agreement with
Citibank for credit losses. The indemnified loans are presented along with all other PCI student loans and the related
indemnification asset is recognized as a separate asset on the Company’s consolidated statement of financial condition. See
Note 4: Business Combinations for a description of the indemnification asset.
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