Sallie Mae 2010 Annual Report Download - page 24

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our Consolidated Financial
Statements and related Notes included elsewhere in this Annual Report on Form 10-K. This discussion and
analysis also contains forward-looking statements and should also be read in conjunction with the disclosures
and information contained in “Forward-Looking and Cautionary Statements” and Item 1A “Risk Factors” in
this Annual Report on Form 10-K.
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.
Overview
We provide Private Education Loans that help students and their families bridge the gap between family
resources, federal loans, grants, student aid, scholarships, and the cost of a college education. We also provide
savings products to help save for a college education. In addition we provide servicing and collection services on
federal loans. We also offer servicing, collection and transaction support directly to colleges and universities in
addition to the saving for college industry. Finally, we are the largest private owner of FFELP Loans.
Effective July 1, 2010, HCERA legislation eliminated the authority to originate new loans under FFELP.
Consequently, we no longer originate FFELP Loans. As a result, in the fourth quarter of 2010 we changed the
way we regularly monitor and assess our ongoing operations and results by realigning our business segments
into four reportable segments: (1) FFELP Loans, (2) Consumer Lending, (3) Business Services and (4) Other.
Management now views our business as consisting of three primary segments comprised of one runoff business
(FFELP Loans) and two continuing growth businesses (Consumer Lending and Business Services).
FFELP Loans Segment
Our FFELP Loans segment consists of our $148.6 billion FFELP Loan portfolio and underlying debt and
capital funding these loans. This includes the acquisition of loans from the Student Loan Corporation on
December 31, 2010 (see “Segment Earnings Summary — ‘Core-Earnings’ Basis — FFELP Loans Segment” of
this Item 7 for further discussion). Because we no longer originate FFELP Loans the portfolio is in runoff and
is expected to amortize over approximately the next 25 years with a weighted average remaining life of
7.7 years. We actively seek to acquire FFELP Loan portfolios to leverage our servicing scale and expertise to
generate incremental earnings and cash flow to create additional shareholder value. Of our total FFELP Loan
portfolio, 77 percent was funded to term through securitization trusts, 16 percent was funded through the ED
Conduit Program which terminates on January 19, 2014, 5 percent was funded in our multi-year ABCP facility
and FHLB-DM facility, and the remainder was funded with unsecured debt. It is expected to generate a stable
net interest margin and significant amounts of cash as the portfolio amortizes.
Consumer Lending Segment
In our Consumer Lending segment we originate, acquire, finance and service Private Education Loans. As
of December 31, 2010 we had $35.7 billion of Private Education Loans outstanding. In 2010 we originated
$2.3 billion of Private Education Loans, down from $3.2 billion in the prior year. We provide Private
Education Loans to students and their families to help them pay for a college education. We provide loans
through the financial aid office, direct-to-consumer and through referral and partner lenders. We also provide
savings products, primarily in the form of retail deposits, to help customers save for a college education (we
refer to this as our Direct Banking business line).
Business Services Segment
In our Business Services segment we provide loan servicing to our FFELP Loans segment, ED and other
third parties. We provide default aversion work and contingency collections on behalf of Guarantors, colleges
and ED. We also perform Campus Payment Solutions, account asset servicing and transaction processing
activities.
Other
Our Other segment primarily consists of the financial results related to the repurchase of debt, the
corporate liquidity portfolio and all overhead. We also include results from smaller wind-down and discontin-
ued operations within this segment.
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