Sallie Mae 2013 Annual Report Download

Download and view the complete annual report

Please find the complete 2013 Sallie Mae annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 232

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196
  • 197
  • 198
  • 199
  • 200
  • 201
  • 202
  • 203
  • 204
  • 205
  • 206
  • 207
  • 208
  • 209
  • 210
  • 211
  • 212
  • 213
  • 214
  • 215
  • 216
  • 217
  • 218
  • 219
  • 220
  • 221
  • 222
  • 223
  • 224
  • 225
  • 226
  • 227
  • 228
  • 229
  • 230
  • 231
  • 232

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ÍANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2013
or
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file numbers 001-13251
SLM Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware 52-2013874
(State of Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
300 Continental Drive, Newark, Delaware 19713
(Address of Principal Executive Offices) (Zip Code)
(302) 283-8000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act
Common Stock, par value $.20 per share.
Name of Exchange on which Listed:
The NASDAQ Global Select Market
6.97% Cumulative Redeemable Preferred Stock, Series A, par value $.20 per share
Floating Rate Non-Cumulative Preferred Stock, Series B, par value $.20 per share
Name of Exchange on which Listed:
The NASDAQ Global Select Market
Medium Term Notes, Series A, CPI-Linked Notes due 2017
Medium Term Notes, Series A, CPI-Linked Notes due 2018
6% Senior Notes due December 15, 2043
Name of Exchange on which Listed:
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ÍNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No Í
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 ÍNo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes ÍNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer ÍAccelerated filer
Non-accelerated filer Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No Í
The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2013 was $9.9 billion (based on
closing sale price of $22.86 per share as reported for the NASDAQ Global Select Market).
As of January 31, 2014, there were 428,698,212 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement relating to the Registrant’s 2014 Annual Meeting of Stockholders are incorporated by reference into
Part III of this Annual Report on Form 10-K.

Table of contents

  • Page 1
    ... file numbers 001-13251 SLM Corporation (Exact Name of Registrant as Specified in Its Charter) Delaware (State of Other Jurisdiction of Incorporation or Organization) 52-2013874 (I.R.S. Employer Identification No.) 300 Continental Drive, Newark, Delaware (Address of Principal Executive Offices...

  • Page 2
    ..., Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accounting Fees and Services ...Market...

  • Page 3
    ..."Sallie Mae" and the "Company," refer to SLM Corporation and its subsidiaries, except as otherwise indicated or unless the context otherwise requires. AVAILABLE INFORMATION Our website address is www.salliemae.com. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current...

  • Page 4
    ... offices are located at 300 Continental Drive, Newark, Delaware 19713, and our telephone number is (302) 283-8000. On May 29, 2013, we announced our intent to separate into two distinct publicly-traded entities - an education loan management business ("NewCo") and a consumer banking business ("SLM...

  • Page 5
    ... plan by providing financial rewards on everyday purchases. Traditional savings products, like High-Yield Savings Accounts, Money Market Accounts and CDs, are available through Sallie Mae Bank. Step 2: Pursue federal government loan options. We encourage consumers to explore federal government loan...

  • Page 6
    ... of our outreach, the federal education loans we service default at rates 30 percent better than the national average. Most customers tell us they want to repay their loans as quickly as they can, thus minimizing their borrowing costs. Customers who request additional payment flexibility are most...

  • Page 7
    ...Core Earnings' Basis - Consumer Lending Segment" for a full discussion of our Consumer Lending business and related Private Education Loan portfolio. Private Education Loans in Context Private Education Loans help students and families fill the gap between their own resources, financial aid, federal...

  • Page 8
    ... address issues raised during any examination could result in limitations on our ability to obtain deposit funding in Sallie Mae Bank and could materially and adversely impact Sallie Mae Bank's business, financial condition and results of operations. Key Drivers of Private Education Loan Market...

  • Page 9
    ... creation of the Grad PLUS program in 2006 and increases in federal borrowing limits in 2007 and 2008. The College Board also reported that, over the same time period, federal grants increased 198 percent to $47 billion. In AY 2012-2013, borrowing from Private Education Loan programs increased to an...

  • Page 10
    ... reduction is implemented by ED. We earned approximately $283 million in fee income from these activities in 2013, and we currently estimate the Budget Act will reduce fee income in 2014 by approximately $60 million. In 2013, FFELP-related revenues accounted for 77 percent of total Business Services...

  • Page 11
    ...period. Currently, we are participating in ED's procurement process for a new debt collection contract and expect them to announce the recipients by April 30, 2014. Since the second quarter of 2009, we have been one of four large servicers awarded a servicing contract by ED to service Direct Student...

  • Page 12
    ... Financial Condition and Results of Operations - Business Segment Earnings Summary - 'Core Earnings' Basis - FFELP Loans Segment" for a full discussion of our FFELP Loans segment. After completion of the Spin-Off, we anticipate that SLM BankCo will retain only Sallie Mae Bank's FFELP Loan portfolio...

  • Page 13
    ... a number of considerations for policymakers and market participants, such as refinancing relief and monthly payments more closely correlated with a borrower's debt-to-income ratio. Certain of these CFPB recommendations in the report could negatively affect our private education loan portfolio if...

  • Page 14
    ... and that recent changes to mortgage servicing and credit card servicing practices might be applicable to the Private Education Loan market. • On December 3, 2013, the CFPB issued a final rule defining larger participants of the student loan servicing market. The rule, which will become effective...

  • Page 15
    ... insured depository institutions, such as Sallie Mae Bank, relating to internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, and asset quality. The agencies also must prescribe standards for asset quality, earnings, and stock...

  • Page 16
    ... liquidity of the Company and its subsidiaries taken as a whole. If the FDIC continues its general objection to the payment of dividends from Sallie Mae Bank to its parent for an extended period of time after the completion of the Spin-Off, SLM BankCo's financial condition, operations, liquidity and...

  • Page 17
    ... Deposits at Sallie Mae Bank are insured by the Deposit Insurance Fund (the "DIF"), as administered by the FDIC, up to the applicable limits established by law. The Dodd-Frank Act amended the statutory regime governing the DIF. Among other things, the Dodd-Frank Act established a minimum designated...

  • Page 18
    ...applications to open a branch or facility. Failure to adequately meet these criteria could result in additional requirements and limitations on Sallie Mae Bank. Privacy Laws Financial institutions are required to disclose their policies for collecting and protecting confidential customer information...

  • Page 19
    ... HEA and our student loan operations are periodically reviewed by ED and Guarantors. As a servicer of federal student loans, we are subject to ED regulations regarding financial responsibility and administrative capability that govern all third-party servicers of insured student loans. In connection...

  • Page 20
    ... of Sallie Mae Bank and its Private Education Loan origination business, the Private Education Loans it holds and a related servicing business, will be a consumer banking franchise with expertise in helping families save, plan and pay for college. We are in the process of implementing our announced...

  • Page 21
    ...own and operate Existing SLM's education loan management business. • "Bank" refers to Sallie Mae Bank, a Utah industrial bank that (a) is currently a subsidiary of Existing SLM and (b) as part of the internal corporate reorganization, will be transferred by Existing SLM to, and become a subsidiary...

  • Page 22
    ... be an indirect subsidiary of NewCo. • "Unsecured Debt" refers to Existing SLM's unsecured public indebtedness of $18.3 billion outstanding as of December 31, 2013, consisting of the senior notes and medium term notes. After the internal corporate reorganization, the Unsecured Debt will remain the...

  • Page 23
    ...Private ServiceCo SMI SLMIC *Each holder of one share of Existing SLM common stock will receive one share of SLM BankCo common stock and one share of NewCo common stock. identifies companies associated with consumer banking business identifies companies associated with education loan management...

  • Page 24
    ... today. Following the SLM Merger, through a series of internal transactions, all of the assets and liabilities related to Existing SLM's consumer banking business, including Sallie Mae Bank, a new private education loan servicing company, Existing SLM's Upromise business and Sallie Mae Insurance...

  • Page 25
    ... over time as Sallie Mae Bank continues to originate and service more Private Education Loans. The additional expense of originating these loans, their higher rates of return and growth, their higher risk profile, the capital support risks associated with ownership of a federally insured financial...

  • Page 26
    ...parties" of, Sallie Mae Bank will continue to be subject to the FDIC's examination and enforcement authority. In addition, to facilitate compliance with certain consumer information privacy laws during an information technology transition period post-Spin-Off in which both NewCo and SLM BankCo loans...

  • Page 27
    ... and collect on its own portfolio of education loans, as well as on those owned by ED, financial institutions, banks, credit unions and non-profit education lenders. It will also provide servicing support for Guarantor agencies, which serve as intermediaries between the U.S. federal government and...

  • Page 28
    ... reviewed annually by the FDIC as Sallie Mae Bank's regulator. The business plan is based on assumptions and other factors that are subject to change. Private Education Loans SLM BankCo will market, price, underwrite and disburse its Private Education Loan products. To maintain high credit standards...

  • Page 29
    ... of SLM BankCo ("Private ServiceCo") will provide servicing and loan collection for Private Education Loans originated and held by Sallie Mae Bank, as well as those sold to third parties. As part of the Spin-Off of the consumer banking business and the education loan management business, SLM BankCo...

  • Page 30
    ... 31, 2013, the average FICO score at origination for our Smart Option loans was 746. To reinforce responsible borrowing, SLM BankCo will continue to disburse loan proceeds directly to schools, encourage customers to make payments while in school, and send statements to borrowers and cosigners during...

  • Page 31
    ... separation adjustments. The stand-alone SLM BankCo unaudited financial information is comprised of financial information relating to Sallie Mae Bank, Upromise, Sallie Mae Insurance Services, and the Private Education Loan origination functions. Also included are certain general corporate overhead...

  • Page 32
    ...to fund the loans to term through the issuance of an asset back securitization; and (2) to enable the affiliates to manage loans that were granted forbearance or were 90 days or more past due. As a result of these past practices, Sallie Mae Bank's historical credit results do not reflect charge-offs...

  • Page 33
    ... operations, assets, liabilities and equity of SLM BankCo, which will be comprised of Sallie Mae Bank, Upromise, Sallie Mae Insurance Services, and the Private Education Loan origination functions. Included in these amounts are also certain general corporate overhead payables related to SLM BankCo...

  • Page 34
    ...Bank, Upromise, Sallie Mae Insurance Services, and the Private Education Loan origination functions. Included in these amounts are also certain general corporate overhead expenses related to SLM BankCo. General corporate overhead of $77 million consisted of costs primarily associated with accounting...

  • Page 35
    ... 31, 2013 adjusted pro forma for the effects of the Spin-Off. Year ended December 31, 2013 Interest Average Income/ Balance Expense % Yield (Dollars in millions) Average Assets Private education loans ...FFELP loans ...Taxable securities ...Cash and short term investments ...Total interest-earning...

  • Page 36
    The following table shows Sallie Mae Bank's historical daily average net interest margin on the loans that are part of the Private Education Loan portfolio for the year ended December 31, 2013. Year ended December 31, 2013 Net loan yield ...Cost of funds ...Private Education Loan spread ...(Dollars...

  • Page 37
    ... table highlights the principal historical balance of the Private Education Loan portfolio of Sallie Mae Bank stratified by the key credit quality indicators as of December 31, 2013. Credit Quality Indicators Private Education Loans December 31, 2013 Balance % (Dollars in millions) Cosigner...

  • Page 38
    ... deposits maturity schedule excludes money market deposit accounts. Sallie Mae Bank Capital The following tables show Sallie Mae Bank's actual, reported capital levels and capital ratios as of December 31, 2013, which do not take into account the effects of the change in reporting entity accounting...

  • Page 39
    ...III standards were Basel III to apply at the SLM BankCo level. At the date of this Annual Report on Form 10-K, the FDIC has lodged a continuing objection to the payment of dividends by Sallie Mae Bank to the Company for any reason other than the payment of normal quarterly cash dividends paid by the...

  • Page 40
    ... additional discussion on regulatory and compliance risks relating to Sallie Mae Bank, see below at Item 1A. "Risk Factors - Legal, Regulatory and Compliance." If we are unable to obtain funds from which to make new Private Education Loans, our business, financial condition and results of operations...

  • Page 41
    ...meet cash requirements such as day-to-day operating expenses, extensions of credit on our Private Education Loans, required payments of principal and interest on our borrowings, and distributions to our stockholders. Our primary sources of liquidity and funding are from fees we collect for servicing...

  • Page 42
    ... of our senior unsecured debt. According to their ratings reports, these concerns primarily focus on NewCo's lack of future Private Student Loan originations and related servicing income, the loss of access to the earnings, cash flow, equity and potential market value of Sallie Mae Bank, the run-off...

  • Page 43
    ... adversely affect our earnings. FFELP Loans disbursed before April 1, 2006, generally earn interest at the higher of either the borrower rate, which is fixed over a period of time, or a floating rate based on a Special Allowance Payment ("SAP") formula set by ED. We have generally financed our FFELP...

  • Page 44
    ..., grace, forbearance, repayment and delinquency), loan seasoning (number of months in active repayment), underwriting criteria (e.g., credit scores), a cosigner and the current economic environment. General economic and employment conditions, including employment rates for recent college graduates...

  • Page 45
    ...-related services in connection with our banking and payment services businesses. We also utilize third-party debt collectors significantly in the collection of defaulted Private Education Loans. If a service provider fails to provide the services we require or expect, or fails to meet applicable...

  • Page 46
    ... the payments for our direct loan servicing contract is already funded from annual appropriations, the requirement to fund all servicing from the limited appropriated funding could have an effect on our future business in ways we cannot predict at this time. • Other Higher Education Legislation...

  • Page 47
    ... conditions, including, among others, the receipt of a favorable private letter ruling from the Internal Revenue Service and the SEC declaring effective a registration statement relating to the securities of the separated entity. We cannot assure that the Spin-Off will be completed in a timely...

  • Page 48
    ..., accounting, tax, legal and other professional services costs and recruiting and relocation costs associated with hiring key senior management personnel new to SLM BankCo. In addition, the businesses that will be operated out of SLM BankCo have historically taken advantage of our current size and...

  • Page 49
    ...The smaller market capitalization of SLM BankCo; • Changes in earnings estimated by securities analysts or SLM BankCo's ability to meet those estimates; • Uncertainty relating to the dividend policy between Sallie Mae Bank and SLM BankCo as a stand-alone entity; • The operating and stock price...

  • Page 50
    ... to higher education costs increases, or if the demand for higher education loans decreases, our consumer lending business could be negatively affected. In addition, the federal government, through the DSLP, poses significant competition to our private credit loan products. If loan limits under...

  • Page 51
    ... with respect to various federal consumer financial laws for some providers of consumer financial products and services, including the Company. In December 2013, the CFPB issued a final rule, effective March 2014, defining "larger participants" in the student loan servicing market that will be...

  • Page 52
    ... new FFELP Loans. Changes in the laws, regulations and policies governing federal loan servicing or the terms and conditions of existing FFELP Loans could have an adverse effect on our results of operations, financial condition, cash flows and business prospects. Our Private Education Loan business...

  • Page 53
    ... FRB to be applicable to SIFIs would have a material impact on our business, results of operations and financial condition. As directed by the Dodd-Frank Act, on April 3, 2012, FSOC approved the final rule and interpretive guidance regarding the designation of non-bank financial companies as SIFIs...

  • Page 54
    ...January 1, 2015, the final rule revises the capital categories, including the well-capitalized category, in the prompt corrective action framework applicable to insured depository institutions such as Sallie Mae Bank to reflect the higher Basel III capital ratios. If Sallie Mae Bank fails to satisfy...

  • Page 55
    ... that our headquarters, loan servicing centers, data center, back-up facility and data management and collection centers are generally adequate to meet our long-term student loan and business goals. Our headquarters are currently in owned space at 300 Continental Drive, Newark, Delaware, 19713. Item...

  • Page 56
    ...by the OIG on August 3, 2009 related to our billing practices for Special Allowance Payments. The Final Audit Determination concurred with the final audit report issued by the OIG and instructed us to make adjustment to our government billing to reflect the policy determination. We have the right to...

  • Page 57
    ... Stock in connection with our plan to separate our existing business into two public companies, SLM BankCo, which will retain our consumer banking business, and NewCo, which will retain our education loan management business. The complaint generally alleges, among other things, that our Board...

  • Page 58
    ... information relating to our purchase of shares of our common stock in the three months ended December 31, 2013. Approximate Dollar Value of Shares that Total Number of May Yet Be Shares Purchased Purchased Under Average Price as Part of Publicly Publicly Announced Paid per Announced Plans Plans...

  • Page 59
    ... December 31, 2008 and reinvestment of dividends through December 31, 2013. Five Year Cumulative Total Stockholder Return $350 $300 $250 $200 $150 $100 $50 $0 2008 2009 SLM Corporation Company/Index 12/31/08 2010 2011 S&P 500 Financials 12/31/09 12/31/10 2012 2013 S&P Index 12/31/11 12/31/12 12/31...

  • Page 60
    ...consolidated financial statements, related notes, and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." 2013 2012 2011 2010 2009 Operating Data: Net interest income ...Net income (loss) attributable to SLM Corporation: Continuing operations, net of tax...

  • Page 61
    ... higher education and the amount funded through financial aid, federal loans or customers'own financial resources. In this segment, we earn net interest income on the Private Education Loan portfolio (after provision for loan losses) as well as servicing fees, primarily late fees. Business Services...

  • Page 62
    ..., our corporate credit rating, general economic conditions, investor demand for Private Education Loan asset-backed securities ("ABS") and corporate unsecured debt and competition in the deposit market. At December 31, 2013, 49 percent of our Private Education Loan portfolio was funded to term with...

  • Page 63
    ...expenses by segment. Overhead expenses include executive management, the Board of Directors, accounting, finance, legal, human resources, stock-based compensation expense and certain information technology and infrastructure costs. "Core Earnings" We report financial results on a GAAP basis and also...

  • Page 64
    ... Consumer Lending Segment Assets and Revenues We continued to pursue managed growth in our Private Education Loan portfolio in 2013, with $3.8 billion in new originations for the year compared with $3.3 billion in 2012, a 14 percent increase. The average FICO score of our 2013 originations was 745...

  • Page 65
    ... the ED Conduit Program. On July 17, 2013, we closed on a $1.1 billion asset-backed borrowing facility that matures on August 15, 2015. The facility was used to fund the call and redemption of our SLM 2009-D Private Education Loan Trust ABS, which occurred on August 15, 2013. Expand Sallie Mae Bank...

  • Page 66
    ... with GAAP. As discussed earlier, we have four business segments: Consumer Lending, Business Services, FFELP Loans and Other. Since these segments operate in distinct business environments, the discussion following the Consolidated Earnings Summary is presented on a segment basis and is shown...

  • Page 67
    GAAP Consolidated Statements of Income Years Ended December 31, 2013 2012 2011 Increase (Decrease) 2013 vs. 2012 2012 vs. 2011 $ % $ % (Dollars in millions, except per share amounts) Interest income FFELP Loans ...Private Education Loans ...Other loans ...Cash and investments ...Total interest ...

  • Page 68
    ... third-party servicing and collection activities, increased Private Education Loan marketing activities, continued investments in technology and an increase in compliance remediation expense. In the fourth quarter of 2013, we reserved $70 million for estimated compliance remediation efforts relating...

  • Page 69
    ... reduction in average FFELP Loans outstanding, higher cost of funds, which were partly due to refinancing debt into longer term liabilities, as well as the impact from the acceleration of $50 million of non-cash loan premium amortization in the second-quarter 2012 related to the Special Direct...

  • Page 70
    ... on a consolidated basis for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and investors. Because...

  • Page 71
    ... in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment. "Core Earnings" adjustments to GAAP: Year Ended December 31, 2013 Net Impact...

  • Page 72
    ...revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment. "Core Earnings" adjustments to GAAP: Year Ended December 31, 2012 Net Impact of Derivative Accounting...

  • Page 73
    ... in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment. "Core Earnings" adjustments to GAAP: Year Ended December 31, 2011 Net Impact...

  • Page 74
    ... assets. The following table reflects aggregate adjustments associated with these areas. (Dollars in millions) Years Ended December 31, 2013 2012 2011 "Core Earnings" adjustments to GAAP: Net impact of derivative accounting ...Net impact of goodwill and acquired intangible assets ...Net income tax...

  • Page 75
    ...they generally do not meet this effectiveness test because the index of the swap does not exactly match the index of the hedged assets as required for hedge accounting treatment. Additionally, some of our FFELP Loans can earn at either a variable or a fixed interest rate depending on market interest...

  • Page 76
    ... ...Change in unrealized gains on derivatives, net of tax recognized in Other Comprehensive Income ...Net impact of net unrealized gains (losses) under derivative accounting ...(a) $ 243 (111) 22 $ 154 $(194) 82 9 $(103) $(540) 208 31 $(301) See " 'Core Earnings' derivative adjustments" table...

  • Page 77
    ... impairment and the amortization of acquired intangible assets. The following table summarizes the goodwill and acquired intangible asset adjustments. (Dollars in millions) Years Ended December 31, 2013 2012 2011 "Core Earnings" goodwill and acquired intangible asset adjustments(1): Goodwill and...

  • Page 78
    ... Ended December 31, 2013 2012 2011 % Increase (Decrease) 2013 vs. 2012 2012 vs. 2011 "Core Earnings" interest income: Private Education Loans ...Cash and investments ...Total "Core Earnings" interest income ...Total "Core Earnings" interest expense ...Net "Core Earnings" interest income ...Less...

  • Page 79
    ...respect to our Private Education Loan portfolio. In particular, we continue to see improvement in credit quality and continuing positive delinquency, forbearance and charge-off trends in connection with this portfolio. Improving credit quality is seen in higher FICO scores and cosigner rates as well...

  • Page 80
    ... for determining the collectability of Private Education Loans and maintaining our allowance for Private Education Loan losses, see the section titled "Critical Accounting Policies and Estimates - Allowance for Loan Losses." Other Income - Consumer Lending Segment Servicing revenue for our Consumer...

  • Page 81
    ... 2011 related to the termination and replacement of a credit card affiliation contract and the lower balance of FFELP Loans serviced. Our Business Services segment earns intercompany loan servicing fees from servicing the FFELP Loans in our FFELP Loans segment. The average balance of this portfolio...

  • Page 82
    ...-party loan servicing fees in the years ended December 31, 2013, 2012 and 2011 included $109 million, $84 million and $63 million, respectively, of servicing revenue related to the ED Servicing Contract. At December 31, 2013, we serviced over $300 billion principal balance of student loans compared...

  • Page 83
    ... of Residual Interests in FFELP Loan securitization trusts in 2013. The decrease in 2012 compared with 2011 was primarily due to the declining balance of FFELP Loans and a lower net interest margin as a result of an increase in the cost of funds. Key financial measures include: • • Net interest...

  • Page 84
    ...' and GAAP" above. The decrease in the "Core Earnings" basis FFELP Loans net interest margin of 14 basis points for 2012 compared with 2011 was primarily the result of funding costs related to new unsecured and ABS debt issuances over the period being higher than the funding costs of the debt that...

  • Page 85
    On December 23, 2011, the President signed the Consolidated Appropriations Act of 2012 into law. This law includes changes that permit FFELP lenders or beneficial holders to change the index on which the Special Allowance Payments ("SAP") are calculated for FFELP Loans first disbursed on or after ...

  • Page 86
    ... cost of servicing the loans. The decrease in operating expenses of $145 million from 2013 to 2012, and $70 million from 2012 to 2011, was primarily the result of the reduction in the average outstanding balance of our FFELP Loans portfolio. Operating expenses, excluding restructuring-related asset...

  • Page 87
    ... direct operating expenses of $68 million for 2013 over the prior year. Overhead - Other Segment Corporate overhead is comprised of costs related to executive management, the Board of Directors, accounting, finance, legal, human resources and stock-based compensation expense. Unallocated information...

  • Page 88
    ... 2011 Balance Rate Balance (Dollars in millions) Rate Average Assets FFELP Loans ...Private Education Loans ...Other loans ...Cash and investments ...Total interest-earning assets ...Non-interest-earning assets ...Total assets ...Average Liabilities and Equity Short-term borrowings ...Long-term...

  • Page 89
    ... in the table. The totals for the rate and volume columns are not the sum of the individual lines. Summary of our Student Loan Portfolio Ending Student Loan Balances, net December 31, 2013 FFELP Stafford and Other FFELP Consolidation Loans Total FFELP Loans Private Education Loans Total Portfolio...

  • Page 90
    ... $143,807 32,638 $176,445 Average Student Loan Balances (net of unamortized premium/discount) FFELP Stafford and Other Year Ended December 31, 2013 FFELP Total Private Consolidation FFELP Education Loans Loans Loans (Dollars in millions) Total Portfolio Total ...% of FFELP ...% of total ... $42...

  • Page 91
    ... Other Year Ended December 31, 2011 FFELP Total Private Consolidation FFELP Education Loans Loans Loans Total Portfolio Beginning balance ...Acquisitions and originations ...Capitalized interest and premium/discount amortization ...Consolidations to third parties ...Sales ...Repayments and other...

  • Page 92
    ... and "Core Earnings" Basis December 31, 2013 December 31, 2012 December 31, 2011 Private Private Private FFELP Education Total FFELP Education Total FFELP Education Total Loans Loans Portfolio Loans Loans Portfolio Loans Loans Portfolio (Dollars in millions) GAAP Basis: Beginning balance ...$159...

  • Page 93
    ...) "Core Earnings" Basis December 31, 2010 December 31, 2009 Private Private FFELP Education Total FFELP Education Total Loans Loans Portfolio Loans Loans Portfolio "Core Earnings" Basis: Balance at beginning of period ...Less: Charge-offs(1) ...Student loan sales ...Plus: Provision for loan losses...

  • Page 94
    Private Education Loan Originations The following table summarizes our Private Education Loan originations. (Dollars in millions) Years Ended December 31, 2013 2012 2011 Smart Option - interest only(1) ...Smart Option - fixed pay(1) ...Smart Option - deferred(1) ...Other ...Total Private Education ...

  • Page 95
    ... or a grace period for bar exam preparation. 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...

  • Page 96
    ... additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan's principal balance. Ending total loans represents gross Private Education Loans, plus the...

  • Page 97
    ...Loans with a cosigner ...70% 31% 67% 68% 30% 65% 65% 29% 62% Average FICO at origination ...729 625 722 728 624 720 726 624 717 (1) (2) Ending total loans represent gross Private Education Loans, plus the receivable for partially charged-off loans. Includes loans that are required to make a payment...

  • Page 98
    ... forbearance percentages. Receivable for Partially Charged-Off Private Education Loans At the end of each month, for loans that are 212 days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged...

  • Page 99
    ... time, 66 percent of the loans are current, paid in full, or receiving an in-school grace or deferment, and 20 percent have defaulted. The default experience associated with loans which utilize forbearance is considered in our allowance for loan losses. The number of loans in a forbearance status...

  • Page 100
    ... Private Education Loan portfolio aged by number of months in active repayment status (months for which a scheduled monthly payment was due). As indicated in the tables, the percentage of loans that are delinquent greater than 90 days or that are in forbearance status decreases the longer the loans...

  • Page 101
    ...39,000 (704) 1,313 (2,097) $37,512 Loans in-school/grace/deferment ...$ - Loans in forbearance ...502 Loans in repayment - current ...4,056 Loans in repayment - delinquent 31-60 days ...166 Loans in repayment - delinquent 61-90 days ...117 Loans in repayment - delinquent greater than 90 days ...330...

  • Page 102
    ...portfolio of Private Education Loans in forbearance by the cumulative number of months the customer has used forbearance as of the dates indicated. As detailed in the table below, there has been a continuing decline in the average months of forbearance used in our portfolio. 2013 Forbearance Balance...

  • Page 103
    ...amount of accrued interest on our 90 days past due portfolio for all periods presented. Accrued Interest Receivable As of December 31, Greater than Allowance for 90 days Uncollectible Total Past Due Interest (Dollars in millions) 2013 2012 2011 2010 2009 ... $1,023 $ 904 $1,018 $1,271 $1,165 $48...

  • Page 104
    ... to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardship. Loans for customers who...

  • Page 105
    ... 31, 2013 2012 2011 Allowance at beginning of period ...Provision for FFELP Loan losses ...Charge-offs ...Student loan sales ...Allowance at end of period ...Charge-offs as a percentage of average loans in repayment ...Charge-offs as a percentage of average loans in repayment and forbearance...

  • Page 106
    ... to meet our funding needs for our businesses throughout market cycles, including during periods of financial stress and to avoid any mismatch between the maturity of assets and liabilities, our ongoing ability to fund originations of Private Education Loans and servicing our indebtedness and bank...

  • Page 107
    ... priority payments within the trusts). We may also draw down on our secured FFELP facilities; we may also issue term ABS. Currently, new Private Education Loan originations are initially funded through deposits and subsequently securitized to term. We have $2.3 billion of cash at Sallie Mae Bank as...

  • Page 108
    ... assets) - FFELP Loans ...Net assets of consolidated variable interest entities (encumbered assets) - Private Education Loans ...Tangible unencumbered assets - Holding Company and other non-bank subsidiaries(1) ...Tangible unencumbered assets - Sallie Mae Bank(1) ...Unsecured debt ...Mark-to-market...

  • Page 109
    ... ED Conduit Program. As a result, we ended our participation in the ED Conduit Program. On July 17, 2013, we closed on a $1.1 billion asset-backed borrowing facility that matures on August 15, 2015. The facility was used to fund the call and redemption of our SLM 2009-D Private Education Loan Trust...

  • Page 110
    Our investment portfolio is composed of very short-term securities issued by a diversified group of highly rated issuers, limiting our counterparty exposure. Additionally, our investing activity is governed by Board of Director approved limits on the amount that is allowed to be invested with any ...

  • Page 111
    ... ...Total unsecured borrowings ...Secured borrowings: FFELP Loan securitizations ...Private Education Loan securitizations ...FFELP Loan - other facilities ...Private Education Loan - other facilities ...Total secured borrowings ...Total "Core Earnings" basis ...Hedge accounting adjustments ...Total...

  • Page 112
    ... Average Average Balance Rate (Dollars in millions) 2013 Average Average Balance Rate 2011 Average Average Balance Rate Unsecured borrowings: Senior unsecured debt ...Bank deposits ...Other(1) ...Total unsecured borrowings ...Secured borrowings: FFELP Loan securitizations ...Private Education...

  • Page 113
    ... interest rate (see the section titled "Allowance for Private Education Loan Losses" in "Note 2 - Significant Accounting Policies"). Our TDR portfolio is comprised mostly of loans with interest rate reductions and forbearance usage greater than three months. The separate allowance estimates for...

  • Page 114
    ... to the rules governing FFELP payment requirements, our collection policies allow for periods of nonpayment for customers requesting additional payment grace periods upon leaving school or experiencing temporary difficulty meeting payment obligations. This is referred to as forbearance status and is...

  • Page 115
    ...customer default behavior and a two year loss confirmation period to estimate the credit losses incurred in the loan portfolio at the reporting date. We apply the default rate projections, net of applicable Risk Sharing, to each category for the current period to perform our quantitative calculation...

  • Page 116
    ...." For both FFELP Loans and Private Education Loans accounted for at cost, fair value is determined by modeling loan level cash flows using stated terms of the assets and internally-developed assumptions to determine aggregate portfolio yield, net present value and average life. The significant...

  • Page 117
    ... financing vehicles we consolidate on our balance sheet. See "Note 2 - Significant Accounting Policies" for further details. In 2013, we sold Residual Interests in FFELP Loan securitization trusts to third parties. We will continue to service the student loans in the trusts under existing agreements...

  • Page 118
    ... us and Sallie Mae Bank with the capability to more rapidly analyze key risks in light of actual or assumed changes in strategy, economic conditions, and asset, liability and portfolio performance. • Enhancement to our existing incentive compensation plan risk oversight policies and procedures...

  • Page 119
    ... committee members are direct reports to our Chief Executive Officer. The committee meets at least six times per year in advance of each regularly scheduled Board of Directors meeting and more frequently as may needed to address particular issues. Corporate Incentive Compensation Plan Committee. Our...

  • Page 120
    ...Board of Directors on our controls and reviews of our incentive compensation plans. Committee membership includes our Executive Vice President - Administration, Chief Compliance Officer, Chief Credit Officer, Deputy General Counsel responsible for human resources matters, and our Chief Audit Officer...

  • Page 121
    ... of Private Education Loans; and servicing our indebtedness and bank deposits. Key objectives associated with our funding liquidity needs relate to our ability to access the capital markets at reasonable rates and to continue to maintain retail deposits and funding sources through Sallie Mae Bank...

  • Page 122
    ... of employees overseeing these risk management functions. The Audit Committee of our Board of Directors annually approves our Corporate Compliance Plan, has responsibility for considering significant breaches of our Code of Business Conduct and receives regular reports from executive management team...

  • Page 123
    ...Legal, Government Relations and Compliance groups efforts are coordinated through our General Counsel and regularly meet and collaborate with our Media and Investor Relations teams to provide more coordinated monitoring and management of our political and reputational risks. Strategy Risk. Strategic...

  • Page 124
    ... for employees' tax withholding obligations and shares tendered by employees to satisfy option exercise costs. Common shares issued under our various compensation and benefit plans. (2) (3) (4) The closing price of our common stock on December 31, 2013 was $26.28. Our shareholders have authorized...

  • Page 125
    ... at the balance sheet date and does not take into account new assets, liabilities or hedging instruments that may arise in 2014. As of December 31, 2013 Impact on Annual Earnings If: Funding Interest Rates: Indices Increase Increase Increase 100 Basis 300 Basis 25 Basis Points Points Points(1) As of...

  • Page 126
    ... of the fixed rate nature of student loans to variable rate, and to fix the relative spread between the student loan asset rate and the variable rate liability. In the preceding tables, under the scenario where interest rates increase 100 and 300 basis points, the change in pre-tax net income before...

  • Page 127
    ...the table that follows the GAAP presentation. GAAP-Basis Index (Dollars in billions) Frequency of Variable Resets Funding Gap Assets(1) Funding(2) 3-month Treasury bill ...weekly Prime ...annual Prime ...quarterly Prime ...monthly Prime ...daily PLUS Index ...annual 3-month LIBOR ...daily 3-month...

  • Page 128
    ... of Variable Resets Funding Gap Assets(1) Funding(2) 3-month Treasury bill ...Prime ...Prime ...Prime ...Prime ...PLUS Index ...3-month LIBOR ...1-month LIBOR ...1-month LIBOR ...Non-Discrete reset(3) ...Non-Discrete reset(4) ...Fixed Rate(5) ...Total ...(1) weekly annual quarterly monthly daily...

  • Page 129
    ... 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...

  • Page 130
    ... of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 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 December 31, 2013 that...

  • Page 131
    ... and Corporate Governance The information contained in the 2014 Proxy Statement, including information appearing in the sections titled "Proposal 1 - Election of Directors," "Executive Officers," "Other Matters - Section 16(a) Beneficial Ownership Reporting Compliance" and "Corporate Governance" in...

  • Page 132
    ... are not applicable or the required information is shown in the consolidated financial statements or notes thereto. 3. Exhibits The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K. We will furnish at cost a copy...

  • Page 133
    ...Report on Form 10-K filed on February 26, 2010). Asset Purchase Agreement between The Student Loan Corporation; Citibank, N.A.; Citibank (South Dakota) National Association; SLC Student Loan Receivables I, Inc., SLM Corporation, Bull Run 1 LLC, SLM Education Credit Finance Corporation and Sallie Mae...

  • Page 134
    ... of the Company's Quarterly Report on Form 10-Q filed on May 6, 2010). Form of SLM Corporation Executive Severance Plan for Senior Officers (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q filed on November 4, 2011). Form of SLM Corporation Change in Control...

  • Page 135
    ... Restated Sallie Mae Employee Stock Purchase Plan (incorporated by reference to Appendix B of the Company's Definitive Proxy Statement for the 2012 Annual Meeting of Shareholders filed on April 13, 2012). Form of SLM Corporation 2012 Omnibus Incentive Plan, Performance Stock Unit Term Sheet - 2013...

  • Page 136
    ... Schema Document. XBRL Taxonomy Extension Calculation Linkbase Document. XBRL Taxonomy Extension Definition Linkbase Document. XBRL Taxonomy Extension Label Linkbase Document. XBRL Taxonomy Extension Presentation Linkbase Document. Management Contract or Compensatory Plan or Arrangement Filed...

  • Page 137
    ... hereunto duly authorized. Dated: February 19, 2014 SLM CORPORATION By: /S/ JOHN F. REMONDI John F. Remondi President and Chief Executive Officer Pursuant to the requirement of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf...

  • Page 138
    Signature Title Date /S/ STEVEN L. SHAPIRO Steven L. Shapiro /S/ BARRY L. WILLIAMS Barry L. Williams Director Director February 19, 2014 February 19, 2014 136

  • Page 139
    ... Public Accounting Firm ...Report of Independent Registered Public Accounting Firm ...Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated Statements of Income ...Consolidated Statements of Comprehensive Income ...Consolidated Statements of Changes...

  • Page 140
    ... the Company as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, change in stockholders', and cash flows for the years then ended and adjustments to the 2011 consolidated financial statements to reflect discontinued operations. Our report dated...

  • Page 141
    ...the adjustments that were applied to the 2011 consolidated financial statements to reflect the operations of Campus Solutions and Upromise Investments, Inc. as discontinued operations for all comparative prior period information. We conducted our audits in accordance with the standards of the Public...

  • Page 142
    ...the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit, before the effects of the adjustments described above, of these statements in accordance with the standards of the Public Company Accounting Oversight Board...

  • Page 143
    ... Supplemental information - assets and liabilities of consolidated variable interest entities: December 31, 2013 FFELP Loans ...Private Education Loans ...Restricted cash and investments ...Other assets ...Short-term borrowings ...Long-term borrowings ...Net assets of consolidated variable interest...

  • Page 144
    SLM CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts) Years Ended December 31, 2013 2012 2011 Interest income: FFELP Loans ...Private Education Loans ...Other loans ...Cash and investments ...Total interest income ...Total interest expense ...Net interest income ...

  • Page 145
    SLM CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Years Ended December 31, 2013 2012 2011 Net income ...Other comprehensive income (loss): Unrealized gains (losses) on derivatives: Unrealized hedging gains (losses) on derivatives ...Reclassification adjustments for ...

  • Page 146
    SLM CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In millions, except share and per share amounts) Preferred Stock Shares Balance at December 31, 2010 ...Comprehensive income: Net income ...Other comprehensive income, net of tax ...Total comprehensive income ...Cash ...

  • Page 147
    SLM CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In millions, except share and per share amounts) Preferred Stock Shares Balance at December 31, 2011 ...Comprehensive income: Net income ...Other comprehensive income, net of tax ...Total comprehensive income ...Cash ...

  • Page 148
    ... shares ...Tax benefit related to employee stock-based compensation plans ...Stock-based compensation expense ...Common stock repurchased ...Shares repurchased related to employee stock-based compensation plans ...Balance at December 31, 2013 ...7,300,000 7,300,000 Common Stock Shares Issued 535...

  • Page 149
    SLM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Years Ended December 31, 2013 2012 2011 Operating activities Net income ...Adjustments to reconcile net income to net cash provided by operating activities: (Income) loss from discontinued operations, net of tax ...(Gains) losses on...

  • Page 150
    ... of our Private Education Loans have been originated and funded by Sallie Mae Bank, a Utah industrial bank subsidiary, which is regulated by the Utah Department of Financial Institutions ("UDFI") and the Federal Deposit Insurance Corporation ("FDIC"). We also provide servicing, loan default aversion...

  • Page 151
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. Significant Accounting Policies (Continued) revenues and expenses during the reporting period. Current market conditions increase the risk and complexity of the judgments in these estimates and actual results could differ from...

  • Page 152
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. Significant Accounting Policies (Continued) other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for our ...

  • Page 153
    ...to reflect the change since the acquisition of the loan. We also pay an annual 105 basis point Consolidation Loan Rebate Fee on FFELP Consolidation Loans which is netted against student loan interest income. Additionally, interest earned on student loans reflects potential non-payment adjustments in...

  • Page 154
    ... most recent 12 months of actual collection experience, seasonally adjusted, as the starting point and applies expected macroeconomic changes and collection procedure changes to estimate expected losses caused by loss events incurred as of the balance sheet date. Our model places a greater emphasis...

  • Page 155
    ...estimates for these programs are generally low while the customer is in school. At December 31, 2013, 17 percent of the principal balance in the higher education Private Education Loan portfolio was related to customers who are in an in-school/grace/deferment status and not required to make payments...

  • Page 156
    ...customer default behavior and a two-year loss confirmation period to estimate the credit losses incurred in the loan portfolio at the reporting date. We apply the default rate projections, net of applicable Risk Sharing, to each category for the current period to perform our quantitative calculation...

  • Page 157
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. Significant Accounting Policies (Continued) equity, net of taxes. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts, which are amortized using the ...

  • Page 158
    ...time, exercised our options to purchase delinquent loans from Private Education Loan trusts, to purchase the remaining loans from trusts once the loan balance falls below 10 percent of the original amount, or to call rate reset notes. Certain trusts maintain financial arrangements with third parties...

  • Page 159
    ... item for the current period. If it is also determined the hedge will not be effective in the future, we discontinue the hedge accounting prospectively, cease recording changes in the fair value of the hedged item, and begin amortization of any basis adjustments that exist related to the hedged...

  • Page 160
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. Significant Accounting Policies (Continued) We recognize late fees on third-party serviced loans as well as on loans in our portfolio according to the contractual provisions of the promissory notes, as well as our expectation ...

  • Page 161
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. Significant Accounting Policies (Continued) Other acquired intangible assets include but are not limited to tradenames, customer and other relationships, and non-compete agreements. Acquired intangible assets with finite lives...

  • Page 162
    ... the accounting results related to our Campus Solutions and 529 college-savings plan administration business, which have been sold as of December 31, 2013. See "Note 16 - Discontinued Operations" for further discussion. Statement of Cash Flows Included in our financial statements is the consolidated...

  • Page 163
    ... aid, federal loans or customers' resources. Private Education Loans bear the full credit risk of the customer. We manage this additional risk through historical risk-performance underwriting strategies and the addition of qualified cosigners. Private Education Loans generally carry a variable rate...

  • Page 164
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. Student Loans (Continued) Similar to FFELP loans, Private Education Loans are generally non-dischargeable in bankruptcy. Most loans have repayment terms of 15 years or more, and for loans made prior to 2009, payments are ...

  • Page 165
    ... customer is returned to a current repayment status. In more limited instances, delinquent customers will also be granted additional forbearance time. During 2009, we instituted an interest rate reduction program to assist customers in repaying their Private Education Loans through reduced payments...

  • Page 166
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Allowance for Loan Losses (Continued) Allowance for Loan Losses Metrics Allowance for Loan Losses Year Ended December 31, 2013 Private Education Other FFELP Loans Loans Loans (Dollars in millions) Total Allowance for Loan ...

  • Page 167
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Allowance for Loan Losses (Continued) Allowance for Loan Losses Year Ended December 31, 2012 Private Education Other FFELP Loans Loans Loans (Dollars in millions) Total Allowance for Loan Losses Beginning balance ...Total ...

  • Page 168
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Allowance for Loan Losses (Continued) Allowance for Loan Losses Year Ended December 31, 2011 Private Education Other FFELP Loans Loans Loans (Dollars in millions) Total Allowance for Loan Losses Beginning balance ...Total ...

  • Page 169
    ... this portfolio is loan status. The impact of changes in loan status is incorporated quarterly into the allowance for loan losses calculation. For Private Education Loans, the key credit quality indicators are school type, FICO scores, the existence of a cosigner, the loan status and loan seasoning...

  • Page 170
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Allowance for Loan Losses (Continued) The following tables provide information regarding the loan status and aging of past due loans. FFELP Loan Delinquencies December 31, 2012 2011 % Balance % Balance (Dollars in millions) ...

  • Page 171
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Allowance for Loan Losses (Continued) Private Education Traditional Loan Delinquencies December 31, 2013 2012 2011 Balance % Balance % Balance (Dollars in millions) % Loans ...Loans in forbearance(2) ...Loans in repayment ...

  • Page 172
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Allowance for Loan Losses (Continued) Private Education Non-Traditional Loan Delinquencies December 31, 2013 2012 2011 Balance % Balance % Balance % (Dollars in millions) Loans in-school/grace/deferment(1) ...Loans in ...

  • Page 173
    ... to make payments and thus increase the ultimate overall amount collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. For customers experiencing financial difficulty, certain Private Education Loans for...

  • Page 174
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Allowance for Loan Losses (Continued) At December 31, 2013 and 2012, all of our TDR loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance ...

  • Page 175
    ... or a grace period for bar exam preparation. 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...

  • Page 176
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Allowance for Loan Losses (Continued) Accrued Interest Receivable The following table provides information regarding accrued interest receivable on our Private Education Loans. The table also discloses the amount of accrued ...

  • Page 177
    ... capital costs and are adjusted for our assessment of a market participant's view with respect to execution, source concentration and other risks associated with the projected cash flows of individual reporting units. We reviewed and approved the discount rates provided by the third-party appraiser...

  • Page 178
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Goodwill and Acquired Intangible Assets (Continued) To assess impairment for the FFELP, Consumer Lending, and Servicing reporting units at October 1, 2012 and 2011, we assessed relevant qualitative factors to determine whether...

  • Page 179
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Borrowings Borrowings consist of secured borrowings issued through our securitization program, borrowings through secured facilities, unsecured notes issued by us, term and other deposits at Sallie Mae Bank, and other ...

  • Page 180
    ..., 2013 Weighted Average Average Balance Interest Rate (Dollars in millions) Bank deposits ...FFELP Loan - other facilities . . Private Education Loan - other facilities ...Senior unsecured debt ...Other interest bearing liabilities ...Total short-term borrowings ...Maximum outstanding at any month...

  • Page 181
    ... CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Borrowings (Continued) Long-term Borrowings The following tables summarize outstanding long-term borrowings (secured and unsecured), the weighted average interest rates at the end of the periods, and the related average balances...

  • Page 182
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Borrowings (Continued) At December 31, 2013, we had outstanding long-term borrowings with call features totaling $1.7 billion. In addition, we have $6.2 billion of pre-payable debt related to our secured facilities. Generally,...

  • Page 183
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Borrowings (Continued) Variable Interest Entities We consolidate the following financing VIEs as of December 31, 2013 and 2012, as we are the primary beneficiary. As a result, these VIEs are accounted for as secured borrowings...

  • Page 184
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Borrowings (Continued) Securitizations The following table summarizes the securitization transactions issued in 2012 and 2013. (Dollars in millions) Total Issued AAA-rated bonds Weighted Average Interest Rate Weighted Average ...

  • Page 185
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Borrowings (Continued) 2013 Sales of FFELP Securitization Trust Residual Interests On February 13, 2013, we sold the Residual Interest in a FFELP Loan securitization trust to a third party. We will continue to service the ...

  • Page 186
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Borrowings (Continued) availability of acceptable collateral. As of December 31, 2013, borrowing capacity was approximately $900 million and there were no outstanding borrowings. Senior Unsecured Debt We issued $3.75 billion, ...

  • Page 187
    ... by counterparties to us) related to SLM Corporation and Sallie Mae Bank derivatives of $83 million and $79 million, respectively. Our on-balance sheet securitization trusts have $10.7 billion of Euro and British Pound Sterling denominated bonds outstanding as of December 31, 2013. To convert these...

  • Page 188
    ... risk management purposes. We use this strategy to minimize our exposure to changes in interest rates. We use basis swaps to minimize earnings variability caused by having different reset characteristics on our interest-earning assets and interest-bearing liabilities. These swaps possess a term of...

  • Page 189
    ... debt as well as derivatives related to our Total Return Swap Facility and back-to-back private credit floors. The following table reconciles gross positions with the impact of master netting agreements to the balance sheet classification: Other Assets December 31, December 31, 2013 2012 $2,010 (386...

  • Page 190
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. Derivative Financial Instruments (Continued) The above fair values include adjustments for counterparty credit risk for both when we are exposed to the counterparty, net of collateral postings, and when the counterparty is ...

  • Page 191
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. Derivative Financial Instruments (Continued) Impact of Derivatives on Consolidated Statements of Income Unrealized Gain (Loss) on Derivatives(1)(2) 2013 2012 2011 Years Ended December 31, Realized Gain Unrealized Gain (Loss) ...

  • Page 192
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. Derivative Financial Instruments (Continued) Impact of Derivatives on Consolidated Statements of Changes in Stockholders' Equity (net of tax) Years Ended December 31, 2013 2012 2011 (Dollars in millions) Total gains (losses)...

  • Page 193
    ... by the Board of Directors. Holders of Series A Preferred Stock are entitled to receive cumulative, quarterly cash dividends at the annual rate of $3.485 per share. Holders of Series B Preferred Stock are entitled to receive quarterly dividends based on 3-month LIBOR plus 170 basis points per annum...

  • Page 194
    ... $300 million. The following table summarizes our common share repurchases and issuances. 2013 Years Ended December 31, 2012 2011 Common stock repurchased(1) ...Average purchase price per share(2) ...Shares repurchased related to employee stock-based compensation plans(3) ...Average purchase price...

  • Page 195
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. Earnings (Loss) per Common Share Basic earnings (loss) per common share ("EPS") are calculated using the weighted average number of shares of common stock outstanding during each period. A reconciliation of the numerators and...

  • Page 196
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Stock-Based Compensation Plans and Arrangements (Continued) The total stock-based compensation cost recognized in the consolidated statements of income for 2013, 2012 and 2011 was $47 million, $47 million and $56 million, ...

  • Page 197
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Stock-Based Compensation Plans and Arrangements (Continued) The following table summarizes stock option activity in 2013. Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term (Dollars in ...

  • Page 198
    ...31, 2013, there was $15 million of unrecognized compensation cost related to RSUs/PSUs net of estimated forfeitures, which is expected to be recognized over a weighted average period of 1.8 years. (2) Employee Stock Purchase Plan Under the ESPP, employees can purchase shares of our common stock at...

  • Page 199
    ... speeds, default rates, cost of funds, capital levels, and expected Repayment Borrower Benefits to be earned. In addition, the Floor Income component of our FFELP Loan portfolio is valued with option models using both observable market inputs and internally developed inputs. A number of significant...

  • Page 200
    ... standard bond pricing models and option models (when applicable) using the stated terms of the borrowings, observable yield curves, foreign currency exchange rates, volatilities from active markets or from quotes from broker-dealers. Fair value adjustments for unsecured corporate debt are made...

  • Page 201
    ... estimate. Amortizing notional derivatives (derivatives whose notional amounts change based on changes in the balance of, or pool of, assets or debt) hedging trust debt use internally derived assumptions for the trust assets' prepayment speeds and default rates to model the notional amortization...

  • Page 202
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 12. Fair Value Measurements (Continued) The following table summarizes the valuation of our financial instruments that are marked-to-market on a recurring basis. Fair Value Measurements on a Recurring Basis December 31, 2013 ...

  • Page 203
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 12. Fair Value Measurements (Continued) The following tables summarize the change in balance sheet carrying value associated with level 3 financial instruments carried at fair value on a recurring basis. Year Ended December 31, ...

  • Page 204
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 12. Fair Value Measurements (Continued) Year Ended December 31, 2011 Derivative Instruments Cross Currency Total Interest Interest Derivative Rate Swaps Rate Swaps Other Instruments (Dollars in millions) Balance, beginning of ...

  • Page 205
    ...) Earning assets FFELP Loans ...Private Education Loans ...Cash and investments(1) ...Total earning assets ...Interest-bearing liabilities Short-term borrowings ...Long-term borrowings ...Total interest-bearing liabilities ...Derivative financial instruments Floor Income Contracts ...Interest rate...

  • Page 206
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. Commitments, Contingencies and Guarantees At the time of this filing, Sallie Mae Bank remains subject to a cease and desist order originally issued in August 2008 by the FDIC and the UDFI. In July 2013, the FDIC notified us ...

  • Page 207
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. Commitments, Contingencies and Guarantees (Continued) Based on current knowledge, reserves have been established for certain litigation or regulatory matters where the loss is both probable and estimable. Based on current ...

  • Page 208
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. Income Taxes (Continued) Income tax expense consists of: (Dollars in millions) 2013 December 31, 2012 2011 Continuing operations current provision/(benefit): Federal ...State ...Foreign ...Total continuing operations current...

  • Page 209
    ... 31, 2013 2012 Deferred tax assets: Loan reserves ...Market value adjustments on student loans, investments and derivatives ...Stock-based compensation plans ...Accrued expenses not currently deductible ...Deferred revenue ...Other ...Total deferred tax assets ...Deferred tax liabilities: Gains...

  • Page 210
    ... prior period ...Increases/(decreases) resulting from tax positions taken during the current period ...Decreases related to settlements with taxing authorities ...Increases related to settlements with taxing authorities ...Reductions related to the lapse of statute of limitations ...Unrecognized tax...

  • Page 211
    ... service our loans. With the elimination of FFELP in July 2010, these FFELP-related revenue sources will continue to decline. Managed growth of our Private Education Loan portfolio is central not only to our strategy for growing the Consumer Lending segment but also for the future of Sallie Mae Bank...

  • Page 212
    ...period. Currently, we are participating in ED's procurement process for a new debt collection contract and expect them to announce the recipients by April 30, 2014. Since the second quarter of 2009, we have been one of four large servicers awarded a servicing contract by ED to service Direct Student...

  • Page 213
    ...savings plan administration business and our Campus Solutions business provided processing capabilities to educational institutions designed to help campus business offices increase their services to students and families. However, in the second quarter of 2013, we sold our Campus Solutions business...

  • Page 214
    ... service a FFELP Loan properly could jeopardize the insurance and guarantees and federal support on these loans. The insurance and guarantees on our existing loans were not affected by the July 2010 termination of the FFELP program. The following table includes asset information for our FFELP Loans...

  • Page 215
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15. Segment Reporting (Continued) Our "Core Earnings" performance measures are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Unlike financial accounting, there ...

  • Page 216
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15. Segment Reporting (Continued) Segment Results and Reconciliations to GAAP Year Ended December 31, 2013 Adjustments Total Consumer Business FFELP "Core Reclassi- Additions/ Total Total Lending Services Loans Other Eliminations...

  • Page 217
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15. Segment Reporting (Continued) Year Ended December 31, 2012 Adjustments Total Consumer Business FFELP Elimina"Core ReclassiAdditions/ Total Total Lending Services Loans Other tions(1) Earnings" fications (Subtractions) ...

  • Page 218
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15. Segment Reporting (Continued) Year Ended December 31, 2011 Adjustments Total Consumer Business FFELP Elimina"Core Reclassi- Additions/ Total Total Lending Services Loans Other tions(1) Earnings" fications (Subtractions) ...

  • Page 219
    ... and amortization of acquired intangible assets. Net Tax Effect: Such tax effect is based upon our "Core Earnings" effective tax rate for the year. (2) (3) 16. Discontinued Operations In 2013, we sold our Campus Solutions business and our 529 college-savings plan administration business and...

  • Page 220
    ... save, plan and pay for college. We primarily originate, service and/or collect loans made to students and their families to finance the cost of their education. We provide funding, delivery and servicing support for education loans in the United States, through our Private Education Loan programs...

  • Page 221
    ... Sallie Mae. Defaulted Direct Loans are collected by 22 private sector companies, including Sallie Mae. Because of the concentration of our business in servicing and collecting on Direct Loans, we are exposed to risks associated with ED reducing the amount of new loan servicing and collections...

  • Page 222
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 18. Quarterly Financial Information (unaudited) First Quarter 2013 Second Third Quarter Quarter Fourth Quarter (Dollars in millions, except per share data) Net interest income ...Less: provisions for loan losses ...Net interest...

  • Page 223
    SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 18. Quarterly Financial Information (unaudited) (Continued) First Quarter 2012 Second Third Quarter Quarter Fourth Quarter (Dollars in millions, except per share data) Net interest income ...Less: provisions for loan losses ......

  • Page 224
    ... who were enrolled in eligible institutions, to finance their educational costs. Payment of principal and interest on the student loans to the holders of the loans is insured by a state or not-forprofit guaranty agency against: • default of the borrower; • the death, bankruptcy or permanent...

  • Page 225
    ... Department of Education ("ED") had to approve its eligibility under standards established by regulation. Financial Need Analysis Subject to program limits and conditions, student loans generally were made in amounts sufficient to cover the student's estimated costs of attending school, including...

  • Page 226
    ... amount sufficient to pay outstanding principal, unpaid interest, late charges and collection costs on all federally reinsured student loans incurred under the FFELP that the borrower selects for consolidation, as well as loans made under various other federal student loan programs and loans made by...

  • Page 227
    ... loan are executed by the borrower; and disburse the loan proceeds as required. After the loan is made, the lender must establish repayment terms with the borrower, properly administer deferrals and forbearances, credit the borrower for payments made, and report the loan's status to credit reporting...

  • Page 228
    ..., is eligible to be rehabilitated more than once. The July 1, 2009 technical corrections made to the HEA under H.R. 1777, Public Law 111-39, provide authority between July 1, 2009 through September 30, 2011, for a guaranty agency to assign a defaulted loan to ED depending on market conditions. A-5

  • Page 229
    ... required to pay to the U.S. Department of Education an annual 1.05 percent Consolidation Loan Rebate Fee on all outstanding principal and accrued interest balances of FFELP Consolidation Loans purchased or originated after October 1, 1993, except for loans for which consolidation applications were...

  • Page 230
    ...to term (primarily FFELP Consolidation Loans and Stafford Loans originated on or after July 1, 2006). Floor Income - For loans disbursed before April 1, 2006, FFELP Loans generally earn interest at the higher of either the borrower rate, which is fixed over a period of time, or a floating rate based...

  • Page 231
    ... financial aid, federal loans or borrowers' resources. Private Education Loans include loans for higher education (undergraduate and graduate degrees) and for alternative education, such as career training, private kindergarten through secondary education schools and tutorial schools. Certain higher...

  • Page 232
    ... Private Education Loan business, we use the term "non-traditional loans" to describe education loans made to certain customers that have or are expected to have a high default rate as a result of a number of factors, including having a lower tier credit rating, low program completion and graduation...