Sallie Mae 2015 Annual Report Download - page 44

42
Private Education Loan Originations
Private Education Loans are the principal asset on our balance sheet, and the amount of new Private Education Loan
originations we generate each year is a key indicator of the trajectory of our business, including our future earnings and asset
growth.
Funding Sources
Deposits
We utilize brokered, retail and other core deposits to meet funding needs and enhance our liquidity position. These
deposits can be term or liquid deposits. Term brokered deposits may have terms as long as seven years. Interest rates on most of
our long-term deposits are swapped into one-month LIBOR. This structure has the effect of matching our interest rate exposure
to the index our assets reset on, thereby minimizing our financing cost exposure to interest rate risk. Retail deposits are sourced
through a direct banking platform and serve as an important source of diversified funding. Brokered deposits are sourced
through a network of brokers and provide a stable source of funding. In addition, we accept certain deposits that are considered
non-brokered that are held in large accounts structured to allow FDIC insurance to flow through to underlying individual
depositors.
Loan Securitizations
We have diversified our funding sources by issuing term ABS and by entering into a Private Education Loan asset-backed
commercial paper facility (the “ABCP Facility”). Term ABS financing provides long-term funding for our Private Education
Loan portfolio at attractive interest rates and at terms that effectively match the average life of the assets. Loans associated with
these transactions will remain on our balance sheet if we retain the residual interest in these trusts. The ABCP Facility provides
an extremely flexible source of funds that can be drawn upon on short notice to meet funding needs within the Bank.
Borrowings under our ABCP Facility are accounted for as secured financings.
2015 Management Objectives
For 2015, we set out five major goals to create shareholder value. They were: (1) prudently grow Private Education Loan
assets and revenues; (2) maintain our strong capital position; (3) complete necessary steps to permit the Bank to independently
originate and service Private Education Loans; (4) continue to expand the Bank's capabilities and enhance risk oversight and
internal controls; and (5) manage operating expenses while improving efficiency and customer experience.
The following describes our performance relative to each of these goals.
Prudently Grow Private Education Loan Assets and Revenues
We originated $4.3 billion in new Private Education Loans in 2015, compared with $4.1 billion in 2014, an increase of 6
percent. This growth in originations was accomplished while maintaining our FICO scores and cosigner rates on our 2015
originations at levels basically unchanged from those at which we ended 2014. The average origination FICO scores were 748
and 749, respectively, for originations made in the years ended December 31, 2015 and 2014. The cosigner rate was 90 percent
for originations made in the each of the years ended December 31, 2015 and 2014. In 2015, we expanded our campus-focused
sales force to provide deeper support for universities in all regions of the United States.
We also grew our revenues by selling $1.5 billion of Private Education Loans to third-parties. We recorded gains of
$135 million on those sales.
Our allowance for loan losses for Private Education Loans was $109 million at December 31, 2015, compared to
$79 million at the prior year-end. The provision expense on our Private Education Loans was $87 million for the year ended
December 31, 2015, compared to $84 million in 2014.