Assets FFELP Loans (net of allowance for losses of $107 and $119, respectively) Private Education Loans (net of allowance for losses of $2,059 and $2,097 respectively) Investments Available-for-sale Other Total investments Cash and cash equivalents Restricted cash and investments Goodwill and acquired intangible assets, net Other assets Total assets Liabilities Short-term borrowings Long-term borrowings Other liabilities Total liabilities Commitments and contingencies Equity Preferred stock, par value $0.20 per share, 20 million shares authorized Series A: 3.3 million and 3.3 million shares issued, respectively, at stated value of $50 per share Series B: 4 million and 4 million shares issued, respectively, at stated value of $100 per share Common stock, par value $0.20 per share, 1.125 billion shares authorized: 549 million and 545 million shares issued, respectively Additional paid-in capital Accumulated other comprehensive income (loss) (net of tax (expense) benefit of $(4) and $(7), respectively) Retained earnings Total SLM Corporation stockholders’ equity before treasury stock Less: Common stock held in treasury at cost: 127 million and 116 million shares, respectively Total SLM Corporation stockholders’ equity Noncontrolling interest Total equity Total liabilities and equity FFELP Loans Private Education Loans Restricted cash and investments Other assets Short-term borrowings Long-term borrowings Net assets of consolidated variable interest entities Interest income: FFELP Loans Private Education Loans Other loans Cash and investments Total interest income Total interest expense Net interest income Less: provisions for loan losses Net interest income after provisions for loan losses Other income (loss): Gains on sales of loans and investments Losses on derivative and hedging activities, net Servicing revenue Contingency revenue Gains on debt repurchases Other Total other income (loss) Expenses: Salaries and benefits Other operating expenses Total operating expenses Goodwill and acquired intangible asset impairment and amortization expense Restructuring and other reorganization expenses Total expenses Income from continuing operations, before income tax expense Income tax expense Net income from continuing operations Income from discontinued operations, net of tax expense Net income Less: net loss attributable to noncontrolling interest Net income attributable to SLM Corporation Preferred stock dividends Net income attributable to SLM Corporation common stock Basic earnings per common share attributable to SLM Corporation: Continuing operations Discontinued operations Total Average common shares outstanding Diluted earnings per common share attributable to SLM Corporation: Continuing operations Discontinued operations Total Average common and common equivalent shares outstanding Dividends per common share attributable to SLM Corporation Net income Other comprehensive income (loss): Unrealized gains (losses) on derivatives: Unrealized hedging gains (losses) on derivatives Reclassification adjustments for derivative losses included in net income (interest expense) Total unrealized gains (losses) on derivatives Unrealized gains (losses) on investments Income tax (expense) benefit Other comprehensive income (loss), net of tax Total comprehensive income Balance at December 31, 2012 Comprehensive income: Net income (loss) Other comprehensive income, net of tax Total comprehensive income Cash dividends: Common stock ($.15 per share) Preferred stock, series A ($.87 per share) Preferred stock, series B ($.49 per share) Dividend equivalent units related to employee stock-based compensation plans Issuance of common 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 March 31, 2013 Balance at December 31, 2013 Comprehensive income: Net income (loss) Other comprehensive income, net of tax Total comprehensive income Cash dividends: Common stock ($.15 per share) Preferred stock, series A ($.87 per share) Preferred stock, series B ($.49 per share) Dividend equivalent units related to employee stock-based compensation plans Issuance of common 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 March 31, 2014 Operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Income from discontinued operations, net of tax Gains on loans and investments, net Gains on debt repurchases Goodwill and acquired intangible asset impairment and amortization expense Stock-based compensation expense Unrealized gains on derivative and hedging activities Provisions for loan losses Decrease (increase) in restricted cash — other Decrease in accrued interest receivable (Decrease) increase in accrued interest payable Decrease in other assets Increase (decrease) in other liabilities Cash provided by operating activities — continuing operations Cash (used in) operating activities — discontinued operations Total net cash provided by operating activities Investing activities Student loans acquired and originated Reduction of student loans: Installment payments, claims and other Proceeds from sales of student loans Other investing activities, net Purchases of available-for-sale securities Proceeds from maturities of available-for-sale securities Purchases of held-to-maturity and other securities Proceeds from sales and maturities of held-to-maturity and other securities (Increase) decrease in restricted cash — variable interest entities Total net cash provided by investing activities Financing activities Borrowings collateralized by loans in trust — issued Borrowings collateralized by loans in trust — repaid Asset-backed commercial paper conduits, net ED Conduit Program facility, net Other long-term borrowings issued Other long-term borrowings repaid Other financing activities, net Retail and other deposits, net Common stock repurchased Common stock dividends paid Preferred stock dividends paid Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Cash disbursements made (refunds received) for: Interest Income taxes paid Income taxes received Noncash activity: Investing activity — Student loans and other assets removed related to sale of Residual Interest in securitization Financing activity — Borrowings removed related to sale of Residual Interest in securitization (Dollars in millions) Allowance for Loan Losses Beginning balance Total provision Charge-offs(1) Reclassification of interest reserve(2) Ending balance Allowance: Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Loans: Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Charge-offs as a percentage of average loans in repayment (annualized) Charge-offs as a percentage of average loans in repayment and forbearance (annualized) Allowance as a percentage of the ending total loan balance Allowance as a percentage of the ending loans in repayment Allowance coverage of charge-offs (annualized) Ending total loans(3) Average loans in repayment Ending loans in repayment (Dollars in millions) Allowance for Loan Losses Beginning balance Total provision Charge-offs(1) Student loan sales Reclassification of interest reserve(2) Ending balance Allowance: Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Loans: Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Charge-offs as a percentage of average loans in repayment (annualized) Charge-offs as a percentage of average loans in repayment and forbearance (annualized) Allowance as a percentage of the ending total loan balance Allowance as a percentage of the ending loans in repayment Allowance coverage of charge-offs (annualized) Ending total loans(3) Average loans in repayment Ending loans in repayment our FFELP portfolio. At June 30, 2014 and December 31, 2013, 62.7 percent and 62.9 percent of our FFELP portfolio consisted of rehabilitation loans. (Dollars in millions) Credit Quality Indicators School Type/FICO Scores: Traditional Non-Traditional(1) Total Cosigners: With cosigner Without cosigner Total Seasoning(2): 1-12 payments 13-24 payments 25-36 payments 37-48 payments More than 48 payments Not yet in repayment Total Number of months in active repayment for which a scheduled payment was due. (Dollars in millions) Loans in-school/grace/deferment(1) Loans in forbearance(2) Loans in repayment and percentage of each status: Loans current Loans delinquent 31-60 days(3) Loans delinquent 61-90 days(3) Loans delinquent greater than 90 days(3) Total FFELP Loans in repayment Total FFELP Loans, gross FFELP Loan unamortized premium Total FFELP Loans FFELP Loan allowance for losses FFELP Loans, net Percentage of FFELP Loans in repayment Delinquencies as a percentage of FFELP Loans in repayment FFELP Loans in forbearance as a percentage of loans in repayment and forbearance (Dollars in millions) Loans in-school/grace/deferment(1) Loans in forbearance(2) Loans in repayment and percentage of each status: Loans current Loans delinquent 31-60 days(3) Loans delinquent 61-90 days(3) Loans delinquent greater than 90 days(3) Total traditional loans in repayment Total traditional loans, gross Traditional loans unamortized discount Total traditional loans Traditional loans receivable for partially charged-off loans Traditional loans allowance for losses Traditional loans, net Percentage of traditional loans in repayment Delinquencies as a percentage of traditional loans in repayment Loans in forbearance as a percentage of loans in repayment and forbearance Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures. The period of delinquency is based on the number of days scheduled payments are contractually past due. (Dollars in millions) Loans in-school/grace/deferment(1) Loans in forbearance(2) Loans in repayment and percentage of each status: Loans current Loans delinquent 31-60 days(3) Loans delinquent 61-90 days(3) Loans delinquent greater than 90 days(3) Total non-traditional loans in repayment Total non-traditional loans, gross Non-traditional loans unamortized discount Total non-traditional loans Non-traditional loans receivable for partially charged-off loans Non-traditional loans allowance for losses Non-traditional loans, net Percentage of non-traditional loans in repayment Delinquencies as a percentage of non-traditional loans in repayment Loans in forbearance as a percentage of loans in repayment and forbearance (Dollars in millions) Receivable at beginning of period Expected future recoveries of current period defaults(1) Recoveries(2) Charge-offs(3) Receivable at end of period Allowance for estimated recovery shortfalls(4) Net receivable at end of period (Dollars in millions) March 31, 2014 Private Education Loans — Traditional Private Education Loans — Non-Traditional Total December 31, 2013 Private Education Loans — Traditional Private Education Loans — Non-Traditional Total (Dollars in millions) Private Education Loans — Traditional Private Education Loans — Non-Traditional Total (Dollars in millions) Loans in deferment(1) Loans in forbearance(2) Loans in repayment and percentage of each status: Loans current Loans delinquent 31-60 days(3) Loans delinquent 61-90 days(3) Loans delinquent greater than 90 days(3) Total TDR loans in repayment Total TDR loans, gross (Dollars in millions) Private Education Loans — Traditional Private Education Loans — Non-Traditional Total (Dollars in millions) March 31, 2014 Private Education Loans — Traditional Private Education Loans — Non-Traditional Total December 31, 2013 Private Education Loans — Traditional Private Education Loans — Non-Traditional Total (Dollars in millions) Unsecured borrowings: Senior unsecured debt Bank deposits Other(1) Total unsecured borrowings Secured borrowings: FFELP Loan securitizations Private Education Loan securitizations FFELP Loans — other facilities Private Education Loans — other facilities Total secured borrowings Total before hedge accounting adjustments Hedge accounting adjustments Total (Dollars in millions) Secured Borrowings — VIEs: FFELP Loan securitizations Private Education Loan securitizations FFELP Loans — other facilities Private Education Loans — other facilities Total before hedge accounting adjustments Hedge accounting adjustments Total (Dollars in millions) Secured Borrowings — VIEs: FFELP Loan securitizations Private Education Loan securitizations FFELP Loans — other facilities Private Education Loans — other facilities Total before hedge accounting adjustments Hedge accounting adjustments Total six months ended June 30, 2014 and 2013 totaled $117 and $192, respectively. The Company also maintains a money market deposit at the Bank which totaled $368,025 at June 30, 2014 and $0 at December 31, 2013. Instruments (Dollars in millions) Hedged Risk Exposure Fair Values(1) Derivative Assets: Interest rate swaps Cross-currency interest rate swaps Other(2) Total derivative assets(3) Derivative Liabilities: Interest rate swaps Floor Income Contracts Cross-currency interest rate swaps Other(2) Total derivative Net total derivatives (Dollar in millions) Gross position Impact of master netting agreements Derivative values with impact of master netting agreements (as carried on balance sheet) Cash collateral (held) pledged Net position (Dollars in billions) Notional Values: Interest rate swaps Floor Income Contracts Cross-currency interest rate swaps Other(1) Total derivatives (Dollars in millions) Fair Value Hedges: Interest rate swaps Cross-currency interest rate swaps Total fair value derivatives Cash Flow Hedges: Interest rate swaps Total cash flow derivatives Trading: Interest rate swaps Floor Income Contracts Cross-currency interest rate swaps Other Total trading derivatives Total Less: realized gains (losses) recorded in interest expense Gains (losses) on derivative and hedging activities, net (Dollars in millions) Collateral held: Cash (obligation to return cash collateral is recorded in short-term borrowings)(1) Securities at fair value — on-balance sheet securitization derivatives (not recorded in financial statements)(2) Total collateral held Derivative asset at fair value including accrued interest Collateral pledged to others: Cash (right to receive return of cash collateral is recorded in investments) Total collateral pledged Derivative liability at fair value including accrued interest and premium receivable (Dollars in millions) Accrued interest receivable, net Derivatives at fair value Income tax asset, net current and deferred Accounts receivable Benefit and insurance-related investments Fixed assets, net Other loans, net Other Total securities or property. Dividends on both series are not mandatory and are paid quarterly, when, as, and if declared by the Board of Directors. Holders of Series A Preferred Stock are entitled to receive cumulative, quarterly cash dividends at the annual rate of $ Common shares repurchased(1) Average purchase price per share(2) Shares repurchased related to employee stock-based compensation plans(3) Average purchase price per share Common shares issued(4) Comprises shares withheld from stock option exercises and vesting of restricted stock for employees’ tax withholding obligations and shares tendered by employees to satisfy option exercise costs. Common shares issued under our various compensation and benefit plans. $ (In millions, except per share data) Numerator: Net income attributable to SLM Corporation Preferred stock dividends Net income attributable to SLM Corporation common stock Denominator: Weighted average shares used to compute basic EPS Effect of dilutive securities: Dilutive effect of stock options, non-vested restricted stock, restricted stock units and Employee Stock Purchase Plan (“ESPP”)(1) Dilutive potential common shares(2) Weighted average shares used to compute diluted EPS Basic earnings (loss) per common share attributable to SLM Corporation: Continuing operations Discontinued operations Total Diluted earnings (loss) per common share attributable to SLM Corporation: Continuing operations Discontinued operations Total Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options, non-vested deferred compensation and restricted stock, restricted stock units, and the outstanding commitment to issue shares under the ESPP, determined by the treasury stock method. for a full discussion. (Dollars in millions) Assets Available-for-sale investments: Agency residential mortgage-backed Guaranteed investment contracts Other Total available-for-sale investments Derivative instruments:(1) Interest rate swaps Cross-currency interest rate swaps Other Total derivative assets(3) Total Liabilities(2) Derivative instruments(1) Interest rate swaps Floor Income Contracts Cross-currency interest rate swaps Other Total derivative liabilities(3) Total (Dollars in millions) Balance, beginning of period Total gains/(losses) (realized and unrealized): Included in earnings(1) Included in other comprehensive income Settlements Transfers in and/or out of level 3 Balance, end of period Change in unrealized gains/(losses) relating to instruments still held at the reporting date(2) (Dollars in millions) Gains (losses) on derivative and hedging activities, net Interest expense Total (Dollars in millions) Derivatives Consumer Price Index/ to discount rate (0.03%) Prime/LIBOR basis (0.08%) Cross-currency interest Other Total The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments. (Dollars in millions) 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 swaps Cross-currency interest rate swaps Other Excess of net asset fair value over carrying value Under the Department of Justice order, Navient is solely responsible for reimbursing SCRA benefits and related compensation on behalf of both its subsidiary, Navient Solutions, Inc., and the Bank. employment and other laws. In certain of these actions and proceedings, claims for substantial monetary damage be responsive to any such requests. (Dollars in millions) Private Education Loans, net Cash and investments(1) Other Total assets (Dollars in millions) FFELP Loans, net Cash and investments(1) Other Total assets (Dollars in millions) Interest income: Student loans Other loans Cash and investments Total interest income Total interest expense Net interest income (loss) Less: provisions for loan losses Net interest income (loss) after provisions for loan losses Other income (loss): Gains on sales of loans and investments Servicing revenue Contingency revenue Gains on debt repurchases Other income (loss) Total other income (loss) Expenses: Direct operating expenses Overhead expenses Operating expenses Goodwill and acquired intangible asset impairment and amortization Restructuring and other reorganization expenses Total expenses Income (loss) from continuing operations, before income tax expense (benefit) Income tax expense (benefit)(3) Net income (loss) from continuing operations Income from discontinued operations, net of tax expense Net income (loss) Less: net loss attributable to noncontrolling interest Net income (loss) attributable to SLM Corporation (Dollars in millions) Net interest income after provisions for loan losses Total other loss Goodwill and acquired intangible asset impairment and amortization “Core Earnings” adjustments to GAAP Income tax benefit Net income (Dollars in millions) Interest income: Student loans Other loans Cash and investments Total interest income Total interest expense Net interest income (loss) Less: provisions for loan losses Net interest income (loss) after provisions for loan losses Other income (loss): Gains on sales of loans and investments Servicing revenue Contingency revenue Gains on debt repurchases Other income (loss) Total other income (loss) Expenses: Direct operating expenses Overhead expenses Operating expenses Goodwill and acquired intangible asset impairment and amortization Restructuring and other reorganization expenses Total expenses Income (loss) from continuing operations, before income tax expense (benefit) Income tax expense (benefit)(3) Net income (loss) from continuing operations Income from discontinued operations, net of tax expense Net income (loss) Less: net loss attributable to noncontrolling interest Net income (loss) attributable to SLM Corporation (Dollars in millions) Net interest income after provisions for loan losses Total other loss Goodwill and acquired intangible asset impairment and amortization “Core Earnings” adjustments to GAAP Income tax benefit Net loss (Dollars in millions) “Core Earnings” adjustments to GAAP: Net impact of derivative accounting(1) Net impact of goodwill and acquired intangibles assets(2) Net tax effect(3) Net effect from discontinued operations Total “Core Earnings” adjustments to GAAP 10-K (filed with the SEC on February 19, 2014). quarter ended June 30, 2014 for a further discussion and a complete reconciliation between GAAP net income and “Core Earnings.” (In millions, except per share data) GAAP Basis Net income attributable to SLM Corporation Diluted earnings per common share attributable to SLM Corporation Weighted average shares used to compute diluted earnings per share Return on assets “Core Earnings” Basis(1) “Core Earnings” attributable to SLM Corporation “Core Earnings” diluted earnings per common share attributable to SLM Corporation Weighted average shares used to compute diluted earnings per share “Core Earnings” return on assets Other Operating Statistics Ending FFELP Loans, net Ending Private Education Loans, net Ending total student loans, net Average student loans Company. platform which will have at its core the same servicing platform the Company has used for several years. The key financial measures. Our operating results are primarily driven by net interest income from our student loan education loan portfolios and the interest expense we pay on funds we use to originate these loans. We report (In millions, except per share data) Interest income: FFELP Loans Private Education Loans Other loans Cash and investments Total interest income Total interest expense Net interest income Less: provisions for loan losses Net interest income after provisions for loan losses Other income (loss): Gains on sales of loans and investments Gains (losses) on derivative and hedging activities, net Servicing revenue Contingency revenue Gains on debt repurchases Other income (loss) Total other income (loss) Expenses: Operating expenses Goodwill and acquired intangible asset impairment and amortization expense Restructuring and other reorganization expenses Total expenses Income from continuing operations, before income tax expense Income tax expense Net income from continuing operations Income (loss) from discontinued operations, net of tax expense (benefit) Net income Less: net loss attributable to noncontrolling interest Net income attributable to SLM Corporation Preferred stock dividends Net income attributable to SLM Corporation common stock �� Basic earnings per common share attributable to SLM Corporation: Continuing operations Discontinued operations Total Diluted earnings per common share attributable to SLM Corporation: Continuing operations Discontinued operations Total Dividends per common share attributable to SLM Corporation Earnings described above. (Dollars in millions) Interest income: Student loans Other loans Cash and investments Total interest income Total interest expense Net interest income (loss) Less: provisions for loan losses Net interest income (loss) after provisions for loan losses Other income (loss): Gains on sales of loans and investments Servicing revenue Contingency revenue Gains on debt repurchases Other income (loss) Total other income (loss) Expenses: Direct operating expenses Overhead expenses Operating expenses Goodwill and acquired intangible asset impairment and amortization Restructuring and other reorganization expenses Total expenses Income (loss) from continuing operations, before income tax expense (benefit) Income tax expense (benefit)(3) Net income (loss) from continuing operations Income from discontinued operations, net of tax expense Net income (loss) Less: net loss attributable to noncontrolling interest Net income (loss) attributable to SLM Corporation (Dollars in millions) Net interest income after provisions for loan losses Total other loss Goodwill and acquired intangible asset impairment and amortization “Core Earnings” adjustments to GAAP Income tax benefit Net income (Dollars in millions) Interest income: Student loans Other loans Cash and investments Total interest income Total interest expense Net interest income (loss) Less: provisions for loan losses Net interest income (loss) after provisions for loan losses Other income (loss): Gains on sales of loans and investments Servicing revenue Contingency revenue Gains on debt repurchases Other income (loss) Total other income (loss) Expenses: Direct operating expenses Overhead expenses Operating expenses Goodwill and acquired intangible asset impairment and amortization Restructuring and other reorganization expenses Total expenses Income (loss) from continuing operations, before income tax expense (benefit) Income tax expense (benefit)(3) Net income (loss) from continuing operations Income from discontinued operations, net of tax expense Net income (loss) Less: net loss attributable to noncontrolling interest Net income (loss) attributable to SLM Corporation (Dollars in millions) Net interest income after provisions for loan losses Total other income Goodwill and acquired intangible asset impairment and amortization Total “Core Earnings” adjustments to GAAP Income tax expense Net income (Dollars in millions) “Core Earnings” adjustments to GAAP: Net impact of derivative accounting Net impact of goodwill and acquired intangible assets Net income tax effect Net effect from discontinued operations Total “Core Earnings” adjustments to GAAP (Dollars in millions) “Core Earnings” derivative adjustments: Gains (losses) on derivative and hedging activities, net, included in other income Plus: Realized losses on derivative and hedging activities, net(1) Unrealized gains on derivative and hedging activities, net(2) Amortization of net premiums on Floor Income Contracts in net interest income for “Core Earnings” Other derivative accounting adjustments(3) Total net impact of derivative accounting(4) (Dollars in millions) Floor Income Contracts Basis swaps Foreign currency hedges Other Total unrealized gains on derivative and hedging activities, net (Dollars in millions) Reclassification of realized gains (losses) on derivative and hedging activities: Net settlement expense on Floor Income Contracts reclassified to net interest income Net settlement income on interest rate swaps reclassified to net interest income Net realized gains on terminated derivative contracts reclassified to other income Total reclassifications of realized losses on derivative and hedging activities (Dollars in millions) Beginning impact of derivative accounting on GAAP equity Net impact of net unrealized gains (losses) under derivative accounting(1) Ending impact of derivative accounting on GAAP equity (Dollars in millions) Total pre-tax net impact of derivative accounting recognized in net income(a) Tax impact of derivative accounting adjustments recognized in net income Change in unrealized gain (losses) on derivatives, net of tax recognized in other comprehensive income Net impact of net unrealized gains (losses) under derivative accounting (Dollars in millions) Unamortized net Floor premiums (net of tax)(1) (Dollars in millions) “Core Earnings” goodwill and acquired intangible asset adjustments(1) (Dollars in millions) “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: provision for loan losses Net “Core Earnings” interest income after provision for loan losses Servicing revenue Direct operating expenses Restructuring and other reorganization expenses Total expenses Income before income tax expense Income tax expense “Core Earnings” The “Core Earnings” basis Private Education Loan yield Discount amortization “Core Earnings” basis Private Education Loan net yield “Core Earnings” basis Private Education Loan cost of funds “Core Earnings” basis Private Education Loan spread “Core Earnings” basis other interest-earning asset spread impact “Core Earnings” basis Consumer Lending net interest margin(1) “Core Earnings” basis Consumer Lending net interest margin(1) Adjustment for GAAP accounting treatment(2) GAAP basis Consumer Lending net interest margin(1) (Dollars in millions) Private Education Loans Other interest-earning assets Total Consumer Lending “Core Earnings” basis interest-earning assets year-ago period. The primary factors affecting the change were interest rates and whether the derivative qualified for hedge accounting treatment. In the first half of 2014 we had more derivatives used to economically hedge risk that did not qualify for hedge accounting treatment than we did in the year-ago period. (Dollars in millions) Private Education Loan provision for loan losses Private Education Loan charge-offs losses. forbearance. (Dollars in millions) Net interest income Servicing revenue: Intercompany loan servicing Third-party loan servicing Guarantor servicing Total servicing revenue Contingency revenue Other Business Services revenue Total other income Direct operating expenses Restructuring and other reorganization expenses Total expenses Income from continuing operations, before income tax expense Income tax expense Net income from continuing operations Income from discontinued operations, net of tax expense “Core Earnings” (Dollars in millions) Contingent asset recovery receivables: Student loans Other Total (Dollars in millions) “Core Earnings” interest income: FFELP Loans Cash and investments Total “Core Earnings” interest income Total “Core Earnings” interest expense Net “Core Earnings” interest income Less: provision for loan losses Net “Core Earnings” interest income after provision for loan losses Gains on sales of loans and investments Servicing revenue Total other income Direct operating expenses Restructuring and other reorganization expenses Total expenses Income from continuing operations, before income tax expense Income tax expense “Core Earnings” “Core Earnings” basis FFELP Loan yield Hedged Floor Income Unhedged Floor Income Consolidation Loan Rebate Fees Repayment Borrower Benefits Premium amortization “Core Earnings” basis FFELP Loan net yield “Core Earnings” basis FFELP Loan cost of funds “Core Earnings” basis FFELP Loan spread “Core Earnings” basis other interest-earning asset spread impact “Core Earnings” basis FFELP Loan net interest margin(1) “Core Earnings” basis FFELP Loan net interest margin(1) Adjustment for GAAP accounting treatment(2) GAAP-basis FFELP Loan net interest margin(1) (Dollars in millions) FFELP Loans Other interest-earning assets Total FFELP “Core Earnings” basis interest-earning assets (Dollars in billions) Student loans eligible to earn Floor Income Less: post-March 31, 2006 disbursed loans required to rebate Floor Income Less: economically hedged Floor Income Contracts Student loans eligible to earn Floor Income Student loans earning Floor Income (Dollars in billions) Average balance of FFELP Consolidation Loans whose Floor Income is economically hedged(1) (Dollars in millions) FFELP Loan provision for loan losses FFELP Loan charge-offs (Dollars in millions) Net interest loss after provision for loan losses Gains (losses) on sales of loans and investments Gains on debt repurchases Other Total other income Direct operating expenses Overhead expenses: Corporate overhead Unallocated information technology costs Total overhead expenses Total operating expenses Restructuring and other reorganization expenses Total expenses Loss before income tax benefit Income tax benefit “Core Earnings” (loss) purchases. (Dollars in millions) 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 borrowings Total interest-bearing liabilities Non-interest-bearing liabilities Equity Total liabilities and equity Net interest margin (Dollars in millions) Three Months Ended March 31, 2014 vs. 2013 Interest income Interest expense Net interest income Changes in income and expense due to both rate and volume have been allocated in proportion to the relationship of the absolute dollar amounts of the change in each. The changes in income and expense are calculated independently for each line in the table. The totals for the rate and volume columns are not the sum of the individual lines. (Dollars in millions) Total student loan portfolio: In-school(1) Grace, repayment and other(2) Total, gross Unamortized premium/(discount) Receivable for partially charged-off loans Allowance for loan losses Total student loan portfolio % of total FFELP % of total (Dollars in millions) Total student loan portfolio: In-school(1) Grace, repayment and other(2) Total, gross Unamortized premium/(discount) Receivable for partially charged-off loans Allowance for loan losses Total student loan portfolio % of total FFELP % of total Loans for customers still attending school (Dollars in millions) Total % of FFELP % of total (Dollars in millions) Total % of FFELP % of total (Dollars in millions) Beginning balance Acquisitions and originations Capitalized interest and premium/discount amortization Consolidations to third parties Sales Repayments and other Ending balance (Dollars in millions) Beginning balance Acquisitions and originations Capitalized interest and premium/discount amortization Consolidations to third parties Sales(1) Repayments and other Ending balance (Dollars in millions) Beginning balance Less: Charge-offs(1) Student loan sales Plus: Provision for loan losses Reclassification of interest reserve(2) Ending balance Troubled debt restructuring(3) Represents the recorded investment of loans classified as troubled debt restructuring. (Dollars in millions) Smart Option — interest only(1) Smart Option — fixed pay(1) Smart Option — deferred(1) Other Total Private Education Loan originations Interest only, fixed pay and deferred describe the payment option while in school or in grace period. See (Dollars in millions) Loans in-school/grace/deferment(1) Loans in forbearance(2) Loans in repayment and percentage of each status: Loans current Loans delinquent 31-60 days(3) Loans delinquent 61-90 days(3) Loans delinquent greater than 90 days(3) Total Private Education Loans in repayment Total Private Education Loans, gross Private Education Loan unamortized discount Total Private Education Loans Private Education Loan receivable for partially charged-off loans Private Education Loan allowance for losses Private Education Loans, net Percentage of Private Education Loans in repayment Delinquencies as a percentage of Private Education Loans in repayment Loans in forbearance as a percentage of loans in repayment and forbearance Loans in repayment greater than 12 months as a percentage of loans in repayment(4) Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students 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 procedures. The period of delinquency is based on the number of days scheduled payments are contractually past due. Based on number of months in an active repayment status for which a scheduled monthly payment was due. (Dollars in millions) Allowance at beginning of period Provision for Private Education Loan losses Charge-offs(1) Reclassification of interest reserve(2) Allowance at end of period Charge-offs as a percentage of average loans in repayment (annualized) Charge-offs as a percentage of average loans in repayment and forbearance (annualized) Allowance as a percentage of ending total loans Allowance as a percentage of ending loans in repayment Average coverage of charge-offs (annualized) Ending total loans(3) Average loans in repayment Ending loans in repayment (Dollars in millions) Ending total loans(1) Ending loans in repayment Private Education Loan allowance for losses Charge-offs as a percentage of average loans in repayment (annualized) Allowance as a percentage of ending total loan balance Allowance as a percentage of ending loans in repayment Average coverage of charge-offs (annualized) Delinquencies as a percentage of Private Education Loans in repayment Delinquencies greater than 90 days as a percentage of Private Education Loans in repayment Loans in forbearance as a percentage of loans in repayment and forbearance Loans that entered repayment during the period(2) Percentage of Private Education Loans with a cosigner Average FICO at origination Includes loans that are required to make a payment for the first time. (Dollars in millions) Receivable at beginning of period Expected future recoveries of current period defaults(1) Recoveries(2) Charge-offs(3) Receivable at end of period Allowance for estimated recovery shortfalls(4) Net receivable at end of period Use of Forbearance as a Private Education Loan Tracking by First Time in Forbearance Compared to All Loans Entering Repayment — Portfolio data through March 31, 2014 In-school/grace/deferment Current Delinquent 31-60 days Delinquent 61-90 days Delinquent greater than 90 days Forbearance Defaulted Paid Total At (Dollars in millions) March 31, 2014 Loans in-school/grace/deferment Loans in forbearance Loans in repayment — current Loans in repayment — delinquent 31-60 days Loans in repayment — delinquent 61-90 days Loans in repayment — delinquent greater than 90 days Total Unamortized discount Receivable for partially charged-off loans Allowance for loan losses Total Private Education Loans, net Loans in forbearance as a percentage of loans in repayment and forbearance Loans in repayment — delinquent greater than 90 days as a percentage of loans in repayment (Dollars in millions) March 31, 2013 Loans in-school/grace/deferment Loans in forbearance Loans in repayment — current Loans in repayment — delinquent 31-60 days Loans in repayment — delinquent 61-90 days Loans in repayment — delinquent greater than 90 days Total Unamortized discount Receivable for partially charged-off loans Allowance for loan losses Total Private Education Loans, net Loans in forbearance as a percentage of loans in repayment and forbearance Loans in repayment — delinquent greater than 90 days as a percentage of loans in repayment (Dollars in millions) Cumulative number of months customer has used forbearance Up to 12 months 13 to 24 months More than 24 months Total Loan Program (Dollars in millions) Signature and Smart Option Career $ in repayment $ in total Payment method by enrollment status: In-school/grace Deferred(1), interest-only or fixed Interest-only or fixed $25/month Repayment Level principal and interest or graduated Level principal and interest Level principal and interest “Deferred” includes loans for which no payments are required and interest charges are capitalized into the loan balance. (Dollars in millions) March 31, 2014 December 31, 2013 March 31, 2013 (Dollars in millions) Loans in-school/grace/deferment(1) Loans in forbearance(2) Loans in repayment and percentage of each status: Loans current Loans delinquent 31-60 days(3) Loans delinquent 61-90 days(3) Loans delinquent greater than 90 days(3) Total FFELP Loans in repayment Total FFELP Loans, gross FFELP Loan unamortized premium Total FFELP Loans FFELP Loan allowance for losses FFELP Loans, net Percentage of FFELP Loans in repayment Delinquencies as a percentage of FFELP Loans in repayment FFELP Loans in forbearance as a percentage of loans in repayment and forbearance (Dollars in millions) 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 Charge-offs as a percentage of average loans in repayment and forbearance (annualized) Allowance as a percentage of ending total loans, gross Allowance as a percentage of ending loans in repayment Allowance coverage of charge-offs (annualized) Ending total loans, gross Average loans in repayment Ending loans in repayment (Dollars in millions) Sources of primary liquidity: Unrestricted cash and liquid investments: Holding Company and other non-bank subsidiaries Sallie Mae Bank(1) Total unrestricted cash and liquid investments Unencumbered FFELP Loans: Holding Company and other non-bank subsidiaries Sallie Mae Bank Total unencumbered FFELP Loans Bank to pay dividends. (Dollars in millions) Sources of primary liquidity: Unrestricted cash and liquid investments: Holding Company and other non-bank subsidiaries Sallie Mae Bank(1) Total unrestricted cash and liquid investments Unencumbered FFELP Loans: Holding Company and other non-bank subsidiaries Sallie Mae Bank Total unencumbered FFELP Loans This amount will be used primarily to originate (Dollars in billions) Net assets of consolidated variable interest entities (encumbered 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 on unsecured hedged debt(2) Other liabilities, net Total tangible equity (Dollars in millions) Exposure, net of collateral(1) Percent of exposure to counterparties with credit ratings below S&P AA- or Moody’s Aa3 Percent of exposure to counterparties with credit ratings below S&P A- or Moody’s A3 Well capitalized” regulatory requirements are the quantitative measures established by regulation to ensure capital adequacy. The Bank is required to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I Capital to risk-weighted assets and of Tier I Capital to average assets, as defined by the regulation. The following (Dollars in millions) Unsecured borrowings: Senior unsecured debt Bank deposits Other(1) 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 before hedge accounting adjustments Hedge accounting adjustments Total (Dollars in millions) Unsecured borrowings: Senior unsecured debt Bank deposits Other(1) 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” average balance and rate Adjustment for GAAP accounting treatment GAAP basis average balance and rate June 30, 2014. (Dollars in millions, except per share amounts) Effect on Earnings: Change in pre-tax net income before unrealized gains (losses) on derivative and hedging activities Unrealized gains (losses) on derivative and hedging activities Increase in net income before taxes Increase in diluted earnings per common share (Dollars in millions) Effect on Fair Values: Assets FFELP Loans Private Education Loans Other earning assets Other assets Total assets gain/(loss) Liabilities Interest-bearing liabilities Other liabilities Total liabilities (gain)/loss (Dollars in millions) Effect on Fair Values Assets FFELP Loans Private Education Loans Other earning assets Other assets Total assets gain/(loss) Liabilities Interest-bearing liabilities Other liabilities Total liabilities (gain)/loss movements. Index (Dollars in billions) 3-month Treasury bill Prime Prime Prime Prime PLUS Index 3-month LIBOR 3-month LIBOR 1-month LIBOR 1-month LIBOR daily CMT/CPI Index Non-Discrete reset(3) Non-Discrete reset(4) Fixed Rate(5) Total Funding (by index) includes all derivatives that qualify as hedges. Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes liquid retail Assets include receivables and other assets (including Index (Dollars in billions) 3-month Treasury bill Prime Prime Prime Prime PLUS Index 3-month LIBOR 3-month LIBOR 1-month LIBOR 1-month LIBOR Non-Discrete reset(3) Non-Discrete reset(4) Fixed Rate(5) Total materially different. a Common Equity Tier 1 capital conservation buffer of greater than 2.5 percent of risk-weighted assets that will apply to all U.S. banking organizations, including the Bank. Failure to maintain the capital conservation buffer will result in increasingly stringent restrictions on a banking organization’s ability to make dividend payments and other capital distributions and pay discretionary bonuses to executive officers. The capital conservation buffer and certain other aspects of the U.S. Basel III final rule will be phased in over several years. The final rule also increases the minimum ratio of Tier 1 capital to risk-weighted assets from 4 percent to 6 percent, while maintaining the current minimum total risk-based capital ratio of 8 percent. Effective 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 the Bank to reflect the higher Basel III capital ratios. If the Bank fails to satisfy regulatory capital or leverage capital requirements, it may be subject to serious regulatory sanctions which could also have an impact on us. If any of these sanctions were to occur, they could prevent us from successfully executing our business plan and may have a material adverse effect on our business, results of operations, and financial position. Spin-Off, the (In millions, except per share data) Period: January 1 —January 31, 2014 February 1 —February 28, 2014 March 1 — March 31, 2014 Total first-quarter 2014 our current business and operations. Management Contract or Compensatory Plan or Arrangementþx QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 March 31,June 30, 2014¨c TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 52-2013874 (I.R.S. EmployerIdentification No.)300 Continental Drive, Newark, Delaware 19713 (Address of principal executive offices) (Zip Code) þx No ¨cLarge accelerated filer þx Accelerated filer c Accelerated filer ¨Non-accelerated filer ¨c Smaller reporting company ¨(Do not check if a smaller reporting company) Smaller reporting company c þx No ¨c¨c No þxAprilJune 30, 2014Common Stock, $0.20 par value 422,781,435422,936,478 sharesPart I. Financial Information Item 1. Financial Statements Item 1. Notes to the Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk Item 4. Controls and Procedures PART II. Other Information Item 1. Legal Proceedings Item 1A. Risk Factors 73 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 81 Item 3. Defaults Upon Senior Securities 81 Item 4. Mine Safety Disclosures 81 Item 5. Other Information 81 Item 6. Exhibits 87 June 30, December 31, 2014 2013 Assets Cash and cash equivalents $ 1,524,176 $ 2,182,865 Available-for-sale investments at fair value (cost of $150,117 and $106,977, respectively) 149,399 102,105 Loans held for investment (net of allowance for losses of $60,527 and $68,081, respectively) 8,793,971 7,931,377 Other interest-earning assets 45,417 4,355 Accrued interest receivable 453,461 356,283 Premises and equipment, net 77,833 74,188 Acquired intangible assets, net 4,241 6,515 Tax indemnification receivable 270,198 — Other assets 60,643 48,976 Total assets $ 11,379,339 $ 10,706,664 Liabilities Deposits $ 8,890,209 $ 9,001,550 Income taxes payable, net 323,467 162,205 Upromise related liabilities 301,160 307,518 Other liabilities 126,239 69,248 Total liabilities 9,641,075 9,540,521 Commitments and contingencies Equity Preferred stock, par value $0.20 per share, 20 million shares authorized Series A: 3.3 million and 0 shares issued, respectively, at stated value of $50 per share 165,000 — Series B: 4 million and 0 shares issued, respectively, at stated value of $100 per share 400,000 — Common stock, par value $0.20 per share, 1.125 billion shares authorized: 423 million and 0 shares issued, respectively 84,659 — Additional paid-in capital 1,071,916 — Navient's subsidiary investment — 1,164,495 Accumulated other comprehensive (loss) income (net of tax (benefit) expense of ($354) and ($1,849), respectively) (365 ) (3,024 ) Retained earnings 20,167 — Total SLM Corporation stockholders' equity before treasury stock 1,741,377 1,161,471 Less: Common stock held in treasury at cost: 359 million and 0 shares, respectively (3,113 ) — Noncontrolling interest — 4,672 Total equity 1,738,264 1,166,143 Total liabilities and equity $ 11,379,339 $ 10,706,664 Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Interest income: Loans $ 162,238 $ 122,212 $ 322,273 $ 253,781 Investments 2,236 5,638 3,204 11,624 Cash and cash equivalents 1,099 1,038 1,965 1,770 Total interest income 165,573 128,888 327,442 267,175 Interest expense: Deposits 21,034 21,439 43,624 44,008 Other interest expense — 32 41 49 Total interest expense 21,034 21,471 43,665 44,057 Net interest income 144,539 107,417 283,777 223,118 Less: provisions for loan losses 1,014 (1,015 ) 40,173 19,677 Net interest income after provisions for loan losses 143,525 108,432 243,604 203,441 Noninterest income: Gains on sales of loans to affiliates, net 1,928 73,441 35,816 148,663 (Losses) gains on derivatives and hedging activities, net (9,458 ) (52 ) (10,222 ) 558 Other 15,229 8,665 23,365 16,465 Total noninterest income 7,699 82,054 48,959 165,686 Expenses: Compensation and benefits 31,667 26,821 61,334 56,585 Other operating expenses 28,812 39,772 62,744 70,602 Total operating expenses 60,479 66,593 124,078 127,187 Acquired intangible asset impairment and amortization expense 1,156 714 2,995 1,428 Restructuring and other reorganization expenses 13,520 84 13,749 107 Total expenses 75,155 67,391 140,822 128,722 Income before income tax expense 76,069 123,095 151,741 240,405 Income tax expense 31,941 46,973 60,599 91,738 Net income 44,128 76,122 91,142 148,667 Less: net loss attributable to noncontrolling interest — (347 ) (434 ) (686 ) Net income attributable to SLM Corporation 44,128 76,469 91,576 149,353 Preferred stock dividends 3,228 — 3,228 — Net income attributable to SLM Corporation common stock $ 40,900 $ 76,469 $ 88,348 $ 149,353 Basic earnings per common share attributable to SLM Corporation $ 0.10 $ 0.17 $ 0.21 $ 0.34 Average common shares outstanding 422,805 439,972 424,751 445,309 Diluted earnings per common share attributable to SLM Corporation $ 0.09 $ 0.17 $ 0.20 $ 0.33 Average common and common equivalent shares outstanding 430,750 448,064 432,689 453,231 Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Net income $ 44,128 $ 76,122 $ 91,142 $ 148,667 Other comprehensive income (loss): Unrealized gain (loss) on investments 2,749 (15,625 ) 4,155 37,769 Total unrealized gains (losses) on investments 2,749 (15,625 ) 4,155 37,769 Income tax (expense) benefit (962 ) 5,955 (1,496 ) (14,327 ) Other comprehensive income (loss), net of tax benefit (expense) 1,787 (9,670 ) 2,659 23,442 Comprehensive income 45,915 66,452 93,801 172,109 Less: comprehensive loss attributable to noncontrolling interest — (347 ) (434 ) (686 ) Total comprehensive income attributable to SLM Corporation $ 45,915 $ 66,799 $ 94,235 $ 172,795 Navient's Subsidiary Investment Total SLM Corporation Equity Non-controlling interest Total Equity Balance at March 31, 2013 $ 1,056,783 $ 47,460 $ 1,104,243 $ 5,685 $ 1,109,928 Net income (loss) 76,469 — 76,469 (347 ) 76,122 Other comprehensive loss, net of tax — (9,670 ) (9,670 ) — (9,670 ) Total comprehensive income (loss) — — 66,799 (347 ) 66,452 Net transfers from affiliate 29,570 — 29,570 — 29,570 Balance at June 30, 2013 $ 1,162,822 $ 37,790 $ 1,200,612 $ 5,338 $ 1,205,950 EXPLANATORY NOTE(In thousands, except share and per share amounts)(Unaudited) Common Stock Shares Preferred Stock Shares Issued Treasury Outstanding Preferred Stock Common Stock Additional Paid-In Capital Navient's Subsidiary Investment Retained Earnings Treasury Stock Total SLM Corporation Equity Non-controlling interest Total Equity Balance at March 31, 2014 — — — — $ — $ — $ — $ 1,229,187 $ (2,152 ) $ — $ — $ 1,227,035 $ 4,238 $ 1,231,273 Net income — — — — — — — 20,725 — 23,403 — 44,128 — 44,128 Other comprehen-sive income, net of tax — — — — — — — — 1,787 — — 1,787 — 1,787 Total comprehensive income — — — — — — — — — — — 45,915 — 45,915 Net transfers from affiliate — — — — — — — 462,165 — — — 462,165 — 462,165 Separation adjustments related to Spin-Off of Navient Corporation 7,300,000 422,790,320 — 422,790,320 565,000 84,558 1,062,519 (1,712,077 ) — — — — — — Sale of non-controlling interest — — — — — — — — — — — — (4,238 ) (4,238 ) Cash dividends: Preferred Stock, series A ($.87 per share) — — — — — — — — — (1,917 ) — (1,917 ) — (1,917 ) — — — — — — — — — (1,311 ) — (1,311 ) — (1,311 ) Dividend equivalent units related to employee stock-based compensation plans — — — — — — 8 — — (8 ) — — — — Issuance of common shares — 504,929 — 504,929 — 101 2,344 — — — — 2,445 — 2,445 Stock-based compensation expense — — — — — — 7,045 — — — — 7,045 — 7,045 Shares repurchased related to employee stock-based compensation plans — — (358,771 ) (358,771 ) — — — — — — (3,113 ) (3,113 ) — (3,113 ) Balance at June 30, 2014 7,300,000 423,295,249 (358,771 ) 422,936,478 $ 565,000 $ 84,659 $ 1,071,916 $ — $ (365 ) $ 20,167 $ (3,113 ) $ 1,738,264 $ — $ 1,738,264 Navient's Subsidiary Investment Total SLM Corporation Equity Non-controlling interest Total Equity Balance at December 31, 2012 $ 1,068,928 $ 14,348 $ 1,083,276 $ 6,024 $ 1,089,300 Net income (loss) 149,353 149,353 (686 ) 148,667 Other comprehensive income, net of tax — 23,442 23,442 — 23,442 Total comprehensive (loss) — — 172,795 (686 ) 172,109 Net transfers to affiliate (55,459 ) — (55,459 ) — (55,459 ) Balance at June 30, 2013 $ 1,162,822 $ 37,790 $ 1,200,612 $ 5,338 $ 1,205,950 Common Stock Shares Preferred Stock Shares Issued Treasury Outstanding Preferred Stock Common Stock Additional Paid-In Capital Navient's Subsidiary Investment Retained Earnings Treasury Stock Total SLM Corporation Equity Non-controlling interest Total Equity Balance at December 31, 2013 — — — — $ — $ — $ — $ 1,164,495 $ (3,024 ) $ — $ — $ 1,161,471 $ 4,672 $ 1,166,143 Net income (loss) — — — — — — — 68,173 — 23,403 — 91,576 (434 ) 91,142 Other comprehensive income, net of tax — — — — — — — — 2,659 — — 2,659 — 2,659 Total comprehensive income (loss) — — — — — — — — — — — 94,235 (434 ) 93,801 Net transfers from affiliate — — — — — — — 479,409 — — — 479,409 — 479,409 Separation adjustments related to Spin-Off of Navient Corporation 7,300,000 422,790,320 — 422,790,320 565,000 84,558 1,062,519 (1,712,077 ) — — — — — — Sale of non-controlling interest — — — — — — — — — — — — (4,238 ) (4,238 ) Cash dividends: Preferred Stock, series A ($.87 per share) — — — — — — — — — (1,917 ) — (1,917 ) — (1,917 ) — — — — — — — — — (1,311 ) — (1,311 ) — (1,311 ) Dividend equivalent units related to employee stock-based compensation plans — — — — — — 8 — — (8 ) — — — Issuance of common shares — 504,929 — 504,929 — 101 2,344 — — — — 2,445 — 2,445 Stock-based compensation expense — — — — — — 7,045 — — — — 7,045 — 7,045 Shares repurchased related to employee stock-based compensation plans — — (358,771 ) (358,771 ) — — — — — — (3,113 ) (3,113 ) — (3,113 ) Balance at June 30, 2014 7,300,000 423,295,249 (358,771 ) 422,936,478 $ 565,000 $ 84,659 $ 1,071,916 $ — $ (365 ) $ 20,167 $ (3,113 ) $ 1,738,264 $ — $ 1,738,264 Six Months Ended June 30, 2014 2013 Operating activities Net income $ 91,142 $ 148,667 Adjustments to reconcile net income to net cash used in operating activities: Provision for loan losses 40,173 19,677 Tax provision 60,599 91,738 Amortization of FDIC fees — 1,046 Amortization of brokered deposit placement fee 5,222 4,879 Amortization of deferred loan origination costs and fees, net 847 616 Net amortization (accretion) of discount on investments 236 (4,342 ) Depreciation of premises and equipment 1,642 1,694 Amortization and impairment of acquired intangibles 2,995 1,428 Stock-based compensation expense 8,468 9,229 Interest rate swap 8,025 (452 ) Gains on sale of loans to affiliates, net (35,816 ) (148,663 ) Changes in operating assets and liabilities: Net decrease in loans held for sale 6,183 2,521 Origination of loans held for sale (6,183 ) (2,521 ) Increase in accrued interest receivable (175,919 ) (119,723 ) Increase in other interest-earning assets (41,062 ) (1,107 ) (Increase) decrease in other assets (18,946 ) (17,888 ) Increase (decrease) in income tax payable (199,782 ) (10,315 ) Decrease in accrued interest payable (2,931 ) (1,498 ) Increase in payable due to Navient 11,109 5,892 Increase (decrease) in other liabilities 12,140 (41,204 ) Total adjustments (323,000 ) (208,993 ) Total net cash provided by (used in) operating activities (231,858 ) (60,326 ) Investing activities Loans acquired and originated (32,796 ) (185,190 ) Net proceeds from sales of loans held for investment 755,746 1,825,406 Net increase in loans held for investment (1,512,009 ) (1,465,830 ) Purchases of available-for-sale securities (47,087 ) (15,966 ) Proceeds from sales and maturities of available-for-sale securities 3,712 10,996 Total net cash (used in) provided by investing activities (832,434 ) 169,416 Financing activities Net (decrease) in brokered certificates of deposit (841,965 ) (521,740 ) Net (decrease) increase in NOW account deposits (18,214 ) 2,179 Net increase in High Yield Savings Deposits 647,864 414 Net increase in Retail Certificates of Deposit 5,143 13,335 Net increase in MMDA deposits 133,510 484,357 Net decrease in deposits with entity that is a subsidiary of Navient (5,633 ) (110,486 ) Special cash contribution from Navient 472,718 — Net capital contributions (to) from entity that is a subsidiary of Navient 15,408 76,262 Preferred stock dividends paid (3,228 ) — Dividend paid to entity that is a subsidiary of Navient — (120,000 ) Net cash provided by (used in) financing activities 405,603 (175,679 ) Net decrease in cash and cash equivalents (658,689 ) (66,589 ) Cash and cash equivalents at beginning of period 2,182,865 1,599,082 Cash and cash equivalents at end of period $ 1,524,176 $ 1,532,493 Cash disbursements made for: Interest $ 42,819 $ 39,866 Income taxes paid $ 199,782 $ 10,315 SLM Corporation (“Sallie Mae”, “SLM”, the “Company”, “we”, “our”, or “us”)we completed itsour plan to legally separate into two distinct publicly-traded entities—publicly traded entities - an education loan management, servicing and asset recovery business, Navient Corporation (“Navient”), and a consumer banking business, SLM.SLM Corporation. The separation of Navient from SLM Corporation (the “Spin-Off”) was preceded by an internal corporate reorganization, which was the first step to separate the education loan management, servicing and asset recovery business from the consumer banking business. As a result of a holding company merger under Section 251(g) of the Delaware General Corporation Law (“DGCL”), which is referred to herein as the “SLM Merger,” all of the shares of then existing SLM Corporation’s common stock were converted, on a 1-to-1 basis, into shares of common stock of New BLC Corporation, a newly formed company that was a subsidiary of then existingpre-Spin-Off SLM Corporation (“pre-Spin-Off SLM”), and, pursuant to the SLM Merger, New BLC Corporation replaced then existing SLM Corporation as the publicly-traded registrant and changed its name to SLM Corporation. As part of the internal corporate reorganization, the assets and liabilities associated with the education loan management, servicing and asset recovery business were transferred to Navient, and those assets and liabilities associated with the consumer banking business remained with or were transferred to the newly constituted SLM. Immediately after the internal corporate reorganization, SLM owned all of the issued and outstanding shares of Navient common stock, which it distributed on April 30, 2014 to the stockholders of record on April 22, 2014 of then existing SLM Corporation. The internal reorganizationseparation and the distribution are sometimes collectively referredwere accounted for on a substantially tax-free basis.herein as the “Spin-Off” and SLM Corporation as it existed prior to completion of the Spin-Off is sometimes referred to herein as “Existing SLM.” SLM Corporation as it now exists after the Spin-Off is referred to herein as “Sallie Mae,” the “Company,” “SLM,” “we,” “our” or “us.” Upon completion of the internal reorganization, Existing SLM became a limited liability company wholly-owned by Navient and changed its name to Navient, LLC. For further information regarding the Spin-Off, risk factors of Sallie Mae related tocomplete the Spin-Off and comply with the business to be conducted by Sallie Mae afterSecurities and Exchange Commission ("SEC") reporting requirements, including the Spin-Off, please seereplacement of pre-Spin-Off SLM Corporation with our 2013current publicly-traded registrant, have resulted in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 19, 2014, and our Quarterly Report on Form 8-K10-Q for the quarter ended March 31, 2014, filed with the SEC on December 20, 2013. For furtherMay 12, 2014, providing business results and financial information regarding Navient, risk factorsfor the periods reported therein on the basis of Navient related to the Spin-Off andconsolidated businesses of pre-Spin-Off SLM. While information contained in those prior reports may provide meaningful historical context for the Company’s business, to be conducted by Navient after the Spin-Off, please see the registration statement on Form 10, as amended, filed by Navient with the SEC on April 10, 2014 and declared effective on April 14, 2014, which can be accessed through the SEC’s website atwww.sec.gov/edgar.Given the Spin-Off occurred in the second quarter of 2014, this Quarterly Report on Form 10-Q for the three months ended March 31, 2014 relates to Existing SLM and contains consolidated financial information of Existing SLM prior to the Spin-Off, including the financial results of the education loan management, servicing and asset recovery business (i.e., Navient). On May 6, 2014, Sallie Mae filed a Current Report on Form 8-K providing pro forma unaudited condensed consolidated financial information of stand-alone Sallie Mae and its subsidiaries for the three months ended March 31, 2014, as adjusted to give effect to the Spin-Off of Navient. Additionally, that Current Report on Form 8-K contained historical carve-out audited financial statements of Sallie Mae and its subsidiaries on a stand-alone basis for each of the three years ended December 31, 2013, December 31, 2012 and December 31, 2011, as adjusted for the effects of the Spin-Off. Sallie Mae’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014 and Sallie Mae’s future financial reports to be filed with the SEC will be prepared on the same stand-alone basis as the historical audited financial statements contained in this Current Report on Form 8-K.Capitalized terms used herein and not otherwise defined have the meanings ascribed to such terms inis our 2013 Form 10-K.SLM CORPORATIONPart I. Financial InformationItem 1.Financial Statements1Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations37Item 3.Quantitative and Qualitative Disclosures about Market Risk81Item 4.Controls and Procedures86PART II. Other InformationItem 1.Legal Proceedings87Item 1A.Risk Factors88Item 2.Unregistered Sales of Equity Securities and Use of Proceeds89Item 3.Defaults Upon Senior Securities89Item 4.Mine Safety Disclosures89Item 5.Other Information89Item 6.Exhibits90The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.PART I. FINANCIAL INFORMATIONItem 1.Financial StatementsSLM CORPORATIONCONSOLIDATED BALANCE SHEETS(In millions, except share and per share amounts)(Unaudited) March 31,
2014 December 31,
2013 $ 102,635 $ 104,588 38,157 37,512 135 109 652 783 787 892 3,742 5,190 3,794 3,650 421 424 6,936 7,287 $ 156,472 $ 159,543 $ 11,626 $ 13,795 136,177 136,648 3,071 3,458 150,874 153,901 165 165 400 400 110 109 4,461 4,399 7 13 2,733 2,584 7,876 7,670 (2,283 ) (2,033 ) 5,593 5,637 5 5 5,598 5,642 $ 156,472 $ 159,543 Supplemental information — assets and liabilities of consolidated variable interest entities: March 31,
2014 December 31,
2013 $ 97,380 $ 99,254 25,139 25,530 3,618 3,395 2,163 2,322 1,694 3,655 115,533 115,538 $ 11,073 $ 11,308 See accompanying notes to consolidated financial statements.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONCONSOLIDATED STATEMENTS OF INCOME(In millions, except per share amounts)(Unaudited) Three Months Ended March 31, 2014 2013 $ 646 $ 735 644 623 3 3 3 5 1,296 1,366 530 571 766 795 185 241 581 554 — 55 (8 ) (31 ) 61 70 111 99 — 23 6 34 170 250 142 125 224 110 366 235 4 3 26 10 396 248 355 556 136 211 219 345 — 1 219 346 — — 219 346 5 5 $ 214 $ 341 $ .50 $ .76 — — $ .50 $ .76 427 451 $ .49 $ .74 — — $ .49 $ .74 435 458 $ .15 $ .15 See accompanying notes to consolidated financial statements.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In millions)(Unaudited) Three Months Ended March 31, 2014 2013 $ 219 $ 346 (11 ) 1 3 3 (8 ) 4 — (1 ) 2 (1 ) (6 ) 2 $ 213 $ 348 See accompanying notes to consolidated financial statements.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(Dollars in millions, except share and per share amounts)(Unaudited) Preferred
Stock
Shares Common Stock Shares Preferred
Stock Common
Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings Treasury
Stock Total
Stockholders’
Equity Noncontrolling
Interest Total
Equity Issued Treasury Outstanding 7,300,000 535,507,965 (82,910,021 ) 452,597,944 $ 565 $ 107 $ 4,237 $ (6 ) $ 1,451 $ (1,294 ) $ 5,060 $ 6 $ 5,066 — — — — — — — — 346 — 346 — 346 — — — — — — — 2 — — 2 — 2 — — — — — — — — — — 348 — 348 — — — — — — — — (68 ) — (68 ) — (68 ) — — — — — — — — (3 ) — (3 ) — (3 ) — — — — — — — — (2 ) — (2 ) — (2 ) — — — — — — — — (1 ) — (1 ) — (1 ) — 4,157,795 — 4,157,795 — 1 33 — — — 34 — 34 — — — — — — 2 — — — 2 — 2 — — — — — — 19 — — — 19 — 19 — — (10,220,804 ) (10,220,804 ) — — — — — (199 ) (199 ) — (199 ) — — (2,324,575 ) (2,324,575 ) — — — — — (42 ) (42 ) — (42 ) 7,300,000 539,665,760 (95,455,400 ) 444,210,360 $ 565 $ 108 $ 4,291 $ (4 ) $ 1,723 $ (1,535 ) $ 5,148 $ 6 $ 5,154 7,300,000 545,210,941 (116,262,066 ) 428,948,875 $ 565 $ 109 $ 4,399 $ 13 $ 2,584 $ (2,033 ) $ 5,637 $ 5 $ 5,642 — — — — — — — — 219 — 219 — 219 — — — — — — — (6 ) — — (6 ) — (6 ) — — — — — — — — — — 213 — 213 — — — — — — — — (64 ) — (64 ) — (64 ) — — — — — — — — (3 ) — (3 ) — (3 ) — — — — — — — — (2 ) — (2 ) — (2 ) — — — — — — — — (1 ) — (1 ) — (1 ) — 4,238,182 — 4,238,182 — 1 33 — — — 34 — 34 — — — — — — 11 — — — 11 — 11 — — — — — — 18 — — — 18 — 18 — — (8,368,300 ) (8,368,300 ) — — — — — (200 ) (200 ) — (200 ) — — (2,115,470 ) (2,115,470 ) — — — — — (50 ) (50 ) — (50 ) 7,300,000 549,449,123 (126,745,836 ) 422,703,287 $ 565 $ 110 $ 4,461 $ 7 $ 2,733 $ (2,283 ) $ 5,593 $ 5 $ 5,598 See accompanying notes to consolidated financial statements.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in millions)(Unaudited) Three Months Ended March 31, 2014 2013 $ 219 $ 346 — (1 ) — (55 ) — (23 ) 4 3 18 19 (181 ) (138 ) 185 241 5 (15 ) 109 19 (69 ) 2 257 291 11 (158 ) 558 531 — (2 ) 558 529 (1,975 ) (1,559 ) 3,090 3,349 — 226 119 65 (25 ) (14 ) 2 9 (65 ) (93 ) 67 94 (221 ) 107 992 2,184 2,649 2,588 (2,834 ) (3,182 ) (1,918 ) 427 — (2,583 ) 834 1,489 (1,535 ) (1,433 ) (11 ) (358 ) 86 396 (200 ) (199 ) (64 ) (68 ) (5 ) (5 ) (2,998 ) (2,928 ) (1,448 ) (215 ) 5,190 3,900 $ 3,742 $ 3,685 $ 519 $ 568 $ 38 $ 15 $ (1 ) $ (1 ) $ — $ (3,665 ) $ — $ (3,681 ) See accompanying notes to consolidated financial statements.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Information at March 31, 2014 and for the three months endedMarch 31, 2014 and 2013 is unaudited)1.Organization and BusinessOn May 29, 2013, the board of directors of our predecessor registrant (“Existing SLM”) first announced its intent to separate into two distinct publicly traded entities — a loan management, servicing and asset recovery business and a consumer banking business. The loan management, servicing and asset recovery business, Navient Corporation (“Navient”), would be comprised primarily of Existing SLM’s portfolios of education loans not currently held in Sallie Mae Bank, as well as servicing and asset recovery activities on these loans and loans held by third parties. The consumer banking business would be comprised primarily of Sallie Mae Bank and its Private Education Loan origination business, the Private Education Loans it holds and a related servicing business, and will be a consumer banking franchise with expertise in helping families save, plan and pay for college.On April 8, 2014, Existing SLM approved the distribution of all of the issued and outstanding shares of Navient common stockperiodic report made on the basis of one share of Navient common stock for each share of Existing SLM common stock issued and outstanding asthe post-Spin-Off business of the close of business on April 22, 2014,Company. record date for the distribution. The distribution occurred on April 30, 2014. The separation of Navient from the Company was preceded by an internal corporate reorganization, which was the first step to separate the consumer banking business and the education loan management, servicing and asset recovery business. As a result of a holding company merger under Section 251(g) of the Delaware General Corporation Law (“DGCL”), which is referred to herein as the “SLM Merger” and was effective on April 29, 2014, New BLC Corporation (“SLM BankCo”) replaced Existing SLM as the parent holding company of Sallie Mae. In accordance with Section 251(g) of the Delaware General Corporation Law, by action of the Existing SLM board of directors and without a shareholder vote, Existing SLM was merged into Navient, LLC, a wholly-owned subsidiary of SLM BankCo, with Navient, LLC surviving (“Existing SLM SurvivorCo”). Immediately following the effective time of the Merger, SLM BankCo changed its nameSpin-Off transaction, we had a targeted starting equity balance of $1,710 million. To achieve the targeted equity balance we retained $565 million of preferred stock and approximately $473 million of cash to “SLM Corporation” and becameoffset the successor registrantobligation attributable to Existing SLM (“SLM”, the “Company,” “we,” “our” or “us”). Following the SLM Merger and as partprincipal of the internal corporate reorganization, the assets and liabilities associated with the education loan management, servicing and asset recovery business were transferred to Navient, and those assets and liabilities associated with the consumer banking business remained with, or were transferred to, SLM. The internal reorganizationSeries A Preferred Stock and the distribution of Navient common stock are sometimes collectively referred to herein as the “Spin-Off.” The Spin-Off is intended to be tax-free to stockholders of SLM. For further information on the Spin-Off, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “2013 Form 10-K”).Due to the relative significance of Navient to Existing SLM, among other factors, for financial reporting purposes Navient is treated as the “accounting spinnor” and therefore is the “accounting successor” to Existing SLM, notwithstanding the legal form of the separation and distribution. As a result, the historical financial statements of Existing SLM are the historical financial statements of Navient. Navient will show the distribution of the approximate $1.7 billion of consumer banking business net assets as of the distribution date.Shortly after the completion of the Spin-Off, SLM issued audited consolidated financial statements on a stand-alone basis for SLM and its subsidiaries for each of the three years ended December 31, 2013. Series B Preferred Stock.wereare presented on a basis of accounting that reflects a change in reporting entity. They reflectedentity and have been adjusted for the resultseffects of the consumer banking businessSpin-Off. These carve-out financial statements and did not include Navient’s results. As previouslyTheselected financial information represent only those operations, assets, liabilities and financial reports contained in this Quarterly Reportequity that form Sallie Mae on Form 10-Q do not reflecta stand-alone basis. Because the subsequent Spin-Off of Navientoccurred on April 30, 2014. Carved out audited consolidated2014, these financial statements on a stand-alone basis for each ofrepresent the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1.Organization and Business (Continued)discussed, the historical financial statements of Existing SLM prior to the Spin-Off have become the historical financial statements of Navient. As a result, the presentation of thecarved out financial results of the business and operations of SLM, for periods arising after the completion of the Spin-Off will be substantially different from the presentation of Existing SLM’s financial results in its prior filings with the Securities and Exchange Commission (the “SEC”). To provide additional information to SLM’s investors regarding the anticipated impact of the Spin-Off, Existing SLM (our predecessor registrant) included certain unaudited pro forma financial information in the 2013 Form 10-K, on a carve-out stand-alone basis as of and for the year ended December 31, 2013, to provide some reference for SLM’s expected reissued historical financial statements post Spin-Offfirst four months of 2014 and future manner of presentation of its financial condition andactual results of operations. For further information regarding SLM’s historical carve-out financial statements, please refer to our Form 8-K filed on May 6, 2014. SLM will report its results on the basis of the historical carve-out financial statements beginning with its Form 10-Q for the quartertwo months ended June 30, 2014.2.Significant Accounting PoliciesBasis of PresentationThe accompanying unaudited, consolidated financial statements of Existing SLM have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. All prior period amounts represent carved-out amounts.Existing SLMthe Company and its majority-owned and controlled subsidiaries and those Variable Interest Entities (“VIEs”) for which we are the primary beneficiary, after eliminating the effects of intercompany accounts and transactions. Inopinionreporting date based on a projection of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reportedestimated probable credit losses incurred in the consolidated financial statementsportfolio.accompanying notes. Actual results could differ from those estimates. Operating resultsforbearance have on borrower default behavior and ultimate charge-off activity. We estimate the allowance for loan losses for our loan portfolio using a migration analysis of delinquent and current accounts. A migration analysis is a technique used to estimate the three months ended March 31, 2014 are not necessarily indicative of the results for the year ending December 31, 2014 or for any other period.ConsolidationIn first-quarter 2013, Existing SLM sold the Residual Interest inlikelihood that a FFELP Loan securitization trust to a third party. Navient will continue to service the student loans in the trust under existing agreements. Prior to the sale of the Residual Interest, Existing SLM had consolidated the trust as a VIE because we had met the two criteria for consolidation. We had determined we were the primary beneficiary because (1) as servicer to the trust we had the power to direct the activities of the VIE that most significantly affected its economic performance and (2) as the residual holder of the trust we had an obligation to absorb losses or receive benefits of the trust that could potentially be significant. Upon the sale of the Residual Interest we are no longer the residual holder, thus we determined we no longer met criterion (2) above and deconsolidated the trust. As a result of this transaction we removed trust assets of $3.8 billion and the related liabilities of $3.7 billion from the balance sheet and recorded a $55 million gain as part of “gains on sales of loans and investments.”The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.2.1. Significant Accounting Policies (Continued) ReclassificationsCertain reclassificationsmaderestructured; (3) have been granted a hardship forbearance or more than six months of administrative forbearance; or (4) have a borrower or cosigner who has filed for bankruptcy. At June 30, 2014, we held approximately $1.3 billion of Split Loans.balancesshorter charge-off period (120 days). In addition, we changed our loss confirmation period from two years to one year to reflect the shorter charge-off policy and our revised servicing practices. These two changes resulted in a $14 million net reduction in our allowance for loan losses because we are now only reserving for one year of losses as compared with two years under the prior policy, which more than offset the impact of the shorter charge-off period.1. Significant Accounting Policies (Continued) three months ended Marchtransfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance when it becomes effective. The new standard is effective on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. As of June 30, 2014 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Mortgage-backed securities $ 150,117 $ 1,736 $ (2,454 ) $ 149,399 Available for sale securities $ 150,117 $ 1,736 $ (2,454 ) $ 149,399 As of December 31, 2013 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Mortgage-backed securities $ 106,977 $ 706 $ (5,578 ) $ 102,105 Available for sale securities $ 106,977 $ 706 $ (5,578 ) $ 102,105 be consistenthold these securities for a period of time sufficient for the market price to recover to at least the adjusted amortized cost of the security.classifications adopted fortheir contractual maturities because borrowers have the right to prepay certain obligations. Accordingly, these securities are not included in a maturities distribution.had no effectDecember 31, 2013, respectively, as discussed further in Note 6, “Borrowed Funds.”2. Investments (Continued) Year of Maturity Amortized Cost Estimated Fair Value 2038 $ 767 $ 837 2039 13,186 14,111 2042 29,173 27,515 2043 76,126 75,974 2044 30,865 30,962 Total $ 150,117 $ 149,399 net income, total assets,the loan, and the vast majority of loans in our portfolio are cosigned. We also encourage customers to make payments while in school.total liabilities.bankruptcy. June 30, December 31, 2014 2013 Private Education Loans $ 7,482,794 $ 6,563,342 Unearned discounts 7,746 5,063 Allowance for loan losses (54,315 ) (61,763 ) Total Private Education Loans, net 7,436,225 6,506,642 FFELP Loans 1,360,107 1,426,972 Unamortized acquisition costs, net 3,851 4,081 Allowance for loan losses (6,212 ) (6,318 ) Total FFELP Loans, net 1,357,746 1,424,735 Loans held for investment, net $ 8,793,971 $ 7,931,377 3.Allowance3. Loans Held for Loan LossesInvestment (Continued) Three Months Ended June 30, 2014 Three Months Ended June 30, 2013 Average Balance Weighted Average Interest Rate Average Balance Weighted Average Interest Rate Private Education Loans $ 7,350,825 8.23 % $ 5,533,745 8.2 % FFELP Loans 1,374,291 3.33 1,087,954 3.32 Total portfolio $ 8,725,116 $ 6,621,699 Six Months Ended June 30, 2014 Six Months Ended June 30, 2013 Average Balance Weighted Average Interest Rate Average Balance Weighted Average Interest Rate Private Education Loans $ 7,382,565 8.19 % $ 5,863,633 8.13 % FFELP Loans 1,387,358 3.27 1,064,303 3.3 Total portfolio $ 8,769,923 $ 6,927,936 loanPrivate Education Loan losses represent the periodic expense of maintaining an allowance sufficient to absorb incurred probable losses, net of expected recoveries, in the held-for-investment loan portfolios. The evaluation of the provisionsallowance for loan losses is inherently subjective, as it requires material estimates that may be susceptible to significant changes. We believe that the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios. We segregate ourSee Note 1, “Significant Accounting Policies - Allowance for Private Education Loan portfolio into two classes of loans — traditional and non-traditional. Non-traditional loans are loansLosses” for a more detailed discussion. Allowance for Loan Losses Three Months Ended June 30, 2014 FFELP Loans Total Allowance for Loan Losses Beginning balance $ 6,181 $ 71,453 $ 77,634 Total provision 685 329 1,014 (654 ) — (654 ) — (17,467 ) (17,467 ) Ending Balance $ 6,212 $ 54,315 $ 60,527 Allowance: Ending balance: individually evaluated for impairment $ — $ 1,037 $ 1,037 Ending balance: collectively evaluated for impairment $ 6,212 $ 53,278 $ 59,490 Loans: Ending balance: individually evaluated for impairment $ — $ 4,508 $ 4,508 Ending balance: collectively evaluated for impairment $ 1,360,107 $ 7,478,286 $ 8,838,393 Charge-offs as a percentage of average loans in repayment (annualized) 0.07 % — % Allowance as a percentage of the ending total loan balance 0.46 % 0.73 % Allowance as a percentage of the ending loans in repayment 0.66 % 1.23 % Allowance coverage of charge-offs (annualized) 2.40 — Ending total loans, gross $ 1,360,107 $ 7,482,794 Average loans in repayment $ 973,894 $ 4,322,356 Ending loans in repayment $ 947,972 $ 4,425,573 (i) customers attending for-profit schools with an original Fair Isaac and Company (“FICO”) score of less than 670 and (ii) customers attending not-for-profit schools with an original FICO score of less than 640. The FICO score used in determining whether a loan is non-traditional is the greater of the customer or cosigner FICO score at origination. Traditional loans are defined as all otherSpin-Off, Private Education Loans were sold to an entity that are not classified as non-traditional.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Offis now a subsidiary of Navient prior to being charged-off.April 30, 2014. Carved out audited consolidated financial statements ondelinquent loans sold prior to the Spin-Off to an entity that is now a stand-alone basis for eachsubsidiary of Navient, recorded at the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical informationtime of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.sale.3.4. Allowance for Loan Losses (Continued) Allowance for Loan Losses Three Months Ended June 30, 2013 FFELP Loans Total Allowance for Loan Losses Beginning balance $ 4,199 $ 65,381 $ 69,580 Total provision 951 (1,966 ) (1,015 ) (534 ) — (534 ) — (12,546 ) (12,546 ) Ending Balance $ 4,616 $ 50,869 $ 55,485 Allowance: Ending balance: individually evaluated for impairment $ — $ — $ — Ending balance: collectively evaluated for impairment $ 4,616 $ 50,869 $ 55,485 Loans: Ending balance: individually evaluated for impairment $ — $ — $ — Ending balance: collectively evaluated for impairment $ 1,162,476 $ 5,383,128 $ 6,545,604 Charge-offs as a percentage of average loans in repayment (annualized) 0.06 % — % Allowance as a percentage of the ending total loan balance 0.40 % 0.94 % Allowance as a percentage of the ending loans in repayment 0.56 % 1.65 % Allowance coverage of charge-offs (annualized) 2.16 — Ending total loans, gross $ 1,162,476 $ 5,383,128 Average loans in repayment $ 825,038 $ 3,243,513 Ending loans in repayment $ 824,523 $ 3,081,929 Allowance for Loan Losses Metrics(1) Three Months Ended March 31, 2014 FFELP Loans Private Education
Loans Other
Loans Total $ 119 $ 2,097 $ 28 $ 2,244 10 175 — 185 (22 ) (218 ) (1 ) (241 ) — 5 — 5 $ 107 $ 2,059 $ 27 $ 2,193 $ — $ 1,081 $ 20 $ 1,101 $ 107 $ 978 $ 7 $ 1,092 $ — $ 9,590 $ 44 $ 9,634 $ 101,727 $ 31,307 $ 79 $ 133,113 .12 % 2.82 % 3.62 % .10 % 2.72 % 3.62 % .10 % 5.03 % 21.80 % .15 % 6.58 % 21.80 % 1.2 2.3 5.9 $ 101,727 $ 40,897 $ 123 $ 73,496 $ 31,416 $ 126 $ 73,061 $ 31,309 $ 123 (1)Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred Prior to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.(2)Represents the 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.(3)Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off, Private Education Loans were sold to an entity that is now a subsidiary of Navient prior to being charged-off.April 30, 2014. Carved out audited consolidated financial statements ondelinquent loans sold prior to the Spin-Off to an entity that is now a stand-alone basis for eachsubsidiary of Navient, recorded at the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical informationtime of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.sale.3.4. Allowance for Loan Losses (Continued) Three Months Ended March 31, 2013 FFELP Loans Private Education
Loans Other
Loans Total $ 159 $ 2,171 $ 47 $ 2,377 16 225 — 241 (22 ) (232 ) (5 ) (259 ) (6 ) — — (6 ) — 6 — 6 $ 147 $ 2,170 $ 42 $ 2,359 $ — $ 1,157 $ 31 $ 1,188 $ 147 $ 1,013 $ 11 $ 1,171 $ — $ 8,018 $ 65 $ 8,083 $ 118,058 $ 32,389 $ 106 $ 150,553 .10 % 2.97 % 10.95 % .09 % 2.87 % 10.95 % .12 % 5.37 % 24.55 % .17 % 6.88 % 24.55 % 1.6 2.3 2.1 $ 118,058 $ 40,407 $ 171 $ 87,256 $ 31,645 $ 179 $ 85,304 $ 31,533 $ 171 (1)Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred Allowance for Loan Losses Six Months Ended June 30, 2014 FFELP Loans Total Allowance for Loan Losses Beginning balance $ 6,318 $ 61,763 $ 68,081 Total provision 1,191 38,982 40,173 (1,297 ) — (1,297 ) — (46,430 ) (46,430 ) Ending Balance $ 6,212 $ 54,315 $ 60,527 Allowance: Ending balance: individually evaluated for impairment $ — $ 1,037 $ 1,037 Ending balance: collectively evaluated for impairment $ 6,212 $ 53,278 $ 59,490 Loans: Ending balance: individually evaluated for impairment $ — $ 4,508 $ 4,508 Ending balance: collectively evaluated for impairment $ 1,360,107 $ 7,478,286 $ 8,838,393 Charge-offs as a percentage of average loans in repayment (annualized) 0.13 % — % Allowance as a percentage of the ending total loan balance 0.46 % 0.73 % Allowance as a percentage of the ending loans in repayment 0.66 % 1.23 % Allowance coverage of charge-offs (annualized) 2.40 — Ending total loans, gross $ 1,360,107 $ 7,482,794 Average loans in repayment $ 994,290 $ 4,354,878 Ending loans in repayment $ 947,972 $ 4,425,573 the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.(2)Represents the 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.(3)Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off, Private Education Loans were sold to an entity that is now a subsidiary of Navient prior to being charged-off.April 30, 2014. Carved out audited consolidated financial statements ondelinquent loans sold prior to the Spin-Off to an entity that is now a stand-alone basis for eachsubsidiary of Navient, recorded at the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical informationtime of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.sale.3.4. Allowance for Loan Losses (Continued) Allowance for Loan Losses Six Months Ended June 30, 2013 FFELP Loans Total Allowance for Loan Losses Beginning balance $ 3,971 $ 65,218 $ 69,189 Total provision 1,399 18,278 19,677 (754 ) — (754 ) — (32,627 ) (32,627 ) Ending Balance $ 4,616 $ 50,869 $ 55,485 Allowance: Ending balance: individually evaluated for impairment $ — $ — $ — Ending balance: collectively evaluated for impairment $ 4,616 $ 50,869 $ 55,485 Loans: Ending balance: individually evaluated for impairment $ — $ — $ — Ending balance: collectively evaluated for impairment $ 1,162,476 $ 5,383,128 $ 6,545,604 Charge-offs as a percentage of average loans in repayment (annualized) 0.09 % — % Allowance as a percentage of the ending total loan balance 0.40 % 0.94 % Allowance as a percentage of the ending loans in repayment 0.56 % 1.65 % Allowance coverage of charge-offs (annualized) 3.00 — Ending total loans, gross $ 1,162,476 $ 5,383,128 Average loans in repayment $ 825,038 $ 3,670,291 Ending loans in repayment $ 824,523 $ 3,081,929 4. Allowance for Loan Losses (Continued) substantiallyat least 97 percent insured and guaranteed as to their principal and accrued interest in the event of default; therefore, thethere is no key credit quality indicator for thisthat will have a material impact to our financial results. Included within our FFELP portfolio June 30, 2014 are $853 million of FFELP rehabilitation loans. These loans have previously defaulted but have subsequently been brought current according to a loan rehabilitation agreement. The credit performance on rehabilitation loans is loan status. The impactworse than the remainder of changes in loan status is incorporated quarterly into the allowance for loan losses calculation.traditional/non-traditional loan designation. The other Private Education Loan key quality indicators can change and are incorporated quarterly into the allowance for loan losses calculation. The following table highlights the gross principal balance (excluding the receivable for partially charged-off loans) of our Private Education Loan portfolio stratified by the key credit quality indicators. Private Education Loans
Credit Quality Indicators March 31, 2014 December 31, 2013 Balance(3) % of Balance Balance(3) % of Balance $ 36,822 93 % $ 36,140 93 % 2,778 7 2,860 7 $ 39,600 100 % $ 39,000 100 % $ 27,084 68 % $ 26,321 67 % 12,516 32 12,679 33 $ 39,600 100 % $ 39,000 100 % $ 5,305 13 % $ 5,171 14 % 5,282 13 5,511 14 5,186 13 5,506 14 5,038 13 5,103 13 11,714 30 11,181 29 7,075 18 6,528 16 $ 39,600 100 % $ 39,000 100 % Private Education Loans Credit Quality Indicators June 30, 2014 December 31, 2013 Credit Quality Indicators: % of Balance % of Balance Cosigners: With cosigner $ 6,715,407 90 % $ 5,898,751 90 % Without cosigner 767,387 10 664,591 10 Total $ 7,482,794 100 % $ 6,563,342 100 % FICO at Origination: Less than 670 $ 510,193 7 % $ 461,412 7 % 670-699 1,108,321 15 1,364,286 21 700-749 2,357,153 31 1,649,192 25 Greater than or equal to 750 3,507,127 47 3,088,452 47 Total $ 7,482,794 100 % $ 6,563,342 100 % 1-12 payments $ 2,465,454 33 % $ 1,840,538 28 % 13-24 payments 1,063,082 14 1,085,393 17 25-36 payments 512,958 7 669,685 10 37-48 payments 384,450 5 362,124 6 More than 48 payments 39,593 1 30,891 — Not yet in repayment 3,017,257 40 2,574,711 39 Total $ 7,482,794 100 % $ 6,563,342 100 % Defined as loans to customers attending for-profit schools (with a FICO score of less than 670 at origination) and customers attending not-for-profit schools (with a FICO score of less than 640 at origination).(3)Balance represents gross Private Education Loans.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.3.4. Allowance for Loan Losses (Continued) FFELP Loan Delinquencies March 31, 2014 December 31, 2013 Balance % Balance % $ 13,016 $ 13,678 15,650 13,490 62,721 85.9 % 63,330 82.8 % 3,059 4.2 3,746 4.9 1,784 2.4 2,207 2.9 5,497 7.5 7,221 9.4 73,061 100 % 76,504 100 % 101,727 103,672 1,015 1,035 102,742 104,707 (107 ) (119 ) $ 102,635 $ 104,588 71.8 % 73.8 % 14.2 % 17.2 % 17.6 % 15.0 % Private Education Loan Delinquencies June 30, December 31, 2014 2013 Balance % Balance % $ 3,017,257 $ 2,574,711 39,964 16,314 Loans in repayment and percentage of each status: Loans current 4,396,772 99.3 % 3,933,143 99.0 % 21,381 0.5 28,854 0.7 5,987 0.1 10,280 0.3 1,433 0.1 40 — Total private education loans in repayment 4,425,573 100.0 % 3,972,317 100.0 % Total private education loans, gross 7,482,794 6,563,342 Private education loans unamortized discount 7,746 5,063 Total private education loans 7,490,540 6,568,405 Private education loans allowance for losses (54,315 ) (61,763 ) Private education loans, net $ 7,436,225 $ 6,506,642 Percentage of private education loans in repayment 59.1 % 60.5 % Delinquencies as a percentage of private education loans in repayment 0.7 % 1.0 % Loans in forbearance as a percentage of loans in repayment and forbearance 0.9 % 0.4 % Loans for customers who may still be attending school or engaging in other permitted educational activities and are not required to make payments on their 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 hardships.(2)Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making full payments due to hardship or other factors.(3)The period of delinquency is based on the number of days scheduled payments are contractually past due.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)3.Allowance for Loan Losses (Continued) Private Education Traditional Loan
Delinquencies March 31,
2014 December 31,
2013 Balance % Balance % $ 6,637 $ 6,088 1,069 969 27,364 94.0 % 26,977 92.8 % 550 1.9 674 2.3 353 1.2 420 1.4 849 2.9 1,012 3.5 29,116 100 % 29,083 100 % 36,822 36,140 (609 ) (629 ) 36,213 35,511 795 799 (1,583 ) (1,592 ) $ 35,425 $ 34,718 79.1 % 80.5 % 6.0 % 7.2 % 3.5 % 3.2 % (1)theirthe loans e.g.(e.g., residency periods for medical students or a grace period for bar exam preparation.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.3.4. Allowance for Loan Losses (Continued) Private Education Non-Traditional Loan
Delinquencies March 31,
2014 December 31, 2013 Balance % Balance % $ 438 $ 440 147 133 1,792 81.7 % 1,791 78.3 % 105 4.8 128 5.6 77 3.5 93 4.1 219 10.0 275 12.0 2,193 100 % 2,287 100 % 2,778 2,860 (72 ) (75 ) 2,706 2,785 502 514 (476 ) (505 ) $ 2,732 $ 2,794 79.0 % 80.0 % 18.3 % 21.7 % 6.3 % 5.5 % (1)Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation.(2)Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.(3)The period of delinquency is based on the number of days scheduled payments are contractually past due.Receivable for Partially Charged-Off Private Education LoansAt 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 off. We refer to this remaining loan balance as the “receivable for partially charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for loan losses with an offsetting reduction in the receivable for partially charged-off Private Education Loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. Private Education Loans which defaulted between 2008 and 2013 for which we have previously charged off estimatedThe information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)3.Allowance for Loan Losses (Continued)losses have, to varying degrees, not met our post-default recovery expectations to date and may continue not to do so. According to our policy, we have been charging off these periodic shortfalls in expected recoveries against our allowance for Private Education Loan losses and the related receivable for partially charged-off Private Education Loans and we will continue to do so. There was $334 million and $209 million in the allowance for Private Education Loan losses at March 31, 2014 and 2013, respectively, providing for possible additional future charge-offs related to the receivable for partially charged-off Private Education Loans.The following table summarizes the activity in the receivable for partially charged-off Private Education Loans. Three Months Ended
March 31, 2014 2013 $ 1,313 $ 1,347 71 78 (61 ) (68 ) (26 ) (18 ) 1,297 1,339 (334 ) (209 ) $ 963 $ 1,130 (1)Represents the difference between the loan balance and our estimate of the amount to be collected in the future.(2)Current period cash recoveries.(3)Represents the current period recovery shortfall — the difference between what was expected to be collected and what was actually collected. These amounts are included in the Private Education Loan total charge-offs as reported in the “Allowance for Loan Losses Metrics” tables.(4)The allowance for estimated recovery shortfalls of the receivable for partially charged-off Private Education Loans is a component of the $2.1 billion and $2.2 billion overall allowance for Private Education Loan losses as of March 31, 2014 and 2013, respectively.Troubled Debt Restructurings (“TDRs”)We modify the terms of loans for certain customers when we believe such modifications may increase the ability and willingness of a customer 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 which we have granted either a forbearance of greater than three months, an interest rate reduction or an extended repayment plan are classified as TDRs. Approximately 46 percent and 45 percent of the loans granted forbearance have qualified as a TDR loan at March 31, 2014 and December 31, 2013, respectively. The unpaid principal balance of TDR loans that were in an interest rate reduction plan as of March 31, 2014 and December 31, 2013 was $1.7 billion and $1.5 billion, respectively.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)3.Allowance for Loan Losses (Continued)At March 31, 2014 and December 31, 2013, all of our TDR loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our TDR loans. TDR Loans Recorded
Investment(1) Unpaid
Principal
Balance Related
Allowance $ 7,800 $ 7,856 $ 852 1,441 1,439 229 $ 9,241 $ 9,295 $ 1,081 $ 7,515 $ 7,559 $ 812 1,434 1,427 236 $ 8,949 $ 8,986 $ 1,048 (1)The recorded investment is equal to the unpaid principal balance and accrued interest receivable net of unamortized deferred fees and costs.The following table provides the average recorded investment and interest income recognized for our TDR loans. Three Months Ended March 31, 2014 2013 Average
Recorded
Investment Interest
Income
Recognized Average
Recorded
Investment Interest
Income
Recognized $ 7,631 $ 118 $ 6,185 $ 96 1,434 29 1,315 27 $ 9,065 $ 147 $ 7,500 $ 123 The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)3.Allowance for Loan Losses (Continued)The following table provides information regarding the loan status and aging of TDR loans that are past due. TDR Loan Delinquencies March 31, 2014 December 31, 2013 Balance % Balance % $ 997 $ 913 786 740 6,045 80.5 % 5,613 76.5 % 413 5.5 469 6.4 286 3.8 330 4.5 768 10.2 921 12.6 7,512 100 % 7,333 100 % $ 9,295 $ 8,986 (1)Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not required to make payments on the loans, e.g. residency periods for medical students or a grace period for bar exam preparation.(2)Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.(3)The period of delinquency is based on the number of days scheduled payments are contractually past due.The following table provides the amount of modified loans that resulted in a TDR in the periods presented. Additionally, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the current period within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure. The majority of our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan. Three Months Ended March 31, 2014 2013 Modified
Loans(1) Charge-
Offs(2) Payment
Default Modified
Loans(1) Charge-
Offs(2) Payment
Default $ 466 $ 100 $ 119 $ 545 $ 97 $ 216 57 34 29 90 34 57 $ 523 $ 134 $ 148 $ 635 $ 131 $ 273 (1)Represents period ending balance of loans that have been modified during the period and resulted in a TDR.(2)Represents loans that charged off that were classified as TDRs.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)3.Allowance for Loan Losses (Continued) Accrued Interest Receivable Total Greater Than
90 Days
Past Due Allowance for
Uncollectible
Interest $ 939 $ 29 $ 41 85 11 18 $ 1,024 $ 40 $ 59 $ 926 $ 35 $ 46 97 13 20 $ 1,023 $ 48 $ 66 4.BorrowingsThe following table summarizes our borrowings. March 31, 2014 December 31, 2013 Short
Term Long
Term Total Short
Term Long
Term Total $ 1,046 $ 16,836 $ 17,882 $ 2,213 $ 16,056 $ 18,269 5,964 2,755 8,719 6,133 2,807 8,940 684 — 684 691 — 691 7,694 19,591 27,285 9,037 18,863 27,900 — 90,608 90,608 — 90,756 90,756 — 18,861 18,861 — 18,835 18,835 3,919 4,400 8,319 4,715 5,311 10,026 — 597 597 — 843 843 3,919 114,466 118,385 4,715 115,745 120,460 11,613 134,057 145,670 13,752 134,608 148,360 13 2,120 2,133 43 2,040 2,083 $ 11,626 $ 136,177 $ 147,803 $ 13,795 $ 136,648 $ 150,443 (1)“Other” primarily consists of the obligation to return cash collateral held related to derivative exposures.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014. Private Education Loan Accrued Interest Receivable Total Interest Receivable Greater than 90 days Past Due Allowance for Uncollectible Interest June 30, 2014 $ 434,847 $ 69 $ 3,633 December 31, 2013 $ 333,857 $ 1 $ 4,076 4.Borrowings (Continued)Variable June 30, December 31, 2014 2013 Deposits - interest bearing $ 9,503,559 $ 9,239,554 Deposits - non-interest bearing 42,455 55,036 Total Sallie Mae Bank deposits 9,546,014 9,294,590 Less: money market deposits with subsidiaries (655,805 ) (293,040 ) Total deposits $ 8,890,209 $ 9,001,550 EntitiesWe consolidate the following financing VIEsBearingMarch 31,June 30, 2014 and December 31, 2013 consisted of non-maturity savings deposits, brokered and retail certificates of deposit and affiliated money market deposits, as discussed further below, and brokered money market deposits. These deposit products are serviced by third party providers. Placement fees associated with the brokered certificates of deposit are amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $2,472 and $2,379 for the three months ended June 30, 2014 and 2013, respectively, and $5,222 and $4,879 for the six months ended June 30, 2014 and 2013, respectively. No fees were paid to third party brokers related to these certificates of deposit during the three and six months ended June 30, 2014 and 2013.arehave also offered consumer deposit products in the primary beneficiary.form of debit cards associated with interest bearing consumer (“NOW”) accounts to facilitate the distribution of financial aid refunds and other payables to students. These deposit products were serviced by third party providers. As a result, these VIEs are accounted for as secured borrowings. March 31, 2014 Debt Outstanding Carrying Amount of Assets Securing Debt
Outstanding Short
Term Long
Term Total Loans Cash Other Assets Total $ — $ 90,608 $ 90,608 $ 91,299 $ 3,055 $ 700 $ 95,054 — 18,861 18,861 23,880 390 428 24,698 1,694 4,137 5,831 6,081 157 73 6,311 — 597 597 1,259 16 24 1,299 1,694 114,203 115,897 122,519 3,618 1,225 127,362 — 1,330 1,330 — — 938 938 $ 1,694 $ 115,533 $ 117,227 $ 122,519 $ 3,618 $ 2,163 $ 128,300 December 31, 2013 Debt Outstanding Carrying Amount of Assets Securing
Debt Outstanding Short
Term Long
Term Total Loans Cash Other Assets Total $ — $ 90,756 $ 90,756 $ 91,535 $ 2,913 $ 683 $ 95,131 — 18,835 18,835 23,947 338 540 24,825 3,655 3,791 7,446 7,719 128 91 7,938 — 843 843 1,583 16 30 1,629 3,655 114,225 117,880 124,784 3,395 1,344 129,523 — 1,313 1,313 — — 978 978 $ 3,655 $ 115,538 $ 119,193 $ 124,784 $ 3,395 $ 2,322 $ 130,501 The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended2014, we no longer offer these products.2012are summarized as follows: June 30, 2014 December 31, 2013 Amount Qtr.-End Weighted Average Stated Rate Amount Year-End Weighted Average Stated Rate Money market $ 4,643,164 0.60 % $ 3,505,929 0.60 % Savings 727,350 0.81 743,742 0.81 NOW — — 18,214 0.12 Certificates of deposit 4,133,045 1.09 4,971,669 1.39 Deposits - interest bearing $ 9,503,559 $ 9,239,554 2011, as well as certain unaudited pro forma condensed financialDecember 31, 2013, there were $258,463 and statistical information$159,637 of Sallie Maedeposits exceeding Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Accrued interest on deposits was $10,167 and its subsidiaries effective March$13,097 at June 30, 2014 and December 31, 2013, respectively.are contained inand December 31, 2013, respectively, which was interest bearing. Interest expense incurred on these deposits during the Company’s Current Report on Form 8-K filed withthree months ended June 30, 2014 and 2013 totaled $66 and $85, respectively and for the SEC on May 6, 2014.5.Derivative Financial Instruments5. Deposits (Continued) Our risk management strategyuseDecember 31, 2013 consisted of money market deposit accounts and accountingare summarized as follows: June 30, December 31, 2014 2013 Money market $ 42,455 $ 55,036 Deposits - noninterest bearing $ 42,455 $ 55,036 derivatives haveaccess to the Primary Credit borrowing facility at the FRB’s Discount Window (“Window”). All borrowings at the Window must be fully collateralized. We pledged asset-backed and mortgage-backed securities, as well as FFELP consolidation and Private Education Loans to the FRB as collateral for borrowings at the Window. Generally, collateral value is assigned based on the estimated fair value of the pledged assets. At June 30, 2014 and December 31, 2013, the lendable value of our collateral at the FRB totaled $1,397,526 and $900,217, respectively. The interest rate charged to us is the discount rate set by the FRB. We did not materially changed from that discussedutilize this facility in our 2013 Form 10-K. Please refer to “Note 7 —the six months ended June 30, 2014 and 2013.Instruments” in our 2013 Form 10-K for a full discussion.March 31,June 30, 2014 and December 31, 2013, and their impact on other comprehensive income and earnings for the three and six months ended March 31,June 30, 2014 and 2013.Impact of Derivatives on Consolidated Balance Sheet Cash Flow Fair Value Trading Total Mar. 31,
2014 Dec. 31,
2013 Mar. 31,
2014 Dec. 31,
2013 Mar. 31,
2014 Dec. 31,
2013 Mar. 31,
2014 Dec. 31,
2013 Interest rate $ 16 $ 24 $ 753 $ 738 $ 47 $ 61 $ 816 $ 823 Foreign currency &
interest rate — — 1,118 1,185 — — 1,118 1,185 Interest rate — — — — 1 2 1 2 16 24 1,871 1,923 48 63 1,935 2,010 Interest rate — — (110 ) (149 ) (180 ) (215 ) (290 ) (364 ) Interest rate — — — — (1,206 ) (1,384 ) (1,206 ) (1,384 ) Foreign currency &
interest rate — — (142 ) (155 ) (25 ) (31 ) (167 ) (186 ) Interest rate — — — — (4 ) (23 ) (4 ) (23 )
liabilities(3) — — (252 ) (304 ) (1,415 ) (1,653 ) (1,667 ) (1,957 ) $ 16 $ 24 $ 1,619 $ 1,619 $ (1,367 ) $ (1,590 ) $ 268 $ 53 June 30, December 31, Location 2014 2013 Fair Values: Other liabilities $ (1,036 ) $ — Interest rate swaps (receive - fixed/pay - variable) Other assets — 612 Interest rate swaps (receive - variable/pay - fixed) Other liabilities (8,423 ) — Total fair value $ (9,459 ) $ 612 Notional Amounts: $ 2,811,060 $ 2,664,755 Interest rate swaps (receive - variable/pay - fixed) 1,076,779 — Total notional $ 3,887,839 $ 2,664,755 Three Months Ended June 30, Six Months Ended June 30, Location 2014 2013 2014 2013 Earnings impact: Interest reclassification Other noninterest income $ (2,427 ) 333 (1,967 ) 627 Hedge ineffectiveness Other noninterest income (7,031 ) (385 ) (8,255 ) (69 ) Realized gains Interest expense 4,573 7,504 10,246 15,508 Total earnings impact $ (4,885 ) $ 7,452 $ 24 $ 16,066 Fair values reportedInterest rate swaps are exclusivehedged against certificates of collateral held and pledged and accrued interest. Assets and liabilities are presented without consideration of master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements, and classified in other assets or other liabilities depending on whether in a net positive or negative position.“Other”"Other" includes embedded derivatives bifurcated from securitization debt as well as derivatives related to our Total Return Swap Facility and back-to-back private credit floors.(3)The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification: Other Assets Other Liabilities March 31,
2014 December 31,
2013 March 31,
2014 December 31,
2013 $ 1,935 $ 2,010 $ (1,667 ) $ (1,957 ) (342 ) (386 ) 342 386 1,593 1,624 (1,325 ) (1,571 ) (683 ) (687 ) 645 777 $ 910 $ 937 $ (680 ) $ (794 ) The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.5.7. Derivative Financial Instruments (Continued) The above fair values include adjustments for counterparty credit risk both for when we are exposedcounterparty, net of collateral postings,Company and when the counterparty is exposed to us, net of collateral postings. The net adjustments decreased the overall net asset positionsits derivatives counterparties was $2,500 and $5,190 at March 31,June 30, 2014 and December 31, 2013, by $87 millionrespectively. Collateral held is recorded in “Other Liabilities.” Cash collateral pledged related to derivative exposure between the Company and $91 million, respectively. In addition, the above fair values reflect adjustments for illiquidits derivatives as indicated by a wide bid/ask spread in the interest rate indices to which the derivatives are indexed. These adjustments decreased the overall net asset positionscounterparties was $39,569 and $40 at March 31,June 30, 2014 and December 31, 2013, respectively.$82 million and $84 million, respectively. Cash Flow Fair Value Trading Total Mar. 31,
2014 Dec. 31,
2013 Mar. 31,
2014 Dec. 31,
2013 Mar. 31,
2014 Dec. 31,
2013 Mar. 31,
2014 Dec. 31,
2013 $ .7 $ .7 $ 17.2 $ 16.0 $ 46.3 $ 46.3 $ 64.2 $ 63.0 — — — — 27.2 31.8 27.2 31.8 — — 10.7 11.1 .4 .3 11.1 11.4 — — — — 3.8 3.9 3.8 3.9 $ .7 $ .7 $ 27.9 $ 27.1 $ 77.7 $ 82.3 $ 106.3 $ 110.1 (1)“Other” includes embedded derivatives bifurcated from securitization debt,reason of a statutory merger, succeeded pre-Spin-Off SLM as well as derivatives related to our Total Return Swap Facility and back to back private credit floors.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for eachissuer of the three years ended December 31, 2013, 2012Series A Preferred Stock and 2011, as well as certain unaudited pro forma condensed financialthe Series B Preferred Stock. At June 30, 2014, we had outstanding 3.3 million shares of 6.97 percent Cumulative Redeemable Preferred Stock, Series A (the “Series A Preferred Stock”) and statistical information4.0 million shares of Sallie MaeFloating-Rate Non-Cumulative Preferred Stock, Series B (the “Series B Preferred Stock”). Neither series has a maturity date but can be redeemed at our option. Redemption would include any accrued and its subsidiaries effective March 31, 2014unpaid dividends up to the redemption date. The shares have no preemptive or conversion rights and are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)5.Derivative Financial Instruments (Continued)Impact of Derivatives on Consolidated Statements of Income Three Months Ended March 31, Unrealized
Gain
(Loss) on
Derivatives(1)(2) Realized
Gain
(Loss) on
Derivatives(3) Unrealized
Gain
(Loss) on
Hedged
Item(1) Total Gain
(Loss) 2014 2013 2014 2013 2014 2013 2014 2013 $ 53 $ (172 ) $ 100 $ 109 $ (53 ) $ 195 $ 100 $ 132 (53 ) (556 ) 22 21 7 552 (24 ) 17 — (728 ) 122 130 (46 ) 747 76 149 — — (3 ) (3 ) — — (3 ) (3 ) — — (3 ) (3 ) — — (3 ) (3 ) 19 (19 ) 12 24 — — 31 5 181 189 (198 ) (213 ) — — (17 ) (24 ) 7 (47 ) (1 ) 20 — — 6 (27 ) 19 (4 ) (1 ) — — — 18 (4 ) 226 119 (188 ) (169 ) — — 38 (50 ) 226 (609 ) (69 ) (42 ) (46 ) 747 111 96 — — 119 127 — — 119 127 $ 226 $ (609 ) $ (188 ) $ (169 ) $ (46 ) $ 747 $ (8 ) $ (31 ) (1)Recorded in “Gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.(2)Represents ineffectiveness related to cash flow hedges.(3)For fair value and cash flow hedges, recorded in interest expense. For trading derivatives, recorded in “Gains (losses) on derivative and hedging activities, net.”The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basisconvertible into or exchangeable for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)5.Derivative Financial Instruments (Continued)CollateralCollateral held and pledged related to derivative exposures between us and our derivative counterparties are detailed in the following table: March 31,
2014 December 31,
2013 $ 683 $ 687 633 629 $ 1,316 $ 1,316 $ 1,824 $ 1,878 $ 645 $ 777 $ 645 $ 777 $ 769 $ 948 (1)At March 31, 2014 and December 31, 2013, $0 and $0 million, respectively, were held in restricted cash accounts.(2)The trusts do not have the ability to sell or re-pledge securities they hold as collateral.Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully collateralized our corporate derivative liability position (including accrued interest and net of premiums receivable) of $581 million with our counterparties. Further downgrades would not result in any additional collateral requirements, except to increase the frequency of collateral calls. Two counterparties have the right to terminate the contracts based on our recent unsecured credit rating downgrades. We currently have a liability position with these derivative counterparties (including accrued interest and net of premiums receivable) of $133 million and have posted $118 million of collateral to these counterparties. If these two counterparties exercised their right to terminate, we would be required to deliver additional assets of $15 million to settle the contracts. Trust related derivatives do not contain credit contingent features related to our or the trusts’ credit ratings.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)6.Other AssetsThe following table provides the detail of our other assets. March 31, 2014 December 31, 2013 Ending
Balance % of
Balance Ending
Balance % of
Balance $ 2,052 30 % $ 2,161 30 % 1,593 23 1,624 22 1,212 17 1,299 18 810 12 881 12 480 7 477 7 244 4 237 3 96 1 101 1 449 6 507 7 $ 6,936 100 % $ 7,287 100 % 7.Stockholders’ Equityissuances. Three Months Ended March 31, 2014 2013 8,368,300 10,220,804 $ 23.89 $ 19.49 2,115,470 2,324,575 $ 23.56 $ 18.11 4,238,182 4,157,795 (Shares and per share amounts in actuals) 2013 2013 358,771 3,040,788 358,771 5,365,363 Average purchase price per share $ 8.62 $ 22.35 $ 8.62 $ 20.51 504,929 4,115,424 504,929 8,273,219 Common shares purchased under our share repurchase program, of which $0 million remained available as of March 31, 2014.(2)Average purchase price per share includes purchase commission costs.(3)(4)(2)March 31,June 30, 2014 was $24.48.Dividend and Share Repurchase Program8.31In the first-quarter 2014, we paid a common stock dividend of $0.15 per common share. Post Spin-Off we do not anticipate continuing to pay dividends on our common stock.In the first-quarter 2014, we repurchased 8 million shares of common stock for $200 million, fully utilizing the Company’s July 2013 share repurchase program authorization. In 2013, we repurchased . million shares for an aggregate purchase price of $600 million.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.8.Earnings per Common Share8. Stockholders' Equity (Continued) Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Capital contributions: Loan origination activities $ 7,184 $ 33,367 $ 32,452 $ 58,629 Loan sales — — 45 25 Corporate overhead activities 3,461 15,731 21,216 33,115 Other 491,936 617 492,368 734 Total capital contributions 502,581 49,715 546,081 92,503 Dividend — — — (120,000 ) Corporate push-down (761 ) (1,641 ) 4,977 5,627 Net change in income tax accounts — — 15,659 — Net change in receivable/payable (39,655 ) (18,615 ) (87,277 ) (34,154 ) Other — 111 (31 ) 565 Total net transfers from/(to) the entity that is now a subsidiary of Navient $ 462,165 $ 29,570 $ 479,409 $ (55,459 ) 8. Stockholders' Equity (Continued) Three Months Ended
March 31, 2014 2013 $ 219 $ 346 5 5 $ 214 $ 341 427 451 8 7 8 7 435 458 $ .50 $ .76 — — $ .50 $ .76 $ .49 $ .74 — — $ .49 $ .74 Three Months ended June 30, Six months ended June 30, (In thousands, except per share data) 2014 2013 2014 2013 Numerator: Net income attributable to SLM Corporation $ 44,128 $ 76,469 $ 91,576 $ 149,353 Preferred stock dividends 3,228 — 3,228 — Net income attributable to SLM Corporation common stock $ 40,900 $ 76,469 $ 88,348 $ 149,353 Denominator: Weighted average shares used to compute basic EPS 422,805 439,972 424,751 445,309 Effect of dilutive securities: 7,945 8,092 7,938 7,922 7,945 8,092 7,938 7,922 Weighted average shares used to compute diluted EPS 430,750 448,064 432,689 453,231 Basic earnings per common share attributable to SLM Corporation: $ 0.10 $ 0.17 $ 0.21 $ 0.34 Diluted earnings per common share attributable to SLM Corporation: $ 0.09 $ 0.17 $ 0.20 $ 0.33 March 31,June 30, 2014 and 2013, securities covering approximately 4 million and 4 million shares, respectively were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive. For the six months ended June 30, 2014 and 2013, securities covering approximately 3 million and 5 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.9.Fair Value Measurementsinfor our financial statements.hierarchicalhierarchal framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. Please refer to “Note 12 —For additional information regarding our policies for determining fair value and the hierarchical framework, see Note 1, “Significant Accounting Policies - Fair Value Measurements”Measurement” in our 2013 Form 10-K for a full discussion.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carvedhistorical carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on Form 8-K on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9.Fair Value Measurements (Continued)During the three months ended March 31, 2014, there were no significant transfers of financial instruments between levels, or changes in our methodology or assumptions used to value our financial instruments. Fair Value Measurements on a Recurring Basis March 31, 2014 December 31, 2013 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
securities $ — $ 129 $ — $ 129 $ — $ 102 $ — $ 102 — — — — — — — — — 6 — 6 — 7 — 7 — 135 — 135 — 109 — 109 — 784 32 816 — 785 38 823 — 1 1,117 1,118 — 27 1,158 1,185 — — 1 1 — — 2 2 — 785 1,150 1,935 — 812 1,198 2,010 $ — $ 920 $ 1,150 $ 2,070 $ — $ 921 $ 1,198 $ 2,119 $ — $ (171 ) $ (119 ) $ (290 ) $ — $ (239 ) $ (125 ) $ (364 ) — (1,206 ) — (1,206 ) — (1,384 ) — (1,384 ) — (30 ) (137 ) (167 ) — (35 ) (151 ) (186 ) — — (4 ) (4 ) — — (23 ) (23 ) — (1,407 ) (260 ) (1,667 ) — (1,658 ) (299 ) (1,957 ) $ — $ (1,407 ) $ (260 ) $ (1,667 ) $ — $ (1,658 ) $ (299 ) $ (1,957 ) (1)Fair value of derivative instruments excludes accrued interest and the value of collateral.(2)Borrowings which are the hedged items in a fair value hedge relationship and which are adjusted for changes in value due to benchmark interest rates only are not carried at full fair value and are not reflected in this table.(3)See “Note 5 — Derivative Financial Instruments” for a reconciliation of gross positions without the impact of master netting agreements to the balance sheet classification.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9.Fair Value Measurements (Continued) Fair Value Measurements on a Recurring Basis June 30, 2014 December 31, 2013 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Mortgage-backed securities $ — $ 149,399 $ — $ 149,399 $ — $ 102,105 $ — $ 102,105 Derivative instruments — — — — — 612 — 612 Total $ — $ 149,399 $ — $ 149,399 $ — $ 102,717 $ — $ 102,717 Fair Value Measurements on a Recurring Basis June 30, 2014 December 31, 2013 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Liabilities Derivative instruments $ — $ (9,459 ) $ — $ (9,459 ) $ — $ — $ — $ — Total $ — $ (9,459 ) $ — $ (9,459 ) $ — $ — $ — $ — tables summarizetable summarizes the change in balance sheet carrying value associated with level 3 financial instruments carried at fair value on a recurring basis. Three Months Ended March 31, 2014 2013 Derivative instruments Derivative instruments Interest
Rate Swaps Cross
Currency
Interest
Rate Swaps Other Total
Derivative
Instruments Interest
Rate Swaps Cross
Currency
Interest
Rate Swaps Other Total
Derivative
Instruments $ (87 ) $ 1,007 $ (21 ) $ 899 $ (73 ) $ 1,053 $ 4 $ 984 — (10 ) 17 7 5 (546 ) (5 ) (546 ) — — — — — — — — — (17 ) 1 (16 ) (8 ) (37 ) 1 (44 ) — — — — — — — — $ (87 ) $ 980 $ (3 ) $ 890 $ (76 ) $ 470 $ — $ 394 $ — $ (28 ) $ 19 $ (9 ) $ (3 ) $ (514 ) $ (5 ) $ (522 ) (1)“Included in earnings” is comprised of the following amounts recorded in the specified line item in the consolidated statements of income: Three Months Ended
March 31, 2014 2013 $ (11 ) $ (562 ) 18 16 $ 7 $ (546 ) (2)Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three yearsand six months ended December 31, 2013, 2012 and 2011,June 30, 2013. There were no financial instruments categorized as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6,level 3 at June 30, 2014. Three Months Ended Six Months Ended June 30, 2013 June 30, 2013 Balance, beginning of period $ 589,103 $ 532,155 Total gains/(losses) (realized and unrealized): Included in earnings (12,461 ) 42,026 Included in other comprehensive income — — Included in earnings - accretion of discount 2,141 4,602 Proceeds from sale — — Transfers in and/or out of level 3 — — Balance, end of period $ 578,783 $ 578,783 Change in unrealized gains/(losses) relating to instruments still held at the reporting date $ (12,461 ) $ 42,026 9.10. Fair Value Measurements (Continued) The following table presents the significant inputs that are unobservable or from inactive markets used in the recurring valuations of the level 3 financial instruments detailed above. Fair Value at
March 31, 2014 Valuation
Technique Input Range
(Weighted Average)
LIBOR basis swaps $ 29 Discounted cash flow Bid/ask adjustment 0.03% — 0.03%
swaps (116 ) Discounted cash flow Constant prepayment rate 4.2% Bid/ask adjustment to
discount rate 0.08% — 0.08%
rate swaps 980 Discounted cash flow Constant prepayment rate 2.6% (3 ) $ 890 The significant inputs that are unobservable or from inactive markets related to our level 3 derivatives detailed in the table above would be expected to have the following impacts to the valuations:Consumer Price Index/LIBOR basis swaps — These swaps do not actively trade in the markets as indicated by a wide bid/ask spread. A wider bid/ask spread will result in a decrease in the overall valuation.Prime/LIBOR basis swaps — These swaps do not actively trade in the markets as indicated by a wide bid/ask spread. A wider bid/ask spread will result in a decrease in the overall valuation. In addition, the unobservable inputs include Constant Prepayment Rates of the underlying securitization trust the swap references. A decrease in this input will result in a longer weighted average life of the swap which will increase the value for swaps in a gain position and decrease the value for swaps in a loss position, everything else equal. The opposite is true for an increase in the input.Cross-currency interest rate swaps — The unobservable inputs used in these valuations are Constant Prepayment Rates of the underlying securitization trust the swap references. A decrease in this input will result in a longer weighted average life of the swap. All else equal in a typical currency market, this will result in a decrease to the valuation due to the delay in the cash flows of the currency exchanges as well as diminished liquidity in the forward exchange markets as you increase the term. The opposite is true for an increase in the input.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9.Fair Value Measurements (Continued) March 31, 2014 December 31, 2013 Fair
Value Carrying
Value Difference Fair
Value Carrying
Value Difference $ 103,058 $ 102,635 $ 423 $ 104,481 $ 104,588 $ (107 ) 38,862 38,157 705 37,485 37,512 (27 ) 8,323 8,323 — 9,732 9,732 — 150,243 149,115 1,128 151,698 151,832 (134 ) 11,633 11,626 (7 ) 13,807 13,795 (12 ) 134,190 136,177 1,987 133,578 136,648 3,070 145,823 147,803 1,980 147,385 150,443 3,058 (1,206 ) (1,206 ) — (1,384 ) (1,384 ) — 526 526 — 459 459 — 951 951 — 999 999 — (3 ) (3 ) — (21 ) (21 ) — $ 3,108 $ 2,924 June 30, 2014 December 31, 2013 Difference Difference Earning assets Loans held for investment, net $ 9,394,480 $ 8,793,971 $ 600,509 $ 8,439,068 $ 7,931,377 $ 507,691 Cash and cash equivalents 1,524,176 1,524,176 — 2,182,865 2,182,865 — Available-for-sale investments 149,399 149,399 — 102,105 102,105 — Accrued interest receivable 453,461 453,461 — 356,283 356,283 — Derivative instruments — — — 612 612 — Total earning assets 11,521,516 10,921,007 600,509 $ 11,080,933 $ 10,573,242 $ 507,691 Interest-bearing liabilities Money-market, savings and NOW accounts 4,757,164 4,757,164 — $ 4,029,881 $ 4,029,881 $ — Certificates of deposit 4,148,223 4,133,045 (15,178 ) 4,984,114 4,971,669 (12,445 ) Accrued interest payable 10,167 10,167 — 13,097 13,097 — Derivative instruments 9,459 9,459 — — — — Total interest-bearing liabilities $ 8,925,013 $ 8,909,835 (15,178 ) $ 9,027,092 $ 9,014,647 (12,445 ) Excess of net asset fair value over carrying value $ 585,331 $ 495,246 (1)“Cash and investments” includes available-for-sale investments that consist of investments that are primarily agency securities whose cost basis is $138 million and $113 million at March 31, 2014 and December 31, 2013, respectively, versus a fair value of $135 million and $109 million at March 31, 2014 and December 31, 2013, respectively.10. Fair Value Measurements (Continued) 10.Commitments and ContingenciesPreviouslyApril 16, 2014, Existing SLM announced itsdemand at the balance sheet date and are reported at their carrying value. These are level 1 valuations.resultsstatements. The fair value of derivative financial instruments was determined by a standard derivative pricing and option model using the stated terms of the contracts and observable market inputs. It is our policy to compare the derivative fair values to those received from our counterparties in order to validate the model’s outputs. Any significant differences are identified and resolved appropriately.quarter ended March 31, 2014,counterparty on a net basis by assessing exposure net of collateral held. When the last consolidated quartercounterparty has exposure to us under derivative contracts with the Company, we fully collateralize the exposure (subject to certain thresholds).operationsborrowings designated as the hedged item in a fair value hedge is adjusted for changes in fair value due to changes in the benchmark interest rate (one-month LIBOR). These valuations are determined through standard pricing models using the stated terms of Existing SLM Corporationthe borrowings and observable yield curves.separationSpin-Off. In general, holders of Navient Corporation (“Navient”). In the April 16,awards granted prior to 2014 announcement, Existing SLM reported it had reserved $70 million for estimated amounts and costs that were probable of being incurred for expected compliance remediation efforts relating to pending regulatory matters with the Department of Justice (“ DOJ”) and the Federal Deposit Insurance Corporation (“FDIC”), which are discussed in more detail below. Since that time, and based on additional information and discussions, we have determined that an additional charge in the amount of $103 million should be taken in the first quarter of 2014 to further reserve against the pending settlements of previously reported regulatory matters with the FDIC and DOJ. In addition, this includes amounts to provide for the voluntary restitution that we now understand Navient has decided to make with respect to certain assessed late fees on loans it owns in connection with these settlements. While the final cost of resolving these proceedings remains uncertain at this time, we believe based on current facts and circumstances the additional $103 million charge isreceived both probable of being incurred and is a reasonable estimate of our exposure.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31,Navient equity awards, and holders of awards granted in 2014 are containedreceived solely equity awards of their post-Spin-Off employer. Stock options, restricted stock, restricted stock units, performance stock units and dividend equivalent units were adjusted into equity in the Company’snew companies by a specific conversion ratio per company, which was based upon the volume weighted average prices for each company at the time of the Spin-Off, in an effort to keep the value of the equity awards constant. These adjustments were accounted for as modifications to the original awards. In general, the Sallie Mae and Navient awards will be subject to substantially the same terms and conditions as the original pre-Spin-Off SLM awards. A comparison of the fair value of the modified awards with the fair value of the original awards immediately before the modification resulted in approximately $64 of incremental expense related to fully-vested stock option awards and was expensed immediately and $630 of incremental compensation expense related to unvested restricted stock and restricted stock units which will be recorded over the remaining vesting period of the equity awards.with the SEC on May 6,2, 2014.10.Commitments and Contingencies12. Arrangements with Navient Corporation (Continued) Pursuantamong SLM Corporation, New BLC Corporation and related ancillary agreements include:dated as of April 28, 2014 entered intohas agreed to indemnify us for $283 million in connection withdeferred taxes that the separation ofCompany will be legally responsible for but that relate to gains recognized by the Company’s predecessor on debt repurchases made prior to the Spin-Off. In addition, Navient from SLM Corporation, all liabilities arising outhas agreed to indemnify us for tax assessments incurred related to identified uncertain tax positions taken prior to the date of the FDIC and DOJSpin-off transaction.other than finesrelating to the conduct of most pre-Spin-Off SLM businesses operated or penalties directly levied against Sallie Mae Bank, will beconducted prior to the responsibilitySpin-Off.or assumed by, Navient, and Navient will indemnify and hold harmless SLM Corporation and its subsidiaries, including Sallie Mae Bank, therefrom.As previously reported, Sallie Maethis filing, the Bank remains subject to a Consent Order, Order to Pay Restitution and Order to Pay Civil Money Penalty dated May 13, 2014 issued by the FDIC (the “2014 FDIC Order”). The 2014 FDIC Order replaces a prior cease and desist order originallyjointly issued in August 2008 by the FDIC and the Utah Department of Financial Institutions (“UDFI”). In which was terminated on July 2013,15, 2014. Specifically, on May 13, 2014, the Bank reached settlements with the FDIC first notified Sallie Mae Bankand the Department of plans to replace its order with a new formal enforcement action (the “Bank Order”) that more specifically addresses certain cited violations of Section 5 of the FTCA, including theJustice regarding disclosures and assessments of certain late fees, as well as alleged violations undercompliance with the Servicemembers Civil Relief Act (“SCRA”). In November 2013,Under the FDIC indicated an additional enforcement action would be issued against Sallie Mae, Inc., now known as Navient Solutions, Inc. (“NSI”) (the “NSI Order”;FDIC’s 2014 Order, the Bank Orderagreed to pay $NSI Order, hereafter referredrefund of up to as the “FDIC Orders”),$30 million in its capacity as a servicer of education loans for Sallie Mae Bank and other financial institutions.Basedlate fees assessed on our discussions with the FDIC, we believe the FDIC intends to require restitution be made by NSI and Sallie Mae Bank pursuant to the FDIC Orders with respect to loans owned or originated by Sallie Maethe Bank fromsince its inception in November 28, 2005 until2005. Navient is responsible for funding all liabilities, restitution and compensation under orders such as these, other than fines directly levied against the effective dateBank.FDIC Orders.In a related development, we understand thatBank.has decidedcertain post-Spin-Off performance data relating to voluntarily make restitution of certain assessed late fees to customers whose loans were neitherPrivate Education Loans owned nor originated by Sallie Mae Bank on the same basis and in the same manner as that made pursuant to the FDIC Orders. These credits are currently estimated to be $42 million.With respect to alleged civil violations of the SCRA, Navient and Sallie Mae Bank remain engaged in negotiations regarding a comprehensive settlement, remediation and civil settlement plan with the DOJ, in its capacity as the agency having primary authority for enforcement of such matters. The DOJ inquiry covers all loans owned by Sallie Mae Bank or serviced by NSI from November 28, 2005 untilNavient to support and facilitate ongoing underwriting, originations, forecasting, performance and reserve analyses.effective daterespective rights, responsibilities and obligations of the settlement.As previously disclosed, NSICompany and Navient after the Spin-Off relating to taxes, including with respect to the payment of taxes, the preparation and filing of tax returns and the conduct of tax contests. Under this agreement, each party is generally liable for taxes attributable to its business. The agreement also received Civil Investigative Demands (CIDs) fromaddresses the Consumer Financial Protection Bureau (“CFPB”)allocation of tax liabilities that are incurred as parta result of the CFPB’s separate investigation regarding allegations relatingSpin-Off and related transactions. Additionally, the agreement restricts the parties from taking certain actions that could prevent the Spin-Off from qualifying for the tax treatment.12. Arrangements with Navient Corporation (Continued) Navient’s disclosuresthe Spin-Off, the Bank sold substantially all of its Private Education Loans to several former affiliates, now subsidiaries of Navient (collectively, the “Purchasers”), pursuant to this agreement. This agreement predates the Spin-Off but has been significantly amended and assessment of late fees. Navient recently commenced discussionsreduced in scope in connection with the CFPB relatingSpin-Off. Post-Spin-Off, the Bank retains only the right to require the Purchasers to purchase loans for which the borrower also has a separate lending relationship with Navient (“Split Loans”) when the Split Loans either (1) are more than 90 days past due; (2) have been restructured; (3) have been granted a hardship forbearance or more than 6 months of administrative forbearance; or (4) have a borrower or cosigner who has filed for bankruptcy. At June 30, 2014, we held approximately $1.3 billion of Split Loans.disclosuresPurchasers in the amount of $94,179 and assessment$765,998, respectively, in principal and $1,770 and $25,797, respectively, in accrued interest income. During the three and six months ended June 30, 2013, the Bank sold loans to the Purchasers in the amount of late fees. Reserves$822,906 and $1,709,457, respectively, in principal and $19,386 and $39,196, respectively, in accrued interest income.not beena direct material adverse effect on our financial condition. Under the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.for this matter. Navientby regulation to ensure capital adequacy. The Bank is required to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I Capital to risk-weighted assets and of Tier I Capital to average assets, as defined by the regulation. The following amounts and ratios are based upon the Bank's assets. Actual Well Capitalized Regulatory Requirements Amount Ratio Amount Ratio As of June 30, 2014: Tier I Capital (to Average Assets) $ 1,291,390 11.6 % $ 554,956 > 5.0 % Tier I Capital (to Risk Weighted Assets) $ 1,291,390 15.2 % $ 509,071 > 6.0 % Total Capital (to Risk Weighted Assets) $ 1,351,917 15.9 % $ 848,451 > 10.0 % As of December 31, 2013: Tier I Capital (to Average Assets) $ 1,221,416 11.7 % $ 521,973 > 5.0 % Tier I Capital (to Risk Weighted Assets) $ 1,221,416 16.4 % $ 446,860 > 6.0 % Total Capital (to Risk Weighted Assets) $ 1,289,497 17.3 % $ 745,374 > 10.0 % 13. Regulatory Capital (Continued) subsidiaries will remaindeposits are insured by the FDIC. The Bank’s ability to pay dividends is subject to the CIDs. Sallie Maelaws of Utah and the regulations of the FDIC. Generally, under Utah’s industrial bank laws and regulations as well as FDIC regulations, the Bank ismay pay dividends from its net profits without regulatory approval if, following the payment of the dividend, the Bank’s capital and surplus would not currentlybe impaired. The Bank paid no dividends for the three months ended June 30, 2014 and 2013 or for the six months ended June 30, 2014. For the six months ended June 30, 2013, the Bank paid dividends of $120 million.CFPB jurisdictionthe 2014 FDIC Order. The 2014 FDIC Order replaces a prior cease and desist order jointly issued in August 2008 by the FDIC and the UDFI which was terminated on July 15, 2014. Specifically, on May 13, 2014, the Bank reached settlements with the FDIC and the Department of Justice regarding disclosures and assessments of certain late fees, as well as compliance with the SCRA. Under the FDIC’s 2014 Order, the Bank agreed to pay $3.3 million in fines and oversee the refund of up to $30 million in late fees assessed on loans owned or originated by the Bank since its inception in November 2005.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)10.Commitments and Contingencies (Continued)aremay be asserted against us and our subsidiaries.Inbusiness, we andbusiness. In addition, it is common for the Company, our subsidiaries are subjectand affiliates to receive information and document requests and investigative demands from state attorneys general, legislative committees, and administrative agencies. These requests may be for informational or regulatory examinations, information gathering requests, inquiriespurposes and investigations. In connectionmay relate to our business practices, the industries in which we operate, or other companies with formalwhom we conduct business. Our practice has been and informal inquiries incontinues to be to cooperate with these cases, webodies and our subsidiaries receive numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of our regulated activities.such litigation, regulatory and regulatory matters,investigative actions, we cannot predict what the eventual outcome of the pending matters will be, what the timing or the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties, if any, related to each pending matter may be.Based on current knowledge, reserves have been established for certain litigation or regulatory matters where the loss is both probable and estimable. thatthere are loss contingencies, if any, arising from pending investigations, litigation or regulatory matters willthat could have a material adverse effect on our consolidated financial position, liquidity, results of operations or cash flows.11.Segment ReportingConsumer Lending SegmentIn this segment, we originate, acquire, finance and service Private Education Loans. The Private Education Loans we make are primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans or customers’ resources. We continue to offer loan products to parents and graduate students where we believe we are competitive with similar federal education loan products. In this segment, we earn net interest income on our Private Education Loan portfolio (after provision for loan losses). Operating expenses for this segment include costs incurred to acquire and to service our loans. With the elimination of FFELP in July 2010, these FFELP-related revenue sources will continue to decline.The following table includes asset information for our Consumer Lending segment. March 31, 2014 December 31, 2013 $ 38,157 $ 37,512 1,724 2,555 3,369 2,934 $ 43,250 $ 43,001 (1)Includes restricted cash and investments.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11.Segment Reporting (Continued)Business Services SegmentOur Business Services segment generates the majority of its revenue from servicing our FFELP Loan portfolio. We also provide servicing, loan default aversion and asset recovery services for loans on behalf of Guarantors of FFELP Loans and other institutions, including ED. We also operate a consumer savings network that provides financial rewards on everyday purchases to help families save for college, Upromise.In 2013, we sold our Campus Solutions and 529 college-savings plan administration businesses. The results of both of these businesses are reported in discontinued operations for all periods presented.At March 31, 2014 and December 31, 2013, the Business Services segment had total assets of $789 million and $892 million, respectively.FFELP Loans SegmentOur FFELP Loans segment consists of our FFELP Loan portfolio (approximately $102.6 billion as of March 31, 2014) and the underlying debt and capital funding the loans. We are currently the largest holder of FFELP Loans. As a result of the long-term funding used in the FFELP Loan portfolio and the insurance and guarantees provided on these loans, the net interest margin recorded in the FFELP Loans segment is relatively stable and the capital we choose to retain with respect to the segment is modest. Our FFELP Loan portfolio will amortize over approximately 20 years. Our goal is to maximize the cash flow generated by the portfolio. We will seek to acquire other third-party FFELP Loan portfolios to add net interest income and servicing revenue.The following table includes asset information for our FFELP Loans segment. March 31, 2014 December 31, 2013 $ 102,635 $ 104,588 3,836 4,473 2,808 3,587 $ 109,279 $ 112,648 (1)Includes restricted cash and investments.Other SegmentThe Other segment consists primarily of the financial results related to activities of our holding company, including the repurchase of debt, the corporate liquidity portfolio and all overhead. We also include results from certain, smaller wind-down and discontinued operations within this segment. Overhead expenses include costs related to executive management, the Board of Directors, accounting, finance, legal, human resources,stock-based compensation expense and certain information technology costs related to infrastructure and operations.At March 31, 2014 and December 31, 2013, the Other segment had total assets of $3.2 billion and $3.0 billion, respectively.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11.Segment Reporting (Continued)Measure of ProfitabilityThe tables below include the condensed operating results for each of our reportable segments. Management, including the chief operating decision makers, evaluates the Company on certain performance measures that we refer to as “Core Earnings” performance measures for each operating segment. We use “Core Earnings” to manage each business segment because “Core Earnings” reflect adjustments to GAAP financial results for two items, discussed below, that create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that “Core Earnings” provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information as we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. The two items adjusted for in our “Core Earnings” presentations are (1) our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness and (2) the accounting for goodwill and acquired intangible assets. The tables presented below reflect “Core Earnings” operating measures reviewed and utilized by management to manage the business. Reconciliation of the “Core Earnings” segment totals to our consolidated operating results in accordance with GAAP is also included in the tables below.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 is no comprehensive, authoritative guidance for management reporting. The management reporting process measures the performance of the operating segments based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. Our operating segments are defined by the products and services they offer or the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management. Intersegment revenues and expenses are netted within the appropriate financial statement line items consistent with the income statement presentation provided to management. Changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial information.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11.Segment Reporting (Continued)Segment Results and Reconciliations to GAAP Three Months Ended March 31, 2014 Consumer
Lending Business
Services FFELP
Loans Other Eliminations(1) Total
“Core
Earnings” Adjustments Total
GAAP Reclassi-
fications Additions/
(Subtractions) Total
Adjustments(2) $ 644 $ — $ 523 $ — $ — $ 1,167 $ 198 $ (75 ) $ 123 $ 1,290 — — — 3 — 3 — — — 3 1 1 1 1 (1 ) 3 — — — 3 645 1 524 4 (1 ) 1,173 198 (75 ) 123 1,296 206 — 293 21 (1 ) 519 10 1 (4) 11 530 439 1 231 (17 ) — 654 188 (76 ) 112 766 175 — 10 — — 185 — — — 185 264 1 221 (17 ) — 469 188 (76 ) 112 581 — — — — — — — — — — 1 167 11 — (118 ) 61 — — — 61 — 111 — — — 111 — — — 111 — — — — — — — — — — — 8 — 3 — 11 (188 ) 175 (5) (13 ) (2 ) 1 286 11 3 (118 ) 183 (188 ) 175 (13 ) 170 76 106 125 105 (118 ) 294 — — — 294 — — — 72 — 72 — — — 72 76 106 125 177 (118 ) 366 — — — 366 — — — — — — — 4 4 4 — — — 26 — 26 — — — 26 76 106 125 203 (118 ) 392 — 4 4 396 189 181 107 (217 ) — 260 — 95 95 355 71 68 41 (83 ) — 97 — 39 39 136 118 113 66 (134 ) — 163 — 56 56 219 — — — — — — — — — — 118 113 66 (134 ) — 163 — 56 56 219 — — — — — — — — — — $ 118 $ 113 $ 66 $ (134 ) $ — $ 163 $ — $ 56 $ 56 $ 219 (1)The eliminations 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.(2)“Core Earnings” adjustments to GAAP: Three Months Ended March 31, 2014 Net Impact of
Derivative
Accounting Net Impact of
Goodwill and
Acquired Intangibles Total $ 112 $ — $ 112 (13 ) — (13 ) — 4 4 $ 99 $ (4 ) 95 39 $ 56 (3)Income taxes are based on a percentage of net income before tax for the individual reportable segment.(4)Represents a portion of the $6 million of “other derivative accounting adjustments.”(5)Represents the $180 million of “unrealized gains on derivative and hedging activities, net” as well as the remaining portion of the $6 million of “other derivative accounting adjustments.”The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11.Segment Reporting (Continued) Three Months Ended March 31, 2013 Consumer
Lending Business
Services FFELP
Loans Other Eliminations(1) Total
“Core
Earnings” Adjustments Total
GAAP Reclassifications Additions/
(Subtractions) Total
Adjustments(2) $ 623 $ — $ 599 $ — $ — $ 1,222 $ 212 $ (76 ) $ 136 $ 1,358 — — — 3 — 3 — — — 3 1 1 2 2 (1 ) 5 — — — 5 624 1 601 5 (1 ) 1,230 212 (76 ) 136 1,366 203 — 340 13 (1 ) 555 18 (2 )(4) 16 571 421 1 261 (8 ) — 675 194 (74 ) 120 795 225 — 16 — — 241 — — — 241 196 1 245 (8 ) — 434 194 (74 ) 120 554 — — 55 — — 55 — — — 55 10 186 23 — (149 ) 70 — — — 70 — 99 — — — 99 — — — 99 — — — 29 — 29 (6 ) — (6 ) 23 — 7 — — — 7 (188 ) 184 (5) (4 ) 3 10 292 78 29 (149 ) 260 (194 ) 184 (10 ) 250 67 95 157 3 (149 ) 173 — — — 173 — — — 62 — 62 — — — 62 67 95 157 65 (149 ) 235 — — — 235 — — — — — — — 3 3 3 — — — 10 — 10 — — — 10 67 95 157 75 (149 ) 245 — 3 3 248 139 198 166 (54 ) — 449 — 107 107 556 52 73 62 (20 ) — 167 — 44 44 211 87 125 104 (34 ) — 282 — 63 63 345 — 1 — — — 1 — — — 1 87 126 104 (34 ) — 283 — 63 63 346 — — — — — — — — — — $ 87 $ 126 $ 104 $ (34 ) $ — $ 283 $ — $ 63 $ 63 $ 346 (1)The eliminations 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.(2)“Core Earnings” adjustments to GAAP: Three Months Ended March 31, 2013 Net Impact of
Derivative
Accounting Net Impact of
Goodwill and
Acquired
Intangibles Total $ 120 $ — $ 120 (10 ) — (10 ) — 3 3 $ 110 $ (3 ) 107 44 $ 63 (3)Income taxes are based on a percentage of net income before tax for the individual reportable segment.(4)Represents a portion of the $29 million of “other derivative accounting adjustments.”(5)Represents the $157 million of “unrealized gains (losses) on derivative and hedging activities, net” as well as the remaining portion of the $29 million of “other derivative accounting adjustments.”The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11.Segment Reporting (Continued)Summary of “Core Earnings” Adjustments to GAAPThe two adjustments required to reconcile from our “Core Earnings” results to our GAAP results of operations relate to differing treatments for: (1) our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness and (2) the accounting for goodwill and acquired intangible assets. The following table reflects aggregate adjustments associated with these areas. Three Months Ended
March 31, 2014 2013 $ 99 $ 110 (4 ) (3 ) (39 ) (44 ) — — $ 56 $ 63 (1)Derivative accounting: “Core Earnings” exclude periodic unrealized gains and losses that are caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP as well as the periodic unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. These unrealized gains and losses occur in our Consumer Lending, FFELP Loans and Other business segments. Under GAAP, for our derivatives that are held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0 except for Floor Income Contracts where the cumulative unrealized gain will equal the amount for which we sold the contract. In our “Core Earnings” presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.(2)Goodwill and acquired intangible assets: Our “Core Earnings” exclude goodwill and intangible asset impairment and amortization of acquired intangible assets.(3)Net tax effect: Such tax effect is based upon our “Core Earnings” effective tax rate for the year.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations discussioninformation is current as of July 23, 2014 (unless otherwise noted) and analysis should be read in conjunctionconnection with our consolidated financial statements and related notes included elsewhere in this QuarterlySLM Corporation’s Annual Report on Form 10-Q10-K for the year ended December 31, 2013 (the “2013 Form 10-K”), and the audited consolidatedcarve out financial statements filed on Form 8-K on May 6, 2014, and related notes theretosubsequent reports filed with the Securities and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includedExchange Commission (the “SEC”). Definitions for capitalized terms in ourthis presentation not defined herein can be found in the 2013 Form 10-K.“forward-looking”forward-looking statements and information based on management’s current expectations as of the date of this document.presentation. Statements that are not historical facts, including statements about ourthe Company’s beliefs opinions, or expectations and statements that assume or are dependent upon future events, are forward-looking statements. Forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in Item 1A “Risk Factors” and elsewhere in thisthe Company’s Quarterly Report on Form 10-Q for the 2013 Form 10-K and our subsequent filings with the SEC;quarter ended June 30, 2014; increases in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; changes in accounting standards and the impact of related changes in significant accounting estimates; any adverse outcomes in any significant litigation to which we arethe Company is a party; credit risk associated with ourthe Company’s exposure to third parties, including counterparties to ourthe Company’s derivative transactions; and changes in the terms of student loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws). WeThe Company could also be affected by, among other things: changes in ourits funding costs and availability; reductions to our credit ratings or the credit ratings of the United States of America; failures of ourits operating systems or infrastructure, including those of third-party vendors; failure to implement the recently executed separation of the Company into two separate publicly traded companies, including failure to transition its origination and servicing operations as planned, increased costs in connection with being a stand-alone company, and failure to achieve the expected benefits of the separation; damage to ourits reputation; failures to successfully implement cost-cutting initiatives and adverse effects of such initiatives on our business; risks associated with restructuring initiatives, including the recently completed separation of Navient Corporation (“Navient”) and SLM Corporation into two, distinct publicly traded companies; changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students and their families; changes in law and regulations with respect to the student lending business and financial institutions generally; changes in banking rules and regulations, including increased capital requirements; increased competition from banks and other consumer lenders; the creditworthiness of ourits customers; changes in the general interest rate environment, including the rate relationships among relevant money-market instruments and those of ourits earning assets versus ourvs. its funding arrangements; and changes in general economic conditions; our ability to successfully effectuate any acquisitions and other strategic initiatives; and changes in the demand for debt management services.conditions. The preparation of ourthe Company’s consolidated financial statements also requires management to make certain estimates and assumptions including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect. All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this document. We doreport. The Company does not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in ourits expectations.Definitionscertain capitalizedthe periods presented were the unrealized, mark-to-market gains/losses on derivative contracts (excluding current period accruals on the derivative instruments), net of tax. These are recognized in GAAP but not in “Core Earnings” results. The Company provides “Core Earnings” measures because this is what management uses when making management decisions regarding the Company’s performance and the allocation of corporate resources. The Company’s “Core Earnings” are not defined terms usedwithin GAAP and may not be comparable to similarly titled measures reported by other companies. For additional information, see “Key Financial Measures - 'Core Earnings' ” in this document can be found inForm 10-Q for the 2013 Form 10-K.March 31,June 30, 2013 to be consistent with classifications adopted for 2014, and had no effect on net income, total assets, or total liabilities.The informationfinancial reports containedRatios 2013 2014 2013 Net income attributable to SLM Corporation $ 44 $ 76 $ 91 $ 149 Diluted earnings per common share attributable to SLM Corporation $ 0.09 $ 0.17 $ 0.20 $ 0.33 Weighted average shares used to compute diluted earnings per share 431 448 433 453 Return on assets 1.55 % 3.31 % 1.69 % 3.23 % 35 % 32 % 33 % 29 % Other Operating Statistics Ending Private Education Loans, net $ 7,436 $ 5,335 $ 7,436 $ 5,335 Ending FFELP Loans, net 1,358 1,160 1,358 1,160 Ending total education loans, net $ 8,794 $ 6,495 $ 8,794 $ 6,495 Average education loans $ 8,725 $ 6,622 $ 8,770 $ 6,928 do not reflectto “we,” “us,” “our,” “Sallie Mae” and the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae“Company,” refer to SLM Corporation and its subsidiaries, effective March 31,immediately after the Spin-Off (as hereinafter defined) except as otherwise indicated or unless the context otherwise requires. We use “Private Education Loans” to mean education loans to students or their families that are non-federal loans not insured or guaranteed under the previously existing Federal Family Education Loan Program (“FFELP”).are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Selected Financial Information and Ratios Three Months Ended
March 31, 2014 2013 $ 219 $ 346 $ .49 $ .74 435 458 .59 % .82 % $ 163 $ 283 $ .36 $ .61 435 458 .44 % .67 % $ 102,635 $ 119,195 38,157 37,465 $ 140,792 $ 156,660 $ 142,679 $ 160,261 (1)“Core Earnings” are non-GAAP financial measures and do not represent a comprehensive basis of accounting. For a greater explanation of “Core Earnings,” see the section titled “‘Core Earnings’ — Definition and Limitations” and subsequent sections.Spin-Off of NavientOn May 29, 2013, the board of directors ofwe completed our predecessor registrant (“Existing SLM”) first announced its intentplan to legally separate into two distinct publicly tradedpublicly-traded entities — a loan management, servicing and asset recovery business and a consumer banking business. The- an education loan management, servicing and asset recovery business, Navient Corporation (“Navient”), would be comprised primarily of Existing SLM’s portfolios of education loans not currently held in Sallie Mae Bank, as well as servicing and asset recovery activities on these loans and loans held by third parties. Thea consumer banking business, would be comprised primarily of Sallie Mae Bank and its Private Education Loan origination business, the Private Education Loans it holds and a related servicing business, and will be a consumer banking franchise with expertise in helping families save, plan and pay for college.On April 8, 2014, Existing SLM approved the distribution of all of the issued and outstanding shares of Navient common stock on the basis of one share of Navient common stock for each share of Existing SLM common stock issued and outstanding as of the close of business on April 22, 2014, the record date for the distribution. The distribution occurred on April 30, 2014.Corporation. The separation of Navient from the CompanySLM Corporation (the “Spin-Off”) was preceded by an internal corporate reorganization, which was the first step to separate the consumer banking business and the education loan management, servicing and asset recovery business from the consumer banking business. As a result of a holding company merger under Section 251(g) of the Delaware General Corporation Law (“DGCL”), which is referred to herein as the “SLM Merger” and was effectiveMerger,” all of the shares of then existing SLM Corporation’s common stock were converted, on April 29, 2014,a 1-to-1 basis, into shares of common stock of New BLC Corporation, (“a newly formed company that was a subsidiary of pre-Spin-Off SLM BankCo”Corporation (“pre-Spin-Off SLM”), and, pursuant to the SLM Merger, New BLC Corporation replaced Existingthen existing SLM Corporation as the parent holding company of Sallie Mae. In accordance with Section 251(g) of the Delaware General Corporation Law, by action of the Existing SLM board of directorspublicly-traded registrant and without a shareholder vote, Existing SLM was merged into Navient, LLC, a wholly-owned subsidiary of SLM BankCo, with Navient, LLC surviving (“Existing SLM SurvivorCo”). Immediately following the effective time of the Merger, SLMThe information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.BankCo changed its name to “SLM Corporation” and became the successor registrant to Existing SLM (“SLM”, the “Company,” “we,” “our” or “us”). Following the SLM Merger and asCorporation. As part of the internal corporate reorganization, the assets and liabilities associated with the education loan management, servicing and asset recovery business were transferred to Navient, and those assets and liabilities associated with the consumer banking business remained with or were transferred to SLM. the newly constituted SLM Corporation. internal reorganizationtiming and the distribution of Navient common stock are sometimes collectively referredsteps necessary to herein as the “Spin-Off.” The Spin-Off is intended to be tax-free to stockholders of SLM. For further information oncomplete the Spin-Off please refer toand comply with SEC reporting requirements, including the replacement of pre-Spin-Off SLM Corporation with our current publicly-traded registrant, have resulted in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “2013filed with the SEC on February 19, 2014, and our Quarterly Report on Form 10-K”).Due to10-Q for the relative significance of Navient to Existing SLM, among other factors,quarter ended March 31, 2014 filed with the SEC on May 12, 2014, providing business results and financial information for financial reporting purposes Navient is treated as the “accounting spinnor” and therefore isperiods reported therein on the “accounting successor” to Existing SLM, notwithstanding the legal formbasis of the separation and distribution. As a result,consolidated businesses of pre-Spin-Off SLM. While information contained in those prior reports may provide meaningful historical context for the historical financial statements of Existing SLM areCompany’s business, this Quarterly Report on Form 10-Q for the historical financial statements of Navient. Navient will showquarter ended June 30, 2014 is our first periodic report made on the distributionbasis of the approximate $1.7 billion of consumer bankingpost-Spin-Off business net assets as of the distribution date.completion of the Spin-Off, SLM issuedon May 6, 2014 we filed a Current Report on Form 8-K containing carved out audited consolidated financial statements on a stand-alone basis for SLMof the Company and its subsidiaries for each of the three years ended December 31, 2013. These2013, 2012 and 2011 (the “Carved Out Financial Information (Audited).” This information was prepared in accordance with GAAP and related carve-out financial statements were presented on a basisconventions. Comparisons of accounting that reflects a change in reporting entity. They reflected theyear-over-year results of the consumer banking business and did not include Navient’s results. As previously discussed, the historical financial statements of Existing SLM prior to the Spin-Off have becomedate for quarterly and year-to-date in this Quarterly Report on Form 10-Q are made with reference to information derived in a manner consistent with the financial information contained in the Carved Out Financial Information (Audited).statements of Navient. As a result,information relating to the presentationBank, Upromise and the Private Education Loan origination functions, (ii) includes certain general corporate overhead expenses allocated to the Company, and (iii) has been adjusted as if the education loan management, servicing and asset recovery business (i.e. Navient) had never been part of the financialCompany (to reflect the change in reporting entity that results from the Spin-Off). For a more detailed description of the businessassumptions applied and operations of SLM, for periods arising after the completionlimitations of the Spin-Off will be substantially different from the presentation of Existing SLM’s financial results in its prior filings with the Securities and Exchange Commission (the “SEC”). To provide additional information to SLM’s investors regarding the anticipated impact of the Spin-Off, Existing SLM (our predecessor registrant) included certain unaudited pro forma financial information in the 2013 Form 10-K,Carved Out Financial Information (Audited), see “the Company's Current Report on a carve-out stand-alone basis as of and for the year ended December 31, 2013, to provide some reference for SLM’s expected reissued historical financial statements post Spin-Off and future manner of presentation of its financial condition and results of operations. For further information regarding SLM’s historical carve-out financial statements, please refer to our Form 8-K filed with the SEC on May 6, 2014. SLM will report its results” the basis of the historical carve-out financial statements beginning with its Form 10-Q for the quarter endedmonths of January through April of 2014 has been prepared in accordance with GAAP and these related carve-out conventions.2014.OverviewThe following discussion and analysis presents a review2014, our delinquency cure rates have exceeded our expectations.businesshistorical credit indicators and operations asperiod-over-period trends are not indicative of future performance and forfuture performance may be somewhat affected by ongoing sales of Split Loans to Navient. Because we now retain more delinquent loans, we believe it could take up to two years before of our credit performance indicators provide meaningful period-over-period comparisons.three months ended March 31, 2014. All periods includeBank by offering products on campus through financial aid offices and through direct marketing to students and their families. We fund Private Education Loan originations through the consolidated resultsretail and brokered deposits of Navientthe Bank, and may obtain additional funding through sales and securitizations of Private Education Loans.consumer banking business asFederal Deposit Insurance Corporation (“FDIC”). At June 30, 2014, the Spin-Off did not occur until April 30, 2014.We monitorBank had total assets of $11.1 billion, including $7.4 billion in Private Education Loans and assess$1.4 billion of FFELP Loans. As of the same date, the Bank had total deposits of $9.5 billion representing 91 percent of interest earning assets, composed of $3.0 billion of retail deposits, $5.1 billion of brokered deposits and $1.5 billion of other deposits.operationsPrivate Education Loan servicing and results basedcollection on the following four reportable segments: (1) Consumer Lending; (2) Business Services; (3) FFELP Loans; and (4) Other.Consumer Lending SegmentIn this segment,loans we originate acquire, finance and hold, as well as those we sell to third parties. We will also continue to offer various products to help families save for college - including our free Upromise service that provides financial rewards on everyday purchases - and to protect their college investment through tuition, rental and life insurance services.Loans. Loansown financial resources. In this segment,We continue to offer loan products to parents and graduate students where we believe our prices are competitive with similar federal education loan products. We earn net interest income on theour Private Education Loan portfolio (after provision for loan losses). Operating expenses associated with interest income include costs incurred to acquire and to service our loans.fees, primarily late fees.informationcomplete physical and logistical separation of our servicing and collection platforms from those of Navient is currently expected to be completed within twelve months of the Spin-Off, but could take significantly longer. During that period, servicing of our Private Education Loans will be conducted by Navient, the Bank and SMB Servicing Company, Inc. employees pursuant to various transition agreements. For further detail on these agreements, see the section titled “Post-Separation Relationships with Navient.”reports containedstatements, Note 12, “Arrangements with Navient Corporation,” for further discussion regarding loan purchase agreements.this Quarterlycontext and how we have adapted our loan products to meet the needs of our customers, see Item 1. “Business - Business Segments - Consumer Lending Segment” in our Annual Report on Form 10-Q do not reflect10-K for the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three yearsyear ended December 31, 2013, 20122013.2011,distribution agreement with Navient (the “Separation and Distribution Agreement”). In connection therewith, the Company also entered into various other ancillary agreements with Navient to effect the Spin-Off and provide a framework for its relationship with Navient thereafter, such as well as certain unaudited pro forma condensed financiala transition services agreement, a tax sharing agreement, an employee matters agreement, a loan servicing and statistical informationadministration agreement, a joint marketing agreement, a key services agreement, a data sharing agreement and a master sublease agreement. The majority of Sallie Maethese agreements are transitional in nature with most having terms of two years or less from the date of the Spin-Off.subsidiaries effective March 31, 2014creditworthiness. If we are contained inunable to obtain services, complete the Company’stransition of our origination and loan servicing operations as planned, or obtain indemnification payments from Navient, we could experience higher than expected costs and operating expenses and our results of operations and financial condition could be materially and adversely affected.SECFDIC and the Department of Justice regarding disclosures and assessments of certain late fees, as well as compliance with the Servicemembers Civil Relief Act (“SCRA”). Under the FDIC’s 2014 Order, the Bank agreed to pay $3.3 million in fines and oversee the refund of up to $30 million in late fees assessed on May 6, 2014.Business Services SegmentOur Business Services segment generatesloans owned or originated by the majority ofBank since its revenue frominception in November 2005. Navient is responsible for funding all liabilities, restitution and compensation under orders such as these, other than fines directly levied against the Bank.our FFELP Loan portfolio. We also provide servicing, loan default aversionadministration and asset recoverycollection services for loans on behalf of Guarantorsthe Bank’s portfolio of FFELP Loans and other institutions,Private Education Loans, as well as servicing history information with respect to Private Education Loans previously serviced by Navient and access to certain promissory notes in Navient’s possession. The loan servicing and administration agreement has a fixed term with a renewal option in favor of the Bank.ED. Wewith respect to the payment of taxes, the preparation and filing of tax returns and the conduct of tax contests. Under this agreement, each party is generally liable for taxes attributable to its business. The agreement also operateaddresses the allocation of tax liabilities that are incurred as a consumer savings networkresult of the Spin-Off and related transactions. Additionally, the agreement restricts the parties from taking certain actions that provides financial rewards on everyday purchasescould prevent the Spin-Off from qualifying for the tax treatment.help families savethe Spin-Off, the Bank sold substantially all of its Private Education Loans to several former affiliates, now subsidiaries of Navient (collectively, the “Purchasers”), pursuant to this agreement. This agreement predates the Spin-Off but has been significantly amended and reduced in scope in connection with the Spin-Off. Post-Spin-Off, the Bank retains only the right to require the Purchasers to purchase loans for college.FFELPwhich the borrower also has a separate lending relationship with Navient (“Split Loans”) when the Split Loans SegmentOur FFELP Loans segment consistseither (1) are more than 90 days past due; (2) have been restructured; (3) have been granted a hardship forbearance or more than six months of administrative forbearance; or (4) have a borrower or cosigner who has filed for bankruptcy. At June 30, 2014, we held approximately $1.3 billion of Split Loans.FFELP Loan portfolio and underlying debt and capital funding these loans. Even though FFELP Loans are no longer originated we continue to seek to acquire FFELP Loan portfolios to leverage our servicing scale to generate incremental earnings and cash flow. This segment is expected to generate significant amounts of cash as the FFELP Loan portfolio amortizes.OtherOur Other segment primarily consists of activities of our holding company, including the repurchase of debt, the corporate liquidity portfolio and all overhead. We also include results from certain smaller wind-down and discontinued operations within this segment.Key Financial Measuresportfoliosportfolio (which include financing costs), provision for loan losses, the revenues and expenses generated by our service businesses, and gains and losses on subsidiary sales, loan sales and debt repurchases. We manage and assess the performance of each business segment separately as each is focused on different customers and each derives its revenue from different activities and services. A brief summaryoperating expenses. The growth of our keybusiness and the strength of our financial measures (netcondition are primarily driven by our ability to achieve our annual Private Education Loan originations goals while sustaining credit quality and maintaining diversified, cost-efficient funding sources to support our originations.income; provisions for loan losses; charge-offs and delinquencies; servicing and contingency revenues; other income (loss); operating expenses; and “Core Earnings”) can be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”we receive on assets in our 2013 Form 10-K.First-Quarter 2014 Summary of Resultsfinancial results on a GAAP basisthese earnings as net interest income.also present certain “Core Earnings” performance measures.FFELP Loans. As of June 30, 2014, we had $7.4 billion and $1.4 billion of Private Education and FFELP Loans, respectively. For Private Education Loans, net interest margin is determined by interest rates we establish based upon the credit of the customer and any cosigner less our cost of funds. The majority of our Private Education Loans earn variable rate interest and are funded primarily with deposits. Our management, equity investors, credit rating agencies and debt capital providers use these “Core Earnings” measures to monitor our business performance. See “‘Core Earnings’ — Definition and Limitations” for a further discussion and a complete reconciliation between GAAP net income and “Core Earnings.”First-quarter 2014 GAAP net income was $219 million ($.49 diluted earnings per share), versus net incomecost of $346 million ($0.74 diluted earnings per share)funds is primarily influenced by competition in the first-quarter 2013. The changes in GAAP net income are driven bydeposit market. For the same typessix months ended June 30, 2014, we originated $1.9 billion of “Core Earnings” items discussed below as well as changes in “mark-to-market” unrealized gains and losses on derivative contracts and amortization and impairment of goodwill and intangible assets that are recognized in GAAP but not in “Core Earnings” results. First-quarter 2014 results included gains of $99 millionPrivate Education Loans, up 7 percent, from derivative accounting treatment that are excluded from “Core Earnings” results, compared with gains of $110 million in the year-agoprior year period.“Core Earnings” for the quarter were $163 million ($.36 diluted earnings per share), compared with $283 million ($0.61 diluted earnings per share) in the year-ago period. The primary driver of the decrease in net income was $103 million of additional reserve recorded for pending regulatory matters (see Part II. “OtherThe information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Information,” Item 1. “Legal Proceedings—Regulatory Matters”). In addition, last year we undertook a series of actions to improve shareholder value as the Company sold residual interests in FFELP securitization trusts and initiated the separation of the Company into two publicly traded companies. In the first quarter of 2013 the Company generated a $55 million gain on the sale of a residual interest in a FFELP securitization trust in addition to $29 million in gains from debt repurchases. There were no similar transactions in 2014. Compared to the year-ago quarter, we spent $16 million in additional reorganization expense tied to the separation of the Company and $28 million in additional operating expenses (excluding the $103 million of additional reserve discussed above), which increased third-party revenue in the business services segment and reduced loan losses in the consumer lending segment. Two other major contributors to the quarter’s results — a $56 million reduction in provision and $21 million reduction in We earned net interest income — areof $284 million for the six months ended June 30, 2014.an improving credit quality in the Private Education Loan business andfederal government guarantee. We do not expect to acquire any more FFELP Loans so the continued amortizationbalance of theour FFELP portfolio respectively.Duringis expected to decline due to normal amortization.first quarter of 2014, we:issued $2 billion of FFELP asset-backed securitiesnext year, plus an additional allowance to cover life-of-loan expected losses for loans classified as a troubled debt restructuring (“ABS”), $676 million of Private Education Loan ABS and $850 million of unsecured bonds;closed on a new $8 billion asset-backed commercial paper (“ABCP”) facility that matures in January 2016. This facility replaces an existing $5.5 million FFELP ABCP facility which was retired in January 2014; andrepurchased 8 million common shares for $200 million on the open market.2014 Outlook and Management ObjectivesIn May 2013, we announced plans to separate our consumer banking and education loan management operations into two separate businesses and complete the Spin-Off in the first half of 2014. Our primary objective for 2014 is successfully completing this transaction. Navient spun off on April 30, 2014.Results of OperationsWe present the results of operations below first on a consolidated basis in accordance with GAAP. Following our discussion of consolidated earnings results on a GAAP basis, we present our results on a segment basis. We have four business segments: FFELP Loans, Consumer Lending, Business Services and Other. Since these segments operate in distinct business environments and we manage and evaluate the financial performance of these segments using non-GAAP financial measures, these segments are presented on a “Core Earnings” basis (see “‘Core Earnings’ — Definition and Limitations”).The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.GAAP Statements of Income (Unaudited) Three Months
Ended March 31, Increase
(Decrease) 2014 2013 $ % $ 646 $ 735 $ (89 ) (12 )% 644 623 21 3 3 3 — — 3 5 (2 ) (40 ) 1,296 1,366 (70 ) (5 ) 530 571 (41 ) (7 ) 766 795 (29 ) (4 ) 185 241 (56 ) (23 ) 581 554 27 5 — 55 (55 ) (100 ) (8 ) (31 ) 23 (74 ) 61 70 (9 ) (13 ) 111 99 12 12 — 23 (23 ) (100 ) 6 34 (28 ) (82 ) 170 250 (80 ) (32 ) 366 235 131 56 4 3 1 33 26 10 16 160 396 248 148 60 355 556 (201 ) (36 ) 136 211 (75 ) (36 ) 219 345 (126 ) (37 ) — 1 (1 ) (100 ) 219 346 (127 ) (37 ) — — — — 219 346 (127 ) (37 ) 5 5 — — $ 214 $ 341 $ (127 ) (37 )% $ .50 $ .76 $ (.26 ) (34 )% — — — — $ .50 $ .76 $ (.26 ) (34 )% $ .49 $ .74 $ (.25 ) (34 )% — — — — $ .49 $ .74 $ (.25 ) (34 )% $ .15 $ .15 $ — — % The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Consolidated Earnings Summary — GAAP-basisThree Months Ended March 31, 2014 Compared with Three Months Ended March 31, 2013For the three months ended March 31, 2014, net income was $219 million, or $0.49 diluted earnings per common share, compared with net income of $346 million, or $0.74 diluted earnings per common share, for the three months ended March 31, 2013. The primary driver of the decrease in net income was $103 million of additional reserve recorded for pending regulatory matters (see Part II. “Other Information,” Item 1. “Legal Proceedings — Regulatory Matters”TDR”). The decrease in net income was also due to a $55 million gain on the sale of the Residual Interest in a FFELP Loan securitization that occurred in the year-ago quarter, a $29 million decline in net interest income, a $23 million decrease in debt repurchase gains, a $28 million decrease in other income, higher operating expenses of $28 million (excluding the $103 million of additional reserve discussed above)allowance for loan losses increases when we record provision expense and higher restructuringfor recoveries and other reorganization costs of $16 million, which was partially offsetis reduced by a $56 million decline incharge-offs. Generally, the provision for loan losses and a $23 million decrease in net losses on derivative and hedging activities.The primary contributors to each of the identified drivers of changes in net income for the current quarter compared with the year-ago quarter are as follows:Net interest income decreased by $29 million primarily due to a reduction in FFELP net interest income resulting from an $18 billion decline in average FFELP Loans outstanding. This decline in FFELP loans was due, in part, to the sale of Residual Interests in FFELP Loan securitization trusts in the first half of 2013. There were approximately $12 billion of FFELP Loans in these trusts at the time of sale.Provisionsallowance for loan losses declined $56 million primarily as a result ofrise when charge-offs are expected to increase and fall when charge-offs are expected to decline. We bear the overall improvement in Private Education Loans’full credit quality, delinquency and charge-off trends leading to decreases in expected future charge-offs.Gains on sales of loans and investments decreased by $55 million as the result of a $55 million gain on the sale of the Residual Interest in a FFELP Loan securitization trust in the year-ago quarter. There were no sales in the current quarter.Losses on derivative and hedging activities, net, decreased $23 million. The primary factors affecting the change were interest rate and foreign currency fluctuations, which primarily affected the valuations of our Floor Income Contracts, basis swaps and foreign currency hedges during each period. Valuations of derivative instruments vary based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivative and hedging activities may continue to vary significantly in future periods.Gains on debt repurchases decreased $23 million. Debt repurchase activity will fluctuate based on market fundamentals and our liability management strategy.Other income decreased $28 million primarily due to a $32 million decrease in foreign currency translation gains. The foreign currency translation gains relate to a portion of our foreign currency denominated debt that does not receive hedge accounting treatment. These gains were partially offset by the “losses on derivative and hedging activities, net” line item on the income statement related to the derivatives used to economically hedge these debt instruments.Operating expenses increased $131 million primarily as a result of $103 million of additional reserve recorded for pending regulatory matters (see Part II. “Other Information,” Item 1. “Legal Proceedings — Regulatory Matters”). Operating expenses also increased due to increases in our third-party servicing and asset recovery activities, as well as, increased account resolution activityexposure on our Private Education Loan portfolio.The informationLoans. Losses on our Private Education Loans are determined by risk characteristics such as school type, loan status (in-school, grace, forbearance, repayment and financial reports containeddelinquency), loan seasoning (number of months in this Quarterly Reportactive repayment), underwriting criteria (e.g., credit scores), a cosigner and the current economic environment. Our provision for loan losses on Form 10-Q do notour Private Education Loans was $39 million for the first six months of 2014 compared with $18 million in the comparable 2013 period. In connection with the Spin-Off, we changed our policy of charging off Private Education Loans when they are delinquent for 212 days to charging off loans after 120 days delinquent. In addition, we changed our loss confirmation period for Private Education Loans from two years to one year to reflect the subsequent Spin-Offshorter charge-off period and recent changes in our servicing practices.Navientthree percent loss exposure on April 30, 2014. Carved out audited consolidated financial statementsthem. Our provision for losses in our FFELP Loans portfolio was $1.2 million for the first six months of 2014 compared with the $1.4 million in the comparable 2013 period.a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011,delinquencies as well as certain unaudited pro forma condensedthe progression of loans from early to late stage delinquency. Prior to the Spin-off, the Bank would sell delinquent loans to an entity that is now a subsidiary of Navient prior to the loans becoming 120 days past due. As a result,statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filedrestructuring costs associated with the SEC on May 6, 2014.Restructuringbuild-out of our servicing platform and the remaining costs of the Spin-Off. Our efficiency ratio is calculated as operating expense, excluding restructuring costs, divided by total interest income and other reorganization expenses increased $16 millionincome. In the second quarter this ratio was 35 percent. We expect this ratio to $26 million, which consisted of $25 million of expenses primarily relateddecline steadily over the next several years as the balance sheet grows to third-party costs incurred in connectiona level commensurate with its loan origination platform and we control the Company’s previously announced plan to separate its existing organization into two, separate, publicly traded companies and $1 million related to severance costs.We repurchased 8 million shares and 10 million sharesgrowth of our common stock during the three months ended March 31, 2014 and 2013, respectively, as part of our common share repurchase program. Primarily as a result of ongoing common share repurchases, our average outstanding diluted shares decreased by 23 million common shares from the year-ago quarter.“expense base.Earnings” — Definition and Limitationsprior to the Spin-Off, we also evaluatedproduce and report our business segmentsafter-tax earnings on a separate basis that differs from GAAP. Wewhich we refer to this different basis of presentation as “Core Earnings.” We provide this “Core Earnings” basis of presentation onWhile pre-Spin-Off SLM also reported a consolidated basis for each business segment because this ismetric by that name, what we review internally when makingnow report and what we describe below is significantly different and should not be compared to any Core Earnings reported by pre-Spin-Off SLM.decisions regardingstrategy. Those derivative instruments that qualify for hedge accounting treatment have their related cash flows recorded in interest income or interest expense along with the hedged item. However, some of our performancederivatives do not qualify for hedge accounting treatment and how we allocate resources. We also referthe stand-alone derivative must be marked-to-fair value in the income statement with no consideration for the corresponding change in fair value of the hedged item. These gains and losses, recorded in “Gains (losses) on derivative and hedging activities, net”, are primarily caused by interest rate volatility and changing credit spreads during the period as well as the volume and term of derivatives not receiving hedge accounting treatment.this information in our presentations with credit rating agencies, lenders and investors. Becausereconcile from our “Core Earnings” basis of presentation correspondsresults to our segment financial presentations, we are required by GAAP results of operations, net of tax, relate to provide “Core Earnings” disclosure in the notes to our consolidated financial statementsdiffering treatments for our business segments. For additional information, see “Note 11 — Segment Reporting.”“Core Earnings” are not a substitute for reported results under GAAP. We use “Core Earnings” to manage each business segment because “Core Earnings” reflect adjustments to GAAP financial results for two items, discussed below, that create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that “Core Earnings” provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information as we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. The two items for which we adjust our “Core Earnings” presentations are (1) our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness, net of tax. These amounts are recorded on our income statement as “(Losses) gains on derivative and (2)hedging activities, net.” The amount recorded in “(Losses) gains on derivative and hedging activities, net” includes the accrual of the current payment on the swaps as well as the change in fair values related to future expected cash flows. For purposes of “Core Earnings” we are including in GAAP earnings the current period accrual amounts (interest reclassification) on the swaps and excluding the remaining ineffectiveness. "Core Earnings" is meant to represent what earnings would have been had these derivatives qualified for hedge accounting and there was no ineffectiveness.goodwillreported results under GAAP. We provide “Core Earnings” basis of presentation because (i) earnings per share computed on a “Core Earnings” basis is one of several measures we utilize in establishing management incentive compensation and acquired intangible assets.While (ii) we believe it better reflects the financial results for derivatives that are economic hedges of interest rate risk but do not qualify for hedge accounting treatment..accounting, for the reasons described above, ouraccounting. Our “Core Earnings” basis of presentation does not. “Core Earnings” are subject to certain general and specific limitations that investors should carefully consider. For example, there is no comprehensive, authoritative guidance for management reporting. Our “Core Earnings” are not defined terms withindiffers from GAAP and may not be comparable to similarly titled measures reported by other companies. Accordingly, our “Core Earnings” presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not be able to compare our performance with that of other financial services companies based upon “Core Earnings.” “Core Earnings” results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, our board of directors, rating agencies, lenders and investors to assess performance.Specific adjustments that management makes to GAAP results to derive our “Core Earnings” basis of presentation are described in detail in the section titled “‘Core Earnings’ — Definition and Limitations — Differences between ‘Core Earnings’ and GAAP” of this Item 2.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011,way it treats ineffective hedges as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.tables show “Core Earnings” for each business segmenttable shows the amount in “(Losses) gains on derivative and our business as a whole along with the adjustments madehedging activities, net” that relates to the income/expense items to reconcileinterest reclassification on the amounts to our reported GAAP results as required by GAAP and reported in “Note 11 — Segment Reporting.” Three Months Ended March 31, 2014 Consumer
Lending Business
Services FFELP
Loans Other Eliminations(1) Total
“Core
Earnings” Adjustments Total
GAAP Reclassifications Additions/
(Subtractions) Total
Adjustments(2) $ 644 $ — $ 523 $ — $ — $ 1,167 $ 198 $ (75 ) $ 123 $ 1,290 — — — 3 — 3 — — — 3 1 1 1 1 (1 ) 3 — — — 3 645 1 524 4 (1 ) 1,173 198 (75 ) 123 1,296 206 — 293 21 (1 ) 519 10 1 (4) 11 530 439 1 231 (17 ) — 654 188 (76 ) 112 766 175 — 10 — — 185 — — — 185 264 1 221 (17 ) — 469 188 (76 ) 112 581 — — — — — — — — — — 1 167 11 — (118 ) 61 — — — 61 — 111 — — — 111 — — — 111 — — — — — — — — — — — 8 — 3 — 11 (188 ) 175 (5) (13 ) (2 ) 1 286 11 3 (118 ) 183 (188 ) 175 (13 ) 170 76 106 125 105 (118 ) 294 — — — 294 — — — 72 — 72 — — — 72 76 106 125 177 (118 ) 366 — — — 366 — — — — — — — 4 4 4 — — — 26 — 26 — — — 26 76 106 125 203 (118 ) 392 — 4 4 396 189 181 107 (217 ) — 260 — 95 95 355 71 68 41 (83 ) — 97 — 39 39 136 118 113 66 (134 ) — 163 — 56 56 219 — — — — — — — — — — 118 113 66 (134 ) — 163 — 56 56 219 — — — — — — — — — — $ 118 $ 113 $ 66 $ (134 ) $ — $ 163 $ — $ 56 $ 56 $ 219 (1)The eliminations 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.(2)“Core Earnings” adjustments to GAAP: Three Months Ended March 31, 2014 Net Impact of
Derivative
Accounting Net Impact of
Goodwill and
Acquired
Intangibles Total $ 112 $ — $ 112 (13 ) — (13 ) — 4 4 $ 99 $ (4 ) 95 39 $ 56 (3)Income taxes are based on a percentage of net income before tax for the individual reportable segment.(4)Represents a portion of the $6 million of “other derivative accounting adjustments.”(5)Represents the $180 million of “unrealized gains on derivative and hedging activities, net” as well as the remaining portion of the $6 million of “other derivative accounting adjustments.”The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014. Three Months Ended March 31, 2013 Consumer
Lending Business
Services FFELP
Loans Other Eliminations(1) Total
“Core
Earnings” Adjustments Total
GAAP Reclassifications Additions/
(Subtractions) Total
Adjustments(2) $ 623 $ — $ 599 $ — $ — $ 1,222 $ 212 $ (76 ) $ 136 $ 1,358 — — — 3 — 3 — — — 3 1 1 2 2 (1 ) 5 — — — 5 624 1 601 5 (1 ) 1,230 212 (76 ) 136 1,366 203 — 340 13 (1 ) 555 18 (2 )(4) 16 571 421 1 261 (8 ) — 675 194 (74 ) 120 795 225 — 16 — — 241 — — — 241 196 1 245 (8 ) — 434 194 (74 ) 120 554 — — 55 — — 55 — — — 55 10 186 23 — (149 ) 70 — — — 70 — 99 — — — 99 — — — 99 — — — 29 — 29 (6 ) — (6 ) 23 — 7 — — — 7 (188 ) 184 (5) (4 ) 3 10 292 78 29 (149 ) 260 (194 ) 184 (10 ) 250 67 95 157 3 (149 ) 173 — — — 173 — — — 62 — 62 — — — 62 67 95 157 65 (149 ) 235 — — — 235 — — — — — — — 3 3 3 — — — 10 — 10 — — — 10 67 95 157 75 (149 ) 245 — 3 3 248 139 198 166 (54 ) — 449 — 107 107 556 52 73 62 (20 ) — 167 — 44 44 211 87 125 104 (34 ) — 282 — 63 63 345 — 1 — — — 1 — — — 1 87 126 104 (34 ) — 283 — 63 63 346 — — — — — — — — — — $ 87 $ 126 $ 104 $ (34 ) $ — $ 283 $ — $ 63 $ 63 $ 346 (1)The eliminations 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.(2)“Core Earnings” adjustments to GAAP: Three Months Ended March 31, 2013 Net Impact of
Derivative
Accounting Net Impact of
Goodwill and
Acquired
Intangibles Total $ 120 $ — $ 120 (10 ) — (10 ) — 3 3 $ 110 $ (3 ) 107 44 $ 63 (3)Income taxes are based on a percentage of net income before tax for the individual reportable segment.(4)Represents a portion of the $29 million of “other derivative accounting adjustments.”(5)Represents the $157 million of “unrealized gains on derivative and hedging activities, net” as well as the remaining portion of the $29 million of “other derivative accounting adjustments.”The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Differences between “Core Earnings” and GAAPThe two adjustments required to reconcile from our “Core Earnings” results to our GAAP results of operations relate to differing treatments for: (1) our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness and (2) the accounting for goodwill and acquired intangible assets. contracts. Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2014 2013 2014 2013 Hedge ineffectiveness (losses) gains $ (7,031 ) $ (385 ) $ (8,255 ) $ (69 ) Interest reclassification (2,427 ) 333 (1,967 ) 627 (Losses) gains on derivatives and hedging activities, net $ (9,458 ) $ (52 ) $ (10,222 ) $ 558 aggregate adjustments associated with these areas. Three Months Ended
March 31, 2014 2013 $ 99 $ 110 (4 ) (3 ) (39 ) (44 ) — — $ 56 $ 63 1) our derivative activities. Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands, except per share amounts) 2014 2013 2014 2013 GAAP net income $ 44,128 $ 76,469 $ 91,576 $ 149,353 Adjustments: 7,031 385 8,255 69 (2,708 ) (142 ) (3,180 ) (26 ) 4,323 243 5,075 43 $ 48,451 $ 76,712 $ 96,651 $ 149,396 GAAP diluted earnings per common share $ 0.09 $ 0.17 $ 0.20 $ 0.33 Derivative adjustments, net of tax 0.01 — 0.02 — $ 0.10 $ 0.17 $ 0.22 $ 0.33 These unrealized gains and losses occur in our Consumer Lending, FFELP Loans and Other business segments. Under GAAP, for our derivatives that are held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0 except for Floor Income Contracts,$0.cumulative unrealized gainderivative instruments are held.equalbe challenged.amounteffect of increasing the average life of our liabilities and matching the index that our assets reset on, minimizing our exposure to interest rate risk. Retail deposits are sourced through its direct banking platform and serve as an important source of diversified funding. Brokered deposits are sourced through a small network of brokers and provide a stable source of funding. Retail and brokered deposits can be term or liquid deposits. As of June 30, 2014, the Bank had $9.5 billion of customer deposits, representing 91 percent of interest earning assets, composed of $3.0 billion of retail deposits, $5.1 billion of brokered deposits and $1.5 billion of other deposits.soldexpect will result in lower charge-offs and provision for loan losses. Originations were 3 percent higher in the contract. second quarter of 2014 compared with the year-ago quarter and 7 percent higher for the six months ended June 30, 2014, compared with the year-ago period.“Core Earnings” presentation,expected growth and designation as a “large bank,” which will entail enhanced regulatory scrutiny. For 2014, the following key initiatives have been completed or are underway.recognizehave created additional Board-level committees to provide more focused resources and oversight with respect to the economic effectcontinuing development of these hedges,our enterprise risk management functions and framework, as well as our consumer protection regulatory compliance management system.generally resultshave been extensively revised and updated in any net settlement cash paid or received being recognized ratablyconnection with the Spin-Off. Our Chief Risk Officer will now separately be responsible for monitoring and maintaining the system of controls and reporting procedures across our organization to monitor, escalate and mitigate significant risks against previous agreed risk tolerances. For the remainder of 2014, we will continue efforts underway to put in place a fully-developed set of operational and managerial controls throughout our organization to assist the Chief Risk Officer and to fully inform our management and Board of Directors via the Risk Appetite Framework.ana stand-alone bank the number of third-party vendors on whom we rely and the volume of work we obtain from them will increase significantly as Navient is replaced.expense or revenueincome and other income. In the second quarter this ratio was 35 percent. We expect this ratio to decline steadily over the hedged item’s life.The informationnext several years as the balance sheet grows to a level commensurate with our loan origination platform and financial reports contained in this Quarterly Report on Form 10-Q do not reflectwe control the subsequent Spin-Offgrowth of Navient on April 30, 2014. Carved out audited consolidated financial statementsour expense base.stand-aloneconsolidated basis in accordance with GAAP. (In millions, except per share data) 2014 2013 $ % 2014 2013 $ % Interest income: Loans $ 162 $ 122 $ 40 33 % $ 322 $ 254 $ 68 27 % Investments 2 6 (4 ) (67 ) 3 11 (8 ) (73 ) Cash and cash equivalents 1 1 — — 2 2 — — Total interest income 165 129 36 28 327 267 60 22 Interest expense: Total interest expense 21 22 (1 ) (5 ) 44 44 — — Net interest income 144 107 37 35 283 223 60 27 Less: provisions for loan losses 1 (1 ) 2 (200 ) 40 20 20 100 Net interest income after provisions for loan losses 143 108 35 32 243 203 40 20 Noninterest income: Gains on sales of loans to affiliates, net 2 73 (71 ) (97 ) 36 149 (113 ) (76 ) (Losses) gains on derivatives and hedging activities, net (9 ) — (9 ) (100 ) (10 ) 1 (11 ) (1,100 ) Other income 15 9 6 67 23 16 7 44 Total noninterest income 8 82 (74 ) (90 ) 49 166 (117 ) (70 ) Expenses: Operating expenses 60 66 (6 ) (9 ) 124 127 (3 ) (2 ) Acquired intangible asset impairment and amortization expense 1 1 — — 3 2 1 50 Restructuring and other reorganization expenses 14 — 14 100 14 — 14 100 Total expenses 75 67 8 12 141 129 12 9 Income before income tax expense 76 123 (47 ) (38 ) 151 240 (89 ) (37 ) Income tax expense 32 47 (15 ) (32 ) 60 92 (32 ) (35 ) Net income 44 76 (32 ) (42 ) 91 148 (57 ) (39 ) Less: net loss attributable to noncontrolling interest — — — — — (1 ) 1 (100 ) Net income attributable to SLM Corporation 44 76 (32 ) (42 ) 91 149 (58 ) (39 ) Preferred stock dividends 3 — 3 100 3 — 3 100 Net income attributable to SLM Corporation common stock $ 41 $ 76 $ (35 ) (46 )% $ 88 $ 149 $ (61 ) (41 )% Basic earnings per common share attributable to SLM Corporation $ 0.10 $ 0.17 $ (0.07 ) (41 )% $ 0.21 $ 0.34 $ (0.13 ) (38 )% Diluted earnings per common share attributable to SLM Corporation $ 0.09 $ 0.17 $ (0.08 ) (47 )% $ 0.20 $ 0.33 $ (0.13 ) (39 )% three years ended December 31, 2013, 2012 and 2011,identified drivers of changes in net income for the current quarter compared with the year-ago quarter are as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are containedfollows:Company’s Current Report on Form 8-K filedcurrent quarter compared with the SEC on May 6, 2014.The accountingyear-ago quarter primarily due to a $1.8 billion increase in average Private Education Loans outstanding.derivatives requires that changesloan losses increased $2 million compared with the year-ago quarter. This increase was primarily the result of less loan sales in the fair valuesecond quarter of 2014 increasing the provision by $8 million quarter-over-quarter, higher sales of credit impaired loans increasing the provision by $5 million, and a $3 million increase due to loans entering repayment. This was partially offset by a $14 million benefit this quarter from the net effect of a change in our loss emergence period from two years to one year and a change in our charge-off policy.instruments be recognized currentlyand hedging activities, net, resulted in earnings,a net loss of $9 million in the second quarter 2014 compared with no fair value adjustment of$0 in the hedged item, unless specificyear-ago quarter. The primary factors affecting the change were interest rates and whether the derivative qualified for hedge accounting criteria are met. We believetreatment. In second quarter 2014, we had more derivatives used to economically hedge risk that our derivatives are effective economic hedges, and as such, are a critical element of our interest rate and foreign currency risk management strategy. However, some of our derivatives, primarily Floor Income Contracts and certain basis swaps, dodid not qualify for hedge accounting treatment and the stand-alone derivative must be marked-to-marketthan we did in the income statement with no consideration for the corresponding change in fair value of the hedged item. These gains and losses recorded in “Gains (losses) on derivative and hedging activities, net” are primarily caused by interest rate and foreign currency exchange rate volatility and changing credit spreads during the period as well as the volume and term of derivatives not receiving hedge accounting treatment.Our Floor Income Contracts are written options that must meet more stringent requirements than other hedging relationships to achieve hedge effectiveness. Specifically, our Floor Income Contracts do not qualify for hedge accounting treatment because the pay down of principal of the student loans underlying the Floor Income embedded in those student loans does not exactly match the change in the notional amount of our written Floor Income Contracts. Additionally, the term, the interest rate index, and the interest rate index reset frequency of the Floor Income Contract can be different than that of the student loans. Under derivative accounting treatment, the upfront payment is deemed a liability and changes in fair value are recorded through income throughout the life of the contract. The change in the value of Floor Income Contracts is primarily caused by changing interest rates that cause the amount of Floor Income earned on the underlying student loans and paid to the counterparties to vary. This is economically offset by the change in value of the student loan portfolio earning Floor Income but that offsetting change in value is not recognized. We believe the Floor Income Contracts are economic hedges because they effectively fix the amount of Floor Income earned over the contract period, thus eliminating the timing and uncertainty that changes in interest rates can have on Floor Income for that period. Therefore, for purposes of “Core Earnings,” we have removed the unrealized gains and losses related to these contracts and added back the amortization of the net premiums received on the Floor Income Contracts. The amortization of the net premiums received on the Floor Income Contracts for “Core Earnings” is reflected in student loan interest income. Under GAAP accounting, the premiums received on the Floor Income Contracts are recorded as revenue in the “gains (losses) on derivative and hedging activities, net” line item by the end of the contracts’ lives.Basis swaps are used to convert floating rate debt from one floating interest rate index to another to better match the interest rate characteristics of the assets financed by that debt. We primarily use basis swaps to hedge our student loan assets that are primarily indexed to LIBOR or Prime. The accounting for derivatives requires that when using basis swaps, the change in the cash flows of the hedge effectively offset both the change in the cash flows of the asset and the change in the cash flows of the liability. Our basis swaps hedge variable interest rate risk; however, 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 rates and therefore swaps economically hedging these FFELP Loans do not meet the criteria for hedge accounting treatment. As a result, under GAAP, these swaps are recorded at fair value with changes in fair value reflected currently in the income statement.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31,year-ago quarter.are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.The table below quantifies the adjustments for derivative accounting between GAAP and “Core Earnings” net income. Three Months Ended
March 31, 2014 2013 $ (8 ) $ (31 ) 188 188 180 157 (75 ) (76 ) (6 ) 29 $ 99 $ 110 (1)See “Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities” below for a detailed breakdown of the components of realized losses on derivative and hedging activities.(2)“Unrealized gains on derivative and hedging activities, net” comprises the following unrealized mark-to-market gains (losses): Three Months Ended
March 31, 2014 2013 $ 181 $ 189 (1 ) (4 ) (39 ) (32 ) 39 4 $ 180 $ 157 (3)Other derivative accounting adjustments consist of adjustments related to: (1) foreign currency denominated debt that is adjusted to spot foreign exchange rates for GAAP where such adjustment are reversed for “Core Earnings” and (2) certain terminated derivatives that did not receive hedge accounting treatment under GAAP but were economic hedges under “Core Earnings” and, as a result, such gains or losses amortized into “Core Earnings” over the life of the hedged item.(4)Negative amounts are subtracted from “Core Earnings” net income to arrive at GAAP net income and positive amounts are added to “Core Earnings” net income to arrive at GAAP net income.Reclassification of Realized Gains (Losses) on Derivative and Hedging ActivitiesDerivative accounting requires net settlement income/expense on derivatives and realized gains/losses related to derivative dispositions (collectively referred to as “realized gains (losses) on derivative and hedging activities”) that do not qualify as hedges to be recorded in a separate income statement line item below net interest income. Under our “Core Earnings” presentation, these gains and losses are reclassified to the income statement line item of the economically hedged item. For our “Core Earnings” net interest margin, this would primarily include: (a) reclassifying the net settlement amounts related to our Floor Income Contracts to student loan interest income and (b) reclassifying the net settlement amounts related to certain of our basis swaps to debt interest expense. The table below summarizes the realized losses on derivative and hedging activities and the associated reclassification on a “Core Earnings” basis.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014. Three Months Ended
March 31, 2014 2013 $ (198 ) $ (212 ) 10 18 — 6 $ (188 ) $ (188 ) Cumulative Impact of Derivative Accounting under GAAP compared to “Core Earnings”As of March 31, 2014, derivative accounting has reduced GAAP equity by approximately $854 million as a result of cumulative net unrealized losses (after tax) recognized under GAAP, but not in “Core Earnings.” The following table rolls forward the cumulative impact to GAAP equity due to these unrealized after tax net losses related to derivative accounting. Three Months Ended
March 31, 2014 2013 $ (926 ) $ (1,080 ) 72 53 $ (854 ) $ (1,027 ) (1)Net impact of net unrealized gains (losses) under derivative accounting is composed of the following: Three Months Ended
March 31, 2014 2013 $ 99 $ 110 (22 ) (60 ) (5 ) 3 $ 72 $ 53 (a)See “‘Core Earnings’ derivative adjustments” table above.Net Floor premiums received on Floor Income Contracts that have not been amortized into “Core Earnings” as of the respective year-ends are presented in the table below. These net premiums will be recognized in “Core Earnings” in future periods. As of March 31, 2014, the remaining amortization term of the net floor premiumsThe information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.was approximately 2.25 years for existing contracts. Historically, we have sold Floor Income Contracts on a periodic basis and depending upon market conditions and pricing, we may enter into additional Floor Income Contracts in the future. The balance of unamortized Floor Income Contracts will increase as we sell new contracts and decline due to the amortization of existing contracts. March 31, 2014 2013 $ (308 ) $ (498 ) (1)$(492) million and $(795) million on a pre-tax basis as of March 31, 2014 and 2013, respectively.2)Goodwill and Acquired Intangible Assets: Our “Core Earnings” exclude goodwill and intangible asset impairment and the amortization of acquired intangible assets. The following table summarizes the goodwill and acquired intangible asset adjustments. Three Months Ended
March 31, 2014 2013 $ (4 ) $ (3 ) (1)Negative amounts are subtracted from “Core Earnings” net income to arrive at GAAP net income.Business Segment Earnings Summary — “Core Earnings” BasisConsumer Lending SegmentThe following table includes “Core Earnings” results for our Consumer Lending segment. Three Months Ended
March 31, % Increase
(Decrease) 2014 2013 2014 vs. 2013 $ 644 $ 623 3 % 1 1 — 645 624 3 206 203 1 439 421 4 175 225 (22 ) 264 196 35 1 10 (90 ) 76 67 13 — — — 76 67 13 189 139 36 71 52 37 $ 118 $ 87 36 % The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Quarterly core earningsoperating expenses were $118$60 million compared with $87$66 million in the year-ago quarter. The decrease in operating expenses is primarily the result of an $8 million reduction in our litigation reserve, partially offset by a $4 million increase in marketing expenses.$50$113 million decrease in the provision for Private Education Loan losses.First-quarter 2014 Private Education Loan portfolio results vs. first-quarter 2013 included:Loan originations of $1.5 billion, up 8 percent.Delinquencies of 90 days or more of 3.4 percentnet gains on sales of loans to affiliates, a $20 million increase in repayment, down from 3.9 percent.Total delinquencies of 6.9 percent of loansprovisions for loan losses, and an $11 million increase in repayment, down from 7.8 percent.Loanslosses on derivatives and hedging activities which were partially offset by a $60 million increase in forbearance of 3.7 percent of loans in repayment and forbearance, up from 3.4 percent.Annualized charge-off rate of 2.8 percent of average loans in repayment, down from 3.0 percent.Provision for Private Education Loan losses of $175 million, down from $225 million.Core net interest margin, before loan loss provision, of 4.34 percent, up from 4.15 percent.portfolio balance, net of loan loss allowance, totaled $38.2 billion, a $692 million increase over the year-ago quarter.Consumer Lending Net Interest MarginThe following table shows the “Core Earnings” basis Consumer Lending net interest margin along with reconciliationprimary contributors to the GAAP-basis Consumer Lending net interest margin before provision for loan losses. Three Months Ended
March 31, 2014 2013 6.47 % 6.35 % .23 .23 6.70 6.58 (2.08 ) (2.02 ) 4.62 4.56 (.28 ) (.41 ) 4.34 % 4.15 % 4.34 % 4.15 % (.03 ) (.03 ) 4.31 % 4.12 % (1)The average balances of our Consumer Lending “Core Earnings” basis interest-earning assets for the respective periods are: Three Months Ended
March 31, 2014 2013 $ 38,945 $ 38,406 2,005 2,662 $ 40,950 $ 41,068 (2)Represents the reclassification of periodic interest accruals on derivative contracts from net interest income to other income and other derivative accounting adjustments. For further discussion of these adjustments, see section titled “‘Core Earnings’ — Definition and Limitations — Difference between ‘Core Earnings’ and GAAP” above.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the threeidentified drivers of changes in net income for the current six-month period compared with the year-ago six-month period are as follows:ended December 31, 2013, 2012to one year and 2011,a change in our charge-off policy.well as certain unaudited pro forma condensed financiala result of fewer loan sales to affiliates.statistical informationhedging activities, net, resulted in a net loss of Sallie Mae and its subsidiaries effective March 31, 2014 are contained$10 million in the Company’s Current Report on Form 8-K filedfirst half of 2014 compared with a gain of $1 million in the SEC on May 6, 2014. and Charge-Offslosses and charge-offs. Three Months Ended
March 31, 2014 2013 $ 175 $ 225 218 232 (Dollars in thousands) 2014 2013 2014 2013 Private Education Loan provision for loan losses $ 329 $ (1,966 ) $ 38,982 $ 18,278 March 31,June 30, 2014, we considered several factors with respect to our Private Education Loan portfolio. Inportfolio, in particular, we continue to see improvement in credit quality and continuing positive delinquency, forbearance and charge-off trends in connection with the portfolio.portfolio. Improvingportfolio are sold at a discount to par which has historically been included in the Bank’s provision and reduced the allowance for loan losses in equal amounts.qualityindicators and period-over-period trends are not indicative of future performance and future performance may be somewhat affected by ongoing sales of Split Loans to Navient. Because we now retain more delinquent loans, we believe it could take up to two years before our credit performance indicators provide meaningful period-over-period comparisons.seenunclear at this point whether these trends are sustainable given our change in higher FICO scores and cosigner rates as wellcharge-off policy. The provision in the prior year quarter was driven by a large loan sale which decreased the provisions for loan losses. Private Education Loan provisions increased $21 million in the six months ended June 30, 2014, compared with the year-ago period primarily as a more seasoned portfolio. result of growth in loans entering repayment and sales of credit impaired loans during the period which were partially offset by the $14 million benefit from the net effect of a change in our loss emergence period from two years to one year and a change in our charge-off policy.6.90.7 percent from 7.8 percent in the year-ago quarter. Loans greater than 90 days delinquent (as a percentage of loans in repayment) have decreased to 3.4 percent from 3.9 percent in the year-ago quarter. The charge-off rate decreased to 2.8 percent from 3.00.8 percent in the year-ago quarter. Loans in forbearance (as a percentage of loans in repayment and forbearance) have increased to 3.70.9 percent from 3.40.1 percent in the year-ago quarter.Apart from the overall improvements discussed above that had the effect of reducing the provision for loan losses The increase in the first-quarter 2014 comparedloans in forbearance was because in the prior year we typically sold loans in the same month that a forbearance was offered to the year-ago quarter, Private Educationa borrower. Other than Split Loans, we are retaining loans that have defaulted between 2008 and 2013 for which we have previously charged off estimated losses have, to varying degrees, not met our post-default recovery expectations to date and may continue to not do so. Our allowance for loan losses takesgone into account these potential recovery uncertainties. See “Financial Condition — Consumer Lending Portfolio Performance — Receivable for Partially Charged-Off Private Education Loans” for further discussion.The Private Education Loan provision for loan losses was $175 million in the first quarter of 2014, down $50 million from the first quarter of 2013. The decline was a result of the overall improvement in credit quality and performance trends discussed above, leading to decreases in expected future charge-offs.77. “Management’s Discussion and Analysis of Financial Condition and Results of Operations —- Critical Accounting Policies and Estimates —- Allowance for Loan Losses”Losses.”our Annual Report on Form 10-Krewards by purchasing products at hundreds of online retailers, booking travel, purchasing a home, dining out, buying gas and groceries, using the Upromise World MasterCard, or completing other qualified transactions. We earn a fee for the year ended December 31, 2013.Operating Expenses — Consumer Lending SegmentOperating expenses for our Consumer Lending segment include costs incurredmarketing and administrative services we provide to originate Private Education Loans and to service and collect on our Private Education Loan portfolio. The increase in operating expenses of $9 millioncompanies that participate in the Upromise savings network. We also compete with other loyalty shopping services and companies. Upromise income increased $1 million for the quarter and six months ended March 31,June 30, 2014, compared with the year-ago quarter was primarily the result of increased account resolution activity on the portfolio which contributed to significant improvements in delinquency and charge-off rates. Direct operating expenses as a percentage of revenues (revenues calculated as net interest income after provision plus total other income) were 29 percent and 33 percent in the quarters ended March 31, 2014 and 2013, respectively.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Business Services SegmentThe following table includes “Core Earnings” results for our Business Services segment. Three Months Ended
March 31, % Increase
(Decrease) 2014 2013 2014 vs. 2013 $ 1 $ 1 — % 118 149 (21 ) 40 27 48 9 10 (10 ) 167 186 (10 ) 111 99 12 8 7 14 286 292 (2 ) 106 95 12 — — — 106 95 12 181 198 (9 ) 68 73 (7 ) 113 125 (10 ) — 1 (100 ) $ 113 $ 126 (10 )% Business services “Core Earnings” were $113 million in first-quarter 2014, compared with $126 million in the year-ago quarter. The decrease is primarilyprior-year periods due to the lower balance of FFELP Loans we serviced.Our Business Services segment includes intercompany loan servicing fees from servicing the FFELP Loans in our FFELP Loans segment. The average balance of this portfolio was $103 billion and $121 billion for the quarters ended March 31, 2014 and 2013, respectively. The decline in average balance of FFELP loans outstanding along with the related intercompany loan servicing revenue from the year-ago period is primarily the result of normal amortization of the portfolio, as well as the sale of our Residual Interests in $12 billion of securitized FFELP loans in the first half of 2013.Third-party loan servicing income for the current quarter compared with the prior-year period increased $13 million, primarily due to the increase in ED servicing revenue (discussed below) as well as a result of the sale of Residual Interests in FFELP Loan securitization trusts in 2013. (See “FFELP Loans Segment” for further discussion.) When we sold the Residual Interests, we retained the right to service the loans in the trusts. As such, servicing income that had previously been recorded as intercompany loan servicing is now recognized as third-party loan servicing income.We are servicing approximately 5.8 million accounts under the ED Servicing Contract as of March 31, 2014, compared with 5.7 million and 4.8 million accounts serviced at December 31, 2013 and March 31, 2013, respectively. Third-party loan servicing fees in the quarters ended March 31, 2014 and 2013 included $31 million and $23 million, respectively, of servicing revenue related to the ED Servicing Contract.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Our contingency revenue consists of fees we receive for asset recovery on delinquent debt on behalf of third-party clients performed on a contingent basis. Contingency revenue increased $12 million in the current quarter compared with the year-ago quarter as a result of the higher asset recovery volume.The following table presents the outstanding inventory of contingent asset recovery receivables that our Business Services segment will collect on behalf of others. We expect the inventory of FFELP contingent asset recovery receivables to decline over time as a result of the elimination of FFELP. March 31,
2014 December 31,
2013 March 31,
2013 $ 13,168 $ 13,481 $ 13,549 2,734 2,693 2,239 $ 15,902 $ 16,174 $ 15,788 In 2013, we sold our Campus Solutions and 529 college savings plan administration. The results related to these businesses for all periods presented have been reclassified as discontinued operations and are shown on an after-tax basis.Revenues related to services performed on FFELP Loans accounted for 76 percent and 80 percent, respectively, of total segment revenues for the quarters ended March 31, 2014 and 2013.Operating Expenses — Business Services SegmentOperating expenses for our Business Services segment primarily include costs incurred to service our FFELP Loan portfolio, third-party servicing and asset recovery costs, and other operating costs. The increase in operating expenses of $11 million in the quarter ended March 31, 2014, respectively, compared with the year-ago period was primarily the result of an increase in our third-party servicing and asset recovery activities. This increase in activity resulted in a $26 million increase in relatedadvertising revenue over the same period.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.FFELP Loans SegmentThe following table includes “Core Earnings” results for our FFELP Loans segment. Three Months Ended
March 31, % Increase (Decrease) 2014 2013 2013 vs. 2012 $ 523 $ 599 (13 )% 1 2 (50 ) 524 601 (13 ) 293 340 (14 ) 231 261 (11 ) 10 16 (38 ) 221 245 (10 ) — 55 (100 ) 11 23 (52 ) 11 78 (86 ) 125 157 (20 ) — — — 125 157 (20 ) 107 166 (36 ) 41 62 (34 ) $ 66 $ 104 (37 )% “Core Earnings” from the FFELP Loans segment were $66 million in the first quarter of 2014, compared with $104 million in the year-ago quarter. The decrease is primarily due to the $55 million gain from the sale of the Residual Interest in a FFELP Loan securitization trust in the year-ago quarter, as well as a reduction in net interest income due to the decrease in FFELP Loans outstanding. Key financial measures include:Net interest margin of .87 percent in the first quarter of 2014 compared with .83 percent in the year-ago quarter (see “FFELP Loan Net Interest Margin” for a further discussion of this increase).The provision for loan losses of $10 million in the first quarter of 2014 decreased from $16 million in the year-ago quarter.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.FFELP Loan Net Interest MarginThe following table includes the “Core Earnings” basis FFELP Loan net interest margin along with reconciliation to the GAAP-basis FFELP Loan net interest margin. Three Months Ended
March 31, 2014 2013 2.56 % 2.61 % .29 .25 .05 .06 (.65 ) (.68 ) (.11 ) (.11 ) (.10 ) (.14 ) 2.04 1.99 (1.09 ) (1.06 ) .95 .93 (.08 ) (.10 ) 0.87 % .83 % .87 % .83 % .44 .40 1.31 % 1.23 % (1)The average balances of our FFELP “Core Earnings” basis interest-earning assets for the respective periods are: Three Months Ended
March 31, 2014 2013 $ 103,734 $ 121,855 3,895 5,555 $ 107,629 $ 127,410 (2)Represents the reclassification of periodic interest accruals on derivative contracts from net interest income to other income, the reversal of the amortization of premiums received on Floor Income Contracts, and other derivative accounting adjustments. For further discussion of these adjustments, see section titled “‘Core Earnings’ — Definition and Limitations — Difference between ‘Core Earnings’ and GAAP” above.As of March 31, 2014, our FFELP Loan portfolio totaled approximately $103 billion, comprised of $39 billion of FFELP Stafford loans and $64 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios is 4.9 years and 9.2 years, respectively, assuming a Constant Prepayment Rate (“CPR”) of 4 percent and 3 percent, respectively.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Floor IncomeThe following table analyzes the ability of the FFELP Loans in our portfolio to earn Floor Income after March 31, 2014 and 2013, based on interest rates as of those dates. March 31, 2014 March 31, 2013 Fixed
Borrower
Rate Variable
Borrower
Rate Total Fixed
Borrower
Rate Variable
Borrower
Rate Total $ 88.4 $ 12.9 $ 101.3 $ 102.9 $ 14.6 $ 117.5 (44.7 ) (.9 ) (45.6 ) (52.9 ) (1.0 ) (53.9 ) (27.2 ) — (27.2 ) (31.7 ) — (31.7 ) $ 16.5 $ 12.0 $ 28.5 $ 18.3 $ 13.6 $ 31.9 $ 16.4 $ 1.6 $ 18.0 $ 18.3 $ 1.9 $ 20.2 We have sold Floor Income Contracts to hedge the potential Floor Income from specifically identified pools of FFELP Consolidation Loans that are eligible to earn Floor Income.The following table presents a projection of the average balance of FFELP Consolidation Loans for which Fixed Rate Floor Income has been economically hedged through Floor Income Contracts for the period April 1, 2014 to June 30, 2016. The hedges related to these loans do not qualify as accounting hedges. April 1, 2014 to
December 31, 2014 2015 2016 $ 27.2 $ 27.2 $ 10.4 (1)The remaining projected unamortized net Floor premium balance (pre-tax) related to Floor Income Contracts as of December 31, 2014, 2015 and 2016 is $314 million, $77 million and $0 million, respectively.FFELP Loan Provision for Loan Losses and Charge-OffsThe following table summarizes the total FFELP Loan provision for loan losses and charge-offs for the three months March 31, 2014 and 2013. Three Months Ended
March 31, 2014 2013 $ 10 $ 16 22 22 Gains on Sales of Loans and InvestmentsThe decrease in gains on sales of loans and investments for the quarter ended March 31, 2014 from the year-ago period was the result of a $55 million gain from the sale of the Residual Interest in a FFELP Loan securitization trust in the first-quarter 2013. We will continue to service the student loans in the trusts that were sold under existing agreements. The first-quarter 2013 sale removed securitization trust assets of $3.8 billion and related liabilities of $3.7 billion from the balance sheet.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Operating Expenses — FFELP LoansOperating expenses for our FFELP Loans segment primarily include the contractual rates we pay to service loans in term asset-backed securitization trusts or a similar rate if a loan is not in a term financing facility (which is presented as an intercompany charge from the Business Services segment who services the loans), the fees we pay for third-party loan servicing and costs incurred to acquire loans. The intercompany revenue charged by the Business Services segment and included in those amounts was $118 million and $149 million for the quarters ended March 31, 2014 and 2013, respectively. These amounts exceed the actual cost of servicing the loans. Operating expenses were 49 basis points and 52 basis points of average FFELP Loans in the quarters ended March 31, 2014 and 2013, respectively. The decrease in operating expenses of $32 million in the quarter ended March 31, 2014 compared with the year-ago period was primarily the result of the reduction in the average outstanding balance of our FFELP Loan portfolio.Other SegmentThe following table includes “Core Earnings” results of our Other segment. Three Months Ended
March 31, % Increase (Decrease) 2014 2013 2014 vs. 2013 $ (17 ) $ (8 ) 113 % — — — — 29 (100 ) 3 — 100 3 29 (90 ) 105 3 3,400 40 35 14 32 27 19 72 62 16 177 65 172 26 10 160 203 75 171 (217 ) (54 ) 302 (83 ) (20 ) 315 $ (134 ) $ (34 ) 294 % Net Interest Loss after Provision for Loan LossesNet interest loss after provision for loan losses includes net interest income related to our corporate liquidity portfolio as well as net interest income and provision expense related to our mortgage and consumer loan portfolios.Gains on Debt RepurchasesWe repurchased $0 million and $927 million face amount of our debt for the quarters ended March 31, 2014 and 2013, respectively. Debt repurchase activity will fluctuate based on market fundamentals and our liability management strategy.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Direct Operating Expenses — Other SegmentThe primary driver of the increase in direct operating expenses was $103 million of additional reserve recorded in 2014 for pending regulatory matters (see Part II. “Other Information,” Item 1. “Legal Proceedings — Regulatory Matters”).Overhead — Other SegmentCorporate 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 technology costs are related to infrastructure and operations. The increase in overhead from fourth-quarter 2013 was primarily the result of $10 million of seasonal stock-based compensation expense.Restructuring and Other Reorganization Expenses — Other SegmentRestructuring and other reorganization expenses for the quarter ended March 31, 2014 were $26 million compared with $10 million in the year-ago quarter. For the quarter ended March 31, 2014, these consisted of expenses primarily related to third-party costs incurred in connection with the Company’s previously announced plan to separate its existing organization into two, distinct publicly traded companies.Financial ConditionThis section provides additional information regarding the changes in our loan portfolio assets and related liabilities as well as credit quality and performance indicators related to our loan portfolio.—- GAAPThe information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014. Three Months Ended March 31, 2014 2013 Balance Rate Balance Rate $ 103,734 2.53 % $ 121,855 2.45 % 38,945 6.70 38,406 6.58 98 9.69 133 9.36 8,080 .17 9,878 .19 150,857 3.48 % 170,272 3.25 % 4,124 4,567 $ 154,981 $ 174,839 $ 13,258 .82 % $ 19,070 1.03 % 133,116 1.53 146,977 1.44 146,374 1.47 % 166,047 1.39 % 2,982 3,674 5,625 5,118 $ 154,981 $ 174,839 2.06 % 1.89 % 2014 2013 2014 2013 (Dollars in thousands) Average Assets Private Education Loans $ 7,350,825 8.23 % $ 5,533,745 8.20 % $ 7,382,565 8.19 % $ 5,863,633 8.13 % FFELP Loans 1,374,291 3.33 1,087,954 3.32 1,387,358 3.27 1,064,303 3.30 Taxable securities 376,199 2.38 653,098 3.44 248,642 2.58 628,471 3.71 Cash and other short-term investments 1,777,683 0.25 1,496,399 0.29 1,549,076 0.26 1,244,492 0.30 Total interest-earning assets 10,878,998 6.10 % 8,771,196 5.89 % 10,567,641 6.25 % 8,800,899 6.12 % Non-interest-earning assets 534,109 505,532 484,608 540,463 Total assets $ 11,413,107 $ 9,276,728 $ 11,052,249 $ 9,341,362 Average Liabilities and Equity Brokered deposits $ 5,319,031 0.95 % $ 4,873,915 1.25 % $ 5,543,419 1.03 % $ 4,989,395 1.28 % Retail and other deposits 3,121,003 0.92 2,568,062 0.97 3,098,722 0.92 2,531,003 0.99 Other interest-bearing liabilities 559,718 0.92 129,190 0.14 294,905 0.92 171,392 0.09 Total interest-bearing liabilities 8,999,752 0.94 % 7,571,167 1.14 % 8,937,046 0.99 % 7,691,790 1.16 % Non-interest-bearing liabilities 769,879 546,456 702,382 520,289 Equity 1,643,476 1,159,105 1,412,821 1,129,283 Total liabilities and equity $ 11,413,107 $ 9,276,728 $ 11,052,249 $ 9,341,362 Net interest margin 5.08 % 4.64 % 5.18 % 4.82 % —- GAAP Increase
(Decrease) Change Due To(1) Rate Volume $ (70 ) $ 92 $ (162 ) (41 ) 29 (70 ) $ (29 ) $ 66 $ (95 ) (Dollars in thousands) Volume Three Months Ended June 30, 2014 vs. 2013 Interest income $ 36,685 $ 9,902 $ 26,778 Interest expense (437 ) (4,293 ) 3,856 Net interest income $ 37,122 $ 14,195 $ 22,927 Six Months Ended June 30, 2014 vs. 2013 Interest income $ 60,267 $ 14,332 $ 45,928 Interest expense (392 ) (6,420 ) 6,028 Net interest income $ 60,659 $ 20,752 $ 39,097 The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.our StudentOur Education Loan PortfolioStudentEducation Loan Balances, net December 31, 2013 (Dollars in thousands) Total Portfolio Total education loan portfolio: $ 2,199,238 $ 1,689 $ 2,200,927 $ 2,191,445 $ 2,477 $ 2,193,922 5,283,556 1,358,418 6,641,974 4,371,897 1,424,495 5,796,392 Total, gross 7,482,794 1,360,107 8,842,901 6,563,342 1,426,972 7,990,314 Unamortized premium/(discount) 7,746 3,851 11,597 5,063 4,081 9,144 Allowance for loan losses (54,315 ) (6,212 ) (60,527 ) (61,763 ) (6,318 ) (68,081 ) Total education loan portfolio $ 7,436,225 $ 1,357,746 $ 8,793,971 $ 6,506,642 $ 1,424,735 $ 7,931,377 % of total 85 % 15 % 100 % 82 % 18 % 100 % March 31, 2014 FFELP
Stafford and
Other FFELP
Consolidation
Loans Total
FFELP
Loans Private
Education
Loans Total
Portfolio $ 682 $ — $ 682 $ 3,001 $ 3,683 37,886 63,159 101,045 36,599 137,644 38,568 63,159 101,727 39,600 141,327 589 426 1,015 (681 ) 334 — — — 1,297 1,297 (69 ) (38 ) (107 ) (2,059 ) (2,166 ) $ 39,088 $ 63,547 $ 102,635 $ 38,157 $ 140,792 38 % 62 % 100 % 28 % 45 % 73 % 27 % 100 % December 31, 2013 FFELP
Stafford and
Other FFELP
Consolidation
Loans Total
FFELP
Loans Private
Education
Loans Total
Portfolio $ 742 $ — $ 742 $ 2,629 $ 3,371 38,752 64,178 102,930 36,371 139,301 39,494 64,178 103,672 39,000 142,672 602 433 1,035 (704 ) 331 — — — 1,313 1,313 (75 ) (44 ) (119 ) (2,097 ) (2,216 ) $ 40,021 $ 64,567 $ 104,588 $ 37,512 $ 142,100 38 % 62 % 100 % 28 % 46 % 74 % 26 % 100 % (1) (1) and are not yet required to make payments on the loan.(2)Includes loans in deferment or forbearance.The information and financial reports containedare not yet required to make payments on the loan.this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.deferment or forbearance. Three Months Ended March 31, 2014 FFELP
Stafford and
Other FFELP
Consolidation
Loans Total
FFELP
Loans Private
Education
Loans Total
Portfolio $ 39,682 $ 64,052 $ 103,734 $ 38,945 $ 142,679 38 % 62 % 100 % 28 % 45 % 73 % 27 % 100 % Three Months Ended March 31, 2013 FFELP
Stafford and
Other FFELP
Consolidation
Loans Total
FFELP
Loans Private
Education
Loans Total
Portfolio $ 43,721 $ 78,134 $ 121,855 $ 38,406 $ 160,261 36 % 64 % 100 % 27 % 49 % 76 % 24 % 100 % (Dollars in thousands) Three Months Ended June 30, 2014 Three Months Ended June 30, 2013 Private Education Loans $ 7,350,825 84 % $ 5,533,745 84 % FFELP Loans 1,374,291 16 1,087,954 16 Total portfolio $ 8,725,116 100 % $ 6,621,699 100 % (Dollars in thousands) Six Months Ended June 30, 2014 Six Months Ended June 30, 2013 Private Education Loans $ 7,382,565 84 % $ 5,863,633 85 % FFELP Loans 1,387,358 16 1,064,303 15 Total portfolio $ 8,769,923 100 % $ 6,927,936 100 % Three Months Ended March 31, 2014 FFELP
Stafford and
Other FFELP
Consolidation
Loans Total
FFELP
Loans Total Private
Education
Loans Total
Portfolio $ 40,021 $ 64,567 $ 104,588 $ 37,512 $ 142,100 278 175 453 1,522 1,975 307 304 611 211 822 (404 ) (277 ) (681 ) (33 ) (714 ) — — — — — (1,114 ) (1,222 ) (2,336 ) (1,055 ) (3,391 ) $ 39,088 $ 63,547 $ 102,635 $ 38,157 $ 140,792 Three Months Ended March 31, 2013 FFELP
Stafford and
Other FFELP
Consolidation
Loans Total
FFELP
Loans Total Private
Education
Loans Total
Portfolio $ 44,289 $ 81,323 $ 125,612 $ 36,934 $ 162,546 101 53 154 1,405 1,559 295 313 608 200 808 (445 ) (275 ) (720 ) (24 ) (744 ) (72 ) (3,749 ) (3,821 ) — (3,821 ) (1,163 ) (1,475 ) (2,638 ) (1,050 ) (3,688 ) $ 43,005 $ 76,190 $ 119,195 $ 37,465 $ 156,660 (1)Includes $3.7 billion of student loans in connection with the sale of Residual Interests in FFELP Loan securitization trusts.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014. (Dollars in thousands) Beginning balance $ 7,208,356 $ 1,394,563 $ 8,602,919 $ 5,832,126 $ 1,077,836 $ 6,909,962 Acquisitions and originations 396,941 — 396,941 387,822 107,571 495,393 Capitalized interest and premium/discount amortization 25,440 10,393 35,833 17,896 9,977 27,873 Sales (74,952 ) (59 ) (75,011 ) (813,197 ) (50 ) (813,247 ) Repayments and other (119,560 ) (47,151 ) (166,711 ) (89,416 ) (35,545 ) (124,961 ) Ending balance $ 7,436,225 $ 1,357,746 $ 8,793,971 $ 5,335,231 $ 1,159,789 $ 6,495,020 (Dollars in thousands) Beginning balance $ 6,506,642 $ 1,424,735 $ 7,931,377 $ 5,447,700 $ 1,039,754 $ 6,487,454 Acquisitions and originations 1,913,926 7,470 1,921,396 1,789,446 159,171 1,948,617 Capitalized interest and premium/discount amortization 53,197 25,463 78,660 34,525 19,674 54,199 Sales (713,046 ) (7,654 ) (720,700 ) (1,677,853 ) (127 ) (1,677,980 ) Repayments and other (324,494 ) (92,268 ) (416,762 ) (258,587 ) (58,684 ) (317,271 ) Ending balance $ 7,436,225 $ 1,357,746 $ 8,793,971 $ 5,335,231 $ 1,159,788 $ 6,495,019 Three Months Ended March 31, 2014 2013 FFELP
Loans Private
Education
Loans Total
Portfolio FFELP
Loans Private
Education
Loans Total
Portfolio $ 119 $ 2,097 $ 2,216 $ 159 $ 2,171 $ 2,330 (22 ) (218 ) (240 ) (22 ) (232 ) (254 ) — — — (6 ) — (6 ) 10 175 185 16 225 241 — 5 5 — 6 6 $ 107 $ 2,059 $ 2,166 $ 147 $ 2,170 $ 2,317 $ — $ 9,241 $ 9,241 $ — $ 7,714 $ 7,714 2014 (Dollars in thousands) Beginning balance $ 71,453 $ 6,181 $ 77,634 $ 65,381 $ 4,199 $ 69,580 Less: Charge-offs — (654 ) (654 ) — (534 ) (534 ) Student loan sales (17,467 ) — (17,467 ) (12,546 ) — (12,546 ) Plus: Provision for loan losses 329 685 1,014 (1,966 ) 951 (1,015 ) Ending balance $ 54,315 $ 6,212 $ 60,527 $ 50,869 $ 4,616 $ 55,485 $ 4,508 $ — $ 4,508 $ — $ — $ — 2014 (Dollars in thousands) Beginning balance $ 61,763 $ 6,318 $ 68,081 $ 65,218 $ 3,971 $ 69,189 Less: Charge-offs — (1,297 ) (1,297 ) — (754 ) (754 ) Student loan sales (46,430 ) — (46,430 ) (32,627 ) — (32,627 ) Plus: Provision for loan losses 38,982 1,191 40,173 18,278 1,399 19,677 Ending balance $ 54,315 $ 6,212 $ 60,527 $ 50,869 $ 4,616 $ 55,485 $ 4,508 $ — $ 4,508 $ — $ — $ — Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.(2)Represents the 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.(3) Three Months Ended
March 31, 2014 2013 $ 372 $ 365 483 439 661 590 14 17 $ 1,530 $ 1,411 (Dollars in thousands) 2014 2013 2014 2013 $ 86,136 $ 85,183 $ 454,801 $ 447,181 106,781 103,347 580,954 536,249 153,147 142,091 807,383 725,621 Smart Option - principal and interest 213 347 921 544 Other 26,628 31,286 40,301 48,199 Total Private Education Loan originations $ 372,905 $ 362,254 $ 1,884,360 $ 1,757,794 “Consumer Lending Portfolio Performance — Private“Private Education Loan Repayment Options” for further discussion.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Consumer Lending Portfolio Performance Private Education Loan Delinquencies March 31, 2014 2013 Balance % Balance % $ 7,075 $ 6,434 1,216 1,101 29,156 93.1 % 29,069 92.2 % 655 2.1 731 2.3 430 1.4 491 1.6 1,068 3.4 1,242 3.9 31,309 100 % 31,533 100 % 39,600 39,068 (681 ) (772 ) 38,919 38,296 1,297 1,339 (2,059 ) (2,170 ) $ 38,157 $ 37,465 79.1 % 80.7 % 6.9 % 7.8 % �� 3.7 % 3.4 % 84.8 % 79.1 % 2014 2013 (Dollars in thousands) Balance % Balance % $ 3,017,257 $ 2,297,148 39,964 4,199 Loans in repayment and percentage of each status: Loans current 4,396,772 99.3 % 3,054,707 99.2 % 21,381 0.5 18,520 0.6 5,987 0.1 8,462 0.2 1,433 0.1 53 — Total Private Education Loans in repayment 4,425,573 100.0 % 3,081,742 100.0 % Total Private Education Loans, gross 7,482,794 5,383,089 Private Education Loan unamortized discount 7,746 3,011 Total Private Education Loans 7,490,540 5,386,100 Private Education Loan allowance for losses (54,315 ) (50,869 ) Private Education Loans, net $ 7,436,225 $ 5,335,231 Percentage of Private Education Loans in repayment 59.1 % 57.2 % Delinquencies as a percentage of Private Education Loans in repayment 0.7 % 0.8 % Loans in forbearance as a percentage of loans in repayment and forbearance 0.9 % 0.1 % The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014. Three Months Ended
March 31, 2014 2013 $ 2,097 $ 2,171 175 225 (218 ) (232 ) 5 6 $ 2,059 $ 2,170 2.8 % 3.0 % 2.7 % 2.9 % 5.0 % 5.4 % 6.6 % 6.9 % 2.3 2.3 $ 40,897 $ 40,407 $ 31,416 $ 31,645 $ 31,309 $ 31,533 (Dollars in thousands) 2014 2013 2014 2013 Allowance at beginning of period $ 71,453 $ 65,381 $ 61,763 $ 65,218 Provision for Private Education Loan losses 329 (1,966 ) 38,982 18,278 Discount on delinquent student loan sales (17,467 ) (12,546 ) (46,430 ) (32,627 ) Allowance at end of period $ 54,315 $ 50,869 $ 54,315 $ 50,869 Allowance as a percentage of ending total loans 0.73 % 0.94 % 0.73 % 0.94 % Allowance as a percentage of ending loans in repayment 1.23 % 1.65 % 1.23 % 1.65 % Delinquencies as a percentage of loans in repayment 0.7 % 0.8 % 0.7 % 0.8 % Loans in forbearances as a percentage of loans in repayment and forbearance 0.9 % 0.1 % 0.9 % 0.1 % Percentage of loans with a cosigner 89.7 % 89.2 % 89.7 % 89.2 % Average FICO at origination 745 745 745 745 $ 7,482,794 $ 5,383,128 $ 7,482,794 $ 5,383,128 Average loans in repayment $ 4,322,356 $ 3,243,513 $ 4,354,878 $ 3,670,291 Ending loans in repayment $ 4,425,573 $ 3,081,929 $ 4,425,573 $ 3,081,929 Charge-offs are reported net of expected recoveries. The expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.(2)Represents the 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.(3)Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.The following table provides the detail for our traditional and non-traditional Private Education Loans for the quarters ended. March 31, 2014 March 31, 2013 Traditional Non-
Traditional Total Traditional Non-
Traditional Total $ 37,617 $ 3,280 $ 40,897 $ 36,746 $ 3,661 $ 40,407 29,116 2,193 31,309 29,022 2,511 31,533 1,583 476 2,059 1,643 527 2,170 2.3 % 9.5 % 2.8 % 2.5 % 8.7 % 3.0 % 4.2 % 14.5 % 5.0 % 4.5 % 14.4 % 5.4 % 5.4 % 21.7 % 6.6 % 5.7 % 21.0 % 6.9 % 2.3 2.3 2.3 2.3 2.4 2.3 6.0 % 18.3 % 6.9 % 6.7 % 20.5 % 7.8 % 2.9 % 10.0 % 3.4 % 3.3 % 11.2 % 3.9 % 3.5 % 6.3 % 3.7 % 3.2 % 5.1 % 3.4 % $ 528 $ 11 $ 539 $ 553 $ 23 $ 576 71 % 31 % 68 % 69 % 30 % 66 % 730 625 723 728 624 720 (1)Ending total loans represent gross Private Education Loans, plus the receivable for partially charged-off loans.(2) Ending total loans represents gross Private Education Loans. Receivable for Partially Charged-Off Private Education LoansAt 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 off. We refer to this remaining loan balance as the “receivable for partially charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for loan losses with an offsetting reduction in the receivable for partially charged-off Private Education Loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. Private Education Loans which defaulted between 2008 and 2013 for which we have previously charged off estimated losses have, to varying degrees, not met our post-default recovery expectations to date andThe information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.may continue not to do so. According to our policy, we have been charging off these periodic shortfalls in expected recoveries against our allowance for Private Education Loan losses and the related receivable for partially charged-off Private Education Loans and we will continue to do so. There was $334 million and $209 million in the allowance for Private Education Loan losses at March 31, 2014 and 2013, respectively, providing for possible additional future charge-offs related to the receivable for partially charged-off Private Education Loans (see “Consumer Lending Segment — Private Education Loan Provision for Loan Losses and Charge-Offs” for a further discussion).The following table summarizes the activity in the receivable for partially charged-off Private Education Loans. Three Months Ended
March 31, 2014 2013 $ 1,313 $ 1,347 71 78 (61 ) (68 ) (26 ) (18 ) 1,297 1,339 (334 ) (209 ) $ 963 $ 1,130 (1)Represents the difference between the defaulted loan balance and our estimate of the amount to be collected in the future.(2)Current period cash recoveries.(3)Represents the current period recovery shortfall — the difference between what was expected to be collected and what was actually collected. These amounts are included in total charge-offs as reported in the “Allowance for Private Education Loan Losses” table.(4)The allowance for estimated recovery shortfalls of the receivable for partially charged-off Private Education Loans is a component of the $2.1 billion and $2.2 billion overall allowance for Private Education Loan losses as of March 31, 2014 and 2013, respectively.RecoveryCollection Toolrecoverycollection of the loan. Forbearance as a recoverycollection tool is used most effectively when applied based on a customer’s unique situation, including historical information and judgments. We leverage updated customer information and other decision support tools to best determine who will be granted forbearance based on our expectations as to a customer’s ability and willingness to repay their obligation. This strategy is aimed at mitigating the overall risk of the portfolio as well as encouraging cash resolution of delinquent loans.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.table below reflects the historical effectiveness of using forbearance. Our experience has shown that three years after being granted forbearance for the first time, 66 percent of the loans are current, paid in full, or receiving an in-school grace or deferment, and 20 percent have defaulted. Thehistoric default experience associated withon loans which utilizeput into forbearance that The number of loans in a forbearance status as a percentage of loans in repayment and forbearance increased to 3.7 percent in the first quarter of 2014 compared with 3.4 percent in the year-ago quarter. As of March 31, 2014, one percent of loans in current status were delinquent as of the end of the prior month, but were granted a forbearance that made them current as of March 31, 2014 (customers made payments on approximately 34 percent of these loans as a prerequisite to being granted forbearance). Status distribution
36 months after
being granted
forbearance
for the first time Status distribution
36 months after
entering repayment
(all loans) Status distribution
36 months after
entering repayment for
loans never entering
forbearance 9.8 % 9.1 % 5.5 % 51.2 59.9 67.7 3.1 2.0 .4 1.9 1.1 .1 4.7 2.7 .3 3.8 3.0 — 20.2 11.4 7.6 5.3 10.8 18.4 100 % 100 % 100 % that are delinquent greater than 90 days or that are in forbearance status decreases the longer the loans have been in active repayment status.March 31,June 30, 2014, loans in forbearance status as a percentage of loans in repayment and forbearance were 7.20.9 percent for loans that have been in active repayment status for less than 25 months. The percentage drops to 1.3 percent for loans that have been in active repayment status for more than 48 months. Approximately 6380 percent of our Private Education Loans in forbearance status has been in active repayment status less than 25 months.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.At March 31, 2014, loans in repayment that are delinquent greater than 90 days as a percentage of loans in repayment were 5.0 percent for loans that have been in active repayment status for less than 25 months. The percentage drops to 1.9 percent for loans that have been in active repayment status for more than 48 months. Approximately 46 percent of our Private Education Loans in repayment that are delinquent greater than 90 days status has been in active repayment status less than 25 months. Monthly Scheduled Payments Due Not Yet in
Repayment 0 to 12 13 to 24 25 to 36 37 to 48 More than 48 Total $ — $ — $ — $ — $ — $ 7,075 $ 7,075 559 208 177 121 151 — 1,216 4,271 4,580 4,611 4,609 11,085 — 29,156 147 134 121 95 158 — 655 98 94 79 62 97 — 430 230 266 198 151 223 — 1,068 $ 5,305 $ 5,282 $ 5,186 $ 5,038 $ 11,714 $ 7,075 39,600 (681 ) 1,297 (2,059 ) $ 38,157 10.5 % 3.9 % 3.4 % 2.4 % 1.3 % — % 3.7 % 4.8 % 5.2 % 4.0 % 3.1 % 1.9 % — % 3.4 % Monthly Scheduled Payments Due Not Yet in
Repayment 0 to 12 13 to 24 25 to 36 37 to 48 More than 48 Total $ — $ — $ — $ — $ — $ 6,434 $ 6,434 587 184 145 79 106 — 1,101 5,645 5,156 5,345 4,505 8,418 — 29,069 252 139 132 85 123 — 731 189 95 82 54 71 — 491 513 260 204 115 150 — 1,242 $ 7,186 $ 5,834 $ 5,908 $ 4,838 $ 8,868 $ 6,434 39,068 (772 ) 1,339 (2,170 ) $ 37,465 8.2 % 3.2 % 2.5 % 1.6 % 1.2 % — % 3.4 % 7.8 % 4.6 % 3.5 % 2.4 % 1.7 % — % 3.9 % The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.The table below stratifies the portfolio of Private Education Loans in forbearance by the cumulative number of months the customer has used forbearance as of the dates indicated. March 31, 2014 March 31, 2013 Forbearance
Balance % of
Total Forbearance
Balance % of
Total $ 913 75 % $ 867 79 % 200 16 178 16 103 9 56 5 $ 1,216 100 % $ 1,101 100 % Monthly Scheduled Payments Due Total 0 to 12 13 to 24 25 to 36 37 to 48 More than 48 Loans in-school/grace/deferment $ — $ — $ — $ — $ — $ 3,017 $ 3,017 Loans in forbearance 24 8 5 3 — — 40 Loans in repayment - current 2,425 1,050 505 378 39 — 4,397 Loans in repayment - delinquent 31-60 days 12 4 2 3 — — 21 Loans in repayment - delinquent 61-90 days 4 1 1 — 1 — 7 Loans in repayment - delinquent greater than 90 days 1 — — — — — 1 Total $ 2,466 $ 1,063 $ 513 $ 384 $ 40 $ 3,017 7,483 Unamortized discount 7 Allowance for loan losses (54 ) Total Private Education Loans, net $ 7,436 Loans in forbearance as a percentage of loans in repayment and forbearance 0.98 % 0.73 % 0.89 % 0.86 % 0.58 % — % — % Monthly Scheduled Payments Due Total 0 to 12 13 to 24 25 to 36 37 to 48 More than 48 Loans in-school/grace/deferment $ — $ — $ — $ — $ — $ 2,297 $ 2,297 Loans in forbearance 2 1 1 — — — 4 Loans in repayment - current 1,577 830 595 40 12 — 3,054 Loans in repayment - delinquent 31-60 days 10 4 4 — — — 18 Loans in repayment - delinquent 61-90 days 5 2 2 — — — 9 Loans in repayment - delinquent greater than 90 days — — — — — — — Total $ 1,594 $ 837 $ 602 $ 40 $ 12 $ 2,297 5,382 Unamortized discount 3 Allowance for loan losses (51 ) Total Private Education Loans, net $ 5,334 Loans in forbearance as a percentage of loans in repayment and forbearance 0.15 % 0.09 % 0.17 % 0.05 % 0.21 % — % — % March 31,June 30, 2014.
Other
Training Total $ 21,765 $ 8,385 $1,159 $ 31,309 26,660 11,735 1,205 39,600 Deferred(1)
$25/month (Dollars in thousands Smart Option Total $ in repayment $ 125,208 $ 4,283,202 $ 17,163 $ 4,425,573 $ in total $ 276,244 $ 7,189,239 $ 17,311 $ 7,482,794 Payment method by enrollment status: In-school/grace Repayment The graduated repayment program that is part of Signature and Other Loans includes an interest-only payment feature that may be selected at the option of the customer. Customers elect to participate in this program at the time they enter repayment following their grace period. This program is available to customers in repayment, after their grace period, who would like a temporary lower payment from the required principal and interest payment amount. Customers participating in this program pay monthly interest with no amortization of their principal balance for up to 48 payments after entering repayment (dependent on the loan product type). The maturity date of the loan is not extended when a customer participates in this program. As of March 31, 2014 and 2013, customers in repayment owing approximately $4.2 billion (13 percent of loans in repayment) and $6.1 billion (19 percent of loans in repayment), respectively, were enrolled in the interest-only program. Of these amounts, 9 percent and 10 percent were non-traditional loans as of March 31, 2014 and 2013, respectively.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014. Accrued Interest Receivable Total Greater Than
90 Days
Past Due Allowance for
Uncollectible
Interest $ 1,024 $ 40 $ 59 $ 1,023 $ 48 $ 66 $ 918 $ 48 $ 68 FFELP Loan Portfolio PerformanceFFELP Loan Delinquencies and ForbearanceThe table below presents our FFELP Loan delinquency trends. FFELP Loan Delinquencies March 31, 2014 2013 Balance % Balance % $ 13,016 $ 17,324 15,650 15,430 62,721 85.9 % 71,792 84.2 % 3,059 4.2 4,186 4.9 1,784 2.4 2,441 2.9 5,497 7.5 6,885 8.0 73,061 100 % 85,304 100 % 101,727 118,058 1,015 1,284 102,742 119,342 (107 ) (147 ) $ 102,635 $ 119,195 71.8 % 72.3 % 14.2 % 15.8 % 17.6 % 15.3 % (1)Loans for customers who may still be attending school or engaging in other permitted educational activities and are not required 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 extension of grace period during employment transition or who have temporarily ceased making payments due to hardship or other factors.(2)Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making payments due to hardship or other factors.(3)The period of delinquency is based on the number of days scheduled payments are contractually past due.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Allowance for FFELP Loan LossesThe following table summarizes changes in the allowance for FFELP Loan losses. Three Months Ended
March 31, 2014 2013 119 159 10 16 (22 ) (22 ) — (6 ) $ 107 $ 147
repayment (annualized) .12 % .10 % .10 % .09 % .10 % .12 % .15 % .17 % 1.2 1.6 $ 101,727 $ 118,058 $ 73,496 $ 87,256 $ 73,061 $ 85,304 The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014. (Dollars in thousands) Total Interest Receivable June 30, 2014 $ 434,847 $ 69 $ 3,633 December 31, 2013 $ 333,857 $ 1 $ 4,076 June 30, 2013 $ 280,267 $ 3 $ 3,490 The following “Liquidity and Capital Resources” discussion concentrates on our Consumer Lending and FFELP Loans segments. Our Business Services and Other segments require minimal capital and funding. risk as the potential inability to meet our obligations when they become due without incurring unacceptable losses, such as the ability to fund liability maturities and deposit withdrawals, orall creditworthy loans, invest in future asset growth and business operations at reasonable market rates, as well as the potential inability to fund Private Education Loan originations.meet customer demand for deposit withdrawals and maintain state and federal liquidity requirements. Our threefour primary liquidity needs include our ongoing ability to meet our funding needs forfund our businesses throughout market cycles including(including during periods of financial stress and to avoid any mismatch between the maturity of assets and liabilities,stress), our ongoing ability to fund originations of Private Education Loans, and servicing our indebtednessbank deposits and bank deposits.payment of required dividends on our preferred stock. To achieve these objectives we analyze and monitor our liquidity needs, maintain excess liquidity and plan to access diverse funding sources includingsources. This includes the issuance of unsecured debt, theexpected issuance of secured debt primarily through asset-backed securitizations and/or other financing facilities and through deposits at Sallie Maethe Bank.We define It is our policy to manage operations so that liquidity asneeds are fully satisfied through normal operations so that there is no need to make unplanned sales of assets under emergency conditions. The Bank will target an investment portfolio that meets its liquidity needs. Our liquidity management is guided by policies developed and monitored by our Asset and Liability Committee and approved by our Board of Directors. These policies take into account the volatility of cash flow forecasts, expected maturities, anticipated loan demand and high-quality liquid securities that we can usea variety of other factors to meet our funding requirements. Our primaryestablish minimum liquidity risk relates to our ability to fund new originations and raise replacement funding at a reasonable cost as our unsecured debt and bank deposits mature. In addition, we must continue to obtain funding at reasonable rates to meet our other business obligations and to continue to grow our business. guidelines.our credit ratings, as well as the overallperformance of the Company, the macroeconomic environment and the impact they have on the availability of funding sources in the marketplace. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter derivatives.Credit ratings and outlooks are opinions subject to ongoing review by the ratings agencies and may change from time to time based on our financial performance, industry dynamics and other factors. Other factors that influence our credit ratings include the ratings agencies’ assessment of the general operating environment, our relative positions in the markets in which we compete, reputation, liquidity position, the level and volatility of earnings, corporate governance and risk management policies, capital position and capital management practices. A negative change in our credit rating could have a negative effect on our liquidity because it would raise the cost and availability of funding and potentially require additional cash collateral or restrict cash currently held as collateral on existing borrowings or derivative collateral arrangements. It is our objective to improve our credit ratings so that we can continue to efficiently access the capital markets even in difficult economic and market conditions.We have unsecured debt that totaled, as of March 31, 2014, approximately $17.9 billion. This unsecured debt, after the Spin-Off, is the debt of a wholly-owned Navient subsidiary, Navient, LLC. On April 30, 2014, three rating agencies took negative ratings actions with regard to our long-term unsecured debt ratings. Fitch lowered its rating one notch to BB and changed its rating outlook to stable. Moody’s lowered its rating two notches to Ba3 and changed its rating outlook to stable. S&P lowered its rating two notches to BB and changed its rating outlook to stable. As a result of S&P’s action, all three credit rating agencies now rate our long-term unsecured debt at below investment grade. This could result in higher cost of funds and our senior unsecured debt to trade with greater volatility.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.The negative actions taken by the credit rating agencies were based on concerns that the Spin-Off will have a negative impact on the holders of Navient, LLC’s senior unsecured debt following the Spin-Off. According to their ratings reports, these concerns primarily focus on Navient’s loss of access to the earnings, cash flow, equity and potential market value of Sallie Mae Bank, the run-off of the FFELP Loan portfolio and the growth of other fee businesses to replace the earnings that are in run-off, refinancing risk, and the potential for new and more onerous rules and regulations.We expect to fund our ongoing liquidity needs, including the origination of new Private Education Loans and the repayment of $1.0 billion of senior unsecured debt (after the Spin-Off the senior unsecured debt became an obligation of Navient, LLC, a wholly-owned subsidiary of Navient) that matures in the next twelve months, primarily through our current cash and investment portfolio, the issuance of additional bank deposits and unsecured debt, the predictable operating cash flows provided by earnings, the repayment of principal on unencumbered student loan assets and the distributions from our securitization trusts (including servicing fees which are 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 $1.4 billion of cash at Sallie Mae Bank as of March 31, 2014 available to fund future originations. We no longer originate FFELP Loans and therefore no longer have liquidity requirements for new FFELP Loan originations, but will continue to opportunistically purchase FFELP Loan portfolios from others. March 31,
2014 December 31,
2013 $ 2,516 $ 3,015 1,361 2,284 $ 3,877 $ 5,299 $ 1,441 $ 1,259 1,395 1,425 $ 2,836 $ 2,684 The information and financial reports contained in this Quarterly Report(Dollars in thousands) June 30, 2014 December 31, 2013 Sources of primary liquidity: Unrestricted cash and liquid investments: Holding Company and other non-bank subsidiaries $ 8,664 $ 1,052 1,515,512 2,181,813 Available-for-sale investments 149,399 102,105 Total unrestricted cash and liquid investments $ 1,673,575 $ 2,284,970 Form 10-Q do not reflectrestrictions on the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014. Three Months Ended
March 31, 2014 2013 $ 2,180 $ 2,820 1,505 1,229 $ 3,685 $ 4,049 $ 1,670 $ 655 1,411 1,040 $ 3,081 $ 1,695 (Dollars in thousands) 2014 2014 Sources of primary liquidity: Unrestricted cash and liquid investments: Holding Company and other non-bank subsidiaries $ 50,467 $ 1,246 $ 4,858 $ 996 1,705,493 1,626,773 1,542,794 1,399,305 Available-for-sale investments 138,251 648,392 125,752 618,288 Total unrestricted cash and liquid investments $ 1,894,211 $ 2,276,411 $ 1,673,404 $ 2,018,589 (1) or acquire student loans at Sallie Maethe Bank. See discussion below on restrictions on Sallie Maethe Bank to pay dividends.Liquidity may also be available under secured credit facilities to the extent we have eligible collateralcapacity available. Maximum borrowing capacity under the FFELP Loan — other facilities will vary and be subject to each agreement’s borrowing conditions, including, among others, facility size, current usage and availabilityDecember 31, 2013. June 30, December 31, (Dollars in thousands) 2014 2013 Deposits - interest bearing $ 9,503,559 $ 9,239,554 Deposits - non-interest bearing 42,455 55,036 Total Sallie Mae Bank deposits 9,546,014 9,294,590 Less money market deposits with subsidiaries (655,805 ) (293,040 ) Total deposits $ 8,890,209 $ 9,001,550 qualifying collateral from unencumbered FFELP Loans. As of March 31,June 30, 2014 and December 31, 2013 consisted of non-maturity savings deposits, brokered and retail certificates of deposit and affiliated money market deposits, as discussed further below, and brokered money market deposits. These deposit products are serviced by third party providers. Placement fees associated with the maximum additional capacity under these facilities was $12.7 billionbrokered certificates of deposit are amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $2,472 thousand and $10.6 billion, respectively. For the three months ended March 31, 2014 and 2013, the average maximum additional capacity under these facilities was $12.3 billion and $10.8 billion, respectively.We also hold a number of other unencumbered assets, consisting primarily of Private Education Loans and other assets. Total unencumbered student loans, net, comprised $16.0 billion of our unencumbered assets of which $13.2 billion and $2.8 billion related to Private Education Loans, net and FFELP Loans, net, respectively. At March 31, 2014, we had a total of $24.2 billion of unencumbered assets inclusive of those described above as sources of primary liquidity and exclusive of goodwill and acquired intangible assets.Sallie Mae Bank’s ability to pay dividends is subject to the laws of Utah and the regulations of the FDIC. Generally, under Utah’s industrial bank laws and regulations as well as FDIC regulations, Sallie Mae Bank may pay dividends from its net profits without regulatory approval if, following the payment of the dividend, Sallie Mae Bank’s capital and surplus would not be impaired. While applicable Utah and FDIC regulations differ in approach as to determinations of impairment of capital and surplus, neither method of determination has historically required Sallie Mae Bank to obtain consent to the payment of dividends. Sallie Mae Bank paid no dividends$2,379,000 thousand for the three months ended MarchJune 30, 2014 and 2013, respectively and $5,222 thousand and $4,879 thousand for the six months ended June 30, 2014 and 2013, respectively. No fees were paid to third party brokers related to these certificates of deposit during the three and six months ended June 30, 2014 and 2013.2014. For2013 are summarized as follows: June 30, 2014 December 31, 2013 (Dollars in thousands) Amount Year-End Weighted Average Stated Rate Amount Year-End Weighted Average Stated Rate Money market $ 4,643,164 0.60 % $ 3,505,929 0.60 % Savings 727,350 0.81 743,742 0.81 NOW — — 18,214 0.12 Certificates of deposit 4,133,045 1.09 4,971,669 1.39 Deposits - interest bearing $ 9,503,559 $ 9,239,554 March 31,June 30, 2014 and 2013 Sallie Mae Bank paid dividends of $120 million.In addition to the foregoing, Sallie Mae Bank’s annual business plans are periodically reviewed by the FDIC. Recently the FDIC expressed its objection to the payment of dividends from Sallie Mae Bank to the Company prior to the completion of the Spin-Off. The basestotaled $66 thousand and $85 thousand, respectively and for the objection are unrelated tosix months ended June 30, 2014 and 2013 totaled $117 thousand and $192 thousand, respectively. The Company also maintains a money market deposit at the current capitalizationBank which totaled $368 million at June 30, 2014 and $0 at December 31, 2013.Sallie Mae Bank or the results of its operations. The FDIC has stated its preference that Sallie Mae Bank refrain from making periodic dividends to the Company for any reason other than the payment of the normal quarterly cash dividend paid by the Company to holders of its two series of preferred stock until all terms of the pending formal enforcement action with the FDIC are resolvedJune 30, 2014 and the Spin-Off has been completed. Sallie Mae Bank does not expect to declare such a dividend prior to the occurrence of the Spin-Off and not doingThe information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013 2012consisted of money market deposit accounts and 2011,are summarized as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.so will not materially or adversely affect the financial condition, operations or 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, our financial condition, operations, liquidity and ability to access capital markets could be materially and adversely affected.For further discussion of our various sources of liquidity, such as Sallie Mae Bank, our continued access to the ABS market, our asset-backed financing facilities, and our issuance of unsecured debt, see “Note 6 — Borrowings” in our 2013 Form 10-K.The following table reconciles encumbered and unencumbered assets and their net impact on total tangible equity. March 31,
2014 December 31,
2013 $ 4.6 $ 4.6 6.5 6.7 13.6 13.1 10.6 10.7 (27.3 ) (27.9 ) (0.8 ) (0.8 ) (2.0 ) (1.2 ) $ 5.2 $ 5.2 (1)Excludes goodwill and acquired intangible assets.(2)At March 31, 2014 and December 31, 2013, there were $640 million and $612 million, respectively, of net gains on derivatives hedging this debt in unencumbered assets, which partially offset these losses.First-Quarter 2014 Financing TransactionsThe following financing transactions have taken place in the first quarter of 2014:Unsecured Financings:March 27, 2014 — issued $850 million senior unsecured bonds.FFELP Loan Financings:January 28, 2014 — issued $994 million FFELP Loan ABS. June 30, December 31, (Dollars in thousands) 2014 2013 Money market $ 42,455 $ 55,036 Deposits - noninterest bearing $ 42,455 $ 55,036 March 27, 2014 — issued $992 million FFELP Loan ABS.Private Education Loan Financings:March 6, 2014 — issued $676 million Private Education Loan ABS.FFELP ABCP FacilityOn January 10, 2014, we closed on a new $8 billion asset-backed commercial paper (“ABCP”) facility that matures in January 2016. This facility replaces an existing $5.5 billion FFELP ABCP facility which was retired in January 2014. The additional $2.5 billion will be available for FFELP acquisition or refinancing. The maximum amount that can be financed steps down to $7 billion in March 2015. The new facility’s maturity date is January 8, 2016.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Shareholder distributionsIn the first-quarter 2014, we paid a common stock dividend of $0.15 per share.In the first-quarter 2014, we repurchased 8 million shares of common stock for $200 million, fully utilizing the Company’s 2013 share repurchase program authorization. Risks associated with our lending portfolio are discussed in the section titled “Financial Condition — Consumer Lending Portfolio Performance” and “— FFELP Loan Portfolio Performance.”exposure.exposure, as well as mortgage-backed securities issued by government agencies and government sponsored enterprises. Additionally, our investing activity is governed by Board of Director approvedBoard-approved limits on the amount that is allowed to be invested with any one issuer based on the credit rating of the issuer, further minimizing our counterparty exposure. Counterparty credit risk is considered when valuing investments and considering impairment.., or clearinghouses for OTC derivatives which eliminate counterparty risk. CSAs require a counterparty to post collateral if a potential default would expose the other party to a loss. All derivative contracts entered into by us and Sallie Maethe Bank are covered under such agreements and require collateral to be exchanged based on the net fair value of derivatives with each counterparty. Our securitization trusts require collateral in all cases if the counterparty’s credit rating is withdrawn or downgraded below a certain level. Additionally, securitizations involving foreign currency notes issued after November 2005 also require the counterparty to post collateral to the trust based on the fair value of the derivative, regardless of credit rating. The trusts are not required to post collateral to the counterparties. In all cases, our exposure is limited to the value of the derivative contracts in a gain position net of any collateral we are holding. We consider counterparties’ credit risk when determining the fair value of derivative positions on our exposure net of collateral. If our credit ratings are downgraded from current levels, we may be required to segregate additional unrestricted cash collateral into restricted accounts.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.March 31,June 30, 2014. SLM Corporation
and Sallie Mae Bank
Contracts Securitization Trust
Contracts $ 75 $ 947 51 % 30 % 44 % 0 % (1)Our securitization trusts had total net exposure of $770 million related to financial institutions located in France; of this amount, $577 million carries a guaranty from the French government. The total exposure relates to $5.1 billion notional amount of cross-currency interest rate swaps held in our securitization trusts, of which $3.3 billion notional amount carries a guaranty from the French government. Counterparties to the cross currency interest rate swaps are required to post collateral when their credit rating is withdrawn or downgraded below a certain level. As of March 31, 2014, no collateral was required to be posted and we are not holding any collateral related to these contracts. Adjustments are made to our derivative valuations for counterparty credit risk. The adjustments made at March 31, 2014 related to derivatives with French financial institutions (including those that carry a guaranty from the French government) decreased the derivative asset value by $57 million. Credit risks for all derivative counterparties are assessed internally on a continual basis.(Dollars in thousands) Exposure, net of collateral $ 2,256 Percent of exposure to counterparties with credit ratings below S&P AA- or Moody’s Aa3 8 % Percent of exposure to counterparties with credit ratings below S&P A- or Moody’s Baa 8 % Core Earnings” Basis Borrowingstables presentamounts and ratios are based upon the ending balancesBank's assets. Actual Well Capitalized Regulatory Requirements (Dollars in thousands) Amount Ratio Amount Ratio As of June 30, 2014: Tier I Capital (to Average Assets) $ 1,291,390 11.6 % $ 554,956 > 5.0 % Tier I Capital (to Risk Weighted Assets) $ 1,291,390 15.2 % $ 509,071 > 6.0 % Total Capital (to Risk Weighted Assets) $ 1,351,917 15.9 % $ 848,451 > 10.0 % As of December 31, 2013: Tier I Capital (to Average Assets) $ 1,221,416 11.7 % $ 521,973 > 5.0 % Tier I Capital (to Risk Weighted Assets) $ 1,221,416 16.4 % $ 446,860 > 6.0 % Total Capital (to Risk Weighted Assets) $ 1,289,497 17.3 % $ 745,374 > 10.0 % “Core Earnings” basis borrowings at March 31,regulators, the UDFI and the FDIC, to comply with mandated capital ratios. We intend to maintain levels of capital that significantly exceed the levels of capital necessary to be considered “well capitalized” by the FDIC. The Company is a source of strength for the Bank and will provide additional capital if necessary. The Board of Directors and management evaluated the anticipated change in the Bank’s ownership structure, the quality of assets, the stability of earnings, and the adequacy of the Allowance for Loan Losses and believe that current capital levels can be maintained throughout 2014. As of June 30, 2014, the Bank held total Risk-Based Capital of $1.4 billion or 15.9 percent. We expect significant asset growth and are a new stand-alone bank as a result of the Spin-Off. We do not plan to pay a dividend or or authorize any publicly announced share repurchase program in 2014 or 2015. The Bank will reinvest excess capital in its Private Education Loan business.31, 2013, requires that management begin monitoring the new capital standards ahead of their implementation date of January 2015. Under the new guidelines, well-capitalized institutions will be required to maintain a minimum Tier 1 Leverage ratio of 5 percent, a minimum Tier 1 common equity risk-based capital ratio of 6.5 percent, a minimum Tier 1 risk-based capital of 8 percent and average balancesminimum total risk-based capital of 10 percent. In addition, a capital conservation buffer will be phased in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625 percent of risk weighted assets for 2016, 1.25 percent for 2017, 1.875 percent for 2018 and average interest rates2.5 percent for 2019 and beyond, resulting in the following minimum ratios beginning in 2019: a Tier 1 common equity risk-based capital ratio of our “Core Earnings” basis borrowingsa minimum 7.0 percent, a Tier 1 capital ratio of a minimum 8.5 percent and a total risk-based capital ratio of a minimum 10.5 percent. Institutions that do not maintain the capital conservation buffer could face restrictions on dividend payments, share repurchases and the payment of discretionary bonuses.March 31,June 30, 2014 and 2013. The average interest rates include derivatives that are economically hedging2013 or for the underlying debt but do not qualify for hedge accounting treatment. (See “‘Core Earnings’ — Definition and Limitations — Differences between ‘Core Earnings’ and GAAP — Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities” of this Item 2).Ending Balances March 31, 2014 December 31, 2013 Short
Term Long
Term Total Short
Term Long
Term Total $ 1,046 $ 16,836 $ 17,882 $ 2,213 $ 16,056 $ 18,269 5,964 2,755 8,719 6,133 2,807 8,940 684 — 684 691 — 691 7,694 19,591 27,285 9,037 18,863 27,900 — 90,608 90,608 — 90,756 90,756 — 18,861 18,861 — 18,835 18,835 3,919 4,400 8,319 4,715 5,311 10,026 — 597 597 — 843 843 3,919 114,466 118,385 4,715 115,745 120,460 11,613 134,057 145,670 13,752 134,608 148,360 13 2,120 2,133 43 2,040 2,083 $ 11,626 $ 136,177 $ 147,803 $ 13,795 $ 136,648 $ 150,443 (1)“Other” primarily consists of the obligation to return cash collateral held related to derivative exposures.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on Aprilsix months ended June 30, 2014. Carved out audited consolidated financial statementsFor the six months ended June 30, 2013, the Bank paid dividends of $120 million. For the foreseeable future, we expect the Bank to pay dividends to the Company only in amounts sufficient to provide for regularly scheduled dividends payable on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Secured borrowings comprised 81 percentSeries A and 81 percentSeries B Preferred Stock.“Core Earnings” basis debt outstandingcontractual principal obligations associated with long-term bank deposits at March 31, 2014 and December 31, 2013, respectively.Average Balances Three Months Ended March 31, 2014 2013 Average
Balance Average
Rate Average
Balance Average
Rate $ 17,637 3.63 % $ 18,324 3.17 % 8,921 1.03 7,552 1.22 729 .12 1,396 .22 27,287 2.69 27,272 2.48 90,391 .99 102,532 .97 18,664 2.02 19,712 2.06 9,264 .94 15,612 1.02 768 1.30 919 1.74 119,087 1.15 138,775 1.13 $ 146,374 1.44 % $ 166,047 1.35 % $ 146,374 1.44 % $ 166,047 1.35 % — .03 — .04 $ 146,374 1.47 % $ 166,047 1.39 % (1)“Other” primarily consists of the obligation to return cash collateral held related to derivative exposure. June 30, (Dollars in thousands) 2014 One year or less $ 948,769 One to 3 years 1,790,342 3 to 5 years 963,536 Over 5 years — Total contractual cash obligations $ 3,702,647 A discussionThe preparation of ourthese financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. Actual results may differ from these estimates under varying assumptions or conditions. On a quarterly basis, management evaluates its estimates, particularly those that include the most difficult, subjective or complex judgments and are often about matters that are inherently uncertain. The most significant judgments, estimates and assumptions relate to the following critical accounting policies which includethat are discussed in more detail below.premiumon our Private Education Loan non-TDR portfolio, we estimate the principal amount of loans that will default over the next year (one year being the expected period between a loss event and discount amortizationdefault) and how much we expect to recover over the same one year period related to the defaulted amount. Expected defaults less our expected recoveries equal the allowance related to this portfolio. Our historical experience indicates that, on average, the time between the date that a customer experiences a default causing event (i.e., the loss trigger event) and the date that we charge off the unrecoverable portion of that loan is one year.measurement, transfersmeasurements, including those related to credit and liquidity risk, are as follows:1. 2. financial assets and the VIE consolidation model,our use of fair values on our results of operations, see Note 10, “Fair Value Measurements.”goodwillqualifies for hedge accounting and intangible assets can(2) determining the fair value of certain derivatives and hedged items. To qualify for hedge accounting a derivative must be foundconcluded to be a highly effective hedge upon designation and on an ongoing basis. There are no “bright line” tests on what is considered a highly effective hedge. We use a historical regression analysis to prove ongoing and prospective hedge effectiveness. See the previous discussion in the section titled “Critical Accounting Policies and Estimates - Fair Value Measurement” for significant judgments related to the valuation of derivatives. Although some of our 2013 Form 10-K. There were no significant changesvaluations are more judgmental than others, we compare the fair values of our derivatives that we calculate to these critical accounting policies during the first three months of 2014.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statementsthose provided by our counterparties on a stand-alone basis for each of the three years ended December 31, 2013, 2012monthly basis. We view this as a critical control which helps validate these judgments. Any significant differences with our counterparties are identified and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Item 3. Quantitative and Qualitative Disclosures about Market Risk limitmanage and control interest rate risk, thereby reducing our exposure to fluctuations in interest rates and achieving consistent and acceptable levels of profit in any rate environment, and sustainable growth in net interest income over the long term. We evaluate and monitor interest rate risk through two primary methods:short-term movementshypothetical changes in interest rates on net interest income;resultsasset liability management system. The Bank is primary source of operationsinterest rate risk within the Company. The majority of the Bank’s assets are priced off of 1-month LIBOR. Therefore, 1-month LIBOR is considered the core rate in our interest rate risk analyses with other interest rate changes are correlated to this rate through a detailed statistical analysis. In addition, all rates have floors which indicate how low each specific rate is likely to go. Rates are adjusted up or down via a set of scenarios that includes both shocks and financial position. ramps. Shocks represent an immediate and sustained change in 1-month LIBOR plus the resulting changes in other indexes correlated accordingly. Ramps represent a linear increase in 1-month LIBOR over the course of 12 months plus the resulting changes in other indexes correlated accordingly.1224 months and the potential effect on fair values of balance sheet assets and liabilities at March 31,June 30, 2014 and December 31, 2013, based upon a sensitivity analysis performed by management assuming a hypothetical increase in market interest rates of 100 basis points and 300 basis points while funding spreads remain constant. Additionally,constant, as it relates to the effect on earnings,well as a sensitivity analysis was performed assuming the funding index increases 25hypothetical 100 basis points while holding the asset index constant, if the funding index is different than the asset index.point decrease in market interest rates. The earnings sensitivity is applied only to financial assets and liabilities, including hedging instruments that existed at the balance sheet date, and does not take into account new assets, liabilities or hedging instruments that may arise in 2014. As of March 31, 2014 As of March 31, 2013 Impact on Annual Earnings If: Impact on Annual Earnings If: Interest Rates Funding Indices Interest Rates Funding Indices Increase
100 Basis
Points Increase
300 Basis
Points Increase
25 Basis
Points(1) Increase
100 Basis
Points Increase
300 Basis
Points Increase
25 Basis
Points(1) $ (11 ) $ 37 $ (225 ) $ (32 ) $ (17 ) $ (281 ) 214 331 1 368 593 (2 ) $ 203 $ 368 $ (224 ) $ 336 $ 576 $ (283 ) $ .47 $ .85 $ (.51 ) $ .73 $ 1.26 $ (.62 ) (1)If an asset is not funded with the same index/frequency reset of the asset then it is assumed the funding index increases 25 basis points while holding the asset index constant.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014. At March 31, 2014 Interest Rates: Change from
Increase of
100 Basis
Points Change from
Increase of
300 Basis
Points Fair Value $ % $ % $ 103,058 $ (565 ) (1 )% $ (1,130 ) (1 )% 38,862 — — — — 8,323 — — (1 ) — 7,357 (270 ) (4 ) (452 ) (6 )% $ 157,600 $ (835 ) (1 )% $ (1,583 ) (1 )% $ 145,823 $ (860 ) (1 )% $ (2,411 ) (2 )% 3,071 177 6 1,077 35 $ 148,894 $ (683 ) — % $ (1,334 ) (1 )% At December 31, 2013 Fair Value Interest Rates: Change from
Increase of
100 Basis
Points Change from
Increase of
300 Basis
Points $ % $ % $ 104,481 $ (566 ) (1 )% $ (1,126 ) (1 )% 37,485 — — — — 9,732 — — (1 ) — 7,711 (278 ) (4 ) (435 ) (6 ) $ 159,409 $ (844 ) (1 )% $ (1,562 ) (1 )% �� $ 147,385 $ (859 ) (1 )% $ (2,393 ) (2 )% 3,458 58 2 805 23 $ 150,843 $ (801 ) (1 )% $ (1,588 ) (1 )% June 30, 2014 June 30, 2013 EAR - Shock 13.1 % 4.2 % 10.5 % 3.4 % EAR - Ramp 8.2 % 2.4 % 7.0 % 2.3 % EVE (3.2 )% (3.3 )% (2.4 )% (0.9 )% loansLoans to earn Floor Income, we can have a fixed versus floating mismatch in funding if the student loan earns at the fixed borrower rate and the funding remains floating. In addition, we can have a mismatch in the index (including the frequency of reset) of floating rate debt versus floating rate assets.During the three months ended March 31, 2014 and 2013, certain FFELP Loans were earning Floor Income and we locked in a portion of that Floor Income through the use of Floor Income Contracts. The result of theseThe information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.hedging transactions was to convert a portion 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.pre-tax net interest income before the unrealized gains (losses) on derivative and hedging activities is primarily due to the impact of (i) our unhedged loansFFELP Loans being in a fixed-rate mode due to Floor Income, while being funded with variable debt in low interest rate environments; and (ii) a portion of our variable assets being funded with fixed rate liabilities and equity. Item (i) will generally cause net interest income to decrease when interest rates increase from a low interest rate environment, whereas item (ii) will generally offset this decrease.Under the scenario in the tables above labeled “Impact on Annual Earnings If: Funding Indices Increase 25 Basis Points,” the main driverthe decrease in pre-tax income before unrealized gains (losses) on derivative and hedging activities in both the March 31, 2014 and March 31, 2014 analyses is primarily the result of one-month LIBOR-indexed FFELP Loans being funded with three-month LIBOR and other non-discrete indexed liabilities. See “Asset and Liability Funding Gap” of this Item 7A. for a further discussion. Increasing the spread between indices will also impact the unrealized gains (losses) on derivative and hedging activities as it relates to basis swaps that hedge the mismatch between the asset and funding indices.In addition toour interest rate sensitivity, they do not account for potential changes in credit quality and size of our balance sheet. They also do not account for other business developments that could affect net income, or for management actions that could affect net income or that could be taken to change our risk addressed inprofile. Accordingly, we can give no assurance that actual results would not differ materially from the preceding tables, we are also exposed to risks related to foreign currency exchange rates. Foreign currency exchange risk is primarily the resultestimated outcomes of foreign currency denominated debt issued by us. When we issue foreign denominated corporate unsecured and securitization debt, our policy is to use cross currencysimulations. Further, such simulations do not represent our current view of expected future interest rate swaps to swap all foreign currency denominated debt payments (fixed and floating) to U.S. dollar LIBOR using a fixed exchange rate. In the tables above, there would be an immaterial impact on earnings if exchange rates were to decrease or increase, due to the terms of the hedging instrument and hedged items matching. The balance sheet interest bearing liabilities would be affected by a change in exchange rates; however, the change would be materially offset by the cross currency interest rate swaps in other assets or other liabilities. In the current economic environment, volatility in the spread between spot and forward foreign exchange rates has resulted in material mark-to-market impacts to current-period earnings which have not been factored into the above analysis. The earnings impact is noncash, and at maturity of the instruments the cumulative mark-to-market impact will be zero.March 31,June 30, 2014. In the following GAAP presentation, the funding gap only includes derivatives that qualify as effective hedges (those derivatives which are reflected in net interest margin, as opposed to those reflected in the “gains (losses) on derivatives and hedging activities, net” line on the consolidated statements of income). The difference between the asset and the funding is the funding gap for the specified index. This represents our exposure to interest rate risk in the form of basis risk and repricing risk, which is the risk that the different indices may reset at different frequencies or may not move in the same direction or at the same magnitude.Management analyzes interest rate risk and in doing so includes all derivatives that are economically hedging our debt whether they qualify as effective hedges or not (“Core Earnings” basis). Accordingly, we are also presenting the asset and liability funding gap on a “Core Earnings” basis in the table that follows the GAAP presentation.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.GAAP-Basis Frequency of
Variable
Resets Assets(1) Funding(2) Funding
Gap weekly $ 5.3 $ — $ 5.3 annual .6 — .6 quarterly 3.8 — 3.8 monthly 18.5 — 18.5 daily — .1 (.1 ) annual .3 — .3 daily — — — quarterly — 82.2 (82.2 ) monthly 15.3 39.5 (24.2 ) daily 96.4 — 96.4 monthly/quarterly — 1.0 (1.0 ) monthly — 10.8 (10.8 ) daily/weekly 8.3 5.2 3.1 8.0 17.7 (9.7 ) $ 156.5 $ 156.5 $ — Assets 3-month Treasury bill weekly $ 0.4 $ — $ 0.4 1-month LIBOR daily 0.9 — 0.9 1-month LIBOR weekly — 0.5 (0.5 ) 1-month LIBOR monthly 6.4 3.3 3.1 daily/weekly 1.7 2.8 (1.1 ) 2.0 2.3 (0.3 ) Total $ 11.4 $ 8.9 $ 2.5 FFELP Loans of $45.3 billion ($41.0 billion LIBOR index and $4.3 billion Treasury bill index) are currently earning a fixed rate of interest as a result of the low interest rate environment.(2)(3)(2)Funding consists of auction rate asset-backed securities and FFELP Loan-other facilities.(4) and other deposits and the obligation to return cash collateral held related to derivatives exposures.(5)(3)goodwillpremiums and acquired intangibles)reserves). Funding includes other liabilities and stockholders’ equity (excluding series B Preferred Stock).“Funding Gaps”"Funding Gap" in the above table are primarily interest rate mismatches in short-term indices between our assets and liabilities.the reset frequency of the 1-month LIBOR index. We address this issue typically throughconsider the use of basis swaps that typically convert quarterlyrisk to be minimal since they are all indexed to the same rate as the reset three-month LIBOR to other indices that are more correlated to our asset indices. These basis swaps do not qualify as effective hedges and as a result the effect on the funding indexfrequency is not included in our interest margin and is therefore excluded from the GAAP presentation.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.“Core Earnings” Basis Frequency of
Variable
Resets Assets(1) Funding(2) Funding
Gap weekly $ 5.3 $ — $ 5.3 annual .6 — .6 quarterly 3.8 — 3.8 monthly 18.5 1.5 17.0 daily — .1 (.1 ) annual .3 — .3 daily — — — quarterly — 66.9 (66.9 ) monthly 15.3 51.8 (36.5 ) daily 96.4 5.0 91.4 monthly — 10.8 (10.8 ) daily/weekly 8.3 5.2 3.1 5.8 13.0 (7.2 ) $ 154.3 $ 154.3 $ — (1)FFELP Loans of $18.1 billion ($16.1 billion LIBOR index and $2.0 billion Treasury bill index) are currently earning a fixed rate of interest as a result of the low interest rate environment.(2)Funding (by index) includes all derivatives that management considers economic hedges of interest rate risk and reflects how we internally manage our interest rate exposure.(3)Funding consists of auction rate asset-backed securities and FFELP Loan-other facilities.(4)Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes retail and other deposits and the obligation to return cash collateral held related to derivatives exposures.(5)Assets include receivables and other assets (including goodwill and acquired intangibles). Funding includes other liabilities and stockholders’ equity (excluding series B Preferred Stock).The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.March 31,June 30, 2014.Weighted Average (Averages in Years) Life Weighted AverageLifeEarning assets EarningStudent loans6.7 Cash and investments 0.6 Total earning assets 5.7 Deposits Short-term deposits 0.1 Long-term deposits 2.4 Total deposits 0.8 Student loans7.4Other loans7.4Cash and investments.1Total earning assets7.0BorrowingsShort-term borrowings.2Long-term borrowings6.3Total borrowings5.8Item 4. Controls and Procedures chief principal executive officer and principal financial officers,officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31,June 30, 2014. Based on this evaluation, our chief principal executive officer and principal financial officersofficer concluded that, as of March 31,June 30, 2014, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to our management, including our chief principal executive officer and principal financial officersofficer as appropriate, to allow timely decisions regarding required disclosure.No changeoccurred during the fiscal quarter ended March 31,June 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.Item 1. Legal Proceedings MostIn the ordinary course of these matters are claims againstbusiness, it is common for the Company, our servicingsubsidiaries and asset recovery subsidiaries by borrowersaffiliates to receive information and debtors allegingdocument requests and investigative demands from state attorneys general, legislative committees and administrative agencies. These requests may be for informational or regulatory purposes and may relate to our business practices, the violation of state or federal laws in connection with servicing or asset recovery activities on their student loans and other debts. In addition, our asset recovery subsidiaries are routinely named in individual plaintiff or class action lawsuitsindustries in which the plaintiffs allege that those subsidiaries have violated a federalwe operate, or state law in the process of collecting their accounts.For a description of these itemsother companies with whom we conduct business. Our practice has been and other litigationcontinues to which we are a party, please see our 2013 Form 10-K and subsequent filings with the SEC.Regulatory UpdatePreviously on April 16, 2014, Existing SLM announced its financial results for the quarter ended March 31, 2014, the last consolidated quarter of operations of Existing SLM Corporation priorbe to the separation of Navient Corporation (“Navient”). In the April 16, 2014 announcement, Existing SLM reported it had reserved $70 million for estimated amounts and costs that were probable of being incurred for expected compliance remediation efforts relating to pending regulatory matters with the Department of Justice (“ DOJ”) and the Federal Deposit Insurance Corporation (“FDIC”), which are discussed in more detail below. Since that time, and based on additional information and discussions, we have determined that an additional charge in the amount of $103 million should be taken in the first quarter of 2014 to further reserve against the pending settlements of previously reported regulatory matters with the FDIC and DOJ. In addition, this includes amounts to provide for the voluntary restitution that we now understand Navient has decided to make with respect to certain assessed late fees on loans it owns in connectioncooperate with these settlements. Whilebodies and be responsive to any such requests.final costtime of resolving these proceedings remains uncertain at this time, we believe based on current facts and circumstancesfiling, the additional $103 million charge is both probable of being incurred and is a reasonable estimate of our exposure.Pursuant to the Separation and Distribution Agreement among SLM Corporation, New BLC Corporation and Navient dated as of April 28, 2014 entered into in connection with the separation of Navient from SLM Corporation, all liabilities arising out of the FDIC and DOJ matters, other than fines or penalties directly levied against Sallie Mae Bank, will be the responsibility of, or assumed by, Navient, and Navient will indemnify and hold harmless SLM Corporation and its subsidiaries, including Sallie Mae Bank, therefrom.As previously reported, Sallie Mae Bank remains subject tothe 2014 FDIC Order. The 2014 FDIC Order replaces a prior cease and desist order originallyjointly issued in August 2008 by the FDIC and the UtahUDFI which was terminated on July 15, 2014. Specifically, on May 13, 2014, the Bank reached settlements with the FDIC and the Department of Financial Institutions (“UDFI”). In July 2013, the FDIC first notified Sallie Mae Bank of plans to replace its order with a new formal enforcement action (the “Bank Order”) that more specifically addresses certain cited violations of Section 5 of the FTCA, including theJustice regarding disclosures and assessments of certain late fees, as well as alleged violationscompliance with the SCRA. Under the FDIC’s 2014 Order, the Bank agreed to pay $3.3 million in fines and oversee the refund of up to $30 million in late fees assessed on loans owned or originated by the Bank since its inception in November 2005.Item 1A. Risk Factors Novembera rising interest rate environment, this difference in timing may compress the net interest margin on Private Education Loans and FFELP Loans.FDIC indicated an additional enforcement action would befederal banking regulators issued against Sallie Mae, Inc., now known as Navient Solutions, Inc. (“NSI”) (the “NSI Order”;the U.S. Basel III final rule. The final rule implements the Basel III capital framework in the United States and certain provisions of the Dodd-Frank Act, including the Collins Amendment. The U.S. Basel III final rule will apply to the Bank Orderbeginning on January 1, 2015. Consistent with the Basel Committee on Banking Supervision’s Basel III capital framework, the U.S. Basel III final rule includes a new minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5 percent andreports containedinstitutions have generally increased in this Quarterly Reportrecent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties.Form 10-Q do not reflectthird parties for a wide array of services, systems and information technology applications, and a breach or violation of law by one of these third parties could disrupt our business or provide our competitors with an opportunity to enhance their position at our expense.subsequent Spin-Offtimely transmission of Navient on April 30, 2014. Carved out auditedinformation across our data communication network, and for other telecommunications, processing, remittance and technology-related services in connection with our banking and payment services businesses. If a service provider fails to provide the services we require or expect, or fails to meet applicable contractual or regulatory requirements, such as service levels or compliance with applicable laws, the failure could negatively impact our business by adversely affecting our ability to process customers’ transactions in a timely and accurate manner, otherwise hampering our ability to serve our customers, or subjecting us to litigation and regulatory risk for matters as diverse as poor vendor oversight or improper release or protection of personal information. Such a failure could adversely affect the perception of the reliability of our networks and services, and the quality of our brands, and could materially adversely affect our revenues and/or our results of operations.basiscompany and lose the advantage of our larger size and purchasing power that existed prior to the Spin-Off.eacha transition period and potentially thereafter. The fees charged by Navient and its affiliates for the provision of these services to us and our affiliates may be higher than those charged prior to the Spin-Off. All of these factors will result in costs that are higher than the amounts reflected in historical financial statements which could cause our profitability to decrease.three years ended December 31, 2013, 2012types of indemnification obligations Navient has include:2011,Distribution Agreement, Navient is responsible for funding all liabilities under the recently agreed regulatory orders with the FDIC and the Department of Justice, other than fines directly levied against the Bank in connection with these matters. Under the Department of Justice order, Navient is solely responsible for reimbursing SCRA benefits and related compensation on behalf of both its subsidiary, Navient Solutions, Inc., and the Bank.well as certain unaudited pro forma condensed financialcompared to pre-Spin-Off SLMstatistical informationstock price performance of comparable companiessubsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filedstockholders.SEC on May 6, 2014.NSI Order, hereafter referredCompany entered into a tax sharing agreement with Navient to aspreserve the “FDIC Orders”), in its capacity as a servicer of education loans for Sallie Mae Bank and other financial institutions.Based on our discussions with the FDIC, we believe the FDIC intends to require restitution be made by NSI and Sallie Mae Bank pursuant to the FDIC Orders with respect to loans owned or originated by Sallie Mae Bank from November 28, 2005 until the effective datetax-free treatment of the FDIC Orders.In a related development, we understand that Navient has decided to voluntarily make restitutionseparation and distribution of certain assessed late fees to customers whose loans were neither owned nor originated by Sallie Mae Bank on the same basis and in the same manner as that made pursuant to the FDIC Orders. These credits are currently estimated to be $42 million.With respect to alleged civil violations of the SCRA, Navient and Sallie Mae Bank remain engaged in negotiations regarding a comprehensive settlement, remediation and civil settlement plan with the DOJ, in its capacity as the agency having primary authority for enforcement of such matters. The DOJ inquiry covers all loans owned by Sallie Mae Bank or serviced by NSI from November 28, 2005 until the effective date of the settlement.As previously disclosed, NSI also received Civil Investigative Demands (CIDs) from the Consumer Financial Protection Bureau (“CFPB”) as part of the CFPB’s separate investigation regarding allegations relating to Navient’s disclosures and assessment of late fees. Navient recently commenced discussions with the CFPB relating to the disclosures and assessment of late fees. Reserves have not been established forNavient. Under this matter. Navient and its subsidiaries will remain subject to the CIDs. Sallie Mae Bank is not currently subject to CFPB jurisdiction on these matters.Preferred Stock LitigationWe previously reported that on January 28, 2014 and February 10, 2014, a stockholder of each of the Series B preferred stock and Series A preferred stock oftax sharing agreement, both the Company respectively, filed a putative class action complaintand Navient will be restricted from engaging in certain transactions that could prevent the Court of Chancery of the State of Delaware againstSpin-Off from being tax-free to the Company and its board of directors. The complaints were captionedWilliam McCrady v. SLM Corporation et. al. , C.A. No 9285-VCL andJames L. Myers v. SLM Corporation et. al. , C.A. No 9371-VCL, respectively. Each plaintiff purported to bringstockholders at the complaint on behalf of a class consistingtime of the holdersSpin-Off for U.S. federal income tax purposes. Compliance with the tax sharing agreement and the restrictions therein may limit the Company’s near-term ability to pursue certain strategic transactions or engage in activitiesseries of preferred stock he holds in connectionSpin-Off that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities. Although the tax sharing agreement will provide that Navient is required to indemnify the Company for taxes incurred by the Company that may arise were Navient to fail to comply with its obligations under the spin-off oftax sharing agreement, there is no assurance that Navient fromwill have the Company. The complaints generally alleged, among other things,funds to satisfy that the Company’s board of directors breachedliability. Also, Navient will not be required to indemnify our stockholders for any tax liabilities they may incur for its fiduciary duties to the holders of such preferred stock and an implied covenant of good faith and fair dealing in structuring the proposed spin-off of Navient. On May 7, 2014, plaintiffs filed a notice of voluntary dismissal without prejudice, dismissing the consolidated class actions. On May 7, 2014, the Court entered an order dismissing the cases without prejudice.The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for eachviolation of the three years ended December 31, 2013, 2012tax sharing agreement.2011, as well as certain unaudited pro forma condensed financialappropriately balance risk and statistical informationreturn. We have established processes and procedures intended to identify, measure, monitor, control and report the types of Sallie Maerisk to which we are subject. We seek to monitor and its subsidiaries effective March 31, 2014control our risk exposure through a framework of policies, procedures, limits and reporting requirements. Management of risks in some cases depends upon the use of analytical and/or forecasting models. If the models that we use to mitigate these risks are containedinadequate, we may incur increased losses. In addition, there may be risks that exist, or that develop in the Company’s Current Reportfuture, that we have not appropriately anticipated, identified or mitigated. If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected losses and our financial condition and results of operations could be materially adversely affected.Form 8-K filed withour products, origination capability and customer service. To the SEC on May 6, 2014.Item 1A.Risk FactorsThere have been no material changes fromextent our competitors compete aggressively or more effectively, we could lose market share to them or subject our existing loans to refinancing risk. Our product offerings may not prove to be profitable and may result in higher than expected losses.risk factors previously disclosedmarketplace. This concentration also creates risks in our 2013 Form 10-K.business, particularly in light of our concentrations as a Private Education Loan lender. If population demographics result in a decrease in college-age individuals, if demand for higher education decreases, if the cost of attendance of higher education decreases, if public resistance to higher education costs increases, or if the demand for higher education loans decreases, our business could be negatively affected. In addition, the federal government, through the Direct Student Loan Program (“DSLP”), poses significant competition to our private credit loan products. If loan limits under the DSLP and other federal education lending programs increase, federally-funded education loans could be more widely available to students and their families, resulting in further decreases in the size of the Private Education Loan market and demand for our Private Education Loan products.Item 2. Unregistered Sales of Equity Securities and Use of Proceeds March 31,June 30, 2014. Total Number
of Shares
Purchased(1) Average Price
Paid per
Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(2) Approximate Dollar
Value
of Shares That
May Yet Be
Purchased Under
Publicly Announced
Plans or
Programs(2) 2.2 $ 23.45 1.7 $ 161 4.9 23.26 3.5 80 3.4 24.87 3.2 — 10.5 $ 23.82 8.4 (In thousands, except per share data) Period: April 1 - April 30, 2014 — — — — May 1 - May 31, 2014 47 $ 8.87 — — June 1 - June 30, 2014 312 $ 8.58 — — Total second-quarter 2014 359 $ 8.62 — The total number ofAll shares purchased includes: (i) shares purchased underare pursuant to the stock repurchase program discussed below, and (ii) shares of our common stock tendered to us to satisfy the exercise price in connection with cashless exercise of stock options, and tax withholding obligations in connection with exercise of stock options and vesting of restricted stock and restricted stock units.In July 2013, our board of directors authorized us to purchase up to $400 million of shares of our common stock.March 31,June 30, 2014 was $24.48.$8.31.Item 3. Defaults uponUpon Senior SecuritiesItem 4. Mine Safety Disclosures Item 5. Other Information Nothingreport.reportsinstitution crimes may include imprisonment for 20 years. Regulators have flexibility to commence enforcement actions against institutions and institution-affiliated parties, and the FDIC has the authority to terminate deposit insurance. When issued by a banking agency, cease and desist and similar orders may, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions determined to be appropriate by the ordering agency. The federal banking regulators also may remove a director or officer from an insured depository institution (or bar them from the industry) if a violation is willful or reckless.Quarterly Reporttime to predict the duration or outcome of the investigation. Given the timeframe covered by this demand, Navient would be responsible for all costs, expenses, losses or remediation likely to arise from this investigation.Form 10-Qthe 1988 Basel I capital accord. In 2007, the federal banking regulators established capital standards based on the advanced internal ratings-based approach for credit risk and the advanced measurement approaches for operational risk contained in the Basel Committee’s second capital accord, referred to as “Basel II,” for the largest and most internationally active U.S. banking organizations, which do not reflectinclude the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statementsBank. In December 2010, the Basel Committee reached agreement on a stand-alone basis for eachrevised set of regulatory capital standards: Basel III. These new standards, which are aimed at increasing the quality and quantity of regulatory capital, seek to further strengthen financial institutions’ capital positions by mandating a higher minimum level of common equity to be held, along with a capital conservation buffer to withstand future periods of stress.threeDodd-Frank Act, including the Collins Amendment. Certain aspects of the final rule, such as the new minimum capital ratios and the revised methodology for calculating risk-weighted assets, will become effective on January 1, 2015 for the Bank. Other aspects of the final rule, such as the capital conservation buffer and the new regulatory deductions from and adjustments to capital, will be phased in over several years endedbeginning on January 1, 2015.2012the Bank had total assets of $10.8 billion. Once the Bank’s average total assets over four consecutive quarters exceed $10 billion, it will subsequently become subject to annual Dodd-Frank Act stress testing requirements. The Dodd-Frank Act imposes stress test requirements on banking organizations with total consolidated assets of more than $10 billion. The FDIC’s implementing regulations require FDIC-regulated depository institutions, such as the Bank, to conduct annual company-run stress test scenarios provided by the FDIC and publish a summary of those results. If, as is expected, the proposed rule that revises Part 325 Subpart C of the FDIC Rules and Regulations is adopted, the Bank will be required to submit the results of its stress tests to the FDIC by July 31, 2016.as well as certain unaudited pro forma condensed financialthe FDIC issued a final rule changing its assessment system from one based on domestic deposits to one based on the average consolidated total assets of a bank minus its average tangible equity during each quarter. The February 7, 2011 final rule modifies two adjustments added to the risk-based pricing system in 2009 (an unsecured debt adjustment and statisticala brokered deposit adjustment), discontinues a third adjustment added in 2009 (the secured liability adjustment), and adds an adjustment for long-term debt held by an insured depository institution where the debt is issued by another insured depository institution. Under the February 7, 2011 final rule, the total base assessment rates will vary depending on the DIF reserve ratio.subsidiaries effective March 31, 2014local community, including low- and moderate-income neighborhoods. These evaluations are containedconsidered in evaluating mergers, acquisitions and applications to open a branch or facility. Failure to adequately meet these criteria could result in additional requirements and limitations on the Company’s Current Report on Form 8-K filed withBank.SEC on May 6, 2014.principal facilities owned by us as of June 30, 2014:Location Function Related Business Area(s) Newark, DE Headquarters Consumer Lending; Business Services; FFELP Loans; Other 160,000 Indianapolis, IN Loan Servicing Center Business Services 50,000 Location Function Related Business Area(s) Reston, VA Administrative Offices Consumer Lending; Business Services; FFELP Loans; Other 18,000 Newton, MA Upromise Business Services 18,000 Salt Lake City, UT Sallie Mae Bank Consumer Lending 11,400 Item 6. Exhibits 3.1 Amended and Restated Certificate of Incorporation of SLM Corporation 10.1 Letter10.1Employment Agreement, dated January 15,April 21, 2014 with Raymond J. Quinlan (incorporated by reference to Exhibit 10.38 ofbetween Laurent C. Lutz and the Company’s Annual Report on Form 10-K filed on February 19, 2014)†Company† 10.2 SLM Corporation 2012 Omnibus Incentive10.2Sallie Mae Employee Stock Purchase Plan, Restricted Stock Unit Term Sheet — Raymond J. Quinlan Signing Award (incorporated by reference to Exhibit 10.39Amended and Restated as of the Company’s Annual Report on Form 10-K filed on February 19, 2014)†June 25, 2014† 10.3 Form of SLM Corporation 2012 Omnibus Incentive Plan, BonusIndependent Director Restricted Stock Unit Term Sheet —Agreement - 2014† 10.4Form of SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet — 2014†12.1 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document. 101.SCH XBRL Taxonomy Extension Schema Document. 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB XBRL Taxonomy Extension Label Linkbase Document. 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.SLM CORPORATION(Registrant)By: May 12,July 23, 201491