Attached files
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8-K - 8-K - SLM Corp | w82434e8vk.htm |
Exhibit
99.1
CONTACTS:
Media
|
Martha Holler, (703) 984-5178, martha.holler@SallieMae.com Patricia Nash Christel, (703) 984-5382, patricia.christel@SallieMae.com |
|
Investors
|
Steve McGarry, (703) 984-6746,
steven.mcgarry@SallieMae.com Joe Fisher, (703) 984-5755, joe.fisher@SallieMae.com |
SALLIE
MAE POSTS QUARTERLY EARNINGS, REINSTATES DIVIDEND,
APPROVES $300 MILLION SHARE REPURCHASE PROGRAM
APPROVES $300 MILLION SHARE REPURCHASE PROGRAM
NEWARK, Del., April 20, 2011 Sallie Mae
(NYSE: SLM) today reported first-quarter GAAP and core earnings,
declared its first common stock dividend since 2007 and
announced a $300 million share repurchase program.
GAAP first-quarter 2011 net income was $175 million
($.32 diluted earnings per share), vs. $240 million ($.45
diluted earnings per share) in the same quarter last year. The
company manages its business segments on a core earnings basis,
as described further below. The primary difference between the
companys core earnings and GAAP results is a
$133 million unrealized,
mark-to-market,
loss on certain derivative contracts recognized in GAAP but not
in core earnings results.
Core earnings were $260 million ($.48 diluted earnings per
share) for the first-quarter 2011, compared with
$215 million ($.40 diluted earnings per share) for the
year-ago period. These results include $40 million and
$57 million of after-tax debt repurchase gains,
respectively.
Year-to-year
improvement reflects increased net interest income and a lower
loan loss provision.
Dividend
and Share Repurchase Program
Sallie Mae declared a quarterly dividend of $.10 per share on
the companys common stock, the first since early 2007. The
dividend is payable June 17, 2011, to shareholders of
record at the close of business on June 3, 2011. The
company also authorized the repurchase of up to
$300 million of outstanding common stock in open-market
transactions and terminated all previous authorizations.
These results reflect progress, said Albert L. Lord,
vice chairman and CEO, Sallie Mae. The trends we see
across the franchise are improving: private loan demand, ABS
market tone, and asset quality together with a better Department
of Education loan servicing scorecard. Reinstitution of the
dividend and share repurchase program reflects the strength of
our capital, liquidity and cash flow.
Consumer
Lending
In the consumer lending segment, Sallie Mae originates, finances
and services private education loans. Loan originations were
$940 million, up 12 percent from the year-ago
quarters $840 million. The portfolio totaled
$36 billion at March 31, 2011.
First-quarter core earnings from this segment improved to
$44 million from $5 million in the year-ago quarter.
Loan delinquencies and charge-offs (each as a percentage of
loans in repayment) improved during the quarter to the lowest
levels since Dec. 31, 2008. Highlights vs. first-quarter
2010 included:
| Net interest margin of 4.11 percent compared to 3.84 percent. |
| A provision for loan losses of $275 million, compared to $325 million. |
○ | Delinquencies of 90 days or more (as a percentage of loans in repayment) declined to 5.1 percent from 6.4 percent. | |
○ | An annualized charge-off rate of 3.9 percent vs. 4.7 percent. |
Business
Services
The business services segment includes fees from servicing,
collections and college savings businesses.
During the quarter, the company announced a Sallie Mae Bank
No-Fee Student Checking Account with Debit as an enhanced refund
disbursement choice for schools and students to help higher
education institutions rapidly process financial aid and tuition
refunds. This new option complements existing refund
disbursement choices that include electronic deposit to the bank
account of the students choice, or a check.
Core earnings from the business services segment were
$132 million in the first-quarter 2011, compared with
$141 million in the year-ago quarter, the decrease
primarily due to reduced revenue from the servicing of FFELP
loans.
Federally
Guaranteed Loans
The Federal Family Education Loan Program (FFELP) loan business
segment represents earnings from Sallie Maes federal
student loan portfolio. The company no longer originates FFELP
loans.
Core earnings from the FFELP loan segment were $109 million
in the first-quarter 2011, compared with $64 million in the
year-ago quarter, with the increase primarily driven by the
purchase of $25 billion of loans at the end of last year.
Operating
Expenses
Operating expenses were $303 million in the first quarter
of 2011, compared to $308 million in fourth quarter 2010
and $287 million in the year-ago period. Operating expenses
in the 2011 first quarter included the following
$33 million: $10 million for litigation contingencies,
$11 million for accelerated stock compensation expense, and
$12 million of servicing costs related to the
$25 billion student loan portfolio acquisition at the end
of last year. These charges notwithstanding, the company expects
to achieve its quarterly operating expense target of
$250 million by the fourth-quarter 2011.
Funding
and Liquidity
During the 2011 first quarter, the company raised
$2 billion of unsecured debt and issued $812 million
of FFELP asset-backed securities. Also, the company repurchased
$825 million of debt and realized gains of
$64 million, compared to $1.3 billion and
$90 million in the year-ago quarter, respectively.
Subsequent to quarter end, the company priced $562 million
in private education loan asset-backed securities below LIBOR
plus 2 percent.
***
Sallie Mae reports financial results on a GAAP basis and also
presents certain core earnings performance measures. The
companys management, equity investors, credit rating
agencies and debt capital providers use these core earnings
measures to monitor the companys business performance. See
Core Earnings Definitions and
Limitations for a further discussion and a complete
reconciliation between GAAP net income and core earnings.
Definitions for capitalized terms in this document can be found
in the companys 2010
Form 10-K
filed with the SEC on February 28, 2011. Certain
reclassifications have been made to the balances as of and for
the quarters ended December 31, 2010 and March 31,
2010, to be consistent with classifications adopted for the
quarter ended March 31, 2011, and had no effect on net
income, total assets, or total liabilities.
***
2
Selected
Financial Information and Ratios
Quarters Ended | ||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars and shares in millions, except per share data)
|
2011 | 2010 | 2010 | |||||||||
GAAP Basis
|
||||||||||||
Net income
|
$ | 175 | $ | 447 | $ | 240 | ||||||
Diluted earnings per common
share(1)
|
$ | .32 | $ | .84 | $ | .45 | ||||||
Weighted average shares used to compute diluted earnings per
share
|
532 | 529 | 527 | |||||||||
Return on assets
|
.36 | % | 1.01 | % | .50 | % | ||||||
Core Earnings
Basis(2)
|
||||||||||||
Core Earnings net income
|
$ | 260 | $ | 401 | $ | 215 | ||||||
Core Earnings diluted earnings per common
share(1)
|
$ | .48 | $ | .75 | $ | .40 | ||||||
Weighted average shares used to compute diluted earnings per
share
|
532 | 529 | 527 | |||||||||
Core Earnings return on assets
|
.54 | % | .90 | % | .45 | % | ||||||
Other Operating
Statistics(3)
|
||||||||||||
Ending FFELP Loans, net
|
$ | 145,558 | $ | 148,649 | $ | 146,524 | ||||||
Ending Private Education Loans, net
|
35,966 | 35,656 | 35,362 | |||||||||
Ending total student loans, net
|
$ | 181,524 | $ | 184,305 | $ | 181,886 | ||||||
Average student loans
|
$ | 184,387 | $ | 164,196 | $ | 181,533 |
(1) | Preferred dividends of $12 million and $15 million, applicable to our convertible Series C Preferred Stock, were added back to the numerator in the prior and year-ago quarters, respectively, in computing diluted earnings per share, as the Series C Preferred Stock was dilutive. The Series C Preferred Stock was fully converted to common shares on December 15, 2010. | |
(2) | Core Earnings are non-GAAP 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. | |
(3) | Subsequent to the adoption of the new consolidation accounting guidance on January 1, 2010, our GAAP and Core Earnings loan portfolios are identical, as all of our securitization trusts are treated as on-balance sheet for GAAP now. Hence, in referencing the total loan portfolio, ending and average loan balances, provision for loan loss and charge-offs we no longer distinguish between the two as they are the same, unless otherwise noted. |
3
Results
of Operations
We 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 Definitions and
Limitations).
GAAP Statements
of Income (Unaudited)
Quarters Ended | Increase (Decrease) | |||||||||||||||||||||||||||
March 31, 2011 vs. |
March 31, 2011 vs. |
|||||||||||||||||||||||||||
March 31, |
Dec. 31, |
March 31, |
Dec. 31, 2010 | March 31, 2010 | ||||||||||||||||||||||||
(Dollars in millions, except per share data)
|
2011 | 2010 | 2010 | $ | % | $ | % | |||||||||||||||||||||
Interest income:
|
||||||||||||||||||||||||||||
FFELP Loans
|
$ | 877 | $ | 777 | $ | 807 | $ | 100 | 13 | % | $ | 70 | 9 | % | ||||||||||||||
Private Education Loans
|
604 | 602 | 565 | 2 | | 39 | 7 | |||||||||||||||||||||
Other loans
|
6 | 6 | 9 | | | (3 | ) | (33 | ) | |||||||||||||||||||
Cash and investments
|
5 | 8 | 5 | (3 | ) | (38 | ) | | | |||||||||||||||||||
Total interest income
|
1,492 | 1,393 | 1,386 | 99 | 7 | 106 | 8 | |||||||||||||||||||||
Total interest expense
|
594 | 536 | 532 | 58 | 11 | 62 | 12 | |||||||||||||||||||||
Net interest income
|
898 | 857 | 854 | 41 | 5 | 44 | 5 | |||||||||||||||||||||
Less: provisions for loan losses
|
303 | 320 | 359 | (17 | ) | (5 | ) | (56 | ) | (16 | ) | |||||||||||||||||
Net interest income after provisions for loan losses
|
595 | 537 | 495 | 58 | 11 | 100 | 20 | |||||||||||||||||||||
Other income (loss):
|
||||||||||||||||||||||||||||
Gains on sales of loans and securities, net
|
| 318 | 9 | (318 | ) | (100 | ) | (9 | ) | (100 | ) | |||||||||||||||||
Losses on derivative and hedging activities, net
|
(242 | ) | (29 | ) | (82 | ) | (213 | ) | 734 | (160 | ) | 195 | ||||||||||||||||
Servicing revenue
|
98 | 91 | 122 | 7 | 8 | (24 | ) | (20 | ) | |||||||||||||||||||
Contingency revenue
|
78 | 78 | 80 | | | (2 | ) | (3 | ) | |||||||||||||||||||
Gains on debt repurchases
|
38 | 118 | 90 | (80 | ) | (68 | ) | (52 | ) | (58 | ) | |||||||||||||||||
Other income (loss)
|
22 | (2 | ) | 14 | 24 | 1,200 | 8 | 57 | ||||||||||||||||||||
Total other income (loss)
|
(6 | ) | 574 | 233 | (580 | ) | (101 | ) | (239 | ) | (103 | ) | ||||||||||||||||
Expenses:
|
||||||||||||||||||||||||||||
Operating expenses
|
303 | 308 | 287 | (5 | ) | (2 | ) | 16 | 6 | |||||||||||||||||||
Goodwill and acquired intangible assets impairment and
amortization expense
|
6 | 10 | 10 | (4 | ) | (40 | ) | (4 | ) | (40 | ) | |||||||||||||||||
Restructuring expenses
|
4 | 33 | 25 | (29 | ) | (88 | ) | (21 | ) | (84 | ) | |||||||||||||||||
Total expenses
|
313 | 351 | 322 | (38 | ) | (11 | ) | (9 | ) | (3 | ) | |||||||||||||||||
Income from continuing operations, before income tax expense
|
276 | 760 | 406 | (484 | ) | (64 | ) | (130 | ) | (32 | ) | |||||||||||||||||
Income tax expense
|
99 | 261 | 159 | (162 | ) | (62 | ) | (60 | ) | (38 | ) | |||||||||||||||||
Net income from continuing operations
|
177 | 499 | 247 | (322 | ) | (65 | ) | (70 | ) | (28 | ) | |||||||||||||||||
Loss from discontinued operations, net of tax
|
(2 | ) | (52 | ) | (7 | ) | 50 | (96 | ) | 5 | (71 | ) | ||||||||||||||||
Net income
|
175 | 447 | 240 | (272 | ) | (61 | ) | (65 | ) | (27 | ) | |||||||||||||||||
Preferred stock dividends
|
4 | 16 | 19 | (12 | ) | (75 | ) | (15 | ) | (79 | ) | |||||||||||||||||
Net income attributable to common stock
|
$ | 171 | $ | 431 | $ | 221 | $ | (260 | ) | (60 | )% | $ | (50 | ) | (23 | )% | ||||||||||||
Basic earnings (loss) per common share:
|
||||||||||||||||||||||||||||
Continuing operations
|
$ | .32 | $ | .99 | $ | .47 | $ | (.67 | ) | (68 | )% | $ | (.15 | ) | (32 | )% | ||||||||||||
Discontinued operations
|
$ | | $ | (.11 | ) | $ | (.01 | ) | $ | .11 | 100 | % | $ | .01 | 100 | % | ||||||||||||
Total
|
$ | .32 | $ | .88 | $ | .46 | $ | (.56 | ) | (64 | )% | $ | (.14 | ) | (30 | )% | ||||||||||||
Diluted earnings (loss) per common share:
|
||||||||||||||||||||||||||||
Continuing operations
|
$ | .32 | $ | .94 | $ | .46 | $ | (.62 | ) | (66 | )% | $ | (.14 | ) | (30 | )% | ||||||||||||
Discontinued operations
|
$ | | $ | (.10 | ) | $ | (.01 | ) | $ | .10 | 100 | % | $ | .01 | 100 | % | ||||||||||||
Total
|
$ | .32 | $ | .84 | $ | .45 | $ | (.52 | ) | (62 | )% | $ | (.13 | ) | (29 | )% | ||||||||||||
Dividends per common share
|
$ | | $ | | $ | | $ | | | % | $ | | | % | ||||||||||||||
4
GAAP Balance
Sheet (Unaudited)
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in millions, except per share data)
|
2011 | 2010 | 2010 | |||||||||
Assets
|
||||||||||||
FFELP Loans (net of allowance for losses of $190; $189 and $186
respectively)
|
$ | 145,558 | $ | 148,649 | $ | 130,106 | ||||||
FFELP Stafford Loans
Held-For-Sale
|
| | 16,418 | |||||||||
Private Education Loans (net of allowance for losses of $2,034;
$2,021 and $2,019, respectively)
|
35,966 | 35,656 | 35,362 | |||||||||
Cash and investments
|
4,763 | 5,299 | 8,242 | |||||||||
Restricted cash and investments
|
6,393 | 6,255 | 6,115 | |||||||||
Goodwill and acquired intangible assets, net
|
472 | 478 | 1,168 | |||||||||
Other assets
|
10,203 | 8,970 | 10,102 | |||||||||
Total assets
|
$ | 203,355 | $ | 205,307 | $ | 207,513 | ||||||
Liabilities
|
||||||||||||
Short-term borrowings
|
$ | 32,317 | $ | 33,616 | $ | 41,102 | ||||||
Long-term borrowings
|
161,886 | 163,543 | 157,983 | |||||||||
Other liabilities
|
3,945 | 3,136 | 3,672 | |||||||||
Total liabilities
|
198,148 | 200,295 | 202,757 | |||||||||
Commitments and contingencies
|
||||||||||||
Equity
|
||||||||||||
Preferred stock, par value $.20 per share, 20 million
shares authorized:
|
||||||||||||
Series A: 3.3 million; 3.3 million; and
3.3 million shares, respectively, issued at stated value of
$50 per share
|
165 | 165 | 165 | |||||||||
Series B: 4 million; 4 million; and
4 million shares, respectively, issued at stated value of
$100 per share
|
400 | 400 | 400 | |||||||||
Series C: 7.25% mandatory convertible preferred stock: 0;
0; and 810 thousand shares, respectively, issued at liquidation
preference of $1,000 per share
|
| | 810 | |||||||||
Common stock, par value $.20 per share, 1.125 billion
shares authorized:
|
||||||||||||
527 million; 595 million; and 553 million shares,
respectively, issued
|
105 | 119 | 111 | |||||||||
Additional paid-in capital
|
4,092 | 5,940 | 5,106 | |||||||||
Accumulated other comprehensive loss, net of tax benefit
|
(35 | ) | (45 | ) | (42 | ) | ||||||
Retained earnings
|
480 | 309 | 72 | |||||||||
Total SLM Corporation stockholders equity before treasury
stock
|
5,207 | 6,888 | 6,622 | |||||||||
Common stock held in treasury: 0; 68 million and
68 million shares, respectively
|
| 1,876 | 1,866 | |||||||||
Total equity
|
5,207 | 5,012 | 4,756 | |||||||||
Total liabilities and equity
|
$ | 203,355 | $ | 205,307 | $ | 207,513 | ||||||
5
Consolidated
Earnings Summary GAAP-basis
Three
Months Ended March 31, 2011 Compared with Three Months
Ended March 31, 2010
For the three months ended March 31, 2011 and 2010, net
income was $175 million, or $.32 diluted earnings per
common share, and $240 million, or $.45 diluted earnings
per common share, respectively. For the three months ended
March 31, 2011 and 2010, net income from continuing
operations was $177 million, or $.32 diluted earnings per
common share, and $247 million, or $.46 diluted earnings
per common share, respectively. For the three months ended
March 31, 2011 and 2010, net loss from discontinued
operations was $2 million, which had minimal effect on
diluted loss per common share, and $7 million, or $.01
diluted loss per common share, respectively.
Income
from Continuing Operations
Income from continuing operations before income tax expenses
decreased $130 million for the three months ended
March 31, 2011, as compared with the year-ago quarter
primarily due to a $160 million increase in net losses on
derivative and hedging activities, a $52 million decrease
in gains on debt repurchases and a $24 million decline in
servicing revenue. These reductions were partially offset by a
$100 million increase in net interest income after
provisions for loan losses.
The primary contributors to each of the identified drivers of
changes in income from continuing operations before income tax
expense for the
year-over-year
period are as follows:
| Net interest income increased by $44 million primarily as a result of the replacement of the $20 billion of lower margin loans sold to the Department of Education (ED) in the third quarter of 2010, by the $25 billion in higher margin securitized loans acquired on December 31, 2010. Offsetting these items was primarily the impact of the higher funding costs in the first quarter of 2011 compared with the first quarter of 2010. | |
| Provisions for loan losses decreased by $56 million in the quarter ended March 31, 2011 from the quarter ended March 31, 2010 primarily as a result of the improving performance of the Private Education Loan portfolio. | |
| Losses on derivatives and hedging activities, net, declined by $160 million in the quarter ended March 31, 2011 compared with the year-ago quarter. The primary factors affecting the change in losses in the first quarter of 2011 were interest rates and foreign currency fluctuations. 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, we expect gains and (losses) on derivatives and hedging activities, net, to vary significantly in future periods. | |
| Servicing revenue decreased by $24 million primarily due to H.R. 4872, HCERA, which included the SAFRA Act, signed into law on March 30, 2010. Effective July 1, 2010, this legislation eliminated the FFELP, thereby eliminating our ability to earn additional guarantor issuance fees on new FFELP Loans. In addition there was a decline in outstanding FFELP Loans for which we were earning additional fees. | |
| Gains on debt repurchases decreased $52 million year-over-year while the principal amount of debt repurchased decreased to $825 million, as compared with the $1.3 billion repurchased in the quarter ended March 31, 2010. | |
| Operating expenses increased $16 million from the year-ago quarter primarily due to $33 million of expenses in the first quarter of 2011 related to $10 million in litigation contingency expense, $11 million from the acceleration of stock compensation expense and $12 million third-party servicing expense related to the $25 billion loan portfolio acquired on December 31, 2010. These significant expenses were partially offset by reduced costs as a result of our cost savings initiative. | |
| Restructuring expenses decreased $22 million in the first quarter of 2011, which is a result of a $21 million decrease in restructuring expenses in continuing operations and a $1 million decrease in restructuring expenses attributable to discontinued operations. The decline in restructuring expenses was |
6
the result of our having materially completed our plan for restructuring the Company during 2010 in response to the HCERA legislation. The following details our ongoing restructuring efforts: |
○ | Restructuring our operations in response to HCERA and the elimination of the FFELP requires a significant reduction of operating costs from the elimination of positions and facilities associated with the origination of FFELP Loans. Expenses associated with continuing operations under this restructuring plan were $3 million in the first quarter of 2011 and $23 million in the first quarter of 2010. We currently expect to incur an estimated $9 million of additional restructuring costs in 2011. The majority of these expenses are severance costs related to the partially completed and planned elimination of approximately 2,500 positions, approximately 30 percent of our workforce that existed as of the first quarter of 2010. | |
○ | In response to the College Cost Reduction and Access Act of 2007 (CCRAA) and challenges in the capital markets, we also initiated a restructuring plan in the fourth quarter of 2007. The majority of these restructuring expenses were also severance costs related to the elimination of approximately 3,000 positions, or approximately 25 percent of our workforce that existed as of the fourth quarter 2007. Under this ongoing plan, restructuring expenses associated with continuing operations was $.3 million and $2 million for the quarters ended March 31, 2011 and March 31, 2010, respectively. |
| Income tax expense from continuing operations decreased $60 million for the quarter ended March 31, 2011 as compared with the year-ago quarter. The effective tax rates for the first quarters of 2011 and 2010 were 36 percent and 39 percent, respectively. The change in the effective tax rate for the quarter ended March 31, 2011 was primarily driven by the impact of state tax rate changes recorded in the year-ago quarter. |
Net
Loss from Discontinued Operations
Net loss from discontinued operations in the three months ended
March 31, 2011 decreased $5 million from the year-ago
period. In the fourth quarter of 2010, we began actively
marketing our Purchased Paper Non Mortgage business
for sale and have concluded it is probable this business will be
sold within one year at which time we would exit the business.
As a result, the results of operations of this business were
also required to be presented in discontinued operations
beginning in the fourth quarter of 2010. Our Purchased Paper
businesses are presented in discontinued operations for the
current and prior periods.
Three
Months Ended March 31, 2011 Compared with Three Months
Ended December 31, 2010
For the three months ended March 31, 2011 and
December 31, 2010, net income was $175 million, or
$.32 diluted earnings per common share, and $447 million,
or $.84 diluted earnings per common share, respectively. For the
three months ended March 31, 2011 and December 31,
2010, net income from continuing operations was
$177 million, or $.32 diluted earnings per common share,
and $499 million, or $.94 diluted earnings per common
share, respectively. For the three months ended March 31,
2011 and December 31, 2010, net loss from discontinued
operations was $2 million, which had no effect on reported
diluted earnings per common share, and $52 million, or $.10
diluted loss per common share, respectively.
Income
from Continuing Operations
Income from continuing operations before income tax expenses
decreased for the three months ended March 31, 2011, by
$484 million as compared with the prior quarter primarily
due to a $318 million decrease in net gains on sales of
loans and securities, a $213 million increase in net losses
on derivative and hedging activities and a $80 million
decline in gains on debt repurchases. These were partially
offset by a $58 million increase in net interest income
after provisions for loans losses.
7
The primary contributors to each of the identified drivers of
changes in income from continuing operations before income tax
expense for the
quarter-over-quarter
period are as follows:
| Net interest income increased by $41 million in the quarter ended March 31, 2011 from the quarter ended December 31, 2010. The increase in net interest income was primarily the result of $80 million of incremental net interest income from the acquisition of $25 billion of securitized student loans on December 31, 2010. Offsetting this increase was primarily the impact of the higher funding costs in the first quarter of 2011 compared with the fourth quarter of 2010, as well as the first quarter of 2011 having two less days than the fourth quarter of 2010. | |
| Provisions for loan losses decreased by $19 million primarily as a result of the improving performance of the Private Education Loan portfolio. | |
| Gains on sales of loans and securities were $318 million in the fourth quarter 2010 which primarily related to the gains on sales of FFELP Loans to ED as part of EDs Loan Purchase Commitment Program (the Purchase Program). These gains will not occur in the future as FFELP originations and the Purchase Program ended in 2010. | |
| Losses on derivatives and hedging activities, net, increased by $213 million in the quarter ended March 31, 2011 compared with the prior quarter. The primary factors affecting the change in losses in the first quarter of 2011 were interest rates and foreign currency fluctuations. 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, we expect gains and (losses) on derivatives and hedging activities, net, to vary significantly in future periods. | |
| Servicing revenue increased by $7 million primarily due to the seasonality of late and forbearance fees. We typically experience higher late and forbearance fees in the first quarter as a result of recent graduates having reached the end of their allowable grace periods and entered active repayment for the first time. | |
| Gains on debt repurchases decreased $80 million quarter-over-quarter while the principal amount of debt repurchased decreased to $825 million, as compared with the $1.3 billion repurchased in the quarter ended December 31, 2010. | |
| Other income increased by $24 million primarily due to a $20 million increase 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 decreased $5 million quarter-over-quarter primarily as a result of our cost saving initiative. The first quarter of 2011 included $10 million of litigation contingency expenses, $11 million from the acceleration of stock compensation and $12 million of third-party servicing expense related to the $25 billion loan portfolio acquisition on December 31, 2010. The fourth quarter of 2010 included $11 million in transaction fees related to the acquisition of the $25 billion loan portfolio and $10 million in restructuring-related impairments. | |
| Restructuring expenses decreased $32 million in the first quarter of 2011 compared with the fourth quarter 2010. Restructuring expenses in the first quarter of 2011 were comprised of $4 million related to continuing operations. | |
| Income tax expense from continuing operations decreased $162 million for the quarter ended March 31, 2011 as compared with the prior quarter. The effective tax rates for first quarter 2011 and fourth quarter 2010 were 36 percent and 34 percent, respectively. The change in the effective tax rate for the first quarter 2011 was primarily driven by reductions to the liability for uncertain tax positions recorded in the prior quarter. |
8
Net
Loss from Discontinued Operations
Net loss from discontinued operations in the quarter ended
March 31, 2011 was $2 million compared with a net loss
from discontinued operations of $52 million for the quarter
ended December 31, 2010. In the fourth quarter of 2010, we
began actively marketing our Purchased Paper Non
Mortgage business for sale and have concluded it is probable
this business will be sold within one year at which time we
would exit the business. As a result, the results of operations
of this business were also required to be presented in
discontinued operations beginning in the fourth quarter of 2010.
In connection with this presentation, we are required to carry
this business at the lower of fair value or historical cost
basis. As a result, we recorded an after-tax loss of
$52 million from discontinued operations in the fourth
quarter of 2010, primarily due to adjusting the value of this
business to its estimated fair value. Our Purchased Paper
businesses are presented in discontinued operations for the
current and prior periods.
Core
Earnings Definition and Limitations
We prepare financial statements in accordance with GAAP.
However, we also evaluate our business segments on a basis that
differs from GAAP. We refer to this different basis of
presentation as Core Earnings. We provide this
Core Earnings basis of presentation on a
consolidated basis for each business segment because this is
what we internally review when making management decisions
regarding our performance and how we allocate resources. We also
refer to this information in our presentations with credit
rating agencies, lenders and investors. Because our Core
Earnings basis of presentation corresponds to our segment
financial presentations, we are required by GAAP to provide
Core Earnings disclosure in the notes to our
consolidated financial statements for our business segments.
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 adjusted for
in our Core Earnings presentations are: (1) our
use of derivatives 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.
While GAAP provides a uniform, comprehensive basis of
accounting, for the reasons described above, 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 within 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 entitled
Core Earnings Definition and
Limitations Differences between Core
Earnings and GAAP below.
9
The following tables show Core Earnings for each
business segment and our business as a whole along with the
adjustments made to the income/expense items to reconcile the
amounts to our reported GAAP results as required by GAAP.
Quarter Ended March 31, 2011 | ||||||||||||||||||||||||||||||||
FFELP |
Consumer |
Business |
Total Core |
Total |
||||||||||||||||||||||||||||
(Dollars in millions)
|
Loans | Lending | Services | Other | Eliminations(1) | Earnings | Adjustments(2) | GAAP | ||||||||||||||||||||||||
Interest income:
|
||||||||||||||||||||||||||||||||
Student loans
|
$ | 736 | $ | 604 | $ | | $ | | $ | | $ | 1,340 | $ | 141 | $ | 1,481 | ||||||||||||||||
Other loans
|
| | | 6 | | 6 | | 6 | ||||||||||||||||||||||||
Cash and investments
|
1 | 3 | 3 | 1 | (3 | ) | 5 | | 5 | |||||||||||||||||||||||
Total interest income
|
737 | 607 | 3 | 7 | (3 | ) | 1,351 | 141 | 1,492 | |||||||||||||||||||||||
Total interest expense
|
370 | 197 | | 15 | (3 | ) | 579 | 15 | 594 | |||||||||||||||||||||||
Net interest income
|
367 | 410 | 3 | (8 | ) | | 772 | 126 | 898 | |||||||||||||||||||||||
Less: provisions for loan losses
|
23 | 275 | | 5 | | 303 | | 303 | ||||||||||||||||||||||||
Net interest income (loss) after provisions for loan losses
|
344 | 135 | 3 | (13 | ) | | 469 | 126 | 595 | |||||||||||||||||||||||
Servicing revenue
|
25 | 17 | 245 | | (189 | ) | 98 | | 98 | |||||||||||||||||||||||
Contingency revenue
|
| | 78 | | | 78 | | 78 | ||||||||||||||||||||||||
Gains on debt repurchases
|
| | | 64 | | 64 | (26 | ) | 38 | |||||||||||||||||||||||
Other income (loss)
|
| | 11 | 2 | | 13 | (233 | ) | (220 | ) | ||||||||||||||||||||||
Total other income (loss)
|
25 | 17 | 334 | 66 | (189 | ) | 253 | (259 | ) | (6 | ) | |||||||||||||||||||||
Expenses:
|
||||||||||||||||||||||||||||||||
Direct operating expenses
|
195 | 82 | 128 | 8 | (189 | ) | 224 | | 224 | |||||||||||||||||||||||
Overhead expenses
|
| | | 79 | | 79 | | 79 | ||||||||||||||||||||||||
Operating expenses
|
195 | 82 | 128 | 87 | (189 | ) | 303 | | 303 | |||||||||||||||||||||||
Goodwill and acquired intangible assets impairment and
amortization
|
| | | | | | 6 | 6 | ||||||||||||||||||||||||
Restructuring expenses
|
1 | 1 | 1 | 1 | | 4 | | 4 | ||||||||||||||||||||||||
Total expenses
|
196 | 83 | 129 | 88 | (189 | ) | 307 | 6 | 313 | |||||||||||||||||||||||
Income (loss) from continuing operations, before income tax
expense (benefit)
|
173 | 69 | 208 | (35 | ) | | 415 | (139 | ) | 276 | ||||||||||||||||||||||
Income tax expense
(benefit)(3)
|
64 | 25 | 76 | (12 | ) | | 153 | (54 | ) | 99 | ||||||||||||||||||||||
Net income (loss) from continuing operations
|
109 | 44 | 132 | (23 | ) | | 262 | (85 | ) | 177 | ||||||||||||||||||||||
Loss from discontinued operations, net of taxes
|
| | | (2 | ) | | (2 | ) | | (2 | ) | |||||||||||||||||||||
Net income (loss)
|
$ | 109 | $ | 44 | $ | 132 | $ | (25 | ) | $ | | $ | 260 | $ | (85 | ) | $ | 175 | ||||||||||||||
(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: |
Quarter Ended March 31, 2011 | ||||||||||||
Net Impact of |
||||||||||||
Net Impact of |
Goodwill and |
|||||||||||
Derivative |
Acquired |
|||||||||||
(Dollars in millions)
|
Accounting | Intangibles | Total | |||||||||
Net interest income after provisions for loan losses
|
$ | 126 | $ | | $ | 126 | ||||||
Total other income (loss)
|
(259 | ) | | (259 | ) | |||||||
Goodwill and acquired intangible assets impairment and
amortization
|
| 6 | 6 | |||||||||
Total Core Earnings adjustments to GAAP
|
$ | (133 | ) | $ | (6 | ) | (139 | ) | ||||
Income tax benefit
|
(54 | ) | ||||||||||
Net loss
|
$ | (85 | ) | |||||||||
(3) | Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
10
Quarter Ended December 31, 2010 | ||||||||||||||||||||||||||||||||
FFELP |
Consumer |
Business |
Total Core |
Total |
||||||||||||||||||||||||||||
(Dollars in millions)
|
Loans | Lending | Services | Other | Eliminations(1) | Earnings | Adjustments(2) | GAAP | ||||||||||||||||||||||||
Interest income:
|
||||||||||||||||||||||||||||||||
Student loans
|
$ | 631 | $ | 602 | $ | | $ | | $ | | $ | 1,233 | $ | 146 | $ | 1,379 | ||||||||||||||||
Other loans
|
| | | 6 | | 6 | | 6 | ||||||||||||||||||||||||
Cash and investments
|
3 | 3 | 4 | 1 | (4 | ) | 7 | 1 | 8 | |||||||||||||||||||||||
Total interest income
|
634 | 605 | 4 | 7 | (4 | ) | 1,246 | 147 | 1,393 | |||||||||||||||||||||||
Total interest expense
|
303 | 196 | | 12 | (4 | ) | 507 | 29 | 536 | |||||||||||||||||||||||
Net interest income
|
331 | 409 | 4 | (5 | ) | | 739 | 118 | 857 | |||||||||||||||||||||||
Less: provisions for loan losses
|
22 | 294 | | 4 | | 320 | | 320 | ||||||||||||||||||||||||
Net interest income (loss) after provisions for loan losses
|
309 | 115 | 4 | (9 | ) | | 419 | 118 | 537 | |||||||||||||||||||||||
Servicing revenue
|
15 | 15 | 216 | | (155 | ) | 91 | | 91 | |||||||||||||||||||||||
Contingency revenue
|
| | 78 | | | 78 | | 78 | ||||||||||||||||||||||||
Gains on debt repurchases
|
| | | 118 | | 118 | | 118 | ||||||||||||||||||||||||
Other income (loss)
|
318 | | 14 | (2 | ) | | 330 | (43 | ) | 287 | ||||||||||||||||||||||
Total other income
|
333 | 15 | 308 | 116 | (155 | ) | 617 | (43 | ) | 574 | ||||||||||||||||||||||
Expenses:
|
||||||||||||||||||||||||||||||||
Direct operating expenses
|
180 | 85 | 127 | 4 | (155 | ) | 241 | | 241 | |||||||||||||||||||||||
Overhead expenses
|
| | | 67 | | 67 | | 67 | ||||||||||||||||||||||||
Operating expenses
|
180 | 85 | 127 | 71 | (155 | ) | 308 | | 308 | |||||||||||||||||||||||
Goodwill and acquired intangible assets impairment and
amortization
|
| | | | | | 10 | 10 | ||||||||||||||||||||||||
Restructuring expenses
|
12 | 7 | 2 | 12 | | 33 | | 33 | ||||||||||||||||||||||||
Total expenses
|
192 | 92 | 129 | 83 | (155 | ) | 341 | 10 | 351 | |||||||||||||||||||||||
Income from continuing operations, before income tax expense
|
450 | 38 | 183 | 24 | | 695 | 65 | 760 | ||||||||||||||||||||||||
Income tax
expense(3)
|
161 | 14 | 65 | 2 | | 242 | 19 | 261 | ||||||||||||||||||||||||
Net income from continuing operations
|
289 | 24 | 118 | 22 | | 453 | 46 | 499 | ||||||||||||||||||||||||
Loss from discontinued operations, net of taxes
|
| | | (52 | ) | | (52 | ) | | (52 | ) | |||||||||||||||||||||
Net income (loss)
|
$ | 289 | $ | 24 | $ | 118 | $ | (30 | ) | $ | | $ | 401 | $ | 46 | $ | 447 | |||||||||||||||
(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: |
Quarter Ended December 31, 2010 | ||||||||||||
Net Impact of |
||||||||||||
Net Impact of |
Goodwill and |
|||||||||||
Derivative |
Acquired |
|||||||||||
(Dollars in millions)
|
Accounting | Intangibles | Total | |||||||||
Net interest income after provisions for loan losses
|
$ | 118 | $ | | $ | 118 | ||||||
Total other income (loss)
|
(43 | ) | | (43 | ) | |||||||
Goodwill and acquired intangible assets impairment and
amortization
|
| 10 | 10 | |||||||||
Total Core Earnings adjustments to GAAP
|
$ | 75 | $ | (10 | ) | 65 | ||||||
Income tax expense
|
19 | |||||||||||
Net income
|
$ | 46 | ||||||||||
(3) | Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
11
Quarter Ended March 31, 2010 | ||||||||||||||||||||||||||||||||
FFELP |
Consumer |
Business |
Total Core |
Total |
||||||||||||||||||||||||||||
(Dollars in millions)
|
Loans | Lending | Services | Other | Eliminations(1) | Earnings | Adjustments(2) | GAAP | ||||||||||||||||||||||||
Interest income:
|
||||||||||||||||||||||||||||||||
Student loans
|
$ | 643 | $ | 565 | $ | | $ | | $ | | $ | 1,208 | $ | 164 | $ | 1,372 | ||||||||||||||||
Other loans
|
| | | 9 | | 9 | | 9 | ||||||||||||||||||||||||
Cash and investments
|
2 | 3 | 5 | | (5 | ) | 5 | | 5 | |||||||||||||||||||||||
Total interest income
|
645 | 568 | 5 | 9 | (5 | ) | 1,222 | 164 | 1,386 | |||||||||||||||||||||||
Total interest expense
|
336 | 173 | | 11 | (5 | ) | 515 | 17 | 532 | |||||||||||||||||||||||
Net interest income (loss)
|
309 | 395 | 5 | (2 | ) | | 707 | 147 | 854 | |||||||||||||||||||||||
Less: provisions for loan losses
|
23 | 325 | | 11 | | 359 | | 359 | ||||||||||||||||||||||||
Net interest income (loss) after provisions for loan losses
|
286 | 70 | 5 | (13 | ) | | 348 | 147 | 495 | |||||||||||||||||||||||
Servicing revenue
|
21 | 19 | 245 | 1 | (164 | ) | 122 | | 122 | |||||||||||||||||||||||
Contingency revenue
|
| | 80 | | | 80 | | 80 | ||||||||||||||||||||||||
Gains on debt repurchases
|
| | | 90 | | 90 | | 90 | ||||||||||||||||||||||||
Other income
|
| | 11 | 10 | | 21 | (80 | ) | (59 | ) | ||||||||||||||||||||||
Total other income
|
21 | 19 | 336 | 101 | (164 | ) | 313 | (80 | ) | 233 | ||||||||||||||||||||||
Expenses:
|
||||||||||||||||||||||||||||||||
Direct operating expenses
|
188 | 80 | 118 | 2 | (164 | ) | 224 | | 224 | |||||||||||||||||||||||
Overhead expenses
|
| | | 63 | | 63 | | 63 | ||||||||||||||||||||||||
Operating expenses
|
188 | 80 | 118 | 65 | (164 | ) | 287 | | 287 | |||||||||||||||||||||||
Goodwill and acquired intangible assets impairment and
amortization
|
| | | | | | 10 | 10 | ||||||||||||||||||||||||
Restructuring expenses
|
19 | 2 | 3 | 1 | | 25 | | 25 | ||||||||||||||||||||||||
Total expenses
|
207 | 82 | 121 | 66 | (164 | ) | 312 | 10 | 322 | |||||||||||||||||||||||
Income from continuing operations, before income tax expense
|
100 | 7 | 220 | 22 | | 349 | 57 | 406 | ||||||||||||||||||||||||
Income tax
expense(3)
|
36 | 2 | 79 | 10 | | 127 | 32 | 159 | ||||||||||||||||||||||||
Net income from continuing operations
|
64 | 5 | 141 | 12 | | 222 | 25 | 247 | ||||||||||||||||||||||||
Loss from discontinued operations, net of taxes
|
| | | (7 | ) | | (7 | ) | | (7 | ) | |||||||||||||||||||||
Net income
|
$ | 64 | $ | 5 | $ | 141 | $ | 5 | $ | | $ | 215 | $ | 25 | $ | 240 | ||||||||||||||||
(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: |
Quarter Ended March 31, 2010 | ||||||||||||
Net Impact of |
||||||||||||
Net Impact of |
Goodwill and |
|||||||||||
Derivative |
Acquired |
|||||||||||
(Dollars in millions)
|
Accounting | Intangibles | Total | |||||||||
Net interest income after provisions for loan losses
|
$ | 147 | $ | | $ | 147 | ||||||
Total other income (loss)
|
(80 | ) | | (80 | ) | |||||||
Goodwill and acquired intangible assets impairment and
amortization
|
| 10 | 10 | |||||||||
Total Core Earnings adjustments to GAAP
|
$ | 67 | $ | (10 | ) | 57 | ||||||
Income tax expense
|
32 | |||||||||||
Net income
|
$ | 25 | ||||||||||
(3) | Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
12
Differences
between Core Earnings and GAAP
The following discussion summarizes the differences between
Core Earnings and GAAP net income, and details each
specific adjustment required to reconcile our Core
Earnings segment presentation to our GAAP earnings.
Quarters Ended | ||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
Core Earnings
|
$ | 260 | $ | 401 | $ | 215 | ||||||
Core Earnings adjustments:
|
||||||||||||
Net impact of derivative accounting
|
(133 | ) | 75 | 67 | ||||||||
Net impact of goodwill and acquired intangibles
|
(6 | ) | (10 | ) | (10 | ) | ||||||
Total Core Earnings adjustments before income tax
effect
|
(139 | ) | 65 | 57 | ||||||||
Net income tax effect
|
54 | (19 | ) | (32 | ) | |||||||
Total Core Earnings adjustments
|
(85 | ) | 46 | 25 | ||||||||
GAAP net income
|
$ | 175 | $ | 447 | $ | 240 | ||||||
1) | Derivative Accounting: Core Earnings exclude periodic unrealized gains and losses that are caused primarily by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP. To a lesser extent, these periodic unrealized gains and losses are also a result of ineffectiveness recognized related to effective hedges. These unrealized gains and losses occur in our FFELP Loans, Consumer Lending and Other business segments. Under GAAP, for derivatives that are held to maturity, the cumulative net unrealized gain or loss at the time of maturity 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 items life. |
The table below quantifies the adjustments for derivative
accounting on our net income for the quarters ended
March 31, 2011, December 31, 2010 and March 31,
2010 when compared with the accounting principles employed in
all years prior to the adoption of ASC 815 related to
accounting for derivative financial instruments.
Quarters Ended | ||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
Core Earnings derivative adjustments:
|
||||||||||||
Gains (losses) on derivative and hedging activities, net,
included in other
income(1)
|
$ | (242 | ) | $ | (29 | ) | $ | (82 | ) | |||
Plus: Realized losses on derivative and hedging activities,
net(1)
|
186 | 202 | 204 | |||||||||
Unrealized gains (losses) on derivative and hedging activities,
net
|
(56 | ) | 173 | 122 | ||||||||
Amortization of net premiums on Floor Income contracts in net
interest income
|
(85 | ) | (86 | ) | (53 | ) | ||||||
Other derivative accounting adjustments to reflect economic
impact
|
8 | (12 | ) | (2 | ) | |||||||
Total net impact derivative
accounting(2)
|
$ | (133 | ) | $ | 75 | $ | 67 | |||||
(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) | 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
Activities
The derivative 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
13
line item below net interest income. The table below summarizes
the realized losses on derivative and hedging activities and the
associated reclassification on a Core Earnings basis
for the quarters ended March 31, 2011, December 31,
2010 and March 31, 2010.
Quarters Ended | ||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
Reclassification of realized gains (losses) on derivative and
hedging activities:
|
||||||||||||
Net settlement expense on Floor Income Contracts reclassified to
net interest income
|
$ | (226 | ) | $ | (233 | ) | $ | (210 | ) | |||
Net settlement income on interest rate swaps reclassified to net
interest income
|
16 | 28 | 6 | |||||||||
Foreign exchange derivatives losses reclassified to other income
|
(1 | ) | | | ||||||||
Net realized gains (losses) on terminated derivative contracts
reclassified to other income
|
25 | 3 | | |||||||||
Total reclassifications of realized losses on derivative and
hedging activities
|
(186 | ) | (202 | ) | (204 | ) | ||||||
Add: Unrealized gains (losses) on derivative and hedging
activities,
net(1)
|
(56 | ) | 173 | 122 | ||||||||
Losses on derivative and hedging activities, net
|
$ | (242 | ) | $ | (29 | ) | $ | (82 | ) | |||
(1) | Unrealized gains (losses) on derivative and hedging activities, net comprises the following unrealized mark-to-market gains (losses): |
Quarters Ended | ||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
Floor Income Contracts
|
$ | 151 | $ | 267 | $ | 19 | ||||||
Basis swaps
|
(6 | ) | (23 | ) | 63 | |||||||
Foreign currency hedges
|
(194 | ) | (54 | ) | 8 | |||||||
Other
|
(7 | ) | (17 | ) | 32 | |||||||
Total unrealized gains (losses) on derivative and hedging
activities, net
|
$ | (56 | ) | $ | 173 | $ | 122 | |||||
2) | Goodwill and Acquired Intangibles: Our Core Earnings exclude goodwill and intangible impairment and the amortization of acquired intangibles. The following table summarizes the acquired intangible adjustments for the quarters ended March 31, 2011, December 31, 2010 and March 31, 2010. |
Quarters Ended | ||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
Core Earnings goodwill and acquired intangibles
adjustments(1):
|
||||||||||||
Amortization of acquired intangibles from continuing operations
|
$ | (6 | ) | $ | (10 | ) | $ | (10 | ) | |||
Total Core Earnings goodwill and acquired
intangibles adjustments
|
$ | (6 | ) | $ | (10 | ) | $ | (10 | ) | |||
(1) | Negative amounts are subtracted from Core Earnings net income to arrive at GAAP net income. |
14
Segment
Earnings Summary Core Earnings
Basis
FFELP
Loans Segment
The following table includes Core Earnings results
for our FFELP Loans segment.
Quarters Ended | % Increase (Decrease) | |||||||||||||||||||
March 31, |
December 31, |
March 31, |
March 31, 2011 vs. |
March 31, 2011 vs. |
||||||||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | Dec. 31, 2010 | March 31, 2010 | |||||||||||||||
Core Earnings interest income:
|
||||||||||||||||||||
FFELP Loans
|
$ | 736 | $ | 631 | $ | 643 | 17 | % | 14 | % | ||||||||||
Cash and investments
|
1 | 3 | 2 | (67 | ) | (50 | ) | |||||||||||||
Total Core Earnings interest income
|
737 | 634 | 645 | 16 | 14 | |||||||||||||||
Total Core Earnings interest expense
|
370 | 303 | 336 | 22 | 10 | |||||||||||||||
Net Core Earnings interest income
|
367 | 331 | 309 | 11 | 19 | |||||||||||||||
Less: provisions for loan losses
|
23 | 22 | 23 | 5 | | |||||||||||||||
Net Core Earnings interest income after provisions
for loan losses
|
344 | 309 | 286 | 11 | 20 | |||||||||||||||
Servicing revenue
|
25 | 15 | 21 | 67 | 19 | |||||||||||||||
Other income
|
| 318 | | (100 | ) | | ||||||||||||||
Total other income
|
25 | 333 | 21 | (92 | ) | 19 | ||||||||||||||
Direct operating expenses
|
195 | 180 | 188 | 8 | 4 | |||||||||||||||
Restructuring expenses
|
1 | 12 | 19 | (92 | ) | (95 | ) | |||||||||||||
Total expenses
|
196 | 192 | 207 | 2 | (5 | ) | ||||||||||||||
Income from continuing operations, before income tax expense
|
173 | 450 | 100 | (62 | ) | 73 | ||||||||||||||
Income tax expense
|
64 | 161 | 36 | (60 | ) | 78 | ||||||||||||||
Core Earnings
|
$ | 109 | $ | 289 | $ | 64 | (62 | )% | 70 | % | ||||||||||
FFELP
Loans Core Earnings Net Interest
Margin
The following table shows the FFELP Loans Core
Earnings net interest margin along with reconciliation to
the GAAP-basis FFELP Loans net interest margin.
Quarters Ended | ||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||
2011 | 2010 | 2010 | ||||||||||
Core Earnings basis FFELP student loan yield
|
2.63 | % | 2.61 | % | 2.50 | % | ||||||
Hedged Floor Income
|
.23 | .27 | .18 | |||||||||
Unhedged Floor Income
|
.08 | .02 | .01 | |||||||||
Consolidation Loan Rebate Fees
|
(.66 | ) | (.64 | ) | (.60 | ) | ||||||
Repayment Borrower Benefits
|
(.10 | ) | (.11 | ) | (.09 | ) | ||||||
Premium amortization
|
(.15 | ) | (.19 | ) | (.20 | ) | ||||||
Core Earnings basis FFELP student loan net yield
|
2.03 | 1.96 | 1.80 | |||||||||
Core Earnings basis FFELP student loan cost of funds
|
(.96 | ) | (.86 | ) | (.89 | ) | ||||||
Core Earnings basis FFELP student loan spread
|
1.07 | 1.10 | .91 | |||||||||
Core Earnings basis FFELP other asset spread impact
|
(.09 | ) | (.11 | ) | (.08 | ) | ||||||
Core Earnings basis FFELP Loans net interest
margin(1)
|
.98 | % | .99 | % | .83 | % | ||||||
Core Earnings basis FFELP Loans net interest
margin(1)
|
.98 | % | .99 | % | .83 | % | ||||||
Adjustment for GAAP accounting treatment
|
.35 | .34 | .41 | |||||||||
GAAP-basis FFELP Loans net interest margin
|
1.33 | % | 1.33 | % | 1.24 | % | ||||||
(1) | The average balances of our FFELP Core Earnings basis interest-earning assets for the respective periods are: |
(Dollars in millions)
|
||||||||||||
FFELP Loans
|
$ | 147,381 | $ | 127,522 | $ | 144,854 | ||||||
Other interest-earning assets
|
5,016 | 5,420 | 5,661 | |||||||||
Total FFELP Core Earnings basis interest-earning
assets
|
$ | 152,397 | $ | 132,942 | $ | 150,515 | ||||||
15
The Core Earnings basis FFELP Loans net interest
margin for the quarter ended March 31, 2011 decreased by
1 basis point from the prior quarter. This was primarily
the result of higher cost of funds primarily caused by our
issuance of $2 billion of unsecured debt in the first
quarter of 2011 which offset a higher margin earned on the
acquisition of $25 billion in securitized FFELP loans on
December 31, 2010. The Core Earnings basis
FFELP Loans net interest margin for the quarter ended
March 31, 2011 increased by 15 basis points from the
year-ago quarter. This was primarily the result of the
replacement of the $20 billion lower margin loans sold to
ED in third quarter 2010 by the $25 billion in higher
margin loans acquired on December 31, 2010 and an increase
in Floor Income. These increases were partially offset by a
higher cost of funds in the current quarter as higher cost debt
has been issued in the past year compared to the historical
funding portfolio.
As of March 31, 2011, our FFELP Loan portfolio totaled
approximately $145.6 billion, comprised of
$54.4 billion of FFELP Stafford and $91.2 billion of
FFELP Consolidation Loans. The weighted average life of these
portfolios is 4.9 years and 9.4 years, respectively,
assuming a CPR of 6 percent and 3 percent,
respectively.
FFELP
Provisions for Loan Losses and Loan Charge-Offs
The following tables summarize the FFELP provisions for loan
losses and FFELP loan charge-offs for the quarters ended
March 31, 2011, December 31, 2010 and March 31,
2010.
Quarters Ended | ||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
FFELP Loan provisions for loan losses
|
$ | 23 | $ | 22 | $ | 23 | ||||||
FFELP Loan charge-offs
|
$ | 20 | $ | 21 | $ | 21 |
Servicing
Revenue and Other Income FFELP Loans
Segment
The following table summarizes the components of Core
Earnings other income for our FFELP Loans segment for the
quarters ended March 31, 2011, December 31, 2010 and
March 31, 2010.
Quarters Ended | ||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
Servicing revenue
|
$ | 25 | $ | 15 | $ | 21 | ||||||
Gains (losses) on sales of loans and securities, net
|
| 318 | (2 | ) | ||||||||
Other
|
| | 2 | |||||||||
Total other income, net
|
$ | 25 | $ | 333 | $ | 21 | ||||||
Servicing revenue for our FFELP Loans segment primarily consists
of late fees.
The gain on sale of loans and securities primarily relates to
gains on sales of loans to ED as part of the Purchase Program.
In the fourth quarter of 2010 we sold $20.4 billion face
amount of FFELP Loans to ED which resulted in a
$321 million gain. These gains will not occur in the future
as FFELP originations and the Purchase Program ended in 2010.
Operating
Expenses FFELP Loans Segment
Operating expenses for our FFELP Loans segment primarily include
the contractual rates we are paid 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. For the quarters
ended March 31, 2011, December 31, 2010 and
March 31, 2010, operating expenses for our FFELP Loans
segment totaled $195 million, $180 million and
$188 million, respectively. The increase in operating
expenses in the first quarter of 2011 compared with the prior
quarter and year-ago quarter was primarily the increase in
servicing costs related to the $25 billion loan portfolio
acquisition on December 31, 2010. The intercompany
16
servicing revenue charged from the Business Services segment and
included in those amounts was $189 million,
$155 million and $164 million for the quarters ended
March 31, 2011, December 31, 2010 and March 31,
2010, respectively. Operating expenses, excluding
restructuring-related asset impairments, were 54 basis
points, 54 basis points and 52 basis points of average
FFELP Loans in the quarters ended March 31, 2011,
December 31, 2010 and March 31, 2010, respectively.
Consumer
Lending Segment
The following table includes Core Earnings results
for our Consumer Lending segment.
Quarters Ended | % Increase (Decrease) | |||||||||||||||||||
March 31, |
December 31, |
March 31, |
March 31, 2011 vs. |
March 31, 2011 vs. |
||||||||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | Dec. 31, 2010 | March 31, 2010 | |||||||||||||||
Core Earnings interest income:
|
||||||||||||||||||||
Private Education Loans
|
$ | 604 | $ | 602 | $ | 565 | | % | 7 | % | ||||||||||
Cash and investments
|
3 | 3 | 3 | | | |||||||||||||||
Total Core Earnings interest income
|
607 | 605 | 568 | | 7 | |||||||||||||||
Total Core Earnings interest expense
|
197 | 196 | 173 | 1 | 14 | |||||||||||||||
Net Core Earnings interest income
|
410 | 409 | 395 | | 4 | |||||||||||||||
Less: provisions for loan losses
|
275 | 294 | 325 | (6 | ) | (15 | ) | |||||||||||||
Net Core Earnings interest income after provisions
for loan losses
|
135 | 115 | 70 | 17 | 93 | |||||||||||||||
Servicing revenue
|
17 | 15 | 19 | 13 | (11 | ) | ||||||||||||||
Direct operating expenses
|
82 | 85 | 80 | (4 | ) | 3 | ||||||||||||||
Restructuring expenses
|
1 | 7 | 2 | (86 | ) | (50 | ) | |||||||||||||
Total expenses
|
83 | 92 | 82 | (10 | ) | 1 | ||||||||||||||
Income before income tax expense
|
69 | 38 | 7 | 82 | 886 | |||||||||||||||
Income tax expense
|
25 | 14 | 2 | 79 | 1,150 | |||||||||||||||
Core Earnings
|
$ | 44 | $ | 24 | $ | 5 | 83 | % | 780 | % | ||||||||||
Consumer
Lending Core Earnings Net Interest
Margin
The following table shows the Consumer Lending Core
Earnings net interest margin along with reconciliation to
the GAAP-basis Consumer Lending net interest margin before
provisions for loan losses.
Quarters Ended December 31, | ||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||
2011 | 2010 | 2010 | ||||||||||
Core Earnings basis Private Education Student Loan
yield
|
6.36 | % | 6.29 | % | 5.99 | % | ||||||
Discount amortization
|
.26 | .22 | .26 | |||||||||
Core Earnings basis Private Education Loan net yield
|
6.62 | 6.51 | 6.25 | |||||||||
Core Earnings basis Private Education Loan cost of
funds
|
(1.97 | ) | (1.83 | ) | (1.69 | ) | ||||||
Core Earnings basis Private Education Loan spread
|
4.65 | 4.68 | 4.56 | |||||||||
Core Earnings basis other asset spread impact
|
(.54 | ) | (.76 | ) | (.72 | ) | ||||||
Core Earnings basis Consumer Lending net interest
margin(1)
|
4.11 | % | 3.92 | % | 3.84 | % | ||||||
Core Earnings basis Consumer Lending net interest
margin(1)
|
4.11 | % | 3.92 | % | 3.84 | % | ||||||
Adjustment for GAAP accounting treatment
|
(.04 | ) | .03 | (.01 | ) | |||||||
GAAP-basis Consumer Lending net interest
margin(1)
|
4.07 | % | 3.95 | % | 3.83 | % | ||||||
(1) | The average balances of our Consumer Lending Core Earnings basis interest-earning assets for the respective periods are: |
(Dollars in millions)
|
||||||||||||
Private Education Loans
|
$ | 37,006 | $ | 36,674 | $ | 36,679 | ||||||
Other interest-earning assets
|
3,360 | 4,699 | 5,071 | |||||||||
Total Consumer Lending Core Earnings basis
interest-earning assets
|
$ | 40,366 | $ | 41,373 | $ | 41,750 | ||||||
17
The Consumer Lending net interest margin for the quarter ended
March 31, 2011 increased 19 basis points from the
prior quarter and 27 basis points from the year-ago
quarter. The Private Education Loan spread remained relatively
unchanged. The size of the Other asset portfolio (which is
primarily securitization trust restricted cash and cash held at
our bank) has decreased significantly since the first quarter
2010. This Other asset portfolio earns a negative yield and as a
result, when its relative weighting decreases compared to the
Private Education Loan portfolio, the overall net interest
margin increases. This is the primary driver of the increase in
the net interest margin compared to prior periods.
Private
Education Loans Provisions for Loan Losses and Loan
Charge-Offs
The following tables summarize the total Private Education Loans
provisions for loan losses and charge-offs for the quarters
ended March 31, 2011, December 31, 2010 and
March 31, 2010.
Quarters Ended | ||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
Private Education Loans provision for loan losses
|
$ | 275 | $ | 294 | $ | 325 | ||||||
Private Education Loans charge-offs
|
$ | 273 | $ | 322 | $ | 284 |
The first-quarter 2011 provision expense and charge-offs are
down from the prior quarter and year-ago quarter as the
portfolios credit performance continued to improve since
the weakening in the U.S. economy that began in 2008, with
the expected future performance continuing to improve as well.
The Private Education Loan portfolio experienced a significant
increase in delinquencies through the first quarter of 2010
(delinquencies as a percentage of loans in repayment were
12.2 percent at March 31, 2010); since then
delinquencies as a percentage of loans in repayment have
declined to 10.4 percent at March 31, 2011. Private
Education Loans in forbearance as a percentage of loans in
repayment and forbearance remained unchanged from the prior
quarter at 4.6 percent and decreased from 5.1 percent
at March 31, 2010. Charge-offs as a percentage of loans in
repayment have declined significantly from 4.7 percent in
the first quarter 2010 to 3.9 percent in the first quarter
of 2011. The Private Education Loan allowance coverage of annual
charge-offs ratio was 1.8 at March 31, 2011 compared with
1.6 at December 31, 2010, and 1.7 at March 31, 2010.
The allowance for loan losses as a percentage of ending Private
Education Loans in repayment decreased from 8.2 percent at
March 31, 2010 to 7.2 percent at March 31, 2011.
We analyzed changes in the key ratios when determining the
appropriate Private Education Loan allowance for loan losses.
Servicing
Revenue and Other Income Consumer Lending
Segment
Servicing revenue for our Consumer Lending segment primarily
includes late fees and forbearance fees. For the quarters ended
March 31, 2011, December 31, 2010 and March 31,
2010, servicing revenue for our Consumer Lending segment totaled
$17 million, $15 million and $19 million,
respectively.
Operating
Expenses Consumer Lending Segment
Operating expenses for our Consumer Lending segment include
costs incurred to originate Private Education Loans and to
service and collect on our Private Education Loan portfolio. For
the quarters ended March 31, 2011, December 31, 2010,
and March 31, 2010, operating expenses for our Consumer
Lending segment totaled $82 million, $85 million and
$80 million, respectively. Operating expenses declined in
the first quarter of 2011 compared with the prior quarter
primarily as a result of our cost cutting initiatives. Operating
expenses, excluding restructuring-related asset impairments,
were 90 basis points, 92 basis points, and
88 basis points, respectively, of average Private Education
Loans in the first quarter of 2011, the fourth quarter of 2010
and the first quarter of 2010, respectively.
18
Business
Services Segment
The following tables include Core Earnings results
for our Business Services segment.
Quarters Ended | % Increase (Decrease) | |||||||||||||||||||
March 31, |
December 31, |
March 31, |
March 31, 2011 vs. |
March 31, 2011 vs. |
||||||||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | Dec. 31, 2010 | March 31, 2010 | |||||||||||||||
Net interest income after provision
|
$ | 3 | $ | 4 | $ | 5 | (25 | )% | (40 | )% | ||||||||||
Servicing revenue:
|
||||||||||||||||||||
Intercompany loan servicing
|
189 | 155 | 164 | 22 | 15 | |||||||||||||||
Third-party loan servicing
|
22 | 22 | 19 | | 16 | |||||||||||||||
Account asset servicing
|
19 | 16 | 17 | 19 | 12 | |||||||||||||||
Campus Payment Solutions
|
6 | 8 | 8 | (25 | ) | (25 | ) | |||||||||||||
Guarantor servicing
|
9 | 15 | 37 | (40 | ) | (76 | ) | |||||||||||||
Total servicing revenue
|
245 | 216 | 245 | 13 | | |||||||||||||||
Contingency revenue
|
78 | 78 | 80 | | (3 | ) | ||||||||||||||
Transaction fees
|
11 | 14 | 11 | (21 | ) | | ||||||||||||||
Other
|
| | | | | |||||||||||||||
Total other income
|
334 | 308 | 336 | 8 | (1 | ) | ||||||||||||||
Direct operating expenses
|
128 | 127 | 118 | 1 | 8 | |||||||||||||||
Restructuring expenses
|
1 | 2 | 3 | (50 | ) | (67 | ) | |||||||||||||
Total expenses
|
129 | 129 | 121 | | 7 | |||||||||||||||
Income from continuing operations, before income tax expense
|
208 | 183 | 220 | 14 | (5 | ) | ||||||||||||||
Income tax expense
|
76 | 65 | 79 | 17 | (4 | ) | ||||||||||||||
Core Earnings
|
$ | 132 | $ | 118 | $ | 141 | 12 | % | (6 | )% | ||||||||||
Our Business Services segment earns intercompany loan servicing
fees from servicing the FFELP Loans in our FFELP Loans segment.
The average balance of this portfolio was $144 billion,
$119 billion and $129 billion for the quarters ended
March 31, 2011, December 31, 2010 and March 31,
2010, respectively. The increase in Intercompany loan servicing
revenue from the prior and year-ago quarters is primarily the
result of the acquisition of the $25 billion FFELP Loan
portfolio on December 31, 2010 which was partially offset
by the amortization of the underlying portfolio as well as the
FFELP Loans sold to ED as part of the Participation Program in
2010.
We are servicing approximately 3.2 million accounts under
the ED Servicing Contract as of March 31, 2011. Loan
servicing fees in the first quarter of 2011, the fourth quarter
of 2010 and first quarter of 2010 included $15 million,
$16 million and $9 million, respectively, of servicing
revenue related to the loans we are servicing under the ED
Servicing Contract.
Account asset servicing revenue represents fees earned on
program management, transfer and servicing agent services and
administration services for our various 529 college-savings
plans.
Campus Payment Solutions revenue is earned from our Campus
Payment Solutions business whose services include comprehensive
financing and transaction processing solutions that we provide
to college financial aid offices and students to streamline the
financial aid process.
The decrease in Guarantor servicing revenue compared with the
year-ago period was primarily due to HCERA being effective as of
July 1, 2010 and our no longer earning Guarantor issuance
fees and the lower balance of outstanding FFELP Loans on which
we earn other fees.
19
The following table presents the outstanding inventory of
contingent collections receivables that our Business Services
segment will collect on behalf of others.
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
Contingency:
|
||||||||||||
Student loans
|
$ | 10,393 | $ | 10,362 | $ | 9,846 | ||||||
Other
|
1,883 | 1,730 | 1,573 | |||||||||
Total
|
$ | 12,276 | $ | 12,092 | $ | 11,419 | ||||||
Transaction fees are earned in conjunction with our rewards
program from participating companies based on member purchase
activity, either online or in stores, depending on the
contractual arrangement with the participating company.
Typically, a percentage of the purchase price of the consumer
members eligible purchases with participating companies is
set aside in an account maintained by us on behalf of our
members.
Revenues related to services performed on FFELP Loans accounted
for 77 percent, 75 percent and 79 percent,
respectively, of total segment revenues for the quarters ended
March 31, 2011, December 31, 2010 and March 31,
2010.
Operating
Expenses Business Services Segment
For the quarters ended March 31, 2011, December 31,
2010 and March 31, 2010, operating expenses for the
Business Services segment totaled $128 million,
$127 million and $118 million, respectively. Operating
expenses increased from the prior periods primarily as a result
of the increase in servicing costs associated with the loan
portfolio acquisition on December 31, 2010.
Other
Segment
The following table includes Core Earnings results
of our Other segment
Quarters Ended | % Increase (Decrease) | |||||||||||||||||||
March 31, |
December 31, |
March 31, |
March 31, 2011 vs. |
March 31, 2011 vs. |
||||||||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | Dec. 31, 2010 | March 31, 2010 | |||||||||||||||
Net interest loss after provision
|
$ | (13 | ) | $ | (9 | ) | $ | (13 | ) | 44 | % | | % | |||||||
Gains on debt repurchases
|
64 | 118 | 90 | (46 | ) | (29 | ) | |||||||||||||
Other
|
2 | (2 | ) | 11 | 200 | (82 | ) | |||||||||||||
Total income
|
66 | 116 | 101 | (43 | ) | (35 | ) | |||||||||||||
Direct operating expenses
|
8 | 4 | 2 | 100 | 300 | |||||||||||||||
Overhead expenses:
|
||||||||||||||||||||
Corporate overhead
|
49 | 34 | 32 | 44 | 53 | |||||||||||||||
Unallocated information technology costs
|
30 | 33 | 31 | (9 | ) | (3 | ) | |||||||||||||
Total overhead expenses
|
79 | 67 | 63 | 18 | 25 | |||||||||||||||
Operating expenses
|
87 | 71 | 65 | 23 | 34 | |||||||||||||||
Restructuring expenses
|
1 | 12 | 1 | (92 | ) | | ||||||||||||||
Total expenses
|
88 | 83 | 66 | 6 | 33 | |||||||||||||||
Income (loss) from continuing operations, before income tax
expense
|
(35 | ) | 24 | 22 | (246 | ) | (259 | ) | ||||||||||||
Income tax expense (benefit)
|
(12 | ) | 2 | 10 | (700 | ) | (220 | ) | ||||||||||||
Net income (loss) from continuing operations
|
(23 | ) | 22 | 12 | (205 | ) | (292 | ) | ||||||||||||
Loss from discontinued operations, net of tax
|
(2 | ) | (52 | ) | (7 | ) | (96 | ) | 71 | |||||||||||
Core Earnings net loss
|
$ | (25 | ) | $ | (30 | ) | $ | 5 | (17 | )% | (600 | )% | ||||||||
20
Purchased
Paper Business
Our Purchased Paper businesses are presented in discontinued
operations for the current and prior periods. (See
Consolidated Earnings Summary GAAP-basis
for further discussion.)
The following table summarizes the carrying value of the
Purchased Paper Non-Mortgage portfolio:
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
Carrying value of purchased paper
|
$ | 67 | $ | 95 | $ | 245 |
Gains
on Debt Repurchases
We began repurchasing our outstanding debt in the second quarter
of 2008. We repurchased $825 million, $1.3 billion and
$1.3 billion face amount of our senior unsecured notes for
the quarters ended March 31, 2011, December 31, 2010
and March 31, 2010, respectively. Since the second quarter
of 2008, we repurchased $11.1 billion face amount of our
senior unsecured notes in the aggregate, with maturity dates
ranging from 2008 to 2016.
Overhead
Corporate overhead is comprised of costs related to executive
management, the board of directors, accounting, finance, legal,
human resources and stock option expense. Unallocated
information technology costs are related to infrastructure and
operations.
For the quarters ended March 31, 2011, December 31,
2010 and March 31, 2010, operating expenses for the Other
segment totaled $87 million, $71 million and
$65 million, respectively. The increase in corporate
overhead expenses in the first quarter of 2011 compared with the
prior quarter and the prior year quarter is primarily the result
of a change in the terms of our stock compensation plans. In the
first quarter, we changed our stock compensation plans so that
retirement eligible employees would not forfeit unvested stock
compensation upon their retirement. This change had the effect
of accelerating the future stock compensation expenses
associated with these unvested stock grants into the current
period for those employees that are retirement eligible.
Financial
Condition
This section provides additional information regarding the
changes related to our loan portfolio assets and related
liabilities as well as credit performance indicators related to
our Consumer Lending portfolio.
21
Summary
of our Student Loan Portfolio
Ending
Student Loan Balances, net
March 31, 2011 | ||||||||||||||||||||
FFELP |
FFELP |
Private |
||||||||||||||||||
Stafford and |
Consolidation |
Total |
Education |
|||||||||||||||||
(Dollars in millions)
|
Other | Loans | FFELP | Loans | Total | |||||||||||||||
Total student loan portfolio:
|
||||||||||||||||||||
In-school
|
$ | 6,073 | $ | | $ | 6,073 | $ | 3,412 | $ | 9,485 | ||||||||||
Grace and repayment
|
47,477 | 90,366 | 137,843 | 34,374 | 172,217 | |||||||||||||||
Total, gross
|
53,550 | 90,366 | 143,916 | 37,786 | 181,702 | |||||||||||||||
Unamortized premium/(discount)
|
937 | 895 | 1,832 | (876 | ) | 956 | ||||||||||||||
Receivable for partially charged-off loans
|
| | | 1,090 | 1,090 | |||||||||||||||
Allowance for losses
|
(121 | ) | (69 | ) | (190 | ) | (2,034 | ) | (2,224 | ) | ||||||||||
Total student loan portfolio
|
$ | 54,366 | $ | 91,192 | $ | 145,558 | $ | 35,966 | $ | 181,524 | ||||||||||
% of total FFELP
|
37 | % | 63 | % | 100 | % | ||||||||||||||
% of total
|
30 | % | 50 | % | 80 | % | 20 | % | 100 | % |
December 31, 2010 | ||||||||||||||||||||
FFELP |
FFELP |
Private |
||||||||||||||||||
Stafford and |
Consolidation |
Total |
Education |
|||||||||||||||||
(Dollars in millions)
|
Other | Loans | FFELP | Loans | Total | |||||||||||||||
Total student loan portfolio:
|
||||||||||||||||||||
In-school
|
$ | 6,333 | $ | | $ | 6,333 | $ | 3,752 | $ | 10,085 | ||||||||||
Grace and repayment
|
49,068 | 91,537 | 140,605 | 33,780 | 174,385 | |||||||||||||||
Total, gross
|
55,401 | 91,537 | 146,938 | 37,532 | 184,470 | |||||||||||||||
Unamortized premium/(discount)
|
971 | 929 | 1,900 | (894 | ) | 1,006 | ||||||||||||||
Receivable for partially charged-off loans
|
| | | 1,039 | 1,039 | |||||||||||||||
Allowance for losses
|
(120 | ) | (69 | ) | (189 | ) | (2,021 | ) | (2,210 | ) | ||||||||||
Total student loan portfolio
|
$ | 56,252 | $ | 92,397 | $ | 148,649 | $ | 35,656 | $ | 184,305 | ||||||||||
% of total FFELP
|
38 | % | 62 | % | 100 | % | ||||||||||||||
% of total
|
31 | % | 50 | % | 81 | % | 19 | % | 100 | % |
March 31, 2010 | ||||||||||||||||||||
FFELP |
FFELP |
Private |
||||||||||||||||||
Stafford and |
Consolidation |
Total |
Education |
|||||||||||||||||
(Dollars in millions)
|
Other | Loans | FFELP | Loans | Total | |||||||||||||||
Total student loan portfolio:
|
||||||||||||||||||||
In-school
|
$ | 20,018 | $ | | $ | 20,018 | $ | 6,387 | $ | 26,405 | ||||||||||
Grace and repayment
|
43,279 | 80,617 | 123,896 | 31,109 | 155,005 | |||||||||||||||
Total, gross
|
63,297 | 80,617 | 143,914 | 37,496 | 181,410 | |||||||||||||||
Unamortized premium/(discount)
|
1,168 | 1,628 | 2,796 | (912 | ) | 1,884 | ||||||||||||||
Receivable for partially charged-off loans
|
| | | 797 | 797 | |||||||||||||||
Allowance for losses
|
(119 | ) | (67 | ) | (186 | ) | (2,019 | ) | (2,205 | ) | ||||||||||
Total student loan portfolio
|
$ | 64,346 | $ | 82,178 | $ | 146,524 | $ | 35,362 | $ | 181,886 | ||||||||||
% of total FFELP
|
44 | % | 56 | % | 100 | % | ||||||||||||||
% of total
|
35 | % | 46 | % | 81 | % | 19 | % | 100 | % |
22
Average
Student Loan Balances (net of unamortized
premium/discount)
Quarter Ended March 31, 2011 | ||||||||||||||||||||
FFELP |
FFELP |
Private |
||||||||||||||||||
Stafford and |
Consolidation |
Education |
||||||||||||||||||
(Dollars in millions)
|
Other | Loans | Total FFELP | Loans | Total | |||||||||||||||
Total
|
$ | 55,535 | $ | 91,846 | $ | 147,381 | $ | 37,006 | $ | 184,387 | ||||||||||
% of FFELP
|
38 | % | 62 | % | 100 | % | ||||||||||||||
% of total
|
30 | % | 50 | % | 80 | % | 20 | % | 100 | % |
Quarter Ended December 31, 2010 | ||||||||||||||||||||
FFELP |
FFELP |
Private |
||||||||||||||||||
Stafford and |
Consolidation |
Education |
||||||||||||||||||
(Dollars in millions)
|
Other | Loans | Total FFELP | Loans | Total | |||||||||||||||
Total
|
$ | 48,302 | $ | 79,220 | $ | 127,522 | $ | 36,674 | $ | 164,196 | ||||||||||
% FFELP
|
38 | % | 62 | % | 100 | % | ||||||||||||||
% of total
|
29 | % | 49 | % | 78 | % | 22 | % | 100 | % |
Quarter Ended March 31, 2010 | ||||||||||||||||||||
FFELP |
FFELP |
Private |
||||||||||||||||||
Stafford and |
Consolidation |
Education |
||||||||||||||||||
(Dollars in millions)
|
Other | Loans | Total FFELP | Loans | Total | |||||||||||||||
Total
|
$ | 62,167 | $ | 82,687 | $ | 144,854 | $ | 36,679 | $ | 181,533 | ||||||||||
% of FFELP
|
43 | % | 57 | % | 100 | % | ||||||||||||||
% of total
|
34 | % | 46 | % | 80 | % | 20 | % | 100 | % |
Student
Loan Activity
Total Portfolio |
||||||||||||||||||||
Three Months Ended March 31, 2011 | ||||||||||||||||||||
FFELP |
FFELP |
Total Private |
||||||||||||||||||
Stafford and |
Consolidation |
Total |
Education |
Total |
||||||||||||||||
(Dollars in millions)
|
Other | Loans | FFELP | Loans | Portfolio | |||||||||||||||
Beginning balance
|
$ | 56,252 | $ | 92,397 | $ | 148,649 | $ | 35,656 | $ | 184,305 | ||||||||||
Consolidations to third parties
|
(615 | ) | (225 | ) | (840 | ) | (17 | ) | (857 | ) | ||||||||||
Acquisitions and originations
|
103 | 247 | 350 | 929 | 1,279 | |||||||||||||||
Capitalized interest and premium/discount amortization
|
322 | 371 | 693 | 295 | 988 | |||||||||||||||
Net acquisitions and originations
|
(190 | ) | 393 | 203 | 1,207 | 1,410 | ||||||||||||||
Sales
|
(189 | ) | | (189 | ) | | (189 | ) | ||||||||||||
Repayments/defaults/other
|
(1,507 | ) | (1,598 | ) | (3,105 | ) | (897 | ) | (4,002 | ) | ||||||||||
Ending balance
|
$ | 54,366 | $ | 91,192 | $ | 145,558 | $ | 35,966 | $ | 181,524 | ||||||||||
23
Total Portfolio |
||||||||||||||||||||
Three Months Ended December 31, 2010 | ||||||||||||||||||||
FFELP |
FFELP |
Total Private |
||||||||||||||||||
Stafford and |
Consolidation |
Total |
Education |
Total |
||||||||||||||||
(Dollars in millions)
|
Other | Loans | FFELP | Loans | Portfolio | |||||||||||||||
Beginning balance
|
$ | 66,681 | $ | 79,912 | $ | 146,593 | $ | 35,542 | $ | 182,135 | ||||||||||
Consolidations to third parties
|
(547 | ) | (202 | ) | (749 | ) | (13 | ) | (762 | ) | ||||||||||
Acquisitions and originations
|
159 | | 159 | 417 | 576 | |||||||||||||||
Loan acquisition on December 31, 2010
|
11,237 | 13,652 | 24,889 | | 24,889 | |||||||||||||||
Capitalized interest and premium/discount amortization
|
439 | 311 | 750 | 518 | 1,268 | |||||||||||||||
Net acquisitions and originations
|
11,288 | 13,761 | 25,049 | 922 | 25,971 | |||||||||||||||
Sales
|
(20,671 | ) | | (20,671 | ) | | (20,671 | ) | ||||||||||||
Repayments/defaults/other
|
(1,046 | ) | (1,276 | ) | (2,322 | ) | (808 | ) | (3,130 | ) | ||||||||||
Ending balance
|
$ | 56,252 | $ | 92,397 | $ | 148,649 | $ | 35,656 | $ | 184,305 | ||||||||||
Total Portfolio |
||||||||||||||||||||
Three Months Ended March 31, 2010 | ||||||||||||||||||||
FFELP |
FFELP |
Total Private |
||||||||||||||||||
Stafford and |
Consolidation |
Total |
Education |
Total |
||||||||||||||||
(Dollars in millions)
|
Other | Loans | FFELP | Loans | Portfolio | |||||||||||||||
Beginning balance GAAP-basis
|
$ | 52,675 | $ | 68,379 | $ | 121,054 | $ | 22,753 | $ | 143,807 | ||||||||||
Consolidation of off-balance sheet
loans(1)
|
5,500 | 14,797 | 20,297 | 12,341 | 32,638 | |||||||||||||||
Beginning balance total portfolio
|
58,175 | 83,176 | 141,351 | 35,094 | 176,445 | |||||||||||||||
Consolidations to third parties
|
(467 | ) | (167 | ) | (634 | ) | (12 | ) | (646 | ) | ||||||||||
Acquisitions and originations
|
8,197 | | 8,197 | 810 | 9,007 | |||||||||||||||
Capitalized interest and premium/discount amortization
|
262 | 335 | 597 | 312 | 909 | |||||||||||||||
Net acquisitions and originations
|
7,992 | 168 | 8,160 | 1,110 | 9,270 | |||||||||||||||
Sales
|
(76 | ) | | (76 | ) | | (76 | ) | ||||||||||||
Repayments/defaults/other
|
(1,745 | ) | (1,166 | ) | (2,911 | ) | (842 | ) | (3,753 | ) | ||||||||||
Ending balance
|
$ | 64,346 | $ | 82,178 | $ | 146,524 | $ | 35,362 | $ | 181,886 | ||||||||||
(1) | On January 1, 2010, upon the adoption of the new consolidation accounting guidance, all off-balance sheet loans are included in the GAAP-basis. |
Private
Education Loan Originations
Total Private Education Loan originations increased
12 percent from the year-ago quarter to $940 million
in the quarter ended March 31, 2011.
The following table summarizes our Private Education Loan
originations.
Quarters Ended | ||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
Private Education Loan originations
|
$ | 940 | $ | 413 | $ | 840 | ||||||
24
Consumer
Lending Portfolio Performance
Private
Education Loan Delinquencies and Forbearance
Private Education Loan Delinquencies | ||||||||||||||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||||||||||||||
2011 | 2010 | 2010 | ||||||||||||||||||||||
(Dollars in millions)
|
Balance | % | Balance | % | Balance | % | ||||||||||||||||||
Loans
in-school/grace/deferment(1)
|
$ | 8,323 | $ | 8,340 | $ | 11,452 | ||||||||||||||||||
Loans in
forbearance(2)
|
1,343 | 1,340 | 1,338 | |||||||||||||||||||||
Loans in repayment and percentage of each status:
|
||||||||||||||||||||||||
Loans current
|
25,195 | 89.6 | % | 24,888 | 89.4 | % | 21,699 | 87.9 | % | |||||||||||||||
Loans delinquent
31-60 days(3)
|
930 | 3.3 | 1,011 | 3.6 | 842 | 3.4 | ||||||||||||||||||
Loans delinquent
61-90 days(3)
|
564 | 2.0 | 471 | 1.7 | 576 | 2.3 | ||||||||||||||||||
Loans delinquent greater than
90 days(3)
|
1,431 | 5.1 | 1,482 | 5.3 | 1,589 | 6.4 | ||||||||||||||||||
Total Private Education Loans in repayment
|
28,120 | 100.0 | % | 27,852 | 100.0 | % | 24,706 | 100.0 | % | |||||||||||||||
Total Private Education Loans, gross
|
37,786 | 37,532 | 37,496 | |||||||||||||||||||||
Private Education Loan unamortized discount
|
(876 | ) | (894 | ) | (912 | ) | ||||||||||||||||||
Total Private Education Loans
|
36,910 | 36,638 | 36,584 | |||||||||||||||||||||
Private Education Loan receivable for partially charged-off loans
|
1,090 | 1,039 | 797 | |||||||||||||||||||||
Private Education Loan allowance for losses
|
(2,034 | ) | (2,021 | ) | (2,019 | ) | ||||||||||||||||||
Private Education Loans, net
|
$ | 35,966 | $ | 35,656 | $ | 35,362 | ||||||||||||||||||
Percentage of Private Education Loans in repayment
|
74.4 | % | 74.2 | % | 65.9 | % | ||||||||||||||||||
Delinquencies as a percentage of Private Education Loans in
repayment
|
10.4 | % | 10.6 | % | 12.2 | % | ||||||||||||||||||
Loans in forbearance as a percentage of loans in repayment and
forbearance
|
4.6 | % | 4.6 | % | 5.1 | % | ||||||||||||||||||
Loans in repayment greater than 12 months as a percentage
of loans in
repayment(4)
|
69.3 | % | 67.3 | % | 61.5 | % | ||||||||||||||||||
(1) | Loans for borrowers who may still be attending school or engaging in other permitted educational activities and are not yet 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 borrowers who have requested extension of grace period generally during employment transition or who have temporarily ceased making 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. | |
(4) | Based on number of months in an active repayment status for which a scheduled monthly payment was due. |
25
Allowance
for Private Education Loan Losses
The following tables summarize changes in the allowance for
Private Education Loan losses for the quarters ended
March 31, 2011, December 31, 2010 and March 31,
2010.
Quarters Ended | ||||||||||||
Mar. 31, |
Dec. 31, |
Mar. 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
Allowance at beginning of period GAAP Basis
|
$ | 2,021 | $ | 2,035 | $ | 1,443 | ||||||
Consolidation of off-balance sheet
loans(1)
|
| | 524 | |||||||||
Allowance at beginning of period total portfolio
|
2,021 | 2,035 | 1,967 | |||||||||
Provision for Private Education Loan losses
|
275 | 294 | 325 | |||||||||
Charge-offs
|
(273 | ) | (322 | ) | (284 | ) | ||||||
Reclassification of interest reserve
|
11 | 14 | 11 | |||||||||
Allowance at end of period
|
$ | 2,034 | $ | 2,021 | $ | 2,019 | ||||||
Charge-offs as a percentage of average loans in repayment
(annualized)
|
3.9 | % | 4.8 | % | 4.7 | % | ||||||
Charge-offs as a percentage of average loans in repayment and
forbearance (annualized)
|
3.8 | % | 4.5 | % | 4.4 | % | ||||||
Allowance as a percentage of the ending total loan balance
|
5.2 | % | 5.2 | % | 5.3 | % | ||||||
Allowance as a percentage of ending loans in repayment
|
7.2 | % | 7.3 | % | 8.2 | % | ||||||
Average coverage of charge-offs (annualized)
|
1.8 | 1.6 | 1.7 | |||||||||
Ending total
loans(2)
|
$ | 38,877 | $ | 38,572 | $ | 38,293 | ||||||
Average loans in repayment
|
$ | 28,127 | $ | 26,916 | $ | 24,646 | ||||||
Ending loans in repayment
|
$ | 28,120 | $ | 27,852 | $ | 24,706 |
(1) | On January 1, 2010, upon the adoption of the new consolidation accounting guidance, all off-balance sheet loans are included in the GAAP-basis. | |
(2) | Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans. |
26
The following table provides detail for the traditional and
non-traditional Private Education Loans at March 31, 2011,
December 31, 2010 and March 31, 2010.
March 31, 2011 | December 31, 2010 | March 31, 2010 | ||||||||||||||||||||||||||||||||||
Non- |
Non- |
Non- |
||||||||||||||||||||||||||||||||||
Traditional | Traditional | Total | Traditional | Traditional | Total | Traditional | Traditional | Total | ||||||||||||||||||||||||||||
Ending total
loans(1)
|
$ | 34,563 | $ | 4,313 | $ | 38,876 | $ | 34,177 | $ | 4,395 | $ | 38,572 | $ | 33,630 | $ | 4,663 | $ | 38,293 | ||||||||||||||||||
Ending loans in repayment
|
25,401 | 2,719 | 28,120 | 25,044 | 2,808 | 27,852 | 21,883 | 2,823 | 24,706 | |||||||||||||||||||||||||||
Private Education Loan allowance for losses
|
1,298 | 736 | 2,034 | 1,231 | 790 | 2,021 | 1,125 | 894 | 2,019 | |||||||||||||||||||||||||||
Charge-offs as a percentage of average loans in repayment
(annualized)
|
2.9 | % | 13.4 | % | 3.9 | % | 3.6 | % | 14.9 | % | 4.8 | % | 3.2 | % | 15.9 | % | 4.7 | % | ||||||||||||||||||
Allowance as a percentage of total ending loan balance
|
3.8 | % | 17.1 | % | 5.2 | % | 3.6 | % | 18.0 | % | 5.2 | % | 3.3 | % | 19.2 | % | 5.3 | % | ||||||||||||||||||
Allowance as a percentage of ending loans in repayment
|
5.1 | % | 27.1 | % | 7.2 | % | 4.9 | % | 28.2 | % | 7.3 | % | 5.1 | % | 31.7 | % | 8.2 | % | ||||||||||||||||||
Average coverage of charge-offs (annualized)
|
1.8 | 2.0 | 1.8 | 1.4 | 1.9 | 1.6 | 1.6 | 2.0 | 1.7 | |||||||||||||||||||||||||||
Delinquencies as a percentage of Private Education Loans in
repayment
|
8.7 | % | 26.4 | % | 10.4 | % | 8.8 | % | 27.4 | % | 10.6 | % | 9.8 | % | 30.5 | % | 12.2 | % | ||||||||||||||||||
Delinquencies greater than 90 days as a percentage of
Private Education Loans in repayment
|
4.1 | % | 14.4 | % | 5.1 | % | 4.2 | % | 15.0 | % | 5.3 | % | 4.9 | % | 18.1 | % | 6.4 | % | ||||||||||||||||||
Loans in forbearance as a percentage of loans in repayment and
forbearance
|
4.4 | % | 6.5 | % | 4.6 | % | 4.4 | % | 6.1 | % | 4.6 | % | 4.9 | % | 7.0 | % | 5.1 | % | ||||||||||||||||||
Loans that entered repayment during the
period(2)
|
$ | 1,519 | $ | 86 | $ | 1,605 | $ | 2,510 | $ | 187 | $ | 2,697 | $ | 1,531 | $ | 130 | $ | 1,661 | ||||||||||||||||||
Percentage of Private Education Loans with a cosigner
|
64 | % | 29 | % | 60 | % | 63 | % | 28 | % | 59 | % | 62 | % | 28 | % | 58 | % | ||||||||||||||||||
Average FICO at origination
|
725 | 623 | 716 | 725 | 623 | 715 | 725 | 623 | 714 |
(1) | Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans. | |
(2) | Includes loans that are required to make a payment for the first time. |
27
The table below shows the composition and status of the Private
Education Loan portfolio aged by number of months in active
repayment status (months for which a scheduled monthly payment
was due). As indicated in the table, the percentage of loans in
forbearance status decreases the longer the loans have been in
active repayment status. At March 31, 2011, loans in
forbearance status as a percentage of loans in repayment and
forbearance were 6.3 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 77 percent of our Core Earnings
basis Private Education Loans in forbearance status has been in
active repayment status less than 25 months.
(Dollars in millions) |
Monthly Scheduled Payments Due |
Not Yet in |
||||||||||||||||||||||||||
March 31, 2011
|
1 to 12 | 13 to 24 | 25 to 36 | 37 to 48 | More than 48 | Repayment | Total | |||||||||||||||||||||
Loans in-school/grace/deferment
|
$ | | $ | | $ | | $ | | $ | | $ | 8,323 | $ | 8,323 | ||||||||||||||
Loans in forbearance
|
815 | 220 | 138 | 74 | 96 | | 1,343 | |||||||||||||||||||||
Loans in repayment current
|
7,271 | 5,960 | 4,256 | 2,942 | 4,766 | | 25,195 | |||||||||||||||||||||
Loans in repayment delinquent
31-60 days
|
413 | 225 | 132 | 67 | 93 | | 930 | |||||||||||||||||||||
Loans in repayment delinquent
61-90 days
|
290 | 134 | 64 | 33 | 43 | | 564 | |||||||||||||||||||||
Loans in repayment delinquent greater than
90 days
|
664 | 395 | 175 | 84 | 113 | | 1,431 | |||||||||||||||||||||
Total
|
$ | 9,453 | $ | 6,934 | $ | 4,765 | $ | 3,200 | $ | 5,111 | $ | 8,323 | 37,786 | |||||||||||||||
Unamortized discount
|
(876 | ) | ||||||||||||||||||||||||||
Receivable for partially charged-off loans
|
1,090 | |||||||||||||||||||||||||||
Allowance for loan losses
|
(2,034 | ) | ||||||||||||||||||||||||||
Total Private Education Loans, net
|
$ | 35,966 | ||||||||||||||||||||||||||
Loans in forbearance as a percentage of loans in repayment and
forbearance
|
8.6 | % | 3.2 | % | 2.9 | % | 2.3 | % | 1.9 | % | | % | 4.6 | % | ||||||||||||||
(Dollars in millions) |
Monthly Scheduled Payments Due |
Not Yet in |
||||||||||||||||||||||||||
December 31, 2010
|
1 to 12 | 13 to 24 | 25 to 36 | 37 to 48 | More than 48 | Repayment | Total | |||||||||||||||||||||
Loans in-school/grace/deferment
|
$ | | $ | | $ | | $ | | $ | | $ | 8,340 | $ | 8,340 | ||||||||||||||
Loans in forbearance
|
845 | 211 | 127 | 70 | 87 | | 1,340 | |||||||||||||||||||||
Loans in repayment current
|
7,716 | 5,976 | 4,181 | 2,764 | 4,251 | | 24,888 | |||||||||||||||||||||
Loans in repayment delinquent
31-60 days
|
476 | 247 | 127 | 68 | 93 | | 1,011 | |||||||||||||||||||||
Loans in repayment delinquent
61-90 days
|
232 | 106 | 60 | 31 | 42 | | 471 | |||||||||||||||||||||
Loans in repayment delinquent greater than
90 days
|
694 | 411 | 180 | 86 | 111 | | 1,482 | |||||||||||||||||||||
Total
|
$ | 9,963 | $ | 6,951 | $ | 4,675 | $ | 3,019 | $ | 4,584 | $ | 8,340 | 37,532 | |||||||||||||||
Unamortized discount
|
(894 | ) | ||||||||||||||||||||||||||
Receivable for partially charged-off loans
|
1,039 | |||||||||||||||||||||||||||
Allowance for loan losses
|
(2,021 | ) | ||||||||||||||||||||||||||
Total Private Education Loans, net
|
$ | 35,656 | ||||||||||||||||||||||||||
Loans in forbearance as a percentage of loans in repayment and
forbearance
|
8.5 | % | 3.0 | % | 2.7 | % | 2.3 | % | 1.9 | % | | % | 4.6 | % | ||||||||||||||
28
(Dollars in millions) |
Monthly Scheduled Payments Due |
Not Yet in |
||||||||||||||||||||||||||
March 31, 2010
|
1 to 12 | 13 to 24 | 25 to 36 | 37 to 48 | More than 48 | Repayment | Total | |||||||||||||||||||||
Loans in-school/grace/deferment
|
$ | | $ | | $ | | $ | | $ | | $ | 11,452 | $ | 11,452 | ||||||||||||||
Loans in forbearance
|
945 | 187 | 94 | 49 | 63 | | 1,338 | |||||||||||||||||||||
Loans in repayment current
|
7,781 | 4,974 | 3,435 | 2,201 | 3,308 | | 21,699 | |||||||||||||||||||||
Loans in repayment delinquent
31-60 days
|
469 | 176 | 86 | 46 | 65 | | 842 | |||||||||||||||||||||
Loans in repayment delinquent
61-90 days
|
353 | 113 | 50 | 26 | 34 | | 576 | |||||||||||||||||||||
Loans in repayment delinquent greater than
90 days
|
908 | 388 | 137 | 65 | 91 | | 1,589 | |||||||||||||||||||||
Total
|
$ | 10,456 | $ | 5,838 | $ | 3,802 | $ | 2,387 | $ | 3,561 | $ | 11,452 | 37,496 | |||||||||||||||
Unamortized discount
|
(912 | ) | ||||||||||||||||||||||||||
Receivable for partially charged-off loans
|
797 | |||||||||||||||||||||||||||
Allowance for loan losses
|
(2,019 | ) | ||||||||||||||||||||||||||
Total Private Education Loans, net
|
$ | 35,362 | ||||||||||||||||||||||||||
Loans in forbearance as a percentage of loans in repayment and
forbearance
|
9.0 | % | 3.2 | % | 2.5 | % | 2.1 | % | 1.8 | % | | % | 5.1 | % | ||||||||||||||
As we have obtained further experience about the effectiveness
of forbearance, we have reduced the amount of time a loan will
spend in forbearance, thereby increasing our ongoing contact
with the borrower to encourage consistent repayment behavior
once the loan is returned to a current repayment status. As a
result, the balance of loans in a forbearance status as of
month-end has decreased since 2008. In addition, the monthly
average number of loans granted forbearance as a percentage of
loans in repayment and forbearance remained relatively flat at
5.4 percent in the first quarter of 2011 compared with the
year-ago quarter of 5.3 percent. As of March 31, 2011,
2.6 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, 2011 (borrowers made
payments on approximately 24 percent of these loans
immediately prior to being granted forbearance).
Receivable
for Partially Charged-Off Private Education Loans
At the end of each month, for loans that are 212 days past
due, we charge off the estimated loss of a defaulted loan
balance. Actual recoveries are applied against the remaining
loan balance that was not charged 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 charged off and immediately
included in provision expense.
The following tables summarize the activity in the receivable
for partially charged-off loans for the quarters ended
March 31, 2011, December 31, 2010 and March 31,
2010.
Quarters Ended | ||||||||||||
March 31, |
Dec. 31, |
March 31, |
||||||||||
(Dollars in millions)
|
2011 | 2010 | 2010 | |||||||||
Receivable at beginning of period GAAP basis
|
$ | 1,039 | $ | 979 | $ | 499 | ||||||
Consolidation of off-balance sheet
trusts(1)
|
| | 229 | |||||||||
Receivable at beginning of period
|
1,039 | 979 | 728 | |||||||||
Expected future recoveries of current period
defaults(2)
|
91 | 86 | 94 | |||||||||
Recoveries
|
(40 | ) | (26 | ) | (25 | ) | ||||||
Receivable at end of period
|
$ | 1,090 | $ | 1,039 | $ | 797 | ||||||
(1) | Upon the adoption of the new consolidation accounting guidance on January 1, 2010, we consolidated all of our off-balance sheet securitization trusts. | |
(2) | Net of any current period recoveries that were less than expected. |
29
Funding,
Liquidity and Capital
The following table details our main sources of primary
liquidity and the available capacity at March 31, 2011,
December 31, 2010 and March 31, 2010.
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
||||||||||
(Dollars in millions)
|
Available Capacity | Available Capacity | Available Capacity | |||||||||
Sources of primary liquidity for general corporate purposes:
|
||||||||||||
Unrestricted cash and liquid investments:
|
||||||||||||
Cash and cash equivalents
|
$ | 3,872 | $ | 4,342 | $ | 6,841 | ||||||
Commercial paper and asset-backed commercial paper
|
| | 650 | |||||||||
Other
|
79 | 85 | 98 | |||||||||
Total unrestricted cash and liquid
investments(1)(2)(3)
|
3,951 | 4,427 | 7,589 | |||||||||
Unused commercial paper and bank lines of
credit(4)
|
| | 3,485 | |||||||||
Available borrowings to the extent collateral exists:
|
||||||||||||
FFELP ABCP
facilities(5)
|
2,336 | 3,937 | 1,431 | |||||||||
FHLB-DM
facility(5)
|
9,350 | 8,664 | 11,036 | |||||||||
Total sources of primary liquidity for general corporate
purposes(6)
|
$ | 15,637 | $ | 17,028 | $ | 23,541 | ||||||
(1) | At March 31, 2011, December 31, 2010 and March 31, 2010, excludes $812 million, $872 million and $653 million, respectively, of non-liquid investments, classified as investments on our balance sheet in accordance with GAAP. | |
(2) | At March 31, 2011, December 31, 2010 and March 31, 2010, includes $724 million, $684 million and $553 million, respectively, of cash collateral pledged by derivative counterparties and held in our unrestricted cash. | |
(3) | At March 31, 2011, December 31, 2010 and March 31, 2010, includes $1.1 billion, $2.0 billion and $3.0 billion, respectively, of cash and liquid investments at the Bank. This cash will be used primarily to originate or acquire student loans. | |
(4) | On November 24, 2010, our remaining bank line of credit was retired. | |
(5) | Borrowing capacity is subject to availability of collateral. As of March 31, 2011, December 31, 2010 and March 31, 2010, we had $2.4 billion, $1.5 billion and $2.6 billion, respectively, of outstanding unencumbered FFELP Loans, net, available for use in either the FFELP ABCP facilities or FHLB-DM facility. | |
(6) | General corporate purposes primarily include originating Private Education Loans and repaying unsecured debt as it matures. |
In addition to the assets listed in the table above, we hold a
number of other unencumbered assets, consisting primarily of
Private Education Loans and other assets. At March 31,
2011, we had a total of $24.1 billion of unencumbered
assets, excluding goodwill and acquired intangibles. Total
student loans, net, comprised $14.3 billion of this
unencumbered asset total of which $11.9 billion relates to
Private Education Loans, net.
30
The following table reconciles encumbered and unencumbered
assets and their net impact on total tangible equity.
March 31, |
December 31, |
March 31, |
||||||||||
(Dollars in billions)
|
2011 | 2010 | 2010 | |||||||||
Net assets of consolidated variable interest entities
(encumbered assets)
|
$ | 12.6 | $ | 13.1 | $ | 13.7 | ||||||
Tangible unencumbered
assets(1)
|
24.1 | 22.3 | 28.7 | |||||||||
Unsecured debt
|
(27.3 | ) | (26.9 | ) | (33.6 | ) | ||||||
Mark-to-market
on unsecured hedged
debt(2)
|
(1.4 | ) | (1.4 | ) | (1.6 | ) | ||||||
Other liabilities, net
|
(3.3 | ) | (2.6 | ) | (2.4 | ) | ||||||
Total tangible equity
|
$ | 4.7 | $ | 4.5 | $ | 4.8 | ||||||
(1) | Excludes goodwill and acquired intangible assets. | |
(2) | At March 31, 2011, December 31, 2010 and March 31, 2010, there were $1.3 billion, $1.4 billion and $1.5 billion, respectively, of net gains on derivatives hedging this debt in unencumbered assets, which partially offset these losses. |
On April 14, 2011, we priced a $562 million Private
Education Loan ABS transaction at an all-in LIBOR equivalent
cost of one-month LIBOR plus 1.99 percent. This issue has a
weighted average life of 3.8 years and initial
over-collateralization of approximately 21 percent. This
issue is expected to close on April 26, 2011.
On March 3, 2011, we completed an $812 million FFELP
ABS transaction at an all-in LIBOR equivalent cost of one-month
LIBOR plus 1.14 percent. This issue has a weighted average
life of 5.8 years and initial over-collateralization of
approximately 3 percent.
On January 14, 2011, we issued a $2 billion five-year
6.25 percent fixed rate unsecured bond. The bond was issued
to yield 6.50 percent before underwriting fees. The rate on
the bond was swapped from a fixed rate to a floating rate equal
to an all-in cost of one-month LIBOR plus 4.46 percent. The
proceeds of this bond will be used for general corporate
purposes.
We also repurchase our outstanding unsecured debt in both
open-market repurchases and public tender offers. Repurchasing
debt helps us to better manage our short-term and long-term
funding needs. In the first quarter of 2011 we repurchased
$825 million face amount of our senior unsecured notes in
the aggregate, with maturity dates ranging from 2011 to 2014,
which resulted in a total gain of $64 million.
31
Core
Earnings Basis Borrowings
The following table presents the ending balances of our
Core Earnings basis borrowings at March 31,
2011, December 31, 2010 and March 31, 2010.
March 31, 2011 | December 31, 2010 | March 31, 2010 | ||||||||||||||||||||||||||||||||||
Total |
Total |
Total |
||||||||||||||||||||||||||||||||||
Core |
Core |
Core |
||||||||||||||||||||||||||||||||||
Short |
Long |
Earnings |
Short |
Long |
Earnings |
Short |
Long |
Earnings |
||||||||||||||||||||||||||||
(Dollars in millions)
|
Term | Term | Basis | Term | Term | Basis | Term | Term | Basis | |||||||||||||||||||||||||||
Unsecured borrowings:
|
||||||||||||||||||||||||||||||||||||
Senior unsecured debt
|
$ | 3,741 | $ | 16,894 | $ | 20,635 | $ | 4,361 | $ | 15,742 | $ | 20,103 | $ | 4,831 | $ | 22,214 | $ | 27,045 | ||||||||||||||||||
Brokered deposits
|
1,324 | 2,808 | 4,132 | 1,387 | 3,160 | 4,547 | 1,208 | 4,202 | 5,410 | |||||||||||||||||||||||||||
Retail and other deposits
|
1,500 | | 1,500 | 1,370 | | 1,370 | 209 | | 209 | |||||||||||||||||||||||||||
Other(1)
|
1,064 | | 1,064 | 887 | | 887 | 860 | | 860 | |||||||||||||||||||||||||||
Subtotal unsecured borrowings
|
7,629 | 19,702 | 27,331 | 8,005 | 18,902 | 26,907 | 7,108 | 26,416 | 33,524 | |||||||||||||||||||||||||||
Secured borrowings:
|
||||||||||||||||||||||||||||||||||||
FFELP Loans securitizations
|
| 111,043 | 111,043 | | 112,425 | 112,425 | | 100,493 | 100,493 | |||||||||||||||||||||||||||
Private Education Loans securitizations
|
| 20,983 | 20,983 | | 21,409 | 21,409 | | 21,784 | 21,784 | |||||||||||||||||||||||||||
ED Conduit Program facility
|
23,572 | | 23,572 | 24,484 | | 24,484 | 14,682 | | 14,682 | |||||||||||||||||||||||||||
ED Participation Program facility
|
| | | | | | 15,746 | | 15,746 | |||||||||||||||||||||||||||
ABCP borrowings
|
325 | 4,671 | 4,996 | | 5,853 | 5,853 | 3,278 | 5,000 | 8,278 | |||||||||||||||||||||||||||
Acquisition
financing(2)
|
| 1,064 | 1,064 | | 1,064 | 1,064 | | | | |||||||||||||||||||||||||||
FHLB-DM facility
|
525 | | 525 | 900 | | 900 | 90 | | 90 | |||||||||||||||||||||||||||
Indentured trusts
|
| 1,187 | 1,187 | | 1,246 | 1,246 | 60 | 1,505 | 1,565 | |||||||||||||||||||||||||||
Subtotal secured borrowings
|
24,422 | 138,948 | 163,370 | 25,384 | 141,997 | 167,381 | 33,856 | 128,782 | 162,638 | |||||||||||||||||||||||||||
Total
|
$ | 32,051 | $ | 158,650 | $ | 190,701 | $ | 33,389 | $ | 160,899 | $ | 194,288 | $ | 40,964 | $ | 155,198 | $ | 196,162 | ||||||||||||||||||
(1) | Other primarily consists of cash collateral held related to derivative exposures that are recorded as a short-term debt obligation. | |
(2) | Seller financing related to the acquisition of $25 billion of student loans. |
In March 2011, we retired all 70 million shares of common
stock held in treasury. This retirement decreased the balance in
treasury stock by $1.9 billion, with corresponding
decreases of $14 million in common stock and
$1.9 billion in additional paid-in capital. There was no
impact to total equity from this transaction.
***
Presentation slides for the conference call discussed below, as
well as additional information about the our loan portfolios,
new operating segments, and other details, may be accessed at
www.SallieMae.com/investors under the webcasts tab.
The company will host an earnings conference call tomorrow,
April 21, at 8 a.m. EDT. Sallie Mae executives
will be on hand to discuss various highlights of the quarter and
to answer questions related to the companys performance.
Individuals interested in participating in the call should dial
(877) 356-5689
(USA and Canada) or dial
(706) 679-0623
(international) and use access code 53619598 starting at
7:45 a.m. EDT. A live audio webcast of the conference
call may be accessed at www.SallieMae.com/investors.
Investors may access a replay of the conference call via the
companys website within one hour after the calls
conclusion. A telephone replay may be accessed two hours after
the calls conclusion through May 5 by dialing
(800) 642-1687
(USA and Canada) or
(706) 645-9291
(international) with access code 53619598.
This press release contains forward-looking
statements based on managements current expectations
as of the date of this release. These statements are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Because such statements
inherently involve risks and uncertainties, actual results may
differ materially from those expressed or implied by such
forward-looking statements. Such risks include, among others,
changes in the terms of student loans and the educational credit
marketplace arising from the implementation of applicable laws
and regulations, and from changes in such laws and
32
regulations, adverse results in legal disputes, changes in the
demand for educational financing or in financing preferences of
educational institutions, students and their families, limited
liquidity, increased financing costs and changes in the general
interest rate environment. Additional factors that could cause
the companys results to differ materially from those
described in the forward-looking statements can be found under
Risk Factors and Managements Discussion
and Analysis of Financial Condition and Results of
Operations in the companys Annual Report on
Form 10-K
for the year ended December 31, 2010 which is filed with
the Securities and Exchange Commission (SEC) and
available at the SECs internet site
(http://www.sec.gov).
***
Sallie Mae (NYSE: SLM) is the nations No. 1
saving, planning and paying for college company. Serving
23 million customers, Sallie Mae offers innovative savings
tools, tuition payment plans and education loans that promote
responsible financial habits and reward success. The company
manages or services $238 billion in education loans and
administers $37 billion in 529 college savings plans.
Members of its Upromise college savings rewards program have
earned $600 million to help pay for college. Sallie Mae is
also one of the leading financial service providers for
universities and governments at all levels, including supporting
$8 billion in ecommerce transactions annually at nearly
1,000 campuses. More information is available at
www.SallieMae.com. Commonly known as Sallie Mae, SLM
Corporation and its subsidiaries are not sponsored by or
agencies of the United States of America.
# #
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33