Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-13251
 
SLM Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
 
52-2013874
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
300 Continental Drive
Newark,
Delaware
19713
(Address of principal executive offices)
 
(Zip Code)
(302) 451-0200
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $.20 per share
SLM
The NASDAQ Global Select Market
Floating Rate Non-Cumulative Preferred Stock, Series B, par value $.20 per share
SLMBP
The NASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  No þ 
As of June 30, 2019, there were 426,594,990 shares of common stock outstanding.
 






SLM CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS
INDEX


Part I. Financial Information
 
 
Item 1.
 
Item 1.
 
Item 2.
 
Item 3.
 
Item 4.
 
PART II. Other Information
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.
 



2



SLM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
 
June 30,
 
December 31,
 
 
2019
 
2018
Assets
 
 
 
 
Cash and cash equivalents
 
$
3,998,514

 
$
2,559,106

Available-for-sale investments at fair value (cost of $331,519 and $182,325, respectively)
 
331,541

 
176,245

Loans held for investment (net of allowance for losses of $383,997 and $341,121, respectively)
 
23,268,646

 
22,270,919

Restricted cash
 
141,441

 
122,789

Other interest-earning assets
 
65,187

 
27,157

Accrued interest receivable
 
1,401,618

 
1,191,981

Premises and equipment, net
 
129,658

 
105,504

Income taxes receivable, net
 
93,489

 
41,570

Tax indemnification receivable
 
38,925

 
39,207

Other assets
 
116,207

 
103,695

Total assets
 
$
29,585,226

 
$
26,638,173

 
 
 
 
 
Liabilities
 
 
 
 
Deposits
 
$
21,178,134

 
$
18,943,158

Long-term borrowings
 
4,862,763

 
4,284,304

Upromise member accounts
 
200,676

 
213,104

Other liabilities
 
246,337

 
224,951

Total liabilities
 
26,487,910

 
23,665,517

 
 
 
 
 
Commitments and contingencies
 

 

 
 
 
 
 
Equity
 
 
 
 
Preferred stock, par value $0.20 per share, 20 million shares authorized:
 
 
 
 
Series B: 4 million and 4 million shares issued, respectively, at stated value of $100 per share
 
400,000

 
400,000

Common stock, par value $0.20 per share, 1.125 billion shares authorized: 453.5 million and 449.9 million shares issued, respectively
 
90,702

 
89,972

Additional paid-in capital
 
1,296,409

 
1,274,635

Accumulated other comprehensive income (loss) (net of tax expense (benefit) of $(4,390) and $3,436, respectively)
 
(13,579
)
 
10,623

Retained earnings
 
1,600,855

 
1,340,017

Total SLM Corporation stockholders’ equity before treasury stock
 
3,374,387

 
3,115,247

Less: Common stock held in treasury at cost: 26.9 million and 14.2 million shares, respectively
 
(277,071
)
 
(142,591
)
Total equity
 
3,097,316

 
2,972,656

Total liabilities and equity
 
$
29,585,226

 
$
26,638,173


See accompanying notes to consolidated financial statements.

3



SLM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
553,905

 
$
454,045

 
$
1,107,384

 
$
884,093

Investments
 
1,706

 
1,694

 
3,127

 
3,641

Cash and cash equivalents
 
18,111

 
6,572

 
29,664

 
11,808

Total interest income
 
573,722

 
462,311

 
1,140,175

 
899,542

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
136,597

 
90,605

 
262,584

 
168,061

Interest expense on short-term borrowings
 
1,135

 
1,128

 
2,300

 
3,521

Interest expense on long-term borrowings
 
39,122

 
29,628

 
76,142

 
54,396

Total interest expense
 
176,854

 
121,361

 
341,026

 
225,978

Net interest income
 
396,868

 
340,950

 
799,149

 
673,564

Less: provisions for credit losses
 
93,375

 
63,267

 
157,165

 
117,198

Net interest income after provisions for credit losses
 
303,493

 
277,683

 
641,984

 
556,366

Non-interest income:
 
 
 
 
 
 
 
 
Gains on sales of loans, net
 

 
2,060

 

 
2,060

Losses on sales of securities, net
 

 
(1,549
)
 

 
(1,549
)
Gains (losses) on derivatives and hedging activities, net
 
16,736

 
(5,268
)
 
19,499

 
(1,376
)
Other income
 
2,655

 
12,295

 
16,033

 
21,937

Total non-interest income
 
19,391

 
7,538

 
35,532

 
21,072

Non-interest expenses:
 
 
 
 
 
 
 
 
Compensation and benefits
 
66,495

 
60,245

 
145,233

 
128,562

FDIC assessment fees
 
7,356

 
8,001

 
14,974

 
16,797

Other operating expenses
 
64,955

 
67,069

 
118,746

 
114,922

Total non-interest expenses
 
138,806

 
135,315

 
278,953

 
260,281

Income before income tax expense
 
184,078

 
149,906

 
398,563

 
317,157

Income tax expense
 
33,801

 
40,074

 
90,097

 
81,071

Net income
 
150,277

 
109,832

 
308,466

 
236,086

Preferred stock dividends
 
4,331

 
3,920

 
8,799

 
7,317

Net income attributable to SLM Corporation common stock
 
$
145,946

 
$
105,912

 
$
299,667

 
$
228,769

Basic earnings per common share attributable to SLM Corporation
 
$
0.34

 
$
0.24

 
$
0.69

 
$
0.53

Average common shares outstanding
 
429,278

 
435,187

 
431,911

 
434,573

Diluted earnings per common share attributable to SLM Corporation
 
$
0.34

 
$
0.24

 
$
0.69

 
$
0.52

Average common and common equivalent shares outstanding
 
432,253

 
439,445

 
435,233

 
439,212

Dividends per common share attributable to SLM Corporation
 
$
0.06

 
$

 
$
0.09

 
$





See accompanying notes to consolidated financial statements.

4



SLM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
Net income
 
$
150,277

 
$
109,832

 
$
308,466

 
$
236,086

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gains (losses) on investments
 
3,164

 
42

 
6,102

 
(4,085
)
Unrealized gains (losses) on cash flow hedges
 
(24,013
)
 
10,014

 
(38,130
)
 
30,304

Total unrealized gains (losses)
 
(20,849
)
 
10,056

 
(32,028
)
 
26,219

Income tax benefit (expense)
 
5,093

 
(2,441
)
 
7,826

 
(6,343
)
Other comprehensive income (loss), net of tax benefit (expense)
 
(15,756
)
 
7,615

 
(24,202
)
 
19,876

Total comprehensive income
 
$
134,521

 
$
117,447

 
$
284,264

 
$
255,962


















See accompanying notes to consolidated financial statements.

5




SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)
(Unaudited)


 
 
 
 
Common Stock Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock Shares
 
Issued
 
Treasury
 
Outstanding
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained Earnings
 
Treasury Stock
 
Total Equity
Balance at March 31, 2018
 
4,000,000

 
449,023,578

 
(13,827,355
)
 
435,196,223

 
$
400,000

 
$
89,805

 
$
1,252,609

 
$
15,601

 
$
990,447

 
$
(138,629
)
 
$
2,609,833

Net income
 

 

 

 

 

 

 

 

 
109,832

 

 
109,832

Other comprehensive income, net of tax
 

 

 

 

 

 

 

 
7,615

 

 

 
7,615

Total comprehensive income
 

 

 

 

 

 

 

 

 

 

 
117,447

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock, Series B ($0.98 per share)
 

 

 

 

 

 

 

 

 
(3,920
)
 

 
(3,920
)
Issuance of common shares
 

 
384,955

 
 
 
384,955

 

 
77

 
2,076

 

 

 

 
2,153

Stock-based compensation expense
 

 

 

 

 

 

 
5,516

 

 

 

 
5,516

Shares repurchased related to employee stock-based compensation plans
 

 

 
(200,577
)
 
(200,577
)
 

 

 

 

 

 
(2,327
)
 
(2,327
)
Balance at June 30, 2018
 
4,000,000

 
449,408,533

 
(14,027,932
)
 
435,380,601

 
$
400,000

 
$
89,882

 
$
1,260,201

 
$
23,216

 
$
1,096,359

 
$
(140,956
)
 
$
2,728,702



















See accompanying notes to consolidated financial statements.

6




SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)
(Unaudited)


 
 
 
 
 
Common Stock Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock Shares
 
Issued
 
Treasury
 
Outstanding
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total Equity
Balance at March 31, 2019
 
4,000,000

 
453,326,885

 
(20,899,600
)
 
432,427,285

 
$
400,000

 
$
90,666

 
$
1,290,683

 
$
2,177

 
$
1,480,718

 
$
(216,710
)
 
$
3,047,534

Net income
 

 

 

 

 

 

 

 

 
150,277

 

 
150,277

Other comprehensive loss, net of tax
 

 

 

 

 

 

 

 
(15,756
)
 

 

 
(15,756
)
Total comprehensive income
 

 

 

 

 

 

 

 

 

 

 
134,521

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock ($0.06 per share)
 

 

 

 

 

 

 

 

 
(25,804
)
 

 
(25,804
)
Preferred Stock, Series B ($1.08 per share)
 

 

 

 

 

 

 

 

 
(4,331
)
 

 
(4,331
)
Dividend equivalent units related to employee stock-based compensation plans
 

 

 

 

 

 

 
5

 

 
(5
)
 

 

Issuance of common shares
 

 
181,020

 
 
 
181,020

 

 
36

 
139

 

 

 

 
175

Stock-based compensation expense
 

 

 

 

 

 

 
5,582

 

 

 

 
5,582

Common stock repurchased
 

 

 
(5,989,279
)
 
(5,989,279
)
 

 

 

 

 

 
(60,120
)
 
(60,120
)
Shares repurchased related to employee stock-based compensation plans
 

 

 
(24,036
)
 
(24,036
)
 

 

 

 

 

 
(241
)
 
(241
)
Balance at June 30, 2019
 
4,000,000

 
453,507,905

 
(26,912,915
)
 
426,594,990

 
$
400,000

 
$
90,702

 
$
1,296,409

 
$
(13,579
)
 
$
1,600,855

 
$
(277,071
)
 
$
3,097,316















See accompanying notes to consolidated financial statements.

7




SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)
(Unaudited)


 
 
 
 
Common Stock Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock Shares
 
Issued
 
Treasury
 
Outstanding
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained Earnings
 
Treasury Stock
 
Total Equity
Balance at December 31, 2017
 
4,000,000

 
443,463,587

 
(11,087,337
)
 
432,376,250

 
$
400,000

 
$
88,693

 
$
1,222,277

 
$
2,748

 
$
868,182

 
$
(107,644
)
 
$
2,474,256

Net income
 

 

 

 

 

 

 

 

 
236,086

 

 
236,086

Other comprehensive income, net of tax
 

 

 

 

 

 

 

 
19,876

 

 

 
19,876

Total comprehensive income
 

 

 

 

 

 

 

 

 

 

 
255,962

Reclassification resulting from the adoption of ASU No. 2018-02
 

 

 

 

 

 

 

 
592

 
(592
)
 

 

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock, Series B ($1.81 per share)
 

 

 

 

 

 

 

 

 
(7,317
)
 

 
(7,317
)
Issuance of common shares
 

 
5,944,946

 

 
5,944,946

 

 
1,189

 
17,663

 

 

 

 
18,852

Stock-based compensation expense
 

 

 

 

 

 

 
20,261

 

 

 

 
20,261

Shares repurchased related to employee stock-based compensation plans
 

 

 
(2,940,595
)
 
(2,940,595
)
 

 

 

 

 

 
(33,312
)
 
(33,312
)
Balance at June 30, 2018
 
4,000,000

 
449,408,533

 
(14,027,932
)
 
435,380,601

 
$
400,000

 
$
89,882

 
$
1,260,201

 
$
23,216

 
$
1,096,359

 
$
(140,956
)
 
$
2,728,702

















See accompanying notes to consolidated financial statements.

8




SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)
(Unaudited)


 
 
 
 
 
Common Stock Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock Shares
 
Issued
 
Treasury
 
Outstanding
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total Equity
Balance at December 31, 2018
 
4,000,000

 
449,856,221

 
(14,174,733
)
 
435,681,488

 
$
400,000

 
$
89,972

 
$
1,274,635

 
$
10,623

 
$
1,340,017

 
$
(142,591
)
 
$
2,972,656

Net income
 

 

 

 

 

 

 

 

 
308,466

 

 
308,466

Other comprehensive loss, net of tax
 

 

 

 

 

 

 

 
(24,202
)
 

 

 
(24,202
)
Total comprehensive income
 

 

 

 

 

 

 

 

 

 

 
284,264

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock ($0.09 per share)
 

 

 

 

 

 

 

 

 
(38,824
)
 

 
(38,824
)
Preferred Stock, Series B ($2.20 per share)
 

 

 

 

 

 

 

 

 
(8,799
)
 

 
(8,799
)
Dividend equivalent units related to employee stock-based compensation plans
 

 

 

 

 

 

 
5

 

 
(5
)
 

 

Issuance of common shares
 

 
3,651,684

 

 
3,651,684

 

 
730

 
2,296

 

 

 

 
3,026

Stock-based compensation expense
 

 

 

 

 

 

 
19,473

 

 

 

 
19,473

Common stock repurchased
 

 

 
(11,424,755
)
 
(11,424,755
)
 

 

 

 

 

 
(120,120
)
 
(120,120
)
Shares repurchased related to employee stock-based compensation plans
 

 

 
(1,313,427
)
 
(1,313,427
)
 

 

 

 

 

 
(14,360
)
 
(14,360
)
Balance at June 30, 2019
 
4,000,000

 
453,507,905

 
(26,912,915
)
 
426,594,990

 
$
400,000

 
$
90,702

 
$
1,296,409

 
$
(13,579
)
 
$
1,600,855

 
$
(277,071
)
 
$
3,097,316















See accompanying notes to consolidated financial statements.

9



SLM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


 
 
Six Months Ended
 
 
June 30,
 
 
2019
 
2018
Operating activities
 
 
 
 
Net income
 
$
308,466

 
$
236,086

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Provisions for credit losses
 
157,165

 
117,198

Income tax expense
 
90,097

 
81,071

Amortization of brokered deposit placement fee
 
7,625

 
5,847

Amortization of Secured Borrowing Facility upfront fee
 
559

 
575

Amortization of deferred loan origination costs and loan premium/(discounts), net
 
6,426

 
5,115

Net amortization of discount on investments
 
493

 
985

Increase (reduction) in tax indemnification receivable
 
282

 
(3,453
)
Depreciation of premises and equipment
 
6,968

 
6,475

Stock-based compensation expense
 
19,473

 
20,261

Unrealized gains (losses) on derivatives and hedging activities, net
 
(21,950
)
 
1,175

Gains on sales of loans, net
 

 
(2,060
)
Losses on sales of securities, net
 

 
1,549

Other adjustments to net income, net
 
3,851

 
3,480

Changes in operating assets and liabilities:
 
 
 
 
Increase in accrued interest receivable
 
(478,886
)
 
(407,813
)
Increase in other interest-earning assets
 
(38,030
)
 
(6,799
)
Decrease in tax indemnification receivable
 

 
17,994

Increase in other assets
 
(28,297
)
 
(51,448
)
Decrease in income taxes payable, net
 
(132,250
)
 
(107,973
)
Increase in accrued interest payable
 
7,037

 
11,295

Increase (decrease) in other liabilities
 
27,927

 
(9,054
)
Total adjustments
 
(371,510
)
 
(315,580
)
Total net cash used in operating activities
 
(63,044
)
 
(79,494
)
Investing activities
 
 
 
 
Loans acquired and originated
 
(2,919,389
)
 
(3,162,764
)
Net proceeds from sales of loans held for investment
 

 
44,832

Proceeds from claim payments
 
21,356

 
27,000

Net decrease in loans held for investment
 
2,004,272

 
1,442,627

Purchases of available-for-sale securities
 
(160,317
)
 
(2,914
)
Proceeds from sales and maturities of available-for-sale securities
 
10,629

 
62,237

Total net cash used in investing activities
 
(1,043,449
)
 
(1,588,982
)
Financing activities
 
 
 
 
Brokered deposit placement fee
 
(15,380
)
 
(18,885
)
Net increase in certificates of deposit
 
1,787,511

 
947,437

Net increase in other deposits
 
373,452

 
331,926

Borrowings collateralized by loans in securitization trusts - issued
 
1,105,594

 
1,350,587

Borrowings collateralized by loans in securitization trusts - repaid
 
(530,765
)
 
(411,904
)
Borrowings under Secured Borrowing Facility
 

 
300,000

Repayment of borrowings under Secured Borrowing Facility
 

 
(300,000
)
Fees paid on Secured Borrowing Facility
 
(1,116
)
 
(1,095
)
Common stock dividends paid
 
(25,824
)
 

Preferred stock dividends paid
 
(8,799
)
 
(7,317
)
Common stock repurchased
 
(120,120
)
 


10



Net cash provided by financing activities
 
2,564,553

 
2,190,749

Net increase in cash, cash equivalents and restricted cash
 
1,458,060

 
522,273

Cash, cash equivalents and restricted cash at beginning of period
 
2,681,895

 
1,636,175

Cash, cash equivalents and restricted cash at end of period
 
$
4,139,955

 
$
2,158,448

Cash disbursements made for:
 
 
 
 
Interest
 
$
323,278

 
$
207,872

Income taxes paid
 
$
132,036

 
$
111,173

Income taxes refunded
 
$
(718
)
 
$
(3,790
)
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets:
 
 
 
 
Cash and cash equivalents
 
$
3,998,514

 
$
2,043,789

Restricted cash
 
141,441

 
114,659

Total cash, cash equivalents and restricted cash
 
$
4,139,955

 
$
2,158,448

See accompanying notes to consolidated financial statements.

11





SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise noted)
 
 
 


1. Significant Accounting Policies

Basis of Presentation
The accompanying unaudited, consolidated financial statements of SLM Corporation (“Sallie Mae,” “SLM,” the “Company,” “we,” or “us”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements include the accounts of SLM Corporation and its majority-owned and controlled subsidiaries after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results for the year ending December 31, 2019 or for any other period. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).
Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries after eliminating the effects of intercompany accounts and transactions.
We consolidate any variable interest entity (“VIE”) where we have determined we are the primary beneficiary. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.
Reclassifications
Certain reclassifications have been made to the balances for the three and six months ended June 30, 2018, to be consistent with classifications adopted in 2019, which had no effect on net income, total assets or total liabilities.
Recently Issued and Adopted Accounting Pronouncements
ASU No. 2016-02, “Leases”
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases,” a comprehensive new lease standard which supersedes previous lease guidance. The standard requires a lessee to recognize in its balance sheet assets and liabilities related to long-term leases that were classified as operating leases under previous guidance. An asset will be recognized related to the right to use the underlying asset and a liability will be recognized related to the obligation to make lease payments over the term of the lease. The standard also requires expanded disclosures surrounding leases. The standard is effective for fiscal periods beginning after December 15, 2018, and requires modified retrospective adoption, with early adoption permitted. We adopted this guidance on January 1, 2019. In doing so, we identified and evaluated the related lease contracts and revised our controls and processes to address the lease standard. The adoption of this guidance resulted in the recognition of less than $34 million of right of use asset and lease liability, which did not have a material impact on our consolidated financial statements.

12





SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
1.
Significant Accounting Policies (Continued)
 


Recently Issued but Not Yet Adopted Accounting Pronouncements
ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which will become effective for us on January 1, 2020. This ASU eliminates the current accounting guidance for the recognition of credit impairment. Under the new guidance, for all loans carried at amortized cost, upon loan origination we will be required to measure our allowance for loan losses based on our estimate of all current expected credit losses (“CECL”) over the remaining contractual term of the assets. Updates to that estimate each period will be recorded through provision expense. The estimate of loan losses must be based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU does not mandate the use of any specific method for estimating credit loss, permitting companies to use judgment in selecting the approach that is most appropriate in their circumstances. Upon adoption, a cumulative effect adjustment to retained earnings will be recorded as of the beginning of the first reporting period in which the guidance is effective in an amount necessary to adjust the allowance for loan losses to equal the current estimate of expected losses on financial assets held at that date.
We have evaluated the standard and initiated implementation efforts. We have identified the loss forecasting approach and have built the loss models for our Private Education Loans (as hereinafter defined) and our Personal Loans (as hereinafter defined) acquired from third-parties. For our Private Education Loan and total Personal Loan portfolios, we will be using the discounted cash flow approach to calculate our current expected credit losses. We estimate the CECL allowance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. We have determined that, for modeling current expected credit losses, we can reasonably estimate expected losses that incorporate the current and forecasted economic conditions over a two-year period, after which the model will immediately revert to our long-term expected loss rates. During the remainder of 2019, we plan to complete our loss models for Personal Loans we originate and credit card receivables and complete the testing and validation for all the models to be used to implement CECL. During the second quarter of 2019, we performed a dry run of our CECL solution for our Private Education Loan and purchased Personal Loan portfolios to test the end-to-end implementation of the new solution. The loss and other models that will be used in our CECL solution are currently undergoing validation or will be in the coming months.
Adoption of the standard will have a material impact on how we record and report our financial condition and results of operations, and on regulatory capital. The extent of the impact upon adoption at January 1, 2020 will likely depend on the characteristics of our loan portfolio and economic conditions at that date, as well as forecasted conditions thereafter.



13





SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)

2. Investments

The amortized cost and fair value of securities available for sale are as follows:

 
 
June 30, 2019
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Available for sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
233,210

 
$
1,196

 
$
(1,445
)
 
$
232,961

Utah Housing Corporation bonds
 
21,136

 
181

 
(70
)
 
21,247

U.S. government-sponsored enterprises
 
77,173

 
160

 

 
77,333

Total
 
$
331,519

 
$
1,537

 
$
(1,515
)
 
$
331,541

 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Available for sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
159,937

 
$
155

 
$
(5,517
)
 
$
154,575

Utah Housing Corporation bonds
 
22,388

 
23

 
(741
)
 
21,670

Total
 
$
182,325

 
$
178

 
$
(6,258
)
 
$
176,245





14





SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Investments (Continued)
 

The following table summarizes the amount of gross unrealized losses for our available for sale securities and the estimated fair value for securities having gross unrealized loss positions, categorized by length of time the securities have been in an unrealized loss position:
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
As of June 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
(6
)
 
$
10,815

 
$
(1,439
)
 
$
101,969

 
$
(1,445
)
 
$
112,784

Utah Housing Corporation bonds
 

 

 
(70
)
 
11,955

 
(70
)
 
11,955

U.S. government-sponsored enterprises
 

 

 

 

 

 

Total
 
$
(6
)
 
$
10,815

 
$
(1,509
)
 
$
113,924

 
$
(1,515
)
 
$
124,739

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
(228
)
 
$
16,948

 
$
(5,289
)
 
$
125,537

 
$
(5,517
)
 
$
142,485

Utah Housing Corporation bonds
 

 

 
(741
)