Sallie Mae (Nasdaq: SLM), formally SLM Corporation, today released fourth-quarter 2016 and full-year 2016 financial results. In 2016, the company grew private education loan originations 8 percent to $4.7 billion, expanded its private education loan portfolio 34 percent to $14.1 billion, and increased net interest income 27 percent to $891 million, all compared to 2015.

“We continue to execute on our mission as we helped 348,000 families make college happen in 2016, originations of high-quality student loans increased again, and our efficiency ratio improved as we saw a healthy return on customer experience investments,” said Raymond J. Quinlan, chairman and CEO. “These positive indicators illustrate how Sallie Mae is positioned for continued growth in 2017.”

For the fourth-quarter 2016, GAAP net income was $70 million, compared with $90 million in the year-ago quarter. GAAP net income attributable to the company's common stock was $65 million ($0.15 diluted earnings per share) in the fourth-quarter 2016, compared with $85 million ($0.20 diluted earnings per share) in the year-ago quarter. The year-over-year decrease was primarily attributable to a $58-million decrease in gains on sales of loans, net, a $13-million increase in provision for credit losses, and a $13-million increase in total non-interest expenses, which were offset by a $58-million increase in net interest income and a $12-million decrease in income tax expense.

Comparisons of 2016 and 2015 results reflect the company's decision in early 2016 to retain all new loan originations and recognize interest income over the life of the loans rather than sell the loans and recognize gains from their sale. In 2015, the company sold $1.5 billion in loans for a pre-tax gain of $135 million, generating $0.20 diluted earnings per share attributable to this activity. In 2016, there was no corresponding gain or earnings per share contribution because loan sales were not repeated.

For 2016, GAAP net income was $250 million, compared with $274 million in 2015. GAAP net income attributable to the company's common stock was $229 million ($0.53 diluted earnings per share) in 2016, compared with $255 million ($0.59 diluted earnings per share) in 2015.

Fourth-quarter 2016 results vs. fourth-quarter 2015 included:

  • Private education loan originations of $608 million, up 6 percent.
  • Net interest income of $245 million, up 31 percent.
  • Net interest margin of 5.55 percent, up 7 basis points.
  • Average private education loans outstanding of $14.1 billion, up 33 percent.
  • Average yield on the private education loan portfolio was 8.08 percent, up 24 basis points.
  • Private education loan provision for loan losses was $43 million, up from $29 million.
  • Private education loans in forbearance were 3.5 percent of private education loans in repayment and forbearance, up from 3.4 percent.
  • Private education loan delinquencies as a percentage of private education loans in repayment were 2.1 percent, down from 2.2 percent.

Core earnings for the fourth-quarter 2016 were $73 million, compared with $90 million in the year-ago quarter. Core earnings attributable to the company's common stock were $67 million ($0.15 diluted earnings per share) in the fourth-quarter 2016, compared with $85 million ($0.20 diluted earnings per share) in the year-ago quarter.

Core earnings for 2016 were $252 million, compared with $273 million for 2015. Core earnings attributable to the company's common stock were $231 million ($0.53 diluted earnings per share) for 2016, compared with $254 million ($0.59 diluted earnings per share) for 2015.

Sallie Mae provides core earnings because it is one of several measures used to evaluate management performance and allocate corporate resources. The difference between core earnings and GAAP net income is driven by mark-to-market unrealized gains and losses on derivative contracts recognized in GAAP, but not in core earnings results. Management believes its derivatives are effective economic hedges, and, as such, they are a critical element of the company's interest rate risk management strategy.

Fourth-quarter 2016 and full-year 2016 GAAP results included $4.4 million and $3.1 million, respectively, of pre-tax losses from derivative accounting treatment that are excluded from core earnings results, vs. pre-tax gains of $0.3 million and $1.8 million, respectively, in the year-ago periods.

Total Non-Interest Expenses

Total non-interest expenses were $98 million in the fourth-quarter 2016, compared with $85 million in the year-ago quarter (which included a $1 million credit to restructuring and other reorganization expenses). Operating expenses grew 15 percent from the year-ago quarter while the non-GAAP operating efficiency ratio decreased to 38.6 percent in the fourth-quarter 2016, from 42.5 percent in the year-ago quarter.

Total non-interest expenses were $386 million for 2016, compared with $356 million for 2015 (which included $5 million in restructuring and other reorganization expenses). Full-year operating expenses grew 10 percent year-over-year while the non-GAAP operating efficiency ratio decreased to 40.2 percent in 2016, from 46.8 percent in 2015. The improvement in the non-GAAP operating efficiency ratio is primarily due to the continued infrastructure efficacy as the portfolio grows, and operational improvements resulting from 2015 customer experience investments.

Income Tax Expense

Income tax expense decreased to $43 million in the fourth-quarter 2016 from $55 million in the year-ago quarter. The effective income tax rate in fourth-quarter 2016 was 38.0 percent, relatively unchanged from 37.9 percent in the year-ago quarter.

Income tax expense decreased to $164 million in 2016 from $165 million in 2015. The company’s effective income tax rate increased to 39.6 percent in 2016 from 37.5 percent in 2015. The increase in the effective income tax rate for 2016 was primarily the result of an increase in uncertain tax positions. Managing uncertain tax positions will add volatility to the company's reported effective tax rate, but should not impact its expected cash tax liability.

Capital

The regulatory capital ratios of the company’s Sallie Mae Bank subsidiary continue to exceed guidelines for institutions considered “well capitalized.” At Dec. 31, 2016, Sallie Mae Bank’s regulatory capital ratios were as follows:

   

Dec. 31, 2016

"Well Capitalized"
Regulatory Requirements

Common Equity Tier 1 Capital (to Risk-Weighted Assets) 12.6 percent 6.5 percent
Tier 1 Capital (to Risk-Weighted Assets) 12.6 percent 8.0 percent
Total Capital (to Risk-Weighted Assets) 13.8 percent 10.0 percent
Tier 1 Capital (to Average Assets) 11.1 percent 5.0 percent
 

Deposits

Deposits at the company totaled $13.4 billion ($7.1 billion in brokered deposits and $6.3 billion in retail and other deposits) at Dec. 31, 2016, compared with $11.5 billion ($7.3 billion in brokered deposits and $4.2 billion in retail and other deposits) at Dec. 31, 2015. The increase was primarily driven by growth in retail deposits and other money market deposits.

Guidance

The company expects 2017 results to be as follows:

  • Full-year diluted core earnings per share: $0.67 - $0.69.
  • Full-year private education loan originations of $4.9 billion.
  • Full-year non-GAAP operating efficiency ratio: 38 percent - 39 percent.

***

Sallie Mae will host an earnings conference call tomorrow, Jan. 19, 2017, at 8 a.m. EST. Sallie Mae executives will be on hand to discuss various highlights of the quarter and to answer questions related to Sallie Mae’s 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 30532768 starting at 7:45 a.m. EST. A live audio webcast of the conference call may be accessed at www.SallieMae.com/investors. A replay of the conference call will be available approximately two hours after the call’s conclusion and will remain available through Feb. 1, 2017, by dialing 855-859-2056 (USA and Canada) or 404-537-3406 (international) with access code 30532768.

Presentation slides for the conference call may be accessed at www.SallieMae.com/investors under the webcasts tab.

This press release contains “forward-looking statements” and information based on management’s current expectations as of the date of this release. Statements that are not historical facts, including statements about the company’s beliefs, opinions or expectations and statements that assume or are dependent upon future events, are forward-looking statements. Forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in Item 1A “Risk Factors” and elsewhere in the company’s Annual Report on Form 10-K for the year ended Dec. 31, 2015 (filed with the Securities and Exchange Commission (“SEC”) on Feb. 26, 2016) and subsequent filings with the SEC; increases in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; failure to comply with consumer protection, banking and other laws; changes in accounting standards and the impact of related changes in significant accounting estimates; any adverse outcomes in any significant litigation to which the company is a party; credit risk associated with the company’s exposure to third parties, including counterparties to the company’s derivative transactions; and changes in the terms of education loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws). The company could also be affected by, among other things: changes in its funding costs and availability; reductions to its credit ratings; failures or breaches of its operating systems or infrastructure, including those of third-party vendors; damage to its reputation; risks associated with restructuring initiatives, including failures to successfully implement cost-cutting and restructuring initiatives and the adverse effects of such initiatives on the company's business; changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students and their families; changes in law and regulations with respect to the student lending business and financial institutions generally; changes in banking rules and regulations, including increased capital requirements; increased competition from banks and other consumer lenders; the creditworthiness of its customers; changes in the general interest rate environment, including the rate relationships among relevant money-market instruments and those of its earning assets versus its funding arrangements; rates of prepayments on the loans made by the company and its subsidiaries; changes in general economic conditions and the company's ability to successfully effectuate any acquisitions; and other strategic initiatives. The preparation of the company’s consolidated financial statements also requires management to make certain estimates and assumptions, including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect. All forward-looking statements contained in this release are qualified by these cautionary statements and are made only as of the date of this release. The company does not undertake any obligation to update or revise these forward-looking statements to conform such statements to actual results or changes in its expectations.

The company reports financial results on a GAAP basis and also provides certain “Core Earnings” performance measures. The difference between the company’s “Core Earnings” and GAAP results for the periods presented were the unrealized, mark-to-market gains/losses on derivative contracts (excluding current period accruals on the derivative instruments), net of tax. These are recognized in GAAP, but not in “Core Earnings” results. The company provides “Core Earnings” measures because this is what management uses when making management decisions regarding the company’s performance and the allocation of corporate resources. The company’s “Core Earnings” are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies.

For additional information, see “Management's Discussion and Analysis of Financial Condition and Results of Operations — GAAP Consolidated Earnings Summary -‘Core Earnings’ ” in the company’s Form 10-Q for the quarter ended Sept. 30, 2016 for a further discussion and the “‘Core Earnings’ to GAAP Reconciliation” table in this press release for a complete reconciliation between GAAP net income and “Core Earnings.”

The company reports a non-GAAP operating efficiency ratio. A GAAP-based operating efficiency ratio would compare total non-interest expenses to net revenue (which consists of net interest income, before provisions for credit losses, plus non-interest income). Our operating efficiency ratio is a non-GAAP measure because we adjust (a) the non-interest expense numerator by deducting restructuring and other reorganization expenses, and (b) the net revenue denominator by deducting gains on sales of loans, net. We believe doing so provides useful information to investors because it is a measure used by our management team to monitor our effectiveness in managing operating expenses. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate our ratio. Accordingly, our non-GAAP operating efficiency ratio may not be comparable to similar measures used by other companies.

***

Sallie Mae (Nasdaq: SLM) is the nation’s saving, planning, and paying for college company. Whether college is a long way off or just around the corner, Sallie Mae offers products that promote responsible personal finance, including private education loans, Upromise rewards, scholarship search, college financial planning tools, and online retail banking. Learn more at SallieMae.com. Commonly known as Sallie Mae, SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.

 

Selected Financial Information and Ratios

(Unaudited)

 
  Quarters Ended   Years Ended
December 31, December 31,

(In thousands, except per share data and percentages)

2016   2015 2016   2015
 
Net income attributable to SLM Corporation common stock $ 64,736 $ 84,856 $ 229,123 $ 254,689
Diluted earnings per common share attributable to SLM Corporation $ 0.15 $ 0.20 $ 0.53 $ 0.59
Weighted average shares used to compute diluted earnings per share 435,419 431,531 432,919 432,234
Return on assets 1.5 % 2.5 % 1.5 % 2.0 %
Non-GAAP operating efficiency ratio(1) 38.6 % 42.5 % 40.2 % 46.8 %
 
Other Operating Statistics
Ending Private Education Loans, net $ 14,113,409 $ 10,515,505 $ 14,113,409 $ 10,515,505
Ending FFELP Loans, net   1,011,678     1,115,086     1,011,678     1,115,086  
Ending total education loans, net $ 15,125,087   $ 11,630,591   $ 15,125,087   $ 11,630,591  
 
Average education loans $ 15,082,071 $ 11,707,966 $ 13,811,081 $ 10,998,776

 

_________
(1) A GAAP-based operating efficiency ratio would compare total non-interest expenses to net revenue (which consists of net interest income, before provisions for credit losses, plus non-interest income). Our operating efficiency ratio is a non-GAAP measure because we adjust (a) the non-interest expense numerator by deducting restructuring and other reorganization expenses, and (b) the net revenue denominator by deducting gains on sales of loans, net. We believe doing so provides useful information to investors because it is a measure used by our management team to monitor our effectiveness in managing operating expenses. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate our ratio. Accordingly, our non-GAAP operating efficiency ratio may not be comparable to similar measures used by other companies.
 
 

SLM CORPORATION

 

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 
  December 31,   December 31,
2016 2015
Assets
Cash and cash equivalents $ 1,918,793 $ 2,416,219
Available-for-sale investments at fair value (cost of $211,406 and $196,402, respectively) 208,603 195,391
Loans held for investment (net of allowance for losses of $184,701 and $112,507, respectively) 15,137,922 11,630,591
Restricted cash and investments 53,717 27,980
Other interest-earning assets 49,114 54,845
Accrued interest receivable 766,106 564,496
Premises and equipment, net 87,063 81,273
Tax indemnification receivable 259,532 186,076
Other assets   52,153     57,227  
Total assets $ 18,533,003   $ 15,214,098  
 
Liabilities
Deposits $ 13,435,667 $ 11,487,707
Short-term borrowings — 500,175
Long-term borrowings 2,167,979 579,101
Income taxes payable, net 184,324 166,662
Upromise related liabilities 256,041 275,384
Other liabilities   141,934     108,746  
Total liabilities   16,185,945     13,117,775  
 
Commitments and contingencies
 
Equity
Preferred stock, par value $0.20 per share, 20 million shares authorized:
Series A: 3.3 million and 3.3 million shares issued, respectively, at stated value of $50 per share 165,000 165,000
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: 436.6 million and 430.7 million shares issued, respectively 87,327 86,136
Additional paid-in capital 1,175,564 1,135,860
Accumulated other comprehensive loss (net of tax benefit $5,364 and $9,949, respectively) (8,671 ) (16,059 )
Retained earnings   595,322     366,609  
Total SLM Corporation stockholders' equity before treasury stock 2,414,542 2,137,546
Less: Common stock held in treasury at cost: 7.7 million and 4.4 million shares, respectively   (67,484 )   (41,223 )
Total equity   2,347,058     2,096,323  
Total liabilities and equity $ 18,533,003   $ 15,214,098  
 
 

SLM CORPORATION

 

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 
  Quarters Ended   Years Ended
December 31, December 31,
2016   2015 2016   2015
Interest income:
Loans $ 295,241 $ 218,703 $ 1,060,487 $ 817,120
Investments 2,005 2,501 9,160 10,247
Cash and cash equivalents   2,767     1,183     7,599     3,751
Total interest income 300,013 222,387 1,077,246 831,118
Interest expense:
Deposits 40,775 29,430 148,408 116,391
Interest expense on short-term borrowings 1,495 1,771 7,322 6,490
Interest expense on long-term borrowings   12,309     3,340     30,178     5,738
Total interest expense   54,579     34,541     185,908     128,619
Net interest income 245,434 187,846 891,338 702,499
Less: provisions for credit losses   43,226     30,382     159,405     90,055
Net interest income after provisions for credit losses   202,208     157,464     731,933     612,444
Non-interest income:
Gains on sales of loans, net 230 58,484 230 135,358
(Losses) gains on derivatives and hedging activities, net (4,114 ) 953 (958 ) 5,300
Other income   13,235     12,561     69,544     41,935
Total non-interest income   9,351     71,998     68,816     182,593
Non-interest expenses:
Compensation and benefits 45,337 39,896 183,996 158,975
FDIC assessment fees 5,661 4,118 19,209 14,348
Other operating expenses   47,038     41,231     182,202     175,772
Total operating expenses 98,036 85,245 385,407 349,095
Acquired intangible asset amortization expense 159 370 906 1,480
Restructuring and other reorganization expenses   —     (913 )   —     5,398
Total non-interest expenses   98,195     84,702     386,313     355,973
Income before income tax expense 113,364 144,760 414,436 439,064
Income tax expense   43,122     54,915     164,109     164,780
Net income 70,242 89,845 250,327 274,284
Preferred stock dividends   5,506     4,989     21,204     19,595
Net income attributable to SLM Corporation common stock $ 64,736   $ 84,856   $ 229,123   $ 254,689
Basic earnings per common share attributable to SLM Corporation $ 0.15   $ 0.20   $ 0.54   $ 0.60
Average common shares outstanding   428,368     426,137     427,876     425,574
Diluted earnings per common share attributable to SLM Corporation $ 0.15   $ 0.20   $ 0.53   $ 0.59
Average common and common equivalent shares outstanding   435,419     431,531     432,919     432,234
 
 
SLM CORPORATION
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
   
Quarters Ended Years Ended
December 31, December 31,
2016   2015 2016   2015
Net income $ 70,242 $ 89,845 $ 250,327 $ 274,284
Other comprehensive income (loss):
Unrealized losses on investments (6,515 ) (1,706 ) (1,792 ) (2,205 )
Unrealized gains (losses) on cash flow hedges 37,546   14,060   13,764   (5,224 )
Total unrealized gains (losses) 31,031 12,354 11,972 (7,429 )
Income tax (expense) benefit (11,890 ) (4,898 ) (4,585 ) 2,763  
Other comprehensive gains (losses), net of tax (expense) benefit 19,141   7,456   7,387   (4,666 )
Total comprehensive income $ 89,383   $ 97,301   $ 257,714   $ 269,618  
 
 

“Core Earnings” to GAAP Reconciliation

 

The following table reflects adjustments associated with our derivative activities.

   
Quarters Ended Years Ended
December 31, December 31,

(Dollars in thousands, except per share amounts)

2016   2015 2016   2015
 
“Core Earnings” adjustments to GAAP:
GAAP net income $ 70,242 $ 89,845 $ 250,327 $ 274,284
Preferred stock dividends 5,506   4,989   21,204   19,595  
GAAP net income attributable to SLM Corporation common stock $ 64,736   $ 84,856   $ 229,123   $ 254,689  
 
Adjustments:
Net impact of derivative accounting(1) 4,386 (348 ) 3,127 (1,849 )
Net tax effect(2) 1,682   (124 ) 1,199   (711 )
Total “Core Earnings” adjustments to GAAP 2,704   (224 ) 1,928   (1,138 )
 
“Core Earnings” attributable to SLM Corporation common stock $ 67,440   $ 84,632   $ 231,051   $ 253,551  
 
GAAP diluted earnings per common share $ 0.15 $ 0.20 $ 0.53 $ 0.59
Derivative adjustments, net of tax —   —   —   —  
“Core Earnings” diluted earnings per common share $ 0.15   $ 0.20   $ 0.53   $ 0.59  
 
______
(1) Derivative Accounting: “Core Earnings” exclude periodic unrealized gains and losses caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, as well as the periodic unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. Under GAAP, for our derivatives held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0.
 
(2) “Core Earnings” tax rate is based on the effective tax rate at the Bank where the derivative instruments are held.
 
 

Average Balance Sheets - GAAP

 
The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities and reflects our net interest margin on a consolidated basis.
   
Quarters Ended Years Ended
December 31, December 31,
2016   2015 2016   2015

(Dollars in thousands)

Balance   Rate Balance   Rate Balance   Rate Balance   Rate
Average Assets
Private Education Loans $ 14,057,669 8.08 % $ 10,578,001 7.84 % $ 12,747,756 8.02 % $ 9,819,053 7.93 %
FFELP Loans 1,024,402 3.70 1,129,965 3.35 1,063,325 3.53 1,179,723 3.26
Other loans 3,496 7.50 — — 1,114 6.77 — —
Taxable securities 479,384 1.65 390,204 2.54 407,860 2.24 395,718 2.59
Cash and other short-term investments 2,017,081   0.55   1,507,528   0.31   1,480,170   0.51   1,407,158   0.27  
Total interest-earning assets 17,582,032 6.79 % 13,605,698 6.48 % 15,700,225 6.86 % 12,801,652 6.49 %
 
Non-interest-earning assets 816,337   677,109   772,167   670,084  
 
Total assets $ 18,398,369   $ 14,282,807   $ 16,472,392   $ 13,471,736  
 
Average Liabilities and Equity
Brokered deposits $ 7,302,429 1.32 % $ 6,764,673 1.16 % $ 7,154,218 1.31 % $ 6,640,078 1.19 %
Retail and other deposits 5,961,087 1.09 3,989,790 0.95 5,095,631 1.06 3,869,359 0.95
Other interest-bearing liabilities(1) 2,205,726   2.51   907,538   2.29   1,476,740   2.58   398,851   3.27  
Total interest-bearing liabilities 15,469,242 1.40 % 11,662,001 1.18 % 13,726,589 1.35 % 10,908,288 1.18 %
 
Non-interest-bearing liabilities 624,041 563,942 539,153 610,715
Equity 2,305,086   2,056,864   2,206,650   1,952,733  
Total liabilities and equity $ 18,398,369   $ 14,282,807   $ 16,472,392   $ 13,471,736  
 
Net interest margin 5.55 % 5.48 % 5.68 % 5.49 %
 
______
(1) For the three and twelve months ended December 31, 2016, includes the average balance of our secured borrowings and amortization expense of transaction costs related to our term asset-backed securitizations and our asset-backed commercial paper funding facility.
 
   

Earnings per Common Share

 
Quarters Ended Years Ended
December 31, December 31,

(In thousands, except per share data)

2016   2015 2016   2015
Numerator:
Net income $ 70,242 $ 89,845 $ 250,327 $ 274,284
Preferred stock dividends 5,506   4,989   21,204   19,595
Net income attributable to SLM Corporation common stock $ 64,736   $ 84,856   $ 229,123   $ 254,689
Denominator:
Weighted average shares used to compute basic EPS 428,368 426,137 427,876 425,574
Effect of dilutive securities:
Dilutive effect of stock options, restricted stock, restricted stock units and Employee Stock Purchase Plan 7,051   5,214   5,043   6,660
Weighted average shares used to compute diluted EPS 435,419   431,351   432,919   432,234
 
Basic earnings per common share attributable to SLM Corporation: $ 0.15   $ 0.20   $ 0.54   $ 0.60
 
Diluted earnings per common share attributable to SLM Corporation: $ 0.15   $ 0.20   $ 0.53   $ 0.59
 
 

Allowance for Loan Losses Metrics

 
  Quarters Ended
December 31,
2016   2015
  Private Education     Private Education  

(Dollars in thousands)

FFELP Loans Loans Total FFELP Loans Loans Total
Allowance for Loan Losses:
Beginning balance $ 2,209 $ 162,630 $ 164,839 $ 4,170 $ 100,033 $ 104,203
Total provision 224 42,808 43,032 (39 ) 28,715 28,676
Net charge-offs:
Charge-offs (262 ) (25,224 ) (25,486 ) (440 ) (19,231 ) (19,671 )
Recoveries —   3,284   3,284   —   1,291   1,291  
Net charge-offs (262 ) (21,940 ) (22,202 ) (440 ) (17,940 ) (18,380 )
Loan sales(1) —   (1,026 ) (1,026 ) —   (1,992 ) (1,992 )
Ending Balance $ 2,171   $ 182,472   $ 184,643   $ 3,691   $ 108,816   $ 112,507  
Allowance:
Ending balance: individually evaluated for impairment $ — $ 86,930 $ 86,930 $ — $ 43,480 $ 43,480
Ending balance: collectively evaluated for impairment $ 2,171 $ 95,542 $ 97,713 $ 3,691 $ 65,336 $ 69,027
Loans:
Ending balance: individually evaluated for impairment $ — $ 612,606 $ 612,606 $ — $ 265,831 $ 265,831
Ending balance: collectively evaluated for impairment $ 1,010,908 $ 13,639,069 $ 14,649,977 $ 1,115,663 $ 10,330,606 $ 11,446,269
Net charge-offs as a percentage of average loans in repayment (annualized)(2) 0.13 % 0.95 % 0.21 % 1.08 %
Allowance as a percentage of the ending total loan balance 0.21 % 1.28 % 0.33 % 1.03 %
Allowance as a percentage of the ending loans in repayment(2) 0.28 % 1.88 % 0.45 % 1.57 %
Allowance coverage of net charge-offs (annualized) 2.07 2.08 2.10 1.52
Ending total loans, gross $ 1,010,908 $ 14,251,675 $ 1,115,663 $ 10,596,437
Average loans in repayment(2) $ 788,196 $ 9,265,149 $ 823,940 $ 6,646,604
Ending loans in repayment(2) $ 786,332 $ 9,709,758 $ 813,815 $ 6,927,266
 
________

(1)

   Represents fair value adjustments on loans sold.
 

(2)

 Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.
 
 
Years Ended
December 31,
2016   2015
  Private Education     Private Education  

(Dollars in thousands)

FFELP Loans Loans Total FFELP Loans Loans Total
Allowance for Loan Losses:
Beginning balance $ 3,691 $ 108,816 $ 112,507 $ 5,268 $ 78,574 $ 83,842
Total provision (172 ) 159,511 159,339 1,005 87,344 88,349
Net charge-offs:
Charge-offs (1,348 ) (90,203 ) (91,551 ) (2,582 ) (55,357 ) (57,939 )
Recoveries —   10,382   10,382   —   5,820   5,820  
Net charge-offs (1,348 ) (79,821 ) (81,169 ) (2,582 ) (49,537 ) (52,119 )
Loan sales(1) —   (6,034 ) (6,034 ) —   (7,565 ) (7,565 )
Ending Balance $ 2,171   $ 182,472   $ 184,643   $ 3,691   $ 108,816   $ 112,507  
Allowance:
Ending balance: individually evaluated for impairment $ — $ 86,930 $ 86,930 $ — $ 43,480 $ 43,480
Ending balance: collectively evaluated for impairment $ 2,171 $ 95,542 $ 97,713 $ 3,691 $ 65,336 $ 69,027
Loans:
Ending balance: individually evaluated for impairment $ — $ 612,606 $ 612,606 $ — $ 265,831 $ 265,831
Ending balance: collectively evaluated for impairment $ 1,010,908 $ 13,639,069 $ 14,649,977 $ 1,115,663 $ 10,330,606 $ 11,446,269
Net charge-offs as a percentage of average loans in repayment(2) 0.17 % 0.96 % 0.30 % 0.82 %
Allowance as a percentage of the ending total loan balance 0.21 % 1.28 % 0.33 % 1.03 %
Allowance as a percentage of the ending loans in repayment(2) 0.28 % 1.88 % 0.45 % 1.57 %
Allowance coverage of net charge-offs 1.61 2.29 1.43 2.20
Ending total loans, gross $ 1,010,908 $ 14,251,675 $ 1,115,663 $ 10,596,437
Average loans in repayment(2) $ 793,203 $ 8,283,036 $ 857,359 $ 6,031,741
Ending loans in repayment(2) $ 786,332 $ 9,709,758 $ 813,815 $ 6,927,266
 
______
(1)   Represents fair value adjustments on loans sold.
 
(2) Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.
 
 

Private Education Loan Key Credit Quality Indicators

 
  December 31,
2016   2015

(Dollars in thousands)

Balance(1)

   % of Balance Balance(1)   % of Balance
 
Cosigners:
With cosigner $ 12,816,512 90 % $ 9,515,136 90 %
Without cosigner 1,435,163   10   1,081,301   10  
Total $ 14,251,675   100 % $ 10,596,437   100 %
 
FICO at Original Approval:
Less than 670 $ 920,132 6 % $ 700,779 7 %

670-699

2,092,722 15 1,554,959 15

700-749

4,639,958 33 3,403,823 32
Greater than or equal to 750 6,598,863   46   4,936,876   46  
Total $ 14,251,675   100 % $ 10,596,437   100 %
 
Seasoning(2):
1-12 payments $ 3,737,110 26 % $ 3,059,901 29 %
13-24 payments 2,841,107 20 2,096,412 20
25-36 payments 1,839,764 13 1,084,818 10
37-48 payments 917,633 7 513,125 5
More than 48 payments 726,106 5 414,217 4
Not yet in repayment 4,189,955   29   3,427,964   32  
Total $ 14,251,675   100 % $ 10,596,437   100 %
 
______
(1)   Balance represents gross Private Education Loans.
 
(2) Number of months in active repayment (whether interest only payment, fixed payment or full principal and interest payment status) for which a scheduled payment was due.
 

Private Education Loan Delinquencies

 
The following table provides information regarding the loan status of our Private Education Loans. Loans in repayment include loans making interest only or fixed payments as well as loans that have entered full principal and interest repayment status after any applicable grace period.
 
  Private Education Loans
December 31,
2016   2015

(Dollars in thousands)

Balance   % Balance   %
Loans in-school/grace/deferment(1) $ 4,189,955 $ 3,427,964
Loans in forbearance(2) 351,962 241,207
Loans in repayment and percentage of each status:
Loans current 9,509,394 97.9 % 6,773,095 97.8 %
Loans delinquent 31-60 days(3) 124,773 1.3 91,129 1.3
Loans delinquent 61-90 days(3) 51,423 0.5 42,048 0.6
Loans delinquent greater than 90 days(3) 24,168   0.3   20,994   0.3  
Total loans in repayment 9,709,758   100.0 % 6,927,266   100.0 %
Total loans, gross 14,251,675 10,596,437
Deferred origination costs 44,206   27,884  
Total loans 14,295,881 10,624,321
Allowance for losses (182,472 ) (108,816 )
Total loans, net $ 14,113,409   $ 10,515,505  
Percentage of loans in repayment 68.1 % 65.4 %
Delinquencies as a percentage of loans in repayment 2.1 % 2.2 %
Loans in forbearance as a percentage of loans in repayment and forbearance 3.5 % 3.4 %
 
_______
(1)   Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on the loans (e.g., residency periods for medical students or a grace period for bar exam preparation).
 
(2) Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.
 
(3) The period of delinquency is based on the number of days scheduled payments are contractually past due.
 
 

Summary of Our Education Loan Portfolio

Ending Education Loan Balances, net

 
    December 31,
2016     2015

(Dollars in thousands)

Private

Education

Loans

     FFELP

Loans

     Total

Portfolio

Private

Education

Loans

     FFELP

Loans

     Total

Portfolio

Total education loan portfolio:
In-school(1) $ 3,371,870 $ 377 $ 3,372,247 $ 2,823,035 $ 582 $ 2,823,617
Grace, repayment and other(2)   10,879,805     1,010,531     11,890,336     7,773,402     1,115,081     8,888,483  
Total, gross 14,251,675 1,010,908 15,262,583 10,596,437 1,115,663 11,712,100
Deferred origination costs and unamortized premium 44,206 2,941 47,147 27,884 3,114 30,998
Allowance for loan losses   (182,472 )   (2,171 )   (184,643 )   (108,816 )   (3,691 )   (112,507 )
Total education loan portfolio $ 14,113,409   $ 1,011,678   $ 15,125,087   $ 10,515,505   $ 1,115,086   $ 11,630,591  
 
% of total 93 % 7 % 100 % 90 % 10 % 100 %
 

(1)

     Loans for customers still attending school and who are not yet required to make payments on the loan.

(2)

 Includes loans in deferment or forbearance.
 
 

Average Education Loan Balances (net of unamortized premium/discount)

 
    Quarters Ended

December 31,

     Years Ended

December 31,

(Dollars in thousands)

2016     2015 2016     2015
Private Education Loans $ 14,057,669     93 % $ 10,578,001     90 % $ 12,747,756     92 % $ 9,819,053     89 %
FFELP Loans   1,024,402 7     1,129,965 10     1,063,325 8     1,179,723 11  
Total portfolio $ 15,082,071 100 % $ 11,707,966 100 % $ 13,811,081 100 % $ 10,998,776 100 %
 
                       

Education Loan Activity

 
Quarters Ended
December 31,
2016 2015

(Dollars in thousands)

Private

Education

Loans

FFELP

Loans

Total

Portfolio

Private
Education
Loans		 FFELP
Loans		 Total
Portfolio
Beginning balance $ 13,725,959 $ 1,034,545 $ 14,760,504 $ 10,766,511 $ 1,142,637 $ 11,909,148
Acquisitions and originations 612,991 — 612,991 579,705 — 579,705
Capitalized interest and deferred origination cost premium amortization 181,052 8,901 189,953 120,676 9,420 130,096
Sales (1,609 ) — (1,609 ) (698,795 ) — (698,795 )
Loan consolidation to third parties (91,150 ) (10,118 ) (101,268 ) (33,511 ) (8,824 ) (42,335 )
Repayments and other   (313,834 )   (21,650 )   (335,484 )   (219,081 )   (28,147 )   (247,228 )
Ending balance $ 14,113,409   $ 1,011,678   $ 15,125,087   $ 10,515,505   $ 1,115,086   $ 11,630,591  
 
 
 
Years Ended
December 31,
2016 2015

(Dollars in thousands)

Private

Education

Loans

FFELP

Loans

Total

Portfolio

Private
Education
Loans		 FFELP
Loans		 Total
Portfolio
Beginning balance $ 10,515,505 $ 1,115,086 $ 11,630,591 $ 8,246,647 $ 1,263,139 $ 9,509,786
Acquisitions and originations 4,685,622 — 4,685,622 4,366,651 — 4,366,651
Capitalized interest and deferred origination cost premium amortization 339,163 35,774 374,937 239,330 39,743 279,073
Sales (9,521 ) — (9,521 ) (1,412,015 ) — (1,412,015 )
Loan consolidation to third parties (235,118 ) (45,014 ) (280,132 ) (75,369 ) (43,087 ) (118,456 )
Repayments and other   (1,182,242 )   (94,168 )   (1,276,410 )   (849,739 )   (144,709 )   (994,448 )
Ending balance $ 14,113,409   $ 1,011,678   $ 15,125,087   $ 10,515,505   $ 1,115,086   $ 11,630,591  
 
 

Private Education Loan Originations

 

The following table summarizes our Private Education Loan originations. Originations represent loans that were funded or acquired during the period presented.

 
    Quarters Ended

December 31,

     Years Ended

December 31,

(Dollars in thousands)

2016     %     2015     % 2016     %     2015     %
Smart Option - interest only(1) $ 156,508 26 % $ 142,231 25 % $ 1,189,517 25 % $ 1,075,260 25 %
Smart Option - fixed pay(1) 177,771 29 186,354 32 1,403,421 30 1,350,680 31
Smart Option - deferred(1) 263,296 44 245,869 43 2,034,100 44 1,902,729 44
Smart Option - principal and interest 1,319 — 383 — 7,953 — 1,727 —
Parent Loan   8,794   1     —   —     31,272   1     —      
Total Private Education Loan originations $ 607,688   100 % $ 574,837   100 % $ 4,666,263   100 % $ 4,330,396   100 %
 
Percentage of loans with a cosigner 87 % 88 % 89 % 90 %
Average FICO at approval 748 746 748 749
 
_______

(1)

     Interest only, fixed pay and deferred describe the payment option while in school or in grace period.
 
   

Deposits

 

Interest bearing deposits are summarized as follows:

 
December 31,
2016     2015

(Dollars in thousands)

Amount    

Year-End

Weighted

Average

Stated Rate(1)

Amount    

Year-End

Weighted

Average

Stated Rate(1)

 
Money market $ 7,129,404 1.22 % $ 4,886,299 1.19 %
Savings 834,521 0.84 % 669,254 0.82 %
Certificates of deposit   5,471,065 1.41 %   5,931,453 0.98 %
Deposits - interest bearing $ 13,434,990 $ 11,487,006
 
_____

(1)

     Includes the effect of interest rate swaps in effective hedge relationships.
 
 

Regulatory Capital

 

(Dollars in thousands)

     Actual    

“Well Capitalized”

Regulatory Requirements

Amount     Ratio Amount     Ratio
As of December 31, 2016:    
Common Equity Tier 1 Capital (to Risk-Weighted Assets) $ 2,011,583 12.6 % $ 1,038,638 ≥ 6.5 %
Tier 1 Capital (to Risk-Weighted Assets) $ 2,011,583 12.6 % $ 1,278,323 ≥ 8.0 %
Total Capital (to Risk-Weighted Assets) $ 2,197,997 13.8 % $ 1,597,904 ≥ 10.0 %
Tier 1 Capital (to Average Assets) $ 2,011,583 11.1 % $ 907,565 ≥ 5.0 %
 
As of December 31, 2015:
Common Equity Tier 1 Capital (to Risk-Weighted Assets) $ 1,734,315 14.4 % $ 781,638 ≥ 6.5 %
Tier 1 Capital (to Risk-Weighted Assets) $ 1,734,315 14.4 % $ 962,017 ≥ 8.0 %
Total Capital (to Risk-Weighted Assets) $ 1,848,528 15.4 % $ 1,202,521 ≥ 10.0 %
Tier 1 Capital (to Average Assets) $ 1,734,315 12.3 % $ 704,979 ≥ 5.0 %