SLM : Sallie Mae : Reports First-Quarter 2014 Financial Results

Loan Originations Exceed $1.5 Billion in First-Quarter 2014 Private Education Loan Charge-off Rates Down from the Year-Ago Quarter to 2.8 Percent Private Education Loan 90-Day Delinquency Rate Drops to 3.4 Percent, Lowest Level Since 2008 Navient’s Separation on Track for April 30, 2014

Sallie Mae (NASDAQ: SLM), formally SLM Corporation, today released first-quarter 2014 financial results that include, compared to the year-ago quarter, growth in private education loan originations of 8 percent, a decline in private education loan charge-off rates to 2.8 percent and a decline in the private education loan 90-day delinquency rate to 3.4 percent, the lowest level since 2008.

“This is an exciting time for our company as we prepare for our first day of trading as Navient and Sallie Mae,” said John (Jack) F. Remondi, president and CEO. “Throughout the process, our dedicated employees remained fully focused on creating a smooth transition for our customers to help them maximize their investment in higher education and progress on the road to financial success. We’re also pleased that this quarter set a six-year-record low in delinquencies, reflecting our strong underwriting and customer support.”

For the first-quarter 2014, GAAP net income was $284 million ($0.64 diluted earnings per share), compared with $346 million ($0.74 diluted earnings per share) for the year-ago quarter.

Core earnings for the quarter were $227 million ($0.51 diluted earnings per share), compared with $283 million ($0.61 diluted earnings per share) for the year-ago quarter.

Last year Sallie Mae undertook a series of actions to improve shareholder value as the company sold residual interests in FFELP securitization trusts and initiated the separation of the company into two publicly traded companies. In the first quarter of 2013 the company generated a $55 million gain on the sale of a residual interest in a FFELP securitization trust in addition to $29 million in gains from debt repurchases. There were no similar transactions in 2014. Compared to the year-ago quarter, Sallie Mae spent $16 million in additional reorganization expense tied to the separation of the company and $28 million in additional operating expenses, which increased third-party revenue in the business services segment and reduced loan losses in the consumer lending segment. Two other major contributors to the quarter’s results – a $56 million reduction in provision and $21 million reduction in net interest income – are the result of an improving credit quality in the private education loan business and the continued amortization of the FFELP portfolio, respectively.

Sallie Mae provides core earnings because management makes its financial decisions based on such measures. The changes in GAAP net income are driven by the same core earnings items discussed above, as well as changes in mark-to-market unrealized gains and losses on derivative contracts and amortization and impairment of goodwill and intangible assets that are recognized in GAAP, but not in core earnings results. First-quarter 2014 GAAP results included gains of $99 million from derivative accounting treatment that are excluded from core earnings results, compared with gains of $110 million in the year-ago period.

Consumer Lending

In the consumer lending segment, Sallie Mae originates, finances and services private education loans.

Quarterly core earnings were $118 million, compared with $87 million in the year-ago quarter. The increase is primarily the result of a $50 million decrease in the provision for private education loan losses.

First-quarter 2014 private education loan portfolio results vs. first-quarter 2013 included:

• Loan originations of $1.5 billion, up 8 percent.
• Delinquencies of 90 days or more of 3.4 percent of loans in repayment, down from 3.9 percent.
• Total delinquencies of 6.9 percent of loans in repayment, down from 7.8 percent.
• Loans in forbearance of 3.7 percent of loans in repayment and forbearance, up from 3.4 percent.
• Annualized charge-off rate of 2.8 percent of average loans in repayment, down from 3.0 percent.
• Provision for private education loan losses of $175 million, down from $225 million.
• Core net interest margin, before loan loss provision, of 4.34 percent, up from 4.15 percent.
• The portfolio balance, net of loan loss allowance, was $38.2 billion, up 2 percent.

Business Services

Sallie Mae’s business services segment includes fees primarily from servicing and asset recovery activities.

Business services core earnings were $113 million in first-quarter 2014, compared with $126 million in the year-ago quarter. The decrease is primarily due to the lower balance of FFELP loans serviced by Sallie Mae.

The company services loans for 5.8 million customers on behalf the U.S. Department of Education, up from 4.8 million last year. Sallie Mae ranks first in cumulative default prevention success, according to analysis of U.S. Department of Education servicing contract results statistics since the start of the contract in 2009.

Federally Guaranteed Student Loans (FFELP)

This segment represents earnings from Sallie Mae’s portfolio of FFELP loans.

Core earnings for the segment were $66 million in first-quarter 2014, compared with the year-ago quarter’s $104 million. The decrease is primarily due to the $55 million gain from the sale of the residual interest in a FFELP loan securitization trust in the year-ago quarter, as well as a reduction in net interest income due to the decrease in FFELP loans outstanding.

At March 31, 2014, the company held $102.6 billion of FFELP loans, compared with $119.2 billion at March 31, 2013.

Operating Expenses

First-quarter 2014 operating expenses were $263 million, compared with $235 million in the year-ago quarter. The increase was primarily due to increased third-party servicing and asset recovery activities that grew revenue by $26 million, as well as increased account resolution efforts on the private education loan portfolio, which saw significant improvements in delinquency and charge-off rates.

In addition, there were $26 million and $10 million of expenses reported in restructuring and other reorganization expenses in the first quarter of 2014 and 2013, respectively. These primarily consisted of expenses related to the company’s previously announced plan to separate its existing organization into two, publicly traded companies.

Funding and Liquidity

During the first-quarter 2014, Sallie Mae issued $2 billion in FFELP asset-backed securities (ABS), $676 million in private education loan ABS and $850 million in unsecured bonds. In addition, in the first-quarter 2014, the company refinanced a FFELP ABCP facility resulting in $2.5 billion of additional borrowing capacity and an extension of the remaining term from 2015 to 2016.

Shareholder Distributions

In the first-quarter 2014, Sallie Mae paid a common stock dividend of $0.15 per share.

During the first-quarter 2014, Sallie Mae repurchased 8 million shares of common stock for $200 million. At March 31, 2014, there was no remaining authorization for additional common stock repurchases under the current stock repurchase program.

Regulatory Update

In the fourth quarter of 2013, Sallie Mae reserved $70 million for estimated amounts and costs that were probable of being incurred for expected compliance remediation efforts relating to pending regulatory matters previously disclosed and ongoing with the Department of Justice and FDIC. Settlement discussions with the FDIC, Department of Justice and Consumer Financial Protection Bureau are ongoing. The final costs of these proceedings remain uncertain and may exceed the amount reserved, though the company is unable to provide a more accurate estimate at this time. The nature of each regulatory proceeding is such that the respective businesses of Sallie Mae Bank and the Navient entities are being separately considered and, if not resolved prior to the separation, will be managed separately by each company.

Update on Separation Plan

On April 10, 2014, Sallie Mae announced its Board of Directors had unanimously approved the separation of its consumer banking and loan management, servicing and asset recovery businesses. It also announced a dividend distribution of Navient common stock on April 30, 2014, to Sallie Mae’s common shareholders of record as of the close of business on April 22, 2014. Sallie Mae further announced it will suspend payment of dividends on its common stock upon completion of the separation. As a result of the separation, Sallie Mae will continue to be responsible for preferred stock dividend payments. Navient’s common stock dividend policy, which will be determined by its board of directors, is expected to follow Sallie Mae’s prior common stock dividend policy including payment of a second quarter 2014 common stock dividend of $0.15 per share.

***

Sallie Mae 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 and the goodwill and acquired intangible asset amortization and impairment. These items 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. In addition, the company’s equity investors, credit rating agencies and debt capital providers use these core earnings measures to monitor the company’s business performance. See “Core Earnings — Definition and Limitations” for a further discussion and a complete reconciliation between GAAP net income and core earnings. Given the significant variability of valuations of derivative instruments on expected GAAP net income, the company does not provide a GAAP equivalent for its core earnings per share guidance.

Definitions for capitalized terms in this document can be found in the company’s Annual Report on Form 10-K for the year ended Dec. 31, 2013 (filed with the SEC on Feb. 19, 2014). Certain reclassifications have been made to the balances as of and for the three months and year ended Dec. 31, 2013, to be consistent with classifications adopted for 2014, and had no effect on net income, total assets or total liabilities.

***

Sallie Mae will host an earnings conference call tomorrow, April 17, 2014, 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 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 10501796 starting at 7:45 a.m. EDT. A live audio webcast of the conference call may be accessed at www.SallieMae.com/investors. A replay of the conference call via the company’s website will be available approximately two hours after the call’s conclusion. A telephone replay may be accessed approximately two hours after the call’s conclusion through May 1, 2014, by dialing 855-859-2056 (USA and Canada) or 404-537-3406 (international) with access code 10501796.

Presentation slides for the conference call, as well as additional information about the company’s loan portfolios, operating segments, and other details, 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 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, 2013 and subsequent filings with the Securities and Exchange Commission; increases in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; changes in accounting standards and the impact of related changes in significant accounting estimates; any adverse outcomes in any significant litigation to which 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 student 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 or the credit ratings of the United States of America; failures of its operating systems or infrastructure, including those of third-party vendors; damage to its reputation; failures to successfully implement cost-cutting and adverse effects of such initiatives on its business; risks associated with restructuring initiatives, including the company’s previously announced strategic plan to separate its existing operations into two, distinct publicly traded companies; changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students and their families; changes in law and regulations with respect to the student lending business and financial institutions generally; 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 vs. its funding arrangements; changes in general economic conditions; its ability to successfully effectuate any acquisitions and other strategic initiatives; and changes in the demand for debt management services. 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 the statement to actual results or changes in its expectations.

***

Sallie Mae (NASDAQ: SLM) is the nation’s No. 1 financial services company specializing in education. Whether college is a long way off or just around the corner, Sallie Mae turns education dreams into reality for American families, today serving more than 25 million customers. With products and services that include Upromise rewards, scholarship search and planning tools, education loans, insurance, and online banking, Sallie Mae offers solutions that help families save, plan, and pay for college. Sallie Mae also provides financial services to hundreds of college campuses as well as to federal and state governments. 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
(In millions, except per share data)			March 31, 2014					December 31, 2013					March 31, 2013
GAAP Basis
Net income attributable to SLM Corporation			$	284				$	270				$	346
Diluted earnings per common share attributable to SLM Corporation			$	.64				$	.60				$	.74
Weighted average shares used to compute diluted earnings per share				435					443					458
Return on assets				.76	%				.70	%				.82	%
“Core Earnings” Basis(1)
“Core Earnings” attributable to SLM Corporation			$	227				$	275				$	283
“Core Earnings” diluted earnings per common share attributable to SLM Corporation			$	.51				$	.61				$	.61
Weighted average shares used to compute diluted earnings per share				435					443					458
“Core Earnings” return on assets				.61	%				.71	%				.67	%
Other Operating Statistics
Ending FFELP Loans, net			$	102,635				$	104,588				$	119,195
Ending Private Education Loans, net				38,157					37,512					37,465
Ending total student loans, net			$	140,792				$	142,100				$	156,660
Average student loans			$	142,679				$	144,026				$	160,261

(1)		“Core Earnings” are non-GAAP financial measures and do not represent a comprehensive basis of accounting. For a greater explanation of “Core Earnings,” see the section titled “‘Core Earnings’ — Definition and Limitations” and subsequent sections.

Results of Operations

We present the results of operations below on a consolidated basis in accordance with GAAP. The presentation of our results on a segment basis is not in accordance with GAAP. We have four business segments: Consumer Lending, Business Services, FFELP Loans and Other. Since these segments operate in distinct business environments and we manage and evaluate the financial performance of these segments using non-GAAP financial measures, these segments are presented on a “Core Earnings” basis (see “‘Core Earnings’ — Definition and Limitations”).

GAAP Statements of Income (Unaudited)
																		March 31, 2014 vs. December 31, 2013									March 31, 2014 vs. March 31, 2013
			Quarters Ended															Increase (Decrease)									Increase (Decrease)
(In millions, except per share data)			March 31, 2014					December 31, 2013					March 31, 2013					$					%				$					%
Interest income:
FFELP Loans			$	646				$	685				$	735				$	(39	)			(6	)%			$	(89	)			(12	)%
Private Education Loans				644					642					623					2				—					21				3
Other loans				3					3					3					—				—					—				—
Cash and investments				3					4					5					(1	)			(25	)				(2	)			(40	)
Total interest income				1,296					1,334					1,366					(38	)			(3	)				(70	)			(5	)
Total interest expense				530					545					571					(15	)			(3	)				(41	)			(7	)
Net interest income				766					789					795					(23	)			(3	)				(29	)			(4	)
Less: provisions for loan losses				185					190					241					(5	)			(3	)				(56	)			(23	)
Net interest income after provisions for loan losses				581					599					554					(18	)			(3	)				27				5
Other income (loss):
Gains (losses) on sales of loans and investments				—					(5	)				55					5				(100	)				(55	)			(100	)
Losses on derivative and hedging activities, net				(8	)				(128	)				(31	)				120				(94	)				23				(74	)
Servicing revenue				61					67					70					(6	)			(9	)				(9	)			(13	)
Contingency revenue				111					108					99					3				3					12				12
Gains on debt repurchases				—					—					23					—				—					(23	)			(100	)
Other income				6					33					34					(27	)			(82	)				(28	)			(82	)
Total other income (loss)				170					75					250					95				127					(80	)			(32	)
Expenses:
Operating expenses				263					305					235					(42	)			(14	)				28				12
Goodwill and acquired intangible asset impairment and amortization expense				4					3					3					1				33					1				33
Restructuring and other reorganization expenses				26					26					10					—				—					16				160
Total expenses				293					334					248					(41	)			(12	)				45				18
Income from continuing operations before income tax expense				458					340					556					118				35					(98	)			(18	)
Income tax expense				174					129					211					45				35					(37	)			(18	)
Net income from continuing operations				284					211					345					73				35					(61	)			(18	)
Income from discontinued operations, net of tax expense				—					59					1					(59	)			(100	)				(1	)			(100	)
Net income				284					270					346					14				5					(62	)			(18	)
Less: net loss attributable to noncontrolling interest				—					—					—					—				—					—				—
Net income attributable to SLM Corporation				284					270					346					14				5					(62	)			(18	)
Preferred stock dividends				5					5					5					—				—					—				—
Net income attributable to SLM Corporation common stock			$	279				$	265				$	341				$	14				5				$	(62	)			(18	)
Basic earnings per common share attributable to SLM Corporation:
Continuing operations			$	.65				$	.47				$	.76				$	.18				38	%			$	(.11	)			(14	)%
Discontinued operations				—					.14					—					(.14	)			(100	)				—				—
Total			$	.65				$	.61				$	.76				$	.04				7	%			$	(.11	)			(14	)%
Diluted earnings per common share attributable to SLM Corporation:
Continuing operations			$	.64				$	.47				$	.74				$	.17				36	%			$	(.10	)			(14	)%
Discontinued operations				—					.13					—					(.13	)			(100	)				—				—
Total			$	.64				$	.60				$	.74				$	.04				7	%			$	(.10	)			(14	)%
Dividends per common share attributable to SLM Corporation			$	.15				$	.15				$	.15				$	—				—	%			$	—				—	%

GAAP Balance Sheet (Unaudited)
(In millions, except share and per share data)			March 31, 2014					December 31, 2013					March 31, 2013
Assets
FFELP Loans (net of allowance for losses of $107; $119 and $147, respectively)			$	102,635				$	104,588				$	119,195
Private Education Loans (net of allowance for losses of $2,059; $2,097 and $2,170, respectively)				38,157					37,512					37,465
Cash and investments				4,529					6,082					4,691
Restricted cash and investments				3,794					3,650					4,828
Goodwill and acquired intangible assets, net				421					424					444
Other assets				6,898					7,287					7,463
Total assets			$	156,434				$	159,543				$	174,086
Liabilities
Short-term borrowings			$	11,626				$	13,795				$	17,254
Long-term borrowings				136,177					136,648					147,887
Other liabilities				2,969					3,458					3,791
Total liabilities				150,772					153,901					168,932
Commitments and contingencies
Equity
Preferred stock, par value $0.20 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
Common stock, par value $0.20 per share, 1.125 billion shares authorized: 549 million; 545 million and 540 million shares, respectively, issued				110					109					108
Additional paid-in capital				4,461					4,399					4,291
Accumulated other comprehensive income (loss), net of tax expense (benefit)				7					13					(4	)
Retained earnings				2,797					2,584					1,723
Total SLM Corporation stockholders’ equity before treasury stock				7,940					7,670					6,683
Less: Common stock held in treasury: 127 million; 116 million and 95 million shares, respectively				(2,283	)				(2,033	)				(1,535	)
Total SLM Corporation stockholders’ equity				5,657					5,637					5,148
Noncontrolling interest				5					5					6
Total equity				5,662					5,642					5,154
Total liabilities and equity			$	156,434				$	159,543				$	174,086

Consolidated Earnings Summary — GAAP basis

Three Months Ended March 31, 2014 Compared with Three Months Ended March 31, 2013

For the three months ended March 31, 2014, net income was $284 million, or $0.64 diluted earnings per common share, compared with net income of $346 million, or $0.74 diluted earnings per common share, for the three months ended March 31, 2013. The decrease in net income was primarily due to a $55 million gain on the sale of the Residual Interest in a FFELP Loan securitization that occurred in the year-ago quarter, a $29 million decline in net interest income, a $23 million decrease in debt repurchase gains, a $28 million decrease in other income, higher operating expenses of $28 million and higher restructuring and other reorganization costs of $16 million, which was partially offset by a $56 million decline in the provision for loan losses and a $23 million decrease in net losses on derivative and hedging activities.

The primary contributors to each of the identified drivers of changes in net income for the current quarter compared with the year-ago quarter are as follows:

• Net interest income decreased by $29 million primarily due to a reduction in FFELP net interest income resulting from an $18 billion decline in average FFELP Loans outstanding. This decline in FFELP loans was due, in part, to the sale of Residual Interests in FFELP Loan securitization trusts in the first half of 2013. There were approximately $12 billion of FFELP Loans in these trusts at the time of sale.
• Provisions for loan losses declined $56 million primarily as a result of the overall improvement in Private Education Loans’ credit quality, delinquency and charge-off trends leading to decreases in expected future charge-offs.

• Gains on sales of loans and investments decreased by $55 million as the result of a $55 million gain on the sale of the Residual Interest in a FFELP Loan securitization trust in the year-ago quarter. There were no sales in the current quarter.
• Losses on derivative and hedging activities, net, decreased $23 million. The primary factors affecting the change were interest rate and foreign currency fluctuations, which primarily affected the valuations of our Floor Income Contracts, basis swaps and foreign currency hedges during each period. Valuations of derivative instruments vary based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivative and hedging activities may continue to vary significantly in future periods.
• Gains on debt repurchases decreased $23 million. Debt repurchase activity will fluctuate based on market fundamentals and our liability management strategy.
• Other income decreased $28 million primarily due to a $32 million decrease in foreign currency translation gains. The foreign currency translation gains relate to a portion of our foreign currency denominated debt that does not receive hedge accounting treatment. These gains were partially offset by the “losses on derivative and hedging activities, net” line item on the income statement related to the derivatives used to economically hedge these debt instruments.
• Operating expenses increased $28 million primarily as a result of increases in our third-party servicing and asset recovery activities, as well as, increased account resolution activity on our Private Education Loan portfolio.
• Restructuring and other reorganization expenses increased $16 million to $26 million, which consisted of $25 million of expenses primarily related to third-party costs incurred in connection with the Company’s previously announced plan to separate its existing organization into two, separate, publicly traded companies and $1 million related to severance costs.

We repurchased 8 million shares and 10 million shares of our common stock during the three months ended March 31, 2014 and 2013, respectively, as part of our common share repurchase program. Primarily as a result of ongoing common share repurchases, our average outstanding diluted shares decreased by 23 million common shares from the year-ago quarter.

“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 review internally 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 for which we adjust our “Core Earnings” presentations are (1) our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness 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 titled “‘Core Earnings’ — Definition and Limitations — Differences between ‘Core Earnings’ and GAAP” below.

		Quarter Ended March 31, 2014
(Dollars in millions)		Consumer Lending			Business Services			FFELP Loans			Other				Eliminations(1)				Total “Core Earnings”			Adjustments												Total GAAP
																						Reclassifications				Additions/ (Subtractions)				Total Adjustments(2)
Interest income:
Student loans		$	644		$	—		$	523		$	—			$	—			$	1,167		$	198			$	(75	)		$	123			$	1,290
Other loans			—			—			—			3				—				3			—				—				—				3
Cash and investments			1			1			1			1				(1	)			3			—				—				—				3
Total interest income			645			1			524			4				(1	)			1,173			198				(75	)			123				1,296
Total interest expense			206			—			293			21				(1	)			519			10				1	(4)			11				530
Net interest income (loss)			439			1			231			(17	)			—				654			188				(76	)			112				766
Less: provisions for loan losses			175			—			10			—				—				185			—				—				—				185
Net interest income (loss) after provisions for loan losses			264			1			221			(17	)			—				469			188				(76	)			112				581
Other income (loss):
Gains (losses) on sales of loans and investments			—			—			—			—				—				—			—				—				—				—
Servicing revenue			1			167			11			—				(118	)			61			—				—				—				61
Contingency revenue			—			111			—			—				—				111			—				—				—				111
Gains on debt repurchases			—			—			—			—				—				—			—				—				—				—
Other income (loss)			—			8			—			3				—				11			(188	)			175	(5)			(13	)			(2	)
Total other income (loss)			1			286			11			3				(118	)			183			(188	)			175				(13	)			170
Expenses:
Direct operating expenses			76			106			125			2				(118	)			191			—				—				—				191
Overhead expenses			—			—			—			72				—				72			—				—				—				72
Operating expenses			76			106			125			74				(118	)			263			—				—				—				263
Goodwill and acquired intangible asset impairment and amortization			—			—			—			—				—				—			—				4				4				4
Restructuring and other reorganization expenses			—			—			—			26				—				26			—				—				—				26
Total expenses			76			106			125			100				(118	)			289			—				4				4				293
Income (loss) from continuing operations, before income tax expense (benefit)			189			181			107			(114	)			—				363			—				95				95				458
Income tax expense (benefit)(3)			71			68			41			(44	)			—				136			—				38				38				174
Net income (loss) from continuing operations			118			113			66			(70	)			—				227			—				57				57				284
Income (loss) from discontinued operations, net of tax expense (benefit)			—			—			—			—				—				—			—				—				—				—
Net income (loss)			118			113			66			(70	)			—				227			—				57				57				284
Less: net loss attributable to noncontrolling interest			—			—			—			—				—				—			—				—				—				—
Net income (loss) attributable to SLM Corporation		$	118		$	113		$	66		$	(70	)		$	—			$	227		$	—			$	57			$	57			$	284

(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, 2014
(Dollars in millions)			Net Impact of Derivative Accounting					Net Impact of Goodwill and Acquired Intangibles					Total
Net interest income after provisions for loan losses			$	112				$	—				$	112
Total other loss				(13	)				—					(13	)
Goodwill and acquired intangible asset impairment and amortization				—					4					4
Total “Core Earnings” adjustments to GAAP			$	99				$	(4	)				95
Income tax expense														38
Net income													$	57

(3)		Income taxes are based on a percentage of net income before tax for the individual reportable segment.
(4)		Represents a portion of the $6 million of “other derivative accounting adjustments.”
(5)		Represents the $180 million of “unrealized gains on derivative and hedging activities, net” as well as the remaining portion of the $6 million of “other derivative accounting adjustments.”

		Quarter Ended December 31, 2013
(Dollars in millions)		Consumer Lending			Business Services			FFELP Loans			Other				Eliminations(1)				Total “Core Earnings”				Adjustments												Total GAAP
																							Reclassifications				Additions/ (Subtractions)				Total Adjustments(2)
Interest income:
Student loans		$	642		$	—		$	558		$	—			$	—			$	1,200			$	204			$	(77	)		$	127			$	1,327
Other loans			—			—			—			3				—				3				—				—				—				3
Cash and investments			2			1			1			1				(1	)			4				—				—				—				4
Total interest income			644			1			559			4				(1	)			1,207				204				(77	)			127				1,334
Total interest expense			211			—			307			16				(1	)			533				11				1	(4)			12				545
Net interest income (loss)			433			1			252			(12	)			—				674				193				(78	)			115				789
Less: provisions for loan losses			180			—			10			—				—				190				—				—				—				190
Net interest income (loss) after provisions for loan losses			253			1			242			(12	)			—				484				193				(78	)			115				599
Other income (loss):
Gains (losses) on sales of loans and investments			—			—			—			(5	)			—				(5	)			—				—				—				(5	)
Servicing revenue			2			171			15			—				(121	)			67				—				—				—				67
Contingency revenue			—			108			—			—				—				108				—				—				—				108
Gains on debt repurchases			—			—			—			—				—				—				—				—				—				—
Other income (loss)			—			11			—			1				—				12				(193	)			86	(5)			(107	)			(95	)
Total other income (loss)			2			290			15			(4	)			(121	)			182				(193	)			86				(107	)			75
Expenses:
Direct operating expenses			70			101			127			72				(121	)			249				—				—				—				249
Overhead expenses			—			1			—			55				—				56				—				—				—				56
Operating expenses			70			102			127			127				(121	)			305				—				—				—				305
Goodwill and acquired intangible asset impairment and amortization			—			—			—			—				—				—				—				3				3				3
Restructuring and other reorganization expenses			4			—			—			22				—				26				—				—				—				26
Total expenses			74			102			127			149				(121	)			331				—				3				3				334
Income (loss) from continuing operations, before income tax expense (benefit)			181			189			130			(165	)			—				335				—				5				5				340
Income tax expense (benefit)(3)			67			69			48			(60	)			—				124				—				5				5				129
Net income (loss) from continuing operations			114			120			82			(105	)			—				211				—				—				—				211
Income from discontinued operations, net of tax expense			—			64			—			—				—				64				—				(5	)			(5	)			59
Net income (loss)			114			184			82			(105	)			—				275				—				(5	)			(5	)			270
Less: net loss attributable to noncontrolling interest			—			—			—			—				—				—				—				—				—				—
Net income (loss) attributable to SLM Corporation		$	114		$	184		$	82		$	(105	)		$	—			$	275			$	—			$	(5	)		$	(5	)		$	270

(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, 2013
(Dollars in millions)			Net Impact of Derivative Accounting					Net Impact of Goodwill and Acquired Intangibles					Total
Net interest income after provisions for loan losses			$	115				$	—				$	115
Total other loss				(107	)				—					(107	)
Goodwill and acquired intangible asset impairment and amortization				—					3					3
Total “Core Earnings” adjustments to GAAP			$	8				$	(3	)				5
Income tax expense														5
Loss from discontinued operations, net of tax benefit														(5	)
Net loss													$	(5	)

(3)		Income taxes are based on a percentage of net income before tax for the individual reportable segment.
(4)		Represents a portion of the $20 million of “other derivative accounting adjustments.”
(5)		Represents the $65 million of “unrealized gains on derivative and hedging activities, net” as well as the remaining portion of the $20 million of “other derivative accounting adjustments.”

		Quarter Ended March 31, 2013
(Dollars in millions)		Consumer Lending			Business Services			FFELP Loans			Other				Eliminations(1)				Total “Core Earnings”			Adjustments												Total GAAP
																						Reclassifications				Additions/ (Subtractions)				Total Adjustments(2)
Interest income:
Student loans		$	623		$	—		$	599		$	—			$	—			$	1,222		$	212			$	(76	)		$	136			$	1,358
Other loans			—			—			—			3				—				3			—				—				—				3
Cash and investments			1			1			2			2				(1	)			5			—				—				—				5
Total interest income			624			1			601			5				(1	)			1,230			212				(76	)			136				1,366
Total interest expense			203			—			340			13				(1	)			555			18				(2	)(4)			16				571
Net interest income (loss)			421			1			261			(8	)			—				675			194				(74	)			120				795
Less: provisions for loan losses			225			—			16			—				—				241			—				—				—				241
Net interest income (loss) after provisions for loan losses			196			1			245			(8	)			—				434			194				(74	)			120				554
Other income (loss):
Gains (losses) on sales of loans and investments			—			—			55			—				—				55			—				—				—				55
Servicing revenue			10			186			23			—				(149	)			70			—				—				—				70
Contingency revenue			—			99			—			—				—				99			—				—				—				99
Gains on debt repurchases			—			—			—			29				—				29			(6	)			—				(6	)			23
Other income (loss)			—			7			—			—				—				7			(188	)			184	(5)			(4	)			3
Total other income (loss)			10			292			78			29				(149	)			260			(194	)			184				(10	)			250
Expenses:
Direct operating expenses			67			95			157			3				(149	)			173			—				—				—				173
Overhead expenses			—			—			—			62				—				62			—				—				—				62
Operating expenses			67			95			157			65				(149	)			235			—				—				—				235
Goodwill and acquired intangible asset impairment and amortization			—			—			—			—				—				—			—				3				3				3
Restructuring and other reorganization expenses			—			—			—			10				—				10			—				—				—				10
Total expenses			67			95			157			75				(149	)			245			—				3				3				248
Income (loss) from continuing operations, before income tax expense (benefit)			139			198			166			(54	)			—				449			—				107				107				556
Income tax expense (benefit)(3)			52			73			62			(20	)			—				167			—				44				44				211
Net income (loss) from continuing operations			87			125			104			(34	)			—				282			—				63				63				345
Income (loss) from discontinued operations, net of tax expense (benefit)			—			1			—			—				—				1			—				—				—				1
Net income (loss)			87			126			104			(34	)			—				283			—				63				63				346
Less: net loss attributable to noncontrolling interest			—			—			—			—				—				—			—				—				—				—
Net income (loss) attributable to SLM Corporation		$	87		$	126		$	104		$	(34	)		$	—			$	283		$	—			$	63			$	63			$	346

(1)		The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.
(2)		“Core Earnings” adjustments to GAAP:

			Quarter Ended March 31, 2013
(Dollars in millions)			Net Impact of Derivative Accounting					Net Impact of Goodwill and Acquired Intangibles					Total
Net interest income after provisions for loan losses			$	120				$	—				$	120
Total other income				(10	)				—					(10	)
Goodwill and acquired intangible asset impairment and amortization				—					3					3
Total “Core Earnings” adjustments to GAAP			$	110				$	(3	)				107
Income tax expense														44
Net income													$	63

(3)		Income taxes are based on a percentage of net income before tax for the individual reportable segment.
(4)		Represents a portion of the $29 million of “other derivative accounting adjustments.”
(5)		Represents the $157 million of “unrealized gains on derivative and hedging activities, net” as well as the remaining portion of the $29 million of “other derivative accounting adjustments.”

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
(Dollars in millions)			March 31, 2014					December 31, 2013					March 31, 2013
“Core Earnings” adjustments to GAAP:
Net impact of derivative accounting			$	99				$	8				$	110
Net impact of goodwill and acquired intangible assets				(4	)				(3	)				(3	)
Net tax effect				(38	)				(5	)				(44	)
Net effect from discontinued operations				—					(5	)				—
Total “Core Earnings” adjustments to GAAP			$	57				$	(5	)			$	63

1)		Derivative Accounting: “Core Earnings” exclude periodic unrealized gains and losses that are caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, as well as the periodic unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. These unrealized gains and losses occur in our Consumer Lending, FFELP Loans and Other business segments. Under GAAP, for our derivatives that are held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0 except for Floor Income Contracts, where the cumulative unrealized gain will equal the amount for which we sold the contract. In our “Core Earnings” presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.
		The table below quantifies the adjustments for derivative accounting on our net income.

			Quarters Ended
(Dollars in millions)			March 31, 2014					December 31, 2013					March 31, 2013
“Core Earnings” derivative adjustments:
Gains (losses) on derivative and hedging activities, net, included in other income(1)			$	(8	)			$	(128	)			$	(31	)
Plus: Realized losses on derivative and hedging activities, net(1)				188					193					188
Unrealized gains (losses) on derivative and hedging activities, net(2)				180					65					157
Amortization of net premiums on Floor Income Contracts in net interest income for “Core Earnings”				(75	)				(77	)				(76	)
Other derivative accounting adjustments(3)				(6	)				20					29
Total net impact of derivative accounting(4)			$	99				$	8				$	110

(1)		See “Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities” below for a detailed breakdown of the components of realized losses on derivative and hedging activities.
(2)		“Unrealized gains on derivative and hedging activities, net” comprises the following unrealized mark-to-market gains (losses):

			Quarters Ended
(Dollars in millions)			March 31, 2014					December 31, 2013					March 31, 2013
Floor Income Contracts			$	181				$	183				$	189
Basis swaps				(1	)				(1	)				(4	)
Foreign currency hedges				(39	)				(103	)				(32	)
Other				39					(14	)				4
Total unrealized gains (losses) on derivative and hedging activities, net			$	180				$	65				$	157

(3)		Other derivative accounting adjustments consist of adjustments related to: (1) foreign currency denominated debt that is adjusted to spot foreign exchange rates for GAAP where such adjustments are reversed for “Core Earnings” and (2) certain terminated derivatives that did not receive hedge accounting treatment under GAAP but were economic hedges under “Core Earnings” and, as a result, such gains or losses are amortized into “Core Earnings” over the life of the hedged item.
(4)		Negative amounts are subtracted from “Core Earnings” net income to arrive at GAAP net income and positive amounts are added to “Core Earnings” net income to arrive at GAAP net income.

Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities

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 line item below net interest income. Under our “Core Earnings” presentation, these gains and losses are reclassified to the income statement line item of the economically hedged item. For our “Core Earnings” net interest margin, this would primarily include: (a) reclassifying the net settlement amounts related to our Floor Income Contracts to student loan interest income; and (b) reclassifying the net settlement amounts related to certain of our basis swaps to debt interest expense. The table below summarizes the realized losses on derivative and hedging activities and the associated reclassification on a “Core Earnings” basis.

			Quarters Ended
(Dollars in millions)			March 31, 2014					December 31, 2013					March 31, 2013
Reclassification of realized gains (losses) on derivative and hedging activities:
Net settlement expense on Floor Income Contracts reclassified to net interest income			$	(198	)			$	(204	)			$	(212	)
Net settlement income on interest rate swaps reclassified to net interest income				10					11					18
Net realized gains on terminated derivative contracts reclassified to other income				—					—					6
Total reclassifications of realized losses on derivative and hedging activities			$	(188	)			$	(193	)			$	(188	)

Cumulative Impact of Derivative Accounting under GAAP compared to “Core Earnings”

As of March 31, 2014, derivative accounting has reduced GAAP equity by approximately $854 million as a result of cumulative net unrealized losses (after tax) recognized under GAAP, but not in “Core Earnings.” The following table rolls forward the cumulative impact to GAAP equity due to these unrealized after-tax net losses related to derivative accounting.

			Quarters Ended
(Dollars in millions)			March 31, 2014					December 31, 2013					March 31, 2013
Beginning impact of derivative accounting on GAAP equity			$	(926	)			$	(936	)			$	(1,080	)
Net impact of net unrealized gains (losses) under derivative accounting(1)				72					10					53
Ending impact of derivative accounting on GAAP equity			$	(854	)			$	(926	)			$	(1,027	)

(1)		Net impact of net unrealized gains (losses) under derivative accounting is composed of the following:

			Quarters Ended
(Dollars in millions)			March 31, 2014					December 31, 2013					March 31, 2013
Total pre-tax net impact of derivative accounting recognized in net income(a)			$	99				$	8				$	110
Tax impact of derivative accounting adjustments recognized in net income				(22	)				(3	)				(60	)
Change in unrealized gain (losses) on derivatives, net of tax recognized in other comprehensive income				(5	)				5					3
Net impact of net unrealized gains (losses) under derivative accounting			$	72				$	10				$	53

(a)		See “‘Core Earnings’ derivative adjustments” table above.

Net Floor premiums received on Floor Income Contracts that have not been amortized into “Core Earnings” as of the respective year-ends are presented in the table below. These net premiums will be recognized in “Core Earnings” in future periods and are presented net of tax. As of March 31, 2014, the remaining amortization term of the net floor premiums was approximately 2.25 years for existing contracts. Historically, we have sold Floor Income Contracts on a periodic basis and depending upon market conditions and pricing, we may enter into additional Floor Income Contracts in the future. The balance of unamortized Floor Income Contracts will increase as we sell new contracts and decline due to the amortization of existing contracts.

(Dollars in millions)			March 31, 2014					December 31, 2013					March 31, 2013
Unamortized net Floor premiums (net of tax)			$	(308	)			$	(354	)			$	(498	)

2)		Goodwill and Acquired Intangible Assets: Our “Core Earnings” exclude goodwill and intangible asset impairment and the amortization of acquired intangible assets. The following table summarizes the goodwill and acquired intangible asset adjustments.

			Quarters Ended
(Dollars in millions)			March 31, 2014					December 31, 2013					March 31, 2013
“Core Earnings” goodwill and acquired intangible asset adjustments(1):
Amortization of acquired intangible assets			$	(4	)			$	(3	)			$	(3	)
“Core Earnings” goodwill and acquired intangible asset adjustments(1)			$	(4	)			$	(3	)			$	(3	)

(1)		Negative amounts are subtracted from “Core Earnings” net income to arrive at GAAP net income.

Business Segment Earnings Summary — “Core Earnings” Basis

Consumer Lending Segment

The following table includes “Core Earnings” results for our Consumer Lending segment.

			Quarters Ended												% Increase (Decrease)
(Dollars in millions)			Mar. 31, 2014				Dec. 31, 2013				Mar. 31, 2013				Mar. 31, 2014 vs. Dec. 31, 2013				Mar. 31, 2014 vs. Mar. 31, 2013
“Core Earnings” interest income:
Private Education Loans			$	644			$	642			$	623			—	%			3	%
Cash and investments				1				2				1			(50	)			—
Total “Core Earnings” interest income				645				644				624			—				3
Total “Core Earnings” interest expense				206				211				203			(2	)			1
Net “Core Earnings” interest income				439				433				421			1				4
Less: provision for loan losses				175				180				225			(3	)			(22	)
Net “Core Earnings” interest income after provision for loan losses				264				253				196			4				35
Servicing revenue				1				2				10			(50	)			(90	)
Direct operating expenses				76				70				67			9				13
Restructuring and other reorganization expenses				—				4				—			(100	)			—
Total expenses				76				74				67			3				13
Income before income tax expense				189				181				139			4				36
Income tax expense				71				67				52			6				37
“Core Earnings”			$	118			$	114			$	87			4	%			36	%

Consumer Lending 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 provision for loan losses.

		Quarters Ended
		Mar. 31,			Dec. 31,			Mar. 31,
		2014			2013			2013
“Core Earnings” basis Private Education Loan yield		6.47	%		6.43	%		6.35	%
Discount amortization		.23			.19			.23
“Core Earnings” basis Private Education Loan net yield		6.70			6.62			6.58
“Core Earnings” basis Private Education Loan cost of funds		(2.08	)		(2.06	)		(2.02	)
“Core Earnings” basis Private Education Loan spread		4.62			4.56			4.56
“Core Earnings” basis other interest-earning asset spread impact		(.28	)		(.42	)		(.41	)
“Core Earnings” basis Consumer Lending net interest margin(1)		4.34	%		4.14	%		4.15	%
“Core Earnings” basis Consumer Lending net interest margin(1)		4.34	%		4.14	%		4.15	%
Adjustment for GAAP accounting treatment(2)		(.03	)		(.03	)		(.03	)
GAAP-basis Consumer Lending net interest margin(1)		4.31	%		4.11	%		4.12	%

________________________________________
(1)		The average balances of our Consumer Lending “Core Earnings” basis interest-earning assets for the respective periods are:

		Quarters Ended
		Mar. 31,			Dec. 31,			Mar. 31,
		2014			2013			2013
(Dollars in millions)
Private Education Loans		$	38,945		$	38,508		$	38,406
Other interest-earning assets			2,005			2,925			2,662
Total Consumer Lending “Core Earnings” basis interest-earning assets		$	40,950		$	41,433		$	41,068

(2)		Represents the reclassification of periodic interest accruals on derivative contracts from net interest income to other income and other derivative accounting adjustments. For further discussion of these adjustments, see section titled “‘Core Earnings’ — Definition and Limitations — Difference between ‘Core Earnings’ and GAAP” above.

Private Education Loan Provision for Loan Losses and Charge-Offs

The following table summarizes the total Private Education Loan provision for loan losses and charge-offs.

		Quarters Ended
		Mar. 31,			Dec. 31,			Mar. 31,
(Dollars in millions)		2014			2013			2013
Private Education Loan provision for loan losses		$	175		$	180		$	225
Private Education Loan charge-offs		$	218		$	230		$	232

In establishing the allowance for Private Education Loan losses as of March 31, 2014, we considered several factors with respect to our Private Education Loan portfolio. In particular, we continue to see improvement in credit quality and continuing positive delinquency and charge-off trends in connection with this portfolio. Improving credit quality is seen in higher FICO scores and cosigner rates as well as a more seasoned portfolio. Total loans delinquent (as a percentage of loans in repayment) have decreased to 6.9 percent from 7.8 percent in the year-ago quarter. Loans greater than 90 days delinquent (as a percentage of loans in repayment) have decreased to 3.4 percent from 3.9 percent in the year-ago quarter. The charge-off rate decreased to 2.8 percent from 3.0 percent in the year-ago quarter. Loans in forbearance (as a percentage of loans in repayment and forbearance) increased to 3.7 percent from 3.4 percent in the year-ago quarter.

Apart from the overall improvements discussed above that had the effect of reducing the provision for loan losses in the first-quarter 2014 compared to the year-ago quarter, Private Education Loans that have defaulted between 2008 and 2013 for which we have previously charged off estimated losses have, to varying degrees, not met our post-default recovery expectations to date and may continue to not do so. Our allowance for loan losses takes into account these potential recovery uncertainties. See “Financial Condition — Consumer Lending Portfolio Performance — Receivable for Partially Charged-Off Private Education Loans” for further discussion.

The Private Education Loan provision for loan losses was $175 million in the first quarter of 2014, down $50 million from the first quarter of 2013. The decline was a result of the overall improvement in credit quality and performance trends discussed above, leading to decreases in expected future charge-offs.

For a more detailed discussion of our policy for determining the collectability of Private Education Loans and maintaining our allowance for Private Education Loan losses, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Allowance for Loan Losses” in our Annual Report on Form 10-K for the year ended December 31, 2013.

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. The increase in operating expenses of $9 million in the quarter ended March 31, 2014 compared with the year-ago quarter was primarily the result of increased account resolution activity on the portfolio which contributed to significant improvements in delinquency and charge-off rates. Direct operating expenses as a percentage of revenues (revenues calculated as net interest income after provision plus total other income) were 29 percent and 33 percent in the quarters ended March 31, 2014 and 2013, respectively.

Business Services Segment

The following table includes “Core Earnings” results for our Business Services segment.

		Quarters Ended									% Increase (Decrease)
		Mar. 31,			Dec. 31,			Mar. 31,			Mar. 31, 2014 vs.			Mar. 31, 2014 vs.
(Dollars in millions)		2014			2013			2013			Dec. 31, 2013			Mar. 31, 2013
Net interest income		$	1		$	1		$	1		—	%		—	%
Servicing revenue:
Intercompany loan servicing			118			121			149		(2	)		(21	)
Third-party loan servicing			40			40			27		—			48
Guarantor servicing			9			10			10		(10	)		(10	)
Total servicing revenue			167			171			186		(2	)		(10	)
Contingency revenue			111			108			99		3			12
Other Business Services revenue			8			11			7		(27	)		14
Total other income			286			290			292		(1	)		(2	)
Direct operating expenses			106			102			95		4			12
Restructuring and other reorganization expenses			—			—			—		—			—
Total expenses			106			102			95		4			12
Income from continuing operations, before income tax expense			181			189			198		(4	)		(9	)
Income tax expense			68			69			73		(1	)		(7	)
Net income from continuing operations			113			120			125		(6	)		(10	)
Income from discontinued operations, net of tax expense			—			64			1		(100	)		(100	)
“Core Earnings”		$	113		$	184		$	126		(39	)%		(10	)%

Our Business Services segment includes intercompany loan servicing fees from servicing the FFELP Loans in our FFELP Loans segment. The average balance of this portfolio was $103 billion and $121 billion for the quarters ended March 31, 2014 and 2013, respectively. The decline in average balance of FFELP loans outstanding along with the related intercompany loan servicing revenue from the year-ago period is primarily the result of normal amortization of the portfolio, as well as the sale of our Residual Interests in $12 billion of securitized FFELP loans in the first half of 2013.

Third-party loan servicing income for the current quarter compared with the prior-year period increased $13 million, primarily due to the increase in ED servicing revenue (discussed below) as well as a result of the sale of Residual Interests in FFELP Loan securitization trusts in 2013. (See “FFELP Loans Segment” for further discussion.) When we sold the Residual Interests, we retained the right to service the loans in the trusts. As such, servicing income that had previously been recorded as intercompany loan servicing is now recognized as third-party loan servicing income.

We are servicing approximately 5.8 million accounts under the ED Servicing Contract as of March 31, 2014, compared with 5.7 million and 4.8 million accounts serviced at December 31, 2013 and March 31, 2013, respectively. Third-party loan servicing fees in the quarters ended March 31, 2014 and 2013 included $31 million and $23 million, respectively, of servicing revenue related to the ED Servicing Contract.

Our contingency revenue consists of fees we receive for asset recovery on delinquent debt on behalf of third-party clients performed on a contingent basis. Contingency revenue increased $12 million in the current quarter compared with the year-ago quarter as a result of the higher asset recovery volume.

The following table presents the outstanding inventory of contingent asset recovery receivables that our Business Services segment will collect on behalf of others. We expect the inventory of FFELP contingent asset recovery receivables to decline over time as a result of the elimination of FFELP.

		March 31,			December 31,			March 31,
(Dollars in millions)		2014			2013			2013
Contingent asset recovery receivables:
Student loans		$	13,168		$	13,481		$	13,549
Other			2,734			2,693			2,239
Total		$	15,902		$	16,174		$	15,788

In 2013, we sold our Campus Solutions and 529 college savings plan administration. The results related to these businesses for all periods presented have been reclassified as discontinued operations and are shown on an after-tax basis.

Revenues related to services performed on FFELP Loans accounted for 76 percent and 80 percent, respectively, of total segment revenues for the quarters ended March 31, 2014 and 2013.

Operating Expenses — Business Services Segment

Operating expenses for our Business Services segment primarily include costs incurred to service our FFELP Loan portfolio, third-party servicing and asset recovery costs, and other operating costs. The increase in operating expenses of $11 million in the quarter ended March 31, 2014, respectively, compared with the year-ago period was primarily the result of an increase in our third-party servicing and asset recovery activities. This increase in activity resulted in a $26 million increase in related revenue over the same period.

FFELP Loans Segment

The following table includes “Core Earnings” results for our FFELP Loans segment.

		Quarters Ended									% Increase (Decrease)
		Mar. 31,			Dec. 31,			Mar. 31,			Mar. 31, 2014 vs.			Mar. 31, 2014 vs.
(Dollars in millions)		2014			2013			2013			Dec. 31, 2013			Mar. 31, 2013
“Core Earnings” interest income:
FFELP Loans		$	523		$	558		$	599		(6	)%		(13	)%
Cash and investments			1			1			2		—			(50	)
Total “Core Earnings” interest income			524			559			601		(6	)		(13	)
Total “Core Earnings” interest expense			293			307			340		(5	)		(14	)
Net “Core Earnings” interest income			231			252			261		(8	)		(11	)
Less: provision for loan losses			10			10			16		—			(38	)
Net “Core Earnings” interest income after provision for loan losses			221			242			245		(9	)		(10	)
Gains on sales of loans and investments			—			—			55		—			(100	)
Servicing revenue			11			15			23		(27	)		(52	)
Total other income			11			15			78		(27	)		(86	)
Direct operating expenses			125			127			157		(2	)		(20	)
Restructuring and other reorganization expenses			—			—			—		—			—
Total expenses			125			127			157		(2	)		(20	)
Income before income tax expense			107			130			166		(18	)		(36	)
Income tax expense			41			48			62		(15	)		(34	)
“Core Earnings”		$	66		$	82		$	104		(20	)%		(37	)%

FFELP Loan Net Interest Margin

The following table shows the “Core Earnings” basis FFELP Loan net interest margin along with reconciliation to the GAAP basis FFELP Loan net interest margin.

		Quarters Ended
		March 31,			December 31,			March 31,
		2014			2013			2013
“Core Earnings” basis FFELP Loan yield		2.56	%		2.58	%		2.61	%
Hedged Floor Income		.29			.29			.25
Unhedged Floor Income		.05			.09			.06
Consolidation Loan Rebate Fees		(.65	)		(.64	)		(.68	)
Repayment Borrower Benefits		(.11	)		(.11	)		(.11	)
Premium amortization		(.10	)		(.11	)		(.14	)
“Core Earnings” basis FFELP Loan net yield		2.04			2.10			1.99
“Core Earnings” basis FFELP Loan cost of funds		(1.09	)		(1.09	)		(1.06	)
“Core Earnings” basis FFELP Loan spread		.95			1.01			.93
“Core Earnings” basis other interest-earnings asset spread impact		(.08	)		(.10	)		(.10	)
“Core Earnings” basis FFELP Loan net interest margin(1)		.87	%		.91	%		.83	%
“Core Earnings” basis FFELP Loan net interest margin(1)		.87	%		.91	%		.83	%
Adjustment for GAAP accounting treatment(2)		.44			.43			.40
GAAP-basis FFELP Loan net interest margin		1.31	%		1.34	%		1.23	%

________________________________________
(1)		The average balances of our FFELP “Core Earnings” basis interest-earning assets for the respective periods are:

		Quarters Ended
		Mar. 31,			Dec. 31,			Mar. 31,
		2014			2013			2013
(Dollars in millions)
FFELP Loans		$	103,734		$	105,518		$	121,855
Other interest-earning assets			3,895			4,498			5,555
Total FFELP “Core Earnings” basis interest-earning assets		$	107,629		$	110,016		$	127,410

(2)		Represents the reclassification of periodic interest accruals on derivative contracts from net interest income to other income and other derivative accounting adjustments. For further discussion of these adjustments, see section titled “‘Core Earnings’ — Definition and Limitations — Difference between ‘Core Earnings’ and GAAP” above.

As of March 31, 2014, our FFELP Loan portfolio totaled approximately $103 billion, comprised of $39 billion of FFELP Stafford loans and $64 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios is 4.9 years and 9.2 years, respectively, assuming a Constant Prepayment Rate (“CPR”) of 4 percent and 3 percent, respectively.

FFELP Loan Provision for Loan Losses and Charge-Offs

The following table summarizes the FFELP Loan provision for loan losses and charge-offs.

		Quarters Ended
		Mar. 31,			Dec. 31,			Mar. 31,
(Dollars in millions)		2014			2013			2013
FFELP Loan provision for loan losses		$	10		$	10		$	16
FFELP Loan charge-offs		$	22		$	21		$	22

Gains on Sales of Loans and Investments

The decrease in gains on sales of loans and investments for the quarter ended March 31, 2014 from the year-ago period was the result of a $55 million gain from the sale of the Residual Interest in a FFELP Loan securitization trust in the first-quarter 2013. We will continue to service the student loans in the trusts that were sold under existing agreements. The first-quarter 2013 sale removed securitization trust assets of $3.8 billion and related liabilities of $3.7 billion from the balance sheet.

Operating Expenses — FFELP Loans

Operating expenses for our FFELP Loans segment primarily include the contractual rates we pay to service loans in term asset-backed securitization trusts or a similar rate if a loan is not in a term financing facility (which is presented as an intercompany charge from the Business Services segment who services the loans), the fees we pay for third-party loan servicing and costs incurred to acquire loans. The intercompany revenue charged by the Business Services segment and included in those amounts was $118 million and $149 million for the quarters ended March 31, 2014 and 2013, respectively. These amounts exceed the actual cost of servicing the loans. Operating expenses were 49 basis points and 52 basis points of average FFELP Loans in the quarters ended March 31, 2014 and 2013, respectively. The decrease in operating expenses of $32 million in the quarter ended March 31, 2014 compared with the year-ago period was primarily the result of the reduction in the average outstanding balance of our FFELP Loan portfolio.

Other Segment

The following table shows “Core Earnings” results of our Other segment.

		Quarters Ended												% Increase (Decrease)
		Mar. 31,				Dec. 31,				Mar. 31,				Mar. 31, 2014 vs.			Mar. 31, 2014 vs.
(Dollars in millions)		2014				2013				2013				Dec. 31, 2013			Mar. 31, 2013
Net interest loss after provision for loan losses		$	(17	)		$	(12	)		$	(8	)		42	%		113	%
Gains (losses) on sales of loans and investments			—				(5	)			—			(100	)		—
Gains on debt repurchases			—				—				29			—			(100	)
Other income			3				1				—			200			100
Total income			3				(4	)			29			(175	)		(90	)
Direct operating expenses			2				72				3			(97	)		(33	)
Overhead expenses:
Corporate overhead			40				25				35			60			14
Unallocated information technology costs			32				30				27			7			19
Total overhead expenses			72				55				62			31			16
Total operating expenses			74				127				65			(42	)		14
Restructuring and other reorganization expenses			26				22				10			18			160
Total expenses			100				149				75			(33	)		33
Loss before income tax expense (benefit)			(114	)			(165	)			(54	)		(31	)		111
Income tax expense (benefit)			(44	)			(60	)			(20	)		(27	)		120
“Core Earnings” (loss)		$	(70	)		$	(105	)		$	(34	)		(33	)%		106	%

Net Interest Loss after Provision for Loan Losses

Net interest loss after provision for loan losses includes net interest income related to our corporate liquidity portfolio as well as net interest income and provision expense related to our mortgage and consumer loan portfolios.

Gains on Debt Repurchases

We repurchased $0 million and $927 million face amount of our debt for the quarters ended March 31, 2014 and 2013, respectively. Debt repurchase activity will fluctuate based on market fundamentals and our liability management strategy.

Direct Operating Expenses — Other Segment

In the fourth quarter of 2013, the Company reserved $70 million for expected compliance remediation efforts relating to pending regulatory inquiries. This is the primary reason for the decrease in direct operating expenses of $70 million for the quarter ended March 31, 2014 from the prior quarter.

Overhead — Other Segment

Corporate overhead is comprised of costs related to executive management, the board of directors, accounting, finance, legal, human resources and stock-based compensation expense. Unallocated information technology costs are related to infrastructure and operations. The increase in overhead from fourth-quarter 2013 was primarily the result of $10 million of seasonal stock-based compensation expense.

Restructuring and Other Reorganization Expenses — Other Segment

Restructuring and other reorganization expenses for the quarter ended March 31, 2014 were $26 million compared with $10 million in the year-ago quarter. For the quarter ended March 31, 2014, these consisted of expenses primarily related to third-party costs incurred in connection with the Company’s previously announced plan to separate its existing organization into two, distinct publicly traded companies.

Financial Condition

This section provides additional information regarding the changes in our loan portfolio assets and related liabilities as well as credit quality and performance indicators related to our Consumer Lending portfolio.

Summary of our Student Loan Portfolio
Ending Student Loan Balances, net
		March 31, 2014
		FFELP				FFELP				Total				Private
		Stafford and				Consolidation				FFELP				Education				Total
(Dollars in millions)		Other				Loans				Loans				Loans				Portfolio
Total student loan portfolio:
In-school(1)		$	682			$	—			$	682			$	3,001			$	3,683
Grace, repayment and other(2)			37,886				63,159				101,045				36,599				137,644
Total, gross			38,568				63,159				101,727				39,600				141,327
Unamortized premium/(discount)			589				426				1,015				(681	)			334
Receivable for partially charged-off loans			—				—				—				1,297				1,297
Allowance for loan losses			(69	)			(38	)			(107	)			(2,059	)			(2,166	)
Total student loan portfolio		$	39,088			$	63,547			$	102,635			$	38,157			$	140,792
% of total FFELP			38	%			62	%			100	%
% of total			28	%			45	%			73	%			27	%			100	%
		December 31, 2013
		FFELP				FFELP				Total				Private
		Stafford and				Consolidation				FFELP				Education				Total
(Dollars in millions)		Other				Loans				Loans				Loans				Portfolio
Total student loan portfolio:
In-school(1)		$	742			$	—			$	742			$	2,629			$	3,371
Grace, repayment and other(2)			38,752				64,178				102,930				36,371				139,301
Total, gross			39,494				64,178				103,672				39,000				142,672
Unamortized premium/(discount)			602				433				1,035				(704	)			331
Receivable for partially charged-off loans			—				—				—				1,313				1,313
Allowance for loan losses			(75	)			(44	)			(119	)			(2,097	)			(2,216	)
Total student loan portfolio		$	40,021			$	64,567			$	104,588			$	37,512			$	142,100
% of total FFELP			38	%			62	%			100	%
% of total			28	%			46	%			74	%			26	%			100	%
		March 31, 2013
		FFELP				FFELP				Total				Private
		Stafford and				Consolidation				FFELP				Education				Total
(Dollars in millions)		Other				Loans				Loans				Loans				Portfolio
Total student loan portfolio:
In-school(1)		$	1,350			$	—			$	1,350			$	2,546			$	3,896
Grace, repayment and other(2)			41,080				75,628				116,708				36,522				153,230
Total, gross			42,430				75,628				118,058				39,068				157,126
Unamortized premium/(discount)			667				617				1,284				(772	)			512
Receivable for partially charged-off loans			—				—				—				1,339				1,339
Allowance for loan losses			(92	)			(55	)			(147	)			(2,170	)			(2,317	)
Total student loan portfolio		$	43,005			$	76,190			$	119,195			$	37,465			$	156,660
% of total FFELP			36	%			64	%			100	%
% of total			27	%			49	%			76	%			24	%			100	%

_______________________
(1)		Loans for customers still attending school and are not yet required to make payments on the loan.
(2)		Includes loans in deferment or forbearance.

Average Student Loan Balances (net of unamortized premium/discount)
		Quarter Ended March 31, 2014
		FFELP				FFELP				Total				Private
		Stafford and				Consolidation				FFELP				Education				Total
(Dollars in millions)		Other				Loans				Loans				Loans				Portfolio
Total		$	39,682			$	64,052			$	103,734			$	38,945			$	142,679
% of FFELP			38	%			62	%			100	%
% of total			28	%			45	%			73	%			27	%			100	%
		Quarter Ended December 31, 2013
		FFELP				FFELP				Total				Private
		Stafford and				Consolidation				FFELP				Education				Total
(Dollars in millions)		Other				Loans				Loans				Loans				Portfolio
Total		$	40,513			$	65,005			$	105,518			$	38,508			$	144,026
% of FFELP			38	%			62	%			100	%
% of total			28	%			45	%			73	%			27	%			100	%
		Quarter Ended March 31, 2013
		FFELP				FFELP				Total				Private
		Stafford and				Consolidation				FFELP				Education				Total
(Dollars in millions)		Other				Loans				Loans				Loans				Portfolio
Total		$	43,721			$	78,134			$	121,855			$	38,406			$	160,261
% of FFELP			36	%			64	%			100	%
% of total			27	%			49	%			76	%			24	%			100	%

Student Loan Activity
		Quarter Ended March 31, 2014
		FFELP				FFELP				Total				Total Private
		Stafford and				Consolidation				FFELP				Education				Total
(Dollars in millions)		Other				Loans				Loans				Loans				Portfolio
Beginning balance		$	40,021			$	64,567			$	104,588			$	37,512			$	142,100
Acquisitions and originations			278				175				453				1,522				1,975
Capitalized interest and premium/discount amortization			307				304				611				211				822
Consolidations to third parties			(404	)			(277	)			(681	)			(33	)			(714	)
Sales			—				—				—				—				—
Repayments and other			(1,114	)			(1,222	)			(2,336	)			(1,055	)			(3,391	)
Ending balance		$	39,088			$	63,547			$	102,635			$	38,157			$	140,792
		Quarter Ended December 31, 2013
		FFELP				FFELP				Total				Total Private
		Stafford and				Consolidation				FFELP				Education				Total
(Dollars in millions)		Other				Loans				Loans				Loans				Portfolio
Beginning balance		$	40,805			$	65,545			$	106,350			$	37,752			$	144,102
Acquisitions and originations			198				142				340				525				865
Capitalized interest and premium/discount amortization			329				258				587				235				822
Consolidations to third parties			(320	)			(237	)			(557	)			(26	)			(583	)
Sales			—				—				—				(61	)			(61	)
Repayments and other			(991	)			(1,141	)			(2,132	)			(913	)			(3,045	)
Ending balance		$	40,021			$	64,567			$	104,588			$	37,512			$	142,100
		Quarter Ended March 31, 2013
		FFELP				FFELP				Total				Total Private
		Stafford and				Consolidation				FFELP				Education				Total
(Dollars in millions)		Other				Loans				Loans				Loans				Portfolio
Beginning balance		$	44,289			$	81,323			$	125,612			$	36,934			$	162,546
Acquisitions and originations			101				53				154				1,405				1,559
Capitalized interest and premium/discount amortization			295				313				608				200				808
Consolidations to third parties			(445	)			(275	)			(720	)			(24	)			(744	)
Sales(1)			(72	)			(3,749	)			(3,821	)			—				(3,821	)
Repayments and other			(1,163	)			(1,475	)			(2,638	)			(1,050	)			(3,688	)
Ending balance		$	43,005			$	76,190			$	119,195			$	37,465			$	156,660

_______________________
(1)		Includes $3.7 billion of student loans in connection with the sale of a Residual Interest in a FFELP Loan securitization trust.

Private Education Loan Originations

The following table summarizes our Private Education Loan originations.

		Quarters Ended
		March 31,			December 31,			March 31,
(Dollars in millions)		2014			2013			2013
Smart Option — interest only(1)		$	372		$	126		$	365
Smart Option — fixed pay(1)			483			165			439
Smart Option — deferred(1)			661			221			590
Other			14			12			17
Total Private Education Loan originations		$	1,530		$	524		$	1,411

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

Consumer Lending Portfolio Performance
Private Education Loan Delinquencies and Forbearance
		March 31,							December 31,							March 31,
		2014							2013							2013
(Dollars in millions)		Balance				%			Balance				%			Balance				%
Loans in-school/grace/deferment(1)		$	7,075						$	6,528						$	6,434
Loans in forbearance(2)			1,216							1,102							1,101
Loans in repayment and percentage of each status:
Loans current			29,156			93.1	%			28,768			91.7	%			29,069			92.2	%
Loans delinquent 31-60 days(3)			655			2.1				802			2.6				731			2.3
Loans delinquent 61-90 days(3)			430			1.4				513			1.6				491			1.6
Loans delinquent greater than 90 days(3)			1,068			3.4				1,287			4.1				1,242			3.9
Total Private Education Loans in repayment			31,309			100	%			31,370			100	%			31,533			100	%
Total Private Education Loans, gross			39,600							39,000							39,068
Private Education Loan unamortized discount			(681	)						(704	)						(772	)
Total Private Education Loans			38,919							38,296							38,296
Private Education Loan receivable for partially charged-off loans			1,297							1,313							1,339
Private Education Loan allowance for losses			(2,059	)						(2,097	)						(2,170	)
Private Education Loans, net		$	38,157						$	37,512						$	37,465
Percentage of Private Education Loans in repayment						79.1	%						80.4	%						80.7	%
Delinquencies as a percentage of Private Education Loans in repayment						6.9	%						8.3	%						7.8	%
Loans in forbearance as a percentage of loans in repayment and forbearance						3.7	%						3.4	%						3.4	%
Loans in repayment greater than 12 months as a percentage of loans in repayment(4)						84.8	%						85.1	%						79.1	%

(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.
(4)		Based on number of months in an active repayment status for which a scheduled monthly payment was due.

Allowance for Private Education Loan Losses
The following table summarizes changes in the allowance for Private Education Loan losses.
		Quarters Ended
		March 31,				December 31,				March 31,
(Dollars in millions)		2014				2013				2013
Allowance at beginning of period		$	2,097			$	2,144			$	2,171
Provision for Private Education Loan losses			175				180				225
Charge-offs(1)			(218	)			(230	)			(232	)
Reclassification of interest reserve(2)			5				3				6
Allowance at end of period		$	2,059			$	2,097			$	2,170
Charge-offs as a percentage of average loans in repayment (annualized)			2.8	%			2.9	%			3.0	%
Charge-offs as a percentage of average loans in repayment and forbearance (annualized)			2.7	%			2.8	%			2.9	%
Allowance as a percentage of the ending total loan balance			5.0	%			5.2	%			5.4	%
Allowance as a percentage of ending loans in repayment			6.6	%			6.7	%			6.9	%
Average coverage of charge-offs (annualized)			2.3				2.3				2.3
Ending total loans(3)		$	40,897			$	40,313			$	40,407
Average loans in repayment		$	31,416			$	31,336			$	31,645
Ending loans in repayment		$	31,309			$	31,370			$	31,533

(1)		Charge-offs are reported net of expected recoveries. The expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.
(2)		Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.
(3)		Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans.

The following table provides detail for our traditional and non-traditional Private Education Loans for the quarters ended.
		March 31, 2014												December 31, 2013												March 31, 2013
						Non-												Non-												Non-
(Dollars in millions)		Traditional				Traditional				Total				Traditional				Traditional				Total				Traditional				Traditional				Total
Ending total loans(1)		$	37,617			$	3,280			$	40,897			$	36,940			$	3,373			$	40,313			$	36,746			$	3,661			$	40,407
Ending loans in repayment			29,116				2,193				31,309				29,083				2,287				31,370				29,022				2,511				31,533
Private Education Loan allowance for losses			1,583				476				2,059				1,592				505				2,097				1,643				527				2,170
Charge-offs as a percentage of average loans in repayment (annualized)			2.3	%			9.5	%			2.8	%			2.4	%			9.9	%			2.9	%			2.5	%			8.7	%			3.0	%
Allowance as a percentage of ending total loans			4.2	%			14.5	%			5.0	%			4.3	%			15.0	%			5.2	%			4.5	%			14.4	%			5.4	%
Allowance as a percentage of ending loans in repayment			5.4	%			21.7	%			6.6	%			5.5	%			22.1	%			6.7	%			5.7	%			21.0	%			6.9	%
Average coverage of charge-offs (annualized)			2.3				2.3				2.3				2.3				2.2				2.3				2.3				2.4				2.3
Delinquencies as a percentage of Private Education Loans in repayment			6.0	%			18.3	%			6.9	%			7.2	%			21.7	%			8.3	%			6.7	%			20.5	%			7.8	%
Delinquencies greater than 90 days as a percentage of Private Education Loans in repayment			2.9	%			10.0	%			3.4	%			3.5	%			12.0	%			4.1	%			3.3	%			11.2	%			3.9	%
Loans in forbearance as a percentage of loans in repayment and forbearance			3.5	%			6.3	%			3.7	%			3.2	%			5.5	%			3.4	%			3.2	%			5.1	%			3.4	%
Loans that entered repayment during the period(2)		$	528			$	11			$	539			$	863			$	22			$	885			$	553			$	23			$	576
Percentage of Private Education Loans with a cosigner			71	%			31	%			68	%			71	%			31	%			68	%			69	%			30	%			66	%
Average FICO at origination			730				625				723				729				625				722				728				624				720

(1)		Ending total loans represent 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

As part of concluding on the adequacy of the allowance for loan losses, we review key allowance and loan metrics. The most significant of these metrics considered are the allowance coverage of charge-offs ratio; the allowance as a percentage of total loans and of loans in repayment; and delinquency and forbearance percentages.

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 immediately charged off through the allowance for loan losses with an offsetting reduction in the receivable for partially charged-off Private Education Loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. Private Education Loans which defaulted between 2008 and 2013 for which we have previously charged off estimated losses have, to varying degrees, not met our post-default recovery expectations to date and may continue not to do so. According to our policy, we have been charging off these periodic shortfalls in expected recoveries against our allowance for Private Education Loan losses and the related receivable for partially charged-off Private Education Loans and we will continue to do so. There was $334 million, $336 million and $209 million in the allowance for Private Education Loan losses at March 31, 2014, December 31, 2013 and March 31, 2013, respectively, providing for possible additional future charge-offs related to the receivable for partially charged-off Private Education Loans (see “Consumer Lending Segment — Private Education Loan Provision for Loan Losses and Charge-Offs” for a further discussion).

The following table summarizes the activity in the receivable for partially charged-off Private Education Loans.

		Quarters Ended
(Dollars in millions)		March 31, 2014				December 31, 2013				March 31, 2013
Receivable at beginning of period		$	1,313			$	1,322			$	1,347
Expected future recoveries of current period defaults(1)			71				74				78
Recoveries(2)			(61	)			(53	)			(68	)
Charge-offs(3)			(26	)			(30	)			(18	)
Receivable at end of period			1,297				1,313				1,339
Allowance for estimated recovery shortfalls(4)			(334	)			(336	)			(209	)
Net receivable at end of period		$	963			$	977			$	1,130

______________________________
(1)		Represents the difference between the defaulted loan balance and our estimate of the amount to be collected in the future.
(2)		Current period cash recoveries.
(3)		Represents the current period recovery shortfall — the difference between what was expected to be collected and what was actually collected. These amounts are included in total charge-offs as reported in the “Allowance for Private Education Loan Losses” table.
(4)		The allowance for estimated recovery shortfalls of the receivable for partially charged-off Private Education Loans is a component of the $2.1 billion overall allowance for Private Education Loan losses as of March 31, 2014 and December 31, 2013 and $2.2 billion overall allowance as of March 31, 2013.

The tables below show 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 tables, the percentage of loans that are delinquent greater than 90 days or that are in forbearance status decreases the longer the loans have been in active repayment status.

At March 31, 2014, loans in forbearance status as a percentage of loans in repayment and forbearance were 7.2 percent for loans that have been in active repayment status for less than 25 months. The percentage drops to 1.3 percent for loans that have been in active repayment status for more than 48 months. Approximately 63 percent of our Private Education Loans in forbearance status has been in active repayment status less than 25 months.

At March 31, 2014, loans in repayment that are delinquent greater than 90 days as a percentage of loans in repayment were 5.0 percent for loans that have been in active repayment status for less than 25 months. The percentage drops to 1.9 percent for loans that have been in active repayment status for more than 48 months. Approximately 46 percent of our Private Education Loans in repayment that are delinquent greater than 90 days status has been in active repayment status less than 25 months.

		Monthly Scheduled Payments Due
(Dollars in millions) March 31, 2014		0 to 12				13 to 24				25 to 36				37 to 48				More than 48				Not Yet in Repayment				Total
Loans in-school/grace/deferment		$	—			$	—			$	—			$	—			$	—			$	7,075			$	7,075
Loans in forbearance			559				208				177				121				151				—				1,216
Loans in repayment — current			4,271				4,580				4,611				4,609				11,085				—				29,156
Loans in repayment — delinquent 31-60 days			147				134				121				95				158				—				655
Loans in repayment — delinquent 61-90 days			98				94				79				62				97				—				430
Loans in repayment — delinquent greater than 90 days			230				266				198				151				223				—				1,068
Total		$	5,305			$	5,282			$	5,186			$	5,038			$	11,714			$	7,075				39,600
Unamortized discount																											(681	)
Receivable for partially charged-off loans																											1,297
Allowance for loan losses																											(2,059	)
Total Private Education Loans, net																										$	38,157
Loans in forbearance as a percentage of loans in repayment and forbearance			10.5	%			3.9	%			3.4	%			2.4	%			1.3	%			—	%			3.7	%
Loans in repayment — delinquent greater than 90 days as a percentage of loans in repayment			4.8	%			5.2	%			4.0	%			3.1	%			1.9	%			—	%			3.4	%

		Monthly Scheduled Payments Due
(Dollars in millions) December 31, 2013		0 to 12				13 to 24				25 to 36				37 to 48				More than 48				Not Yet in Repayment				Total
Loans in-school/grace/deferment		$	—			$	—			$	—			$	—			$	—			$	6,528			$	6,528
Loans in forbearance			502				189				166				106				139				—				1,102
Loans in repayment — current			4,056				4,735				4,856				4,633				10,488				—				28,768
Loans in repayment — delinquent 31-60 days			166				167				152				121				196				—				802
Loans in repayment — delinquent 61-90 days			117				115				94				72				115				—				513
Loans in repayment — delinquent greater than 90 days			330				305				238				171				243				—				1,287
Total		$	5,171			$	5,511			$	5,506			$	5,103			$	11,181			$	6,528				39,000
Unamortized discount																											(704	)
Receivable for partially charged-off loans																											1,313
Allowance for loan losses																											(2,097	)
Total Private Education Loans, net																										$	37,512
Loans in forbearance as a percentage of loans in repayment and forbearance			9.7	%			3.4	%			3.0	%			2.1	%			1.2	%			—	%			3.4	%
Loans in repayment — delinquent greater than 90 days as a percentage of loans in repayment			7.1	%			5.7	%			4.5	%			3.4	%			2.2	%			—	%			4.1	%

		Monthly Scheduled Payments Due
(Dollars in millions) March 31, 2013		0 to 12				13 to 24				25 to 36				37 to 48				More than 48				Not Yet in Repayment				Total
Loans in-school/grace/deferment		$	—			$	—			$	—			$	—			$	—			$	6,434			$	6,434
Loans in forbearance			587				184				145				79				106				—				1,101
Loans in repayment — current			5,645				5,156				5,345				4,505				8,418				—				29,069
Loans in repayment — delinquent 31-60 days			252				139				132				85				123				—				731
Loans in repayment — delinquent 61-90 days			189				95				82				54				71				—				491
Loans in repayment — delinquent greater than 90 days			513				260				204				115				150				—				1,242
Total		$	7,186			$	5,834			$	5,908			$	4,838			$	8,868			$	6,434				39,068
Unamortized discount																											(772	)
Receivable for partially charged-off loans																											1,339
Allowance for loan losses																											(2,170	)
Total Private Education Loans, net																										$	37,465
Loans in forbearance as a percentage of loans in repayment and forbearance			8.2	%			3.2	%			2.5	%			1.6	%			1.2	%			—	%			3.4	%
Loans in repayment — delinquent greater than 90 days as a percentage of loans in repayment			7.8	%			4.6	%			3.5	%			2.4	%			1.7	%			—	%			3.9	%

The amount of loans in a forbearance status as a percentage of loans in repayment and forbearance increased to 3.7 percent for the quarter ended March 31, 2014 compared with 3.4 percent in the year-ago quarter. As of March 31, 2014, one percent of loans in current status were delinquent as of the end of the prior month, but were granted a forbearance that made them current as of March 31, 2014 (customers made payments on approximately 34 percent of these loans as a prerequisite to being granted forbearance).

Liquidity and Capital Resources

We expect to fund our ongoing liquidity needs, including the origination of new Private Education Loans and the repayment of $1.0 billion of senior unsecured notes that mature in the next twelve months, primarily through our current cash and investment portfolio, the issuance of additional bank deposits and unsecured debt, the predictable operating cash flows provided by earnings, the repayment of principal on unencumbered student loan assets and the distributions from our securitization trusts (including servicing fees which are priority payments within the trusts). We may also draw down on our secured FFELP facilities; we may also issue term asset-backed securities (“ABS”).

Currently, new Private Education Loan originations are initially funded through deposits and subsequently securitized to term. We have $1.4 billion of cash at Sallie Mae Bank as of March 31, 2014 available to fund future originations. We no longer originate FFELP Loans and therefore no longer have liquidity requirements for new FFELP Loan originations, but will continue to opportunistically purchase FFELP Loan portfolios from others.

Sources of Liquidity and Available Capacity
Ending Balances
(Dollars in millions)		March 31, 2014			December 31, 2013			March 31, 2013
Sources of primary liquidity:
Unrestricted cash and liquid investments:
Holding Company and other non-bank subsidiaries		$	2,516		$	3,015		$	2,290
Sallie Mae Bank(1)			1,361			2,284			1,472
Total unrestricted cash and liquid investments		$	3,877		$	5,299		$	3,762
Unencumbered FFELP Loans:
Holding Company and other non-bank subsidiaries		$	1,441		$	1,259		$	671
Sallie Mae Bank			1,395			1,425			1,082
Total unencumbered FFELP Loans		$	2,836		$	2,684		$	1,753

Average Balances
		Quarters Ended
(Dollars in millions)		March 31, 2014			December 31, 2013			March 31, 2013
Sources of primary liquidity:
Unrestricted cash and liquid investments:
Holding Company and other non-bank subsidiaries		$	2,180		$	2,563		$	2,820
Sallie Mae Bank(1)			1,505			2,028			1,229
Total unrestricted cash and liquid investments		$	3,685		$	4,591		$	4,049
Unencumbered FFELP Loans:
Holding Company and other non-bank subsidiaries		$	1,670		$	1,120		$	655
Sallie Mae Bank			1,411			1,269			1,040
Total unencumbered FFELP Loans		$	3,081		$	2,389		$	1,695

______________________________
(1)		This amount will be used primarily to originate or acquire student loans at Sallie Mae Bank. See discussion below on restrictions on Sallie Mae Bank to pay dividends.

Liquidity may also be available under secured credit facilities to the extent we have eligible collateral and capacity available. Maximum borrowing capacity under the FFELP Loan–other facilities will vary and be subject to each agreement’s borrowing conditions, including, among others, facility size, current usage and availability of qualifying collateral from unencumbered FFELP Loans. As of March 31, 2014, December 31, 2013 and March 31, 2013, the maximum additional capacity under these facilities was $12.7 billion, $10.6 billion and $9.8 billion, respectively. For the three months ended March 31, 2014, December 31, 2013 and March 31, 2013, the average maximum additional capacity under these facilities was $12.3 billion, $11.1 billion and $10.8 billion, respectively.

We also hold a number of other unencumbered assets, consisting primarily of Private Education Loans and other assets. Total unencumbered student loans, net, comprised $16.0 billion of our unencumbered assets of which $13.2 billion and $2.8 billion related to Private Education Loans, net and FFELP Loans, net, respectively. At March 31, 2014, we had a total of $24.2 billion of unencumbered assets inclusive of those described above as sources of primary liquidity and exclusive of goodwill and acquired intangible assets.

Sallie Mae Bank’s ability to pay dividends is subject to the laws of Utah and the regulations of the FDIC. Generally, under Utah’s industrial bank laws and regulations as well as FDIC regulations, Sallie Mae Bank may pay dividends from its net profits without regulatory approval if, following the payment of the dividend, Sallie Mae Bank’s capital and surplus would not be impaired. While applicable Utah and FDIC regulations differ in approach as to determinations of impairment of capital and surplus, neither method of determination has historically required Sallie Mae Bank to obtain consent to the payment of dividends. Sallie Mae Bank paid no dividends for the three months ended March 31, 2014. For the three months ended March 31, 2013, Sallie Mae Bank paid dividends of $120 million.

In addition to the foregoing, Sallie Mae Bank’s annual business plans are periodically reviewed by the FDIC. Recently the FDIC expressed its objection to the payment of dividends from Sallie Mae Bank to the Company prior to the completion of the Spin-Off. The bases for the objection are unrelated to the current capitalization of Sallie Mae Bank or the results of its operations. The FDIC has stated its preference that Sallie Mae Bank refrain from making periodic dividends to the Company for any reason other than the payment of the normal quarterly cash dividend paid by the Company to holders of its two series of preferred stock until all terms of the pending formal enforcement action with the FDIC are resolved and the Spin-Off has been completed. Sallie Mae Bank does not expect to declare such a dividend prior to the occurrence of the Spin-Off and not doing so will not materially or adversely affect the financial condition, operations or liquidity of the Company and its subsidiaries taken as a whole. If the FDIC continues its general objection to the payment of dividends from Sallie Mae Bank to its parent for an extended period of time after the completion of the Spin-Off, SLM BankCo’s financial condition, operations, liquidity and ability to access capital markets could be materially and adversely affected.

For further discussion of our various sources of liquidity, such as Sallie Mae Bank, our continued access to the ABS market, our asset-backed financing facilities, and our issuance of unsecured debt, see “Note 6 — Borrowings” in our Annual Report on Form 10-K for the year ended December 31, 2013.

The following table reconciles encumbered and unencumbered assets and their net impact on total tangible equity.

(Dollars in billions)		March 31, 2014				December 31, 2013				March 31, 2013
Net assets of consolidated variable interest entities (encumbered assets) — FFELP Loans		$	4.6			$	4.6			$	6.4
Net assets of consolidated variable interest entities (encumbered assets) — Private Education Loans			6.5				6.7				6.7
Tangible unencumbered assets – Holding Company and other non-bank subsidiaries(1)			13.6				13.1				12.3
Tangible unencumbered assets – Sallie Mae Bank(1)			10.6				10.7				8.9
Unsecured debt			(27.3	)			(27.9	)			(26.7	)
Mark-to-market on unsecured hedged debt(2)			(0.8	)			(0.8	)			(1.5	)
Other liabilities, net			(2.0	)			(1.2	)			(1.4	)
Total tangible equity		$	5.2			$	5.2			$	4.7

______________________________
(1)		Excludes goodwill and acquired intangible assets.
(2)		At March 31, 2014, December 31, 2013 and March 31, 2013, there were $640 million, $612 million and $1.2 billion, respectively, of net gains on derivatives hedging this debt in unencumbered assets, which partially offset these losses.

“Core Earnings” Basis Borrowings
The following table presents the ending balances of our “Core Earnings” basis borrowings.
		March 31, 2014									December 31, 2013									March 31, 2013
(Dollars in millions)		Short Term			Long Term			Total			Short Term			Long Term			Total			Short Term			Long Term			Total
Unsecured borrowings:
Senior unsecured debt		$	1,046		$	16,836		$	17,882		$	2,213		$	16,056		$	18,269		$	2,778		$	15,167		$	17,945
Bank deposits			5,964			2,755			8,719			6,133			2,807			8,940			4,813			2,782			7,595
Other(1)			684			—			684			691			—			691			1,240			—			1,240
Total unsecured borrowings			7,694			19,591			27,285			9,037			18,863			27,900			8,831			17,949			26,780
Secured borrowings:
FFELP Loan securitizations			—			90,608			90,608			—			90,756			90,756			—			100,750			100,750
Private Education Loan securitizations			—			18,861			18,861			—			18,835			18,835			—			20,252			20,252
FFELP Loan — other facilities			3,919			4,400			8,319			4,715			5,311			10,026			7,847			6,910			14,757
Private Education Loan — other facilities			—			597			597			—			843			843			539			—			539
Total secured borrowings			3,919			114,466			118,385			4,715			115,745			120,460			8,386			127,912			136,298
Total “Core Earnings” basis			11,613			134,057			145,670			13,752			134,608			148,360			17,217			145,861			163,078
Hedge accounting adjustments			13			2,120			2,133			43			2,040			2,083			37			2,026			2,063
Total GAAP basis		$	11,626		$	136,177		$	147,803		$	13,795		$	136,648		$	150,443		$	17,254		$	147,887		$	165,141

______________________________
(1)		“Other” primarily consists of the obligation to return cash collateral held related to derivative exposure.

First-Quarter 2014 Financing Transactions

The following financing transactions have taken place in the first quarter of 2014:

Unsecured Financings:

• March 27, 2014 — issued $850 million senior unsecured bonds.

FFELP Loan Financings:

• January 28, 2014 — issued $994 million FFELP Loan ABS.
• March 27, 2014 — issued $992 million FFELP Loan ABS.

Private Education Loan Financings:

• March 6, 2014 — issued $676 million Private Education Loan ABS.

FFELP ABCP Facility

On January 10, 2014, we closed on a new $8 billion asset-backed commercial paper (“ABCP”) facility that matures in January 2016. This facility replaces an existing $5.5 billion FFELP ABCP facility which was retired in January 2014. The additional $2.5 billion will be available for FFELP acquisition or refinancing. The maximum amount that can be financed steps down to $7 billion in March 2015. The new facility’s maturity date is January 8, 2016.

Shareholder distributions

In the first-quarter 2014, we paid a common stock dividend of $0.15 per share.

In the first-quarter 2014, we repurchased 8 million shares of common stock for $200 million, fully utilizing the Company’s 2013 share repurchase program authorization.