SLM Annual Report 2019 | Quarterlytics

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FY2019 Annual Report · SLM

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)
☑
ACT OF 1934

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

For the fiscal year ended December 31, 2019

☐

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the transition period from to

Commission file number 001-13251

SLM Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or other jurisdiction of
incorporation or organization)

300 Continental Drive

Newark, Delaware

(Address of principal executive offices)

52-2013874

(I.R.S. Employer
Identification No.)

19713

(Zip Code)

(302) 451-0200
(Registrant’s Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $.20 per share

Floating Rate Non-Cumulative Preferred Stock, Series B,
par value $.20 per share

SLM

SLMBP

The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during

the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging

growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act. (Check one):

Large accelerated filer

Non-accelerated filer

Emerging growth
company

☑
☐

☐

(Do not check if a smaller reporting company)

Accelerated filer ☐
Smaller reporting company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or

revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The aggregate market value of voting common stock held by non-affiliates of the Registrant as of June 30, 2019 was $4.1 billion (based on closing sale price of

$9.72 per share as reported for the NASDAQ Global Select Market).

As of January 31, 2020, there were 422,615,193 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement relating to the Registrant’s 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report

on Form 10-K.

SLM CORPORATION

TABLE OF CONTENTS

Forward-Looking and Cautionary Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART I

Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . .
Item 9.
Item 9A. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III.

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence. . . . . . . . . . . . . . . .
Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page
Number

38
39

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

References in this Annual Report on Form 10-K to “we,” “us,” “our,” “Sallie Mae,” “SLM” and the “Company” refer

to SLM Corporation and its subsidiaries, except as otherwise indicated or unless the context otherwise requires.

This Annual Report on Form 10-K contains “forward-looking” statements and information based on management’s

current expectations as of the date of this report. Statements that are not historical facts, including statements about our beliefs,
opinions or expectations and statements that assume or are dependent upon future events, are forward-looking statements. This
includes, but is not limited to, our expectation and ability to pay a quarterly cash dividend on our common stock in the future,
subject to the determination by our Board of Directors, and based on an evaluation of our earnings, financial condition and
requirements, business conditions, capital allocation determinations, and other factors, risks and uncertainties; the Company’s
2020 guidance; the Company’s three-year horizon outlook; the Company’s expectation and ability to execute loan sales and
share repurchases; the Company’s projections for originations and earnings growth and balance sheet position; and any
estimates related to accounting standard changes. 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 this Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission (“SEC”); increases
in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; failure to
comply with consumer protection, banking and other laws; changes in accounting standards and the impact of related changes
in significant accounting estimates, including any regarding the measurement of our allowance for loan losses and the related
provision expense; any adverse outcomes in any significant litigation to which we are a party; credit risk associated with our
exposure to third-parties, including counterparties to our derivative transactions; and changes in the terms of education loans
and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws).
We could also be affected by, among other things: changes in our funding costs and availability; reductions to our credit ratings;
cybersecurity incidents, cyberattacks and other failures or breaches of our operating systems or infrastructure, including those
of third-party vendors; damage to our reputation; risks associated with restructuring initiatives, including failures to
successfully implement cost-cutting programs and the adverse effects of such initiatives on our business; changes in the demand
for educational financing or in financing preferences of lenders, educational institutions, students and their families; changes in
law and regulations with respect to the student lending business and financial institutions generally; changes in banking rules
and regulations, including increased capital requirements; increased competition from banks and other consumer lenders; the
creditworthiness of our customers; changes in the general interest rate environment, including the rate relationships among
relevant money-market instruments and those of our earning assets versus our funding arrangements; rates of prepayment on
the loans that we own; changes in general economic conditions and our ability to successfully effectuate any acquisitions; and
other strategic initiatives. The preparation of our consolidated financial statements also requires us 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 Annual Report on Form 10-K are qualified by these cautionary
statements and are made only as of the date of this report. We do not undertake any obligation to update or revise these forward-
looking statements to conform such statements to actual results or changes in our expectations.

AVAILABLE INFORMATION

Our website address is www.salliemae.com. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form

10-Q and Current Reports on Form 8-K, as well as any amendments to those reports, and our Proxy Statements and any
significant investor presentations, are available free of charge through our website as soon as reasonably practicable after they
are electronically filed with, or furnished to, the SEC. The SEC maintains a website at www.sec.gov that contains all such filed
or furnished reports and other information. In addition, copies of our Board Governance Guidelines, Code of Business Conduct
(which includes the code of ethics applicable to our Principal Executive Officer, Principal Financial Officer and Principal
Accounting Officer) and the governing charters for each committee of our Board of Directors are available free of charge on
our website, as well as in print, to any stockholder upon request. We intend to disclose any amendments to or waivers of our
Code of Business Conduct (to the extent applicable to our Principal Executive Officer, Principal Financial Officer or Principal
Accounting Officer) by posting such information on our website. Information contained or referenced on our website is not
incorporated by reference into and does not form a part of this Annual Report on Form 10-K.

Item 1. Business

Our Company Mission

PART I.

SLM Corporation, more commonly known as Sallie Mae, is the premier financial brand for college and continuous
education. We are in the business of building prosperous futures by providing access, planning outcomes, and helping students
and families responsibly fund their future.

We believe education, in all forms, is the foundation for success, an equalizer of opportunities, and a proven pathway to
economic mobility. And data clearly shows those who attend and graduate from college, or other postsecondary programs, are
better off personally and financially in the long run. For example, data from the U.S. Bureau of Labor and Statistics confirms
those with bachelor’s degrees earn 64 percent more than those with a high school diploma.1 Those with advanced degrees earn
an even greater percentage than those with a high school diploma.1 Even further, our society prospers and becomes more
economically inclusive when each of its members is provided with access to postsecondary education.2 Education represents an
investment in one’s future, a transformative investment that yields our country’s next nurses, teachers, engineers, business
leaders, and more.

Our customers share a growth mindset that transcends demographics, and they make the investment in education because

they aspire to a better future. For our customers, it is not just about getting to, and graduating from, their course of study, but
unlocking new perspectives, thinking big, and achieving more after college. They want to make an impact in the world. Their
path ahead is our purpose. Over the course of our relationship, our customers advance from an emerging financial
understanding to learning financial responsibility, transitioning to financial stability, and ultimately achieving financial
independence. Our tools, resources, and products help customers to accomplish what is next with confidence and build the
strong foundation they will need to succeed.

Our History

While the Sallie Mae name has existed for more than 40 years, the company that operates as Sallie Mae today, SLM

Corporation, was formed in late 2013 and includes its wholly-owned subsidiary, Sallie Mae Bank, an industrial bank
established in 2005 (the “Bank”). On April 30, 2014, we legally separated (the “Spin-Off”) from another public company that is
now named Navient Corporation (“Navient”), which is in the education loan management, servicing, and asset recovery
business. Navient retained all assets and liabilities generated prior to the Spin-Off other than those explicitly retained by us
pursuant to the Separation and Distribution Agreement (as hereinafter defined) executed in connection with the Spin-Off. We
are a consumer banking business and did not retain any assets or liabilities generated prior to the Spin-Off other than those
explicitly retained by us pursuant to the Separation and Distribution Agreement. We sometimes refer to the company that
existed prior to the Spin-Off as “pre-Spin-Off SLM.”

The Bank was formed in 2005 to fund and originate Private Education Loans (as hereinafter defined) on behalf of pre-

Spin-Off SLM. While the Bank first originated Private Education Loans in February 2006, pre-Spin-Off SLM continued to
purchase a portion of its Private Education Loans from third-party lending partners through mid-2009. With some minor
exceptions, the Bank became the sole originator of Private Education Loans for pre-Spin-Off SLM beginning with the
2009-2010 academic year, the first academic year following the launch of the Bank’s Smart Option Student Loan program in
mid-2009.

Our principal executive offices are located at 300 Continental Drive, Newark, Delaware 19713. Additionally, we have
offices in New Castle, Delaware; Salt Lake City, Utah; Indianapolis, Indiana; Newton, Massachusetts; and Sterling, Virginia.
Our telephone number is (302) 451-0200.

______________________
1 https://www.bls.gov/emp/chart-unemployment-earnings-education.htm
2 https://research.collegeboard.org/trends/education-pays

Our Business

Our primary business is to originate and service high-quality Private Education Loans. “Private Education Loans” are

education loans for students or their families that are not made, insured or guaranteed by any state or federal government. We
also offer a range of deposit products insured by the Federal Deposit Insurance Corporation (the “FDIC”) and operate a
consumer savings network that provides financial rewards on everyday purchases to help families save for college. In 2019,
nearly 456,000 families chose us as their Private Education Loan provider, more than any other private student loan lender. We
originated $5.6 billion of Private Education Loans, an increase of 6 percent from the year ended December 31, 2018. As of
December 31, 2019, we had $22.9 billion of Private Education Loans, net, outstanding.

Private Education Loans

The Private Education Loans we make to students and families serve primarily to bridge the gap between the cost of
higher education and the amount funded through financial aid, federal loans and student and families’ resources. We also extend
Private Education Loans as an alternative to similar federal education loan products where we believe our rates are competitive.
We earn interest income on our Private Education Loan portfolio.

In 2009, we introduced the Smart Option Student Loan, our primary Private Education Loan product emphasizing in-

school payment features that can produce shorter terms and reduce customers’ total finance charges. Customers generally elect
one of three Smart Option repayment types at the time of loan origination. The first two, Interest Only and Fixed Payment
options, require monthly payments while the student is in school and during the grace period thereafter, and accounted for
approximately 50 percent of the Private Education Loans the Bank originated during 2019. The third repayment option is the
more traditional deferred Private Education Loan product where customers are not required to make payments while the student
is in school and during the grace period after separation from school. (The grace period for a Smart Option Student Loan
generally runs for six months after the borrower separates from school, but can run for up to 36 months for a small subset of
graduate loans). Lower interest rates on the Interest Only and Fixed Payment options encourage customers to elect those
options, which help customers reduce their total loan cost compared with the traditional deferred option loan. Making payments
while in school helps customers become accustomed to making on-time regular loan payments. We offer both variable-rate and
fixed-rate loans.

In 2018, we expanded our offerings to include six new loan products for specific graduate programs of study. These

included the Sallie Mae Law School Loan, the Sallie Mae MBA Loan, the Sallie Mae Health Professions Graduate Loan, the
Sallie Mae Medical School Loan, the Sallie Mae Dental School Loan, and the Sallie Mae Graduate School Loan. These
products were designed to address the specific needs of graduate students, such as extended grace periods for medical students.

We regularly review and update the terms of our Private Education Loan products. Our Private Education Loans include

important protections for the family, including loan forgiveness in case of death or permanent disability of the student borrower,
a free, quarterly FICO score benefit to students and cosigners and, for borrowers with a Smart Option Student Loan, on-line
tutoring services to help students succeed in school.

As a holder of Private Education Loans, we bear the full credit risk of the customers. We manage this risk by
underwriting and pricing based on customized credit scoring criteria and the addition of qualified cosigners. For Private
Education Loans originated during the year ended December 31, 2019, our average FICO scores (representing the higher credit
scores of the cosigners or borrowers) at the time of original approval were 746 and approximately 86.6 percent of those loans
were cosigned. In addition, we voluntarily require school certification of both the need for, and the amount of, every Private
Education Loan we originate (to prevent unnecessary borrowing beyond a school’s cost of attendance), and we disburse the
loan proceeds directly to the higher education institutions to ensure loan proceeds are applied directly to the student’s education
expenses.

The core of our marketing strategy is to promote our products on campuses through financial aid offices as well as
through online and direct marketing to students and families. Our on-campus efforts with approximately 2,400 higher education
institutions are led by our sales force, the largest in the industry, which has become a trusted resource for financial aid offices.

Our loans are high credit quality and the overwhelming majority of our customers manage their payments with great
success. Loans in repayment include loans on which customers are making interest only or fixed payments, as well as loans that
have entered full principal and interest repayment status after any applicable grace period. At December 31, 2019, 2.8 percent
of loans in repayment were greater than 30 days delinquent, and loans in forbearance were 4.1 percent of loans in repayment
and forbearance. In 2019, net charge-offs as a percentage of average loans in repayment was 1.17 percent.

Sallie Mae Bank

The Bank, which is regulated by the Utah Department of Financial Institutions (the “UDFI”), the FDIC, and the
Consumer Financial Protection Bureau (the “CFPB”), offers traditional savings products, such as high-yield savings accounts,
money market accounts, and certificates of deposit (“CDs”), originates Private Education Loans, and manages a loan portfolio
that also includes Personal Loans (as defined below), loans insured or guaranteed under the previously existing Federal Family
Education program (“FFELP Loans”) and credit card loans (“Credit Cards”). At December 31, 2019, the Bank had total assets
of $32.5 billion, including $22.9 billion of Private Education Loans, net, $984 million of Personal Loans, net, $784 million of
FFELP Loans, net, $4 million of Credit Cards, net, and total deposits of $24.6 billion.

Our ability to obtain deposit funding and offer competitive interest rates on deposits will be necessary to sustain the

growth of our Private Education Loan and other originations. Our ability to obtain such funding is dependent, in part, on the
capital levels of the Bank and its compliance with other applicable regulatory requirements. At the time of this filing, there are
no regulatory restrictions on our ability to obtain deposit funding or the interest rates we offer other than those restrictions
generally applicable to all FDIC-insured banks of similar charter and size. We maintained our diversified funding base by
raising $1.1 billion in term funding collateralized by pools of Private Education Loans in the long-term asset-backed securities
(“ABS”) market in 2019. This brought our total ABS funding outstanding at December 31, 2019 (which takes into account
$1.0 billion in ABS repayments during 2019) to $4.2 billion, or 18 percent of our total Private Education Loan portfolio. We
plan to continue to use ABS funding, market conditions permitting. This helps us better match-fund our assets and avoids
excessive reliance on deposit funding.

See the subsection titled “Regulation of Sallie Mae Bank” under “Supervision and Regulation” for additional details

about the Bank.

Credit Cards

In 2019, we introduced three new credit card offerings, each uniquely designed to promote and reward financial
responsibility, including the only card that offers a cash back bonus that cardholders can apply to pay down a student loan. At
December 31, 2019, we had $4 million of Credit Cards, net outstanding.

Personal Loans

We began purchasing unsecured personal loans used for non-educational purposes (“Personal Loans”) from a marketplace

lender in 2016 and discontinued those purchases in July 2018. In 2018, we began to originate Personal Loans. In the fourth
quarter of 2019, we discontinued new Personal Loan originations in order to focus resources on core business strategic
priorities and do not expect to originate or purchase any Personal Loans in 2020. We processed completed Personal Loan
applications received by December 15, 2019 and continue to provide Personal Loan customers with the high-quality service
they have come to expect. At December 31, 2019, we had $984 million of Personal Loans, net outstanding.

Upromise and SmartyPig

Upromise is a free to join rewards program helping Americans save for college. Members can earn cash back rewards
when shopping at participating on-line retailers, dining out at participating restaurants, and by using their Upromise Mastercard.
Since inception, Upromise members have earned more than $1 billion through the program.

Our SmartyPig™ product is a free, FDIC-insured, online, goal-based savings account that helps consumers save for long-

and short-term goals. Its tiered interest rates reward consumers for growing their savings.

Our Lending Philosophy

Sallie Mae is committed to lending responsibly and encourages responsible borrowing by advising students and families

to follow this three-step approach to paying for college:

Start with money you won’t have to pay back. Supplement your college savings and income by maximizing
scholarships, grants, and work-study.

Explore federal student loans. We encourage students to explore federal student loan options by completing the Free
Application for Federal Student Aid.

Consider a responsible private student loan. Fill the gap between your available resources and the cost of college.

The best interests of our customers are front-and-center and integral to our responsible lending philosophy. We reward
financial responsibility, emphasize building good credit, and provide flexible repayment terms to help customers manage and
eliminate debt. We also embed customer protections in our products. To ensure applicants borrow only what they need to cover
their school’s cost of attendance, we actively engage with schools and require school certification before we disburse a Private
Education Loan. To help applicants understand their loan and its terms, we provide multiple, customized disclosures explaining
the applicant’s starting interest rate, the interest rate during the life of the loan, and the loan’s total cost under the available
repayment options. Our Private Education Loans feature (i) no origination fees and no prepayment penalties, (ii) interest rate
reductions for those who enroll in and make monthly payments through auto debit, (iii) free access to quarterly FICO credit
scores to help customers monitor their credit health, (iv) a choice of repayment options, and (v) a choice of either variable or
fixed interest rates. Beginning in 2017, all newly-originated Private Education Loans for undergraduate students included the
benefit of free access to study services at an online third-party vendor to assist students in advancing their education.

Our Approach to Assisting Students and Families Borrowing and Repaying Private Education Loans

The majority of our Private Education Loan customers elect an in-school repayment option. By making in-school
payments, customers learn to establish good repayment patterns, reduce their total loan cost, and graduate with less debt. We
send monthly communications to customers while they are in school, even if they have no monthly payments scheduled, to
keep them informed and encourage them to reduce the amount they will owe when they leave school.

Some customers transitioning from school to the work force may require more time before they are financially capable of

making full payments of principal and interest. Sallie Mae created a Graduated Repayment Program (the “GRP”) to assist
borrowers with additional payment flexibility, allowing customers to make interest-only payments instead of full principal and
interest payments for a period of 12 months if they elect within a specified time frame to participate in the GRP. The time frame
for electing to participate in the GRP begins six months before expiration of a borrower’s grace period and extends until 12
months after the expiration of the grace period. The 12-month interest only payments under the GRP begin upon expiration of a
borrower’s grace period or election of the GRP, whichever is later.

Our experience has taught us the successful transition from school to full principal and interest repayment status involves

making and carrying out a financial plan. As customers approach the principal and interest repayment period on their loans,
Sallie Mae engages with them and communicates what to expect during the transition. In addition, SallieMae.com provides
educational content for customers on how to organize loans, set up a monthly budget, and understand repayment obligations.
Examples are provided to help explain how payments are applied and allocated, and see how the accrued interest on alternative
repayment programs could affect the cost of customers’ loans. The site also provides important information on benefits
available to service men and women under the Servicemembers Civil Relief Act (the “SCRA”).

After graduation, a customer may apply for the cosigner to be released from the loan. This option is available after 12

principal and interest payments are made and the student borrower adequately meets our credit requirements. In the event of a
cosigner’s death, the student borrower automatically continues as the sole individual on the loan with the same terms.

If a customer’s account becomes delinquent, our collections centers work with the customer and/or the cosigner to
understand their ability to make ongoing payments. If the customer is in financial hardship, we work with the customer and/or
cosigner to understand their financial circumstances and identify any available alternative arrangements designed to reduce
monthly payment obligations. These can include extended repayment schedules, temporary interest rate reductions and, if
appropriate, short-term hardship forbearance (which typically is retroactive and granted by our collections department), suited
to their individual circumstances and ability to make payments. Currently, our servicing centers generally also grant prospective
forbearance if a borrower who is current requests it for increments of up to three months at a time, for up to 12 months. When
we grant forbearance, we counsel customers on the effect forbearance will have on their loan balance. See Part II, Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition —

Allowance for Loan Losses — Use of Forbearance and Rate Modifications as a Private Education Loan Collection Tool” for
additional information about planned changes to our credit administration practices.

Customer Service

We perform the origination, servicing and collections activities for all of our Private Education Loans in the United States

with dedicated representatives assisting customers with various needs, including the military personnel customers who may be
eligible for military benefits. We expect the Bank or affiliates of the Bank to retain servicing of all Private Education Loans the
Bank originates, regardless of whether the loans are held, sold or securitized.

Over the past few years, we have implemented several improvements in our ability to interact with our loan customers,

including:

•

an integrated platform that allows customers and servicing agents to simultaneously access the same systems in real
time interaction;

an on-line chat function for customer service;

a mobile application accessible through smart phones and the Apple watch; and

initiation of customer surveys to gain feedback on areas for improvement within our servicing function.

These and other enhancements have contributed to streamlined originations and servicing processes, increased customer

self-services rates, and improved customer satisfaction in all channels. The Company maintains an A+ rating with the Better
Business Bureau and in 2019 earned the J.D. Powers and Associates Certification for Customer Service for phone support.

Customer Success

We continue to adapt our business to best serve the needs of families who see us as a trusted advisor and partner. And

when our customers succeed, we succeed. Of total customers, 91 percent of our borrowers complete their program of study, 91
percent are employed, and 98 percent are successfully repaying their Sallie Mae loans.

Our College Planning Calculator helps families set college savings goals, projects the full costs of a college degree, and

estimates future student loan payments and the annual starting salary level needed to keep payments manageable.

Scholarship Search, our free online scholarship database, is home to more than 5 million scholarships collectively worth
over $25 billion. For academic year (“AY”) 2018-2019, more than 20,000 students reported receiving at least one scholarship
via our database, covering more than $61 million in college costs. Our Scholarship Search for Graduate Students includes
access to approximately 1 million graduate school scholarships with an aggregate value of more than $1 billion.

In 2019, we unveiled a new, one-stop college-planning destination — Sallie Mae’s Paying for College Resource —

created with, and for, high school educators and counselors. The Sallie Mae Paying for College Resource provides access to
free, online college planning tools, short educational videos on financial aid and other valuable information to help guide
students and their families through the planning for college process.

Key Drivers of Private Education Loan Market Growth

The size of the Private Education Loan market is based primarily on three factors: college enrollment levels, the costs of

attending college, and the availability of funds from the federal government to pay for a college education. The amounts
students and their families can contribute toward college costs and the availability of scholarships and institutional grants are
also important. If the cost of education increases at a pace exceeding the sum of family income, savings, federal lending, and
scholarships, more students and families can be expected to rely on Private Education Loans. If enrollment levels or college
costs decline, or the availability of federal education loans, grants or subsidies and scholarships significantly increases, Private
Education Loan demand could decrease.

We focus primarily on students attending public and private not-for-profit four-year degree granting institutions. We lend

to some students attending two-year and for-profit schools. Due to the low cost of two-year programs, federal grant and loan
programs are typically sufficient for the funding needs of these students. The for-profit industry has been the subject of
increased scrutiny and regulation over the last several years. Approximately 10 percent or $571 million of our 2019 Private
Education Loan originations were for students attending for-profit schools. The for-profit schools where we continue to do
business are primarily focused on career training and health care fields. We expect students who attend and complete programs
at for-profit schools to support the same repayment performance as students who attend and graduate from public and private
not-for-profit four-year degree granting institutions.

Our competitors1 in the Private Education Loan market include large banks such as Wells Fargo Bank, N.A., Discover
Bank, Citizens Financial Group, Inc. and PNC Bank, National Association, as well as a number of smaller specialty finance
companies and members of the Education Finance Council. We compete based on our products, originations capability, price,
and customer service.

Enrollment

We expect modest enrollment growth over the next several years.

Enrollment at Four-Year Degree Granting Institutions2

(in millions)

16.0

12.0

8.0

4.0

0.0

13.4

13.5

13.8

13/14

14/15

15/16

(AY)

16/17

17/18

Public

Private

•

According to the U.S. Department of Education’s projections released in February 2019, the high school graduate
population is projected to remain relatively flat from 2020 to 2027.2

______________________
1Source: MeasureOne Q3 2019 Private Student Loan Report, November 2019. www.measureone.com.
2Source: U.S. Department of Education, National Center for Education Statistics, Projections of Education Statistics to 2027 (NCES, February 2019),
Enrollment in Postsecondary Institutions (NCES, October 2018). These are the most recent sources available to us for this information.

Tuition Rates

•

Average published tuition and fees (exclusive of room and board) at four-year public and private not-for-profit
institutions increased at compound annual growth rates of 2.1 percent and 2.7 percent, respectively, from AYs
2015-2016 through 2019-2020. Average published tuition and fees at public and private four-year not-for-profit
institutions grew 2.3 percent and 2.8 percent, respectively, between AYs 2017-2018 and 2018-2019 and 2.3 percent
and 3.4 percent, respectively, between AYs 2018-2019 and 2019-2020.3 Tuition and fees are likely to continue to grow
at the more modest rates of recent years.

Published Tuition and Fees3
(Dollars in actuals)

$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000

15/16

16/17

17/18

18/19

19/20

Public

Private

______
3 Source: The College Board-Trends in College Pricing 2019. © 2019 The College Board.
www.collegeboard.org. The College Board restates its data annually, which may cause
previously reported results to vary.

Sources of Funding

Private Education Loan originations increased to an estimated $11.8 billion in AY 2018-2019, up 8.8 percent over the
previous year.4

_______
4 Source: The College Board-Trends in Student Aid 2016. © 2016 The College Board. www.collegeboard.org and The
College Board-Trends in Student Aid 2019. © 2019 The College Board. www.collegeboard.org. Funding sources in
current dollars and include federal and private loan data. 2019 Private Education Loan market assumptions use The
College Board-Trends in Student Aid 2016© 2016 trends and College Board-Trends in Student Aid 2019 © 2019 data.
Other sources for the size of the Private Education Loan market exist and may cite the size of the market differently.
We believe the College Board source includes Private Education Loans made by major financial institutions in the
Private Education Loan market, with an unknown adjustment for Private Education Loans made by smaller lenders
such as credit unions. The College Board restates its data annually, which may cause previously reported results to
vary.

• We estimate total spending on higher education was $458 billion in AY 2018-2019, up from $412 billion in AY

2014-2015. Private Education Loans represent just 2.6 percent of total spending on higher education. Modest growth
in total spending can lead to meaningful increases in Private Education Loans in the absence of growth in other
sources of funding.5

•

Over the AYs 2015-2019 period, increases in total spending have been absorbed primarily through increased family
contributions. If household finances continue to improve, we would expect this trend to continue.

_________________________

5 Source: Total post-secondary education spending is estimated by Sallie Mae determining the full-time equivalents for both graduates and
undergraduates and multiplying by the estimated total per person cost of attendance for each school type. In doing so, we utilize information from the
U.S. Department of Education, National Center for Education Statistics, Projections of Education Statistics to 2027 (NCES 2019, February 2019), The
Integrated Postsecondary Education Data System (IPEDS), College Board -Trends in Student Aid 2016. © 2016 The College Board,
www.collegeboard.org, College Board -Trends in Student Aid 2019. © 2019 The College Board, www.collegeboard.org, College Board -Trends in
Student Pricing 2019. © 2019 The College Board, www.collegeboard.org, National Student Clearinghouse - Term Enrollment Estimates, and
Company analysis. 2019 Private Education Loan market assumptions use The College Board-Trends in Student Aid 2016 © 2016 trends and College
Board-Trends in Student Aid 2019 © 2019 data. Other sources for these data points also exist publicly and may vary from our computed estimates.
NCES, IPEDS, and College Board restate their data annually, which may cause previous reports to vary. We have also recalculated figures in our
Company analysis to standardize all costs of attendance to dollars not adjusted for inflation. This has a minimal impact on historically-stated numbers.

Supervision and Regulation

Overview

We are subject to extensive regulation, examination and supervision by various federal, state and local authorities. The

more significant aspects of the laws and regulations that apply to us and our subsidiaries are described below. These
descriptions are qualified in their entirety by reference to the full text of the applicable statutes, legislation, regulations and
policies, as they may be amended, and as interpreted and applied, by federal, state and local agencies.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was adopted to
reform and strengthen regulation and supervision of the U.S. financial services industry. It contains comprehensive provisions
to govern the practices and oversight of financial institutions and other participants in the financial markets. It mandates
significant regulations, additional requirements and oversight on almost every aspect of the U.S. financial services industry,
including increased capital and liquidity requirements, limits on leverage and enhanced supervisory authority. It requires the
issuance of many regulations, which will take effect over several years.

Additionally, states are taking an increased interest in directly regulating the conduct and practices of student loan

servicers. Some states recently have enacted legislation creating specialized offices within state government to oversee the
student loan servicing industry operating within those states, as well as to set minimum standards governing the practices of
student loan servicers. This represents a significant change from the past in which states generally did not issue laws and
regulations tailored specifically to the student loan servicing industry.

Consumer Protection Laws and Regulations

Our origination, servicing, first-party collection and deposit taking activities subject us to federal and state consumer

protection, privacy and related laws and regulations. Some of the more significant laws and regulations that are applicable to
our business include:

•

various state and federal laws governing unfair, deceptive or abusive acts or practices;

various state laws and regulations imposing specific, mandated standards and requirements on the conduct and
practices of student loan servicers;

the federal Truth-In-Lending Act and Regulation Z, which govern disclosures of credit terms to consumer borrowers;

the Fair Credit Reporting Act and Regulation V, which govern the use and provision of information to consumer
reporting agencies;

the Equal Credit Opportunity Act and Regulation B, which prohibit creditor practices that discriminate on the basis of
race, religion and other prohibited factors in extending credit;

the SCRA, which applies to all debts incurred prior to commencement of active military service (including education
loans) and limits the amount of interest, including fees, that may be charged;

the Truth in Savings Act and Regulation DD, which mandate certain disclosures related to consumer deposit accounts;

the Expedited Funds Availability Act, Check Clearing for the 21st Century Act and Regulation CC issued by the
Federal Reserve Bank (“FRB”), which relate to the availability of deposit funds to consumers;

the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records
and prescribes procedures for complying with federal government requests for and subpoenas of financial records;

the Electronic Funds Transfer Act and Regulation E, which govern automated transfers of funds and consumers’ rights
related thereto;

the Telephone Consumer Protection Act, which governs communication methods that may be used to contact
customers;

the Gramm-Leach-Bliley Act, which governs the ability of financial institutions to disclose nonpublic information
about consumers to non-affiliated third-parties; and

the California Consumer Privacy Act, which governs transparency and disclosure obligations regarding personal
information of residents of the State of California.

Consumer Financial Protection Bureau

The Consumer Financial Protection Act, a part of the Dodd-Frank Act, established the CFPB, which has broad authority

to promulgate regulations under federal consumer financial protection laws and to directly or indirectly enforce those laws,
including providing regulatory oversight of the Private Education Loan industry, and to examine financial institutions for
compliance. It is authorized to collect fines and order consumer restitution in the event of violations, engage in consumer
financial education, track consumer complaints, request data and promote the availability of financial services to underserved
consumers and communities. It has authority to prevent unfair, deceptive or abusive acts and practices by issuing regulations or
by using its enforcement authority without first issuing regulations. The CFPB has been active in its supervision, examination
and enforcement of financial services companies, notably bringing enforcement actions, imposing fines and mandating large
refunds to customers of several large banking institutions. As of January 1, 2015, the CFPB has been the Bank’s primary
consumer compliance supervisor with compliance examination authority and primary consumer protection enforcement
authority. The UDFI and FDIC remain the prudential regulatory authorities with respect to the Bank’s financial strength.

The Dodd-Frank Act created the Private Education Loan Ombudsman within the CFPB to receive and attempt to
informally resolve inquiries about Private Education Loans. The Private Education Loan Ombudsman is required by law to
report to Congress annually on the trends and issues identified through this process. The CFPB continues to take an active
interest in the student loan industry, undertaking a number of initiatives related to the Private Education Loan market and
student loan servicing. In early February 2020, the CFPB entered into a Memorandum of Understanding with the U.S.
Department of Education (the “CFPB/DOE MOU”) in order to better serve student loan borrowers. Under the agreement, the
agencies will share complaint information from borrowers and meet quarterly to discuss, among other things, the nature of
complaints received and available information about the resolution of complaints.

Regulation of Sallie Mae Bank

The Bank was chartered in 2005 and is a Utah industrial bank regulated by the FDIC, the UDFI and the CFPB. We are

not a bank holding company under the Bank Holding Company Act and therefore are not subject to the federal regulations
applicable to bank holding companies. However, we and our non-bank subsidiaries are subject to regulation and oversight as
institution-affiliated parties. The following discussion sets forth some of the elements of the bank regulatory framework
applicable to us, the Bank and our other non-bank subsidiaries.

General

The Bank is currently subject to prudential regulation and examination by the FDIC and the UDFI, and consumer
compliance regulation and examination by the CFPB. Numerous other federal and state laws and regulations govern almost all
aspects of the operations of the Bank and, to some degree, our operations and those of our non-bank subsidiaries as institution-
affiliated parties.

Actions by Federal and State Regulators

Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions, the

UDFI and the FDIC have the authority to compel or restrict certain actions of the Bank if it is determined to lack sufficient
capital or other resources, or is otherwise operating in a manner deemed to be inconsistent with safe and sound banking
practices. Under this authority, the Bank’s regulators can require it to enter into informal or formal supervisory agreements,
including board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders, pursuant
to which the Bank would be required to take identified corrective actions to address cited concerns and refrain from taking
certain actions.

Enforcement Powers of Regulators

As “institution-affiliated parties” of the Bank, we, our non-bank subsidiaries and our management, employees, agents,

independent contractors and consultants are subject to potential civil and criminal penalties for violations of law, regulations or
written orders of a government agency. Violations can include failure to timely file required reports, filing false or misleading
information or submitting inaccurate reports. Civil penalties may be as high as $1,000,000 per day for such violations, and
criminal penalties for some financial institution crimes may include imprisonment for 20 years. Regulators have flexibility to
commence enforcement actions against institutions and institution-affiliated parties, and the FDIC has the authority to terminate
deposit insurance. When issued by a banking agency, cease and desist and similar orders may, among other things, require
affirmative action to correct any harm resulting from a violation or practice, including by compelling restitution,
reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth,
dispose of certain assets, rescind agreements or contracts, or take other actions determined to be appropriate by the ordering
agency. The federal banking regulators also may remove a director or officer from an insured depository institution (or bar them
from the industry) if a violation is willful or reckless.

In May 2014, the Bank received a Civil Investigative Demand (“CID”) from the CFPB as part of the CFPB’s separate

investigation relating to customer complaints, fees and charges assessed in connection with the servicing of student loans and
related collection practices of pre-Spin-Off SLM by entities now subsidiaries of Navient during a time period prior to the Spin-
Off (the “CFPB Investigation”). Two state attorneys general also provided the Bank identical CIDs and other state attorneys
general have become involved in the inquiry over time (collectively, the “Multi-State Investigation”). To the extent requested,
the Bank has been cooperating fully with the CFPB and the attorneys general conducting the Multi-State Investigation. Given
the timeframe covered by the CIDs, the CFPB Investigation and the Multi-State Investigation, and the focus on practices and
procedures previously conducted by Navient and its servicing subsidiaries prior to the Spin-Off, Navient is leading the response
to these investigations. Consequently, we have no basis from which to estimate either the duration or ultimate outcome of these
investigations.

With regard to the CFPB Investigation, we note that on January 18, 2017, the CFPB filed a complaint in federal court in

Pennsylvania against Navient, along with its subsidiaries, Navient Solutions, Inc. and Pioneer Credit Recovery, Inc. The
complaint alleges these Navient entities, among other things, engaged in deceptive practices with respect to their historic
servicing and debt collection practices. Neither SLM, the Bank, nor any of their current subsidiaries are named in, or otherwise
a party to, the lawsuit and are not alleged to have engaged in any wrongdoing. The CFPB’s complaint asserts Navient’s
assumption of these liabilities pursuant to the Separation and Distribution Agreement entered into by the Company and Navient
in connection with the Spin-Off (the “Separation and Distribution Agreement”).

On January 18, 2017, the Illinois Attorney General filed a lawsuit in Illinois state court against Navient - its subsidiaries

Navient Solutions, Inc., Pioneer Credit Recovery, Inc., and General Revenue Corporation - and the Bank arising out of the
Multi-State Investigation. On March 20, 2017, the Bank moved to dismiss the Illinois Attorney General action as to the Bank,
arguing, among other things, the complaint failed to allege with sufficient particularity or specificity how the Bank was
responsible for any of the alleged conduct, most of which predated the Bank’s existence. On July 10, 2018, the Court granted
the Bank’s motion to dismiss without prejudice. On August 7, 2018, the Illinois Attorney General filed a First Amended
Complaint and, on October 9, 2018, the Bank again moved to dismiss the action based on grounds similar to those raised in its
March 20, 2017 motion. The Illinois Attorney General filed its response on November 21, 2018, and the Bank filed its reply on
December 10, 2018. Oral argument on the motion took place on January 9, 2019. The Court took the motion under advisement.

On July 17, 2018, the Mississippi Attorney General filed a lawsuit in Mississippi state court against Navient, Navient
Solutions, LLC, and the Bank arising out of the Multi-State Investigation. The complaint alleges unfair and deceptive trade
practices against all three defendants as to private loan origination practices from 2000 to 2009, and against the two Navient
defendants as to servicing practices between 2010 and the present. The complaint further alleges that Navient assumed
responsibility for these matters under the Separation and Distribution Agreement for alleged conduct that pre-dated the Spin-
Off. On September 27, 2018, the Mississippi Attorney General filed an amended complaint. On October 8, 2018, the Bank
moved to dismiss the Mississippi Attorney General’s action as to the Bank, arguing, among other things, that the complaint
failed to allege with sufficient particularity or specificity how the Bank was responsible for any of the alleged conduct, most of
which predated the Bank’s existence. On November 20, 2018, the Mississippi Attorney General filed an opposition brief, and
the Bank filed a reply on December 21, 2018. The court heard oral argument on the Bank’s motion to dismiss on April 11,
2019. On August 15, 2019, the court entered an order denying the Bank’s motion to dismiss. On September 5, 2019, the Bank
filed with the Supreme Court of Mississippi a petition for interlocutory appeal. The Mississippi Attorney General filed an
opposition to the petition for interlocutory appeal on September 19, 2019. On October 16, 2019, the Supreme Court of
Mississippi granted the Bank’s petition for interlocutory appeal and stayed the trial court proceedings.

To date, three other state attorneys general (California, Washington and Pennsylvania) have filed suits against Navient

and one or more of its current subsidiaries arising out of the Multi-State Investigation. Neither SLM, the Bank, nor any of their
current subsidiaries are named in, or otherwise a party to, the California, Washington or Pennsylvania lawsuits, and no claims
are asserted against them. Each complaint asserts in its own fashion that Navient assumed responsibility under the Separation
and Distribution Agreement for the alleged conduct in the complaints prior to the Spin-Off. On September 24, 2018, the
Washington Attorney General served a third-party subpoena on the Bank calling for the production of certain records. The Bank
has responded to the subpoena.

Additional lawsuits may arise from the Multi-State Investigation which may or may not name the Company, the Bank or

any of their current subsidiaries as parties to these suits. Pursuant to the terms of the Separation and Distribution Agreement,
and as contemplated by the structure of the Spin-Off, Navient is legally obligated to indemnify the Bank against all claims,
actions, damages, losses or expenses that may arise from the conduct of all activities of pre-Spin-Off SLM occurring prior to
the Spin-Off, except for certain liabilities related to the conduct of the pre-Spin-Off consumer banking business that were
specifically assumed by the Bank (and as to which the Bank is obligated to indemnify Navient). Navient has acknowledged its
indemnification obligations under the Separation and Distribution Agreement, in connection with the Multi-State Investigation
and the related lawsuits in which the Bank has been named as a party. Navient has informed the Bank, however, that it believes
that the Bank may be responsible to indemnify Navient against certain potential liabilities arising from the above-described
lawsuits under the Separation and Distribution Agreement and/or a separate loan servicing agreement between the parties, and
has suggested that the parties defer further discussion regarding indemnification obligations, and reimbursement of ongoing
legal costs, in connection with the lawsuits until the lawsuits are resolved. The Bank disagrees with Navient’s position and the
Bank has reiterated to Navient that Navient is responsible for promptly indemnifying the Bank against all liabilities arising out
of the conduct of pre-Spin-Off SLM that are at issue in the Multi-State Investigation and in the above-described lawsuits.

Standards for Safety and Soundness

The Federal Deposit Insurance Act requires the federal banking regulatory agencies such as the FDIC to prescribe, by

regulation or guidance, operational and managerial standards for all insured depository institutions, such as the Bank, relating
to internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure,
and asset quality. The agencies also must prescribe standards for earnings and stock valuation, as well as standards for
compensation, fees and benefits. The federal banking regulators have implemented these required standards through regulations
and interagency guidance designed to identify and address problems at insured depository institutions before capital becomes
impaired. Under the regulations, if a regulator determines a bank fails to meet any prescribed standards, the regulator may
require the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review
of such safety and soundness compliance plans.

Dividends

The Company pays quarterly cash dividends on its outstanding Floating-Rate Non-Cumulative Preferred Stock, Series B
(the “Series B Preferred Stock”) when, as, and if declared by its Board of Directors, in the Board’s discretion. In January 2019,
the Company initiated a new policy to pay a regular, quarterly cash dividend on its common stock as well, beginning in the first
quarter of 2019, and its Board of Directors approved a common stock share repurchase program.

Common stock dividend declarations are subject to determination by, and the discretion of, the Company’s Board of
Directors. The Company’s business plan contemplates that common stock dividends may increase from time to time if the
Company’s diluted earnings per common share increase subject to determination by, and discretion of, the Company’s Board of
Directors. The Company may change its common stock dividend policy at any time.

The January 23, 2019 share repurchase program (the “2019 Share Repurchase Program”), which was effective upon

announcement and expires on January 22, 2021, permits the Company to repurchase from time to time shares of its common
stock up to an aggregate repurchase price not to exceed $200 million. Under the 2019 Share Repurchase Program, we
repurchased 17 million shares of common stock for $167 million for the year ended December 31, 2019. We had $33 million of
remaining capacity under the 2019 Share Repurchase Program available as of December 31, 2019.

On January 22, 2020, the Company announced a new share repurchase program (the “2020 Share Repurchase Program”),
which was effective upon announcement and expires on January 21, 2022, and permits the Company to repurchase shares of its
common stock from time to time up to an aggregate repurchase price not to exceed $600 million.

The timing and volume of any repurchases under the 2019 Share Repurchase Program and the 2020 Share Repurchase

Program will be subject to market conditions, and there can be no guarantee that the Company will repurchase up to the limit of
the programs or at all. Repurchases under the programs may occur from time to time and through a variety of methods,
including open market repurchases, repurchases effected through Rule 10b5-1 trading plans, negotiated block purchases,
accelerated share repurchase programs, tender offers or other similar transactions.

We expect that the Bank will pay dividends to the Company as may be necessary to enable the Company to pay any

declared dividends on its Series B Preferred Stock and common stock and to consummate any common share repurchases by
the Company under the share repurchase programs. The Bank declared $254 million in dividends for the year ended December
31, 2019, with the proceeds primarily used to fund the 2019 Share Repurchase Program and stock dividends. The Bank paid no
dividends on its common stock for the years ended December 31, 2018 and 2017.

Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI. Failure to meet

minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a material adverse effect on our business, results of operations and financial position. Under the FDIC’s
regulations implementing the Basel III capital framework (“U.S. Basel III”) and the regulatory framework for prompt
corrective action, the Bank must meet specific capital standards that involve quantitative measures of its assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and its
classification under the prompt corrective action framework are also subject to qualitative judgments by the regulators about
components of capital, risk weightings and other factors.

U.S. Basel III is aimed at increasing both the quantity and quality of regulatory capital. Certain aspects of U.S. Basel III,

including new deductions from and adjustments to regulatory capital and a capital conservation buffer, have been phased in
over several years.

The Bank is subject to the following minimum capital ratios under U.S. Basel III: a Common Equity Tier 1 risk-based

capital ratio of 4.5 percent, a Tier 1 risk-based capital ratio of 6.0 percent, a Total risk-based capital ratio of 8.0 percent, and a
Tier 1 leverage ratio of 4.0 percent. In addition, as of January 1, 2019, the Bank is subject to a fully phased-in Common Equity
Tier 1 capital conservation buffer of greater than 2.5 percent. (As of December 31, 2018, the Bank was subject to a Common
Equity Tier 1 capital conservation buffer of greater than 1.875 percent.) Failure to maintain the buffer will result in restrictions
on the Bank’s ability to make capital distributions, including the payment of dividends, and to pay discretionary bonuses to
executive officers. Including the buffer, as of January 1, 2019, the Bank is required to maintain the following capital ratios
under U.S. Basel III in order to avoid such restrictions: a Common Equity Tier 1 risk-based capital ratio of greater than 7.0
percent, a Tier 1 risk-based capital ratio of greater than 8.5 percent and a Total risk-based capital ratio of greater than 10.5
percent.

To qualify as “well capitalized” under the prompt corrective action framework for insured depository institutions, the

Bank must maintain a Common Equity Tier 1 risk-based capital ratio of at least 6.5 percent, a Tier 1 risk-based capital ratio of
at least 8.0 percent, a Total risk-based capital ratio of at least 10.0 percent, and a Tier 1 leverage ratio of at least 5.0 percent.

Stress Testing Requirements

The Dodd-Frank Act as enacted imposed stress testing requirements on banking organizations with total consolidated

assets, averaged over the four most recent consecutive quarters, of more than $10 billion. The Bank completed its third annual
stress test (using the scenarios provided by the FDIC) with the January 1, 2018 stress testing cycle. As a result of the passage of
the Economic Growth, Regulatory Relief, and Consumer Protection Act, signed into law on May 24, 2018, the Bank became
exempt from formally filing and publishing the results. However, under regulatory guidance, the Bank still conducts annual
capital stress tests, the results of which it presents to its prudential regulators - the FDIC and the UDFI - for their review. The
Bank also conducts quarterly liquidity stress tests to evaluate the adequacy of its liquidity sources under various stress scenarios
and provides the results to its Board of Directors. These scenarios are submitted to the Bank’s prudential regulators at their
request.

Deposit Insurance and Assessments

Deposits at the Bank are insured up to the applicable legal limits by the FDIC - administered Deposit Insurance Fund (the

“DIF”), which is funded primarily by quarterly assessments on insured banks. An insured bank’s assessment is calculated by
multiplying its assessment rate by its assessment base. A bank’s assessment base and assessment rate are determined each
quarter.

The Bank’s insurance assessment base currently is its average consolidated total assets minus its average tangible equity
during the assessment period. The Bank’s assessment rate is determined by the FDIC using a number of factors, including the
results of supervisory evaluations, the Bank’s capital ratios and its financial condition, as well as the risk posed by the Bank to
the DIF. Assessment rates for insured banks also are subject to adjustment depending on a number of factors, including
significant holdings of brokered deposits in certain instances and the issuance or holding of certain types of debt.

Deposits

With respect to brokered deposits, an insured depository institution must be well capitalized under the prompt corrective

action framework in order to accept, renew or roll over such deposits without FDIC clearance. An adequately capitalized
insured depository institution must obtain a waiver from the FDIC to accept, renew or roll over brokered deposits.
Undercapitalized insured depository institutions generally may not accept, renew or roll over brokered deposits. For more
information on the Bank’s deposits, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Key Financial Measures — Funding Sources.”

Regulatory Examinations

The Bank currently undergoes regular on-site examinations by the Bank’s regulators, who examine for adherence to a
range of legal and regulatory compliance responsibilities. A regulator conducting an examination has complete access to the
books and records of the examined institution. The results of the examination are confidential. The cost of examinations may be
assessed against the examined institution as the agency deems necessary or appropriate.

Source of Strength

Under the Dodd-Frank Act, we are required to serve as a source of financial strength to the Bank and to commit resources

to support the Bank in circumstances when we might not do so absent the statutory requirement. Any loan by us to the Bank
would be subordinate in right of payment to depositors and to certain other indebtedness of the Bank.

Community Reinvestment Act

The Community Reinvestment Act (the “CRA”) requires the FDIC to evaluate the record of the Bank in meeting the

credit needs of its local community, including low- and moderate-income neighborhoods. These evaluations are considered in
evaluating mergers, acquisitions and applications to open a branch or facility. Failure to adequately meet these criteria could
result in additional requirements and limitations on the Bank. The Bank has received a CRA rating of Outstanding.

Privacy Laws

The federal banking regulators, as required by the Gramm-Leach-Bliley Act (“GLBA”), have adopted regulations that
limit the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated
third-parties. Financial institutions are required to disclose to consumers their policies for collecting and protecting confidential
customer information. Customers generally may prevent financial institutions from sharing nonpublic personal financial
information with nonaffiliated third-parties, with some exceptions, such as the processing of transactions requested by the
consumer. Financial institutions generally may not disclose certain consumer or account information to any nonaffiliated third-
party for use in telemarketing, direct mail marketing or other marketing. The privacy regulations also restrict information
sharing among affiliates for marketing purposes and govern the use and provision of information to consumer reporting
agencies. Federal and state banking agencies have prescribed standards for maintaining the security and confidentiality of
consumer information, and the Bank is subject to such standards, as well as certain federal and state laws or standards for
notifying consumers in the event of a security breach. In addition, we must comply with increasingly complex and rigorous data
privacy and data security laws and regulatory standards enacted to protect business and personal data. These laws impose
additional obligations on companies regarding the handling of personal data and provide certain individual privacy rights to
persons whose data is stored. Any failure to comply with these laws and regulatory standards could subject us to legal and
reputational risk. For example, California passed the California Consumer Privacy Act (the “CCPA”), which became effective

on January 1, 2020, and applies to for-profit businesses that conduct business in California and meet certain revenue or data
collection thresholds. The CCPA contains several exemptions, including an exemption applicable to information that is
collected, processed, sold or disclosed pursuant to the GLBA. However, the definition of personal information is expanded
under the CCPA to apply to certain data beyond the scope of the GLBA exemption. Misuse of or failure to secure certain
personal information could result in violation of data privacy laws and regulations, proceedings against the Company by
governmental entities or others, damage to our reputation and credibility and could negatively affect our business, financial
condition, and results of operations. If other states in the U.S. adopt similar laws or if a comprehensive federal data privacy law
is enacted, we may expend considerable additional resources to meet these requirements and the overall risk to the Company
could incrementally increase depending upon the reach and application of any such laws.

State Regulation of Student Loan Servicers

In certain states, laws regulating the conduct of student loan servicers may apply to and impact the servicing practices of
the Bank. While these state laws vary in content, they generally include components relating to licensure and oversight by state
authorities and the creation of specialized student loan ombudsman offices to oversee the student loan industry operating within
these states. These laws may also include requirements pertaining to payment processing, the handling of customer inquiries
and complaints, information concerning loan repayment options and access to borrower account records, among other
requirements. Notably, these laws often include provisions for enforcement of alleged violations by state regulators as well as
private litigation by aggrieved consumers.

Other Sources of Regulation

Many other aspects of our businesses are subject to federal and state regulation and administrative oversight. Some of the

most significant of these are described below.

Oversight of Derivatives

Title VII of the Dodd-Frank Act requires all standardized derivatives, including most interest rate swaps, to be submitted

for clearing to central intermediaries to reduce counterparty risk. Two of the central intermediaries we use are the Chicago
Mercantile Exchange (the “CME”) and the London Clearing House (the “LCH”). All variation margin payments on derivatives
cleared through the CME and LCH are required to be accounted for as legal settlement. As of December 31, 2019, $9.4 billion
notional of our derivative contracts were cleared on the CME and $0.5 billion were cleared on the LCH. The derivative
contracts cleared through the CME and the LCH represent 95.0 percent and 5.0 percent, respectively, of our total notional
derivative contracts of $9.9 billion at December 31, 2019. Our exposure is limited to the value of the derivative contracts in a
gain position less any collateral held and plus any collateral posted. When there is a net negative exposure, we consider our
exposure to the counterparty to be zero.

Credit Risk Retention

In October 2014, the Department of the Treasury, the Federal Reserve, the Office of the Comptroller of the Currency, the

FDIC, the SEC, the Federal Housing Finance Agency and the Department of Housing and Urban Development issued final
rules to implement the credit risk retention requirements of Section 941 of the Dodd-Frank Act for ABS, including those backed
by residential and commercial mortgages and automobile, commercial, credit card, and student loans, except for certain
transactions with limited connections to the United States and U.S. investors. The final Dodd-Frank risk retention rules
generally require sponsors of ABS, such as Sallie Mae, to retain an economic interest in an ABS transaction that represents at
least five percent of the credit risk of the assets being securitized. The final rules took effect in December 2015 for
securitization transactions backed by residential mortgages and became effective in December 2016 for other securitization
transactions, including those collateralized by Private Education Loans. The Bank early adopted the Dodd-Frank risk retention
rules beginning with its 2016-A securitization transaction completed in May 2016. For its 2016-A transaction and subsequent
securitizations to date, the Bank complies with the Dodd-Frank risk retention rules by retaining (for a requisite period of time)
an “eligible horizontal interest” comprised of residual certificates representing at least five percent of the fair value of all
interests issued in the securitization transaction, determined as of the date of transfer. Prior to May 2016, the Bank’s on-balance
sheet securitizations complied with the credit risk retention requirements of the FDIC “safe harbor” rule, which generally
reduces the risk to securitization investors in the event of an insolvency of the Bank, by retaining five percent of each class of
securities issued in each securitization transaction. With any securitizations, including any structured loan sale transactions, that
are treated as off-balance sheet, the Bank intends to comply with the Dodd-Frank risk retention rules by retaining (for a
requisite period) an “eligible vertical interest” comprised of a five percent interest in each class of ABS interests issued in any
such transaction or a single interest entitling the holder to five percent of any amounts payable by the trustee in respect of each

interest issued by the trust. The risk retention provisions of the FDIC safe harbor rule were superseded by the Dodd-Frank risk
retention rules.

Anti-Money Laundering, the USA PATRIOT Act, and U.S. Economic Sanctions

The USA PATRIOT Act of 2001 (the “USA Patriot Act”), which amended the Bank Secrecy Act, substantially broadened

the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due
diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States.
The U.S. Treasury Department has issued and, in some cases proposed, a number of regulations that apply various requirements
of the USA Patriot Act to financial institutions such as the Bank. These regulations impose obligations on financial institutions
to maintain appropriate internal policies, procedures and controls to detect, prevent and report money laundering and terrorist
financing and to verify the identity of their customers. In addition, U.S. law generally prohibits or substantially restricts U.S.
persons from doing business with countries designated by the U.S. Department of State as state sponsors of terrorism. Under
U.S. law, there are similar prohibitions or restrictions with countries subject to other U.S. economic sanctions administered by
the U.S. Department of the Treasury’s Office of Foreign Assets Control or other agencies. We maintain policies and procedures
designed to ensure compliance with relevant U.S. laws and regulations applicable to U.S. persons.

Volcker Rule

In December 2013, the U.S. banking agencies, the SEC and the U.S. Commodity Futures Trading Commission issued
final rules to implement the “Volcker Rule” provisions of the Dodd-Frank Act. The rules prohibit insured depository institutions
and their affiliates from engaging in proprietary trading and from investing in, sponsoring or having certain financial
relationships with certain private funds. These prohibitions are subject to a number of important exclusions and exemptions
that, for example, permit insured depository institutions and their affiliates to trade for risk-mitigating hedging and liquidity
management, subject to certain conditions and restrictions. A conformance period ended on July 21, 2015. We do not expect the
Volcker Rule to have a meaningful effect on our current operations or those of our subsidiaries, as we do not materially engage
in the businesses prohibited by the Volcker Rule.

Employees

At December 31, 2019, we had approximately 1,900 employees, none of whom are covered by collective bargaining

agreements.

Item 1A. Risk Factors

Economic Environment

Economic conditions could have a material adverse effect on our business, results of operations, financial condition and/or
liquidity.

Our business is significantly influenced by economic conditions. In general, economic growth in the United States
remains uneven. Employment levels in the United States are often sensitive not only to domestic economic growth but to the
performance of major foreign economies and commodity prices. Rising unemployment rates and the failure of our in-school
borrowers to graduate are two of the most significant macroeconomic factors that could increase loan delinquencies, defaults
and loan modifications, or otherwise negatively affect performance of our existing education loan portfolios. Likewise, high
unemployment and decreased savings rates may impede Private Education Loan originations growth, as well as growth in credit
cards and the development of other financial products, as loan applicants and cosigners may experience trouble repaying credit
obligations or may not meet our credit standards. Additionally, if interest rates rise causing payments on variable-rate loans to
increase, borrowers and cosigners could experience trouble repaying loans we have made to them. Consequently, for a number
of reasons, our borrowers may experience more trouble in repaying loans we have made to them, which could increase our loan
delinquencies, defaults and loan modifications. In addition, some consumers may find that higher education is an unnecessary
investment during uncertain economic times and defer enrollment in educational institutions until continued economic growth
appears to be more likely or sustainable, or they may turn to less costly forms of secondary education, thus decreasing our
education loan application and funding volumes. Increased savings rates, especially those related to savings by consumers for
educational purposes, also could potentially lead to reduced Private Education Loan originations and funding volumes, as
customers may prefer to use targeted savings to pay for college or graduate school in lieu of incurring additional household
debt. Higher credit-related losses and weaker credit quality negatively affect our business, financial condition and results of
operations and limit funding options, which could also adversely impact our liquidity position.

Competition/Concentration

We operate in a competitive environment. Our product offerings are primarily concentrated in loan products for higher
education and deposit products for online depositors. Such concentrations and the competitive environment subject us to
risks that could adversely affect our financial position.

At December 31, 2019, approximately 70 percent of our assets and 84 percent of our assets, excluding cash and cash

equivalents, were comprised of Private Education Loans. This concentration poses the risk that any disruption, dislocation or
other negative event or trend in the Private Education Loan market could disproportionately and adversely affect our business,
financial condition and results of operations. We compete in the Private Education Loan market with banks and other consumer
lending institutions, many with strong consumer brand name recognition and greater financial resources. Many of those lenders
also have a greater level of diversification in their mix of assets, which can enable them to be more competitive in uncertain or
challenging economic times. Moreover, our competition will increase as various lending institutions and other competitors,
including Navient, enter or re-enter the Private Education Loan market. We also compete with FinTech companies (as defined
below), many of whom have lower return hurdles than more traditional consumer lending institutions. We compete based on
our products, origination capability and customer service. To the extent our competitors compete more aggressively or
effectively, we could lose market share to them or subject our existing loans to consolidation or refinancing risk.

Competition plays a significant role in our online deposit gathering activities. The market for online deposits is highly
competitive, based primarily on a combination of reputation and rate. Increased competition for deposits could cause our cost of
funds to increase, which could negatively impact our loan pricing and net interest margin.

In addition to competition with banks and other consumer lending institutions, the federal government, through the
Federal Direct Student Loan Program (the “DSLP”), poses significant competition to our Private Education Loan products. The
availability and terms of loans the government originates or guarantees affect the demand for Private Education Loans because
students and their families often rely on Private Education Loans to bridge the gap between available funds, including family
savings, scholarships, grants, and federal and state loans, and the costs of post-secondary education. The federal government
currently places both annual and aggregate limits on the amount of federal loans any student can receive and determines the

criteria for student eligibility. Parents and graduate students may obtain additional federal education loans through other
programs. These federal education lending programs are generally adjusted in connection with funding authorizations from the
U.S. Congress for programs under the Higher Education Act of 1965 (the “HEA”). The HEA’s reauthorization is currently
pending in the U.S. Congress, but it remains unlikely that a Republican-led Senate and Democratic-controlled House can
produce legislation. Should legislation be enacted, one possible component could be increased federal education loan limits,
which could decrease demand for Private Education Loans. Other components of any legislation also could have a negative
impact on our business and financial condition.

Consumer access to alternative means of financing the costs of education and other factors may reduce demand for, or
adversely affect our ability to retain, Private Education Loans, which could have a material adverse effect on our business,
financial condition, results of operations and/or cash flows.

The demand for Private Education Loans could weaken if families and student borrowers use other vehicles to bridge the

gap between available funds and costs of post-secondary education. These vehicles include, among others:

•

Home equity loans or other borrowings available to families to finance their education costs;

Pre-paid tuition plans, which allow students to pay tuition at today’s rates to cover tuition costs in the future;

Section 529 plans, which include both pre-paid tuition plans and college savings plans that allow a family to save
funds on a tax-advantaged basis;

Education IRAs, now known as Coverdell Education Savings Accounts, under which a holder can make annual
contributions for education savings;

Government education loan programs such as the DSLP; and

Direct loans from colleges and universities, as well as income sharing agreements with schools.

In addition, our ability to grow Private Education Loan originations and retain assets at our planned levels could be

negatively affected if:

•

demographic trends in the United States result in a decrease in college-age individuals;

demand for higher education decreases;

the cost of attendance of higher education decreases;

prepayment rates on our Private Education Loans increase or accelerate due to greater market liquidity, availability of
alternative means of financing, improved household incomes, increasing consumer confidence, and/or various other
factors;

public resistance to increasing higher education costs strengthens; or

proposals for new federal education spending designed to make higher education “free” or substantially so regardless
of financial need, or to create new federally funded programs to refinance private student loans, gain broader appeal or
momentum.

Consolidation or refinancing of existing Private Education Loans could have a material adverse effect on our business,
financial condition, results of operations and/or cash flows.

We believe the design of our Private Education Loan products, with emphasis on rigorous underwriting, credit-worthy
cosigners and variable or fixed interest rates, creates sustainable, competitive loan products. However, increasing amounts of
private education consolidation loans at interest rates below those of our existing portfolio - whether from private sources
(including financial technology (“FinTech”) companies) or otherwise - have contributed to an increase in the prepayment rates
of our existing Private Education Loans and, if prolonged and continuous, could have a material adverse effect on our business,
financial condition, results of operations and cash flows.

Since 2010, there have been a number of bills introduced in the United States Congress to promote federal financing for
consolidation or refinancing of existing student loans, as well as an increase in the number of lenders offering similar products.
Also, on July 31, 2018, the Office of the Comptroller of the Currency (the “OCC”) issued a policy statement announcing that it
would consider applications from FinTech companies to become special purpose national banks. The special purpose national
bank charter is available to qualifying companies engaged in a limited range of banking activities, including paying checks or
lending money, but that do not take deposits. Concurrent with the announcement, the OCC issued a supplement to the
Comptroller’s licensing manual to provide guidance for evaluating special purpose national bank charters for FinTechs. While
the OCC has not approved any applications from FinTech companies for special purpose national bank charters, we are still
evaluating the potential competitive impact if the OCC begins to charter FinTech companies that offer bank products and
services, including loans to consolidate or refinance existing student loans.

We are dependent on key personnel and the loss of one or more of those key personnel could harm our business.

Our future success depends significantly on the continued services and performance of our management team. We believe
our management team’s depth and breadth of experience in our industry is integral to executing our business plan. We also will
need to continue to attract, motivate and retain other key personnel. The loss of the services of members of our management
team or other key personnel to our competitors or other companies or the inability to attract additional qualified personnel as
needed could have a material adverse effect on our business, financial position, results of operations and/or cash flows.

Regulatory

Failure to comply with consumer protection, privacy or cybersecurity laws and requirements could subject us to civil and
criminal penalties or litigation, including class actions, and have a material adverse effect on our business.

We are subject to a broad range of federal and state consumer protection laws applicable to our lending and retail banking

activities, including laws governing fair lending, unfair, deceptive and abusive acts and practices, service member protections,
interest rates and loan fees, disclosures of loan terms, marketing, servicing and collections.

We are also subject to a dynamically changing landscape of privacy and cybersecurity laws, regulations, and

requirements. For example, the CCPA took effect on January 1, 2020, and is broad, sweeping legislation that gives California
consumers certain rights similar to those provided by the European General Data Protection Regulation. Among other things,
the CCPA provides for enhanced regulatory penalties and potential statutory damages in relation to certain types of data
breaches. See Item 1. “Business — Supervision and Regulation — Regulation of Sallie Mae Bank — Privacy Laws” for
additional information.

Violations of, or changes in, federal or state consumer protection, privacy or cybersecurity laws or related regulations, or

in the prevailing interpretations thereof, may expose us to litigation, administrative fines, penalties and restitution, result in
greater compliance costs, constrain the marketing and origination of Private Education Loans or other products, adversely affect
the collection of balances due on the loan assets held by us or by securitization trusts or otherwise adversely affect our business.
Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations, as well as increased
intensity in compliance and supervision activities, often impose additional compliance costs. Accordingly, we could incur
substantial additional expense complying with these requirements and may be required to create new processes and information
systems. Moreover, changes in federal or state consumer protection laws and related regulations, or in the prevailing
interpretations thereof, could invalidate or call into question the legality of certain of our services and business practices.

The CFPB is the Bank’s primary consumer compliance supervisor, with exclusive authority to conduct examinations for

the purposes of assessing compliance with the requirements of Federal consumer financial laws and with primary consumer
compliance enforcement authority. CFPB jurisdiction could result in additional regulation and supervision, which could
increase our costs and limit our ability to pursue business opportunities. The CFPB/DOE MOU could lead to additional
complaints received by the CFPB regarding us, which could lead to additional scrutiny of us and increase our costs. Consent
orders, decrees or settlements entered into with governmental agencies may also increase our compliance costs or restrict
certain of our activities.

Finally, we operate in an environment of heightened political and regulatory scrutiny of education loan lending, servicing
and originations. The rising cost of higher education, questions regarding the quality of education provided, particularly among
for-profit institutions, and the increasing amount of student loan debt outstanding in the United States have prompted this

heightened and ongoing scrutiny. This environment could lead to further laws and regulations applicable to, or limiting, our
business. For example, the regulatory environment at the state level has shifted such that many states recently have enacted new
legislation specifically restricting the conduct and practices of student loan servicers. In addition, increasing state actions
against for-profit institutions could lead us to further curtail the loans we make to students of these institutions or increase the
risk of enforceability of our existing loans to graduates of particular institutions found to have made fraudulent
misrepresentations or failed to provide reasonably expected training or educational benefits.

We operate in a highly regulated environment and the laws and regulations that govern our operations, or changes in these
laws and regulations, or our failure to comply with them, may adversely affect us.

In addition to consumer protection laws, we are also subject to extensive regulation and supervision that govern almost all

aspects of our operations. Intended to protect clients, depositors, the DIF, and the overall financial system, these laws and
regulations may, among other matters:

•

prescribe minimum capital requirements;

limit the rates of growth of our business;

impose limitations on the business activities in which we can engage;

limit the dividends or distributions the Bank can pay to us;

restrict the ability of institutions to guarantee our debt;

limit proprietary trading and investments in certain private funds;

impose certain specific accounting requirements on us that may be more restrictive;

result in changes from time to time in our practices, policies, and procedures in various areas of our business; and

result in greater or earlier charges to earnings or reductions in our capital.

The FDIC has the authority to limit the Bank’s annual total balance sheet growth, but no such limitations were imposed in

recent years. There can be no assurance that limitations will not be imposed in the future, however.

Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations, as well as
increased intensity in supervision, often impose additional compliance costs. We, like the rest of the banking sector, are facing
increased regulation and supervision of our industry by bank regulatory agencies and expect there may be additional and
changing requirements and conditions imposed on us, any of which could increase our costs, require increased management
attention and adversely impact our results of operations. Our failure to comply with these laws and regulations, even if the
failure is inadvertent or reflects a difference in interpretation, could subject us to fines, other penalties and restrictions on our
business activities, any of which could adversely affect our business, financial condition, cash flows, results of operations,
capital base and/or the price of our securities.

Significant increases in our FDIC insurance premiums could have an adverse impact on our financial position, results of
operations and/or cash flows.

Deposits at the Bank are insured up to the applicable legal limits by the DIF, which is funded primarily by quarterly
assessments on insured banks. An insured bank’s assessment is calculated by multiplying its assessment rate by its assessment
base. A bank’s assessment base and assessment rate are determined each quarter. See Item 1. “Business — Supervision and
Regulation — Regulation of Sallie Mae Bank — Deposit Insurance and Assessments.” The FDIC may further redefine how
assessments are calculated, impose special assessments or surcharges on us or increase our deposit insurance premiums.

Regulatory agencies have increased their expectations with respect to how regulated institutions oversee their relationships
with third-party vendors and service providers.

The CFPB and the FDIC have issued guidance to supervised banks with respect to increased responsibilities to supervise

the activities of service providers to ensure compliance with federal consumer protection laws. The issuance of regulatory

guidance and the enforcement of the enhanced vendor management standards via examination and investigation of us or any
third-party with whom we do business may increase our costs, require increased management attention and adversely impact
our operations. In the event we should fail to meet the heightened standards for management of service providers, we could be
subject to supervisory orders to cease and desist, civil monetary penalties or other actions due to claimed noncompliance, which
could have an adverse effect on our business, financial condition, operating results and/or cash flows.

Capital and Liquidity

Adverse market conditions or an inability to effectively manage our liquidity risk could negatively impact our ability to meet
our liquidity and funding needs, which could materially and adversely impact our business operations and our overall
financial condition.

We must effectively manage the liquidity risk inherent in our business. We require liquidity to meet cash requirements for

such things as day-to-day operating expenses, funding of our Private Education Loan and Credit Card originations, deposit
withdrawals and maturities, payment of any declared dividends on our preferred stock and common stock, and payment for any
shares of common stock acquired under any common stock repurchase program or otherwise. Our primary sources of liquidity
and funding are customer deposits, payments received on Private Education Loans and FFELP Loans that we hold, and
proceeds from securitization transactions. We may maintain too much liquidity, which can be costly, or we may be too illiquid,
which could result in financial distress during times of economic stress or capital market disruptions.

For at least the next several years, our ability to achieve our business goals will be heavily reliant on our ability to obtain
deposits, obtain financing through asset-backed securitizations, and sell loans at attractive prices in order to help fund any
share repurchase programs that may be authorized from time to time. Should those goals require us to increase deposits,
generate asset-backed financing, or sell loans at a pace greater than we expect, and we are not able to meet this challenge,
we may not achieve our business goals, which could have a material adverse effect on our business, financial condition,
operating results and/or cash flows.

We fund Private Education Loan originations through asset-backed securitizations and deposits raised by the Bank,
including term and liquid brokered and retail deposits, as well as Educational 529 and Health Savings Account deposits. Assets
funded through deposits result in refinancing risk because the average term of the deposits is shorter than the expected term of
the Private Education Loan assets we originate. The significant competition for deposits from other banking organizations that
are also seeking stable deposits to support their funding needs may affect deposit renewal rates, costs or availability. In addition,
our ability to maintain existing balances or obtain additional deposits may be affected by factors, including those beyond our
control, such as a rising stock market, perceptions about our financial strength, quality of deposit servicing or online banking
generally, and general economic conditions, including high unemployment and decreased savings rates, which could reduce the
number of consumers choosing to make deposits with us. Also, our ability to maintain our current level of deposits or grow our
deposit base could be affected by regulatory restrictions, including the possible imposition by our regulators of prior approval
requirements or restrictions on deposit growth through brokered deposits. Given the potential negative impact of such
restrictions on our ability to fund our business, we monitor and manage our reliance on brokered deposits.

Our short-term success also depends on our ability to structure Private Education Loan securitizations or execute other

secured funding transactions. Several factors may have a material adverse effect on both our ability to obtain such funding and
the time it takes us to structure and execute these transactions, including the following:

•

Persistent and prolonged disruption or volatility in the capital markets or in the education loan ABS sector specifically;

Degradation of the credit quality or performance of the Private Education Loans we sell or finance through
securitization trusts, or adverse rating agency assumptions, rating actions or conclusions with respect to those trusts or
the education loan-backed securitization trusts sponsored by other issuers;

A material breach of our obligations to purchasers of our Private Education Loans, including securitization trusts;

The timing, pricing and size of education loan asset-backed securitizations other parties issue, or the adverse
performance of, or other problems with, such securitizations;

•

Challenges to the enforceability of Private Education Loans based on violations of, or changes to, federal or state
consumer protection or licensing laws and related regulations, or imposition of penalties or liabilities on assignees of
Private Education Loans for violation of such laws and regulations; and

Our inability to structure and gain market acceptance for new product features or services to meet new demands of
ABS investors, rating agencies or credit facility providers.

If we require funding beyond that which we may be able to obtain through deposits and proceeds from ABS transactions,

we may need to raise additional liquidity through other forms of secured and unsecured debt financing which, in turn, could
increase our funding costs and reduce our net interest margin. Several factors, some of which may be beyond our control, may
have a material adverse effect on our ability to raise this additional funding in the amounts, at the rates, or within the
timeframes we desire.

If we are unable to obtain adequate liquidity through a combination of any of the channels described above in order to

fund new Private Education Loan and Credit Card originations, our business, financial condition, results of operations and cash
flows could be materially adversely affected.

Our ability to sell loans at attractive prices, as well as the timing and volume of any sales, will be subject to market
conditions, and there can be no guarantee that we will be able to effectuate planned loan sales at the prices, times, or volumes
we desire, or at all. If we are unable to effectuate loan sales at the prices, times, and volumes we desire, we may not be able to
fund share repurchase programs that are authorized from time to time or achieve other business goals and our business, results
of operations, financial position and/or cash flow could be materially and adversely affected.

We currently maintain sufficient risk-based capital through adequate retention and reinvestment of earnings from
operations. If our business objectives require capital above and beyond what we generate through retained earnings, we may
need to raise capital for our business by issuing additional equity to investors. Several factors, some of which may be beyond
our control, may have a material adverse effect on our ability to issue additional equity in the amounts, at the prices, or within
the timeframes we desire. If this occurs, our business, results of operations, financial position and/or cash flow could be
materially and adversely affected.

In structuring and facilitating securitizations of Private Education Loans, administering securitization trusts or providing
portfolio management, we may incur liabilities to transaction parties.

Under applicable state and federal securities laws, if investors incur losses as a result of purchasing ABS issued in
connection with our securitization transactions, we could be deemed responsible and could be liable to investors for damages.
We could also be liable to investors or other parties for certain updated performance information that we may provide
subsequent to the original issuances. If we fail to cause the securitization trusts or other transaction parties to disclose
adequately all material information regarding an investment in any securities, if we or the trusts make statements that are
misleading in any material respect in information delivered to investors in any securities, if we breach any representations or
warranties made in connection with securitization of the loans, or if we breach any other duties as the administrator or servicer
of the securitization trusts, it is possible we could be sued and ultimately held liable to an investor or other transaction party.
This risk includes failure to properly administer or oversee servicing or collections and may increase if the performance of the
securitization trusts’ loan portfolios degrades. In addition, under various agreements, we may be contractually bound to
indemnify transaction parties if an investor is successful in seeking to recover any loss from those parties and the securitization
trusts are found to have made a materially misleading statement or to have omitted material information. We may also be
required to repurchase affected loans if we were to breach certain representations, warranties or covenants in various
agreements. Incurring substantial liabilities to securitization transaction parties could adversely affect our business, financial
condition, operating results and/or cash flows.

If we are liable to an investor or other transaction party for a loss incurred in any securitization we facilitated or structured

and any insurance that we may have does not cover this liability or proves to be insufficient, our business, financial position,
results of operations and/or cash flows could be materially adversely affected.

The interest rate and maturity characteristics of our earning assets do not always match the interest rate and maturity
characteristics of our funding arrangements, which may increase the price of, or decrease our ability to obtain, necessary
liquidity. We are also subject to repayment and prepayment risks, which can adversely affect our financial condition.

Net interest income is the primary source of cash flow generated by our loan portfolios. Interest earned on our Private

Education Loans and FFELP Loans is either fixed rate or indexed to a short-term rate, primarily one-month LIBOR, and these
loans are originated with a relatively long repayment periods. Personal loans carry a fixed rate and are of shorter maturities.
ABS funding closely mirrors the expected maturities of our education loans and provides a combination of fixed and variable
rate funding. Deposits are issued with both fixed and variable rates, and the average term is typically shorter than the expected
term of our combined loan portfolios.

The different interest rate and maturity characteristics of our loan portfolio and the liabilities funding that portfolio result

in interest rate risk, basis risk and re-pricing risk. In certain interest rate environments, this mismatch may reduce our net
interest margin (the interest yield earned on our portfolio less the rate paid on our interest-bearing liabilities). While we actively
monitor and manage mismatches in the interest rate and maturity characteristics of our assets and liabilities, using derivative
transactions where necessary to avoid excessive levels of repricing and refunding risk, it is not possible to hedge all of our
exposure to such risks. While the assets, liabilities and related hedging derivative contract re-pricing indices are typically highly
correlated, there can be no assurance that the historically high correlation will not be disrupted by capital market dislocations or
other factors outside our control. In these circumstances, our earnings could be materially adversely affected.

We are also subject to risks associated with changes in repayment and prepayment rates on Private Education Loans and

Personal Loans, and changes in our interest rates and to repricing risk. Consolidations and refinancings continue to contribute to
increased prepayment rates. In addition, increases in employment levels, wages, family income, or alternative sources of
financing may also contribute to higher than expected prepayment rates, which can adversely affect our interest rate and
repricing risk and our financial condition.

Our use of derivatives to manage interest rate sensitivity exposes us to credit and market risk that could have a material
adverse effect on our earnings.

We maintain an overall interest rate strategy that uses derivatives to reduce the economic effect of interest rate changes.

Developing an effective hedging strategy for dealing with movements in interest rates is complex, and no strategy can
completely avoid the risks associated with these fluctuations. For example, our education loan portfolios remain subject to
prepayment risk that could cause them to be under- or over-hedged, which could result in material losses. In addition, some of
our interest rate risk management activities expose us to mark-to-market losses if interest rates move in a materially different
way than was expected when we entered into the related derivative contracts. As a result, there can be no assurance hedging
activities using derivatives will effectively manage our interest rate sensitivity, have the desired beneficial impact on our results
of operations or financial condition or not adversely impact our liquidity and earnings.

Our use of derivatives also exposes us to market risk and credit risk. Market risk is the chance of financial loss resulting
from changes in interest rates and market liquidity. Some of the interest rate swaps we use to economically hedge interest rate
risk between our assets and liabilities do not qualify for hedge accounting treatment. Therefore, the change in fair value, called
the “mark-to-market,” of the swaps that do not qualify as accounting hedges is included in our statement of income. A decline
in the fair value of those derivatives could have an adverse effect on our reported earnings.

We are also subject to the creditworthiness of third-parties, including counterparties to derivative transactions. For
example, we have exposure to the financial conditions of various lending, investment and derivative counterparties. If a
counterparty fails to perform its obligations, we could, depending on the type of counterparty arrangement, experience a loss of
liquidity or an economic loss. In addition, if a derivative counterparty fails to perform, we might not be able to cost effectively
replace the derivative position, depending on the type of derivative and the current economic environment, and thus could be
exposed to a greater level of interest rate risk, potentially leading to additional losses. Our counterparty exposure is more fully
discussed in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations —

Liquidity and Capital Resources — Counterparty Exposure.” If our counterparties are unable to perform their obligations, such
inability could have a material adverse impact on our business, financial condition, results of operations and/or cash flows.

The future of LIBOR as a “benchmark” interest rate is uncertain and that uncertainty or any change to the LIBOR
benchmark could adversely affect the value of or the interest rates on our assets and obligations indexed to LIBOR, as well
as the revenue and expenses associated with those assets and obligations.

The interest rates on our variable-rate Private Education Loans and certain other assets are indexed to LIBOR, the London

interbank offered rate. Certain of our interest rate swaps, notes issued under our term ABS and our education loan-backed
multi-lender secured borrowing facility (the “Secured Borrowing Facility”), brokered and non-brokered deposits and other
obligations also are indexed to LIBOR. In each case, the terms of the relevant agreements define LIBOR and provide differing
methods for how it may be replaced or computed if LIBOR is no longer available as defined. LIBOR is used worldwide as a
reference for setting interest rates on loans, derivatives, and other assets and obligations.

On July 27, 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, publicly announced that it
intends to stop persuading or compelling banks on the London interbank market to submit LIBOR rates after 2021. It is unclear
at this time, and we are not able to predict, whether or when LIBOR will cease to exist, whether or when new methods of
calculating LIBOR will be established such that it continues to exist after 2021, or whether or when alternative benchmark or
reference rates will be available, either through regulatory action or financial market developments, as viable alternatives to
LIBOR. If one or more replacement benchmark or reference rates is available, it is unknown at this time, and we are unable to
predict, whether any such alternatives will be acceptable to investors, financial markets or regulators, or applied consistently
and concurrently to various assets, obligations or financial instruments. Certain of our existing assets and obligations do not
include provisions clearly specifying a method for transitioning from LIBOR to an alternative benchmark rate. Given this
situation, it is unclear what consents or approvals, if any, will be required, and from whom they will be required, to replace
LIBOR under our various agreements. As a result of these potential changes and related uncertainties, the interest rates on and
value of our assets and obligations indexed to LIBOR, and the revenue and expenses associated with those assets and
obligations, could be affected in disparate ways at disparate times, which could have an adverse effect on our business and
results of operations.

The Company has actively monitored market developments with respect to LIBOR replacement since 2017 and in 2020

will conduct a formal cross-functional replacement project with the goal of ensuring a smooth transition to a replacement index
with minimal negative impact on our customers, investors and the Company’s business, financial condition and results of
operations. There can be no guarantee our replacement project will occur as planned, however, and failure to implement the
project effectively could have a material adverse effect on our business, results of operations, financial position and/or cash
flows.

Defaults on our loans, particularly Private Education Loans and Personal Loans, could adversely affect our business,
financial position, results of operations and/or cash flows.

We bear the full credit exposure on our Private Education Loans, Personal Loans and Credit Card loans. If they were to

default at rates much higher than anticipated or at speeds faster than anticipated, our business, financial position, results of
operations and/or cash flows could be adversely affected. Delinquencies are an important indicator of the potential future credit
performance of those loan portfolios. Many factors can have an impact on borrower delinquencies, including, without
limitation, economic conditions, changes in interest rates, personal circumstances and hardships, risk characteristics such as
school type, loan status, loan seasoning, underwriting criteria, presence of a cosigner, changes made in credit administration
practices from time to time, changes in loan underwriting criteria made from time to time, regulatory and operational changes
and unforeseen trends. See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Financial Condition — Allowance for Loan Losses — Use of Forbearance and Rate Modifications as a Private
Education Loan Collection Tool” for a discussion of how items such as changes in credit administration practices can impact
the timing and level of delinquencies and defaults on our loans. Our Private Education Loan delinquencies (loans greater than
30 days past due), as a percentage of Private Education Loans in repayment, were 2.8 percent at December 31, 2019. Our
Personal Loan delinquencies (loans greater than 30 days past due), as a percentage of Personal Loans in repayment, were 2.4
percent at December 31, 2019. In addition, we will bear full credit exposure on credit cards and other products we may
introduce to the market.

Our allowance for loan losses may not be adequate to cover actual losses, and we may be required to materially increase our
allowance, which may adversely affect our capital, financial condition, and/or results of operations.

The evaluation of our allowance for loan losses is inherently subjective, as it requires material estimates that may be

subject to significant changes. As of December 31, 2019, our allowance for Private Education Loan losses was approximately
$374 million. During the year ended December 31, 2019, we recognized provisions for Private Education Loan losses of
approximately $280 million. As of December 31, 2019, our allowance for Personal Loan losses was approximately $66 million.
During the year ended December 31, 2019, we recognized provisions for Personal Loan losses of approximately $73 million.
The provision for loan losses in 2019 reflects the respective Private Education Loan and Personal Loan performance for the
applicable period and establishes the allowance at a level that management believes is appropriate to cover probable losses
inherent in the loan portfolio (based on the accounting standards in effect during 2019). See “The current expected credit loss
standard established by the FASB will result in a significant change in how we recognize credit losses and will have a material
impact on our financial condition, results of operations and capital levels” in Part I, Item 1A. “Risk Factors” for a discussion of
CECL (as hereinafter defined), which will become effective for the Company on January 1, 2020 and impact the manner in
which the Company will recognize credit losses. Future defaults can be higher than anticipated, however, due to a variety of
factors outside of our control, such as downturns in the economy, rising interest rates, regulatory or operational changes and
other unforeseen future trends. Losses on Private Education Loans are also determined by risk characteristics such as school
type, loan status (in-school, grace, forbearance, repayment and delinquency), loan seasoning (number of months in active
repayment), underwriting criteria (e.g., credit scores), presence of a cosigner and the current economic environment. Losses on
Personal Loans are affected by risk characteristics such as FICO scores at origination and seasoning. Worsening general
economic and employment conditions may lead to higher rates of loan defaults. In addition, our product offerings may incur
higher than expected losses resulting in these products being unprofitable. If actual loan performance is worse than currently
estimated, it could materially increase our estimate of the allowance for loan losses in our balance sheet and the related
provision for loan losses in our statements of income and, as a result, adversely affect our capital, financial condition and results
of operations.

Changes in accounting standards could adversely affect our capital levels, results of operation and/or financial condition.

We are subject to the requirements of entities that set and interpret the accounting standards governing the preparation of

our financial statements and other financial reports. These entities, which include the Financial Accounting Standards Board
(“FASB”), the SEC, banking regulators and our independent registered public accounting firm, may add new requirements or
change their interpretations of how those standards should be applied. Changes in our accounting policies or in accounting
standards could materially affect how we report our financial condition and/or results of operations. As a result of changes to
financial accounting or reporting standards, whether promulgated or required by the FASB or other regulators, we could be
required to change certain of the assumptions or estimates we have previously used in preparing our financial statements, which
could negatively impact how we record and report our financial condition, results of operations and capital levels. For
additional information on the key areas for which assumptions and estimates are used in preparing our financial statements, see
Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical
Accounting Policies and Estimates” and Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”

The current expected credit loss standard established by the FASB will result in a significant change in how we recognize
credit losses and will have a material impact on our financial condition, results of operations and capital levels.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which will become effective for us on January 1,
2020. Under the new guidance, for all loans carried at amortized cost, upon loan origination we will be required to measure our
allowance for loan losses based on our estimate of all current expected credit losses (“CECL”) over the remaining contractual
term of the assets. The CECL standard will result in a significant change in how we recognize credit losses and will have a
material impact on our financial condition, results of operations and capital levels. The measurement of expected credit losses is
based on historical information, current conditions and reasonable and supportable forecasts to estimate the expected loss over
the life of the loan. This differs significantly from the “incurred loss” model, which was in effect during 2019 and delays
recognition until it is probable a loss has been incurred. Our models take into account historical loss experience in various
economic conditions to estimate expected future losses based upon future economic forecasts over a period of time, at which
point we revert expected losses to our historical rates. These models may not accurately estimate future loan loss performance.
The models used in calculating our CECL estimates include forecasts of future economic conditions, loss rates and prepayment

rates. If these forecasts prove to be inaccurate, or our models were not designed properly, our allowance for loan losses may not
be sufficient to cover future losses, which could negatively impact our financial condition, results of operations and capital
levels. In addition, the amount of losses recorded under CECL is very sensitive to the inputs described above. As such, changes
to these inputs could significantly change the amount of allowance necessary, which could have a negative impact on our
financial results and capital levels. See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Critical Accounting Policies and Estimates — Recently Issued but Not Yet Adopted Accounting
Pronouncements” for further details. See also “Our allowance for loan losses may not be adequate to cover actual losses, and
we may be required to materially increase our allowance, which may adversely affect our capital, financial condition, and/or
results of operations” in Part I, Item 1A. “Risk Factors” for further details.

The Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a material adverse effect on our business, results of operations and/or financial condition.

Under U.S. Basel III and the regulatory framework for prompt corrective action, the Bank must meet specific capital
standards that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank’s capital amounts and its classification under the prompt corrective action framework
are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors.

The Bank is required to maintain the following minimum regulatory capital ratios under U.S. Basel III: a Common Equity

Tier 1 risk-based capital ratio of 4.5 percent, a Tier 1 risk-based capital ratio of 6.0 percent, a Total risk-based capital ratio of
8.0 percent, and a Tier 1 leverage ratio of 4.0 percent. In addition, since January 1, 2019, the Bank has been subject to a fully
phased-in Common Equity Tier 1 capital conservation buffer of greater than 2.5 percent. (As of December 31, 2018, the Bank
was subject to a Common Equity Tier 1 capital conservation buffer of greater than 1.875 percent). Failure by the Bank to
maintain the buffer may result in restrictions on dividend payments, share repurchases and the payment of discretionary
bonuses to executive officers. Including the buffer, the Bank is required to maintain the following capital ratios under U.S.
Basel III in order to avoid such restrictions: a Common Equity Tier 1 risk-based capital ratio of greater than 7.0 percent, a Tier 1
risk-based capital ratio of greater than 8.5 percent and a Total risk-based capital ratio of greater than 10.5 percent.

To qualify as “well capitalized” under the prompt corrective action framework for insured depository institutions, an

insured depository institution must maintain a Common Equity Tier 1 risk-based capital ratio of at least 6.5 percent, a Tier 1
risk-based capital ratio of at least 8.0 percent, a Total risk-based capital ratio of at least 10.0 percent, and a Tier 1 leverage ratio
of at least 5.0 percent. As of December 31, 2019, the Bank had a Common Equity Tier 1 risk-based capital ratio of 12.2 percent,
a Tier 1 risk-based capital ratio of 12.2 percent, a Total risk-based capital ratio of 13.4 percent and a Tier 1 leverage ratio of
10.2 percent.

If the Bank fails to satisfy regulatory risk-based or leverage capital requirements, it may be subject to serious regulatory

sanctions that could prevent us from successfully executing our business plan and may have a material adverse effect on our
business, results of operations, financial position and/or cash flows. See Item 1. “Business — Supervision and Regulation —
Regulation of Sallie Mae Bank — Regulatory Capital Requirements.”

Unfavorable results from the periodic stress tests we conduct under regulatory guidance may adversely affect our business
and result in regulatory action that could adversely affect our cost of capital and liquidity position.

Pursuant to regulatory guidance, the Bank conducts annual capital stress tests utilizing systemic and company-specific
stress scenarios. In 2019, the Bank conducted its annual capital stress tests and the results of these tests were presented to and
reviewed by the Bank’s senior management, the Bank’s Board of Directors and the Board’s Risk Committee. In addition, the
Bank made the results of the stress tests available to its prudential regulators - the FDIC and the UDFI. Generally, the stress test
results include certain measures that evaluate the Bank’s ability to absorb losses in severely adverse economic and financial
conditions. On the basis of this analysis, senior management may elect to adjust its business plans or capital targets to reduce
risks identified by the analysis. Our regulators may also require the Bank to raise additional capital or take other actions, or may
impose restrictions on our business, based on the results of the stress tests. We may not be able to raise additional capital if
required to do so, or may not be able to do so on terms which are advantageous to us. Any such capital raises, if required, may
also be dilutive to our existing stockholders.

We also conduct quarterly liquidity stress tests to evaluate the adequacy of our liquidity sources under several stress
scenarios, including a severely adverse macroeconomic scenario. The results of these scenarios may lead management to
determine, or regulators to demand, that higher levels of liquidity be maintained at significant incremental expense to the Bank.

Operations

Failure of our operating systems or infrastructure or the inability to adapt to changes could disrupt our business, cause
significant losses, result in regulatory action or damage our reputation.

Our business is dependent on our ability to process and monitor large numbers of transactions in compliance with legal
and regulatory standards and our product specifications. As processing demands change and our loan portfolios grow in both
volume and differing terms and conditions, developing and maintaining our operating systems and infrastructure become
increasingly challenging. There is no assurance we can adequately or efficiently develop, maintain or acquire access to such
systems and infrastructure.

Our loan originations and the servicing, financial, accounting, data processing or other operating systems and facilities

that support them may fail to operate properly, become disabled as a result of events beyond our control or be unable to be
rapidly configured to timely address regulatory changes, in each case potentially adversely affecting our ability to process these
transactions. Any such failure could adversely affect our ability to service our customers, result in financial loss or liability to
our customers and investors, disrupt our business, result in regulatory action or cause reputational damage. Despite the plans
and facilities we have in place, our ability to conduct business may be adversely affected by a disruption in the infrastructure
that supports our businesses. This may include a disruption involving electrical, communications, internet, information
technology, transportation or other services used by us or third-parties with whom we conduct business. Notwithstanding our
efforts to maintain business continuity, a disruptive event impacting our processing locations could adversely affect our
business, financial condition, results of operations and/or cash flows.

Our business processes are becoming increasingly dependent upon technological advancement, and we could lose market
share if we are not able to keep pace with rapid changes in technology.

Our future success depends, in part, on our ability to underwrite and approve loans, process loan applications and
payments and provide other customer services, in a safe, automated manner with high-quality service standards. The volume of
loan originations we are able to process is based, in large part, on the systems and processes we have implemented and
developed. These systems and processes are becoming increasingly dependent upon technological advancement, such as the
ability to process loans and payments over the internet via personal computers or mobile devices, accept electronic signatures
and provide initial decisions instantly. Our future success also depends, in part, on our ability to develop and implement
technology solutions that anticipate and keep pace with continuing changes in technology, industry standards and client
preferences, including FinTech developments, and technological innovations such as bitcoin. We may not be successful in
anticipating or responding to these developments on a timely basis. We have made, and need to continue to make, investments
in our technology platform to provide competitive products and services. We may be required to expend significant funds to
develop or acquire new technologies. If competitors introduce products, services, systems and processes that are better than
ours or that are more cost-effective or that gain greater market acceptance, those we offer or use may become obsolete or
noncompetitive and we could lose market share. Any one of these circumstances could have a material adverse effect on our
business reputation and ability to obtain and retain clients and, therefore, could materially adversely affect our business,
financial condition and/or results of operations.

We depend on secure information technology and a breach of those systems or those of third-party vendors could result in
significant losses, unauthorized disclosure of confidential customer information and reputational damage, which could
materially adversely affect our business, financial condition and/or results of operations and could lead to significant
financial and legal exposure.

Our operations rely on the secure collection, processing, storage and transmission of personal, confidential and other
information in a significant number of customer transactions on a continuous basis through our computer systems and networks
and those of our third-party service providers. To access our products and services, our customers may use computers, smart
phones, tablets and other mobile devices that are outside our security systems and those of our third-party service providers, and
thus may create risks that we cannot control. Information security risks for financial institutions and third-party service

providers have increased in recent years and continue to evolve in part because of the proliferation of new technologies, the use
of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and
activities of organized crime, hackers, terrorists, activists and other external parties, including foreign state-sponsored actors.
These parties also may fraudulently induce employees, customers and others who use our or our service providers’ systems or
have access to our or our customers’ data, to gain access to our and our customers’ data or our assets. As further evidence that
cyber incidents have been accelerating in frequency and impact, in recent years several financial institutions and major
companies across industries have reported cyber-attacks that compromised significant customer or employee data, or resulted in
the theft of funds, or the theft or destruction of corporate information or other assets.

While we have not been materially impacted by these reported or other cyber incidents, we continue to evolve our

security controls to effectively prevent, detect and respond to the continually changing threats, and we may be required to
expend significant additional resources in the future to modify and enhance our security controls in response to new or more
sophisticated threats, new regulations related to cybersecurity and other developments. Additionally, while we, and our third-
party service providers, commit resources to the design, implementation, maintenance, security and monitoring of our networks
and systems, there is no guarantee that our security controls, or those of our third-party service providers, will protect against all
threats.

Despite the measures we and our third-party service providers implement to protect our systems and our or our

customers’ data, we may not be able to anticipate, identify, prevent or detect cyber-attacks, particularly because the techniques
used by attackers change frequently or are not recognized until launched, and because cyber-attacks can originate from a wide
variety of sources, including third parties who are or may be involved in organized crime or linked to terrorist organizations or
hostile foreign governments. Such third parties may seek to gain unauthorized access to our systems either directly or using
equipment or security passwords belonging to employees, customers, third-party service providers or other users of our systems
or those of our third-party service providers. Or, they may seek to disrupt or disable our or our service providers’ services
through attacks such as denial-of-service and ransomware attacks. In addition, we or our service providers may be unable to
identify, or may be significantly delayed in identifying, cyber-attacks and incidents due to the increasing use of techniques and
tools that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic artifacts. As a result, our
computer systems, software and networks, as well as those of third-party vendors we utilize, may be vulnerable to unauthorized
access, computer viruses, malicious attacks and other events that could have a security impact beyond our control. Our staff,
technologies, systems, networks and those of third-parties we utilize also may become the target of cyber-attacks, unauthorized
access, malicious code, computer viruses, denial of service attacks, ransomware, and physical attacks that could result in
information security breaches, the unauthorized release, gathering, monitoring, misuse, loss or destruction of systems, our or
our customers’ confidential, proprietary and other information, or otherwise disrupt our or our customers’ or other third-party
service providers’ business operations. We also routinely transmit and receive personal, confidential and proprietary
information, some through third parties, which may be vulnerable to interception, misuse or mishandling.

If one or more of such events occur, personal, confidential and other information processed by, stored in, or transmitted

through our computer systems and networks, or those of third-party vendors, could be compromised or could cause
interruptions or malfunctions in our or our customers’ or service providers’ operations that could result in significant losses, loss
of business and confidence by, and harm to reputation with, businesses and customers, customer dissatisfaction, significant
litigation, regulatory exposures and harm to our reputation and brand.

In the event personal, confidential or other information is threatened, intercepted, misused, mishandled, accessed,
acquired or otherwise compromised without authorization, we may be required to expend significant additional resources to
modify our protective measures, to investigate the circumstances surrounding the event and implement mitigation and
remediation measures. We also may be subject to fines, penalties, litigation (including securities fraud class action lawsuits) and
regulatory investigation costs and settlements and financial losses that are either not insured against or not fully covered
through any insurance maintained by us. If one or more of such events occur, our business, financial condition and/or results of
operations could be significantly and adversely affected.

While we seek to mitigate cyber and related risks associated with outsourcing to third-party service providers, including
through our vendor management processes, both operational and technological cyber risks remain and certain risks are beyond
our security and control systems. Cyber-attacks targeted at our service providers may result in unauthorized interception,
misuse, mishandling, access, acquisition, loss or destruction of our or our customers’ data, or other cyber incidents, that may

affect the availability of our services, and impose costs and other liabilities that significantly and adversely affect us in the ways
discussed above.

We depend significantly on third-parties for a wide array of our operations and customer services and key components of
our information technology infrastructure, and a breach of security or service levels, or violation of law by one of these
third-parties, could disrupt our business or provide our competitors with an opportunity to enhance their position at our
expense.

We depend significantly on third-parties for a wide array of our operations and customer services and key components of

our information technology and security infrastructures. Third-party vendors are significantly involved in aspects of our
servicing for Private Education Loans, FFELP Loans and Personal Loans, Bank deposit-taking activities, payroll software and
systems development, data center and operations, including the timely and secure transmission of information across our data
communication network, and for other telecommunications, email, processing, storage, remittance and technology-related
services in connection with our business. If a service provider fails to provide the services we require or expect, or fails to meet
applicable regulatory or contractual requirements, such as service levels, protection of our customers’ personal and confidential
information, or compliance with applicable laws, that failure could negatively impact our business by adversely affecting our
ability to process customers’ transactions in a timely and accurate manner, otherwise hampering our ability to serve our
customers and investors, or subjecting us to litigation and regulatory risk for matters as diverse as poor vendor oversight,
improper release or protection of personal information, or release of incorrect information. Such a failure could adversely affect
the perception of the reliability of our networks and services, and the quality of our brands, and could materially adversely
affect our business, financial condition or results of operations.

We primarily rely upon Amazon Web Services to deliver our offerings to users on our platform, and any disruption of or
interference with our use of Amazon Web Services could adversely impact our business and operations.

Amazon Web Services (“AWS”) provides a distributed computing infrastructure platform for business operations, which
is commonly referred to as “cloud” computing services. In 2019, we completed the migration of our computing infrastructure
over to AWS. We currently run the majority of computing to power our websites, mobile applications, and other technology
products and services on AWS, and we store a significant amount of our users’ information and our confidential business
information on AWS.

We have limited control over the AWS operations and facilities that we use to store our data. While we’ve implemented

contingencies for disaster recovery and business continuity, those operations and facilities are susceptible to damage and/or
service interruptions. AWS’ continuing and uninterrupted performance is critical to our continuing and uninterrupted operations.
Given the nature of the outsourcing of these services, along with the fact that we cannot easily switch our AWS operations to
another cloud provider, any disruption of or interference with our use of AWS could adversely impact our operations and
business. Any negative publicity arising from these disruptions could also harm our reputation and brand and may affect the
usage of our offerings.

We may face risks from our operations related to litigation or regulatory actions that could result in significant legal
expenses and settlement or damage awards.

Pursuant to the terms of the Separation and Distribution Agreement, and as contemplated by the structure of the Spin-Off,
Navient is legally obligated to indemnify the Bank against all claims, actions, damages, losses or expenses that may arise from
the conduct of all activities of pre-Spin-Off SLM occurring prior to the Spin-Off, except for certain liabilities specifically
assumed by the Bank in the agreement as to which the Bank would be obligated to indemnify Navient. Among other things,
Navient is obligated to indemnify us for any liabilities, costs or expenses we may incur arising from any action or threatened
action related to the servicing, operations and collections activities of pre-Spin-Off SLM and its subsidiaries with respect to
Private Education Loans and FFELP Loans that were assets of the Bank or Navient at the time of the Spin-Off, but that
obligation extends only to claims or potential claims for which Navient has received notice from us on or before April 30, 2017.
Due to Navient’s indemnification obligations and the smaller, relatively younger vintages of our Private Education Loans, over
the near term our dispute-related expenses may be lower than might otherwise be expected. As our business grows, we will
likely be subject to additional claims and litigation, which could seriously harm our business and require us to incur significant
costs. Defending against litigation may require significant attention and resources of management and, regardless of the
outcome, such actions could result in significant expenses. If we are a party to material litigation and if the defenses we assert
are ultimately unsuccessful, or if we are unable to achieve a favorable settlement, we could be liable for large damages and that

could have a material adverse effect on our business, results of operations and/or financial condition. Likewise, similar material
adverse effects could occur if Navient is unwilling or unable to honor its indemnification or other obligations under the
Separation and Distribution Agreement.

Our ability to sustain or exceed our recent rates of earnings growth over the long term may be supported by, among other
things, strategically diversifying our consumer products beyond Private Education Loans, which may be difficult.

Our success in sustaining or exceeding our recent rates of earnings growth over the long term may be supported by,
among other things, our ability to profitably acquire or originate a more diversified suite of complimentary consumer products.
Our ability to profitably acquire or originate complimentary consumer products is in turn dependent on a number of factors,
some of which are beyond our control, including general economic conditions, demographic trends, demand for other consumer
products, and capital markets conditions. There also may be substantial regulatory, operational and credit challenges, risks and
uncertainties associated with these efforts. We may invest significant time and resources in developing, launching and/or
attempting to acquire new products or services, yet not be successful in achieving our goal regarding earnings growth, credit
performance and/or profitability due to any or all of the factors, risks and uncertainties noted above, as well as others. In
addition, our initial timetables for the introduction and development or acquisition of new products or services may not be met,
market acceptance may fall short of our expectations, and price and profitability targets for any or all of our products may not
prove achievable, which could in turn unnecessarily divert management’s attention and focus and have a material negative
effect on our perception in the marketplace, our business, results of operations and/or financial condition.

The launch of our Credit Card product in 2019 raises risks and uncertainties specific to that particular product. For
example, we may be unable to originate Credit Card loans of acceptable credit quality or in sufficient quantities to achieve our
goals. Also, economic conditions can reduce the usage of credit cards in general and the average purchase amount of
transactions industry-wide, including our card, which reduces interest income and transaction fees. Competition is intense in the
credit card industry, and customers may frequently switch credit cards or transfer balances to another card. Competition in
credit cards is also based on the value provided to the customer by a related rewards program. Our rewards program could be
viewed as less attractive to customers than other credit card issuers’ reward programs and thereby adversely impact the timing
and/or success of any new credit card product of ours.

Incorrect estimates and assumptions by management in connection with the preparation of our consolidated financial
statements could adversely affect our reported assets, liabilities, income and/or expenses.

The preparation of our consolidated financial statements requires us to make critical accounting estimates and

assumptions that affect the reported amounts of assets, liabilities, income and expenses during the reporting periods. Incorrect
estimates and assumptions by us in connection with the preparation of our consolidated financial statements could adversely
affect the reported amounts of assets, liabilities, income and expenses. A description of our critical accounting estimates and
assumptions may be found in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Critical Accounting Policies and Estimates” and Notes to Consolidated Financial Statements, Note 2,
“Significant Accounting Policies” included in this Form 10-K. If we make incorrect assumptions or estimates, we may under-
or overstate reported financial results, which could materially and adversely affect our business, financial condition and/or
results of operations.

Our framework for managing risks may not be effective in mitigating our risk of loss.

Our risk management framework seeks to mitigate risk and appropriately balance risk and return. We have established
processes and procedures intended to identify, measure, monitor, control and report the types of risk to which we are subject.
We seek to monitor and control our risk exposure through a framework of policies, procedures, limits and reporting
requirements.

We also rely on quantitative models to measure and manage risks and estimate certain financial values. Models may be

used in such processes as product pricing, extending credit, measuring interest rate and other market risk, estimating losses,
calculating and assessing capital levels, estimating the value of financial instruments and balance sheet items, and various other
processes. If the models that we use to measure and/or mitigate these risks and values are poorly designed, based upon incorrect
or incomplete information, poorly implemented, or are otherwise inadequate, our business decisions may be adversely affected,
we may provide inaccurate information to the public or regulators, and/or we may incur increased losses.

In addition, there may be existing or developing risks that we have not appropriately anticipated, identified or mitigated.

If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected losses and our
business, financial condition and/or results of operations could be materially adversely affected.

Our internal controls over financial reporting and disclosure controls may be ineffective.

Our management is responsible for maintaining, regularly assessing and, as necessary, making changes to our internal
controls over financial reporting and our disclosure controls. Nevertheless, our internal controls over financial reporting and our
disclosure controls can provide only reasonable assurances regarding the reliability of our financial reporting and the
preparation of our financial statements for external purposes in accordance with generally accepted accounting principles in the
United States (“GAAP”) and may not prevent or detect misstatements. Any failure or circumvention of our internal controls
over financial reporting or our disclosure controls, failure to comply with rules and regulations related to such controls or
failure to make sound and appropriate application of the criteria established in the framework set forth in Internal Control-
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission could have a
material adverse effect on our financial condition and/or results of operations.

We are subject to reputational, political and other risks.

Our reputation as an originator and servicer of high-quality Private Education Loans and Personal Loans is very
dependent upon how our customers, our regulators, legislators, the education community and the broader market perceive our
business practices, financial heath and integrity and the business practices, financial health and integrity of the overall student
loan market or other loan markets, as applicable. Negative publicity, including as a result of our actual or alleged conduct or
public opinion of the student loan industry or other relevant industries generally, could damage our reputation and business and
adversely impact the price of our common stock. Additionally, proposals of political candidates or legislators that may affect the
financial industry, or the student loan industry in particular, such as proposals for new federal education spending designed to
make higher education “free” or substantially so regardless of financial need, or to create new federally funded programs to
refinance private student loans, could have a material adverse impact on our business, results of operations, financial condition
and the price of our common stock.

Any internal, market or other developments, including those relating to our competitors or our business, that result in a

negative impact on our reputation or the reputation of the student loan industry or other relevant industries could have an
adverse effect on our ability to originate, service and retain Private Education Loans or other loans, as applicable, result in
greater regulatory, legislative and media scrutiny, increase our risk of litigation and regulatory sanctions or other actions, and
have a material adverse effect on our financial condition and/or results of operations.

As described above, any failure of our operating systems or infrastructure or cyber-attacks on or other unauthorized
access to our information technology systems could harm our reputation and brand and result in significant financial losses. In
addition, employee and customer misconduct could severely harm our reputation, subjecting us to financial losses, lawsuits and/
or regulatory sanctions. Misconduct by our customers could include such activities as providing fraudulent credentials,
information or authorization on behalf of a family member or other cosigner through identification theft or by other means in
order to secure loan approval. Customers also may attempt to fraudulently secure Private Education Loan or other loan
proceeds. Misconduct by our employees could include, among other things, theft of our or our customers’ confidential
information, or making unauthorized payments on behalf of a collection client in order to meet certain incentive thresholds.

If our operating systems or infrastructure fail or our security and other internal controls fail to prevent or detect
compromised records or data, data breaches or an occurrence of customer or employee fraud, or if any resulting loss is not
insured or exceeds applicable insurance limits, or if insurance is denied, such occurrence could have a material adverse effect
on our reputation, financial condition and/or results of operations.

A low ESG or sustainability score could result in the exclusion of our common shares from consideration by certain
investment funds and a negative perception of us by certain investors.

Certain organizations that provide corporate governance and other corporate risk information to investors and

shareholders have developed scores and ratings to evaluate companies and investment funds based upon environmental, social
and governance (“ESG”) or “sustainability” metrics. Currently, there are no universal standards for such scores or ratings, but

the importance of sustainability evaluations is becoming more broadly accepted by investors and shareholders. Indeed, many
investment funds focus on positive ESG business practices and sustainability scores when making investments. In addition,
investors, particularly institutional investors, use these scores to benchmark companies against their peers and if a company is
perceived as lagging, these investors may engage with companies to require improved ESG disclosure or performance.
Moreover, certain members of the broader investment community may consider a company’s sustainability score as a
reputational or other factor in making an investment decision. Consequently, a low sustainability score could result in exclusion
of the Company’s common shares from consideration by certain investment funds, engagement by investors seeking to improve
such scores and a negative perception of the Company by certain investors.

Risks Related to the Spin-Off

We continue to rely on Navient’s Private Education Loan data and, because of Navient’s indemnification obligations, have
significant exposures to risks related to its creditworthiness. If we are unable to rely on this data or to obtain
indemnification payments from Navient, we could experience higher than expected costs and operating expenses and our
results of operations, cash flows and/or financial condition could be materially and adversely affected.

Through the end of 2018, Navient regularly provided us with a significant amount of current and historical data on their

portfolios of Private Education Loans, including data that supported, among other things, the tracking of loan performance
metrics such as default and recovery rates on those loans, including loans classified as troubled debt restructurings, and, in
connection with our ABS financing transactions, our ability to provide investors with historical information about Private
Education Loan performance. We also used these metrics in the development of certain critical accounting assumptions.

•

Navient is required to indemnify us for any liabilities, costs or expenses we may incur arising from any action or
threatened action related to the servicing, operations and collections activities of pre-Spin-Off SLM and its subsidiaries
with respect to Private Education Loans and FFELP Loans that were assets of the Bank or Navient at the time of the
Spin-Off; provided that written notice was provided to Navient on or prior to April 30, 2017, the third anniversary date
of the Spin-Off. Navient is not required to indemnify for changes in law or changes in prior existing interpretations of
law that occur on or after April 30, 2014.

In connection with the Spin-Off, we recorded a liability related to uncertain tax positions of $27 million for which we
are indemnified by Navient. As of December 31, 2019, the remaining balance of the indemnification receivable related
to those uncertain tax positions was $15 million.

The Separation and Distribution Agreement provides specific processes and procedures pursuant to which we may submit
claims for indemnification to Navient. If for any reason Navient is unable or unwilling to pay claims made against it, our costs,
operating expenses, cash flows and/or financial condition could be materially and adversely affected over time.

Risks Related to Our Securities

Our common and preferred stock prices may fluctuate significantly.

The market price of shares of our common stock may fluctuate significantly due to a number of factors, some of which

may be beyond our control, including:

•

Actual or anticipated fluctuations in our operating results;

Our smaller market capitalization as compared to pre-Spin-Off SLM;

Changes in earnings estimated by securities analysts or our ability to meet those estimates;

Any existence or lack of, or change in, capital return initiatives or policies regarding our common stock;

The operating and stock price performance of comparable companies;

News reports relating to trends, concerns and other issues in the student loan industry or other parts of the financial
services industry, including regulatory actions against other financial institutions or proposed legislation, or proposals
of political candidates, that may affect the student loan industry or other parts of the financial services industry;

Perceptions in the marketplace regarding us and/or our competitors;

New technology used, or services offered, by competitors;

Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or
involving us or our competitors;

Changes to the regulatory and legal environment under which we and our subsidiaries operate;

Our ability to securitize our loans;

Domestic and worldwide economic conditions; and

Other major events that may occur domestically or internationally that impact capital markets or the stock market
generally.

The market price of shares of our preferred stock may fluctuate significantly due to a number of factors, some of which

may be beyond our control, including:

•

Significant sales of our preferred stock, or the expectation of significant sales;

Lack of or a downgrade of credit agency ratings;

• Movements in interest rates and spreads that negatively affect return; and

•

Call and redemption features; and

Other major events that may occur domestically or internationally that impact capital markets or the stock market
generally.

In addition, when the market price of a company’s common stock drops significantly, stockholders often institute
securities class action lawsuits against the company. A securities class action lawsuit against the Company could cause it to
incur substantial costs and could divert the time and attention of its management and other resources, which could materially
adversely affect our business, financial condition and/or results of operations.

An investment in our securities is not an insured deposit.

Our common stock, preferred stock and indebtedness are not bank deposits and, therefore, are not insured against loss by

the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common stock is
inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same
market forces that affect the price of securities of any company. As a result, if you acquire our common stock, preferred stock or
indebtedness, you may lose some or all of your investment.

The holders of our preferred stock have rights that are senior to those of our common shareholders.

At December 31, 2019, we had issued and outstanding 4.0 million shares of our Series B Preferred Stock.

Our Series B Preferred Stock is senior to our shares of common stock in right of payment of dividends and other
distributions. Generally, we must be current on dividends payable to holders of our Series B Preferred Stock before any
dividends can be paid on our common stock. We also must comply with certain provisions that are protective of the Series B
Preferred Stock in order to effectuate any repurchases under our common stock share repurchase program. In the event of our
bankruptcy, dissolution or liquidation, the holders of our Series B Preferred Stock must be satisfied before any distributions can
be made to our common shareholders.

We may be limited in our ability to pay dividends on, and repurchase, our common stock.

The declaration and payment of future common stock dividends, as well as the amount thereof, are subject to

determination by, and the discretion of, our Board of Directors. In addition, we may change our policy regarding the payment of
dividends and reduce or eliminate our common stock dividend in the future, which could adversely affect the market price of
our common stock.

Our share repurchase programs permit us to repurchase from time to time shares of our common stock up to an aggregate
repurchase price not to exceed the authorized limits described in this Form 10-K. We may not be able to sell loans at prices, in
volumes, or on a schedule, that will provide us with sufficient funds to effect share repurchases under our share repurchase
programs. The timing and volume of any repurchases will be subject to market conditions, and there can be no guarantee that
we will repurchase up to the limit of any program or at all, which could adversely affect the market price of our common stock.

We are dependent on funds obtained from the Bank to fund dividend payments and any share repurchases. Regulatory
and other legal restrictions may limit our ability to transfer funds freely, either to or from our subsidiaries. In particular, the
Bank is subject to laws and regulations that authorize regulatory bodies to block or reduce the flow of funds to us, or that
prohibit such transfers altogether in certain circumstances. These laws, regulations and rules may hinder our ability to access
funds that we may need to make payments in respect of our stock or to satisfy our other responsibilities. The FDIC has the
authority to prohibit or limit the payment of dividends by the Bank and SLM Corporation.

Restrictions on Ownership

The ability of a third-party to acquire us is limited under applicable U.S. and state banking laws and regulations.

Under the Change in Bank Control Act of 1978, as amended (“CIBC Act”), the FDIC’s regulations thereunder, and
similar Utah banking laws, any person, either individually or acting through or in concert with one or more other persons, must
provide notice to, and effectively receive prior approval from, the FDIC and the UDFI before acquiring “control” of us. In
practice, the process for obtaining such approval is complicated and time-consuming, often taking longer than six months, and a
proposed acquisition may be disapproved for a variety of factors, including, but not limited to, antitrust concerns, financial
condition and managerial competence of the applicant, and failure of the applicant to furnish all required information. Under
the FDIC’s CIBC Act regulations, control is rebuttably presumed to exist, and notice is required, where a person owns, controls
or holds with the power to vote 10 percent or more of any class of our voting shares and no other person owns, controls or holds
with the power to vote a greater percentage of that class of voting shares.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following table lists the principal facility owned by us as of December 31, 2019:

Location

Function

Approximate
Square Feet

Newark, DE . . . . . . Headquarters

160,000

The following table lists the principal facilities leased by us as of December 31, 2019:

Location

Function

Indianapolis, IN . . . Administrative Offices
New Castle, DE. . . . Loan Servicing Center
Sterling, VA. . . . . . . Administrative Offices
Newton, MA . . . . . . Administrative Offices
Salt Lake City, UT . Sallie Mae Bank

Approximate
Square Feet

115,000
57,000
27,000
24,000
17,000

The facility that we own is not encumbered by a mortgage. We believe that our headquarters, loan servicing centers, data
center, back-up facility and data management and collection centers are generally adequate to meet our long-term lending and
business goals. Our headquarters are currently located in owned space at 300 Continental Drive, Newark, Delaware, 19713.

Item 3.

Legal Proceedings

We and our subsidiaries and affiliates are subject to various claims, lawsuits and other actions that arise in the normal
course of business. It is common for the Company, our subsidiaries and affiliates to receive information and document requests
and investigative demands from state attorneys general, legislative committees and administrative agencies. These requests may
be for informational or regulatory purposes and may relate to our business practices, the industries in which we operate, or
other companies with whom we conduct business. Our practice has been and continues to be to cooperate with these bodies and
be responsive to any such requests.

Pursuant to the terms of the Spin-Off and applicable law, Navient is responsible for all liabilities (whether accrued,
contingent or otherwise and whether known or unknown) arising out of or resulting from the conduct of pre-Spin-Off SLM and
its subsidiaries’ businesses prior to the Spin-Off, other than certain specifically identified liabilities relating to the conduct of
our consumer banking business for which the Bank is responsible. Nonetheless, given the prior usage of the Sallie Mae and
SLM names by entities now owned by Navient, we and our subsidiaries may from time to time be improperly named as
defendants in legal proceedings where the allegations at issue are the legal responsibility of Navient. Most of these legal
proceedings involve matters that arose in whole or in part in the ordinary course of business of pre-Spin-Off SLM. Likewise, as
the period of time since the Spin-Off increases, so does the likelihood any allegations that may be made may be in part for our
own actions in a post-Spin-Off time period and in part for Navient’s conduct in a pre-Spin-Off time period. We will not be
providing information on these proceedings unless there are material issues of fact or disagreement with Navient as to the bases
of the proceedings or responsibility therefor that we believe could have a material, adverse impact on our business, assets,
financial condition, liquidity or outlook if not resolved in our favor.

On January 18, 2017, the Illinois Attorney General filed a lawsuit in Illinois state court against Navient - its subsidiaries

On July 17, 2018, the Mississippi Attorney General filed a lawsuit in Mississippi state court against Navient, Navient
Solutions, LLC, and the Bank arising out of the Multi-State Investigation. The complaint alleges unfair and deceptive trade
practices against all three defendants as to private loan origination practices from 2000 to 2009, and against the two Navient
defendants as to servicing practices between 2010 and the present. The complaint further alleges that Navient assumed
responsibility for these matters under the Separation and Distribution Agreement for alleged conduct that pre-dated the Spin-
Off. On September 27, 2018, the Mississippi Attorney General filed an amended complaint. On October 8, 2018, the Bank
moved to dismiss the Mississippi Attorney General’s action as to the Bank, arguing, among other things, that the complaint
failed to allege with sufficient particularity or specificity how the Bank was responsible for any of the alleged conduct, most of
which predated the Bank’s existence. On November 20, 2018, the Mississippi Attorney General filed an opposition brief and the
Bank filed a reply on December 21, 2018. The court heard oral argument on the Bank’s motion to dismiss on April 11, 2019. On
August 15, 2019, the court entered an order denying the Bank’s motion to dismiss. On September 5, 2019, the Bank filed with
the Supreme Court of Mississippi a petition for interlocutory appeal. The Mississippi Attorney General filed an opposition to
the petition for interlocutory appeal on September 19, 2019. On October 16, 2019, the Supreme Court of Mississippi granted
the Bank’s petition for interlocutory appeal and stayed the trial court proceedings.

To date, three other state attorneys general (California, Washington and Pennsylvania) have filed suits against Navient

Additional lawsuits may arise from the Multi-State Investigation which may or may not name the Company, the Bank or

Regulatory Update

In May 2014, the Bank received a CID from the CFPB as part of the CFPB Investigation. Two state attorneys general also

provided the Bank identical CIDs and other state attorneys general have become involved in the Multi-State Investigation. To
the extent requested, the Bank has been cooperating fully with the CFPB and the attorneys general conducting the Multi-State
Investigation. Given the timeframe covered by the CIDs, the CFPB Investigation and the Multi-State Investigation, and the
focus on practices and procedures previously conducted by Navient and its servicing subsidiaries prior to the Spin-Off, Navient
is leading the response to these investigations. Consequently, we have no basis from which to estimate either the duration or
ultimate outcome of these investigations.

With regard to the CFPB Investigation, we note that on January 18, 2017, the CFPB filed a complaint in federal court in

Item 4.

Mine Safety Disclosures

N/A

PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities

Our common stock is listed and has traded on the Nasdaq Global Select Market (“Nasdaq”) under the symbol SLM since
December 12, 2011. Previously, our common stock was listed and traded on the New York Stock Exchange. As of January 31,
2020, there were 422,615,193 shares of our common stock outstanding and 273 holders of record.

We paid quarterly cash dividends on our common stock of $0.03 per share for each quarter of 2019. For the years ended

December 31, 2018 and 2017, we did not pay dividends on our common stock. Common stock dividend declarations are subject
to determination by, and the discretion of, our Board of Directors. We may change our common stock dividend policy at any
time.

Issuer Purchases of Equity Securities

The following table provides information relating to our purchase of shares of our common stock in the three months

ended December 31, 2019.

Total Number
of Shares
Purchased(1)

Average Price
Paid per
Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(2)

Approximate Dollar
Value
of Shares That
May Yet Be
Purchased Under
Publicly Announced
Plans or
Programs(2)

(In thousands, except per share data)

Period:

October 1 - October 31, 2019 . . . . . . . . . . . . .

November 1 - November 30, 2019 . . . . . . . . .

December 1 - December 31, 2019 . . . . . . . . . .

Total fourth-quarter 2019. . . . . . . . . . . . . . . . .

1,141

426

686

8.49

8.87

8.82

8.73

424

676

—

1,100

39,000

33,000

_________
(1) The total number of shares purchased includes: (i) shares purchased under the stock repurchase program discussed herein, and (ii) shares of our common stock
tendered to us to satisfy the exercise price in connection with cashless exercises of stock options, and tax withholding obligations in connection with exercises of stock
options and vesting of restricted stock, restricted stock units and performance stock units.

(2) The 2019 Share Repurchase Program permits us to repurchase shares of our common stock up to an aggregate repurchase price not to exceed $200 million. The 2019
Share Repurchase Program expires on January 22, 2021.

The closing price of our common stock on Nasdaq on December 31, 2019 was $8.91.

The 2019 Share Repurchase Program expires on January 22, 2021 and permits us to repurchase from time to time shares

of our common stock up to an aggregate repurchase price not to exceed $200 million. Under the 2019 Share Repurchase
Program, we repurchased 17 million shares of common stock for $167 million for the year ended December 31, 2019. We had
$33 million of remaining capacity under the 2019 Share Repurchase Program as of December 31, 2019.

The 2020 Share Repurchase Program expires on January 21, 2022 and permits us to repurchase shares of common stock

from time to time up to an aggregate repurchase price not to exceed $600 million.

The timing and volume of any repurchases will be subject to market conditions, and there can be no guarantee that the

Company will repurchase up to the limit of the programs or at all. Repurchases may occur from time to time and through a
variety of methods, including open market repurchases, repurchases effected through Rule 10b5-1 trading plans, negotiated
block purchases, accelerated share repurchase programs, tender offers or other similar transactions.

In addition to any repurchases that we may make under the share repurchase programs, we expect to repurchase common

stock acquired as a result of taxes withheld in connection with award exercises and vesting under our employee stock-based
compensation plans.

Stock Performance

The following graph compares the five-year cumulative total returns of SLM Corporation, the S&P Supercomposite

Consumer Finance Sub-Industry Index, and the S&P 400 Regional Bank Sub-Industry Index.

This graph assumes $100 was invested in the stock or the relevant index on December 31, 2014, and also assumes the
reinvestment of dividends through December 31, 2019, including the Company’s distribution to its shareholders of one share of
Navient Corporation common stock for every share of SLM Corporation on April 30, 2014. For the purpose of this graph, the
Navient Corporation distribution is treated as a non-taxable cash dividend of $16.56 that would have been reinvested in SLM
Corporation common stock at the close of business on April 30, 2014.

Five-Year Cumulative Total Stockholder Return

$200

$150

$100

$50

2014

2015

2016

2017

2018

2019

SLM Corporation

S&P Supercomposite Consumer Finance Sub-Industry Index

S&P 400 Regional Bank Sub-Industry Index

Company/Index

12/31/14

12/31/15

12/31/16

12/31/17

12/31/18

12/31/19

SLM Corporation . . . . . . . . . . . . . . . . . . . . . .

$100.0

$64.0

$108.2

$110.9

$81.6

$88.6

S&P Supercomposite Consumer Finance
Sub-Industry Index . . . . . . . . . . . . . . . . . . . . .

S&P 400 Regional Bank Sub-Industry Index .

_________
Source: Bloomberg Total Return Analysis

100.0

79.0

106.6

95.9

141.8

115.2

149.1

96.6

117.2

130.3

146.0

Item 6.

Selected Financial Data.

Selected Financial Data 2015-2019
(Dollars in millions, except per share amounts)

The following table sets forth our selected financial and other operating information. The selected financial data in the

table is derived from our consolidated financial statements. The data should be read in conjunction with the consolidated
financial statements, related notes, and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”

2019

2018

2017

2016

2015

Operating Data:

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,623

1,413

1,129

Non-interest income (loss) . . . . . . . . . . . . . . . . . . . . .

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic earnings per common share attributable to
SLM Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted earnings per common share attributable to
SLM Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dividends per common share attributable to SLM
Corporation common shareholders(1) . . . . . . . . . . . . .
Return on common stockholders’ equity. . . . . . . . . . .

Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . .

Return on assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dividend payout ratio . . . . . . . . . . . . . . . . . . . . . . . . .

Average equity/average assets. . . . . . . . . . . . . . . . . . .
Non-GAAP operating efficiency ratio(2) . . . . . . . . . . .
Balance Sheet Data:

1,672

578

1.31

1.30

0.12

(52)

1,361

487

1.08

1.07

(3)

1,126

289

0.63

0.62

891

960

250

0.54

0.53

— $

21%

20%

14%

5.76

1.96

10.56
34.7

6.10

2.01

—

11.22
41.0

5.93

1.43

—

11.92
39.6

5.68

1.52

—

13.40
40.1

702

183

885

274

0.60

0.59

—

18%

5.49

2.04

—

14.49
46.9

Total education loan portfolio, net . . . . . . . . . . . . . . .

23,680

21,143

18,174

15,125

11,631

Total Personal Loans, net . . . . . . . . . . . . . . . . . . . . . .

Total Credit Cards, net . . . . . . . . . . . . . . . . . . . . . . . .

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total SLM Corporation stockholders’ equity . . . . . . .

Book value per common share . . . . . . . . . . . . . . . . . .

_________

984

32,686

24,284

4,643

3,312

6.91

1,128

—

26,638

18,943

4,284

2,973

5.90

394

—

21,780

15,505

3,275

2,474

4.80

—

18,533

13,436

2,168

2,347

4.15

—

15,214

11,488

1,079

2,096

3.59

(1) In 2019, we initiated a new policy to pay a regular, quarterly cash dividend on our common stock, beginning in the first quarter of 2019. Common
stock dividend declarations are subject to determination by, and the discretion of, our Board of Directors. We may change our common stock
dividend policy at any time. We did not pay common stock dividends in fiscal years 2018, 2017, 2016 and 2015.

(2) Our operating efficiency ratio is a non-GAAP measure because we adjust (a) the total non-interest expense numerator by deducting restructuring
and other reorganization expenses, and (b) the net revenue denominator (which otherwise would consist of net interest income, before provisions for
credit losses, and non-interest income) by excluding any gains and losses on sales of loans and securities, net and the net impact of derivative
accounting as defined in the Core Earnings adjustments to GAAP table set forth in Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Key Financial Measures — Core Earnings” of this Annual Report on Form 10-K. We believe doing so
provides useful information to investors because it is a measure used by our management team to monitor our effectiveness in managing operating
expenses. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate our ratio.
Accordingly, our non-GAAP operating efficiency ratio may not be comparable to similar measures used by other companies.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements and
related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis also contains forward-
looking statements and should also be read in conjunction with the disclosures and information contained in “Forward-
Looking and Cautionary Statements” and Item 1A. “Risk Factors” in this Annual Report on Form 10-K.

Through this discussion and analysis, we intend to provide the reader with some narrative context for how our

management views our consolidated financial statements, additional context within which to assess our operating results, and
information on the quality and variability of our earnings, liquidity and cash flows.

Overview

The following discussion and analysis presents a review of our business and operations as of and for the year ended

December 31, 2019.

Key Financial Measures

Set forth below are brief summaries of our key financial measures. Our operating results are primarily driven by net
interest income from our Private Education Loan portfolio, gains and losses on loan sales, provision expense for credit losses,
and operating expenses. The growth of our business and the strength of our financial condition are primarily driven by our
ability to achieve our annual Private Education Loan origination goals while sustaining credit quality and maintaining cost-
efficient funding sources to support our originations.

Net Interest Income

Most of our earnings are generated from the interest income earned on assets in our education loan portfolios and on
Personal Loans and Credit Cards, net of the interest expense we pay on the funding for those loans. We report these earnings as
net interest income. We also often refer to the net interest margin, which is the net interest yield earned on our interest-earning
assets less the rate paid on our related interest-bearing liabilities. The majority of our interest income comes from our Private
Education Loan portfolio. FFELP Loans have a lower net interest yield and carry lower risk than Private Education Loans, as a
result of the federal government guarantee supporting FFELP Loans. Personal Loans tend to have higher risk, higher interest
rates and shorter terms than Private Education Loans. In the fourth quarter of 2019, we discontinued new originations of our
Personal Loan product and do not expect to originate or purchase any additional Personal Loans in 2020. As we do not expect
to acquire or originate any Personal Loans or purchase additional FFELP Loans in 2020, these portfolios are expected to decline
due to normal amortization.

Loan Sales and Secured Financings

We may sell loans to third-parties through whole loan sales, securitizations or other similar transactions. We typically
retain servicing of loans subsequent to their sale and earn revenue for this servicing at prevailing market rates for such services.
Selling loans removes the loan assets from our balance sheet and helps us manage our asset growth, capital and liquidity needs.
Alternatively, we may use loans as collateral in connection with the creation of asset-backed securitizations or securitized
commercial paper facilities structured as financings. These types of transactions may provide us long-term financing, but they
do not remove loan assets from our balance sheet, nor do they generate gains on sales of loans, net. Consequently, our operating
results may be significantly affected by whether we choose to sell loans and recognize current gains on sale or continue to hold
or finance loans, thereby retaining some or all the net interest income from those loans. We did not sell loans in 2019, but we
expect to sell approximately $3 billion in loans in 2020, depending on market conditions. For additional information, see Notes
to Consolidated Financial Statements, Note 23, “Subsequent Events.”

Allowance for Loan Losses

Management estimates and maintains an allowance for loan losses at a level sufficient to cover charge-offs expected over

the next year, plus an additional allowance to cover life-of-loan expected losses for loans classified as troubled debt
restructurings (“TDRs”). See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations

— Critical Accounting Policies and Estimates — Allowance for Loan Losses.” Allowances for loan losses are an important
indicator of management’s perspective on the future performance of a loan portfolio. Each quarter, management makes an
adjustment to the allowance for loan losses to reflect its most up-to-date estimate of future losses by recording a charge against
quarterly revenues known as provision expense. As they occur, actual loan charge-offs and recoveries are then charged or
credited, respectively, against the allowance for loan losses rather than against earnings.

The allowance for loan losses and provision expense rise when future charge-offs are expected to increase and fall when

future charge-offs are expected to decline. We bear the full credit exposure on our Private Education Loans, Personal Loans,
and Credit Cards. Losses on our Private Education Loans are affected by risk characteristics such as loan status (in-school,
grace, forbearance, repayment and delinquency), loan seasoning (number of months in active repayment), underwriting criteria
(e.g., credit scores), presence of a cosigner and the current economic environment. See “Defaults on our loans, particularly
Private Education Loans and Personal Loans, could adversely affect our business, financial position, results of operations and/
or cash flows” in Item 1A. “Risk Factors” for additional information. Losses typically emerge once a borrower separates from
school and enters full principal and interest repayment after the borrower’s grace period (six months, typically) ends. Our
experience indicates that approximately 50 percent of expected losses on a Private Education Loan occur in the first two years
after a loan enters full principal and interest repayment. Therefore, changes in our allowance for loan losses will be driven in
large measure by the amount and age of our Private Education Loans in full principal and interest repayment. As a larger
proportion of our Private Education Loan portfolio enters full principal and interest repayment in the coming years, we would
expect the amount of TDRs, as well as our allowance for loan losses and charge-offs, to increase. Losses on our Personal Loans
are affected by risk characteristics such as FICO scores at origination and seasoning.

Our allowance for loan losses for FFELP Loans and related periodic provision expense are small because we generally

bear a maximum of three percent loss exposure due to the federal guarantee on such loans. We maintain an allowance for loan
losses for our FFELP Loans at a level sufficient to cover charge-offs expected over the next two years.

We maintain an allowance for Personal Loan and Credit Card losses at an amount sufficient to absorb losses estimated

and viewed at the reporting date as probable credit losses to be incurred in the portfolio. In determining the allowance for loan
losses on our Personal Loans and Credit Cards that are not classified as TDRs, we estimate the principal amount of the loans
that will default over the next twelve months (twelve months being the expected period between a loss event and default) and
how much we expect to recover over the same twelve-month period related to the defaulted amounts. The expected defaults less
our expected recoveries adjusted for any qualitative factors equal the allowance related to this portfolio of Personal Loans and
Credit Cards that are not TDRs.

On January 1, 2020, we adopted CECL. The adoption of CECL, which requires us to measure our allowance for losses

based upon the estimate of current expected credit losses, will have a significant impact on the allowance for loan losses in
future periods to reflect life-of-loan expected losses. See Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Critical Accounting Policies and Estimates — Recently Issued but Not Yet Adopted
Accounting Pronouncements,” for further discussion regarding CECL.

Charge-Offs and Delinquencies

Delinquencies are another important indicator of potential future credit performance. When a Private Education Loan or

Personal Loan reaches 120 days delinquent, it is charged against the allowance for loan losses. We charge off Credit Cards
when they are 180 days delinquent. Charge-off data provides relevant information with respect to the actual performance of a
loan portfolio over time. Management focuses on delinquencies as well as the progression of loans from early to late stage
delinquency as a key metric in estimating the allowance for loan losses and tailoring its future collections strategies. We
manage our charged-off loans through a mix of in-house collectors, third-party collectors and sales to third-parties.

Operating Expenses

The cost of operating our business directly affects our profitability. In 2019, we measured our effectiveness in managing
operating expenses by monitoring our non-GAAP operating efficiency ratio. We calculate and report our non-GAAP operating
efficiency ratio as the ratio of (a) the total non-interest expense numerator to (b) the net revenue denominator (which consists of
the sum of net interest income, before provision for credit losses, and non-interest income, excluding any gains and losses on
sales of loans and securities, net and the net impact of derivative accounting as defined in our “Core Earnings” adjustments to
GAAP table in “- ‘Core Earnings’ ’’ in this Form 10-K). We believe doing so provides useful information to investors because it
is a measure used by our management team to monitor our effectiveness in managing operating expenses. Other companies may

use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate our ratio.
Accordingly, our non-GAAP operating efficiency ratio may not be comparable to similar measures used by other companies. In
January 2020, we announced our plans to sell up to $3 billion of loans in 2020 and use a portion of the proceeds to repurchase
common stock. The sale of these loans is expected to cause a significant decrease in our operating efficiency ratio because of
the expected sizable gain to be recorded in the period of the sale. Conversely, the operating efficiency ratio is expected to
increase in the periods subsequent to the period of sale because we no longer will report interest income on the loans sold. As a
result, we will discontinue our focus on the non-GAAP operating efficiency ratio.

“Core Earnings”

We prepare financial statements in accordance with GAAP. However, we also produce and report our after-tax earnings

on a separate basis that we refer to as “Core Earnings.” The difference between our non-GAAP “Core Earnings” and GAAP
results for periods presented generally is driven by the unrealized, mark-to-fair value gains (losses) on derivatives contracts
recognized in GAAP, but not in “Core Earnings.”

“Core Earnings” recognizes the difference in accounting treatment based upon whether a derivative qualifies for hedge
accounting treatment. We enter into derivative instruments to economically hedge interest rate and cash flow risk associated
with our portfolio. We believe that our derivatives are effective economic hedges, and as such, are a critical element of our
interest rate risk management strategy. Those derivative instruments that qualify for hedge accounting treatment have their
related cash flows recorded in interest income or interest expense along with the hedged item. Some of our derivatives do not
qualify for hedge accounting treatment and the stand-alone derivative must be marked-to-fair value in the income statement
with no consideration for the corresponding change in fair value of the hedged item. These gains and losses, recorded in “Gains
(losses) on derivatives and hedging activities, net,” are primarily caused by interest rate volatility and changing credit spreads
during the period as well as the volume and term of derivatives not receiving hedge accounting treatment. Cash flows on
derivative instruments that do not qualify for hedge accounting are not recorded in interest income and interest expense; they
are recorded in non-interest income: “Gains (losses) on derivatives and hedging activities, net.”

For periods prior to July 1, 2018, the amount recorded in “Gains (losses) on derivatives and hedging activities, net”
includes (a) the accrual of the current payment on those interest rate swaps that do not qualify for hedge accounting treatment,
(b) the change in fair values related to future expected cash flows for derivatives that do not qualify for hedge accounting
treatment, and (c) ineffectiveness on derivatives that receive hedge accounting treatment. For purposes of “Core Earnings” in
those periods prior to July 1, 2018, we include in GAAP earnings the current period accrual amounts (interest reclassification)
on the swaps and exclude the remaining ineffectiveness (and change in fair values for those derivatives not qualifying for hedge
accounting treatment). “Core Earnings” in those periods is meant to represent what earnings would have been had these
derivatives qualified for hedge accounting and there was no ineffectiveness.

In the third quarter of 2018, we changed our definition of “Core Earnings” to no longer exclude ineffectiveness related to

derivative instruments that are receiving hedge accounting treatment. Accordingly, the only adjustments required to reconcile
from our “Core Earnings” results to our GAAP results of operations, net of tax, relate to differing treatments for our derivative
instruments used to hedge our economic risks that do not qualify for hedge accounting treatment. For periods beginning July 1,
2018, the amount recorded in “Gains (losses) on derivatives and hedging activities, net” includes (a) the accrual of the current
payment on the interest rate swaps that do not qualify for hedge accounting treatment and (b) the change in fair values related to
future expected cash flows for derivatives that do not qualify for hedge accounting treatment. For purposes of “Core Earnings,”
we include in GAAP earnings the current period accrual amounts (interest reclassification) on the swaps and exclude the change
in fair values for those derivatives not qualifying for hedge accounting treatment. “Core Earnings” is meant to represent what
earnings would have been had these derivatives qualified for hedge accounting and there was no ineffectiveness.

“Core Earnings” are not a substitute for reported results under GAAP. We provide a “Core Earnings” basis of presentation

because (i) earnings per share computed on a “Core Earnings” basis is one of several measures we utilize in establishing
management incentive compensation, and (ii) we believe it better reflects the financial results for derivatives that are economic
hedges of interest rate risk, but which do not qualify for hedge accounting treatment.

GAAP provides a uniform, comprehensive basis of accounting. Our “Core Earnings” basis of presentation differs from

GAAP in the way it treats derivatives as described above.

The following table shows the amount in “Gains (losses) on derivatives and hedging activities, net” that relates to the

interest reclassification on the derivative contracts.

Years Ended December 31,

(Dollars in thousands)

2019

2018

2017

Hedge ineffectiveness (losses) gains prior to
adoption of ASU No. 2017-12(1)
Unrealized gains (losses) on instruments not in a
hedging relationship

Interest reclassification

Gains (losses) on derivatives and hedging
activities, net

— $

2,684

(4,504)

19,469

(1,644)

(1,400)

(1,371)

(3,693)

(69)

17,825

(87) $

(8,266)

______

(1) The hedge ineffectiveness gains of $3 million for the year ended December 31, 2018 relate to hedging relationships that
were discontinued in 2018 prior to the adoption of ASU No. 2017-12.

The following table reflects adjustments associated with our derivative activities.

(Dollars in thousands, except per share amounts)

2019

2018

2017

Years Ended December 31,

“Core Earnings” adjustments to GAAP:

GAAP net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GAAP net income attributable to SLM Corporation common stock . .

578,276
16,837
561,439

487,476
15,640
471,836

Adjustments:
Net impact of derivative accounting(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Net tax expense (benefit)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total “Core Earnings” adjustments to GAAP. . . . . . . . . . . . . . . . . . . .

“Core Earnings” attributable to SLM Corporation common stock. . . .

GAAP diluted earnings per common share. . . . . . . . . . . . . . . . . . . . . .

Derivative adjustments, net of tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

“Core Earnings” diluted earnings per common share. . . . . . . . . . . . . .

______

(19,469)

(4,758)

(14,711)

546,728

1.30

(0.03)

1.27

(1,284)

(312)

(972)

470,864

1.07

—

1.07

288,934
15,714
273,220

8,197

3,131

5,066

278,286

0.62

0.01

0.63

(1) Derivative Accounting: “Core Earnings” exclude periodic unrealized gains and losses caused by the mark-to-fair value valuations on
derivatives that do not qualify for hedge accounting treatment under GAAP, but include current period accruals on the derivative
instruments. For periods prior to July 1, 2018, “Core Earnings” also exclude the periodic unrealized gains and losses that are a result of
ineffectiveness recognized related to effective hedges under GAAP, net of tax. Under GAAP, for our derivatives held to maturity, the
cumulative net unrealized gain or loss over the life of the contract will equal $0.

(2) “Core Earnings” tax rate is based on the effective tax rate at the Bank, where the derivative instruments are held.

The following table reflects our provisions for credit losses and total portfolio net charge-offs:

(Dollars in thousands)

2019

2018

2017

Provisions for credit losses

Total portfolio net charge-offs

354,249

244,864

185,765

(253,143)

(153,722)

(113,950)

Years Ended December 31,

Beginning in 2020, we plan to evaluate management’s performance internally using a measure that starts with “Core

Earnings” net income as disclosed above for a period, and further adjusting it by increasing it by the impact of GAAP
provisions for credit losses, and decreasing it by the total portfolio net charge-offs recorded in that period, net of the tax impact
of these adjustments.

Private Education Loan Originations

Private Education Loans are the principal asset on our balance sheet, and the amount of new Private Education Loan

originations we generate each year is a key indicator of the trajectory of our business, including our future earnings and asset
growth.

Funding Sources

Deposits

We utilize brokered, retail and other core deposits to meet funding needs and enhance our liquidity position. These
deposits can be term or liquid deposits. Our term brokered deposits have terms as long as seven years. Interest rates on a portion
of our long-term deposits are swapped into one-month LIBOR. This structure has the effect of transforming the interest rate
characteristics of these deposits to match the index on which the majority of our assets reset, thereby minimizing our exposure
to interest rate risk. Retail deposits are sourced through a direct banking platform and serve as an important source of
diversified funding. Brokered deposits are sourced through a network of brokers and provide a stable source of funding. In
addition, we accept certain deposits considered non-brokered that are held in large accounts structured to allow FDIC insurance
to flow through to underlying individual depositors. In 2014, we began adding deposits from Educational 529 savings plan and
later Health Savings plans as a way to diversify our funding sources. These and other large omnibus accounts, aggregating the
deposits of many individual depositors, represented $6.8 billion of our deposit total as of December 31, 2019.

Loan Securitizations

We have diversified our funding sources by issuing term ABS and by entering into the Secured Borrowing Facility (which

was previously called the asset-backed commercial paper facility, or ABCP Facility). Term ABS financing provides long-term
funding for our Private Education Loan portfolio at attractive interest rates and at terms that effectively match the average life
of the assets. Loans associated with these transactions will remain on our balance sheet if we retain the residual interest in these
trusts. The Secured Borrowing Facility provides an extremely flexible source of funds that can be drawn upon on short notice to
meet funding needs within the Bank. Borrowings under our Secured Borrowing Facility are accounted for as secured
financings.

2019 Management Objectives

In 2019, we set out the following major goals for ourselves: (1) prudently grow our Private Education Loan assets and
revenues; (2) maintain our strong capital position; (3) continue our Personal Loan and credit card initiatives to increase the level
of engagement with our existing customers and attract new customers; (4) manage operating expenses while improving
efficiency; (5) maintain our strong governance, risk oversight and compliance infrastructure; and (6) leverage our culture to
engage employees, recognize and reward contributions to business results, and develop talent to support our business strategy
and growth.

Prudently Grow Private Education Loan Assets and Revenues

We pursued managed growth in our Private Education Loan portfolio in 2019 by leveraging our Sallie Mae brand, our
relationship with approximately 2,400 colleges and universities, and our direct consumer marketing efforts. We achieved our
goal of growing loan originations while maintaining overall credit quality and cosigner rates in our Smart Option Student Loan
originations. Private Education Loan originations were 6 percent higher in 2019 compared with 2018. The average FICO scores
at approval and the cosigner rates for originations in the year ended December 31, 2019 were 746 and 86.6 percent, compared
with 746 and 87.2 percent for originations in the year ended December 31, 2018, respectively. In addition, to help facilitate the
expected increase in our Private Education Loan originations and the increasing percentage of fixed-rate loans being selected by
our customers, we maintained our diversified funding base in 2019. In 2019, we completed two ABS secured financings
totaling $1.1 billion compared with three ABS secured financings totaling $1.9 billion in 2018. We also raised fixed-rate
brokered CDs in longer terms to manage potential interest rate risk.

Maintain Our Strong Capital Position

As our balance sheet grew in 2019, our regulatory capital ratios remained stable and we generated earnings and capital

sufficient to cover the growth in our risk-weighted assets and remain significantly in excess of the capital levels required to be
considered “well capitalized” by our regulators. As of December 31, 2019, the Bank had a Common Equity Tier 1 risk-based
capital ratio of 12.2 percent, a Tier 1 risk-based capital ratio of 12.2 percent, a Total risk-based capital ratio of 13.4 percent and
a Tier 1 leverage ratio of 10.2 percent, all exceeding the current regulatory guidelines for “well capitalized” institutions by a
significant amount.

Continue our Personal Loan and Credit Card Initiatives to Increase the Level of Engagement With Our Existing Customers
and Attract New Customers

In June 2019, we launched our suite of cash-back credit cards with unique bonus rewards designed to help cardholders

develop financially responsible habits. We ended 2019 with 4,100 accounts. Early indications show strong customer
engagement key performance indicators with an over 84 percent plastic activation rate and, of those activated, 74 percent
utilized the card for purchases in 2019. The average FICO score at approval was 722 with an average credit line of over $4,600,
both in line with our expectations.

In 2019, we originated $480 million of Personal Loans. However, in the fourth quarter of 2019, we elected to discontinue

new originations to focus resources on our core strategic priorities and do not expect to originate or purchase any additional
Personal Loans in 2020. We processed completed Personal Loan applications received by December 15, 2019 and continue to
provide Personal Loan customers with the high-quality service they have come to expect. Our organic Personal Loan pilot
produced valuable information and we will continue to monitor the performance of the portfolio as it seasons. Our test and learn
approach on Personal Loans has helped us better understand the challenges and opportunities related to this product, which
drove numerous data centric adjustments that improved both our underwriting and targeting strategies.

Manage Operating Expenses While Improving Efficiency

We measure our effectiveness in managing operating expenses by monitoring our non-GAAP operating efficiency ratio.
See Item 6. “Selected Financial Data” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Key Financial Measures — Operating Expenses,” for a discussion of the method for calculating this ratio.
Full-year 2019 non-interest expenses grew 3 percent year-over-year, while the non-GAAP operating efficiency ratio was 34.7
percent for the year ended December 31, 2019, compared with 41.0 percent for the year ended December 31, 2018. The non-
GAAP operating efficiency ratio for the year ended December 31, 2018 was unfavorably affected by a $94 million decrease in

other income due to a decrease in our tax indemnification receivable arising from the expiration of certain statutes of limitations
regarding certain indemnified uncertain tax positions. Excluding this item, the non-GAAP operating efficiency ratio would have
been 38.3 percent for the year ended December 31, 2018.

Maintain Our Strong Governance, Risk Oversight and Compliance Infrastructure

We maintain a strong governance framework, which includes robust oversight, education, policies and procedures
supported by Enterprise Risk Management, Compliance and Internal Audit functions. In addition, given our relentless focus on
customer experience, we continually monitor customer protection policies, procedures and compliance management systems,
all of which are currently sufficient to meet or exceed currently applicable regulatory standards. Our goal is to leverage the
governance framework to create further value and competitive advantage in the marketplace.

Leverage Our Culture to Engage Employees, Recognize and Reward Contributions to Business Results, and Develop Talent
to Support our Business Strategy and Growth

In 2019, we continued to focus on providing tools and resources to enable employee growth and development of our core

and leadership competencies. We improved the effectiveness of our annual performance review process by adding an
assessment of our competencies and the related behaviors to further differentiate performance and effectively recognize and
reward contributions. We launched a program that provides employees the opportunity to expand their knowledge and
capability by temporarily transferring to a role in a different area of the business. In addition, we continued to drive completion
of multi-rater performance assessments and development planning in support of our management succession plan.

Environmental, Social and Governance Practices

Our mission is to equip aspiring minds to create the lives they imagine. That mission is firmly grounded in helping
families achieve the dream of a higher education. To further fulfill our mission, we’ve introduced a number of programs and
thought-leadership initiatives, including: (i) Sallie Mae’s Bridging the Dream Scholarship Program; (ii) financial literacy
initiatives with educator, turned hip-hop Artist, Dee-1; (iii) national and state partnerships to develop and distribute college
planning materials; and (iv) annual research and thought leadership regarding paying and saving for college, as well as
management of finances by students. In addition, we are passionate about getting involved and giving back in the communities
where we live and work. We strive to help create brighter futures by working directly with not-for-profit organizations in order
to help students, families, and individuals in our communities. The Sallie Mae Employee Volunteer Program gives full-time
employees paid time off to volunteer in their communities. Also, the Sallie Mae Employee Matching Gift Program encourages
employees’ voluntary support of non-profit organizations, by matching personal donations to Internal Revenue Service
registered charities through our charitable organization (The Sallie Mae Fund) dollar for dollar from $25 to a maximum of
$1,000 per employee per calendar year. Since the Spin-Off, the Sallie Mae Fund has contributed more than $2.3 million to
address key barriers to college access and support the community. In addition, we continue to make environmental
improvements at our facilities as we are committed to improving the environmental sustainability of our business and to using
resources and materials thoughtfully.

2020 Management Objectives

In 2020, we intend to devote ourselves to growing our primary student loan business, maintaining and enhancing our

best-in-class customer experience platform, and continuing our efforts to diversify into other consumer finance products. We
have set out the following major goals for ourselves: (1) prudently grow our Private Education Loan assets and revenues;
(2) maintain our strong capital position; (3) continue our credit card initiative to increase the level of engagement with our
existing customers and attract new customers; (4) manage operating expenses to improve the efficiency of our operations;
(5) maintain our strong governance, risk oversight and compliance infrastructure; and (6) leverage our culture to engage
employees, recognize and reward contributions to business results, and develop talent to support our business strategy and
growth.

Results of Operations

We present the results of operations below on a consolidated basis in accordance with GAAP.

GAAP Consolidated Statements of Income

(Dollars in millions, except per share data)
Interest income:

Loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . .

Total interest income. . . . . . . . . . . . . . . .

Total interest expense . . . . . . . . . . . . . . .

Net interest income . . . . . . . . . . . . . . . . .
Less: provisions for credit losses . . . . . .

Net interest income after provisions for
credit losses. . . . . . . . . . . . . . . . . . . . . . .
Non-interest income (loss):

Gains on sales of loans, net . . . . . . . . .

Losses on sales of securities, net . . . . .

Gains (losses) on derivatives and
hedging activities, net . . . . . . . . . . . . .
Other income (loss) . . . . . . . . . . . . . . .

Total non-interest income (loss) . . . . . . .
Non-interest expenses:
Total non-interest expenses. . . . . . . . . . .

Income before income tax expense. . . . .
Income tax expense. . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . .

Net income attributable to SLM
Corporation common stock. . . . . . . . . . .

Basic earnings per common share
attributable to SLM Corporation . . . .

Diluted earnings per common share
attributable to SLM Corporation . . . .

Declared dividends per common
share attributable to SLM
Corporation . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,
2018

2017

2019

Increase (Decrease)

2019 vs. 2018
%
$

2018 vs. 2017
%
$

2,249
8
74

2,331

708

1,623
354

1,895
6
34

1,935

522

1,413
245

1,269

1,168

—

574

744
165

578
17

561

1.31

1.30

(2)

—

(52)

557

559
72

487
16

472

1.08

1.07

1,413
8
16

1,437

308

1,129
186

943

—

(8)

(3)

449

491
203

289
16

273

0.63

0.62

354
2
40

396

186

210
109

101

(2)

101

185
94

91
1

0.23

19% $
33
118

15
44

—

100

160

194

33
131

19
6

482
(2)
18

498

214

284
59

225

(2)

(58)

(49)

108

68
(131)

199
—

19% $

199

21% $

0.45

21% $

0.45

34%
(25)
113

25
32

—

100

(1,160)

(1,633)

14
(65)

69
—

73%

71%

73%

0.12

— $

0.12

100% $

—

—%

GAAP Consolidated Earnings Summary

Year Ended December 31, 2019 Compared with Year Ended December 31, 2018

For the year ended December 31, 2019, net income was $578 million, or $1.30 diluted earnings per common share,
compared with net income of $487 million, or $1.07 diluted earnings per common share, for the year ended December 31,
2018. The year-over-year increase was primarily attributable to increases in net interest income and total non-interest income,
which were offset by increases in provisions for credit losses, total non-interest expenses and an increase in income tax
expense.

The primary contributors to each of the identified drivers of change in net income for the current year period compared

with the year-ago period are as follows:

•

Net interest income in 2019 increased by $210 million compared with the year-ago period primarily due to a
$3.1 billion increase in average loans outstanding. Net interest margin decreased by 34 basis points primarily as a
result of an additional $1.8 billion in average cash and other short-term investments held in 2019 compared with the
year-ago period. In 2019, we began increasing the amount of cash and cash equivalents held to increase overall
liquidity levels for risk management purposes. Yields on deposits placed with the Federal Reserve and government and
agency securities are below our cost of funds, which reduces the weighted average yield on our interest-earning assets
and our net interest margin. The increase in yield on our education loan portfolios in 2019 compared with the year-ago
period was primarily due to the carryover benefit in early 2019 from the increase in LIBOR rates during 2018, which
increased the yield on our variable-rate Private Education Loan and FFELP portfolios. The increase in our cost of
funds in 2019 compared to the year-ago period was also due to the increasing rates that occurred in the latter half of
2018. The increased liquidity levels in 2019 reduced the net interest margin by approximately $11 million compared
with the year-ago period.

Provisions for credit losses in 2019 increased $109 million compared with the year-ago period primarily due to a
higher provision for our TDR portfolio as a result of the impact of declining interest rates, higher delinquencies, and a
14 percent growth in Private Education Loans in repayment. The allowance for a TDR loan equals the difference
between the carrying amount of the loan and the present value of the expected future cash flows discounted at the
effective interest rate of the loan just prior to the loan’s classification as a TDR. For our variable-rate TDR loans, we
lock in the discount rate at the time of TDR classification and do not adjust that rate as interest rates change. Therefore,
when interest rates increase, which they did in 2018, we record a lower allowance on our variable-rate TDR portfolio
because of the higher future expected cash flows. Conversely, when interest rates decline, as they have during 2019,
the present value of future expected cash flows of the variable-rate TDR portfolio decline and the related allowance
increases.

There were no gains on sales of loans, net in 2019. Gains on sales of loans, net, resulted in a net gain of $2 million in
2018, as we sold the $43 million Split Loan (as hereinafter defined) portfolio in second-quarter 2018. See Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management —
Arrangements with Navient Corporation — Amended Loan Participation and Purchase Agreement.”

There were no sales of securities in 2019, compared with losses on sales of securities, net, of $2 million in 2018, due
to the sale of $41 million of mortgage-backed securities in second-quarter 2018.

Gains (losses) on derivatives and hedging activities, net, resulted in a net gain of $18 million in 2019 compared with a
net loss of less than $1 million in the year-ago period. The increase was driven by several factors, including an
additional $2.6 billion of notional derivative contracts entered into during 2019 that were economic hedges but did not
receive hedge accounting treatment. These derivatives, as well as other derivative contracts that did not receive hedge
accounting treatment, were favorably affected by interest rates and future interest rate expectations during 2019.

Other income in the year ended December 31, 2019 increased $83 million from the year-ago period. In 2019 and 2018,
we reduced other income by $12 million and $94 million, respectively, to reflect the reduction in our tax
indemnification receivable because of the expiration of certain statutes of limitations related to a portion of
indemnified uncertain tax positions. Absent these tax-related items, other income in 2019 increased $1 million
compared to 2018. In 2019, we recorded an $8 million gain related to changes in the valuation of certain non-
marketable securities, which was offset by lower revenue in our Upromise business.

For the year ended December 31, 2019, non-interest expenses were $574 million, compared with $557 million in the
year-ago period. Full-year non-interest expenses grew 3 percent year-over-year, and the non-GAAP operating

efficiency ratio decreased to 34.7 percent in 2019 from 41.0 percent in 2018. Absent the tax-related items described
above, the non-GAAP operating efficiency ratio would have been 38.3 percent for 2018. The increase in non-interest
expenses was driven by the growth in our Private Education Loan portfolio and increased investments in marketing,
slightly offset by a reduction in initial costs related to our migration to the cloud.

•

Income tax expense increased to $165 million in 2019 from $72 million in 2018. Our effective income tax rate
increased to 22.2 percent in 2019 from 12.8 percent in 2018. The increase in the effective tax rate was primarily the
result of a $94 million decrease in income tax expense in 2018 due to the previously mentioned expiration of certain
statutes of limitations regarding a portion of indemnified uncertain tax positions. Absent that item, our effective tax
rate for 2018 would have been 25.4 percent. The further decrease in the effective tax rate in 2019 was primarily driven
by $14 million of tax credits recorded in 2019, the majority of which related to prior year tax filings.

Year Ended December 31, 2018 Compared with Year Ended December 31, 2017

For the year ended December 31, 2018, net income was $487 million, or $1.07 diluted earnings per common share,
compared with net income of $289 million, or $0.62 diluted earnings per common share, for the year ended December 31,
2017. The year-over-year increase was primarily attributable to a $4.1 billion increase in average earning assets, a 17 basis
point increase in net interest margin and a $131 million decrease in income tax expense (primarily as a result of the impact of
the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which was signed into law by President Trump on December 22, 2017, and
the reduction of the federal statutory corporate income tax rate), which more than offset the $108 million increase in total non-
interest expenses.

The primary contributors to each of the identified drivers of change in net income for 2018 compared with 2017 are as

follows:

•

Net interest income increased by $284 million in 2018 compared with 2017 primarily due to a $3.8 billion increase in
average loans outstanding. Net interest margin increased by 17 basis points primarily because of the benefit from an
increase in LIBOR rates, which increased the yield on our variable-rate Private Education Loan portfolio more than it
increased our cost of funds, and because of growth in the higher-yielding Personal Loan portfolio. Cost of funds
increased primarily due to the increase in LIBOR rates as well as a higher percentage of our total interest-bearing
liabilities consisting of higher cost other interest-bearing liabilities, which include both our unsecured and secured
borrowings.

Provisions for credit losses increased $59 million in 2018 compared with 2017 primarily due to a $67 million increase
in the provision for Personal Loans. The provision for Personal Loans grew because the portfolio of Personal Loans
increased from $400 million at December 31, 2017 to $1.2 billion at December 31, 2018. Provision for Private
Education Loans declined $9 million in 2018 when compared to 2017 as a result of improved credit performance and
increases in interest rates that had a favorable impact on the provision for losses on TDR loans.

Gains on sales of loans, net, resulted in a net gain of $2 million in 2018 as we sold the $43 million Split Loan portfolio
in second-quarter 2018. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Risk Management — Arrangements with Navient Corporation — Amended Loan Participation and
Purchase Agreement.” There were no gains on sales of loans, net in 2017.

Losses on sales of securities, net, were $2 million in 2018 due to the sale of $41 million of mortgage-backed securities
in second-quarter 2018. There were no sales of securities in 2017.

Losses on derivatives and hedging activities, net, resulted in a net loss of less than $1 million in 2018 compared with a
net loss of $8 million in 2017.

Other income in the year ended December 31, 2018 decreased $58 million from 2017. This change was affected by
unusual items that occurred in both 2017 and 2018. In 2018, we reduced other income by $94 million to reflect the
reduction in our tax indemnification receivable because of the expiration of certain statutes of limitations related to a
portion of indemnified uncertain tax positions. Income taxes payable and income tax expense were reduced by a
corresponding amount. In 2017, to reflect the application of the reduction of the federal statutory corporate income tax
rate from 35 percent to 21 percent pursuant to the Tax Act enacted in the fourth-quarter 2017, we reduced other income
by $24 million due to a lower valuation of tax indemnification receivables for future years. Unrelated to the change in
the federal income tax rate, we also reduced other income in 2017 by $11 million due to the expiration of certain
statutes of limitations related to a portion of indemnified uncertain tax positions. Absent these tax-related items, other

income in 2018 was $2 million greater than in 2017, primarily due to increased credit card revenue from the
Company’s Upromise subsidiary.

•

For the year ended December 31, 2018, non-interest expenses were $557 million, compared with $449 million in 2017.
Full-year non-interest expenses grew 24.0 percent year-over-year, and the non-GAAP operating efficiency ratio
increased to 41.0 percent in 2018 from 39.6 percent in 2017. Absent the tax-related items described above, the non-
GAAP operating efficiency ratio would have been 38.3 and 38.4 percent for 2018 and 2017, respectively. The increase
in non-interest expenses was driven by the growth in our loan portfolio and investments associated with the
development of our Personal Loan product, as well as investments related to other product diversification and platform
enhancements.

In early 2018, we indicated our intention to invest $40 million to accelerate the diversification of our consumer lending
platform into the Personal Loan and credit card businesses and to migrate our technology infrastructure to the cloud.
Non-interest expenses associated with these efforts were $44 million in the year ended December 31, 2018. Expenses
in our primary education loan business for the year ended December 31, 2018 increased 14 percent from the year-ago
period, excluding the technology infrastructure migration costs.

Income tax expense decreased to $72 million in 2018 from $203 million in 2017. Our effective income tax rate
decreased to 12.8 percent in 2018 from 41.2 percent in 2017. The decrease in the effective tax rate was primarily due
to a $94 million decrease in income tax expense in 2018 due to the previously mentioned expiration of certain statutes
of limitations regarding a portion of indemnified uncertain tax positions. Absent that item, our effective tax rate for
2018 would have been 25.4 percent. The further decrease in the effective tax rate was primarily due to the reduction in
the federal statutory corporate income tax rate from 35 percent to 21 percent under the Tax Act enacted in 2017.

Financial Condition

Average Balance Sheets - GAAP

The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities and reflects

our net interest margin on a consolidated basis.

(Dollars in thousands)
Average Assets
Private Education Loans. . . . . .
FFELP Loans . . . . . . . . . . . . . .

Personal Loans . . . . . . . . . . . . .
Taxable securities . . . . . . . . . . .

Cash and other short-term
investments . . . . . . . . . . . . . . . .
Total interest-earning assets . . .

Years Ended December 31,

2019

2018

2017

Balance

Rate

Balance

Rate

Balance

Rate

$ 22,225,473
814,198

9.32% $ 19,282,500
888,301
4.79

9.10% $ 16,176,351
970,738
4.57

1,141,503
324,849

12.09
2.35

900,152
235,700

11.08
2.61

112,644
326,757

3,693,245
28,199,268

2.01
8.27%

1,844,404
23,151,057

1.88
8.36%

1,454,557
19,041,047

8.43%
3.91

9.90
2.53

1.07
7.55%

Non-interest-earning assets. . . .

1,318,290

1,157,628

1,104,598

Total assets . . . . . . . . . . . . . . . .

$ 29,517,558

$ 24,308,685

$ 20,145,645

Average Liabilities and
Equity
Brokered deposits . . . . . . . . . . .
Retail and other deposits. . . . . .
Other interest-bearing
liabilities(1) . . . . . . . . . . . . . . . .
Total interest-bearing liabilities

$ 11,760,646
9,588,747

2.66% $ 9,028,589
8,142,449
2.44

2.43% $ 7,224,869
6,939,520
2.08

1.75%
1.40

4,658,075

3.43

3,948,001

3.37

2,932,681

2.88

26,007,468

2.72%

21,119,039

2.47%

17,097,070

1.80%

Non-interest-bearing liabilities .
Equity . . . . . . . . . . . . . . . . . . . .
Total liabilities and equity . . . .

392,173
3,117,917
$ 29,517,558

461,327
2,728,319
$ 24,308,685

647,294
2,401,281
$ 20,145,645

Net interest margin . . . . . . . . . .

5.76%

6.10%

5.93%

_________________

(1)

Includes the average balance of our unsecured borrowing, as well as secured borrowings and
amortization expense of transaction costs related to our term asset-backed securitizations and our
Secured Borrowing Facility.

Rate/Volume Analysis - GAAP

The following rate/volume analysis shows the relative contribution of changes in interest rates and asset volumes.

(Dollars in thousands)

Increase
(Decrease)

Change Due To(1)

Rate

Volume

2019 vs. 2018
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 395,680
185,429
$ 210,251

$ (21,847)
56,072
$ (83,975)

$ 417,527
129,357
$ 294,226

2018 vs. 2017
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 498,049
214,206
$ 283,843

$ 165,548
131,283
33,831

$ 332,501
82,923
$ 250,012

_____________

(1)

Changes in income and expense due to both rate and volume have been allocated in proportion to the
relationship of the absolute dollar amounts of the change in each. The changes in income and expense are
calculated independently for each line in the table. The totals for the rate and volume columns are not the
sum of the individual lines.

Summary of Our Loan Portfolio

Ending Loan Balances, net

(Dollars in thousands)

Total loan portfolio:

In-school(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grace, repayment and other(2) . . . . . . . . . . . . . . . .
Total, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred origination costs and unamortized
premium/(discount). . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2019

Private
Education
Loans

FFELP
Loans

Personal
Loans

Credit
Cards

Total
Portfolio

$ 4,288,239

— $

— $ 4,288,320

18,901,352

23,189,591

81,224

783,225

783,306

1,049,007

2,143

(1,633)

513

(65,877)

3,884

(102)

20,737,468

25,025,788

83,916

(441,912)

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . .

(374,300)

Total loan portfolio, net . . . . . . . . . . . . . . . . . . . . . . .

$22,896,515

783,816

983,643

3,818

$ 24,667,792

% of total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93%

—%

100%

_________

(1)

(2)

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

Includes loans in deferment or forbearance. Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that
have entered full principal and interest repayment status after any applicable grace period.

(Dollars in thousands)

Total loan portfolio:

In-school(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grace, repayment and other(2) . . . . . . . . . . . . . . . . . .
Total, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred origination costs and unamortized premium/
(discount) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2018

Private
Education
Loans

FFELP
Loans

Personal
Loans

Total
Portfolio

4,037,125

163

— $

4,037,288

16,467,340

20,504,465

68,321

846,324

846,487

1,190,091

18,503,755

22,541,043

2,379

(977)

297

(62,201)

70,997

(341,121)

Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . .

(277,943)

Total loan portfolio, net . . . . . . . . . . . . . . . . . . . . . . . . .

$ 20,294,843

847,889

1,128,187

$ 22,270,919

% of total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

91%

100%

(Dollars in thousands)

Total loan portfolio:

Deferred origination costs and unamortized premium/
(discount) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2017

Private
Education
Loans

FFELP
Loans

Personal
Loans

Total
Portfolio

3,740,237

257

— $ 3,740,494

13,691,930

17,432,167

56,378

927,403

927,660

2,631

(1,132)

400,280

15,019,613

18,760,107

—

59,009

(6,628)

(251,475)

Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . .

(243,715)

Total loan portfolio, net . . . . . . . . . . . . . . . . . . . . . . . . .

$ 17,244,830

929,159

393,652

$18,567,641

% of total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93%

100%

(Dollars in thousands)

Total loan portfolio:

December 31, 2016

Private
Education
Loans

FFELP
Loans

Personal
Loans

Total
Portfolio

In-school(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grace, repayment and other(2). . . . . . . . . . . . . . . . . .
Total, gross. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,371,870

377

— $

3,372,247

10,879,805

14,251,675

1,010,531

1,010,908

12,893

11,903,229

15,275,476

Deferred origination costs and unamortized premium/
(discount) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

44,206

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . .

(182,472)

2,941

(2,171)

—

(58)

47,147

(184,701)

Total loan portfolio, net . . . . . . . . . . . . . . . . . . . . . . . . .

$ 14,113,409

1,011,678

12,835

$ 15,137,922

% of total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93%

—%

100%

_________

(1)

(2)

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

(Dollars in thousands)

Total loan portfolio:

December 31, 2015

Private
Education
Loans

FFELP
Loans

Total
Portfolio

In-school(1) . . . . . . . . . . . . . . . . .
Grace, repayment and other(2) . .
Total, gross . . . . . . . . . . . . . . . . . . .

$ 2,823,035

582

$ 2,823,617

7,773,402

1,115,081

8,888,483

10,596,437

1,115,663

11,712,100

Deferred origination costs and
unamortized premium/(discount) . .

27,884

Allowance for loan losses . . . . . . . .

(108,816)

3,114

(3,691)

30,998

(112,507)

Total loan portfolio, net . . . . . . . . .

$10,515,505

$ 1,115,086

$11,630,591

% of total. . . . . . . . . . . . . . . . . . . . .

90%

10%

100%

_________

(1)

(2)

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

Includes loans in deferment or forbearance. Loans in repayment include loans on which borrowers are making interest only or fixed
payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.

Average Loan Balances (net of unamortized premium/discount)

Years Ended December 31,

(Dollars in thousands)

2019

2018

2017

Private Education Loans . . .

$ 22,225,473

92% $ 19,282,500

92% $ 16,176,351

94%

FFELP Loans . . . . . . . . . . .

814,198

Personal Loans . . . . . . . . . .

1,141,503

888,301

900,152

970,738

112,644

Total portfolio . . . . . . . . . . .

$ 24,181,174

100% $ 21,070,953

100% $ 17,259,733

100%

Loan Activity

Year Ended December 31, 2019

Private
Education
Loans
$ 20,294,843

FFELP
Loans
847,889

Personal Loans
$ 1,128,187

Credit Cards
$

— $ 22,270,919

Total
Portfolio

(Dollars in thousands)
Beginning balance . . . . . . . . . . . . . . . . . .
Acquisitions and originations:

Fixed-rate . . . . . . . . . . . . . . . . . . . . . . .

Variable-rate . . . . . . . . . . . . . . . . . . . . .

Total acquisitions and originations . . . . .

Capitalized interest and deferred
origination cost premium amortization . .
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,784,860

1,866,914

5,651,774

722,153
—

Loan consolidations to third-parties . . . .
Allowance . . . . . . . . . . . . . . . . . . . . . . . .
Repayments and other . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . .

(1,512,279)
(96,357)
(2,163,619)
$ 22,896,515

—

28,258
—

(27,461)
(656)
(64,214)
783,816

480,398

—

480,398

(323)
—

—

5,933

—
—

4,265,258

1,872,847

6,138,105

750,088
—

—
(3,676)
(620,943)
983,643

—
(102)
(2,013)
3,818

(1,539,740)
(100,791)
(2,850,789)
$ 24,667,792

Year Ended December 31, 2018

Private
Education
Loans
$ 17,244,830

FFELP
Loans
929,159

Personal Loans
393,652
$

Total
Portfolio
$ 18,567,641

—

1,157,875

—

1,157,875

4,240,419

2,252,948

6,493,367

31,093
—

(30,076)
155
(82,442)
847,889

(71)
—

629,019
(43,988)

—
(55,573)
(367,696)
$ 1,128,187

(1,021,120)
(89,646)
(2,264,354)
$ 22,270,919

(Dollars in thousands)
Beginning balance . . . . . . . . . . . . . . . . . .
Acquisitions and originations:

Fixed-rate . . . . . . . . . . . . . . . . . . . . . . .

Variable-rate . . . . . . . . . . . . . . . . . . . . .

Total acquisitions and originations . . . . .

Capitalized interest and deferred
origination cost premium amortization . .
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,082,544

2,252,948

5,335,492

597,997
(43,988)

(991,044)
(34,228)
(1,814,216)
$ 20,294,843

Year Ended December 31, 2017

Private
Education
Loans
$ 14,113,409

FFELP
Loans
$ 1,011,678

Personal Loans
12,835
$

Total
Portfolio
$ 15,137,922

(Dollars in thousands)
Beginning balance . . . . . . . . . . . . . . . . . .
Acquisitions and originations:

Fixed-rate . . . . . . . . . . . . . . . . . . . . . . .

Variable-rate . . . . . . . . . . . . . . . . . . . . .

Total acquisitions and originations . . . . .

Capitalized interest and deferred
origination cost premium amortization . .
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,524,893

3,293,950

4,818,843

462,030
(11,863)

(630,877)
(61,243)
(1,445,469)
$ 17,244,830

—

424,889

—

424,889

1,949,782

3,293,950

5,243,732

31,396
—

(36,856)
1,039
(78,098)
929,159

—
—

493,426
(11,863)

—
(6,570)
(37,502)
393,652

(667,733)
(66,774)
(1,561,069)
$ 18,567,641

“Loan consolidations to third-parties” and “Repayments and other” are both significantly affected by the volume of loans

in our portfolio in full principal and interest repayment status. Loans in full principal and interest repayment status in our
Private Education Loan portfolio at December 31, 2019 increased by 18 percent compared with December 31, 2018, and now
total 46 percent of our Private Education Loan portfolio at December 31, 2019.

“Loan consolidations to third-parties” for the year ended December 31, 2019 total 14.2 percent of our Private Education

Loan portfolio in full principal and interest repayment status at December 31, 2019, or 6.6 percent of our total Private
Education Loan portfolio at December 31, 2019, compared with the year-ago period of 11.0 percent of our Private Education
Loan portfolio in full principal and interest repayment status, or 4.9 percent of our total Private Education Loan portfolio,
respectively. The increase in consolidations in 2019 was the result of the increase in the amount of loans in repayment and an
increase in the number of active competitors in this market, including competition from Navient now that the non-compete
covenant it entered into as part of the Spin-Off has expired. Historical experience has shown that loan consolidation activity is
heightened in the period when the loan initially enters full principal and interest repayment status and then subsides over time.

The “Repayments and other” category includes all scheduled repayments, as well as voluntary prepayments, made on
loans in repayment (including loans in full principal and interest repayment status) and also includes charge-offs. Consequently,
this category can be significantly affected by the volume of loans in repayment. The increase in the volume of loans in
repayment accounts for the vast majority of the aggregate increase in loan consolidations, scheduled repayments, unscheduled
prepayments and capitalized interest set forth above.

Private Education Loan Originations

The following table summarizes our Private Education Loan originations. Originations represent loans that were funded

or acquired during the period presented.

(Dollars in thousands)
Smart Option - interest only(1) . . . . . . .
Smart Option - fixed pay(1) . . . . . . . . .
Smart Option - deferred(1) . . . . . . . . . .
Smart Option - principal and interest .
Graduate Loan . . . . . . . . . . . . . . . . . . .
Parent Loan . . . . . . . . . . . . . . . . . . . . .

Total Private Education Loan
originations . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,

2019
$ 1,234,246
1,560,496
2,082,147
9,806
622,181
115,910

2018

%
22% $ 1,164,229
1,410,124
28
2,017,927
37
8,450
—
609,742
11
104,771
2

2017

%
22% $ 1,071,470
1,222,799
27
1,889,682
38
6,831
—
536,125
11
73,253
2

%
22%
26
39
—
11
2

$ 5,624,786

100% $ 5,315,243

100% $ 4,800,160

100%

Percentage of loans with a cosigner . .
Average FICO at approval(2) . . . . . . . .

86.6%

746

87.2%

746

88.0%

747

________
(1)

Interest only, fixed pay and deferred describe the payment option while in school or in grace period. See Item 1. “Business -
Our Business - Private Education Loans” for further discussion.

(2)

Represents the higher credit score of the cosigner or the borrower.

Allowance for Loan Losses

Allowance for Loan Losses Activity

Years Ended December 31,

2019

2018

(Dollars in thousands)

Private
Education
Loans

FFELP
Loans

Personal
Loans

Credit
Cards

Total
Portfolio

Private
Education
Loans

FFELP
Loans

Personal
Loans

Total
Portfolio

Beginning balance. . . . .

277,943

977

$ 62,201

— $

341,121

243,715

$ 1,132

$ 6,628

$ 251,475

Less:

Charge-offs. . . . . . . . .
Loan sales(1) . . . . . . . .

Plus:

(208,978)

(822)

(74,313)

—

5,206

Recoveries . . . . . . . . .

25,765

Provision for loan
losses . . . . . . . . . . . . .

279,570

1,478

72,783

Ending balance . . . . . . .

374,300

1,633

$ 65,877

(1)

—

103

102

(284,114)

(154,701)

(1,135)

(19,690)

(175,526)

—

(1,216)

30,971

20,858

353,934

169,287

441,912

277,943

—

980

977

—

(1,216)

946

21,804

74,317

244,584

$ 62,201

$ 341,121

Troubled debt
restructurings(2) . . . .

$ 1,581,966

— $

— $ 1,581,966

$ 1,257,856

— $

— $ 1,257,856

2017

2016

2015

Years Ended December 31,

(Dollars in thousands)

Private
Education
Loans

FFELP
Loans

Personal
Loans

Total
Portfolio

Private
Education
Loans

FFELP
Loans

Personal
Loans

Total
Portfolio

Private
Education
Loans

FFELP
Loans

Total
Portfolio

Beginning balance . . . . .

$ 182,472

$ 2,171

$184,701

$ 108,816

$ 3,691

$ — $112,507

$ 78,574

$ 5,268

$ 83,842

Less:

Charge-offs . . . . . . . . .
Loan sales(1) . . . . . . . . .

Plus:

(130,063)

(954)

(579)

(131,596)

(90,203)

(1,348)

— (91,551)

(55,357)

(2,582)

(57,939)

Recoveries . . . . . . . . . .

17,635

(4,871)

—

(4,871)

(6,034)

17,646

10,382

—

Provision for loan
losses . . . . . . . . . . . . . .

178,542

(85)

7,138

185,595

159,511

(172)

Ending balance . . . . . . . .

$ 243,715

$ 1,132

$ 6,628

$251,475

$ 182,472

$ 2,171

—

(6,034)

(7,565)

10,382

5,820

—

(7,565)

5,820

159,397

87,344

1,005

88,349

$184,701

$ 108,816

$ 3,691

$112,507

Troubled debt
restructurings(2) . . . . .

_________

$ 990,351

$ — $

— $990,351

$ 612,606

$ — $ — $612,606

$ 265,831

$ — $265,831

(1)

(2)

Represents fair value adjustments on loans sold.

Represents the unpaid principal balance of loans classified as troubled debt restructurings.

Private Education Loan Allowance for Loan Losses

In establishing the allowance for Private Education Loan losses as of December 31, 2019, we considered several factors
with respect to our Private Education Loan portfolio, in particular, credit quality and delinquency, forbearance and charge-off
trends.

Private Education Loan provision for credit losses in 2019 increased $110 million compared with the year-ago period.

This increase was primarily due to a higher provision for our TDR portfolio as a result of the impact of declining interest rates,
higher delinquencies, and a 14 percent growth in Private Education Loans in repayment.

The allowance for losses on our variable-rate TDR portfolio is sensitive to changes in interest rates because we set the

effective interest rate used to discount the future cash flows on these loans at the time they become TDRs. As interest rates rise,
the future expected cash flows on variable-rate loans increase, which will in turn increase the net present values of the loans and
lower the allowance. The converse is true when interest rates decline.

In the fourth quarter of 2017, we changed our policy for identifying TDRs to include an evaluation of the refreshed FICO

scores for borrowers and cosigners receiving forbearance before determining if their loans will become TDRs. This change in
policy has had the effect of slowing the growth rate of our TDR portfolio, while also increasing our loss rate for the TDR
portfolio. This new policy was applied prospectively beginning in the fourth quarter of 2017 and was not applied to our historic
TDR balances.

Changes in our allowance for loan losses are driven in large measure by the amount and age of our loans in full principal
and interest repayment. As a larger proportion of our portfolio enters full principal and interest repayment in the coming years,
we would expect the amount of TDRs to increase.

Loans classified as loans in full principal and interest repayment status now include only loans for which scheduled full

principal and interest payments were due at the end of each applicable reporting period. Private Education Loans in full
principal and interest repayment status were 46 percent of our total Private Education Loan portfolio at December 31, 2019,
compared with 44 percent at December 31, 2018 and 41 percent at December 31, 2017.

For a more detailed discussion of our policy for determining the identification of TDRs, 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.”

Our default aversion strategies are focused on the final stages of delinquency. A loss emergence period represents the

expected period between the first occurrence of an event likely to cause a loss on a loan and the date the loan is expected to be
charged off, taking into consideration account management practices that affect the timing of a loss, such as the usage of
forbearance. The loss emergence period for our Private Education Loans, Personal Loans and Credit Cards is one year. For
FFELP Loans the loss emergence period is two years.

The table below presents our Private Education Loan delinquency trends. Loans in repayment include loans on which

borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment
status after any applicable grace period.

(Dollars in thousands)
Loans in-school/grace/deferment(1) . . . . . . . . . . . . . . . .
Loans in forbearance(2). . . . . . . . . . . . . . . . . . . . . . . . . .
Loans in repayment and percentage of each status:

Loans current. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans delinquent 31-60 days(3) . . . . . . . . . . . . . .
Loans delinquent 61-90 days(3) . . . . . . . . . . . . . .
Loans delinquent greater than 90 days(3). . . . . . .
Total Private Education Loans in repayment . . .
Total Private Education Loans, gross. . . . . . . . . . . . . . .

Private Education Loans deferred origination costs and
unamortized premium/(discount). . . . . . . . . . . . . . . . . .
Total Private Education Loans . . . . . . . . . . . . . . . . . . . .
Private Education Loans allowance for losses. . . . . . . .
Private Education Loans, net . . . . . . . . . . . . . . . . . . . . .

2019

Balance
$ 5,687,405
714,516

December 31,

2018

Balance
$ 5,260,445
577,164

2017

Balance
$ 4,757,732
468,402

16,315,651
288,051
121,302
62,666
16,787,670
23,189,591

97.2% 14,289,705
231,216
1.7
95,105
0.7
50,830
0.4
100.0% 14,666,856
20,504,465

97.4% 11,911,128
179,002
1.6
78,292
0.7
37,611
0.3
100.0% 12,206,033
17,432,167

97.6%
1.5
0.6
0.3
100.0%

81,224
23,270,815
(374,300)
$ 22,896,515

68,321
20,572,786
(277,943)
$20,294,843

56,378
17,488,545
(243,715)
$17,244,830

Percentage of Private Education Loans in repayment . .

72.4%

71.5%

70.0%

Delinquencies as a percentage of Private Education
Loans in repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loans in forbearance as a percentage of Private
Education Loans in repayment and forbearance . . . . . .

2.8%

4.1%

2.6%

3.8%

2.4%

3.7%

_________
(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)

(3)

Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full
payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.

The period of delinquency is based on the number of days scheduled payments are contractually past due.

Private Education Loans in forbearance as a percentage of total Private Education Loans in repayment and forbearance

and Private Education Loans in delinquency as a percentage of total Private Education Loans in repayment have increased as of
December 31, 2019, compared with December 31, 2018, primarily as a result of an increase in borrowers who have graduated
or otherwise separated from school and whose loans are now in full principal and interest repayment status.

The following table summarizes changes in the allowance for Private Education Loan losses.

(Dollars in thousands)
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs:
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan sales(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2019
277,943
279,570

(208,978)
25,765
(183,213)
—
374,300

Years Ended December 31,
2017
182,472
178,542

2018
243,715
169,287

(154,701)
20,858
(133,843)
(1,216)
277,943

(130,063)
17,635
(112,428)
(4,871)
243,715

2016
108,816
159,511

(90,203)
10,382
(79,821)
(6,034)
182,472

2015
78,574
87,344

(55,357)
5,820
(49,537)
(7,565)
108,816

Allowance as a percentage of the ending total loan
balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance as a percentage of the ending loans in
repayment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance coverage of net charge-offs . . . . . . . . . . . . . .

Net charge-offs as a percentage of average loans in
repayment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delinquencies as a percentage of ending loans in
repayment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans in forbearance as a percentage of ending loans in
repayment and forbearance(2). . . . . . . . . . . . . . . . . . . . . .
Ending total loans, gross . . . . . . . . . . . . . . . . . . . . . . . . .
Average loans in repayment(2) . . . . . . . . . . . . . . . . . . . . .
Ending loans in repayment(2) . . . . . . . . . . . . . . . . . . . . . .

_______

1.61%

1.36%

1.40%

1.28%

1.03%

2.23%
2.04

1.17%

1.90%
2.08

1.01%

2.00%
2.17

1.03%

1.88%
2.29

0.96%

1.57%
2.20

0.82%

2.81%

2.57%

2.42%

2.06%

2.23%

4.08%

3.79%

3.70%

3.50%

3.36%

$23,189,591
$15,605,927
$16,787,670

$20,504,465
$13,303,801
$14,666,856

$17,432,167
$10,881,058
$12,206,033

$14,251,675
$ 8,283,036
$ 9,709,758

$10,596,437
$ 6,031,741
$ 6,927,266

(1)

(2)

Represents fair value adjustments on loans sold.

Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest
repayment status after any applicable grace period.

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 net charge-offs ratio; the allowance as a
percentage of ending total loans and of ending loans in repayment; and delinquency and forbearance percentages. The
allowance as a percentage of ending total loans and as a percentage of ending loans in repayment increased over the past three
years primarily as a result of an increase in the balance of our TDRs, for which we hold a life-of-loan allowance.

Use of Forbearance and Rate Modifications as a Private Education Loan Collection Tool

We adjust the terms of loans for certain borrowers when we believe such changes will help our customers manage their
student loan obligations, achieve better student outcomes, and increase the collectability of the loan. These changes generally
take the form of a temporary forbearance of payments, a temporary interest rate reduction, a temporary interest rate reduction
with a permanent extension of the loan term, and/or a short-term extended repayment alternative. Forbearance is granted
prospectively for borrowers who are current in their payments and may be granted retroactively for certain delinquent
borrowers. Of our loans that are considered TDRs at December 31, 2019, approximately one-half involve a temporary
forbearance of payments and do not change the contractual interest rate of the loan, and the other half involve a temporary
contractual interest rate reduction and permanent extension of the loan term.

Forbearance allows a borrower to temporarily not make scheduled payments or to make smaller than scheduled
payments, in each case for a specified period of time. Using forbearance extends the original term of the loan by the term of
forbearance taken. Forbearance does not grant any reduction in the total principal or interest repayment obligation. While a loan
is in forbearance status, interest continues to accrue and is capitalized to principal when the loan re-enters repayment status.

We grant forbearance through our servicing centers to borrowers who are current in their payments and through our
collections centers to certain borrowers who are delinquent. Our forbearance policies and practices vary depending upon
whether a borrower is current or delinquent at the time forbearance is requested, generally with stricter payment requirements
for delinquent borrowers. We view the population of borrowers that use forbearance positively because the borrowers are either
proactively reaching out to the Company to obtain assistance in managing their obligations or are working with our collections
center to bring their loans current.

Forbearance may be granted through our servicing centers to customers who are exiting their grace period, which
generally is the six-month period after the borrower separates from school and during which the borrower is not required to
make full principal and interest payments, and to other customers who are current in their payments, to provide temporary
payment relief. In these circumstances, a customer’s loan is placed into a forbearance status in limited monthly increments and
is reflected in the forbearance status at month-end during this time. At the end of the forbearance period, the customer will enter
repayment status as current and is expected to begin making scheduled monthly payments. Currently, we generally grant
forbearance in our servicing centers if a borrower who is current requests it for increments of up to three months at a time, for
up to 12 months.

Forbearance may also be granted through our collections centers to customers who are delinquent in their payments. If

specific payment requirements are met, the forbearance can cure the delinquency and the customer is returned to a current
repayment status. Forbearance as a collection tool is used most effectively when applying historical experience and our
judgment to a customer’s unique situation. We leverage updated customer information and other decision support tools to best
determine who will be granted forbearance based on our expectations as to a customer’s ability and willingness to repay their
obligation. This strategy is aimed at assisting customers while mitigating the risks of delinquency and default as well as
encouraging resolution of delinquent loans. In all instances, we require one or more payments before granting forbearance to
delinquent borrowers.

Management continually monitors our credit administration practices and may periodically modify these practices based

upon performance, industry conventions, and/or regulatory feedback. In light of these considerations, we plan to implement
certain changes to our credit administration practices.

Specifically, we plan to revise our credit administration practices limiting the number of forbearance months granted

consecutively and the number of times certain extended or reduced repayment alternatives may be granted. For example, we
currently grant forbearance to borrowers without requiring any period of prior principal and interest payments, meaning that, if
a borrower satisfies all eligibility requirements, forbearance increments may be granted consecutively. Beginning in the second
quarter of 2020, we plan to phase in a required six-month period between successive grants of forbearance and between
forbearance grants and certain other repayment alternatives. This required period will not apply, however, to forbearances
granted during the first six months following a borrower’s grace period and will not be required for a borrower to receive a
contractual interest rate reduction. In addition, we plan to limit the participation of delinquent borrowers in certain short-term
extended or interest-only repayment alternatives to once in 12 months and twice in five years.

We also offer rate and term modifications to customers experiencing more severe hardship. Currently, we temporarily
reduce the contractual interest rate on a loan to 4.0 percent (previously, to 2.0 percent) for a two-year period and, in the vast
majority of cases, permanently extend the final maturity date of the loan. As part of demonstrating the ability and willingness to
pay, the customer must make three consecutive monthly payments at the reduced payment to qualify for the program. The
combination of the rate reduction and maturity extension helps reduce the monthly payment due from the borrower and
increases the likelihood the borrower will remain current during the interest rate modification period as well as when the loan
returns to its original contractual interest rate. At December 31, 2019 and December 31, 2018, 7.2 percent and 6.4 percent,
respectively, of our loans then currently in full principal and interest repayment status were subject to interest rate reductions
made under our rate modification program. We currently have no plans to change the basic elements of the rate and term
modifications we offer to our customers experiencing more severe hardship.

Prior to full implementation of the credit administration practice changes described above, management will conduct a
controlled testing program on randomly selected borrowers to measure the impact of the changes on our customers, our credit
operations, and key credit metrics. The testing commenced in October 2019 for some of the planned changes on a very small
percentage of the total loan portfolio and will expand over subsequent quarters as the impacts are better understood.
Management expects to have completed implementation of the new policies and practices by year-end 2020. However, we may
modify or delay the contemplated practice changes, the proposed timeline, or the method of implementation as we learn more
about the impacts during the progression of the testing program.

While there are limitations to our estimate of the future impact of the credit administration practice changes described
above, absent the effect of any mitigating measures, and based on an analysis of borrower behavior under our current credit
administration practices, which may not be indicative of how borrowers will behave under revised credit administration
practices, we expect that the credit administration practice changes described above will accelerate defaults and could increase
life of loan defaults in our Private Education Loan portfolio by approximately 4 percent to 14 percent. Among the measures that
we are planning to implement and expect may partly offset or moderate any acceleration of or increase in defaults will be
greater focus on the risk assessment process to ensure borrowers are mapped to the appropriate program, better utilization of
existing programs (e.g., Graduated Repayment Program and rate modifications), and the introduction of a new program offering
short-term payment reductions (permitting interest-only payments for up to six months) for certain early stage delinquencies.

As a result of the changes described above, we recorded a minimal increase in our current allowance for loan losses at
December 31, 2019, as a result of higher expected losses on our TDR loans where we maintain a life of loan allowance. The full
impact of these revisions may only be realized over the longer term, however. In particular, when calculated under CECL,
which became effective on January 1, 2020, our loan loss reserves are expected to increase materially because we expect the
life of loan defaults on our overall Private Education Loan portfolio to increase as a result of the planned changes to our credit
administrative practices. As we progress with the controlled testing program of the planned changes to our credit administration
practices, we expect to learn more about how our borrowers are reacting to these changes and, as we analyze such reactions,
will continue to refine our estimates of the impact of those changes on our allowance for loan losses.

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). Active repayment status includes loans on
which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest
repayment status after any applicable grace period. Our experience shows that the percentage of loans in forbearance status
generally decreases the longer the loans have been in active repayment status. At December 31, 2019, loans in forbearance
status as a percentage of total Private Education Loans in repayment and forbearance were 2.9 percent for Private Education
Loans that have been in active repayment status for fewer than 25 months. Approximately 70 percent of our Private Education
Loans in forbearance status have been in active repayment status less than 25 months.

(Dollars in millions)
December 31, 2019
Loans in-school/grace/deferment . . . .
Loans in forbearance. . . . . . . . . . . . . .
Loans in repayment - current . . . . . . .

Loans in repayment - delinquent
31-60 days. . . . . . . . . . . . . . . . . . . . . .

Loans in repayment - delinquent
61-90 days. . . . . . . . . . . . . . . . . . . . . .
Loans in repayment - delinquent
greater than 90 days . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred origination costs and
unamortized premium/(discount) . . . .
Allowance for loan losses . . . . . . . . . .
Total Private Education Loans, net . . .

Loans in forbearance as a percentage
of total Private Education Loans in
repayment and forbearance. . . . . . . . .

(Dollars in millions)
December 31, 2018
Loans in-school/grace/deferment . . . .
Loans in forbearance. . . . . . . . . . . . . .
Loans in repayment - current . . . . . . .

Loans in repayment - delinquent
31-60 days. . . . . . . . . . . . . . . . . . . . . .

Deferred origination costs and
unamortized premium/(discount) . . . .
Allowance for loan losses . . . . . . . . . .
Total Private Education Loans, net . . .

Loans in forbearance as a percentage
of total Private Education Loans in
repayment and forbearance. . . . . . . . .

Private Education Loans Monthly Scheduled Payments Due

0 to 12

13 to 24

25 to 36

37 to 48

More than
48

— $
402
4,769

— $
97
3,817

— $
79
2,752

— $
65
2,093

— $
72
2,885

Not Yet in
Repayment
5,687
—
—

Total
5,687
715
16,316

108

—

288

121

25
5,352

13
$ 4,004

9
2,903

7
2,214

9
$ 3,030

—
5,687

63
23,190

81
(374)
$ 22,897

2.30%

0.55%

0.45%

0.37%

0.41%

—%

4.08%

Private Education Loans Monthly Scheduled Payments Due

0 to 12

13 to 24

25 to 36

37 to 48

More than
48

— $
338
4,477

— $
75
3,333

— $
66
2,615

— $
52
1,897

— $
46
1,968

Not Yet in
Repayment
5,260
—
—

Total
5,260
577
14,290

—

231

21
4,969

11
$ 3,481

8
2,742

5
1,991

6
$ 2,061

—
5,260

51
20,504

69
(278)
$ 20,295

2.22%

0.49%

0.44%

0.34%

0.30%

—%

3.79%

(Dollars in millions)
December 31, 2017
Loans in-school/grace/deferment. . . . .
Loans in forbearance . . . . . . . . . . . . . .
Loans in repayment - current. . . . . . . .

Loans in repayment - delinquent
31-60 days . . . . . . . . . . . . . . . . . . . . . .

Loans in repayment - delinquent
61-90 days . . . . . . . . . . . . . . . . . . . . . .
Loans in repayment - delinquent
greater than 90 days . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred origination costs and
unamortized premium/(discount). . . . .
Allowance for loan losses . . . . . . . . . .
Total Private Education Loans, net . . .

Loans in forbearance as a percentage
of total Private Education Loans in
repayment and forbearance . . . . . . . . .

Private Education Loans Monthly Scheduled Payments Due

0 to 12

13 to 24

25 to 36

37 to 48

More than
48

— $
272
3,855

— $
74
3,095

— $
58
2,326

— $
36
1,436

— $
28
1,199

Not Yet in
Repayment
4,758
—
—

Total
4,758
468
11,911

—

179

17
4,257

8
3,229

5
2,429

4
1,502

4
1,257

—
4,758

38
17,432

57
(244)
$ 17,245

2.15%

0.58%

0.46%

0.29%

0.22%

—%

3.70%

Private Education Loan Types

The following table provides information regarding the loans in repayment balance and total loan balance by Private

Education Loan product type for the years ended December 31, 2019 and 2018.

(Dollars in thousands
$ in repayment(1) . . . . . . .
$ in total . . . . . . . . . . . . . .

Signature and
Other

Parent Loan

Smart Option

Career
Training

Graduate
Loan

Total

205,203

341,919

248,662

251,104

15,928,942

21,951,654

12,394

12,895

392,469

632,019

16,787,670

23,189,591

December 31, 2019

December 31, 2018

Signature and
Other

Parent Loan

Smart Option

Career
Training

Graduate
Loan

Total

185,795

333,222

175,885

177,750

14,180,350

19,801,184

12,777

13,272

112,049

179,037

14,666,856

20,504,465

(Dollars in thousands
$ in repayment(1) . . . . . . .
$ in total . . . . . . . . . . . . . .

_______

(1)

Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans

that have entered full principal and interest repayment status after any applicable grace period.

Accrued Interest Receivable

The following table provides information regarding accrued interest receivable on our Private Education Loans. The table

also discloses the amount of accrued interest on loans greater than 90 days past due as compared to our allowance for
uncollectible interest. The majority of the total accrued interest receivable represents accrued interest on deferred loans where
no payments are due while the borrower is in school and fixed-pay loans where the borrower makes a $25 monthly payment
that is smaller than the interest accruing on that loan in that month. The accrued interest on these loans will be capitalized
against the balance of the loans when the borrower exits the grace period upon separation from school. The allowance for
uncollectible interest exceeds the amount of accrued interest on our 90 days past due portfolio for all periods presented.

(Dollars in thousands)
December 31, 2019. . . . . . . . . . . .
December 31, 2018. . . . . . . . . . . .
December 31, 2017. . . . . . . . . . . .
December 31, 2016. . . . . . . . . . . .
December 31, 2015. . . . . . . . . . . .

Private Education Loans
Accrued Interest Receivable
Greater Than
90 Days
Past Due

Allowance for
Uncollectible
Interest

Total Interest
Receivable

$
$
$
$
$

1,366,158
1,168,823
951,138
739,847
542,919

$
$
$
$
$

2,390
1,920
1,372
845
791

$
$
$
$
$

5,309
6,322
4,664
2,898
3,332

Personal Loan Delinquencies

The following table provides information regarding the loan status of our Personal Loans.

Personal Loans

December 31,

2019

2018

(Dollars in thousands)

Balance

Loans in repayment and percentage of each status:

Loans current . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans delinquent 31-60 days(1) . . . . . . . . . . . . . .
Loans delinquent 61-90 days(1) . . . . . . . . . . . . . .
Loans delinquent greater than 90 days(1) . . . . . . .

$ 1,023,517

97.6% $ 1,172,776

98.5%

9,435

7,172

8,883

0.9

0.7

0.8

6,722

5,416

5,177

0.6

0.5

0.4

Total Personal Loans in repayment . . . . . . . . . . . .

1,049,007

100.0%

1,190,091

100.0%

Total Personal Loans, gross . . . . . . . . . . . . . . . . . . .

1,049,007

1,190,091

Personal Loans deferred origination costs and
unamortized premium/(discount) . . . . . . . . . . . . . . .

513

Total Personal Loans . . . . . . . . . . . . . . . . . . . . . . . .

1,049,520

Personal Loans allowance for losses . . . . . . . . . . . .

(65,877)

297

1,190,388

(62,201)

Personal Loans, net . . . . . . . . . . . . . . . . . . . . . . . . .

983,643

$ 1,128,187

Delinquencies as a percentage of Personal Loans
in repayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

_______

2.4%

1.5%

(1)

The period of delinquency is based on the number of days scheduled payments are contractually past due.

Liquidity and Capital Resources

Funding and Liquidity Risk Management

Our primary liquidity needs include our ongoing ability to fund our businesses throughout market cycles, including
during periods of financial stress, our ongoing ability to fund originations of Private Education Loans and other loans and
servicing our Bank deposits. To achieve these objectives, we analyze and monitor our liquidity needs, maintain excess liquidity
and access diverse funding sources, such as deposits at the Bank, issuance of secured debt primarily through asset-backed
securitizations and other financing facilities. It is our policy to manage operations so liquidity needs are fully satisfied through
normal operations to avoid unplanned asset sales under emergency conditions. Our liquidity management is governed by
policies approved by our Board of Directors. Oversight of these policies is performed in the Asset and Liability Committee, a
management-level committee.

These policies take into account the volatility of cash flow forecasts, expected maturities, anticipated loan demand and a

variety of other factors to establish minimum liquidity guidelines.

Key risks associated with our liquidity relate to our ability to access the capital markets and the markets for bank deposits

at reasonable rates. This ability may be affected by our performance, competitive pressures, the macroeconomic environment,
and the impact they have on the availability of funding sources in the marketplace. We target maintaining sufficient on-balance
sheet and contingent sources of liquidity to enable us to meet all contractual and contingent obligations under various stress
scenarios, including severe macroeconomic stresses as well as specific stresses that test the resiliency of our balance sheet. As
the Bank has grown, we have improved our liquidity stress testing practices to align more closely with the industry, which has
resulted in our adopting increased liquidity requirements. Beginning in the second quarter of 2019, we began to increase our
liquidity levels by increasing cash and cash equivalents and investments held as part of our ongoing efforts to enhance our
ability to maintain a strong risk management position. We expect to increase liquidity levels into 2020, and as such, we expect
the increased proportion of cash in our assets will cause our net interest margin to be lower in 2020 when compared with 2019.
Due to the seasonal nature of our business, our liquidity levels will likely vary from quarter to quarter.

Sources of Liquidity and Available Capacity

Ending Balances

(Dollars in thousands)
Sources of primary liquidity:
Unrestricted cash and liquid investments:

2019

December 31,
2018

2017

Holding Company and other non-bank subsidiaries . . . .
Sallie Mae Bank(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale investments . . . . . . . . . . . . . . . . . . . .
Total unrestricted cash and liquid investments . . . . . . . . .

29,620
5,534,257
487,668
6,051,545

25,990
2,533,116
176,245
$ 2,735,351

17,723
1,516,616
244,088
$ 1,778,427

____
(1) This amount will be used primarily to originate Private Education Loans at the Bank.

Average Balances

(Dollars in thousands)
Sources of primary liquidity:
Unrestricted cash and liquid investments:

Years Ended December 31,

2019

2018

2017

Holding Company and other non-bank subsidiaries . . .
Sallie Mae Bank(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale investments. . . . . . . . . . . . . . . . . . . .
Total unrestricted cash and liquid investments. . . . . . . . .

38,705
3,455,216
323,930
$ 3,817,851

22,570
1,677,922
201,937
$ 1,902,429

24,892
1,317,147
227,322
$ 1,569,361

____
(1) This amount will be used primarily to originate Private Education Loans at the Bank.

Deposits

The following table summarizes total deposits.

(Dollars in thousands)
Deposits - interest bearing . . . . . . . . . . . . . . . . . . . .
Deposits - non-interest bearing . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2019
24,282,906
1,077
24,283,983

2018
18,942,082
1,076
18,943,158

Our total deposits of $24.3 billion were comprised of $13.8 billion in brokered deposits and $10.5 billion in retail and

other deposits at December 31, 2019, compared with total deposits of $18.9 billion, which were comprised of $10.3 billion in
brokered deposits and $8.6 billion in retail and other deposits, at December 31, 2018.

Interest bearing deposits as of December 31, 2019 and 2018 consisted of retail and brokered non-maturity savings
deposits, retail and brokered non-maturity money market deposit accounts (“MMDAs”) and retail and brokered CDs. Interest
bearing deposits include deposits from Educational 529 and Health Savings plans that diversify our funding sources and add
deposits we consider to be core. These and other large omnibus accounts, aggregating the deposits of many individual
depositors, represented $6.8 billion of our deposit total as of December 31, 2019, compared with $5.9 billion at December 31,
2018.

Some of our deposit products are serviced by third-party providers. Placement fees associated with the brokered CDs are
amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $18 million,
$13 million, and $9 million in the years ended December 31, 2019, 2018 and 2017, respectively. Fees paid to third-party
brokers related to brokered CDs were $28 million, $26 million, and $12 million during the years ended December 31, 2019,
2018 and 2017, respectively.

Interest bearing deposits at December 31, 2019 and 2018 are summarized as follows:

December 31, 2019

December 31, 2018

(Dollars in thousands)

Amount

Year-End
Weighted
Average Stated
Rate(1)

Amount

Year-End
Weighted
Average Stated
Rate(1)

Money market . . . . . . . . . . . . . . . . . . . . . .

9,616,547

2.04% $

8,687,766

Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . .

718,616

Certificates of deposit . . . . . . . . . . . . . . . .

13,947,743

1.71

2.44

702,342

9,551,974

2.46%

2.00

2.74

Deposits - interest bearing. . . . . . . . . . . .

$ 24,282,906

18,942,082

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

As of December 31, 2019 and 2018, there were $963 million and $523 million, respectively, of deposits exceeding FDIC

insurance limits. Accrued interest on deposits was $68 million and $53 million at December 31, 2019 and 2018, respectively.

Counterparty Exposure

Counterparty exposure related to financial instruments arises from the risk that a lending, investment or derivative

counterparty will not be able to meet its obligations to us.

Excess cash is generally invested with the FRB on an overnight basis or in the FRB’s Term Deposit Facility, minimizing

counterparty exposure on cash balances.

Our investment portfolio is primarily comprised of a small portfolio of mortgage-backed securities issued by government

agencies and government-sponsored enterprises that are purchased to meet CRA targets. Additionally, our investing activity is
governed by Board-approved limits on the amount that is allowed to be invested with any one issuer based on the credit rating
of the issuer, further minimizing our counterparty exposure. Counterparty credit risk is considered when valuing investments
and considering impairment.

Related to derivative transactions, protection against counterparty risk is generally provided by International Swaps and

Derivatives Association, Inc. Credit Support Annexes (“CSAs”), or clearinghouses for over-the-counter derivatives. CSAs
require a counterparty to post collateral if a potential default would expose the other party to a loss. All derivative contracts
entered into by the Bank are covered under CSAs or clearinghouse agreements and require collateral to be exchanged based on
the net fair value of derivatives with each counterparty. Our exposure is limited to the value of the derivative contracts in a gain
position, less any collateral held by us and plus collateral posted with the counterparty.

Title VII of the Dodd-Frank Act requires all standardized derivatives, including most interest rate swaps, to be submitted
for clearing to central counterparties to reduce counterparty risk. Two of the central counterparties we use are the CME and the
LCH. All variation margin payments on derivatives cleared through the CME and LCH are accounted for as legal settlement. As
of December 31, 2019, $9.4 billion notional of our derivative contracts were cleared on the CME and $0.5 billion were cleared
on the LCH. The derivative contracts cleared through the CME and LCH represent 95.0 percent and 5.0 percent, respectively, of
our total notional derivative contracts of $9.9 billion at December 31, 2019.

For derivatives cleared through the CME and LCH, the net gain (loss) position includes the variation margin amounts as
settlement of the derivative and not collateral against the fair value of the derivative. The amount of variation margin included
as settlement as of December 31, 2019 was $(107) million and $8 million for the CME and LCH, respectively. Changes in fair
value for derivatives not designated as hedging instruments will be presented as realized gains (losses).

Our exposure is limited to the value of the derivative contracts in a gain position less any collateral held and plus any

collateral posted. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At

December 31, 2019 and December 31, 2018, we had a net positive exposure (derivative gain positions to us, less collateral held
by us and plus collateral posted with counterparties) related to derivatives of $52 million and $27 million, respectively.

We have liquidity exposure related to collateral movements between us and our derivative counterparties. Movements in

the value of the derivatives, which are primarily affected by changes in interest rates, may require us to return cash collateral
held or may require us to access primary liquidity to post collateral to counterparties.

The table below highlights exposure related to our derivative counterparties as of December 31, 2019.

(Dollars in thousands)

Total exposure, net of collateral

Exposure to counterparties with credit ratings, net of
collateral

Percent of exposure to counterparties with credit ratings
below S&P AA- or Moody’s Aa3

Percent of exposure to counterparties with credit ratings
below S&P A- or Moody’s A3

SLM Corporation
and Sallie Mae Bank
Contracts

52,115

—%

Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by federal and state banking authorities.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material adverse effect on our business, results of operations and financial
condition. Under U.S. Basel III and the regulatory framework for prompt corrective action, the Bank must meet specific capital
standards that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank’s capital amounts and its classification under the prompt corrective action framework
are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors. The
following capital amounts and ratios are based upon the Bank’s average assets and risk-weighted assets, as indicated.

(Dollars in thousands)
As of December 31, 2019:

Common Equity Tier 1 Capital (to Risk-Weighted Assets) . . .

Tier 1 Capital (to Risk-Weighted Assets) . . . . . . . . . . . . . . . . .

Total Capital (to Risk-Weighted Assets). . . . . . . . . . . . . . . . . .

Tier 1 Capital (to Average Assets) . . . . . . . . . . . . . . . . . . . . . .

As of December 31, 2018:

Common Equity Tier 1 Capital (to Risk-Weighted Assets) . . .

Tier 1 Capital (to Risk-Weighted Assets) . . . . . . . . . . . . . . . . .

Total Capital (to Risk-Weighted Assets). . . . . . . . . . . . . . . . . .

Tier 1 Capital (to Average Assets) . . . . . . . . . . . . . . . . . . . . . .

Actual

U.S. Basel III
Minimum Requirements
Plus Buffer(1)(2)

Amount

Ratio

Amount

Ratio

3,264,309

3,600,668

3,264,309

2,896,091

3,196,279

2,896,091

12.2%

13.4%

10.2%

12.1%

13.3%

11.1%

$ 1,876,050 >

$ 2,278,060 >

$ 2,814,074 >

$ 1,282,642 >

$ 1,528,209 >

$ 1,887,787 >

$ 2,367,226 >

$ 1,039,226 >

7.0%

8.5%

10.5%

4.0%

6.375%

7.875%

9.875%

4.0%

________________

(1)
(2)

Reflects the U.S. Basel III minimum required ratio plus the applicable capital conservation buffer.
The Bank’s regulatory capital ratios also exceeded all applicable standards for the Bank to qualify as “well
capitalized” under the prompt corrective action framework.

Capital Management

The Bank intends to maintain at all times regulatory capital levels that meet both the minimum levels required under U.S.

Basel III (including applicable buffers) and the levels necessary to be considered “well capitalized” under the FDIC’s prompt
corrective action framework, in order to support asset growth and operating needs, address unexpected credit risks and protect
the interests of depositors and the DIF administered by the FDIC. The Bank’s Capital Policy requires management to monitor
these capital standards and the Bank’s compliance with them. The Board of Directors and management periodically evaluate the
quality of assets, the stability of earnings, and the adequacy of the allowance for loan losses for the Bank. The Company is a
source of strength for the Bank and will provide additional capital if necessary.

We believe that current and projected capital levels are appropriate for the remainder of 2020. As of December 31, 2019,
the Bank’s risk-based and leverage capital ratios exceed the required minimum ratios and the applicable buffers under the fully
phased-in U.S. Basel III standards as well as the “well capitalized” standards under the prompt corrective action framework.

Under U.S. Basel III, the Bank is required to maintain the following minimum regulatory capital ratios: a Common

Equity Tier 1 risk-based capital ratio of 4.5 percent, a Tier 1 risk-based capital ratio of 6.0 percent, a Total risk-based capital
ratio of 8.0 percent, and a Tier 1 leverage ratio of 4.0 percent. In addition, as of January 1, 2019, the Bank is subject to a fully
phased-in Common Equity Tier 1 capital conservation buffer of greater than 2.5 percent. (As of December 31, 2018, the Bank
was subject to a Common Equity Tier 1 capital conservation buffer of greater than 1.875 percent.) Failure to maintain the buffer
will result in restrictions on the Bank’s ability to make capital distributions, including the payment of dividends, and to pay
discretionary bonuses to executive officers.

As of December 31, 2019, the Bank had a Common Equity Tier 1 risk-based capital ratio and a Tier 1 risk-based capital
ratio of 12.2 percent, a Total risk-based capital ratio of 13.4 percent and a Tier 1 leverage ratio of 10.2 percent, which exceed
the capital levels required under U.S. Basel III and the “well capitalized” standard.

Dividends

The Bank is chartered under the laws of the State of Utah and its deposits are insured by the FDIC. The 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, the Bank may pay dividends to the Company from its net profits without regulatory
approval if, following the payment of the dividend, the Bank’s capital and surplus would not be impaired. The Bank declared
$254 million in dividends for the year ended December 31, 2019, with the proceeds primarily used to fund the 2019 Share
Repurchase Program and stock dividends. The Bank paid no dividends on its common stock for the years ended December 31,
2018 and 2017. See Part I, Item 1. “Business — Supervision and Regulation — Regulation of Sallie Mae Bank — Dividends,”
regarding the expectation that the Bank will pay dividends to the Company as may be necessary to enable the Company to pay
any declared dividends on its Series B Preferred Stock and common stock and to consummate any common share repurchases
by the Company under the share repurchase programs. See also Part I, Item 1A. “Risk Factors — Risks Related to Our
Securities” for possible limitations on the payments of our dividends.

Borrowings

Outstanding borrowings consist of unsecured debt and secured borrowings issued through our term ABS program and our

Secured Borrowing Facility (which was previously called the asset-backed commercial paper facility or ABCP Facility). The
issuing entities for those secured borrowings are variable interest entities and are consolidated for accounting purposes. The
following table summarizes our secured borrowings at December 31, 2019 and 2018. For additional information, see Notes to
Consolidated Financial Statements, Note 9, “Borrowings.”

(Dollars in thousands)

Unsecured borrowings:

December 31, 2019

December 31, 2018

Short-Term

Long-Term

Total

Short-Term

Long-Term

Total

Unsecured debt (fixed-rate) . . . . . . . .

— $

198,159

— $

197,348

Total unsecured borrowings . . . . . . . .

—

198,159

—

197,348

Secured borrowings:

Private Education Loan term
securitizations:

Fixed-rate . . . . . . . . . . . . . . . . . . . . .

Variable-rate . . . . . . . . . . . . . . . . . . .

Total Private Education Loan term
securitizations . . . . . . . . . . . . . . . . . . .

Secured Borrowing Facility . . . . . . . .

Total secured borrowings . . . . . . . . . .

—

289,230

2,629,902

1,525,976

4,155,878

—

4,155,878

2,629,902

1,525,976

4,155,878

289,230

4,445,108

—

2,284,347

1,802,609

2,284,347

1,802,609

4,086,956

—

4,086,956

Total . . . . . . . . . . . . . . . . . . . . . . . . . .

289,230

4,354,037

4,643,267

— $

4,284,304

Short-term borrowings

On February 20, 2019, we amended and extended the maturity of our Secured Borrowing Facility. On February 19, 2020,

we amended our Secured Borrowing Facility to, among other things, increase the amount that can be borrowed under the
facility to $2 billion (from $750 million) and extend the maturity of the facility. We hold 100 percent of the residual interest in
the Secured Borrowing Facility trust. Under the amended Secured Borrowing Facility, we incur financing costs on unused
borrowing capacity and on outstandings. The amended Secured Borrowing Facility extended the revolving period, during which
we may borrow, repay and reborrow funds, until February 17, 2021. The scheduled amortization period, during which amounts
outstanding under the Secured Borrowing Facility must be repaid, ends on February 17, 2022 (or earlier, if certain material
adverse events occur). At December 31, 2019, $289 million secured borrowings were outstanding under the Secured Borrowing
Facility and at December 31, 2018, there were no secured borrowings outstanding under the Secured Borrowing Facility. For
additional information, see Notes to Consolidated Financial Statements, Note 9, “Borrowings” and Note 23, “Subsequent
Events.”

Short-term borrowings have a remaining term to maturity of one year or less. The Secured Borrowing Facility’s

contractual maturity is two years from the date of inception or renewal (one-year revolving period plus a one-year amortization
period); however, we classify advances under our Secured Borrowing Facility as short-term borrowings because it is our
intention to repay those advances within one year.

Long-term borrowings

Unsecured Debt

On April 5, 2017, we issued an unsecured debt offering of $200 million of 5.125 percent Senior Notes due April 5, 2022

at par. At December 31, 2019, the outstanding balance was $198 million.

Secured Financings

2019 Transactions

On March 13, 2019, we executed our $453 million SMB Private Education Loan Trust 2019-A term ABS transaction,

which was accounted for as a secured financing. We sold $453 million of notes to third parties and retained a 100 percent
interest in the residual certificates issued in the securitization, raising approximately $451 million of gross proceeds. The Class
A and Class B notes had a weighted average life of 4.26 years and priced at a weighted average LIBOR equivalent cost of 1-
month LIBOR plus 0.92 percent. At December 31, 2019, $445 million of our Private Education Loans, including $417 million
of principal and $28 million in capitalized interest, were encumbered because of this transaction.

On June 12, 2019, we executed our $657 million SMB Private Education Loan Trust 2019-B term ABS transaction,
which was accounted for as a secured financing. We sold $657 million of notes to third parties and retained a 100 percent
interest in the residual certificates issued in the securitization, raising approximately $655 million of gross proceeds. The Class
A and Class B notes had a weighted average life of 4.41 years and priced at a weighted average LIBOR equivalent cost of 1-
month LIBOR plus 1.01 percent. At December 31, 2019, $666 million of our Private Education Loans, including $625 million
of principal and $41 million in capitalized interest, were encumbered because of this transaction.

2018 Transactions

On March 21, 2018, we executed our $670 million SMB Private Education Loan Trust 2018-A term ABS transaction,

which was accounted for as a secured financing. We sold $670 million of notes to third parties and retained a 100 percent
interest in the residual certificates issued in the securitization, raising approximately $668 million of gross proceeds. The Class
A and Class B notes had a weighted average life of 4.43 years and priced at a weighted average LIBOR equivalent cost of 1-
month LIBOR plus 0.78 percent. At December 31, 2019, $588 million of our Private Education Loans, including $553 million
of principal and $35 million in capitalized interest, were encumbered because of this transaction.

On June 20, 2018, we executed our $687 million SMB Private Education Loan Trust 2018-B term ABS transaction,
which was accounted for as a secured financing. We sold $687 million of notes to third parties and retained a 100 percent
interest in the residual certificates issued in the securitization, raising approximately $683 million of gross proceeds. The Class
A and Class B notes had a weighted average life of 4.40 years and priced at a weighted average LIBOR equivalent cost of 1-
month LIBOR plus 0.76 percent. At December 31, 2019, $623 million of our Private Education Loans, including $585 million
of principal and $38 million in capitalized interest, were encumbered because of this transaction.

On September 19, 2018, we executed our $544 million SMB Private Education Loan Trust 2018-C term ABS transaction,

which was accounted for as a secured financing. We sold $544 million of notes to third parties and retained a 100 percent
interest in the residual certificates issued in the securitization, raising approximately $541 million of gross proceeds. The Class
A and Class B notes had a weighted average life of 4.32 years and priced at a weighted average LIBOR equivalent cost of 1-
month LIBOR plus 0.77 percent. At December 31, 2019, $502 million of our Private Education Loans, including $471 million
of principal and $31 million in capitalized interest, were encumbered because of this transaction.

Pre-2018 Transactions

Prior to 2018, we executed a total of $3.9 billion in ABS transactions that were accounted for as secured financings. At

December 31, 2019, $2.7 billion of our Private Education Loans, including $2.6 billion of principal and $115 million in
capitalized interest, were encumbered as a result of these transactions.

Other Borrowing Sources

We maintain discretionary uncommitted Federal Funds lines of credit with various correspondent banks, which totaled

$125 million at December 31, 2019. The interest rate we are charged on these lines of credit is priced at Fed Funds plus a

spread at the time of borrowing, and is payable daily. We did not utilize these lines of credit in the years ended December 31,
2019 and 2018.

We established an account at the FRB to meet eligibility requirements for access to the Primary Credit borrowing facility

at the FRB’s Discount Window (the “Window”). The Primary Credit borrowing facility is a lending program available to
depository institutions that are in generally sound financial condition. All borrowings at the Window must be fully
collateralized. We can pledge asset-backed and mortgage-backed securities, as well as FFELP Loans and Private Education
Loans, to the FRB as collateral for borrowings at the Window. Generally, collateral value is assigned based on the estimated
fair value of the pledged assets. At December 31, 2019 and December 31, 2018, the value of our pledged collateral at the FRB
was $3.2 billion and $3.1 billion, respectively. The interest rate charged to us is the discount rate set by the FRB. We did not
utilize this facility in the years ended December 31, 2019 and 2018.

Contractual Loan Commitments

When we approve a Private Education Loan at the beginning of an academic year, that approval may cover the borrowing

for the entire academic year. As such, we do not always disburse the full amount of the loan at the time of such approval, but
instead have a commitment to fund a portion of the loan at a later date (usually at the start of the second semester or subsequent
trimesters). At December 31, 2019, we had $1.9 billion of outstanding contractual loan commitments which we expect to fund
during the remainder of the 2019/2020 academic year. At December 31, 2019, we had a $2 million reserve recorded in “Other
Liabilities” to cover expected losses that may occur during the one-year loss emergence period on these unfunded
commitments.

Contractual Cash Obligations

The following table provides a summary of our contractual principal obligations associated with long-term Bank deposits,

secured borrowings, unsecured debt, loan commitments and lease obligations at December 31, 2019.

1 Year
or Less

1 to 3
Years

3 to 5
Years

Over 5
Years

Total

(Dollars in thousands)
Long-term bank deposits(1)(2) . . . . . . . . .
Secured borrowings(3) . . . . . . . . . . . . . .

Unsecured debt . . . . . . . . . . . . . . . . . . .
Loan commitments(1) . . . . . . . . . . . . . . .

Lease obligations . . . . . . . . . . . . . . . . . .

6,633,498

$ 9,597,070

$ 2,518,520

99,128

$ 18,848,216

501,001

1,533,987

1,440,170

700,044

4,175,202

—

200,000

1,910,590

4,685

10,228

—

200,000

1,910,603

9,527

18,515

42,955

Total contractual cash obligations . . . . .

9,049,774

$ 11,341,298

$ 3,968,217

817,687

$ 25,176,976

____
(1) Interest obligations are either variable or fixed in nature.
(2) Excludes derivative market value adjustments of $5 million.
(3) Amounts reflect the contractual requirements of the Private Education Loan term securitizations, based on the expected paydown

of the underlying collateral.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated
financial statements, which have been prepared in accordance with GAAP. Notes to Consolidated Financial Statements, Note 2,
“Significant Accounting Policies” includes a summary of the significant accounting policies and methods used in the
preparation of our consolidated financial statements. The preparation of these financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income
and expenses during the reporting periods. Actual results may differ from these estimates under varying assumptions or
conditions. On a quarterly basis, management evaluates its estimates, particularly those that include the most difficult,
subjective or complex judgments and are often about matters that are inherently uncertain. The most significant judgments,
estimates and assumptions relate to the following critical accounting policies that are discussed in more detail below.

Allowance for Loan Losses

In determining the allowance for loan losses on our Private Education Loan non-TDR portfolio, we estimate the principal
amount of loans that will default over the next year (one year being the expected “loss emergence period,” which represents the
expected period between the first occurrence of an event likely to cause a loss on a loan and the date the loan is expected to be
charged off, taking into consideration account management practices that affect the timing of a loss, such as the usage of
forbearance) and how much we expect to recover over the same one-year period related to the defaulted amount. The expected
defaults less our expected recoveries adjusted for any qualitative factors (discussed below) equal the allowance related to this
portfolio. Our historical experience indicates that, on average, the time between the date that a customer experiences a default
causing event (i.e., the loss trigger event) and the date that we charge off the unrecoverable portion of that loan is one year.

In estimating both the non-TDR and TDR allowance amounts, we start with historical experience of customer
delinquency and default behavior. We make judgments about which historical period to start with and then make further
judgments about whether that historical experience is representative of future expectations and whether additional adjustments
may be needed to those historical default rates. We also take certain other qualitative factors into consideration when calculating
the allowance for loan losses. These qualitative factors include, but are not limited to, changes in the economic environment,
changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and
recovery practices not already included in the analysis, and the effect of other external factors, such as legal and regulatory
requirements, on the level of estimated credit losses.

Our non-TDR allowance for loan losses is estimated using an analysis of delinquent and current accounts. Our model is

used to estimate the likelihood that a loan receivable may progress through the various delinquency stages and ultimately
charge off (“roll rate analysis”). Once a charge-off forecast is estimated, a recovery assumption is included.

Our default strategies are focused on loans that are 30 to 120 days delinquent.

The roll rate analysis model is based upon actual historical collection experience using the 120 day charge-off default
aversion strategies. Once the quantitative calculation is performed, we review the adequacy of the allowance for loan losses and
determine if qualitative adjustments need to be considered.

Separately, for our TDR portfolio, we estimate an allowance amount sufficient to cover life-of-loan expected losses

Our TDR portfolio is comprised mostly of loans with interest rate reductions and forbearance usage greater than three
months during a 24-month period. All of our loans are collectively assessed for impairment, except for loans classified as TDRs
(where we conduct individual assessments of impairment). We modify the terms of loans for certain borrowers when we believe
such modifications may increase the ability and willingness of a borrower to make payments and thus increase the ultimate
overall amount collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate
reduction or an extended repayment plan. When we give a borrower facing financial difficulty an interest rate reduction, we
temporarily reduce the rate (currently to 4.0 percent) for a two-year period and, in the vast majority of cases, permanently
extend the final maturity of the loan. The combination of these two loan term changes helps reduce the monthly payment due

from the borrower and increases the likelihood the borrower will remain current during the interest rate modification period as
well as when the loan returns to its original contractual interest rate. Until the fourth quarter of 2017, we generally considered a
loan that was in full principal and interest repayment status which had received more than three months of forbearance in a 24-
month period to be a TDR; however, during the first nine months after a loan had entered full principal and interest repayment
status, we did not count up to the first six months of forbearance received during that period against the three-month policy
limit.

We now classify a loan as a TDR due to forbearance using a two-step process. The first step is to identify a loan that was

in full principal and interest repayment status and received more than three months of forbearance in a 24-month period;
however, during the first nine months after a loan had entered full principal and interest repayment status, we do not count up to
the first six months of forbearance received during that period against the three-month policy limit. The second step is to
evaluate the creditworthiness of the loan by examining its most recent refreshed FICO score. Loans that have met the criteria in
the first test and have a FICO score above a certain threshold (based on the most recent quarterly FICO score refresh) will not
be classified as TDRs. Loans that have met the criteria in the first test and have a FICO score under the threshold (based on the
most recent quarterly FICO score refresh) will be classified as TDRs.

A loan also becomes a TDR when it is modified to reduce the interest rate on the loan (regardless of when such

modification occurs and/or whether such interest rate reduction is temporary). Once a loan qualifies for TDR status, it remains a
TDR for allowance purposes for the remainder of its life.

The separate allowance estimates for our TDR and non-TDR portfolios are combined into our total allowance for Private
Education Loan losses. The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates
and assumptions that may be susceptible to significant changes. If actual future performance in delinquency, charge-offs or
recoveries is significantly different than estimated, this could materially affect our estimate of the allowance for loan losses and
the related provision for credit losses on our income statement.

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

We consider a loan to be delinquent 31 days after the last payment was contractually due. We use a model to estimate the
amount of uncollectible accrued interest on Private Education Loans and reserve for that amount against current period interest
income.

We maintain an allowance for Personal Loan losses and Credit Card loan losses at amounts sufficient to absorb probable
losses incurred in these portfolios at the reporting date based on a projection of estimated probable credit losses incurred in the
portfolio. In determining the allowance for loan losses on our Personal Loan and Credit Card portfolios that are not TDRs, we
estimate the principal amount of the loans that will default over the next twelve months (twelve months being the expected
period between a loss event and default) and how much we expect to recover over the same twelve-month period related to the
defaulted amounts. The expected defaults less our expected recoveries adjusted for any qualitative factors equal the allowance
related to this portfolio. At both December 31, 2019 and 2018, there were no Personal Loans or Credit Cards classified as
TDRs.

FFELP Loans are insured as to their principal and accrued interest in the event of default, subject to a risk-sharing level

based on the date of loan disbursement. These insurance obligations are supported by contractual rights against the United
States. For loans disbursed on or after July 1, 2006, we receive 97 percent reimbursement on all qualifying default claims. For
loans disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement. For loans disbursed prior
to October 1, 1993, we receive 100 percent reimbursement.

The allowance for FFELP Loan losses uses historical experience of customer default, behavior and a two-year loss

emergence period to estimate the credit losses incurred in the loan portfolio at the reporting date. We apply the default rate
projections, net of applicable risk sharing, to each category for the current period to perform our quantitative calculation. Once
the quantitative calculation is performed, we review the adequacy of the allowance for loan losses and determine if qualitative
adjustments need to be considered.

Derivative Accounting

The most significant judgments related to derivative accounting are: (1) concluding the derivative is an effective hedge
and qualifies for hedge accounting and (2) determining the fair value of certain derivatives and hedged items. To qualify for
hedge accounting, a derivative must be a highly effective hedge upon designation and on an ongoing basis. There are no “bright
line” tests on what is considered a highly effective hedge. We use a historical regression analysis to prove ongoing and
prospective hedge effectiveness. See the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies
— Fair Value Measurement” for significant judgments related to the valuation of derivatives. Although some of our valuations
are more judgmental than others, we compare the fair values of our derivatives that we calculate to those fair values provided
by our counterparties on a monthly basis. We view this as a critical control which helps validate these judgments. Any
significant differences with our counterparties are identified and resolved appropriately.

On July 1, 2018, we adopted FASB’s ASU No. 2017-12, “Derivatives and Hedging: Targeted Improvements to
Accounting for Hedging Activities,” which (a) improved the financial reporting of hedging relationships to better portray the
economic results of an entity’s risk management activities in its financial statements and (b) made certain targeted
improvements to simplify the application of the hedge accounting guidance. One of the key changes was that the standard
eliminated the separate measurement and reporting of hedge ineffectiveness. In accordance with the standard, certain provisions
were required to be applied on a modified retrospective basis, which requires a cumulative effect adjustment to accumulated
other comprehensive income with a corresponding adjustment to retained earnings as of the beginning of the fiscal year of
adoption, or January 1, 2018 in our case.

The accounting for derivative instruments requires that every derivative instrument, including certain derivative

instruments embedded in other contracts, be recorded on the balance sheet as either an asset or liability measured at fair value.
Our derivative instruments are classified and accounted for by us as fair value hedges, cash flow hedges, or trading hedges.

Fair Value Hedges

We generally use fair value hedges to offset the exposure to changes in fair value of a recognized fixed-rate liability. We

enter into interest rate swaps to economically convert fixed-rate liabilities into variable-rate liabilities. For fair value hedges, we
generally consider all components of the derivative’s gain and/or loss when assessing hedge effectiveness and generally hedge
changes in fair values due to interest rates. Under the new standard, for fair value hedges, the entire change in the fair value of
the hedging instrument included in the assessment of hedge effectiveness is recorded in the same line item in the consolidated
statements of income that is used to present the earnings effect of the hedged component of the hedged item. The timing of
recognition of the change in fair value of a hedging instrument included in the assessment of hedge effectiveness is the same as
prior to the adoption of ASU No. 2017-12.

Cash Flow Hedges

We use cash flow hedges to hedge the exposure to variability in cash flows of floating-rate liabilities. This strategy is used

primarily to minimize the exposure to volatility in cash flows from future changes in interest rates. In assessing hedge
effectiveness, generally all components of each derivative’s gains or losses are included in the assessment. We hedge exposure
to changes in cash flows due to changes in interest rates or total changes in cash flow. Under the new standard, for cash flow
hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is
recorded in other comprehensive income (loss). Those amounts are subsequently reclassified to earnings, in the same line item
in the consolidated statements of income as impacted by the hedged item, when the hedged item affects earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest

expense as interest payments are made on our variable-rate deposits. During the next twelve months, we estimate that
$5 million will be reclassified as an increase to interest expense.

Trading Activities

When derivative instruments do not qualify for hedge accounting treatment, they are accounted for at fair value with all

changes in fair value recorded through earnings. All of our derivative instruments entered into with maturities of less than three

years are economically hedging risk, but do not receive hedge accounting treatment. Trading derivatives also include any
hedges that originally received hedge accounting treatment, but lost hedge accounting treatment due to failed effectiveness
testing, as well as the activity of certain derivatives prior to those derivatives receiving hedge accounting treatment.

Cumulative effect of applying ASU No. 2017-12

As a result of the cumulative effect of applying the new hedging standard to our fair value hedges on July 1, 2018, we

recorded a $2 million basis increase to our hedged deposit balances with a corresponding increase to retained earnings of
approximately $0.8 million, net of taxes and a $3 million loss to “gains (losses) on derivatives and hedging activities, net” in
our consolidated statements of income to adjust the life-to-date ineffectiveness. To reflect the adoption of the new hedging
standard on our cash flow hedging relationships at July 1, 2018, we recorded a $0.2 million, net of taxes decrease to retained
earnings and a corresponding $0.3 million increase to accumulated other comprehensive income.

Recently Issued but Not Yet Adopted Accounting Pronouncements

ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial

Instruments”

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of

Credit Losses on Financial Instruments,” as amended by ASU No. 2019-04, “Codification Improvements to Topic 326,
Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” which will
become effective for us on January 1, 2020. This ASU eliminates the current accounting guidance for the recognition of credit
impairment. Under the new guidance, for all loans carried at amortized cost, upon loan origination we will be required to
measure our allowance for credit losses based on our estimate of all current expected credit losses over the remaining
contractual term of the assets. Updates to that estimate each period will be recorded through provision expense. The estimate of
credit losses must be based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU
does not mandate the use of any specific method for estimating credit loss, permitting companies to use judgment in selecting
the approach that is most appropriate in their circumstances. Upon adoption, a cumulative effect adjustment to retained earnings
will be recorded as of the beginning of the first reporting period in which the guidance is effective in an amount necessary to
adjust the allowance for credit losses to equal the current estimate of expected losses on financial assets held at that date.

We have evaluated the standard and completed our implementation efforts. We have identified the loss forecasting
approach and have built the loss models for our Private Education Loans, Personal Loans acquired from third-parties and those
originated organically, and for prepayments. For our Private Education Loan and Personal Loan portfolios, we will be using the
discounted cash flow approach to calculate our current expected credit losses. We will estimate the CECL allowance using
relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable
and supportable forecasts. We have determined that, for modeling current expected credit losses, we can reasonably estimate
expected losses that incorporate the current and forecasted economic conditions over a two-year period, after which the model
will immediately revert to our long-term historic loss rates. During the third and fourth quarters of 2019, we performed monthly
dry runs of our CECL solution to test the end-to-end implementation of the new solution. The loss and other models that will be
used in our CECL solution have been validated and approved to be used for the adoption of CECL. In the fourth quarter of
2019, we finalized and implemented the required governance and internal controls, completed our loss models for both Personal
Loans we originated and Credit Card receivables, and completed the testing and validation for all the models to be used to
implement CECL.

On January 1, 2020, we adopted CECL using the modified retrospective method and it will have a material impact on
how we record and report our financial condition and results of operations and on regulatory capital. Our first quarter 2020
financial results will reflect a transition adjustment that we estimate will increase the allowance for loan losses by
approximately $1.1 billion, increase the liability representing our off-balance sheet exposure for unfunded commitments by
approximately $115 million and increase our deferred tax asset by approximately $300 million, resulting in a cumulative effect
adjustment that reduces retained earnings by approximately $950 million. This transition adjustment is inclusive of qualitative
adjustments incorporated into our CECL allowance as necessary, to address any limitations in the models used.

Banking regulators have provided an optional three-year phase-in for the initial impact of adopting the new standard for
regulatory capital adequacy purposes. We have elected the three-year phase in option for the initial impact of adopting CECL
and we expect to meet or exceed all applicable regulatory capital levels.

Risk Management

Our Approach

Risk is inherent in our business activities and the specialized lending industry we serve. The ability of management to

anticipate, identify and remediate risk in a timely manner is critical to our continued success. Our enterprise risk management
(“ERM”) framework is designed to identify, remediate, control and report these risks and escalate as appropriate to the Board of
Directors or its designee.

Risk Oversight

Our Board of Directors oversees our overall strategic direction, including our risk management capability and

effectiveness. The Board of Directors has oversight of key policies as well as the risk management framework developed and
administered by the management team. We have a robust process to escalate to the Board meaningful departures from our risk
appetite statements. The Board of Directors oversees the continued development of the ERM program.

The Governance Framework

Our overall objective is to ensure all significant risks inherent in our business can be identified, remediated where
appropriate, controlled and reported. To this end, we have adopted the “three lines of defense” approach to governance.
Specifically, the business units form the “first line of defense” and are the “owners” of risks inherent in their business activities.
As the risk owner, the first line of defense is accountable for the day-to-day execution of risk and control policy and procedures
(including activities performed by third-party contractors). Our ERM and Compliance functions constitute the “second line of
defense” and provide oversight of the execution by the first line of defense. Rather than focusing on execution, the second line
of defense is accountable for the related policy and standards executed upon by the first line of defense. Finally, the Internal
Audit function comprises the “third line of defense.” The Internal Audit function provides opinions to the Board of Directors on
the effectiveness of the first and second lines of defense, as reflected in audit reports. The lines of defense distinctions
determine accountabilities; the ERM framework contains the processes and infrastructure necessary to deliver on those
accountabilities.

Enterprise Risk Management Policy and Framework

The ERM policy and risk appetite framework are designed to establish a stable risk and control environment across the

enterprise. The policy, which is approved by the Board of Directors, outlines the framework used to ensure that risk and control
issues across the enterprise are identified, remediated, controlled and reported. The ERM policy, the risk appetite framework
and the related policies and procedures constitute the core of the overall governance program. The framework is evolving to
reflect the product diversification efforts being undertaken by the Bank.

The risk appetite statements are at the core of the overall framework. The risk appetite statements establish the level of

risk we are willing to accept within each risk category, described below, in pursuit of our business objectives. Compliance with
our risk appetite is monitored using a set of performance metrics, with thresholds and limits, for each risk type. The Enterprise
Risk Committee (the “ERC”) provides oversight of the risk appetite framework with escalation to the Board of Directors, as
appropriate. Our Board of Directors approves the risk appetite framework annually and requires that management provide
ongoing updates on adherence to the framework.

Board of Directors Committee Structure

We have a robust Board of Directors committee structure that facilitates oversight, effective challenge and escalation of

risk and control issues.

Risk Committee. The Risk Committee was established to assist the Board of Directors in fulfilling its risk management
oversight responsibilities. Annually, the Risk Committee recommends the ERM policy and the risk appetite framework to the
Board of Directors for approval. The Risk Committee receives periodic updates on compliance with the framework from the
Chief Risk Officer (the “CRO”). The Risk Committee is the governing body for our diversification efforts.

Audit Committee. The Audit Committee is responsible for oversight of the Internal Audit function. Additionally, the

Audit Committee oversees the quality and integrity of our financial reporting process and financial statements; the
qualifications, hiring, performance and independence of our independent registered accounting firm; and our system of internal
controls.

Nominations, Governance and Compensation Committee. The Nominations, Governance and Compensation Committee,

among other things: (1) periodically reviews management’s succession planning; (2) confirms our compensation practices
properly balance risk and reward and do not promote excessive risk-taking; (3) implements good governance policies for us and
our Board of Directors; (4) approves all compensation and benefits for our Chief Executive Officer, Executive Vice Presidents,
and independent members of our Board of Directors; (5) approves our equity-based compensation plans and management’s
administration of employee benefit plans; (6) reviews related party transactions; (7) conducts assessments of the performance of
our Board of Directors and its committees; and (8) recommends nominees for election to our Board of Directors.

Preferred Stock Committee. The Preferred Stock Committee monitors and evaluates proposed actions that may impact

the rights of holders of our preferred stock.

Strategic Planning Committee. The purpose of the Strategic Planning Committee is to engage the Chief Executive Officer

and senior management in the strategic planning process, to exchange information and ideas in order to develop proposals
regarding our long-term strategic agenda initiatives, and to report on such proposals to our Board of Directors.

Compliance Committee. The purpose of the Compliance Committee of the Board of Directors of the Bank is to assist the

Board of Directors in: (1) overseeing the continuing maintenance and enhancement of a strong and sustainable compliance
culture; (2) providing oversight of the compliance management system; (3) approving sound policies and objectives and
effectively supervising all compliance - related activities; (4) ensuring that the Bank has a qualified Chief Compliance Officer
with sufficient authority, independence and resources to administer an effective compliance management system; (5) ensuring
our compliance with the Code of Business Conduct; and (6) exercising and performing all other duties and responsibilities
delegated to the Committee.

Management-Level Committee Structure

Enterprise Risk Committee. The ERC is authorized by the Risk Committee of the Board of Directors to provide

management oversight of compliance with the risk appetite framework. The ERC is the conduit from management to the Risk
Committee of the Board of Directors and provides for escalation in the instances of non-compliance with the framework.
Additionally, the ERC is authorized to create sub-committees to assist in the fulfillment of its oversight activities. During 2019,
we operated the following sub-committees:

Credit Committee. The Credit Committee is responsible for credit and counterparty risk, product pricing, and

credit and collections operations.

Operational Risk Committee (“ORC”). The ORC is the oversight body for risk related to inadequate or failed

internal processes, people and systems or from external events. It also reviews information technology risk, and
regulatory and legal risks.

Asset and Liability Committee (“ALCO”). ALCO is responsible for the strategy, processes and authorities with

which the Bank’s interest rate risk, liquidity and capital adequacy are managed.

Model Risk Management Committee (“MRMC”). The MRMC is responsible for the administration and

execution of the model risk management program, including policies and procedures.

Each of these standing sub-committees is comprised of subject matter experts from the senior management team and is

accountable to the ERC. Moreover, these sub-committees may be supported by steering or working groups, as appropriate.

Disclosure Committee. Our Disclosure Committee assists our Chief Executive Officer and Chief Financial Officer in their

review of periodic SEC reporting documents, earnings releases, investor materials and related disclosure policies and
procedures.

Compliance Committee. Our management-level Bank Compliance Committee is authorized by the Compliance

Committee of the Board of Directors of the Bank to oversee regulatory compliance risk management activities for the Bank and
its affiliates.

Internal Audit Risk Assessment

Internal Audit regularly monitors our various risk management and compliance efforts, identifies areas that may require
increased focus and resources, and reports significant control issues and recommendations to executive management and the
Audit Committee of the Board of Directors. Annually, Internal Audit performs an independent risk assessment to evaluate the
risk of all significant components of the Company and uses the results to develop their annual Internal Audit plan. Additionally,
Internal Audit performs selected reviews of both risk management and compliance functions, including key controls, processes
and systems, to assess the effectiveness of the overall risk management framework.

Risk Categories

Our ERM framework is designed to address the following risk categories:

Credit Risk. Credit risk is the risk to earnings or capital resulting from an obligor’s failure to meet the terms of any

contract with us or other failure to perform as agreed. Credit risk is found in all activities where success depends on
counterparty, issuer or borrower performance.

We have credit or counterparty risk exposure with borrowers and cosigners on loans we have made or purchased, the

various counterparties with whom we have entered into derivative contracts, and the various issuers with whom we make
investments. Credit and counterparty risks are overseen by the CRO, his staff and the Credit Committee. The CRO, as well as
the Chief Credit Officer of the Bank, report regularly to the Board of Directors.

The credit risk related to Private Education Loans is managed within a credit risk infrastructure that includes: (i) a well-

defined underwriting, asset quality and collection policy framework; (ii) an ongoing monitoring and review process of portfolio
composition and trends; (iii) assignment and management of credit authorities and responsibilities; and (iv) establishment of an
allowance for loan losses that covers estimated future losses based upon an analysis of portfolio metrics and economic factors.

Credit risk related to derivative contracts is managed by reviewing counterparties for credit strength on an ongoing basis

and through our credit policies, which place limits on the amount of exposure we may take with any one counterparty and
require collateral to secure the position. The credit and counterparty risk associated with derivatives is measured based on the
replacement cost should the counterparty with contracts in a gain position to us fail to perform under the terms of the contract.

Operational Risk. Operational risk is the risk to earnings resulting from inadequate or failed internal processes, people

and systems and third-party vendors, or from external events. Operational risk is pervasive in that it exists in all business lines,
functional units, legal entities and geographic locations, and it includes information technology risk, physical security risk on
tangible assets, as well as regulatory and legal risk.

Operational risk exposures are managed through a combination of first line of defense risk, and control activities and

second line of defense oversight. The ORC is the management committee responsible for operational risk, and it supports the
ERC in its oversight duties. The ORC is responsible for escalation to the ERC, as appropriate. Additionally, operational risk
metrics, thresholds and limits are included in the periodic reporting to the Risk Committee of the Board of Directors.

Legal Risk. Legal risk is the risk to earnings, capital or reputation manifested by claims made through the legal system

and may arise from a product, a transaction, a business relationship, property (real, personal or intellectual), conduct of an
employee or a change in law or regulation.

Primary ownership and responsibility for legal risk is placed with the first lines of defense, working with their legal
colleagues, to identify and manage their specific legal risks. Compliance supports these activities by providing extensive
training, monitoring and testing of the processes, policies and procedures utilized by the first lines of defense, maintaining
relevant legal and regulatory requirements, and working in close coordination with our Legal group. The ORC has oversight of
the establishment of standards related to our monitoring and control of legal risks, and the General Counsel reports regularly to
the Risk Committee of the Board of Directors.

Our Code of Business Conduct and the on-going training our employees receive in many compliance areas provide a
framework for our employees to conduct themselves with the highest integrity. We instill a risk-conscious culture through
communications, training, policies and procedures. We have strengthened the linkage between the management performance
process and individual compensation to encourage employees to work toward corporate-wide compliance goals.

Market Risk. Market risk is the risk to earnings or capital resulting from changes in market conditions, such as interest

rates, credit spreads or other volatilities. We are exposed to various types of market risk, in particular the risk of loss resulting
from interest rate risk, basis risk and other risks that arise through the management of our investment, debt and loan portfolios.
Market risk exposures are managed primarily through ALCO. These activities are closely tied to those related to the
management of our funding and liquidity risks. The Risk Committee of our Board of Directors periodically reviews and
approves the investment and asset and liability management policies and contingency funding plan developed and administered
by ALCO. The Chief Financial Officer provides reports to the Risk Committee of the Board of Directors on market risk
management.

Funding and Liquidity Risk. Funding and liquidity risk is the risk to earnings, capital or the conduct of our business

arising from the inability to meet our obligations when they become due without incurring unacceptable losses, such as the
inability to fund liability maturities and deposit withdrawals, or invest in future asset growth and business operations at
reasonable market rates, as well as the inability to fund Private Education Loan and other loan originations. Our primary
liquidity needs include our ongoing ability to: meet our funding needs through market cycles, including periods of financial
stress; manage the relative maturities of assets and liabilities on our balance sheet; fund disbursements of Private Education
Loans and other loans; and service our indebtedness and bank deposits. Ultimately, our funding and liquidity risk relates to our
ability to access the capital markets at reasonable rates and to maintain retail deposits and other funding sources through the
Bank, as well as our maintenance of a reserve of cash and unencumbered highly-liquid investment securities that may be
readily converted to cash if needed.

Our funding and liquidity risk activities are centralized within our Corporate Finance department, which is responsible for
developing and executing our funding strategy. We analyze and monitor our liquidity risk, maintain excess liquidity and access
diverse funding sources depending on current market conditions. Funding and liquidity risks are overseen and
recommendations approved primarily through ALCO. The Risk Committee of our Board of Directors is responsible for
periodically reviewing the funding and liquidity positions and contingency funding plan developed and administered by ALCO.

Reputational Risk. Reputational risk is the risk to shareholder value and growth trajectory from a negative perception,

whether true or not, of an organization by its key stakeholders, the changing expectations of its stakeholders and/or inadequate
internal coordination of business decisions. This could expose us to litigation, financial loss or other damage to our business or
brand.

Management proactively assesses and manages reputational risk. We have established our government relations function

to manage our review of and response to all formal inquiries from members of Congress, state legislators, and their staff, as
well as providing targeted messaging that reinforces our public policy goals. We review and consider reputational risk on
matters as diverse as the launch of new products and services, our credit underwriting activities and how we fund operations.
Our public relations, marketing and media teams continuously monitor print, electronic and social media to understand how we
are perceived; proactively address customer complaints; and endeavor to enhance the value of our corporate brand. Metrics
related to reputational risk are reported to and monitored by the ERC and the Risk Committee of the Board of Directors. Our
Legal, Government Relations and Compliance groups regularly meet and collaborate with our Media and Investor Relations
teams to provide more coordinated monitoring and management of our reputational risks.

Strategic Risk. Strategic risk is the risk to shareholder value and growth trajectory from adverse business decisions and/or

improper implementation of business strategies. Management must be able to develop and implement business strategies that
leverage the organization’s core competencies and are appropriately structured, resourced and executed. Oversight for this
strategic planning process is provided by the Strategic Planning Committee of the Board of Directors. Our performance, relative
to our annual business plan and our longer term strategic plan, is reviewed by management and the Strategic Planning
Committee of the Board of Directors.

Common Stock

Our shareholders have authorized the issuance of 1.125 billion shares of common stock (par value of $0.20). At
December 31, 2019, 421 million shares were issued and outstanding and 37 million shares were unissued but encumbered for
outstanding stock options, restricted stock, restricted stock units, performance stock units and dividend equivalent units for
employee compensation and remaining authority for stock-based compensation plans. See Notes to Consolidated Financial
Statements, Note 11, “Stockholders’ Equity” for additional details.

Arrangements with Navient Corporation

In connection with the Spin-Off, we entered into a Separation and Distribution Agreement. We also entered into various

other ancillary agreements with Navient to effect the Spin-Off and provide a framework for our relationship with Navient
thereafter, such as a transition services agreement, a tax sharing agreement, an employee matters agreement, a loan servicing
and administration agreement, a joint marketing agreement, a key services agreement, a data sharing agreement and a master
sublease agreement. The majority of these agreements are transitional in nature with most having terms that have expired or
will expire within the next one to two years.

We continue to have exposure to risks related to Navient’s creditworthiness. If we are unable to obtain indemnification

payments from Navient, our results of operations and financial condition could be materially and adversely affected.

We briefly summarize below some of the most significant agreements and relationships we continue to have with
Navient. For additional information regarding the Separation and Distribution Agreement and the other ancillary agreements,
see our Current Report on Form 8-K filed on May 2, 2014.

Separation and Distribution Agreement

The Separation and Distribution Agreement addresses, among other things, the following activities:

•

the obligation of each party to indemnify the other against liabilities retained or assumed by that party pursuant to the
Separation and Distribution Agreement and in connection with claims of third-parties;

the allocation among the parties of rights and obligations under insurance policies; and

•

the creation of a governance structure, including a separation oversight committee of representatives from us and
Navient, by which matters related to the separation and other transactions contemplated by the Separation and
Distribution Agreement will be monitored and managed.

The Separation and Distribution Agreement provides specific processes and procedures pursuant to which we may submit
claims for indemnification to Navient. If for any reason Navient is unable or unwilling to pay claims made against it, our costs,
operating expenses, cash flows and financial condition could be materially and adversely affected over time.

Indemnification Obligations

•

Navient is required to indemnify the Company and the Bank for any liabilities, costs or expenses they may incur
arising from any action or threatened action related to the servicing, operations and collections activities of pre-Spin-
Off SLM and its subsidiaries with respect to Private Education Loans and FFELP Loans that were assets of the Bank
or Navient at the time of the Spin-Off; provided that written notice was provided to Navient on or prior to April 30,
2017, the third anniversary date of the Spin-Off. Navient is not required to indemnify for changes in law or changes in
prior existing interpretations of law that occur on or after April 30, 2014.

Long-Term Arrangements

The loan servicing and administration agreement governs the terms by which Navient provides servicing, administration

and collection services for the Bank’s portfolio of FFELP Loans, as well as servicing history information with respect to Private
Education Loans previously serviced by Navient and access to certain promissory notes in Navient’s possession. The term of
the loan servicing and administration agreement has been extended to April 30, 2022.

The data sharing agreement provided us the right to obtain from Navient certain post-Spin-Off performance data relating

to Private Education Loans owned or serviced by Navient to support and facilitate ongoing underwriting, originations,
forecasting, performance and reserve analyses. The term of the data sharing agreement expired on April 29, 2019, however.

The tax sharing agreement governs the respective rights, responsibilities and obligations of us and Navient after the Spin-
Off relating to taxes, including with respect to the payment of taxes, the preparation and filing of tax returns and the conduct of
tax contests. Under this agreement, each party is generally liable for taxes attributable to its business. The agreement also
addresses the allocation of tax liabilities that are incurred as a result of the Spin-Off and related transactions. Additionally, the
agreement restricts the parties from taking certain actions that could prevent the Spin-Off from qualifying for the anticipated tax
treatment.

Amended Loan Participation and Purchase Agreement

Prior to the Spin-Off, the Bank sold substantially all of its Private Education Loans to several former affiliates, now
subsidiaries of Navient (collectively, the “Purchasers”), pursuant to an Amended Loan Participation and Purchase Agreement.
The agreement predates the Spin-Off but was significantly amended and reduced in scope in connection with the Spin-Off.
Post-Spin-Off, the Bank retained only the right to require the Purchasers to purchase loans whose borrowers had a lending
relationship with both the Bank and Navient (“Split Loans”) (such purchases to be made at fair value) when the Split Loans

either (1) are more than 90 days past due; (2) have been restructured; (3) have been granted a hardship forbearance or more than
six months of administrative forbearance; or (4) have a borrower or cosigner who has filed for bankruptcy. In the second quarter
of 2018, we sold our remaining $43 million portfolio of Split Loans (both current and non-current loans) to Navient and
recognized a net gain of $2 million.

During the year ended December 31, 2017, the Bank sold loans to the Purchasers in the amount of $12 million in principal
and less than $1 million in accrued interest income. There was no gain or loss resulting from loans sold to the Purchasers in the
year ended December 31, 2017. Total write-downs to fair value for loans sold to the Purchasers with a fair value lower than par
totaled $5 million in the year ended December 31, 2017. Navient is the servicer for all of these loans.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity Analysis

Our interest rate risk management program seeks to manage and control interest rate risk, thereby reducing our exposure
to fluctuations in interest rates and achieving consistent and acceptable levels of profit in any rate environment, and sustainable
growth in net interest income over the long term. We evaluate and monitor interest rate risk through two primary methods:

• Earnings at Risk (“EAR”), which measures the impact of hypothetical changes in interest rates on net interest income;

and

• Economic Value of Equity (“EVE”), which measures the sensitivity or change in the economic value of equity to

changes in interest rates.

A number of potential interest rate scenarios are simulated using our asset liability management system. The Bank is the
primary source of interest rate risk within the Company. At present, a significant portion of the Bank’s earning assets are priced
off of 1-month LIBOR. Therefore, 1-month LIBOR is considered a core rate in our interest rate risk analysis. Other interest rate
changes are correlated to changes in 1-month LIBOR for analytic purposes, with higher or lower correlations based on
historical relationships. In addition, key rates are modeled with a floor, which indicates how low each specific rate is likely to
move in practice. Rates are adjusted up or down via a set of scenarios that includes both rate shocks and ramps. Rate shocks
represent an immediate and sustained change in 1-month LIBOR, with the resulting changes in other indices correlated
accordingly. Interest rate ramps represent a linear increase in 1-month LIBOR over the course of 12 months, with the resulting
changes in other indices correlated accordingly.

The following tables summarize the potential effect on earnings over the next 24 months and the potential effect on

market values of balance sheet assets and liabilities at December 31, 2019 and 2018, based upon a sensitivity analysis
performed by management assuming a hypothetical increase or decrease in market interest rates of 100 basis points and a
hypothetical increase in market interest rates of 300 basis points while funding spreads remain constant. The EVE sensitivity is
applied only to financial assets and liabilities, including hedging instruments, that existed at the balance sheet date, and does not
take into account new assets, liabilities, commitments or hedging instruments that may arise in the future.

At today’s levels of interest rates, a 300 basis point downward rate shock does not provide a meaningful indication of
interest rate sensitivity, so results for that scenario have not been presented. The results below indicate a market risk profile that
has changed slightly from the prior year’s results, with the EAR results exhibiting very low levels of variability with rate
shocks. Economic Value of Equity sensitivity has increased somewhat with the recent seasonal increase in fixed-rate loans, but
continues to exhibit a relatively low level of interest rate sensitivity. It is important to note that the EVE measure is very
sensitive to relatively low levels of interest rate sensitivity.

December 31,

2019

2018

+300 Basis
Points

+100 Basis
Points

-100 Basis
Points

+300 Basis
Points

+100 Basis
Points

-100 Basis
Points

EAR - Shock . . . . . . . .
EAR - Ramp . . . . . . . .
EVE . . . . . . . . . . . . . . .

+4.4 %
+3.8 %
-5.0 %

+1.4 %
+1.1 %
-1.9 %

-1.4 %
-0.9 %
+2.0 %

+6.8 %
+7.1 %
+1.6 %

+2.2 %
+2.1 %
+0.5 %

-2.2 %
-2.1 %
-0.4 %

A primary objective in our funding is to manage our sensitivity to changing interest rates by generally funding our assets
with liabilities of similar interest rate repricing characteristics. This funding objective is frequently obtained through the use of
derivatives. Uncertainty in loan repayment cash flows and the pricing behavior of our non-maturity retail deposits pose

challenges in achieving our interest rate risk objectives. In addition to these considerations, we can have a mismatch in the
index (including the frequency of reset) of floating-rate debt versus floating-rate assets.

As part of its suite of financial products, the Bank offers fixed-rate Private Education Loans. As with other Private
Education Loans, the term to maturity is lengthy, and the customer has the option to repay the loan faster than the promissory
note requires. Asset securitization and fixed-rate CDs provide intermediate to long-term fixed-rate funding for some of these
assets. Additionally, a portion of the fixed-rate loans have been hedged with derivatives, which have been used to convert a
portion of variable-rate funding to fixed-rate to match the anticipated cash flows of these loans. Any unhedged position arising
from the fixed-rate loan portfolio is monitored and modeled to ensure that the interest rate risk does not cause the Company to
exceed its policy limits for earnings at risk or for the value of equity at risk.

In the preceding tables, the interest rate sensitivity analysis reflects the balance sheet mix of fully variable LIBOR-based

loans, which exceeds the mix of fully variable funding, including brokered CDs that have been converted to LIBOR through
derivative transactions. The analysis does not anticipate that retail MMDAs or retail savings balances, while relatively sensitive
to interest rate changes, will reprice to the full extent of interest rate shocks or ramps. Also considered is (i) the impact of
FFELP loans, which receive floor income in low interest rate environments, and will therefore not reprice fully with interest
rate shocks and (ii) the impact of fixed-rate loans that have not been fully match-funded through derivative transactions and
fixed-rate funding from CDs and asset securitization. An additional consideration is the implementation of a loan cap of
25 percent on variable-rate loans originated on and after September 25, 2016. As of December 31, 2019, there were
$13.3 billion of loans with 25 percent interest rate caps on the balance sheet. The overall slightly asset-sensitive position would
generally cause net interest income to increase somewhat when interest rates rise and decrease somewhat when interest rates
fall. However, as the position demonstrates very low levels of variability, the sensitivity position will fluctuate somewhat during
the year, depending on the funding mix in place at the time of the analysis.

Although we believe that these measurements provide an estimate of our interest rate sensitivity, they do not account for
potential changes in credit quality, balance sheet mix and size of our balance sheet. They also do not account for other business
developments that could affect net income, or for management actions that could affect net income or could be taken to change
our risk profile. Accordingly, we can give no assurance that actual results would not differ materially from the estimated
outcomes of our simulations. Further, such simulations do not represent our current view of expected future interest rate
movements.

Asset and Liability Funding Gap

The table below presents our assets and liabilities (funding) arranged by underlying indices as of December 31, 2019. In
the following GAAP presentation, the funding gap only includes derivatives that qualify as effective hedges (those derivatives
which are reflected in net interest income, as opposed to those reflected in the “gains (losses) on derivatives and hedging
activities, net” line on the consolidated statements of income). The difference between the asset and the funding is the funding
gap for the specified index. This represents at a high level our exposure to interest rate risk in the form of basis risk and
repricing risk, which is the risk that the different indices may reset at different frequencies or may not move in the same
direction or at the same magnitude. (Note that all fixed-rate assets and liabilities are aggregated into one line item, which does
not capture the differences in time due to maturity.)

(Dollars in millions)
Index

Fed Funds Effective Rate . . .
3-month Treasury bill . . . . . .
Prime. . . . . . . . . . . . . . . . . . .
3-month LIBOR . . . . . . . . . .
1-month LIBOR . . . . . . . . . .
1-month LIBOR . . . . . . . . . .
Non-Discrete reset(2) . . . . . . .
Fixed-Rate(3) . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . .

______________________

Frequency of
Variable
Resets

daily/weekly/monthly
weekly
monthly
quarterly
monthly
daily
daily/weekly

Assets

— $

114.0
5.5
—
13,357.6
669.3
5,720.8
12,819.3
$ 32,686.5

Funding (1)
415.2
—
—
400.0
10,417.1
—
3,889.4
17,564.8
32,686.5

Funding
Gap

(415.2)
114.0
5.5
(400.0)
2,940.5
669.3
1,831.4
(4,745.5)
—

Funding (by index) includes all derivatives that qualify as effective hedges.

(1)
(2) Assets include restricted and unrestricted cash equivalents and other overnight type instruments.
Funding includes liquid retail deposits and the obligation to return cash collateral held related to
derivatives exposures.

(3) Assets include receivables and other assets (including premiums and reserves). Funding includes
unswapped time deposits, liquid MMDAs swapped to fixed rates and stockholders’ equity.

The “Funding Gap” in the above table shows primarily mismatches in the 1-month LIBOR (monthly), fixed-rate and
Non-Discrete reset categories. Changes in the Fed Funds Effective Rate, 3-month LIBOR and 1-month LIBOR daily categories
are generally quite highly correlated, and should offset each other effectively. The funding in the fixed-rate bucket includes
$2.9 billion of equity and $0.5 billion of non-interest bearing liabilities. In addition, the fixed-rate funding category includes
$1.3 billion in CDs that will mature within 3 months and will be available to reprice. We consider our overall risk to be low and
our strategies are designed to maintain low levels of market exposure.

We use interest rate swaps and other derivatives to achieve our risk management objectives. Our asset liability
management strategy is to match assets with debt (in combination with derivatives) that have the same underlying index and
reset frequency or have interest rate characteristics that we believe are highly correlated. The use of funding with index types
and reset frequencies that are different from our assets exposes us to interest rate risk in the form of basis and repricing risk.
This could result in our cost of funds not moving in the same direction or with the same magnitude as the yield on our assets.
While we believe this risk is low, as all of these indices are short-term with rate movements that are highly correlated over a
long period of time, market disruptions (which have occurred in recent years) can lead to a temporary divergence between
indices, resulting in a negative impact to our earnings.

Weighted Average Life

The following table reflects the weighted average lives of our earning assets and liabilities at December 31, 2019.

(Averages in Years)
Earning assets
Education loans. . . . . . . . . . . . . .
Personal Loans . . . . . . . . . . . . . .
Cash and investments . . . . . . . . .
Total earning assets . . . . . . . . . . .

Deposits
Short-term deposits . . . . . . . . . . .
Long-term deposits . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . .

Borrowings
Short-term borrowings(1). . . . . . .
Long-term borrowings . . . . . . . .
Total borrowings . . . . . . . . . . . . .

Weighted

Average

Life

5.36
1.33
0.25
4.20

0.49
2.38
1.13

0.93
4.02
3.83

____

(1) Weighted average life of short-term borrowings

assumes full contractual term for repayment
through February 19, 2021.

Item 8. Financial Statements and Supplementary Data

Reference is made to the financial statements listed under the heading “(a) 1.A. Financial Statements” of Item 15 hereof,

which financial statements are incorporated by reference in response to this Item 8.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Nothing to report.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the

effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2019. Based on this evaluation, our principal
executive officer and principal financial officer concluded that, as of December 31, 2019, our disclosure controls and
procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
forms and (b) accumulated and communicated to our management, including our principal executive officer and principal
financial officer as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as

defined in Rule 13a-15(f) under the Exchange Act). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control
over financial reporting as of December 31, 2019. In making this assessment, our management used the criteria established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our assessment and those criteria, management concluded that, as of December 31, 2019, our internal
control over financial reporting is effective.

KPMG LLP, an independent registered public accounting firm, audited the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2019, as stated in their report listed under the heading “(a) 1.A. Financial
Statements” of Item 15 hereof.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

During the fourth quarter of 2019, we implemented new credit loss models in advance of the adoption of FASB’s ASU
No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as
amended by ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815,
Derivatives and Hedging, and Topic 825, Financial Instruments,” which became effective for us on January 1, 2020. Changes
were made to relevant business processes and the related control activities, including information systems, in order to monitor
and maintain appropriate controls over financial reporting. See Part II, Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Recently Issued but Not Yet
Adopted Accounting Pronouncements” for additional details regarding our adoption of this new standard.

There have been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2019 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Nothing to report.

Item 10. Directors, Executive Officers and Corporate Governance

PART III.

The information contained in the 2020 Proxy Statement, including information appearing in the sections titled “Proposal

1 — Election of Directors,” “Executive Officers,” “Compensation Discussion and Analysis — Other Arrangements, Policies
and Practices Related to Executive Compensation Programs — Section 16(a) Beneficial Ownership Reporting Compliance,”
and “Corporate Governance” in the 2020 Proxy Statement, is incorporated herein by reference.

Item 11. Executive Compensation

The information contained in the 2020 Proxy Statement, including information appearing in the sections titled “Executive

Compensation” and “Director Compensation” in the 2020 Proxy Statement, is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information contained in the 2020 Proxy Statement, including information appearing in the sections titled “Equity

Compensation Plan Information,” “Ownership of Common Stock by 5 Percent or More Holders” and “Ownership of Common
Stock by Directors and Executive Officers” in the 2020 Proxy Statement, is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information contained in the 2020 Proxy Statement, including information appearing under “Corporate Governance

— Related Party Transactions” and “Corporate Governance — Director Independence” in the 2020 Proxy Statement, is
incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information contained in the 2020 Proxy Statement, including information appearing under “Independent Registered

Public Accounting Firm” in the 2020 Proxy Statement, is incorporated herein by reference.

Item 15. Exhibits, Financial Statement Schedules

PART IV.

(a) 1. Financial Statements

A. The following consolidated financial statements of SLM Corporation and the Report of the Independent Registered
Public Accounting Firm thereon are included in Item 8 above:

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017 . . . .
Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 2018 and 2017. . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-2
F-5
F-7
F-8
F-9
F-10
F-13
F-15

2. Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is shown in the consolidated
financial statements or notes thereto.

3. Exhibits

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual
Report on Form 10-K.

We will furnish at cost a copy of any exhibit filed with or incorporated by reference into this Annual Report on Form 10-
K. Oral or written requests for copies of any exhibits should be directed to the Corporate Secretary.

(b) Exhibits

2.2

3.1

3.2

4.1

4.2

Form of Separation and Distribution Agreement by and among SLM Corporation, New BLC Corporation and Navient
Corporation, dated as of April 28, 2014 (incorporated by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K
filed on May 2, 2014).

Restated Certificate of Incorporation of the Company, dated February 25, 2015 (incorporated by reference to Exhibit 3.1 to the
Company’s Annual Report on Form 10-K filed on February 26, 2015).

Amended and Restated By-Laws of the Company effective June 25, 2015 (incorporated by reference to Exhibit 3.2 of the
Company’s Current Report on Form 8-K filed on June 29, 2015).

Indenture, dated as of June 17, 2015, between SLM Corporation and Deutsche Bank National Trust Company, as Trustee
(incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-3 filed on June 17, 2015).

First Supplemental Indenture dated as of April 5, 2017 between SLM Corporation and Deutsche Bank National Trust Company,
as Trustee (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on April 5, 2017).

4.3*

Description of SLM Corporation’s Common Stock.

4.4*

Description of SLM Corporation’s Floating-Rate Non-Cumulative Preferred Stock, Series B.

10.1†

10.2†

10.3†

10.4†

10.5†

10.6†

10.7†

10.8†

10.9†

10.10†

10.11†

10.12†

10.13†

10.14†

Form of SLM Corporation Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (one-year restriction), 2014
Management Incentive Plan Award (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-
Q filed on April 22, 2015).

Form of SLM Corporation Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (two-year restriction), 2014
Management Incentive Plan Award (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-
Q filed on April 22, 2015).

Form of SLM Corporation Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (three-year restriction), 2014
Management Incentive Plan Award (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-
Q filed on April 22, 2015).

Form of SLM Corporation Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (one-year restriction), 2015
Management Incentive Plan Award (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-
Q filed on April 20, 2016).

Form of SLM Corporation Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (two-year restriction), 2015
Management Incentive Plan Award (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-
Q filed on April 20, 2016).

Form of SLM Corporation Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (three-year restriction), 2015
Management Incentive Plan Award (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-
Q filed on April 20, 2016).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - 2015 (incorporated by reference to
Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed on April 22, 2015).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - 2016 (incorporated by reference to
Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed on April 20, 2016).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Performance Stock Unit Term Sheet - 2016 (incorporated by
reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed on April 20, 2016).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement 2015 (incorporated
by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on July 22, 2015).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement - 2016
(incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on July 20, 2016).

SLM Corporation Executive Severance Plan for Senior Officers, including amendments as of June 25, 2015 (incorporated by
reference to Exhibit 10.6 of the Company’s Annual Report on Form 10-K filed on February 26, 2016).

SLM Corporation Change in Control Severance Plan for Senior Officers, including amendments as of June 25, 2015
(incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on Form 10-K filed on February 26, 2016).

Form of Director’s Indemnification Agreement (incorporated by reference to Exhibit 10.24 of the Company’s Annual Report on
Form 10-K filed on February 27, 2012).

10.15†

10.16†

10.17†

10.18†

10.19†

10.20†

Sallie Mae Supplemental 401(k) Savings Plan, as Amended and Restated as of June 25, 2015 (incorporated by reference to
Exhibit 10.9 of the Company’s Annual Report on Form 10-K filed on February 26, 2016).

Amendment to Sallie Mae Supplemental 401(k) Savings Plan (Effective as of March 5, 2019) (incorporated by reference to
Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed on April 17, 2019).

SLM Deferred Compensation Plan for Key Employees, as Established Effective May 1, 2014 and Amended June 25, 2015
(incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K filed on February 26, 2016).

Amendment to SLM Corporation Deferred Compensation Plan for Key Employees (Effective as of March 5, 2019)
(incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q filed on April 17, 2019).

SLM Corporation Deferred Compensation Plan for Directors, as Established Effective May 1, 2014 and Amended June 25, 2015
(incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K filed on February 26, 2016).

Amended and Restated SLM Corporation Incentive Plan (incorporated by reference to Exhibit 10.24 of the Company’s Current
Report on Form 8-K (file no. 001-13251) filed on May 25, 2005).

10.21†

Director’s Stock Plan (incorporated by reference to Exhibit 10.25 of the Company’s Current Report on Form 8-K (file no.
001-13251) filed on May 25, 2005).

10.22†

10.23†

Form of SLM Corporation Incentive Stock Plan Stock Option Agreement, Net-Settled, Performance Vested Options, 2009
(incorporated by reference to Exhibit 10.32 of the Company’s Annual Report on Form 10-K filed on March 2, 2009).

SLM Corporation Directors Equity Plan (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on
Form S-8 (File No. 333-159447) filed on May 22, 2009).

10.24†

SLM Corporation 2009-2012 Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Registration
Statement on Form S-8 (File No. 333-159447) filed on May 22, 2009).

10.25†

Form of SLM Corporation Directors Equity Plan Non-Employee Director Stock Option Agreement - 2009 (incorporated by
reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q filed on November 5, 2009).

10.26†

Form of SLM Corporation 2009-2012 Incentive Plan Stock Option Agreement, Net Settled, Time Vested Options - 2010
(incorporated by reference to Exhibit 10. 7 of the Company’s Quarterly Report on Form 10-Q filed on May 6, 2010).

10.27†

Form of SLM Corporation 2009-2012 Incentive Plan Performance Stock Award Term Sheet, Time Vested - 2010 (incorporated
by reference to Exhibit 10.8 of the Company’s Quarterly Report on Form 10-Q filed on May 6, 2010).

10.28†

10.29†

10.30†

10.31†

Amendment to Stock Option and Restricted/Performance Stock Terms (incorporated by reference to Exhibit 10.49 of the
Company’s Annual Report on Form 10-K filed on February 28, 2011).

Form of SLM Corporation 2009-2012 Incentive Plan Stock Option Agreement, Net Settled, Time Vested Options - 2011
(incorporated by reference to Exhibit 10.50 of the Company’s Annual Report on Form 10-K filed on February 28, 2011).

Form of SLM Corporation 2009-2012 Incentive Plan Restricted Stock and Restricted Stock Unit Term Sheet, Time Vested -
2011 (incorporated by reference to Exhibit 10.51 of the Company’s Annual Report on Form 10-K filed on February 28, 2011).

Form of SLM Corporation 2009-2012 Incentive Plan, Performance Stock Unit Term Sheet - 2012 (incorporated by reference to
Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on May 4, 2012).

10.32†

Form of SLM Corporation 2009-2012 Incentive Plan, Bonus Restricted Stock Unit Term Sheet - 2012 (incorporated by
reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on May 4, 2012).

10.33†

Form of SLM Corporation 2009-2012 Incentive Plan, Stock Option Agreement, Net Settled Options - 2012 (incorporated by
reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on May 4, 2012).

10.34†

SLM Corporation 2012 Omnibus Incentive Plan (incorporated by reference to Appendix A of the Company’s Definitive Proxy
Statement for the 2017 Annual Meeting of Shareholders filed on April 27, 2017).

10.35†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Performance Stock Unit Term Sheet - 2013 (incorporated by
reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).

10.36†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet - 2013 (incorporated by
reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).

10.37†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Stock Option Agreement, Net Settled Options-2013 (incorporated by
reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).

10.38†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement - 2013
(incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).

10.39†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Stock Option Agreement - 2013 (incorporated
by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).

10.40†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - 2013 (incorporated by reference to
Exhibit 10.36 of the Company’s Annual Report on Form 10-K filed on February 19, 2014).

10.41†

10.42†

10.43†

10.44†

10.45†

10.46†

10.47†

10.48†

10.49†

Letter Agreement, dated January 15, 2014 with Raymond J. Quinlan (incorporated by reference to Exhibit 10.38 of the
Company’s Annual Report on Form 10-K filed on February 19, 2014).

SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - Raymond J. Quinlan Signing Award
(incorporated by reference to Exhibit 10.39 of the Company’s Annual Report on Form 10-K filed on February 19, 2014).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet - 2014 (incorporated by
reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on May 12, 2014).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - 2014 (incorporated by reference to
Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed on May 12, 2014).

Employment Agreement, dated April 21, 2014 between Laurent C. Lutz and the Company (incorporated by reference to Exhibit
10.1 of the Company’s Quarterly Report on Form 10-Q filed on July 24, 2014).

Sallie Mae Employee Stock Purchase Plan, Amended and Restated as of June 24, 2014, Including Amendments as of June 25,
2015 (incorporated by reference to Exhibit 10.39 of the Company’s Annual Report on Form 10-K filed on February 26, 2016).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement (incorporated by
reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on July 24, 2014).

Letter Agreement, dated April 24, 2014, with Jeffrey Dale (incorporated by reference to Exhibit 10.41 to the Company’s Annual
Report on Form 10-K filed on February 26, 2015).

Sallie Mae 401(k) Savings Plan (Effective as of April 30, 2014) (incorporated by reference to Exhibit 10.44 to the Company’s
Annual Report on Form 10-K filed on February 26, 2015).

10.50†* Restatement of the Sallie Mae 401(k) Savings Plan (Effective as of January 1, 2018).

10.51†* Amendment to Sallie Mae 401(k) Savings Plan (Effective as of January 1, 2019).

10.52†

Amendment to Sallie Mae 401(k) Savings Plan (Effective as of March 5, 2019) (incorporated by reference to Exhibit 10.4 of the
Company’s Quarterly Report on Form 10-Q filed on April 17, 2019).

10.53

10.54

10.55†

10.56†

10.57†

10.58†

10.59†

Tax Sharing Agreement between Navient Corporation and New BLC Corporation, dated as of April 29, 2014 (incorporated by
reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on May 2, 2014).

Amended and Restated Loan Servicing and Administration Agreement between Sallie Mae Bank and Navient Solutions, Inc.,
dated as of April 30, 2014 (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on
May 2, 2014).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (Three-Year Restriction),
2016 Management Incentive Plan Award (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on
Form 10-Q filed on April 19, 2017).

Form of SLM Corporation 2012 Omnibus Incentive Plan, 2017 Restricted Stock Unit Term Sheet (incorporated by reference to
Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on April 19, 2017).

Form of SLM Corporation 2012 Omnibus Incentive Plan, 2017 Performance Stock Unit Term Sheet (incorporated by reference
to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on April 19, 2017).

Form of SLM Corporation 2012 Omnibus Incentive Plan, 2017 Independent Director Restricted Stock Agreement (incorporated
by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on July 19, 2017).

Agreement and Release, dated as of March 20, 2018, between the Company and the Personal Representatives of the Estate of
Charles P. Rocha (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on April 23,
2018).

10.60†

Form of SLM Corporation 2012 Omnibus Incentive Plan, 2018 Restricted Stock Unit Term Sheet (incorporated by reference to
Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on April 23, 2018).

100

10.61†

10.62†

10.63†

10.64†

10.65†

10.66†

Form of SLM Corporation 2012 Omnibus Incentive Plan, 2018 Performance Stock Unit Term Sheet (incorporated by reference
to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on April 23, 2018

Form of SLM Corporation 2012 Omnibus Incentive Plan, 2018 Bonus Restricted Stock Unit Term Sheet (Three-Year
Restriction), 2017 Management Incentive Plan Award (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly
Report on Form 10-Q filed on April 23, 2018).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement - 2018
(incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on July 24, 2018).

Form of SLM Corporation 2012 Omnibus Incentive Plan, 2019 Restricted Stock Unit Term Sheet (incorporated by reference to
Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on April 17, 2019).

Form of SLM Corporation 2012 Omnibus Incentive Plan, 2019 Performance Stock Unit Term Sheet (incorporated by reference
to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on April 17, 2019).

Form of SLM Corporation 2012 Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet (Three-Year Restriction),
2018 Management Incentive Plan Award (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on
Form 10-Q filed on April 17, 2019).

10.67†

Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement - 2019
(incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on July 24, 2019).

21.1*

List of Subsidiaries.

23.1*

Consent of KPMG LLP.

31.1*

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document.

101.SCH XBRL Taxonomy Extension Schema Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB XBRL Taxonomy Extension Label Linkbase Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

† Management Contract or Compensatory Plan or Arrangement

Filed herewith

101

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant

has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: February 28, 2020

SLM CORPORATION

By:

/S/ RAYMOND J. QUINLAN
Raymond J. Quinlan
Executive Chairman and Chief Executive Officer

Pursuant to the requirement of the Securities Exchange Act of 1934, as amended, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/S/ RAYMOND J. QUINLAN
Raymond J. Quinlan

/S/ STEVEN J. MCGARRY
Steven J. McGarry

/S/ JONATHAN R. BOYLES
Jonathan R. Boyles

/S/ PAUL G. CHILD
Paul G. Child

Executive Chairman and Chief Executive Officer
(Principal Executive Officer)

February 28, 2020

Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

February 28, 2020

Senior Vice President and Controller
(Principal Accounting Officer)

February 28, 2020

Director

February 28, 2020

/S/ MARY CARTER WARREN FRANKE
Mary Carter Warren Franke

Director

February 28, 2020

/S/ EARL A. GOODE
Earl A. Goode

/S/ MARIANNE M. KELER
Marianne M. Keler

/S/ MARK L. LAVELLE

Mark L. Lavelle

/S/ JIM MATHESON
Jim Matheson

Director

February 28, 2020

Director

February 28, 2020

Director

February 28, 2020

Director

February 28, 2020

102

/S/ FRANK C. PULEO
Frank C. Puleo

/S/ VIVIAN C. SCHNECK-LAST
Vivian C. Schneck-Last

/S/ WILLIAM N. SHIEBLER
William N. Shiebler

/S/ ROBERT S. STRONG
Robert S. Strong

/S/ KIRSTEN O. WOLBERG
Kirsten O. Wolberg

Director

February 28, 2020

Director

February 28, 2020

Director

February 28, 2020

Director

February 28, 2020

Director

February 28, 2020

103

CONSOLIDATED FINANCIAL STATEMENTS

INDEX

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page
F-2

F-5

F-7

F-8

F-9

F-10

F-13

F-15

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
SLM Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of SLM Corporation and subsidiaries (the
Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive
income, changes in equity, and cash flows for each of the years in the three‑year period ended December 31,
2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the
three‑year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2020 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide
a reasonable basis for our opinion.

F-2

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.

Assessment of the allowance for loan losses related to private education loans

As discussed in Notes 2 and 6 to the consolidated financial statements, the Company’s allowance for
loan losses related to private education loans (ALL) was $374.3 million of a total allowance for loan
losses of $441.9 million as of December 31, 2019. The Company estimated the ALL using a
methodology for the non-Troubled Debt Restructuring (TDR) portfolio that projects expected defaults by
using the likelihood a loan receivable may progress through delinquency stages and ultimately charge
off over the loss emergence period. Once a charge-off forecast is estimated, a recovery assumption is
included which estimates what the Company expects to receive from defaulted loan sales as well as
historical borrower payment behavior. The resulting net charge-off forecast is further adjusted for certain
qualitative factors. For loans identified as a TDR, the Company estimated an allowance through an
impairment calculation based on the difference between the loan’s basis and the present value of
expected future cash flows, discounted at the loan’s original effective interest rate.

We identified the assessment of the ALL as a critical audit matter because it involved significant
measurement uncertainty requiring complex auditor judgment, and knowledge and experience in the
industry. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence
obtained. The assessment of the ALL encompassed the evaluation of the methodology, including the
methodologies used to estimate (1) the non-TDR portfolio’s projected expected defaults, recovery rate
assumption, loss emergence period, and period of historical loan performance data used (historical
observation period), (2) the TDR portfolio’s life-of-loan default assumption and recovery rate
assumption, and (3) the qualitative factors.

The primary procedures we performed to address the critical audit matter included the following. We
tested certain internal controls over the Company’s ALL process, including controls related to the (1)
development of the ALL methodology, (2) determination of the key factors and assumptions used to
estimate the net charge-off forecast and TDR impairment, (3) development of the qualitative factors, (4)
calculation of the ALL estimate, and (5) analysis of the ALL results, trends, and ratios. We evaluated the
Company’s process to develop the ALL estimate by testing certain sources of data, factors, and
assumptions that the Company used, and considered the relevance and reliability of such data, factors,
and assumptions. In addition, we involved credit risk professionals with specialized industry knowledge
and experience who assisted in:

•

•
•

evaluating the Company’s ALL methodology for compliance with U.S. generally accepted
accounting principles,
testing the historical observation period used in the methodologies to evaluate the length of the
period,
evaluating the methodology used to develop the resulting qualitative factors and the effect of those
factors on the ALL compared with the relevant credit risk factors and consistency with credit trends,
evaluating the methodology used to develop the loss emergence periods, and
testing the mathematical accuracy of certain computations of the estimate.

We evaluated the collective results of the procedures performed to assess the sufficiency of the audit
evidence obtained related to the Company’s ALL.

F-3

Assessment of the disclosure of the expected transition effect from the adoption of ASC Topic 326
related to the allowance for credit losses

As discussed in Note 2 to the consolidated financial statements, the Company disclosed the expected
transition effect of the adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (ASC Topic
326), as amended by ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments
- Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (commonly
known as CECL). ASC Topic 326 will be adopted by the Company on January 1, 2020 using the
modified retrospective method. ASC Topic 326 eliminates the current accounting guidance for the
recognition of credit impairment. For all loans carried at amortized cost, upon origination, an estimate of
all current expected credit losses over the remaining expected life will be used to measure the
allowance for credit losses. The Company’s estimate of current expected credit losses will be
determined using a discounted cash flow approach. Qualitative adjustments are incorporated as
necessary to address any limitations in the model. Upon adoption, the Company expects the allowance
for loan losses will increase $1.1 billion over the amount recorded as of December 31, 2019.

We identified the assessment of the disclosure of the Company’s expected transition effect to the
allowance for loan losses from the adoption of ASC Topic 326 (the CECL transition effect disclosure) as
a critical audit matter. A high level of audit effort, including knowledge and experience in the industry,
and subjective and complex auditor judgment was involved in the evaluation of the CECL transition
effect disclosure. Specifically, the assessment included an evaluation of the development and
mathematical accuracy of the discounted cash flow model and the model’s key factors and
assumptions, including: (1) forecasted economic conditions (2) the immediate reversion assumption
after the reasonable and supportable forecast period, and (3) prepayment rates. The assessment also
included an evaluation of qualitative adjustments. In addition, auditor judgment was required to evaluate
the sufficiency of the audit evidence obtained related to the completeness and accuracy of the
disclosure.

The primary procedures we performed to address this critical audit matter included the following. We
tested certain internal controls over the Company’s CECL transition effect disclosure process, including
controls related to the (1) development of the CECL methodology, (2) model development and
validation, (3) determination of key factors and assumptions, and (4) model execution. We assessed
the Company’s key factors and assumptions regarding the expected effect of the adoption of ASC Topic
326 by testing certain sources of data, factors, and assumptions that the Company used, and
considered their relevance and reliability. In addition, we involved credit risk professionals with
specialized industry knowledge and experience who assisted in:

•

evaluating the Company’s measurement methodology for compliance with U.S. generally accepted
accounting principles,
evaluating the judgments made by the Company relative to the model development and validation,
and the key factors and assumptions used by the Company, and
testing the design and configuration of the models used in determining the CECL transition effect
disclosure.

We also evaluated the collective results of the procedures performed to assess the sufficiency of the
audit evidence obtained related to the CECL transition effect disclosure.

We have served as the Company’s auditor since 2013.

/s/ KPMG LLP

McLean, Virginia
February 28, 2020

F-4

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
SLM Corporation:

Opinion on Internal Control Over Financial Reporting

We have audited SLM Corporation and subsidiaries’ (the Company) internal control over financial reporting as
of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and
2018, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows
for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the
consolidated financial statements), and our report dated February 28, 2020 expressed an unqualified opinion on
those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the

F-5

company are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

McLean, Virginia
February 28, 2020

/s/ KPMG LLP

F-6

SLM CORPORATION

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

December 31,

2019

2018

Assets
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,563,877

2,559,106

Investments:

Available-for-sale investments at fair value (cost of $485,756 and
$182,325, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loans held for investment (net of allowance for losses of $441,912 and
$341,121, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Premises and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax indemnification receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

487,669

84,420

572,089

24,667,792
156,883
52,564
1,392,725

134,749
88,844
27,558
29,398

176,245

55,554

231,799

22,270,919
122,789
27,157
1,191,981

105,504
41,570
39,207
48,141

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32,686,479

26,638,173

Liabilities

Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Upromise member accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Equity

Preferred stock, par value $0.20 per share, 20 million shares authorized:

24,283,983
289,230
4,354,037
—
192,662
254,731
29,374,643

18,943,158
—
4,284,304
—
213,104
224,951
23,665,517

Series B: 4 million and 4 million shares issued, respectively, at stated
value of $100 per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

400,000

Common stock, par value $0.20 per share, 1.125 billion shares
authorized: 453.6 million and 449.9 million shares issued, respectively . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) (net of tax expense
(benefit) of ($3,995) and $3,436, respectively). . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total SLM Corporation stockholders’ equity before treasury stock . . . . . .

Less: Common stock held in treasury at cost: 32.5 million and 14.2
million shares, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

90,720
1,307,630

(12,367)
1,850,512

3,636,495

(324,659)

3,311,836

89,972
1,274,635

10,623
1,340,017

3,115,247

(142,591)

2,972,656

Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32,686,479

26,638,173

See accompanying notes to consolidated financial statements.

F-7

SLM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)

Years Ended December 31,

2019

2018

2017

Interest income:

Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,249,169

1,894,687

1,413,505

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,607

74,256

6,162

34,503

8,288

15,510

Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,331,032

1,935,352

1,437,303

Interest expense:

Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest expense on short-term borrowings . . . . . . . . . . . . . . . . . . . . .

Interest expense on long-term borrowings . . . . . . . . . . . . . . . . . . . . .

Total interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: provisions for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net interest income after provisions for credit losses . . . . . . . . . . . . . .

Non-interest income (loss):

Gains on sales of loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Losses on sales of securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gains (losses) on derivatives and hedging activities, net . . . . . . . . . .

Other income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total non-interest income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-interest expenses:

Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FDIC assessment fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total non-interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income attributable to SLM Corporation common stock . . . . . . . .

Basic earnings per common share attributable to SLM Corporation. . .

Average common shares outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted earnings per common share attributable to SLM Corporation .

Average common and common equivalent shares outstanding . . . . . . .

Declared dividends per common share attributable to SLM
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

547,746

6,193

153,778

707,717

1,623,315

354,249

1,269,066

—

17,825

31,102

48,927

278,229

32,852

263,172

574,253

743,740

165,464

578,276

16,837

561,439

1.31

427,292

1.30

430,674

0.12

389,349

5,833

127,106

522,288

1,413,064

244,864

1,168,200

2,060

(1,549)

(87)

(52,319)

(51,895)

252,346

32,786

271,844

556,976

559,329

71,853

487,476

15,640

471,836

1.08

435,054

1.07

439,681

223,691

6,341

78,050

308,082

1,129,221

185,765

943,456

—

(8,266)

5,364

(2,902)

213,319

28,950

206,820

449,089

491,465

202,531

288,934

15,714

273,220

0.63

431,216

0.62

438,551

—

See accompanying notes to consolidated financial statements.

F-8

SLM CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

Years Ended December 31,

2019

2018

2017

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

578,276

487,476

288,934

Other comprehensive income (loss):

Unrealized gains (losses) on investments. . . . . . . . . . . . . . . .

Unrealized gains (losses) on cash flow hedges . . . . . . . . . . .

Total unrealized gains (losses) . . . . . . . . . . . . . . . . . . . . . . . .

Income tax (expense) benefit . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive income (loss), net of tax (expense)
benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,993

(38,414)

(30,421)

7,431

(2,561)

11,907

9,346

(2,333)

(716)

19,195

18,479

(7,060)

(22,990)

7,013

11,419

Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . .

555,286

494,489

300,353

See accompanying notes to consolidated financial statements.

F-9

SLM CORPORATION

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

Common Stock Shares

Preferred Stock
Shares

Issued

Treasury

Outstanding

Preferred Stock

Common Stock

Additional
Paid-In Capital

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Treasury Stock

Total SLM
Corporation
Equity

Balance at December 31, 2016 . . . . .

Net income . . . . . . . . . . . . . . . . . . .

Other comprehensive income, net
of tax . . . . . . . . . . . . . . . . . . . . . . . .

Total comprehensive income . . . . . .

Cumulative effect of the new stock
compensation standard . . . . . . . . . . .

Cash dividends:

Preferred Stock, series A ($1.74
per share) . . . . . . . . . . . . . . . . . . . .
Preferred Stock, series B ($2.91
per share) . . . . . . . . . . . . . . . . . . . .

Redemption of Series A Preferred
Stock . . . . . . . . . . . . . . . . . . . . . . . . . .

Dividend equivalent units related to
employee stock-based
compensation plans . . . . . . . . . . . . . .

Issuance of common shares . . . . . . .

Stock-based compensation expense .

Shares repurchased related to
employee stock-based
compensation plans . . . . . . . . . . . . . .

Balance at December 31, 2017 . . . . .

7,300,000

436,632,479

(7,728,920)

428,903,559

565,000

87,327

1,175,564

(8,671)

595,322

(67,484)

2,347,058

—

(3,300,000)

—

6,831,108

—

6,831,108

—

(3,358,417)

—

(165,000)

—

1,366

—

429

—

18,289

27,899

—

288,934

11,419

—

(264)

—

(3,961)

(11,753)

—

(96)

—

288,934

11,419

300,353

165

—

(3,961)

(11,753)

(165,000)

—

19,655

27,899

(40,160)

4,000,000

443,463,587

(11,087,337)

432,376,250

400,000

88,693

1,222,277

2,748

868,182

(107,644)

2,474,256

See accompanying notes to consolidated financial statements.

F-10

SLM CORPORATION

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

Common Stock Shares

Preferred
Stock Shares

Issued

Treasury

Outstanding

Preferred
Stock

Common Stock

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Income

Retained
Earnings

Treasury Stock

Total SLM
Corporation
Equity

4,000,000

443,463,587

(11,087,337)

432,376,250

400,000

88,693

1,222,277

2,748

868,182

(107,644)

2,474,256

—

6,392,634

—

6,392,634

—

(3,087,396)

—

1,279

—

20,834

31,524

—

7,013

—

592

270

—

487,476

—

(592)

591

(15,640)

—

487,476

7,013

494,489

—

861

(15,640)

22,113

31,524

(34,947)

4,000,000

449,856,221

(14,174,733)

435,681,488

400,000

89,972

1,274,635

10,623

1,340,017

(142,591)

2,972,656

Balance at December 31, 2017 .

Net income . . . . . . . . . . . . . . .

Other comprehensive
income, net of tax . . . . . . . . .

Total comprehensive income . .

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

Reclassification resulting from
the adoption of ASU No.
2017-12

Cash dividends:

Preferred Stock, series B
($3.91 per share) . . . . . . . . . .

Issuance of common shares . . .

Stock-based compensation
expense. . . . . . . . . . . . . . . . . . . .
Shares repurchased related to
employee stock-based
compensation plans . . . . . . . . .

Balance at December 31, 2018 .

See accompanying notes to consolidated financial statements.

F-11

SLM CORPORATION

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

Common Stock Shares

Preferred
Stock Shares

Issued

Treasury

Outstanding

Preferred
Stock

Common Stock

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Income

Retained
Earnings

Treasury Stock

Total SLM
Corporation
Equity

4,000,000

449,856,221

(14,174,733)

435,681,488

400,000

89,972

1,274,635

10,623

1,340,017

(142,591)

2,972,656

—

3,743,705

—

3,743,705

—

(16,962,199)

(1,369,630)

—

748

—

2,627

30,363

—

578,276

(22,990)

—

(51,114)

(16,837)

(5)

—

175

—

(167,201)

578,276

(22,990)

555,286

(51,114)

(16,837)

—

3,375

30,538

(167,201)

(14,867)

4,000,000

453,599,926

(32,506,562)

421,093,364

400,000

90,720

1,307,630

(12,367)

1,850,512

(324,659)

3,311,836

Balance at December 31, 2018 .

Net income . . . . . . . . . . . . . . .

Other comprehensive loss,
net of tax . . . . . . . . . . . . . . . .

Total comprehensive income . .

Cash dividends:

Common Stock ($0.12 per
share) . . . . . . . . . . . . . . . . . . .
Preferred Stock, series B
($4.21 per share) . . . . . . . . . .

Dividend equivalent units
related to employee stock-
based compensation plans . . . .

Issuance of common shares . . .

Stock-based compensation
expense. . . . . . . . . . . . . . . . . . . .
Common stock repurchased . .

Shares repurchased related to
employee stock-based
compensation plans . . . . . . . . .

Balance at December 31, 2019 .

See accompanying notes to consolidated financial statements.

F-12

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Years Ended December 31,

2019

2018

2017

Operating activities

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

578,276

487,476

288,934

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Provisions for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

354,249

244,864

Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9,714)

(63,301)

Amortization of brokered deposit placement fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amortization of Secured Borrowing Facility upfront fee . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Net amortization of discount on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reduction of tax indemnification receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Depreciation of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17,788

1,117

13,049

2,069

11,649

14,669

30,600

Unrealized (gains) losses on derivative and hedging activities, net. . . . . . . . . . . . . . . . . . . . .

(19,046)

Gains on sale of loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Losses on sales of securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Other adjustments to net income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,724

13,055

1,128

10,905

1,712

92,815

13,829

31,524

(1,353)

(2,060)

1,549

7,446

Changes in operating assets and liabilities:

185,765

(58,752)

9,372

1,316

8,258

2,082

31,888

11,171

27,899

7,248

—

6,305

Increase in accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(963,885)

(864,461)

(703,081)

Increase in non-marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(Increase) decrease in other interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Decrease in tax indemnification receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Decrease in income tax payable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase in accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10,700)

(25,407)

—

(3,091)

(30,191)

13,817

5,386

(5,000)

(5,571)

35,989

(64,777)

(79,693)

25,979

15,204

—

27,528

59,633

(72,646)

(19,687)

14,304

1,304

Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(593,917)

(590,217)

(460,093)

Total net cash used in operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(15,641)

(102,741)

(171,159)

Investing activities

Loans acquired and originated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6,138,105)

(6,493,367)

(5,243,732)

Net proceeds from sales of loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Proceeds from claim payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

42,869

44,832

54,659

6,992

49,146

Net decrease in loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,094,021

3,076,992

2,065,727

Purchases of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(356,414)

(15,876)

Proceeds from sales and maturities of available-for-sale securities. . . . . . . . . . . . . . . . . . . . .

50,915

77,897

(78,327)

40,044

Total net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,306,714)

(3,254,863)

(3,160,150)

Financing activities

Brokered deposit placement fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(27,978)

(25,785)

(12,200)

Net increase in certificates of deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,349,741

2,525,040

1,579,615

Net increase in other deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

923,793

918,420

508,389

Borrowings collateralized by loans in securitization trusts - issued . . . . . . . . . . . . . . . . . . . .

1,105,594

1,891,027

1,440,127

Borrowings collateralized by loans in securitization trusts - repaid . . . . . . . . . . . . . . . . . . . .

(1,042,892)

(888,640)

(534,905)

Borrowings under Secured Borrowing Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

297,800

300,000

Repayment of borrowings under Secured Borrowing Facility. . . . . . . . . . . . . . . . . . . . . . . . .

Fees paid - Secured Borrowing Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Issuance costs for unsecured debt offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unsecured debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Redemption of Series A Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8,570)

(1,116)

—

(300,000)

(1,098)

—

(1,281)

(1,057)

197,000

(165,000)

F-13

Common stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Preferred stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(51,114)

(16,837)

—

(15,640)

(15,714)

Common stock repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(167,201)

—

Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,361,220

4,403,324

2,994,974

Net increase (decrease) in cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . .

3,038,865

1,045,720

(336,335)

Cash, cash equivalents and restricted cash at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . .

2,681,895

1,636,175

1,972,510

Cash, cash equivalents and restricted cash at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,720,760

$ 2,681,895

$ 1,636,175

Cash disbursements made for:

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income taxes refunded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

666,018

201,792

472,459

228,074

269,017

282,278

(853) $

(13,449) $

(1,401)

Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance
Sheets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,563,877

$ 2,559,106

$ 1,534,339

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

156,883

122,789

101,836

Total cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,720,760

$ 2,681,895

$ 1,636,175

See accompanying notes to consolidated financial statements.

F-14

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, unless otherwise noted)

1. Organization and Business

SLM Corporation (“Sallie Mae,” “SLM,” the “Company,” “we,” “our” or “us”) is a holding company that operates

through a number of subsidiaries and is the premier brand for college and continuous education.

While the Sallie Mae name has existed for more than 40 years, the company that operates as Sallie Mae today, SLM

The Bank was formed in 2005 to fund and originate Private Education Loans (as hereinafter defined) on behalf of pre-

Our primary business is to originate and service loans we make to students and their families to finance the cost of their

education. We use “Private Education Loans” to mean education loans to students or their families that are not made, insured or
guaranteed by any state or federal government. Private Education Loans do not include loans insured or guaranteed under the
Federal Family Education Loan Program (“FFELP Loans”). The core of our marketing strategy is to generate Private Education
Loan originations by promoting our products on campuses through the financial aid offices as well as through online and direct
marketing to students and their families. The Bank is regulated by the Utah Department of Financial Institutions (the “UDFI”),
the Federal Deposit Insurance Corporation (the “FDIC”) and the Consumer Financial Protection Bureau (the “CFPB”). We also
operate Upromise, Inc. (“Upromise”), a save-for-college rewards program helping Americans save for higher education.

F-15

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies

Use of Estimates and Assumptions

The financial reporting and accounting policies of SLM Corporation conform to generally accepted accounting principles

in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Key accounting policies that include significant
judgments and estimates include the valuation of allowance for loan losses and derivative accounting.

Consolidation

The consolidated financial statements include the accounts of SLM Corporation and its majority-owned and controlled

subsidiaries after eliminating the effects of intercompany accounts and transactions.

We consolidate any variable interest entity (“VIE”) where we have determined we are the primary beneficiary. The
primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact
the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits of the entity that could potentially
be significant to the VIE.

Cash and Cash Equivalents

Cash and cash equivalents include cash held in the Federal Reserve Bank of San Francisco (the “FRB”) and commercial

bank accounts, and other short-term liquid instruments with original maturities of three months or less. Fees associated with
investing cash and cash equivalents are amortized into interest income using the effective interest rate method.

Available-for-Sale Investments

Investments consisted of mortgage-backed securities, Utah Housing Corporation bonds and U.S. government-sponsored
enterprises securities. We record our investment purchases and sales on a trade date basis. The amortized cost of debt securities
is adjusted for amortization of premiums and accretion of discounts, which are amortized using the effective interest rate
method.

Our investments are classified as available-for-sale and reported at fair value. Unrealized gains or losses on available-for-

sale investments are recorded in equity and reported as a component of other comprehensive income (loss), net of applicable
income taxes, unless a decline in the investment’s value is considered to be other-than-temporary, in which case the loss is
recorded directly to earnings.

Management reviews all investments at least quarterly to determine whether any impairment is other-than-temporary.
Impairment is evaluated by considering several factors, including the length of time and extent to which the fair value has been
less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability to retain the investment to
allow for an anticipated recovery in fair value. If, based on the analysis, it is determined that the impairment is other-than-
temporary, the investment is written down to fair value and a loss is recognized through earnings.

Other Investments

We hold investments in non-marketable securities and account for these investments at cost, less impairment, plus or

minus observable price changes of identical or similar securities of the same issuer.

F-16

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

We also invest in affordable housing projects that qualify for the low income housing tax credit (“LIHTC”), which is

designed to promote private development of low income housing. These investments generate a return mostly through
realization of federal tax credits.

Loans Held for Investment

Loans, consisting of Private Education Loans, FFELP Loans, unsecured personal loans used for non-educational purposes

by borrowers (“Personal Loans”), and our suite of credit cards (“Credit Cards”) that we have the ability and intent to hold for
the foreseeable future, are classified as held for investment, and are carried at amortized cost. Amortized cost includes the
unamortized premiums, discounts, and capitalized origination costs and fees, all of which are amortized to interest income as
discussed under “Loan Interest Income.” Loans which are held for investment are reported net of an allowance for loan losses.

Restricted Cash

Restricted cash primarily includes amounts held in student loan securitization trusts and other secured borrowings. This
cash must be used to make payments related to trust obligations. Amounts on deposit in these accounts are primarily the result
of timing differences between when principal and interest is collected on the trust assets and when principal and interest is paid
on trust liabilities.

Allowance for Loan Losses

We maintain an allowance for loan losses at an amount sufficient to absorb probable losses incurred in our portfolios, as

well as regarding future loan commitments, at the reporting date based on a projection of estimated probable credit losses
incurred in the portfolio. We consider a loan to be impaired when, based on current information, a loss has been incurred and it
is probable that we will not receive all contractual amounts due. When making our assessment as to whether a loan is impaired,
we also take into account more than insignificant delays in payment. We generally evaluate impaired loans on an aggregate
basis by grouping similar loans.

We analyze our portfolios to determine the effects that the various stages of delinquency and forbearance have on

borrower default behavior and ultimate charge off. We estimate the allowance for loan losses for our loan portfolios using a roll
rate analysis of delinquent and current accounts. A “roll rate analysis” is a technique used to estimate the likelihood that a loan
receivable may progress through the various delinquency stages and ultimately charge off. We also take into account the current
and future economic environment and certain other qualitative factors when calculating the allowance for loan losses.

The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates that may be
susceptible to significant changes. Our default estimates are based on a loss emergence period of one year for Private Education
Loans, Personal Loans and Credit Cards and two years for FFELP Loans. A loss emergence period represents the expected
period between the first occurrence of an event likely to cause a loss on a loan and the date the loan is expected to be charged
off, taking into consideration account management practices that affect the timing of a loss, such as the usage of forbearance.
The loss emergence period underlying the allowance for loan losses is subject to a number of assumptions. If actual future
performance in delinquency, charge-offs and recoveries is significantly different than estimated, or account management
assumptions or practices were to change, this could materially affect the estimate of the allowance for loan losses, the timing of
when losses are recognized, and the related provision for credit losses on our consolidated statements of income.

We utilize various models to determine an appropriate allowance for loan losses. Changes to model inputs are made as

deemed necessary. These models are reviewed and validated periodically.

Below we describe in further detail our policies and procedures for the allowance for loan losses as they relate to our

Private Education Loan, Personal Loan, FFELP Loan portfolios and Credit Cards.

F-17

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

Allowance for Private Education Loan Losses

In determining the allowance for loan losses on our Private Education Loans that are not troubled debt restructurings

(“TDRs”), we estimate the principal amount of loans that will default over the next year (one year being the expected period
between a loss trigger event and default) using a roll rate model and how much we expect to recover over the same one-year
period related to the defaulted amount. The expected defaults less our expected recoveries adjusted for any qualitative factors
(discussed below) equal the allowance related to this portfolio. Our historical experience indicates that, on average, the time
between the date that a customer experiences a default causing event (i.e., the loss trigger event) and the date that we charge off
the unrecoverable portion of that loan is one year.

Certain Private Education Loans do not require borrowers to begin repayment until at least six months after they have
graduated or otherwise left school. Consequently, the loss estimates for these loans is generally low while the borrower is in
school. At December 31, 2019 and 2018, 25 percent and 26 percent, respectively, of the principal balance in the Private
Education Loan portfolio was related to borrowers who are in an in-school (fully deferred), grace, or deferment status and not
required to make payments. As this population of borrowers leaves school, they will be required to begin payments on their
loans, and the allowance for losses may change accordingly.

Similar to the rules governing FFELP payment requirements, our collection policies allow for periods of nonpayment for

borrowers requesting additional payment grace periods upon leaving school or experiencing temporary difficulty meeting
payment obligations. This is referred to as forbearance status and is considered separately in the allowance for loan losses. The
loss emergence period is in alignment with the typical collection cycle and takes into account these periods of nonpayment.

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

Our non-TDR allowance for loan losses is estimated using an analysis of delinquent and current accounts. Our roll rate

model is used to estimate the likelihood that a loan receivable may progress through the various delinquency stages and
ultimately charge off. Once a charge-off forecast is estimated, a recovery assumption is layered on top. In estimating
recoveries, we use both estimates of what we would receive from the sale of defaulted loans as well as historical borrower
payment behavior to estimate the timing and amount of future recoveries on charged-off loans.

The roll rate analysis model is based upon actual experience using the 120 day charge-off default aversion strategies.

Once the quantitative calculation is performed, we review the adequacy of the allowance for loan losses and determine if
qualitative adjustments need to be considered.

F-18

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

We collect on defaulted loans through a mix of in-house, third-party collectors and sales to third-parties. For

December 31, 2019, 2018 and 2017, we used both an estimate of recovery rates from in-house collections as well as
expectations of future sales of defaulted loans to estimate the timing and amount of future recoveries on charged-off loans.

In connection with the Spin-Off, we retained the right to require Navient to purchase certain delinquent loans (at fair

value) when the borrower has a lending relationship with both us and Navient (“Split Loans”). In the second quarter of 2018,
we sold our remaining $43 million portfolio of Split Loans (both current and non-current loans) to Navient and recognized a net
gain of $2 million.

Allowance for Personal Loans

We maintain an allowance for Personal Loan losses at an amount sufficient to absorb losses estimated and viewed at the

reporting date as probable credit losses to be incurred in the portfolio. In determining the allowance for loan losses on our
Personal Loan portfolio that are not TDRs, we estimate the principal amount of the loans that will default over the next twelve
months (twelve months being the expected period between a loss trigger event and default) and how much we expect to recover
over the same twelve-month period related to the defaulted amounts. The expected defaults less our expected recoveries
adjusted for any qualitative factors equal the allowance related to this portfolio. At December 31, 2019 and 2018, there were no
Personal Loans classified as TDRs.

Troubled Debt Restructurings

Separately, for our TDR portfolio, we estimate an allowance amount sufficient to cover life-of-loan expected losses

through an impairment calculation based on the difference between the loan’s basis and the present value of expected future
cash flows (which would include life-of-loan default and recovery assumptions) discounted at the loan’s original effective
interest rate. Our TDR portfolio is comprised mostly of loans with interest rate reductions and loans with forbearance usage
greater than three months during a 24-month period, as further described below.

We modify the terms of loans for certain borrowers when we believe such modifications may increase the ability and

willingness of a borrower to make payments and thus increase the ultimate overall amount collected on the loan. These
modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan.
When we give a borrower facing financial difficulty an interest rate reduction, we temporarily reduce the rate (currently to 4.0
percent) for a two-year period and, in the vast majority of cases, permanently extend the final maturity of the loan. The
combination of these two loan term changes helps reduce the monthly payment due from the borrower and increases the
likelihood the borrower will remain current during the interest rate modification period as well as when the loan returns to its
original contractual interest rate.

Until the fourth quarter of 2017, we generally considered a loan that was in full principal and interest repayment status
which had received more than three months of forbearance in a 24-month period to be a TDR; however, during the first nine
months after a loan had entered full principal and interest repayment status, we did not count up to the first six months of
forbearance received during that period against the three-month policy limit.

We now classify a loan as a TDR due to forbearance using a two-step process. The first step is to identify a loan that was

F-19

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

A loan also becomes a TDR when it is modified to reduce the interest rate on the loan (regardless of when such

modification occurs and/or whether such interest rate reduction is temporary). Once a loan qualifies for TDR status, it remains a
TDR for allowance purposes for the remainder of its life. As of December 31, 2019 and 2018, approximately 50 percent and 57
percent, respectively, of TDRs were classified as such due to their forbearance status.

Key Credit Quality Indicators

We determine the collectability of our Private Education Loan portfolio by evaluating certain risk characteristics. We
consider credit scores at original approval and periodically refreshed/updated credit scores through the loan’s term, existence of
a cosigner, loan status and loan seasoning as the key credit quality indicators because they have the most significant effect on
the determination of the adequacy of our allowance for loan losses. Credit scores are an indicator of the creditworthiness of
borrowers and the higher the credit scores the more likely it is the borrowers will be able to make all of their contractual
payments. Loan status affects the credit risk because a past due loan is more likely to result in a credit loss than a current loan.
Additionally, loans in the deferred payment status have different credit risk profiles compared with those in current pay status.
Loan seasoning affects credit risk because a loan with a history of making payments generally has a lower incidence of default
than a loan with a history of making infrequent or no payments. The existence of a cosigner lowers the likelihood of default as
well. We monitor and update these credit quality indicators in the analysis of the adequacy of our allowance for loan losses on a
quarterly basis.

For Personal Loans, we consider FICO scores at original approval, seasoning and loan status to be our key credit quality
indicators for the same reasons discussed above. For Credit Cards, we consider FICO scores at original approval to be our key
credit quality indicator.

Allowance for FFELP Loan Losses

FFELP Loans are insured as to their principal and accrued interest in the event of default subject to a risk-sharing level

The allowance for FFELP Loan losses uses historical experience of customer default behavior and a two-year loss

Allowance for Credit Cards

The allowance for Credit Card losses is management’s estimate of credit losses inherent in the Credit Card portfolio at the

balance sheet date. The allowance for Credit Card losses uses historical loss rates for accounts with similar characteristics
(based on industry data) as a reasonable basis to estimate future losses. At December 31, 2019, there were no Credit Cards
classified as TDRs.

Deposits

Our retail deposit accounts are principally certificates of deposit (“CDs”), money market deposit accounts (“MMDAs”)

and high-yield savings (“HYS”) accounts. CDs are accounts that have a stipulated maturity and interest rate. Retail CDs may be
withdrawn early, but a penalty is assessed. MMDA and HYS accounts are both interest and non-interest bearing accounts that
have no maturity or expiration date. For retail MMDA and HYS accounts, the depositor may be required to give written notice
of any intended withdrawal not less than seven days before the withdrawal is made.

F-20

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

The Bank also includes brokered CDs in its funding base. Early withdrawal of brokered CDs is prohibited (except in the

case of death or legal incapacity). Other deposit accounts include large interest-bearing omnibus accounts deposited in the Bank
by commercial entities having custodial responsibilities for many underlying accounts. These omnibus accounts may be
structured with or without fixed maturities, and may have fixed or variable interest rates.

Upromise Member Accounts

Upromise member accounts represent amounts owed to Upromise rewards members for rebates they have earned from

qualifying purchases from Upromise’s participating merchants. These amounts are held in trust for the benefit of the members
until distributed in accordance with the Upromise member’s request and/or the terms of the Upromise service agreement.
Upromise, which acts as the trustee for the trust, has deposited a majority of the cash with the Bank pursuant to a money market
deposit account agreement between the Bank and Upromise as trustee of the trust.

Fair Value Measurement

We use estimates of fair value in applying various accounting standards for our financial statements. Fair value

measurements are used in one of four ways:

•
•

•

In the consolidated balance sheet with changes in fair value recorded in the consolidated statement of income;
In the consolidated balance sheet with changes in fair value recorded in the accumulated other comprehensive income
section of the consolidated statement of changes in equity;
In the consolidated balance sheet for instruments carried at lower of cost or fair value with impairment charges recorded
in the consolidated statement of income; and
In the notes to the consolidated financial statements.

Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able

market participants. In general, our policy in estimating fair value is to first look at observable market prices for identical assets
and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as
prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for our
liabilities), relying first on observable data from active markets. Depending on current market conditions, additional
adjustments to fair value may be based on factors such as liquidity, credit, and bid/offer spreads. Transaction costs are not
included in the determination of fair value. When possible, we seek to validate the model’s output to market transactions.
Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair
value estimates. The values presented may not represent future fair values and may not be realizable.

We categorize our fair value estimates based on a hierarchical framework associated with three levels of price

transparency utilized in measuring financial instruments at fair value. Classification is based on the lowest level of input that is
significant to the fair value of the instrument. The three levels are as follows:

•

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to
access at the measurement date. The types of financial instruments included in level 1 are highly liquid instruments with
quoted prices.
Level 2 — Inputs from active markets, other than quoted prices for identical instruments, are used to determine fair
value. Significant inputs are directly observable from active markets for substantially the full term of the asset or
liability being valued.
Level 3 — Pricing inputs significant to the valuation are unobservable. Inputs are developed based on the best
information available. However, significant judgment is required by us in developing the inputs.

F-21

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

Loan Interest Income

For all loans, including impaired loans, classified as held for investment, we recognize interest income as earned, adjusted
for the amortization of deferred direct origination and acquisition costs. This adjustment is recognized based upon the expected
yield of the loan over its life after giving effect to prepayments and extensions. We consider our constant prepayment rate
(“CPR”) estimates a significant accounting assumption used to measure the expected prepayment activity in our education loan
portfolio. The estimates are based on a number of factors such as historical prepayment rates for loans with similar loan
characteristics, assumptions about portfolio composition and loan terms, and the prepayment curve’s tendency to follow a ramp
pattern (i.e., the prepayment rate typically increases during the in-school and early repayment periods, then stabilizes). The CPR
measures the expected prepayment activity over the life of the loan and is applied as a flat-rate input assumption when used in
forecasting. Additionally, interest earned on education loans reflects potential non-payment adjustments in accordance with our
uncollectible interest recognition policy as discussed further in “Allowance for Loan Losses” of this Note 2. Because of this, we
do not place loans in nonaccrual status prior to charge-off. We do not amortize any adjustments to the basis of education loans
when they are classified as held-for-sale.

Our CPR estimates include the effect of voluntary prepayments and consolidation (if the loans are consolidated to third

parties), both of which shorten the lives of loans. CPR estimates also consider the utilization of deferment, forbearance, and
extended repayment plans, which lengthen the lives of loans. We regularly evaluate the assumptions used to estimate the CPRs.
In instances where there are changes to the assumptions, amortization of deferred direct origination and acquisition costs is
adjusted on a cumulative basis to reflect the change since the origination or purchase of the loan. For the year ended December
31, 2019, our CPR for Private Education Loans was 6.92 percent, compared with a CPR of 6.83 percent for the year ended
December 31, 2018.

We also pay to the U.S. Department of Education (the “DOE”) an annual 105 basis point Consolidation Loan Rebate Fee

on FFELP consolidation loans, which is netted against loan interest income. Additionally, interest earned on education loans
reflects potential non-payment adjustments in accordance with our uncollectible interest recognition policy. We do not amortize
any adjustments to the basis of loans when they are classified as held-for-sale.

We recognize certain fee income (primarily late fees) on education loans when earned according to the contractual
provisions of the promissory notes, as well as our expectation of collectability. Fee income is recorded when earned in “other
non-interest income” in the accompanying consolidated statements of income.

Interest Expense

Interest expense is based upon contractual interest rates adjusted for the amortization of issuance costs. We incur interest

expense on interest bearing deposits comprised of non-maturity savings deposits, brokered and retail CDs, and brokered and
retail MMDAs, as well as on unsecured and secured financings. Interest expense is recognized when amounts are contractually
due to deposit and debt holders and is adjusted for net payments/receipts related to interest rate swap agreements that qualify
and are designated hedges of interest bearing liabilities. Interest expense also includes the amortization of deferred gains and
losses on closed hedge transactions that qualified as hedges. Amortization of debt issuance costs, premiums, discounts and
terminated hedge-basis adjustments are recognized using the effective interest rate method. We incur certain fees related to our
Private Education Loan multi-lender secured borrowing facility (the “Secured Borrowing Facility,” which was previously called
the asset-backed commercial paper facility or ABCP Facility), including an unused Secured Borrowing Facility fee, and also
incur fees related to our term asset-backed securities (“ABS”). These fees are included in interest expense. Refer to Note 8,
“Deposits,” and Note 9, “Borrowings” for further details of our interest bearing liabilities.

F-22

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

Gains on Sale of Loans, Net

We may participate and sell loans to third-parties and affiliates, including entities that were related parties prior to the
Spin-Off. These sales may occur through whole loan sales or securitization transactions that qualify for sales treatment. If a
transfer of loans qualifies as a sale, we derecognize the loan and recognize a gain or loss as the difference between the carry
basis of the loan sold and liabilities retained and the compensation received. We recognize the results of a transfer of loans
based upon the settlement date of the transaction. These loans were initially recorded as held for investment and were
transferred to held-for-sale immediately prior to sale or securitization.

In the second quarter of 2018, we sold our remaining $43 million portfolio of Split Loans (both current and non-current
loans) to Navient and recognized a net gain of $2 million. See Note 15, “Arrangements with Navient Corporation,” for further
discussion regarding loan purchase agreements. We did not sell loans in 2019 and 2017, other than Split Loans.

Other Income

Our Upromise subsidiary has a number of programs that encourage consumers to save for the cost of college education.

We have established a consumer savings network, which is designed to promote college savings by consumers who are
members of this program by encouraging them to purchase goods and services from the merchants that participate in the
program. Participating merchants generally pay Upromise fees based on member purchase volume, either online or in stores,
depending on the contractual arrangement with the merchant. We recognize revenue as marketing and administrative services
are rendered, based upon contractually determined rates and member purchase volumes.

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2014-09, “Revenue from Contracts with Customers (Topic 606).” The guidance in this ASU supersedes existing revenue
recognition requirements in Topic 605, Revenue Recognition, including an assortment of transaction-specific and industry-
specific rules. We adopted the new revenue recognition model on January 1, 2018. This ASU establishes a principles-based
model under which revenue from a contract is allocated to the distinct performance obligations within the contract and
recognized in income as each performance obligation is satisfied. ASU Topic 606 does not apply to rights or obligations
associated with financial instruments (for example, interest income from loans or investments, or interest expense on debt), and
therefore our net interest income should not be affected.

Certain of our fee income related to our Upromise rewards business is within the scope of these rules. Management has

concluded that timing and measurement of fee income related to our Upromise rewards business has remained substantially
unchanged under the new standard. This conclusion covers the vast majority of our revenue that is within the scope of the
standard. The adoption of this standard did not materially affect our consolidated financial statements in 2018.

In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal

versus Agent Considerations (Reporting Revenue Gross versus Net).” The guidance in this ASU provides clarification on the
principal versus agent concept in relation to revenue recognition guidance issued as part of ASU No. 2014-09, “Revenue from
Contracts with Customers (Topic 606).” Topic 606 requires a company to determine whether it is a principal or an agent in a
transaction in which another party is involved in providing goods or services to a customer by evaluating the nature of its
promise to the customer. ASU No. 2016-08 provides clarification for identifying the good, service or right being transferred in a
revenue transaction and identifies the principal as the party that controls the good, service or right prior to its transfer to the
customer. The ASU provides further clarity on how to evaluate control in this context. We adopted the standard on January 1,
2018. The adoption did not result in different conclusions regarding our revenue arrangements that involve a principal-agent
relationship.

Also included in other income are late fees on both Private Education Loans and FFELP Loans, which we recognize when
the cash has been received, fees related to our credit card affinity program, income for servicing private student loans for third-
parties and changes to our tax indemnification receivable from Navient.

F-23

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

Securitization Accounting

Our securitization transactions use a two-step structure with a special purpose entity VIE that legally isolates the

transferred assets from us in the event of bankruptcy or receivership. Transactions receiving sale treatment are also structured to
ensure that the holders of the beneficial interests issued are not constrained from pledging or exchanging their interests, and that
we do not maintain effective control over the transferred assets. If these criteria are not met, then the transaction is accounted
for as an on-balance sheet secured borrowing. If a securitization qualifies as a sale, we then assess whether we are the primary
beneficiary of the securitization trust and are required to consolidate such trust. We are considered the primary beneficiary if we
have both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and
(2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE. There can be
considerable judgment as it relates to determining the primary beneficiary of the VIEs. There are no “bright line” tests. Rather,
the assessment of who has the power to direct the activities of the VIE that most significantly affect the VIE’s economic
performance and who has the obligation to absorb losses or receive benefits of the entity that could potentially be significant to
the VIE can be very qualitative and judgmental in nature. If we are the primary beneficiary, then no gain or loss is recognized.

We have determined that as the servicer of Sallie Mae securitization trusts, we meet the first primary beneficiary criterion

because we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance.

Irrespective of whether a securitization receives sale or on-balance sheet treatment, our continuing involvement with our

securitization trusts is generally limited to:

•

Owning the equity certificates of certain trusts;

The servicing of the student loan assets within the securitization trusts, on both a pre- and post-default basis;

Our acting as administrator for the securitization transactions we sponsored;

Our responsibilities relative to representation and warranty violations; and

The option to exercise the clean-up call and purchase the student loans from the trust when the pool balance is 10
percent or less of the original pool balance.

In 2019 and 2018, we executed several secured financing transactions. Based upon our relationships with these

securitizations, we believe the consolidation assessment is straightforward. We consolidated our secured financing transactions
because either we did not meet the accounting criterion for sales treatment or we determined we were the primary beneficiary
of the VIE because we retained (a) the residual interest in the securitization and therefore had the obligation to absorb losses or
receive benefits of the entity that could potentially be significant to the VIE, as well as (b) the power to direct the activities of
the VIE in our role as servicer.

The investors in our securitization trusts have no recourse to our other assets should there be a failure of the trust to pay
when due. Generally, the only recourse the securitization trusts have to us is in the event we breach a seller representation or
warranty or our duties as master servicer and servicer, in which event we are obligated to repurchase the related loans from the
trust.

Derivative Accounting

We account for our derivatives, consisting of interest rate swaps, at fair value on the consolidated balance sheets as either

an asset or liability. Derivative positions are recorded as net positions by counterparty based on master netting arrangements
(see Note 10, “Derivative Financial Instruments”), exclusive of accrued interest and cash collateral held or pledged. The Dodd-
Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) requires all standardized derivatives,
including most interest rate swaps, to be submitted for clearing to central counterparties to reduce counterparty risk. Two of the
central counterparties we use are the Chicago Mercantile Exchange (the “CME”) and the London Clearing House (the “LCH”).
All variation margin payments on derivatives cleared through the CME and LCH are accounted for as legal settlement. As of
December 31, 2019, $9.4 billion notional of our derivative contracts were cleared on the CME and $0.5 billion were cleared on

F-24

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

the LCH. The derivative contracts cleared through the CME and LCH represent 95.0 percent and 5.0 percent, respectively, of
our total notional derivative contracts of $9.9 billion at December 31, 2019.

We determine the fair value for our derivative contracts primarily using pricing models that consider current market

conditions and the contractual terms of the derivative contracts. These pricing models consider interest rates, time value,
forward interest rate curves, and volatility factors. Inputs are generally from active financial markets.

The accounting for derivative instruments requires that every derivative instrument, including certain derivative

On July 1, 2018, we adopted the FASB’s ASU No. 2017-12, “Derivatives and Hedging: Targeted Improvements to

Accounting for Hedging Activities.” Under the standard, we are no longer required to separately measure and report hedge
ineffectiveness, which was previously recorded in “gains (losses) on derivatives and hedging activities, net” in our consolidated
statements of income. In accordance with the standard, certain provisions were required to be applied on a modified
retrospective basis, which requires a cumulative effect adjustment to accumulated other comprehensive income with a
corresponding adjustment to retained earnings as of the beginning of the fiscal year of adoption, or January 1, 2018 in our case.

As a result of the cumulative effect of applying the new hedging standard to our fair value hedges on July 1, 2018, we

Each derivative is designated to a specific (or pool of) liability(ies) on the consolidated balance sheets, and is designated

as either a “fair value” hedge or a “cash flow” hedge. Fair value hedges are designed to hedge our exposure to the changes in
fair value of a fixed-rate liability. For effective fair value hedges, both the hedge and the hedged item (for the risk being
hedged) are recorded at fair value with any difference reflecting ineffectiveness recorded immediately in the consolidated
statements of income. Cash flow hedges are designed to hedge our exposure to variability in cash flows related to variable-rate
deposits. The assessment of the hedge’s effectiveness is performed at inception and on an ongoing basis, using regression
testing. For hedges of a pool of liabilities, tests are performed to demonstrate the similarity of individual instruments of the
pool. When it is determined that a derivative is not currently an effective hedge, ineffectiveness is recognized for the full
change in fair value of the derivative with no offsetting amount from the hedged item since the last time it was effective. If it is
also determined the hedge will not be effective in the future, we discontinue the hedge accounting prospectively and begin
amortization of any basis adjustments that exist related to the hedged item.

Stock-Based Compensation

We recognize stock-based compensation cost in our consolidated statements of income using the fair value method.
Under this method, we determine the fair value of the stock-based compensation at the time of the grant and recognize the
resulting compensation expense over the vesting period of the stock-based grant. We do not apply a forfeiture rate to our stock-
based compensation expense, but rather record forfeitures when they occur. We record all excess tax benefits/deficiencies
related to the settlement of employee stock-based compensation to the income tax expense line item on our consolidated
statements of income.

F-25

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to

Employee Share-Based Payment Accounting,” which amended the stock compensation guidance. The amendments simplified
the accounting for the taxes related to stock-based compensation, including adjustments to how excess tax benefits and a
company’s payments for tax withholdings should be classified. The standard became effective for fiscal periods beginning after
December 15, 2016, with early adoption permitted. We adopted this standard effective January 1, 2017 and recorded an $8.5
million benefit in income tax expense in 2017 because of this standard. We previously recorded the excess tax benefits/
deficiencies to the additional paid-in capital line item on our consolidated balance sheets. Under the guidance, we also elected
the option to no longer apply a forfeiture rate to our stock-based compensation expense, but to record forfeitures when they
occur, and, as a result, under a modified retrospective basis we recorded a cumulative effect of the new stock compensation
standard in total equity of $0.2 million, net of tax, in the first quarter of 2017.

Income Taxes

We account for income taxes under the asset and liability approach, which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and tax
basis of our assets and liabilities. To the extent tax laws change, deferred tax assets and liabilities are adjusted in the period that
the tax change is enacted.

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which
lowered federal corporate income tax rates from 35 percent to 21 percent, beginning January 1, 2018. Because the Tax Act was
enacted during the fourth-quarter 2017, we were required to reflect the application of the lower tax rate in future years to our
deferred assets, liabilities and indemnification receivables. We recognized additional discrete tax expense of $15 million for the
year ended December 31, 2017, primarily due to the remeasurement of our deferred tax assets and liabilities following the
enactment of the Tax Act. At December 31, 2019, our accounting for the Tax Act is complete under the SEC’s Staff Accounting
Bulletin No. 118.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic
220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification
from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the tax law and tax
rate changes under the Tax Act. Under the Tax Act, deferred taxes were adjusted to reflect the reduction of the historical
corporate income tax rate to the newly enacted corporate income tax rate, which left the tax effects on items within accumulated
other comprehensive income stranded at an inappropriate tax rate. This guidance was effective for fiscal years beginning after
December 15, 2018, and for interim periods within those fiscal years, with early adoption permitted. We adopted this standard
effective January 1, 2018 and recorded a $0.6 million reclass from accumulated other comprehensive income to retained
earnings in the first quarter of 2018.

“Income tax expense (benefit)” includes (i) deferred tax expense (benefit), which represents the net change in the deferred

tax asset or liability balance during the year when applicable, and (ii) current tax expense (benefit), which represents the
amount of tax currently payable to or receivable from a tax authority plus amounts accrued for unrecognized tax benefits.
Income tax expense (benefit) excludes the tax effects related to adjustments recorded in equity.

An uncertain tax position is recognized only if it is more likely than not to be sustained upon examination based on the

technical merits of the position. The amount of tax benefit recognized in the consolidated financial statements is the largest
amount of benefit that is more than fifty percent likely of being sustained upon ultimate settlement of the uncertain tax position.
We recognize interest and penalties related to unrecognized tax benefits in income tax expense (benefit).

In connection with the Spin-Off, we recorded a liability related to uncertain tax positions of $27 million for which we are

indemnified by Navient. If there is an adjustment to the indemnified uncertain tax liability, an offsetting adjustment to the
indemnification receivable will be recorded as pre-tax adjustment to other income in the income statement.

F-26

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

As of the date of the Spin-Off on April 30, 2014, we recorded a liability of $310 million ($283 million related to deferred

taxes and $27 million related to uncertain tax positions) and an indemnification receivable of $291 million ($310 million less
the $19 million discount). As of December 31, 2019, with respect to those amounts recorded at the Spin-Off, the remaining
liability balance is $15 million (related to uncertain tax positions) and the remaining indemnification receivable balance is
$15 million (related to uncertain tax positions).

Reclassifications

Certain reclassifications have been made to the balances as of and for the years ended December 31, 2018 and 2017, to be

consistent with classifications adopted for 2019, which had no effect on net income, total assets or total liabilities.

Recently Issued and Adopted Accounting Pronouncements

ASU No. 2016-02, “Leases”

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” a comprehensive new lease standard which superseded

previous lease guidance. The standard requires a lessee to recognize in its balance sheet assets and liabilities related to long-
term leases that were classified as operating leases under previous guidance. An asset will be recognized related to the right to
use the underlying asset and a liability will be recognized related to the obligation to make lease payments over the term of the
lease. The standard also requires expanded disclosures surrounding leases. The standard is effective for fiscal periods beginning
after December 15, 2018, and requires modified retrospective adoption, with early adoption permitted. We adopted this
guidance on January 1, 2019. In doing so, we identified and evaluated the related lease contracts and revised our controls and
processes to address the lease standard. The adoption of this guidance resulted in the recognition of less than $34 million of
right of use asset and lease liability, which did not have a material impact on our consolidated financial statements.

Recently Issued but Not Yet Adopted Accounting Pronouncements

ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial

Instruments”

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of

Credit Losses on Financial Instruments,” as amended by ASU No. 2019-04, “Codification Improvements to Topic 326,
Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” which will
become effective for us on January 1, 2020 (“CECL”). This ASU eliminates the current accounting guidance for the recognition
of credit impairment. Under the new guidance, for all loans carried at amortized cost, upon loan origination we will be required
to measure our allowance for credit losses based on our estimate of all current expected credit losses over the remaining
contractual term of the assets. Updates to that estimate each period will be recorded through provision expense. The estimate of
credit losses must be based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU
does not mandate the use of any specific method for estimating credit loss, permitting companies to use judgment in selecting
the approach that is most appropriate in their circumstances. Upon adoption, a cumulative effect adjustment to retained earnings
will be recorded as of the beginning of the first reporting period in which the guidance is effective in an amount necessary to
adjust the allowance for credit losses to equal the current estimate of expected losses on financial assets held at that date.

F-27

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

2. Significant Accounting Policies (Continued)

dry runs of our CECL solution to test the end-to-end implementation of the new solution. The loss and other models that will be
used in our CECL solution have been validated and approved to be used for the adoption of CECL. In the fourth quarter of
2019, we finalized and implemented the required governance and internal controls, completed our loss models for both Personal
Loans we originated and Credit Card receivables, and completed the testing and validation for all the models to be used to
implement CECL.

F-28

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

3. Cash and Cash Equivalents

As of December 31, 2019, cash and cash equivalents include cash due from the FRB of $5.5 billion and cash due from

depository institutions of $93 million. As of December 31, 2018, cash and cash equivalents include cash due from the FRB of
$2.5 billion and cash due from depository institutions of $62 million. As of December 31, 2019 and 2018, we had no
outstanding cash equivalents.

The FRB Term Deposit Facility program is used to facilitate the conduct of monetary policy by providing a tool that may

be used to manage the aggregate quantity of reserve balances held by depository institutions. Under this program, the FRB
accepts deposits for a stated maturity at a rate of interest determined via auction. The funds are removed from the accounts of
participating institutions for the life of the term deposit. We participated in these auctions in 2019 and 2018, resulting in interest
income of $0.3 million and $0.2 million, respectively. As of December 31, 2019 and 2018, no funds were on deposit with the
FRB under this program.

4. Investments

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

Available for sale:

Mortgage-backed securities

Utah Housing Corporation bonds

U.S. government-sponsored
enterprises

Total

Available for sale:

Mortgage-backed securities

Utah Housing Corporation bonds

Total

December 31, 2019

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Amortized
Cost

Estimated
Fair Value

215,888

1,895

(658) $

217,125

19,474

250,394

145

635

(83)

19,536

(21)

251,008

485,756

2,675

(762) $

487,669

December 31, 2018

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Amortized
Cost

Estimated
Fair Value

159,937

155

(5,517) $

154,575

22,388

(741)

21,670

182,325

178

(6,258) $

176,245

F-29

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

4. Investments (Continued)

The following table summarizes the amount of gross unrealized losses for our available-for-sale securities and the
estimated fair value for securities having gross unrealized loss positions, categorized by length of time the securities have been
in an unrealized loss position:

Less than 12 months

12 months or more

Total

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

As of December 31, 2019:

Mortgage-backed securities . . . . . . . . . . . . .

(218) $

25,624

(440) $

42,448

(658) $

68,072

Utah Housing Corporation bonds . . . . . . . . .

U.S. government-sponsored enterprises . . . .

—

(21)

—

14,977

(83)

—

11,097

—

(83)

(21)

11,097

14,977

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(239) $

40,601

(523) $

53,545

(762) $

94,146

As of December 31, 2018:

Mortgage-backed securities . . . . . . . . . . . . .

Utah Housing Corporation bonds . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(228) $

16,948

—

(228) $

16,948

(5,289) $

125,537

(741)

16,647

(6,030) $

142,184

(5,517) $

142,485

(741)

16,647

(6,258) $

159,132

Our investment portfolio is comprised primarily of mortgage-backed securities issued by Ginnie Mae, Fannie Mae and

Freddie Mac, with amortized costs of $54 million, $106 million, and $56 million, respectively, at December 31, 2019. We own
these securities to meet our requirements under the Community Reinvestment Act. In the second quarter of 2018, we elected to
sell nine securities totaling $41 million to better align the portfolio with the Community Reinvestment Act requirements, and
we recognized a $2 million loss upon the sale of those securities. As of December 31, 2019, 33 of the 107 separate mortgage-
backed securities in our investment portfolio had unrealized losses, and 18 of the 33 securities in a net loss position were issued
under Ginnie Mae programs that carry a full faith and credit guarantee from the U.S. Government. The remaining securities in a
net loss position carry a principal and interest guarantee by Fannie Mae or Freddie Mac, respectively. We have the intent and
ability to hold these bonds for a period of time sufficient for the market price to recover to at least the adjusted amortized cost
of the security. As of December 31, 2018, 74 of the 86 separate mortgage-backed securities in our investment portfolio had
unrealized losses, and 34 of the 74 securities in a net loss position were issued under Ginnie Mae programs that carry a full faith
and credit guarantee from the U.S. Government. The remainder carried a principal and interest guarantee by Fannie Mae or
Freddie Mac, respectively.

We also invest in Utah Housing Corporation bonds for the purpose of complying with the Community Reinvestment Act.

These bonds are Aa3 rated by Moody’s Investors Service. The amortized cost of the investment on the consolidated balance
sheet at December 31, 2019 and December 31, 2018 was $19 million and $22 million, respectively. We have the intent and
ability to hold these bonds for a period of time sufficient for the market price to recover to at least the adjusted amortized cost
of the security.

Beginning in the second quarter of 2019, we began investing in U.S. government-sponsored enterprise securities issued
by the Federal Home Loan Bank (“FHLB”), Freddie Mac and the Federal Farm Credit Bank (“FFCB”). These bonds are rated
AA+ by Moody’s Investors Services. As of December 31, 2019, 1 of the 14 securities had unrealized losses.

F-30

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

4. Investments (Continued)

As of December 31, 2019, the amortized cost and fair value of securities, by contractual maturities, are summarized

below. Contractual maturities versus actual maturities may differ due to the effect of prepayments.

Year of Maturity

Amortized
Cost

Estimated
Fair Value

2020 . . . . . . . . . . . . . . . . . .

77,240

77,385

2021 . . . . . . . . . . . . . . . . . .

2022 . . . . . . . . . . . . . . . . . .

2038 . . . . . . . . . . . . . . . . . .

2039 . . . . . . . . . . . . . . . . . .

2042 . . . . . . . . . . . . . . . . . .

2043 . . . . . . . . . . . . . . . . . .

2044 . . . . . . . . . . . . . . . . . .

2045 . . . . . . . . . . . . . . . . . .

2046 . . . . . . . . . . . . . . . . . .

2047 . . . . . . . . . . . . . . . . . .

2048 . . . . . . . . . . . . . . . . . .

2049 . . . . . . . . . . . . . . . . . .

138,157

34,997

138,640

34,983

176

2,597

7,196

11,661

17,300

18,280

28,892

45,411

12,154

91,695

191

2,778

7,050

11,813

17,487

18,332

28,822

45,353

12,478

92,357

Total. . . . . . . . . . . . . . . . . .

485,756

487,669

The mortgage-backed securities have been pledged to the FRB as collateral against any advances and accrued interest
under the Primary Credit lending program sponsored by the FRB. We had $252 million and $147 million par value of securities
pledged to this borrowing facility at December 31, 2019 and 2018, respectively, as discussed further in Note 9, “Borrowings.”

Other Investments

Investments in Non-Marketable Securities

We hold investments in non-marketable securities and account for these investments at cost, less impairment, plus or

minus observable price changes of identical or similar securities of the same issuer. In the third quarter of 2019, we funded an
additional investment, as part of a larger equity raise, in an issuer whose equity securities we purchased in the past. We used the
valuation associated with the more recent securities investment to adjust the valuation of our previous investments and, as a
result, recorded a gain of $8 million on our earlier equity securities investments. This gain was recorded in “other income” in
the consolidated statements of income. As of December 31, 2019 and December 31, 2018, our total investment in the securities
of this issuer was $26 million and $8 million, respectively.

Low Income Housing Tax Credit Investments

We invest in affordable housing projects that qualify for the LIHTC, which is designed to promote private development of

low income housing. We recognized $6 million, $4 million and $1 million of tax credits and other tax benefits associated with
investments in affordable housing projects within income tax expense for the years ended December 31, 2019, 2018 and 2017,
respectively. The amount of amortization of such investments reported in income tax expense was $4 million, $4 million and $1
million for the years ended December 31, 2019, 2018 and 2017, respectively. Total carrying value of the LIHTC investments

F-31

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

4. Investments (Continued)

was $58 million at December 31, 2019 and $48 million at December 31, 2018. We are periodically required to provide
additional financial support during the investment period. Our liability for these unfunded commitments was $29 million at
December 31, 2019 and $37 million at December 31, 2018.

5. Loans Held for Investment

Loans Held for Investment consist of Private Education Loans, FFELP Loans, Personal Loans and Credit Cards.

Our Private Education Loans are made largely to bridge the gap between the cost of higher education and the amount

funded through financial aid, government loans and customers’ resources. Private Education Loans bear the full credit risk of
the customer. We manage this risk through risk-performance underwriting strategies and qualified cosigners. Private Education
Loans may be fixed-rate or may carry a variable interest rate indexed to LIBOR, the London interbank offered rate. As of
December 31, 2019 and 2018, 58 percent and 67 percent, respectively, of our Private Education Loans were indexed to LIBOR.
We provide incentives for customers to include a cosigner on the loan, and the vast majority of loans in our portfolio are
cosigned. We also encourage customers to make payments while in school.

In connection with the Spin-Off, we retained the right to require Navient to purchase delinquent loans (at fair value) when

the borrower has a lending relationship with both us and Navient. In the second quarter of 2018, we sold our remaining $43
million portfolio of Split Loans (both current and non-current loans) to Navient and recognized a net gain of $2 million. See
Note 15, “Arrangements with Navient Corporation,” for further discussion regarding loan purchase agreements.

FFELP Loans are insured as to their principal and accrued interest in the event of default, subject to a risk-sharing level

based on the date of loan disbursement. These insurance obligations are supported by contractual rights against the United
States. For loans disbursed on or after July 1, 2006, we receive 97 percent reimbursement on all qualifying claims. For loans
disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement on all qualifying claims. For
loans disbursed prior to October 1, 1993, we receive 100 percent reimbursement on all qualifying claims.

In 2016, we began to acquire Personal Loans from a marketplace lender, but discontinued those purchases in July 2018.
In 2018, we began to originate and service Personal Loans. However, in the fourth quarter of 2019, we elected to discontinue
new originations as part of our 2020 planning process.

In the second quarter of 2019, we launched our suite of cash-back Credit Cards with unique bonus rewards designed to

help cardholders develop financially responsible habits.

F-32

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

5. Loans Held for Investment (Continued)

Loans held for investment are summarized as follows:

December 31,

2019

2018

Private Education Loans:

Fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,830,301

6,759,019

Variable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Private Education Loans, gross . . . . . . . . . . . . .

Deferred origination costs and unamortized
premium/ (discount) . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . .

13,359,290

23,189,591

13,745,446

20,504,465

81,224

(374,300)

68,321

(277,943)

Total Private Education Loans, net . . . . . . . . . . . . . . .

22,896,515

20,294,843

FFELP Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

783,306

846,487

Deferred origination costs and unamortized
premium/ (discount) . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . .

Total FFELP Loans, net . . . . . . . . . . . . . . . . . . . . . . .

2,143

(1,633)

783,816

2,379

(977)

847,889

Personal Loans (fixed-rate). . . . . . . . . . . . . . . . . . . . .

1,049,007

1,190,091

Deferred origination costs and unamortized
premium/ (discount) . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . .

Total Personal Loans, net . . . . . . . . . . . . . . . . . . . . . .

Credit Cards (fixed-rate). . . . . . . . . . . . . . . . . . . . . . .

Deferred origination costs and unamortized
premium/ (discount) . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . .

Total Credit Cards, net . . . . . . . . . . . . . . . . . . . . . . . .

513

(65,877)

983,643

3,884

(102)

3,818

297

(62,201)

1,128,187

—

Loans held for investment, net . . . . . . . . . . . . . . . . . .

24,667,792

22,270,919

The estimated weighted average life of education loans in our portfolio was approximately 5.4 years at both

December 31, 2019 and 2018, respectively.

The average balance and the respective weighted average interest rates of loans in our portfolio are summarized as

follows:

F-33

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

5. Loans Held for Investment (Continued)

Years Ended December 31,

2019

2018

2017

Weighted
Average
Interest
Rate

Average
Balance

Private Education Loans. . . . . . . .

$ 22,225,473

9.32% $ 19,282,500

9.10% $16,176,351

8.43%

FFELP Loans . . . . . . . . . . . . . . . .

814,198

Personal Loans . . . . . . . . . . . . . . .

1,141,503

4.79

12.09

888,301

900,152

4.57

11.08

970,738

112,644

3.91

9.90

Total portfolio . . . . . . . . . . . . . . . .

$ 24,181,174

$ 21,070,953

$17,259,733

Certain Collection Tools — Private Education Loans

Forbearance may also be granted through our collections centers to customers who are delinquent in their payments. If

F-34

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

5. Loans Held for Investment (Continued)

encouraging resolution of delinquent loans. In all instances, we require one or more payments before granting forbearance to
delinquent borrowers.

Management continually monitors our credit administration practices and may periodically modify these practices based

upon performance, industry conventions, and/or regulatory feedback. In light of these considerations, we plan to implement
certain changes to our credit administration practices.

Specifically, we plan to revise our credit administration practices limiting the number of forbearance months granted

Prior to full implementation of the credit administration practice changes described above, management will conduct a
controlled testing program on randomly selected borrowers to measure the impact of the changes on our customers, our credit
operations, and key credit metrics. The testing commenced in October 2019 for some of the planned changes on a very small
percentage of our total portfolio and will expand over subsequent quarters as the impacts are better understood. Management
expects to have completed implementation of the new policies and practices by year-end 2020. However, we may modify or
delay the contemplated practice changes, the proposed timeline, or the method of implementation as we learn more about the
impacts during the progression of the testing program.

F-35

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

5. Loans Held for Investment (Continued)

life of loan defaults on our overall Private Education Loan portfolio to increase as a result of the planned changes to our credit
administrative practices. As we progress with the controlled testing program of the planned changes to our credit administration
practices, we expect to learn more about how our borrowers are reacting to these changes and, as we analyze such reactions,
will continue to refine our estimates of the impact of those changes on our allowance for loan losses.

The period of delinquency for loans is based on the number of days scheduled payments are contractually past due. As of

December 31, 2019 and 2018, we had $48 million and $43 million, respectively, of FFELP Loans and $63 million and
$51 million, respectively, of Private Education Loans held for investment which were more than 90 days delinquent that
continue to accrue interest. At December 31, 2019 and 2018, we had no loans in nonaccrual status.

Borrower-in-Custody Arrangements

We maintain Borrower-in-Custody arrangements with the FRB. Under these arrangements, we can pledge FFELP Loans

or Private Education Loans to the FRB to secure any advances and accrued interest generated under the Primary Credit program
at the FRB. As of December 31, 2019 and 2018, we had $3.4 billion and $3.4 billion, respectively, of Private Education Loans
pledged to this borrowing facility, as discussed further in Note 9, “Borrowings.” We did not have any FFELP consolidation
loans pledged at December 31, 2019 or 2018.

Loans Held for Investment by Region

At December 31, 2019, 39.4 percent of total education loans were concentrated in the following states:

New York . . . . . . .

10.1%

2019

California . . . . . . .

Pennsylvania. . . . .

New Jersey . . . . . .

Texas. . . . . . . . . . .

9.4

8.4

6.6

4.9

39.4%

At December 31, 2018, 39.9 percent of total education loans were concentrated in the following states:

New York . . . . . . .

10.3%

2018

California . . . . . . .

Pennsylvania. . . . .

New Jersey . . . . . .

Illinois. . . . . . . . . .

9.3

8.5

6.8

5.0

39.9%

No other state had a concentration of total education loans in excess of 5 percent of the aggregate outstanding education

loans held for investment.

F-36

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses

Our provision for credit losses represents the periodic expense of maintaining an allowance sufficient to absorb incurred

probable losses in the held-for-investment loan portfolios. The evaluation of the allowance for loan losses is inherently
subjective, as it requires material estimates that may be susceptible to significant changes. We believe the allowance for loan
losses is appropriate to cover probable losses incurred in the loan portfolios. See Note 2, “Significant Accounting Policies —
Allowance for Loan Losses — Allowance for Private Education Loan Losses, — Allowance for Personal Loans, — Allowance
for FFELP Loan Losses, and — Allowance for Credit Cards” for a more detailed discussion.

Allowance for Loan Losses Metrics

Allowance for Loan Losses

Year Ended December 31, 2019

FFELP
Loans

Private Education
Loans

Personal
Loans

Credit Cards

Total

Allowance for Loan Losses

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . .

977

277,943

62,201

— $

341,121

Total provision. . . . . . . . . . . . . . . . . . . . . . . . . .

1,478

279,570

72,783

103

353,934

Net charge-offs:

Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . .

(822)

—

(822)

(208,978)

(74,313)

25,765

5,206

(183,213)

(69,107)

(1)

—

(1)

(284,114)

30,971

(253,143)

Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . .

1,633

374,300

65,877

102

441,912

Allowance:

Ending balance: individually evaluated for
impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ending balance: collectively evaluated for
impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loans:

Ending balance: individually evaluated for
impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ending balance: collectively evaluated for
impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net charge-offs as a percentage of average loans
in repayment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance as a percentage of the ending total
loan balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance as a percentage of the ending loans
in repayment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance coverage of net charge-offs . . . . . . . .

— $

186,697

1,633

187,603

— $

1,581,966

— $

186,697

65,877

102

255,215

— $

1,581,966

783,306

21,607,625

$ 1,049,007

3,884

$ 23,443,822

0.13%

0.21%

0.26%

1.99

1.17%

6.07%

0.13%

1.61%

6.28%

2.63%

2.23%

2.04

6.28%

0.95

2.63%

102.00

3,884

786

3,884

Ending total loans, gross . . . . . . . . . . . . . . . . . . .
Average loans in repayment(1) . . . . . . . . . . . . . . .
Ending loans in repayment(1) . . . . . . . . . . . . . . . .

783,306

631,029

617,646

23,189,591

$ 1,049,007

15,605,927

$ 1,138,887

16,787,670

$ 1,049,007

____________

(1)

Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and
interest repayment status after any applicable grace period.

F-37

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Allowance for Loan Losses

Year Ended December 31, 2018

FFELP
Loans

Private Education
Loans

Personal
Loans

Total

Allowance for Loan Losses

Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,132

243,715

6,628

Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

980

169,287

74,317

Net charge-offs:

Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net charge-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan sales(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,135)

—

(1,135)

—

977

(154,701)

(19,690)

20,858

(133,843)

(1,216)

946

(18,744)

—

277,943

251,475

244,584

(175,526)

21,804

(153,722)

(1,216)

Allowance:

Ending balance: individually evaluated for impairment. . .

Ending balance: collectively evaluated for impairment . . .

Loans:

Ending balance: individually evaluated for impairment. . .

Ending balance: collectively evaluated for impairment . . .

Net charge-offs as a percentage of average loans in
repayment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance as a percentage of the ending total loan
balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance as a percentage of the ending loans in
repayment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance coverage of net charge-offs . . . . . . . . . . . . . . .

— $

977

120,110

157,833

— $

1,257,856

846,487

19,246,609

62,201

341,121

— $

62,201

120,110

221,011

— $

1,257,856

1,190,091

21,283,187

0.16%

0.12%

0.15%

0.86

1.01%

1.36%

1.90%

2.08

2.11%

5.23%

3.32

Ending total loans, gross. . . . . . . . . . . . . . . . . . . . . . . . . . .
Average loans in repayment(2). . . . . . . . . . . . . . . . . . . . . . .
Ending loans in repayment(2) . . . . . . . . . . . . . . . . . . . . . . .

846,487

691,406

665,807

20,504,465

13,303,801

14,666,856

1,190,091

889,348

1,190,091

____________

(1)

(2)

Represents fair value adjustments on loans sold.

Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full
principal and interest repayment status after any applicable grace period.

F-38

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Allowance for Loan Losses

Year Ended December 31, 2017

FFELP
Loans

Private Education
Loans

Personal
Loans

Total

Allowance for Loan Losses

Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,171

182,472

Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(85)

178,542

7,138

Net charge-offs:

Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net charge-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loan sales(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(954)

—

(954)

—

(130,063)

17,635

(112,428)

(4,871)

(579)

(568)

—

184,701

185,595

(131,596)

17,646

(113,950)

(4,871)

Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,132

243,715

Allowance:

$
$

Ending balance: individually evaluated for impairment. . .
Ending balance: collectively evaluated for impairment . . .

Loans:
Ending balance: individually evaluated for impairment. . .

Ending balance: collectively evaluated for impairment . . .

Allowance as a percentage of the ending loans in
repayment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance coverage of net charge-offs . . . . . . . . . . . . . . .

— $
$

1,132

94,682
149,033

— $

990,351

927,660

16,441,816

0.13%

0.12%

0.15%

1.19

1.03%

1.40%

2.00%

2.17

927,660

745,039

746,456

17,432,167

10,881,058

12,206,033

$
$

____________

6,628

251,475

— $
$

6,628

94,682
156,793

— $

990,351

400,280

17,769,756

0.47%

1.66%

11.67

400,280

119,606

400,280

(1)

(2)

Represents fair value adjustments on loans sold.

Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full
principal and interest repayment status after any applicable grace period.

F-39

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Troubled Debt Restructurings

All of our loans are collectively assessed for impairment, except for loans classified as TDRs (where we conduct
individual assessments of impairment). We adjust the terms of loans for certain borrowers when we believe such changes will
help our customers manage their student loan obligations, achieve better student outcomes, and increase the collectability of the
loan. These changes generally take the form of a temporary forbearance of payments, a temporary interest rate reduction, a
temporary interest rate reduction with a permanent extension of the loan term, and/or a short-term extended repayment
alternative.

When we give a borrower facing financial difficulty an interest rate reduction, we temporarily reduce the contractual

interest rate on a loan to 4.0 percent (previously, to 2.0 percent) for a two-year period and, in the vast majority of cases,
permanently extend the final maturity date of the loan. The combination of these two loan term changes helps reduce the
monthly payment due from the borrower and increases the likelihood the borrower will remain current during the interest rate
modification period as well as when the loan returns to its original contractual interest rate. At December 31, 2019 and 2018,
7.2 percent and 6.4 percent, respectively, of our loans then currently in full principal and interest repayment status were subject
to interest rate reductions made under our rate modification program.

Once a loan qualifies for TDR status, it remains a TDR for allowance purposes for the remainder of its life. As of
December 31, 2019 and 2018, approximately 50 percent and 57 percent, respectively, of TDRs were classified as such due to
their forbearance status. See Note 2, “Significant Accounting Policies — Allowance for Loan Losses” for a more detailed
discussion.

Within the Private Education Loan portfolio, loans greater than 90 days past due are nonperforming. FFELP Loans are at

least 97 percent guaranteed as to their principal and accrued interest by the federal government in the event of default and,
therefore, we do not deem FFELP Loans as nonperforming from a credit risk standpoint at any point in their life cycle prior to
claim payment and continue to accrue interest on those loans through the date of claim.

At December 31, 2019 and 2018, all of our TDR loans had a related allowance recorded. The following table provides the

recorded investment, unpaid principal balance and related allowance for our TDR loans.

Recorded
Investment

Unpaid
Principal
Balance

Allowance

December 31, 2019

TDR Loans. . . . . . . . . . . .

1,612,896

1,581,966

186,697

December 31, 2018

TDR Loans. . . . . . . . . . . .

1,280,713

1,257,856

120,110

F-40

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

The following table provides the average recorded investment and interest income recognized for our TDR loans.

Years Ended December 31,

2019

2018

2017

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

TDR Loans . . . . . . . .

1,434,137

95,507

$ 1,141,993

77,670

822,145

61,119

The following table provides information regarding the loan status and aging of TDR loans.

TDR loans in in-school/grace/deferment(1) . . . . . . . . . . .
TDR loans in forbearance(2). . . . . . . . . . . . . . . . . . . . . . .
TDR loans in repayment(3) and percentage of each
status:

Loans current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans delinquent 31-60 days(4) . . . . . . . . . . . . . . . . . .
Loans delinquent 61-90 days(4) . . . . . . . . . . . . . . . . . .
Loans delinquent greater than 90 days(4). . . . . . . . . . .

December 31,

2019

2018

Balance

87,749

99,054

69,212

69,796

1,230,954

88.2%

994,411

88.9%

85,555

49,626

29,028

6.1

3.6

2.1

63,074

36,804

24,559

5.6

3.3

2.2

Total TDR loans in repayment . . . . . . . . . . . . . . . . . . .

1,395,163

100.0%

1,118,848

100.0%

Total TDR loans, gross . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,581,966

$1,257,856

_____

(1)

(2)

(3)

(4)

Deferment includes customers who have returned to school or are engaged in other permitted
educational activities and are not yet required to make payments on the loans (e.g., residency
periods for medical students or a grace period for bar exam preparation).

Loans for customers who have requested extension of grace period generally during employment
transition or who have temporarily ceased making full payments due to hardship or other factors,
consistent with established loan program servicing policies and procedures.

Loans in repayment include loans on which borrowers are making interest only or fixed
payments, as well as loans that have entered full principal and interest repayment status after any
applicable grace period.

The period of delinquency is based on the number of days scheduled payments are contractually
past due.

F-41

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

The following table provides the amount of modified loans (which includes forbearance and reductions in interest
rates) that became TDRs in the periods presented. Additionally, for the periods presented, the table summarizes charge-offs
occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the relevant period presented and
within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure.

2019

2018

2017

Years Ended December 31,

Modified
Loans(1)

Charge-
offs

Payment-
Default

Modified
Loans(1)

Charge-
offs

Payment-
Default

Modified
Loans(1)

Charge-
offs

Payment-
Default

TDR Loans. . . . .

$ 515,398

$ 74,137

$111,810

$394,639

$ 52,823

$ 90,231

$ 498,812

$ 48,469

$ 92,532

_______
(1) Represents the principal balance of loans that have been modified during the period and resulted in a TDR.

F-42

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Private Education Loan Key Credit Quality Indicators

FFELP Loans are at least 97 percent insured and guaranteed as to their principal and accrued interest in the event of

default; therefore, there are no key credit quality indicators associated with FFELP Loans.

For Private Education Loans, the key credit quality indicators are FICO scores, the existence of a cosigner, the loan status

and loan seasoning. The FICO scores are assessed at original approval and periodically refreshed/updated through the loan’s
term. The following table highlights the gross principal balance of our Private Education Loan portfolio stratified by key credit
quality indicators.

Credit Quality Indicators:

Balance

(1)

% of Balance

Balance

(1)

% of Balance

December 31, 2019

December 31, 2018

Cosigners:

With cosigner . . . . . . . . . . . . . . . . . . . . . . .

Without cosigner . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FICO at Original Approval(2):

Less than 670 . . . . . . . . . . . . . . . . . . . . . . .

670-699 . . . . . . . . . . . . . . . . . . . . . . . . . . .

700-749 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Greater than or equal to 750. . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FICO-Refreshed(2)(3):

Less than 670 . . . . . . . . . . . . . . . . . . . . . . .

670-699 . . . . . . . . . . . . . . . . . . . . . . . . . . .

700-749 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Greater than or equal to 750. . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Seasoning(4):

1-12 payments . . . . . . . . . . . . . . . . . . . . . .

13-24 payments . . . . . . . . . . . . . . . . . . . . .

25-36 payments . . . . . . . . . . . . . . . . . . . . .

37-48 payments . . . . . . . . . . . . . . . . . . . . .

More than 48 payments . . . . . . . . . . . . . . .

Not yet in repayment . . . . . . . . . . . . . . . . .

20,709,636

2,479,955

23,189,591

1,665,589

3,570,025

7,670,748

10,283,229

23,189,591

2,979,437

2,883,122

6,806,602

10,520,430

23,189,591

5,351,702

4,004,151

2,902,365

2,213,944

3,030,024

5,687,405

89% $

18,378,398

2,126,067

100% $

20,504,465

7% $

1,409,789

3,106,983

6,759,721

9,227,972

100% $

20,504,465

13% $

2,416,979

2,504,467

6,144,489

9,438,530

100% $

20,504,465

90%

100%

12%

100%

23% $

4,969,334

24%

3,481,235

2,741,954

1,990,049

2,061,448

5,260,445

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23,189,591

100% $

20,504,465

100%

_____

(1)

(2)

(3)

(4)

Balance represents gross Private Education Loans.

Represents the higher credit score of the cosigner or the borrower.

Represents the FICO score updated as of the fourth-quarter 2019.

Number of months in active repayment (whether interest-only payment, fixed payment, or full
principal and interest repayment status) for which a scheduled payment was due.

F-43

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Personal Loan Key Credit Quality Indicators

For Personal Loans, the key credit quality indicators are FICO scores, loan seasoning, and loan delinquency status. The
FICO scores are assessed at original approval and periodically refreshed/updated through the loan’s term. The following table
highlights the gross principal balance of our Personal Loan portfolio stratified by key credit quality indicators.

Personal Loans

Credit Quality Indicators

December 31, 2019

December 31, 2018

Credit Quality Indicators:

Balance

(1)

% of Balance

Balance

(1)

% of Balance

FICO at Original Approval:

Less than 670 . . . . . . . . . . . . . . . . . . .

670-699. . . . . . . . . . . . . . . . . . . . . . . .

700-749. . . . . . . . . . . . . . . . . . . . . . . .

Greater than or equal to 750 . . . . . . . .

47,367

259,098

521,856

220,686

4% $

77,702

339,053

554,700

218,636

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,049,007

100% $

1,190,091

100%

Seasoning(2):

0-12 payments . . . . . . . . . . . . . . . . . .

13-24 payments . . . . . . . . . . . . . . . . .

25-36 payments . . . . . . . . . . . . . . . . .

37-48 payments . . . . . . . . . . . . . . . . .

More than 48 payments . . . . . . . . . . .

469,940

505,318

73,749

—

45% $

1,008,758

85%

—

181,333

—

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,049,007

100% $

1,190,091

100%

___________

(1)

(2)

Balance represents gross Personal Loans.

Number of months in active repayment for which a scheduled payment was due.

F-44

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Private Education Loan Delinquencies

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

Private Education Loans

December 31,

2018

2019

2017

Balance

Loans in-school/grace/deferment(1). . . . . . . . . . . .
Loans in forbearance(2) . . . . . . . . . . . . . . . . . . . . .

$ 5,687,405

714,516

$ 5,260,445

577,164

$ 4,757,732

468,402

Loans in repayment and percentage of each
status:

Loans current . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans delinquent 31-60 days(3). . . . . . . . . . . . .
Loans delinquent 61-90 days(3). . . . . . . . . . . . .
Loans delinquent greater than 90 days(3) . . . . .

16,315,651

97.2% 14,289,705

97.4% 11,911,128

97.6%

288,051

121,302

62,666

1.7

0.7

0.4

231,216

95,105

50,830

1.6

0.7

0.3

179,002

78,292

37,611

1.5

0.6

0.3

Total Private Education Loans in repayment . . .

16,787,670

100.0% 14,666,856

100.0% 12,206,033

100.0%

23,189,591

20,504,465

17,432,167

Total Private Education Loans, gross . . . . . . . . . .
Private Education Loans deferred origination
costs and unamortized premium/(discount) . . . . .

81,224

Total Private Education Loans . . . . . . . . . . . . . . .

23,270,815

Private Education Loans allowance for losses . . .

(374,300)

Private Education Loans, net . . . . . . . . . . . . . . . .

$22,896,515

Percentage of Private Education Loans in
repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Delinquencies as a percentage of Private
Education Loans in repayment . . . . . . . . . . . . . . .

Loans in forbearance as a percentage of Private
Education Loans in repayment and forbearance . .

___________

68,321

20,572,786

(277,943)

$20,294,843

56,378

17,488,545

(243,715)

$17,244,830

72.4%

2.8%

4.1%

71.5%

2.6%

3.8%

70.0%

2.4%

3.7%

(1)

(2)

(3)

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).

Loans for customers who have requested extension of grace period generally during employment transition or
who have temporarily ceased making full payments due to hardship or other factors, consistent with established
loan program servicing policies and procedures.

The period of delinquency is based on the number of days scheduled payments are contractually past due.

F-45

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Personal Loan Delinquencies

The following table provides information regarding the loan status of our Personal Loans.

Personal Loans

December 31,

2019

2018

Balance

Loans in repayment and percentage of each status:

$ 1,023,517

97.6% $ 1,172,776

98.5%

9,435

7,172

8,883

0.9

0.7

0.8

6,722

5,416

5,177

0.6

0.5

0.4

Total Personal Loans in repayment . . . . . . . . . . . .

1,049,007

100.0%

1,190,091

100.0%

Total Personal Loans, gross . . . . . . . . . . . . . . . . . . .

1,049,007

1,190,091

Personal Loans deferred origination costs and
unamortized premium/(discount) . . . . . . . . . . . . . . .

513

Total Personal Loans . . . . . . . . . . . . . . . . . . . . . . . .

1,049,520

Personal Loans allowance for losses . . . . . . . . . . . .

(65,877)

297

1,190,388

(62,201)

Personal Loans, net . . . . . . . . . . . . . . . . . . . . . . . . .

983,643

$ 1,128,187

Delinquencies as a percentage of Personal Loans
in repayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

_______

2.4%

1.5%

(1)

The period of delinquency is based on the number of days scheduled payments are contractually past due.

F-46

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

6. Allowance for Loan Losses (Continued)

Accrued Interest Receivable

The following table provides information regarding accrued interest receivable on our Private Education Loans. The table

also discloses the amount of accrued interest on loans greater than 90 days past due as compared to our allowance for
uncollectible interest. The majority of the total accrued interest receivable represents accrued interest on deferred loans where
no payments are due while the borrower is in school and fixed-pay loans where the borrower makes a $25 monthly payment
that is smaller than the interest accruing on the loan in that month. The accrued interest on these loans will be capitalized to the
balance of the loans when the borrower exits the grace period upon separation from school. The allowance for uncollectible
interest exceeds the amount of accrued interest on our 90 days past due portfolio for all periods presented.

Private Education Loans

Accrued Interest Receivable

Total Interest
Receivable

Greater Than
90 Days
Past Due

Allowance for
Uncollectible
Interest

December 31, 2019. . . . . . . . . . . .

December 31, 2018. . . . . . . . . . . .

1,366,158

1,168,823

2,390

1,920

5,309

6,322

F-47

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

7. Premises and Equipment, net

The following is a summary of our premises and equipment.

December 31,

2019

2018

Land and land improvements . . . . . . . .

12,356

Buildings and leasehold improvements.

Furniture, fixtures and equipment . . . . .

Software. . . . . . . . . . . . . . . . . . . . . . . . .

Premises and equipment, gross . . . . . . .

Accumulated depreciation . . . . . . . . . . .

105,986

25,694

70,191

214,227

(79,478)

12,356

71,919

20,794

65,023

170,092

(64,588)

Premises and equipment, net . . . . . . . . .

134,749

105,504

Depreciation expense for premises and equipment was $15 million, $14 million and $11 million for the years ended

December 31, 2019, 2018 and 2017, respectively.

8. Deposits

The following table summarizes total deposits at December 31, 2019 and 2018.

Deposits - interest bearing . . . . . . . . . . . . . . . . . . . .
Deposits - non-interest bearing . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2019
$ 24,282,906
1,077
$ 24,283,983

2018
$ 18,942,082
1,076
$ 18,943,158

Our total deposits of $24.3 billion were comprised of $13.8 billion in brokered deposits and $10.5 billion in retail and

Interest bearing deposits as of December 31, 2019 and 2018 consisted of retail and brokered non-maturity savings

deposits, retail and brokered non-maturity MMDAs and retail and brokered CDs. Interest bearing deposits include deposits
from Educational 529 and Health Savings plans that diversify our funding sources and add deposits we consider to be core.
These and other large omnibus accounts, aggregating the deposits of many individual depositors, represented $6.8 billion of our
deposit total as of December 31, 2019, compared with $5.9 billion at December 31, 2018.

Some of our deposit products are serviced by third-party providers. Placement fees associated with the brokered CDs are
amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $18 million,
$13 million, and $9 million in the years ended December 31, 2019, 2018 and 2017, respectively. Fees paid to third-party
brokers related to these CDs were $28 million, $26 million, and $12 million during the years ended December 31, 2019, 2018
and 2017, respectively.

F-48

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

8. Deposits (Continued)

Interest bearing deposits at December 31, 2019 and 2018 are summarized as follows:

December 31, 2019

December 31, 2018

Year-End
Weighted
Average Stated
Rate(1)

Amount

Year-End
Weighted
Average Stated
Rate(1)

Amount

Money market . . . . . . . . . . . . . . . . . . . . . .

9,616,547

2.04% $

8,687,766

Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . .

718,616

Certificates of deposit . . . . . . . . . . . . . . . .

13,947,743

1.71

2.44

702,342

9,551,974

2.46%

2.00

2.74

Deposits - interest bearing. . . . . . . . . . . .

$ 24,282,906

$ 18,942,082

___

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

Certificates of deposit remaining maturities are summarized as follows:

December 31,

2019

2018

One year or less . . . . . . . . . . . . . . . . . . . . . . . .

4,934,933

4,098,520

After one year to two years . . . . . . . . . . . . . . .

After two years to three years . . . . . . . . . . . . .

After three years to four years . . . . . . . . . . . . .

After four years to five years . . . . . . . . . . . . . .

After five years . . . . . . . . . . . . . . . . . . . . . . . .

4,279,406

2,807,297

1,285,504

548,492

92,111

2,045,861

1,479,292

494,654

1,274,198

159,449

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 13,947,743

9,551,974

As of December 31, 2019 and 2018, there were $963 million and $523 million, respectively, of deposits exceeding FDIC

insurance limits. Accrued interest on deposits was $68 million and $53 million at December 31, 2019 and 2018, respectively.

F-49

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

9. Borrowings

Outstanding borrowings consist of unsecured debt and secured borrowings issued through our term ABS program and our

Secured Borrowing Facility. The issuing entities for those secured borrowings are VIEs and are consolidated for accounting
purposes. The following table summarizes our secured borrowings at December 31, 2019 and 2018.

December 31, 2019

December 31, 2018

Short-Term

Long-Term

Total

Short-Term

Long-Term

Total

Unsecured borrowings:

Unsecured debt (fixed-rate) . . . . . . . .

— $

198,159

— $

197,348

Total unsecured borrowings . . . . . . . .

—

198,159

—

197,348

Secured borrowings:

Private Education Loan term
securitizations:

Fixed-rate . . . . . . . . . . . . . . . . . . . . .

Variable-rate . . . . . . . . . . . . . . . . . . .

Total Private Education Loan term
securitizations . . . . . . . . . . . . . . . . . . .

Secured Borrowing Facility . . . . . . . .

Total secured borrowings . . . . . . . . . .

—

289,230

2,629,902

1,525,976

2,629,902

1,525,976

4,155,878

—

289,230

4,155,878

4,445,108

—

2,284,347

1,802,609

2,284,347

1,802,609

4,086,956

—

4,086,956

Total . . . . . . . . . . . . . . . . . . . . . . . . . .

289,230

4,354,037

4,643,267

— $

4,284,304

Short-term Borrowings

Secured Borrowing Facility

On February 20, 2019, we amended and extended the maturity of our Secured Borrowing Facility. On February 19, 2020,

we amended our Secured Borrowing Facility to, among other things, increase the amount that can be borrowed under the
facility to $2 billion (from $750 million) and extend the maturity of the facility. We hold 100 percent of the residual interest in
the Secured Borrowing Facility trust. Under the amended Secured Borrowing Facility, we incur financing costs on unused
borrowing capacity and on outstandings. The amended Secured Borrowing Facility extended the revolving period, during which
we may borrow, repay and reborrow funds, until February 17, 2021. The scheduled amortization period, during which amounts
outstanding under the Secured Borrowing Facility must be repaid, ends on February 17, 2022 (or earlier, if certain material
adverse events occur). At December 31, 2019, $289 million secured borrowings were outstanding under the Secured Borrowing
Facility, and at December 31, 2018, there were no secured borrowings outstanding under the Secured Borrowing Facility. For
additional information, see Notes to Consolidated Financial Statements, Note 23, “Subsequent Events.”

Short-term borrowings have a remaining term to maturity of one year or less. The following table summarizes the
outstanding short-term borrowings, the weighted average interest rates at the end of the period and the related average balance
and weighted average interest rates during the period. The Secured Borrowing Facility’s contractual maturity is two years from
the date of inception or renewal (one-year revolving period plus a one-year amortization period); however, we classify advances
under our Secured Borrowing Facility as short-term borrowings because it is our intention to repay those advances within one
year.

F-50

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

Borrowings (Continued)

December 31, 2019

Ending Balance

Weighted
Average
Interest Rate

Year Ended
December 31, 2019

Average Balance

Weighted
Average
Interest Rate

Short-term borrowings:

Secured Borrowing Facility . . . . . . . . . . . . .

Maximum outstanding at any month end. . .

289,230

297,800

1.74% $

102,639

4.91%

December 31, 2018

Ending Balance

Weighted
Average
Interest Rate

Year Ended
December 31, 2018

Average Balance

Weighted
Average
Interest Rate

Short-term borrowings:

Secured Borrowing Facility . . . . . . . . . . . . .

Maximum outstanding at any month end. . .

—

300,000

—% $

52,603

8.91%

Long-term Borrowings

Unsecured Debt

On April 5, 2017, we issued an unsecured debt offering of $200 million of 5.125 percent Senior Notes due April 5, 2022

at par. At December 31, 2019, the outstanding balance was $198 million.

Secured Financings

2019 Transactions

On March 13, 2019, we executed our $453 million SMB Private Education Loan Trust 2019-A term ABS transaction,

2018 Transactions

On March 21, 2018, we executed our $670 million SMB Private Education Loan Trust 2018-A term ABS transaction,

F-51

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

Borrowings (Continued)

month LIBOR plus 0.78 percent. At December 31, 2019, $588 million of our Private Education Loans, including $553 million
of principal and $35 million in capitalized interest, were encumbered because of this transaction.

On September 19, 2018, we executed our $544 million SMB Private Education Loan Trust 2018-C term ABS transaction,

Pre-2018 Transactions

Prior to 2018, we executed a total of $3.9 billion in ABS transactions that were accounted for as secured financings. At

December 31, 2019, $2.7 billion of our Private Education Loans, including $2.6 billion of principal and $115 million in
capitalized interest, were encumbered as a result of these transactions.

The following table summarizes the outstanding long-term borrowings, the weighted average interest rates at the end of
the period and the related average balance during the period. Rates reflect stated interest of borrowings and related discounts
and premiums. The long-term borrowings amortize over time and mature serially from 2023 to 2040.

December 31, 2019

Ending
Balance

Weighted
Average
Interest Rate

Year Ended
December 31,
2019

December 31, 2018

Year Ended
December 31,
2018

Average
Balance

Ending
Balance

Weighted
Average
Interest Rate

Average
Balance

Floating-rate borrowings. . . . . . .

$ 1,525,976

2.61% $ 1,731,675

$ 1,802,609

3.26% $ 1,720,540

Fixed-rate borrowings. . . . . . . . .

2,828,061

3.31

2,752,183

2,481,695

3.28

2,172,993

Total long-term borrowings . . . .

$ 4,354,037

3.07% $ 4,483,858

$ 4,284,304

3.27% $ 3,893,533

F-52

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

Borrowings (Continued)

As of December 31, 2019, the stated maturity and maturity to call date of our brokered deposits and borrowings are

summarized below.

Stated Maturity(1)

Maturity to Call Date(2)

December 31, 2019

Brokered
Deposits

Unsecured
Debt

Secured
Borrowings

Total

Brokered
Deposits

Unsecured
Debt

Secured
Borrowings

Total

Year of Maturity

2020 . . . . . . . . . . . . $ 2,650,654

— $

565,805

$ 3,216,459

$ 2,650,654

— $

565,805

$ 3,216,459

2021 . . . . . . . . . . . .

3,691,692

—

2022 . . . . . . . . . . . .

2,690,974

200,000

2023 . . . . . . . . . . . .

1,270,385

2024 . . . . . . . . . . . .

2025 and after. . . . .

499,112

92,822

—

507,319

512,718

534,692

529,471

4,199,011

3,403,692

1,805,077

1,028,583

1,688,473

1,781,295

3,691,692

—

2,690,974

200,000

1,270,385

499,112

92,822

—

507,319

512,718

534,692

529,471

4,199,011

3,403,692

1,805,077

1,028,583

1,688,473

1,781,295

10,895,639

200,000

4,338,478

15,434,117

10,895,639

200,000

4,338,478

15,434,117

Hedge accounting
adjustments. . . . . . .

45,887

—

45,887

—

45,887

Total . . . . . . . . . . . . $ 10,941,526

$ 200,000

$ 4,338,478

$ 15,480,004

$ 10,941,526

$ 200,000

$ 4,338,478

$ 15,480,004

____________

(1)We view our securitization trust debt as long-term based on the contractual maturity dates and projected principal paydowns based on our current
estimates regarding loan prepayment speeds. The projected principal paydowns in year 2020 include $566 million related to the securitization trust debt.

(2)The aggregate principal amount of debt that matures in each period is $3.2 billion in 2020, $4.2 billion in 2021, $3.4 billion in 2022, $1.8 billion in 2023,
$1.0 billion in 2024, and $1.8 billion in 2025 and after.

F-53

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

Borrowings (Continued)

Secured Financings

The following summarizes our secured financings issued in 2018 and 2019:

Issue

Date Issued

Total Issued

Weighted Average Cost of Funds(1)

Weighted
Average Life
(in years)

Private Education:

2018-A

2018-B

2018-C

Total notes issued in 2018

March 2018

June 2018

September 2018

Total loan and accrued interest amount securitized
at inception in 2018

2019-A

2019-B

Total notes issued in 2019

March 2019

June 2019

Total loan and accrued interest amount securitized
at inception in 2019

____________

670,000

686,500

544,000

1,900,500

2,101,644

453,000

657,000

1,110,000

1,208,963

1-month LIBOR plus 0.78%

1-month LIBOR plus 0.76%

1-month LIBOR plus 0.77%

4.43

4.40

4.32

1-month LIBOR plus 0.92%

1-month LIBOR plus 1.01%

4.26

4.41

(1) Represents LIBOR equivalent cost of funds for floating and fixed-rate bonds, excluding issuance costs.

F-54

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

Borrowings (Continued)

Consolidated Funding Vehicles

We consolidate our financing entities that are VIEs as a result of our being the entities’ primary beneficiary. As a result,

these financing VIEs are accounted for as secured borrowings.

December 31, 2019

Debt Outstanding

Carrying Amount of Assets Securing Debt Outstanding

Short-Term

Long-Term

Total

Loans

Restricted
Cash

Other Assets(1)

Total

Secured borrowings:

Private Education Loan
term securitizations . . . . .

Secured Borrowing
Facility . . . . . . . . . . . . . . .

— $ 4,155,878

$ 4,155,878

$ 5,246,986

145,760

333,173

$ 5,725,919

289,230

—

289,230

339,666

8,803

23,832

372,301

Total . . . . . . . . . . . . . . . . .

289,230

$ 4,155,878

$ 4,445,108

$ 5,586,652

154,563

357,005

$ 6,098,220

December 31, 2018

Debt Outstanding

Carrying Amount of Assets Securing Debt Outstanding

Short-Term

Long-Term

Total

Loans

Restricted
Cash

Other Assets(1)

Total

Secured borrowings:

Private Education Loan
term securitizations . . . . .

Secured Borrowing
Facility . . . . . . . . . . . . . . .

— $ 4,086,956

$ 4,086,956

$ 5,030,837

113,431

326,570

$ 5,470,838

—

157

Total . . . . . . . . . . . . . . . . .

— $ 4,086,956

$ 4,086,956

$ 5,030,837

113,431

326,727

$ 5,470,995

________

(1) Other assets primarily represent accrued interest receivable.

Other Borrowing Sources

We maintain discretionary uncommitted Federal Funds lines of credit with various correspondent banks, which totaled

$125 million at December 31, 2019. The interest rate we are charged on these lines of credit is priced at Fed Funds plus a
spread at the time of borrowing, and is payable daily. We did not utilize these lines of credit in the years ended December 31,
2019 and 2018.

We established an account at the FRB to meet eligibility requirements for access to the Primary Credit borrowing facility

at the FRB’s Discount Window (the “Window”). The Primary Credit borrowing facility is a lending program available to
depository institutions that are in generally sound financial condition. All borrowings at the Window must be fully
collateralized. We can pledge asset-backed and mortgage-backed securities, as well as FFELP Loans and Private Education
Loans, to the FRB as collateral for borrowings at the Window. Generally, collateral value is assigned based on the estimated fair
value of the pledged assets. At December 31, 2019 and December 31, 2018, the value of our pledged collateral at the FRB
totaled $3.2 billion and $3.1 billion, respectively. The interest rate charged to us is the discount rate set by the FRB. We did not
utilize this facility in the years ended December 31, 2019 and 2018.

F-55

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

10. Derivative Financial Instruments

Risk Management Strategy

We maintain an overall interest rate risk management strategy that incorporates the use of derivative instruments to
reduce the economic effect of interest rate changes. Our goal is to manage interest rate sensitivity by modifying the repricing
frequency and underlying index characteristics of certain balance sheet assets or liabilities so any adverse impacts related to
movements in interest rates are managed within low to moderate limits. As a result of interest rate fluctuations, hedged balance
sheet positions will appreciate or depreciate in market value or create variability in cash flows. Income or loss on the derivative
instruments linked to the hedged item will generally offset the effect of this unrealized appreciation or depreciation or volatility
in cash flows for the period the item is being hedged. We view this strategy as a prudent management of interest rate risk.

Although we use derivatives to reduce the risk of interest rate changes, the use of derivatives does expose us to both
market and credit risk. Market risk is the chance of financial loss resulting from changes in interest rates and market liquidity.
Credit risk is the risk that a counterparty will not perform its obligations under a contract and it is limited to the loss of the fair
value gain in a derivative that the counterparty owes us less collateral held and plus collateral posted. When the fair value of a
derivative contract less collateral held and plus collateral posted is negative, we owe the counterparty and, therefore, we have
no credit risk exposure to the counterparty; however, the counterparty has exposure to us. We minimize the credit risk in
derivative instruments by entering into transactions with reputable counterparties that are reviewed regularly by our Credit
Department. We also maintain a policy of requiring that all derivative contracts be governed by an International Swaps and
Derivatives Association, Inc. Master Agreement. Depending on the nature of the derivative transaction, bilateral collateral
arrangements are required as well. When we have more than one outstanding derivative transaction with the counterparty, and
there exists legally enforceable netting provisions with the counterparty (i.e., a legal right to offset receivable and payable
derivative contracts), the “net” mark-to-market exposure, less collateral held and plus collateral posted, represents exposure
with the counterparty. We refer to this as the “net position.” When there is a net negative exposure, we consider our exposure to
the counterparty and the net position to be zero.

Title VII of the Dodd-Frank Act requires all standardized derivatives, including most interest rate swaps, to be submitted

for clearing to central counterparties to reduce counterparty risk. Two of the central counterparties we use are the CME and the
LCH. All variation margin payments on derivatives cleared through the CME and LCH are accounted for as legal settlement. As
of December 31, 2019, $9.4 billion notional of our derivative contracts were cleared on the CME and $0.5 billion were cleared
on the LCH. The derivative contracts cleared through the CME and LCH represent 95.0 percent and 5.0 percent, respectively, of
our total notional derivative contracts of $9.9 billion at December 31, 2019.

Our exposure is limited to the value of the derivative contracts in a gain position less any collateral held and plus any

collateral posted. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At
December 31, 2019 and 2018, we had a net positive exposure (derivative gain positions to us, less collateral held by us and plus
collateral posted with counterparties) related to derivatives of $52 million and $27 million, respectively.

Accounting for Derivative Instruments

The accounting for derivative instruments requires that every derivative instrument, including certain derivative

F-56

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

10. Derivative Financial Instruments (Continued)

We elected to early adopt ASU No. 2017-12 effective July 1, 2018. Under the standard, we are no longer required to
separately measure and report hedge ineffectiveness, which was previously recorded in “gains (losses) on derivatives and
hedging activities, net” in our consolidated statements of income. In accordance with the standard, certain provisions were
required to be applied on a modified retrospective basis, which requires a cumulative effect adjustment to accumulated other
comprehensive income with a corresponding adjustment to retained earnings as of the beginning of the fiscal year of adoption,
or January 1, 2018 in our case.

Fair Value Hedges

We generally use fair value hedges to offset the exposure to changes in fair value of a recognized fixed-rate liability. We

Cash Flow Hedges

We use cash flow hedges to hedge the exposure to variability in cash flows of floating-rate liabilities. This strategy is used

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest

expense as interest payments are made on our variable-rate deposits. During the next twelve months, we estimate that
$5 million will be reclassified as an increase to interest expense.

Trading Activities

When derivative instruments do not qualify for hedge accounting treatment, they are accounted for at fair value with all

changes in fair value recorded through earnings. All of our derivative instruments entered into with maturities of less than 3
years are economically hedging risk, but do not receive hedge accounting treatment. Trading derivatives also include any
hedges that originally received hedge accounting treatment, but lost hedge accounting treatment due to failed effectiveness
testing, as well as the activity of certain derivatives prior to those derivatives receiving hedge accounting treatment.

F-57

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

10. Derivative Financial Instruments (Continued)

Summary of Derivative Financial Statement Impact

The following tables summarize the fair values and notional amounts of all derivative instruments at December 31, 2019

and 2018, and their impact on earnings and other comprehensive income for the years ended December 31, 2019, 2018 and
2017.

Impact of Derivatives on the Consolidated Balance Sheets

Cash Flow Hedges

Fair Value Hedges

Trading

Total

December
31,

2019

2018

2019

2018

2019

2018

2019

2018

Hedged
Risk
Exposure

Interest
rate

Fair Values(1)

Derivative Assets:(2)

Interest rate swaps .

Derivative
Liabilities:(2)

Interest rate swaps .

Total net derivatives .

__________

715

— $

2,000

— $

715

2,090

—

(2,032)

(896)

—

(268)

715

(2,032) $

(896) $

2,000

(268) $

—

(1,164)

(2,032)

(449) $

(1)

Fair values reported include variation margin as legal settlement of the derivative contract. Assets and liabilities are presented without consideration of master netting
agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements and classified in other assets or other
liabilities depending on whether in a net positive or negative position.

(2)

The following table reconciles gross positions with the impact of master netting agreements to the balance sheet classification:

Other Assets

Other Liabilities

December 31,

2019

2018

2019

2018

715

2,090

(1,164) $

(519)

(1,389)

519

196

52,564

701

27,151

(645)

—

52,760

27,852

(645) $

(2,032)

1,389

(643)

—

(643)

Gross position(1). . . . . . . . . . . . . . . . . . . . . . .
Impact of master netting agreement . . . . . . .

Derivative values with impact of master
netting agreements (as carried on balance
sheet) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash collateral pledged(2) . . . . . . . . . . . . . . .
Net position . . . . . . . . . . . . . . . . . . . . . . . . . .

__________

(1) Gross position amounts include accrued interest and variation margin as legal settlement of the derivative contract.
(2)

Cash collateral pledged excludes amounts that represent legal settlement of the derivative contracts.

F-58

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

10. Derivative Financial Instruments (Continued)

Cash Flow

Fair Value

Trading

Total

December
31,

2019

2018

2019

2018

2019

2018

2019

2018

Notional Values

Interest rate
swaps . . . . . . . .

$ 1,150,518

$ 1,280,367

$ 5,031,429

$ 3,137,965

$ 3,744,917

$1,577,978

$ 9,926,864

$ 5,996,310

As of December 31, 2019 and 2018, the following amounts were recorded on the consolidated balance sheet related to

cumulative basis adjustments for fair value hedges:

Line Item in the Balance Sheet in Which the
Hedged Item is Included:

Carrying Amount of the Hedged
Assets/(Liabilities)

Cumulative Amount of Fair
Value Hedging Adjustment
Included in the Carrying
Amount of the Hedged Assets/
(Liabilities)

December 31,

2019

2018

2019

2018

Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (5,085,426) $ (3,114,304)

(63,148) $

14,202

F-59

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

10. Derivative Financial Instruments (Continued)

Impact of Derivatives on the Consolidated Statements of Income

Years Ended December 31,

2019

2018

2017

Fair Value Hedges

Interest rate swaps:

Interest recognized on derivatives. . . . . . . . . . . . .

(8,806) $

(11,642) $

Hedged items recorded in interest expense. . . . . .

Derivatives recorded in interest expense . . . . . . .

(77,350)

77,177

(7,966)

8,123

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8,979) $

(11,485) $

8,286

16,155

(20,115)

4,326

Cash Flow Hedges

Interest rate swaps:

Amount of gain (loss) reclassified from
accumulated other comprehensive income into
interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trading

Interest rate swaps:

Change in fair value of future interest payments
recorded in earnings . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,299

(1,455) $

(11,187)

19,469

(1,400) $

19,469

(1,400)

(3,693)

12,789

(14,340) $

(10,554)

F-60

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

10. Derivative Financial Instruments (Continued)

Impact of Derivatives on the Statements of Changes in Stockholders’ Equity

Amount of gain (loss) recognized in other
comprehensive income (loss) . . . . . . . . . . . . . . . .

Amount of gain (loss) reclassified in interest
expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total change in other comprehensive income
(loss) for unrealized gains (losses) on derivatives,
before income tax (expense) benefit . . . . . . . . . . .

Years Ended December 31,

2019

2018

2017

(36,115) $

10,452

8,008

2,299

(1,455)

(11,187)

(38,414) $

11,907

19,195

Cash Collateral

As of December 31, 2019, cash collateral held and pledged excludes amounts that represent legal settlement of the
derivative contracts held with the CME and LCH. There was no cash collateral held related to derivative exposure between us
and our derivatives counterparties at December 31, 2019 and 2018, respectively. Collateral held is recorded in “Other
Liabilities” on the consolidated balance sheets. Cash collateral pledged related to derivative exposure between us and our
derivatives counterparties was $53 million and $27 million at December 31, 2019 and 2018, respectively. Collateral pledged is
recorded in “Other interest-earning assets” on the consolidated balance sheets.

F-61

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

11. Stockholders’ Equity

Preferred Stock

On May 5, 2017, we redeemed, with the proceeds from our unsecured debt offering (see Note 9, “Borrowings”), the

outstanding 3.3 million shares of our 6.97 percent Cumulative Redeemable Preferred Stock, Series A (the “Series A Preferred
Stock”). The Series A Preferred Stock was redeemed at a price of $50 per share, plus accrued and unpaid dividends from May
1, 2017 to, but excluding, the May 5, 2017 redemption date.

At December 31, 2019, we had 4.0 million shares of Floating-Rate Non-Cumulative Preferred Stock, Series B (the
“Series B Preferred Stock”) outstanding. The Series B Preferred Stock does not have a maturity date, but can be redeemed at
our option. Redemption would include any accrued and unpaid dividends for the then current quarterly dividend period, up to
the redemption date. The shares have no preemptive or conversion rights and are not exchangeable for any of our other
securities or property. Dividends are not mandatory and are paid quarterly, when, as, and if declared by the Board of Directors.
Holders of Series B Preferred Stock are entitled to receive quarterly dividends based on 3-month LIBOR plus 170 basis points
per annum in arrears. Upon liquidation or dissolution of the Company, holders of the Series B Preferred Stock are entitled to
receive $100 per share, plus an amount equal to accrued and unpaid dividends for the then current quarterly dividend period,
pro rata, and before any distribution of assets are made to holders of our common stock.

Common Stock

In the year ended December 31, 2019, we paid a total common stock dividend of $0.12 per common share. We did not

pay common stock dividends for the years ended December 31, 2018 and 2017. Common stock dividend declarations are
subject to determination by, and the discretion of, our Board of Directors. We may change our common stock dividend policy at
any time.

We are dependent on funds obtained from the Bank to fund dividend payments. Regulatory and other legal restrictions
may limit our ability to transfer funds freely, either to or from our subsidiaries. In particular, the Bank is subject to laws and
regulations that authorize regulatory bodies to block or reduce the flow of funds to us, or that prohibit such transfers altogether
in certain circumstances. These laws, regulations and rules may hinder our ability to access funds that we may need to make
payments in respect of our stock or to satisfy our other responsibilities. The FDIC has the authority to prohibit or limit the
payment of dividends by the Bank and SLM Corporation.

The January 23, 2019 share repurchase program (the “2019 Share Repurchase Program”), which was effective upon
announcement and expires on January 22, 2021, permits us to repurchase from time to time shares of our common stock up to
an aggregate repurchase price not to exceed $200 million. Under our 2019 Share Repurchase Program, we repurchased 17
million shares of common stock for $167 million in the year ended December 31, 2019.

On January 22, 2020, we announced a new share repurchase program (the “2020 Share Repurchase Program”), which

was effective upon announcement and expires on January 21, 2022, and permits us to repurchase shares of common stock from
time to time up to an aggregate repurchase price not to exceed $600 million.

Repurchases may occur from time to time and through a variety of methods, including open market repurchases,
repurchases effected through Rule 10b5-1 trading plans, negotiated block purchases, accelerated share repurchase programs,
tender offers or other similar transactions.

F-62

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

11. Stockholders’ Equity (Continued)

For the years ended December 31, 2018 and 2017, we only repurchased common stock acquired in connection with taxes
withheld resulting from award exercises and vesting under our employee stock-based compensation plans. The following table
summarizes our common share repurchases and issuances associated with these programs.

(Shares and per share amounts in actuals)
Common stock repurchased under repurchase program(1) . . . . . .
Average purchase price per share(2) . . . . . . . . . . . . . . . . . . . . . .

Shares repurchased related to employee stock-based
compensation plans(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average purchase price per share . . . . . . . . . . . . . . . . . . . . . . . .
Common shares issued(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,

2019

2018

2017

16,962,199

—

9.86

— $

—

1,369,630
10.85
3,743,705

3,087,396
11.32
6,392,634

3,358,417
11.96
6,831,108

_________

(1)

(2)

(3)

(4)

Common shares purchased under our 2019 Share Repurchase Program. $33 million of capacity under the program remained available as of
December 31, 2019.

Average purchase price per share includes purchase commission costs.

Comprised of shares withheld from stock option exercises and vesting of restricted stock for employees’ tax withholding obligations and
shares tendered by employees to satisfy option exercise costs.

Common shares issued under our various compensation and benefit plans.

The closing price of our common stock on December 31, 2019 was $8.91.

F-63

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

12. Earnings per Common Share

Basic earnings per common share (“EPS”) are calculated using the weighted average number of shares of common stock
outstanding during each period. A reconciliation of the numerators and denominators of the basic and diluted EPS calculations
follows.

(In thousands, except per share data)
Numerator:

Years Ended December 31,

2019

2018

2017

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

578,276

487,476

288,934

Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16,837

15,640

15,714

Net income attributable to SLM Corporation common stock. . . . . . . . . . . . . . . . . . .

561,439

471,836

273,220

Denominator:

Weighted average shares used to compute basic EPS . . . . . . . . . . . . . . . . . . . . . . . .

427,292

435,054

431,216

Effect of dilutive securities:

Dilutive effect of stock options, restricted stock, restricted stock units,
performance stock units and Employee Stock Purchase Plan (“ESPP”) (1)(2) . . . .

3,382

4,627

7,335

Weighted average shares used to compute diluted EPS . . . . . . . . . . . . . . . . . . . . . . .

430,674

439,681

438,551

Basic earnings per common share attributable to SLM Corporation . . . . . . . . .

Diluted earnings per common share attributable to SLM Corporation . . . . . . .

__________

1.31

1.30

1.08

1.07

0.63

0.62

(1) Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options, restricted stock,

restricted stock units, performance stock units and the outstanding commitment to issue shares under the ESPP, determined by the treasury stock
method.

(2) For the years ended December 31, 2019, 2018 and 2017, securities covering no shares, less than 1 million shares and no shares, respectively, were

outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.

F-64

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

13. Stock-Based Compensation Plans and Arrangements

Plan Summaries

As of December 31, 2019, we had one active stock-based compensation plan that provides for grants of equity awards to
our employees and non-employee directors. We also maintained an Employee Stock Purchase Plan (the “ESPP”). Shares issued
under these stock-based compensation plans may be either shares reacquired by us or shares that are authorized but unissued.

The SLM Corporation 2012 Omnibus Incentive Plan was approved by shareholders on May 24, 2012. An amendment to

the plan was approved and other material terms of the plan were re-approved by shareholders on June 22, 2017. At
December 31, 2019, 17 million shares, as adjusted to reflect the effects of the Spin-Off, were authorized to be issued from this
plan.

An amendment to the ESPP was approved by shareholders on May 24, 2012 that authorized the issuance of 6 million
shares under the plan and kept the terms of the plan substantially the same. The number of shares authorized under the plan was
subsequently adjusted to 15 million shares on June 25, 2014, to reflect the effects of the Spin-Off.

Stock-Based Compensation

The total stock-based compensation cost recognized in the consolidated statements of income for the years ended

December 31, 2019, 2018 and 2017 was $31 million, $32 million and $28 million, respectively. As of December 31, 2019, there
was $13 million of total unrecognized compensation expense related to unvested stock awards, which is expected to be
recognized over a weighted average period of 1.4 years. We amortize compensation expense on a straight-line basis over the
related vesting periods of each tranche of each award.

Stock Options

Stock options granted prior to 2012 expire 10 years after the grant date, and those granted since 2012 expire in 5 years.
The exercise price must be equal to or greater than the market price of our common stock on the grant date. We have granted
time-vested, price-vested and performance-vested options to our employees and non-employee directors. Time-vested options
granted to management and non-management employees generally vest over three years. Price-vested options granted to
management employees vest upon our common stock reaching a targeted closing price for a set number of days. Performance-
vested options granted to management employees vest one-third per year for three years based on corporate earnings-related
performance targets. Options granted to non-employee directors vest upon the director’s election to the Board of Directors.

There were no options granted in the years ended December 31, 2019, 2018 and 2017.

F-65

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

13. Stock-Based Compensation Plans and Arrangements (Continued)

The following table summarizes stock option activity for the year ended December 31, 2019.

(Dollars in thousands, except per share data)

Number of
Options

Weighted
Average
Exercise
Price per
Share

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
(1)
Value

Outstanding at December 31, 2018. . . . . . . . . .

1,391,819

10.44

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised(2)(3). . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2019(4) . . . . . . . .

—
(593,806)
(8,167)
789,846

Exercisable at December 31, 2019 . . . . . . . . . .

789,846

—
3.63
3.94
4.75

4.75

____________

0.7 years

3,284

(1)

(2)

(3)

(4)

The aggregate intrinsic value represents the total intrinsic value (the aggregate difference between our closing
stock price on December 31, 2019 and the exercise price of in-the-money options) that would have been received
by the option holders if all in-the-money options had been exercised on December 31, 2019.

The total intrinsic value of options exercised was $4 million, $17 million, and $16 million for the years ended
December 31, 2019, 2018 and 2017, respectively.

No cash was received from option exercises for the year ended December 31, 2019. The actual tax benefit
realized for the tax deductions from option exercises totaled $1 million for the year ended December 31, 2019.

For net-settled options, gross number is reflected.

F-66

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

13. Stock-Based Compensation Plans and Arrangements (Continued)

Restricted Stock

Restricted stock awards generally vest over one year. Outstanding restricted stock is entitled to dividend equivalent units

that vest subject to the same vesting requirements or lapse of transfer restrictions, as applicable, as the underlying restricted
stock award. The fair value of restricted stock awards is based on our stock price at the grant date.

The following table summarizes restricted stock activity for the year ended December 31, 2019.

(Shares and per share amounts in actuals)

Number of
Shares

Weighted
Average Grant
Date
Fair Value

Non-vested at December 31, 2018 . . . . . . . . . . .

84,392

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at December 31, 2019(2) . . . . . . . . . .

118,789

(84,392)

—

118,789

11.73

9.26

11.73

—

9.26

_________

(1)

(2)

The total fair value of shares that vested during the years ended December 31, 2019, 2018
and 2017 was $1 million, $1 million and $1 million, respectively.

As of December 31, 2019, there was $1 million of unrecognized compensation cost related
to restricted stock, which is expected to be recognized over a weighted average period of
0.5 years.

F-67

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

13. Stock-Based Compensation Plans and Arrangements (Continued)

Restricted Stock Units and Performance Stock Units

Restricted stock units (“RSUs”) and performance stock units (“PSUs”) are equity awards granted to employees that
entitle the holder to shares of our common stock when the award vests. RSUs may be time-vested over three years or vested at
grant but subject to transfer restrictions, while PSUs vest based on corporate performance targets over a three-year period.

Outstanding RSUs and PSUs are entitled to dividend equivalent units that vest subject to the same vesting requirements

or lapse of transfer restrictions, as applicable, as the underlying award. The fair value of RSUs is based on our stock price at the
grant date.

The following table summarizes RSU and PSU activity for the year ended December 31, 2019.

(Shares and per share amounts in actuals)

Number of
RSUs/
PSUs

Weighted
Average Grant
Date
Fair Value

Outstanding at December 31, 2018. . . . . . . . . . . .

5,338,034

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and converted to common stock(1). . . . . . .

Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2019(2) . . . . . . . . . .

3,008,102
(3,030,536)

(136,383)

5,179,217

10.11

10.84
8.78

11.09

11.28

__________

(1)

(2)

The total fair value of RSUs/PSUs that vested and converted to common stock during the
years ended December 31, 2019, 2018 and 2017 was $27 million, $25 million and $29
million, respectively.

As of December 31, 2019, there was $12 million of unrecognized compensation cost
related to RSUs/PSUs, which is expected to be recognized over a weighted average period
of 1.4 years.

Employee Stock Purchase Plan

Employees may purchase shares of our common stock at the end of a 12-month offering period at a price equal to the
share price at the beginning of the 12-month period, less 15 percent, up to a maximum purchase price of $7,500 (whole dollars).
The purchase price for each offering is determined at the beginning of the offering period on August 1.

The fair values of the stock purchase rights of the ESPP offerings were calculated using a Black-Scholes option pricing

model with the following weighted average assumptions:

(Dollars per share)

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . .

Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Expected dividend rate . . . . . . . . . . . . . . . . . . . . . . . . . .

Expected life of the option . . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,

2019

2018

2017

1.87%

29%

1.34%

1 year

2.44%

27%

—%

1 year

1.22%

32%

—%

1 year

2.36

Weighted average fair value of stock purchase rights . . $

1.77

2.32

The expected volatility is based on implied volatility from publicly-traded options on our stock at the grant date and

historical volatility of our stock consistent with the expected life. The risk-free interest rate is based on the U.S. Treasury bill

F-68

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

13. Stock-Based Compensation Plans and Arrangements (Continued)

rate at the grant date consistent with the expected life. The dividend yield was zero for the years ended December 31, 2018 and
2017, respectively, as we did not pay dividends on our common stock in 2018 and 2017.

The fair values were amortized to compensation cost on a straight-line basis over a one-year vesting period. As of
December 31, 2019, there was less than $1 million of unrecognized compensation cost related to the ESPP, which is expected to
be recognized by July 2020.

No shares were purchased for the year ended December 31, 2019, as our stock price on July 31, 2019 was less than the
offering price for the ESPP plan. During the years ended December 31, 2018 and 2017, plan participants purchased 233,232
shares and 283,952 shares, respectively, of our common stock.

F-69

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

14. Fair Value Measurements

We use estimates of fair value in applying various accounting standards for the consolidated financial statements.

We categorize our fair value estimates based on a hierarchal framework associated with three levels of price transparency
utilized in measuring financial instruments at fair value. For additional information regarding our policies for determining fair
value and the hierarchical framework, see Note 2, “Significant Accounting Policies — Fair Value Measurement.”

The following table summarizes the valuation of our financial instruments that are marked-to-fair value on a recurring

basis.

Fair Value Measurements on a Recurring Basis

December 31, 2019

December 31, 2018

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets

Available-for-sale
investments . . . . . . . . . . . .

Derivative instruments . . .

Total. . . . . . . . . . . . . . . . . . .

Liabilities

Derivative instruments . . .

Total. . . . . . . . . . . . . . . . . . .

— $ 487,669

— $ 176,245

—

715

—

715

—

2,090

—

2,090

— $ 488,384

— $ 178,335

— $

(1,164) $

— $

(1,164) $

— $

(2,032) $

— $

(2,032)

— $

(1,164) $

— $

(1,164) $

— $

(2,032) $

— $

(2,032)

F-70

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

14. Fair Value Measurements (Continued)

The following table summarizes the fair values of our financial assets and liabilities, including derivative financial

instruments.

December 31, 2019

December 31, 2018

Fair
Value

Carrying
Value

Difference

Fair
Value

Carrying
Value

Difference

Earning assets:

Loans held for investment, net:

Private Education Loans . . . . . . . .

$ 24,988,941

$ 22,896,515

$2,092,426

$ 22,313,419

$ 20,294,843

$2,018,576

FFELP Loans . . . . . . . . . . . . . . . . .

795,055

Personal Loans. . . . . . . . . . . . . . . .

1,047,119

Credit Cards . . . . . . . . . . . . . . . . . . .

3,818

783,816

983,643

3,818

Cash and cash equivalents . . . . . . . .

5,563,877

Available-for-sale investments . . . . .

487,669

11,239

63,476

859,185

847,889

1,156,531

1,128,187

11,296

28,344

—

2,559,106

176,245

—

Accrued interest receivable . . . . . . .

1,491,471

1,392,725

98,746

1,285,842

1,191,981

93,861

Tax indemnification receivable . . . .

Derivative instruments . . . . . . . . . . .

27,558

715

27,558

715

—

39,207

2,090

39,207

2,090

—

Total earning assets. . . . . . . . . . . . . .

$ 34,406,223

$ 32,140,336

$2,265,887

$ 28,391,625

$ 26,239,548

$2,152,077

Interest-bearing liabilities:

Money-market and savings accounts

$ 10,363,691

$ 10,335,163

$ (28,528) $ 9,370,957

$ 9,390,108

19,151

Certificates of deposit. . . . . . . . . . . .

14,065,007

13,947,743

(117,264)

9,513,194

9,551,974

38,780

Short-term borrowings . . . . . . . . . . .

289,230

—

Long-term borrowings . . . . . . . . . . .

4,434,323

4,354,037

(80,286)

4,278,931

4,284,304

Accrued interest payable . . . . . . . . .

Derivative instruments . . . . . . . . . . .

75,158

1,164

75,158

1,164

—

61,341

2,032

61,341

2,032

—

5,373

—

Total interest-bearing liabilities . . . .

$ 29,228,573

$ 29,002,495

$ (226,078) $ 23,226,455

$ 23,289,759

63,304

Excess of net asset fair value over
carrying value . . . . . . . . . . . . . . . . .

$2,039,809

$2,215,381

The methods and assumptions used to estimate the fair value of each class of financial instruments are as follows:

Cash and Cash Equivalents

Cash and cash equivalents are carried at cost. Carrying value approximated fair value for disclosure purposes. These are

level 1 valuations.

Investments

Investments are classified as available-for-sale and are carried at fair value in the consolidated financial statements.
Investments in mortgage-backed securities and Utah Housing Corporation bonds are valued using observable market prices of
similar assets. As such, these are level 2 valuations.

F-71

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

14. Fair Value Measurements (Continued)

Loans Held For Investment and Accrued Interest Receivable

Private Education Loans

Our Private Education Loans are accounted for at cost or at the lower of cost or market if the loan is held-for-sale. For

Private Education Loans, fair value was determined by using observable quoted prices for similar assets in our most recent
market transactions. Adjustments were then made to account for the value of loans in our portfolio that have materially different
characteristics than those included in the most recent market transaction. These are considered level 2 valuations. A portion of
the fair value that has been modeled is attributable to accrued interest receivable that has not yet been capitalized, and has been
allocated to the accrued interest receivable line item. The remaining accrued interest receivable that will not be capitalized into
the principal balance of the loan is carried at cost.

FFELP Loans, Personal Loans, and Credit Cards

Our FFELP Loans, Personal Loans and Credit Cards are accounted for at cost or at the lower of cost or market if the loan

is held-for-sale. For both Personal Loans and FFELP Loans, the fair value was determined by modeling expected loan level
cash flows using stated terms of the assets and internally developed assumptions to determine aggregate portfolio yield, net
present value and average life. The significant assumptions used to determine fair value are prepayment speeds, default rates,
cost of funds and required return on equity. Significant inputs into the model are not observable. However, we do calibrate the
model based on market transactions when appropriate. As such, these are level 3 valuations.

Tax Indemnification Receivable

Tax indemnification receivable is carried at cost. The carrying value approximates fair value. This is a level 2 valuation.

Money Market and Savings Accounts

Some of our MMDAs are fixed-rate deposits that are subject to minimum balances for a specified period of time. The fair

values of these deposits are estimated using discounted cash flows based on rates currently offered for deposits of similar
maturities. These are level 2 valuations. The fair values of our remaining money market and savings accounts equal the
amounts payable on demand at the balance sheet date and are reported at their carrying value. These are level 1 valuations.

Certificates of Deposit

The fair values of CDs are estimated using discounted cash flows based on rates currently offered for deposits of similar

remaining maturities. These are level 2 valuations.

Accrued Interest Payable

Accrued interest payable is carried at cost. The carrying value approximates fair value due to its short-term nature. This is

a level 1 valuation.

Borrowings

Borrowings are accounted for at cost in the consolidated financial statements. The carrying value of short-term

borrowings approximated fair value for disclosure purposes, due to the short-term nature of those borrowings. This is a level 1
valuation. The fair value of long-term borrowings is estimated using current market prices. This is a level 2 valuation.

F-72

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

14. Fair Value Measurements (Continued)

Derivatives

All derivatives are accounted for at fair value in the consolidated financial statements. The fair value of derivative
financial instruments was determined by a standard derivative pricing and option model using the stated terms of the contracts
and observable market inputs. It is our policy to compare the derivative fair values to those received from our counterparties in
order to evaluate the model’s outputs.

When determining the fair value of derivatives, we take into account counterparty credit risk for positions where we are
exposed to the counterparty on a net basis by assessing exposure net of collateral held. When the counterparty has exposure to
us under derivative contracts with the Company, we fully collateralize the exposure (subject to certain thresholds).

Interest rate swaps are valued using a standard derivative cash flow model with a LIBOR swap yield curve, which is an

observable input from an active market. These derivatives are level 2 fair value estimates in the hierarchy.

The carrying value of borrowings designated as the hedged item in a fair value hedge is adjusted for changes in fair value

due to changes in the benchmark interest rate (one-month LIBOR). These valuations are determined through standard pricing
models using the stated terms of the borrowings and observable yield curves.

15. Arrangements with Navient Corporation

In connection with the Spin-Off, we entered into a Separation and Distribution Agreement with Navient (the “Separation
and Distribution Agreement”). We also entered into various other ancillary agreements with Navient to effect the Spin-Off and
provide a framework for our relationship with Navient thereafter, such as a transition services agreement, a tax sharing
agreement, an employee matters agreement, a loan servicing and administration agreement, a joint marketing agreement, a key
services agreement, a data sharing agreement and a master sublease agreement. The majority of these agreements are
transitional in nature with most having terms that have expired or will expire within the next one to two years.

We continue to have exposure to risks related to Navient’s creditworthiness. If we are unable to obtain indemnification

payments from Navient, our results of operations and financial condition could be materially and adversely affected.

F-73

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

15. Arrangements with Navient Corporation (Continued)

Separation and Distribution Agreement

The Separation and Distribution Agreement addresses, among other things, the following activities:

•

the allocation among the parties of rights and obligations under insurance policies; and

The Separation and Distribution Agreement provides specific processes and procedures pursuant to which we may submit
claims for indemnification to Navient. If for any reason Navient is unable or unwilling to pay claims made against it, our costs,
operating expenses, cash flows and financial condition could be materially and adversely affected over time.

Indemnification Obligations

•

Long-Term Arrangements

The loan servicing and administration agreement governs the terms by which Navient provides servicing, administration

The data sharing agreement provided us the right to obtain from Navient certain post-Spin-Off performance data relating

F-74

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

15. Arrangements with Navient Corporation (Continued)

Amended Loan Participation and Purchase Agreement

Prior to the Spin-Off, the Bank sold substantially all of its Private Education Loans to several former affiliates, now
subsidiaries of Navient (collectively, the “Purchasers”), pursuant to this agreement. This agreement predates the Spin-Off, but
was significantly amended and reduced in scope in connection with the Spin-Off. Post-Spin-Off, the Bank retained only the
right to require the Purchasers to purchase Split Loans (at fair value) when the Split Loans either (1) were more than 90 days
past due; (2) had been restructured; (3) had been granted a hardship forbearance or more than six months of administrative
forbearance; or (4) had a borrower or cosigner who had filed for bankruptcy. In the second quarter of 2018, we sold our
remaining $43 million portfolio of Split Loans (both current and non-current loans) to Navient and recognized a net gain of
$2 million.

F-75

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

16. Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the FDIC and UDFI. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material adverse effect on our business, results of operations and financial condition. Under the
FDIC’s regulations implementing the Basel III capital framework (“U.S. Basel III”) and the regulatory framework for prompt
corrective action, the Bank must meet specific capital standards that involve quantitative measures of its assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and its
classification under the prompt corrective action framework are also subject to qualitative judgments by the regulators about
components of capital, risk weightings and other factors.

U.S. Basel III is aimed at increasing both the quantity and quality of regulatory capital. Certain aspects of U.S. Basel III,

including new deductions from and adjustments to regulatory capital and a capital conservation buffer, have been phased in
over several years.

The Bank is subject to the following minimum capital ratios under U.S. Basel III: a Common Equity Tier 1 risk-based

To qualify as “well capitalized” under the prompt corrective action framework for insured depository institutions, the

F-76

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

16. Regulatory Capital (Continued)

The following capital amounts and ratios are based upon the Bank’s average assets and risk-weighted assets, as indicated.

As of December 31, 2019:

Common Equity Tier 1 Capital (to Risk-Weighted Assets) . . .

Tier 1 Capital (to Risk-Weighted Assets) . . . . . . . . . . . . . . . . .

Total Capital (to Risk-Weighted Assets). . . . . . . . . . . . . . . . . .

Tier 1 Capital (to Average Assets) . . . . . . . . . . . . . . . . . . . . . .

As of December 31, 2018:

Common Equity Tier 1 Capital (to Risk-Weighted Assets) . . .
Tier 1 Capital (to Risk-Weighted Assets) . . . . . . . . . . . . . . . . .

Total Capital (to Risk-Weighted Assets). . . . . . . . . . . . . . . . . .

Tier 1 Capital (to Average Assets) . . . . . . . . . . . . . . . . . . . . . .

Actual

U.S. Basel III
Minimum Requirements
Plus Buffer(1)(2)

Amount

Ratio

Amount

Ratio

3,264,309

3,600,668

3,264,309

2,896,091

3,196,279

2,896,091

12.2%

13.4%

10.2%

12.1%

13.3%

11.1%

$ 1,876,050 >

$ 2,278,060 >

$ 2,814,074 >

$ 1,282,642 >

$ 1,528,209 >

$ 1,887,787 >

$ 2,367,226 >

$ 1,039,226 >

7.0%

8.5%

10.5%

4.0%

6.375%

7.875%

9.875%

4.0%

________________
(1)

(2)

Bank Dividends

The Bank is chartered under the laws of the State of Utah and its deposits are insured by the FDIC. The 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, the Bank may pay dividends from its net profits without regulatory approval if,
following the payment of the dividend, the Bank’s capital and surplus would not be impaired. The Bank declared $254 million
in dividends to the Company for the year ended December 31, 2019, with the proceeds primarily used to fund the 2019 Share
Repurchase Program and stock dividends. The Bank paid no dividends on its common stock for the years ended December 31,
2018 and 2017, respectively. In the future, we expect that the Bank will pay dividends to the Company as may be necessary to
pay any declared dividends on its Series B Preferred Stock and common stock and to consummate any common share
repurchases by the Company under its repurchase programs.

17. Defined Contribution Plans

We participate in a defined contribution plan which is intended to qualify under section 401(k) of the Internal Revenue

Code. The Sallie Mae 401(k) Savings Plan covers substantially all employees. After six months of service, we match 100
percent of the first five percent of contributions for eligible employees. For the years ended December 31, 2019, 2018 and
2017, we contributed $7 million, $5 million and $5 million, respectively, to this plan.

F-77

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

18. Commitments, Contingencies and Guarantees

Commitments

When we approve a Private Education Loan at the beginning of an academic year, that approval may cover the borrowing

Regulatory Matters

In May 2014, the Bank received a Civil Investigative Demand (“CID”) from the CFPB as part of the CFPB’s separate

With regard to the CFPB Investigation, we note that on January 18, 2017, the CFPB filed a complaint in federal court in

On January 18, 2017, the Illinois Attorney General filed a lawsuit in Illinois state court against Navient - its subsidiaries

F-78

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

18. Commitments, Contingencies and Guarantees (Continued)

failed to allege with sufficient particularity or specificity how the Bank was responsible for any of the alleged conduct, most of
which predated the Bank’s existence. On November 20, 2018, the Mississippi Attorney General filed an opposition brief and the
Bank filed a reply on December 21, 2018. The court heard oral argument on the Bank’s motion to dismiss on April 11, 2019. On
August 15, 2019, the court entered an order denying the Bank’s motion to dismiss. On September 5, 2019, the Bank filed with
the Supreme Court of Mississippi a petition for interlocutory appeal. The Mississippi Attorney General filed an opposition to
the petition for interlocutory appeal on September 19, 2019. On October 16, 2019, the Supreme Court of Mississippi granted
the Bank’s petition for interlocutory appeal and stayed the trial court proceedings.

To date, three other state attorneys general (California, Washington and Pennsylvania) have filed suits against Navient
and one or more of its current subsidiaries related to matters arising from the Multi-State Investigation. Neither SLM, the Bank,
nor any of their current subsidiaries are named in, or otherwise a party to, the California, Washington or Pennsylvania lawsuits,
and no claims are asserted against them. Each complaint asserts in its own fashion that Navient assumed responsibility under
the Separation and Distribution Agreement for the alleged conduct in the complaints prior to the Spin-Off. On September 24,
2018, the Washington Attorney General served a third-party subpoena on the Bank calling for the production of certain records.
The Bank has responded to the subpoena.

Additional lawsuits may arise from the Multi-State Investigation which may or may not name the Company, the Bank or

Contingencies

In the ordinary course of business, we and our subsidiaries are routinely defendants in or parties to pending and

threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and
proceedings may be based on alleged violations of consumer protection, securities, employment and other laws. In certain of
these actions and proceedings, claims for substantial monetary damage may be asserted against us and our subsidiaries.

It is common for the Company, our subsidiaries and affiliates to receive information and document requests and

investigative demands from state attorneys general, legislative committees, and administrative agencies. These requests may be
for informational or regulatory purposes and may relate to our business practices, the industries in which we operate, or other
companies with whom we conduct business. Our practice has been and continues to be to cooperate with these bodies and be
responsive to any such requests.

We are required to establish reserves for litigation and regulatory matters where those matters present loss contingencies

that are both probable and estimable. When loss contingencies are not both probable and estimable, we do not establish
reserves.

Based on current knowledge, management does not believe there are loss contingencies, if any, arising from pending

investigations, litigation or regulatory matters for which reserves should be established.

F-79

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

19. Income Taxes

Reconciliations of the statutory U.S. federal income tax rates to our effective tax rate for continuing operations follow:

Statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . .

21.0%

35.0%

Years Ended December 31,

2019

2018

2017

Tax reform. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

State tax, net of federal benefit . . . . . . . . . . . . .

Business tax credits. . . . . . . . . . . . . . . . . . . . . .

Reverse federal impact of indemnification
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unrecognized tax benefits, U.S. federal and
state, net of federal benefit . . . . . . . . . . . . . . . .

Excess tax benefits/deficiencies for employee
stock-based compensation, federal and state,
net of federal benefit . . . . . . . . . . . . . . . . . . . . .

Impact of state rate change on net deferred tax
liabilities, net of federal benefit . . . . . . . . . . . .

State, valuation allowance adjustments on net
operating losses . . . . . . . . . . . . . . . . . . . . . . . . .

Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

3.9

(3.5)

0.3

(0.1)

(0.3)

—

0.1

0.9

(0.3)

3.8

(0.5)

3.5

(15.9)

(0.6)

(0.4)

0.4

1.9

3.1

2.6

(0.1)

2.5

(2.0)

(1.7)

0.6

0.2

1.0

Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . .

22.3%

12.9%

41.2%

The effective tax rate varies from the statutory U.S. federal rate of 21 percent primarily due to business tax credits and the

impact of state taxes, net of federal benefit, for the year ended December 31, 2019; the reduction in uncertain tax positions
related to statute of limitation expirations and the impact of state taxes, net of federal benefit, for the year ended December 31,
2018; and the impact of tax reform and state taxes, net of federal benefit, for the year ended December 31, 2017.

Income tax expense consists of:

December 31,

2019

2018

2017

Current provision:

Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

150,800

102,516

State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current provision. . . . . . . . . . . . . . . . . . . . .

Deferred benefit:

Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred benefit. . . . . . . . . . . . . . . . . . . . . .

24,378

175,178

(8,240)

(1,474)

(9,714)

32,638

135,154

(57,076)

(6,225)

(63,301)

248,191

13,092

261,283

(58,124)

(628)

(58,752)

Provision for income tax expense . . . . . . . . . . . .

165,464

71,853

202,531

F-80

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

19. Income Taxes (Continued)

The tax effect of temporary differences that give rise to deferred tax assets and liabilities is summarized below.

December 31,

2019

2018

Deferred tax assets:

Loan reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

109,369

85,100

Stock-based compensation plans . . . . . . . . . . . . . . . . . . . . .

Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating loss carryovers . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accrued expenses not currently deductible . . . . . . . . . . . . .

Net unrealized losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unrecorded tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Market value adjustments on student loans, investments
and derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,022

1,017

—

12,599

2,124

6,049

—

874

9,312

1,081

—

12,896

—

5,106

1,460

953

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142,054

115,908

Deferred tax liabilities:

Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Acquired intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .

Market value adjustments on student loans, investments
and derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Federal deferred for state receivable. . . . . . . . . . . . . . . . . . .

Student loan premiums and discounts, net . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,475

5,453

3,175

—

5,368

3,398

285

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . .

28,154

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113,900

7,150

5,179

—

3,436

2,083

1,971

285

20,104

95,804

Included in operating loss carryovers are state net operating losses of $6 million and $19 million as of December 31, 2019

and 2018, respectively. The Company has recorded a full valuation allowance against these net operating losses. The valuation
allowance is primarily attributable to deferred tax assets for state net operating losses that management believes is more likely
than not to expire prior to being realized. The ultimate realization of the deferred tax assets is dependent upon the generation of
future taxable income of the appropriate character (i.e., capital or ordinary) during the period in which the temporary
differences become deductible. Management considers, among other things, the scheduled reversals of deferred tax liabilities
and the history of positive taxable income in evaluating the realizability of the deferred tax assets. Management believes that it
is more likely than not that the results of future operations will generate sufficient taxable income to realize our deferred tax
assets (other than state net operating loss carryovers as outlined above).

As of December 31, 2019, the state net operating loss carryforwards will begin to expire in 2029.

F-81

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

19. Income Taxes (Continued)

Accounting for Uncertainty in Income Taxes

The following table summarizes changes in unrecognized tax benefits:

December 31,

2019

2018

2017

Unrecognized tax benefits at beginning of year . . . . . . . . . . . . . . . . .

52,159

131,608

152,581

Increases resulting from tax positions taken during a prior period. . . . .

Decreases resulting from tax positions taken during a prior period . . . .

Increases resulting from tax positions taken during the current period .

Decreases related to settlements with taxing authorities . . . . . . . . . . . .

Reductions related to the lapse of statute of limitations . . . . . . . . . . . . .

12,333

(851)

4,572

(8,670)

(6,034)

4,121

—

3,169

(601)

7,482

(7,025)

1,656

(3,594)

(86,138)

(19,492)

Unrecognized tax benefits at end of year . . . . . . . . . . . . . . . . . . . . . .

53,509

52,159

131,608

As of December 31, 2019, the gross unrecognized tax benefits are $54 million. Included in the $54 million are $48
million of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate. As a part of the Spin-Off,
the Company recorded a liability related to uncertain tax positions for which it is indemnified by Navient. See Note 2,
“Significant Accounting Policies — Income Taxes,” for additional details.

Tax related interest and penalty expense is reported as a component of income tax expense. As of December 31, 2019,
2018 and 2017, the total amount of income tax-related accrued interest and penalties, net of related benefit, recognized in the
consolidated balance sheets was $12 million, $14 million and $21 million, respectively.

For the years ended December 31, 2019, 2018 and 2017, the total amount of income tax-related accrued interest, net of

related tax benefit, recognized in the consolidated statements of income was $(1) million, $(7) million and $3 million,
respectively.

The Company or one of its subsidiaries files income tax returns at the U.S. federal level and in most U.S. states. U.S.

federal income tax returns filed for years 2014 and prior are no longer subject to examination. Various combinations of
subsidiaries, tax years, and jurisdictions remain open for review, subject to statute of limitations periods (typically 3 to 4 prior
years). We do not expect the resolution of open audits to have a material impact on our unrecognized tax benefits.

It is reasonably possible that the uncertain tax position reserve may decrease by as much as $10 million during the next
12 months due to the expiration of statutes of limitations primarily related to indemnified tax liabilities. The reduction in the
uncertain tax position reserve would be reflected as a tax benefit. We recorded a tax indemnification receivable from Navient
for the indemnified tax liabilities which are included in the uncertain tax position reserve. A portion of the tax benefit will be
offset by an expense related to the write-down of the indemnification receivable.

F-82

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

20. Concentrations of Risk

Our business is primarily focused on helping students and their families save, plan and pay for college. We primarily
originate, service and/or collect loans made to students and their families to finance the cost of their education. We provide
funding, delivery and servicing support for education loans in the United States through our Private Education Loan program.
Because of this concentration in one industry, we are exposed to credit, legislative, operational, regulatory, and liquidity risks
associated with the student loan industry.

Concentration Risk in the Revenues Associated with Private Education Loans

We compete in the Private Education Loan market with banks and other consumer lending institutions, some with strong

consumer brand name recognition and greater financial resources. We compete based on our products, origination capability
and customer service. To the extent our competitors compete aggressively or more effectively, we could lose market share to
them or subject our existing loans to refinancing risk. Our product offerings may not prove to be profitable and may result in
higher than expected losses.

We are a leading provider of saving- and paying-for-college products and programs. This concentration gives us a

competitive advantage in the marketplace. This concentration also creates risks in our business, particularly in light of our
concentration as a Private Education Loan lender. If population demographics result in a decrease in college-age individuals, if
demand for higher education decreases, if the cost of attendance of higher education decreases, if public resistance to higher
education costs strengthens, or if the demand for higher education loans decreases, our consumer lending business could be
negatively affected. In addition, the federal government, through the Federal Direct Student Loan Program (the “DSLP”), poses
significant competition to our private credit loan products. If loan limits under the DSLP increase, DSLP loans could be more
widely available to students and their families and DSLP loans could increase, resulting in further decreases in the size of the
Private Education Loan market and demand for our Private Education Loan products.

F-83

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

21. Parent Only Statements

The following parent company-only financial information should be read in conjunction with the other notes to the
consolidated financial statements. The accounting policies for the parent company-only financial statements are the same as
those used in the presentation of the consolidated financial statements, except that the parent company-only financial statements
account for the parent company’s investments in its subsidiaries under the equity method.

Parent Only Condensed Balance Sheets

December 31,

2019

2018

Assets

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

153,508

191,776

Total investments in subsidiaries (primarily Sallie Mae Bank) . . . . . . . .

3,326,578

2,963,949

Tax indemnification receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Due from subsidiaries, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27,558

42,544

2,579

39,207

48,798

2,246

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,552,767

3,245,976

Liabilities and Equity

Liabilities

Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

198,159

197,348

Income taxes payable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Payable due to Navient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,457

9,064

22,251

37,271

9,480

29,221

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

240,931

273,320

Equity

Preferred stock, par value $0.20 per share, 20 million shares
authorized:

Series B: 4 million and 4 million shares issued, respectively, at stated
value of $100 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Common stock, par value $0.20 per share, 1.125 billion shares
authorized: 453.6 million and 449.9 million shares issued, respectively .

400,000

90,720

89,972

Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,307,630

1,274,635

Accumulated other comprehensive income (loss) (net of tax expense
(benefit) of ($3,995) and $3,436, respectively) . . . . . . . . . . . . . . . . . . . .

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total SLM Corporation stockholders’ equity before treasury stock. . . . .

Less: Common stock held in treasury at cost: 32.5 million and 14.2
million shares, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(12,367)

1,850,512

3,636,495

(324,659)

3,311,836

10,623

1,340,017

3,115,247

(142,591)

2,972,656

Total liabilities and equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,552,767

3,245,976

F-84

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21. Parent Only Statements (Continued)

(Dollars in thousands, unless otherwise noted)

Parent Only Condensed Statements of Income

Years Ended December 31,

2019

2018

2017

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,663

4,693

11,060

(8,397)

(10,856)

39,423

(58,676)

(25,260)

611,692

578,276

16,837

11,059

(6,366)

(93,176)

41,893

(141,435)

(96,170)

532,741

487,476

15,640

5,497

8,170

(2,673)

(33,956)

35,810

(72,439)

(40,598)

320,775

288,934

15,714

561,439

471,836

273,220

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net interest loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-interest loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-interest expenses . . . . . . . . . . . . . . . . . . . . . . . . .

Loss before income tax benefit and equity in net
income from subsidiaries . . . . . . . . . . . . . . . . . . . . . . .

Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Equity in net income from subsidiaries (primarily
Sallie Mae Bank) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to SLM Corporation
common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-85

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21. Parent Only Statements (Continued)

(Dollars in thousands, unless otherwise noted)

Parent Only Condensed Statements of Cash Flows

Years Ended December 31,

2019

2018

2017

Cash flows from operating activities:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

578,276

487,476

288,934

Adjustments to reconcile net income to net cash (used in) provided
by operating activities:

Undistributed earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .

(611,692)

(532,741)

(320,775)

Dividends received from Sallie Mae Bank. . . . . . . . . . . . . . . . . . . . .

Reduction of tax indemnification receivable . . . . . . . . . . . . . . . . . . .

Amortization of unsecured debt upfront fees . . . . . . . . . . . . . . . . . . .

Decrease in investment in subsidiaries, net . . . . . . . . . . . . . . . . . . . .

Decrease in tax indemnification receivable . . . . . . . . . . . . . . . . . . . .

Decrease (increase) in due from subsidiaries, net . . . . . . . . . . . . . . .

Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Decrease in income taxes payable, net. . . . . . . . . . . . . . . . . . . . . . . .

Decrease in payable due to entity that is a subsidiary of Navient . . .

(Decrease) increase in other liabilities . . . . . . . . . . . . . . . . . . . . . . . .

Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . .

Cash flows from investing activities:

Net cash provided by investing activities. . . . . . . . . . . . . . . . . . . . . .

Cash flows from financing activities:

Unsecured debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Issuance costs for unsecured debt offering. . . . . . . . . . . . . . . . . . . . .

Redemption of Series A Preferred Stock . . . . . . . . . . . . . . . . . . . . . .

Common stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Preferred stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Common stock repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . .

Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .

Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . .

254,000

11,649

811

2,611

—

6,254

(12,999)

(25,814)

(416)

(5,796)

(381,392)

196,884

—

(51,114)

(16,837)

(167,201)

(235,152)

(38,268)

191,776

—

92,815

809

9,495

35,989

(11,277)

(18,040)

(123,083)

(1,089)

6,807

(540,315)

(52,839)

—

31,888

596

1,158

59,633

(5,687)

(24,627)

(87,983)

(593)

10,205

(336,185)

(47,251)

—

197,000

(1,057)

(165,000)

—

(15,640)

(15,714)

—

(15,640)

(68,479)

260,255

—

15,229

(32,022)

292,277

260,255

Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . .

153,508

191,776

F-86

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

22. Selected Quarterly Financial Information (unaudited)

(Dollars in thousands, except per share data)

2019

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 402,281

$ 396,868

$ 405,065

$ 419,101

Less: provisions for credit losses . . . . . . . . . . . . . . . . . . . .

63,790

93,375

99,526

97,558

Net interest income after provisions for credit losses . . . .

338,491

303,493

305,539

321,543

Gains (losses) on derivative and hedging activities, net . .

Other income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,763

13,378

16,736

2,655

1,961

15,280

(3,635)

(211)

Total non-interest expenses . . . . . . . . . . . . . . . . . . . . . . . .

140,147

138,806

153,621

141,679

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56,296

33,801

40,701

34,666

Net income

158,189

150,277

128,458

141,352

Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . .

4,468

4,331

4,153

3,885

Net income attributable to SLM Corporation common
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 153,721

$ 145,946

$ 124,305

$ 137,467

Basic earnings per common share attributable to SLM
Corporation(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share attributable to SLM
Corporation(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Declared dividends per common share attributable to
SLM Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.35

0.03

0.34

0.06

0.29

0.33

0.32

— $

0.03

______

(1)

Basic and diluted earnings per common share attributable to SLM Corporation are computed independently for each of
the quarters presented. Therefore, the sum of quarterly basic and diluted earnings per common share information may
not equal annual basic and diluted earnings per common share.

F-87

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

22. Selected Quarterly Financial Information (unaudited) (Continued)

(Dollars in thousands, unless otherwise noted)

(Dollars in thousands, except per share data)

2018

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 332,614

$ 340,950

$ 356,633

$ 382,867

Less: provisions for credit losses . . . . . . . . . . . . . . . . . . . .

53,931

63,267

70,047

57,619

Net interest income after provisions for credit losses . . . .

278,683

277,683

286,586

325,248

Gains on sales of loans, net . . . . . . . . . . . . . . . . . . . . . . . .

Losses on sales of securities, net . . . . . . . . . . . . . . . . . . . .

Gains (losses) on derivative and hedging activities, net . .

Other income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

3,892

9,642

2,060

(1,549)

(5,268)

—

(4,949)

12,295

(80,702)

—

6,238

6,446

Total non-interest expenses . . . . . . . . . . . . . . . . . . . . . . . .

124,966

135,315

150,724

145,971

Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . .

40,997

40,074

(53,667)

44,449

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

126,254

109,832

103,878

147,512

Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . .

3,397

3,920

4,124

4,199

Net income attributable to SLM Corporation common
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 122,857

$ 105,912

0.28

0.24

99,754

$ 143,313

0.23

0.33

_____

(1)

F-88

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

23. Subsequent Events

2020-A Securitization

On February 12, 2020, we executed our $636 million SMB Private Education Loan Trust 2020-A term ABS transaction,

which was accounted for as a secured financing. We sold $636 million of notes to third parties and retained a 100 percent
interest in the residual certificates issued in the securitization, raising approximately $634 million of gross proceeds. The Class
A and Class B notes had a weighted average life of 4.18 years and priced at a weighted average LIBOR equivalent cost of 1-
month LIBOR plus 0.88 percent.

Amended and Increased Secured Borrowing Facility

On February 19, 2020, we amended and extended the maturity of the Secured Borrowing Facility, discussed in Note 9,

“Borrowings.” The amended Secured Borrowing Facility is a $2 billion Secured Borrowing Facility (previously $750 million
before the amendment), under which the full $2 billion is available for us to draw. Under the amended Secured Borrowing
Facility, we incur financing costs on unused borrowing capacity and on outstandings. The amended Secured Borrowing Facility
extended the revolving period, during which we may borrow, repay and reborrow funds, until February 17, 2021. The scheduled
amortization period, during which amounts outstanding under the Secured Borrowing Facility must be repaid, ends on February
17, 2022 (or earlier, if certain material adverse events occur).

2020 Loan Sales

On February 20, 2020, we sold $954 million in principal and $68 million in accrued interest of Private Education Loans

to an unaffiliated third party. The transaction qualified for sale treatment and removed the balance of the loans from our balance
sheet on the settlement date. We will continue to service these loans.

F-89