Sallie Mae Reports Third-Quarter 2012 Financial Results

Sallie Mae Reports Third-Quarter 2012 Financial Results

Loan Originations Increase 25 Percent

NEWARK, Del.--(BUSINESS WIRE)-- Sallie Mae (NAS: SLM) , formally SLM Corporation, today released third-quarter 2012 financial results that included increased private education loan originations and lower operating expenses compared with the year-ago quarter.

"The quarter further confirms the rebound of our private credit business," said Albert L. Lord, vice chairman and CEO. "While our balance sheet and earnings quality grow, so do our future prospects."

For the third-quarter 2012, GAAP net income was $188 million ($.39 diluted earnings per share), compared with net loss of $47 million ($.10 diluted loss per share) for the year-ago quarter.

Core earnings for the quarter were $277 million ($.58 diluted earnings per share), compared with $188 million ($.36 diluted earnings per share) in the year-ago quarter. Earnings improvement was primarily due to a $139 million lower loan loss provision largely attributable to the adoption of new accounting guidance for troubled debt restructurings (TDRs) in the year-ago quarter. Also, debt repurchase gains were $44 million higher and operating expenses were $41 million lower. Net interest income was $40 million lower primarily due to higher funding costs which were partly due to refinancing debt into longer-term liabilities and lower federally guaranteed student loan balances.

Sallie Mae provides results on a core earnings basis because management utilizes this information in making management decisions. The changes in GAAP net income are driven by the same core earnings items discussed above as well as changes in mark-to-market unrealized gains and losses on derivative contracts and amortization and impairment of goodwill and intangible assets that are recognized in GAAP, but not in core earnings, results. Third-quarter 2012 and 2011 GAAP results included losses of $140 million and $371 million, respectively, resulting from derivative accounting treatment which is excluded from core earnings results.

Consumer Lending

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

Quarterly core earnings improved to $63 million from a loss of $27 million in 2011, driven primarily by lower loan loss provision.

Private education loan portfolio results vs. third-quarter 2011 included:

  • Loan originations of $1.3 billion, up 25 percent.
  • Provision for private education loan losses of $252 million, down from $384 million, primarily due to an additional $124 million of provision attributable to last year's adoption of new accounting guidance for TDRs.
  • Delinquencies of 90 days or more of 5.3 percent, up from 5.0 percent of loans in repayment.
  • Loans in forbearance of 3.2 percent, down from 4.5 percent of loans in repayment and forbearance.
  • Annualized charge-off rate of 3.23 percent, down from 3.74 percent of loans in repayment.
  • Core net interest margin, before loan loss provision, of 4.05 percent, up from 4.03 percent.
  • The portfolio balance, net of loan loss allowance, grew to $37 billion from $36 billion.

Business Services

Sallie Mae's business services segment includes fees from servicing, collections and college savings businesses.

Business services core earnings were $131 million in third-quarter 2012, compared with $139 million in the year-ago quarter.

Federally Guaranteed Student Loans (FFELP)

This segment represents earnings from Sallie Mae's amortizing portfolio of federally guaranteed student loans.

Core earnings for the segment were $94 million in third-quarter 2012, compared with the year-ago quarter's $107 million. The decrease was primarily due to lower net interest income in the current quarter resulting from higher funding costs and the declining balance of the FFELP loan portfolio.

Year-to-date Sept. 30, 2012, the company acquired $3.1 billion of FFELP loans. At Sept. 30, 2012, the company held $128 billion of FFELP loans compared with $141 billion at Sept. 30, 2011.

Operating Expenses

Third-quarter operating expenses were $244 million in 2012, down from $285 million in the year-ago quarter.

Funding and Liquidity

During third-quarter 2012, the company issued $2.6 billion in FFELP asset-backed securities (ABS), $640 million in private education loan ABS, and $800 million of unsecured bonds.

Shareholder Distributions

In third-quarter 2012, Sallie Mae paid a common stock dividend of $0.125 per share and repurchased 7.6 million shares of common stock for $121 million. Year-to-date Sept. 30, 2012, Sallie Mae has repurchased 48.2 million common shares for $730 million. At Sept. 30, 2012, $170 million was available for additional common share repurchases.


The company expects 2012 results to be as follows:

  • Full-year 2012 private education loan originations of at least $3.2 billion.
  • Fully diluted 2012 core earnings per share of $2.15.

Sallie Mae reports financial results on a GAAP basis and also provides certain core earnings performance measures. The difference between the company's core earnings and GAAP results for the periods presented were the unrealized, mark-to-market gains/losses on derivative contracts and the goodwill and acquired intangible asset amortization and impairment. These items are recognized in GAAP but not in core earnings results. The company provides core earnings measures because this is what management uses when making management decisions regarding the company's performance and the allocation of corporate resources. In addition, the company's equity investors, credit rating agencies and debt capital providers use these core earnings measures to monitor the company's business performance. See "Core Earnings — Definition and Limitations" for a further discussion and a complete reconciliation between GAAP net income and core earnings. Given the significant variability of valuations of derivative instruments on expected GAAP net income, the company does not provide a GAAP equivalent for its core earnings per share guidance.

Definitions for capitalized terms in this document can be found in the company's Annual Report on Form 10-K for the year ended Dec. 31, 2011 (filed with the SEC on Feb. 27, 2012). Certain reclassifications have been made to the balances as of and for the three and nine months ended Sept. 30, 2011, to be consistent with classifications adopted for 2012, and had no effect on net income, total assets or total liabilities.

The company will host an earnings conference call tomorrow, Oct. 18, at 8 a.m. EDT. Sallie Mae executives will be on hand to discuss various highlights of the quarter and to answer questions related to the company's performance. Individuals interested in participating in the call should dial (877) 356-5689 (USA and Canada) or dial (706) 679-0623 (international) and use access code 34705817 starting at 7:45 a.m. EDT. A live audio webcast of the conference call may be accessed at A replay of the conference call via the company's website will be available within two hours after the call's conclusion. A telephone replay may be accessed two hours after the call's conclusion through Nov. 1, by dialing (855) 859-2056 (USA and Canada) or (404) 537-3406 (international) with access code 34705817.

Presentation slides for the conference call, as well as additional information about the company's loan portfolios, operating segments, and other details, may be accessed at under the webcasts tab.

This press release contains "forward-looking statements" and information based on management's current expectations as of the date of this release. Statements that are not historical facts, including statements about the company's beliefs or expectations and statements that assume or are dependent upon future events, are forward-looking statements. Forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in Item 1A "Risk Factors" and elsewhere in the company's Annual Report on Form 10-K for the year ended Dec. 31, 2011, first-quarter and second-quarter Forms 10-Q and subsequent filings with the SEC; increases in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; changes in accounting standards and the impact of related changes in significant accounting estimates; any adverse outcomes in any significant litigation to which the company is a party; credit risk associated with the company's exposure to third parties, including counterparties to the company's derivative transactions; and changes in the terms of student loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws). The company could also be affected by, among other things: changes in its funding costs and availability; reductions to its credit ratings or the credit ratings of the United States of America; failures of its operating systems or infrastructure, including those of third-party vendors; damage to its reputation; failures to successfully implement cost-cutting and restructuring initiatives and adverse effects of such initiatives on its 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; increased competition from banks and other consumer lenders; the creditworthiness of its customers; changes in the general interest rate environment, including the rate relationships among relevant money-market instruments and those of its earning assets vs. its funding arrangements; changes in general economic conditions; and changes in the demand for debt management services. The preparation of the company's consolidated financial statements also requires management to make certain estimates and assumptions including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect. All forward-looking statements contained in this release are qualified by these cautionary statements and are made only as of the date of this release. The company does not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in its expectations.

Sallie Mae (NAS: SLM) is the nation's No. 1 financial services company specializing in education. Whether college is a long way off or just around the corner, Sallie Mae turns education dreams into reality for its 25 million customers. With products and services that include 529 college savings plans, Upromise rewards, scholarship search tools, education loans, insurance, and online banking, Sallie Mae offers solutions that help families save, plan, and pay for college. Sallie Mae also provides financial services to hundreds of college campuses as well as to federal and state governments. Learn more at Commonly known as Sallie Mae, SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.

Selected Financial Information and Ratios
  Quarters Ended  Nine Months Ended

(Dollars and shares in millions, except per share data)

September 30,
  June 30,
  September 30,
September 30,
  September 30,
GAAP Basis
Net income (loss) attributable to SLM Corporation$188$292$(47)$591$122
Diluted earnings (loss) per common share attributable to SLM Corporation$.39$.59$(.10)$1.18$.21
Weighted average shares used to compute diluted earnings per share471488511490526
Return on assets.42%.64%(.10)%.43%.09%
"Core Earnings" Basis(1)
"Core Earnings" attributable to SLM Corporation$277$243$188$804$708
"Core Earnings" diluted earnings per common share attributable to SLM Corporation$.58$.49$.36$1.61$1.32
Weighted average shares used to compute diluted earnings per share471488517490526
"Core Earnings" return on assets.62%.53%.39%.59%.49%
Other Operating Statistics
Ending FFELP Loans, net$127,747$132,833$140,659$127,747$140,659
Ending Private Education Loans, net 37,101  36,454  36,157  37,101  36,157 
Ending total student loans, net$164,848 $169,287 $176,816 $164,848 $176,816 
Average student loans$167,166$172,436$178,620$171,499$181,242




"Core Earnings" are non-GAAP financial measures and do not represent a comprehensive basis of accounting. For a greater explanation of "Core Earnings," see the section titled "'Core Earnings' — Definition and Limitations" and subsequent sections.

Results of Operations

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


September 30, 2012

vs. June 30, 2012


September 30, 2012 vs.

September 30, 2011

Quarters EndedIncrease (Decrease)Increase (Decrease)
September 30,  June 30,  September 30,    

(In millions, except per share data)

Interest income:
FFELP Loans$840$777$858$638%$(18)(2)%
Private Education Loans615616609(1)61
Other loans445(1)(20)
Cash and investments 5  6  4  (1)(17) 1 25 
Total interest income1,4641,4031,476614(12)(1)
Total interest expense 645  657  591  (12)(2) 54 9 
Net interest income8197468857310(66)(7)
Less: provisions for loan losses 270  243  409  27 11  (139)(34)
Net interest income after provisions for loan losses5495034764697315
Other income (loss):

Gains (losses) on derivative and hedging activities, net

Servicing revenue94929522(1)(1)
Contingency revenue858784(2)(2)11
Gains on debt repurchases44202412044100
Other income (loss) 3  (2) 1  5 250  2 200 
Total other income (loss)(7)203