Sallie Mae Reports Fourth-Quarter and Full-Year 2012 Financial Results

Sallie Mae Reports Fourth-Quarter and Full-Year 2012 Financial Results

NEWARK, Del.--(BUSINESS WIRE)-- Sallie Mae (NAS: SLM) , formally SLM Corporation, today released fourth-quarter 2012 and full-year 2012 financial results. Highlights of the year included a 22 percent increase in private education loan originations to $3.3 billion, decreased delinquency rates, the distribution of $237 million of common stock dividends and the repurchase of 58 million common shares.

"Our key 2012 objectives were to grow the private loan franchise, make distributions from our legacy FFELP business, and maintain strong capital and reserves. We accomplished all three, and we continue on this course," said Albert L. Lord, vice chairman & CEO. "As expected, charge-offs accelerated in the fourth quarter largely due to recent reductions in forbearance. We still view the economy warily and commit to help customers manage their borrowing and succeed in its payoff."

For the fourth-quarter 2012, GAAP net income was $348 million ($.74 diluted earnings per share), compared with $511 million ($.99 diluted earnings per share) for the year-ago quarter. For 2012, GAAP net income was $939 million ($1.90 diluted earnings per share), compared with $633 million ($1.18 diluted earnings per share) for 2011.

Core earnings for the quarter were $257 million ($.55 diluted earnings per share), compared with $268 million ($.51 diluted earnings per share) for the year-ago quarter.

Core earnings for the year were $1.06 billion ($2.16 per diluted earnings per share), compared with $977 million ($1.83 per diluted earnings per share) for 2011.

Fourth-quarter and full-year 2012 core earnings included higher debt repurchase gains of $43 million and $81 million, respectively, and lower pre-provision net interest income of $59 million and $246 million, respectively. Full-year 2012 core earnings benefitted from a $215 million lower loan loss provision and a $104 million reduction in operating expenses.

Sallie Mae provides core basis earnings because management makes its financial decisions on such measures. The changes in GAAP net income are driven by the same core earnings items discussed above as well as changes in mark-to-market unrealized gains and losses on derivative contracts and amortization and impairment of goodwill and intangible assets that are recognized in GAAP, but not in core earnings results. Fourth-quarter and full-year 2012 GAAP results included gains of $128 million and losses of $194 million, respectively, resulting from derivative accounting treatment that is excluded from core earnings results. In the year-ago periods, these amounts were gains of $377 million and losses of $540 million, respectively.

Consumer Lending

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

Quarterly core earnings were $46 million compared with core earnings of $63 million in the year-ago quarter. The decline was primarily driven by a $41 million increase in the provision for loan losses.

Fourth-quarter 2012 private education loan portfolio results vs. fourth-quarter 2011 included:

  • Loan originations of $514 million, up 12.5 percent.
  • Delinquencies of 90 days or more of 4.6 percent of loans in repayment, down from 4.9 percent.
  • Loans in forbearance of 3.5 percent of loans in repayment and forbearance, down from 4.4 percent.
  • Annualized charge-off rate of 4.19 percent of loans in repayment, up from 3.52 percent. As first reported last quarter, recent reductions in forbearance usage have produced increases in charge-offs that Sallie Mae expects to decline in 2013.
  • Provision for private education loan losses of $296 million, up from $255 million.
  • Core net interest margin, before loan loss provision, of 4.1 percent, down from 4.2 percent.
  • The portfolio balance, net of loan loss allowance, grew to $37 billion from $36 billion.

Core earnings for 2012 were $278 million, compared with $128 million in 2011.

During 2012, originations were $3.3 billion, up 22 percent.

Business Services

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

Business services core earnings were $134 million in fourth-quarter 2012, compared with $158 million in the year-ago quarter. The decrease is primarily due to a $25 million gain recognized in the year-ago quarter related to the termination and replacement of the credit card affiliation contract and the lower balance of federally guaranteed student loans (FFELP) serviced by Sallie Mae.

Core earnings were $540 million in 2012, compared with $570 million in 2011.

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 $89 million in fourth-quarter 2012, compared with the year-ago quarter's $109 million.

For 2012, core earnings were $307 million compared with $434 million in 2011.

In 2012, the company acquired $3.7 billion of FFELP loans. At Dec. 31, 2012, the company held $125.6 billion of FFELP loans compared with $138.1 billion at Dec. 31, 2011. Continuing amortization of the outstanding principal balance of the FFELP loan portfolio will result in lower quarterly net interest income over time.

Operating Expenses

Fourth-quarter 2012 operating expenses were $252 million compared with $243 million in the year-ago quarter.

Operating expenses for 2012 were $996 million compared with $1.1 billion for 2011.

Funding and Liquidity

During fourth-quarter 2012, the company issued $2.8 billion in FFELP asset-backed securities (ABS) and $976 million in private education loan ABS.

During 2012, the company issued $9.7 billion in FFELP ABS, $4.2 billion in private education loan ABS, and $2.7 billion of unsecured bonds.

Sallie Mae continues to issue FFELP ABS primarily as a means to finance the redemption of all remaining FFELP loans previously sold into the U.S. Department of Education's conduit program. The company still expects to redeem all of these loans prior to the conduit program's Jan. 19, 2014 maturity date, though doing so has and will continue to incrementally increase its financing costs and lower net interest income.

Shareholder Distributions

In fourth-quarter 2012, Sallie Mae paid a common stock dividend of $0.125 per share, resulting in full-year common stock dividends paid of $0.50 per share.

For the fourth-quarter and year ended 2012, Sallie Mae repurchased 9.9 million and 58.0 million shares of common stock for $170 million and $900 million, respectively.


The company expects 2013 results to be as follows:

  • Full-year 2013 private education loan originations of at least $4 billion.
  • Fully diluted 2013 core earnings per share of $2.30.


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 months and year ended Dec. 31, 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, Jan. 17, at 8 a.m. EST. Sallie Mae executives will be on hand to discuss various highlights of the quarter and to answer questions related to 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 82116247 starting at 7:45 a.m. EST. 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 Jan. 31, by dialing (855) 859-2056 (USA and Canada) or (404) 537-3406 (international) with access code 82116247.

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, second-quarter and third-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. Celebrating 40 years of making a difference, Sallie Mae continues to turn education dreams into reality for American families, today serving 25 million customers. With products and services that include 529 college savings plans, Upromise rewards, scholarship search and planning tools, education loans, insurance, and online banking, Sallie Mae offers solutions that help families save, plan, and pay for college. Sallie Mae also provides financial services to hundreds of college campuses as well as to federal and state governments. Learn more at 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 EndedYears Ended
December 31, September 30, December 31,December 31,December 31,
(In millions, except per share data)2012 2012 201120122011
GAAP Basis
Net income attributable to SLM Corporation$348$188$511$939$633
Diluted earnings per common share attributable to SLM Corporation$.74$.39$.99$1.90$1.18
Weighted average shares used to compute diluted earnings per share463471514483523
Return on assets.79%.42%1.09%.52%.33%
"Core Earnings" Basis(1)
"Core Earnings" attributable to SLM Corporation$257$277$268$1,062$977
"Core Earnings" diluted earnings per common share attributable to SLM Corporation$.55$.58$.51$2.16$1.83
Weighted average shares used to compute diluted earnings per share463471514483523
"Core Earnings" return on assets.58%.62%.57%.59%.51%
Other Operating Statistics
Ending FFELP Loans, net$125,612$127,747$138,130$125,612$138,130
Ending Private Education Loans, net 36,934  37,101  36,290  36,934  36,290 
Ending total student loans, net$162,546 $164,848 $174,420 $162,546 $174,420 
Average student loans$164,800$167,166$176,567$169,815$180,064


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

Results of Operations

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


GAAP Statements of Income (Unaudited)

  December 31, December 31,
2012 vs.2012 vs.
September 30, 2012 December 31, 2011
Quarters Ended(Decrease)(Decrease)
December 31, September 30, December 31,  

(In millions, except per share data)


Interest income:






Private Education Loans62561561610291
Other loans445(1)(20)
Cash and investments 5  5  5       
Total interest income1,4261,4641,502(38)(3)(76)(5)
Total interest expense 594  645  623  (51)(8) (29)(5)
Net interest income832819879132(47)(5)
Less: provisions for loan losses 314  270  292  44 16  22 8 
Net interest income after provisions for loan losses518549587(31)(6)(69)(12)
Other income (loss):
Losses on loans and investments, net(35)35(100)
Gains (losses) on derivative and hedging activities, net(28)(233)272205(88)(300)(110)
Servicing revenue929494(2)(2)(2)(2)
Contingency revenue95858510121012
Gains on debt repurchases4344(1)(2)43100
Other income 52 
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