Sallie Mae Reports First-Quarter 2013 Financial Results

Sallie Mae Reports First-Quarter 2013 Financial Results

Loan Originations Up, Delinquency Rates Down

FFELP Sales, Share Repurchases Contribute to Earnings Per Share

Common Stock Dividends Increase

NEWARK, Del.--(BUSINESS WIRE)-- Sallie Mae (NAS: SLM) , formally SLM Corporation, today released first-quarter 2013 financial results that include increased year-over-year private education loan originations and decreased delinquency rates. Also during the quarter, the company realized gains from its first sale of a residual interest in a federal loan securitization trust, increased its quarterly common stock dividend and continued common share repurchases.

"Our recent results are good and about as expected with no surprises," said Albert L. Lord, vice chairman and CEO. "I am optimistic about our prospective credit costs, though we will watch the next several months with some caution. While the economy and employment levels are still uncertain, capital markets liquidity has improved and enabled some important balance sheet structuring in the quarter. We will remain active market participants."

For the first-quarter 2013, GAAP net income was $346 million ($0.74 diluted earnings per share), compared with $112 million ($0.21 diluted earnings per share) for the year-ago quarter.

Core earnings for the quarter were $283 million ($0.61 diluted earnings per share), compared with $284 million ($0.55 diluted earnings per share) for the year-ago quarter.

The first-quarter 2013 core diluted earnings per share increase includes a $55 million gain from the sale of the residual interest in a FFELP loan securitization trust, a $12 million decline in the provision for loan losses and a decline in the number of common shares outstanding which more than offset lower net interest income before provision for loan losses of $57 million and lower debt repurchase gains of $8 million. The company will continue to service the student loans in the trust that was sold.

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. First-quarter 2013 GAAP results included a $110 million gain from derivative accounting treatment that is excluded from core earnings results. In the year-ago period, these amounts were losses of $264 million.

Consumer Lending

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

Quarterly core earnings were $88 million compared with core earnings of $84 million in the year-ago quarter.

First-quarter 2013 private education loan portfolio results vs. first-quarter 2012 included:

• Loan originations of $1.4 billion, up 22 percent.

• Delinquencies of 90 days or more of 3.9 percent of loans in repayment, down from 4.4 percent.

• Loans in forbearance of 3.4 percent of loans in repayment and forbearance, down from 4.3 percent.

• Annualized charge-off rate of 3.0 percent of average loans in repayment for both the current and year-ago quarters.

• Provision for private education loan losses of $225 million, down from $235 million.

• Core net interest margin, before loan loss provision, of 4.15 percent, down from 4.26 percent.

• The portfolio balance, net of loan loss allowance, totaled $37 billion, a $733 million increase over the year-ago quarter.

Business Services

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

Business services core earnings were $124 million in first-quarter 2013, compared with $137 million in the year-ago quarter. The decrease is primarily due to the lower balance of FFELP loans serviced by Sallie Mae.

Federally Guaranteed Student Loans (FFELP)

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

Core earnings for the segment were $104 million in first-quarter 2013, compared with the year-ago quarter's $80 million. The increase was the result of a $55 million gain from the sale of the residual interest in a FFELP loan securitization trust, which more than offset the decline in net interest income from the amortizing FFELP portfolio.

At March 31, 2013, the company held $119 billion of FFELP loans compared with $136 billion at March 31, 2012.

Operating Expenses

First-quarter 2013 operating expenses were $270 million compared with $262 million in the year-ago quarter. Excluding the result of a non-recurring $8 million pension termination gain in first-quarter 2012, operating expenses were unchanged.

Funding and Liquidity

During first-quarter 2013, the company issued $1.2 billion in FFELP asset-backed securities (ABS), $1.4 billion in private education loan ABS and $1.5 billion of unsecured bonds.

Total debt repurchases were $927 million in first-quarter 2013 compared with $204 million in first-quarter 2012.

Sallie Mae continues to issue FFELP ABS primarily as a means to finance the redemption of FFELP loans financed in 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.

Shareholder Distributions

In first-quarter 2013, Sallie Mae paid a common stock dividend of $0.15 per share, up from $0.125 per share in the prior quarter.

For the first-quarter 2013, Sallie Mae repurchased 10 million shares of common stock for $199 million. The shares were repurchased under the company's February 2013 share repurchase program that authorizes up to $400 million of share repurchases.

Guidance

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 $2.49 inclusive of the contributions from the two FFELP loan securitization trust residual sales that have occurred in 2013.

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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, 2012 (filed with the SEC on Feb. 26, 2013). Certain reclassifications have been made to the balances as of and for the three months ended March 31, 2012, to be consistent with classifications adopted for 2013, and had no effect on net income, total assets or total liabilities.

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The company will host an earnings conference call tomorrow, April 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 23719299 starting at 7:45 a.m. EDT. A live audio webcast of the conference call may be accessed at www.SallieMae.com/investors. A replay of the conference call via the company's website will be available approximately two hours after the call's conclusion. A telephone replay may be accessed approximately two hours after the call's conclusion through May 2, by dialing 855-859-2056 (USA and Canada) or 404-537-3406 (international) with access code 23719299.

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

This press release contains "forward-looking statements" and information based on management's current expectations as of the date of this release. Statements that are not historical facts, including statements about the company's beliefs or expectations and statements that assume or are dependent upon future events, are forward-looking statements. Forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in Item 1A "Risk Factors" and elsewhere in the company's Annual Report on Form 10-K for the year ended Dec. 31, 2012; 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.

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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 SallieMae.com. Commonly known as Sallie Mae, SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.