Sallie Mae Reports Second-Quarter 2013 Financial Results

Sallie Mae Reports Second-Quarter 2013 Financial Results

Private Education Loan Delinquency and Charge-off Rates Drop to Lowest Levels Since 2008

Asset Sales Contribute to Earnings Per Share Growth

$400 Million Authorized for Common Share Repurchases

NEWARK, Del.--(BUSINESS WIRE)-- Sallie Mae (NAS: SLM) , formally SLM Corporation, today released second-quarter 2013 financial results that reflect significant improvements to private education loan portfolio performance and earnings-per-share contributions from previously announced asset sales. During the quarter, private education loan 90-day delinquency and charge-off rates dropped to 3.6 percent and 2.7 percent, respectively, their lowest levels since 2008. The company also announced $400 million in common share repurchase authorization.

"We are pleased with the low delinquency and default results achieved by our customers as the measures confirm the effectiveness of our underwriting standards and servicing solutions," said Jack Remondi, president and CEO. "Our lending practices help students and families borrow responsibly, and our customized repayment assistance helps borrowers successfully manage their education loans. Both represent our conviction that we succeed only when our customers succeed."

Mr. Remondi continued, "Much has been publicized about student debt and borrower burdens. Student lending is a very specialized business that, if undertaken properly, can help borrowers capture the economic benefits of a college degree. Our results clearly show that our products, efforts and solutions help our borrowers successfully manage, and not just postpone, their student loan payments better than anyone, and avoid the damaging effects of default."

For the second-quarter 2013, GAAP net income was $543 million ($1.20 diluted earnings per share), compared with $292 million ($0.59 diluted earnings per share) for the year-ago quarter.

Core earnings for the quarter were $462 million ($1.02 diluted earnings per share), compared with $243 million ($0.49 diluted earnings per share) for the year-ago quarter.

The second-quarter 2013 core diluted earnings per share increase includes a $257 million gain from the sale of residual interests in FFELP loan securitization trusts, a $38 million after-tax gain from the sale of the company's Campus Solutions business, a $42 million decline in the provision for loan losses, and an increase in net interest income before provision for loan losses of $19 million which more than offset higher operating expenses of $27 million and higher restructuring and other reorganization expenses of $21 million.

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. Second-quarter 2013 GAAP results included $143 million of gains from derivative accounting treatment that are excluded from core earnings results. In the year-ago period, these amounts were gains of $82 million.

Consumer Lending

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

Quarterly core earnings were $107 million compared with $85 million in the year-ago quarter. The increase is primarily the result of a $38 million decrease in the provision for private education loan losses.

Second-quarter 2013 private education loan portfolio results vs. second-quarter 2012 included:

  • Loan originations of $368 million, up 15 percent.
  • Delinquencies of 90 days or more of 3.6 percent of loans in repayment, down from 4.5 percent.
  • Loans in forbearance of 3.5 percent of loans in repayment and forbearance, down from 4.3 percent.
  • Annualized charge-off rate of 2.7 percent of average loans in repayment, down from 3.1 percent.
  • Provision for private education loan losses of $187 million, down from $225 million.
  • Core net interest margin, before loan loss provision, of 4.12 percent, down from 4.14 percent.
  • The portfolio balance, net of loan loss allowance, totaled $37 billion, a $662 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 $166 million in second-quarter 2013, compared with $137 million in the year-ago quarter. The increase is primarily due to the $38 million after-tax gain recognized on the business sale mentioned above.

Federally Guaranteed Student Loans (FFELP)

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

Core earnings for the segment were $237 million in second-quarter 2013, compared with the year-ago quarter's $44 million. The increase was primarily the result of a $257 million gain from the sale of residual interests in FFELP loan securitization trusts.

At June 30, 2013, the company held $108 billion of FFELP loans compared with $133 billion at June 30, 2012. Approximately $12 billion of the $25 billion decline in FFELP loans is a result of the sales of the residual interests in FFELP loan securitization trusts discussed earlier.

Operating Expenses

Second-quarter 2013 operating expenses were $258 million compared with $231 million in the year-ago quarter. The increase is primarily the result of increases in our third-party servicing and collections activities, increased private education loan marketing activities, as well as continued investments in technology.

In addition, there were $24 million and $3 million of expenses reported in "Restructuring and other reorganization expenses" in the second quarter of 2013 and 2012, respectively. For 2013, these consisted of $14 million related to severance and $10 million related to the company's previously announced plan to separate its existing organization into two publicly-traded companies. The $3 million in 2012 relates to restructuring expenses.

Funding and Liquidity

During second-quarter 2013, the company issued $2.5 billion in FFELP asset-backed securities (ABS) and $1.1 billion in private education loan ABS.

Total debt repurchases were $70 million in second-quarter 2013 compared with $85 million in second-quarter 2012.

In the second quarter, Sallie Mae closed on a new $6.8 billion ABCP borrowing facility, which matures in June 2014, to facilitate the term securitization of FFELP loans. As previously announced, the facility was used in June 2013 to refinance all FFELP loans previously financed through the U.S. Department of Education's conduit program.

Subsequent to the second-quarter end, the company closed on a $1.1 billion private education loan asset backed commercial paper facility to fund the call and redemption of a 2009 private education loan asset backed securitization trust.

Shareholder Distributions

In second-quarter 2013, Sallie Mae paid a common stock dividend of $0.15 per share.

Sallie Mae repurchased 9 million shares of common stock for $201 million in the second quarter of 2013, or an aggregate of 19 million shares for $400 million in the first half of 2013, fully utilizing the company's February 2013 share repurchase program authorization. In July 2013, the company authorized $400 million to be utilized in a new common share repurchase program that does not have an expiration date.


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 $2.80 inclusive of the contributions from the $0.44 earnings per share of gains related to FFELP loan securitization trust residual sales and $0.08 earnings per share from the gain from the business sale that have occurred through June 30, 2013.


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 June 30, 2012, to be consistent with classifications adopted for 2013, and had no effect on net income, total assets or total liabilities.


The company will host an earnings conference call tomorrow, July 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 11880664 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 approximately two hours after the call's conclusion. A telephone replay may be accessed approximately two hours after the call's conclusion through Aug. 2, by dialing 855-859-2056 (USA and Canada) or 404-537-3406 (international) with access code 11880664.

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, 2012 and subsequent filings with the Securities and Exchange Commission; increases in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; changes in accounting standards and the impact of related changes in significant accounting estimates; any adverse outcomes in any significant litigation to which the company is a party; credit risk associated with the company's exposure to third parties, including counterparties to the company's derivative transactions; and changes in the terms of student loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws). The company could also be affected by, among other things: changes in its funding costs and availability; reductions to its credit ratings or the credit ratings of the United States of America; failures of its operating systems or infrastructure, including those of third-party vendors; damage to its reputation; failures to successfully implement cost-cutting and adverse effects of such initiatives on its business; risks associated with restructuring initiatives, including the company's recently announced strategic plan to separate its existing operations into two separate publicly traded companies; changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students and their families; changes in law and regulations with respect to the student lending business and financial institutions generally; increased competition from banks and other consumer lenders; the creditworthiness of its customers; changes in the general interest rate environment, including the rate relationships among relevant money-market instruments and those of its earning assets vs. its funding arrangements; changes in general economic conditions; 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 over 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 EndedSix Months Ended
June 30,March 31,June 30,June 30,June 30,

(In millions, except per share data)

GAAP Basis
Net income attributable to SLM Corporation$543$346$292$889$403
Diluted earnings per common share attributable to SLM Corporation$1.20$.74$.59$1.94$.79
Weighted average shares used to compute diluted earnings per share448458488453499
Return on assets1.35%.82%.64%1.08%.44%
"Core Earnings" Basis(1)
"Core Earnings" attributable to SLM Corporation$462$283$243$744$527
"Core Earnings" diluted earnings per common share attributable to SLM Corporation$1.02$.61$.49$1.62$1.03
Weighted average shares used to compute diluted earnings per share448458488453499
"Core Earnings" return on assets1.15%.67%.53%0.90%.58%
Other Operating Statistics
Ending FFELP Loans, net$108,491$119,195$132,833$108,491$132,833
Ending Private Education Loans, net 37,116  37,465  36,454  37,116  36,454 
Ending total student loans, net$145,607 $156,660 $169,287 $145,607 $169,287 
Average student loans$152,135$160,261$172,436$156,175$173,689


 "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)

June 30, 2013June 30, 2013
March 31, 2013June 30, 2012
Quarters Ended(Decrease)(Decrease)
June 30,March 31,June 30,

(In millions, except per share data)



Interest income:
FFELP Loans$703$735$777$(32)(4)%$(74)(10)%
Private Education Loans62762361641112
Other loans334(1)(25)
Cash and investments 4  4  6     (2)(33)
Total interest income1,3371,3651,403(28)(2)(66)(5)
Total interest expense 553  569  656  (16)(3) (103)(16)
Net interest income784796747(12)(2)375
Less: provisions for loan losses 201  241  243  (40)(17) (42)(17)
Net interest income after provisions for loan losses5835555042857916
Other income (loss):
Gains on sales of loans and investments25155196356251100
Gains (losses) on derivative and hedging activities, net18(31)64915812200
Servicing revenue89898811
Contingency revenue109998710102225
Gains on debt repurchases192320(4)(17)(1)(5)
Other income 
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