Sallie Mae Reports Third-Quarter 2013 Financial Results

Sallie Mae Reports Third-Quarter 2013 Financial Results

Loan Originations Increase 11 Percent From Year-Ago Quarter

Private Education Loan Charge-off Rates Decline to 2.6 Percent, Lowest Level in Five Years

NEWARK, Del.--(BUSINESS WIRE)-- Sallie Mae (NAS: SLM) , formally SLM Corporation, today released third-quarter 2013 financial results that include an 11-percent increase in loan originations compared to the year-ago quarter and a decline in private education loan charge-off rates to 2.6 percent, the lowest level in five years.

"Students and their families are increasingly cost conscious when making education decisions. Even so, our loan originations grew by double digits this quarter, confirming the continuing demand for our responsibly designed products," said John (Jack) F. Remondi, president and CEO. "I am also proud of our default prevention statistics. Despite numerous reports on rising student loan defaults, our private and federal loan customers experienced lower default rates year over year."

For the third-quarter 2013, GAAP net income was $260 million ($0.57 diluted earnings per share), compared with $188 million ($0.39 diluted earnings per share) for the year-ago quarter.

Core earnings for the quarter were $271 million ($0.60 diluted earnings per share), compared with $277 million ($0.58 diluted earnings per share) for the year-ago quarter.

The increase in third-quarter 2013 core diluted earnings per share was primarily the result of a $63 million decline in the provision for loan losses, a $31 million increase in servicing and contingency revenue, as well as fewer common shares outstanding. These items more than offset lower debt repurchase gains of $44 million, a decrease in net interest income before provision for loan losses of $30 million (primarily as a result of the sales of residual interests in FFELP securitization trusts), higher operating expenses of $37 million (in part due to higher servicing and contingency volumes) and higher restructuring and other reorganization expenses of $10 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. Third-quarter 2013 GAAP results included $19 million of losses from derivative accounting treatment that are excluded from core earnings results, compared with losses of $140 million in the year-ago period.

Consumer Lending

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

Quarterly core earnings were $105 million, compared with $62 million in the year-ago quarter. The increase is primarily the result of a $57 million decrease in the provision for private education loan losses.

Third-quarter 2013 private education loan portfolio results vs. third-quarter 2012 included:

  • Loan originations of $1.5 billion, up 11 percent.
  • Delinquencies of 90 days or more of 3.8 percent of loans in repayment, down from 5.3 percent.
  • Loans in forbearance of 3.4 percent of loans in repayment and forbearance, up from 3.2 percent.
  • Annualized charge-off rate of 2.6 percent of average loans in repayment, down from 3.2 percent.
  • Provision for private education loan losses of $195 million, down from $252 million.
  • Core net interest margin, before loan loss provision, of 4.24 percent, up from 4.05 percent.
  • The portfolio balance, net of loan loss allowance, totaled $37.8 billion, a $651 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 third-quarter 2013, compared with $133 million in the year-ago quarter. The decline in business services net income from the year-ago period was primarily the result of a lower outstanding principal balance in the underlying FFELP portfolio serviced.

During the quarter, the company announced the sale of its 529 college savings plan administration business. Upon the transaction's closing, which is anticipated to occur in the fourth-quarter 2013, the company will recognize a gain of approximately $0.14 per diluted share. Due to the pending sale, the results of this business were moved to discontinued operations for all periods presented.

Federally Guaranteed Student Loans (FFELP)

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

Core earnings for the segment were $92 million in third-quarter 2013, compared with the year-ago quarter's $94 million.

At Sept. 30, 2013, the company held $106 billion of FFELP loans, compared with $128 billion at Sept. 30, 2012. Approximately $12 billion of the $22 billion decline in FFELP loans is a result of the sales of the residual interests in FFELP securitization trusts earlier in the year.

Operating Expenses

Third-quarter 2013 operating expenses were $257 million, compared with $220 million in the year-ago quarter. The increase is primarily the result of increases in third-party servicing and collections activities, increased private education loan marketing activities, continued investments in technology, and an increase in pending litigation settlement expense.

In addition, there were $12 million and $2 million of expenses reported in restructuring and other reorganization expenses in the third quarter of 2013 and 2012, respectively. For the third-quarter 2013, these consisted of expenses related to the company's previously announced plan to separate its existing organization into two, separate, publicly traded companies. The $2 million of expenses in third-quarter 2012 related to restructuring expenses.

Funding and Liquidity

During the third-quarter 2013, Sallie Mae issued $1.7 billion in FFELP asset-backed securities (ABS), $624 million in private education loan ABS and $1.25 billion in unsecured bonds. In addition, the company closed on a $1.1 billion asset-backed borrowing facility that matures on August 15, 2015. This facility was used to fund the call and redemption of SLM 2009-D Private Education Loan Trust ABS.

Shareholder Distributions

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

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. There were no share repurchases in the third-quarter 2013.


The company expects 2013 results to be as follows:

  • Full-year 2013 private education loan originations of $3.8 billion.
  • Fully diluted 2013 core earnings per share of $2.94 including $0.44 related to FFELP securitization trust residual sales, $0.08 from the business sale earlier in the year, and the anticipated $0.14 from the business sale to close in fourth-quarter 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 Sept. 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, Oct. 17, 2013, 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 75317185 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 Oct. 31, by dialing 855-859-2056 (USA and Canada) or 404-537-3406 (international) with access code 75317185.

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; its ability to successfully effectuate any acquisitions and other strategic initiatives; 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 more than 25 million customers. With products and services that include 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 EndedNine Months Ended
(In millions, except per share data)September 30,
June 30,
September 30,
September 30,
September 30,
GAAP Basis

Net income attributable to SLM Corporation

Diluted earnings per common share attributable to SLM Corporation$.57$1.20$.39$2.52$1.18
Weighted average shares used to compute diluted earnings per share445448471450490
Return on assets.67%1.35%.42%.95%.43%
"Core Earnings" Basis(1)
"Core Earnings" attributable to SLM Corporation$271$462$277$1,015$804
"Core Earnings" diluted earnings per common share attributable to SLM Corporation$.60$1.02$.58$2.22$1.61
Weighted average shares used to compute diluted earnings per share445448471450490
"Core Earnings" return on assets.70%1.15%.62%.84%.59%
Other Operating Statistics
Ending FFELP Loans, net$106,350$108,491$127,747$106,350$127,747
Ending Private Education Loans, net 37,752  37,116  37,101  37,752  37,101 
Ending total student loans, net$144,102 $145,607 $164,848 $144,102 $164,848 
Average student loans$145,585$152,135$167,166$152,607$171,499
(1) "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)

September 30,September 30,
2013 vs.2013 vs.
June 30, 2013 September 30, 2012
Quarters Ended(Decrease)(Decrease)
(In millions, except per share data)September 30,
June 30,
September 30,
 $ % $  %
Interest income:
FFELP Loans$698$703$840$(5)(1) %$(142)(17) %
Private Education Loans63562761581203
Other loans334(1)(25)
Cash and investments 4  4  5     (1)(20)
Total interest income1,3401,3371,4643(124)(8)
Total interest expense 541  553  645  (12)(2) (104)(16)
Net interest income799784819152(20)(2)
Less: provisions for loan losses 207  201  270  6 3  (63)(23)
Net interest income after provisions for loan losses59258354992438
Other income (loss):
Gains on sales of loans and investments251(251)(100)
Gains (losses) on derivative and hedging activities, net(127)18(233)(145)(806)106(45)
Servicing revenue83697114201217
Contingency revenue10410985(5)(5)1922
Gains on debt repurchases1944(19)(100)(44)(100)
Other income 9  24  2  (15)(63) 7 350 
Total other income (loss)69490(31)(421)(86)100323
Operating expenses25724422013537
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