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

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

Business Wire

NEWARK, Del. -- January 16, 2013

Sallie Mae (NASDAQ: 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 $511million ($.99diluted earnings per
share) for the year-ago quarter. For 2012, GAAP net income was $939 million
($1.90 diluted earnings per share), compared with $633million ($1.18diluted
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 $43million 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 $128million 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 $109million.

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 $125.6billion 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 58.0million shares of common stock for $170million and $900million,
respectively.

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 $2.30.

                                     ***

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 www.SallieMae.com/investors. 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 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 Item1A “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(NASDAQ: 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 25million 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.

                                                     
Selected Financial Information and Ratios
(Unaudited)
                                                         
               Quarters Ended                            Years Ended
               December     September    December      December     December
               31,           30,           31,           31,          31,
(In
millions,      2012           2012       2011          2012         2011
except per
share data)
                                                                      
GAAP Basis
Net income
attributable   $ 348         $ 188         $ 511         $ 939        $ 633
to SLM
Corporation
Diluted
earnings per
common share   $ .74         $ .39         $ .99         $ 1.90       $ 1.18
attributable
to SLM
Corporation
Weighted
average
shares used
to compute       463           471           514           483          523
diluted
earnings per
share
Return on        .79     %     .42     %     1.09    %     .52     %    .33     %
assets
                                                                      
“Core
Earnings”
Basis^(1)
“Core
Earnings”
attributable   $ 257         $ 277         $ 268         $ 1,062      $ 977
to SLM
Corporation
“Core
Earnings”
diluted
earnings per   $ .55         $ .58         $ .51         $ 2.16       $ 1.83
common share
attributable
to SLM
Corporation
Weighted
average
shares used
to compute       463           471           514           483          523
diluted
earnings per
share
“Core
Earnings”        .58     %     .62     %     .57     %     .59     %    .51     %
return on
assets
                                                                      
Other
Operating
Statistics
Ending FFELP   $ 125,612     $ 127,747     $ 138,130     $ 125,612    $ 138,130
Loans, net
Ending
Private         36,934      37,101      36,290      36,934     36,290  
Education
Loans, net
                                                                      
Ending total
student        $ 162,546    $ 164,848    $ 174,420    $ 162,546   $ 174,420 
loans, net
                                                                      
Average
student        $ 164,800     $ 167,166     $ 176,567     $ 169,815    $ 180,064
loans
                                                                      

       “Core Earnings” are non-GAAP financial measures and do not represent a
^(1)  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
                                                     Increase             Increase
                 Quarters Ended                      (Decrease)           (Decrease)
                 December   September  December                                 
                 31,         30,         31,
(In millions,
except per       2012        2012        2011        $         %          $          %
share data)
                                                                                     
Interest
income:
                                                                                          
FFELP Loans      $ 792       $ 840       $ 876       $ (48 )   (6    )%   $ (84  )   (10  )%
Private
Education          625         615         616         10      2            9        1
Loans
Other loans        4           4           5           —       —            (1   )   (20  )
Cash and          5         5         5         —      —          —       —    
investments
                                                                                     
Total interest     1,426       1,464       1,502       (38 )   (3    )      (76  )   (5   )
income
Total interest    594       645       623       (51 )   (8    )     (29  )   (5   )
expense
                                                                                     
Net interest       832         819         879         13      2            (47  )   (5   )
income
Less:
provisions for    314       270       292       44     16         22      8    
loan losses
                                                                                     
Net interest
income after       518         549         587         (31 )   (6    )      (69  )   (12  )
provisions for
loan losses
Other income
(loss):
Losses on
loans and          —           —           (35   )     —       —            35       (100 )
investments,
net
Gains (losses)
on derivative
and hedging        (28   )     (233  )     272         205     (88   )      (300 )   (110 )
activities,
net
Servicing          92          94          94          (2  )   (2    )      (2   )   (2   )
revenue
Contingency        95          85          85          10      12           10       12
revenue
Gains on debt      43          44          —           (1  )   (2    )      43       100
repurchases
Other income      52        3         43        49     1,633      9       21   
                                                                                     
Total other        254         (7    )     459         261     3,729        (205 )   (45  )
income (loss)
Expenses:
Operating          252         244         243         8       3            9        4
expenses
Goodwill and
acquired
intangible
assets             14          5           5           9       180          9        180
impairment and
amortization
expense
Restructuring     2         2         3         —      —          (1   )   (33  )
expenses
                                                                                     
Total expenses     268         251         251         17      7            17       7
Income from
continuing
operations         504         291         795         213     73           (291 )   (37  )
before income
tax expense
Income tax        156       104       285       52     50         (129 )   (45  )
expense
                                                                                     
Net income
from               348         187         510         161     86           (162 )   (32  )
continuing
operations
Income from
discontinued
operations,       —         —         1         —      —          (1   )   (100 )
net of tax
expense
                                                                                     
Net income         348         187         511         161     86           (163 )   (32  )
Less: net loss
attributable
to                —         (1    )    —         1      100        —       —    
noncontrolling
interest
                                                                                     
Net income
attributable       348         188         511         160     85           (163 )   (32  )
to SLM
Corporation
Preferred
stock             5         5         5         —      —          —       —    
dividends
                                                                                     
Net income
attributable
to SLM           $ 343      $ 183      $ 506      $ 160    87    %    $ (163 )   (32  )%
Corporation
common stock
                                                                                     
Basic earnings
per common
share
attributable
to SLM
Corporation:
Continuing       $ .75       $ .39       $ 1.00      $ .36     92    %    $ (.25 )   (25  )%
operations
Discontinued      —         —         —         —      —          —       —    
operations
                                                                                     
Total            $ .75      $ .39      $ 1.00     $ .36    92    %    $ (.25 )   (25  )%
                                                                                     
Diluted
earnings per
common share
attributable
to SLM
Corporation:
Continuing       $ .74       $ .39       $ .99       $ .35     90    %    $ (.25 )   (25  )%
operations
Discontinued      —         —         —         —      —          —       —    
operations
                                                                                     
Total            $ .74      $ .39      $ .99      $ .35    90    %    $ (.25 )   (25  )%
                                                                                     
Dividends per
common share
attributable     $ .125     $ .125     $ .10      $ —      —     %    $ .025    25   %
to SLM
Corporation
                                                                                     


                                   Years Ended            Increase
                                    December 31,            (Decrease)
(In millions, except per share      2012       2011        $         %
data)
Interest income:
FFELP Loans                         $ 3,251     $ 3,461     $ (210 )   (6   )%
Private Education Loans               2,481       2,429       52       2
Other loans                           16          21          (5   )   (24  )
Cash and investments                 21        19        2       11   
                                                                       
Total interest income                 5,769       5,930       (161 )   (3   )
Total interest expense               2,561     2,401     160     7    
                                                                       
Net interest income                   3,208       3,529       (321 )   (9   )
Less: provisions for loan losses     1,080     1,295     (215 )   (17  )
                                                                       
Net interest income after             2,128       2,234       (106 )   (5   )
provisions for loan losses
Other income (loss):
Losses on loans and investments,      —           (35   )     35       (100 )
net
Losses on derivative and hedging      (628  )     (959  )     331      (35  )
activities, net
Servicing revenue                     376         381         (5   )   (1   )
Contingency revenue                   356         333         23       7
Gains on debt repurchases             145         38          107      282
Other income                         92        68        24      35   
                                                                       
Total other income (loss)             341         (174  )     515      296
Expenses:
Operating expenses                    996         1,100       (104 )   (9   )
Goodwill and acquired intangible
assets impairment and                 28          24          4        17
amortization expense
Restructuring expenses               12        9         3       33   
                                                                       
Total expenses                        1,036       1,133       (97  )   (9   )
Income from continuing operations     1,433       927         506      55
before income tax expense
Income tax expense                   497       328       169     52   
                                                                       
Net income from continuing            936         599         337      56
operations
Income from discontinued             1         33        (32  )   (97  )
operations, net of tax expense
                                                                       
Net income                            937         632         305      48
Less: net loss attributable to       (2    )    (1    )    (1   )   100  
noncontrolling interest
                                                                       
Net income attributable to SLM        939         633         306      48
Corporation
Preferred stock dividends            20        18        2       11   
                                                                       
Net income attributable to common   $ 919      $ 615      $ 304     49   %
stock
                                                                       
Basic earnings per common share
attributable to SLM Corporation:
Continuing operations               $ 1.93      $ 1.13      $ .80      71   %
Discontinued operations              —         .06       (.06 )   (100 )
                                                                       
Total                               $ 1.93     $ 1.19     $ .74     62   %
                                                                       
Diluted earnings per common share
attributable to SLM Corporation:
Continuing operations               $ 1.90      $ 1.12      $ .78      70   %
Discontinued operations              —         .06       (.06 )   (100 )
                                                                       
Total                               $ 1.90     $ 1.18     $ .72     61   %
                                                                       
Dividends per common share          $ .50      $ .30      $ .20     67   %
attributable to SLM Corporation
                                                                       


GAAP Balance Sheet (Unaudited)
                                                              
                                   December 31,   September 30,   December 31,
(In millions, except share and     2012           2012            2011
per share data)
                                                                  
Assets
FFELP Loans (net of allowance
for losses of $159; $166 and       $  125,612     $  127,747      $  138,130
$187, respectively)
Private Education Loans (net of
allowance for losses of $2,171;       36,934         37,101          36,290
$2,196 and $2,171, respectively)
Cash and investments                  4,982          4,283           3,916
Restricted cash and investments       5,011          6,331           5,873
Goodwill and acquired intangible      448            462             478
assets, net
Other assets                         8,273        8,279         8,658   
                                                                  
Total assets                       $  181,260    $  184,203     $  193,345 
                                                                  
                                                                  
Liabilities
Short-term borrowings              $  19,856      $  20,457       $  29,573
Long-term borrowings                  152,401        154,786         154,393
Other liabilities                    3,937        4,014         4,128   
                                                                  
Total liabilities                    176,194      179,257       188,094 
                                                                  
                                                                  
Commitments and contingencies
                                                                  
Equity
Preferred stock, par value $.20
per share, 20 million shares
authorized:
Series A: 3.3 million; 3.3
million and 3.3 million shares,       165            165             165
respectively, issued at stated
value of $50 per share
Series B: 4 million; 4 million
and 4 million shares,                 400            400             400
respectively, issued at stated
value of $100 per share
Common stock, par value $.20 per
share, 1.125 billion shares
authorized: 536 million; 534          107            107             106
million and 529 million shares,
respectively, issued
Additional paid-in capital            4,237          4,219           4,136
Accumulated other comprehensive       (6      )      (8       )      (14     )
loss, net of tax benefit
Retained earnings                    1,451        1,165         770     
                                                                  
Total SLM Corporation
stockholders’ equity before           6,354          6,048           5,563
treasury stock
Less: Common stock held in
treasury: 83 million; 72 million     (1,294  )     (1,108   )     (320    )
and 20 million shares,
respectively
                                                                  
Total SLM Corporation                 5,060          4,940           5,243
stockholders’ equity
Noncontrolling interest              6            6             8       
                                                                  
Total equity                         5,066        4,946         5,251   
                                                                  
Total liabilities and equity       $  181,260    $  184,203     $  193,345 
                                                                  

Consolidated Earnings Summary—GAAP basis

Three Months Ended December31, 2012 Compared with Three Months Ended
December31, 2011

For the three months ended December31, 2012, net income was $348 million, or
$.74 diluted earnings per common share, compared with net income of $511
million, or $.99 diluted earnings per common share, for the three months ended
December31, 2011. The decrease in net income was primarily due to a $300
million decrease in net gains on derivative and hedging activities, a $47
million decline in net interest income and a $22 million increase in
provisions for loan losses, which were partially offset by a $43 million
increase in gains on debt repurchases and a $35 million decrease in losses on
loans and investments, net.

The primary contributors to each of the identified drivers of changes in net
income for the current quarter compared with the year-ago quarter are as
follows:

  *Net interest income declined by $47 million primarily due to a $12.4
    billion decline in average FFELP Loans outstanding and higher funding
    costs, which were partly due to refinancing debt into longer term
    liabilities. The decline in average FFELP Loans outstanding was driven by
    normal loan amortization as well as $5.2 billion of loans that were
    consolidated by the U. S. Department of Education (“ED”) in 2012 under
    their Special Direct Consolidation Loan Initiative (“SDCL”). (See “FFELP
    Loans Segment” for further discussion.)
  *Provisions for loan losses increased by $22 million, primarily as a result
    of higher than expected Private Education Loan charge-offs in the current
    quarter. In second-quarter 2012, Sallie Mae increased its focus on
    encouraging its borrowers to enter repayment plans in lieu of additional
    forbearance usage to better help borrowers manage their overall payment
    obligations. This change was expected to, and resulted in, an increase in
    charge-offs in fourth-quarter 2012 which are expected to decline in 2013.
    See “Consumer Lending Segment — Private Education Loan Provision for Loan
    Losses and Charge-offs” for a further discussion of this change and
    impact.
  *We did not incur any losses on loans and investments in the current
    quarter. In the fourth quarter of 2011 we recorded $26 million of
    impairment on certain investments in aircraft leveraged leases. The fourth
    quarter of 2011 also had a $9 million mark-to-market loss related to
    classifying $12 million of non-U.S. dollar denominated student loans as
    held-for-sale.
  *Gains (losses) on derivative and hedging activities resulted in a net loss
    of $28 million in the current quarter compared with a net gain of $272
    million in the year-ago quarter. The primary factors affecting the change
    were interest rate and foreign currency fluctuations, which primarily
    affected the valuations of our Floor Income Contracts, basis swaps and
    foreign currency hedges during each period. Valuations of derivative
    instruments vary based upon many factors including changes in interest
    rates, credit risk, foreign currency fluctuations and other market
    factors. As a result, net gains and losses on derivative and hedging
    activities may continue to vary significantly in future periods.
  *Gains on debt repurchases increased $43 million as we repurchased more
    debt in the current period. Debt repurchase activity will fluctuate based
    on market fundamentals and our liability management strategy.
  *The effective tax rates for the fourth quarters of 2012 and 2011 were
    31percent and 36percent, respectively. The movement in the effective tax
    rate was primarily driven by the impact of state law changes recorded in
    the current period.

In addition, we repurchased 9.9million shares of our common stock during the
fourth-quarter 2012, and 58.0 million shares during the full year, as part of
a common share repurchase program. Primarily as a result of these repurchases,
our average outstanding diluted shares decreased by 51million common shares.

Year Ended December31, 2012 Compared with Year Ended December31, 2011

For the years ended December31, 2012 and 2011, net income was $939 million,
or $1.90 diluted earnings per common share, and $633 million, or $1.18 diluted
earnings per common share, respectively. The increase in net income was
primarily due to a $331 million decrease in net losses on derivative and
hedging activities, a $215 million decrease in provisions for loan losses, a
$104million decrease in operating expenses and a $107 million increase in
gains on debt repurchases, which more than offset the $321million decline in
net interest income.

The primary contributors to each of the identified drivers of changes in net
income for the current year-end period compared with the year-ago period are
as follows:

  *Net interest income declined by $321 million primarily due to an $11
    billion reduction in average FFELP Loans outstanding, higher cost of
    funds, which were partly due to refinancing debt into longer term
    liabilities, as well as the impact from the acceleration of $50 million of
    non-cash loan premium amortization in the second-quarter 2012 related to
    SDCL (see “FFELP Loans Segment” for further discussion). The decline in
    FFELP Loans outstanding was driven by normal loan amortization as well as
    loans that were consolidated under SDCL.
  *Provisions for loan losses decreased by $215 million primarily as a result
    of overall improvements in the credit quality and delinquency trends of
    the Private Education Loan portfolio. In second-quarter 2012, Sallie Mae
    increased its focus on encouraging its borrowers to enter repayment plans
    in lieu of additional forbearance usage to better help borrowers manage
    their overall payment obligations. This change was expected to, and
    resulted in, an increase in charge-offs in fourth-quarter 2012 which are
    expected to decline in 2013. See “Consumer Lending Segment — Private
    Education Loan Provision for Loan Losses and Charge-offs” for a further
    discussion of this change and impact.
  *Losses on loans and investments, net, declined $35 million for the same
    reasons discussed above related to the fourth quarter of 2012.
  *Net losses on derivative and hedging activities decreased by $331 million.
    The primary factors affecting the change were interest rate and foreign
    currency fluctuations, which primarily affected the valuations of our
    Floor Income Contracts, basis swaps and foreign currency hedges during
    each period. Valuations of derivative instruments vary based upon many
    factors including changes in interest rates, credit risk, foreign currency
    fluctuations and other market factors. As a result, net gains and losses
    on derivative and hedging activities may continue to vary significantly in
    future periods.
  *Gains on debt repurchases increased $107 million as we repurchased more
    debt in the current period. Debt repurchase activity will fluctuate based
    on market fundamentals and our liability management strategy.
  *Operating expenses decreased $104 million primarily due to the
    current-year benefit of the cost-cutting efforts we implemented throughout
    2011.
  *Net income from discontinued operations decreased $32 million due to the
    sale of our Purchased Paper — Non-Mortgage portfolio in 2011.

In addition, we repurchased 58.0million shares and 19.1 million shares of our
common stock during the years ended December31, 2012 and 2011, respectively,
as part of our common share repurchase program. Primarily as a result of these
repurchases, our average outstanding diluted shares decreased by 40million
common shares.

“Core Earnings”—Definition and Limitations

We prepare financial statements in accordance with GAAP. However, we also
evaluate our business segments on a basis that differs from GAAP. We refer to
this different basis of presentation as “Core Earnings.” We provide this “Core
Earnings” basis of presentation on a consolidated basis for each business
segment because this is what we review internally when making management
decisions regarding our performance and how we allocate resources. We also
refer to this information in our presentations with credit rating agencies,
lenders and investors. Because our “Core Earnings” basis of presentation
corresponds to our segment financial presentations, we are required by GAAP to
provide “Core Earnings” disclosure in the notes to our consolidated financial
statements for our business segments.

“Core Earnings” are not a substitute for reported results under GAAP. We use
“Core Earnings” to manage each business segment because “Core Earnings”
reflect adjustments to GAAP financial results for two items, discussed below,
that create significant volatility mostly due to timing factors generally
beyond the control of management. Accordingly, we believe that “Core Earnings”
provide management with a useful basis from which to better evaluate results
from ongoing operations against the business plan or against results from
prior periods. Consequently, we disclose this information as we believe it
provides investors with additional information regarding the operational and
performance indicators that are most closely assessed by management. The two
items for which we adjust our “Core Earnings” presentations are (1)our use of
derivative instruments to hedge our economic risks that do not qualify for
hedge accounting treatment or do qualify for hedge accounting treatment but
result in ineffectiveness and (2)the accounting for goodwill and acquired
intangible assets.

While GAAP provides a uniform, comprehensive basis of accounting, for the
reasons described above, our “Core Earnings” basis of presentation does not.
“Core Earnings” are subject to certain general and specific limitations that
investors should carefully consider. For example, there is no comprehensive,
authoritative guidance for management reporting. Our “Core Earnings” are not
defined terms within GAAP and may not be comparable to similarly titled
measures reported by other companies. Accordingly, our “Core Earnings”
presentation does not represent a comprehensive basis of accounting.
Investors, therefore, may not be able to compare our performance with that of
other financial services companies based upon “Core Earnings.” “Core Earnings”
results are only meant to supplement GAAP results by providing additional
information regarding the operational and performance indicators that are most
closely used by management, our board of directors, rating agencies, lenders
and investors to assess performance.

Specific adjustments that management makes to GAAP results to derive our “Core
Earnings” basis of presentation are described in detail in the section titled
“‘Core Earnings’ — Definition and Limitations — Differences between ‘Core
Earnings’ and GAAP” below.

The following tables show “Core Earnings” for each business segment and our
business as a whole along with the adjustments made to the income/expense
items to reconcile the amounts to our reported GAAP results as required by
GAAP.

              
                Quarter Ended December 31, 2012
(Dollars in     Consumer  Business  FFELP                             Total      Adjustments                                           Total
millions)       Lending    Services   Loans   Other     Eliminations^(1)   “Core       Reclassifications  Additions/      Total             GAAP
                                                                           Earnings”                       (Subtractions)   Adjustments^(2)
Interest
income:
Student loans   $   625    $   —      $ 654   $ —       $    —             $  1,279    $    215            $    (77  )      $      138        $ 1,417
Other loans         —          —        —       4            —                4             —                   —                  —            4
Cash and           1         3       3      —          (2      )       5            —                 —                —           5
investments
                                                                                                                                              
Total
interest            626        3        657     4            (2      )        1,288         215                 (77  )             138          1,426
income
Total
interest           207       —       360    9          (2      )       574          20                —                20          594
expense
                                                                                                                                              
Net interest        419        3        297     (5  )        —                714           195                 (77  )             118          832
income (loss)
Less:
provisions         296       —       18     —          —              314          —                 —                —           314
for loan
losses
                                                                                                                                              
Net interest
income (loss)
after               123        3        279     (5  )        —                400           195                 (77  )             118          518
provisions
for loan
losses
Servicing           11         218      21      —            (158    )        92            —                   —                  —            92
revenue
Contingency         —          95       —       —            —                95            —                   —                  —            95
revenue
Gains on debt       —          —        —       43           —                43            —                   —                  —            43
repurchases
Other income       —         10      —      4          —              14           (195    )          205  ^(4)        10          24
(loss)
                                                                                                                                              
Total other         11         323      21      47           (158    )        244           (195    )           205                10           254
income (loss)
Expenses:
Direct
operating           65         121      165     1            (158    )        194           —                   —                  —            194
expenses
Overhead           —         —       —      58         —              58           —                 —                —           58
expenses
                                                                                                                                              
Operating           65         121      165     59           (158    )        252           —                   —                  —            252
expenses
Goodwill and
acquired
intangible
assets              —          —        —       —            —                —             —                   14                 14           14
impairment
and
amortization
Restructuring      —         2       —      —          —              2            —                 —                —           2
expenses
                                                                                                                                              
Total              65        123     165    59         (158    )       254          —                 14               14          268
expenses
                                                                                                                                              
Income (loss)
from
continuing
operations,         69         203      135     (17 )        —                390           —                   114                114          504
before income
tax expense
(benefit)
Income tax
expense            23        69      46     (5  )       —              133          —                 23               23          156
(benefit)^(3)
                                                                                                                                              
Net income
(loss) from         46         134      89      (12 )        —                257           —                   91                 91           348
continuing
operations
Income from
discontinued
operations,        —         —       —      —          —              —            —                 —                —           —
net of tax
expense
                                                                                                                                              
Net income      $   46     $   134    $ 89    $ (12 )   $    —            $  257      $    —             $    91         $      91         $ 348
(loss)
                                                                                                                                              

         The eliminations in servicing revenue and direct operating expense
 ^(1)  represent the elimination of intercompany servicing revenue where the
         Business Services segment performs the loan servicing function for
         the FFELP Loans segment.
  ^(2)   “Core Earnings” adjustments to GAAP:

                                                                  
                                  Quarter Ended December 31, 2012
                                  Net Impact of   Net Impact of
                                  Derivative      Goodwill and
      (Dollars in millions)       Accounting      Acquired Intangibles   Total
      
      Net interest income after
      provisions for loan         $     118       $      —               $ 118
      losses
      Total other income                10               —                 10
      Goodwill and acquired
      intangible assets                —               14              14
      impairment and
      amortization
                                                                         
      Total “Core Earnings”       $     128       $      (14     )         114
      adjustments to GAAP
                                                                         
      Income tax expense                                                  23
                                                                         
      Net income                                                         $ 91

 ^(3)  Income taxes are based on a percentage of net income before tax for
         the individual reportable segment.
         Represents the $167 million of “unrealized gains on derivative and
  ^(4)   hedging activities, net” as well as $38 million of “other derivative
         accounting adjustments.”

               
                 Quarter Ended September 30, 2012
(Dollars in      Consumer  Business  FFELP                             Total      Adjustments                                           Total
millions)        Lending    Services   Loans   Other     Eliminations^(1)   “Core       Reclassifications  Additions/      Total             GAAP
                                                                            Earnings”                       (Subtractions)   Adjustments^(2)
Interest
income:
Student loans    $   615    $  —       $ 712   $ —       $    —             $ 1,327     $    206            $  (78   )       $    128          $ 1,455
Other loans          —         —         —       4            —               4              —                 —                  —              4
Cash and            1        3       3      —          (2      )      5            —               —                —            5     
investments
                                                                                                                                                         
Total interest       616       3         715     4            (2      )       1,336          206               (78   )            128            1,464
income
Total interest      209      —       399    12         (2      )      618          26              1     ^(4)        27           645   
expense
                                                                                                                                                         
Net interest         407       3         316     (8  )        —               718            180               (79   )            101            819
income (loss)
Less:
provisions for      252      —       18     —          —             270          —               —                —            270   
loan losses
                                                                                                                                                         
Net interest
income (loss)
after                155       3         298     (8  )        —               448            180               (79   )            101            549
provisions for
loan losses
Servicing            12        224       22      —            (164    )       94             —                 —                  —              94
revenue
Contingency          —         85        —       —            —               85             —                 —                  —              85
revenue
Gains on debt        —         —         —       44           —               44             —                 —                  —              44
repurchases
Other income        —        7       —      4          —             11           (180    )        (61   )^(5)       (241   )      (230  )
(loss)
                                                                                                                                                         
Total other          12        316       22      48           (164    )       234            (180    )         (61   )            (241   )       (7    )
income (loss)
Expenses:
Direct
operating            67        112       171     3            (164    )       189            —                 —                  —              189
expenses
Overhead            —        —       —      55         —             55           —               —                —            55    
expenses
                                                                                                                                                         
Operating            67        112       171     58           (164    )       244            —                 —                  —              244
expenses
Goodwill and
acquired
intangible           —         —         —       —            —               —              —                 5                  5              5
assets
impairment and
amortization
Restructuring       1        1       —      —          —             2            —               —                —            2     
expenses
                                                                                                                                                         
Total expenses      68       113     171    58         (164    )      246          —               5                5            251   
                                                                                                                                                         
Income (loss)
from
continuing
operations,          99        206       149     (18 )        —               436            —                 (145  )            (145   )       291
before income
tax expense
(benefit)
Income tax
expense             36       76      55     (7  )       —             160          —               (56   )           (56    )      104   
(benefit)^(3)
                                                                                                                                                         
Net income
(loss) from          63        130       94      (11 )        —               276            —                 (89   )            (89    )       187
continuing
operations
Income from
discontinued
operations,         —        —       —      —          —             —            —               —                —            —     
net of tax
expense
                                                                                                                                                         
Net income           63        130       94      (11 )        —               276            —                 (89   )            (89    )       187
(loss)
Less: net loss
attributable
to                  —        (1  )    —      —          —             (1    )       —               —                —            (1    )
noncontrolling
interest
                                                                                                                                                         
Net income
(loss)
attributable     $   63     $  131    $ 94    $ (11 )   $    —            $ 277      $    —             $  (89   )       $    (89    )     $ 188   
to SLM
Corporation
                                                                                                                                                         

         The eliminations in servicing revenue and direct operating expense
 ^(1)  represent the elimination of intercompany servicing revenue where the
         Business Services segment performs the loan servicing function for
         the FFELP Loans segment.
  ^(2)   “Core Earnings” adjustments to GAAP:

                                                                  
                               Quarter Ended September 30, 2012
                               Net Impact of   Net Impact of
                               Derivative      Goodwill and
(Dollars in millions)          Accounting      Acquired Intangibles   Total

Net interest income after      $   101         $       —              $ 101
provisions for loan losses
Total other loss                   (241   )            —                (241 )
Goodwill and acquired
intangible assets impairment      —                 5              5    
and amortization
                                                                      
Total “Core Earnings”          $   (140   )    $       (5     )         (145 )
adjustments to GAAP
                                                                      
Income tax benefit                                                     (56  )
                                                                      
Net loss                                                              $ (89  )
                                                                      

 ^(3)  Income taxes are based on a percentage of net income before tax for
         the individual reportable segment.
  ^(4)   Represents a portion of the $(9) million of “other derivative
         accounting adjustments.”
         Represents the $(53) million of “unrealized gains on derivative and
  ^(5)   hedging activities, net” as well as the remaining portion of the $(9)
         million of “other derivative accounting adjustments.”

              
                Quarter Ended December 31, 2011
(Dollars in     Consumer  Business  FFELP                              Total      Adjustments                                           Total
millions)       Lending    Services   Loans   Other      Eliminations^(1)   “Core       Reclassifications  Additions/      Total             GAAP
                                                                            Earnings”                       (Subtractions)   Adjustments^(2)
Interest
income:
Student loans   $  616     $   —      $ 746   $ —        $    —             $  1,362    $    229            $   (99   )      $      130        $ 1,492
Other loans        —           —        —       5             —                5             —                  —                   —            5
Cash and          2         3       2      1           (3      )       5            —                —                 —           5
investments
                                                                                                                                               
Total
interest           618         3        748     6             (3      )        1,372         229                (99   )             130          1,502
income
Total
interest          201       —       392    9           (3      )       599          21               3     ^(4)         24          623
expense
                                                                                                                                               
Net interest       417         3        356     (3   )        —                773           208                (102  )             106          879
income (loss)
Less:
provisions        255       —       19     18          —              292          —                —                 —           292
for loan
losses
                                                                                                                                               
Net interest
income (loss)
after              162         3        337     (21  )        —                481           208                (102  )             106          587
provisions
for loan
losses
Servicing          16          238      19      1             (180    )        94            —                  —                   —            94
revenue
Contingency        —           85       —       —             —                85            —                  —                   —            85
revenue
Gains on debt      —           —        —       —             —                —             —                  —                   —            —
repurchases
Other income      (9  )      40      1      (23  )       —              9            (208    )         479   ^(5)         271         280
(loss)
                                                                                                                                               
Total other        7           363      20      (22  )        (180    )        188           (208    )          479                 271          459
income (loss)
Expenses:
Direct
operating          67          114      184     3             (180    )        188           —                  —                   —            188
expenses
Overhead          —         —       1      54          —              55           —                —                 —           55
expenses
                                                                                                                                               
Operating          67          114      185     57            (180    )        243           —                  —                   —            243
expenses
Goodwill and
acquired
intangible
assets             —           —        —       —             —                —             —                  5                   5            5
impairment
and
amortization
Restructuring     1         1       —      1           —              3            —                —                 —           3
expenses
                                                                                                                                               
Total             68        115     185    58          (180    )       246          —                5                 5           251
expenses
                                                                                                                                               
Income (loss)
from
continuing
operations,        101         251      172     (101 )        —                423           —                  372                 372          795
before income
tax expense
(benefit)
Income tax
expense           38        93      63     (38  )       —              156          —                129               129         285
(benefit)^(3)
                                                                                                                                               
Net income
(loss) from        63          158      109     (63  )        —                267           —                  243                 243          510
continuing
operations
Income from
discontinued
operations,       —         —       —      1           —              1            —                —                 —           1
net of tax
expense
                                                                                                                                               
Net income      $  63     $   158    $ 109   $ (62  )   $    —            $  268      $    —             $   243         $      243        $ 511
(loss)
                                                                                                                                                 

         The eliminations in servicing revenue and direct operating expense
 ^(1)  represent the elimination of intercompany servicing revenue where the
         Business Services segment performs the loan servicing function for
         the FFELP Loans segment.
  ^(2)   “Core Earnings” adjustments to GAAP:

                                                                     
                                  Quarter Ended December 31, 2011
                                  Net Impact of   Net Impact of
                                  Derivative      Goodwill and
(Dollars in millions)             Accounting      Acquired Intangibles   Total
Net interest income after         $     106       $       —              $ 106
provisions for loan losses
Total other income                      271               —                271
Goodwill and acquired
intangible assets impairment           —                5              5
and amortization
                                                                         
Total “Core Earnings”             $     377       $       (5     )         372
adjustments to GAAP
                                                                         
Income tax expense                                                        129
                                                                         
Net income                                                               $ 243
                                                                         

 ^(3)  Income taxes are based on a percentage of net income before tax for
         the individual reportable segment.
  ^(4)   Represents a portion of the $(4) million of “other derivative
         accounting adjustments.”
         Represents the $480 million of “unrealized gains on derivative and
  ^(5)   hedging activities, net” as well as the remaining portion of the $(4)
         million of “other derivative accounting adjustments.”

                                                                                                                                        
                 Year Ended December 31, 2012
(Dollars in      Consumer   Business    FFELP                                   Total       Adjustments                                            Total
millions)        Lending    Services    Loans     Other      Eliminations^(1)   “Core       Reclassifications   Additions/       Total             GAAP
                                                                                Earnings”                       (Subtractions)   Adjustments^(2)
Interest
income:
Student loans    $  2,481   $ —         $ 2,744   $ —        $    —             $ 5,225     $    858            $   (351  )      $    507          $      5,732
Other loans         —         —           —         16            —               16             —                  —                 —                   16
Cash and           7        10        11       3           (10     )      21           —                —               —                 21    
investments
                                                                                                                                                   
Total interest      2,488     10          2,755     19            (10     )       5,262          858                (351  )           507                 5,769
income
Total interest     825      —         1,591    38          (10     )      2,444        115              2     ^(4)       117               2,561 
expense
                                                                                                                                                   
Net interest        1,663     10          1,164     (19  )        —               2,818          743                (353  )           390                 3,208
income (loss)
Less:
provisions for     1,008    —         72       —           —             1,080        —                —               —                 1,080 
loan losses
                                                                                                                                                   
Net interest
income (loss)
after               655       10          1,092     (19  )        —               1,738          743                (353  )           390                 2,128
provisions for
loan losses
Servicing           46        910         90        —             (670    )       376            —                  —                 —                   376
revenue
Contingency         —         356         —         —             —               356            —                  —                 —                   356
revenue
Gains on debt       —         —           —         145           —               145            —                  —                 —                   145
repurchases
Other income       —        33        —        15          —             48           (743    )         159   ^(5)       (584   )           (536  )
(loss)
                                                                                                                                                   
Total other         46        1,299       90        160           (670    )       925            (743    )          159               (584   )            341
income (loss)
Expenses:
Direct
operating           265       462         702       7             (670    )       766            —                  —                 —                   766
expenses
Overhead           —        —         —        230         —             230          —                —               —                 230   
expenses
                                                                                                                                                   
Operating           265       462         702       237           (670    )       996            —                  —                 —                   996
expenses
Goodwill and
acquired
intangible          —         —           —         —             —               —              —                  28                28                  28
assets
impairment and
amortization
Restructuring      2        6         —        4           —             12           —                —               —                 12    
expenses
                                                                                                                                                   
Total expenses     267      468       702      241         (670    )      1,008        —                28              28                1,036 
                                                                                                                                                   
Income (loss)
from
continuing
operations,         434       841         480       (100 )        —               1,655          —                  (222  )           (222   )            1,433
before income
tax expense
(benefit)
Income tax
expense            156      303       173      (36  )       —             596          —                (99   )          (99    )           497   
(benefit)^(3)
                                                                                                                                                   
Net income
(loss) from         278       538         307       (64  )        —               1,059          —                  (123  )           (123   )            936
continuing
operations
Income from
discontinued
operations,        —        —         —        1           —             1            —                —               —                 1     
net of tax
expense
                                                                                                                                                   
Net income          278       538         307       (63  )        —               1,060          —                  (123  )           (123   )            937
(loss)
Less: net loss
attributable
to                 —        (2    )    —        —           —             (2    )       —                —               —                 (2    )
noncontrolling
interest
                                                                                                                                                   
Net income                                                                                                                                         $
(loss)                                                                                                                                             *Story
attributable     $  278     $ 540      $ 307     $ (63  )   $    —            $ 1,062    $    —             $   (123  )      $    (123   )     too
to SLM                                                                                                                                             large*
Corporation

[TRUNCATED]