Sallie Mae 2003 Annual Report Download - page 4

With several months of 2004 as
perspective, it is now clear that 2003
was a very special year for the student
loan business. Last year marked a
confluence of three critical events:
Sallie Mae again registered record
earnings; American taxpayers recorded
their first cash surplus from FFELP
operations; and students enjoyed the
lowest interest rates in the history
of the student loan program! Our
three principal constituents: students,
shareholders and taxpayers, have
cause to applaud.
Our 29 percent core cash EPS
growth (net of non-recurring revenue)
was produced by record loan origina-
tions and strong fee income growth,
largely from debt management oper-
ations (collections of defaulted stu-
dent loans). Our bedrock business,
FFELP originations, grew 19 percent
to $12 billion, with $80 billion in
FFELP assets earning for us at year-
end. Nonetheless, related revenues
have fallen to about 60 percent of
our total revenues, a proportion that
illustrates the rapid diversification of
our income stream. Private credit,
guarantee and loan servicing, together
with our collection businesses—all
for the higher education industry—
now produce about 40 percent of
our revenue.
Our 2003 earnings growth was
achieved even as we undertook mas-
sive balance sheet transformation.
We issued $45 billion of debt in the
private capital market, refinancing
half of our liabilities, and found our-
selves entering 2004 nearly 80 per-
cent private. FFELP margins are now
nearly 40 basis points narrower than
during our GSE days (excluding the
margin enhancement generated by
our private credit portfolio). Com-
pounding the privatization squeeze
has been extensive consolidation of
student loan assets at lower spreads:
in 2003, our borrowers consolidated
$8.6 billion in student loans. The
cumulative negative impact on our
revenue growth rate from these
asset and liability conversions will
peak this year. We expect the combi-
nation of the growth in our fee-based
and private credit businesses, along
with continued operating efficiencies,
Dear Fellow Shareholders:
Whether you are a longtime owner or a recent investor,
we thank you for your trust and confidence in Sallie
Mae and its management team. You own a business
with a 30-year record of performance, and an outlook
that we see as even brighter than our past achievement.
Letter from the CEO & President
Albert L. Lord
VICE CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
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