Sallie Mae 2013 Annual Report Download - page 69

• Income from discontinued operations increased $108 million primarily as a result of the sale of our
Campus Solutions business in the second quarter of 2013 and our 529 college-savings plan administration
business in the fourth quarter of 2013, which resulted in after-tax gains of $38 million and $65 million,
respectively.
We repurchased 27 million shares and 58 million shares of our common stock during 2013 and 2012,
respectively, as part of our common share repurchase program. Primarily as a result of these repurchases, our
average outstanding diluted shares decreased by 34 million common shares in 2013.
Year Ended December 31, 2012 Compared with Year Ended December 31, 2011
For the years ended December 31, 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 $108 million decrease in operating expenses and a $107
million increase in gains on debt repurchases, which more than offset the $321 million decline in net interest
income.
The primary contributors to each of the identified drivers of changes in net income for 2012 compared with
2011 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 the Special Direct Consolidation Loan (“SDCL”)
initiative (see the section titled “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
the SDCL initiative.
• 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, we
increased our focus on encouraging our customers to enter repayment plans in lieu of additional
forbearance usage to better help customers manage their overall payment obligations. As expected, this
change resulted in an increase in charge-offs in fourth-quarter 2012, followed by a decline in 2013
charge-offs. See the section titled “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 sales of loans and investments in 2012. In 2011, we recorded $26 million
of impairment on certain investments in aircraft leveraged leases and a $9 million mark-to-market loss
related to classifying our entire $12 million portfolio of non-U.S. dollar-denominated student loans as
held-for-sale.
• 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. Debt repurchase activity will fluctuate based on
market fundamentals and our liability management strategy.
• Operating expenses decreased $108 million primarily due to the current-year benefit of the cost-cutting
efforts we implemented throughout 2011.
• Net income from discontinued operations decreased $37 million due to the sale of our Purchased Paper —
Non-Mortgage portfolio in 2011.
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