Sallie Mae 2015 Annual Report Download - page 50

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Year Ended December 31, 2014 Compared with Year Ended December 31, 2013
For the year ended December 31, 2014, net income was $194 million, or $.42 diluted earnings per common share,
compared with net income of $259 million, or $.58 diluted earnings per common share for the year ended December 31, 2013.
The decrease in net income was primarily due to a $76 million decrease in net gains on sales of loans, a $64 million decrease in
gains on sales of securities, a $16 million increase in provisions for credit losses and a $42 million increase in total expenses,
which were partially offset by a $116 million increase in net interest income.
The primary contributors to each of the identified drivers of changes in net income for 2014 compared with 2013 are as
follows:
• Net interest income increased by $116 million primarily due to a $1.6 billion increase in average Private Education
Loans outstanding and a 20 basis point increase in net interest margin. Net interest margin increased 20 basis points
primarily as a result of an increase in the proportion of higher yielding Private Education Loans in our loan portfolio.
• Provisions for credit losses increased $16 million compared with 2013 primarily as a result of a $13 million increase in
charge-offs during 2014, an increase in the amount of TDRs entered into during 2014 (where we provide for life-of-
loan losses), an increase in the percentage of loans in full principal and interest repayment and the effect of fewer loan
sales. These amounts were partially offset by a $14 million benefit from the net effect of a change in our loss
emergence period from two years to one year and a change in our charge-off policy that was recorded in the second
quarter of 2014.
• Gains on sales of loans, net, decreased $76 million. In 2014, we sold $1.9 billion of loans through Private Education
Loan sales and a securitization transaction with third-parties. As a result, we recorded gains of $121 million. In 2013,
we recorded $197 million in gains from the sale of $2.4 billion of loans to an entity that is now a subsidiary of
Navient. Gains on sales of loans, net, were higher in 2013 as a result of a larger volume of loans sold and those loans
were sold to an entity that is now a subsidiary of Navient at a higher price.
• Gains on sales of securities, net decreased $64 million in 2014 compared with 2013 because there were no sales in
2014 and a $585 million sale of securities in 2013. The securities sold in 2013 were ABS backed by FFELP Loans and
were originally contributed by the Company to the Bank in 2008.
• Gains (losses) on derivatives and hedging activities, net, resulted in a net loss of $4 million in 2014 compared with a
gain of $1 million in 2013. The primary factors affecting the change were interest rates and whether the derivative
qualified for hedge accounting treatment. In 2014, we had more derivatives used to economically hedge risk that did
not qualify for hedge accounting treatment than we did in 2013.
• Operating expenses were $275 million in 2014 compared with $270 million in 2013. Operating expenses increased in
2014 due to increased servicing and marketing costs as well as increased personnel and other costs related to being a
stand-alone company. In addition, in 2013 we recorded an $11 million reserve for estimated remediation costs relating
to the FDIC Consent Order. In 2014, we reversed approximately $8 million of that reserve based upon the final
determination of the Bank’s liability.
• Restructuring and other reorganization expenses in 2014 were $38 million compared with $1 million in 2013. The
increase was primarily the result of costs related to the Spin-Off.
• The increase in 2014's effective tax rate to 41.9 percent from 38.2 percent in 2013 was primarily the result of
additional reserves related to uncertain tax positions and additional state tax expense as a result of the Spin-Off.