Sallie Mae Reports Second-Quarter 2013 Financial Results

Sallie Mae (NASDAQ: SLM), formally SLM Corporation, today released second-quarter 2013 financial results that reflect significant improvements to private education loan portfolio performance and earnings-per-share contributions from previously announced asset sales. During the quarter, private education loan 90-day delinquency and charge-off rates dropped to 3.6 percent and 2.7 percent, respectively, their lowest levels since 2008. The company also announced $400 million in common share repurchase authorization.

“We are pleased with the low delinquency and default results achieved by our customers as the measures confirm the effectiveness of our underwriting standards and servicing solutions,” said Jack Remondi, president and CEO. “Our lending practices help students and families borrow responsibly, and our customized repayment assistance helps borrowers successfully manage their education loans. Both represent our conviction that we succeed only when our customers succeed.”

Mr. Remondi continued, “Much has been publicized about student debt and borrower burdens. Student lending is a very specialized business that, if undertaken properly, can help borrowers capture the economic benefits of a college degree. Our results clearly show that our products, efforts and solutions help our borrowers successfully manage, and not just postpone, their student loan payments better than anyone, and avoid the damaging effects of default.”

For the second-quarter 2013, GAAP net income was $543 million ($1.20 diluted earnings per share), compared with $292 million ($0.59 diluted earnings per share) for the year-ago quarter.

Core earnings for the quarter were $462 million ($1.02 diluted earnings per share), compared with $243 million ($0.49 diluted earnings per share) for the year-ago quarter.

The second-quarter 2013 core diluted earnings per share increase includes a $257 million gain from the sale of residual interests in FFELP loan securitization trusts, a $38 million after-tax gain from the sale of the company’s Campus Solutions business, a $42 million decline in the provision for loan losses, and an increase in net interest income before provision for loan losses of $19 million which more than offset higher operating expenses of $27 million and higher restructuring and other reorganization expenses of $21 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. Second-quarter 2013 GAAP results included $143 million of gains from derivative accounting treatment that are excluded from core earnings results. In the year-ago period, these amounts were gains of $82 million.

Consumer Lending

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

Quarterly core earnings were $107 million compared with $85 million in the year-ago quarter. The increase is primarily the result of a $38 million decrease in the provision for private education loan losses.

Second-quarter 2013 private education loan portfolio results vs. second-quarter 2012 included:
  • Loan originations of $368 million, up 15 percent.
  • Delinquencies of 90 days or more of 3.6 percent of loans in repayment, down from 4.5 percent.
  • Loans in forbearance of 3.5 percent of loans in repayment and forbearance, down from 4.3 percent.
  • Annualized charge-off rate of 2.7 percent of average loans in repayment, down from 3.1 percent.
  • Provision for private education loan losses of $187 million, down from $225 million.
  • Core net interest margin, before loan loss provision, of 4.12 percent, down from 4.14 percent.
  • The portfolio balance, net of loan loss allowance, totaled $37 billion, a $662 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 $166 million in second-quarter 2013, compared with $137 million in the year-ago quarter. The increase is primarily due to the $38 million after-tax gain recognized on the business sale mentioned above.

Federally Guaranteed Student Loans (FFELP)

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

Core earnings for the segment were $237 million in second-quarter 2013, compared with the year-ago quarter’s $44 million. The increase was primarily the result of a $257 million gain from the sale of residual interests in FFELP loan securitization trusts.

At June 30, 2013, the company held $108 billion of FFELP loans compared with $133 billion at June 30, 2012. Approximately $12 billion of the $25 billion decline in FFELP loans is a result of the sales of the residual interests in FFELP loan securitization trusts discussed earlier.

Operating Expenses

Second-quarter 2013 operating expenses were $258 million compared with $231 million in the year-ago quarter. The increase is primarily the result of increases in our third-party servicing and collections activities, increased private education loan marketing activities, as well as continued investments in technology.

In addition, there were $24 million and $3 million of expenses reported in “Restructuring and other reorganization expenses” in the second quarter of 2013 and 2012, respectively. For 2013, these consisted of $14 million related to severance and $10 million related to the company’s previously announced plan to separate its existing organization into two publicly-traded companies. The $3 million in 2012 relates to restructuring expenses.

Funding and Liquidity

During second-quarter 2013, the company issued $2.5 billion in FFELP asset-backed securities (ABS) and $1.1 billion in private education loan ABS.

Total debt repurchases were $70 million in second-quarter 2013 compared with $85 million in second-quarter 2012.

In the second quarter, Sallie Mae closed on a new $6.8 billion ABCP borrowing facility, which matures in June 2014, to facilitate the term securitization of FFELP loans. As previously announced, the facility was used in June 2013 to refinance all FFELP loans previously financed through the U.S. Department of Education’s conduit program.

Subsequent to the second-quarter end, the company closed on a $1.1 billion private education loan asset backed commercial paper facility to fund the call and redemption of a 2009 private education loan asset backed securitization trust.

Shareholder Distributions

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

Sallie Mae repurchased 9 million shares of common stock for $201 million in the second quarter of 2013, or an aggregate of 19 million shares for $400 million in the first half of 2013, fully utilizing the company’s February 2013 share repurchase program authorization. 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.

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 $2.80 inclusive of the contributions from the $0.44 earnings per share of gains related to FFELP loan securitization trust residual sales and $0.08 earnings per share from the gain from the business sale that have occurred through June 30, 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 June 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, July 18, 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 11880664 starting at 7:45 a.m. EDT. 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 approximately two hours after the call’s conclusion. A telephone replay may be accessed approximately two hours after the call’s conclusion through Aug. 2, by dialing 855-859-2056 (USA and Canada) or 404-537-3406 (international) with access code 11880664.

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 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; 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 over 25 million 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 Six Months Ended
June 30, March 31, June 30, June 30, June 30,

(In millions, except per share data)
2013 2013 2012 2013 2012
 
GAAP Basis
Net income attributable to SLM Corporation $ 543 $ 346 $ 292 $ 889 $ 403
Diluted earnings per common share attributable to SLM Corporation $ 1.20 $ .74 $ .59 $ 1.94 $ .79
Weighted average shares used to compute diluted earnings per share 448 458 488 453 499
Return on assets 1.35 % .82 % .64 % 1.08 % .44 %
 
“Core Earnings” Basis(1)
“Core Earnings” attributable to SLM Corporation $ 462 $ 283 $ 243 $ 744 $ 527
“Core Earnings” diluted earnings per common share attributable to SLM Corporation $ 1.02 $ .61 $ .49 $ 1.62 $ 1.03
Weighted average shares used to compute diluted earnings per share 448 458 488 453 499
“Core Earnings” return on assets 1.15 % .67 % .53 % 0.90 % .58 %
 
Other Operating Statistics
Ending FFELP Loans, net $ 108,491 $ 119,195 $ 132,833 $ 108,491 $ 132,833
Ending Private Education Loans, net   37,116     37,465     36,454     37,116     36,454  
 
Ending total student loans, net $ 145,607   $ 156,660   $ 169,287   $ 145,607   $ 169,287  
 
Average student loans $ 152,135 $ 160,261 $ 172,436 $ 156,175 $ 173,689
 

(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)
 
June 30, 2013 June 30, 2013
vs. vs.
March 31, 2013 June 30, 2012
Increase Increase
Quarters Ended (Decrease) (Decrease)
June 30, March 31, June 30,

(In millions, except per share data)
2013 2013 2012 $

%
$ %
Interest income:
FFELP Loans $ 703 $ 735 $ 777 $ (32 ) (4 )% $ (74 ) (10 )%
Private Education Loans 627 623 616 4 1 11 2
Other loans 3 3 4 (1 ) (25 )
Cash and investments   4     4     6           (2 ) (33 )
 
Total interest income 1,337 1,365 1,403 (28 ) (2 ) (66 ) (5 )
Total interest expense   553     569     656     (16 ) (3 )   (103 ) (16 )
 
Net interest income 784 796 747 (12 ) (2 ) 37 5
Less: provisions for loan losses   201     241     243     (40 ) (17 )   (42 ) (17 )
 
Net interest income after provisions for loan losses 583 555 504 28 5 79 16
Other income (loss):
Gains on sales of loans and investments 251 55 196 356 251 100
Gains (losses) on derivative and hedging activities, net 18 (31 ) 6 49 158 12 200
Servicing revenue 89 89 88 1 1
Contingency revenue 109 99 87 10 10 22 25
Gains on debt repurchases 19 23 20 (4 ) (17 ) (1 ) (5 )
Other income   24     34     (2 )   (10 ) (29 )   26   1,300  
 
Total other income 510 269 199 241 90 311 156
Expenses:
Operating expenses 258 250 231 8 3 27 12
Goodwill and acquired intangible asset impairment and amortization expense 4 4 5 (1 ) (20 )
Restructuring and other reorganization expenses   24     11     3     13   118     21   700  
 
Total expenses   286     265     239     21   8     47   20  
 
Income from continuing operations, before income tax expense 807 559 464 248 44 343 74
Income tax expense   300     211     169     89   42     131   78  
 
Net income from continuing operations 507 348 295 159 46 212 72
Income (loss) from discontinued operations, net of tax expense (benefit)   35     (2 )   (4 )   37   1,850     39   975  
 
Net income 542 346 291 196 57 251 86
Less: net loss attributable to noncontrolling interest   (1 )       (1 )   (1 ) (100 )      
 
Net income attributable to SLM Corporation 543 346 292 197 57 251 86
Preferred stock dividends   5     5     5              
 
Net income attributable to SLM Corporation common stock $ 538   $ 341   $ 287   $ 197   58 % $ 251   87 %
 
 
Basic earnings (loss) per common share attributable to SLM Corporation:
Continuing operations $

1.14
$ .76 $ .60 $ .38 50 % $ .54 90 %
Discontinued operations  

.08
        (.01 )   .08   100     .09   900  
 
Total $

1.22
  $ .76   $ .59   $ .46   61   $ .63   107 %
 
Diluted earnings (loss) per common share attributable to SLM Corporation:
Continuing operations $

1.12
$ .74 $ .60 $ .38 51 % $ .52 87 %
Discontinued operations  

.08
        (.01 )   .08   100     .09   900  
 
Total $

1.20
  $ .74   $ .59   $ .46   62 % $ .61   103 %
 
Dividends per common share attributable to SLM Corporation $

.15
  $ .15   $ .125   $   0 % $ .025   20 %
 
       
Six Months
Ended Increase
June 30, (Decrease)

(In millions, except per share data)
2013 2012 $ %
Interest income:
FFELP Loans $ 1,439 $ 1,619 $ (180 ) (11 )%
Private Education Loans 1,249 1,241 8 1
Other loans 6 9 (3 ) (33 )
Cash and investments   8     8        
 
Total interest income 2,702 2,877 (175 ) (6 )
Total interest expense   1,123     1,322     (199 ) (15 )
 
Net interest income 1,579 1,555 24 2
Less: provisions for loan losses   442     496     (54 ) (11 )
 
Net interest income after provisions for loan losses 1,137 1,059 78 7
Other income (loss):
Gains on sales of loans and investments 307 307 100
Losses on derivative and hedging activities, net (13 ) (366 ) 353 (96 )
Servicing revenue 178 178
Contingency revenue 208 176 32 18
Gains on debt repurchases 42 58 (16 ) (28 )
Other income   58     38     20   53  
 
Total other income 780 84 696 829
Expenses:
Operating expenses 508 482 26 5
Goodwill and acquired intangible asset impairment and amortization expense 7 9 (2 ) (22 )
Restructuring and other reorganization expenses   35     7     28   400  
 
Total expenses 550 498 52 10
Income from continuing operations, before income tax expense 1,367 645 722 112
Income tax expense   512     237     275   116  
 
Net income from continuing operations 855 408 447 110
Income (loss) from discontinued operations, net of tax expense (benefit)   33     (6 )   39   650  
 
Net income 888 402 486 121
Less: net loss attributable to noncontrolling interest   (1 )   (1 )      
 
Net income attributable to SLM Corporation 889 403 486 121
Preferred stock dividends   10     10        
 
Net income attributable to SLM Corporation common stock $ 879   $ 393   $ 486   124 %
 
Basic earnings (loss) per common share attributable to SLM Corporation:
Continuing operations $ 1.90 $ .81 $ 1.09 135 %
Discontinued operations   .07     (.01 )   .08   800  
 
Total $ 1.97   $ .80   $ 1.17   146 %
 
Diluted earnings (loss) per common share attributable to SLM Corporation:
Continuing operations $ 1.87 $ .80 $ 1.07 134 %
Discontinued operations   .07     (.01 )   .08   800  
 
Total $ 1.94   $ .79   $ 1.15   146 %
 
Dividends per common share attributable to SLM Corporation $ .30   $ .25   $ .05   20 %
 
     

GAAP Balance Sheet (Unaudited)
 
June 30, March 31, June 30,
(In millions, except share and per share data) 2013 2013 2012
 

Assets
FFELP Loans (net of allowance for losses of $133; $147 and $173, respectively) $ 108,491 $ 119,195 $ 132,833
Private Education Loans (net of allowance for losses of $2,149; $2,170 and $2,186, respectively) 37,116 37,465 36,454
Cash and investments 4,265 4,691 4,123
Restricted cash and investments 4,109 4,828 6,717
Goodwill and acquired intangible assets, net 440 444 467
Other assets   7,047     7,463     8,485  
 
Total assets $ 161,468   $ 174,086   $ 189,079  
 
 
Liabilities
Short-term borrowings $ 16,558 $ 17,254 $ 24,493
Long-term borrowings 135,879 147,887 155,476
Other liabilities   3,597     3,791     4,172  
 
Total liabilities   156,034     168,932     184,141  
 
 
Commitments and contingencies
 
Equity
Preferred stock, par value $0.20 per share, 20 million shares authorized:
Series A: 3.3 million; 3.3 million and 3.3 million shares, respectively, issued at stated value of $50 per share 165 165 165
Series B: 4 million; 4 million and 4 million shares, respectively, issued at stated value of $100 per share 400 400 400
Common stock, par value $0.20 per share, 1.125 billion shares authorized: 544 million; 540 million and 533 million shares, respectively, issued 109 108 107
Additional paid-in capital 4,355 4,291 4,196
Accumulated other comprehensive income (loss), net of tax expense (benefit) 9 (4 ) (10 )
Retained earnings   2,195     1,723     1,040  
 
Total SLM Corporation stockholders’ equity before treasury stock 7,233 6,683 5,898
Less: Common stock held in treasury: 108 million; 95 million and 63 million shares, respectively   (1,804 )   (1,535 )   (967 )
 
Total SLM Corporation stockholders’ equity 5,429 5,148 4,931
Noncontrolling interest   5     6     7  
 
Total equity   5,434     5,154     4,938  
 
Total liabilities and equity $ 161,468   $ 174,086   $ 189,079  
 

Consolidated Earnings Summary — GAAP basis
 

Three Months Ended June 30, 2013 Compared with Three Months Ended June 30, 2012
 
For the three months ended June 30, 2013, net income was $543 million, or $1.20 diluted earnings per common share, compared with net income of $292 million, or $0.59 diluted earnings per common share, for the three months ended June 30, 2012. The increase in net income was primarily due to a $251 million increase in gains on sales of loans and investments, a $39 million after-tax increase in income from discontinued operations, a $42 million decline in the provision for loan losses, and a $37 million increase in net interest income, which more than offset higher operating expenses of $27 million and higher restructuring and other reorganization expenses of $21 million.
 
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 increased by $37 million in the current quarter compared with the prior-year quarter primarily due to a $50 million acceleration of non-cash premium expense recorded in second-quarter 2012 related to the U.S. Department of Education’s (“ED”) consolidation of $5.2 billion of loans under the Special Direct Consolidation Loan initiative (“SDCL”) that ended June 30, 2012. Partially offsetting this increase was a reduction in net interest income from a $20.9 billion decline in average FFELP Loans outstanding.
  • Provisions for loan losses declined $42 million compared with the year-ago quarter primarily as a result of the overall improvement in Private Education Loans’ credit quality, delinquency and charge-off trends leading to decreases in expected future charge-offs.
  • Gains on sales of loans and investments increased by $251 million as a result of $257 million in gains from sales of Residual Interests in FFELP Loan securitization trusts that occurred in second-quarter 2013. See “Business Segment Earnings Summary—‘Core Earnings’ Basis—FFELP Loans Segment” for further discussion.
  • Contingency revenue increased $22 million primarily from an increase in collection volumes in second-quarter 2013 compared with the prior-year quarter.
  • Other income increased $26 million primarily from an increase in foreign currency translation gains. The foreign currency translation gains relate to a portion of our foreign currency denominated debt that does not receive hedge accounting treatment. These net gains were partially offset by losses on derivative and hedging activities related to the derivatives used to economically hedge these debt investments.
  • Second-quarter 2013 operating expenses were $258 million compared with $231 million in the year-ago quarter. The increase in operating expenses is primarily the result of increases in our third-party servicing and collections activities, increased Private Education Loan marketing, as well as continued investments in technology.
  • Restructuring and other reorganization expenses were $24 million compared with $3 million in the year-ago quarter. For 2013, these consisted of $14 million related to severance and $10 million related to the Company’s previously announced plan to separate its existing organization into two publicly-traded companies. The $3 million in 2012 relates to restructuring expenses.
  • Income from discontinued operations increased $39 million primarily as a result of the sale of our Campus Solutions business in the second quarter of 2013 which resulted in a $38 million after-tax gain. See “Business Segment Earnings Summary—‘Core Earnings’ Basis—Business Services Segment” for additional discussion.
 
In addition, we repurchased 9 million shares of our common stock for $201 million during the second-quarter 2013 as part of a common share repurchase program. Primarily as a result of ongoing common share repurchases, our average outstanding diluted shares decreased by 40 million shares from the year-ago quarter.
 

Six Months Ended June 30, 2013 Compared with Six Months Ended June 30, 2012
 
For the six months ended June 30, 2013, net income was $889 million, or $1.94 diluted earnings per common share, compared with net income of $403 million, or $0.79 diluted earnings per common share, for the six months ended June 30, 2012. The increase in net income was primarily due to a $353 million decrease in net losses on derivative and hedging activities, a $307 million increase in net gains on sales of loans and investments, a $39 million after-tax increase in income from discontinued operations and a $54 million decrease in provisions for loan losses, which were partially offset by higher operating expenses of $26 million and higher restructuring and other reorganization expenses of $28 million.
 
The primary contributors to each of the identified drivers of changes in net income for the current six-month period compared with the year-ago six-month period are as follows:
 
  • Net interest income increased by $24 million primarily due to a $50 million acceleration of non-cash premium expense recorded in the first half of 2012 related to ED’s consolidation of $5.2 billion of loans under the SDCL initiative that ended June 30, 2012. Partially offsetting this increase was an $18.1 billion decline in average FFELP Loans outstanding.
  • Provisions for loan losses declined $54 million compared with the year-ago period primarily as a result of the overall improvement in Private Education Loans’ credit quality, delinquency and charge-off trends leading to decreases in expected future charge-offs.
  • Gains on sales of loans and investments increased by $307 million as a result of $312 million in gains on the sales of the Residual Interests in FFELP Loan securitization trusts. See “Business Segment Earnings Summary—‘Core Earnings’ Basis—FFELP Loans Segment” for further discussion.
  • Losses on derivative and hedging activities, net, resulted in a net loss of $13 million in the current six-month period compared with a net loss of $366 million in the year-ago period. 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.
  • Contingency revenue increased $32 million primarily from an increase in collection volumes in the first half of 2013 compared with the prior-year period.
  • First-half 2013 operating expenses were $508 million compared with $482 million in the first half of 2012. The increase in operating expenses is primarily the result of increases in our third-party servicing and collections activities, increased Private Education Loan marketing, as well as continued investments in technology.
  • Restructuring and other reorganization expenses were $35 million compared with $7 million in the year-ago period. For 2013, these consisted of $23 million related to severance and $12 million related to the Company’s previously announced plan to separate its existing organization into two publicly-traded companies. The $7 million in 2012 relates to restructuring expenses.
  • Income from discontinued operations increased $39 million primarily as a result of the sale of our Campus Solutions business in the second quarter of 2013. See “Business Segment Earnings Summary—‘Core Earnings’ Basis—Business Services Segment” for additional discussion.
 
In addition, we repurchased 19 million shares of our common stock for $400 million during the first half of 2013 as part of a common share repurchase program. Primarily as a result of ongoing common share repurchases, our average outstanding diluted shares decreased by 46 million shares from the year-ago period.
 

“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.
 
                   
Quarter Ended June 30, 2013

(Dollars in millions)
ConsumerLending BusinessServices FFELPLoans Other

Elimina-tions(1)
Total“CoreEarnings” Adjustments TotalGAAP

Reclassi-fications
Additions/(Subtractions)

TotalAdjustments(2)
Interest income:
Student loans $ 627 $ $ 581 $ $ $ 1,208 $ 198 $ (76 ) $ 122 $ 1,330
Other loans 3 3 3
Cash and investments   1   1     2   1     (1 )   4               4  
 
Total interest income 628 1 583 4 (1 ) 1,215 198 (76 ) 122 1,337
Total interest expense   206       325   10     (1 )   540     13         13   553  
 
Net interest income (loss) 422 1 258 (6 ) 675 185 (76 ) 109 784
Less: provisions for loan losses   187       14           201               201  
 
Net interest income (loss) after provisions for loan losses 235 1 244 (6 ) 474 185 (76 ) 109 583
Other income (loss):
Gains on sales of loans and investments 257 (6 ) 251 251
Servicing revenue 10 200 16 (137 ) 89 89
Contingency revenue 109 109 109
Gains on debt repurchases 19 19 19
Other income     8               8     (185 )  

219

(4)
  34   42  
 
Total other income (loss) 10 317 273 13 (137 ) 476 (185 ) 219 34 510
Expenses:
Direct operating expenses 76 113 144 3 (137 ) 199 199
Overhead expenses           59         59               59  
 
Operating expenses 76 113 144 62 (137 ) 258 258
Goodwill and acquired intangible asset impairment and amortization 4 4 4
Restructuring and other reorganization expenses   2   1       21         24               24  
 
Total expenses   78   114     144   83     (137 )   282         4     4   286  
 
Income (loss) from continuing operations, before income tax expense (benefit) 167 204 373 (76 ) 668 139 139 807
Income tax expense (benefit)(3)   60   74     136   (28 )       242         58     58   300  
 
Net income (loss) from continuing operations $ 107 $ 130 $ 237 $ (48 ) $ $ 426 $ $ 81 $ 81 $ 507
Income from discontinued operations, net of tax expense     35               35               35  
 
Net income (loss) $ 107 $ 165 $ 237 $ (48 ) $ $ 461 $ $ 81 $ 81 $ 542
Less: net loss attributable to noncontrolling interest     (1 )             (1 )             (1 )
 
Net income (loss) attributable to SLM Corporation $ 107 $ 166   $ 237 $ (48 ) $   $ 462   $   $ 81   $ 81 $ 543  
 

(1)
  The eliminations in servicing revenue and direct operating expense 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 June 30, 2013
Net Impact of Net Impact of
Derivative Goodwill and

(Dollars in millions)
Accounting Acquired Intangibles Total
Net interest income after provisions for loan losses $ 109 $ $ 109
Total other income 34 34
Goodwill and acquired intangible asset impairment and amortization     4     4
 
“Core Earnings” adjustments to GAAP $ 143 $ (4 ) 139
 
Income tax expense   58
 
Net income $ 81
 

(3)
  Income taxes are based on a percentage of net income before tax for the individual reportable segment.
 

(4)
Represents the $203 million of “unrealized gains on derivative and hedging activities, net” as well as the $16 million of “other derivative accounting adjustments.”
 
 
Quarter Ended March 31, 2013

(Dollars in millions)

ConsumerLending
  BusinessServices   FFELPLoans   Other  

Elimina-tions(1)
  Total“CoreEarnings”   Adjustments   TotalGAAP

Reclassi-fications
  Additions/(Subtractions)   TotalAdjustments(2)
Interest income:
Student loans $ 623 $ $ 599 $ $ $ 1,222 $ 212 $ (76 ) $ 136 $ 1,358
Other loans 3 3 3
Cash and investments   1     1     2   1     (1 )   4                 4  
 
Total interest income 624 1 601 4 (1 ) 1,229 212 (76 ) 136 1,365
Total interest expense   203         340   11     (1 )   553     18     (2 )(4)   16     569  
 
Net interest income (loss) 421 1 261 (7 ) 676 194 (74 ) 120 796
Less: provisions for loan losses   225         16           241                 241  
 
Net interest income (loss) after provisions for loan losses 196 1 245 (7 ) 435 194 (74 ) 120 555
Other income (loss):
Gains on sales of loans and investments 55 55 55
Servicing revenue 10 205 23 (149 ) 89 89
Contingency revenue 99 99 99
Gains on debt repurchases 29 29 (6 ) (6 ) 23
Other income       7               7     (188 )  

184

(5)
  (4 )   3  
 
Total other income (loss) 10 311 78 29 (149 ) 279 (194 ) 184 (10 ) 269
Expenses:
Direct operating expenses 68 110 157 1 (149 ) 187 187
Overhead expenses             63         63                 63  
 
Operating expenses 68 110 157 64 (149 ) 250 250
Goodwill and acquired intangible asset impairment and amortization 4 4 4
Restructuring and other reorganization expenses             11         11                 11  
 
Total expenses 68 110 157 75 (149 ) 261 4 4 265
Income (loss) before income tax expense (benefit) 138 202 166 (53 ) 453 106 106 559
Income tax expense (benefit)(3)   50     76     62   (20 )       168         43     43     211  
 
Income (loss) from continuing operations $ 88 $ 126 $ 104 $ (33 ) $ $ 285 $ $ 63 $ 63 $ 348
Loss from discontinued operations, net of tax benefit   (1 )   (1 )             (2 )               (2 )
 
Net income (loss) $ 87   $ 125   $ 104 $ (33 ) $   $ 283   $   $ 63   $ 63   $ 346  
 

(1)
  The eliminations in servicing revenue and direct operating expense 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 March 31, 2013
Net Impact of Net Impact of
Derivative Goodwill and

(Dollars in millions)
Accounting Acquired Intangibles Total
Net interest income after provisions for loan losses $ 120 $ $ 120
Total other loss (10 ) (10 )
Goodwill and acquired intangible asset impairment and amortization       4     4  
 
“Core Earnings” adjustments to GAAP $ 110   $ (4 ) 106
 
Income tax expense   43  
 
Net income $ 63  
 

(3)
  Income taxes are based on a percentage of net income before tax for the individual reportable segment.
 

(4)
Represents a portion of the $29 million of “other derivative accounting adjustments.”
 

(5)
Represents the $157 million of “unrealized gains on derivative and hedging activities, net” as well as the remaining portion of the $29 million of “other derivative accounting adjustments.”
 
                   
Quarter Ended June 30, 2012

(Dollars in millions)

ConsumerLending
BusinessServices FFELPLoans Other

Elimina-tions(1)
Total“CoreEarnings” Adjustments TotalGAAP

Reclassi-fications
Additions/(Subtractions) TotalAdjustments(2)
Interest income:
Student loans $ 616 $ $ 652 $ $ $ 1,268 $ 223 $ (98 ) $ 125 $ 1,393
Other loans 4 4 4
Cash and investments   2     2     3       (1 )   6                 6  
 
Total interest income 618 2 655 4 (1 ) 1,278 223 (98 ) 125 1,403
Total interest expense   205         409   9     (1 )   622     34         34     656  
 
Net interest income (loss) 413 2 246 (5 ) 656 189 (98 ) 91 747
Less: provisions for loan losses   225         18           243                 243  
 
Net interest income (loss) after provisions for loan losses 188 2 228 (5 ) 413 189 (98 ) 91 504
Other income (loss):
Gains on sales of loans and investments
Servicing revenue 11 227 22 (172 ) 88 88
Contingency revenue 87 87 87
Gains on debt repurchases 20 20 20
Other income (loss)       7       6         13     (189 )  

180

(4)
  (9 )   4  
 
Total other income (loss) 11 321 22 26 (172 ) 208 (189 ) 180 (9 ) 199
Expenses:
Direct operating expenses 63 101 181 4 (172 ) 177 177
Overhead expenses             54         54                 54  
 
Operating expenses 63 101 181 58 (172 ) 231 231
Goodwill and acquired intangible asset impairment and amortization 5 5 5
Restructuring and other reorganization expenses   1     2               3                 3  
 
Total expenses   64     103     181   58     (172 )   234         5     5     239  
 
Income (loss) from continuing operations, before income tax expense (benefit) 135 220 69 (37 ) 387 77 77 464
Income tax expense (benefit)(3)   49     81     25   (14 )       141         28     28     169  
 
Net income (loss) from continuing operations 86 139 44 (23 ) 246 49 49 295
Loss from discontinued operations, net of tax benefit   (1 )   (3 )             (4 )               (4 )
 
Net income (loss) 85 136 44 (23 ) 242 49 49 291
Less: net loss attributable to noncontrolling interest       (1 )             (1 )               (1 )
 
Net income (loss) attributable to SLM Corporation $ 85   $ 137   $ 44 $ (23 ) $   $ 243   $   $ 49   $ 49   $ 292  
 

(1)
  The eliminations in servicing revenue and direct operating expense 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 June 30, 2012
Net Impact of Net Impact of
Derivative Goodwill and

(Dollars in millions)
Accounting Acquired Intangibles Total
Net interest income after provisions for loan losses $ 91 $ $ 91
Total other loss (9 ) (9 )
Goodwill and acquired intangible asset impairment and amortization       5     5  
 
“Core Earnings” adjustments to GAAP $ 82   $ (5 ) 77
 
Income tax expense   28  
 
Net income $ 49  
 

(3)
  Income taxes are based on a percentage of net income before tax for the individual reportable segment.
 

(4)
Represents the $194 million of “unrealized gains on derivative and hedging activities, net” as well as the ($14) million of “other derivative accounting adjustments.”
 
                   
Six Months Ended June 30, 2013

(Dollars in millions)
ConsumerLending BusinessServices FFELPLoans Other

Elimina-tions(1)
Total“CoreEarnings” Adjustments TotalGAAP

Reclassi-fications
Additions/(Subtractions) TotalAdjustments(2)
Interest income:
Student loans $ 1,249 $ $ 1,181 $ $ $ 2,430 $ 410 $ (152 ) $ 258 $ 2,688
Other loans 6 6 6
Cash and investments   4     3     3       (2 )   8                 8  
 
Total interest income 1,253 3 1,184 6 (2 ) 2,444 410 (152 ) 258 2,702
Total interest expense   410         665   20     (2 )   1,093     31     (1 )(4)   30     1,123  
 
Net interest income (loss) 843 3 519 (14 ) 1,351 379

(151
) 228 1,579
Less: provisions for loan losses   412         30           442                 442  
 
Net interest income (loss) after provisions for loan losses 431 3 489 (14 ) 909 379

(151
) 228 1,137
Other income (loss):
Gains on sales of loans and investments 312 (5 ) 307 307
Servicing revenue 21 405 39 (287 ) 178 178
Contingency revenue 208 208 208
Gains on debt repurchases 48 48 (6 ) (6 ) 42
Other income       14       1         15     (373 )  

403

(5)
  30     45  
 
Total other income (loss) 21 627 351 44 (287 ) 756 (379 ) 403 24 780
Expenses:
Direct operating expenses 143 222 301 7 (287 ) 386 386
Overhead expenses             122         122                 122  
 
Operating expenses 143 222 301 129 (287 ) 508 508
Goodwill and acquired intangible asset impairment and amortization 7 7 7
Restructuring and other reorganization expenses   2     2       31         35                 35  
 
Total expenses   145     224     301   160     (287 )   543         7     7     550  
 
Income (loss) from continuing operations, before income tax expense (benefit) 307 406 539 (130 ) 1,122 245 245 1,367
Income tax expense (benefit)(3)   113     149     198   (48 )       412         100     100     512  
 
Net income (loss) from continuing operations 194 257 341 (82 ) 710 145 145 855
Income (loss) from discontinued operations, net of tax expense (benefit)   (1 )   34               33                 33  
 
Net income (loss) 193 291 341 (82 ) 743 145 145 888
Less: net loss attributable to noncontrolling interest       (1 )             (1 )               (1 )
 
Net income (loss) attributable to SLM Corporation $ 193   $ 292   $ 341 $ (82 ) $   $ 744   $   $ 145   $ 145   $ 889  
 

(1)
  The eliminations in servicing revenue and direct operating expense 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:
 
     
Six Months Ended June 30, 2013
Net Impact of Net Impact of
Derivative Goodwill and

(Dollars in millions)
Accounting Acquired Intangibles Total
Net interest income after provisions for loan losses $ 228 $ $ 228
Total other income 24 24
Goodwill and acquired intangible asset impairment and amortization     7     7
 
“Core Earnings” adjustments to GAAP $ 252 $ (7 ) 245
 
Income tax expense   100
 
Net income $ 145
 

(3)
  Income taxes are based on a percentage of net income before tax for the individual reportable segment.
 

(4)
Represents a portion of the $44 million of “other derivative accounting adjustments.”
 

(5)
Represents the $360 million of “unrealized gains on derivative and hedging activities, net” as well as the remaining portion of the $44 million of “other derivative accounting adjustments.”
 
                   
Six Months Ended June 30, 2012

(Dollars in millions)
ConsumerLending BusinessServices FFELPLoans Other

Elimina-tions(1)
Total“CoreEarnings” Adjustments TotalGAAP

Reclassi-fications
Additions/(Subtractions) TotalAdjustments(2)
Interest income:
Student loans $ 1,241 $ $ 1,378 $ $ $ 2,619 $ 437 $ (196 ) $ 241 $ 2,860
Other loans 9 9 9
Cash and investments   3     4     5       (4 )   8                 8  
 
Total interest income 1,244 4 1,383 9 (4 ) 2,636 437 (196 ) 241 2,877
Total interest expense   406         832   16     (4 )   1,250     70    

2

(4)
  72     1,322  
 
Net interest income (loss) 838 4 551 (7 ) 1,386 367 (198 ) 169 1,555
Less: provisions for loan losses   460         36           496                 496  
 
Net interest income (loss) after provisions for loan losses 378 4 515 (7 ) 890 367 (198 ) 169 1,059
Other income (loss):
Gains on sales of loans and investments
Servicing revenue 23 456 47 (348 ) 178 178
Contingency revenue 176 176 176
Gains on debt repurchases 58 58 58
Other income       16       8         24     (367 )  

15

(5)
  (352 )   (328 )
 
Total other income (loss) 23 648 47 66 (348 ) 436 (367 ) 15 (352 ) 84
Expenses:
Direct operating expenses 131 211 366 6 (348 ) 366 366
Overhead expenses             116         116                 116  
 
Operating expenses 131 211 366 122 (348 ) 482 482
Goodwill and acquired intangible asset impairment and amortization 9 9 9
Restructuring and other reorganization expenses   2     2       3         7                 7  
 
Total expenses   133     213     366   125     (348 )   489         9     9     498  
 
Income (loss) from continuing operations, before income tax expense (benefit) 268 439 196 (66 ) 837 (192 ) (192 ) 645
Income tax expense (benefit)(3)   98     160     72   (25 )       305         (68 )   (68 )   237  
 
Net income (loss) from continuing operations 170 279 124 (41 ) 532 (124 ) (124 ) 408
Loss from discontinued operations, net of tax benefit   (1 )   (5 )             (6 )               (6 )
 
Net income (loss) 169 274 124 (41 ) 526 (124 ) (124 ) 402
Less: loss attributable to noncontrolling interest       (1 )             (1 )               (1 )
 
Net income (loss) $ 169   $ 275   $ 124 $ (41 ) $   $ 527   $   $ (124 ) $ (124 ) $ 403  
 

(1)
  The eliminations in servicing revenue and direct operating expense 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:
 
     
Six Months Ended June 30, 2012
Net Impact of Net Impact of
Derivative Goodwill and

(Dollars in millions)
Accounting Acquired Intangibles Total
Net interest income after provisions for loan losses $ 169 $ $ 169
Total other loss (352 ) (352 )
Goodwill and acquired intangible asset impairment and amortization       9     9  
 
“Core Earnings” adjustments to GAAP $ (183 ) $ (9 ) (192 )
 
Income tax benefit   (68 )
 
Net loss $ (124 )
 

(3)
  Income taxes are based on a percentage of net income before tax for the individual reportable segment.
 

(4)
Represents a portion of the $12 million of “other derivative accounting adjustments.”
 

(5)
Represents the $1 million of “unrealized gains on derivative and hedging activities, net” as well as the remaining portion of the $12 million of “other derivative accounting adjustments.”
 

Differences between “Core Earnings” and GAAP
 
The following discussion summarizes the differences between “Core Earnings” and GAAP net income and details each specific adjustment required to reconcile our “Core Earnings” segment presentation to our GAAP earnings.
 
         
 
Quarters Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,

(Dollars in millions)
2013 2013 2012 2013 2012
“Core Earnings” adjustments to GAAP:
Net impact of derivative accounting $ 143 $ 110 $ 82 $ 252 $ (183 )
Net impact of goodwill and acquired intangible assets (4 ) (4 ) (5 ) (7 ) (9 )
Net income tax effect   (58 )   (43 )   (28 )   (100 )   68  
 
Total “Core Earnings” adjustments to GAAP $ 81   $ 63   $ 49   $ 145   $ (124 )
 
1)  

Derivative Accounting: “Core Earnings” exclude periodic unrealized gains and losses that are caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP as well as the periodic unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. These unrealized gains and losses occur in our Consumer Lending, FFELP Loans and Other business segments. Under GAAP, for our derivatives that are held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0 except for Floor Income Contracts where the cumulative unrealized gain will equal the amount for which we sold the contract. In our “Core Earnings” presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.
 
The table below quantifies the adjustments for derivative accounting between GAAP and “Core Earnings” net income.
 
         
Quarters Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,

(Dollars in millions)
2013 2013 2012 2013 2012
“Core Earnings” derivative adjustments:
Gains (losses) on derivative and hedging activities, net, included in other income $ 18 $ (31 ) $ 6 $ (13 ) $ (366 )
Plus: Realized losses on derivative and hedging activities, net(1)   185     188     188     373     367  
 
Unrealized gains on derivative and hedging activities, net(2) 203 157 194 360 1
Amortization of net premiums on Floor Income Contracts in net interest income for “Core Earnings” (76 ) (76 ) (98 ) (152 ) (196 )
Other derivative accounting adjustments(3)   16     29     (14 )   44     12  
 
Total net impact derivative accounting(4) $ 143   $ 110   $ 82   $ 252   $ (183 )
 

(1)
  See “Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities” below for a detailed breakdown of the components of realized losses on derivative and hedging activities.
 

(2)
“Unrealized gains on derivative and hedging activities, net” comprises the following unrealized mark-to-market gains (losses):
 
         
Quarters Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,

(Dollars in millions)
2013 2013 2012 2013 2012
Floor Income Contracts $ 297 $ 189 $ 50 $ 486 $ 186
Basis swaps (15 ) (4 ) (26 ) (19 ) (48 )
Foreign currency hedges (67 ) (32 ) 172 (99 ) (122 )
Other   (12 )   4     (2 )   (8 )   (15 )
 
Total unrealized gains on derivative and hedging activities, net $ 203   $ 157   $ 194   $ 360   $ 1  
 

(3)
  Other derivative accounting adjustments consist of adjustments related to: (1) foreign currency denominated debt that is adjusted to spot foreign exchange rates for GAAP where such adjustments are reversed for “Core Earnings” and (2) certain terminated derivatives that did not receive hedge accounting treatment under GAAP but were economic hedges under “Core Earnings” and, as a result, such gains or losses are amortized into “Core Earnings” over the life of the hedged item.
 

(4)
Negative amounts are subtracted from “Core Earnings” net income to arrive at GAAP net income and positive amounts are added to “Core Earnings” net income to arrive at GAAP net income.
 

Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities
 

Derivative accounting requires net settlement income/expense on derivatives and realized gains/losses related to derivative dispositions (collectively referred to as “realized gains (losses) on derivative and hedging activities”) that do not qualify as hedges to be recorded in a separate income statement line item below net interest income. Under our “Core Earnings” presentation, these gains and losses are reclassified to the income statement line item of the economically hedged item. For our “Core Earnings” net interest margin, this would primarily include: (a) reclassifying the net settlement amounts related to our Floor Income Contracts to student loan interest income and (b) reclassifying the net settlement amounts related to certain of our basis swaps to debt interest expense. The table below summarizes the realized losses on derivative and hedging activities and the associated reclassification on a “Core Earnings” basis.
 
         
Quarters Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,

(Dollars in millions)
2013 2013 2012 2013 2012
Reclassification of realized gains (losses) on derivative and hedging activities:
Net settlement expense on Floor Income Contracts reclassified to net interest income $ (198 ) $ (212 ) $ (223 ) $ (410 ) $ (437 )
Net settlement income on interest rate swaps reclassified to net interest income 13 18 34 31 70
Foreign exchange derivatives gains reclassified to other income 1
Net realized gains on terminated derivative contracts reclassified to other income       6         6      
 
Total reclassifications of realized losses on derivative and hedging activities   (185 )   (188 )   (188 )   (373 )   (367 )
 

Cumulative Impact of Derivative Accounting under GAAP compared to “Core Earnings”
 
As of June 30, 2013, derivative accounting has reduced GAAP equity by approximately $923 million as a result of cumulative net unrealized losses (after tax) recognized under GAAP, but not in “Core Earnings.” The following table rolls forward the cumulative impact to GAAP equity due to these unrealized after tax net losses related to derivative accounting.
 
         
Quarters Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,

(Dollars in millions)
2013 2013 2012 2013 2012
Beginning impact of derivative accounting on GAAP equity $ (1,027 ) $ (1,080 ) $ (1,149 ) $ (1,080 ) $ (977 )
Net impact of net unrealized gains (losses) under derivative accounting(1)   104     53     51     157     (121 )
 
Ending impact of derivative accounting on GAAP equity $ (923 ) $ (1,027 ) $ (1,098 ) $ (923 ) $ (1,098 )
 

(1)
  Net impact of net unrealized gains (losses) under derivative accounting is composed of the following:
 
         
Quarters Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,

(Dollars in millions)
2013 2013 2012 2013 2012
Total pre-tax net impact of derivative accounting recognized in net income(a) $ 143 $ 110 $ 82 $ 252 $ (183 )
Tax impact of derivative accounting adjustment recognized in net income (54 ) (60 ) (30 ) (113 ) 58
Change in unrealized gains (losses) on derivatives, net of tax recognized in other comprehensive income   15     3     (1 )   18     4  
 
Net impact of net unrealized gains (losses) under derivative accounting $ 104   $ 53   $ 51   $ 157   $ (121 )
 

(a)
  See “‘Core Earnings’ derivative adjustments” table above.
 
Net Floor premiums received on Floor Income Contracts that have not been amortized into “Core Earnings” as of the respective year-ends are presented in the table below. These net premiums will be recognized in “Core Earnings” in future periods and are presented net of tax. As of June 30, 2013, the remaining amortization term of the net floor premiums was approximately 3.0 years for existing contracts. Historically, we have sold Floor Income Contracts on a periodic basis and depending upon market conditions and pricing, we may enter into additional Floor Income Contracts in the future. The balance of unamortized Floor Income Contracts will increase as we sell new contracts and decline due to the amortization of existing contracts.
     
June 30, March 31, June 30,

(Dollars in millions)
2013 2013 2012
Unamortized net Floor premiums (net of tax) $ (452 ) $ (498 ) $ (650 )
 
2)

Goodwill and Acquired Intangible Assets: Our “Core Earnings” exclude goodwill and intangible asset impairment and the amortization of acquired intangible assets. The following table summarizes the goodwill and acquired intangible asset adjustments.
         
Quarters Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,

(Dollars in millions)
2013 2013 2012 2013 2012
“Core Earnings” goodwill and acquired intangible asset adjustments(1) $ (4 ) $ (4 ) $ (5 ) $ (7 ) $ (9 )
 
(1) Negative amounts are subtracted from “Core Earnings” net income to arrive at GAAP net income.
               
Business Segment Earnings Summary — “Core Earnings” Basis
 
Consumer Lending Segment
 

The following table includes “Core Earnings” results for our Consumer Lending segment.
 
% Increase
Quarters Ended % Increase (Decrease) Six Months Ended (Decrease)
June 30, 2013 June 30, 2013 June 30, 2013
June 30, March 31, June 30, vs. vs. June 30, June 30, vs.

(Dollars in millions)
  2013   2013     2012   Mar. 31, 2013 June 30, 2012   2013     2012   June 30, 2012
“Core Earnings” interest income:
Private Education Loans $ 627 $ 623 $ 616 1 % 2 % $ 1,249 $ 1,241 1 %
Cash and investments   1   1     2     (50 )   4     3   33  
 

Total “Core Earnings” interest income
628 624 618 1 2 1,253 1,244 1

Total “Core Earnings” interest expense
  206   203     205   1       410     406   1  
 
Net “Core Earnings” interest income 422 421 413 2 843 838 1
Less: provision for loan losses   187   225     225   (17 ) (17 )   412     460   (10 )
 
Net “Core Earnings” interest income after provision for loan losses 235 196 188 20 25 431 378 14
 
Servicing revenue   10   10     11     (9 )   21     23   (9 )
 
Total other income 10 10 11 (9 ) 21 23 (9 )
 
Direct operating expenses 76 68 63 12 21 143 131 9
Restructuring and other reorganization expenses   2       1   100   100     2     2    
 
Total expenses   78   68     64   15   22     145     133   9  
 
Income from continuing operations, before income tax expense 167 138 135 21 24 307 268 15
Income tax expense   60   50     49   20   22     113     98   15  
 
Net income from continuing operations 107 88 86 22 24 194 170 14
Loss from discontinued operations, net of tax benefit     (1 )   (1 ) (100 ) (100 )   (1 )   (1 )  
 
“Core Earnings” $ 107 $ 87   $ 85   23 % 26 % $ 193   $ 169   14 %
 

Consumer Lending Net Interest Margin
 
The following table shows the Consumer Lending “Core Earnings” net interest margin along with reconciliation to the GAAP-basis Consumer Lending net interest margin before provision for loan losses.
   
Quarters Ended Six Months Ended
June 30,   March 31,   June 30, June 30,   June 30,
2013 2013 2012 2013 2012
“Core Earnings” basis Private Education Loan yield 6.37 % 6.35 % 6.36 % 6.36 % 6.39 %
Discount amortization .22   .23   .24   .22   .24  
“Core Earnings” basis Private Education Loan net yield 6.59 6.58 6.60 6.58 6.63
“Core Earnings” basis Private Education Loan cost of funds (2.04 ) (2.02 ) (2.05 ) (2.02 ) (2.03 )
“Core Earnings” basis Private Education Loan spread 4.55 4.56 4.55 4.56 4.60
“Core Earnings” basis other interest-earning asset spread impact (.43 ) (.41 ) (.41 ) (.43 ) (.40 )
“Core Earnings” basis Consumer Lending net interest margin(1) 4.12 % 4.15 % 4.14 % 4.13 % 4.20 %
                     
 
“Core Earnings” basis Consumer Lending net interest margin(1) 4.12 % 4.15 % 4.14 % 4.13 % 4.20 %
Adjustment for GAAP accounting treatment(2) (.04 ) (.03 ) (.11 ) (.03 ) (.12 )
GAAP-basis Consumer Lending net interest margin(1) 4.08 % 4.12 % 4.03 % 4.10 % 4.08 %
 

(1)
The average balances of our Consumer Lending “Core Earnings” basis interest-earning assets for the respective periods are:
         
Quarters Ended Six Months Ended
June 30,   March 31,   June 30, June 30,   June 30,
2013 2013 2012 2013 2012

(Dollars in millions)
Private Education Loans $ 38,154 $ 38,406 $ 37,543 $ 38,279 $ 37,646
Other interest-earning assets   2,937   2,662   2,544   2,800   2,436
Total Consumer Lending “Core Earnings” basis interest-earning assets $ 41,091 $ 41,068 $ 40,087 $ 41,079 $ 40,082
 

(2)
Represents the reclassification of periodic interest accruals on derivative contracts from net interest income to other income and other derivative accounting adjustments. For further discussion of these adjustments, see section titled “‘Core Earnings’ — Definition and Limitations — Difference between ‘Core Earnings’ and GAAP” above.
   

Private Education Loan Provision for Loan Losses and Charge-Offs
 

The following table summarizes the total Private Education Loan provision for loan losses and charge-offs.
 
Quarters Ended Six Months Ended
June 30,   March 31,   June 30, June 30,   June 30,

(Dollars in millions)
2013 2013 2012 2013 2012
Private Education Loan provision for loan losses $ 187 $ 225 $ 225 $ 412 $ 460
Private Education Loan charge-offs $ 212 $ 232 $ 235 $ 444 $ 459
 
In establishing the allowance for Private Education Loan losses as of June 30, 2013, we considered several factors with respect to our Private Education Loan portfolio. In particular, we continue to see improvement in credit quality and continuing positive delinquency, forbearance and charge-off trends in connection with this portfolio. Improving credit quality is seen in higher FICO scores and cosigner rates as well as a more seasoned portfolio. Total loans delinquent (as a percentage of loans in repayment) have decreased to 7.7 percent from 10.0 percent in the year-ago quarter. Loans greater than 90 days delinquent (as a percentage of loans in repayment) have decreased to 3.6 percent from 4.5 percent in the year-ago quarter. Loans in forbearance (as a percentage of loans in repayment and forbearance) have decreased to 3.5 percent from 4.3 percent in the year-ago quarter. The charge-off rate decreased to 2.7 percent from 3.1 percent in the year-ago quarter.
 
Additionally, Private Education Loans that have defaulted between 2008 and 2012 for which we have previously charged off estimated losses have, to varying degrees, not met our post-default recovery expectations to date and may continue to not do so. Our allowance for loan losses takes into account these potential recovery uncertainties.
 
The Private Education Loan provision for loan losses was $187 million in the second quarter of 2013, down $38 million from the second quarter of 2012, and $412 million for the first six months of 2013, down $48 million from the year-ago period. The decline in both periods was a result of the overall improvement in credit quality and performance trends discussed above, leading to decreases in expected future charge-offs.
 
For a more detailed discussion of our policy for determining the collectability of Private Education Loans and maintaining our allowance for Private Education Loan losses, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Allowance for Loan Losses” in our Annual Report on Form 10-K for the year ended December 31, 2012.
 

Operating Expenses — Consumer Lending Segment
 
Operating expenses for our Consumer Lending segment include costs incurred to originate Private Education Loans and to service and collect on our Private Education Loan portfolio. The increase in operating expenses in the quarter ended June 30, 2013 compared with the year-ago quarter was primarily the result of higher marketing and collection costs as well as continued investments in technology. Operating expenses were 80 basis points and 68 basis points of average Private Education Loans in the quarters ended June 30, 2013 and 2012, respectively, and 75 basis points and 70 basis points of average Private Education Loans in the six months ended June 30, 2013 and 2012, respectively.
       
Business Services Segment
 

The following table includes “Core Earnings” results for our Business Services segment.
 
% Increase
Quarters Ended % Increase (Decrease) Six Months Ended (Decrease)
    June 30, 2013   June 30, 2013   June 30, 2013
June 30, March 31, June 30, vs. vs. June 30, June 30, vs.

(Dollars in millions)
  2013     2013     2012   Mar. 31, 2013 June 30, 2012   2013     2012   June 30, 2012
 
Net interest income $ 1 $ 1 $ 2 -- % (50 )% $ 3 $ 4 (25 )%
 
Servicing revenue:
Intercompany loan servicing 137 149 172 (8 ) (20 ) 287 348 (18 )
Third-party loan servicing 33 27 26 22 27 61 48 27
Guarantor servicing 10 10 11 (9 ) 20 22 (9 )
Other servicing   20     19     18   5   11     37     38   (3 )
Total servicing revenue 200 205 227 (2 ) (12 ) 405 456 (11 )
Contingency revenue 109 99 87 10 25 208 176 18

Other Business Services revenue
  8     7     7   14   14     14     16   (13 )
Total other income 317 311 321 2 (1 ) 627 648 (3 )
 
Direct operating expenses 113 110 101 3 12 222 211 5

Restructuring and other reorganization expenses
  1         2   100   (50 )   2     2    
Total expenses   114     110     103   4   11     224     213   5  
 

Income from continuing operations, before income tax expense
204 202 220 1 (7 ) 406 439 (8 )
Income tax expense   74     76     81   (3 ) (9 )   149     160   (7 )
Net income from continuing operations 130 126 139 3 (6 ) 257 279 (8 )
Income (loss) from discontinued operations, net of tax expense (benefit)   35     (1 )   (3 ) 3,600   1,267     34     (5 ) 780  
“Core Earnings” 165 125 136 32 21 291 274 6
Less: net loss attributable to noncontrolling interest   (1 )       (1 ) (100 )     (1 )   (1 )  
“Core Earnings” attributable to SLM Corporation $ 166   $ 125   $ 137   33 % 21 % $ 292   $ 275   6 %
 
Our Business Services segment includes intercompany loan servicing fees from servicing the FFELP Loans in our FFELP Loans segment. The average balance of this portfolio was $116 billion and $133 billion for the quarters ended June 30, 2013 and 2012, respectively, and $119 billion and $134 billion for the six months ended June 30, 2013 and 2012, respectively. The decline in intercompany loan servicing revenue from the year-ago period is primarily the result of a lower outstanding principal balance in the underlying portfolio.
 

We are servicing approximately 5.2 million accounts under the ED Servicing Contract as of June 30, 2013, compared with 4.8 million and 3.8 million accounts serviced at March 31, 2013 and June 30, 2012, respectively. Third-party loan servicing fees in the quarters ended June 30, 2013 and 2012 included $26 million and $22 million, respectively, of servicing revenue related to the ED Servicing Contract. This increase in ED loan servicing fees for both the quarter and six-month periods were driven by the increase in the number of accounts serviced. The three and six months ended June 30, 2012 included $3.1 million of additional servicing revenue related to the administration and servicing of the SDCL program.
 
Third-party loan servicing income increased $7 million from the year-ago quarter and $13 million for the first six months compared with the prior-year period primarily due to the increase in ED servicing revenue (discussed above) as well as a result of the sale of Residual Interests in FFELP Loan securitization trusts in 2013. (See “FFELP Loans Segment” for further discussion.) When we sold the Residual Interests, we retained the right to service the trusts. As such, servicing income that had previously been recorded as intercompany loan servicing is now recognized as third-party loan servicing income.
 
Our contingency revenue consists of fees we receive for collections of delinquent debt on behalf of third-party clients performed on a contingent basis. Contingency revenue increased $22 million in the current quarter compared with the year-ago quarter and $32 million for the first six months of 2013 compared with the prior-year period as a result of the higher volume of collections.
 
The following table presents the outstanding inventory of contingent collections receivables that our Business Services segment will collect on behalf of others. We expect the inventory of contingent collections receivables to decline over time as a result of the elimination of FFELP.
 
           

(Dollars in millions)
June 30,2013 March 31,2013 June 30,2012
Contingent collections receivables:
Student loans $ 12,230 $ 13,549 $ 10,620
Other   2,377   2,239   1,864
Total $ 14,607 $ 15,788 $ 12,484
 
 
In the second quarter of 2013, we sold our Campus Solutions business and recorded an after-tax gain of $38 million. The results related to this business for all periods presented have been reclassified as discontinued operations and are shown on an after-tax basis.
 
Revenues related to services performed on FFELP Loans accounted for 73 percent and 78 percent, respectively, of total segment revenues for the quarters ended June 30, 2013 and 2012 and 74 percent and 78 percent, respectively, of total segment revenues for the six months ended June 30, 2013 and 2012.
 

Operating Expenses — Business Services Segment
 
Operating expenses for our Business Services segment primarily include costs incurred to service our FFELP Loan portfolio, third-party servicing and collection costs, and other operating costs. The increase in operating expenses in the quarter ended June 30, 2013 compared with the year-ago quarter was primarily the result of an increase in our third-party servicing and collection activities as well as continued investments in technology.
 

FFELP Loans Segment
 
The following table includes “Core Earnings” results for our FFELP Loans segment.
 
                               

Quarters Ended

% Increase (Decrease)

Six Months Ended
% Increase

(Decrease)

(Dollars in millions)

June 30,

2013

March 31,

2013

June 30,

2012

June 30, 2013

vs.

Mar. 31, 2013

June 30, 2013

vs.

June 30, 2012

June 30,

2013

June 30,

2012

June 30, 2013

vs.

June 30, 2012
“Core Earnings” interest income:
FFELP Loans $ 581 $ 599 $ 652 (3 )% (11 )% $ 1,181 $ 1,378 (14 )%
Cash and investments   2   2   3   (33 )   3   5 (40 )
Total “Core Earnings” interest income 583 601 655 (3 ) (11 ) 1,184 1,383 (14 )
Total “Core Earnings” interest expense   325   340   409 (4 ) (21 )   665   832 (20 )
Net “Core Earnings” interest income 258 261 246 (1 ) 5 519 551 (6 )
Less: provision for loan losses   14   16   18 (13 ) (22 )   30   36 (17 )
Net “Core Earnings” interest income after provision for loan losses 244 245 228 7 489 515 (5 )
 

Gains on sales of

loans and investments
257 55 367 100 312 100
Servicing revenue   16   23   22 (30 ) (27 )   39   47 (17 )
Total other income 273 78 22 250 1,141 351 47 (17 )
 
Direct operating expenses 144 157 181 (8 ) (20 ) 301 366 (18 )
Restructuring and other

reorganization

expenses
               
Total expenses   144   157   181 (8 ) (20 )   301   366 (18 )
 

Income before income tax expense
373 166 69 125 441 539 196 175
Income tax expense   136   62   25 119   444     198   72 175  
“Core Earnings” $ 237 $ 104 $ 44 128 % 439 % $ 341 $ 124 175 %
 
 

FFELP Loan Net Interest Margin
 
The following table shows the “Core Earnings” basis FFELP Loan net interest margin along with reconciliation to the GAAP basis FFELP Loan net interest margin.
 
                   
Quarters Ended Six Months Ended
June 30,2013 March 31,2013 June 30,2012 June 30,2013 June 30,2012
“Core Earnings” basis FFELP Loan yield 2.60 % 2.61 % 2.66 % 2.61 % 2.65 %
Hedged Floor Income .27 .25 .29 .26 .29
Unhedged Floor Income .10 .06 .07 .08 .09
Consolidation Loan Rebate Fees (.65 ) (.68 ) (.67 ) (.67 ) (.66 )
Repayment Borrower Benefits (.11 ) (.11 ) (.14 ) (.11 ) (.13 )
Premium amortization (.16 ) (.14 ) (.27 ) (.15 ) (.20 )
 
“Core Earnings” basis FFELP Loan net yield 2.05 1.99 1.94 2.02 2.04
“Core Earnings” basis FFELP Loan cost of funds (1.08 ) (1.06 ) (1.14 ) (1.07 ) (1.16 )
 
“Core Earnings” basis FFELP Loan spread .97 .93 .80 .95 .88
“Core Earnings” basis other interest-earnings asset spread impact (.10 ) (.10 ) (.10 ) (.10 ) (.10 )
 
“Core Earnings” basis FFELP Loan net interest margin(1) .87 % .83 % .70 % .85 % .78 %
 
 
                                         
“Core Earnings” basis FFELP Loan net interest margin(1) .87 % .83 % .70 % .85 % .78 %
Adjustment for GAAP accounting treatment(2) .38   .40   .30   .39   .28  
 
GAAP-basis FFELP Loan net interest margin 1.25 % 1.23 % 1.00 % 1.24 % 1.06 %
 
 

(1) The average balances of our FFELP “Core Earnings” basis interest-earning assets for the respective periods are:
                   
Quarters Ended Six Months Ended
June 30,2013 March 31,2013 June 30,2012 June 30,2013 June 30,2012

(Dollars in millions)
FFELP Loans $ 113,981 $ 121,855 $ 134,893 $ 117,896 $ 136,043
Other interest-earning assets   5,264   5,555   6,291   5,409   6,359
 
Total FFELP “Core Earnings” basis interest-earning assets $ 119,245 $ 127,410 $ 141,184 $ 123,305 $ 142,402
 
 

(2) Represents the reclassification of periodic interest accruals on derivative contracts from net interest income to other income and other derivative accounting adjustments. For further discussion of these adjustments, see section titled “‘Core Earnings’ — Definition and Limitations — Difference between ‘Core Earnings’ and GAAP” above.
 

The increase in the “Core Earnings” basis FFELP Loan net interest margin of 17 basis points for the quarter ended June 30, 2013 compared with the quarter ended June 30, 2012, as well as the 7 basis points increase for the six months ended June 30, 2013 compared to the prior year, was primarily the result of a $50 million acceleration of non-cash premium expense recorded in second quarter 2012 related ED’s consolidation of $5.2 billion of loans under the SDCL initiative that ended June 30, 2012. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Segment Earnings Summary – ‘Core Earnings’ Basis — FFELP Loans Segment” in our Annual Report on Form 10-K for the year ended December 31, 2012.
 

As of June 30, 2013, our FFELP Loan portfolio totaled approximately $108.5 billion, comprised of $41.9 billion of FFELP Stafford and $66.6 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios is 4.9 years and 9.5 years, respectively, assuming a Constant Prepayment Rate (“CPR”) of 4 percent and 3 percent, respectively.
 

FFELP Loan Provision for Loan Losses and Charge-Offs
 

The following table summarizes the FFELP Loan provision for loan losses and charge-offs.
 
       
Quarters Ended Six Months Ended

(Dollars in millions)
June 30,

2013
    March 31,

2013
    June 30,

2012
June 30,

2013
    June 30,

2012
FFELP Loan provision for loan losses $ 14 $ 16 $ 18 $ 30 $ 36
FFELP Loan charge-offs $ 20 $ 22 $ 23 $ 42 $ 46
 
 

Gains on Sales of Loans and Investments
 
The increase in gains on sales of loans and investments from the year-ago quarter was the result of $257 million in gains from the sale of Residual Interests in FFELP Loan securitization trusts.
 
The increase in gains on sales of loans and investments from the first six months of 2012 was the result of $312 million in gains from the sale of Residual Interests in FFELP Loan securitization trusts.
 
We will continue to service the student loans in the trusts that were sold under existing agreements. The sales removed securitization trust assets of $12.5 billion and related liabilities of $12.1 billion from the balance sheet during the six months ended June 30, 2013.
 

Operating Expenses — FFELP Loans
 
Operating expenses for our FFELP Loans segment primarily include the contractual rates we pay to service loans in term asset-backed securitization trusts or a similar rate if a loan is not in a term financing facility (which is presented as an intercompany charge from the Business Services segment who services the loans), the fees we pay for third-party loan servicing and costs incurred to acquire loans. The intercompany revenue charged by the Business Services segment and included in those amounts was $137 million and $172 million for the quarters ended June 30, 2013 and 2012, respectively, and $287 million and $348 million for the six months ended June 30, 2013 and 2012, respectively. These amounts exceed the actual cost of servicing the loans. Operating expenses were 51 basis points and 54 basis points of average FFELP Loans in the quarters ended June 30, 2013 and 2012, respectively, and 51 basis points and 54 basis points of average FFELP Loans in the six months ended June 30, 2013 and 2012, respectively. The decline in operating expenses from the prior-year quarter was primarily the result of the reduction in the average outstanding balance of our FFELP Loan portfolio.
 

Other Segment
 
The following table shows “Core Earnings” results of our Other segment.
 
                       

Quarters Ended

% Increase (Decrease)

Six Months Ended
% Increase

(Decrease)

(Dollars in millions)

June 30,

2013
   

March 31,

2013
   

June 30,

2012

June 30, 2013

vs.

Mar. 31, 2013

June 30, 2013

vs.

June 30, 2012

June 30,

2013

June 30,

2012

June 30, 2013

vs.

June 30, 2012
 
Net interest loss after provision for loan losses $ (6 ) $ (7 ) $ (5 ) (14 )% 20 % $ (14 ) $ (7 ) 100 %
 

Losses on sales of loans and investments
(6 ) 100 100 (5 ) 100
Gains on debt repurchases 19 29 20 (34 ) (5 ) 48 58 (17 )
Other income           6     (100 )   1     8   (88 )
Total income 13 29 26 (55 ) (50 ) 44 66 (33 )
 

Direct operating expenses
3 1 4 200 (25 ) 7 6 17
Overhead expenses:
Corporate overhead 29 35 27 (17 ) 7 64 61 5
Unallocated information technology costs   30     28     27   7   11     58     55   5  
Total overhead expenses   59     63     54   (6 ) 9     122     116   5  
Total operating expenses 62 64 58 (3 ) 7 129 122 6

Restructuring and other reorganization expenses
  21     11       91   100     31     3   933  
Total expenses   83     75     58   11   43     160     125   28  
 

Loss before income tax benefit
(76 ) (53 ) (37 ) 43 105 (130 ) (66 ) 97
Income tax benefit   (28 )   (20 )   (14 ) 40   100     (48 )   (25 ) 92  
“Core Earnings” (loss) $ (48 ) $ (33 ) $ (23 ) 45 % 109 % $ (82 ) $ (41 ) 100 %
 
 

Net Interest Loss after Provision for Loan Losses
 
Net interest loss after provision for loan losses includes net interest income related to our corporate liquidity portfolio as well as net interest income and provision expense related to our mortgage and consumer loan portfolios.
 

Gains on Debt Repurchases
 
We repurchased $70 million and $85 million face amount of our debt for the quarters ended June 30, 2013 and 2012, respectively and $997 million and $290 million face amount of our debt for the six months ended June 30, 2013 and 2012, respectively.
 

Overhead
 

Corporate overhead is comprised of costs related to executive management, the board of directors, accounting, finance, legal, human resources and stock-based compensation expense. Unallocated information technology costs are related to infrastructure and operations. The increase in overhead for the six months ended June 30, 2013 compared with the year-ago period was primarily the result of a non-recurring $10 million pension termination gain in the first six months of 2012, which was partially offset by a decrease in stock compensation in 2013 compared with 2012.
 

Restructuring and Other Reorganization Expenses
 
Restructuring and other reorganization expenses for the quarter ended June 30, 2013 were $21 million compared with $0 in the year-ago quarter. For the quarter ended June 30, 2013, these consisted of $11 million related to severance and $10 million related to the Company’s previously announced plan to separate its existing organization into two publicly-traded companies.
 

For the six months ended June 30, 2013, restructuring and other reorganization expenses were $31 million compared with $3 million in the year-ago period. For the six months ended June 30, 2013, these consisted of $19 million related to severance and $12 million related to the Company’s previously announced plan to separate its existing organization into two publicly-traded companies. The $3 million in the six months ended June 30, 2012 was related to restructuring expenses.
 

Financial Condition
 
This section provides additional information regarding the changes in our loan portfolio assets and related liabilities as well as credit quality and performance indicators related to our Consumer Lending portfolio.
 

Summary of our Student Loan Portfolio
 

Ending Student Loan Balances, net
 
                   
June 30, 2013

(Dollars in millions)
FFELPStafford andOther FFELPConsolidationLoans TotalFFELPLoans PrivateEducationLoans TotalPortfolio
Total student loan portfolio:
In-school(1) $ 1,050 $ $ 1,050 $ 2,132 $ 3,182
Grace, repayment and other(2)   40,271     66,217     106,488     36,551     143,039  
 
Total, gross 41,321 66,217 107,538 38,683 146,221
Unamortized premium/(discount) 641 445 1,086 (752 ) 334
Receivable for partially charged-off loans 1,334 1,334
Allowance for loan losses   (88 )   (45 )   (133 )   (2,149 )   (2,282 )
 
Total student loan portfolio $ 41,874   $ 66,617   $ 108,491   $ 37,116   $ 145,607  
 
% of total FFELP 39 % 61 % 100 %
% of total 29 % 46 % 75 % 25 % 100 %
 
 
March 31, 2013

(Dollars in millions)
FFELPStafford andOther FFELPConsolidationLoans TotalFFELPLoans PrivateEducationLoans TotalPortfolio
Total student loan portfolio:
In-school(1) $ 1,350 $ $ 1,350 $ 2,546 $ 3,896
Grace, repayment and other(2)   41,080     75,628     116,708     36,522     153,230  
 
Total, gross 42,430 75,628 118,058 39,068 157,126
Unamortized premium/(discount) 667 617 1,284 (772 ) 512
Receivable for partially charged-off loans 1,339 1,339
Allowance for loan losses   (92 )   (55 )   (147 )   (2,170 )   (2,317 )
 
Total student loan portfolio $ 43,005   $ 76,190   $ 119,195   $ 37,465   $ 156,660  
 
% of total FFELP 36 % 64 % 100 %
% of total 27 % 49 % 76 % 24 % 100 %
 
 
June 30, 2012

(Dollars in millions)
FFELPStafford andOther FFELPConsolidationLoans TotalFFELPLoans PrivateEducationLoans TotalPortfolio
Total student loan portfolio:
In-school(1)

$
2,152 $ $ 2,152 $ 1,848 $ 4,000
Grace, repayment and other(2)   45,348     84,012     129,360     36,349     165,709  
 
Total, gross 47,500 84,012 131,512 38,197 169,709
Unamortized premium/(discount) 720 774 1,494 (834 ) 660
Receivable for partially charged-off loans 1,277 1,277
Allowance for loan losses   (107 )   (66 )   (173 )   (2,186 )   (2,359 )
 
Total student loan portfolio $ 48,113   $ 84,720   $ 132,833   $ 36,454   $ 169,287  
 
% of total FFELP 36 % 64 % 100 %
% of total 28 % 50 % 78 % 22 % 100 %
 
 

(1) Loans for customers still attending school and are not yet required to make payments on the loan.
 

(2) Includes loans in deferment or forbearance.
 
         

Average Student Loan Balances (net of unamortized premium/discount)
 
 
Quarter Ended June 30, 2013
FFELP FFELP Total Private
Stafford and Consolidation FFELP Education Total

(Dollars in millions)
Other Loans Loans Loans Portfolio
Total $ 42,516 $ 71,465 $ 113,981 $ 38,154 $ 152,135
% of FFELP 37 % 63 % 100 %
% of total 28 % 47 % 75 % 25 % 100 %
 
Quarter Ended March 31, 2013
FFELP FFELP Total Private
Stafford and Consolidation FFELP Education Total

(Dollars in millions)
Other Loans Loans Loans Portfolio
Total $ 43,721 $ 78,134 $ 121,855 $ 38,406 $ 160,261
% of FFELP 36 % 64 % 100 %
% of total 27 % 49 % 76 % 24 % 100 %
 
Quarter Ended June 30, 2012
FFELP FFELP Total Private
Stafford and Consolidation FFELP Education Total

(Dollars in millions)
Other Loans Loans Loans Portfolio
Total $ 49,159 $ 85,734 $ 134,893 $ 37,543 $ 172,436
% of FFELP 36 % 64 % 100 %
% of total 28 % 50 % 78 % 22 % 100 %
 
 
Six Months Ended June 30, 2013
FFELP FFELP Total Private
Stafford and Consolidation FFELP Education Total

(Dollars in millions)
Other Loans Loans Loans Portfolio
Total $ 43,115 $ 74,781 $ 117,896 $ 38,279 $ 156,175
% of FFELP 37 % 63 % 100 %
% of total 27 % 48 % 75 % 25 % 100 %
 
Six Months Ended June 30, 2012
FFELP FFELP Total Private
Stafford and Consolidation FFELP Education Total

(Dollars in millions)
Other Loans Loans Loans Portfolio
Total $ 49,654 $ 86,389 $ 136,043 $ 37,646 $ 173,689
% of FFELP 36 % 64 % 100 %
% of total 28 % 50 % 78 % 22 % 100 %
         

Student Loan Activity
 
Quarter Ended June 30, 2013
FFELP FFELP Total Total Private
Stafford and Consolidation FFELP Education Total

(Dollars in millions)
Other Loans Loans Loans Portfolio
Beginning balance $ 43,005 $ 76,190 $ 119,195 $ 37,465 $ 156,660
Acquisitions and originations 57 74 131 390 521

Capitalized interest and premium/discount amortization
285 272 557 210 767
Consolidations to third parties (378 ) (235 ) (613 ) (25 ) (638 )
Sales(1) (30 ) (8,398 ) (8,428 ) (8,428 )
Repayments and other   (1,065 )   (1,286 )   (2,351 )   (924 )   (3,275 )
 
Ending balance $ 41,874   $ 66,617   $ 108,491   $ 37,116   $ 145,607  
         
Quarter Ended March 31, 2013
FFELP FFELP Total Total Private
Stafford and Consolidation FFELP Education Total

(Dollars in millions)
Other Loans Loans Loans Portfolio
Beginning balance $ 44,289 $ 81,323 $ 125,612 $ 36,934 $ 162,546
Acquisitions and originations 101 53 154 1,405 1,559

Capitalized interest and premium/discount amortization
295 313 608 200 808
Consolidations to third parties (445 ) (275 ) (720 ) (24 ) (744 )
Sales(2) (72 ) (3,749 ) (3,821 ) (3,821 )
Repayments and other   (1,163 )   (1,475 )   (2,638 )   (1,050 )   (3,688 )
 
Ending balance $ 43,005   $ 76,190   $ 119,195   $ 37,465   $ 156,660  
         
Quarter Ended June 30, 2012
FFELP FFELP Total Total Private
Stafford and Consolidation FFELP Education Total

(Dollars in millions)
Other Loans Loans Loans Portfolio
Beginning balance $ 49,508 $ 86,426 $ 135,934 $ 36,732 $ 172,666
Acquisitions and originations 1,331 495 1,826 341 2,167

Capitalized interest and premium/discount amortization
310 349 659 263 922
Consolidations to third parties (1,711 ) (1,035 ) (2,746 ) (19 ) (2,765 )
Sales (149 ) (149 ) (149 )
Repayments and other   (1,176 )   (1,515 )   (2,691 )   (863 )   (3,554 )
 
Ending balance $ 48,113   $ 84,720   $ 132,833   $ 36,454   $ 169,287  
 

(1)
Includes $8.3 billion of student loans in connection with the sale of a Residual Interest in a FFELP Loan securitization trust.

(2)
Includes $3.7 billion of student loans in connection with the sale of Residual Interests in FFELP Loan securitization trusts.
         
Six Months Ended June 30, 2013
FFELP FFELP Total Total Private
Stafford and Consolidation FFELP Education Total

(Dollars in millions)
Other Loans Loans Loans Portfolio
Beginning balance $ 44,289 $ 81,323 $ 125,612 $ 36,934 $ 162,546
Acquisitions and originations 158 127 285 1,795 2,080

Capitalized interest and premium/discount amortization
580 585 1,165 410 1,575
Consolidations to third parties (823 ) (510 ) (1,333 ) (49 ) (1,382 )
Sales(1) (102 ) (12,147 ) (12,249 ) (12,249 )
Repayments and other   (2,228 )   (2,761 )   (4,989 )   (1,974 )   (6,963 )
 
Ending balance $ 41,874   $ 66,617   $ 108,491   $ 37,116   $ 145,607  
         
Six Months Ended June 30, 2012
FFELP FFELP Total Total Private
Stafford and Consolidation FFELP Education Total

(Dollars in millions)

Other
Loans Loans Loans Portfolio
Beginning balance $ 50,440 $ 87,690 $ 138,130 $ 36,290 $ 174,420
Acquisitions and originations 2,150 573 2,723 1,492 4,215

Capitalized interest and premium/discount amortization
645 747 1,392 508 1,900
Consolidations to third parties (2,430 ) (1,260 ) (3,690 ) (42 ) (3,732 )
Sales (284 ) (284 ) (284 )
Repayments and other   (2,408 )   (3,030 )   (5,438 )   (1,794 )   (7,232 )
 
Ending balance $ 48,113   $ 84,720   $ 132,833   $ 36,454   $ 169,287  
 

(1)
Includes $12.0 billion of student loans in connection with the sales of Residual Interests in FFELP Loan securitization trusts.
         

Private Education Loan Originations
 

The following table summarizes our Private Education Loan originations.
 
Quarters Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,

(Dollars in millions)
2013 2013 2012 2013 2012
Smart Option — interest only(1) $ 85 $ 365 $ 100 $ 450 $ 458
Smart Option — fixed pay(1) 106 439 71 545 417
Smart Option — deferred(1) 145 590 122 735 553
Other   32   17   28   49   54
 
Total Private Education Loan originations $ 368 $ 1,411 $ 321 $ 1,779 $ 1,482
 
(1) Interest only, fixed pay and deferred describe the payment option while in school or in grace period.
           

Consumer Lending Portfolio Performance
 

Private Education Loan Delinquencies and Forbearance
 
June 30, March 31, June 30,
2013 2013 2012

(Dollars in millions)
Balance % Balance % Balance %
Loans in-school/grace/deferment(1) $ 5,896 $ 6,434 $ 6,098
Loans in forbearance(2) 1,160 1,101 1,368
Loans in repayment and percentage of each status:
Loans current 29,196 92.3 % 29,069 92.2 % 27,650 90.0 %
Loans delinquent 31-60 days(3) 792 2.5 731 2.3 1,058 3.4
Loans delinquent 61-90 days(3) 495 1.6 491 1.6 643 2.1
Loans delinquent greater than 90 days(3)   1,144   3.6     1,242   3.9     1,380   4.5  
 
Total Private Education Loans in repayment   31,627   100 %   31,533   100 %   30,731   100 %
 
Total Private Education Loans, gross 38,683 39,068 38,197
Private Education Loan unamortized discount   (752 )   (772 )   (834 )
 
Total Private Education Loans 37,931 38,296 37,363
Private Education Loan receivable for partially charged-off loans 1,334 1,339 1,277
Private Education Loan allowance for losses   (2,149 )   (2,170 )   (2,186 )
 
Private Education Loans, net $ 37,116   $ 37,465   $ 36,454  
 
Percentage of Private Education Loans in repayment 81.8 % 80.7 % 80.5 %
 
Delinquencies as a percentage of Private Education Loans in repayment 7.7 % 7.8 % 10.0 %
 
Loans in forbearance as a percentage of loans in repayment and forbearance 3.5 % 3.4 % 4.3 %
 
Loans in repayment greater than 12 months as a percentage of loans in repayment(4) 79.3 % 79.1 % 74.3 %
 
(1) Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation.
(2) Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.
(3) The period of delinquency is based on the number of days sch