Loan Purchases Up 45 Percent
Internal Lending Brand Originations Increase 35 Percent
Direct-to-Consumer Private Education Loans Increase 64 Percent
RESTON, Va., April 24 /PRNewswire-FirstCall/ -- SLM Corporation (NYSE:
SLM), commonly known as Sallie Mae, today reported first-quarter 2007
earnings and performance results that include an 18-percent increase in the
managed student loan portfolio to $150 billion from the year-ago quarter's
$127 billion. Also during the quarter, the company originated $4.8 billion
through its internal lending brands, a 35-percent increase over the
year-ago period.
(Logo: http://www.newscom.com/cgi-bin/prnh/20030617/SLMLOGO-a )
"Our recent acquisition announcement reaffirms and strengthens our
commitment to invest in the next generation of America's students," said
Tim Fitzpatrick, chief executive officer. "We remain focused on doing what
we do best: providing access to education savings and low-cost financing
together with the best information resources to help students pay for
college."
The company purchased $11.6 billion in education loans during the
first- quarter 2007, a 45-percent increase from the year-ago period. Also
during the 2007 first quarter, the company originated $8.0 billion in
preferred-channel loans. Approximately 60 percent of all preferred-channel
loans originated in the first quarter 2007 were originated by the company's
internal lending brands, compared to 47 percent in the year ago period.
Preferred-channel loan originations include loans originated by the
company's internal lending brands and external lending partners.
Private education loan originations, a segment of preferred-channel
originations, were $2.4 billion, and included more than $241 million of
direct-to-consumer loans, a 64-percent increase from $147 million of
private education loans originated through this channel in the year-ago
quarter.
Sallie Mae reports financial results on a GAAP basis and also presents
certain non-GAAP or "core earnings" performance measures. The company's
management, equity investors, credit rating agencies and debt capital
providers use these "core earnings" measures to monitor the company's
business performance.
Sallie Mae reported first-quarter 2007 GAAP net income of $116 million,
or $.26 per diluted share, compared to $152 million, or $.34 per diluted
share, in the year-ago period. Included in these GAAP results are pre-tax
losses on derivative and hedging activities of $(357) million, compared to
$(87) million in the year-ago quarter, servicing and securitization revenue
of $252 million, compared to $99 million in the year-ago period, and a
provision for losses of $150 million, compared to $60 million in the
year-ago period.
"Core earnings" net income for the quarter was $251 million, or $.57
per diluted share, compared to $287 million, or $.65 per diluted share in
the year-ago quarter. These results include a provision for losses of $199
million in the first-quarter 2007, compared to $75 million in the first-
quarter 2006. Annualized net charge-offs as a percentage of average private
education loans in repayment were 3.4 percent in the first quarter of 2007,
compared to 1.3 percent in the year-ago period.
"Core earnings" net interest income was $644 million for the quarter,
up from the year-ago quarter's $596 million. "Core earnings" other income,
which consists primarily of fees earned from guarantor servicing and
collection activity, was $288 million for the 2007 first quarter, a
17-percent increase from $246 million in the year-ago quarter. "Core
earnings" operating expenses were $332 million in the first-quarter 2007,
compared to $309 million in the same quarter last year.
Both a description of the "core earnings" treatment and a full
reconciliation to the GAAP income statement can be found at:
http://www2.salliemae.com/investors/stockholderinfo/earningsinfo, click on
the First Quarter 2007 Supplemental Earnings Disclosure.
Total equity for the company at March 31, 2007, was $4.4 billion, up
from $3.8 billion a year ago. The company's tangible capital at March 31,
2007, was 1.75 percent of managed assets, compared to 1.86 percent at the
same time last year. The "core earnings" student loan spread was 1.82
percent in the first-quarter 2007.
Forward Looking Statements:
This press release contains "forward-looking statements" that are based
on management's current expectations as of the date of this document. When
used in this release, the words "should" "expect" and similar expressions
are intended to identify forward-looking statements. These statements are
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject
to risks, uncertainties, assumptions and other factors that may cause the
actual results to be materially different from those reflected in such
forward-looking statements. Such risks include, among others, changes in
the terms of student loans and the educational credit marketplace arising
from the implementation of applicable laws and regulations, and from
changes in such laws and regulations, changes in the demand for educational
financing or in financing preferences of educational institutions, students
and their families, contractual risks including termination of credit
facilities in accordance with their terms, changes in the company's
portfolio mix, changes in investor's demand for the company's or
affiliate's securities, changes in prepayment rates and credit spreads,
changes in the asset backed or securities markets in general, changes in
debt securities ratings, and changes in the general interest rate
environment. For more information, see the company's filings with the
Securities and Exchange Commission.
IMPORTANT ADDITIONAL INFORMATION REGARDING THE MERGER WILL BE FILED
WITH THE SEC:
In connection with the proposed merger, the Company will file a proxy
statement with the Securities and Exchange Commission (the "SEC").
INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT WHEN
IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT
THE MERGER AND THE PARTIES TO THE MERGER. Investors and security holders
may obtain a free copy of the proxy statement (when available) and other
relevant documents filed with the SEC from the SEC's website at
http://www.sec.gov. The Company's security holders and other interested
parties will also be able to obtain, without charge, a copy of the proxy
statement and other relevant documents (when available) by directing a
request by mail or telephone to Investor Relations, SLM Corporation, 12061
Bluemont Way, Reston, Va. 20190, telephone (703) 984-6746, or from the
Company's Web site, http://www.salliemae.com.
The Company and its directors, executive officers and other members of
its management and employees may be deemed to be participants in the
solicitation of proxies from the Company's shareholders with respect to the
Merger. Information about the Company's directors and executive officers
and their ownership of the Company's common stock is set forth in the proxy
statement for the Company's 2007 Annual Meeting of Shareholders, which was
filed with the SEC on April 9, 2007. Shareholders and investors may obtain
additional information regarding the interests of the Company and its
directors and executive officers in the Merger, which may be different than
those of the Company's shareholders generally, by reading the proxy
statement and other relevant documents regarding the Merger, which will be
filed with the SEC.
SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, is the
nation's leading provider of saving- and paying-for-college programs. The
company manages $150 billion in education loans and serves nearly 10
million student and parent customers. Through its Upromise affiliates, the
company also manages $17 billion in 529 college-savings plans, and over 7.5
million members have joined Upromise to help save for college with rewards
on purchases at nearly 70,000 places. Sallie Mae and its subsidiaries offer
debt management services as well as business and technical products to a
range of business clients, including higher education institutions, student
loan guarantors and state and federal agencies. More information is
available at http://www.salliemae.com. SLM Corporation and its subsidiaries are
not sponsored by or agencies of the United States of America.
SLM CORPORATION
Supplemental Earnings Disclosure
March 31, 2007
(Dollars in millions, except earnings per share)
Quarters ended
-----------------------------------
March 31, December 31, March 31,
2007 2006 2006
---------- ----------- ----------
(unaudited) (unaudited) (unaudited)
SELECTED FINANCIAL INFORMATION
AND RATIOS
GAAP Basis
Net income $116 $18 $152
Diluted earnings per common share(1) $.26 $.02 $.34
Return on assets .43% .07% .68%
"Core Earnings" Basis(2)
"Core Earnings" net income $251 $326 $287
"Core Earnings" diluted earnings
per common share(1) $.57 $.74 $.65
"Core Earnings" return on assets .64% .84% .85%
OTHER OPERATING STATISTICS
Average on-balance sheet student
loans $101,499 $91,522 $82,850
Average off-balance sheet student
loans 44,663 47,252 42,069
---------- ----------- -----------
Average Managed student loans $146,162 $138,774 $124,919
========== =========== ===========
Ending on-balance sheet student
loans, net $104,581 $95,920 $81,645
Ending off-balance sheet student
loans, net 45,380 46,172 45,225
---------- ----------- -----------
Ending Managed student
loans, net $149,961 $142,092 $126,870
========== =========== ===========
Ending Managed FFELP Stafford
and Other Student Loans, net $41,832 $39,869 $42,340
Ending Managed FFELP Consolidation
Loans, net 83,928 79,635 66,662
Ending Managed Private Education
Loans, net 24,201 22,588 17,868
---------- ----------- -----------
Ending Managed student loans, net $149,961 $142,092 $126,870
========== =========== ===========
(1) In December 2004, the Company adopted the Emerging Issues Task Force
("EITF") Issue No. 04-8, "The Effect of Contingently Convertible Debt
on Diluted Earnings per Share," as it relates to the Company's
$2 billion in contingently convertible debt instruments ("Co-Cos")
issued in May 2003. EITF No. 04-8 requires the shares underlying
Co-Cos to be included in diluted earnings per common share
computations regardless of whether the market price trigger or the
conversion price has been met, using the "if-converted" method. The
impact of Co-Cos to diluted earnings per common share is as follows:
Quarters ended
-----------------------------------
March 31, December 31, March 31,
2007 2006 2006
---------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Impact of Co-Cos on GAAP diluted
earnings per common share(A) $- $- $-
Impact of Co-Cos on "Core Earnings"
diluted earnings per common share $- $(.01) $(.01)
(A) There is no impact on diluted earnings per common share because
the effect of the assumed conversion is antidilutive.
(2) See explanation of "Core Earnings" performance measures under
"Reconciliation of 'Core Earnings' Net Income to GAAP Net Income."
SLM CORPORATION
Consolidated Balance Sheets
(In thousands, except per share amounts)
March 31, December 31, March 31,
2007 2006 2006
------------ ------------ -----------
(unaudited) (unaudited)
Assets
FFELP Stafford and Other
Student Loans (net of
allowance for losses of
$10,192; $8,701; and
$5,547, respectively) $28,561,670 $24,840,464 $18,882,890
FFELP Consolidation Loans
(net of allowance for
losses of $12,087;
$11,614; and $9,983
respectively) 66,170,098 61,324,008 53,450,647
Private Education Loans (net
of allowance for losses of
$369,072; $308,346; and
$232,147, respectively) 9,849,481 9,755,289 9,311,164
Other loans (net of allowance
for losses of $19,803;
$20,394; and $15,081,
respectively) 1,350,416 1,308,832 1,114,200
Cash and investments 6,116,168 5,184,673 4,349,669
Restricted cash and investments 3,719,020 3,423,326 3,065,148
Retained Interest in off-balance
sheet securitized loans 3,643,322 3,341,591 2,487,117
Goodwill and acquired
intangible assets, net 1,364,016 1,371,606 1,091,301
Other assets 6,102,275 5,585,943 4,013,450
------------ ------------ -----------
Total assets $126,876,466 $116,135,732 $97,765,586
============ ============ ===========
Liabilities
Short-term borrowings $4,428,980 $3,528,263 $3,362,548
Long-term borrowings 114,070,797 104,558,531 87,083,110
Other liabilities 3,990,878 3,679,781 3,555,318
------------ ------------ -----------
Total liabilities 122,490,655 111,766,575 94,000,976
============ ============ ===========
Commitments and contingencies
Minority interest in
subsidiaries 9,029 9,115 9,682
Stockholders' equity
Preferred stock, par value
$.20 per share, 20,000 shares
authorized; Series A: 3,300;
3,300; and 3,300 shares,
respectively, issued at stated
value of $50 per share;
Series B: 4,000; 4,000; and
4,000 shares, respectively,
issued at stated value of
$100 per share 565,000 565,000 565,000
Common stock, par value $.20 per
share, 1,125,000 shares
authorized: 434,587; 433,113;
and 429,329 shares,
respectively, issued 86,918 86,623 85,866
Additional paid-in capital 2,638,334 2,565,211 2,364,252
Accumulated other comprehensive
income, net of tax 300,884 349,111 328,496
Retained earnings 1,833,359 1,834,718 1,163,570
------------ ------------ -----------
Stockholders' equity before
treasury stock 5,424,495 5,400,663 4,507,184
Common stock held in
treasury: 22,650; 22,496;
and 16,599 shares,
respectively 1,047,713 1,040,621 752,256
------------ ------------ -----------
Total stockholders' equity 4,376,782 4,360,042 3,754,928
------------ ------------ -----------
Total liabilities and
stockholders' equity $126,876,466 $116,135,732 $97,765,586
============ ============ ===========
SLM CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)
Quarters ended
-------------------------------------
March 31, December 31, March 31,
2007 2006 2006
------------ ------------- ----------
(unaudited) (unaudited) (unaudited)
Interest income:
FFELP Stafford and Other
Student Loans $450,762 $408,727 $298,500
FFELP Consolidation Loans 1,014,846 966,840 821,335
Private Education Loans 338,421 291,425 241,353
Other loans 27,973 26,556 23,307
Cash and investments 113,904 141,155 95,810
------------ ------------- ----------
Total interest income 1,945,906 1,834,703 1,480,305
Total interest expense 1,532,090 1,462,733 1,092,784
------------ ------------- ----------
Net interest income 413,816 371,970 387,521
Less: provisions for losses 150,330 92,005 60,319
------------ ------------- ----------
Net interest income after
provisions for losses 263,486 279,965 327,202
------------ ------------- ----------
Other income:
Gains on student loan
securitizations 367,300 - 30,023
Servicing and securitization
revenue 251,938 184,686 98,931
Losses on securities, net (30,967) (24,458) (2,948)
Gains (losses) on derivative and
hedging activities, net (356,969) (244,521) (86,739)
Guarantor servicing fees 39,241 33,089 26,907
Debt management fees 87,322 92,501 91,612
Collections revenue 65,562 57,878 56,681
Other 96,433 103,927 71,376
------------ ------------- ----------
Total other income 519,860 203,102 285,843
Operating expenses 356,174 352,747 323,309
------------ ------------- ----------
Income before income taxes and
minority interest in net
earnings of subsidiaries 427,172 130,320 289,736
Income taxes 310,014 111,752 137,045
------------ ------------- ----------
Income before minority interest in
net earnings of subsidiaries 117,158 18,568 152,691
Minority interest in net earnings
of subsidiaries 1,005 463 1,090
------------ ------------- ----------
Net income 116,153 18,105 151,601
Preferred stock dividends 9,093 9,258 8,301
------------ ------------- ----------
Net income attributable to common
stock $107,060 $8,847 $143,300
============ ============= ==========
Basic earnings per common share $.26 $.02 $.35
============ ============= ==========
Average common shares outstanding 411,040 409,597 412,675
============ ============= ==========
Diluted earnings per common share $.26 $.02 $.34
============ ============= ==========
Average common and common equivalent
shares outstanding 418,449 418,357 422,974
============ ============= ==========
Dividends per common share $.25 $.25 $.22
============ ============= ==========
SLM CORPORATION
Segment and "Core Earnings"
Consolidated Statements of Income
(In thousands)
Quarter ended March 31, 2007
----------------------------------------------------------
Corporate Total
and "Core Total
Lending DMO Other Earnings" Adjustments GAAP
--------- ------- ------- -------- ---------- --------
(unaudited)
Interest income:
FFELP Stafford
and Other
Student Loans $695,353 $ - $ - $695,353 $(244,591) $450,762
FFELP
Consolidation
Loans 1,331,235 - - 1,331,235 (316,389) 1,014,846
Private
Education
Loans 657,584 - - 657,584 (319,163) 338,421
Other loans 27,973 - - 27,973 - 27,973
Cash and
investments 161,677 - 2,135 163,812 (49,908) 113,904
--------- ------- ------- -------- ---------- --------
Total interest
income 2,873,822 - 2,135 2,875,957 (930,051) 1,945,906
Total interest
expense 2,220,136 6,687 5,568 2,232,391 (700,301) 1,532,090
--------- ------- ------- -------- ---------- --------
Net interest
income 653,686 (6,687) (3,433) 643,566 (229,750) 413,816
Less: provisions
for losses 197,930 - 606 198,536 (48,206) 150,330
--------- ------- ------- -------- ---------- --------
Net interest
income after
provisions for
losses 455,756 (6,687) (4,039) 445,030 (181,544) 263,486
Fee income - 87,326 39,241 126,567 (4) 126,563
Collections revenue - 65,322 - 65,322 240 65,562
Other income 44,418 - 51,317 95,735 232,000 327,735
--------- ------- ------- -------- ---------- --------
Total other income 44,418 152,648 90,558 287,624 232,236 519,860
Operating
expenses(1) 171,563 93,248 67,505 332,316 23,858 356,174
--------- ------- ------- -------- ---------- --------
Income before
income taxes
and minority
interest in
net earnings of
subsidiaries 328,611 52,713 19,014 400,338 26,834 427,172
Income tax
expense(2) 121,586 19,504 7,035 148,125 161,889 310,014
Minority interest
in net earnings
of subsidiaries - 1,005 - 1,005 - 1,005
--------- ------- ------- -------- ---------- --------
Net income $207,025 $32,204 $11,979 $251,208 $(135,055) $116,153
========= ======= ======= ======== ========== ========
(1) Operating expenses for the Lending, DMO, and Corporate and Other
business segments include $9 million, $3 million, and $4 million,
respectively, of stock option compensation expense.
(2) Income taxes are based on a percentage of net income before tax for
the individual reportable segment.
Quarter ended December 31, 2006
---------------------------------------------------------
Corporate Total
and "Core Total
Lending DMO Other Earnings" Adjustments GAAP
--------- ------- ------- -------- ---------- --------
(unaudited)
Interest income:
FFELP Stafford
and Other
Student Loans $700,961 $ - $ - $700,961 $(292,234) $408,727
FFELP
Consolidation
Loans 1,305,744 - - 1,305,744 (338,904) 966,840
Private
Education
Loans 620,092 - - 620,092 (328,667) 291,425
Other loans 26,556 - - 26,556 - 26,556
Cash and
investments 197,161 - 2,225 199,386 (58,231) 141,155
--------- ------- ------- -------- ---------- --------
Total interest
income 2,850,514 - 2,225 2,852,739 (1,018,036) 1,834,703
Total interest
expense 2,189,781 6,440 5,630 2,201,851 (739,118) 1,462,733
--------- ------- ------- -------- ---------- --------
Net interest
income 660,733 (6,440) (3,405) 650,888 (278,918) 371,970
Less: provisions
for losses 87,895 - 298 88,193 3,812 92,005
--------- ------- ------- -------- ---------- --------
Net interest
income after
provisions for
losses 572,838 (6,440) (3,703) 562,695 (282,730) 279,965
Fee income - 92,501 33,089 125,590 - 125,590
Collections
revenue - 57,473 - 57,473 405 57,878
Other income 40,034 - 59,690 99,724 (80,090) 19,634
--------- ------- ------- -------- ---------- --------
Total other income 40,034 149,974 92,779 282,787 (79,685) 203,102
Operating
expenses(1) 164,289 91,833 71,567 327,689 25,058 352,747
--------- ------- ------- -------- ---------- --------
Income before
income taxes
and minority
interest in
net earnings of
subsidiaries 448,583 51,701 17,509 517,793 (387,473) 130,320
Income tax
expense(2) 165,976 19,178 6,429 191,583 (79,831) 111,752
Minority interest
in net earnings
of subsidiaries - 463 - 463 - 463
--------- ------- ------- -------- ---------- --------
Net income $282,607 $32,060 $11,080 $325,747 $(307,642) $18,105
========= ======= ======= ======== ========== ========
(1) Operating expenses for the Lending, DMO, and Corporate and Other
business segments include $8 million, $3 million, and $3 million,
respectively, of stock option compensation expense.
(2) Income taxes are based on a percentage of net income before tax for
the individual reportable segment.
Quarter ended March 31, 2006
---------------------------------------------------------
Corporate Total
and "Core Total
Lending DMO Other Earnings" Adjustments GAAP
--------- ------- ------- -------- ---------- --------
(unaudited)
Interest income:
FFELP Stafford
and Other
Student Loans $649,751 $ - $ - $649,751 $(351,251) $298,500
FFELP
Consolidation
Loans 1,027,962 - - 1,027,962 (206,627) 821,335
Private
Education
Loans 428,760 - - 428,760 (187,407) 241,353
Other loans 23,307 - - 23,307 - 23,307
Cash and
investments 130,461 - 1,323 131,784 (35,974) 95,810
--------- ------- ------- -------- ---------- --------
Total interest
income 2,260,241 - 1,323 2,261,564 (781,259) 1,480,305
Total interest
expense 1,659,372 5,156 1,278 1,665,806 (573,022) 1,092,784
--------- ------- ------- -------- ---------- --------
Net interest
income 600,869 (5,156) 45 595,758 (208,237) 387,521
Less: provisions
for losses 74,820 - 19 74,839 (14,520) 60,319
--------- ------- ------- -------- ---------- --------
Net interest
income after
provisions for
losses 526,049 (5,156) 26 520,919 (193,717) 327,202
Fee income - 91,612 26,907 118,519 - 118,519
Collections
revenue - 56,540 - 56,540 141 56,681
Other income 40,572 - 30,009 70,581 40,062 110,643
--------- ------- ------- -------- ---------- --------
Total other
income 40,572 148,152 56,916 245,640 40,203 285,843
Operating
expenses(1) 161,438 89,513 58,512 309,463 13,846 323,309
--------- ------- ------- -------- ---------- --------
Income before
income taxes
and minority
interest in
net earnings of
subsidiaries 405,183 53,483 (1,570) 457,096 (167,360) 289,736
Income tax
expense(2) 149,917 19,789 (581) 169,125 (32,080) 137,045
Minority interest
in net earnings
of subsidiaries - 1,090 - 1,090 - 1,090
--------- ------- ------- -------- ---------- --------
Net income $255,266 $32,604 $(989) $286,881 $(135,280) $151,601
========= ======= ======= ======== ========== ========
(1) Operating expenses for the Lending, DMO, and Corporate and Other
business segments include $10 million, $3 million, and $5 million,
respectively, of stock option compensation expense.
(2) Income taxes are based on a percentage of net income before tax for
the individual reportable segment.
SLM CORPORATION
Reconciliation of "Core Earnings" Net Income to GAAP Net Income
(In thousands, except per share amounts)
Quarters ended
------------------------------------
March 31, December 31, March 31,
2007 2006 2006
----------- ----------- ------------
(unaudited) (unaudited) (unaudited)
"Core Earnings" net income(A) $251,208 $325,747 $286,881
"Core Earnings" adjustments:
Net impact of securitization
accounting 421,485 (67,984) (62,061)
Net impact of derivative
accounting (331,724) (242,614) (38,817)
Net impact of Floor Income (39,021) (51,762) (52,569)
Net impact of acquired
intangibles(B) (23,906) (25,113) (13,913)
----------- ----------- ------------
Total "Core Earnings" adjustments
before income taxes and minority
interest in net earnings of
subsidiaries 26,834 (387,473) (167,360)
Net tax effect(C) (161,889) 79,831 32,080
----------- ----------- ------------
Total "Core Earnings" adjustments
before minority interest in net
earnings of subsidiaries (135,055) (307,642) (135,280)
Minority interest in net earnings
of subsidiaries - - -
----------- ----------- ------------
Total "Core Earnings" adjustments (135,055) (307,642) (135,280)
----------- ----------- ------------
GAAP net income $116,153 $18,105 $151,601
=========== =========== ============
GAAP diluted earnings per
common share $.26 $.02 $.34
=========== =========== ============
(A) "Core Earnings" diluted earnings
per common share $.57 $.74 $.65
=========== =========== ============
(B) Represents goodwill and intangible impairment and the amortization of
acquired intangibles.
(C) Such tax effect is based upon the Company's "Core Earnings" effective
tax rate for the year. The net tax effect results primarily from the
exclusion of the permanent income tax impact of the equity forward
contracts.
"Core Earnings"
In accordance with the Rules and Regulations of the Securities and
Exchange Commission ("SEC"), we prepare financial statements in accordance
with generally accepted accounting principles in the United States of
America ("GAAP"). In addition to evaluating the Company's GAAP-based
financial information, management evaluates the Company's business segments
on a basis that, as allowed under SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," differs from GAAP. We refer to
management's basis of evaluating our segment results as "Core Earnings"
presentations for each business segment and we refer to this information in
our presentations with credit rating agencies and lenders. While "Core
Earnings" are not a substitute for reported results under GAAP, we rely on
"Core Earnings" to manage each operating segment because we believe these
measures provide additional information regarding the operational and
performance indicators that are most closely assessed by management.
Our "Core Earnings" are not defined terms within GAAP and may not be
comparable to similarly titled measures reported by other companies. "Core
Earnings" net income reflects only current period adjustments to GAAP net
income as described below. Unlike financial accounting, there is no
comprehensive, authoritative guidance for management reporting and as a
result, our management reporting is not necessarily comparable with similar
information for any other financial institution. Our operating segments are
defined by the products and services they offer or the types of customers
they serve, and they reflect the manner in which financial information is
currently evaluated by management. Intersegment revenues and expenses are
netted within the appropriate financial statement line items consistent
with the income statement presentation provided to management. Changes in
management structure or allocation methodologies and procedures may result
in changes in reported segment financial information. A more detailed
discussion of the differences between GAAP and "Core Earnings" follows.
Limitations of "Core Earnings"
While GAAP provides a uniform, comprehensive basis of accounting, for
the reasons described above, management believes that "Core Earnings" are
an important additional tool for providing a more complete understanding of
the Company's results of operations. Nevertheless, "Core Earnings" are
subject to certain general and specific limitations that investors should
carefully consider. For example, as stated above, unlike financial
accounting, 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. Unlike GAAP, "Core Earnings" reflect only current period
adjustments to GAAP. Accordingly, the Company's "Core Earnings"
presentation does not represent a comprehensive basis of accounting.
Investors, therefore, may not compare our Company's 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, the Company's board of directors,
rating agencies and lenders to assess performance.
Other limitations arise from the specific adjustments that management
makes to GAAP results to derive "Core Earnings" results. For example, in
reversing the unrealized gains and losses that result from SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," on
derivatives that do not qualify for "hedge treatment," as well as on
derivatives that do qualify but are in part ineffective because they are
not perfect hedges, we focus on the long-term economic effectiveness of
those instruments relative to the underlying hedged item and isolate the
effects of interest rate volatility, changing credit spreads and changes in
our stock price on the fair value of such instruments during the period.
Under GAAP, the effects of these factors on the fair value of the
derivative instruments (but not on the underlying hedged item) tend to show
more volatility in the short term. While our presentation of our results on
a "Core Earnings" basis provides important information regarding the
performance of our Managed portfolio, a limitation of this presentation is
that we are presenting the ongoing spread income on loans that have been
sold to a trust managed by us. While we believe that our "Core Earnings"
presentation presents the economic substance of our Managed loan portfolio,
it understates earnings volatility from securitization gains. Our "Core
Earnings" results exclude certain Floor Income, which is real cash income,
from our reported results and therefore may understate earnings in certain
periods. Management's financial planning and valuation of operating
results, however, does not take into account Floor Income because of its
inherent uncertainty, except when it is economically hedged through Floor
Income Contracts.
Pre-Tax Differences between "Core Earnings" and GAAP
Our "Core Earnings" are the primary financial performance measures used
by management to evaluate performance and to allocate resources.
Accordingly, financial information is reported to management on a "Core
Earnings" basis by reportable segment, as these are the measures used
regularly by our chief operating decision maker. Our "Core Earnings" are
used in developing our financial plans and tracking results, and also in
establishing corporate performance targets and determining incentive
compensation. Management believes this information provides additional
insight into the financial performance of the Company's core business
activities. "Core Earnings" net income reflects only current period
adjustments to GAAP net income, as described in the more detailed
discussion of the differences between "Core Earnings" and GAAP that
follows, which includes further detail on each specific adjustment required
to reconcile our "Core Earnings" segment presentation to our GAAP earnings.
1) Securitization Accounting: Under GAAP, certain securitization
transactions in our Lending operating segment are accounted for as
sales of assets. Under "Core Earnings" for the Lending operating
segment, we present all securitization transactions on a "Core
Earnings" basis as long-term non-recourse financings. The upfront
"gains" on sale from securitization transactions as well as ongoing
"servicing and securitization revenue" presented in accordance with
GAAP are excluded from "Core Earnings" and are replaced by the
interest income, provisions for loan losses, and interest expense as
they are earned or incurred on the securitization loans. We also
exclude transactions with our off-balance sheet trusts from "Core
Earnings" as they are considered intercompany transactions on a "Core
Earnings" basis.
2) Derivative Accounting: "Core Earnings" exclude periodic unrealized
gains and losses arising primarily in our Lending operating segment,
and to a lesser degree in our Corporate and Other reportable segment,
that are caused primarily by the one-sided mark-to-market derivative
valuations prescribed by SFAS No. 133 on derivatives that do not
qualify for "hedge treatment" under GAAP. In our "Core Earnings"
presentation, we recognize the economic effect of these hedges, which
generally results in any cash paid or received being recognized
ratably as an expense or revenue over the hedged item's life. "Core
Earnings" also exclude the gain or loss on equity forward contracts
that under SFAS No. 133, are required to be accounted for as
derivatives and are marked-to-market through earnings.
3) Floor Income: The timing and amount (if any) of Floor Income earned in
our Lending operating segment is uncertain and in excess of expected
spreads. Therefore, we exclude such income from "Core Earnings" when
it is not economically hedged. We employ derivatives, primarily Floor
Income Contracts and futures, to economically hedge Floor Income. As
discussed above in "Derivative Accounting," these derivatives do not
qualify as effective accounting hedges, and therefore, under GAAP,
they are marked-to-market through the "gains (losses) on derivative
and hedging activities, net" line on the income statement with no
offsetting gain or loss recorded for the economically hedged items.
For "Core Earnings," we reverse the fair value adjustments on the
Floor Income Contracts and futures economically hedging Floor Income
and include the amortization of net premiums received in income.
4) Acquired Intangibles: Our "Core Earnings" exclude goodwill and
intangible impairment and the amortization of acquired intangibles.
SOURCE Sallie Mae
 back to top
Related links:
http://www.salliemae.com/
Photo Notes:
NewsCom: http://www.newscom.com/cgi-bin/prnh/20030617/SLMLOGO-a
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com
http://www.prnewswire.com/comp/827187.html/
CONTACT:
Media, Tom Joyce, +1-703-984-5610, or Martha
Holler, +1-703-984-5178; or Investors, Steve McGarry,
+1-703-984-6746, or Joe Fisher, +1-703-984-5755, all of Sallie
Mae
|
