Originations Through Company's Lending Brands Grow 39 Percent
RESTON, Va., July 17 /PRNewswire-FirstCall/ -- SLM Corporation (NYSE:
SLM), commonly known as Sallie Mae, today reported second-quarter 2007
earnings and performance results that include an 18-percent increase in
managed student loans from the year-ago quarter, with the company's
portfolio topping $153 billion. Second-quarter 2007 preferred-channel loan
originations were $3.6 billion, and loans originated through the company's
internal brands, a segment of total preferred-channel loan originations,
grew 39 percent from the year-ago period to $2.4 billion.
(Logo: http://www.newscom.com/cgi-bin/prnh/20030617/SLMLOGO-a )
Preferred-channel loan originations include loans originated by the
company's internal lending brands and external lending partners. Preferred-
channel originations in the first half of 2007 were $11.6 billion, and
internal brands originated $7.2 billion, or 62 percent, of the total.
"Our loan portfolio continues to register strong growth, and our
internal brands are outpacing the market," said C.E. Andrews, chief
executive officer. "We are delivering best-in-class products and services
to schools, students and families to help them access higher education."
The company purchased $20.9 billion in education loans in the first
half of 2007, a 27-percent increase from the same period last year. In the
second- quarter 2007, loan purchases were $8.4 billion.
Sallie Mae reports financial results on a GAAP basis and also presents
certain "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 second-quarter 2007 GAAP net income of $966
million, or $1.03 per diluted share, compared to $724 million, or $1.52 per
diluted share, in the year-ago period. Included in these GAAP results are
pre-tax gains on derivative and hedging activities of $822 million in the
second- quarter 2007, compared to $123 million in the year-ago quarter, and
a decrease of $671 million in gains on student loan securitizations.
Second-quarter 2007 GAAP diluted earnings per share were reduced by $1.21
due to the reversal of unrealized gains on dilutive outstanding
equity-forward contracts as required by the GAAP diluted earnings per share
calculation.
"Core earnings" net income for the second-quarter 2007 was $189
million, or $.43 per diluted share, down from $320 million, or $.72 per
diluted share, in the year-ago quarter. These second-quarter 2007 results
include a provision for losses of $247 million and $51 million in expenses
related to the company's previously announced acquisition. Annualized net
charge-offs as a percentage of average private education loans in repayment
were 3.5 percent in the second-quarter 2007, compared to 3.4 percent in the
prior quarter. For the first half of 2007, "core earnings" net income was
$440 million, compared to $607 million in the first half of 2006.
"Core earnings" net interest income was $635 million for the 2007
second quarter, up from the year-ago quarter's $602 million. "Core
earnings" other income, which consists primarily of fees earned from
guarantor servicing and collection activity, was $296 million in the
second-quarter 2007 and $583 million year-to-date, up 11 percent and 14
percent, respectively, from the year-ago periods. "Core earnings" operating
expenses were $382 million in the second-quarter 2007, and $715 million for
the first half of 2007.
Both a description of the "core earnings" treatment and a full
reconciliation to the GAAP income statement can be found at:
http://www.salliemae.com/about/investors/stockholderinfo/earningsinfo/,
click on the Second Quarter 2007 Supplemental Earnings Disclosure.
Total equity for the company at June 30, 2007, was $5.3 billion, up
from $4.4 billion a year ago. The company's tangible capital at June 30,
2007, was 2.28 percent of managed assets, compared to 2.19 percent at the
same time last year. The "core earnings" student loan spread was 1.79
percent in the second- quarter 2007, excluding financing fees related to
the acquisition transaction.
This press release contains "forward-looking statements" including
expectations as to future market share, the success of preferred channel
originations and future results. These statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Because such statements inherently involve risks and uncertainties,
actual results may differ materially from those expressed or implied by
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, and changes in the general
interest rate environment. For more information, see the company's filings
with the Securities and Exchange Commission, including the forward-looking
statements contained in the company's Supplemental Financial Information
Second Quarter 2007.
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 $153 billion in education loans and serves nearly 10
million student and parent customers. Through its Upromise affiliates, the
company also manages $18 billion in 529 college-savings plans, and 8
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
June 30, 2007
(Dollars in millions, except earnings per share)
Quarters ended
--------------------------------------
June 30, Mar. 31, June 30,
2007 2007 2006
--------- --------- ---------
(unaudited) (unaudited) (unaudited)
SELECTED FINANCIAL
INFORMATION AND RATIOS -
GAAP Basis
Net income $ 966 $ 116 $ 724
Diluted earnings
per common share(1) $ 1.03 $ .26 $ 1.52
Return on assets 3.23% .43% 3.20%
"Core Earnings" Basis(2)
"Core Earnings" net income $ 189 $ 251 $ 320
"Core Earnings" diluted
earnings per common
share(1) $ .43 $ .57 $ .72
"Core Earnings" return
on assets .45% .64% .90%
OTHER OPERATING STATISTICS
Average on-balance sheet
student loans $ 108,865 $ 101,499 $ 80,724
Average off-balance sheet
student loans 43,432 44,663 47,716
--------- --------- ---------
Average Managed student
loans $ 152,297 $ 146,162 $ 128,440
========= ========= =========
Ending on-balance sheet
student loans, net $ 110,626 $ 104,581 $ 82,279
Ending off-balance sheet
student loans, net 42,577 45,380 47,865
--------- --------- ---------
Ending Managed student
loans, net $ 153,203 $ 149,961 $ 130,144
========= ========= =========
Ending Managed FFELP
Stafford and Other
Student Loans, net $ 42,865 $ 41,832 $ 41,926
Ending Managed FFELP
Consolidation Loans, net 85,276 83,928 69,195
Ending Managed Private
Education Loans, net 25,062 24,201 19,023
--------- --------- ---------
Ending Managed student
loans, net $ 153,203 $ 149,961 $ 130,144
========= ========= =========
Six months ended
June 30,
-------------------------
2007 2006
--------- ---------
(unaudited) (unaudited)
SELECTED FINANCIAL
INFORMATION AND RATIOS -
GAAP Basis
Net income $ 1,082 $ 875
Diluted earnings
per common share(1) $ 1.82 $ 1.96
Return on assets 1.89% 1.94%
"Core Earnings" Basis(2)
"Core Earnings" net income $ 440 $ 607
"Core Earnings" diluted
earnings per common share(1) $ .99 $ 1.37
"Core Earnings" return
on assets .54% .88%
OTHER OPERATING STATISTICS
Average on-balance sheet
student loans $ 105,203 $ 81,781
Average off-balance sheet
student loans 44,044 44,909
-------- ---------
Average Managed student
loans $ 149,247 $ 126,690
========= =========
(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
--------------------------------------
June 30, Mar. 31, June 30,
2007 2007 2006
--------- --------- ---------
(unaudited) (unaudited) (unaudited)
Impact of Co-Cos on GAAP
diluted earnings per
common share $ (.03) $ -(A) $ (.08)
Impact of Co-Cos on
"Core Earnings" diluted
earnings per common share $ -(A) $ - $ (.01)
(A) There is no impact on diluted earnings per common share because
the effect of the assumed conversion is antidilutive.
On June 25, 2007, holders of these securities were notified that the
Co-Cos would be called at par on July 25, 2007, as allowed by
the terms of the indenture governing the Co-Cos.
Six months ended
June 30,
-------------------------
2007 2006
--------- ---------
(unaudited) (unaudited)
Impact of Co-Cos on GAAP
diluted earnings per
common share $ (.05) $ (.07)
Impact on Co-Cos on
"Core Earnings" diluted
earnings per common share $ -(A) $ (.02)
(A) There is no impact on diluted earnings per common share because
the effect of the assumed conversion is antidilutive.
On June 25, 2007, holders of these securities were notified that the
Co-Cos would be called at par on July 25, 2007, as allowed by
the terms of the indenture governing the Co-Cos.
(3) 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)
June 30, Mar. 31, June 30,
2007 2007 2006
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Assets
FFELP Stafford and Other
Student Loans
(net of allowance
for losses of $11,337;
$10,192; and $6,890,
respectively) $ 31,503,088 $ 28,561,670 $ 21,390,845
FFELP Consolidation Loans
(net of allowance
for losses of $12,746;
$12,087; and $10,090,
respectively) 68,109,269 66,170,098 54,054,932
Private Education Loans
(net of allowance for
losses of $427,904;
$369,072; and $251,582,
respectively) 11,013,668 9,849,481 6,832,843
Other loans (net of
allowance for losses
of $19,989; $19,803;
and $15,190, respectively) 1,178,052 1,350,416 1,050,632
Cash and investments 4,565,606 6,116,168 6,204,462
Restricted cash and
investments 4,300,826 3,719,020 3,489,542
Retained Interest in
off-balance sheet
securitized loans 3,448,045 3,643,322 3,151,855
Goodwill and acquired
intangible assets, net 1,356,620 1,364,016 1,080,703
Other assets 7,327,108 6,102,275 4,650,851
------------ ------------ ------------
Total assets $132,802,282 $126,876,466 $101,906,665
============ ============ ============
Liabilities
Short-term borrowings $ 9,758,465 $ 4,428,980 $ 3,801,266
Long-term borrowings 114,365,577 114,070,797 90,506,785
Other liabilities 3,320,098 3,990,878 3,229,477
------------ ------------ ------------
Total liabilities 127,444,140 122,490,655 97,537,528
------------ ------------ ------------
Commitments and
contingencies
Minority interest
in subsidiaries 10,081 9,029 9,369
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: 436,095;
434,587; and 430,753
shares, respectively,
issued 87,219 86,918 86,151
Additional paid-in
capital 2,721,554 2,638,334 2,440,565
Accumulated other
comprehensive income,
net of tax 265,388 300,884 370,204
Retained earnings 2,790,674 1,833,359 1,775,948
------------ ------------ ------------
Stockholders' equity
before treasury stock 6,429,835 5,424,495 5,237,868
Common stock held in
treasury:
23,477; 22,650; and
19,078 shares,
respectively 1,081,774 1,047,713 878,100
------------ ------------ ------------
Total stockholders' equity 5,348,061 4,376,782 4,359,768
------------ ------------ ------------
Total liabilities and
stockholders' equity $132,802,282 $126,876,466 $101,906,665
============ ============ ============
SLM CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)
Quarters ended
-------------------------------------
June 30, Mar. 31, June 30,
2007 2007 2006
-------- --------- ---------
(unaudited) (unaudited) (unaudited)
Interest income:
FFELP Stafford and Other
Student Loans $ 511,300 $ 450,762 $ 337,090
FFELP Consolidation Loans 1,087,254 1,014,846 841,591
Private Education
Loans 329,351 338,421 233,696
Other loans 26,453 27,973 23,541
Cash and investments 141,524 113,904 124,954
------------ ------------ ------------
Total interest income 2,095,882 1,945,906 1,560,872
Total interest expense 1,697,229 1,532,090 1,204,067
------------ ------------ ------------
Net interest income 398,653 413,816 356,805
Less: provisions for
losses 148,200 150,330 67,396
------------ ------------ ------------
Net interest income
after provisions for
losses 250,453 263,486 289,409
------------ ------------ ------------
Other income:
Gains on student loan
securitizations - 367,300 671,262
Servicing and
securitization revenue 132,987 251,938 82,842
Loss on securities, net (10,921) (30,967) (8,524)
Gains (losses) on derivative
and hedging activities, net 821,566 (356,969) 122,719
Guarantor servicing fees 30,273 39,241 33,256
Debt management fees 80,237 87,322 90,161
Collections revenue 77,092 65,562 67,357
Other 89,004 96,433 75,081
------------ ------------ ------------
Total other income 1,220,238 519,860 1,134,154
Operating expenses 398,800 356,174 316,602
Income before income
taxes and minority interest
in net earnings of
subsidiaries 1,071,891 427,172 1,106,961
Income taxes 104,724 310,014 381,828
------------ ------------ ------------
Income before minority
interest in net earnings
of subsidiaries 967,167 117,158 725,133
Minority interest in net
earnings of subsidiaries 696 1,005 1,355
------------ ------------ ------------
Net income 966,471 116,153 723,778
Preferred stock dividends 9,156 9,093 8,787
------------ ------------ ------------
Net income attributable
to common stock $ 957,315 $ 107,060 $ 714,991
============ ============ ============
Basic earnings per common
share $ 2.32 $ .26 $ 1.74
============ ============ ============
Average common shares
outstanding 411,870 411,040 410,957
============ ============ ============
Diluted earnings per common
share $ 1.03 $ .26 $ 1.52
============ ============ ============
Average common and common
equivalent shares
outstanding 452,406 418,449 454,314
============ ============ ============
Dividends per common
share $ - $ .25 $ .25
============ ============ ============
Six months ended
June 30,
-----------------------
2007 2006
--------- ---------
(unaudited) (unaudited)
Interest income:
FFELP Stafford and
Other Student Loans $ 962,062 $ 635,590
FFELP Consolidation Loans 2,102,100 1,662,926
Private Education
Loans 667,772 475,049
Other loans 54,426 46,848
Cash and investments 255,428 220,764
------------ ------------
Total interest income 4,041,788 3,041,177
Total interest expense 3,229,319 2,296,851
------------ ------------
Net interest income 812,469 744,326
Less: provisions for
losses 298,530 127,715
------------ ------------
Net interest income
after provisions for
losses 513,939 616,611
------------ ------------
Other income:
Gains on student loan
securitizations 367,300 701,285
Servicing and
securitization revenue 384,925 181,773
Losses on securities, net (41,888) (11,472)
Gains (losses) on derivative
and hedging activities, net 464,597 35,980
Guarantor servicing fees 69,514 60,163
Debt management fees 167,559 181,773
Collections revenue 142,654 124,038
Other 185,437 146,457
------------ ------------
Total other income 1,740,098 1,419,997
Operating expenses 754,974 639,911
------------ ------------
Income before income
taxes and minority interest
in net earnings of
subsidiaries 1,499,063 1,396,697
Income taxes 414,738 518,873
------------ ------------
Income before minority
interest in net earnings
of subsidiaries 1,084,325 877,824
Minority interest in net
earnings of subsidiaries 1,701 2,445
------------ ------------
Net income 1,082,624 875,379
Preferred stock dividends 18,249 17,088
------------ ------------
Net income attributable
to common stock $ 1,064,375 $ 858,291
============ ============
Basic earnings per common
share $ 2.59 $ 2.08
============ ============
Average common shares
outstanding 411,457 411,811
============ ============
Diluted earnings per common
share $ 1.82 $ 1.96
============ ============
Average common and common
equivalent shares
outstanding 454,139 453,803
============ ============
Dividends per common
share $ .25 $ .47
============ ============
SLM CORPORATION
Segment and "Core Earnings"
Consolidated Statements of Income
(In thousands)
Quarter ended June 30, 2007
----------------------------------------------------------
Corporate Total
and "Core Total
Lending DMO Other Earnings" Adjustments GAAP
---------- ------- ------- --------- ---------- ----------
(unaudited)
Interest income:
FFELP Stafford
and Other
Student
Loans $ 718,624 $ - $ - $ 718,624 $(207,324) $ 511,300
FFELP
Consolidation
Loans 1,391,015 - - 1,391,015 (303,761) 1,087,254
Private
Education
Loans 692,499 - - 692,499 (363,148) 329,351
Other loans 26,453 - - 26,453 - 26,453
Cash and
investments 182,644 - 7,197 189,841 (48,317) 141,524
---------- ------- ------- --------- ---------- ----------
Total interest
income 3,011,235 - 7,197 3,018,432 (922,550) 2,095,882
Total interest
expense 2,371,441 6,612 5,425 2,383,478 (686,249) 1,697,229
---------- ------- ------- --------- ---------- ----------
Net interest
income 639,794 (6,612) 1,772 634,954 (236,301) 398,653
Less:
provisions
for losses 246,981 - - 246,981 (98,781) 148,200
---------- ------- ------- --------- ---------- ----------
Net interest
income after
provisions for
losses 392,813 (6,612) 1,772 387,973 (137,520) 250,453
Fee income - 80,233 30,273 110,506 4 110,510
Collections
revenue - 77,412 - 77,412 (320) 77,092
Other income 59,458 - 48,141 107,599 925,037 1,032,636
---------- ------- ------- --------- ---------- ----------
Total other
income 59,458 157,645 78,414 295,517 924,721 1,220,238
Operating
expenses(1) 181,650 96,307 104,432 382,389 16,411 398,800
---------- ------- ------- --------- ---------- ----------
Income (loss)
before income
taxes and
minority
interest
in net
earnings of
subsidiaries 270,621 54,726 (24,246) 301,101 770,790 1,071,891
Income tax
expense
(benefit)(2) 100,130 20,248 (8,971) 111,407 (6,683) 104,724
Minority
interest in
net earnings
of
subsidiaries - 696 - 696 - 696
---------- ------- ------- --------- ---------- ----------
Net income
(loss) $ 170,491 $33,782 $(15,275) 188,998 $ 777,473 $ 966,471
========= ======= ======= ======== ========= =========
(1) Operating expenses for the Lending, DMO and Corporate and Other
business segments include $13 million, $4 million, and $6 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 Mar 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 June 30, 2006
----------------------------------------------------------
Corporate Total
and "Core Total
Lending DMO Other Earnings" Adjustments GAAP
---------- ------- ------- --------- ---------- ----------
(unaudited)
Interest income:
FFELP Stafford
and Other
Student
Loans $ 718,909 $ - $ - $ 718,909 $(381,819) $ 337,090
FFELP
Consolidation
Loans 1,114,355 - - 1,114,355 (272,764) 841,591
Private
Education
Loans 485,429 - - 485,429 (251,733) 233,696
Other loans 23,541 - - 23,541 - 23,541
Cash and
investments 169,877 - 659 170,536 (45,582) 124,954
---------- ------- ------- --------- ---------- ----------
Total interest
income 2,512,111 - 659 2,512,770 (951,898) 1,560,872
Total interest
expense 1,903,523 5,466 1 345 1,910,334 (706,267) 1,204,067
---------- ------- ------- --------- ---------- ----------
Net interest
income 608,588 (5,466) (686) 602,436 (245,631) 356,805
Less:
provisions
for losses 60,009 - (32) 59,977 7,419 67,396
---------- ------- ------- --------- ---------- ----------
Net interest
income after
provisions
for losses 548,579 (5,466) (654) 542,459 (253,050) 289,409
Fee income - 90,161 33,256 123,417 - 123,417
Collections
revenue - 67,213 - 67,213 144 67,357
Other income 50,771 - 24,338 75,109 868,271 943,380
---------- ------- ------- --------- ---------- ----------
Total other
income 50,771 157,374 57,594 265,739 868,415 1,134,154
Operating
expenses 163,162 85,110 50,235 298,507 18,095 316,602
---------- ------- ------- --------- ---------- ----------
Income
before income
taxes and
minority
interest in
net earnings
of
subsidiaries 436,188 66,798 6,705 509,691 597,270 1,106,961
Income tax
Expense(2) 161,391 24,715 2,480 188,586 193,242 381,828
Minority
interest in
net earnings
of
subsidiaries - 1,355 - 1,355 - 1,355
---------- ------- ------- --------- ---------- ----------
Net income $ 274,797 $40,728 $ 4,225 $ 319,750 $ 404,028 $ 723,778
========== ======= ======= ========= ========== ==========
(1) Operating expenses for the Lending, DMO and Corporate and Other
business segments include $8 million, $2 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.
Six months ended June 30, 2007
-------------------------------------------------------------
Corporate Total
and "Core Total
Lending DMO Other Earnings" Adjustments GAAP
---------- -------- ------- ---------- ------------ ----------
(unaudited)
Interest
income:
FFELP
Stafford
and Other
Student
Loans $1,413,977 $ - $ - $1,413,977 $ (451,915) $ 962,062
FFELP
Consoli-
dation
Loans 2,722,250 - - 2,722,250 (620,150) 2,102,100
Private
Education
Loans 1,350,083 - - 1,350,083 (682,311) 667,772
Other loans 54,426 - - 54,426 - 54,426
Cash and
investments 344,321 - 9,332 353,653 (98,225) 255,428
---------- -------- ------- ---------- ------------ ----------
Total
interest
income 5,885,057 - 9,332 5,894,389 (1,852,601) 4,041,788
Total
interest
expense 4,591,577 13,299 10,993 4,615,869 (1,386,550) 3,229,319
---------- -------- ------- ---------- ------------ ----------
Net interest
income 1,293,480 (13,299) (1,661) 1,278,520 (466,051) 812,469
Less:
provisions
for losses 444,911 - 606 445,517 (146,987) 298,530
---------- -------- ------- ---------- ------------ ----------
Net interest
income after
provisions
for losses 848,569 (13,299) (2,267) 833,003 (319,064) 513,939
Fee income - 167,559 69,514 237,073 - 237,073
Collections
revenue - 142,734 - 142,734 (80) 142,654
Other income 103,876 - 99,458 203,334 1,157,037 1,360,371
---------- -------- ------- ---------- ------------ ----------
Total other
income 103,876 310,293 168,972 583,141 1,156,957 1,740,098
Operating
expenses(1) 353,213 189,555 171,937 714,705 40,269 754,974
---------- -------- ------- ---------- ------------ ----------
Income (loss)
before
income taxes
and minority
interest in
net earnings
of sub-
sidiaries 599,232 107,439 (5,232) 701,439 797,624 1,499,063
Income tax
expense
(benefit)(2) 221,716 39,752 (1,936) 259,532 155,206 414,738
Minority
interest in
net earnings
of
subsidiaries - 1,701 - 1,701 - 1,701
---------- -------- ------- ---------- ------------ ----------
Net income
(loss) $ 377,516 $ 65,986 $(3,296) $ 440,206 $ 642,418 $1,082,624
========== ======== ======= ========== ============ ==========
(1) Operating expenses for the Lending, DMO and Corporate and Other
business segments include $22 million, $7 million, and $10 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.
Six months ended June 30, 2006
--------------------------------------------------------------
Corporate Total
and "Core Total
Lending DMO Other Earnings" Adjustments GAAP
---------- -------- ------- ---------- ------------ ----------
(unaudited)
Interest
income:
FFELP
Stafford
and Other
Student
Loans $1,368,660 $ - $ - $1,368,660 $ (733,070) $ 635,590
FFELP
Consoli-
dation
Loans 2,142,317 - - 2,142,317 (479,391) 1,662,926
Private
Education
Loans 914,189 - - 914,189 (439,140) 475,049
Other loans 46,848 - - 46,848 - 46,848
Cash and
investments 300,338 1,982 302,320 (81,556) 220,764
---------- -------- ------- ---------- ------------ ----------
Total
interest
income 4,772,352 - 1,982 4,774,334 (1,733,157) 3,041,177
Total
interest
expense 3,562,895 10,622 2,623 3,576,140 (1,279,289) 2,296,851
---------- -------- ------- ---------- ------------ ----------
Net
interest
income 1,209,457 (10,622) (641) 1,198,194 (453,868) 744,326
Less:
provisions
for losses 134,829 - (13) 134,816 (7,101) 127,715
---------- -------- ------- ---------- ------------ ----------
Net interest
income
after
provisions
for losses 1,074,628 (10,622) (628) 1,063,378 (446,767) 616,611
Fee income - 181,773 60,163 241,936 - 241,936
Collections
revenue - 123,753 - 123,753 285 124,038
Other income 91,343 - 54,347 145,690 908,333 1,054,023
---------- -------- ------- ---------- ------------ ----------
Total other
income 91,343 305,526 114,510 511,379 908,618 1,419,997
Operating
expenses(1) 324,600 174,623 108,747 607,970 31,941 639,911
---------- -------- ------- ---------- ------------ ----------
Income before
income taxes
and minority
interest in
net earnings
of sub-
sidiaries 841,371 120,281 5,135 966,787 429,910 1,396,697
Income tax
expense(2) 311,308 44,504 1,899 357,711 161,162 518,873
Minority
interest in
net earnings
of
subsidiaries - 2,445 - 2,445 - 2,445
---------- -------- ------- ---------- ------------ ----------
Net income $ 530,063 $ 73,332 $ 3,236 $ 606,631 $ 268,748 $ 875,379
========== ======== ======= ========== ============ ==========
(1) Operating expenses for the Lending, DMO, and Corporate and Other
business segments include $18 million, $5 million, and $9 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
--------------------------------------
June 30, Mar. 31, June 30,
2007 2007 2006
----------- ---------- ----------
(unaudited) (unaudited) (unaudited)
"Core Earnings" net income(A) $ 188,998 $ 251,208 $ 319,750
"Core Earnings" adjustments:
Net impact of
securitization accounting (15,071) 421,485 503,083
Net impact of
derivative accounting 841,564 (331,724) 164,678
Net impact of Floor Income (39,246) (39,021) (52,333)
Net impact of acquired
intangibles(B) (16,457) (23,906) (18,158)
--------- --------- ---------
Total "Core Earnings"
adjustments before
income taxes 770,790 26,834 597,270
Net tax effect(C) 6,683 (161,889) (193,242)
--------- --------- ---------
Total "Core Earnings"
adjustments 777,473 (135,055) 404,028
-------- --------- ---------
GAAP net income $ 966,471 $ 116,153 $723,778
========= ========= =========
GAAP diluted
earnings per
common share $ 1.03 $ .26 $ 1.52
========= ========= =========
(A)"Core earnings" diluted
earnings per
common share $ .43 $ .57 $ .72
========= ========= =========
(B)Represents goodwill and intangible impairment and 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.
Six months ended
June 30,
------------------------
2006 2005
---------- ----------
(unaudited) (unaudited)
"Core Earnings" net income(D) $ 440,206 $ 606,631
"Core Earnings" adjustments:
Net impact of
securitization accounting 406,414 441,022
Net impact of
derivative accounting 509,840 125,861
Net impact of Floor Income (78,267) (104,902)
Net impact of acquired
intangibles(E) (40,363) (32,071)
---------- ----------
Total "Core Earnings"
adjustments before
income taxes and minority
interest in net earnings
of subsidiaries 797,624 429,910
Net tax effect(F) (155,206) (161,162)
---------- ----------
Total "Core Earnings"
adjustments 642,418 268,748
---------- ----------
GAAP net income $1,082,624 $ 875,379
========== ==========
GAAP diluted
earnings per
common share $ 1.82 $ 1.96
========== ==========
(D)"Core Earnings" diluted
earnings per
common share $ .99 $ 1.37
========== ==========
(E)Represents goodwill and intangible impairment and amortization of
acquired intangibles.
(F)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 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. Our "Core Earnings" are not defined terms within GAAP and may
not be comparable to similarly titled measures reported by other companies.
"Core Earnings" reflect only current period adjustments to GAAP as
described below. Accordingly, the Company's "Core Earnings" presentation
does not represent another comprehensive basis of accounting. 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 Managed 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 Managed Basis 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" reflect only current period adjustments to
GAAP, as described in the more detailed discussion of the differences
between GAAP and "Core Earnings" 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 Managed 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 Managed Basis.
2) Derivative Accounting: "Core Earnings" exclude periodic unrealized
gains and losses arising primarily in our Lending business segment, and to
a lesser degree in our Corporate and Other business 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. Under "Core Earnings," 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 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: We exclude goodwill and intangible impairment
and the amortization of acquired intangibles.
SOURCE Sallie Mae
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Mae
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