Managed Student Loan Portfolio Reaches $160 Billion
RESTON, Va., Oct. 11 /PRNewswire-FirstCall/ -- SLM Corporation (NYSE:
SLM), commonly known as Sallie Mae, today reported third-quarter 2007
earnings and performance results that include a 13-percent rise in its
student loan originations to $8.9 billion, from the 2006 third quarter's
$7.8 billion. Year-to-date 2007, student loan originations were $20.5
billion, compared to $18.6 billion in the same period last year. The
company's managed student loan portfolio totaled $160 billion at the end of
the third-quarter 2007.
(Logo: http://www.newscom.com/cgi-bin/prnh/20030617/SLMLOGO-a )
"Thanks to our industry-leading brand, our scale and efficiencies, and
our focus on students and families, we successfully faced a number of
challenges this quarter," said C.E. Andrews, chief executive officer. "We
have a solid track record of growing our 'core earnings' through various
political, interest rate and economic environments, and the fundamentals of
our business point to a bright future for our company."
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 a third-quarter 2007 GAAP net loss of $344 million,
or $.85 diluted loss per share, compared to net income of $263 million, or
$.60 per diluted share, in the year-ago period. Included in these GAAP
results are pre-tax losses on derivative and hedging activities of $487
million in the third-quarter 2007, principally related to the decline in
share price during the quarter on the company's equity forward positions.
Third-quarter 2007 "core earnings" net income was $305 million, or $.70
per diluted share, before $46 million, or $.11 per diluted share, in
after-tax reductions to net income from the following non-recurring items:
$28 million related to the recent legislative changes in the FFELP
risk-sharing percentage and $18 million related to the company's previously
announced merger agreement. Including these non-recurring items, reported
"core earnings" net income was $259 million, or $.59 per diluted share.
For the first nine months of 2007, "core earnings" net income was $699
million, compared to $927 million in the same period last year.
"Core earnings" net interest income was $664 million for the 2007 third
quarter, up 10 percent from the year-ago quarter's $601 million. "Core
earnings" other income, which consists primarily of fees earned from
guarantor servicing and collection activity, was $283 million in the
third-quarter 2007, compared to $306 million in the year-ago period. "Core
earnings" operating expenses were $337 million in the third-quarter 2007,
compared to $317 million in the third-quarter 2006.
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 Third Quarter 2007 Supplemental Earnings Disclosure.
The company will host a quarterly earnings conference call and
shareholder conference today at noon. 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 should call the following number today, Oct. 11, 2007,
starting at 11:45 a.m. EDT: (877) 356-5689 (USA and Canada) or (706)
679-0623 (International). The conference call will be replayed continuously
beginning Thursday, Oct. 11, at 3:00 p.m. EDT and concluding at midnight,
Oct. 25, 2007. To access the replay, dial (800) 642-1687 (USA and Canada)
or dial (706) 645-9291 (International) and use access code 5437761. In
addition, there will be a live audio Web cast of the conference, which may
be accessed at http://www.SallieMae.com. A replay will be available immediately
following the conference until midnight, Oct. 25, 2007.
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, adverse results in legal
disputes, 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 Third Quarter 2007. All information in
this release is as of Oct. 11, 2007. 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 the Company's expectations.
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 $160 billion in education loans and serves nearly 10
million student and parent customers. Through its Upromise affiliates, the
company also manages $19 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
September 30, 2007
(Dollars in millions, except earnings per share)
Quarters ended
--------------------------------------
Sept. 30, June 30, Sept. 30,
2007 2007 2006
--------- --------- ---------
(unaudited) (unaudited) (unaudited)
SELECTED FINANCIAL
INFORMATION AND RATIOS
GAAP Basis
Net income (loss) $ (344) $ 966 $ 263
Diluted earnings (loss)
per common share(1) $ (.85) $ 1.03 $ .60
Return on assets (1.05)% 3.23% 1.10%
"Core Earnings" Basis(2)
"Core Earnings" net income $ 259 $ 189 $ 321
"Core Earnings" diluted
earnings per common
share(1) $ .59 $ .43 $ .73
"Core Earnings" return
on assets .59% .45% .86%
OTHER OPERATING STATISTICS
Average on-balance sheet
student loans $ 114,571 $ 108,865 $ 84,241
Average off-balance sheet
student loans 41,526 43,432 48,226
--------- --------- ---------
Average Managed student
loans $ 156,097 $ 152,297 $ 132,467
========= ========= =========
Ending on-balance sheet
student loans, net $ 119,155 $ 110,626 $ 88,038
Ending off-balance sheet
student loans, net 40,604 42,577 48,897
--------- --------- ---------
Ending Managed student
loans, net $ 159,759 $ 153,203 $ 136,935
========= ========= =========
Ending Managed FFELP
Stafford and Other
Student Loans, net $ 44,270 $ 42,865 $ 39,787
Ending Managed FFELP
Consolidation Loans, net 88,070 85,276 75,947
Ending Managed Private
Education Loans, net 27,419 25,062 21,201
--------- --------- ---------
Ending Managed student
loans, net $ 159,759 $ 153,203 $ 136,935
========= ========= =========
Nine months ended
Sept. 30,
-------------------------
2007 2006
--------- ---------
(unaudited) (unaudited)
SELECTED FINANCIAL
INFORMATION AND RATIOS
GAAP Basis
Net income $ 739 $ 1,139
Diluted earnings
per common share(1) $ 1.69 $ 2.56
Return on assets .82% 1.65%
"Core Earnings" Basis(2)
"Core Earnings" net income $ 699 $ 927
"Core Earnings" diluted
earnings per common share(1) $ 1.58 $ 2.09
"Core Earnings" return
on assets .56% .87%
OTHER OPERATING STATISTICS
Average on-balance sheet
student loans $ 108,360 $ 82,610
Average off-balance sheet
student loans 43,195 46,027
-------- ---------
Average Managed student
loans $ 151,555 $ 128,637
========= =========
(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
--------------------------------------
Sept. 30, June 30, Sept. 30,
2007 2007 2006
--------- --------- ---------
(unaudited) (unaudited) (unaudited)
Impact of Co-Cos on GAAP
diluted earnings per
common share $ -(A) $ (.03) $ -
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 July 25,
2007, the Co-Cos were called at par.
Nine months ended
Sept. 30,
-------------------------
2007 2006
--------- ---------
(unaudited) (unaudited)
Impact of Co-Cos on GAAP
diluted earnings per
common share $ -(A) $ (.07)
Impact on Co-Cos on
"Core Earnings" diluted
earnings per common share $ -(A) $ (.04)
(A) There is no impact on diluted earnings per common share because
the effect of the assumed conversion is antidilutive. On July 25,
2007, the Co-Cos were called at par.
(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)
Sept. 30, June 30, Sept. 30,
2007 2007 2006
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Assets
FFELP Stafford and Other
Student Loans
(net of allowance
for losses of $30,655;
$11,337; and $7,649,
respectively) $ 34,108,560 $ 31,503,088 $ 22,613,604
FFELP Consolidation Loans
(net of allowance
for losses of $26,809;
$12,746; and $10,720,
respectively) 71,370,681 68,109,269 57,201,754
Private Education Loans
(net of allowance for
losses of $454,100;
$427,904; and $274,974,
respectively) 13,675,571 11,013,668 8,222,400
Other loans (net of
allowance for losses
of $21,738; $19,989;
and $18,327, respectively) 1,193,405 1,178,052 1,257,252
Cash and investments 12,040,001 4,565,606 4,248,639
Restricted cash and
investments 4,999,369 4,300,826 3,957,535
Retained Interest in
off-balance sheet
securitized loans 3,238,637 3,448,045 3,613,376
Goodwill and acquired
intangible assets, net 1,354,141 1,356,620 1,333,123
Other assets 8,835,025 7,327,108 4,605,014
------------ ------------ ------------
Total assets $150,815,390 $132,802,282 $107,052,697
============ ============ ============
Liabilities
Short-term borrowings $ 33,008,374 $ 9,758,465 $ 3,669,842
Long-term borrowings 108,860,988 114,365,577 94,816,563
Other liabilities 3,934,267 3,320,098 4,053,931
------------ ------------ ------------
Total liabilities 145,803,629 127,444,140 102,540,336
------------ ------------ ------------
Commitments and
contingencies
Minority interest
in subsidiaries 10,054 10,081 9,338
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: 439,660;
436,095; and 431,590
shares, respectively,
issued 87,932 87,219 86,318
Additional paid-in
capital 2,847,748 2,721,554 2,490,851
Accumulated other
comprehensive income,
net of tax 245,352 265,388 460,527
Retained earnings 2,437,639 2,790,674 1,928,204
------------ ------------ ------------
Stockholders' equity
before treasury stock 6,183,671 6,429,835 5,530,900
Common stock held in
treasury:
25,544; 23,477; and
22,229 shares,
respectively 1,181,964 1,081,774 1,027,877
------------ ------------ ------------
Total stockholders' equity 5,001,707 5,348,061 4,503,023
------------ ------------ ------------
Total liabilities and
stockholders' equity $150,815,390 $132,802,282 $107,052,697
============ ============ ============
SLM CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)
Quarters ended
-------------------------------------
Sept. 30, June 30, Sept. 30,
2007 2007 2006
-------- --------- ---------
(unaudited) (unaudited) (unaudited)
Interest income:
FFELP Stafford and Other
Student Loans $ 545,618 $ 511,300 $ 364,621
FFELP Consolidation Loans 1,145,473 1,087,254 916,091
Private Education
Loans 392,737 329,351 254,747
Other loans 25,990 26,453 24,550
Cash and investments 211,303 141,524 141,083
------------ ------------ ------------
Total interest income 2,321,121 2,095,882 1,701,092
Total interest expense 1,879,811 1,697,229 1,363,271
------------ ------------ ------------
Net interest income 441,310 398,653 337,821
Less: provisions for loan
losses 142,600 148,200 67,242
------------ ------------ ------------
Net interest income
after provisions for
loan losses 298,710 250,453 270,579
------------ ------------ ------------
Other income (loss):
Gains on student loan
securitizations - - 201,132
Servicing and
securitization revenue 28,883 132,987 187,082
Losses on loans and securities,
net (25,163) (10,921) (13,427)
Gains (losses) on derivative
and hedging activities, net (487,478) 821,566 (130,855)
Guarantor servicing fees 45,935 30,273 38,848
Debt management fees 76,306 80,237 122,556
Collections revenue 52,788 77,092 57,913
Other 106,684 89,004 87,923
------------ ------------ ------------
Total other income (loss) (202,045) 1,220,238 551,172
Operating expenses 355,899 398,800 353,494
Income (loss) before income
taxes and minority interest
in net earnings of
subsidiaries (259,234) 1,071,891 468,257
Income taxes 84,449 104,724 203,686
------------ ------------ ------------
Income (loss) before minority
interest in net earnings
of subsidiaries (343,683) 967,167 264,571
Minority interest in net
earnings of subsidiaries 77 696 1,099
------------ ------------ ------------
Net income (loss) (343,760) 966,471 263,472
Preferred stock dividends 9,274 9,156 9,221
------------ ------------ ------------
Net income (loss) attributable
to common stock $ (353,034) $ 957,315 $ 254,251
============ ============ ============
Basic earnings (loss)
per common share $ (.85) $ 2.32 $ .62
============ ============ ============
Average common shares
outstanding 412,944 411,870 410,034
============ ============ ============
Diluted earnings (loss)
per common share $ (.85) $ 1.03 $ .60
============ ============ ============
Average common and common
equivalent shares
outstanding 412,944 452,406 449,841
============ ============ ============
Dividends per common
share $ - $ - $ .25
============ ============ ============
Nine months ended
Sept. 30,
-----------------------
2007 2006
--------- ---------
(unaudited) (unaudited)
Interest income:
FFELP Stafford and
Other Student Loans $ 1,507,680 $ 1,000,211
FFELP Consolidation Loans 3,247,573 2,579,017
Private Education
Loans 1,060,509 729,796
Other loans 80,416 71,398
Cash and investments 466,731 361,847
------------ ------------
Total interest income 6,362,909 4,742,269
Total interest expense 5,109,130 3,660,122
------------ ------------
Net interest income 1,253,779 1,082,147
Less: provisions for loan
losses 441,130 194,957
------------ ------------
Net interest income
after provisions for
loan losses 812,649 887,190
------------ ------------
Other income:
Gains on student loan
securitizations 367,300 902,417
Servicing and
securitization revenue 413,808 368,855
Losses on loans and securities,
net (67,051) (24,899)
Gains (losses) on derivative
and hedging activities, net (22,881) (94,875)
Guarantor servicing fees 115,449 99,011
Debt management fees 243,865 304,329
Collections revenue 195,442 181,951
Other 292,121 234,380
------------ ------------
Total other income 1,538,053 1,971,169
Operating expenses 1,110,873 993,405
------------ ------------
Income before income
taxes and minority interest
in net earnings of
subsidiaries 1,239,829 1,864,954
Income taxes 499,187 722,559
------------ ------------
Income before minority
interest in net earnings
of subsidiaries 740,642 1,142,395
Minority interest in net
earnings of subsidiaries 1,778 3,544
------------ ------------
Net income 738,864 1,138,851
Preferred stock dividends 27,523 26,309
------------ ------------
Net income attributable
to common stock $ 711,341 $ 1,112,542
============ ============
Basic earnings per common
share $ 1.73 $ 2.71
============ ============
Average common shares
outstanding 411,958 411,212
============ ============
Diluted earnings per common
share $ 1.69 $ 2.56
============ ============
Average common and common
equivalent shares
outstanding 420,305 452,012
============ ============
Dividends per common
share $ .25 $ .72
============ ============
SLM CORPORATION
Segment and "Core Earnings"
Consolidated Statements of Income
(In thousands)
Quarter ended September 30, 2007
----------------------------------------------------------
Corporate Total
and "Core Total
Lending APG Other Earnings" Adjustments GAAP
---------- ------- ------- --------- ---------- ----------
(unaudited)
Interest income:
FFELP Stafford
and Other
Student
Loans $ 729,255 $ - $ - $ 729,255 $(183,637) $ 545,618
FFELP
Consolidation
Loans 1,445,108 - - 1,445,108 (299,635) 1,145,473
Private
Education
Loans 753,295 - - 753,295 (360,558) 392,737
Other loans 25,990 - - 25,990 - 25,990
Cash and
investments 250,463 - 6,039 256,502 (45,199) 211,303
---------- ------- ------- --------- ---------- ----------
Total interest
income 3,204,111 - 6,039 3,210,150 (889,029) 2,321,121
Total interest
expense 2,533,909 6,632 5,282 2,545,823 (666,012) 1,879,811
---------- ------- ------- --------- ---------- ----------
Net interest
income
(loss) 670,202 (6,632) 757 664,327 (223,017) 441,310
Less:
provisions for
loan losses 199,591 - - 199,591 (56,991) 142,600
---------- ------- ------- --------- ---------- ----------
Net interest
income (loss) after
provisions for loan
losses 470,611 (6,632) 757 464,736 (166,026) 298,710
Fee income - 76,306 45,935 122,241 - 122,241
Collections
revenue - 52,534 - 52,534 254 52,788
Other
Income (loss) 45,745 - 62,843 108,588 (485,662) (377,074)
---------- ------- ------- --------- ---------- ----------
Total other
income
(loss) 45,745 128,840 108,778 283,363 (485,408) (202,045)
Operating
expenses(1) 163,855 94,625 78,882 337,362 18,537 355,899
---------- ------- ------- --------- ---------- ----------
Income (loss)
before income
taxes and
minority
interest
in net
earnings of
subsidiaries 352,501 27,583 30,653 410,737 (669,971) (259,234)
Income tax
expense
(benefit)(2) 130,425 10,206 11,342 151,973 (67,524) 84,449
Minority
interest in
net earnings
of
subsidiaries - 77 - 77 - 77
---------- ------- ------- --------- ---------- ----------
Net income
(loss) $ 222,076 $17,300 $ 19,311 258,687 $(602,447)$ (343,760)
========= ======= ======= ======== ========= =========
(1) Operating expenses for the Lending, APG and Corporate and Other
business segments include $4 million, $2 million, and $2 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, 2007
----------------------------------------------------------
Corporate Total
and "Core Total
Lending APG 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
loan losses 246,981 - - 246,981 (98,781) 148,200
---------- ------- ------- --------- ---------- ----------
Net interest
income (loss)
after provisions
for loan
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, APG 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 September 30, 2006
----------------------------------------------------------
Corporate Total
and "Core Total
Lending APG Other Earnings" Adjustments GAAP
---------- ------- ------- --------- ---------- ----------
(unaudited)
Interest income:
FFELP Stafford
and Other
Student
Loans $ 701,615 $ - $ - $ 701,615 $(336,994) $ 364,621
FFELP
Consolidation
Loans 1,241,999 - - 1,241,999 (325,908) 916,091
Private
Education
Loans 557,787 - - 557,787 (303,040) 254,747
Other loans 24,550 - - 24,550 - 24,550
Cash and
investments 206,837 - 2,782 209,619 (68,536) 141,083
---------- ------- ------- --------- ---------- ----------
Total interest
income 2,732,788 - 2,782 2,735,570 (1,034,478) 1,701,092
Total interest
expense 2,124,587 6,088 3,515 2,134,190 (770,919) 1,363,271
---------- ------- ------- --------- ---------- ----------
Net interest
income (loss) 608,201 (6,088) (733) 601,380 (263,559) 337,821
Less:
provisions for
loan losses 79,774 - (3) 79,771 (12,529) 67,242
---------- ------- ------- --------- ---------- ----------
Net interest
income (loss)
after provisions
for loan
losses 528,427 (6,088) (730) 521,609 (251,030) 270,579
Fee income - 122,556 38,848 161,404 - 161,404
Collections
revenue - 57,744 - 57,744 169 57,913
Other income 46,074 - 40,988 87,062 244,793 331,855
---------- ------- ------- --------- ---------- ----------
Total other
income 46,074 180,300 79,836 306,210 244,962 551,172
Operating
expenses(1) 156,168 91,341 69,644 317,153 36,341 353,494
---------- ------- ------- --------- ---------- ----------
Income
before income
taxes and
minority
interest in
net earnings
of
subsidiaries 418,333 82,871 9,462 510,666 (42,409) 468,257
Income tax
Expense(2) 154,783 30,662 3,502 188,947 14,739 203,686
Minority
interest in
net earnings
of
subsidiaries - 1,099 - 1,099 - 1,099
---------- ------- ------- --------- ---------- ----------
Net income $ 263,550 $51,110 $ 5,960 $ 320,620 $(57,148) $ 263,472
========== ======= ======= ========= ========== ==========
(1) Operating expenses for the Lending, APG and Corporate and Other
business segments include $8 million, $4 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.
Nine months ended September 30, 2007
-------------------------------------------------------------
Corporate Total
and "Core Total
Lending APG Other Earnings" Adjustments GAAP
---------- -------- ------- ---------- ------------ ----------
(unaudited)
Interest
income:
FFELP
Stafford
and Other
Student
Loans $2,143,232 $ - $ - $2,143,232 $ (635,552) $1,507,680
FFELP
Consoli-
dation
Loans 4,167,358 - - 4,167,358 (919,785) 3,247,573
Private
Education
Loans 2,103,378 - - 2,103,378 (1,042,869) 1,060,509
Other loans 80,416 - - 80,416 - 80,416
Cash and
investments 594,784 - 15,371 610,155 (143,424) 466,731
---------- -------- ------- ---------- ------------ ----------
Total
interest
income 9,089,168 - 15,371 9,104,539 (2,741,630) 6,362,909
Total
interest
expense 7,125,486 19,931 16,275 7,161,692 (2,052,562) 5,109,130
---------- -------- ------- ---------- ------------ ----------
Net interest
income
(loss) 1,963,682 (19,931) (904) 1,942,847 (689,068) 1,253,779
Less:
provisions for
loan losses 644,502 - 606 645,108 (203,978) 441,130
---------- -------- ------- ---------- ------------ ----------
Net interest
income (loss)
after provisions
for loan
losses 1,319,180 (19,931) (1,510) 1,297,739 (485,090) 812,649
Fee income - 243,865 115,449 359,314 - 359,314
Collections
revenue - 195,268 - 195,268 174 195,442
Other income 149,621 - 162,301 311,922 671,375 983,297
---------- -------- ------- ---------- ------------ ----------
Total other
income 149,621 439,133 277,750 866,504 671,549 1,538,053
Operating
expenses(1) 517,068 284,180 250,819 1,052,067 58,806 1,110,873
---------- -------- ------- ---------- ------------ ----------
Income
before
income taxes
and minority
interest in
net earnings
of sub-
sidiaries 951,733 135,022 25,421 1,112,176 127,653 1,239,829
Income tax
expense(2) 352,141 49,958 9,406 411,505 87,682 499,187
Minority
interest in
net earnings
of
subsidiaries - 1,778 - 1,778 - 1,778
---------- -------- ------- ---------- ------------ ----------
Net income $ 599,592 $ 83,286 $16,015 $ 698,893 $ 39,971 $ 738,864
========== ======== ======= ========== ============ ==========
(1) Operating expenses for the Lending, APG and Corporate and Other
business segments include $26 million, $9 million, and $12 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.
Nine months ended September 30, 2006
--------------------------------------------------------------
Corporate Total
and "Core Total
Lending APG Other Earnings" Adjustments GAAP
---------- -------- ------- ---------- ------------ ----------
(unaudited)
Interest
income:
FFELP
Stafford
and Other
Student
Loans $2,070,275 $ - $ - $2,070,275 $(1,070,064) $1,000,211
FFELP
Consoli-
dation
Loans 3,384,316 - - 3,384,316 (805,299) 2,579,017
Private
Education
Loans 1,471,976 - - 1,471,976 (742,180) 729,796
Other loans 71,398 - - 71,398 - 71,398
Cash and
investments 507,175 - 4,764 511,939 (150,092) 361,847
---------- -------- ------- ---------- ------------ ----------
Total
interest
income 7,505,140 - 4,764 7,509,904 (2,767,635) 4,742,269
Total
interest
expense 5,687,482 16,710 6,138 5,710,330 (2,050,208) 3,660,122
---------- -------- ------- ---------- ------------ ----------
Net
interest
income
(loss) 1,817,658 (16,710) (1,374) 1,799,574 (717,427) 1,082,147
Less:
provisions for
loan losses 214,603 - (16) 214,587 (19,630) 194,957
---------- -------- ------- ---------- ------------ ----------
Net interest
income (loss)
after
provisions for
loan losses 1,603,055 (16,710) (1,358) 1,584,987 (697,797) 887,190
Fee income - 304,329 99,011 403,340 - 403,340
Collections
revenue - 181,497 - 181,497 454 181,951
Other income 137,417 - 95,335 232,752 1,153,126 1,385,878
---------- -------- ------- ---------- ------------ ----------
Total other
income 137,417 485,826 194,346 817,589 1,153,580 1,971,169
Operating
expenses(1) 480,768 265,964 178,391 925,123 68,282 993,405
---------- -------- ------- ---------- ------------ ----------
Income before
income taxes
and minority
interest in
net earnings
of sub-
sidiaries 1,259,704 203,152 14,597 1,477,453 387,501 1,864,954
Income tax
expense(2) 466,091 75,166 5,401 546,658 175,901 722,559
Minority
interest in
net earnings
of
subsidiaries - 3,544 - 3,544 - 3,544
---------- -------- ------- ---------- ------------ ----------
Net income $ 793,613 $124,442 $ 9,196 $ 927,251 $ 211,600 $1,138,851
========== ======== ======= ========== ============ ==========
(1) Operating expenses for the Lending, APG, and Corporate and Other
business segments include $26 million, $9 million, and $13 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
--------------------------------------
Sept. 30, June 30, Sept. 30,
2007 2007 2006
----------- ---------- ----------
(unaudited) (unaudited) (unaudited)
"Core Earnings" net income(A) $ 258,687 $ 188,998 $ 320,620
"Core Earnings" adjustments:
Net impact of
securitization accounting (157,050) (15,071) 159,468
Net impact of
derivative accounting (453,949) 841,564 (112,699)
Net impact of Floor Income (40,390) (39,246) (52,781)
Net impact of acquired
intangibles (18,582) (16,457) (36,397)
--------- --------- ---------
Total "Core Earnings"
adjustments before
income taxes (669,971) 770,790 (42,409)
Net tax effect(B) 67,524 6,683 (14,739)
--------- --------- ---------
Total "Core Earnings"
adjustments before income
taxes and minority
interest in net
earnings of subsidiaries (602,447) 777,473 (57,148)
-------- --------- ---------
GAAP net income (loss) $(343,760) $ 966,471 $263,472
========= ========= =========
GAAP diluted
earnings (loss)
per common share $ (.85) $ 1.03 $ .60
========= ========= =========
(A)"Core earnings" diluted
earnings per
common share $ .59 $ .43 $ .73
========= ========= =========
(B)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.
Nine months ended
September 30,
------------------------
2007 2006
---------- ----------
(unaudited) (unaudited)
"Core Earnings" net income(D) $ 698,893 $ 927,251
"Core Earnings" adjustments:
Net impact of
securitization accounting 249,364 600,490
Net impact of
derivative accounting 55,891 13,162
Net impact of Floor Income (118,657) (157,683)
Net impact of acquired
intangibles (58,945) (68,468)
---------- ----------
Total "Core Earnings"
adjustments before
income taxes and minority
interest in net earnings
of subsidiaries 127,653 387,501
Net tax effect(E) (87,682) (175,901)
---------- ----------
Total "Core Earnings"
adjustments 39,971 211,600
---------- ----------
GAAP net income $ 738,864 $1,138,851
========== ==========
GAAP diluted
earnings per
common share $ 1.69 $ 2.56
========== ==========
(D)"Core Earnings" diluted
earnings per
common share $ 1.58 $ 2.09
========== ==========
(E)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.
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.
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.
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.
Acquired Intangibles: Our "Core Earnings" exclude goodwill and
intangible impairment and the amortization of acquired intangibles.
SOURCE Sallie Mae
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