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The current quarter's results included a $74 million gain on debt repurchases, vs. the prior quarter's $325 million, and a $55 million accounting adjustment to reflect slower loan prepayments, and were reduced by $20 million for the early conversion of a portion of the company's Series C Preferred Stock into common stock. Floor income, not included in core earnings, totaled $36 million in the quarter.
"The return of the CP-LIBOR relationship to more normal levels helped this quarter's results; we expect credit quality to improve earnings in subsequent periods," said Albert L. Lord, vice chairman & CEO. "Obviously we are very engaged with other loan providers and schools to reform student lending. We can achieve all the President's objectives without transition risk, with first-class origination service and without thousands of private sector job losses."
Loan Volume
The 2009-2010 academic lending season opened with strong growth in federal student loan originations. The company originated $6.9 billion in federal student loans, an increase of 25 percent from the year-ago quarter. These loans are eligible for the U.S. Department of Education's (ED) purchase program. The company expects to service these and other accounts under the ED servicing contract.
During the quarter, the company originated $893 million in private education loans, a significant but not unexpected decrease from the year-ago quarter's $2.1 billion. The decrease is principally due to tightened underwriting standards and reduced demand caused by increased federal student loan limits.
Private Education Loan Portfolio Quality
The third-quarter 2009 private education loan loss provision was $413 million, net charge-offs were $443 million. Management anticipates loan charge-offs to decline from the current quarter but to remain at historically elevated levels. Loans in late-stage delinquency decreased, and loans in forbearance significantly decreased to $1.3 billion from a high of nearly $3.0 billion in early 2008.
Liquidity
In the quarter, the company significantly improved its liquidity by:
-- Completing $2.8 billion in private education loan securitizations, which provided life-of-loan funding;
-- Funding $3.2 billion in federal student loans through the Straight A conduit program sponsored by ED;
-- Reducing "2008 ABCP Facility" outstandings to $9.4 billion from $12.5 billion at the end of the second quarter; and
-- Repurchasing $1.4 billion in unsecured debt generating a $74 million gain.
Other Income and Operating Expenses
Core fee income, which included the gain on debt repurchases noted above, was $331 million in the third quarter. Year-ago core fee income was $64 million, which included a $242 million impairment in the company's purchased-paper line of business.
Operating expenses were $309 million for the quarter, a decrease from $317 million in the year-ago quarter.
GAAP
Sallie Mae officially 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. 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 2009 Supplemental Earnings Disclosure.
Sallie Mae reported third-quarter 2009 GAAP net income of $159 million, or $.25 diluted earnings per share, compared to net losses of $159 million, or $.40 diluted loss per share, in the 2008 third quarter.
The GAAP provision for loan losses was $321 million, compared to the year-ago quarter's $187 million. Under GAAP accounting, the provision for loan losses is based solely upon on-balance sheet loans; the comparable "core earnings" figure is based on total managed loans.
Presentation slides for the conference call discussed below may be accessed on www.salliemae.com/about/investors/stockholderinfo/webcast.
The company will host an earnings conference call tomorrow, Oct. 21 at 8 a.m. EDT. Sallie Mae executives will be on hand to discuss various highlights of the quarter and to answer questions related to the company's performance. Individuals interested in participating should call the following number tomorrow, Oct. 21, 2009, starting at 7:45 a.m. EDT: (877) 356-5689 (USA and Canada) or (706) 679-0623 (International) and use access code 35188825. The conference call will be replayed continuously beginning at 11 a.m. EDT on Oct. 21, 2009, and concluding at midnight on Nov. 4, 2009 EST. To access the replay, please dial (800) 642-1687 (USA and Canada) or dial (706) 645-9291 (International) and use access code 35188825. In addition, there will be a live audio Web cast of the conference call, which may be accessed at www.salliemae.com. A replay will be available 30 to 45 minutes after the live broadcast.
This press release contains "forward-looking statements" based on management's current expectations as of the date of this release. 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, limited liquidity, increased financing costs 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 2009. All information in this release is as of Oct. 20, 2009. 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, planning and paying for education programs. Through its subsidiaries, the company manages $192 billion in education loans and serves 10 million student and parent customers. Through its Upromise affiliates, the company also manages more than $21 billion in 529 college-savings plans, and is a major, private source of college funding contributions in America with 11 million members and more than $500 million in member rewards. 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 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, 2009
(In millions, except per share amounts)
Quarters ended Nine months ended
September 30, June 30, September 30, September 30, September 30,
2009 2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
SELECTED FINANCIAL INFORMATION AND RATIOS
GAAP Basis
Net income (loss) attributable to SLM Corporation $ 159 $ (123 ) $ (159 ) $ 15 $ 3
Diluted earnings (loss) per common share attributable to SLM $ .25 $ (.32 ) $ (.40 ) $ (.17 ) $ (.17 )
Corporation common shareholders
Return on assets .37 % (.30 )% (.43 )% .01 % .01 %
"Core Earnings" Basis(1)(2)
"Core Earnings" net income attributable to SLM Corporation(2) $ 164 $ 170 $ 117 $ 348 $ 461
"Core Earnings" diluted earnings per common share attributable to $ .26 $ .31 $ .19 $ .54 $ .81
SLM Corporation common shareholders(2)
"Core Earnings" return on assets .31 % .34 % .25 % .23 % .33 %
OTHER OPERATING STATISTICS
Average on-balance sheet student loans $ 157,530 $ 153,588 $ 138,606 $ 153,622 $ 133,915
Average off-balance sheet student loans 33,929 34,902 36,864 34,797 38,064
Average Managed student loans $ 191,459 $ 188,490 $ 175,470 $ 188,419 $ 171,979
Ending on-balance sheet student loans, net $ 158,846 $ 154,157 $ 141,328
Ending off-balance sheet student loans, net 33,335 33,961 36,362
Ending Managed student loans, net $ 192,181 $ 188,118 $ 177,690
Ending Managed FFELP Stafford and Other Student Loans, net $ 73,040 $ 68,374 $ 56,608
Ending Managed FFELP Consolidation Loans, net 84,235 85,272 88,282
Ending Managed Private Education Loans, net 34,906 34,472 32,800
Ending Managed student loans, net $ 192,181 $ 188,118 $ 177,690
(1) See explanation of "Core Earnings" performance measures under
"Reconciliation of 'Core Earnings' Net Income to GAAP Net Income."
(2) "Core Earnings" does not include Floor Income unless it is Fixed
Rate Floor Income that is economically hedged. The amount of this
Economic Floor Income (net of tax) excluded from "Core Earnings" for
the three months ended September 30, 2009, June 30, 2009, and
September 30, 2008 and the nine months ended September 30, 2009 and
2008 was:
Quarters ended Nine months ended
September 30, June 30, September 30, September 30, September 30,
2009 2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Total Economic Floor Income earned on Managed loans, not included in $ 23 $ 89 $ 1 $ 191 $ 50
"Core Earnings" (net of tax)
Total Economic Floor Income earned, not included in "Core Earnings" $ .05 $ .17 $ -- $ .41 $ .11
(net of tax) per common share attributable to SLM Corporation common
shareholders
SLM CORPORATION
Consolidated Balance Sheets
(In thousands, except per share amounts)
September 30, June 30, September 30,
2009 2009 2008
(unaudited) (unaudited) (unaudited)
Assets
FFELP Stafford and Other Student Loans (net of allowance for losses $ 43,257,743 $ 44,044,636 $ 44,827,445
of $101,343; $102,857; and $75,290, respectively)
FFELP Stafford Loans Held-for-Sale 23,846,566 18,159,232 4,097,493
FFELP Consolidation Loans (net of allowance for losses of $54,384; 69,246,231 70,102,304 72,565,628
$50,181; and $47,965, respectively)
Private Education Loans (net of allowance for losses of $1,401,496; 22,494,955 21,850,688 19,837,425
$1,396,707; and $1,012,838, respectively)
Other loans (net of allowance for losses of $74,057; $68,282; and 454,557 489,180 769,923
$53,189, respectively)
Cash and investments 7,021,808 8,212,439 5,013,583
Restricted cash and investments 5,760,583 5,245,702 3,897,417
Retained Interest in off-balance sheet securitized loans 1,838,203 1,820,614 2,323,419
Goodwill and acquired intangible assets, net 1,224,272 1,233,871 1,259,541
Other assets 11,299,006 10,025,129 10,399,220
Total assets $ 186,443,924 $ 181,183,795 $ 164,991,094
Liabilities
Short-term borrowings $ 53,406,554 $ 47,331,576 $ 38,267,553
Long-term borrowings 124,647,818 125,880,044 118,069,878
Other liabilities 3,400,527 3,120,636 3,297,998
Total liabilities 181,454,899 176,332,256 159,635,429
Commitments and contingencies
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 165,000 165,000 165,000
stated value of $50 per share
Series B: 4,000; 4,000; and 4,000 shares, respectively, issued at 400,000 400,000 400,000
stated value of $100 per share
Series C: 7.25% mandatory convertible preferred stock: 1,012; 1,150; 1,012,370 1,149,770 1,149,770
and 1,150 shares, respectively, issued at liquidation preference of
$1,000 per share
Common stock, par value $.20 per share, 1,125,000 shares 108,362 106,969 106,884
authorized: 541,849; 534,842; and 534,420 shares, respectively,
issued
Additional paid-in capital 4,862,071 4,709,053 4,665,614
Accumulated other comprehensive income (loss), net of tax expense (44,143 ) (48,683 ) 46,687
(benefit)
Retained earnings 346,347 229,865 669,509
Total SLM Corporation stockholders' equity before treasury stock 6,850,007 6,711,974 7,203,464
Common stock held in treasury: 67,159; 67,128; and 66,952 shares, 1,860,989 1,860,440 1,856,340
respectively
Total SLM Corporation stockholders' equity 4,989,018 4,851,534 5,347,124
Noncontrolling interest 7 5 8,541
Total equity 4,989,025 4,851,539 5,355,665
Total liabilities and equity $ 186,443,924 $ 181,183,795 $ 164,991,094
SLM CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)
Quarters ended Nine months ended
September 30, June 30, September 30, September 30, September 30,
2009 2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Interest income:
FFELP Stafford and Other Student Loans $ 303,192 $ 323,939 $ 516,116 $ 969,947 $ 1,478,190
FFELP Consolidation Loans 481,592 460,690 830,566 1,431,644 2,436,886
Private Education Loans 396,339 393,019 445,572 1,176,399 1,298,417
Other loans 11,042 18,468 19,874 45,930 64,573
Cash and investments 6,881 7,044 57,154 19,896 251,491
Total interest income 1,199,046 1,203,160 1,869,282 3,643,816 5,529,557
Total interest expense 673,870 819,459 1,394,533 2,519,876 4,375,896
Net interest income 525,176 383,701 474,749 1,123,940 1,153,661
Less: provisions for loan losses 321,127 278,112 186,909 849,518 467,235
Net interest income after provisions for loan losses 204,049 105,589 287,840 274,422 686,426
Other income (loss):
Servicing and securitization revenue 155,065 87,488 64,990 147,248 174,262
Gains (losses) on sales of loans and securities, net 12,452 268 (43,899 ) 12,752 (122,148 )
Gains (losses) on derivative and hedging activities, net (111,556 ) (561,795 ) (241,757 ) (569,326 ) (152,510 )
Contingency fee revenue 82,200 73,368 89,418 230,383 258,514
Collections revenue (loss) 15,580 22,068 (170,692 ) 16,318 (87,088 )
Guarantor servicing fees 48,087 24,772 36,848 106,867 95,164
Other 150,006 398,797 93,096 741,229 295,357
Total other income (loss) 351,834 44,966 (171,996 ) 685,471 461,551
Expenses:
Restructuring expenses 3,592 4,430 10,508 12,795 77,926
Operating expenses 318,620 315,185 367,152 935,288 1,076,488
Total expenses 322,212 319,615 377,660 948,083 1,154,414
Income (loss) before income tax expense (benefit) 233,671 (169,060 ) (261,816 ) 11,810 (6,437 )
Income tax expense (benefit) 74,363 (46,551 ) (103,819 ) (3,884 ) (13,233 )
Net income (loss) 159,308 (122,509 ) (157,997 ) 15,694 6,796
Less: net income attributable to noncontrolling interest 198 211 544 690 3,405
Net income (loss) attributable to SLM Corporation 159,110 (122,720 ) (158,541 ) 15,004 3,391
Preferred stock dividends 42,627 25,800 27,474 94,822 83,890
Net income (loss) attributable to SLM Corporation common stock $ 116,483 $ (148,520 ) $ (186,015 ) $ (79,818 ) $ (80,499 )
Basic earnings (loss) per common share attributable to SLM $ .25 $ (.32 ) $ (.40 ) $ (.17 ) $ (.17 )
Corporation common shareholders
Average common shares outstanding 470,280 466,799 466,646 467,960 466,625
Diluted earnings (loss) per common share attributable to SLM $ .25 $ (.32 ) $ (.40 ) $ (.17 ) $ (.17 )
Corporation common shareholders
Average common and common equivalent shares outstanding 471,058 466,799 466,646 467,960 466,625
Dividends per common share attributable to SLM Corporation common $ -- $ -- $ -- $ -- $ --
shareholders
SLM CORPORATION
Segment and "Core Earnings"
Consolidated Statements of Income
(In thousands)
Quarter ended September 30, 2009
Corporate Total "Core Total
Lending APG and Other Earnings" Adjustments GAAP
(unaudited)
Interest income:
FFELP Stafford and Other Student Loans $ 340,652 $ -- $ -- $ 340,652 $ (37,460 ) $ 303,192
FFELP Consolidation Loans 429,617 -- -- 429,617 51,975 481,592
Private Education Loans 560,791 -- -- 560,791 (164,452 ) 396,339
Other loans 11,042 -- -- 11,042 -- 11,042
Cash and investments 2,337 -- 5,156 7,493 (612 ) 6,881
Total interest income 1,344,439 -- 5,156 1,349,595 (150,549 ) 1,199,046
Total interest expense 652,017 4,584 3,370 659,971 13,899 673,870
Net interest income (loss) 692,422 (4,584 ) 1,786 689,624 (164,448 ) 525,176
Less: provisions for loan losses 447,963 -- -- 447,963 (126,836 ) 321,127
Net interest income (loss) after provisions for loan losses 244,459 (4,584 ) 1,786 241,661 (37,612 ) 204,049
Contingency fee revenue -- 82,200 -- 82,200 -- 82,200
Collections revenue -- 15,580 -- 15,580 -- 15,580
Guarantor servicing fees -- -- 48,087 48,087 -- 48,087
Other income 129,286 -- 55,821 185,107 20,860 205,967
Total other income 129,286 97,780 103,908 330,974 20,860 351,834
Restructuring expenses 1,399 1,440 753 3,592 -- 3,592
Operating expenses 154,165 79,920 74,739 308,824 9,796 318,620
Total expenses 155,564 81,360 75,492 312,416 9,796 322,212
Income before income tax expense 218,181 11,836 30,202 260,219 (26,548 ) 233,671
Income tax expense(1) 80,514 4,404 11,161 96,079 (21,716 ) 74,363
Less: net income attributable to noncontrolling interest -- 198 -- 198 -- 198
Net income attributable to SLM Corporation $ 137,667 $ 7,234 $ 19,041 $ 163,942 $ (4,832 ) $ 159,110
Economic Floor Income (net of tax) not included in "Core Earnings" $ 22,607 $ -- $ -- $ 22,607
(1) Income taxes are based on a percentage of net income before tax for
the individual reportable segment.
SLM CORPORATION
Segment and "Core Earnings"
Consolidated Statements of Income
(In thousands)
Quarter ended June 30, 2009
Corporate Total "Core Total
Lending APG and Other Earnings" Adjustments GAAP
(unaudited)
Interest income:
FFELP Stafford and Other Student Loans $ 309,553 $ -- $ -- $ 309,553 $ 14,386 $ 323,939
FFELP Consolidation Loans 394,288 -- -- 394,288 66,402 460,690
Private Education Loans 558,667 -- -- 558,667 (165,648 ) 393,019
Other loans 18,468 -- -- 18,468 -- 18,468
Cash and investments 3,683 -- 4,319 8,002 (958 ) 7,044
Total interest income 1,284,659 -- 4,319 1,288,978 (85,818 ) 1,203,160
Total interest expense 823,308 5,001 3,721 832,030 (12,571 ) 819,459
Net interest income (loss) 461,351 (5,001 ) 598 456,948 (73,247 ) 383,701
Less: provisions for loan losses 401,790 -- -- 401,790 (123,678 ) 278,112
Net interest income (loss) after provisions for loan losses 59,561 (5,001 ) 598 55,158 50,431 105,589
Contingency fee revenue -- 73,368 -- 73,368 -- 73,368
Collections revenue -- 22,068 -- 22,068 -- 22,068
Guarantor servicing fees -- -- 24,772 24,772 -- 24,772
Other income (loss) 359,363 -- 46,273 405,636 (480,878 ) (75,242 )
Total other income 359,363 95,436 71,045 525,844 (480,878 ) 44,966
Restructuring expenses 4,215 368 (153 ) 4,430 -- 4,430
Operating expenses 147,599 85,818 71,976 305,393 9,792 315,185
Total expenses 151,814 86,186 71,823 309,823 9,792 319,615
Income (loss) before income tax expense (benefit) 267,110 4,249 (180 ) 271,179 (440,239 ) (169,060 )
Income tax expense (benefit)(1) 99,084 1,464 (24 ) 100,524 (147,075 ) (46,551 )
Less: net income attributable to noncontrolling interest -- 211 -- 211 -- 211
Net income (loss) attributable to SLM Corporation $ 168,026 $ 2,574 $ (156 ) $ 170,444 $ (293,164 ) $ (122,720 )
Economic Floor Income (net of tax) not included in "Core Earnings" $ 88,899 $ -- $ -- $ 88,899
(1) Income taxes are based on a percentage of net income before tax for
the individual reportable segment.
SLM CORPORATION
Segment and "Core Earnings"
Consolidated Statements of Income
(In thousands)
Quarter ended September 30, 2008
Corporate Total "Core Total
Lending APG and Other Earnings" Adjustments GAAP
(unaudited)
Interest income:
FFELP Stafford and Other Student Loans $ 611,786 $ -- $ -- $ 611,786 $ (95,670 ) $ 516,116
FFELP Consolidation Loans 995,102 -- -- 995,102 (164,536 ) 830,566
Private Education Loans 678,293 -- -- 678,293 (232,721 ) 445,572
Other loans 19,874 -- -- 19,874 -- 19,874
Cash and investments 61,731 -- 6,829 68,560 (11,406 ) 57,154
Total interest income 2,366,786 -- 6,829 2,373,615 (504,333 ) 1,869,282
Total interest expense 1,651,071 5,984 4,472 1,661,527 (266,994 ) 1,394,533
Net interest income (loss) 715,715 (5,984 ) 2,357 712,088 (237,339 ) 474,749
Less: provisions for loan losses 263,019 -- -- 263,019 (76,110 ) 186,909
Net interest income (loss) after provisions for loan losses 452,696 (5,984 ) 2,357 449,069 (161,229 ) 287,840
Contingency fee revenue -- 89,418 -- 89,418 -- 89,418
Collections revenue (loss) -- (168,689 ) -- (168,689 ) (2,003 ) (170,692 )
Guarantor servicing fees -- -- 36,848 36,848 -- 36,848
Other income (loss) 55,315 -- 50,661 105,976 (233,546 ) (127,570 )
Total other income (loss) 55,315 (79,271 ) 87,509 63,553 (235,549 ) (171,996 )
Restructuring expenses (236 ) 4,177 6,567 10,508 -- 10,508
Operating expenses 141,797 105,748 69,161 316,706 50,446 367,152
Total expenses 141,561 109,925 75,728 327,214 50,446 377,660
Income (loss) before income tax expense (benefit) 366,450 (195,180 ) 14,138 185,408 (447,224 ) (261,816 )
Income tax expense (benefit)(1) 134,440 (71,756 ) 5,198 67,882 (171,701 ) (103,819 )
Less: net income attributable to noncontrolling interest -- 544 -- 544 -- 544
Net income (loss) attributable to SLM Corporation $ 232,010 $ (123,968 ) $ 8,940 $ 116,982 $ (275,523 ) $ (158,541 )
Economic Floor Income (net of tax) not included in "Core Earnings" $ 1,008 $ -- $ -- $ 1,008
(1) Income taxes are based on a percentage of net income before tax for
the individual reportable segment.
SLM CORPORATION
Segment and "Core Earnings"
Consolidated Statements of Income
(In thousands)
Nine months ended September 30, 2009
Corporate Total "Core Total
Lending APG and Other Earnings" Adjustments GAAP
(unaudited)
Interest income:
FFELP Stafford and Other Student Loans $ 1,012,124 $ -- $ -- $ 1,012,124 $ (42,177 ) $ 969,947
FFELP Consolidation Loans 1,262,801 -- -- 1,262,801 168,843 1,431,644
Private Education Loans 1,682,740 -- -- 1,682,740 (506,341 ) 1,176,399
Other loans 45,930 -- -- 45,930 -- 45,930
Cash and investments 8,199 -- 14,603 22,802 (2,906 ) 19,896
Total interest income 4,011,794 -- 14,603 4,026,397 (382,581 ) 3,643,816
Total interest expense 2,424,573 15,077 11,230 2,450,880 68,996 2,519,876
Net interest income (loss) 1,587,221 (15,077 ) 3,373 1,575,517 (451,577 ) 1,123,940
Less: provisions for loan losses 1,198,839 -- -- 1,198,839 (349,321 ) 849,518
Net interest income (loss) after provisions for loan losses 388,382 (15,077 ) 3,373 376,678 (102,256 ) 274,422
Contingency fee revenue -- 230,383 -- 230,383 -- 230,383
Collections revenue -- 15,629 -- 15,629 689 16,318
Guarantor servicing fees -- -- 106,867 106,867 -- 106,867
Other income 591,017 -- 151,875 742,892 (410,989 ) 331,903
Total other income 591,017 246,012 258,742 1,095,771 (410,300 ) 685,471
Restructuring expenses 6,676 3,463 2,656 12,795 -- 12,795
Operating expenses 435,513 259,419 210,904 905,836 29,452 935,288
Total expenses 442,189 262,882 213,560 918,631 29,452 948,083
Income (loss) before income tax expense (benefit) 537,210 (31,947 ) 48,555 553,818 (542,008 ) 11,810
Income tax expense (benefit)(1) 198,714 (11,817 ) 17,961 204,858 (208,742 ) (3,884 )
Less: net income attributable to noncontrolling interest -- 690 -- 690 -- 690
Net income (loss) attributable to SLM Corporation $ 338,496 $ (20,820 ) $ 30,594 $ 348,270 $ (333,266 ) $ 15,004
Economic Floor Income (net of tax) not included in "Core Earnings" $ 190,894 $ -- $ -- $ 190,894
(1) Income taxes are based on a percentage of net income before tax for
the individual reportable segment.
SLM CORPORATION
Segment and "Core Earnings"
Consolidated Statements of Income
(In thousands)
Nine months ended September 30, 2008
Corporate Total "Core Total
Lending APG and Other Earnings" Adjustments GAAP
(unaudited)
Interest income:
FFELP Stafford and Other Student Loans $ 1,630,190 $ -- $ -- $ 1,630,190 $ (152,000 ) $ 1,478,190
FFELP Consolidation Loans 2,891,257 -- -- 2,891,257 (454,371 ) 2,436,886
Private Education Loans 2,093,066 -- -- 2,093,066 (794,649 ) 1,298,417
Other loans 64,573 -- -- 64,573 -- 64,573
Cash and investments 284,078 -- 17,998 302,076 (50,585 ) 251,491
Total interest income 6,963,164 -- 17,998 6,981,162 (1,451,605 ) 5,529,557
Total interest expense 5,080,414 19,757 14,748 5,114,919 (739,023 ) 4,375,896
Net interest income (loss) 1,882,750 (19,757 ) 3,250 1,866,243 (712,582 ) 1,153,661
Less: provisions for loan losses 636,521 -- -- 636,521 (169,286 ) 467,235
Net interest income (loss) after provisions for loan losses 1,246,229 (19,757 ) 3,250 1,229,722 (543,296 ) 686,426
Contingency fee revenue -- 258,514 -- 258,514 -- 258,514
Collections revenue (loss) -- (84,811 ) -- (84,811 ) (2,277 ) (87,088 )
Guarantor servicing fees -- -- 95,164 95,164 -- 95,164
Other income 161,558 -- 146,889 308,447 (113,486 ) 194,961
Total other income 161,558 173,703 242,053 577,314 (115,763 ) 461,551
Restructuring expenses 46,261 9,785 21,880 77,926 -- 77,926
Operating expenses 459,938 322,230 212,687 994,855 81,633 1,076,488
Total expenses 506,199 332,015 234,567 1,072,781 81,633 1,154,414
Income (loss) before income tax expense (benefit) 901,588 (178,069 ) 10,736 734,255 (740,692 ) (6,437 )
Income tax expense (benefit)(1) 331,424 (65,458 ) 3,946 269,912 (283,145 ) (13,233 )
Less: net income attributable to noncontrolling interest -- 3,405 -- 3,405 -- 3,405
Net income (loss) attributable to SLM Corporation $ 570,164 $ (116,016 ) $ 6,790 $ 460,938 $ (457,547 ) $ 3,391
Economic Floor Income (net of tax) not included in "Core Earnings" $ 49,982 $ -- $ -- $ 49,982
(1) 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 Nine months ended
September 30, June 30, September 30, September 30, September 30,
2009 2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
"Core Earnings" net income attributable to SLM Corporation(1)(2) $ 163,942 $ 170,444 $ 116,982 $ 348,270 $ 460,938
"Core Earnings" adjustments:
Net impact of securitization accounting 27,885 (25,861 ) (148,121 ) (196,566 ) (473,773 )
Net impact of derivative accounting (36,598 ) (494,581 ) (205,991 ) (477,169 ) (118,750 )
Net impact of Floor Income (8,020 ) 90,022 (42,721 ) 161,025 (67,107 )
Net impact of acquired intangibles (9,815 ) (9,819 ) (50,391 ) (29,298 ) (81,062 )
Total "Core Earnings" adjustments before income tax effect (26,548 ) (440,239 ) (447,224 ) (542,008 ) (740,692 )
Net tax effect 21,716 147,075 171,701 208,742 283,145
Total "Core Earnings" adjustments (4,832 ) (293,164 ) (275,523 ) (333,266 ) (457,547 )
GAAP net income (loss) attributable to SLM Corporation $ 159,110 $ (122,720 ) $ (158,541 ) $ 15,004 $ 3,391
GAAP diluted earnings (loss) per common share attributable to SLM $ .25 $ (.32 ) $ (.40 ) $ (.17 ) $ (.17 )
Corporation common shareholders
(1) "Core Earnings" diluted earnings per common share attributable to $ .26 $ .31 $ .19 $ .54 $ .81
SLM Corporation common shareholders
(2) Total Economic Floor Income earned on Managed loans, not included $ 22,607 $ 88,899 $ 1,008 $ 190,894 $ 49,982
in "Core Earnings" (net of tax)
Total Economic Floor Income earned, not included in "Core Earnings" $ .05 $ .17 $ -- $ .41 $ .11
(net of tax) per common share attributable to SLM Corporation common
shareholders
FASB Accounting Standards Codification
The Company adopted, as of July 1, 2009, the Financial Accounting Standards Board's ("FASB's") Accounting Standards Codification ("ASC") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("GAAP"). The ASC does not change authoritative guidance. Accordingly, implementing the ASC did not change any of the Company's accounting, and therefore, did not have an impact on the consolidated results of the Company. References to authoritative GAAP literature have been updated accordingly.
"Core Earnings"
In accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"), we prepare financial statements in accordance with 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 ASC 280, "Segment Reporting," 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 products and services or by types of customers, and 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.
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 ASC 815, "Derivatives and Hedging," 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 and changing credit spreads 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 Fixed Rate Floor Income that 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 makers. Our "Core Earnings" are used in developing our financial plans and tracking results, and also in establishing corporate performance targets and 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 interest income, provisions
for loan losses, and interest expense as 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 that are caused primarily by the
one-sided mark-to-market derivative valuations prescribed by ASC
815 on derivatives that do not qualify for "hedge treatment" under
GAAP. These unrealized gains and losses occur in our Lending
operating segment. 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.
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 only include such income
in "Core Earnings" when it is Fixed Rate Floor Income that is
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 in the consolidated
statement of income 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 in income the
amortization of net premiums received on contracts economically
hedging Fixed Rate Floor Income.
4) Acquired Intangibles: Our "Core Earnings" exclude goodwill
and intangible impairment and the amortization of acquired
intangibles.
SOURCE: Sallie Mae
Sallie Mae Media Contact: Martha Holler, 703-984-5178 or Investor Contacts: Steve McGarry, 703-984-6746 Joe Fisher, 703-984-5755
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