SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
of The Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): January 21, 2009
SLM CORPORATION
(Exact name of registrant as specified in its charter)
| DELAWARE | File No. 001-13251 | 52-2013874 | ||
| (State or other jurisdiction | (Commission File Number) | (IRS Employer | ||
| of incorporation) | Identification No.) |
12061 Bluemont Way, Reston, Virginia 20190
(Address if principal executive offices)(zip code)
(Address if principal executive offices)(zip code)
Registrant’s telephone number, including area code: (703) 810-3000
Not Applicable
(Former name or former address, if changed since last report)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition
On
January 21, 2009, SLM Corporation (the “Company”) issued a press release with
respect to its earnings for the fiscal quarter ended December 31,
2008, which is furnished as Exhibit 99.1 to this Current Report on Form 8-K. The Supplemental Financial Information Release for the Fourth Quarter 2008 is available on the
Company’s Web site at www.salliemae.com/about/investors/stockholderinfo/earningsinfo.
Presentation slides used during the Company’s investor conference call, set for January 22, 2009,
at 8:00 a.m. EST., may be accessed at www.salliemae.com/about/investors/stockholderinfo/webcast no later than the starting time of the conference call.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this
report to be signed on its behalf by the undersigned hereunto duly authorized.
| SLM CORPORATION |
||||
| By: | /s/ JOHN F. REMONDI | |||
| Name: | John F. Remondi | |||
| Title: | Vice Chairman and Chief Financial Officer | |||
Dated:
January 21, 2009
3
SLM CORPORATION
Form 8-K
CURRENT REPORT
EXHIBIT INDEX
Form 8-K
CURRENT REPORT
EXHIBIT INDEX
| Exhibit | ||
| No. | Description | |
99.1 |
Press Release dated January 21, 2009 |
4
Exhibit
99.1
FOR IMMEDIATE RELEASE
|
Media Contact: | Investor Contacts: | ||
| Tom Joyce | Steve McGarry | |||
| 703/984-5610 | 703/984-6746 | |||
| Martha Holler | Joe Fisher | |||
| 703/984-5178 | 703/984-5755 |
SALLIE MAE ANNOUNCES FOURTH-QUARTER AND FULL-YEAR 2008 RESULTS
· Student Loan Originations Exceed $24 Billion in 2008
· Federal Student Loan Originations Grow 25 Percent in Quarter
· Private Student Loan Provision Increases
RESTON, Va., Jan. 21, 2009 — SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, today
reported fourth-quarter and full-year 2008 results that reflect significant growth in federal
student loan originations and increased provisions for private loan losses.
“In the midst of this historic financial environment for consumers and businesses, the federal
government’s liquidity solutions continue to allow us to deliver — at a net savings to taxpayers
— access to federal loans for every student who seeks one,” said Albert L. Lord, chief executive
officer. “Thanks to timely action by Congress and the Departments of Education and Treasury, we
increased our federal student loan originations in 2008 and continued our mission to help students
and families pay for college.”
Core earnings net income was $65 million, or $.08 diluted earnings per share, in the 2008
fourth quarter. The company provided $348 million for managed private loan losses in the fourth
quarter 2008, reducing the current quarter’s earnings per diluted share $.20 from the prior quarter
and bringing the full-year 2008 managed private loan provision to $874 million. Also, the
commercial paper/LIBOR spread, which was wider during the quarter than the historical average,
reduced earnings per diluted share by $.06 in the 2008 fourth quarter compared to the prior
quarter.
For the full-year 2008, core earnings net income was $526 million, or $.89 diluted earnings
per share. This includes the after-tax effects of restructuring-related expenses of $57 million
($.12 diluted loss per share), purchased-paper business losses of $199 million ($.43 diluted loss
per share), and a reduction of premium expense on student loans as a result of loan prepayment
assumption changes of $22 million ($.05 diluted earnings per share).
Excluding restructuring-related expenses, fourth-quarter 2008 core earnings operating expenses
were $270 million, a 26-percent decrease from the year-ago period, exceeding the company’s 20
percent cost reduction target. For the full-year 2008, core earnings operating expenses were $1.26
billion.
The company originated $4.8 billion in student loans in the 2008 fourth quarter and $24.2
billion in the full-year 2008. Federal student loan originations were $3.9 billion in the
fourth-quarter 2008, a 25-percent increase from the year-ago quarter, and $17.9 billion in the
full-year 2008.
Private student loan delinquencies increased during the fourth-quarter 2008, with 2.6 percent
of traditional managed private student loans in repayment more than 90-days delinquent at Dec. 31,
2008, compared to 2.3 percent at Sept. 30, 2008.
For 2009, the company will continue to make student loans available. Funding for this lending
will come from an unlimited ability to fund federal student loans under various liquidity programs
implemented by the federal government and a secure source of funding for private student loans
through term bank deposits.
Core earnings net interest income was $553 million in the 2008 fourth quarter. In 2008, core
earnings net interest income was $2.4 billion.
Core earnings other income, which consists primarily of fees earned from guarantor servicing
and collection activity, was $200 million in the fourth-quarter 2008. In 2008, core earnings other
income was $778 million.
In addition to presenting certain core earnings performance measures, Sallie Mae reports
financial results on a GAAP basis. The company’s management, equity investors, credit rating
agencies and debt capital providers use 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 Fourth Quarter
2008 Supplemental Earnings Disclosure.
Sallie Mae reported a fourth-quarter 2008 GAAP net loss of $216 million, or $.52 diluted loss
per share. These fourth-quarter 2008 results include the net impact of a $439 million unrealized,
mark-to-market, pre-tax loss on certain derivative contracts that are recognized in GAAP, but not
in core earnings, results.
In 2008, GAAP net loss was $213 million, including the net impact of a $552 million
unrealized, mark-to-market, pre-tax loss on certain derivative contracts that are recognized in
GAAP, but not in core earnings, results.
***
The company will host an earnings conference call tomorrow, Jan. 22 at 8 a.m. EST. 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, Jan. 22, 2009, starting at 7:45 a.m. EST: (877) 356-5689 (USA and Canada) or (706)
679-0623 (International) and use access code 79327982. The conference call will be replayed
continuously beginning at 11 a.m. EST on Thursday, Jan. 22, 2009, and concluding at midnight on
Feb. 5, 2009. To access the replay, please dial (800) 642-1687 (USA and Canada) or dial (706)
645-9291 (International) and use access code 79327982. 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, general economic
conditions, 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 Fourth
Quarter 2008. All information in this release is as of January 21, 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- and paying-for-college programs. The company manages $180 billion in education loans and
serves 10 million student and parent customers. Through its Upromise affiliates, the company also
manages more than $17.5 billion in 529 college-savings plans, and is a major, private source of
college funding contributions in America with 10 million members and more than $450 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
December 31,
2008
(In
millions, except per share amounts)
| Quarters ended | Years ended | |||||||||||||||||||
|
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
||||||||||||||||
| 2008 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
|
SELECTED FINANCIAL INFORMATION AND RATIOS
|
||||||||||||||||||||
|
GAAP Basis
|
||||||||||||||||||||
|
Net income (loss)
|
$ | (216 | ) | $ | (159 | ) | $ | (1,635 | ) | $ | (213 | ) | $ | (896 | ) | |||||
|
Diluted earnings (loss) per common share
|
$ | (.52 | ) | $ | (.40 | ) | $ | (3.98 | ) | $ | (.69 | ) | $ | (2.26 | ) | |||||
|
Return on assets
|
(.56 | )% | (.43 | )% | (4.60 | )% | (.14 | )% | (.71 | )% | ||||||||||
|
“Core Earnings”
Basis(1)
|
||||||||||||||||||||
|
“Core Earnings” net income (loss)
|
$ | 65 | $ | 117 | $ | (139 | ) | $ | 526 | $ | 560 | |||||||||
|
“Core Earnings” diluted earnings (loss) per common
share
|
$ | .08 | $ | .19 | $ | (.36 | ) | $ | .89 | $ | 1.23 | |||||||||
|
“Core Earnings” return on assets
|
.14 | % | .25 | % | (.30 | )% | .28 | % | .33 | % | ||||||||||
|
OTHER OPERATING STATISTICS
|
||||||||||||||||||||
|
Average on-balance sheet student loans
|
$ | 144,826 | $ | 138,606 | $ | 121,685 | $ | 136,658 | $ | 111,719 | ||||||||||
|
Average off-balance sheet student loans
|
36,164 | 36,864 | 40,084 | 37,586 | 42,411 | |||||||||||||||
|
Average Managed student loans
|
$ | 180,990 | $ | 175,470 | $ | 161,769 | $ | 174,244 | $ | 154,130 | ||||||||||
|
Ending on-balance sheet student loans, net
|
$ | 144,802 | $ | 141,328 | $ | 124,153 | ||||||||||||||
|
Ending off-balance sheet student loans, net
|
35,591 | 36,362 | 39,423 | |||||||||||||||||
|
Ending Managed student loans, net
|
$ | 180,393 | $ | 177,690 | $ | 163,576 | ||||||||||||||
|
Ending Managed FFELP Stafford and Other Student Loans, net
|
$ | 59,619 | $ | 56,608 | $ | 45,198 | ||||||||||||||
|
Ending Managed FFELP Consolidation Loans, net
|
87,275 | 88,282 | 90,050 | |||||||||||||||||
|
Ending Managed Private Education Loans, net
|
33,499 | 32,800 | 28,328 | |||||||||||||||||
|
Ending Managed student loans, net
|
$ | 180,393 | $ | 177,690 | $ | 163,576 | ||||||||||||||
| (1) | 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)
|
December 31, |
September 30, |
December 31, |
||||||||||
| 2008 | 2008 | 2007 | ||||||||||
| (unaudited) | (unaudited) | |||||||||||
|
Assets
|
||||||||||||
|
FFELP Stafford and Other Student Loans (net of allowance for
losses of $90,906; $75,290; and $47,518, respectively)
|
$ | 44,025,361 | $ | 44,827,445 | $ | 35,726,062 | ||||||
|
FFELP Stafford Loans Held-for-Sale
|
8,450,976 | 4,097,493 | — | |||||||||
|
FFELP Consolidation Loans (net of allowance for losses of
$46,637; $47,965; and $41,211, respectively)
|
71,743,435 | 72,565,628 | 73,609,187 | |||||||||
|
Private Education Loans (net of allowance for losses of
$1,085,680; $1,012,838; and $885,931, respectively)
|
20,582,298 | 19,837,425 | 14,817,725 | |||||||||
|
Other loans (net of allowance for losses of $58,395; $53,189;
and $43,558, respectively)
|
729,380 | 769,923 | 1,173,666 | |||||||||
|
Cash and investments
|
5,111,407 | 5,013,583 | 10,546,411 | |||||||||
|
Restricted cash and investments
|
3,535,286 | 3,897,417 | 4,600,106 | |||||||||
|
Retained Interest in off-balance sheet securitized loans
|
2,200,298 | 2,323,419 | 3,044,038 | |||||||||
|
Goodwill and acquired intangible assets, net
|
1,249,219 | 1,259,541 | 1,300,689 | |||||||||
|
Other assets
|
11,140,777 | 10,399,220 | 10,747,107 | |||||||||
|
Total assets
|
$ | 168,768,437 | $ | 164,991,094 | $ | 155,564,991 | ||||||
|
Liabilities
|
||||||||||||
|
ED Participation Program facility
|
$ | 7,364,969 | $ | 3,554,618 | $ | — | ||||||
|
Term bank deposits
|
1,147,825 | 744,086 | 254,029 | |||||||||
|
Other short-term borrowings
|
33,420,249 | 33,968,849 | 35,693,378 | |||||||||
|
Total short-term borrowings
|
41,933,043 | 38,267,553 | 35,947,407 | |||||||||
|
Long-term borrowings
|
118,224,794 | 118,069,878 | 111,098,144 | |||||||||
|
Other liabilities
|
3,604,260 | 3,297,998 | 3,284,545 | |||||||||
|
Total liabilities
|
163,762,097 | 159,635,429 | 150,330,096 | |||||||||
|
Commitments and contingencies
|
||||||||||||
|
Minority interest in subsidiaries
|
7,270 | 8,541 | 11,360 | |||||||||
|
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
|
165,000 | 165,000 | 165,000 | |||||||||
|
Series B: 4,000; 4,000; and 4,000 shares,
respectively, issued at stated value of $100 per share
|
400,000 | 400,000 | 400,000 | |||||||||
|
Series C: 7.25% mandatory convertible preferred stock:
1,150; 1,150; and 1,000 shares, respectively, issued at
liquidation preference of $1,000 per share
|
1,149,770 | 1,149,770 | 1,000,000 | |||||||||
|
Common stock, par value $.20 per share, 1,125,000 shares
authorized: 534,411; 534,420; and 532,493 shares,
respectively, issued
|
106,883 | 106,884 | 106,499 | |||||||||
|
Additional paid-in capital
|
4,684,112 | 4,665,614 | 4,590,174 | |||||||||
|
Accumulated other comprehensive income (loss), net of tax
|
(76,476 | ) | 46,687 | 236,364 | ||||||||
|
Retained earnings
|
426,175 | 669,509 | 557,204 | |||||||||
|
Stockholders’ equity before treasury stock
|
6,855,464 | 7,203,464 | 7,055,241 | |||||||||
|
Common stock held in treasury: 66,958; 66,952; and
65,951 shares, respectively
|
1,856,394 | 1,856,340 | 1,831,706 | |||||||||
|
Total stockholders’ equity
|
4,999,070 | 5,347,124 | 5,223,535 | |||||||||
|
Total liabilities and stockholders’ equity
|
$ | 168,768,437 | $ | 164,991,094 | $ | 155,564,991 | ||||||
2
SLM
CORPORATION
Consolidated Statements of Income
(In
thousands, except per share amounts)
| Quarters ended | Years ended | |||||||||||||||||||
|
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
||||||||||||||||
| 2008 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||
|
Interest income:
|
||||||||||||||||||||
|
FFELP Stafford and Other Student Loans
|
$ | 516,204 | $ | 516,116 | $ | 553,313 | $ | 1,994,394 | $ | 2,060,993 | ||||||||||
|
FFELP Consolidation Loans
|
741,806 | 830,566 | 1,095,565 | 3,178,692 | 4,343,138 | |||||||||||||||
|
Private Education Loans
|
439,137 | 445,572 | 395,962 | 1,737,554 | 1,456,471 | |||||||||||||||
|
Other loans
|
18,161 | 19,874 | 25,427 | 82,734 | 105,843 | |||||||||||||||
|
Cash and investments
|
24,773 | 57,154 | 240,846 | 276,264 | 707,577 | |||||||||||||||
|
Total interest income
|
1,740,081 | 1,869,282 | 2,311,113 | 7,269,638 | 8,674,022 | |||||||||||||||
|
Total interest expense
|
1,529,522 | 1,394,533 | 1,976,642 | 5,905,418 | 7,085,772 | |||||||||||||||
|
Net interest income
|
210,559 | 474,749 | 334,471 | 1,364,220 | 1,588,250 | |||||||||||||||
|
Less: provisions for loan losses
|
252,415 | 186,909 | 574,178 | 719,650 | 1,015,308 | |||||||||||||||
|
Net interest income (loss) after provisions for loan losses
|
(41,856 | ) | 287,840 | (239,707 | ) | 644,570 | 572,942 | |||||||||||||
|
Other income (loss):
|
||||||||||||||||||||
|
Gains on student loan securitizations
|
— | — | — | — | 367,300 | |||||||||||||||
|
Servicing and securitization revenue
|
87,557 | 64,990 | 23,289 | 261,819 | 437,097 | |||||||||||||||
|
Losses on sales of loans and securities, net
|
(64,007 | ) | (43,899 | ) | (28,441 | ) | (186,155 | ) | (95,492 | ) | ||||||||||
|
Gains (losses) on derivative and hedging activities, net
|
(292,903 | ) | (241,757 | ) | (1,337,703 | ) | (445,413 | ) | (1,360,584 | ) | ||||||||||
|
Contingency fee revenue
|
81,626 | 89,418 | 91,872 | 340,140 | 335,737 | |||||||||||||||
|
Collections revenue (loss)
|
23,050 | (170,692 | ) | 76,105 | (64,038 | ) | 271,547 | |||||||||||||
|
Guarantor servicing fees
|
26,199 | 36,848 | 40,980 | 121,363 | 156,429 | |||||||||||||||
|
Other
|
96,719 | 93,096 | 92,954 | 392,076 | 385,075 | |||||||||||||||
|
Total other income (loss)
|
(41,759 | ) | (171,996 | ) | (1,040,944 | ) | 419,792 | 497,109 | ||||||||||||
|
Expenses:
|
||||||||||||||||||||
|
Restructuring expenses
|
5,849 | 10,508 | 22,505 | 83,775 | 22,505 | |||||||||||||||
|
Operating expenses
|
280,367 | 367,152 | 418,469 | 1,356,855 | 1,529,342 | |||||||||||||||
|
Total expenses
|
286,216 | 377,660 | 440,974 | 1,440,630 | 1,551,847 | |||||||||||||||
|
Income (loss) before income taxes and minority interest in net
earnings of subsidiaries
|
(369,831 | ) | (261,816 | ) | (1,721,625 | ) | (376,268 | ) | (481,796 | ) | ||||||||||
|
Income tax expense (benefit)
|
(154,341 | ) | (103,819 | ) | (86,904 | ) | (167,574 | ) | 412,283 | |||||||||||
|
Income (loss) before minority interest in net earnings of
subsidiaries
|
(215,490 | ) | (157,997 | ) | (1,634,721 | ) | (208,694 | ) | (894,079 | ) | ||||||||||
|
Minority interest in net earnings of subsidiaries
|
527 | 544 | 537 | 3,932 | 2,315 | |||||||||||||||
|
Net income (loss)
|
(216,017 | ) | (158,541 | ) | (1,635,258 | ) | (212,626 | ) | (896,394 | ) | ||||||||||
|
Preferred stock dividends
|
27,316 | 27,474 | 9,622 | 111,206 | 37,145 | |||||||||||||||
|
Net income (loss) attributable to common stock
|
$ | (243,333 | ) | $ | (186,015 | ) | $ | (1,644,880 | ) | $ | (323,832 | ) | $ | (933,539 | ) | |||||
|
Basic earnings (loss) per common share
|
$ | (.52 | ) | $ | (.40 | ) | $ | (3.98 | ) | $ | (.69 | ) | $ | (2.26 | ) | |||||
|
Average common shares outstanding
|
466,692 | 466,646 | 413,049 | 466,642 | 412,233 | |||||||||||||||
|
Diluted earnings (loss) per common share
|
$ | (.52 | ) | $ | (.40 | ) | $ | (3.98 | ) | $ | (.69 | ) | $ | (2.26 | ) | |||||
|
Average common and common equivalent shares outstanding
|
466,692 | 466,646 | 413,049 | 466,642 | 412,233 | |||||||||||||||
|
Dividends per common share
|
$ | — | $ | — | $ | — | $ | — | $ | .25 | ||||||||||
3
SLM
CORPORATION
Segment and “Core Earnings”
Consolidated
Statements of Income
(In
thousands)
| Quarter ended December 31, 2008 | ||||||||||||||||||||||||
|
Asset |
||||||||||||||||||||||||
|
Performance |
Corporate |
Total “Core |
Total |
|||||||||||||||||||||
| Lending | Group | and Other | Earnings” | Adjustments | GAAP | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
|
Interest income:
|
||||||||||||||||||||||||
|
FFELP Stafford and Other Student Loans
|
$ | 586,206 | $ | — | $ | — | $ | 586,206 | $ | (70,002 | ) | $ | 516,204 | |||||||||||
|
FFELP Consolidation Loans
|
856,267 | — | — | 856,267 | (114,461 | ) | 741,806 | |||||||||||||||||
|
Private Education Loans
|
659,057 | — | — | 659,057 | (219,920 | ) | 439,137 | |||||||||||||||||
|
Other loans
|
18,161 | — | — | 18,161 | — | 18,161 | ||||||||||||||||||
|
Cash and investments
|
20,606 | — | 7,032 | 27,638 | (2,865 | ) | 24,773 | |||||||||||||||||
|
Total interest income
|
2,140,297 | — | 7,032 | 2,147,329 | (407,248 | ) | 1,740,081 | |||||||||||||||||
|
Total interest expense
|
1,584,442 | 5,628 | 4,296 | 1,594,366 | (64,844 | ) | 1,529,522 | |||||||||||||||||
|
Net interest income (loss)
|
555,855 | (5,628 | ) | 2,736 | 552,963 | (342,404 | ) | 210,559 | ||||||||||||||||
|
Less: provisions for loan losses
|
392,211 | — | — | 392,211 | (139,796 | ) | 252,415 | |||||||||||||||||
|
Net interest income (loss) after provisions for loan losses
|
163,644 | (5,628 | ) | 2,736 | 160,752 | (202,608 | ) | (41,856 | ) | |||||||||||||||
|
Contingency fee revenue
|
— | 81,626 | — | 81,626 | — | 81,626 | ||||||||||||||||||
|
Collections revenue
|
— | 21,829 | — | 21,829 | 1,221 | 23,050 | ||||||||||||||||||
|
Guarantor servicing fees
|
— | — | 26,199 | 26,199 | — | 26,199 | ||||||||||||||||||
|
Other income (loss)
|
18,563 | — | 52,042 | 70,605 | (243,239 | ) | (172,634 | ) | ||||||||||||||||
|
Total other income (loss)
|
18,563 | 103,455 | 78,241 | 200,259 | (242,018 | ) | (41,759 | ) | ||||||||||||||||
|
Restructuring expenses
|
2,881 | 1,771 | 1,197 | 5,849 | — | 5,849 | ||||||||||||||||||
|
Operating expenses
|
128,898 | 75,931 | 64,845 | 269,674 | 10,693 | 280,367 | ||||||||||||||||||
|
Total expenses
|
131,779 | 77,702 | 66,042 | 275,523 | 10,693 | 286,216 | ||||||||||||||||||
|
Income (loss) before income taxes and minority interest in net
earnings of subsidiaries
|
50,428 | 20,125 | 14,935 | 85,488 | (455,319 | ) | (369,831 | ) | ||||||||||||||||
|
Income tax expense
(benefit)(1)
|
5,208 | 9,610 | 5,131 | 19,949 | (174,290 | ) | (154,341 | ) | ||||||||||||||||
|
Minority interest in net earnings of subsidiaries
|
— | 527 | — | 527 | — | 527 | ||||||||||||||||||
|
Net income (loss)
|
$ | 45,220 | $ | 9,988 | $ | 9,804 | $ | 65,012 | $ | (281,029 | ) | $ | (216,017 | ) | ||||||||||
| (1) | Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
4
SLM
CORPORATION
Segment and “Core Earnings”
Consolidated Statements of Income
(In
thousands)
| Quarter ended September 30, 2008 | ||||||||||||||||||||||||
|
Asset |
||||||||||||||||||||||||
|
Performance |
Corporate |
Total “Core |
Total |
|||||||||||||||||||||
| Lending | Group | 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 taxes and minority interest in net
earnings of subsidiaries
|
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 | ) | |||||||||||||||
|
Minority interest in net earnings of subsidiaries
|
— | 544 | — | 544 | — | 544 | ||||||||||||||||||
|
Net income (loss)
|
$ | 232,010 | $ | (123,968 | ) | $ | 8,940 | $ | 116,982 | $ | (275,523 | ) | $ | (158,541 | ) | |||||||||
| (1) | Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
5
SLM
CORPORATION
Segment and “Core Earnings”
Consolidated
Statements of Income
(In
thousands)
| Quarter ended December 31, 2007 | ||||||||||||||||||||||||
|
Asset |
||||||||||||||||||||||||
|
Performance |
Corporate |
Total “Core |
Total |
|||||||||||||||||||||
| Lending | Group | and Other | Earnings” | Adjustments | GAAP | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
|
Interest income:
|
||||||||||||||||||||||||
|
FFELP Stafford and Other Student Loans
|
$ | 705,051 | $ | — | $ | — | $ | 705,051 | $ | (151,738 | ) | $ | 553,313 | |||||||||||
|
FFELP Consolidation Loans
|
1,354,573 | — | — | 1,354,573 | (259,008 | ) | 1,095,565 | |||||||||||||||||
|
Private Education Loans
|
731,217 | — | — | 731,217 | (335,255 | ) | 395,962 | |||||||||||||||||
|
Other loans
|
25,427 | — | — | 25,427 | — | 25,427 | ||||||||||||||||||
|
Cash and investments
|
272,875 | — | 5,837 | 278,712 | (37,866 | ) | 240,846 | |||||||||||||||||
|
Total interest income
|
3,089,143 | — | 5,837 | 3,094,980 | (783,867 | ) | 2,311,113 | |||||||||||||||||
|
Total interest expense
|
2,471,613 | 6,592 | 5,165 | 2,483,370 | (506,728 | ) | 1,976,642 | |||||||||||||||||
|
Net interest income (loss)
|
617,530 | (6,592 | ) | 672 | 611,610 | (277,139 | ) | 334,471 | ||||||||||||||||
|
Less: provisions for loan losses
|
749,460 | — | 1 | 749,461 | (175,283 | ) | 574,178 | |||||||||||||||||
|
Net interest income (loss) after provisions for loan losses
|
(131,930 | ) | (6,592 | ) | 671 | (137,851 | ) | (101,856 | ) | (239,707 | ) | |||||||||||||
|
Contingency fee revenue
|
— | 91,872 | — | 91,872 | — | 91,872 | ||||||||||||||||||
|
Collections revenue
|
— | 73,916 | — | 73,916 | 2,189 | 76,105 | ||||||||||||||||||
|
Guarantor servicing fees
|
— | — | 40,980 | 40,980 | — | 40,980 | ||||||||||||||||||
|
Other income
|
44,189 | — | 55,354 | 99,543 | (1,349,444 | ) | (1,249,901 | ) | ||||||||||||||||
|
Total other income (loss)
|
44,189 | 165,788 | 96,334 | 306,311 | (1,347,255 | ) | (1,040,944 | ) | ||||||||||||||||
|
Restructuring expenses
|
19,006 | 1,774 | 1,725 | 22,505 | — | 22,505 | ||||||||||||||||||
|
Operating expenses
|
172,434 | 104,048 | 88,572 | 365,054 | 53,415 | 418,469 | ||||||||||||||||||
|
Total expenses
|
191,440 | 105,822 | 90,297 | 387,559 | 53,415 | 440,974 | ||||||||||||||||||
|
Income (loss) before income taxes and minority interest in net
earnings of subsidiaries
|
(279,181 | ) | 53,374 | 6,708 | (219,099 | ) | (1,502,526 | ) | (1,721,625 | ) | ||||||||||||||
|
Income tax expense
(benefit)(1)
|
(103,297 | ) | 19,749 | 2,481 | (81,067 | ) | (5,837 | ) | (86,904 | ) | ||||||||||||||
|
Minority interest in net earnings of subsidiaries
|
— | 537 | — | 537 | — | 537 | ||||||||||||||||||
|
Net income (loss)
|
$ | (175,884 | ) | $ | 33,088 | $ | 4,227 | $ | (138,569 | ) | $ | (1,496,689 | ) | $ | (1,635,258 | ) | ||||||||
| (1) | Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
6
SLM
CORPORATION
Segment and “Core Earnings”
Consolidated
Statements of Income
(In
thousands)
| Year ended December 31, 2008 | ||||||||||||||||||||||||
|
Asset |
||||||||||||||||||||||||
|
Performance |
Corporate |
Total “Core |
Total |
|||||||||||||||||||||
| Lending | Group | and Other | Earnings” | Adjustments | GAAP | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
|
Interest income:
|
||||||||||||||||||||||||
|
FFELP Stafford and Other Student Loans
|
$ | 2,216,396 | $ | — | $ | — | $ | 2,216,396 | $ | (222,002 | ) | $ | 1,994,394 | |||||||||||
|
FFELP Consolidation Loans
|
3,747,524 | — | — | 3,747,524 | (568,832 | ) | 3,178,692 | |||||||||||||||||
|
Private Education Loans
|
2,752,123 | — | — | 2,752,123 | (1,014,569 | ) | 1,737,554 | |||||||||||||||||
|
Other loans
|
82,734 | — | — | 82,734 | — | 82,734 | ||||||||||||||||||
|
Cash and investments
|
304,684 | — | 25,030 | 329,714 | (53,450 | ) | 276,264 | |||||||||||||||||
|
Total interest income
|
9,103,461 | — | 25,030 | 9,128,491 | (1,858,853 | ) | 7,269,638 | |||||||||||||||||
|
Total interest expense
|
6,664,856 | 25,385 | 19,044 | 6,709,285 | (803,867 | ) | 5,905,418 | |||||||||||||||||
|
Net interest income (loss)
|
2,438,605 | (25,385 | ) | 5,986 | 2,419,206 | (1,054,986 | ) | 1,364,220 | ||||||||||||||||
|
Less: provisions for loan losses
|
1,028,732 | — | — | 1,028,732 | (309,082 | ) | 719,650 | |||||||||||||||||
|
Net interest income (loss) after provisions for loan losses
|
1,409,873 | (25,385 | ) | 5,986 | 1,390,474 | (745,904 | ) | 644,570 | ||||||||||||||||
|
Contingency fee revenue
|
— | 340,140 | — | 340,140 | — | 340,140 | ||||||||||||||||||
|
Collections revenue (loss)
|
— | (62,982 | ) | — | (62,982 | ) | (1,056 | ) | (64,038 | ) | ||||||||||||||
|
Guarantor servicing fees
|
— | — | 121,363 | 121,363 | — | 121,363 | ||||||||||||||||||
|
Other income (loss)
|
180,121 | — | 198,931 | 379,052 | (356,725 | ) | 22,327 | |||||||||||||||||
|
Total other income (loss)
|
180,121 | 277,158 | 320,294 | 777,573 | (357,781 | ) | 419,792 | |||||||||||||||||
|
Restructuring expenses
|
49,142 | 11,556 | 23,077 | 83,775 | — | 83,775 | ||||||||||||||||||
|
Operating expenses
|
588,836 | 398,161 | 277,532 | 1,264,529 | 92,326 | 1,356,855 | ||||||||||||||||||
|
Total expenses
|
637,978 | 409,717 | 300,609 | 1,348,304 | 92,326 | 1,440,630 | ||||||||||||||||||
|
Income (loss) before income taxes and minority interest in net
earnings of subsidiaries
|
952,016 | (157,944 | ) | 25,671 | 819,743 | (1,196,011 | ) | (376,268 | ) | |||||||||||||||
|
Income tax expense
(benefit)(1)
|
336,632 | (55,848 | ) | 9,077 | 289,861 | (457,435 | ) | (167,574 | ) | |||||||||||||||
|
Minority interest in net earnings of subsidiaries
|
— | 3,932 | — | 3,932 | — | 3,932 | ||||||||||||||||||
|
Net income (loss)
|
$ | 615,384 | $ | (106,028 | ) | $ | 16,594 | $ | 525,950 | $ | (738,576 | ) | $ | (212,626 | ) | |||||||||
| (1) | Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
7
SLM
CORPORATION
Segment and “Core Earnings”
Consolidated
Statements of Income
(In
thousands)
| Year ended December 31, 2007 | ||||||||||||||||||||||||
|
Asset |
||||||||||||||||||||||||
|
Performance |
Corporate |
Total “Core |
Total |
|||||||||||||||||||||
| Lending | Group | and Other | Earnings” | Adjustments | GAAP | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
|
Interest income:
|
||||||||||||||||||||||||
|
FFELP Stafford and Other Student Loans
|
$ | 2,848,283 | $ | — | $ | — | $ | 2,848,283 | $ | (787,290 | ) | $ | 2,060,993 | |||||||||||
|
FFELP Consolidation Loans
|
5,521,931 | — | — | 5,521,931 | (1,178,793 | ) | 4,343,138 | |||||||||||||||||
|
Private Education Loans
|
2,834,595 | — | — | 2,834,595 | (1,378,124 | ) | 1,456,471 | |||||||||||||||||
|
Other loans
|
105,843 | — | — | 105,843 | — | 105,843 | ||||||||||||||||||
|
Cash and investments
|
867,659 | — | 21,208 | 888,867 | (181,290 | ) | 707,577 | |||||||||||||||||
|
Total interest income
|
12,178,311 | — | 21,208 | 12,199,519 | (3,525,497 | ) | 8,674,022 | |||||||||||||||||
|
Total interest expense
|
9,597,099 | 26,523 | 21,440 | 9,645,062 | (2,559,290 | ) | 7,085,772 | |||||||||||||||||
|
Net interest income (loss)
|
2,581,212 | (26,523 | ) | (232 | ) | 2,554,457 | (966,207 | ) | 1,588,250 | |||||||||||||||
|
Less: provisions for loan losses
|
1,393,962 | — | 607 | 1,394,569 | (379,261 | ) | 1,015,308 | |||||||||||||||||
|
Net interest income (loss) after provisions for loan losses
|
1,187,250 | (26,523 | ) | (839 | ) | 1,159,888 | (586,946 | ) | 572,942 | |||||||||||||||
|
Contingency fee income
|
— | 335,737 | — | 335,737 | — | 335,737 | ||||||||||||||||||
|
Collections revenue
|
— | 269,184 | — | 269,184 | 2,363 | 271,547 | ||||||||||||||||||
|
Guarantor servicing fees
|
— | — | 156,429 | 156,429 | — | 156,429 | ||||||||||||||||||
|
Other income
|
193,810 | — | 217,655 | 411,465 | (678,069 | ) | (266,604 | ) | ||||||||||||||||
|
Total other income (loss)
|
193,810 | 604,921 | 374,084 | 1,172,815 | (675,706 | ) | 497,109 | |||||||||||||||||
|
Restructuring expenses
|
19,006 | 1,774 | 1,725 | 22,505 | — | 22,505 | ||||||||||||||||||
|
Operating expenses
|
689,502 | 388,228 | 339,391 | 1,417,121 | 112,221 | 1,529,342 | ||||||||||||||||||
|
Total expenses
|
708,508 | 390,002 | 341,116 | 1,439,626 | 112,221 | 1,551,847 | ||||||||||||||||||
|
Income (loss) before income taxes and minority interest in net
earnings of subsidiaries
|
672,552 | 188,396 | 32,129 | 893,077 | (1,374,873 | ) | (481,796 | ) | ||||||||||||||||
|
Income tax
expense(1)
|
248,844 | 69,707 | 11,887 | 330,438 | 81,845 | 412,283 | ||||||||||||||||||
|
Minority interest in net earnings of subsidiaries
|
— | 2,315 | — | 2,315 | — | 2,315 | ||||||||||||||||||
|
Net income (loss)
|
$ | 423,708 | $ | 116,374 | $ | 20,242 | $ | 560,324 | $ | (1,456,718 | ) | $ | (896,394 | ) | ||||||||||
| (1) | Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
8
SLM
CORPORATION
Reconciliation of “Core Earnings” Net Income to GAAP Net Income
(In thousands, except per share amounts)
| Quarters ended | Years ended | |||||||||||||||||||
|
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
||||||||||||||||
| 2008 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
|
“Core Earnings” net
income(loss)(A)
|
$ | 65,012 | $ | 116,982 | $ | (138,569 | ) | $ | 525,950 | $ | 560,324 | |||||||||
|
“Core Earnings” adjustments:
|
||||||||||||||||||||
|
Net impact of securitization accounting
|
31,583 | (148,121 | ) | (2,547 | ) | (442,190 | ) | 246,817 | ||||||||||||
|
Net impact of derivative accounting
|
(441,631 | ) | (205,991 | ) | (1,396,683 | ) | (560,381 | ) | (1,340,792 | ) | ||||||||||
|
Net impact of Floor Income
|
(34,949 | ) | (42,721 | ) | (49,844 | ) | (102,056 | ) | (168,501 | ) | ||||||||||
|
Net impact of acquired intangibles
|
(10,322 | ) | (50,391 | ) | (53,452 | ) | (91,384 | ) | (112,397 | ) | ||||||||||
|
Total “Core Earnings” adjustments before income taxes
and minority interest in net earnings of subsidiaries
|
(455,319 | ) | (447,224 | ) | (1,502,526 | ) | (1,196,011 | ) | (1,374,873 | ) | ||||||||||
|
Net tax
effect(B)
|
174,290 | 171,701 | 5,837 | 457,435 | (81,845 | ) | ||||||||||||||
|
Total “Core Earnings” adjustments
|
(281,029 | ) | (275,523 | ) | (1,496,689 | ) | (738,576 | ) | (1,456,718 | ) | ||||||||||
|
GAAP net income (loss)
|
$ | (216,017 | ) | $ | (158,541 | ) | $ | (1,635,258 | ) | $ | (212,626 | ) | $ | (896,394 | ) | |||||
|
GAAP diluted earnings (loss) per common share
|
$ | (.52 | ) | $ | (.40 | ) | $ | (3.98 | ) | $ | (.69 | ) | $ | (2.26 | ) | |||||
|
(A) “Core
Earnings” diluted earnings per common share
|
$ | .08 | $ | .19 | $ | (.36 | ) | $ | .89 | $ | 1.23 | |||||||||
| (B) | Such tax effect is based upon the Company’s “Core Earnings” effective tax rate. For the quarter and year ended December 31, 2007, the “Core Earnings” effective tax rate is different than GAAP primarily from the exclusion of the permanent income tax impact of the equity forward contracts. The Company settled all of its equity forward contracts in January 2008. |
“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 the
Financial Accounting Standards Board’s Statement of
Financial Accounting Standards (“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 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
9
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 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 presentation of our results on a
“Core Earnings” basis provides important information
regarding the performance of our Managed loan portfolio, a
limitation of this presentation is that we present the ongoing
spread income on loans that have been sold to a trust we manage.
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 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 makers. Our “Core
Earnings” are used in developing our financial plans,
tracking results, and establishing corporate performance
targets. 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 |
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| 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 SFAS No. 133 on derivatives that do not qualify for “hedge treatment” under GAAP. These unrealized gains and losses occur in our Lending operating segment, and occurred in our Corporate and Other reportable segment related to equity forward contracts for the year-ago quarters. 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. The Company settled all of its equity forward contracts in January 2008. | |
| 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, 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 the amortization of net premiums received in income. | |
| 4) | Acquired Intangibles: Our “Core Earnings” exclude goodwill and intangible impairment and the amortization of acquired intangibles. |
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