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): April 22, 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
April 22, 2009, SLM Corporation (the “Company”) issued a press release with
respect to its earnings for the fiscal quarter ended March 31,
2009, which is furnished as Exhibit 99.1 to this Current Report on Form 8-K. The Supplemental Financial Information Release
for the First Quarter 2009 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 April 23, 2009,
at 8:00 a.m. EDT., 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:
April 22, 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 April 22, 2009 |
4
Exhibit
99.1
FOR IMMEDIATE RELEASE
|
Media Contact: | Investor Contacts: | ||
| Martha Holler | Steve McGarry | |||
| 703/984-5678 | 703/984-6746 | |||
| Joe Fisher 703/984-5755 |
SALLIE MAE REPORTS FIRST-QUARTER 2009 RESULTS
Company Originates Record $6.6 Billion of Federal Student Loans
RESTON, Va., April 22, 2009 — SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, reported
net income on a core earnings basis of $14 million for the first quarter ended March 31, 2009.
After payment of dividends to holders of the company’s preferred stock, the company reported a core
earnings diluted loss per common share of $.03. The loss was the direct result of ongoing
dislocation in the commercial paper (CP) market and a feature of the U.S. Department of Education
(ED) participation program. These two items reduced core earnings by $.24 per diluted share.
The majority of the company’s federal student loan portfolio earns interest based on CP rates
and is funded with borrowings based on LIBOR. Dislocations in the capital markets continued to
distort CP rates in the quarter so that the company’s asset yield was 42 basis points lower than
normal. This reduced net interest income by $139 million, or $.19 per diluted share. In the
fourth-quarter 2008, ED made an adjustment to mitigate the dislocation in the CP market and to
better match money-market conditions. ED did not make a similar adjustment for the
first-quarter 2009.
Additionally, although the liability rate for loans funded through ED’s participation program
is based on the prior quarter’s CP rates, the yield on the student loan is based on current quarter
CP rates. The sharp decline in CP rates reduced net interest income by $40 million in the first
quarter, or $.05 per diluted share.
“Ironically, positive action taken by the federal government to stabilize the commercial paper
markets is adversely impacting student loans and student-loan backed securities. The inordinately
low CP rate also undermines the $400 billion student loan ABS market the U.S. Treasury and the
Federal Reserve have been working to stabilize. We do not believe this result was intended and are
working with Members of Congress to resolve the issue. We are also working with Congress and the
Administration to help put in place a federal student loan infrastructure consistent with President
Obama’s proposal to vastly expand Pell Grants,” said Albert L. Lord, vice chairman and CEO.
During the first quarter, new extensions of credit remained strong. The company originated a
record $6.6 billion of FFELP loans, compared to $6.0 billion in the year-ago quarter. “Our ability
to continue to meet students’ needs in this environment is the direct result of the ECASLA
legislation championed by Chairmen Miller and Kennedy,” Mr. Lord said.
Private education loan originations were $1.5 billion, compared to $2.5 billion in the
year-ago quarter. The decrease in private credit loan originations was due to a tightening of
underwriting standards and the elimination of non-traditional private loan originations.
The company provided $297 million for managed private education loan losses in the first
quarter due in part to growth in loans in repayment status and higher delinquencies resulting from
a continued weakening in the overall economy and a managed reduction of loans in forbearance
status. The company charged off $202 million of managed private education loans during the
quarter, an increase from $159 million in the prior quarter.
Core earnings fee income, which consists primarily of fees earned from guarantor servicing and
collection activity, was $239 million in the quarter, compared to $200 million in the prior
quarter, and included a $74 million impairment in the purchased mortgage portfolio, due to
continued weakening of the real estate market.
Operating expenses were $296 million in the quarter, including $5 million in restructuring
charges, compared to $360 million, including $21 million in restructuring charges, in the year-ago
quarter.
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 First Quarter
2009 Supplemental Earnings Disclosure.
Sallie Mae reported a first-quarter 2009 GAAP net loss of $21 million, or $.10 diluted loss
per share. These results include the impact of the CP-related issues discussed above. The company
provided $203 million for private education loan losses and charged off $139 million of private
education loans during the quarter.
***
The company will host earnings conference call tomorrow, April 23 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, April 23, 2009, starting at 7:45 a.m. EDT: (877) 356-5689 (USA and
Canada) or (706) 679-0623 (International) and use access code 91859703. The conference call will be
replayed continuously beginning at 11 a.m. EDT on Thursday, April 23, 2009, and concluding at
midnight on May 7, 2009. To access the replay, please dial (800) 642-1687 (USA and Canada) or dial
(706) 645-9291 (International) and use access code 91859703. In addition, there will be a live
audio Web cast of the conference call, which may be accessed at www.salliemae.com.
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 First Quarter 2009. All information
in this release is as of March 31, 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. Through its subsidiaries, the company manages $185 billion
in education loans and has 10 million student and parent customers. Through its Upromise
affiliates, the company also manages $17 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
$475 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
March 31, 2009
(In millions, except per share amounts)
| Quarters ended | ||||||||||||
|
March 31, |
December 31, |
March 31, |
||||||||||
| 2009 | 2008 | 2008 | ||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||
|
SELECTED FINANCIAL INFORMATION AND RATIOS
|
||||||||||||
|
GAAP Basis
|
||||||||||||
|
Net loss attributable to SLM
Corporation(1)
|
$ | (21 | ) | $ | (216 | ) | $ | (104 | ) | |||
|
Diluted loss per common share attributable to SLM Corporation
common
shareholders(1)
|
$ | (.10 | ) | $ | (.52 | ) | $ | (.28 | ) | |||
|
Return on assets
|
(.05 | )% | (.56 | )% | (.29 | )% | ||||||
|
“Core Earnings”
Basis(2)
|
||||||||||||
|
“Core Earnings” net income attributable to SLM
Corporation(1)
|
$ | 14 | $ | 65 | $ | 188 | ||||||
|
“Core Earnings” diluted earnings (loss) per common
share attributable to SLM Corporation common
shareholders(1)
|
$ | (.03 | ) | $ | .08 | $ | .34 | |||||
|
“Core Earnings” return on assets
|
.03 | % | .14 | % | .41 | % | ||||||
|
OTHER OPERATING STATISTICS
|
||||||||||||
|
Average on-balance sheet student loans
|
$ | 149,662 | $ | 144,826 | $ | 129,341 | ||||||
|
Average off-balance sheet student loans
|
35,577 | 36,164 | 39,163 | |||||||||
|
Average Managed student loans
|
$ | 185,239 | $ | 180,990 | $ | 168,504 | ||||||
|
Ending on-balance sheet student loans, net
|
$ | 150,374 | $ | 144,802 | $ | 131,013 | ||||||
|
Ending off-balance sheet student loans, net
|
34,961 | 35,591 | 38,462 | |||||||||
|
Ending Managed student loans, net
|
$ | 185,335 | $ | 180,393 | $ | 169,475 | ||||||
|
Ending Managed FFELP Stafford and Other Student Loans, net
|
$ | 64,690 | $ | 59,619 | $ | 49,179 | ||||||
|
Ending Managed FFELP Consolidation Loans, net
|
86,228 | 87,275 | 90,105 | |||||||||
|
Ending Managed Private Education Loans, net
|
34,417 | 33,499 | 30,191 | |||||||||
|
Ending Managed student loans, net
|
$ | 185,335 | $ | 180,393 | $ | 169,475 | ||||||
| (1) | On January 1, 2009, the Company adopted the Financial Accounting Standards Board’s Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51,” the provisions of which, among other things, require that minority interests be renamed, “noncontrolling interests,” and that a company present a consolidated net income (loss) measure that includes the amount attributable to such “noncontrolling interests” for all periods presented. | |
| (2) | See explanation of “Core Earnings” performance measures under “Reconciliation of ‘Core Earnings’ Net Income to GAAP Net Income.” |
SLM
CORPORATION
Consolidated Balance Sheets
(In thousands, except per share amounts)
|
March 31, |
December 31, |
March 31, |
||||||||||
| 2009 | 2008 | 2008 | ||||||||||
| (unaudited) | (unaudited) | |||||||||||
|
Assets
|
||||||||||||
|
FFELP Stafford and Other Student Loans (net of allowance for
losses of $101,375; $90,906; and $52,238, respectively)
|
$ | 43,444,179 | $ | 44,025,361 | $ | 40,168,284 | ||||||
|
FFELP Stafford Loans Held-for-Sale
|
14,399,802 | 8,450,976 | — | |||||||||
|
FFELP Consolidation Loans (net of allowance for losses of
$50,919; $46,637; and $41,759, respectively)
|
70,885,647 | 71,743,435 | 73,867,639 | |||||||||
|
Private Education Loans (net of allowance for losses of
$1,384,455; $1,308,043; and $1,073,317, respectively)
|
21,644,579 | 20,582,298 | 16,977,146 | |||||||||
|
Other loans (net of allowance for losses of $66,011; $58,395;
and $44,575, respectively)
|
684,913 | 729,380 | 1,140,468 | |||||||||
|
Cash and investments
|
3,748,192 | 5,111,407 | 5,318,506 | |||||||||
|
Restricted cash and investments
|
3,855,546 | 3,535,286 | 4,170,934 | |||||||||
|
Retained Interest in off-balance sheet securitized loans
|
1,950,566 | 2,200,298 | 2,874,481 | |||||||||
|
Goodwill and acquired intangible assets, net
|
1,239,556 | 1,249,219 | 1,319,723 | |||||||||
|
Other assets
|
9,698,331 | 11,140,777 | 13,335,811 | |||||||||
|
Total assets
|
$ | 171,551,311 | $ | 168,768,437 | $ | 159,172,992 | ||||||
|
Liabilities
|
||||||||||||
|
ED Participation Program facility
|
$ | 13,529,483 | $ | 7,364,969 | $ | — | ||||||
|
Term bank deposits
|
1,066,171 | 1,147,825 | 650,752 | |||||||||
|
Other short-term borrowings
|
31,735,807 | 33,420,249 | 37,445,176 | |||||||||
|
Total short-term borrowings
|
46,331,461 | 41,933,043 | 38,095,928 | |||||||||
|
Long-term borrowings
|
116,669,381 | 118,224,794 | 112,485,060 | |||||||||
|
Other liabilities
|
3,586,610 | 3,604,260 | 3,377,229 | |||||||||
|
Total liabilities
|
166,587,452 | 163,762,097 | 153,958,217 | |||||||||
|
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 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 1,150 shares, respectively, issued at
liquidation preference of $1,000 per share
|
1,149,770 | 1,149,770 | 1,150,000 | |||||||||
|
Common stock, par value $.20 per share, 1,125,000 shares
authorized: 534,698; 534,411; and 533,678 shares,
respectively, issued
|
106,940 | 106,883 | 106,736 | |||||||||
|
Additional paid-in capital
|
4,694,155 | 4,684,112 | 4,610,278 | |||||||||
|
Accumulated other comprehensive loss, net of tax benefit
|
(70,450 | ) | (76,476 | ) | (2,394 | ) | ||||||
|
Retained earnings
|
378,387 | 426,175 | 617,184 | |||||||||
|
Total SLM Corporation stockholders’ equity before treasury
stock
|
6,823,802 | 6,855,464 | 7,046,804 | |||||||||
|
Common stock held in treasury: 67,105; 66,958; and
66,301 shares, respectively
|
1,859,955 | 1,856,394 | 1,838,637 | |||||||||
|
Total SLM Corporation stockholders’ equity
|
4,963,847 | 4,999,070 | 5,208,167 | |||||||||
|
Noncontrolling interest
|
12 | 7,270 | 6,608 | |||||||||
|
Total equity
|
4,963,859 | 5,006,340 | 5,214,775 | |||||||||
|
Total liabilities and equity
|
$ | 171,551,311 | $ | 168,768,437 | $ | 159,172,992 | ||||||
2
SLM
CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)
| Quarters ended | ||||||||||||
|
March 31, |
December 31, |
March 31, |
||||||||||
| 2009 | 2008 | 2008 | ||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||
|
Interest income (loss):
|
||||||||||||
|
FFELP Stafford and Other Student Loans
|
$ | 342,816 | $ | 516,204 | $ | 464,476 | ||||||
|
FFELP Consolidation Loans
|
489,362 | 741,806 | 836,656 | |||||||||
|
Private Education Loans
|
387,041 | 439,137 | 443,522 | |||||||||
|
Other loans
|
16,420 | 18,161 | 23,344 | |||||||||
|
Cash and investments
|
5,971 | 24,773 | 123,816 | |||||||||
|
Total interest income
|
1,241,610 | 1,740,081 | 1,891,814 | |||||||||
|
Total interest expense
|
1,026,547 | 1,529,522 | 1,615,445 | |||||||||
|
Net interest income
|
215,063 | 210,559 | 276,369 | |||||||||
|
Less: provisions for loan losses
|
250,279 | 252,415 | 137,311 | |||||||||
|
Net interest income (loss) after provisions for loan losses
|
(35,216 | ) | (41,856 | ) | 139,058 | |||||||
|
Other income (loss):
|
||||||||||||
|
Servicing and securitization revenue (loss)
|
(95,305 | ) | 87,557 | 107,642 | ||||||||
|
Losses on sales of loans and securities, net
|
— | (64,007 | ) | (34,666 | ) | |||||||
|
Gains (losses) on derivative and hedging activities, net
|
104,025 | (292,903 | ) | (272,796 | ) | |||||||
|
Contingency fee revenue
|
74,815 | 81,626 | 85,306 | |||||||||
|
Collections revenue (loss)
|
(21,330 | ) | 23,050 | 57,239 | ||||||||
|
Guarantor servicing fees
|
34,008 | 26,199 | 34,653 | |||||||||
|
Other
|
192,458 | 96,719 | 93,533 | |||||||||
|
Total other income (loss)
|
288,671 | (41,759 | ) | 70,911 | ||||||||
|
Expenses:
|
||||||||||||
|
Restructuring expenses
|
4,773 | 5,849 | 20,678 | |||||||||
|
Operating expenses
|
301,483 | 280,367 | 355,648 | |||||||||
|
Total expenses
|
306,256 | 286,216 | 376,326 | |||||||||
|
Loss before income tax benefit
|
(52,801 | ) | (369,831 | ) | (166,357 | ) | ||||||
|
Income tax benefit
|
(31,696 | ) | (154,341 | ) | (62,488 | ) | ||||||
|
Net loss
|
(21,105 | ) | (215,490 | ) | (103,869 | ) | ||||||
|
Less: net income (loss) attributable to noncontrolling interest
|
281 | 527 | (65 | ) | ||||||||
|
Net loss attributable to SLM Corporation
|
(21,386 | ) | (216,017 | ) | (103,804 | ) | ||||||
|
Preferred stock dividends
|
26,395 | 27,316 | 29,025 | |||||||||
|
Net loss attributable to SLM Corporation common stock
|
$ | (47,781 | ) | $ | (243,333 | ) | $ | (132,829 | ) | |||
|
Basic loss per common share attributable to SLM Corporation
common shareholders
|
$ | (.10 | ) | $ | (.52 | ) | $ | (.28 | ) | |||
|
Average common shares outstanding
|
466,761 | 466,692 | 466,580 | |||||||||
|
Diluted loss per common share attributable to SLM Corporation
common shareholders
|
$ | (.10 | ) | $ | (.52 | ) | $ | (.28 | ) | |||
|
Average common and common equivalent shares outstanding
|
466,761 | 466,692 | 466,580 | |||||||||
|
Dividends per common share attributable to SLM Corporation
common shareholders
|
$ | — | $ | — | $ | — | ||||||
3
SLM
CORPORATION
Segment and “Core Earnings”
Consolidated Statements of Income
(In thousands)
| Quarter ended March 31, 2009 | ||||||||||||||||||||||||
|
Asset |
||||||||||||||||||||||||
|
Performance |
Corporate |
Total “Core |
Total |
|||||||||||||||||||||
| Lending | Group | and Other | Earnings” | Adjustments | GAAP | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
|
Interest income (loss):
|
||||||||||||||||||||||||
|
FFELP Stafford and Other Student Loans
|
$ | 361,919 | $ | — | $ | — | $ | 361,919 | $ | (19,103 | ) | $ | 342,816 | |||||||||||
|
FFELP Consolidation Loans
|
438,896 | — | — | 438,896 | 50,466 | 489,362 | ||||||||||||||||||
|
Private Education Loans
|
563,282 | — | — | 563,282 | (176,241 | ) | 387,041 | |||||||||||||||||
|
Other loans
|
16,420 | — | — | 16,420 | — | 16,420 | ||||||||||||||||||
|
Cash and investments
|
2,179 | — | 5,128 | 7,307 | (1,336 | ) | 5,971 | |||||||||||||||||
|
Total interest income
|
1,382,696 | — | 5,128 | 1,387,824 | (146,214 | ) | 1,241,610 | |||||||||||||||||
|
Total interest expense
|
949,248 | 5,492 | 4,139 | 958,879 | 67,668 | 1,026,547 | ||||||||||||||||||
|
Net interest income (loss)
|
433,448 | (5,492 | ) | 989 | 428,945 | (213,882 | ) | 215,063 | ||||||||||||||||
|
Less: provisions for loan losses
|
349,086 | — | — | 349,086 | (98,807 | ) | 250,279 | |||||||||||||||||
|
Net interest income (loss) after provisions for loan losses
|
84,362 | (5,492 | ) | 989 | 79,859 | (115,075 | ) | (35,216 | ) | |||||||||||||||
|
Contingency fee revenue
|
— | 74,815 | — | 74,815 | — | 74,815 | ||||||||||||||||||
|
Collections revenue (loss)
|
— | (22,019 | ) | — | (22,019 | ) | 689 | (21,330 | ) | |||||||||||||||
|
Guarantor servicing fees
|
— | — | 34,008 | 34,008 | — | 34,008 | ||||||||||||||||||
|
Other income (loss)
|
102,368 | — | 49,781 | 152,149 | 49,029 | 201,178 | ||||||||||||||||||
|
Total other income (loss)
|
102,368 | 52,796 | 83,789 | 238,953 | 49,718 | 288,671 | ||||||||||||||||||
|
Restructuring expenses
|
1,062 | 1,655 | 2,056 | 4,773 | — | 4,773 | ||||||||||||||||||
|
Operating expenses
|
131,178 | 88,471 | 71,970 | 291,619 | 9,864 | 301,483 | ||||||||||||||||||
|
Total expenses
|
132,240 | 90,126 | 74,026 | 296,392 | 9,864 | 306,256 | ||||||||||||||||||
|
Income (loss) before income tax expense (benefit)
|
54,490 | (42,822 | ) | 10,752 | 22,420 | (75,221 | ) | (52,801 | ) | |||||||||||||||
|
Income tax expense
(benefit)(1)
|
20,063 | (15,767 | ) | 3,959 | 8,255 | (39,951 | ) | (31,696 | ) | |||||||||||||||
|
Less: net income attributable to noncontrolling interest
|
— | 281 | 281 | — | 281 | |||||||||||||||||||
|
Net income (loss) attributable to SLM Corporation
|
$ | 34,427 | $ | (27,336 | ) | $ | 6,793 | $ | 13,884 | $ | (35,270 | ) | $ | (21,386 | ) | |||||||||
| (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 December 31, 2008 | ||||||||||||||||||||||||
|
Asset |
||||||||||||||||||||||||
|
Performance |
Corporate |
Total “Core |
Total |
|||||||||||||||||||||
| Lending | Group | and Other | Earnings” | Adjustments | GAAP | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
|
Interest income (loss):
|
||||||||||||||||||||||||
|
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 tax expense (benefit)
|
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 | ) | ||||||||||||||||
|
Less: net income attributable to noncontrolling interest
|
— | 527 | — | 527 | — | 527 | ||||||||||||||||||
|
Net income (loss) attributable to SLM Corporation
|
$ | 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. |
5
SLM
CORPORATION
Segment
and “Core Earnings”
Consolidated
Statements of Income
(In thousands)
| Quarter ended March 31, 2008 | ||||||||||||||||||||||||
|
Asset |
||||||||||||||||||||||||
|
Performance |
Corporate |
Total “Core |
Total |
|||||||||||||||||||||
| Lending | Group | and Other | Earnings” | Adjustments | GAAP | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
|
Interest income (loss):
|
||||||||||||||||||||||||
|
FFELP Stafford and Other Student Loans
|
$ | 494,382 | $ | — | $ | — | $ | 494,382 | $ | (29,906 | ) | $ | 464,476 | |||||||||||
|
FFELP Consolidation Loans
|
988,486 | — | — | 988,486 | (151,830 | ) | 836,656 | |||||||||||||||||
|
Private Education Loans
|
749,321 | — | — | 749,321 | (305,799 | ) | 443,522 | |||||||||||||||||
|
Other loans
|
23,344 | — | — | 23,344 | — | 23,344 | ||||||||||||||||||
|
Cash and investments
|
141,902 | — | 6,267 | 148,169 | (24,353 | ) | 123,816 | |||||||||||||||||
|
Total interest income
|
2,397,435 | — | 6,267 | 2,403,702 | (511,888 | ) | 1,891,814 | |||||||||||||||||
|
Total interest expense
|
1,824,471 | 6,840 | 5,202 | 1,836,513 | (221,068 | ) | 1,615,445 | |||||||||||||||||
|
Net interest income (loss)
|
572,964 | (6,840 | ) | 1,065 | 567,189 | (290,820 | ) | 276,369 | ||||||||||||||||
|
Less: provisions for loan losses
|
181,321 | — | — | 181,321 | (44,010 | ) | 137,311 | |||||||||||||||||
|
Net interest income (loss) after provisions for loan losses
|
391,643 | (6,840 | ) | 1,065 | 385,868 | (246,810 | ) | 139,058 | ||||||||||||||||
|
Contingency fee revenue
|
— | 85,306 | — | 85,306 | — | 85,306 | ||||||||||||||||||
|
Collections revenue
|
— | 56,361 | — | 56,361 | 878 | 57,239 | ||||||||||||||||||
|
Guarantor servicing fees
|
— | — | 34,653 | 34,653 | — | 34,653 | ||||||||||||||||||
|
Other income (loss)
|
44,345 | — | 50,641 | 94,986 | (201,273 | ) | (106,287 | ) | ||||||||||||||||
|
Total other income (loss)
|
44,345 | 141,667 | 85,294 | 271,306 | (200,395 | ) | 70,911 | |||||||||||||||||
|
Restructuring expenses
|
15,550 | 434 | 4,694 | 20,678 | — | 20,678 | ||||||||||||||||||
|
Operating expenses
|
163,636 | 106,142 | 69,655 | 339,433 | 16,215 | 355,648 | ||||||||||||||||||
|
Total expenses
|
179,186 | 106,576 | 74,349 | 360,111 | 16,215 | 376,326 | ||||||||||||||||||
|
Income (loss) before income tax expense (benefit)
|
256,802 | 28,251 | 12,010 | 297,063 | (463,420 | ) | (166,357 | ) | ||||||||||||||||
|
Income tax expense
(benefit)(1)
|
94,067 | 10,348 | 4,399 | 108,814 | (171,302 | ) | (62,488 | ) | ||||||||||||||||
|
Less: net loss attributable to noncontrolling interest
|
— | (65 | ) | — | (65 | ) | — | (65 | ) | |||||||||||||||
|
Net income (loss) attributable to SLM Corporation
|
$ | 162,735 | $ | 17,968 | $ | 7,611 | $ | 188,314 | $ | (292,118 | ) | $ | (103,804 | ) | ||||||||||
| (1) | Income taxes are based on a percentage of net income before tax for the individual reportable segment. |
6
SLM
CORPORATION
Reconciliation
of “Core Earnings” Net Income to GAAP Net
Income
(In thousands, except per share amounts)
| Quarters ended | ||||||||||||
|
March 31, |
December 31, |
March 31, |
||||||||||
| 2009 | 2008 | 2008 | ||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||
|
“Core Earnings” net income attributable to SLM
Corporation(A)
|
$ | 13,884 | $ | 65,012 | $ | 188,314 | ||||||
|
“Core Earnings” adjustments:
|
||||||||||||
|
Net impact of securitization accounting
|
(198,590 | ) | 31,583 | (79,146 | ) | |||||||
|
Net impact of derivative accounting
|
54,010 | (441,631 | ) | (363,368 | ) | |||||||
|
Net impact of Floor Income
|
79,023 | (34,949 | ) | (5,577 | ) | |||||||
|
Net impact of acquired intangibles
|
(9,664 | ) | (10,322 | ) | (15,329 | ) | ||||||
|
Total “Core Earnings” adjustments before net tax effect
|
(75,221 | ) | (455,319 | ) | (463,420 | ) | ||||||
|
Net tax effect
|
39,951 | 174,290 | 171,302 | |||||||||
|
Total “Core Earnings” adjustments
|
(35,270 | ) | (281,029 | ) | (292,118 | ) | ||||||
|
GAAP net loss attributable to SLM Corporation
|
$ | (21,386 | ) | $ | (216,017 | ) | $ | (103,804 | ) | |||
|
GAAP diluted loss per common share attributable to SLM
Corporation common shareholders
|
$ | (.10 | ) | $ | (.52 | ) | $ | (.28 | ) | |||
|
(A) “Core
Earnings” diluted earnings (loss) per common share
attributable to SLM Corporation common shareholders
|
$ | (.03 | ) | $ | .08 | $ | .34 | |||||
“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 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
7
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 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
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 SFAS No. 133 on derivatives that do not qualify for “hedge treatment” under GAAP. These unrealized gains and losses |
8
| 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 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 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. |
9