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): October 20, 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
October 20, 2009, SLM Corporation (the “Company”) issued a press release with
respect to its earnings for the fiscal quarter ended September 30,
2009, which is furnished as Exhibit 99.1 to this Current Report on Form 8-K. The Supplemental Financial Information Release
for the Third 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 October 21, 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:
October 20, 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 October 20, 2009 |
4
Exhibit 99.1
 |
||
| Media Contact: Martha Holler 703/984-5178 |
Investor Contacts: Steve McGarry 703/984-6746 Joe Fisher 703/984-5755 |
|
SALLIE MAE REPORTS THIRD-QUARTER 2009 RESULTS
Federal Student Loan Originations Grow 25 Percent From Year-Ago Quarter
RESTON, Va., Oct. 20, 2009 — SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, reported
net income on a core earnings basis of $164 million ($.26 per diluted share) for the third quarter
ended Sept. 30, 2009, compared to $170 million ($.31 per diluted share) for the prior quarter, and
$117 million ($.19 per diluted share) for the year-ago quarter.
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.
| Sallie Mae | • | 12061 Bluemont Way | • | Reston, Va 20190 | • | www.salliemae.com |
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.
| Sallie Mae | • | 12061 Bluemont Way | • | Reston, Va 20190 | • | www.salliemae.com |
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.
###
| Sallie Mae | • | 12061 Bluemont Way | • | Reston, Va 20190 | • | www.salliemae.com |
SLM
CORPORATION
Supplemental Earnings Disclosure
September 30, 2009
(In millions, except per share amounts)
(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
Corporation common shareholders
|
$ | .25 | $ | (.32 | ) | $ | (.40 | ) | $ | (.17 | ) | $ | (.17 | ) | ||||||
|
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 SLM Corporation common
shareholders(2)
|
$ | .26 | $ | .31 | $ | .19 | $ | .54 | $ | .81 | ||||||||||
|
“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 “Core Earnings” (net of tax)
|
$ | 23 | $ | 89 | $ | 1 | $ | 191 | $ | 50 | ||||||||||
|
Total Economic Floor Income earned, not included in “Core
Earnings” (net of tax) per common share attributable to SLM
Corporation common shareholders
|
$ | .05 | $ | .17 | $ | — | $ | .41 | $ | .11 | ||||||||||
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 of $101,343; $102,857; and $75,290, respectively)
|
$ | 43,257,743 | $ | 44,044,636 | $ | 44,827,445 | ||||||
|
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; $50,181; and $47,965, respectively)
|
69,246,231 | 70,102,304 | 72,565,628 | |||||||||
|
Private Education Loans (net of allowance for losses of
$1,401,496; $1,396,707; and $1,012,838, respectively)
|
22,494,955 | 21,850,688 | 19,837,425 | |||||||||
|
Other loans (net of allowance for losses of $74,057; $68,282;
and $53,189, respectively)
|
454,557 | 489,180 | 769,923 | |||||||||
|
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 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:
1,012; 1,150; and 1,150 shares, respectively, issued at
liquidation preference of $1,000 per share
|
1,012,370 | 1,149,770 | 1,149,770 | |||||||||
|
Common stock, par value $.20 per share, 1,125,000 shares
authorized:
|
||||||||||||
|
541,849; 534,842; and 534,420 shares, respectively, issued
|
108,362 | 106,969 | 106,884 | |||||||||
|
Additional paid-in capital
|
4,862,071 | 4,709,053 | 4,665,614 | |||||||||
|
Accumulated other comprehensive income (loss), net of tax
expense (benefit)
|
(44,143 | ) | (48,683 | ) | 46,687 | |||||||
|
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, respectively
|
1,860,989 | 1,860,440 | 1,856,340 | |||||||||
|
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 | ||||||
2
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
Corporation common shareholders
|
$ | .25 | $ | (.32 | ) | $ | (.40 | ) | $ | (.17 | ) | $ | (.17 | ) | ||||||
|
Average common shares outstanding
|
470,280 | 466,799 | 466,646 | 467,960 | 466,625 | |||||||||||||||
|
Diluted earnings (loss) per common share attributable to SLM
Corporation common shareholders
|
$ | .25 | $ | (.32 | ) | $ | (.40 | ) | $ | (.17 | ) | $ | (.17 | ) | ||||||
|
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
|
$ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
3
SLM
CORPORATION
Segment
and “Core Earnings”
Consolidated
Statements of Income
(In
thousands)
| Quarter ended September 30, 2009 | ||||||||||||||||||||||||
|
Asset |
||||||||||||||||||||||||
|
Performance |
Corporate |
Total “Core |
Total |
|||||||||||||||||||||
| Lending | Group | 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. |
4
SLM
CORPORATION
Segment
and “Core Earnings”
Consolidated
Statements of Income
(In
thousands)
| Quarter ended June 30, 2009 | ||||||||||||||||||||||||
|
Asset |
||||||||||||||||||||||||
|
Performance |
Corporate |
Total “Core |
Total |
|||||||||||||||||||||
| Lending | Group | 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. |
5
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 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. |
6
SLM
CORPORATION
Segment
and “Core Earnings”
Consolidated
Statements of Income
(In
thousands)
| Nine months ended September 30, 2009 | ||||||||||||||||||||||||
|
Asset |
||||||||||||||||||||||||
|
Performance |
Corporate |
Total “Core |
Total |
|||||||||||||||||||||
| Lending | Group | 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. |
7
SLM
CORPORATION
Segment
and “Core Earnings”
Consolidated
Statements of Income
(In
thousands)
| Nine months 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
|
$ | 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. |
8
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 Corporation common shareholders
|
$ | .25 | $ | (.32 | ) | $ | (.40 | ) | $ | (.17 | ) | $ | (.17 | ) | ||||||
|
(1) “Core
Earnings” diluted earnings per common share attributable to
SLM Corporation common shareholders
|
$ | .26 | $ | .31 | $ | .19 | $ | .54 | $ | .81 | ||||||||||
|
(2) Total
Economic Floor Income earned on Managed loans, not included in
“Core Earnings” (net of tax)
|
$ | 22,607 | $ | 88,899 | $ | 1,008 | $ | 190,894 | $ | 49,982 | ||||||||||
|
Total Economic Floor Income
earned, not included in “Core Earnings” (net of tax)
per common share attributable to SLM Corporation common
shareholders
|
$ | .05 | $ | .17 | $ | — | $ | .41 | $ | .11 | ||||||||||
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
9
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
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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. |
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