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Sallie Mae Posts Strong Third-Quarter 2006 Performance Results* 14-Percent Growth in Total Managed Loan Portfolio
RESTON, Va., Oct. 19 /PRNewswire-FirstCall/ -- SLM Corporation (NYSE: SLM) , commonly known as Sallie Mae, today reported third-quarter 2006 earnings and performance results that include a total managed student loan portfolio of $137 billion, a 14-percent increase from the year-ago quarter. This increase was driven by a record quarter of education loan purchases that topped $11 billion, a 36-percent increase over the same quarter last year. During the 2006 third quarter, the company originated more than $7.8 billion in loans through its preferred channel, with $4.6 billion coming through the company's internal lending brands, a 35-percent increase from the year-ago quarter. Preferred-channel loan originations are loans funded by the company's internal lending brands and external lending partners. Year to date, preferred-channel loan originations totaled $18.6 billion, with nearly $10 billion coming from the company's internal lending brands. "Core earnings" net income was $321 million for the 2006 third quarter, and $927 million for the first nine months of 2006. On a diluted share basis, third-quarter 2006 "core earnings" net income was $.73, compared to $.61 in the year-ago period as adjusted for stock-based compensation and one-time items, a 20-percent increase. "In the third quarter, we delivered at the high end of our 15 to 20 percent earnings-per-share goal. Our portfolio growth, combined with the performance of our fee-based businesses, continue to position us very well in a growing student loan marketplace. Our ability to grow our earning assets at a record clip in this competitive environment positions us well to continue our long-term earnings growth," said Tim Fitzpatrick, CEO. Sallie Mae reports financial results on a GAAP basis and also presents certain "core earnings" performance measures on a basis that differs from GAAP. 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. Third-quarter 2006 GAAP net income was $263 million, or $.60 per diluted share, compared to $431 million, or $.95 per diluted share, in the year-ago quarter. GAAP net income year to date in 2006 totaled $1.1 billion, compared to $951 million in the same period in 2005. Included in these GAAP results are pre-tax net losses on derivative and hedging activities of $(131) million in the third-quarter 2006 and $(95) million year-to-date 2006, compared to pre-tax net gains of $316 million and $176 million in the respective year-ago periods. "Core earnings" net interest income was $601 million in the 2006 third quarter and $1.8 billion year-to-date, up 15 percent from the first nine months of 2005. "Core earnings" fee income and collection revenue, which includes fees earned from guarantor servicing, debt management activity and collection revenue, were $219 million in the 2006 third quarter, up 29 percent from the year-ago quarter. Year-to-date 2006, "core earnings" fee income and collection revenue were $585 million, compared to $474 million in the first three quarters of 2005. "Core earnings" operating expenses were $317 million during the third quarter 2006, compared to $271 million in the year-ago quarter. Both a description of the "core earnings" treatment and a full reconciliation to the GAAP income statement can be found in the Third Quarter 2006 Supplemental Earnings Disclosure accompanying this press release, which is posted under the Investors page at http://www.salliemae.com/about/investors/stockholderinfo/earningsinfo. Total equity for the company at Sept. 30, 2006, was $4.5 billion, up from $4.4 billion at June 30, 2006. The company's tangible capital at the end of the 2006 third quarter was 2.03 percent of managed assets, compared to 2.19 percent at prior quarter end. The company will host its quarterly earnings conference call today at noon. Sallie Mae executives will be on hand to discuss various highlights of the quarter and to answer questions related to the company's performance. Individuals interested in participating should call the following number today, Oct. 19, 2006, starting at 11:45 a.m. EDT: (877) 356-5689 (USA and Canada) or (706) 679-0623 (International). The conference call will be replayed continuously beginning Thursday, Oct. 19, at 3:00 p.m. EDT and concluding at 11:59 p.m. EDT on Thursday, Nov. 2. Please dial (800) 642-1687 (USA and Canada) or dial (706) 645-9291 (International) and use access code 7891213. In addition, there will be a live audio Web cast of the conference call, which may be accessed at http://www.salliemae.com/. A replay will be available beginning 30-45 minutes after the live broadcast. Forward Looking Statements: This press release contains "forward-looking statements" including expectations as to future market share, the success of preferred channel originations and future results. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks include, among others, changes in the terms of student loans and the educational credit marketplace arising from the implementation of applicable laws and regulations, and from changes in such laws and regulations, changes in the demand for educational financing or in financing preferences of educational institutions, students and their families, and changes in the general interest rate environment. For more information, see the company's filings with the Securities and Exchange Commission. 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 $137 billion in education loans and serves nearly 10 million student and parent customers. Through its Upromise affiliates, the company also manages more than $11 billion in 529 college-savings plans, and assists more than 7 million members with automatic savings through rebates on everyday purchases. Sallie Mae and its subsidiaries offer debt management services as well as business and technical products to a range of business clients, including higher education institutions, student loan guarantors and state and federal agencies. More information is available at http://www.salliemae.com/. SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America. SLM CORPORATION
Supplemental Earnings Disclosure
September 30, 2006
(Dollars in millions, except earnings per share)
Quarters ended
--------------------------------------
Sept. 30, June 30, Sept. 30,
2006 2006 2005
--------- --------- ---------
(unaudited) (unaudited) (unaudited)
SELECTED FINANCIAL
INFORMATION AND RATIOS -
GAAP Basis
Net income $ 263 $ 724 $ 431
Diluted earnings
per common share(1)(2) $ .60 $ 1.52 $ .95
Return on assets 1.10% 3.20% 2.01%
"Core Earnings" Basis(3)
"Core Earnings" net income $ 321 $ 320 $ 312
"Core Earnings" diluted
earnings per common share
(1)(2) $ .73 $ .72 $ .69
"Core Earnings" return
on assets .86% .90% .94%
OTHER OPERATING STATISTICS
Average on-balance sheet
student loans $ 84,241 $ 80,724 $ 77,541
Average off-balance sheet
student loans 48,226 47,716 40,742
--------- --------- ---------
Average Managed student
loans $ 132,467 $ 128,440 $ 118,283
========= ========= =========
Ending on-balance sheet
student loans, net $ 88,038 $ 82,279 $ 81,626
Ending off-balance sheet
student loans, net 48,897 47,865 39,008
--------- --------- ---------
Ending Managed student
loans, net $ 136,935 $ 130,144 $ 120,634
========= ========= =========
Ending Managed FFELP
Stafford and Other
Student Loans, net $ 39,787 $ 41,926 $ 43,082
Ending Managed Consolidation
Loans, net 75,947 69,195 62,161
Ending Managed Private
Education Loans, net 21,201 19,023 15,391
--------- --------- ---------
Ending Managed student
loans, net $ 136,935 $ 130,144 $ 120,634
========= ========= =========
Nine months ended
Sept. 30,
-----------------------
2006 2005
--------- ---------
(unaudited) (unaudited)
SELECTED FINANCIAL
INFORMATION AND RATIOS -
GAAP Basis
Net income $ 1,139 $ 951
Diluted earnings
per common share(1)(2) $ 2.56 $ 2.10
Return on assets 1.65% 1.60%
"Core Earnings" Basis(3)
"Core Earnings" net income $ 927 $ 847
"Core Earnings" diluted
earnings per common share(1)(2) $ 2.09 $ 1.87
"Core Earnings" return
on assets .87% .90%
OTHER OPERATING STATISTICS
Average on-balance sheet
student loans $ 82,610 $ 71,964
Average off-balance sheet
student loans 46,027 42,137
--------- ---------
Average Managed student
loans $ 128,637 $ 114,101
========= =========
(1) In December 2004, the Company adopted the Emerging Issues Task Force
("EITF") Issue No. 04-8, "The Effect of Contingently Convertible Debt
on Diluted Earnings per Share," as it relates to the Company's $2
billion in contingently convertible debt instruments ("Co-Cos") issued
in May 2003. EITF No 04-8 requires the shares underlying Co-Cos to be
included in diluted earnings per common share computations regardless
of whether the market price trigger or the conversion price has been
met, using the "if-converted" method. The impact of Co-Cos due to the
application of EITF No. 04-8 was to decrease diluted earnings per
common share by the following amounts:
Quarters ended
--------------------------------------
Sept. 30, June 30, Sept. 30,
2006 2006 2005
--------- --------- ---------
(unaudited) (unaudited) (unaudited)
Impact of Co-Cos on GAAP
diluted earnings per
common share $ - $ (.08) $ (.04)
Impact of Co-Cos on
"Core Earnings" diluted
earnings per common share $ (.01) $ (.01) $ (.02)
Nine months ended
Sept. 30,
-------------------------
2006 2005
--------- ---------
(unaudited) (unaudited)
Impact of Co-Cos on GAAP
diluted earnings per
common share $ (.07) $ (.08)
Impact on Co-Cos on
"Core Earnings" diluted
earnings per common share $ (.04) $ (.06)
(2) During the first quarter of 2006, the Company adopted the Financial
Accounting Standards Board's ("FASB's") Statement of Financial
Accounting Standards ("SFAS") No. 123(R), "Share Based Payment," which
is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123(R) requires all share based payments to
employees to be recognized in the income statement based on their fair
values. For the quarters ended September 30, 2006 and June 30, 2006,
reported net income attributable to common stock included $10 million
and $9 million, respectively, related to stock option compensation
expense, net of related tax effects. The following table is a pro
forma presentation of the Company's results had SFAS No. 123(R) been
in effect for all periods presented.
Quarters ended
--------------------------------------
Sept. 30, June 30, Sept. 30,
2006 2006 2005
--------- --------- ---------
(unaudited) (unaudited) (unaudited)
Pro forma GAAP
diluted earnings per
common share $ .60 $ 1.52 $ .93
Pro forma "Core Earnings"
diluted earnings per
common share $ .73 $ .72 $ .67
Nine months ended
Sept. 30,
-------------------------
2006 2005
--------- ---------
(unaudited) (unaudited)
Pro forma GAAP
diluted earnings per
common share $ 2.56 $ 2.04
Pro forma "Core Earnings"
diluted earnings per
common share $ 2.09 $ 1.81
(3) See explanation of "Core Earnings" performance measures under
"Reconciliation of 'Core Earnings' Net Income to GAAP Net Income."
SLM CORPORATION
Consolidated Balance Sheets
(In thousands, except per share amounts)
Sept. 30, June 30, Sept. 30,
2006 2006 2005
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Assets
FFELP Stafford and Other
Student Loans
(net of allowance
for losses of $7,649;
$6,860; and $0,
respectively) $ 22,613,604 $ 21,390,845 $ 22,353,605
Consolidation Loans
(net of allowance
for losses of $10,720;
$10,090; and $5,627,
respectively) 57,201,754 54,054,932 51,193,725
Private Education Loans
(net of allowance for
losses of $274,974;
$251,582; and $193,332,
respectively) 8,222,400 6,832,843 8,078,650
Other loans (net of
allowance for losses
of $18,327; $15,190;
and $13,563, respectively) 1,257,252 1,050,632 1,094,464
Cash and investments 4,248,639 6,204,462 3,773,014
Restricted cash and
investments 3,957,535 3,489,542 2,706,925
Retained Interest in
off-balance sheet
securitized loans 3,613,376 3,151,855 2,330,390
Goodwill and acquired
intangible assets, net 1,333,123 1,080,703 1,063,916
Other assets 4,605,014 4,650,851 3,725,670
------------ ------------ ------------
Total assets $107,052,697 $101,906,665 $ 96,320,359
============ ============ ============
Liabilities
Short-term borrowings $ 3,669,842 $ 3,801,266 $ 4,652,334
Long-term borrowings 94,816,563 90,506,785 84,499,739
Other liabilities 4,053,931 3,229,477 3,330,763
------------ ------------ ------------
Total liabilities 102,540,336 97,537,528 92,482,836
------------ ------------ ------------
Commitments and
contingencies
Minority interest
in subsidiaries 9,338 9,369 13,725
Stockholders' equity
Preferred stock, par
value $.20 per share,
20,000 shares authorized:
Series A: 3,300; 3,300;
and 3,300 shares,
respectively,
issued at stated value
of $50 per share;
Series B: 4,000; 4,000; and
4,000 shares respectively,
issued at stated value of
$100 per share 565,000 565,000 565,000
Common stock, par
value $.20 per share,
1,125,000 shares
authorized: 431,590;
430,753; and 488,525
shares, respectively,
issued 86,318 86,151 97,705
Additional paid-in
capital 2,490,851 2,440,565 2,107,961
Accumulated other
comprehensive income,
net of tax 460,527 370,204 407,768
Retained earnings 1,928,204 1,775,948 3,195,034
------------ ------------ ------------
Stockholders' equity
before treasury stock 5,530,900 5,237,868 6,373,468
Common stock held in
treasury at cost:
22,229; 19,078; and
69,927 shares,
respectively 1,027,877 878,100 2,549,670
------------ ------------ ------------
Total stockholders'
equity 4,503,023 4,359,768 3,823,798
------------ ------------ ------------
Total liabilities and
stockholders' equity $107,052,697 $101,906,665 $ 96,320,359
============ ============ ============
SLM CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)
Quarters ended
------------------------------------
Sept. 30, June 30, Sept. 30,
2006 2006 2005
-------- --------- ---------
(unaudited) (unaudited) (unaudited)
Interest income:
FFELP Stafford and Other
Student Loans $ 364,621 $ 337,090 $ 270,444
Consolidation Loans 916,091 841,591 676,820
Private Education
Loans 254,747 233,696 173,467
Other loans 24,550 23,541 21,614
Cash and investments 141,083 124,954 70,541
------------ ------------ ------------
Total interest income 1,701,092 1,560,872 1,212,886
Interest expense 1,363,271 1,204,067 828,122
------------ ------------ ------------
Net interest income 337,821 356,805 384,764
Less: provisions for
losses 67,242 67,396 12,217
------------ ------------ ------------
Net interest income
after provisions for
losses 270,579 289,409 372,547
------------ ------------ ------------
Other income:
Gains on student loan
securitizations 201,132 671,262 -
Servicing and
securitization revenue 187,082 82,842 (16,194)
Loss on investments, net (13,427) (8,524) (43,030)
Gains (losses) on derivative
and hedging activities,
net (130,855) 122,719 316,469
Guarantor servicing fees 38,848 33,256 35,696
Debt management fees 122,556 90,161 92,727
Collections revenue 57,913 67,357 41,772
Other 87,923 75,081 74,174
------------ ------------ ------------
Total other income 551,172 1,134,154 501,614
Operating expenses 353,494 316,602 291,961
Income before income
taxes and minority interest
in net earnings of
subsidiaries 468,257 1,106,961 582,200
Income taxes 203,686 381,828 149,821
------------ ------------ ------------
Income before minority
interest in net earnings
of subsidiaries 264,571 725,133 432,379
Minority interest in net
earnings of subsidiaries 1,099 1,355 1,029
------------ ------------ ------------
Net income 263,472 723,778 431,350
Preferred stock dividends 9,221 8,787 7,288
------------ ------------ ------------
Net income attributable
to common stock $ 254,251 $ 714,991 $ 424,062
============ ============ ============
Basic earnings per common
share $ .62 $ 1.74 $ 1.02
============ ============ ============
Average common shares
outstanding 410,034 410,957 417,235
============ ============ ============
Diluted earnings per common
share $ .60 $ 1.52 $ .95
============ ============ ============
Average common and common
equivalent shares
outstanding 449,841 454,314 458,798
============ ============ ============
Dividends per common
share $ .25 $ .25 $ .22
============ ============ ============
Nine months ended
Sept. 30,
----------------------
2006 2005
-------- --------
(unaudited) (unaudited)
Interest income:
FFELP Stafford and
Other Student Loans $ 1,000,211 $ 699,687
Consolidation Loans 2,579,017 1,739,670
Private Education
Loans 729,796 429,892
Other loans 71,398 61,813
Cash and investments 361,847 186,835
------------ ------------
Total interest income 4,742,269 3,117,897
Interest expense 3,660,122 2,056,585
------------ ------------
Net interest income 1,082,147 1,061,312
Less: provisions for
losses 194,957 137,688
------------ ------------
Net interest income
after provisions for
losses 887,190 923,624
------------ ------------
Other income:
Gains on student loan
securitizations 902,417 311,895
Servicing and
securitization revenue 368,855 276,698
Losses on investments, net (24,899) (56,976)
Gains (losses) on derivative
and hedging activities, net (94,875) 176,278
Guarantor servicing fees 99,011 93,922
Debt management fees 304,329 261,068
Collections revenue 181,951 118,536
Other 234,380 206,187
------------ ------------
Total other income 1,971,169 1,387,608
Operating expenses 993,405 841,665
------------ ------------
Income before income
taxes and minority interest
in net earnings of
subsidiaries 1,864,954 1,469,567
Income taxes 722,559 512,860
------------ ------------
Income before minority
interest in net earnings
of subsidiaries 1,142,395 956,707
Minority interest in net
earnings of subsidiaries 3,544 5,458
------------ ------------
Net income 1,138,851 951,249
Preferred stock dividends 26,309 14,071
------------ ------------
Net income attributable
to common stock $ 1,112,542 $ 937,178
============ ============
Basic earnings per common
share $ 2.71 $ 2.24
============ ============
Average common shares
outstanding 411,212 419,205
============ ============
Diluted earnings per common
share $ 2.56 $ 2.10
============ ============
Average common and common
equivalent shares
outstanding 452,012 461,222
============ ============
Dividends per common
share $ .72 $ .63
============ ============
SLM CORPORATION
Segment and Non-GAAP "Core Earnings"
Consolidated Statements of Income
(In thousands)
Quarter ended Sept. 30, 2006
--------------------------------------------------------
(unaudited)
Corporate Total
and "Core Adjust- Total
Lending DMO Other Earnings" ments GAAP
--------- ------- ------- --------- -------- ---------
Interest income:
FFELP Stafford
and Other
Student Loans $701,615 $ - $ - $701,615 $(336,994) $ 364,621
Consolidation
Loans 1,241,999 - - 1,241,999 (325,908) 916,091
Private
Education Loans 557,787 - - 557,787 (303,040) 254,747
Other loans 24,550 - - 24,550 - 24,550
Cash and
investments 206,837 - 2,782 209,619 (68,536) 141,083
--------- ------- ------- --------- -------- ---------
Total interest
income 2,732,788 - 2,782 2,735,570 (1,034,478) 1,701,092
Total interest
expense 2,124,587 6,088 3,515 2,134,190 (770,919) 1,363,271
--------- ------- ------- --------- -------- ---------
Net interest
income 608,201 (6,088) (733) 601,380 (263,559) 337,821
Less: provisions
for losses 79,774 - (3) 79,771 (12,529) 67,242
--------- ------- ------- --------- -------- ---------
Net interest
income after
provisions
for losses 528,427 (6,088) (730) 521,609 (251,030) 270,579
Fee income - 122,556 38,848 161,404 - 161,404
Collections revenue - 57,744 - 57,744 169 57,913
Other income 46,074 - 40,988 87,062 244,793 331,855
Operating
expenses(1) 156,168 91,341 69,644 317,153 36,341 353,494
--------- ------- ------- --------- -------- ---------
Income before
income taxes
and minority
interest in net
earnings of
subsidiaries 418,333 82,871 9,462 510,666 (42,409) 468,257
Income tax
expense(2) 154,783 30,662 3,502 188,947 14,739 203,686
Minority interest
in net earnings
of subsidiaries - 1,099 - 1,099 - 1,099
--------- ------- ------- --------- -------- ---------
Net income $263,550 $51,110 $5,960 $320,620 $(57,148) $263,472
========= ======= ======= ========= ======== =========
(1) Operating expenses for the Lending, DMO and Corporate and Other
Business segments include $8 million, $4 million, and $4 million,
respectively, of stock-based employee compensation expense due to the
implementation of SFAS No. 123(R) in the first quarter of 2006.
(2) Income taxes are based on a percentage of net income before tax for
the individual reportable segment.
Quarter ended June 30, 2006
--------------------------------------------------------
(unaudited)
Corporate Total
and "Core Adjust- Total
Lending DMO Other Earnings" ments GAAP
--------- ------- ------- --------- -------- ---------
Interest income:
FFELP Stafford
and Other
Student Loans $718,909 $ - $ - $ 718,909 $(381,819) $337,090
Consolidation
Loans 1,114,355 - - 1,114,355 (272,764) 841,591
Private
Education
Loans 485,429 - - 485,429 (251,733) 233,696
Other loans 23,541 - - 23,541 - 23,541
Cash and
investments 169,877 - 659 170,536 (45,582) 124,954
--------- ------- ------- --------- -------- ---------
Total interest
income 2,512,111 - 659 2,512,770 (951,898) 1,560,872
Total interest
expense 1,903,523 5,466 1,345 1,910,334 (706,267) 1,204,067
--------- ------- ------- --------- -------- ---------
Net interest
income 608,588 (5,466) (686) 602,436 (245,631) 356,805
Less: provisions
for losses 60,009 - (32) 59,977 7,419 67,396
--------- ------- ------- --------- -------- ---------
Net interest
income after
provisions
for losses 548,579 (5,466) (654) 542,459 (253,050) 289,409
Fee income - 90,161 33,256 123,417 - 123,417
Collections
revenue - 67,213 - 67,213 144 67,357
Other income 50,771 - 24,338 75,109 868,271 943,380
Operating
expenses(1) 163,162 85,110 50,235 298,507 18,095 316,602
--------- ------- ------- --------- -------- ---------
Income before
income taxes
and minority
interest in
net earnings
of subsidiaries 436,188 66,798 6,705 509,691 597,270 1,106,961
Income tax
expense(2) 161,391 24,715 2,480 188,586 193,242 381,828
Minority interest
in net earnings
of subsidiaries - 1,355 - 1,355 - 1,355
--------- ------- ------- --------- -------- ---------
Net income $274,797 $40,728 $4,225 $319,750 $404,028 $723,778
========= ======= ======= ========= ======== =========
(1) Operating expenses for the Lending, DMO and Corporate and Other
Business segments include $8 million, $2 million, and $4 million,
respectively, of stock-based employee compensation expense due to the
implementation of SFAS No. 123(R) in the first quarter of 2006.
(2) Income taxes are based on a percentage of net income before tax for
the individual reportable segment.
Quarter ended Sept. 30, 2005
--------------------------------------------------------
(unaudited)
Corporate Total
and "Core Adjust- Total
Lending(2) DMO(2) Other(2) Earnings" ments GAAP
--------- ------- ------- --------- -------- ---------
Interest income:
FFELP Stafford
and Other
Student Loans $585,984 $ - $ - $585,984 $(315,540) $270,444
Consolidation
Loans 832,893 - - 832,893 (156,073) 676,820
Private
Education
Loans 312,184 - - 312,184 (138,717) 173,467
Other loans 21,614 - - 21,614 - 21,614
Cash and
investments 112,347 - 1,366 113,713 (43,172) 70,541
--------- ------- ------- --------- -------- ---------
Total interest
income 1,865,022 - 1,366 1,866,388 (653,502) 1,212,886
Total interest
expense 1,299,316 5,689 1,772 1,306,777 (478,655) 828,122
--------- ------- ------- --------- -------- ---------
Net interest
income 565,706 (5,689) (406) 559,611 (174,847) 384,764
Less: provisions
for losses (719) - 539 (180) 12,397 12,217
--------- ------- ------- --------- -------- ---------
Net interest
income after
provisions
for losses 566,425 (5,689) (945) 559,791 (187,244) 372,547
Fee income - 92,727 35,696 128,423 - 128,423
Collections
revenue - 41,772 - 41,772 - 41,772
Other income 106 (66) 36,859 36,899 294,520 331,419
Operating
expenses 133,850 71,718 65,025 270,593 21,368 291,961
---------- ------- ------- --------- -------- ---------
Income (loss)
before income
taxes and
minority
interest in net
earnings of
subsidiaries 432,681 57,026 6,585 496,292 85,908 582,200
Income tax
expense
(benefit)(1) 160,092 21,099 2,437 183,628 (33,807) 149,821
Minority interest
in net earnings
of subsidiaries - 1,029 - 1,029 - 1,029
---------- ------- ------- --------- -------- ---------
Net income
(loss) $272,589 $34,898 $4,148 $311,635 $119,715 $431,350
========= ======= ======= ========== ========= ==========
(1) Income taxes are based on a percentage of net income before tax for
the individual reportable segment.
(2) In the first quarter of 2006, the Company changed its method for
allocating certain Corporate and Other expenses to the other business
segments. All periods presented have been updated to reflect the new
allocation methodology.
Nine Months ended Sept. 30, 2006
---------------------------------------------------------
(unaudited)
Corporate Total
and "Core Adjust- Total
Lending DMO Other Earnings" ments GAAP
--------- ------- ------- --------- -------- ---------
Interest income:
FFELP Stafford
and Other
Student
Loans $2,070,275 $- $- $2,070,275 $(1,070,064) $1,000,211
Consolidation
Loans 3,384,316 - - 3,384,316 (805,299) 2,579,017
Private
Education
Loans 1,471,976 - - 1,471,976 (742,180) 729,796
Other loans 71,398 - - 71,398 - 71,398
Cash and
investments 507,175 - 4,764 511,939 (150,092) 361,847
--------- ------- -------- --------- --------- ---------
Total interest
income 7,505,140 - 4,764 7,509,904 (2,767,635) 4,742,269
Total interest
expense 5,687,482 16,710 6,138 5,710,330 (2,050,208) 3,660,122
--------- ------- -------- --------- --------- ---------
Net interest
income 1,817,658 (16,710) (1,374) 1,799,574 (717,427) 1,082,147
Less:
provisions
for losses 214,603 - (16) 214,587 (19,630) 194,957
--------- ------- -------- --------- --------- ---------
Net interest
income after
provisions
for losses 1,603,055 (16,710) (1,358) 1,584,987 (697,797) 887,190
Fee income - 304,329 99,011 403,340 - 403,340
Collections
revenue - 181,497 - 181,497 454 181,951
Other income 137,417 - 95,335 232,752 1,153,126 1,385,878
Operating
expenses(1) 480,768 265,964 178,391 925,123 68,282 993,405
--------- ------- -------- --------- --------- ---------
Income before
income taxes
and minority
interest in
net earnings
of
subsidiaries 1,259,704 203,152 14,597 1,477,453 387,501 1,864,954
Income tax
expense(2) 466,091 75,166 5,401 546,658 175,901 722,559
Minority
interest
in net earnings
of subsidiaries - 3,544 - 3,544 - 3,544
--------- ------- -------- --------- --------- ---------
Net income $793,613 $124,442 $9,196 $927,251 $211,600 $1,138,851
========= ======= ======== ========= ========= =========
(1) Operating expenses for the Lending, DMO and Corporate and Other
Business segments include $26 million, $9 million, and $13 million,
respectively, of stock-based employee compensation expense due to the
implementation of SFAS No. 123(R)in the first quarter of 2006.
(2) Income taxes are based on a percentage of net income before tax for
the individual reportable segment.
Nine Months ended Sept. 30, 2005
---------------------------------------------------------
(unaudited)
Corporate Total
and "Core Adjust- Total
Lending(2) DMO(2) Other(2) Earnings" ments GAAP
--------- ------- ------- --------- -------- ---------
Interest income:
FFELP Stafford
and Other
Student
Loans $1,678,268 $- $- $1,678,268 $(978,581) $699,687
Consolidation
Loans 2,080,287 - - 2,080,287 (340,617) 1,739,670
Private
Education
Loans 786,439 - - 786,439 (356,547) 429,892
Other loans 61,813 - - 61,813 - 61,813
Cash and
investments 268,195 - 3,170 271,365 (84,530) 186,835
-------- ------- ------- --------- --------- ---------
Total interest
income 4,875,002 - 3,170 4,878,172 (1,760,275) 3,117,897
Total interest
expense 3,290,419 13,645 4,543 3,308,607 (1,252,022) 2,056,585
--------- ------- ------- --------- ---------- ---------
Net interest
income 1,584,583 (13,645)(1,373) 1,569,565 (508,253) 1,061,312
Less:
provisions
for losses 68,783 - 184 68,967 68,721 137,688
--------- ------- ------- --------- ---------- ---------
Net interest
income
after
provisions
for losses 1,515,800 (13,645) (1,557) 1,500,598 (576,974) 923,624
Fee income - 261,068 93,922 354,990 - 354,990
Collections
revenue - 118,536 - 118,536 - 118,536
Other income 72,004 1 97,731 169,736 744,346 914,082
Operating
expenses 408,627 203,130 179,535 791,292 50,373 841,665
--------- ------- ------- ---------- ---------- ---------
Income before
income taxes
and minority
interest in
net earnings
of
subsidiaries 1,179,177 162,830 10,561 1,352,568 116,999 1,469,567
Income tax
expense(2) 436,295 60,247 3,908 500,450 12,410 512,860
Minority interest
in net
earnings of
subsidiaries 1,749 3,449 - 5,198 260 5,458
--------- ------- ------- --------- --------- ---------
Net income $741,133 $99,134 $6,653 $846,920 $104,329 $951,249
========= ======= ======= ========= ========= =========
(1) Income taxes are based on a percentage of net income before tax for
the individual reportable segment.
(2) In the first quarter of 2006, the Company changed its method for
allocating certain Corporate and Other expenses to the other business
segments. All periods presented have been updated to reflect the new
allocation methodology.
SLM CORPORATION
Reconciliation of "Core Earnings" Net Income to GAAP Net Income
(In thousands, except per share amounts)
Quarters ended
--------------------------------------
Sept. 30, June 30, Sept. 30,
2006 2006 2005
---------- ---------- ----------
(unaudited) (unaudited) (unaudited)
"Core Earnings" net income(A) $ 320,620 $ 319,750 $ 311,635
"Core Earnings" adjustments:
Net impact of
securitization accounting 159,468 503,083 (252,748)
Net impact of
derivative accounting (112,699) 164,678 409,082
Net impact of Floor Income (52,781) (52,333) (54,318)
Amortization of acquired
Intangibles(B) (36,397) (18,158) (16,108)
--------- --------- ---------
Total "Core Earnings"
adjustments before
income taxes and minority
interest in net earnings
of subsidiaries (42,409) 597,270 85,908
Net tax effect(C) (14,739) (193,242) 33,807
--------- --------- ---------
Total "Core Earnings"
adjustments before
minority interest in net
earnings of subsidiaries (57,148) 404,028 119,715
Minority interest in net
earnings of subsidiaries - - -
--------- --------- ---------
Total "Core Earnings"
adjustments (57,148) 404,028 119,715
--------- --------- ---------
GAAP net income $ 263,472 $ 723,778 $431,350
========= ========= =========
GAAP diluted
earnings per
common share $ .60 $ 1.52 $ 95
========= ========= =========
(A) "Core earnings" diluted
earnings per
common share $ .73 $ .72 $ .69
========= ========= =========
(B)Represents goodwill and intangible impairment and amortization of
acquired intangibles.
(C)Such tax effect is based upon the Company's "Core Earnings" effective
tax rate for the year. The net tax effect results primarily from the
exclusion of the permanent income tax impact of the equity forward
contracts.
Nine months ended
Sept. 30
------------------------
2006 2005
---------- ----------
(unaudited) (unaudited)
"Core Earnings" net income(D) $ 927,251 $ 846,920
"Core Earnings" adjustments:
Net impact of
securitization accounting 600,490 (177,589)
Net impact of
derivative accounting 13,162 487,705
Net impact of Floor Income (157,683) (147,835)
Net impact of acquired
intangibles(E) (68,468) (45,282)
---------- ----------
Total "Core Earnings"
adjustments before
income taxes and minority
interest in net earnings
of subsidiaries 387,501 116,999
Net tax effect(F) (175,901) (12,410)
---------- ----------
Total "Core Earnings"
adjustments before
minority interest in net
earnings of subsidiaries 211,600 104,589
Minority interest in net
earnings of subsidiaries - (260)
---------- ----------
Total "Core Earnings"
adjustments 211,600 104,329
---------- ----------
GAAP net income $1,138,851 $ 951,249
========== ==========
GAAP diluted
earnings per
common share $ 2.56 $ 2.10
========== ==========
(D)"Core Earnings" diluted
earnings per
common share $ 2.09 $ 1.87
========== ==========
(E)Represents goodwill and intangible impairment and amortization of
acquired intangibles.
(F)Such tax effect is based upon the Company's "Core Earnings" effective
tax rate for the year. The net tax effect results primarily from the
exclusion of the permanent income tax impact of the equity forward
contracts.
"Core Earnings"
In accordance with the Rules and Regulations of the Securities and Exchange Commission ("SEC"), we prepare financial statements in accordance with generally accepted accounting principles in the United States of America ("GAAP"). In addition to evaluating the Company's GAAP-based financial information, management evaluates the Company's business segments on a basis that, as allowed under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," differs from GAAP. We refer to management's basis of evaluating our segment results as "Core Earnings" presentations for each business segment and we refer to this information in our presentations with credit rating agencies and lenders. While "Core Earnings" are not a substitute for reported results under GAAP, we rely on "Core Earnings" to manage each operating segment because we believe these measures provide additional information regarding the operational and performance indicators that are most closely assessed by management. Our "Core Earnings" are the primary financial performance measures used by management to evaluate performance and to allocate resources. Accordingly, financial information is reported to management on a "Core Earnings" basis by reportable segment, as these are the measures used regularly by our chief operating decision maker. Our "Core Earnings" are used in developing our financial plans and tracking results, and also in establishing corporate performance targets and determining incentive compensation. Management believes this information provides additional insight into the financial performance of the Company's core business activities. Our "Core Earnings" are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. "Core Earnings" reflect only current period adjustments to GAAP as described below. Accordingly, the Company's "Core Earnings" presentation does not represent another comprehensive basis of accounting. A more detailed discussion of the differences between GAAP and "Core Earnings" follows. Limitations of "Core Earnings" While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, management believes that "Core Earnings" are an important additional tool for providing a more complete understanding of the Company's results of operations. Nevertheless, "Core Earnings" are subject to certain general and specific limitations that investors should carefully consider. For example, as stated above, unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting. Our "Core Earnings" are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Unlike GAAP, "Core Earnings" reflect only current period adjustments to GAAP. Accordingly, the Company's "Core Earnings" presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not compare our Company's performance with that of other financial services companies based upon "Core Earnings." "Core Earnings" results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, the Company's board of directors, rating agencies and lenders to assess performance. Other limitations arise from the specific adjustments that management makes to GAAP results to derive "Core Earnings" results. For example, in reversing the unrealized gains and losses that result from SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," on derivatives that do not qualify for "hedge treatment," as well as on derivatives that do qualify but are in part ineffective because they are not perfect hedges, we focus on the long-term economic effectiveness of those instruments relative to the underlying hedged item and isolate the effects of interest rate volatility, changing credit spreads and changes in our stock price on the fair value of such instruments during the period. Under GAAP, the effects of these factors on the fair value of the derivative instruments (but not on the underlying hedged item) tend to show more volatility in the short term. While our presentation of our results on a Managed 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 Managed Basis presentation presents the economic substance of our Managed loan portfolio, it understates earnings volatility from securitization gains. Our "Core Earnings" results exclude certain Floor Income, which is real cash income, from our reported results and therefore may understate earnings in certain periods. Management's financial planning and valuation of operating results, however, does not take into account Floor Income because of its inherent uncertainty, except when it is economically hedged through Floor Income Contracts. Pre-Tax Differences between "Core Earnings" and GAAP Our "Core Earnings" are the primary financial performance measures used by management to evaluate performance and to allocate resources. Accordingly, financial information is reported to management on a "Core Earnings" basis by reportable segment, as these are the measures used regularly by our chief operating decision maker. Our "Core Earnings" are used in developing our financial plans and tracking results, and also in establishing corporate performance targets and determining incentive compensation. Management believes this information provides additional insight into the financial performance of the Company's core business activities. "Core Earnings" reflect only current period adjustments to GAAP, as described in the more detailed discussion of the differences between GAAP and "Core Earnings" 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 Managed Basis as long-term non-recourse financings. The upfront "gains" on sale from securitization transactions as well as ongoing "servicing and securitization revenue" presented in accordance with GAAP are excluded from "Core Earnings" and are replaced by the interest income, provisions for loan losses, and interest expense as they are earned or incurred on the securitization loans. We also exclude transactions with our off-balance sheet trusts from "Core Earnings" as they are considered intercompany transactions on a Managed Basis. 2) Derivative Accounting: "Core Earnings" exclude periodic unrealized gains and losses arising primarily in our Lending business segment, and to a lesser degree in our Corporate and Other business segment, that are caused primarily by the one-sided mark-to-market derivative valuations prescribed by SFAS No. 133 on derivatives that do not qualify for "hedge treatment" under GAAP. Under "Core Earnings," 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 marked-to-market through earnings. 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 on the income statement with no offsetting gain or loss recorded for the economically hedged items. For "Core Earnings," we reverse the fair value adjustments on the Floor Income Contracts and futures economically hedging Floor Income and include the amortization of net premiums received (net of Eurodollar futures contracts' realized gains or losses) in income. 4) Acquired Intangibles: We exclude goodwill and intangible impairment and the amortization of acquired intangibles. Company News On-Call: http://www.prnewswire.com/comp/827187.html Website: http://www.salliemae.com/ |
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