(Source: Business Wire)
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.
Private Education Loan Portfolio Quality
The third-quarter 2009 private education loan loss provision was $413
million, net charge-offs were $443 million. Management anticipates loan
charge-offs to decline from the current quarter but to remain at
historically elevated levels. Loans in late-stage delinquency decreased,
and loans in forbearance significantly decreased to $1.3 billion from a
high of nearly $3.0 billion in early 2008.
Liquidity
In the quarter, the company significantly improved its liquidity by:
Completing $2.8 billion in private education loan securitizations,
which provided life-of-loan funding;
Funding $3.2 billion in federal student loans through the Straight A
conduit program sponsored by ED;
Reducing "2008 ABCP Facility" outstandings to $9.4 billion from $12.5
billion at the end of the second quarter; and
Repurchasing $1.4 billion in unsecured debt generating a $74 million
gain.
Other Income and Operating Expenses
Core fee income, which included the gain on debt repurchases noted
above, was $331 million in the third quarter. Year-ago core fee income
was $64 million, which included a $242 million impairment in the
company's purchased-paper line of business.
Operating expenses were $309 million for the quarter, a decrease from
$317 million in the year-ago quarter.
GAAP
Sallie Mae officially reports financial results on a GAAP basis and also
presents certain core earnings performance measures. The company's
management, equity investors, credit rating agencies and debt capital
providers use these core earnings measures to monitor the company's
business performance. Both a description of the core earnings treatment
and a full reconciliation to the GAAP income statement can be found at: http://www.salliemae.com/about/investors/stockholderinfo/earningsinfo/,
click on the Third Quarter 2009 Supplemental Earnings Disclosure.
Sallie Mae reported third-quarter 2009 GAAP net income of $159 million,
or $.25 diluted earnings per share, compared to net losses of $159
million, or $.40 diluted loss per share, in the 2008 third quarter.
The GAAP provision for loan losses was $321 million, compared to the
year-ago quarter's $187 million. Under GAAP accounting, the provision
for loan losses is based solely upon on-balance sheet loans; the
comparable "core earnings" figure is based on total managed loans.
Presentation slides for the conference call discussed below may be
accessed on www.salliemae.com/about/investors/stockholderinfo/webcast.
The company will host an earnings conference call tomorrow, Oct. 21 at 8
a.m. EDT. Sallie Mae executives will be on hand to discuss various
highlights of the quarter and to answer questions related to the
company's performance. Individuals interested in participating should
call the following number tomorrow, Oct. 21, 2009, starting at 7:45 a.m.
EDT: (877) 356-5689 (USA and Canada) or (706) 679-0623 (International)
and use access code 35188825. The conference call will be replayed
continuously beginning at 11 a.m. EDT on Oct. 21, 2009, and concluding
at midnight on Nov. 4, 2009 EST. To access the replay, please dial (800)
642-1687 (USA and Canada) or dial (706) 645-9291 (International) and use
access code 35188825. In addition, there will be a live audio Web cast
of the conference call, which may be accessed at www.salliemae.com.
A replay will be available 30 to 45 minutes after the live broadcast.
This press release contains "forward-looking statements" based on
management's current expectations as of the date of this release.
These statements are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Because such
statements inherently involve risks and uncertainties, actual results
may differ materially from those expressed or implied by such
forward-looking statements. Such risks include, among others, changes in
the terms of student loans and the educational credit marketplace
arising from the implementation of applicable laws and regulations, and
from changes in such laws and regulations, adverse results in legal
disputes, changes in the demand for educational financing or in
financing preferences of educational institutions, students and their
families, limited liquidity, increased financing costs and changes in
the general interest rate environment. For more information, see the
company's filings with the Securities and Exchange Commission, including
the forward-looking statements contained in the company's Supplemental
Financial Information Third Quarter 2009. All information in this
release is as of Oct. 20, 2009. The Company does not undertake any
obligation to update or revise these forward-looking statements to
conform the statement to actual results or changes in the Company's
expectations.
SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, is the
nation's leading provider of saving, planning and paying for education
programs. Through its subsidiaries, the company manages $192 billion in
education loans and serves 10 million student and parent customers.
Through its Upromise affiliates, the company also manages more than $21
billion in 529 college-savings plans, and is a major, private source of
college funding contributions in America with 11 million members and
more than $500 million in member rewards. Sallie Mae and its
subsidiaries offer debt management services as well as business and
technical products to a range of business clients, including higher
education institutions, student loan guarantors and state and federal
agencies. More information is available at www.SallieMae.com.
SLM Corporation and its subsidiaries are not sponsored by or agencies of
the United States of America.
SLM CORPORATION
Supplemental Earnings Disclosure
September 30, 2009
(In millions, except per share amounts)
Quarters ended Nine months ended
September 30, June 30, September 30, September 30, September 30,
2009 2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
SELECTED FINANCIAL INFORMATION AND RATIOS
GAAP Basis
Net income (loss) attributable to SLM Corporation $ 159 $ (123 ) $ (159 ) $ 15 $ 3
Diluted earnings (loss) per common share attributable to SLM 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
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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
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FASB Accounting Standards Codification
The Company adopted, as of July 1, 2009, the Financial Accounting
Standards Board's ("FASB's") Accounting Standards Codification ("ASC")
as the source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with generally accepted accounting
principles in the United States of America ("GAAP"). The ASC does not
change authoritative guidance. Accordingly, implementing the ASC did not
change any of the Company's accounting, and therefore, did not have an
impact on the consolidated results of the Company. References to
authoritative GAAP literature have been updated accordingly.
"Core Earnings"
In accordance with the rules and regulations of the Securities and
Exchange Commission ("SEC"), we prepare financial statements in
accordance with GAAP. In addition to evaluating the Company's GAAP-based
financial information, management evaluates the Company's business
segments on a basis that, as allowed under ASC 280, "Segment Reporting,"
differs from GAAP. We refer to management's basis of evaluating our
segment results as "Core Earnings" presentations for each business
segment and we refer to this information in our presentations with
credit rating agencies and lenders. While "Core Earnings" are not a
substitute for reported results under GAAP, we rely on "Core Earnings"
to manage each operating segment because we believe these measures
provide additional information regarding the operational and performance
indicators that are most closely assessed by management.
Our "Core Earnings" are not defined terms within GAAP and may not be
comparable to similarly titled measures reported by other companies.
"Core Earnings" net income reflects only current period adjustments to
GAAP net income as described below. Unlike financial accounting, there
is no comprehensive, authoritative guidance for management reporting and
as a result, our management reporting is not necessarily comparable with
similar information for any other financial institution. Our operating
segments are defined by products and services or by types of customers,
and reflect the manner in which financial information is currently
evaluated by management. Intersegment revenues and expenses are netted
within the appropriate financial statement line items consistent with
the income statement presentation provided to management. Changes in
management structure or allocation methodologies and procedures may
result in changes in reported segment financial information.
Limitations of "Core Earnings"
While GAAP provides a uniform, comprehensive basis of accounting, for
the reasons described above, management believes that "Core Earnings"
are an important additional tool for providing a more complete
understanding of the Company's results of operations. Nevertheless,
"Core Earnings" are subject to certain general and specific limitations
that investors should carefully consider. For example, as stated above,
unlike financial accounting, there is no comprehensive, authoritative
guidance for management reporting. Our "Core Earnings" are not defined
terms within GAAP and may not be comparable to similarly titled measures
reported by other companies. Unlike GAAP, "Core Earnings" reflect only
current period adjustments to GAAP. Accordingly, the Company's "Core
Earnings" presentation does not represent a comprehensive basis of
accounting. Investors, therefore, may not compare our Company's
performance with that of other financial services companies based upon
"Core Earnings." "Core Earnings" results are only meant to supplement
GAAP results by providing additional information regarding the
operational and performance indicators that are most closely used by
management, the Company's board of directors, rating agencies and
lenders to assess performance.
Other limitations arise from the specific adjustments that management
makes to GAAP results to derive "Core Earnings" results. For example, in
reversing the unrealized gains and losses that result from ASC 815,
"Derivatives and Hedging," on derivatives that do not qualify for "hedge
treatment," as well as on derivatives that do qualify but are in part
ineffective because they are not perfect hedges, we focus on the
long-term economic effectiveness of those instruments relative to the
underlying hedged item and isolate the effects of interest rate
volatility and changing credit spreads on the fair value of such
instruments during the period. Under GAAP, the effects of these factors
on the fair value of the derivative instruments (but not on the
underlying hedged item) tend to show more volatility in the short term.
While our presentation of our results on a "Core Earnings" basis
provides important information regarding the performance of our Managed
portfolio, a limitation of this presentation is that we are presenting
the ongoing spread income on loans that have been sold to a trust
managed by us. While we believe that our "Core Earnings" presentation
presents the economic substance of our Managed loan portfolio, it
understates earnings volatility from securitization gains. Our "Core
Earnings" results exclude certain Floor Income, which is real cash
income, from our reported results and therefore may understate earnings
in certain periods. Management's financial planning and valuation of
operating results, however, does not take into account Floor Income
because of its inherent uncertainty, except when it is Fixed Rate Floor
Income that is economically hedged through Floor Income Contracts.
Pre-Tax Differences between "Core Earnings" and GAAP
Our "Core Earnings" are the primary financial performance measures used
by management to evaluate performance and to allocate resources.
Accordingly, financial information is reported to management on a "Core
Earnings" basis by reportable segment, as these are the measures used
regularly by our chief operating decision makers. Our "Core Earnings"
are used in developing our financial plans and tracking results, and
also in establishing corporate performance targets and incentive
compensation. Management believes this information provides additional
insight into the financial performance of the Company's core business
activities. "Core Earnings" net income reflects only current period
adjustments to GAAP net income, as described in the more detailed
discussion of the differences between "Core Earnings" and GAAP that
follows, which includes further detail on each specific adjustment
required to reconcile our "Core Earnings" segment presentation to our
GAAP earnings.
1) Securitization Accounting: Under GAAP, certain securitization transactions in our Lending operating segment are accounted for as sales of assets. Under "Core Earnings" for the Lending operating segment, we present all securitization transactions on a "Core Earnings" basis as long-term non-recourse financings. The upfront "gains" on sale from securitization transactions, as well as ongoing "servicing and securitization revenue" presented in accordance with GAAP, are excluded from "Core Earnings" and are replaced by interest income, provisions for loan losses, and interest expense as earned or incurred on the securitization loans. We also exclude transactions with our off-balance sheet trusts from "Core Earnings" as they are considered intercompany transactions on a "Core Earnings" basis.
2) Derivative Accounting: "Core Earnings" exclude periodic unrealized gains and losses that are caused primarily by the one-sided mark-to-market derivative valuations prescribed by ASC 815 on derivatives that do not qualify for "hedge treatment" under GAAP. These unrealized gains and losses occur in our Lending operating segment. In our "Core Earnings" presentation, we recognize the economic effect of these hedges, which generally results in any cash paid or received being recognized ratably as an expense or revenue over the hedged item's life.
3) Floor Income: The timing and amount (if any) of Floor Income earned in our Lending operating segment is uncertain and in excess of expected spreads. Therefore, we only include such income in "Core Earnings" when it is Fixed Rate Floor Income that is economically hedged. We employ derivatives, primarily Floor Income Contracts and futures, to economically hedge Floor Income. As discussed above in "Derivative Accounting," these derivatives do not qualify as effective accounting hedges, and therefore, under GAAP, they are marked-to-market through the "gains (losses) on derivative and hedging activities, net" line in the consolidated statement of income with no offsetting gain or loss recorded for the economically hedged items. For "Core Earnings," we reverse the fair value adjustments on the Floor Income Contracts and futures economically hedging Floor Income and include in income the amortization of net premiums received on contracts economically hedging Fixed Rate Floor Income.
4) Acquired Intangibles: Our "Core Earnings" exclude goodwill and intangible impairment and the amortization of acquired intangibles.
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