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 .
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 . A replay will be available beginning 30-45 minutes after the live broadcast.
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 . SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.
(Dollars in millions, except earnings per share) (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 in May 2003. EITF No 04-8 requires the shares underlying Co-Cos to be 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 (2) During the first quarter of 2006, the Company adopted the Financial is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No.
123(R) requires all share based payments to values. For the quarters ended September 30, 2006 and June 30, 2006, 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 for losses of $7,649; $6,860; and $0, for losses of $10,720; $10,090; and $5,627, losses of $274,974; $251,582; and $193,332, of $18,327; $15,190; Cash and investments 4,248,639 6,204,462 3,773,014 in subsidiaries 9,338 9,369 13,725 20,000 shares authorized: and 3,300 shares, Series B: 4,000; 4,000; and of subsidiaries - 1,355 - 1,355 - 1,355 (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. of subsidiaries - 3,544 - 3,544 - 3,544 (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. 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.
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.
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.
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