Sallie Mae Posts Strong Third-Quarter 2006 Performance Results

RESTON, Va., Oct. 19 /PRNewswire-FirstCall/ -- SLM Corporation , 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.

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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 , 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.