Sallie Mae Student Loan Originations Increase 13-Percent from Year-Ago Quarter

RESTON, Va., Oct. 11 /PRNewswire-FirstCall/ -- SLM Corporation , commonly known as Sallie Mae, today reported third-quarter 2007 earnings and performance results that include a 13-percent rise in its student loan originations to $8.9 billion, from the 2006 third quarter's $7.8 billion. Year-to-date 2007, student loan originations were $20.5 billion, compared to $18.6 billion in the same period last year. The company's managed student loan portfolio totaled $160 billion at the end of the third-quarter 2007.

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"Thanks to our industry-leading brand, our scale and efficiencies, and our focus on students and families, we successfully faced a number of challenges this quarter," said C.E. Andrews, chief executive officer. "We have a solid track record of growing our 'core earnings' through various political, interest rate and economic environments, and the fundamentals of our business point to a bright future for our company."

Sallie Mae 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.

Sallie Mae reported a third-quarter 2007 GAAP net loss of $344 million, or $.85 diluted loss per share, compared to net income of $263 million, or $.60 per diluted share, in the year-ago period. Included in these GAAP results are pre-tax losses on derivative and hedging activities of $487 million in the third-quarter 2007, principally related to the decline in share price during the quarter on the company's equity forward positions.

Third-quarter 2007 "core earnings" net income was $305 million, or $.70 per diluted share, before $46 million, or $.11 per diluted share, in after-tax reductions to net income from the following non-recurring items: $28 million related to the recent legislative changes in the FFELP risk-sharing percentage and $18 million related to the company's previously announced merger agreement. Including these non-recurring items, reported "core earnings" net income was $259 million, or $.59 per diluted share.

For the first nine months of 2007, "core earnings" net income was $699 million, compared to $927 million in the same period last year.

"Core earnings" net interest income was $664 million for the 2007 third quarter, up 10 percent from the year-ago quarter's $601 million. "Core earnings" other income, which consists primarily of fees earned from guarantor servicing and collection activity, was $283 million in the third-quarter 2007, compared to $306 million in the year-ago period. "Core earnings" operating expenses were $337 million in the third-quarter 2007, compared to $317 million in the third-quarter 2006.

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 2007 Supplemental Earnings Disclosure.

The company will host a quarterly earnings conference call and shareholder conference 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. 11, 2007, 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. 11, at 3:00 p.m. EDT and concluding at midnight, Oct. 25, 2007. To access the replay, dial (800) 642-1687 (USA and Canada) or dial (706) 645-9291 (International) and use access code 5437761. In addition, there will be a live audio Web cast of the conference, which may be accessed at http://www.salliemae.com/. A replay will be available immediately following the conference until midnight, Oct. 25, 2007.

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, adverse results in legal disputes, 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, including the forward-looking statements contained in the company's Supplemental Financial Information Third Quarter 2007. All information in this release is as of Oct. 11, 2007. 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 , commonly known as Sallie Mae, is the nation's leading provider of saving- and paying-for-college programs. The company manages $160 billion in education loans and serves nearly 10 million student and parent customers. Through its Upromise affiliates, the company also manages $19 billion in 529 college-savings plans, and 8 million members have joined Upromise to help save for college with rewards on purchases at nearly 70,000 places. 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, 2007 (Dollars in millions, except earnings per share) Quarters ended -------------------------------------- Sept. 30, June 30, Sept. 30, 2007 2007 2006 --------- --------- --------- (unaudited) (unaudited) (unaudited) SELECTED FINANCIAL INFORMATION AND RATIOS GAAP Basis Net income (loss) $ (344) $ 966 $ 263 Diluted earnings (loss) per common share(1) $ (.85) $ 1.03 $ .60 Return on assets (1.05)% 3.23% 1.10% "Core Earnings" Basis(2) "Core Earnings" net income $ 259 $ 189 $ 321 "Core Earnings" diluted earnings per common share(1) $ .59 $ .43 $ .73 "Core Earnings" return on assets .59% .45% .86% OTHER OPERATING STATISTICS Average on-balance sheet student loans $ 114,571 $ 108,865 $ 84,241 Average off-balance sheet student loans 41,526 43,432 48,226 --------- --------- --------- Average Managed student loans $ 156,097 $ 152,297 $ 132,467 ========= ========= ========= Ending on-balance sheet student loans, net $ 119,155 $ 110,626 $ 88,038 Ending off-balance sheet student loans, net 40,604 42,577 48,897 --------- --------- --------- Ending Managed student loans, net $ 159,759 $ 153,203 $ 136,935 ========= ========= ========= Ending Managed FFELP Stafford and Other Student Loans, net $ 44,270 $ 42,865 $ 39,787 Ending Managed FFELP Consolidation Loans, net 88,070 85,276 75,947 Ending Managed Private Education Loans, net 27,419 25,062 21,201 --------- --------- --------- Ending Managed student loans, net $ 159,759 $ 153,203 $ 136,935 ========= ========= ========= Nine months ended Sept. 30, ------------------------- 2007 2006 --------- --------- (unaudited) (unaudited) SELECTED FINANCIAL INFORMATION AND RATIOS GAAP Basis Net income $ 739 $ 1,139 Diluted earnings per common share(1) $ 1.69 $ 2.56 Return on assets .82% 1.65% "Core Earnings" Basis(2) "Core Earnings" net income $ 699 $ 927 "Core Earnings" diluted earnings per common share(1) $ 1.58 $ 2.09 "Core Earnings" return on assets .56% .87% OTHER OPERATING STATISTICS Average on-balance sheet student loans $ 108,360 $ 82,610 Average off-balance sheet student loans 43,195 46,027 -------- --------- Average Managed student loans $ 151,555 $ 128,637 ========= ========= (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 to diluted earnings per common share is as follows: Quarters ended -------------------------------------- Sept. 30, June 30, Sept. 30, 2007 2007 2006 --------- --------- --------- (unaudited) (unaudited) (unaudited) Impact of Co-Cos on GAAP diluted earnings per common share $ -(A) $ (.03) $ - Impact of Co-Cos on "Core Earnings" diluted earnings per common share $ - $ -(A) $ (.01) (A) There is no impact on diluted earnings per common share because the effect of the assumed conversion is antidilutive. On July 25, 2007, the Co-Cos were called at par. Nine months ended Sept. 30, ------------------------- 2007 2006 --------- --------- (unaudited) (unaudited) Impact of Co-Cos on GAAP diluted earnings per common share $ -(A) $ (.07) Impact on Co-Cos on "Core Earnings" diluted earnings per common share $ -(A) $ (.04) (A) There is no impact on diluted earnings per common share because the effect of the assumed conversion is antidilutive. On July 25, 2007, the Co-Cos were called at par. (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, 2007 2007 2006 ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) Assets FFELP Stafford and Other Student Loans (net of allowance for losses of $30,655; $11,337; and $7,649, respectively) $ 34,108,560 $ 31,503,088 $ 22,613,604 FFELP Consolidation Loans (net of allowance for losses of $26,809; $12,746; and $10,720, respectively) 71,370,681 68,109,269 57,201,754 Private Education Loans (net of allowance for losses of $454,100; $427,904; and $274,974, respectively) 13,675,571 11,013,668 8,222,400 Other loans (net of allowance for losses of $21,738; $19,989; and $18,327, respectively) 1,193,405 1,178,052 1,257,252 Cash and investments 12,040,001 4,565,606 4,248,639 Restricted cash and investments 4,999,369 4,300,826 3,957,535 Retained Interest in off-balance sheet securitized loans 3,238,637 3,448,045 3,613,376 Goodwill and acquired intangible assets, net 1,354,141 1,356,620 1,333,123 Other assets 8,835,025 7,327,108 4,605,014 ------------ ------------ ------------ Total assets $150,815,390 $132,802,282 $107,052,697 ============ ============ ============ Liabilities Short-term borrowings $ 33,008,374 $ 9,758,465 $ 3,669,842 Long-term borrowings 108,860,988 114,365,577 94,816,563 Other liabilities 3,934,267 3,320,098 4,053,931 ------------ ------------ ------------ Total liabilities 145,803,629 127,444,140 102,540,336 ------------ ------------ ------------ Commitments and contingencies Minority interest in subsidiaries 10,054 10,081 9,338 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: 439,660; 436,095; and 431,590 shares, respectively, issued 87,932 87,219 86,318 Additional paid-in capital 2,847,748 2,721,554 2,490,851 Accumulated other comprehensive income, net of tax 245,352 265,388 460,527 Retained earnings 2,437,639 2,790,674 1,928,204 ------------ ------------ ------------ Stockholders' equity before treasury stock 6,183,671 6,429,835 5,530,900 Common stock held in treasury: 25,544; 23,477; and 22,229 shares, respectively 1,181,964 1,081,774 1,027,877 ------------ ------------ ------------ Total stockholders' equity 5,001,707 5,348,061 4,503,023 ------------ ------------ ------------ Total liabilities and stockholders' equity $150,815,390 $132,802,282 $107,052,697 ============ ============ ============ SLM CORPORATION Consolidated Statements of Income (In thousands, except per share amounts) Quarters ended ------------------------------------- Sept. 30, June 30, Sept. 30, 2007 2007 2006 -------- --------- --------- (unaudited) (unaudited) (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 545,618 $ 511,300 $ 364,621 FFELP Consolidation Loans 1,145,473 1,087,254 916,091 Private Education Loans 392,737 329,351 254,747 Other loans 25,990 26,453 24,550 Cash and investments 211,303 141,524 141,083 ------------ ------------ ------------ Total interest income 2,321,121 2,095,882 1,701,092 Total interest expense 1,879,811 1,697,229 1,363,271 ------------ ------------ ------------ Net interest income 441,310 398,653 337,821 Less: provisions for loan losses 142,600 148,200 67,242 ------------ ------------ ------------ Net interest income after provisions for loan losses 298,710 250,453 270,579 ------------ ------------ ------------ Other income (loss): Gains on student loan securitizations - - 201,132 Servicing and securitization revenue 28,883 132,987 187,082 Losses on loans and securities, net (25,163) (10,921) (13,427) Gains (losses) on derivative and hedging activities, net (487,478) 821,566 (130,855) Guarantor servicing fees 45,935 30,273 38,848 Debt management fees 76,306 80,237 122,556 Collections revenue 52,788 77,092 57,913 Other 106,684 89,004 87,923 ------------ ------------ ------------ Total other income (loss) (202,045) 1,220,238 551,172 Operating expenses 355,899 398,800 353,494 Income (loss) before income taxes and minority interest in net earnings of subsidiaries (259,234) 1,071,891 468,257 Income taxes 84,449 104,724 203,686 ------------ ------------ ------------ Income (loss) before minority interest in net earnings of subsidiaries (343,683) 967,167 264,571 Minority interest in net earnings of subsidiaries 77 696 1,099 ------------ ------------ ------------ Net income (loss) (343,760) 966,471 263,472 Preferred stock dividends 9,274 9,156 9,221 ------------ ------------ ------------ Net income (loss) attributable to common stock $ (353,034) $ 957,315 $ 254,251 ============ ============ ============ Basic earnings (loss) per common share $ (.85) $ 2.32 $ .62 ============ ============ ============ Average common shares outstanding 412,944 411,870 410,034 ============ ============ ============ Diluted earnings (loss) per common share $ (.85) $ 1.03 $ .60 ============ ============ ============ Average common and common equivalent shares outstanding 412,944 452,406 449,841 ============ ============ ============ Dividends per common share $ - $ - $ .25 ============ ============ ============ Nine months ended Sept. 30, ----------------------- 2007 2006 --------- --------- (unaudited) (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 1,507,680 $ 1,000,211 FFELP Consolidation Loans 3,247,573 2,579,017 Private Education Loans 1,060,509 729,796 Other loans 80,416 71,398 Cash and investments 466,731 361,847 ------------ ------------ Total interest income 6,362,909 4,742,269 Total interest expense 5,109,130 3,660,122 ------------ ------------ Net interest income 1,253,779 1,082,147 Less: provisions for loan losses 441,130 194,957 ------------ ------------ Net interest income after provisions for loan losses 812,649 887,190 ------------ ------------ Other income: Gains on student loan securitizations 367,300 902,417 Servicing and securitization revenue 413,808 368,855 Losses on loans and securities, net (67,051) (24,899) Gains (losses) on derivative and hedging activities, net (22,881) (94,875) Guarantor servicing fees 115,449 99,011 Debt management fees 243,865 304,329 Collections revenue 195,442 181,951 Other 292,121 234,380 ------------ ------------ Total other income 1,538,053 1,971,169 Operating expenses 1,110,873 993,405 ------------ ------------ Income before income taxes and minority interest in net earnings of subsidiaries 1,239,829 1,864,954 Income taxes 499,187 722,559 ------------ ------------ Income before minority interest in net earnings of subsidiaries 740,642 1,142,395 Minority interest in net earnings of subsidiaries 1,778 3,544 ------------ ------------ Net income 738,864 1,138,851 Preferred stock dividends 27,523 26,309 ------------ ------------ Net income attributable to common stock $ 711,341 $ 1,112,542 ============ ============ Basic earnings per common share $ 1.73 $ 2.71 ============ ============ Average common shares outstanding 411,958 411,212 ============ ============ Diluted earnings per common share $ 1.69 $ 2.56 ============ ============ Average common and common equivalent shares outstanding 420,305 452,012 ============ ============ Dividends per common share $ .25 $ .72 ============ ============ SLM CORPORATION Segment and "Core Earnings" Consolidated Statements of Income (In thousands) Quarter ended September 30, 2007 ---------------------------------------------------------- Corporate Total and "Core Total Lending APG Other Earnings" Adjustments GAAP ---------- ------- ------- --------- ---------- ---------- (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 729,255 $ - $ - $ 729,255 $(183,637) $ 545,618 FFELP Consolidation Loans 1,445,108 - - 1,445,108 (299,635) 1,145,473 Private Education Loans 753,295 - - 753,295 (360,558) 392,737 Other loans 25,990 - - 25,990 - 25,990 Cash and investments 250,463 - 6,039 256,502 (45,199) 211,303 ---------- ------- ------- --------- ---------- ---------- Total interest income 3,204,111 - 6,039 3,210,150 (889,029) 2,321,121 Total interest expense 2,533,909 6,632 5,282 2,545,823 (666,012) 1,879,811 ---------- ------- ------- --------- ---------- ---------- Net interest income (loss) 670,202 (6,632) 757 664,327 (223,017) 441,310 Less: provisions for loan losses 199,591 - - 199,591 (56,991) 142,600 ---------- ------- ------- --------- ---------- ---------- Net interest income (loss) after provisions for loan losses 470,611 (6,632) 757 464,736 (166,026) 298,710 Fee income - 76,306 45,935 122,241 - 122,241 Collections revenue - 52,534 - 52,534 254 52,788 Other Income (loss) 45,745 - 62,843 108,588 (485,662) (377,074) ---------- ------- ------- --------- ---------- ---------- Total other income (loss) 45,745 128,840 108,778 283,363 (485,408) (202,045) Operating expenses(1) 163,855 94,625 78,882 337,362 18,537 355,899 ---------- ------- ------- --------- ---------- ---------- Income (loss) before income taxes and minority interest in net earnings of subsidiaries 352,501 27,583 30,653 410,737 (669,971) (259,234) Income tax expense (benefit)(2) 130,425 10,206 11,342 151,973 (67,524) 84,449 Minority interest in net earnings of subsidiaries - 77 - 77 - 77 ---------- ------- ------- --------- ---------- ---------- Net income (loss) $ 222,076 $17,300 $ 19,311 258,687 $(602,447)$ (343,760) ========= ======= ======= ======== ========= ========= (1) Operating expenses for the Lending, APG and Corporate and Other business segments include $4 million, $2 million, and $2 million, respectively, of stock option compensation expense. (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. Quarter ended June 30, 2007 ---------------------------------------------------------- Corporate Total and "Core Total Lending APG Other Earnings" Adjustments GAAP ---------- ------- ------- --------- ---------- ---------- (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 718,624 $ - $ - $ 718,624 $(207,324) $ 511,300 FFELP Consolidation Loans 1,391,015 - - 1,391,015 (303,761) 1,087,254 Private Education Loans 692,499 - - 692,499 (363,148) 329,351 Other loans 26,453 - - 26,453 - 26,453 Cash and investments 182,644 - 7,197 189,841 (48,317) 141,524 ---------- ------- ------- --------- ---------- ---------- Total interest income 3,011,235 - 7,197 3,018,432 (922,550) 2,095,882 Total interest expense 2,371,441 6,612 5,425 2,383,478 (686,249) 1,697,229 ---------- ------- ------- --------- ---------- ---------- Net interest income 639,794 (6,612) 1,772 634,954 (236,301) 398,653 Less: provisions for loan losses 246,981 - - 246,981 (98,781) 148,200 ---------- ------- ------- --------- ---------- ---------- Net interest income (loss) after provisions for loan losses 392,813 (6,612) 1,772 387,973 (137,520) 250,453 Fee income - 80,233 30,273 110,506 4 110,510 Collections revenue - 77,412 - 77,412 (320) 77,092 Other income 59,458 - 48,141 107,599 925,037 1,032,636 ---------- ------- ------- --------- ---------- ---------- Total other income 59,458 157,645 78,414 295,517 924,721 1,220,238 Operating expenses(1) 181,650 96,307 104,432 382,389 16,411 398,800 ---------- ------- ------- --------- ---------- ---------- Income (loss) before income taxes and minority interest in net earnings of subsidiaries 270,621 54,726 (24,246) 301,101 770,790 1,071,891 Income tax expense (benefit)(2) 100,130 20,248 (8,971) 111,407 (6,683) 104,724 Minority interest in net earnings of subsidiaries - 696 - 696 - 696 ---------- ------- ------- --------- ---------- ---------- Net income (loss) $ 170,491 $33,782 $(15,275) 188,998 $ 777,473 $ 966,471 ========= ======= ======= ======== ========= ========= (1) Operating expenses for the Lending, APG and Corporate and Other business segments include $13 million, $4 million, and $6 million, respectively, of stock option compensation expense. (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. Quarter ended September 30, 2006 ---------------------------------------------------------- Corporate Total and "Core Total Lending APG Other Earnings" Adjustments GAAP ---------- ------- ------- --------- ---------- ---------- (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 701,615 $ - $ - $ 701,615 $(336,994) $ 364,621 FFELP 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 (loss) 608,201 (6,088) (733) 601,380 (263,559) 337,821 Less: provisions for loan losses 79,774 - (3) 79,771 (12,529) 67,242 ---------- ------- ------- --------- ---------- ---------- Net interest income (loss) after provisions for loan 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 ---------- ------- ------- --------- ---------- ---------- Total other income 46,074 180,300 79,836 306,210 244,962 551,172 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, APG and Corporate and Other business segments include $8 million, $4 million, and $4 million, respectively, of stock option compensation expense. (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. Nine months ended September 30, 2007 ------------------------------------------------------------- Corporate Total and "Core Total Lending APG Other Earnings" Adjustments GAAP ---------- -------- ------- ---------- ------------ ---------- (unaudited) Interest income: FFELP Stafford and Other Student Loans $2,143,232 $ - $ - $2,143,232 $ (635,552) $1,507,680 FFELP Consoli- dation Loans 4,167,358 - - 4,167,358 (919,785) 3,247,573 Private Education Loans 2,103,378 - - 2,103,378 (1,042,869) 1,060,509 Other loans 80,416 - - 80,416 - 80,416 Cash and investments 594,784 - 15,371 610,155 (143,424) 466,731 ---------- -------- ------- ---------- ------------ ---------- Total interest income 9,089,168 - 15,371 9,104,539 (2,741,630) 6,362,909 Total interest expense 7,125,486 19,931 16,275 7,161,692 (2,052,562) 5,109,130 ---------- -------- ------- ---------- ------------ ---------- Net interest income (loss) 1,963,682 (19,931) (904) 1,942,847 (689,068) 1,253,779 Less: provisions for loan losses 644,502 - 606 645,108 (203,978) 441,130 ---------- -------- ------- ---------- ------------ ---------- Net interest income (loss) after provisions for loan losses 1,319,180 (19,931) (1,510) 1,297,739 (485,090) 812,649 Fee income - 243,865 115,449 359,314 - 359,314 Collections revenue - 195,268 - 195,268 174 195,442 Other income 149,621 - 162,301 311,922 671,375 983,297 ---------- -------- ------- ---------- ------------ ---------- Total other income 149,621 439,133 277,750 866,504 671,549 1,538,053 Operating expenses(1) 517,068 284,180 250,819 1,052,067 58,806 1,110,873 ---------- -------- ------- ---------- ------------ ---------- Income before income taxes and minority interest in net earnings of sub- sidiaries 951,733 135,022 25,421 1,112,176 127,653 1,239,829 Income tax expense(2) 352,141 49,958 9,406 411,505 87,682 499,187 Minority interest in net earnings of subsidiaries - 1,778 - 1,778 - 1,778 ---------- -------- ------- ---------- ------------ ---------- Net income $ 599,592 $ 83,286 $16,015 $ 698,893 $ 39,971 $ 738,864 ========== ======== ======= ========== ============ ========== (1) Operating expenses for the Lending, APG and Corporate and Other business segments include $26 million, $9 million, and $12 million, respectively, of stock option compensation expense. (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. Nine months ended September 30, 2006 -------------------------------------------------------------- Corporate Total and "Core Total Lending APG Other Earnings" Adjustments GAAP ---------- -------- ------- ---------- ------------ ---------- (unaudited) Interest income: FFELP Stafford and Other Student Loans $2,070,275 $ - $ - $2,070,275 $(1,070,064) $1,000,211 FFELP Consoli- dation 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 (loss) 1,817,658 (16,710) (1,374) 1,799,574 (717,427) 1,082,147 Less: provisions for loan losses 214,603 - (16) 214,587 (19,630) 194,957 ---------- -------- ------- ---------- ------------ ---------- Net interest income (loss) after provisions for loan 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 ---------- -------- ------- ---------- ------------ ---------- Total other income 137,417 485,826 194,346 817,589 1,153,580 1,971,169 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 sub- sidiaries 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, APG, and Corporate and Other business segments include $26 million, $9 million, and $13 million, respectively, of stock option compensation expense. (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. 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, 2007 2007 2006 ----------- ---------- ---------- (unaudited) (unaudited) (unaudited) "Core Earnings" net income(A) $ 258,687 $ 188,998 $ 320,620 "Core Earnings" adjustments: Net impact of securitization accounting (157,050) (15,071) 159,468 Net impact of derivative accounting (453,949) 841,564 (112,699) Net impact of Floor Income (40,390) (39,246) (52,781) Net impact of acquired intangibles (18,582) (16,457) (36,397) --------- --------- --------- Total "Core Earnings" adjustments before income taxes (669,971) 770,790 (42,409) Net tax effect(B) 67,524 6,683 (14,739) --------- --------- --------- Total "Core Earnings" adjustments before income taxes and minority interest in net earnings of subsidiaries (602,447) 777,473 (57,148) -------- --------- --------- GAAP net income (loss) $(343,760) $ 966,471 $263,472 ========= ========= ========= GAAP diluted earnings (loss) per common share $ (.85) $ 1.03 $ .60 ========= ========= ========= (A)"Core earnings" diluted earnings per common share $ .59 $ .43 $ .73 ========= ========= ========= (B)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 September 30, ------------------------ 2007 2006 ---------- ---------- (unaudited) (unaudited) "Core Earnings" net income(D) $ 698,893 $ 927,251 "Core Earnings" adjustments: Net impact of securitization accounting 249,364 600,490 Net impact of derivative accounting 55,891 13,162 Net impact of Floor Income (118,657) (157,683) Net impact of acquired intangibles (58,945) (68,468) ---------- ---------- Total "Core Earnings" adjustments before income taxes and minority interest in net earnings of subsidiaries 127,653 387,501 Net tax effect(E) (87,682) (175,901) ---------- ---------- Total "Core Earnings" adjustments 39,971 211,600 ---------- ---------- GAAP net income $ 738,864 $1,138,851 ========== ========== GAAP diluted earnings per common share $ 1.69 $ 2.56 ========== ========== (D)"Core Earnings" diluted earnings per common share $ 1.58 $ 2.09 ========== ========== (E)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 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 the products and services they offer or the types of customers they serve, and they 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. 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 "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 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" 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.

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 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 "Core Earnings" basis.

Derivative Accounting: "Core Earnings" exclude periodic unrealized gains and losses arising primarily in our Lending operating segment, and to a lesser degree in our Corporate and Other reportable 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. 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. "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 are marked- to-market through earnings.

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 in income.

Acquired Intangibles: Our "Core Earnings" exclude goodwill and intangible impairment and the amortization of acquired intangibles.