SLM Corporation Delivers 23-Percent Growth in Preferred-Channel Loan Originations

RESTON, Va., Oct. 20 /PRNewswire-FirstCall/ -- SLM Corporation , commonly known as Sallie Mae, today reported third-quarter 2005 earnings and performance results that include $7.2 billion in preferred- channel loan originations, a 23-percent increase from the 2004 third quarter. Year to date, preferred-channel loan originations grew 20 percent to $16.8 billion.

(Logo: http://www.newscom.com/cgi-bin/prnh/20030617/SLMLOGO-a )

Preferred-channel loan originations are loans funded by the company's internal brands and other lender partners. These loans are a key measure of Sallie Mae's market share success, and management believes that they indicate future loan acquisition volume and earnings growth.

"We had an outstanding peak loan processing period," said Tim Fitzpatrick, chief executive officer. "The company's fee-based businesses, primarily debt management services and guarantor processing, also performed well, maintaining steady growth and winning new contracts. I am delighted with the strength of our internal brands; the record growth reflects our brand strength in education."

The company's internal lending brands originated $3.4 billion in the 2005 third quarter, an 82-percent increase from the year-ago quarter. They now represent nearly half of the company's loan originations. During the third quarter 2005, the company originated $2.4 billion in private education loans, 22 percent of them through its new, direct-to-consumer loan program, Tuition Answer. At Sept. 30, 2005, the company's managed student loan portfolio was $121 billion, a 23-percent increase from $98 billion at the same time last year.

As expected, the company experienced record consolidation loan levels in the third quarter, as it continued the processing of applications received from borrowers seeking to lock in long-term, fixed interest rates in advance of a nearly two-percentage-point increase. At Sept. 30, 2005, consolidation loans made up 59 percent of the company's managed, guaranteed student loan portfolio, up from 47 percent at Sept. 30, 2004.

Sallie Mae reports financial results on a GAAP basis and also presents certain "core earnings" performance measures that are non-GAAP financial measures. These "core earnings" measures are the primary financial performance measures used by management to develop the company's financial plans, track results, and establish corporate performance targets and incentive compensation. "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 investors to assess performance.

Sallie Mae reported third-quarter 2005 GAAP net income of $431 million, or $.95 per diluted share, compared to $357 million, or $.76 per diluted share, in the year-ago period. GAAP net income year to date in 2005 totaled $951 million, compared to $1.3 billion in the same period in 2004. Included in these results are accounting rule changes related to contingently convertible bonds, which reduced earnings per diluted share by $(.04) in the current quarter, $(.04) in the year-ago quarter and $(.08) and $(.15) in the first nine months of 2005 and 2004, respectively.

"Core earnings" net income for the 2005 third quarter was $312 million, up 43 percent from $219 million in the year-ago quarter. On a diluted share basis, "core earnings" net income was $.69 in third quarter 2005, compared to $.47 per diluted share in the same period last year. Included in these results were an impairment on the company's portfolio of aircraft leases, a change to the methodology for estimating recoveries in the loan loss allowance, and an update in borrower benefit estimates. These items, which total $29 million after tax, or $.06 per diluted share, are reflected in the net interest income, provisions for loan losses, and other income line items on the quarterly income statement.

Year to date 2005, "core earnings" net income was $847 million, up 23 percent from $687 million in the same period in 2004. These results include the effect of the accounting change on contingently convertible bonds, which reduced, on a diluted share basis, "core earnings" by $(.02) in the third quarter 2005, $(.02) in the year-ago quarter and $(.06) and $(.06) in the first nine months of 2005 and 2004, respectively.

Excluding the adjustments discussed above, "core earnings" net interest income in the third quarter 2005 was $538 million, compared to the year-ago quarter's $465 million. "Core earnings" non-interest income, which includes fees earned from guarantor servicing and debt management activity, collection revenue and other servicing fees, grew 22 percent from the year-ago quarter to $246 million in the 2005 third quarter. "Core earnings" operating expenses were $271 million for the third quarter 2005.

Both a description of the "core earnings" treatment and a full reconciliation to the GAAP income statement can be found in the Supplemental Earnings Disclosure accompanying this press release, which is posted under the Investors page at http://www.salliemae.com/.

Total equity for the company at Sept. 30, 2005, was $3.8 billion, up from $3.7 billion at June 30, 2005. The company's tangible capital at the end of the 2005 third quarter was 2.04 percent of managed assets, compared to 2.03 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. 20, 2005, 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. 20, at 3:30 p.m. EDT and concluding at 11:59 p.m. EDT on Thursday, Oct. 27. Please dial (800) 642-1687 (USA and Canada) or dial (706) 645-9291 (International) and use access code 1170950. 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 No. 1 paying-for-college company, managing nearly $121 billion in student loans for 8 million borrowers. Sallie Mae was originally created in 1972 as a government-sponsored entity (GSE) and terminated all ties to the federal government in 2004. The company remains the country's largest originator of federally insured student loans. Through its specialized subsidiaries and divisions, Sallie Mae also provides debt management services as well as business and technical products to a range of business clients, including colleges, universities and loan guarantors. 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, 2005 (Dollars in millions, except earnings per share) Quarters ended -------------------------------------- Sept. 30, June 30, Sept. 30, 2005 2005 2004 --------- --------- --------- (unaudited) (unaudited) (unaudited) SELECTED FINANCIAL INFORMATION AND RATIOS - (GAAP Basis) Net income $ 431 $ 297 $ 357 Diluted earnings per common share(1) $ .95 $ .66 $ .76 Return on assets 2.01% 1.55% 2.10% NON-GAAP INFORMATION(2) "Core earnings" net income $ 312 $ 279 $ 219 "Core earnings" diluted earnings per common share(1) $ .69 $ .62 $ .47 "Core earnings" return on assets .94% .90% .77% OTHER OPERATING STATISTICS Average on-balance sheet student loans $ 77,541 $ 70,580 $ 54,522 Average off-balance sheet student loans 40,742 43,791 42,230 --------- --------- --------- Average Managed student loans $ 118,283 $ 114,371 $ 96,752 ========= ========= ========= Ending on-balance sheet student loans, net $ 81,626 $ 72,831 $ 54,269 Ending off-balance sheet student loans, net 39,008 43,669 44,070 --------- --------- --------- Ending Managed student loans, net $ 120,634 $ 116,500 $ 98,339 ========= ========= ========= Ending Managed FFELP Stafford and Other Student Loans, net $ 43,082 $ 47,126 $ 46,613 Ending Managed Consolidation Loans, net 62,161 55,875 40,878 Ending Managed Private Education Loans, net 15,391 13,499 10,848 --------- --------- --------- Ending Managed student loans, net $ 120,634 $ 116,500 $ 98,339 ========= ========= ========= Nine months ended Sept. 30, ------------------------- 2005 2004 --------- --------- (unaudited) (unaudited) SELECTED FINANCIAL INFORMATION AND RATIOS - (GAAP Basis) Net income $ 951 $ 1,263 Diluted earnings per common share(1) $ 2.10 $ 2.65 Return on assets 1.60% 2.54% NON-GAAP INFORMATION(2) "Core earnings" net income $ 847 $ 687 "Core earnings" diluted earnings per common share(1) $ 1.87 $ 1.45 "Core earnings" return on assets .90% .85% OTHER OPERATING STATISTICS Average on-balance sheet student loans $ 71,964 $ 54,073 Average off-balance sheet student loans 42,137 39,787 -------- --------- Average Managed student loans $ 114,101 $ 93,860 ========= ========= (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," which requires the shares underlying contingently convertible debt instruments ("Co-Cos") to be included in diluted earnings per share computations regardless of whether the market price trigger or the conversion price has been met, using the "if- converted" accounting method. Diluted earnings per common share amounts disclosed prior to December 2004 have been retroactively restated to give effect to the application of EITF No. 04-8 as it relates to the Company's $2 billion in Co-Cos issued in May 2003. The effect of the adoption 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, 2005 2005 2004 --------- --------- --------- (unaudited) (unaudited) (unaudited) Impact on GAAP diluted earnings per common share due to the implementation of EITF No.04-8 $ (.04) $ (.02) $ (.04) Impact on "core earnings" diluted earnings per common share due to the implementation of EITF No. 04-8 $ (.02) $ (.02) $ (.02) Nine months ended Sept. 30, ------------------------- 2005 2004 --------- --------- (unaudited) (unaudited) Impact on GAAP diluted earnings per common share due to the implementation of EITF No.04-8 $ (.08) $ (.15) Impact on "core earnings" diluted earnings per common share due to the implementation of EITF No. 04-8 $ (.06) $ (.06) (2) See explanation of non-GAAP 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, 2005 2005 2004 ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) Assets FFELP Stafford and Other Student Loans $ 22,353,605 $ 22,092,672 $ 16,325,850 Consolidation Loans (net of allowance for losses of $5,627; $5,313; and $5,222, respectively) 51,193,725 44,640,737 33,170,602 Private Education Loans (net of allowance for losses of $193,332; $228,205; and $166,816, respectively) 8,078,650 6,097,102 4,772,372 Other loans (net of allowance for losses of $13,563; $12,764; and $10,786, respectively) 1,094,464 962,017 994,754 Cash and investments 3,773,014 3,637,936 7,522,134 Restricted cash and investments 2,706,925 2,422,714 1,831,116 Retained Interest in off-balance sheet securitized loans 2,330,390 2,631,308 2,510,100 Goodwill and acquired intangible assets, net 1,063,916 1,003,427 753,266 Other assets 3,725,670 3,270,831 3,079,109 ------------ ------------ ------------ Total assets $ 96,320,359 $ 86,758,744 $ 70,959,303 ============ ============ ============ Liabilities Short-term borrowings $ 4,652,334 $ 4,679,612 $ 4,399,495 Long-term borrowings 84,499,739 75,017,121 61,040,160 Other liabilities 3,330,763 3,336,943 2,604,904 ------------ ------------ ------------ Total liabilities 92,482,836 83,033,676 68,044,559 ------------ ------------ ------------ Commitments and contingencies Minority interest in subsidiaries 13,725 73,330 14,767 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 0 shares respectively, issued at stated value of $100 per share 565,000 565,000 165,000 Common stock, par value $.20 per share, 1,125,000 shares authorized: 488,525; 486,706; and 480,469 shares, respectively, issued 97,705 97,341 96,094 Additional paid-in capital 2,107,961 2,035,676 1,805,129 Accumulated other comprehensive income, net of tax 407,768 473,121 486,944 Retained earnings 3,195,034 2,862,730 1,953,719 ------------ ------------ ------------ Stockholders' equity before treasury stock 6,373,468 6,033,868 4,506,886 Common stock held in treasury at cost: 69,927; 66,532; and 51,255 shares, respectively 2,549,670 2,382,130 1,606,909 ------------ ------------ ------------ Total stockholders' equity 3,823,798 3,651,738 2,899,977 ------------ ------------ ------------ Total liabilities and stockholders' equity $ 96,320,359 $ 86,758,744 $ 70,959,303 ============ ============ ============ SLM CORPORATION Consolidated Statements of Income (In thousands, except per share amounts) Quarters ended ------------------------------------- Sept. 30, June 30, Sept. 30, 2005 2005 2004 -------- --------- --------- (unaudited) (unaudited) (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 270,444 $ 238,510 $ 188,624 Consolidation Loans 676,820 554,429 332,982 Private Education Loans 173,467 126,809 83,303 Other loans 21,614 20,046 18,212 Cash and investments 70,541 54,245 61,774 ------------ ------------ ------------ Total interest income 1,212,886 994,039 684,895 Interest expense 828,122 664,251 371,952 ------------ ------------ ------------ Net interest income 384,764 329,788 312,943 Less: provisions for losses 12,217 78,948 10,930 ------------ ------------ ------------ Net interest income after provisions for losses 372,547 250,840 302,013 ------------ ------------ ------------ Other income: Gains on student loan securitizations - 262,001 63,590 Servicing and securitization revenue (16,194) 149,931 158,639 Losses on investments, net (43,030) (11,747) (32,887) Gains (losses) on derivative and hedging activities, net 316,469 (105,940) 73,000 Guarantor servicing fees 35,696 25,686 33,192 Debt management fees 92,727 82,589 73,631 Collections revenue 41,772 41,881 5,164 Other 74,174 67,495 91,134 ------------ ------------ ------------ Total other income 501,614 511,896 465,463 Operating expenses: Loss on GSE debt extinguishment and defeasance - - 102,990 Other operating expenses 291,961 287,413 210,772 ------------ ------------ ------------ Total operating expenses 291,961 287,413 313,762 ------------ ------------ ------------ Income before income taxes and minority interest in net earnings of subsidiaries 582,200 475,323 453,714 Income taxes 149,821 176,573 97,136 ------------ ------------ ------------ Income before minority interest in net earnings of subsidiaries 432,379 298,750 356,578 Minority interest in net earnings of subsidiaries 1,029 2,235 - ------------ ------------ ------------ Net income 431,350 296,515 356,578 Preferred stock dividends 7,288 3,908 2,875 ------------ ------------ ------------ Net income attributable to common stock $ 424,062 $ 292,607 $ 353,703 ============ ============ ============ Basic earnings per common share $ 1.02 $ .70 $ .81 ============ ============ ============ Average common shares outstanding 417,235 419,497 435,764 ============ ============ ============ Diluted earnings per common share $ .95 $ .66 $ .76 ============ ============ ============ Average common and common equivalent shares outstanding 458,798 461,900 474,455 ============ ============ ============ Dividends per common share $ .22 $ .22 $ .19 ============ ============ ============ Nine months ended Sept. 30, ---------------------- 2005 2004 -------- -------- (unaudited) (unaudited) Interest income: FFFELP Stafford and Other Student Loans $ 699,687 $ 550,122 Consolidation Loans 1,739,670 932,617 Private Education Loans 429,892 236,505 Other loans 61,813 54,714 Cash and investments 186,835 157,765 ------------ ------------ Total interest income 3,117,897 1,931,723 Interest expense 2,056,585 964,458 ------------ ------------ Net interest income 1,061,312 967,265 Less: provisions for losses 137,688 79,092 ------------ ------------ Net interest income after provisions for losses 923,624 888,173 ------------ ------------ Other income: Gains on student loan securitizations 311,895 375,384 Servicing and securitization revenue 276,698 419,334 Losses on investments, net (56,976) (37,244) Gains on derivative and hedging activities, net 176,278 342,404 Guarantor servicing fees 93,922 91,412 Debt management fees 261,068 223,672 Collections revenue 118,536 5,164 Other 206,187 222,561 ------------ ------------ Total other income 1,387,608 1,642,687 Operating expenses: Loss on GSE debt extinguishment and defeasance - 102,990 Other operating expenses 841,665 625,700 ------------ ------------ Total operating expenses 841,665 728,690 ------------ ------------ Income before income taxes and minority interest in net earnings of subsidiaries 1,469,567 1,802,170 Income taxes 512,860 539,201 ------------ ------------ Income before minority interest in net earnings of subsidiaries 956,707 1,262,969 Minority interest in net earnings of subsidiaries 5,458 - ------------ ------------ Net income 951,249 1,262,969 Preferred stock dividends 14,071 8,625 ------------ ------------ Net income attributable to common stock $ 937,178 $ 1,254,344 ============ ============ Basic earnings per common share $ 2.24 $ 2.85 ============ ============ Average common shares outstanding 419,205 439,430 ============ ============ Diluted earnings per common share $ 2.10 $ 2.65 ============ ============ Average common and common equivalent shares outstanding 461,222 478,323 ============ ============ Dividends per common share $ .63 $ .55 ============ ============ SLM CORPORATION Segment and Non-GAAP "Core Earnings" (In thousands) Quarter ended Sept. 30, 2005 ----------------------------------------------------------------------- (unaudited) Total Corporate "Core Total Lending DMO and Other Earnings" Adjustments GAAP -------- ------- ---------- --------- ------------ ------- Interest income: FFELP Stafford and Other Student Loans $585,984 $- $- $585,984 $(315,540) $270,444 Consol -idation Loans 832,893 - - 832,893 (156,073) 676,820 Private Educ- ation Loans 312,184 - - 312,184 (138,717) 173,467 Other Loans 21,614 - - 21,614 - 21,614 Cash and invest- ments 113,713 - - 113,713 (43,172) 70,541 -------- ------- ---------- --------- ----------- --------- Total interest income 1,866,388 - - 1,866,388 (653,502) 1,212,886 Total interest expense 1,306,777 - - 1,306,777 (478,655) 828,122 --------- ------- ---------- --------- ----------- --------- Net interest income 559,611 - - 559,611 (174,847) 384,764 Less: prov- isions for losses (180) - - (180) 12,397 12,217 --------- ------- ---------- ---------- ----------- --------- Net interest income after prov- isions for losses 559,791 - - 559,791 (187,244) 372,547 Fee income - 92,727 35,696 128,423 - 128,423 Collect- ions revenue - 41,772 - 41,772 - 41,772 Other income 106 (66) 36,859 36,899 294,520 331,419 Operating expenses 117,186 71,086 82,321 270,593 21,368 291,961 Income tax expense (benefit) (1) 163,803 23,439 (3,614) 183,628 (33,807) 149,821 Minority interest in net earnings of subsid- iaries - 1,029 - 1,029 - 1,029 --------- -------- ---------- --------- ----------- ---------- Net income (loss) $278,908 $38,879 $(6,152) $311,635 $119,715 $431,350 ========= ======== ========== ========= =========== ========== Quarter ended June 30, 2005 ------------------------------------------------------------------- (unaudited) Total Corporate "Core Total Lending DMO and Other Earnings" Adjustments GAAP -------- ------- --------- --------- ----------- ------- Interest income: FFELP Staff- ord and Other Student Loans $582,344 $- $- $582,344 $(343,834) $238,510 Consol- idation Loans 666,417 - - 666,417 (111,988) 554,429 Private Educ- ation Loans 246,948 - - 246,948 (120,139) 126,809 Other Loans 20,046 - - 20,046 - 20,046 Cash and invest- ments 78,519 - - 78,519 (24,274) 54,245 --------- ------- --------- --------- --------- -------- Total interest income 1,594,274 - - 1,594,274 (600,235) 994,039 Total interest expense 1,078,259 - - 1,078,259 (414,008) 664,251 --------- ------- --------- --------- --------- -------- Net interest income 516,015 - - 516,015 (186,227) 329,788 Less: prov- isions for losses 14,225 - - 14,225 64,723 78,948 --------- ------- --------- --------- --------- -------- Net interest income after prov- isions for losses 501,790 - - 501,790 (250,950) 250,840 Fee income - 82,589 25,686 108,275 - 108,275 Collect- ions revenue - 41,881 - 41,881 - 41,881 Other income 36,137 33 29,243 65,413 296,327 361,740 Operating expenses 123,803 66,185 81,414 271,402 16,011 287,413 Income tax expense (benefit) (1) 153,226 21,578 (9,800) 165,004 11,569 176,573 Minority interest in net earnings of subsid- iaries 928 1,199 - 2,127 108 2,235 --------- -------- --------- --------- --------- -------- Net income (loss) $259,970 $35,541 $(16,685) $278,826 $17,689 $296,515 ========= ======== ========= ========= ========= ======== Quarter ended Sept. 30, 2004 ----------------------------------------------------------------------- (unaudited) Total Corporate "Core Total Lending DMO and Other Earnings" Adjustments GAAP -------- ------- --------- --------- ------------ -------- Interest income: FFELP Stafford and Other Student Loans $457,649 $- $- $457,649 $(269,025) $188,624 Consolida- tion Loans 368,270 - - 368,270 (35,288) 332,982 Private Education Loans 165,225 - - 165,225 (81,922) 83,303 Other Loans 18,212 - - 18,212 - 18,212 Cash and invest- ments 72,423 - - 72,423 (10,649) 61,774 -------- ------- --------- --------- ---------- -------- Total interest income 1,081,779 - - 1,081,779 (396,884) 684,895 Total interest expense 616,290 - - 616,290 (244,338) 371,952 -------- ------- --------- --------- ---------- -------- Net interest income 465,489 - - 465,489 (152,546) 312,943 Less: provisions for losses (7,277) - - (7,277) 18,207 10,930 -------- ------- --------- --------- ---------- -------- Net interest income after provisions for losses 472,766 - - 472,766 (170,753) 302,013 Fee income - 73,631 33,192 106,823 - 106,823 Collections revenue - 5,164 - 5,164 - 5,164 Other income 17,088 - 45,557 62,645 290,831 353,476 Loss on GSE debt extinguish- ment and defeas- ance 102,990 - - 102,990 - 102,990 Operating expenses 98,229 35,270 69,462 202,961 7,811 210,772 Income tax expense (benefit) (1) 103,910 15,667 3,344 122,921 (25,785) 97,136 -------- ------- --------- --------- ---------- -------- Net income $184,725 $27,858 $5,943 $218,526 $138,052 $356,578 ======== ======= ========= ========= ========== ========= Nine months ended Sept 30, 2005 ----------------------------------------------------------------------- (unaudited) Total Corporate "Core Total Lending DMO and Other Earnings" Adjustments GAAP --------- ------- ---------- --------- ------------ ------- Interest income: FFELP Staff- ord and Other Student Loans $1,678,268 $- $- $1,678,268 $(978,581) $699,687 Consol- idation Loans 2,080,287 - - 2,080,287 (340,617) 1,739,670 Private Educ- ation Loans 786,439 - - 786,439 (356,547) 429,892 Other loans 61,813 - - 61,813 - 61,813 Cash and invest- ments 271,365 - - 271,365 (84,530) 186,835 ---------- ------- ---------- --------- ----------- --------- Total interest income 4,878,172 - - 4,878,172 (1,760,275) 3,117,897 Total interest expense 3,308,607 - - 3,308,607 (1,252,022) 2,056,585 ---------- ------- ---------- --------- ----------- --------- Net interest income 1,569,565 - - 1,569,565 (508,253) 1,061,312 Less: provis- ions for losses 68,967 - - 68,967 68,721 137,688 ---------- ------- ---------- --------- ----------- --------- Net interest income after provis- ions for losses 1,500,598 - - 1,500,598 (576,974) 923,624 Fee income - 261,068 93,922 354,990 - 354,990 Collect- ions revenue - 118,536 - 118,536 - 118,536 Other income 72,003 - 97,733 169,736 744,346 914,082 Operating expenses 357,466 200,600 233,226 791,292 50,373 841,665 Income tax expense (benefit) (1) 449,599 66,232 (15,381) 500,450 12,410 512,860 Minority interest in net earnings of subsid- iaries 1,749 3,449 - 5,198 260 5,458 ---------- ------- ---------- --------- --------- --------- Net income (loss) $763,787 $109,323 $(26,190) $846,920 $104,329 $951,249 ========== ======= ========== ========= ========= ========= Nine months ended Sept. 30, 2004 ----------------------------------------------------------------------- (unaudited) Total Corporate "Core Total Lending DMO and Other Earnings" Adjustments GAAP --------- ------- ---------- --------- ------------ ------- Interest income: FFELP Staff- ord and Other Student Loans $1,238,810 $- $- $1,238,810 $(688,688) $550,122 Consol- idation Loans 984,410 - - 984,410 (51,793) 932,617 Private Educ- ation Loans 425,718 - - 425,718 (189,213) 236,505 Other Loans 54,714 - - 54,714 - 54,714 Cash and invest- ments 176,385 - - 176,385 (18,620) 157,765 --------- -------- ---------- --------- ------------ ------- Total interest income 2,880,037 - - 2,880,037 (948,314) 1,931,723 Total interest expense 1,535,839 - - 1,535,839 (571,381) 964,458 --------- -------- ---------- --------- ------------ ------- Net interest income 1,344,198 - - 1,344,198 (376,933) 967,265 Less: prov- isions for losses 78,315 - - 78,315 777 79,092 --------- -------- ---------- --------- ----------- ------- Net interest income after prov- isions for losses 1,265,883 - - 1,265,883 (377,710) 888,173 Fee income - 223,672 91,412 315,084 - 315,084 Collect- ions revenue - 5,164 - 5,164 - 5,164 Other income 94,344 - 99,889 194,233 1,128,206 1,322,439 Loss on GSE debt exting- uishment and defeas- ance 102,990 - - 102,990 - 102,990 Operating expenses 298,719 99,535 206,170 604,424 21,276 625,700 Income tax expense (benefit) (1) 345,094 46,539 (5,370) 386,263 152,938 539,201 --------- -------- ----------- -------- ---------- -------- Net income (loss) $613,424 $82,762 $(9,499) $686,687 $576,282 1,262,969 ========= ======== =========== ======== ========== ======== (1) 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) Quarters ended -------------------------------------- Sept. 30, June 30, Sept. 30, 2005 2005 2004 ----------- ---------- ---------- (unaudited) (unaudited) (unaudited) "Core earnings" net income(A) $ 311,635 $ 278,826 $ 218,526 "Core earnings" adjustments: Net impact of securitization accounting (252,748) 107,531 (73,801) Net impact of derivative accounting 409,082 (10,989) 230,401 Net impact of Floor Income (54,318) (51,084) (36,424) Amortization of acquired intangibles (16,108) (16,092) (7,909) --------- --------- --------- Total "core earnings" adjustments before income taxes and minority interest in net earnings of subsidiaries 85,908 29,366 112,267 Net tax effect(B) 33,807 (11,569) 25,785 --------- --------- --------- Total "core earnings" adjustments before minority interest in net earnings of subsidiaries 119,715 17,797 138,052 Minority interest in net earnings of subsidiaries - (108) - -------- --------- -------- Total "core earnings" adjustments 119,715 17,689 138,052 -------- --------- --------- GAAP net income $ 431,350 $ 296,515 $356,578 ========= ========= ========== GAAP diluted earnings per common share $ .95 $ .66 $ .76 ========= ========= ========== (A)"Core earnings" diluted earnings per common share $ .69 $ .62 $ .47 ========= ========= ========== Nine months ended Sept. 30, ------------------------ 2005 2004 ---------- ---------- (unaudited) (unaudited) "Core earnings" net income(C) $ 846,920 $ 686,687 "Core earnings" adjustments: Net impact of securitization accounting (177,589) (19,084) Net impact of derivative accounting 487,705 891,425 Net impact of Floor Income (147,835) (121,531) Amortization of acquired intangibles (45,282) (21,590) ---------- ---------- Total "core earnings" adjustments before income taxes and minority interest in net earnings of subsidiaries 116,999 729,220 Net tax effect(B) (12,410) (152,938) ---------- ---------- Total "core earnings" adjustments before minority interest in net earnings of subsidiaries 104,589 576,282 Minority interest in net earnings of subsidiaries (260) - ---------- ---------- Total "core earnings" adjustments 104,329 576,282 ---------- ---------- GAAP net income $ 951,249 $1,262,969 ========== ========== GAAP diluted earnings per common share $ 2.10 $ 2.65 ========== ========== (C)"Core earnings" diluted earnings per common share $ 1.87 $ 1.45 ========== ========== (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. Non-GAAP "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 ("GAAP"). In addition to evaluating the Company's GAAP-based financial information, management evaluates the Company's business segments under certain non-GAAP performance measures that we refer to as "core earnings" 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" in operating each business 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, 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 accounting, 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 on 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 in certain periods understate earnings. 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.

A more detailed discussion of the differences between GAAP and "core cash" measures follows.

1) Securitization: Under GAAP, certain securitization transactions in our Lending segment are accounted for as sales of assets. Under "core earnings," 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 replaced by the interest income, provision 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 which would be considered intercompany 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. We also exclude the gain or loss on equity forward contracts that are required to be accounted for in accordance with SFAS No. 133 as derivatives and are marked-to-market through earnings. 3) Floor Income: The timing and amount (if any) of Floor Income earned in our Lending segment is uncertain and in excess of expected spreads and, 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 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) Other items: We exclude the amortization of acquired intangibles.