Sallie Mae Announces Fourth-Quarter and Full-Year 2007 Results

SLM Corporation (NYSE:SLM), commonly known as Sallie Mae, today reported "core earnings” results that include a fourth-quarter 2007 net loss of $139 million, or $.36 diluted loss per share, and full-year 2007 net income of $560 million, or $1.23 diluted earnings per share. Student loan originations totaled $5.0 billion in the 2007 fourth quarter and $25.5 billion during the full-year 2007. Student loans originated through Sallie Mae’s internal brands, the most profitable segment of total student loan originations, grew 27 percent year over year to $16.6 billion. The company recorded a loan loss provision of $575 million on a GAAP basis, or $750 million on a "core earnings” basis, in the 2007 fourth quarter that contributed to a net loss for the quarter and reduced earnings for the year. The increase in the provision relates primarily to the actual and expected performance of the non-traditional, higher-risk portion of the company’s managed student loan portfolio. "While there were some bright spots, we are obviously disappointed by our fourth-quarter results overall. Our cost of funds and loan loss expectations were impacted by weakening credit markets,” said Albert Lord, chief executive officer. "We faced significant distractions in 2007, but we have taken several of the necessary steps to position the company for a return to strong, quality asset and earnings growth. Our business trends point in the right direction. In 2007, a challenging year for our industry, we helped students with a record amount of financing to pay for college. In 2008 and beyond, our market leadership position will continue to grow together with the demand for higher education.” 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 fourth-quarter 2007 GAAP net loss of $1.6 billion, or $3.98 diluted loss per share, including a $1.5 billion mark-to-market loss on the company’s equity forward contract, which was physically settled in full in January 2008. This compares to net income of $18 million, or $.02 diluted earnings per share, in the year-ago period. The GAAP net loss for 2007 totaled $896 million, compared to GAAP net income of $1.2 billion in 2006. The 2007 GAAP results include principally the forward contract mark-to-market loss and private loan loss provision of $884 million. Fourth-quarter 2007 "core earnings” net loss was $139 million, or $.36 diluted loss per share, compared to net income of $326 million, or $.74 diluted earnings per share, in the year-ago period. Driving the 2007 fourth-quarter’s loss were provisions for loan losses of $750 million. This compares to $88 million in the year-ago quarter. For the full-year 2007, "core earnings” net income was $560 million, compared to $1.3 billion in 2006. "Core earnings” net interest income was $612 million for the 2007 fourth quarter, compared to the year-ago quarter’s $651 million. "Core earnings” other income, which consists primarily of fees earned from guarantor servicing and collection activity, was $306 million in the fourth-quarter 2007, up from $283 million in the year-ago period. In 2007, "core earnings” net interest income was $2.6 billion, up from $2.5 billion in 2006. "Core earnings” other income was $1.2 billion in 2007, compared to $1.1 billion in 2006. "Core earnings” operating expenses were $388 million in the fourth-quarter 2007, compared to $328 million in the fourth-quarter 2006. "Core earnings” operating expenses were $1.4 billion in 2007 and $1.3 billion in 2006. Both a description of the "core earnings” treatment and a full reconciliation to the GAAP income statement can be found at: www.salliemae.com/about/investors/stockholderinfo/earningsinfo/, click on the Fourth Quarter 2007 Supplemental Earnings Disclosure. The company will host a quarterly earnings conference call and shareholder conference today at 10 a.m. EST. Sallie Mae executives will be on hand to discuss the company’s 2007 results and future outlook. Individuals interested in participating should call the following number today, Jan. 23, 2008, starting at 9:45 a.m. EST: (877) 356-5689 (USA and Canada) or (706) 679-0623 (International). The conference call will be replayed continuously beginning at 3 p.m. EST on Wednesday, Jan. 23, 2008, and concluding at midnight, Feb. 6, 2008. To access the replay, please dial (800) 642-1687 (USA and Canada) or dial (706) 645-9291 (International) and use access code 30431411. In addition, there will be a live audio Web cast of the conference, which may be accessed at www.SallieMae.com. A replay will be available immediately following the conference until midnight, Feb. 6, 2008. 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 Fourth Quarter 2007. All information in this release is as of Jan. 23, 2008. The Company does not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in the Company’s expectations. SLM Corporation (NYSE:SLM), commonly known as Sallie Mae, is the nation’s leading provider of saving- and paying-for-college programs. The company manages nearly $164 billion in education loans and serves 10 million student and parent customers. Through its Upromise affiliates, the company also manages $19 billion in 529 college-savings plans, and is the largest private source of college funding contributions in America with 8.5 million members and $400 million in member rewards. Sallie Mae and its subsidiaries offer debt management services as well as business and technical products to a range of business clients, including higher education institutions, student loan guarantors and state and federal agencies. More information is available at www.salliemae.com. SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America. SLM CORPORATION   Supplemental Earnings Disclosure   December 31, 2007 (In millions, except per share amounts)     Quarters ended Years ended   December 31, 2007   September 30, 2007   December 31, 2006 December 31, 2007   December 31, 2006 (unaudited) SELECTED FINANCIAL INFORMATION AND RATIOS   GAAP Basis Net income (loss) $ (1,635 ) $ (344 ) $ 18 $ (896 ) $ 1,157 Diluted earnings (loss) per common share $ (3.98 ) $ (.85 ) $ .02 $ (2.26 ) $ 2.63 Return on assets (4.60 )% (1.05 )% .07 % (.71 )% 1.22 %   "Core Earnings” Basis(1) "Core Earnings” net income (loss) $ (139 ) $ 259 $ 326 $ 560 $ 1,253 "Core Earnings” diluted earnings (loss) per common share $ (.36 ) $ .59 $ .74 $ 1.23 $ 2.83 "Core Earnings” return on assets (.30 )% .59 % .84 % .33 % .86 %   OTHER OPERATING STATISTICS   Average on-balance sheet student loans $ 121,685 $ 114,571 $ 91,522 $ 111,719 $ 84,856 Average off-balance sheet student loans   40,084     41,526     47,252     42,411     46,336   Average Managed student loans $ 161,769   $ 156,097   $ 138,774   $ 154,130   $ 131,192     Ending on-balance sheet student loans, net $ 124,153 $ 119,155 $ 95,920 Ending off-balance sheet student loans, net   39,423     40,604     46,172   Ending Managed student loans, net $ 163,576   $ 159,759   $ 142,092     Ending Managed FFELP Stafford and Other Student Loans, net $ 45,198 $ 44,270 $ 39,869 Ending Managed FFELP Consolidation Loans, net 90,050 88,070 79,635 Ending Managed Private Education Loans, net   28,328     27,419     22,588   Ending Managed student loans, net $ 163,576   $ 159,759   $ 142,092   (1)   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)       December 31, September 30, December 31, 2007 2007 2006 (unaudited) (unaudited) Assets FFELP Stafford and Other Student Loans (net of allowance for losses of $47,518; $30,655; and $8,701, respectively) $ 35,726,062 $ 34,108,560 $ 24,840,464 FFELP Consolidation Loans (net of allowance for losses of $41,211; $26,809; and $11,614, respectively) 73,609,187 71,370,681 61,324,008 Private Education Loans (net of allowance for losses of $885,931; $454,100; and $308,346, respectively) 14,817,725 13,675,571 9,755,289 Other loans (net of allowance for losses of $47,004; $21,738; and $20,394, respectively) 1,173,666 1,193,405 1,308,832 Cash and investments 10,546,411 12,040,001 5,184,673 Restricted cash and investments 4,600,106 4,999,369 3,423,326 Retained Interest in off-balance sheet securitized loans 3,044,038 3,238,637 3,341,591 Goodwill and acquired intangible assets, net 1,300,689 1,354,141 1,371,606 Other assets 10,747,107 8,835,025 5,585,943 Total assets $ 155,564,991 $ 150,815,390 $ 116,135,732 Liabilities Short-term borrowings $ 35,947,407 $ 33,008,374 $ 3,528,263 Long-term borrowings 111,098,144 108,860,988 104,558,531 Other liabilities 3,284,545 3,934,267 3,679,781 Total liabilities 150,330,096 145,803,629 111,766,575 Commitments and contingencies Minority interest in subsidiaries 11,360 10,054 9,115 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 Preferred stock, 7.25% mandatory convertible preferred stock, Series C, 1,000 shares authorized; 1,000; 0; and 0 shares, respectively, issued at liquidation preference of $1,000 per share 1,000,000 — — Common stock, par value $.20 per share, 1,125,000 shares authorized: 532,493; 439,660; and 433,113 shares, respectively, issued 106,499 87,932 86,623 Additional paid-in capital 4,590,174 2,847,748 2,565,211 Accumulated other comprehensive income, net of tax 236,364 245,352 349,111 Retained earnings 557,204 2,437,639 1,834,718 Stockholders’ equity before treasury stock 7,055,241 6,183,671 5,400,663 Common stock held in treasury: 65,951; 25,544; and 22,496 shares, respectively 1,831,706 1,181,964 1,040,621 Total stockholders’ equity 5,223,535 5,001,707 4,360,042 Total liabilities and stockholders’ equity $ 155,564,991 $ 150,815,390 $ 116,135,732   SLM CORPORATION   Consolidated Statements of Income   (In thousands, except per share amounts)     Quarters ended Years ended   December 31,2007   September 30,2007   December 31,2006 December 31,2007   December 31,2006 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 553,313 $ 545,618 $ 408,727 $ 2,060,993 $ 1,408,938 FFELP Consolidation Loans 1,095,565 1,145,473 966,840 4,343,138 3,545,857 Private Education Loans 395,962 392,737 291,425 1,456,471 1,021,221 Other loans 25,427 25,990 26,556 105,843 97,954 Cash and investments   240,846     211,303     141,155     707,577     503,002   Total interest income 2,311,113 2,321,121 1,834,703 8,674,022 6,576,972 Total interest expense   1,976,642     1,879,811     1,462,733     7,085,772     5,122,855   Net interest income 334,471 441,310 371,970 1,588,250 1,454,117 Less: provisions for loan losses   574,178     142,600     92,005     1,015,308     286,962   Net interest income (loss) after provisions for loan losses   (239,707 )   298,710     279,965     572,942     1,167,155   Other income (loss): Gains on student loan securitizations — — — 367,300 902,417 Servicing and securitization revenue 23,289 28,883 184,686 437,097 553,541 Losses on loans and securities, net (28,441 ) (25,163 ) (24,458 ) (95,492 ) (49,357 ) Gains (losses) on derivative and hedging activities, net (1,337,703 ) (487,478 ) (244,521 ) (1,360,584 ) (339,396 ) Guarantor servicing fees 40,980 45,935 33,089 156,429 132,100 Debt management fees 91,872 76,306 92,501 335,737 396,830 Collections revenue 76,105 52,788 57,878 271,547 239,829 Other   92,954     106,684     103,927     385,075     338,307   Total other income (loss) (1,040,944 ) (202,045 ) 203,102 497,109 2,174,271 Operating expenses   440,974     355,899     352,747     1,551,847     1,346,152   Income (loss) before income taxes and minority interest in net earnings of subsidiaries (1,721,625 ) (259,234 ) 130,320 (481,796 ) 1,995,274 Income tax expense (benefit)   (86,904 )   84,449     111,752     412,283     834,311   Income (loss) before minority interest in net earnings of subsidiaries (1,634,721 ) (343,683 ) 18,568 (894,079 ) 1,160,963 Minority interest in net earnings of subsidiaries   537     77     463     2,315     4,007   Net income (loss) (1,635,258 ) (343,760 ) 18,105 (896,394 ) 1,156,956 Preferred stock dividends   9,622     9,274     9,258     37,145     35,567   Net income (loss) attributable to common stock $ (1,644,880 ) $ (353,034 ) $ 8,847   $ (933,539 ) $ 1,121,389   Basic earnings (loss) per common share $ (3.98 ) $ (.85 ) $ .02   $ (2.26 ) $ 2.73   Average common shares outstanding   413,049     412,944     409,597     412,233     410,805   Diluted earnings (loss) per common share $ (3.98 ) $ (.85 ) $ .02   $ (2.26 ) $ 2.63   Average common and common equivalent shares outstanding   413,049     412,944     418,357     412,233     451,170   Dividends per common share $ —   $ —   $ .25   $ .25   $ .97   SLM CORPORATION   Segment and "Core Earnings"   Consolidated Statements of Income   (In thousands)   Quarter ended December 31, 2007   Corporate Total   Adjust-ments   Total GAAP Lending APG   and Other "Core Earnings" (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 705,051 $ — $ — $ 705,051 $ (151,738) $ 553,313 FFELP Consolidation Loans 1,354,573 -- -- 1,354,573 (259,008) 1,095,565 Private Education Loans 731,217 -- -- 731,217 (335,255) 395,962 Other loans 25,427 — — 25,427 — 25,427 Cash and invest- ments 272,875 — 5,837 278,712 (37,866) 240,846 Total interest income 3,089,143 — 5,837 3,094,980 (783,867) 2,311,113 Total interest expense 2,471,613 6,592 5,165 2,483,370 (506,728) 1,976,642 Net interest income (loss) 617,530 (6,592) 672 611,610 (277,139) 334,471 Less: pro- visions for loan losses 749,460 — 1 749,461 (175,283) 574,178 Net interest income (loss) after pro- visions for loan losses (131,930) (6,592) 671 (137,851) (101,856) (239,707) Fee income — 91,872 40,980 132,852 — 132,852 Collect- ions revenue — 73,916 — 73,916 2,189 76,105 Other income 44,189 — 55,354 99,543 (1,349,444) (1,249,901) Total other income (loss) 44,189 165,788 96,334 306,311 (1,347,255) (1,040,944) Operating expenses (1) 191,440 105,822 90,297 387,559 53,415 440,974 Income (loss) before income taxes and minority interest in net earnings of subsid- iaries (279,181) 53,374 6,708 (219,099) (1,502,526) (1,721,625) Income tax expense (bene- fit)(2) (103,297) 19,749 2,481 (81,067) (5,837) (86,904) Minority interest in net earnings of subsid- iaries — 537 — 537 — 537 Net income (loss) $ (175,884) $ 33,088 $ 4,227 $ (138,569) $ (1,496,689) $ (1,635,258) (1)   Operating expenses for the Lending, APG, and Corporate and Other reportable segments include $5 million, $2 million, and $3 million, respectively, of stock option compensation expense, and $19 million, $2 million and $2 million, respectively, of severance expense.   (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. SLM CORPORATION   Segment and "Core Earnings"   Consolidated Statements of Income   (In thousands)   Quarter ended September 30, 2007   Corporate Total     Total GAAP Lending APG   and Other   "Core Earnings" Adjust-ments (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 729,255 $ — $ — $ 729,255 $ (183,637) $ 545,618 FFELP Consolid- ation 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 invest- ments   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   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 subsid- iaries   —   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 reportable 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. SLM CORPORATION   Segment and "Core Earnings"   Consolidated Statements of Income   (In thousands)   Quarter ended December 31, 2006           Corporate Total Adjust-ments Total GAAP Lending APG and Other "Core Earnings" (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 700,961 $ — $ — $ 700,961 $ (292,234) $ 408,727 FFELP Consolidation Loans 1,305,744 -- -- 1,305,744 (338,904) 966,840 Private Education Loans 620,092 — — 620,092 (328,667) 291,425 Other loans 26,556 — — 26,556 — 26,556 Cash and investments 197,161 — 2,225 199,386 (58,231) 141,155 Total interest income 2,850,514 — 2,225 2,852,739 (1,018,036) 1,834,703 Total interest expense 2,189,781 6,440 5,630 2,201,851 (739,118) 1,462,733 Net interest income (loss) 660,733 (6,440) (3,405) 650,888 (278,918) 371,970 Less: provisions for loan losses 87,895 — 298 88,193 3,812 92,005 Net interest income (loss) after provisions for loan losses 572,838 (6,440) (3,703) 562,695 (282,730) 279,965 Fee income — 92,501 33,089 125,590 — 125,590 Collections revenue — 57,473 — 57,473 405 57,878 Other income 40,034 — 59,690 99,724 (80,090) 19,634 Total other income (loss) 40,034 149,974 92,779 282,787 (79,685) 203,102 Operating expenses(1) 164,289 91,833 71,567 327,689 25,058 352,747 Income (loss) before income taxes and minority interest in net earnings of subsidiaries 448,583 51,701 17,509 517,793 (387,473) 130,320 Income tax expense (benefit) (2) 165,976 19,178 6,429 191,583 (79,831) 111,752 Minority interest in net earnings of subsidiaries — 463 — 463 — 463 Net income (loss) $ 282,607 $ 32,060 $ 11,080 $ 325,747 $ (307,642) $ 18,105 (1)   Operating expenses for the Lending, APG, and Corporate and Other reportable segments include $8 million, $3 million, and $3 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   Segment and "Core Earnings"   Consolidated Statements of Income   (In thousands)   Year ended December 31, 2007           Corporate Total   Lending APG andOther "Core Earnings" Adjust-ments Total GAAP (unaudited) Interest income: FFELP Stafford and Other Student Loans $2,848,283 $-- $-- $2,848,283 $(787,290) $2,060,993 FFELP Consolidation Loans 5,521,931 -- -- 5,521,931 (1,178,793) 4,343,138 Private Education Loans 2,834,595 -- -- 2,834,595 (1,378,124) 1,456,471 Other loans 105,843 -- -- 105,843 -- 105,843 Cash and invest- ments 867,659 -- 21,208 888,867 (181,290) 707,577 Total interest income 12,178,311 -- 21,208 12,199,519 (3,525,497) 8,674,022 Total interest expense 9,597,099 26,523 21,440 9,645,062 (2,559,290) 7,085,772 Net interest income (loss) 2,581,212 (26,523) (232) 2,554,457 (966,207) 1,588,250 Less: provisions for loan losses 1,393,962 -- 607 1,394,569 (379,261) 1,015,308 Net interest income (loss) after provisions for loan losses 1,187,250 (26,523) (839) 1,159,888 (586,946) 572,942 Fee income -- 335,737 156,429 492,166 -- 492,166 Collections revenue -- 269,184 -- 269,184 2,363 271,547 Other income 193,810 -- 217,655 411,465 (678,069) (266,604) Total other income (loss) 193,810 604,921 374,084 1,172,815 (675,706) 497,109 Operating expenses (1) 708,508 390,002 341,116 1,439,626 112,221 1,551,847 Income (loss) before income taxes and minority interest in net earnings of subsid- iaries 672,552 188,396 32,129 893,077 (1,374,873) (481,796) Income tax expense (benefit) (2) 248,844 69,707 11,887 330,438 81,845 412,283 Minority interest in net earnings of subsid- iaries -- 2,315 -- 2,315 -- 2,315 Net income (loss) $423,708 $116,374 $20,242 $560,324 $(1,456,718) $(896,394) (1)   Operating expenses for the Lending, APG, and Corporate and Other reportable segments include $31 million, $11 million, and $15 million, respectively, of stock option compensation expense, and $19 million, $2 million and $2 million, respectively, of severance expense.   (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. SLM CORPORATION   Segment and "Core Earnings"   Consolidated Statements of Income   (In thousands)   Year ended December 31, 2006   Corporate Total       Lending APG   andOther "Core Earnings" Adjustments Total GAAP (unaudited) Interest income: FFELP Stafford and Other Student Loans $2,771,236 $-- $-- $2,771,236 $(1,362,298) $1,408,938 FFELP Consolidation Loans 4,690,060 -- -- 4,690,060 (1,144,203) 3,545,857 Private Education Loans 2,092,068 -- -- 2,092,068 (1,070,847) 1,021,221 Other loans 97,954 — — 97,954 — 97,954 Cash and invest- ments 704,336 -- 6,989 711,325 (208,323) 503,002 Total interest income 10,355,654 -- 6,989 10,362,643 (3,785,671) 6,576,972 Total interest expense 7,877,263 23,150 11,768 7,912,181 (2,789,326) 5,122,855 Net interest income (loss) 2,478,391 (23,150) (4,779) 2,450,462 (996,345) 1,454,117 Less: provisions for loan losses 302,498 -- 282 302,780 (15,818) 286,962 Net interest income (loss) after provisions for loan losses 2,175,893 (23,150) (5,061) 2,147,682 (980,527) 1,167,155 Fee income -- 396,830 132,100 528,930 -- 528,930 Collections revenue -- 238,970 -- 238,970 859 239,829 Other income 177,451 -- 155,025 332,476 1,073,036 1,405,512 Total other income (loss) 177,451 635,800 287,125 1,100,376 1,073,895 2,174,271 Operating expenses (1) 645,057 357,797 249,958 1,252,812 93,340 1,346,152 Income (loss) before income taxes and minority interest in net earnings of subsid- iaries 1,708,287 254,853 32,106 1,995,246 28 1,995,274 Income tax expense (benefit) (2) 632,067 94,344 11,830 738,241 96,070 834,311 Minority interest in net earnings of subsid- iaries -- 4,007 -- 4,007 -- 4,007 Net income (loss) $1,076,220 $156,502 $20,276 $1,252,998 $(96,042) $1,156,956 (1)   Operating expenses for the Lending, APG, and Corporate and Other reportable segments include $34 million, $12 million, and $17 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 Years ended   December 31,2007   September 30,2007   December 31,2006 December 31,2007   December 31,2006 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) "Core Earnings” net income (loss)(A) $ (138,569 ) $ 258,687 $ 325,747 $ 560,324 $ 1,252,998 "Core Earnings” adjustments: Net impact of securitization accounting (2,547 ) (157,050 ) (67,984 ) 246,817 532,506 Net impact of derivative accounting (1,396,683 ) (453,949 ) (242,614 ) (1,340,792 ) (229,452 ) Net impact of Floor Income (49,844 ) (40,390 ) (51,762 ) (168,501 ) (209,445 ) Net impact of acquired intangibles   (53,452 )   (18,582 )   (25,113 )   (112,397 )   (93,581 ) Total "Core Earnings” adjustments before income taxes and minority interest in net earnings of subsidiaries (1,502,526 ) (669,971 ) (387,473 ) (1,374,873 ) 28 Net tax effect(B)   5,837     67,524     79,831     (81,845 )   (96,070 ) Total "Core Earnings” adjustments   (1,496,689 )   (602,447 )   (307,642 )   (1,456,718 )   (96,042 ) GAAP net income (loss) $ (1,635,258 ) $ (343,760 ) $ 18,105   $ (896,394 ) $ 1,156,956   GAAP diluted earnings (loss) per common share $ (3.98 ) $ (.85 ) $ .02   $ (2.26 ) $ 2.63     (A) "Core Earnings” diluted earnings (loss) per common share $ (.36 ) $ .59   $ .74   $ 1.23   $ 2.83     (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.     "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. 1) Securitization Accounting: Under GAAP, certain securitization transactions in our Lending operating segment are accounted for as sales of assets. Under "Core Earnings” for the Lending operating segment, we present all securitization transactions on a "Core Earnings” basis as long-term non-recourse financings. The upfront "gains” on sale from securitization transactions as well as ongoing "servicing and securitization revenue” presented in accordance with GAAP are excluded from "Core Earnings” and are replaced by 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. 2) 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. 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 in income. 4) Acquired Intangibles: Our "Core Earnings” exclude goodwill and intangible impairment and the amortization of acquired intangibles.