Sallie Mae's Managed Loan Portfolio Grows 18 Percent from Prior Year to $153 Billion in Second-Quarter 2007

RESTON, Va., July 17 /PRNewswire-FirstCall/ -- SLM Corporation , commonly known as Sallie Mae, today reported second-quarter 2007 earnings and performance results that include an 18-percent increase in managed student loans from the year-ago quarter, with the company's portfolio topping $153 billion. Second-quarter 2007 preferred-channel loan originations were $3.6 billion, and loans originated through the company's internal brands, a segment of total preferred-channel loan originations, grew 39 percent from the year-ago period to $2.4 billion.

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Preferred-channel loan originations include loans originated by the company's internal lending brands and external lending partners. Preferred- channel originations in the first half of 2007 were $11.6 billion, and internal brands originated $7.2 billion, or 62 percent, of the total.

"Our loan portfolio continues to register strong growth, and our internal brands are outpacing the market," said C.E. Andrews, chief executive officer. "We are delivering best-in-class products and services to schools, students and families to help them access higher education."

The company purchased $20.9 billion in education loans in the first half of 2007, a 27-percent increase from the same period last year. In the second- quarter 2007, loan purchases were $8.4 billion.

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 second-quarter 2007 GAAP net income of $966 million, or $1.03 per diluted share, compared to $724 million, or $1.52 per diluted share, in the year-ago period. Included in these GAAP results are pre-tax gains on derivative and hedging activities of $822 million in the second- quarter 2007, compared to $123 million in the year-ago quarter, and a decrease of $671 million in gains on student loan securitizations. Second-quarter 2007 GAAP diluted earnings per share were reduced by $1.21 due to the reversal of unrealized gains on dilutive outstanding equity-forward contracts as required by the GAAP diluted earnings per share calculation.

"Core earnings" net income for the second-quarter 2007 was $189 million, or $.43 per diluted share, down from $320 million, or $.72 per diluted share, in the year-ago quarter. These second-quarter 2007 results include a provision for losses of $247 million and $51 million in expenses related to the company's previously announced acquisition. Annualized net charge-offs as a percentage of average private education loans in repayment were 3.5 percent in the second-quarter 2007, compared to 3.4 percent in the prior quarter. For the first half of 2007, "core earnings" net income was $440 million, compared to $607 million in the first half of 2006.

"Core earnings" net interest income was $635 million for the 2007 second quarter, up from the year-ago quarter's $602 million. "Core earnings" other income, which consists primarily of fees earned from guarantor servicing and collection activity, was $296 million in the second-quarter 2007 and $583 million year-to-date, up 11 percent and 14 percent, respectively, from the year-ago periods. "Core earnings" operating expenses were $382 million in the second-quarter 2007, and $715 million for the first half of 2007.

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 Second Quarter 2007 Supplemental Earnings Disclosure.

Total equity for the company at June 30, 2007, was $5.3 billion, up from $4.4 billion a year ago. The company's tangible capital at June 30, 2007, was 2.28 percent of managed assets, compared to 2.19 percent at the same time last year. The "core earnings" student loan spread was 1.79 percent in the second- quarter 2007, excluding financing fees related to the acquisition transaction.

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, including the forward-looking statements contained in the company's Supplemental Financial Information Second Quarter 2007.

SLM Corporation , commonly known as Sallie Mae, is the nation's leading provider of saving- and paying-for-college programs. The company manages $153 billion in education loans and serves nearly 10 million student and parent customers. Through its Upromise affiliates, the company also manages $18 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 June 30, 2007 (Dollars in millions, except earnings per share) Quarters ended -------------------------------------- June 30, Mar. 31, June 30, 2007 2007 2006 --------- --------- --------- (unaudited) (unaudited) (unaudited) SELECTED FINANCIAL INFORMATION AND RATIOS - GAAP Basis Net income $ 966 $ 116 $ 724 Diluted earnings per common share(1) $ 1.03 $ .26 $ 1.52 Return on assets 3.23% .43% 3.20% "Core Earnings" Basis(2) "Core Earnings" net income $ 189 $ 251 $ 320 "Core Earnings" diluted earnings per common share(1) $ .43 $ .57 $ .72 "Core Earnings" return on assets .45% .64% .90% OTHER OPERATING STATISTICS Average on-balance sheet student loans $ 108,865 $ 101,499 $ 80,724 Average off-balance sheet student loans 43,432 44,663 47,716 --------- --------- --------- Average Managed student loans $ 152,297 $ 146,162 $ 128,440 ========= ========= ========= Ending on-balance sheet student loans, net $ 110,626 $ 104,581 $ 82,279 Ending off-balance sheet student loans, net 42,577 45,380 47,865 --------- --------- --------- Ending Managed student loans, net $ 153,203 $ 149,961 $ 130,144 ========= ========= ========= Ending Managed FFELP Stafford and Other Student Loans, net $ 42,865 $ 41,832 $ 41,926 Ending Managed FFELP Consolidation Loans, net 85,276 83,928 69,195 Ending Managed Private Education Loans, net 25,062 24,201 19,023 --------- --------- --------- Ending Managed student loans, net $ 153,203 $ 149,961 $ 130,144 ========= ========= ========= Six months ended June 30, ------------------------- 2007 2006 --------- --------- (unaudited) (unaudited) SELECTED FINANCIAL INFORMATION AND RATIOS - GAAP Basis Net income $ 1,082 $ 875 Diluted earnings per common share(1) $ 1.82 $ 1.96 Return on assets 1.89% 1.94% "Core Earnings" Basis(2) "Core Earnings" net income $ 440 $ 607 "Core Earnings" diluted earnings per common share(1) $ .99 $ 1.37 "Core Earnings" return on assets .54% .88% OTHER OPERATING STATISTICS Average on-balance sheet student loans $ 105,203 $ 81,781 Average off-balance sheet student loans 44,044 44,909 -------- --------- Average Managed student loans $ 149,247 $ 126,690 ========= ========= (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 -------------------------------------- June 30, Mar. 31, June 30, 2007 2007 2006 --------- --------- --------- (unaudited) (unaudited) (unaudited) Impact of Co-Cos on GAAP diluted earnings per common share $ (.03) $ -(A) $ (.08) 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 June 25, 2007, holders of these securities were notified that the Co-Cos would be called at par on July 25, 2007, as allowed by the terms of the indenture governing the Co-Cos. Six months ended June 30, ------------------------- 2007 2006 --------- --------- (unaudited) (unaudited) Impact of Co-Cos on GAAP diluted earnings per common share $ (.05) $ (.07) Impact on Co-Cos on "Core Earnings" diluted earnings per common share $ -(A) $ (.02) (A) There is no impact on diluted earnings per common share because the effect of the assumed conversion is antidilutive. On June 25, 2007, holders of these securities were notified that the Co-Cos would be called at par on July 25, 2007, as allowed by the terms of the indenture governing the Co-Cos. (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) June 30, Mar. 31, June 30, 2007 2007 2006 ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) Assets FFELP Stafford and Other Student Loans (net of allowance for losses of $11,337; $10,192; and $6,890, respectively) $ 31,503,088 $ 28,561,670 $ 21,390,845 FFELP Consolidation Loans (net of allowance for losses of $12,746; $12,087; and $10,090, respectively) 68,109,269 66,170,098 54,054,932 Private Education Loans (net of allowance for losses of $427,904; $369,072; and $251,582, respectively) 11,013,668 9,849,481 6,832,843 Other loans (net of allowance for losses of $19,989; $19,803; and $15,190, respectively) 1,178,052 1,350,416 1,050,632 Cash and investments 4,565,606 6,116,168 6,204,462 Restricted cash and investments 4,300,826 3,719,020 3,489,542 Retained Interest in off-balance sheet securitized loans 3,448,045 3,643,322 3,151,855 Goodwill and acquired intangible assets, net 1,356,620 1,364,016 1,080,703 Other assets 7,327,108 6,102,275 4,650,851 ------------ ------------ ------------ Total assets $132,802,282 $126,876,466 $101,906,665 ============ ============ ============ Liabilities Short-term borrowings $ 9,758,465 $ 4,428,980 $ 3,801,266 Long-term borrowings 114,365,577 114,070,797 90,506,785 Other liabilities 3,320,098 3,990,878 3,229,477 ------------ ------------ ------------ Total liabilities 127,444,140 122,490,655 97,537,528 ------------ ------------ ------------ Commitments and contingencies Minority interest in subsidiaries 10,081 9,029 9,369 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: 436,095; 434,587; and 430,753 shares, respectively, issued 87,219 86,918 86,151 Additional paid-in capital 2,721,554 2,638,334 2,440,565 Accumulated other comprehensive income, net of tax 265,388 300,884 370,204 Retained earnings 2,790,674 1,833,359 1,775,948 ------------ ------------ ------------ Stockholders' equity before treasury stock 6,429,835 5,424,495 5,237,868 Common stock held in treasury: 23,477; 22,650; and 19,078 shares, respectively 1,081,774 1,047,713 878,100 ------------ ------------ ------------ Total stockholders' equity 5,348,061 4,376,782 4,359,768 ------------ ------------ ------------ Total liabilities and stockholders' equity $132,802,282 $126,876,466 $101,906,665 ============ ============ ============ SLM CORPORATION Consolidated Statements of Income (In thousands, except per share amounts) Quarters ended ------------------------------------- June 30, Mar. 31, June 30, 2007 2007 2006 -------- --------- --------- (unaudited) (unaudited) (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 511,300 $ 450,762 $ 337,090 FFELP Consolidation Loans 1,087,254 1,014,846 841,591 Private Education Loans 329,351 338,421 233,696 Other loans 26,453 27,973 23,541 Cash and investments 141,524 113,904 124,954 ------------ ------------ ------------ Total interest income 2,095,882 1,945,906 1,560,872 Total interest expense 1,697,229 1,532,090 1,204,067 ------------ ------------ ------------ Net interest income 398,653 413,816 356,805 Less: provisions for losses 148,200 150,330 67,396 ------------ ------------ ------------ Net interest income after provisions for losses 250,453 263,486 289,409 ------------ ------------ ------------ Other income: Gains on student loan securitizations - 367,300 671,262 Servicing and securitization revenue 132,987 251,938 82,842 Loss on securities, net (10,921) (30,967) (8,524) Gains (losses) on derivative and hedging activities, net 821,566 (356,969) 122,719 Guarantor servicing fees 30,273 39,241 33,256 Debt management fees 80,237 87,322 90,161 Collections revenue 77,092 65,562 67,357 Other 89,004 96,433 75,081 ------------ ------------ ------------ Total other income 1,220,238 519,860 1,134,154 Operating expenses 398,800 356,174 316,602 Income before income taxes and minority interest in net earnings of subsidiaries 1,071,891 427,172 1,106,961 Income taxes 104,724 310,014 381,828 ------------ ------------ ------------ Income before minority interest in net earnings of subsidiaries 967,167 117,158 725,133 Minority interest in net earnings of subsidiaries 696 1,005 1,355 ------------ ------------ ------------ Net income 966,471 116,153 723,778 Preferred stock dividends 9,156 9,093 8,787 ------------ ------------ ------------ Net income attributable to common stock $ 957,315 $ 107,060 $ 714,991 ============ ============ ============ Basic earnings per common share $ 2.32 $ .26 $ 1.74 ============ ============ ============ Average common shares outstanding 411,870 411,040 410,957 ============ ============ ============ Diluted earnings per common share $ 1.03 $ .26 $ 1.52 ============ ============ ============ Average common and common equivalent shares outstanding 452,406 418,449 454,314 ============ ============ ============ Dividends per common share $ - $ .25 $ .25 ============ ============ ============ Six months ended June 30, ----------------------- 2007 2006 --------- --------- (unaudited) (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 962,062 $ 635,590 FFELP Consolidation Loans 2,102,100 1,662,926 Private Education Loans 667,772 475,049 Other loans 54,426 46,848 Cash and investments 255,428 220,764 ------------ ------------ Total interest income 4,041,788 3,041,177 Total interest expense 3,229,319 2,296,851 ------------ ------------ Net interest income 812,469 744,326 Less: provisions for losses 298,530 127,715 ------------ ------------ Net interest income after provisions for losses 513,939 616,611 ------------ ------------ Other income: Gains on student loan securitizations 367,300 701,285 Servicing and securitization revenue 384,925 181,773 Losses on securities, net (41,888) (11,472) Gains (losses) on derivative and hedging activities, net 464,597 35,980 Guarantor servicing fees 69,514 60,163 Debt management fees 167,559 181,773 Collections revenue 142,654 124,038 Other 185,437 146,457 ------------ ------------ Total other income 1,740,098 1,419,997 Operating expenses 754,974 639,911 ------------ ------------ Income before income taxes and minority interest in net earnings of subsidiaries 1,499,063 1,396,697 Income taxes 414,738 518,873 ------------ ------------ Income before minority interest in net earnings of subsidiaries 1,084,325 877,824 Minority interest in net earnings of subsidiaries 1,701 2,445 ------------ ------------ Net income 1,082,624 875,379 Preferred stock dividends 18,249 17,088 ------------ ------------ Net income attributable to common stock $ 1,064,375 $ 858,291 ============ ============ Basic earnings per common share $ 2.59 $ 2.08 ============ ============ Average common shares outstanding 411,457 411,811 ============ ============ Diluted earnings per common share $ 1.82 $ 1.96 ============ ============ Average common and common equivalent shares outstanding 454,139 453,803 ============ ============ Dividends per common share $ .25 $ .47 ============ ============ SLM CORPORATION Segment and "Core Earnings" Consolidated Statements of Income (In thousands) Quarter ended June 30, 2007 ---------------------------------------------------------- Corporate Total and "Core Total Lending DMO 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 losses 246,981 - - 246,981 (98,781) 148,200 ---------- ------- ------- --------- ---------- ---------- Net interest income after provisions for 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, DMO 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 Mar 31, 2007 ---------------------------------------------------------- Corporate Total and "Core Total Lending DMO Other Earnings" Adjustments GAAP ---------- ------- ------- --------- ---------- ---------- (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 695,353 $ - $ - $ 695,353 $(244,591) $ 450,762 FFELP Consolidation Loans 1,331,235 - - 1,331,235 (316,389) 1,014,846 Private Education Loans 657,584 - - 657,584 (319,163) 338,421 Other loans 27,973 - - 27,973 - 27,973 Cash and investments 161,677 - 2,135 163,812 (49,908) 113,904 ---------- ------- ------- --------- ---------- ---------- Total interest income 2,873,822 - 2,135 2,875,957 (930,051) 1,945,906 Total interest expense 2,220,136 6,687 5,568 2,232,391 (700,301) 1,532,090 ---------- ------- ------- --------- ---------- ---------- Net interest income 653,686 (6,687) (3,433) 643,566 (229,750) 413,816 Less: provisions for losses 197,930 - 606 198,536 (48,206) 150,330 ---------- ------- ------- --------- ---------- ---------- Net interest income after provisions for losses 455,756 (6,687) (4,039) 445,030 (181,544) 263,486 Fee income - 87,326 39,241 126,567 (4) 126,563 Collections revenue - 65,322 - 65,322 240 65,562 Other income 44,418 - 51,317 95,735 232,000 327,735 ---------- ------- ------- --------- ---------- ---------- Total other income 44,418 152,648 90,558 287,624 232,236 519,860 Operating expenses(1) 171,563 93,248 67,505 332,316 23,858 356,174 ---------- ------- ------- --------- ---------- ---------- Income before income taxes and minority interest in net earnings of subsidiaries 328,611 52,713 19,014 400,338 26,834 427,172 Income tax expense(2) 121,586 19,504 7,035 148,125 161,889 310,014 Minority interest in net earnings of subsidiaries - 1,005 - 1,005 - 1,005 ---------- ------- ------- --------- ---------- ---------- Net income $ 207,025 $32,204 $11,979 $ 251,208 $(135,055) $ 116,153 ========== ======= ======= ========= ========== ========== (1) Operating expenses for the Lending, DMO and Corporate and Other business segments include $9 million, $3 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. Quarter ended June 30, 2006 ---------------------------------------------------------- Corporate Total and "Core Total Lending DMO Other Earnings" Adjustments GAAP ---------- ------- ------- --------- ---------- ---------- (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 718,909 $ - $ - $ 718,909 $(381,819) $ 337,090 FFELP Consolidation Loans 1,114,355 - - 1,114,355 (272,764) 841,591 Private Education Loans 485,429 - - 485,429 (251,733) 233,696 Other loans 23,541 - - 23,541 - 23,541 Cash and investments 169,877 - 659 170,536 (45,582) 124,954 ---------- ------- ------- --------- ---------- ---------- Total interest income 2,512,111 - 659 2,512,770 (951,898) 1,560,872 Total interest expense 1,903,523 5,466 1 345 1,910,334 (706,267) 1,204,067 ---------- ------- ------- --------- ---------- ---------- Net interest income 608,588 (5,466) (686) 602,436 (245,631) 356,805 Less: provisions for losses 60,009 - (32) 59,977 7,419 67,396 ---------- ------- ------- --------- ---------- ---------- Net interest income after provisions for losses 548,579 (5,466) (654) 542,459 (253,050) 289,409 Fee income - 90,161 33,256 123,417 - 123,417 Collections revenue - 67,213 - 67,213 144 67,357 Other income 50,771 - 24,338 75,109 868,271 943,380 ---------- ------- ------- --------- ---------- ---------- Total other income 50,771 157,374 57,594 265,739 868,415 1,134,154 Operating expenses 163,162 85,110 50,235 298,507 18,095 316,602 ---------- ------- ------- --------- ---------- ---------- Income before income taxes and minority interest in net earnings of subsidiaries 436,188 66,798 6,705 509,691 597,270 1,106,961 Income tax Expense(2) 161,391 24,715 2,480 188,586 193,242 381,828 Minority interest in net earnings of subsidiaries - 1,355 - 1,355 - 1,355 ---------- ------- ------- --------- ---------- ---------- Net income $ 274,797 $40,728 $ 4,225 $ 319,750 $ 404,028 $ 723,778 ========== ======= ======= ========= ========== ========== (1) Operating expenses for the Lending, DMO and Corporate and Other business segments include $8 million, $2 million, and $4 million, respectively, of stock option compensation expense. (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. Six months ended June 30, 2007 ------------------------------------------------------------- Corporate Total and "Core Total Lending DMO Other Earnings" Adjustments GAAP ---------- -------- ------- ---------- ------------ ---------- (unaudited) Interest income: FFELP Stafford and Other Student Loans $1,413,977 $ - $ - $1,413,977 $ (451,915) $ 962,062 FFELP Consoli- dation Loans 2,722,250 - - 2,722,250 (620,150) 2,102,100 Private Education Loans 1,350,083 - - 1,350,083 (682,311) 667,772 Other loans 54,426 - - 54,426 - 54,426 Cash and investments 344,321 - 9,332 353,653 (98,225) 255,428 ---------- -------- ------- ---------- ------------ ---------- Total interest income 5,885,057 - 9,332 5,894,389 (1,852,601) 4,041,788 Total interest expense 4,591,577 13,299 10,993 4,615,869 (1,386,550) 3,229,319 ---------- -------- ------- ---------- ------------ ---------- Net interest income 1,293,480 (13,299) (1,661) 1,278,520 (466,051) 812,469 Less: provisions for losses 444,911 - 606 445,517 (146,987) 298,530 ---------- -------- ------- ---------- ------------ ---------- Net interest income after provisions for losses 848,569 (13,299) (2,267) 833,003 (319,064) 513,939 Fee income - 167,559 69,514 237,073 - 237,073 Collections revenue - 142,734 - 142,734 (80) 142,654 Other income 103,876 - 99,458 203,334 1,157,037 1,360,371 ---------- -------- ------- ---------- ------------ ---------- Total other income 103,876 310,293 168,972 583,141 1,156,957 1,740,098 Operating expenses(1) 353,213 189,555 171,937 714,705 40,269 754,974 ---------- -------- ------- ---------- ------------ ---------- Income (loss) before income taxes and minority interest in net earnings of sub- sidiaries 599,232 107,439 (5,232) 701,439 797,624 1,499,063 Income tax expense (benefit)(2) 221,716 39,752 (1,936) 259,532 155,206 414,738 Minority interest in net earnings of subsidiaries - 1,701 - 1,701 - 1,701 ---------- -------- ------- ---------- ------------ ---------- Net income (loss) $ 377,516 $ 65,986 $(3,296) $ 440,206 $ 642,418 $1,082,624 ========== ======== ======= ========== ============ ========== (1) Operating expenses for the Lending, DMO and Corporate and Other business segments include $22 million, $7 million, and $10 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. Six months ended June 30, 2006 -------------------------------------------------------------- Corporate Total and "Core Total Lending DMO Other Earnings" Adjustments GAAP ---------- -------- ------- ---------- ------------ ---------- (unaudited) Interest income: FFELP Stafford and Other Student Loans $1,368,660 $ - $ - $1,368,660 $ (733,070) $ 635,590 FFELP Consoli- dation Loans 2,142,317 - - 2,142,317 (479,391) 1,662,926 Private Education Loans 914,189 - - 914,189 (439,140) 475,049 Other loans 46,848 - - 46,848 - 46,848 Cash and investments 300,338 1,982 302,320 (81,556) 220,764 ---------- -------- ------- ---------- ------------ ---------- Total interest income 4,772,352 - 1,982 4,774,334 (1,733,157) 3,041,177 Total interest expense 3,562,895 10,622 2,623 3,576,140 (1,279,289) 2,296,851 ---------- -------- ------- ---------- ------------ ---------- Net interest income 1,209,457 (10,622) (641) 1,198,194 (453,868) 744,326 Less: provisions for losses 134,829 - (13) 134,816 (7,101) 127,715 ---------- -------- ------- ---------- ------------ ---------- Net interest income after provisions for losses 1,074,628 (10,622) (628) 1,063,378 (446,767) 616,611 Fee income - 181,773 60,163 241,936 - 241,936 Collections revenue - 123,753 - 123,753 285 124,038 Other income 91,343 - 54,347 145,690 908,333 1,054,023 ---------- -------- ------- ---------- ------------ ---------- Total other income 91,343 305,526 114,510 511,379 908,618 1,419,997 Operating expenses(1) 324,600 174,623 108,747 607,970 31,941 639,911 ---------- -------- ------- ---------- ------------ ---------- Income before income taxes and minority interest in net earnings of sub- sidiaries 841,371 120,281 5,135 966,787 429,910 1,396,697 Income tax expense(2) 311,308 44,504 1,899 357,711 161,162 518,873 Minority interest in net earnings of subsidiaries - 2,445 - 2,445 - 2,445 ---------- -------- ------- ---------- ------------ ---------- Net income $ 530,063 $ 73,332 $ 3,236 $ 606,631 $ 268,748 $ 875,379 ========== ======== ======= ========== ============ ========== (1) Operating expenses for the Lending, DMO, and Corporate and Other business segments include $18 million, $5 million, and $9 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 -------------------------------------- June 30, Mar. 31, June 30, 2007 2007 2006 ----------- ---------- ---------- (unaudited) (unaudited) (unaudited) "Core Earnings" net income(A) $ 188,998 $ 251,208 $ 319,750 "Core Earnings" adjustments: Net impact of securitization accounting (15,071) 421,485 503,083 Net impact of derivative accounting 841,564 (331,724) 164,678 Net impact of Floor Income (39,246) (39,021) (52,333) Net impact of acquired intangibles(B) (16,457) (23,906) (18,158) --------- --------- --------- Total "Core Earnings" adjustments before income taxes 770,790 26,834 597,270 Net tax effect(C) 6,683 (161,889) (193,242) --------- --------- --------- Total "Core Earnings" adjustments 777,473 (135,055) 404,028 -------- --------- --------- GAAP net income $ 966,471 $ 116,153 $723,778 ========= ========= ========= GAAP diluted earnings per common share $ 1.03 $ .26 $ 1.52 ========= ========= ========= (A)"Core earnings" diluted earnings per common share $ .43 $ .57 $ .72 ========= ========= ========= (B)Represents goodwill and intangible impairment and amortization of acquired intangibles. (C)Such tax effect is based upon the Company's "Core Earnings" effective tax rate for the year. The net tax effect results primarily from the exclusion of the permanent income tax impact of the equity forward contracts. Six months ended June 30, ------------------------ 2006 2005 ---------- ---------- (unaudited) (unaudited) "Core Earnings" net income(D) $ 440,206 $ 606,631 "Core Earnings" adjustments: Net impact of securitization accounting 406,414 441,022 Net impact of derivative accounting 509,840 125,861 Net impact of Floor Income (78,267) (104,902) Net impact of acquired intangibles(E) (40,363) (32,071) ---------- ---------- Total "Core Earnings" adjustments before income taxes and minority interest in net earnings of subsidiaries 797,624 429,910 Net tax effect(F) (155,206) (161,162) ---------- ---------- Total "Core Earnings" adjustments 642,418 268,748 ---------- ---------- GAAP net income $1,082,624 $ 875,379 ========== ========== GAAP diluted earnings per common share $ 1.82 $ 1.96 ========== ========== (D)"Core Earnings" diluted earnings per common share $ .99 $ 1.37 ========== ========== (E)Represents goodwill and intangible impairment and amortization of acquired intangibles. (F)Such tax effect is based upon the Company's "Core Earnings" effective tax rate for the year. The net tax effect results primarily from the exclusion of the permanent income tax impact of the equity forward contracts. "Core Earnings"

In accordance with the Rules and Regulations of the Securities and Exchange Commission ("SEC"), we prepare financial statements in accordance with generally accepted accounting principles in the United States of America ("GAAP"). In addition to evaluating the Company's GAAP-based financial information, management evaluates the Company's business segments on a basis that, as allowed under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," differs from GAAP. We refer to management's basis of evaluating our segment results as "Core Earnings" presentations for each business segment and we refer to this information in our presentations with credit rating agencies and lenders. While "Core Earnings" are not a substitute for reported results under GAAP, we rely on "Core Earnings" to manage each operating segment because we believe these measures provide additional information regarding the operational and performance indicators that are most closely assessed by management.

Our "Core Earnings" are the primary financial performance measures used by management to evaluate performance and to allocate resources. Accordingly, financial information is reported to management on a "Core Earnings" basis by reportable segment, as these are the measures used regularly by our chief operating decision maker. Our "Core Earnings" are used in developing our financial plans and tracking results, and also in establishing corporate performance targets and determining incentive compensation. Management believes this information provides additional insight into the financial performance of the Company's core business activities. Our "Core Earnings" are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. "Core Earnings" reflect only current period adjustments to GAAP as described below. Accordingly, the Company's "Core Earnings" presentation does not represent another comprehensive basis of accounting. A more detailed discussion of the differences between GAAP and "Core Earnings" follows.

Limitations of "Core Earnings"

While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, management believes that "Core Earnings" are an important additional tool for providing a more complete understanding of the Company's results of operations. Nevertheless, "Core Earnings" are subject to certain general and specific limitations that investors should carefully consider. For example, as stated above, unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting. Our "Core Earnings" are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Unlike GAAP, "Core Earnings" reflect only current period adjustments to GAAP. Accordingly, the Company's "Core Earnings" presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not compare our Company's performance with that of other financial services companies based upon "Core Earnings." "Core Earnings" results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, the Company's board of directors, rating agencies and lenders to assess performance.

Other limitations arise from the specific adjustments that management makes to GAAP results to derive "Core Earnings" results. For example, in reversing the unrealized gains and losses that result from SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," on derivatives that do not qualify for "hedge treatment," as well as on derivatives that do qualify but are in part ineffective because they are not perfect hedges, we focus on the long-term economic effectiveness of those instruments relative to the underlying hedged item and isolate the effects of interest rate volatility, changing credit spreads and changes in our stock price on the fair value of such instruments during the period. Under GAAP, the effects of these factors on the fair value of the derivative instruments (but not on the underlying hedged item) tend to show more volatility in the short term. While our presentation of our results on a Managed Basis provides important information regarding the performance of our Managed portfolio, a limitation of this presentation is that we are presenting the ongoing spread income on loans that have been sold to a trust managed by us. While we believe that our Managed Basis presentation presents the economic substance of our Managed loan portfolio, it understates earnings volatility from securitization gains. Our "Core Earnings" results exclude certain Floor Income, which is real cash income, from our reported results and therefore may understate earnings in certain periods. Management's financial planning and valuation of operating results, however, does not take into account Floor Income because of its inherent uncertainty, except when it is economically hedged through Floor Income Contracts.

Pre-Tax Differences between "Core Earnings" and GAAP

Our "Core Earnings" are the primary financial performance measures used by management to evaluate performance and to allocate resources. Accordingly, financial information is reported to management on a "Core Earnings" basis by reportable segment, as these are the measures used regularly by our chief operating decision maker. Our "Core Earnings" are used in developing our financial plans and tracking results, and also in establishing corporate performance targets and determining incentive compensation. Management believes this information provides additional insight into the financial performance of the Company's core business activities. "Core Earnings" reflect only current period adjustments to GAAP, as described in the more detailed discussion of the differences between GAAP and "Core Earnings" that follows, which includes further detail on each specific adjustment required to reconcile our "Core Earnings" segment presentation to our GAAP earnings.

1) Securitization Accounting: Under GAAP, certain securitization transactions in our Lending operating segment are accounted for as sales of assets. Under "Core Earnings" for the Lending operating segment, we present all securitization transactions on a Managed Basis as long-term non-recourse financings. The upfront "gains" on sale from securitization transactions as well as ongoing "servicing and securitization revenue" presented in accordance with GAAP are excluded from "Core Earnings" and are replaced by the interest income, provisions for loan losses, and interest expense as they are earned or incurred on the securitization loans. We also exclude transactions with our off-balance sheet trusts from "Core Earnings" as they are considered intercompany transactions on a Managed Basis.

2) Derivative Accounting: "Core Earnings" exclude periodic unrealized gains and losses arising primarily in our Lending business segment, and to a lesser degree in our Corporate and Other business segment, that are caused primarily by the one-sided mark-to-market derivative valuations prescribed by SFAS No. 133 on derivatives that do not qualify for "hedge treatment" under GAAP. Under "Core Earnings," we recognize the economic effect of these hedges, which generally results in any cash paid or received being recognized ratably as an expense or revenue over the hedged item's life. "Core Earnings" also exclude the gain or loss on equity forward contracts that under SFAS No. 133 are required to be accounted for as derivatives and marked-to-market through earnings.

3) Floor Income: The timing and amount (if any) of Floor Income earned in our Lending operating segment is uncertain and in excess of expected spreads. Therefore, we exclude such income from "Core Earnings" when it is not economically hedged. We employ derivatives, primarily Floor Income Contracts and futures, to economically hedge Floor Income. As discussed above in "Derivative Accounting," these derivatives do not qualify as effective accounting hedges, and therefore, under GAAP, they are marked-to-market through the "gains (losses) on derivative and hedging activities, net" line on the income statement with no offsetting gain or loss recorded for the economically hedged items. For "Core Earnings," we reverse the fair value adjustments on the Floor Income Contracts and futures economically hedging Floor Income and include the amortization of net premiums received in income.

4) Acquired Intangibles: We exclude goodwill and intangible impairment and the amortization of acquired intangibles.