SLM Corporation's Portfolio of Managed Loans Grows 14 Percent in First-Quarter 2006

RESTON, Va., April 20 /PRNewswire-FirstCall/ -- SLM Corporation , commonly known as Sallie Mae, today reported first-quarter 2006 earnings and performance results that include a 14-percent increase in the managed student loan portfolio to $126.9 billion from the year-ago quarter's $111.7 billion. Also during the quarter, the company originated $3.6 billion through its internal lending brands, a 51-percent increase over the year-ago period.

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"We are pleased with our portfolio growth and the strong performance of our lending brands. Our pipeline of new school wins is impressive," said Tim Fitzpatrick, chief executive officer. "This quarter's results put us on the right path to deliver on our 2006 projections."

During the first-quarter 2006, the company originated $7.6 billion in preferred-channel loans, of which $2.2 billion were private education loans. Preferred-channel loan originations include loans originated by the company's internal lending brands and external lending partners.

Sallie Mae reports financial results on a GAAP basis and also presents certain non-GAAP or "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 first-quarter 2006 GAAP net income of $152 million, or $.34 per diluted share, compared to $223 million, or $.49 per diluted share, in the year-ago period. Included in these GAAP results are pre-tax losses on derivative and hedging activities of $(87) million, compared to $(34) million in the year-ago quarter, and a decrease of $(44) million in servicing and securitization revenue.

"Core earnings" net income for the quarter was $287 million, or $.65 per diluted share, up from $256 million, or $.57 per diluted share in the year-ago quarter. During the first-quarter 2006, the company began expensing stock- based compensation. Recognizing stock-based compensation expense in both the current and year-ago periods, "core earnings" per diluted share were $.63 in the 2006 first quarter after eliminating the $.02 impact of a revision to borrower benefit estimates, up from $.55 in the same quarter in 2005, a 15- percent increase.

"Core earnings" net interest income was $596 million for the quarter, a 21-percent increase over the year-ago quarter's $494 million. "Core earnings" other income, which consists primarily of fees earned from guarantor servicing and collection activity, was $245 million for the 2006 first quarter, up from $221 million in the year-ago quarter. "Core earnings" operating expenses were $309 million, compared to $249 million in the same quarter last year.

Both a description of the "core earnings" treatment and a full reconciliation to the GAAP income statement can be found at http://www2.salliemae.com/investors/stockholderinfo/earningsinfo, click on the First Quarter 2006 Supplemental Earnings Disclosure.

Total equity for the company at March 31, 2006, was $3.8 billion, up from $3.1 billion a year ago. The company's tangible capital at March 31, 2006, was 1.86 percent of managed assets, compared to 1.63 percent at the same time last year.

The company will host its regular 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, April 20, 2006, starting at 11:45 a.m. EDT: (877) 356-5689 (USA and Canada) or (706) 679-0623 (International). The conference call will be replayed continuously beginning Thursday, April 20, at 3:30 p.m. EDT and concluding at 11:59 p.m. EDT on Thursday, April 27. Please dial (800) 642- 1687 (USA and Canada) or dial (706) 645-9291 (International) and use access code 6512067. 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 30-45 minutes after the live broadcast.

This press release contains "forward-looking statements" including expectations as to future market share, the success of preferred channel originations and future results. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks include, among others, changes in the terms of student loans and the educational credit marketplace arising from the implementation of applicable laws and regulations, and from changes in such laws and regulations, changes in the demand for educational financing or in financing preferences of educational institutions, students and their families, and changes in the general interest rate environment. For more information, see the company's filings with the Securities and Exchange Commission.

SLM Corporation , commonly known as Sallie Mae, is the nation's leading provider of education funding, managing nearly $127 billion in student loans for 9 million borrowers. Sallie Mae was originally created in 1972 as a government-sponsored entity (GSE) and terminated its 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 March 31, 2006 (Dollars in millions, except earnings per share) Quarters ended ------------------------------------- Mar. 31, Dec. 31, Mar. 31, 2006 2005 2005 --------- --------- --------- (unaudited) (unaudited) (unaudited) SELECTED FINANCIAL INFORMATION AND RATIOS - (GAAP Basis) Net income $ 152 $ 431 $ 223 Diluted earnings per common share(1) $ .34 $ .96 $ .49 Return on assets .68% 1.88% 1.18% NON-GAAP INFORMATION(2) "Core earnings" net income $ 287 $ 284 $ 256 "Core earnings" diluted earnings per common share(1) $ .65 $ .63 $ .57 "Core earnings" return on assets .85% .84% .86% OTHER OPERATING STATISTICS Average on-balance sheet student loans $ 82,850 $ 82,914 $ 67,661 Average off-balance sheet student loans 42,069 38,497 41,892 --------- --------- --------- Average Managed student loans $ 124,919 $ 121,411 $ 109,553 ========= ========= ========= Ending on-balance sheet student loans, net $ 81,645 $ 82,604 $ 69,906 Ending off-balance sheet student loans, net 45,225 39,925 41,793 --------- --------- --------- Ending Managed student loans, net $ 126,870 $ 122,529 $ 111,699 ========= ========= ========= Ending Managed FFELP Stafford and Other Student Loans, net $ 42,340 $ 40,658 $ 47,325 Ending Managed Consolidation Loans, net 66,662 65,434 51,856 Ending Managed Private Education Loans, net 17,868 16,437 12,518 --------- --------- --------- Ending Managed student loans, net $ 126,870 $ 122,529 $ 111,699 ========= ========= ========= (1) In December 2004, the Company adopted the Emerging Issues Task Force ("EITF") Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share," as it relates to the Company's $2 billion in contingently convertible debt instruments ("Co-Cos") issued in May 2003. EITF No. 04-8 requires the shares underlying Co-Cos to be included in diluted earnings per common share computations regardless of whether the market price trigger or the conversion price has been met, using the "if-converted" method. The impact of Co-Cos due to the application of EITF No. 04-8 was to decrease diluted earnings per common share by the following amounts: Quarters ended -------------------------------------- Mar. 31, Dec. 31, Mar. 31, 2006 2005 2005 --------- --------- --------- (unaudited) (unaudited) (unaudited) Impact of Co-Cos on GAAP diluted earnings per common share $ -(A) $ (.03) $ (.02) Impact of Co-Cos on "core earnings" diluted earnings per common share $ (.01) $ (.02) $ (.02) (A) There is no impact on diluted earnings per common share because the effect of the assumed conversion is antidilutive. (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) Mar. 31, Dec. 31, Mar. 31, 2006 2005 2005 ----------- ----------- ----------- (unaudited) (unaudited) Assets FFELP Stafford and Other Student Loans (net of allowance for losses of $5,547; $6,311; and $0, respectively) $ 18,882,890 $ 19,988,116 $ 18,933,160 Consolidation Loans (net of allowance for losses of $9,983; $8,639; and $6,849, respectively) 53,450,647 54,858,676 44,446,089 Private Education Loans (net of allowance for losses of $232,147; $204,112; and $190,880, respectively) 9,311,164 7,756,770 6,527,022 Other loans (net of allowance for losses of $15,081; $16,180; and $11,754, respectively) 1,114,200 1,137,987 1,094,712 Cash and investments 4,349,669 4,867,654 3,235,034 Restricted cash and investments 3,065,148 3,300,102 2,224,354 Retained Interest in off-balance sheet securitized loans 2,487,117 2,406,222 2,246,329 Goodwill and acquired intangible assets, net 1,091,301 1,105,104 1,014,986 Other assets 4,013,450 3,918,053 4,075,267 ------------ ------------ ------------ Total assets $ 97,765,586 $ 99,338,684 $ 83,796,953 ============ ============ ============ Liabilities Short-term borrowings $ 3,362,548 $ 3,809,655 $ 5,516,177 Long-term borrowings 87,083,110 88,119,090 72,241,082 Other liabilities 3,555,318 3,609,332 2,901,843 ------------ ------------ ------------ Total liabilities 94,000,976 95,538,077 80,659,102 ------------ ------------ ------------ Commitments and contingencies Minority interest in subsidiaries 9,682 9,182 72,869 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: 429,329; 426,484; and 484,917 shares, respectively, issued 85,866 85,297 96,984 Additional paid-in capital 2,364,252 2,233,647 1,969,881 Accumulated other comprehensive income, net of tax 328,496 367,910 374,574 Retained earnings 1,163,570 1,111,743 2,662,316 ------------ ------------ ------------ Stockholders' equity before treasury stock 4,507,184 4,363,597 5,268,755 Common stock held in treasury at cost: 16,599; 13,347; and 62,936 shares, respectively 752,256 572,172 2,203,773 ------------ ------------ ------------ Total stockholders' equity 3,754,928 3,791,425 3,064,982 ------------ ------------ ------------ Total liabilities and stockholders' equity $ 97,765,586 $ 99,338,684 $ 83,796,953 ============ ============ ============ SLM CORPORATION Consolidated Statements of Income (In thousands, except per share amounts) Quarters ended ------------------------------------- Mar. 31, Dec. 31, Mar. 31, 2006 2005 2005 -------- --------- --------- (unaudited) (unaudited) (unaudited) Interest income: FFELP Stafford and Other Student Loans $ 298,500 $ 315,164 $ 190,733 Consolidation Loans 821,335 760,338 508,421 Private Education Loans 241,353 203,992 129,616 Other loans 23,307 22,851 20,153 Cash and investments 95,810 89,921 62,049 ------------ ------------ ------------ Total interest income 1,480,305 1,392,266 910,972 Interest expense 1,092,784 1,002,133 564,212 ------------ ------------ ------------ Net interest income 387,521 390,133 346,760 Less: provisions for losses 60,319 65,318 46,523 ------------ ------------ ------------ Net interest income after provisions for losses 327,202 324,815 300,237 ------------ ------------ ------------ Other income: Gains on student loan securitizations 30,023 240,651 49,894 Servicing and securitization revenue 98,931 80,032 142,961 Gains (losses) on derivative and hedging activities, net (86,739) 70,270 (34,251) Guarantor servicing fees 26,907 21,555 32,540 Debt management fees 91,612 98,839 85,752 Collections revenue 56,681 48,304 34,883 Other 68,428 60,093 62,319 ------------ ------------ ------------ Total other income 285,843 619,744 374,098 Operating expenses 323,309 296,663 262,291 Income before income taxes and minority interest in net earnings of subsidiaries 289,736 647,896 412,044 Income taxes 137,045 215,907 186,466 ------------ ------------ ------------ Income before minority interest in net earnings of subsidiaries 152,691 431,989 225,578 Minority interest in net earnings of subsidiaries 1,090 954 2,194 ------------ ------------ ------------ Net income 151,601 431,035 223,384 Preferred stock dividends 8,301 7,832 2,875 ------------ ------------ ------------ Net income attributable to common stock $ 143,300 $ 423,203 $ 220,509 ============ ============ ============ Basic earnings per common share $ .35 $ 1.02 $ .52 ============ ============ ============ Average common shares outstanding 412,675 415,907 420,924 ============ ============ ============ Diluted earnings per common share $ .34 $ .96 $ .49 ============ ============ ============ Average common and common equivalent shares outstanding 422,974 457,406 463,014 ============ ============ ============ Dividends per common share $ .22 $ .22 $ .19 ============ ============ ============ SLM CORPORATION Segment and Non-GAAP "Core Earnings" Consolidated Statements of Income (In thousands) Quarter ended March 31, 2006 --------------------------------------------------------- (unaudited) Total Corporate "Core Adjust- Total Lending DMO and Other Earnings" ments GAAP --------- -------- ------- --------- ---------- --------- Interest income: FFELP Stafford and Other Student Loans $ 649,751 $ - $ - $ 649,751 $(351,251) $ 298,500 Consolidation Loans 1,027,962 - - 1,027,962 (206,627) 821,335 Private Education Loans 428,760 - - 428,760 (187,407) 241,353 Other Loans 23,307 - - 23,307 - 23,307 Cash and investments 130,461 - 1,323 131,784 (35,974) 95,810 --------- -------- ------- --------- ---------- --------- Total interest income 2,260,241 - 1,323 2,261,564 (781,259) 1,480,305 Total interest expense 1,659,372 5,156 1,278 1,665,806 (573,022) 1,092,784 --------- -------- ------- --------- ---------- --------- Net interest income 600,869 (5,156) 45 595,758 (208,237) 387,521 Less: provisions for losses 74,820 - 19 74,839 (14,520) 60,319 --------- -------- ------- --------- ---------- --------- Net interest income after provisions for losses 526,049 (5,156) 26 520,919 (193,717) 327,202 Fee income - 91,612 26,907 118,519 - 118,519 Collections revenue - 56,540 - 56,540 141 56,681 Other income 40,572 - 30,009 70,581 40,062 110,643 Operating expenses(1) 161,438 89,513 58,512 309,463 13,846 323,309 Income tax expense (benefit)(2) 149,917 19,789 (581) 169,125 (32,080) 137,045 Minority interest in net earnings of subsidiaries - 1,090 - 1,090 - 1,090 --------- -------- ------- --------- ---------- --------- Net income (loss)$ 255,266 $32,604 $ (989)$ 286,881 $(135,280) $ 151,601 ========= ======== ======= ========= ========== ========= Quarter ended December 31, 2005 --------------------------------------------------------- (unaudited) Corporate Total and "Core Adjust- Total Lending(3) DMO(3) Other(3) Earnings" ments GAAP --------- -------- ------- --------- ---------- --------- Interest income: FFELP Stafford and Other Student Loans $ 619,987 $ - $ - $ 619,987 $(304,823) $ 315,164 Consolidation Loans 934,096 - - 934,096 (173,758) 760,338 Private Education Loans 373,801 - - 373,801 (169,809) 203,992 Other Loans 22,851 - - 22,851 - 22,851 Cash and investments 127,418 - 1,564 128,982 (39,061) 89,921 --------- -------- ------- --------- ---------- --------- Total interest income 2,078,153 - 1,564 2,079,717 (687,451) 1,392,266 Total interest expense 1,506,852 5,531 1,455 1,513,838 (511,705) 1,002,133 --------- -------- ------- --------- ---------- --------- Net interest income 571,301 (5,531) 109 565,879 (175,746) 390,133 Less: provisions for losses 69,243 - (7) 69,236 (3,918) 65,318 --------- -------- ------- --------- ---------- --------- Net interest income after provisions for losses 502,058 (5,531) 116 496,643 (171,828) 324,815 Fee income - 98,839 21,555 120,394 - 120,394 Collections revenue - 48,112 - 48,112 192 48,304 Other income 37,696 - 28,355 66,051 384,995 451,046 Operating expenses 138,778 83,920 55,895 278,593 18,070 296,663 Income tax expense (benefit)(2) 148,362 21,275 (2,172) 167,465 48,442 215,907 Minority interest in net earnings of subsidiaries - 954 - 954 - 954 --------- -------- ------- --------- ---------- --------- Net income (loss)$ 252,614 $35,271 $(3,697)$ 284,188 $ 146,847 $ 431,035 ========= ======== ======= ========= ========== ========= Quarter ended March 31, 2005 --------------------------------------------------------- (unaudited) Corporate Total and "Core Adjust- Total Lending(3) DMO(3) Other(3) Earnings" ments GAAP --------- -------- ------- --------- ---------- --------- Interest income: FFELP Stafford and Other Student Loans $ 509,940 $ - $ - $ 509,940 $(319,207) $ 190,733 Consolidation Loans 580,977 - - 580,977 (72,556) 508,421 Private Education Loans 227,307 - - 227,307 (97,691) 129,616 Other Loans 20,153 - - 20,153 - 20,153 Cash and investments 78,188 - 945 79,133 (17,084) 62,049 --------- -------- ------- --------- ---------- --------- Total interest income 1,416,565 - 945 1,417,510 (506,538) 910,972 Total interest expense 918,093 4,068 1,410 923,571 (359,359) 564,212 --------- -------- ------- --------- ---------- --------- Net interest income 498,472 (4,068) (465) 493,939 (147,179) 346,760 Less: provisions for losses 54,962 - (40) 54,922 (8,399) 46,523 --------- -------- ------- --------- ---------- --------- Net interest income after provisions for losses 443,510 (4,068) (425) 439,017 (138,780) 300,237 Fee income - 85,752 32,540 118,292 - 118,292 Collections revenue - 34,883 - 34,883 - 34,883 Other income 35,762 33 31,629 67,424 153,499 220,923 Operating expenses 134,185 63,916 51,196 249,297 12,994 262,291 Income tax expense(2) 127,681 19,494 4,643 151,818 34,648 186,466 Minority interest in net earnings of subsidiaries 821 1,221 - 2,042 152 2,194 --------- -------- ------- --------- ---------- --------- Net income $ 216,585 $31,969 $ 7,905 $ 256,459 $ (33,075) $ 223,384 ========= ======== ======= ========= ========== ========= (1) Operating expenses for the Lending, DMO and Corporate and Other Business segments include $10 million, $3 million, and $5 million, respectively, of stock-based employee compensation expense due to the implementation of SFAS No. 123(R)in the first quarter of 2006. (2) Income taxes are based on a percentage of net income before tax for the individual reportable segment. (3) In the first quarter of 2006, the Company changed its method for allocating certain Corporate and Other expenses to the other business segments. All periods presented have been updated to reflect the new allocation methodology. SLM CORPORATION Reconciliation of "Core Earnings" Net Income to GAAP Net Income (In thousands, except per share amounts) Quarters ended -------------------------------------- Mar. 31, Dec. 31, Mar. 31, 2006 2005 2005 ----------- ---------- ---------- (unaudited) (unaudited) (unaudited) "Core earnings" net income(A) $ 286,881 $ 284,188 $ 256,459 "Core earnings" adjustments: Net impact of securitization accounting (62,061) 117,520 (32,372) Net impact of derivative accounting (38,817) 149,755 89,612 Net impact of Floor Income (52,569) (56,108) (42,433) Amortization of acquired intangibles (13,913) (15,878) (13,082) --------- --------- --------- Total "core earnings" adjustments before income taxes and minority interest in net earnings of subsidiaries (167,360) 195,289 1,725 Net tax effect(B) 32,080 (48,442) (34,648) --------- --------- --------- Total "core earnings" adjustments before minority interest in net earnings of subsidiaries (135,280) 146,847 (32,923) Minority interest in net earnings of subsidiaries - - (152) -------- --------- -------- Total "core earnings" adjustments (135,280) 146,847 (33,075) -------- --------- --------- GAAP net income $ 151,601 $ 431,035 $223,384 ========= ========= ========= GAAP diluted earnings per common share $ .34 $ .96 $ 49 ========= ========= ========= (A) "Core earnings" diluted earnings per common share $ .65 $ .63 $ .57 ========= ========= ========= (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 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" 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 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 adjustments required to reconcile our "core earnings" segment presentation to our GAAP earnings.

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

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

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

4) Other items: We exclude the amortization of acquired intangibles.