SLM CORPORATION Supplemental Earnings Disclosure September 30, 2002 (Dollars in millions, except earnings per share) Quarters ended ------------------------------------------ September 30, June 30, September 30, 2002 2002 2001 -------------- -------- ------------- Net income $ (62) $ 126 $ (194) "Core cash" net income * 194 179 163 Diluted earnings per share $ (.42) $ .78 $ (1.25) "Core cash" diluted earnings per share 1.21 1.11 .99 Net interest margin 2.11% 2.42% 1.65% "Core cash" net interest margin 1.77 1.76 1.62 Return on assets (.50)% 1.04% (1.58)% "Core cash" return on assets .94 .89 .81 Student loan spread 2.31% 2.58% 1.91% "Core cash" student loan spread 1.88 1.87 1.79 Average on-balance sheet student loans $ 43,862 $ 42,268 $ 40,180 Average off-balance sheet student loans 32,705 32,250 31,370 -------- -------- -------- Average managed student loans $ 76,567 $ 74,518 $ 71,550 ======== ======== ======== Ending on-balance sheet student loans $ 44,466 $ 43,357 $ 40,644 Ending off-balance sheet student loans 32,648 32,200 31,185 -------- -------- -------- Ending managed student loans $ 77,114 $ 75,557 $ 71,829 ======== ======== ======== Nine months ended September 30, -------------------- 2002 2001 -------- ------ Net income $ 486 $ 118 "Core cash" net income * 544 461 Diluted earnings per share $ 3.01 $ .66 "Core cash" diluted earnings per share 3.37 2.72 Net interest margin 2.29% 1.69% "Core cash" net interest margin 1.75 1.59 Return on assets 1.32% .32% "Core cash" return on assets .90 .78 Student loan spread 2.49% 1.82% "Core cash" student loan spread 1.88 1.78 Average on-balance sheet student loans $ 42,835 $ 39,526 Average off-balance sheet student loans 31,790 30,631 -------- -------- Average managed student loans $ 74,625 $ 70,157 ======== ======== * "Core cash" net income includes securitizations as financings and excludes the amortization and changes in market value of goodwill and acquired intangible assets, and non-recurring items such as floor income and gains and losses on certain sales of securities and derivative contracts. Effective January 1, 2001, the effects of SFAS 133 are excluded from "core cash" net income and the economic hedge effects of derivative instruments are recognized. SLM CORPORATION Consolidated Statements of Income (In thousands, except per share amounts) Quarters ended ----------------------------------------- September 30, June 30, September 30, 2002 2002 2001 ------------- --------- ------------- Interest income: Student loans $504,455 $534,390 $ 591,721 Warehousing advances/ academic facilities financings 14,072 14,752 23,628 Investments 36,401 49,814 83,942 -------- -------- -------- Total interest income 554,928 598,956 699,291 Interest expense 300,615 311,030 501,672 -------- -------- -------- Net interest income 254,313 287,926 197,619 Less: provision for losses 34,771 27,550 15,299 -------- -------- -------- Net interest income after provision for losses 219,542 260,376 182,320 -------- -------- -------- Other income: Gains on student loan securitizations 17,819 13,759 27,143 Servicing and securitization revenue 121,184 180,057 118,940 (Losses) on sales of securities (62,854) (36,501) (24,788) Guarantor servicing and collection fees 84,971 78,296 75,732 Derivative market value adjustment (365,916) (176,954) (552,832) Other 53,844 44,564 68,070 -------- -------- -------- Total other income (150,952) 103,221 (287,735) Operating expenses 174,309 167,942 184,113 -------- -------- -------- Income before income taxes and minority interest in net earnings of subsidiary (105,719) 195,655 (289,528) Income taxes (43,340) 69,654 (98,656) Minority interest in net earnings of subsidiary - - 2,673 -------- -------- -------- NET INCOME (62,379) 126,001 (193,545) Preferred stock dividends 2,875 2,875 2,875 -------- -------- -------- Net income attributable to common stock $(65,254) $123,126 $(196,420) ======== ======== ======== Basic earnings per share $ (.42) $ .80 $ (1.25) ======== ======== ======== Average common shares outstanding 153,720 154,302 157,074 ======== ======== ======== Diluted earnings per share $ (.42) $ .78 $ (1.25) ======== ======== ======== Average common and common equivalent shares outstanding 157,358 158,615 157,074 ======== ======== ======== Nine months ended September 30, ----------------------- 2002 2001 ---------- --------- Interest income: Student loans $1,573,096 $1,979,264 Warehousing advances/ academic facilities financings 47,739 76,801 Investments 131,026 312,747 ---------- ---------- Total interest income 1,751,861 2,368,812 Interest expense 928,245 1,763,982 ---------- ---------- Net interest income 823,616 604,830 Less: provision for losses 82,558 42,169 ---------- ---------- Net interest income after provision for losses 741,058 562,661 ---------- ---------- Other income: Gains on student loan securitizations 75,838 54,921 Servicing and securitization revenue 495,923 432,683 (Losses) on sales of securities (188,462) (103,707) Guarantor servicing and collection fees 242,868 189,265 Derivative market value adjustment (254,519) (604,112) Other 140,793 193,913 ---------- ---------- Total other income 512,441 162,963 Operating expenses 509,052 521,753 ---------- ---------- Income before income taxes and minority interest in net earnings of subsidiary 744,447 203,871 Income taxes 258,481 77,800 Minority interest in net earnings of subsidiary - 8,020 ---------- ---------- NET INCOME 485,966 118,051 Preferred stock dividends 8,625 8,625 ---------- ---------- Net income attributable to common stock $ 477,341 $ 109,426 ========== ========== Basic earnings per share $ 3.09 $ .68 ========== ========== Average common shares outstanding 154,543 160,255 ========== ========== Diluted earnings per share $ 3.01 $ .66 ========== ========== Average common and common equivalent shares outstanding 158,544 166,114 ========== ========== SLM CORPORATION Consolidated Balance Sheets (In thousands, except per share amounts) September 30, June 30, September 30, Assets 2002 2002 2001 ------------- ----------- ------------ Student loans, net $44,465,716 $43,357,334 $40,643,809 Warehousing advances/ academic facilities financings 1,076,688 1,044,401 1,740,077 Cash and investments 5,565,863 5,051,552 7,233,358 Residual interest and servicing assets 1,785,311 1,670,113 1,816,361 Other assets 2,631,081 2,764,053 2,427,230 ----------- ----------- ----------- Total assets $55,524,659 $53,887,453 $53,860,835 =========== =========== =========== Liabilities Short-term borrowings $28,662,628 $29,210,779 $31,749,596 Long-term notes 22,158,235 20,400,855 17,654,066 Other liabilities 2,879,430 2,351,124 2,717,664 ----------- ----------- ----------- Total liabilities 53,700,293 51,962,758 52,121,326 ----------- ----------- ----------- Commitments and contingencies * Minority interest in subsidiary - - 213,883 Stockholders' equity Preferred stock, par value $.20 per share, 20,000 shares authorized: 3,300; 3,300; and 3,300 shares, respectively, issued at stated value of $50 per share 165,000 165,000 165,000 Common stock, par value $.20 per share, 375,000 shares authorized: 206,375; 205,515; and 202,165 shares, respectively, issued 41,275 41,103 40,433 Additional paid-in capital 1,023,725 974,312 769,360 Unrealized gains on investments and derivatives, net of tax 606,838 505,635 706,028 Retained earnings 2,452,857 2,548,861 1,836,364 ----------- ----------- ----------- Stockholders' equity before treasury stock 4,289,695 4,234,911 3,517,185 Common stock held in treasury at cost: 52,836; 50,848; and 45,395 shares, respectively 2,465,329 2,310,216 1,991,559 ----------- ----------- ----------- Total stockholders' equity 1,824,366 1,924,695 1,525,626 ----------- ----------- ----------- Total liabilities and stockholders' equity $55,524,659 $53,887,453 $53,860,835 =========== =========== =========== * Commitments to purchase loans, lines of credit, letters of credit, and academic facilities financing letters of credit were $36.5 billion, $2.7 billion, $3.4 billion, and $45.5 million, respectively, at September 30, 2002. SLM CORPORATION Pro-Forma "Core Cash" Consolidated Statements of Income Sallie Mae reports "core cash" earnings, which the Company believes provides additional insights into its business. The differences between GAAP and "core cash" earnings calculations are explained below. 1) Securitization: Under GAAP, transactions are presented as a sale of assets. "Core cash" earnings present securitization as long-term non-recourse financings. The upfront "gains" on sale from securitization as well as ongoing "servicing and securitization revenue" presented by GAAP are excluded from "core cash" earnings and replaced by the interest income and expense as they are earned or incurred on the securitized loans. 2) Floor income: The Company earns floor income on its student loan portfolio in certain declining interest rate environments. The timing and amount (if any) of floor income are uncertain and in excess of expected spreads, and therefore the Company excludes such income from "core cash" earnings. 3) SFAS 133: The Company employs certain hedging transactions to match the interest rate characteristics of its managed assets and liabilities. These transactions (generally called derivatives) are financially prudent and create effective economic hedges, but they do not qualify for "hedge treatment" under GAAP's SFAS 133 and therefore, the derivative side of the match must be marked-to-market. The corresponding asset or liability is ignored under SFAS 133. "Core cash" earnings exclude the periodic write-ups and write-downs caused by the one-sided valuations, and the economic hedge effects are recognized. 4) Other items: "Core cash" earnings exclude the amortization and changes in market value of goodwill and acquired intangibles, as well as gains and losses on certain sales of securities and derivative contracts. (In thousands, except per share amounts) Quarters ended --------------------------------------- September 30, June 30, September 30, 2002 2002 2001 ------------- ----------- ------------- (Unaudited) (Unaudited) (Unaudited) Interest income: Managed student loans $812,480 $818,575 $1,051,575 Warehousing advances/ academic facilities financings 14,072 14,752 23,628 Investments 35,602 48,947 78,802 -------- -------- ---------- Total managed interest income 862,154 882,274 1,154,005 Managed interest expense 503,901 531,869 833,831 -------- -------- ---------- Net managed interest income 358,253 350,405 320,174 Less: provision for losses 34,771 35,184 20,991 -------- -------- ---------- Net managed interest income after provision for losses 323,482 315,221 299,183 -------- -------- ---------- Other income: Guarantor servicing and collection fees 84,971 78,296 75,732 Other 48,977 45,636 55,733 -------- -------- ---------- Total other income 133,948 123,932 131,465 Operating expenses 168,678 162,320 173,084 -------- -------- ---------- Income before income taxes and minority interest in net earnings of subsidiary 288,752 276,833 257,564 Income taxes 94,822 97,507 91,771 Minority interest in net earnings of subsidiary - - 2,673 -------- -------- ---------- "CORE CASH" NET INCOME 193,930 179,326 163,120 Preferred stock dividends 2,875 2,875 2,875 -------- -------- ---------- "Core cash" net income attributable to common stock $191,055 $176,451 $ 160,245 ======== ======== ========== "Core cash" basic earnings per share $ 1.24 $ 1.14 $ 1.02 ======== ======== ========== Average common shares outstanding 153,720 154,302 157,074 ======== ======== ========== "Core cash" diluted earnings per share $ 1.21 $ 1.11 $ .99 ======== ======== ========== Average common and common equivalent shares outstanding 157,358 158,615 162,080 ======== ======== ========== Nine months ended September 30, ------------------------ 2002 2001 ----------- ----------- (Unaudited) (Unaudited) Interest income: Managed student loans $2,436,104 $3,467,240 Warehousing advances/ academic facilities financings 47,739 76,801 Investments 130,630 312,029 ---------- ---------- Total managed interest income 2,614,473 3,856,070 Managed interest expense 1,572,224 2,926,086 ---------- ---------- Net managed interest income 1,042,249 929,984 Less: provision for losses 96,804 58,825 ---------- ---------- Net managed interest income after provision for losses 945,445 871,159 ---------- ---------- Other income: Guarantor servicing and collection fees 242,868 189,265 Other 136,200 155,235 ---------- ---------- Total other income 379,068 344,500 Operating expenses 492,185 490,622 ---------- ---------- Income before income taxes and minority interest in net earnings of subsidiary 832,328 725,037 Income taxes 288,714 256,074 Minority interest in net earnings of subsidiary - 8,020 ---------- ---------- "CORE CASH" NET INCOME 543,614 460,943 Preferred stock dividends 8,625 8,626 ---------- ---------- "Core cash" net income attributable to common stock $ 534,989 $ 452,317 ========== ========== "Core cash" basic earnings per share $ 3.46 $ 2.82 ========== ========== Average common shares outstanding 154,543 160,255 ========== ========== "Core cash" diluted earnings per share $ 3.37 $ 2.72 ========== ========== Average common and common equivalent shares outstanding 158,544 166,114 ========== ========== SLM CORPORATION Pro-Forma "Core Cash" Reconciliation of GAAP Net Income to "Core Cash" Net Income (In thousands) Quarters ended ---------------------------------------- September 30, June 30, September 30, 2002 2002 2001 ----------- ----------- ------------- (Unaudited) (Unaudited) (Unaudited) GAAP net income $(62,379) $126,001 $(193,545) "Core cash" adjustments: Net interest income on securitized loans 130,437 220,572 136,552 Floor income on managed loans (51,399) (190,745) (41,702) Provision for losses on securitized loans - (7,634) (5,692) Gains on student loan securitizations (17,819) (13,759) (27,143) Servicing and securitization revenue (121,184) (180,057) (118,940) Losses on sales of securities 49,394 17,814 12,524 Goodwill and intangible amortization (A) 5,786 5,786 11,157 Net impact of derivative accounting 400,499 229,893 580,410 Other (1,243) (692) (74) -------- -------- -------- Total "core cash" adjustments 394,471 81,178 547,092 Net tax effect (B) (138,162) (27,853) (190,427) -------- -------- -------- "Core cash" net income $193,930 $179,326 $ 163,120 ======== ======== ======== Nine months ended September 30, ------------------------ 2002 2001 ----------- ----------- (Unaudited) (Unaudited) GAAP net income $485,966 $118,051 "Core cash" adjustments: Net interest income on securitized loans 559,145 456,051 Floor income on managed loans (424,250) (181,362) Provision for losses on securitized loans (14,246) (16,656) Gains on student loan securitizations (75,838) (54,921) Servicing and securitization revenue (495,923) (432,683) Losses on sales of securities 153,903 79,432 Goodwill and intangible amortization (A) 17,358 31,688 Net impact of derivative accounting 370,904 640,295 Other (3,172) (678) -------- -------- Total "core cash" adjustments 87,881 521,166 Net tax effect (B) (30,233) (178,274) -------- -------- "Core cash" net income $543,614 $460,943 ======== ======== (A) Goodwill amortized only prior to 2002. (B) Such tax effect is based upon the Company's marginal tax rate for the respective period.