SLM CORPORATION Supplemental Earnings Disclosure June 30, 2003 (Dollars in millions, except earnings per share) Quarters ended --------------------------------------- June 30, March 31, June 30, 2003 2003 2002 ------------ ----------- ---------- Net income $ 373 $ 417 $ 126 "Core cash" net income 210 203 179 Diluted earnings per common share * $ .80 $ .88 $ .26 "Core cash" diluted earnings per common share * .44 .43 .37 Net interest margin 2.12% 2.00% 2.42% "Core cash" net interest margin 1.78 1.78 1.76 Return on assets 2.91% 3.41% 1.04% "Core cash" return on assets .93 .97 .89 Student loan spread 2.41% 2.26% 2.58% "Core cash" student loan spread 1.93 1.93 1.87 Average on-balance sheet student loans $ 44,173 $ 44,159 $ 42,268 Average off-balance sheet student loans 37,811 35,228 32,250 -------- -------- -------- Average managed student loans $ 81,984 $ 79,387 $ 74,518 ======== ======== ======== Ending on-balance sheet student loans, net $ 42,993 $ 43,281 $ 43,357 Ending off-balance sheet student loans, net 40,121 37,438 32,200 -------- -------- -------- Ending managed student loans, net $ 83,114 $ 80,719 $ 75,557 ======== ======== ======== Ending managed FFELP student loans, net $ 76,093 $ 74,221 $ 70,507 Ending managed private credit student loans, net 7,021 6,498 5,050 -------- -------- -------- Ending managed student loans, net $ 83,114 $ 80,719 $ 75,557 ======== ======== ======== Six months ended June 30, ---------------------- 2003 2002 -------- -------- Net income $ 789 $ 548 "Core cash" net income 413 350 Diluted earnings per common share * $ 1.68 $ 1.14 "Core cash" diluted earnings per common share * .87 .72 Net interest margin 2.06% 2.38% "Core cash" net interest margin 1.78 1.74 Return on assets 3.15% 2.25% "Core cash" return on assets .95 .88 Student loan spread 2.33% 2.58% "Core cash" student loan spread 1.93 1.87 Average on-balance sheet student loans $ 44,166 $ 42,312 Average off-balance sheet student loans 36,527 31,326 -------- -------- Average managed student loans $ 80,693 $ 73,638 ======== ======== * In May 2003, the Company announced a three-for-one stock split in the form of a stock dividend of an additional two shares for every one share already outstanding effective June 20, 2003 for shareholders of record on June 6, 2003. All share and per share amounts have been updated to reflect the payment of this dividend retroactively. 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, certain securitization transactions are accounted for as sales of assets. "Core cash" earnings present all securitization transactions 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 interest 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 No. 133: The Company employs certain hedging transactions to match the interest rate characteristics of its managed assets and liabilities. These hedging transactions (generally called derivatives) are financially prudent and create effective economic hedges, but not all qualify for "hedge treatment" under GAAP's SFAS No. 133 and therefore, the derivative side must be marked-to-market through earnings with no offsetting mark-to-market of the hedged item. "Core cash" earnings exclude the periodic unrealized gains and losses caused by the one-sided valuations, and recognize the economic effect of these hedges, which results in any cash paid or received being recognized ratably as an expense or revenue over the hedged item's life. 4) Other items: "Core cash" earnings exclude the amortization of acquired intangibles, as well as gains and losses on certain sales of securities and derivative contracts. SLM CORPORATION Consolidated Balance Sheets (In thousands, except per share amounts) June 30, March 31, June 30, Assets 2003 2003 2002 ----------- ----------- ----------- Federally insured student loans (net of allowance for losses of $60,291, $58,404, and $60,204, respectively) $38,680,567 $38,340,112 $38,307,135 Private credit student loans (net of allowance for losses of $160,350 $174,177, and $167,262, respectively) 4,312,886 4,941,225 5,050,199 Academic facilities financings and other loans 1,177,178 1,139,617 1,044,401 Cash and investments 7,190,775 4,839,651 5,051,552 Retained interest in securitized receivables 2,985,777 2,481,318 1,670,113 Goodwill and acquired intangible assets 583,676 579,365 579,596 Other assets 3,251,914 2,012,488 2,184,457 ----------- ----------- ----------- Total assets $58,182,773 $54,333,776 $53,887,453 =========== =========== =========== Liabilities Short-term borrowings $24,619,758 $23,825,598 $29,210,779 Long-term notes 28,049,326 25,240,729 20,400,855 Other liabilities 3,147,517 3,023,193 2,351,124 ----------- ----------- ----------- Total liabilities 55,816,601 52,089,520 51,962,758 ----------- ----------- ----------- Commitments and contingencies * 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, 1,125,000 shares authorized: 638,983; 630,283; and 616,546 shares, respectively, issued 127,797 126,057 123,309 Additional paid-in capital 1,359,082 1,232,473 892,106 Accumulated other comprehensive income, net of tax 689,220 596,693 505,635 Retained earnings 3,386,218 3,094,050 2,548,861 ----------- ----------- ----------- Stockholders' equity before treasury stock 5,727,317 5,214,273 4,234,911 Common stock held in treasury at cost: 188,491; 175,680; and 152,544 shares, respectively 3,361,145 2,970,017 2,310,216 ----------- ----------- ----------- Total stockholders' equity 2,366,172 2,244,256 1,924,695 ----------- ----------- ----------- Total liabilities and stockholders' equity $58,182,773 $54,333,776 $53,887,453 =========== =========== =========== * Commitments to purchase loans, lines of credit, letters of credit, and academic facilities financing letters of credit were $33.3 billion, $ .4 billion, $2.1 billion, and $45.5 million, respectively, at June 30, 2003. SLM CORPORATION Consolidated Statements of Income (In thousands, except per share amounts) Quarters ended ------------------------------------- June 30, March 31, June 30, 2003 2003 2002 ---------- ---------- ---------- Interest income: Student loans $451,589 $436,250 $534,390 Academic facilities financings and other loans 19,290 20,206 22,101 Investments 42,034 28,261 42,465 -------- -------- -------- Total interest income 512,913 484,717 598,956 Interest expense 246,727 244,089 311,030 -------- -------- -------- Net interest income 266,186 240,628 287,926 Less: provision for losses 36,449 42,545 27,550 -------- -------- -------- Net interest income after provision for losses 229,737 198,083 260,376 -------- -------- -------- Other income: Gains on student loan securitizations 314,220 305,803 13,759 Servicing and securitization revenue 137,057 137,479 180,057 Losses on sales of securities, net (26,660) (81,560) (36,501) Derivative market value adjustment (29,546) 114,366 (176,954) Guarantor servicing fees 32,810 40,992 36,320 Debt management fees 52,684 58,813 41,509 Other 53,575 48,630 45,031 -------- -------- -------- Total other income 534,140 624,523 103,221 Operating expenses 189,867 179,365 167,942 -------- -------- -------- Income before income taxes 574,010 643,241 195,655 Income taxes 201,316 226,692 69,654 -------- -------- -------- Net Income 372,694 416,549 126,001 Preferred stock dividends 2,875 2,875 2,875 -------- -------- -------- Net income attributable to common stock $369,819 $413,674 $123,126 ======== ======== ======== Basic earnings per common share $ .82 $ .91 $ .27 ======== ======== ======== Average common shares outstanding 452,174 456,581 462,907 ======== ======== ======== Diluted earnings per common share $ .80 $ .88 $ .26 ======== ======== ======== Average common and common equivalent shares outstanding 465,132 469,696 475,846 ======== ======== ======== Six months ended June 30, ------------------------ 2003 2002 ---------- ---------- Interest income: Student loans $ 887,839 $1,068,641 Academic facilities financings and other loans 39,496 48,417 Investments 70,295 79,875 ---------- ---------- Total interest income 997,630 1,196,933 Interest expense 490,816 627,630 ---------- ---------- Net interest income 506,814 569,303 Less: provision for losses 78,994 47,787 ---------- ---------- Net interest income after provision for losses 427,820 521,516 ---------- ---------- Other income: Gains on student loan securitizations 620,023 58,019 Servicing and securitization revenue 274,536 374,739 Losses on sales of securities, net (108,220) (125,608) Derivative market value adjustment 84,820 111,397 Guarantor servicing fees 73,802 66,826 Debt management fees 111,497 89,375 Other 102,205 88,645 ---------- ---------- Total other income 1,158,663 663,393 Operating expenses 369,232 334,743 ---------- ---------- Income before income taxes 1,217,251 850,166 Income taxes 428,008 301,821 ---------- ---------- Net Income 789,243 548,345 Preferred stock dividends 5,750 5,750 ---------- ---------- Net income attributable to common stock $ 783,493 $ 542,595 ========== ========== Basic earnings per common share $ 1.72 $ 1.17 ========== ========== Average common shares outstanding 454,365 464,886 ========== ========== Diluted earnings per common share $ 1.68 $ 1.14 ========== ========== Average common and common equivalent shares outstanding 467,402 477,439 ========== ========== SLM CORPORATION Pro-Forma "Core Cash" Consolidated Statements of Income (In thousands, except per share amounts) Quarters ended --------------------------------------- June 30, March 31, June 30, 2003 2003 2002 ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) Interest income: Managed student loans $754,300 $742,343 $ 818,575 Academic facilities financings and other loans 19,290 20,206 22,101 Investments 43,892 29,243 41,598 -------- -------- -------- Total managed Interest income 817,482 791,792 882,274 Managed interest expense 424,274 419,342 531,869 -------- -------- -------- Net managed interest income 393,208 372,450 350,405 Less: provision for losses 29,150 31,606 35,184 -------- -------- -------- Net managed interest income after provision for losses 364,058 340,844 315,221 -------- -------- -------- Other income: Guarantor servicing fees 32,810 40,992 36,320 Debt management fees 52,684 58,813 41,509 Other 51,134 47,407 46,103 -------- -------- -------- Total other income 136,628 147,212 123,932 Operating expenses 183,283 172,737 162,320 -------- -------- -------- Income before income taxes 317,403 315,319 276,833 Income taxes 107,841 112,029 97,507 -------- -------- -------- "Core Cash" Net Income 209,562 203,290 179,326 Preferred stock dividends 2,875 2,875 2,875 -------- -------- -------- "Core cash" net income attributable to common stock $206,687 $200,415 $176,451 ======== ======== ======== "Core cash" basic earnings per common share $ .46 $ .44 $ .38 ======== ======== ======== Average common shares outstanding 452,174 456,581 462,907 ======== ======== ======== "Core cash" diluted earnings per common share $ .44 $ .43 $ .37 ======== ======== ======== Average common and common equivalent shares outstanding 465,132 469,696 475,846 ======== ======== ======== Six months ended June 30, ------------------------ 2003 2002 ----------- ----------- (Unaudited) (Unaudited) Interest income: Managed student loans $1,496,643 $1,623,624 Academic facilities financings and other loans 39,496 48,417 Investments 73,135 80,278 ---------- ---------- Total managed interest income 1,609,274 1,752,319 Managed interest expense 843,616 1,068,323 ---------- ---------- Net managed interest income 765,658 683,996 Less: provision for losses 60,756 62,033 ---------- ---------- Net managed interest income after provision for losses 704,902 621,963 ---------- ---------- Other income: Guarantor servicing fees 73,802 66,826 Debt management fees 111,497 89,375 Other 98,541 88,919 ---------- ---------- Total other income 283,840 245,120 Operating expenses 356,020 323,507 ---------- ---------- Income before income taxes 632,722 543,576 Income taxes 219,870 193,892 ---------- ---------- "Core Cash" Net Income 412,852 349,684 Preferred stock dividends 5,750 5,750 ---------- ---------- "Core cash" net income attributable to common stock $ 407,102 $ 343,934 ========== ========== "Core cash" basic earnings per common share $ .90 $ .74 ========== ========== Average common shares outstanding 454,365 464,886 ========== ========== "Core cash" diluted earnings per common share $ .87 $ .72 ========== ========== Average common and common equivalent shares outstanding 467,402 477,439 ========== ========== SLM CORPORATION Pro-Forma "Core Cash" Reconciliation of GAAP Net Income to "Core Cash" Net Income (In thousands) Quarters ended --------------------------------------- June 30, March 31, June 30, 2003 2003 2002 ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) GAAP net income $372,694 $416,549 $126,001 "Core cash" adjustments: Net interest income on securitized loans 195,991 167,065 220,572 Floor income on managed loans (103,128) (73,095) (190,745) Provision for losses on securitized loans 7,299 10,939 (7,634) Gains on student loan securitizations (314,220) (305,803) (13,759) Servicing and securitization revenue (137,057) (137,479) (180,057) Losses on sales of Securities, net 4,373 72,291 17,814 Amortization of acquired intangibles 6,716 6,772 5,786 Net impact of derivative accounting 84,090 (67,392) 229,893 Other (671) (1,220) (692) -------- -------- -------- Total "core cash" adjustments (256,607) (327,922) 81,178 Net tax effect (A) 93,475 114,663 (27,853) -------- -------- -------- "Core cash" net income $209,562 $203,290 $179,326 ======== ======== ======== Six months ended June 30, ------------------------ 2003 2002 ----------- ----------- (Unaudited) (Unaudited) GAAP net income $789,243 $548,345 "Core cash" adjustments: Net interest income on securitized loans 363,056 428,708 Floor income on managed loans (176,223) (372,851) Provision for losses on securitized loans 18,238 (14,246) Gains on student loan securitizations (620,023) (58,019) Servicing and securitization revenue (274,536) (374,739) Losses on sales of Securities, net 76,664 104,509 Amortization of acquired intangibles 13,488 11,572 Net impact of derivative accounting 16,698 (29,595) Other (1,891) (1,929) -------- -------- Total "core cash" adjustments (584,529) (306,590) Net tax effect (A) 208,138 107,929 -------- -------- "Core cash" net income $412,852 $349,684 ======== ======== (A) Such tax effect is based upon the Company's marginal tax rate for the respective period.