SLM CORPORATION Supplemental Earnings Disclosure December 31, 2002 (Dollars in millions, except earnings per share) Quarters ended --------------------------------------- Dec. 31, Sep. 30, Dec. 31, 2002 2002 2001 ---------- ---------- ---------- Net income $ 306 $ (62) $ 266 "Core cash" net income* 147 194 163 Diluted earnings per share $ 1.93 $ (.42) $ 1.69 "Core cash" diluted earnings per share 0.92 1.21 1.03 Net interest margin 1.47% 2.11% 2.18% "Core cash" net interest margin 1.49 1.77 1.71 Return on assets 2.42% (.50)% 2.11% "Core cash" return on assets .69 .94 .81 Student loan spread 2.16% 2.31% 2.50% "Core cash" student loan spread 1.91 1.88 1.89 Average on-balance sheet student loans $ 43,816 $ 43,862 $ 41,504 Average off-balance sheet student loans 33,733 32,705 30,484 -------- -------- -------- Average managed student loans $ 77,549 $ 76,567 $ 71,988 ======== ======== ======== Ending on-balance sheet student loans $ 42,339 $ 44,466 $ 41,001 Ending off-balance sheet student loans 35,785 32,648 30,725 -------- -------- -------- Ending managed student loans $ 78,124 $ 77,114 $ 71,726 ======== ======== ======== Years ended December 31, ---------------------- 2002 2001 -------- -------- Net income $ 792 $ 384 "Core cash" net income* 690 624 Diluted earnings per share $ 4.93 $ 2.28 "Core cash" diluted earnings per share 4.29 3.75 Net interest margin 2.08% 1.82% "Core cash" net interest margin 1.68 1.62 Return on assets 1.60% .78% "Core cash" return on assets .84 .78 Student loan spread 2.40% 2.01% "Core cash" student loan spread 1.88 1.81 Average on-balance sheet student loans $ 43,082 $ 40,025 Average off-balance sheet student loans 32,280 30,594 -------- -------- Average managed student loans $ 75,362 $ 70,619 ======== ======== *"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 ------------------------------------- Dec. 31, Sep. 30, Dec. 31, 2002 2002 2001 -------- --------- -------- Interest income: Student loans $454,751 $ 504,455 $548,554 Warehousing advances/ academic facilities financings 16,338 14,072 20,085 Investments (11,189) 36,401 60,080 -------- --------- -------- Total interest income 459,900 554,928 628,719 Interest expense 274,375 300,615 360,133 -------- --------- -------- Net interest income 185,525 254,313 268,586 Less: provision for losses 34,066 34,771 23,822 -------- --------- -------- Net interest income after provision for losses 151,459 219,542 244,764 -------- --------- -------- Other income: Gains on student loan securitizations 262,086 17,819 20,278 Servicing and securitization revenue 133,371 121,184 201,637 (Losses) on sales of securities (66,894) (62,854) (74,580) Guarantor servicing and collection fees 82,608 84,971 65,906 Derivative market value adjustment 50,615 (365,916) 151,687 Other 46,427 53,844 (10,274) -------- --------- -------- Total other income (loss) 508,213 (150,952) 354,654 Operating expenses 180,720 174,309 185,901 -------- --------- -------- Income (loss) before income taxes and minority interest in net earnings of subsidiary 478,952 (105,719) 413,517 Income tax (benefit) 172,922 (43,340) 145,522 Minority interest in net earnings of subsidiary - - 2,050 -------- --------- -------- NET INCOME (LOSS) 306,030 (62,379) 265,945 Preferred stock dividends 2,876 2,875 2,875 -------- --------- -------- Net income (loss) attributable to common stock $303,154 $ (65,254) $263,070 ======== ========= ======== Basic earnings (loss) per share $ 1.98 $ (0.42) $ 1.69 ======== ========= ======== Average common shares outstanding 152,777 153,720 155,582 ======== ========= ======== Diluted earnings (loss) per share $ 1.93 $ (0.42) $ 1.69 ======== ========= ======== Average common and common equivalent shares outstanding 157,074 153,720 155,582 ======== ========= ======== Years ended December 31, ------------------------ 2002 2001 ---------- ---------- Interest income: Student loans $2,027,847 $2,527,818 Warehousing advances/academic facilities financings 64,077 96,886 Investments 119,837 372,827 ---------- ---------- Total interest income 2,211,761 2,997,531 Interest expense 1,202,620 2,124,115 ---------- ---------- Net interest income 1,009,141 873,416 Less: provision for losses 116,624 65,991 ---------- ---------- Net interest income after provision for losses 892,517 807,425 ---------- ---------- Other income: Gains on student loan securitizations 337,924 75,199 Servicing and securitization revenue 629,294 634,320 (Losses) on sales of securities (255,356) (178,287) Guarantor servicing and collection fees 325,476 255,171 Derivative market value adjustment (203,904) (452,425) Other 187,220 183,639 ---------- ---------- Total other income (loss) 1,020,654 517,617 Operating expenses 689,772 707,654 ---------- ---------- Income (loss) before income taxes and minority interest in net earnings of subsidiary 1,223,399 617,388 Income tax (benefit) 431,403 223,322 Minority interest in net earnings of subsidiary - 10,070 ---------- ---------- NET INCOME (LOSS) 791,996 383,996 Preferred stock dividends 11,501 11,501 ---------- ---------- Net income (loss) attributable to common stock $ 780,495 $ 372,495 ========== ========== Basic earnings (loss) per share $ 5.06 $ 2.34 ========== ========== Average common shares outstanding 154,098 159,078 ========== ========== Diluted earnings (loss) per share $ 4.93 $ 2.28 ========== ========== Average common and common equivalent shares outstanding 158,173 163,400 ========== ========== SLM CORPORATION Consolidated Balance Sheets (In thousands, except per share amounts) Dec. 31, Sep. 30, Dec. 31, Assets 2002 2002 2001 ----------- ----------- ----------- Student loans, net $42,339,675 $44,465,716 $41,000,870 Warehousing advances/ academic facilities financings 895,582 1,076,688 1,768,147 Cash and investments 5,296,266 5,565,863 5,787,153 Residual interest and servicing assets 2,145,523 1,785,311 1,859,450 Other assets 2,497,959 2,631,081 2,458,339 ----------- ----------- ----------- Total assets $53,175,005 $55,524,659 $52,873,959 =========== =========== =========== Liabilities Short-term borrowings $25,618,955 $28,662,628 $31,064,821 Long-term notes 22,242,115 22,158,235 17,285,350 Other liabilities 3,315,985 2,879,430 2,851,326 ----------- ----------- ----------- Total liabilities 51,177,055 53,700,293 51,201,497 ----------- ----------- ----------- 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, 375,000 shares authorized: 208,184; 206,375; and 202,736 shares, respectively, issued 41,637 41,275 40,547 Additional paid-in capital 1,185,847 1,023,725 805,804 Unrealized gains on investments and derivatives, net of tax 592,760 606,838 670,199 Retained earnings 2,718,226 2,452,857 2,068,490 ----------- ----------- ----------- Stockholders' equity before treasury stock 4,703,470 4,289,695 3,750,040 Common stock held in treasury at cost: 55,604; 52,836; and 47,241 shares, respectively 2,705,520 2,465,329 2,077,578 ----------- ----------- ----------- Total stockholders' equity 1,997,950 1,824,366 1,672,462 ----------- ----------- ----------- Total liabilities and stockholders' equity $53,175,005 $55,524,659 $52,873,959 =========== =========== =========== * Commitments to purchase loans, lines of credit, letters of credit, and academic facilities financing letters of credit were $33.4 billion, $1.1 billion, $2.8 billion, and $45.5 million, respectively, at December 31, 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 ---------------------------------------- Dec. 31, Sep. 30, Dec. 31, 2002 2002 2001 -------- ---------- ---------- (Unaudited) (Unaudited) (Unaudited) Interest income: Managed student loans $774,348 $812,480 $857,383 Warehousing advances/ academic facilities financings 16,338 14,072 20,085 Investments (11,105) 35,602 59,604 -------- ---------- ---------- Total managed interest income 779,581 862,154 937,072 Managed interest expense 463,050 503,901 595,899 -------- ---------- ---------- Net managed interest income 316,531 358,253 341,173 Less: provision for losses 34,065 34,771 30,320 -------- ---------- ---------- Net managed interest income after provision for losses 282,466 323,482 310,853 -------- ---------- ---------- Other income: Guarantor servicing and collection fees 82,637 84,971 65,906 Other 41,087 48,977 44,772 -------- ---------- ---------- Total other income 123,724 133,948 110,678 Operating expenses 171,302 168,678 169,933 -------- ---------- ---------- Income before income taxes and minority interest in net earnings of subsidiary 234,888 288,752 251,598 Income taxes 88,179 94,822 86,479 Minority interest in net earnings of subsidiary - - 2,050 -------- ---------- ---------- "CORE CASH" NET INCOME 146,709 193,930 163,069 Preferred stock dividends 2,876 2,875 2,875 -------- ---------- ---------- "Core cash" net income attributable to common stock $143,833 $191,055 $160,194 ======== ========== ========== "Core cash" basic earnings per share $ .94 $ 1.24 $ 1.03 ======== ========== ========== Average common shares outstanding 152,777 153,720 155,582 ======== ========== ========== "Core cash" diluted earnings per share $ .92 $ 1.21 $ 1.03 ======== ========== ========== Average common and common equivalent shares outstanding 157,074 157,358 155,582 ======== ========== ========== Years ended December 31, ------------------------ 2002 2001 ---------- ---------- (Unaudited) (Unaudited) Interest income: Managed student loans $3,210,452 $4,324,623 Warehousing advances/ academic facilities financings 64,077 96,886 Investments 119,525 371,633 ---------- ---------- Total managed interest income 3,394,054 4,793,142 Managed interest expense 2,035,274 3,521,985 ---------- ---------- Net managed interest income 1,358,780 1,271,157 Less: provision for losses 130,869 89,145 ---------- ---------- Net managed interest income after provision for losses 1,227,911 1,182,012 ---------- ---------- Other income: Guarantor servicing and collection fees 325,505 255,171 Other 177,287 200,007 ---------- ---------- Total other income 502,792 455,178 Operating expenses 663,487 660,555 ---------- ---------- Income before income taxes and minority interest in net earnings of subsidiary 1,067,216 976,635 Income taxes 376,893 342,553 Minority interest in net earnings of subsidiary - 10,070 ---------- ---------- "CORE CASH" NET INCOME 690,323 624,012 Preferred stock dividends 11,501 11,501 ---------- ---------- "Core cash" net income attributable to common stock $ 678,822 $ 612,511 ========== ========== "Core cash" basic earnings per share $ 4.41 $ 3.85 ========== ========== Average common shares outstanding 154,098 159,078 ========== ========== "Core cash" diluted earnings per share $ 4.29 $ 3.75 ========== ========== Average common and common equivalent shares outstanding 158,173 163,400 ========== ========== SLM CORPORATION Pro-Forma "Core Cash" Reconciliation of GAAP Net Income to "Core Cash" Net Income (In thousands) Quarters ended ---------------------------------------- Dec. 31, Sep. 30, Dec. 31, 2002 2002 2001 ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) GAAP net income (loss) $ 306,030 $ (62,379) $ 265,945 "Core cash" adjustments: Net interest income on securitized loans 140,093 130,437 196,076 Floor income on managed loans (49,585) (51,399) (154,080) Provision for losses on securitized loans - - (6,498) Gains on student loan securitizations (262,086) (17,819) (20,278) Servicing and securitization revenue (133,371) (121,184) (201,637) Losses on sales of securities 995 49,394 62,127 Goodwill change in market value - - 18,579 Goodwill and intangible amortization (A) 9,567 5,786 16,068 Net impact of derivative accounting 55,444 400,499 (69,750) Other (5,121) (1,243) (2,526) -------- -------- -------- Total "core cash" adjustments (244,064) 394,471 (161,919) Net tax effect (B) 84,743 (138,162) 59,043 -------- -------- -------- "Core cash" net income $ 146,709 $ 193,930 $ 163,069 ======== ======== ======== Years ended December 31, ------------------------ 2002 2001 ----------- ----------- (Unaudited) (Unaudited) GAAP net income (loss) $ 791,996 $ 383,996 "Core cash" adjustments: Net interest income on securitized loans 699,238 652,127 Floor income on managed loans (473,835) (335,442) Provision for losses on securitized loans (14,246) (23,154) Gains on student loan securitizations (337,924) (75,199) Servicing and securitization revenue (629,294) (634,320) Losses on sales of securities 154,898 141,559 Goodwill change in market value - 18,579 Goodwill and intangible amortization (A) 26,925 47,756 Net impact of derivative accounting 426,348 570,545 Other (8,293) (3,204) -------- -------- Total "core cash" adjustments (156,183) 359,247 Net tax effect (B) 54,510 (119,231) -------- -------- "Core cash" net income $ 690,323 $ 624,012 ======== ======== (A) Goodwill amortized only prior to 2002. (B) Such tax effect is based upon the Company's marginal tax rate for the respective period.