SLM CORPORATION Supplemental Earnings Disclosure June 30, 2002 (Dollars in millions, except earnings per share) Quarters ended --------------------------------------- June 30, March 31, June 30, 2002 2002 2001 ------------ ----------- ---------- Net income $ 126 $ 422 $ 282 "Core cash" net income * 179 170 153 Diluted earnings per share $ .78 $ 2.63 $ 1.68 "Core cash" diluted earnings per share 1.11 1.05 .90 Net interest margin 2.42% 2.34% 1.95% "Core cash" net interest margin 1.76 1.71 1.64 Return on assets 1.04% 3.46% 2.35% "Core cash" return on assets .89 .87 .78 Student loan spread 2.58% 2.58% 1.90% "Core cash" student loan spread 1.87 1.87 1.81 Average on-balance sheet student loans $ 42,268 $ 42,357 $ 39,674 Average off-balance sheet student loans 32,250 30,391 30,480 -------- -------- -------- Average managed student loans $ 74,518 $ 72,748 $ 70,154 ======== ======== ======== Ending on-balance sheet student loans $ 43,357 $ 40,962 $ 39,778 Ending off-balance sheet student loans 32,200 32,494 31,005 -------- -------- -------- Ending managed student loans $ 75,557 $ 73,456 $ 70,783 ======== ======== ======== Six months ended June 30, ---------------------- 2002 2001 -------- -------- Net income $ 548 $ 312 "Core cash" net income * 350 298 Diluted earnings per share $ 3.41 $ 1.82 "Core cash" diluted earnings per share 2.16 1.74 Net interest margin 2.38% 1.72% "Core cash" net interest margin 1.74 1.57 Return on assets 2.25% 1.29% "Core cash" return on assets .88 .76 Student loan spread 2.58% 1.78% "Core cash" student loan spread 1.87 1.76 Average on-balance sheet student loans $ 42,312 $ 39,195 Average off-balance sheet student loans 31,326 30,255 -------- -------- Average managed student loans $ 73,638 $ 69,450 ======== ======== * "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 -------------------------------------- June 30, March 31, June 30, 2002 2002 2001 ----------- ----------- ---------- Interest income: Student loans $534,390 $534,251 $674,510 Warehousing advances/ academic facilities financings 14,752 18,915 24,386 Investments 49,814 44,811 95,952 -------- -------- -------- Total interest income 598,956 597,977 794,848 Interest expense 311,030 316,600 567,445 -------- -------- -------- Net interest income 287,926 281,377 227,403 Less: provision for losses 27,550 20,237 13,271 -------- -------- -------- Net interest income after provision for losses 260,376 261,140 214,132 -------- -------- -------- Other income: Gains on student loan securitizations 13,759 44,260 18,300 Servicing and securitization revenue 180,057 194,682 193,732 (Losses) on sales of securities (36,501) (89,107) (47,584) Guarantor servicing and collection fees 78,296 79,601 58,027 Derivative market value adjustment (176,954) 288,351 116,884 Other 44,564 42,385 56,861 -------- -------- -------- Total other income 103,221 560,172 396,220 Operating expenses 167,942 166,801 170,267 -------- -------- -------- Income before income taxes and minority interest in net earnings of subsidiary 195,655 654,511 440,085 Income taxes 69,654 232,167 155,617 Minority interest in net earnings of subsidiary - - 2,673 -------- -------- -------- NET INCOME 126,001 422,344 281,795 Preferred stock dividends 2,875 2,875 2,875 -------- -------- -------- Net income attributable to common stock $123,126 $419,469 $278,920 ======== ======== ======== Basic earnings per share $ .80 $ 2.70 $ 1.74 ======== ======== ======== Average common shares outstanding 154,302 155,629 160,707 ======== ======== ======== Diluted earnings per share $ .78 $ 2.63 $ 1.68 ======== ======== ======== Average common and common equivalent shares outstanding 158,615 159,683 166,408 ======== ======== ======== Six months ended June 30, ------------------------ 2002 2001 ---------- ---------- Interest income: Student loans $1,068,641 $1,387,543 Warehousing advances/ academic facilities financings 33,667 53,173 Investments 94,625 228,805 ---------- ---------- Total interest income 1,196,933 1,669,521 Interest expense 627,630 1,262,310 ---------- ---------- Net interest income 569,303 407,211 Less: provision for losses 47,787 26,870 ---------- ---------- Net interest income after provision for losses 521,516 380,341 ---------- ---------- Other income: Gains on student loan securitizations 58,019 27,778 Servicing and securitization revenue 374,739 313,743 (Losses) on sales of securities (125,608) (78,919) Guarantor servicing and collection fees 157,897 113,533 Derivative market value adjustment 111,397 (51,280) Other 86,949 125,843 ---------- ---------- Total other income 663,393 450,698 Operating expenses 334,743 337,640 ---------- ---------- Income before income taxes and minority interest in net earnings of subsidiary 850,166 493,399 Income taxes 301,821 176,456 Minority interest in net earnings of subsidiary - 5,347 ---------- ---------- NET INCOME 548,345 311,596 Preferred stock dividends 5,750 5,750 ---------- ---------- Net income attributable to common stock $ 542,595 $ 305,846 ========== ========== Basic earnings per share $ 3.50 $ 1.89 ========== ========== Average common shares outstanding 154,962 161,872 ========== ========== Diluted earnings per share $ 3.41 $ 1.82 ========== ========== Average common and common equivalent shares outstanding 159,146 168,164 ========== ========== SLM CORPORATION Consolidated Balance Sheets (In thousands, except per share amounts) June 30, March 31, June 30, Assets 2002 2002 2001 ----------- ----------- ----------- Student loans, net $43,357,334 $40,962,044 $39,778,407 Warehousing advances/ academic facilities financings 1,044,401 1,680,623 1,726,635 Cash and investments 5,051,552 5,523,910 5,989,480 Residual interest and servicing assets 1,670,113 1,739,060 1,420,375 Other assets 2,764,053 2,538,798 2,310,500 ----------- ----------- ----------- Total assets $53,887,453 $52,444,435 $51,225,397 =========== =========== =========== Liabilities Short-term borrowings $29,210,779 $30,745,072 $35,215,782 Long-term notes 20,400,855 17,411,673 12,470,888 Other liabilities 2,351,124 2,333,604 1,732,795 ----------- ----------- ----------- Total liabilities 51,962,758 50,490,349 49,419,465 ----------- ----------- ----------- 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: 205,515; 204,357; and 198,922 shares, respectively, issued 41,103 40,871 39,784 Additional paid-in capital 974,312 904,946 549,070 Unrealized gains on investments and derivatives, net of tax 505,635 560,148 485,100 Retained earnings 2,548,861 2,456,711 2,060,176 ----------- ----------- ----------- Stockholders' equity before treasury stock 4,234,911 4,127,676 3,299,130 Common stock held in treasury at cost: 50,848; 49,022; and 38,398 shares, respectively 2,310,216 2,173,590 1,707,081 ----------- ----------- ----------- Total stockholders' equity 1,924,695 1,954,086 1,592,049 ----------- ----------- ----------- Total liabilities and stockholders' equity $53,887,453 $52,444,435 $51,225,397 =========== =========== =========== * Commitments to purchase loans, lines of credit, letters of credit, and academic facilities financing letters of credit were $21.9 billion, $2.8 billion, $3.4 billion, and $45.5 million, respectively, at June 30, 2002. SLM CORPORATION Pro-Forma "Core Cash" Consolidated Statements of Income Sallie Mae reports "core cash" earnings, which the Company believes more accurately reflect its performance than do its financial statements prepared in accordance with GAAP. "Core cash" statements are designed to help investors gain a better understanding of how the Company conducts 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 --------------------------------------- June 30, March 31, June 30, 2002 2002 2001 ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) Interest income: Managed student loans $818,575 $805,049 $1,145,037 Warehousing advances/ academic facilities financings 14,752 18,915 24,386 Investments 48,947 46,081 94,098 -------- -------- ---------- Total managed interest income 882,274 870,045 1,263,521 Managed interest expense 531,869 536,454 949,366 -------- -------- ---------- Net managed interest income 350,405 333,591 314,155 Less: provision for losses 35,184 26,849 18,700 -------- -------- ---------- Net managed interest income after provision for losses 315,221 306,742 295,455 -------- -------- ---------- Other income: Guarantor servicing and collection fees 78,296 79,601 58,027 Other 45,636 41,587 43,165 -------- -------- ---------- Total other income 123,932 121,188 101,192 Operating expenses 162,320 161,187 158,448 -------- -------- ---------- Income before income taxes and minority interest in net earnings of subsidiary 276,833 266,743 238,199 Income taxes 97,507 96,385 82,819 Minority interest in net earnings of subsidiary - - 2,673 -------- -------- ---------- "CORE CASH" NET INCOME 179,326 170,358 152,707 Preferred stock dividends 2,875 2,875 2,876 -------- -------- ---------- "Core cash" net income attributable to common stock $176,451 $167,483 $ 149,831 ======== ======== ========== "Core cash" basic earnings per share $ 1.14 $ 1.08 $ .93 ======== ======== ========== Average common shares outstanding 154,302 155,629 160,707 ======== ======== ========== "Core cash" diluted earnings per share $ 1.11 $ 1.05 $ .90 ======== ======== ========== Average common and common equivalent shares outstanding 158,615 159,683 166,408 ======== ======== ========== Six months ended June 30, ------------------------ 2002 2001 ----------- ----------- (Unaudited) (Unaudited) Interest income: Managed student loans $1,623,624 $2,415,665 Warehousing advances/ academic facilities financings 33,667 53,173 Investments 95,028 233,227 ---------- ---------- Total managed interest income 1,752,319 2,702,065 Managed interest expense 1,068,323 2,092,255 ---------- ---------- Net managed interest income 683,996 609,810 Less: provision for losses 62,033 37,834 ---------- ---------- Net managed interest income after provision for losses 621,963 571,976 ---------- ---------- Other income: Guarantor servicing and collection fees 157,897 113,533 Other 87,223 99,502 ---------- ---------- Total other income 245,120 213,035 Operating expenses 323,507 317,538 ---------- ---------- Income before income taxes and minority interest in net earnings of subsidiary 543,576 467,473 Income taxes 193,892 164,303 Minority interest in net earnings of subsidiary - 5,347 ---------- ---------- "CORE CASH" NET INCOME 349,684 297,823 Preferred stock dividends 5,750 5,751 ---------- ---------- "Core cash" net income attributable to common stock $ 343,934 $ 292,072 ========== ========== "Core cash" basic earnings per share $ 2.22 $ 1.80 ========== ========== Average common shares outstanding 154,962 161,872 ========== ========== "Core cash" diluted earnings per share $ 2.16 $ 1.74 ========== ========== Average common and common equivalent shares outstanding 159,146 168,164 ========== ========== 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, 2002 2002 2001 ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) GAAP net income $126,001 $422,344 $281,795 "Core cash" adjustments: Net interest income on securitized loans 220,572 208,136 173,533 Floor income on managed loans (190,745) (182,106) (101,995) Provision for losses on securitized loans (7,634) (6,612) (5,429) Gains on student loan securitizations (13,759) (44,260) (18,300) Servicing and securitization revenue (180,057) (194,682) (193,732) Losses on sales of securities 17,814 86,695 48,372 Goodwill and intangible amortization (A) 5,786 5,786 12,000 Net impact of derivative accounting 229,893 (259,488) (115,679) Other (692) (1,237) (656) -------- -------- -------- Total "core cash" adjustments 81,178 (387,768) (201,886) Net tax effect (B) (27,853) 135,782 72,798 -------- -------- -------- "Core cash" net income $179,326 $170,358 $152,707 ======== ======== ======== Six months ended June 30, ------------------------ 2002 2001 ----------- ----------- (Unaudited) (Unaudited) GAAP net income $548,345 $311,596 "Core cash" adjustments: Net interest income on securitized loans 428,708 319,499 Floor income on managed loans (372,851) (139,660) Provision for losses on securitized loans (14,246) (10,964) Gains on student loan securitizations (58,019) (27,778) Servicing and securitization revenue (374,739) (313,743) Losses on sales of securities 104,509 66,908 Goodwill and intangible amortization (A) 11,572 20,531 Net impact of derivative accounting (29,595) 59,885 Other (1,929) (604) -------- -------- Total "core cash" adjustments (306,590) (25,926) Net tax effect (B) 107,929 12,153 -------- -------- "Core cash" net income $349,684 $297,823 ======== ======== (A) Goodwill amortized only prior to 2002. (B) Such tax effect is based upon the Company's marginal tax rate for the respective period.