SLM CORPORATION Supplemental Earnings Disclosure September 30, 2003 (Dollars in millions, except earnings per share) Quarters ended -------------------------------------- September 30, June 30, September 30, 2003 2003 2002 ------------ ------------ ------------ Net income (loss) $ 480 $ 373 $ (62) "Core cash" net income 228 210 194 Diluted earnings (loss) per common share, after cumulative effect of accounting change* $ 1.04 $ .80 $ (.14) "Core cash" diluted earnings per common share* .49 .44 .40 Return on assets 3.50% 2.91% (.50)% "Core cash" return on assets .94 .93 .94 Student loan spread 2.22% 2.41% 2.31% "Core cash" student loan spread 1.92 1.93 1.88 Average on-balance sheet student loans $ 44,839 $ 44,173 $ 43,862 Average off-balance sheet student loans 39,803 37,811 32,705 -------- -------- -------- Average managed student loans $ 84,642 $ 81,984 $ 76,567 ======== ======== ======== Ending on-balance sheet student loans, net $ 45,684 $ 42,993 $ 44,466 Ending off-balance sheet student loans, net 40,127 40,121 32,648 -------- -------- -------- Ending managed student loans, net $ 85,811 $ 83,114 $ 77,114 ======== ======== ======== Ending managed FFELP student loans, net $ 78,097 $ 76,107 $ 71,636 Ending managed private credit student loans, net 7,714 7,007 5,478 -------- -------- -------- Ending managed student loans, net $ 85,811 $ 83,114 $ 77,114 ======== ======== ======== Nine months ended September 30, ---------------------- 2003 2002 -------- -------- Net income $ 1,269 $ 486 "Core cash" net income 641 544 Diluted earnings per common share, after cumulative effect of accounting change* $ 2.71 $ 1.00 "Core cash" diluted earnings per common share* 1.36 1.12 Return on assets 3.27% 1.32% "Core cash" return on assets .95 .90 Student loan spread 2.29% 2.49% "Core cash" student loan spread 1.93 1.88 Average on-balance sheet student loans $ 44,393 $ 42,835 Average off-balance sheet student loans 37,631 31,790 -------- -------- Average managed student loans $ 82,024 $ 74,625 ======== ======== * In May 2003, the Company announced a three-for-one stock split of the Company's common stock to be effected in the form of a stock dividend. The additional shares were distributed on June 20, 2003 for all shareholders of record on June 6, 2003. All share and per share amounts presented have been retroactively restated for the stock split. Stockholders' equity has been restated to give retroactive recognition to the stock split for all periods presented, by reclassifying from additional paid-in capital to common stock, the par value of the additional shares issued as a result of the stock split. Sallie Mae reports pro forma "core cash" earnings, which the Company believes provide additional insights into its business. "Core cash" earnings reflect only current period adjustments to GAAP earnings as described below. Accordingly, the Company's "core cash" earnings presentation does not represent another comprehensive basis of accounting. The differences between GAAP and "core cash" earnings calculations are as follows: 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, provision for loan losses 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, "Accounting for Derivative Instruments and Hedging Activities": The Company employs certain hedging transactions to match the interest rate characteristics of its managed assets and liabilities. The Company believes that 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) SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity": Under SFAS No. 150, equity forward contracts that allow a net settlement option either in cash or the Company's stock are required to be accounted for in accordance with SFAS No. 133 as derivatives. As a result, the Company now accounts for its equity forward contracts as derivatives in accordance with SFAS No. 133 and periodically marks them to market through earnings. In accordance with SFAS No. 150, equity forward contracts that were entered into prior to June 1, 2003 and outstanding at July 1, 2003, were marked-to-market on July 1, and resulted in a gain which was reflected as a "cumulative effect of accounting change." This gain has been excluded from "core cash" results; subsequent changes in fair value after July 1, 2003 are also excluded for "core cash" earnings as discussed in the SFAS No. 133 discussion above. 5) 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) September 30, June 30, September 30, Assets 2003 2003 2002 ----------- ----------- ----------- Federally insured student loans (net of allowance for losses of $49,538, $46,429 and $43,016, respectively) $40,654,139 $38,694,429 $38,987,863 Private credit student loans (net of allowance for losses of $185,378, $174,212 and $186,231, respectively) 5,029,310 4,299,024 5,477,853 Academic facilities financings and other loans 1,093,900 1,177,178 1,330,303 Cash and investments 7,383,960 7,190,775 5,312,247 Retained interest in securitized receivables 2,749,130 2,985,777 1,785,311 Goodwill and acquired intangible assets 581,208 583,676 578,552 Other assets 2,444,911 3,251,914 2,052,530 ----------- ----------- ----------- Total assets $59,936,558 $58,182,773 $55,524,659 =========== =========== =========== Liabilities Short-term borrowings $22,995,312 $24,619,758 $28,662,628 Long-term notes 31,259,011 28,049,326 22,158,235 Other liabilities 3,038,251 3,147,517 2,879,430 ----------- ----------- ----------- Total liabilities 57,292,574 55,816,601 53,700,293 ----------- ----------- ----------- 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: 471,278; 638,983; and 619,125 shares, respectively, issued 94,256 127,797 123,825 Additional paid-in capital 1,442,919 1,359,082 941,175 Accumulated other comprehensive income, net of tax 568,381 689,220 606,838 Retained earnings 755,687 3,386,218 2,452,857 ----------- ----------- ----------- Stockholders' equity before treasury stock 3,026,243 5,727,317 4,289,695 Common stock held in treasury at cost: 20,643; 188,491; and 158,508 shares, respectively 382,259 3,361,145 2,465,329 ----------- ----------- ----------- Total stockholders' equity 2,643,984 2,366,172 1,824,366 ----------- ----------- ----------- Total liabilities and stockholders' equity $59,936,558 $58,182,773 $55,524,659 =========== =========== =========== * Commitments to purchase loans, lines of credit, letters of credit, and academic facilities financing letters of credit were $37.3 billion, $ .9 billion, $2.1 billion, and $45.5 million, respectively, at September 30, 2003. SLM CORPORATION Consolidated Statements of Income (In thousands, except per share amounts) Quarters ended ------------------------------------- September 30, June 30 September 30, 2003 2003 2002 ---------- ---------- ---------- Interest income: Student loans $424,938 $451,589 $504,456 Academic facilities financings and other loans 19,050 19,290 21,643 Investments 39,204 42,034 28,829 -------- -------- -------- Total interest income 483,192 512,913 554,928 Interest expense 232,978 246,727 300,615 -------- -------- -------- Net interest income 250,214 266,186 254,313 Less: provision for losses 41,695 36,449 34,771 -------- -------- -------- Net interest income after provision for losses 208,519 229,737 219,542 -------- -------- -------- Other income: Gains on student loan securitizations 39,454 314,220 17,819 Servicing and securitization revenue 74,812 137,057 121,185 Losses on sales of securities, net (6,457) (26,660) (62,854) Derivative market value adjustment 250,342 (29,546) (365,917) Guarantor servicing fees 40,323 25,259 27,679 Debt management fees 78,275 52,684 47,642 Other 53,368 61,126 63,494 -------- -------- -------- Total other income (loss) 530,117 534,140 (150,952) Operating expenses 184,205 189,867 174,309 -------- -------- -------- Income (loss) before income taxes (benefit) and cummulative effect of accounting change 554,431 574,010 (105,719) Income taxes (benefit) 204,514 201,316 (43,340) -------- -------- -------- Income (loss) before cumulative effect of accounting change 349,917 372,694 (62,379) Cumulative effect of accounting change 129,971 -- -- -------- -------- -------- Net income (loss) 479,888 372,694 (62,379) Preferred stock dividends 2,875 2,875 2,875 -------- -------- -------- Net income (loss) attributable to common stock $477,013 $369,819 $(65,254) ======== ======== ======== Basic earnings (loss) per common share: Before cummulative effect of accounting change $ .77 $ .82 $ (.14) Cummulative effect of accounting change .29 -- -- -------- -------- -------- Basic earnings (loss) per common share, after cumulative effect of accounting change $ 1.06 $ .82 $ (.14) ======== ======== ======== Average common shares outstanding 450,725 452,174 461,159 ======== ======== ======== Diluted earnings(loss) per common share: Before cumulative effect of accounting change $ .76 $ .80 $ (.14) Cumulative effect of accounting change .28 -- -- -------- -------- -------- Diluted earnings (loss) per common share, after cumulative effect of accounting change $ 1.04 $ .80 $ (.14) ======== ======== ======== Average common and common equivalent shares outstanding 460,647 465,132 461,159 ======== ======== ======== Nine months ended September 30, ----------------------- 2003 2002 ---------- ---------- Interest income: Student loans $1,312,777 $1,573,096 Academic facilities financings and other loans 58,546 70,061 Investments 109,499 108,704 ---------- ---------- Total interest income 1,480,822 1,751,861 Interest expense 723,794 928,245 ---------- ---------- Net interest income 757,028 823,616 Less: provision for losses 120,689 82,558 ---------- ---------- Net interest income after provision for losses 636,339 741,058 ---------- ---------- Other income: Gains on student loan securitizations 659,477 75,838 Servicing and securitization revenue 349,348 495,923 Losses on sales of securities, net (114,677) (188,463) Derivative market value adjustment 335,162 (254,519) Guarantor servicing fees 100,776 78,118 Debt management fees 189,772 137,017 Other 168,922 168,527 ---------- ---------- Total other income 1,688,780 512,441 Operating expenses 553,437 509,052 ---------- ---------- Income before income taxes and cumulative effect of accounting change 1,771,682 744,447 Income taxes 632,522 258,481 ---------- ---------- Income before cumulative effect of accounting change 1,139,160 485,966 Cumulative effect of accounting change 129,971 -- ---------- ---------- Net Income 1,269,131 485,966 Preferred stock dividends 8,625 8,625 ---------- ---------- Net income attributable to common stock $1,260,506 $ 477,341 ========== ========== Basic earnings per common share: Before cumulative effect of accounting change $ 2.50 $ 1.03 Cumulative effect of accounting change .28 -- ---------- ---------- Basic earnings per common share, after cumulative effect of accounting change $ 2.78 $ 1.03 ========== ========== Average common shares outstanding 453,139 463,630 ========== ========== Diluted earnings per common share: Before cumulative effect of accounting change $ 2.43 $ 1.00 Cumulative effect of accounting change .28 -- ---------- ---------- Diluted earnings per common share, after cumulative effect of accounting change $ 2.71 $ 1.00 ========== ========== Average common and common equivalent shares outstanding 465,125 475,631 ========== ========== SLM CORPORATION Pro-Forma "Core Cash" Consolidated Statements of Income (In thousands, except per share amounts) Quarters ended --------------------------------------- September 30, June 30, September 30, 2003 2003 2002 ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) Interest income: Managed student loans $751,197 $754,300 $812,480 Academic facilities financings and other loans 19,050 19,290 21,643 Investments 43,973 43,892 28,031 -------- -------- -------- Total managed interest income 814,220 817,482 862,154 Managed interest expense 410,112 424,274 503,901 -------- -------- -------- Net managed interest income 404,108 393,208 358,253 Less: provision for losses 42,817 29,150 34,771 -------- -------- -------- Net managed interest income after provision for losses 361,291 364,058 323,482 -------- -------- -------- Other income: Guarantor servicing fees 40,323 25,259 27,679 Debt management fees 78,275 52,684 47,642 Other 49,253 58,685 58,627 -------- -------- -------- Total other income 167,851 136,628 133,948 Operating expenses 177,229 183,283 168,678 -------- -------- -------- Income before income taxes 351,913 317,403 288,752 Income taxes 123,533 107,841 94,822 -------- -------- -------- "Core cash" net income 228,380 209,562 193,930 Preferred stock dividends 2,875 2,875 2,875 -------- -------- -------- "Core cash" net income attributable to common stock $225,505 $206,687 $191,055 ======== ======== ======== "Core cash" basic earnings per common share $ .50 $ .46 $ .41 ======== ======== ======== Average common shares outstanding 450,725 452,174 461,159 ======== ======== ======== "Core cash" diluted earnings per common share $ .49 $ .44 $ .40 ======== ======== ======== Average common and common equivalent shares outstanding 460,647 465,132 472,074 ======== ======== ======== Nine months ended September 30, ------------------------ 2003 2002 ----------- ----------- (Unaudited) (Unaudited) Interest income: Managed student loans $2,247,840 $2,436,104 Academic facilities financings and other loans 58,546 70,061 Investments 117,108 108,308 ---------- ---------- Total managed interest income 2,423,494 2,614,473 Managed interest expense 1,253,728 1,572,224 ---------- ---------- Net managed interest income 1,169,766 1,042,249 Less: provision for losses 103,573 96,804 ---------- ---------- Net managed interest income after provision for losses 1,066,193 945,445 ---------- ---------- Other income: Guarantor servicing fees 100,776 78,118 Debt management fees 189,772 137,017 Other 161,143 163,933 ---------- ---------- Total other income 451,691 379,068 Operating expenses 533,249 492,185 ---------- ---------- Income before income taxes 984,635 832,328 Income taxes 343,403 288,714 ---------- ---------- "Core cash" net income 641,232 543,614 Preferred stock dividends 8,625 8,625 ---------- ---------- "Core cash" net income attributable to common stock $ 632,607 $ 534,989 ========== ========== "Core cash" basic earnings per common share $ 1.40 $ 1.15 ========== ========== Average common shares outstanding 453,139 463,630 ========== ========== "Core cash" diluted earnings per common share $ 1.36 $ 1.12 ========== ========== Average common and common equivalent shares outstanding 465,125 475,631 ========== ========== 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, 2003 2003 2002 ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) GAAP net income (loss) $479,888 $372,694 $(62,379) "Core cash" adjustments: Net interest income on securitized loans 177,964 195,991 130,437 Floor income on managed loans (61,420) (103,128) (51,399) Provision for losses on securitized loans (1,122) 7,299 -- Gains on student loan securitizations (39,454) (314,220) (17,819) Servicing and securitization revenue (74,812) (137,057) (121,184) Losses on sales of securities, net 4,278 4,373 49,394 Amortization of acquired intangibles 7,060 6,716 5,786 Net impact of derivative accounting (211,870) 84,090 400,499 Other (3,142) (671) (1,243) -------- -------- -------- Total "core cash" adjustments before income taxes and cumulative effect of accounting change (202,518) (256,607) 394,471 Net tax effect (A) 80,981 93,475 (138,162) -------- -------- -------- Total "core cash" adjustments before cumulative effect of accounting change (121,537) (163,132) 256,309 Cumulative effect of accounting change (129,971) -- -- -------- -------- -------- Total "core cash" adjustments (251,508) (163,132) 256,309 -------- -------- -------- "Core cash" net income $228,380 $209,562 $193,930 ======== ======== ======== Nine months ended September 30, -------------------------- 2003 2002 ----------- ----------- (Unaudited) (Unaudited) GAAP net income $1,269,131 $485,966 "Core cash" adjustments: Net interest income on securitized loans 541,020 559,145 Floor income on managed loans (237,643) (424,250) Provision for losses on securitized loans 17,116 (14,246) Gains on student loan securitizations (659,477) (75,838) Servicing and securitization revenue (349,348) (495,923) Losses on sales of securities, net 80,942 153,903 Amortization of acquired intangibles 20,548 17,358 Net impact of derivative accounting (195,172) 370,904 Other (5,033) (3,172) -------- -------- Total "core cash" adjustments before income taxes and cumulative effect of accounting change (787,047) 87,881 Net tax effect (A) 289,119 (30,233) -------- -------- Total "core cash" adjustments before cumulative effect of accounting change (497,928) 57,648 Cumulative effect of accounting change (129,971) -- -------- -------- Total "core cash" adjustments (627,899) 57,648 -------- -------- "Core cash" net income $641,232 $543,614 ======== ======== (A) Such tax effect is based upon the Company's marginal tax rate for the respective period.