SLM CORPORATION Supplemental Earnings Disclosure March 31, 2003 (Dollars in millions, except earnings per share) Quarters ended --------------------------------------- Mar. 31, Dec. 31, Mar. 31, 2003 2002 2002 ---------- ---------- ---------- Net income $ 417 $ 306 $ 422 "Core cash" net income* 203 147 170 Diluted earnings per share $ 2.64 $ 1.93 $ 2.63 "Core cash" diluted earnings per share 1.28 .92 1.05 Net interest margin 2.00% 1.47% 2.34% "Core cash" net interest margin 1.78 1.49 1.71 Return on assets 3.41% 2.42% 3.46% "Core cash" return on assets .97 .69 .87 Student loan spread 2.26% 2.16% 2.58% "Core cash" student loan spread 1.93 1.91 1.87 Average on-balance sheet student loans $ 44,159 $ 43,816 $ 42,357 Average off-balance sheet student loans 35,228 33,733 30,391 -------- -------- -------- Average managed student loans $ 79,387 $ 77,549 $ 72,748 ======== ======== ======== Ending on-balance sheet student loans $ 43,281 $ 42,339 $ 40,962 Ending off-balance sheet student loans 37,438 35,785 32,494 -------- -------- -------- Ending managed student loans $ 80,719 $ 78,124 $ 73,456 ======== ======== ======== *"Core cash" net income includes securitizations as financings and excludes the amortization of acquired intangible assets, and non-recurring items such as floor income and gains and losses on certain sales of securities and derivative contracts. In addition, the effects of SFAS No. 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 ------------------------------------- Mar. 31, Dec. 31, Mar. 31, 2003 2002 2002 -------- --------- -------- Interest income: Student loans $436,250 $454,751 $534,251 Academic facilities financings and other loans 20,206 25,964 26,316 Investments 28,261 (20,815) 37,410 -------- -------- -------- Total interest income 484,717 459,900 597,977 Interest expense 244,089 274,375 316,600 -------- -------- -------- Net interest income 240,628 185,525 281,377 Less: provision for losses 42,545 34,066 20,237 -------- -------- -------- Net interest income after provision for losses 198,083 151,459 261,140 -------- -------- -------- Other income: Gains on student loan securitizations 305,803 262,086 44,260 Servicing and securitization revenue 137,479 133,371 194,682 (Losses) on sales of securities, net (81,560) (66,894) (89,107) Derivative market value adjustment 114,366 50,615 288,351 Guarantor servicing and debt management fees 99,805 81,841 78,372 Other 48,630 47,194 43,614 -------- -------- -------- Total other income 624,523 508,213 560,172 Operating expenses 179,365 180,720 166,801 -------- -------- -------- Income before income taxes 643,241 478,952 654,511 Income taxes 226,692 172,922 232,167 -------- -------- -------- NET INCOME 416,549 306,030 422,344 Preferred stock dividends 2,875 2,876 2,875 -------- -------- -------- Net income attributable to common stock $413,674 $303,154 $419,469 ======== ======== ======== Basic earnings per share $ 2.72 $ 1.98 $ 2.70 ======== ======== ======== Average common shares outstanding 152,194 152,777 155,629 ======== ======== ======== Diluted earnings per share $ 2.64 $ 1.93 $ 2.63 ======== ======== ======== Average common and common equivalent shares outstanding 156,565 157,074 159,683 ======== ======== ======== SLM CORPORATION Consolidated Balance Sheets (In thousands, except per share amounts) Mar. 31, Dec. 31, Mar. 31, Assets 2003 2002 2002 ----------- ----------- ----------- Federally insured student loans (net of allowance for losses of $58,404, $49,751 and $57,334, respectively) $38,340,112 $37,168,276 $36,315,771 Private credit student loans (net of allowance for losses of $174,177, $180,933 and $206,184, respectively) 4,941,225 5,171,399 4,646,273 Academic facilities financings and other loans 1,139,617 1,202,045 1,905,669 Cash and investments 4,839,651 4,989,803 5,298,864 Retained interest in securitized receivables 2,481,318 2,145,523 1,739,060 Goodwill and acquired intangible assets 579,365 586,127 584,057 Other assets 2,012,488 1,911,832 1,954,741 ----------- ----------- ----------- Total assets $54,333,776 $53,175,005 $52,444,435 =========== =========== =========== Liabilities Short-term borrowings $23,825,598 $25,618,955 $30,745,072 Long-term notes 25,240,729 22,242,115 17,411,673 Other liabilities 3,023,193 3,315,985 2,333,604 ----------- ----------- ----------- Total liabilities 52,089,520 51,177,055 50,490,349 ----------- ----------- ----------- 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: 210,094; 208,184; and 204,357 shares, respectively, issued 42,019 41,637 40,871 Additional paid-in capital 1,316,511 1,185,847 904,946 Accumulated other comprehensive income, net of tax 596,693 592,760 560,148 Retained earnings 3,094,050 2,718,226 2,456,711 ----------- ----------- ----------- Stockholders' equity before treasury stock 5,214,273 4,703,470 4,127,676 Common stock held in treasury at cost: 58,560; 55,604; and 49,022 shares, respectively 2,970,017 2,705,520 2,173,590 ----------- ----------- ----------- Total stockholders' equity 2,244,256 1,997,950 1,954,086 ----------- ----------- ----------- Total liabilities and stockholders' equity $54,333,776 $53,175,005 $52,444,435 =========== =========== =========== * Commitments to purchase loans, lines of credit, letters of credit, and academic facilities financing letters of credit were $33.0 billion, $0.4 billion, $2.8 billion, and $45.5 million, respectively, at March 31, 2003. 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 No. 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 No. 133 and therefore, the derivative side of the match must be marked-to-market. The corresponding asset or liability is ignored under SFAS No. 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 of acquired intangibles, as well as gains and losses on certain sales of securities and derivative contracts. (In thousands, except per share amounts) Quarters ended -------------------------------------- Mar. 31, Dec. 31, Mar. 31, 2003 2002 2002 ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) Interest income: Managed student loans $742,343 $774,348 $805,049 Academic facilities financings and other loans 20,206 25,964 26,316 Investments 29,243 (20,730) 38,680 -------- -------- -------- Total managed interest income 791,792 779,582 870,045 Managed interest expense 419,342 463,050 536,454 -------- -------- -------- Net managed interest income 372,450 316,532 333,591 Less: provision for losses 31,606 34,066 26,849 -------- -------- -------- Net managed interest income after provision for losses 340,844 282,466 306,742 -------- -------- -------- Other income: Guarantor servicing and debt management fees 99,805 81,841 78,372 Other 47,407 41,883 42,816 -------- -------- -------- Total other income 147,212 123,724 121,188 Operating expenses 172,737 171,302 161,187 -------- -------- -------- Income before income taxes 315,319 234,888 266,743 Income taxes 112,029 88,179 96,385 -------- -------- -------- "CORE CASH" NET INCOME 203,290 146,709 170,358 Preferred stock dividends 2,875 2,876 2,875 -------- -------- -------- "Core cash" net income attributable to common stock $200,415 $143,833 $167,483 ======== ======== ======== "Core cash" basic earnings per share $ 1.32 $ .94 $ 1.08 ======== ======== ======== Average common shares outstanding 152,194 152,777 155,629 ======== ======== ======== "Core cash" diluted earnings per share $ 1.28 $ .92 $ 1.05 ======== ======== ======== Average common and common equivalent shares outstanding 156,565 157,074 159,683 ======== ======== ======== SLM CORPORATION Pro-Forma "Core Cash" Reconciliation of GAAP Net Income to "Core Cash" Net Income (In thousands) Quarters ended ---------------------------------------- Mar. 31, Dec. 31, Mar. 31, 2003 2002 2002 ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) GAAP net income $416,549 $ 306,030 $ 422,344 "Core cash" adjustments: Net interest income on securitized loans 167,065 140,093 208,136 Floor income on managed loans (73,095) (49,585) (182,106) Provision for losses on securitized loans 10,939 - (6,612) Gains on student loan securitizations (305,803) (262,086) (44,260) Servicing and securitization revenue (137,479) (133,371) (194,682) Losses on sales of securities, net 72,291 995 86,695 Amortization of acquired intangibles 6,772 9,567 5,786 Net impact of derivative accounting (67,392) 55,444 (259,488) Other (1,220) (5,121) (1,237) -------- -------- -------- Total "core cash" adjustments (327,922) (244,064) (387,768) Net tax effect (A) 114,663 84,743 135,782 -------- -------- -------- "Core cash" net income $203,290 $146,709 $170,358 ======== ======== ======== (A) Such tax effect is based upon the Company's marginal tax rate for the respective period.