SLM Corporation Managed Federal Loan Portfolio Exceeds $100 Billion for First Time

RESTON, Va., July 21 /PRNewswire-FirstCall/ — SLM Corporation (NYSE: SLM – News), commonly known as Sallie Mae, today reported second-quarter 2005 earnings and performance results that include $2.8 billion in preferred- channel loan originations, a 20-percent increase from the 2004 second quarter. The company’s federal student loan portfolio now exceeds $100 billion.

Preferred-channel loan originations are loans funded by the company’s internal brands and other lender partners. These loans are a key measure of Sallie Mae’s market share success and indicate future loan acquisition volume and earnings growth.

“Our loan origination growth — particularly through our own brands — showed exceptional strength in the first half of 2005,” said Thomas J. (Tim) Fitzpatrick, vice chairman and chief executive officer. “Combined with the strong performance of our fee-based businesses, and the high-quality service we displayed during the recent rush to consolidate, we are well positioned for the remainder of the year.”

The company’s internal lending brands originated $3.4 billion in the first half of 2005, an increase of 34 percent from the year-ago period. These brands now represent 36 percent of the company’s loan originations. At June 30, 2005, the company’s managed student loan portfolio increased 23 percent to top $116 billion, compared to $95 billion one year ago.

The July 1 interest rate increase on federal education loans spurred record consolidation volume and processing activity, with most applications submitted during the final two weeks of the quarter. The company disbursed $4.1 billion to consolidate its existing loan volume, and a net $183 million was disbursed to consolidate incremental loan volume. Third quarter consolidation loan disbursements also will reach record levels, given the number of processed, but undisbursed, applications pending as of June 30, 2005. Consolidation loans now comprise more than 54 percent of the company’s managed guaranteed student loan portfolio, extending the average asset life. The average life of a new Stafford loan entering repayment is 5.25 years, as compared to 12 years for a new consolidation loan entering repayment.

Sallie Mae reports financial results on a GAAP basis and also presents certain “core cash” performance measures that are non-GAAP financial measures. These “core cash” measures are the primary financial performance measures used by management to develop the company’s financial plan, track results, and establish corporate performance targets and incentive compensation. “Core cash” results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, the company’s board of directors, rating agencies and investors to assess performance.

Sallie Mae reported second-quarter 2005 GAAP net income of $297 million, or $.66 per diluted share, compared to $615 million, or $1.29 per diluted share, in the year-ago period. GAAP net income for the first half of 2005 totaled $520 million, compared to $906 million in the same period in 2004. Included in these results are accounting rule changes related to contingently convertible bonds, which reduced earnings per diluted share by $(.02) in the current quarter, $(.07) in the year-ago quarter and $(.04) and $(.11) in the first half of 2005 and 2004, respectively.

“Core cash” net income for the 2005 second quarter was $279 million, up from $237 million in the year-ago quarter. On a diluted share basis, “core cash” net income grew 24 percent to $.62 in second quarter 2005, compared to $.50 per diluted share in the same period last year. For the first half of 2005, “core cash” net income was $535 million, compared to $468 million in the first half of 2004. These results include the effect of the accounting change on contingently convertible bonds, which reduced “core cash” earnings per diluted share by $(.02) in the second quarter 2005, $(.02) in the year-ago quarter and $(.04) and $(.05) in the first half of 2005 and 2004, respectively.

“Core cash” net interest income in the second quarter 2005 was $516 million, compared to the year-ago quarter’s $445 million. “Core cash” non- interest income was $216 million for the 2005 second quarter, up 30 percent from $166 million in the year-ago quarter, and includes fees earned from guarantor servicing and debt management activity, collection revenue and other servicing fees. “Core cash” operating expenses were $271 million for the second quarter 2005, compared to $199 million in the same quarter last year.

Both a description of the “core cash” treatment and a full reconciliation to the GAAP income statement can be found in the Supplemental Earnings Disclosure accompanying this press release, which is posted under the Investors page at http://www.salliemae.com.

Total equity for the company at June 30, 2005, was $3.7 billion, up from $3.1 billion at March 31, 2005. The company’s tangible capital at the end of the 2005 second quarter was 2.03 percent of managed assets, compared to 1.63 percent at prior quarter end.

The company will host its regular earnings conference call today at noon. Sallie Mae executives will be on hand to discuss various highlights of the quarter and to answer questions related to the company’s performance. Individuals interested in participating should call the following number today, July 21, 2005, starting at 11:45 a.m. EDT: 877-356-5689 (USA and Canada) or 706-679-0623 (International). The conference call will be replayed continuously beginning Thursday, July 21, at 3:30 p.m. EDT and concluding at 11:59 p.m. EDT on Thursday, July 28. Please dial 800-642-1687 (USA and Canada) or dial 706-645-9291 (International) and use access code 7593014. In addition, there will be a live audio Web cast of the conference call, which may be accessed at http://www.salliemae.com. A replay will be available 30-45 minutes after the live broadcast.