Sallie Mae Reports Third-Quarter 2008 Results

SLM Corporation (NYSE:SLM), commonly known as Sallie Mae, today reported that, despite dislocation in the credit markets during the 2008 third quarter, its core student loan businesses were profitable, and its total managed student loan portfolio performed within expectations. The company’s managed student loan portfolio totaled $177.7 billion at Sept. 30, 2008, compared to $159.8 billion one year ago.

Private loan delinquencies increased during the quarter primarily as a result of seasonal factors and the continued weakening of the U.S. economy. To reflect a more conservative outlook over this year and next, Sallie Mae increased its provisions for loan losses.

For the 2008 third quarter, "core earnings” net income totaled $117 million, or $.19 diluted earnings per share. These results include the after-tax effects of restructuring-related expenses of $7 million ($.02 diluted loss per share), purchased-paper business losses of $147 million ($.31 diluted loss per share), and a reduction of premium expense on student loans as a result of prepayment assumption changes of $74 million ($.16 diluted earnings per share). For the 2007 third quarter, "core earnings” net income totaled $259 million, or $.59 diluted earnings per share.

Sallie Mae had a third-quarter 2008 GAAP net loss of $159 million, or $.40 diluted loss per share, compared to a GAAP net loss of $344 million, or $.85 diluted loss per share, in the 2007 third quarter. The third-quarter 2008 GAAP results include the net impact of a $201 million unrealized, mark-to-market, pre-tax loss on certain derivative contracts that are recognized in GAAP, but not in "core earnings,” results.

In addition to presenting certain "core earnings” performance measures, Sallie Mae reports financial results on a GAAP basis. The company's management, equity investors, credit rating agencies and debt capital providers use "core earnings” measures to monitor the company’s business performance. Both a description of the "core earnings” treatment and a full reconciliation to the GAAP income statement can be found at: http://www.salliemae.com/about/investors/stockholderinfo/earningsinfo/ , click on the Third Quarter 2008 Supplemental Earnings Disclosure.

"In the midst of this extraordinary financial crisis, we helped 1.5 million students get the loans they needed to attend college this fall,” said Albert L. Lord, vice chairman and CEO. "Thanks to the actions earlier this year by Congress and the Administration, we have been able to meet our commitment to make federal loans available to every student at every school in the nation.”

The company received $3.6 billion in funding advances from the U.S. Department of Education during the third-quarter 2008 under its new program to provide liquidity for new federal student loans. Early in the quarter, the company completed $6.7 billion in federal student loan term, asset-backed securitization transactions. During the 2008 third quarter, Sallie Mae reduced the commitments under asset-backed commercial paper facilities to $28 billion from $34 billion. The company is confident in its ability to extend these facilities beyond their February 2009 maturity.

Student loans originated through Sallie Mae’s internal brands, the largest segment of total student loan originations, were $6.8 billion in the third-quarter 2008, up 17 percent from the year-ago quarter’s $5.8 billion. The volume of federal student loans originated by the company’s internal brands during the 2008 third quarter grew 51 percent from the year-ago period. Sallie Mae expects its internal lending brands to represent the overwhelming majority of total student loan originations in the future.

Total student loan originations were $7.7 billion in the 2008 third quarter, compared to $8.9 billion in the year-ago period. The decrease was driven by a shift from purchasing to servicing external lender partners’ loans and the effect of tightening private loan underwriting criteria.

The company’s Third Quarter 2008 Supplemental Earnings Disclosure is available on the company's Web site at www.salliemae.com/about/investors/stockholderinfo/earningsinfo. Presentation slides used during the company's investor conference call may be accessed at www.salliemae.com/about/investors/stockholderinfo/webcast no later than the starting time of the conference call.

The company will host an earnings conference call tomorrow, Oct. 23 at 8 a.m. EDT. 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 tomorrow, Oct. 23 2008, starting at 7:45 a.m. EDT: (877) 356-5689 (USA and Canada) or (706) 679-0623 (International) and use access code 66263819. The conference call will be replayed continuously beginning at 11 a.m. EDT on Thursday, Oct. 23, 2008, and concluding at midnight on Nov. 6, 2008. To access the replay, please dial (800) 642-1687 (USA and Canada) or dial (706) 645-9291 (International) and use access code 66263819. In addition, there will be a live audio Web cast of the conference call, which may be accessed at www.salliemae.com. A replay will be available 30 to 45 minutes after the live broadcast.

This press release contains "forward-looking statements” based on management’s current expectations as of the date of this release. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks include, among others, changes in the terms of student loans and the educational credit marketplace arising from the implementation of applicable laws and regulations, and from changes in such laws and regulations, adverse results in legal disputes, changes in the demand for educational financing or in financing preferences of educational institutions, students and their families, limited liquidity, increased financing costs and changes in the general interest rate environment. For more information, see the company's filings with the Securities and Exchange Commission, including the forward-looking statements contained in the company’s Supplemental Financial Information Third Quarter 2008. All information in this release is as of Oct. 22, 2008. The Company does not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in the Company’s expectations.

SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, is the nation’s leading provider of saving- and paying-for-college programs. The company manages nearly $178 billion in education loans and serves 10 million student and parent customers. Through its Upromise affiliates, the company also manages more than $19 billion in 529 college-savings plans, and is a major, private source of college funding contributions in America with 9.5 million members and $450 million in member rewards. Sallie Mae and its subsidiaries offer debt management services as well as business and technical products to a range of business clients, including higher education institutions, student loan guarantors and state and federal agencies. More information is available at www.salliemae.com. SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.

"Core Earnings”

In accordance with the Rules and Regulations of the Securities and Exchange Commission ("SEC”), we prepare financial statements in accordance with generally accepted accounting principles in the United States of America ("GAAP”). In addition to evaluating the Company’s GAAP-based financial information, management evaluates the Company’s business segments on a basis that, as allowed under the Financial Accounting Standards Board’s Statement of Financial Accounting Standards ("SFAS”) No. 131, "Disclosures about Segments of an Enterprise and Related Information,” differs from GAAP. We refer to management’s basis of evaluating our segment results as "Core Earnings” presentations for each business segment and we refer to this information in our presentations with credit rating agencies and lenders. While "Core Earnings” are not a substitute for reported results under GAAP, we rely on "Core Earnings” to manage each operating segment because we believe these measures provide additional information regarding the operational and performance indicators that are most closely assessed by management.

Our "Core Earnings” are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. "Core Earnings” net income reflects only current period adjustments to GAAP net income as described below. Unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting and as a result, our management reporting is not necessarily comparable with similar information for any other financial institution. Our operating segments are defined by products and services or by types of customers, and reflect the manner in which financial information is currently evaluated by management. Intersegment revenues and expenses are netted within the appropriate financial statement line items consistent with the income statement presentation provided to management. Changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial information.

Limitations of "Core Earnings”

While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, management believes that "Core Earnings” are an important additional tool for providing a more complete understanding of the Company’s results of operations. Nevertheless, "Core Earnings” are subject to certain general and specific limitations that investors should carefully consider. For example, as stated above, unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting. Our "Core Earnings” are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Unlike GAAP, "Core Earnings” reflect only current period adjustments to GAAP. Accordingly, the Company’s "Core Earnings” presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not compare our Company’s performance with that of other financial services companies based upon "Core Earnings.” "Core Earnings” 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 lenders to assess performance.

Other limitations arise from the specific adjustments that management makes to GAAP results to derive "Core Earnings” results. For example, in reversing the unrealized gains and losses that result from SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,” on derivatives that do not qualify for "hedge treatment,” as well as on derivatives that do qualify but are in part ineffective because they are not perfect hedges, we focus on the long-term economic effectiveness of those instruments relative to the underlying hedged item and isolate the effects of interest rate volatility, changing credit spreads and changes in our stock price on the fair value of such instruments during the period. Under GAAP, the effects of these factors on the fair value of the derivative instruments (but not on the underlying hedged item) tend to show more volatility in the short term. While presentation of our results on a "Core Earnings” basis provides important information regarding the performance of our Managed loan portfolio, a limitation of this presentation is that we present the ongoing spread income on loans that have been sold to a trust we manage. While we believe that our "Core Earnings” presentation presents the economic substance of our Managed loan portfolio, it understates earnings volatility from securitization gains. Our "Core Earnings” results exclude certain Floor Income, which is cash income, from our reported results and therefore may understate earnings in certain periods. Management’s financial planning and valuation of operating results, however, does not take into account Floor Income because of its inherent uncertainty, except when it is economically hedged through Floor Income Contracts.

Pre-Tax Differences between "Core Earnings” and GAAP

Our "Core Earnings” are the primary financial performance measures used by management to evaluate performance and to allocate resources. Accordingly, financial information is reported to management on a "Core Earnings” basis by reportable segment, as these are the measures used regularly by our chief operating decision makers. Our "Core Earnings” are used in developing our financial plans, tracking results, and establishing corporate performance targets. Management believes this information provides additional insight into the financial performance of the Company’s core business activities. "Core Earnings” net income reflects only current period adjustments to GAAP net income, as described in the more detailed discussion of the differences between "Core Earnings” and GAAP that follows, which includes further detail on each specific adjustment required to reconcile our "Core Earnings” segment presentation to our GAAP earnings.