SLM (SLM) 8-K Sallie Mae Reports First-quarter 2009 Results

Exhibit 99.1

FOR IMMEDIATE RELEASE	Media Contact:	Investor Contacts:
	Martha Holler	Steve McGarry
	703/984-5678	703/984-6746
		Joe Fisher 703/984-5755

SALLIE MAE REPORTS FIRST-QUARTER 2009 RESULTS

Company Originates Record $6.6 Billion of Federal Student Loans

RESTON, Va., April 22, 2009— SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, reported net income on a core earnings basis of $14 million for the first quarter ended March 31, 2009. After payment of dividends to holders of the company’s preferred stock, the company reported a core earnings diluted loss per common share of $.03. The loss was the direct result of ongoing dislocation in the commercial paper (CP) market and a feature of the U.S. Department of Education (ED) participation program. These two items reduced core earnings by $.24 per diluted share.

     The majority of the company’s federal student loan portfolio earns interest based on CP rates and is funded with borrowings based on LIBOR. Dislocations in the capital markets continued to distort CP rates in the quarter so that the company’s asset yield was 42 basis points lower than normal. This reduced net interest income by $139 million, or $.19 per diluted share. In the fourth-quarter 2008, ED made an adjustment to mitigate the dislocation in the CP market and to better match money-market conditions. ED did not make a similar adjustment for the first-quarter 2009.

     Additionally, although the liability rate for loans funded through ED’s participation program is based on the prior quarter’s CP rates, the yield on the student loan is based on current quarter CP rates. The sharp decline in CP rates reduced net interest income by $40 million in the first quarter, or $.05 per diluted share.

     “Ironically, positive action taken by the federal government to stabilize the commercial paper markets is adversely impacting student loans and student-loan backed securities. The inordinately low CP rate also undermines the $400 billion student loan ABS market the U.S. Treasury and the Federal Reserve have been working to stabilize. We do not believe this result was intended and are working with Members of Congress to resolve the issue. We are also working with Congress and the Administration to help put in place a federal student loan infrastructure consistent with President Obama’s proposal to vastly expand Pell Grants,” said Albert L. Lord, vice chairman and CEO.

     During the first quarter, new extensions of credit remained strong. The company originated a record $6.6 billion of FFELP loans, compared to $6.0 billion in the year-ago quarter. “Our ability to continue to meet students’ needs in this environment is the direct result of the ECASLA legislation championed by Chairmen Miller and Kennedy,” Mr. Lord said.

     Private education loan originations were $1.5 billion, compared to $2.5 billion in the year-ago quarter. The decrease in private credit loan originations was due to a tightening of underwriting standards and the elimination of non-traditional private loan originations.

     The company provided $297 million for managed private education loan losses in the first quarter due in part to growth in loans in repayment status and higher delinquencies resulting from a continued weakening in the overall economy and a managed reduction of loans in forbearance status. The company charged off $202 million of managed private education loans during the quarter, an increase from $159 million in the prior quarter.

     Core earnings fee income, which consists primarily of fees earned from guarantor servicing and collection activity, was $239 million in the quarter, compared to $200 million in the prior quarter, and included a $74 million impairment in the purchased mortgage portfolio, due to continued weakening of the real estate market.

     Operating expenses were $296 million in the quarter, including $5 million in restructuring charges, compared to $360 million, including $21 million in restructuring charges, in the year-ago quarter.

     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 First Quarter 2009 Supplemental Earnings Disclosure.

     Sallie Mae reported a first-quarter 2009 GAAP net loss of $21 million, or $.10 diluted loss per share. These results include the impact of the CP-related issues discussed above. The company provided $203 million for private education loan losses and charged off $139 million of private education loans during the quarter.

***

The company will host earnings conference call tomorrow, April 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, April 23, 2009, starting at 7:45 a.m. EDT: (877) 356-5689 (USA and Canada) or (706) 679-0623 (International) and use access code 91859703. The conference call will be replayed continuously beginning at 11 a.m. EDT on Thursday, April 23, 2009, and concluding at midnight on May 7, 2009. To access the replay, please dial (800) 642-1687 (USA and Canada) or dial (706) 645-9291 (International) and use access code 91859703. In addition, there will be a live audio Web cast of the conference call, which may be accessed at www.salliemae.com.

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, general economic conditions, 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 First Quarter 2009. All information in this release is as of March 31, 2009. 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. Through its subsidiaries, the company manages $185 billion in education loans and has 10 million student and parent customers. Through its Upromise affiliates, the company also manages $17 billion in 529 college-savings plans, and is a major, private source of college funding contributions in America with 10 million members and more than $475 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 atwww.salliemae.com. SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.

###

SLM CORPORATION

Supplemental Earnings Disclosure

March 31, 2009

(In millions, except per share amounts)

	Quarters ended
	March 31,			December 31,			March 31,
	2009			2008			2008
	(unaudited)			(unaudited)			(unaudited)
SELECTED FINANCIAL INFORMATION AND RATIOS
GAAP Basis
Net loss attributable to SLM Corporation(1)	$	(21	)	$	(216	)	$	(104	)
Diluted loss per common share attributable to SLM Corporation common shareholders(1)	$	(.10	)	$	(.52	)	$	(.28	)
Return on assets		(.05	)%		(.56	)%		(.29	)%
“Core Earnings” Basis(2)
“Core Earnings” net income attributable to SLM Corporation(1)	$	14		$	65		$	188
“Core Earnings” diluted earnings (loss) per common share attributable to SLM Corporation common shareholders(1)	$	(.03	)	$	.08		$	.34
“Core Earnings” return on assets		.03	%		.14	%		.41	%
OTHER OPERATING STATISTICS
Average on-balance sheet student loans	$	149,662		$	144,826		$	129,341
Average off-balance sheet student loans		35,577			36,164			39,163
Average Managed student loans	$	185,239		$	180,990		$	168,504
Ending on-balance sheet student loans, net	$	150,374		$	144,802		$	131,013
Ending off-balance sheet student loans, net		34,961			35,591			38,462
Ending Managed student loans, net	$	185,335		$	180,393		$	169,475
Ending Managed FFELP Stafford and Other Student Loans, net	$	64,690		$	59,619		$	49,179
Ending Managed FFELP Consolidation Loans, net		86,228			87,275			90,105
Ending Managed Private Education Loans, net		34,417			33,499			30,191
Ending Managed student loans, net	$	185,335		$	180,393		$	169,475

(1)

On January 1, 2009, the Company adopted the Financial Accounting Standards Board’s Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51,” the provisions of which, among other things, require that minority interests be renamed, “noncontrolling interests,” and that a company present a consolidated net income (loss) measure that includes the amount attributable to such “noncontrolling interests” for all periods presented.

(2)

See explanation of “Core Earnings” performance measures under “Reconciliation of ‘Core Earnings’ Net Income to GAAP Net Income.”

SLM CORPORATION

Consolidated Balance Sheets

(In thousands, except per share amounts)

	March 31,			December 31,			March 31,
	2009			2008			2008
	(unaudited)						(unaudited)
Assets
FFELP Stafford and Other Student Loans (net of allowance for losses of $101,375; $90,906; and $52,238, respectively)	$	43,444,179		$	44,025,361		$	40,168,284
FFELP Stafford Loans Held-for-Sale		14,399,802			8,450,976			—
FFELP Consolidation Loans (net of allowance for losses of $50,919; $46,637; and $41,759, respectively)		70,885,647			71,743,435			73,867,639
Private Education Loans (net of allowance for losses of $1,384,455; $1,308,043; and $1,073,317, respectively)		21,644,579			20,582,298			16,977,146
Other loans (net of allowance for losses of $66,011; $58,395; and $44,575, respectively)		684,913			729,380			1,140,468
Cash and investments		3,748,192			5,111,407			5,318,506
Restricted cash and investments		3,855,546			3,535,286			4,170,934
Retained Interest in off-balance sheet securitized loans		1,950,566			2,200,298			2,874,481
Goodwill and acquired intangible assets, net		1,239,556			1,249,219			1,319,723
Other assets		9,698,331			11,140,777			13,335,811
Total assets	$	171,551,311		$	168,768,437		$	159,172,992
Liabilities
ED Participation Program facility	$	13,529,483		$	7,364,969		$	—
Term bank deposits		1,066,171			1,147,825			650,752
Other short-term borrowings		31,735,807			33,420,249			37,445,176
Total short-term borrowings		46,331,461			41,933,043			38,095,928
Long-term borrowings		116,669,381			118,224,794			112,485,060
Other liabilities		3,586,610			3,604,260			3,377,229
Total liabilities		166,587,452			163,762,097			153,958,217
Commitments and contingencies
Equity
Preferred stock, par value $.20 per share, 20,000 shares authorized:
Series A: 3,300; 3,300; and 3,300 shares, respectively, issued at stated value of $50 per share		165,000			165,000			165,000
Series B: 4,000; 4,000; and 4,000 shares, respectively, issued at stated value of $100 per share		400,000			400,000			400,000
Series C: 7.25% mandatory convertible preferred stock: 1,150; 1,150; and 1,150 shares, respectively, issued at liquidation preference of $1,000 per share		1,149,770			1,149,770			1,150,000
Common stock, par value $.20 per share, 1,125,000 shares authorized: 534,698; 534,411; and 533,678 shares, respectively, issued		106,940			106,883			106,736
Additional paid-in capital		4,694,155			4,684,112			4,610,278
Accumulated other comprehensive loss, net of tax benefit		(70,450	)		(76,476	)		(2,394	)
Retained earnings		378,387			426,175			617,184
Total SLM Corporation stockholders’ equity before treasury stock		6,823,802			6,855,464			7,046,804
Common stock held in treasury: 67,105; 66,958; and 66,301 shares, respectively		1,859,955			1,856,394			1,838,637
Total SLM Corporation stockholders’ equity		4,963,847			4,999,070			5,208,167
Noncontrolling interest		12			7,270			6,608
Total equity		4,963,859			5,006,340			5,214,775
Total liabilities and equity	$	171,551,311		$	168,768,437		$	159,172,992

2

SLM CORPORATION

Consolidated Statements of Income

(In thousands, except per share amounts)

	Quarters ended
	March 31,			December 31,			March 31,
	2009			2008			2008
	(unaudited)			(unaudited)			(unaudited)
Interest income (loss):
FFELP Stafford and Other Student Loans	$	342,816		$	516,204		$	464,476
FFELP Consolidation Loans		489,362			741,806			836,656
Private Education Loans		387,041			439,137			443,522
Other loans		16,420			18,161			23,344
Cash and investments		5,971			24,773			123,816
Total interest income		1,241,610			1,740,081			1,891,814
Total interest expense		1,026,547			1,529,522			1,615,445
Net interest income		215,063			210,559			276,369
Less: provisions for loan losses		250,279			252,415			137,311
Net interest income (loss) after provisions for loan losses		(35,216	)		(41,856	)		139,058
Other income (loss):
Servicing and securitization revenue (loss)		(95,305	)		87,557			107,642
Losses on sales of loans and securities, net		—			(64,007	)		(34,666	)
Gains (losses) on derivative and hedging activities, net		104,025			(292,903	)		(272,796	)
Contingency fee revenue		74,815			81,626			85,306
Collections revenue (loss)		(21,330	)		23,050			57,239
Guarantor servicing fees		34,008			26,199			34,653
Other		192,458			96,719			93,533
Total other income (loss)		288,671			(41,759	)		70,911
Expenses:
Restructuring expenses		4,773			5,849			20,678
Operating expenses		301,483			280,367			355,648
Total expenses		306,256			286,216			376,326
Loss before income tax benefit		(52,801	)		(369,831	)		(166,357	)
Income tax benefit		(31,696	)		(154,341	)		(62,488	)
Net loss		(21,105	)		(215,490	)		(103,869	)
Less: net income (loss) attributable to noncontrolling interest		281			527			(65	)
Net loss attributable to SLM Corporation		(21,386	)		(216,017	)		(103,804	)
Preferred stock dividends		26,395			27,316			29,025
Net loss attributable to SLM Corporation common stock	$	(47,781	)	$	(243,333	)	$	(132,829	)
Basic loss per common share attributable to SLM Corporation common shareholders	$	(.10	)	$	(.52	)	$	(.28	)
Average common shares outstanding		466,761			466,692			466,580
Diluted loss per common share attributable to SLM Corporation common shareholders	$	(.10	)	$	(.52	)	$	(.28	)
Average common and common equivalent shares outstanding		466,761			466,692			466,580
Dividends per common share attributable to SLM Corporation common shareholders	$	—		$	—		$	—

3

SLM CORPORATION

Segment and “Core Earnings”

Consolidated Statements of Income

(In thousands)

	Quarter ended March 31, 2009
			Asset
			Performance			Corporate		Total “Core						Total
	Lending		Group			and Other		Earnings”			Adjustments			GAAP
	(unaudited)
Interest income (loss):
FFELP Stafford and Other Student Loans	$	361,919	$	—		$	—	$	361,919		$	(19,103	)	$	342,816
FFELP Consolidation Loans		438,896		—			—		438,896			50,466			489,362
Private Education Loans		563,282		—			—		563,282			(176,241	)		387,041
Other loans		16,420		—			—		16,420			—			16,420
Cash and investments		2,179		—			5,128		7,307			(1,336	)		5,971
Total interest income		1,382,696		—			5,128		1,387,824			(146,214	)		1,241,610
Total interest expense		949,248		5,492			4,139		958,879			67,668			1,026,547
Net interest income (loss)		433,448		(5,492	)		989		428,945			(213,882	)		215,063
Less: provisions for loan losses		349,086		—			—		349,086			(98,807	)		250,279
Net interest income (loss) after provisions for loan losses		84,362		(5,492	)		989		79,859			(115,075	)		(35,216	)
Contingency fee revenue		—		74,815			—		74,815			—			74,815
Collections revenue (loss)		—		(22,019	)		—		(22,019	)		689			(21,330	)
Guarantor servicing fees		—		—			34,008		34,008			—			34,008
Other income (loss)		102,368		—			49,781		152,149			49,029			201,178
Total other income (loss)		102,368		52,796			83,789		238,953			49,718			288,671
Restructuring expenses		1,062		1,655			2,056		4,773			—			4,773
Operating expenses		131,178		88,471			71,970		291,619			9,864			301,483
Total expenses		132,240		90,126			74,026		296,392			9,864			306,256
Income (loss) before income tax expense (benefit)		54,490		(42,822	)		10,752		22,420			(75,221	)		(52,801	)
Income tax expense (benefit)(1)		20,063		(15,767	)		3,959		8,255			(39,951	)		(31,696	)
Less: net income attributable to noncontrolling interest		—		281					281			—			281
Net income (loss) attributable to SLM Corporation	$	34,427	$	(27,336	)	$	6,793	$	13,884		$	(35,270	)	$	(21,386	)

⁽¹⁾ Income taxes are based on a percentage of net income before tax for the individual reportable segment.

4

SLM CORPORATION

Segment and “Core Earnings”

Consolidated Statements of Income

(In thousands)

	Quarter ended December 31, 2008
			Asset
			Performance			Corporate		Total “Core					Total
	Lending		Group			and Other		Earnings”		Adjustments			GAAP
	(unaudited)
Interest income (loss):
FFELP Stafford and Other Student Loans	$	586,206	$	—		$	—	$	586,206	$	(70,002	)	$	516,204
FFELP Consolidation Loans		856,267		—			—		856,267		(114,461	)		741,806
Private Education Loans		659,057		—			—		659,057		(219,920	)		439,137
Other loans		18,161		—			—		18,161		—			18,161
Cash and investments		20,606		—			7,032		27,638		(2,865	)		24,773
Total interest income		2,140,297		—			7,032		2,147,329		(407,248	)		1,740,081
Total interest expense		1,584,442		5,628			4,296		1,594,366		(64,844	)		1,529,522
Net interest income (loss)		555,855		(5,628	)		2,736		552,963		(342,404	)		210,559
Less: provisions for loan losses		392,211		—			—		392,211		(139,796	)		252,415
Net interest income (loss) after provisions for loan losses		163,644		(5,628	)		2,736		160,752		(202,608	)		(41,856	)
Contingency fee revenue		—		81,626			—		81,626		—			81,626
Collections revenue		—		21,829			—		21,829		1,221			23,050
Guarantor servicing fees		—		—			26,199		26,199		—			26,199
Other income (loss)		18,563		—			52,042		70,605		(243,239	)		(172,634	)
Total other income (loss)		18,563		103,455			78,241		200,259		(242,018	)		(41,759	)
Restructuring expenses		2,881		1,771			1,197		5,849		—			5,849
Operating expenses		128,898		75,931			64,845		269,674		10,693			280,367
Total expenses		131,779		77,702			66,042		275,523		10,693			286,216
Income (loss) before income tax expense (benefit)		50,428		20,125			14,935		85,488		(455,319	)		(369,831	)
Income tax expense (benefit)(1)		5,208		9,610			5,131		19,949		(174,290	)		(154,341	)
Less: net income attributable to noncontrolling interest		—		527			—		527		—			527
Net income (loss) attributable to SLM Corporation	$	45,220	$	9,988		$	9,804	$	65,012	$	(281,029	)	$	(216,017	)

⁽¹⁾ Income taxes are based on a percentage of net income before tax for the individual reportable segment.

5

SLM CORPORATION

Segment and “Core Earnings”

Consolidated Statements of Income

(In thousands)

	Quarter ended March 31, 2008
			Asset
			Performance			Corporate		Total “Core						Total
	Lending		Group			and Other		Earnings”			Adjustments			GAAP
	(unaudited)
Interest income (loss):
FFELP Stafford and Other Student Loans	$	494,382	$	—		$	—	$	494,382		$	(29,906	)	$	464,476
FFELP Consolidation Loans		988,486		—			—		988,486			(151,830	)		836,656
Private Education Loans		749,321		—			—		749,321			(305,799	)		443,522
Other loans		23,344		—			—		23,344			—			23,344
Cash and investments		141,902		—			6,267		148,169			(24,353	)		123,816
Total interest income		2,397,435		—			6,267		2,403,702			(511,888	)		1,891,814
Total interest expense		1,824,471		6,840			5,202		1,836,513			(221,068	)		1,615,445
Net interest income (loss)		572,964		(6,840	)		1,065		567,189			(290,820	)		276,369
Less: provisions for loan losses		181,321		—			—		181,321			(44,010	)		137,311
Net interest income (loss) after provisions for loan losses		391,643		(6,840	)		1,065		385,868			(246,810	)		139,058
Contingency fee revenue		—		85,306			—		85,306			—			85,306
Collections revenue		—		56,361			—		56,361			878			57,239
Guarantor servicing fees		—		—			34,653		34,653			—			34,653
Other income (loss)		44,345		—			50,641		94,986			(201,273	)		(106,287	)
Total other income (loss)		44,345		141,667			85,294		271,306			(200,395	)		70,911
Restructuring expenses		15,550		434			4,694		20,678			—			20,678
Operating expenses		163,636		106,142			69,655		339,433			16,215			355,648
Total expenses		179,186		106,576			74,349		360,111			16,215			376,326
Income (loss) before income tax expense (benefit)		256,802		28,251			12,010		297,063			(463,420	)		(166,357	)
Income tax expense (benefit)(1)		94,067		10,348			4,399		108,814			(171,302	)		(62,488	)
Less: net loss attributable to noncontrolling interest		—		(65	)		—		(65	)		—			(65	)
Net income (loss) attributable to SLM Corporation	$	162,735	$	17,968		$	7,611	$	188,314		$	(292,118	)	$	(103,804	)

⁽¹⁾ Income taxes are based on a percentage of net income before tax for the individual reportable segment.

6

SLM CORPORATION

Reconciliation of “Core Earnings” Net Income to GAAP Net Income

(In thousands, except per share amounts)

	Quarters ended
	March 31,			December 31,			March 31,
	2009			2008			2008
	(unaudited)			(unaudited)			(unaudited)
“Core Earnings” net income attributable to SLM Corporation(A)	$	13,884		$	65,012		$	188,314
“Core Earnings” adjustments:
Net impact of securitization accounting		(198,590	)		31,583			(79,146	)
Net impact of derivative accounting		54,010			(441,631	)		(363,368	)
Net impact of Floor Income		79,023			(34,949	)		(5,577	)
Net impact of acquired intangibles		(9,664	)		(10,322	)		(15,329	)
Total “Core Earnings” adjustments before net tax effect		(75,221	)		(455,319	)		(463,420	)
Net tax effect		39,951			174,290			171,302
Total “Core Earnings” adjustments		(35,270	)		(281,029	)		(292,118	)
GAAP net loss attributable to SLM Corporation	$	(21,386	)	$	(216,017	)	$	(103,804	)
GAAP diluted loss per common share attributable to SLM Corporation common shareholders	$	(.10	)	$	(.52	)	$	(.28	)
(A)  “Core Earnings” diluted earnings (loss) per common share attributable to SLM Corporation common shareholders	$	(.03	)	$	.08		$	.34

“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

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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 and changing credit spreads 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 our presentation of our results on a “Core Earnings” basis provides important information regarding the performance of our Managed portfolio, a limitation of this presentation is that we are presenting the ongoing spread income on loans that have been sold to a trust managed by us. 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 real 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 and tracking results, and also in establishing corporate performance targets and incentive compensation. 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.

1)

Securitization Accounting:Under GAAP, certain securitization transactions in our Lending operating segment are accounted for as sales of assets. Under “Core Earnings” for the Lending operating segment, we present all securitization transactions on a “Core Earnings” basis as long-term non-recourse financings. The upfront “gains” on sale from securitization transactions, as well as ongoing “servicing and securitization revenue” presented in accordance with GAAP, are excluded from “Core Earnings” and are replaced by interest income, provisions for loan losses, and interest expense as earned or incurred on the securitization loans. We also exclude transactions with our off-balance sheet trusts from “Core Earnings” as they are considered intercompany transactions on a “Core Earnings” basis.

2)

Derivative Accounting:“Core Earnings” exclude periodic unrealized gains and losses that are caused primarily by the one-sided mark-to-market derivative valuations prescribed by SFAS No. 133 on derivatives that do not qualify for “hedge treatment” under GAAP. These unrealized gains and losses

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occur in our Lending operating segment. In our “Core Earnings” presentation, we recognize the economic effect of these hedges, which generally results in any cash paid or received being recognized ratably as an expense or revenue over the hedged item’s life.

3)

Floor Income:The timing and amount (if any) of Floor Income earned in our Lending operating segment is uncertain and in excess of expected spreads. Therefore, we exclude such income from “Core Earnings” when it is not economically hedged. We employ derivatives, primarily Floor Income Contracts and futures, to economically hedge Floor Income. As discussed above in “Derivative Accounting,” these derivatives do not qualify as effective accounting hedges, and therefore, under GAAP, they are marked-to-market through the “gains (losses) on derivative and hedging activities, net” line in the consolidated statement of income with no offsetting gain or loss recorded for the economically hedged items. For “Core Earnings,” we reverse the fair value adjustments on the Floor Income Contracts and futures economically hedging Floor Income and include the amortization of net premiums received in income.

4)

Acquired Intangibles:Our “Core Earnings” exclude goodwill and intangible impairment and the amortization of acquired intangibles.

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