SLM Corp

We present the results of operations below on a consolidated basis in accordance with GAAP.

GAAP Consolidated Statements of Income

2023 Form 10-K — SLM CORPORATION 51

GAAP Consolidated Earnings Summary

Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

For the year ended December 31, 2023, net income was $581 million, or $2.41 diluted earnings per common share, compared with net income of $469 million, or $1.76 diluted earnings per common share, for the year ended December 31, 2022. The year-over-year increase was primarily attributable to less provisions for credit losses and an increase in total net interest income and other income, which were offset by decreases in gains on sales of loans, net, and higher operating expenses.

The primary contributors to each of the identified drivers of change in net income for the current year period compared with the year-ago period are as follows:

•Net interest income in 2023 increased by $73 million compared with the year-ago period primarily due to a $375 million increase in average Private Education Loans and FFELP Loans outstanding and a 19-basis point increase in our net interest margin. Our net interest margin increased in the current period from the year-ago period because of the dramatic increase in interest rates over the past year. When interest rates rise, the yield on our interest-earning assets typically increases faster than our cost of funds. As such, as rates increased in 2023, we saw our net interest margin increase.

•Provision for credit losses in 2023 was $345 million, compared with $633 million in the year-ago period. During 2023, the provision for credit losses was primarily affected by new loan commitments, net of expired commitments, slower prepayment rates, management overlays, and changes in economic outlook, which were partially offset by $205 million in negative provisions recorded as a result of the approximately $3.15 billion in Private Education Loan sales during 2023 and an increase in recovery rates (as a result of the change in our defaulted loan recovery process). In the year-ago period, the provision for credit losses was primarily affected by new loan commitments made during the period, slower than expected prepayment rates, and additional management overlays, which were partially offset by negative provisions recorded related to $3.34 billion in Private Education Loans sold in 2022 and the adoption of a new loss model that included a reduction in the long-term estimate of losses after the reasonable and supportable period. Management overlays increased in 2022 due to several factors, including additional provisions for our expectation of higher future loan losses related to the previously announced credit administration practices changes we implemented in 2021, “gap year” loans, a shortage and lack of tenured collections staff, and other operational challenges we experienced in 2022.

•Gains on sales of loans, net, were $160 million in 2023, compared with $328 million in the year-ago period. The decrease in gains on sales of loans was primarily the result of selling approximately $3.15 billion of Private Education Loans in 2023, compared with the sale of approximately $3.34 billion of Private Education Loans in the year-ago period, and lower sales premiums received in 2023 compared to the year-ago period, which were attributable to higher interest rates in 2023. We also sold our Credit Card loan portfolio in May 2023 and recorded a $4 million loss on the sale in 2023.

•Gains (losses) on securities, net, were $3 million in gains in 2023, compared with a net loss of $60 million in the year-ago period. The gains on securities, net, in 2023 were related to the changes in mark-to-fair value of our trading investments. During 2022, we determined that an investment in non-marketable equity securities was impaired. As such, we wrote down the value by $60 million in 2022 based upon an estimate of the value of these securities.

•Other income was $84 million in 2023, compared with $67 million in the year-ago period. The increase in other income compared with the year-ago period was primarily the result of a $13 million increase in third-party servicing fees from the year-ago period and a $2 million increase in Private Education Loan late fees compared with the year-ago period.

•For the year ended December 31, 2023, total operating expenses were $619 million, compared with $551 million in the year-ago period. The increase in total operating expenses was primarily driven by higher personnel costs, initiative spending, and higher FDIC assessment fees, which were partially offset by lower Credit Card portfolio expenses as a result of the sale of the portfolio.

•In 2023, we recorded $66 million in impairment and amortization of acquired intangible assets, compared with $8 million in the year-ago period. During the fourth quarter of 2023, we recorded an impairment of $56 million as a result of a write-down of the value of the Nitro trade name and trademarks intangible assets. This write-down occurred because we plan to discontinue the use of the Nitro trade name and trademarks in 2024 and transition the related branding to the Sallie and Sallie Mae brands and platforms. In 2023, we recorded $10 million in amortization expense of acquired intangible assets, compared to $8 million in the year-ago period. The increase

52 SLM CORPORATION—2023 Form 10-K in amortization expense is related to our acquisition of several key assets of Scholly in the third quarter of 2023. For additional information, see Notes to Consolidated Financial Statements, Note 10, “Goodwill and Acquired Intangible Assets” in this Form 10-K.

•Income tax expense for the year ended December 31, 2023 was $197 million, compared with $162 million in the year-ago period. The effective tax rate decreased in 2023 to 25.3 percent from 25.6 percent in the year-ago period. The decrease in the effective rate for 2023 was primarily attributable to an increase in tax credits utilized in the year.

Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

For the year ended December 31, 2022, net income was $469 million, or $1.76 diluted earnings per common share,

compared with net income of $1.16 billion, or $3.61 diluted earnings per common share, for the year ended December 31,

2021. The year-over-year decrease was primarily attributable to higher provisions for credit losses, decreases in gains on

sales of loans, net, and other income, and higher operating expenses, which were offset by an increase in total net

interest income.

The primary contributors to each of the identified drivers of change in net income for 2022 compared with 2021 are as follows:

•Net interest income in 2022 increased by $94 million compared with 2021 primarily due to a 50-basis point increase in our net interest margin, which more than offset a $922 million reduction in average interest-earning assets. Our net interest margin increased in 2022 from 2021 because of a combination of factors, including an $855 million reduction in low-yielding average cash and other short-term investments, and a $367 million increase in average taxable securities. Historically, the yields on interest-earnings assets reprice more quickly than our cost of funds. As such, as rates increased in 2022, the yields on our interest-earning assets increased 111 basis points, while the cost of our interest-bearing liabilities only increased 63 basis points, compared with 2021. The higher level of cash and other short-term investments in 2021 was primarily the result of $4.2 billion in Private Education Loan sales that occurred in 2021.

•Provision for credit losses in 2022 was $633 million, compared with a negative provision of $33 million in 2021. During 2022, the provision for credit losses was primarily affected by new loan commitments made during the period, slower prepayment rates, and additional management overlays, which were partially offset by negative provisions recorded related to $3.34 billion in Private Education Loans sold in 2022, and the adoption of a new loss model that included a reduction in the long-term estimate of losses after the reasonable and supportable period. Management overlays increased in 2022 due to several factors, including additional provisions for our expectation of higher future loan losses related to the previously announced credit administration practices changes we implemented in 2021, “gap year” loans, a shortage and lack of tenured collections staff, and other operational challenges we experienced in 2022. “Gap year” loans refer to loans to borrowers who took a “gap year” during the COVID-19 pandemic and entered full principal and interest repayment status starting in late 2021 and early 2022. Losses on these “gap year” loans were higher than expected and contributed to the higher provision expense recorded in 2022 to cover the higher-than-expected losses. In 2021, the provision for credit losses was favorably affected by improved economic forecasts in 2021 and faster prepayments speeds. In addition, during the first quarter of 2021, we increased our estimates of future prepayment speeds during both the two-year reasonable and supportable period as well as the remaining term of the underlying loans. The faster estimated prepayment speeds reflected the significant improvement in economic forecasts as well as the implementation of an updated prepayment speed model in the first quarter of 2021.

•Gains on sales of loans, net, were $328 million in 2022, compared with $548 million in 2021. Higher interest rates in 2022 compared with 2021 resulted in the amount the buyers were willing to pay on our loans in 2022 to decrease compared with 2021. The decrease in gains on sales of loans, net, also was the result of $90 million less in Private Education Loan sales in 2022 when compared with 2021.

•Gains (losses) on securities, net, was a loss of $60 million in 2022, compared with a gain of $39 million in 2021. During 2022, we determined that an investment in non-marketable equity securities was impaired. As such, we wrote down the value based upon an estimate of the value of these securities. The gain recorded in 2021 was primarily the result of a $35 million increase in the valuation of the same non-marketable securities.

•Other income was $67 million in 2022, compared with $45 million in 2021. Other income in 2021 was negatively affected by a $5 million reduction in the tax indemnification receivable related to uncertain tax positions and by a $3 million loss from fees related to the redemption of $200 million of our 5.125 percent unsecured senior notes

2023 Form 10-K — SLM CORPORATION 53 due in April 2022. Also, in the year ended December 31, 2022, we recorded a $10 million increase in third-party servicing fees and a $4 million increase in Private Education Loan late fees versus 2021.

•For the year ended December 31, 2022, total operating expenses were $551 million, compared with $519 million in 2021. The increase in total operating expenses was primarily driven by transaction costs related to our acquisition of Nitro, higher personnel costs, and initiative spending.

•In 2022, we recorded $8 million in amortization of acquired intangible assets related to our acquisition of Nitro in the first quarter of 2022. For additional information, see Notes to Consolidated Financial Statements, Note 10, “Goodwill and Acquired Intangible Assets” in this Form 10-K.

•Income tax expense for the year ended December 31, 2022 was $162 million, compared with $380 million in 2021. The effective tax rate increased in 2022 to 25.6 percent from 24.7 percent in 2021. The increase in the effective rate for 2022 was primarily due to an increase in the valuation allowance against future tax benefits, and lower-than-expected tax credits in 2022.

Non-GAAP “Core Earnings”

We prepare financial statements in accordance with GAAP. However, we also produce and report our after-tax earnings on a separate basis that we refer to as non-GAAP “Core Earnings.” The difference between our non-GAAP “Core Earnings” and GAAP results for periods presented generally is driven by the unrealized, mark-to-fair value gains (losses) on derivative contracts recognized in GAAP, but not in non-GAAP “Core Earnings.”

Non-GAAP “Core Earnings” recognizes the difference in accounting treatment based upon whether a derivative qualifies for hedge accounting treatment. We enter into derivative instruments to economically hedge interest rate and cash flow risk associated with our portfolio. We believe that our derivatives are effective economic hedges and, as such, are a critical element of our interest rate risk management strategy. Those derivative instruments that qualify for hedge accounting treatment have their related cash flows recorded in interest income or interest expense along with the hedged item. Some of our derivatives do not qualify for hedge accounting treatment and the stand-alone derivative must be marked-to-fair value in the income statement with no consideration for the corresponding change in fair value of the hedged item. These gains and losses, recorded in “Gains (losses) on derivatives and hedging activities, net,” are primarily caused by interest rate volatility and changing credit spreads during the period as well as the volume and term of derivatives not receiving hedge accounting treatment. Cash flows on derivative instruments that do not qualify for hedge accounting are not recorded in interest income and interest expense; they are recorded in non-interest income: “Gains (losses) on derivatives and hedging activities, net.”

The adjustments required to reconcile from our non-GAAP “Core Earnings” results to our GAAP results of operations, net of tax, relate to differing treatments for those derivative instruments used to hedge our economic risks that do not qualify for hedge accounting treatment. The amount recorded in “Gains (losses) on derivatives and hedging activities, net” includes (i) the accrual of the current payment on the interest rate swaps that do not qualify for hedge accounting treatment, and (ii) the change in fair values related to future expected cash flows for derivatives that do not qualify for hedge accounting treatment. For purposes of non-GAAP “Core Earnings,” we include in GAAP earnings the current period accrual amounts (interest reclassification) on the swaps and exclude the change in fair values for those derivatives not qualifying for hedge accounting treatment. Non-GAAP “Core Earnings” is meant to represent what earnings would have been had these derivatives qualified for hedge accounting and there was no ineffectiveness.

Non-GAAP “Core Earnings” are not a substitute for reported results under GAAP. We provide a non-GAAP “Core Earnings” basis of presentation because (i) earnings per share computed on a non-GAAP “Core Earnings” basis is one of several measures we utilize to evaluate management performance and allocate corporate resources, and (ii) we believe it better reflects the financial results for derivatives that are economic hedges of interest rate risk, but which do not qualify for hedge accounting treatment.

GAAP provides a uniform, comprehensive basis of accounting. Our non-GAAP “Core Earnings” basis of presentation differs from GAAP in the way it treats derivatives as described above.

The following table shows the amount in “Gains (losses) on derivatives and hedging activities, net” that relates to the interest reclassification on the derivative contracts. There were no gains (losses) on derivative and hedging activities in the year ended December 31, 2023.

54 SLM CORPORATION—2023 Form 10-K

The following table reflects adjustments associated with our derivative activities.

(1) Derivative Accounting: Non-GAAP “Core Earnings” exclude periodic unrealized gains and losses caused by the mark-to-fair value valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, but include current period accruals on the derivative instruments. Under GAAP, for our derivatives held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0.

(2) Non-GAAP “Core Earnings” tax rate is based on the effective tax rate at the Bank, where the derivative instruments are held.

2023 Form 10-K — SLM CORPORATION 55