The following excerpt is from the company's
SEC filing.
2 Forward-Looking Statements and Disclaimer Cautionary Note
Regarding Forward-Looking Statements The following information is
current as of October 21, 2015 (unless otherwise noted) and should
be read in connection with the Quarterly Report of SLM Corporation
(the “Company”) on Form 10-Q for the quarter ended September 30,
2015 (filed with the Securities and Exchange Commission (“SEC”) on
October 21, 2015) and subsequent reports filed with the SEC. This
Presentation contains “forward-looking” statements and information
based on management’s current expectations as of the date of this
presentation. State ments that are not historical facts, including
statements about the Company’s beliefs, opinions or expectations
and statements that assume or are dependent upon future events, are
forward-looking statements. Forward- looking statements are subject
to risks, uncertainties, assumptions and other factors that may
cause actual results to be materially different from those
reflected in such forward-looking statements. These factors
include, among others, the risks and uncertainties set forth in
Item 1A “Risk Factors” and elsewhere in the Company’s Annual Report
on Form 10-K for the year ended Dec. 31, 2014 (filed with the SEC
on Feb. 26, 2015) and subsequent filings with the SEC; increases in
financing costs; limits on liquidity; increases in costs associated
with compliance with laws and regulations; changes in accounting
standards and the impact of related changes in significant
accounting estimates; any adverse outcomes in any significant
litigation to which the Company is a party; credit risk associated
with the Company’s exposure to third parties, including
counterparties to the Company’s derivative transactions; and
changes in the terms of education loans and the educational credit
marketplace (including changes resulting from new laws and the
implementation of existing laws). The Company could also be
affected by, among other things: changes in its funding costs and
availability; reductions to its credit ratings; failures or
breaches of its operating systems or infrastructure, including
those of third-party vendors; damage to its reputation; failures or
breaches to successfully implement cost-cutting and restructuring
initiatives and adverse effects of such initiatives on the
Company’s business; risks associated with restructuring
initiatives; changes in the demand for educational financing or in
financing preferences of lenders, educational institutions,
students and their families; changes in law and regulations with
respect to the student lending business and financial institutions
generally; changes in banking rules and regulations, including
increased capital requirements; increased competition from banks
and other consumer lenders; the creditworthiness of customers;
changes in the general interest rate environment, including the
rate relationships among relevant money-market instruments and
those of earning assets versus funding arrangements; rates of
prepayment on the loans made by the Company and its subsidiaries;
changes in general economic conditions and the Company’s ability to
successfully effectuate any acquisitions; and other strategic
initiatives. The preparation of the Company’s consolidated
financial statements also requires management to make certain
estimates and assumptions, including estimates and assumptions
about future events. These estimates or assumptions may prove to be
incorrect. All forward-looking statements contained in this
Presentation are qualified by these cautionary statements and are
made only as of the date of this Presentation. The Company does not
undertake any obligation to update or revise these forward-looking
statements to conform such statements to actual results or changes
in its expectations. The Company reports financial results on a
GAAP basis and also provides certain core earnings performance
measures. The difference between the Company’s “Core Earnings” and
GAAP results for the periods presented were the unrealized,
mark-to-market gains/losses on derivative contracts. These are
recognized in GAAP but not in “Core Earnings” results. The Company
provides “Core Earnings” measures because this is what management
uses when making management decisions regarding the Company’s
performance and the allocation of corporate resources. The
Company’s “Core Earnings” are not defined terms within GAAP and may
not be comparable to similarly titled measures reported by other
companies. For additional information, see “Management’s Discussion
and Analysis of Financial Condition and Results of Operations –
GAAP Consolidated Earnings Summary-Core Earnings” in the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30,
2015 for a further discussion and for a complete reconciliation
between GAAP net income and core earnings. Disclaimer. A
significant portion of the historical data relating to historical
Smart Option Student Loan performance used to prepare certain of
these materials was provided to the Company by Navient Corporation
(“Navient”) pursuant to a Data Sharing Agreement executed in
connection with the Spin-Off (as hereinafter defined). Under the
Data Sharing Agreement, Navient makes no representations or
warranties to the Company concerning the accuracy and completeness
of information that they provided. Sallie Mae Bank has not
independently verified, and is not able to verify, the accuracy or
completeness of the data provided under the agreement or of
Navient’s representations and warranties. Although we have no
reason to believe that the data used to prepare the tabular and
graphic presentations in this document as a whole, is materially
inaccurate or incomplete, and have assumed that the data provided
by Navient under the Data Sharing Agreement as a whole to be
materially accurate and complete, neither the Company nor any
person on its behalf has independently verified the accuracy and
completeness of such data.
3 ► #1 saving, planning and paying for education company with
40-years of leadership in the education lending market ► Top ranked
brand: 6 out of 10 consumers of education finance recognize the
Sallie Mae brand ► Industry leading market share in private
education lending: 54% market share(1) ► Over 2,400 actively
managed university relationships across the U.S. ► Complementary
consumer product offerings ► Over one million long-term engaged
customers across the Sallie Mae brands The Sallie Mae Brand (1)
Source: MeasureOne CBA Report as of June 2015
4 ► Originated $4.1 billion of high quality Private Education
Loans in 2014 (+7% vs. 2013), $3.8 billion in 2015 YTD (+7% vs.
2014 YTD) ► Grew Private Education Loan portfolio 38% from Q3 2014
to Q3 2015 ► Grew market share in 2014 and 2015 (54%) ► Generated
Earnings of $46 million in Q3 2015 and $184 million YTD and project
earnings growth in 2015 of 39% vs. 2014 ► Completed $1.5 billion of
loan sales in 2015 at an average premium of approximately 9% ►
Completed the first term funding securitization in the third
quarter 2015 ► Legal separation from Navient on April 30, 2014 and
completed the roll out of independent servicing and customer
support capabilities October 13, 2014 Sallie Mae Highlights
5 ($B as of 9/30/15) Assets 14.5 - FFELP Loans 1.1 - Private
Loans 10.8 - Deposits 10.6 - Preferred Equity 0.6 - Common Equity
1.4 - - National sales and marketing - Largest salesforce in the
industry - Specialized underwriting capability - Capital markets
expertise Private Education Loan - Originator and Servicer Deposits
- Upromise Rewards - Credit Card - - Leading private education loan
franchise - Conservative credit and funding - Expanding consumer
finance product suite Sallie Mae Summary Strategic Overview Key
Businesses Balance Sheet Competitive Advantage
6 $17 $17 $93 $28 AY 2004-2005 $110 $46 Full-Time Private School
Full-Time Public School $27 $27 $143 $49 AY 2014-2015 $168 $76
Full-Time Private School Full-Time Public School $17 $17 $27 $27
$93 $28 $143 $49 Full-Time Private School Full-Time Public School
Full-Time Private School Full-Time Public School Stafford Loan
Limit Cost of Attendance Gap Favorable Student Loan Market Trends
12.1 12.9 13.3 13.5 13.5 13.7 2008 2009 2010 2011 2012 2013
(millions) Enrollment at Four-Year Degree Granting Institutions(1)
Annual Cost of Education(2) $12 $13 $14 $14 $15 $16 $17 $18 $18 $19
$29 $30 $32 $34 $35 $36 $38 $39 $41 $42 2005 2006 2007 2008 2009
2010 2011 2012 2013 2014 Public Private (thousands) Federal Loans
$99 Family Contributions $151 Grants $124 Private Education Loans
$8 Ed. Tax Benefit / Work Study $20 ($ in billions) Total Estimated
Cost: $402 Estimated Total Cost of Education – 2014 / 2015 AY(3)
Cost of College (Based on a Four-Year Term)(4) (billions)
(thousands) $17 $17 $93 $28 AY 2004-2005 $110 $46 Full-Time Private
School Full-Time Public School $27 $27 $143 $49 AY 2014-2015 $168
$76 Full-Time Private School Full-Time Public School (1) Source:
U.S. Department of Education, National Center for Education
Statistics, Projections of Education Statistics to 2022 (2) Source:
Trends in College Pricing.© 2014 The College Board,.
www.collegeboard.org, Note: Academic years, average published
tuition, fees, room and board charges at four-year institutions;
enrollment-weighted (3) “Total post-secondary education spend” is
estimated by Sallie Mae by determining the full-time equivalents
for both graduates and undergraduates and multiplying by estimated
total per person cost of attendance for each school type. In doing
so, we utilize information from the U.S. Department of Education,
College Board, MeasureOne, National Student Clearinghouse and
Company Analysis. Other sources for these data points also exist
publicly and may vary from our computed estimates. (4) Source:
Trends in College Pricing.© 2014 The College Board,
www.collegeboard.org, U.S. Department of Education 2014 $17 $17 $93
$28 AY 2004-2005 $110 $46 Full-Time Private School Full-Time Public
School $27 $27 $143 $49 AY 2014-2015 $168 $76 Full-Time Private
School Full-Time Public School $110 $45 $170 $76
7 Higher Education Value Proposition Relationship Between Higher
Education, Income and Employment(1) 0% 2% 4% 6% 8% 10% 12% 0 200
400 600 800 1,000 1,200 1,400 1,600 1,800 Less than H.S. High
school Some college Associate Bachelor's Master's Doctorate
Professional Unemployment Average weekly income Incremental
Earnings From a College Degree Has Increased For Generations(2)
Payment to Income Ratio (4) $ 7,499 $ 9,690 $ 14,245 $ 15,780 $
17,500 Silents in 1965 Early Boomers in 1979 Late Boomers in 1986
Gen Xers in 1995 Millenials in 2013 Key Statistics ► The
unemployment rate for 25 to 34 year-olds with four-year college
degrees was 2.4%, compared to 7.1% for high school graduates(1) ►
60% of students graduate with student loans(3) ► 69% of student
loan borrowers have debt balances less than $25,000 and 4% have
balances above $100,000 (average borrowings of $27,300) (3) ► The
average payment-to-income ratio declined from 15% in 1992 to 7% in
2010(4) (1) Source: U.S. Bureau of Labor Statistics- September 2015
(2) Source: PEW Research Center- The Rising Cost of Not Going to
College February 2014 (3) Source: Trends in College Pricing.© 2014
The College Board, www.collegeboard.org, U.S. Department of
Education 2014 (4) Source: Brown Center on Education Policy at
Brookings: Is a Student Loan Crisis on the Horizon -Released June
2014
8 ► Product Features – Offers three repayment options while in
school, which include Interest Only, $25 Fixed Payment and Deferred
Repayment – Variable and Fixed Interest Rate Options – All loans
are certified by the school’s financial aid office to ensure all
proceeds are for educational expenses ► Distribution Channels –
Nationally recognized brand – Largest national sales force in
industry actively manages over 2,400 college relationships –
Represented on vast majority of college directed preferred lender
lists – Significant marketing experience to prospective customers
through paid search, affiliates, display, direct mail and email –
Leverage low cost customer channels to contribute to significant
serialization in following years – Marketing and distribution
through partnerships with banks, credit unions, resellers and
membership organizations Smart Option Overview
9 9 High Quality Private Student Loan Originations Growth $2,737
$3,342 $3,795 $4,076 $3,756 $0 $500 $1,000 $1,500 $2,000 $2,500
$3,000 $3,500 $4,000 $4,500 $5,000 2011 2012 2013 2014 2015 Or igi
na tio ns ( $M M) Private Education Loan Originations 7% 14% 22% 5%
7% YTD $4,300 Originations Statistics ($) 2011 2012 2013 2014 Q3
2014 Q3 2015 % Cosigned 91% 9 % 9 % 9 % 90% 90% In School Payment
73 58 56 56 56 57 Average Originated FICO 48 746 745 749 750
749
10 Analytical Approach to Credit Student Initial Screen ► $1,000
minimum loan ► Minimum FICO of 640 ► No existing SLM 30+ day past
dues ► No student loans 90+ day past dues ► No recent bankruptcy ►
2+ trades for cosigners and 4+ trades for non-cosigner ► Asset
expertise and rigorous underwriting driven by large volume of
historical data ► 160 employees ► ~1.3mm annual applications ► ~35%
approval rate Custom Scorecard ► Multi-scenario approach that
predicts percentage of borrowers likely to reach 90+ days past due
► Built in coordination with Experian Decision Analytics ► Applies
15 – 18 application and credit bureau attributes Manual Review ►
~8% of applications ► Pass risk scores, but require further review
due to credit concerns — Thorough review of bankruptcies,
collection accounts, etc. — Higher levels of existing student debt
— High credit utilization
11 High Quality Private Education Portfolio Customer FICO at
Origination Smart Option Payment Type Portfolio Interest Rate Type
Variable 81% Fixed 19% 780+ 30% 740 - 780 23% 700 - 740 26% <700
21% Weighted Average FICO: 747 Portfolio by Originations Vintage
Interest Only 21% Fixed Pay 32% Deferred 47% Smart Option Loans:
$10.4bn Pre 2012 8% 2012 13% 2013 22%2014 33% 2015 24% Weighted
Average Age of Loan: ~1.8 years As of September 30, 2015
12 ► Low cost deposit base with no branch overhead — 80% of
retail deposits are savings accounts — Brokered deposits used as
alternative funding source ► Term funding / securitizations will
augment deposit funding for future growth — Experienced capital
markets team — Capacity to securitize $2 – $3bn of private
education loans — Raised $623 million of term funding in the third
quarter 2015 ► Multi-year revolving conduit facility — Provides
seasonal loan funding and backup liquidity — $750mm conduit with
1-year revolving term and an additional 1-year amortization term
provided by consortium of banks ► Whole loan sales used to manage
balance sheet growth — Targeting $1 – $2bn of loan sales annually —
Completed $1.5 billion of loan sales in 2015 at an average premium
of approximately 9% ► Substantial liquidity portfolio — $1.3bn of
on-balance sheet cash as of 9/30/15 60% 40% 46% 43% 11%
Conservative Funding Approach 2015 Target Retail deposits Brokered
deposits Secured debt
13 Cumulative Defaults by P&I Repayment Vintage(1),(2),(3)
Smart Option Cumulative Gross Defaults by P&I Repayment Vintage
and Years in P&I Repayment As of September 30, 2015 (1) For
important information regarding historical performance data, see
pages 19 and 20. (2) Loans in ‘P&I Repayment’ include only
those loans for which scheduled principal and interest payments are
due. Legacy SLM and Navient portfolio serviced pursuant to a 212
day charge-off policy. Sallie Mae Bank portfolio serviced pursuant
to a 120 day charge-off policy. Historical trends may not be
indicative of future performance. (3)Certain data used in the
charts above was provided by Navient under a data sharing
agreement. Sallie Mae Bank has not independently verified, and is
not able to verify, the accuracy or completeness of the data
provided under the agreement. 5.8% 4.9% 3.5% 2.6% 1.5% 0.0% 1.0%
2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 0 1 2 3 4 5 6 7 C u m
u la ti ve D ef au lt R at e as a % o f O ri gi n al B al an ce
Years in P&I Repayment 2010 2011 2012 2013 2014
14 14 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% % of P& I R ep ay me nt
Ba lan ce Legacy SLM: 31-60 Delinquency SLM Bank: 31-60 Delinquency
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% % of P& I R ep ay me nt Ba lan
ce Legacy SLM: 61-90 Delinquency SLM Bank: 61-90 Delinquency 0.0%
2.0% 4.0% 6.0% 8.0% 10.0% % of P& I R ep ay me nt Ba lan ce
Legacy SLM: 91+ Delinquency SLM Bank: 91+ Delinquency 0.0% 2.0%
4.0% 6.0% 8.0% 10.0% % of P& I R ep ay me nt Ba lan ce Legacy
SLM: Annualized Gross Default Rate SLM Bank: Annualized Gross
Default Rate Smart Option Delinquency and Default Performance (As a
% of Loans in P&I Repayment)(1),(2),(3) 31-60 Day Delinquency
91+ Day Delinquency 61-90 Day Delinquency Annualized Gross Default
Rate As of September 30, 2015 (1) For important information
regarding historical performance data, see pages 19 and 20. (2)
Loans in ‘P&I Repayment’ include only those loans for which
scheduled principal and interest payments are due. Legacy SLM
portfolio serviced pursuant to a 212 day charge-off policy. Sallie
Mae Bank portfolio serviced pursuant to a 120 day charge-off
policy. Historical trends may not be indicative of future
performance. (3) Delinquency and Default rates are calculated as a
percentage of loans in principal and interest (P&I)
repayment.
15 15 “Core Earnings” to GAAP Reconciliation (Dollars in
thousands, except per share amounts) Sept 30, June 30, Sept 30,
Sept 30, Sept 30, 2015 2015 2014 2015 2014 “Core Earnings”
adjustments to GAAP: GAAP net income attributable to SLM
Corporation….…….…..……….…….........………………… 45,724$ 91,016$ 82,926$
184,439$ 174,502$ Preferred stock dividends …………………......……………
4,913 4,870 4,850 14,606 8,078 GAAP net income attributable to SLM
Corporation common stock…….….……...…...……...….…..…………. 40,811$
86,146$ 78,076$ 169,833$ 166,424$ Adjustments: Net impact of
derivative accounting (1) …………………. 1,400 (632) (6,571) (1,501)
1,684 Net tax effect(2) …….…...……...…………………………. (397) 252 2,528 560
(636) Total “Core Earnings” adjustments to GAAP .….……. 1,003 (380)
(4,043) (941) 1,048 "Core Earnings" net income attributable to SLM
Corporation common stock…......….......…......………. 41,814$ 85,766$
74,033$ 168,892$ 167,472$ GAAP diluted earnings per common share
……………. 0.09$ 0.20$ 0.18$ 0.39$ 0.38$ Derivative adjustments, net of
tax ……….....……………… 0.01 - (0.01) - 0.01 “Core Earnings” diluted
earnings per common share .. 0.10$ 0.20$ 0.17$ 0.39$ 0.39$ Quarters
Ended Nine Months Ended (1) Derivative Accounting: “Core Earnings”
exclude periodic unrealized gains and losses caused by the
mark-to-market valuations on derivatives that do not qualify for
hedge accounting treatment under GAAP, as well as the periodic
unrealized gains and losses that are a result of ineffectiveness
recognized related to effective hedges under GAAP. Under GAAP, for
our derivatives held to maturity, the cumulative net unrealized
gain or loss over the life of the contract will equal $0. (2) “Core
Earnings” tax rate is based on the effective tax rate at the Bank
where the derivative instruments are held.
16 Financial Review ► Private Education Loan portfolio growth of
38% ► Conservatively funded with 14.1% risk based capital at the
end of Q3 2015 ► Stable deposit base coupled with term funding from
securitizations ► Net interest margin expected to be 5.5% for 2015
► ROE and ROA expected to be 18% and 2% respectively for 2015 ►
Expected EPS growth of 38% for 2015 vs. 2014 (in millions) Q3 2015
Q3 2014 Variance PSL 10,867$ 7,839$ 3,027$ PSL Reserve (100) (60)
(40) FFELP 1,147 1,322 (175) FFELP Reserve / Other (4) (6) 2 Total
Loans 11,909 9,095$ 2,814 Cash 1,282 1,570 (289) Other Assets 1,260
1,049 210 Total Assets 14,451 11,715 2,736 Brokered Deposits 6,741
5,290 1,451 Retail Deposits 3,028 3,111 (84) Other Liabilities
2,685 1,496 1,189 Equity 1,997 1,818 179 Total Liabilities &
Equity 14,451$ 11,715$ 2,736$ PSL Reserve % of Balance (Gross)
0.92% 0.77% 0.16 % Interest Income 209$ 168$ 41$ Interest Expense
34 (24) (10) Net Interest Income before Provision 175 144 31
Provision (27) (15) (13) NIM After Provision 148 129 19 Gain On
Sale (0) 85 (85) Fee Income 10 5 5 Gain/(Loss) on Hedging
Activities (1) 5 (6) Opex (94) (87) (7) GAAP Pre-Tax Income 64$
138$ (74)$ Core Pre-Tax Income 65$ 131$ (66)$ GAAP Net Income 46$
83$ (37)$ Core Earnings Adjustments 1 (4) 5 Core Earnings Net
Income 47$ 79$ (32)$ Preferred Dividends (5) (5) (0) GAAP Earnings
Available 41$ 78$ (37)$ Core Earnings Available 42$ 74$ (32)$ ROA
(Core) 1.3% 2.7% (1.4%) ROCE (Core) 11.7% 24.3% (12.5%) Total Risk
Based Capital Ratio (Bank Only) 14.1% 16.5% (2.4%) CSEs 433 432 1
Core EPS $0.10 $0.17 ($0.08) B a la n c e S h e e t In c o m e S ta
te m e n t M e tr ic s
17 ► Market share leader in private student loan industry ► High
quality assets and conservatively funded balance sheet ►
Predictable balance sheet growth for the next several years ►
Strong capital position and funding capabilities ► A financial
services company with high growth trajectory and excellent return
on equity Sallie Mae Bank
18 SALLIE MAE BANK Smart Option Student Loan Historical
Performance Data Period ended September 30, 2015
19 On April 30, 2014 (the “Spin-Off Date”), the former SLM
Corporation legally separated (the “Spin-Off”) into two distinct
publicly traded entities: an education loan management, servicing
and asset recovery business called Navient Corporation (“Navient”),
and a consumer banking business called SLM Corporation. SLM
Corporation’s primary operating subsidiary is Sallie Mae Bank. We
sometimes refer to SLM Corporation, together with its subsidiaries
and its affiliates, during the period prior to the Spin-Off as
“legacy SLM.” In connection with the Spin-Off, all private
education loans owned by legacy SLM, other than those owned by its
Sallie Mae Bank subsidiary as of the date of the Spin-Off, and all
private education loan asset-backed securities (“ABS”) trusts
previously sponsored and administered by legacy SLM were
transferred to Navient. As of the Spin-Off Date, Navient and its
sponsored ABS trusts owned $30.8 billion of legacy SLM’s private
education loan portfolio originated both prior to and since 2009.
As of the Spin-Off Date, Sallie Mae Bank owned $7.2 billion of
private education loans, the vast majority of which were
unencumbered Smart Option Student Loans originated since 2009.
Legacy SLM’s Private Education Loan and ABS Programs Prior to the
Spin-Off In 1989, legacy SLM began making private education loans
to graduate students. In 1996, legacy SLM expanded its private
education loan offerings to undergraduate students. Between 2002
and 2007, legacy SLM issued $18.6 billion of private education
loan- backed ABS in 12 separate transactions. In 2008, in response
to the financial downturn, legacy SLM revised its private education
loan underwriting criteria, tightened its forbearance and
collections policies, ended direct-to-consumer disbursements, and
ceased lending to students attending certain for- profit schools.
Legacy SLM issued no private education loan ABS in 2008. In 2009,
legacy SLM introduced its Smart Option Student Loan product and
began underwriting private education loans with a proprietary
custom credit score. The custom credit score included income-based
factors, which led to a significant increase in the percentage of
loans requiring a co-signer, typically a parent. The initial loans
originated under the Smart Option Student Loan program (the
“Interest Only SOSLs”) were variable rate loans and required
interest payments by borrowers while in school, which reduced the
amounts payable over the loans’ lives and helped establish
repayment habits among borrowers. In 2010, legacy SLM introduced a
second option for its Smart Option Student Loan customers, which
required a $25 fixed monthly payment while borrowers were in school
(the “Fixed...
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