SLM Corp - FORM 8-K - EX-99.1

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8-K - FORM 8-K - SLM Corp	d810788d8k.htm

FOURTH QUARTER 2014

SALLIE MAE

Investor Presentation

Exhibit 99.1

Cautionary Note Regarding Forward-Looking Statements

The following information is current as of October 22, 2014 (unless otherwise noted) and should be read in connection with SLM Corporation’s Quarterly Report on Form 10-Q for the quarter ended

September 30, 2014 (the “2014 Form 10-Q”), and the audited carve out financial statements filed on Form 8-K on May 6, 2014, and subsequent reports filed with the Securities and Exchange Commission

(the “SEC”). Definitions for capitalized terms in this presentation not defined herein can be found in the 2013 Form 10-K (filed with the SEC on February 19, 2014).

This Presentation contains forward-looking statements and information based on management’s current expectations as of the date of this presentation. Statements that are not historical facts, including

statements about the Company’s beliefs 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, 2013 (filed with the SEC on Feb. 19, 2014) and the Company’s

Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, and in the company’s Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2014; 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 student 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; failures of its operating systems or infrastructure, including those of third-party vendors; failure to implement the recently executed separation of the

Company into two separate publicly traded companies, including failure to transition its origination and servicing operations as planned, increased costs in connection with being a stand-alone company, and

failure to achieve the expected benefits of the separation; damage to its reputation; 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 its customers; changes in the general interest rate environment, including the rate relationships among

relevant money-market instruments and those of its earning assets vs. its funding arrangements; and changes in general economic conditions. 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 release are qualified by these cautionary statements and are made only as of the date of this release. 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 its expectations.

In connection with the Navient spin-off, the Company conformed its policy with that of Sallie Mae Bank to charge off loans after 120 days of delinquency. The Company also changed its loss confirmation

period from two years to one year to reflect both the shorter charge-off policy and its related servicing practices. Prior to the spin-off, Sallie Mae Bank sold all loans past 90 days delinquent to an affiliate of

what is now Navient Corporation. Post-spin-off, sales of delinquent loans to Navient Corporation have been significantly curtailed. Consequently, many of the pre-spin-off, historical credit indicators and

period over-period trends are not comparable and may not be indicative of future performance.

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 “Key Financial Measures-Core Earnings” in the Company’s Form 10-Q for the quarter ended September 30, 2014 for a further discussion and a complete

reconciliation between GAAP net income and core earnings.

#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; 52% market share

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

Completed legal separation from Navient on April 30, 2014

Generated

“Core

Earnings”

through

$176

million

High quality loan originations on track to reach $4 billion in 2014

Loan performance continues to be in line with expectations as the portfolio seasons

Completed loan sales in excess of $1.6 billion at favorable rates

Received commitments for $750 million secured funding facility

Won

the

529

program

from

the

Utah

Educational

Savings

Plan

~$700

million

deposits

Regulatory Cease and Desist orders in place since 2008 were lifted

2014 Year to Date Highlights

Sallie Mae Summary

Strategic Focus

Consumer banking including leading

private education loan franchise

Key Businesses

Largest Private Education Loan Originator

Private Education Loan Servicing

Deposits

Upromise Rewards

Insurance Services

Credit Card

Key Financial

Statistics

As of 9/30/2014 (billions)

Assets

FFELP Loans

Private Loans

Deposits

Secured Debt

Preferred Equity

Tangible Common Equity

$11.7

$1.3

$7.8

$9.2

$ –

$0.6

$1.2

Sallie Mae Investment Highlights

Experienced management team

with deep industry knowledge

Average of 30+

years of banking and financial services

experience

Leading brand in the education

lending market

40+ years serving the education lending market

52% private education lending market share

Simple low cost delivery system

Multi-channel delivery system (on-campus, direct)

40% customer serialization rate and improving

Attractive customer base

Higher employment rates for college graduates

90% of portfolio has cosigners; 749 average FICO

Disciplined approach to credit

Robust proprietary scorecard

Strong Smart Option performance; 0.4% Q3 charge-offs

Strong capital position and

funding capabilities

16.5% Total Risk Based Capital Ratio; all capital ratios

significantly in excess of well capitalized

Retail direct deposits; future securitizations

Targeting high growth and high

return business

Long-term earnings growth target of 20%+

Long-term ROE target of 15%+

Favorable Student Loan Market Trends

Cost of College (Based on a Four-Year Term)

(billions)

(thousands)

12.1

12.9

13.3

13.5

13.7

2008

2009

2010

2011

2012

2013

Federal

Loans

$107

Family

Contributions

$149

Grants

$119

Private

Education

Loans

Ed. Tax

Benefit /

Work Study

$22

Total Estimated

Cost: $405bn

$12

$13

$14

$15

$16

$17

$18

$29

$30

$32

$34

$35

$36

$38

$39

$41

2005

2006

2007

2008

2009

2010

2011

2012

2013

Public

Private

$ 17.1

$ 27.0

$ 82.3

$ 21.6

$ 130.8

$ 44.3

$ 99.5

$ 38.7

$ 157.8

$ 71.3

Full-Time Private

School

Full-Time Public

School

Full-Time Private

School

Full-Time Public

School

ED Lending Limit

Cost of Attendance Gap

2002 -

2003

2012 -

2013

Annual Cost of Education

Enrollment at Four-Year Degree Granting Institutions

Estimated Total Cost of Education –

2014 / 2015 AY

(millions)

(thousands)

Higher Education Value Proposition

Widening Earnings Gap of Young Adults

by Educational Attainment

Most Graduates Say

College Has Paid Off

year

olds

with

college

degree

have

50%

lower

unemployment

rate

than

those

without

degree

~60%

students

graduate

with

student

loans

70%

student

loan

borrowers

have

debt

balances

less

than

$25,000

and

have

balances

above

$100,000

(average borrowings of $26,500)

10%

12%

14%

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Less than H.S.

High school

Some college

Associate

Bachelor's

Master's

Doctorate

Professional

Unemployment

Average annual income

$ 7,499

$ 9,690

$ 14,245

$ 15,780

$ 17,500

Silents in

1965

Early

Boomers in

1979

Late

Boomers in

1986

Gen Xers in Millenials in

1995

2013

Paid Off

83 %

Will Pay

Off

8 %

Has Not / Will Not

Pay

Off

6 %

Relationship Between Higher Education,

Income and Employment

Key Statistics

Product Features

–

Offers three repayment options while in school which includes 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

contribute

significant

serialization

following

years

–

Marketing and distribution through partnerships with banks, credit unions, resellers and membership

organizations

Smart Option Overview

High Quality Private Student Loan Originations Growth

Analytical Approach to Credit

Student

Initial Screen

Asset expertise and rigorous

underwriting driven by large

volume of historical data

160 employees

~1.3mm annual applications

~35% approval rate

Custom Scorecard

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

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

$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

3+ trades for cosigners and 4+ trades

for non-cosigner

High Quality Private Education Portfolio

Portfolio by Product

Customer FICO at Origination

Portfolio by Vintage

As of September 30, 2014

Smart Option Payment Type

2011

11%

2012

21%

Smart Option Credit Outperforming

Smart Option Outperforms Legacy Signature

Smart Option products outperform prior private education loan products due to more stringent underwriting standards and

tailored product options

Performance of newer vintage loans driven by focused marketing on high quality borrowers, better data and product

management and an improving macroeconomic environment

Smart Option Performance Trends

2011

2012

2013

Smart Option Loans

$4,769

$7,501

$10,514

Smart Option Loans in Repayment

4,195

5,774

7,728

% Charge-Offs

0.3%

0.5%

0.6%

% Delinquencies

2.8%

2.9%

3.0%

% 90+ Day Delinquencies

0.8%

1.0%

1.1%

% in Forbearance

0.3%

2.1%

2.5%

% with Co-Signer

94%

93%

92%

Average FICO at Origination

746

Note: Information provided above is for all Smart Option loans originated by Sallie Mae Bank. These loans are currently owned

by Sallie Mae, Navient and other third parties.

Conservative Funding Approach

3Q 2014

Target

Retail deposits

Brokered deposits

Secured debt

—

90% of retail deposits are savings accounts

—

Brokered deposits used as alternative funding source

—

Retaining experienced capital markets team

—

Capacity

securitize

–

$3bn

private

education

loans

—

Provides seasonal loan funding and backup liquidity

—

$750mm conduit with 2-year term provided by consortium

of banks

—

Targeting

–

$2bn

loan

sales

annually

—

$2 bn of on-balance sheet cash provides seasonal loan

funding and liquidity

Low cost deposit base with no branch overhead

Term funding / securitizations will augment deposit

funding for future growth

Multi-year revolving conduit facility

Whole loan sales used to manage balance sheet

growth

Substantial liquidity portfolio

40%

60%

40%

Third Quarter Financial Review

•

Private Education Loan balance

increased 26% from the prior year

•

Highly liquid balance sheet

•

Strong Capital Base. Risk Based Capital

ratio = 16.5% at the bank

•

Loan loss allowance = 0.77 % of portfolio

•

Net interest income increased 23%

•

Net interest margin of 5.25%

•

“Core Earnings”

= $0.17 per share

Q3 2014

Q3 2013

PSL

7,839

6,216

1,624

PSL Reserve

(60)

(54)

(6)

FFELP

1,322

1,220

102

FFELP Reserve / Other

(6)

(5)

(0)

Total Loans

9,095

7,376

1,719

Cash

1,570

1,148

423

Other Assets

1,050

1,120

(70)

Total Assets

11,715

9,644

2,071

Brokered Deposits

5,290

4,732

558

Retail Deposits

3,111

2,872

239

Other Liabilities

1,496

867

629

Equity

1,818

1,173

645

Total Liabilities & Equity

11,715

9,644

2,071

PSL Reserve % of Balance

0.77%

0.87%

(0.11)%

Interest Income

168

138

Interest Expense

(24)

(21)

(3)

Net Interest Income before Provision

144

117

Provision

(15)

(21)

NIM After Provision

129

Gain On Sale

Fee Income

(4)

Gain/(Loss) on Hedging Activities

Opex

(87)

(70)

(17)

GAAP Pre-Tax Income

138

GAAP Net Income

Core Earnings Adjustments

(4)

Core Earnings Net income

Preferred Dividends

(5)

GAAP Earnings Available

Core Earnings Available

ROA (Core)

2.71%

2.09%

0.62%

ROCE (Core)

24.13%

16.31%

7.81%

Total Risk Based Capital Ratio (Bank Only)

16.5%

16.3%

0.2%

CSEs

432

445

(13)

Core EPS

$0.17

$0.11

$0.06

SLM Corporation Form 10-Q period ending September 30, 2014

Variance

Target

2014 Originations

$4 Billion

Operating Expenses

$280 Million

Additional Restructuring Expense

$32 Million

Loan Sales in Q4 of 2014

Provision for Loan Losses In Q4 of 2014

$35 Million

“Core Earnings”

diluted EPS

$0.42-$0.43

2014 Guidance

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

APPENDIX

“Core Earnings”

to GAAP Reconciliation

______

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

(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.

2014

2013

2014

2013

(Dollars in thousands)

Hedge ineffectiveness gains (losses)

6,571

(49)

(1,684)

(118)

Interest reclassification

(1,170)

346

(3,137)

973

Gains (losses) on derivatives and hedging activities, net

5,401

297

(4,821)

855

(Dollars in thousands, except per share amounts)

2014

2013

2014

2013

“Core Earnings”

adjustments to GAAP:

GAAP net income attributable to SLM Corporation

82,926

49,390

174,502

198,743

Preferred stock dividends

4,850

8,078

GAAP net income attributable to SLM Corporation common stock

78,076

49,390

166,424

198,743

GAAP net income attributable to SLM Corporation

82,926

49,390

174,502

198,743

Adjustments:

Net impact of derivative accounting

(1)

(6,571)

1,684

118

Net tax effect

(2)

2,623

(19)

(672)

(45)

Total “Core Earnings”

adjustments to GAAP

(3,948)

1,012

“Core Earnings”

78,978

49,420

175,514

198,816

GAAP diluted earnings per common share

0.18

0.11

0.38

0.44

Derivative adjustments, net of tax

(0.01)

0.01

“Core Earnings”

diluted earnings per common share

0.17

0.11

0.39

0.44

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Source: U.S. Department of Education, National Center for Education Statistics, Projections of Education Statistics to 2022

2013 The College Board,. www.collegeboard.org,

Note: Academic years, average published tuition, fees, room and board charges at four-year institutions; enrollment-weighted

“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 US 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

2013 The College Board,. www.collegeboard.org,

Source: U.S. Bureau of Labor Statistics, Current Population Survey

Source: PEW Research Center

Source: College Board, “Trends in Student Aid, 2013”, FRBNY Consumer Credit Panel. Equifax (www.newyorkfed.org/regional/Brown_presentation_GWU_2013Q2.pdf)

The performance trends and defaults rates below include Sallie Mae and Navient owned Smart Option loans, and are based in part on loan data obtained from Navient

pursuant to the Data Sharing Agreement between Navient and Sallie Mae. As Navient and Sallie Mae use different charge-off and delinquency policies, future

performance may not be comparable.

Percentage of loans in repayment.

Signature loans represent traditional Signature loans in full P&I repayment that were originated during the 2006-2008 origination years; Smart Option loans represent

Smart Option loans in full P&I repayment that were originated during the 2009-2012 origination years. Life-to-Date Default Rate comparison is based in part on loan data

obtained from Navient pursuant to the Data Sharing Agreement between Navient and Sallie Mae.

Footnotes

U.S.

Department

Education

2013

SLM Corp - FORM 8-K - EX-99.1 - October 29, 2014

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