 FOURTH QUARTER 2014
SALLIE MAE
Investor Presentation
Exhibit 99.1 |
 2
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.
|
 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; 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 |
 4
Completed legal separation from Navient on April 30, 2014
Generated
“Core
Earnings”
through
Q3
of
$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
in
deposits
Regulatory Cease and Desist orders in place since 2008 were lifted
2014 Year to Date Highlights |
 5
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 |
 6
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%+
2
3
4
5
6
7
1 |
 Favorable Student Loan
Market Trends Cost of College (Based on a Four-Year Term)
4
(billions)
(thousands)
12.1
12.9
13.3
13.5
13.5
13.7
2008
2009
2010
2011
2012
2013
Federal
Loans
$107
Family
Contributions
$149
Grants
$119
Private
Education
Loans
$8
Ed. Tax
Benefit /
Work Study
$22
Total Estimated
Cost: $405bn
$12
$13
$14
$14
$15
$16
$17
$18
$18
$29
$30
$32
$34
$35
$36
$38
$39
$41
2005
2006
2007
2008
2009
2010
2011
2012
2013
Public
Private
$ 17.1
$ 17.1
$ 27.0
$ 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
AY
2002 -
2003
AY
2012 -
2013
7
Annual Cost of Education
Enrollment at Four-Year Degree Granting Institutions
2
1
3
Estimated Total Cost of Education –
2014 / 2015 AY
(millions)
(thousands) |
 8
Higher Education Value Proposition
Widening Earnings Gap of Young Adults
by Educational Attainment
6
Most Graduates Say
College Has Paid Off
6
18
to
24
year
olds
with
a
college
degree
have
a
50%
lower
unemployment
rate
than
those
without
a
degree
~60%
of
students
graduate
with
student
loans
70%
of
student
loan
borrowers
have
debt
balances
less
than
$25,000
and
4%
have
balances
above
$100,000
(average borrowings of $26,500)
0%
2%
4%
6%
8%
10%
12%
14%
0
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
5
Key Statistics
7 |
 9
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
to
contribute
to
significant
serialization
in
following
years
–
Marketing and distribution through partnerships with banks, credit unions,
resellers and membership organizations
Smart Option Overview |
 10
High Quality Private Student Loan Originations Growth
|
 11
Analytical Approach to Credit
Student
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
12
Smart Option Payment Type
2011
11%
2012
21% |
 13
Smart Option Credit Outperforming
Smart Option Outperforms Legacy Signature
10
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
8
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
9
0.3%
0.5%
0.6%
% Delinquencies
9
2.8%
2.9%
3.0%
% 90+ Day Delinquencies
9
0.8%
1.0%
1.1%
% in Forbearance
9
0.3%
2.1%
2.5%
% with Co-Signer
9
94%
93%
92%
Average FICO at Origination
9
746
746
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. |
 14
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
to
securitize
$2
–
$3bn
of
private
education
loans
—
Provides seasonal loan funding and backup liquidity
—
$750mm conduit with 2-year term provided by consortium
of banks
—
Targeting
$1
–
$2bn
of
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%
60%
40% |
 15
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
$
30
$
Interest Expense
(24)
$
(21)
$
(3)
$
Net Interest Income before Provision
144
$
117
$
27
$
Provision
(15)
$
(21)
$
6
$
NIM After Provision
129
$
96
$
33
$
Gain On Sale
85
$
43
$
42
$
Fee Income
6
$
10
$
(4)
$
Gain/(Loss) on Hedging Activities
5
$
0
$
5
$
Opex
(87)
$
(70)
$
(17)
$
GAAP Pre-Tax Income
138
$
79
$
59
$
GAAP Net Income
83
$
49
$
34
$
Core Earnings Adjustments
(4)
$
0
$
(4)
$
Core Earnings Net income
79
$
49
$
29
$
Preferred Dividends
(5)
$
-
$
(5)
$
GAAP Earnings Available
78
$
49
$
29
$
Core Earnings Available
74
$
49
$
24
$
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 |
 16
Target
2014 Originations
$4 Billion
Operating Expenses
$280 Million
Additional Restructuring Expense
$32 Million
Loan Sales in Q4 of 2014
$0
Provision for Loan Losses In Q4 of 2014
$35 Million
“Core Earnings”
diluted EPS
$0.42-$0.43
2014 Guidance |
 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 |
 APPENDIX
18
Confidential and proprietary information © 2012 Sallie Mae, Inc. All rights reserved. |
 19
“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)
49
1,684
118
Net tax effect
(2)
2,623
(19)
(672)
(45)
Total “Core Earnings”
adjustments to GAAP
(3,948)
30
1,012
73
“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, |
 1
Source: U.S. Department of Education, National Center for Education
Statistics, Projections of Education Statistics to 2022 2
Source: Trends in College Pricing.©
2013 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 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
4
Source: Trends in College Pricing.©
2013 The College Board,. www.collegeboard.org,
5
Source: U.S. Bureau of Labor Statistics, Current Population Survey
6
Source: PEW Research Center
7
Source: College Board, “Trends in Student Aid, 2013”, FRBNY
Consumer Credit Panel. Equifax (www.newyorkfed.org/regional/Brown_presentation_GWU_2013Q2.pdf)
8
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.
9
Percentage of loans in repayment.
10
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
20
U.S.
Department
of
Education
2013 |