Actionable news
0
All posts from Actionable news
Actionable news in SLM: SLM Corporation,

SLM: Sallie Mae Investor Presentation Fourth Quarter 2015

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...


More