Slide 1: SLM Corporation Q2 2013 Investor Presentation
SLM CORPORATION Q2 2013 Investor Presentation AUGUST 6, 2013
Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures
Forward-Looking Statements; Non-GAAP Financial Measures The following information is current as of August 6, 2013 (unless otherwise noted) and should be read in connection with SLM Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”), and subsequent re
Slide 3: SLM Corporation
SLM Corporation The U.S. Student Loan Market Page 4 SLM Corporation Overview Page 9 Credit Quality Page 17 Funding Diversity and Liquidity Page 29 Risk-Adjusted Capital Page 39 FFELP ABS Appendix Page 42 Private Education Loan ABS Appendix Page 47 SLM Appendix Page 68 3
Slide 4: The U.S. Student Loan Market
The U.S. Student Loan Market 4
Slide 5: Favorable Student Loan Market Trends
Favorable Student Loan Market Trends Higher Education Enrollment (millions) Annual Cost of Education ($ thousands) Public Private 23.8 22.2 $38.0 $39.5 21.5 $35.1 $36.5 21.0 21.0 21.3 $32.0 $33.8 20.4 $28.7 $30.5 $27.5 19.1 15.2 17.9 12.8 14.4 16.2 17.1 11.4 12.1 13.6 2008 2009 2010 2011 2012 2013 2
Slide 6: College Grads Experience Lower Levels of Unemployment
College Grads Experience Lower Levels of Unemployment Total Unemployment Rate Unemployment Rate with a Bachelor's Degree or Higher Source: U.S. Bureau of Labor Statistics as of 3/31/2013 6
Slide 7: Role of Private Education Loans
Role of Private Education Loans Private Education Loan products bridge the funding gap between the cost of a college education and funds available through U.S. Department of Education (ED) programs, grants, and other sources Estimates for academic year 2011-12 project that 21 million students will e
Slide 8: Private Education Loan Industry Originations
Private Education Loan Industry Originations 2011-12 academic year market share approximately 47% Private Education Loan originations declined from their peak as a result of an increase in federal student loan limits, an overall increase in the use of federal student loans, an increase in federal gr
Slide 9: SLM Corporation Overview
SallieMae\ SLM Corporation Overview
Slide 10: SLM Corporation
SLM Corporation #1 saving, planning and paying for education company with 40-years of leadership in the education lending market #1 servicer and collector of student loans in the 1 U.S. for FFELP and Private Education Loans Serving 25 million unique customers $146 billion student loan portfolio, 75%
Slide 11: A Brief Corporate History
A Brief Corporate History • Congress creates the Guaranteed Student Loan Program, currently known Loan Portfolio 1965 as FFELP Loan Type $billions % • Congress establishes, as a GSE, the Student Loan Marketing Association or “Sallie Mae” FFELP Loans $108.5 75% 1972 Private Education • Privatization
Slide 12: Q2 13 "Core Earnings" Summary
Q2 13 “Core Earnings” Summary* ($ millions, except per share amounts) Q2 13 Q1 13 Q2 12 EPS (Reported) $1.02 $0.61 $0.49 Net Income $462 $283 $243 Net Interest Income $675 $676 $656 Loan Loss Provision $201 $241 $243 Fee and Other Income $476 $279 $208 Operating Expenses $258 $250 $231 Average Stude
Slide 13: Consumer Lending Segment Earnings Detail – "Core Earnings" Basis
Consumer Lending Segment Earnings Detail – “Core Earnings” Basis ($ millions) Q2 13 Q1 13 Q2 12 Private Originations $368 $1,411 $321 Average Private Education Loans $38,154 $38,406 $37,543 Net Interest Income after Provision - Private $235 $196 $188 (1) 4.12% 4.15% 4.14% Net Interest Margin - Priva
Slide 14: Business Services Segment Earnings Detail – "Core Earnings" Basis
Business Services Segment Earnings Detail – “Core Earnings” Basis ($ millions) Q2 13 Q1 13 Q2 12 Intercompany loan servicing $137 $149 $172 Third-party loan servicing $33 $27 $26 Guarantor servicing $10 $10 $11 Other servicing $20 $19 $18 Contingency revenue $109 $99 $87 Other Business Services reve
Slide 15: FFELP Loan Segment Earnings Detail – "Core Earnings" Basis
FFELP Loan Segment Earnings Detail – “Core Earnings” Basis ($ millions) Q2 13 Q1 13 Q2 12 Average FFELP Loans $113,981 $121,855 $134,893 Net Interest Income after Provision - FFELP $244 $245 $228 (1) 0.87% 0.83% 0.70% Net Interest Margin - FFELP Operating Expenses $144 $157 $181 OpEx Annualized as a
Slide 16: Operations Locations
Operations Locations Cincinnati, OH New York State (Arcade, Perry, • Collections Horseheads) • Collections Newton, MA • Upromise Inv. & Rewards • Business Dev. Wilkes-Barre, PA • Servicing • Call Center Moorestown, NJ Salt Lake City, UT • Collections • Sallie Mae Bank Newark, DE Headquarters Kansas
Slide 17: Credit Quality
SallieMae\ Credit Quality
Slide 18: SLM's Private Education Loan Portfolio
SLM’s Private Education Loan Portfolio Private Education Loan Portfolio Characteristics – $37 billion portfolio – 25% of SLM’s total student loan portfolio – Approximately 66% of portfolio has a cosigner, typically a parent – Loans originated since 2009 are approximately 90% cosigned with average FI
Slide 19: SLM's Private Education Smart Option Student Loan Products
SLM’s Private Education Smart Option Student Loan Products Smart Option Student Loan product offers three repayment choices designed to help borrowers balance their goals and budget while in school – Interest Only - Requires interest only payment during in-school period – Fixed Repayment - Requires
Slide 20: Private Education Loans – High Quality Originations
Private Education Loans – High Quality Originations Originations of $2.3 bn in 2010 had an average winning FICO of 739 and 89% were cosigned. Originations of $2.7 bn in 2011 had an average winning FICO of 748 and 91% were cosigned. Originations of $3.3 bn in 2012 had an average winning FICO of 748 a
Slide 21: Consumer Lending Segment – High Quality Portfolio
Consumer Lending Segment – High Quality Portfolio Low Risk = Smart Option, Legacy Traditional Cosigned, and Law/MBA/MED/CT/Other Moderate Risk = Legacy Traditional Non-Cosigned 21 Elevated Risk = Non-Traditional
Slide 22: SLM Loan Losses
SLM Loan Losses Total Charge-Offs (1) Charge-Offs (1) = 0.63% = 0.07% Charge-Offs (1) = 2.34% U.S. Government Guaranteed Loans (2) (2) 75% Private Education Student Loan Portfolio Loans(2) 25% (1) All data as of Six Months Ended June 30, 2013. Annualized FFELP charge-offs as a percentage of average
Slide 23: Private Credit Default Performance
Private Credit Default Performance The probability of default substantially diminishes as the number of payments and years of seasoning increases Historical Defaults by Months in Repayment 92% 94% 96% 98% 100% 100% 86% 89% 82% 77% 71% 63% 52% 50% 39% 22% 14% 17% 14% 8% 8% 11% 8% 6% 5% 4% 3% 3% 2% 2%
Slide 24: Private Education Loan Portfolio Performance
Private Education Loan Portfolio Performance Q213 Q113 Q412 Q312 Q212 Charge-offs - Traditional Portfolio (1) 2.1% 2.5% 3.4% 2.6% 2.5% Charge-offs - Non-Traditional Portfolio (1) 9.1% 8.7% 13.2% 10.5% 9.8% Charge-offs - Total Portfolio (1) 2.7% 3.0% 4.2% 3.2% 3.1% 90+ Day Delinq as a % of Repay - Tr
Slide 25: Private Education Loan Portfolio Performance
Private Education Loan Portfolio Performance Traditional Loans with a Cosigner Q213 Q113 Q412 Q312 Q212 Outstanding Balance as a % of Total 64% 63% 62% 62% 60% 90+ Delinquency as a % of Repayment 2.3% 2.4% 2.9% 3.2% 2.7% Forbearance as a % of Repayment & Forbearance 3.3% 3.2% 3.3% 2.9% 3.8% (1) Char
Slide 26: Loan Seasoning
Loan Seasoning June 30, 2013 Traditional Portfolio Monthly Scheduled Payments Due Loan Status 0-12 payments 13-24 payments 25-36 payments 37-48 payments More than 48 payments Total Not Yet in Repayment 5,475 Loans in Forbearance 498 7.8% 170 3.2% 149 2.7% 86 1.9% 112 1.3% 1,015 3.4% Loans in Repayme
Slide 27: Loan Seasoning
Loan Seasoning March 31, 2013 Traditional Portfolio Monthly Scheduled Payments Due Loan Status 0-12 payments 13-24 payments 25-36 payments 37-48 payments More than 48 payments Total Not Yet in Repayment 5,959 Loans in Forbearance 502 7.8% 166 3.1% 134 2.4% 71 1.6% 93 1.1% 966 3.2% Loans in Repayment
Slide 28: Loan Seasoning
Loan Seasoning June 30, 2012 Traditional Portfolio Monthly Scheduled Payments Due Loan Status 0-12 payments 13-24 payments 25-36 payments 37-48 payments More than 48 payments Total Not Yet in Repayment 5,529 Loans in Forbearance 717 9.3% 190 3.1% 131 2.5% 66 1.8% 82 1.3% 1,186 4.1% Loans in Repaymen
Slide 29: Funding Diversity and Liquidity
Funding Diversity and Liquidity 29
Slide 30: 2013 Capital Markets Summary
2013 Capital Markets Summary Issued $2.5 billion of Private ABS Issued $3.7 billion of FFELP ABS Issued $1.5 billion of long-term unsecured debt Sold residual interests in five FFELP securitization trusts totaling $12.5 billion of assets st Returned $400 million to shareholders through common share
Slide 31: Recent SLM FFELP ABS Transactions
Recent SLM FFELP ABS Transactions Non-Consolidation FFELP Non-Consolidation FFELP Non-Consolidation FFELP Issue $1,246M SLM Trust 2013-3 $1,246M SLM Trust 2013-2 $1,249M SLM Trust 2013-1 Pricing Date June 12, 2013 April 3, 2013 February 5, 2013 Collateral US Govt. Guaranteed or Insured US Govt. Guar
Slide 32: Recent SLM Private Education Loan ABS Transactions
Recent SLM Private Education Loan ABS Transactions Private Education Loans Private Education Loans Private Education Loans Issue $1,135M SLM Trust 2013-B $1,108M SLM Trust 2013-A $976M SLM Trust 2012-E Pricing Date April 25, 2013 February 27, 2013 October 11, 2012 Collateral Private Education Loans
Slide 33: High Percentage of Student Loans Funded to Term
High Percentage of Student Loans Funded to Term $146* Billion Student Loan Portfolio as of June 30, 2013 Fixed Spread Liabilities, $24 Bn Conduits, $12 Bn Funded to Term, $110 Bn FFELP Consolidation Term ABS, $60 Bn FFELP Non-Consolidation Term ABS, $30 Bn Private Term ABS, $20 Bn 33 * Gross loans,
Slide 34: Unsecured Debt Maturities
Unsecured Debt Maturities As of June 30, 2013 (par value, $ in billions) $10 $5 $3.7 $2.8 $2.5 $2.3 $1.5 $1.8 $1.5 $1.2 $0.2 $0 Total unsecured debt outstanding of $17.5 billion 34 Note: Does not include Sallie Mae Bank or Subsidiary funding
Slide 35: Secured Cash Flow
Secured Cash Flow $ in Millions 2013 YTD 2012 2011 2010 FFELP Term Securitized Servicing (Cash Paid) $ 256 $ 526 $ 563 $ 533 Net Residual* (Excess Distributions) 286 628 715 746 Other Secured FFELP Net Cash Flow 305 934 568 1,465 Total FFELP $ 847 $ 2,088 $ 1,846 $ 2,743 Total Proceeds from Residual
Slide 36: Projected Cash Flows From FFELP Portfolio
Projected Cash Flows From FFELP Portfolio* ($ in Millions) as of 6/30/13 2013 2014 2015 2016 2017 2018 2019 2020 Projected FFELP Average Balance $103,954 $97,107 $87,813 $78,744 $70,129 $61,795 $54,069 $46,878 Projected Excess Spread $447 $820 $749 $720 $768 $698 $628 $557 Projected Servicing Revenu
Slide 37: Sallie Mae Bank
Sallie Mae Bank Bank charter – Utah based ILC regulated by FDIC and Utah Department of Financial Institutions (UDFI) – Charter granted October 2005 Current bank activity – Total assets of $9.1 billion at June 30, 2013 – Originates Sallie Mae’s Private Education Loans – Funded through affiliate, brok
Slide 38: Sallie Mae Bank – Capital & Deposits
Sallie Mae Bank – Capital & Deposits Bank Deposits ($ millions) Jun 13 Mar 13 Dec 12 Sep 12 Jun 12 Mar 12 Brokered CDs $3,552 $3,975 $4,098 $3,346 $2,352 $3,455 Brokered – Other 1,071 1,077 1,069 810 685 536 Retail Deposits 2,548 2,521 2,131 1,634 1,676 1,768 Other Deposits* 463 469 502 529 446 462
Slide 39: Risk-Adjusted Capital
SallieMae\ Risk-Adjusted Capital
Slide 40: Strong Capital Position
Strong Capital Position ($ in Billions) Q2 13 Q1 13 Q2 12 GAAP Capital $5.4 $5.2 $4.9 Goodwill & Intangibles (0.4) (0.4) (0.5) Derivative Mark-to-Market 0.9 1.0 1.1 Unamortized Premiums from Floors 0.5 0.5 0.7 Tangible Economic Capital $6.4 $6.2 $6.2 Private Loan Reserve 2.1 2.2 2.2 Available Risk C
Slide 41: Capital Allocation
Capital Allocation SLM allocates capital internally based on the risk of the assets it supports FFELP Loans Assets 67% of Assets Private Cash, Education Investments, Loans Other Assets 23% of 10% of Assets Assets Capital 12% 0% - 15%* Allocation 0.50% Based on Risk *Other Assets includes a small amo
Slide 42: FFELP ABS Appendix
SallieMae\ FFELP ABS Appendix
Slide 43: Federal Student Loan Market
Federal Student Loan Market Outstanding Government Student Loan Market Distribution FFYE 9/30/2012 ($ in billions) FFELP owned by ED, $147 FDLP, $494 FFELP Loans, $291 Source: Department of Education, U.S. Department of Education FY 2012 Agency Financial Report 43
Slide 44: SLM FFELP ABS Issue Characteristics
SLM FFELP ABS Issue Characteristics Typical SLM FFELP ABS Transaction Features Unique Characteristics of FFELP Loan ABS Issue size of $0.5B to $1.5B Insurance or guarantee of underlying collateral insulates bondholders from virtually any loss Tranches or pass-through denominated in of principal(1) U
Slide 45: SLM Stafford/PLUS ABS Trusts
SLM Stafford/PLUS ABS Trusts Prepayment Analysis Annualized CPRs for SLM Stafford/PLUS ABS Trusts have decreased significantly as incentives for borrowers to consolidate have declined After a temporary increase in mid 2012 due to the Special Direct Consolidation Loan program, CPRs decreased in the f
Slide 46: SLM Consolidation ABS Trusts
SLM Consolidation ABS Trusts Prepayment Analysis CPRs for SLM Consolidation ABS Trusts have declined significantly following legislation that prevented in-school and re-consolidation of borrowers’ loans After a temporary increase in mid 2012 due to the Special Direct Consolidation Loan program, CPRs
Slide 47: Private Education Loan ABS Appendix
Private Education Loan ABS Appendix 47
Slide 48: SLM Private Education Loan ABS Issuance Profile
SLM Private Education Loan ABS Issuance Profile Sallie Mae is among largest issuers of ABS globally, having issued close to $267 billion in Private and FFELP ABS transactions to date Sallie Mae has been the market leader in Private Education Loans since the late ’80s, with expected originations of a
Slide 49: Recent SLM Private Education Loan ABS Characteristics
Recent SLM Private Education Loan ABS Characteristics Recent SLM Private Loan ABS Structures Collateral Characteristics Issue size of $500M to $1.5B Collateralized by loans made to students and parents to fund college tuition, room Triple-A rated senior notes, Single-A rated and board subordinated n
Slide 50: SLM Private Education Loan ABS Summary
SLM Private Education Loan ABS Summary SLM Private Education Loan ABS Trusts (2009-D - Present) Summary Information 09-D 09-CT 10-A 10-B 10-C 11-A 11-B 11-C 12-A 12-B 12-C 12-D 12-E 13-A 13-B Bond Amount ($mil) 1,680 590 1,550 869 1,701 562 825 721 547 891 1,135 640 976 1,108 1,135 Initial AAA Enhan
Slide 51: Constraining rating agency triple-A gross default stress levels at issuance
Constraining rating agency triple-A gross default stress levels at issuance 70.0% 59.4% 60.0% 56.8% 58.0% 54.4% 55.7% 54.8% 52.6% 52.7% 52.5% 52.2% 49.8% 50.1% 50.9% 48.2% 49.3% 48.2% 48.7% 50.0% 44.4% 40.0% 36.3% 33.9% 30.0% 27.6%25.6% 20.0% 10.0% 0.0% 06-A 06-B 06-C 07-A 09-A 09-B 09-C 09-D 09-CT
Slide 52: Private Education ABS Trusts: Forbearance
Private Education ABS Trusts: Forbearance Forbearance usage is typically highest when loans enter repayment, and declines as loans season Use of forbearance as a collection tool peaked in early 2008; forbearance has since declined as a result of changes in SLM’s forbearance strategy Loans in Forbear
Slide 53: SLM Private Education ABS Trusts: 90+ Day Delinquencies
SLM Private Education ABS Trusts: 90+ Day Delinquencies As expected, later stage delinquency has remained elevated in recent periods due to tightening of forbearance policy and the current economic environment Increased emphasis on cash payment during delinquency means more borrowers remain in delin
Slide 54: SLM Private Education ABS Trusts: Annualized Gross Charge-offs
SLM Private Education ABS Trusts: Annualized Gross Charge-offs Charge-offs have declined steadily since late 2009, after an increase resulting from changes to forbearance policy and a weak economic environment Annualized Gross Charge-Offs as a Percent of Loans in Repayment All Loans in SLM Trusts by
Slide 55: SLM Private Education Loan Gross Defaults
SLM Private Education Loan Gross Defaults Actual-to-Date Cumulative Gross Defaults including Bankruptcy Information 24.0% All Trust Loans 22.0% 20.0% 19.19% 18.38% 18.0% 17.29% 16.76% 16.61% 16.0% 14.90% 14.79% 15.15% 15.05% 14.10% 15.94% 16.51% 14.0% 12.83% 14.99% 13.93% 11.40% 12.0% 12.63% 12.54%
Slide 56: Recoveries
Recoveries Recoveries are typically realized over many years as a result of the prevalent use of long- term payment plans While student loans are generally non-dischargeable in bankruptcy, the proceedings can postpone recoveries until after borrowers emerge from bankruptcy In 2005, Sallie Mae change
Slide 57: SLM Private Education Loan ABS Trusts – Prepayment Analysis
SLM Private Education Loan ABS Trusts – Prepayment Analysis Constant prepayment rates increased in 2007 due to the introduction of Private Education Consolidation loans, then declined following SLM’s decision to suspend its consolidation loan program in 2008 Historical SLM Private Education Loan ABS
Slide 58: Cohort Default Triangles
Cohort Default Triangles The following cohort default triangles provide loan performance information for certain Private Education Loans of SLM Corporation and its consolidated subsidiaries that meet such subsidiaries’ current securitization criteria (including those criteria listed below): – Progra
Slide 59: Cohort Default Triangles
Cohort Default Triangles The cohort default triangles featured on subsequent slides are segmented by loan program type, FICO score, cosigner status, and school type Terms and calculations used in the cohort default triangles are defined below: – Repayment Year – The calendar year loans entered repay
Slide 60: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) Note: Data as of 6/30/13. (1) Undergraduate/Graduate loans marketed under the Signature Student Loan brand. (2) Periodic Defaults for the most recent two calendar Years in Repayment are for a partial year. (3) Numerator is the amount of principal in
Slide 61: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) With Co-signer Undergraduate/Graduate(1) Without Co-signer Note: Data as of 6/30/13. (1) Undergraduate/Graduate loans marketed under the Signature Student Loan brand. (2) Periodic Defaults for the most recent two calendar Years in Repayment are for
Slide 62: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) Non-Profit Undergraduate/Graduate(1) For-Profit Note: Data as of 6/30/13. (1) Undergraduate/Graduate loans marketed under the Signature Student Loan brand. (2) Periodic Defaults for the most recent two calendar Years in Repayment are for a partial y
Slide 63: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) Loans, FICO 740-850(2) Undergraduate/Graduate(1) Loans, FICO 700-739(2) Note: Data as of 6/30/13. (1) Undergraduate/Graduate loans marketed under the Signature Student Loan brand. (2) FICO scores are based on the greater of the borrower and co-borro
Slide 64: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) Loans, FICO 670-699(2) Undergraduate/Graduate(1) Loans, FICO 640-669(2) Note: Data as of 6/30/13. (1) Undergraduate/Graduate loans marketed under the Signature Student Loan brand. (2) FICO scores are based on the greater of the borrower and co-borro
Slide 65: Cohort Default Triangles
Cohort Default Triangles Private Consolidation Loans With Co-signer Private Consolidation Loans Without Co-signer Note: Data as of 6/30/13. (1) Periodic Defaults for the most recent two calendar Years in Repayment are for a partial year. 65 (2) Numerator is the amount of principal in each cohort tha
Slide 66: Cohort Default Triangles
Cohort Default Triangles DTC With Co-signer, FICO 670(1) DTC Without Co-signer, FICO 670(1) Note: Data as of 6/30/13. (1) FICO scores are based on the greater of the borrower and co-borrower scores as of a date near the loan application. (2) Periodic Defaults for the most recent two calendar Year si
Slide 67: Cohort Default Triangles
Cohort Default Triangles Career Training Loans, 670+ FICO(1) Note: Data as of 6/30/13. (1) FICO scores are based on the greater of the borrower and co-borrower scores as of a date near the loan application. (2) Periodic Defaults for the most recent two calendar Years in Repayment are for a partial y
Slide 68: SLM Appendix
SallieMae\ SLM Appendix
Slide 69: GAAP to "Core Earnings" Reconciliation
GAAP to “Core Earnings” Reconciliation 69
Slide 70: Sallie Mae Investor Relations Website
Sallie Mae Investor Relations Website www.salliemae.com/investors SLM student loan trust data (Debt/asset backed securities – SLM Student Loan Trusts) – Static pool information – Detailed portfolio stratifications by trust as of the cutoff date – Accrued interest factors – Quarterly distribution fac