Slm Corporation · NASDAQ:SLM
Slm — Q2 2018 Earnings Presentation
35 slides from Slm's earnings presentation, Jul 30, 2018
Slide 1: SLM Corporation Investor Presentation Third Quarter 2018
Exhibit 99.1 SLM CORPORATION INVESTOR PRESENTATION Third Quarter 2018
Slide 2: Forward-Looking Statements and Disclaimer
2 Forward-Looking Statements and Disclaimer Cautionary Note Regarding Forward-Looking Statements The following information is current as of July 24, 2018 (unless otherwise noted) and should be read in connection with the press release of SLM Corporation (the “Company”) announcing its financial resul
Slide 3: Sallie Mae Brand
3 Sallie Mae Brand • #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: 55% market
Slide 4: Sallie Mae Overview: Key Statistics for Q2 2018
4 Sallie Mae Overview Sallie Mae Key Statistics for Q2 2018 − $0.25 Core Earnings diluted earnings per common share 2,3 − Portfolio of $18.5 billion of high quality Private Education Loans − 76% of Private Education Loans disbursed in Q2 2018 are cosigned − Average Q2 2018 Private Education Loan ori
Slide 5: Sallie Mae Summary
5 Sallie Mae Summary - Leading private education Private Education Loan - loan franchise Originator and Servicer - Conservative credit and Deposits - funding Upromise Rewards - - Expanding consumer Personal Loans- finance product suite Strategic Key Overview Businesses - National sales and Competiti
Slide 6: Favorable Student Loan Market Trends
6 Favorable Student Loan Market Trends Academic Year Enrollment at Four-Year Degree Granting Institutions(5) Annual Cost of Education(6) (Millions) (Thousands) Estimated Total Cost of Education – 2016 / 2017 AY(7) Cost of College (Based on a Four-Year Term)(8) (billions) (thousands) AY 07/08 AY 17/1
Slide 7: Higher Education Value Proposition
7 Higher Education Value Proposition Relationship Between Higher Education, Incremental Earnings From a College Degree Have Increased Income and Employment(9) For Generations(10) Average weekly income Unemployment Key Statistics • The unemployment rate for individuals age 25 and older with four-year
Slide 8: Smart Option Overview
8 Smart Option Overview 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 ed
Slide 9: Discipline Specific Graduate Products
9 Discipline Specific Graduate Products Sallie Mae Sallie Mae Sallie Mae Sallie Mae Health Sallie Mae Sallie Mae Medical Dental Law School Professions Graduate MBA Loan School Loan School Loan Loan Graduate School Loan School Loan Rate Type Variable & Fixed Variable: LIBOR + 2.00% - LIBOR + 7.25% In
Slide 10: Analytical Approach to Credit
10 Analytical Approach to Credit Borrower/Cosigner Initial Screen Manual Review • $1,000 minimum loan • ~8% of applications • Minimum FICO of 640 • Asset expertise and rigorous • Pass risk scores, but require further • No existing SLM 30+ day past dues underwriting driven by large review due to cred
Slide 11: High Quality Private Education Loan Growth
11 High Quality Private Education Loan Growth12 $5,500 $5,000 $5,000 $4,800 4% $4,666 3% 8% $4,500 $4,330 $4,076 6% $4,000 $3,500 $3,000 $2,459 $2,500 $2,278 8% $2,000 Originations Originations ($MM) $1,500 $1,000 $500 $0 2014 2015 2016 2017 2018 Private Education Loan Originations YTD Originations
Slide 12: High Quality Private Education Portfolio
12 High Quality Private Education Portfolio Customer FICO at Original Approval13 Smart Option Payment Type <700 Interest Only 780+ 21% 22% 29% Deferred 700 - 740 48% Fixed Pay 27% 740 - 780 30% 23% Weighted Average FICO: 745 Smart Option Loans: $17.9 billion Portfolio by Originations Vintage Portfol
Slide 13: Conservative Funding Approach
13 Conservative Funding Approach Stable deposit base with no branch overhead As of 6/30/18 — Diversified mix of retail and other core savings, MMDA and CDs — Brokered deposits used as alternative funding source Term funding / securitizations will augment deposit Retail funding for future growth Secu
Slide 14: Smart Option Delinquency and Default Performance
14 Smart Option Delinquency and Default Performance (As a % of Loans in P&I Repayment)14,15,16 31-60 Day Delinquency 61-90 Day Delinquency 10.0% 10.0% 9.0% 9.0% 8.0% 8.0% 7.0% 7.0% 6.0% 6.0% 5.0% 5.0% 4.0% 4.0% 3.0% 3.0% 2.0% 2.0% % of P&I Repayment Balance Repayment P&I of % % of P&I Repayment Bala
Slide 15: Cumulative Defaults by P&I Repayment Vintage
15 Cumulative Defaults by P&I Repayment Vintage17,18,19 Smart Option Cumulative Gross Defaults by P&I Repayment Vintage and Years Since First P&I Repayment Period 10% 9% 8% 7% 7.0% 6% 6.4% 5% 5.4% 4.9% 4% 4.9% 3% 4.3% Cumulative Defaults as a % of % a as Defaults Cumulative 2% 2.6% Disbursed Princip
Slide 16: Financial Review
16 Financial Review (in millions) Q2 2018 Q2 2017 Variance PSL $ 18,750 $ 15,728 $ 3,022 PSL Reserve (262) (205) (57) FFELP 888 970 (82) FFELP Reserve (1) (2) 1 PLOAN / Other 969 71 898 PLOAN / Other Reserve (33) (1) (32) Total Loans 20,311 16,562 3,749 Cash 2,044 1,318 726 Other Assets 1,834 1,634
Slide 17: Growth Balance Sheet Growth
17 Growth Balance Sheet Growth $25,000 $22,000 $19,000 $16,000 $13,000 $10,000 $7,000 $4,000 May-14 Dec-14 Jul-15 Feb-16 Sep-16 Apr-17 Nov-17 Jun-18 Consumer Loans Other Assets $5.00 Book Value Per Share $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 2014 2015 2016 2017 Book Value Per Share
Slide 18: Sallie Mae Performance
18 Sallie Mae Performance Efficiency Ratio20 Net Interest Margin 55% 6.0% 50% 5.9% 5.8% 5.7% 45% 5.6% 5.5% 40% 5.4% 5.3% 35% 5.2% 5.1% 30% 5.0% 2014 2015 2016 2017 2014 2015 2016 2017 Efficiency Ratio Net Interest Margin Diluted Earnings Per Share Core Return on Equity 2,3 $0.70 19.0% $0.60 17.0% $0
Slide 19: Consolidation to Third Parties
19 Consolidation to Third Parties $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Q1 2016 Q1 2016 Q4 2018 Q1 Q3 2015 Q3 2015 Q4 2016 Q2 2016 Q3 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q2 Consolidations Loans in P&I Overview: • Consolidations have long been a part of the student loan industry
Slide 20: Enhance Franchise and Diversify Revenue
20 Enhance Franchise and Diversify Revenue Goal: Distribution of Sallie Mae Borrowers by Product and Age 100% • Develop relevant and innovative Consumer 93% 95% 91% Lending products to deepen customer 90% 87% engagement, attract new-to-firm customers 83% 80% 79% and diversify revenue at attractive r
Slide 21: Sallie Mae Bank
21 Sallie Mae Bank • Market share leader in private student loan industry • High quality assets and conservatively funded balance sheet • Predictable balance sheet growth • Strong capital position and funding capabilities • A financial services company with high growth trajectory and excellent retur
Slide 22: ABS Supplement
22 ABS Supplement
Slide 23: Sallie Mae's Smart Option Loan Product Overview
23 Sallie Mae’s Smart Option Loan Product Overview • The Smart Option loan product was introduced by Smart Option Loan Program Sallie Mae in 2009 Origination Channel School Typical Borrower Student • The Smart Option loan program consists of: Typical Co-signer Parent $10,000 avg orig bal, 5 to 15 yr
Slide 24: Sallie Mae Bank ABS Summary
24 Sallie Mae Bank ABS Summary 14-A 15-A 15-B 15-C 16-A 16-B 16-C 17-A 17-B 18-A 18-B Issuance Date 8/7/2014 4/23/2015 7/30/2015 10/27/2015 5/26/2016 7/21/2016 10/12/2016 2/8/2017 11/8/2017 3/21/2018 6/20/2018 Total Bond Amount ($mil) $382 $704 $714 $701 $551 $657 $674 $772 $676 $670 $687 Initial AA
Slide 25: Sallie Mae Bank ABS Structures
25 Sallie Mae Bank ABS Structures SMB 2018-B SMB 2018-A Size $686.5MM $670.0MM Pricing Date June 13, 2018 March 14, 2018 Smart Option Smart Option Collateral Private Education Loans Private Education Loans Servicer Sallie Mae Bank Sallie Mae Bank Overcollateralization (23) 10% 11% Pricing Prepayment
Slide 26: Sallie Mae Bank Servicing Policies
26 Sallie Mae Bank Servicing Policies Policy Pre-Spin, Legacy SLM Serviced Post-Spin, Sallie Mae Bank Serviced Delinquencies All loans serviced by an affiliate of legacy SLM; loan Sallie Mae Bank collects delinquent loans thru charge-off, placing owned by Sallie Mae Bank sold to legacy SLM after emp
Slide 27: Sallie Mae Bank Collections
27 Sallie Mae Bank Collections Each customer is approached individually, and the account manager is educated and empowered to identify optimal resolution • Co-borrowers are contacted and collected with similar efforts as the primary borrower Sallie Mae Bank employs a front-loaded, stage based collec
Slide 28: FFELP vs. Sallie Mae Bank Smart Option Private Education Loans
28 Sallie Mae Bank Smart Option Private Education Loans FFELP vs. Sallie Mae Bank Smart Option Private Education Loan Comparison Sallie Mae Bank Smart Option FFELP Stafford Loans Private Education Loans(25) Borrower Student Student or Parent Co-signer None Typically a parent Lender Eligible banks an
Slide 29: Appendix
29 Appendix
Slide 30: Sallie Mae vs Federal Student Loans
30 Sallie Mae vs Federal Student Loans Sallie Mae Federal Student Loan Program26 Federal Direct Loan Loan Program Smart Option Student Loan Parent Plus (Subsidized & Unsubsidized) Yr 1 - $5,500 ($3,500 > subsidized) $1,000 - Cost of Attendance Yr 2 - $6,500 ($4,500 > subsidized) Loan Limits Yr 3+ -
Slide 31: "Core Earnings" to GAAP Reconciliation
31 “Core Earnings” to GAAP Reconciliation Quarters Ended June 30, Mar. 31, June 30, 2018 2018 2017 (Dollars in thousands, except per share amounts) “Core Earnings” adjustments to GAAP: GAAP net income……….….…….........………………… $ 109,832 $ 126,254 $ 70,617 Preferred stock dividends ………....….........………
Slide 32: Important Information Regarding Historical Loan Performance Data
32 Important Information Regarding Historical Loan Performance Data 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 Co
Slide 33: Important Information Regarding Historical Loan Performance Data (cont.)
33 Important Information Regarding Historical Loan Performance Data (cont.) Types of Smart Option Loan Portfolio Data The portfolio data we used in this report comes from three separate sources of information: (1) Combined Smart Option Student Loan Portfolio Data for Legacy SLM, Navient and Sallie M
Slide 34: Smart Option Loan Program Cohort Default Curves
34 Smart Option Loan Program Cohort Default Curves Terms and calculations used in the cohort default curves are defined below: First P&I Repayment Period – The month during which a borrower is first required to make a full principal and interest payment on a loan. P&I Repayment Vintage – The cal
Slide 35: Footnotes
35 Footnotes: 1. Source: MeasureOne CBA Report as of December 2017 2. The difference between “Core Earnings” and GAAP net income is driven by mark-to-market unrealized gains and losses on derivative contracts (excluding current period accruals on the derivative instruments), net of tax, which are re