Slm Corporation · NASDAQ:SLM
Slm — IPO Roadshow (February 2009)
71 slides from Slm's IPO roadshow presentation, Feb 9, 2009
Slide 1: SLM Corporation Debt Investor Presentation Q4 and Year Ended December 31, 2008
SLM Corporation Debt Investor Presentation Fourth Quarter and Year Ended December 31, 2008
Slide 2: Forward Looking Statements
Forward Looking Statements This Presentation contains forward-looking statements and information based on management’s current expectations as of the date of this document. Statements that are not historical facts, including statements about our beliefs or expectations and statements that assume or
Slide 3: SLM Corporation Overview
SLM Corporation Overview Champions for Higher Education”
Slide 4: SLM Corporation
SLM Corporation • #1 originator of student loans in the U.S. education lending market • #1 servicer and collector of students loans in the U.S. currently servicing $178 billion in assets including $9 billion for third parties • Fully independent private sector company with scale and a broad franchis
Slide 5: Life-stage Customer Strategy
Life-stage Customer Strategy • Sallie Mae offers an unmatched, integrated suite of saving, planning, paying and repaying for college products and services Early awareness and School selection, Complete 1-2-3 Life-of-loan guidance and saving understanding ways to financing solutions for products to e
Slide 6: SLM Corporation Update Year Ended December 31, 2008
SLM Corporation Update Year Ended December 31, 2008 • Managed student loans outstanding increased to $180 billion, up 10% from year-end 2007 — Internal Brand FFELP originations increased 48% in 2008 — Private Credit originations decline 20% in 2008 due to a more conservative credit and funding posit
Slide 7: A Brief Corporate History
A Brief Corporate History 1965 Congress creates the Guaranteed Student Loan Program (1) SLM Corporate Debt Ratings 1972 Congress establishes, as a GSE, the Student Loan Marketing Association or “Sallie Mae” Moody’s S&P Fitch Long-Term Baa2 BBB- BBB 1996 Privatization of Sallie Mae approved by Congre
Slide 8: What Makes SLM Corporation Unique
What Makes SLM Corporation Unique Credit Risk 4 81% of managed student loans carry an explicit U.S. government guarantee of at least 97% 4 Managed student loan losses were 0.41% at year end 2008 Interest Rate and Economic Cycles 4 Interest rate sensitivities of floating rate assets closely matched w
Slide 9: FY08 and Q408 Core Earnings Summary
FY08 and Q408 “Core Earnings” Summary ($ millions), except per share amounts 2008 2007 Q408 Q407 EPS (Reported) 0.89 1.23 0.08 (0.36) Net Income (Loss) 526 560 65 (139) Net Interest Income 2,419 2,555 553 612 Net Interest Margin 1.30% 1.49% 1.15% 1.32% Loan Loss Provision 1,029 1,395 392 750 Asset-B
Slide 10: Fee Income & Other Income
Fee Income & Other Income 2008 Fee & Other Revenue $969 Million* Other $128 Contingency Fee $340 · Contingency Inventory of $11.6 Billion • Collecting on behalf of the Dept of Education for close to ten years Late Fees $143 • Upromise — largest private source of 529 plans • Guarantor Servicing for s
Slide 11: Lending Segment Earnings Detail
Lending Segment Earnings Detail ($ millions) 2008 2007 Q408 Q407 FFELP Originations $17,907 $17,262 $3,926 $3,137 Private Originations $6,336 $7,915 $851 $1,584 Total Originations $24,243 $25,177 $4,777 $4,721 Net Student Loan Spread(1) 1.63% 1.67% 1.49% 1.56% Operating Expenses(2) $589 $690 $129 $1
Slide 12: Dept. of Education / Government Programs
Dept. of Education / Government Programs • Kennedy-Miller Legislation — Signed by President 05/07/08 • ECASLA — Broad authority to purchase loans from 10/01/03 — 07/01/09 • ECASLA Extension — Signed by President 10/07/08 • Extended purchase authority for 2009 — 2010 Academic Year • Loan Purchase Com
Slide 13: Office of the Chief Executive Officer
Office of the Chief Executive Officer Al Lord, Chief Executive Officer Barry Feierstein, EVP Rob Autor, EVP Jack Hewes, Sr. EVP & Jack Remondi, Vice Chair Sales & Marketing Operations & Technology Chief Lending Officer & Chief Financial Officer David West, SVP Jim Truitt, SVP Mark Heleen, EVP & Chie
Slide 14: The U.S. Student Loan Market
The U.S. Student Loan Market 14
Slide 15: Sources of Funding for Higher Education in the U.S.
Sources of Funding for Higher Education in the U.S. Sources of Funding for College Attendance — AY 2007-2008 Total Cost — $258 Billion Federal Student Parent/Student Loans Contributions $71 $74 $18 $95 Private Education Scholarships, Loans Grants, Other Source: Based on estimates by Octameron Associ
Slide 16: Favorable Student Loan Market Trends
Favorable Student Loan Market Trends • Enrollment Growth + Rising Tuitions + Education Value = Increasing Loan Demand Higher Education Enrollment (millions) Annual Cost of Education ($ thousands) Public CAGR: 6.8% Public Private Private CAGR: 5.1% $34.1 19.5 19.7 19.9 $30.4 19.0 19.3 $27.5 $28.7 $24
Slide 17: Education and Unemployment Over Time
Education and Unemployment Over Time • The relationship between education and unemployment has been relatively constant over time 9.0 8 .0 7.0 6.0 5.0 % 4.0 3.0 2.0 1.0 0.0 Total 25 and Older 25 & Older with Bachelor’s Degree and Higher Source: Bureau of Labor Statistics. 17
Slide 18: The Federal Family Education Loan Program or FFELP
The Federal Family Education Loan Program or “FFELP” • Provides lenders an explicit U.S. government guarantee of at least 97% and a fixed yield on student loans made pursuant to the FFELP program • Loan pricing, terms and maximum borrowing limits set by Congress • Available to undergraduate students
Slide 19: Federal FFELP Student Loan Market Share
Federal FFELP Student Loan Market Share SLM Historical Market Share of Federal Student FFELP Loan Federal Student FFELP Loan Originations (FFY 2007 & 2003) Originations 2007 2003 Market Market 40% Rank Lender 35% 34% 34% 34% 34% 34% Share Share 35% 30% 1 Sallie Mae 34% 34% 30% 2 Wells Fargo 10% 10%
Slide 20: Growth in Federally Supported Student Loan Originations
Growth in Federally Supported Student Loan Originations Growth in Federal Education Loan Originations FY 2001 — 2009E (1) Stable, Long-Term Growth — $80.0 • In 2008, more borrowers took out more $70.0 FFELP loans with higher loan balances than ever before $60.0 • Total federal student loan originati
Slide 21: FFELP Originations
FFELP Originations • FFELP Internal Brand originations increased 48% in 2008 • Originated $2.7 billion of loans for third party servicing clients in 2008 SLM FFELP Originations $20 $18 $16 $4.0 $14 $8.2 $12 $9.0 llions $10 $10.3 $10.1 $8 $ in bi $13.8 $6 $9.3 $4 $6.9 $2 $4.8 $3.6 $0 2004 2005 2006 2
Slide 22: The Private Education Loan Market
The Private Education Loan Market Private Education Loans • Consumer loans made to students and parents specifically to fund the cost of undergraduate, graduate and other forms of post-secondary education • Typically used to bridge the funding gap between grants, aid and FFELP loans, and the increas
Slide 23: SLM's Private Education Loan Portfolio
SLM’s Private Education Loan Portfolio Private Education Loan Portfolio Characteristics(1) • $33 billion of managed outstandings at year end 2008 • 19% of SLM’s managed student loan portfolio • Risk-based pricing • Approximately 55% of portfolio has a co-borrower, typically a parent • Higher educati
Slide 24: Private Education Loan Market Demand
Private Education Loan Market Demand • Private education loans help bridge the gap between funding available through government-sponsored programs and the rapidly increasing cost of education Cost of College AY 1998-1999 Cost of College AY 2008-2009 Based on a Four-Year Term Based on a Four-Year Ter
Slide 25: Credit Quality
Credit Quality Champions for Higher Education
Slide 26: Loan Losses
Loan Losses Total Net Charge-Offs (1) Net Charge-Offs (1) = 0.41% = 0.06% Net Charge-Offs (1) = 1.97% + = U.S. Government Total Managed Guaranteed Loans Private Education Student Loan 81% Loans Portfolio 19% (1) Managed FFELP net charge-offs as a percentage of average managed FFELP assets. Managed P
Slide 27: FFELP Education Loan Portfolio
FFELP Education Loan Portfolio “Core Earnings” FFELP Loan Spread vs. Net Charge-Offs 1.8% 1 .59% 1.6% 1.39% 1.4% 1.25% 1.2% 1.0% 0.96% 0.83% 0.8% 0.6% 0.4% 0.2% 0.02% 0.00% 0.03% 0.06% 0.01% 0.0% 2004 2005 2006 2007 2008 Net Charge-Offs FFELP Education Loan Spread 28
Slide 28: Private Education Loan Portfolio
Private Education Loan Portfolio “Core Earnings” Private Education Loan Spread vs. Net Charge-Offs(1) 6.0% 5.13% 5.12% 5.09% 5.0% 4.75% 4.62% 4.49% 4.22% 3.86% 4.0% 3.07% 3.0% 2.25% 1.85% 1.92% 1.89% 2.0% 1.62% 1.0% 0.0% 2002 2003 2004 2005 2006 2007 2008 Net Charge-Offs Private Education Loan Sprea
Slide 29: Portfolio Quality
Portfolio Quality Increasing Non-Cosigned Repayment Waves Non-Traditional Repayment Waves ($ in millions) ($ in millions) $1,000 $4,000 $800 $3,000 $600 $2,000 $400 $200 $1,000 $0 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004 2005 2006 2007 2008 2009 2010 2011 2012 Non-Traditional $ Non-cosig
Slide 30: Default Trends — Traditional vs. Non-Traditional
Default Trends — Mix of Traditional vs. Non-Traditional Net Charge-offs $ Net Charge-off Rate as a % of Avg Repay Balance 800 25% 700 20% 600 500 15% 400 Millions 300 10% 200 5% 100 — 0% 2006 2007 2008 2009F 2006 2007 2008 2009F Trad Non-Trad Trad Non-Trad • Net charge-offs driven by Non-Traditional
Slide 31: Private Loan Performance (Traditional vs. Non-Traditional)
Private Loan Performance (Traditional vs. Non-Traditional) • Reserve coverage of annualized net charge-offs totaled 2.4x and 2.3x for Traditional and Non-Traditional loans respectively for 2008 12/31/2008 9/30/2008 6/30/2008 3/31/2008 12/31/2007 Traditional Loans Outstanding $30,949 $30,068 $28,349
Slide 32: Servicing: A Competitive Advantage
Servicing: A Competitive Advantage 34
Slide 33: SLM's Competitive Advantage
SLM’s Competitive Advantage • SLM has a distinct competitive advantage in all facets of the education loan market. Economies of Scale • $180B of managed loans • 10 million customers Vertically Integrated State-of-the-Art Origination/ Loan Delivery Platform Servicing/Collections Singular Focus and Sc
Slide 34: Operations Overview
Operations Overview Loan Originations Servicing Collections Underwriting Loan Acquisitions, FFELP Due Diligence o Mt. Laurel, NJ Consolidations, and Post- o Fishers, IN o Lynn Haven, FL Disbursement Processing o Wilkes-Barre, PA o Newark, DE o Fishers, IN o Baguio, Philippines oSalt Lake City, UT o
Slide 35: Operations Locations
Operations Locations Wilkes-Barre, PA Fishers & Muncie, IN Mt. Laurel, NJ Salt Lake City, UT Newark, DE Killeen, TX Lynn Haven, FL 37
Slide 36: Funding Diversity and Liquidity
Funding Diversity and Liquidity 38
Slide 37: Liquidity Position Update
Liquidity Position Update ($ in billions) 12/31/2008 9/30/2008 12/31/2007 Sources of Primary Liquidity: ED Purchase and Participation Program Unlimited Unlimited -Unrestricted Cash & Liquid Investments $5.0 $4.7 $10.3 Unused Commercial Paper and Bank Lines of Credit (1) 5.2 6.2 6.5 2008 FFELP ABCP F
Slide 38: Funding Sources
Funding Sources • Employ conservative long-term funding model $180 Billion Managed Student Loan Portfolio Term Funded* 70% Fixed Spread Liabilities w/Ave Life of 4.3 yrs 12% ABCP Conduit 18% * Term Funded includes 4% or $7.6 Billion of advances outstanding under the ED Purchase and Participation Pro
Slide 39: Funding Distribution
Funding Distribution • At December 31, 2008, total managed debt borrowings was $192 billion. Unsecured Debt, $38.0 Churchill ABCP , $22.9 DOE Facility, $7.4 Term Bank Deposits $2.3 FFELP Facility, $1.9 Term ABS, $119.8 Other, $0.2 41
Slide 40: SLM Corporate Debt and ABS Issuance
SLM Corporate Debt and ABS Issuance • SLM has issued $176 billion of long-term, corporate debt and asset-backed securities since 2004, across a broad range of maturities New Issuance Volume 2004 2005 2006 2007 2008 Corporate Debt Issuance (1) $15B $10B $12B $1.6B $2.5B Term ABS Issuance (1) $30B $27
Slide 41: SLM ABS Issuance Volume
SLM ABS Issuance Volume SLM ABS Term Issuance Volume ($ billions) (1) 2005 2006 2007 2008 Non-Consolidation FFELP ABS $6.6 $5.1 $9.1 $18.5 Consolidation FFELP ABS 17.1 22.9 15.0 0.0 Private Credit ABS 3.4 5.7 2.2 0.0 Total ABS Issuance $27.0 $33.7 $26.3 $18.5 (1) Excludes outstandings under SLM’s as
Slide 42: SLM Corporate Debt Issuance Volume
SLM Corporate Debt Issuance Volume SLM Corporate Term Debt Issuance Volume ($ billions)(1) Issuance Type 2004 2005 2006 2007 2008 US$ Global & Medium Term Notes $6.4 $4.5 $5.8 $1.4 $2.5 Foreign Currency Denominated(2) 4.2 4.0 3.9 0.2 0.0 Extendible Notes 2.5 1.0 1.5 0.0 0.0 Retail Note Program 1.8 0
Slide 43: 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 — Originates Sallie Mae’s private education loans — Funded through affiliate and brokered deposits — 46.3% Total Risk-based Ca
Slide 44: Sallie Mae Bank Brokered Deposits
Sallie Mae Bank Brokered Deposits $2,500 25 $ 2,000 20 ts in Millions $1,500 15 Avg. in m i o nths Depos $1,000 10 $500 5 $- 0 Avg. Remaining Life Brokered Deposits As of 12/31/08 46
Slide 45: Sallie Mae Bank — Deposits
Sallie Mae Bank — Deposits Bank Deposits ($ millions) Dec 07 Sep 08 Dec 08 Brokered Deposits $254 $744 $2,256 Other Deposits* $431 $491 $457 Total Deposits $685 $1,235 $2,713 *primarily affiliate demand deposit accounts with no stated maturities 47
Slide 46: Sallie Mae Bank — Capital
Sallie Mae Bank — Capital Regulatory Capital Ratios Ratio Dec 07 Mar 08 Jun 08 Oct 08 Dec 08 Tier 1 23.2% 18.5% 17.3% 16.7% 40.6% Leverage Tier 1 24.4% 18.6% 20.0% 17.9% 45.8% Risk Based Total 24.4% 18.6% 20.0% 17.9% 46.2% Risk Based 48
Slide 47: Unsecured Debt Maturities
Unsecured Debt Maturities As of December 31, 2008 (par value, $ in billions) 15.0 11.8 10.0 7.1 7.0 5.0 2.9 3.0 2.2 2.3 1.1 0.5 0.0 • Repurchased $1.2 Bn of 2009 debt in 2008 Note: Does not include SLM Bank or subsidiary funding 49
Slide 48: Risk-Adjusted Capitalization
Risk-Adjusted Capitalization 50
Slide 49: Capitalization
Capitalization SLM Corp 2006 2007 2008 Tangible Equity/Managed Assets(1) 1.8% 2.0% 1.8% Tangible Equity/Net Charge-Offs(2) 16x 8X 6x (1) GAAP tangible stockholders’ equity as a percentage of total managed assets. (2) Average GAAP tangible equity including preferred stock to net charge-offs. SLM net
Slide 50: Capital Allocation
Capital Allocation • SLM allocates capital internally based on the risk of the assets it supports Government SLM Corp Guaranteed Loan Assets Cash, Private Investments, Education Other Assets & Total Loans Intangibles Managed 72% of Total Managed Assets 16% of 12% of Assets Total Managed Total Manage
Slide 51: SLM Corporation FFELP Appendix 2008
SLM Corporation FFELP Appendix 2008 Investor Presentation
Slide 52: SLM FFELP ABS Issue Characteristics
SLM FFELP ABS Issue Characteristics Typical SLM FFELP ABS Transaction Features • Historical issue size of $1.0B to $5.0(+)B • Tranches denominated in US$ or Euros • ‘Aaa/AAA/AAA’ rated senior tranches make up 97% of issue structure • Floating rate tied to 3 mo. LIBOR, with occasional fixed rate issu
Slide 53: Recent FFELP ABS Structures
Recent FFELP ABS Structures Recent SLM New Issue FFELP ABS Structures Non-Consolidation FFELP Non-Consolidation FFELP Consolidation FFELP Issue: $4.1B SLM Trust 2008-9 $1.0B SLM Trust 2008-8 $1.6B SLM Trust 2007-8 Closing Date: August 28, 2008 August 5, 2008 November 30, 2007 Collateral: US Govt. Gu
Slide 54: SLM Stafford/PLUS ABS Trusts Prepayment Analysis
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 Historical SLM Stafford/PLUS ABS CPRs 50.0% 45.0% 40.0% 35.0% 30.0% verage CPR* 25.0% A 20.0% 15.0% 10.0% 5.0% 0.0
Slide 55: SLM Consolidation ABS Trusts Prepayment Analysis
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 Historical Consolidation ABS CPRs 20.0% 17.5% 15.0% 12.5% Average CPR* 10.0% 7.5% 5.0% 2.5% 0.0
Slide 56: SLM Corporation Private Credit Appendix 2008
SLM Corporation Private Credit Appendix 2008 Investor Presentation
Slide 57: Rating Actions on SLM Private Credit Student Loan ABS
Rating Actions on SLM Private Credit Student Loan ABS • There have been a number of upgrades and no downgrades to Sallie Mae’s Private Credit ABS since the program’s inception in 2002 Moody’s(1) - March 2007 Fitch — September 2007 S&P — July 2008 Previous Current Previous Current Previous Current De
Slide 58: Private Credit Loan Underwriting Criteria
Private Credit Loan Underwriting Criteria • Underwriting has recently been intensified and enhanced with school-based decision criteria December 2007 Current(1) Xxxx FICO xxxx Other FICO Other Undergraduate > 640 Borrowing limits — Seven FICO tiers Borrowing limits school Undergraduate: $100,000 bas
Slide 59: Private Credit Loan Collections
Private Credit Loan Collections • Sallie Mae services and collects the loans in its Private Credit ABS Trusts • Private credit collections are conducted by a stand-alone consumer credit collections unit, not the company’s FFELP collections operations • Managed by individuals with prior experience ma
Slide 60: SLM Private Credit Delinquency and Forbearance Seasoning Trends
SLM Private Credit Delinquency and Forbearance Seasoning Trends • Delinquency and forbearance are highest when loans enter repayment, and diminish as loans season • As the trust loans season, delinquency and forbearance are expected to decline 90+ Day Delinquencies, % of Loans in Forbearance, % of L
Slide 61: SLM Private Credit Default Emergence Profile
SLM Private Credit Default Emergence Profile • Defaults in SLM Private Credit ABS Trusts increase as loans first enter repayment, then diminish steadily over time Expected Loss Emergence Timing 98% 99% 100% 100.0% 96% 97% 92% 94% 89% 90.0% 85% 78% 80.0% 69% 70.0% 60.0% 55% of Total Defaults 50.0% 40
Slide 62: SLM Private Credit Gross Defaults: Actual-To-Date vs. Lifetime Expectations
SLM Private Credit Gross Defaults: Actual-To-Date vs. Current Lifetime Expectations Actual-to-Date Cumulative Gross Defaults and Current Lifetime Expectations, including Bankruptcy Information All Trust Loans 14.0% 11.7% 12 .0% 9.8% 9.9% 9.4% 10.0% 8.5% 8.6% 8.7% 8.1% 7.7% 7.4% 8.0% nal Pool Balance
Slide 63: Lifetime Expectations vs. Rating Agency Stress Levels
SLM Private Credit Gross Defaults: Current Lifetime Expectations vs. Constraining Rating Agency Stress Levels at Issuance Constraining Rating Agency Stress Levels at Issuance for ‘AAA’ and ‘A’ Ratings versus Current Lifetime Cumulative Gross Default Expectations All Trust Loans 45 .0% 40.0% 36.6% 33
Slide 64: SLM Private Credit ABS Trusts: 90+ Day Delinquencies
· Percent of Rpmt Balance Percent of Rpmt Balance N 0.0% 1.0% 2.0% 3.0 4.0% 5.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% ov % — 02 1 Fe b- 03 2 Ma y- 03 3 Au g-03 4 N ov- 03 5 Fe b-04 6 Ma y- 04 7 Au 2002 g- 04 8 N ov- 04 9 Fe 2003 b- 10 05 Ma y- 11 05 Au 2004 12 g-05 N 67 13 ov- 05 Fe 2005 b-06 14 Ma Quarter
Slide 65: SLM Private Credit ABS Trusts: Forbearance
SLM Private Credit ABS Trusts: Forbearance • Use of forbearance as a collection tool peaked in early 2008, and has declined since, primarily as a result of restrictions on the length of forbearances granted • Forbearance usage is typically highest when loans enter repayment, and declines as loans se
Slide 66: SLM Private Credit ABS Trusts: Annualized Gross Charge-offs
SLM Private Credit ABS Trusts: Annualized Gross Charge-offs • Charge-off levels first increased in 2007 and have remained elevated through the economic downturn • As is typical, more recent Trusts with a greater percentage of borrowers first entering repayment continue to exhibit higher charge-offs
Slide 67: Historical Cumulative Gross Charge-Offs
SLM Private Credit ABS Trusts: Historical Cumulative Gross Charge-Offs(1) Cumulative Gross Charge-Offs as a Percent of Original Pool Balance All Loans in SLM Trusts by Year of Issuance alance 8.0% 7.0% B 6.0% 5.0% 4.0% 3.0% 2.0% rcent of Original Pool 1.0% e 0.0% P 4 7 7 08 02 — - 03 03 — 03 — 03 —
Slide 68: SLM Private Credit ABS Trusts Prepayment Analysis
SLM Private Credit ABS Trusts Prepayment Analysis • Constant prepayment rates increased in 2007 due to the introduction of Private Credit Consolidation loans, but then declined accordingly following SLM’s decision to suspend its consolidation loan program Historical SLM Private Credit ABS CPRs 15.0%
Slide 69: Appendix
Appendix R SallieMae ‘Champion or Higher Education
Slide 70: GAAP to Core Earnings EPS Reconciliation
GAAP to “Core Earnings” EPS Reconciliation ($ in thousands, except per share amounts) Years Ended December 31, 2008 December 31, 2007 Dollars Diluted EPS Dollars Diluted EPS GAAP net income (loss) $ (212,626) $ (0.69) $ (896,394) $ (2.26) Adjustment from GAAP to “Core Earnings” Net impact of securit
Slide 71: Additional Information Available at www.salliemae.com
Additional Information Available at www.salliemae.com 74