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SLM Corp. (



Q3 2010 Earnings Call

October 20, 2010 08:00 am ET


Steve McGarry - MD, IR

Al Lord - Vice Chairman & CEO

Jack Remondi - VC & CFO


Sameer Gokhale - KBW

Mike Taiano - Sandler O'Neill

Lee Cooperman - Omega Advisors

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David Hochstim - Buckingham Research

Matt Snowling - FBR Capital

Moshe Orenbuch - Credit Suisse

Eric Beardsley - Barclays Capital



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» Sallie Mae Corporation Q2 2010 Earnings Call Transcript
» SLM Corporation Q1 2010 Earnings Call Transcript
» SLM Corporation Q4 2009 Earnings Call Transcript
» SLM Corporation Q3 2009 Earnings Call Transcript

Good morning. My name is Regina and I will be your conference operator today. At this time I would like to welcome everyone to the third quarter fiscal 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you. I would now like to turn the conference to Steve McGarry. Sir you may begin the conference

Steve McGarry

Thank you Regina. Good morning and welcome to Sallie Mae's 2010 third quarter earnings call. With me today are Al Lord our CEO, and Jack Remondi, our CFO. Before we begin, keep in mind that our discussion will contain predictions, expectations and forward-looking statements. Actual results in the future maybe materially different from those discussed here. This could be due a variety of factors and listeners for a discussion of those factors on the company's Form 10-K and other filings with the SEC. During this conference call we will refer to non-GAAP measures that we call our core earnings. And description of core earnings, a full reconciliation of GAAP measures and our GAAP results can be found in the third quarter 2010 supplemental earnings disclosure. This is posted along with the earnings press release on the investor's page at Thank you and now I'll turn the call over to Al.



Thanks Steve, good morning everyone. Thanks for your interest. I am going to cover briefly our third quarter earnings and a couple of items that I want to cover with our shareholders and now I'll turn it over to Jack.

So we reported $0.35 per share in earnings from the third quarter 2010, up from $0.26 a year ago. There really weren't a lot of so called one time items in our $0.35 in earnings and so it's actually a fairly reliable indicator of where we are.

The net interest income in this preceding quarter was better than a year ago better because CP-LIBOR normalized over the past year and we have higher private credit yields and very, should I say very, very slight asset growth on the private credit side.

We had a significant year-over-year reduction in our charge-offs and private credits some $95 million versus the year ago quarter, through there was a slight seasonal up tick from the second quarter. I'll talk a little more about credit quality in a minute and Jack Remondi will also talk about credit quality and the seasonality of credit quality in a minute.

Our operating expenses were up very slightly from 2009 and while I don't hear the questions so I can sort of feel them and I know the question is why aren't they down, so first on there is a variety of reasons for that. I think our time is probably better spent on talking about the quest levels for today and tomorrow. Costs are coming down. They are in fact coming down gradually in a variety of areas.

For the year 2010, full year 2010, operating expenses will be about $1.3 billion. You can expect expenses in quarter four 2011 to be about $250 million; that's one year from now. We will enter the year 2012 with less than a $1 billion per year run rate.

I just want to make this clear so I'll say it again. So beginning this quarter Q4 2010 through Q4 2011, that's five consecutive quarters, you will see reductions in operating expenses. We will reduce operating cost to an annual level going into 2012 of less than $1 billion.

Talk about private credit; again in the third quarter demand was weak. Our volume was about flat for the year ago. I'd like to think that it's bottomed out. Certainly it's an important question for us whether it's bottomed out but I can honestly tell you we don't really know that it has. Families remain very cautious, there is still a lot of federal money in the system, but we did notice that tuition and fees have begun growing again after a couple of flat years. We expect volume for the full year to be about $2.25 billion dollars.

I mentioned the charge-off decline from the year ago quarter. Not only did the charge-offs go down but our delinquency stats are better, our forbearance statistics are better. Forbearance levels are now well below the 2000 levels before 2007. Our 30-day delinquency level is the lowest it's been since December of '08.

This is good news, its good news in a very tough environment. Nonetheless, charge-offs are naggingly high as unemployment levels seem stuck. We know that our portfolio of loans and repayment, our customers have jobs and keep their jobs, we are graduates obviously to get jobs. And this is a tough environment.

While we are not forecasting any improvement in the economy, we do expect again a significant reduction in charge-offs going into 2011. That's really based not on the economy but on the improving quality of our existing assets, and particularly in the quality of assets that are moving into the repayment status from school status.

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