Q1 2010 Earnings Call Transcript
April 22, 2010 8:00 am ET
Steve McGarry – Managing Director, IR
Al Lord – Vice Chairman and CEO
Jack Remondi – Vice Chairman and CFO
Joe DePaulo – EVP and Chief Marketing Officer
Michael Taiano – Sandler O’Neill
Sameer Gokhale – Keefee, Bruyette & Woods
Lee Cooperman – Omega Advisors
David Hochstim – Buckingham Research
Daniel Kim – J.P. Morgan
Brad Ball – Ladenburg
Matt Snowling – FBR Capital Markets
Eric Beardsley – Barclays Capital
Ed Groshans – Height
Jordan Heimwoods [ph]
Previous Statements by SLM
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Good morning. My name is Terry and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 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's Instructions) Thank you. I will now like to turn the call over to Mr. Steve McGarry. Mr. McGarry, you may begin.
Thank you, Terry. Good morning, everybody, and thank you for joining us for 2010 first quarter earnings call. With me today on the call are Al Lord, our CEO; and, Jack Remondi, our CFO. After their prepared remarks, we will open up the call for questions.
But before we begin keep in mind that our discussion will contain predictions, expectations, and forward- looking statements. Actual results in the future may be materially different from those discussed here. This could be due to a variety of factors. Listeners should refer to the 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. The description of quarter earnings for full reconciliation to GAAP measures and our GAAP results can be found in the first quarter 2010 supplemental earnings disclosure. It's posted along with the earnings press release on the Investors page at salliemae.com. Thank you. And now, I'll turn the call over to Al.
Good morning, everyone. So this is our first quarter earnings call. At least as I read so far in the last several hours, we're reporting better earnings than you thought we were going to have. And frankly, they're better than we thought they were going to be. I think you also learned when Jack Remondi's finished talking with you that they're better than – our earnings are better in the first quarter. And we expect now that they'll be better in 2010 than we originally thought.
This is our first opportunity to speak with you since the student loan legislation passed. As you are well aware, it's not good news for the company, and it's certainly not good news for our employees. As you might guess, emotions among the 8,500 of us are wide-ranging, mostly they've gone from mad to sad. I can assure you they're still a long way from glad. This company has been through a great deal. The company is also populated with a lot of professionals. These emotions aren't surprising. We've been in this business for 38 years. We take great pride in who we are. And long before this program was called FFELP, Sallie Mae made it work. The loss of the business is – will cause Sallie Mae to reduce its employee number by approximately 2,500 persons. We expect that will be done by the end of the year 2011.
Yesterday, we announced the closing of two service centers, one in Killeen, Texas; one in Panama City, Florida. And this starts the unfortunate process of the 2,500 person reduction. There are 1,200 people in those centers and other locations informed yesterday.
We expect that our run rate for operating expenses will be roughly in the billion dollar range by the end of the year 2011. For those of you who have been with us for a couple of years, you'll recognize that – that by the end of 2011, we will have cut operating expenses by approximately $0.5 billion in four years.
As I said, Jack will talk to you and cover the quarter very well. I'm going to give you some random thoughts on – on where I think we stand financially with the results of the quarter. We're pleased, I can't say I'm ecstatic, but I'm pleased with the quarter. I'm particularly pleased with our increasing balance sheet strengths. I have to say I'm very proud and maybe just a little bit amused at the strength of our numbers in the first quarter, particularly in FFELP originations. Our numbers in the first quarter are another record for the company. We are in the next of our last quarter of originating FFELP loans, and we've set another record. I can’t help but tell you and remind you this – this is a great company. And it’s growing out of this business with a great deal of style.
We’re building liquidity. We continue to build liquidity. We’re also better positioning our long term debt maturities. As many of you have known and have reminded us that there are a fair number of debt maturities inside the 2010 to 2014 period. And we are reducing that number and spreading those maturities. That activity will continue.
I’d say if there’s a – a not so great spot in the first quarter picture, it would be with private credit volume. Private credit demand remains weak. And I’ll tell you that our new credit quality – and when I say new, I mean particularly in 2008 and 2009 and mid-2009s over – to today, credit quality is solid gold. There's just not enough of it. It’s becoming clear – clear as we get more and more information that 2010 will show an enormous increase in Federal lending, both in FFELP dollars, direct loan dollars, and in total grant dollars. Those dollars obviously reduce demand for private credit.
We introduced a new product a year ago. We are pleased with that product. We are adjusting that product and introducing new products. And we’re adjusting our pricing. But I think the larger picture is that the overall demand is just down for that product.