Sallie Mae 2014 Annual Report Download - page 5

The core of our marketing strategy is to promote our products on campuses through the financial aid offices and through
direct marketing to students and their families. Our on-campus efforts are driven by over 40 sales professionals who work with
2,400 higher education institutions. This sales force is the largest in the industry and has become a trusted resource for campus-
based financial aid advisers.
Our loans are of high credit quality and the overwhelming majority of our borrowers are managing their payments with
great success. At December 31, 2014, 2.0 percent of loans in repayment were delinquent, and loans in forbearance were 2.6
percent of loans in repayment and forbearance. Our annualized charge-off rate was 0.72 percent at the end of the fourth quarter
2014. Prior to the Spin-Off, Sallie Mae Bank sold, at fair value, substantially all of the Private Education Loans we originated
that became delinquent or were granted forbearance to one or more of our then affiliates. Post-Spin-Off, these practices have
largely ceased. As a result, Sallie Mae Bank historically had very little forbearance activity and very few loans over 90 days
delinquent.
Sallie Mae Bank
Since the beginning of 2006, virtually all of our Private Education Loans have been originated and funded by Sallie Mae
Bank (the “Bank”), our Utah industrial bank subsidiary, which is regulated by the Utah Department of Financial Institutions
(“UDFI”), the Federal Deposit Insurance Corporation (“FDIC”), and the Consumer Financial Protection Bureau (“CFPB”). At
December 31, 2014, the Bank had total assets of $12.8 billion, including $8.3 billion in Private Education Loans and $1.3
billion of FFELP Loans. As of the same date, the Bank had total deposits of $11.3 billion.
Our ability to obtain deposit funding and offer competitive interest rates on deposits will be necessary to sustain the
growth of our Private Education Loan originations. Our ability to obtain such funding is also dependent in part on the capital
level of the Bank and its compliance with other applicable regulatory requirements. At the time of this filing, there are no
restrictions on our ability to obtain deposit funding or the interest rates we charge other than those restrictions generally
applicable to all similarly situated banks. We plan to supplement our deposit base by raising term funding in the long-term asset
backed securities (“ABS”) market in 2015, collateralized by pools of Private Education Loans. We currently estimate that in
three years ABS transactions will provide approximately a third of our total funding. This will diversify our funding sources
and reduce our reliance on deposits to fund our growth. Our intention is to complete our first ABS transaction within the first
half of 2015.
The Bank is currently limited by the FDIC to total balance sheet growth of 20 percent per year. As a result, we also intend
to sell Private Education Loans as may be necessary to keep the Bank's balance sheet growth at or below the 20 percent level.
Private Education Loan sales most likely will be completed through an open auction process or the sale of residuals in
connection with our ABS transactions.
We expect the Bank to retain servicing of all Private Education Loans it originates, regardless of whether held, sold or
securitized. Loan sales and securitization volumes will be driven by growth in our loan originations, our asset values, and
capital and liquidity needs.
See the subsection under “Supervision and Regulation” titled “Regulation of Sallie Mae Bank” for additional details
about Sallie Mae Bank.
Operational Infrastructure
In April 2014, we began to independently perform collection activity on our portfolio of Private Education Loans.
In October 2014, we launched our stand-alone servicing platform and began servicing our portfolio of Private Education
Loans. Going forward, we will provide servicing and loan collection services for all Private Education loans we originated.
Our servicing operation includes resources dedicated to assist customers with specialized needs and escalated inquiries.
We also have a group of customer service representatives dedicated to assisting military personnel with available military
benefits. In addition, our Office of Consumer Advocate (“OCA”) works with customers to resolve escalated concerns, and more
recently, to address customer inquiries received via the student loan complaint portal the CFPB established in 2012. In 2014,
OCA received 151 inquiries from our customers through the CFPB portal. As of December 31, 2014, 100 percent of those
inquiries were successfully reviewed and closed within prescribed timeframes.
We expect to complete the build-out of our operational infrastructure to independently originate Private Education Loans
in the first half of 2015. This will include finalizing the development, testing and implementation of a new loan originations
platform.
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