At this time I would like to welcome everyone to the fourth quarter 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) Mr. McGarry you may begin your conference.

With me on the call are Al Lord, our CEO and Jack Remondi, our Chief Financial Officer. After their prepared remarks we will open up the call for a discussion of the quarter but before we begin let me remind you that in our presentation we will discuss predictions and expectations and make forward-looking statements. Actual results in the future may differ from those discussed here, perhaps materially. This could be due to a variety of factors. Listeners should refer to the discussion of those factors on the company’s Form 10K and other filings with the SEC. During the conference call we will refer to non-GAAP measures that we call our core earnings presentation. The description of core earnings, full reconciliation to GAAP measures and our GAAP results can be found in the fourth quarter 2009 supplemental earnings disclosure. This is posted along with the earnings press release on the investor’s page at SallieMae.com. I’ll now turn the call over to Al.

We appreciate this opportunity to chat with interested parties and we thank you for being here. We’ll be talking about fourth quarter performance and how we see 2010. Obviously the fourth quarter is a better quarter than we have seen recently and we believe it is the beginning to a better 2010. I’ll discuss the quarter momentarily but first I’d like to talk about 2010. Just for your information, any remarks that I make will be with respect to core earnings not GAAP. So, we’re 21 days in to 2010 and as we have told you before we expect a significant improvement in our earnings in 2010 reporting $0.96 for 2009 and we expect to earn about $1.50 in 2010. 2010 earnings improvement will come considerably more from reduced 2009 costs than it will from revenue growth. Obviously revenue growth is slower in a slow economy and particularly in the credit business. In 2010 we hope to see a full year of CP LIBOR spread alignment. Obviously, we’re back to CP LIBOR spreads that are close to what the historic norms have been. 2009 and 2008 bore the cost of distressed asset write downs. We would expect that they would be negligible in 2010. Our costs were stable in 2009, they will be stable in 2010. You should be aware that cost control in this company is a very serious focus and we recognize the need to continue to achieve scale economies. We had a pretty significant cut in our credit costs in the fourth quarter. We expect that that will be the beginning of a gradual decent in our credit costs. Certainly our credit costs like everybody else’s are vulnerable to economic downturn. We don’t expect a downturn, we don’t expect an upturn and in fact our comments are…

My comments will cover the operating results for the quarter and the year on both a GAAP and core earnings basis. In addition, I’ll review our funding activity and liquidity, provide a update on our lending business and review the performance of our private credit portfolio. At the end, I’ll provide an update on our outlook for 2010. For the quarter our core earnings including non-recurring items were $249 million or $0.41 a share and that compares to $164 million or $0.26 a share in the third quarter and $65 million or $0.08 a share in the year ago quarter. For the full year, core earnings including non-recurring items were $597 million or $0.96 compared to $526 million or $0.89 per share a year ago. This quarter’s non-recurring items include a loss on the sale of our GRP subsidiary which is our mortgage purchase paper business of $98 million after tax or $0.19 a share, impairments of $34 million in our remaining portfolio of purchased paper business or $0.07, $3 million in restructuring expense or $0.01 per share and a loss on the conversion or our mandatory preferred stock in to common of $33 million or $0.06 a share. These were offset by debt repurchase gains of $46 million or $0.09 a share. Cumulatively these add up to $0.24. Net interest income was $686 million for the quarter versus $553 million in the prior year period and the net interest margin increased to 1.4% from 1.15% in the year ago quarter. Net interest income and net interest margin for the full year were $2.3 billion and 1.14% respectively compared to $2.4 billion and 1.3% in 2008. The changes in net interest income and the margin from the prior periods were primarily due to the CP LIBOR spread which was just…

(Operator Instructions) Your first question comes from Andrew Wessel – J. P. Morgan. Andrew Wessel – J. P. Morgan: Really it is just on the FELP residual, you’ve spoken in previous conference calls and in previous conference presentations about the opportunity to possibly sell that and change your capitalization level to look more bank like. Any kind of update on that, thoughts on that going forward or any new discussions around that top?

We continue to make progress on that front but we don’t really have any more specifics to add at this time. Andrew Wessel – J. P. Morgan: Then also with the FHLB relationship, what are you envisioning? With being able to borrow up to $12 million is that going to be primarily for private credit? And, can you give an idea of what the advanced rates or haircuts are for that borrowing?

Private credit loans are not eligible collateral under that facility. Eligible collateral includes things like mortgages, mortgaged backed securities and federal loans. We expect to use our advanced capacity strictly for federal loans. The advanced rate including the requirements to purchase preferred stock are in the low 80s. It does provide however very low cost of funds

Your next question comes from Lee Cooperman – Omega Advisors. Lee Cooperman – Omega Advisors: Two questions, on the securitization of private loans what do you see going on there and at what spread would we be willing to do that business in greater size? Second, if you could help me out, what are you assuming in your $1.50 guidance as regards direct lending? Also, if you go back to Sallie Mae of old, there wasn’t the kind of seasonality that the numbers now imply whereas if you clean up the number in the quarter we earned $0.64 in the quarter. For example in 2004 the spread and quarterly numbers were a low of 51 a high of 58. In 2005 the low was 57 the high was 63, in ’06 the low was 65 the high was 74, with a sequential build. The $0.64 and the $1.50 are very different numbers. $0.64 multiply that by four and $1.50 for the year. So, what is your guidance assuming and why do we have so much seasonality now versus the Sallie Mae of old?

Let me take the second question first, as Al pointed out we originate loans for the Department of Education throughout the course of the year but those loans are sold at one point in time and in this case they were sold in the fourth quarter so all the earnings associated with that are booked at the time of sale under accounting rules. That is what causes the change in seasonality in periods past where we were basically a spread lender and earnings came in consistently throughout the course of the year. In terms of the assumptions for the $1.50, the vast majority of the FELP earnings that will be generated in 2010 come from loans that have already been booked. They were partially disbursed in 2009 and will be fully disbursed in 2010. We do assume that there will be a trail of loans originated in the second half of 2010 but I think it is a conservative assumption. It assumes that SAFRA or something like that is passed and it is just kind of a transition process since we don’t believe schools can all be converted by July 1st. But, I wouldn’t call it material. On the private credit side of the equation, your first question the last ABS deal that we did in the private credit space actually had some participation from investors who did not take advantage of the TALF program. We clearly want to continue to structure facilities to take advantage of that because we do believe it does help widen the investor base and therefore push down spreads. We think as investors continue to see the performance in our private credit portfolio and better understand this asset class that we would have the ability to access the term ABS market for private credit at least for the AAA bonds in an unsupported manner later in the year. I will say though we are not constraining our origination of private credit loans due to the term funding marketplace. The demand for private credit loans was down substantially in 2009 because of the increase in federal loan limits directly and indirectly as consumers just in general I think avoided or took down less debt obligations in total. We saw shifts in students attending lower cost institutions for example. You also had a number of schools dramatically increasing the total amount of financial aid that the provided to students and family further decreasing demand. Lee Cooperman – Omega Advisors: If I could ask just one other questions, not to get you in to a longer term forecast but after the administration has its way and the direct lending is implemented, would you expect given all the moving parts you are looking at your earnings to be lower in 2011 than you’re forecasting in 2010 or higher? Just directionally, no specific number?

You’re asking solely about 2011? Lee Cooperman – Omega Advisors: Yes. Just directionally, no number.

Look, I think I have said that we expect earnings in 2011 to be higher than 2010. The object here is for us to grow our revenue. As TALF revenues decline at a given pace we’ve got to generate revenues to offset that decline and we are targeting that we’ll have earnings up every year. But, as best we can see 2011 looks better than 2010.

Your next question comes from David Hochstim – Buckingham Research. David Hochstim – Buckingham Research: A question about the financial crisis, so called financial crisis responsibility fee and the fact that you didn’t contribute to the crisis I wonder if you can provide a little color on what you think the prospect of Congress even taking this up are and your ability to be exempt? Then related to that just sort of if you can talk about the timeline over the next few weeks in terms of SAFRA and whether the Senate has to do something before the budget comes out or it will automatically likely end up with an extension? You seemed to indicate that?

We agree with you on the financial responsibility fee fact, since we weren’t a contributor but actually a victim we were hoping to get some of that money returned to us. The bill itself has not been drafted yet so it is a little hard to know exactly what is going to happen. When talking to people they are more or less saying that we have got to wait and see what the president includes in his budget and we’ll go from there. But, I think we certainly feel and I think there’s some recognition that entities that didn’t receive any benefit from these emergency funding programs like TARP and TLGP shouldn’t be subject to the tax. David Hochstim – Buckingham Research: Then in terms of SAFRA and what can happen over the next month or couple of weeks?

As Al indicated we’re pretty much have been at a stalemate. Part of that is due to Congress being out on recess and just coming back in to town this week. But, the healthcare bill as I think everyone recognizes has basically sucked all the oxygen out of the room leaving little opportunity to discuss other items. We think our proposal, the community proposal works off of the foundation outlined by the President. It is a program that can be implemented today, it will generate at least 95% of the savings that is estimated by the President’s proposal. We believe it will actually generate more than that because it does not include the savings from lower default rates and can be done an implemented in a bipartisan way. So we continue to push that and advocate for that development. But frankly, there hasn’t been anyone in town to talk to for the last three weeks. David Hochstim – Buckingham Research: On the private loan provisions and charge offs, you both indicated that charge offs would be likely coming down over the course of 2010 but you’re providing kind of the fourth quarter charge off level it seems like. So you build reserves in Q4 with the expectations of charge offs coming down? Maybe just talk about kind of the reserves relative to charge offs looking forward. You’ve seen the peak clearly in charge offs?

Well, I think the economic environment requires us to be conservative here and not change direction too dramatically. Our guidance is for a $200 million decrease in the private provision in 2010 compared to 2009 and we clearly have seen a very significant improvement in charge offs in the fourth quarter versus the third. But, because the economy remains so uncertain I think we need to remain cautious on that front as well. David Hochstim – Buckingham Research: Then finally, just on the new facility, do you have the same banks involved in the new facility or do you have new banks?

It is principally the same banks. David Hochstim – Buckingham Research: Just a reflection of the improved environment and your better condition?

It is a reflection of the environment. This is a very high quality transaction for the banks. This facility is backed by government guaranteed loans so it is highly attractive from that perspective for the bank’s conduit programs they run and yes, it is a reflection of the change in economic environment.

Your next question comes from Michael Taiano – Sandler O’Neill & Partners. Michael Taiano – Sandler O’Neill & Partners: Just going back to the private credit charge off number, obviously it was down a lot more than I think most people thought this quarter. Jack could you maybe just give us a sense of trajectory wise through 2010 do you expect charge offs to be relatively chopping? I know 3Q looks like it was the peak but could you see a bump up from the levels in the fourth quarter?

Well, I think as we have indicated through the course of 2009 we made some significant changes to our collection practices and one of those by example is a change in forbearance policies which saw a significant reduction in the amount of forbearances that we grant and as a result we pulled forward what we think were future year charge offs in to 2009. In effect, doubling up charge offs for the first nine months of the year. I think what you are starting to see in the fourth quarter is a little bit of an unwinding of that not because we’re changing practices but just because of the doubling up eventually goes away. So I would look for 2010 to be a little bit steadier in performance than what you saw in 2009. Michael Taiano – Sandler O’Neill & Partners: Then just switching to politics side of things obviously, it’s difficult to forecast but what do you think the likelihood is that no action gets done the ECASLA is not extended? Is there a potential for the administration just to try and left FELP die on its own by effectively forcing schools to switch over to DLT? If that were to be the case do you think that you could fund FELP loans without a ECASLA at this point?

On the political side of the equation, I think the thing that Congress needs to address is making sure that there is no disruption to the student loan marketplace for students and schools for this upcoming academic year. It is pretty clear to us and I think certainly to the schools that requiring 100% conversion to DL by July 1st is at this stage in the game, not going to happen. We would certainly expect that in order to avoid any disruption you would see if a bill is not passed, a community proposal is not passed that they would at least extend ECASLA. We at Sallie Mae feel that we could fund federal loans without an ECASLA program in today’s marketplace but the size of that requirement would be really a function of how schools moved in and out of DL and how many other lenders participated in that program. Michael Taiano – Sandler O’Neill & Partners: On that note, like the FHLB facility that you have, it looks like the funding cost on that is even lower than ECASLA so can you potentially use that facility to fund loans that you expect to ultimately put to the government?

You’ve identified very clearly some very serious issues that we’re dealing with and we are working on them and my guess is that the answer to your question will become obvious, we hope we can make it obvious in the coming weeks. But, if you’ll permit us the luxury of leaving the answer there for the moment I would appreciate it.

Your next question comes from Sameer Gokhale – Keefe, Bruyette & Woods. Sameer Gokhale – Keefe, Bruyette & Woods: Just a couple of questions Jack, you talked about the private student loan charge offs and how you changed the forbearance practices and accelerated charge offs so just to clarify because it seems on the non-traditional loans you had those vintages, the ’07 ’08 vintages of loans coming in to repayment but because of this acceleration of charge offs that you already had in 2009, if I understand it correctly you’re suggesting that we shouldn’t for example, see another big drop off in Q4 of ’10 relative to Q3 of ’10 just because of some vintage affect for those ’07 ’08 years. Is that correct? We should see a gradual decrease in charge offs as Al mentioned?

Just before Jack answers the question with the answer, are you working on the fourth quarter of 2010? Sameer Gokhale – Keefe, Bruyette & Woods: Sure. We have to model out the earnings.

I was just making sure that was what you were asking.

You will continue to see the sequential declines in 2010 quarter-over-quarter they just won’t be as dramatic as they were from Q3 to Q4 of ’09. Sameer Gokhale – Keefe, Bruyette & Woods: The other thing is also I’d just like to revisit this issue of your guidance for ’10 and I know you have gotten a couple of questions about it you [inaudible] to answer those but I’ll take another stab at it. I guess what I don’t understand is you look at the run rate of earnings for Q4 after adjusting for some of the non-recurring items, Al had mentioned that op ex should be flattish for next year, I am assuming that is consistent with the run rate of op ex for Q4, funding costs should be lower maybe with some of these new facilities that you’ve structured, provisions should maybe be lower than the run rate in Q4 so why is the analyzed earnings number that you are looking for in ’10 still $1.50? Couldn’t it easily be $1.60 or higher or are you just being conservative there?

If you look at the fourth quarter numbers, $0.33 of earnings came from the annual impact of selling loans to the Department. So if you’re looking at the run rate, subtract that out and then do your annualized stuff and then add that back. I think the trends you are illustrating are certainly moving in that direction but $1.50 is where we stand today.

Your next question comes from Matthew J. Snowling – Friedman, Billings & Ramsey. Matthew J. Snowling – Friedman, Billings & Ramsey: Just to follow up on your guidance, particularly on the spread you came out and said mid 150s which is below the fourth quarter but you noted that there will be a lower cost of funds and better contribution from the private credits so I am wondering what is driving that lower? Presumably you are selling more of the lower yielding FELP loans today.

Well, in the fourth quarter the spread was not burdened by the lower earnings spread of loans funded through ECASLA. Those loans were sold to the Department at the beginning of the quarter. So, for the full year you get in effect loans held for sale bringing the spread down. Matthew J. Snowling – Friedman, Billings & Ramsey: Can you talk a little bit about the servicing contract with Ed? An update on volume, market share? Servicing fees from third parties only went up $1 million from the third quarter so I am wondering was there any real impact from a revenue standpoint?

We’re servicing just over two million accounts today for the Department. Remember the vast majority of these loans are in school and so subject to the lowest of the monthly servicing revenues that we generate. In total, the total revenue book from the DOE contract in the fourth quarter was just under $10 million. Matthew J. Snowling – Friedman, Billings & Ramsey: Where does that show up?

It shows up in the other income line in the servicing component. Matthew J. Snowling – Friedman, Billings & Ramsey: Was that the $18 million?

That sounds about right. That would include servicing for lenders as well as for the Department of Education.

Your next question comes from Brad Ball – Ladenburg Thalmann & Co. Brad Ball – Ladenburg Thalmann & Co.: Also on your guidance for 2010, Jack what was your market share of guaranteed originations in the fourth quarter and what are you assuming that will be in that $20.8 billion origination number for 2010?

The Department statistics for the fourth quarter aren’t out yet so we don’t know the denominator. For the third quarter we were about a 31% market share of all federal loans including DL. Brad Ball – Ladenburg Thalmann & Co.: Is your expectation in 2010 that you’ll see the market share slip a bit? Is that part of the reason why originations are down in 2010 versus 2009?

Calendar year we actually expect disbursements to be about flat, that’s right. But, it is because of the tail off at the end of the year we’re expecting a higher percentage of direct lending volume or market share in the 2010/2011 academic year. Brad Ball – Ladenburg Thalmann & Co.: The same kind of question on the private loan side, I know you said that one of the factors for lower private loan originations was the increase in the guarantee amount and lower demand and tighter underwriting but what do you estimate your market share is on private credits?

Again, there is no real national statistics here. But, when you look at third parties, other entities that are in the private lending space they have all more or less reported similar decreases in originations in the private credit space. We have traditionally seen our market share of about 35% in that space. I would think with the exit of some lenders it might be a little bit higher but we just don’t have a full picture as to what the denominator was or the total universe of private credit lending was in 2009. We are not aware of any entity though that has seen anything more than significant decreases in origination volume during the course of the year. Brad Ball – Ladenburg Thalmann & Co.: Separate question, I don’t know that you talked about the impact of FAS 166/167 on either your reserves or your capital accounts here in the first quarter. Can you give us some sense of what you think the impact will be?

The equity impact at yearend is $800 million, that is up a little bit from the number we gave you at the end of the third quarter simply because we had a mark-to-market increase on our residual assets of the same amount. So net-net the impact equity is identical. Brad Ball – Ladenburg Thalmann & Co.: Any impact on your reserve account?

Everything comes on balance sheet so everything is going to basically follow to what the core cash numbers are. So, the differences in provision, differences on ending level of reserves will match what we have on a core cash basis.

Effectively all these new account standards do is adopt core accounting which we adopted years ago. Brad Ball – Ladenburg Thalmann & Co.: So that is all captured in your guidance, your provision guidance?

Yes.

Your next question comes from Janet Sung – Loomis Sayles & Company. Janet Sung – Loomis Sayles & Company: Most of my questions have been answered. Maybe you can just clarify though on the ECASLA fee would this be repeated again in 2010? And, did you mention that there will still be some residual in 2011? I wasn’t sure if I caught that correctly.

It most definitely will be repeated in 2010 and as I said we’ll basically have originated these loans already and the second disbursements were made in January so that volume in that revenue source is very predictable at this stage in the game and will occur sometime around September 30th. We are forecasting in our assumptions that there will be a tail carried over in to the 2010/2011 academic year but at a materially reduced level. Obviously if we’re successful on the ECASLA with either the community proposal passing or ECASLA being extended the opportunity would be for that number to be larger and the revenue on that would be booked in 2011 not ’10. Janet Sung – Loomis Sayles & Company: Then would it be also in the fall of 2011?

If the terms and conditions were the same, that would be correct. Janet Sung – Loomis Sayles & Company: I am still scratching my head about the private loan originations being down so much. I know that others have asked you the same thing. If you had to pick one reason would you say it is more demand driven or your underwriting standards driven through tighter underwriting?

If we had to pick one it is underwriting. Demand is down maybe 15% to 20%. When I say demand I mean application flow. The originations are down significantly more than that. Janet Sung – Loomis Sayles & Company: Down over 50% year-over-year?

Application flow is down but the volume is down, and I don’t know exactly what the volume is down 40% or 50% probably.

At this time there are no further questions. Steve McGarry Thank you very much. That concludes our call. If you have any follow questions please feel free to call me in the office.