Good morning, my name is Celeste, and I will be your conference operator today. At this time, I would like to welcome everyone to Sallie Mae First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn today's call over to Mr. Steve McGarry. Please go ahead, sir.

Thank you, Celeste. Good morning, everybody, and welcome to Sallie Mae's 2011 First Quarter Earnings Call. With me today are Al Lord, our CEO; Jack Remondi our President and COO; and Jon Clark, our CFO. After Al and Jon's prepared remarks, we'll open up the call for questions. Before we begin though, keep in mind that our discussion will contain predictions, expectations and forward-looking statements. Actual results in the future may be materially different than those discussed here. This could be due to a variety of factors, and 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 we call our core earnings. A description of core earnings, a full reconciliation to GAAP measures and our GAAP results can be found in the first quarter 2011 earnings release. This is posted on the Investors page at salliemae.com, where you can also find our Q1 earnings review deck, which contains a summary of our earnings release as well as additional information. Thank you, and I'll now turn the call over to Al.

Good morning, everyone. So before I go into my talking points, I just want to mention that, in the event I don't say this, this call today is good news. We reported, as you saw last night, $0.48 of earnings for the quarter, which includes an $0.08 debt buyback. That's -- I believe, is very good performance. As important as the numbers is the fact that the direction in virtually every key area is positive. You'll hear a little later from our CFO, Jon Clark, and Jon will talk to you a little bit about our guidance. Our guidance -- we're going to move our guidance up from about $1.50 to $1.70. There are a couple of reasons for that. Probably, the single largest reason is that we entered into this some floor income transactions in the first quarter that replaced expiring floor contracts from the past. Interest rates dropped significantly in the quarter, much more than we thought at the end of last year. Frankly, what's going on is we got historic indices that used to hurt this company in over the last couple of years that are now helping us. Specifically, narrower CP-LIBOR spreads and wider prime LIBOR spreads. We earned $260 million in the quarter. That represents a 20% return on our GAAP capital. We -- I mentioned, also, operating expenses is a early talking point. OpEx was at $303 million. There's an underlying run rate in that $303 million of $270 million, still higher than the $250 million target for our fourth quarter, which we've told you we would achieve. We still intend to achieve that. Also, you've read that the company has approved for the $0.10 dividend and a $300 million share repurchase. The $0.10 dividend is something less than a 25% payout. It will…

Thank you, Al. Good morning, everyone. I'm going to review our financial and operating results for the first quarter on both a GAAP and core earnings basis. I will also discuss the performance of our three key business segments, reviewing the performance of our customer lending portfolio and provide you with an update on our funding and liquidity position. Core earnings were $260 million or $0.48 per share, compared to $215 million or $0.40 per share in the year-ago quarter. These results include debt repurchase gains of $64 million, $0.08 per share and restructuring cost of $4 million less than $0.01 per share. FFELP core earnings were $109 million compared to $64 million in the year-ago quarter. This quarter's results include the full impact of $25 billion FFELP portfolio we acquired on December 31. We believe there will be further opportunities to acquire FFELP Student Loan portfolios. That FFELP net interest margin improved to 98 basis points from 83 basis points in the year-ago quarter. The changes in net interest margin from one year ago were primarily due to the sale of lower margin loans, the Department of Education, the acquired FFELP portfolio and additional floor income. FFELP operating expenses, excluding restructuring charges, were $195 million compared to $188 million a year ago. The increase in operating expenses was, primarily, the result of increase in Servicing revenue, which was transferred over to the Business Servicing segment. Earnings from Consumer Lending segment were $44 million compared to $5 million in the year ago quarter. Net interest income increased to $410 million from the quarter, driven primarily by net interest margin, which improved to 4.11% from 3.84% in the year-ago quarter. This improvement was a result of significant decline in other interest earning assets, which are down as a result of a…

[Operator Instructions] Your first question comes from the line of Sameer Gokhale with KBW. Sameer Gokhale - Keefe, Bruyette, & Woods, Inc.: Thank you. Just on the operating expenses, Al and Jon, both of you talked about your -- you gave the guidance for the year, which I think, is the same as you had before. But Al, in your comments you kind of talked about the run rate of operating expenses. So I was just trying to reconcile the two comments, because it seems like the run rate is suggesting a lower operating expense for the full year, relative to the $1.2 billion. So could you just talk about that a little bit?

Sameer, I think, there's probably a little bit of rounding in the $1.2 billion. I think, the number's somewhere between $1.150 billion and $1.200 billion. And I understand that it would be a little bit difficult to reconcile. And I'm hopeful that would beat the $1.150 million. Sameer Gokhale - Keefe, Bruyette, & Woods, Inc.: Okay. Yes, because it does seem like you were coming in to be $90 million or so lower than the $1.2 billion. But that's fine, maybe there's some rounding plus the opportunity to beat that $1.2 billion guidance number. The other question I had was in terms of the dividend and the share buyback. And trying to think of the dollar amount in its entirety, and I think, you alluded to, Al, that maybe it's incorrect to add the two end sales like a $500 million return of capital. But I was just trying to think about the dollar amount of share buyback, going forward. Like how do you think about that? Is this just -- is it like a onetime share buyback, and then the dividend would just remain consistent going forward? Or do you anticipate every year, there are being some incremental share buyback opportunity? How should we think about that?

I think you should -- I should -- I think, you should think about it as a beginning of a dividend program that's paying out roughly 25% of earnings. With respect to the share buyback, we see opportunities. Obviously, it's been painful to watch the stock at lower levels, particularly, substantially below $15, when I believe the stock just on its drop-dead value is $20-plus. I see it as opportunistic if -- it really depends, a great deal, I think, on the pace at which we add assets. We intend to grow capital at a pace that exceeds -- slightly exceeds our asset growth rates. So we, at the moment, have ample liquidity, and we believe that we're very adequately capitalized. We will see as we pursue the pace of which we add assets. That was a long-winded attempt not to answer your question. I've always liked that managing the capital account, recently, aggressively, but we're very sensitive to the capital markets over the last couple of years. And we just felt that, at this time, we could do the stock buyback. And as I said, I don't think it's appropriate for you to think that this $300 million, or whatever the number ever becomes, is necessarily an annualizable number. Sameer Gokhale - Keefe, Bruyette, & Woods, Inc.: Okay, that's helpful. And just my last question is on the private student loan originations. You said it might be a little too early to say that we're seeing this is the beginning of a trend of improving private loan originations. But for the quarter, given the kind of stronger-than-expected origination volume you had, was there a greater mix of the deferred loan product in the mix? And when you alluded to maybe some higher demand, was that really your deferred loan product, or were you seeing some higher demand across the products? So just to get a sense for the mix of what you originate, deferred loan versus like the fixed payment product.

The deferred product was not yet introduced. It's only come about in the last several weeks. Sameer Gokhale - Keefe, Bruyette, & Woods, Inc.: Okay, Al.

The first quarter was perfectly comparable as the year-ago quarter end with the fourth quarter. Sameer Gokhale - Keefe, Bruyette, & Woods, Inc.: Terrific. Thank you.

Next question comes from the line of Mike Taiano with Sandler O'Neill. Michael Taiano - Sandler O’Neill & Partners: First of all, congrats on the capital return announcement, I know that it's something you guys have been working hard towards. The question, I guess, in terms of the capital return. Obviously, you guys have to balance what your equity holders want and what your debt holders want. I was just curious as to if you've gotten any feedback from your debt investors and/or the rating agencies that you can share with us at this point?

We have ongoing conversations with the rating agencies. We have ongoing conversations with our creditors. You might be surprised -- maybe you wouldn't be surprised to know that a lot of our creditors are our shareholders. And our major shareholders, often -- many of them hold debt. So we're -- I think, we're feeling very much in touch with both sets of constituents. And I would say, look, this is -- what we've just done is really quite modest in terms of the distribution. I'm going to ask Jon Clark to -- who's recently spoken with -- well, he speaks all the time with our creditors, and just spoke recently with our friends at the rating agencies.

Thanks, Al. We discussed, so that the rating agencies would know what was coming. We discussed directly our plans. We shared with them our view of capital, and they were very constructive. I think they were -- it was important to us, all of us, that we not move forward unless we were confident that this did not impair our current ratings nor hinder us on achieving ratings upgrades in the future. Michael Taiano - Sandler O’Neill & Partners: Okay, that's helpful. And then, just secondly, on the private student loan volume. As we think about the margins on the new loans that you're originating versus sort of the average spread that you had at the quarter, which was a little bit north of 4%. Are the spreads on the newer loans higher or lower, or basically, in line with that?

Actually, they're, roughly, the same. We've done -- I think we've been pretty successful at maintaining margins. And frankly, that task gets easier, as we reduce our cost of funds, which goes back to your first question. We are very interested in our debt ratings. Michael Taiano - Sandler O’Neill & Partners: Okay. And then just the last question. Are you guys affected at all -- this new FDIC deposit assessment on, I guess, the way they changed the methodology on debt versus just pure deposits. Do you expect that to have any impact, or any meaningful impact on your expenses at all?

You hit me with the question that I don't know the answer to. But I'm staring at Jack Remondi, who's shaking his head, no. Let me ask him to answer the question, if I might.

Might be. I mean, that issue, principally, affects nondeposit-gathering liabilities, to which the bank has very little. Michael Taiano - Sandler O’Neill & Partners: Okay. So it's just the bank, it's not the total holding company.

That's right. Michael Taiano - Sandler O’Neill & Partners: Okay, got you. Great. Thanks a lot.

Your next question comes from the line of Lee Cooperman with Omega Advisors.

I think, the numbers are very clear. And I think, you shared this philosophy, which we spoke about before about the risk of not making any errors. I noticed that like of all the analysts that recommend -- that have an opinion on the stock, the average price objective is $16.17. I believe, the stock repurchase makes sense under only one circumstance, and that is when buying something back that is significantly undervalued. You're being consistent, as Al made the comment that dead, we're worth 20%. I mean, we're not going to be dead, and hopefully, we're going to grow. But I assume, that you guys understand that the decision to return money -- some of this money by stock repurchase as stated by you that the market is misvaluing our prospects, and these analysts that cover us will wake up and figure out they're making a mistake, and ultimately would be raising their price objective. That's kind of one. I think, I know the answer, but I'd like to hear it. Again, it makes me feel good. And secondly, directionally -- not specifically, but directionally, would you expect to enhance on 2011 earnings in 2012? Thank you for your help.

Lee, let me answer your last question first. I think your last question was do we expect 2012 to improve EPS versus 2011. The answer is yes. With respect to your first point, and in an attempt to achieve the objective of making you feel better, of course, we believe that the share -- I mentioned in my talking points, I believe, the stock's were well over $20 in almost any rational evaluation.

Good, okay. You're being consistent. Thank you. Good luck. And I think it was a very good decision you made.

Your next question comes from the line of Eric Beardsley with Barclays Capital.

Thanks. I was wondering, with the hedging you've done, where the FFELP loans spread goes from here?

The FFELP loan spreads from here won't change much. I think, the right way to look at the hedging strategy here is, in fact, you dampen the volatility, the FFELP strength going forward. So I think, you're going to expect it to be within a few basis points to be pretty stable for the rest of the year.

And as you look out a few years from now, where do you think that goes to?

Well we hedged out a ways. So I expect, it'll continue to be relatively stable. About how the FFELP loans are funded, you've locked in a great deal of the future, if you will.

Okay. And then secondly, I know this is probably hard to look out, but when do you think you can see revenue growth?

Are you speaking about net interest revenue growth? Or are you speaking about fee income growth?

A combination of the two.

I think we're showing net interest revenue growth.

Well, just looking at the runoff portfolio, and what you're filling in with private lending, how those two offset overtime?

As we've looked at the next 3 or 4 years, the net income that we're projecting -- and I recognize, I'm taking you to the bottom line, not to the top line. I'm going to ask Jack Remondi to address the top line question. But the bottom line for the next several years has an upward trend. And in part, that comes as a consequence of reduced provisions and reduced operating expenses. But the amortization of the FFELP portfolio and the slight growth in the private portfolio, actually, are sufficient to show bottom line growth. As I mentioned in my talking points, we are looking for fee income growth, again, accretive fee income growth. And I see, particularly, with secondary market opportunities, the opportunity to -- both on the FFELP side, to delay the deterioration in net interest income. And on the private side, we're seeing very, very nice quality portfolios at reasonable prices, which can enhance the growth in net interest income both from the private side. If you're looking for more specificity, I'm going to ask Jack to take a crack at your question. Jack?

So I think you have to look at -- and you're looking at revenue, top line revenue growth. I think you do have to take into consideration the three segments of the company. We have our FFELP portfolio that's roughly 80% of the balance sheet, and borrowing any acquisitions of portfolio with that revenue line item is going to decline. And so the overall size of that makes it -- makes this a bit of a challenge. When we look at the private credit side of the equation, we expect growth opportunities to continue to be in that space. We expect them to be -- to see top line revenue growth of net interest income after provision to be well into the double digits., Actually, overall in 2011, it will be double digits versus 2010. And the real opportunity for us is as Al pointed out in the aggregate -- is can we buy portfolios in the FFELP space at attractive levels that allow us to slow down the amortization of the FFELP loan. We think the answer to that is yes. The fee income side of the equation also has some of the same characteristics of the FFELP portfolio. A good portion of our revenue is derived from the guarantor servicing and continues to collection work we do in the FFELP segment. The question will be is -- does our superior performance on default prevention and collection at the Department of Education side allow us to capture similar-sized market share in that area. Economically, the answer to that should be yes, but we'll have to see how the Department actually performs in that segment.

Okay, great. Thanks.

[Operator Instructions] Your next question comes from the line of Moshe Orenbuch with Crédit Suisse. Moshe Orenbuch - Crédit Suisse AG: Great. Jon, I think you had mentioned something about -- in addition to the deferred products, some other characteristics about allowing other kinds of borrowing. Could you kind of flesh that out, maybe kind of related to some other elements like the bank account and other things that make this kind of more competitive. Could you just talk about that little bit?

Well, I think what I was referring to is in addition to introducing a deferred product on loan side, is the -- I'd call it, the more complete integration of our relationship with the student, which comes about through campus payment solutions and some of the products that we have to offer there. In other words, when a student would get a reimbursement of some funds from the school, that would be in excess of what the school gets paid, but they need to have -- as an example, if they live off campus, they would need to have those funds available to pay rent. They get that in the form of a debit card, which we expect we will continue to extend that relationship by having a debit card, providing an opportunity to get a checking account and create -- I'll describe it as a more holistic relationship with the student. So not only will they be borrowing from Sallie Mae, but to the extent that they were receiving funds from the school. That too, would be linked into Sallie Mae. And that we would provide a method where they could access those funds on a very cost-effective basis. Moshe Orenbuch - Crédit Suisse AG: And I guess, kind of somewhat unrelated topic. Just you had mentioned the better scores, prospectively, for the Department of Education servicing contract. Any other kind of flushing out of that, that you can do as to what we should expect and when?

Well, we have to wait for the next quarterly cycle. As you're probably aware, although the quarterly results are announced, the allocations are made once a year, so the important thing is for us to continue to push to excel, and achieve our number one ranking when the new determination is made. Moshe Orenbuch - Crédit Suisse AG: Great. Thank you.

Your next question comes from the line of Brad Ball with Evercore.

Thanks. Jon, could you talk a bit about your outlook for funding private student loans? You had a couple of successful ABS deals, do you see ABS as ultimately funding all of your private loans, or will you continue to use deposits? And what's the implication for your deposit strategy?

Yes, our strategy hasn't changed at all, with regard to deposits and the bank. I look at the bank as being a facility where we temporarily hold loans, in their early days, months, years as they season, and as we accumulate enough to aggregate enough to be able to do a well-structured deal, and then subsequently turned out in the ABS market. I continue to look at the ABS market as a very good alternative for us. The reason it's so good in my mind is because the match funding. And I expect, going forward, that we will -- as I mentioned in my opening comments, I look at our strategy with -- on the private credit side is to be a programmatic issuer. So I think you can expect that we will be in the market regularly, with reasonably sized deals, predictable structures, broadly marketed, so that everybody can see the liquidity that's available. And it makes me -- I think that will away a lot of the uncertainty, if you will, of exactly what you're curve looks like.

And would you characterize that market as opening back up, but certainly, not to the levels that we saw a few years back?

I think that's a good characterization. It is, clearly, getting -- in my mind, getting better month by month. It's been a longer slug than I had expected. But it is making progress. It's not back to where it was before. But I expect it will continue to -- I expect spreads continue to tighten throughout the year.

Okay. And then, still in the bank. You guys have talked about some consumer lending strategies. I think, you had a credit card pilot program. Could you update us on anything new on that front?

I'll let Jack handle that one.

Yes. All right. We were really looking at -- as Jon, who kind of indicated, expanding the relationships we have with customers on multiple fronts. So we look to help students and families save for college plan and pay. And some of the products that we are talking about launching are this No-Fee Checking account for students, to deal with the refunds. We also launched a pilot credit card program. That is out in the marketplace today. We're going to enhance that into some more targeted offerings for our customer, allowing parents to sign up for a credit card, where the cash-back earnings will go to pay down their children's student loan debt. We're going to have similar products for about our 529 plans. And again, it's just trying to broaden that relationship, but staying very close to the reason why the consumers, the customer of ours today. We've talked to come in the past about -- just to sheer numbers of customers that we have. We have over 23 million customers at Sallie Mae, and the demographics of that customers base, those -- both those that are saving, as well as those that have borrowed from us, we think are well above average to the kind of national standards or national averages, and therefore, represent a very strong opportunity for us.

Okay, great. And just one final question, separately. In terms of your guidance for $1 billion of provisions this year. Is that more a function of improving credit in private student loans, or is that also a reserve release?

That's improving credit. Definitely, improving credit.

So should we expect that provisions will match net charge-offs pretty closely on a normalized basis?

Yes.

Great. Thanks very much.

And we have no further questions at this time. I will now turn the call back over to management for closing remarks.

Thank you very much. That concludes our call. If you have any follow-up questions, please contact myself or Joe Fisher. Thanks for joining us this morning.