SLM Corporation (SLM) Q4 2011 Earnings Report, Transcript and Summary

Good morning. My name is Nicole, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sallie Mae Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Steve McGarry, Senior Vice President, Investor Relations. Sir, you may begin your conference.

Thank you, Nicole. Good morning, everybody. Thank you for joining us for our fourth quarter and full year earnings call. With me today are Al Lord, our Chief Executive Officer; Jack Remondi, President and COO; and Jon Clark, our CFO. After their prepared remarks, we will open up the call for questions. But before we begin, please 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, and 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 we call our Core Earnings. A description of Core Earnings and a full reconciliation to GAAP measures as well as our GAAP results can be found in the fourth quarter 2011 Supplemental Earnings Disclosure. This is 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.

Thanks, Steve, and good morning to all of you. I appreciate the opportunity to -- I think there are some 140-plus on the call -- the opportunity to speak with you and appreciate your interest in the company. So I will have a few -- I have a few brief comments on the fourth quarter and I'm going to talk to you a little bit about the full year '11 and our look at 2012. I'm sure you've all seen at this point that we earned $0.51 in the quarter. The onetime items -- the repeating onetime items added slightly more than they subtracted, but by and large, $0.51 is a pretty good number. The quarter came out very much as we expected it, although I do want to point out that the Congress, in some legislation during the quarter, gave us the option to earn our FFELP income based on 30-day LIBOR. There won't be much earnings effect from that, certainly not after the first quarter, but the real value of that legislation for our shareholders is that it removes the volatility from our 20-year FFELP earnings stream. Jon Clark will talk in more detail about our fourth quarter earnings components. Let me talk to you a little bit about 2011 and 2012. I'm actually quite pleased with the year 2011 and our performance. As you're probably well aware, I'm not particularly pleased with the way the share price has reacted. I think the official numbers were that we were up some 8% on the year, but the fact is that stock is still quite a bargain. We earned $1.83, which is better than we expected going into the year. This is our first full year as a new business, if you will. It's the first year without any FFELP origination income, and that earned us some $300 million in 2010. So we've begun our new life as a private lender, and it was a good year. Our volume was up in private lending for the first time since 2007. These are highly unofficial numbers, but we think our market share is approaching 50%. During the year, we got help from just the low absolute rates of interest rates, which helped our floor income. We also had some very favorable financings and refinancings during the course of the year, which has helped reduce our cost of funds in some areas. We, of course, reduced our share count during the year and are obviously reducing the denominator, and we bought some debt and had some gains in there. Also in the year 2011, we continue to reduce our operating costs and have gotten ourselves to a more sustainable OpEx level given our new business. I'm projecting a stronger 2012. I'll throw this in that I and I think my associates remain wary about the economy, but we expect to earn $2 nonetheless. We also expect to originate $3.2 billion of private credit, which is going to be a stretch, but the private credit business is evolving into a very nice business for Sallie Mae. We're looking at a business that has 750 FICO scores, 90% plus cosigner rates and less than a 6% life of loan loss rate. 2012, we expect the income to be relatively flat with our growth businesses offsetting the declines in fee income from FFELP businesses. Our operating expenses in '12 will be roughly $100 million below where they were in 2011. We are still tightly managing those costs. There will be less, fewer aggregate cost cuts in 2012 than there were in '11, but there'll be -- continue to be a changing mix in those costs as we try to take out FFELP fixed costs and replace that with spending in our growth businesses. Credit quality continues to improve, although certainly not as we would have expected several years ago as the economy remains slow. Our provision and charge-offs in 2012 will be likely to roughly match one another, and we'll continue to do so, so long as the economy remains under pressure. But like our operating expenses, now we expect both the charge-offs and provision to be under $1 billion in 2012. 2012 earnings, therefore, will benefit from better asset quality but not from -- not as a consequence of us bringing reserves back into earnings. Of course, some -- at some point, we will be reappraising our reserves and the adequacy of them but not with the economic uncertainty that we continue to see. We left the year 2011 with a very strong balance sheet. Our GAAP capital reached $5.3 billion, which is very close to a high watermark for that number. GAAP capital understates our actual economic capital, which is calculated as our earnings, reached some $7 billion. We left the year with a loan loss reserve of $2.2 billion. Together, reserves and capital equate to some 24% of our risk assets, risk assets which each year become less risky. These are, I believe, remarkable coverage. We've built a fortress balance sheet here, and I would reiterate that I don't believe the word fortress is an overstatement. Of course, such a balance sheet is appropriate to the times in which we find ourselves. Management remains frustrated but determined about increasing improving its debt rating. We will sustain current balance sheet strength. In 2011 also, we returned capital to shareholders. We reintroduced the dividend. It was something slightly in excess of 20% of our earnings. We also used $300 million of those earnings to buy about 5% of our shares outstanding. As I have indicated in previous remarks, that we will update both those numbers this quarter. Let me just wrap up with a final word on the increased media attention that private student lending is getting. And I'm -- and I so -- I often see that -- the term student loan bubble and frankly, asked about it from time to time. I suppose the term student loan bubble is a headline grabber. I -- and I'll tell you, I do not see it on the private side of student lending. We believe we are the largest private lender, and our principal competitors are companies like Wells Fargo and Discover and JPMorgan Chase. These are seasoned professional lenders. Sallie Mae has been in this business for 40 years. We believe we're pretty good at, and in fact, we like to think ourselves to some extent as the authors of responsible lending. We are well aware that defaulted loans hurt 2 parties. They surely don't help the lender, and they don't help the borrower. I'd also remind our constituents of a few basic facts, that each year, some $110 billion of student loans are made. 91% of those are made by the government and are not underwritten. Of that $110 billion, some $2.7 billion are made by -- were made by Sallie Mae in the year 2011, every dime of which was underwritten to a less than 6% loss rate. 95% of those loans were cosigned and had something on the order of 750 FICO scores. And then as another measure, we direct each of those borrowers to the non-underwritten federal program first before they borrow from us. We actually feel quite proud of the lending that we do. We're proud of our 40 years in this business, and we are quite proud of our 2011 achievements. At this point, I'm going to turn it over to Jon.

Thank you, Al. Good morning, everyone. I'm going to review our financial and operating results for the fourth quarter and full year on both a GAAP and Core Earnings basis. I'll also discuss the performance of our 3 business segments, review the performance of our consumer lending portfolio and provide you with an update on our funding activity. To echo Al's comments, we are pleased with our results for the year. We achieved all of the objectives we established for the company. We generated strong operating earnings; reduced our operating expenses in the final quarter of the year to less than $250 million; continued to see the performance of our private credit portfolio improve; grew loan originations 19%, with higher FICO scores and cosigner levels; met our financing goals by issuing unsecured debt, FFELP and private credit ABS deals, raising a new private credit ABCP facility and increasing and extending our FFELP ABCP facility. We continued to see balance sheet improvement measured by lower unsecured debt levels and higher capital and finally, returned capital to our shareholders through dividends and share repurchases. For the quarter, Core Earnings were $268 million or $0.51 per share compared to $401 million or $0.75 per share from the year ago quarter. For the full year, Core Earnings were $977 million or $1.83 per share compared to $1.03 billion or $1.92 per share in the prior year. The prior year's numbers benefit from nonrecurring gains on loan sales to the Department of Education that totaled $321 million as well as debt repurchase gains that were $253 million higher than in the current year. The fourth quarter results include a $26 million loss primarily due to leveraged lease impairments related to the American Airlines bankruptcy and a $25 million acceleration of Upromise deferred revenue related to the transfer of our credit card contract to a new banking partner. Turning to the FFELP loan segment. FFELP Core Earnings were $109 million for the fourth quarter and $434 million for the full year compared to $289 million and $557 million for the fourth quarter and full year 2010, respectively. In the fourth quarter of 2010, we recorded gains of $321 million from the previously mentioned sale of FFELP loans to the Department of Education. The FFELP net interest margin declined to 97 basis points from 99 basis points in the year ago quarter. Net interest margins for the year improved to 98 basis points compared to 93 basis points in 2010. Earnings from the FFELP loan segment continued to be very predictable due to the high quality and consistent prepayment characteristics of the portfolio. We are pleased that Congress passed legislation that allows us to change the index used to calculate student loan yields from 90-day financial CP to one-month LIBOR. This should further increase the predictability of these FFELP cash flows. Turning to consumer lending. Earnings from our consumer lending segment were $63 million for the fourth quarter and $128 million for the full year compared to $24 million and $13 million for the fourth quarter and full year 2010, respectively. The increase in earnings is a result of higher net interest income and lower provisioning for loan losses. Net interest margin improved to 4.16% from 3.92% in the year ago quarter. For the full year, net interest margin was 4.09% compared to 3.85% in the prior year. Private credit portfolio characteristics continued to improve compared to the prior year. 90-plus-day delinquency declined to 4.9% from 5.3% in the year ago period. Forbearance has also declined to 4.4% from 4.6% in the prior year. Net charge-offs as a percentage of loans in repayment for our entire portfolio improved significantly to 3.5% from 4.8% in the year ago quarter. The continued improvement in our charge-off rate is a direct result of the increase in the quality of the loans that are entering repayment. We expect the positive trends in our delinquency and charge-off metrics to continue. As a result of the improvement in private credit performance, our loan loss provision declined sharply from the year ago quarter, dropping to $255 million from $294 million. We expect the provision to continue to decline. Turning to originations, we originated $457 million in private credit loans in the quarter and $2.7 billion for the year, an increase of 11% and 19% from fourth quarter and full year 2010, respectively. Loans underwritten in 2011 had a average FICO score of 748, and 91% of loans had a co-borrower. This compares favorably to 739 and 89% in 2010. Smart Option loans continue to be an attractive product that offers both competitive pricing and repayment choice, with 41% of our borrowers choosing the deferred option, 26% choosing fixed pay and 33% choosing the interest-only option in the quarter. In the consumer lending segment, we were able to significantly increase our earnings and loan originations while maintaining a conservative approach for our loan loss reserve and credit underwriting. Business services segment. In the business services segment, Core Earnings were $158 million in the quarter and $570 million for the full year compared to $118 million and $515 million in the quarter and full year 2010, respectively. The increase in earnings and fees are primarily the result of additional FFELP loans acquired on December 31, 2010, and the acceleration of revenue related to the terminated contract between Upromise and its bank counterparties. The company now services 3.6 million accounts under the Department of Education servicing contract. We continue to be the best performer in the category of the FFELP reduction and is determined the improve our rankings in the other aspects of the scorecard. Other business services products contributed to our success in 2011, including Campus Solutions and Upromise investments where Sallie Mae won the bid to service New York state's $12 billion 529 business for 7 more years. Turning to operating expenses. Total operating expenses for the company were $243 million for the quarter and $1.1 billion for the full year. This compares to $308 million and $1.2 billion in the fourth quarter and full year 2010, respectively. We have achieved our goal of reducing operating expenses to $250 million in the quarter. Turning to capital markets. During the year, we issued $2.1 billion of private credit ABS and $2.4 billion of FFELP ABS. In addition, we closed on a $765 million FFELP ABS transaction in January. We expect to be a programmatic issuer of both FFELP and private credit ABS by consistently bringing deals to market in 2012. We believe this creates a more durable and liquid market for our securities. We recently extended the term of our $7.5 billion FFELP asset-backed commercial paper facility for an additional 364 days. The financing arrangement, which retains the same pricing, extends the final maturity of the facility until January 9, 2015, and increases its capacity. This is an important facility that will provide liquidity to purchase portfolios and finance loans from Straight A as that conduit begins to wind down in 2014. In October 2011, we closed on a $3.4 billion private credit asset-backed commercial paper facility, which matures in January 2014. This facility provided us the financing to call the 2009-B and 2009-C Private Credit Student Loan Trust at a lower cost of funds. We are very comfortable that our -- with our current level of capital, which is based on allocation of 12% to our private education loans and 50 basis points to our government guaranteed loans. Turning to GAAP. We reported the fourth quarter GAAP net income of $511 million or $0.99 per share compared to net income of $447 million or $0.84 diluted earnings per share in the year ago quarter. For the full year 2011, we recorded GAAP net income of $633 million or $1.18 per share compared to net income of $530 million or $0.94 per share in 2010. The primary differences between the fourth quarter 2011 Core Earnings and GAAP results is the impact of a $377 million unrealized mark-to-market pretax gain on certain derivative contracts which is recognized in GAAP but not in Core Earnings. Turning to guidance for 2012. We expect Core Earnings per share to be $2 per share for the full year 2012, private loan volume of $3.2 billion, an increase of 18% over 2011. At this point, I'd like to open the call to your questions. Operator, could you please open the line for any questions.

[Operator Instructions] Your first question comes from the line of Mark DeVries with Barclays Capital.

Could you talk about any plans you may have in the near term to return capital to shareholders either through increased buyback authorization or the dividends?

Excuse me. What was your name again, sir?

It's Mark DeVries from Barclays Capital.

This is Al Lord. Yes, we're -- look, we -- we've -- as I noted in my comments, we returned capital last year. And over the past several months, I've been asked this question a number of times, and the answer is that we're -- we will have an answer to your question, a specific answer to your question, sometime this quarter. The -- this is a board matter. It's a matter of great moment. And we will be considering the question this quarter, and you'll know before the end of the quarter. The fact is that the company has -- as I've told you, has very strong capital. I want to retain strong capital, but we will accumulate a fair amount of distributable capital over the next several years, because our private credit -- even though we are growing our private credit at very satisfactory pace, the fact is that we will not require very much capital over the next couple of years to grow that portfolio because of the amortization of the existing portfolio. And so a long-winded answer to your question, but I think maybe the short answer is you're just going to have to wait a little longer.

Okay. And you've given the comment that you expect private loan charge-offs to fall below $1 billion for the year. When would you expect that the private loan residuals might start cash flowing?

They're actually cash flowing a little bit now. I mean, I think this question is -- I mean, I suspect what's implied in this question is this: do we foresee a sharp decline in charge-offs at some near-term point? I think the answer to that is we do not. They -- those trusts are beginning to cash flow now, and we expect they'll cash flow pretty ratably with the passage of time.

Okay. And then just finally, a little color around reserve levels. It seems like there's a certain conservatism built in there with $2.2 billion reserve and expectations for less than $1 billion in charge-offs next year and then presumably falling again in 2013. Could you just kind of walk us through kind of your thoughts around building the reserves at that level.

Well, this is Al again. I probably ought to let Jon answer this question, because he'll stick to the party line. But I would -- I'd say there's an accounting answer to that question and then there's the reserve answer to the question. And our reserve level at $2.2 billion is somewhere between annual charge-offs and life of loan reserves. And because we -- so many of our loans involve college graduates who go through, at some stage in their early years after graduation, a -- what we call a forbearance period, they end up getting a different accounting treatment than they might otherwise get it if they were credit card receivables or some other form of consumer receivable. And so therefore, they end up getting a life of loan receivable which -- or reserve which frankly, keeps me quite happy, because it allows us to carry reserves which much more closely reflect the economics of the portfolio. That, again, was a long answer. The short answer is that the reserve will remain at levels that you might otherwise think are very conservative until we see a little light at the end of this economic tunnel.

Your next question comes from the line of Moshe Orenbuch with Credit Suisse. Moshe Orenbuch - Crédit Suisse AG, Research Division: I guess I was sort of wondering if you could talk a little bit about -- you mentioned in the release that you've got $11 billion of unencumbered private loans. And Jon, you had said you expected to be a programmatic issuer. What level would you consider kind of reasonable and what level we'd consider a success of that? And can you kind of relate that to other cash needs that you'll have during the course of 2012?

Yes. Yes, I think the -- your expectations should be that in -- for this coming year, we will be roughly securitizing something at or perhaps slightly in excess of what we originate. And because when you think about the way we originate in the bank and then subsequently term fund, we would like to keep that flow going and keep the -- those loans moving through the bank and term funded. Now having said that, there are -- the reason that you could expect it perhaps to be in a bit of excess of originations is that we have some obviously funded in our TALF funds that we call that are funded in our facility, and we have some additional on-balance sheet loans. And between those 3 sources, if you will, we'll be pulling loans from each of those 3 areas and folding those into securitizations going forward. But I think conceptually, our view has not changed with the caveat of the TALF refinancings that we like to originate, season in the bank for a period of the time and then term fund. Moshe Orenbuch - Crédit Suisse AG, Research Division: Okay. Just a kind of a follow-up question, a little more top line. The -- as you kind of think about the private loan portfolio -- Al, you mentioned the capital level for the private loan portfolio. But really, I mean, don't you have a capital level for the kind of legacy loans and a capital level for the new loans? And aren't -- shouldn't the new loans have a lower kind of capital and reserve allocation? And how do you think about that? And how does that play out over a couple of years' time in terms of your reserving capital needs?

We've -- your presumption is probably -- at least for now is maybe a little more precise than we manage ourselves. Our newer loans absolutely should require a lower capital level. Quite honestly, we maintain capital -- at least for our internal capital measurement and for rating agency and other kinds of capital adequacy tests, we maintain something in excess of 12% capital. I personally don't think they need that level of capital, but that's what we maintain. Frankly, even the legacy loans should require lower and lower levels of capital as we purify that portfolio with pretty sizable charge-offs over the last several years. And frankly, we're at 83% in repayment at this point, and those loans are demonstrating superb performance. So the answer to your question is yes. If we actually were quite so finite in our assessments, the newer loans would require less capital. But I'd also, again, remind you that our legacy loans are starting to look pretty good. We're down to about $3 billion in our $38 billion portfolio of nontraditional loans, and even those loans are 2/3 paying now. So that portfolio is starting to look quite good.

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

Yes. My questions were answered, so I have to wait for some time during the first quarter. But it looks like we are generating a substantial amount of excess capital, and I guess the board will have to figure out the best way to use it.

Yes. So how's your patience, Lee?

I'm patient.

Okay, good.

We'll talk later.

We shall.

Your next question comes from the line of Scott Valentin with FBR Capital Markets. Scott Valentin - FBR Capital Markets & Co., Research Division: Earlier you made a comment about market share. I think you guys said you believe you're close to 50% market share. And just as we look forward with regards to private loan market, obviously, the market's growing overall, but does going to a certain level of market share at some point inhibit the growth rate. I mean you're growing high 19%, 18%, 19%. Is there any impact there as you get to be a bigger and bigger piece of the market that the growth rate has to slow down?

Look, I think long term, Scott, the answer to our private credit growth really relies more on the growth in the market than on our market share. At this stage, I mean, I'm pleased at what that larger market share says about the quality of our products and the quality of our sales and marketing effort, but the -- I think in the larger picture, larger growth and getting more critical mass in this area will depend on the growth of that market. And in the end, that really depends on the level of federal lending in the higher education space. Scott Valentin - FBR Capital Markets & Co., Research Division: And just a follow-up. The recent trend is the biggest competition kind of exiting the market. And as we hear banks struggling to grow assets and loan demand remaining weak, are there any signs at all that the banks -- maybe some banks may be reconsidering entering this market?

There may be signs. I haven't seen them.

[Operator Instructions] Your next question comes from the line of Mike Tarkan with Topeka Capital.

This is Mike Tarkan. Just a couple of quick questions around net interest margin. I guess, first, on the FFELP side. Can you give us a little more color on the improvement in yield this quarter? Maybe if you can break down the impact from floor income, that would be pretty helpful.

This is Jon. The -- there was a little bit of -- a couple of things are at work here, right? We had some improvement in floor income. We -- there were some timing things which caused a little bit of noise in the current quarter's numbers. It was a -- as you know, our CP, I felt it was kind of interesting, which is part -- probably part of your question is how well we performed in terms of our NIM considering the environment and the spike in CP-LIBOR. And we've actually -- as you're probably aware, we're more and more weighted towards either through the absolute floor level -- interest rate level, I'm sorry, as well as our migration from 3-month to 1-month LIBOR. We are far more insulated than we have in the past for movements in LIBOR. And so the improvement was -- this time around, was candidly heavily weighted towards floor. A little bit of noise in there, and I would expect a run rate, going forward, of something in the low 100 basis points area.

Okay. And then I guess is that -- can we think about that low 100 basis points -- does that incorporate the changes to the CP-LIBOR adjustment that's going to take effect in the second quarter?

Yes. The -- to be clear, the adjustment in second quarter is not -- economically is not a significant event. It is very significant from a risk perspective. It's a much more stable -- it not only is a more stable index, but more importantly, it's a more hedge-able and usable index than the 90-day financial CP, which I think, longer term, we had some concerns about the viability and the usefulness of that index.

Yes. Got you. And then I guess on the private side, the benefit from the runoff of the other asset portfolio on NIM, can you tell us how big that portfolio is right now and maybe how long we can expect that to have this positive impact on NIM?

Well, the -- in terms of the private credit, the other asset, that was -- it's really just a rundown of excess cash we have in the bank, and we're now down at what I'll call a more predictable run rate. So I don't expect any further material improvements in that regard.

Your next question comes from Jordon Hymowitz with Philadelphia Financial.

Quick question. There's an increasing likelihood that the Republicans have a real chance to win the election this fall, and the Republicans have always been much more favorable to the student lenders than the Democrats. They always oppose the expansion of the Federal Direct Program and supported, just like a repeal of Obama Care, a repeal of the student lending takeover. Is there anyone talking about that, at this point, in any of the candidates about opening up the market, again, big competition, and repealing the nationalization of the private student loan sector?

This is Al Lord. I have not heard anybody talk about student loans yet in -- on either side of the campaign and certainly, within among the Republican candidates. Was there a second part to your question?

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

Yes. Just a couple of quick follow-ups. Al, when is the next board meeting scheduled?

I just chatted with Lee Cooperman and asked him how his patience was, and how's yours Brad?

I'm very patient.

Yes. Look, we have a couple of board meetings this quarter.

Do you have one in January?

January 2011?

2012.

2012, I'm sorry. Yes, we do.

You do. Okay. But you won't give us a specific date on that?

Well, sure. I think it's the 26th.

Okay. Great. That's it. In terms of the private loan originations in the fourth quarter, was that reflecting some market share expansion, do you think? Or was that market driven? And to your point, you said that 2012, $3.2 billion would be a stretch goal. Would that stretch goal again be driven by the market? Or do you expect additional market share expansion?

Look, I -- Brad, the dynamics of the private credit market in the last 4 years have been very difficult to really get your arms around. The market has shrunk by 75%. I don't know if that's grammatically correct, or let's just say shrank by about 75% since 2008. And so trying to understand exactly what's going on there and what the size of the market is and then what the -- what our competitors are doing is -- it's why when I tell you these numbers, I tell you they're a bit of an approximation. And it's a -- as you well know, it's a $400 billion marketplace. Higher education is a $400 billion marketplace. So changes in the aggregate of that -- I mean, a 5% change in that is a $20 billion increase in demand for funds. It can have a huge effect on the private marketplace. But the fact is over the last several years, it has not been a -- and that market has -- in total, has not grown for several years. We picked up market share, but I would say for your purposes, certainly for my purposes, I'm looking much more largely at the macro factors that affect that market and when they're -- when, if ever, they're going to kick in and start to grow that market again. I mean, ultimately, if we took 100% of market share, we would be originating loans at roughly our 2007 level.

Okay, fair enough. And would you foresee any potential M&A activity in the private credit space this year?

As you know, our principal focus, M&A focus, is fee income. But look, we will look at any transaction that expands our various businesses, whether it's FFELP, private credit or fee businesses. So it -- we don't -- there certainly isn't anything imminent in there. As in I don't see anything on the horizon, but yes, it's certainly in our strike zone.

On the FFELP front, do you think anything will break lose this year? You've commented on some of the sellers not having a use for the cash. Do you think that might change this year?

I hope it will change. We -- one of the things that's changed around here in the last year is that we made Jack Remondi our Chief Operating Officer. And this is probably a better -- a question for him, and I'm debating whether to ask him to answer, because -- well, Jack, could you -- maybe you can answer that question for Brad. Would you please?

Sure. Brad, we are very interested in buying FFELP loans, and I think the -- certainly, the financial market conditions may get -- are improving the likelihood that we'll see portfolios. I think the biggest thing that we have to offer is we have dramatically lower operating costs associated with this asset class than our competition does, so we can create a lot of value there. And in addition, a little appreciated fact is that borrowers who are serviced by Sallie Mae default at about a 30% lower rate than everyone else in the industry does. And so we -- that does 2 things. Of course, it eliminates runoff, but it also eliminates the 3% sharing component of it. Those 2 factors, we think, will drive more activity, and it's a big focus for us in 2012. We also converted the Citibank portfolio that we acquired at the end of 2010 and did a -- and I think the team did a great job of bringing those loans on our books. And despite that, you haven't seen -- we actually saw costs continue to come down in 2011.

Your next question comes from the line of David Hochstim with Buckingham Research.

I wonder, could you give us an update on what's happening with the Campus Solutions business and maybe give us a sense of how the revenues and the other servicing line in business services split between Campus Solutions and the other account servicing revenue?

Sure. This is Jack again. On the Campus Solutions side of the equation, we've been working to build our relationships with schools on that front. It is a multi-product business for us. It incorporates tuition payment plans so that customers can pay their tuition over time instead of in one lump sum. It involves a refund processing business as students who receive financial aid have amounts returned to them to cover books, living expenses, et cetera. And we added a feature that is trying to encourage the -- those customers who are getting refunds to do open debit and checking accounts with the company. We offer a very attractive product suite to them. And most importantly, I think those fees and how this business is run by some others in the space, we're looking to earn our revenues through the relationship with the customer and the deposits rather than fees on transactions out of those accounts. And so it's a slower revenue growth business as a result of that as we kind of build up scale and activity there, and we're looking to kind of make a more concentrated effort in 2012 at converting those into deposit relationships with our customers.

Okay. Can you give us any indication of how much success you've had recently in terms of signing new schools or new students?

We signed up almost 45 schools in 2011. So we're making decent progress in that space. It's clearly a better deal for the students than what's going on in the competition, and I think that's the primary reason we win.

Okay. And then on the private loan business, give us a sense of what the mix is. When you tightened underwriting a few years ago, you were doing -- making loans for students who made full interest payments and -- while in school and then you would gradually shift it to offer more products. Just wondering what that mix looks like at this point.

I think 40% of the borrowers that we made -- loans we made in the fourth quarter were deferred. We didn't offer the deferred charge for the full year. I think the most pleasing result that we've seen is when we approve a borrower, we actually show them the 3 repayment options and the difference in both the monthly payment, the interest rate and the total finance charges. And we definitely are seeing that more customers, who may initially come to us thinking they want a deferred, are actually picking the more affordable products of fixed pay or are making interest-only payments. So having the full product suite [indiscernible] families is a big part of our marketing initiatives, and I think it was a big -- one of the big reasons why we saw more market share in 2011.

This is Jon. The breakdown of those alternatives are 41% -- for the fourth quarter is 41% for deferred, 26% for fixed pay and 33% for interest only. That's fourth quarter.

Okay. And then can you just clarify? The 2012 EPS guidance of the $2 a share, does that include any share buybacks?

Just the share buybacks from last year.

Okay. So none this year.

No.

Okay. And when you talked about giving us an update in the first quarter, you mean during the first quarter or when you released first quarter earnings like last year?

During the first quarter.

Your next question comes from the line of Alan Straus with Schroders.

I was just wondering if there was any movement on being designated a SIFI? Is that topic kind of dead for a while?

Alan, that's SIFI.

That's good to hear.

No, I don't think we know one thing more than the last time I -- that we talked, Alan.

You have a follow-up question from the line of Mark DeVries with Barclays Capital.

In the press release you had stated that you clearly don't foresee the special Direct Loan consolidation program have a significant impact on FFELP. Is that because you think the borrowing incentive is just too low or the uptake may be low for any number of reasons such as the support communication of the program?

Yes. I mean, we just launched this program this week, so we'll see what the results are. But our expectations are that the -- the consumer, typically, is looking for a reduced payment, and this program does not achieve that.

Okay. And then if demand for private loans increases for for-profit colleges as a result of the change of the 90-10 rule, would you be willing to increase loan originations for that segment? Or are you kind of just permanently pulled away from it?

Well, I think -- we certainly are doing a lot less lending there. We -- and I wouldn't necessarily call it pulling away from the segment. We make the loans -- we make loans that meet our lending criteria.

There are no further questions at this time. Are there any closing comments?

No. Thank you very much for joining us this morning. That concludes our call. And if you have any follow-up questions, please call myself or Joe Fisher. Thank you.

Thank you for participating in today's conference call. You may now disconnect.