SLM Corp Q2 FY2024 earnings call

• Strong Q2 results with GAAP diluted EPS of $1.11 per share, up from $1.10 in the year-ago quarter. - Credit performance improvements: net private education loan charge-offs down, cosigner rates and average FICO score up. - Loan sale in Q2 generated $112 million in gains. - Continued capital return strategy with 2.9 million shares repurchased in Q2. - Net interest income in Q2 was $372 million with a net interest margin of 5.36%. - Total provision for credit losses in Q2 was $17 million, affected by release from loan sale and improved economic outlook. - Loss mitigation programs helping borrowers, with delinquencies and forbearance declining. - Noninterest expenses in Q2 were $159 million, a 2% increase from Q2 2023. - Liquidity and capital positions solid, with liquidity at 24.4% of total assets and total risk-based capital at 14.7%. - Impact of FAFSA delays on business, with reduced application volume but offset by operational and marketing improvements.

In the second quarter of 2024, Sallie Mae's private education loan originations were $691 million, up 6% from the second quarter of 2023. Net private education loan charge-offs in Q2 were $80 million, representing 2.19% of average private education loans in repayment, down 50 basis points from Q2 2023. The $1.6 billion loan sale executed in Q2 generated $112 million in gains. Cosigner rates increased to 80% from 76% in Q2 2023, and the average FICO score increased to 752 from 747.

• Updated full year 2024 GAAP diluted EPS to between $2.70 and $2.80 per share. - Expect total loan portfolio net charge-offs between $325 million and $345 million, net charge-offs as % of average loans in repayment between 2.1% and 2.3%. - Reaffirmed private education loan originations year-over-year growth and noninterest expense metrics.

• Potential impact of FAFSA delays on application volume and school enrollments. - Competitive environment affecting marketing spend. - Uncertainties related to interest rate changes and their impact on loan repayments and loan sales.

Q: What's the outlook in terms of when the FAFSA fixes and college enrollments will play out and how is the competitive environment?

A: Jon Witter said they are gaining confidence in FAFSA catch-up, with application gaps narrowing. On competition, it's a competitive market with marketing spend aggressiveness, but they exercise discipline in optimizing marketing channels.

Q: Can you expand on optimizing eligibility for loss mitigation programs and protections for investors?

A: Jon Witter said they are replacing broad forbearance with segmented programs, with potential to tighten eligibility. Success is judged on absolute and relative metrics, looking at performance during and after programs.

Q: Are you assuming share gains as a large competitor is out of the market and what about loan sale gains?

A: Jon Witter said they built share gains into originations plan. Pete Graham noted their recent loan sale had slightly better gross premium than the competitor's, reflective of credit quality and transaction size.

Q: How are you thinking about managing risk of repayments with material drop in interest rates and selling off higher-risk loans?

A: Jon Witter said historical context shows low interest rates didn't majorly drag performance. They continue to proactively identify customers but haven't found a way to refinance proactively yet.

Q: Should we expect new seasonality in credit metrics with loan mods and extended grace periods?

A: Jon Witter said there may be new curves, with impacts likely in earlier to mid-stage delinquency buckets, and attention on net charge-offs.