SLM Corporation Q2 FY2026 earnings call

• Post-Federal PLUS Reform Preparation & Early Performance

  • One year after federal PLUS reform reshaped the higher education financing market, Sallie Mae has completed all planned product updates for the 2026 peak origination season, including enhancements to graduate/professional school products (medical, dental, law, MBA) and launch of a new parent loan.
  • Early application and volume trends for new products are at or above management expectations, supporting confidence in 2026 origination targets and the long-term opportunity that could increase annual originations by $4.5 to $5 billion over the next several years.
  • The company remains the preferred lender for over 2,100 partner schools.

• Credit Portfolio Performance

  • Overall credit quality remains strong; modifications to underwriting and loss mitigation practices are delivering better than expected results, with over 80% 6- and 12-month payment success rates for active modification cohorts, and over 75% consistent payment rates for borrowers 3-6 months after exiting modification programs.
  • A small segment of borrowers who have the willingness and capacity to repay are moving directly from delinquency to default, driven by third-party debt resolution providers marketing misleading consolidation/refinancing services that harm both borrowers and Sallie Mae recoveries.
  • Management has paused all third-party debt sales and brought post-charge-off recoveries in-house to address the issue, which is a concentrated, timing-related impact rather than broad-based credit weakening.
  • Private education loans delinquent 30+ days represent 3.7% of loans in repayment, down from 4% at the end of Q1 2026 and up from 3.5% YoY. The reserve rate is 5.89%, down 6 basis points YoY.

• Capital Management & Balance Sheet

  • The company completed its $200 million accelerated share repurchase (ASR) program in Q2 2026, repurchasing a total of 9.3 million shares. Year-to-date 2026, 13 million shares (6.5% of 2025 year-end outstanding shares) have been repurchased at an average price of $21.95 per share. Since 2020, shares outstanding have been reduced by 59% at an average price of $17.19 per share.
  • $242 million remains under the current share repurchase authorization, which management expects to substantially deploy by the end of 2026.
  • Liquidity and capital positions remain solid, with liquidity equal to 18.6% of total assets, total risk-based capital of 13.1%, and Common Equity Tier 1 Capital of 11.8%.

• Strategic Partnership Progress

  • Negotiations for a second loan sale partnership are progressing well, with final document negotiation underway, and the deal expected to close in Q3 or early Q4 2026 in time to process peak origination volume. The new partner has expressed interest in expanding the credit box and purchasing graduate product loans, a future priority after 2026 peak originations.
  • The existing partnership with KKR is performing in line with expectations.

Sallie Mae reports consolidated results for the quarter, with no separate product segment financial performance or revenue contribution percentages provided in the call transcript. Consolidated results for Q2 2026 are: GAAP diluted EPS of $0.29 per share; total loan originations of $716 million, up 4.5% year-over-year; net interest income of $333 million (down $44 million YoY); other income of $45 million (up $16 million YoY, driven by growth in recurring program management fees and servicing revenue); net interest margin (NIM) of 4.75%; provision for credit losses of $126 million (down from $149 million YoY); net charge-offs of $113 million (up from $94 million YoY); non-interest expenses of $195 million (up $28 million YoY, mostly from one-time growth investments); efficiency ratio of 48.6% (up 7 percentage points YoY).

• Narrowed 2026 net charge-off guidance range: maintained the upper bound at $385 million and raised the lower bound from $345 million to $365 million. The adjustment reflects the estimated $25 million 2026 recovery impact from the shift to in-house post-charge-off recoveries, partially offset by better than expected performance across the rest of the portfolio.
• All other full-year 2026 guidance metrics (including EPS guidance) are affirmed; management confirms the previously announced EPS range remains achievable.
• Q2 2026 is expected to be the low point for net interest margin (NIM) in 2026, with margin expansion resuming in the second half as excess liquidity from the Q1 loan sale is deployed into new higher-yielding originations during peak season, and full-year NIM expected to approach the long-term target range of ~5%.
• Long-term NIM target remains a low to mid 5% range, unchanged from prior guidance.
• The company expects balance sheet to be flat to slightly down in 2026, with modest growth targeted for 2027, followed by a return to low to mid-single-digit annual balance sheet growth over the long term.
• Management expects the efficiency ratio to decline to the low to mid 30% range after the current growth investment phase; 2027 non-interest expense growth is targeted to be roughly half of 2026's year-over-year growth rate, with faster expansion of fee-based revenue from strategic partnerships driving the efficiency improvement.

• A small but concentrated credit risk stems from misleading third-party debt resolution provider practices that pull creditworthy borrowers into default, creating a $25 million estimated hit to 2026 recoveries, though management notes this is a timing issue rather than a permanent loss, and internal recoveries are expected to match or exceed prior levels over time.
• The full impact of the 2026 graduating cohort on repayment performance cannot yet be assessed, as graduates are still in their grace period with meaningful data not expected until fall 2026.
• There is modest upward pressure on marketing expenses heading into the 2026 peak origination season, though this is within management's anticipated range.
• Early peak season volume results are still preliminary, with final disbursement data not available until the end of the peak season, creating near-term uncertainty around 2026 origination totals.

Q: Mark DeVries (Deutsche Bank) asked for more detail on the second-half NIM trajectory, progress with the new loan sale partnership, and potential credit box expansion from the new partner. / A: Graham confirmed that as excess liquidity is deployed into peak season originations, NIM will normalize back to the ~5% long-term target range. Negotiations with a selected new partner are progressing well, with final documents currently being exchanged. The partner is interested in both the existing undergraduate product and marginal credit box expansion, and the deal is expected to close in Q3 or early Q4 2026, in time for 2026 peak origination volume.

Q: Moshe Orenbuck (TD Cowen) asked for additional detail on credit performance, particularly why the full $25 million recovery impact did not change the upper end of net charge-off guidance, and what broader portfolio trends are supporting the current outlook. / A: Witter explained that the stronger than expected performance of the company's loan modification programs (with 75%+ success rates for exiting borrowers, above internal expectations) and broad strength across all other portfolio segments has already offset $5 million of the estimated $25 million impact from the recovery strategy shift. Management emphasizes this is a timing issue for recoveries, not broad credit deterioration, and core portfolio performance remains stable.

Q: Mark DeVries (Deutsche Bank) asked why management paused all debt recovery sales instead of just excluding borrowers targeted by debt resolution providers, and when or if sales could resume. / A: Graham explained that third-party debt resolution providers are targeting borrowers who have the ability to repay, accessing discounted settlements that harm both borrowers and Sallie Mae. Pausing all sales and moving recoveries in-house allows management to regain full control of post-charge-off processes. The change is primarily short-term; sales could resume after the company assesses the new dynamic, and internal recoveries have historically yielded higher long-term returns than third-party sales. The 2026 impact is just a timing shift of recoveries, not a permanent loss.

Q: Jeff Adelson (Morgan Stanley) asked for the timeline to reach the low 30% efficiency ratio target, and how new strategic partnerships help progress toward this goal. / A: Graham confirmed that 2027 non-interest expense growth is targeted to be half of 2026's growth rate. The company aims to reach the target faster than currently projected if performance holds. Strategic partnerships drive growth in fee-based revenue (program management fees, performance fees, and servicing fees), which increases the top-line denominator of the efficiency ratio. The second partnership adds additional scale to this fee growth, and once the one-time growth investments for PLUS Reform are complete, operating costs will normalize, driving further efficiency improvements.

Q: Caroline Lauda (Bank of America) asked for an early update on 2026 peak origination season performance entering July. / A: Witter noted that peak season is just getting underway, so final volume and disbursement data is not yet available. Early application trends are at or above management expectations, and pricing competition remains rational, with only modest anticipated upward pressure on marketing expenses that was already planned for in guidance. Management will have a clear view of full peak results by the end of Q3 2026.