SLM Corp Q1 FY2024 earnings call

• 2024 off to a fast start, encouraged by credit performance trends and positive momentum for the rest of the year.
• Q1 GAAP diluted EPS $1.27 vs $0.47 year-ago. Loan originations $2.6B, up 6% y-o-y. Application volume up 4% y-o-y.
• Credit quality of originations consistent; cosigner rate 91% vs 89% y-o-y; average FICO score 748 vs 746 y-o-y. Net private education loan charge-offs $83M, 2.14% of average loans in repayment, down from Q4 2023. Delinquencies excluding loan modification qualifying period down q-o-q. Loans in disaster or hardship forbearance 1% at end of Q1 2024.
• $2.1B loan sale generated $143M gains. Balance sheet growth target remains 2%-3%. Continued capital return strategy by repurchasing 1.3 million shares.
• Addressed Department of Education's new reforms, preparing for condensed peak with enhanced staffing and capabilities. Noted competitor exiting market may afford opportunity to compete for new business.
• Slower prepayment speeds positive for balance sheet growth and interest income.

For Sallie Mae's first quarter 2024: GAAP diluted EPS was $1.27 per share compared to $0.47 in the year-ago quarter. Loan originations for the first quarter were $2.6 billion, up 6% over the first quarter of 2023. Application volume grew 4% year-over-year. Net private education loan charge-offs in Q1 were $83 million, representing 2.14% of average loans in repayment, down 29 basis points from the fourth quarter of 2023. The $2.1 billion loan sale in the first quarter generated $143 million in gains. First quarter operating expenses were $160 million, a 4% increase compared to the first quarter of 2023. Liquidity ended the quarter at 19.1% of total assets, total risk-based capital was 13.5% and common equity Tier 1 capital was 12.3%.

• Reaffirming 2024 guidance communicated on last earnings call. Encouraged by successful Q1 origination season, positive credit trends, and first loan sale execution. Believes medium-term success of programs will continue to normalize and looks forward to updating on performance progress throughout the year.

• Potential material impact from delays and technical issues associated with Department of Education's new reforms, which may condense an already short peak season.
• Impact of a major competitor exiting the market, although early analysis suggests slight volume increase from borrowers with prior relationship, but full impact yet to be definitively determined.

Q: Relative to original expectations, how did the quarter come in since guidance was maintained?

A: Pete Graham said it's largely in line with what was expected, with some positive trends and developments but still early in the year so maintaining guidance.

Q: Talk about what more needs to be seen before updating guide for the year regarding loan mod programs?

A: Jon Witter said real proof is if folks graduate from programs and enjoy strong financial success on the other side, and will gain more confidence with passing months and quarters but early stages so waiting to update guidance.

Q: As we look at increased use of mods and extended grace periods, how to calibrate for loans in modification?

A: Jon Witter said they look hard at various metrics internally and project them forward, and will think about additional disclosure but feel comfortable with current guidance as programs are being seasoned.

Q: Just looking at margin, NIM, with yield curve outlook, what to think about NIM fluctuations?

A: Peter Graham said higher for longer in short term is mildly beneficial to NIM as short-term rates don't get lower quickly, so NIM compression anticipated may not happen as fast.

Q: You guys made a comment about slower prepayment speeds. Any surprise and do you expect it to continue?

A: Peter Graham said it's based on recent performance trends and they rolled that for another quarter to make a different assumption regarding longer-term prepayment outlook. Jon Witter added rate environment is a big factor and changing rate outlook contributes to slower prepayment speeds.

Q: Your stock has done well recently. Are we still in the green zone on the buyback and how aggressive will be on that?

A: Peter Graham said they're going to be more programmatic around the buyback program this year, with a plan in place from the first loan sale in the quarter to be programmatic across trading days this year