SLM Corp Q3 FY2024 earnings call

• Peak season results: Outperformed estimates with originations growth of 13% in the quarter compared to the year - ago period. Year - to - date through the end of September, total originations grew 9%. - Credit performance: Continued to improve with private education loan net charge - offs decreasing, cosigner rates and average FICO scores at approval increasing. Enhanced payment programs helped borrowers establish positive payment habits, and loan modification program usage stabilized. - Capital return strategy: Repurchased 5.3 million shares at an average share price of $21.58 in the third quarter and increased the fourth - quarter common dividend from $0.11 to $0.13. - Interest income and NIM: Earned $653 million of interest income, $12 million higher than the second quarter of 2024 and $1 million higher than the year - ago quarter. Net interest margin was 5%, lower than previous and year - ago quarters due to NIM compression as funding rates caught up to asset yields. - Provision and reserves: Total provision for credit losses was $271 million in Q3 2024, up from $198 million in Q3 2023. The allowance for losses on private education loans at the end of Q3 was $1.4 billion, and total reserve including unfunded commitments was $1.5 billion. The total allowance as a percentage of ending portfolio exposure decreased. - Non - interest expenses: Third quarter non - interest expenses were $172 million, up only slightly over the year - ago quarter despite higher originations. - Liquidity and capital positions: Ended the quarter with liquidity of 19.9% of total assets, total risk - based capital was 12.9%, common equity Tier 1 capital was 11.6%, and GAAP equity plus loan loss reserves over risk - weighted assets was 15.9%.

Private education loan originations for the third quarter of 2024 were $2.8 billion, and new unfunded commitments in the quarter were $3.9 billion. Total committed volume increased almost $1 billion or 17% compared to the prior year quarter. Private education loan net charge - offs in Q3 of 2024 were $77 million, representing 2.08% of average private education loans in repayment. Cosigner rates increased to 92% in Q3 of '24 from 90% in the year - ago quarter, and the average FICO score at approval for Q3 of '24 was 754 versus 749 in the year - ago quarter. In terms of revenue contribution, private education loans are a key segment with significant originations and related performance metrics.

• Revised private education loan origination growth to 8% - 9% for the year. - Tightened the expected range for total loan portfolio net charge - offs to between $325 million and $340 million or between 2.1% and 2.3% of average loans and repayment. - Reaffirmed the 2024 guidance for GAAP diluted earnings per common share and non - interest expense as communicated on the last earnings call.

• Interest rate changes can impact net interest margin, with funding rates repricing affecting NIM. Deposit rates, especially term deposits, reprice with rate changes, causing pressure on NIM. - Market share competition is ongoing, and every quarter and peak season requires recompeting for share. - The resumption of federal loan payments for borrowers with federal loan balances could potentially impact payment behavior, although currently no material concern has been observed. - Uncertainty regarding the impact of future rate cuts on consolidation activity and balance sheet growth, including potential loan sales to manage earnings per share guidance.

Q: So you called out that over the long term, the mid - to low 5% range is still kind of the right target for NIM, but as we think about kind of the short and intermediate term and the impact of the most recent round of rate cuts and potentially some more rate cuts up ahead, like can we see NIM dip below 5%? And what's the kind of time frame to get back to that long - term target?

A: Yes. We've had the dynamic of our borrowers choosing predominantly fixed rate in the last 2 sort of peak origination seasons. Our funding rates, particularly the deposit rates will reprice with changes in rates. We've had continued pressure on the increase in funding rates as term deposits that we put on at a lower rate environment reprice in the higher rate environment. Over the first part of next year, we'll continue to kind of see the tail of that longer - term deposits that were put on 3 and 5 years ago, repricing in this new environment. But as we move through the year, I think that will start to normalize. And so again, from a longer - term perspective, we think that 5% to mid - 5% range is the right target.

Q: Do you have any updated observations on payment behavior you may be observing from your borrowers who may also have direct loan balances that went into repayment in recent months?

A: Our ability to sort of study this precisely is limited by what we can glean from things like the bureaus and the publicly available data. We do a pretty, I think, sort of sophisticated approach of looking at our borrowers who have federal loans and those who don't and try to sort of analyze kind of divergent payment patterns by cohort over time. As of yet even with coming to an end of the federal payment holiday, we have not seen anything that leads us to believe that the federal payment sort of resumption is causing an issue on our customers. And while I think it is fair to say that most of our customers have federal loans, I think it is also fair to say that lots of people have federal loans who are not our core customers and would probably not satisfy our underwriting conditions. So I'm not making a comment about the broader federal program and what the average federal customer is able to do. But I think we have a pretty creditworthy set of customers. I think they're performing well, and we've not seen any evidence at this point of anything that causes us any material concern.