SLM Corporation (NASDAQ:SLM) Q2 2024 Earnings Call Transcript

SLM Corporation (NASDAQ:SLM) Q2 2024 Earnings Call Transcript July 24, 2024

SLM Corporation beats earnings expectations. Reported EPS is $1.11, expectations were $0.79.

Operator: Good day, everyone. And welcome to Sallie Mae Second Quarter 2024 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the prepared remarks. [Operator Instructions] And now at this time, I would now like to turn things over to Melissa Bronaugh, Head of Investor Relations. Please go ahead, ma’am.

Melissa Bronaugh: Thank you, Bev. Good evening and welcome to Sallie Mae’s second quarter 2024 earnings call. It is my pleasure to be here today with Jon Witter, our CEO; and Pete Graham, our CFO. After the prepared remarks, we will open the call for questions. Before we begin, keep in mind our discussion will contain predictions, expectations, and forward-looking statements. Actual results in the future may be materially different from those discussed here due to a variety of factors. Listeners should refer to the discussion of these factors in the company’s Form 10-Q and other filings with the SEC. For Sallie Mae, these factors include, among others, results of operations, financial conditions, and/or cash flows, as well as any potential impacts of various external factors on our business.

We undertake no obligation to update or revise any predictions, expectations, or forward-looking statements to reflect events or circumstances that occur after today Wednesday, July 24th. 2024. Thank you. And now, I’ll turn the call over to Jon.

Jon Witter: Thank you, Melissa and Bev. Good evening, everyone. Thank you for joining us today to discuss. Sallie Mae’s second quarter 2024 results. I’m pleased to report on a successful quarter and progress toward our 2024 goals. I hope you’ll take away three key messages today. We delivered strong results in the second quarter and first half of the year. We remain encouraged by the trends we have seen in our credit performance. And third, we believe we are well positioned to deliver solid results for the year by continuing to drive our core business and serve our customers. Let’s begin with the quarter’s results. GAAP diluted EPS in the second quarter of 2024 was $1.11 per share as compared to $1.10 in the year ago quarter.

Our results were driven by a combination of strong business performance, improvements in credit trends, and the gain on our second loan sale of the year. Loan originations for the second quarter of 2024 were $691 million, which is up 6% over the second quarter of 2023. In the quarter, we have seen slight year-over-year improvements in credit quality of originations, with cosigner rates increasing to 80% from 76% in the second quarter of 2023, and the average FICO score increasing five points from 747 to 752. We continue to be pleased with our credit performance through the second quarter. Net private education loan charge-offs in Q2 were $80 million, representing 2.19% of average private education loans in repayment. This is down 50 basis points from the second quarter of 2023, and better than our expectations.

Q&A Session

Our enhanced payment programs are proving to be a useful tool in helping our borrowers work through periods of adversity while establishing positive payment habits. We saw both delinquencies and forbearance decline this quarter over the year ago quarter. We remain optimistic about future performance as we observe continued roll rate improvements in our late stage delinquency buckets as compared to this time last year. The $1.6 billion loan sale that we executed in the second quarter generated $112 million in gains. The balance sheet growth expectations for the year remained at 2% to 3%. In the second quarter of 2024, we continued our capital return strategy by repurchasing 2.9 million shares at an average price of $21.17. We have reduced the shares outstanding since we began this strategy in 2020 by 51% at an average price of $16.03.

We expect to continue to use the gain and capital released from loan sales to programmatically and strategically buy back stock throughout the year. Pete will now take you through some additional financial highlights of the quarter. Pete?

Pete Graham : Thank you, John. Good evening, everyone. Let’s continue with a discussion of key drivers of earnings. In the second quarter of 2024, we earned $372 million of net interest income, which equates to a net interest margin of 5.36%. While we expected NIM compression in 2024 as funding rates catch up to our asset yields, we are ahead of our business plan and pleased with the NIM performance. We continue to believe that over the long term, that the low mid to 5% range is the appropriate NIM target. Our total provision for credit losses on our income statement was $17 million in the second quarter of 2024. The provision this quarter was primarily affected by the release of $103 million associated with the $1.6 billion private education loan sale that we completed during the quarter and improved economic outlook offset by volume growth for new loan originations.

Our private education loan reserve at the end of the second quarter is $1.3 billion or 6.1% of our total student loan exposure, which includes the on balance sheet portfolio plus the accrued interest receivable of $1.4 billion. Our reserve rate shows improvement over the 6.5% reported in the year ago quarter and is consistent with levels experienced at the end of the first quarter. This positive trend in our reserve rate reflects the seasoning of our improvements in credit and collections practices as well as marginal improvements in the credit quality of originations. Private education loans delinquent 30 days or more were 3.3% of loans in repayment, a decrease from both the 3.4% at the end of the first quarter as well as from the 3.7% at the end of the year ago quarter.

As Jon mentioned earlier, we believe our loss mitigation programs are helping our borrowers manage through periods of adversity and establish positive payment payments. When adjusting the numbers that I just discussed to remove the borrowers who are in delinquency while they make prepayments at their modified rate, loans delinquent 30 days or more becomes 2.8% of loans in repayment as compared to 2.7% at the end of the first quarter and 3.3% in the year ago quarter. We spoke last quarter about the increased usage of our enhanced loss mitigation programs and the effect that had on both delinquencies and forbearance. As we have observed the performance of the launch of these programs over the past quarter, we are pleased with the level of success.

The level of new enrollments in our enhanced programs is normalizing, and the majority of borrowers enrolled in our extended grace program, which drove most of the increase in our forbearance enrollments in the first quarter, have exited in May and June. And while early days, delinquencies for those loans, since their exit, have been in line with our expectations. The success rate for borrowers in our loan modification programs making their pre qualifying payments is within or better than our expectations, with the vast majority of borrowers completing those payments and returning to current status. Approximately 84% of borrowers in loss mitigation programs at the end of the second quarter are making loan payments as compared to 64% making loan payments in programs pre-COVID.

We believe that these enhanced programs are working as intended in helping our borrowers gain their financial footing. As we continue to monitor the performance, there may be an opportunity for us to further optimize eligibility for these programs. Second quarter noninterest expenses were $159 million compared to $162 million in the prior quarter and $156 million in the year ago quarter. This was a 2% increase compared to the second quarter of ‘23. Finally, our liquidity and capital positions are solid. We ended the quarter with liquidity of 24.4% of total assets. At the end of the second quarter, total risk-based capital was 14.7%, and common equity Tier 1 capital was 13.4%. Another measure of loss absorption capacity of the balance sheet is GAAP equity plus loan loss reserves over risk rated assets, which was a very strong 17.3%.

We believe we’re well positioned to continue to grow our business and return capital to shareholders going forward. I’ll now turn the call back to Jon.

Jon Witter: Thanks, Pete. I hope you agree that we executed well in the second quarter and that you share my belief that we have positive momentum for the full year of 2024. Let me briefly touch on the delays and technical issues associated with the Department of Education’s recent launch of the new FAFSA form and its implications for our business. The delay in the FAFSA form’s rollout has been primarily due to the complexity of the overall process. Given the delayed availability, families completed the form later, causing schools to be delayed in processing and delivering financial aid packages to students and families. This has led to uncertainty for many students and families regarding the exact dollar amount of private loans needed for school.

Through mid-July, the FAFSA completion rates for high school seniors are down approximately 11% year-over-year, with completion corrections still being processed. At this point, we believe that these issues have caused a small decline in application volume through the first six months of 2024. To date, our volume plan remains aligned with our expectations, primarily due to operational and marketing improvements that have allowed us to offset this decline in applications. Our expectation is that the issues with the FAFSA will be remedied, and that schools will catch up and process financial aid applications. In this case, the impact on overall school enrollment would be minimal although our peak season will likely be elongated and back-end compressed.

If the decline in applications does not rebound and translates into a true decline in enrollments, we remain confident in our volume expectations on the year, but with less opportunity for us to perform at the higher end of our guidance range. The allowance incorporated into our EPS guidance assumes that we are able to end the year with originations at the higher end of our range. Externally, we continue to partner with our schools to assist families through this process. Through the calculation tools available on our website, our scholarship search capabilities, and other materials we provide to families, we are here to help make the peak season as frictionless as possible. Internally, we are prepared for an elongated peak season with back-end compression and have enhanced our staffing, improved digital and other self -service capabilities, and taken other actions.

Let me conclude with a discussion of 2024 guidance. As I mentioned earlier this evening, our loan sale activity for the year has been at prices that were in line with and slightly favorable to our expectations. In addition, six months into 2024, we have not yet seen the reduction in interest rates expected when we originally set guidance. Given these two factors, as well as the continuation of positive credit performance, we are updating our range for GAAP diluted earnings per common share. We now expect full year 2024 GAAP diluted EPS to be between $2.70 and $2.80 per share. The success to date with the usage of enhanced loss mitigation programs has led to better than expected credit performance through the first six months of 2024, and we believe that this trend should continue through the remainder of the year.

The impact of this success has caused us to revise our outlook on total loan portfolio net charge-offs, which we now expect to be between $325 million and $345 million. We expect net charge-offs expressed as a percentage of average loans in repayment to be between 2.1% and 2.3%. At this time, we are reaffirming the 2024 guidance that we communicated on our last earnings call for the private education loan originations year-over-year growth, as well as noninterest expense metrics. With that, Pete, why don’t we go ahead and open up the call for some questions?

Operator: [Operator Instructions] We’ll go first today to Moshe Orenbuch at TD Cowen.

Moshe Orenbuch: Great. Thanks. And thanks for taking the question. I guess, Jon, what’s the outlook in terms of like when will how successful or unsuccessful the essentially the FAFSA fixes and college enrollments and therefore your loan origination will be? And could you also just talk a little bit about how you’re viewing kind of the competitive environment at this stage?

Jon Witter: Yes, Moshe, happy to touch on those, about your both those questions. First of all, I think it’s fair to say we are gaining more confidence in the what I’ll call the FAFSA catch up each and every day. So we trend, sort of this year’s completion rates for high school seniors versus past years. That gap is narrowing. We obviously track our application volumes on a sort of day into peak season basis. We are seeing that application gap narrow over time. So I think we believe we are starting to see positive signs of sort of what I described in my prepared remarks of schools catching up and the gap closing and, potentially not translating into a true loss in enrollment. Not to sort of sound smart about it I think at the end of the day it will be sort of into the third quarter before I think we really have a good sense of how peak season ends and I do think we expect it will be a little bit later than it normally is because we expect that schools will be later in sending bills they will likely give some schools will likely give students more time to remit and my guess is there could even be some of these situations school by school that stretch into the fourth quarter but I think we feel certainly by the end of the third quarter we should have a pretty good sense of it but I don’t want you to think we’re waiting to then we do see sort of the good early signs of progress.

I think the competitive intensity motion to the second part of your question, my answer here is going to sound I think a lot like we have discussed in past years. We compete in a nicely competitive market. We’ve got good, strong competitors out there who want to serve the very same customers that we do. We always see sort of aggressiveness around marketing spend, especially at the early part of peak season. And I think we’re seeing that, this year too, maybe even a little touch more given, some of the slowness and applications coming because of the FAFSA delays. But it’s nothing that I think, sort of causes us undue concern. And we continue to exercise great discipline in optimizing our marketing channels and sort of not spending in places where we don’t think we’ll get the return.

So we like all of that. And I think we are well positioned to meet our origination’s goals for the year and somewhere within that range and look forward to sort of seeing how peak season continues to unfold.

Moshe Orenbuch: Great. And just on the credit side, if, you did talk about the success of the modification and other programs, just two things. I mean, Pete, you said you could potentially further optimize the eligibility for those programs. I’m wondering if you could expand on that a little bit and maybe just talk a touch about the protections that you have, like, or that investors have, in terms of how these perform and what causes them to be successful or what happens if they’re not.

Jon Witter: Moshe, why don’t I see if I can take that and Pete, feel free to sort of weigh in here and in terms of the optimization, if you go back and you think about the strategy we’ve been employing, we had previously a very flexible, very broad forbearance program, and that worked well in its flexibility. What we’ve been working to replace it with is a series of more segmented and targeted programs that more closely match the needs of each of our customers who are, who is requesting assistance. I think, as we’ve opened up those programs, we have opened up with a little bit wider eligibility. I think there is a possibility for us to tighten that down a little bit. So that could be both tightening in terms of moving people from slightly more generous to slightly less generous programs.

And on the margin, it could also be slight tightening in terms of people not qualifying for the programs because we actually believe that they or their co-signer, has the ability and willingness to pay without assistance and we want to sort of pursue that avenue further. I think it’s important to note that we have a pretty rigorous analytical and test and control sort of structure and framework that we put around that. So ultimately, I think the way that we judge success is both on a sort of absolute and a relative basis. On an absolute basis, we look at the metrics throughout their time in the program, and then their performance after the program. Are they making the qualifying payments? Are they coming current? Do they stay in the programs once they’re there, once the early stage delinquency immediately after they leave the payment?

Those would be those kinds of sort of absolute metrics that we would look at, and certainly as more time goes by, and we have an even greater window to look back on, we would want to understand how these customers perform against other customers in sort of like scenarios with like characteristics. We also do that in a relative way through kind of our test and control capabilities. So ultimately, what we’re looking for is on both absolute terms that people perform well against those metrics, and on a relative basis that we’re getting lift versus what we would have expected had the program not been offered.

Operator: We go next now to Sanjay Sakhrani at KBW.

Sanjay Sakhrani: Thanks. Question on the big competitor now officially out of the market. I guess as we look towards the second half of this year, are you guys assuming share gains as it relates to that, and then just on a related note, I mean, they sold their portfolio at a pretty attractive gain on sale for the size of their portfolio. I mean, is there any read across to what you might potentially get as a gain on sale?

Jon Witter: Yes, Sanjay, it’s Jon. Why don’t I take the first, and I’ll let Pete take the second of your two questions. Yes, we absolutely built into our originations plan gains from large competitors or a large competitor leaving the marketplace. That is certainly part of our expectations, and I think that’s true in this case, and I think we’ve seen those types of share gains when other large competitors have left the space in the past. To maybe give you sort of a bonus answer to your question, it is hard for us to track exactly what of our business would come from a competitor leaving that would have otherwise gone to that competitor versus ours, but we do look at a series of proxies. So, for example, we can look at how many of our new-to-farm originations are coming from customers who have, say, that competitor’s trade line in their bureau.

Now, we don’t know exactly what the trade line is for. It could be for any of the products that competitor offers. But what we have seen is a nice increase in the first six months of the year of our new-to-farm originations coming from customers with a trade line of the competitor that you are asking about. And I think we are seeing that increase accelerate over time. And that is 100% consistent with what we would have expected to have happened. If you remember, this competitor, effectively exited the business after the mini-peak season of spring enrollment. So we would have expected to have done perhaps a little better in the first quarter, maybe a little bit better in the second quarter. But we are seeing that improvement grow. And we expect that to continue to accelerate as we get into the true heart of peak season, where those customers are really up for competition for truly the first time.

Pete, let me back hand to you on the loan sale.

Pete Graham : Second part, yes, on the loan sale. I think there is one caveat in that, it is not necessarily an apples and apples comparison because the overall book of business that competitor had was slightly better credit quality on the margins than our book. So that is one. I would say our recent loan sale, on kind of a gross premium basis, probably slightly better than the overall premium that they got. And so that is probably reflective of they have got a marginally higher credit quality book, but they had a much bigger size of transaction. So it took some discount for size there. I think in terms of the overall backdrop though, our expectation is that this just builds demand for the asset class. And there were multiple bidders that were ready to take down that entire portfolio that did the work to get up to speed on the asset class and be ready to invest, and only one of the consortiums that were bidding won.

And so what we saw after the similar process from Wells exited loans, there were a lot of people who were studying on the asset class and were eager to put money to work. And that had a benefit both in terms of demand for whole month sales, but also demand for securitization funding that gets done regularly in space. So we’re encouraged by the success of that transaction.

Sanjay Sakhrani: Thank you. Just one follow-up on the lost mitigation program impacts. I guess, as given the success of these programs, do you anticipate sort of where you think or thought steady state charge-off rates would be to be better than before? So, I mean, maybe you could just give us a sense of sort of where you see the charge-off rate migrating. Are we hitting that point now or can it go lower?

Pete Graham : Yes, again, I think we’re still consistently viewing the long-term goal as being kind of high ones, low 2% net charge-off rate. And noting that our updated guidance for this year is sort of touching at the low end of the range for this year, the top end of that sort of guidance for the longer term. So we’re encouraged by the success of the programs and, we think it’s accelerating our journey that we thought we were already on, but no real change in long-term view in terms of the overall goal that we’re listening here to.

Operator: We go next now to Mark DeVries at Deutsche Bank.

Mark DeVries: Yes, thanks. Yes, I believe in the release you kind of alluded to some improvements from your loss mitigation efforts on some of the role to default rates, but it looks like most of the 2Q improvement is kind of early stage. Where in the credit metrics can we kind of see that manifested?

Jon Witter: Mark, I think the way that I would think about it is, as the programs sort of continue to sort of normalize in terms of entry rates and population in the credit program, I think you should see the impact, through most stages of delinquency, maybe not quite so much at the very end stage of delinquency. There’s, I think, the potential for a little bit of numerator and denominator math here as you sort of help more customers early on, those are fewer that will flow through and cure in the later buckets. So my guess is you’ll see most of the impacts in the earlier to mid-stage delinquency buckets. You might actually see some counterintuitive metrics in the later bucket depending on sort of how that kind of how the mix of customers change there.

But I think ultimately what you should really pay attention to is what’s happening to net charge-offs because we will effectively help customers at different points through their journey. Bu, the real payoff is, are we getting close to that high one, low two, net charge-off rate that Pete talked about? So, ultimately, that’s what I would look at.

Mark DeVries: Okay, great. And how are you thinking about managing the risk of repayments if we get material drop in interest rates here? And is there anything you can do around loan sales to kind of sell off, loans from borrowers who might appear to be higher risk?

Jon Witter: Yes, Mark, I think, we certainly believe that consolidations today are sort of below normal levels given the interest rate environment. I think as a matter of sort of historical course, though, I would remind folks that, even during the incredibly low interest rate environment, post Great Recession and certainly, through COVID, consolidation volume was sort of a modest sort of nuisance to the financial performance of the business, but it was not a, kind of a major drag to the overall performance of the business. And so I think at the end of the day, if it wasn’t a major drag when rates were as incredibly low as they got, I think it is our belief that while we will see some rate, sort of decline over the course of the quarters and months ahead, we’re probably or almost certainly not going back to the levels we saw.

So, again, I give you that, Mark, just as historical context. I think within that context, we continue to look for ways to proactively identify customers who are likely to attract. We have not sort of found the code yet that allows us to sort of go and refinance customers proactively. The sort of cannibalization map of doing that just doesn’t make economic sense for us today, but we certainly continue to look at all of those strategies and candidly as we develop deeper and deeper data relationships with our customers, which we’re doing today, we would expect to perhaps have better luck at that in the future.

Operator: We’ll go next now to Terry Ma with Barclays.

Terry Ma: Hey. Thanks. Good evening. So if I look at your loans and modification as a percentage of loans and repay, it kind of improved about 20 basis points sequentially, but the delinquency rate x bills mods kind of increased 10 basis points. How should we kind of interpret that and how much of the increase, I guess, is seasonal versus just kind of like the some of the loans that exited not going into delinquency.

Pete Graham : Yes, again, I think there’s going to be some noise quarter-to-quarter in those metrics. I think the overall thing that we’re looking at is the broader trends and success of those borrowers. So I wouldn’t necessarily try and parse and read too much into quarter-on-quarter movements in those.

Jon Witter: And I do think, yes, there is meaningful seasonality in those numbers, for example. We certainly know that more customers experience financial distress early after repayment. And so with the large November prepayment wave and other smaller waves throughout the course of the year, you can get a little bit of lumpiness as Pete has described.

Terry Ma: Got it, so yes, so that was my follow-up question. Should we kind of expect a new seasonality to emerge with your credit metrics? Historically, delinquencies have followed the two big repay waves, and then they just kind of roll the charge off. But now you have this kind of interaction between the loan mods, entry into mods and exits, and the extended grace periods. So should we kind of expect just some sort of new seasonality to emerge, or is it just going to be kind of lumpy?

Jon Witter: Yes, I think there probably will be some new curves that reemerge. I don’t know that we yet have enough experience just barely one year in to really estimate what those are, but certainly, for example, if early stage customers are taking advantage of things like extended grace, which we think is an absolutely fabulous program, and again, very targeted only at people who are brand new to repayment, that could certainly sort of elongate for some of those customers, their trip to delinquency, if they would have gotten there anyway. We think it will actually prevent a bunch of customers from coming delinquent though to. So you have kind of both of those effects playing out. So I think the simple answer is yes, I would expect that the delinquency trends may change a little bit, maybe more month by month than quarter by quarter, but I’m not sure we yet have enough experience to provide sort of great guidance onto exactly what those gifts and gets would look like.

Operator: We’ll hear next from Michael K with Wells Fargo.

Michael K: Hi, the new EPS guide at the midpoint is $2.75. If I back out at $2.39 in the first half, that implies just about $0.36 EPS for the second half. I mean, that seems a lot lower than our estimates and likely consensus too. I know you don’t give any like quarterly EPS guide by quarter, but just wanted to talk a little bit about the dynamic that’s happening. Is the implied lower second half EPS really driven by Q3, where you probably have a, is it perhaps a loss in Q3, given the large CECL reserving for peak season? Are there any other drivers, or maybe it’s just some conservatism on EPS?

Pete Graham : Yes, I think I would point you back to the comments that Jon made in his prepared remarks that our assumption around provisioning and CECL provisioning in the second half of the year assumes we’re going to turn towards the higher end of our guidance range on originations. And that’s going to be a primary driver of lower earnings coming out of peak season, because we have to provision upfront for new originations. And that’s where most of our originations comes in the year. I think if you look back at historical quarterly sort of trends and strip out loan sales, I think you’d see that we tend to have lower quarterly earnings in the second half of the year than we do in the first half.

Michael K: All right, and second question was about the share repurchases. It looks like according to my math, only about 89 million was repurchased in the first half. Are you still committed to doing, let’s see, 225 million shares with purchases in 2024? And I get that just by taking the 650 authorizations divided by two?

Pete Graham : Yes, so I would sort of point you back to what we started with in the first quarter, which is we’re going to be programmatic in our share repurchases throughout the year. And we’re going to stage the programs as we complete loan sales. So when we completed the loan sale in February, that generated an amount of capital that we put into a program that’s been running. And when we completed the second loan sale in the second quarter that generated another pot of capital that could be deployed and that we implemented a plan. So you will see it tick up modestly second quarter versus first and you’ll see that continuing as we move through the year.

Michael K: I mean it’s been intention is to do 320, in a 300 million plus this year. I mean it seems like a programmatic a lot slower case than at least what I was expecting.

Pete Graham : Yes, again, we gave some broad guidance as to what the authorization was and roughly how that was going to split out. We have not given specific guidance or will we on exactly the level that will obtain the share.

Michael K: But the broad guidance has not changed.

Pete Graham : Yes.

Operator: We go next now to Jeff Adelson with Morgan Stanley.

Jeff Adelson: Hey, good evening. Thanks for taking my questions. Yes, I guess looking at the 10-Q, did notice that it looks like you implemented a new loan level future default rate model to come up with the reserve going forward. So I guess just maybe give us some color into the decision to change that and what sort of changes in the process or reserve level we might be able to expect from such a change in the model.

Pete Graham : Yes, I think what I would say there is most organizations look to continually improve their capabilities around modeling. And we’re no different in that regard. We completed a very fulsome process of model development and implemented those models in our process and in the second quarter, the models themselves were an improvement over the prior generation models. And as a result, the absolute level of overlays that are involved in the process were reduced as we implemented those. But when you take the old model plus overlays and the new model plus overlays, the difference was not a material difference, just more of an improvement in precision of the computational tools that we have that we’re employing in the process.

Jeff Adelson: Got it, thank you. And just as my follow up, just to circle back on the commentary on how you’re thinking about maybe tightening up on the eligibility for the loss mitigation programs, I guess, are you finding that they’re being, they’re just almost too successful, like you’re just for growing revenue and you’d rather retaining more of that or just, why not maybe expand on that a little bit more just given, I think you were doing a lot higher level of that pre-COVID on a forbearance side. And I was also curious if you could maybe dive into a little bit on the differences in success rates or performance, you’re seeing in the extended grace versus the modification side. Thanks.

Jon Witter: Jeff, I think on your question on the, why optimize? First and foremost, I think it’s important to say we want to help every customer that is experiencing financial difficulty regain their financial footing if they have the sort of ability and willingness to do so. And at the end of the day, we think that is a great economic answer. It is more importantly a great customer answer. And so if there’s ways that we can help someone who, again, has the willingness, has the ability to regain their financial footing, we want to be there. With that said, every single time we help a customer do that, there is some economic cost to that, and that economic cost can be through a rate reduction, it can be through a rate pause.

And by the way, that can be sort of impactful to us. By the way, some of the policies also have the potential of elongating a loan which increases the total interest expense to a customer, and that makes it more expensive for them. And so I think this is a case where you really want to be as tailored and you want to be as precise as you can in how you help people, and in a perfect world you would have an individual program tailored made for each person to their individual case and give them the exact level of accommodation that they needed and no more. That’s impossible to execute, it’s impossible to operate, and by the way, we could never know with that kind of precision what people wanted. So I think, the whole point of a test and learn capability is for us to begin to sort of continue that optimization program, help people with the exact right amount that they need to get back on their feet, but hopefully not help them to a degree that’s more than that, which may not be as great for our shareholders or may not be as great for them as individual borrowers.

So we will always look to optimize that, but again, I want to really stress, I think the goal is to make sure that we are helping customers get back onto good financial footing if they have the ability and the willingness to do so. In terms of the performance of extended grace versus the other programs, as you can imagine, Pete and I get regular data. I don’t think we’ve seen any material difference in terms of sort of the success rate relative to expectation of those programs. I think we’re happy with the absolute performance of both those programs and really don’t see any material sort of distance or space between them.

Operator: We go next now to Rick Shane with JP Morgan.

Rick Shane: Hey, guys. Thanks for taking my questions this afternoon. I’d like to dive in a little bit deeper on the buyback. One observation, your cash position is high than it’s ever been. To some extent, that makes sense headed into what should be one of your strongest peak seasons or your strongest peak season ever. But that has historically also been coincident with the pickup in your repurchases. So I’m curious how we should think about that. You say in the press release there’s $562 million remaining under the authorization. I believe that runs out seven quarters. Is that correct and should we sort of assume that some even distribution and that remaining $562 million over that horizon?

Pete Graham : You’ll recall that when we obtained that authorization in the first quarter it was a two year authorization program and what we said was we would roughly look to deploy that half and half over the two years. And so that coupled with what I said previously to the prior question, we’ve been very transparent in terms of how we’re going to operate the program this year funded sequentially with proceeds from completed loan sales and be programmatic in the deployment of that share repurchase capability. So that’s part of the reason for the elevated cash balance. But also to your point we do anticipate needing funding during the peak season and so we tend to build for that. But other than that I can’t really comment on the programs themselves.

Rick Shane: Got it okay. A small sort of weird question the cosign rate seems to dip down in the second quarter every year. Is there something in the nature of second quarter originations? Is it a different borrower type? Is it a different constituency that drives that or is it, I’m just seeing randomness in the data.

Pete Graham : Yes, I think just if you think about the traditional college cycle and enrollments, it’s kind of a fall and spring enrollment cycle and that’s where the disbursements are. So by its nature second quarter is going to be off that cycle. It’s going to be, it’s our smallest quarter traditionally of the year and it’s going to be non-traditional types of disbursements during that time period.

Rick Shane: Yes, that’s right. Hey and then one observation anecdotally Jonathan schools don’t seem to be going later this year.

Jon Witter: Please send us your experience, we’d be interested in that. We know some are but want to hear about yours and I hope your kids are having a great experience.

Operator: We’ll go next now to John Hecht at Jefferies.

John Hecht: Afternoon guys. Thanks very much for taking my questions. Actually, my primary questions have been asked and answered, but I am curious as to your perspective on deposit pricing trends and how that might influence net interest margin in the coming quarters.

Pete Graham : Yes, look, we’re not a market leader in terms of setting pricing and deposits and so we monitor that regularly and we tend to be a follower on sort of posted rates and tend to be kind of in the middle of the pack in terms of rate-based deposit gathers. I will say that, coming into this year, some of the market leaders were pretty aggressive in reducing their posted rates and that’s backed up a little bit in the second quarter. So there’s some volatility as the sort of overall rate environment has not changed a lot, but my expectation is that as we start to get into Fed funds, rate cutting, the primary posted rates for demand deposits are going to move kind of in lockstep with those rate decreases and you’ll continue to see a modest lag on pricing of term deposits and depending on the needs of the deposit gatherers, you’ll see, ebbs and flows in terms of pricing at different sellers in the CD space.

John Hecht: Okay, that’s fair, I get it right. A follow-up is tied to the cadence of your buyback, or excuse me, the cadence of your loan sales. I mean, I think, I went into this year thinking you were going to do a sale in the first quarter and the third quarter. You’ve done it in the first two quarters. Is there any, I know obviously market conditions are key, along with originations, but how do you prioritize the timing of the loan sales or is there any kind of way for us to think about modeling it going forward?

Pete Graham : Yes, I would just say on this year, we definitely took advantage of what we thought was optimal market conditions in the second quarter to execute the second sale, and appreciate that it’s hard to kind of model something that’s been very market driven. But we’re glad to be largely done with our loan sales for this year, given what we think could be an environment of volatility in the second half of the year.

Operator: We go next now to Jon Arfstrom of RBC.

Jon Arfstrom: Thanks. Good afternoon. John Hecht took a couple of my questions, but for Jon Witter, you mentioned early that the faster issues may have caused a small decline in volumes for you in the first six months. Any estimate in terms of how much that was, as you’re thinking about some of these issues, you would have been closer at the year, 7% to 8% expectation?

Jon Witter: I think we’re largely exactly where we thought we would be for the year. I think we always said that the growth this year would be a tale of two cities. Jon, in our business, spring follows fall, fall doesn’t follow spring, so the originations we’ve done this year really follow off of the peak season we had last fall. I think the chance to pick up share gains to one of the earlier questions and start to get to that higher origination growth was really a peak season phenomenon, so something that we would expect to see starting to happen now. Just while we’re dealing with the question, I think we also said in a previous call that as the large competitor exits the market, you should not expect to see all of that share come in one year.

It won’t be one big year. It will be two medium years because we’ll do hopefully better this fall, but then next spring we will follow that again and hopefully do better there. So I think we’re exactly where we thought we would be for the year, despite the fact that applications, are a little bit below where we expected them to be. And again, incredibly proud of the team for working hard around things like funnel optimization and marketing channel and program optimization to sort of get better pull through on the applications we did get. But I think, I think it’s really for kind of a peak season, fall versus spring phenomena that you’re seeing.

Jon Arfstrom: Okay, that’s good color. And then Pete, one for you, a cleanup on expenses. The high end versus the low end of the range, is that simply volume driven or is there something else to think about there? Thank you.

Pete Graham : Yes, no, it’s largely, our focus is on delivering against the guidance that we’ve given there. I mean, I think to the extent we spend more on marketing, that’s a variable, that we’ll evaluate going into and through the end of peak this year, but largely, we have begun to transition to be more heavily focused on fixed rate exposure, think investments and technology, self-service capabilities and the like, and less a volume of people thrown at the problem type of organization, and so that’s why the range is as tight as it is to begin with.

Operator: And we’ll take our final question from Giuliano Bologna at Compass Point.

Giuliano Bologna: Thank you. Yes, congrats on your quarter now. It’s great to see you — seeing you among those, yes, executing thereof. One thing I was curious about was, obviously there’s a question about the mix of fixed versus floating. I’m curious, when you think about how it’s just, your higher education loan yield, sort of trying to lower this order, I’m curious if there’s any sense of how that should drift at least over the next few quarters, and, yes, how we should think about the cadence over the next few quarters here.

Pete Graham : I think your question was about fixed versus floating mix on originations, if I got that right.

Giuliano Bologna: How to think about it, and also how to think about the yield on the portfolio over the next few quarters. You came down yes, 10 basis points, one quarter, I’m curious if there’s anything to draw that specifically or inefficient, yes, you obviously like yield kind of continued to trend a little bit lower here.

Pete Graham : Yes, so a couple of points there. One, over the last couple of peak seasons, we have trended to more fixed rate origination versus variable rate origination, and that has skewed the overall book currently to be more fixed rate. Our expectation over time is that mix of originations will trend back more to historic norms and come back more 60: 40 or 50:50. So in terms of outlook for the future, that would be my point there. I think in terms of changes in the overall rate this year, quarter-to-quarter, the blended rate on the portfolio, that’s probably more driven by the impact of the loan sales that we’ve done during the period because we’re taking kind of a slice of the book and selling that off. I don’t, I wouldn’t read anything more into that than that dynamic.

The portion of the book that is floating rate, well, we probably said so for, primarily on a monthly basis, but given the heavy skew towards fixed rate, it’s not really going to move all that much quarter to quarter.

Operator: And gentlemen, it appears we have no further questions today. Mr. Witter, I’d like to turn things back to you, sir, for any closing comments.

Jon Witter: Thanks so much for your help today and thanks for everyone dialing in and your interest in Sallie Mae. We look forward to talking to you next quarter about the third quarter results. And with that, Melissa, I’m going to turn it back to you for some closing business.

Melissa Bronaugh: Thank you for your time and questions today. A replay of this call and the presentation will be available on the investors page at sallymay.com. If you have any further questions, feel free to contact me directly. This concludes today’s call.

Operator: Thank you, Ms. Bronaugh. Ladies and gentlemen, again, this concludes today’s Sallie Mae second quarter 2024 earnings conference call and webcast. Please disconnect your line at this time. And have a wonderful evening. Goodbye.