Q2 2023 SLM Corporation Earnings Call
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Okay.
Okay.
Hello, and thank you for standing by welcome to Sallie Mae's second quarter 2023 earnings Conference call.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there would be a question and answer session.
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To withdraw your question. Please press star one again.
I would now like to turn the call over to Melissa Bruno.
The floor is open.
Thank you Linda.
Good morning, and welcome to Sallie Mae's second quarter 2023 earnings call.
My pleasure to be here today, with John butter, our CEO and Steve Mcgarry, 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.
Results in the future may be materially different from those discussed here.
It could be due to a variety of factors.
Listeners should refer to the discussion of those factors on the Companys Form 10-Q, and other filings with that D. C for.
For Sallie Mae. These factors include among other results of operations financial conditions, and our cash flows as well as any potential impact of the COVID-19 pandemic on our business.
During this conference call, we will refer to non-GAAP measures, we call our core earnings.
Description of core earnings a full reconciliation to GAAP measures and our GAAP results can be found in our Form 10-Q for the quarter ended June 30th 2023.
This is posted along with the earnings press release and on the investors page at Sallie Mae Dot com.
Thank you and now I'll turn the call over to John .
Thank you Melissa and to wanted to good morning, everyone. Thank you for joining us today to discuss Sallie Mae's second quarter 2023 results I'm pleased to.
A report on a successful quarter and continued progress towards our 2023 calls.
I hope you'll take away three key messages to that first we delivered strong results in the second quarter and first half of the year.
Second we are well positioned to deliver solid results for the year by continuing to drive our core business and serve our customers.
Third we have a resilient business model.
That should drive results, even if some headwinds materialize related to the resumption of federal loan payments or other macro economic conditions.
Let's begin with the quarter's results.
GAAP diluted EPS in the second quarter of 2023, what's the dollar 10 per share as compared to $1 29 in the year ago quarter.
In May we closed on the sale of 2 billion in loans at a premium of approximately six 5%.
As we mentioned in April we accelerated the sale of the second billion of loans, given bank valuation levels and the potential for further market volatility.
We were able to put the proceeds from this successful loan sale and the corresponding capital release to work in the second quarter repurchasing just over 16 million shares of our common stock.
We have reduced the shares outstanding since January one 2023 by 7% and.
And by 48% since January of 2020.
Our assets continue to be a demand from a deep pool of well informed loan buyers.
We expect to commence our next loan sale at the beginning of September and close in the third quarter or early in the fourth quarter, depending on buyer preferences and market conditions.
Subject of course to board approval and careful consideration of capital levels in an uncertain economic environment.
Private education loan originations for the second quarter of 2023 were $651 million, which is up 6% over the second quarter of 2022.
Our originations for the first half of the year are slightly ahead of our forecast for 2023.
We are also seeing strong underclass application growth through the first half of the year. Our underclass application volume has increased approximately 11% as compared to the first half of 2022, driven by our investments in technology and content as well as the successful integration.
And I've Nitro marketing strategies and techniques throughout Sallie mae's channels.
Credit quality of originations was consistent with past years, our cosigner rate for the second quarter of 2023, where 76% versus 74% in the second quarter of 2022.
Average FICO score for the second quarter of 'twenty, three with 747 versus 746 in the second quarter of 2022.
Seasonally the second quarter has lower cosigner rates due to a higher mix of non traditional students.
We expect our cosigner rate to finish the year in line with past annual levels.
Net private originally education loan charge offs in Q2 were $103 million, representing 269% of average loans in repayment up from two to five 6% in the year ago quarter.
There is seasonality in our charge offs with the second quarter, reflecting performance of the most recent graduation vintage that entered repayment in the fourth quarter of the previous year.
With our previously implemented credit administration practice changes.
We expected that we would see an uptick in defaults in the second quarter and we are appropriately reserved for this result.
Our annualized net charge offs as a percentage of average loans average loans in repayment for the first half of the year is $2 four 1% and remains lower than our plan for the full year of 2023.
We continue to operationally and strategically focus on credit and our path back to normalcy.
As is the case every year prior to peak season, we reexamined the performance of our credit standards. As is also the case every year as consumer and market conditions changed we found sub segments of our portfolio that we're responsible for elevated levels of losses.
We have refined our underwriting standards incorporating this new insight.
We are pleased that we have been able to lower risk on new originations, while maintaining strong growth in.
In addition, we continue to develop new programs and practices to appropriately help customers who are facing financial difficulties.
We expect to implement another set of program enhancements in early fall prior to the November repayment wave.
Before I turn the call over to Steve for a deeper review of performance, Let me address the news from Washington related to the federal lending program pressed.
President <unk> signed a federal spending bill, which specifies the end date for the federal student loan repayment pause.
In addition, the Supreme Court struck down the administration's proposed federal loan forgiveness program.
While both decisions were anticipated and not directly related to our business one might ask the expected impacts on Sallie Mae.
It's important to note that our historical underwriting models assume levels of federal debt and payments consistent with the Supreme Court decision and payment resumption.
Therefore, we do not believe these federal loan decisions will have a permanent long term impact on our credit outlook.
With that said payment habits and hierarchy are important determinants of short and medium term performance. In addition, federal loan Servicers have an important role to play in ensuring a smooth transition for these federal borrowers and they may experience operational or readiness issues.
Therefore, we have tried to consider what near term impacts the resumption of payments might have on our business.
Divide the administration is heavily vested in ensuring a smooth transition for federal borrowers and is taking steps to ensure a seamless transition to repayment.
They have taken two important such steps further.
The Department of Education is instituting a 12 month on ramp program.
Running from October one 2023 to September 30 of 2024, so that financially vulnerable borrowers who miss monthly payments are not considered delinquent reported to credit bureaus placed in default or referred to debt collection agencies.
Additionally, the buys administration is finalizing an enhanced income driven repayment program.
That would not only increased borrower eligibility, but also lower a borrower's payments.
These regulations will go into effect on July one of 2024. However, the department has indicated it will implement some critical benefits prior to the end of the payment pause this fall and before loan payments are due.
Our understanding is that many borrowers will not have to make monthly payments under this plan.
For a summary, and timing of these rules. Please see page six of our second quarter earnings presentation.
We are taking our own steps to help customers be successful help customers succeed that's federal payments resume.
We are increasing communication with customers, who have federal loans to help them better understand what federal resources are available to them. In addition to the programs that and services that we offer we.
We are training our staff to be more conversant on these programs to help federal borrowers who might be struggling to find available resources.
We are also increasing our monitoring and customer engagement to ensure we have good early indicators of performance and identify potential issues as this information might be helpful in setting our refining our expectations or strategies.
Based on all of this we believe the resumption of payments represents a short to medium term watch item at this point. However, we do not believe it represents a major risk to our credit outlook, but we will remain vigilant.
We are not alone in this view economist at Bank of America, and Moody's size, the average federal loan payment at 247 and $275 respectively.
And by considering a range of factors have projected that the resumption of federal student loan payments will have a minimal impact on consumer credit overall still.
Steve will now take you through some additional financial highlights of the quarter Steve. Thank.
Thank you John Good morning, everyone. Let's continue this morning's discussion with a detailed look at the drivers of our loan loss allowance.
Discussion of the key components of our income statement.
I looked at our strong liquidity and capital position.
Private education loan reserve, including a reserve for unfunded commitments was one $4 billion or six 2% of our total private education loan exposure, which under Cecil includes the on balance sheet portfolio.
Plus the accrued interest receivable of $1 $3 billion.
Unfunded loan commitments of another $1 $6 billion.
Our reserve at six 2% of our portfolio is slightly lower than the prior quarter, which was at six.
3%.
We incorporate several inputs that are subject to change from quarter to quarter.
Preparing our allowance for loan losses.
Includes seasonal model inputs and overlays.
Sorry by management.
Let's take a look at the major variables.
<unk> forecasts and waving to drive quarter to quarter movement in the allowance.
And with current and year ago quarters, we used Moody's base S. One forecast weighted 40%, 30% and 30% respectively.
We expect to use is Mexico and forward, except during an extraordinary periods of uncertainty.
<unk> concerns about the health of the economy forecast provided by Moody's continued to be stable.
There were no changes in the model inputs, such as prepayment speeds or other important drivers.
Loan sales during the second quarter did reduce the allowance by $137 million.
While the second quarter is not a large disbursement quarter, we do begin to book commitments for the new academic year reserve Accordingly.
Vision for new unfunded commitments totaled $58 million in the second quarter.
Our total provision for loan losses booked on our income statement this quarter.
$18 million.
Private education loans delinquent 30, plus days were 368%.
Loans in repayment up from three four in Q1, but improved from $3 75 in the year ago quarter.
We continue to expect very close day delinquencies to remain in the mid 3% range.
For the remainder of 'twenty three.
Forbearance usage was one 2% at the end of the quarter a decrease from one 4% at the end of Q1 and down from one 3% a year ago quarter.
Net charge offs as John already mentioned.
Came in at $2 six 9% in the second quarter compared to two 1% in Q1, 256% in the year ago quarter.
As John also already mentioned there is seasonality in the second quarter.
<unk>.
New borrowers go into full principal and interest repayment.
As a result of our previously implemented credit administration practices changes, we did expect a reserve for this uptick in charge offs.
It is worth mentioning again.
<unk> net charge off rate through June as to four 1% and continues to be lower than our plan for the year.
For the quarter came in strong, 552% up 23 basis points from a year ago quarter.
Our portfolio continues to benefit from a rising rate environment.
Consistent with guidance second quarter operating expenses were $154 million essentially unchanged from Q1.
But elevated from the $132 million a year ago quarter.
Roughly $9 million of the increase over the year ago period relates to higher FDIC assessment fees.
As we mentioned in April we expect our FDIC assessment fees to be higher.
Three in 'twenty two.
Volume increases in originations servicing and collections account for $4 million increase in opex over the year ago quarter.
Remaining $8 million increase relates to both our absorption of the effects of the current inflationary environment as well as increasing and our staffing levels over where they work and live.
Last year's second quarter.
Finally, our liquidity and capital positions are strong we ended the quarter with liquidity of 21, 6% of total assets higher than a year ago liquidity ratio of 23%.
At the end of the second quarter total risk based capital stood at 14, 1% common equity tier one was at 12, 8%.
And our ratio, we'd like to look at post seasonal GAAP equity post loan loss reserves over risk weighted assets.
Strong 16, 4%.
We are well positioned to grow our business and return capital to shareholders going forward.
Back to you John .
Dave Let me wrap up with a few additional comments on our recently announced acquisition and our outlook for 2023.
As announced last night, we are pleased to report we have closed on the acquisition of several key assets of Scully atop scholarship search application Scottish platform offers a streamlined solution to connect students with a wide variety of scholarship opportunities.
Alright.
We continue to put our capital to work buying back stock prices, we believe or at a discount to intrinsic value.
The Supreme Court's decision on federal debt cancellation appears to be a wake up call for policymakers to come together for real bipartisan reform.
Momentum appears to be building as reflected by the number of new bills being introduced that advocate for many of the practical ideas, we have been supporting for several years I.
I am proud to report another solid quarter results and remain excited about our future.
Let me conclude with a discussion of 2023 guidance.
We are encouraged by the strength of originations growth through the first six months of the year and believe we will end the year closer to the higher end of our originations guidance or slightly better. We are affirming the 2000 twenty-three guidance for all key metrics.
With that Steve, Let's open the call up for some questions. Thank you.
Thank you.
Ladies and gentlemen, as a reminder to ask a question. Please press start one one on your telephone.
To withdraw your question. Please press star one one again, please <unk> okay on a roster.
First question comes from the line of Jeff Adelson with Morgan Stanley .
<unk>.
Hey, good morning.
John I was just hoping I could just key off the comment you made earlier on the next billion dollars of mowing sales and are you already said, you're looking to kick that off in early September .
Just curious if you had any indications of interest at this point or how things kind of scan versus the last time, you went to market there and would you be willing to upsize that $1 billion and then just related to that how much how should we be thinking about the buyback size off the back of that sale I feel like it gives you release another 300.
<unk> of capacity.
Hey, Justices, Steve I'll take the first half of that question and then I'll pass the fact that John for the second half of the questions. We have a constant dialogue with our loan buyers as John mentioned in the prepared remarks, there is a pretty large group of buyers better concert.
Suddenly interest and our loan sales. So that's not an issue at all since the last sale there have been some put some some takes.
<unk> interest rates are up a little bit since then but credit spreads on P. B S, which was where buyers go to finance. The purchase is typically have tightened so.
A great deal of change I think in the underlying mark pricing.
The market at this point in time.
And <unk> to your question of Upsizing, you know I think I'll give you the same answer that I tend to give every quarter.
You know as good allocators of capital.
We are always open to ideas and to opportunities to create shareholder value. What is in our plan. Today is 1 billion. That's you know that's what we are anticipating Ah, but we will always look at the market conditions situation, you know sort of.
Price of the equity or equity that's trading at that point.
And if we think that there's a good opportunity there to create shareholder value. There is nothing that prevents our border management from you know considering and accepting that opportunity. So.
We're not going to commit to anything more at this point again a billion dollars. It's what's in our plan, but it's the same thought process that we go through every quarter and you know I would argue it's what led to the acceleration of the 1 billion, which we had originally had slated at the end of this year you know into the first half of the year.
And there's nothing that would keep that from happening again, if you know if the right market conditions existed.
Okay, great and and just to follow up on credit I know this corner last quarter was supposed to be seasonally higher for you [noise].
Just wondering is there any early read so far on July how the performance is trending there corner today, and maybe talk about the trajectory of losses over the rest of the year and separately related to that the new itr plan as long as the Grace period, just curious like do you have any sense.
How many borrowers maybe plan to take advantage of this grease period in the interim and maybe what percentage or what size of your balance sheet. These borrowers that our qualifying for the new out of your plan or just any way to kind of contextual is contextualized that versus you know the broader population for Ya.
Yeah, Let me maybe talk briefly about credit and then I think Steve and I can tag team a little bit on the combination of the on ramp program and an I D. R. On credit you know I think our affirming the guidance says it all there is nothing.
That we have seen up to this point that leads us to believe that you know that you know there is material changes to our annual guidance.
And so you know I think you can assume that you know what we're seeing in July is consistent with our expectations and what were reserved for so you know nothing nothing new or different there you know I think you know on the on ramp program I think it's really hard for us to you know to estimate how many people.
Who will take advantage of that I think you know federal program and federal borrowers are really just starting to come to grips with you know what their new payments are gonna be when those payments are gonna be due and the like but I do think it it probably suggest that of a customer's overall pain.
[noise] hierarchy across all their various obligations.
Or alone payment is probably gonna be you know near the bottom of that hierarchy, all other things being equal cause. It's just a lot more forgiving you know in that regard than you know their credit card balances or other student lending balances her car payment or whatever else. They may have so hard to know, but we still think it's it's it's quite.
Powerful thing and giving our customers you know a degree of flexibility.
We have studied extensively the I D R program today.
And you know we think going forward. It is a rich program I. It is a program that is already heavily subscribed to today, we think it will become more heavily subscribed to Ah and we thank the benefits both in the short term and the long term or a pretty amazing for federal borrowers in terms of.
Of payment reduction, but state why don't you walk through some of those details.
Sure happy to John So look we've taken a look at what the department of Education is published on income boost.
Amos plans and.
A couple of assumptions about for example, how much that a borrower has so for example.
50000 dollar loan with a six per cent coupon, which was pretty much right and the ZIP code, where most federal loans have been underwritten over the last several years that payment before income based repayment turns out to be $555, but by the time they.
A fully phase and the two steps on the changes, they're making and by B R that payment would be capped for the bar or at $175, which is a substantial amount of savings and that that example is free bar or that has.
Average income of $75000 and the payment drops substantially as their income level declines and rises gradually a certain income level of increase was so it's a really powerful program that has additional benefits such as not cap.
And.
Negative amortization of alone and actually forgiving Malone after 120 payments depending upon the size of it alone. So it's a very very powerful program, but I think the vast majority of borrowers will take advantage of if they are informed as to the features of it.
And the only thing I would add you know our intelligence tells us about 42% of federal borrowers are in you know the.
The income driving rabies some income driven repayment program today, our understanding is they will be automatically enrolled in this new program and we would expect that number to go up over time as more borrowers are eligible and I think as the administration makes it easier and easier for people.
To apply.
Mmm, great. Thanks for all that color I appreciate it.
Thank you.
Please stand by for our next question.
Alright.
<unk> <unk> <unk> J P. M. Your line is open.
Hey, Yeah I didn't hear the name is Rick Shane did you call.
Yes. Your line is open.
Alright, Thank you Hey, guys. Thanks for taking my question. This morning.
What are the things that you pointed out in the last couple of years is that on the servicing side. There are a lot of ways that you can influence outcomes you've talked about the experience of your servicers, improving collections et cetera, I'm curious as we move towards the end of.
Forbearance. If there are things that you are doing proactively with borrowers to sort of prepare them. Obviously you have a lot of insight into borrowers credit profiles et cetera.
And are you are already starting to receive inbound calls from from borrowers asking questions about how this is all gonna work.
Yeah right. Good so it's a really good question and I touched on some of this in my remarks, but let me go a little bit deeper in the.
The caveat to all of this is obviously, we're not a federal loan servicer, we're not the federal government. So you know we want to be a very proactive and appropriate in helping our customers navigate this transition, but we also want to make sure we don't get into a position.
And where you know suddenly we are advising their clients on.
Topics that are not directly in our purview.
But with that said you know we are you know now that we have a date certain on repayment you know implementing a whole host of programs, which have been under consideration for awhile. So we do know which of our customers have federal loans. We are you know in the early stages of executing a communication program for them.
Really you know doing our part to remind them of those obligations to help them begin to understand you know the resources. The federal resources that are available to them and quite frankly also using it as a great opportunity to remind them that if you know if they find themselves in a difficult spot you know that we have a resource.
And the ability to help them at all and encourage you out early outrage, which we know is incredibly powerful and helping people navigate at this period, you know not not to get too deep into a into a financial problem. We are doing absolutely stepped up monitoring of.
Of that by the way I would describe that as both quantitative and qualitative.
So for example, we have actually you know set up focus groups et cetera, Barbara worse. So that we can understand from their mouths directly what's being communicated to them. What they are hearing what they are experiencing and you know sort of the challenges that they are facing.
Because we know sometimes record those types of qualitative insights.
In addition to the quantitative insights.
Have have real power and.
And look we will continue to look at the programs, we offer and we talked about the fact that we're introducing our next wave of you know sort of loss mitigation program enhancements in the early fall. Obviously will can you know continue to assess those programs and if we see that there is an unmet need caused.
By the resumption of federal payments will be quick to respond. There. So you know it is a pretty broad and proactive approach, but again recognizing.
Is effectively a federal program issue, but you know we want to help our customers be as successful as they can during the transition.
Or if it gets really interesting answer thank you very much.
Thank you.
Please stand by for our next question.
Our next question comes from the line of Mic, Okay with Wells Fargo. Your line is open.
Hi, Good morning, you know I feel.
To me like the Guy that reflects a fair amount of consciousness. For instance, you said numerous times on a call that the year to date in C O 2.41% lower than your four year plan. So why.
Why not improve or at least the heightened the N C O guidance I know, we got the resumption of payments ahead, but that's not until.
Tobar, So one day here I thought Tonight.
Yeah, Michael look I think at the end of the day you know.
The biggest factor at play is just the uncertainty of the macro environment.
Over the course of the next six to 12 months.
We have seen an unprecedented rate of interest rate increases you know that obviously has the potential of stressing you know variable rate borrowers by the way not just our variable rate borrowers, but you know people who have other debt denominated in you know and it.
Alright instrument yeah.
I think you know the unemployment.
Appointment situation continues to be strong today, but you know certainly if you look at the various economic reports you know there is you know at least some signs of a softening or slowing of the economy.
We continue to seize and into our credit administration changes and while I think we have you know pretty robust analytics that help us understand for example, what is pull through versus sort of permanent changes by Sag mentioned various credit performance you know some.
These patterns are relatively new to us given you know went when those changes were made and implemented.
So I think when you put all of those things together you know this is just a more you know uncertain economic and credit outlook, then would be the case in a in a typical year and so I think you know.
At the end of the day, we want to reflect.
That level of potential risk and our outlook and you know we think we are being prudent and how we are setting guidance.
Okay.
Wanted to talk a little bit about the outlook for the refi market I know.
<unk>.
Low right now you know what there was something of payments are slated to start I've been hearing mixed signals from some of the the major refi players. Some saying you know, it's not going to be a big impact some expecting something more material. So wanted to get your thoughts on it I know rates are also going a lot higher now but they.
We won't stay that way.
And then lastly, any thoughts on a defensive product I had a potential uplifting refis I know you tried one before which was.
But that wasn't a failure the 20th of your thoughts on this.
So Michael this is Steven and I'll start the response and then always off are drawn to Ah at any additional color do things as appropriate.
Echo my good friend and former colleague to a Fisher, who I think described on his earnings call, but the consolidation slash re five business news very much.
Interest rate came in to to undercut, where the vast majority of deaths. It gets re fighters, which was a federal loan program you need to be able to be well under I think four and a half per cent certainly five per cent in your offerings.
And today sort of base rates and the five year vicinity start around four and by the time you add in credit spreads and maybe the opportunity to actually make a little bit of money on those consolidation loans, you need to be well above the level that wouldn't.
I as a federal student loan older too.
Consolidated their debt.
I think a second and potentially more important factor might be the richness of the benefits that are now being offered in the federal loan programs in the form of the income based repayment Ah situation. We've spent a lot of time describing here.
So I think you're right if rage to come down considerably and you know future quarters and years the consolidation game might be fired up again, but I think borrowers gonna have to think long and hard before they give.
Give up the opportunity to.
To take advantage of both federal loan benefits, but I think the private lending industry is not a big enough of an opportunity to Warren the cost to acquire that would be necessary target just simply our business. So we feel pretty good that the <unk>.
<unk> on our portfolio Grove.
And you know the unfortunate expensive seeing a recalls to acquire consolidated away. We we think that we're in pretty good shape, certainly phone coming quarters.
You are so John or anything like that.
Yeah, Michael maybe I'll I'll, just take the the defensive product piece of it you.
And I'll hearken back to you know answers I've given again on sort of calls like this you know as Steve said, we don't think the current economic and <unk> environment.
Creates much of a need for that and work nor do we think there's really a product that we could offer today at these rates that would be compelling.
But I think even in the future you know as we've talked about it the issue for US has always been in a defensive product that you know consolidations have been you know a modest but not outsized part of our business and so the question becomes how do you think about pro active.
They offering a product with lower rates.
To just the right customers and I think we've described that in the past or sort of cannibalization math.
What is the cost of of consolidation away versus what's the cost of opera of offering a defensive product that you know that you may be offering to more people than would otherwise consolidate and so you know it really comes down to that Formula I think in the past you know we have not felt like we've had.
Had.
Predictive enough models ample enough data to really be able to crack the code on that cannibalization math that could certainly change in the future and you know a big part of what we're trying to do with you know our increased investment in products services and content you know for our customers.
Two through and immediately after their higher education journey is you know to understand those customers to better to have better insight into their financial situation that might in the future you know change that cannibalization math and allow us to do something but I think at this point today, we don't think it's economically viable.
And looking in the past, we've not been able to crack that code. So it's enticing.
But again as good capital Allocators, the math has to all work and to date, we haven't been able to to make that math work in a better way than than what we've seen.
Okay. Thank you.
Thank you please stand by for our next question.
[noise] next question comes from the line I'm Sanjay <unk> with K B W. Your line is open.
Hi, This is Steve o'clock filling emphasized J. Thanks for taking my question.
Most of them has been asked and answered to someone and follow up around the name no. The name did come down a little bit sequentially and just wanted to see what's your outlook on the name for the year. Thank you.
Sure Steve I think it to remove you we stated that our admin should have a 505 handles and that is certainly the trajectory that we are we have benefited obviously from.
The rise of rights to a certain extent, but we're not really trying to position ourselves for increases or decreases and interest rates and we are very happy.
To have a vote to move five per cent and or an hour that interest margarine. That's the three I'll look for the full year.
Yeah. So I think we're in pretty good shape. If you look at our interest rate sensitivities disclosure.
M Q, you'll see that we have a very balanced position at this point in time and.
<unk> should not be changed where the rates go up significantly we're down significantly so we feel pretty good about <unk>.
Position mental in terms of.
Liability management.
Got it and just wanted to call up around like deposit betas are you seeing anything there is it within your expectations thus far.
You know so obviously, we are a lot different than the regional banks and I know in the regional banking industry. They are suing pressure on their rates as they move into you know the more insured deposits sort of market places that we have always part.
Hey, there than just as a reminder.
The beginning of the year, our deposits were basically 98% F. B I C insured and that is where they remain today.
Terms of our baby that it has been.
<unk> on the set 0.75 per cent vicinity throughout the entire Ah raped cycle. So we're not seeing any additional pressure nor are we saying that means using up and you know the market has been very favorable forums.
Got it alright, thanks for taking my question.
Well.
Thank you.
A reminder, ladies and gentlemen, that's star one one to ask a question.
Please stand by for our next question.
Our next question comes on the line and <unk>, Let's city your line or something.
Thanks, So if somebody could clarify the gain on sale you said, 6.5% when I was doing math, 6.1% was what I had and maybe you just talk a little bit about the decision to sell at that level relative versus just keeping the loans on balance sheet and waiting for a better.
<unk>.
Sure and happy to give you a little bit further color on the loan silk premium. So we basically look at the premium.
6.5% that drunk quoted.
Basically what our counterparty paid for the loans on our balance sheets and then as an as is always the case, the accountants sort of getting away and then when we both the gain on sale we'd have to write off.
Advertised acquisition costs and certain other transition transaction costs, which lowers the premium that you see on the income statement. There was also a little bit of noise and that came on sale line, where we I think we had a further three and a half million dollar right down on our.
Credit card portfolio, which we finally disposed of in the quarter. So so that's sort of how the math and the accounting shakes out on the premium in terms of selling at a six and a half per cent premium I like to always remind people that we also released 130 <unk>.
$7 billion of reserve as part of that gain on sale. So the reserve is you know roughly six per cent of of the portfolio that we sold so you can argue and I often do that the premium that we actually earned is closer to 12.
A half percent then 6.5% certainly pre tax because we free up what is basically capital that is blind sallow Ah and our loan loss reserve for many many years and even excluding the 6% reserve release, we think.
6.5% makes perfectly.
Good sense in terms of the bone cells share buyback arbitrage that we speak of frequently and we bought shows back from 15 handle and we believe that that is below the intrinsic value for those shares but like many many measures.
Great transaction and all that.
Okay. Thanks.
The expenses you kind of highlighted some some areas that were pushing expenses up a little bit.
And you you kept the guidance still the same I always kind of think about the third quarter's tends to be your highest expense quarter, which would sort of indicate that you might be a little bit on above the high end of that.
Particular changes that.
Pulled his lower for the second one for Ya.
So look the third quarter is typically are a high watermark as we as we speak.
Spend a lot of <unk>.
Proprium money to direct to consumer marketing, John and the management team or determined to manage our of expenses appropriately and we do intend to have our guidance on what you'll see is typically opex will be higher than the third quarter and then.
Sharply lower in the fourth quarter, and we will do what is necessary.
Next guidance.
Thank you.
You're welcome.
Thank you.
I'm showing no further questions in the queue I would now like to turn the call back over to John later for closing remarks.
To wander. Thank you and let me say, thank you to everyone who joined today's call. We appreciate your interest and Sallie Mae as is always the case. If there are questions that weren't addressed today or other follow up items, our investor Relations team is always here and and that your service and with that I will hand to call back.
Melissa for some closing business.
Thank you for your time and questions today.
<unk> and your presentation will be available on the investors page at <unk> Dot com.
Do you have any further questions feel free to contact me directly.
Today's call.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
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