Q3 2024 SLM Corp Earnings Call

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Unknown Executive: Lee, standby; your program is about to begin.

Unknown Executive: If you need assistance during your conference, please press star zero.

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Unknown Executive: Welcome to the Sally May 3rd quarter, 2024 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the prepared remarks. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. So others can hear your questions clearly.

Speaker Change: Welcome to the Sally Mae third quarter 2024 earnings conference call.

Speaker Change: At this time, all participants have been placed on a listen only mode and the floor will be opened for your questions. Following the prepared remarks.

Like to ask a question at that time. Please press star one on your telephone keypad. If at any point. Your question has been answered you may remove yourself from the queue by pressing star too. So others can hear your questions. Clearly we ask that you pick up your handset for about sound quality. Lastly, if you should require operator assistance. Please press star Zero I would now like to turn the call over to Melissa burnt all ahead of us.

Unknown Executive: We ask that you pick up your hands up for best sound quality.

Unknown Executive: Lastly, if you should require operator assistance, please press star zero.

Unknown Executive: I would now like to turn the call over to Melissa Bronaugh, ahead of Investor Relations. Please go ahead.

Melissa: Buster Relations. Please go ahead.

Melissa Bronaugh: Thank you, Madison.

Melissa: Thank you Madison.

Melissa Bronaugh: Good evening, and welcome to Sally May 3rd quarter, 2024 earnings call. It is my pleasure to be here today with Jon Witter, our CEO, and Pete Graham, RCFO. After the prepared remarks, we will open the call for questions.

Melissa: And welcome to Sallie Mae's third quarter 2024 earnings call.

It is my pleasure to be here today, with John <unk>, our CEO and Pete Graham our CFO.

Melissa: After the prepared remarks, we will open the call for questions.

Melissa Bronaugh: 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 those factors in the company's Form 10-Q and other filings with the FCC. For Sally May, 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.

Melissa: 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 those factors in the company's Form 10-Q, and other filings with the SEC.

Melissa: For Sallie Mae These factors include among others.

Melissa: [noise] of operations financial conditions, and our cash flows as well as any potential impacts of various external factors on our business.

Melissa Bronaugh: We undertake no obligations, update or revise any predictions, expectations, or forward-looking statements to reflect events or circumstances that occur after today, Wednesday, October 23rd, 2024.

Melissa: We undertake no obligation to update or revise any predictions expectations are forward looking statements to reflect events or circumstances that occur. After today Wednesday October 23 2024.

Jon Witter: Thank you, and now I'll turn the call over to Jon. Thank you, Melissa and Madison.

And now I'll turn the call over to John.

John: Thank you Melissa Madison, good evening to everyone.

Jon Witter: Good evening, everyone. Thank you for joining us today to discuss Sally May's third quarter results. I hope you'll take away three key messages today. First, we had a very successful peak season. Second, we remain encouraged by the sustained improvements we are seeing in our credit performance. And third, we believe we are well-positioned to deliver strong results for the year by continuing to drive our business and serve our customers.

John: Thank you for joining us today to discuss Sallie Mae's third quarter results.

John: I hope you'll take away three key messages today first we had a very successful peak season.

John: Second we remain encouraged by the sustained improvements were seen in our credit performance and third we believe we are well positioned to deliver strong results for the year by continuing to drive our business and serve our customers.

Jon Witter: Let me begin with the discussion of peak season results. Lewis. Last quarter, we hypothesized that the fast-food form delays would elongate peak season, but not have a material impact on demand. Well, this shift in peak season timing has played out as we expected. We outperformed even our own estimates, with originations growth of 13% in the quarter compared to the year-ago period. Private education loan originations for the third quarter of 24 were $2.8 billion, and our new unfunded commitments in the quarter were $3.9 billion. In total, our committed volume increased almost $1 billion, or 17%, when compared to the prior year quarter.

Let me begin with a discussion of peak season results.

John: Last quarter, we hypothesized that the basketball form delays, what elongated peak season, but not have a material impact on demand.

While this shift in peak season timing has played out as we expected.

John: Outperformed even our own estimates with originations growth of 13% in the quarter compared to the year ago period.

John: Private education loan originations for the third quarter of 24, or $2 8 billion and our new unfunded commitments in the quarter were $3 9 billion.

John: In total our committed volume increased almost 1 billion or 17% when compared to the prior year quarter.

Jon Witter: This wraps up a very successful 2024 peak season. In year-to-date, through the end of September, we have seen 9% growth in total originations.

John: This wraps up a very successful 2020 for peak season and year to date through the end of September we have seen 9% growth in total originations.

Jon Witter: Turning to the quarter's results, gap net loss per common share was 23 cents. These results were lower than the prior year quarter, primarily due to the allowance that we were required to build for new commitments, which was significant this quarter due to our peak season success. We were also pleased to see our credit performance continue to improve. Private education loan that chargeoffs in Q3 of 2024 or 77 million, representing 2.08 percent of average private education loans in repayment. Credit quality of originations continued to show improvement. Co-signer rates increased to 92 percent in Q3 of 24 from 90 percent in the year ago quarter, and the average FICO score had approval for Q3 of 24 was $7.54 versus $7.49 in the year ago quarter.

John: Turning to the quarter's results GAAP net loss per common share was 23 cents.

John: These results were lower than the prior year quarter, primarily due to the allowance that we were required to build for new commitments, which was significant this quarter due to our peak season success.

John: We were also pleased to see our credit performance continue to improve.

John: But education loan net charge offs in Q3 of 2024 or <unk> $77 million, representing 2.08% of average private education loans in repayment.

John: Credit quality of originations continued to show improvement.

John: Signer 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.

Jon Witter: Our enhanced payment programs are helping our borrowers who need assistance establish positive payment habits. We were pleased to see the usage of loan modification programs stabilized throughout the quarter. September enrollment was down 50 million compared to August. A trend we anticipate will continue.

John: Our enhanced payment programs are helping our borrowers who need assistance establish positive payment habits.

We were pleased to see the usage of loan modification programs stabilized throughout the quarter September enrollment was down $50 million compared to August a trend we anticipate will continue.

Jon Witter: We continue our capital return strategy in the third quarter, repurchasing 5.3 million shares at an average share price of $21.58. We have reduced the shares outstanding since we began this strategy in 2020 by 52 percent at an average price of $16.16.

John: We continue our capital return strategy in the third quarter repurchasing five 3 million shares at an average share price of $21 58.

John: We have reduced the shares outstanding since we began this strategy in 2020 by 50% to 52% at an average price of $16 16.

Jon Witter: Additionally, we are excited to announce that we will be increasing our fourth quarter common dividend from 11 cents per common share to 13 cents, which will be paid in December.

John: Additionally, we are excited to announce that we will be increasing our fourth quarter common dividend from <unk> 11 per common share for <unk>, which will be paid in December.

Pete Graham: Pete will now take you through some additional financial highlights of the quarter. Pete?

John: Pete will now take you through some additional financial highlights of the quarter.

Pete Graham: Thank you, John.

Pete: Thank you Joe good evening everyone.

Pete Graham: Good evening, everyone. Let's continue with the discussion of key drivers of earnings. In the third quarter of 2024, we earned $653 million of interest, in the 12 million dollars higher than the second quarter of 2024 and a million dollars higher than the year go quarter. Our net interest margin for the quarter was 5% lower than both the previous and year-go quarters. We expected to see minimum compression in 2024 as funding rates caught up to our asset yields. And this is what drove the majority of the decrease. We continue to believe over the longer term that a range of low to mid 5% is that appropriate demand.

Pete: Let's continue with a discussion of key drivers of earnings.

Pete: For the third quarter of 2024, we earned $653 million of interest income.

Pete: $12 million higher than the second quarter of 2024, and $1 million or a year ago quarter.

Pete: Our net interest margin for the quarter was 5%.

Pete: Lower than both the previous and year ago quarters.

Pete: We expected to see NIM compression in 2024 is floating rates caught up to our asset yields and this is what drove the majority of the decrease.

Pete: We continue to believe over the longer term, but a range of low to mid 5% because the appropriate intelligence.

Pete Graham: The total provision for credit losses was $271 million in the third quarter of 2024, up from $198 million in the third quarter of 2023. Our successful peak season volume was the main driver for the increase in the provision in the third quarter. The allowance for losses on a private education loans at the end of the third quarter was $1.4 million. And including the allowance for our unfunded commitments, equal $1.5 billion total reserve. As seen in the table on slide seven of the earnings presentation, the total allowance as a percentage of the ending portfolio exposure, which includes the balance of funded loans plus unfunded loan commitments and a career to interest receivable, was 5.84%.

The total provision for credit losses was $271 million in the third quarter of 2024.

Pete: From $198 million in the third quarter of 2023.

Pete: Our successful peak season volume was the main driver for the increased provision in the third quarter.

Pete: The allowance for losses on our private education loans at the end of the third quarter was $1 4 billion and including the allowance for unfunded commitments equaled $1 $5 billion total reserve.

Pete: As seen in the table on slide seven of the earnings presentation.

Pete: The total allowance as a percentage of the enviable portfolio of exposure.

Pete: Which includes the balance of funded loans plus unfunded loan commitments for the accrued interest receivable.

Pete: It's probably a 40%.

Pete Graham: Down from 5.9% in the second quarter of 2024 and 5.99% in the third quarter of 2023. We believe we will continue to see incremental improvement in our reserve rate over the common quarters as we realize the benefits of our loan modification programs and improvements in the credit quality of our regionations. That charge drops for our private education loan portfolio in the third quarter of 2024 for $77 million, or 2.08% of average loans and repayment. This represents a 45-based point of reduction from the year-ago quarter and an 11-based point of reduction from the prior quarter. Private education loans to length with 30 days of 1 were 3.6% of loans and repayment, an increase from the prior quarter but down from the year ago quarter.

Pete: Down from five 9% in the second quarter of 2024.

Pete: And five 9% in the third quarter of 2023.

Pete: We believe we will continue to see incremental improvement in our reserve rate over the coming quarters, because we realize the benefits from a loan modification programs.

Pete: And improvements in the credit quality of originations.

Pete: The charge offs for our private education loan portfolio in the third quarter of 2024.

Pete: $77 million or 2.08% average loans in repayment.

Pete: This represents a 45 basis point reduction from the year ago quarter.

Pete: The 11 basis point reduction from the prior quarter.

Private education loans delinquent 30 days were three 6% of loans in repayment.

Pete: An increase from the prior quarter, but down from the year ago quarter.

Pete Graham: As we continue to monitor the performance of loans in our enhanced loss mitigation programs, we remain pleased with the level of success. We believe that it will take some time to understand the new seasonality of these programs. But, as we mentioned last quarter, the link and see for those borrowers exiting the first layer of the bar extended increase program, we're in line with our expectations. We're pleased to share that this positive performance has continued. Additionally, through the monitoring of borrowers qualifying for loan modifications over the previous quarter, we were really encouraged that just over 80% of borrowers with modified loans successfully made their first three payments.

As we continue to monitor the performance of loans in our enhanced loss mitigation programs. We remain pleased with the level of success.

Pete: We believe that it will take some time to understand the new seasonality of these programs.

Pete: But as we mentioned last quarter delinquency for those borrowers exiting the first wave of our extended release program.

Pete: In line with our expectations.

Pete: We were pleased to share with this positive performance is continuing.

Pete: Additionally, through the monitoring of borrowers qualifying for loan modifications over the previous quarter.

Pete: We remain encouraged that Tricia.

Pete: Over 80% of borrowers with modified loans successfully made their first three patients.

Pete Graham: I do want to mention a procedural refinement made to our loan modification programs in the third quarter, which caused an uptake in loan modification volumes. However, this change did not have a material impact on overall delinquencies and, in fact, we observed a decline in late-stage delinquencies quarter over quarter in the year over.

Pete: I do want to make sure the procedural refinement to our loan modification provision for the third quarter.

Pete: Which caused some uptick in loan modification volumes.

Pete: This change does not have a material impact on overall.

Pete: Currencies.

Pete: We observed a decline in the late stage delinquencies quarter over quarter and year over year.

Pete Graham: Jr. We continue to believe that our lost mitigation programs are helping our borrowers manage through periods of adversity and establish positive payment paths. Third quarter non-interest expenses were $172 million, compared to $159 million in the prior quarter, and $17 million in the year-ago quarter. Third quarter non-interest expenses were up always slightly over the year go quarter despite dramatically higher level levels of originations, which carry meaningful variable cost. Finally, our liquidity and capital positions remain solid. We ended the quarter with liquidity of 19.9% of total assets. At the end of the third quarter, total of this base capital was 12.9%, and common equity too on capital was 11.6%.

Pete: We continue to believe that our loss mitigation programs are helping our borrowers manage through periods of adversity.

Pete: In established positive payment patterns.

Pete: Third quarter non interest expenses were $172 million.

Pete: <unk> to $159 million in the prior quarter and $170 million in the year ago quarter.

Pete: Third quarter noninterest expenses were up only slightly over the year ago quarter, despite dramatically higher levels of originations, which carry meaningful variable cost.

Pete: Finally, our liquidity and capital positions remain solid.

Pete: We ended the quarter with liquidity of 19, 9% of total assets.

Pete: At the end of the third quarter total risk based capital was 12, 9%.

Pete: Common equity tier one capital was 11, 6%.

Pete Graham: Another measure of the loss of social capacity of the balance sheet is gap equity plus loan loss reserves over risk-rated assets, which was a strong 15.9%. We continue to believe that we're well positioned to continue to grow our business and return capital to shareholders going forward.

Pete: Another measure of the loss absorption capacity of the balance sheet, because GAAP equity plus loan loss reserves over risk weighted assets.

Pete: Which was a strong 13, 9%.

Pete: We continue to believe that we're well positioned to continue to grow our business and return capital to shareholders going forward.

Pete Graham: Thank you. I hope you share my belief that we had strong performance in the third quarter and that we are well positioned to continue that trend through the close of 2024. We are excited about the origination growth this peak season and how that positions us to continue to execute on the goals we set out for this year.

Speaker Change: I'll now turn the call back to Joe.

Joe: Thanks Pete.

Joe: I Hope you share my belief that we had strong performance in the third quarter and that we are well positioned to continue that trend through the close of 2024.

Joe: We are excited about the origination growth is peak season, and how that positions us to continue to execute on the goals we set out for this year.

Pete Graham: With that in mind, let me conclude with the discussion of 2024 guidance. The originations growth that we saw in the third quarter was higher than expected, and we believe that this trend will continue through the remainder of the year. This success has led us to revise our guidance for private education loan origination growth. We now expect to see 8 to 9% growth for the year. Additionally, with continued positive credit performance, we are tightening the expected range for total loan portfolio net charge-offs to between 325 and 340 million. Or, as expressed as a percentage of average loans and repayment between 2.1 and 2.3%.

With that in mind, let me conclude with a discussion of 2020 for guidance.

Joe: The originations growth that we saw in the third quarter was higher than expected and we believe that this trend will continue through the remainder of the year.

Joe: This success has led us to revise our guidance for private education loan origination growth.

Joe: We now expect to see 8% to 9% growth for the year.

Joe: Additionally, with continued positive credit performance, we are tightening the expected range for total loan portfolio net charge offs to between 325 and $340 million or as expressed as a percentage of average loans in repayment between two one.

Joe: And two 3%.

Pete Graham: At this time, we are reaffirming the 2024 guidance that we communicated on our last earnings call for gap diluted earnings per common share and non-interest expense.

Joe: At this time, we are reaffirming the 2024 guidance that we communicated on our last earnings call for GAAP diluted earnings per common share and non interest expense.

Unknown Executive: With that, Pete, let's open up the call for some questions. Thank you. The floor is now open for questions.

Joe: With that let's open up the call for some questions. Thank you.

Joe: Thank you.

The floor is now open for questions. At this time, if you have a question or comment. Please press star one on your telephone keypad. If at any point. Your question is answered you may remove yourself from the queue by pressing star Kim again, we ask that you pick up your handset when posing your questions to provide optimal sound quality.

Unknown Executive: At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing Star 2. Again, we ask that you pick up your handset on posing your questions to provide optimal sound quality. Thank you.

Sanjay Sakhrani: Our first question will come from Saun J. Saugroni with KPW. Please go ahead.

Speaker Change: Our first question will come from Sanjay <unk> with VW. Please go ahead.

Please go ahead Sanjay your line is open.

Terry Maugh: Saun J, your line is open. And we'll move to our next question from Terry Maugh with Barclays.

Speaker Change: And we will move to our next question from Terry MA with Barclays. Please go ahead.

Terry Maugh: Please go ahead. Hey, thank you.

Terry MA: Hey, Thank you. Good afternoon. So I think you called out that come over the long term to mid to low 5% range is still kind of the right target for NIM.

Terry Maugh: Good afternoon. So I think you called out that over the long term, the mid to low 5% range is still kind of the right target for them. But as we think about kind of a shortened intermediate term and the impact in most recent round rate cuts and potentially some more rate cuts up the head, can we see an end at the low 5%? And what's the kind of time frame to get back to that long-term target? Yeah, I think again, we've had this dynamic of our borrowers choosing predominantly fixed rate in the last two sort of peak origination seasons.

Terry MA: But as we think about kind of the shortened intermediate term.

Terry MA: The impact in the most recent round of rate cuts and potentially some more rate cuts of the head, but could we see NIM dip below 5% and what's the kind of timeframe to get back to that long term target.

Speaker Change: Yes, I think we can.

Speaker Change: We've had this dynamic of R. R.

Speaker Change: Our borrowers choosing predominantly fixed rate MBS.

Last two sort of peak origination season.

Jon Witter: And our funding rates, particularly the deposit rates, will reprice with changes in rates. And so we've had continued pressure on the increase in funding rates as term deposits that we put on in a lower rate environment, reprice in the higher rate environment. That's the dynamic we've seen through this year in the sort of compression of NIM. I'd say over the first part of next year, we'll continue to kind of see the tale of that longer term deposits that were put on three and five years ago. Repricing in this new environment, but we're also seeing deposits that we put on a year ago, reprice at a lower rate.

Speaker Change: And our funding rates.

Speaker Change: Particularly with deposit rates.

Speaker Change: We will re price with with changes in rates and so we felt continued pressure on.

Speaker Change: The increase in funding rates as <unk>.

Speaker Change: Term deposits that we put on at a lower rate environment reprice in the higher rate environment.

Speaker Change: That's the dynamic we've seen through this year and the sort of compression of NIM.

Speaker Change: I'd say over the first part of next year, we will continue to.

Kind of see the tail of that.

Speaker Change: Longer term deposits that were put on three and five years ago repricing in this new environment.

Speaker Change: But we're also seeing.

Speaker Change: Deposits that we put on a year ago.

Price at a lower rate so on balance I think we'll see some pressure in the beginning part of next year, but as we move through the year I think that will start to normalize.

Jon Witter: So, on balance, I think we'll see some pressure in the beginning part of next year, but as we move through the year, I think that'll start to normalize. And so again, from a long-term perspective, do you think that five to mid-five percent ranges for rate rate target? Got it.

Speaker Change: And so again from a.

Speaker Change: The longer term perspective, we think the five.

Speaker Change: Five two.

Speaker Change: The 5% range as reported.

Speaker Change: Yes.

Speaker Change: Got it.

Jon Witter: Okay. And then I appreciate the color on the mod programs and reserve commentary. But as I look at kind of delinquency, this quarter, it ticked up quite a bit, particularly in the 30 to 59 day bucket. And any color on what's going on there, how much of that was attributed to seasonality or anything else? Yeah, again, I think the thing that we're mostly focused on is the later stage delinquency buckets and the role to default. And those trends have been improving. I think we've utilized the new programs to help borrowers who are in need of assistance.

Speaker Change: Okay, and then I appreciate the color on the Mod programs in the reserve commentary, but as I look at kind of delinquencies this quarter it ticked up quite a bit.

Speaker Change: Early in the 30% to 59 day bucket and then any color on what's going on there how much of that was.

Speaker Change: Attributed to seasonality or anything else.

Speaker Change: Yes, Kevin I think.

Speaker Change: But they were low.

Speaker Change: Mostly focused on is the later stage delinquency buckets and the rule to default.

Speaker Change: Those trends have been improving.

Speaker Change: We've.

Speaker Change: Utilized.

Speaker Change: New programs to help borrowers.

Speaker Change: Who are in.

Speaker Change: Neither of the systems.

Jon Witter: And so we feel really comfortable about the performance of those programs and don't have any concerns with regards to early stage movements and delinquency. Okay.

Speaker Change: And so we feel really comfortable about performance of those programs.

Speaker Change: Don't have any concerns with regards to early stage.

Speaker Change: Movements in delinquency.

Speaker Change: Okay got it thank you.

Jon Witter: Got it.

Speaker Change: Thank you and we will take our next question from Sanjay <unk> with <unk>. Please go ahead.

Sanjay Sakhrani: And we will take our next question from Sanjay Sakhrani with KBW. Please go ahead. Thank you.

Speaker Change: Thank you sorry, I guess I got dropped off our Alere my apologies.

Sanjay Sakhrani: Sorry, yes, I got dropped off earlier. My apologies. And I'm sorry if this was asked already, but just when we think about relative to consensus reiterating the full year number, this quarter was a little bit weaker on higher provisions. And maybe a weaker name as we think about what's going to make up for it in the fourth quarter. Is it really that reserve rate can come down and provisions can help get us back to what the full year number is? I'm just trying to think through those dynamics. That's probably the big, big driver that we're anticipating to see continued improvement in the overall reserve rate.

Sanjay: Pete could you just and I'm sorry, if this was asked already but just when we think about.

Sanjay: Relative to consensus reiterating the full year number this quarter was a little bit weaker on higher provisions and maybe a weaker NIM as we think about what's going to make up for it in the fourth quarter or is it really that reserve ratio come down and provisions Kevin can help get us back to what the full year number is I'm just trying to think through those dynamics.

Speaker Change: It's probably the big Big driver that we're anticipating to see continued improvement in.

Speaker Change: And the overall reserve rate.

Pete Graham: We talked about that in my prepared remarks that that's come down year over year, as well as sequentially quarter over quarter. And we think that given the improvements in, you know, continued improvements in that charge off, coupled with, you know, the higher credit quality of new originations, we think that that likely will trend, trend will likely continue. And as far as the names, progression from here? Again, to the next quarter, maybe? Yeah, again, I touched on that in the prior caller: the reprising that was sitting in the deposit book. We probably got another quarter or two of some of the lower rate term deposits we put on three and five years ago.

Speaker Change: Talk.

Speaker Change: About that in my prepared remarks.

Speaker Change: That's come down year over year, as well as sequentially quarter over quarter, and we think that given the improvements in.

Speaker Change: Continued improvements in net charge offs.

Speaker Change: Coupled with.

Speaker Change: The higher credit quality of new originations, we think that the.

Speaker Change: Likely we'll trim trim will likely continue.

Speaker Change: And as far as like the NIM progression from here.

Speaker Change: Like into next quarter, maybe yeah.

Speaker Change: Again.

Speaker Change: I touched on that.

Speaker Change: The prior caller.

Speaker Change: The re pricing that we're putting in the in the.

The deposit book.

Speaker Change: Got another quarter or two of.

Speaker Change: Some of the.

Speaker Change: Lower rate term deposits, we put on three and five years ago that will come up for re price.

Pete Graham: That will come up for reprise, but we've also, at the same time, got one year term deposits that we put on a year ago that are going to be priced at a lower rate. And then the other sort of wild card is, you know, originations in the fourth quarter and any carry over from peak to the extent that we have continued our performance. There's always a potential for smaller ones that later in the year. If we have a higher rate of growth than what we're currently anticipating, you know, we've got to manage our capital position in January of next year, as we take down to the final CISO transition adjustment into our regulatory capital.

Speaker Change: But we've also at the same time got.

Speaker Change: A one year term deposits that we put on a year ago that we're going to reprice at a lower rate.

Speaker Change: And then the other sort of wildcard is.

Speaker Change: Originations in the fourth quarter and any carryover from peak to the extent.

We have continued our performance.

Speaker Change: There is always a potential for a smaller.

Speaker Change: A smaller loan sale later in the year.

Speaker Change: If we have a higher rate of growth than what we're currently anticipating.

Speaker Change: We've got to manage our capital position in January of next year as we take the <unk>.

Speaker Change: Some of the final seasonal.

Speaker Change: Transition adjustment into our regulatory capital.

Pete Graham: Got it.

Speaker Change: Got it because this is my follow up is on.

Pete Graham: This is my follow-up on the reclassification of the federal loans to health or sale. I mean, can you just talk about the decision to sell and how we should think about that impact? Yeah, thanks. Thanks for asking that question. You know, the health program at Spin was probably close to $4 million, was a significant part of the overall profile of the business. Over time, that has run off and, you know, really got down to like a half a billion dollar number. It's non-core. It creates a lot of operational complexity. And so we pursued a strategy of trying to find another home for those assets.

Speaker Change: The reclassification of the federal loans to held for sale I mean can you just talk about the decision.

Speaker Change: Now on how we should think about that impact.

Speaker Change: Yeah. Thanks, Thanks for asking that question.

Speaker Change: The <unk> program.

Speaker Change: Spend was probably close to $4 billion was a significant part of.

Speaker Change: The overall profile of the business.

Speaker Change: Over time that has run off in.

Speaker Change: Really got down to like to have $1 billion number as non core at Cree.

It's a lot of operational complexity.

Speaker Change: And so we pursue.

Speaker Change: Our strategy.

A strategy of trying to find another home for that for those assets.

Pete Graham: We're happy to be able to find a buyer. And, you know, we expect to close a transaction in the point quarter. Okay. Great. Thank you very much.

Speaker Change: Happy to be able to find a buyer.

And.

Speaker Change: We expect to close the transaction in the fourth quarter.

Speaker Change: Okay, great. Thank you very much.

Unknown Executive: Thank you.

Speaker Change: Thank you and we will take our next question from Mark Devries with Deutsche Bank.

Mark Devries: And we will take our next question from Mark DeVries with Deutsche Bank.

Mark Devries: Yeah, first just a follow-up on that last point. Should we expect any kind of gain a lot from the disposition of those help loans? No, when we moved that into health or sale, we took slight mark to move to lower cost or market. So we got close to mark, you know, in total for the transaction. Okay. Got it. And then just thinking about this quarter's originations, do you think, you know, the volumes that did reflect a new run rate, market share, and kind of opposed Discover world? Or is there still a lot of jockeying going on with share that could be gained or lost?

Speaker Change: Yes.

Speaker Change: Just a follow up on that last point should we expect any kind of gain or loss on the disposition of a cell phone.

Speaker Change: When we moved that into held for sale, we took a slight mark.

Speaker Change: Move to lower of cost or market. So we've got close to par.

Speaker Change: In total for the transaction.

Speaker Change: Okay got it.

Speaker Change: And then just thinking about this quarter's originations do you think.

Speaker Change: The volumes it did reflect a new run rate market share in kind of a post discover world.

Or is there still a lot of jockeying going on with sure there could be gained or lost.

Mark Devries: Yeah, market's gone.

Speaker Change: Yes, Mark it's John I'll take that one.

Mark Devries: I'll take that one. You know, as a quick reminder out there, you know, third quarter of last year, the competitor who has chosen to leave the sector, you know, probably had market share somewhere between 14 and 15%. You know, those are some of our internal numbers. You know, others might have slightly different numbers, but that's probably pretty good. You know, our sense is if you look at, you know, sort of the likely market growth, if you look at us getting sort of roughly, you know, our market share of their market share, you know, and you think about the 13% originations growth that we saw in the first quarter, it feels like we got our share, you know, and maybe even a little bit more than that again.

Speaker Change: As a quick reminder out there.

Speaker Change: Third quarter of last year, the competitor who has chosen to lead.

Speaker Change: The sector.

Probably had market share somewhere between 14 and 15%.

Yes, those are some of our internal numbers, others might have slightly different numbers, but thats probably pretty good.

Our sense is if you look at sort of the likely market grows if you look at us getting sort of roughly our market share of their market share.

Speaker Change: Think about the 13% originations growth that we saw in the first quarter.

Speaker Change: Feels like we got our share.

Speaker Change: Even a little bit more than that again, we'll know the final number is as we see.

Jon Witter: We'll know the final numbers as we see, you know, sort of the formal market share reports and studies that will come out in the months ahead. But we feel really, really good about what we were able to do from kind of capturing our share and building that momentum. And I think that was, you know, clearly in part competitive dynamics, the exit of this player. I think it's also a testament to the improvement that we've made in our originations and marketing capabilities, you know, to be able to go into and compete well for it. Now, make no mistake, every quarter, every peak season will have to recompete for that share.

Speaker Change: Sort of a formal market share reports and studies that will come out in the months ahead, but we feel really really good about what we were able to do from kind of capturing our share and building that momentum and I think that was clearly.

Speaker Change: And part competitive dynamics the exit of this player I think it's also a testament to the improvement that we've made in our origination and marketing capabilities.

Speaker Change: To be able to go in there and compete well for it now.

Speaker Change: Now make no mistake every quarter every peak season, we'll have to recompete for that share so.

Jon Witter: So we feel great about what we've done, but we will continue to go hard after now protecting our share and sort of continuing to make that kind of a core part of our growth expectations going forward. So, you know, yeah, I think you can probably think of it as sort of a change to run rate. But I think we will know more about how that shakes out as we start not to stand more fully the market share and sort of, you know, volume growth numbers, you know, that we saw during this peak. But again, we've got to go rewind that, you know, every quarter going forward.

Speaker Change: So we feel great about what we've done but we will continue to go hard after now protecting our share and sort of continuing to make that kind of a core part of our growth expectations going forward.

Speaker Change: Yes, I think you can probably think of it as sort of a change to a run rate.

Speaker Change: But I think we will know more about how that shakes out as we start to understand more fully the market share and sort of volte.

Speaker Change: Volume growth numbers that we saw during this peak.

But again, we've got to go re win that every quarter going forward.

Mark Devries: Yeah, that's helpful.

Speaker Change: Got it that's helpful.

Jon Witter: And then just give me the updated observations on payment behavior. You may be observing from your borrowers who, you know, may also have direct loan balances that won in the repayment in recent months. Yeah, Mark, I'll take that one. Yeah, our, our ability to sort of study this precisely is, you know, limited by what we can glean from, you know, things like the bureaus and the public, public, you know, and the publicly available data. You know, 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, you know, trying to handle, I sort of analyze kind of divergent payment patterns by cohort over time. As of yet, you know, even with, you know, coming to an end of the federal payment holiday, we have not seen anything that, you know, that leads us to believe that the federal payment, you know, sort of within a resumption is causing an issue on our customers.

Speaker Change: And then just do you have any updated observations on.

Speaker Change: Payment behavior, you may be observing from your borrowers who may also have direct loan balances that women the repayment in recent months.

Speaker Change: Yeah, Mark I'll take that one hour.

Speaker Change: Our ability to sort of study. This precisely is limited by what we can glean from.

Speaker Change: Things like the bureaus in the public and.

Speaker Change: And the publicly available data, we do a pretty I think sort of a sophisticated the furniture looking at our borrowers who.

Speaker Change: Have federal loans, and those who don't and.

Speaker Change: Try to and sort of analyze kind of divergent payment patterns.

Speaker Change: Cohort over time as it yet even with.

Speaker Change: Now coming to an end at the federal payment holiday, we have not seen anything that leads us to believe that the federal payment sort of resumption.

Speaker Change: Causing an issue on our customers.

Jon Witter: And while I think it is fair to say that, you know, 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, you know, the broader federal program and with the average federal customer is able to do, but I think we have a pretty credit worthy set of customers. I think they're performing well and we've not seen it at this point of anything that causes us, you know, any material concern.

Speaker Change: And while I think it is fair to say that most of our customers have federal lands I think it is also fair to say that.

Speaker Change: Lots of people have federal loans, who are not our core customers and would probably not satisfy our underwriting conditions.

Speaker Change: Conditions, so I'm, not making a comment about that.

Speaker Change: Broader federal program and with 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 it at this point or anything that causes us any material concern.

Unknown Executive: All right. Okay. Great. Thank you.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you.

Nate: Please go ahead. Nate, go ahead. Nate, your line is open.

Speaker Change: Please go ahead go ahead Richard Your line is open please check your mute function on your device.

Unknown Executive: Please double-check the new function on your device. Sorry.

Nate: Good afternoon. Actually, my question. Regions were up pretty nicely. You're here and, you know, expenses were up only very modestly.

Speaker Change: Sorry, good afternoon, Thanks for taking my question.

Speaker Change: Originations were up pretty nicely year over year.

Richard: We're only very modestly I speak some parts here because of acquisition and direct origination costs just wanted a bit before but can you expand a bit about the improvements you've made there and like to what extent you can further improve efficiencies and other digital marketing capabilities.

Nate: I had to speak some part here because my acquisition director is origination costs. You just saw a bit before, but can you expand a bit about the improvements you've made there and like to what extent you can further improve efficiencies and other digital marketing capabilities. Yeah, you're talking about origination expenses there. Yeah. Thank you for our acquisition cost. Yeah, sure.

Speaker Change: Yes, youre talking about origination expenses there.

Richard: And customer acquisition costs.

Speaker Change: Yes sure.

Jon Witter: Look, I think, I think the biggest thing, well, let me start by saying, I think we have shortly as a company had an incredibly strong competitive position as it relates to customer acquisition. We've got great relationships with our school partners. We are on, you know, all of virtually all of the preferred lists. I think when we hear our schools, you know, and kind of look at who we really focus on, you know, we have even deeper relationships with the higher grown schools out there. And, you know, clearly for many years, we have been, you know, I think investing as many companies have in their digital capabilities.

Speaker Change: Look I think I think the biggest thing.

Speaker Change: So let me start by saying I think we have historically as a company had.

Speaker Change: And incredibly strong competitive position as it relates to customer acquisition, we've got.

Speaker Change: Great relationships with our school partners.

Speaker Change: We are on all of our virtually all of the preferred less I think when we hear other schools.

Speaker Change: I kind of look at that we really focus on.

Speaker Change: Even deeper relationships with the higher growing schools out there.

Speaker Change: And clearly for many years, we have been.

Speaker Change: Yes, I think investing as many companies have in their digital capabilities I think the biggest thing that has really changed over the last couple of years.

Jon Witter: I think the biggest thing that has really changed over the last couple of years, you know, is the advent of, you know, a more organic search and content-driven marketing strategy. You know, and the way I would have to think about this is, you know, we are trying to go out there and acquire customers organically through a whole range of different strategies, not having to necessarily pay, you know, sort of for digital marketing search for all of those customers. And then we're very hard to maintain and engage those customers, you know, not just through the course of their first academic year with us, but obviously then subsequent academic years after.

Is the advent of a more organic search and content driven marketing strategy.

The way I would have you think about this is we are trying to go out there and acquire customers organically through a whole range of different strategies.

Speaker Change: Not having to necessarily pay.

Speaker Change: For digital marketing search for all of those customers.

And then work very hard to maintain and engage those customers.

Speaker Change: Just through the course of their first academic year with us, but obviously then subsequent academic years after and I think that organic strategy and subsequent customer engagement strategy that we've put in place.

Jon Witter: And I think that organic strategy and subsequent customer engagement strategies that we put in place, you know, I would say is one of the biggest differentiators that we have created, you know, created at the company. So yes, we've got great school relationships. Yes, we have a great brand that is synonymous with the industry. You know, yes, we've made all the right mark tack and other investments over the last three to four years, but I think it really is that, you know, that content led strategy and engage model that we think is really differentiated and exciting going.

Speaker Change: I would say is one of the biggest differentiators that we have created created at the company. So yes, we've got great school relationships, Yes, we have a great brand that's synonymous with the industry yes.

Speaker Change: Yes, we've made all the right <unk> and other investments over the last three to four years, but I think it really is that.

Speaker Change: That content led strategy and engagement model.

Speaker Change: We think is really differentiated and exciting going forward.

Unknown Executive: Moore.

Unknown Executive: Great, that's helpful.

Speaker Change: Great. That's helpful. And then just like thinking into 2025 and the prospect for further fed rate cuts.

Unknown Executive: And then just like thinking into 2025 and the prospect for further Fed rate cuts, how are you thinking about consolidation activity and is there like a certain level and the interest rate where you think there could be more inflection on that rate going forward? Yeah, certainly it's our expectation that you know has the great environment moves down that that will create an opportunity for consolidation to pick up. You know, our belief is that we won't go back to the peak levels that we saw, you know, a few years ago when rates were ultra low. And it totally, you know, I've heard that folks are saying 100 points or more of rate decline would really be needed for meaningful uptake in their consolidation space, and so I think that's probably a good proxy for when we start to see, you know, some of that activity started to go.

Speaker Change: How are you thinking about consolidation activity and is there like a certain level and interest rate, where you think there could be more of an inflection on that that rate going forward.

Speaker Change: Yes, certainly it's our expectation that it will have sort of the environment moves down that will create.

Speaker Change: An opportunity for consolidation.

Speaker Change: To pick up.

Speaker Change: Our belief is that we won't go back to the peak.

Speaker Change: <unk> that we saw.

Speaker Change: A few years ago.

Speaker Change: Rates for ultra loan.

Speaker Change: Anecdotally.

Speaker Change: For that.

Speaker Change: Folks are saying 100 basis points or more.

Speaker Change: If rate decline.

Speaker Change: The need for.

Speaker Change: For meaningful uptick in their consolidations business. So I think that's probably a good proxy for where we're starting to see.

Speaker Change: But we are not actively sought.

Unknown Executive: Thank you, I appreciate it.

Speaker Change: Thank you I appreciate it.

Rick Shane: Thank you.

Speaker Change: Thank you and we will take our next question from Rick Shane with J P. Morgan. Please go ahead.

Rick Shane: And we will take our next question from Rick Shane with JP Morgan. Please go ahead. Okay, guys, thanks for taking my questions this afternoon. Look, I just want to delve in a little bit deeper on the issue that Sanjay raised related to the optics of stronger growth in terms of earnings, the fact that you've reiterated guidance. There was a comment that you could consider a small fail on the fourth quarter. When we think about that fail, should it would it be roughly the size of sort of the variance of your volume versus higher expectations because that would set you back in terms of your loan, your asset growth objectives, etc.

Rick Shane: Hey, guys. Thanks for taking my questions. This afternoon.

Rick Shane: Just wanted to delve in a little bit deeper on the issue that Sanjay raised relate.

Rick Shane: Related to the optics of stronger growth in terms of earnings the fact that you've reiterated guidance.

Rick Shane: There was a comment that you could consider a small sale in the fourth quarter, when we think about that sale.

Rick Shane: Would it be roughly the size of sort of the variance of the your volume versus prior expectations because that would set you back in terms of your loan your asset growth objective, etc is that a good way to start thinking about it.

Rick Shane: Is that a good way to start thinking about it? Yeah, I guess when I was just kind of rephrasing what I said previously. You know we had given guidance around a two to three percent balance sheet growth for this year. With the higher originations, we're probably trending to the high end of that, maybe a little bit over. And to the extent that the performance doesn't develop the way we anticipate it, well, in the fourth quarter. That's an avenue we got to meet our commitments in terms of earnings for sheer guidance for the year. And so in my forecast right now, do I think we're going to do another loan sale.

Speaker Change: Yes, I guess, what I was.

Speaker Change: Just kind of rephrasing, what I said previously.

Speaker Change: We had given guidance around.

Speaker Change: 2% to 3% balance sheet growth.

Speaker Change: For this year.

With the higher originations, we're probably trending to the high end of that maybe a little bit over.

Speaker Change: And.

Speaker Change: To the extent the.

Speaker Change:

Speaker Change: The performance doesn't develop the way we anticipate it will in the fourth quarter. That's an avenue, we have to meet our commitments in terms of earnings per share guidance for the year.

Speaker Change: And so.

Speaker Change: In my forecast right now what do I think we're going to do another loan sale I think thats, a possibility, but not our first priority.

Jon Witter: I think that's a possibility, but not our first priority. Got it. And again look, we understand that stronger volume is the virtuous thing that has the distorts earnings in the short term in a way that you have to think about. But I want to be clear that obviously gaining market share and building the business is... is clearly constructive, but it is interesting. I guess in that context, keeping guidance where it is and not finding the possibility that there could be an optical distortion related to strong growth. It doesn't sound like you guys will go there.

Speaker Change: Got it and again look I, we understand that stronger volume.

Speaker Change: In a virtuous thing that has the.

Speaker Change: The store to earnings in the short term in a way that.

Speaker Change: You have to think about but.

Speaker Change: We want to be clear that obviously, gaining market share and building the business.

It is.

Speaker Change: Clearly constructive.

Speaker Change: But it is interesting I guess.

Speaker Change: In that context.

Keeping guidance, where it is and not framing the possibility that there could be an <unk>.

Optical distortion related to strong growth.

Speaker Change: It doesn't sound like you guys will go there.

Jon Witter: Yeah, Greg, it's Jon. You know, look, I think we're talking about hypotheticals here, which is always a little bit difficult. You know, I think we were pretty clear on the investor forum last year that we like balance sheet growth, but we like, you know, sort of predictable, stable balance sheet growth. But with that being said, all other things being equal, we'd rather have a little more balance sheet growth than not. And so I think if we thought that, you know, we had a really attractive level of balance sheet growth and it involved us, you know, disappointing on earnings, I think we would be open to having that discussion with you all and our investors and so forth.

John: Yes, Rick its John.

Speaker Change: Look I think we're talking about hypotheticals here, which is always a little bit difficult.

Speaker Change: I think.

Speaker Change: We were pretty clear in the Investor Forum last year that we like balance sheet growth, but wed like.

Speaker Change: Sort of predictable stable balance sheet growth.

Speaker Change: But with that being said all other things being equal, we'd rather have a little more balance sheet growth than not.

Speaker Change: And so I think as we thought.

Speaker Change: That.

Speaker Change: We had a really attractive level of balance sheet growth and get involved us.

Speaker Change: Disappointing on earnings I think we would be open to having that discussion with you all and our investors and so forth. That's just not where we are today I think SP is that it really clearly.

Jon Witter: That's just not where we are today. I think, as Pete has said really clearly, you know, we are reaffirming our guidance because we continue to believe that we're going to see nice improvement in, you know, our overall reserve rate. And I think the point that he was really making is if we do start to see growth, even above what's been expected today, you know, that this is a pressure well strategy that allows us, you know, that we can consider, but we've not decided to do that. So again, I would go back to what we talked about in the investor forum last December.

Speaker Change: We are reaffirming our guidance because we continue to believe that we're going to see nice improvement in.

Speaker Change: Our overall reserve rate.

Speaker Change: And I think the point that was really making is if we do start to see growth even about what's been expected today.

As a pressure valve strategy that allows us that we can consider but we have not decided to do that so so again I would go back to what we talked about in the Investor Lauren last December we like balance sheet growth, we agree with your point.

Jon Witter: We like balance sheet growth. We agree with your point; you know, could high quality organic growth be a really attractive thing. That's a key part of the strategy that we're trying to deliver. We just want to make sure we are being thoughtful and optimizing all the constraints, and loan sales is a potential part of it. Again, I agree with Pete; said it's not our first priority right now. And again, we think we have we have other performance in the business to point it.

Speaker Change: Good high quality organic growth is a really attractive thing that's a key part.

Speaker Change: The strategy that we're trying to delever.

Speaker Change: Just want to make sure we are being thoughtful and optimizing all the constraints and loan sales as a potential part of it again I reiterate what Pete said it is not our first priority right now.

Speaker Change: Again, we think we have we have other performance in the business to point to.

Unknown Executive: Terrific. Thank you guys very much. Thank you.

Speaker Change: Terrific. Thank you guys very much.

Speaker Change: Thank you.

Unknown Executive: And once again, if you do have a question, you may press star one on your telephone keypad at this time.

Speaker Change: Once again, if you do have a question you May press star one on your telephone keypad at this time.

Jeff Adelson: And we will take our next question from Jeff Adelson with Morgan Stanley. Please go ahead. Hey, thanks for taking my questions. Pete, I appreciate the color you've given on the modification program so far, but just wanted to make sure we understood, you know, what was the driver of this procedural refinement of the modifications? I know the queue gave some color on that, but just wondering if you could put it in your own words. And was that the entirety of the reason why your early stage buckets did increase this quarter? And I know you've also, in prior quarters, given us that excluding modifications, DQ rate, which I think was running around 50 bits lower than the total DQ rate in prior quarters.

Speaker Change: And we will take our next question from Jeff Adelson with Morgan Stanley. Please go ahead.

Jeff Adelson: Hey, Thanks for taking my questions.

Jeff Adelson: I appreciate the color you've given on the modification program, so far but just wanted to make sure we understood.

Jeff Adelson: What was the driver of this procedure will refinement of the modifications I know the Q gave some color on that but just wondering if you could put it in your own words and was that the entirety of the reason of why your early stage buckets.

Jeff Adelson: Kris this quarter.

Jeff Adelson: And I know you've also in prior quarters given us that.

Jeff Adelson: Excluding modifications DQ rate, which I think was running around 50 bps lower than the total DQ rate in prior quarters. So could you maybe just give us an update on that number as well.

Jeff Adelson: Could you maybe just give us an update? Give it on that number as well.

Pete Graham: Yeah, so the procedural change that I refer to really involves when we consider a loan mod to be effective. David. So you'll recall that when we first rolled out the programs, we talked about the fact that we required borrowers to make three qualifying payments before they were considered to be an effective loan modification. In retrospect, that created operational complexity, and it also created confusion with the borrowers. So we decided to change that process in the quarter. Now, once a borrower goes through the Q&A process and evaluation of their ability to pay and is offered a loan mod and accepts that, they're considered to be in a loan mod.

Speaker Change: Yes, so the procedural change to that.

Jeff Adelson: Two really involves.

Jeff Adelson: When we consider alone to be effective.

Jeff Adelson: So youll recall.

Jeff Adelson: When we first rolled out the programs we've talked about the fact.

Jeff Adelson: We required borrowers to make three qualifying payments before they ever considered to be an effective loan modification.

Jeff Adelson: Retrospect that create operational complexity and it also created confusion with the borrowers so we decided to.

Jeff Adelson: Change that process in the quarter.

Now once a borrower goes through.

Jeff Adelson: The Q&A process and evaluation of their ability to pay.

Jeff Adelson: <unk> offered a lone mountain and except that they are considered to be an alumni.

Pete Graham: They still have to make the three qualifying payments in order to be eligible to reage in the current status. But that's what essentially caused the jump in loan modifications in the quarter, was kind of a pull forward of folks that would have been otherwise in those qualifying periods. And it didn't really have any impact on the metrics by delinquency status because those borrowers were already in the buckets that they were in. It's just more the reported amount of loan modifications in the quarter.

Jeff Adelson: They still have to make the free qualifying payments.

Jeff Adelson: The order to be eligible too to reagents to current status.

Jeff Adelson: But that's essentially caused the jump in loan modifications in the quarter was kind of a pull forward of.

Jeff Adelson: Folks that would've been otherwise and those qualifying periods.

Jeff Adelson: And it didn't really have any impact on.

Jeff Adelson: The metrics by delinquency status, because those borrowers were already in the buckets that they were in.

Jeff Adelson: It's just more of the.

Jeff Adelson: Ported amount of loan modifications in the quarter.

Pete Graham: Okay, so was there anything else that maybe was driving the early stage this quarter? No, nothing else has been normal season. Okay, and are you guys still thinking about a reasonable target of the high one to low 2%? And just given that your charge-offs have come in at the low end and even slightly outperformed the low end this quarter, as we're thinking into next year, is there a chance that you could see something below 2%? At this juncture, we're still, you know, thinking that that's the right long-term level for us to be at. You know, again, we'll have some variability in that quarter.

Speaker Change: Okay. So there was was there anything else that maybe what's driving the early stage this quarter.

Speaker Change: Nothing other than normal seasonality.

Speaker Change: Okay.

Speaker Change: Are you guys still thinking about a reasonable target.

Speaker Change: Hi, one to low 2% and just given that your charge offs have come.

Speaker Change: Come in at the low end and even slightly outperformed the low end this quarter.

Speaker Change: As we're thinking into next year is there a chance that you could see something below 2%.

Speaker Change: At this juncture we're still.

Speaker Change: And if that's the right long term level for us to be.

Speaker Change: We will have some variability in that quarter to quarter, we're certainly pleased that.

Pete Graham: We're certainly pleased that, you know, we've gotten there faster, if you will, this year than what we had anticipated. But for now, we're not ready to change our overall guidance with proposal and contract. Thank you.

Speaker Change: <unk>.

Speaker Change: <unk> gotten there faster if you will this year than what we had anticipated.

Speaker Change: For for now.

Speaker Change: We're not ready to change our overall guidance with regard to occur.

Thank you.

Speaker Change: Thank you and we will take our next question from Jon <unk> with RBC capital markets. Please go ahead.

John Arstrum: And we will take our next question from John Arstrum with RBC Capital Markets. Please go ahead. All right, thanks. Good afternoon.

Speaker Change: Thanks, Good afternoon.

Yeah.

Speaker Change: Okay.

John Arstrum: Pete, I think you're on the early stage. Don't you just say, look at year-over-year, don't look at sequential. That's the right way to look at it. Correct. Yeah, John, just to go a little bit deeper on that, you know, we know that, you know, our customers come into repayment and, you know, to primary sort of waves throughout the course of the year based on when they graduated. We know that you know the most likely time for folks to have especially minor financial distress is when they're first coming into repayment. And so you do see these kinds of seasonalities because our business is not one where we have sort of consistent, you know, entry into P and I each of the 12 months; it is lumping.

Speaker Change: Pete I think you've I think you are on the early stage delinquencies Youre, just saying look at year over year don't look at sequential that's the right way to look at it.

Speaker Change: That's correct.

Speaker Change: Yes.

Yes.

Just to go a bit deeper than that.

Speaker Change: We know that.

Speaker Change: Our customers come into repayment and.

Speaker Change: Two primary sort of waves throughout the course of the year based on when they graduated.

Speaker Change: No.

Speaker Change: The most likely time for folks to have especially minor financial distress is when they're first coming into repayment and so you do see these kinds of seasonality is because our business is not one where we have sort of consistent.

Speaker Change: Entry into P&I each of the 12 months it is lumpy.

John Arstrum: And so, you know, I do think the year-over-year metrics are the right metrics to look at. Yeah, okay.

Speaker Change: So I do think the year over year metrics are the right metrics to look at.

Speaker Change: Okay.

Pete Graham: And you're signaling that things are potentially getting a little bit better, comfortable enough to tell us that you think reserves could trend down. Can you give us any clues to what you're thinking in terms of what's possible there, kind of the pace and timing of some of that reserve for some of the clients. I would point to the year-over-year improvement, you know, as we sort of highlighted in the, you know, in the investor presentation. You can look at the quarter-over-quarter, you know, trend sequentially, second quarter to quarter, you know, I'm not going to pinpoint in that number, but I think that we believe that that trend will continue because we will have the seasoning, you know, continued seasoning of, you know, the modification programs and the impact on the charge of that doesn't translate linear, we into the seasonal reserving process, but it does ultimately catch up and get baked into the reserves.

And youre signaling the things there.

Speaker Change: Potentially getting a little bit better.

Speaker Change: Comfortable enough to tell us that you think reserves could trend down.

Speaker Change: Can you give us any clues to what youre thinking in terms of whats possible there kind of a pace.

Speaker Change: Some of them.

Speaker Change: For some of these declines.

Speaker Change: Both points of year over year improvement.

Speaker Change: As we sort of highlighted in the investor.

Speaker Change: Rest of the presentation.

Speaker Change: Look at the quarter over quarter trend sequentially second quarter to third quarter.

Speaker Change: I'm not going to pinpoint a number but I think that.

Speaker Change: We believe that that trend will continue because we will have the seasoning.

Speaker Change: Continued seasoning.

Speaker Change: The modification programs and the impact on that.

Charge offs.

Speaker Change: That doesn't translate linear.

Speaker Change: Two the seasonal reserving process, but it does ultimately catch up and get baked into the reserves.

Pete Graham: That coupled with, you know, we changed our underwriting criteria last year to tighten our sort of credit box. The originations we've been putting on for the last year are of a higher quality than the back book. And that also has those those seasons. And then we'll factor into the overall reserve.

That coupled with.

Speaker Change: We changed our underwriting criteria of last year and to tighten our.

Speaker Change: Credit box the originations we've been putting on for the last year are of a higher quality than the back book and that.

Speaker Change: Also as those loans season.

Speaker Change: We'll factor into the overall reserve.

Speaker Change: Okay.

Pete Graham: Fair enough, and then just one more if I could. It's probably in here, but I couldn't quite figure it out. Can you give us deposit rates on kind of your new money that you're bringing in and how that compares to your average, how big that gap is. I, you know, that's kind of a little bit different, difficult one to to generalize because, you know, we do have difference between sort of demand deposits and the term, term money. What I would say is, you know, those rates in the overall market it moved, you know, depending on the ten or anywhere from 25 to 50 points in the last quarter.

Speaker Change: Fair enough and then just one more if I could.

Speaker Change: It's probably in here, but I couldn't quite figure it out, but can you give us deposit rates.

Speaker Change: Kind of your new money that you are bringing them in house.

That compares to your average how big that gap is.

Speaker Change:

Speaker Change: That's kind of a.

Speaker Change: A little bit different difficult to generalize because we do have differences between sort of demand deposits in the near term.

Speaker Change: Term money, what I would say as you know.

Speaker Change: Are those rates.

Speaker Change: And the overall market is moved.

Speaker Change: Depending on the tenor anywhere from 25 to 50 basis points in the last.

Speaker Change: Kind of a quarter or so we tend to sort of price in the middle of.

Pete Graham: So we tend to sort of price in the middle of, you know, sort of the middle of the pack in terms of great based deposit gatherers. And so, you know, we've benefited from that in terms of repricing of things in the month in the quarter. And we expect that that trend will continue as, you know, the February cut cycle continues, the deposit rates will tend to, you know, tend to move pretty quickly.

Speaker Change: Sort of the middle of the pack in terms of rate based deposit gatherers and so.

Speaker Change: We've benefited from that in terms of repricing of things in the.

Speaker Change: In the month in the quarter and we expect that that trend will continue as you know.

Speaker Change: As to the.

Speaker Change: This upgrade cycle continues the deposit rates will attend to them.

Speaker Change: Tend to move pretty quickly.

Unknown Executive: All right, thank you very much.

Speaker Change: Alright, Thank you very much.

John Hatched: Thank you. And, as a reminder, if you do have a question, you may press star one on your telephone keypad at this time, and we will take our next question from John Hatched with Jeffries. Please go ahead. Afternoon, actually, most of my questions have been asked and answered. You know, I guess maybe a follow-on to the last question, you know, maybe talk about the deposit markets and pricing, but maybe how do you guys stack in that regard?

Speaker Change: Thank you and as a reminder, if you do have a question you May press star one on your telephone keypad at this time and we will take our next question from John <unk> with Jefferies. Please go ahead.

Speaker Change: Afternoon.

Actually most of my questions have been asked and answered I guess, maybe a follow on to the last question.

Speaker Change: Maybe talk about you talked about the deposit markets in pricing, but maybe how do you guys stack in that regard like meaning like what's the maturity profile of some of the.

John Hatched: Like, meaning like, what's the maturity profile of some of the broker deposits and stuff like that so that you can move when the markets are moving? Yeah, sure.

Speaker Change: Broker deposits and stuff like that so that you can do when the markets are moving.

Yes sure.

Pete Graham: I got an early question on sort of mint pressure that I touched on that a little bit. Again, we term out our deposits in order to manage the sort of duration gap between the longer data assets that we originate in our funding profile. We do have some remaining primarily brokerage term deposits that we put on three and five years ago that will come up for repricing over the next six to nine months. Those will obviously repriciate at a higher rate, but at the same time we've got in that same mix of our total deposit book things that we put on a year ago that will repriciate at a lower rate.

Speaker Change: I got it but early question on sort of NIM pressure that I touched on that a little bit.

Speaker Change: Again, we terminal or deposits.

Speaker Change: In order to manage the sort of duration gap between the longer dated assets that we originate in our funding profile.

Speaker Change: ROFO.

Speaker Change: We do have.

Speaker Change: Some remaining.

Primarily brokers the term deposits that we put on three and five years ago that will come up for which.

Speaker Change: Re pricing.

Speaker Change: Over the next six to nine months and.

Speaker Change: Those will obviously repriced at a higher rate, but at the same point we've got.

Speaker Change: In that same mix of our total deposit book.

Speaker Change: Things that we put on a year ago that will reprice at a lower rate. So again I think we will have some NIM compression as we move to and through the first half of next year.

Pete Graham: Again, I think we'll have some name compression as we move to the first half of next year, but I believe we'll start to normalize after that and you know, feel you know, pretty comfortable with the longer term commitment we say, uh, uh, men target of low to five percent reach.

Speaker Change: I believe we will start to normalize after that and.

Speaker Change: No.

Speaker Change: Feel pretty comfortable with the longer term commitment.

Speaker Change: Hum.

Speaker Change: NIM target.

Speaker Change: The mid 5% range.

Jon Witter: And then I apologize if you addressed this, but you guys have to be clearly beat up in your rigid nations in the order you're raising the guidance for the year. Are you able to attribute any, like how much market share you're getting from discoverers' exit in that increase in guidance versus just sort of overall market advancements? Yeah, John, it's probably a little premature. We'll start to get some of the market studies here in the next month or two, but you know, as a quick reminder, you know, I think the competitor you referenced last year Q3 had a market share, you know, probably in the range of between 14 and 15 percent. You know, we're a little bit north of a 50 percent market share player.

Speaker Change: And then I apologize if you addressed this but.

Speaker Change: You guys you clearly beat on the originations in the quarter, you're raising the guidance for the year are you able to attribute any like how much market share you're getting from discoveries exit in that increase in guidance versus just sort of overall market advancements.

Speaker Change: Yeah, John it's it's probably a little premature we'll start to get some of the market studies here in the next month or two but.

Speaker Change: As a quick reminder.

Speaker Change: I think the competitor that you referenced.

Speaker Change: Last year Q3 had a market share probably in the range of between 14 and 15%.

Speaker Change: We're a little bit north of 50% market share player.

Jon Witter: You know, so if you started to think about normal expected, you know, volume growth, originations growth, you know, in sort of the mid single digits and you start to think about getting, you know, 50, 55 percent of, you know, 14 to 15 percent share. I volumetric way that seems pretty consistent with the 13 percent volume growth that we saw this quarter. Maybe even a little bit sort of, you know, 13 percent might even be a little bit better.

Speaker Change: You start to think about normal expected.

Speaker Change: Volume growth originations growth.

And then sort of the mid single digits and you start to think about getting.

Speaker Change: 50% to 55% of 14% to 15% share eyeball and accurate way that seems pretty consistent with the 13% volume growth that we saw this quarter, maybe even a little bit sort of.

Speaker Change: 13% might even be a little bit better. So again, we don't know yet we will get the full studies and the full data, but there's nothing in what I'll call simple math that leaves us to believe that we did not fare well during this peak season and of course, we'll report out on any trends as we learn them around share.

Jon Witter: So again, we don't know yet; we'll get the full studies and the full data, but there's nothing in what I'll call simple math that leads us to believe that we did not fare well during this peak season. And of course, we'll report out on any trends, you know, as we learn them around share.

John Hatched: Okay, great. Thank you very much.

Speaker Change: Okay, great. Thank you very much.

Unknown Executive: Thank you.

Speaker Change: Thank you.

Jon Witter: This concludes the Q&A portion of today's call.

Speaker Change: This concludes the Q&A portion of today's call I would now like to turn the floor over to Mr. John <unk> for closing remarks.

Jon Witter: I would now like to turn the floor over to Mr. John Letter for closing remarks. Thank you, Madison. I appreciate your time and your health today, and thank you everyone for dialing in. We continue to really appreciate your interest in Sally May, and I hope you are as excited about the successful peak season as we are. And we look forward to talking to you in about three months and talking about that close to the year and guidance for 2025.

John: Thank you Madison I appreciate your time and your help today and thank you everyone for dialing in we continued it really appreciate your interest in Sallie Mae and hope you are as excited about the successful peak season as we are.

Speaker Change: We look forward to talking to you in about three months and talking about that close to the year and guidance for 2025 with that Melissa I'll turn it back over to you for some closing business.

Unknown Executive: With that, I'll turn it back over to you for some closing visits. Thank you for your time and questions today.

Melissa Madison: Thank you for your timing questions today, a replay of this call and the presentation will be available on the investors page at Sallie Mae Dot com.

Unknown Executive: A replay of this call and the presentation will be available on the Investors page at Salimay.com. If you have any further questions, feel free to contact me directly.

Melissa Madison: If you have any further questions feel free to contact me directly this concludes today's call.

Unknown Executive: This concludes today's call. Thank you.

Speaker Change: Thank you. This concludes today's Sallie Mae third quarter 2024 earnings conference call and webcast. Please disconnect. Your line at this time and have a wonderful evening.

Unknown Executive: This concludes today's Salimay 3rd quarter 2024 earnings conference call and cast.

Unknown Executive: Please disconnect your line at this time and have a wonderful evening. Thank you.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Uh huh.

Speaker Change: Uh huh.