Q4 2024 SLM Corp Earnings Call
Positioned to deliver on the strategy and investment thesis that we outlined a little over a year ago.
Let's begin with the discussion of 2024 results.
Private education loan originations for the fourth quarter of 24 were $982 million and our new unfunded commitments were $817 million.
For the fourth quarter, our originated loan volume increased 17%.
Speaker Change: <unk> to the prior year quarter.
Speaker Change: For the full year, we originated $7 billion of private education loans.
Speaker Change: 10% over 2023.
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Speaker Change: It was higher than the prior year.
Speaker Change: Our net interest margin for the quarter was $4 92%.
Speaker Change: Lower than both the previous and year ago quarters, our net interest margin for the full year was $5 one 9%.
Speaker Change: As mentioned in prior quarters, we expect it to continue to see NIM compression in the short term due to our funding rates catching up to our asset yields and this is what drove the majority of the decrease in NIM, both on a quarter and full year basis.
Speaker Change: We continue to believe that over the longer term a range of low to mid 5% is the appropriate target.
Speaker Change: Our total provision for credit losses was $108 million in the fourth quarter of 2024.
Speaker Change: Down from $271 million in the third quarter.
Speaker Change: While we did see unexpected decrease to the provision from the third quarter.
Speaker Change: Our fourth quarter originations and commitment volumes came in ahead of our own estimates, which coupled with an increase in funded disbursements in the quarter required a higher total allowance.
Speaker Change: The total allowance for credit losses, as a percentage of the ending exposure.
Speaker Change: Which includes total loan balance plus unfunded loan commitments and accrued interest receivable on private education loans was $5 eight 3% at the end of 2024.
Speaker Change: From $5 eight 4% in the previous quarter and down from $5 eight 9% at the end of 2023.
Speaker Change: We believe we will continue to see incremental improvements in our reserve rate over the coming quarters as we realize the benefits from our loan modification programs.
Speaker Change: Improvements in the credit quality of originations.
Speaker Change: Net charge offs for our private education loan portfolio in the fourth quarter of 2024.
Speaker Change: We're 238% of average loans in repayment compared to 2.43% in the year ago quarter.
Speaker Change: Full year 2024, net charge offs for private education loans were $332 million or two 2% of average loans in repayment.
Speaker Change: Compared to $374 million or two 4% in 2023.
Speaker Change: Private education loans delinquent 30 days or more were three 7% of loans in repayment.
Speaker Change: As of December 31, 2024, and.
Speaker Change: An increase from three 6% at the end of the third quarter.
Speaker Change: But a decrease from three 9% at the end of 2023.
Speaker Change: We believe this slight uptick in delinquencies from the third quarter is primarily driven by seasonality.
Speaker Change: As well as marginally impacted by continued refinements to the eligibility of loan modification.
Speaker Change: We remain pleased with the performance, we're seeing from our enhanced loss mitigation programs as.
Speaker Change: As we have been able to observe that performance now over the course of a full year.
Speaker Change: As of the end of the year and over the past 12 months, we've observed that 80 plus percent of borrowers and loan modification programs are completing their first repayment successfully.
Speaker Change: And 70% of borrowers have completed their first six payments.
Speaker Change: This positive performance is an important step towards achieving our long term net charge off targets.
Speaker Change: Fourth quarter, noninterest expenses were $150 million compared to $172 million in the prior quarter.
Speaker Change: And $202 million a year ago.
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Speaker Change: We expect to continue to grow originations and our balance sheet and 2025 and beyond.
Speaker Change: Let me touch briefly on the potential for plus reform under the new presidential administration.
Speaker Change: There has been a lot of speculation around what might happen. There has been no specific proposals offered.
Speaker Change: Without a more specific picture of what might be prepays, we cannot make any predictions or estimates.
Speaker Change: As such no assumptions about changes to Plas are included in our 2025 guidance.
Speaker Change: We are of course engaged in operational and financial contingency planning in the event that there are changes to the plus program and standby to assist customers in achieving their dream of access to and completion of higher education.
Speaker Change: At the end of 2023, we introduced an evolved investment thesis is built on four principles.
Speaker Change: Hung and predictable balance sheet growth.
Speaker Change: <unk> EPS performance and return on common equity meaningful capital return and all with manageable risk.
Speaker Change: As we look back on 2024, we are pleased to have executed on the first year of this strategy.
Speaker Change: Largely in line with or exceeding our expectations.
Speaker Change: We believe that meaningful origination expansion, coupled with loan sales to moderate growth and a steadfast focus on expense management will allow for both organic earnings growth and generous capital return to shareholders in 2025.
Speaker Change: It's in this context I'd like to provide our guidance for 2025, specifically, we expect full year private education loan origination growth of 6% to 8%.
Speaker Change: We also expect total loan portfolio net charge offs will be between two <unk> and two 2% of average loans in repayment.
Speaker Change: Also we expect our noninterest expenses for a full year of 2025 to be between 655 and $675 million and finally GAAP diluted earnings per common share between $3 and $3 10 sets.
Speaker Change: With that Pete why don't we go ahead and open up the call for some questions. Thank you.
Speaker Change: The floor is now open for questions. At this time, if you have a question or comment Please press star and one on your telephone keypad. If at any point. Your question has been answered you may remove yourself from the queue by pressing star into.
Speaker Change: Again, we ask that you pick up your handset when posing your question to provide optimal sound quality.
Terry MA: Our first question is coming from Terry MA with Barclays.
Terry MA: Please go ahead your line is open.
Speaker Change: Hey, Thank you good evening <unk>, maybe a question for Pete first can you maybe just talk about what NIM is contemplated in your EPS guide for the year, maybe just talk about whether the funding pressures have largely played out already or it's from them go lower over the next few quarters and then maybe just what's the timing of getting back to the low to mid fives.
Speaker Change: Yeah, I would say the low to mid five is what we would.
Speaker Change: 0.2 in terms of our expectation going forward here.
Speaker Change: I talked on prior calls about the fact that we had some of the longer term funding that we've put on at much lower rates.
Speaker Change: Maturing in the latter part of this year and into the first part of 2025.
Speaker Change: And once we get beyond that I think we'll start to see that pressure abate I think the other thing that impacted them in the quarter is really the build that we do around liquidity for the mini peak and so I think there is there is opportunity for us to look at that as we go through this year as well.
Speaker Change: Got it and then maybe just on the topic of plus reform.
Speaker Change: Can you maybe just talk about your appetite to take on additional volume if it were to shift from plus overdue private market and maybe just comment.
Speaker Change: On the underwriting ability of the plus program as it pertains to your credit box I seem to recall back in 2017, I think it was Steve that put out the range of 50% to 70% underwrite a boat from plus like is that still kind of a good number to go off of.
Speaker Change: Yes, Terry I don't recognize that number I recall that number and I don't think we've put out any specific guidance.
Speaker Change: On what the range would be I.
Speaker Change: I think a couple of thoughts one.
Speaker Change: If you take a step back you know part of why we believe <unk> reform is appropriate.
Speaker Change: Is that it is effectively an unlimited and an underwritten loan and I think in our mind that causes you know sort of several broader societal issues.
Speaker Change: One there's a number of customers who simply borrow beyond their means even assuming that they get a good college degree as a part of the bargain.
Speaker Change: And to that unlimited.
Speaker Change: The amount of our resources.
Speaker Change: I think a number of studies have shown are a meaningful driver to the kind of higher education.
Speaker Change: <unk> inflation that we've seen so you get higher borrowing and you show it and you get more more inflation than you should and so we are supportive of a broader plas and thoughtful plans for reform.
Speaker Change: The context of what we hope to be a you know a broader rethink of the role of the federal government in finding a higher education Chi to your specific question, you know and I think in that context.
Speaker Change: Not all of the loans and I would actually you venture to guess a majority of the ones would not fit our credit box for the exact reasons that I just described and I think we would look for and I think hope for either other sources of funding may be expanded grants to be available to those.
Speaker Change: Students and or look for them to make a different set of choices about what higher education options to pursue.
Terry MA: We do expect that there will be a meaningful you know sort of opportunity for some of those loans to shift into a private student loans, we have not put out specific estimates on that and a lot of it depends Terry on.
Speaker Change: Exactly where they set a sort of you know.
Speaker Change: Thresholds should there be reform and the other moves and changes that they make in the policy. So we have put together internal scenarios, which inform our sort.
Speaker Change: Sort of operational planning, but we have not put forth anything externally in terms of the exact volume because we just don't know until you know until we see a specific proposal to respond to but again I think we believe it is.
Speaker Change: It has the potential of being meaningful but I think the numbers that you were talking about would probably be north of what I would expect.
Speaker Change: Okay got it that's helpful. Thank you.
Speaker Change: Well take our next question from Mark Devries with Deutsche Bank. Please go ahead. Your line is open.
Mark Devries: Thank you I had a question about the 6% to 8% origination growth guide for the year I was assuming the first half of 'twenty 25 should be close to the 13% rate realized in three Hughes you reap the benefits of Discovery's exit, which I would expect to carry into the spring disbursement season, but if that's right.
Mark Devries: Your full year guidance implies very low second half 'twenty five growth, that's well below the prior run rate closer to 5% to 6%. So could you just help me connect the dots on kind of the full year expectation.
Speaker Change: Yeah, you know Martin it's hard for me to comment without seeing it on on your math I think the way that I think about it and I think we talked about this when you know.
Speaker Change: When the news came out about the changes instead of the competitive set I think what we said is people should expect there to be sort of two medium size here is in terms of growth and not on you know sort of large year.
Speaker Change: And so what we saw in 2004 was you know a spring that looked pretty typical.
Speaker Change: Followed by an outsized fall and I think if you look at our sort of quarterly numbers versus our annual numbers you sort of see that you know.
Speaker Change: With 10% being the total.
Speaker Change: And I think if you look at the second at 2025, what you should expect is.
Speaker Change: A sort of larger spring, but a pretty a pretty typical fall because you know we're now comping back over sort of the ultra high growth of this last fall.
Speaker Change: We know that you know spring typically as you know there's a little bit.
Speaker Change: Smaller you know.
Speaker Change: Opportunity then it's fall that's why we call it peak and mini peak.
Speaker Change: So I think if you think about a 10% growth in our in 2024.
Speaker Change: 7% at the midpoint doesn't seem like to me a meaningful discounts sort of off of that logic, if that if that makes sense yeah.
Speaker Change: Got it.
Speaker Change: And then just a question on on buybacks it looks like the full year of buybacks for 'twenty four we're about $100 million below the plan laid out at the Investor Forum in 2023 I'm just wondering what you know if I've got those numbers right, if I'm kind of what changed the priorities.
Speaker Change: Yeah, I think there's there's a couple of things in the capital allocation framework Glenn as you know the first sort of use if you will of capital as growth of the balance sheet. We grew the balance sheet a little bit.
Speaker Change: More than what we had in that in that framework and so that took some capital I think the other thing, which we talked about on prior calls as well.
Speaker Change: We attempted to put plans in place that would.
You know tend to buy a little bit more stock on average when the price.
Speaker Change: On the day it was trailing below.
Speaker Change: You know the training.
Speaker Change: Priceline and a little bit less on days when it was trending above.
Speaker Change: And.
Speaker Change: The latter part of the year that trend line was moving up into the right pretty dramatically and as a result, our plans you know blue.
Speaker Change: But less than.
Speaker Change: And the target amount, but we feel like.
Speaker Change: That was appropriate and we like the result in terms of in terms of where we landed.
Speaker Change: Got it makes sense thanks for the comments.
Mark Devries: Thanks Mark.
Speaker Change: And we'll take our next question from Michael Kaye with Wells Fargo. Please go ahead. Your line is open.
Speaker Change: I think you touched on this in the opening comments, we're just wanted to Gulfport again, I didn't quite get it I know last quarter, you were saying there was going to be incremental improvement in our reserve rate.
Speaker Change: And it was essentially flat quarter on quarter.
Speaker Change: Just wanted to understand what happened and I think you said you still expect it to go down by.
Speaker Change: But you're saying it last quarter and not happening can you just go over what's happening with the reserve.
Speaker Change: Yeah, I think Michael you know, we did see some improvement in the quarter. We also.
Speaker Change: Kind of much higher originations a quarter than what we were originally forecasting but that's the primary.
Speaker Change: For you know for for where the provision came out I think that the margins there is a little bit around.
Speaker Change: The mechanics of what's in the unfunded and how that moves into funding.
Speaker Change: But we looked at it more of a longer term trend in terms of year over year improvement.
Speaker Change: You know our outlook for the future and our guidance is based on having some level of continued improvement going into the future.
Speaker Change: When you're talking about the reserve rate right I'm not talking about provision.
Speaker Change: I thought it was.
Speaker Change: The allowance rate was basically flat quarter on quarter I might have been like down a basis point.
Speaker Change: Originations made it more.
Speaker Change: More flattish than you would've thought despite.
Speaker Change: Despite the fact that it seems like the origination quality is pretty strong.
Speaker Change: Yeah, Hi.
Speaker Change: Look the seasonal process as you know.
Speaker Change: Lots of different variables that go into that and.
Speaker Change: I think about it as an overall reserve rate looking at year over year trends versus quarter to quarter.
Speaker Change: We did have improvement year over year.
Speaker Change: And we expect to continue to see that improvement going into the future. So I mean, I guess, if you want to get into the mechanics of how the tables work and how the tune. Your model you can have a follow up call with the IR team.
Speaker Change: All right.
Speaker Change: One of them is basketball and the outlook for third party loan consolidations looks like it.
Speaker Change: Picked up on quarter on quarter I, just wanted to see what the outlook for that long consolidations this year, especially as rates could come down as the year progresses.
Speaker Change: Perhaps maybe there's more borrow interest and loan consolidation this year given by a less chance of student loan forgiveness or generous income driven repayment plans with Republican with a Republican administration.
Speaker Change: Michael There's a lot packed into that question you know I think we saw a very small uptick off of a very small base of consolidations in the quarter. Yeah. I think that's certainly understandable given the moves and sort of interest rates I think you know our sort of broader view continues.
Speaker Change: To be.
Speaker Change: In the roughly 15 years after the financial crisis, we saw historically.
Speaker Change: By any standards incredibly low interest rates and for US I would describe consolidations as a sort of a moderate cost of business, but not a major hindrance I am sure over time, we will see some uptick in consolidation activity I don't think we have a view that we're ever going to.
Speaker Change: I'll go back in the near term.
The kinds of ultra low rates, we saw so I think it is unlikely we will go all the way back to where we were.
Speaker Change: But again it is sort of a part of the cost of us doing business. We think it is low today, we think it is lightweight highly manageable in the medium to long term.
Speaker Change: Even with the potential for some reductions in rates going forward, which.
Speaker Change: By the way as I know you know as well as I do are less likely today than they were even.
Speaker Change: Even even a number of months ago.
Speaker Change: As to the individual behavioral economics questions of how the customers sort of way off the income driven repayment. Yeah. Many of those rules are established you know if they are and done it will take time.
Speaker Change: <unk> think if you are looking for payment relief and you have a portfolio of public and private student loans. You are best deal is still through the idea or programs that are out there I don't think that has changed.
Speaker Change: So again I'm not sure we can comment on how you know sort of individual micro behavior may change in the future, but I think we feel pretty good about our standing in.
Speaker Change: View that as something that we will always pay attention to and have strategies around but you know at this point it is not for us a major cause of concern.
Speaker Change: Okay. Thank you.
Speaker Change: We'll take our next question from Moshe Orenbuch with TD Cowen. Please go ahead. Your line is open.
Moshe Orenbuch: Great. Thanks.
Moshe Orenbuch: China, Pete I'm, hoping you could talk a little bit given the balance sheet growth has come sooner.
Moshe Orenbuch: How are you thinking about 2025, obviously starting off with an early loan sale. So you have the opportunity to sell more.
You could just kind of flush out in your thought process as to how that's going to shake out.
Moshe Orenbuch: Yes sure.
Moshe Orenbuch: Moshe Thanks for the question you know again, we werent kind of Truing back to the framework that we laid out in the forum.
Moshe Orenbuch: A year ago December.
Moshe Orenbuch:
Moshe Orenbuch: We were able to fund a little bit more balance sheet growth.
Moshe Orenbuch: This year than what we had in that original you know sort of strategy.
Moshe Orenbuch: Based on a variety of factors.
Moshe Orenbuch: Felt good about where we landed in terms of results for the year are and the ability to absorb that growth.
Moshe Orenbuch: And you know that carries forward into our outlook for 2025 and the guidance we've given their contemplates.
Moshe Orenbuch: Balance sheet growth, that's roughly in line with what we laid out before them and to the extent.
Moshe Orenbuch: We're able to we'll modestly.
Moshe Orenbuch: Modestly exceed that but I think it's a good.
Moshe Orenbuch: Its framework because we're moderating the rate of growth, we're not putting too much pressure on funding or other aspects of the balance sheet.
Moshe Orenbuch: And we're going to we're going to continue to follow that framework.
Mark Devries: Maybe just to follow up on Mark's question on originations.
Mark Devries: There is a serialization effect of the new discovery borrowers earlier, the seniors in their life cycle with <unk>.
Mark Devries: Right Joe.
Mark Devries: You shouldn't there be some extra pick up from that factor as well.
Moshe Orenbuch: Yeah, Moshe and I think we have incorporated that into our guidance and our outlook.
Speaker Change: Great. Okay. Thanks very much.
Speaker Change: We'll take our next question from Jeff Olson with Morgan Stanley. Please go ahead. Your line is open.
Jeff Olson: Hey, good evening, thanks for taking my questions.
Jeff Olson: I appreciate the color so far on how youre thinking about the grad plus opportunity.
Jeff Olson: If you do originating more of these loans going ahead, if it comes through.
Jeff Olson: Do you look to maybe execute on more sales and buyback the stock or maybe let the portfolio growing a little bit further than what you've laid out at the Investor Forum or just how are you thinking about that.
Jeff Olson: Yes, Jeff I think I think paid sort of touched on this with relation to moshe's sort of general organic growth question and I'm not sure that the answer is different.
Jeff Olson: We really like the notion of.
Jeff Olson: Modest balance sheet growth, you know that where we use loan sales as effectively the governor on our ability to do that.
Jeff Olson: And so look if we all of a sudden ended up with meaningfully more originations than we expected for any reason and let me just caveat that it's always hard to give.
Jeff Olson: But I'll do my best in this case.
Jeff Olson: I think our view would be we would expect to carry.
Jeff Olson: Most of that probably through two additional loan sales if that gave us the EPS.
Jeff Olson: And you know the sort of capital headroom and we felt like the rest of the organization the funding engine and so forth could handle it with confidence.
Jeff Olson: Confidence good might we carry a little more growth in like we did this year, yeah, we might do that but I think you should expect that to kind of moderate growth strategy that we laid out in the form is very much sort of our thought process and its not an absolute but I think it's a pretty good indicator.
Speaker Change: Thanks, and as you look at the loan yields youre, putting on the portfolio.
Speaker Change: Your your average loan yields are coming down a little bit.
Speaker Change: Talk a little bit about where you are putting on your new loans relative to where you've been holding portfolio previously and that kind of hide it can do 11% yield and is that a function of maybe some higher quality loans youre, putting on or is that more just the market and rates coming down on you.
Speaker Change: Yes.
Speaker Change: There's factors at play there but.
Speaker Change: Higher credit quality.
Speaker Change: Is that were putting on our book are priced differently.
Speaker Change: For obvious reasons on a risk adjusted return basis.
Speaker Change: Yeah, and Jeff I would just add to that I think we are.
Speaker Change: Really beholden to the ROE on our loans less so to the yield on our labs and I think we have described on past calls that pretty exact in process that we go through where we attribute marketing and cost to acquire are we attributing servicing costs.
Speaker Change: And credit cards.
Speaker Change: By individual credit no didn't really loved that.
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Speaker Change: Yeah, that'd be competence in the market or a better outlook for better execution because of those factors or is it just too early to call.
Speaker Change: I think the private credit shift is one that's been kind of in play for a couple of years now.
Speaker Change: And certainly that's at play in terms of the investors that are you know.
Speaker Change: Going into these loan transactions.
Speaker Change: Yeah, I think the market is.
Speaker Change: Very supportive.
Speaker Change: You know in the current environment, we were anticipating that.
Speaker Change: At the turn of the year and coming into the new year.
Speaker Change: The markets would be very supportive of the transaction. So we yeah, we were ready to go.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: Yeah, maybe like you've talked about interest rates and the impact on NIM and so forth I'm wondering maybe kind of over the next few quarters as things out outside of like forward curve or this and that.
Speaker Change: Maybe like CD maturities and things of that nature, how do we think about the puts and takes of those on NIM in the next two to three quarters.
Yeah, I kind of touched on this in the third quarter call.
Speaker Change: We're getting to a point where the.
Speaker Change: The.
Speaker Change: Final maturities on some things we put on three and four and five years ago are coming up for renewal.
Speaker Change: Obviously at much higher rates, but we also have one year maturities that we put on a year ago or 18 months maturities that we put on in that same time period that'll be repricing lower rates than what they are on the book. So again I think we'll be completely through that repricing as we go forward.
Speaker Change: The next couple of quarters.
Speaker Change: And our overall guidance around.
Speaker Change: You know kind of the target for us for NIM I think is about as much as we can give you in terms of forward looking guidance from them.
Speaker Change: Okay.
Speaker Change: And just a quick third if it's possible just yeah.
Speaker Change: Forget the plus program I mean, there is there are some other I think potential I don't know regulatory effects because of the incoming administration, maybe such as.
Speaker Change: A lower probability of debt forgiveness.
Speaker Change:
Speaker Change: And maybe just some generally kind of.
Speaker Change: I don't know, maybe some weakening of the framework of some type.
Speaker Change: Is there anything else for us to think about other than that.
Speaker Change: <unk> potential changes that you know, we're all aware of that may influence the business or the strategy over the course of the year.
Speaker Change: You know John I've now been in this job exactly long enough that someone asked me. The reverse question of that when the last administration came in.
Speaker Change: And I'll give you sort of the the mirror or are they the exact answer there.
Speaker Change: We have really sought to build a company that is run in the right way you know that is thoughtful and wide eyed about our regulatory obligations.
Speaker Change: And that is effectively.
Speaker Change: Doing the right things each day independent of what might be slightly different political points of emphasis.
You know and as a result, you know you sometimes go through periods, where there is a little bit more you know sort of weighed in a particular regulatory area or a little bit last way, we really try not to sort of optimize or are you sort of you know him.
Speaker Change: Respond to that I think is probably a better word and so you know there is certainly a lot of talk I've heard it I'm sure you all have a a.
Speaker Change: Our lightning regulatory regime.
Speaker Change: Maybe that could happen maybe it couldn't we were a very constructive way with all of our regulators from a safety and soundness and compliance perspective, and really try to adopt you know views and policies that can stand the test of multiple administrations. So yeah, I could be surprised but I think we kind of like that.
Speaker Change: Business, we have I think we like the relationships that we have and I think we feel like we're operating things in the right way and we will sort of continue to have that view a bit as we move forward and if we're surprised by something we'll obviously respond quickly.
Speaker Change: Okay.
Speaker Change: Create the color. Thank you.
Speaker Change: We'll take our next question from Nate <unk> with Bank of America. Please go ahead. Your line is open.
Nate: Hi, Thanks for taking my questions.
Speaker Change: Gunn for loss rates at the midpoint suggests about 10 basis points of improvement from 2024.
Speaker Change: So a little bit about your through the cycle loss rate target of 9% I was wondering if you could discuss the factors that would prevent losses from point below the low end of that guidance range or just how youre thinking about further credit improvement from here.
Speaker Change: Yeah, Nate happy to you know I think you know one we have obviously made up a lot of improvement in our loss mitigation programs over the course of the last year since we really started to put those into effect.
We believe we have you know.
Speaker Change: Additional optimization and refinement to catch up on those.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: We don't have exactly the right loss mitigation program for them and so theres a little bit more I think kind of proliferation of that to just really get the right tailored model.
And I think we know that there are places where we can continue to refine exactly who the week is and don't give access todays programs too. So I think there is still a bit of potential on on that.
Speaker Change: And I think as we have said a pretty repeatedly through this journey.
Speaker Change: We see the long term N cen perform it's really being driven by you know a.
Speaker Change: A combination of both a new loss mitigation programs, but also thoughtful underwriting and credit in a sort of credit quality enhancement changes that we've implemented over the last two or three years and you know candidly you know given the long lead time and delayed.
Speaker Change: Sort of repayment of our loan type yeah. If you take a loan that is a freshman it might be for in the case of some good five years before we see you in repayment.
Speaker Change: It takes a little while for that second set of changes to really start to flow through and work their way into loss rates.
Speaker Change: I think we have said this would be a multiyear journey, we've been really excited as Pete said with the performance of the programs. We've seen we've seen people have what we believe is the right degree of success with the programs we have seen vintage curves.
Speaker Change: Perform in the right way.
Speaker Change: We know that there is continued credit enhancement of what we're putting on our books.
Speaker Change: That will unquestionably have resolved over time and additional sort of N C. A reduction so we like where we are we like while you know where we're tracking in.
Speaker Change: We believe that there is you know a bit more powder to just spend here on this journey.
Got it that's very helpful. Thank you and then I apologize if this was already asked before but.
Speaker Change: Have you seen any changes to payment or credit behavior of your borrowers who went into you know federal loan repayment like late summer last year.
Speaker Change: You know, we we observe that every.
Speaker Change: Every quarter and Nate we can and I've said this time, if you had a cost we can only do that in precisely we know drew Bureau, and other data people have.
Speaker Change: Trade line open or a particular type of we can't know whether they're using you know an idea or a payment or whether they are using the on ramp or some of those have been more detailed pieces. So it's a little bit of a crude measure, but we think it's a good one and we can look at sort of differential loss rates for our customers with and without those trade lines.
Speaker Change: We have not seen any sort of sustained pattern that would suggest that there is divergence on those lines, we watch it every quarter.
Speaker Change: And.
Speaker Change: And you know that will be something that we will continue to just sort of pay attention to.
Speaker Change: You know I think it's important to also remind you, though that we underwrote our loans with the assumption that these borrowers would also have a certain level of federal that they always have in the payment holiday was something unique that was spun out of COVID-19.
Speaker Change: So I think we feel pretty confident in our historic underwriting.
Speaker Change: Believe we've taken the right underwriting precautions for folks to be able to manage their full debt load, but we will continue to watch it carefully.
Speaker Change: That's all from me thank you.
Speaker Change: And we'll take our next question from Rick Shane with J P. Morgan. Please go ahead. Your line is open.
Rick Shane: Hey, guys. Thanks for taking my question this afternoon.
Rick Shane: Love to talk a little bit and not going to be a huge surprise about performance on the forbearance program curious what you're seeing there when we look at the metrics in terms of loans being in.
Rick Shane: In the program the percentage has gone up.
Rick Shane: Materially higher rate than the portfolio growth.
Rick Shane: Just curious.
Rick Shane: How should we should be thinking about that and sort of any updates on performance.
Rick Shane: I think you know in terms of.
Rick Shane: The.
Rick Shane: The ratio of people in the programs I think.
Rick Shane: Key thing to remember there is you know we.
Rick Shane: You kind of roll those programs out about a year ago and.
Rick Shane: In general they have a you know a two year kind of a cycle and so we expected to see continued build.
Rick Shane: Of our participation in the programs as we came through this year.
Rick Shane: So that that really well.
Rick Shane: Didn't seem unusual to us.
Rick Shane: As we said in the prepared remarks.
Rick Shane: Got a year under our belt so to speak in terms of performance of the programs.
Rick Shane: It's pretty good about the payment rates.
Rick Shane: Uh huh.
Rick Shane: Folks that are enrolled in the programs again, we wouldn't want it to be 100%.
Rick Shane: And we feel good.
Rick Shane: The balance that we've struck as a meeting a borrower need a in a prudent way.
Rick Shane: So I think over time, our expectation is we'll.
Rick Shane: We will continue to see good play payment rates coming out of those.
Rick Shane: The expectation would also be the.
Rick Shane: The performance as they come out of.
Rick Shane: The programs have you and then start to sort of migrate back to the original contractual terms.
Rick Shane: But we'll have good success rates there as well.
Got it well and it's interesting so I am looking at the numbers I see what you're talking about in terms of the migration on a year over year basis.
Rick Shane: But it actually kind of looks like.
Rick Shane: Unless I'm misreading the numbers are pretty big uptick between the third and fourth quarters. This year is that seasonal.
Rick Shane: Or is that a function of sort.
Rick Shane: Sort of now that you're through beta testing the program, you're widening the aperture a little bit.
Rick Shane: Yeah, No that's that's primarily seasonal.
Rick Shane: Uh huh.
Rick Shane: Pattern of sort of graduation, and the you know the initial grace periods, that's built into the loans.
We tend to see.
Rick Shane: I'm in the same way that we have.
Rick Shane: Peak and mini peek around the originations we have a similar profile.
Of repayment waves.
Rick Shane: So the additional sort of factor that's impacting this year as well.
Rick Shane: The fact that we rolled out an extended grace program a year ago.
Rick Shane: Those are sort of moderately impacting.
Rick Shane: Those seasonal waves as well.
Speaker Change: Yeah, and maybe the last factor I would just offer you know.
Rick Shane: Rough justice.
Rick Shane: And this is sort of an approximation problem.
Rick Shane: Probably upwards of half of the financial distress that one of our borrowers will experience over the course of their life.
Rick Shane: What happened within the first call it roughly 12 months repayment when they either have been sort of equally spread over the life of the loan really and resolve any sort of response to.
Rick Shane: The normal types of life events.
Rick Shane: Would hit any consumer credit PE so.
Rick Shane: It's not just that we have the payment sort of instead of one.
Rick Shane: Raves that come through we also have this sort of the vintage loss curve, you, which is a bit front end loaded and so that really explains why you see that growth clearly people are gonna trying to these programs when they are in financial distress and that happens much more often win their first entry and P&I.
Speaker Change: Yeah, absolutely makes sense I mean, it strikes me that it probably takes one year to sort of get habituated to that.
Rick Shane: Totally makes sense, one last question and I am not.
Speaker Change: I'm gonna be currently find a little bit.
Rick Shane: Here are just you know.
Rick Shane: Sort of a risk of selling pass the class.
Rick Shane: He gave you a lot of good facts in his talking points in there exactly right. We obviously have the ability to look and a much more detailed way under the sort of under the curtain segment by segment.
Rick Shane: Time and program.
Rick Shane: Yes.
Rick Shane: Yes.
Rick Shane: Yes.
Rick Shane: Yes.
Rick Shane: [noise] [noise] [noise].
Rick Shane: Yeah.
Rick Shane: [noise] [noise] [noise] [noise] [noise] [noise].
Rick Shane: [noise] [noise]. So you know again, she is that because you're stuck with it.
Rick Shane: And the question around we wanted to give you a little bonus topic there but.
Speaker Change: Again, I would reiterate what Pete said I think we're very pleased with the progress of these programs.
Rick Shane: I appreciate it.
Speaker Change: Sure.
Speaker Change: [noise].
Speaker Change: Okay.
Speaker Change: Thank you Mike.
Speaker Change: Okay.
Speaker Change: Please go ahead.
Speaker Change: Thank you.
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Speaker Change: Yeah.
Speaker Change: Yes.
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Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: [noise] okay.
Speaker Change: [noise] etcetera on government guys too much for too many and not enough for those you really need it.
Speaker Change: And so what do I mean by that I mean, you know loans really being kind of a little bit of an overused and primary instrument. Yes. There is some grants, but they tend to be a little bit smaller and a little bit sort of narrowly curtailed in terms of eligibility.
Speaker Change: And so what you end up happening is you make a lot of on an underwritten and uncapped loans to a lot of people many of them, who don't need for federal loans that have either access to funding and many of whom you know can't actually afford the loans and because they're not underwritten.
Speaker Change: Can't pay them back at the end you now.
Speaker Change: And then we get into from a society perspective, they really unfortunate discussion of what do we do about folks who have a couple of hundred thousand dollars of federal loans and don't have the professionals that are prospects to make good on those loans.
Speaker Change: And you're into the kind of discussions that I think we've seen play out over the last.
Speaker Change: Roughly four years. So you know I think our position has been.
Speaker Change: The government should do more to provide access to and completion of higher education for folks who are really economically disadvantaged I think we see a college education and I wouldn't even broaden it a higher education experience because it could be a certificate program.
Speaker Change: Non traditional program has been an incredible driver of social and economic mobility. So yeah. I think it's our view that there should probably be thoughtful consideration to how are we providing the right amount of money that that was really economically disadvantaged cohorts.
Speaker Change: Don't have to pay back.
Speaker Change: I think we would you know really propose pretty actively a limit on the kind of sort.
Speaker Change: Sort of open and an underwritten loans to make sure that those do not get out of hand.
Speaker Change: And I think what that means and you know a few of you have asked about it in different ways is that theres, probably than you know a different role for the private sector going forward and.
Speaker Change: And potentially you know a different role or a different set of choices that students can make state schools versus private schools or the case. So I think that's one piece of it you know kind of an expansion of.
Speaker Change: Instead of grants where appropriate curtailing of lounge.
Speaker Change: There is other things that we would be very open to you know I think bankruptcy reform is one that gets talked about from time to time in our student loans generally are not discharge of both today in bankruptcy that really does put customers in a place where their burden for a lifetime with decisions that they may have made 15 or 20 years ago.
Speaker Change: We would favor some thoughtful bankruptcy reform, especially after some kind of a.
Speaker Change: He is an in period to make sure you didnt get into sort.
Speaker Change: Sort of misaligned.
Speaker Change: But you know I think it's our thought that bankruptcy is a well established process for both of us to clear their debts and.
Speaker Change: With the right protections in the write thoughtful process, Yeah Theres no reason in our minds Y on Y student loan should not necessarily be considered as a part of that so yeah. There is a lot of those different pieces you know I know.
Speaker Change: Theres other thoughts being put out there about you know trying to tie schools into the quality of that yeah. The degrees that all gets to me very complicated and I'm not actually sure. How is I would say administered in yet and how it's worked so I'm not going to try to comment on all of that but.
Speaker Change: If you take away nothing else I would sort of fall back to this in a too much for too many not enough for those you really need it and you know I think.
Speaker Change: If nothing else Theres, a real opportunity for us to have thoughtful discussion across both sides of the aisle on these kinds of proposals and.
Speaker Change: We certainly hope that this Congress and this administration takes that up.
Speaker Change: Got it. Thank you. Thank you so much for all of that and then just a follow up obviously.
Speaker Change: Obviously, a byproduct of all the good work you guys have done is that the stock is not pushing five year highs I'm just curious.
Speaker Change: Do you think about you've been asked about.
Speaker Change: And then she versus selling I mean has there been any.
Speaker Change: Any thought of portfolio more given like that arms is not as strong as before or do you feel like you're getting compensated on the gain on sale.
Speaker Change: No I think.
Speaker Change: We've had an established framework that we use to evaluate.
Speaker Change: Uh huh.
Speaker Change: Relationship between share price and.
Speaker Change: And loan premium and what that means in terms of implied value in different different aspects.
Speaker Change: So it continues to hold true.
Speaker Change: Again, we come back to the street.
Speaker Change: So as you we laid out at the Forum and.
Speaker Change: We think that's a good framework for balancing the risk and.
Speaker Change: In the balance sheet and are not creating undue pressure on that both from.
Speaker Change: Funding indoor or regulatory pressures as well as managing the rate of growth and the need for capital.
Speaker Change: So we feel it's a good flexible framework for us to use an insulin that we're employing and that's what our guidance is based on for this year.
Speaker Change: Thanks.
Speaker Change: Well take our next question from Giuliano Bologna with Compass point. Please go ahead. Your line is open.
David Thank you for taking my questions on trying to keep it quick because I'm sure everybody you know towards the end of the.
Speaker Change: So Nicole.
Speaker Change: Kind of going back to the plus programs for a second I realize that there was a lot of.
Speaker Change: To answer a question you don't know when the plans that are either couldn't hypothetically you propose.
Speaker Change: I think about your current suite of products that you have.
Speaker Change: Looking at the different programs you know do you have enough overlap.
Speaker Change: As it stands today with China with.
Speaker Change: With the parent plus indoor Grad plus programs and then.
Speaker Change: Add on to that.
Speaker Change: Four more programs.
Speaker Change: Explore adding more programs are new categories that could.
Speaker Change: Essentially satisfying parts of the market that you may not touch in those programs.
Speaker Change: Excuse me can you differentiate between your parent.
Speaker Change: Plus opportunity at hand, or Brian on certain community when it comes to essentially balance sheeting for selling loans.
Speaker Change: Yeah.
Speaker Change:
Speaker Change: Joanna this is there's a lot in there I'll do my best.
Speaker Change: What we know for certain is a large percentage of our customers also have federal lands.
Speaker Change: That is a relatively easy thing for us to get our head around if we were willing to make them a private loan there is a pretty wet with awareness up their federal loan obligations. There's a pretty good chance, we would be willing to make them better I think I think that's.
Speaker Change: No I think thats or to take out part of our a plus cap is really what I, what I mean to say.
Speaker Change:
Speaker Change: What I think is a little bit harder to estimate and it really comes down to the programs and the other moving pieces as who.
Are the customers that we do not serve today.
Speaker Change: That have plus loans and what is their full credit worthy ness and how would we think about that that's that that is work we have done internal scenarios on but again as I said before I don't think it's appropriate for us to be sharing that externally.
Speaker Change: As I said in my talking points, we have done a degree of sort of operational and financial readiness planning I think we believe that we have the products that we need.
Speaker Change: Or could very quickly.
Speaker Change: Yes, it's sort of a tail.
Speaker Change: And of all the products that we have to meet both the grad and the parent plus opportunity.
Speaker Change: And so you know we have gone through and done that work and again feel like that is something that we could respond to.
Speaker Change: And so I don't think there would necessarily be huge amounts of new work, whether we actually achieved that through some different programs again I think we would make that decision in the context of a specific proposal that was laid out.
Speaker Change: But I would just say a direct way I think we feel like.
Speaker Change: If there is what we hope to be thoughtful a reform and you know.
Speaker Change: And that involves capping I think we feel like we're in a good position to catch that up.
Speaker Change: My guess is from a balance sheet perspective.
Speaker Change: We would probably again think about that in the same way that we would think about.
Speaker Change: You know sort of managing the balance sheet growth.
Speaker Change: Traditional private student loans that we've originated and this would just be a you know an element of outsized volume that we would put into our balance sheet growth versus loan sale planning process.
Speaker Change: That's very helpful. I appreciate that and Oh, it sounds like future.
Speaker Change: And we'll take our next question from John Armstrong with RBC Capital markets. Please go ahead. Your line is open.
Speaker Change: Alright, Thanks, we can make these quick.
Speaker Change: Is it safe to assume for the buyback amount that you are too.
Speaker Change: Amount that you talked about it in the December 23 form.
Speaker Change: What are you telling us that we should be thinking about.
Speaker Change: Yes.
Speaker Change: Yeah, I mean, we still have.
Speaker Change: Roughly 400 million left under the both your authorization.
Speaker Change: And.
Speaker Change: Ah, we're going to continue to sort of evaluate share buyback in the context of.
Speaker Change: The plan as we laid it out this year, which is as we complete the loan sale and that generated some amount of capital.
Speaker Change: We're gonna direct into programmatic.
Speaker Change: Purchase of our stock.
Speaker Change: And look to set up plans that will.
Speaker Change: You take advantage of any sort of trends in and price that allow us to buy more of the lower average price.
Speaker Change: But you.
Speaker Change: You know the share buyback is a key part of our strategy and.
Speaker Change: Yeah.
Speaker Change: I don't have a specific number on it per se.
Speaker Change: The framework is a good reference point for it.
Speaker Change: Okay, and then John just for you.
Speaker Change: Scrolling through this back to the framework from December 23.
Speaker Change: Is there anything in that framework.
Speaker Change: Do you feel like you'd like to alter I mean, we're a year out from that.
Speaker Change: Things change and I'm, just wondering if theres anything that you think need small duration. Thank you.
Speaker Change: Yeah, a J.
Speaker Change: I mean first of all I think I would want to remind everyone. Here that was not intended to be multiyear guidance, but more of a kind of a thought process for you all to go through and thinking about our business I don't think that thought process. John has changed at all and I think we sort of hit that a couple of different ways I think it really goes back.
Speaker Change: Back to the kind of investment thesis.
Speaker Change: Points that I made before strong and predictable balance sheet growth. So we're not look into below the lights out in one year, we want to step this up we want it to be accelerating you know 5% 6%.
Speaker Change: It might be flex that a little bit on the margin as we've already said, maybe but I think that.
Speaker Change: General to trend and pattern is what one might expect from this strategy again.
Speaker Change: I can't speak to every future contingent and say yeah, a strong EPS performance and a return on common equity so.
Speaker Change: We really do see sort of this notion of.
Speaker Change: It's sort of.
Speaker Change: Good operating expense highly profitable loans.
Speaker Change: Sort of mid to upper single digit balance sheet growth is a very sort of powerful.
Speaker Change: EPS growth and ROE machine.
Speaker Change: All of the amount of capital that that generates both in terms of a growing dividend and the kind of share repurchases that Pete was just asked about.
Speaker Change: I think we've loved the capital return strategy share buyback strategy over the last five years and even as we move to balance sheet growth, we want to keep that moving forward and I think we've talked a lot about raskin, you know sort of the attractive risk profile of this franchise. So yeah I.
Speaker Change: I don't think it's any more complicated than that that's our strategy, that's our Investor Forum.
Speaker Change: The sort of analytics that we've put in there and were really meant to be.
Speaker Change: An illustration of that thought process and and I wouldn't change any of it and by the way if anything I think the last year has shown the power of it.
Speaker Change: We can drive meaningful EPS growth year in and year out we can return significant shareholder capital and I think start to capture over time, you know a more attractive growth multiple on our stock. We we like all of that I think it's a winning formula.
Speaker Change: Alright, Thank you very much.
Speaker Change: And there are no further questions on the line I'd now like to turn the floor over to Mr. Jon Witter for any closing remarks.
Well, thank you Dave and thank you everyone for joining I know, we went a little bit more than an hour, but great questions and appreciate the chance to talk about Sallie Mae.
Speaker Change: Obviously, the team is standing by to answer questions and do whatever necessary follow up and look forward to answering more detailed questions.
And seeing you all in about three months to report out on our first quarter progress with that unless I'm going to turn it back over to you for a little closing business. Thank you.
Speaker Change: Thank you for your time and questions today, a replay of this call and the presentation will be available on the investors page at Sallie Mae Dot com.
Speaker Change: If you have any further questions feel free to contact me directly.
Speaker Change: Concludes today's call.
Speaker Change: Thank you. This does conclude today's Sallie Mae fourth quarter and full year 2024 earnings conference call and webcast. Please disconnect. Your lines at this time and have a wonderful evening.
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