Q2 2019 Earnings Call

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Ray Quinn: is a good indicator of sort of our confidence in the model. If we look at the Q2 2019 PSL reserve, it is 1.42%, 142 basis points. Last year at this time, it was 140 basis points. We are on model. The idea that the losses went up in the quarter and somehow that was unexpected is not really what's going on. The 89 was low. The 129 is still within range. We are on model, not deteriorating any of our forecasts. The portfolio is still in a maturation rate. The weighted average movements have to be taken individually in viewing the model. We are happy with the way those things are going.

Thank you for calling the conferencing centre and operator will be with you momentarily.

Please be prepare to provide the conference I'd number and any additional information required by the company hosting the conference.

Thank you for your patience. Please stay on the line for the next available operator.

Thank you for your patience.

Please stay on the line for the next available operator.

[laughter].

For your patience.

Please stay on the line.

Next available operator.

[laughter].

Hi.

Your next question.

Earlier this year.

Okay.

Thank you for your patience.

Yes.

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Operator 2: Good morning. May I have your conference ID number?

Good morning, I have your conference I'd number.

Bryan Healey: Sorry, what was that?

Our hope is that.

Operator 2: May I have your conference ID number?

I have your conference I'd number.

Bryan Healey: Oh, yes. One second. It's 455-8985.

Okay.

It's four or five five.

8985.

Operator 2: The spelling of your first and last name?

The spelling of your first and last name.

Bryan Healey: B-R-Y-A-N-H-E-A-L-E-Y.

Our y and H.E.A.L.E.Y.

Operator 2: Your company name?

And your company name.

Bryan Healey: Aiera, A-I-E-R-A.

Era a I.

Hey.

Operator 2: Thank you. I'm joining you in.

Kim Johnny you. It is a good indicator of sort of our confidence in the model and if we look at the two Q1 9, PS sell reserve. It is to 1.42% 142 basis points last year at this time. It was 140 basis points and so we are on model and the idea that the losses went up in the quarter.

[Company Representative] (SLM Corp): is a good indicator of sort of our confidence in the model. If we look at the Q2 2019 PSL reserve, it is 1.42%, 142 basis points. Last year at this time, it was 140 basis points. We are on model. The idea that the losses went up in the quarter and somehow that was unexpected is not really what's going on. The 89 was low. The 129 is still within range. We are on model, not deteriorating any of our forecasts. The portfolio is still in a maturation rate. The weighted average movements have to be taken individually in viewing the model. We are happy with the way those things are going.

And somehow that was unexpected is not really what's going on the 89 was low the 129 is still within range and so we are on model not deteriorating any of our forecast and the portfolio is still in a maturation rates. So the weighted average movements have to be taken individually in viewing the model and we are happy with the way those things are going.

[Company Representative] (SLM Corp): The balance sheet overall, growing at 22%, continues to be strong and continues to reflect the fact that we are buying, reoriginating, holding, and servicing all of our loans. EPS, which was 30 points or 30.6 cents in the quarter, up from 25 cents a year ago, 22% increase. Of course, we like that. We will continue that as far into the future as we can. Our ROE at 19.8%, consistent with last year's 19.4%, shows the high quality of both our assets as we originate them, as well as the efficiency with which we service them. Revenue cost growth reflects that as well, including just a graphic point of leverage for the franchise. Revenue is up over the year before, 15.3%. Expenses are up just 4%. We have a three-and-a-half times ratio of revenue growth versus expense growth.

Ray Quinn: The balance sheet overall, growing at 22%, continues to be strong and continues to reflect the fact that we are buying, reoriginating, holding, and servicing all of our loans. EPS, which was 30 points or 30.6 cents in the quarter, up from 25 cents a year ago, 22% increase. Of course, we like that. We will continue that as far into the future as we can. Our ROE at 19.8%, consistent with last year's 19.4%, shows the high quality of both our assets as we originate them, as well as the efficiency with which we service them. Revenue cost growth reflects that as well, including just a graphic point of leverage for the franchise. Revenue is up over the year before, 15.3%. Expenses are up just 4%. We have a three-and-a-half times ratio of revenue growth versus expense growth.

The balance sheet overall growing at 22%.

Continues to be strong and continues to reflect the fact that we're buying we're originating holding and servicing all of our loans.

EPS, which was 30 point 30.6 cents in the quarter up from 25 cents a year ago, 22% increase of course, we like that and we will continue that as far into the future. As we can and are are we at 19.8% consistent with last year's 19.4% shows the high quality of both our assets as we originate them as well as the efficiency with which we service them.

Revenue cost growth reflects that as well, including just a graphic point of leverage for the for your for the franchise revenue is up over the year before 15.3% expenses are up just 4%. So we have a three and a half times ratio of expense growth versus.

Revenue growth versus expense growth.

[Company Representative] (SLM Corp): Our outlook, the originations at $5.7 billion. We're holding. As I said, we were at these early stages of our busy season. We'll know at the end of Q3 much more accurately what the expectations are for the year. Over 9% growth going into the busy season is, of course, helpful, but busy season filled with competitors. We'll see how it goes. The efficiency ratio guideline for 35% to 36% is consistent. EPS, the EPS guidance has been dropped. Let me talk about that for a minute. There's a situation with our troubled debt restructuring accounting that runs into problems when the interest rates in the environment, especially the forwards, drop. This is the first time that we've had an interest rate declination of any magnitude since the company was launched in 2014.

Ray Quinn: Our outlook, the originations at $5.7 billion. We're holding. As I said, we were at these early stages of our busy season. We'll know at the end of Q3 much more accurately what the expectations are for the year. Over 9% growth going into the busy season is, of course, helpful, but busy season filled with competitors. We'll see how it goes. The efficiency ratio guideline for 35% to 36% is consistent. EPS, the EPS guidance has been dropped. Let me talk about that for a minute. There's a situation with our troubled debt restructuring accounting that runs into problems when the interest rates in the environment, especially the forwards, drop. This is the first time that we've had an interest rate declination of any magnitude since the company was launched in 2014.

Our outlook the originations at $5.7 billion were holding as I said, we are at these early stages of our busy season, we'll know at the end of the third quarter, which more accurately what the expectations are for the year over 9% growth going into the busy season is of course helpful. But busy season still with competitors, we'll see how it goes the efficiency ratio guideline for 35 to 36 is consistent.

EPS EPS guidance has been dropped.

And so let me talk about that for a minute.

There's a situation with our total debt restructuring accounting.

That will run into problems when the interest rates in any environment, especially the forwards drop and so this is the first time that we've had a interest rate declination of any magnitude since the company was launched in 2014.

[Company Representative] (SLM Corp): When a troubled debt restructuring item, dollar, goes into our reserves, what happens is the LIBOR on the day it goes in is frozen at whatever it happens to be. We take a look at that. We look at the forecast for the cash flow associated with that item into the future at whatever the APR for the company or for that particular account happens to be. The APR is whatever it's doing, whether it's fixed or variable, but that piece of LIBOR is frozen from the day it goes into the reserve. When we have an environment where interest rates are dropping, we have a compression on the future cash flows associated with total debt restructuring within our reserves. Now, I know this is a little bit arcane, but nonetheless, it has an impact on us.

Ray Quinn: When a troubled debt restructuring item, dollar, goes into our reserves, what happens is the LIBOR on the day it goes in is frozen at whatever it happens to be. We take a look at that. We look at the forecast for the cash flow associated with that item into the future at whatever the APR for the company or for that particular account happens to be. The APR is whatever it's doing, whether it's fixed or variable, but that piece of LIBOR is frozen from the day it goes into the reserve. When we have an environment where interest rates are dropping, we have a compression on the future cash flows associated with total debt restructuring within our reserves. Now, I know this is a little bit arcane, but nonetheless, it has an impact on us.

When a total debt restructuring item dollar goes into our reserves what happens is the bligh bore on that date, both in his frozen or whatever it happens to be and then we take a look at that we look at the forecast for the cash flow associated with that item into the future at whatever the.

BPR for the company or for that particular count happens to be the areas whatever its doing whether it's fixed and variable but that piece of livewatch is frozen from the day. It goes into the reserve and so when we have an environment where interest rates are dropping we have a compression on the future cash flows associated with total debt restructuring within our reserves and I know so little bit arcane, but nonetheless has an impact on us and its new because interest rates have not been going down before.

[Company Representative] (SLM Corp): It's new because interest rates have not been going down before. We knew this forecast was going to occur. We had, in our original expectations, some thoughts about that. The forwards have dropped faster than we thought at the end of the Q1. The result of that is there is an after-tax $15 million negative hit associated with the TDR evaluations of the future cash flows, which is driven by accounting, not by cash flow in real life. That $15 million, with our 430 million shares outstanding, is a three-and-a-half-cent negative impact to us this particular quarter for a calculation that, as we get to CECL, will disappear. It's will only be relevant for the remainder of this year. It's an oddball one-off in-impact for us. It is three-and-a-half cents.

Ray Quinn: It's new because interest rates have not been going down before. We knew this forecast was going to occur. We had, in our original expectations, some thoughts about that. The forwards have dropped faster than we thought at the end of the Q1. The result of that is there is an after-tax $15 million negative hit associated with the TDR evaluations of the future cash flows, which is driven by accounting, not by cash flow in real life. That $15 million, with our 430 million shares outstanding, is a three-and-a-half-cent negative impact to us this particular quarter for a calculation that, as we get to CECL, will disappear. It's will only be relevant for the remainder of this year. It's an oddball one-off in-impact for us. It is three-and-a-half cents.

We knew this forecast was going to occur we had in our original expectations. Some thoughts about that but the forwards have dropped faster than we thought at the end of the first quarter. The result of that is there. It's an after tax 15 million dollar negative hit associated with the TDR evaluations of the future cash flows, which is driven by counting that by cash flow. It in real life, and so that $15 million with 430 million shares outstanding is a three and a half cent negative impact to us this particular quarter or a calculation that as we get to see so will disappear and so we'll only be relevant for the remainder of this year. So it's an odd ball one off and impact for us, but it is three and a half sense. So if we had our original guidance of the 123 to 126, and we lost a three and a half sense, we would be down to $1.19 and a half to $1.22 and a half.

[Company Representative] (SLM Corp): If we had our original guidance of the 123 to 126 and we lost the three-and-a-half cents, we would be down to $1.19 and a half to $1.22 and a half. In fact, the portfolio and the business is performing better than we thought. We actually had we not had this TDR accounting sort of, you know, impact, we would have increased our guidance. In all likelihood, as we have done in prior years, tightening up the guidance at the first half of the year, that would have been up by, you know, a penny and a half or so on the low end, about a penny on the high end. In fact, that improvement was used to partially offset the three-and-a-half cents. 123 to 126 goes down by a couple of pennies to 121 and 123.

Ray Quinn: If we had our original guidance of the 123 to 126 and we lost the three-and-a-half cents, we would be down to $1.19 and a half to $1.22 and a half. In fact, the portfolio and the business is performing better than we thought. We actually had we not had this TDR accounting sort of, you know, impact, we would have increased our guidance. In all likelihood, as we have done in prior years, tightening up the guidance at the first half of the year, that would have been up by, you know, a penny and a half or so on the low end, about a penny on the high end. In fact, that improvement was used to partially offset the three-and-a-half cents. 123 to 126 goes down by a couple of pennies to 121 and 123.

In fact, the portfolio and the business is performing better than we thought and so we actually had we not had this TDR accounting flow impact we would have increased our guidance and will likely that as we've done in prior years tightening up the guidance.

At first half of the year that would have been up by.

A penny and a half or so on the low end about penny on the high end, but in fact that improvement was used to partially offset the three and a half sense. So when 23, when 26 was down by a couple of pennies to 121 and 123.

[Company Representative] (SLM Corp): This has no real impact on the business going forward, no impact on the franchise. It is not a reflection of any deterioration in credit losses. It is an odd accounting regimen that is only extant for the next six months and only relevant to us as interest rates change and significantly down. Sorry for the wandering off to that. That is an important piece of understanding that there's a negative impact, but it's not a franchise impact. In summary, we have a credit card launch in the quarter, which is very good. The new branding is done. The personal loan is now on track to have an ROE of 15%. Our 9% growth is faster than the market at 3% to 4%. I should say also that the customers, as I alluded to earlier, value their products quite a bit.

Ray Quinn: This has no real impact on the business going forward, no impact on the franchise. It is not a reflection of any deterioration in credit losses. It is an odd accounting regimen that is only extant for the next six months and only relevant to us as interest rates change and significantly down. Sorry for the wandering off to that. That is an important piece of understanding that there's a negative impact, but it's not a franchise impact. In summary, we have a credit card launch in the quarter, which is very good. The new branding is done. The personal loan is now on track to have an ROE of 15%. Our 9% growth is faster than the market at 3% to 4%. I should say also that the customers, as I alluded to earlier, value their products quite a bit.

And so this has no real impact on the business going forward no impact on the franchise. It is not a reflection of any deterioration in credit losses. It is an audit accounting regimen that is only extend for the next six months and only relevant to us as interest rates change and significantly down.

So im sorry for the wandering off.

To that but that is an important piece of understanding that there is a negative impact, but it's not a franchise impact.

So in summary, we have a credit card launch in the quarter, which is very good the new branding has done the personal loan is now on track to have an ROI, we have 15% our 9% growth is faster than the market at three to four I should say.

Also that the customers as I alluded to earlier value them products quite a bit we've done research on private student loans and just.

[Company Representative] (SLM Corp): We've done research on private student loans. Just to note some highlights of it, 91% of the private student loan borrowers have completed their program. Over 90% are employed. 79% agree that borrowing gave them a better education than they would have had otherwise. 83% say their education has contributed to their career success as they sit. Also over 80% are satisfied with their jobs. 77% feel successful for where they are in life. As a note, which I think is a little bit unexpected in the political regimen in which we find ourselves, 43% of private student loan borrowers also had a Pell Grant. The idea that private student loans are somehow, a class of people that, are way above normal Americans is, in fact, not true. We've also done some research on How America Pays for College.

Ray Quinn: We've done research on private student loans. Just to note some highlights of it, 91% of the private student loan borrowers have completed their program. Over 90% are employed. 79% agree that borrowing gave them a better education than they would have had otherwise. 83% say their education has contributed to their career success as they sit. Also over 80% are satisfied with their jobs. 77% feel successful for where they are in life. As a note, which I think is a little bit unexpected in the political regimen in which we find ourselves, 43% of private student loan borrowers also had a Pell Grant. The idea that private student loans are somehow, a class of people that, are way above normal Americans is, in fact, not true. We've also done some research on How America Pays for College.

Note some highlights of it 91% of the private student loan borrowers have completed their program over 90% are employed 79% agree that borrowing gave them a better education that you would have had otherwise 83% say their education has contributed to that career success as they sit and also over 80% are satisfied with their jobs, 77% feel successful for where they are in life.

And as a note, which I think is a little bit unexpected in the political arrangement, which we find ourselves 43% of private student loan borrowers also had Pell grant the idea that private student loans or somehow.

A class of people that are way above normal Americans is in fact not true. We've also done some research on how America pays for college.

[Company Representative] (SLM Corp): 90% of customers or 90% of students and their families view college as an investment. Surprisingly, 71% given all the publicity that's out there, 71% believe that the price of college is fair. 79%, by the way, under the heading of price shopping, have eliminated at least one school as they searched for where to place their students. They eliminated at least one school because the school was too expensive. We have a bunch of research about the current state of affairs in higher education, which is an industry-leading research piece, but has some very surprising results, which we will be sharing with politicians as we go forward. We continue to strengthen our franchise. College is a great investment. The outcomes are very good.

Ray Quinn: 90% of customers or 90% of students and their families view college as an investment. Surprisingly, 71% given all the publicity that's out there, 71% believe that the price of college is fair. 79%, by the way, under the heading of price shopping, have eliminated at least one school as they searched for where to place their students. They eliminated at least one school because the school was too expensive. We have a bunch of research about the current state of affairs in higher education, which is an industry-leading research piece, but has some very surprising results, which we will be sharing with politicians as we go forward. We continue to strengthen our franchise. College is a great investment. The outcomes are very good.

And 90% of customers or 90% of students and their families. Bucolic has an investment surprisingly 71 for given all the publicity that's out there 71% believed that the price of college is fair.

79% either way under the heading of price shopping have eliminated at least one school as they searched for where to place their students and eliminate at least one school because of school was too expensive.

And so we have a bunch of research about the.

Current state of affairs in higher education, which is an industry leading research piece.

But has some very surprising results, which we will be sharing with politicians as we go forward.

And so.

We continue to strengthen our franchise college is a great investment the outcomes are very good and I should note also that 9% that we mentioned as far as volume is increasingly segmented from the original charter that we had of undergraduate undergraduate pirate loan educate or funding and now with our segments of six new products in graduate parent partner the career training distance and international about 20% to grow volume comes from what is non traditional we remain number one in the market with excellent returns controlled expenses rational capital allocation, including $60 million of buyback in the quarter return of capital is with US and leverage is important to items to cover now, which I will touch on it and I know, Steve will cover Cecil and so Cecil has two pieces to it for US one is the initial impact, which Steve will talk about and which is consistent with our prior disclosure and.

[Company Representative] (SLM Corp): I should note also that 9% that we mentioned as far as volume is increasingly segmented from the original charter that we had of undergraduate private loan education funding. Now with our segments of six new products in graduate, parent, partner, the career training, distance, and international, about 20% of our volume comes from what is nontraditional. We remain number one in the market with excellent returns, controlled expenses, rational capital allocation, including $60 million of buyback in the quarter. Return of capital is with us. Leverage is important. Two items to cover now, which I will touch on, and I know Steve will cover: CECL. CECL has two pieces to it for us. One is the initial impact, which Steve will talk about and which is consistent with our prior disclosure.

Ray Quinn: I should note also that 9% that we mentioned as far as volume is increasingly segmented from the original charter that we had of undergraduate private loan education funding. Now with our segments of six new products in graduate, parent, partner, the career training, distance, and international, about 20% of our volume comes from what is nontraditional. We remain number one in the market with excellent returns, controlled expenses, rational capital allocation, including $60 million of buyback in the quarter. Return of capital is with us. Leverage is important. Two items to cover now, which I will touch on, and I know Steve will cover: CECL. CECL has two pieces to it for us. One is the initial impact, which Steve will talk about and which is consistent with our prior disclosure.

[Company Representative] (SLM Corp): The second is CECL has an ongoing EPS distortion in such a way that, as I mentioned, we are in the midst of our busy season now. Under CECL, a year from today, if we have a new wildly successful Q3, we'll be forced to fund the life of loan losses in CECL, under CECL, for the quarter. Perversely, the better you do in sales, the worse your EPS is liable to be. Therefore, we've chosen to try and take what we think is a more representative core adjustment, which will be our GAAP earnings minus any impact for the loan loss provisions in that particular period, plus the current losses experienced in that period, plus the tax effects associated with those movements in order to come to core earnings, which in some sense are traditional EPS earnings. We will forecast these.

Ray Quinn: The second is CECL has an ongoing EPS distortion in such a way that, as I mentioned, we are in the midst of our busy season now. Under CECL, a year from today, if we have a new wildly successful Q3, we'll be forced to fund the life of loan losses in CECL, under CECL, for the quarter. Perversely, the better you do in sales, the worse your EPS is liable to be. Therefore, we've chosen to try and take what we think is a more representative core adjustment, which will be our GAAP earnings minus any impact for the loan loss provisions in that particular period, plus the current losses experienced in that period, plus the tax effects associated with those movements in order to come to core earnings, which in some sense are traditional EPS earnings. We will forecast these.

The second is Cecil has an ongoing EPS distortion.

In such a way that as I mentioned, we're in the midst of our busy season now under C.. So a year from today, if we have a wildly successful third quarter will be forced to.

To fund the life of loan losses in C sold under C., so for the quarter and so perversely the better you do in sales the worst year EPS is liable to be therefore, we've chosen to try and take what we think is a more representative core adjustment, which will be our GAAP earnings minus any impact for the loan loss provisions in that particular period plus the current losses experienced in that period, plus the tax effects associated with those movements nor did they come to core earnings which in some sense. Our traditional EPS earnings. We will do that we will forecast. These will use these were forecasting guidance, we will disclose base, but we think it is over a period of time much more representative of the quality of the franchise than the Cecil distortion.

[Company Representative] (SLM Corp): We'll use these for forecasting guidance. We will disclose these. We think it is over a period of time much more representative of the quality of the franchise than the CECL distortion. With those comments, I will turn the microphone over to Steve.

Ray Quinn: We'll use these for forecasting guidance. We will disclose these. We think it is over a period of time much more representative of the quality of the franchise than the CECL distortion. With those comments, I will turn the microphone over to Steve.

So with those comments I will turn the microphone over to Steve.

Sure. Okay. Thanks, Ray So as Ray mentioned, we added a significant amount of disclosure in our 10-Q. This year as we prepare for seasonal flu. So is all bar upon us and we will be adopting is essentially five short months. So if you look at the critical accounting policies section of the Mdna and DNA, We reported an estimated range of the impact on our loan loss allowance for both of our student loan and personal loan portfolio as if we adopted Cecil on June Thirtyth of 2019.

[Company Representative] (SLM Corp): Sure. Okay. Thanks, Ray. Yeah, as Ray mentioned, we added a significant amount of disclosure in our 10Q this year as we prepare for CECL. CECL is all but upon us. We will be adopting it in essentially 5 short months. If you look at the critical accounting policy section of the MD&A, we reported an estimated range of the impact on our loan loss allowance for both our student loan and personal loan portfolio as if we adopted CECL on 30 June 2019. As we explain in the document, we publish a range because our loan loss models have not yet been through validation. They certainly will be by the time that we have to adopt the standard. However, the midpoint of the range is the estimated impact from the CECL accounting standard.

Steve McGarry: Sure. Okay. Thanks, Ray. Yeah, as Ray mentioned, we added a significant amount of disclosure in our 10Q this year as we prepare for CECL. CECL is all but upon us. We will be adopting it in essentially 5 short months. If you look at the critical accounting policy section of the MD&A, we reported an estimated range of the impact on our loan loss allowance for both our student loan and personal loan portfolio as if we adopted CECL on 30 June 2019. As we explain in the document, we publish a range because our loan loss models have not yet been through validation. They certainly will be by the time that we have to adopt the standard. However, the midpoint of the range is the estimated impact from the CECL accounting standard.

As we explained in the document we publish a range because our loan loss models have not yet been through validation. They certainly will be by the time that we have to.

Adopt the standard however, the midpoint of the range is the estimated impact from the seasonal accounting standard and it's really actually not much different than what we've been sharing with investors from November of last year. I think we first put this in our disclosures, but to put a finer point on it for a student loan portfolio, we estimate that build the life of loan loss allowance, we would need to add a $1 billion to our reserve today, bringing the total reserve for the student loan portfolio to a lofty $1.3 billion or 6% of our ending total loan balance.

[Company Representative] (SLM Corp): It's really actually not much different than what we've been sharing with investors from November of last year, I think, we first put this in our disclosures. To put a finer point on it, for our student loan portfolio, we estimate that to build a life of loan loss allowance, we would need to add $1 billion to our reserve today, bringing the total reserve for the student loan portfolio to a lofty 1.3 billion or 6% of our ending total loan balance. For the personal loan portfolio, if we had to build a life of loan loss allowance today, we'd add $75 million to the reserve, bringing it to roughly 150 or 13% of our total ending loan balance. To build this reserve on day one of CECL adoption, the company will run the tax-affected reserve build through GAAP equity, reducing it by approximately $800 million.

Steve McGarry: It's really actually not much different than what we've been sharing with investors from November of last year, I think, we first put this in our disclosures. To put a finer point on it, for our student loan portfolio, we estimate that to build a life of loan loss allowance, we would need to add $1 billion to our reserve today, bringing the total reserve for the student loan portfolio to a lofty 1.3 billion or 6% of our ending total loan balance. For the personal loan portfolio, if we had to build a life of loan loss allowance today, we'd add $75 million to the reserve, bringing it to roughly 150 or 13% of our total ending loan balance. To build this reserve on day one of CECL adoption, the company will run the tax-affected reserve build through GAAP equity, reducing it by approximately $800 million.

For the personal loan portfolio, we had to build the life of loan loss allowance today, we've had $75 million for the reserve, bringing it to roughly 150 or 13% of our total ending loan balance.

So to build this reserve on day, one of seasonal adoption with company will run the tax affected reserve build through GAAP equity, reducing upon approximately $800 million and that creates a deferred tax asset tax impact of roughly $250 million.

[Company Representative] (SLM Corp): That creates a deferred tax asset for the tax impact of roughly $250 million. For purposes of calculating regulatory capital, banks are given the adoption of phasing in the impact on equity over a three-year period. We certainly will avail ourselves of this phase-in option. In addition, this is a slight offset. Banks can reduce risk-weighted assets by the amount of the loan loss allowance that doesn't qualify as Tier 2 capital, which slightly offsets the impact. For us, a significant amount of our loan loss allowance will not be included in Tier 2 capital. The important thing here is we will continue to be well-capitalized after the adoption of CECL. Following the adoption of CECL, we believe our true capital position is going to equal our GAAP equity plus our loan loss reserve.

Steve McGarry: That creates a deferred tax asset for the tax impact of roughly $250 million. For purposes of calculating regulatory capital, banks are given the adoption of phasing in the impact on equity over a three-year period. We certainly will avail ourselves of this phase-in option. In addition, this is a slight offset. Banks can reduce risk-weighted assets by the amount of the loan loss allowance that doesn't qualify as Tier 2 capital, which slightly offsets the impact. For us, a significant amount of our loan loss allowance will not be included in Tier 2 capital. The important thing here is we will continue to be well-capitalized after the adoption of CECL. Following the adoption of CECL, we believe our true capital position is going to equal our GAAP equity plus our loan loss reserve.

For purposes of calculating regulatory capital banks are given the adoption of phasing in the impact on equity over a three year period.

We certainly will avail ourselves of this phase in option.

In addition, this is a slight offset.

Banks can reduce risk weighted asset assets by the amount of the loan loss allowance, but doesn't qualify as tier two capital, which slightly offsets the impact for us a significant amount of our loan loss allowance will not.

Be included in tier two capital.

The important thing here is we will continue to be well capitalized after your after the adoption of Cecil following the adoption of Suso, We believe our true capital position is going to equal our GAAP equity plus our loan loss reserve. This is a ratio that will be well into the mid teens and will actually grow during the three year phase in.

[Company Representative] (SLM Corp): This is a ratio that will be well into the mid-teens and will actually grow during the three-year phase-in, for the regulatory capital, on our balance sheet. A couple of other points. To adopt CECL, we've built an economic model to forecast expected credit losses. We have to adopt economic forecasts and adopt a baseline reasonable and supportable forecast period. What we're going to do is employ Moody's economic forecasts. We'll use a baseline, a economic downturn, and economic upturn forecast and blend those for our CECL model. What we're going to do is use 2 years of forecasts and then revert to our mean expected losses for the remainder of the life of loans. Adopting CECL is a very complex project. We've been working on it for several years now.

Steve McGarry: This is a ratio that will be well into the mid-teens and will actually grow during the three-year phase-in, for the regulatory capital, on our balance sheet. A couple of other points. To adopt CECL, we've built an economic model to forecast expected credit losses. We have to adopt economic forecasts and adopt a baseline reasonable and supportable forecast period. What we're going to do is employ Moody's economic forecasts. We'll use a baseline, a economic downturn, and economic upturn forecast and blend those for our CECL model. What we're going to do is use 2 years of forecasts and then revert to our mean expected losses for the remainder of the life of loans. Adopting CECL is a very complex project. We've been working on it for several years now.

For the regulatory capital on our balance sheet.

A couple of other points to adopt Cecil we've built an economic model to forecasts expected credit losses, we have to adopt.

Economic forecasts and adopt a.

A baseline reasonable unsupportable forecast period, what we're going to do is employee.

Moody's economic forecasts will use a baseline a.

Economic downturn economic Uptown up upturn forecast and blend those for our seasonal model and what we're going to do is use two years of forecasts and then revert to our mean expected losses for the remainder of the lot of whole loans.

Adopting Cecil is a very complex.

Project and we've been working on it for several years now and we will certainly be ready when when we need to on January Onest of 2020, and as Ray pointed out once fees was adopted there is going to be significant volatility in our earnings I think the pro forma number that we've crafted and closed an awful lot about in this quarter's two is going to really get right to the heart of.

[Company Representative] (SLM Corp): We will certainly be ready when we need to on 1 January 2020. As Ray pointed out, once CECL is adopted, there's going to be significant volatility in our earnings. I think the pro forma number that we've crafted and disclosed an awful lot about in this quarter's Q is going to really get right to the heart of the company's performance on a go-forward basis. That's really a summary of what we disclosed in the 10Q on CECL this quarter. With that being said, I think it's time to turn the call over for Q&A.

Steve McGarry: We will certainly be ready when we need to on 1 January 2020. As Ray pointed out, once CECL is adopted, there's going to be significant volatility in our earnings. I think the pro forma number that we've crafted and disclosed an awful lot about in this quarter's Q is going to really get right to the heart of the company's performance on a go-forward basis. That's really a summary of what we disclosed in the 10Q on CECL this quarter. With that being said, I think it's time to turn the call over for Q&A.

The company's performance on a go forward basis.

So thats really.

A summary of what we've disclosed in the 10 to on on seasonal this quarter. So.

With that being said I think it's time to turn the call over four.

Thanks.

At this time, if you would like to ask a question Press Star then in number one that is star one for questions. We'll pause for just a moment to compile the culinary roster.

Operator 3: At this time, if you would like to ask a question for a star than a number 1, that is star 1 for questions. We'll pause for just a moment to compile the Q&A roster. The first question comes from the line of Sanjay Sakaranan from KBW.

Operator: At this time, if you would like to ask a question for a star than a number 1, that is star 1 for questions. We'll pause for just a moment to compile the Q&A roster. The first question comes from the line of Sanjay Sakaranan from KBW.

Okay.

The first question comes from the line of Sanjay Sakhrani from Kb Debbie.

[Analyst] (KBW): Thanks. Good morning, and thank you for the color on CECL, Ray and Steve. I guess just some clarifying questions on that. When we think about this impact that you had with the TDRs and going into the run rate EPS ex your core number, is it fair to add back the three and a half cents to your guidance range as a starting point? When we think about the impact of CECL to that number, not the non-GAAP number, what exactly is it?

Sanjay Sakhrani: Thanks. Good morning, and thank you for the color on CECL, Ray and Steve. I guess just some clarifying questions on that. When we think about this impact that you had with the TDRs and going into the run rate EPS ex your core number, is it fair to add back the three and a half cents to your guidance range as a starting point? When we think about the impact of CECL to that number, not the non-GAAP number, what exactly is it?

Thanks, Good morning, and thank you for the color on cease all brands, Steve I guess, just some clarifying questions on that so when we think about this impact that you had with the TD ours and going into the run rate EPS ex your core number is it fair to add back the three and a half cents to your guidance range as a starting point and then when we think about the impact of Cecil to that number not the not the non-GAAP number what exactly is it.

I'm sorry, what was your second second part of that question Sanjay within.

[Company Representative] (SLM Corp): I'm sorry. What was your second part of that question, Sanjay? We didn't quite follow you.

Ray Quinn: I'm sorry. What was your second part of that question, Sanjay? We didn't quite follow you.

[Analyst] (KBW): Yeah. What's the CECL impact to the actual number, to the GAAP number?

Sanjay Sakhrani: Yeah. What's the CECL impact to the actual number, to the GAAP number?

Oh, yes, the seasonal impact to the actual number.

To the GAAP number.

So.

[Company Representative] (SLM Corp): There's no CECL impact, obviously, this year, to this quarter. When we adopt CECL, the catch-up reserve will be run through equity. There will not be a hit to the income statement. On a go-forward basis, for example, this quarter, when we originate whatever we're going to originate, $2.7 billion actually, we will originate $5 billion of loans, big round numbers, this quarter because there will be the second disbursement. We will have to hold a life of loan loss reserve for that entire origination tranche. Let's not get into the math of discounted cash flow model that we're going to employ. That's going to end up with, call it a 6% reserve that's going to go through the income statement, which is, you know, $300 million, which is sizable.

There.

Steve McGarry: There's no CECL impact, obviously, this year, to this quarter. When we adopt CECL, the catch-up reserve will be run through equity. There will not be a hit to the income statement. On a go-forward basis, for example, this quarter, when we originate whatever we're going to originate, $2.7 billion actually, we will originate $5 billion of loans, big round numbers, this quarter because there will be the second disbursement. We will have to hold a life of loan loss reserve for that entire origination tranche. Let's not get into the math of discounted cash flow model that we're going to employ. That's going to end up with, call it a 6% reserve that's going to go through the income statement, which is, you know, $300 million, which is sizable.

There is no seasonal impact obviously this so this quarter.

But so the when we adopt Cecil the catch up reserve will be run through equity. So there will not be a hit to the income statement, but on a go forward basis. For example, this quarter when we originate and whatever we're going to originate 2.7 billion actually we will originate $5 billion of loans big round numbers. This quarter, because there will be the second disbursements, we will have to hold a life of loan loss reserve for that entire origination tranche, which let's not get into the math of discounted cash flow model that we're going to employ but thats going to end up with call. It 6% reserve Thats going to go through the income statement, which is.

$300 million, which is sizable so that is why we think it is very important too.

[Company Representative] (SLM Corp): That is why we think it is very important to introduce this core earnings impact. I see that Mr. Quinlan wants to add a further comment here, I think.

Steve McGarry: That is why we think it is very important to introduce this core earnings impact. I see that Mr. Quinlan wants to add a further comment here, I think.

Introduced this core earnings impact and I see that.

Mr. Quinlan wants to add a further comment here I think part of your question is given the increase in the loan loss reserves this quarter associated with the TDR dynamic that I mentioned, whether or not that has an impact on EPS going forward and in particular as we just see so.

[Company Representative] (SLM Corp): I think, part of your question is, given the increase in the loan loss reserves this quarter associated with the TDR dynamic that I mentioned, whether or not that has an impact on EPS going forward. In particular, as we adjust to CECL, how is that to be treated? The answer, I think, is quite straightforward that CECL will have its own adjustments for the life of loan and the associated forecast for that. The increase in reserves associated with the TDR, the three and a half cents, is in some sense a pre-funding of CECL. When we look at CECL, to the extent that our loan loss reserve is higher this quarter than we had anticipated because of the LIBOR idiosyncrasy that descended to it, we will reserve less when we do the CECL change from our current reserve to the CECL change.

Ray Quinn: I think, part of your question is, given the increase in the loan loss reserves this quarter associated with the TDR dynamic that I mentioned, whether or not that has an impact on EPS going forward. In particular, as we adjust to CECL, how is that to be treated? The answer, I think, is quite straightforward that CECL will have its own adjustments for the life of loan and the associated forecast for that. The increase in reserves associated with the TDR, the three and a half cents, is in some sense a pre-funding of CECL. When we look at CECL, to the extent that our loan loss reserve is higher this quarter than we had anticipated because of the LIBOR idiosyncrasy that descended to it, we will reserve less when we do the CECL change from our current reserve to the CECL change.

How is that to be treated.

And the answer I think is quite straightforward that Cecil will have its own adjustments for the life of loan and the associated forecast for that and the increase in reserves associated with the TDR. The three and a half sense is in some sense a prefunding of sea salt. So when we look at sea. So to the extent that our loan loss reserve is higher this quarter than we had anticipated because of the LIBOR floor.

You think resi that does tend into it we will reserve less when we do the seasonal change from our current reserve to the sea Salt chain show and Steve mentioned, it's a 1.3 billion overall within that Theres, an accommodation that says all because you added the three and a half cents. This quarter you don't have to add it on January Onest 2020, and so it's part of the mix Andre.

[Company Representative] (SLM Corp): When Steve mentions it's a $1.3 billion overall, within that, there's an accommodation that says, "Oh, because you added the three and a half cents this quarter, you don't have to add it on 1 January 2020." It's part of the mix, Sanjay.

Ray Quinn: When Steve mentions it's a $1.3 billion overall, within that, there's an accommodation that says, "Oh, because you added the three and a half cents this quarter, you don't have to add it on 1 January 2020." It's part of the mix, Sanjay.

[Analyst] (KBW): Right. Right. No, that's helpful. As we think about future rate reductions to the extent there are any, hopefully not, does that mean that TDR impact goes away after that? All we're looking at is re provisions related to originations?

Sanjay Sakhrani: Right. Right. No, that's helpful. As we think about future rate reductions to the extent there are any, hopefully not, does that mean that TDR impact goes away after that? All we're looking at is re provisions related to originations?

Right right and Thats helpful. And then as we think about future rate reductions to the extent there are any.

Hopefully not.

Does that mean that that TDR impact goes away after that and all we're looking at is were provisions related to originations.

[Company Representative] (SLM Corp): We've got a significant amount of interest rate reductions in that TDR number today. I think it's 62.5 basis points. To the extent that rates decline more than that between now and the end of the year, there would be an additional impact. Although, you know, it's going to be small. Of course, once we adopt CECL, the TDR impact goes away.

So so we've got a significant amount of interest rate reductions in that CVR number today, I think it's 62 and a half basis points to the extent that rates declined more than that between now and the end of the year there would be an additional impact, although it's going to be small but.

Steve McGarry: We've got a significant amount of interest rate reductions in that TDR number today. I think it's 62.5 basis points. To the extent that rates decline more than that between now and the end of the year, there would be an additional impact. Although, you know, it's going to be small. Of course, once we adopt CECL, the TDR impact goes away.

And then of course once.

We adopt Cecil the TBR impact goes away.

[Analyst] (KBW): Okay. Great. I guess just one last question.

Sanjay Sakhrani: Okay. Great. I guess just one last question.

Okay.

Great and I guess, just one last point that if it is we wish the federal reserve waited six more months before they dropped reps and penetrate.

[Company Representative] (SLM Corp): The advantage of it is we wish the Federal Reserve waited six more months before they dropped real interest rates.

Ray Quinn: The advantage of it is we wish the Federal Reserve waited six more months before they dropped real interest rates.

[Analyst] (KBW): Yeah. I know. I hear you. A final question on credit quality. That obviously is really strong for some time now. Could you just talk about sort of what's driving that? Is it just the healthy economy, which is, you know, which is driving that? Thanks.

Sanjay Sakhrani: Yeah. I know. I hear you. A final question on credit quality. That obviously is really strong for some time now. Could you just talk about sort of what's driving that? Is it just the healthy economy, which is, you know, which is driving that? Thanks.

Yes, no I hear you and then a final question on credit quality that obviously is really strong for some time now can you just talk about sort of what's driving that is it just a healthy economy, which is.

You know what is driving that thanks.

[Company Representative] (SLM Corp): Okay. Well, one is thank you very much for framing the question that way because the earnings the write-off rate went from 89 basis points in Q1 to 129. I agree that the 108, which is the year-to-date number for write-offs, is an excellent number. We haven't seen much change due to the economic environment associated with our roll rates and other items. We think we're still driven by the quality of our underwriting. Over the last three years, the most significant item that has been adjusted as we've done our forecast for both delivery, delinquency, streets, that is, people who wind up not paying at all, and ultimate write-offs, has been our ability to help our customers adjust from the graduation period to the full payment period.

Ray Quinn: Okay. Well, one is thank you very much for framing the question that way because the earnings the write-off rate went from 89 basis points in Q1 to 129. I agree that the 108, which is the year-to-date number for write-offs, is an excellent number. We haven't seen much change due to the economic environment associated with our roll rates and other items. We think we're still driven by the quality of our underwriting. Over the last three years, the most significant item that has been adjusted as we've done our forecast for both delivery, delinquency, streets, that is, people who wind up not paying at all, and ultimate write-offs, has been our ability to help our customers adjust from the graduation period to the full payment period.

Okay, well one is thank you very much for framing the question that way because the earnings or the write off rate went from 89 basis points in the first quarter to 129.

And and I agree that the window eight which is the year to date number right us is an excellent number.

We we havent seen much change due to the economic environment.

Associated with our roll rates and other items, we think we're still driven by the quality of our underwriting and over the last three years. The most significant item that has been adjusted as we've done our forecast for both delivery delinquency streaks that is people, who wind up not paying it off and ultimate write us has been our ability to help our customers adjust from the graduation period to the full payment period and so the classic.

[Company Representative] (SLM Corp): The classic undergraduate graduates in May has to make a full payment for the first time in November. Now, 50% of our customers are making either interest-only payments or $25. That also will go up, of course, when they go into full P&I. We have been able to give them a better understanding of the calendar associated with that, what the dynamic will be, asking them if they're ready to pay, if they haven't gotten a job yet, working through any sort of a payment arrangement that would temporarily help them. That particular piece of better customer communications, and more aggressive upfront contact with our customers as the vintage matures has been the most outstanding item. The environment has been helpful. The group that we're dealing with, remember, has an unemployment rate that is half of what the national rate is.

Ray Quinn: The classic undergraduate graduates in May has to make a full payment for the first time in November. Now, 50% of our customers are making either interest-only payments or $25. That also will go up, of course, when they go into full P&I. We have been able to give them a better understanding of the calendar associated with that, what the dynamic will be, asking them if they're ready to pay, if they haven't gotten a job yet, working through any sort of a payment arrangement that would temporarily help them. That particular piece of better customer communications, and more aggressive upfront contact with our customers as the vintage matures has been the most outstanding item. The environment has been helpful. The group that we're dealing with, remember, has an unemployment rate that is half of what the national rate is.

Undergraduate graduates in May has to make a full payment for the first time in November now, 50% of our customers are making either interest only payments or $25, but that also will go up of course, when they go into full pay and I and we have been able to give them a better understanding of the calendar associated with that what that dynamic will be asking them. If they are ready to pay if they haven't gotten a job yet working through any sort of a payment arrangement that would temporarily helps them on but that particular piece a better customer communications.

And more more aggressive upfront contact with our customers as the vintage mature as has been the most outstanding item. The environment has been helpful. But the group that we're dealing with remember has an unemployment rate that is half of what the national rate is so the unemployment rate for college graduates running under 2% and has since been over 3%. During this entire period. So that particular demographic has been at a very healthy and economic environment, but that's the same as saying that are under our underwriting is high quality. So we think it's quite steady to answer the question a long way around.

[Company Representative] (SLM Corp): The unemployment rate for college graduates is running under 2% and hasn't been over 3% during this entire period. That particular demographic has been in a very healthy economic environment. That's the same as saying that our underwriting is high quality. We think it's quite steady to answer the question a long way around.

Ray Quinn: The unemployment rate for college graduates is running under 2% and hasn't been over 3% during this entire period. That particular demographic has been in a very healthy economic environment. That's the same as saying that our underwriting is high quality. We think it's quite steady to answer the question a long way around.

Thank you.

[Analyst] (KBW): Thank you.

Sanjay Sakhrani: Thank you.

The next question comes from the line of Michael Cain with Wells Fargo.

Operator 3: The next question comes from the line of Michael Kay with Wells Fargo.

Operator: The next question comes from the line of Michael Kay with Wells Fargo.

[Analyst] (Wells Fargo): Good morning. I was hoping you'd give some updated thoughts on your NIM expectations just given the change in the rate environment. I thought last update, last quarter, was about 5.9% for the year.

Michael Kaye: Good morning. I was hoping you'd give some updated thoughts on your NIM expectations just given the change in the rate environment. I thought last update, last quarter, was about 5.9% for the year.

Good morning, Tom I was hoping you could give some updated thoughts on your NIM expectations just given the.

The change in the rate environment I thought last update last quarter was about 5.9% for the year.

Yes, Michael we added liquidity, a little bit quicker than we expected and will probably go a little bit higher than we originally thought we would ray mentioned that we're going to hover in that 13% to 14% facilities that will.

[Company Representative] (SLM Corp): Yeah, Michael. We added liquidity a little bit quicker than we expected. We'll probably go a little bit higher than we originally thought we would. Ray mentioned that we're going to hover in that 13% to 14% vicinity. That will result in a NIM for the full year of roughly 5.8 as opposed to the 5.9 that we mentioned on the last call.

Steve McGarry: Yeah, Michael. We added liquidity a little bit quicker than we expected. We'll probably go a little bit higher than we originally thought we would. Ray mentioned that we're going to hover in that 13% to 14% vicinity. That will result in a NIM for the full year of roughly 5.8 as opposed to the 5.9 that we mentioned on the last call.

Result in a NIM for the full year of roughly 5.8.

As opposed to the 5.9 that we mentioned on the last call.

[Company Representative] (SLM Corp): Interest income as an actual number will be relatively unaffected.

Steve McGarry: Interest income as an actual number will be relatively unaffected.

But interest income as an actual number will be relatively effect.

[Analyst] (Wells Fargo): Okay. Okay. That's helpful. Then I had a quick question on peak season. I know it's still kind of early. You know, from what you gather so far, I was hoping you could comment more on the broader pricing environment, particularly with some, like, newer upstarts like Navient, SoFi, you know, guys like College Avenue. Have you seen more pressure on pricing so far?

Michael Kaye: Okay. Okay. That's helpful. Then I had a quick question on peak season. I know it's still kind of early. You know, from what you gather so far, I was hoping you could comment more on the broader pricing environment, particularly with some, like, newer upstarts like Navient, SoFi, you know, guys like College Avenue. Have you seen more pressure on pricing so far?

Okay.

Okay Thats helpful. And then I had a quick question on them.

Peak season, I know it's.

No it's still kind of early but from what you've got there. So far I was hoping you could comment more on the broader pricing environment, particularly with some of the newer upstart like.

Matt in the sulphide sounds like College Avenue have you seen more pressure on pricing so far.

On the pricing on those two pieces. This at a minimum right. One is in general and in general the pricing is has been quite stable and.

[Company Representative] (SLM Corp): The pricing, there's two pieces to this at a minimum, right? One is in general. In general, the pricing has been quite stable. As mentioned in prior calls, new entrants, who are rational, such as SoFi in this particular environment, have a pricing spread. Of course, there's a spread on variable as well as fixed. Have a pricing spread that is on top of ours, very similar. We have seen, as we get into busy season, a couple of people will lower the low end of their ranges so that they can have a 399 in there or a number like that. That's been relatively rare. The people who are newer tend to do it a little more. This is a normal sort of, you know, trench warfare associated with the busy season.

Ray Quinn: The pricing, there's two pieces to this at a minimum, right? One is in general. In general, the pricing has been quite stable. As mentioned in prior calls, new entrants, who are rational, such as SoFi in this particular environment, have a pricing spread. Of course, there's a spread on variable as well as fixed. Have a pricing spread that is on top of ours, very similar. We have seen, as we get into busy season, a couple of people will lower the low end of their ranges so that they can have a 399 in there or a number like that. That's been relatively rare. The people who are newer tend to do it a little more. This is a normal sort of, you know, trench warfare associated with the busy season.

As mentioned in prior calls new entrants, who are rational such as sulfide has particular environment I have a pricing spread and of course is a spread on variable as well as fixed have a pricing spread that is on top of ours very similar.

We have seen as we get into busy season, a couple of people will lower the low end of their range is so that they can have a 399 in there are a number like that.

Thats been relatively rare the people who are newer tend to do it a little more and so this is a normal sort of.

Trench warfare associated with the busy season.

[Company Representative] (SLM Corp): I wouldn't say it's unusual for us versus prior years at all.

Ray Quinn: I wouldn't say it's unusual for us versus prior years at all.

I would say, it's unusual for that for us versus prior years at all.

[Analyst] (Wells Fargo): Okay. Okay. That's helpful. Thank you.

Michael Kaye: Okay. Okay. That's helpful. Thank you.

Okay. Okay. That's helpful. Thank you.

The next question comes from the line.

Operator 3: The next question comes from the line of Moshe Arenbach with Credit Suisse.

Operator: The next question comes from the line of Moshe Arenbach with Credit Suisse.

Moshe Orenbuch with credit Suisse.

Great. Thanks, I did see that loan consolidations were down slightly from Q1.

[Analyst] (Credit Suisse): Great. Thanks. I did see that loan consolidations were down slightly from Q1. Could you just talk about, you know, whether that's a result of you know seasonality or a result of your competitors or things that you're doing and what it might look like, you know, as the year progresses?

Moshe Orenbuch: Great. Thanks. I did see that loan consolidations were down slightly from Q1. Could you just talk about, you know, whether that's a result of you know seasonality or a result of your competitors or things that you're doing and what it might look like, you know, as the year progresses?

Could you just talk about whether Thats, a result of seasonality results.

Your competitors or things that you're doing.

And what it might look like Gary as the year progresses.

[Company Representative] (SLM Corp): Sure. The sort of the change in the consolidation, we're in from, like, 393 to 314. That was gratifyingly down. When we look at the individual companies that make that up, every single company was down from Q1 to Q2. Very hard for us to gauge what the intent is of companies who are doing this because primarily what they're doing is consolidating federal loans. As you know, private student loans only run about 10% of the volume of the federal loans. We've always been the tail on that dog. We do think that, you know, several of the people who are in that, who are not traditional banks in the sense of having a low cost of funds, aren't making money at this.

Ray Quinn: Sure. The sort of the change in the consolidation, we're in from, like, 393 to 314. That was gratifyingly down. When we look at the individual companies that make that up, every single company was down from Q1 to Q2. Very hard for us to gauge what the intent is of companies who are doing this because primarily what they're doing is consolidating federal loans. As you know, private student loans only run about 10% of the volume of the federal loans. We've always been the tail on that dog. We do think that, you know, several of the people who are in that, who are not traditional banks in the sense of having a low cost of funds, aren't making money at this.

Sure and the.

Yes, the sort of the change in the and it consolidation and winter like Threeninety three to 314.

And that was gratifyingly down and when we look at the individual companies that make that up every single company was down from the first quarter the second quarter.

Very hard for us to gauge what the intent is of companies who are doing this because primarily what they're doing is consolidating federal loans and as you know private student loans only run about 10% of the volume of the federal loans and so we've always been the tail on that dog.

And we do think that.

Several other people who are in that who are not traditional banks in the sense of having a low cost of funds.

Aren't making money at this.

[Company Representative] (SLM Corp): We think that, they are, you know, coming back to a point of view where their P&Ls will dictate that this is not a particularly attractive business. Two things. One is it's nice to see it's down. Two is going forward, we're watching, of course, every day carefully. We don't know what their individual motivations are. Clearly, some in the Q1 were just looking for volume. That, as you know, is a short-lived type of strategy.

Ray Quinn: We think that, they are, you know, coming back to a point of view where their P&Ls will dictate that this is not a particularly attractive business. Two things. One is it's nice to see it's down. Two is going forward, we're watching, of course, every day carefully. We don't know what their individual motivations are. Clearly, some in the Q1 were just looking for volume. That, as you know, is a short-lived type of strategy.

We think that they are coming back to a point of view, where their p. in Els will dictate this is not a particularly attractive business.

But two things one is it's nice to see is down to is going forward. We're watching of course everyday carefully, but we don't know what their individual motivations are clearly some in the first quarter with just looking for volume, but that as you know is a short lived type of strategy.

Got it and my follow up question.

[Analyst] (Credit Suisse): Got it. My follow-up question, you know, as Steve, you had mentioned that you think that GAAP capital, plus some form of the loan loss reserve is going to be the operating capital metric. Just can you talk a little bit about I mean, you know, have you talked to their I mean, to the regulators of the I mean, how do you think about that from kind of a regulatory standpoint? Are there other things, you know, that you are, you know, could do or going to do, if, you know, originations tended to be higher, I guess, than your expectations?

Moshe Orenbuch: Got it. My follow-up question, you know, as Steve, you had mentioned that you think that GAAP capital, plus some form of the loan loss reserve is going to be the operating capital metric. Just can you talk a little bit about I mean, you know, have you talked to their I mean, to the regulators of the I mean, how do you think about that from kind of a regulatory standpoint? Are there other things, you know, that you are, you know, could do or going to do, if, you know, originations tended to be higher, I guess, than your expectations?

Steve You had mentioned that you think that GAAP capital.

Plus some form of a loan loss reserve is going to be that the operating capital metric just can you talk a little bit about.

Have you talked to there.

To the regulators I mean, how did.

How do you think about that from kind of a regulatory standpoint and are there other things.

That you are.

Could do we're going to do it.

Yes.

Originations tended to be higher I guess than your expectations.

So so yes look we always discuss our business plans with the regulatory agencies and when we do that we show them longer term capital forecasts and discuss things like.

[Company Representative] (SLM Corp): Yeah. Look, we always discuss our business plans with the regulatory agencies. When we do that, we show them longer-term capital forecasts and discuss things like share buybacks. Obviously, going into CECL, both of those were on the table. We certainly are returning capital to shareholders at this point in time. Obviously, we pay a lot of attention to our longer-term capital forecasts. We do have a significant excess capital cushion in the wonderful scenario where our originations increased 20% or 30% more than we are expecting. I don't think that that would put us into a position where we are eating into our capital cushion. We're in fine shape, given the outlook for the next couple of years here.

Steve McGarry: Yeah. Look, we always discuss our business plans with the regulatory agencies. When we do that, we show them longer-term capital forecasts and discuss things like share buybacks. Obviously, going into CECL, both of those were on the table. We certainly are returning capital to shareholders at this point in time. Obviously, we pay a lot of attention to our longer-term capital forecasts. We do have a significant excess capital cushion in the wonderful scenario where our originations increased 20% or 30% more than we are expecting. I don't think that that would put us into a position where we are eating into our capital cushion. We're in fine shape, given the outlook for the next couple of years here.

Share buybacks, and obviously going into Cecil both of those were on the table and we certainly are returning capital to shareholders. At this point in time, and obviously, we pay a lot of attention to our longer term capital forecast and we do have a significant excess capital cushion.

In the wonderful scenario, where our originations increased 20 or 30% more than we were expecting I don't think that that would put us into a position where we are eating into our capital cushion. So we're in fine shape.

Given the outlook for the next couple of years here.

[Company Representative] (SLM Corp): If I could just add an addendum to that, it is the case that the regulators have not changed their guidelines for well-capitalized and other, you know, benchmarks that they have. It's also the case that everybody recognizes that this $1.3 billion or $1 billion that's moving from the equity account to the loan loss reserve account is really cushion, as Steve says. When you look at total loss absorbing capability or TLAC, for the institution, it's appropriate. If we were buying the institution, we would say, Gee, what's the cushion against these assets not being high quality? You would add the loan loss reserve to the equity. You would do that in the first 15 minutes of evaluating a company. The regulators get that. They haven't changed their guidelines. No one has lived with CECL yet.

Ray Quinn: If I could just add an addendum to that, it is the case that the regulators have not changed their guidelines for well-capitalized and other, you know, benchmarks that they have. It's also the case that everybody recognizes that this $1.3 billion or $1 billion that's moving from the equity account to the loan loss reserve account is really cushion, as Steve says. When you look at total loss absorbing capability or TLAC, for the institution, it's appropriate. If we were buying the institution, we would say, Gee, what's the cushion against these assets not being high quality? You would add the loan loss reserve to the equity. You would do that in the first 15 minutes of evaluating a company. The regulators get that. They haven't changed their guidelines. No one has lived with CECL yet.

And if I could just.

Edited intend.

To that.

It is the case that the regulators have not changed their guidelines for well capitalized and other.

Benchmarks that they have.

It's also the case that everybody recognizes that this billion three or $1 billion. That's moving from the equity account to the loan loss reserve account is really cushion as Steve says so when you look at total loss absorbing capability or T. Lack for the institution, it's appropriate and if we were buying institution I'd say Gee west a cushion against these assets not being high quality you would add the loan loss reserve to the equity and you would do that in the first 15 minutes of evaluating company. So really just get that they havent changed their guidelines no. One has lived with c. So yet we certainly are communicating to them that when we into two numbers together, it's a number as Steve said mid teens call it 15% capital.

[Company Representative] (SLM Corp): we certainly are communicating to them that when we add the two numbers together, it's a number, as Steve said, mid-teens. Call it 15% capital, extremely well-capitalized. We have been straightforward with the regulators that we think that that is a, you know, a one might say an extremely healthy number on the one hand. The other might say you might say, Gee, it's, you know, much more than what was viewed to be an adequate cushion in 2018, let's say. We haven't lived in that world yet. As Steve says, under any circumstances, we're well-capitalized. We will continue to view capital allocation in a rational way.

Ray Quinn: we certainly are communicating to them that when we add the two numbers together, it's a number, as Steve said, mid-teens. Call it 15% capital, extremely well-capitalized. We have been straightforward with the regulators that we think that that is a, you know, a one might say an extremely healthy number on the one hand. The other might say you might say, Gee, it's, you know, much more than what was viewed to be an adequate cushion in 2018, let's say. We haven't lived in that world yet. As Steve says, under any circumstances, we're well-capitalized. We will continue to view capital allocation in a rational way.

Extremely well capitalized and we have been straightforward with the regulators that we think that that is a.

One might say an extremely healthy number on the one hand, the device and you might say Gee it's up.

Much more than what was viewed to be an adequate cushion.

In 2018, let's say and so we haven't lived in that world, yet, but as Steve says under any circumstances, we are well capitalized and we will continue to view capital allocation in a rational way.

Got it thanks, and I do agree with the idea.

[Analyst] (Credit Suisse): Got it. Thanks. I do agree with the idea of cushion and capital. Thanks.

Moshe Orenbuch: Got it. Thanks. I do agree with the idea of cushion and capital. Thanks.

And capital Thanks.

[Company Representative] (SLM Corp): All right. If you want, I can give you the address of the FDIC so you can send in your vote of confidence in this.

Ray Quinn: All right. If you want, I can give you the address of the FDIC so you can send in your vote of confidence in this.

All right if I if you want I can give you the address of the FDIC. So you can send in Europe Europe vote of confidence in us.

[Analyst] (Credit Suisse): Yeah. The F has some rules about that.

Moshe Orenbuch: Yeah. The F has some rules about that.

Yes, that's the essence of rules.

The next question comes from the line of Evren Kopelman with CD.

Operator 3: The next question comes from the line of Aaron Covent with Citi.

Operator: The next question comes from the line of Aaron Covent with Citi.

Hi, Thanks, just curious.

[Analyst] (Citi): Thanks. Yeah. I just was curious and realizing that NCOs are still at a low level. What's your expected trajectory, going forward?

Arren Cyganovich: Thanks. Yeah. I just was curious and realizing that NCOs are still at a low level. What's your expected trajectory, going forward?

And we're having a hard time hearing you on a cell phone connection isn't very good could you. Please repeat that question.

[Company Representative] (SLM Corp): Aaron, we're having a hard time hearing you on the cell phone connection isn't very good. Could you please repeat that question?

Steve McGarry: Aaron, we're having a hard time hearing you on the cell phone connection isn't very good. Could you please repeat that question?

[Analyst] (Citi): Actually, my work phone. The question was, what's the expectation for the trajectory of your net charge-offs going forward?

Arren Cyganovich: Actually, my work phone. The question was, what's the expectation for the trajectory of your net charge-offs going forward?

Thanks for that my work some but.

It's the question was what's the.

The expectation for the trajectory of your net charge offs.

Going forward.

So typically the second quarter is the peak charge off quarter as new loans go into full principal and interest repayment in November December typically new borrowers struggle and there's a chunk of zero payment defaults in the second quarter, and then things tend to level off so.

[Company Representative] (SLM Corp): Typically, the second quarter is the peak charge-off quarter as new loans go into full principal and interest repayment in November, December. Typically, new borrowers struggle. There's a chunk of zero payment defaults in the second quarter. Things tend to level off. You know, if year-to-date defaults are similar to last year, we don't think that 2019 should be a whole lot different than 2018 by the end of the year.

Steve McGarry: Typically, the second quarter is the peak charge-off quarter as new loans go into full principal and interest repayment in November, December. Typically, new borrowers struggle. There's a chunk of zero payment defaults in the second quarter. Things tend to level off. You know, if year-to-date defaults are similar to last year, we don't think that 2019 should be a whole lot different than 2018 by the end of the year.

Year to date defaults are.

Similar to last year, we we don't think that 19 should be a whole lot different than 18 by the end of the year.

[Analyst] (Citi): Okay. Then, on the Credit Card side, I know it's still very early days there. Can you just share any of the kind of feedback you've had since the initial rollout of that?

Arren Cyganovich: Okay. Then, on the Credit Card side, I know it's still very early days there. Can you just share any of the kind of feedback you've had since the initial rollout of that?

Okay.

And then.

On the credit card side, and it's still very early days. There can you just share any of the kind of feedback you've had since the initial rollout of that.

It is early days and we are still doing very controlled solicitation. So the number of customers that we have we're sitting here measured in the hundreds rate such as too yes.

[Company Representative] (SLM Corp): It is early days. We are still doing a very controlled solicitation. The number of customers that we have while we're sitting here is measured in the hundreds, right, just to, you know, put a point on it. We're very happy with the way the launch went. We had originally signed, or we signed our contract with our partners, Deserve, on 6 July 2018. We launched the product in June of this year, getting it just under the full 12 months. We're very happy with that. We have the three embodiments for the life stages that are in the product. The reviews by people who do these things have been positive. We're on the map. As you point out, early days, more to come in future quarters.

Ray Quinn: It is early days. We are still doing a very controlled solicitation. The number of customers that we have while we're sitting here is measured in the hundreds, right, just to, you know, put a point on it. We're very happy with the way the launch went. We had originally signed, or we signed our contract with our partners, Deserve, on 6 July 2018. We launched the product in June of this year, getting it just under the full 12 months. We're very happy with that. We have the three embodiments for the life stages that are in the product. The reviews by people who do these things have been positive. We're on the map. As you point out, early days, more to come in future quarters.

Well point out we're very happy with the way the launch when we had originally signed up are we signed our contract with our partners deserve on up.

July six 2018, and we launched the product in June of this year.

Getting a chest under the full 12 months as we are very happy with that we have the three embodiment for the life stages that are in the product and the product the reviews by people who do these things has been positive.

And so were on the map and as you point out early days more to come in future quarters.

[Analyst] (Wells Fargo): Okay. Thank you.

Arren Cyganovich: Okay. Thank you.

Okay. Thank you.

Operator 3: Again, if you would like to ask a question, press star then the number one. The next question comes from the line of Rick Shane with JP Morgan.

Operator: Again, if you would like to ask a question, press star then the number one. The next question comes from the line of Rick Shane with JP Morgan.

Again, if you would like to ask a question Press Star then the number one. The next question comes from the line of Rick Shane with JP Morgan.

Hey, guys. Thanks for taking my questions. This morning.

[Analyst] (Credit Suisse): Hey, guys. Thanks for taking my questions this morning. look, I understand in terms of charge-offs, there's a high degree of seasonality. There's always a lot of noise. I am curious when we sort of look at some of the underlying drivers, is there anything you're seeing in terms of roll rates that has changed, either positive or negative, over the last 12 months?

[Analyst] (JPMorgan): Hey, guys. Thanks for taking my questions this morning. look, I understand in terms of charge-offs, there's a high degree of seasonality. There's always a lot of noise. I am curious when we sort of look at some of the underlying drivers, is there anything you're seeing in terms of roll rates that has changed, either positive or negative, over the last 12 months?

Look I understand in terms of charge offs. There is a high degree of seasonality and.

There's always a lot of noise.

I am curious when we sort of look.

At some of the underlying.

Drivers or is there anything you're seeing in terms of oil rates that has changed either positive or negative.

Over the last 12 months.

As we look at each one of the vintage is coming in and we have various collection strategies that we vary over time.

[Company Representative] (SLM Corp): As we look at each one of the advantages coming in, and we have various, you know, collection strategies, that, you know, we vary over time, you know, there are always fluctuations. The questions would be, as you touched upon a little bit earlier, is there anything from the environment? Are the new accounts performing the way we thought the new accounts would be? You know, how are first payment defaults going? How are contact rates doing? The answer on all of those things is everything is stable. As Steve alluded to, the write-off rate last year at this time was approximately 108 basis points. We're right on top of that 108 basis points this year. There's always puts and takes, you know, in collections.

Ray Quinn: As we look at each one of the advantages coming in, and we have various, you know, collection strategies, that, you know, we vary over time, you know, there are always fluctuations. The questions would be, as you touched upon a little bit earlier, is there anything from the environment? Are the new accounts performing the way we thought the new accounts would be? You know, how are first payment defaults going? How are contact rates doing? The answer on all of those things is everything is stable. As Steve alluded to, the write-off rate last year at this time was approximately 108 basis points. We're right on top of that 108 basis points this year. There's always puts and takes, you know, in collections.

They were always fluctuations.

And so the question is would be as you touched upon a little bit earlier.

Is there anything from the environment or the new accounts performing the way we thought the new accounts would be our first payment defaults going Howard contact rates doing.

And the answer on all those things is everything is stable.

And so as Steve alluded to the write off rate last year. At this time was approximately 108 basis points were right on top of that 108 basis points. This year, there's always puts and takes.

In collections and as we commented in the first quarter. The 89 basis points that we wrote up was better than our expectations.

[Company Representative] (SLM Corp): As we commented in Q1, the 89 basis points that we wrote up was better than our expectations. The 129 that we're doing Q2 is within our expectations. I would say, a bunch of noise around, but that is BAU for collections, and no change in our models, no change in our cutoffs, no change in our through-the-door population. Stability has been our companion and friend for several years. We expect that to be the case going forward.

Ray Quinn: As we commented in Q1, the 89 basis points that we wrote up was better than our expectations. The 129 that we're doing Q2 is within our expectations. I would say, a bunch of noise around, but that is BAU for collections, and no change in our models, no change in our cutoffs, no change in our through-the-door population. Stability has been our companion and friend for several years. We expect that to be the case going forward.

The 129 that we are doing this quarters within our expectation. So I would say on a bunch of noise around but that is bu for collections on and no change in our models no change in our cut offs no change in our through the door population.

Stability has been our companion and friend for several years, we expect that to be the case going forward.

Got it and you made the comment that the.

[Analyst] (Credit Suisse): Got it. You made the comment that the new vintages that are rolling through are performing consistently with historic vintages. I'm curious if you're seeing anything in the more seasoned vintages that changes your trajectory perspective or, you know, your trajectory outlook there. Is performance, you know, you guys are moving into a world where you have to look at lifetime performance. Is there anything that you've seen over the last couple quarters on your more seasoned vintages that changes your outlook either positively or negatively? I remember a couple years ago we talked about sort of 8% lifetime loss rates. That actually got dampened down a little bit. I'm curious if you're seeing anything as those vintages mature that changes as well.

[Analyst] (JPMorgan): Got it. You made the comment that the new vintages that are rolling through are performing consistently with historic vintages. I'm curious if you're seeing anything in the more seasoned vintages that changes your trajectory perspective or, you know, your trajectory outlook there. Is performance, you know, you guys are moving into a world where you have to look at lifetime performance. Is there anything that you've seen over the last couple quarters on your more seasoned vintages that changes your outlook either positively or negatively? I remember a couple years ago we talked about sort of 8% lifetime loss rates. That actually got dampened down a little bit. I'm curious if you're seeing anything as those vintages mature that changes as well.

New vintages that are rolling through our performing consistently with our historic vintages.

Im curious if youre seeing anything in the more seasoned vintages that changes your.

Trajectory perspective, your trajectory outlook there.

And.

His performance you guys are moving into a world where you have to look at lifetime performance is there anything that you've seen over the last couple of quarters.

On your more seasoned vintages that changes your.

Outlook, either positively or negatively I remember.

A couple of years ago, we talked about.

Sort of.

8% lifetime loss rates, and then that actually got dampened down a little bit curious if you're seeing anything is as vintages mature that changes as well.

[Company Representative] (SLM Corp): Yeah. lifetime losses are something that we have built into our evaluation of our front end and underwriting and cutoff scores. From the very beginning of, you know, this company's life, we have used lifetime losses. Now, CECL will cause us to have to document those and put them on the balance sheet and that sort of thing. Essentially, that's taking preexisting models and putting them into a regulatory regime that is, you know, more about model risk management, that sort of thing. The models themselves have had very little change in them. You would see it in our through-the-door cutoffs, either in the approval rate, which is running about 45%, or with that 746 FICO. We have not seen any changes.

Ray Quinn: Yeah. lifetime losses are something that we have built into our evaluation of our front end and underwriting and cutoff scores. From the very beginning of, you know, this company's life, we have used lifetime losses. Now, CECL will cause us to have to document those and put them on the balance sheet and that sort of thing. Essentially, that's taking preexisting models and putting them into a regulatory regime that is, you know, more about model risk management, that sort of thing. The models themselves have had very little change in them. You would see it in our through-the-door cutoffs, either in the approval rate, which is running about 45%, or with that 746 FICO. We have not seen any changes.

Yes, I'll lifetime losses, there or something that we have.

Built into our evaluation of our front end in underwriting and cut off scores and so from the very beginning of this company's life, we have used lifetime losses.

Cecil will cause us to have to document those and put them on the balance sheet and that sort of thing.

But essentially that's taking pre existing models and putting them into a regulatory.

Regime that is more about model risk management that sort of thing the models themselves had very little change in them.

And you would see it in our through the door cut offs either in the approval rate, which is running about 45% or with that 746 FICO.

We have not seen any changes.

[Company Representative] (SLM Corp): I will say that to the extent that the consolidation numbers go down, it's, you know, very helpful for looking at lifetime losses because typically, those are seasoned a year or two. Once again, the answer has been steady. Steady has been both our companion and our friend. We are dealing with a demographic that is not as volatile as the economy at large, with the unemployment rate running half of what the national rate is, as I said earlier. In direct answer to your question, we haven't seen anything either in new vintages coming in nor in the vintages that are past their peak losses. As you know, peak losses occur about two year, they're within the first two years of full principal and interest. That tail-off curve of losses is on our models.

Ray Quinn: I will say that to the extent that the consolidation numbers go down, it's, you know, very helpful for looking at lifetime losses because typically, those are seasoned a year or two. Once again, the answer has been steady. Steady has been both our companion and our friend. We are dealing with a demographic that is not as volatile as the economy at large, with the unemployment rate running half of what the national rate is, as I said earlier. In direct answer to your question, we haven't seen anything either in new vintages coming in nor in the vintages that are past their peak losses. As you know, peak losses occur about two year, they're within the first two years of full principal and interest. That tail-off curve of losses is on our models.

I will say that to the extent of the consolidation numbers go down.

It's very helpful for looking at lifetime losses, because typically those are seasoned a year or two.

And so once again the answer has been steady stay has been both our companion in our friend.

We are dealing with a demographic that is not as volatile as the economy at large.

With the unemployment rate running half of what the national rate is as I said earlier and so we direct answer to your question, we haven't seen anything either in a new vintages coming nor into vintages that are past their peak losses, and as you know peak losses occur about two year there within the first two years of full principal and interest that tail off curve of losses is on our models and so thats as I said had it not been you would see us adjusting the front end.

[Company Representative] (SLM Corp): That's as I said, had it not been, you would see us adjusting the front end.

Ray Quinn: That's as I said, had it not been, you would see us adjusting the front end.

Hey, great. Thank you very much.

[Analyst] (Credit Suisse): Okay. Right. Thank you very much.

[Analyst] (JPMorgan): Okay. Right. Thank you very much.

Operator 3: The next question comes from the line of Vincent Kennett with Stevens.

Operator: The next question comes from the line of Vincent Kennett with Stevens.

The next question comes from the line of Vincent.

Steven.

[Analyst] (Stevens): Thanks. Good morning. Thanks for the disclosure on CECL. I think you guys have been kind of the thought leader on providing framework for CECL. My first question's actually on it. You know, as we're looking at 2020, when we have to look at a CECL EPS number, I appreciate you'll be putting a core number or just a core number, any sense for how the CECL affects the GAAP numbers? Is there maybe any because I understand you're growing a lot? Just kind of when we think about 2020, if there's any help on what the GAAP versus the core spread would be for EPS.

Vincent Caintic: Thanks. Good morning. Thanks for the disclosure on CECL. I think you guys have been kind of the thought leader on providing framework for CECL. My first question's actually on it. You know, as we're looking at 2020, when we have to look at a CECL EPS number, I appreciate you'll be putting a core number or just a core number, any sense for how the CECL affects the GAAP numbers? Is there maybe any because I understand you're growing a lot? Just kind of when we think about 2020, if there's any help on what the GAAP versus the core spread would be for EPS.

Thanks, Good morning, and thanks for the disclosure on seasonal I think you guys have been kind of the thought leader on providing.

Framework for seasonal.

My first question is actually on it.

As we're looking at the 2020.

When we have to look at.

Cecil.

EPS number and I appreciate you will be putting a core number or just a core number but any sense for.

How the seasonal effects, the GAAP numbers or maybe any because I understand you're growing a lot just kind of when we think about 2020, if theres any help on what the gap versus the core spread would be for you yes.

The impact would be bigger than a breadbox. Okay. I mean, the impact is going to be significant we just talked about.

[Company Representative] (SLM Corp): Go ahead.

Ray Quinn: Go ahead.

[Company Representative] (SLM Corp): The impact, would be bigger than a breadbox. How about that? I mean, the impact is going to be significant. We just talked about, you know, a $300 million reserve on an origination cohort of, you know, $5-plus billion. You know, it's going to be a meaningful number.

Steve McGarry: The impact, would be bigger than a breadbox. How about that? I mean, the impact is going to be significant. We just talked about, you know, a $300 million reserve on an origination cohort of, you know, $5-plus billion. You know, it's going to be a meaningful number.

$300 million reserve on an origination cohort of.

Five plus billion dollars so.

No, it's going to be a meaningful number.

[Company Representative] (SLM Corp): We haven't given any guidance as far as, you know, what we think that is. Although we do, as Steve said, you know, clearly have in the camp of, not only will it be a highly volatile number, but we don't believe it'll be representative of the performance of the franchise. It's extremely unfortunate that that is the case. If you wanted to, you know, ballpark it, you could look at the originations in the quarter. You could think about those life of loan losses and that high 7s, 8%. You would ballpark what's going into CECL versus what had previously been the case. You would take it right off our adjusted core earnings, and look at what we're backing out for the loan loss reserve build, because that is the definition of the, in my opinion, inappropriate volatility, that's a side effect of CECL.

Ray Quinn: We haven't given any guidance as far as, you know, what we think that is. Although we do, as Steve said, you know, clearly have in the camp of, not only will it be a highly volatile number, but we don't believe it'll be representative of the performance of the franchise. It's extremely unfortunate that that is the case. If you wanted to, you know, ballpark it, you could look at the originations in the quarter. You could think about those life of loan losses and that high 7s, 8%. You would ballpark what's going into CECL versus what had previously been the case. You would take it right off our adjusted core earnings, and look at what we're backing out for the loan loss reserve build, because that is the definition of the, in my opinion, inappropriate volatility, that's a side effect of CECL.

Well, we haven't given any guidance as far as what we think that is although we do as Steve said clearly having the camp of not only will it be a highly volatile number but we don't believe would be representative of the performance of the franchise. It's extremely unfortunate that that is the case.

But if you wanted to you know ballpark. It you could look at the originations in the quarter you could think about those life of loan losses of that high 78% you would ballpark, what's going into a seasonal versus what had previously been the case.

And you would take it right off our adjusted core earnings.

And look at what we're backing out for the loan loss reserve build because that is the definition of the.

Inappropriate volatility.

That's a side effect of Cecil.

[Company Representative] (SLM Corp): We're not giving guidance on it. It's an easily calculable range, given the disclosure that we've already provided.

Ray Quinn: We're not giving guidance on it. It's an easily calculable range, given the disclosure that we've already provided.

So we're not giving guidance on it but it's an easily calculate a bull range.

Given the disclosure that we've already provided.

[Analyst] (Stevens): Gotcha. That's helpful. Maybe asking it another way. Your 2019 guidance of $1.21 to 1.23, I guess under the new adjusted core EPS, would that 2019 guidance have been approximately the same? There's not really any change going forward?

Vincent Caintic: Gotcha. That's helpful. Maybe asking it another way. Your 2019 guidance of $1.21 to 1.23, I guess under the new adjusted core EPS, would that 2019 guidance have been approximately the same? There's not really any change going forward?

Got you that's helpful and maybe asking it another way so youve.

29 in the guidance of 121, a 123 I guess under the new.

Adjusted core EPS.

That would still would that 2019 guidance.

Have been approximately the same so theres not really any any change going forward.

Well, we're not changing the guidance for any impact on Cecil.

[Company Representative] (SLM Corp): Well, we're not changing the guidance for any impact on CECL, for the remainder of this year. Is your question, had we been under CECL in 2019, what our EPS would have been?

Ray Quinn: Well, we're not changing the guidance for any impact on CECL, for the remainder of this year. Is your question, had we been under CECL in 2019, what our EPS would have been?

For the remainder of this year.

[Analyst] (Stevens): Under your new adjusted core EPS methods, just so we can have apples to apples for what you'll be disclosing as your core.

Vincent Caintic: Under your new adjusted core EPS methods, just so we can have apples to apples for what you'll be disclosing as your core.

[Company Representative] (SLM Corp): Yes.

Ray Quinn: Yes.

[Analyst] (Stevens): Number for next year.

Vincent Caintic: Number for next year.

[Company Representative] (SLM Corp): Right. It is there.

Steve McGarry: Right. It is there.

[Company Representative] (SLM Corp): Look, if you take a look in the 10Q, we laid out 2008 to 2018 and 2019 under current core and future core. The difference ranges between $0.03 and, I think, $0.06 per quarter. The impact is not significant. Once we compare that to a CECL number, the impact will certainly be significant. All we're doing in the new core is rather when we give guidance, we will give guidance for the new core. Instead of including provision, it will include expected charge-offs during the course of the year, which obviously, all things being equal, are going to be lower than a provision because a provision is more forward-looking and includes growth in the portfolio. You can take a look at the numbers. If you want to discuss it further, we can get together with you after the call.

So look if you take a look in the 10-Q, we laid out 2008 to 2018 and 19 under current core and future core and the different ranges between three and I think six cents.

Steve McGarry: Look, if you take a look in the 10Q, we laid out 2008 to 2018 and 2019 under current core and future core. The difference ranges between $0.03 and, I think, $0.06 per quarter. The impact is not significant. Once we compare that to a CECL number, the impact will certainly be significant. All we're doing in the new core is rather when we give guidance, we will give guidance for the new core. Instead of including provision, it will include expected charge-offs during the course of the year, which obviously, all things being equal, are going to be lower than a provision because a provision is more forward-looking and includes growth in the portfolio. You can take a look at the numbers. If you want to discuss it further, we can get together with you after the call.

Per quarter. So the impact is not significant but once we compare that to a seasonal number the impact will certainly.

The significant but all were doing in the new core is rather when we give guidance, we will give guidance for the new core and instead of including.

Provision it will include.

Our expected charge offs during the course of the year, which obviously, all things being equal or going to be lower than a provision because the provision is more is forward looking and.

Includes growth portfolio so.

You can take a look at the numbers and if you want to discuss it further we can go with you after the call we did.

[Company Representative] (SLM Corp): We published an awful lot on, you know, the what the new CECL impact is going to be.

Steve McGarry: We published an awful lot on, you know, the what the new CECL impact is going to be.

We published an awful lot on.

You know what the new core impact is going to be.

[Analyst] (Stevens): Okay. Got it. That's helpful. Just to follow up separately, on the personal loans, just noticed the credit there, losses jumped. I was just wondering if there's anything particular to the quarter and what we should be expecting as a run rate, net loss rate going forward. Thank you.

Vincent Caintic: Okay. Got it. That's helpful. Just to follow up separately, on the personal loans, just noticed the credit there, losses jumped. I was just wondering if there's anything particular to the quarter and what we should be expecting as a run rate, net loss rate going forward. Thank you.

Okay got it thats helpful.

Just a follow up separately on the personal loans.

Just noticed the.

Credit there.

Losses jumps and I'm just wondering if there is anything particularly to the quarter and what you what we should be expecting as a run rate net loss rate going forward. Thank you.

[Company Representative] (SLM Corp): Sure. As you know, the losses that we are experiencing and the provision change that you'd noted, one starts at 0 on, you know, 1 November 2017. We built up the portfolio through 2018 with a range of testing both on the marketing side as well as on the credit side. That's reflected in the provision. We've made adjustments appropriate to both marketing as well as credit, starting in the middle of last year. Going forward, we will have, you know, a provision that sort of models the experience of the personal loans in the current period. We're not giving guidance for that individually. It is the case that our portfolio going forward, does have an expected ROE of 15%.

Ray Quinn: Sure. As you know, the losses that we are experiencing and the provision change that you'd noted, one starts at 0 on, you know, 1 November 2017. We built up the portfolio through 2018 with a range of testing both on the marketing side as well as on the credit side. That's reflected in the provision. We've made adjustments appropriate to both marketing as well as credit, starting in the middle of last year. Going forward, we will have, you know, a provision that sort of models the experience of the personal loans in the current period. We're not giving guidance for that individually. It is the case that our portfolio going forward, does have an expected ROE of 15%.

Sure.

And that actually on the losses that we are experiencing and the provision change that you noted one starts at zero on you in November Onest of 2017.

And we built up the portfolio through 18 with a range of testing both on the marketing side as well as on the credit side and so thats reflected in the provision we made adjustments appropriate to both marketing as well as credit starting in the middle of last year and so going forward, we will have.

A provision that sort of models are the experience of the personal loans in the current period.

But we are not giving guidance for that individually.

But it is the case at our portfolios going forward.

Does have an expected or are we at 15%.

[Analyst] (Stevens): Okay. Gotcha. Thanks very much.

Vincent Caintic: Okay. Gotcha. Thanks very much.

Okay got you thanks very much.

The next question comes from the line of Montana with Barclays.

Operator 3: The next question comes from the line of Mark Devers with Barclays.

Operator: The next question comes from the line of Mark Devers with Barclays.

[Analyst] (Barclays): Yeah, thanks. Given your comfort level with your capital cushion, even kind of post-full CECL implementation, can you just talk about the capacity you think you have to continue to buy back your stock here, which presumably you view as pretty attractive at these levels?

Mark DeVries: Yeah, thanks. Given your comfort level with your capital cushion, even kind of post-full CECL implementation, can you just talk about the capacity you think you have to continue to buy back your stock here, which presumably you view as pretty attractive at these levels?

Yes. Thanks.

So given your comfort level with your capital cushion, even kind of post full seasonal implementation can you just talk about the capacity. You think you have to continue to buy back your stock here, which presumably views is pretty attractive at these levels.

One is I agree I agree that the stock is attractively priced for buyback on I wish it's attractively priced.

[Company Representative] (SLM Corp): I agree that the stock is attractively priced for buyback. I wish it was just attractively priced. Having said that, we're not giving any guidance on the other side of 1 January 2020 for CECL, because it's just so many moving parts that have not been in any way blessed by regulatory bodies. We don't want to get ahead of ourselves. As Steve says, going forward, to the extent we had the loan loss reserve plus the capital piece, and that is 15% or so going forward, and we are well-capitalized, we will continue to view the capital as, you know, a series of capabilities that can either be used to reinvest in the business, pay in dividends, or do buybacks. We would like to continue to do all three going forward. That would be our objective.

Ray Quinn: I agree that the stock is attractively priced for buyback. I wish it was just attractively priced. Having said that, we're not giving any guidance on the other side of 1 January 2020 for CECL, because it's just so many moving parts that have not been in any way blessed by regulatory bodies. We don't want to get ahead of ourselves. As Steve says, going forward, to the extent we had the loan loss reserve plus the capital piece, and that is 15% or so going forward, and we are well-capitalized, we will continue to view the capital as, you know, a series of capabilities that can either be used to reinvest in the business, pay in dividends, or do buybacks. We would like to continue to do all three going forward. That would be our objective.

But having said that we're not giving any guidance on the other side of January Onest 2020 for C. So.

Because it's just so many moving parts that have not been.

In any way blessed by regulatory bodies. So we don't want to get ahead of ourselves.

But as Steve says going forward to the extent, we had loan loss reserve plus the capital piece in that is 15% or so going forward and we are well capitalized we will continue to view the capital as.

A series of capabilities that can either be used to reinvest in the business paying dividends do buybacks and we would like to continue to do all three going forward.

So that would be our objective, but we do think that it's appropriate to let the dust settle a little bit before we would get ahead of ourselves.

[Company Representative] (SLM Corp): We do think that it's appropriate to let the dust settle a little bit, before we would get ahead of ourselves, in these projections.

Ray Quinn: We do think that it's appropriate to let the dust settle a little bit, before we would get ahead of ourselves, in these projections.

In these projections.

[Analyst] (Barclays): Got it. Then, on the refi, or the, you know, refi-related repayments, it sounds like you attributed a lot of the drop to competition kind of pulling back. It should we assume that you haven't had to do much, as far as some of the defensive measures you've contemplated? How should we think about that activity, over the back half of the year with rates dropping and refi's presumably looking a little bit more attractive for borrowers?

Mark DeVries: Got it. Then, on the refi, or the, you know, refi-related repayments, it sounds like you attributed a lot of the drop to competition kind of pulling back. It should we assume that you haven't had to do much, as far as some of the defensive measures you've contemplated? How should we think about that activity, over the back half of the year with rates dropping and refi's presumably looking a little bit more attractive for borrowers?

Got it.

And then.

On the refinery.

Or the refund related repayments.

It sounds like you attributed a lot of the drop to.

Competition kind of pulling back.

Should we assume that you have and how to do much.

As far as some of the defensive measures you've contemplated and how should we think about that activity.

Over the back half of the year, where the rates rates, dropping and refinance presumably looking a little bit more attractive for borrowers.

[Company Representative] (SLM Corp): Well, first, it is the case that, of course, if the level drops and we, you know, attribute it, you know, to individual competitors and we have their names, they will drop, you know, in total. That 393 to 314 drop. The thing about it that was interesting was it was a drop for every single name on our list. We don't know what they're going to do going forward. As I said, it's been a thin to negative margin business by any calculations in the past. We haven't had to do much in the way of defense, to take another part of your question. We haven't had to deteriorate in any way our either yield on the portfolio or our net interest margin, as we discussed here. Going forward, very hard to say. The drop-off is significant.

Ray Quinn: Well, first, it is the case that, of course, if the level drops and we, you know, attribute it, you know, to individual competitors and we have their names, they will drop, you know, in total. That 393 to 314 drop. The thing about it that was interesting was it was a drop for every single name on our list. We don't know what they're going to do going forward. As I said, it's been a thin to negative margin business by any calculations in the past. We haven't had to do much in the way of defense, to take another part of your question. We haven't had to deteriorate in any way our either yield on the portfolio or our net interest margin, as we discussed here. Going forward, very hard to say. The drop-off is significant.

And so we don't know what they're going to do going forward and as Ted has been a bit into negative margin business by any calculations in the past.

We haven't had to do.

Much in the way of defense said to take another part of your question and so we haven't had to what tier in any way our yield on the portfolio or our net interest margin as we discussed here going forward very hard to say.

The drop off is significant and we have seen over the course of three years that some competitors get in they stay awhile and they leave.

[Company Representative] (SLM Corp): We have seen over the course of 3 years that some competitors get in, they stay a while, and they leave. We'll see what happens with them. It's entirely dependent upon their individual initiatives. It is gratifying to see that across the board, they all seem to think it was a better idea to do less of this in Q2 than Q1.

Ray Quinn: We have seen over the course of 3 years that some competitors get in, they stay a while, and they leave. We'll see what happens with them. It's entirely dependent upon their individual initiatives. It is gratifying to see that across the board, they all seem to think it was a better idea to do less of this in Q2 than Q1.

And so we'll see what happens with them, but it's.

It's entirely dependent upon their individual initiatives.

But it is gratifying to see that across the board. They all seem to think it was better idea to do less of this in the second quarter than the first quarter.

[Analyst] (Barclays): Okay. Got it. Thank you.

Mark DeVries: Okay. Got it. Thank you.

Operator 3: The next question comes from the line of Henry Coffee with Wesbush.

Operator: The next question comes from the line of Henry Coffee with Wesbush.

The next question comes from the line.

Henry Coffey with Wedbush.

[Analyst] (Wesbush): Yes. Good morning. Thanks for taking my questions. Just 3 quick questions. Number 1, in the ancient days, bank analysts called what you're talking about primary capital, and even though it's a bit of a misnomer, cash EPS. Do you know, you obviously talk to your competitors and other consumer finance companies? Do you think that's sort of where the thought process is going to migrate for the entire industry? Is this some, you know, have you had dialogue around this with other companies? Is this your, this just your sort of best thoughts about how to manage around CECL?

Henry Coffey: Yes. Good morning. Thanks for taking my questions. Just 3 quick questions. Number 1, in the ancient days, bank analysts called what you're talking about primary capital, and even though it's a bit of a misnomer, cash EPS. Do you know, you obviously talk to your competitors and other consumer finance companies? Do you think that's sort of where the thought process is going to migrate for the entire industry? Is this some, you know, have you had dialogue around this with other companies? Is this your, this just your sort of best thoughts about how to manage around CECL?

Yes, good morning, and thanks for taking my questions just.

Yes in the ancient days bank analyst calls, what you're talking about primary capital and.

Even though its a bit of a misnomer Kashi PS.

You, obviously talk to your competitors and other consumer finance companies do you think that's sort of where.

The thought process is going to migrate for the entire industry or is this have you had dialogue around this with other companies or is this your just your sort of best thoughts about how to manage around Cecil.

In this case at of course, all the Cecil pieces, our projections for everybody and as you know from listening to other earnings calls.

[Company Representative] (SLM Corp): It is the case that, of course, all the CECL pieces are, you know, projections for everybody. As you know from listening to other earnings calls, we are, I think, more engaged in the details associated with CECL and the impact on our particular franchise than most of our companies that are similar to ourselves. We have talked to people informally, and we have asked several advisors for their comments on both our disclosures on CECL, the impact associated with it going forward on capital, as well as the possibility of looking at it a particular way or a different way in keeping with the conclusion that we reached on the adjusted core earnings. We think a whole bunch of people have thought about CECL. We think we're relatively closer to the front of that parade than the back of that parade.

Ray Quinn: It is the case that, of course, all the CECL pieces are, you know, projections for everybody. As you know from listening to other earnings calls, we are, I think, more engaged in the details associated with CECL and the impact on our particular franchise than most of our companies that are similar to ourselves. We have talked to people informally, and we have asked several advisors for their comments on both our disclosures on CECL, the impact associated with it going forward on capital, as well as the possibility of looking at it a particular way or a different way in keeping with the conclusion that we reached on the adjusted core earnings. We think a whole bunch of people have thought about CECL. We think we're relatively closer to the front of that parade than the back of that parade.

We are I think more engaged in the details associated with the seasonal and the impact on our particular franchise than than most of our companies that are similar to ourselves.

We have talked to people in formally on and we have asked several advisors.

For their comments on both our disclosures assay souls on C., so the impact associated with it going forward on capital as well as the possibility of looking at a particular way or a different way in keeping with the conclusion that we reached on the adjusted core earnings and so on.

[Company Representative] (SLM Corp): It's very hard for us to say what the industry standard will be going forward. A key piece of things will be 1, everybody getting over the CECL hump in Q1, and then the regulators recognizing that they were successful in getting more equity into the regulatory regimen. The question will be how much is too much, and what do we count? I would say that those conversations are, you know, barely incipient at this point. I think it would be foolish of me to say what either the industry thinks or any other competitor.

Ray Quinn: It's very hard for us to say what the industry standard will be going forward. A key piece of things will be 1, everybody getting over the CECL hump in Q1, and then the regulators recognizing that they were successful in getting more equity into the regulatory regimen. The question will be how much is too much, and what do we count? I would say that those conversations are, you know, barely incipient at this point. I think it would be foolish of me to say what either the industry thinks or any other competitor.

And so it's very hard for us to say, what the industry standard will be going forward.

But a key piece of things.

We'll be one everybody getting over the Cecil hump in the first quarter and then the regulators recognizing that they were successful in getting more equity.

Barely incipient at this point and so I think it would be.

Foolish for me to say, what either the industry thinks or any other competitor.

[Analyst] (Wesbush): If I've got this right, and I hope I have, it looks like your tax rate went down a lot in the quarter. Was that some specific item? I got on the call late. If you've addressed this already, I apologize.

And then if I got this right and I hope I have it looks like your tax rate went down a lot in the quarter was was that some specific item and I I got on the call late so if you've addressed this already I apologize yes.

Henry Coffey: If I've got this right, and I hope I have, it looks like your tax rate went down a lot in the quarter. Was that some specific item? I got on the call late. If you've addressed this already, I apologize.

[Company Representative] (SLM Corp): Okay. Yeah. Now we've noticed your tardiness. It is the case that the tax changes in the quarter were idiosyncratic and catch-ups on a couple of tax situations that we had. We'll return to our normal rate going forward unless something else were to come on the scene of which we are unaware.

Ray Quinn: Okay. Yeah. Now we've noticed your tardiness. It is the case that the tax changes in the quarter were idiosyncratic and catch-ups on a couple of tax situations that we had. We'll return to our normal rate going forward unless something else were to come on the scene of which we are unaware.

Now we've noted your tardiness and so.

His case that the tax changes.

In the quarter were idiosyncratic and catch ups on a couple of tax situations that we had and will return to.

Our normal rate going forward.

Unless something elsewhere to come on the scene that of which we are unaware.

[Analyst] (Wesbush): The TDR, was that reserve adjustment in the Q2? Does that go on during the course of the year? How does it sort of flow into the numbers?

Henry Coffey: The TDR, was that reserve adjustment in the Q2? Does that go on during the course of the year? How does it sort of flow into the numbers?

And then the TDR was that.

What was that reserve adjustment.

In the in the June quarter or does that go on during the course of the year or how does it sort of flow into the numbers.

[Company Representative] (SLM Corp): Yeah. A couple of things. One is, since interest rates have started to decline, that phenomenon has been with us. There was, you know, $5 million, $10 million in Q1. It was just covered by us. The drop that we had in Q2 of the relevant interest rates was more than we had forecast at the end of Q1. One is, this has been around. Two is, unless there's a change in our expectations, and we tend to use the forwards, so that we don't have any crystal ball forecasting on this. We want to be right down the middle of the lane. Unless there's a change in the forwards in a decline sense, we won't have any further adjustment for this type of thing.

Ray Quinn: Yeah. A couple of things. One is, since interest rates have started to decline, that phenomenon has been with us. There was, you know, $5 million, $10 million in Q1. It was just covered by us. The drop that we had in Q2 of the relevant interest rates was more than we had forecast at the end of Q1. One is, this has been around. Two is, unless there's a change in our expectations, and we tend to use the forwards, so that we don't have any crystal ball forecasting on this. We want to be right down the middle of the lane. Unless there's a change in the forwards in a decline sense, we won't have any further adjustment for this type of thing.

Yes, a couple of things one is sensitive to interest rates have started to decline.

That phenomenon has been with us and so there was $510 million in the first quarter, but it was just covered by US while we did drop that we had in the second quarter of the relevant interest rates was more than we had forecast at the end of the first quarter and so so one is this has been around.

Two is unless there's a change in the equity in our expectations that we tend to use the forwards. So that we don't have any crystal ball forecasting and as we want to be right down to the middle of the lane.

So unless there's a change in the forwards in a decline sense, we won't have any further adjustment for this type of thing.

[Analyst] (Wesbush): Great. Thank you very much.

Henry Coffey: Great. Thank you very much.

Great. Thank you very much.

Your final question comes from the line of Ian basic what the role of growth capital.

Operator 3: Your final question comes from the line of Ann Masick with Rose Grove Capital.

Operator: Your final question comes from the line of Ann Masick with Rose Grove Capital.

[Analyst] (Rose Grove Capital): Hi. Good morning. Thanks for taking the question. Given the Fed's really public stance on encouraging the market to transition from LIBOR, a lot of US banks have recently redeemed LIBOR-based debt or preferred and then reissued them in either SOFR, CMT, FORM, and using ARC language when appropriate. Is this something Sallie Mae has considered? Relatedly, how are you addressing the LIBOR issue on the asset side of the balance sheet?

[Analyst] (Rose Grove Capital): Hi. Good morning. Thanks for taking the question. Given the Fed's really public stance on encouraging the market to transition from LIBOR, a lot of US banks have recently redeemed LIBOR-based debt or preferred and then reissued them in either SOFR, CMT, FORM, and using ARC language when appropriate. Is this something Sallie Mae has considered? Relatedly, how are you addressing the LIBOR issue on the asset side of the balance sheet?

Hi, good morning, Thanks for taking the question.

Given the fed really public stance on.

Encouraging the markets transition from LIBOR or a lot of us banks have recently redeemed LIBOR based at our preferred and then reissue then either so first DMT form and using arc language when appropriate.

And is this something something Sallie Mae is considered and then unrelated Lee how are you addressing the library issue on the asset side of the balance sheet.

So thanks for the question then.

[Company Representative] (SLM Corp): So thanks for the question, Ann. Regarding the transition to LIBOR, we continue to follow the progress that is or is not being made by, I guess they call it the ARC group. We do have significant exposure to LIBOR on our balance sheet, on our variable rate, loans, on our asset-backed bonds, on our derivatives, and, of course, on the preferred that you are asking about. We've continued to change the language in the various securities that we issue as we issue them. We are actually waiting to see what the group comes up with on the transition to SOFR before we take additional, concrete actions. Regarding that security, we don't intend to redeem it at this point in time.

Steve McGarry: So thanks for the question, Ann. Regarding the transition to LIBOR, we continue to follow the progress that is or is not being made by, I guess they call it the ARC group. We do have significant exposure to LIBOR on our balance sheet, on our variable rate, loans, on our asset-backed bonds, on our derivatives, and, of course, on the preferred that you are asking about. We've continued to change the language in the various securities that we issue as we issue them. We are actually waiting to see what the group comes up with on the transition to SOFR before we take additional, concrete actions. Regarding that security, we don't intend to redeem it at this point in time.

Regarding the transition to lie bore.

We continue to follow the progress that is or is not being made by I guess the call. It the.

Arc group, we do have significant exposure to LIBOR floor on our balance sheet on our variable rate.

Loans on our asset backed bonds on our derivatives and of course on the preferred but you are asking about.

We will.

May we've we've continued to change the language in the various securities that we issue as we issue them and we are actually waiting to see what the group comes up with on the transition to so for before we take additional concrete actions regarding that.

Surely.

We don't intend to redeem it at this point in time.

[Analyst] (Rose Grove Capital): Okay. Great. Thanks for your help.

[Analyst] (Rose Grove Capital): Okay. Great. Thanks for your help.

Okay, great. Thanks, Thanks for your help.

I will now turn the call back over for closing remarks.

Operator 3: I will now turn the call back over for closing remarks.

Operator: I will now turn the call back over for closing remarks.

Okay, well, thank you and thank you all for your questions and interest in our franchise.

[Company Representative] (SLM Corp): Okay. Well, thank you. Thank you all for your questions and interest in our franchise. In closing, I would just say that it's a pleasure to be able to talk to you all about this company, which has had terrific, has had a great track record providing excellent returns on equity. We do have controlled expenses, as you've seen with the efficiency ratio. Rational capital allocation going forward will be consistent with how we've conducted ourselves over the last year. Return of capital, there've been a bunch of questions on. Our motivations will be to get that on a transparent and crisp playing field and be able to forecast that going forward once this CECL piece is slightly behind us. There is leverage in the franchise, as you can see, with costs growing less than 1/3 or growing about 1/3 of revenue.

Ray Quinn: Okay. Well, thank you. Thank you all for your questions and interest in our franchise. In closing, I would just say that it's a pleasure to be able to talk to you all about this company, which has had terrific, has had a great track record providing excellent returns on equity. We do have controlled expenses, as you've seen with the efficiency ratio. Rational capital allocation going forward will be consistent with how we've conducted ourselves over the last year. Return of capital, there've been a bunch of questions on. Our motivations will be to get that on a transparent and crisp playing field and be able to forecast that going forward once this CECL piece is slightly behind us. There is leverage in the franchise, as you can see, with costs growing less than 1/3 or growing about 1/3 of revenue.

And in closing.

I would just say that it's a it's a pleasure to be able to talk to you all.

About this company, which has had terrific how that has had a great track record providing excellent returns.

On equity, we do have controlled expenses as you've seen with the efficiency ratio rational capital allocation going forward will be consistent with how we've conducted ourselves over the last year return of capital in a bunch of questions on our motivations will be to get that on a transparent and Chris playing field and be able to forecast that going forward. Once this cecil pieces slightly behind US there is leverage in the franchise as you can see with with cost growing less than one third are growing about one third of revenue.

[Company Representative] (SLM Corp): We're fortunate to be able to be providing a service that is highly valued both by our student customers as well as their families. As we continue forward in the tail end of 2019, I want to thank you for your interest. We'll talk to you next quarter. Take care. Thank you for your time and your questions today. A replay of this call and the presentation will be available on the investors page at salliemay.com. If you have any further questions, feel free to contact me directly. This concludes today's call. Thank you.

Ray Quinn: We're fortunate to be able to be providing a service that is highly valued both by our student customers as well as their families. As we continue forward in the tail end of 2019, I want to thank you for your interest. We'll talk to you next quarter. Take care.

We're fortunate to be able to be providing a service that is highly valued both by our student customers as well as their families and so as we continue forward in the tail end of here of 2019 I want to thank you for your interest and.

We'll talk to you next quarter take care.

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

Thank you for your time and your questions today, a replay of this call and the presentation will be available on the investors page at Sallie Mae Dotcom. If you have any further questions feel free to contact me directly. This concludes todays call. Thank you.

Okay.