SLM - Earnings call transcript Q1 2021

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, and thank you for standing by. Welcome to Sallie Mae's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. to of conference Investor like Cronin, to now President Vice Relations. would hand over the Brian I Please go ahead.

Brian Cronin

is be Thank for the you, our the quarter It prepared first to CEO; questions. Sallie pleasure Regina. Good our will morning, XXXX and and Steve remarks, earnings CFO. Jon we today call with here welcome McGarry, Mae's my Witter, to After call. up open

with discussion future will Actual we SEC. be contain should expectations of of Before mind on company's discussion the begin, those statements. the in factors. those the and could to the from results different Form our in This be may filings keep materially forward-looking Listeners here. and a XX-Q to factors predictions, discussed refer due variety other

others, operations, and/or financial on impact include, Mae, the of factors pandemic conditions of For Sallie our these results the potential business, flows. among cash COVID-XX

quarter non-GAAP core earnings, During reconciliation results refer call, call and our found turn to will for can core of to on at ended the Thank page XX, will is posted XXXX. we the description GAAP over be along our this in press with we Investors a XX-Q Form GAAP salliemae.com. I A measures you. the measures, it release the This call the now earnings to conference March Jon. full earnings.

Jonathan Witter

difficult delivering executing you can quarter I start us today and what joining the since only of team first our company, am to a everybody. for XXXX, for what this fast Mae's we've during has hard strategy times. the proud off work results. It and Brian, of Mae results. I Thank and We're Regina, of been be morning the strong you. described as thank discussion in accomplished Sallie one Sallie joined Good incredibly week a year

fall. I and vaccine driven the key hope we're three what by away today by for We implies colleges normalcy, are toward walk trends universities distribution, with this encouraged by and messages. the in encouraged particularly you

delivered we've First, quarter. the strong results in

XXXX believe return as year our GAAP performance in to was well executing our I trend program first we're positioned And the third, against the year expected. compared in executing quarter are strategies. Second, core by capital $X.XX ago quarter. $X.XX EPS to continue this our we

Our results driven for sale by combination and gains the were the outlook, performance, the strong improvements a first of business quarter loans. economic of from in

of to believe Let quarter is while me $X.X for year our positions first Remember, discussion on a the start We not were the of with the were pandemic's market. the meaningfully overall originations result year-over-year on impacted by performance. of first down full Private achieve originations billion, loan quarter start this business the strong impact us XX% a pandemic. education well XXXX goals. as the the year our and to

results share quarter years. first consistent coming market strong will however, for very fourth weeks, XXXX. was Our be the in XX% we are with quarter off share in available the market quality few past the Originations of next a

program. on watermark for $XXX a XXXX, high is loan executed scores new these of under recorded quarter. quarter were billion XX% rate a versus in QX in on sale XXXX represents ago XXX compared million. XX% year a was in sale Average FICO Our cosigner first a which the This sale XXX and to the We just of loans, XX% gain the our quarter. gain sale loan $X.XX for

of the and charge-offs education especially were important compared to emerge the highlight first credit XXXX. be to annualized that X.XX% pandemic. the year, X.XX% quarter are quarter reflects net the we quarter first for of in the loan a from Our in continues as fourth number happy Private I'm the this fourth the as new year performance in the the line that previous loans last of of quarter graduate on entered in of year. of the despite P&I performance cohorts, challenges economy with past report whole. all initial to a of is vintage the the Delinquencies

During speeds CECL our the reserves. estimates economic our impacted and first in outlook loss assumed the prepayment quarter,

discussed CECL are calls, of past difficult change of these environment. around because As we macroeconomic to assumptions have aspects on the forecast in

the modified Auction what of $XX.XX returned $X program, common stock. commitments. average XXth, While for the in the loan a Dutch was discuss of first stock an February provision its $X.XXX these loss of of billion, in changes to XXXX. of in million. million company was company shares down an approximately $XXX up commencement a both where reserve In share $X.XX. million forecast-related of bringing a extremely which million XX.X a impact the at the made XX for repurchased had more $XXX includes Steve per been announced our purchase shares charges will which reserve program, detail, to have $XXX company the received of at over XXth, This negative unfunded price the price company's of the the quarter, share we On quarter, return capital our stock repurchase tender purchase progress in shares common call. successful and per against discussed March purchase our we XX we January total tremendous of strategy, common of to billion accelerated stock first the share some Xnd, completed additional total, purchased of offer million earnings On On common during January million price

the offer were subscribed, with the fully Although outcome not two tender we reasons. of for pleased

significant able were in and of short time First, we price. repurchase to number attractive of period shares a a added

and movement the the rate, investors value in franchise. subsequent believe demonstrate Second, participation we of fundamental price that believe the the XX% share

program. price began buy we program. XXth, to shares at Through April $XXX aggressively spent closed, an million tender the we using XX after shares of a buying this million through Soon back $XX.XX XXbX-X average

again, Since repurchased have of our I X little in return since XX% keep time. persistent perspective. have the a it's year, year. January we the program important program. of at XXXX, little a at over regular and outstanding XXXX, the think, repurchased of capital we that we repurchased the return of quarter over to outstanding have In in strategic capital a the our of XX.X% a shares shares bit we Said outstanding shares began beginning

As of have billion XXXX, authority our under $XXX granted original million share under left we $X.XX program. repurchase XXXX April authority in the XX,

we CECL. proceeds made and price considerable facing stock undervalued Although while remain selling committed the to have progress repurchase in and of our the strategy stock, are is price, we in our using we loans to

over the Before over QX to we progress results I a the last year. On the reflect to quarter's I'd just moment made more call the a detail, to discuss Steve take in like on to financial basis, income XX%, turn of operating the increased XX%, have shares year-over-year reduced net GAAP have that's QX EPS reduced we increased and common GAAP to our our by and again, since our by XX%, XXXX, XXX%. expense beginning outstanding by

volatility this you you'd macroeconomic last hope year. to making environment we added quarter. the through imperatives. highlights the I the of the strategic has results progress are now agree, our will financial take Steve? against over Although Steve

Steve McGarry

the liquidity allowance, Jon. at Good morning, everyone. and of I continue the statement, loss and our The strong components you, the detailed finally, with key income our Thank will loan of capital position. our look X.X% of discussion commitments beyond commitments discussion this Jon drivers portfolio, the billion this morning's million. a reserve, accrued $X.X total private includes was loan education mentioned, reserve CECL of unfunded and sheet or including as interest plus balance unfunded our exposure. student of loan receivable $XXX Under loan

Our is the significantly reserve X.X% portfolio quarter. from of the at X.X% down prior in

include management. for change allowance quarter-to-quarter loan Under you each losses. know, subject CECL is use CECL, when weightings, most prepayment I preparing the drive The economic include these forecasts, model impacts. we incorporate our necessary and CECL to movement the new the course, you by As volume, sales. inputs and from economic forecast several model impactful inputs forecast loan inputs now will deemed quarter-to-quarter of that in These overlays speeds, walk allowance. through of we

on in for The near X%, projected This reserve before, Moody's college quarter. as we the graduates and SX from prior the economy for base weightings and declined our were in used you to SX aware. reduction are XX%, XX% discussed unchanged unemployment. forecast and the improve to XX% contributed a all continue The forecast, The decline outlook weighted unemployment needs. their used respectively. and average forecast As XX%

Turning prepay speeds. to

the As we this been watch since has item a calls, began. in pandemic past have discussed

Our as forecast, CPR current observations was modeled, trends. and not aligning with

cash a CPR the in a of course think flows considerable regarding we to and additional shape our volatility are We they year. our models, course of cash reduced do we also the in we new speeds and The don't and the any the pretty over speeds. model use implemented think prepay flow probability good a of model default resulted contribute reserve model result, economy will needs. quarter this quarter. The prepay faster new increase As in improved in

driver of Volume our important supports. volume. to Moving allowance is an

that quarter loans While disbursement recall the is large for the commitment at fall many first semester, a time in of spring XXXX. the for of these were of quarter reserved the

loan commitments by of this you in The credit a majority factors loan provision natural requirement sold to the resulted the had quarter released $XX portfolio. discounted this sales prior million. for the our including this loan $XXX on losses to reserve may accretion recall. the impact we private described our other no at in of quarter here in which New our quarter. million, The Therefore, as the student required overlays increase meaningful reserve in million and were addition quarter factors, vast for us reserve reserve, loans $XXX was

our be Page minutes, our I'll few next the For be of can X which found metrics, on investor presentation. credit discussing

entire in this quarter, would X.X% continue. were year improvement in have For the quarter seen we of is which in and given is to and XXXX X.X%. expect for This portfolio, portfolio, loans X.X% from the down our we held as expect, private investment ago education economic QX the forbearance

X.X%, Looking quarter. loans and in from in were down delinquencies, the ago which year QX days delinquent X.X% at was XX education private X.X% plus

and XX the While of these into we mid-XXXX that do lower delinquencies the positive, rise trend were still expect the X% in for plus very year. results day remainder then will

outcomes. as but in were still loans for XXXX the quarter. on for down from charge-offs. of these from prior the our to based we do year to X.X% ago reserved the Turning increase that in well expected Charge-offs very forecasts, up X.XX% quoted year around of a current for in course, quarter, the are we full X.XX% expect charge-offs repay average percentage will but Jon XXXX X.XX%, Again,

little earning find Page quarter X about the QX, NIM And you Let's talk margin, net prior down interest on interest in this the quarter. the which and deck. was on year were ago liquid now can from environment current then, cash this X.X% our proceeds bit assets deposits was loan of the and longer lower driven quarter the in by the due our a sale anticipated. and slightly our in January high than balances, to remaining stickiness on the books of which from

we full are capital, deploying that this area X.XX% come for in January. the NIM still in year However, of the we quickly discussed to and cash and expect at XXXX

business Let's talk quarter, expenses. quarter. ago about cost million was QX operating in reductions Operating generated year despite This million fact decreased the $XXX loan in core quarter compared quarter, million X%. year loan ago by OpEx is to the but in obviously expenses by our increased $XXX our the restructuring. the the XX% sharp student prior service in $XXX XXXX driven from that the

month was operating While to in But it XXXX have to our numbers some providing loan. down that target service cost service $X.XX the our average. also roughly loan front, the components, have $X.XX a we planned cost expenses, about a its numbers $XX.XX loan unit of we talked for breaking seasonality. On These are current year a them. topic information. but this delinquent obviously on service of on full some causes embedded These will roughly efficiencies to into have

sacrificing is this our Our expect quarter-to-quarter, experience, drive on our our efforts well-managed servicing our on we recovery front success we will and without costs either down practices. Through or annually. the technology structure goal that cost leverage to out from our unit volatility customer to report

well first at the are common very positions weighted stood We well quarter XX.X%, ended with total end was capitalized. the capital total -- the XX% Very XX.X%. and At and ratios, tier capital at assets risk-based quarter, X of of liquidity our liquidity of equity strong. to strong above assets. risk Finally,

plus a of in quarter. was reserves very CECL a Finally, loss capitalization, post end that equity our look at we the of the XX% GAAP strong at as also measure and the world, loan

of capital very liquidity, Jon. loss terms us Our balance well sheet solid, remains in to grow and reserves, loan capital to to Thank business our you. and positions shareholders. Back which you, return

Jonathan Witter

that we belief an first we share we that will that you quarter well you are continue agree executed environment. this that and throughout operate positioned Thanks, Key all trend to Steve. is an in I XXXX. well the my hope improving external expectation belief that to in

front, COVID It's next ramping making believe few the really will development the over over the vaccines. students heartened by first for few the positive On around fall. be the spring weeks to plans continued the I'm -- quickly and up semester hard that

strong their a are from X.X% expect should their in Our for that Early X.X% of We be plans are like they continues the in to in a continues XXXX. lower The indications These The payment unemployment college than of the on-campus positively loans. part originations families loan positive Unemployment, to for this direction. more on fourth taxpayers would be remains borrowers' September with support X.X% attendance. would By is year for the compared from will the and XXXX for efforts XXXX. government our and much of unemployment student college original trend built federal indicate through in large, of experience. believe first national and their impact of federal graduate in in guidance This additional quarter average schools least the what to was stimulus year the service indicating half rebound XX, schools with those fall current especially ability the XXXX second relief conditions. normal rate. notably the and borrowers completely that schools the assumption that. looking was quarter XXXX, to regarding normalcy XXXX just students operating of fall at operating and exactly with benefit a a first most education,

we income higher the focus front, proposals achieve lower political priorities that proposals families business dream that administration students or the assisting of beginning complement We and education believe are to being on new see well. targeted important from Finally, discussed. are higher any on assistance our education and debt the

We look outcomes improve ways continue was Corporate create be if will to educate for which and I good students mention this didn't to for Social released month. also help our that Responsibility to aid Report, and I'd earlier policies families. remiss lawmakers

Corporate to a the and ahead. from true certainly the very it's I the responsibility progress our governments, Mae. to to the think take responsibility: is lesson continue one unique we equitable that away I'm have individuals, year's Responsibility owning have adjust lies encouraged other, operate very to customers mission of Report students we deliver Sallie I'm and more seriously our and here as power confidence the healthier, reflects begin strides and This we excited inclusive, to journeys to planet. that can last serve responsibility This to their at privilege make, by made This we and about communities, and world. year Social of achieve importance work take each companies is of real with our the and the communities. our a true is

XXXX of Let conclude a our discussion with guidance. brief me

over of and through performance, we the bottom further business performance repurchases. believe our guidance. obsess and to update Therefore, strengthened line to the and opportunities like have enhance to we'd continue share top reaffirm will which core XXXX We be

increase We are diluted per main components raising lead in There announced $X.XX. to range. to $X.XX are this our original $X.XX range from that GAAP the to $X.XX to two previously share earnings our

is CECL loan $X.XX which in $X.XX program. was result and This changes the our the for business execution guidance the The First core due to outlook increase. our increase viewed our approximately as the reserve, strong approximately of future. in additional drivers represents sale the non-recurring of be in should

of last additional QX had $X on in that billion XXXX we As loan sales this call. reminder, guidance the of earnings an a disclosed includes

year-over-year. first rest are sharply be semester. the and private in our fall announced spring origination of semesters, expect We during consistent affirming education originations the the loan year down fall the growth our loan X% and up to of previously guidance, specifically with of outlook to the X% for half we And

focus non-interest and and net million questions. efficiency call to With Brian, expect between $XXX Thank leverage. We our loan million, be end the this our total on million. And that, continued charge-offs million operating between $XXX and expense reflects will $XXX open for expect portfolio XXXX our let's up $XXX you. and we

Operator

Kaye first line come question Michael Wells Fargo. Instructions] [Operator Our will of with the from

Michael Kaye

little Hi. Good little morning. guidance talk bit I a wanted that to which me that trends are bit was NCO a unchanged about to the like seems better.

recall mid-XXXX, last you I delinquencies thought I'm about X%. X% me wrong, were high Steve thinking You I but will if now by to said know, rise but quarter the to correct

you just can explain that? So

Steve McGarry

Yeah.

look, our basically goes -- guidance did we the guidance charge-off the fourth of Michael, the have lower call the move delinquencies $XXX have are for. stick that of repeated we think then charge-offs a than I there. fact XXXX, in into mid-Xs, defaults reserved fact today of The $XXX delinquencies first in disaster will of I would significantly million We from it no, the X%, a to quarter, and on much backlog use 'XX as what And So that is, than should through forbearance, with have lower folds above less quarter matter forbearance rise [ph] is we in million. past. say you and potentially and I unchanged. the that the we COVID And type did were 'XX we do our we know, expected.

use cure a although defaults and that, much at continued to delinquency rate have buckets. to lower We

of loans and coming our think And reserved dialing look, that do that pipeline. default the is in backlog remain we to be that have will We prudent we back for the over that quarters. it significantly of months potential

Michael Kaye

changes with the peak the one the I a exited? having or larger players could you. was little how marketing in in if market you of more hiring more as bit salespeople XXXX you're talk perhaps for up Thank market grabs wondering season more now? you approaching the about spend any on stands just Could Okay. sector for share

Jonathan Witter

Michael. over least on clear the obviously, there has of Yeah, really take know and with couple the and think, as our the of talked It's been important the is I around, lot competitor. very our which service, the a our we and to And we've is, this very want start is to strong the the our care deeply a which acquire. those intensity Look, on Those we've lifetime one. major equity of I'll most you discipline the thing last about about loans, return -- of I but departure not loans. earlier, ROEs profitability also that, of to Steve market, pretty cost statement obsess maintained loans. return there, the on calls, in competitive cost that drivers big on in quality a -- investment Jon. changes return are mentioned of of on

so, how, great to to this how try believe commitment And marketplace. limits extremely much to be opportunity and really and show we sort our to disciplined we With that far there chase around is do to for demonstrate said, that a to are of, spend volume that. will continue we and us the

what and as just we've you and in sales sales with schools, tried our and the level describe practices. at are tested of way conjunction in hard that I sales know resources, looked force management opportunities we So really but apply true would against our not deploying force marketing teams,

quality it calls And our continue which other our direct of in think source also a before, very like efforts. of invest for channels, programs we continue invest. in -- to about are partnership us. origination talked to consumer origination we our marketing number meaningful in As we've to effectively a high We

same growth. the as drive are rejoin not origination the impacted so, all their didn't sort way. know are higher on family And that things we the the to of we not across exactly think enrollment. time journey every to we evenly pandemic same it enrollment think doing their that at will -- impact also right We we've channels. But we about previous And every education exactly and aspirations student, quarters, talked I that know know

that a So think, But things a and we're focus quarter really talked probably fourth we this -- us about we continue take peak will a for in before, think opportunity real I the or two as results it normalize the again. to on for encouraged to season future. we'll by

Michael Kaye

Okay. Thank you very much.

Jonathan Witter

Yeah.

Operator

of from with comes Your Suisse. the next Moshe Orenbuch question Credit line

Moshe Orenbuch

Great, thanks.

when think the about back, stock both, valued think, you number for -- actually, really have Steve know you in I about question Steve, fairly the But this a when been Jon plan, year's when So where about about thankfully, but you I to stock the talked still stock is and just you talked thought how trade-off you talked talk to Steve. talked he would ability -- XXs, loan the complete the buyback? think the clearly about is now approaching this Could and you're sale that about how you there. between the trade-off between you program, do and about mean, going

Jonathan Witter

Moshe, it's Jon. that question. Thanks for

As really we extensively imagine, one talked you can internally. about it's that

fly over we've capital CEO of, going time, undoubtedly change. said, I know, generate we you an will haven't being and on me for strategic sort reliant solid -- fully to what reliant about of by more us, do is a excess a a who break is of and With that our model rock Number calls, allocation night calls, sales previous capital model generation. is how somewhat of to returner it's folks capital one think, implementation, capital we on listened return. I'm that idea as answer me long as Let forward. is enduring a notion and be that from strong that for move pieces. the as of maybe going committed the is notion we somewhat are let capital part organic of capital a excess on of expect that how a great through loan capital It we And sort to pillars, and allocator my we not we into talked something couple CECL past more will key to deploy one,

asset continue to I amount of will sell that that shift. also improve likely more will of deploy shift, likely to and mix think capital from channel way open, all something far but in loans the the value we is some will the likelihood on real when that returning capital. a between we and balanced is, in to something The the of that known obviously known focused buybacks, to question pivot, more on the CECL and today think do happen various deploying share pattern. start the is think the is ways I keep We make implementation going to a And timeframe us I

I broader from to will share think something sort where at pivot and the multiples buybacks look a really strategy we is of valuation.

multiple capital growth our will not the We're return, that out sort over I we assumed like of analysis, a with implied say could bring I where is. feel about think, good the views rates, to and we be. about several and sophisticated feel obviously valuation sort specific fair turns from have time we're are where But of away all change. a the capital, still multiple because financial multiple where probably into think obviously good least change may think probably that Steve we that So it like cost strategy a regularly what's where we to at a We talk the that should it's ourselves about should analyst discussion going to multiple go shift, stake it. multiple lot of our would factors we in be. profitability, any And from things where of I that perspective into we

and every some be expect on assumption think evolutionary that folks I an strategy that our so, should but hope allocation persist way should current we're of talking quarter about time, here will capital period capital the return. again that And My now. for is from in that largely

Moshe Orenbuch

to I commitment And is think clear. that your capital allocation Thanks. Great. pretty

persist? a mentioned the trends. to you XXXX, past to but follow-up. guidance operating of better of was asking in assume for that CECL $X.XX related Without specific kind related Jon, and Just for years change it guidance to should those reasonable quick that amounts increase is that not

Steve McGarry

is of year some billion And are decline -- -- just to we to be things are continue us long only sell company, to might coming Yeah, $X when the sure. wider but over think the several might Look, There going that upward. one they trajectory I can Moshe, focus steadily our our loans we'll grow on inside that efficiencies we continue billion the share to on plan. look, run the to look that of miss we to earnings to this to the investors the of continue have [ph] originate years. that at begun which loans $X for the levers generate is of earnings pull market is gain next a continue year, that we know to decidedly the sloping we really we and that,

for outlook our yeah, our power So very positive [indiscernible]. very, earnings is

Moshe Orenbuch

Thanks, Great. Steve, Jon. and

Operator

question next Your will of line come from the KBW. Sanjay Sakhrani with

Steven Kwok

filling Kwok in questions. for Thanks This my actually Sanjay. taking Steven is Hi. for

in of billion is fourth $X the loan around sales just expected one, the that quarter. first the Just

Thanks. more of being guidance, potential the to is is Within on the and assumed the gain to, strong, sale than if there type the environment do what billion? remains there $X

Steve McGarry

lower just reported, what so. we but what Steven, significantly we guidance So our is is that premium not a slightly embedded than have in

even loans, end where Regarding despite a think amount premiums time, off or capital this we selling haven't this may that we that's that deployed point we've still up. at additional the in have generated year. pretty -- we significant table yet I may of much not mean,

somewhat So keep things a steady forward. we want on pace as move we to

in So I -- to sales us XXXX. expect you loan shouldn't expect the change wouldn't

Jonathan Witter

Jon. it's Steven, Yeah,

We a add number said Steve as say thing to answer, sales taking I it's of value this the loan would market. are we arbitrage I in exists to of between whole important a that -- and we've the really a the only our the believe talked current what little equity loan here, broader calls but about bit think, I it. it's care of on or advantage great of markets in taking that today a of way think

calls that obviously do capital. on that's predictable, of, goal to about and sort streams. remind to that deploy high as So to real have our this effectively is said, there. past why profit we're think generate everyone we I so earning how in the And very, aggressive want I and talk quality, high can stable, started really that we've is growing Steve being cap and to

we many on that these keep our sheet possibly really we going share for consistent, flow if loans. we are along as predictable focus that manage So drive line to think marry that that can. and risk think are the earnings effectively balance that We kind loans market top We can these winning And persistent, forward. like, their full but growth on life a the is attractive Steve about of These with really want combination. and talked as tremendous. we will of loans way, just

every cake recognize day, drive will as these eating the of our loans this they a arbitrage, future. balance advantage in this but wanting So like striking it too. think really take we're very we of incredible We attractive and to for valuation us of well want sort and

of and very sort Board our the in we creating continue interested So the a that reason very, is but and make. are just looking in in the we're effectively future, earnings growth premium of attractive also not predictable at long balancing I, and interested and act, we Steve is, will and runway to loan growth are today, earnings

Steven Kwok

a just administration? anything it. there are then that very from monitoring Is you're the political Got helpful. they Thanks. And around the new That's question follow-up seeing front. that

Jonathan Witter

being the by of think thoughtfulness sort we think I now within both administration, just leadership not the the by we Biden debate houses proposals discussion, floated, are of and are of types and political encouraged I the of we seeing but are that the by look, front, the Congress. on Yeah, the Biden encouraged

about public on So families for a income -- call occasions sort college like this below number free and things free of university on university state levels. education of community particular talked we've

and a about education, justice, again to to access I of achieving key is which $XXX,XXX so think, support. that society. a on is lot the very past our dream number we drive that of they think a popular the are social way, And today We a mobility, economic, of determinant about to continue much part think, we've calls, really I year. the a American talked as attention by and get, Those traction. much proposals lot

have very large right I'm around is are encouraged loan if and is. the debt far I Board. forgiveness. something has read broad forgiveness I going And us the leading who really or loan on come -- there them think versus I forgiveness debt expensive scale forgiveness what just across And have is being the how probably think is what leaves, demonstrated loan people really tea by more our you surface targeted know a is really that's We need type thoughtful and if to around regressive think on proposals, are now discussion to where we sorry, that to

social and forth. an important You think throw the incredibly serve other added proposals highly business benefit, are disclosed have These so our think past. all of complementary in expansion some like Grants, to being Pell the that in model that, also to I as the things but we benefit they we've of

is have environment that political assume I and never Things the been -- the ever of discussions are and we but environment. supportive of sort certainly ongoing. political can will change, think optimistic current the I So forever

Steven Kwok

taking for my Thanks questions. it. Got

Jonathan Witter

Yeah. Appreciate it.

Operator

[Operator Instructions] Morgan. from Rick question Our Shane JP next line will the of come with

Melissa Wedel

you talk morning a we've your on the to guys. side? level framework your understand in about think how between interplay how today. macro Can about you bit. this on that and you level. reserve do rate that and the reserve the It's the Rick little it's wanted for rate Good modeling Currently, past X.X% quarter, thinking I seen the around Melissa but [ph]

Steve McGarry

Sure.

dropped forecasts So reserve loan We CECL are look, of worst the is time -- go as our and at CECL, high beholden that to loan as a starting and X% probably now as loss and with economic it's introduced X.X%, down to we've seen the absolute point given X.X%. life We back the of reserve CECL was we reserve. that current life at ingredients drives that from the reserve. the to models think appropriate unfortunately the

probably amount use cash route our loans originate about life significant reserve, of that [ph] feels have in already loss model and fact when X.X% it's CECL right. experienced rate As flow we within loan into Obviously, to consideration like their defaults. we probably a do there we of that you of that following from cohorts expected of X.X%. around calculate But have many about know take you a discounted us, the

which and variables in Although, think, ingredient pre-pandemic handles period. to mid is reasonable supportable the look, I around biggest very most high our unemployment or and the model, low Xs explanatory have rate, in and college the much important our posted we X still X

the move as So but about spirit we reserve the how your the Hopefully here that question, company. CECL of down that think captures the reserve the normalcy to could at well is continues. very come

Melissa Wedel

helpful. incredibly Thank you. that's Yeah,

curious question, being the sort of in Curious anything with this them the Thank applications next COVID from hearing you. a year. fund serve hearing you're how your follow-up on just a environment? what university if partners to terms coming of on-campus this pre-COVID from expectation of what out I'm year you're As around college of compares

Jonathan Witter

Yeah, Melissa. Thank you.

this most of space. falls than it we're space what sort universities more anecdotal hearing the from at specific point, I think, into into data of the does

I'm think, of that So we is if they return be context. to from there a full sure partners about that be, vast that know in But take coming I absolutely expect hearing am I sort will majority normalcy. college to say but everything that to the to the in. return to our fall are I their that a that, largely not exceptions think normalcy, is expectation of what you

look, I by powered is, through to hybrid an last who have you have of and family. have And forward. there we're just speaks the would students pandemic the I regardless our really resilience And way, moving student the season. that through to of this seen lens going of individual an uncertainty, color the we've the originations top only education and on in individual model the add imagine hey think families a said, that think are to the and of keep economic group I and or their season

get lost of three. part college. semester otherwise come students in in there come or other next to out, guess and delayed and have back is of taken even those my these probably of have of done economic And those off and two take I will this year. people said, education who generation back know college system a their though that classic because will window of sort who sort gosh, But And course students will of be higher the ever into a of year by to normal. students you think, is some because not gone I is, hybrid out mini just most, have are the as people or And families many I return we right some there really label I of certainly really damage come are the sort I things all want model those point some folks real pandemic back the away, it's attractive, would the and recognize to guess been to the to aren't students those to very that. my in people important GAAP them that will believe sort the chance, think my will over don't the of They to maybe is, as I next whenever till a flooding wait there the of expect And permanently get years, has resulting unfortunately. I also who of missed right have for I of think come recession. of of group will who second opportunities aren't back rich, as

the before. think this through anything problem never is, gone we've like I

hard So those it's for are. to looks us what what like numbers quantify that really and

of said, for we I we've originations given what the of As the a very, remainder this we're guidance like think, little bit but earlier. supportive I around year, referred to

to those of year and back all the where of the marketplace. take higher students to different or they going education come trends it's two engage understand the how system sort to and cohorts of normalize think, see sort how and really a I into in

Operator

next go Our line with the Citi. Arren Cyganovich from question ahead. will of Please come

Arren Cyganovich

talk came a consolidations just the expectations? about could bit you What's Maybe to quarter-over-quarter, and little bit year-over-year. Thanks. down there the a third-parties, outlook little they

Steve McGarry

Arren. Sure, Yeah.

started seen consolidations any our being quickly, business. continues. the We looking a at and of a call portfolio steady that consolidations So, of I the they increasing just what decreasing. where We or state. being increase our -- a percentage 'XX cohorts, into consolidated away they to couple portfolio. then loans down. pretty trend of discernible the haven't is closely. chart look, Since pace as see trend is we are the grace, trends part age, Loans ago in And coming very slows days tend from, watch very, that in real of to obviously and into go what was watch we consolidate XXXX,

cohorts change, very composed the quarter's down significantly. that and this It were If the concerned. two the cohorts consolidations repay pretty contribution to So much of become last trend prior from not. we would is was has

very, The this in is for ROEs. generate look get think earlier. balance as really ROE high high-quality from loans loans. us We and the ways the stem We we not low to of very at for you consolidation continue Jon a consolidated these very fact to that They appropriate sheet, flow away of time. is matter the participate business mentioned business like something the to, know really, is,

in They're quality lines or that past think, very and away short. weighted the often I've consolidate by going know consolidate something loans those held you loans very individuals. to average And of -- income, fairly the I high away very the credit that said, is are high [ph] anyway

So look, continue look the to for we silver is, monitor and bottom line bullet. trends the

and growth while and we found can We yet, our functions haven't very generate strong returns well, very think earnings we activity just the consolidation it but business continues.

Arren Cyganovich

the a could touch on little net we interest maybe And Thanks. bit margin. just

didn't dipped outlook on much the on there? the was it the a I seasonality believe, really with there's down decline with quarter. come your quarter-over-quarters It that? was And a typically in that bit other some You perspective easily. the deposits. little cash first mentioned much broker from How balances rate

Steve McGarry

than look, cash were We have we had So sticky. to. more this extremely we rich deposit quarter. is The liquidity would very extremely, market very, liked

the which tender speaking deposit will balance. stay well. we're have specifically when end of is as NIM also sooner think that lower did XX%. probably I impacted $X liquidity only But on think seeing the the at retail/Internet than we the the I'm at a priced about we're billion not a our rate expect we to thing base. deposits with spend the that balance unfortunately of to only the day, sheet participated off. did run look offer, was important I That But the is bank

is level NIM X.XX% which for of We going to that and the the full for medium-term be attractive the will a a as hit I we And sustainable well. spend banking pretty the capital. think industry will year, in that's

Arren Cyganovich

that on you just to continue expect deposits, do And decline? the rate to broker

Steve McGarry

season What to had swap been deposit, typically when long deposits, We broker not active very have take disbursements. broker of We've So refill bucket to don't our our brokered in we runoff and expect some until them marketplace. we we funding our later peak do in that term year rate portfolio. variable fund we deposits. in that is the make we

increases. it that yeah, could So, little before decline a bit

Arren Cyganovich

Thank you.

Operator

line Caintic Your of next question with the from will Vincent Stephens. come

Vincent Caintic

Hey, Good thanks. morning.

Just have a of couple quick questions.

first So capital return. on

indicated you you you've sales. have the of and upcoming have So left, million course, $XXX

also pretty your there? wondering, when XX.X%. high, you was what's you ratio the right CETX of of wondering of might fast just CET you're your and sort is level and how I -- Just kind get about thinking is think ratio

Steve McGarry

focus CETX our of we above the which maintain capital anyway. our margin is level. ratio, to well Most good on to tend we risk-based a capitalized need total So capital

we higher capital based strategy, On with as we current We let's So year the but our lower current risk quarter. end XX.X%. ended where with actually a that should XX%. total we will our to stick ended capital bit, decline than quarter of current return target for little is, our if capital the call opposed it, trajectory ratio the return,

Vincent Caintic

you. Got Okay.

of -- sort it's yeah. So

Steve McGarry

significantly. that So our there impacts look, has is, we account really in CECL do clearly our capital been reserve volatility what incredible to and want an

until our CECL will our on in course So current stability of capital stay some see we reserve. return we

Vincent Caintic

it. Got Okay. That's helpful.

Second on the NIM.

the second now up you the could quickly something help so the you and understand that liquidity I if where expect is liquidity, guess, the -- have that that you to year liquidity know about ramp I that maybe used So didn't you excess should that that full quarter, if X.XX% would X.XX%. and you at appreciate had. you're us we be just in color at you for excess now

Steve McGarry

up question. good back should Yes, that very a glide we is X.XX% area. towards That

Vincent Caintic

Okay, helpful. for one is And then, me. last this

strong loan reserves done impacted the industry. on prepayments have So and balances prepayment different wondering by the you've like stimulus how looked really resulted much customers were model that the cash speeds a CECL or that affected by speeds. of consumer lending It you prepayment I'm at were -- of in having seems being sort across paid things positions. like off

if that's wondering big prepayment driver of sort So speeds. a of

you And start so, something speeds, you prepayment Thank expect again? down, extend maybe set consumer that when your balances is you. last pre-payment speeds the cash to a come for to once or while

Steve McGarry

continue. of is going has The student student not XX going elevated matter it, federal finer a will -- up couple our loan cetera., and very -- very probably absolutely that they the to is at of a let's Whether are checks, accurate on economy of continue prepay speeds fact been all all data. holiday, support question observation. last or model things the that very of may the well agree And of to holiday quarters by through the payments in that's et those good years September the so, stimulus a on So as it. federal prepay point looks basically the put loan XX, that, to

in we're Long-winded decline I the portfolio take somewhere what current really the and our that's sharp the impact if in And XX-year answer, it I of So for of the these it. significant a couple root speeds prepayment mean, skew and data sense. probably speeds to take makes our outlook. it current think it prepay average way, reserve I around meaningful takes to quarterly that on long-term period -- model. several would in X%, a prepay of at sort but CECL is to on is models a it rambling time of declines for looking last would just speeds of quarters at are reasonable offset trained think observations our

Vincent Caintic

Thanks very That's much. Great. helpful.

Steve McGarry

You're welcome.

Operator

Jordan final Our of with Financial. question from the Hymowitz come Philadelphia will line

Jordan Hymowitz

or When for Why digital are at to in different comparing in a no merging I to so with taking your assets assets. my a the and speak, have speak that a on might person. guys you Thanks very money in you're especially Or thought with all about one mean, return guys. yourselves basically questions neobank, look way, I that makes have"? "if said to you and neobank, company, high for be branches interested at neobank so you more you you actually if

Jonathan Witter

neobanks. question. the Jon. person It's it's the Thanks Jordan. I'm right Hey, -- Thanks. probably hard and on not current opine of for it's valuation your Look, to

think, three pound down our for quite focused we and really growth. what which we pieces. think frankly, core is I boil would are thesis, we on against attractive. earnings very Number really put on think we pound And investment anybody, delivering is I one, provide really, up I attractive would that into

like the into XX% very about our private ingredients trajectory. fixed attractive a more growth connection, think into the about that, leverage, think real you go real customer brand, through rate ability in that earnings you natural and with the the turn even think relationships all much that growth You We real growth earnings operating schools. the have, that cost student of base we lending to about market,

trajectory, our not having about, grow. pre much phase to development to the and talked And all return at very this capital we've we post capital our of As of like absorb CECL. both we're

these I share and think the more get both loans we incredibly and education, the profitable we've power pandemic, been the demonstrated college of make And and paid every seeing resiliency cosigner incredible model. and risk. quarter. had about an make the I has of of benefits thoughtful part the we're demonstrating with every accessible. investors political the important be risk overall our suggest think, the sort they great sure how the management affordable Certainly, incredibly college we private positive more think, to to unfold I and of I very higher discourse we these continues student power recession credit risk the tool how as power and franchise, And are that education lending political the regarded we've kit the the of loans, of this so day, think look, of look, discussions that incredible

extremely threshold So all It's We're thesis. We know we investment to well better who stock sorry, focused in job an seriously. regard. that's don't love think acquisitions, would not tangible say, demonstrated obviously and shareholder mergers ourselves go frankly, worse thesis. way, I -- But that take up to hopefully, plans you But laser our anyone to or compares we the or not against Board for in creating a are always and if We we investment I'm abstract has and is something or investment on not and that our what in on is we think, across comment way, you anybody's scenarios. analysts. that think will downside. I for that's put that but very the the Quite it valued that upside Board decide. where value

Jordan Hymowitz

but think XX% returns your if could if And the I guide, about I gains profitability, Okay. equity that. on on you've talk you take mean, are out just really core sale, We on a that's should I around on basis, follow-up growing well other almost the I be? of is part as financial institution faster, known any mean, more story just profitable than I much mean, and it's it dramatically

Jonathan Witter

is be the when as growth. have one were to to profitable. say new growing profitable balance the I us profitability heard very generate powerful ROE than and him rapidly that powers And not sweating loans. that it bullets we it we of earlier much post-CECL you that of what growing very By organically right. would rid thing. is now Cronin is our model are capital was is me loans marketing growing of the talking and high this a out, right in our of it going sheet, and very, when mean, only very, way, Investor you world very, mean, modestly like look, a is while Brian we're Jordan, allows our understand get you rather Head of incredibly a I really hire about we Relations. I and super business to incredibly But

ROEs we attractive. We as So profitability everything plug. incredibly safeguard long agree, I'm of thank the our loans. in do in will for are here, our power Yes, the they you we and as the to think

Jordan Hymowitz

and and XX Okay. spot little times value, ago, JC had And more [ph], hair time with else again? know, maybe long regulatory you a all guys JP earnings will Flowers you at that see Morgan clarity someone we a scarcity more opportunity more when almost

Jonathan Witter

We will -- you shareholder of discussions, know, of again, types committed comment those value on but any Jordan, are don't to we return. we

Jordan Hymowitz

Thank you.

Jonathan Witter

Yeah.

Operator

closing will conference I that, turn for With back the any remarks. to over management

Jonathan Witter

to Thank there's interest information. and And any perspectives in we we the know or provide There's especially during is morning. busy if can lot that weeks. you Appreciate Mae. please that Sallie thoughts your these we time a everybody. know key know going Listen, on, let us valuable, really earnings your additional a clarify it's

Brian, that, back with call I So you. handing to think I'm the over

Brian Cronin

page and replay and the call And of available today. for on this Jon. time the presentation are your Investors thank you your Thanks, questions A at salliemae.com.

free concludes any have you This feel Thanks. today's directly. call. questions, to further me contact If

Operator

Thank you all for joining.

may disconnect. now You

SLM (SLM) 22 Apr 212021 Q1 Earnings call transcript