SLM Corp Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Terry Ma - Barclays Capital - Analyst : Hey. Thank you. Good evening. Maybe a question for Pete first. Can you maybe just talk about what NIM is contemplated in your EPS guide for the year and maybe just talk about whether the funding pressures have largely played out already? Or can NIM go lower over the next few quarters? And then maybe just what's the timing of getting back to the low to mid-5%?

Question: Terry Ma - Barclays Capital - Analyst : Got it. And then maybe just on the topic of Plus reform. Can you maybe just talk about your appetite to take on additional volume if it were to shift from Plus over to the private market? And maybe just comment on the underwritability of the Plus program as it pertains to your credit box. I seem to recall back in 2017, I think it was Steve that put out the range of 50% to 70% underwritable from Plus. Like is that still a good number to go off of?

Question: Terry Ma - Barclays Capital - Analyst : Okay. Got it. That's helpful. Thank you.

Question: Mark DeVries - Deutsche Bank - Analyst : Thank you. I had a question about the 6% to 8% origination growth guide for the year. I was assuming the first half of 2025 should be close to the 13% rate realized in 3Q as you reap the benefits of Discover's exit, which I would expect to carry into the spring disbursement season, but if that's right, your full-year guidance implies very low second half '25 growth. It's well below the prior run rate closer to 5% to 6%. So could you just help me connect the dots on the full-year expectation? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 10:30PM, SLM.OQ - Q4 2024 SLM Corp Earnings Call

Question: Mark DeVries - Deutsche Bank - Analyst : Got it. And then just a question on buybacks. It looks like the full year buybacks for '24 were about $100 million below the plan laid out at the investor forum in 2023. Just wondering what if I've got those numbers right, if -- what changed the priorities?

Question: Mark DeVries - Deutsche Bank - Analyst : Got it. Makes sense. Thanks for the comments.

Question: Michael Kaye - Wells Fargo - Analyst : I think you touched on this in the opening comments, just wanted to go over it again, I didn't quite get it. I know last quarter, you were saying there was going to be incremental improvement in the reserve rate, and it was essentially flat quarter on quarter. Just wanted to understand what happened. And I think you said -- you still expect it to go down, but you're seeing it last quarter and not happening. Could you just go over what's happening with the reserve?

Question: Michael Kaye - Wells Fargo - Analyst : I mean you're talking about the reserve rate, right? I'm not talking about provision. So I thought the reserve or the allowance rate was basically flat quarter-on-quarter. It might have been like down 1 basis point. You were seeing the higher originations made it more flattish than you would have thought despite the fact that it seems like the origination quality is pretty strong.

Question: Michael Kaye - Wells Fargo - Analyst : All right. I wanted to just ask about the outlook for third-party loan consolidations, it looks like it ticked up quarter on quarter. I just wanted to see what the outlook that loan consolidations this year, especially as rates could come down as the year progresses and perhaps maybe there's more borrower interest in loan consolidation this year given by a less chance of student loan forgiveness or generous income-driven repayment plans with the Republican administration.

Question: Michael Kaye - Wells Fargo - Analyst : Okay. Thank you.

Question: Moshe Orenbuch - TD Cowen - Analyst : Great. Thanks. Jon and Pete, I'm hoping you could talk a little bit, given the balance sheet growth has come sooner, like how you're thinking about 2025 Obviously, you're starting off with an early loan sale, so you have the opportunity to sell more. Can you just flesh out your thought process as to how that's going to shape up?

Question: Moshe Orenbuch - TD Cowen - Analyst : Got it. And maybe just a follow-up on Mark's question on originations. I mean there is a serialization effect from the new Discover borrowers that are earlier than seniors in their life cycle of education, right? So shouldn't there be some extra pickup from that factor as well.

Question: Moshe Orenbuch - TD Cowen - Analyst : Okay. Thanks very much.

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Hey. Good evening. Thanks for taking my question. Appreciate the color so far on how you're thinking about the Grad Plus opportunity. If you do originate more of these loans going ahead, if it comes through, would you look to maybe execute on more sales and buyback of the stock or maybe let the portfolio grow a little bit further than what you've laid out at the investor form? Or just how are you thinking about that?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : And as you look at the loan yields you're putting on the portfolio, your average loan yields are coming down a little bit. Can you talk a little bit about where you're putting on your new loans relative to where you've been holding the portfolio previously in that high to 10% to 11% yield. Is that a function of maybe some higher quality loans you're putting on? Or is that more just the market and rates coming down on you?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Great. Thank you, guys.

Question: John Hecht - Jefferies - Analyst : Good afternoon. Thanks for taking my questions. You did talk about the preliminary pricing on the transaction that you're going to do this quarter. I'm wondering -- I know you probably can't give us any detailed insight, but just we've heard and seen in the markets just this huge amount of inflows to private credit markets and some of that flow is certainly going into consumer finance. And I'm wondering to what extent do you guys feel like that the market -- maybe you have a higher degree of confidence in the market or better -- with outlook for better execution because of those factors? Or is it just too early to call?

Question: John Hecht - Jefferies - Analyst : Okay. And then maybe you talked about interest rates and impact on NIM and so forth. I'm wondering maybe over the next few quarters, things outside of like forward curve or this and that, maybe like CD maturities and things of that nature, how do we think about the puts and takes of those on NIM in the next two, three quarters?

Question: John Hecht - Jefferies - Analyst : Okay. And just a quick third, if it's possible, just -- yeah, I mean forget the Plus program, I mean, there's some other, I think, potential, I don't know, regulatory effects because of the incoming administration maybe such as a lower probability of debt forgiveness and maybe just some generally REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 10:30PM, SLM.OQ - Q4 2024 SLM Corp Earnings Call kind of, I don't know, maybe some weakening of the DOE framework of some type, is there anything else for us to think about other -- of the regulatory potential changes that you were all aware of that may influence the business or the strategy over the course of the year?

Question: Nathaniel Richam-Odoi - BofA Global Research - Analyst : Hi. Thank you for taking my questions. Your guidance for loss rates at the midpoint suggests about 10 basis points of improvement from 2024. And it's still a little bit above your -- through the cycle loss rate target of 1.9%. I was wondering if you could discuss like the factors that would prevent losses from falling below the low end of that guidance range? Or just how you're thinking about further credit improvement from here?

Question: Nathaniel Richam-Odoi - BofA Global Research - Analyst : Got it. That's very helpful. And then apologies if this was already asked before, but have you seen any changes to payment or credit behavior of your borrowers who went into federal loan repayment like late summer last year.

Question: Nathaniel Richam-Odoi - BofA Global Research - Analyst : That's all for me. Thank you.

Question: Richard Shane - JPMorgan - Analyst : Hi, guys. Thanks for taking my question this afternoon. Love to talk a little bit and not going to be a huge surprise about performance on the forbearance program. Curious what you're seeing there. When we look at the metrics in terms of loans being in the program, the percentage has gone at a materially higher rate than the portfolio growth. Just curious how we should be thinking about that and any updates on performance? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 10:30PM, SLM.OQ - Q4 2024 SLM Corp Earnings Call

Question: Richard Shane - JPMorgan - Analyst : Got it. Well and it's interesting, so in looking at the numbers I see what you're talking about in terms of the migration on a year-over-year basis, but it actually looks like there's a -- unless I'm misreading the numbers, a pretty big uptick between the third and fourth quarters this year. Is that seasonal or is that a function of now that you're through beta testing the program, you're widening the aperture a little bit?

Question: Richard Shane - JPMorgan - Analyst : That absolutely makes sense. I mean it strikes me that it probably takes one year to get habituated to that. So it totally makes sense to me. Last question, and I'm not -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 10:30PM, SLM.OQ - Q4 2024 SLM Corp Earnings Call

Question: Richard Shane - JPMorgan - Analyst : I appreciate that a great deal. I'll follow up with my other question offline. I've taken enough time, and I'm sure there are others in the queue. Thank you, guys.

Question: Sanjay Sakhrani - Keefe, Bruyette & Woods Inc - Analyst : Thank you. John, could you just sharpen the pencil a little bit on your comments on the underwritability piece of the Plus loan opportunity? When you say the majority wouldn't be underwritable, is that like 60% or 80% that's not underwritable. And then I'm just curious in terms of like other planned changes to policies that are being discussed, could you just talk about those a little bit in terms of what those might be?

Question: Sanjay Sakhrani - Keefe, Bruyette & Woods Inc - Analyst : Got it. Thank you. Thank you so much for all of that.b And then just a follow-up. Obviously, a byproduct of all the good work you guys have done is the stock is now pushing five-year highs. I'm just curious as you think about -- you've been asked about balance sheet versus selling, I mean, has there been any thought of portfolio more given like that aren't -- is not as strong as before? Or do you feel like you're getting compensated the gain on sale?

Question: Sanjay Sakhrani - Keefe, Bruyette & Woods Inc - Analyst : Thanks.

Question: Giuliano Anderes-Bologna - Compass Point Research & Trading LLC - Analyst : Good evening and thank you for taking my questions. I'll try to keep it quick because I'm sure we're running towards the end of the time for the call. going back to the Plus programs for a second, and I realize that there's a lot of inability to answer your question. You don't know what the plans that are -- hypothetically you propose. But when I think about your current suite of products that you have, looking at different programs, do you have enough overlap as it stands today with the, let's say, current Plus and/or Grad Plus programs. And then as an add-on to that, would you explore more programs -- explore adding more programs or new categories that could potentially satisfy parts of the market that you may not touch in those Plus programs and do you think -- do you differentiate between the apparent Plus opportunity and/or Grad Plus opportunity when it comes to potentially balance sheeting it or selling loans.

Question: Giuliano Anderes-Bologna - Compass Point Research & Trading LLC - Analyst : That's very helpful. I appreciate that. And I'll jump back in the queue.

Question: Jon Arfstrom - RBC Capital Markets - Analyst : All right. Thanks. We can make these quick. Pete, is it safe to assume for the buyback amount that year two amount that you talked about in the December '23 forum? Is that what you're telling us we should be thinking about $250 million-plus?

Question: Jon Arfstrom - RBC Capital Markets - Analyst : Okay. Okay. And then, Jon, just for you, I've been scrolling through this -- back to the framework from December '23. Is there anything in that framework that you feel like you'd like to alter. I mean we're a year out from that and things change. And I'm just wondering if there's anything that you think need some alteration.

Question: Jon Arfstrom - RBC Capital Markets - Analyst : Great. Thank you very much.