SLM Corp at Morgan Stanley US Financials, Payments & CRE Conference Transcript

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

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : <_ALACRA_META_ABSTRACT>So maybe before we get into the meat of our conversation, let's start with a brief rundown of how the second quarter is shaping up in your view.

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And I think the trust data we look at, while it's not perfect, seems to suggest more of a better quarter this time around versus, I think, what people were expecting. Any sort of early thoughts there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 11, 2024 / 12:00PM, SLM.OQ - SLM Corp at Morgan Stanley US Financials, Payments & CRE Conference

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : So stay tuned for that in maybe the next couple of quarters.

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And maybe we'll touch on the new programs in a bit, but I wanted to start with the recent loan sale. You announced last week $1.5 billion. So you're already tracking about $3 billion for this year, you're on track executing on that $3 billion-plus path you laid out in the five-year framework. It seems like a validation of what you're doing, strong demand for your product. Any way to maybe compare this deal versus the February one you did, maybe in terms of characteristics of the loans? It does seem like from the outside looking in on the demand side that ABS spreads have continued to tighten. So the market seems like there's strong demand out there for your product.

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And it sounded like you were open to another seller that you're depending on the market. What will dictate this at this point? And what does it take for the -- what does it take for you to actually execute on another one this year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 11, 2024 / 12:00PM, SLM.OQ - SLM Corp at Morgan Stanley US Financials, Payments & CRE Conference

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And obviously, the repurchase story follows that loan sale model. Can you just talk about the near-term path of repurchases here, the cadence over '24, and is 90 to 100 a quarter something that is the right way to think about it? I know you talked about how you think you're going to do half of the repurchase authorization this year and the next, but maybe just some insight into what you're thinking there.

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Okay. And taking it back to the new programs you have out there with your borrowers, I think one perception is that -- that's out there is that when a lender starts doing more of this modification forbearance, it's a response to growing financial repayment difficulty from borrowers. But that's not what you're seeing, right? It's more about the credit administration practice change in late '21, which cut down on some of the flexibility back then. So is there any way to maybe frame what the mix of your assistance programs looks like today versus back then? Were the borrowers you were giving more forbearance to back then similar in that extended grace period, recent graduate cohort?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And one of the way that I looked at it was if you look before you made those changes, forbearance, which obviously includes some hardship in there as well, was about 4% of your loans. Is that maybe a potential way to think about the use of the extended grace as well going forward?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And is there any way to think about the magnitude of that increase in loss rates you saw in '22? I think it was about 120 basis points that year. Any way to think about how much of that was attributable to that policy change by any chance?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And is there anything else that you're seeing today or in the environment that other than those policy changes makes you more confident in that that glide path down to the low to high one?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : One thing that's been pretty topical of late is just competitive intensity in the industry. You obviously had another large player exit, and you're starting to hear a little bit more news flow or launches out there from smaller entrants in the space. Can you maybe compare what you think the level of competitive intensity in the space is versus maybe a year ago or even pre-COVID? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 11, 2024 / 12:00PM, SLM.OQ - SLM Corp at Morgan Stanley US Financials, Payments & CRE Conference

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And what are some of the behaviors that you've seen in the past or maybe you're starting to see today that would -- you would flag as irrational? I mean, are you seeing anything like that at all?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : I just want to remind folks that if you have any questions, feel free to raise your hand and we'll get to you. And also, if you're listening on the webcast, my email is jeff I'll try to get to your questions if you send them in. Maybe taking it to NIM with the rate environment here, you're slightly [asset sensitive] at the front end. However, I think more of that fixed-rate demand you're talking about more recently has made you maybe less asset sensitive than you otherwise would have been as we look out there in the rate picture. So more of a natural buffer, I think, embedded in the model to eventual rate cuts? Is that the right way to think about it?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And you put out the guide for the year, low to mid-five for NIM. I think that included five rate cuts at the time. Market looks like it's pricing in one at this point. So I feel like what I'm hearing now is we've got a case for NIM staying close to where it is right now at that sort of mid-five range, is that right? Or what would make that come in a little bit weaker?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And you laid out the five-year framework for balance sheet growth, and you're maintaining that flexibility to do loan sales. Is there anything else out there that would perhaps other than just more originations demand for your product caused you to maybe keep that balance sheet growth more moderate than the upper single digit you've talked about?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Related to that, you talk about operating leverage, roughly 60% expense growth at the rate of revenues or about two-to-one operating leverage. That's a big factor in your double-digit EPS growth within that framework. So what are the easiest expense levers you have to pull at this point? And does that trajectory of expenses change at all if you decide to lean in or pull back on that balance sheet growth story?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And does -- are you noticing any sort of type of increased scrutiny on the servicing side or the regulator side? There's been a focus from that competitor that exited there. Anything to highlight there?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Certainly not an easy product to service over time and collect on, so it seems like that's a pretty high barrier to entry for the competition.

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Right. Maybe just taking it back to the moratorium, I mean, the credit story here -- one question that's kind of come in here is -- from an investor over emails, why do you think you're not seeing any meaningful impact from the payment restart? Do you think it's because the Biden administration has done enough on the grace period, the on ramp, consumers still in good shape, or do you think it's more just the support you put in place for your borrowers?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And the Biden administration has been trying to launch another forgiveness initiative after the last one was blocked. Any sort of views on that program, how that might benefit or even reduce demand for your product down the line?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And as we turn to capital here again, how are you thinking about the dividend? I think a lot of investors are asking me when you're going to increase the payout here. I know you talked about the possibility of a special dividend at the Investor Forum. I guess, why not just lean into the recurring dividend instead of the special?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And is -- the last CECL phase in on the capital, is that maybe a key benchmark or goalpost to be looking at to pass here before you take any sort of action here on the capital as a dividend?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And any sort of update on just taking it back to NIM? Jumping around a little bit here, but any sort of update on deposit funding and what you're seeing this quarter on the flows? Obviously, the sale helps you out a little bit there?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And I think you're targeting a little bit of a longer duration in that product right now at this point, given your loan book. Is that correct?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And also just last quarter, the prepay assumptions did come down, helped your NIM. So I think some of that less consolidation activity, is that continuing or really dependent on the rate outlook, I would imagine as well?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Is there anything that Sallie can do to maybe retain that customer as rates go down? I mean, I know that's a bit of a tricky process.

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Okay. And maybe just before we wrap up here, is there anything that you want to message to investors or anything you think is a bit misunderstood in the story at this point?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : All right. I think we'll end it there, unless there's any questions from the audience. Thanks for your time, Pete.