SLM Corp at TD Cowen Inaugural Financial Services Summit Transcript

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

Question: Moshe Orenbuch - TD Cowen - Analyst : Thanks. So maybe kind of pulling up this, undergraduate enrollment has been -- has actually started to increase for the first time really since COVID, yet there also are delays in the FAFSA. How do you think about the current peak season?

Question: Moshe Orenbuch - TD Cowen - Analyst : Right, and you've talked a little bit publicly about your thoughts about the second-largest competitor leaving. Just give us your current thinking as to how that will impact your peak season. 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 06, 2024 / 2:55PM, SLM.OQ - SLM Corp at TD Cowen Inaugural Financial Services Summit

Question: Moshe Orenbuch - TD Cowen - Analyst : Very good. So last October, federal loan repayments restarted after several years of a pause. What we can see from the outside is that borrowers are paying pretty close to the levels comparable to before the pandemic. Not quite, but pretty close. When you look at this, how has it impacted your borrowers? Anything that you've seen from a credit performance? Presumably, many of your borrowers do have a federal loan.

Question: Moshe Orenbuch - TD Cowen - Analyst : Gotcha. And before we get into Sallie Mae-specific questions, maybe one other kind of general topic, and that is regulatory -- various regulatory issues. I think, on the one hand, you certainly got the concept -- the ongoing concept of federal loan forgiveness and the SAVE program. Can you talk a little bit about how you see that impacting Sallie Mae if at all on the demand side and certainly on the credit side as well.

Question: Moshe Orenbuch - TD Cowen - Analyst : Got it, and you mentioned election. One of the things that had come up in prior elections, hasn't really been too big a deal at the federal level, has been free college. We did note earlier this week that Colorado passed a bill that would allow for two years of free college for anyone earning up to $90,000. It's a little higher than the typical income levels. Any thoughts about that Colorado program, whether it's something that could apply in more states? And if so, how do you think about that impacting Sallie Mae's business?

Question: Moshe Orenbuch - TD Cowen - Analyst : Yes, I mean, when we saw it, we sort of had come to the conclusion that it was probably an attractive program that might be a little expensive to apply in a lot of other states. Can you talk a little bit about capital markets levels? Kind of when you think about -- you did a securitization relatively recently. And obviously, you're selling loans likely twice a year. You talk a little bit about what the investor appetite's been and how that influences your thoughts as we go forward into the second half and likely another loan sale.

Question: Moshe Orenbuch - TD Cowen - Analyst : Got it. So that would make it a second quarter, the second quarter event then?

Question: Moshe Orenbuch - TD Cowen - Analyst : Okay. Good to know. Thank you for that. 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 06, 2024 / 2:55PM, SLM.OQ - SLM Corp at TD Cowen Inaugural Financial Services Summit

Question: Moshe Orenbuch - TD Cowen - Analyst : Yes. That's right. All right. One of the things that's been very interesting about Sallie Mae is the performance of borrowers through the pandemic, the performance of the company from a credit standpoint through the pandemic. And not to rehash that entire situation, but it ended up with elevated credit losses in 2022. And now credit losses are, I would say, they're moving sideways, we hope, with a slight down trajectory. One of the things that you've done recently is started in very late 2023 and continuing now is various forbearance and modification programs. Can you kind of give everyone a little bit of a backdrop on those efforts, what you're trying to accomplish, and where they stand and how they're likely to affect Sallie Mae over the course of the next several quarters?

Question: Moshe Orenbuch - TD Cowen - Analyst : Right. And certainly, it's in contrast to many other consumer lenders who are seeing their credit loss numbers increase. That rate of increase often is slowing, but it's still higher. So kudos there. You sort of answered this already, but maybe in this extended grace program, I think you said that it's primarily new borrowers. Are there any other types of borrowers that are still --

Question: Moshe Orenbuch - TD Cowen - Analyst : Got you. Okay. All right. So I guess when you put all of that together, as we get into the second half, we should start to see increased exits from the program offsetting some of the inflows of new borrowers taking advantage.

Question: Moshe Orenbuch - TD Cowen - Analyst : Yes, so we talked about this, the exit of the second largest player, Discover, a little bit. Maybe just kind of flesh out the competitive environment. It's the second time in four years that the number-two player has actually left the industry. When you get past number three, you don't see too many significant players. I would say there's a couple of players that have kind of half raised their hand about getting into the market. Just talk a little bit about the competitive dynamic as you're into the peak season this year.

Question: Moshe Orenbuch - TD Cowen - Analyst : Got you. Okay. Maybe as we kind of talk about it, you did sort of already preview this by saying you're confident, maybe increasingly so, about your 2024 guidance given some of the positive things that have gone on. Maybe we could talk about some of those. I mean, we are in a period where I guess if we had gone back six months or four or five months when you gave the guidance, expected interest rates to be declining. They're not. Talk a little bit about what your borrowers are doing and what you're doing in response to that. 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 06, 2024 / 2:55PM, SLM.OQ - SLM Corp at TD Cowen Inaugural Financial Services Summit

Question: Moshe Orenbuch - TD Cowen - Analyst : Yes, I mean, I think that's been one of the areas of improvement in the value of the Sallie Mae loan has been the difficulty in your competitors consolidating some of those away and probably a little bit hasn't probably gotten the publicity perhaps that it deserves. It's been a tremendous, tremendous development, but clearly something that is still a ways away from coming back in force.

Question: Moshe Orenbuch - TD Cowen - Analyst : Right. I should have mentioned that if there are questions from the audience, you can either -- I think there's a link that you can click to have them sent directly to me or you can email them to me, moshe A little bit of a mouthful, so if you can use that link, it would probably be better. In terms of -- we were talking a little bit about margins, deposit pricing. You've had a small decline in your savings account pricing. I would say, anything that you would tell us to be aware of in terms of deposit pricing? I mean, as you said, fewer rate cuts this year. Anything we should be aware of?

Question: Moshe Orenbuch - TD Cowen - Analyst : Yes. What I'd like to kind of talk about with our remaining time is capital. And you basically repurchased half the company since this current round of the strategy of sale of loans and stock buyback. Obviously, that also kind of coincided with the CECL deferral, and that's almost done now. You've got one more installment left at the beginning of 2025, but essentially done. The company -- you have spoken about this at length, really, since the very latter part of last year. Maybe just talk a little bit about how you're thinking about loan sales and capital return, and then we can kind of talk about the form of that capital return after that.

Question: Moshe Orenbuch - TD Cowen - Analyst : Right. I've always thought that the existence of loan sales also puts a little extra discipline from both an underwriting standpoint to pricing standpoint on the company. So we'd just lob out there the view that having some of it is probably good all the time. You sort of alluded to this and back in December also talked about a rising kind of dividend payout ratio, how do you think about the buyback now that the stock price is somewhat higher? I mean, you obviously like the valuation to be better, but the stock price is higher. And how do you think about the mix of that capital return between dividends and buyback as we go forward?

Question: Moshe Orenbuch - TD Cowen - Analyst : I certainly don't disagree, and I think it is a testament, I think, to the strength of that strategy. To be perfectly honest, the fact that the first loan sale was able to use that -- deploy that capital into temporarily significantly depressed stock price, so it certainly had even better results. We are pretty much out of time and don't have any outstanding questions from investors. So what I will do is congratulate Pete and the Sallie Mae team on the loan sale that they just announced and thank him for his participation. Thank you so much, Pete.