SLM Corp at UBS Financial Services Conference Transcript

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

Question: Jill Shea - UBS - Analyst : So I thought that we dive right in -- you're over one year from when you laid out your strategic plans at the December 2023 investor forum. That strategy called for strong and predictable balance sheet growth. So perhaps, we can just start with the growth in 2024. You had total balance sheet growth of 3.1%. I think that was relative to your guidance of 2% to 3%. And that was up from your previous guidance of flattish. Can you just talk about the factors that played into your balance sheet growth and how loan sales played a role this past year?

Question: Jill Shea - UBS - Analyst : Great. And then, perhaps, just talking about 2024 origination, you originated $7 billion of private education loans. And that was up 10% from 2023 and ahead of your expectations of the 8% to 9%. And it appeared you expanded your share of private student lending market share. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 10, 2025 / 5:10PM, SLM.OQ - SLM Corp at UBS Financial Services Conference In terms of that, can you just talk about your share gains? And should we think about those gains as done, or is there more to do in terms of market share positioning?

Question: Jill Shea - UBS - Analyst : Perhaps just talking about EPS in 2024, just given the origination growth was a bit higher than what you had expected, it's just put some EPS pressure as you built the required reserves. As a result, you finished about $0.02 below your guidance for 2024. Can you just talk about the trade-off as you think about growing versus the EPS? And how does that set you up for additional earnings support in 2025?

Question: Jill Shea - UBS - Analyst : Perhaps pivoting to 2025, at the year-two investor forum numbers included balance sheet growth stepping up to the 5% in year two, and with 2024, pace having shaped up a bit better than you previously planned. Can you just talk about the range of balance sheet growth that you would be comfortable with in 2025? I think you've noted that it might be slightly above that 5%.

Question: Jill Shea - UBS - Analyst : Great. And then perhaps just in terms of the cadence of the growth -- and you had mentioned this in one of your earlier comments -- but can you just talk about the pacing of growth as we think about the opportunity into the spring of 2025, as well as into the second half of 2025, as you start lapping sort of the larger fall originations that you had? So can you just talk about how that ties into your overall growth of 6% to 8% loan origination growth to the year? And it's obviously lower than the 10% from 2024.

Question: Jill Shea - UBS - Analyst : Perhaps just touching on the loan sales, you noted in your last earnings call that you reached a preliminary agreement for the sale of approximately $2 billion of private education loans that was expected to close in early February. Could you just speak to your use of loan sales to moderate growth in 2025?

Question: Jill Shea - UBS - Analyst : Perhaps we can touch on that a little bit, just the loan sale appetite. Private credit has entered the space. So could you just touch on the demands that you're seeing on loan sales, and how would you characterize the appetite and environment that you see today?

Question: Jill Shea - UBS - Analyst : Great. So perhaps turning to regulation, with the new presidential administration, could you just touch on the potential for PLUS reforms? I mean, realizing there's no specific proposals offered, so it makes it difficult to put estimates around. But perhaps, you can just walk us through the PLUS program and the Grad PLUS program, and how your view might differ relative to those two programs, the size of the opportunity, what might fit into your credit box, just any color there?

Question: Jill Shea - UBS - Analyst : Okay. So perhaps turning to the net interest margin, you did have some NIM compression due to your funding rates catching up to your asset yields, which drove the majority of the decrease in the NIM in 2024. Can you just talk about the near-term NIM dynamics with the longer-term funding that was put on a much lower rate maturing in the first part of 2025? Like, how much compression could we see, and when should that pressure abate? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 10, 2025 / 5:10PM, SLM.OQ - SLM Corp at UBS Financial Services Conference

Question: Jill Shea - UBS - Analyst : Okay. And then perhaps just in terms of the longer-term margin, can you speak to a normalized net interest margin? I think your baseline expectations are the low to mid-5% type of range. Beyond rates, is there anything important -- are there any other important assumptions that underpin that 5% type of range?

Question: Jill Shea - UBS - Analyst : Perhaps on funding and deposits, can you talk about your funding outlook? And what are you seeing in terms of the competitive dynamics on the deposit side?

Question: Jill Shea - UBS - Analyst : Okay. And perhaps just stepping out a bit and looking at the macro, I mean, with all the commentary and your growth withstanding, what's your view on the macro from your seat? And how do you think about the economic outlook, the read outlook, and how it plays out over the next year or two? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 10, 2025 / 5:10PM, SLM.OQ - SLM Corp at UBS Financial Services Conference

Question: Jill Shea - UBS - Analyst : Perhaps on that last point, just in terms of the rate outlook, could you sensitize your expectations if we get more or less costs than the two that are embedded in the baseline?

Question: Jill Shea - UBS - Analyst : Okay, that's helpful. Perhaps turning to expenses, there was outperformance on the expenses in 2024. You came in below the midpoint of your guidance. Can you talk about how you achieved the outperformance in 2024, particularly in light of the fact that additional expenses were associated with the higher originations?

Question: Jill Shea - UBS - Analyst : Perhaps on the 2025 expense guidance, you have the $655 million to $675 million. The bottom end of the range is consistent with the investor forum target of the 2% to 3% growth, while the top end of the range implies 5% growth. Perhaps you can just talk about the factors that would take you to the bottom end of the range versus the top end of the range on expenses.

Question: Jill Shea - UBS - Analyst : Perfect. And then perhaps just turning to the long-term efficiency, at the 2023 investor forum, you assumed the OpEx was growing at the 2% to 3% over a two-year period. And then there was an assumption that you would grow expenses at 60% of revenues in years three through five. So clearly, you've shown that disciplined expense growth is a priority. Can you just provide any color in terms of how you plan to execute on the priority over the longer term? And where do you think you can drive operating efficiency of the company over time?

Question: Jill Shea - UBS - Analyst : Great. So perhaps turning to credit quality, credit quality improved in both 2023 and 2024. And a driver of some of that improvement were the various programs including the enhanced loss mitigation program. You've been able to observe the performance over the course of a year now. Can you just speak to the performance and how that supports your confidence in achieving your longer-term target on that charge off?

Question: Jill Shea - UBS - Analyst : And perhaps just on that last point, the target range. So I think you're targeting the high ones to low 2% range on that charge-off. Just given your changes to underwriting and operational changes, where do you see the most likely path of net charge-offs over the next 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. FEBRUARY 10, 2025 / 5:10PM, SLM.OQ - SLM Corp at UBS Financial Services Conference

Question: Jill Shea - UBS - Analyst : And then turning to the reserve rate, your total allowance is down 6 basis points year over year to 5.83%. As you realize the benefits from your loan modification programs and improvement in credit quality, you also noted that you'd see incremental improvement in the reserve rate over time. Can you talk about the degree of improvement that we should expect in the allowance over time?

Question: Jill Shea - UBS - Analyst : Perhaps switching gears to capital, so at the end of 2023, you evolved the investment thesis to include a principle strong capital return. And you announced the 650 million share buyback authorization, with a rough split of 50/50 in 2024 and '25. Can you speak to the factors that led to the buyback coming in a little bit less than 2024? And then can you talk about the share buyback dynamics and factors at play that influenced your pace over the next year or so?

Question: Jill Shea - UBS - Analyst : In terms of the price sensitivity on the buyback, can you just talk about the guardrails? I think you had mentioned that you buy back more stock when the average price is trailing below the trending price line. Do those guardrails still remain in place for 2025? Can you just talk about 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. FEBRUARY 10, 2025 / 5:10PM, SLM.OQ - SLM Corp at UBS Financial Services Conference

Question: Jill Shea - UBS - Analyst : Okay, helpful. And then perhaps just on capital and liquidity, your liquidity and capital positions are solid with liquidity of 20% of total assets, common equity Tier 1 at 11%. Can you just talk about your target capital levels over the medium term?

Question: Jill Shea - UBS - Analyst : Okay, perfect. Great. So in terms of the buyback, you've bought back 52% of your shares outstanding since the beginning of 2020, which is quite remarkable. And at some point, you have noted that buybacks will hit a diminishing returns with the float affected. So maybe a two-part question here, over what time horizon do you think you hit that point of diminishing returns? And then second, you have talked about exploring alternative uses of capital beyond buyback. So maybe you can just hit on dividends and acquisitions.

Question: Jill Shea - UBS - Analyst : Okay, thanks for that. And then maybe just on acquisitions, is there anything that you would be interested in on the acquisition side?

Question: Jill Shea - UBS - Analyst : And then perhaps on those two acquisitions, are there any products that you could potentially deliver to your consumers and maybe bolster those two acquisitions, Nitro and Scholly?

Question: Jill Shea - UBS - Analyst : Helpful. If there are any questions from the audience, feel free to raise your hand, and we'll send a mic over. In the meantime, maybe just on dividends, and you touched on this already, that you increased the dividend. But perhaps longer term, how can we think about the dividend payout ratio over time?

Question: Jill Shea - UBS - Analyst : Great. Is there a question? Unidentified Participant Yeah. Hi, Pete. How do you feel the current competitive dynamic is changing, private education lending with banks getting out of the space and private credit getting in? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 10, 2025 / 5:10PM, SLM.OQ - SLM Corp at UBS Financial Services Conference

Question: Jill Shea - UBS - Analyst : So perhaps the last few questions from me, if there's no other questions from the audience, just in terms of the overall guidance and EPS, you're calling for the $3 to $3.10 in terms of GAAP earnings per share. Broadly speaking, do you see more opportunities for upside versus downside risk?

Question: Jill Shea - UBS - Analyst : And then perhaps one last one for me, so your strategy of loan growth and operating leverage should provide a basis for stronger recurring EPS and return on capital. So drilling down on both of those pieces, what type of EPS growth range do you expect to generate over the longer term? And what's your degree of confidence and the consistency of that? And then as you think about strong ROE, where do you think returns can go over time?

Question: Jill Shea - UBS - Analyst : Great. So with that, we'll end there. So thanks so much, Pete, for joining us. Really appreciate it.