SLM Corp (NASDAQ:SLM) Q1 2023 Earnings Conference Call April 27, 2023 8:00 AM ET Company Participants Melissa Bronaugh - VP & Head, IR Jonathan Witter - CEO & Director Steven McGarry - EVP & CFO Conference Call Participants Michael Kaye - Wells Fargo Securities Moshe Orenbuch - Crédit Suisse Sanjay Sakhrani - KBW John Hecht - Jefferies Jeffrey Adelson - Morgan Stanley Richard Shane - JPMorgan Chase & Co. Mark DeVries - Barclays Bank Operator Hello. Thank you for standing by, and welcome to Sallie Mae Q1 202 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-13251 SLM Corporation (Exact name of registrant as specified in its charter) | | | 52- | | --- | --- | --- | | Delaware | | 201 ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) Sallie Mae specializes in private education loans, funded by deposits and ABS, operating under strict regulation Key Business Metrics (2022) | Metric | Value | | :--- | :--- | | Private Education Loan Originations | **$6.0 billion** | | Private Education Loans Held for Investment, Net | **$19.0 billion** | | Sallie Mae Bank Total Assets | **$28.3 billion** | | Sallie Mae Bank Total Deposits | **$21.6 billion** | | Total Asset-Backed Securities (ABS) Funding | **$4.2 billion** | | Number of Employees | **~1,700** | - The company's primary business is originating and servicing **Private Education Loans**, which are not government-guaranteed. In **2022**, originations grew by **10%** compared to **2021**[12](index=12&type=chunk) - Sallie Mae maintains high credit quality for its loan portfolio. For loans originated in **2022**, the average **FICO score at approval was 747**, and approximately **86%** of these loans were **cosigned**[16](index=16&type=chunk) - The company is exiting its **credit card business** to focus on core strategies, with **$29 million** in credit card receivables held-for-sale at year-end **2022**[21](index=21&type=chunk) - In **2022**, Sallie Mae acquired **Nitro College** to enhance digital marketing capabilities and expand its role as a broader education solutions provider[31](index=31&type=chunk) [Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) The company faces credit, interest rate, liquidity, regulatory, operational, and spin-off risks in the higher education loan market - Concentration Risk: The business is highly concentrated in **Private Education Loans**, making it vulnerable to disruptions in the higher education market and competition from the federal government's **Direct Loan program**[102](index=102&type=chunk) - **Credit Risk**: The company bears full credit exposure on its unsecured private loans. Defaults could be driven by economic conditions, rising interest rates, and unemployment, potentially requiring a material increase in the **allowance for credit losses**[106](index=106&type=chunk)[107](index=107&type=chunk) - **Interest Rate & Liquidity Risk**: The business is highly dependent on **net interest income** and is exposed to risks from interest rate changes and a mismatch between asset and liability maturities. Funding is heavily reliant on obtaining deposits and executing asset-backed securitizations[110](index=110&type=chunk)[122](index=122&type=chunk) - **Regulatory & Political Risk**: The company operates in a highly regulated environment. Changes in consumer protection laws, increased **CFPB** oversight, or new federal programs for "free" college or loan refinancing could materially impact the business[141](index=141&type=chunk)[157](index=157&type=chunk)[159](index=159&type=chunk) - **Operational & Cybersecurity Risk**: The business depends on secure IT systems for processing large volumes of transactions. A breach of its systems or those of its third-party vendors could lead to significant financial, legal, and reputational exposure[164](index=164&type=chunk)[167](index=167&type=chunk) - **Spin-Off Risk**: The company has exposure to **Navient's** creditworthiness due to indemnification obligations from the **2014** spin-off. If **Navient** is unable to fulfill these obligations for pre-spin-off liabilities, Sallie Mae could face higher-than-expected costs[190](index=190&type=chunk)[191](index=191&type=chunk) [Unresolved Staff Comments](index=46&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[205](index=205&type=chunk) [Properties](index=42&type=section&id=Item%202.%20Properties) The company owns its headquarters and leases five other facilities for administrative and loan servicing functions, all deemed adequate for business goals Principal Owned and Leased Facilities | Location | Function | Ownership | Approx. Square Feet | | :--- | :--- | :--- | :--- | | Newark, DE | Headquarters | Owned | **160,000** | | New Castle, DE | Loan Servicing Center | Leased | **125,000** | | Indianapolis, IN | Administrative Offices | Leased | **115,000** | | Sterling, VA | Administrative Offices | Leased | **27,000** | | Salt Lake City, UT | Sallie Mae Bank | Leased | **17,000** | | Newton, MA | Administrative Offices | Leased | **14,000** | [Legal Proceedings](index=44&type=section&id=Item%203.%20Legal%20Proceedings) The company faces legal and regulatory inquiries, including indemnification disputes with Navient from the pre-2014 spin-off and ongoing CFPB investigations - **Navient** is legally obligated to indemnify SLM for liabilities arising from the conduct of pre-Spin-Off SLM. However, **Navient** has suggested SLM may be responsible for indemnifying **Navient** for certain liabilities, which SLM disputes[200](index=200&type=chunk)[202](index=202&type=chunk) - In January **2022**, **Navient** settled with **40** state attorneys general regarding pre-spin-off conduct. SLM was not a party to the settlement and contributed no relief[201](index=201&type=chunk) - The Bank is cooperating with an ongoing **CFPB** investigation and a Multi-State Investigation related to pre-spin-off activities, for which **Navient** is leading the response[203](index=203&type=chunk) [Mine Safety Disclosures](index=45&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's business - Not applicable[205](index=205&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=47&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) SLM common stock trades on NASDAQ, with the company actively repurchasing shares and paying quarterly dividends Q4 2022 Common Stock Repurchases | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2022 | **4,519** | **$15.66** | | Nov 2022 | **2,488** | **$16.90** | | Dec 2022 | **2,529** | **$16.65** | | **Total Q4 2022** | **9,536** | **$16.25** | - Under the **2022 Share Repurchase Program**, the company repurchased **38.2 million shares** for **$669 million** during the year. At year-end, **$581 million** of capacity remained under the program, which expires January **25**, **2024**[68](index=68&type=chunk)[213](index=213&type=chunk) - The company paid quarterly cash dividends of **$0.11** per common share for each quarter of **2022**, totaling **$0.44** for the year[206](index=206&type=chunk) [Selected Financial Data](index=50&type=section&id=Item%206.%20Selected%20Financial%20Data) Selected 2022 financial data shows decreased net income and EPS due to higher credit loss provisions, offset by stable assets and improved net interest margin Selected Financial Data (2020-2022) | (in millions, except per share data) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Operating Data** | | | | | Net Interest Income | **$1,489** | **$1,395** | **$1,480** | | Net Income | **$469** | **$1,161** | **$881** | | Diluted EPS | **$1.76** | **$3.61** | **$2.25** | | Net Interest Margin | **5.31%** | **4.81%** | **4.81%** | | **Balance Sheet Data** | | | | | Total Assets | **$28,811** | **$29,222** | **$30,770** | | Total Deposits | **$21,448** | **$20,828** | **$22,666** | | Total Stockholders' Equity | **$1,727** | **$2,150** | **$2,563** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=51&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes 2022 net income decline to higher credit loss provisions, offset by increased net interest income and loan sale gains, maintaining strong capital [Impact of COVID-19 on Sallie Mae](index=51&type=section&id=Impact%20of%20COVID-19%20on%20Sallie%20Mae) COVID-19 impacts in 2022 included increased delinquencies, higher 'gap year' loan losses, and the company's election of CECL regulatory capital transition - **Private Education Loan delinquencies** increased to **3.8%** of loans in repayment at year-end **2022**, up from **3.3%** in **2021**. This was attributed to the end of the COVID-19 disaster forbearance program, new credit administration practices, and operational challenges[222](index=222&type=chunk) - The company experienced **$59 million** in higher-than-expected losses on loans to students who took a "**gap year**" during the pandemic and began repayment in late **2021** and early **2022**[223](index=223&type=chunk) - The company elected to use the optional regulatory capital transition for the **CECL standard**, deferring the full capital impact. The phase-in began on January **1**, **2022**, and will continue at a rate of **25%** per year through **2025**[74](index=74&type=chunk)[223](index=223&type=chunk) [Key Financial Measures](index=55&type=section&id=Key%20Financial%20Measures) Key financial measures include net interest income, loan sale gains, and credit loss provisions, with funding primarily from deposits and asset-backed securitizations - In **2022**, the company sold **$3.34 billion** of **Private Education Loans**, resulting in gains of **$328 million**. These **loan sales** are used to manage asset growth, capital, and liquidity[234](index=234&type=chunk) - The **allowance for credit losses** is a key metric reflecting management's estimate of lifetime expected losses. It is affected by loan growth, economic forecasts, and risk factors like loan status, seasoning, and the presence of a cosigner[235](index=235&type=chunk) - The company is transitioning its variable-rate products from **LIBOR** to **SOFR**. As of Q**2** **2021**, new variable-rate loans are indexed to **SOFR**, and new ABS issuances began using **SOFR** in Q**3** **2022**[242](index=242&type=chunk) [Strategic Imperatives](index=58&type=section&id=Strategic%20Imperatives) In 2022, strategic imperatives included the Nitro College acquisition, significant loan sales and securitizations, facility renewals, substantial share repurchases, and exiting the credit card business - Completed the acquisition of **Nitro College** on March **4**, **2022**, to expand digital marketing capabilities and reduce customer acquisition costs[244](index=244&type=chunk) - Sold **$3.34 billion** of **Private Education Loans** and executed a **$575 million** term ABS transaction accounted for as a secured financing[245](index=245&type=chunk)[247](index=247&type=chunk) - Repurchased **40 million shares** of common stock for a total cost of **$708 million** under its authorized **share repurchase programs**[249](index=249&type=chunk) [Results of Operations](index=60&type=section&id=Results%20of%20Operations) GAAP net income and diluted EPS significantly decreased in 2022, driven by higher credit loss provisions and lower loan sale gains, partially offset by increased net interest income GAAP Earnings Summary (2021 vs. 2022) | (in millions) | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | **$1,489** | **$1,395** | **$94** | **7%** | | Provision for Credit Losses | **$633** | **$(33)** | **$666** | **2,018%** | | Gains on Sales of Loans, net | **$328** | **$548** | **$(220)** | **(40)%** | | Total Non-interest Income | **$335** | **$632** | **$(297)** | **(47)%** | | Total Non-interest Expenses | **$559** | **$520** | **$39** | **8%** | | **Net Income** | **$469** | **$1,160** | **$(691)** | **(60)%** | - The primary driver for the decrease in **2022 net income** was the significant increase in the **provision for credit losses**, which was affected by slower prepayment rate assumptions and higher expected future losses related to credit administration changes and operational challenges[253](index=253&type=chunk) - Non-GAAP "**Core Earnings**" **diluted EPS** was **$1.76** in **2022**, compared to **$3.67** in **2021**. This non-GAAP measure primarily excludes unrealized mark-to-market gains and losses on derivatives that do not qualify for hedge accounting[260](index=260&type=chunk) [Financial Condition](index=65&type=section&id=Financial%20Condition) As of year-end 2022, total assets and the net loan portfolio slightly decreased, while total deposits grew, and the allowance for credit losses and delinquencies increased Loan Portfolio Composition (Net) | (in thousands) | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Private Education Loans, net | **$19,019,713** | **$19,625,374** | | FFELP Loans, net | **$607,155** | **$692,954** | | Credit Cards, net | **$0** | **$22,955** | | **Total Loans Held for Investment, net** | **$19,626,868** | **$20,341,283** | - **Private Education Loan** originations totaled **$6.0 billion** in **2022**, an increase from **$5.4 billion** in **2021**. **86%** of **2022** originations had a **cosigner**, with an average **FICO score** of **747**[279](index=279&type=chunk)[281](index=281&type=chunk) Private Education Loan Credit Quality | Metric | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Delinquencies as % of Loans in Repayment | **3.8%** | **3.3%** | | Forbearance as % of Repayment & Forbearance | **1.8%** | **1.9%** | | Net Charge-offs as % of Avg. Loans in Repayment | **2.55%** | **1.33%** | [Liquidity and Capital Resources](index=82&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity and capital, funded by deposits and liquid investments, with Sallie Mae Bank exceeding all 'well capitalized' regulatory requirements - Primary sources of liquidity at year-end **2022** included **$4.6 billion** in cash at Sallie Mae Bank and **$2.0 billion** in available-for-sale investments[311](index=311&type=chunk) Sallie Mae Bank Regulatory Capital Ratios (as of Dec 31, 2022) | Ratio | Actual | Minimum Requirement (with buffer) | | :--- | :--- | :--- | | Common Equity Tier 1 Capital | **12.9%** | > **7.0%** | | Tier 1 Capital | **12.9%** | > **8.5%** | | Total Capital | **14.2%** | > **10.5%** | | Tier 1 Leverage | **10.3%** | > **4.0%** | - Sallie Mae Bank declared **$700 million** in dividends to the parent company in **2022**, which were primarily used to fund **share repurchase programs** and stock **dividends**[328](index=328&type=chunk) [Critical Accounting Policies and Estimates](index=92&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The **Allowance for Credit Losses (ACL)** is the most critical accounting estimate, calculated under the **CECL standard** using a vintage model with economic forecasts, prepayment speeds, and recovery rates as key assumptions - The **Allowance for Credit Losses** is the most critical accounting estimate, calculated using a discounted cash flow, vintage-based model under the **CECL standard**[351](index=351&type=chunk)[353](index=353&type=chunk) - The model relies on significant assumptions, including economic forecasts, prepayment speeds, and recovery rates. The company uses a two-year reasonable and supportable forecast period before reverting to historical averages[353](index=353&type=chunk) - The company elected to early adopt ASU No. **2022-02**, which eliminates the accounting guidance for **Troubled Debt Restructurings (TDRs)** and enhances disclosures for loan modifications to borrowers experiencing financial difficulty, effective January **1**, **2022**[359](index=359&type=chunk) [Risk Management](index=98&type=section&id=Risk%20Management) The company employs a 'three lines of defense' risk management approach, overseen by the Board and management committees, addressing six major risk categories - The company uses a "**three lines of defense**" governance model: **1**) Business units own the risk, **2**) The Risk Management function provides oversight, and **3**) Internal Audit provides independent assurance[364](index=364&type=chunk) - Six major risk categories are identified and managed: **Strategic, Credit, Market, Liquidity, Operational, and Compliance**[370](index=370&type=chunk) - Board-level committees (Financial Risk, Operational and Compliance Risk, Audit) and management-level committees (Enterprise Risk, Credit, ALCO) oversee the risk management framework and ensure compliance with the company's risk appetite[366](index=366&type=chunk)[368](index=368&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=102&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages interest rate risk using **EAR** and **EVE** models, indicating low sensitivity to rate changes and a positive asset-liability funding gap managed through derivatives Interest Rate Sensitivity Analysis (as of Dec 31, 2022) | Scenario (Rate Shock) | % Change in Net Interest Income (24-Month EAR) | % Change in Economic Value of Equity (EVE) | | :--- | :--- | :--- | | +300 Basis Points | **+3.0%** | **-9.5%** | | +100 Basis Points | **+1.0%** | **-3.2%** | | -100 Basis Points | **-1.1%** | **+3.1%** | | -300 Basis Points | **-3.7%** | **+6.2%** | - The company's primary market risk is interest rate risk. The analysis indicates a low sensitivity to rate changes based on static balance sheet assumptions[383](index=383&type=chunk)[386](index=386&type=chunk) [Financial Statements and Supplementary Data](index=105&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section incorporates by reference the company's consolidated financial statements and the Report of the Independent Registered Public Accounting Firm, which are detailed in Part IV, Item 15 - This item references the consolidated financial statements of SLM Corporation, which are included from page F-**2** onwards in the report[396](index=396&type=chunk)[404](index=404&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=105&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with its accountants on accounting and financial disclosure - Nothing to report[396](index=396&type=chunk) [Controls and Procedures](index=105&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that **disclosure controls** and **internal control over financial reporting** were effective as of December 31, 2022, a conclusion affirmed by the independent auditor - Management concluded that **disclosure controls and procedures** were effective as of December **31**, **2022**[397](index=397&type=chunk) - Management concluded that **internal control over financial reporting** was effective as of December **31**, **2022**. This assessment was audited by **KPMG LLP**, which concurred[398](index=398&type=chunk) [Other Information](index=105&type=section&id=Item%209B.%20Other%20Information) The company reported no other information - Nothing to report[399](index=399&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=106&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Proxy Statement - This information is incorporated by reference from the Registrant's **2023** Annual Meeting of Stockholders proxy statement[399](index=399&type=chunk) [Executive Compensation](index=106&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2023 Proxy Statement - This information is incorporated by reference from the Registrant's **2023** Annual Meeting of Stockholders proxy statement[400](index=400&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=106&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership and related matters is incorporated by reference from the company's 2023 Proxy Statement - This information is incorporated by reference from the Registrant's **2023** Annual Meeting of Stockholders proxy statement[401](index=401&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=106&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2023 Proxy Statement - This information is incorporated by reference from the Registrant's **2023** Annual Meeting of Stockholders proxy statement[402](index=402&type=chunk) [Principal Accounting Fees and Services](index=106&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's 2023 Proxy Statement - This information is incorporated by reference from the Registrant's **2023** Annual Meeting of Stockholders proxy statement[403](index=403&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=107&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists consolidated financial statements, notes the omission of inapplicable schedules, and provides a list of exhibits filed or incorporated by reference - The consolidated financial statements of SLM Corporation are included in Item **8**[403](index=403&type=chunk) - All financial statement schedules have been omitted because they are not applicable or the required information is already included in the financial statements or notes[405](index=405&type=chunk)

Financial Data and Key Metrics Changes - Sallie Mae reported a loss of $0.33 per share in Q4 2022, with diluted earnings of $1.76 per share for the full year, impacted by increased provisions for credit losses and a write-down of non-marketable equity securities [6][15] - The company experienced a net interest income of $1.5 billion for the full year 2022, higher than 2021, despite slightly lower loan balances, and improved net interest margin from 4.81% in 2021 to 5.31% in 2022 [10][22] - The total provision for credit losses in Q4 was $297 million, an increase of $90 million from the prior quarter and $313 million from the year-ago quarter [16] Business Line Data and Key Metrics Changes - Private education loan originations for Q4 2022 were $819 million, up 11% year-over-year, with full-year originations reaching approximately $6 billion, a 10% increase over 2021 [7][8] - The company saw a 15% increase in underclass disbursements compared to the previous year, indicating a favorable shift in the mix of originations [8] - The cosigner rate for Q4 2022 was 82%, slightly down from 83% in Q4 2021, with an average FICO score of 747, consistent with previous years [9] Market Data and Key Metrics Changes - Sallie Mae's market share in the core student loan lending market increased by 200 basis points year-over-year, reflecting success during the 2022 peak season [8] - The company expects private education loan origination growth of 5% to 6% for 2023, indicating a return to more normalized growth rates [26] Company Strategy and Development Direction - The company plans to sell $3 billion of loans in 2023, maintaining its capital return strategy while managing operational changes to improve loss performance [25][26] - Sallie Mae is focused on enhancing its analytics and operational processes to better manage credit risks and improve forecasting accuracy [49][60] - The company aims to continue its share repurchase program, with $581 million worth of shares still authorized for purchase in 2023 [25][74] Management's Comments on Operating Environment and Future Outlook - Management believes that while charge-offs are expected to remain elevated in 2023, they will be lower than in 2022, and the company is well-positioned for future success [5][12] - The management team noted that they do not see evidence of broad stress across the portfolio but have identified pockets of risk that require targeted management [52][56] - The company is optimistic about its originations outlook, citing a record-setting start in January 2023 [30] Other Important Information - The company has made significant changes to its operational processes and staffing to improve loss performance and has implemented a pre-delinquency loss mitigation program [60] - The liquidity and capital positions remain strong, with liquidity at 23.5% of total assets and total risk-based capital at 14.2% [23] Q&A Session Summary Question: Given the strength in originations in 2022, how should the deceleration in growth be interpreted? - Management explained that the deceleration is due to the loss of the HEERF program, which had previously impacted borrowing requirements, and they expect a return to a more normalized growth rate [29][30] Question: Can you elaborate on the gain on sale margin assumed in guidance? - Management preferred not to provide further specificity on the gain on sale margin but expressed optimism about executing strong loan sales [36][34] Question: What is driving the decline in cosigner rates? - Management noted that the decline is not due to a mix shift but rather an increase in programs attracting older, established credit risk customers who do not require cosigners [38] Question: How can the company have confidence in estimating lifetime losses amid current credit metrics challenges? - Management highlighted improvements in analytics and a better understanding of unique borrower patterns as key factors in enhancing forecasting accuracy [42][46] Question: What specific changes have been made to address operational issues? - Management discussed leadership changes, the implementation of a pre-delinquency loss mitigation program, and technology improvements in collections as part of their remediation efforts [58][60]

Financial Data and Key Metrics Changes - GAAP diluted EPS for Q3 2022 was $0.29, up from $0.24 in the same quarter last year [6] - Net interest income for the first nine months of 2022 was $1.1 billion, higher than the previous year despite slightly lower loan balances [7] - Total provision for credit losses was $208 million in Q3 2022, an increase of $177 million from the prior quarter [17] Business Line Data and Key Metrics Changes - Private education loan originations for Q3 2022 were $2.4 billion, a 13% increase compared to Q3 2021 [9] - The co-signer rate for Q3 2022 was 89%, slightly up from 88% in Q3 2021 [9] - The private education loan reserve was $1.3 billion, or 5.5% of total student loan exposure, up from 5.2% a year ago [14] Market Data and Key Metrics Changes - The company experienced a 15% increase in underclassmen application growth, contributing to overall application growth of 13% [9] - Private education loans delinquent for 30-plus days were 3.7%, unchanged from Q2 2022 but up from 2.4% a year ago [18] Company Strategy and Development Direction - The company is focusing on strengthening its core business and maximizing brand value, evidenced by strong origination growth and well-managed operating expenses [22] - The acquisition of Nitro College is expected to enhance direct-to-consumer marketing capabilities and broaden data collection [22] - The company has decided to exit the credit card business to focus on more profitable opportunities [23] Management's Comments on Operating Environment and Future Outlook - Management remains confident that the factors driving higher charge-offs in 2022 will normalize by the start of 2023 [12] - The macroeconomic environment is volatile, but the company does not see a weakening of its core portfolio [24] - The company expects to continue its share buyback strategy while managing capital reserves effectively [46] Other Important Information - The company ended Q3 2022 with liquidity of 23.2% of total assets and total risk-based capital at 14.6% [21] - The effective tax rate for Q3 2022 was 28.2%, higher than the previous year due to lower than expected tax credits [20] Q&A Session Summary Question: Future loan growth and gain on sale sustainability - Management indicated that predicting market conditions is challenging, but they expect a continued positive relationship between loan sales and share buybacks [29][30] Question: Behavior of students returning to school and prepayment speeds - Management noted that the pandemic's impact on student behavior varies by region and that slower prepayment speeds are viewed positively for the business [34] Question: Credit card business exit and potential for positive mix shift - Management acknowledged that consolidations have not been a significant part of their business and do not expect a material change in credit metrics due to the exit from the credit card space [39] Question: Insights on loan sale auction process - Management shared that interest in loan sales has increased, attracting a diverse range of buyers, including insurance companies and hedge funds [41] Question: Funding strategy and deposit growth - Management confirmed that their funding strategy relies on deposits for 80% of funding and plans modest balance sheet growth in the coming years [49]

Part I. Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents SLM Corporation's unaudited consolidated financial statements as of September 30, 2022, including balance sheets, income statements, and cash flow statements Consolidated Balance Sheet Highlights (Unaudited, in thousands) | Metric | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $4,846,754 | $4,334,603 | | Loans held for investment, net | $19,622,302 | $20,341,283 | | Total assets | $29,139,088 | $29,221,899 | | Deposits | $21,276,748 | $20,828,124 | | Total liabilities | $27,156,860 | $27,072,188 | | Total equity | $1,982,228 | $2,149,711 | Consolidated Statements of Income Highlights (Unaudited, in thousands, except per share) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $369,510 | $357,518 | $1,107,350 | $1,027,416 | | Provisions for credit losses | $207,598 | $138,442 | $336,193 | $(17,648) | | Net income | $75,172 | $72,840 | $546,057 | $854,248 | | Diluted earnings per common share | $0.29 | $0.24 | $2.03 | $2.59 | [Notes to the Financial Statements](index=12&type=section&id=Item%201.%20Notes%20to%20the%20Financial%20Statements) This section provides detailed disclosures on significant accounting policies, investments, loans, credit losses, borrowings, equity, and regulatory capital [Note 1. Significant Accounting Policies](index=12&type=section&id=1.%20Significant%20Accounting%20Policies) The company's interim financial statements adhere to U.S. GAAP, reflecting the Nitro College acquisition and early adoption of ASU 2022-02 - On March 4, 2022, the company acquired the assets of Nitro College to expand digital marketing capabilities and reduce customer acquisition costs, resulting in goodwill of **$51 million** and identifiable intangible assets of approximately **$75 million**[20](index=20&type=chunk) - The company elected to early adopt ASU No. 2022-02 prospectively from January 1, 2022, eliminating accounting guidance for Troubled Debt Restructurings (TDRs) and enhancing disclosure requirements for certain loan modifications, with an immaterial impact on financial statements[23](index=23&type=chunk) [Note 2. Investments](index=14&type=section&id=2.%20Investments) The investment portfolio includes trading and AFS securities, with AFS investments totaling **$2.43 billion** and **$216 million** in unrealized losses due to rising interest rates Available-for-Sale Investments Composition (As of Sep 30, 2022, in thousands) | Security Type | Amortized Cost | Estimated Fair Value | Gross Unrealized Losses | | :--- | :--- | :--- | :--- | | Mortgage-backed securities | $394,753 | $323,072 | $(71,682) | | U.S. government-sponsored enterprises and Treasuries | $1,928,886 | $1,804,647 | $(124,239) | | Other securities | $316,317 | $296,516 | $(19,801) | | **Total** | **$2,643,540** | **$2,427,540** | **$(216,001)** | - The decline in the fair value of AFS securities from December 31, 2021, to September 30, 2022, was primarily driven by the rising interest rate environment and is not considered credit-related, with the company intending and able to hold these securities until recovery[32](index=32&type=chunk) [Note 3. Loans Held for Investment](index=17&type=section&id=3.%20Loans%20Held%20for%20Investment) The loan portfolio, primarily private education loans, totaled **$19.6 billion** as of September 30, 2022, with **$3.29 billion** in loan sales generating **$325 million** in gains Loans Held for Investment, Net (in thousands) | Loan Type | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Private Education Loans, net | $18,980,852 | $19,625,374 | | FFELP Loans, net | $641,450 | $692,954 | | Credit Cards, net | $0 | $22,955 | | **Total** | **$19,622,302** | **$20,341,283** | - In the first nine months of 2022, the company sold approximately **$3.29 billion** of Private Education Loans to unaffiliated third parties, resulting in recognized gains of **$325 million**[41](index=41&type=chunk) [Note 5. Allowance for Credit Losses](index=19&type=section&id=5.%20Allowance%20for%20Credit%20Losses) The allowance for credit losses reached **$1.19 billion**, with a **$336 million** provision for the nine months ended September 30, 2022, reflecting increased charge-offs and policy changes Allowance for Credit Losses Activity (Nine Months Ended Sep 30, 2022, in thousands) | Metric | Private Education Loans | Total | | :--- | :--- | :--- | | Beginning Balance | $1,158,977 | $1,165,335 | | Total Provisions | $(2,852) | $(2,479) | | Net Charge-offs | $(269,289) | $(272,209) | | **Ending Balance** | **$1,190,427** | **$1,194,238** | - Charge-offs increased in Q3 and the first nine months of 2022 compared to 2021 due to changes in credit administration practices that imposed stricter requirements for forbearance, elevated losses from borrowers who took a "gap year" during the pandemic, and strain on collections from increased activity and staffing shortages[60](index=60&type=chunk) - As of September 30, 2022, **87%** of the gross Private Education Loan portfolio had a cosigner, and **45%** had a FICO score at origination of 750 or greater[73](index=73&type=chunk) [Note 8. Deposits](index=35&type=section&id=8.%20Deposits) Total deposits increased to **$21.3 billion** by September 30, 2022, with a significant rise in weighted average interest rates due to market conditions Deposit Composition (in thousands) | Deposit Type | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Money market | $11,053,370 | $10,473,569 | | Savings | $947,870 | $959,122 | | Certificates of deposit | $9,274,941 | $9,394,001 | | **Total Interest-Bearing** | **$21,276,181** | **$20,826,692** | [Note 9. Borrowings](index=36&type=section&id=9.%20Borrowings) Total borrowings decreased to **$5.5 billion** by September 30, 2022, including a **$575 million** ABS transaction and **$344 million** in unconsolidated VIE exposures Total Borrowings (in thousands) | Borrowing Type | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Unsecured borrowings | $988,182 | $986,138 | | Secured borrowings | $4,534,129 | $4,944,852 | | **Total** | **$5,522,311** | **$5,930,990** | - On August 9, 2022, the company executed the **$575 million** SMB Private Education Loan Trust 2022-C term ABS transaction, accounted for as a secured financing, with notes priced at a weighted average SOFR equivalent cost of SOFR plus **1.76%**[106](index=106&type=chunk) [Note 11. Stockholders' Equity](index=44&type=section&id=11.%20Stockholders'%20Equity) The company repurchased **30.7 million** shares for **$553 million** and paid a **$0.11** per share dividend in Q3 2022, with **$736 million** remaining for repurchases Share Repurchase Activity | Period | Shares Repurchased (in actuals) | Average Price per Share | | :--- | :--- | :--- | | Three Months Ended Sep 30, 2022 | 1,191,544 | $14.14 | | Nine Months Ended Sep 30, 2022 | 30,721,944 | $18.00 | - The company paid a common stock dividend of **$0.11** per share in Q3 2022, an increase from **$0.03** per share in Q3 2021, with total dividends for the first nine months of 2022 at **$0.33** per share compared to **$0.09** in the prior year period[134](index=134&type=chunk) [Note 14. Regulatory Capital](index=49&type=section&id=14.%20Regulatory%20Capital) Sallie Mae Bank remains 'well capitalized' with all regulatory capital ratios, including **13.3%** Common Equity Tier 1, significantly exceeding minimum requirements Sallie Mae Bank Capital Ratios (As of Sep 30, 2022) | Ratio | Actual | Minimum Requirement + Buffer | | :--- | :--- | :--- | | Common Equity Tier 1 Capital | 13.3% | > 7.0% | | Tier 1 Capital | 13.3% | > 8.5% | | Total Capital | 14.6% | > 10.5% | | Tier 1 Leverage | 10.6% | > 4.0% | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=53&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial performance for Q3 and the first nine months of 2022, covering key drivers, strategic initiatives, and financial condition - The company is focused on strategic imperatives including maximizing its core private student loan business, optimizing its brand, and maintaining a rigorous capital return program[175](index=175&type=chunk) - Strategic actions in 2022 include the acquisition of Nitro College to enhance digital marketing, the sale of **$3.29 billion** in Private Education Loans, and the decision to exit and sell the credit card business to focus on core strategies[175](index=175&type=chunk)[176](index=176&type=chunk)[179](index=179&type=chunk) [Results of Operations](index=60&type=section&id=Results%20of%20Operations) Q3 2022 net income was **$75 million** (up from **$73 million**), driven by net interest income and loan sale gains, while nine-month net income decreased to **$546 million** due to higher credit loss provisions - **Q3 2022 vs. Q3 2021:** Net interest income rose by **$12 million** due to a **24-basis point** increase in net interest margin as assets repriced faster than liabilities in a rising rate environment, partially offset by a **$70 million** increase in the provision for credit losses[184](index=184&type=chunk) - **Nine Months 2022 vs. 2021:** Net income decreased by **$308 million**, largely due to the provision for credit losses swinging from a negative **$18 million** in 2021 to a positive **$336 million** in 2022, with gains on loan sales also decreasing by **$78 million**[186](index=186&type=chunk) [Financial Condition](index=63&type=section&id=Financial%20Condition) The net student loan portfolio decreased to **$19.6 billion**, with delinquencies rising to **3.7%** due to policy changes and economic pressures, while the allowance for credit losses was **5.92%** Private Education Loan Credit Quality Indicators | Metric | September 30, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Delinquencies as % of loans in repayment | 3.7% | 2.4% | | Forbearance as % of loans in repayment & forbearance | 1.4% | 2.3% | | Net charge-offs as % of avg. loans in repayment (annualized, Q3) | 2.67% | 1.29% | - The increase in delinquency rates is attributed to changes in credit administration practices implemented in 2021 that tightened forbearance requirements, as well as economic strain on borrowers and the company's collection teams[219](index=219&type=chunk) [Liquidity and Capital Resources](index=76&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$7.0 billion** in cash and investments, stable **$21.3 billion** deposits, and a 'well capitalized' bank subsidiary, supporting **$2.2 billion** in loan commitments - Total primary liquidity sources, including unrestricted cash and available-for-sale investments, stood at **$7.0 billion** at September 30, 2022[233](index=233&type=chunk) - The company has **$2.2 billion** of outstanding contractual loan commitments to be funded during the 2022/2023 academic year, with a corresponding reserve of **$108 million** for expected credit losses[258](index=258&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=83&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages interest rate risk using EAR and EVE analyses, showing low sensitivity with a **+100 basis point** rate shock increasing net interest income by **0.6%** and decreasing EVE by **2.0%** Interest Rate Sensitivity Analysis (As of Sep 30, 2022) | Scenario | Earnings at Risk (EAR) - Shock | Economic Value of Equity (EVE) | | :--- | :--- | :--- | | +300 Basis Points | +1.8% | -6.0% | | +100 Basis Points | +0.6% | -2.0% | | -100 Basis Points | -0.7% | +1.8% | [Controls and Procedures](index=86&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting - Based on an evaluation as of September 30, 2022, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[275](index=275&type=chunk) Part II. Other Information [Legal Proceedings](index=87&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various claims, lawsuits, and regulatory inquiries in the normal course of business and cooperates with all such requests - The company is subject to various claims and legal actions in the normal course of business and cooperates with requests from state attorneys general and other administrative agencies[278](index=278&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=87&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **1.2 million** shares at **$14.14** per share in Q3 2022, with **$736 million** remaining for future repurchases under existing programs Share Repurchases (Q3 2022, in thousands) | Month (2022) | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July | 0 | N/A | | August | 0 | N/A | | September | 1,192 | $14.14 | | **Total Q3** | **1,192** | **$14.14** | - As of September 30, 2022, approximately **$736 million** remained available for purchase under the company's share repurchase programs[281](index=281&type=chunk)

Financial Data and Key Metrics Changes - GAAP diluted EPS for Q2 2022 was $1.29, up from $0.44 in the same quarter last year [6] - The company repurchased 20 million shares, reducing shares outstanding by 11% since January 1, 2022, and by 42% since January 2020 [7] - Net charge-offs from private education loans were $95.5 million, resulting in an annualized charge-off rate of 2.56%, exceeding the forecast of 2.25% [12] - NIM for the quarter was 5.29%, up from 4.7% in the year-ago quarter [12] Business Line Data and Key Metrics Changes - Private education loan originations for Q2 2022 were $616 million, a 16% increase over Q2 2021 [7] - The cosigner rate for Q2 2022 was 74%, down from 76% in Q2 2021, with an average FICO score of 746 compared to 750 in the previous year [8] - Consolidation volume showed signs of slowing, with a 21% decrease in monthly consolidation volume from June 2021 to June 2022 [8] Market Data and Key Metrics Changes - The high school class of 2022's FAFSA completion rate returned to near pre-pandemic levels at 52.1% [7] - The company expects 30-plus day delinquencies to drop in Q3 and end the year near 3% [11] Company Strategy and Development Direction - The company is focused on executing its loan sale and share buyback program while navigating a challenging economic environment [5] - Full-year net charge-off guidance was increased to $325 million to $345 million, reflecting expectations of higher charge-offs due to specific borrower cohorts [14] - The company plans to continue its share buyback program as long as it remains within the "green zone" of value creation [36] Management's Comments on Operating Environment and Future Outlook - Management noted that the college marketplace is finding its new normal after pandemic-related disruptions [14] - The company is monitoring its portfolio for signs of stress but reports that borrower FICO scores remain strong [23] - Management expressed confidence that the unique charge-off trends observed in 2022 will not repeat in future years [19] Other Important Information - Operating expenses for Q2 2022 were $132 million, unchanged from the prior quarter [13] - The company ended the quarter with liquidity of 20.3% of total assets and total risk-based capital at 15.6% [13] Q&A Session Summary Question: Concerns about the gap year population and future charge-offs - Management acknowledged the gap year population's performance has been worse than expected but noted that trends are normalizing [30][31] Question: Impact of credit administration policy changes - Management indicated that the impact of these changes is expected to be more temporary and specific to 2022 [41][43] Question: Clarification on loan sale premiums and strategy - Management explained that they assess loan sales based on a decision matrix considering premiums and stock multiples to create shareholder value [35][36] Question: Future provisions and charge-off expectations - Management confirmed that the current year's unique charge-off effects would not carry over into future years, leading to a lower provision run rate [51][53]

Start Time: 08:00 January 1, 0000 8:47 AM ET SLM Corporation (NASDAQ:SLM) Q1 2022 Earnings Conference Call April 28, 2022, 08:00 AM ET Company Participants Jon Witter - CEO Steve McGarry - EVP and CFO Brian Cronin - VP, IR Conference Call Participants Michael Kaye - Wells Fargo Moshe Orenbuch - Credit Suisse Steven Kwok - Keefe, Bruyette & Woods Vincent Caintic - Stephens Melissa Wedel - JPMorgan Operator Ladies and gentlemen, thank you for standing by, and welcome to the 2022 Q1 Sallie Mae Earnings Confere ...