SLM (NasdaqGS:SLM) Q3 2025 Earnings Call October 23, 2025 05:30 PM ET Speaker9Thank you, Chloe. Good evening and welcome to SLM's third quarter 2025 earnings call. It is my pleasure to be here today with Jon Witter, our CEO, Pete Graham, our CFO, and Melissa Bronaugh, Managing Vice President of Strategic Finance. After the prepared remarks, we will open the call for questions. Before we begin, keep in mind our discussion will contain predictions, expectations, and forward-looking statements. Actual results ...

Core Insights - The Federal Reserve has initiated its first interest rate cut of 2025, reducing the federal funds rate by 25 basis points to a range of 4%-4.25% [5] - The Fed is anticipated to implement two additional rate cuts before the end of the year, suggesting that consumers may benefit from waiting to refinance or secure long-term loans [2][10] Impact on Mortgage Rates - Mortgage rates are more closely linked to the yield on the 10-year Treasury rather than directly following the Fed's rate changes, which have been easing since July [1][6] - Anticipation of rate cuts can lead mortgage lenders to adjust their rates in advance, as seen with mortgage rates beginning to fall in August prior to the Fed's announcement [6] Consumer Borrowing Considerations - The recent 25 basis point cut by the Fed is considered minor and may not significantly lower consumer borrowing rates, leading experts to label it a "non-event" [3] - Consumers are advised to consider the costs associated with refinancing too quickly, as repeated refinancing could incur substantial closing costs [11] Specific Loan Types - Auto loan rates are influenced by various factors, including the Fed's benchmark rate, but may not see immediate reductions following the Fed's cuts [7] - Federal student loan rates are set annually on July 1 and will not be directly affected by the Fed's rate cuts, although private student loans with variable rates may see some relief [8][12] Strategic Financial Advice - Financial advisers can provide guidance on the timing of refinancing based on economic conditions and individual financial situations, such as credit score improvements [15][16] - Consumers facing difficulties with loan payments are encouraged to communicate with lenders to explore available options [14]

Core Insights - The Federal Reserve's adjustments to the federal funds rate significantly influence borrowing costs across various loan types, including personal, auto, and private student loans [1][3][4] Impact on Loan Rates - The federal funds rate serves as a benchmark for lenders, affecting how much they charge for overnight lending, which in turn impacts consumer loan interest rates [3][4] - Between February 2022 and August 2023, the Fed raised the federal funds rate from 0.08% to 5.33% to combat inflation, leading to higher loan rates that remain elevated despite some rate cuts in 2024 [4][5] - The prime rate, which is typically set about three percentage points above the federal funds rate, also influences consumer loan rates, particularly for creditworthy borrowers [4] Personal Loan Rates - Average personal loan rates have remained high, decreasing slightly from 12.49% in February 2024 to 11.57% currently for two-year loans [5][6] - Most personal loans have fixed rates, meaning existing borrowers will not see changes in their rates, while new borrowers may face higher rates compared to previous years [6] Student Loan Rates - Federal student loan rates are set by Congress and are not directly influenced by the Fed, while private student loan rates are affected by the federal funds rate [7][9] - Federal student loan rates were particularly low at 2.75% for the 2020-21 academic year but have increased to 6.39% for the 2025-26 academic year [8] Auto Loan Rates - Auto loan rates are also influenced by the federal funds rate, with average rates for new car loans at 7% and used car loans at 10.7% as of August 2025 [11] - Various factors, including credit score and vehicle type, also play a role in determining auto loan rates [11] Strategies for Securing Competitive Rates - Improving credit scores and financial profiles can enhance the chances of securing better loan rates [13][15] - Shopping around with multiple lenders and comparing repayment terms can help borrowers find the best offers [17][19] - Timing borrowing decisions based on the Fed's rate changes can also be beneficial, particularly if rates are expected to decrease [20]

Core Insights - SoFi is set to report its second-quarter earnings on July 29, with the stock having tripled over the past year, indicating strong performance [1][3] - The company has made significant announcements and has potential catalysts for rapid earnings growth in the coming years [3] Growth Metrics - In Q1 2025, SoFi added over 800,000 new members, the highest in a single quarter, suggesting continued growth in Q2 [4] - SoFi originated nearly $1.2 billion in student loans in Q1, reflecting a 58% year-over-year growth rate, with expectations for continued growth due to clearer student loan policies [5] - The loan platform business generated $1.56 billion in loan volume in Q1, indicating a fast-growing source of low-risk fee income [6] Future Catalysts - Increased IPO activity this year is expected to enhance SoFi's investment platform, providing everyday investors access to IPOs [7] - The return of cryptocurrency trading on SoFi's platform is a significant development, following previous regulatory uncertainties [8] - SoFi's home loan business grew 54% year-over-year in Q1, indicating strong demand in a slow mortgage market [9] Long-term Vision - SoFi aims to become a top 10 financial institution, requiring a tenfold increase in total assets, supported by accelerating growth and an expanding product ecosystem [10][11] - The company is currently not valued cheaply compared to traditional banks, but its revenue growth rate of 33% annually and new product launches position it favorably for long-term investors [10][11]

Financial Data and Key Metrics Changes - GAAP diluted EPS for Q1 2025 was $1.40, up from $1.27 in the same quarter last year, indicating a positive growth trend [6] - Loan originations for Q1 2025 reached $2.8 billion, a 7.3% increase compared to the previous year [6] - Net interest income for Q1 2025 was $375 million, down $12 million from the prior year but up $13 million from Q4 2024 [10] - Net interest margin was 5.27%, an increase of 35 basis points from the previous quarter [11] - Provision for credit losses was $23 million, up from $12 million in the prior year quarter [11] Business Line Data and Key Metrics Changes - The cosigner rate for Q1 was 93%, up from 91% in the year-ago quarter, reflecting improved credit quality [7] - Average FICO score at approval was 753, an increase from 748 in Q1 2024 [7] - Net private education loan charge-offs were $76 million, representing 1.88% of average loans in repayment, down 26 basis points from Q1 2024 [7] Market Data and Key Metrics Changes - Private education loans delinquent for 30 days or more were 3.6% of loans in repayment, a decrease from 3.7% at the end of Q4 2024 [12] - The volume of loan modification enrollments decreased by approximately 50% from the highs in Q3 2024, indicating improved borrower performance [13] Company Strategy and Development Direction - The company is focused on maintaining a capital return strategy, having repurchased 1 million shares at an average price of $29.65 per share [9] - The management emphasized a cautious approach to growth, balancing between expanding the balance sheet and returning capital to shareholders [37] - The company aims to continue optimizing its loss mitigation programs and enhancing underwriting capabilities to improve credit performance [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the positive momentum for the remainder of 2025, despite broader macroeconomic uncertainties [16] - The company reaffirmed its 2025 guidance, indicating a solid start to the year with expectations for continued performance [15] - Management acknowledged the potential impact of recent government policy changes on the broader economic environment but noted no immediate adverse effects on their operations [22] Other Important Information - The company completed a $500 million unsecured bond transaction during the quarter, which was used to redeem a maturing bond [10] - Liquidity at the end of the quarter was 16.8% of total assets, with total risk-based capital at 12.9% [14] Q&A Session Summary Question: Credit charge-offs performance and loss mitigation programs - Management attributed the positive charge-off performance to seasonality, loss mitigation programs, and enhanced underwriting capabilities [19][20] Question: Impact of government programs on borrower behavior - Management noted no significant changes in FICO performance among customers with federal loans and observed that joint customers had lower delinquency rates [25] Question: Changes in borrower behavior and graduate borrowers - Management indicated early signs of increased activity from graduate borrowers but emphasized that it was too early to draw strong conclusions [28] Question: Delinquency rate trends and extended grace usage - Management explained that the delinquency rate increase was influenced by borrowers in modification programs and that extended grace usage was functioning as intended [31][34] Question: Balance sheet growth and capital return strategy - Management highlighted a moderate growth strategy for the balance sheet while maintaining a commitment to capital return through share buybacks [36][38] Question: Job market challenges for graduates - Management acknowledged potential challenges in the job market but noted that recent graduates remained optimistic about meeting financial obligations [70][72] Question: Changes in university funding and its impact - Management stated that while reduced funding could lead to increased demand for private loans, the overall impact was still uncertain [62][64] Question: Character of buyers in loan sales - Management reported no significant changes in the makeup of bidders for loan sales compared to previous years [66] Question: Trading of student loan ABS post-sale - Management indicated that the market for student loan ABS was stable, with no material widening of spreads since the last sale [84]

Company Overview - SoFi, founded in 2011 by Stanford business school students, is an online financial company that serves over 6.9 million customers and offers a range of financial products including lending, investing, personal banking, and insurance [1] Product Offerings - SoFi provides a combination checking and savings account with no fees, minimum balance requirements, or minimum opening deposits, and offers a cash checking account bonus of up to $300 for new customers [2] - The SoFi Unlimited 2% Credit Card offers unlimited 2% cash-back rewards on all purchases and 3% cash back on travel booked through SoFi, with no annual fee [3] - SoFi Invest allows customers to trade stocks and ETFs commission-free through its mobile app [4] - SoFi offers student loan refinancing with no origination fees, prepayment penalties, or late fees, as well as private student loans with flexible repayment terms [6] - Personal loans range from $5,000 to $100,000, with funds potentially available the same day after approval [7] - Home mortgage loans are available with fixed terms from 10 to 30 years and as little as 3% down [8] - SoFi provides various insurance products including auto, home, life, renters, and cyber insurance [9] - Auto loan refinancing is available through Lantern, SoFi's product comparison platform [10] Customer Experience - SoFi does not charge account fees, including overdraft fees or monthly maintenance fees, enhancing its no-fee banking model [11][17] - The mobile app has high ratings (4.8 on App Store and 4.0 on Google Play) and allows users to manage accounts, set savings goals, and track balances [18] - Customer support is available for various products during specified hours, with 24/7 support for credit card inquiries [15][16] Social and Environmental Impact - SoFi's charitable initiative, SoFi Gives, saw employees volunteer over 2,700 hours and donate more than $80,000 in 2022 [19] - The company has committed to donating $250,000 annually to mental health initiatives and has earned the EPA's ENERGY STAR certification for its headquarters [20]

Student loan debt is a major issue. Nearly 43 million people — about 1 in 6 American adults — have outstanding federal student loans. For the millions of borrowers with federal loans, loan forgiveness can provide substantial relief. Eligible borrowers can qualify for forgiveness of thousands of dollars, allowing them to pursue other financial or career goals. Since the start of President Trump's second term, there have been significant changes to the federal student loan system, and more updates are expec ...