Salliemae(US:SLM)2021-10-21 18:50Financial Data and Key Metrics Changes - GAAP diluted EPS for Q3 2021 was $0.24, down from $0.45 in the same quarter last year, primarily due to a substantial provision release last year as the economic outlook improved [6][7] - Total loan loss provision was $138 million for Q3 2021, driven mainly by new loan commitments and changes to forbearance practices [10][16] - The private education loan reserve was $1.3 billion, representing 5.2% of total student loan exposure, down from 7.2% a year ago [14] Business Line Data and Key Metrics Changes - Private education loan originations for Q3 2021 were $2.1 billion, an increase of $192 million or 10.1% compared to Q3 2020, although below original expectations [7][24] - Loans less than $5,000 were down 19% year-to-date compared to the same point last year, indicating a shift in demand due to federal stimulus and HEERF funding [8][9] - The cosigner rate for Q3 2021 was 88%, consistent with the previous year, while the average FICO score was 749, slightly down from 752 [9] Market Data and Key Metrics Changes - The total number of student loans, including federal and private, fell 4% in the first half of 2021 compared to the same period in 2020, indicating a challenging market environment [9] - The private student loan market is estimated to have grown in the low- to mid-single digits, suggesting that the company's 10% growth likely resulted in market share gains [9] Company Strategy and Development Direction - The company is committed to a capital return strategy, with an expected mix of approximately 20% dividends and 80% share repurchases over the next several years [11][12] - A preliminary agreement for a $1 billion loan sale was reached, with terms exceeding those of the first quarter sale, indicating strong market conditions [12][13] - The company plans to maintain a flat balance sheet while aggressively buying back stock as long as valuation arbitrage exists [36][52] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating inflationary pressures and highlighted ongoing efficiency efforts [21] - The political environment is viewed as constructive, with support for Pell Grants and HBCUs, although the impact on the company's business is limited [22][32] - The company raised its diluted core earnings per share guidance for the year to a range of $3.55 to $3.60, reflecting improved economic outlook and lower provisions for credit losses [23][24] Other Important Information - Operating expenses for Q3 2021 were $141 million, up from $128 million in the prior quarter, but flat year-over-year when excluding certain timing differences [19] - The net interest margin on interest-earning assets was 5.03% in Q3, an increase from both the prior quarter and the year-ago quarter [18] Q&A Session Summary Question: How will the end of government aid and trends in foreign and out-of-state students affect next year's season? - Management anticipates the impact of HEERF funding will subside during the current academic year, but sees no significant changes in trends for out-of-state and foreign students [29][30] Question: What are the plans for loan sales versus balance sheet growth in 2022? - The company plans to maintain a flat balance sheet and use proceeds from loan sales to buy back stock, with no specific plans for 2022 yet [35][36] Question: How does the company view the ability to take advantage of market conditions for loan sales? - Management believes the limitation is more about how quickly capital can be deployed rather than the amount of loan sales [39] Question: What is the outlook for provisions and reserves going forward? - The reserve for the loan portfolio is expected to hover around 5.2%, with lower provisions in quarters without new commitments [60] Question: How will the company manage in a rising rate environment? - The company is well-positioned for a rising rate environment, with 55% of its portfolio being variable rate loans, which will continue to generate strong returns [62]