Salliemae(US:SLM)2020-07-23 19:04Financial Data and Key Metrics Changes - The company reported a GAAP loss of $0.23 per share and a core earnings loss of $0.22 per share, primarily due to a significant increase in the allowance for loan losses [7][14][18] - The allowance for loan losses increased by $243 million in the quarter, representing a life of loan loss of more than 11% of the portfolio [14][18][25] - Net interest margin on interest-earning assets decreased to 4.55%, down from the previous quarter and year [28] Business Line Data and Key Metrics Changes - The company originated $497 million in private student loans during Q2, totaling $2.8 billion year-to-date, which is a 7% decrease from the previous year [26][29] - Average loan size approved increased by 5.5%, indicating families are borrowing more due to declining state subsidies and reluctance to use savings [11][12] - The delinquency rate for private education loans was 2.7%, consistent with the previous year, while net charge-offs were 0.8%, down from Q1 [24][25] Market Data and Key Metrics Changes - Application volumes decreased by 21.8% year-over-year, attributed to the extended peak season and uncertainty in enrollment [11] - The company expects to originate over $2 billion in loans in the second half of the year, bringing total originations to $5 billion for the year [12][13] - The company maintains a market share of approximately 52% to 53%, with recent competitor exits potentially providing additional market opportunities [50][51] Company Strategy and Development Direction - The company is focused on managing expenses and enhancing loss mitigation strategies while reviewing underwriting standards in response to economic conditions [8][16] - The capital return program remains intact, with a $525 million accelerated share repurchase program fully funded [17][35] - The company aims to maximize profitability and growth in its core business while addressing potential student lending reforms [31][37] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of borrowers transitioning from forbearance back to repayment, with positive trends observed [14][22] - The economic outlook remains uncertain, with potential scenarios such as a second economic shutdown impacting future performance [15][20] - The company is committed to maintaining a strong capital position and liquidity, with total risk-based capital at 13.7% [29][30] Other Important Information - The company announced a $4.5 million contribution to scholarships and grants aimed at increasing higher education access for minority students [39] - Management emphasized the importance of addressing systemic discrimination and inclusion within the company and its communities [38] Q&A Session Summary Question: Can you discuss the reserve levels and what might cause changes? - The reserve is primarily driven by economic forecasts, and if borrower performance worsens, reserves may need to be increased [41][42] Question: How do you view the competitive environment? - The competitive landscape is still evolving, with recent competitor announcements potentially benefiting the company in the long run [45][48] Question: What is the expected provision expense for Q3? - The provision for new loan commitments in Q3 is expected to be around 7% of the volume originated [58] Question: How does the company plan to adapt its marketing strategy? - The company maintains a blend of sales force and direct-to-consumer marketing, emphasizing commitment to the marketplace [60][61] Question: Can you clarify the maximum forbearance period allowed? - The maximum forbearance period is capped at 12 months, granted in three-month intervals [75][76]