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SLM Corporation(JSM) - 2025 Q2 - Earnings Call Transcript
SLM CorporationSLM Corporation(US:JSM)2025-07-30 13:00

Financial Data and Key Metrics Changes - The company reported core earnings per share of $0.20, adjusting for regulatory and restructuring expenses to $0.21 on a core basis [24] - The net interest margin (NIM) for Q2 was 70 basis points, nine basis points higher than the first quarter, exceeding the guided range of 45 to 60 basis points [25] - Provision expense for the quarter reflects a less benign macroeconomic outlook and trends in delinquency rates, with greater than ninety-day delinquency rates increasing to 10.1% [25][26] Business Line Data and Key Metrics Changes - Total loan originations in the first half of the year doubled to just over $1,000,000,000 compared to a year ago, driven by substantial growth in refinance originations [26] - In the Federal Education Loan segment, prepayments were $228,000,000 in the quarter compared to $2,500,000,000 a year ago, indicating historically low prepayment activity [25] - The consumer lending segment's net interest margin was 232 basis points in the quarter, down from 276 basis points in the first quarter due to loans entering delinquency [27] Market Data and Key Metrics Changes - The company expects the full year NIM to range between 55 and 65 basis points, reflecting a stable rate environment and low prepayment activity [25] - The elimination of the Grad PLUS loan program is expected to increase demand for private in-school graduate loans significantly over time [9][10] - The company has seen an increase in top-of-the-funnel traffic for its refinance product, attributed to changes in federal loan repayment plans [13] Company Strategy and Development Direction - The company is focused on expanding opportunities in the graduate student segment, which represents a significant portion of its loan origination volume [11][49] - The company aims to achieve $400,000,000 in expense reductions as part of its strategic initiatives [18] - The company is well-positioned to benefit from increased market opportunities in refinance and in-school products with the graduate school customer segment [16] Management's Comments on Operating Environment and Future Outlook - Management noted that low levels of FFELP consolidation activity enhance interest margins and increase lifetime cash flows [19] - The macroeconomic outlook and delinquency trends contributed equally to the provision expense on previously originated private and self loans [20] - Management expressed confidence in meeting ambitious expense reduction targets and indicated that the upcoming changes in federal loan programs could significantly benefit the company [12][22] Other Important Information - The company completed its inaugural in-school ABS deal, which was nearly six times oversubscribed, raising total gross cash proceeds of roughly 98% of loan principal [15] - The company repurchased $24,000,000 worth of shares under existing authority and returned $40,000,000 to shareholders through share repurchases and dividends [21][33] Q&A Session Summary Question: Concerns about reserve true-up and delinquency trends - Management acknowledged positive trends in early-stage delinquencies but noted elevated levels of delinquencies versus internal expectations, indicating they feel appropriately provided from an allowance perspective [39][40] Question: EPS guidance and TSA costs - Management clarified that TSA expenses for the quarter were $13,000,000, offset by $14,000,000 of revenues, and indicated that they anticipate TSA expenses to continue through the back half of the year [41][44] Question: Opportunities from Grad PLUS reform - Management highlighted that the elimination of Grad PLUS presents substantial opportunities in the graduate student market, with a focus on high-quality borrowers [48][49] Question: Market share and capacity to meet demand - Management expressed confidence in maintaining a 20% market share in the graduate market, emphasizing their established distribution channels and product offerings [64][66] Question: Balancing growth and capital allocation - Management indicated that they will continue to balance investments in growth with shareholder distributions, leveraging their strong balance sheet and capital-efficient financing strategies [70][73]