SLM Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Sallie Mae 2020 Q4 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would like to hand the conference over to Mr. Brian Cronin, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Angel. Good morning and welcome to Sally Mae's fourth quarter 2020 earnings call. It is my pleasure to be here today with John Witter, our CEO, and Steve McGarry, our CFO. After the prepared remarks, we will open up the call for questions. Before we begin, keep in mind our discussion will contain predictions, expectations, and forward-looking statements. Actual results in the future may be materially different from those discussed here. This could be due to a variety of factors. Listeners should refer to the discussion of those factors on the company's Form 10-Q and other filings with the SEC. For Sally Mae, these factors include, among others, the potential impact of COVID-19 pandemic on our business, result of operations, financial conditions, and or cash flows. During this conference call, we will refer to non-GAAP measures we call core earnings. A description of core earnings, a full reconciliation to GAAP measures, and our GAAP results can be found in the earnings supplement for the quarter ended December 31st, 2020. This is posted along with the earnings press release on the investors page at sallymay.com. Thank you. I'll now turn the call over to John.

Brian, Angel, thank you. Good morning, everyone. Thank you for joining us for a discussion of Sally Mae's fourth quarter and full year 2020 results. To say 2020 was an unprecedented year is an understatement. We were tested as individuals and as a nation, but we persevered with resilience and resolve. I want you to walk away today with three key messages. First, we delivered strong results in 2020 despite the many challenges we faced. I believe we are positioned to continue that performance trend in 21 by executing the strategies we have previously discussed. Third, we will begin 21 with a significant return of capital to shareholders. The specific plan is currently being finalized. GAAP EPS in the fourth quarter was $1.13 compared to 32 cents in the year-ago quarter. Our full-year 2020 GAAP EPS was $2.25, compared to $1.30 in 2019. This includes the gain on sale from the January 2020 loan sale. Our results for the year and fourth quarter were driven by a combination of strong business performance, reactions to the pandemic, and some timing related changes. Let me start with the discussion of our business performance. Originations ended the year at 5.3 billion. While down 5% year-over-year as a result of the pandemic, we believe this level of originations is a testament to the importance of education to our customers and the power of our franchise. Originations quality was consistent with past years. Our cosigner rates were 86% compared to 87% in 2019, and average FICO scores were 749 versus 746 in 2019. Market share through the end of September was 54%, up 0.5%, as we compete for volumes from competitors who are leaving the industry. We executed a $3 billion loan sale in the first quarter of 2020. The proceeds funded a $525 million accelerated share repurchase program. The ASR was completed this week. we were able to repurchase in total 58 million shares at an average price of $9.01. This equates to 14% of the shares outstanding at the beginning of 2020. We received 44 million of those shares in the beginning of the program, and the remaining 13.3 million shares will settle this week. In 2020, we enhanced our focus on the core business by selling our You Promise business and our personal loan portfolio. We raised $500 million in unsecured debt and used some of the proceeds to successfully retire 37% of our Series B preferred stock. Finally, we were able to reduce our planned 2020 expenses by $18 million. Additionally, we implemented a $50 million reduction to our expense base in 21 and future years as a result of the restructuring efforts we announced last quarter. During the fourth quarter, we continue to experience changing impacts on our business from the pandemic. In this case, related to the economic outlook and assumed prepayment speeds in our CECL loss estimates. Based on an improving economic outlook, we changed the economic scenarios used in determining our CECL allowance calculations from the previous 50-50 base S4 weighting back to our standard approach. In addition, we have continued to adjust our assumed prepayment rates in response to changing customer behavior. While Steve will discuss both changes in more detail, the impact of these pandemic-related changes, coupled with a reserve release related to our early 2021 loan sale that I'll discuss next, reduced our provision by $316.4 million in the fourth quarter bringing our loan loss reserve down to $1.466 billion. Finally, there were some impacts to our 2020 earnings that were strictly the result of timing. At the end of 2020, in response to strong market conditions and inbound inquiries, we decided to start our 2021 loan sale process earlier than for the 2020 loan sale. In keeping with GAAP, Those loans were moved to held for sale in December of 2020. This change in designation mandated a release of the CECL reserves for those loans, which flowed through our income statement. Previously, we expected this reserve release to happen in Q1 2021, coinciding with the sale and the booking of the gain. This 206 million release accounted for 41 cents of EPS in 2020. Said simply, our full-year core EPS would have been $1.82, excluding this reserve release. We do not expect this split-year result to reoccur. The financial impacts of the January 2020 loan sale were contained within one calendar year, and we expect the same to be true for the remainder of 2021 and beyond. We will more fully discuss the loan sale and capital return in a few moments. It's worth noting, despite all of the challenges and moving pieces caused by the pandemic, this $1.82 a share result is just six cents lower than the midpoint of our initial guidance for 2020. While loss expectations are still elevated since the start of the pandemic, we were able to partially offset these impacts through tight expense control and other actions. Steve will now take you through some specifics on 2020 and the details of these pandemic and timing impacts. Steve?