SLM Corporation

ladies and gentlemen thank you for standing by and welcome to the 2022 q1 sally may earnings conference call at the 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 depart one on your telephone if you require any further assistance please press star zero i will now turn the call over to your host brian cronin vice president investor as you may begin thank you kevin good morning and welcome to sally may's first quarter 2022 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 the COVID-19 pandemic on our business, results of operation, financial conditions, and or cash flows. During this conference call, we will refer to non-GAAP measures we call our core earnings. A description of core earnings, a full reconciliation to GAAP measures, and our GAAP results can be found in the Form 10-Q for the quarter ended March 31, 2022. This is posted along with the earnings press release on the Investors page at sallymae.com. Thank you. I'll now turn the call over to John.

Thank you, Brian and Kevin. Good morning, everyone. Thanks for joining us to discuss Allie Mae's first quarter results. I'm pleased to report on a successful quarter and continued progress toward our 2022 goals. I hope you'll take away three key messages today. First of all, we delivered strong results in the first quarter. Second, we are well positioned to deliver solid results in 2022. recognizing it's difficult to perfectly predict the future, given the current macroeconomic and geopolitical uncertainty. And third, we have a resilient business model and strategy that should allow us to continue to perform well, even if some of the current rate and inflationary trends continue and or we eventually see some recessionary forces. Before I review our quarterly results, let me first discuss our loan sale and share buyback plans and performance. In our guidance discussion in January, we stated we expected to sell 1 billion of loans in Q1 and 2 billion in Q3. During the quarter, we changed our plans and executed 2 billion of loan sales in Q2 and expect the final loan sale to take place in Q3. While we have built a reliable loan sale process, it's not unusual for target dates to fluctuate by a few weeks. However, we are pleased that we completed the transaction before this earnings call so we can discuss the transaction and implications for guidance to help you better model the remainder of the year. Given uncertain market conditions, I am confident our investors will agree that accelerating the sale of the additional $1 billion of volume was the prudent thing to do. As you have seen in our press release, we have not changed our EPS guidance, which confirms that we were able to execute the loan sale at prices consistent with our market analysis before this period of major volatility began. We received a premium that is securely in the low double digits. The buyer of our loans is just beginning their post-closing process. Therefore, to protect our buyers' interests, we will not be more specific on the premium execution at this point in time. Our plan is to use the gain on sale and capital released through this sale to aggressively buy back stock at current depressed levels to create shareholder value and minimize the impact of more capital on our NIM. Looking forward, our assets continue to deliver the long, predictable cash flows, high yields, and low losses that investors are seeking. We believe this demand, combined with a deep pool of well-informed loan buyers, should allow us to execute future loan sales at attractive premiums. We expect to sell the last billion of loans this year in the third quarter. Turning to the quarter's results, GAAP diluted EPS in the first quarter of 2022 was 45 cents, compared to $1.75 in the year-ago quarter. These solid earnings are lower than the prior year quarter, given that we sold $3.2 billion of loans in the first quarter of 2021 that generated $399 million in gains. Private education loan originations for the first quarter of 2022 were $2.2 billion, which is up 6% over the first quarter of 2021. This is a strong start to 2022 and is in line with the guidance for the year. Credit quality at origination was consistent with past years. Our cosigner rate for Q1 of 2022 was 88 percent, down slightly from 89 percent in Q1 of 2021. Average FICO score for Q1 of 2022 was 748 versus 751 in Q1 of 2021. In the first quarter of 2022, we continued our capital return strategy. by repurchasing 10 million shares at an average price of $18.46. We have reduced the shares outstanding since January 1st of 2022 by 3%. We have reduced the shares outstanding since January 1st of 2020 by 37% at an average price of $15.70. As a reminder, Our loan sale and share repurchase arbitrage program is an opportunistic strategy to take advantage of the disconnect between the price of our assets and our low stock price. During CECL phase-in, we anticipate maintaining a relatively flat balance sheet and using the proceeds of loan sales for share repurchases. Once we complete the phase-in period, we will look to resume organic balance sheet growth by lowering loan sales and using a combination of organically generated capital and a nominal amount of loan sales to fund what we still expect to be a meaningful capital return program. In addition to organic growth from our core businesses that we are expecting post-Cecil phase in, we are also exploring ways to monetize the value of our attractive and growing customer base. We are pleased to report that we officially closed on the Nitro acquisition. You will remember that we were excited about the purchase of Nitro given its customer acquisition and management capabilities. The Nitro team and assets have been successfully transitioned to the Sallie Mae platform, and both legacy teams are working hard to ensure Nitro's success in the upcoming peak season. After peak season, we will look for ways to further integrate the Nitro team and find ways to take additional steps on our journey toward increased organic growth. Steve will now take you through the financial highlights of the quarter. Steve?