This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good day and thank you for standing by. Welcome to the second quarter Sallie Mae 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 that session, you will need to press star 1-1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Cronin, Vice President of Investor Relations. Please go ahead.
spk05: Thank you, Carmen, and good morning, and welcome to Sallie Mae's second quarter 2022 earnings call. It is my pleasure to be here today with John Winter, 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 than 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 that ended June 30, 2022. This is posted along with the earnings press release on the investor page at sallymay.com. Thank you. I'll now turn the call over to John. Thank you, Carmen and Brian. Good morning, everyone, and thank you for joining us to discuss Sally May's second quarter results. I hope you'll take away three key messages today. First, we delivered strong results for the second quarter and first half of the year. This includes the continued successful execution of our loan sale and share buyback program. Second, we are seeing some real positives throughout our business with regard to college enrollment, originations, consolidations, and expenses. Third, despite these positives, we are not immune to this challenging and volatile environment. The decline in the EPS guidance announced in our press release is driven by an expectation of lower loan sale premiums due to higher rates and wider spreads, and separately, the impact of certain credit pressures that we believe will be largely isolated to 2022. Let's begin with the quarter's results. GAAP diluted EPS in the second quarter of 2022 was $1.29 compared to 44 cents in the year-ago quarter. In April, we sold $2 billion in loans at a premium of approximately 11.5%. You will remember that we accelerated the sale of the second billion of loans as a risk mitigation given early signs of market volatility. In the second quarter, the company repurchased 20 million shares. We have reduced the shares outstanding since January 1st of 2022 by 11% and by 42% since January of 2020 at an average price of $15.41. Private education loan originations for the second quarter of 2022 were $616 million, which is up 16% over the second quarter of 2021. This is a strong start to our 2022 peak season and is tracking better than our initial guidance for the year. Following two years of declining FAFSA completion numbers, the high school class of 2022 has returned to near pre-pandemic levels with 52.1% of the senior class completing the application. We are seeing strong underclassmen application growth. Through the first half of the year, our underclass application volume was up 16.6% over the first half of 2021. These growth trends are continuing as peak season ramps up in July. Freshmen and sophomores are more valuable in terms of lifetime value and serialization potential because they are at the beginning of their education journey. Credit quality of originations was consistent with past years. Our cosigner rate for Q2 of 2022 was 74%, down slightly from 76% in the second quarter of 2021. Average FICO score for Q2 of 2022 was 746 versus 750 in Q2 of 2021. Seasonally, the second quarter has our lower cosigner rates due to the higher mix of nontraditional students, and we expect our cosigner rates to finish in line with past annual levels. Consolidation shows signs of slowing. In June of 2022 versus June of 2021, we saw refi volume drop from our two largest refi competitors by 60 and 37% respectively. Monthly consolidation volume June of 22 over June of 21 was down 21%. Steve will now take you through some additional financial highlights of the quarter. Steve?
spk03: Thank you, John. Good morning, everybody. We'll start where we usually do with the discussion of the components of our loan loss allowance and provision. The private education loan reserve was at $1.19 billion, or 5.4% of our total student loan exposure. which recall under CECL includes the on-balance sheet portfolio plus the accrued interest receivable of $1.2 billion and unfunded loan commitments of $1.4 billion. Our reserve rate is up slightly from 5.3% in both the prior and year-ago quarter. Take a look at the major variables used to calculate our allowance for credit losses. We continue to use Moody's base S1 and S3 forecasts weighted 40%, 30%, 30% respectively. We expect to use this mix going forward except during extraordinary periods of uncertainty. There were no changes in model inputs such as prepayment speeds or other important drivers. Loans sales in the quarter reduced the allowance by $116 million. While the second quarter is not a large disbursement quarter, we do begin to book commitments for the new academic year. I mentioned the $1.4 billion in commitments, and we reserve accordingly. The provision for new unfunded commitments totaled $120 million in the second quarter. All in, we booked a provision for credit losses of $31 million on our income statement in the quarter. Our reserve and our outlook covers all the topics we will discuss this morning. Private education loans delinquent 30-plus days came in at 3.7% of loans in repayment, up from 3.5% in Q122 and 2.1% in the year-ago quarter. We expect 30-plus-day delinquencies to drop in Q3 and end the full year near 50%. Private education loans and forbearance were 1.3% at the end of the quarter, down from 1.4% at the end of Q1 2022, and 3% at the end of the year-ago quarter, which you may recall we have not yet implemented our forbearance policy changes. In the quarter, net charge-offs for private education loans were $95.5 million, resulting in an annualized charge-off rate of 2.56%, which exceeded the forecast of 2.25% we provided in April. Based on our current performance of our portfolio, we now expect charge-offs for private education loans will remain steady at this higher level in Q3, and declined in Q4. John is going to provide a brief dive on current charge-offs, as well as our outlook in just a few minutes. NIM for the quarter came in at a strong 5.29%, up significantly from 4.7% in the year-ago quarter. Our portfolio benefited from the rising rate environment, and in addition, the drag on our NIM from our liquidity portfolio declined meaningfully, as we invested our cash in medium-term treasuries as interest rates have risen over the last several quarters. We do expect our NIM will remain in the low 5% vicinity for the full year of 2022. Second quarter operating expenses were $132 million unchanged from the prior quarter and $128 million in the year-ago quarter. OpEx in our core business increased just 5% while we experienced 16% increase in disbursements and a 19% increase in applications being processed. These are key drivers of expense and highlight the fact that we continue to focus on driving servicing and acquisition costs lower on a unit basis. Finally, our liquidity and capital positions are very strong. We ended the quarter with liquidity of 20.3% of total assets. And at the end of the second quarter, total risk-based capital was at 15.6% and common equity tier one came in at 14.3%. We believe we continue to be well positioned to grow our business and return capital to shareholders going forward. Back to you, John.
spk05: Thanks, Steve. As I mentioned earlier, we see many positives in our business. After several years of unusual trends caused by the pandemic, it appears that the college marketplace is finding its new normal. However, the issue likely most on your mind is our changing guidance and whether it reflects on the long-term prospects of a company. Let me start that conversation with some initial perspectives, but we want to make sure we get to all of your questions so I'll be as brief as possible. We have increased our full-year net charge-off guidance to $325 to $345 million from the previous range of $270 to $290 million. This brings our expected charge-off rate for the full year to 2.3% compared to our prior expectation of 1.75% for the full year. There are three principal factors that have influenced our estimates of future charge-offs. The first impact is a change in the expected performance of our gap year population. While we have talked about this during past calls and disclosures, let me provide some brief context. Every year, we have a portion of students who withdraw from school without graduating. I'll call these the annual withdrawal population. Typically, the annual withdrawal population enters their P&I phase after 180 days of grace. They are unfortunately historically among our worst performing cohorts of borrowers. In some respects, 2022 is no different in this regard. We have a group of withdrawn students who did not return to school last year, entered P&I last November, and are beginning their journey through repayment and in certain cases, delinquency. What is different this year is that we effectively have what you could think of as a second annual withdrawal population that entered PNI at about the same time. This group that we have referred to on our previous calls and in our disclosures as our gap year population withdrew from school during the pandemic, specifically from August to December of 2020, and did not return by the fall of 2021. Under normal conditions, this group would have entered P&I in early 2021. However, during the pandemic, we were concerned that students might temporarily withdraw from school for longer than normal, given all of the disruption and uncertainty on campus. If this happened and they entered P&I, they would have lost many of their student and transition benefits. To avoid that outcome, we created a temporary program to protect customers' student benefits that effectively extended the grace period for customers. As such, this gap year group did not enter repayment until Q4 of 2021 or slightly later. While the 2021 charge-off performance was not burdened by an annual withdrawal population, 2022 is effectively being burdened by two. There are several important facts to note about this population. First, it is a finite population. This program is over and will not be repeated. Second, all of these customers are now in P&I. Third, as I have mentioned before, this gap year group has approximately doubled the effective size of the group of withdrawn students who recently entered P&I. Now that a critical mass of these students are well into their P&I journey, we can assess actual payment behavior and journey to charge-off. Based on the data from the last few months, we understand that this gap year cohort is performing meaningfully worse than a typical withdrawn student population. As an example, the gap year student who entered P&I earlier are demonstrating an average 30-day plus delinquency rate that is 173% higher than that of non-gap year borrowers who withdrew from school in 2021. This gap year population represents 50 million of our expected net charge-offs this year. This is over and above the charge-offs we expect from this year's typical annual withdrawal population. It is worth noting that this year's annual withdrawal population, that typical population, is demonstrating performance in line with past vintages and expectations. Given these unique circumstances and this finite population, we do not believe that this gap year effect will repeat itself in 2023 and beyond. The second factor impacting the portfolio this year are the significant changes we made to our credit administration collection practices over the course of 2021. Again, as discussed on numerous calls and detailed in our disclosures, the changes significantly reduce the amount of forbearance borrowers can utilize. As you can see, 1.3% of our loans used forbearance in the second quarter compared to 3% in the year-ago quarter. You will also remember that as we implement these changes, we built an incremental reserve and anticipation of higher expected lifetime losses. What has changed this quarter, however, is that we see what we believe is an increase in the number of customers who have exhausted their forbearance benefits and other options and are moving to charge off faster than expected. At this time, this appears to be more of a phase-in effect than something that would meaningfully increase our expected lifetime loss calculations for this program. To support this, when we look at resolution rate trends, payment trends, and the use of other programs, it appears that most borrowers are finding other paths to success, even with a curtailed forbearance program. Finally, at the end of 2021, a combination of attrition and slower-than-normal hiring challenged us to fully staff our collection shop to plan. We then encountered the higher than expected volume, especially entering our early stage collection buckets, resulting from the gap year and forbearance factors I just described. We believe we are well on our way to correcting the situation. We have hired meaningful numbers of collectors during Q1 and Q2, and those individuals have been deployed. We have an additional wave of collectors starting training who will be deployed in late summer and early fall. We have already seen marked improvement in key operational data such as abandoned rates and expect full normalization of desk load performance over the next several months. However, having now seen several months of flow rate trends, we are projecting higher charge-offs through the remainder of the year. While I'm sure we will learn from this experience, industry-wide hiring and attrition trends, coupled with an unexpected volume surge, were major contributing factors. It's fair for you to ask whether environmental or portfolio-wide factors have impacted our changing guidance. While it's difficult to make longer-term credit predictions in an uncertain economic environment, we do actively monitor our portfolio to look for signs of current or impending stress that our borrowers may be facing. At this time, we are happy to report that our borrowers' Refresh FICO scores remain strong. We have not observed any changes in this environment that differ from those that we experience in normal economic times. We also closely review payments and performance of our variable rate loans to ensure that they are not degrading in this rising rate environment. Again, we are happy to report that these loans continue to perform in line with the fixed rate loans in our portfolio. Shifting gears from charge-offs, let me spend a minute discussing the outlook for our remaining $1 billion loan sale for the year. While markets remain volatile, interest rates are off their highs and transactions in the secured finance market continue to get done, albeit at slightly wider spreads. We remain in close contact with the market and recognize that premiums have declined subsequent to our last sale. Our revised guidance reflects this. However, despite lower premiums, our share price is lower as well. Based on the framework we utilize, we believe selling loans at a lower premium creates value by repurchasing shares at a similarly lower multiple. We expect to execute a loan sale in the third quarter and continue our buyback of shares but could conceivably slip to Q4 if we see another round of really major market disruptions. All of that is, of course, subject to Board approval and careful consideration of capital levels in an uncertain economic environment. Let me translate all of this into an outlook discussion for an update of our 2022 guidance. First, we are reaffirming our guidance on full year expenses of $555 to $565 million. Despite pressures from inflation and increased staffing and collections and servicing, we continue to find ways to leverage our fixed expense base and efficiently bring in new to firm customers at lower marketing expense. With a strong start to the year and peak season performance to date, we are increasing our full year origination growth expectation to 9 to 11%. Based on the previous credit discussion, we are also raising our charge off guidance for the year to between $325 and $345 million. This new guidance reflects all of the factors that I reviewed. And finally, we are lowering our diluted non-GAAP core EPS guidance for the year to 250 to 270. This reflects a variety of factors, but most notably, changes in loan sale premium and in-year charge-off expectations. With that, Steve, let's go ahead and open up the call for questions. Thank you.
spk00: Thank you. And as a reminder, to ask a question, simply press star 11 on your telephone. One moment. for our Q. Our first question is from Moshe Orenbach with Grace Ruiz. Please go ahead.
spk06: Great. Thanks. John and Steve, thanks for that really detailed discussion on the credit side. And I guess the interesting thing about this is that it wasn't something that sprang up you know, quickly, it's something that you kind of knew about and got somewhat worse, I guess, or at least the bulk of it. You know, is there a way to kind of just give us some additional comfort that, you know, that that isn't going to reappear somewhere else, I guess? You know, obviously, you know, assuming a relatively stable, you know, economic environment, not talking about, you know, kind of significant economic deterioration, but I guess the fact that it, you know, it kind of developed in stages like that, Is there any way to kind of give us a little extra comfort?
spk05: Yeah, Moshe, thanks for the question. I think it's an important one and appreciate your putting it on the table early. And obviously, this is one that Steve and I and the team here have spent a lot of time talking about. Yeah, I think the historical perspective I would give you is you're exactly right. We've known about both of these factors, you know, the gap year population and the changes to credit administration practices for a while. But I think what one needs to appreciate is that they are both effectively sort of new and distinct things. I think what we've seen on the gap year population is that that population has really performed materially worse than a standard withdrawal population. I think when we saw that early on, it would have been natural to assume it would have performed a lot like a standard withdrawal population. Clearly, that has not been the case. I think that suggests highly that the pandemic I think we will look back on and understand was a meaningful risk splitter that quite frankly we just didn't have any experience before with because there hadn't been a pandemic before but I think we certainly now understand that on that one you know I think what gives us confidence Moshe is for those customers that entered repayment earlier in that gap year population you know, we have now seen their performance trends effectively normalized to what we would see from a typical gap year population. So, we've sort of seen them work through whatever we think was extraordinary in their performance, and they've You know, they've kind of rejoined the sort of expected performance trend, if you want to think about it that way. And I think that gives us confidence as we think about modeling out, you know, the rest of that gap year and how it flows through, that gap year population and how it flows through over the course of the remainder of the year. Likewise, you know, I think on the credit administration changes, it's a little bit of the same story. This is a new program. You know, I think we knew that there were going to be both sort of longer-term and shorter-term impacts there. I think the longer-term impacts we've cared for, as I said in my talking points, through the reserve that we've taken. But we also knew that there was going to be sort of a shakeout effect, and I think we are seeing that play out. Again, we can see the changing curves and data. So, you know, we know that, you know, how sort of the proportion of customers who exhibit each of these behaviors that I referenced earlier are changing. And, again, you know, I think that gives us confidence that we've got now with real experience you know, a better take on sort of the way things are going to play out versus the assumption-based approach and models that we put out when we launched the program. So, you know, when I put both of those things together, I think that, you know, the core or common element is we now just have real practical experience over the course now of a growing number of months with each of those populations, and that gives us a lot more confidence in our ability to, you know, model some things that were, quite frankly, new to our system.
spk06: Got it. Thank you. And just as a follow up, you know, obviously, you know, you talk, you've mentioned many times before that the premium on the loan sale is only one portion of the capital generated, you know, from the loan sale process. But, you know, if we are in a period of, you know, kind of higher rates and therefore lower premium, how does that influence, you know, kind of your thinking over the, you know, intermediate term in terms of how much, you know, is the right amount of loans to sell?
spk05: Yeah, Moshe, let me answer the broad strategic piece and I'll ask if Steve wants to jump in with any more sort of technical pieces. I think as we've described before, we have developed I think you can simply think about as a grid. It's slightly more complicated than that, but effectively a decision matrix. And we are looking at not just the premium, but what we are really looking at is sort of the premium. And yes, you're exactly right. As a result, the total amount of freed capital from a loan sale versus the multiple of the stock you know, and really trying to figure out, you know, what is driving or what would drive real value creation, considering things like, you know, the MPV of those loans, accretion, dilution over periods of time, you know, et cetera. We still think, as we've said before, we're well within the green zone of that. And by the way, you know, understand the green zone gets easier to achieve when the multiple is lower. That's just the math of the whole thing. I think we've also said, Moshe, just to remind everyone, we view the share buyback program and arbitrage program really as an opportunistic medium-term strategy. We strongly suspect that we will continue it going forward, but I think we've always said it was something that we, you know, really wanted to press on when we saw that we were well within that green zone. So I think as long as we continue to live in that green zone, I think we will be, you know, very, very interested in continuing that program. I think if we started to move outside of that, we would think it differently. Again, we don't think we're close to that, you know, that point today. You know, even with the kind of lower loan sale premiums we've put into our guidance and really do believe that over the course of the last couple of years, our share buyback program has been a significant creator of shareholder wealth. And, you know, we are excited to continue it going forward. You know, I think we've had over the last couple of months the added complexity of not just rising rates, but, you know, broader volatility and a risk-off orientation in the market. And I'm sure that has factored some of the intelligence that we've gotten around likely market premiums. You know, I think our arithmetic says that if you are just dealing with a higher rate environment, you know, there's – There's probably a greater premium than what we have modeled in. But again, I think we'll continue to take that, you know, based on market intelligence as we go forward. Steve, what would you add to that?
spk03: I think you covered it pretty thoroughly, John.
spk00: Thank you. Thank you. One moment for our next question, please. Next question is from Mark DeVries with Barclays. Please go ahead.
spk02: Yeah, thanks. You know, first, just wanted to clarify some of the comments around the impact of the credit administration policy changes. Are you saying you think that's, you know, it's more of a 2022 impact, mainly because the impact of earnings is now kind of factored in, you know, to your CISO reserve? Or do you actually think it has a more temperate impact on charge-offs?
spk05: Yeah, I think what I was saying, Mark, is based on what we're seeing today, we think that is more of a 22 temporary impact. So let me dive a little bit deeper into that. I think our view is there's sort of two ways that the changes to credit administration practices may impact sort of charge-offs and credit metrics over time. there's clearly going to be some longer-term change to the program. That's why we've taken, you know, the Feasal Reserve. That's why we've done the things that we've done. You know, and by the way, I don't think we've seen yet anything that indicates that those, you know, those estimates were, you know, wrong or needing updating. But I think what we also knew when we implemented this is that there would be sort of a phase-in effect. You know, so if you think about it, anytime you curtail or restrict a loss mitigation program, there is a group of on-the-margin borrowers, people who may have been able to make payments a little while longer, may have been able to keep their head above water a little while longer, and now without access to that program and being out of other options, You know, they move faster through to delinquency. And I think what we believe we are seeing this year is, you know, those on the margin customers moving faster through to delinquency, you know, versus the expectations that we initially had. And so, we do think that this is an implementation effect based on what we've seen so far. We'll, of course, continue to monitor it carefully and, you know, and report out on the results as appropriate. But I think we believe that the charge off effect is really much more that temporary phase in or transitional impact.
spk03: Yeah, Mark, just for clarity. We do have a sizable reserve for expected increases of life of loan losses due to the forbearance changes, which we haven't touched and is still out there. And we also add additional reserves as we originate loans for this impact. And what John is describing is a little bit of an acceleration, which is also what you serve for. So the CESA reserve is 100% accounting for it. the impacts of everything that we're discussing here.
spk02: Okay, great. Appreciate all the commentary.
spk00: Thank you. One moment for our next question, please. Our next question is from Sanjay Sukrani with KBW. Please go ahead.
spk04: Thanks. Good morning. Can we dig in a little bit more to, John, your commentary on the green zone? I know in past calls, Eve, you've discussed, sort of 8% gain on sale as being sort of a marker or tipping point for you guys to decide to sell or not. I think the new assumption is lower than that. And I know, John, you mentioned you can probably get higher in the current environment. But I'm just curious, can we just get a sense of sort of what we should expect based on the gain on sale and when you'd sell versus not?
spk03: I mean, Sanjay, since you're quoting my past comments, which I think you may have misinterpreted, basically what we do is we triangulate between our estimated equity cost of capital. We calculate the net present value of the portfolio. based on equity costs and funding costs. And we compare that, and then we use that equity cost of capital to estimate basically what our price earnings multiple should be on a conservative basis. And we compare the two, and that creates the green zone that John is describing. And in extreme cases where the stock price could be extremely undervalued based on, you know, basic finance. I'll call it 201 as opposed to 101. You know, the premium that we could sell at and make the arbitrage work could be significantly lower than the 8% that you referenced. And hopefully that clarifies that a little bit.
spk04: I mean, is there a way to... Is there a way to get that number now, like maybe using that calculation, what that rate is now?
spk05: Yeah, Sanjay, I'm sure you can appreciate, you know, we sell loans at a competitive auction. You know, part of what we try to take great care of is to build, you know, demand and interest and, you know, a little bit of, uncertainty in our market clearing price. I don't think we really want to be putting out to the market our decision framework for how we think about the exact price at which we would or would not sell loans. I'm sure you can appreciate that. I think it is fair to say we have a very robust methodology and If we sell loans at a lower premium, rest assured, it's because we think we can deploy the capital at an even more aggressive level and create value for our shareholders. And look, we understand that that may have a slight impact on in-year EPS through the gain number. But, you know, at the end of the day, while we take in-year EPS guidance really, really seriously, what we're much more focused in on is the multi-year value creation that that arbitrage creates.
spk03: And one of the points recalled to mention, Moshe pointed out that The premium we receive is really not just the gain-on-sale premium. When we sell these loans, we also release the 5.4% CISO reserve that I mentioned earlier, and we do consider that to be part of the gain because it's essentially capital that's stranded for the life of these loans, plus the 13% capital that we release. Got it.
spk04: Just one final question. I appreciate all the commentary on those specific cohorts that had the gap year. So as we think about the impacts this year, I think you guys are pretty clear that it's specific to this year. So as we move into next year, does that all else equal from a macro standpoint bring down the provision run rate adjusted for those one-time impacts?
spk03: Yes, it absolutely would, Sanjay.
spk04: Okay. So it would be roughly that $50 million plus some of the servicing gaps?
spk03: Yes, there is a considerable amount of reserve in the number this year for these transitory effects that we're seeing. I mean, basically, charge-offs, the CECL methodology is you estimate what you need for the portfolio, and then you look at charge-offs, and that lowers the reserve, and you're essentially topping up the reserve for charge-offs that you're experiencing over and above the forecast rate.
spk05: And Sanjay, not to snatch complexity from the jaws of simplicity on this one, but, you know, that is, of course, subject to all of the factors that would normally go into, you know, our provision calculations. So, you know, growth, mix, economic outlook, et cetera, those are also other variables. But what Steve said is exactly right with regard to this year's temporary effects. Okay.
spk04: Great. Thank you very much.
spk00: Thank you. One moment for our next question. Our next question comes from Melissa Waddell with JP Morgan. Please proceed. Good morning, Melissa and for Rick today.
spk07: Wanted to follow on the topic that we've been talking about here on reserves and credit quality. I'm just trying to reconcile. We've seen the allowance ratio as a percent of any loans and repayments sort of steadily declining on sort of a quarter over quarter basis, but also on a year over year basis. And yet we've got some charge off guidance going up. So I was hoping you could either rephrase or kind of elaborate on how you're thinking about the allowance ratio in particular and how you would expect that to trend given your credit expectations throughout the rest of the year. Thank you.
spk03: Sure. So here's the process. And the numbers that I typically quote in my prepared remarks are the more accurate reserve level, because the reserve level does include the accrued interest receivable and the commitments. And we were at 5.4 versus 5.3%, so up 0.8%. But I guess your question is fair since charge-offs are going up a little bit more than that. But do remember, it is a life of loan loss reserve. But I think what you need to think about is when we provide guidance, basically what we're doing for the reserve and the provision is we calculate a year-end CECL loan loss allowance requirement and then We build upon that by adding unexpected charge-offs, which requires additional provisioning, which basically accounts for the expected charge-offs between quarter-end and the end of the year, if that makes sense. It's a little complex, but that expected charge-offs between quarter-end and the end of the year, if that makes sense. It's a little complex, but that is the process that we use to build guidance. So the guidance includes additional provisioning that will take place by the end of the year.
spk07: Okay. Thank you for that. You're welcome.
spk00: Thank you. And I will now turn the conference back to management for final remarks.
spk05: Carmen, thank you, and appreciate everyone's time and interest this morning. Hopefully, we were able to answer questions and provide information on the business in general, but also specifically on the changes in guidance. Please know that the management team and IR team, Steve, Brian, and I are here and happy to answer additional questions as you complete your analysis and reviews. And I really do appreciate everyone's time and interest in Sallie Mae. Have a great rest of your summer. Look forward to talking again in the fall, if not before. Thanks. Thank you, John. And thank you for your time and your questions today, a replay of this call, and the presentation. For questions, feel free to reach out to me at salliemae.com. Again, if you have further questions, feel free to reach out to me directly. This concludes today's call. Thank you.
spk00: And thank you for participating, and you may now disconnect.
Disclaimer