SLM Corporation

Good day, and thank you for standing by. Welcome to the third quarter 2023 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 this session, you will need to press star 11 on your telephone. You will hear a message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Melissa Abrano. Please go ahead.

Thank you, Carmen. Good morning, and welcome to Sally Mae's third quarter 2023 earnings call. It is my pleasure to be here today with John Witter, our CEO, Steve McGarry, our CFO, and Pete Graham, who will succeed Steve as our next CFO beginning October 27th. After the prepared remarks, we will open 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, results of operations and 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 September 30, 2023. This is posted along with the earnings press release on the Investors page at sallymay.com. Thank you, and now I'll turn the call over to John.

Thank you, Melissa and Carmen. Good morning, everyone. Thank you for joining us to discuss Sallie Mae's third quarter results. I hope you'll take away three key messages today. First, we had a successful peak season highlighted by increased underclass demand. Second, we remain on track to deliver around the midpoint of our full year 2023 EPS guidance. And third, we are excited about the ongoing prospects of the company. in particular as we start to look past the end of our CECL phase-in period. Let me begin with the discussion of loan sales. You will remember last quarter we had expected to commence our next loan sale at the beginning of September and close in the third or early in the fourth quarter, depending on buyer preferences and market conditions. We are pleased to report that we were able to sell $1 billion of loans in our latest transaction, which closed on October 13th. We have not changed the midpoint of our EPS guidance, which confirms that we were able to execute the loan sale at prices consistent with our full year 2023 expectations. We plan to use a portion of the gain and capital released from the sale to buy back stock while maintaining prudent capital and liquidity levels. As a reminder, we began the loan sale and share repurchase strategy a little over three years ago. to take advantage of the price disconnect between loan sale premiums and our equity valuation, and also to help manage capital during the CECL phase-in period. We believe the program has been very successful. We have bought back approximately half the company and have generated absolute and relative total shareholder returns during that time that have meaningfully outperformed certain key indices and competitors. While successful, We have always described this as a medium-term strategy that would evolve over time. While we believe there is still opportunity to take advantage of the loan sale and share buyback arbitrage, it is also exciting to think about the organic EPS growth and capital generation capability of the business as we contemplate pivoting to grow our balance sheet. We will continue to consider the appropriate level and timing of loan sales, and our pivot to balance sheet growth as we develop guidance for 2024. Turning to the quarter's results, GAAP diluted EPS in the third quarter of 2023 was $0.11 compared to $0.29 in the year-ago quarter. These earnings are lower than the prior year quarter given that we sold $1 billion of loans in the third quarter of 2022. That generated $75 million in gains. Had the loan sale we just closed in October been completed in the third quarter, it would have added approximately $0.31 to our third quarter 2023 gap diluted EPS. Private education loan originations for the third quarter of 2023 were $2.5 billion, which is up 4% over Q3 of 2022. This wraps up a successful 2023 peak season. Through the end of September, we have seen 9% application growth over the same period in 2022 and the most application volume since prior to the pandemic. This has been fueled by a 10% increase in underclass applications, which is especially important given the greater serialization potential and lifetime value of this group. Credit quality of originations was consistent with past years. Our cosigner rate for Q3 of 2023 was 90%, up slightly from 89% in Q3 of 2022. Average FICO score at approval for Q3 of 2023 was 749 versus 747 in Q3 of 2022. We continue to focus on credit and our path back to normalcy and are pleased that our annual annualized net charge-offs as a percentage of average loans in repayment for the first nine months of 2023 is 2.44% and remains lower than our plan for the full year. We saw entry rates to delinquency decline in September and observed continued improvement in our later stage delinquency buckets throughout the quarter. We have implemented a number of programs over the last several quarters to assist our customers but recognize that there are more ways in which we can help borrowers who are facing financial difficulty. We are continuing to develop new programs and fine-tune existing strategies to help delinquent customers regain their financial footing. Steve will now take you through some additional financial highlights of the course.