Yahoo Finance SLM Corporation (NASDAQ:SLM) Q1 2024 Earnings Call Transcript
SLM Corporation (NASDAQ:SLM) Q1 2024 Earnings Call Transcript April 24, 2024
SLM Corporation beats earnings expectations. Reported EPS is $1.27, expectations were $0.96. SLM Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to Sallie Mae First Quarter 2024 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the prepared remarks. [Operator Instructions] I would now like to turn the conference over to Melissa Bronaugh, Head of Investor Relations. Please go ahead.
Melissa Bronaugh: Thank you, David. Good evening and welcome to Sallie Mae's first quarter 2024 earnings call. It is my pleasure to be here today with Jon Witter, our CEO; and Pete Graham, our CFO. 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. Listeners should refer to the discussion of these factors in the company's Form 10-Q and other filings with the SEC. For Sallie Mae, these factors include, among others, results of operations, financial conditions, and/or cash flows, as well as any potential impacts of various external factors on our business.
We undertake no obligation to update or revise any predictions, expectations, or forward-looking statements to reflect events or circumstances that occur after today Wednesday, April 24th. 2024. Thank you. And now, I'll turn the call over to Jon.
Jon Witter: Thank you, Melissa and David. Good evening everyone. Thank you for joining us today to discuss Sallie Mae's first quarter 2024 results. I'm pleased to report on a successful quarter and progress towards our 2024 goals. I hope you'll take away three key messages today. First, we're off to a fast start in 2024. Second, we're encouraged by the trends we have seen in our credit performance. And third, we believe we have positive momentum for the rest of the year. Let's begin with the quarter's results. GAAP diluted EPS in the first quarter of 2024 was $1.27 per share as compared to $0.47 in the year-ago quarter. Our results for the first quarter were driven by a combination of strong business performance, improvement in credit trends and the gain on our first loan sale of the year.
Loan originations for the first quarter of 2024 were $2.6 billion, which is up 6% over the first quarter of 2023. We have seen our application volume grow as well, increasing 4% year-over-year. We believe that this is a solid start to 2024. Credit quality of originations was consistent with past years. Our cosigner rate for the first quarter of 2024 was 91% versus 89% in the first quarter of 2023. Average FICO score for the first quarter of 2024 was 748 versus 746 in the first quarter of 2023. The credit improvement that we observed in 2023 has continued through the first quarter of 2024. Net private education loan charge-offs in Q1 were $83 million, representing 2.14% of average loans in repayment. This is down 29 basis points from fourth quarter of 2023 and better than expectations.
Although we are still in the early stages of implementation, we are pleased with the medium term performance of our loss mitigation programs and are seeing improvement in our roll to default rates, as well as positive performance trends in all stages of delinquency. As we mentioned in our year-end call, we did see a rise in delinquencies in the fourth quarter due to what we described at that point as the mechanical results of borrowers entering into new payment programs who are in their qualifying period. We have added additional disclosure around both our delinquency and forbearance metrics and are seeing the desired results. Excluding those borrowers that are in their loan modification qualifying period, delinquencies are down quarter-over-quarter from 3.1% in Q1 of 2023 to 2.7% in Q1 of 2024.
Loans in disaster or hardship forbearance were 1% at the end of Q1 2024, consistent with performance in Q1 of 2023. The $2.1 billion loan sale that we were able to execute in the first quarter generated $143 million in gains. We are encouraged by the price we received, which is in line with our expectations. We still expect to sell additional loans in 2024 with market conditions dictating the timing and our balance sheet growth targets dictating the volume. The balance sheet growth expectations for the year remains at 2% to 3%. In first quarter of 2024, we continued a capital return strategy by repurchasing 1.3 million shares at an average price of $20.32. We have reduced the shares outstanding since we began this strategy in 2020 by just over 50% and at an average price of $15.95.
We expect to continue to use the gain and capital release from future loan sales to programmatically and strategically buyback stock throughout the year. Pete will now take you through some additional financial highlights of the quarter. Pete?
Pete Graham: Thank you, Jon. Good evening everyone. Before we jump into the key drivers of earnings for the quarter, I wanted to mention a change to our guidance metrics that you may have noticed in our earnings release, investor presentation. We have discontinued reporting non-GAAP core earnings and its related metrics, as it has been identical to our GAAP earnings in the last eight quarters, including this quarter. As such, for purposes of our 2024 guidance, we are now using GAAP earnings in place of non-GAAP core earnings in the calculation of the earnings per common share metric. However, the guidance range is unchanged at $2.60 to $2.70. Now, for a discussion of key drivers of earnings. Year-after-year, our quality loan portfolio generated significant net interest income.
For the first quarter of 2024, we earned $387 million of net interest income. This is down 4% from the prior year quarter and level with the fourth quarter of 2023. Although average yields of interest-earning assets are up about 45 basis points over the year ago quarter, average interest-earning asset balances are down slightly, which resulted in a $26 million decrease in interest income from the year ago period. Interest expense was $44 million higher as borrowing rates increased approximately 75 basis points from the prior year. Net interest margin for the first quarter was 5.5% compared to 5.7% in the year ago quarter. We continue to believe over the long-term that low to mid-5% is the appropriate NIM target. Our total provision for credit losses in the income statement was $12 million first quarter 2024.
This is comprised of an increase in provision of $145 million related to volume and prepayment assumption updates, offset by a release of $133 million associated with the $2.1 billion loan sale we completed during the quarter. The majority of the increase of provision is related to origination volume during the main peak that occurs in the first quarter of each year. Additionally, we reduced our long-term prepayment assumption, which accounted for approximately 26% of the increase during the quarter. Although this change in assumption has a negative impact on provision, this is a long-term positive as we will continue to keep our interest-earning assets on our balance sheet for a longer period of time. Net charge-offs for our private education loan portfolio in the first quarter were $83 million or 2.1%, consistent with the year ago quarter.
Our private education loan reserve at the end of the first quarter is $1.4 billion. or 6.1% of total student loan exposure, which includes the on-balance sheet portfolio plus the accrued interest receivable of $1.4 billion. Our reserve rate shows improvement over the 6.4% in the prior year quarter and is consistent with levels at the end of 2023. Private education loans delinquent 30 days or more, 3.4% of loans in repayment, a decrease from 3.9% at the end of 2023 and consistent with the 3.4% at the end of the year ago quarter. As Jon mentioned earlier, we've refined our disclosure around both delinquencies and forbearance to get more visibility into our credit performance. When adjusting the numbers that I just discussed to remove the borrowers who are in a three-month qualifying period related to one of our new programs, improvement in delinquencies is compelling.
At the end of the first quarter, loans delinquent 30 days or more, becomes 2.7% of loans in repayment as compared to 3.2% at the end of 2023 and 3.1% in the year ago quarter. We believe that this is a medium term indicator of the success of the new programs, and we'll continue to monitor and disclose performance in the coming quarters. First quarter operating expenses were $160 million compared to $143 million in the prior quarter and $155 million in the year ago quarter. This was a 4% increase compared to the first quarter of 2023. The majority of this increase relates to increase in volume in the quarter compared to the prior year, with applications increasing 4% and disbursements increasing 6%. Total non-interest expenses in the first quarter were $162 million compared to $202 million in the prior quarter and $157 million in the year ago quarter.
Finally, our liquidity and capital positions are solid. We ended the quarter with liquidity of 19.1% of total assets. At the end of the first quarter, total risk-based capital was 13.5% and common equity Tier 1 capital was 12.3%. Another measure, the loss absorption capacity of the balance sheet is, GAAP equity plus loan loss reserves over risk-weighted assets, which was a very strong 16.2%. We believe, we're well-positioned to continue to grow our business and return capital to shareholders going forward. I'll now turn the call back to Jon.
Jon Witter: Thanks Pete. I hope you agree that we have executed well in the first quarter and that you share my belief that we have positive momentum for the full year 2024. There has been some question about the potential implications of delays and technical issues associated with the Department of Education's launching of the new FAS [ph] reforms. At this point, we do not believe that these issues will cause material impact on volume, but may likely condense an already short peak season. Externally, we continue to partner with our schools to assist families through this process. Through the calculation tools available on our website, our scholarship search capabilities available through Scholly and other materials we provide to families, we are there to help make this peak season as frictionless as possible.
Internally, we are preparing for a condensed peak with enhanced staffing, improved digital and other self-service capabilities, and other actions. While early, we are also paying attention to the impact of one of our major competitors exiting the market. We believe this will afford the opportunity to compete for new business. While too early to declare definitively, early analysis suggests a slight volume increase from borrowers that previously had a relationship with that competitor. We expect to see the first real signs of opportunity during peak season over the summer and into the fall. In addition to our originations growth in the first quarter, Pete also mentioned the continuation of slower prepayment speeds, both of which are positive for balance sheet growth and interest income as we look toward the second quarter of the year.
We will continue to focus on operational execution, expense management, and NIM to drive results. Let me conclude with a discussion of 2024 guidance. As I mentioned earlier this evening, we are encouraged by both the successful Q1 origination season, the positive trends we are seeing with credit performance, and our first loan sale execution of the year. We are also optimistic that these things will lead to a successful 2024. We believe the medium term success of our programs will continue to normalize and we look forward to updating you on that performance progress throughout the year. At this time, we are reaffirming the 2024 guidance that we communicated on our last earnings call, all key metrics. With that, Pete, let's go ahead and open up the call for some questions.
Operator: The floor is now open for questions. [Operator Instructions] Our first question is coming from Sanjay Sakhrani with KBW. Please go ahead, your line is open.
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