SLM Corp
NASDAQ:SLM
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SLM Corp
Earnings Call Analysis
Q2-2024 Analysis
SLM Corp
In the second quarter of 2024, Sallie Mae delivered strong financial results highlighted by a GAAP diluted earnings per share (EPS) of $1.11, barely increasing from $1.10 in the same quarter of the previous year. This slight growth is backed by improved business performance, better credit trends, and gains from a loan sale. Most notably, loan originations increased by 6% year-over-year to $691 million. This positive momentum is demonstrated by a higher average FICO score of 752, and an increase in cosigner rates to 80% from 76% last year.
Sallie Mae saw noticeable improvements in their credit performance with net charge-offs for private education loans at $80 million or 2.19% of average loans in repayment, which is a decline of 50 basis points compared to the same quarter last year. Delinquencies and forbearance both showed a year-over-year decrease, and the company's loss mitigation programs have been effective in helping borrowers manage during tough times while establishing positive payment habits. The continuous improvement in credit quality suggests a strong recovery trajectory.
The company reported a net interest income of $372 million for the quarter, corresponding to a net interest margin (NIM) of 5.3%. This was better than initially expected, reflecting successful management despite anticipated NIM compression from rising funding rates. Credit loss provisions stood at $17 million, heavily influenced by a $103 million release from a $1.6 billion loan sale during the quarter. Notably, the private loan reserve at the end of the quarter was $1.3 billion, improved from 6.5% a year ago to 6.1% now.
Sallie Mae continued its capital return strategy, repurchasing 2.9 million shares at an average price of $21.17. Since 2020, the company has reduced outstanding shares by 51% at an average repurchase price of $16.03. The company plans to use capital released from loan sales to strategically buy back more shares throughout the year, demonstrating a strong commitment to returning value to shareholders while maintaining sufficient liquidity and capital positions.
Issues with the Department of Education's new FAFSA rollout caused delays in financial aid processing, affecting high school seniors' completion rates and consequently causing a small decline in loan application volumes for the first half of 2024. Despite this, Sallie Mae has managed to align with their volume expectations through operational and marketing improvements. The company anticipates that schools will eventually catch up, and the delays should not have a significant impact on overall school enrollments.
Due to successful loss mitigation efforts and positive credit performance, the company's outlook for GAAP diluted EPS for the full year of 2024 has been revised to a range between $2.70 and $2.80 per share. The expected charge-offs for the total loan portfolio have been adjusted down to between $325 million and $345 million, translating to a net charge-off rate between 2.1% and 2.3%. These updates indicate a strong confidence in continued robust financial performance for the rest of the year.
Forward-looking statements suggest optimism for the future as Sallie Mae expects improved loan originations and effective credit management strategies to drive growth. Despite external challenges, such as the FAFSA rollout delays, the company projects a balanced approach towards maintaining its strong credit quality and enhancing shareholder value. The tight management of operational costs, strategic repurchase program, and substantial liquidity cushion underline Sallie Mae's robust positioning for sustained success.
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Good day, everyone, and welcome to the Sallie Mae Second Quarter 2024 Earnings Conference Call. [Operator Instructions] The floor will be opened for your questions following the prepared remarks. [Operator Instructions].
And now at this time, I would like to turn things over to Melissa Bronaugh of Investor Relations. Please go ahead, ma'am.
Thank you, Bo. Good evening, and welcome to Sallie Mae's Second 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 contain predictions, expectations and forward-looking statements. Actual results in the future may be materially different from those discussed here due to a variety of factors. Listeners should refer to the discussion of those 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, July 24, 2024. Thank you. And now I'll turn the call over to John.
Thank you, Melissa. Good evening, everyone. Thank you for joining us today to discuss Sallie Mae's Second Quarter 2024 results
I'm pleased to report on a successful quarter and progress toward our 2024 goals. I hope you'll take away 3 key messages today. We delivered strong results in the second quarter and first half of the year. We remain encouraged by the trends we [indiscernible] in our credit performance. And third, we believe we are well positioned to deliver solid results for the year by continuing to drive our core business and serve our customers.
Let's begin with the quarter's results. GAAP diluted EPS in the second quarter of 2024 was $1.11 per share as compared to $1.10 in the year ago quarter. Our results were driven by a combination of strong business performance, improvements in credit trends and a gain on our second loan sale of the year. Loan originations for the second quarter of 2024 were $691 million, which is up 6% over the second quarter of 2023.
In the quarter, we have seen slight year-over-year improvements in credit quality of originations with cosigner rates increasing to 80% from 76% in the second quarter of 2023 and the average FICO score increasing 5 points from 747 to 752.
We continue to be pleased with our credit performance through the second quarter. Net private education loan charge-offs in Q2 were $80 million, representing 2.19% of average private education loans and repayment. This is down 50 basis points from the second quarter of 2023 and better than our expectations. Our enhanced payment programs are proving to be a useful tool and helping our borrowers work through periods of adversity while establishing positive payment habits.
We saw both delinquencies and forbearance decline this quarter over the year-ago quarter. We remain optimistic about future performance as we observed continued roll rate improvements in our late-stage delinquency buckets as compared to this time last year.
The $1 to $6 billion loan sale that we executed in the second quarter generated $112 million in gains. The balance sheet growth expectations for the year remained at 2% to 3%. In the second quarter 2024, we continued our capital return strategy by repurchasing 2.9 million shares at an average price of $21.17. We have reduced the shares outstanding since we began this strategy in 2020 by 51% at an average price of $16.03.
We expect to continue to use the gain and capital released from loan sales to programmatically and strategically buy back stock throughout the year. Pete will now take you through some additional financial highlights of the quarter. Pete?
Thank you, John. Good evening, everyone. Let's continue with a discussion of key drivers of earnings. For the second quarter of 2024, we earned $372 million of net interest income which equates to a net interest margin of 5.3%.
While we expected NIM compression in 2024 as funding rates catch up to our asset yields, we are ahead of our business plan and pleased with the NIM performance. We continue to believe that over the long term, that the low mid- to 5% range is the appropriate NIM target.
Our total provision for credit losses on our income statement was $17 million in the second quarter of 2024. The provision this quarter was primarily affected by the release of $103 million associated with the $1.6 billion private education loan sale that we completed during the quarter, an improved economic outlook, offset by volume growth from new loan originations.
Our private education loan reserve at the end of the second quarter is $1.3 billion or 6.1% of our total [ steel ] exposure, which includes the on-balance sheet portfolio plus the accrued interest receivable of $1.4 billion.
Our reserve rate shows improvement over the 6.5% reported in the year ago quarter and is consistent with levels experienced at the end of the first quarter. This positive trend in our reserve rate reflects the seasoning of our improvements in credit and collections practices as well as marginal improvements in the credit quality of originations.
Higher education loans delinquent 30 days or more or 3.3% of loans and repayment a decrease from both the 3.4% at the end of the first quarter as well as from the 3.7% at the end of the year ago quarter. As John mentioned earlier, we believe our loss mitigation programs are helping our borrowers manage through the periods of adversity and establish positive payment patterns.
When adjusting the numbers that I just discussed to remove the borrowers who are in delinquency while they make repayments at their modified rate. Loans delinquent 30 days or more becomes 2.8% of loans and repayment as compared to 2.7% at the end of this quarter and 3.3% in the year ago quarter.
We spoke last quarter about the increased usage of our enhanced loss mitigation programs and the effect that had on both delinquencies and forbearance. As we have observed the performance of the launch of these programs over the past quarter, we're pleased with the level of success.
The level of new enrollments in our enhanced programs is normalizing. The majority of borrowers enrolled in our extended grace program, which drove most of the increase in our covariance enrollments in the first quarter have exited in May and June. And while early days, delinquencies for those loans since their exit have been in line with our expectations.
The success rate for borrowers in our loan modification programs making their 3 qualifying payments within or better than our expectations with the vast majority of borrowers completing those payments and returning to current status.
Approximately 84% of borrowers in loss mitigation programs at the end of the second quarter are making loan payments as compared to 64% making loan payments and programs pre-COVID. We believe that these enhanced programs are working as intended and helping our borrowers stay in their financial footing. As we continue to monitor the performance, there may be an opportunity for us to further optimize eligibility for these programs.
Second quarter noninterest expenses were $159 million compared to $162 million in the prior quarter and $156 million in the year ago quarter. This was a 2% increase compared to the second quarter of '23.
Finally, our liquidity and capital positions are solid. We ended the quarter with liquidity of 24.4% of total assets. At the end of the second quarter, total risk-based capital was 14.7% and common equity Tier 1 capital was 13.4%. Another measure of loss absorption capacity on the balance sheet is GAAP equity plus loan loss reserves over risk-weighted assets which was a very strong 17.3%. 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 John.
Thanks, Pete. I hope you agree that we executed well in the second quarter and that you share my belief that we have positive momentum for the full year of 2024. Let me briefly touch on the delays and technical issues associated with the Department of Education's recent launch of the new fast reform and its implications for our business.
The delay in the fast reforms rollout has been primarily due to the complexity of the overall process. Given the delayed availability, families completed the form later causing schools to be delayed in processing and delivering financial aid packages to students and families. This has led to uncertainty for many students and families regarding the exact dollar amount private loans needed for school.
Through mid-July, the faster completion rates for high school seniors are down approximately 11% year-over-year with completion corrections still being processed. At this point, we believe that these issues have caused a small decline in application volume through the first 6 months of 2024.
To date, our volume plan remains aligned with our expectations, primarily due to operational and marketing improvements that have allowed us to offset this decline in applications. Our expectation is that the issues with the fast [indiscernible] will be remedied and that schools will catch up and process financial aid applications.
In this case, the impact on overall school enrollment would be minimal although our peak season will likely be elongated and back-end compressed. If the decline in applications does not rebound and translates into a true decline in enrollments, we remain confident in our volume expectations on the year, but with less opportunity for us to perform at the higher end of our guidance range.
The allowance incorporated into our EPS guidance assumes that we are able to end the year with originations at the higher end of our range. 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 and other materials we provide to families, we are here to help make the peak season as frictionless as possible.
Internally, we are prepared for an elongated peak season with back-end compression and have enhanced our staffing improved digital and other self-service capabilities and taking other actions.
Let me conclude with the discussion of 2024 guidance. As I mentioned earlier this evening, our loan sale activity for the year has been at prices that were in line with and slightly favorable to our expectations. In addition, 6 months into 2024, we have not yet seen the reduction in interest rates expected when we originally set guidance.
Given these 2 factors as well as the continuation of positive credit performance, we are updating our range for GAAP diluted earnings per common share. We now expect full year 2024 GAAP diluted EPS to be between $2.70 and $2.80 per share.
The success to date with the usage of enhanced loss mitigation programs has led to better-than-expected credit performance through the first 6 months of 2024 and we believe that this trend should continue through the remainder of the year. The impact of this success has caused us to revise our outlook on total loan portfolio net charge-offs which we now expect to be between $325 million and $345 million. We expect net charge-offs expressed as a percentage of average loans and repayment to be between 2.1% and 2.3%.
At this time, we are reaffirming the 2024 guidance that we communicated on our last earnings call for the private education loan originations year-over-year growth as well as noninterest expense metrics. With that, Pete, why don't we go ahead and open up the call for some questions.
[Operator Instructions]. We'll go first today to Moshe Orenbuch at TD Cowen.
Great. And I guess, John, what's the outlook in terms of like when will you know how successful or unsuccessful the -- essentially the [ Faxes ] and college enrollments and therefore, your loan origination will be? And could you also just talk a little bit about how you're viewing kind of the competitive environment at this stage?
Yes. Moshe. Happy to touch on those [indiscernible] both those questions. First of all, I think it's fair to say we are gaining more confidence in the, what I'll call, the [ fast book ] catch-up each and every day.
So we tend sort of this year's completion rates for high school seniors versus past years. That gap is narrowing. We obviously track our application volumes on a sort of day into peak season basis, we are seeing that application gap narrow over time. So I think we believe we are starting to see positive signs of sort of what I described in my prepared remarks.
So schools catching up and the gap closing and potentially not translating into a true loss in enrollment. Not to sort of sound smart about it, I think at the end of the day, it will be sort of into the third quarter before I think we really have a good sense of how peak season ends and I do think we expect it will be a little bit later than it normally is because we expect that schools will be later in sending bills, they will likely get -- some schools will likely give students more time to remit.
And my guess is there could even be some of the situations school-by-school, that stretch into the fourth quarter. But I think we feel, certainly, by the end of the third quarter, we should have a pretty good sense of it, but I don't want you to think we're waiting to them. We do see sort of the good early signs of progress.
I think the competitive intensity, Moshe, to the second part of your question, my answer here is going to sound, I think a lot like we have discussed in past years. We compete in a nicely competitive market. We've got good strong competitors out there who want to serve the very same customers that we do.
We always see sort of aggressiveness around marketing spend, especially at the early part of peak season. And I think we're seeing that this year, too, maybe even a little touch more given some of the slowness in applications coming because of the [indiscernible] delays. But it's nothing that I think sort of causes us undue concern and we continue to exercise great discipline and optimizing our marketing channels and sort of not spending in place where we don't think we'll get the return.
So we like all of that. And I think we are well positioned to meet our originations goals for the year and somewhere within that range and look forward to sort of seeing how peak season continues to unfold.
Great. And just on the credit side, you did talk about the success of the modification and other programs. Just 2 things. I mean, Pete, you said you could potentially further optimize the eligibility for those programs. I'm wondering if you could expand on that a little bit. And maybe just talk a touch about the protections that you have like -- or that investors have in terms of how these perform and what causes them to be successful or what happens if they're not?
Moshe, why don't I see if I can take that and Pete feel free to sort of weigh in here. In terms of the optimization, if you go back and you think about the strategy we've been employing, we had previously a very flexible, very broad forbearance program. And that worked well in its flexibility.
What we've been working to replace it with is a series of more segmented and targeted programs that more closely match the needs of each of our customers who is requesting assistance. I think as we've opened up those programs, we have opened up with a little bit wider eligibility. I think there is a possibility for us to tighten that down a little bit.
So that could be both tightening in terms of moving people from slightly more generous to slightly less generous programs. And on the margin, it could also be a slight tightening in terms of people not qualifying for the programs because we actually believe that they or their co-signer has the ability and willingness to pay without assistance and would want to sort of pursue that avenue further.
I think it's important to note that we have a pretty rigorous analytical and test and control sort of structure and framework that we've put around that. So ultimately, I think the way that drives success is both on a sort of absolute and a relative basis.
On an absolute basis, we look at the sort of metrics throughout their time in the program and then their performance after the program. Are they making the qualifying payments? Are they coming current? Do they stay in the programs once they're there? What's the early stage delinquency immediately after they leave the payment? Those would be those kinds of sort of absolute metrics that we would look at.
And certainly, as more time goes by, and we have an even greater window to look back on we would want to understand how these customers perform against other customers in sort of like scenarios with like characteristics. We also do that in a relative way through kind of our test and control capability.
So ultimately, what we're looking for is on both absolute terms that people perform well against metrics and on a relative basis that we're getting lift versus what we would have expected had the program not been offered.
Thank you. We go next now to Sanjay Sakhrani at Keefe, Bruyette & Woods.
Question on the big competitor now officially out of the market. I guess as we look towards the second half of this year, are you guys assuming share gains as it relates to that? And then just on a related note, I mean, they sold their portfolio at a pretty attractive gain on sale for the size of their portfolio. I mean is there any read across to what you might potentially get as a gain on sale?
Sanjay, it's John. Why don't I take the first, and I'll let Pete take the second of your 2 questions.
Yes, we absolutely built into our originations plan, gains from large competitors or a large competitor leaving the marketplace. That is certainly part of our expectations. And I think it's true in the [indiscernible], and I think we've seen those types of share gains when other large competitors have left the space in the past.
To maybe give you sort of a bonus answer to your question. It is hard for us to track exactly what of our business would come from a competitor leaving that would have otherwise gone to that competitor versus ours. But we do look at a series of proxies.
So for example, we can look at how many of our new to farm originations are coming from customers who have, say, that competitors trade line in their bureau. Now we don't know exactly what the trade line is for. It could be for any of the products that, that competitor offers. But what we have seen is a nice increase in the first 6 months of the year of our [ new-to-firm ] originations coming from customers with a trade line of the competitor that you are asking about.
And I think we are seeing that increase accelerate over time. And that is 100% consistent with what we would have expected to have happened. If you remember, this competitor effectively exited the business after the mini peak season of spring enrollment.
So we would have expected to have done perhaps a little better in the first quarter, maybe a little bit better in the second quarter. But we are seeing that improvement grow, and we expect that to continue to accelerate as we get into the true heart of peak season where those customers are really up for competition for truly the first time. Pete, maybe [indiscernible] to you on the loan sales.
Second part, yes, on the loan sale. I think there's one caveat in that it's not necessarily an apples-to-apples comparison because the overall book of business that competitor had was slightly better credit quality on the margins than our books. So that's one.
I would say our recent loan sale on a kind of a gross premium basis probably slightly better than the overall premium that they got. And so that's probably reflective of -- they've got a marginally higher credit quality book, but they had a much bigger size of transactions. So it took some discount for size there.
I think in terms of the overall backdrop though, our expectation is that this just builds demand for the asset class. And there were multiple bidders that were ready to take down that entire portfolio that did the work to get up to speed on the asset class and be ready to invest and only one of the consortiums that we're bidding on.
And so what we saw after the similar process when [indiscernible] was, there were a lot of people who were studied on the asset class and we're eager to put money to work. And that has a benefit both in terms of demand for whole loan sales but also demand for securitization funding that gets done regularly in the space. So we're encouraged by the success of that transaction.
Just one follow-up on the loss mitigation program impacts. I guess as -- given the success of these programs, do you anticipate sort of where you think or thought steady-state charge-off rates would be to be better than before? So I mean maybe you could just give us a sense of sort of where you see the charge-off remigrating. Are we hitting that point now? Or can it go lower?
Yes. Again, I think we're still consistently viewing the long-term goal as being kind of high 1s, low 2% net charge-off rate. And noting that our updated guidance for this year is sort of touching at the low end of the range for this year, the top end of that sort of guidance for the longer term. So we're encouraged by the success of the programs. And we think it's accelerating our journey that we thought we were already on, but no real change in long-term view in terms of the overall goal that we're looking to.
We go next now to Mark DeVries at Deutsche Bank.
Yes. Thanks. I believe in the release, you kind of alluded to some improvements from your loss mitigation efforts on some of the roll to default rates. But it looks like most of the [ DK ] improvement is kind of early stage. Where in the credit metrics can we kind of see that manifested?
Mark, I think the way that I would think about it is as the program sort of continue to sort of normalize in terms of entry rates and population in the credit programs, I think you should see the impact through most stages of delinquency. Maybe not quite so much at the very end stage of delinquency. There's I think the potential for a little bit of numerator and denominator math here as you sort of help more customers early on, those are fewer that will flow through and cure in the later bucket.
So my guess is you'll see most of the impact in the earlier to mid-stage delinquency buckets, you might actually see some counterintuitive metrics in the later buckets, depending on sort of how those -- kind of how the mix of customers change there. But I think, ultimately, what you should really pay attention to is what's happening to net charge-offs. Because we will effectively help customers at different points through their journey. But the real payoff is are we getting close to that high 1, low 2 net charge-off rate that Pete talked about. So ultimately, that's what I would look at.
Okay. Great. And how are you thinking about managing the risk of repayments if we get a material drop in interest rates here? Is there anything you can do around loan sales to kind of sell off loans from borrowers who might appear to be higher risk?
Yes, Mark, I think we certainly believe that consolidations today are sort of below normal levels given the interest rate environment. I think as a matter of sort of historical course though, I would remind folks that even during the incredibly low interest rate environment post great recession and certainly through COVID, consolidation volume was sort of a modest sort of nuisance to the financial performance of the business, but it was not a kind of a major drag to the overall performance of the business.
And so I think at the end of the day, if it wasn't a major drag when rates were at incredibly low as they got. I think it is our belief that while we will see some rate sort of decline over the course of the quarters and months ahead, we'll probably -- we're almost certainly not going back to the levels we saw.
So again, I give you that, Mark, just as historical context. I think within that context, we continue to look for ways to proactively identify customers who are likely to attrit. We have not sort of found the code yet that allows us to sort of go and refinance customers proactively, the sort of cannibalization math of doing that just doesn't make economic sense for us today.
But we certainly continue to look at all of those strategies. And candidly, as we develop deeper and deeper data relationships with our customers, which we're doing today. We would expect to perhaps have better luck at that in the future.
We'll go next now to Terry Ma with Barclays.
So if I look at your loans and modification as a percentage of loans repay, kind of improved about 20 basis points sequentially but the delinquency rate ex those mods kind of increased 10 basis points. How should we kind of interpret that? And how much of the increase, I guess, is seasonal versus just kind of like some of the loans that exited by going into delinquency?
Yes. Again, I think there's going to be some noise quarter-to-quarter in those metrics. I think the overall thing that we're looking at is the broader trends and success of those borrowers. So I wouldn't necessarily try and parse and read too much into quarter-on-quarter movements in those.
And I do think there is meaningful seasonality in those numbers. For example, we certainly know that more customers experience financial distress early after repayment. And so with the large November prepayment wave and other smaller waves throughout the course of the year, you can get a little bit of lumpiness as Pete has described.
Got it. So that was my follow-up question. Should we kind of expect a new seasonality to emerge with your credit metrics? Historically, delinquencies have followed the 2 big repay waves and then they just kind of roll the charge-offs.
But now you have this kind of interaction between the [indiscernible] entry into margin exits and the extended grace periods. So should we kind of expect just some sort of new seasonality to merge? Or is it just going to be kind of lumpy?
Yes, I think there probably will be some new curves that reemerge. I don't know that we yet have enough experience just barely 1 year in to really estimate what those are.
But certainly, for example, if early-stage customers are taking advantage of things like extended grace which we think is an absolutely fabulous program and again, very targeted only at people who are brand new to repayment. That could certainly sort of elongate for some of those customers their trip to delinquency if they would have gotten there anyway. We think it will actually prevent a bunch of customers from coming delinquent [ O2.]
So you have kind of both of those effects playing out. So I think the simple answer is, yes, I would expect that the delinquency trends may change a little bit, maybe more month by month than quarter-by-quarter, but I'm not sure we have enough experience to provide sort of great guidance on to exactly what those gives and gets would look like.
We'll hear next from Michael Kaye with Wells Fargo.
The new EPS guide at the midpoint is [ $275 million. ] If I back out the [ $239 million ] in the first half, that implies just about $0.36 EPS for the second half. I mean that seems a lot lower than our estimates and likely consensus too. I know you don't give any quarterly EPS guide by quarter, but just wanted to talk a little bit about the dynamic that's happening. Is implied lower second half EPS really driven by Q3 where you probably have a -- is it perhaps a loss in Q3 given the large CECL reserving for peak season? Is there any other drivers? Or maybe just some conservatism on EPS?
Yes. I think I would pull you back to the comment that John made in his prepared remarks that our assumption around provisioning and CECL provisioning in the second half of the year assumes we're going to trend towards the higher end of our guidance range on originations. And that's going to be a primary driver of lower earnings coming out of peak season because we have to provision upfront for new originations. And that's where most of our originations comes in the year.
I think if you look back at historical quarterly sort of trends and strip out loan sales, I think you'd see that we tend to have lower quarterly earnings in the second half of the year than we do in the first half.
All right. And second question was about the share repurchases. it looks like, according to my math, only about $89 million was repurchased in the first half. Are you still committed to doing like [ $225 million ] in share repurchases in 2024? And I get that just by taking [ the 650 ] authorization divided by 2.
Yes. So I would sort of point you back to what we started with in the first quarter, which is we're going to be programmatic in our share repurchases throughout the year and we're going to stage the programs as we complete loan sales.
So when we completed the loan sale in February, that generated an amount of capital that we put into a program that's been running and when we completed the second loan sale in the second quarter, that generated another out of capital that could be deployed and that we implemented the plan. So you will see a tick up obviously, second quarter versus first, and you'll see that continuing as we move through the year.
I mean, is the intention to do in the [ $300 million ] plus this year? I mean it seems a programmatic a lot slower pace than at least what I was expecting.
Yes. Again, we gave some broad guidance as to what the authorization was and roughly how that was going to split out. We have not given specific guidance or were we on exactly the level that we obtained this year.
But the broad guidance has not changed.
We go next now to Jeff Adelson with Morgan Stanley.
Yes. I guess looking at the 10-Q, I did notice that it looks like you implemented a new loan level, future default rate model to come up with the reserve going forward. So I guess just maybe give us some color into the decision to change that. And what sort of changes in the process or reserve level we might be able to expect from such a change in the model?
Yes. I think what I would say there is most organizations look to continually improve their capabilities around modeling. And we're no different in that regard. We completed a very fulsome process of model development and implement those models in our process in the second quarter.
The models themselves were an improvement over the prior generation models. And as a result, absolute level of overlays that are involved in the process were reduced as we implement those. But when you take the old model plus overlays and the new model plus overlays, the difference was not a material difference, just more of an improvement in precision of the computational tools that we have -- that we're employing in the process.
Got it. And just as my follow-up, just to circle back on the commentary on how you're thinking about maybe tightening up on the eligibility for the loss mitigation programs. I guess -- are you finding that the -- they're just almost too successful, like you're just for growing revenue and you'd rather retain more of that or just why not maybe expand on that a little bit more? Just given I think you were doing a lot higher level of that pre-COVID on the forbearance side.
And I was also curious if you could maybe dive into a little bit on the differences in success rates or performance you're seeing in the extended grace versus the modification side?
Jeff, I think on your question on the why optimize. First and foremost, I think it's important to say we want to help every customer that is experiencing financial difficulty, regain their financial footing if they have the sort of ability and willingness to do so. And at the end of the day, we think that is a great economic answer. It is more importantly, a great customer answer.
And so if there's ways that we can help someone who again, has the willingness, has the ability to regain their financial footing, we want to be there. With that said, every single time we help a customer do that, there is some economic cost to that and that economic cost can be through a rate reduction. It can be through a rate [indiscernible].
And by the way, that can be sort of impactful to us. By the way, some of the policies also have the potential of elongating alone, which increases the total interest expense to a customer, and that makes it more expensive for them. And so I think this is a case where you really want to be as tailored and you want to be as precise as you can in how you help people.
And in a perfect world, you would have an individual program tailor made for each person to their individual case and give them the exact level of accommodation that they needed and no more. that's impossible to execute. It's impossible to operate. And by the way, we could never know with that kind of precision what people wanted.
So I think the whole point of a test-and-learn capability is for us to begin to sort of continue that optimization program, help people with the exact right amount that they need to get back on their feet, but hopefully not helping them [indiscernible] more than that. which may not be as great for our shareholders or may not be as great for them as individual [indiscernible].
So we will always look to optimize that. But again, I want to really stress, I think the goal is to make sure that we are helping customers get back on to good financial footing if they have the ability and the willingness to do so.
In terms of the performance of extended grace versus the other programs, as you can imagine, Pete and I get regular data. I don't think we've seen any material difference in terms of sort of the success rate relative to expectation of those programs. I think we're happy with the absolute performance of both those programs and really don't see any material sort of distance or space between them.
We go next now to Rich Shane with JPMorgan.
I'd like to sort of dive in a little bit deeper on the buyback. One observation, your cash position is high as it's ever been. To some extent that makes sense headed into what should be one of your strongest peak seasons or your strongest peak season ever. But that has historically also been coincident with the pickup in your repurchase.
So I'm curious how we should think about that. You say in the press release, there's about $162 million remaining under the authorization. I believe that, that runs out 7 quarters. Is that correct? And should we sort of assume that some even distribution in that remaining $562 million over that horizon?
You'll recall that when we obtained that authorization in the first quarter, it was a 2-year authorization program. And what we said was we would roughly look to deploy that half and half over the 2 years.
And so that, coupled with what I said previously to the prior question, we've been very transparent in terms of how we're going to operate the program this year, funded sequentially with proceeds from completed loan sales and [ be programmatic ] in the deployment of that share repurchase capability.
So that's part of the reason for the elevated cash balance, but also to your point, we do anticipate needing funding during the peak season, and so we tend to build for that. But other than that, I can't really comment on the programs themselves.
Got it. Okay. A small sort of weird question. The cosign rate seems to dip down in the second quarter every year. Is there something in the nature of second quarter originations? Is it a different borrower type? Is it a different constituency that drives that? Or is it on just seeing randomness in the data?
Yes. I think just if you think about the traditional college cycle and enrollments, it's kind of a fall and spring enrollment cycle, and that's where disbursements are. So by its nature, second quarter is going to be off that cycle. It's going to be -- it's our smallest quarter traditionally of the year. And it's going to be nontraditional types of disbursements during that time period.
Got it. That's what I thought. And then one observation. Anecdotally, Jonathan, schools don't seem to be going later this year.
Please send us your experience. We'd be interested in that. We know some are, but I want to hear about [indiscernible], and I hope your kids are having a great experience.
We'll go next now to John Hecht at Jefferies.
I actually -- my primary questions have been asked and answered, but I am curious as to your perspective on deposit pricing trends and how that might influence net interest margin in the coming quarters?
Yes. Look, we're not a market leader in terms of setting pricing and deposits. And so we monitor that regularly, and we tend to be a follower on sort of posted rates and tend to be kind of in the middle of the pack in terms of rate base deposit gatherers. I will say that coming into this year, some of the market leaders were pretty aggressive in reducing their posted rates and that's backed up a little bit in the second quarter.
So there's some volatility as the sort of overall rate environment has not changed a whole lot. But my expectation is that as we start to get into Fed funds rate cutting that -- the primary posted rates for demand deposits are going to move kind of in lockstep with those rate decreases. And you'll continue to see a modest lag on pricing of term deposits. And depending on the needs of the deposit gatherers, you'll see ebbs and flows in terms of pricing at different tenors in the CD space.
Okay. That's a good answer. And a follow-up is -- excuse me, a follow-up is tied to the cadence of your buyback -- or excuse me, the cadence of your loan sales. I mean I think I went into this year thinking you were going to do a sale in the first quarter and the third quarter.
You've done it in the first 2 quarters. Is there -- how do you I know obviously, market conditions are key, along with originations. But how do you prioritize the timing of the loan sales? Or is there any kind of way for us to think about modeling it going forward?
Yes. I would just say on this year, we definitely took advantage of what we thought was optimal market conditions in the second quarter to execute the second sale. And I appreciate that it's hard to kind of model something that's been very market-driven.
But we're glad to be largely done with our loan sales for this year, given what we think could be an environment of volatility in the second half of the year.
We go next now to John Arfstrom of RBC.
John -- he took a couple of my questions. But for Jon Witter, you mentioned earlier that the faster issues may have caused a small decline in volumes for you in the first 6 months. Any estimate in terms of how much that was as you're thinking without some of these issues, you would be closer to your 7% to 8% expectation.
I think we're largely exactly where we thought we would be for the year. I think we've always said that the growth this year would be a tale of two cities. John, in our business, spring follows, fall, [indiscernible] and follow spring. So the originations we've done this year really follow up of the peak season we had last fall.
I think the chance to pick up share gains to one of the earlier questions and start to get to that higher origination growth was really a peak season phenomena. So something that we would expect to see starting to happen now.
And just while we're dealing with the question, I think we also said in a previous call that as the large competitor exits the market, you should not expect to see all of that share come in 1 year. It won't be 1 big year it will be 2 medium years because we'll do hopefully better this fall. But then next spring, we will follow that again and hopefully do better there.
So I think we're exactly where we thought we would be for the year despite the fact that applications are a little bit below where we expected them to be. And again, incredibly proud of the team for working hard around things like funnel optimization and marketing channel and program optimization to sort of get better pull-through on the applications, we did get. But I think it's really a kind of -- a peak season fall versus spring phenomenon that you're seeing.
Okay. That's good, thanks for the color. And then, Pete, one for you, a cleanup on expenses, the high end versus the low end of the range, is that simply volume driven? Or is there something else to think about there?
Yes. No. It's largely -- our focus is on delivering against the guidance that we've given there. I mean I think to the extent we spend more on marketing. That's a variable that we'll evaluate going into and through the end of peak this year. But largely, we have begun to transition to be more heavily focused on fixed rate exposure, I think some technology, self-service capabilities and the like and less volume of people thrown at the problem type of organization. And so that's why the range is as tight as it is [indiscernible].
And we'll take our final question from [ Juliano Bellona ] at Compass Point.
Congrats on record to see [indiscernible] loan sales exceeded very well. The one thing I was curious about was, obviously, there's a question about how the mix of fixating, I'm curious when you think about that just our higher registration loan yield start to trend a little lower this quarter.
I'm curious if there's any sense of kind of where that should direct at least over the next few quarters and how we should think about the cadence over the next few quarters here?
I think your question, [ label ] fixed versus floating mix on originations. If I got that right.
How to think about -- and also how to think about the yield on the portfolio over the next few quarters. We came down 10 basis points linked quarter. I'm curious if there's anything that drove that specifically? Or if we should expect the yield count to continue to trend a little bit lower here?
Yes. So a couple of points there. One, over the last couple of peak seasons, we have trended to more fixed rate origination versus variable rate of retention, and that has skewed the overall book currently be more fixed rate. our expectation over time is that mix of originations will trend back more to historic norms and come back more 60-40 or 50-50. So in terms of outlook for the future, that would be my point there.
I think in terms of changes in the overall rate this year quarter-to-quarter, the blended rate on the portfolio. That's probably more driven by the impact of the loan sales that we've done during the period because we're taking kind of a slice to book and selling that off. I don't -- I wouldn't read anything more into that than that dynamic.
The portion of the book that is floating rate will reprice as [indiscernible] primarily on a monthly basis. But given the heavy skew towards fixed rate, it's not really going to move all that much quarter-to-quarter.
Ladies and gentlemen, it appears we have no further questions today. Mr. Witter, I'd like to turn things back to you, sir, for any closing comments.
Thanks so much for your help today, and thanks for everyone dialing in and your interest in Sallie Mae. We look forward to talking to you next quarter about the third quarter results. And with that, Melissa, I'm going to turn it back to you for some closing business.
Thank you for your time and questions today. A replay of this call and the presentation will be available on the Investors page at salliemae.com. If you have any further questions, feel free to contact me directly. This concludes today's call.
Thank you, Ms. Bronaugh. Ladies and gentlemen, again, this concludes today's Sallie Mae Second Quarter 2024 Earnings Conference Call and Webcast. Please disconnect your line at this time, and have a wonderful evening. Goodbye. Thanks.