SLM (SLM) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 22, 2026

CALL PARTICIPANTS

• Vice President, Investor Relations - Kate deLacy
• Chief Executive Officer - Jonathan W. Witter
• Executive Vice President and Chief Financial Officer - Peter Graham
• Managing Vice President and Deputy CFO - Melissa Bronaugh

TAKEAWAYS

• Private Education Loan Originations -- $3.4 billion, growing 15% year over year and representing the highest quarterly volume in the company's history.
• Graduate Loan Originations -- $1.4 billion, increasing 119% year over year following investments to serve customers after federal Plus reform.
• Full-Year EPS Guidance -- $1.95 to $2.05, revised downward from $3.10 to $3.20 primarily due to the cancellation of a planned October loan sale.
• Full-Year Net Charge-off Guidance -- $400 million to $420 million, increased from the previous range of $345 million to $385 million due to pressures from third-party debt resolution practices.
• Strategic Partnership Purchase Commitment -- $1.5 billion, representing the minimum annual newly originated loan purchase commitment from new partner Sixth Street.
• Initial Seed Portfolio Sale -- $600 million, consisting of seasoned loans sold to Sixth Street as part of the new three-year strategic partnership.
• Net Interest Income -- $339 million, decreasing from $373 million in the year-ago quarter.
• Other Income -- $46 million, increasing from $32 million in the prior year period driven by recurring program management and servicing fees.
• Net Interest Margin -- 4.85%, representing a 10 basis point increase from the prior quarter.
• Net Charge-offs -- $90 million, increasing year over year due to misaligned third-party debt resolution practices affecting a specific borrower segment.
• Delinquency Rate -- 4.2%, reflecting the percentage of loans in repayment 30 days or more delinquent, up from 4% a year ago.
• Total Allowance for Credit Losses -- 5.89%, improving from 5.93% in the year-ago quarter despite higher charge-off expectations.
• Noninterest Expenses -- $221 million, increasing 22% year over year due to peak season investments and preparations for the changing federal lending environment.
• Quarterly Share Repurchases -- 5.1 million shares, repurchased at an average price of $25.06 for a total of $132 million.
• Year-to-Date Share Repurchases -- 18.1 million shares, representing 9% of total shares outstanding repurchased at an average price of $23.02.
• Weighted Average Life of Deposits -- 37 months, increasing from 23 months at the end of 2025 to better align with the fixed-rate loan portfolio.
• Average FICO Score -- 757, representing the weighted average at approval for new originations during the quarter.
• Cosigner Rate -- 92%, consistent with high credit quality standards for new loan originations.
• October Month-to-Date Disbursements -- 35% increase, reflecting the elongation of the peak season due to federal system challenges and school delays.
• Provision for Credit Losses -- $214 million, primarily reflecting the impacts of significant originations growth during the quarter.
• Liquidity Position -- 15% of total assets, maintaining a solid foundation for sustainable growth.
• Common Equity Tier 1 Capital Ratio -- 11.2%, representing a strong capital position relative to regulatory requirements.
• Total Risk-Based Capital Ratio -- 12.5%, providing a substantial buffer above regulatory thresholds.
• Remaining Share Repurchase Capacity -- $111 million, which management expects to largely exhaust by the end of 2026.

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RISKS

• Witter warned that while the company has seen traction in its recovery strategies, "adoption by customers already in the later stages of delinquency and more fully engaged with these debt resolution providers has been slower than we initially expected," leading to a $20 million increase in the estimated impact of these practices.
• Witter stated, "the likely premium we would receive on any loan in this environment would be below our minimum acceptable threshold," resulting in the cancellation of a previously planned October loan sale due to capital market volatility.

SUMMARY

SLM Corporation (NASDAQ:SLM) reported a significant reduction in its full-year earnings guidance and an increase in projected net charge-offs, primarily driven by a strategic decision to cancel a planned whole loan sale and ongoing pressures from third-party debt resolution providers. Management noted that current capital market volatility has depressed loan sale premiums below acceptable thresholds, prompting the company to retain assets on the balance sheet to capture long-term net interest margin. Despite these headwinds, the company achieved record quarterly originations, specifically in the graduate lending segment, and secured a new multiyear strategic partnership with Sixth Street to further diversify its funding model. Management also executed a restructuring plan on Oct. 1 to optimize operating efficiency and align resources with its long-term growth strategy as it transitions into 2027.

• The 2026 peak season has been elongated by federal rulemaking changes and system challenges, with October disbursements rising 35% year over year as schools catch up on certifications.
• CEO Witter stated, "we have completed a strategic partnership with Sixth Street, for an initial 3-year term," which includes a $600 million initial seed portfolio of seasoned loans.
• Management decided to retain loans on the balance sheet rather than sell at current premiums, as the company can earn a roughly 5% net interest margin over time.
• Management reported that the restructuring charge will be absorbed within the existing 2026 noninterest expense guidance range.
• The company increased the duration of its deposit funding to 37 months to create a more neutral interest rate risk position against its fixed-rate loan portfolio.
• CFO Graham noted that while loan sales were canceled for the fourth quarter, "our base case is we return to an environment that allows for premiums that are above sort of a minimum threshold level" in 2027.
• Early indicators from the company's ENHANCE strategies show higher recovery rates on borrowers affected by third-party resolution practices compared to historically charged-off customers.

INDUSTRY GLOSSARY

• ASR: Accelerated Share Repurchase, a program where a company buys back its shares immediately from an investment bank.
• CET1: Common Equity Tier 1 capital, a primary measure of a bank's fiscal health and capital adequacy.
• FICO: A type of credit score used by lenders to assess a borrower's credit risk.
• GAAP: Generally Accepted Accounting Principles, the standard framework of guidelines for financial accounting.
• NIM: Net Interest Margin, the difference between the interest income generated and the amount of interest paid out to lenders.
• Plus Reform: Changes to federal Parent PLUS and Grad PLUS loan programs that affect the competitive landscape for private student lenders.

Full Conference Call Transcript

Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of our team will be happy to help you. Welcome to the Sallie Mae Third Quarter 26 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the prepared remarks. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press I would now like to turn the call over to Kate deLacy, Vice President, Investor Relations. Please go ahead.

Kate deLacy: Thank you, Leslie. Good evening, and welcome to Sallie Mae's third quarter 26 Earnings Call. It is my pleasure to be here today with Jonathan W. Witter, our CEO Peter Graham, our Co-President and CFO and Melissa Bronaugh, Managing Vice President and Deputy 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 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, Thursday, 10/22/2026. Thank you. And I will now turn the call over to John.

Jonathan W. Witter: Thank you, Kate. Leslie, evening, everyone. Thank you for joining us to discuss Sallie Mae's third quarter 26 results. The third quarter was a strong 1 for Sallie Mae. Reflecting solid operating performance, and continued execution against our strategy. Tonight, we will discuss our results, changes in the market environment how our outlook has evolved and why we remain confident in the long term trajectory of the company. Let me begin with an update on our strategy. Over the last several years, we have been building a more diversified and flexible funding model. Last year, we launched our strategic partnerships business with our inaugural partner KKR, adding a third funding channel alongside our bank balance sheet and whole loan sales.

Tonight, we are pleased to announce that we have completed a strategic partnership with Sixth Street, for an initial 3-year term. Sixth Street has committed to purchase a minimum of $1.5 billion in newly originated private education loans annually with the first year inclusive of an initial seed portfolio of $600 million in seasoned loans. This transaction is substantially similar to our first strategic partnership. We look forward to providing additional detail about our strategic partnerships business in the near future following the completion of the seed sales. Adding a second partner further validates our strategic partnerships model.

Together, our strategic partnerships with KKR and Sixth Street enable growth by expanding our origination capacity, with access to scalable and capital efficient funding makes us less dependent on short term capital market conditions and generates recurring and predictable program management and servicing fees. Our next priority in this area will be developing flow capabilities for our graduate loan products now that we are completing our first peak season following Plus reform. With that strategic context, let me turn to peak season, Loan originations for the third quarter were 3.4 billion representing 15% growth over the year ago quarter and the highest quarterly origination volume in our history.

We are particularly pleased with the growth we have seen in graduate loans. You will remember that we invested significantly in building new products credit programs, marketing strategies, and other capabilities to compete aggressively to serve these customers post Plus reform. In Q3, graduate originations were up 119% year over year, with an average FICO score 9 points higher than the overall average of new origination in the portfolio. This peak season has been elongated. Last minute changes to federal rulemaking, systems challenges and other factors caused school delays in delivering financial aid packages, and the resulting certification process. As a result, peak season activity has continued well into October, and is arguably still underway today.

For October month to date, we have seen a 35% increase in disbursements year over year. We believe that stronger than normal volume will continue into the fourth quarter and that by year end our full year originations will be in line with our guidance of 12% to 14% growth. We have said consistently that this first peak season would afford an important learning opportunity. We now have a more complete view of federal rulemaking, firsthand experience about how both schools and students will respond to the updated federal program and more insight into the actual mix of student loans demanded. We are currently in the early stages of processing and analyzing that data.

And we will surely continue to learn more about the nature of the Plus opportunity. We look forward to sharing our insights with you as appropriate later this fall and continue to be excited about the potential for future originations growth. Let me turn to the existing portfolio. Private education loan net charge offs were $90 million in the third quarter. These results were modestly above our expectation with the increase concentrated within the segment of borrowers affected by the misaligned third party debt resolution practices we have previously discussed. Results within our non affected segment were in line with or slightly better than our expectations.

Furthermore, as you can see on Slide 9 in our earnings presentation, our loan modification program continues to outperform expectations. Let me provide an update on the impacted segment we discussed earlier this year. As previously communicated, we implemented a number of changes to create a more customer aligned recovery approach. We are beginning to see the positive impact of those strategies. For example, using AI, we have reviewed all relevant collection and recovery calls and observed a 50% decline in mentions by borrowers of relevant players and practices during the month to date in October.

While we are pleased with the general performance of these strategies, adoption by customers already in the later stages of delinquency and more fully engaged with these debt resolution providers has been slower than we initially expected. As such, we are now estimating net charge offs for the year will be moderately higher than we believe last quarter. Last quarter, we estimated an approximately $25 million impact of these practices to our 2026 net charge offs driven by a decision to suspend many recovery efforts. At that time, we believe we could absorb the increase into our original guidance range of $345 million to $385 million although likely at the upper end.

We now expect to see modest additional pressure on gross charge off from these customers. Leading us to increase our estimated impact in the year from $25 million to $45 million As such, we are increasing our full year net charge off guidance to $400 million to $420 million with a midpoint $45 million higher than that of our original range. As we have said, we believe that customers who are charging off as a result of these questionable practices have a significantly higher ability to repay than a historically charged off customer. We have started to see our first few recoveries from this population through our ENHANCE strategies.

And while it is a very small sample, we are seeing meaningfully higher recovery rates. Assuming this trend continues, this bodes well for future performance. Peter will now take you through some additional financial highlights of the quarter. Peter?

Peter Graham: Thank you, John. Evening, everyone. For the third quarter of 26, generated $339 million of net interest income and $46 million of other income. Compared with the prior year quarter, net interest income decreased by $34 million while other income increased by $15 million driven by growth in recurring program management fees from our strategic partnership and year over year growth in servicing fee revenue. Net interest margin was 4.85% for the quarter. Up 10 basis points from the prior quarter. While interest rate volatility and higher long term rates created some headwinds during the period, actions that we purposefully and proactively took earlier year helped offset a portion of that pressure.

Specifically, we extended the duration of our funding to better align with the growing proportion of fixed rate loans in our portfolio. Those actions increased the weighted average life of our deposits to 37 months from 23 months at the end of 25. And moved us into a more neutral interest rate risk position. Private education loans delinquent 30 days or more were 4.2% of loans repayment. An increase from 4% in the year ago quarter. Our reserve rate was 5.89% at the end of the quarter. Down 4 basis points from the prior year period. Reflecting disciplined underwriting and ongoing work to optimize loss mitigation strategies. Provision for credit losses was $214 million in the third quarter.

Primarily reflecting the impacts of significant originations growth in the period. Non-interest expenses were $221 million up $40 million from the year ago quarter. The increase was driven largely by investments made to support peak season and position the company for growth in a changing federal student lending environment. At the same time, we have been laser focused on non interest expense management during the year and have been performing better than our original expectations year to date. On October 1, we executed a restructuring plan to better align resources with the company's strategic priorities, improve operating efficiency. Our year to date and expected future outperformance will allow us to absorb these restructuring charges within our full year guidance range.

Without these 1 time expenses, non interest expense would have come in at the low end of the range. But will now be closer to the high end of the range. This restructuring aligns resources to our long term strategy and combined with our continued focus on disciplined expense management should help us return operating expense growth to more normalized levels as we move into 2027. Even recognizing that we expect to achieve continued significant originations growth during that time. We continue to return capital to shareholders during the third quarter.

Repurchasing 5.1 million shares at an average price of $25.06 And since the beginning of the year, we have repurchased 18.1 million shares at an average purchase price of $23.02 representing 9% of the shares outstanding. Finally, our liquidity and capital positions remain solid ended the quarter with liquidity of 15% of total assets, Total risk based capital was 12.5% and common equity Tier 1 capital was 11.2%. We continue to believe in our strategy and the foundation it provides to support sustainable growth and return capital to shareholders. Now turn the call back to John.

Jonathan W. Witter: Thanks, Peter. Let me close with a discussion of recent market trends how they have caused us to change some nearer term plans and the resulting financial outlook. As many of you have undoubtedly tracked over the last month, interest rates have moved significantly higher and capital market conditions have become more volatile and challenging. Consequently, as we both gauge external indications of interest, and ran our own internal valuation models. We came to believe that the likely premium we would receive on any loan in this environment would be below our minimum acceptable threshold. Generally, our strategy has been to engage in regular ways seasoned loan sales only when they represented an attractive economic trade versus our other alternatives.

However, in this instance, we determined that we could create more shareholder value by retaining the loans on our balance sheet and earning at roughly 5% NIM over time rather than selling at the current indicated premium levels. The low cost matched funding of our bank together with the flexibility afforded by our strategic partnerships model creates a distinct strategic advantage. This positioning allows us to remain selective rather than be compelled to pursue actions dictated by market conditions. Given that the markets remain elevated and volatile, at this time, we do not anticipate executing our final loan sale for the year which was previously planned for October.

We appreciate that this could create an in year EPS impact for 2026. However, we have committed to being a disciplined capital allocator and believe this change in plans will drive a meaningfully greater shareholder value creation in the future. it is important to note several things. First, we do not expect this change in loan sale plan to substantially impact our 2026 share buyback activity. We still expect to exhaust most of our current share repurchase authorization before the end of the year. Second, this does not reflect a permanent change to our loan sale program expectations as we see several factors that could potentially allow us to earn above threshold premiums even in a higher for longer future.

While we certainly cannot predict future market conditions, we currently believe that meaningful loan sales will be a part of our 2027 plan and beyond. We have outlined a number of moving pieces that impact our full year outlook. In summary, primarily as a result of our decision not to execute an additional whole loan sale, we are lowering our full year 2026 EPS guidance to $1.95 to $2.05 a share. As mentioned earlier, we are raising our full year net charge off guidance range to $400 million to $420 million We are reaffirming our non interest expense and origination guidance. In conclusion, I know we have given you a lot of information this evening.

So let me try to sum up the key takeaways. First, we continue to be excited about the plus opportunity and believe the investments we have made and performance this quarter position us well for future originations growth. Second, our loss mitigation and credit strategies including loan modifications, are generally performing as intended, if not better, and position us well to manage credit performance going forward. Third, we have been good stewards of our expense dollars in spent wisely in 2026. We expect to land within our non interest expense guidance range for the year even after absorbing onetime restructuring expenses and believe we are set up to return to a more normalized expense growth rate going forward.

And finally, we have built a true strategic advantage in our flexible funding strategy. And are positioned well to maximize shareholder value creation across a variety of macroeconomic environments. We believe all this sets us up for continued growth and long term shareholder value creation into the future. With that, Peter, do not we go ahead and open up the call for some questions?

Operator: Thank you. The floor is now open for questions. To provide optimal sound quality. Our first question comes from Jeffrey Adelson Morgan Stanley. Please go ahead. Your line is now open.

Jeff Adelson: Hey, good morning, guys. Thanks for taking my question. I guess just given the current market environment, obviously, not why you are taking the EPS guide down. Can you just help us understand how much of a whole loan sale you were thinking originally was going to be in this year, in the back half of the year?

And I know it is so early and you have not put it out yet, but can you maybe help everyone understand how you are thinking about 2027 in terms of early indications of guidance Should we be assuming you do another similar pace of whole loan sales next year on top of you know, partnerships, Are you including any plans for a third partnership to be announced? And just I think everyone would appreciate a better sense of what 2027 looks like. And should we look at the investor forum path as maybe some sort of indication of how you are thinking about that?

Peter Graham: Yes? Thanks for the question. there is a lot in there. So I will maybe take it in stages. I think context of the size of the loan sale, you will recall when we pulled forward earlier in the year, pulled forward into the $2 billion loan sale to take advantage of market dislocation and launch the ASR. We said kind of on balance, we felt like that would add roughly $1 billion to our total loan sale sort of plan for the year.

So it is in sort of that kind of a zip code The other thing that always goes into the factor of the size of our loan sales in any given year is sort of the equation of the level of originations coupled with our commitments to partners and the balancing feature our bank's balance sheet. And we came into this year thinking we would likely be flat balance sheet to slightly down. And we aspire to add a second partner, which John announced earlier on the call. So I think in the context of sizing kind of in that 1 billion dollars range is probably the right way to think about that.

The second part of your question really was around like what does this mean for the future. I think again we feel like the current environment is sort of a temporary thing as in any given quarter there can be conditions in the market that make it suboptimal execute a whole loan sale. We think we are in that kind a situation now with sort of peak rates, high degree of volatility in terms of near term outlook. And we believe that will stabilize as we go into as we go into next year.

In the context of what does that mean for next year, I think our base case is we return to an environment that allows for premiums that are above sort of a minimum threshold level And in that type of scenario, we are probably looking at flat balance sheet to maybe single digit growth of the balance sheet. Will meet our commitments to partners which we have now added a second significant flow commitment from Sixth Street that we need to think about as we plan for funding of our originations profile. And then we will use the loan sales as we always do to sort of manage capital and create capital for return to shareholders.

At the same time managing the rate of growth of our balance sheet.

Jeff Adelson: Okay. Thank you. And if I could just follow-up on the net charge off guidance I appreciate the color around the third party issue you to see modest additional pressure on gross charge offs. I think you cited an increase of about a $20 million impact there from $25 million to $45 million but then you took the full year guide up at the midpoint by 45 million So could you help us understand maybe where the rest of that $45 million I think it is $25 million difference is coming from if it is not the third party issue?

Peter Graham: Yes, Jeffrey. We tried to lay that out as clearly as we could. For you. I think when we had originally updated guidance back in the second quarter, it was really in reflection of sort of the $25 million estimate that we had put out largely through sort of pausing of certain recovery efforts And I think what we said at that time is we thought we could cover that within our original but it would be at the higher end. And so that would have took us up closer to that higher end of the initial range.

And I think as we went ahead and reset guidance, we felt like it was appropriate with the additional $20 million just to reset that. Midpoint to midpoint. So I do not think there is anything else in what you are asking about. I think it is just a reflection of last quarter, up believing we can stay in the range, albeit at the high end, and us now sort of recognizing that we have crept out of that and feeling like we should sort of reset it in a more traditional way.

Jeff Adelson: Got it. Okay. Great. For taking my question.

Jonathan W. Witter: Oh, sorry, I was just going to say, to be clear, it is all related to this third party issue. that is right.

Operator: Thank you. Our next question comes from Sanjay Sakhrani with KBW. Please go ahead. Your line is now open.

Sanjay Sakhrani: Appreciate you guys doing what is right in terms of the loan sales. I guess, as we think about what an acceptable rate would be, can that can that happen, like, if rates are still in flux as we get out to next year? And I am just curious how much capacity do you guys have to balance sheet loans into next year in terms of the equity?

Peter Graham: Yes? Thanks for the question, Sanjay. I think if you think about even in higher for longer scenario, which there were some recent articles around that, and surveys of economists even in those sort of longer term outlooks, they had the 10 year treasury at a lower point in the second half of next year than where it currently sits. We do not obviously price off a 10 year treasury. But I think that is an indication that even in kind of like the most bear case scenario for loan sales, they will be relieved from here. I think there is more to it than just interest rates, although that is certainly a piece of it.

I think there is also the aspect of just sort uncertainty about where we are going from here. And the fact that in the current environment also, there is a lot of other activity in the ABS space and sort of pulling investor demand into higher yielding product, think about all the AVF that is funding the AI trades this point. So again, I think there is a lot of things unique to this quarter that create that the market conditions that we feel is generally appropriate. But I do not think that is a permanent thing. We see a path to that being a more stable environment for us going to next year.

Sanjay Sakhrani: Okay. And just to be clear, Peter, just on the capacity that you have to grow, like would you have to pull down like originations if given the capital levels? Or how much flexibility do you have on to sort of 'aid that growth if you have to balance sheet it? Is that.

Peter Graham: Yeah. I think the balance the balance sheet is in great shape. Again, the capital buffers that we carry to sort of all the regulatory thresholds or are pretty substantial. I think that the addition of a second partner here gives us some additional sort of funding capacity in terms of flow originations. As John sort of said in his prepared remarks, next thing we are working on we have already started dialogue around it, is additional flow capacity for graduate originations. So I think the building of capacity there gives us a an additional lever in addition to growing the balance sheet.

Operator: Our next question is from Terry Ma with Barclays. Please go ahead. Your line is now open.

Terry Ma: Hey, thank you. Good evening. I guess, I just want to make sure I have the right pieces to the revised EPS guide. Can you just confirm whether or not the gain on sale from that second partnership is included in this guide? Or is that a first quarter 37 And then like obviously, credit costs are factored into the revised EPS guide. But any sense you can kind of give us on how long that third party collection issue should kind of impact credit costs? Is there anything else you can do to kind of help ring fence the issue? Yes?

Jonathan W. Witter: Terry, let me start with the third party debt collection issue, and then I will turn it over to Peter to talk a little bit more about your guide question. Look, I think it is obviously a little bit hard to say with certainty how long that matter is going to last. Because unlike things like pure credit trends, there are active players sort of industry participants on the other side, and they may change their strategies, they may change their approaches. And we will obviously have to adapt With that said, I think we are really pleased with what we are seeing so far.

We have as I said in my prepared notes, we have put in place actions that we think are really forceful and effective actions. We think they create a much more aligned structure with our customers and help us address the situation. We are seeing really positive early indicators of success of those actions in our operational data. I think I mentioned on my prepared remarks sort of the volume reduction we are seeing in our call listening But there are others that I will not go into for a variety of reasons that I think give us confidence that this is starting to get real traction.

By the way, anecdotally, I think we are starting to see some change in behavior, positive change in behavior on the part of some of these players in a way that is constructive and supportive And I think all of that leads us to believe that absent some material change in sort of their strategic posture that we are on the downward slope of this. I would be hesitant to sort of put out there an exact number and exact timing of it. But I certainly think we expect next year's impact to be meaningfully less than what we saw this year.

Peter Graham: And I think the other thing I would add there is the recovery profile of these borrowers, as John said, is much different than our normal charge offs. And so that is going to be additive to the recovery curve as we move into next year. Yes? Great point, Peter. The second part of your question was around whether our updated guidance range included the gain on sale from the second strategic partnership with Sixth Street. Yes, that is included in our guidance for this year.

Terry Ma: Got it. Okay. that is helpful. And then maybe just on the restructuring, help us maybe reconcile like almost a year ago and early this year, you guys indicated incremental investment dollars to address the Grad PLUS opportunity. So, very optimistic around that. Now you are kind of restructuring, kind of shrinking. Like maybe just help us that and just confirm that you still view the TAM expansion as a real opportunity. Thank you.

Jonathan W. Witter: Yes? Terry, we absolutely still see the TAM expansion as a real opportunity. And I think in the numbers that Peter described, was an expectation of continued in things like marketing and probably at a lower pace, still some product system and capability enhancements going into next year. But I encourage you to go back and look at our OpEx trajectory over the last 5 or 7 years. I think we have managed that really, really well in terms of annual growth.

Been a source of sort of pride for us Obviously, we felt it was important last year to get out in front of this opportunity, both from a capability perspective, but also a marketing spend effectiveness or a marketing spend perspective I think we did that. I think you see the results of that in our peak season volumes. But that was never the end of the game for us. We know we have a business that we can continue to refine and optimize. We know we have the ability to continue to find efficiencies in what we do every day.

And we knew as we continue to build and evolve our strategy, there were resources that maybe did not fit as much going forward with our new priorities as they did with our previous priorities. So we do a certain amount of this, Terry, every year. I think this year, for a variety of reasons, ended up being a bit more consequential than what we have seen in the past. But we think it sort of demonstrates our commitment to being great stewards of our expense budget. And we also think it gives us what we need to continue to invest in growth going forward.

Terry Ma: Got it. Thank you.

Operator: Thank you. Our next question comes from Donald Fendetti with Wells Fargo. Please go ahead.

Donald Fandetti: Hi. Can you talk a little bit about your near term NIM expectations? It looked like the broker deposit rate went up a good bit this quarter. We have heard some competitors talk about just more competition for deposits If you could just dig in a little bit on that.

Peter Graham: Yes, sure. I think in the discussion of NIM, I think it is important to sort of reflect on what is changed in our environment over the course of this year. And how that impacts NIM. So 1 of the big drivers on NIM this year was the fact that we pulled forward that big loan sale in the first quarter. We were carrying a lot of excess liquidity in the time period in the year when we have very low originations. And that caused us to have sort of a dramatic low point for NIM in the second quarter.

And at that time, we said our expectation was that as we funded peak season originations that would draw that down and reach a bit of some normalization. So that is the biggest factor on NIM in the current year. I think at the margins, some of the extension of our duration in the portfolio certainly has somewhat of an impact. But I feel good about that, right? Like we came into the year off of a peak season last year that had been very heavily focused on fixed rate originations. And so we needed to make sure that we match the duration of that profile accordingly.

And so we extended duration on our deposits over the course of the first half of the year roughly to close down the interest rate exposure that we had to rise in interest rates. And I feel pretty good about the timing of when we did that. In the context of overall market volatility.

Donald Fandetti: Got it. I guess my follow-up, just wanted to clarify, I think on the new fund, there is like a seed fees and loan sale of 600 million When would that take place? And would those have kind of good historical margins? And then if you can just talk, I saw there was like $1.4 billion moved to for sale. Just yes.

Peter Graham: So a portion of the seed portfolio closed just at the end of the quarter. The remainder will close in the early part of the fourth quarter. In the context of the held for sale portfolio, keep in mind that there will be the sort of regular commitments to the forward flow under the KKR deal. In addition to these new held for sale associated with seed portfolio.

Donald Fandetti: Okay, thanks.

Operator: Our next question comes from Rick Shane with JPMorgan.

Richard Shane: Hey, I need to get my questions in before Donald because he asked much what I wanted to focus on. But I just want to make sure we understand 1 thing. The held for sale portfolio is substantially larger than it is been. Some of that has to do with the 6th Street. Transfer. Some of that has to do with the KKR flow. But I am wondering if there is a timing issue here You guys thought you were going to sell loans in the fourth quarter. Presumably, you have to sort of assume that you did not know that on September 30.

Is there going to be some migration from the, held for sale or the available for sale portfolio to held for investment in the fourth quarter? And what are the implications of that?

Peter Graham: Thanks for the for the question, Rick. I think the thing to keep in mind about the flow agreements, they have got an overall commitment for the year. But because of the seasonality in our business, it is not a ratable amount each month or each quarter. And so they will fluctuate according to the seasonality of our originations. Obviously, third quarter, we just had, as John said on the call, the highest originations in our company's history, and that is the driver of why that held for sale number is bigger at the end of the third quarter.

Richard Shane: Got it. So it does not have anything to do with deciding not to do a traditional non flow sale and some weird timing issue there?

Peter Graham: Not at all. Not at all.

Richard Shane: Okay. Got it. I appreciate the answers, Thank you very much.

Operator: Thank you. Our next question comes from Giuliano Bologna with Compass Point. Please go ahead. Your line is open.

Giuliano Bologna: Maybe hopefully not going over too much that is already been asked. But when I look at that, the call it, the large kind of held for sale portfolio, is it your expectation that you would complete the sale of a large portion of that or the majority of that portfolio in the fourth quarter? Or will a chunk of that leak into next year? Then kind of related to that, thinking about the seeding portfolio, has that all been moved to held for sale already? Or is there more that would be moved to held for sale in the fourth quarter and have some reserve reversals? Yes?

Peter Graham: Let me take that question in 2 parts. With regard to sort of the mechanics of how our flow portfolio transactions work. We generally will make sales from our bank into our warehouse on a monthly basis and then generally have a takeout sale to the partner in the subsequent month and after the quarter. And so the held for sale at the end of the third quarter will clear out when we make those sales to the to KKR in this case. For the third quarter. Additionally in that held for sale is $600 million of seasoned seed portfolio. A portion of that closed in the third quarter and the remainder of that will close in the fourth quarter.

So hopefully that gives you the answer to that. With regard to the portfolio sale that we had planned that we discussed that we were not going to move forward with. Had not gone through a process of selecting a portfolio yet. We typically will gauge indication of interest in the market by getting sort of indicative bids from time to time and that helps us gauge where we think a loan process might come out. But we have not gone through a process of selecting a portfolio which would be a pre prerequisite for us putting anything into a different designation of the health for investment.

Giuliano Bologna: that is helpful. And then as a side follow-up, I think the way that most history in Demolio seems like kind of what was implied was about a 2% gain on sale upfront. For the strategic partnership sales. And you guys kind of come through that low single digits in the 10 Q. When I think about that, the large held for sale book is that still the right range to use in the 2% range? Or would that come down a little bit?

Peter Graham: The 2% ballpark? The disclosures in the Q would be in 2 parts. 1 would be we have 1 disclosure of fair value, which is our broad sort of evaluation of our total portfolio. And then we have a separate valuation on the held for sale. And that is a combination of both the flow commitments KKR that is in warehouse as well as the $600 million of seed portfolio. it is a combination of both.

Giuliano Bologna: And so I guess roughly, we can use, call it, $1.44 billion of loans held for sale at the end of September. 2030 or September 30. We should expect the full gain on sale for the forward flow to be realized in the fourth quarter on that chunk of the portfolio?

Peter Graham: Correct.

Giuliano Bologna: Got it. that is very helpful. Thank you. And I will come back in queue.

Operator: Thank you. This concludes the Q&A portion of today's call. I would now like to turn the floor over to Mr. John Witter for closing remarks.

Jonathan W. Witter: Thank you, everyone, for your time and engagement this evening. I know we have given you a lot of information to work through in understanding our Q3 performance and outlook. In its simplest form, we are excited about the origination growth opportunity ahead of us We are pleased with the performance of our various loss mitigation programs and we believe we are managing expenses well. We are grateful for the strategic flexibility and the competitive advantage of having a well capitalized deposit funded bank now complemented through our emerging strategic partnerships business. We are building a more resilient, predictable and profitable Sally Mae.

While we would prefer a different macroeconomic environment, Times like this demonstrate the power of our franchise the strength of our strategy, and the quality of our execution. Sallie Mae's Investor Relations team is standing by to handle your more detailed questions. With that, I will turn the call over to Kate for some concluding business.

Kate deLacy: Thanks, John. Thank you all 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.

Operator: Thank you. This concludes today's Sallie Mae Third Quarter 26 Earnings Conference Call and Webcast. Please disconnect your lines at this time and have a wonderful evening.

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