Good afternoon, everyone. Cruising into the end of the day. I wanna thank Steve McGarry from Sallie Mae for being here today and hanging with us to the end. I know you've had some meetings today and talked through a lot of the issues and questions. Let's just do this. I think people generally know what Sallie Mae is, but just for those of you that may not, and I still get questions on what exactly your role is, you know, when you get into understanding the industry and forgiveness and things like that, just give us a quick overview of what Sallie Mae is all about. Sure. Happy to, John. First of all, thanks for having us at your conference. We have had a lot of productive meetings and expect to have a few more today before we wrap the day up. Sallie Mae is the largest private student lender in the industry. We first started making private student loans back in the late 1990s. We, of course, spun out of OldCo in April of 2014. We are primarily a bank. Sallie Mae Bank is an ILC-chartered in the state of Utah. Back to our main mission. Our mission is to help students and their families pay for a college degree. Private student loans comprise a very minor component of the total spend on higher education, which does total in the $450 billion vicinity. To put total private loan originations into perspective, there's probably about $14 billion of private student loans originated year in and year out. They are a very important component of the gap funding. We boast a market share in the mid-50% vicinity. We've had a pretty stable market share year in and year out. At that level, it's difficult to grow it in a meaningful fashion, but we're very happy with the success that we have. We have the largest sales force in the industry that basically covers financial aid offices that we think contributes about 2/3 of our volume of our annual origination volume. In addition to our sales force, we, of course, are out there doing digital marketing, paid search, social media, et cetera. That is where our competitors and new entrants into the marketplace attempt to make their inroads. It is at a third of our production, obviously a very core component of our operation as well. Long and short of it is we are 80% deposit-funded. We rely on the asset-backed securitization market for the remaining 20% of our funding. We are in the market right now, marketing and pricing a funding securitization. I think in a nutshell, John, that's pretty much Sallie Mae 101. Forgot to mention anything by all means. I think it's good. Yeah. I mean, there's plenty of other stuff to talk about, but you mentioned the securitization. Talk about the decision on that and how that's generally going. Sure. Look, we have a relatively long-term asset with a weighted average life in the five-year vicinity. The deposit market is very strong out to two and three years, we like to fund our portfolio conservatively. Issuing asset-backed funding allows us to really extend the duration of our funding by issuing essentially life of loan funding. In addition to that is a very good source of long-term fixed rate funding for our fixed rate loan portfolio, which is becoming more and more popular with borrowers, obviously in this interest rate environment. The asset-backed funding market has been very favorable. Receptive to us and helps us lock in the type of net interest margin that we have on the portfolio. To put a point on that, the NIM in 2022 was 5.3%. Rising interest rate environment, we were able to increase our NIM 50 basis points from the prior year. We expect it to remain in the low five percentage area going forward. Okay, good. My Sallie Mae loan when I was a youngster, a young man, the duration was about three years. The coupon book, and I would tear it out and mail it in. There you go. ... right on top of what you're saying. Very good. Yeah, yeah. Thank you for paying that loan off. Yeah, you're welcome. welcome. You're welcome. It was a long time ago. You, you touched on the margin. Let's just big picture go over what you're expecting for the year, then you filed a recent update in terms of some expectations. Talk a little bit about that, if you would. Sure. I think what you're referring to is we provided an update in a slide that we filed this morning on our credit performance. Our credit performance has been a very hot topic for all of the obvious reasons. I think it's fair to say that we disappointed investors in the fourth quarter with our credit performance. There have been several what I like to consider to be transitory impacts to our credit performance, and to put a point on it, in the fourth quarter, our default rate came in at 3.15% versus 2.55% for the full year. We have been working very diligently in order to improve the performance of our portfolio, namely by focusing on our collection techniques and operation. I was very pleased to report a month ago that the January performance was really the best in a year in terms of default roll rates from the last delinquency bucket to default. We beat our expectations pretty significantly. One month does not a trend make. I think we can all agree, we followed that up with a performance in the month of February that exceeded the expectations that we have built into our guidance for the year. The annualized default rate for the months of January and February came in at 2.17%. That is fully 100 basis points improvement over where we were in the fourth quarter. Obviously, the room for improvement is the biggest room in the world, I heard once upon a time. We are very happy to continue to see improvement. I think the good news is that we are set up very well to have a good month in the month of March. The first quarter should turn out to be favorable relatively to the underperformance that we put up in the fourth quarter. What we saw in the February collection activity is that rolls. We had pretty strong resolution in the midterm buckets, so we are set up well for collections and default prevention in the third month of the quarter. Mm-hmm. We're very pleased about that. Anything you'd attribute the aberrations to? We've talked about it a little bit, but as you look back, anything you would attribute it to? Look, I discussed this at great length with investors. We only have 21 minutes left, I'll try and do a quick job of this. Yeah. What happened, long story, hopefully short, is in 2020 and 2021, as we all recall, consumer assets were performing very well. What we see in our collection centers is, there's very high turnover. Mm-hmm. As collectors left in 20 and 21, we did not replace them. As we now all know, the beginning of 2022 brought with it a much different world from a macroeconomic standpoint. We saw interest rates start to rise. We also saw inflationary pressures start to impact borrowers. At the same time, we had a change in forbearance practices that we introduced in the beginning of December of 2021. We also had a population of loans that we kept in a grace period when they dropped out of school during the pandemic. Mm-hmm. As we were just joking, people forget about the pandemic. Right. It seems like a long time ago. What we were seeing were high dropout rates, and we thought it was in the best interest of our borrowers to keep them in a grace status, assuming they were going to return to school. When they did not, we put them into full principal and interest repayment, again in the beginning of December of 2021. Now we have a change in collection practices and a portfolio that is about to roll into the delinquency buckets, and we found ourselves, unfortunately, in an understaffed position. Mm-hmm. It took us the better part of 2022 to not only recruit and staff our collection centers, but also to get them trained up to use the new tools that they had at their disposal to help borrowers that were having a challenging time making their payments. It all kind of peaked in the fourth quarter, and we feel very good now, and we have evidence that is showing that we have, I think, gotten our operation back on the right track. Mm-hmm. Okay. Recent results indicate that. Recent results certainly support that, assertion, yes. Okay. How do you feel about CECL and the conservatism, and you feel like you've built in, you know, a worsening scenario, and how comfortable are you with the current levels of your reserves? CECL has been very impacted to Sallie Mae. We have a long-term asset class that has, you know, life-of-loan loss expectations. In the 10% vicinity. In fact, we put a chart out showing expected life of loan default rates by origination cohorts a month ago. Please take a look at that if you want to see the magnitude of what we're talking about. The long story short is we were required to move $1 billion from our equity account up to our loan loss reserve account, where we do not get any regulatory credit for a significant amount of loan loss allowance in our regulatory capital ratios. It's been very impactful to our capital accounts and obviously, building and documenting a CECL reserve requires exhaustive documentation and is a very requiring practice. We now have, believe it or not, a 6.3% allowance for loan loss that covers all of our private student loan exposure. At the end of the year, we built a allowance for loan loss reserve that expected very little improvement in our default performance in 2023, moderate improvement in 2024, and then a little bit more meaningful improvement in 2025 and beyond. To put numbers on it, we expected 10% improvement in 2023, another 20% improvement in 2024, and then an additional 30% improvement in 2025 and beyond. We now have a loan loss reserve that is built to expect very little improvement in our default performance. So far at the beginning of the year, we are starting to see some meaningful improvement. Okay, great. Yeah, I think I mentioned this before, but I have three kids in college and things were very abnormal and it feels like we're slowly moving back towards normal for you. Is that fair? I think that's right. Again, we made a decision to keep students that dropped out during the pandemic in grace. We have now put those borrowers back into full PNI. That cohort of loans and we disclosed that there were $59 million of defaults in 2022 associated with that portfolio. That portfolio is now performing very much like any other dropout cohort that came before it. We feel like that incident is certainly in our rearview mirror. In terms of enrollment and loan originations, we think very much students are back on campus. They are back seeking a higher education. You may recall that we saw an actual decline in originations in 2020. Small improvement in 2021. We had very strong loan originations in 2022, 10% loan growth. We had our strongest January, which is a very key period for, you know, the spring semester. Our loan originations in January were the strongest ever. That's a, you know, very important month for our loan origination process, which is very seasonal. We think, you know, kids are back. They realize the value of a higher education despite the significant amount of media that you see that suggests otherwise. We think our business is back on track. Very much so. You've stuck with this 5%- 6% origination growth for 2023. You still feel good about that? Yes. We very much feel good about the guidance that we provided. Forgiveness is a topic. Federal loan forgiveness. plus or minus any real impact in your mind if we get some forgiveness or we don't get forgiveness, how does that impact you? Sure. Let's talk about that. I don't have a view on what the Supreme Court may or may not decide to do with loan forgiveness. Obviously, to the extent that our borrowers, we encourage our borrowers to take free money first, federal money second, for all the obvious reasons. The subsidized interest rate is very attractive and the programs that come with federal loans are very beneficial to borrowers, and we recommend that they take a private student loan as their last option. Most of our borrowers have federal loans in front of our private student loan. The exposure varies depending upon whether the borrower is a dependent or an independent student. We think all very manageable to the extent that loan forgiveness to the magnitude of $20,000 occurs. That would be favorable to our borrowers, certainly. What we do think is going to happen is the student loan payment moratorium will end as scheduled, I think June 30th of this year. What we think is also going to occur is that the income-based repayment programs are going to be liberalized further. If you're not familiar with the income-based repayment programs, they are offered by the federal government. Two key proposals to consider is one is a recommendation that if a borrower has 200 income that is equal to 225% of the federal poverty level, their proposed payment on the federal loan program is zero. The second proposal is to take the percentage of any borrower's disposable income down to 5% of their calculated disposable income. to a certain extent, these proposals are very liberal and I think take a lot of sting out of the fact that the student loan payment moratorium is gonna come to an end and loan forgiveness not, might not be enacted. We look at our portfolio, we conclude that there will certainly be a marginal impact on it from the end of the student loan moratorium. We do not think it is going to be meaningful, and we base that on history. Our borrowers have always had federal student loans and have been able to manage the payments on all of their loan exposures. We also think that during the pandemic, the higher income earners, which by and large, meets the definition of our borrowers and cosigners, have actually repaired their balance sheet and still have excess savings. I know that lower income individuals, which typically are not our borrowers, have started to use consumer debt at a pre-pandemic clip and have worked through a lot of their excess savings, but that does not typically represent the borrowers that we have underwritten. We feel pretty good about how things will turn out in the event of the restarting of the ending of the payment holiday. Mm-hmm. no loan forgiveness or loan forgiveness. Yeah. obviously you've thought through this in terms of your reserve building. Absolutely. Yeah. Okay. Balance sheet optimization in nine minutes and 11 seconds. Balance sheet optimization. Look, we are on record as having $3 billion of loan sales in our guidance. We are doing a securitization right now as we speak, which is going to show tightening in spreads. I had the good fortune to go out to Las Vegas to the Secured Finance Conference a week ago, and I met with both ordinary asset-backed buyers as well as whole loan buyers and residual buyers. I can tell you that the demand for our product is probably better than it's ever been. I remain confident that we are going to be able to execute a loan sale along the premium lines that we factored into our EPS guidance. I would remind investors that, in addition to the premium that we earn on the sale, we are also releasing this oversized CECL reserve through our income statement and freeing up somewhere along the lines of 14% capital to use to do share repurchases. The whole purpose of selling loans is to generate capital to return to our shareholders, principally in the form of a share buyback. Our stock price is obviously continuing to trade at what we believe to be a discounted value. The share repurchase stock buyback arbitrage is very much alive and well in our mindset. Mm-hmm. We will, we'll complete our funding, securitization, and then we plan on running a process to execute a loan sale. My goal would be able to be in a position to not necessarily close that loan sale by the time we release earnings, but certainly to share with investors A, whether or not we completed that loan sale, and B, at a high level, the zip code of the premium that we've earned on that loan sale. A lot of wood to chop between now- Yeah. Late April, but that is certainly the plan. The message is from your securitization visits, there's still a high level of demand for your product. Definitely a high level of demand for the student loan asset class, and lots and lots of portfolios out there that are interested in acquiring consumer assets, 100%. Okay. Post, balance sheet optimization strategy. Who knows when this will run out? Because you've talked about as long as the calculus works, you'll still do it. What does the company look like? What is the financial model in your mind? John, that's a great question, and I am glad that you asked it. I mentioned earlier that CECL took $1 billion out of the equity line, put it up into the loan loss reserve line. Through January of 2025, we are making down payments on the way we calculate our regulatory capital levels to bring that into line. Post CECL phase-in, the company could grow its balance sheet at a very nice clip and generate organic earnings growth without needing to sell loans that, given the high ROE on our product, would enable us to generate capital to return to shareholders organically. I think the company post-CECL phase-in has very attractive EPS growth prospects. Mm-hmm. At some point, hopefully in 2023, we will conduct an investor day and share directly with investors what we think those growth prospects might look like. That'd be great. I think that'd be welcome. Yeah. Absolutely. You've obviously been around the company for a while. Today, what is the most misunderstood piece of the story in your view? I mean, it's a very good question. I think that, you know, shareholders love the loan sale, buyback arbitrage. We have assigned a, you know, lower multiple to the low-quality earnings that we generate from the loan sales. Net-net, we have bought back 44% of the common stock that was outstanding just two years ago. That's amazing. I think what's probably not understood is what we were just talking about, and that is, the power of the earnings growth that this company can generate when we have the CECL phase-in behind us, and we can start to grow our balance sheet organically. Okay. Any last questions for Steve? Well, Steve, I was a little nervous about, if I didn't perform on this, you know, venue, you wouldn't come back next year, but you're retiring at the end of February, so I don't have to worry about it. No, you don't. I wanted to say congratulations on your retirement. You've been most helpful to us. Thank you very much. Thank you for everything. You won't get rid of me just yet. I think I'm very much gonna be part of the mix for the next six or seven months anyway. Okay, good. Thank you, Steve. We appreciate it.