SLM Q3 2026 Earnings Results & Report

SLM EPS Results

• Actual EPS: -$0.19
• Consensus EPS: $0.1705
• Beat/Miss: Missed by -$0.3605
• One Year Ago EPS: $0.63
• EPS Beat Rate: 3 of last 8 quarters

SLM Revenue Results

• Actual Revenue: $375.47 million
• Expected Revenue: $453.34 million
• Beat/Miss: Missed by -$77.87 million
• YoY Revenue Growth: -31.30%

SLM (NASDAQ:SLM), commonly known as Sallie Mae, is a U.S.-based education finance company. Through Sallie Mae Bank, it primarily provides private student loans to undergraduate and graduate students, as well as loans for career training and other education-related expenses.

The company also offers consumer banking products, including savings accounts and certificates of deposit. Its services include supporting borrowers through loan application, repayment and customer service processes.

Founded in 1972 as the Student Loan Marketing Association, the organization was later privatized and became known as Sallie Mae. SLM’s lending and banking operations serve customers in the United States.

SLM Q3 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Record originations and new funding partnership: Third-quarter loan originations rose 15% year over year to a company-record $3.4 billion, while graduate loan originations increased 119%. Sallie Mae also announced a three-year Sixth Street partnership, including at least $1.5 billion of annual private education loan purchases and a $600 million seasoned-loan portfolio.
• Negative Sentiment: Higher credit losses: The company raised its 2026 net charge-off guidance to $400 million-$420 million from $345 million-$385 million, primarily due to continued losses associated with certain third-party debt-resolution practices. Management said affected borrowers may have higher repayment capacity and early recovery results are encouraging, but adoption of its revised approach has been slower than expected.
• Negative Sentiment: EPS guidance reduced: Sallie Mae does not expect to complete its previously planned October whole-loan sale because current market premiums are below its minimum acceptable threshold. Retaining the loans is expected to create greater long-term value, but the decision lowered 2026 EPS guidance to $1.95-$2.05 per share.
• Positive Sentiment: Capital return and funding flexibility remain strong: The company repurchased 18.1 million shares, or 9% of shares outstanding, through the first nine months and expects to use most of its remaining authorization by year-end. Management also highlighted solid liquidity and capital ratios, as well as strategic partnerships that reduce reliance on volatile loan-sale markets.
• Neutral Sentiment: Restructuring to moderate expense growth: Sallie Mae implemented a restructuring plan to align resources with its growth priorities and improve efficiency. One-time charges are expected to push 2026 non-interest expenses toward the high end of guidance, although management expects more normalized expense growth in 2027 while continuing to invest in graduate lending.

Presentation

[Operator]

I would now like to turn the call over to Kate deLacy, Vice President, Investor Relations. Please go ahead.

[Kate deLacy, VP of Investor Relations at Sallie Mae]

Thank you, Leslie. Good evening, and welcome to Sallie Mae's Third Quarter 2026 Earnings Call. It is my pleasure to be here today with Jon Witter, our CEO, Pete Graham, our Co-President and CFO, and Melissa Bernot, 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.

[Kate deLacy, VP of Investor Relations at Sallie Mae]

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, October 22nd, 2026. Thank you, and I'll now turn the call over to Jon.

[Jon Witter, CEO at Sallie Mae]

Thank you, Kate and Leslie. Good evening, everyone. Thank you for joining us to discuss Sallie Mae's third quarter 2026 results. The third quarter was a strong one for Sallie Mae, reflecting solid operating performance and continued execution against our strategy. Tonight, we'll 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 three-year term.

[Jon Witter, CEO at Sallie Mae]

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 details 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 capability for our graduate loan products now that we are completing our first peak season following PLUS reform.

[Jon Witter, CEO at Sallie Mae]

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 nine 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.

[Jon Witter, CEO at Sallie Mae]

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%-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, first-hand 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 will surely continue to learn more about the nature of the PLUS opportunity.

[Jon Witter, CEO at Sallie Mae]

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 nine 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.

[Jon Witter, CEO at Sallie Mae]

For example, using AI, we've 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 believed 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 believed we could absorb the increase into our original guidance range of $345 million to $385 million, although likely at the upper end.

[Jon Witter, CEO at Sallie Mae]

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

[Pete Graham, Co-President and CFO at Sallie Mae]

Thank you, Jon. Good evening, everyone. For the third quarter of 2026, we 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 this 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.

[Pete Graham, Co-President and CFO at Sallie Mae]

Those actions increased the weighted average life of our deposits to 37 months from 23 months at the end of 2025 and moved us into a more neutral interest rate risk position. Private education loans delinquent 30 days or more were 4.2% of loans in repayment, an increase from 4% in the year-ago quarter. Our reserve rate was 5.89% at the end of the quarter, down four 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.

[Pete Graham, Co-President and CFO at Sallie Mae]

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 1st, we executed a restructuring plan to better align resources with the company's strategic priorities and 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 one-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 OpEx growth to more normalized levels as we move into 2027, even recognizing that we expect to achieve continued significant originations growth during that time.

[Pete Graham, Co-President and CFO at Sallie Mae]

We continued to return capital to shareholders during the third quarter, repurchasing 5.1 million shares at an average price of $25.69. 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. We ended the quarter with liquidity of 15% of total assets. Total risk-based capital was 12.5%, and common equity tier one 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. I will now turn the call back to Jon.

[Jon Witter, CEO at Sallie Mae]

Thanks, Pete. Let me close with a discussion of recent market trends and 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 gauged 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 sale in this environment would be below our minimum acceptable threshold. Generally, our strategy has been to engage in regular way seasoned loan sales only when they represented an attractive economic trade versus our other alternatives.

[Jon Witter, CEO at Sallie Mae]

However, in this instance, we determined that we could create more shareholder value by retaining the loans on our balance sheet and earning a 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.

[Jon Witter, CEO at Sallie Mae]

It's important to note several things. First, we do not expect this change in loan sale plans 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 plans and beyond. We've 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-$2.05 a share.

[Jon Witter, CEO at Sallie Mae]

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've 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've been good stewards of our expense dollars and spent wisely in 2026.

[Jon Witter, CEO at Sallie Mae]

We expect to land within our non-interest expense guidance range for the year, even after absorbing one-time restructuring expenses, and believe we are set up to return to a more normalized expense growth rate going forward. 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, Pete, why don't we go ahead and open up the call for some questions?

[Operator]

Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask you pick up your handset when posing your questions to provide optimal sound quality. Our first question comes from Jeff Adelson, Morgan Stanley. Please go ahead. Your line is now open.

[Jeff Adelson, Analyst at Morgan Stanley]

Hey, good morning, guys. Thanks for taking my question. I guess just given the current market environment, obviously that's why you're 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? I know it's early and you haven't put it out yet, but can you maybe help everyone understand how you're thinking about 2027 in terms of early indications of guidance? Should we be assuming you do another similar case of whole loan sales next year on top of the announced partnerships? Are you including any plans for a third partnership to be announced? I think everyone would appreciate a better sense of what 2027 looks like.

[Jeff Adelson, Analyst at Morgan Stanley]

Should we look at the investor forum past as maybe some sort of indication of how you're thinking about that? Thanks.

[Pete Graham, Co-President and CFO at Sallie Mae]

Yeah. Thanks for the question. There's a lot in there, so I'll maybe take it in stages. I think in context of the size of the loan sale, you'll recall when we pulled forward earlier in the year, pulled forward and did a $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's 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, they're coupled with our commitments to partners and the balancing feature of our bank's balance sheet.

[Pete Graham, Co-President and CFO at Sallie Mae]

We came into this year thinking we would likely be flat balance sheet to slightly down. We aspired to add a second partner, which Jon announced earlier on the call. So I think in the context of sizing, kind of in that billion dollar range is probably the right way to think about that. The second part of your question really was around, 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 to execute a whole loan sale. We think we're in that kind of a situation now with sort of peak rates, a high degree of volatility in terms of the near-term outlook. We believe that will stabilize as we go into next year.

[Pete Graham, Co-President and CFO at Sallie Mae]

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. In that type of scenario, we're probably looking at flat balance sheets or maybe single-digit growth of the balance sheet. We'll meet our commitments to partners, which we've 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. Then we'll 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, Analyst at Morgan Stanley]

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

[Jon Witter, CEO at Sallie Mae]

Yeah, Jeff, 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 the sort of pausing of certain recovery efforts. I think what we said at that time is we thought we could cover that within our original range, but it would be at the higher end. That sort of took us up closer to that higher end of the initial range. I think as we went ahead and reset guidance, we felt like it was appropriate with the additional 20 just to reset that midpoint to midpoint. I don't think there's anything else in what you are asking about.

[Jon Witter, CEO at Sallie Mae]

I think it's just the reflection of last quarter us 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, Analyst at Morgan Stanley]

Got it. Okay, great. Thanks for taking my question. Oh, sorry, go ahead.

[Pete Graham, Co-President and CFO at Sallie Mae]

I was just going to say, to be clear, it is all related to this third-party issue.

[Jon Witter, CEO at Sallie Mae]

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, Analyst at KBW]

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

[Pete Graham, Co-President and CFO at Sallie Mae]

Yeah. Thanks for the question, Sanjay. I think if you think about even in a 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 don't obviously price off of 10-year Treasury. I think that's an indication that even in kind of like the most bear case scenario for loan sales, there'll be relief from here. I think there's more to it than just interest rates, although that's certainly a piece of it.

[Pete Graham, Co-President and CFO at Sallie Mae]

I think there's also the aspect of just sort of uncertainty about where we're going from here, and the fact that in the current environment also, there's a lot of other activity in the ABS space that's sort of pulling investor demand into higher yielding product. Think about all the ABS that's funding the AI trades at this point. Again, I think there's a lot of things unique to this quarter that create the market conditions that we feel isn't generally appropriate. I don't think that's a permanent thing, and we see a path to that being a more stable environment for us going into next year.

[Sanjay Sakhrani, Analyst at KBW]

Okay. Just to be clear, Pete, just on the capacity that you have to grow, would you have to pull down like originations if given the capital levels? How much flexibility do you have on CET1 to sort of aid that growth if you have to balance sheet it? Is I guess my question.

[Pete Graham, Co-President and CFO at Sallie Mae]

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

[Sanjay Sakhrani, Analyst at KBW]

Okay, great. Thank you very much.

[Operator]

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

[Terry Ma, Analyst at Barclays]

Hey, thank you. Good evening. I guess first 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 2027 thing? And then, 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?

[Jon Witter, CEO at Sallie Mae]

Yeah. Terry, let me start with the third-party debt collection issue, and then I'll turn it over to Pete to talk a little bit more about your guide question. Look, I think it's 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. We will obviously have to adapt. With that said, I think we're really pleased with what we are seeing so far. 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.

[Jon Witter, CEO at Sallie Mae]

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. There are others that I won't 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. 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.

[Jon Witter, CEO at Sallie Mae]

I'd be hesitant to sort of put out there an exact number, an exact timing of it, but I certainly think we expect next year's impact to be meaningfully less than what we saw this year.

[Pete Graham, Co-President and CFO at Sallie Mae]

I think the other thing I'd add there is the recovery profile of these borrowers, as Jon said, is much different than our normal charge-offs. So that's going to be additive to the recovery curve as we move into next year.

[Jon Witter, CEO at Sallie Mae]

Yeah. Great point, Pete.

[Pete Graham, Co-President and CFO at Sallie Mae]

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. Yeah, that is included in our guidance for this year.

[Terry Ma, Analyst at Barclays]

Got it. Okay. That is helpful. 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 obviously very optimistic around that. Now you are kind of restructuring, kind of shrinking. Maybe just help us understand that, and just confirm that you still view the TAM expansion as a real opportunity. Thank you.

[Jon Witter, CEO at Sallie Mae]

Yeah, Terry, we absolutely still see the TAM expansion as a real opportunity, and I think in the numbers that Pete described, was an expectation of continued investment in things like marketing and, probably at a lower pace, still some product and system and capability enhancements going into next year. But I would encourage you to go back and look at our OpEx trajectory over the last five or seven years. I think we have managed that really well in terms of annual growth. It has 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 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.

[Jon Witter, CEO at Sallie Mae]

We know we have a business that we can continue to refine and optimize. We know we have ability to continue to find efficiencies in what we do every day. And we knew as we continued to build and evolve our strategy, there were resources that maybe didn't 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 OpEx budget. And we also think it gives us what we need to continue to invest in growth going forward.

[Terry Ma, Analyst at Barclays]

Got it. Thank you.

[Operator]

Thank you. Once again, if you do have a question, you may press star and one on your telephone keypad at this time. Our next question comes from Don Fandetti with Wells Fargo. Please go ahead.

[Don Fandetti, Analyst at Wells Fargo]

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, and we've heard some competitors talk about just more competition for deposits. If you could just dig in a little bit on that.

[Pete Graham, Co-President and CFO at Sallie Mae]

Yeah, sure. I think in the discussion of NIM, I think it's important to reflect on what's changed in our environment over the course of this year, and how that impacts NIM. One 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 a time period in the year when we have very low originations, and that caused us to have 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 we would get some normalization. So that's the biggest factor on NIM in the current year.

[Pete Graham, Co-President and CFO at Sallie Mae]

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? 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 matched 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 rising interest rates. And I feel pretty good about the timing of when we did that, in the context of overall market volatility.

[Don Fandetti, Analyst at Wells Fargo]

Got it. I guess my follow-up, just wanted to clarify, I think on the new fund, there's like a seasoned 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 move to held for sale. If you can just talk about that.

[Pete Graham, Co-President and CFO at Sallie Mae]

Yeah. So a portion of the seasoned portfolio closed just at the end of the quarter, and 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 regular commitments to the forward flow under the KKR deal, in addition to these new held for sale associated with the seasoned portfolio.

[Don Fandetti, Analyst at Wells Fargo]

Okay, thanks.

[Operator]

Thank you. Our next question comes from Rick Shane with J.P. Morgan. Please go ahead.

[Rick Shane, Analyst at J.P. Morgan]

Hey, I need to get my questions in before Don because he asked pretty much what I wanted to focus on. I just want to make sure we understand one thing. The held for sale portfolio is substantially larger than it's been. Some of that has to do with the Sixth Street transfer. Some of that has to do with the KKR flow. I am wondering if there's 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 didn't know that on September 30th. 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? What are the implications of that?

[Pete Graham, Co-President and CFO at Sallie Mae]

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

[Rick Shane, Analyst at J.P. Morgan]

Got it. It doesn't have anything to do with deciding not to do a traditional non-flow sale and some weird timing issue there?

[Pete Graham, Co-President and CFO at Sallie Mae]

Not at all.

[Rick Shane, Analyst at J.P. Morgan]

Okay. Got it. I appreciate the answers, guys. Thank you very much.

[Pete Graham, Co-President and CFO at Sallie Mae]

Yep.

[Operator]

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

[Giuliano Bologna, Analyst at Compass Point]

Well, hopefully not going over too much that's already been asked. But when I look at 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 held for sale portfolio in the fourth quarter? Or would a chunk of that leak into next year? Then kind of related to that, thinking about the seasoned 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?

[Pete Graham, Co-President and CFO at Sallie Mae]

Yeah. Let me take that question in two 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 end after the quarter. So the held for sale at the end of the third quarter will clear out when we make those sales to KKR, in this case, for the third quarter. Additionally, in that held for sale is the $600 million of seasoned 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.

[Pete Graham, Co-President and CFO at Sallie Mae]

With regard to the portfolio sale that we had planned, that we discussed that we weren't going to move forward with, we 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 had not gone through a process of selecting a portfolio, which would be a prerequisite for us putting anything into a different designation other than held for investment.

[Giuliano Bologna, Analyst at Compass Point]

That's helpful. Then as a side follow-up, I think the way that most of this reading came out, and it seems like kind of what was implied was about a 2% gain on sale up front for the strategic partnership sales, and there's some commentary about 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 from the 2% ballpark?

[Pete Graham, Co-President and CFO at Sallie Mae]

The disclosures in the Q would be in two parts. One would be we have one disclosure of fair value, which is our broad sort of evaluation of our total portfolio. Then we have a separate valuation on the held for sale. That is a combination of both the flow commitments to KKR that is in the warehouse, as well as the $600 million of seed portfolio. It is a combination of both.

[Giuliano Bologna, Analyst at Compass Point]

I guess, roughly speaking, is $1.44 billion of loans held for sale as of the end of September 30. Should we expect the full gain on sale for the forward flow to be realized in the fourth quarter on that chunk of the portfolio?

[Pete Graham, Co-President and CFO at Sallie Mae]

Correct.

[Giuliano Bologna, Analyst at Compass Point]

Got it. That is very helpful. Thank you. I will come back in queue.

[Pete Graham, Co-President and CFO at Sallie Mae]

Sure.

[Operator]

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

[Jon Witter, CEO at Sallie Mae]

Thank you everyone for your time and engagement this evening. I know we've 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're pleased with the performance of our various loss mitigation programs, and we believe we're managing OpEx as well. We're 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're building a more resilient, predictable, and profitable Sallie 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 investor relations team is standing by to answer your more detailed questions.

[Jon Witter, CEO at Sallie Mae]

With that, I'll turn the call over to Kate for some concluding business.

[Kate deLacy, VP of Investor Relations at Sallie Mae]

Thanks, Jon. Thank you all for your time and questions today. A replay of this call and the presentation will be available on the investor 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 2026 earnings conference call and webcast. Please disconnect your lines at this time, and have a wonderful evening.

Participants

Analysts

• Kate deLacy, VP of Investor Relations at Sallie Mae
• Jon Witter, CEO at Sallie Mae
• Pete Graham, Co-President and CFO at Sallie Mae
• Jeff Adelson, Analyst at Morgan Stanley
• Sanjay Sakhrani, Analyst at KBW
• Terry Ma, Analyst at Barclays
• Don Fandetti, Analyst at Wells Fargo
• Rick Shane, Analyst at J.P. Morgan
• Giuliano Bologna, Analyst at Compass Point