SLM Q2 2026 Earnings Report

SLM EPS Results

• Actual EPS: $0.29
• Consensus EPS: $0.46
• Beat/Miss: Missed by -$0.17
• One Year Ago EPS: $0.32

SLM Revenue Results

• Actual Revenue: $401.11 million
• Expected Revenue: $409.22 million
• Beat/Miss: Missed by -$8.11 million
• YoY Revenue Growth: -0.70%

SLM Announcement Details

• Quarter: Q2 2026
• Date: 7/23/2026
• Time: After Market Closes
• Conference Call Date: Thursday, July 23, 2026
• Conference Call Time: 5:30PM ET

SLM (NASDAQ:SLM), operating as Sallie Mae Bank, is a leading U.S.-based consumer banking company specializing in education financing and related banking products. The company provides a range of private student loans for undergraduate and graduate studies, Parent PLUS loans, and specialized financing for career and certificate programs. In addition to its core lending services, Sallie Mae offers deposit products including savings accounts, checking accounts, money market accounts, certificates of deposit, and credit cards tailored to students and young adults.

Founded in 1972 as the Student Loan Marketing Association—a government-sponsored enterprise—Sallie Mae was privatized in 2004 and has since focused on expanding its private education loan offerings and digital banking solutions. The bank’s online platform and mobile app deliver account management tools, repayment calculators, and budgeting resources designed to help borrowers make informed financial decisions. Sallie Mae also partners with colleges and universities to offer tuition payment plans and student bank accounts on campus.

Headquartered in Newark, Delaware, Sallie Mae serves customers across all 50 states, offering nationwide access to its lending and banking products. The company’s leadership team includes experienced executives in consumer finance and education banking, supported by a board of directors with expertise in financial services, digital innovation, and regulatory compliance. Sallie Mae continues to refine its product suite and customer experience through ongoing investments in technology and financial education resources.

SLM Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Peak-season demand is starting strong, with management saying new products like the parent loan and enhanced graduate offerings are seeing application and volume trends at the high end of expectations or better. The company said this supports confidence in 2026 originations and the larger opportunity from PLUS reform.
• Neutral Sentiment: Second-quarter results showed GAAP diluted EPS of $0.29 and loan originations of $716 million, up nearly 4.5% year over year. Average FICO on originations improved modestly and cosigner rates remained strong at 84%.
• Negative Sentiment: Net charge-offs increased to $113 million from $94 million a year ago, driven in part by a small group of borrowers they believe are using third-party debt resolution services. Sallie Mae said it has tightened control over post-default recoveries, which it expects to affect 2026 recoveries by about $25 million.
• Positive Sentiment: Management said credit quality remains broadly stable, with modification programs continuing to perform better than expected. Borrowers in active mods are showing over 80% payment success over six and 12 months, and more than 75% of borrowers exiting mods are still paying after three and six months.
• Positive Sentiment: The company expects net interest margin to rebound in the second half as excess liquidity from the March loan sale is deployed into peak-season originations. Management suggested 2Q was likely the low point for margin this year and reaffirmed its longer-term low-to-mid 5% NIM target.

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, Madison. Good evening, and welcome to Sallie Mae's Q2 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 of Strategic Finance. 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, July 23rd, 2026. Thank you. I'll now turn the call over to Jon.

[Jonathan Witter, CEO at Sallie Mae]

Thank you, Kate and Madison. Good evening, everyone. Thank you for joining us to discuss Sallie Mae's Q2 2026 results. Before we dive into the quarter's results, it's worth taking a moment to reflect on the strong position we enjoy today as a company. It's been just over a year since Federal PLUS reform reshaped the higher education financing landscape and created the potential for a $4.5 billion-$5 billion increase in annual originations for Sallie Mae over the next several years. Since then, we have been diligently preparing for this exciting opportunity to serve more students and families, strengthening our product offering, investing in our capabilities, and positioning the company for our first peak season under the revised federal programs. At the same time, we have remained focused on supporting our school partners and maintaining our industry-leading status as a preferred lender for more than 2,100 schools.

[Jonathan Witter, CEO at Sallie Mae]

I am pleased to announce that we have successfully delivered all of the additional products, features, and functions we planned for this peak season, including enhancements to our medical, dental, law, and MBA products, and the launch of our new parent loan. While peak season is just beginning and it is too early for definitive conclusions, the application and volume trends for these new products, as shared on page five of our earnings presentation, are at the higher end of our expectations or better. These trends, if sustained, reinforce our confidence in both our 2026 originations estimates and the longer-term opportunity presented by changes to the PLUS programs. We are pleased with our performance and the positive trends we are seeing in credit. The changes we have made in the past to our underwriting standards and loss mitigation practices are bearing fruit.

[Jonathan Witter, CEO at Sallie Mae]

Previously distressed borrowers are successfully navigating their loan modification journey and enjoying better than expected success upon completion. Credit trends within our portfolio are generally consistent with or better than expectations. We believe these factors position the company for continued success in 2026 and beyond. Within that context, let us jump into the details of the quarter. GAAP diluted EPS in the Q2 was $0.29 per share. Loan originations were $716 million, up nearly 4.5% from the prior year quarter. In addition to overall growth, origination credit quality improved modestly year-over-year, with the average FICO score increasing from 754-755, while cosigner rates remained strong at 84%. Turning to credit, as discussed at a recent conference, we have observed activity affecting a small segment of borrowers who we believe have both the willingness and capacity to repay, yet are progressing directly through delinquency to default.

[Jonathan Witter, CEO at Sallie Mae]

Based on our analysis, we believe many of these borrowers are engaging with debt resolution providers whose services are being marketed as consolidation or refinancing solutions. We do not believe that many of these practices are in the customer's best interest. We are committed to doing what it takes to ensure that customer interests are protected and that our recovery and settlement strategies are fully aligned with the underlying value of our loans. In response to this, we have taken deliberate steps to increase control over our post-default recoveries. While these actions create an in-year headroom to potential recoveries, previously estimated at approximately $25 million in 2026, we view the impact as largely a timing dynamic and expect our internal efforts to equal or exceed this recovery level over time. In this context, we remain optimistic about our credit performance.

[Jonathan Witter, CEO at Sallie Mae]

Net charge-offs for the quarter were $113 million, up from $94 million in the prior year quarter. Approximately $16 million of the year-over-year increase, we believe to be attributable to these misaligned third-party debt resolution practices and the related shifts in our recovery strategies. Importantly, we do not view this as a broad-based weakening in credit. While our most recent repayment wave increased by four percent, the net charge-offs for the portfolio, excluding this small impacted segment, grew at a much slower rate. Supporting this performance is the sustained success of our loan modification programs. Borrowers in all active modification cohorts continue to have payment success rates in excess of 80% over six and 12-month periods. Looking specifically at borrowers who have begun to exit the programs, over 75% are consistently making payments after three and six months.

[Jonathan Witter, CEO at Sallie Mae]

We are encouraged by these results, which are performing modestly better than our expectations. Overall, we remain confident in the underlying health of the portfolio. Credit quality remains strong, borrower performance trends are stable, and the current loss pressure is concentrated, understood, and manageable. Pete will now take you through some additional details. Pete?

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

Thank you, Jon. Good evening, everyone. For the Q2 of 2026, we generated $333 million of net interest income and $45 million of other income. Compared with the prior year quarter, net interest income decreased by $44 million, while other income increased by $16 million, driven by growth in recurring program management fees from our strategic partnership and growth in servicing fee revenue. Net interest margin was 4.75% for the quarter. As previously communicated, we expected NIM to moderate modestly during the quarter, primarily reflecting the higher liquidity levels following the loan sale completed in late March. Looking towards the second half of this year, we expect margin expansion to resume as excess liquidity is deployed into new loan originations during our peak season. As a result, we believe the Q2 will likely represent the low point for margin this year.

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

Importantly, the underlying earnings power of the portfolio remains strong, supported by disciplined funding, attractive asset yields, and continued growth in fee-based revenue streams. Private education loans delinquent 30 days or more were 3.7% of loans in repayment, an increase from 3.5% in the year-ago quarter and a decrease from four percent at the end of the first quarter of 2026. Our reserve rate was 5.89% at the end of the quarter, down six basis points from the prior year period, reflecting the effectiveness of our disciplined underwriting and ongoing efforts to optimize loss mitigation strategies. Our provision for credit losses was $126 million in the Q2, down from $149 million in the year-ago quarter. Non-interest expenses were $195 million, up $28 million from the year-ago quarter.

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

The majority of this increase was driven by one-time investments in product enhancements as well as strategic initiatives to support anticipated growth from the federal lending reforms. Importantly, revenue growth from servicing and recurring program management fees more than offset a significant portion of these investments, resulting in an efficiency ratio of 48.6%, an increase of just seven percentage points year-over-year. This reflects our ability to invest meaningfully in future growth while continuing to operate from a position of financial strength. As you may remember, earlier this year, we took decisive action in response to the market dislocation in our stock, which allowed us to return a significant amount of capital to shareholders through a $200 million accelerated share repurchase program. We completed the ASR during the second quarter, repurchasing a total of 9.3 million shares.

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

The final 900,000 shares were recorded on June 30th upon completion of the program. Year to date, we have repurchased approximately 13 million shares or 6.5% of the shares outstanding at the end of 2025 at an average price of $21.95 per share. Since 2020, we have reduced shares outstanding by approximately 59% at an average price of $17.19 per share, underscoring our disciplined approach to long-term value creation. We have $242 million remaining under our share repurchase authorization, which we expect to substantially deploy throughout the remainder of this year. Finally, our liquidity and capital positions remain solid. We ended the quarter with liquidity of 18.6% of total assets. At the end of the Q2, total risk-based capital was 13.1%, and Common Equity Tier 1 capital was 11.8%.

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

We continue to believe in our strategy and the solid foundation it provides to drive sustainable growth and return capital to shareholders. I'll now turn the call back to Jon.

[Jonathan Witter, CEO at Sallie Mae]

Thanks, Pete. As we discussed today, our preparation for the evolving market landscape is beginning to translate into encouraging early indicators, and we are pleased with the momentum building across the business as we enter peak season. We believe the recovery actions we have taken have the potential to create better outcomes for both borrowers and Sallie Mae. Combined with the continued positive performance of our loan modification programs, these factors further strengthen our confidence in the durability of our portfolio. The investments we have made, together with strong credit quality and growing customer demand, position us well for the remainder of 2026. With that in mind, let's turn to our updated guidance. At this time, we are narrowing our net charge-off guidance range by maintaining the high end at $385 million and raising the low end to $365 million.

[Jonathan Witter, CEO at Sallie Mae]

We are making this change in response to our adjusted recovery practices as detailed on slide eight in the earnings presentation and discussed earlier in my remarks.

[Jonathan Witter, CEO at Sallie Mae]

While we continue to expect approximately a $25 million potential impact to recoveries in 2026, a portion of this NCO impact has already been partially offset by slightly better than expected performance in the broader portfolio. This reinforces our confidence in the underlying credit performance in the business. We are affirming all other guidance metrics. With that, Pete, why don't we go ahead and open up the call for 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 that you pick up your handset when posing your questions to provide optimal sound quality. Our first question is coming from Mark DeVries with Deutsche Bank. Please go ahead.

[Mark DeVries, Director at Deutsche Bank]

Yeah, thanks. Pete, I think you mentioned you expect 2Q to maybe be the low point, and then for the year. Any color you can give us on kind of the trajectory for that in the back half?

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

Yeah. Thanks, Mark. Yeah, I think as we deploy the liquidity during the peak season, we'll start to normalize probably closer to our long-term target range of kind of five percent. I don't think we'll get too far up in that normal range, but I think plus or minus we should track there for the full year.

[Mark DeVries, Director at Deutsche Bank]

Okay. Got it. Then, any updates you can provide on ongoing conversations with the new loan sale partner? Also any optimism you may have that buyer could help expand your credit box and the TAM.

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

Yeah, sure. We started this year with the goal of expanding the partnerships. We ran a mini process similar to what we did last year with a lot of the same participants. We selected a partner to go into bilateral negotiations with. That's progressing really well. We're in the stage where documents are being created and traded back and forth with each other, and we're negotiating the finer points of the economics. I feel really good about kind of how that process is going there, their sort of openness to our asset class and their interest in both the traditional undergrad product that we have traditionally sold, but also at the margins, creating some opportunity for credit box expansion.

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

I expect that that will continue at pace and likely close in the Q3 or early Q4 at the latest, in time for us to potentially put some of our peak origination volume into the new partnership.

[Mark DeVries, Director at Deutsche Bank]

Great. Thank you.

[Operator]

Thank you. Our next question is coming from Moshe Orenbuch with TD Cowen. Please go ahead.

[Moshe Orenbuch, Managing Director at TD Cowen]

Great. I'm hoping that maybe, Pete, you could give us a little bit of additional detail as to how the current partnership is going, and how we should think about the revenue components both periodic and kind of ongoing from that. If there are any differences that you've kind of incorporated into the discussions with the new partner or would it be similar? Thanks.

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

Sure. The existing partnership with KKR is going really well, according to plan. The volumes that we had anticipated for the year are coming in right in line with expectations. The structure of the second partnership is largely in line with the economics that we have in the first partnership with some minor tweaks to different components of the structure. We feel really good about how the KKR partnership's gone so far. I think importantly, both KKR as well as the second partner have expressed strong interest in building capabilities for taking grad product. That'll be kind of the next phase after we get through peak originations this year and have a little more information about what the makeup of our grad originations are.

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

I think also once we've completed the second partnership, we'll be in a position to share more details around components of the fees and ranges of those fees once we get beyond having just one bilateral arrangement.

[Moshe Orenbuch, Managing Director at TD Cowen]

Great. Okay, thanks. I wanted to also just talk a little bit about credit performance. Obviously a pretty hot topic. It was encouraging that you kept the high end of your charge-off guide range where it was. Anything that kind of approaches credit kind of gets people a little bit more antsy. Jon, you had made a comment saying that you felt good about the current performance that you had already kind of offset or some of the recovery from those kind of deferred

[Moshe Orenbuch, Managing Director at TD Cowen]

recoveries. I was hoping you could kind of just expand on that. What aspects of the performance are you seeing that are better? If you can kind of roll that out for us over the next several quarters, how does that manifest itself in your numbers?

[Jonathan Witter, CEO at Sallie Mae]

Yeah. Moshe, let me sort of provide the perspectives I can. I may not be able to give all the detail you're looking for. First of all, we really appreciate credit as a sensitive topic given broader macroeconomic, technological sort of concerns and the like. I think that is why we have worked really hard, starting at a conference I guess just a month ago, that Pete attended and going through today, to really try to provide a lot of detail about what's going on with this particular segment in question, and sort of how we are treating it and why. I think we're also trying to provide a nice amount of data on the performance of sort of the other components of our credit story. Let me first start with what was the hot topic for the last couple of years, which is loan modifications.

[Jonathan Witter, CEO at Sallie Mae]

I think if you rewind the tape, Moshe, you obviously know as well, when we changed the loan modification program, the question was always how were these customers going to perform when they come out the other side. We are now up to six months-plus of performance with some of these customers. Obviously less with others as they roll out of the mods. I think the data we've provided is, I hope, helpful, useful, and encouraging. We are seeing better than 75% success rate after three and six months. That is higher than our expectations. I think we've given you some of that data in the overall investor presentation. We feel great about that and have not seen any trends in those payment rates over time that would make us anything less than optimistic about their effectiveness. Again, that hasn't happened by accident.

[Jonathan Witter, CEO at Sallie Mae]

Those programs are, we think, very well-designed. They are tightly controlled in terms of entry. The conditions and the requirements for what a customer has to do to get into them are quite diligent. We obviously track that regularly to make sure we're getting the performance we like. I think that is sort of key component number one, and obviously something that's going to be important to our credit story for the remainder of this year as those customers come out of their modifications, and setting sort of new baseline levels of expectation going forward. In terms of the core performance of the portfolio, I think the simple math I would point you to is I think we've been very clear that the sort of recovery gap has been estimated to be about $25 million on this segment in question.

[Jonathan Witter, CEO at Sallie Mae]

I think it is notable we have only raised sort of the lower end of our guidance by $20 million. I think that is reflective of the fact that we are seeing general strength in the portfolio across the rest of our segments and the rest of the components that obviously more than offset the sort of full $25 million impact there. I don't think I feel comfortable trying to give specific guidance by quarter. You're well familiar with the normal seasonal patterns that we have in the business, and those patterns, I think, continue to sort of mature and set.

[Jonathan Witter, CEO at Sallie Mae]

I think we really have gone to great lengths to try to delineate what we see as really a timing of recovery issue versus a credit issue, and remain committed that based on everything we see today, we are optimistic about what we're seeing in the general credit performance.

[Moshe Orenbuch, Managing Director at TD Cowen]

Great. Thanks very much.

[Operator]

Thank you. Our next question is coming from Sanjay Sakhrani with KBW. Please go ahead.

[Sanjay Sakhrani, Managing Director at KBW]

Thank you. Pete, just a quick question on sort of the NIM rebound. Noticing sort of the loan yields, those have come down pretty meaningfully. Do you expect a step-up in those loan yields as we move through the back part of the year in terms of loan mix, just to get back towards the five percent?

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

Yeah, I think some of that's a little bit of a distortion by the fact that Q2 is kind of our lowest origination quarter, and the mix of loans that are coming in. We fully expect that as we get into the heart of our peak season, that traditional yield patterns will sort of start to reemerge.

[Sanjay Sakhrani, Managing Director at KBW]

Got it. Then just another question on sort of your expected gain on sale. I think when we calculated this quarter, it seemed to be higher than the typical two percent or so that you've been getting. Maybe you could just help us think about what's incorporated in your expectations for this year, and if there was anything different in the mix of the loans that you sold this quarter. Thank you.

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

Yeah. I certainly can address that. I think one thing to remember is when we're selling the newly originated loans, we're selling the price that we're getting upfront is both the initial disbursement as well as the gain on the second disbursement. That's just the way the accounting model works for selling an undispersed loan that has two component parts. That kind of front-loads a little bit the gain with the newly originated loans. That might be the factor that's sort of putting you off a little bit. I think in totality, though, that kind of two percent-ish is a good target for the gain on sale for the flow-related loans. It'll move around a little bit based on the pricing grids and other things, but I think in terms of trying to set a benchmark, that's probably a good place to start.

[Sanjay Sakhrani, Managing Director at KBW]

Okay, great. Thank you so much.

[Operator]

Thank you. Our next question is coming from Terry Ma with Barclays. Please go ahead.

[Terry Ma, Director at Barclays]

Hi. Thank you. Good evening. Maybe just starting off with the EPS guide. Can you kind of talk about what's kind of contemplated in the back half EPS guide? Seems to be about 15% higher than street expectations right now. Any color on the moving pieces would be helpful.

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

Yeah. Thanks, Terry. Again, I think there's some moving parts here. Obviously, we talked about the change in our net charge-offs guidance. We're operating in the higher end of our original plan there. Although we've covered a portion of the anticipated impact from this segment of borrowers and changing our recovery strategy, we still got to get through that over the second half of this year. That based on other activities that we have in the second half of the year, we still feel there's a viable path for us to get up into the range that we had previously raised to last quarter. We feel good about both our net charge-off updated range as well as the previously released range of earnings per share for the full year.

[Terry Ma, Director at Barclays]

Got it. Okay. If I think about credit for the second half, obviously delinquencies this quarter improved sequentially. As we look out to the back half, should we kind of expect the same seasonality that we saw last year with elevated delinquencies in the back half? You guys did have a sizable cohort exit extended grace this quarter.

[Jonathan Witter, CEO at Sallie Mae]

Yeah. Terry, I think the general seasonal patterns are probably right. There's a few things that will affect delinquency trends that are worth just considering. Obviously, the size of the repayment wave. We know early to repayment borrowers tend to experience financial distress at a higher level. If you have a larger wave this year than last year, but a comparably sized portfolio, there can be some numerator/denominator effect of that. There will also be, Terry, over time, a modest impact driven by the fact that we are selling new originations now for the first time. Some of those new originations are defined as in repayment based on their sort of deferral status. We know that loans that are in school tend to experience financial distress at a much lower rate.

[Jonathan Witter, CEO at Sallie Mae]

I think you've got a couple of those factors that are working that can move some of the seasonal patterns a little bit on the margin. I think sort of the seasonal patterns plus or minus, keeping in mind those types of considerations, is probably the right zip code for you to be thinking about.

[Terry Ma, Director at Barclays]

Great. Thank you.

[Operator]

Thank you. Our next question is coming from Don Fandetti with Wells Fargo. Please go ahead.

[Donald Fandetti, Managing Director at Wells Fargo]

Hi. Good evening. I was wondering if you could just talk a little bit more about the debt resolution situation and just trying to better understand why the pause on all recovery sales. Couldn't you just sort of say we're not really open to debt resolutions? Just kind of walk through that a little bit. Is there anything that could change that would enable you to turn those back on, or is this more of a permanent change?

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

Sure. Our broader recovery strategies are really based on an assumption that by the time the borrower gets into that part of our collection cycle, they've already gone through evaluation of their ability to pay. The settlement levels in our traditional strategy was really based on an assumption that those borrowers didn't have an ability to pay. These resolution companies that we talked about are really targeting customers that do have an ability to pay and are relying on kind of the back door in our recoveries process to pick up the loans at a discount in a way that disadvantages the borrowers. We made a decision, which I talked at length at the prior conference about, to sort of halt all of our debt sales and pull, for a time period, all recoveries in-house.

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

Once we get a handle on how this is going to play out, we certainly have an ability to change our strategies and turn that back on. In the short run, this is a way for us to get control of post-charge-off recovery strategies. It's a timing issue in large part because when we started our champion challenger a few years ago, what we've learned over time is our internal recovery strategies yield, on balance, a higher return. It's really a question of in-year recoveries versus collecting over time.

[Donald Fandetti, Managing Director at Wells Fargo]

Got it. Could you also talk about plans for season loan sales this year and just kind of balance sheet growth expectations?

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

Yeah, sure. When we started the year, we anticipated loan sales to sort of manage a flattish balance sheet this year. When we accelerated the loan sale in the Q1 that I talked about and that allowed us to do the ASR program, we indicated that we likely would do modestly more loan sales this year and size that at sort of $1 billion-ish more than what we otherwise would, which would imply, all things equal, maybe a little bit of a down balance sheet. I think that's all contingent on what the level of originations we have during peak this year. That's how you should think about it. Probably $1 billion more loan sales than we otherwise would have done in our original guidance.

[Donald Fandetti, Managing Director at Wells Fargo]

Got it. Thanks.

[Operator]

Thank you. Our next question is coming from Jeff Adelson with Morgan Stanley. Please go ahead.

[Jeffrey Adelson, Executive Director at Morgan Stanley]

Hey, good evening, guys. Thanks for taking my questions. I just wanted to circle back on the loan yield question real quickly. I think we looked at some of the typical seasonal trends you've seen historically. It didn't seem like the Q2 tended to be down that much. I know there's more noise with the sales you've been doing. I guess I was just wondering, were there more higher-yielding loans being sold in the last two quarters? As we think about the yield recovery from here, you mentioned, Pete, how do we balance that against I think one of the questions we've gotten from investors is with the partnership, the grad opportunity and the term opportunity, those might be a little bit lower yielding. Just help us understand those puts and takes there a little bit better.

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

Yeah. Let me start with the question about yields on the loan sales. I think our practice on loan sales has been pretty consistent over time. We attempt to select a sort of random sample of our existing book. Largely that is driven by the concentration limits that the rating agencies put around the ultimate securitization takeout. That really hasn't changed, and that's been pretty consistent over time. The partnership loan selection process follows a similar kind of concentration approach and grid for pricing. No adverse selection one way or the other between our bank book for investment and the partnership programs. In terms of the path from here to the end of the year, keep in mind that carrying the extra liquidity is the real thing, more so than yields on the loans.

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

We're carrying around a lot of extra liquidity that's invested in at cash rates that we wouldn't have otherwise done. In our original plan, we would have done a loan sale in the Q2, much closer to when we need the liquidity for our peak season. As that investment balance gets pulled down and reinvested into higher-yielding loans, we'll blend back to an overall NIM level that's more in line for the full year with our long-term guidance. Now, will we be a little bit above five percent or a little bit below five percent? That'll be dependent on how the rest of the year materializes. I think, again, it's a temporary thing in year, driven largely by timing of when we generated that liquidity.

[Jeffrey Adelson, Executive Director at Morgan Stanley]

Thank you. Pete, you talked over the quarter about the opportunity to get the efficiency ratio down to the low 30% once you exit this growth phase. How should we think about the near-term, medium-term path here what that looks like, and how long it might take you to get back down to a mid-30%? Just maybe talk about how this second strategic partnership helps you get there in that journey.

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

Yeah, sure. When we set out our guidance for this year on non-interest expenses, we kind of gave an additional bit of information that sort of a little bit of a forward look on 2027 that we thought the rate of growth going into next year would be roughly half the rate of growth that we've had from last year to this year. We're not ready to update that at this point. I'd say we'd like to do better than that. If we do better than that, then we'll get to that kind of low- to mid-30s% rate in a much more rapid fashion. With regard to the partnerships, as we build this fee-based revenue, that obviously adds to the mix in terms of the top-line denominator of the efficiency ratio.

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

We've had a growth in fee-based revenue in excess of 50% year-over-year off a small base, admittedly. Based on the scaling that's happening with these loan sales, we'll continue to build. Even with just the first partnership, we'll build significantly going into from this year to next on both a basis of the program management fees, the base fees there, as well as we'll start to get to the point where we kick into the additional performance fees. The servicing fees will continue to build as we get scale in these partnerships. The second partnership will just add additional scale to that.

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

I also mentioned that we intend to expand the partnerships going into next year before next year's peak to cover grad volume that will start to originate this year, and that will be important for us to have those facilities as we have the real increases in opportunity from the PLUS reform. That's all building towards a really positive trajectory for capital A fee-based revenue as well as we will get past this year-one investment that we've needed to make to get ready for PLUS, and we'll start to normalize and get more efficient in our marketing efforts and other efforts around the core business.

[Jeffrey Adelson, Executive Director at Morgan Stanley]

Okay, great. If I could just squeeze in a third, I apologize. What about the balance sheet growth impact of the third? Any update on how you're thinking about the balance sheet growth once that comes through?

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

I think, again, for this year, we're probably flat to a little down, depending on what the overall level of originations are during the peak season. We would probably have some modest growth aspirations for the balance sheet in 2027, then we'll probably start to trend back to kind of a low-to-mid single digit kind of rate of growth of the bank's balance sheet as we move forward.

[Jonathan Witter, CEO at Sallie Mae]

I would just add, I think we provided a little bit of commentary on this in the Q4 earnings announcement in January. I don't think our thinking has changed at all since that time.

[Jeffrey Adelson, Executive Director at Morgan Stanley]

Okay, perfect. Thank you, guys.

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

Yep.

[Operator]

Thank you. Our next question is coming from John Hecht with Jefferies. Please go ahead.

[Yuna Sohn, Analyst at Jefferies]

Hello, this is Yuna on John Hecht's line. I had one more question on the NIM. With, as previously mentioned on the grad program, likely bearing lower yield, shorter duration, mixed with the additional forward flow that may or may not change how you think about the balance sheet growth. What kind of factors or moving pieces would get you to reevaluate the medium-term NIM target? Is that kind of how you're thinking about it for 2027?

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

Yeah. First, let me just address a couple of the points you made on the grad opportunity. I don't know that it's necessarily significantly lower yields on the assets. Certainly, I don't think it's necessarily a shorter duration. I think there will be MBA loans will be very short, but medical and dental and other programs like that will be much longer than, and much higher balances than our traditional undergrad products. I think it's hard for us to answer that perfectly until we get through our first peak season of originations and understand what the mix of this opportunity is going to look like.

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

As a result of that, it's really hard for me to give any other guidance on forward look other than, I think by the end of this year, for the full year, we'll be close to that five percent, if not a little bit over. Over the longer term, we have not updated our point of view that deviates from our past long-term guidance, so kind of low-to-mid five percent range for now.

[Yuna Sohn, Analyst at Jefferies]

Got it. Maybe after the 2026 class graduating in May/June, is there any data that you can share about their employment trends? What you're seeing or what your expectation might be for the repayment for the second half of that new cohort? Thank you so much.

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

I think it's too early. Those grads are still in their grace period. We won't really start to see any meaningful data on that until we get into the fall and they get into repayment. I think broadly, the headlines are indicating that employers are hiring, which is a little different than the headlines last summer. I think it's really just too early to make a call on anything like that.

[Yuna Sohn, Analyst at Jefferies]

Thank you so much.

[Operator]

Thank you. We will take our last question from Caroline Lada with Bank of America. Please go ahead.

[Caroline Lada, Analyst at Bank of America]

Maybe just heading into peak season, can you give us an update on the competitive landscape in the graduate market, in terms of any changes in pricing or the credit box? Also, I think you guys talked about how the new products are trending pretty well, but are there any specific products or markets where you're sort of meaningfully exceeding the expectations you guys had internally?

[Jonathan Witter, CEO at Sallie Mae]

Yeah, Caroline. Sitting here in middle of July, peak is really just a couple of days old, I think it's hard to infer too much at this point. I think most of what we could talk about are sort of things that we've seen leading up to peak. As I've described this in the past, I think typically, we have seen pretty rational pricing. I think that continues. I think we have seen some modest pressure on sort of marketing expense and some modest increases in marketing activity. Nothing that I think we would view as being particularly out of the norm or things that we did not anticipate as a potential eventuality and plan for in sort of our outlook and sort of strategy. I think it's sort of progressing as we thought it would at this point.

[Jonathan Witter, CEO at Sallie Mae]

Again, with maybe a little bit of sort of upward marketing pressure. I think it's fair to say we will know much more over the course of the next month or two. Peak season is not long. It's 8, 10 weeks. Certainly by the time we get to the third quarter, we'll have a good sense of that. I think likewise, in terms of volumes, it's hard to know. Obviously, the most important measure is disbursements. It's just we haven't started dispersing yet. That's not the point we are in in the academic calendar. I think the data we provided in the investor presentation on application rates is probably the sort of best early indicator that we have of general activity levels. As I said in my comments, I think we are encouraged by those activity levels.

[Jonathan Witter, CEO at Sallie Mae]

They are by product listed out and sort of at or slightly above our expectations for this point. Again, all of that with the caveat of it's early, but we like what we are seeing so far.

[Caroline Lada, Analyst at Bank of America]

Okay, great. Thanks.

[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.

[Jonathan Witter, CEO at Sallie Mae]

Great. Thank you. Madison, appreciate your help today and appreciate everyone's time and attention this afternoon. Obviously, if you have questions, please feel free to reach out to our IR team. They stand by ready and willing to help. We look forward to talking to you again in the third quarter and updating you on what we hope will be a really successful peak season. Until then, again, thank you for your interest in Sallie Mae. Have a good evening. Oh, I'm sorry. Kate, we're turning it back to you for some closing business.

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

Thanks, Jon. Thank you for all 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 second quarter 2026 earnings conference call and webcast. Please disconnect your line at this time and have a wonderful evening

Participants

Analysts

• Kate deLacy, VP of Investor Relations at Sallie Mae
• Jonathan Witter, CEO at Sallie Mae
• Pete Graham, Co-President and CFO at Sallie Mae
• Mark DeVries, Director at Deutsche Bank
• Moshe Orenbuch, Managing Director at TD Cowen
• Sanjay Sakhrani, Managing Director at KBW
• Terry Ma, Director at Barclays
• Donald Fandetti, Managing Director at Wells Fargo
• Jeffrey Adelson, Executive Director at Morgan Stanley
• Yuna Sohn, Analyst at Jefferies
• Caroline Lada, Analyst at Bank of America