SLM Corporation (SLM) Q1 2012 Earnings Report, Transcript and Summary

Good morning. My name is Maya, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sallie Mae First Quarter 2012 Earnings Conference Call. [Operator Instructions] Mr. McGarry, you may begin your conference.

Thank you very much. Good morning, everybody, and thank you for joining us for our earnings call this morning. With me today are Al Lord, our Chief Executive Officer; Jack Remondi, President and COO; Jon Clark, our Chief Financial Officer. After the prepared remarks, we will open up the call for questions. Plus, before we get started, please keep in mind that our discussion today will contain predictions, expectations and forward-looking statements. Actual results in the future may be materially different from those discussed here. This could be due to a variety of factors, and listeners should refer to the discussion of those factors on the company's Form 10-K and other filings with the SEC. During this conference call, we will refer to non-GAAP measures we call our core earnings. A description of core earnings and a full reconciliation to GAAP measures and our GAAP results can all be found in the first quarter 2012 supplemental earnings disclosure. This is posted, along with the earnings press release, on the Investors page at salliemae.com. Thank you. And I will turn the call over to Al.

Thanks, Steve. So good morning to all of you, and thank you for your interest in Sallie Mae. I'm going to try to keep my comments short, talk to you about the quarter's performance a little bit, and I will have a few comments about recent news reports that continue to report on growing student loan defaults. First quarter unfolded generally as we and you projected. We earned $0.55, which includes some earnings from debt gains. We are well on track to meet and we will likely exceed our $2 annual earning expectations. As Sallie Mae evolves, our growing private credit earnings are replacing diminishing self revenues. We are growing earnings in the aggregate. A pleasant surprise in the quarter was not just the direction because the direction was expected, but the pleasant surprise was the pace of our private credit quality improvement. Charge-offs were down. Delinquencies are down. Forbearance was down, and our collections were up, and so we lowered our provision. Not a surprise, but a major factor in the first quarter earnings, was our reduced FFELP margin, and Jon will talk to you about that in some detail. It's a combination of timing and permanent declines. Margin fell all the way to 85 basis points. We think, as a longer-term running rate, the number will be closer to 90 basis points. But it was down and affected our earnings substantially. Our OpEx was too high. Again, most of that was timing. But I think maybe we lost a little discipline after our focus on last year's Q4. Those numbers will go down in subsequent quarters. So we see 2012 playing out very much as expected. Certainly, the credit situation feels better. We'll update guidance in June, but I'll tell you that, at least as of today, our -- the bias is probably up. Let me just talk a little bit about recent headlines, and then turn this over to Jon. This country underwent a significant financial crisis in our very recent past. All of us want the crisis to stay in the past, and I would bet that our listeners remain somewhat twitchy about America's economy. Even after several years of 0 interest rates and aggressive Fed action and stimulus spending, et cetera, et cetera, et cetera, the economic direction is far less than certain. So it's not really a surprise that many of us see bubbles around every corner -- financial bubbles around every corner. And it's certainly difficult not to notice and maybe even worry about the recent run-up in student loan debt. There has been $200 billion originated in the last couple of years. I would note that of that $200 billion. Probably less than $20 billion of it was private loans, and something around $6 billion of that $200 billion was Sallie Mae loans. And I am certainly not the last word on this subject, and I confess to being a little bit wide-eyed myself at the $200 billion number. But the fact is that we manage about 20% of those loans, and we do have pretty close insight into how they behave. I can't speak for the other $800 billion of the so-called $1 trillion of student loan debt, but I can tell you based on the performance of our portfolio, we don't see any evidence of anything close to a bubble. You heard what I mentioned earlier, that our $40 billion private loan portfolio is improving as credit quality is improving. Our 90-day past-due loans were down to 4.4% from 7% at their worst. Our $135 billion federally guaranteed portfolio is not underwritten, of course, and so it has higher defaults. Its 90-day past-due rate is about 8.5%, about double the private number. But it's been a number that's held steady over the years, and we don't see any evidence that it's worsening. I'll take a little more of your time and ask you to forgive my economic simplicity. But at least as we see, the bubbles are inflated asset values fueled by too easy credit. And then, bubbles burst, obviously, when asset values fall below the related debt. And certainly, student loan debt has increased and increased substantially. But on average -- on a per-borrower average, it's about $25,000 at graduation. That's a $22,000 to $28,000 range between public and private schools, but on average about $25,000. A more interesting statistic is that it has grown, inflation-adjusted, about 2% -- actually something less than 2% per year since the year 2000. That's approximately 1/2 of the inflation rate at our not-for-profit schools in this country. There are obviously many reasons to go to college, both tangible and intangible. I'll stick to the tangible, and most of us incur indebtedness to invest in our financial futures. And that's why we go to college. The graduate's financial future -- the college graduate's financial future is enhanced by, on the very low end of the surveys we have observed, $650,000; on the high end, something more like $1.5 million. Even on the low end, that represents a return some 25x the average debt investment. It's a good investment with or without present value analysis. I would say today the most tangible and immediate value of an education is to avoid joblessness, both short term and long term. And to me, the numbers speak for themselves, and they are really eye-catching. The 20- to 30-year old college graduate today is unemployed at a rate of about 5%. That same age group without a college education is unemployed at a rate of about 20%, 4x higher. This is not to be Pollyanna-ish. This -- as I said, the statistics stand for themselves, I don't, the company doesn't and I don't think most responsible individuals minimize the risks of overborrowing. It happens too often. We read the newspaper stories every day. I read several of them yesterday in the Wall Street Journal. I will tell you, distraught borrowers email me every day. I get calls at home from distraught borrowers. The stories are painful. Sallie Mae learned a great deal during this recent crisis. Among the things that we have learned is that borrowers and lenders must make responsible financial decisions. And included in those -- in that assessment is sorting out the long-term value of the education. It sounds obvious. It was not always obvious and, apparently, it still is not always obvious. I will leave my remarks there. Thank you for listening, and we will take your questions later. I'm going to turn it over to Jon. Thank you.

Thank you, Al. Good morning, everyone. To echo Al comments, this was a good quarter. During my presentation, I'll be referring to the first few pages of our first quarter review, which can be found in the Investors section of our website. Starting at Slide 3. We generated strong earnings of $0.55 per share. The performance of our private credit portfolio continued to improve. Loan originations grew 23%, with higher FICO scores and cosigner levels. And we exceeded our financing goals, issuing unsecured debt as well as multiple FFELP and private credit ABS deals. We also increased our dividend by 25% and continued to repurchase shares. Turning to Slide 4. For the quarter, core earnings were $284 million, or $0.55 per share, compared to $260 million, or $0.48 per share, for the year-ago quarter. Operating expenses in the quarter were down significantly from the prior year, primarily as a result of our cost-cutting efforts. However, they were up from the fourth quarter. This increase was driven by seasonal impact of increased loan originations and collection costs in the first quarter, as well as a payment of incentive compensation. We expect operating expenses will decline in subsequent quarters. Turning to Slide 5. Turning to the FFELP loan segment. FFELP core earnings were $82 million for the first quarter compared to $109 million for the first quarter of 2011. The FFELP student loan spread declined 96 basis points from 107 basis points in the year-ago quarter. That decline was principally driven by the runoff of lower cost ABS deals that were replaced by higher cost ABS and unsecured debt, as well as increased CP-LIBOR spread. We expect FFELP student loan spread to stabilize at this level for the remainder of 2012. The runoff of less-expensive funding and a declining student loan spread is factored into the long-term cash flow projections we have provided to investors. In the quarter, we purchased over $900 million of FFELP loans. In addition, we have several more purchases in process, which will bring acquisitions in the first half of the year to over $2 billion. We will continue to actively and aggressively seek to acquire additional portfolios. Congress passed legislation that changed the index used to calculate student loan yields from 90-day financial CP to 1-month LIBOR, beginning April 1. This will even further increase the predictability of our FFELP cash flows. Turning to Slide 6. Our consumer lending segment is beginning to show the kind of earnings it can generate now that credit is beginning to normalize. Earnings from our consumer lending segment were $81 million for the first quarter, nearly double the $44 million earned in the first quarter of 2011. The increase in earnings is a result of higher net interest income and lower provisioning for loan losses. Net interest margin improved to 4.26% from 4.11% in the year-ago quarter. Private credit portfolio characteristics continued their positive trend. 90-plus-day delinquencies declined to 4.4% from 5.1% in the year-ago period. Forbearance has also declined to 4.3% from 4.6% in the prior year. Net charge-offs as a percentage of loans and repayment for our entire portfolio improved to 2.96 % from 3.94% in the year-ago quarter. We are seeing improvement across the board. Charge-offs have not been under 3% since the third quarter of 2008. While we are pleased to have crossed this significant milestone, we think this trend will continue and charge-offs will normalize at levels significantly below where they are now. The continued improvement in our charge-off rate is a direct result of the increase in the quality of loans that we've originated in the last 3 years and the constantly improving demographics of our legacy loan portfolio. As a result of the improvement in private credit performance, our loan loss provision declined sharply from the year-ago quarter, dropping to $235 million from $275 million. The provision exceeded charge-offs in the quarter primarily due to the fact that we're booking life of loan loss allowances for loans that are classified as TDRs, compared to 2 years of loss expectations for the rest of the portfolio. We expect the provision to continue to decline as charge-offs and delinquencies improve. Finally, the Consumer Lending segment was more efficient than a year ago, with operating expenses as a percent of average managed assets dropping to 77 basis points from 90 basis points in the year-ago quarter. Turning to Slide 7. We originated $1.2 billion in private credit loans in the quarter, an increase of 23% from the first quarter of 2011. The loans we originated had a FICO score of 748, and 88% of the loans had a co-borrower. This is up from 737 and 87% in the first quarter 2011. We are very pleased with the high quality of the loans we continue to originate. Smart Option loans continue to be an attractive product that offers both competitive pricing and repayment choice, with 40% of our borrowers choosing the deferred option; 24% choosing fixed pay; and 36% choosing full current interest payments in the quarter. In the Consumer Lending segment, we are in a position to significantly increase our loan originations while maintaining a conservative approach for our loan loss reserve and credit underwriting. Slide 8. In the business services segment, total earnings were $139 million in the quarter compared to $132 million in the first quarter of 2011. The company now services 3.7 million accounts under the Department of Education servicing contract. We continue to seek opportunities or businesses that will expand our fee income growth and leverage our core competencies in servicing and collections. Slide 9. Turning to capital markets. So far this year, we have issued $1.4 billion of private credit ABS in 2 separate transactions. Last year, we closed on -- last week, we closed on $891 million private credit ABS deal. This was the largest private loan ABS we've issued since we relaunched our program in early 2011, and it was placed at 1-month LIBOR plus 212 basis points. The ABS market continues to strengthen, enabling us execute our long-term funding strategy of originating new loans at our banks and term funding more seasoned originations in the ABS market at attractive spreads. We have also completed 2 FFELP ABS deals for $1.6 billion. We will continue to regularly issue FFELP ABS to meet the wind down of the Straight-A FFELP facility. Finally, turning to Slide 10. Turning to GAAP. We've recorded our first quarter GAAP net income of $112 million, or $0.21 per share, compared to net income of $175 million, or $0.32 diluted earnings per share, in the year-ago quarter. The primary differences between our first quarter 2011 core earnings and GAAP results are the marks related to our derivative position. I'll now turn it over to Steve McGarry.

Thank you. Maya, we're ready to take questions.

[Operator Instructions] Your first question comes from the line of Eric Beardsley from Barclays.

On the FFELP margin, it sounds like you said you expect to be stable at these levels through the remainder of the year. I believe Al also mentioned that it could get back up to 90 bps. Where do you think the trajectory is moving forward, and in terms of the decline from 4Q over the biggest factors in terms of the timing?

Yes, in terms of the trend, we'll be -- we expect it will be moving slightly upwards. But I think the message that we were trying to deliver is that, as I referred to the 170 basis points a year ago, was slightly elevated. And we're going to be in a range which is going to be lower than that.

Okay. In terms of the CP-LIBOR impact, how much of that will reverse with the new Special Allowance Payment calculation?

Well, the CP-LIBOR -- I think what you're alluding to, the CP-LIBOR is going away. There -- the reality is you continue to -- we'll continue to have some exposure on our 1 month versus 3 months because of the -- we still have a fair amount of 3-month funding out there, but that is winding down. But we're taking a conservative perspective on our projection in terms of that spread.

Okay, great. And then, just lastly in terms of the pace of share buybacks, obviously you worked through a fair amount of the authorization in the first quarter. How should we think about the pace of that for the remainder of the year?

I think you can expect that pace will continue in our current trajectory.

Okay. And in terms of, I guess, re-upping, is there an expectation to revisit in the second half of the year?

We have yet to have those discussions with our board.

Your next question comes from Brad Ball from Evercore.

Jon, the conference call cut out on the last question, and I was looking for the same question, which was more detail about the reduction in the FFELP net interest margin from 97 down to 85. What was behind that decline? And then, I think, Al indicated that it's going to get back into the 90-basis-point range. If you could talk about what's behind the rise back up and what the timing of that would be?

Well, there are a number of factors, which are -- Brad, which are at work here. Some of the factors were, as I've mentioned, historically, the CP-LIBOR cost of funds, where -- which we built into all our forecasts, right? We are rolling off lower cost ABS deals and, in the current environment relative to 10-plus years ago, issuing at wider spreads. There also were some anomalies which existed. You have to be careful quarter-on-quarter with day counts and things like that. So our basic -- I think what we're trying to do is manage expectations as to what the -- where the FFELP spread will come out. And we expect it will come out in a range -- generically, in the range where we are now. But the realistic expectation is there'll be a little bit of upward pressure on that.

Okay. So the spread, which came in at 96 basis points, and the margin, which came in at 85, again, the guidance is around where it is now with some upward pressure?

Correct.

Okay. Separately, you did $900 billion -- excuse me, $900 million of FFELP acquisitions in the quarter. Could you talk a little bit about what the acquisition environment looks like ahead? Do you see good opportunities continuing to buy FFELP portfolios out there?

Well, we booked $900 million. We will book by midyear enough to reach -- exceed $2 billion in FFELP acquisitions. So we will exceed what we did all of last year, so that's a good sign. Forward-looking, Brad, is kind of challenging because you -- there's some big elephants out there. And if we can snag one of those, that can really move the needle. But in general, the flow is certainly better than it was last year, and we're hopeful that the second half of the year will be, well, April 1. But it's really hard to get much visibility out that far.

Okay. And then, my last question. Al, you mentioned in your opening comments and in your shareholder letter yesterday that -- it sounded like that you could see some reasonable reforms to bankruptcy laws. Just curious what you're thinking is on that and whether that's changed, whether you think that it's appropriate for the non-dischargeability of private student loans to be removed.

Well, I think what's in the letter is that we can contemplate that student loan debt, after a 3-, 4-, 5-, 6-year period, becomes like all other debt, and it could be dischargeable. The issue for 40 years has been that the borrower is essentially -- could essentially file for bankruptcy on graduation day because they, obviously, don't have any assets. But the company's policy has always been that -- and we don't -- as you're well aware, we don't have a vote here, but we do have a point of view. And our point of view is that it would be reasonable that after a fairly extended period, and I mean probably 4 years or more, that this debt be considered eligible for bankruptcy. Our position isn't that we're urging it. We're -- the point is that it -- the existing conversation tends to differentiate -- the issues recently have been to differentiate federal from private, and obviously, we don't like that. And the fact is that they're both the same kind of debt, the same kind of borrowers. 98% of the borrowers that we have in private also have a federal loan, so we don't see the distinction there. But the fact is that a young person comes out of school, he's got a daunting amount of debt and the $650,000 to $1.5 million value that he is acquired -- he or she has acquired, is well into the future, and the debt is now. So we think it's inappropriate that you dismiss the debt on day one and the benefits come later.

If the 4-year time frame that you talk about were adopted, what impact would that have on your private student loan pricing or the marketplace in general?

Brad, you're not a legislative aid or something, right?

No, but I'm very interested in Sallie Mae, Al.

Okay, and I know you are. I don't think -- I don't know that one could measure the effect, it would be so small. Look, we have -- we underwrite our loans to a high FICO score, and they're very heavily cosigned. This issue really is, for us, it's more of an equity issue, where the idea that federal loans somehow are different than private loans and serve some different purpose and that private loans are to be singled out to lose this bankruptcy exclusion seems to us to be pretty inappropriate. But the fact is we think our debt and federal debt for that matter, at some point in the future, after the student borrower, and of course, this borrower is no longer a student, has exhausted efforts. There are plenty of good reasons, obviously, for the existence of the bankruptcy law in the first place and for its applicability to our borrowers at some point, but some point well after graduation.

Your next question comes from Moshe Orenbuch from Credit Suisse. Moshe Orenbuch - Crédit Suisse AG, Research Division: I guess not to beat up this FFELP margin too much, but the cost of funds went up. And I guess, is that permanent? What drove that? Is that where it gets recovered? Or does is get recovered as the -- on the other part of the CP-LIBOR hit?

Well, going forward, the cost of funds, you're right in that the cost of funds, Moshe, are what they are. That's tantamount to physics, right? The old substance that's cheaper is rolling off, and the more expensive stuff that we originated is rolling on. So that part of the component is, I'll call it, stickier, although clearly, we're in an environment where spreads are improving. So if you look forward, the year-on-year comparison that may get -- to the extent that spreads continue to improve in the ABS world, that impact will be dampened. But it's hard to imagine, near term, going back to the kinds of spreads we saw a decade ago. Moshe Orenbuch - Crédit Suisse AG, Research Division: Got it. On a separate manner, the funding transactions that you've done both on the private -- particularly on the private, but both on the private and the FFELP, how much of cash does that free up, if any, kind of at the parent? Is there any way that any of those private loans are being held at the parent? Or are they all coming out of bank?

They're -- well, as you may recall, Moshe, when we do these deals, I'll give you an example of a private credit deal, we take loans from the bank. We take loans from our existing private credit facility where we refunded our former FFELP transactions, and we also take from the holding company. So when -- after you pull from all those places, the net impact on hold co cash is rather limited. Obviously, they pick up a lot of cash in the bank, which is where we're originating all our private credit loans. Moshe Orenbuch - Crédit Suisse AG, Research Division: Got it. As you kind of think about the parent company cash, what are the big kind of ins and outs over the next couple of quarters? Because that did -- at least, what you show in the supplement, that did increase on the quarter.

Yes, we -- the big ins and outs, obviously, to the extent that we continue to buy portfolios that uses a fair amount of cash. We're generating cash obviously, our free cash flow. But the big uses, if you will, would be buying back debt, dividends, buying back stock and buying portfolios. Moshe Orenbuch - Crédit Suisse AG, Research Division: And Jon, you bought back a little over $200 million of debt. Is there -- are there more opportunities, because it looked like the gains were pretty material on the portion that you bought back?

Yes, there are more opportunities. It's not a torrent of opportunities, but you just -- you have to just keep pounding the pavement, and there are opportunities out there.

Your next question is from Sanjay Sakhrani from KBW. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division: So I had a similar question on the margin, but on the consumer lending segment. How should we think about that margin going forward? We saw a nice improvement this quarter. And then, on credit quality as well, obviously very good performance, and it seems like the delinquency trend suggested more that to come. So could you just talk about what your expectations are over the rest of the year?

Sure. I mean, I'll start with the credit side. The credit side, we're very bullish. We've -- as I mentioned in my talking points, we -- charge-offs have now under 3%. It was the first time since the third quarter of 2008. The quality of the loans that we're originating is quite high. The legacy portfolio is seasoning, and therefore, the demographics there are quite supportive. So we have a very -- what I'll call a very good trajectory and a lot of momentum. So I think we feel very good about the trends in credit. We are wary about the macro issues in the economy and are therefore, appropriately circumspect, but we're bullish. In terms of the margin, yes, there's some -- clearly some improvement. We -- from a competitive perspective, if you want to break it down to -- I'll break it down to assets and liabilities. From an asset perspective, loans, the competitive environment is -- our competitive position is as strong as it's ever been versus our competition. We have a very good product set that we're quite proud of, which promotes responsible borrowing. And I think that resonates with people. So on the asset side, I think we're in good shape. And on the liability side, is also constructive. ABS spreads are once again -- on the private credit, are once again tightening down, and the kind of return on assets that we can expect from our private credit continues to be strong and with, I would say, an upward trend. So I think the spreads that you're seeing now in the private credit business, I would expect we would be able to maintain and perhaps improve on. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division: Perfect. I've got 2 other questions, one is just M&A opportunities outside of FFELP portfolios. Could just talk about that? And then, finally, CFPB is another hot topic. I mean, have you guys had any discussions with them or any indication of kind of what the scope of their investigation or thoughts are?

Sanjay, Al Lord. Well, Jon told you or listed the various uses of cash, which include share repurchase and debt repurchase. And I've -- we've suggested in the past that we're also on the prowl for fee-generating businesses, and that remains true. We're looking for opportunities to expand our fee income. We've targeted some billion dollars in total fee income over the next few years. We kind of run in the $600 million range now, so we are on the prowl. We're looking at things all the time, nothing imminent. The CFPB front, I don't know. I'm not sure what to tell you. We have conversations with them from time to time. They ask us a lot of questions, not necessarily Sallie Mae-related questions but just generic questions about the industry. They've undertaken a program to encourage borrowers who are unhappy to send them complaints about us and, I guess, other lenders. And we've had some conversations with them about the nature of the complaints. I guess that maybe gives them some special insight into our lending policies. To this point, nothing has evolved from that process that causes us any particular concern. My understanding is that complaint levels have been light, reasonably light and not particularly unexpected. I guess that is long winded way of saying not much on the CFPB front. I'm going to ask my counsel. Is there anything else I ought to talk about? Okay, so -- I guess the bottom line is not much to report.

Your next question is from Michael Tarkan from Topeka Capital.

I was wondering if you could touch a little bit more on the demand trends within private student lending. Specifically, I know Chase and U.S Bank weren't large competitors at all. But with the significant growth we're seeing this quarter, I'm just wondering if that's sort of more of you taking share or just overall increasing demand, some sort of combination. Maybe if you could just touch on that.

Sure. Michael, this is Jack. Demand was -- is strong for our products. Part of that is due to the competitive environment. I think part of it is also due to consumers being more willing to return to the borrowing side of the equation. We are seeing application growth as we head into 2012 up over our plans, which is good. Both entities that you mentioned that have exited the student loan space were relatively small players. We do expect to be a beneficiary of that segment. I think we also see that as interest rates continue to be low that we have an opportunity to compete effectively for -- with both graduate programs and parent loan programs that are offered in the federal loan program and offer consumers what may be a better price in those spaces.

Great. And then one quick modeling question. Can you just tell me what the ending diluted share was for the quarter? I know the average was 510. Just curious what the ending number looks like.

493.

[Operator Instructions] Your next question comes from Lee Cooperman from Omega Advisors.

I'm just trying to get into your head, if I may. Which is a more important driving force in the aggressiveness of your stock buyback: is it management and the board's view of how the market is pricing the business versus what you believe the value to be or is it more importantly a function of the fact that we have a larger mass of liquidity? What do you think is the more important driving force?

Lee, this is Al. I don't even measure it that way. Look, I think the stock, particularly now even, that's fallen off recent price levels is a screaming buy. It's so discounted to its actual value that it would be inappropriate -- it would be managerially inappropriate for us not to be buying the stock.

Is that then suggestive that -- do we have the liquidity if we finish the program, for example, in Q2 that we could re-up this year? I know it's a board decision, but given what you just said, I would assume that the management's recommendation to the board would be to do something like that.

Look, Lee, I don't think there's any secret that if we had even more capital -- keep in mind, our capital distribution runs roughly 75% of this year's earnings between dividends and share repurchase. And so it's difficult for me to see getting very much ahead of that. That share repurchase will be on the table so long -- and aggressively on the table for management so long as we have this extraordinary discount against the value. As the more precise timing, I'd ask you to give me a little breathing space.

Your next question is from David Hochstim from Buckingham Research.

I wonder -- could you tell us how many portfolios are involved in the $900 million of FFELP purchases and I guess also the remaining billion-plus?

I can tell you round numbers. If I look at the $2 billion for the year, I could tell you it's, confidently, more than 1 and less than 10.

Okay. And then, is there any update on the campus solutions business? Anything new happening there in the first quarter?

In that space, we continue to—this is Jack -- working aggressively to sign up new clients, particularly in the cash and funds space, and we make progress there. It's a very, very seasonal business, all right, so new clients being brought on tend to move in cycles with the academic cycles. So it will be traditionally a light quarter.

And then, just back to the growth in private loans, could you maybe give us another ordering of the importance of the kind of the breadth of the product offerings and lack of competition on the demand side in terms of the accelerated growth we've seen over the last few quarters and if that can -- how long that can continue, you think?

Well, we think we offer a very competitive product for families to help finance their children's education. And I think one of the things that we've been able to do that has been very strongly received by families and schools is a variety of payment options and the clarity of what those payment options mean from a total finance cost perspective. And when we do that, I think the school helps our marketing efforts on the campus, but we also continue to see very strong demand coming through non-campus channels as well. As college tuition costs continue to increase and federal resources remain somewhat fixed or even somewhat declining, we would certainly expect an upward bias of demand for private student loans, and we expect to continue to take market share in that area.

Has there been much of an expansion in terms of the number of schools that your borrowers are attending? Are they increasing in for-profit or...

Well, there's a -- the mix is always a little bit different each quarter. So our vast majority of our borrowers are coming from traditional -- they're traditional students going to traditional schools, meaning kids graduating from high school going to 4-year colleges and universities. That is our sweet spot, and that's where we tend to focus on. This time of year, you tend to have more graduate borrowing, more adult borrowing going on because it's just off cycle of the academic period.

Your next question is from Scott Valentin from FBR. Scott Valentin - FBR Capital Markets & Co., Research Division: Just with regard to the regulatory front, has there been any progress on SIFI status? Have you talked to anyone? Is there any update there?

There is no update on SIFI. I think that will be -- that whole process I expect, for us, will be rather protracted, so no update. Scott Valentin - FBR Capital Markets & Co., Research Division: Okay. And then second question. I think you said that expenses were maybe a little bit higher than expected during the quarter. Just wondering where these opportunities are further reduced and maybe what drove some of the higher expenses.

Well, there was a number things that happened in that particular quarter, one of which was compensation expense, which was -- it was booked heavily in the first quarter. And I think there are some elevated levels on the collection side as well due to some seasonality, and they were very -- the proof's in the pudding. They did a very effective job. Our collections were quite good. I would expect though that going forward some of those -- many of those costs will normalize, and you'll see lower numbers in the ensuing quarters. Just on that operating costs, I think it's important to note as well that our volume levels are increasing, so we're seeing 23% increase in private credit demand. We're seeing -- we have 16% more loans that we're servicing for the Department of Ed. We're collecting more. We have new lines of businesses in our collection business: tuition, insurance, et cetera. And all of these things are new this quarter, are increases relative to prior periods. And despite those increases, we are still working towards reducing our overall OpEx expense.

And there are no further questions at this time.

Thank you very much, Maya. That concludes our call. If you have any follow-up questions, please feel free to call myself or Joe Fisher. Thank you.

Thank you. This concludes today's conference. You may now disconnect.