SLM Corporation (SLM) Q2 2018 Earnings Report, Transcript and Summary

Good morning. My name is Laura and I will be your conference operator today. At this time, I would like to welcome everyone to the 2018 Q2 Sallie Mae Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Mr. Brian Cronin, Vice President of Investor Relations. Sir, please go ahead.

Thank you, Laura. Good morning and welcome to Sallie Mae's second quarter 2018 earnings call. With me today is Ray Quinlan, our CEO, and Steve McGarry, our CFO. After the prepared remarks, we will open up 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. This could be due to a variety of factors. Listeners should refer to the discussion of those factors on the company's Form 10-Q 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, a full reconciliation of GAAP measures and our GAAP results can be found in the Form 10-Q for the quarter ended June 30, 2018. This is posted along with our earnings press release on Investors page at salliemae.com. Thank you. I'll now turn the call over to Ray.

Good morning. Thank you all for calling in and thank you Brian. It's a pleasure to talk with you all today. We're reporting on a company that is a great company and had a great quarter and has indeed had a great – having a great year and has had a great first half for 2018. We’ve made progress in every area that – in which we are engaged and we have great results in all those areas. Our sales growth for the second quarter was 13% over the prior year as the largest organic increase that we’ve had since the change in major legislation associated with the nationalization of the federal program in 2009. Our credit performance as you can see is excellent and better than we had planned. EPS at plus 60% is an outstanding number. About one half of that is attributable to the change in tax law, but 30% increase in EPS is also outstanding and in the quarter we had and ROE of 19.4%, all stellar performance. On the volume, year-to-date we have 2.459 billion of new disbursements for the private student loans which are up 8% over the prior year. You’ll all recall that the estimates for the market growth is running between 2% and 4% depending upon who is doing the forecasting. So plus 8 is over what is anticipated to be the market growth in the private student loan area. In the second quarter, we accelerated that growth. We had $487 million of disbursements versus $431 million in the prior year, a 13% increase. For the first quarter it was 7%, second quarter was 13%, year-to-date is 8%. We’re watching these disbursements very closely. We’re in the midst of our busy period, which as you know, it goes through the second half of July and August. And so we will take a look at that very carefully. We’re entering it in great shape. The customer experience has improved year-to-year. We’ve made it more efficient, more friendly, more transparent, and indeed giving the customers more information at the same time and as you know we’ve introduced six new graduate products which are growing faster than our overall growth which of course is growing faster than the market. While obtaining those growth numbers we didn’t comprise credit quality at all. Our FICO for approved apps are virtually identical to last year at 746 versus 747. Our co-signer rate continues to run at 89.3% roughly equal to last year’s 90%. Change in the customer’s perception of fixed versus variable and what is attractive to them is changing the profile for that product selection as it enters the door. This year so far we have 56% of our customers selecting fixed and 28% of our seating portfolio is fixed. Steve will cover how we’ve addressed that from a treasury standpoint in order to be neutral from a standpoint of ROE and profits regardless of the customer’s selection. NIM which reflects of course all of that a 6.14% in the quarter up from 5.91%, 3.9% last year. And of course at 6% is an outstanding number regardless of who ever we are comparing ourselves to. OpEx is up 22% such a high number. The company as you know is growing at faster than that. As a result, our efficiency ratio which we use as a barometer for ROE within appropriate levels for expense growth given our revenue growth continues to improve. As you know it was over 40% in 2016, it was 39%, this is the efficiency ratio of 39.6% in 2017 and in this quarter it was 38.3%. Our guidance for the year is between 38% and 39%. If we hit the midpoint on that at 38.5 we will be down over 100 basis points from 2017 39.6%. So 39.6% last year targeted this year at 38.5%, 100 basis points improvement. Within that, we are covering the investment in the diversification for personal loans. So the personal loan goal is $477 million at the end of this year. That’s part of a mailing which will spill over into 2019. So we should think about closing portfolio at roughly $500 million for organic personal loans up from zero. And so far results are quite gratifying on response rates, quality through the door population acceptance rates, take rates and the average ticket. And so the organic piece of that is costing us about $35 million this year and as part of our investment, but we are committed to improving the efficiency ratio while covering those investments which are held to the same criteria as other investments so far as they cutoff in ROE targets. Moving to credit performance, our write-offs, loan loss reserve and delinquency numbers are all excellent and as I indicated slightly better than what we anticipated. Delinquency in particular at 2.2% is exactly flat to a year ago, and that's despite the fact that in full P&I we have an increase of 34% of the portfolio moving from last year's $5.4 billion to this year's $7.3 billion. So the portfolio continues to mature, the delinquency continues to indicate the quality or to reflect the quality of our treatable [ph] population and credit positions and this is - we are in a very good position for the rest of the year in regard to that. Our balance sheet, the backdrop to this is growing 24% and the overall assets are $24.2 billion now and while we're growing that and as I said it will cover treasury, but importantly the capital ratio on which we are most focused which is risk based capital went from 13.7% last year to 13.3% this year, so with a 24% growth on the balance sheet the capital ratios are constant. Consolidations also are part of the balance sheet this quarter roughly flat to the first quarter, both finished $220 million range consistent with the guidance that was given at the beginning of the year for $900 million. In fact the quarter actually went down but that's within the lease [ph] factor. And so as we've discussed, this is something that we wish was zero, but it is on our expectation included in our forecast and we continue to expand our response to the consolidations targeting certain customers for extending near term as well as lowering our rate. Of course we don’t want to refinance people who we did not refinance in the absence of that, so targeting is what we're focused on there. But as of the moment the comp consolidations are flat to the first quarter, flat to our expectations, and included in all of our projections. We see no reason why they should be growing. EPS as I said is up 60%. I think it's important to note any number and as I said about half of it is attributable to the change in tax law. But within the context of our franchise, I think it's helpful to remember where this is in the evolutionary path of the EPS. So EPS going back to '14 was $0.26, '15 was $0.39, '16 $0.53, '17 $0.72, this year $1.0 is the midpoint of our guidance. So comp count rate on that is a 14% comp count rate for EPS with no downsides up in monotonic increase for the last five years. We're very proud of that record and we expect it to continue. Book value per share which is another indicator of are we're creating franchise value for investors and the owners has followed a similar pattern. Book value per share was $2.92 in 2014 has grown consistently and is now $5.76, a 97% increase over four years in our book value per share. And so the balance sheet reflects this, the franchise reflects this. We are indeed creating great value for our investors. ROE of course also reflects that. As I said in the second quarter of '18 we are at 19.4% and in the first quarter we are at 22%, last year at this time we were at 14.3%. And so at 19% we're very happy with that. The regulatory relations which were a backdrop of how many conversations we had in the past are all excellent. The regulatory rate letters [ph] the FDIC, The Utah Department of Financial Institutions and the CFPB are all on good terms with us. We have no tension of any significance in regard to any of them. The stock price has been consistent as you know, but I think we'll turn it over to the people on the phones who are trying to prove that, but it seems to me if we come into the bucket share with this great rate our great franchise that we have into context that we should easily get to 15p, so I can't understand why the stock is not at 15, but we will talk about that I'm sure. The market frame in which we find ourselves, and our customers, competitors, and evolution, our customers we continue to improve our relationship with them that's reflected in the high disbursement and volume numbers. Our retention is very good. Our satisfaction numbers are up. We've introduced chat as an alternative for our customers and many have chosen it and the chat satisfaction rate across all the channels being used for it is 96%. And so reflecting our desire to do business the way our customers want to do business, this is another initiative which his now in place as part of our service. It is also the case that as we looked at the personal loan response rates we are very concerned and very focused on whether or not the Sallie Mae brand would extend to a different product and indeed it is the case that this is from all accounts everything we'll test sell that we have is obvious that the brand is an extreme help to either customers, especially customers I would say, pre-existing where the numbers are multiplicably higher than noncustomers and in using our brand versus a plain envelope where there'll be no brand. So indeed the brand has lift and so it is first class extendable to other products which is very helpful. Our competition in our main area of business, private student loans continues to be very strong and I am happy to say at this junction is stable. We have an evolution in the marketplace which is that education is undergoing its - education in how Americans buy it is undergoing change. We will change with it. And so as that happens we will follow our customers and also our affiliates who are really the colleges. So the grad products that we talked about a little bit earlier reflect that. We got very good results on those so far, but as people marginalize their consumption of education with limited target distance learning, we will reflect within that changes in our service and products to reflect those evolutionary changes. Our employee base continues to be a source of strength for us with overall turnover running less than 7% and we are filling for career movement over 60% of our jobs are being filled by people who are already within the company. Our outlook is good. EPS as you know is $0.99 to $1 that if we hit a dollar on that to midpoint we'll be up 39% of the year. The efficiency ratio as I said, the midpoint on that is 38.5% that will be 100 basis points, 110 basis points improvement from the prior year. Originations despite the fact that we've had such a good first half were holding to $5 billion at an abundance of caution because we are in the midst of busy season and the analysis would be if we were a retail store and it was November 10, now we're looking at the full year we would be optimistic which we are, but appropriately cautious given a lot of volume has to come in the next 45 days. So in summary, we have a great company and its having a great year. Our volumes up, our return to shareholders in EPS and ROE are excellent, with EPS up 60%. Our credit is outperforming our expectations. We continue to make progress on all fronts including the diversification and personal loans are up to $100 million outstanding. The grad products have been well received. We have a great team and it is a pleasure to talk with you today. Thank you. And at this point I will turn this over to steve.

Sure, thanks Ray. Good morning everybody. We can cover the NIM and funding real quick here. So as Ray mentioned, we've got more and more fixed rate assets coming into our portfolio over the course of the last year, the change in both our asset yields and cost of funds has principally been driven by changes in LIBOR, but as a percent of fixed rate loans in our portfolio increases that correlation will diminish. We do continue to benefit from a low spread environment we are in. We're also benefiting from the favorable pricing on our growing money market deposits portfolio. In addition, in this particular quarter we benefited from an increasing component of fixed rate funding in our portfolio and I know Brian got a couple of questions about the rising costs, but our broker deposits in that is principally because we are prefunding the fixed rate loans that we expect to disperse in the third quarter. So that would balance out once we start dispersing in our peak season. Real quickly, in the quarter we completed our second ABS transaction, 2018-B. We raised just about $700 million of term funding at a price of LIBOR plus 76 basis points. This was our best ABS deal to date. We'll continue to use the ABS market as a way to diversify our funding, but more importantly, it helps us waive fixed rate funding and immunize our portfolio to interest rate changes, so a good source of funding there. This particular bond included a fixed rate tranche that totaled $335 million and has a weighted average life of just over six years. So that's basically the funding situation. The NIM came in at as you know 6.14 for the quarter and we will really expect it to decline in the third and fourth quarter as our cash balances increase in anticipation of peak and then the first quarter of funding needs, but we do expect the NIM to decline in the third and fourth quarter and that were to be about 6% for the full year. So that concludes our prepared remarks and we will now turn it over for questions.

[Operator Instructions] And our first question comes from Michael Kaye of Wells Fargo.

Good morning. Your investors are concerned where you are on a credit cycle and at the same time you're pushing into personal loans which have more credit risk. So kind of what's your view of the general health of the consumer and how are you balancing the diversification benefit with now added credit risk?

Sure, so well Michael the organic [ph] portfolio is any indication of the health of the consumer, they are in very good shape. Our student – private student loan portfolio is performing exceptionally as we just commented. On the personal loan front what we're doing is basically underwriting and targeting preapproved credits and we think that the overall health of the organic portfolio can be pretty solid. Our average FICO score is above 720 and of course we will watch the performance very carefully.

Okay, second question, I know you typically don't provide an outlook into Q4, but in general how do you think about the trajectory of operating efficiency beyond 2018? I recall you implied that you are eventually on a destination to drive it down to the mid-30s, is that going to be still the case.

So look, we just had our senior management off site, where we look at believe it or not a seven-year plan to see if there is anything beyond three years and maybe the third year is anybody's guess. But when we chart out this business we do see a continuation of improvements in our operating efficiencies and we can certainly get to the mid-30s on the trajectory that we're on.

Okay, thank you.

Our next question comes from Sanjay Sakhrani of KBW.

Hi this is Steven [indiscernible] filling in for Sanjay. Just sort of following up around the personal loan side, can you just talk about what gives you comfort around growing in that area?

So sure Steven we've talked about our entry into the personal loan business in the past. We are a consumer lender. We do believe that we have all the requisite skills to underwrite service and collect personal loans, particularly our credit department is very strong and we are in the process of well that we have built our custom credit scorecard and of course we will continue to test and improve as the business grows and develops. But at the end of the day we are a consumer lender and our team has been assembled from the best in the business. We are represented by people from Discover, Chase, [indiscernible] so there is plenty of experience in that product set within the company here.

Got it and around CECL could you provide us any updates around your thoughts on that? Thank you.

So our thoughts on CECL haven’t changed and the backdrop if anything has improved. Our number one point has been that implementing CECL would not require us to do anything along the lines of raise capital. As you can see from the trajectory that we are on as we approach CECL all things being equal our capital ratios, both common equity, the risk base and total risk base should be increasing. We will be very well positioned when CECL is implemented. And we took heart in the fact that the regulators proposed a three-year phase in which takes even more of the pressure off of the CECL implementation and we have seen in the last two weeks many comments from the industry and they are all basically focused on increasing the term of the phase-in and potentially giving banks regulatory capital relief once CECL is implemented. So without any changes we're in fine shape and we of course would welcome additional changes the regulatory capital regime as CECL is implemented. Hopefully that covers your question.

It does, it's great thank you.

You're welcome.

Our next question is from Mark DeVries of Barclays.

Thanks. Steve could you talk us through what your expectations are for annualized charge-offs and the personal loan portfolio and also how do you expect that to affect provisioning as that portfolio seasons?

So we expect basically life of the loan losses of 9.5% on our personal loan portfolio and that merges with average annual losses in the call it a 4% vicinity. Our current personal loan loss allowance is I think at 3.4% and we'll build slightly from here. So that should give you an idea of what we're expecting on this product.

Okay and what impact is that having as you build that portfolio around your NIM?

I think it will be slightly positive as we continue to increase the person loan portfolio. But keep in mind it's going to about 5% of our total assets on a good day so it's been having to minimal impact.

Okay, got it. And finally have you guys implemented any of your more defensive measures to kind of fend off some of those consolidation threats?

So we ran a pilot where we did some term expansion and it didn’t have a significant impact and we are now as Ray mentioned in his opening remarks that we are very carefully looking at potentially lowering the rate on at risk customers. But we will do it very carefully so that we don’t actually consolidate people that wouldn’t normally do so. And meanwhile, the backdrop in the marketplace and I know on the number one growth and record on this topic, but as the market continues to move against the consolidators with longer term rates continuing and chops others, if there was ever any positive minimum [ph] product that is pretty much all been despaired in this rising rate environment.

Okay. Are you starting to see the impact of higher rates pushing up the rates being offered by these consolidators right now?

Not as much as I would like to see, but they are at the margin increasing the cost of their offering.

Okay, great. Thank you.

You're welcome.

[Operator Instructions] Our next question is from Moshe Orenbuch of Credit Suisse.

Good morning. This is actually James [indiscernible] for Moshe. How are you guys doing?

Doing well, James.

Good, good. I was wondering if you could touch on the grad and parent markets? Specifically I was hoping you might be able to quantify the total addressable market you think you can earn. And I was wondering if having gone to these markets implemented a grad product and implemented a parent product, you probably have some sense for what percentage of those markets meet your underwriting standards? Can touch on what you think you could actually underwrite per your standards? And then also how many grad schools are you on a lender list at and what percentage of the total grad plus originations does that represent?

Sure and thanks for calling in James. And so as we look at the grad and our parent markets we're going into those I would say at a measured pace. And so the parent loan that we have is a relatively small portion of our total disbursement. It is increasing each year. Parent PLUS is a competitor, is obviously it is underwriting standards as in none and it’s a large market. And so as we look at it there is an approval rate that is consistent with our overall personal loans, private student loans rather. And it's a case that we're happy with that, but the parent appears to be relatively small as a section of the business at the moment. Grad on the other hand the government as you know charges origination fee of over 4% and the APRs are quite competitive with, but it's a smaller population per program and we have undergraduate and less margins. And so as we work our way with these schools which have a heavy involvement with the individual medical, dental type of customers were seeing terrific progress on that, but it is progress as we walk from school to school. This is not an area where you drop 10 million pieces in mailing and it changes the portfolio immediately. So we think the grad opportunity is quite significant and we're happy to be up to a start, our applications are up over prior year stats than the overall portfolio, our originations are up faster than the portfolio and so those outstanding numbers that you saw for the second quarter of plus 13%, the grad products are all in excess of that as we speak.

Got you. That’s helpful and maybe could you touch on what percentage of the $10 billion grad plus market do you think meets your credit underwriting standards and maybe quantify the number of schools that you're on the lender list at and how much of the total market does that represent?

Sure. First of the lender list pattern that we see in undergraduate is much more spotty in graduate, and that's the graduate schools tend to be a little more one by one. We look at the entire grad programs that - our extent and what portion of that would be underwritable by us. I don't think it's largely different from what you would see in other mature high quality professionals on the way to great success type of pattern which is probably 40% or 50% of the total.

Got you. Thank you.

Thank you.

Our next question is from Michael Tarkan of Compass Point.

Hey guys, this is actually Andrew Eskelsen filling in for Mike. First question on the personal loan side, can you talk about your cost to acquire customers, how is that trending, how should we think about the economics of building out your own in-house offering versus buying from a platform? And then sort of just a follow up to that, are you - can talk about the percentage of the mix of borrowers from your existing borrower base versus new customers?

Sure, first things first. Our efforts are held for the same ROE standards as our overall activities and that's true whether it's purchased personal loans or whether it's organically grown loans. We’re developing the numbers to be harder on cost to acquire as well as volume and how that grows with us. As you know, we’re at about $102 million of outstanding receivable in the organic personal loan as of June 30. That was zero on January 1 and we expect it to be about $500 million still very small proportion of things as Steve said by the end of the year. So we are doing quite a bit of testing as you might imagine, we're testing the response rates, we're testing the approval rates, we're testing the activation rates and the take rates. And as we look at it, those multiple streams on average are doing exactly what the model would say is appropriate consistent with that mid-teens ROE. And so as we look at it, we’re quite happy. In regard to the question about our own portfolio, we certainly have done some testing there as well and as I indicated in the opening remarks, the results are extremely gratifying. We're testing in particular two things; one is for existing customers would they entertain doing more business with us. The early results are unequivocally yes and the response rate is multiplicatively higher than our personal profile customer who doesn't have relationship with Sallie Mae. Second is for those people who do not have a relationship with us who are in the cohorts that which we think we'd like to do business on, do they think the Sallie Mae name is more attractive than and is not a misname or no name, and the answer is absolutely yes. And so we're very happy with the list associated with those response rates. Early days for everything. We're testing multiple channels and we're evolving our trade offs for between gaining more knowledge and being efficient through the year and we will continue to do that.

Okay, great, thanks. One more, where are we on the credit card effort, can you talk about that a little bit please?

Sure. Our credit card effort, our calendar hasn’t changed from the last time we spoke and so we're expecting to have a credit card in the field during the first half of 2019. We are working with partners, we are not building the infrastructure associated with that. We don't think there is any upside for us and we do think that there is excess capacity in the industry and so we are preceding now to make sure the operational pieces are in place. We're working with the product design. We have a specific target segments for the credit card and as I said we will have our first cards in the field over the next almost exactly one year from today.

That's it for me. Thanks guys.

Okay, thank you.

Our next question is from John Hecht of Jefferies.

Good morning guys and thanks for taking my questions. First a kind of higher level question, you're clearly growing your origination faster than you perceive the end markets to be growing, where do you guys think you're gaining share and what does that mean for the overall competitive environment?

Well we think one is it's a relatively mature market. It's large in the sense that lots population, it has very respectable competitors with at it and so there were two things, two techniques that we're pursuing in regard to this from a structural strategic standpoint. The first is evolutionary, and so if this were a Japanese telephone call we'd be talking about Keizen, Keizen, Keizen, which is constant evolutionary improvement. And so we are seeing that in these throughputs of our customers. How many customers started an application versus finish? How do they evaluate the amount of money they would like to borrow? We're giving them additional tools. We've redesigned our apps so far as you know, how much money would you like, how do we have sliders for easy ergonomics associated with that and so that’s an efficiency peace. Making things better for the prospects, better for the customers, and making sure that we are less inefficient. On the other hand so that's one we just make things better all the time and we have a long way to go on that. Two is to extend our reach and that's where you'll see a couple years ago the firstly parent loan product and then this year the introduction of the grad products and so we believe that the combination of extending our reach, increasing the options for customers, and doing business with us more convenient for both the student as well as the co-signer is a path that has proven to be extremely successful for us and those two are efforts are 100% of why we think we're growing faster than the market.

Okay, that's helpful Ray, thanks. And Steve, you mentioned if I heard you right it sounded like you said you're increasing your broker deposits to prefund the inflow of fixed rate loans in the coming months here. Number one, is that accurate? Number two, what's the duration of those broker deposits? And number three, if you could just comment on the overall kind of pricing in the deposit markets relative to your expectations?

Sure, so let me clarify. We aren't changing the mix of broker versus retail. What we are doing is taking in more term broker deposits and not swapping them into variable. So we are - we've been actively issuing for the last quarter plus, three, five, and believe it or not, even some seven-year brokered CDs, all with a goal to sort of match the weighted average life of the fixed rate loans that we are putting on the books. And so far we've been very successful and happy with the pricing that we've been receiving in that process.

Any change in sort of the deposit beta relative the forecasts or expectations in the markets?

So in our disclosures we use 80%. The reality is that since Fed tightening started it's basically been 60 basis points, recently maybe it's been a little higher than that as we caught up to the rest of the market to raise additional deposits, but it's going to be somewhere between 60% and 80% I think in the long run.

Great, I appreciate that. Thanks guys.

Thank you.

Our next question is from Stephen Moss of B. Riley FBR.

Good morning. In the release you guys mentioned greater investment in terms of driving consumer business going forward, and I was just wondering, how we think about the timing of that investment, is it - does the increase in expenses carry over into 2019 or is that really just more of a second half type dynamic?

Well in any product introduction there are upfront costs in establishing a foundation for it as well as just doing the acquisitions and a cost to acquire. So one is in some sense fixed, the other one is variable. And then there's a normal maturation of expending money on marketing, receiving response rates, building balances and then over the course of, 18 months or so watching how the credit losses come in and what the incurred looks like. And so as we move forward the personal loan business will be completely established and on to that variable cost basis by the end of this year. And so as Steve said, as we look out multiple years we're very conscious of improving the efficiency of the entire franchise including our efforts in expanding our reach and revenue options. And so his remarks a little bit earlier I think were the appropriate ones which is we watched this over multiple years, it continues to be the efficiency ratio number incurred continue to be smooth, continue to be downward sloping and cover the investments that we anticipate.

Okay, thank you very much.

Thank you.

Our next question is from Vincent Caintic of Stephens.

Thanks, good morning guys. Just a couple here. First, if you could just talk about what you're seeing as worthwhile for the incremental $10 million investments and if this is something where we could see more ongoing incremental investment in future quarters? And I guess not just with the product diversification but also technology, I think the $40 million you outlined is about 3% so to the efficiency ratio so I think you are about 35% without it and I'm just kind of wondering where we should think about going with these investments and the expense ratio?

Yes, so look basically we look at as we are adding assets that are going to earn a mid-teens ROE over the course of this process. So there is - the fact that Ray mentioned there's a bit of a J-Curve, there's an earnings drag as you spend good assets on the books and then, you get the benefit in subsequent periods and years.

All of that investment through is taken into account in a remark that Steve made earlier about the multi-year profile of the efficiency ratio.

Okay, got it. Next if maybe if you could discuss the competitive environment a bit more. So it's nice market share growth that you're taking in student lending and I know that people are concerned about consolidation, but it does seem that competition might be pulling back whether it's other banks and student lending or some of the brand name Fin tech guys that we've heard of or even some of the credit cards seem to be slowing down, but maybe others are increasing they consolidation. Just kind of wanting to get your perspective on what you're seeing and the competitive environment?

Sure and while your comments are correct for the nationwide markets for credit cards and some of the credit products, within the very narrow niche in which we operate for the most part, we don't see a dramatic changes. We have competitors who are large, intelligent, well funded, good distribution, consistent, and so within the private student loan market we haven't seen a pullback, we haven't seen less advertising by our competitors, we haven't seen any pricing changes of significance. And so, I would say within the private student loan market, what we have is relative stability and we haven't seen any new faces that have showed up with any significant share since [indiscernible] got interested in it a few years back and so that market is quite stable and certainly doesn't have less competition. As we all know other markets, credit cards, et cetera, all have their own dynamics, but for our piece of things, the competitors of the same names they've been over the last three or years, their tactics are very similar, the market is relatively stable from that point of view.

Okay, thanks and just one last quick one. I just noticed that the TDRs were up significantly year-over-year. I'm just wondering what's driving that and if there is any change that went on there? Thanks.

So now actually the TDRs were up a $300 million year-over-year. We actually changed the definition of TDRs. I want to say at the beginning of the year TDR growth actually should slow, but the default rate on those TDRs should probably rise, so net-net no real impact to the provision or the credit quality of the company. If there's anything remarkable about the TDR portfolio this quarter it's that’s the default rate on the portfolio declined pretty significantly from the prior year. So, that's an interesting trend that we will be watching to see if it continues, but no major changes in the in the TDR portfolio deterioration.

Great, thanks so much guys.

Our next question comes from Melissa Wedel of J.P. Morgan.

Good morning guys. Melissa on for Rick today. Most of my questions have been answered, but I was hoping you could touch on the small net gain on sale of loans that you guys booked in the second quarter, can you talk about what’s driving that?

Sure, so we sold $43 million of loans to Navient. They were loans that were being serviced by Navient at the spin because they had a customer and we had a customer, so for convenience for the customer we had one servisor, the terms of that contract expired, so it made great sense for us to just sell the portfolio to Navie. We sold it at a premium that was lower than we would have liked to, but given the size of the portfolio and the customer experience in question, we felt that it made very good sense and actually it would have cost us more to on board these loans and service them than the premium that I view that, that we gave up. So that's what drove that and as long as we're dealing with nits and nats, you might also have noticed that we sold some mortgage backed securities that offset that game it was a $2 million loss and that was just simply managing our CRA portfolio to match the - to meet the requirements of complying what the CRA rules and regs.

Okay, great. Thanks guys.

Thank you.

And we have no further questions at this time.

Okay, so I wanted to thank you all for your attention and in summary while we have obviously the future is uncertain for all of us, what we have up to the present is as I said earlier, but which is eminently true, a great company having a great year. Volume is up faster than the market. Our EPS is up 60%. Our credit profile is strong and improving. We've made structural progress in regard to our revenue offerings on personal loan, grad products and we're starting work on the credit card business. We have a great team, has low turnover, long tenure, our human resources are a competitive strength for us at this point and we hope that will continue into the future indefinitely. We look forward to the future. We think we have a great opportunity in the second half of the year and ongoing and thank you for your attention and hopefully you'll all be joining us on that journey. Take care.

Thank you for your time and your questions today. A replay of this call and the presentation will be available on the Investors page at salliemae.com. If you have any further questions, feel free to contact me directly. This concludes today's call.

This concludes today's conference call. You may now disconnect.