SLM Corporation (SLM) Q3 2019 Earnings Report, Transcript and Summary

Good morning. My name is Lisa and I'll be your conference operator today. At this time, I'd like to welcome everyone to the 2019, Q3, Sallie Mae Earnings Conference Call. [Operator Instructions] Thank you. I'd now like to turn the call over to Mr. Cronin, Vice President of Investor Relations.

Great, thanks, Lisa. Good morning and welcome to Sallie Mae's third quarter 2019 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 discussions will contain predictions, expectations and forward-looking statements. Actual results in the future may be materially different than those discussed here. This could be 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. During this conference call, we will refer to non-GAAP measures we call our core earnings and adjusted core earnings. Descriptions of these measures, a full reconciliation to GAAP measures and our GAAP results can be found in the Form 10-Q for the quarter ended September 30, 2019. This is posted along with the earnings press release on the Investors page at salliemae.com. Thank you. I'll now turn the call over to Ray.

Thanks, Brian and thank you all for your attention this morning. It’s a pleasure to talk to you about the results of our quarter and about our franchise more generally. And I want to take couple of minutes upfront to level set on some things associated with the franchise, especially the backdrop of how successful investment college is for most Americans. And college and lifelong learning have continued to expand in our country and they create opportunity to both have greater mobility, they have greater chances for economic and even personal success including health. Those with the bachelors’ degree aren’t 65% more than those with the high school diploma and that delta has increased significantly over the last 25 years. We viewed independent research for our overall borrowing to college students and our annually published “how America pays for college” and families continue to value the college and higher education more generally with 90% saying it as a good investment in the student’s future, 84% believe that their student in their family will earn more money and 77% are willing to give up other items in their financial plan in order to devote this money to the investment in the next generation. And despite all these benefits, it still, we should remember that only about one-third of the next generation Americans are on the track to have a bachelors’ degree. And so, we’re seeing in our franchise alternative mechanisms that people are using to increase their human capital and at this point a 20% of our originations are different from the traditional undergraduate student loan in either the parent graduate international for profit or distance learning. Sallie Mae continues to be a supporter of American families as we help build the human capital for the next generation and at the moment we’re serving over 2 million students and cosigners, we’re the number one choice for families over all other private student lenders combined. And so, this is the case that this is due in part to our “Press Franchise” including our relationship managers who are nationwide and constant contact with over 2,400 higher education institutions. We’re on 98% of the preferred lender list, we’ve a 8+ rating and a better business here, and we’re product to announce that just recently we acquired a JD Powers certificate of performance for our customer service operations. This is driven by vast improvements in our customer service operation over the last four years, where the customer is contacting us to clarify something or to uptick the problem with their account has dropped by 60% over the last four years from 2015 to 2019. And at the same time we’re adjusting our interface with customers to conduct themselves in a way that is in-line with their preference. And so, this year we will do over 500,000 chats and chatbots with a improvable rating, customer satisfaction rating over 90% to the customers who use that facility. And so, it is the case that all of what I’m talking about is not the end, but is the means to an end that the same college commencement and we borrow our customers as they go Test College and move on to the next successive chapters in their lives. In addition to that we believe that Sallie Mae has a role in helping the students more generally understand the financial backdrop for their activities and we post both tools for analytics as well as scholarship availability on our website. Happy to say that last year the Sallie Mae scholarship search which is rendered as a free service to anyone looking at our website was able to help 20,000 students with $61 million of scholarship funds that were distributed to them via – on the scholarship providers but through the access on our internet site. So, as we move forward, we’re in an environment where the federal program dominates the outstanding amounts for student lending and there has been quite a bit of backend force in regard to that and we’re participants in that debate and we believe that the federal government and other government bodies have a role to play in helping economically challenged households to obtain the needed resources to advance their life as they fit. But, the federal program is certainly a candidate for improvement and I’ll just note in passing that the description of it is frequently sort of lumps together some sort of average, some undergraduate profiles. But 65% of the students there have balances under 25,000 and this is the case that 40% of the graduates in the last year had no debt at all. And so, we start to see that some of these distortions that are in the public, press and people having over a $100,000 in debt don’t represent the average customer and average student within that portfolio and only 5% of the federal program had balances over $100,000. 9% of the federal program, 9% of the students in the federal program would have the balance over $80,000 and they makeup fully 43% of the debt. So you might think that 10% of the students have 50% of the debt outstanding and 90% of the students have the other 50. So it’s a very skewed distribution I think as people start to enhance the program, we should look at those individual segments as opposed to on average which dominates most of the conversation. On the other end of the spectrum, it’s 9% of over $80,000 where half of all the loan defaults have balances under $10,000 and so, we’ve very fat tails on these, one fat tail is people, one fat tail is dollars. And so, I think this program could be greatly enhanced with some parameter changes and we’re participating in conversations to advance that agenda. Returning to us, our practices worked, our customers are successful, 91% of them complete the course of study which they have enrolled, 91% of those become employed, 88% agree that the work gives them a feeling of personal accomplishment, 86% agree that the college education opened up opportunities they wouldn’t have had without it and 98% successfully manage their loans with our right off rate running under 2% per annum. The underwriting limit and loan limits are working to managing both our portfolio for financial results as well as for the student success. And so, as we look at things, we go forward with this quarter, continuing our franchise build, we’ve had a very successful third quarter and will go on to report about it in a moment. But I’ll say that backdrops to many conversations we’ve with people are key, what about the political debate that is in the United States as people buy to become candidates for presidency and it is, in this case that whoever gets selected we will still be there, we will prosper, we will be satisfying the needs of the middleclass Americans as they seek to improve the lives of the next generation of Americans. In regard to this particular quarter, we’ve had a good quarter, core net income was $122 million, $0.29 a share, 26% increase over the prior year. We originated $2 billion $245 million education loans in the quarter up 6% from a year ago and year-to-date were at $4.9 billion originated, up $7.1% from the prior year. Our efficiency ratio has dropped to $36.6% in the quarter, normalized quarter for last year which has some financial into that would have been about 39%, dropping from 39% about 36.5%. In credit, the 30-day delinquencies are 2.8%, up from 2.7% in the quarter before, the second quarter and up from 2.3% a year ago. Our charge-offs come in at 127 basis points compared to 88 basis points to prior year and year-to-date charge-offs are at 115 compared to 101 basis points in the prior year. Charge-offs and delinquencies are essentially, will have actually are right on our plan, we expect delinquencies to stay at the 2.8% level for the remainder of the year and that the full year charge-offs will be about 1.2% which is on the expectation we set for charge-offs over 12 months ago. The delinquency buckets and what we see as a pipeline and stratifying the portfolio by segment and risk cohorts, we expect that the performance that we have will continue through the remainder of 2019 and persist through 2020. And so, the increases that we see are the continuing but mitigating match ratio of the portfolio that we have been discussing with investors and other interested parties for the last three years. Our net interest margin was 5.55% in the quarter compared to 5.88% in the prior quarter, 6% in the prior year. As you know we’ve been increasing our liquidity ratio and we ended that with 12.4% of total assets versus 7.2% in the prior year and as we’ve discussed in prior calls we expect the NIM to continue to drift on down, but as they pass through largely with no EPS impact as we increase the liquidity on the balance sheet to be more in-line with some industry norms. In the 10-Q there is the discussion of modifying some of our service and collection practices. As bank has grown we continue to review the practices that we experienced, we look to see what other people are doing, we take feedback from both our regulators as well as from our customers and we’ve an evolutionary approach to the collections treatment in particular. And so, as we’ve looked at this, there is a trade-off in collections between forbearance where no payment is made and loan modifications are interest only payments where smaller amount is paid, but you’re in more contact with the customer during those periods when less the contractual payments are being made. And so, we’re changing a few things here, we’re testing our way through 2020 and in general I say from a philosophical standpoint what you’ll see is we’re moving from periods of no payment to periods of low payment. And so, as we look at that we will see whether or not that effect on the customers is our results and the advantage what we believe it will have and we will keep everybody posted on that as we go through 2020. And so, we continue to have very good performance and this is just an enhancement of an ongoing nature to our portfolios. And so, our experience shows us that most of the customers who use forbearance or loan modifications performed very well and it’s right to say that our lending happens in a venue that is extremely unusual for consumer finance types and especially banks. But most lending is based on our continuity of the current picture when loan is granted coupled by the house we look into, who is working, we look at the cash flow associated with that, we as a lender as we say, we hope that continues and everything works out fine and we make the mortgage kind or make the mortgage loan. In regard to our customers they’re the other end of the spectrum, when we lend to them they’re entering a period of high volatility in their lives, they will graduate, they will move, they will get their job, they may get married, they may buy a house and over those seven years which is the normal length of loan for our customers, we’ve the highest volatility in their lives that’s being the case of the lives of relatively successful in regard to economics. And so, the challenge for us is to move along with our customers as their cash flows increase and decrease and that’s what we’re trying to do as we continue to evolve our collection practices. As we look at this we think it will affect about 4% of our customers who wind up being some stages of delinquency and we will work our way through that. It's a little bit hard to figure out whether or not impacts of these will all be neutral or not. We had some estimates that say, if this continues the way it had been going and we don't change our collection practices or we don't change the efficacy of those there might be an increase over the life loan of 4% to 14% and losses, we don't think that we will of course experience that but that is what the numbers would pull out of the current extrapolations. And so, we will do everything we can to make sure that it doesn't occur. We'll do everything we can to mitigate that and so as we go forward we will have constant reports each quarter, odds, how these changes are going, which ones we adopt, which ones we don't or purposes of forecasting for 2020 and 2021. The impact on the portfolio will be negligible for those. Returning to the quarterly results, the average yield on a private student loans were 9.3%, 9 basis points down from the prior quarter, up 14 basis points from the year before. Cost of the funds was at 275 down from 284 in the prior quarter up from 259 a year ago. These changes of course, all driven by LIBOR and the forward curve. In regard to guidance, we are increasing our fully diluted core earnings per share guidance. We are holding constant on our originations and our operating efficiency. So the guidance will be EPS of a $1.23 to a $1.24, origination of $5.7 billion in operating efficiency rate of 35% to 36%. As we leave this portion of the call, the backdrop that we have is as long-term players with us know is, we're going through several chapters and so the split and launch was 2014 and 2015. We had extraordinary growth as our receivable filled up on our balance sheet in 2016, 2017 and 2018. In 2019, we transition to a more normal company. Growth rate mitigated somewhat as you saw we authorized $200 million in stock purchases, initiated dividend. And so, as we enter 2020 and 2021, we will continue to do that. We expect the industry revenue pool to grow by about 5%. We expect that we will continue to grow slightly faster than that. We expect that we will have leverage in regard to that. But, we will start to follow that growth rate with that growth rate compounded by the leverage that we have in our operating base. So we'll be at 5%, 6% in revenue and we will subtract that going forward. We expect that to continue on a regular basis. So with those remarks, I want to thank you, one for your patience interest and to open up the call for Q&A which Steven and I will attempt to answer.

[Operator Instructions] Your first question comes from the line of Michael Kaye with Wells Fargo.

I mean, now that peak season is over just hoping you could provide some further commentary on what you're experienced in a broader pricing environment, specifically how do you expect ROEs compared this peak season versus the past seasons?

Sure, Michael. So we did lower our prices during the peak season. Part of that was in response to a lower cost of funding and the ROE on this origination cohort is going to be a very similar to cohorts past and be in the very high teens.

And just touching on credit, the additional color was helpful but just on this topic on credit, do these refinancing players, do you view them as picking off some of your better credit quality customers? Is that starting to have some impact on your credit metrics?

So, look the consolidation has been going on for many years. It grows along with the portfolio. It's been very stable for the last three quarters. They do tend to consolidate the higher FICO score borrowers, but the fact of the matter is, these are people that are getting jobs and investment banking, public accounting, etc. and are going to prepay sooner or later anyway. We view in that present value on those loans due to the higher prepay speeds with or without consolidation as lower than the overall portfolio.

Thank you.

The next question comes from the line of Mark DeVries with Barclays.

Thanks. It sounds like credit both the season and charge offs continue to come in line with, what your expectations there, we have seen some volatility in the provision item from quarter to quarter. Could you just give us some color on kind of what's driving that and maybe some expectations as how to think about the provision next quarter?

Sure, Mark. So the volatility in the provision has been driven, the outside volatility has been driven principally by this TDR impact that we've talked about on the last couple of quarterly calls. So as interest rates decline, the cash flows on the TDR portfolio decline which is less of an offset to the ultimate charge-offs in that portfolio. So, I think there was $15 million of provision in the current quarter due to lower interest rates. We expect another $10 million of provision due to lower interest rates in the fourth quarter and we do expect as a percentage of loans and repayment for the provision to increase to the like 1.65 area from the 1.48 level that it came in at this quarter. But that is fully baked into our current outlook for the remainder of the year.

Steve you may comment that the change in regimen to seasonable changes.

Yes, once we adapt Cecil this impact on the TDR portfolio goes away completely. Good point Ray.

Got it, that's helpful. And then just, one more question on the consolidation activity, have you seen any signs with the recent rally and rates of more aggressive behavior there from competitors and any thoughts on that potentially picking up that activity as we go into the fourth quarter?

So as rates decline, we haven't really seen an uptick in the activity that we were expecting from the beginning of the year, the cost of funds in the securitization market has pretty much I think gone as low as it can for the consolidators. So, we don't think that the continued decline of rates is going to increase volume. We would expect as we have seen in past years that in the fourth quarter as more loans going through repayment, we might see an uptick in that consolidation volume. But we don't think that the lower interest rates had an additional marginal impact.

Thank you.

Your next question comes from the line of Vincent Caintic with Stephens.

Thanks, good morning guys. Just a question about the charges and delinquencies in the new collections practices. I'm wondering, so have those new collection practices affected your DQs and net charge-offs this quarter just with the uptick in DQs if there's a kind of explanation for that and what you are learning from that? Thanks.

Sure. And the collection changes and the sort of workout changes that I mentioned had no effect on this quarter and won't have any effect on the rate loss as we go through the next five quarters. And so, as we look at these we're evaluating, we would have a series of tests set up for both customer service groups as well as for collection group. But to answer your question for the coincident performance of the portfolio there's no impact of these changes which we will introduce as you say gradually over the next five quarters. We'll keep you posted on that but there's no impact in our current portfolio or our current write-offs.

Got you and so the impact of DQs in charge-offs, it should come on gradually overtime rather than just seeing a big impact at one particular quarter?

Yes, and gradually overtime is actually really effective starting in 2021, as we sort of go through 2020, we will conduct our tests. We are obviously not going to do anything which is going to be deleterious to the portfolio. And so, we'll keep people posted, but we thought it was a good idea to announce to people that we are doing a series of tests and we will take a look at those in the interest of transparency less than what we would say, the motivation is not to change the financial outlook of the company. But just to keep our interest in investors and informed about practices that we are undertaking.

That's helpful. And then, separately just when you think about NIM and your asset yields, what in your guidance for the full year I guess may imply in the fourth quarter, what do you have in terms of rate cuts and how, any update that we should think about in terms of your sensitivity going forward?

So, we have reduced our sensitivity to declining interest rates dramatically over the course of the last several quarters. We are pretty well matched. So, as rates decline, we don't expect any impact on our net interest margin. The net interest margin impact that you've seen is purely due to the increased liquidity that we've put on the books over the last several quarters.

Got you, thank you guys.

[Operator Instructions] Your next question comes from the line of John Hecht with Jefferies.

Thanks very much guys for taking my questions. First of all is touching again [Audio Gap].

…we engage and will be represented in all the vintages and driven by the individual customer behavior and not by the cohorts. So if people are in moderate delinquency and they're having trouble with their cash flow, it would be our endeavoring to do two things. One is to be responsive to that in such a way that we work as I said through these major changes in our customers lives in a way that's more accommodating to the fluctuations in their cash flow. But importantly, at the same time we're looking to maximize our contact with these customers. So as you know in our student loan portfolio, we give people an option when the loan is granted to make either interest-only payments whether in college or to opt for a $25 a month payment and we find that the practices associated with that are very good from the standpoint of our, one, staying in contact with customers and two, as represented by their performance in credit, in particular as we go forward and in fact we offer a discount to people who choose those two regiments. So we'll see the same thing going forward here. As I said we will do this as a test in and so when I mentioned 4 to 14 that's an extrapolation based upon current practices which I think is representative of the fact that we think relatively minor. We took in a midpoint on that. It's 9% or so over the course of seven years and we'll keep people posted as we get better information through 2020 as to whether those numbers A, will move it all and B, what they will move to if in fact they do. But what we're announcing here is that we want to have a practice of more contact with our customers, follow them as they go through their lives and their cash flow needs and opportunities fluctuate and to keep all of our investors, interested parties aware of what we're doing while we're doing it. So this is just an announcement of the beginning of something, we'll keep you posted on the results as we go through the next five quarters.

Thanks very much and then with respect to, I mean just thinking about kind of margin trends in 2020, I know there was a modification to NIM guidance last quarter tied to excess liquidity. If we think about next year and think about the forward curve, how much of the forward curve should influence NIM and how much of that access liquidity requirement should influence NIM or is that fully baked in at this point?

So, we are still very much a variable rate loan portfolio. I think we're running around 60% variable, 40% fix. So declining rates, if we're approaching the funding of our fixed rate portfolio in a balanced manner shouldn't really have much of an impact on our NIM going forward. We did begin to build our liquidity position in the second quarter and the build will continue through the fourth quarter. So as that liquidity position is on the books for the full year of 2020, it is going to have a larger impact than it did in 2019. We have not guided for 2020 yet. That will take place a couple of months from now, but you can draw from that the conclusion that our NIM for 2020 is going to be lower than the 580 that we're going to post for the balance of 2019.

Okay, thank you for that. And then, with respect to the seasoning portfolio and then kind of migration and the delinquency and so forth. At what point do you does, assuming all thing equal to the balance of loans and repayments and new originations balance out, so we should see that drift, again our own people will start to stabilize.

So, we've got about $9 billion in full P&I and we're originating close to $6 billion.

Your next question comes from the line of John Hecht with Jefferies.

Thanks very much guys for taking my questions. First of all, it is touching again on --. So, I've a bunch of questions this morning, I apologize. As you head into 2020 and provide guidance, are you going to provide guidance in the context of your adjusted core EPS or are you going to provide a GAAP EPS guidance?

Rick, we're going to provide guidance in terms of adjusted core given all volatility that we're going to see in the CECL number I think it would be presumptive of us to assume that we can give a reasonable GAAP guidance number.

Okay, great. And then second, basically it sounds like in terms of the collections practice, you guys are an champion challenger test mode, I'm curious what percentage of the portfolio just so we understand the risks of a new servicing strategy will be in the challenger bucket?

The entire sample bucket we believe will be about 4% of the portfolio.

Yes.

And then we will divvy up to test depending upon individual segments. So, for purposes of 2020, as I said the impact that is negligible. So, I think we can disregard that and say that what's in challenger versus test, it's more important to understand how the test get resolved than the individual pieces which will be a small part of the portfolio.

Okay, thank you. And is the idea here that if you can prove this out on that it ultimately it might allow you to change or CECL reserve assumptions as well?

Yes, whatever impact we have as we would model it and then do life of loan forecasting will be not only will it impact CECL, it will be CECL. And so, as I said we just illustrate forward extrapolation, it's some number in there between that 4% and 14%, 9% and 10% over the life of loan. And that is a now you'd extrapolation while we're sitting here but the best we have. And so, as we go through 2020, will certainly give that more body of evidence that we think is relevant going past 2020. And as I say we just want to be transparent with folks that were undergoing these tests and it's similarly we don’t expect any impact really for 2020 or 2021.

Okay, thank you. And then, last question. If you wrap up your buy-back and head into 2020, obviously there are that was significant news to the market earlier in the year as you sort of contemplate capital returns in 2020. I am curious where you see the gaining issue related to the seasonal implementation. Do you see it from a regulator perspective or do you see it from a rating agency perspective?

From the standpoint of capital you're asking, it's just clearly SEC requirement that filters through the accounting profession, KPMG the way we see it. So, it starts off with SEC reporting, that affects our balance sheet. Our balance sheet then has particular levels for capital. The capital then goes to the regulators. And so, in that stream everybody is sort of on equal footing and there'll be a nice switch that will occur on January 1st and so it won't be somebody leading or following, we'll all be on the new regiment together.

Understood. But realistically what we're talking about is balance sheet geography. And your ability to absorb losses is really unchanged in my mind regardless of whether it's in equity or reserve. Yet, the decision, the signal to the market is to spend the buyback through 2020. You guys are rational economic actors, you understand that it is a non-economic, it's in optical event. So, I'm curious with that knowledge, why once driving the conservatism in terms of buyback given where you guys are in your lifecycle.

Sure. Let me first agree with you that it is an address change from lower underwriting inside of the balance sheet the higher end of right hand side of the balance sheet. And it's no effect on the loss absorbing capability of the franchise. That's absolutely true. However, because it is an increase in trapped reserves in the loan loss area not in the capital account. We're attempting to be as prudent as possible in regard to that in such a way that we say alright lest we still it gets implemented on and so as we look at it, we haven’t given any guidance for 2020 in regard to either our capital levels or buybacks or anything else. So, it is the case that will. There's a big implementation, I agree with you, it doesn't change the underlying cash flow economics at all. But we want to get that implemented and make sure what we're trying to do as you said is rational economic players here, is to ensure that any changes by any regiment, whether it be accounting profession, the SEC or other regulators have no impact on our ability to manage our franchise in a way that we think is prudent. And so, that's the first objective. After that, we will look our available cash and available capital and see how very good our responses go to capital limits and other things as we approach the distribution of capital. As I mentioned, the closing part of the opening remarks, we are clearly in the normal company regiment we're now. And so, to the extent that we used to think we would have a rational and appropriately conservative approach to capital and there were excess capital in our forecast. We would be happy to buy back stock but that we think it's so premature now to either talk about that in a serious way or give us specific guidance in regard to it.

Very helpful Ray, thank you so much.

Your next question comes from the line of Henry Coffey with Wedbush.

Yes, good morning everyone. Thank you for taking my questions. Just a couple of things, you know I've been listening to discussion around the change in collection practices, the simple outcome is, is if the plan works as expected, your view is that like time losses will be lower. Is that an over simplification of it or?

And lower is would be wonderful, I think what we're hoping for is lifetime losses will be neutral.

And then, --.

And you can hear that we're trying to be conservative about this, we have new practices going in. we have as we said a challenger in tests and we have seven years of life to do. We think that's just a lot of new in all of that. And so, we want to do is be able to migrate to what we think is a more effective collection regiment without having any negative impact. I'd love to tell you a year from now is having a positive impact but as at the moment I don’t have the real results to do that based upon empirical information.

And then, in looking at the 10Q, the change in CECL guidance, is that indicative of the kind of volatility we'll be seeing from quarter-to-quarter or is that reflect in updating your analysis?

So look, we did estimate this potential range of 4% to 14% and high on loan losses as a result of these servicing changes. And that basically requires us to build back into the CECL reserve. So, what you saw is as it's the midpoint of the 4% to 14%, and the 9% we topped up the CECL reserve between June and September. So, the CECL reserve is typically going to grow in the third quarter anyway because we are originating our peak season loans. So, in that increase of I think it's a $180 million or so. There are several factors, there is an increase in the CECL reserve for forbearance, there is an increase in the CECL reserve for volume and there is a decrease in the CECL reserve because we did adjust life of loan CPR rates. So, I think this does highlight that there is going to be considerable volatility in the CECL reserve from quarter-to-quarter given that we are talking about a very large portfolio and a life of loan estimate and small changes are going to have a pretty big impact on our GAAP numbers. And that is why we think that it makes a lot of sense to go to this adjusted core earnings number which I think gives people a much better idea of how the company is actually performing on a cash like basis.

And then, in terms of the tax rate, what is the effective tax rate you're using to calculate the impact in equity?

The 25%.

And then, just another business related question. You have been exploring establishing your own refinance program and then securitizing those loans. Can you give us an update on the progress there?

Henry, we've had a really difficult time developing a model that with the appropriate precision targets likely candidates to consolidate without cannibalizing our own portfolio. So, our efforts to-date have come up empty but we continue to look for ways to protect our portfolio.

And then, just last question. Any comment on your graduate school lending?

No, the graduate school lending is a segment as we've talked about earlier that we have five segments or so of what we think it was sort of non-traditional lending amongst graduate amongst them. And we're continuing to make progress in the graduate space at a rate that is faster than our core business.

Great, thank you very much.

Your next question comes from the line of Moshe Orenbuch with Credit Suisse.

Great, thanks. Most of my questions has been asked and answered. And could you talk just a little bit more about the competition in school, I think you had referenced that there were surprising changes that you made. But as you kind of look around, I mean are there were there a substantial amount of new players, was it just increased intensity from existing players. Because you know we haven’t seen that many kind of new players enter.

No, and that some of the new players have been notably unsuccessful but so I need to comment on that. And so, as we looked at the field, one is let's remember we grew faster than the market and so our competitive position have been improving over time. And so, in regard to the pricing, what has been normal in this industry is a price that gets set on or about Memorial Day and the schools in particular like to have a set price. So, when you're talking to students in the financial aid office, they have an idea of what the appropriate trade-offs are for families that are looking to finance higher education. So, traditionally there has been no movement in price in this particular sector but then in contrast to mortgages or something where you might change the price every week or even day. So, that has been normal here, however some had J-PAL didn’t get the memo and he reduced the interest rates in the country on July 26th which was inconveniently for the competitors right in the middle of our busy season. And of course once that was in the forward curves that was sort of built into everybody's projection of their cost of funds. People reacted to that, we reacted to it as well. As Steve commented earlier, the margin during your peak season has not changed and so what happens eventually is the entire industry followed the cost of funds down. Now, it's reflected in the individual pricing as well as any aggregate pricing, which I'm happy to say across the industry remains rational.

Got it. And just a follow-up and I know you've answered a lot of questions about the servicing changes but I guess the initial impetus reviewed kind of go down that route, was it the fact that you found these practices to be better in some way or other the cost, because you said that you didn’t necessarily expect them to have lower losses or will they have lower losses than you would have had. I guess, what was the original impetus for that, the start of that process?

I think it was a combination of three items. One is its good review our collection practices on an ongoing basis which we do. Two, is the idea of forbearance which essentially is a period of during which a customer doesn't make payments on the loan is something which as I said we had specially designed for this industry given the high vicissitude that exists in the customers life in the first seven years after graduation. And so, that has become traditional but it's always been a practice that people worry about because you don’t get a payment and you're not into their particular contact with the customer and so what we say --. And we've had pretty good results in that but is something that always makes it a little bit uneasy. We prefer to have more contacts with our customers, we prefer to have the minimum payment, we prefer to be in touch with them every day and we also would like to serve as a counselor to them as they go through these changes in their lives. And so, I think what we had was it's always good to have new practices to forbearance as we use it we monitored carefully, but it's a situation that always causes us to worry because we don't have a payment from our customer for a longer period of time. And thirdly, as we looked horizontally across the industry we noted that some people are doing pretty well and it's always something to learn from our competitors.

There are no further questions at this time.

Well, thank you all for your attention and I have said, it's a pleasure talking to such a august group and I do want to just now lose forest for trees. We hit an excellent quarter. We grew faster than the market and are winning the JD Powers certification is a stand alone in the industry and for those of you who've been with us for a long period of time it's a nice bookend. When we launched from [Indiscernible] let's remember to the bank had a cease and desist order on it, had a consent decree, horrible things overcharging American servicemen, it was service people. It was just in a dismal spot. We come in five and a half years later we now win the JD Power certification. It's the best in the industry. Our complaints are dropped by over 60% on a pro-rata basis. As we go forward, we're well equipped for the future. Our best days are in front of us and in regard to politics, we will be the premier player in this GAAP financing industry no matter what happens and I will say I appreciate the fact that the politicians doing their best to demonize the industry in such a way that it keeps the entrants who are serious to a minimum. So we appreciate their helping us out by lowering competition. With that I just want to thank you all for your attention and look forward to talking to you in the future.

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.

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