SLM Corp (SLM) 2018 Q2 法說會逐字稿

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. (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 the earnings press release on the investors page of 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 is, indeed, 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 first -- for the second quarter was 13% over the prior year. That's 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 1/2 of that is attributable to the change in tax law, but 30% increase in EPS is also outstanding. And in the quarter, we had an ROE of 19.4%. Both stellar performance.

On the volume, year-to-date, we have $2,459,000,000 new disbursements for the private student loans, which are up 8% over the prior year. You'll all recall that the estimates to 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. So the first quarter was 7%, second quarter was 13%, year-to-date is 8%. We're watching the disbursements very closely. We're in the midst of our busy period, which as you know, 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 6 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 compromise credit quality at all. Our FICOs that were approved to apps are virtually identical to last year at 746 versus 747. Our cosigned rate continues to run at 89.3% (sic) [86.6%], roughly equal to last year's 90% (sic) [87.6%].

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 sitting 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 customers' selection.

NIM, which reflects, of course, all of that, 6.14% in the quarter, up from 5.91%, 3.9% last year, and of course, that 6% is an outstanding number regardless of whoever we're comparing ourselves to.

OpEx is up 22%. So that's a high number. Company, as you know, is growing at faster than that. As a result, our efficiency ratio, which we use as a parameter 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% (sic) [39.7%] in '17 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's 39.6%(sic) 39.7% . So 39.6% (sic) 39.7% 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 part of a mailing, which will spill over into 2019, so we should think about closing portfolio as roughly $500 million for organic personal loans up from 0. And so far, results are quite gratifying on response rates, quality attributable to our 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 that's 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 cuddle up in ROE targets.

Moving to credit performance. Our write-off, 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% to 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 through-the-door population and credit decisions. And this is -- we are in a very good position for the rest of the year in regards 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, as I said Steve 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 in 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 in the $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 noise factor. And so as we've discussed, this is something that we wish was 0, 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 their term as well as loan renewal rate. Of course, we don't want to refinance people, who would not refinance in the absence of that, so targeting is what we're focused on there.

But as of the moment, 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 (technical difficulty) 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 EPS. So our EPS, going back to '14 was $0.26; '15 was $0.39; '16, $0.53; '17 $0.72; this year, $1 is the midpoint of our guidance. So the compound rate on that is a 40%. Compound rate for EPS with no downsize of monotonic increase for the last 5 years. We're very proud of that record, and we expected it to continue.

Book value per share, which is another indicator of are we creating franchise value for investors and the owners has followed a similar path. Book value per share was 2 92 in 2014, has grown consistently and is now 5 76, a 97% increase over 4 years in our book value per share. And so the balance sheet reflects this, franchise reflects this. We are, indeed, creating great value for our investors.

ROE, of course, also reflects that. As I said, the second quarter of '18 we're at 19.4%, and in the first quarter, we're at 22%. Last year, at this time, we're at 14.3%. And so at 19%, we're very happy with that.

The regulatory relations, which are a backdrop and have been conversations we've had in the past are all excellent. Our 3 primary regulators, the FDIC, the Utah Department of Financial Institutions and the CFPB are all in 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. And I think we'll turn it over to the people on the phone to -- who are trying to improve that, but it seems to me if we come into bucket share with this great rate, our great franchise that we have as a context, we should easily get to 15 PE, so I can't understand why the stock is not at 15, but we'll talk about that, I'm sure.

The market frame, in which we find ourselves, we have 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 we used for it is 96%. So reflecting our desire to do business where our customers want to do business. This is another initiative, which is now in place as part of our service. It is also the case that as we looked at the personal loan response rates, we're 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, every single test cell that we have is obvious that the brand is at an extreme help to either customers, especially customers, I would say pre-existing, where the numbers are multiplicatively higher than noncustomers and in using our brands versus a clean envelope where there would be no brands. So indeed, the brand has lift and so it is at first blush 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'm happy to say at this juncture is stable. We have an evolution in the marketplace, which is that education is undergoing its -- education and how Americans buy it, is undergoing change. We will change with it. And so as that happens, we will follow our customers and who are -- and also our affiliates, who are really the colleges. So the grad products that we talked about a little bit earlier reflect that. We have very good results on those so far. But as people modularized their consumption of education, with limited targets, distance-learning, we will reflect within that changes in our service and product 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. The EPS, as you know, is $0.99 to $1.01. That if we hit a $1 on that, the midpoint will be up 39% for 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 we had such a good first half, we're holding to $5 billion, out of an abundance of caution because we are in a midst of the busy season. The analogy would be if we were a retail store and it was November 10, when we're looking at the full year, we would be optimistic, which we are, but appropriately cautious giving a lot of volume has to come in the next 45 days.

So in summary, we have a great company and it's having a great year. Our volume is up, our return to shareholders and 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. Personal loans were up to $100 million outstanding. Grad products have been well received. We have great team. And it's pleasure to talk with you today. Thank you.

And at this point, I'll 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 and our portfolio increases, that correlation will diminish.

We do continue to benefit from the low spread environment we are in. We're also benefiting from a 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 cost of our broker deposits and that is, principally because we are pre-funding the fixed rate loans that we expect to disperse in the third quarter. So that will 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 raise fixed rate portfolios and -- I'm sorry, fixed rate funding and immunize our portfolio to interest rate changes. So good source of funding there. This particular bond included a fixed rate tranche that totaled $335 million and have a weighted average life of just over 6 years. So that's basically the funding situation.

The NIM came in at, as you know, 6.14% for the quarter, and we do expect it to decline in the third and the fourth quarter as our cash balances increase in anticipation of peak and then first quarter funding needs. So we do expect the NIM to decline in the third and fourth quarter, but for it to be above 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.

Investors are concerned where we are in a credit cycle, and at the same time, you're pushing into personal loans, which have more credit risk. So what's your view of the general health of the consumer? I mean, how are you balancing the diversification benefit with at-credit risk?

Sure. So well, Michael, if our 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 is going to 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 were eventually on a destination to drive that down to the mid-30s. Is that going to be still the case?

So look, we just had our senior management offsite where we look at, believe it or not, a 7-year plan. I will concede that anything beyond 3 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 as well.

Our next question comes from Sanjay Sakhrani of KBW.

This is Steven Kwok filling in for Sanjay. Just -- 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 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 -- while 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're represented by bids from Discover, Chase, BofA, so there's plenty of experience in that product set within the company here.

Got it. And around CECL, can you provide us a update around your thoughts on that?

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 to risk-based and total risk-based 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 3-year phase-in, which takes even more of the pressure off of the CECL implementation. And we are -- we have seen in the last 2 weeks, many comments from the industry, and they are all basically focused on increasing the term of the phase-in and potentially giving thanks regulatory capital relief once CECL is implemented. So without any changes, we're in fine shape, and we, of course, would welcome additional changes to the regulatory capital regime as CECL is implemented. Hopefully, that covers your question?

Our next question is from Mark DeVries of Barclays.

Steve, could you talk us through what your expectations are for annualized charge-offs in the personal loan portfolio? And also how do you expect that to effect provisioning as that portfolio seasons?

So we expect basically life-of-loan losses of 9.5% on our personal loan portfolio and that merges with average annual losses in the, call the, 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 have on -- as you build out portfolio on your NIM?

I think it will be slightly positive as we continue to increase the personal loan portfolio. But keep in mind, that it's going to be what 5% of our total assets and a good day, so it's going to have a de minimis impact.

Okay. Got it. And finally, have you guys implemented any of your more defensive measures to kind of sendoff 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 -- would narrowly do so.

And meanwhile, the backdrop in the marketplace, and I know on the number one, growth and record on this topic, is that the market continues to move against the consolidators, but long-term rates continuing to inch up, so there was -- if there was ever any positive NIM in that product, I think it's pretty much all been anticipated in this rising rate environment.

Okay. And you're 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 offerings.

(Operator Instructions) Our next question is from Moshe Orenbuch of Crédit Suisse.

This is actually James Ulan on for Moshe. I was wondering if you can touch on the grad impairment markets, specifically, I was hoping you might be able to quantify the total addressable market. Do you think you can earn? And I was wondering if having gone to these markets and implemented grad product, implemented a parent product you probably have some sense for what percentage of those markets meet your underwriting standards. Can you touch on what you think you could actually underwrite per your standards? And then also how many grad schools are you on the 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 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 as who is your 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. Drag, on the other hand, the government as you know, charges a origination fee of over 4% and the APRs are quite competitive with. But it's a smaller population per program than 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, we're 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 off to a start. Our applications, they're up over prior years. That's in the overall portfolio. Our originations are up faster than the portfolio. And so those outstanding numbers that you saw for the second quarter are 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 and you think reach 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 off, the lender list pattern that we see in undergraduate is much more spotty in graduate. And that's -- and the graduate schools tend to be a little more one by one. If we look at the entire grad programs that are ex that 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.

Our next question is from Michael Tarkan of Compass Point.

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's 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 you talk about the percentage, the mix of borrowers from your existing borrower base versus new customers?

Sure. First things first, our efforts are held to the same ROE standards as our overall activities. 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 receivables in the organic personal loan as of June 30. That was 0 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, 2 things. One is for our existing customers, will they entertain doing more business with us. Early results are unequivocally yes, and the response rate is multiplicatively higher than a -- for similar 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 like to do business on. Do they think the Sallie Mae name is more attractive than and not on this name or a no name. And the answer is absolutely, yes. And so we're very happy with the lift 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. One more. Where are we on the credit card effort? Can you talk about that a little bit, please?

Sure. Credit card effort calendar hasn't changed from the last time we spoke. And so we're expecting to have our 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's any upside for us, and we do think that there's excess capacity in the industry. And so we are proceeding now to make sure, the operational pieces are in place. We're working with the product design. We have specific target segments for the credit card. And as I said, we'll have our first card in the fields over the next -- almost exactly 1 year from today.

Our next question is from John Hecht of Jefferies.

First, a kind of higher-level question. You're clearly growing your originations 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 relatively mature market. It's large, in the sense of less population. It has a very respectable competitors within it. And so there are 2 things, 2 techniques that we are pursuing in regard to this from a structural, strategic standpoint. The first is evolutionary. And so at this rate, our Japanese telecom quote, we'll be talking about Kaizen, Kaizen, Kaizen, which is constant evolutionary improvement. And so we are seeing that and these throughput of our customers, how many customers start 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, well, how much money would you like. How did -- we had sliders for easy or economics associated with that.

And so let's say, efficiency piece, 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 of years ago the 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 making -- doing business with us more convenient for both the student as well as the cosigner, is a path that has proven to be extremely successful for us. And those 2 efforts are 100% of why we think we're growing faster than the market.

Okay. That's helpful, Ray. And Steve, you mentioned if I heard you right, it sounds like you said, you're increasing your broker deposit to prefund the inflow of fixed rate loans in the coming months here. What -- number one, is that accurate? Number two, what's the duration of the broker deposit? And number three, if you can 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, 3, 5 and believe it or not, even some 7-year brokered CDs, all with a goal to sort of match the weighted average life of these 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 to forecast or expectations in the markets?

So in our disclosures, we use 80%. Reality is that since that tightening started, it's basically been 60 basis points. Recently, maybe, it's been 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.

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

In the release, you guys mentioned greater investment in terms of driving the 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 and establishing a foundation for it as well as just doing acquisitions and a cost to acquire. So one is in sometimes fixed, the other one is variable. And then there's a normal maturation of spending money on marketing, receiving response rates, building balances, and then over the course of 18 months or so, watching have credit losses come in and what that curve 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, are the appropriate ones, which is we watched this over multiple years. It continues to be -- the efficiency ratio number and curve continue to be smooth, continue to be downward sloping and cover the investments that we anticipate.

Our next question is from Vincent Caintic of Stephens.

Just a couple here. First, if you could just talk about what you're seeing as the worthwhile for the incremental $10 million investments and if this is something where we could see a 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% to the efficiency ratio. So I think you're 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 ROA over the course of this process. So that there is a fact, as Ray mentioned, there's 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 though is taken into account. And remarks that Steve made earlier about the multiyear profile of the efficiency ratio.

Okay. Got it. Next, if -- maybe if you can discuss the competitive environment a bit more. So it's nice market share growth that you're taking institutional lending. And I know that people are concerned about consolidation. But it does seem like competition might be pulling back, whether it's other banks, institutional lending or some of the brand named FinTech guys that we've heard of or even some of the credit cards seem to be slowing down, but maybe others are increasing debt consolidation. Just wanted to get your perspective on what you're seeing in the competitive environment?

Sure. And well, 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 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 -- in 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 Citizens 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, auto have their own dynamics, but for our piece of things, the competitors of the same names that -- they've been over the last 3 or 4 years, their tactics very similar. The market is relatively stable from that point of view.

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

So no, actually, the TDRs were up $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 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 TDR portfolio deterioration.

Our next question comes from Melissa Wedel of JPMorgan.

Melissa on for Rick today. Most of my questions have been answered, but I was hoping you can 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 servicer. The terms of that contract expired. So it made great sense for us to just sell the portfolio to Navi. 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 thought that it made very good sense and actually, it would have cost us more to onboard these loans and service them than the premium that I view that we gave up.

So that's what drove that and as long as we're dealing with mix and match, you might also notice that we sold some mortgage-backed securities that offset that gain. There was a $2 million loss and that was just simply managing our CRA portfolio to match the -- to meet the requirements of complying with the CRA rules and regs.

And we have no further questions at this time.

Okay. So I wanted to thank you all for your attention. And in summary, what we have -- again, 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. Our volume is up faster than the market. Our EPS is up 60%. Our credit profile is strong and improving. We made structural progress in regard to our revenue offerings on personal loan grad products, and we're starting to 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 investor 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.