SLM - Q3 2024
October 23, 2024
Transcript
Operator (participant)
Welcome to the Sallie Mae Third Quarter 2024 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the prepared remarks. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Melissa Bronaugh, Head of Investor Relations. Please go ahead.
Melissa Bronaugh (Head of Investor Relations)
Thank you, Madison. Good evening, and welcome to Sallie Mae's third quarter twenty twenty-four earnings call. It is my pleasure to be here today with Jon Witter, our CEO, and Pete Graham, our CFO. After the prepared remarks, we will open the call for questions. Before we begin, keep in mind our discussion will contain predictions, expectations, and forward-looking statements. Actual results in the future may be materially different from those discussed here due to a variety of factors. Listeners should refer to the discussion of those factors in the company's Form 10-Q and other filings with the SEC. For Sallie Mae, these factors include, among others, results of operations, financial conditions, and/or cash flows, as well as any potential impacts of various external factors on our business.
We undertake no obligation to update or revise any predictions, expectations, or forward-looking statements to reflect events or circumstances that occur after today, Wednesday, October twenty-third, twenty twenty-four. Thank you, and now I'll turn the call over to John.
Jon Witter (CEO)
Thank you, Melissa and Madison. Good evening, everyone. Thank you for joining us today to discuss Sallie Mae's third quarter results. I hope you'll take away three key messages today. First, we had a very successful peak season. Second, we remain encouraged by the sustained improvements we are seeing in our credit performance. And third, we believe we are well positioned to deliver strong results for the year by continuing to drive our business and serve our customers. Let me begin with a discussion of peak season results. Last quarter, we hypothesized that the FAFSA form delays would elongate peak season but not have a material impact on demand.
While this shift in peak season timing has played out as we expected, we outperformed even our own estimates, with originations growth of 13% in the quarter compared to the year ago period. Private Education Loan originations for the third quarter of 2024 were $2.8 billion, and our new unfunded commitments in the quarter were $3.9 billion. In total, our committed volume increased almost $1 billion or 17% when compared to the prior year quarter. This wraps up a very successful 2024 peak season, and year to date, through the end of September, we have seen 9% growth in total originations. Turning to the quarter's results, GAAP net loss per common share was $0.23.
These results were lower than the prior year quarter, primarily due to the allowance that we were required to build for new commitments, which was significant this quarter due to our peak season success. We were also pleased to see our credit performance continue to improve. Private education loan net charge-offs in Q3 of 2024 were $77 million, representing 2.08% of average private education loans in repayment. Credit quality of originations continued to show improvement. Cosigner rates increased to 92% in Q3 of 2024, from 90% in the year ago quarter, and the average FICO score at approval for Q3 of 2024 was 754 versus 749 in the year ago quarter.
Our enhanced payment programs are helping our borrowers who need assistance establish positive payment habits. We were pleased to see the usage of loan modification programs stabilize throughout the quarter. September enrollment was down 50 million compared to August, a trend we anticipate will continue. We continue our capital return strategy in the third quarter, repurchasing 5.3 million shares at an average share price of $21.58. We have reduced the shares outstanding since we began this strategy in 2020 by 52% at an average price of $16.16. Additionally, we are excited to announce that we will be increasing our fourth quarter common dividend from $0.11 per common share to $0.13, which will be paid in December. Pete will now take you through some additional financial highlights of the quarter. Pete?
Peter Graham (CFO)
Thank you, John. Good evening, everyone. Let's continue with the discussion of key drivers of earnings. For the third quarter of 2024, we earned $653 million of interest income, $12 million higher than the second quarter of 2024, and $1 million higher than the year ago quarter. Our net interest margin for the quarter was 5%, lower than both the previous and year ago quarters. We expected to see NIM compression in 2024 as funding rates caught up to our asset yields, and this is what drove the majority of the decrease. We continue to believe over the longer term that a range of low- to mid-5% is the appropriate NIM target.
Our total provision for credit losses was $271 million in the third quarter of 2024, up from $198 million in the third quarter of 2023. Our successful peak season volume was the main driver for the increase in provision in the third quarter. The allowance for losses on our private education loans at the end of the third quarter was $1.4 billion, and including the allowance for our unfunded commitments, equaled $1.5 billion in total reserve.
As seen in the table on slide seven of the earnings presentation, the total allowance as a percentage of the ending portfolio exposure, which includes the balance of funded loans plus unfunded loan commitments and accrued interest receivable, was 5.84%, down from 5.9% in the second quarter of 2024, and 5.99% in the third quarter of 2023. We believe we will continue to see incremental improvement in our reserve rate over the coming quarters as we realize the benefits from our loan modification programs and improvements in the credit quality of originations. Net charge-offs for our private education loan portfolio in the third quarter of 2024 were $77 million, or 2.08% of average loans in repayment.
This represents a 45 basis point reduction from the year-ago quarter and an 11 basis point reduction from the prior quarter. Private education loans delinquent 30 days or more were 3.6% of loans in repayment, an increase from the prior quarter, but down from the year-ago quarter. As we continue to monitor the performance of loans in our enhanced loss mitigation programs, we remain pleased with the level of success. We believe that it will take some time to understand the new seasonality of these programs. But as we mentioned last quarter, delinquency for those borrowers exiting the first wave of our extended grace program were in line with our expectations, and we're pleased to share that this positive performance has continued.
Additionally, through the monitoring of borrowers qualifying for loan modifications over the previous quarter, we remain encouraged that just over 80% of borrowers with modified loans successfully made their first three payments. I do want to mention a procedural refinement made to our loan modification programs in the third quarter, which caused an uptick in loan modification volumes. However, this change did not have a material impact on overall delinquencies, and in fact, we observed a decline in late-stage delinquencies quarter over quarter and year over year. We continue to believe that our loss mitigation programs are helping our borrowers manage through periods of adversity and establish positive payment habits. Third quarter non-interest expenses were $172 million, compared to $159 million in the prior quarter, and $170 million in the year-ago quarter.
Third quarter non-interest expenses were up only slightly over the year-ago quarter, despite dramatically higher levels of originations, which carry meaningful variable cost. Finally, our liquidity and capital positions remain solid. We ended the quarter with liquidity of 19.9% of total assets. At the end of the third quarter, total risk-based capital was 12.9%, and common equity tier one capital was 11.6%. Another measure of the loss absorption capacity of the balance sheet is GAAP equity, plus loan loss reserves over risk-weighted assets, which was a strong 15.9%. We continue to believe that we're well-positioned to continue to grow our business and return capital to shareholders going forward. I'll now turn the call back to John.
Jon Witter (CEO)
Thanks, Pete. I hope you share my belief that we had strong performance in the third quarter, and that we are well-positioned to continue that trend through the close of twenty twenty-four. We are excited about the origination growth this peak season and how that positions us to continue to execute on the goals we set out for this year. With that in mind, let me conclude with a discussion of twenty twenty-four guidance. The originations growth that we saw in the third quarter was higher than expected, and we believe that this trend will continue through the remainder of the year. This success has led us to revise our guidance for private education loan origination growth. We now expect to see 8%-9% growth for the year.
Additionally, with continued positive credit performance, we are tightening the expected range for total loan portfolio net charge-offs to between $325 million and $340 million, or as expressed as a percentage of average loans in repayment, between 2.1% and 2.3%. At this time, we are reaffirming the 2024 guidance that we communicated on our last earnings call for GAAP diluted earnings per common share and non-interest expense. With that, Pete, let's open up the call for some questions. Thank you.
Operator (participant)
Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality. Thank you. Our first question will come from Sanjay Sakrani with KBW. Please go ahead.Please go ahead, Sanjay. Your line is open. And we'll move to our next question from Terry Ma with Barclays. Please go ahead.
Terry Ma (Senior Equity Research Analyst)
Hey, thank you. Good afternoon. So I think you called out that, over the long term, the mid- to low-5% range is still kind of the right target for NIM. But as we think about kind of the short and intermediate term, and, you know, the impact in the most recent round of rate cuts and potentially some more rate cuts up ahead, like, can we see NIM dip below 5%? And what's the kind of timeframe to get back to that long-term target?
Peter Graham (CFO)
Yeah, I think, you know, again, we've had this dynamic of our borrowers choosing predominantly fixed rate in the origination in the last two sort of peak origination seasons. And our funding rates, particularly the deposit rates, you know, will reprice with changes in rates. And so we've had continued pressure on, you know, on the increase in funding rates as term deposits that we put on at a lower rate environment reprice in the higher rate environment. That's the dynamic we've seen through this year and sort of compression of NIM. I'd say over the first part of next year, we'll continue to kind of see the tail of that, longer-term deposits that were put on three and five years ago, repricing in this new environment.
But we're also seeing, you know, deposits that we put on a year ago reprice at a lower rate. So on balance, I think we'll see some pressure in the beginning part of next year, but as we move through the year, I think that'll start to normalize. And so again, from a longer-term perspective, we think that 5% to mid-5% range is the rate target.
Terry Ma (Senior Equity Research Analyst)
Got it. Okay. And then appreciate the color on the mod programs and the reserve commentary. But as I look at kind of delinquencies this quarter, it ticked up quite a bit, particularly in the thirty to fifty-nine day bucket. Any color on what's going on there? How much of that was attributed to seasonality or anything else?
Peter Graham (CFO)
Yeah, again, I think the thing that we're mostly focused on is the later stage delinquency buckets and the roll to default, and those trends have been improving as we've, you know, utilized the new programs to help borrowers, who are in, you know, in need of assistance. And so we feel really comfortable about performance of those programs and don't have any concerns with regards to early stage movements and delinquency.
Terry Ma (Senior Equity Research Analyst)
Okay. Got it. Thank you.
Operator (participant)
Thank you. And we will take our next question from Sanjay Sakrani with KBW. Please go ahead.
Sanjay Sakrani (Managing Director)
Thank you. Sorry, I guess I got dropped off earlier. My apologies. Pete, could you just, and I'm sorry if this was asked already, but just when we think about, you know, relative to consensus, reiterating the full year number, this quarter was a little bit weaker on higher provisions and maybe a weaker NIM. As we think about what's going to make up for it in the fourth quarter, is it really that reserve rate can come down and provisions can help get us back to what the full year number is? I'm just trying to think through those dynamics.
Peter Graham (CFO)
Yeah, that's probably the big, big driver that we're anticipating to see continued improvement in, you know, in the overall reserve rate. You know, we talked about that in my prepared remarks, that that's come down year over year as well as sequentially, you know, quarter over quarter. And we think that given the improvements in, you know, continued improvements in that charge-off, coupled with, you know, the, the higher credit quality of new originations, we think that that likely will trend will likely continue over the next quarters.
Sanjay Sakrani (Managing Director)
And as far as, like, the NIM's progression from here, like, into next quarter, maybe?
Peter Graham (CFO)
Yeah. Again, I touched on that in the prior call or, you know, the repricing that we're seeing in the deposit book. You know, we've probably got another quarter or two of lower rate term deposits we put on three and five years ago that will come up for reprice. But we've also, at the same time, got you know, one-year term deposits that we put on a year ago that are going to reprice at a lower rate. And then the other sort of wild card is, you know, originations in the fourth quarter and any carryover from peak. To the extent, you know, that we have continued outperformance, there's always a potential for a, you know, a smaller loan sale later in the year.
If, you know, if we have a higher rate of growth than what we're currently anticipating, you know, we've got to manage our capital position in January of next year as we take the kind of the final CECL transition adjustment into our regulatory capital.
Sanjay Sakrani (Managing Director)
Got it. Can I just, my follow-up is on the reclassification of the federal loans to held for sale. I mean, can you just talk about the decision to sell and-
Peter Graham (CFO)
Sure
Sanjay Sakrani (Managing Director)
... how we should think about that?
Peter Graham (CFO)
... Yeah, thanks, thanks for asking that question. You know, the FFELP program at spin was probably close to $4 billion, was a significant part of the overall profile of the business. Over time, that has run off and, you know, really got down to, like, $500 million. It's non-core. It creates a lot of operational complexity. And so we pursued a strategy of trying to find another home for that- for those assets. We were happy to be able to find a buyer, and, you know, we expect to close a transaction in the fourth quarter.
Sanjay Sakrani (Managing Director)
Okay, great. Thank you very much.
Operator (participant)
Thank you. And we will take our next question from Mark DeVries with Deutsche Bank.
Mark DeVries (Senior Research Analyst)
Yeah, first, just to follow up on that last point, should we expect any kind of gain or loss on the disposition of those FFELP loans?
Peter Graham (CFO)
No, when we moved that into held for sale, we took a slight mark to move to lower of cost or market, so we got close to par, you know, in total for the transaction.
Mark DeVries (Senior Research Analyst)
Okay, got it, and then just thinking about this quarter's originations, do you think, you know, the volumes you did reflect a new run rate market share in kind of a post-Discover world? Or is there still a lot of jockeying going on with share that could be gained or lost?
Jon Witter (CEO)
Yeah, Mark, it's John. I'll take that one. You know, as a quick reminder out there, you know, third quarter of last year, the, you know, competitor who has chosen to leave the, you know, the sector, you know, probably had market share somewhere between 14% and 15%. You know, those are some of our internal numbers. You know, others might have slightly different numbers, but that's probably pretty good. You know, our sense is if you look at, you know, sort of the likely market growth, if you look at us getting sort of roughly, you know, our market share of their market share, you know, and you think about the 13% originations growth that we saw in the first quarter, it feels like we got our share, you know, and maybe even a little bit more than that.
Again, we'll know the final numbers as we see, you know, sort of the formal market share reports and studies that will come out in the months ahead. But we feel really, really good about what we were able to do from kind of capturing our share and building that momentum. And I think that was, you know, clearly, you know, in part, competitive dynamics, the exit of this player. But I think it's also a testament to the improvements that we've made in our originations and marketing capabilities, you know, to be able to go in there and compete well for it. Now, make no mistake, every quarter, every peak season, we'll have to recompete for that share.
So we feel great about what we've done, but we will continue to go hard after now protecting our share and sort of continuing to make that kind of a core part of our growth expectations going forward. So, you know, yes, I think you can probably think of it as, sort of a change to run rate. But I think we will know more about how that shakes out as we start to understand more fully the market share and, sort of, you know, volume growth numbers, you know, that we saw during this peak. But again, we've got to go rewin that, you know, every quarter going forward.
Mark DeVries (Senior Research Analyst)
Got it. That's helpful. And then just, do you have any updated observations on payment behavior you may be observing from your borrowers who, you know, may also have direct loan balances that went into repayment in recent months?
Jon Witter (CEO)
Yeah, Mark, I'll take that one, too. Yeah, our ability to sort of study this precisely is, you know, limited by what we can glean from, you know, things like the bureaus and the public, you know, and the publicly available data. You know, we do a pretty, I think, sort of sophisticated approach of looking at our borrowers who have federal loans and those who don't, and, you know, try to sort of analyze kind of divergent payment patterns by cohort over time. As of yet, you know, even with the, you know, coming to an end of the federal payment holiday, we have not seen anything that leads us to believe that the federal payment, you know, sort of resumption, is causing an issue on our customers.
And while I think it is fair to say that, you know, most of our customers have federal loans, I think it is also fair to say that, lots of people have federal loans who are not our core customers and would probably not satisfy our underwriting, conditions. So I'm not making a comment about, you know, the broader federal program and what the average federal customer is able to do, but I think we have a, pretty creditworthy set of customers. I think they're performing well, and we've not seen any evidence at this point of anything that causes us, you know, any material concern.
Mark DeVries (Senior Research Analyst)
Okay, great. Thank you.
Operator (participant)
Thank you. Please go ahead. Go ahead, Nate Richmond, your line is open. Please double-check the mute function on your device.
Nate Richmond (Analyst)
... Oh, sorry. Good afternoon. Thanks for taking my question. Originations were up pretty nicely year over year, and, you know, like, expenses were up only very modestly, and I think that speaks in part to your customer acquisition and direct origination costs. You touched on it a bit before, but can you expand a bit about the improvements you've made there, and, like, to what extent you can further improve efficiencies and other digital marketing capabilities?
Jon Witter (CEO)
Yeah, you're talking about origination expenses there?
Nate Richmond (Analyst)
Yeah, and customer acquisition costs.
Jon Witter (CEO)
Yeah, sure. Look, I think the biggest thing, well, let me start by saying I think we have historically, as a company, had an incredibly strong competitive position as it relates to customer acquisition. We've got great relationships with our school partners. We are on, you know, all of or virtually all of the preferred lists. I think when we tier our schools, you know, and kind of look at who we really focus on, you know, we have even deeper relationships with the higher growing schools out there. And, you know, clearly, for many years we have been, you know, I think investing, as many companies have, in their digital capabilities.
I think the biggest thing that has really changed over the last couple of years, you know, is the advent of, you know, a more organic search and content-driven marketing strategy. You know, and the way I would have you think about this is, you know, we are trying to go out there and acquire customers organically through a whole range of different strategies. Not having to necessarily pay, you know, sort of for, you know, digital marketing search for all of those customers. And then work very hard to maintain and engage those customers, you know, not just through the course of their first academic year with us, but obviously then subsequent academic years after.
I think that organic strategy and subsequent customer engagement strategies that we've put in place, you know, I would say is one of the biggest differentiators that we have created, or, you know, created as a company. So yes, we've got great school relationships. Yes, we have a great brand that's synonymous with the industry. You know, yes, we've made all the right martech and other investments over the last three to four years, but I think it really is that, you know, that content-led strategy and engagement model, that we think is really differentiated and exciting going forward.
Nate Richmond (Analyst)
Great, that's helpful. And then just, like, thinking into twenty twenty-five and the prospect for further Fed rate cuts, how are you thinking about consolidation activity? And is there, like, a certain level in the interest rate where you think there could be more of an inflection on that rate going forward?
Peter Graham (CFO)
Yeah, certainly it's our expectation that, you know, as the rate environment moves down, that that will create an opportunity for consolidation to pick up. You know, our belief is that we won't go back to the peak levels that we saw, you know, a few years ago, when rates were ultra low. Anecdotally, you know, I've heard that folks are saying a hundred basis points or more of rate decline would really be needed for meaningful uptick in their consolidations business. So I think that's probably a good proxy for when we start to see, you know, some of that activity start to pick up.
Nate Richmond (Analyst)
Thank you. Appreciate it.
Operator (participant)
Thank you. And we will take our next question from Rick Shane with J.P. Morgan. Please go ahead.
Rick Shane (Managing Director and Senior Equity Research)
Hey, guys. Thanks for taking my questions this afternoon. Look, I just wanna delve in a little bit deeper on the issue that Sanjay raised, related to the optics of stronger growth in terms of earnings, the fact that you've reiterated guidance. There was a comment that you could consider a small sale in the fourth quarter. When we think about that sale, would it be roughly the size of sort of the variance of your volume versus prior expectations? Because that would set you back in terms of your loan, your asset growth objectives, et cetera. Is that a good way to start thinking about it?
Peter Graham (CFO)
Yeah, I guess what I was just kind of rephrasing what I said previously. You know, we had given guidance around 2%-3% balance sheet growth for this year. With the higher originations, we're probably trending to the high end of that, maybe a little bit over. And to the extent that the performance doesn't develop the way we anticipate it will in the fourth quarter, that's an avenue we have to meet our commitments in terms of earnings per share guidance for the year. And so in my forecast right now, do I think we're going to do another loan sale? I think that's a possibility, but not our first priority.
Rick Shane (Managing Director and Senior Equity Research)
Got it. And again, look, we understand that stronger volume is a virtuous thing that distorts earnings in the short term in a way that, you know, you have to think about. But we wanna be clear that obviously gaining market share and building the business is clearly constructive. But it is interesting, I guess in that context, keeping guidance where it is and not framing the possibility that there could be an optical distortion related to strong growth. It doesn't sound like you guys will go there.
Jon Witter (CEO)
Yeah, Rick, it's John. You know, look, I think we're talking about hypotheticals here, which is always a little bit difficult. You know, I think we were pretty clear in the investor forum last year that we like balance sheet growth, but we like, you know, the sort of predictable, stable balance sheet growth. But with that being said, all other things being equal, we'd rather have a little more balance sheet growth than not. And so I think if we thought that, you know, we had a really attractive level of balance sheet growth and it involved us, you know, disappointing on earnings, I think we would be open to having that discussion with you all and our investors and so forth. That's just not where we are today.
I think as Pete has said really clearly, you know, we are reaffirming our guidance because we continue to believe that we're going to see nice improvement in, you know, our overall reserve rate. I think the point that Pete was really making is, if we do start to see growth even above what's been expected today, you know, that this is a pressure valve strategy that allows us, you know, that we can consider, but we've not decided to do that. So again, I would go back to what we talked about in the investor forum last December. We like balance sheet growth. We agree with your point. You know, good, high quality, organic growth is a really attractive thing. That's a key part of the strategy that we're trying to deliver.
We just want to make sure we are being thoughtful in optimizing all the constraints, and loan sales is a potential part of it. Again, I'd reiterate what Pete said, it's not our first priority right now, and again, we think we have other performance in the business to point to.
Rick Shane (Managing Director and Senior Equity Research)
Terrific. Thank you guys very much.
Operator (participant)
Thank you, and once again, if you do have a question, you may press star one on your telephone keypad at this time, and we will take our next question from Jeff Adelson with Morgan Stanley. Please go ahead.
Jeff Adelson (Executive Director)
Hey, thanks for taking my questions. Pete, I appreciate the color you've given on the modification program so far, but just wanted to make sure we understood. You know, what was the driver of this procedural refinement of the modifications? I know the Q gave some color on that, but just wondering if you could put it in your own words. And was that the entirety of the reason why your early-stage buckets did increase this quarter? And I know you've also in prior quarters given us that excluding modifications DQ rate, which I think was running around 50 basis points lower than the total DQ rate in prior quarters. So could you maybe just give us an update on that number as well?
Peter Graham (CFO)
Yeah. So the procedural change that I referred to really involves, when we consider a loan mod to be effective. So you'll recall that, when we first rolled out the programs, we talked about the fact that we required borrowers to make three qualifying payments, before they were considered to be in an effective loan modification. In retrospect, that created operational complexity, and it also created confusion with the borrowers. So we decided to, change that process in the quarter. Now, once a borrower goes through, the Q&A process and evaluation of their ability to pay, and is offered a loan mod and accepts that, they're considered to be in a loan mod. They still have to make the three qualifying payments, in order to be re-aged into current status if they're eligible to.
But that's what essentially caused the jump in loan modifications in the quarter, was kind of the pull forward of, you know, folks that would have been otherwise in those qualifying periods. And, you know, it didn't really have any impact on the, you know, the metrics by delinquency status, because those borrowers were already in the buckets that they were in. It's just more the reported amount of loan modifications in the quarter.
Jeff Adelson (Executive Director)
Okay. So was there anything else that maybe was driving the early stage this quarter?
Peter Graham (CFO)
Nothing other than normal seasonality now.
Jeff Adelson (Executive Director)
Okay. And are you guys still, you know, thinking about a reasonable target of the high 1%-low 2%? And just given that your charge-offs have come in at the low end and even slightly outperformed the low end this quarter, as we're thinking into next year, is there a chance that you could see something below 2%?
Peter Graham (CFO)
At this juncture, we're still, you know, thinking that that's the right long-term level for us to be at. You know, again, we'll have some variability in that quarter to quarter. We're certainly pleased that, you know, we've gotten there faster, if you will, this year than what we had anticipated. But for now, we're not ready to change our overall guidance with regards to long-term target.
Jeff Adelson (Executive Director)
Thank you.
Operator (participant)
Thank you. And we will take our next question from Jon Arfstrom with RBC Capital Markets. Please go ahead.
Jon Arfstrom (Managing Director)
Hey, thanks. Good afternoon. Pete, I think you're on the early stage of delinquencies. You're just saying, "Look, look at year over year. Don't look at sequential." That's the right way to look at it?
Peter Graham (CFO)
Correct.
Jon Arfstrom (Managing Director)
Yeah.
Peter Graham (CFO)
Yep.
Jon Witter (CEO)
... Yeah, John, I just to go a little bit deeper on that, you know, we know that our customers come into repayment in, you know, two primary sort of waves throughout the course of the year based on when they graduated. We know that, you know, the most likely time for folks to have especially minor financial distress is when they're first coming into repayment. And so you do see these kinds of seasonalities because our business is not one where we have sort of consistent, you know, entry into P&I each of the, you know, the twelve months. It is lumpy, and so, you know, I do think the year-over-year metrics are the right metrics to look at.
Jon Arfstrom (Managing Director)
Yeah. Okay. And you're signaling that things are potentially getting a little bit better. Pete, comfortable enough to tell us that you think reserves could trend down? Can you give us any clues to what you're thinking in terms of what's possible there, kind of the pace and timing of some of those-
Peter Graham (CFO)
Yes
Jon Arfstrom (Managing Director)
- reserve percentage declines?
Peter Graham (CFO)
I would point to the year-over-year improvement. You know, as we sort of highlighted in the, you know, in the investor presentation. You can look at the quarter-over-quarter, you know, trend, sequentially, second quarter to third quarter. You know, I'm not going to pinpoint a number, but I think that we believe that that trend will continue because we will have the seasoning of, you know, continued seasoning of, you know, the modification programs and the impact on the charge-offs. That doesn't translate linearly into the CECL reserving process, but it does ultimately catch up and get baked into the reserves. That, coupled with, you know, we changed our underwriting criteria last year to tighten our sort of credit box, and the originations we've been putting on for the last year are of a higher quality than the back book.
And that also, as those loans season, will factor into the overall reserve.
Jon Arfstrom (Managing Director)
Okay. Fair enough. And then just one more, if I could. It's probably in here, but I couldn't quite figure it out. But can you give us deposit rates on kind of your new money that you're bringing in, and how that compares to your average? How big that gap is?
Peter Graham (CFO)
You know, that's kind of a little bit difficult one to generalize because, you know, we do have difference between sort of demand deposits and the term money. What I would say is, you know, those rates in the overall market have moved, you know, depending on the tenor, anywhere from 25-50 basis points in the last, you know, kind of quarter or so. We tend to sort of price in the middle of, you know, sort of the middle of the pack in terms of rate-based deposit gatherers. And so, you know, we've benefited from that in terms of repricing of things in the, you know, in the month, in the quarter.
And we expect that that trend will continue as you know as the Fed rate cut cycle continues, the deposit rates will tend to you know move pretty quickly indeed.
Jon Arfstrom (Managing Director)
Okay. All right. Thank you very much.
Operator (participant)
Thank you. And as a reminder, if you do have a question, you may press star one on your telephone keypad at this time. And we will take our next question from John Hecht with Jefferies. Please go ahead.
John Hecht (Managing Director)
Afternoon. Actually, most of my questions have been asked and answered, and you know, I guess it's maybe a follow-on to the last question. You know, maybe talk about, you talked about the deposit markets and pricing, but maybe how do you guys stack in that regard? Like, meaning, like, what's the maturity profile of some of the broker deposits and stuff like that, so that you can move when the markets are moving?
Peter Graham (CFO)
Yeah, sure. I got an early question on sort of NIM pressure that I touched on that a little bit. Again, we term out our deposits in order to manage the sort of duration gap between the longer-dated assets that we originate and our funding profile. You know, we do have some remaining primarily brokered term deposits that we put on three and five years ago that will come up for repricing over the next six to nine months. You know, those will obviously reprice at a higher rate, but at the same time, we've got in that same mix of our total deposit book you know, things that we put on a year ago that will reprice at a lower rate.
So again, I think we'll have some NIM compression as we move to and through the first half of next year. But I believe we'll start to normalize after that and, you know, feel, you know, pretty comfortable with the longer-term commitment we've made around the NIM target of lower than 5% range.
John Hecht (Managing Director)
I apologize if you addressed this, but you guys, you clearly beat on the originations in the quarter. You're raising the guidance for the year. Are you able to attribute any, like, how much market share you're getting from Discover's exit in that increase in guidance versus just sort of overall market advancements?
Jon Witter (CEO)
Yeah, John, it's probably a little premature. We'll start to get some of the market studies here in the next month or two. But, you know, as a quick reminder, you know, I think the competitor you referenced last year, Q3 had a market share, you know, probably in the range of between 14% and 15%. You know, we're a little bit north of a 50% market share player. You know, so if you start to think about normal expected, you know, volume growth, originations growth, you know, in sort of the mid-single digits, and you start to think about getting, you know, 50-55% of, you know, 14%-15% share. Eyeball metrically, that seems pretty consistent with the 13% volume growth that we saw this quarter.
Maybe even a little bit sort of, you know, the 13% might even be a little bit better. So again, we don't know yet. We'll get the full studies and the full data, but there's nothing in the, what I'll call simple math, that leads us to believe that we did not fare well during this peak season. And of course, we'll report out on any trends, you know, as we learn them around share.
John Hecht (Managing Director)
Okay, great. Thank you very much.
Operator (participant)
Thank you. This concludes the Q&A portion of today's call. I would now like to turn the floor over to Mr. John Witter for closing remarks.
Jon Witter (CEO)
Thank you, Madison. Appreciate your time and your help today, and thank you everyone for dialing in. We continue to really appreciate your interest in Sallie Mae, and hope you are as excited about the successful peak season as we are. And we look forward to talking to you in about three months and talking about the close to the year and guidance for twenty twenty-five. With that, Melissa, I'll turn it back over to you for some closing business.
Melissa Bronaugh (Head of Investor Relations)
Thank you for your time and 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.
Operator (participant)
Thank you. This concludes today's Sallie Mae third quarter twenty twenty-four earnings conference call and broadcast. Please disconnect your line at this time and have a wonderful evening.