SLM Corporation (SLM) Earnings Call Transcript & Summary

All right. Thank you, everyone, for attending our national conference. Next up, we have Sallie Mae, and I'm pleased to welcome Jon Witter, CEO of Sallie Mae. Thank you very much for being here.

Thanks, and great to be here. Thanks to you and your whole team. You guys are doing a great job, as always, and really just a pleasure.

All right. Thank you for that. First, I guess, I'll start off maybe some recent developments or some questions I've been getting recently. A lot of that has to do with, say, government support and particularly how to think about the moratorium on student lending payments, was supposed to end and now it's being pushed back a bit. Just how do you think about that? Does that affect really the business at all, what you think going forward?

Vincent, thanks. Great question. And just to remind everyone, the federal payment holiday and the end of it has been pushed back multiple, multiple times. And it's something that we've modeled, we've assessed, we've tried to understand the implications of. Look, I think there is no doubt that a federal payment holiday has a positive effect on the overarching credit capacity and payment capacity of our customers. Most of our customers have federal student loans as well as private student loans. And so all other things being equal, it has to be helpful. I think it is important to note that the vast, vast, vast majority of our customers have continued to make regular payments on their private student loans through this pandemic. And so their payment, I think performance and habits are very, very good and very, very strong. And we've absolutely incorporated an end to the federal payment holiday into our CECL loan loss allowance and reserves, and we'll absolutely factor it in into our expectations of delinquencies and charge-offs, and we'll give guidance on that in the January time frame when we do our earnings call. So I think if it gets pushed off from here, my sense is that has a small positive effect on delinquency and charge-off numbers. It may have a de minimis and small effect on our CECL loan loss reserves. But I think for the most part, we feel like we've got a pretty good handle on that, and it's baked into sort of our expectations going forward. And any adjustments to timing we'll adjust in our guidance going forward.

Okay. Great. Another topic I've been getting sort of the regulatory outlook. And so the administration is looking to maybe put some folks in different seats and we've seen some of those names. Just any thoughts as you're kind of thinking about the regulatory landscape?

Vincent, it's a great question. And what we talk about a lot internally as a management team and a board is we don't try to tailor our regulatory posture for the administration. The programs, the tools, the regulatory expectations take years to implement and mature and they have to become a core part of our operational routines. So for us to try to tailor that every 4 years or every 8 years, I would argue is a little bit of a fool's errand. I think it's fair to say that over the last 10 years, really since the Great Recession and maybe a little bit more indifferently since the well salesforce -- or sales practices, investigations. I think we have seen a steady drumbeat of increased regulatory expectations. That's something that I think we feel very well equipped to handle within sort of our operations and our current expense outlook and so forth. But at the end of the day, there's not anything, in particular, that we really see coming that is a dramatically different focus from really the good regulatory practices and processes that we've put in place already.

Okay. Great. So maybe taking kind of a step back in a sort of a broad question about the state of just student lending generally. So maybe if you could take us through the mindset of say, somebody entering higher education at this moment, what are they thinking at this time as the demand come back and the sort of framework about financing that education?

Yes. I think you have to break this a little bit into the short term versus the medium or longer term. And let me start with the medium and longer term and then work my way back. As we think about it internally, we believe that the medium and long-term prospects for higher education and sort of growth in higher education and, therefore, growth in originations, those fundamental structural factors, we believe are unchanged or even enhanced through the pandemic. And so if you think about it, the value of higher education was clearly demonstrated through the pandemic. It seems like ancient history, but it wasn't that long ago that we were talking about the K-shaped recovery and those who had college degrees and those who didn't and the vastly different experience that they had during the pandemic and really up until the last few months as the more frontline labor force has tightened. And I think the other thing that has also really clearly come out of the pandemic is that students really do value this residential experience beyond just the pure educational component of it. And if students don't value it, their parents certainly do. And so I can remember 16 months ago when I took this job, I had people asked me questions of, gosh, do you worry that more and more higher education is going to slip to or switch to online. And I think the pandemic gave us a little mini-me version of what that could look like. And I think what students have said is there's a lot more to go into college than the online classes. And that adulting process, that launching process that developing life skills process, I would argue, is every bit as part of the college value as what you get in the overall classroom. And so long term, I think the value of education, higher education was absolutely proven during the Great Recession -- I'm sorry, during the pandemic. And I think the desirability of a residential model, which is obviously very important to our business was likewise proven. Now if I switch back to the shorter term. There's unquestionably as in almost every sector of the economy, going to be bumpiness as we move out of the COVID environment. At the end of the day, enrollment was absolutely hampered to a modest, but we think important degree through the pandemic, there were absolutely students for whom the dream of higher education was put on hold because of financial reasons. There were unquestionably students who decided to take a gap year because the experience was important to them, and they didn't want to go to college for what they perceived to be a partial or a half experience. So there's no doubt that there was some effect, I don't think huge, but some effect on enrollment. And there is no doubt that the very, I think, positive government fiscal involvement and monetary involvement also had an impact. We talked on our last earnings call about the higher education emergency relief funds' impact on our business. And just as a quick reminder, as part of the 3 COVID bills, there was over $70 billion of direct aid to colleges and universities with almost no strings attached and the only provision that it had to be largely used for direct student assistance for those impacted by the pandemic. But quite frankly, the definition of what impacted by the pandemic meant was a relatively loose definition. And we clearly saw evidence of that in our business. We also talked on the last earnings call about the fact that for our loans that were less than $5,000, that cohort of loans was down 19% last year versus previous years. And that's really interesting when you compare it to what we heard from colleges, which is 80% of the colleges that we survey that we do business with, said that their approach to HEERF was to use it to make effectively direct and undifferentiated sort of grants to every student in the order of magnitude of $500 to $3,000. So what a lot of schools apparently were doing were making relatively small sort of contributions to virtually every student. And again, we saw that in our numbers. I think the good news for us in that regard is, one, the overall government reaction to the pandemic was incredibly positive. And as I remind my management team and my Board all the time, you can't have the really great credit performance we had without some downside. And I think if you think about how actively the government supported the economy during this period of time, I would take that trade every time even with the downward pressure on some of the originations. And I think the other sort of benefit for us is the HEERF funding has an absolute shelf life on it. By statued, it has to be used by the early part of next year. we were trying to determine earlier, was it February or March, but it's in that rough time frame. So we'll have the HEERF impact sort of with us a little bit into the spring semester but we're pretty darn confident unless something really dramatic happens on the COVID space between now and next fall, that that's something that we'll have largely cleared by the time we get to our next major peak season.

Okay. Great. That's very helpful. So I guess I'm trying to maybe think about our path towards normalization. So the government aid, so that sort of maybe pushback a bit on that -- the HEERF, so a benefit of $500 to $3,000, that's going to probably last until spring. So are we sort of, I guess, the path then it's sort of mid-summer, maybe, or next academic year when we start to see your normalization?

Yes. I suspect it will -- that the effects will linger out. But my guess is by the time we get to the fall, things will feel a lot more normal next fall than they did this fall. And I think, certainly, by the time we get to the following fall, it's hard to imagine that we're not back to where we were. We're sharpening our pencil right now on what we think the fall is going to look like. We haven't put that together in numbers. But we are confident we will see continued improvement. And I think, Vincent, it's important to say what we're really focused on during this time is controlling the controllables. And we obviously can't control what happens to the total enrollment market. I wish we can. We can control how we think about marketing, we can think about our investments. And we sort of hinted on the last call that we thought we had grown market share in the third quarter. One of the things I'm really proud of is we've since gotten the numbers in, and we actually did get third quarter over third quarter grow market share from 53% to 54.6%. So a continued nice improvement. By my math, that's our sixth consecutive quarter of market share gains. For those of you keeping score at home, we really do feel like we've gotten our fair share or more of the Wells business. We feel great about how all of that has sort of panned out. And I think we'll continue to really focus on market share, on really prudent and thoughtful and efficient marketing enhancements and really making sure that we protect and, hopefully, even enhance our market share from a very high level going forward. So that's the controllable that we can control.

Okay. Great. I guess when we think about the normalization of student lending, I guess, is the path towards normalization. And then is normal different now. When we think about, say, 2022, fall of 2022 versus 2019. Is that sort of -- is 2019 the right path to think about is or something else is?

Yes. I think if you look at the 3 or 4 years leading up to the pandemic. I think the trends were pretty stable. I think you saw nice steady kind of mid- to upper single-digit originations growth in the private student lending space. I think you saw relatively stable market share sort of during that period. Again, we're sort of proud of our performance. But I think all the talk of sort of massive new entrants coming in. They're obviously a force, and we watch them and we monitor them and we learn from them. But I think the players who were our big competitors, 2 or 3 years ago continue to be our big competitors today. And so yes, I never want to predict status quo forever. But I think our working assumption is that the return to normalcy will look a lot like 2019 and the trend lines that got us there.

Okay. Great. So maybe kind of [indiscernible] you talked about sort of the competition. What does the state of competitive play look like right now? So you are getting your fair share. You're growing your shares, so that's great. Do you see that competitiveness staying stable? We hear about Fintechs on that as well. So just maybe if you could talk about that?

Yes. And look, I'm really not going to be that CEO who says, "Oh, yes, these upstart entrants, we're not worried about them at all. We're really different. And as I said, we have a really healthy respect for players, not just to our direct competitors, but players who are trying to take up adjacent spaces and in some cases, may even be partners, but not maybe fully aligned partners. So we are aware of all of those dynamics and sort of taking those things seriously. I think we like our competitive position in the -- in school marketplace a lot. We think we've got a modern technology stack. We think we have invested really aggressively in the marketing capabilities that we need, how we think we have invested appropriately in the other customer service and sort of overall product enhancements that we wanted to make. So we feel really good about our competitive position, and we believe we enjoy a nice scale cost advantage over virtually anyone that we are going to compete with. So we really like our position. If you ask me the thing that sort of keeps me up at night or what I think is going to be different going forward. I think what we are seeing is growth of the sort of at-the-margin players. People who are coming in and who are trying to own a piece or a portion of the college education or financial aid process and they're trying to build that brand and they're trying to build that customer connection. And they don't want to be a direct competitor to us in offering loans, but they do want to be a direct competitor to us in terms of competing for that customer share of mind and loyalty. And that's something that we take really seriously. So when we talk about wanting to become more of an education solutions company, when we talk about these ancillary services and products and data and tools that we're providing, things like FAFSA Tools, things like information and guidance on the relative ROI of certain programs in schools or scholarship finders and the like. Really what we're trying to do is to make sure that in this period, kind of as students go before, during and immediately after college. We want to be the most salient brand. We want to be the person providing them the most value. By the way, we think that will accrue a lot of benefits to our core business. It lowers our cost to acquire. It increases our cross-sell rates, really good things happen from that. By the way, we suspect over time, it will open up other new business opportunities for us, which we'll be happy to exploit. So we think that continued investment not in the direct lending space, of course, we'll do that. But in some of these adjunct and associated spaces is this going to be one of the really interesting competitive trends to watch.

That's really interesting because I think some of these Fintechs talk about trying to get customers within their ecosystem. And so we'll talk about things like their super app and trying to basically ingrain the customer. And so I think that topic is interesting, maybe you could talk about how you're measuring it or how you're able to get that retention and get that customer?

Yes. Look, it is early days. But the kinds of things that we are looking at are usage, that's probably just the easiest place to start. Our people showing up. We're also starting to look right now at what I'll call differential measures of sort of brand affinity or loyalty. So we've not released this data specifically, but I'll talk about it generally. We now know and have tracked that for 2 customers who statistically look the same. If one of those customers has also used our FAFSA Tool or has also used our scholarship finder tool or who has also used one of the other tools or services in our arsenal. We know that net-net, our Net Promoter Score is meaningfully higher for that second group than for the first. And so for us, that's a great leading indicator. Customers are coming, they're using it and they're telling us that when they use it, weeks and months later, they have a more positive view of the firm than someone who just came and was engaged solely in a loan or lending capacity with us. So we'll continue to build on that. The ultimate is to begin to track what are the differential impacts of that population on cost to acquire ultimately on cost of service, on credit performance, you could imagine all of those things being positively skewed by that kind of self selection. But ultimately, the real payoff for me is, I'd love to see us figure out how we can start to develop some revenue-generating capabilities off of that. I think we have to build into that. And I don't want to distract the organization in the near term. I think we're really beginning to fire on all cylinders with the core business. I think we're beginning to fire on all cylinders with our capital return strategies. So we're not going to let our eye off the ball at all on those things. But there's a really interesting new vector that's beginning to open up. And I suspect over the next year, we'll talk a lot more about that.

That's interesting. Yes, it's -- I mean, it's -- Sallie Mae being at the very beginning of a customer's financial life cycle. I know there's a focus on student lending. But in the past, there have been talking about the credit card and other types of products. Just maybe if you could you talk about what opportunities there might be or sort of what you're thinking?

Yes. Look, it's probably still too early to talk about specific opportunities. And even for something like the credit card, you have to remember, we largely shut that business during the pandemic. We are only really reopening and strategically evaluating that business today. It's something that we believe should be a natural fit offering a credit card with our business. But we've got to make sure that we can do that in a way that satisfies customers and allows us to compete in a really well-managed way against some big scale players out there. So we are reopening that business now and really sort of deep into almost relaunching and sort of retesting the core assumptions that went into that. But if I take a step back and I talk more generally and I see a few friends who visited with us this morning, so I'm going to bore some of them with the same old story. But from my perspective, you have to remember that products in banking and financial services are not cross-sold. They're cross-bought. The customer is not something that we or any firm owns where we can hook up a firehose and fill them full with whatever products, we want to fill and fill -- fill them with. So why would a customer want to cross-buy a product from you? And our little simple parlance, there's sort of 3 conditions you have to meet. And I think these will drive all of our efforts around expanding our customer relationships going forward. Number one, they have to love you as a brand, right? If they don't love and respect you as a brand, if you're not the kind of company, they want to do more business with, why would they want to do more business with you? So all the work we're doing around customer experience, these additional products and services, again, part of why I'm so excited to see the differential NPS performance that I mentioned before. All that helps satisfy this first condition. The second thing is your brand has to be credible in that space. As I like to joke, Apple is a beloved brand in the [indiscernible]. But if Apple came out tomorrow with a new dog food line, I'm not sure we would be first in line for it, right? Not because Apple is not a great brand. It's just not what they're famous for. And so we want to really own and I think what we've learned over the last year is we have a great position in that success before, during and immediately after college space. right? That's when customers really think about Sallie Mae. That's who they associate us with. That's where they say, yes, I could see why Sallie Mae would be playing in that space. And then the third thing that you have to be able to satisfy is whatever product you ultimately offer needs to be really damn good. And no one is going to buy something with you, and this was always my complaint of the old universal banking models. We said, "Hey, we'll have a supermarket." Well, last time I checked, if you've got a crummy product on the shelf, customers will come into the supermarket and buy the one thing, but they're not going to buy the rest. And so part of what we're also trying to figure out, and this goes a little bit to the card conversation is what can we really offer and how that will be really differentiated and really compelling. And by the way, some of those things, we might manufacture ourselves if we feel like we can do a darn good job with them. And by the way, we would love nothing more to then retain more of those economics. But there may be some of those products that we look at and say, you know what? They're big, they're scaled, they're complicated, they're hard. It's not what we do. In which case, I would rather engage in a partnership or an affiliate model, leverage the power of our customer relationships, leverage the power of our referral capabilities and be able to get part of the value as opposed to trying to get over our skis and deliver something that's not really in our capacity. So I would not sort of expect that over the coming years, we're going to all of a sudden be players in the broad banking space. Gosh, if sometime our brand expanded to that point, sure, we would go there over time. But I think what you should really expect is we're going to try to stay really true to what customers expect from us. We're going to try to stay really true to our brand. Yes, we're looking to grow and expand and enhance that offer and that value, but we don't want to lose sight of the really strong capabilities we think we have, because I would rather be a really well-run monoline, delivering incredibly high ROE loans in an attractively growing market than to be diffused and messing around in a bunch of businesses that we can't be successful in.

That's great. We've taken up half the time already. I can keep talking forever, but I just want to see if there's any questions from the audience.

Maybe, along those lines, you see models that aren't all that new [indiscernible]. It's a fairly simple product but delivering that decision where you're starting with this relationship. You have a bank, isn't that -- and you have the -- you don't have to generate leads as you have [ this ] relationship and it becomes a funding [indiscernible] wouldn't that be a natural extension.

Yes. So the question for those -- Yes. The question for those maybe watching on the video, if you couldn't hear is Chime seems to be a pretty digitally first sort of millennial-focused bank account, good funding mechanism, wouldn't that be an interesting thing for you? I probably don't want to comment on specific opportunities, but I think that's the kind of thought process that we would absolutely go through. And if customers said to us that, yes, having a really flexible spending account is something that we would value and see being credibly offered by a company like Sallie Mae. When I go back to talk about those monetization opportunities, I think that would certainly be [indiscernible] the kind of thought process we want to go through. But again, I'm not ready to talk about specific opportunities here

Well, I think it sounds like from here on your comps getting serious, right?

In terms of originations or...

In terms of originations. In terms of really almost everything.

Yes. I mean -- look, I think the things that were headwinds from COVID certainly get easier if we stay on the same trajectory and path we're on. There will be some harder comps. You'll remember, a little over a year ago, we did a pretty significant restructuring, reduced our annualized cost base by about $50 million a year recurring, that's not something, and we were pretty clear at the time that we're going to repeat every year. We do think we'll have very regular, very persistent focus on unit costs and sort of the sense that I've wanted to give people is like every year, I want our investors showing up and saying, expenses were just a little bit better last year than I thought and to be positively surprised by that, but I'm not sure we're going to have another $50 million good guy coming at us. So I think there'll be some things that as we normalize -- and by the way, I think from a market share perspective, clearly, we've gotten benefit from Wells leaving the market. That's part of the growth that we've seen. That's not going to happen every time. So I think there will absolutely be some COVID comp benefits that come our way. I think there'll be some others that just get harder. And look, the thing we've really tried to pride ourselves on, and I give our CFO, Steve McGarry and Brian, our Head of HR, a lot of credit is just being totally transparent about those factors and what we expect. I'm a big believer of tell people what you're going to do, do it. and then remind them that we told you that we were going to do it and rinse and repeat and do that again. So we'll try to be as clear and transparent on all those fronts as we can.

Okay. Great. I'll just continue on then. Another sort of broad picture question. And through the third quarter, I think, kind of, just lenders across the space, we're getting questions, and I'm certainly getting investor questions on this, but about how the consumer credit is doing. And I think for some lenders, it seemed like there was a surprise that maybe normalization was happening faster than expected. So maybe if you could frame up how you see consumer credit doing in the normalization process?

Yes. And it's a good question, and we have seen some of those broader macro reports and trends from other sectors as well. As just a reminder, we have, I think, pretty consistently and persistently through the course of the year, updated and improved relevant credit guidance. So I think we've taken down now 3x our expected charge-off guidance. I think once in -- from our initial guidance, I think we did it in the second quarter and in the third quarter. We certainly brought our CECL reserves down every quarter. With that said, I think we are certainly expecting that there will be some modest increase in charge-offs as we head into next year. A lot of that is seasonal. We always know that when a big cohort wave comes in, when customers get into financial trouble with us, and remember, not many do, we have a pretty low loss content product. It tends to happen pretty soon after they enter repayment. So we know a little bit of that is just seasonality. We do expect that there'll be a little bit of an impact from the end of the federal payment holiday, again, not big. But I think the thing I would just say is we have absolutely cared for and taken all of that into account and crafting our CECL loan loss reserves. So we'll update things like our charge-off guidance when we get to January, but really barring something unforeseen in the macroeconomic environment. And obviously, recognizing that our CECL reserves are also driven by the volume of new originations and sort of the amortization of the discount factor and so forth. But taking all of that into account, we feel like the loan loss provision pretty well takes care of what we think is coming at us.

Okay. Great. So it sounds like 2022, you would have -- the normal seasonality is returning. So we're kind of close to a normal at that point. It's not -- and what you're seeing is -- there's not deterioration that's kind of sort...

We are not seeing deterioration. And in fact, I think our general sense is we continue to be positively surprised throughout the pandemic by the reaction that -- or what we've seen in the numbers. And look, again, we are -- from a macroeconomic environment in a scenario environment, we are not fully back to normal yet. So we're certainly not sort of predicting improvement from here? But I -- again, I think we feel like the scenarios and the loan loss provisions we've done today pretty well reflect our current understanding of the world.

Okay. Great. And I guess, when you think about normalization or sort of the way you'd want your business to be run going forward is 2019 sort of the right framework and that...

Yes. I think, unfortunately, it's going to be a little bit more new ones than that, depending on whether you're talking about the expense side or whether you're talking about the market share side or the growth side. So I think you almost need to parse it apart. I think we've talked about most of the major pieces here today. But I think '19, obviously, reflects a reasonable starting point. We may not be fully back to full originations in 2022 relative to sort of '19 expectations, but my guess is we'll make it up in some other areas like expenses. So if you have to start some place with your models, '19 is probably not a bad place to start, but I wouldn't finish there. I think there's a couple of other steps. And again, we will be very transparent in all of our guidance, as we always are to help you triangulate it on that because at the end of the day, we really don't want there to be any more surprises than there needs to be.

Sure. And I guess, when you think about origination, so third quarter, I think maybe originations were a little light, but that's sort of just the delays in students coming in and maybe some students kind of fell off, but this comes back.

Yes, third quarter growth was, what, 10.1% third quarter over third quarter. So it was a pretty nice rebound from 2020. And remember, in our origination game, the single biggest determinant of spring is what happened in the previous fall. So that bodes pretty well for what happens this coming up spring. I think the big question on the origination side, and we are sharpening the pencils right now on this is really what happens next fall. And you'll remember, we were largely on our origination guidance up through this fall, and we had predicted a modestly higher level of origination growth this fall than the 10.1%. And so really, that was the biggest driver of our shortfall to original guidance this year. So we want to really sharpen the pencil for next fall because that, obviously, has a huge effect going forward. Again, I think we believe it will be materially better than this year, whether it's all the way back to normal, again, it's still the work we're doing.

Right. Great. That makes sense. Okay. Great. switching gears and actually -- so on the flip side, the demand for Sallie Mae loans coming from the credit investors who have been buying your portfolio has been fantastic.

It has been. Thank you for that.

And I'm not sure -- I mean, there's talk of interest rates rising and so forth. I'm just sort of wondering maybe if you could take us through your thinking of portfolio loan sales and what kind of framework [indiscernible] attractive?

Yes. A couple of thoughts. Number one, we're delighted with the execution in 2021. You'll remember, we sold $3 billion of loans in the early part of the year for a little bit north of a 13% premium. We just closed the previously announced fourth quarter loan sale, the $1 billion of loans, and we've not yet disclosed and won't hear today that premium, but it was better than the 13% plus premium we saw in the first quarter despite the fact that actually the credit -- the interest rate environment had deteriorated slightly, sort of point-to-point between those 2 periods. So we're absolutely delighted with that. And I think more importantly, what we're really happy about in the loan sale market is not just the execution, but it's the quality of the auctions that are lining up underneath it. So just to remind everybody in the first quarter loan sale, we were oversubscribed 8x roughly. We had a broad divergence and a broad portfolio of different buyers, insurance companies, investment banks looking to sort of productize the loans, hedge funds and others. So it was not one use and one buyer showing up at the party. It was a pretty diverse group of folks with different business interest and what they were trying to do. And in addition to the market share gains that we got complements of the Wells' exit. I really do credit that Wells' exit for part of that. I think you had a big tranche of loans come on the market. I think it prompted a lot of potential buyers to go out and sharpen their pencil and get smart on the private student lending space. And I think you now have a bunch of people who understand the quality of the asset class much better than they used to, and that's going to be a permanent thing going forward. So yes, look, there's no doubt that part of the economics of any loan sale are impacted by the prevailing interest rate environment. You can't take a fixed income class in business school and sort of not get the connection. But I think there's really fundamental structural drivers. You think about the fact that the Smart Option loan from Sallie Mae has now been in force for over a decade. So there's a really good understanding of what that product is and how it performs through its life. You've got a really active group of investors who understand or buyers who understand the asset category. It's been seasoned now through 2 big recessions when if things were going to have blown up, they would have blown up. So you kind of put all of that together, and I'm not ever going to predict the result of an auction. But I think we feel like there's a lot of reason to be optimistic about the state of the whole loan markets going forward. So that really leads to the second part of your question, Vincent, which is why the heck are we doing this? And I've tried to be extremely clear about this. I sort of draw a short- and a medium-term distinction here. In the short term, we are really selling loans right now. Make no mistake about it, to take advantage of what we see as a huge arbitrage between those loan sale premiums and our current forward-looking multiple. And we've done the work of looking at the value of our loans on an NPV basis, on a GAAP accretion basis. We've looked at that across different potential loan premiums and valuation multiples. And no matter how you slice it and dice it, selling loans and buying back shares right now is a hugely NPV and GAAP earnings accretive thing for us to do, and it's not close. We're not divulging sort of where we move from the green zone to the yellow zone to the red zone. But we're in the green zone. And so that's something that we plan to continue to do until either multiples really dramatically change or premiums really dramatically change. And my guess is and my hope is that the multiple changes before the premium does. I think it's important to say, though, I hate selling these loans, right? I really do. I love these loans. I mean, not quite as much as I love my children, but I really do love these loans. They are great loans. They're high ROE loans with low credit loss, right? Now we keep the customer relationships because we retain servicing, that's really important. But I hate selling this because they represent lost future, really stable, really high-quality earnings for the company. We are only doing it because we see there is such a shareholder value opportunity to take advantage of this arbitrage. But make no mistake, the goal is to get to the longer term and in the longer term on the other side of CECL phasing. What our modeling suggests is that we should be able to grow the balance sheet, sell maybe a small portion of loans really just to keep the channel open and to demonstrate value, but at that point, generates still significant capital for distribution to shareholders. And so yes, we're taking advantage of this near-term opportunity, but I don't want anyone to misunderstand we are not, in my mind, permanently becoming and originate -- a hybrid originated in hold, originate and sell a company. Our real goal is to move back to a model post-CECL implementation where we're having our cake and eating it too, we're keeping our loans, we're growing our balance sheets, and we're returning significant capital to investors and the super power that allows us to really do that is the high ROE content of these loans, right? I mean that's the profitability that this engine can drive, especially when we get to the other side of CECL implementation.

Okay. Great. It's -- I know it's tough to talk about valuation. But I guess when you think about the catalyst of these, so you've been doing very healthy sales to arbitrage to buy back your stock. Do you see, I guess, other ways to improve valuation or to kind of...

On the asset allocation balance sheet side?

Sure. Yes.

Yes. I mean look, we have been absolutely, I think, trying to pull all the levers. And the loan sale and common equity buyback program is sort of the star of the show and rightfully so. But I'll remind you, we sort of started the year with a very pedestrian little tender offer for our preferred shares, right? And we got a fair number of those back in at a pretty steep discount creating a nice equity bump over that. We've done a number of debt issuances over the last year. We think really just to continue to improve that portion of the balance sheet, both in terms of rate and in terms of tenure. We continue to really maximize the value of our deposit franchise, which is, obviously, an important point of funding for us, making sure that we are driving that to the most advantaged position it can be. We're never going to be at the level that a bank would be with a big checking portfolio, for example, but we also don't have the operational expense and operational risk associated with that. So we really like that funding mix. But I think if you asked our treasury group, they would say negotiating new deals, really taking advantage of the right air pockets in the brokered CD market, that's been a big portion of what we've done. So yes, I think this whole notion of really optimizing the balance sheet is something that I give our finance team a ton of credit for. I think they've taken that challenge on in a very fundamental way. The biggest impact is the loan -- I'm sorry, the share buyback and look, it's sort of hard for me to say, I kind of giggle every time I do. By the end of this year, in the 18 months since I joined the company, we will have bought back mid-30s percent of our company in a relatively short period of time. And I think when we issue guidance for next year on share repurchases and capital return. Again, I think you'll see a continued focus on that. It won't be like 2021 because we're not going to do another $1 billion tender. I feel pretty comfortable saying that right here in this forum. So people should not get too over their skis. '21 is not the normal year. '21 was a really big down payment on what we wanted to do. But we're absolutely committed to aggressive share purchases, aggressive capital return. And I fundamentally believe capital allocation is the most important thing that any bank CEO should be focused on, and that's why we spend a lot of time worrying about it.

Great. Yes. I mean it's interesting. So you've generated a lot of free cash flow. Your balance sheet is underlevered. It's just thinking about your capital structure. It seems like you have a lot of levers to pull. You've been pulling it, and yes, there's still more to go, plus you can grow the business.

Plus we can grow the business.

Yes. Perfect. My last question, I know we only have 2 minutes left. But so you came on, I think, 15 months ago.

Right about that.

You achieved -- put a strategy in place, have been executing on this strategy. I guess maybe if you could give us a flavor where -- which inning are we -- when you think about your strategy and...

Yes. I think we are squarely finishing the third inning. And what I would say is we've gotten the things really in order and moving forward that were the known and really tangible things. The core business is humming, right? There's still more work to do to drive top line growth. There's still more work to do to drive -- to drive operating leverage and unit cost, but I think the core business is humming. Hopefully, you all believe in your heart that we're serious about capital allocation and capital return. By the way, if you don't believe that, I can't help you. And I think we haven't talked about it much. I think we've really proven out the risk story, both the credit risk story. Just look at the numbers again through the pandemic. But I also think if you look hard at the political risk story, we are in just a fundamentally different universe than we were 18 months ago. and the idea that we could have a Democratic President, a Democratic Congress, who had proposed depending on how you want to count, I don't know, between $6 billion and $10 billion of social spending. And the really extreme policies that were floated during the election last year have been nowhere to be seen, and I, in fact, would argue have died on the line. I think that's a pretty compelling sort of fact base that the foundation is now strong. And so I think where we're going to move forward is we're going to keep the momentum on all of those. We're not going to take the eye off the ball because, by the way, that would be the silliest thing we could do. But I think really beginning to think about it's really enhancing the brand, extending what the brand can stand for, looking for those smart monetization opportunities. It's super early innings there. I'm not even sure the players are on the field yet fully stretched and warmed up for those innings. I think we've got a team. I think we've got some good starting points, but there's a lot more work to do there. And look, I think we'll look back and say, the first 3 innings we're making the traditional Sallie Mae, the best traditional Sallie Mae, it could be. And I think the next innings will be saying, how do we transform it into an even better version of itself.

That's great. We're about out of time. Maybe one more -- if anybody have any questions? Last questions? Perfect. Well, thank you very much, Jon.

Thank you. Really a pleasure.

Take care.

Yes. Thanks.