SLM's (SLM) CEO Raymond Quinlan on Q2 2016 Results - Earnings Call Transcript

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SLM Corporation (NYSE:SLM)

Q2 2016 Earnings Conference Call

July 21, 2016 8:00 AM ET

Executives

Brian Cronin - Senior Director, Investor Relations

Raymond Quinlan - Chairman and Chief Executive Officer

Steven McGarry - Executive Vice President and Chief Financial Officer

Analysts

Michael Tarkan - Compass Point Research & Trading, LLC.

Moshe Orenbuch - Credit Suisse

Arren Cyganovich - D.A. Davidson

Sanjay Sakhrani - Keefe, Bruyette & Woods, Inc.

Eric Beardsley - Goldman Sachs

Mark DeVries - Barclays Capital

Michael Kaye - Citigroup

Richard Shane - JPMorgan

Presentation

Operator

Good morning. My name is Karina and I will be your conference operator today. At this time, I would like to welcome everyone to the 2016 Q2 Sallie Mae Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you.

Mr. Brian Cronin, Senior Director of Investor Relations, you may begin your conference.

Brian Cronin

Thank you, Karina. Good morning and welcome to Sallie Mae’s second quarter 2016 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 maybe materially different than 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 to GAAP measures and our GAAP results can be found in the Form 10-Q for the quarter ended June 30, 2016. This is posted along with the earnings press release on the Investors page at salliemae.com.

Thank you. I will now turn the call over to Ray.

Raymond Quinlan

Thanks Brian and welcome all of you to the call. I am happy to report we had a very good quarter. We continue to make progress on our road with great market results, financial metrics that continue to be excellent, credit is on track to our models, our outlook is very good and our relationship with all of our primary regulators has been very productive. We continue on our mission to assist American families in realizing their dreams for the younger generation. I’ll go through some of the variables and hand over the call to Steve and then we’ll come back to as Brian said Q&A.

In regard to volumes our originations were up 10% from 2Q 2015 as you all know the market continues to grow at approximately 5% so are being up 10% we view to be a very good sign. In actual numbers $423 million were disbursed to new loans this quarter versus $384 a year ago. In regard to initial credit quality, we remain consistent. The cosigned rate for this part of the season is 78% was 78% last year.

Through-the-door FICO for new loans is approximately flat to last year at 747 year-to- date versus 749 year-to-date last year. Our NIM has been just a terrific performer. We ended the quarter – in the quarter, we experienced 584 versus 551 last year and year-to-date we are at 581 to NIM basis points versus 556.

As you know, due to our seasonality, as we enter the third quarter and build up cash on the balance sheet in order to anticipate the disbursements which will occur in the late August and September the NIM will drop, but will stay above for the full-year numbers that Steve and I have previously talked about in this forum which is 5.60%.

Operating expense continues to be a good start. As you all know in 2014 we did our spin, in 2015 we stabilized our operating platforms and made significant investments with the idea of improving them both in the quality of service to our customers as well as in the cost efficiency and we are starting to realize the benefits associated with that. Despite the fact that our loan portfolio is up over 30% year-to-year from a servicing standpoint, our operating expenses have increased only $4 million from $91 million last year in the second quarter to $95 million this year.

As a result the efficiency ratio is showing dramatic improvement. Last year in the second quarter it was 49.9%, this year 41.6%. Year-to-date, we are at 41% versus 47.3%. Last year, we had one favorable item which you will recall from the first quarter related to Upromise that accounts for approximately 2% of that delta. Having said that, our full-year guidance as you saw will drop from 47% 2015 level and we are now predicting 42% or down fully 10% rate-on-rate for 2016.

In regard to credit performance, delinquency from the first quarter and second quarter is flat at 2.1%. Our forbearance has improved slightly as a rate of the portfolio from 3% to 2.9%. Our charge-offs moving from 95 to 105 on basis points, so far the full P&I part of the portfolio is exactly where we wanted to be from modeling standpoint, all those numbers are consistent.

The balance sheet reflects both our intentions as well as our realized performance, so that the private student loan portfolio continues to grow at a very healthy rate. Last year in the second quarter the balances were $9.2 billion, this year they are $12.2 billion an increase of 32.6%.

The total balance sheet moved from $12.9 billion to $15.6 billion and so that’s up 21%. In actual numbers, the private student loan portfolio has grown through this 12 months $3 billion. The total balance sheet has grown less $2.7 billion, so our balance sheet is changing rapidly as the increase in private student loans is actually 107% of all the increase in the balance sheet which of course you see reflected in the improved NIM and overall efficiency.

The bottom line, our EPS for the quarter at $0.12 to be compared with last year's $0.20 GAAP minus the effect of the asset sale which was done last year which is $0.11 and so we compare it consistent business to consistent business $0.12 this year, $0.09 last year, EPS is up 33%. Our ROE at 12.73% stays in the range we’ve talked about and we are very comfortable with that.

In regard to our regulators, our primary regulators or the FDIC, the Utah Department of Financial Institutions and the Consumer Financial Protection Bureau. We have had reviews with all three this year and indeed more or less constantly. We did as you know have our first review with the CFPB. Their team was here for a couple of months from March till May.

We have a very good relationship with them and while the results are confidential, I can say that the CFPB recently completed a review of the bank's compliance management system and management has no follow-ups at this time. As the CFPB is our primary compliance regulator, we expect these reviews to take place on an ongoing basis. We are off to a very good start with them.

And wrapping things up, through the quarter we’ve had several accomplishments in relations, but in addition to these financial metrics I’ve been discussing. We launched the parent loan on April 18, it is on expectations. We opened an expansion of our Indiana processing site on June 30 giving us capability that provides back up to the Delaware site as well as giving us an increase in our space envelope which we need to accommodate our service expansions.

Our service levels continue to improve both in customer satisfaction as well as in efficiency reflecting our 2015 actions and investments. Our model for the business of originate holds 100%, service all of our loans is doing well. As you recall in January, we announced to this group that we would not sell assets going forward, we would be able to fund both in a capital sense as well as in a liquidity sense, all of our required assets that is in fact 100% what we are doing, our balance sheet is growing at approximately 22% this year.

In late July, we will have our first DFAS filing. We are on track to do that and the results look very good. In closing, we had a great quarter, we are staying the course, we have continued improvement in product, sales, service, and credit management and our financial management continues at its current excellent levels.

Thank you for your time. And I’ll turn the call over to Steve.

Steven McGarry

Thank you, Ray. You may have covered enough a lot of the quarter. I am just going to fill in a few more details around the portfolio, yield, funding, the provision, allowance and then our capital position. So the average yield on our private education loan portfolio in Q2 was 798 that compares with 803 in the prior quarter and 796 in the year ago quarter. We expect the yield on the portfolio that hover in this neighborhood for the next four quarters borrowing any additional fed rate hikes.

Our cost of funds was 134 basis points, up eight basis points from the prior quarter and 17 basis points from the year ago quarter. The change from the prior quarter is principally driven by extending the duration of our liabilities and consistent with our long-term funding plans. Over the next four to eight quarters we don't expected our cost of funds is going to tick up meaningfully from this 134 basis point area.

In May, we executed a $551 million ABS transaction at a spread of LIBOR plus 138 basis points. We’ve always said that we will access the ABS market opportunistically and that's exactly what we've been doing. Through demand for our bonds and continued ABS market stability. We decided to go right back out for an additional transaction in July. We announced last week that we raised an additional $607 million in a deal that had an average spread to LIBOR of 136 basis points.

These transactions again provide good long-term funding with costs well within our long-term funding plan. Just a little color on where we are headed in this area. As we look at our long-term funding plan today, we estimate that by the end of 2018 just under 20% of our loan portfolio will be funded by ABS and the rest of course will be funded with deposits.

Turning to the provision for private education loan losses that came in at $42 million in the quarter compared with $50 million in the year ago quarter. We ended the quarter with an allowance for loan losses of 116 basis points of total loans and 178 basis points of loans in repayment.

As the portfolio grows and seasons you can expect that our provision and allowance will also, so put that into perspective we now have $4.3 billion of loans in full P&I. We ended the quarter with 35% of loans in full P&I up from 30% a year ago. We expect that this number will climb to $5.7 billion by the end of Q2, 2017 which is the period from which our loan loss allowance is covered.

Is this growth and the season of our loan portfolio that’s driving our provision in loan loss allowance? So even though the loan loss allowance is larger we expect that the charge-off rate measured as a percentage of loans in full principal and interest repayments to decline in future quarters.

And just as a point of reference that stack was 2.6% in Q2, so the charge-off rate for loan on in full P&I came in at 2.6% up from 2.1% in Q1 and the increase this quarter is well within our expectations as the initial defaults from the Q4 repay rates that we talked an awful lot about tend to occur in Q2 resulting in a peak charge-off a quarter on a percentage basis. So that’s basically what’s going on with the provision in the allowance for loan losses it’s a very consistent with how we expect our portfolio to perform over the long run here.

And then finally just a word on capital as we wrap up the bank remains well capitalized with a risk-based capital ratio of 14.5% at the end of the quarter significantly exceeding the 10% total risk-based capital ratio required to be considered well capitalized. Our CRBC ratio will decline for its 13.5% at the end of the year as our portfolio grows in 2016. But keep in mind as we mentioned often this parent company has access capital available to the bank as an additional source of the strength and is not reflected in the capital numbers that we published.

And finally, as we continue to expect that we will not return capital to shareholders as we reinvest in our high growth business. And one final comment in the first quarter the tax rate was 37.7% compared with 39.8% a year ago and we now expect that the tax rate for the full year will come in around 38%, I think that's a little bit lower than what we've been talking about previously.

So that pretty much wraps up the prepared remarks and we look forward to taking your questions now.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Michael Tarkan from Compass Point. Your line is open.

Michael Tarkan

Thanks for taking my questions. Did I hear you right that you expect charge-offs as a percentage of at loans and repayment to decline from the 2Q levels, just first one on this?

Steven McGarry

Yes, so Mike in Q3 and Q4 portfolio continues to grow and as we get past that peak season of the initial zero pay charge-offs we do expect that the charge-off rate will trail-off for the remainder of this year and as the portfolio grows and seasons and charge-off start to anticipate we would expect that comparative periods in 2017 both for loans and full P&I and to the total portfolio should decline modestly. But I think the overarching point here is that despite you know people have noticed that the mark jump in our provision this quarter, our portfolio is continuing to perform exactly as we have underwritten it too.

Michael Tarkan

Okay thanks. And then from a timing perspective, I know the $2.4 billion of loans went into repayment this quarter. Typically, is there a six-month lag in terms of when we would see that show up in some of the charge-off numbers?

Steven McGarry

So now what happens if the loan goes into repayment in November or December the charge-offs are going to take place the first wave of the charge-offs will take place in April and May and then decline again in June. And you can see that in the full package of performance statistics that we put out yesterday afternoon after we released our 10-Q.

Michael Tarkan

Understood. Thanks for the color around the CFPB. Just wondering if you have an update on the consent degree that the Bank is operating under right now, as well?

Raymond Quinlan

Sure. We have looked at of course all the provisions in the consent decree. We believe we are in compliance with all of them. The regulators have given us a very good feedback in regard to that they are looking to do a sustainability review in regard to it and by the regulators I mean here primarily the FDIC and so we're coming along just fine on that these things as you know happen at a leisurely pace, but we are on a right road.

Michael Tarkan

Okay, thanks. And then just high level, from an operational perspective, has operating under the consent decree had any meaningful impact, whether it's from an expense perspective, capital, or how should we think about that if it was ever to get lifted? Thank you.

Raymond Quinlan

In a perverse way, the timing of the launch of this Company, these consent orders and the financial crisis which preceded it happened in a very favorable sequence, so we did our spin on May 1, 2014. All the ink was dry in regard to the consent order on that day and so we’re able to set up our initial operations in full compliance with any changes that had occurred in the regulatory frame, post the crisis and in addition to that for every item in the consent decree.

So from our first day of operating we’ve had it built into our specs for the performance of our customer service, collections, underwriting et cetera and so we haven't had, in some sense, any adjustment to our operating features because of the consent decree which preceded the launch of the Company by several hours. And so the answer to your question would be this nothing in any of these that will provide incremental cost to the current run rate that we have and we were fortunately launched after most of the new rules were written.

Michael Tarkan

Okay. Thank you.

Operator

Your next question comes from Moshe Orenbuch from Credit Suisse. Your line is open.

Moshe Orenbuch

You talked about the level of charge-offs being kind of stable within your estimate – within your parameters, and also probably moderating some. Could you talk a little about the development of the reserve over the next year?

Steven McGarry

Sure. So obviously we don't give provision guidance, but I’ll give you a little bit of color around where we expect the allowance to trend as a percent of loans and repayments have jump from 1.01% to 1.16%. That gets head towards 1.3% of the total portfolio before the end of the year. And basically what we are covering here is our losses expected for the next year, as well as a build to cover life of loan losses on our TDR portfolio. So I’ll talk a little bit about TDR development, so this is our second year of operation.

In June of 2014 when we had our first earnings call, our portfolio was essentially pristine because prior to that all loans was sold to the holding corp once they became delinquent or had a period of forbearance. So fast forward a year, we saw large growth in our TDR portfolio and over the course of the last year it has more than doubled, so quickly it has become roughly 11% of loans in full P&I, so very rapid acceleration. We would expect that to decelerate now, so looking out a year, obviously the TDR portfolio is going to grow, but as a percentage of loans and full P&I that is not going to have that sort of a meaningful ramp up.

And the other thing to note about the big chunk of our allowance, which is for life of loan losses. These losses don’t emerge particularly rapidly and they will dribble out into the portfolio over the life of the portfolio. And cumulative defaults on our TDR portfolios is something that we will constantly monitor and adjust. I don't know if that answers the question, Moshe that’s pretty much what we're looking at in terms of the loan loss allowance over the next couple of quarters.

Moshe Orenbuch

That's helpful. Can you – maybe switching gears a little bit, have you guys had a chance to review the servicing standards? Is there anything in there that is going to be – either something that you've got to change or affirmation of what you've got going on?

Steven McGarry

So I read the press release from the Department of Education yesterday and it didn't seem to impact our bank’s portfolio of private education loans. What I saw in there was a lot about how Department of Education services are incented and how Department of Education Services communicate with their customers and making sure that income based repayment plans are being offered effectively and efficiently, so it might takeaway was it had very little to do with how we operate our business here and I think at the – in various introductory remarks you mentioned the fact that we have just had a full servicing review, we don't have any takeaway, so I think that pretty much sums it up.

Moshe Orenbuch

Great. Thanks very much.

Operator

Your next question comes from Arren Cyganovich from D.A. Davidson. Your line is open.

Arren Cyganovich

Origination activity continues to somewhat accelerate a little bit. I noted that it's coming off of last year's disbursements, but just curious as to how you are viewing that and any thoughts leading into your important third-quarter origination activity?

Raymond Quinlan

As we enter the third quarter, it some of the break in the action, the first quarter has a dynamic of spring semester, the second quarter is more or less a fallow quarter and the third quarter is the student loan equivalent of the retail business at the Christmas season.

And so as we enter that equivalent of the Christmas season, we're in very good shape, but if you're asking retailers how the year going and you asked them on November 15, as you might imagine get a whole bunch of caveats under the heading of we'll know a lot better over the next six weeks.

And I think that quote applies quite well to us, so we are in good position going in. We didn’t see any particular changes in the competitive frame offered by any of the major players in the field. We feel good about it. But we have a lot of volume between now and September 30 to account for.

Arren Cyganovich

That makes sense. All right. In terms of the funding mix, you talked about growing your ABS to 20% eventually. What about the mix in terms of retail online deposits and brokered deposits? How do you see that framing out?

Steven McGarry

So we have been targeting a mix of 60/40, 60 broker, 40 retail. We've been looking at a number of opportunities in the retail space such as taking deposits from HSA providers and 529 providers and we’ve had some initial successes there that may tend to bring the ratio down closer towards 50/50 which means broker and retail and we will also step up the pace on BankRate.com Internet type deposits as we grow our portfolios significantly across 2017.

I wouldn’t expect any major changes in that ratio, but if anything probably migrate more towards 50/50. We still like very much the growth broker deposit market as – whenever I talked about funding, I would like to point out that what we do there as we raise long-term deposits and swapping back into LIBOR to match the index that’s predominant on our loan portfolio, you know longer the duration of the deposits I think it’s better for the long run for locking our net interest margin. That's basically what we're headed on the deposits front.

Arren Cyganovich

Great. Thank you.

Operator

[Operator Instructions] Your next question comes from Sanjay Sakhrani from KBW. Your line is open.

Sanjay Sakhrani

Thanks, good morning. I guess my first question just on your ability to grow so fast rather into the market. I mean what do you think is attributing to your success there I mean and how long can this outpace growth last?

Raymond Quinlan

Sure. And one is I think we're a very focused and capable competitor in our market and if you were to look at the competitors that we have who break into large and relatively smaller and most of them are not totally dedicated to the student loan market as we are. And so I do think that that type of focus does show up in results.

It's also true that in a financial sense because of the spin and when it occurred, the receivable that’s associated with student loan portfolio was a relatively low number about $4 billion. And so increases in that number would show up in our balance sheet and EPS are somewhat elevated due to the fact that the denominators are small over the last couple of years.

And so we have talked repeatedly about this in Investor call and in Investor conferences and so the combination of the financial calculations and our good performance in the field, and we have gained market share each of the years that we have been operating as an individual company.

And so think it's a virtuous cycle of good performance and a relatively clean and smaller balance sheet to start and so as you look at the second quarter here we’re approximately $16 billion bank the day we launched in May 1st of 2014, we’re a $10 billion bank and so we’ve grown quite rapidly on the balance sheet. We’ve also increased market share and those two things work together to give us very nice compounding.

Sanjay Sakhrani

Then, Steve, as far as the asset sale market, is that something you are even entertaining at this point, or does it still not make economic sense?

Steven McGarry

No we’re an originate and hold model. I obviously monitor out of curiosity where premiums may or may not be in the marketplace but I don't think they are anywhere close back to where we executed the [5.10%] despite tightening in the ABS market but it is not something that we are contemplating at this point in time. I think the company and our shareholders are better served by holding on to these high quality assets to generate long-term earnings and to well improve that premium in the marketplace.

Sanjay Sakhrani

Final question, obviously the stock has been under pressure for a variety of reasons, but one of them being just kind of all the headlines around what may or may not happen to student lending. I mean is there anything that's been out there that concerns you, credibly concerned you, in terms of a proposal? Thanks.

Raymond Quinlan

Well, we've looked at the documentary proposals such as they are for both of the major candidate and we've also looked at their likelihood of implementation. And it is the case that we're coming away thinking that there will always be proposals that were not particularly threatened by any of the specific proposals that are currently extant both parties need to do quite a bit more work in order to get it down to the details.

But I would have to say that so far it's concerned about the proposals that has hurt us more than any concern about the proposals themselves. And so as we look at them there will always be proposals after they have been as long as student lending has been around. And so that’s part of the atmospherics with which we must deal. Having said that though, we don't see anything that has a high likelihood of hurting our franchise.

Sanjay Sakhrani

Okay. Thank you very much. Appreciate it.

Operator

Your next question comes from Eric Beardsley from Goldman Sachs. Your line is open.

Eric Beardsley

Thank you. Just want to clarify a couple items. One Ray, I guess you might have addressed what the margin outlook was for the rest of the year, but if you could just repeat that and help us understand where it should go from this level?

Raymond Quinlan

Okay. And Eric, if margin is NIM, which I will take it would be, yes the second quarter as you all know was 584. Last year at this time it was 551, so it's been a gratifying improvement year-to-date we are at 581 versus last year today at 556. We expect the third quarter to be seasonally low as we build up cash on the balance sheet, which has negative carry and we expect for the full-year that we will be in excess of the number that Steve and I have previously guided folks to 5.6. We were 581 year-to-date, we expect the over 5.6 with some decline on over the next several months.

Eric Beardsley

Got it. So closer to 5.7% or closer to mid-5.6%s or is it too early to say here?

Raymond Quinlan

There may have been some static on the line. We are going to be over 5.6.

Eric Beardsley

Okay. And then just as we think about the other income here I guess what's a good I guess run rate for that - for thinking about this quarter? How much is a recurring versus non?

Steven McGarry

I am sorry can you repeat the question.

Eric Beardsley

Just wondering how much of the other income would you classify as recurring versus non-recurring here?

Steven McGarry

So we had a 2 million catch up on an uncertain tax position that was certainly non-recurring but I guess net, net for the full-year its on - the payable was marked up last quarter. We caught up with the receivable this quarter, but sort of rest of the result run rate net income.

Eric Beardsley

Got it. And then just lastly, can you just repeat I guess what the exact dollar amount of loans in full P&I was? And I think you said that would go up to at least $5.7 billion by next second quarter, but just wanted to clarify those numbers.

Steven McGarry

Yes. So it’s $4.3 billion at the end of June and that should move up to $5.7 billion by the end of June 2017.

Eric Beardsley

Okay, great. So only another $1.4 billion total including whatever amortization you have of that principle over the time?

Steven McGarry

Yes. That’s correct. Yes, that $5.7 billion would include amortization as well.

Eric Beardsley

Okay, great. Thank you.

Steven McGarry

You are welcome.

Operator

Our next question comes from Mark DeVries from Barclays. Your line is open.

Mark DeVries

Yes, thanks. I had a question about long-term capital needs. You are consuming capital at a pretty rapid pace with the robust loan growth. Do you foresee the potential that you might need to raise capital at some point or do expect your ROE to converge on your loan growth before that happens?

Steven McGarry

So let me answer that question with perfect clarity. There is no expectation whatsoever that we will need to raise capital. And Mark, I pointed out in my prepared remarks that we have excess cash at the core that you will actually start to see us inject into the bank, over the course of 2017 to maintain the appropriate capital cushion.

As you know, so we’re at 14.5 today. We drift down towards 13.5 at the end of the year. The agreement that we have with our regulators today, as we speak, is a total risk-based capital ratio of 13%. And no matter how we model out our portfolio and portfolio growth, we are in no way pressured to raise capital to maintain that type of a total risk-based capital cushion.

Mark DeVries

Okay. That's helpful. How much cash do you have at the hold company that's available to inject in?

Steven McGarry

$265 million give or take.

Mark DeVries

Okay, great. Also, as you head into kind of your big disbursement season, are you seeing any signs yet that the competitors are pushing down rates at all or are yield holding pretty firm there?

Raymond Quinlan

Everything that we can see and you’ll remember we have 40 people who are in the field 100% of the time. And so what we can see is quite detailed, school by school, state by state, city by city. The competitive frame is extremely consistent with both the players as well as the offerings that were extent last year. So we see very little change in that environment.

Mark DeVries

Okay. And then just finally on the parent loan product, it looks like it's not going to be that material in 2016, but any idea how much could add over time and could you just talk about what kind of the expectations are for that compared to your normal product?

Raymond Quinlan

Sure. We did launch it in April. Several colleges were very anxious for us to have that additional offering which is a way for families to fund the higher education of their next generation without burdening the student with additional debt upon graduation. And so it's off to a start that we're watching very carefully. We expect over a period of time that it will build up to a sort of a decent level.

It’s not going to change our disbursement totals dramatically one way the other. We think this is part of the evolution of our product offerings, so the incremental, but we don't think in any way that it will be significantly an increase in our net disbursement as we go forward. So as part of the continued enhancement of our product offerings, so that we can continue to improve at a relatively low level our very high market share that we start with.

Mark DeVries

Okay. And would you expect credit and returns on that to be kind of comparable to your existing business?

Raymond Quinlan

Yes. Our goals have been very close. There might have differences between the two, but we are modeling it for the same recurrences and same losses and the same set of expectations.

Mark DeVries

Got it. Thank you.

Operator

Your next question comes from Michael Kaye from Citigroup. Your line is open.

Michael Kaye

Hi. Yes, good morning. Is there any update on what's happening with some of these marketplace lenders like SoFi? Are you seeing any change in the behavior given some of them are having some trouble selling loans and then just talk about what steps you are taking to defend yourself against them?

Raymond Quinlan

Sure. And of course the FinTech’s as a group, just use one moniker have received quite a bit of attention over the last three years and I would say that attention while it's been consistent with three years, there's been nothing consistent about the performance of the FinTech over those three years.

First, soaring and disruptive and then starting to gain volume and then as we all know over these last several months one bad story or a story about the development after another across several of those individual players as well publicized they have for the most part and as the group cut back on their marketing activities I know it reflect their difficulties and funding and to some extent in the performance of their portfolios in a credit sense.

We have on prior occasions been asked about the FinTech’s whether or not they are a factor in the early liquidation of our loans. As they look at some consolidations, we have been consistently that they are - that tiny factor if at all we're talking tens of basis point across the entire portfolio.

For the entire industry, we're gratified that they're cutting back on their marketing which is always a good thing in a competitive world, but they were not a big factor for us at any time in our history 2014, 2015 or 2016 they continue not to be a big factor and so we follow their developments, but it's not a financial modeling adjustment for us.

Michael Kaye

Okay. That’s great year to start. One final question if you're talking pretty I’m clear that the competitive environment has been stable amongst some of your big peers, but just being interesting development this morning about Wells Fargo coming to an agreement with Amazon where they offer discounts on student loans to some Amazon prime customers, just wondering to keep the thoughts on that initiative and what they impact to be to the Company?

Raymond Quinlan

Sure. And that's a very recent development as you know and promotions come and go in the industry. We haven't been able to model that. We don't know that will be a big factor or not, but historically this type of promotion doesn't have much impact on what is much more of a steady emotional and financial process as a family works through the capability to fund their children's education.

And so this is not an impulse buy for the most part, people have been added it for months, they work through financial factors, they consult with the schools and so a splash promotion is relatively incongruous with the pacing of the way these decisions are made for families. Having said that they're right trying something and we'll watch it carefully.

Michael Kaye

Thank you very much.

Operator

Your next question is from Rick Shane from JPMorgan. Your line is open.

Richard Shane

Thanks guys for taking my questions they were on allowance and they have been asked and answered.

Raymond Quinlan

Great.

End of Q&A

Operator

There are no further questions. I now turn the call over to Mr. Ray Quinlan.

Raymond Quinlan

Hi, thank you and thank you all for your attention as well as your questions. It's a pleasure to be able to talk with you all this morning. We're very happy with the performance of the Company. It continues at a very high level from the standpoint of financial results. The marketplace results are good. Our servicing is both good as well as improving and the results do show up concretely.

So our change in guidance for the efficiency ratio which was essentially 8% to 10% improvement from last year's 47% and now the fact that we can be confident that we will beat the upper end of that range and improve the efficiency ratio rate on rate more than 10% in a year. I believe to be a dramatic improvement and to the extent that we believe it to be consistent with what our modeling is and sustainable going forward both as a level as well as a trend is very satisfying.

Our EPS changing guidance from was $0.49 to $0.51 to $0.51 to $0.52 also reflects the fact that the excellent results that we received this quarter we believe to be non-anomalous and that they will continue to be reflected as we go forward. So thank you all again for your attention, for your questions and we look forward to the second half of the year.

Brian Cronin

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