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SLM Corp (SLM) Q1 2019 Earnings Call Transcript

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SLM Corp  (NASDAQ: SLM)
Q1 2019 Earnings Call
April 18, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Tabitha and I'll be your conference operator today. At this time, I'd like to welcome everyone to the 2019 First Quarter 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. I'll now turn the call over to Brian Cronin, Vice President of Investor Relations. Please go ahead.

Brian J. Cronin -- Vice President, Investor Relations

Thank you, Tabitha. Good morning and welcome to Sallie Mae's first quarter 2019 earnings call. With me today is Ray Quinlan, our CEO; and Steve McGarry, our CFO. After the prepared remarks, we will be opening up the call for questions.

Before we begin, keep in mind, our discussions will contain predictions, expectations and forward-looking statements. Actual results in the future may be materially different than those discussed here. This could be due to a variety of factors. Listeners should refer to the discussion of those factors 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 March 31, 2019. This is posted along with the earnings press release on the Investors page at salliemae.com.

Thank you. I'll now turn the call over to Ray.

Raymond J. Quinlan -- Chairman and Chief Executive Officer

Thanks, Brian, and thank you all for your attention. It's a pleasure to report our first quarter results to everyone. We're very happy with them and they reflect the continuing strength and improvement of our franchise. Our EPS at $0.35, it's up 25% from a year ago, and with an ROE that is 23.9%, now we have a very efficient operation going, it reflects the character of our target market, our success versus competitors and our disciplines in managing both credit as well as expenses. Our NIM at 6.28% is an excellent number, higher than we had originally thought and we've had some good favorability in regard to that and we will discuss that further later in the meeting.

Main purpose of our Company is to help American families to realize their hopes and dreams for the next generation and we continue to do that with over 1 million customers and are a valued partner both for schools as well as for young Americans. Our customer experience continues to improve, with automation moving along in chat and chat bot, where we have over 120,000 conversations having been held at a 90% customer satisfaction rate so far this year.

Our volume, which reflects, of course, our position in the marketplace was $2.131 billion in the first quarter, an increase of 8.1%. As you all know, we'll finally get -- get final numbers as far as market share and things like that at a lag for each one of these quarters, but we are certainly growing faster than the market, which reflects both our core position in the undergraduate space as well as our focus in regard to segments that are growing at the margin and should be differentiated both in product and service in order to meet the needs of the customers there. So the parent loan segment, the grad segment, the partner segment, the for-profit segment as a group are growing at 50% higher than our core business. And this, I think, allows us to give a lift to our overall volume without deteriorating any quality and also giving better service to people in those segments. It is the case that the chat and chat bot continue to improve almost every week and so far as both the efficacy of the AI that's used with them as well as the feedback from customers.

Credit quality has been maintained during this growth, with the disbursement at FICO is being almost identical to last year, up 1 point from 7.40s or at 7.47% versus 7.46%. Last year, the cosigner rate at 89% is 100% consistent and so the growth in receivables, the growth in originations have been accomplished without deteriorating credit at all.

The NIM in the first quarter was 6.28%, as I said. Last year at this time, it was 6.17%. These are very good results. And I do want to point out a geographies point in regard to our financials going forward. As we approach the end of this year, we'll be a $30 billion institution. And so as the -- as you analysts know, because you've been following us for several years, our growth has been extraordinary.

Now, as we look at peer groups, within banking at the $30 billion level and we look at the liquidity positions that they -- that are held on their balance sheet, we will be seeking to increase our liquidity position going forward. As a result of this, we will hold more cash on the balance sheet. That will inflate the size of our balance sheet, it will lower NIM, as we look at it, as they rate, it will flow to the bottom line with no effect on EPS. So we expect NIM to drop, Steve will talk in more detail about it, but the number would be approximately 25 basis points from where we sit today with no impact on profitability, no impact on EPS, but a geography difference, which will cause the NIM to appear to go down. No one should be surprised that that is while in keeping with having a balance sheet that is a higher level of liquidity, which we believe to be good from a peer group standpoint.

In regard to OpEx, we continue to improve our efficiency ratio. And as you see, it was 33.8% this year, down from -- in the first quarter, down from 36.5% in prior first quarter, a 7.4% increase. The efficiency ratio for us represents a journey that never ends. And so if we look at our pattern over the last four years, in 2016, the efficiency ratio was 40.1%; in '17, it was 39.6%; in '18, it was 38.5%; and in '19, we're guiding to 35%, 36%. I think it's important to have this consistent and consistently down reflecting the inherited leverage in our business.

Credit performance has, as you all saw, had excellent performance in the first quarter with an 89 basis point charge-off versus last year at 101. We're still in the ballpark there at about 1% run rate for losses. This is extraordinarily good. We all hear about the student loan crisis. We, in seeking to politicians as well as other audiences, are constantly differentiating the performance of the private student loan business, which is very favorable versus all the publicity that is given to the $1.5 trillion portfolio that is resonant on the federal books. And so we want to be consistent there. The results are very good. We're very happy with those.

Balance sheet growth at 18% was -- we ended at $27.6 billion. Over the last five years, we've grown from $10 billion to $27 billion. As I said, we'll end the year with a clean triple. It'll be at $30 billion. And so as we move into this phase of our thinking, we were, one, very happy with the ability to hold all those assets, fund them on to balance sheet; and two, maturing as an organization.

So with the EPS that are up 25% with an ROE that's 23.9% in an industry, where half of that is very respectable, we move into the second quarter. Around our business, we have the regulators of the FDIC, the Utah Department of Financial Institutions, the CFPB, we have terrific relationships with all of those and recently had a review with the CFPB, with which we're very happy.

Our stock price continues to be deflated because of concerns about Washington and political overhang there, as candidates of the presidency, in particular, continue to outdo each other by promising more and more so far as benefits, but candidates will always do that. It is the case, however, that in talking to many representatives for both our home states as well as other interested people in Washington, there is a consciousness that is fully permeating from all sides of the political spectrum of the problem that exist in the federal program. And so all the politicians, if you talk to them about student lending, the first question will be, what are we going to do about the problems that are so apparent in the portfolio that is already on the books.

This, of course, is a big consciousness change from two years ago when that was not front of mind. And so as we think about the federal responses to this, the chances of a great expansion there, we think, are unlikely and we follow all that closely. We do think that the (inaudible) program in New York State is not a bad model for what happens when an entity decides to give quote-free college. And if it is the case that that particular program is helpful to some individuals, but it's had no impact at all on our franchise. We'll see what develops.

In the market frame, we continue to do very well. We are a thought leader with mattering and money being our latest publication, talking about how young people in the United States handle their money. They are very focused on it, they're very concerned about it and they do a pretty good job of it, despite what people may say in the news. And they also have a keen advice, their number one advisor is their parents. And so this is something that has lower volatility than I think we're sometimes led to believe.

The 8.1% increase in originations is in excess of our full year goal of 7.2% increase, so we think we're in very good position in regard to that. As a backdrop issue, we are seeing the modularization of education in the United States. People will buy it in traditional ways as well as in non-traditional ways. We're following all of those trends as we move along.

Consolidations at $392 million are higher than we anticipated. We watch carefully who the participants are in that particular set of endeavor. We watch the patterns, both with the participants as well as what their trends are. We think that many of the people who are in that business, of course, they're not making money at it and we are also feeling that because of the trend over the first quarter, which was down from January to February and down from February to March for all participants, we'll see how it goes. We, of course, don't like this. We don't see this threatening and we think that the participants are highly variant as well as highly transient from what we can see over the past couple of years.

As we go to outlook, we tightened up our EPS guidance at $1.23 to $1.26. We are feeling good about our origination goal at $5.7 billion, as I said a 7.2% increase from last year's 53.15% and our efficiency ratio continues to be on trend to the target of 35% to 36%.

In closing, let me just say that the private student loan business is alive and well and serving a terrific demographic with an important need for families. It is a source of valuable and reliable and hopefully convenient funding for those families. It is a valuable customer base. It has great returns. Within the private student lending business, Sallie Mae is a unique asset. We've a market share of over 50%. We have the largest sales force with relationships at 2,400 colleges. We are in virtually all recommended list. We are a leader in research. We have a modern digital platform that is constantly improving. Our segmented marketing gives us a buffer about changes in regard to changes in any particular subset. The conservative and reliable funding has been a great source of strength for us over four years. The efficiency ratio indicates our dedication to watching our expenses in relationship to our revenue over time. Our strong performance consistently through quarters reflects all of this. And the Company is moving along on the trend we've discussed before. Since launch our first two years at '14 and '15, we're, in fact, launching and establishing the Company. We had extraordinary growth as the balance sheet build up to match the front-end originations in '16, '17 and '18. We're now a maturing company, you can see this in our capital return, in our purchases during the quarter, our establishing of dividend, which we expect to grow with earnings and we think we have a great franchise.

I want to thank you all for your attention. And we'll move on to questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Sanjay Sakhrani with KBW.

Sanjay Sakhrani -- KBW -- Analyst

Hi, good morning. Good results. I guess, maybe just drilling down on NII and the NIM trajectory. That was really solid this quarter and exceeded our expectations. I'm just hoping you can help us go through how you think about the trajectory going forward, outside of that impact toward the latter part of this year? And what's really driving the improvement in yields and the NIM? I'm also trying to put that relative to the higher competitive activity in the market. Thanks.

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

So Sanjay, we operate in a market that is less to have rational pricing in it. We're also funding a long-term asset with the mix of fairly long-term liabilities. The funding markets have been as stable as the yields on the asset side of the marketplace, so we have pretty good insight into what our NIM is going to look like for the balance of this year and for the next couple of years and I'm happy to report that the NIM is going to be pretty stable throughout, while NIM will decline over the course of '19 and for the full year of '20 and beyond be relatively stable. I mean, we're talking about a variance that can be measured in the low double-digit basis point kind of increments. So we've got a $30 billion balance sheet, as Ray pointed out. In any given year, our funding managers are replacing roughly 10% of existing funding balances and funding new growth. And given that spreads in both the brokered CD market, the ABS market and the retail deposit banking market are fairly stable. We feel confident that the outlook for the NIM is sound going forward.

Sanjay Sakhrani -- KBW -- Analyst

Okay. Great. And then on credit quality, obviously, that was really strong as well. Could you just talk about any specific trends that are driving that, anything -- any refinements you've made?

Raymond J. Quinlan -- Chairman and Chief Executive Officer

When -- well, we look at credit because of the calendar on which schools operate, our credit entries that is new people who owe a full principal on interest payment is highly skewed to the fourth quarter. So that the standards of undergraduate rhythm as to graduate in May have six months worth of grace. And in November, you'll be asked for payments. And we have found over the years that first payment and dealing with the family in regard to it is crucial to the next 12 months of what happens in delinquency and write-offs. We have expended quite a bit of effort in trying to share the information with families, both the students as well as the parents, so that there is no surprise when full payments starts. And we've been -- we believe somewhat successful in that. And so we have blunted the sort of sharpness of what some of our folks referred to the point of the spear in regard to that, so that families don't get behind and it's making up two or three payments, it appears to be very difficult. We try to keep that down to one payment. And so we think we've done a good job on that. In addition to that, we are constantly looking at segments that we've underwritten. And for one reason or other, they don't perform as well as we like, as well as looking for segments of opportunity. So fine-tuning around underwriting goes on every single month. The improvement in communication and collections tactics has served us well. And so we're extremely happy with the current write-off as well as our current delinquencies in the outlook for the next four or five months, which are resident in the current delinquency portfolio today.

Sanjay Sakhrani -- KBW -- Analyst

Thank you.

Operator

Your next question comes from the line of Michael Kaye with Wells Fargo.

Michael Kaye -- Wells Fargo -- Analyst

Hi, good morning. I had a question on the EPS guidance. I mean, to me, it feels kind of conservative, at the top end of the range, it only implies average of less than $0.31 per quarter for the rest of the year. I understand the seasonality can necessarily run rate to $0.34, but can you provide some perspective on what I could be -- potentially be missing and what did cause the EPS trajectory to trail off for the rest of the year?

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

So, let me say this to you, Michael. So the quarter's beat, if you will, was probably driven for the most part by credit. And as we all know that when we build a loan loss reserve, we are looking out to cover losses that will emerge over the next year. So we do have some favorability built into the provision to the extent that credit performs even better than it has to date. There could be some upside, but with nine months left to go in the quarter, we think that the guidance that we gave is reasonable, given what we know right now and we feel good about how the rest of the year looks.

Michael Kaye -- Wells Fargo -- Analyst

Okay. Second question, and also not very material to earnings, but I just wanted to just touch again on the consolidations that ticked up this quarter. I just want to see where you really think that that tick up quarter-on-quarter as kind of from the SoFi's, the citizens, the established players or some more from earnest now that the non-compete is over? And then second related now that the Fed has signaled at least a rate pause and potential cuts, is there any update on your defensive consolidation product?

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

Sure. So look, I'm not going to start commenting on individual names, but I will say this that some of the existing traditional players that have been around, we've seen their volume trail off a little bit or certainly not grow as our loans in full P&I grew. The new entrant we did see a pop there, but the trend there was for activity to decline from January into February into March, so we're watching that to see how that plays out. We've talked about consolidations continuously. It is a fact that they are driven principally by the most recent repay wave and consolidations now happens even quicker, that it happen while people are in grace.

So what we saw this quarter was a big pop from the most recent repay wave that went into effect in November and December and we still see the same trend, which is that consolidation activity declines markedly as the repay cohorts age. So we think that this will play out as we expect. We've talked about the loans that do consolidate. We think that they do have a lower NPV because we think that those loans will have a shorter weighted average life. These are typically people that whether or not they get consolidated by one of the fintech players, these are people that are getting jobs at the accounting firms and the investment bankers that is where they are marketed to. And quite frankly, these people are going to repay in year two or three if they don't repay in year one.

So, defensive strategies have to be built with that in mind. We're not going to spend a whole lot of money to retain assets that are going to run off the balance sheet anyway. We do intend to rollout a more defensive strategy in the second half of the year, particularly in the third quarter. What we would like to do is build a real high-quality and accurate targeting model and our goal will be to target the people that our competitors are targeting and bring on their federal balances. And without giving away too much, we will target our competitors and probably build a direction they -- that consolidate and sell model as opposed to retain these balances on our balance sheet and dilute our ROEs. So the target will be to -- take it to our competitors and make a few bucks along the way by consolidating these loans and selling them into the marketplace.

Michael Kaye -- Wells Fargo -- Analyst

Okay. All right. Thank you very much.

Operator

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

Mark DeVries -- Barclays -- Analyst

Yeah. I was hoping to better understand what's driving the need to hold greater liquidity on the balance sheet that you alluded to is going to be pressuring the NIM? And Steve, is it still appropriate for us to think about full year NIM being in that kind of 6% to 6.05% range you alluded to last call?

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

So look, we are a regulated depository institution and we do adhere to best-in-class liquidity practices, so we measure our balance sheet by all the usual measures, which is the most simplest percentage of liquid assets to total assets, but we also look at things like liquidity coverage ratios and contingency funding plans and we need to be state-of-the-art in that regard. So, we will be building our liquidity position as the bank grows here. The NIM, the original guidance was in the low 6%. We will probably -- while we're not going to see an impact to EPS, our NIM for the full year will drop below the 6% level and coming around the 5.90%-ish vicinity.

Mark DeVries -- Barclays -- Analyst

Okay, got it. And then on personal loans, can you just talk about where we should expect kind of the year-over-year increases in charge-offs and delinquencies to moderate and when that may occur?

Raymond J. Quinlan -- Chairman and Chief Executive Officer

Sure. And as you know, we launched the personal loan business about a year and half ago. And through last year, we added about $0.5 billion in receivable. And as we talked about it through the quarters, we expect to add about that same amount this year. The first half of last year -- the first three quarters of last year, actually, were dedicated to testing. And so we had a wide range of samples in order to develop our targeting scores, both for direct response models as well as for credit underwriting models. And so as we've looked at that, we have used those tests in order to inform our targeting for the second half of last year as well as through this year. And so we are in an experimental stage, we are tailoring this, we will see the numbers continue to bounce around a little bit because that's the nature of testing, but the numbers are small and we will reach a proposition so far as the next couple of years in regard to the personal loan business probably in the late third quarter of this year. And so I think that we'll see a little noise in those numbers, they will remain small, we are on the path that we talked about over the last six months and so as we go through and we fine-tune our models, we'll get better guidance that is more precise in regard to the performance of the personal loan overall as well as to the impact on our loan loss reserve.

Mark DeVries -- Barclays -- Analyst

Okay. Thanks. And then lastly, is there an update you can provide us on timing for the credit card launch?

Raymond J. Quinlan -- Chairman and Chief Executive Officer

Sure. The credit card launch, as we've -- is consistent with what we said in our prior meetings, which is in the second quarter of this year. And so our partners at Deserve have been absolutely terrific, we're working very closely with them. We are on our original schedule. And I'd tell you before we have our next conversation in July, we will be in the market.

Mark DeVries -- Barclays -- Analyst

Okay. Great. Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Vincent Caintic with Stephens.

Vincent Caintic -- Stephens -- Analyst

Good morning. First question actually on the deposit side of the business. Noticed we've been tracking the weekly deposit offerings you've had and your cut rate was 5 basis points. I'm just kind of wondering, with, I guess, expectations in the market that rates might decline for this year, how you're thinking about your deposit rate offerings that we could see some -- maybe some help to NIM as a result of that?

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

Yeah. I mean, I think what you're referring to is we've lowered the rate on some of our retail CDs, and quite frankly, we raised all the funding that we needed and paired back that particular rate. As you know, we're not trying to benefit from an outlook in interest rates, we are trying to lock-in a long-term spread on our book of loans, so we're not really playing the market, so we're looking to zig or zag with whether the Fed is easing or tightening interest rates. So we're not really looking to tweak on NIM in that regard.

Vincent Caintic -- Stephens -- Analyst

Okay, got you. Thank you. And then on the expense ratio, so helpful to have the guidance of 35% to 36%. You were lower than that this quarter. I'm just kind of wondering, if you could remind us of the seasonality and how we should expect that the ratio to play out over the rest of the year?

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

Sure, sure. So excuse me, as we build toward the peak season, you will see our OpEx rise in both the second and the third quarter, balances will remain relatively steady, that will have the tendency to push our efficiency ratio higher. And then as we bring a significant amount of loans on to the balance sheet in the fourth quarter, you will see the efficiency ratio plummet from the levels that have reached in the second and third quarter, and all-in for the full year, we should be pretty close to the guidance that we have provided.

Vincent Caintic -- Stephens -- Analyst

Okay, perfect. And sorry, just maybe one last one from me. Just noticed that the forbearance on the student loans just ticked up a little bit higher, just wondering, if there is any trends there maybe to call out? Thanks.

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

Yeah. No, I don't think there is any cause for concerns in the forbearance tick up to 3.8% from 3.5% in the prior year and quarter it is. We do have significant amount of loans that just went into repayment and forbearance is one of the tools that we use to help recently graduated students manage their debt loads as they get their careers forward. So there is nothing to be of concern with the forbearance statistic.

Vincent Caintic -- Stephens -- Analyst

Okay, great. Thank you.

Operator

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

Henry Coffey -- Wedbush -- Analyst

Yes. Good morning and congrats on a great quarter. In a couple of public presentations, you put out some really good information on the impact of CECL on capital. Couple of questions, maybe you could talk to us about some of the assumptions behind those numbers? And I've been assuming that that reflects a full phase-in on CECL, not a sort of a gradual three-year progression. May be you could help me with all that.

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

Yeah. I mean, that is absolutely correct. We will take advantage of the phase-in offered by the regulatory agencies. And what's the biggest assumption that goes into the CECL impact is the life of loan loss rate for particularly the private student loan portfolio. So we are in the process of -- actually, we're in the -- the models are built. We are in the process of getting them validated and we anticipate that along with the second quarter release, we will give the -- we will give investors a lot more information as to the impact of CECL on the balance sheet and the income statement on a go-forward basis. But the numbers that you saw in the investor presentation are not expected to change and we are quite confident that we are going to have significant levels of capital that exceed the well-capitalized level in both '20 and '21 and going forward. And it is also the case that, I think, we're going to start to tend to measure our capital position by adding GAAP equity to our loan loss allowance and you're going to see that ratio increase in '20 from '19, '21 from '20 and '22 from '21. So no matter how you measure it, this bank will be sufficiently capitalized.

Henry Coffey -- Wedbush -- Analyst

So just a question, the numbers you showed in the February slide presentation, was that a full phase-in of CECL or does that show the three-year -- does that assume a sort of a three-year transitional period?

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

That assumes a three-year transitional period. So the first component of the reduction to retained equities would have been -- retained earnings would have been added back to that ratio.

Henry Coffey -- Wedbush -- Analyst

And then -- and so then we'll get to talk about primary capital. Haven't heard that word since the '80s, but I'll explain it to everybody. The loss assumption, are you prepared to talk about that at all or -- we've been using 7% to 8% in our numbers just based on your cohort data, but have you put out a number yet or...?

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

So not only will we be prepared to talk about it, but we will be reporting once CECL is in effect on our expected remaining losses by cohort. So you're going to have more information at your fingertips than you would ever cared to have. I mean -- then depending upon -- well, I'll put it this way, in the newly originated cohort expecting a mix of a baseline improvement and deterioration in credit quality over the modeling period, we're going to expect the life of loan losses to be right around the 9% level for a newly originated student loan cohort.

Henry Coffey -- Wedbush -- Analyst

And then on the -- how do the new products, the credit card and the personal loans factor into that? Will they be -- will they have any real impact on the CECL numbers or...?

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

I mean, look, in the grand scheme of things, the reserve is going to be totally dominated by the student loan portfolio. The personal loans are impacted more than credit cards, but it's going to be a rounding error in terms of the total reserve.

Henry Coffey -- Wedbush -- Analyst

Great. Thank you very much.

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

You're welcome.

Operator

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

Moshe Orenbuch -- Credit Suisse -- Analyst

Great. Thanks. Most of my questions have been asked and answered, but I was hoping you could kind of go just back through the expense numbers. They were better than what we were looking for. And talk about either how you're funding some of the efforts that you've got or is there something in the -- in that rate of accounts going into full repayment that helped and how should we think about that as you go forward?

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

So the bottom line, Moshe, is that in our core business, OpEx grew basically 7% and we saw total accounts and new accounts and repayment grow to -- in the vicinity of 11% to 12%, so we think we are on target to -- we are creating operating efficiencies in the core business. We've spent a little bit of money on the credit card diversification project and personal loan expenditures were relatively flat from the prior quarter. But all-in, a very good performance on the operating expenses front.

Moshe Orenbuch -- Credit Suisse -- Analyst

I would agree. And just to clarify, you talked about the overall NIM, but I would assume that if you just calculated the NIM on loans that would still be stable. Right?

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

Yeah, absolutely. When we look at the added liquidity, we're looking at negative carry of somewhere between 15 to 20 basis points put into perspective.

Moshe Orenbuch -- Credit Suisse -- Analyst

Right. It's really the assets in the denominator that...

Raymond J. Quinlan -- Chairman and Chief Executive Officer

Just to clarify, it's not negative carry, it's an impact on NIM, the carry will be roughly...

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

Yes. The excess cash that will -- we will be raising (Multiple Speakers) will be invested at 15 to 20 basis points below the cost of funds.

Moshe Orenbuch -- Credit Suisse -- Analyst

Okay. Got it.

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

We will raise relative to these five treasuries.

Moshe Orenbuch -- Credit Suisse -- Analyst

Thanks. Thank you.

Operator

The next question comes from the line of Rick Shane with JPMorgan.

Melissa Wedel -- JPMorgan -- Analyst

Good morning. It's Melissa on for Rick today. Most of our questions have been answered, but I wanted to clarify one thing you said about NIM. I believe you referred that -- mentioned that would be in the 5.90%-ish region. Was that for 4Q or is that sort of a full year number?

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

I'm sorry, can you repeat the question, there was a little fuzzy coming through?

Raymond J. Quinlan -- Chairman and Chief Executive Officer

The NIM going down.

Melissa Wedel -- JPMorgan -- Analyst

Sorry about that. Just wanted to clarify your comments about NIM being in the 5.90%-ish region. Was that for 4Q specifically or sort of a full year number accounting for the additional cash drive?

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

That is for the full year.

Melissa Wedel -- JPMorgan -- Analyst

Got it. Thank you.

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

And actually, I misspoke earlier. The negative carry will be somewhat large, it will be in the 20 to 25 basis point percentage, making that math right.

Melissa Wedel -- JPMorgan -- Analyst

Okay, thank you.

Operator

And at this time, there are no questions.

Raymond J. Quinlan -- Chairman and Chief Executive Officer

Okay. Well, thank you all for your attention. And I just would like to close with a couple of remarks that I think are appropriate. We're all experiencing another very strong quarter on our journey of consistently strong quarters, as we grow and improve this franchise. And it is across all major line items. Our volume was growing faster than the market. Our credit quality is consistent. The credit performance is very good, unexpectedly good. We continue to monitor expenses. You see that in the efficiency ratio declining over a four-year period consistently. With EPS's, that's up 25% and then ROE that's 23.9%. Clearly, we are focused on all these activities getting to the bottom line. As Steve alluded to, we're graced with being in a very good industry that serves an important need for American families and that industry will become more important over time as credentializing across this country continues to expand. Sallie Mae franchise remains the best in the industry, largest sales force, continuous improvement in both service as well as product design and a thought leader. We as Management are focused consistently on strategic objectives that balance the short-term results with medium-term franchise improvements. We are generating capital as we indicated in the first quarter in establishing the dividend and the buyback, we expect to continue to generate excess capital. On the other side of CECL, we will be in very good shape.

And I'd like to thank you all for your attention and for your comments.

Brian J. Cronin -- Vice President, Investor Relations

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

Operator

Thank you. Ladies and gentlemen, you may now disconnect.

Duration: 40 minutes

Call participants:

Brian J. Cronin -- Vice President, Investor Relations

Raymond J. Quinlan -- Chairman and Chief Executive Officer

Sanjay Sakhrani -- KBW -- Analyst

Steven J. McGarry -- Executive Vice President and Chief Financial Officer

Michael Kaye -- Wells Fargo -- Analyst

Mark DeVries -- Barclays -- Analyst

Vincent Caintic -- Stephens -- Analyst

Henry Coffey -- Wedbush -- Analyst

Moshe Orenbuch -- Credit Suisse -- Analyst

Melissa Wedel -- JPMorgan -- Analyst

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