Through this discussion and analysis, we intend to provide the reader with some narrative context for how our management views our consolidated financial statements, additional context within which to assess our operating results, and information on the quality and variability of our earnings, liquidity, and cash flows.
The following information should be read in connection with SLM Corporation’s Annual Report on Form 10-K for the year ended December 31, 2025 (filed with the Securities and Exchange Commission (the “SEC”) on February 19, 2026) (the “2025 Form 10-K”), and subsequent reports filed with the SEC. Definitions for capitalized terms used in this report not defined herein can be found in the 2025 Form 10-K.
References in this Form 10-Q to “we,” “us,” “our,” “Sallie Mae,” “SLM,” and the “Company” refer to SLM Corporation and its subsidiaries, except as otherwise indicated or unless the context otherwise requires.
This report contains “forward-looking statements” and information based on management’s current expectations as of the date of this report. Statements that are not historical facts, including statements about the Company’s beliefs, opinions, expectations, and/or statements that assume or are dependent upon future events, are forward-looking statements. These include, but are not limited to, the strategies, goals, and assumptions of the Company; the Company’s expectation and ability to execute loan sales (including sales under the Company’s strategic partnership) and share repurchases; the Company’s expectation and ability to pay a quarterly cash dividend on the Company’s common stock in the future, subject to approval of the Board of Directors; the Company’s 2026 guidance; the Company’s three-year horizon outlook; the Company’s credit outlook; the impact of acquisitions the Company has made or may make in the future; the Company’s projections regarding originations, net charge-offs, non-interest expenses, earnings, balance sheet position, and other metrics; any estimates related to accounting standard changes; and any estimates related to the impact of changes in credit administration practices, including the results of simulations or other behavioral observations.
Forward-looking statements are subject to risks, uncertainties, assumptions, and other factors, many of which are difficult to predict and generally beyond the Company’s control, which may cause actual results to differ materially from those reflected in such forward-looking statements. There can be no assurance that future developments affecting the Company will be as anticipated by management. The Company cautions readers that a number of important factors could cause actual results to differ materially from those expressed in, implied by, or projected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in Item 1A., “Risk Factors,” and elsewhere in the Company’s most recently filed Annual Report on Form 10-K and subsequent filings with the SEC; increases in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; failure to comply with consumer protection, banking, and other laws or regulations; changes in laws, regulations, and supervisory expectations, especially in light of the goals of the current federal administration; the ability to timely develop new products and services and the acceptance of those products and services by potential and existing customers; changes in accounting standards and related changes in significant accounting estimates, including those regarding the measurement of the Company’s allowance for credit losses and the related provision expense; any adverse outcomes in significant litigation to which the Company is a party; credit risk associated with the Company’s exposure to third parties, including counterparties to the Company’s derivative transactions; the effectiveness of the Company’s risk management framework and quantitative models; changes in the terms of education loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws); and changes in the demand for the Company’s deposit products, including changes caused by new or emerging market entrants or technologies. The Company could also be affected by, among other things, changes in funding costs and availability; reductions to credit ratings; cybersecurity incidents, cyberattacks, risks related to artificial intelligence (“AI”), and other failures or breaches of operating systems or infrastructure, including those of third-party vendors; the societal, demographic, business, and legislative/regulatory impacts of pandemics, other public health crises, severe weather events, and/or natural disasters; damage to reputation; risks associated with restructuring initiatives, including failures to successfully implement cost-cutting programs and the adverse effects of such initiatives on the business; changes in the demand for higher education, educational financing, or financing preferences of lenders, educational institutions, students, and their families, including changes to the amount or availability of funding that educational institutions, students, or their families receive from government sources; changes in laws and regulations with respect to the student lending business and financial institutions generally; changes in banking rules and regulations, including increased capital requirements; increased competition from banks and other consumer lenders; changes in customer creditworthiness; changes in the general interest rate environment, including the rate relationships among relevant money-market instruments and those of earning assets versus funding arrangements; rates of prepayments on loans owned by the Company; and changes in general economic or macroeconomic conditions, including, but not limited to, changes due to inflation, stagflation, recession, shifts in the labor market, and changes to government policies or initiatives, such as tariffs, trade wars, wars, immigration, and student visa policies, which could negatively impact consumer or business sentiment, demand for higher education, demand for student loans, financial and business results and/or modeling, and the ability to successfully effectuate any
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acquisitions, strategic partnerships, or initiatives. The preparation of the Company’s consolidated financial statements also requires management to make certain estimates and assumptions, including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect.
All forward-looking statements contained in this Form 10-Q are expressly qualified in their entirety by the factors, risks, and uncertainties set forth in the foregoing cautionary statements, and are made only as of the date of this report. The Company does not undertake any obligation to update, supplement, or revise any forward-looking statements or estimates to conform to actual results or changes in the Company’s expectations, nor to reflect events or circumstances that occur after the date on which such statements were made. In light of these risks, uncertainties, and assumptions, you should not place undue reliance on any forward-looking statements or estimates discussed herein.
Selected Financial Information and Ratios
(In thousands, except per share data and percentages) Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Net income attributable to SLM Corporation common stock $ 54,944 $ 67,300 $ 359,343 $ 367,884
Diluted earnings per common share $ 0.29 $ 0.32 $ 1.85 $ 1.72
Weighted average shares used to compute diluted earnings per common share 190,384 213,220 194,109 214,098
Return on Assets(1) 0.8 % 1.0 % 2.5 % 2.6 %
Efficiency ratio(2) 48.6 % 41.4 % 38.1 % 32.7 %
Other Operating Statistics (Held for Investment)
Ending Private Education Loans, net $ 19,531,493 $ 21,160,332 $ 19,531,493 $ 21,160,332
Average education loans $ 21,119,086 $ 22,561,636 $ 22,226,216 $ 22,738,295
(1) We calculate and report our Return on Assets as the ratio of (a) GAAP net income numerator (annualized) to (b) the GAAP total average assets denominator.
(2) We calculate and report on our Efficiency ratio as the ratio of (a) GAAP total non-interest expenses to (b) the sum of GAAP net interest income plus GAAP total non-interest income.
Overview
The following discussion and analysis presents a review of our business and operations as of and for the three and six months ended June 30, 2026.
Strategic Imperatives
To further focus our business and increase stockholder value, we continue to advance our strategic imperatives. Our primary focus is driving innovation to maximize the sustainable growth and profitability of our core private student loan business. Additionally, we aim to accelerate the growth of new lines of business to attract more customers requiring our products and services. We are also focused on building the data infrastructure, technology, and talent required to compete in a digital world. We seek to create a customer-centric brand as an education solutions company that supports students and families through their higher education journey. We are focused on driving greater internal commitment to our mission, brand, and strategy, while we evolve our structure and risk capabilities to support our core private student loan business and emerging new businesses.
Key Financial Measures
Our operating results are primarily driven by net interest income from our Private Education Loan portfolio, gains and losses on loan sales, provision expense for credit losses, and operating expenses. The growth of our business and the strength of our financial condition are primarily driven by our ability to achieve our annual Private Education Loan origination goals while sustaining credit quality and maintaining cost-efficient funding sources to support our originations.
A brief summary of our key financial measures (net interest income and net interest margin; loan sales and secured financings; allowance for credit losses; charge-offs and delinquencies; operating expenses; Private Education Loan originations; and funding sources) can be found in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2025 Form 10-K.
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Results of Operations
We present the results of operations below on a consolidated basis in accordance with GAAP.
GAAP Consolidated Statements of Income (Unaudited)
(Dollars in millions, except per share amounts) Three Months Ended June 30, Increase(Decrease) Six Months Ended June 30, Increase(Decrease)
2026 2025 $ % 2026 2025 $ %
Interest income:
Loans $ 540 $ 598 $ (58) (10) % $ 1,142 $ 1,196 $ (54) (5) %
Investments 17 14 3 21 32 28 4 14
Cash and cash equivalents 45 45 — — 77 88 (11) (13)
Total interest income 602 657 (55) (8) 1,251 1,313 (61) (5)
Total interest expense 269 280 (11) (4) 543 561 (18) (3)
Net interest income 333 377 (44) (12) 708 752 (44) (6)
Less: provisions for credit losses 126 149 (23) (15) 114 172 (58) (34)
Net interest income after provisions for credit losses 207 228 (21) (9) 594 580 14 2
Non-interest income:
Gains on sales of loans, net 15 — 15 100 161 188 (27) (14)
Gains (losses) on securities, net 8 (3) 11 367 6 (13) 19 146
Other income 45 29 16 55 86 58 28 48
Total non-interest income 68 27 42 156 253 233 20 9
Non-interest expenses:
Total operating expenses 194 166 28 17 365 320 45 14
Acquired intangible assets amortization expense 1 1 — — 1 2 (1) (50)
Total non-interest expenses 195 167 28 17 366 322 44 14
Income before income tax expense 80 88 (8) (9) 481 491 (10) (2)
Income tax expense 22 16 6 38 114 115 (1) (1)
Net income 59 71 (12) (17) 366 376 (9) (2)
Preferred stock dividends 4 4 — — 7 8 (1) (13)
Net income attributable to SLM Corporation common stock $ 55 $ 67 $ (12) (18) % $ 359 $ 368 $ (8) (2) %
Basic earnings per common share $ 0.29 $ 0.32 $ (0.03) (9) % $ 1.87 $ 1.75 $ 0.12 7 %
Diluted earnings per common share $ 0.29 $ 0.32 $ (0.03) (9) % $ 1.85 $ 1.72 $ 0.13 8 %
Declared dividends per common share $ 0.13 $ 0.13 $ — — % $ 0.26 $ 0.26 $ — — %
Note: Due to rounding, amounts in this table may not sum to totals.
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GAAP Consolidated Earnings Summary
Three Months Ended June 30, 2026 Compared with Three Months Ended June 30, 2025
For the three months ended June 30, 2026, net income attributable to common stock was $55 million, or $0.29 diluted earnings per common share, compared with net income attributable to common stock of $67 million, or $0.32 diluted earnings per common share, for the three months ended June 30, 2025.
The primary drivers of changes in net income for the current quarter compared with net income in the year-ago quarter are as follows:
•Net interest income decreased by $44 million in the current quarter compared with the year-ago quarter primarily due to a $1.4 billion decrease in our average Private Education Loans outstanding and an $866 million increase in the average balance of lower yielding cash and short-term investments compared to the year-ago period. The decline in average loans outstanding was due to the $2.04 billion seasoned loan sale in March 2026. Our net interest margin decreased 56-basis points in the current quarter from the year-ago quarter primarily because the yields on our interest-earning assets decreased more than our cost of funds decreased. The yields on our interest-earning assets primarily decreased because the proportion of total interest-earning assets that were Private Education Loans was lower in the current quarter than the year-ago quarter due to the seasoned loan sale in March 2026. Our cost of funds decreased primarily due to the decline in the 30-day average SOFR rate compared to the year-ago quarter.
•Provision for credit losses in the current quarter was $126 million, compared with $149 million of provisions in the year-ago quarter. The year-over-year decrease was primarily due to $11 million in negative provisions recorded in the current quarter, resulting from the $420 million Private Education Loan sale to the strategic partner during the second quarter of 2026 and changes in economic outlook. These drivers were offset by new loan commitments, net of expired commitments. In the year-ago quarter, the provision for credit losses was primarily affected by new loan commitments, net of expired commitments, and changes in the economic outlook.
•Gains on sales of loans, net, were $15 million in the second quarter of 2026, as a result of the $420 million Private Education Loan sale to the strategic partner that occurred in the quarter. There were no gains on sales of loans, net, in the year-ago quarter, as no loans were sold in the second quarter of 2025.
•Gains (losses) on securities, net, were $8 million in gains in the current quarter compared with $3 million of losses in the year-ago quarter. The change year-over-year was primarily due to changes in mark-to-fair value of our trading investments.
•Other income was $45 million in the second quarter of 2026, compared with $29 million in the year-ago quarter. Third-party servicing fees in the second quarter of 2026 increased $9 million compared to the year-ago quarter due to an additional $6.22 billion of loan principal balance sold during the past year that we continue to service on behalf of the owners of the loans. Other income also increased due to the program management fees from the strategic partnership we entered into during the fourth quarter of 2025.
•Second quarter 2026 total operating expenses were $194 million, up from $166 million in the year-ago quarter. The increase in total operating expenses was primarily due to increased personnel costs, additional marketing spend, and higher spending on information technology initiatives, offset by lower FDIC fees.
•During the second quarter of 2026, we recorded $1 million in amortization of acquired intangible assets, consistent with $1 million in the year-ago quarter.
•Second quarter 2026 income tax expense was $22 million, compared with $16 million income tax expense in the year-ago quarter. Our effective income tax rate increased to 27.3 percent in the second quarter of 2026 from 18.7 percent in the year-ago quarter. The increase in the effective rate for the second quarter of 2026 was primarily due to a non-recurring deferred tax revaluation benefit recognized in the second quarter of 2025.
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Six Months Ended June 30, 2026 Compared with Six Months Ended June 30, 2025
For the six months ended June 30, 2026, net income attributable to common stock was $359 million, or $1.85 diluted earnings per common share, compared with net income attributable to common stock of $368 million, or $1.72 diluted earnings per common share, for the six months ended June 30, 2025.
The primary drivers of changes in net income for the first six months of 2026 compared with the first six months of 2025 are as follows:
•Net interest income decreased by $44 million in the first six months of 2026 compared with the year-ago period primarily due to a 27-basis point decrease in our net interest margin and a $0.5 billion decrease in our average Private Education Loans compared to the year-ago period. Our net interest margin decreased in the current period from the year-ago period primarily because the yields on our interest-earning assets decreased more than our cost of funds decreased. The yields on both our interest-earning assets and our cost of funds decreased primarily due to the decline in the 30-day average SOFR rate compared to the year-ago period. Historically, the yields on our interest-earning assets reprice more quickly than our cost of funds. As such, the impacts of the declining interest rate environment on our interest-bearing liabilities were delayed when compared to our interest-earning assets, resulting in the yields on our interest-earning assets decreasing more than the yields on our interest-bearing liabilities.
•Provision for credit losses in the six months ended June 30, 2026 was $114 million compared with $172 million of provisions in the year-ago period. The year-over-year decrease was primarily due to $131 million in negative provisions recorded in the first six months of 2026, resulting from the $3.75 billion in Private Education Loan sales during the first six months of 2026 and changes in economic outlook. These drivers were offset by new loan commitments, net of expired commitments. In the year-ago period, the provision for credit losses was primarily affected by new loan commitments, net of expired commitments, and changes in economic outlook, offset by $116 million in negative provisions resulting from the $2.00 billion Private Education Loan sales during the first six months of 2025.
•Gains on sales of loans, net, were $161 million in the six months ended June 30, 2026, as a result of the $3.75 billion Private Education Loan sales that occurred in the period. There were $188 million gains on sales of loans, net, in the year-ago period, as a result of the $2.00 billion in Private Education Loan sales that occurred in the first six months of 2025. Gains on sales of loans, net, in the first six months of 2026 was less than the year-ago period primarily due to the January 2026 and April 2026 loan sales, which included newly originated loans for the strategic partner that were not fully-disbursed, and causing the resulting gain on sale expressed as a percentage to be in the low single-digits. Due to market driven dynamics, pricing in the first quarter 2026 seasoned loan sale was also lower compared to the loan sales in the year-ago period.
•Gains (losses) on securities, net, were $6 million in gains in the first six months of 2026 compared with $13 million of losses in the year-ago period. The change compared to the year-ago period was primarily due to an impairment recorded in the first quarter of 2025 on certain of our non-marketable equity securities, and the changes in mark-to-fair value of our trading investments.
•Other income was $86 million in the first six months of 2026, compared with $58 million in the year-ago period. Third-party servicing fees in the first six months of 2026 increased $15 million compared to the year-ago period due to an additional $6.22 billion of loan principal balance sold during the past year that we continue to service on behalf of the owners of the loans. Other income also increased due to the program management fees from the strategic partnership we entered into during the fourth quarter of 2025.
•First-half 2026 total operating expenses were $365 million, up from $320 million in the year-ago period. The increase in total operating expenses was primarily due to increased personnel costs, additional marketing spend, and higher spending on information technology initiatives, offset by lower FDIC fees.
•During the first six months of 2026, we recorded $1 million in amortization of acquired intangible assets, compared with $2 million in the year-ago period.
•Income tax expense for the six months ended June 30, 2026 was $114 million, compared with $115 million income tax expense in the year-ago period. Our effective income tax rate increased slightly to 23.8 percent in the first six months of 2026 from 23.4 percent in the year-ago period. The increase in the effective rate for the first six months of 2026 was primarily due to less benefit from stock compensation windfalls.
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Financial Condition
Average Balance Sheets
The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities and reflects our net interest margin on a consolidated basis.
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
(Dollars in thousands) Balance Rate Balance Rate Balance Rate Balance Rate
Average Assets
Private Education Loans $ 21,119,086 10.25 % $ 22,561,636 10.62 % $ 22,226,216 10.36 % $ 22,738,295 10.61 %
Taxable securities 1,953,406 3.52 1,748,532 3.14 1,880,550 3.44 1,857,530 3.09
Cash and other short-term investments 5,045,304 3.60 4,179,153 4.38 4,353,471 3.59 4,073,333 4.38
Total interest-earning assets 28,117,796 8.59 % 28,489,321 9.25 % 28,460,237 8.87 % 28,669,158 9.23 %
Non-interest-earning assets 744,969 581,113 765,727 522,755
Total assets $ 28,862,765 $ 29,070,434 $ 29,225,964 $ 29,191,913
Average Liabilities and Equity
Brokered deposits $ 8,457,952 3.76 % $ 8,705,875 4.01 % $ 8,654,643 3.77 % $ 8,938,906 4.01 %
Retail and other deposits 11,725,672 3.83 11,575,556 4.16 11,951,713 3.89 11,478,380 4.19
Other interest-bearing liabilities(1) 5,991,551 5.23 6,337,640 4.62 5,917,006 5.14 6,371,568 4.57
Total interest-bearing liabilities 26,175,175 4.13 % 26,619,071 4.22 % 26,523,362 4.13 % 26,788,854 4.22 %
Non-interest-bearing liabilities 216,855 62,740 246,456 69,262
Equity 2,470,735 2,388,623 2,456,146 2,333,797
Total liabilities and equity $ 28,862,765 $ 29,070,434 $ 29,225,964 $ 29,191,913
Net interest margin 4.75 % 5.31 % 5.02 % 5.29 %
(1) Includes the average balance of our unsecured borrowings, as well as secured borrowings and amortization expense of transaction costs related to our term asset-backed securitizations and our Secured Borrowing Facility.
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Rate/Volume Analysis
The following rate/volume analysis shows the relative contribution of changes in interest rates and asset volumes to changes in interest income, interest expense, and net interest income.
(Dollars in thousands) Increase (Decrease) Change Due To(1)
Rate Volume
Three Months Ended June 30, 2026 vs. 2025
Interest income $ (54,704) $ (46,234) $ (8,470)
Interest expense (10,705) (6,082) (4,623)
Net interest income $ (43,999) $ (39,141) $ (4,858)
Six Months Ended June 30, 2026 vs. 2025
Interest income $ (61,485) $ (51,977) $ (9,508)
Interest expense (17,927) (12,405) (5,522)
Net interest income $ (43,558) $ (38,114) $ (5,444)
(1) Changes in income and expense due to both rate and volume have been allocated in proportion to the relationship of the absolute dollar amounts of the change in each. The changes in income and expense are calculated independently for each line in the table. The totals for the rate and volume columns are not the sum of the individual lines.
Summary of Our Loans Held for Investment Portfolio
Ending Loans Held for Investment Balances, net
Total Loans Held for Investment (Private Education Loans)
(Dollars in thousands) June 30, 2026 December 31, 2025
Total loan portfolio:
In-school(1) $ 3,241,201 $ 3,983,859
Grace, repayment and other(2) 17,550,296 17,676,575
Total, gross 20,791,497 21,660,434
Deferred origination costs and unamortized premium/(discount) 94,010 102,008
Allowance for credit losses (1,354,014) (1,430,318)
Total loans held for investment portfolio, net $ 19,531,493 $ 20,332,124
(1) Loans for customers still attending school and who are not yet required to make payments on the loans.
(2) Includes loans in repayment, grace, deferment, or forbearance. Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period (but, for purposes of the table, do not include loans in the “loans in forbearance” metric).
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Average Loans Held for Investment Balances (net of unamortized premium/(discount))
Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 2026 2025 2026 2025
Private Education Loans $ 21,119,086 100 % $ 22,561,636 100 % $ 22,226,216 100 % $ 22,738,295 100 %
Loans Held for Investment, Net — Activity
Total Loans Held for Investment (Private Education Loans), net (dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Beginning balance $ 19,886,735 $ 21,091,204 $ 20,332,124 $ 20,902,158
Acquisitions and originations:
Fixed-rate 537,279 571,759 2,516,445 3,043,445
Variable-rate 141,491 119,099 596,383 430,749
Total acquisitions and originations 678,770 690,858 3,112,828 3,474,194
Capitalized interest and deferred origination cost premium amortization 151,189 149,074 281,727 261,290
Sales (168,659) — (2,050,483) (1,847,734)
Loan consolidations to third parties (332,114) (208,472) (655,169) (435,738)
Allowance 29,152 (25,794) 76,304 (33,589)
Transfer to loans held for sale (168,252) — (394,963) —
Repayments and other (545,328) (536,538) (1,170,875) (1,160,249)
Ending balance $ 19,531,493 $ 21,160,332 $ 19,531,493 $ 21,160,332
“Loan consolidations to third parties” and “Repayments and other” are both significantly affected by the volume of loans in our held for investment portfolio in P&I repayment status. Loans in P&I repayment status include loans in full principal and interest repayment status as well as certain loans in short-term interest-only payment programs (such as loans in a Graduated Repayment Period program and loans in a short-term interest only alternative program). The amount of loans in P&I repayment status in our Private Education Loans held for investment portfolio at June 30, 2026 decreased by 1.7 percent compared with June 30, 2025, and now totals 45.3 percent of our Private Education Loans held for investment portfolio at June 30, 2026. The balance of loans held for investment in P&I repayment status was primarily affected in 2025 and the first six months of 2026 by loan sales.
“Loan consolidations to third parties” for the three months ended June 30, 2026 total 3.8 percent of our Private Education Loans held for investment portfolio in P&I repayment status at June 30, 2026, or 1.7 percent of our total Private Education Loans held for investment portfolio at June 30, 2026, compared with the year-ago quarter of 2.3 percent of our Private Education Loans held for investment portfolio in P&I repayment status, or 1.0 percent of our total Private Education Loans held for investment portfolio, respectively. The increase in consolidations compared to the year-ago quarter is primarily attributable to lower interest rates in 2026. Historical experience has shown that loan consolidation activity is heightened in the period when the loan initially enters full principal and interest repayment status and then subsides over time.
The “Repayments and other” category includes all scheduled repayments, as well as voluntary prepayments, made on loans in repayment and also includes charge-offs. Consequently, this category can be significantly affected by the volume of loans in repayment.
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Private Education Loan Originations
The following table summarizes our Private Education Loan originations. Originations represent loans that were funded or acquired during the period presented.
Three Months Ended June 30,
(Dollars in thousands) 2026 % 2025 %
Smart Option - interest only(1) $ 105,081 14 % $ 96,941 14 %
Smart Option - fixed pay(1) 220,877 31 223,639 33
Smart Option - deferred(1) 226,951 32 238,496 35
Graduate Loan(2) 163,335 23 126,526 18
Total Private Education Loan originations $ 716,244 100 % $ 685,602 100 %
Percentage of loans with a cosigner 84.0 % 84.0 %
Average FICO at approval(3) 755 754
Six Months Ended June 30,
(Dollars in thousands) 2026 % 2025 %
Smart Option - interest only(1) $ 737,952 20 % $ 634,836 18 %
Smart Option - fixed pay(1) 1,181,019 33 1,142,651 33
Smart Option - deferred(1) 1,322,423 37 1,361,843 40
Graduate Loan(2) 381,070 10 317,750 9
Total Private Education Loan originations $ 3,622,464 100 % $ 3,457,080 100 %
Percentage of loans with a cosigner 92.6 % 91.6 %
Average FICO at approval(4) 754 753
(1) Interest only, fixed pay, and deferred describe the payment option while in school or in grace period. See Item 1. “Business - Our Business - Private Education Loans” in the 2025 Form 10-K for a further discussion.
(2) For the three months ended June 30, 2026, the Graduate Loan originations include $3.6 million of Smart Option Loans where the student was in a graduate status. For the three months ended June 30, 2025, the Graduate Loan originations include $3.2 million of Smart Option Loans where the student was in a graduate status. For the six months ended June 30, 2026, the Graduate Loan originations include $12.3 million of Smart Option Loans where the student was in a graduate status. For the six months ended June 30, 2025, the Graduate Loan originations include $11.9 million of Smart Option Loans where the student was in a graduate status.
(3) Represents the higher credit score of the cosigner or the borrower.
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Allowance for Credit Losses
Allowance for Loan Losses Activity
Total Portfolio (Private Education Loans) (dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Beginning balance $ 1,383,166 $ 1,443,715 $ 1,430,318 $ 1,435,920
Transfer from unfunded commitment liability(1) 28,209 27,878 127,503 133,012
Less:
Charge-offs (122,216) (106,866) (225,049) (193,769)
Plus:
Recoveries 9,662 12,593 23,431 23,327
Provisions for credit losses:
Provision, current period 68,330 92,189 141,526 187,478
Loan sale reduction to provision (10,826) — (130,912) (116,459)
Loans transferred to held for sale (2,311) — (12,803) —
Total provisions for credit losses(2) 55,193 92,189 (2,189) 71,019
Ending balance $ 1,354,014 $ 1,469,509 $ 1,354,014 $ 1,469,509
(1) See Note 5, “Allowance for Credit Losses and Unfunded Loan Commitments,” in this Form 10-Q for a summary of the activity in the allowance for and balance of unfunded loan commitments, respectively.
(2) The following table provides a reconciliation of the provisions for credit losses reported in the consolidated statements of income.
Consolidated Statements of Income Provisions for Credit Losses Reconciliation Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2026 2025 2026 2025
Private Education Loan provisions for credit losses:
Provisions for loan losses $ 55,193 $ 92,189 $ (2,189) $ 71,019
Provisions for unfunded loan commitments 70,470 56,529 116,386 100,985
Provisions for credit losses reported in consolidated statements of income $ 125,663 $ 148,718 $ 114,197 $ 172,004
Private Education Loan Allowance for Credit Losses
In establishing the allowance for Private Education Loan losses as of June 30, 2026, we considered several factors with respect to our Private Education Loan held for investment portfolio, in particular, credit quality and delinquency, forbearance, and charge-off trends.
Private Education Loans held for investment in P&I repayment status were 45 percent of our total Private Education Loans held for investment portfolio at June 30, 2026, compared with 43 percent at June 30, 2025.
For a more detailed discussion of our policy for determining the collectability of Private Education Loans and maintaining our allowance for Private Education Loans, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Allowance for Credit Losses” and Note 5, “Loans Held for Investment — Certain Collection Tools - Private Education Loans” in the 2025 Form 10-K.
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The table below presents our Private Education Loans held for investment portfolio delinquency trends. Loans in repayment include loans making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period (but, for purposes of the following table, do not include loans in the “loans in forbearance” metric).
Private Education Loans Held for Investment 2026 2025
June 30, (dollars in thousands) Balance % Balance %
Loans in-school/grace/deferment(1) $ 5,096,300 $ 5,990,919
Loans in forbearance(2) 328,601 303,704
Loans in repayment and percentage of each status:
Loans current 14,794,274 96.3 % 15,661,996 96.5 %
Loans delinquent 30-59 days(3) 289,764 1.8 300,116 1.8
Loans delinquent 60-89 days(3) 146,124 1.0 143,633 0.9
Loans 90 days or greater past due(3) 136,434 0.9 125,449 0.8
Total Private Education Loans in repayment 15,366,596 100.0 % 16,231,194 100.0 %
Total Private Education Loans, gross 20,791,497 22,525,817
Private Education Loans deferred origination costs and unamortized premium/(discount) 94,010 104,024
Total Private Education Loans 20,885,507 22,629,841
Private Education Loans allowance for losses (1,354,014) (1,469,509)
Private Education Loans, net $ 19,531,493 $ 21,160,332
Percentage of loans in repayment 73.9 % 72.1 %
Delinquencies as a percentage of loans in repayment 3.7 % 3.5 %
Percentage of loans in forbearance:
Percentage of loans in an extended grace period(4) 1.1 % 0.9 %
Percentage of loans in hardship and other forbearances(5) 1.0 % 0.9 %
(1)Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on the loans (e.g., residency periods for medical students or a grace period for bar exam preparation).
(2)Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors (other than delinquent loans in disaster forbearance), consistent with established loan program servicing policies and procedures.
(3)The period of delinquency is based on the number of days scheduled payments are contractually past due.
(4)We calculate the percentage of loans in an extended grace period as the ratio of (a) Private Education Loans in forbearance in an extended grace period numerator to (b) Private Education Loans in repayment and forbearance denominator. An extended grace period aligns with The Office of the Comptroller of the Currency definition of an additional, consecutive, one-time period during which no payment is required for up to six months after the initial grace period. We typically grant this extended grace period to customers who may be having difficulty finding employment before the full principal and interest repayment period starts or once it has begun. Loans in forbearance in an extended grace period were approximately $164 million and $154 million at June 30, 2026 and 2025, respectively. See “— Use of Forbearance and Rate Modifications as a Private Education Loan Collection Tool” below for additional details.
(5)We calculate the percentage of loans in hardship and other forbearances as the ratio of (a) Private Education Loans in hardship and other forbearances (excluding loans in an extended grace period and delinquent loans in disaster forbearance) numerator to (b) Private Education Loans in repayment and forbearance denominator. If the customer is in financial hardship, we work with the customer and/or cosigner and identify any available alternative arrangements designed to reduce monthly payment obligations, which may include a short-term hardship forbearance. Loans in hardship and other forbearances (excluding loans in an extended grace period and delinquent loans in disaster forbearance) were approximately $164 million and $150 million at June 30, 2026 and 2025, respectively. See “— Use of Forbearance and Rate Modifications as a Private Education Loan Collection Tool” below for additional details.
Delinquencies as a percentage of Private Education Loans (held for investment) in repayment increased to 3.7 percent at June 30, 2026 from 3.5 percent at June 30, 2025. We believe the increase in the delinquency metric is primarily driven by misaligned third-party debt resolution practices affecting a segment of high-ability-to-pay borrowers resulting in their loans progressing straight through delinquency to default. Also impacting the delinquency percentage, was a shift in the composition of the loans in repayment portfolio (which does not include the loans held for sale) due to the sale of younger loans as part of our strategic partnership funding model and the larger size of the recent repayment cohort compared to prior quarters. $172 million of newly originated loans were transferred to held for sale status during the second quarter of 2026 and sold in July 2026 to our strategic partner. See Note 16, “Subsequent Events” in this Form 10-Q for additional information. See additional discussion related to collections activity in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Allowance for Credit Losses — Use of Forbearance and Modifications as a Private Education Loan Collection Tool” in the 2025 Form 10-K.
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The percentage of loans in an extended grace forbearance increased to 1.1 percent at June 30, 2026 from 0.9 percent at June 30, 2025. The increase was primarily due to additional enrollments in extended grace forbearance and the shift in the composition of the loans in repayment portfolio (which does not include the loans held for sale) due to the sale of younger loans as part of our strategic partnership funding model. $172 million of newly originated loans were transferred to held for sale status during the second quarter of 2026. See Note 16, “Subsequent Events” in this Form 10-Q for additional information. The percentage of loans in hardship and other forbearances remained relatively consistent at 1.0 percent and 0.9 percent at June 30, 2026 and June 30, 2025, respectively.
For additional discussion of our strategic partnership funding model, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Financial Measures — Funding Sources — Loan Sales” in the 2025 Form 10-K.
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Changes in Allowance for Private Education Loan Losses
The following table summarizes changes in the allowance for Private Education Loan (held for investment) losses and the allowance for unfunded loan commitments.
Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 2026 2025 2026 2025
Allowance for loan losses, beginning balance $ 1,383,166 $ 1,443,715 $ 1,430,318 $ 1,435,920
Transfer from allowance for unfunded loan commitments(1) 28,209 27,878 127,503 133,012
Provisions:
Provision for current period 68,330 92,189 141,526 187,478
Loan sale reduction to provision (10,826) — (130,912) (116,459)
Loans transferred from held for sale (2,311) — (12,803) —
Total provisions(2) 55,193 92,189 (2,189) 71,019
Net charge-offs:
Charge-offs (122,216) (106,866) (225,049) (193,769)
Recoveries 9,662 12,593 23,431 23,327
Net charge-offs (112,554) (94,273) (201,618) (170,442)
Allowance for loan losses, ending balance $ 1,354,014 $ 1,469,509 $ 1,354,014 $ 1,469,509
Allowance for unfunded loan commitments, beginning balance(1) 23,754 23,890 77,132 84,568
Provision(2)(3) 70,470 56,529 116,386 100,985
Transfer to allowance for loan losses (28,209) (27,878) (127,503) (133,012)
Allowance for unfunded loan commitments, ending balance(1) 66,015 52,541 66,015 52,541
Total allowance for credit losses, ending balance $ 1,420,029 $ 1,522,050 $ 1,420,029 $ 1,522,050
Total Allowance Percentage of Private Education Loan Exposure(5) 5.89 % 5.95 % 5.89 % 5.95 %
Allowance for loan losses coverage of net charge-offs (annualized) 3.01 3.90 3.36 4.31
Net charge-offs as a percentage of average loans in repayment (annualized)(4) 2.95 % 2.36 % 2.55 % 2.11 %
Delinquencies as a percentage of ending loans in repayment(4) 3.72 % 3.51 % 3.72 % 3.51 %
Loans in forbearance as a percentage of ending loans in repayment and forbearance(4) 2.09 % 1.84 % 2.09 % 1.84 %
Ending total loans, gross $ 20,791,497 $ 22,525,817 $ 20,791,497 $ 22,525,817
Average loans in repayment(4) $ 15,287,312 $ 15,991,357 $ 15,786,152 $ 16,146,239
Ending loans in repayment(4) $ 15,366,596 $ 16,231,194 $ 15,366,596 $ 16,231,194
Unfunded loan commitments for loans held for investment(6) $ 1,700,089 $ 1,358,163 $ 1,700,089 $ 1,358,163
Total accrued interest receivable $ 1,604,848 $ 1,701,944 $ 1,604,848 $ 1,701,944
(1) When a new loan commitment is made, we record an allowance to cover lifetime expected credit losses on the unfunded commitments, which is recorded in “Other Liabilities” on the consolidated balance sheet. See Note 5, “Allowance for Credit Losses and Unfunded Loan Commitments” in this Form 10-Q for a summary of the activity in the allowance for and balance of unfunded loan commitments.
(2) See “—Financial Condition — Allowance for Credit Losses — Allowance for Loan Losses” in this Item 2 for a reconciliation of the provisions for credit losses reported in the consolidated statements of income.
(3) Includes incremental provision for new commitments and changes to provision for existing commitments.
(4) Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period (but, for purposes of the table, do not include loans in the “loans in forbearance” metric).
(5) The Total Allowance Percentage of Private Education Loan Exposure is the total allowance for credit losses as a percentage of ending total loans plus unfunded loan commitments and total accrued interest receivable on Private Education Loans.
(6) Unfunded loan commitments for loans held for investment and the calculation of the Total Allowance Percentage of Private Education Loan Exposure do not include $28 million of unfunded loan commitments associated with loans classified as held for sale at June 30, 2026. Due to the near-term timing of the loan sale and credit quality of the loans, we believe there is no risk of credit loss and are not recording an allowance for the unfunded loan commitments related to the loans classified as held for sale.
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Net charge-offs for the three months ended June 30, 2026 were $113 million, compared with $94 million in the three months ended June 30, 2025. Net charge-offs for the six months ended June 30, 2026 were $202 million, compared with $170 million in the six months ended June 30, 2025. The increases were primarily driven by misaligned third-party debt resolution practices affecting a segment of high-ability-to-pay borrowers resulting in their loans progressing straight through delinquency to default, and our resulting shift in recovery strategies, pausing third-party recovery activities while working to establish a more effective, customer-aligned approach to delinquencies, charge-offs, and recoveries.
As part of concluding on the adequacy of the allowance for credit losses, we review key allowance and loan metrics. The most significant of these metrics considered are the allowance coverage of net charge-offs ratio; the Total Allowance Percentage of Private Education Loan Exposure; and delinquency and forbearance percentages.
Use of Forbearance and Rate Modifications as a Private Education Loan Collection Tool
In recent years, we have made significant changes to our credit administration practices, enhancing our loss mitigation programs through both our forbearance and loan modification offerings. We adjust the terms of loans for certain borrowers when we believe such changes will help our borrowers manage their student loan obligations, achieve better student outcomes and increase the collectability of the loans. These changes generally take the form of a temporary forbearance of payments, a temporary or permanent interest rate reduction, a temporary or permanent interest rate reduction with a permanent extension of the loan term and/or a short-term extended repayment or interest-only alternative.
We continually monitor our credit administration practices and modify them from time to time based upon performance, industry conventions, and/or regulatory feedback.
See Note 5, “Allowance for Credit Losses and Unfunded Commitments — Loan Modifications to Borrowers Experiencing Financial Difficulty” in this Form 10-Q for additional information regarding loan modifications to borrowers experiencing financial difficulty. As discussed therein, our forbearance programs are not considered loan modifications to borrowers experiencing financial difficulty because they are either short-term in nature, and therefore, we believe, they do not provide a significant concession to the borrower, or they are provided for reasons other than financial difficulty being experienced by the borrower.
Forbearance
Forbearance allows a borrower to not make scheduled payments for a specified period of time. Our forbearance policies and practices vary depending upon whether a borrower is current or delinquent at the time forbearance is requested, generally with stricter requirements for delinquent borrowers. Using forbearance extends the original term of the loan by the term of forbearance taken. Forbearance does not grant any reduction in the total principal or interest repayment obligation. While a loan is in forbearance status, interest continues to accrue and is capitalized (added to principal) at the end of the forbearance. Interest will not capitalize at the end of certain types of forbearance, such as disaster forbearance, however.
During the first six months following a borrower’s grace period, the borrower may be eligible for extended grace forbearance, which provides temporary payment relief to give the borrower additional time to be in a position to make regular principal and interest payments. We do not consider borrowers who are eligible for extended grace to be experiencing financial difficulty.
Hardship forbearance may be granted in order to provide temporary payment relief to borrowers who are either current in their payments but demonstrate a need for relief, or who are delinquent in their payments but demonstrate an ability and willingness to repay their obligation. In these circumstances, a borrower’s loan is placed into a forbearance status in limited monthly increments and is reflected in the forbearance status at month-end during this time. At the end of the forbearance period, for borrowers who were current when they entered forbearance or those who were delinquent but met specific payment requirements curing their delinquency, the borrower will enter repayment status as current. In all instances, the borrowers are expected to begin making scheduled monthly payments at the end of their forbearance periods. This strategy is aimed at assisting borrowers while mitigating the risks of delinquency and default as well as encouraging resolution of delinquent loans.
Disaster forbearance is used to assist borrowers affected by material events, typically federally-declared disasters, including hurricanes, wildfires, floods, and pandemics. We typically grant disaster forbearance to affected borrowers in one-month increments, up to three months at a time, but the disaster forbearance granted generally does not apply toward the 12-month forbearance limit described below. Disaster forbearance is granted based on areas impacted by federally declared disasters, not because the borrower is experiencing financial difficulty. Loans in disaster forbearance are not
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assessed late or other fees. Due to the nature and limited timeframe of disaster forbearance, delinquent loans granted disaster forbearance are maintained in their pre-grant delinquency status, and as such, are not reflected in our loans in forbearance metrics.
We offer certain other administrative forbearances (e.g., death and disability, bankruptcy, military service, and in school assistance) that are required by law (such as by the Servicemembers Civil Relief Act), are considered separate from our active loss mitigation programs, or do not exceed the significance threshold. We do not consider borrowers eligible for these other administrative forbearances to be experiencing financial difficulty.
Currently, we generally grant forbearance for up to 12 months over the life of the loan, in increments of one to two months at a time, although extended grace forbearance is typically granted in one six-month increment. Disaster forbearance and certain other limited instances do not apply toward the 12-month limit. We also currently require 12 months of positive payment performance by a borrower (meaning the borrower must make payment in a cumulative amount equivalent to 12 monthly required payments under the loan) between successive grants of forbearance and between forbearance grants and certain other repayment alternatives. This required period of positive payment performance is not necessary to receive additional increments of extended grace forbearance or for a borrower to receive a contractual interest rate reduction. In addition, we currently limit the participation of delinquent borrowers in certain short-term extended or interest-only repayment alternatives to once in 12 months and twice in five years. We also now count the number of months a borrower receives a short-term extended repayment alternative toward the 12-month forbearance limit described above.
Modification Programs other than Forbearances
For borrowers experiencing more severe hardship, following evaluation of their ability and willingness to repay, we currently use modification programs tailored to the financial condition of the individual borrower. Pursuant to our modification programs, we may reduce the contractual interest rate on a loan to a rate between 2 percent and 8 percent temporarily, and/or in some instances may permanently extend the final maturity of a loan. For borrowers experiencing the most severe financial conditions, we may permanently reduce the contractual interest rate on a loan to 2 percent for the remaining life of the loan and also permanently extend the final maturity of the loan. Following modification, borrowers who are delinquent but meet specific payment requirements curing their delinquency will be brought current. We currently limit the granting of a permanent extension of the final maturity date of a loan to once over the life of the loan, and the number of interest rate reductions to twice over the life of the loan.
Modifications under these programs are generally considered loan modifications to borrowers experiencing financial difficulty. See Note 5, “Allowance for Credit Losses and Unfunded Commitments — Loan Modifications to Borrowers Experiencing Financial Difficulty” in this Form 10-Q for disclosures related to these modification programs. However, in some situations, we may offer on a limited basis term extensions or rate reductions or a combination of both to borrowers to reduce consolidation activities. We do not consider these to be modifications of loans to borrowers experiencing financial difficulty.
Delinquency Trends by Active Repayment Status
The tables below show the composition and status of the Private Education Loan portfolio held for investment aged by number of months in active repayment status (months for which a scheduled monthly payment was due). Active repayment status includes loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period. Our experience shows that the percentage of loans in forbearance status generally decreases the longer the loans have been in active repayment status. At June 30, 2026, Private Education Loans (held for investment) in forbearance that have been in active repayment status for fewer than 25 months as a percentage of all loans in repayment and forbearance were 1.5 percent. At June 30, 2026, approximately 74 percent of our Private Education Loans (held for investment) in forbearance status have been in active repayment status for fewer than 25 months.
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As of June 30, 2026(dollars in millions) Private Education Loans Held for Investment Aged by Number of Months in Active Repayment Status Not Yet in Repayment Total
0 to 12 13 to 24 25 to 36 37 to 48 More than 48
Loans in-school/grace/deferment $ — $ — $ — $ — $ — $ 5,096 $ 5,096
Loans in forbearance 188 54 28 22 37 — 329
Loans in repayment - current 4,590 3,089 1,696 1,520 3,899 — 14,794
Loans in repayment - delinquent 30-59 days 65 42 39 35 108 — 289
Loans in repayment - delinquent 60-89 days 39 21 20 19 47 — 146
Loans in repayment - 90 days or greater past due 36 20 19 17 45 — 137
Total $ 4,918 $ 3,226 $ 1,802 $ 1,613 $ 4,136 $ 5,096 20,791
Deferred origination costs and unamortized premium/(discount) 94
Allowance for credit losses (1,354)
Total Private Education Loans, net $ 19,531
Loans in forbearance as a percentage of total Private Education Loans in repayment and forbearance 1.19 % 0.34 % 0.18 % 0.14 % 0.24 % — % 2.09 %
As of June 30, 2025(dollars in millions) Private Education Loans Held for Investment Aged by Number of Months in Active Repayment Status Not Yet in Repayment Total
0 to 12 13 to 24 25 to 36 37 to 48 More than 48
Loans in-school/grace/deferment $ — $ — $ — $ — $ — $ 5,991 $ 5,991
Loans in forbearance 175 50 30 19 30 — 304
Loans in repayment - current 5,310 3,130 2,096 1,522 3,604 — 15,662
Loans in repayment - delinquent 30-59 days 76 51 44 36 93 — 300
Loans in repayment - delinquent 60-89 days 44 23 22 16 39 — 144
Loans in repayment - 90 days or greater past due 33 20 18 15 39 — 125
Total $ 5,638 $ 3,274 $ 2,210 $ 1,608 $ 3,805 $ 5,991 22,526
Deferred origination costs and unamortized premium/(discount) 104
Allowance for credit losses (1,470)
Total Private Education Loans, net $ 21,160
Loans in forbearance as a percentage of total Private Education Loans in repayment and forbearance 1.06 % 0.30 % 0.18 % 0.12 % 0.18 % — % 1.84 %
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Private Education Loans Held for Investment Types
The following table provides information regarding the loans in repayment balance and total loan balance by Private Education Loan held for investment product type at June 30, 2026 and December 31, 2025.
As of June 30, 2026(dollars in thousands) Smart Option Graduate Loan Other(1) Total
$ in repayment(2) $ 13,159,654 $ 1,893,202 $ 313,740 $ 15,366,596
$ in total $ 17,766,809 $ 2,634,732 $ 389,956 $ 20,791,497
As of December 31, 2025 (dollars in thousands) Smart Option Graduate Loan Other(1) Total
$ in repayment(2) $ 13,806,666 $ 1,765,589 $ 322,572 $ 15,894,827
$ in total $ 18,785,313 $ 2,468,471 $ 406,650 $ 21,660,434
(1) Other includes Parent Loan and Career training loan products, both of which were discontinued, with final disbursements made in 2023.
(2) Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period (but, for purposes of the table, do not include loans in the “loans in forbearance” metric).
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Accrued Interest Receivable
The following table provides information regarding accrued interest receivable on our Private Education Loans. The table also discloses the amount of accrued interest on loans 90 days or greater past due as compared to our allowance for uncollectible interest. The majority of the total accrued interest receivable represents accrued interest on deferred loans where no payments are due while the borrower is in school and fixed-pay loans where the borrower makes a $25 monthly payment that is smaller than the interest accruing on the loan in that month. The accrued interest on these loans will be capitalized to the balance of the loans when the borrower exits the grace period after separation from school. The allowance for credit losses considers both the collectibility of principal and accrued interest. The allowance for uncollectible interest estimates the additional uncollectible interest that is not captured in the allowance for credit losses.
Private Education Loans
Accrued Interest Receivable
(Dollars in thousands) Total Interest Receivable 90 Days or Greater Past Due Allowance forUncollectibleInterest(1)(2)
June 30, 2026 $ 1,604,848 $ 5,417 $ 9,770
December 31, 2025 $ 1,570,069 $ 6,548 $ 14,511
June 30, 2025 $ 1,701,944 $ 5,381 $ 12,694
(1)The allowance for uncollectible interest at June 30, 2026 and 2025 represents the expected losses related to the portion of accrued interest receivable on those loans that are in repayment (at June 30, 2026 and 2025, relates to $154 million and $159 million, respectively, of accrued interest receivable) that is/was not expected to be capitalized. The accrued interest receivable that is/was expected to be capitalized ($1.5 billion at both June 30, 2026 and 2025) is/was reserved in the allowance for credit losses.
(2)The allowance for uncollectible interest at December 31, 2025 represents the expected losses related to the portion of accrued interest receivable on those loans in repayment ($164 million of accrued interest receivable) that was not expected to be capitalized. The accrued interest receivable that was expected to be capitalized ($1.4 billion) was reserved in the allowance for credit losses.
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Liquidity and Capital Resources
Funding and Liquidity Risk Management
Our primary funding and liquidity objective is to support our businesses throughout market cycles, including during periods of financial stress. Our business needs primarily include funding originations of Private Education Loans and meeting any deposits outflows at the Bank. To achieve these objectives, we maintain access to a diverse set of funding sources, such as retail deposits, brokered deposits, asset-backed securitizations, unsecured debt, other financing facilities, and loan sales. We maintained liquidity reserves in the form of unrestricted cash and liquid investments of $5.6 billion and $5.4 billion as of June 30, 2026 and December 31, 2025, respectively, as noted in the table below.
At June 30, 2026 and December 31, 2025, our sources of liquidity included unrestricted cash, primarily held at the Federal Reserve Bank, and liquid investments with unrealized losses of $59.1 million and $61.2 million, respectively. It is our policy to maintain a liquidity stockpile that is sufficient in size and quality to meet our financial obligations in normal and stressed times. Our liquidity risk management is governed by policies approved by our Board of Directors. Oversight of these policies is performed at the Asset and Liability Committee, a management-level committee. These policies consider the volatility of cash flow forecasts, expected asset and liability maturities, anticipated loan demand, and a variety of other factors to establish minimum liquidity guidelines.
Key risks associated with our liquidity relate to our ability to access the capital markets and deposit markets at reasonable rates. This ability may be affected by our performance, competitive pressures, the macroeconomic environment, and the impact they have on the availability of funding sources in the market. We target maintaining sufficient on-balance sheet and contingent sources of liquidity to enable us to meet all contractual and contingent obligations under various stress scenarios, including severe macroeconomic stresses and specific stresses that test the resiliency of our balance sheet. At June 30, 2026, we held a significant liquidity buffer of unrestricted cash and government-backed investments, which we expect to maintain in the future. Due to the seasonal nature of our business, our liquidity levels will likely vary from quarter to quarter.
Sources of Liquidity and Available Capacity
Ending Balances
(Dollars in thousands) June 30, 2026 December 31, 2025
Sources of primary liquidity:
Unrestricted cash and liquid investments:
Holding Company and other non-bank subsidiaries $ 14,496 $ 4,421
Sallie Mae Bank(1) 4,573,632 4,236,844
Available-for-sale investments 966,317 1,135,886
Total unrestricted cash and liquid investments $ 5,554,445 $ 5,377,151
(1) This amount will be used primarily to originate Private Education Loans at the Bank.
Average Balances
Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 2026 2025 2026 2025
Sources of primary liquidity:
Unrestricted cash and liquid investments:
Holding Company and other non-bank subsidiaries $ 10,250 $ 11,476 $ 7,120 $ 8,151
Sallie Mae Bank(1) 4,794,742 3,976,548 4,113,231 3,871,213
Available-for-sale investments 1,158,306 1,120,558 1,151,373 1,210,617
Total unrestricted cash and liquid investments $ 5,963,298 $ 5,108,582 $ 5,271,724 $ 5,089,981
(1) This amount will be used primarily to originate Private Education Loans at the Bank.
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Deposits
The following table summarizes total deposits at June 30, 2026 and December 31, 2025.
June 30, December 31,
(Dollars in thousands) 2026 2025
Deposits - interest-bearing $ 19,894,290 $ 21,059,967
Deposits - non-interest-bearing 211 184
Total deposits $ 19,894,501 $ 21,060,151
Our total deposits of $19.9 billion were comprised of $8.2 billion in brokered deposits and $11.6 billion in retail and other deposits at June 30, 2026, compared with total deposits of $21.1 billion, which were comprised of $8.8 billion in brokered deposits and $12.3 billion in retail and other deposits, at December 31, 2025.
Interest-bearing deposits as of June 30, 2026 and December 31, 2025 consisted of retail and brokered non-maturity savings deposits, retail and brokered non-maturity MMDAs, and retail and brokered CDs. Interest-bearing deposits also include deposits from Educational 529 and Health Savings plans that diversify our funding sources and that we consider to be core. These and other large omnibus accounts, aggregating the deposits of many individual depositors, represented $6.8 billion and $7.6 billion of our deposit total as of June 30, 2026 and December 31, 2025, respectively. The omnibus accounts are structured in such a way that entitles the individual depositor pass-through deposit insurance (subject to FDIC rules and limitations), and the majority of these deposits have contractual minimum balances and maturity terms.
Some of our deposit products are serviced by third-party providers. Placement fees associated with the brokered CDs are amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $2 million in both the three months ended June 30, 2026 and 2025 and placement fee expense of $4 million in both the six months ended June 30, 2026 and 2025. There were no fees paid to third-party brokers related to brokered CDs in the three months ended June 30, 2026 and $5 million in fees paid to third-party brokers related to brokered CDs for the six months ended June 30, 2026. There were no fees paid to third-party brokers related to brokered CDs for either the three or six months ended June 30, 2025.
Interest bearing deposits at June 30, 2026 and December 31, 2025 are summarized as follows:
June 30, 2026 December 31, 2025
(Dollars in thousands) Amount Qtr.-EndWeightedAverageStated Rate(1) Amount Year-EndWeightedAverageStated Rate(1)
Money market $ 9,105,154 3.78 % $ 10,004,845 3.83 %
Savings 1,526,406 3.60 1,177,177 3.83
Certificates of deposit 9,262,730 3.84 9,877,945 3.87
Deposits - interest bearing $ 19,894,290 $ 21,059,967
(1) Includes the effect of interest rate swaps in effective hedge relationships.
As of June 30, 2026 and December 31, 2025, there were $615 million and $557 million, respectively, of deposits exceeding FDIC insurance limits. Accrued interest on deposits was $70 million and $71 million at June 30, 2026 and December 31, 2025, respectively.
Counterparty Exposure
Counterparty exposure related to financial instruments arises from the risk that a lending, investment, or derivative counterparty will not be able to meet its obligations to us.
Excess cash is generally invested with the FRB on an overnight basis or in the FRB’s Term Deposit Facility, minimizing counterparty exposure on cash balances.
Our investment portfolio is primarily comprised of a small portfolio of mortgage-backed securities issued by government agencies and government-sponsored enterprises that are purchased to meet CRA targets. Additionally, our investing activity is governed by Board-approved limits on the amount that is allowed to be invested with any one issuer
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based on the credit rating of the issuer, further minimizing our counterparty exposure. Counterparty credit risk is considered when valuing investments and considering impairment.
Related to derivative transactions, protection against counterparty risk is generally provided by International Swaps and Derivatives Association, Inc. Credit Support Annexes (“CSAs”), or clearinghouses for over-the-counter derivatives. CSAs require a counterparty to post collateral if a potential default would expose the other party to a loss. All derivative contracts entered into by the Bank are covered under CSAs or clearinghouse agreements and require collateral to be exchanged based on the net fair value of derivatives with each counterparty. Our exposure to the counterparty is limited to the value of the derivative contracts in a gain position, less any collateral held by us and plus collateral posted with the counterparty.
Title VII of the Dodd-Frank Act requires all standardized derivatives, including most interest rate swaps, to be submitted for clearing to central counterparties to reduce counterparty risk. Two of the central counterparties we use are the CME and the LCH. All variation margin payments on derivatives cleared through the CME and LCH are accounted for as legal settlement. As of June 30, 2026, $10 million notional of our derivative contracts were cleared on the CME and $2 million were cleared on the LCH. The derivative contracts cleared through the CME and LCH represent 79.2 percent and 20.8 percent, respectively, of our total notional derivative contracts of $12 million at June 30, 2026.
For derivatives cleared through the CME and LCH, the net gain (loss) position includes the variation margin amounts as settlement of the derivative and not collateral against the fair value of the derivative. The amount of variation margin included as settlement as of June 30, 2026 was immaterial for both the CME and LCH. Changes in fair value for derivatives not designated as hedging instruments are presented as realized gains (losses).
Our exposure to the counterparty is limited to the value of the derivative contracts in a gain position less any collateral held and plus any collateral posted. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At June 30, 2026 and December 31, 2025, we had a net positive exposure (derivative gain/loss positions to us, less collateral held by us and plus collateral posted with counterparties) related to derivatives of $0.1 million and $0.1 million, respectively.
We have liquidity exposure related to collateral movements between us and our derivative counterparties. Movements in the value of the derivatives, which are primarily affected by changes in interest rates, may require us to return cash collateral held or may require us to access primary liquidity to post collateral to counterparties.
The table below highlights exposure related to our derivative counterparties as of June 30, 2026.
As of June 30, 2026 (dollars in thousands) SLM Corporation and Sallie Mae Bank Contracts
Total exposure, net of collateral $ 75
Exposure to counterparties with credit ratings, net of collateral $ 75
Percent of exposure to counterparties with credit ratings below S&P AA- or Moody’s Aa3 — %
Percent of exposure to counterparties with credit ratings below S&P A- or Moody’s A3 — %
Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by federal and state banking authorities. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on our business, results of operations, and financial condition. Under U.S. Basel III and the regulatory framework for prompt corrective action, the Bank must meet specific capital standards that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and its classification under the prompt corrective action framework are also subject to qualitative judgments by the regulators about components of capital, risk weightings, and other factors.
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Capital Management
The Bank intends to maintain at all times regulatory capital levels that meet both the minimum levels required under U.S. Basel III (including applicable buffers) and the levels necessary to be considered “well capitalized” under the FDIC’s prompt corrective action framework, in order to support asset growth and operating needs, address unexpected credit risks, and protect the interests of depositors and the Deposit Insurance Fund administered by the FDIC. The Bank’s Capital Policy requires management to monitor these capital standards and the Bank’s compliance with them. The Board of Directors and management periodically evaluate the quality of assets, the stability of earnings, and the adequacy of the allowance for credit losses for the Bank. The Company is a source of strength for the Bank and will provide additional capital if necessary.
We believe that current and projected capital levels are appropriate for 2026. As of June 30, 2026, the Bank’s risk-based and leverage capital ratios exceed the required minimum ratios and the applicable buffers under the fully phased-in U.S. Basel III standards as well as the “well capitalized” standards under the prompt corrective action framework.
Under U.S. Basel III, the Bank is required to maintain the following minimum regulatory capital ratios: a Common Equity Tier 1 risk-based capital ratio of 4.5 percent, a Tier 1 risk-based capital ratio of 6.0 percent, a Total risk-based capital ratio of 8.0 percent, and a Tier 1 leverage ratio of 4.0 percent. In addition, the Bank is subject to a Common Equity Tier 1 capital conservation buffer of greater than 2.5 percent. Failure to maintain the buffer will result in restrictions on the Bank’s ability to make capital distributions, including the payment of dividends, and to pay discretionary bonuses to executive officers. Including the buffer, the Bank is required to maintain the following capital ratios under U.S. Basel III in order to avoid such restrictions: a Common Equity Tier 1 risk-based capital ratio of greater than 7.0 percent, a Tier 1 risk-based capital ratio of greater than 8.5 percent, and a Total risk-based capital ratio of greater than 10.5 percent.
To qualify as “well capitalized” under the prompt corrective action framework for insured depository institutions, the Bank must maintain a Common Equity Tier 1 risk-based capital ratio of at least 6.5 percent, a Tier 1 risk-based capital ratio of at least 8.0 percent, a Total risk-based capital ratio of at least 10.0 percent, and a Tier 1 leverage ratio of at least 5.0 percent.
The Bank’s required and actual regulatory capital amounts and ratios, including applicable capital conservation buffers, under U.S. Basel III are shown in the following table. The following capital amounts and ratios are based upon the Bank’s average assets and risk-weighted assets, as indicated. The Bank has elected to exclude accumulated other comprehensive income related to both available-for-sale investments and swap valuations from Common Equity Tier 1 Capital.
Actual U.S. Basel III MinimumRequirements Plus Buffer(1)(2)
(Dollars in thousands) Amount Ratio Amount Ratio
As of June 30, 2026:
Common Equity Tier 1 Capital (to Risk-Weighted Assets) $ 2,951,103 11.8 % $ 1,752,917 > 7.0 %
Tier 1 Capital (to Risk-Weighted Assets) $ 2,951,103 11.8 % $ 2,128,543 > 8.5 %
Total Capital (to Risk-Weighted Assets) $ 3,277,882 13.1 % $ 2,629,376 > 10.5 %
Tier 1 Capital (to Average Assets) $ 2,951,103 10.2 % $ 1,161,093 > 4.0 %
As of December 31, 2025:
Common Equity Tier 1 Capital (to Risk-Weighted Assets) $ 2,929,973 11.1 % $ 1,849,590 > 7.0 %
Tier 1 Capital (to Risk-Weighted Assets) $ 2,929,973 11.1 % $ 2,245,930 > 8.5 %
Total Capital (to Risk-Weighted Assets) $ 3,274,883 12.4 % $ 2,774,384 > 10.5 %
Tier 1 Capital (to Average Assets) $ 2,929,973 9.9 % $ 1,186,335 > 4.0 %
(1) Reflects the U.S. Basel III minimum required ratio plus the applicable capital conservation buffer.
(2) The Bank’s regulatory capital ratios also exceeded all applicable standards for the Bank to qualify as “well capitalized” under the prompt corrective action framework.
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Dividends
The Bank is chartered under the laws of the State of Utah, and its deposits are insured by the FDIC. The Bank’s ability to pay dividends is subject to the laws of Utah and the regulations of the FDIC. Generally, under Utah’s industrial bank laws and regulations as well as FDIC regulations, the Bank may pay dividends from its net profits without regulatory approval if, following the payment of the dividend, the Bank’s capital and surplus would not be impaired. The Company relies on dividends from the Bank, as necessary, to enable the Company to pay any declared dividends and other payments and consummate share repurchases, as described herein. The Bank declared $200 million and $400 million in dividends to the Company for the three and six months ended June 30, 2026, respectively, and $94 million and $194 million in dividends to the Company for the three and six months ended June 30, 2025, respectively, with the proceeds primarily used to fund share repurchase programs and stock dividends. We expect that the Bank will pay dividends to the Company as may be necessary to enable the Company to pay any declared dividends on its Series B Preferred Stock and common stock and to consummate any common share repurchases by the Company under the share repurchase programs.
Borrowings
Outstanding borrowings consist of unsecured debt and secured borrowings issued through our term ABS program and our Secured Borrowing Facility. The issuing entities for those secured borrowings are VIEs and are consolidated for accounting purposes. The following table summarizes our borrowings at June 30, 2026 and December 31, 2025, respectively. For additional information, see Note 8, “Borrowings” in this Form 10-Q.
June 30, 2026 December 31, 2025
(Dollars in thousands) Short-Term Long-Term Total Short-Term Long-Term Total
Unsecured borrowings:
Unsecured debt (fixed-rate) $ — $ 988,122 $ 988,122 $ 498,415 $ 493,415 $ 991,830
Total unsecured borrowings — 988,122 988,122 498,415 493,415 991,830
Secured borrowings:
Private Education Loan term securitizations:
Fixed-rate — 4,204,866 4,204,866 — 4,174,513 4,174,513
Variable-rate — 651,128 651,128 — 694,566 694,566
Total Private Education Loan term securitizations — 4,855,994 4,855,994 — 4,869,079 4,869,079
Secured Borrowing Facility — — — — — —
Total secured borrowings — 4,855,994 4,855,994 — 4,869,079 4,869,079
Total $ — $ 5,844,116 $ 5,844,116 $ 498,415 $ 5,362,494 $ 5,860,909
Long-term Borrowings
Unsecured Borrowings Transactions
On January 31, 2025, we issued $500 million of 6.50 percent unsecured Senior Notes due January 31, 2030 (the “2030 Senior Notes”), at a price of 99.78 percent. At June 30, 2026, the outstanding carrying value, net of deferred financing fees, was $494 million.
On February 18, 2025, we redeemed $500 million of the 4.20 percent unsecured Senior Notes due October 29, 2025 (the “2025 Senior Notes”). The 2025 Senior Notes were redeemed at 100 percent of their principal amount, plus the accrued and unpaid interest thereon through the redemption date. As a result of the redemption, we recognized a $1 million loss on the transaction.
On May 15, 2026, we issued $500 million of 6.495 percent unsecured Senior Notes due May 15, 2032 (the “2032 Senior Notes”), at a price of 100 percent. At June 30, 2026, the outstanding carrying value, net of deferred financing fees, was $494 million.
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Tender Offer
On May 12, 2026, we completed a cash tender offer for any and all of the $500 million of 3.125 percent unsecured Senior Notes due November 2, 2026 (the “2026 Senior Notes”), which was made concurrently with the offerings of the 2032 Notes (the “Tender Offer”). We paid an aggregate consideration of $447 million in the Tender Offer to repurchase $448 million principal amount of the 2026 Senior Notes at a repurchase price equal to 99.58 percent of the principal amount plus accrued and unpaid interest. The repurchase of the 2026 Senior Notes accepted for purchase in the Tender Offer was accounted for a debt extinguishment.
Satisfaction and Discharge of 2026 Senior Notes
On May 15, 2026, we irrevocably deposited funds with the 2026 Senior Notes’ trustee that were used to purchase a sufficient amount of U.S. government obligations to satisfy and discharge the indenture governing the 2026 Senior Notes, fund the payment of accrued and unpaid interest on the remaining $52 million principal amount of the 2026 Senior Notes as it becomes due, and fund the principal amount of those 2026 Senior Notes on their November 2, 2026 maturity date. The U.S. government obligations were purchased using a portion of the net proceeds from the offering of the 2032 Senior Notes. After the deposit of such funds with the trustee, our obligations under the 2026 Senior Notes indenture were satisfied and discharged and the transaction was accounted for as a debt extinguishment.
As a result of the debt extinguishment of the 2026 Senior Notes, we recognized a gain of less than $1 million on the transactions described above.
Secured Borrowing Facility
On June 13, 2025, we amended our Secured Borrowing Facility to increase the amount to be borrowed under the facility from $2 billion to $2.5 billion and extended the maturity. We hold 100 percent of the residual interest in the Secured Borrowing Facility Trust. The amendment extended the revolving period, during which we may borrow, repay, and reborrow funds, until June 12, 2026, and a subsequent amendment on June 12, 2026 further extended the revolving period to July 27, 2026. The scheduled amortization period, during which amounts outstanding under the Secured Borrowing Facility must be repaid, ends on June 12, 2027 (or earlier, if certain material adverse events occur). The one-year revolving period plus the one-year amortization period results in a contractual maturity that is two years from the date of inception or renewal. At both June 30, 2026 and December 31, 2025, there were no outstanding borrowings under the Secured Borrowing Facility.
Other Borrowing Sources
We maintain discretionary uncommitted Federal Funds lines of credit with various correspondent banks, which totaled $125 million at June 30, 2026. The interest rate we are charged on these lines of credit is priced at Fed Funds plus a spread at the time of borrowing and is payable daily. We did not utilize these lines of credit in the six months ended June 30, 2026, nor in the year ended December 31, 2025.
We established an account at the FRB to meet eligibility requirements for access to the Primary Credit borrowing facility at the FRB’s Window. The Primary Credit borrowing facility is a lending program available to depository institutions that are in generally sound financial condition. All borrowings at the Window must be fully collateralized. We can pledge asset-backed and mortgage-backed securities, as well as Private Education Loans, to the FRB as collateral for borrowings at the Window. Generally, collateral value is assigned based on the estimated fair value of the pledged assets. At June 30, 2026 and December 31, 2025, the value of our pledged collateral at the FRB totaled $2.2 billion and $2.5 billion, respectively. The interest rate charged to us is the discount rate set by the FRB. We did not utilize this facility in the six months ended June 30, 2026, nor in the year ended December 31, 2025.
Contractual Loan Commitments
When we approve a Private Education Loan at the beginning of an academic year, that approval may cover the borrowing for the entire academic year. As such, we do not always disburse the full amount of the loan at the time of such approval but, instead, have a commitment to fund a portion of the loan later (usually at the start of the second semester or subsequent trimesters). We estimate expected credit losses over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by us. At June 30, 2026, we had $1.7 billion of outstanding contractual loan commitments that we expect to fund during the remainder of the 2026/2027 academic year, including $28 million of contractual loan commitments associated with loans classified as held for sale. At June 30, 2026, we had a $66 million reserve recorded in “Other Liabilities” to cover lifetime expected credit losses on the unfunded commitments. See Note 2, “Significant Accounting Policies — Allowance for Credit Losses — Off-
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Balance Sheet Exposure for Contractual Loan Commitments” in our 2025 Form 10-K and Note 5, “Allowance for Credit Losses and Unfunded Loan Commitments” in this Form 10-Q for additional information.
Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with GAAP. In preparing our consolidated financial statements, we have identified certain accounting estimates and assumptions that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties.
The critical accounting estimates we have identified relate to the allowance for credit losses. These estimates reflect our best judgment about current and, for some estimates, including management overlays, future economic and market conditions. These estimates are based on information available as of the date of these financial statements. If conditions change from those expected, it is reasonably possible that these judgments and estimates could change, which may result in a change in the allowance for credit losses or material changes to our consolidated financial statements. A discussion of our critical accounting policies can be found in our 2025 Form 10-K.
Allowance for Credit Losses
We maintain an allowance for credit losses for the lifetime expected credit losses on loans in our portfolios, as well as for future loan commitments, at the reporting date.
In determining the lifetime expected credit losses on our Private Education Loan portfolio loan segments, we use a discounted cash flow method. This method requires us to project future principal and interest cash flows on our loans in those portfolios.
To estimate the future expected cash flows, we use statistical loan-level models that consider life of loan expectations for defaults, prepayments, recoveries, and any other qualitative adjustments deemed necessary, to determine the adequacy of the allowance at each balance sheet date. These cash flows are discounted at the loan’s effective interest rate to calculate the present value of those cash flows. Management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments. The difference between the present value of those cash flows and the amortized cost basis of the underlying loans is the allowance for credit losses. Entities that measure credit losses based on the present value of expected future cash flows are permitted to report the entire change in present value as credit loss expense but may alternatively report the change in present value due to the passage of time as interest income. We have elected to report the entire change in present value as credit loss expense.
We estimate future default rates used in our current expected credit losses at a loan level using historical loss experience, current borrower characteristics, current conditions, and economic factors forecasted over a reasonable and supportable period. At the end of the reasonable and supportable forecast period, we immediately revert our forecasted economic factors to long-term historical averages. We estimate future prepayment speeds used in our current expected credit losses at a loan level using historical prepayment experience, current borrower characteristics, current conditions, and economic factors forecasted over a reasonable and supportable period.
The reasonable and supportable forecast period is meant to represent the period in which we believe we can estimate the impact of forecasted economic factors in our expected losses. We use a two-year reasonable and supportable forecast period, although this period is subject to change as our view evolves on our ability to reasonably forecast economic conditions to estimate future losses.
In estimating future default rates and prepayment speeds in our current expected credit losses, we use a combination of expected economic scenarios coupled with our historical experience and adjust for any qualitative factors (as described below). We also develop an adverse and favorable economic scenario. At each reporting date, we determine the appropriate weighting of these alternate scenarios based upon the current economic conditions and our view of the risks of alternate outcomes. This weighting of expectations is used in calculating our current expected credit losses recorded each period.
We obtain forecasts for our expected loss model from an external economic data provider who provides a range of economic forecasts with various likelihoods of occurrence. Management reviews and weighs the economic forecasts for each of these inputs to calculate our allowance for credit losses. Our forecasting process reflects management’s continuous review of forecasting assumptions and model inputs and is consistent with our internal governance, risk management framework and CECL methodologies. Management continues to review both the scenarios and their respective weightings each quarter in determining the allowance for credit losses. The most recent adjustment to scenario weightings occurred in the first quarter of 2025.
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In estimating recoveries, we use both estimates of what we expect to receive from the sale of defaulted loans as well as historical borrower payment behavior to estimate the timing and amount of future recoveries on charged-off loans.
In addition to the above modeling approach, we also take certain other qualitative factors into consideration when calculating the allowance for credit losses, which could result in management overlays (increases or decreases to the allowance for credit losses). These management overlays can encompass a broad array of factors not captured by model inputs, including, but not limited to, changes in lending policies and procedures, including changes in underwriting standards, changes in servicing policies and collection administration practices, including changes we have implemented to our loan modification programs, state law changes that could impact servicing and collection practices, charge-offs, recoveries not already included in the analysis, the effect of other external factors such as shifts in the macroeconomic environment or legal and regulatory requirements that impact the level of estimated current expected credit losses or prepayments, the performance of the model over time versus actual losses, and any other operational or regulatory changes that could materially affect our estimate of future losses.
The evaluation of the allowance for credit losses is inherently subjective, as it requires material estimates that may be susceptible to significant changes. If actual future performance in delinquency, charge-offs, and recoveries is significantly different than estimated, or management assumptions or practices were to change, this could materially affect the estimate of the allowance for credit losses, the timing of when losses are recognized, and the related provision for credit losses in our consolidated statements of income.
When calculating our allowance for credit losses and liability for unfunded commitments, we incorporate several inputs that are subject to change period to period. These include, but are not limited to, CECL model inputs and any overlays deemed necessary by management. The most impactful CECL model inputs include:
•Economic forecasts;
•Weighting of economic forecasts; and
•Recovery rates.
Of the model inputs outlined above, economic forecasts, weighting of economic forecasts, and recovery rates are subject to estimation uncertainty, and changes in these inputs could have a material impact to our allowance for credit losses and the related provision for credit losses.
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