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Peter Graham

Thank you, Jon. Good evening, everyone. Let's continue with a discussion of key drivers of earnings. For the first quarter of 2025, we earned $375 million of net interest income. This is down $12 million from the prior year quarter but ahead of the fourth quarter of 2024 by $13 million.
During the first quarter, we completed a $500 million unsecured bond transaction, which was used to redeem our November 2025 maturity. Our net interest margin was 5.27% for the quarter, 35 basis points ahead of the prior quarter. We continue to believe that over the longer term, low to mid-5% is an appropriate NIM target.
Our provision for credit losses was $23 million in the first quarter of 2025, up from $12 million in the prior year quarter. The increase was largely driven by loan growth related to the mini peak origination season, and partially offset by $116 million reserve release associated with the $2 billion loan sale completed during the quarter.
Despite the higher provision, our allowance as a percentage of total private education loan exposure was 5.97%, slightly down from 5.99% in the year ago quarter. This represented a 14 basis points increase from the fourth quarter, which is consistent with the seasonal impact of higher originations in the first quarter of the year.
Our reserve rate has remained relatively consistent year-over-year reflecting a balanced view of credit performance and the broader macroeconomic environment. While we are encouraged by the ongoing benefits from our loan modification programs and the continued strength in the credit quality of originations we remain cautious. The economic outlook continues to be a key variable in our reserve modeling, and we will closely monitor any changes in the environment that could impact future estimates.
Private education loans delinquent 30 days or more were 3.6% of loans and repayment, a decrease from 3.7% at the end of 2024, although higher than the 3.4% at the end of the year ago quarter. We remain pleased with the performance of our enhanced loss mitigation programs, which we've now had the opportunity to observe over more than a full year.
The volume of loan modification enrollments has decreased by approximately 50% from highs in the third quarter of 2024 as we have optimized our eligibility criteria. We're pleased with the trajectory of this program and the positive performance is an important step towards achieving our long-term net charge-off targets. First quarter noninterest expenses were $155 million compared to $150 million in the prior quarter and $162 million in the year ago quarter.
This was a 4% decrease compared to the first quarter of 2024 despite an increase in application and originations volume in the quarter. Finally, our liquidity and capital positions remain solid. We ended the quarter with liquidity of 16.8% of total assets.
At the end of the first quarter, total risk-based capital was 12.9% and common equity Tier 1 capital was 11.6%. Another measure of loss absorption capacity on the balance sheet is GAAP equity plus loan loss reserves over risk-weighted assets, which was a very strong 16.4%. We continue to believe we're well positioned to grow our business and return capital to shareholders going forward.
I'll now turn the call back to Jon.

Jonathan Witter

Thanks, Pete. I hope you agree that we executed well in the first quarter and that you share my belief that we have positive momentum for the full year of 2025. Let me close with a few comments on our 2025 guidance.
As I mentioned earlier this evening, the strength of our first quarter origination season, the positive momentum in credit performance and the successful execution of our first loan sale this year reflect a solid start and meaningful progress toward our goals. While we remain confident in our trajectory and expect continued normalization and the performance of our programs over the medium term, we also recognize the broader macroeconomic uncertainty that persists.
As such, we will continue to monitor developments closely and we'll provide updates in future earnings calls as we gain greater clarity throughout the year. At this time, we are reaffirming the 2025 guidance that we shared on our last earnings call for all key metrics.
With that, Pete, why don't we go ahead and open up the call for some questions.

Question and Answer Session

Operator

(Operator Instructions) Jeff Adelson, Morgan Stanley.

Jeffrey Adelson

Your credit -- your charge-offs did really well this quarter. I know you gave some color on the seasonality, and you continue to be pleased with the loss mitigation programs. Would you attribute most of that outperformance versus what you've seen over the last few years to the loss mitigation programs you're putting on? Or is there anything else we should be aware of under the hood?
And then any sort of early color or anything you're noticing or expecting from some of the impact to the government programs where recently, we saw the announcement that the government is intending to turn back on collections and wage garnishment for those in default and there's been a number that in the federal program have not been paying their loans for some time?

Jonathan Witter

Yes, Jeff, it's Jon. Let me take both of those, and I'll invite Pete to chime in if I miss anything. On the charge-offs, I think we've been pretty consistent about this. I think we would point to a number of contributing factors, as I said in my comments, there's obviously a little bit of seasonality. If you look back at Q1 of last year, for example, you would see a net charge-off rate that was a little bit lower than the full year. So that is certainly a part of it.
I think the loss mitigation programs is a part of it. And it's not just the introduction of those programs, but really the continued optimization of those programs over time. I think Pete mentioned the fact that we're optimizing around enrollments, but we're also optimizing around other components of their programs as well so that they better meet the needs of our customers.
And as I think we've said sort of repeatedly, we've also, over the last number of years, engaged in on the margin, but we think powerful sort of changes and enhancements to our underwriting capabilities those are a little bit of a longer burn time item, just given the amount of time our students spend in school before they enter repayment. But that's obviously a part of the answer as well and will continue to be a part of the answer in the future. So I don't think there's anything new that I would add to that. I think it's the same basic recipe that we've talked about.
To your second question, which we could probably spend all night talking about, obviously, there's a lot of changes in sort of focus of this administration. They have talked about a whole variety of different things. First and foremost, reporting of delinquency and default status and federal loans to the bureaus. There's a number of articles that came out several weeks ago about that.
And then I think really spearheaded by an op-ed piece in the last couple of days by the Secretary of Education, a focus on more active sort of collections and sort of payment activities related to that population. We've dug into this a number of different ways. And I'll preface this by saying we don't have perfect data on our customers and their federal loan programs in use.
But we look pretty carefully, for example, at FICO. And we have seen for our customers who have federal loans, no material sort of change in the average FICO performance. There's always, as you would expect, some people who go a little bit up and some people who go a little bit down. But the averages have stayed very, very steady.
And even as we've dug into some of those sort of joint customers, customers of us and the federal government, whose FICOs have declined, we've not seen any material or meaningful reduction in their ability to pay or payment sort of metrics or behaviors or patterns. So the FICO stuff seems to be really pretty steady. We also did a fair amount of sort of what I would describe as onetime special analysis on this.
And we looked at all of our customers who also have federal loans. And I think there were some things that we saw that were pretty interesting there. Our joint customers, again, federal and Sallie Mae seems to have a lower delinquency rate on their federal loans than the federal population as a whole. And I need to caveat that by saying the data on delinquencies out of the federal loan program is not great, but the best that we've been able to piece that together.
And I think even more interestingly, if you look at those customers, those joint customers who are delinquent on their federal loans 85% of those joint customers are actually current on their Sallie Mae loans. And so I think when you put all of that together, Jeff, it says, at least to me, it suggests two really important things.
One, our average customer is just different from the federal customer as a whole. Said simply, most of Sallie Mae's customers have a federal loan, but lots of federal borrowers do not have Sallie Mae loans, right? The two populations, we really believe are different. And I think that performance also speaks to the strategy that we enacted several years ago of getting our customers back into positive repayment habits, sort of early after the coronavirus situation abated.
And I think we are seeing sort of the positive impact of those credit habits. And I think that says at least validates, to a certain amount of that overall strategy. So probably more data than you were looking for, but at least as of this time, we're just not seeing a lot of impact of that. Obviously, as those federal strategies continue to season, we'll continue to monitor. And if we see something different that we think is material, of course, we'll talk about that.

Jeffrey Adelson

That's great. That's really helpful. Maybe the other side of that coin is some of the changes or forthcoming changes of the Department of Education are also maybe incentivizing some more activity from borrowers to go private. I'm just wondering if you're seeing any of that yet. And I know we're still waiting on changes in the plus programs potentially down the line, but are you noticing an uptick in graduate borrowers, maybe coming to you? Or maybe you could share any -- what percent of your originations are coming from graduate if that's increased at all?

Jonathan Witter

Jeff, first of all, I think it is sort of early and hard to know. As we have talked about, I think, often in our business, spring follows fall, fall doesn't follow spring. So an awful lot of the originations and disbursements that we're doing now are really follow-on business from the fall.
With that said, I think there are some very sort of initial signs that there may be some increased activity there, but it is way too early for us to have a strong point of view on that. I think in terms of that swap-in, swap-out behavior, if that happens, we would really expect to see that during peak season this summer.

Operator

Terry Ma, Barclays.

Terry Ma

Just wanted to follow up on credit. The delinquency rate improved sequentially, but it was up 18 basis points year-over-year. A lot of that was driven by the early stage bucket, that bucket was pretty flat year-over-year the last two quarters. So any color on kind of what went on there?

Peter Graham

I think one of the things that's sort of impacting delinquencies in the quarter is the sort of the impact of the folks that are in their qualifying periods in the [MOD] programs. And comparing prior first quarter to this quarter, that's a significant change in practice. If you adjust for folks in the mod programs that are in the delinquency buckets. That number for this quarter is a 3% number. So I think that's a big piece of some of the trend that you're referring to there.

Terry Ma

Got it. All right. So if I look at kind of your extended grace, there has been much higher usage over the last year. I guess like how should we kind of interpret that? And is there kind of any color that you can give on borrower behavior kind of once they exit extended grace?

Peter Graham

Yes. I think the changes we made to the program were really designed to provide that extra assistance that was allowed under the regulations for those borrowers that are new to repayment. That's the highest period of stress that we see in the portfolio as people are graduating getting their lives in order and going into establishing good payment patterns in their life.
And so we feel like the usage of that as we've rolled out that program is probably indicative of it operating as intended. At the margins, the level of people applied to that. I don't think are indicative of anything broader in the overall economy. And we view that as a very strong program that are helping people be successful.

Operator

Moshe Orenbuch, TD Cowen.

Moshe Orenbuch

Great. Jon, I know that you mentioned that the growth of the balance sheet would kind of be driven or I should say, the amount of the loan sales would be driven by your balance sheet growth targets. Maybe if you could just kind of talk a little bit about now that the CECL is in the rearview mirror, the CECL phase in how you are thinking about both growth in the balance sheet and capital return?

Jonathan Witter

Yes. Moshe, happy to. And again, Pete, jump in if I miss anything here.
And for anyone who was not a part of, but I would encourage folks to go back and look at our December 2023 Investor Forum presentation. while that was certainly not meant to be kind of a multiyear commitment in any way, shape or form. I think it was really meant to sort of give us clear evidence as we can on sort of how we think strategically about the business.
And I think, Moshe, to answer your question, what we really like in the business right now as we move past full CECL phase-in is moderate accelerating and predictable balance sheet growth. We think there's a real value in growing the balance sheet. We think there's a real value in the kind of growth of predictable, steady kind of NIM based earnings that come from that. And we like that overall view.
We do, though, want to put sort of thoughtful kind of limits or governors, if you will, on how quickly we do grow the balance sheet, growing the balance sheet consumes meaningful capital, growing the balance sheet puts stress on the liquidity portion of our business.
And by the way, you know for -- how our strategy has evolved over the last five years, I am as committed to a strong capital return and capital discipline as I think anybody. And we also like saving room in our plan to continue to return meaningful capital to shareholders. So that kind of moderate plan allows us to, in our mind, get a little bit of a goldilocks where we can grow the balance sheet thoughtfully and still every year have meaningful capital to return in the form of share buybacks, really fueled through our loan sale proceeds.
But also what we also like is sort of the potential for a strong and over time, potentially growing dividend that would really be fueled by that balance sheet growth.
So I think we laid all of that out in sort of that investor forum document in more detail. I think the guidance that we've given for this year is completely consistent with that. In fact, I think we're sort of a year ahead of where we thought we would be on that journey on sort of virtually every metric. And we feel great about the value that, that's been able to create for us so far.

Moshe Orenbuch

Great. And then you did mention that expenses were down 4% year-on-year despite higher applications. And I know that kind of driving that better unit economics has always been part of the thesis. Can you just talk a little bit about what you've done to achieve that? And how sustainable is that? Or how you think about that going forward?

Peter Graham

I'll take that one. Yes, I think as you stated, it's been an ongoing focus of ours to continue to drive operating leverage in the business. And each year, as we said on our guidance, we have that in mind as we set our targets for the year. I think in regards to any one quarter, there can be gives and gets in the quarter that swing things one way or the other, but we're happy with the expense performance we've had and committed to the overall guidance that we put out for this year.

Operator

Michael Kaye, Wells Fargo.

Michael Kaye`

EPS is off to a really good start this year, much higher than Q1 consensus estimates. [Even though kind of your] EPS guidance for the year was unchanged. Trying to figure out, is that just cautiousness as we're early in the year and maybe some pickup in macro uncertainty that's keeping the guidance unchanged or something else at play? And are you actually running ahead of plan thus far?

Peter Graham

Yes. Michael, it's Pete here. I guess what I would say is I would break that down as follows. Kind of one of the key performance drivers for the quarter was the loan sale that we completed in February. And we knew what the results of that were when we set our guidance out for this year.
So again, we're committed to our overall guidance for the year. I think there is some amount of macro uncertainty in the world, but we haven't seen anything that's impacting our results yet. So we haven't made any real adjustments yet as regards to that.

Michael Kaye`

Respect to the back to the buyback, it seems like it's off to a very slow start this year, just $31 million. I mean do you plan to come anywhere near close to completing that? I think it's [$272 million] that's left.

Peter Graham

Yes. I think if you look at the share -- (technical difficulty) in 2024 and you compare that to our start to the year, I think they're relatively consistent. I'll remind everyone that last year, we set out to create a more programmatic approach to share buybacks, and we fund those share plans with the proceeds from the loan sales as they occur. And we're running the same sort of playbook this year. So we completed a loan sale in February, and we put in a program with the proceeds from that loan sale that started executing very shortly thereafter. So I wouldn't necessarily read anything into the pace of the start to the year.

Operator

Nate Richam, Bank of America.

Nathaniel Richam-Odoi

Originations in the quarter were pretty solid, but I would have thought growth would have been a little faster given the share gains you made late last year and the strength we saw in two ways 2024. And I realize you're reiterating guidance for the full year, but just curious to hear your thoughts on how the quarter shook out versus your expectations? And like if you expect a relatively consistent growth rate from here or the normal step down that we probably expect from like from a year lapping that share gain?

Jonathan Witter

Yes, Nate, I think in terms of originations, I think we're sort of well within our expectations for the year. We had a lot of discussion last year when we set guidance about the fact that with the competitive changes in the marketplace, those changes would be spread over two years. There would be a fall effect, which we really experienced last year and there would be a spring effect, which we experienced. This year a little bit smaller.
I think we feel like we're sort of right on our plan and where we expected to be for the spring effect. I do think you should expect that this fall will not sort of match last fall in terms of the overall growth rate because you don't get competitors leaving the marketplace, the same competitor leaving the marketplace two years in a row. But I think we believe what we're seeing in the first quarter is consistent with the guidance that we've given for the year.

Nathaniel Richam-Odoi

Got it. And then I want to go back to Moshe's question really quickly. The expense efficiencies were really solid in 1Q, but I'm just curious if you can give us some additional color on what the puts and takes for the full year outlook. And like what could put you to the high end of the range at this point? Is it like variability on the loan volumes you do in the fall season? Or is it other spending like investments in just marketing in general?

Peter Graham

Yes. Again, we're off to a good start for this year. And we feel good about the level of efficiency we've been driving into the business. to a degree that we can generate more efficiencies that will give us some flexibility to accelerate investment in other technologies or other things that will have further efficiency gains in the future. We've got a fairly tight expense range of guidance for the full year.
And so I think that's appropriate for us to sort of keep to our commitment at this juncture in the year. I don't see anything that's going to wildly swing us beyond the guidance that we've given.

Operator

John Hecht, Jefferies.

John Hecht

First question, I'm just going back to some policy stuff. I think we've all become aware of some headlines about some potential changes or reduction in funding of several large universities along with your sort of general government cutbacks on a lot of factors or segments. But I'm wondering if that happens, it seems like some of that would also -- some of that deficit would go to the private markets. Have you guys given that much consideration? And is there anything else we should be thinking about if that trend does occur?

Jonathan Witter

Yes, John, it's Jon. We've been following the same news reports that you are. And I think it's a little bit of a difficult question because the unknown at this point is how do colleges and universities respond and how long lasting and sort of how fully are the various proposed actions followed through on. But I think there are gives and gets.
Certainly, if universities are under greater financial pressure, it implies perhaps for some that there is less money there for financial aid, that probably leaves a larger gap for families to make up on, and that is the core of our business, that GAAP financing that could certainly be a slight positive to our originations outlook.
I would also say on the opposite side, just as an example, if, for example, fewer international students come because of Visa or other issues. That's not a big part of our business today, but we do business with some international students if they have an appropriate cosigner. And that could be a very slight sort of headwind to the overall origination. So I think it's really too early to tell. I think there's too many gives and gets there.
I don't think we are envisioning it having a material impact as we know it at this point for this year. But certainly, as the breadth and depth of those policy changes comes more into focus, breadth being number of schools impacted in depth, of course, being the magnitude of the impact. I think we'll be in a better position to understand. And if that changes our originations outlook, we'll, of course, update that in a future earnings call.

John Hecht

Okay. That's helpful. And then a second question, big sale this quarter and a really strong gain. I'm wondering the character of the buyers, has that been changing? I mean, I think we're all aware of the massive amount of flows in the private credit funds. Are you seeing a shift towards more bids from that group? Is it still -- or is it still kind of ABS more general credit buyers at this point?

Peter Graham

No real difference in the process this year versus last. No real change in makeup of the bidders on the transactions. And although it hasn't occurred yet, my expectation is that the buyer will be using our securitization framework for their funding takeout sometime here in the near future.

Operator

Rick Shane, JPMorgan.

Richard Shane

Look, one of the things that's emerging is that the job market for graduating seniors is going to be a little bit more challenging this year than we've seen in the last four or five years. I'm curious when you might start to see that -- or how that plays through your numbers, is it something we would see in the third quarter? Or does it not really emerge until the following year if that becomes a challenge?

Jonathan Witter

Yes. Rick, I've seen -- I'm sure some of the same articles and coverage there that you have seen a couple of thoughts and perspectives. One, as you can imagine, we do regular kind of research and touch base with our customers and try to understand how they are feeling about things.
As recently as work that we did late last fall, we were still seeing a very high degree of optimism among sort of recent grads about their ability to meet their financial obligations. So a lot can change in a few months, but I think that is sort of a relevant sort of data point or sort of factory to sort of start with.
I think the second thing is college kids transitioning and finding that first job and recognizing that it may take, in some instances, more or less time for people to find and land their right first opportunity. That's been happening to greater or lesser extent since we started in this business. And there is a reason why we invest as deeply and thoughtfully in communication programs, readiness programs, but also things like our extended grace program and really target them at that transition point because we know it's always going to be a hard point.
And quite frankly, if there's a little more or a little less unemployment during that period, I'm not sure it changes sort of the stress of that sort of materially. And I think kind of a good case in point of that is even with the slightly elevated unemployment rates that we're seeing today among recent college grads, you're not seeing that flow through into our net charge-off rates in the quarter.
So this is a part of the business we are well familiar with. This is not a new phenomenon for us. This is something that if you're a private student lender and you're good at your craft, you kind of know how to deal with it. To answer your question specifically, I think if you were to see stress, it would be associated with the same kind of repayment waves the fall and the spring repayment waves that you're used to seeing.
And I think if you look back at sort of delinquency trends over quarters, you would expect if you were to have real issues being caused by early to graduate unemployment rates. I think you would expect them to play out over roughly those same time lines.

Richard Shane

Got it. Okay. That's helpful. Look, it actually ties into the second part of my question, which is that I assume that the extended grace extended grace loans. Loans on extended grace period are particularly correlated to loans in the 1 to 12 months payment bucket, perhaps leaking into the 13 to 24.
If we look at the growth in extended Grace, it's been about 2 times the growth of loans in the first 12-month bucket. Is that really a reflection of the change in policy? Is that what we should sort of expect to see going forward? Or is that starting to incorporate some of the economic factors that we're describing here?

Jonathan Witter

Yes, Rick, my sense of it, extended grace is a program that has a tight eligibility window. You were only eligible for that program. within very certain time periods of coming out of school. One of the strategic decisions that we made as we transitioned away from our former forbearance programs, because that is a kind of a stipulated program was to do a lot more work about educating our customers as to the availability of that program for them. Because if you miss the on-ramp, you missed the on-ramp as the regulations go.
And so I think our view is what we're seeing is a very positive outcome. We are educating our students on the programs that are available to them. We are helping them make use of a program that's only available to them at the very beginning. If they miss that on ramp, they would have to go to a different program, which then limits their eligibility for other programs down the road through various restrictions and counters. And so we view this as a really positive thing.
And as Pete said, we do not view those volume trends as being sort of unhealthy. We view it as a really positive step in us helping these customers as they go through that transition.

Richard Shane

Got it. I appreciate it. And as the parent of a graduating senior, I will embrace your enthusiasm for the market as it evolves.

Jonathan Witter

Yes. Appreciate that, Rick. And good luck to your child.

Operator

Mark DeVries, Deutsche Bank.

Mark DeVries

Yes. How has student loan ABS traded since you did your loan sale? Any sense for what type of gain you would generate today, if you sold to the current spreads?

Peter Graham

That's a very good question. I think there's been -- as with all the markets, there's been a good amount of volatility in the last call it, a month or so. My understanding market currently is fairly stable. There's a somewhat of a cyclicality of issuances coming after earnings calls, typically led each quarter by the auto issuers primarily, and that -- those who have been in market this week. My understanding is the market is functioning pretty well.
So I don't have a specific answer in terms of the gain on sale as it pertains to spreads in February versus now. But I don't believe that there's been a material widening of spreads that has been persistent. I think there's been some points in time, obviously, where because of the broader macro volatility, spreads have blown out and then come back in.
But yes. That's my point of view. I think the market is functioning well, and we'll monitor it as we go into the rest of the year here for the optimal time to do the next sale.

Operator

This concludes the Q&A portion of today's call. I would now like to turn the floor over to Mr. Jon Witter for closing remarks.

Jonathan Witter

Well, thank you, everyone, for dialing in. I'm sure everyone is anxious to get off to the NFL draft this evening. I hope your team gets the selection that they wanted. Appreciate your interest in Sallie Mae. And obviously, if you have follow-up questions, Kate and her team are more than happy to be standing by and will take whatever you need from here.
And so I think with that, Kate, I'm going to turn it back over to you for some last-minute business.

Kate deLacy

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

Operator

Thank you. And this concludes today's Sallie Mae's first quarter 2025 earnings conference call and webcast. Please disconnect your line at this time, and have a wonderful evening.