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Conn’s (CONN) Q2 2022 Earnings Call Transcript

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Conn’s (NASDAQ:CONN)
Q2 2022 Earnings Call
Sep 01, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and thank you for holding. Welcome to the Conn’s, Inc. conference call to discuss earnings for the second-quarter fiscal-year 2022. My name is Melissa, and I will be your operator today.

[Operator instructions] As a reminder, this conference call is being recorded. The company’s earnings release dated September 1, 2021, was distributed before market opened this morning, and may be accessed via the company’s investor relations website at ir.conns.com. During today’s call, management will discuss, among other financial performance measures, adjusted net income and adjusted earnings per diluted share. Please refer to the company’s earnings release that was issued today for a reconciliation of these non-GAAP measures to their most comparable GAAP measures.

I must remind you that some of the statements made on this call are forward-looking statements within the meaning of the federal securities laws. These forward-looking statements represent the company’s present expectations or beliefs concerning future events. The company cautions that such statements are necessarily based on certain assumptions, which are subject to risks and uncertainties which could cause actual results to differ materially from those indicated today. Your speakers on the call today are Norm Miller, the company’s executive chairman; Chandra Holt, the company’s CEO; and George Bchara, the company’s CFO.

I’d now like to turn the call over to Mr. Miller. Please go ahead, sir.

Norm MillerExecutive Chairman

Good morning, and welcome to Conn’s second-quarter fiscal-year 2022 earnings conference call. I’ll start today’s call with a brief introduction before turning the call over to Chandra to provide additional information on the quarter and an update on our strategic initiatives, and then, George will review our financial results. This is an exciting time at Conn’s, and I am delighted to welcome our new CEO and president, Chandra Holt to the company. Conn’s is performing at its strongest level since I joined as CEO in September 2015, reflecting the powerful foundation we have created.

When I started at Conn’s, the company was unprofitable, primarily due to an underperforming credit segment, underinvested business and elevated debt levels. I am proud of our accomplishments during my tenure, as we have significantly improved our financial results, strengthened our balance sheet, created a robust infrastructure and assembled a strong leadership team. In addition, we have developed a compelling growth strategy. And our strong year-to-date financial results demonstrate that these initiatives are taking hold.

With this strong foundation in place, and as positive momentum across our business builds, I believe the time is right for me to step back from my operational duties. The board has actively been looking for a successor as part of our multiyear succession planning, and I am excited that we were able to attract a leader who possesses the skill set necessary to capitalize on the enormous growth opportunity ahead of us. Chandra comes to the company after an impressive career at several of the largest and most sophisticated retailers in the world. Most recently, she led Walmart’s multibillion dollar U.S.

e-commerce business, delivering over 70% growth in fiscal-year 2021. As a proven leader, I feel confident she is the right person to guide Conn’s through the next chapter of the company’s 131-year history. With Chandra’s appointment on August 9, I have transitioned to executive chairman, and I’m working closely with the entire leadership team to ensure a seamless transition. Before I turn the call over to Chandra, I wanted to take a moment and thank our over 4,000 associates here at Conn’s HomePlus their hard work and dedication.

It always seems to be the architect that gets the praise when, in fact, the builders do all the hard work. All of you on this amazing team are the builders of everything that we have achieved. Our incredible second-quarter performance and record earnings for the first half of the year are a direct result of your contributions. I continue to be impressed by the level of commitment and passion for this great company that you show every single day.

It has truly been my honor and privilege to lead this incredible team and organization these past six years. So let’s continue building the future together. So with this introduction, let me turn the call over to Chandra.

Chandra HoltChief Executive Officer and President

Thanks, Norm, and good morning to everyone on today’s call. I am honored to be appointed CEO and president of Conn’s at such an exciting time for the company. I want to start today’s call by offering our thoughts and prayers to anyone impacted by Hurricane Ida. Prior to the hurricane making landfall on August 29, we closed five Louisiana stores to give our employees time to evacuate.

While we are still fully assessing the impact from the storm, we do not expect Hurricane Ida to materially impact our third-quarter financial results. At this point, we remain dedicated to supporting our team members, and helping our communities recover and rebuild from this devastating storm. So with this update, and since this is my first earnings call as CEO, I wanted to share some thoughts on why I joined Conn’s. Overall, I believe the company has enormous potential to create lasting value for our customers, team members and shareholders.

Our differentiated business model combines a strong retail organization with a best-in-class credit offering. This hybrid model is extremely difficult to replicate and allows us to offer a value proposition to our customers that is unlike any national, regional or e-commerce retailer that I have seen. As a result, I believe there is a tremendous opportunity to grow our market share within our existing markets, as well as pursue a significant and long-term geographic expansion strategy. When I was considering joining Conn’s, I was also impressed by the fact that almost all in-store and online orders received next-day white-glove delivery.

This fulfillment capability is an important competitive advantage, and I believe our established infrastructure can be the foundation for a much larger e-commerce business. The company’s proven leadership team, strong balance sheet and solid strategic plan will serve as the basis for our success going forward. I am confident Conn’s is headed in the right direction, and I want to use my time today to first talk about the company’s impressive financial performance, and then provide an update on the company’s strategic growth initiatives. Our recent success has created what is arguably one of the strongest financial positions in the company’s 131-year history.

We made tremendous progress growing retail sales during the second quarter. Total retail sales increased 24% over the prior fiscal year, driven by a 16.4% increase in second-quarter same-store sales. In addition, on a two-year stack, same-store sales for the second quarter increased 3.2%, an acceleration from the 1.8% two-year stack we experienced in the first quarter. We are also pleased with the contribution of our new stores, which added 7.6% to total retail sales during the second quarter.

Strong retail performance, combined with a second-quarter credit spread of 1,200 basis points contributed to record second-quarter earnings of $1.22 per diluted share. In fact, earnings per diluted share of $2.74 for the first six months of the year are higher than any annual earnings in our history. Our balance sheet and capital position are also at historically strong levels. We ended the second quarter with the lowest level of net debt as a percent of the portfolio balance in over a decade.

Conn’s has the financial flexibility to support the long-term needs of our business and fund our growth initiatives. Now let’s look at our four strategic initiatives in more detail, starting with our e-commerce strategy. As I mentioned earlier, I am excited by our fulfillment capabilities. The company has a leading last-mile infrastructure that enables profitable next-day delivery which is especially impressive given the large high keep items the company sells.

As a result, I believe Conn’s existing back-end infrastructure is a key component of our market differentiation and can support a much larger e-commerce business as we grow. Equally important is providing customers with a frictionless digital experience, which, in Conn’s case, extends to both our retail and credit operations. Investments are underway to develop leading front-end solutions that create a modern digital experience for our customers. Our rapidly growing e-commerce business is producing strong results.

Second-quarter e-commerce sales increased 211% over the prior fiscal year to a quarterly record of $17.3 million. In addition, second-quarter e-commerce sales increased over 60% from the first quarter. I believe the company is well-positioned to grow e-commerce sales to approximately $70 million this fiscal year, compared to e-commerce sales of $26 million last fiscal year. I believe we can continue to grow e-commerce sales by increasing our focus on serving our customers where and how they choose to shop.

The next strategic growth initiative I want to review today is the success we are seeing enhancing our retail performance and capabilities. Over the past several quarters, we have been focused on optimizing our product assortment and expanding our offering to include more complementary home-related products. The improvements Conn’s has made to its retail segment are encouraging, and all of our product categories posted positive same-store sales during the second quarter. Our appliance category continues to set records in both sales dollars and units.

Inventory levels improved within the category, and I believe our expanded product assortment and next-day delivery are helping us capture incremental sales. Sales also accelerated within the furniture and mattress category. This was driven primarily by our efforts to optimize our assortment. In addition, the recent introduction of Dreamspot, our private label mattress brand, continues to contribute to growth.

Dreamspot was the company’s No. 1 selling mattress brand, both in units and dollars during the second quarter. I believe we have additional opportunities to expand our private-label offerings in the future. Overall, we were able to capture strong consumer demand during the second quarter despite ongoing industrywide pressures throughout the supply chain.

Our performance would not be possible without the efforts of our supply chain, merchandising and store teams. Our retail performance has improved significantly, and our home-related product categories are well aligned to evolving consumer trends. Now let’s look at our brick-and-mortar growth strategy in more detail. Conn’s currently has 155 stores in only 15 states.

Year to date, we have opened nine locations and expect to open a total of 11 to 13 new stores this fiscal year. Since our first Florida location opened in November of 2020, we are actively growing our presence within this compelling market. We currently have nine stores in the state, and we believe increasing our scale will help leverage marketing expenses and the fixed costs related to our Florida distribution center. As I visit our stores, I am impressed by the knowledge and service-oriented approach of our commission sales associates.

Our physical footprint is an important part of our value proposition as it allows our customers to see and touch the large ticket products we sell prior to completing a purchase. I believe our stores and sales associates are an important part of our strategy and support today’s omnichannel customer. Our credit strategy is the last growth initiative I want to review today. I am fortunate to step into the CEO role with the best credit performance the company has achieved in almost 10 years as measured by our credit spread.

This strong performance is due to the sophisticated platform, strong teams and innovative credit strategy Conn’s has developed. I see Conn’s best-in-class credit strategy as a key market differentiator that allows us to offer an attractive value proposition to our customers. Over the last year, we have demonstrated that the strategies we put in place to serve customers outside our historical focus, including cash and lease-to-own customers are winning. This success supports our belief we can continue to target a larger addressable market.

Our credit programs, including our core in-house offering, provide affordable financing options for our customers to pay for the retail purchase over time. As a result, I believe we have opportunities to grow sales across the spectrum of prime, near-prime and subprime customers. Our complete point-of-sale financing solutions create lasting relationships while supporting our customers’ financial well-being. In conclusion, momentum remains strong across our business.

And quarter to date, same-store sales are similar to second-quarter levels, reflecting strong consumer demand and the growth strategies we have put in place. As a result, we are increasing our annual same-store sales guidance. We now expect mid-teen same-store sales growth compared to our previous forecast of high single digits. I am thrilled to join Conn’s at such an exciting time in the company’s history.

I believe there is meaningful opportunity to create sustainable value for our shareholders because of Conn’s differentiated hybrid business model, rapidly growing e-commerce business and significant geographic expansion opportunity. In addition, Conn’s has a proven leadership team, strong financial position and a solid strategic plan that will serve as the foundation of our success going forward. I look forward to presenting our detailed strategic growth plan and long-term financial outlook at an investor day later this fiscal year. Finally, an organization is only as good as the people and culture supporting the business.

Over the past several weeks, I have listened to and learned from team members across the company. I am particularly impressed by a culture that cares deeply about its customers, employees and communities. I am proud to lead Conn’s through the next phase of its growth and create sustainable value for all of our stakeholders. Now let me turn the call over to George to review our financial performance.

George BcharaChief Financial Officer

Thanks, Chandra. On behalf of the entire company, I want to welcome you to Conn’s. We are excited for you to lead Conn’s through its next phase of growth. Now I’ll start my prepared remarks with a review of our financial performance.

On a consolidated basis, total revenues were $48.4 million for the second quarter, representing a 14% increase from the same period last fiscal year. We reported record second-quarter net income of $1.22 per diluted share, compared to net income of $0.70 per diluted share for the same period last fiscal year. Strong earnings growth has continued. And for the first six months of the fiscal year, net income was a record $2.74 per diluted share, which is higher than any annual earnings in our 131-year history.

Looking at our retail segment in more detail. Total retail revenues for the second quarter were $347 million, a 24% increase from the same period last fiscal year. Higher retail revenue was driven by an increase in same-store sales of 16.4%, and new store growth. During the second quarter, Conn’s credit sales increased 37.2%, which we achieved by capturing a greater share of wallet of higher credit quality consumers within our core demographic rather than by approving applicants further down the credit spectrum.

Cash, credit card and third-party finance sales grew nearly 12% during the second quarter of fiscal-year 2022. This increase was driven by a 70.3% increase in lease-to-own sales as we successfully leveraged our platform of integrated partners. We continue to believe that we have opportunities to increase sales across all our financing options. Retail gross margin for the second quarter was 37.7%, an increase of 80 basis points from the same period last fiscal year.

Higher retail gross margin was largely due to a shift in sales to higher-margin products, a decrease in third-party credit fees, and the leveraging of fixed logistics costs on higher sales. We continue to expect retail gross margin for the full year to be approximately flat versus the prior year. Retail segment operating income was $28.7 million, compared to $23.2 million for the same period last fiscal year due to higher retail sales and higher retail gross margin, partially offset by higher SG&A expense. Turning to our credit segment.

Finance charges and other revenues were $71.4 million for the second quarter. The 17.9% decline from the same period last fiscal year was primarily a result of a 22.7% reduction in the average balance of the customer receivable portfolio. For the current fiscal year, we expect finance charges and other revenues to be down year over year, primarily due to a lower balance of customer receivables. During the second quarter, the provision for bad debts was $10.1 million, compared to $31.9 million last fiscal year.

The year-over-year decline was due to an improvement in credit quality, which resulted in lower charge-offs during the quarter. We expect our provision to be down year over year for the full year, primarily due to lower charge-offs resulting from improvements in our credit quality. However, the second half will not be down at the level we saw in the first half. Looking at the second-quarter decline in our allowance for bad debts in more detail.

The majority of the decline was related to an improvement in portfolio performance, with the remainder of the decline stemming largely from an improvement in forecasted unemployment rates. The credit quality of our portfolio has improved significantly due in part to the derisking actions we began implementing in March 2020. As a result, the carrying value of customer accounts receivable, 60-plus days past due, declined 42.1% year over year to the lowest level in eight fiscal years. And the carrying value of reaged accounts declined 44.5% year over year to the lowest level in six fiscal years.

As a percent of the portfolio, the 60-plus days past due balance was 7.2%, compared to 10% for the same period last fiscal year, and 9.1% for the first quarter of fiscal-year 2022. Annualized net charge-offs were 11.3% for the second quarter, compared to 21% for the same quarter last fiscal year and 15.3% for the first quarter of fiscal-year 2022. This is the lowest quarterly rate of annualized net charge-offs in almost seven years. Our strong credit results continue to show that our receivable portfolio is performing well.

As a result, our credit spread for the second quarter was 12%, compared to 2.2% for the same period last year and 8.4% in the first quarter of this year. This was the highest quarterly credit spread in almost 10 years, and achieving an annual credit spread of 1,000 basis points remains an important part of our credit strategy. Credit segment income before taxes was a second-quarter record of $19.5 million, primarily due to a lower provision for bad debts, improvements in credit performance and lower interest expense. As our portfolio begins to grow, we will continue to focus on controlling risk, limiting portfolio volatility and maintaining 1,000 basis points of annual credit spread while supporting our long-term growth opportunity.

Consolidated SG&A expenses for the second quarter were $137.9 million, a $22.6 million increase from the prior period due to the addition of 14 new stores, higher variable operating expenses associated with sales growth and lapping of certain COVID-19-related expense reductions. We continue to expect SG&A expenses to be up on a two-year basis, primarily driven by new stores as we anticipate continued investments in our growth initiatives to be largely offset by tighter cost controls. Turning now to our balance sheet and capital position. We ended the second quarter with a strong balance sheet and capital position as we continue to benefit from significant year-over-year growth in cash and third-party finance sales and robust cash collections on our customer receivables portfolio.

This has produced meaningful operating cash flow over the past six quarters, which we have used to further reduce debt and strengthen our balance sheet. We ended the second quarter with $399.9 million in net debt, compared to $679.4 million at the end of the second quarter of last year. In addition, net debt as a percent of the ending portfolio balance declined to approximately 36% at the end of the second quarter, compared to approximately 50% at the end of the second quarter of last year, and represented the lowest level in over a decade. I am pleased with our success strengthening the balance sheet, derisking the business and repositioning the company around our four strategic growth initiatives.

These efforts have built underlying strength in our business and driven the strong sales momentum we have experienced so far this year. Our growing confidence reflects our ability to capture strong demand across our entire credit spectrum and the execution of our four strategic growth initiatives. Before we open the call up to questions, I want to share my thanks to our team members for their continued hard work, service and dedication. So with this overview, Norm, Chandra and I are happy to take your questions.

Operator, please open the call up to questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.

Brian NagelOppenheimer & Co. Inc. — Analyst

Good morning, good morning.

Chandra HoltChief Executive Officer and President

Morning. 

Brian NagelOppenheimer & Co. Inc. — Analyst

First off, congratulations, Norm. Congratulations, Chandra, on your new roles.

Chandra HoltChief Executive Officer and President

Thank you.

Norm MillerExecutive Chairman

Thanks.

Brian NagelOppenheimer & Co. Inc. — Analyst

The first question I had, and Chandra, it is for you, Chandra. I guess, you talked about e-commerce and just given your background, your most recent positions at Walmart. Recognizing that e-commerce for Conn’s still remains in a relatively small business. As you look at the business starting to grow rapidly here.

Is the e-commerce effort of Conn’s, do you think it’s attracting more new customer to the company? Or is it further enduring the company to existing customers? And then, as a follow-up to that, we’ve talked for a long time about the delivery capabilities of Conn’s, lending well in an e-commerce world. But do you think there are any type of systems investments needed to further bolster e-commerce to make it a larger part of the company? 

Chandra HoltChief Executive Officer and President

Yeah, thanks for your question, Brian. I think, I’ll address the second question first. Overall, as you mentioned, Conn’s is underpenetrated from an e-commerce standpoint. And I believe the company can grow e-commerce to levels in line with best-in-class omnichannel retailers.

As you mentioned, the company already has a profitable back-end infrastructure. That is a competitive advantage with the next-day white-glove delivery. And we are investing on the front end to reduce friction and drive conversion on our site. So I think, with the back end that we have in place, and as we make investments on the front end, I think those two things together, we can really drive the e-commerce business forward.

In terms of the customers that we are attracting, I do believe that the e-commerce business can attract customers across the credit spectrum. 

Brian NagelOppenheimer & Co. Inc. — Analyst

Got it. I appreciate that. Then the second question, I guess, this is more for George and Norm, just on credit, and we’ve been talking about this last several quarters now through the COVID crisis. So where are you in terms of kind of — we went through this period, I think, very smartly, tightening the lending standards.

And then, as the crisis has abated, assuming you’ve been loosening lending standards, kind of where are we now. And as we think about sales over the next few quarters or something, to what extent could lose — could looser credit standards help to drive better sales? 

George BcharaChief Financial Officer

Yes, hey, good morning, Brian. This is George. First of all, I’d caution you from saying looser credit standards, and we think about it more of capturing a greater share of wallet of that higher credit quality consumer. And in the first quarter, as I mentioned, our — second quarter, rather, as I mentioned in our prepared remarks, the Conn’s credit segment was up almost 40% year over year on a dollar basis.

And that’s really how we’re thinking about that portion of our sales going forward is to grow the dollar value of the Conn’s credit consumer going forward. Now in terms of where we are relative to the underwriting tightening that we put in place in the beginning of last year, I’d say we’re more than half in terms of how much we’ve started to recover here in the second quarter. But we believe we still have opportunity going forward. 

Brian NagelOppenheimer & Co. Inc. — Analyst

Appreciate it. Thank you.

Norm MillerExecutive Chairman

Thanks, Brian.

Operator

Thank you. Our next question comes from the line of Kyle Joseph with Jefferies. Please proceed with your question.

Kyle JosephJefferies — Analyst

Hey, good morning. Congrats on a nice quarter, and let me echo the congratulations on new positions for Norm and Chandra. Just I apologize if I missed it, but I just wanted to see if you guys gave any sense for the comp in August?

George BcharaChief Financial Officer

We said it was consistent with the second-quarter numbers. So the trends have continued into Q3. 

Kyle JosephJefferies — Analyst

Got it. And then, a follow-up on the e-comm side of the business, can you give us a sense for the mix of e-comm sales between merchandise, between finance alternatives and how those compare to the stores? And then, a follow-up there, in terms of geography, are you seeing a lot of e-com sales in locations without stores or vice versa? 

George BcharaChief Financial Officer

Sure. So our e-com business today is still very much reflective of where we have stores from a penetration standpoint. So the fact that we have the majority of our stores in Texas means that the majority of our e-commerce sales come from Texas. From a product standpoint, we tend to over penetrate in the appliance category online relative to the store.

And I think, that reflects our value proposition where we offer next-day white-glove delivery and not something from an e-commerce standpoint that we believe is an opportunity for us going forward. 

Kyle JosephJefferies — Analyst

OK, got it. And then, one last one for me. Obviously, credit is very strong. Can you just highlight — are you seeing any impacts from child tax credit payments that have been going out the last few months? And then, how are you thinking about credit and potential normalization over the next, call it, 12 months? 

George BcharaChief Financial Officer

Yeah, I mean, I’d say that we have not seen a material impact from child tax care credits over the last few months. And as you think about credit over the balance of the year and really over the next 12 months, given where our 60-plus day delinquency is at the end of the second quarter, lowest percentage in a really long time, we would expect to overshoot that 1,000 basis points of spread into the back half of this year before normalizing back to our 1,000 basis points of spread over the long term. 

Kyle JosephJefferies — Analyst

Got it. Thanks very much for answering all my questions.

Operator

Thank you. Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Please proceed with your question.

Brad ThomasKeyBanc Capital Markets — Analyst

Hi, good morning, and congrats, Norm and Chandra, again, on the new opportunities ahead. A couple of questions, if I could. Just to follow up on the adjustments that you’re making and refinement you’re making in the underwriting. If you think about the mid-teens comps that you’re now guiding to, is there an easy way to quantify how much of that is coming from changes in underwriting versus last year? 

George BcharaChief Financial Officer

I mean, I would point you back to the second-quarter results, where the balance of Conn’s credit was up — as a year-over-year comparison was up 37% year over year. So we’re seeing a benefit from our credit underwriting changes into the second quarter of this year that we expect to continue through the back half of the year. But remember, that also reflects the fact that we are seeing material increases in lease-to-own sales, and we continue to see strength in the cash customer as well. And as we talked about earlier this year, our guidance for the back half of the year reflects our ability to grow the Conn’s customer, lease-to-own customer while maintaining the success we’ve had in that cash and high credit quality consumers.

And that outlook remains the same today, except we’re doing better than we expected compared to last quarter.

Norm MillerExecutive Chairman

Because even with the growth of the Conn’s at the 40%, you’re not seeing the balance of sale of Conn’s financing still significantly under where it was pre-pandemic. And that’s because of the growth in the lease-to-own and the rest of that credit spectrum, the lease-to-own, the cash customer and that high credit quality customer. 

Brad ThomasKeyBanc Capital Markets — Analyst

Great. Very helpful. And then, I guess, sticking on how to think about net earning here, you all have just had a phenomenal first half of the year. And on the retail side, as we lap all this, clearly, there are drivers from having more stores and continuing to refine underwriting.

But as we think about the credit side of things, how do you think about as we’re refining our models for 2022? What the credit earnings may look like as we lap the strong first half?

George BcharaChief Financial Officer

Yeah, I mean, I would point you back to the fact that we believe that — and are still targeting 1,000 basis points of spread in the credit spread — in the credit segment over the long term. Now as I mentioned earlier, I think we’re going to overshoot that over the next couple of quarters as we did in the second quarter, given where the performance of the portfolio is today, with 60-plus delinquency just over 7%. But our long-term expectations and targets remain to target 1,000 basis points of spread in the credit segment, which we believe gets us back to breakeven. 

Brad ThomasKeyBanc Capital Markets — Analyst

Really helpful. If I could squeeze in one more here. It’s credit related, but perhaps more big picture, and Chandra may want to chime in on this as well. I was just wondering your thoughts on the growth of sort of the buy now, pay later portion of the credit world and how, if at all, you all are thinking of perhaps integrating that.

I recognize it’s kind of a traditional credit offering almost marketed in a different way. But is that an opportunity or a risk for you all? Does that take share going forward in the industry? 

Chandra HoltChief Executive Officer and President

Yeah, so the macro trends that are driving the buy now, pay later are the same trends that benefit our business. But when you look at the companies that are driving the incremental activity in the market. They are on the higher end of the credit spectrum, which is not necessarily directly competitive to what we do. 

George BcharaChief Financial Officer

Yeah, I would just add to that, Brad, that because we don’t make money in our credit segment, it means that we can always provide a better value proposition to a consumer because we own both the retail segment and the credit segment relative to somebody that is trying to put those two pieces together. 

Brad ThomasKeyBanc Capital Markets — Analyst

Great. Thank you, all, so much.

Operator

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I’ll turn the floor back to Mr. Miller for any final comments. 

Norm MillerExecutive Chairman

We appreciate your interest in the company, and look forward to talking with you next quarter. Thank you. 

Operator

[Operator signoff]

Duration: 36 minutes

Call participants:

Norm MillerExecutive Chairman

Chandra HoltChief Executive Officer and President

George BcharaChief Financial Officer

Brian NagelOppenheimer & Co. Inc. — Analyst

Kyle JosephJefferies — Analyst

Brad ThomasKeyBanc Capital Markets — Analyst

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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