Sallie Mae Earnings Fall as Lending Margin Narrows
The student lender’s net interest margin narrowed to 4.75% as asset yields declined.[3]
SLM Corporation (SLM), the student lender known as Sallie Mae, reported lower second-quarter earnings as net interest income weakened and expenses rose. GAAP diluted earnings fell to $0.29 a share from $0.32 a year earlier and $1.54 in the first quarter.
Net income declined to $59 million from $71 million a year earlier, while net income attributable to common stock fell to $55 million from $67 million. Both measures also dropped sharply from the first quarter, when the company recorded net income of $308 million and common-stock earnings of $304 million.
The decline came despite 4.5% growth in Private Education Loan originations from a year earlier. Net interest income fell to $333 million from $377 million as the yield on interest-earning assets declined, more than offsetting a modest improvement in funding costs.
Credit trends added pressure. The provision for credit losses was $126 million, down from $149 million a year earlier but reversing an $11 million benefit in the first quarter. Net charge-offs rose to $113 million, primarily due to third-party debt-resolution practices affecting a small group of borrowers with a high ability to pay and changes in its recovery strategy. Delinquencies increased to 3.72% of loans in repayment from 3.51%.
Non-interest income rose to $68 million from $27 million a year earlier, when the company reported no loan sales, but fell from $185 million in the first quarter. Private Education Loan sales declined sequentially to $420 million from $3.332 billion.
Expenses increased to $195 million from $167 million a year earlier as Sallie Mae introduced new and enhanced loan products ahead of its peak lending season and an expected expansion tied to federal PLUS-loan reform. The efficiency ratio deteriorated to 48.6% from 41.4%.
Sallie Mae continues to expect full-year non-interest expenses of $750 million to $780 million. The company completed a $200 million accelerated share-repurchase program during the quarter, buying back 9.3 million shares and reducing average diluted shares to 190 million from 213 million a year earlier.