Sallie Mae Reports Second-Quarter 2016 Financial Results

7/21/16

NEWARK, Del.--(BUSINESS WIRE)--Sallie Mae (NASDAQ: SLM), formally SLM Corporation, today released second-quarter 2016 financial results that include marked growth in portfolio size and net interest income. In the second-quarter 2016, the company’s private education loan portfolio grew 32 percent to $12.2 billion and net interest income increased 26 percent to $213 million, as compared to the year-ago quarter. The company earned $.12 per diluted share in the quarter and originated $423 million of private education loans.

“As we enter the peak season for higher education funding, we are well positioned to provide excellent service to our customers as a result of the investments we have made in our platform during our first two years as a stand-alone company,” said Raymond Quinlan, chairman and CEO. “Due to these investments, we continue to increase the efficiency of our operations and improve our efficiency ratio. What is even more gratifying is the continuing success of our customers and how they are managing their financial responsibilities.”

For the second-quarter 2016, GAAP net income was $57 million, compared with $91 million in the year-ago quarter. GAAP net income attributable to the company’s common stock was $52 million ($.12 diluted earnings per share) in the second-quarter 2016, compared with $86 million ($.20 diluted earnings per share, including $.11 per share attributable to gains on sales of loans, net) in the year-ago quarter. The year-over-year decrease was primarily attributable to a $77-million decrease in gains on sales of loans, a $26-million increase in provisions for credit losses and a $4-million increase in total expenses, which were offset by a $45-million increase in net interest income and a $25-million decrease in income tax expense.

Second-quarter 2016 results vs. second-quarter 2015 included:

  • Private education loan originations of $423 million, up 10 percent.
  • Net interest income of $213 million, up 26 percent.
  • Net interest margin of 5.84 percent, up 33 basis points.
  • Average private education loans outstanding of $12.2 billion, up 30 percent.
  • Average yield on the private education loan portfolio of 7.98 percent, up 2 basis points.
  • Private education loan provision for loan losses of $42 million, up from $15 million.
  • Loans in forbearance were 2.9 percent of private education loans in repayment and forbearance, down from 5.7 percent. The year-ago quarter included the effect of disaster forbearance granted to customers in flood-impacted areas.
  • Delinquencies as a percentage of private education loans in repayment were 2.1 percent, up from 1.7 percent.

Core earnings for the second-quarter 2016 were $56 million, compared with $91 million in the year-ago quarter. Core earnings attributable to the company’s common stock were $51 million ($.12 diluted earnings per share) in the second-quarter 2016, compared with $86 million ($0.20 diluted earnings per share) in the year-ago quarter. Second-quarter 2016 GAAP results included $1.5 million of pre-tax gains from derivative accounting treatment that are excluded from core earnings results, vs. pre-tax gains of $0.6 million in the year-ago period.

Sallie Mae provides core earnings because it is one of several measures used to evaluate management performance and allocate corporate resources. The difference between core earnings and GAAP net income is driven by mark-to-market unrealized gains and losses on derivative contracts recognized in GAAP, but not in core earnings results. Management believes its derivatives are effective economic hedges, and, as such, they are a critical element of the company’s interest rate risk management strategy.

Total Expenses

Total expenses were $95 million in the second-quarter 2016, compared with $91 million in the year-ago quarter (which included $1 million of reorganization expenses). Operating expenses grew only 5.5 percent from the year-ago quarter, despite a 32-percent increase in the company’s private education loan portfolio, resulting in a marked improvement in operating efficiency. The operating efficiency ratio decreased to 41.6 percent in the second-quarter 2016, from 49.9 percent in the year-ago quarter.

Income Tax Expense

Income tax decreased to $35 million in the second-quarter 2016 from $60 million in the year-ago quarter. The effective income tax rate decreased to 37.7 percent in the second-quarter 2016 from 39.8 percent in the year-ago quarter, primarily as a result of lower state tax rates.

Sallie Mae (NASDAQ: SLM) is the nation’s saving, planning, and paying for college company. Whether college is a long way off or just around the corner, Sallie Mae offers products that promote responsible personal finance, including private education loans, Upromise rewards, scholarship search, college financial planning tools, and online retail banking. Learn more at SallieMae.com. Commonly known as Sallie Mae, SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.