SLM Corporation, the parent company of Sallie Mae, reported strong second-quarter 2024 results, showcasing the company's ability to navigate the evolving higher education financing landscape. With a focus on serving its customers, SLM delivered impressive financial performance and maintained a positive outlook for the remainder of the year.
Financial Highlights
For the second quarter of 2024, SLM reported GAAP diluted earnings per share (EPS) of $1.11, surpassing the Zacks Consensus Estimate of $0.79 and the prior-year quarter's $1.10. The company's GAAP net income for the quarter was $252 million, compared to $265 million in the year-ago period.
Net interest income (NII) for the quarter stood at $372 million, down 3.9% year-over-year but ahead of the consensus estimate of $369 million. The company's net interest margin (NIM) was 5.39%, contracting from 5.52% in the prior-year quarter.
Non-interest income was $142 million, compared to $144 million in the year-ago quarter. The decrease was primarily driven by a decline in gains on sales of loans, which were $112 million in the current quarter versus $125 million in the prior-year period. Non-interest expenses increased 1.9% year-over-year to $159 million, mainly due to higher compensation and benefits, other operating expenses, and FDIC assessment fees.
Provision for credit losses was $17 million, down from $18 million in the second quarter of 2023. Net charge-offs for private education loans were $80 million, representing 2.19% of average private education loans in repayment, down 50 basis points year-over-year.
As of June 30, 2024, SLM's total deposits stood at $20.7 billion, up 1.9% from the year-ago period. Private education loans held for investment were $18.43 billion, down 1.2% from the prior-year quarter.
Business Overview and Outlook
SLM's private education loan originations increased 6% year-over-year to $691 million in the second quarter of 2024. The company has seen slight improvements in the credit quality of its originations, with cosigner rates increasing to 80% from 76% in the year-ago quarter and the average FICO score rising to 752 from 747.
The company's credit performance remained strong, with net private education loan charge-offs declining 22.3% year-over-year to $80 million. Delinquencies and forbearance also decreased compared to the prior-year quarter, and the company observed continued improvements in late-stage delinquency roll rates.
SLM's enhanced payment programs have proven effective in helping borrowers manage through periods of financial difficulty while establishing positive payment habits. The company is exploring opportunities to further optimize the eligibility for these programs to better serve its customers.
Looking ahead, SLM has updated its full-year 2024 GAAP diluted EPS guidance to $2.70 to $2.80 per share, up from the previous range of $2.60 to $2.70. The company now expects total loan portfolio net charge-offs to be between $325 million and $345 million, or 2.1% to 2.3% of average loans in repayment. Private education loan originations are still projected to grow 7-8% year-over-year, and non-interest expenses are expected to be $635 million to $655 million.
The company's loan sale activity for the year has been in line with or slightly favorable to its expectations, and it has not yet seen the anticipated reduction in interest rates that was factored into its original guidance. Additionally, the continued positive credit performance has contributed to the improved outlook.
Liquidity and Capital Position
SLM maintained a strong liquidity position, ending the second quarter with $6.94 billion in unrestricted cash and liquid investments, representing 24.4% of total assets. The company's total risk-based capital ratio was 14.7%, and its common equity Tier 1 capital ratio was 13.4% as of June 30, 2024.
During the second quarter, SLM repurchased 2.9 million shares of its common stock for $62 million under its 2024 share repurchase program. Since the inception of its share buyback strategy in 2020, the company has reduced its shares outstanding by 51% at an average price of $16.03 per share.
Risks and Challenges
SLM faces several risks and challenges, including:
1. Regulatory and legislative changes: The company's operations are subject to extensive regulation, and any changes in the regulatory environment could impact its business.
2. Competition: SLM operates in a highly competitive market, and its ability to maintain market share and pricing power could be affected by the actions of its competitors.
3. Credit risk: The company's performance is closely tied to the credit quality of its loan portfolio, and any deterioration in credit conditions could adversely affect its financial results.
4. Interest rate risk: Changes in interest rates could impact the company's net interest margin and the value of its assets and liabilities.
5. Operational risks: SLM is exposed to various operational risks, including cybersecurity threats, system failures, and processing errors, which could disrupt its business.
Conclusion
SLM Corporation's strong second-quarter 2024 results and positive outlook for the remainder of the year demonstrate the company's ability to navigate the evolving higher education financing landscape. With a focus on serving its customers, enhancing its credit performance, and returning capital to shareholders, SLM appears well-positioned to continue its positive momentum in 2024 and beyond.