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News Buzz: Sallie Mae (SLM)

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Sallie Mae (SLM), formally SLM Corporation, recently released 4th-quarter and complete-year 2017 financial results reflecting GAAP net income attributable to the company’s common stock of $44.0M and $273.0M, respectively.

After adjusting for the effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), the financial results included core earnings attributable to the company’s common stock of $83.0M and $317.0M for the 4th-quarter and complete-year 2017, respectively, reflecting core earnings for each diluted share inclines of 22.00% and 35.00%, respectively, contrast to the year-ago periods.

Absent the effect of the Tax Act, core earnings growth was driven by a 22-percent incline in the private education loan portfolio, an enhanced net interest margin, and operating efficiency developments. The Tax Act was signed into law on Dec. 22, 2017.

For the 4th-quarter 2017, GAAP net income was $47.0M, contrast with $70.0M in the year-ago quarter. GAAP net income attributable to the company’s common stock was $44.0M ($0.10 diluted earnings for each share) in the 4th-quarter 2017, contrast with $65.0M ($0.15 diluted earnings for each share) in the year-ago quarter. The year-over-year decline was mainly attributable to the required accounting treatment for the effects of the Tax Act.

For 2017, GAAP net income was $289.0M, contrast with $250.0M in 2016. GAAP net income attributable to the company’s common stock was $273.0M ($0.620 diluted earnings for each share) in 2017, contrast with $229.0M ($0.530 diluted earnings for each share) in 2016.

Absent the impact of the Tax Act, GAAP net income would have been $328.0M, and GAAP net income attributable to the company’s common stock would have been $312.0M ($0.710 diluted earnings for each share) in 2017.

4th-quarter 2017 results vs. 4th-quarter 2016 included:

  • Private education loan originations of $634.0M, up 4.00%.
  • Net interest income of $309.00M, up 26.00%.
  • Net interest margin of 6.00%, up 45.00 basis points.
  • Average private education loans outstanding of $17.30B, up 23.00%.
  • Average yield on the private education loan portfolio was 8.610%, up 53.00 basis points.
  • Private education loan provision for loan losses was $49.00M, up from $43.00M.
  • Private education loans in forbearance were 3.70% of private education loans in repayment and forbearance, up from 3.50%.
  • Private education loan delinquencies as a percentage of private education loans in repayment were 2.40%, up from 2.10%.

Core earnings for the 4th-quarter 2017 were $47.00M, contrast with $73.00M in the year-ago quarter. Core earnings attributable to the company’s common stock were $44.0M ($0.10 diluted earnings for each share) in the 4th-quarter 2017, contrast with $67.0M ($0.150 diluted earnings for each share) in the year-ago quarter.

Absent the impact of the Tax Act, core earnings would have been $86.00M, and core earnings attributable to the company’s common stock would have been $83.00M ($0.190 diluted earnings for each share) in the 4th-quarter 2017.

Core earnings for 2017 were $294.0M, contrast with $252.00M for 2016. Core earnings attributable to the company’s common stock were $278.00M ($0.630 diluted earnings for each share) for 2017, contrast with $231.00M ($0.530 diluted earnings for each share) for 2016. Absent the impact of the Tax Act, core earnings would have been $333.00M, and core earnings attributable to the company’s common stock would have been $317.00M ($0.720 diluted earnings for each share) for 2017.

4th-quarter 2017 and complete-year 2017 GAAP results included $1.00M and $8.00M, respectively, of pre-tax losses from derivative accounting treatment that are excluded from core earnings results, vs. pre-tax losses of $4.00M and $3.00M, respectively, in the year-ago periods.

Total Non-Interest Income and Costs:

In the 4th-quarter 2017, to reflect the application of the Tax Act’s lower rate in future years, the company reduced other income by $24.00M because of a lower valuation of tax indemnification receivables. Unrelated to the Tax Act, the company also reduced other income by $9.00M because of the expiration of a portion of indemnified uncertain tax positions.

Tax cost was reduced by corresponding amounts for both of these items. Absent these two tax-related items, other income was $2.00M lower than in the 4th-quarter 2016 mainly because of reduced credit card revenue from the company’s Upromise partner.

Total non-interest costs were $119.00M in the 4th-quarter 2017, contrast with $98.00M in the year-ago quarter. Operating costs grew 21.00% from the year-ago quarter, and the non-GAAP operating efficiency ratio inclined to 41.20% in the 4th-quarter 2017, from 37.90% in the year-ago quarter.

Absent the impact of the Tax Act and the diminution in indemnified uncertain tax positions that, when combined, reduced other income by $32.00M, the non-GAAP operating efficiency ratio would have been 37.10% for the 4th-quarter 2017.

Total non-interest costs were $449.00M for 2017, contrast with $386.00M for 2016. Complete-year operating costs grew 16% year-over-year, while the non-GAAP operating efficiency ratio reduced to 39.60% in 2017 from 40.10% in 2016.

Absent the impact of the Tax Act and the diminution in indemnified uncertain tax positions that, when combined, reduced other income by $35.00M in 2017, the non-GAAP operating efficiency ratio would have been 38.40% for 2017.

Income Tax Cost:

Income tax cost inclined to $66.00M in the 4th-quarter 2017 from $43.00M in the year-ago quarter. The effective income tax rate in 4th-quarter 2017 was 58.50%, an incline from 38.00% in the year-ago quarter. The incline in the effective tax rate was mainly the result of the one-time revaluation of the company’s deferred tax assets and liabilities to apply the Tax Act’s lower rate in future years.

The company recorded a provisional estimate which resulted in a $15.00M net incline in tax cost from the revaluation of an indemnified liability (a $23.00M diminution in cost) and all other deferred tax assets and liabilities (a $38.00M incline in cost).

Unrelated to the Tax Act, the company recorded a $9.00M decline in tax cost because of the formerly mentioned expiration of a portion of indemnified uncertain tax positions. Absent these 3-items, the company’s effective tax rate for the 4th-quarter 2017 would have been 41.10%.

Income tax cost inclined to $203.00M in 2017 from $164.00M in 2016. The company’s effective income tax rate inclined to 41.20% in 2017 from 39.60% in 2016.

The company anticipates its effective income tax rate to be about 26.00% in 2K18 as a result of the Tax Act.

Deposits:

Deposits at the company totaled $15.5B ($8.2B in brokered deposits and $7.3B in retail and other deposits) at Dec. 31, 2017, contrast with $13.4B ($7.1B in brokered deposits and $6.30B in retail and other deposits) at Dec. 31, 2016.

Guidance:

The company anticipates 2K18 results to be as follows:

  • Complete-year diluted core earnings for each share: $0.970 – $1.010.
  • Complete-year private education loan originations of $5.0B.
  • Complete-year non-GAAP operating efficiency ratio: 37.00% – 38.00%.