SLM Corporation(SLMBP) - 2025 Q1 - Quarterly Report

PART I. Financial Information This section provides an overview of SLM Corporation's financial performance and condition, including detailed financial statements, notes, management's discussion, market risk disclosures, and controls Financial Statements This section presents SLM Corporation's unaudited consolidated financial statements for Q1 2025 and 2024, including balance sheets, income statements, and cash flow statements Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $3,695,076 | $4,700,366 | | Total investments | $1,808,669 | $2,098,865 | | Loans held for investment, net | $21,091,204 | $20,902,158 | | Total assets | $28,899,184 | $30,072,110 | | Liabilities & Equity | | | | Deposits | $20,073,168 | $21,068,568 | | Long-term borrowings | $6,147,473 | $6,440,345 | | Total liabilities | $26,498,328 | $27,912,190 | | Total equity | $2,400,856 | $2,159,920 | | Total liabilities and equity | $28,899,184 | $30,072,110 | Consolidated Income Statement Highlights (Unaudited) | (In thousands, except per share) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net interest income | $374,970 | $387,016 | | Provisions for credit losses | $23,286 | $12,041 | | Total non-interest income | $206,044 | $174,158 | | Total non-interest expenses | $154,609 | $161,648 | | Net income | $304,540 | $289,931 | | Net income attributable to common stock | $300,584 | $285,278 | | Diluted earnings per common share | $1.40 | $1.27 | Consolidated Statements of Cash Flows Highlights (Unaudited) | (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(146,051) | $(76,711) | | Net cash provided by investing activities | $496,928 | $572,330 | | Net cash used in financing activities | $(1,356,576) | $(1,063,304) | | Net decrease in cash, cash equivalents and restricted cash | $(1,005,699) | $(567,685) | Notes to the Financial Statements This section provides detailed disclosures supporting the consolidated financial statements, covering accounting policies, investments, loans, credit losses, and regulatory capital Significant Accounting Policies The company's CECL methodology uses a discounted cash flow model with a two-year forecast, and Q1 2025 revisions to economic scenario weightings decreased the provision for credit losses by $17 million - The company uses a discounted cash flow method to determine the allowance for credit losses (CECL), projecting future cash flows using statistical models for defaults, prepayments, and recoveries[22][23] - In Q1 2025, the company changed the weighting of its economic scenarios for the CECL calculation to 60% Baseline, 20% S1 (stronger growth), and 20% S3 (unfavorable), from a previous 40/30/30 split. This revision resulted in a $17 million decrease to the provision for credit losses for the quarter[27] - In Q2 2024, the company implemented new loan-level models for future default rates and prepayment speeds, incorporating forecasts for GDP, unemployment, retail sales, and interest rates, which reduced reliance on certain qualitative overlays[32] Investments Total investments decreased to $1.81 billion as of March 31, 2025, primarily comprising available-for-sale securities, with a $10 million impairment recognized in Q1 2025 Available-for-Sale Investments by Type (March 31, 2025) | (In thousands) | Amortized Cost | Estimated Fair Value | | :--- | :--- | :--- | | Mortgage-backed securities | $544,422 | $480,423 | | U.S. government-sponsored enterprises and Treasuries | $648,413 | $624,355 | | Other securities | $551,570 | $549,949 | | Utah Housing Corporation bonds | $2,659 | $2,250 | | Total | $1,747,064 | $1,656,977 | - The company holds trading investments, primarily residual interests from securitizations, valued at $54 million as of March 31, 2025[37] - In Q1 2025, an impairment loss of $10 million was recognized on non-marketable equity securities related to a former credit card platform[46] Loans Held for Investment Loans held for investment consist solely of Private Education Loans, totaling $21.09 billion net, following a $2.0 billion sale in Q1 2025 that generated a $188 million gain - The company's loans held for investment portfolio consists solely of Private Education Loans after the sale of the remaining FFELP Loan portfolio in Q4 2024[49] Private Education Loan Sales (Q1) | (In millions) | 2025 | 2024 | | :--- | :--- | :--- | | Total Private Education Loans sold | $2,003 | $2,103 | | Gain on sale of loans, net | $188 | $143 | Loans Held for Investment Composition (March 31, 2025) | (In thousands) | Amount | | :--- | :--- | | Fixed-rate | $17,463,708 | | Variable-rate | $4,968,417 | | Total Private Education Loans, gross | $22,432,125 | | Allowance for credit losses | $(1,443,715) | | Loans held for investment, net | $21,091,204 | Allowance for Credit Losses and Unfunded Loan Commitments The total allowance for credit losses reached $1.47 billion, with Q1 2025 provision increasing to $23.3 million, while net charge-offs for Private Education Loans decreased Allowance for Credit Losses Activity (Q1 2025, Private Education Loans) | (In thousands) | Amount | | :--- | :--- | | Beginning allowance for loan losses | $1,435,920 | | Total provisions | $(21,170) | | Net charge-offs | $(76,169) | | Ending allowance for loan losses | $1,443,715 | | Ending allowance for unfunded commitments | $23,890 | | Total allowance for credit losses | $1,467,605 | Key Credit Metrics (Private Education Loans) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net charge-offs as a % of avg. loans in repayment (annualized) | 1.88% | 2.14% | | Total Allowance % of Private Education Loan Exposure | 5.97% | 5.99% | | Delinquent loans as a % of loans in repayment | 3.6% | 3.4% | - The provision for credit losses increased to $23.3 million in Q1 2025 from $12.0 million in Q1 2024. The Q1 2025 provision was affected by new loan commitments and economic outlook changes, offset by a $116 million negative provision from a loan sale and adjustments to economic forecast weightings[68][69] - As of March 31, 2025, the company had $584 million in unfunded loan commitments with an associated allowance of $24 million[102] Goodwill and Acquired Intangible Assets Goodwill remained stable at $56 million, while net acquired intangible assets decreased to $6.4 million due to amortization, with a quarterly expense of approximately $1 million - Goodwill remained stable at $56 million as of March 31, 2025, related to the acquisitions of Nitro College and Scholly[104] Acquired Intangible Assets (Net) | (In thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Trade name and trademarks | $3,523 | $3,901 | | Customer relationships | $1,974 | $2,455 | | Developed technology | $776 | $929 | | Sallie.com domain | $135 | $144 | | Total net acquired intangible assets | $6,408 | $7,429 | Deposits Total deposits decreased to $20.1 billion, comprising $8.7 billion in brokered deposits and $11.4 billion in retail and other deposits, with $5.7 billion in CDs maturing within one year - Total deposits were $20.1 billion as of March 31, 2025, comprised of $8.7 billion in brokered deposits and $11.4 billion in retail and other deposits[108] Interest-Bearing Deposits by Type (March 31, 2025) | (In thousands) | Amount | Qtr-End Weighted Avg. Stated Rate | | :--- | :--- | :--- | | Money market | $9,414,764 | 4.11% | | Savings | $1,002,260 | 3.83% | | Certificates of deposit | $9,653,528 | 4.06% | | Total | $20,070,552 | | Borrowings Total borrowings decreased to $6.15 billion, consisting of unsecured debt and secured securitizations, with $500 million in new unsecured notes issued and an equal amount redeemed in Q1 2025 Borrowings Composition (March 31, 2025) | (In thousands) | Amount | | :--- | :--- | | Unsecured debt (fixed-rate) | $989,528 | | Private Education Loan term securitizations | $5,157,945 | | Total borrowings | $6,147,473 | - In January 2025, the company issued $500 million of 6.50% unsecured Senior Notes due 2030[117] - In February 2025, the company redeemed $500 million of 4.20% unsecured Senior Notes due 2025[118] Derivative Financial Instruments The company uses interest rate swaps to manage risk, with a total notional value of $623 million as of March 31, 2025, and a net fair value of derivative liabilities at $23 million Notional Value of Interest Rate Swaps | (In thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash Flow Hedges | $616,191 | $639,097 | | Fair Value Hedges | $6,520 | $281,520 | | Total Notional | $622,711 | $920,617 | - The company estimates that $16 million will be reclassified from accumulated other comprehensive income as a decrease to interest expense over the next twelve months related to derivatives[140] Stockholders' Equity In Q1 2025, the company repurchased 1.04 million shares for $30.8 million, with $372 million remaining under the current repurchase program, and paid a $0.13 per share common stock dividend Common Stock Repurchases (Q1 2025) | Metric | Value | | :--- | :--- | | Shares repurchased under program | 1,037,391 | | Average purchase price per share | $29.65 | | Total cost (approx.) | $30.8 million | - A new $650 million share repurchase program was announced in January 2024, which expires in February 2026[146] - As of March 31, 2025, $372 million of capacity remained[146] - A common stock dividend of $0.13 per share was paid in March 2025, up from $0.11 per share in March 2024[145] Earnings per Common Share Diluted EPS increased to $1.40 in Q1 2025 from $1.27 in Q1 2024, driven by higher net income and fewer weighted average shares outstanding EPS Calculation (Q1) | (In thousands, except per share) | 2025 | 2024 | | :--- | :--- | :--- | | Net income attributable to common stock | $300,584 | $285,278 | | Weighted average shares (basic) | 210,682 | 220,416 | | Weighted average shares (diluted) | 214,986 | 223,845 | | Basic EPS | $1.43 | $1.29 | | Diluted EPS | $1.40 | $1.27 | Fair Value Measurements Total assets measured at fair value on a recurring basis were $1.71 billion, with $1.66 billion in Level 2 and $53.8 million in Level 3 assets, primarily residual interests in securitizations Recurring Fair Value Measurements (March 31, 2025) | (In thousands) | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Assets: | | | | | | Trading investments | $0 | $2,436 | $51,296 | $53,732 | | Available-for-sale investments | $0 | $1,654,505 | $2,472 | $1,656,977 | | Total Assets | $0 | $1,656,941 | $53,768 | $1,710,709 | | Liabilities: | | | | | | Derivative instruments | $0 | $(23) | $0 | $(23) | - The fair value of the Private Education Loan portfolio was estimated at $24.4 billion, which is $3.3 billion higher than its carrying value of $21.1 billion as of March 31, 2025[161] Regulatory Capital Sallie Mae Bank remains well-capitalized with a CET1 ratio of 11.6% as of March 31, 2025, significantly exceeding regulatory minimums, and declared $100 million in dividends to the parent company Sallie Mae Bank Capital Ratios (March 31, 2025) | Ratio | Actual | Minimum Requirement + Buffer | | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 11.6% | > 7.0% | | Tier 1 Capital | 11.6% | > 8.5% | | Total Capital | 12.9% | > 10.5% | | Tier 1 Leverage | 10.1% | > 4.0% | - The Bank is considered "well capitalized" under the prompt corrective action framework, with all ratios exceeding the required thresholds[165][170] - The Bank declared $100 million in dividends to the parent company, SLM Corporation, during the first quarter of 2025[171] Commitments, Contingencies and Guarantees The company had $584 million in outstanding loan commitments with a $24 million reserve for expected credit losses and is involved in routine legal and regulatory matters - As of March 31, 2025, the company had $584 million of outstanding contractual loan commitments, primarily for future disbursements of approved Private Education Loans, with a $24 million reserve for expected credit losses on these commitments[172] - The company is routinely a defendant in legal actions and receives requests from regulatory bodies, establishing reserves for loss contingencies that are probable and estimable[173][175] Segment Reporting The company operates as a single reportable segment, focusing on originating and servicing Private Education Loans and other education-related services - The company is managed as a single line of business with one reportable segment focused on originating and servicing Private Education Loans[177] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's Q1 2025 financial performance, covering results of operations, financial condition, liquidity, capital, and critical accounting policies Results of Operations Net income attributable to common stock increased to $301 million in Q1 2025, driven by higher loan sale gains and lower operating expenses, despite a decrease in net interest income GAAP Consolidated Earnings Summary (Q1) | (In millions, except per share) | 2025 | 2024 | | :--- | :--- | :--- | | Net interest income | $375 | $387 | | Provisions for credit losses | $23 | $12 | | Gains on sales of loans, net | $188 | $143 | | Total non-interest expenses | $155 | $162 | | Net income attributable to common stock | $301 | $285 | | Diluted EPS | $1.40 | $1.27 | - Net interest income decreased by $12 million due to a 22-basis point compression in net interest margin, as asset yields declined while funding costs rose[195] - Gains on loan sales increased by $45 million, driven by a $2.0 billion loan sale in Q1 2025 compared to a $2.1 billion sale in Q1 2024[197] - Operating expenses decreased by $7 million to $154 million, primarily due to lower personnel costs and initiative spending[200] Financial Condition Total assets were $28.9 billion, with net loans held for investment at $21.1 billion, while net interest margin decreased to 5.27% and Private Education Loan originations increased by 7% - The net interest margin (NIM) decreased to 5.27% in Q1 2025 from 5.49% in Q1 2024, primarily due to liabilities repricing slower than assets in a declining rate environment[203] Private Education Loan Originations (Q1) | (In thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Total Private Education Loan originations | $2,771,478 | $2,582,070 | | Percentage of loans with a cosigner | 93.5% | 90.7% | | Average FICO at approval | 753 | 748 | Private Education Loan Delinquency Trends (as of March 31) | (In thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Total loans in repayment | $15,903,797 | $14,961,692 | | Total delinquent loans (30+ days) | $570,125 | $510,086 | | Delinquencies as % of loans in repayment | 3.6% | 3.4% | Liquidity and Capital Resources The company maintains strong liquidity with $4.8 billion in unrestricted cash and liquid investments, supported by deposits and borrowings, and Sallie Mae Bank remains well-capitalized Sources of Primary Liquidity (Ending Balances) | (In thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Unrestricted cash and liquid investments | $4,802,104 | $6,061,797 | | Total deposits | $20,073,168 | $21,068,568 | | Total borrowings | $6,147,473 | $6,440,345 | - Sallie Mae Bank's CET1 capital ratio was 11.6% as of March 31, 2025, exceeding the 'well capitalized' threshold of 6.5% and the minimum requirement plus buffer of 7.0%[273][279] - The company has access to discretionary uncommitted Federal Funds lines of credit totaling $125 million and the FRB's Discount Window, with pledged collateral of $2.5 billion, neither of which were used in Q1 2025[284][285] Critical Accounting Policies and Estimates The allowance for credit losses is a critical estimate, with Q1 2025 scenario weighting revisions decreasing the provision by $17 million, and a sensitivity analysis showing potential for a $192 million increase - The allowance for credit losses is identified as the most critical accounting estimate, requiring material estimates susceptible to significant change[289][298] - In Q1 2025, the company revised its CECL economic scenario weightings to 60% Baseline, 20% S1 (stronger growth), and 20% S3 (unfavorable), from a 40/30/30 split. This change decreased the provision for credit losses by approximately $17 million[295] - A sensitivity analysis indicates that applying a 100% weighting to the S3 unfavorable economic scenario would hypothetically increase the allowance for credit losses by $192 million, or 13.0%, as of March 31, 2025[301][303] Quantitative and Qualitative Disclosures about Market Risk The company manages interest rate risk using EAR and EVE analysis, showing low sensitivity to rate changes, with a 100 basis point increase decreasing EAR by 3.1% and EVE by 7.8% Interest Rate Sensitivity Analysis (as of March 31, 2025) | Hypothetical Rate Change | Impact on Earnings at Risk (EAR) - Shock | Impact on Economic Value of Equity (EVE) | | :--- | :--- | :--- | | +300 basis points | -9.7% | -23.7% | | +100 basis points | -3.1% | -7.8% | | -100 basis points | +2.5% | +7.2% | | -300 basis points | +7.7% | +21.8% | Weighted Average Life of Assets and Liabilities (as of March 31, 2025) | (in years) | Weighted Average Life | | :--- | :--- | | Earning assets | 4.79 | | Private Education Loans | 5.62 | | Cash and investments | 1.52 | | Deposits | 0.85 | | Borrowings | 3.83 | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective[316] - No material changes were made to the internal control over financial reporting during the first quarter of 2025[317] PART II. Other Information This section provides additional information including legal proceedings, risk factors, unregistered sales of equity securities, and other disclosures Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 13 of the financial statements, covering routine legal and regulatory matters - Information regarding legal proceedings is incorporated by reference from Note 13 of the financial statements[319] Risk Factors Readers are referred to the detailed Risk Factors section in the 2024 Form 10-K for a comprehensive discussion of the company's risks - Readers are referred to the Risk Factors section of the 2024 Form 10-K for a detailed discussion of risks[320] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2025, the company repurchased 1.87 million shares for $56.7 million, including 1.04 million under its public program, with $372 million remaining for repurchases Share Repurchases (Q1 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased Under Program | Remaining Authorization (End of Period) | | :--- | :--- | :--- | :--- | :--- | | Jan 2025 | 7,645 | $28.35 | — | $402,000,000 | | Feb 2025 | 1,123,800 | $31.14 | 337,782 | $392,000,000 | | Mar 2025 | 736,814 | $29.19 | 699,609 | $372,000,000 | | Total Q1 | 1,868,259 | $30.36 | 1,037,391 | | Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement in Q1 2025 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement in Q1 2025[325]