Salliemae(SLM) - 2023 Q2 - Quarterly Report

Part I. Financial Information This part presents the company's unaudited financial statements, supporting notes, and management's analysis Financial Statements Presents the unaudited consolidated balance sheets, income statements, and cash flow statements for the period Consolidated Balance Sheet Summary (Unaudited) | (In thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $27,708,403 | $28,811,029 | | Cash and cash equivalents | $3,875,758 | $4,616,117 | | Loans held for investment, net | $19,219,518 | $19,626,868 | | Total Liabilities | $25,902,039 | $27,084,059 | | Deposits | $20,361,485 | $21,448,071 | | Long-term borrowings | $5,213,698 | $5,235,114 | | Total Equity | $1,806,364 | $1,726,970 | Consolidated Income Statement Highlights (Unaudited) | (In thousands, except per share) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $386,631 | $362,808 | $791,699 | $737,840 | | Provisions for credit losses | $17,729 | $30,545 | $131,841 | $128,595 | | Gains on sales of loans, net | $124,754 | $239,997 | $124,745 | $249,878 | | Total non-interest expenses | $156,409 | $134,147 | $313,220 | $266,886 | | Net Income | $265,065 | $342,073 | $383,583 | $470,885 | | Diluted EPS | $1.10 | $1.29 | $1.56 | $1.72 | Comprehensive Income Summary (Unaudited) | (In thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $265,065 | $342,073 | $383,583 | $470,885 | | Other comprehensive income (loss), net of tax | ($5,231) | ($24,485) | $10,306 | ($46,102) | | Total Comprehensive Income | $259,834 | $317,588 | $393,889 | $424,783 | - Total equity increased to $1.81 billion at June 30, 2023, from $1.73 billion at December 31, 2022, driven by net income of $384 million and partially offset by common stock repurchases of $257 million[24] - In the six months ended June 30, 2023, the company repurchased 16.4 million shares of common stock for $257.4 million[24] Cash Flow Summary (Unaudited) | (In thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($58,146) | $2,499 | | Net cash provided by investing activities | $760,032 | $1,357,996 | | Net cash used in financing activities | ($1,448,379) | ($2,109,084) | | Net decrease in cash, cash equivalents and restricted cash | ($746,493) | ($748,589) | Notes to the Financial Statements Provides detailed disclosures on accounting policies, investments, loans, credit losses, and capital Available-for-Sale Investments (June 30, 2023) | (In thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | | :--- | :--- | :--- | :--- | :--- | | Mortgage-backed securities | $419,251 | $1 | ($66,340) | $352,912 | | U.S. government sponsored enterprises and Treasuries | $1,708,890 | $0 | ($103,082) | $1,605,808 | | Other securities | $432,215 | $129 | ($21,273) | $411,071 | | Total | $2,563,816 | $130 | ($191,100) | $2,372,846 | - The company holds investments in Low Income Housing Tax Credit (LIHTC) projects with a carrying value of $76 million at June 30, 2023, which generate returns primarily through federal tax credits[49] Loans Held for Investment, Net | (In thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Private Education Loans, net | $18,648,904 | $19,019,713 | | Total FFELP Loans, net | $570,614 | $607,155 | | Loans held for investment, net | $19,219,518 | $19,626,868 | - In the first six months of 2023, the company sold approximately $2.10 billion of Private Education Loans, resulting in gains of $128 million[54] - The company sold its Credit Card loan portfolio in May 2023, which had been classified as held for sale, resulting in a recorded loss of $4 million in the second quarter of 2023[58] Allowance for Credit Losses Activity (Q2 2023) | (In thousands) | Private Education Loans | Total | | :--- | :--- | :--- | | Beginning balance | $1,475,379 | $1,479,306 | | Total provisions | ($40,429) | ($40,339) | | Net charge-offs | ($102,844) | ($102,439) | | Ending Balance | $1,360,294 | $1,364,716 | - In Q2 2023, the company changed its collection strategy for defaulted loans and will no longer sell them, which improved the estimate of recovery rates[72] - Key credit quality indicators for the Private Education Loan portfolio include FICO scores, the presence of a cosigner, loan status, and seasoning; as of June 30, 2023, 87% of the portfolio had a cosigner[100][101] Deposit Composition | (In thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Money market | $10,246,170 | $10,977,242 | | Savings | $923,330 | $982,586 | | Certificates of deposit | $9,189,461 | $9,486,819 | | Total interest-bearing deposits | $20,358,961 | $21,446,647 | - At June 30, 2023, total deposits of $20.4 billion were comprised of $8.7 billion in brokered deposits and $11.7 billion in retail and other deposits[122] - On March 15, 2023, the company executed a $579 million SMB Private Education Loan Trust 2023-A term ABS transaction, accounted for as a secured financing[134] - On May 16, 2023, the company amended its Secured Borrowing Facility, extending the revolving period to May 15, 2024; the facility has a capacity of $2 billion and had no outstanding balance at quarter-end[132] Common Stock Repurchases (Q2 2023) | Period | Total Shares Purchased (in actuals) | Average Price per Share | | :--- | :--- | :--- | | Q2 2023 | 16,389,696 | $15.71 | - At June 30, 2023, there was $326 million of capacity remaining under the 2022 Share Repurchase Program, which expires on January 25, 2024[169] Sallie Mae Bank Capital Ratios (June 30, 2023) | Ratio | Actual | Minimum Requirement + Buffer | | :--- | :--- | :--- | | Common Equity Tier 1 Capital | 12.8% | > 7.0% | | Tier 1 Capital | 12.8% | > 8.5% | | Total Capital | 14.1% | > 10.5% | | Tier 1 Leverage | 10.2% | > 4.0% | - The Bank declared $300 million in dividends to the parent company, SLM Corporation, during the second quarter of 2023, primarily to fund share repurchases and stock dividends[191] - On July 21, 2023, the company acquired key assets of Scholly, Inc, a scholarship publishing and servicing platform, to support its mission of helping students navigate higher education[198] Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial results, condition, liquidity, and capital resources for the reporting period - Net interest income increased by $24 million in Q2 2023 compared to Q2 2022, driven by a 23-basis point increase in net interest margin as assets repriced faster than funding costs[233] - Gains on sales of loans decreased to $125 million in Q2 2023 from $240 million in Q2 2022, primarily due to lower sales premiums attributable to higher interest rates[235] - The provision for credit losses was $18 million in Q2 2023, down from $31 million in Q2 2022, influenced by a $137 million negative provision from loan sales and an improved recovery rate estimate[234] Net Interest Margin | | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Interest Margin | 5.52% | 5.29% | - Private Education Loan originations for the first six months of 2023 were $3.1 billion, an increase from $2.8 billion in the same period of 2022, with 86.3% of these loans having a cosigner[273] - Delinquencies as a percentage of Private Education Loans in repayment remained stable at 3.7% at June 30, 2023, the same as June 30, 2022, while the forbearance rate decreased slightly to 1.2%[282] Sources of Liquidity (Ending Balances) | (In thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Unrestricted cash (Sallie Mae Bank) | $3,875,979 | $4,617,533 | | Available-for-sale investments | $1,961,776 | $2,012,901 | | Total unrestricted cash and liquid investments | $5,837,755 | $6,630,434 | - The company's total deposits were $20.4 billion at June 30, 2023, a decrease from $21.4 billion at year-end 2022, consisting of $8.7 billion in brokered deposits and $11.7 billion in retail and other deposits[307] - Sallie Mae Bank's Common Equity Tier 1 capital ratio was 12.8% as of June 30, 2023, well above the 7.0% minimum requirement including the capital conservation buffer[334] Quantitative and Qualitative Disclosures about Market Risk Details the company's management of interest rate risk using EAR and EVE sensitivity analyses Interest Rate Sensitivity Analysis (As of June 30, 2023) | Scenario | Earnings at Risk (EAR) - Shock | Economic Value of Equity (EVE) | | :--- | :--- | :--- | | +300 Basis Points | -0.5% | -18.4% | | +100 Basis Points | -0.1% | -6.5% | | -100 Basis Points | 0.0% | +6.5% | | -300 Basis Points | -0.3% | +19.0% | Controls and Procedures Confirms the effectiveness of disclosure controls and internal control over financial reporting - Management concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective[361] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[362] Part II. Other Information Covers legal proceedings, risk factors, and details on stock repurchase activities Legal Proceedings Discloses that the company is subject to various legal matters in the normal course of business - The company is subject to various claims, lawsuits, and regulatory inquiries that arise in the normal course of business[365] Risk Factors Refers to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K - The report refers to the risk factors previously disclosed in the 2022 Form 10-K[367] Unregistered Sales of Equity Securities and Use of Proceeds Details common stock repurchases executed during the second quarter of 2023 Share Repurchases (Q2 2023) | (In thousands, except per share data) | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining for Repurchase | | :--- | :--- | :--- | :--- | | Total Q2 2023 | 16,518 | $15.70 | $326,000 |