SLM Corp (SLM)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 GAAP diluted EPS was $0.32; revenue (net interest income after provisions + non-interest income) was $254.9M, reflecting elevated credit provisioning and lower gain-on-sale activity; management affirmed full-year guidance, highlighting long-term tailwinds from federal loan reforms .
• Net interest margin held at 5.31% (vs 5.27% in Q1 and 5.36% in Q2 2024); provision for credit losses rose to $149M amid macro caution and portfolio life assumptions, while delinquencies were 3.51% and NCOs 2.36% (annualized) .
• Management announced indicative pricing for a Q3 sale of $1.8B in loans and expects “economics in line with guidance”; investor appetite for loan sales remains strong and alternative private credit partnerships are being explored to scale funding predictably .
• Federal reforms effective 7/1/2026 are expected to add $4.5–$5.0B of annual origination volume (≈2/3 Grad PLUS, ≈1/3 Parent PLUS) over time; near-term originations may be delayed, but bigger impacts are anticipated in 2027 and beyond .
• Consensus vs actual: EPS $0.32 vs $0.50 estimate (miss); revenue $254.9M vs $370.4M estimate (miss). Expect estimates to recalibrate for near-term provisioning, with positive medium-term revisions tied to policy-driven volume uplift. Values retrieved from S&P Global.*

What Went Well and What Went Wrong

What Went Well

• Affirmed 2025 guidance (EPS $3.00–$3.10; originations +6–8%; NCOs 2.0–2.2%; OpEx $655–$675M), underscoring confidence despite macro uncertainty .
• Clear strategic path to fund growth: $1.8B loan sale in Q3 with pricing aligned to expectations; exploring private credit partnerships to deliver “capital efficiency with long-term predictable earnings” .
• Credit indicators within plan: 30+ day delinquencies at 3.5% (down q/q), allowance coverage stable at 5.95%, and strong performance of loan modifications (80%+ successful first three payments) .

What Went Wrong

• Elevated provision ($149M) drove lower quarterly earnings; management cited softer Moody’s macro forecasts and portfolio life changes, plus timing effects from California disaster forbearance on charge-offs .
• Q2 originations ($686M) were slightly below expectations due to non-traditional school partner caps and later disbursements; peak season may be delayed again as schools digest federal changes .
• EPS and revenue missed consensus; diminished non-interest income (no loan sale in Q2) and higher provisioning reduced reported revenue (defined as net interest income after provision + non-interest income) . Values retrieved from S&P Global.*

Financial Results

Actual vs Consensus (Q2 2025):

KPIs

Note: Revenue defined as net interest income after provisions + total non-interest income per company reporting .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We delivered solid results… and we’re optimistic about the long-term outlook for private student lending given recently passed federal student loan reforms” — CEO Jon Witter .
• “Our NIM was 5.31%… low-to-mid 5% range is an appropriate NIM target” — CFO Pete Graham .
• “We agreed to indicative pricing on a transaction for the sale of $1.8B of private education loans… in line with our expectations” — CEO Jon Witter .
• “New federal lending limits could generate an additional $4.5–$5.0B in annual private education loan origination volume… impacts build over time” — CEO Jon Witter .
• “Slight uptick in net charge-offs was attributable to California wildfires disaster forbearance shifting timing” — CEO Jon Witter .

Q&A Highlights

• Loan sale cadence and economics: $1.8B sale pricing aligned with guidance; Q1 gain-on-sale margin 9.4%, 2024 average just below 7%; potential additional sale depends on peak season and capital stress testing .
• Funding mix: Firm exploring private credit partnerships to complement bank balance sheet and loan sales; goal is capital-efficient, predictable earnings without sacrificing lifetime economics .
• Volume opportunity sizing: Incremental $4.5–$5.0B annual originations from reforms, with ≈67% grad and ≈33% parent split; market share assumption ~60%+ consistent with recent history .
• Credit trajectory: Year-to-date NCOs in line or slightly better than plan; delinquency and extended grace trends consistent with seasonality; loan mod program success rates remain strong .

Estimates Context

• Q2 2025 EPS: $0.32 actual vs $0.50 consensus (miss).*
• Q2 2025 Revenue: $254.9M actual vs $370.4M consensus (miss).*
• Near-term estimate revisions likely to reflect higher provisioning and lower gain-on-sale in Q2; medium-term revisions should incorporate quantified policy-driven volume uplift starting in 2026 with larger impacts in 2027+. Values retrieved from S&P Global.*

Key Takeaways for Investors

• Q2 headline misses were driven by elevated provisioning and limited gain-on-sale activity; credit metrics remain broadly within plan, and NIM stayed in target range .
• Affirmed FY25 guidance provides a floor for EPS/OpEx/NCOs despite macro caution; watch Q3 sale execution and gain-on-sale margin to validate funding economics .
• Structural growth catalyst: federal reforms add $4.5–$5.0B annual origination potential over time (≈2/3 grad), with ramp starting 2H26; expect funding partnerships to de-risk capacity and smooth earnings .
• Originations timing is a tactical variable as schools adjust to reforms; Q3/Q4 seasonality and delayed peak are the near-term volume drivers .
• Balance sheet and capital remain robust (CET1 11.5%; liquidity 17.8%); continued buybacks ($302M capacity) and $0.13 dividend support TSR .
• Trading implication: near-term sentiment hinges on Q3 loan sale pricing and clarity on private credit partnership timing; medium-term skew positive on policy-induced market expansion .
• Monitor delinquency/NCO seasonality vs guidance (2.0–2.2%) and macro inputs (Moody’s forecasts) for provisioning dynamics .

Footnote: *Values retrieved from S&P Global.