Sallie Mae reported higher earnings in 2017, minus adjustments for recent tax legislation. Sallie Mae is based in the Stanton-Christiana area.
After adjusting for the effects of the Tax Cuts and Jobs Act of 2017, financial results included core earnings attributable to the company’s common stock of $83 million and $317 million for the fourth-quarter and full-year 2017, respectively, reflecting core earnings per diluted share increases of 22 percent and 35 percent, respectively, compared to the year-ago periods.
Absent the effect of the Tax Act, core earnings growth was driven by a 22-percent increase in the private education loan portfolio, an improved net interest margin, and operating efficiency improvements. The Tax Act was signed into law on Dec. 22.
“We are pleased 2017 was another solid year as evidenced by customer experience innovations, continued improvements in our net interest margin, sound credit trends, increased operating efficiency, and an expanding market share, which all contributed to our strong earnings growth,” said Raymond J. Quinlan, CEO. “Recent tax legislation will increase our earnings, resulting in both higher profits and the opportunity to invest in service upgrades, technological efficiencies, and diversified product offerings, all of which will strengthen our franchise for the future.”
For the fourth-quarter 2017, GAPP (Generally Accepted Tax Principles) net income was $47 million, compared with $70 million in the year-ago quarter.
The year-over-year decrease was primarily attributable to the required accounting treatment for the effects of the Tax Act.
The Tax Act lowered federal corporate tax rates from 35 percent to 21 percent, beginning in 2018.
Because the Tax Act was enacted during the fourth-quarter 2017, the company was required to reflect the application of the lower tax rate in future years to its deferred tax assets, liabilities and indemnification receivables.
On Dec. 31, the company recorded a provisional estimate which resulted in a $15 million net increase in tax expense and reduced non-interest income by $24 million to reflect the effect of the lower tax rate.
For 2017, GAAP net income was $289 million, compared with $250 million in 2016. Absent the impact of the Tax Act, GAAP net income would have been $328 million, and GAAP net income attributable to the company’s common stock would have been $312 million in 2017.
The company forecast 2018 results to be as follows:
- Full-year diluted core earnings per share: $0.97 – $1.01.
- Full-year private education loan originations of $5 billion.
- Full-year non-GAAP operating efficiency ratio: 37 percent – 38 percent.
The company plans to make investments in 2018 that will accelerate the diversification of its consumer lending platform into the personal loan and credit card businesses.
In addition, the company will invest in several technology infrastructure projects, including migrating infrastructure to the cloud.
The spending will total up to $30 million and are expected to add revenue and improve efficiency in future years. The impact of these investments was included in the guidance provided above.
