Shares of SLM (SLM -0.61%), the parent company of student loan lender Sallie Mae, fell by more than 10% Thursday after the company reported its second-quarter results.
SLM reported diluted earnings per common share of $1.29 on revenue of $621 million, both numbers that beat analysts' consensus estimates.
That $621 million in revenue included a nearly $240 million gain on the sale of loans in the quarter. SLM did $616 million of private student loan originations in Q2, up 16% year over year.
"We have delivered strong results through the first half of the year and are encouraged by positive trends in college enrollment, originations, consolidations, and expenses," said CEO Jonathan Witter in a press release. "Strong demand also gives us confidence to raise our originations expectations. We are also updating our EPS and charge-off guidance to reflect expected changes in loan sale premiums and certain credit pressures that we believe will be largely isolated to 2022."
The company said it expects to generate adjusted core earnings per share of $2.50 to $2.70, a range that is entirely below the previous consensus estimate of $2.88. This seems to have driven the stock downward Thursday.
For the year, SLM also expects origination growth of between 9% and 11% and expenses of around $360 million. But what took the wind out the shares was the fact that SLM now expects its net charge-offs -- debt it views as unlikely to be collected, and a good indicator of actual future loan losses -- to come in at around $335 million, up from previous guidance.
SLM's guidance is now looking weaker due to elevated charge-off trends that seemed to catch the market by surprise. It's good to see originations growing nicely from last year, but I would recommend investors monitor charge-off and credit trends over the next quarter or two to make sure these issues are isolated to this year.