Garnet Capital Advisors Blog

Following the rash of recent economic reports from financial institutions, loan sales have emerged in the past several quarters as an important strategy to promote business growth and development. 

Two examples in late July were the student-lending firm Sallie Mae and regional financial institution Flagstar Bank. Second-quarter results for both companies were bolstered by strong loan sales, which the firms can then use to reinvest back into the businesses.

Sallie Mae sees uptick in net income
Looking first at Sallie Mae, the student lender's second-quarter financial results showed substantial growth in net income on a yearly basis. 

In a news release on the results, Sallie Mae highlighted a private education loan sale as a key reason for the increase. Furthermore, the firm also originated $384 million in private education loans during the second quarter, bringing its private education loan portfolio to a total of $9.2 billion. 

"Confidence in our business model and commitment to customer service are evident in the double-digit increase in our private education loan portfolio and our successful asset sale," explained Raymond Quinlan, chairman and CEO of Sallie Mae.

Overall, the financial institution expects 2015 results for yearly loan sales to reach $1.5 billion, with a net premium of 10.5 percent over book value.

Flagstar also supported via loan sales
In addition to Sallie Mae, Michigan-based firm Flagstar Bank also had a strong second-quarter, thanks in part to loan sales.

According to American Banker, Flagstar's results were better than expected. Profits reached $46.4 million year-over-year, an 82 percent increase. Overall, Flagstar reported 82.2 million in loan sales during that quarter, up on a yearly basis, yet down quarter-over-quarter. Total loan holdings by the end of the quarter were $7.9 billion, up 12 percent year-over-year.

Furthermore, Flagstar also noted gains with both loans held-for-investment and loans held-for-sale. Increases in the second quarter were 20.5 percent and 49 percent, respectively. The bank also had stronger financial results thanks to warehouse lending, which ticked up 71 percent. 

Loan sales offer room for growth
One of the biggest links between Flagstar and Sallie Mae's results is loan sales. This segment of their overall business was significantly stronger on a yearly basis.

For financial institutions across the country, loan sales, portfolio sales and other related services have helped drive growth following the Great Recession. Removing unwanted loans and adding good performing loans increases financial flexibility and gives companies an opportunity to improve cash flow. As a result, they can then invest back into their businesses with an eye on the future.

For example, Sallie Mae, now an independent bank, is looking to improve the end-user experience. Higher net income, partly due to loan sales, is one possible way to achieve that goal.

"This quarter marked Sallie Mae's first, full year as a stand-alone company, and our results reflect the steady cadence of changes implemented and investments made to enhance the customer experience and simplify the process of applying for, managing, and repaying loans," added Quinlan.

If you have any questions about loan sales, feel free to contact loan sales advisory firm Garnet Capital Advisors.