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Sallie Mae (SLM) Incurs Q4 Loss as Provisions Jump, Stock Dips

Sallie Mae SLM, formally known as SLM Corporation, lost 2% in after-hours trading following the release of its fourth-quarter and full-year 2022 results. The company incurred a core loss per share of 33 cents. The Zacks Consensus Estimate was pegged at earnings of 46 cents. The bottom line also compared unfavorably with the prior-year quarter’s earnings of $1.05. Core earnings per share exclude mark-to-fair value unrealized gains and losses on derivative contracts.

Results were hurt by substantially higher provisions for credit losses, non-interest loss and a rise in non-interest expenses. On the other hand, an increase in net interest income (NII) on higher interest rates and robust loan originations offered some support.

The company’s GAAP net loss attributable to common stock was $80.5 million against net income attributable to common stock of $305.1 million in the previous-year quarter.

In 2022, core income was $1.76 per share, which declined 52% year over year and lagged the consensus estimate of $2.50 by a considerable margin. GAAP net income attributable to common stock was $460 million, down 60.2% from 2021.

NII Improves, Expenses Climb

NII in the fourth quarter was $381.4 million, up 3.8% year over year. Also, the reported figure surpassed the Zacks Consensus Estimate of $358.1 million.

In 2022, NII grew 6.7% to $1.49 billion. The figure also surpassed the consensus estimate of $1.46 billion.

Net interest margin (NIM) expanded 24 basis points to 5.37%.

The company’s non-interest loss was $40.6 million against a non-interest income of $152.8 million in the prior-year quarter. The loss was mainly attributable to net losses on securities and a substantial decline in net gain on the sale of loans.

Sallie Mae's non-interest expenses increased 11.6% to $140.1 million. The increase mainly resulted from higher compensation and benefits and FDIC assessment fees.

Credit Quality Deteriorates

The company recorded a provision for credit losses of $297.3 million against a provision benefit of $15.3 million in the prior-year quarter. Net charge-offs were $117.3 million, up 91.7% from the prior-year quarter.

Balance Sheet Position Robust.

As of Dec 31, 2022, deposits of Sallie Mae were $21.45 billion, up modestly on a sequential basis.

Private education loan held for investment was $19.02 billion, up marginally on a sequential basis. In the quarter, the company witnessed private education loan originations of $819 million, increasing 11% from the year-ago quarter.

Share Repurchase Update

In the fourth quarter, the company repurchased 10 million common stocks for $155 million under its share repurchase program.

2023 Outlook

The company expects core earnings per share (on a non-GAAP basis) of $2.50-$2.70.

It anticipates total loan portfolio net charge-offs of $345-$385 million.

Private education loan originations are projected to grow 5-6% year over year.

The company’s non-interest expenses are expected to be $610-$620 million.

Conclusion

The overall financial performance of the company seems weak. The improvements in NIM and NII are positive factors. Peak season aided loan demand. This, along with reduced prepayments, positions its balance sheet well. However, a rise in expenses and a deterioration in credit quality remain major near-term headwinds.

SLM Corporation Price, Consensus and EPS Surprise

SLM Corporation Price, Consensus and EPS Surprise
SLM Corporation Price, Consensus and EPS Surprise

SLM Corporation price-consensus-eps-surprise-chart | SLM Corporation Quote

Currently, the company carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.

Performance Other Consumer Loan Providers

Ally Financial’s ALLY fourth-quarter 2022 adjusted earnings of $1.08 per share for the quarter surpassed the Zacks Consensus Estimate of 98 cents. However, the bottom line reflects a decline of 46.5% from the year-ago quarter. Our estimate for earnings was $1.

ALLY’s results were primarily aided by an improvement in net financing revenues. An increase in loans was another tailwind. However, a decline in other revenues and higher expenses and provisions were the undermining factors.

Navient Corporation NAVI reported fourth-quarter 2022 core earnings per share of 76 cents against the year-ago core loss of 43 cents per share. This, however, missed the Zacks Consensus Estimate for earnings of 82 cents.

A fall in NII and total other income, as well as higher provisions, hindered NAVI’s results. However, a decrease in expenses was a tailwind.

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