Sallie Mae (SLM) Q3 Earnings Miss Estimates, NII Surpasses
Sallie Mae SLM, formally known as SLM Corporation, reported third-quarter 2023 earnings per share of 11 cents, missing the Zacks Consensus Estimate of 33 cents. The bottom line compared unfavorably with the prior-year quarter’s earnings of 29 cents.
A rise in non-interest expenses and lower non-interest income impeded the results. Nonetheless, lower provisions for credit losses, an increase in the net interest income (NII) and robust loan originations were positives.
The company’s GAAP net income was $29 million, down 61.3% from the previous-year quarter. Our estimate for the same was $97 million.
NII Improves, Expenses Climb
NII in the third quarter was $384.6 million, up 4.1% year over year. Also, the reported figure surpassed the Zacks Consensus Estimate of $368 million.
The net interest margin (NIM) expanded 16 basis points to 5.43%.
The company’s non-interest income of $24 million declined 74.7% from the prior-year quarter. This was mainly attributable to net losses on the sale of loans. Our estimate for the same was pegged at $17.3 million.
Sallie Mae's non-interest expenses increased 11.8% to $167 million. The increase mainly resulted from higher compensation and benefits, and FDIC assessment fees. Our estimate for the same was $165 million.
Credit Quality Improves
The company recorded a provision for credit losses of $198 million compared with $208 million in the prior-year quarter. Our estimate for the same was $98.9 million. New loan commitments, net of expired commitments, management overlays, slower prepayment rates and changes in economic outlook, resulted in the higher-than-expected provision for credit losses.
Net charge-offs for private education loans were $95 million. Private education loans held for investment net charge-offs as a percentage of average private education loans held for investment in repayment (annualized) was 2.53%, down from 2.67% year over year.
Balance Sheet Position Strengthens
As of Sep 30, 2023, deposits of Sallie Mae were $21.55 billion, up 5.8% on a sequential basis. Private education loan held for investment was $20.34 billion, up 9.1% on a sequential basis.
In the quarter, the company witnessed private education loan originations of $2.5 billion, increasing 4% from the year-ago quarter.
Share Repurchase Update
In the third quarter, the company did not repurchase any shares under its existing share repurchase program expiring on Jan 25, 2024.
2023 Outlook
The company expects core earnings per share (on a non-GAAP basis) of $2.55-$2.65.
It anticipates total loan portfolio net charge-offs of $375-$385 million.
Private education loan originations are projected to grow 6-7% year over year.
The company’s non-interest expenses are expected to be $625-$630 million.
Conclusion
The overall financial performance of the company seems decent. Improvements in NIM and NII are positives. However, a rise in expenses and a deterioration in fee income are major near-term headwinds.
Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.
SLM Corporation Price, Consensus and EPS Surprise
SLM Corporation price-consensus-eps-surprise-chart | SLM Corporation Quote
Performance of Other Consumer Loan Providers
Navient Corporation NAVI reported third-quarter 2023 adjusted earnings per share of 47 cents, missing the Zacks Consensus Estimate of 81 cents. Also, the bottom line was lower than the prior-year quarter’s 62 cents.
NAVI’s results were affected by a fall in total other income and elevated expenses. However, a rise in core NII acted as a tailwind.
Ally Financial’s ALLY third-quarter 2023 adjusted earnings of 83 cents per share surpassed the Zacks Consensus Estimate of 80 cents. The bottom line reflects a decline of 25.9% from the year-ago quarter.
ALLY’s Results were primarily aided by an improvement in other revenues. A decent increase in loans was another tailwind. However, a decline in net financing revenues, along with higher expenses and provisions, were the undermining factors.
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