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Sallie Mae (SLM) Q4 Earnings Beat Estimates, Expenses Rise

Zacks Equity Research

Sallie Mae SLM reported fourth-quarter 2018 core earnings of 31 cents per share, which surpassed the Zacks Consensus Estimate of 27 cents. Moreover, the figure compares favorably with 10 cents in the prior-year quarter.

Increase in net interest income, aided by rising rates, was a tailwind. The private education loan portfolio and deposits grew considerably. Further, rise in non-interest income was another positive. However, these positives were offset by elevated expenses and poor credit quality.

The company’s GAAP net income attributable to common stock came in at $143.3 million or 33 cents per share compared with $43.9 million or 10 cents per share reported in the year-ago quarter.

For full-year 2018, the company reported GAAP net income of $471.8 million or $1.07 per share, up from $273.2 million or 62 cents per share.

Rise in Revenues Partially Offset by Higher Costs

Net interest income for the fourth quarter came in at $382.9 million, up 23.8% year over year. The improvement was mainly driven by higher interest income on elevated loans. Net interest margin expanded 11 basis points (bps) to 6.11%.

The company reported non-interest income of $12.7 million against loss of $22 million in the prior-year quarter. This upswing stemmed from gains on derivatives and hedging activities, along with higher other income.

The company’s non-interest expenses flared up 23% year over year to $146 million. The upsurge mainly resulted from increased compensation and benefits expenses and elevated other expenses.

Efficiency ratio, on a non-GAAP basis, came in at 37.6%, down from 41.2% in the year-ago period. Generally, a lower ratio indicates rise in profitability.

Credit Quality Deteriorates

Provision for loan losses was $57.6 million, up 4.1% from $55.3 million witnessed in prior-year quarter.

Also, delinquencies as a percentage of private education loans in repayment were 2.6%, up 2 bps.

Growth in Deposit and Loans

As of Dec 31, 2018, deposits of Sallie Mae Bank were $18.9 billion, up from $15.5 billion as of Dec 31, 2017. Increase in retail and other, along with brokered deposits, contributed to this upside.

As of Dec 31, 2018, the private education loan portfolio was $20.3 billion, up 17.7% year over year. Loan origination climbed 16% to $733 million in the reported quarter. Average yield on the loan portfolio was 9.34% up 73 bps.

Strong Capital Position

As of Dec 31, 2018, Sallie Mae Bank’s Tier 1 capital to risk-weighted assets and common equity Tier 1 capital were both 12.1%. Capital ratios exceeded the “well capitalized” industry benchmark in regulatory requirements.

2019 Outlook

The company expects core earnings per share in the range of $1.22-$1.26 for this year.

Private education loan originations are projected to be $5.7 billion.

The company expects full-year non-GAAP operating efficiency ratio to be between 35% and 36%.

Our Viewpoint

Results of Sallie Mae were decent this time around. Year-over-year rise in fee income along with higher interest income were the tailwinds. Also, the lender’s continued focus on increasing private education loan assets and maintaining a solid capital position by introducing multiple complementary products is encouraging.

Moreover, its focus on solidifying presence in the consumer banking business space bodes well for the upcoming quarters.

SLM Corporation Price, Consensus and EPS Surprise

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


Currently, Sallie Mae carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

First Horizon National Corporation FHN reported fourth-quarter 2018 adjusted earnings per share of 35 cents, which lagged the Zacks Consensus Estimate of 36 cents. The figure, however, compares favorably with loss of 20 cents reported in the year-ago quarter.

Bank OZK’s OZK fourth-quarter 2018 earnings per share of 89 cents surpassed the Zacks Consensus Estimate of 83 cents. The figure, however, compares unfavorably with the prior-year tally of $1.14. The year-ago number included adjustment related to the implementation of the tax act.

Zions Bancorporation’s ZION fourth-quarter 2018 earnings per share of $1.08 surpassed the Zacks Consensus Estimate of $1.06. Also, the figure increased 100% from the prior-year quarter’s earnings of 54 cents.

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