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Sallie Mae (SLM) Q2 Earnings Top Estimates on Solid Revenues
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Sallie Mae (SLM - Free Report) delivered a positive earnings surprise of 8.7% in second-quarter 2018. The company reported core earnings of 25 cents per share, surpassing the Zacks Consensus Estimate of 23 cents. Moreover, the figure surged 56.3% from the prior-year quarter.
Increase in net interest income, aided by rising rates and non-interest income, were tailwinds. The private education loan portfolio and deposits grew considerably. 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 $106 million or 24 cents per share compared with $67 million or 15 cents per share reported in the year-ago quarter.
Rise in Net Interest Income & Other Income Offsets Higher Expenses
Net interest income for the second quarter came in at $341 million, up 26% year over year. The improvement was mainly driven by higher interest income on elevated loans. Net interest margin expanded 23 basis points (bps) year over year to 6.14%.
The company reported non-interest income of $7.5 million, up 7.1% from the prior-year quarter. This rise stemmed from higher gains on derivatives and hedging activities, along with other income.
The company’s non-interest expenses flared up 21.6% year over year to $135.3 million. The upsurge mainly resulted from increased compensation and benefits expenses, elevated FDIC assessment fees and other expenses.
Efficiency ratio, on a non-GAAP basis, decreased to 38.3% from 39.7% in the year-ago period. Generally, a lower ratio indicates improved profitability.
Credit Quality Worsens
Provision for loan losses was $63.3 million, up 26.1% from $50.2 million witnessed in prior-year quarter.
Delinquencies as a percentage of private education loans in repayment were 2.2%, in line with the year-ago quarter tally.
Growth in Deposit and Loans
As of Jun 30, 2018, deposits of Sallie Mae Bank were $16.7 billion, up from $13.8 billion as of Jun 30, 2017. Increase in retail and other, along with brokered deposits, contributed to this upside.
As of Jun 30, 2018, the private education loan portfolio was $18.5 billion, up 19.4% year over year. Loan origination climbed 13% to $487 million in the reported quarter. Average yield on the loan portfolio was 9.03%, up 70 bps.
Strong Capital Position
As of Jun 30, 2018, Sallie Mae Bank’s Tier 1 capital to risk-weighted assets and common equity Tier 1 capital were both 12%. Capital ratios exceeded the “well capitalized” industry benchmark in regulatory requirements.
2018 Outlook
The company estimates core earnings per share in the range of 99 cents to $1.01 for this year. Private education loan originations are projected at $5 billion.
During the first quarter, about $30-million investment in technology infrastructure and product diversification was announced for 2018, which has been increased to $40 million to achieve a revised personal loan originations target of $475 million, up from the prior target of $300 million. Therefore, the company revised its full-year non-GAAP operating efficiency ratio guidance from 37-38% to 38-39%.
Our Viewpoint
Results of Sallie Mae highlight continued focus on increasing private education loan assets, maintaining a solid capital position by introducing multiple complementary products and improving efficiency.
We believe improving economic conditions and lower tax rate will further assist Sallie Mae in maintaining its leading position in the student lending market. Moreover, its focus on solidifying presence in the consumer banking business space bodes well for the upcoming quarters. However, worsening of credit quality and escalating expenses keep us apprehensive.
People's United Financial Inc. reported net earnings of 32 cents per share in second-quarter 2018, in line with the Zacks Consensus Estimate. Moreover, the reported figure climbed 33.3% year over year. Results benefited from an improvement in net interest income, and decline in expenses and provisions. Loan balances improved during the quarter.
Riding on higher revenues, Citizens Financial Group (CFG - Free Report) delivered a positive earnings surprise of 2.3% in the April-June quarter. Earnings per share of 88 cents topped the Zacks Consensus Estimate of 66 cents. The company experienced continued expansion of margins and loan growth, which aided revenues. Also, higher deposits and lower expenses were some other positives. However, increase in provisions was the key undermining factor.
SunTrust Banks' (STI - Free Report) second-quarter earnings of $1.49 per share outpaced the Zacks Consensus Estimate of $1.30. Also, the figure compared favorably with the prior-year quarter’s earnings of $1.03. Results were primarily driven by rise in revenues as well as lower provisions. Also, an improvement in overall asset quality was a tailwind. Nonetheless, higher expenses hurt results to some extent.
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Sallie Mae (SLM) Q2 Earnings Top Estimates on Solid Revenues
Sallie Mae (SLM - Free Report) delivered a positive earnings surprise of 8.7% in second-quarter 2018. The company reported core earnings of 25 cents per share, surpassing the Zacks Consensus Estimate of 23 cents. Moreover, the figure surged 56.3% from the prior-year quarter.
Increase in net interest income, aided by rising rates and non-interest income, were tailwinds. The private education loan portfolio and deposits grew considerably. 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 $106 million or 24 cents per share compared with $67 million or 15 cents per share reported in the year-ago quarter.
Rise in Net Interest Income & Other Income Offsets Higher Expenses
Net interest income for the second quarter came in at $341 million, up 26% year over year. The improvement was mainly driven by higher interest income on elevated loans. Net interest margin expanded 23 basis points (bps) year over year to 6.14%.
The company reported non-interest income of $7.5 million, up 7.1% from the prior-year quarter. This rise stemmed from higher gains on derivatives and hedging activities, along with other income.
The company’s non-interest expenses flared up 21.6% year over year to $135.3 million. The upsurge mainly resulted from increased compensation and benefits expenses, elevated FDIC assessment fees and other expenses.
Efficiency ratio, on a non-GAAP basis, decreased to 38.3% from 39.7% in the year-ago period. Generally, a lower ratio indicates improved profitability.
Credit Quality Worsens
Provision for loan losses was $63.3 million, up 26.1% from $50.2 million witnessed in prior-year quarter.
Delinquencies as a percentage of private education loans in repayment were 2.2%, in line with the year-ago quarter tally.
Growth in Deposit and Loans
As of Jun 30, 2018, deposits of Sallie Mae Bank were $16.7 billion, up from $13.8 billion as of Jun 30, 2017. Increase in retail and other, along with brokered deposits, contributed to this upside.
As of Jun 30, 2018, the private education loan portfolio was $18.5 billion, up 19.4% year over year. Loan origination climbed 13% to $487 million in the reported quarter. Average yield on the loan portfolio was 9.03%, up 70 bps.
Strong Capital Position
As of Jun 30, 2018, Sallie Mae Bank’s Tier 1 capital to risk-weighted assets and common equity Tier 1 capital were both 12%. Capital ratios exceeded the “well capitalized” industry benchmark in regulatory requirements.
2018 Outlook
The company estimates core earnings per share in the range of 99 cents to $1.01 for this year. Private education loan originations are projected at $5 billion.
During the first quarter, about $30-million investment in technology infrastructure and product diversification was announced for 2018, which has been increased to $40 million to achieve a revised personal loan originations target of $475 million, up from the prior target of $300 million. Therefore, the company revised its full-year non-GAAP operating efficiency ratio guidance from 37-38% to 38-39%.
Our Viewpoint
Results of Sallie Mae highlight continued focus on increasing private education loan assets, maintaining a solid capital position by introducing multiple complementary products and improving efficiency.
We believe improving economic conditions and lower tax rate will further assist Sallie Mae in maintaining its leading position in the student lending market. Moreover, its focus on solidifying presence in the consumer banking business space bodes well for the upcoming quarters. However, worsening of credit quality and escalating expenses keep us apprehensive.
SLM Corporation Price, Consensus and EPS Surprise
SLM Corporation Price, Consensus and EPS Surprise | SLM Corporation Quote
Currently, Sallie Mae carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
People's United Financial Inc. reported net earnings of 32 cents per share in second-quarter 2018, in line with the Zacks Consensus Estimate. Moreover, the reported figure climbed 33.3% year over year. Results benefited from an improvement in net interest income, and decline in expenses and provisions. Loan balances improved during the quarter.
Riding on higher revenues, Citizens Financial Group (CFG - Free Report) delivered a positive earnings surprise of 2.3% in the April-June quarter. Earnings per share of 88 cents topped the Zacks Consensus Estimate of 66 cents. The company experienced continued expansion of margins and loan growth, which aided revenues. Also, higher deposits and lower expenses were some other positives. However, increase in provisions was the key undermining factor.
SunTrust Banks' (STI - Free Report) second-quarter earnings of $1.49 per share outpaced the Zacks Consensus Estimate of $1.30. Also, the figure compared favorably with the prior-year quarter’s earnings of $1.03. Results were primarily driven by rise in revenues as well as lower provisions. Also, an improvement in overall asset quality was a tailwind. Nonetheless, higher expenses hurt results to some extent.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>