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Sallie Mae (SLM) Q3 Earnings Match Estimates, Expenses Rise
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Sallie Mae (SLM - Free Report) reported third-quarter 2018 core earnings of 23 cents per share, in line with the Zacks Consensus Estimate. Moreover, the figure surged 35% from 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. However, these positives were offset by elevated expenses and poor credit quality. Further, non-interest loss was another major downside.
The company’s GAAP net income attributable to common stock came in at $99.8 million or 23 cents per share compared with $73.3 million or 17 cents per share reported in the year-ago quarter.
Rise in Net Interest Income Offset by Other Losses & High Costs
Net interest income for the third quarter came in at $356.6 million, up 26.4% year over year. The improvement was mainly driven by higher interest income on elevated loans. Net interest margin expanded 15 basis points (bps) to 6%.
The company reported non-interest loss of $85.7 million compared with $6.1 million in the prior-year quarter. This downside stemmed from losses on derivatives and hedging activities, along with lower other income.
The company’s non-interest expenses flared up 29.6% year over year to $150.7 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, increased to 54.7% from 40.6% in the year-ago period. Generally, a higher ratio indicates fall in profitability.
Credit Quality: A Mixed Bag
Provision for loan losses was $70 million, up 27.5% from $54.9 million witnessed in prior-year quarter.
However, delinquencies as a percentage of private education loans in repayment were 2.3%, down 3 bps from the year-ago quarter tally.
Growth in Deposit and Loans
As of Sep 30, 2018, deposits of Sallie Mae Bank were $17.9 billion, up from $15 billion as of Sep 30, 2017. Increase in retail and other, along with brokered deposits, contributed to this upside.
As of Sep 30, 2018, the private education loan portfolio was $20 billion, up 18.1% year over year. Loan origination climbed 12% to $2.1 billion in the reported quarter. Average yield on the loan portfolio was 9.16% up 66 bps.
Strong Capital Position
As of Sep 30, 2018, Sallie Mae Bank’s Tier 1 capital to risk-weighted assets and common equity Tier 1 capital were both 11.5%. Capital ratios exceeded the “well capitalized” industry benchmark in regulatory requirements.
2018 Outlook
The company raised guidance for core earnings per share to $1.02-$1.03 for this year compared with 99 cents to $1.01 it had expected during the second quarter.
Private education loan originations are projected to be $5.2 billion, up from $5 billion estimated previously.
The company kept its full-year non-GAAP operating efficiency ratio guidance stable at 38-39%.
Our Viewpoint
Results of Sallie Mae were not so impressive this time around. Year-over-year loss in fee income metric along with escalating expenses were the undermining factors. However, the lender’s continued focus on increasing private education loan assets and maintaining a solid capital position by introducing multiple complementary products is encouraging.
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.
Texas Capital Bancshares Inc. (TCBI - Free Report) reported a negative earnings surprise of 4.1% in third-quarter 2018. Earnings per share of $1.65 lagged the Zacks Consensus Estimate of $1.72. However, results compare favorably with $1.12 recorded in the prior-year quarter.
Citizens Financial Group (CFG - Free Report) delivered a positive earnings surprise of 3.3% in third-quarter 2018, riding on higher revenues. Adjusted earnings per share of 93 cents topped the Zacks Consensus Estimate of 90 cents. Also, the bottom line compared favorably with 68 cents per share reported in the prior-year quarter.
People's United Financial Inc. delivered a negative earnings surprise of 2.9% in third-quarter 2018. Net earnings of 33 cents per share lagged the Zacks Consensus Estimate by a penny. However, the reported figure improved 26.9% year over year.
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And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
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Sallie Mae (SLM) Q3 Earnings Match Estimates, Expenses Rise
Sallie Mae (SLM - Free Report) reported third-quarter 2018 core earnings of 23 cents per share, in line with the Zacks Consensus Estimate. Moreover, the figure surged 35% from 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. However, these positives were offset by elevated expenses and poor credit quality. Further, non-interest loss was another major downside.
The company’s GAAP net income attributable to common stock came in at $99.8 million or 23 cents per share compared with $73.3 million or 17 cents per share reported in the year-ago quarter.
Rise in Net Interest Income Offset by Other Losses & High Costs
Net interest income for the third quarter came in at $356.6 million, up 26.4% year over year. The improvement was mainly driven by higher interest income on elevated loans. Net interest margin expanded 15 basis points (bps) to 6%.
The company reported non-interest loss of $85.7 million compared with $6.1 million in the prior-year quarter. This downside stemmed from losses on derivatives and hedging activities, along with lower other income.
The company’s non-interest expenses flared up 29.6% year over year to $150.7 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, increased to 54.7% from 40.6% in the year-ago period. Generally, a higher ratio indicates fall in profitability.
Credit Quality: A Mixed Bag
Provision for loan losses was $70 million, up 27.5% from $54.9 million witnessed in prior-year quarter.
However, delinquencies as a percentage of private education loans in repayment were 2.3%, down 3 bps from the year-ago quarter tally.
Growth in Deposit and Loans
As of Sep 30, 2018, deposits of Sallie Mae Bank were $17.9 billion, up from $15 billion as of Sep 30, 2017. Increase in retail and other, along with brokered deposits, contributed to this upside.
As of Sep 30, 2018, the private education loan portfolio was $20 billion, up 18.1% year over year. Loan origination climbed 12% to $2.1 billion in the reported quarter. Average yield on the loan portfolio was 9.16% up 66 bps.
Strong Capital Position
As of Sep 30, 2018, Sallie Mae Bank’s Tier 1 capital to risk-weighted assets and common equity Tier 1 capital were both 11.5%. Capital ratios exceeded the “well capitalized” industry benchmark in regulatory requirements.
2018 Outlook
The company raised guidance for core earnings per share to $1.02-$1.03 for this year compared with 99 cents to $1.01 it had expected during the second quarter.
Private education loan originations are projected to be $5.2 billion, up from $5 billion estimated previously.
The company kept its full-year non-GAAP operating efficiency ratio guidance stable at 38-39%.
Our Viewpoint
Results of Sallie Mae were not so impressive this time around. Year-over-year loss in fee income metric along with escalating expenses were the undermining factors. However, the lender’s continued focus on increasing private education loan assets and maintaining a solid capital position by introducing multiple complementary products is encouraging.
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.
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
Texas Capital Bancshares Inc. (TCBI - Free Report) reported a negative earnings surprise of 4.1% in third-quarter 2018. Earnings per share of $1.65 lagged the Zacks Consensus Estimate of $1.72. However, results compare favorably with $1.12 recorded in the prior-year quarter.
Citizens Financial Group (CFG - Free Report) delivered a positive earnings surprise of 3.3% in third-quarter 2018, riding on higher revenues. Adjusted earnings per share of 93 cents topped the Zacks Consensus Estimate of 90 cents. Also, the bottom line compared favorably with 68 cents per share reported in the prior-year quarter.
People's United Financial Inc. delivered a negative earnings surprise of 2.9% in third-quarter 2018. Net earnings of 33 cents per share lagged the Zacks Consensus Estimate by a penny. However, the reported figure improved 26.9% year over year.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>