Sallie Mae ( SLM Quick Quote SLM - Free Report) reported third-quarter 2020 earnings per share of 47 cents (on core basis) beating the Zacks Consensus Estimate of 14 cents. Also, the bottom line compared favorably with 29 cents reported in the prior-year quarter.
Results benefited from the company’s prudent cost management and improved loans balance. Also, benefit from loan losses was a tailwind. However, lower revenues posed a major undermining factor.
The company’s GAAP net income attributable to common stock was $169 million or 45 cents compared with $124.3 million or 29 cents a year ago.
Net Interest Income Declines, Expenses Fall
Net interest income for the third quarter was $364.6 million, down 10% year over year. The decline is attributable to lower interest income. Net interest margin contracted to 4.79% in the quarter from 5.55% reported in the year-ago quarter.
The company’s non-interest income was $9.6 million compared with $17.2 million in the prior-year quarter. The decline mainly stemmed from lower other income and loss on derivatives and hedging activities.
The company’s non-interest expenses fell 1.3% year over year to $151.6 million. The fall mainly resulted from lower FDIC assessment fees, partly offset by higher restructuring expenses.
Credit Quality: A Mixed Bag
The company recorded a benefit from loan losses of $3.6 million against expenses of $99.5 million witnessed in the prior-year quarter.
Delinquencies as a percentage of private education loans in repayment were 3%, up 2 basis points from the year-ago quarter.
Loans Rise, Deposits Decline
As of Sep 30, 2020, deposits of Sallie Mae were $23.1 billion, down marginally from $23.6 billion as of Jun 30, 2020. Lower brokered deposits contributed to the downside.
Loans held for investment were $21.7 billion as of Sep 30, 2020, up 2.4% sequentially. Private education loan portfolio (97% of total loans) was $21 billion, up 5.9% on a sequential basis. During the quarter, the company witnessed private education loan originations of $1.9 billion.
Capital Position Strong
As of Sep 30, 2020, Sallie Mae’s common equity Tier 1 capital was 12.7%, exceeding the “well-capitalized” industry benchmark in regulatory requirements.
Sallie Mae remains focused on increasing private education loan assets, maintaining a solid capital position by introducing multiple complementary products and improving efficiency. Additionally, its aim to solidify presence in the consumer banking business space bodes well. However, the contraction of margin due to lower rates and falling fee income keep the top line under pressure.
Currently, Sallie Mae carries a Zacks Rank #4 (Sell).
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