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Sallie Mae (SLM) Q1 Earnings Top Estimates as Expenses Fall

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Sallie Mae’s (SLM - Free Report) first-quarter 2021 earnings per share of $1.77 (on core basis) handily surpassed the Zacks Consensus Estimate of $1. Also, the bottom line compared favorably with 79 cents reported in the prior-year quarter.

Results benefited from the company’s prudent cost management and improved fee income. Also, benefit from loan losses was a tailwind. However, lower net interest income on fall in rates posed a major undermining factor.

The company’s GAAP net income attributable to common stock was $640 million or $1.75 compared with $359 million or 87 cents a year ago.

Net Interest Income Declines, Expenses Fall

Net interest income in the first quarter was $331.1 million, down 17.2% year over year. The decline is attributable to sale of private education and personal loan portfolios. Net interest margin contracted to 4.40% from 5.08% in the year-ago quarter.

The company’s non-interest income was $413.4 million, up 41.5% the prior-year quarter. The rise mainly stemmed from higher other income and gain on sales of loans.

The company’s non-interest expenses fell 14.7% year over year to $125.6 million. The fall mainly resulted from lower FDIC assessment fees, compensation and benefits and other operating expenses, partly offset by higher restructuring expenses.

Credit Quality Improved

The company recorded a benefit from loan losses of $225.8 million against provisions of $61.3 million in the prior-year quarter.

Delinquencies as a percentage of private education loans in repayment were 2.1%, down from 3.2%.

Loans & Deposits Increase

As of Mar 31, 2021, deposits of Sallie Mae were $22.8 billion, up slightly from $22.7 billion as of Dec 31, 2020. Higher brokered deposits contributed to the upside.

Private education loan held for investment (96% of total loans) was $19.6 billion, up 6.5% on a sequential basis. During the quarter, the company witnessed private education loan originations of $2.1 billion.

Capital Deployment Activities

During the quarter, the company repurchased $592 million of common stock under its share repurchase programs.

Outlook 2021

The company raised its earnings per share (on GAAP basis) projection to $2.95-$3.15 up from $2.20-$2.40 expected earlier.

Our Viewpoint

Sallie Mae remains focused on 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 is a concern. Nevertheless, we believe improving economic conditions will further assist Sallie Mae in maintaining its leading position in the student lending market.

SLM Corporation Price, Consensus and EPS Surprise

SLM Corporation Price, Consensus and EPS Surprise

SLM Corporation price-consensus-eps-surprise-chart | SLM Corporation Quote

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

Performance of Other Companies

Synovus Financial (SNV - Free Report) reported first-quarter 2021 adjusted earnings of $1.21 per share, which handily beat the Zacks Consensus Estimate of 93 cents, aided by solid mortgage banking income. Also, the bottom line increased 17.4% from the prior-year quarter figure.

Fifth Third Bancorp (FITB - Free Report) delivered a positive earnings surprise of 34.7% in first-quarter 2021. Earnings of 93 cents per share, surpassed the Zacks Consensus Estimate of 69 cents. Results also compare favorably with the prior-year quarter’s earnings of 13 cents.

Webster Financial (WBS - Free Report) reported first-quarter 2021 adjusted earnings per share of $1.25, which surpassed the Zacks Consensus Estimate of 89 cents. The reported figure excluded noteworthy items such as charges related to strategic optimization initiatives.

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