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Sallie Mae's (SLM) Q2 Earnings Beat Estimates, Stock Down 10%

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Sallie Mae (SLM - Free Report) , formally known as SLM Corporation, lost 10% following the release of its second-quarter earnings, despite reporting better-than-expected numbers. Core earnings per share of $1.29 surpassed the Zacks Consensus Estimate of $1.24. The bottom line compared favorably with 45 cents reported in the prior quarter.

Sallie Mae completed $2.1 billion of private education loan sales during the second quarter resulting in a $240-milliongain. Moreover, the results were supported by higher net interest income (NII) and fee income. However, the decline in deposits impacted the balance sheet.

The company’s GAAP net income attributable to common stock was $340.3 million, up from the previous-year quarter’s $139 million.

NII Improves, Expenses Climb

NII in the second quarter was $362.8 million, up 7% year over year. Also, the reported figure surpassed the Zacks Consensus Estimate of $352 million.

The net interest margin (NIM) expanded to 5.29% from 4.70% in the year-ago quarter.

The company’s non-interest income was $258.3 million, significantly up from the prior-year quarter’s $52.3 million. The rise mainly stemmed from net gains on sales of loans.

Sallie Mae's non-interest expenses increased 5% year over year to $134 million. The increase mainly resulted from higher compensation and benefits and other operating expenses.

Credit Quality Mixed

The company recorded a provision for credit losses of $31 million, down from the prior-year quarter’s $69.7 million.

However, delinquencies, as a percentage of private education loans in repayment, were 3.7%, up from 2.1% in the prior-year quarter.

Balance Sheet Position Weak

As of Jun 30, 2022, deposits of Sallie Mae were $20 billion, down 5% sequentially.
Private education loan held for investment was $18.51 billion, down 10% on a sequential basis. In the quarter, the company witnessed private education loan originations of $616 million, increasing 16% from the year-ago quarter.

Capital Deployment Activities

In the second quarter, the company repurchased 20 million common stock at a total cost of $360 million under its share repurchase program.

2022 Outlook

The company expects core earnings per share (on a non-GAAP basis) of $2.50-$2.70.

It anticipates total loan portfolio net charge-offs of $325-$345 million.

Private education loan originations are projected to grow 9-11% year over year.

The company’s non-interest expenses are expected to be $555-$565 million.

Conclusion

The overall financial performance of the company seems encouraging. The improvement in NIM and a decline in the provision for credit losses are positive factors. However, a rise in expenses was a matter of concern.

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, the company 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 Finance Stocks

Capital One’s (COF - Free Report) earnings of $4.96 per share lagged the Zacks Consensus Estimate of $5.13. The bottom line also plunged 35% from the year-ago quarter.

Results of Capital One were adversely impacted by higher provisions for credit losses on the worsening macroeconomic environment and recessionary fears. Also, higher operating expenses acted as a headwind.

Navient Corporation’s (NAVI - Free Report) adjusted core earnings per share of 92 cents handily surpassed the Zacks Consensus Estimate of 79 cents. However, the bottom line was lower than the prior-year quarter’s 98 cents.

The results of Navient were affected by the fall in non-interest income and NII. The overall segmental performance reflects a downside. Nonetheless, the company managed to improve its expenses.


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