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Sallie Mae (SLM) Q4 Earnings in Line; 2017 View Upbeat
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Sallie Mae’s (SLM - Free Report) fourth-quarter 2016 core earnings of 15 cents per share were in line with the Zacks Consensus Estimate. Compared to the prior-year quarter, the bottom line declined 25%.
Results reflected increased net interest income. Continued rise in private education loan originations was a tailwind. However, these positives were offset by lower non-interest income, higher expenses and a significant rise in provisions.
Sallie Mae (formally SLM Corporation) reported core earnings (primarily adjusting for derivatives), attributable to the company's common stock, of $67 million, down 21% from the year-ago quarter.
For 2016, the company reported core earnings attributable to common stock of $231 million or 53 cents per share, down from $254 million or 59 cents per share for 2015.
Net Interest Income Growth Overshadowed by Higher Expenses
Net interest income for fourth-quarter 2016 was $245 million, up 31% year over year. The rise was mainly driven by an increase in the portfolio size of private education loans. Net interest margin expanded 7 basis points (bps) year over year to 5.55%.
Non-interest income came in at $9.4 million, reflecting a significant decrease from $72 million in the prior-year quarter, primarily reflecting substantial decline in gains on sales of loans as well as losses on derivatives and hedging activities recorded in the reported quarter.
The company’s total expenses were up 16% year over year to $98 million. The rise in expenses was mainly due to increased compensation and benefits expenses, higher FDIC assessment fees and other expenses as well.
Efficiency ratio, on a non-GAAP basis, declined to 38.6% in the quarter, from 42.5% in the year-ago quarter. Generally, a lower ratio indicates improved efficiency.
Provision for loan losses was $43.2 million, up 42% year over year.
As of Dec 31, 2016, the private education loan portfolio was $14.1 billion, up 34% year over year. Notably, loan origination climbed 6% year over year to $608 million in the reported quarter.
Average yield on the loan portfolio was 8.08%, up 24 bps year over year. Delinquencies as a percentage of private education loans in repayment were 2.1%, down from 2.2 %.
Deposits Rise
As of Dec 31, 2016, deposits of Sallie Mae Bank were $13.4 billion, up from $11.5 billion as of Dec 31, 2015. Increases in retail and other deposits contributed to the rise in deposits.
Strong Capital Position
As of Dec 31, 2016, Sallie Mae Bank’s Tier 1 capital to risk-weighted assets and common equity Tier 1 capital were both at 12.6%. Capital ratios exceeded the “well capitalized” industry benchmark in regulatory requirements.
2017 Outlook
Sallie Mae provided guidance for 2017. The company estimates core earnings per share in the range of 67–69 cents for this year. Operating efficiency ratio on a non-GAAP basis is expected in the range of 38–39%. Private education loan originations are projected to be $4.9 billion for the year.
Other Development
Concurrently, a lawsuit has been filed by Illinois Attorney General Lisa Madigan against Sallie Mae Bank and Navient Corporation (NAVI - Free Report) and its subsidiaries stemming from multi-state investigation of various lending, servicing, and collection practices. In response to this, Sallie Mae noted that “Navient has accepted responsibility for all costs, expenses, losses and remediation arising from this matter.”
Notably, in Apr 2014, Sallie Mae and Navient had separated into two, independent companies.
Our Viewpoint
Results of Sallie Mae highlight the company’s consistent focus on increasing private education loan assets and revenues, while maintaining a solid capital position and improving efficiency.
We believe that Sallie Mae’s leading position in the student lending market and its focus on solidifying its presence in the consumer banking business space would help it to perform well in the upcoming quarters. The economic recovery and declining unemployment rate should improve the prospects of consumer banking.
Nevertheless, we remain cautious owing to several issues which the entity is facing. These include a competitive environment in the saturated banking space and the prevailing regulatory headwinds.
Among other firms in the finance space, Capital One Financial Corporation (COF - Free Report) and Discover Financial Services (DFS - Free Report) are expected to release results on Jan 24.
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Sallie Mae (SLM) Q4 Earnings in Line; 2017 View Upbeat
Sallie Mae’s (SLM - Free Report) fourth-quarter 2016 core earnings of 15 cents per share were in line with the Zacks Consensus Estimate. Compared to the prior-year quarter, the bottom line declined 25%.
Results reflected increased net interest income. Continued rise in private education loan originations was a tailwind. However, these positives were offset by lower non-interest income, higher expenses and a significant rise in provisions.
Sallie Mae (formally SLM Corporation) reported core earnings (primarily adjusting for derivatives), attributable to the company's common stock, of $67 million, down 21% from the year-ago quarter.
For 2016, the company reported core earnings attributable to common stock of $231 million or 53 cents per share, down from $254 million or 59 cents per share for 2015.
Net Interest Income Growth Overshadowed by Higher Expenses
Net interest income for fourth-quarter 2016 was $245 million, up 31% year over year. The rise was mainly driven by an increase in the portfolio size of private education loans. Net interest margin expanded 7 basis points (bps) year over year to 5.55%.
Non-interest income came in at $9.4 million, reflecting a significant decrease from $72 million in the prior-year quarter, primarily reflecting substantial decline in gains on sales of loans as well as losses on derivatives and hedging activities recorded in the reported quarter.
The company’s total expenses were up 16% year over year to $98 million. The rise in expenses was mainly due to increased compensation and benefits expenses, higher FDIC assessment fees and other expenses as well.
Efficiency ratio, on a non-GAAP basis, declined to 38.6% in the quarter, from 42.5% in the year-ago quarter. Generally, a lower ratio indicates improved efficiency.
Provision for loan losses was $43.2 million, up 42% year over year.
As of Dec 31, 2016, the private education loan portfolio was $14.1 billion, up 34% year over year. Notably, loan origination climbed 6% year over year to $608 million in the reported quarter.
Average yield on the loan portfolio was 8.08%, up 24 bps year over year. Delinquencies as a percentage of private education loans in repayment were 2.1%, down from 2.2 %.
Deposits Rise
As of Dec 31, 2016, deposits of Sallie Mae Bank were $13.4 billion, up from $11.5 billion as of Dec 31, 2015. Increases in retail and other deposits contributed to the rise in deposits.
Strong Capital Position
As of Dec 31, 2016, Sallie Mae Bank’s Tier 1 capital to risk-weighted assets and common equity Tier 1 capital were both at 12.6%. Capital ratios exceeded the “well capitalized” industry benchmark in regulatory requirements.
2017 Outlook
Sallie Mae provided guidance for 2017. The company estimates core earnings per share in the range of 67–69 cents for this year. Operating efficiency ratio on a non-GAAP basis is expected in the range of 38–39%. Private education loan originations are projected to be $4.9 billion for the year.
Other Development
Concurrently, a lawsuit has been filed by Illinois Attorney General Lisa Madigan against Sallie Mae Bank and Navient Corporation (NAVI - Free Report) and its subsidiaries stemming from multi-state investigation of various lending, servicing, and collection practices. In response to this, Sallie Mae noted that “Navient has accepted responsibility for all costs, expenses, losses and remediation arising from this matter.”
Notably, in Apr 2014, Sallie Mae and Navient had separated into two, independent companies.
Our Viewpoint
Results of Sallie Mae highlight the company’s consistent focus on increasing private education loan assets and revenues, while maintaining a solid capital position and improving efficiency.
We believe that Sallie Mae’s leading position in the student lending market and its focus on solidifying its presence in the consumer banking business space would help it to perform well in the upcoming quarters. The economic recovery and declining unemployment rate should improve the prospects of consumer banking.
Nevertheless, we remain cautious owing to several issues which the entity is facing. These include a competitive environment in the saturated banking space and the prevailing regulatory headwinds.
SLM Corp. Price, Consensus and EPS Surprise
SLM Corp. Price, Consensus and EPS Surprise | SLM Corp. Quote
Sallie Mae currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other firms in the finance space, Capital One Financial Corporation (COF - Free Report) and Discover Financial Services (DFS - Free Report) are expected to release results on Jan 24.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>