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Sallie Mae (SLM) Stock Gains on Q1 Earnings and NII Beat

Sallie Mae SLM, formally known as SLM Corporation, gained 2.4% in after-hours trading following the release of its first-quarter 2023 results. The company reported core earnings per share of 47 cents, beating the Zacks Consensus Estimate of 35 cents. The bottom line compared unfavorably with the prior-year quarter’s earnings of 46 cents. Core earnings per share exclude mark-to-fair value unrealized gains and losses on derivative contracts.Our estimate for the same was 61 cents.

Results were aided by lower provisions for credit losses, an increase in net interest income (NII) on higher interest rates and robust loan originations. A rise in non-interest expenses was worrisome.

The company’s GAAP net income was $119 million, down 8% from the previous-year quarter.Our estimate for the same was $149.4 million.

NII Improves, Expenses Climb 

 NII in the first quarter was $405.1 million, up 8% year over year. Also, the reported figure surpassed the Zacks Consensus Estimate of $373.7 million.Our estimate for the same was $348 million.

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The net interest margin (NIM) expanded 41 basis points to 5.70%.

The company’s non-interest income of $22 million was flat from the prior-year quarter. This was mainly attributable to net gains on securities and a substantial decline in net gain on the sale of loans.Our estimate for the same was $20.5 million.

Sallie Mae's non-interest expenses increased 17.4% to $155 million. The increase mainly resulted from higher compensation and benefits, and FDIC assessment fees.Our estimate for the same was $97.1 million.

Credit Quality Mixed

The company recorded a provision for credit losses of $114 million compared with $375 million in the prior-year quarter. Net charge-offs for private education loans were $83 million. Net charge-offs as a percentage of average private education loans held for investment in repayment (annualized) was 2.1%, up from 1.9% year over year.

Balance Sheet Position Robust

As of Mar 31, 2023, deposits of Sallie Mae were $21.80 billion, up 1.6% on a sequential basis.

Private education loan held for investment was $20.49 billion, up 7.7% on a sequential basis. In the quarter, the company witnessed private education loan originations of $2.4 billion, increasing 12% from the year-ago quarter.

Share Repurchase Update

In the first quarter, the company did not repurchase common stocks under its existing share repurchase program.

2023 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 $345-$385 million.

Private education loan originations are projected to grow 5-6% year over year.

The company’s non-interest expenses are expected to be $610-$620 million.

Conclusion

The overall financial performance of the company seems decent. The improvements in NIM and NII are positives. High loan demand, along with reduced prepayments, positions its balance sheet well. However, a rise in expenses and a deterioration in credit quality remain major near-term headwinds.

SLM Corporation Price, Consensus and EPS Surprise

 

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 #2 (Buy). You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.

Performance Other Consumer Loan Providers

Ally Financial’s ALLY first-quarter 2023 adjusted earnings of 82 cents per share missed the Zacks Consensus Estimate of 88 cents. The bottom line reflects a decline of 59.6% from the year-ago quarter.

Ally’s results were primarily hurt by a decline in revenues and higher expenses. A significant increase in provisions was another undermining factor. However, an increase in loans was a tailwind for ALLY.

Navient Corporation NAVI reported first-quarter 2023 adjusted earnings per share of $1.06, surpassing the Zacks Consensus Estimate of 88 cents. The reported figure compares favorably with the year-ago quarter’s 90 cents.

A fall in core net interest income (NII) and total other income, as well as higher expenses, has hindered Navient’s results. However, a decrease in expenses was a tailwind for NAVI.

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