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Sallie Mae (SLM) Tops Q2 Earnings Estimates, Ups '21 Outlook

Sallie Mae SLM,formally known as SLM Corporation, reported second-quarter 2021 core earnings per share of 45 cents, which handily surpassed the Zacks Consensus Estimate of 39 cents. The bottom line compared favorably with a loss of 22 cents reported in the prior-year quarter.

Results benefited from the company’s prudent cost management and improved fee income. Benefit from loan losses was another tailwind. However, lower net interest income (NII) on a decline in average loans outstanding posed a major undermining factor.

The company’s GAAP net income attributable to common stock was $139 million against a GAAP net loss of $88 million a year ago.

NII Declines, Expenses Fall

NII in the second quarter was $338.8 million, down 2.9% year over year. The decline is attributable to the sale of private education and personal loan portfolios in the prior quarters. It also lagged the Zacks Consensus estimate of $342.6 million. Net interest margin expanded to 4.7% from 4.55% in the year-ago quarter.

The company’s non-interest income was $52 million, up 79% from the prior-year quarter. The rise mainly stemmed from higher other income and gain on sales of loans.

Sallie Mae's non-interest expenses fell 10% year over year to $128 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 Improves

The company recorded a provision for loan losses of $70 million, significantly lower than $352 million in the prior-year quarter.

Delinquencies as a percentage of private education loans in repayment were 2.1%, down from 2.2%.

Loans & Deposits Decrease

As of Jun 30, 2021, deposits of Sallie Mae were $21.1 billion, down 7.4% sequentially. Lower brokered deposits contributed to the downside.

Private education loan held for investment (96% of total loans) was $19.4 billion, down 1.2% on a sequential basis. In the quarter, the company witnessed private education loan originations of $533 million.

Capital Deployment Activities

In the second quarter, the company repurchased 23 million shares of its common stock for $439 million under its share repurchase programs.

With this, as of Jun 30, it had $295 million of remaining capacity under the original $1.25-BILLION authorization program, which will expire on Jan 26, 2023.

2021 Outlook

The company raised its earnings per share (on a GAAP basis) projection to $3.15-$3.25 from $2.95-$3.15 mentioned earlier.

Total portfolio net charge-offs of $215-$225 million are anticipated for 2021.

Private education loan originations are projected to grow 6-7% year over year.

The company’s non-interest expenses are expected to be $525-$535 million.

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 bodes well. We believe that improving economic conditions will further assist Sallie Mae in maintaining its leading position in the student lending market.

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

Performance of Other Banks

KeyCorp’s KEY second-quarter 2021 earnings of 72 cents per share handily surpassed the Zacks Consensus Estimate of 55 cents. The bottom line improved substantially from 16 cents earned in the prior-year quarter.

Zions Bancorporation’s ZION second-quarter 2021 net earnings per share of $2.08 surpassed the Zacks Consensus Estimate of $1.25. The bottom line marks a significant improvement from 34 cents earned in the year-ago quarter.

State Street’s STT second-quarter 2021 adjusted earnings of $1.97 per share outpaced the Zacks Consensus Estimate of $1.78. The bottom line was 4.8% higher than the prior-year level.

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