Sallie Mae SLM, formally known as SLM Corporation, reported fourth-quarter 2021 core earnings per share of $1.05, which surpassed the Zacks Consensus Estimate of $1.01. The bottom line compared unfavorably with $1.15 reported in the prior-year quarter.
SLM’s results benefited from improved fee income and net interest margin (NIM) expansion. Private education loan originations were also decent in the quarter. However, an increase in expenses and a deteriorating balance sheet position posed major undermining factors.
The company’s net income attributable to common stock was $305 million, down from $431 million in the prior-year quarter.
For the full year, earnings per share were $3.67, comparing favorably with the year-ago earnings of $2.23 per share. The same beat the consensus mark of $3.57. Net income available to common shareholders was $1.2 billion, up from $871 million in 2020.
Net Interest Income (NII) Improves, Expenses Climb
In 2021, NII was down 5.8% from the prior-year level to $1.39 billion. Also, the reported figure missed the Zacks Consensus Estimate of $1.41 billion.
NII in the fourth quarter was $367.4 million, up marginally year over year. However, the reported figure missed the Zacks Consensus estimate of $381.9 million. The NIM expanded to 5.13% from 4.82% in the year-ago quarter.
The company’s non-interest income was $152.8 million, up significantly from the prior-year quarter. The rise mainly stemmed from higher other income and net gain on sales of loans.
Sallie Mae's non-interest expenses increased 1.3% year over year to $125.5 million. The increase mainly resulted from higher FDIC assessment fees and other operating expenses, offset by lower costs due to compensation and benefits.
Credit Quality: A Mixed Bag
The company recorded a benefit for provision for credit losses of $15 million against expenses of $316 million in the prior-year quarter.
Delinquencies as a percentage of private education loans in repayment were 3.3%, up from 2.8% in the prior-year quarter.
Loans & Deposits Decrease
As of Dec 31, 2021, deposits of Sallie Mae were $20.8 billion, down 0.3% sequentially.
Private education loan held for investment was $19.6 billion, down 4.6% on a sequential basis. In the quarter, the company witnessed private education loan originations of $737 million.
Enhanced Capital Deployment Activities
In the fourth quarter, the company repurchased 14 million shares of its common stock for $263 million under its share repurchase programs.
Sallie Mae's board of directors also approved a $1.25-billion share buyback authorization, expiring on Jan 25, 2024. The amount is in addition to the remaining $26-million authorization (as of Jan 25, 2022) under the 2021 share repurchase program.
2022 Outlook
The company expects core earnings per share (on a GAAP basis) of $2.80-$3.
It anticipates total loan portfolio net charge-offs of $255-$275 million.
Private education loan originations are projected to grow 8-10% year over year.
The company’s non-interest expenses are expected to be $555-$565 million.
Conclusion
Sallie Mae remains focused on introducing multiple complementary products and improving efficiency. In line with this, the company has also entered a definitive agreement with Epic Research LLC to buy Nitro College, a digital marketing and education solutions company.
Management noted, the deal will “complement our core business, providing innovative and enhanced digital capabilities that meaningfully amplify our efforts to become an education solutions provider that helps students confidently navigate their entire higher education journey.”
We believe that improving economic conditions will further assist Sallie Mae in maintaining its leading position in the student lending market. Robust capital deployment activities are likely to drive its share price in the future.
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 Finance Stocks
Texas Capital Bancshares TCBI reported adjusted earnings per share of $1.19 for fourth-quarter 2021, surpassing the Zacks Consensus Estimate of 91 cents. Moreover, results compare favorably with the prior-year quarter’s $1.14.
Robust capital position and lower expenses were the driving factors for TCBI. Moreover, provision for credit losses recorded benefits. Yet, a fall in NII and fee income plus pressed margins were deterrents. Further, Texas Capital’s results reflect a decline in both loans and deposit balances.
Webster Financial WBS reported fourth-quarter 2021 adjusted earnings per share of $1.31, which surpassed the Zacks Consensus Estimate of $1.10. The reported figure excluded noteworthy items, such as charges related to mergers, strategic optimization and debt prepayment expenses.
Higher NII and fee income drove Webster Financial’s results. Moreover, declining costs, growth in loan balances and impressive capital ratios were positives. Also, the reserve release in the quarter was a tailwind. However, lower NIM and deposit balance were the key concerns for WBS.
Synovus Financial SNV reported fourth-quarter 2021 adjusted earnings of $1.35 per share, which beat the Zacks Consensus Estimate of $1.1. Also, the bottom line compares favorably with earnings of $1.08 per share recorded in the year-ago quarter.
Synovus’ results were driven by rising NII and fee income, lower expenses, and the reversal of provisions. SNV's solid loan and deposit balances stoked organic growth. However, shrinking NIM and deteriorating capital position were the undermining factors.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
