SLM Corp. ( SLM ) - commonly known
as Sallie Mae - reported its first-quarter 2013 core earnings of 61
cents per share, slightly ahead of the Zacks Consensus Estimate of
59 cents. Results also compare favorably with the year-ago core
earnings of 55 cents.FLAGSTAR BANCP (FBC): Free Stock Analysis
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Including a $55 million gain from the sale of residual interest in
a FFELP loan securitization trust, a $12 million decline in the
provision for loan losses and a decline in the number of common
shares outstanding, which more-than-offset lower net interest
income before provision for loan losses of $57 million and lower
debt repurchase gains of $8 million, core earnings stood at $283
million compared with $284 million in the year-ago quarter.
Lower loan loss provisions primarily boosted the company's
better-than-expected results. However, decreased net interest
income and elevated operating expenses remained the looming
Including the aforementioned one-time items along with changes in
mark-to-market unrealized gains and losses on derivative contracts
as well as amortization and impairment of goodwill and intangible
assets, Sallie Mae recorded first-quarter 2013 GAAP net income of
$346 million or 74 cents per share compared with $112 million or 21
cents per share in the prior-year quarter. First-quarter 2013 GAAP
results included a $110 million gain from derivative accounting
treatment versus losses of $264 million in the prior-year
Net interest income (NII) declined 4% year over year to $795
million in the reported quarter, primarily attributable to a
decrease in average FFELP Loans outstanding.
However, provision for loan losses dropped 5% year over year to
$241 million, mainly due to the overall improvement in Private
Education Loans' credit quality and delinquency trends as well as
probable decreases in charge-offs.
The company's operating expenses ascended 3% year over year to
Consumer Lending : The segment's
core earnings stood at $88 million in the reported quarter compared
with $84 million in the year-ago quarter.
Core net interest margin, before loan loss provision, declined to
4.15% from 4.26% in the prior-year period. Private education loan
originations were $1.4 billion, up 22% year over year.
The charge-off rate (as a percentage of loans in repayment) was
3.0% on an annualized basis, stable from the prior-year quarter.
Provision for loan losses increased 4% year over year to $225
Business Services : The segment
reported core earnings of $124 million, down 9% from the year-ago
quarter. The decline resulted from lower balance of FFELP loans
serviced by Sallie Mae.
Federally Guaranteed Student
Loans ( FFELP ): The segment generated
core earnings of $104 million, up 30% from $80 million in the
year-ago quarter. The increase was driven by a $55 million gain
from the sale of the residual interest in a FFELP loan
securitization trust, which more than offset the decline in net
interest income from the amortizing FFELP portfolio.
For full year 2013, management expects to generate core earnings
of $2.49 per share, inclusive of the contributions from the two
FFELP loan securitization trust residual sales that were generated
in 2013. Further, it anticipates private education loan
originations of at least $4.0 billion.
Capital Deployment Update
Sallie Mae's capital deployment efforts are encouraging. For the
first-quarter 2013, Sallie Mae repurchased 10 million shares of
common stock for $199 million. The shares were repurchased under
the company's Feb 2013 program that authorizes buy back of shares
worth up to $400 million.
In April, Sallie Mae completed the sale of its remaining interest
in its SLM Student Loan Trust 2006-2 securitization to a third
party. However, under the existing contract, Sallie Mae will
continue servicing student loans in the trust. The sale will result
in the elimination of student loans worth $2.03 billion and
associated liabilities worth $1.99 billion from Sallie Mae's
balance sheet. Further, the gain from the deal will result in
additional 13 cents per share to Sallie Mae's second-quarter 2013
GAAP as well as core earnings.
Earlier in February, Sallie Mae sold its remaining interest in its
SLM Student Loan Trust 2007-4 securitization to a third party.
However, under the existing contract, Sallie Mae will continue
servicing the student loans in the trust. The sale will result in
the removal of student loans of $3.8 billion and associated
liabilities worth $3.7 billion from Sallie Mae's balance sheet.
Further, the gain from the deal will result in an addition of 8
cents per share to Sallie Mae's full-year 2013 GAAP as well as core
Despite the challenges, we believe that the company's leading
position in the student lending market, diversifying efforts and
increasing private student loan originations would help the company
navigate well through the current cycle. In addition, federal
student loan asset acquisition serves as a positive catalyst. The
company's capital deploying efforts are impressive and we believe
that it will succeed in managing the regulatory issues.
Suspension of the new federal student loan origination in
compliance with the legislation will continue to impact revenue
generation capabilities of student lenders like Sallie Mae and
Nelnet Inc. ( NNI ). However, we
believe that Sallie Mae's efforts coupled with the improving
economy will bolster its earnings by expanding its private
education loan business and reducing its loan loss provision
Sallie Mae currently carries a Zacks Rank #4 (Sell). Other
financial stocks that are performing better than Sallie Mae include
First Defiance Financial Corp. ( FDEF ) and
Flagstar Bancorp Inc. ( FBC ). Both these
stocks carry a Zacks Rank #1 (Strong Buy).