Sallie Mae’s (SLM) core earnings of 3 cents per share for fourth-quarter 2014 missed the Zacks Consensus Estimate of 5 cents. Also, it compared unfavorably with core earnings of 14 cents reported in the year-ago quarter.
Following the separation of SLM Corporation into two distinct publicly-traded entities on Apr 30, 2014, Sallie Mae started operating independently as a consumer-banking company focused on offering private education loans, saving and insurance products for higher education to students and families.
Results of the fourth quarter were affected by higher expenses and provisions, partially offset by increased net interest income. However, a decent capital position, rise in loan originations and increased balance in the private education loan portfolio were the positives.
Core earnings (primarily adjusts for derivatives) for the quarter were $20 million, down from $61 million in the year-ago quarter.
Sallie Mae reported GAAP net income of $20 million or 3 cents per share, down from $60 million or 14 cents per share in the prior-year quarter.
For full year 2014, core earnings came in at 42 cents per share, missing the Zacks Consensus Estimate by a penny. Also, it came below the prior-year figure of 58 cents per share. However, for full-year 2015, the company expects higher core earnings per share which is in the range of 48–50 cents.
Core earnings for the year stood at $195 million versus $259 million in 2013.
GAAP net income was $194 million or 42 cents per share in 2014 versus GAAP net income of $259 million or 58 cents per share in the prior year.
Performance in Detail
Net interest income (‘NII’) came in at $151 million, up 23% year over year. Net interest margin ('NIM') increased to 5.01 % from 4.95 % in the prior-year period.
The company’s operating expenses rose 16.9% year over year to $88 million. The current quarter includes reorganization expenses of $10 million.
Private Education Loan Portfolio
As of Dec 31, 2014, the private education loan portfolio stood at $8.2 billion, up 27% year over year. Loan origination increased 7% year over year to $557 million. Average yield on the loan portfolio was 8.07%, down from 8.17% in the year-ago period. Provision for loan losses stood at $30 million, increasing from $28 million in the prior-year quarter.
Deposits
As of Dec 31, 2014, deposits of Sallie Mae Bank stood at $11.3 billion, up from $9.3 billion as of Dec 31, 2013. Increase in money market accounts contributed to the rise in deposits.
Capital Position
Sallie Mae Bank reported a strong capital position. As of Dec 31, 2014, Tier 1 leverage ratio and Tier 1 risk-based capital stood at 11.5% and 15.0%, respectively. Capital ratios exceeded the well capitalized regulatory requirements.
Outlook for 2015
For full-year 2015, operating expenses are expected to be $325 million, with additional restructuring expenses of $5 million. The company expects provision for private education loan losses in the range of $116–$130 million.
Private education loan originations are projected to be $4.3 billion for the year. The guidance also includes loan sales of $1.5 billion for the year.
Our Viewpoint
Despite the challenges, we believe that Sallie Mae’s leading position in the student lending market, efforts to diversify and increasing private student loan originations would help it to navigate well in the upcoming quarters. Also, specialized focus on solidifying its presence in the consumer banking business space will be advantageous for the company.
The economic recovery and declining unemployment rate should further enhance the prospects of consumer banking. We believe the new company should capitalize on these positives.
Nevertheless, we remain cautious owing to several issues that the new entity is encountering. These include a competitive environment in the saturated banking space, absence of large scale benefits and the prevailing stringent regulatory landscape.
Sallie Mae currently carries a Zacks Rank #3 (Hold).
Other companies in the Finance-Consumer Loans space include Encore Capital Group, Inc. (ECPG), First Cash Financial Services Inc. (FCFS) and Ally Financial Inc. (ALLY). First Cash Financial is expected to report its quarterly results on Jan 27, Ally Financial on Jan 29 and Encore Capital is slated to release results on Feb 24.
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
Be the first to comment