Sallie Mae (SLM: Quote), formally known as SLM Corp., on Wednesday reported a turnaround to profit in the second quarter, reflecting a smaller loan loss provision and decline in operating expenses. Private education loan originations rose 22 percent in the quarter. However, core earnings missed analysts' estimates.
Looking ahead to fiscal 2012, Sallie Mae raised its outlook for core earnings and affirmed its forecast for private education loan originations.
Sallie Mae's provisions for loan losses decreased 16 percent from the year-ago period to $243 million as a result of overall improvements in credit quality as well as delinquency and charge-off trends.
The company's consumer lending segment, which originates, finances and services private education loans, originated $321 million in loans, up 22 percent from last year.
Core earnings for the segment surged 73 percent from last year to $85 million, primarily driven by a lower loan loss provision. The charge-off rate was 3.09 percent, down from 3.71 percent in the year-ago period.
The business services segment includes fees from servicing, collections and college savings businesses. Core earnings edged down 1 percent to $138 million in the quarter.
Federally Guaranteed Loans segment, comprised the company's amortizing portfolio of federally guaranteed loans, reported a 59 percent decline in core earnings from last year to $44 million.
The results were impacted by the acceleration of $50 million of non-cash loan premium amortization, in addition to higher funding costs and lower net interest income resulting from the declining balance of the FFELP loan portfolio.
Sallie Mae's second-quarter net income was $292 million or $0.59 per share, compared to loss of $6 million or $0.02 per share in the year-ago period.
Core earnings for the quarter were $243 million or $0.49 per share, up from $260 million or $0.48 per share in the year-ago quarter. On average, eight analysts polled by Thomson Reuters expected the company to earn $0.54 per share. Analysts' estimates typically exclude special items.
Net-interest income for the quarter declined 14 percent to $746 million from $868 million last year. Net interest income was impacted by the Special Direct Consolidation Loan Initiative that ended June 30, 2012, resulting in the acceleration of $50 million of non-cash loan premium amortization in the quarter.
Operating expenses declined 11 percent from last year to $239 million, primarily due to the current-year benefit of cost-cutting efforts.
As at June 30, 2012, Sallie Mae held $133 billion of federally guaranteed student loans compared with $143 billion at June 30, 2011.
Looking ahead to fiscal 2012, Sallie Mae now expects core earnings of $2.15 per share, up from the prior estimate of $2.00 per share. Analysts expect the company to earn $2.17 per share for the year.
The company maintained its outlook for private education loan originations for the year of at least $3.2 billion.
SLM closed Tuesday's trading at $16.04, down $0.13 or 0.80 percent on a volume of 4.37 million shares.
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by RTT Staff Writer
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