Sallie Mae posts 1st-qtr profit, reversing year-ago loss; as bad loans ease, new lending rises

more images

more images

Sallie Mae posts 1st-qtr profit, increases lending

RESTON, Va. — Sallie Mae, the nation’s largest student lender, on Wednesday posted a profit for the first quarter, reversing a year-ago loss, as bad loans eased and it lent to more students.

After paying preferred dividends, Sallie Mae, formally known as SLM Corp., earned $240.1 million, or 45 cents per share, compared with a loss of $21.4 million, or 10 cents per share, last year.

The results included a charge of $19 million, or 4 cents per share, for restructuring.

Sallie Mae said its “core,” or adjusted earnings, came in at $212 million, or 39 cents per share. Core earnings included the restructuring charge, but excluded treatment for student loans bundled together as securities and derivatives, the complex financial instruments used as a hedge against swings in interest rates.

Analysts surveyed by Thomson Reuters, on average, expected profit of 29 cents per share. Wall Street typically excludes one-time charges in its estimates.

The better-than-expected results boosted shares in aftermarket trading following the release. The stock added 38 cents, or 3 percent, to $13.50, from its close in the regular session at $13.12.

Net interest income, or money earned from lending, shot up to $854.5 million, from $215.1 million last year. Fee income, which included a gain on debt repurchases, was $255 million, down from $353.7 million last year.

Sallie Mae set aside $325 million for managed private education loan losses, or loans that are likely to go unpaid. Its overall provision for loan losses increased 43 percent to $356.1 million, from $250.3 million last year.

The company charged off — wrote off as uncollectable— $284 million of private managed education loans, down 5 percent from $298 million in the fourth quarter of 2009.

Sallie Mae originated $7.7 billion in federal student loans in the first quarter, up 16 percent from a year ago. Average managed student loans slipped to $181.9 million, from $185.2 million a year ago.

These federal loan originations will soon end. As a result of student loan reform signed by President Barack Obama during the quarter, private sector companies will no longer be able to make federal student loans after June 30.

First-quarter private education loan originations were $840 million, compared with $1.5 billion one year ago, reflecting tighter underwriting and increases in federal programs. Sallie Mae spokeswoman Martha Holler said such loans will be the company’s primary business in the future.

In preparation for the change, Sallie Mae started restructuring its operations to align costs with future revenue expectations. The restructuring will result in a work-force reduction of 2,500 and accounted for the restructuring charges. Holler said about half of the positions will be gone by the end of this year, and the rest will be eliminated by the end of 2011.

Operating expenses rose to $328 million in the latest quarter from $295.1 million a year ago, increasing mainly because of the restructuring.

Eds: SUBS grafs 10-14 to CORRECT that private loan originations will continue, CLARIFY that work-force reduction to be carried out in 2010 and 2011.