Sallie Mae Reports Second-Quarter 2012 Financial Results

Sallie Mae (NASDAQ: SLM), formally SLM Corporation, today released second-quarter 2012 financial results that included increased private education loan originations and lower operating expenses compared with the year-ago period.

“We continue to grow our private credit business and find productivity gains in challenging economic conditions,” said Albert L. Lord, vice chairman and CEO. “We head into this academic year with loan products that promote and reward in-school payments. The performance of these loans over recent years foreshadows better credit ratings for our customers and lower defaults for Sallie Mae.”

For the second-quarter 2012, GAAP net income was $292 million ($.59 diluted earnings per share), compared with net loss of $6 million ($.02 diluted loss per share) for the year-ago quarter.

Core earnings for the quarter were $243 million ($.49 per diluted share), compared with $260 million ($.48 per diluted share) in the year-ago period. Versus the prior-year quarter, earnings benefited from a $48 million lower loan loss provision and a $29 million operating expense reduction. Debt repurchase gains were $20 million higher. However, the acceleration of $50 million of non-cash loan premium amortization in the quarter contributed to offset these improvements. This amount is attributable to approximately $4.5 billion of federally guaranteed student loans (approximately 3 percent of that portfolio) expected to be consolidated under the recently completed Special Direct Consolidation Loan Initiative. Net interest income declined by an additional $56 million primarily due to higher funding costs, which in turn was partly due to refinancing debt into longer term liabilities, and lower federally guaranteed student loan balances.

The company provides results on a core earnings basis because management utilizes this information in making management decisions. The changes in GAAP net income are driven by the same core earnings items discussed above as well as changes in mark-to-market unrealized gains and losses on derivative contracts and amortization and impairment of goodwill and intangible assets that are recognized in GAAP, but not in core earnings, results. Second-quarter 2012 and 2011 GAAP results included an $82 million gain and a $414 million loss, respectively, resulting from derivative accounting treatment compared to core earnings results.

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