Sallie Mae's profit plummeted 72% in the second quarter, as the student lender reported funding costs have been "extraordinarily high" this year amid a deteriorating credit market.
, Sallie's corporate name, posted a quarterly profit of $266 million, or 50 cents a share, vs. profit of $966 million, or $1.03 a share, a year earlier. The results were an improvement from the first quarter in which the Reston, Va.-based company posted a net loss of $104 million, or 28 cents a share.
Sallie said that net income for "core earnings" totaled $156 million, or 27 cents a share. Core earnings include the effect of a $53 million, or 8 cents a share, restructuring charge, "purchased-paper business" losses of $26 million, or 5 cents a share, and asset-backed financing facilities fees of $109 million, or 15 cents a share, it said.
The largest difference between the two earnings figures "is the net impact of derivative accounting, which ... results in a $447 million unrealized, mark-to-market pre-tax gain that is recognized in GAAP but not core earnings," it said.
Analysts on average expected the firm to post a profit of 40 cents a share on revenue of $869.9 million, according to Thomson Reuters.
"Our funding costs have been extraordinarily high throughout 2008," CEO Albert Lord said in a statement. "Recent spread narrowing is encouraging because our earnings potential in 2008 and beyond is largely dependent on future funding costs."
The lender's "core earnings" net income from its primary student lending business rose slightly to $175 million. Loans originated through the firm's "internal brands," the most profitable segment of its business, were $2.7 billion, up 12% from a year earlier, it said. Yet total student loan originations fell 8% to $3.3 billion.
Sallie Mae's "managed" student loan portfolio totaled $171.9 billion at the end of June.
Separately the firm said it issued more than $7 billion in term asset-backed securitization transactions in the quarter, while spreads "declined significantly." Sallie Mae also issued $2.5 billion of senior, unsecured notes in the quarter.
Shares were up fractionally to $19.20 in recent after-hours trading.