Sallie Mae Q1 Profit Down 18%, Misses View

(RTTNews) - Education loan provider SLM Corp. (SLM), commonly known as Sallie Mae, on Wednesday reported an 18 percent decline in profit for the first quarter from last year on higher expenses and fewer gains compared to the prior-year period. Core earnings per share for the quarter missed analysts' expectations.

Newark, Delaware-based Sallie Mae reported first-quarter net income attributable to common stock of $279 million or $0.64 per share, down from $341 million or $0.74 per share in the year-ago quarter. The latest quarter's results included derivative gains of $99 million, compared with gains of $110 million in the same period last year.

In the prior-year period, the company generated a $55 million gain on the sale of a residual interest in a FFELP securitization trust in addition to $29 million in gains from debt repurchases. There were no similar transactions in the latest quarter.

Excluding items, core earnings for the latest quarter were $227 million or $0.51 per share, compared to $283 million or $0.61 per share in the prior year quarter. On average, nine analysts polled by Thomson Reuters expected the company to earn $0.55 per share for the first quarter. Analysts' estimates typically exclude special items.

Net interest income for the first quarter declined 4 percent to $766 million from $795 million a year ago. Provision for loan losses for the quarter was $185 million, down 23 percent from $241 million last year.

Operating expenses for the quarter rose 12 percent to $263 million primarily due to increased third-party servicing and asset recovery activities in addition to increased account resolution efforts on the private education loan portfolio, which saw significant improvements in delinquency and charge-off rates.

At the consumer lending segment - which originates, finances and services private education loans - private education loan originations rose 8 percent from last year to $1.5 billion, while the annualized charge-off rate declined to 2.8 percent from 3.0 percent in the year-ago period. Delinquencies of 90 days or more declined to 3.4 percent of loans in repayment from 3.9 percent last year, marking the lowest level since 2008.

Core earnings at the segment climbed to $118 million from $87 million in the prior-year period, mainly reflecting a $50 million decrease in the provision for private education loan losses.

Meanwhile, core earnings at Business Services segment declined to $113 million from $126 million in the prior-year quarter, primarily due to the lower balance of Federally Guaranteed Student Loans, or FFELP serviced by Sallie Mae.

Core earnings at FFELP declined to $66 million from $104 million in the year-ago quarter, mainly reflecting the $55 million gain from the sale of the residual interest in a FFELP loan securitization trust in the prior year.

At March 31, 2014, the company held $102.6 billion of FFELP loans, compared with $119.2 billion in the same period of the previous year.

Sallie Mae said it will suspend payment of dividends on its common stock upon completion of the separation of its loan management, servicing and asset recovery businesses, known as Navient, from its consumer banking business.

The company noted that Navient's separation is on track for April 30, 2014. As a result of the separation, Sallie Mae will continue to be responsible for preferred stock dividend payments.

Navient's common stock dividend policy, which will be determined by its board of directors, is expected to follow Sallie Mae's prior common stock dividend policy including payment of a second quarter 2014 common stock dividend of $0.15 per share.

SLM closed Wednesday's regular trading session at $25.51, up $0.65 or 2.61 percent on a volume of 5.85 million shares. However, in after-hours, the stock declined $0.50 or 1.96 percent to $25.01.