Losses On Derivatives Push Sallie Mae Into Red

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NEWARK, Del. – Student loan giant Sallie Mae reported a second quarter loss of $6 million yesterday, compared to a $338 million net for the same period last year, due to mark-to-market losses on its derivatives portfolio.

The second quarter loss was due to a pre-tax $414 million unrealized, mark-to-market loss on certain derivative contracts recognized in GAAP but not in core earnings results, compared to a $211 million unrealized, mark-to-market gain in the year-ago quarter.

As a result, net income for the first six months was down by 71%, to $169 million from $578 million for the first half last year.

Second quarter core earnings were $49 million, compared to a net loss of $12 million in the second quarter last year. The improvement was due primarily to a decreased loan loss provision. Loan delinquencies and charge-offs both improved.

Core earnings were $108 million in second-quarter 2011, compared to $95 million in the year-ago quarter. Second-quarter 2011 net interest margin was 0.98%, compared to 0.95% in the year-ago quarter. These increases primarily were driven by last year’s substantial FFELP loan portfolio acquisitions.

At the end of the second quarter Sallie Mae’s student loan portfolio, which peaked at more than $210 billion, was down to $181 billion.


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