The Student Loan Corporation Announces Year-End and Fourth Quarter Earnings

Business Wire, Jan 20, 2005

STAMFORD, Conn. -- The Student Loan Corporation (NYSE:STU) today reported net income of $285.0 million ($14.25 basic earnings per share) for 2004, an increase of $72.8 million (34%), compared to net income of $212.2 million ($10.61 basic earnings per share) for 2003. The year over year increase was primarily attributable to portfolio growth of 10% and improved net interest margins. Gains on loans sold of $6.3 million (after tax), securitization gains of $8.0 million (after tax), and lower deferred fee amortization also contributed to the year over year increase.

Fourth quarter 2004 net income of $72.7 million was $19.7 million (37%) higher than that of the fourth quarter of 2003, primarily due to portfolio growth, improved net interest margins, and the $8.0 million (after tax) gain from securitizing approximately $1.5 billion of Federal Consolidation Loans in November 2004. As a result of the securitization, the Company recorded a servicing asset and a retained interest investment, which had balances of $28.2 million and $46.4 million, respectively, at December 31, 2004.

The Company's student loan assets totaled $24.9 billion on December 31, 2004 growing $1.7 billion (7%) from the 2003 year-end balance. Asset growth would have been $3.2 billion (14 %) excluding the impact of the securitization. Combined Federal Family Education Loan Program (FFELP) Stafford and PLUS loan disbursements and new CitiAssist Loan commitments totaled $4.5 billion for 2004, up $628 million (16%) from 2003. These 2004 disbursements were composed of FFELP Stafford and PLUS disbursements of $3.1 billion, up $340 million (12%), and new CitiAssist Loan commitments of $1.4 billion, up $288 million (26%), compared to 2003. Secondary market and other loan procurement activities also added approximately $3.4 billion of FFELP loans to the Company's student loan portfolio during 2004. Approximately 92% of this secondary market and other loan procurement volume is composed of FFELP Consolidation Loans. For the fourth quarter of 2004, the Company's FFELP loan disbursements and CitiAssist Loan commitments totaled $859 million, $100 million (13%) higher than that of the same period of 2003.

Net interest income of $561 million for 2004 was $106 million (23%) higher than net interest income of $455 million for 2003. The net interest margin for 2004 was 2.28%, an increase of 24 basis points from 2.04% in 2003. The net interest margin for the fourth quarter of 2004 was 2.25%, 33 basis points higher than the margin for the fourth quarter of 2003. The full year margin improvement was due to the Company's ability to take advantage of favorable funding opportunities as well as the effect of reduced deferred fee amortization primarily due to lower loan asset prepayments in 2004. Floor income continued to be a material component of revenue; however, it may decline in future quarters should short-term interest rates rise. Floor income is a non-GAAP financial measure that is also described in more detail in the Company's 2003 Form 10-K.

The Company's total operating expense ratio (total operating expenses as a percentage of average student loans) for 2004 was 0.54%, three basis points higher than that of 2003. Total operating expenses for 2004 increased $18.3 million (16%) from 2003. Total operating expenses for the fourth quarter of 2004 increased by $10.2 million (35%) from that reported for the same quarter of 2003. This contributed to a 12 basis point increase in the Company's fourth quarter 2004 expense ratio to 0.62%, compared to the same period of 2003. The increase reflects the incremental costs required to administer the larger loan portfolio, costs associated with Sarbanes-Oxley 404 readiness, and other ongoing infrastructure investments. Infrastructure investment included the formation of the Educational Loan Center (ELC). Recently launched by the Company, ELC will offer state-of-the-art government and private loan origination and servicing capabilities as well as secondary market expertise and support resources to student loan providers, including academic and financial institutions.

The Company's provision for loan losses for 2004 was $8.0 million, $2.4 million less than the provision for 2003. The decrease was primarily attributable to lower credit losses as a result of the Company being designated an Exceptional Performer, effective January 1, 2004, and also resulted from a number of its loan servicing vendors receiving the Exceptional Performer designation in 2004. A $4.5 million (pretax) release of loan loss reserves was made in December 2003 upon notification of the designation. The Exceptional Performer designation is granted by the Department of Education in recognition of an exceptional level of performance in servicing federally guaranteed student loans. A recipient of this designation receives 100% reimbursement on all eligible FFELP claims as long as the recipient continues to meet eligibility standards. See the Company's 2003 Annual Report and Form 10-K for further details.