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

Business Wire, Jan 20, 2006

STAMFORD, Conn. -- The Student Loan Corporation (NYSE:STU) today reported net income of $309.0 million ($15.45 basic earnings per share) for 2005, an increase of $24.0 million (8%), compared to net income of $285.0 million ($14.25 basic earnings per share) for 2004. The improvement in net income was primarily attributable to an increase in gains on securitizations and loan sales of $86.3 million (after tax) compared to 2004, partially offset by $12.0 million (after tax) of securitization-related impairment charges and other mark-to-market changes. In 2005, $4.9 billion of loans were securitized or sold, compared to $2.1 billion in 2004. The benefits of the increased securitization gains in 2005 were partially offset by a $34.2 million (after tax) reduction in floor income, and increased operating expenses of $11.3 million (after tax) for 2005, compared to 2004.

Fourth quarter 2005 net income of $79.0 million ($3.95 basic earnings per share) was $6.2 million (9%) higher than that of the fourth quarter of 2004. The increase in net income was primarily attributable to an increase in gains on securitizations and other asset sales of $25.7 million (after tax). The increase in gains was partially offset by a $9.4 million (after tax) reduction in floor income and $10.1 million (after tax) of reductions due to spread reduction and various other factors.

During the year ended December 31, 2005, the Company's managed student loan assets grew by $3.8 billion (14%) to $30.5 billion. Combined Federal Family Education Loan Program (FFELP) Stafford and PLUS loan disbursements and new CitiAssist Loan commitments totaling $4.9 billion for 2005 increased $404 million (9%) compared to 2004. FFELP Stafford and PLUS loan disbursements of $3.2 billion increased $168 million (6%), and new CitiAssist Loan commitments of $1.7 billion increased $236 million (17%). In addition, secondary market and other loan procurement activities added approximately $6.0 billion of loans to the Company's student loan portfolio during 2005, representing an increase of $2.6 billion (77%) compared to 2004. Approximately 95% of this secondary market and other loan procurement volume is composed of FFELP Consolidation Loans. For the fourth quarter of 2005, the Company's FFELP loan disbursements and CitiAssist Loan commitments totaled $888 million, $29 million (3%) more than that of the same period of 2004.

The Company's total revenue of $635.7 million for 2005 was $41.2 million (7%) higher than total revenue of $594.5 million for the same period of 2004. Total gain on sale of loans and fee and other income increased $114.3 million, primarily attributable to an increase in gains on sale of student loans of $112.3 million (pretax) relating to securitization and other asset sales, as described above, net of securitization-related impairments and other charges. Net interest income of $493.0 million for 2005 was $68.0 million (12%) lower than net interest income of $561.0 million for 2004. The net interest margin for 2005 was 1.87%, a decrease of 41 basis points from 2.28% for 2004. The decreases in the net interest income and margin were primarily attributable to a $56.3 million (pretax) decrease in floor income for 2005 compared to 2004. Floor income, as defined by management, is the amount of additional interest income generated when interest margin exceeds the minimum expected spreads. It usually occurs in declining short-term interest rate environments when the Company's cost of funds declines while borrower and government subsidized interest rates remain fixed. Floor income may be further reduced in the future should short-term interest rates continue to rise. Floor income is a non-GAAP financial measure that is described in more detail in the Company's 2004 Annual Report and Form 10-K.

Total revenue of $169.7 million for the fourth quarter of 2005 was $10.9 million (7 %) higher than revenue for the same period of 2004. The increase in revenue was primarily attributable to a $40.7 million (pretax) increase in gain on sale, net of securitization-related impairments, partially offset by a $15.5 million (pretax) reduction in floor income for the fourth quarter of 2005 compared to the same period of 2004. The net interest margin for the fourth quarter of 2005 was 1.70%, 54 basis points lower than the margin for the fourth quarter of 2004, primarily due to the reduction in floor income.

Total operating expenses of $149.0 million for 2005 were $16.7 million (13%) higher than that of 2004. The increases reflect the incremental payroll and other operating costs to originate, service, and administer the larger managed loan portfolio, as well as ongoing infrastructure improvements. The Company's operating expense ratio (operating expenses as a percentage of average managed student loans) for 2005 was 0.51%, two basis points lower than that of 2004. Expenses for the fourth quarter of 2005 increased by $1.4 million (4%) from that reported for the same quarter of 2004. The Company's fourth quarter 2005 expense ratio of 0.53% was six basis points lower than the expense ratio for the same period of 2004.