The Student Loan Corp. Reports Operating Results

The Student Loan Corporation originates holds and services federally insured student loans through a trust agreement with Citibank N.A. an indirect wholly-owned subsidiary of Citigroup Inc. The Student Loan Corporation is one of the nation\'s leading originators and holders of student loans guaranteed under the Federal Family Education Loan Program authorized by the Department of Education under the Federal Higher Education Act as amended. The Student Loan Corporation also holds student loans including CitiAssist Loans that are originated under alternative programs and are not insured under the Act. The Student Loan Corporation was incorporated in Delaware in November and commenced operations on December. Prior to that date the Student Loan Corporation operated as a division of Citibank of South Dakota. Citibank N.A. is the primary shareholder with an ownership of eighty% of the Student Loan Corporation\'s outstanding common stock. The Student Loan Corp. has a market cap of $1.04 billion; its shares were traded at around $51.86 with a P/E ratio of 21.3 and P/S ratio of 0.8. The dividend yield of The Student Loan Corp. stocks is 2.7%. The Student Loan Corp. had an annual average earning growth of 19.7% over the past 10 years. GuruFocus rated The Student Loan Corp. the business predictability rank of 3-star.

Highlight of Business Operations:
During the second quarter of 2009, the Company further diversified its sources of funding by accessing $8.5 billion of secured borrowings from the Conduit. The Company also continued to draw on financing through the Department s Participation Program, which is currently available for FFEL Program loans originated during the 2008-2009 and 2009-2010 academic years, by procuring an additional $0.6 billion of funding for its current quarter disbursements. The Company has funded $2.7 billion of FFEL Program Stafford and PLUS Loan disbursements through the Participation Program since its inception. At June 30, 2009, $1.3 billion of funding under the Participation Program remained outstanding. During the second quarter of 2009, the Company also completed a $1.2 billion sale of loans originally funded under the Participation Program to the Department through the Purchase Program, which resulted in a gain on sale of $17.9 million. The proceeds of this sale were used to pay back funding from the Participation Program.


Net interest income of $70.9 million for the second quarter of 2009 was $48.5 million or 41% lower than the same quarter of 2008 as the Company continues to experience net interest margin compression. This compression is largely due to the continued dislocation between CP and LIBOR. Although the Company has experienced some narrowing in the spread between CP and LIBOR since the first quarter, the spread between CP and LIBOR is still significantly higher than the historical average. This dislocation reduced second quarter net interest margin on the Company s FFEL Program loans by 40 basis points and net interest income by $18.5 million as compared to the same quarter in 2008. Net interest margin compression has also been impacted by an increase in the spread between the prime rate and LIBOR, which decreased second quarter net interest margin on the Company s prime rate based loans by 81 basis points and net interest income by $11.9 million as compared to the same quarter in 2008. Net interest margin is being further compressed by increases in credit spreads as the Company replaces maturing long-term debt with new borrowings. These increased credit spreads decreased second quarter net interest income by $21.6 million compared to the same quarter in 2008.


During the twelve-month period ended June 30, 2009, the Company s managed student loan portfolio grew by $3.7 billion or 9% to $43.0 billion, reflecting the Company s continued commitment to the FFEL Program as well as a decrease in borrower prepayment activity. The managed portfolio includes $26.6 billion of the Company s owned loan assets and $16.4 billion of loans serviced on behalf of securitization trusts or other lenders. Originations for the quarter included FFEL Program Stafford and PLUS loan originations of $0.7 billion, a 3% increase from the same quarter of 2008. Almost all of the FFEL Program Stafford and PLUS loan originations during the quarter were funded through the Participation Program. The Company also made new CitiAssist® loan commitments of $0.1 billion, which was 30% lower than the same quarter of 2008. This decrease is a direct result of initiatives the Company has introduced to improve the profitability of its private education loan product and changes to its underwriting standards.


In order to comply with certain legal and regulatory requirements, private education loans are originated by CBNA through an intercompany agreement. After final disbursement, the Company purchases all private education loans from CBNA. At June 30, 2009 and December 31, 2008, the private education loans disbursed and still held by CBNA were $1.6 billion and $1.0 billion, respectively.


Historically, loans were not specifically purchased or originated for resale, and accordingly were recorded in the Company s portfolio. However, certain loans originated since December 5, 2008 have been originated with the intent of selling to the Department under the Purchase Program and, accordingly, were recorded in held for sale. Of the $2.9 billion of FFEL Program loans originated during 2009, $1.9 billion were funded through the Participation Program. At June 30, 2009, $1.6 billion of loans funded were classified as held for sale.


The Company s allowance for loan losses at June 30, 2009 increased by $46.9 million compared to the balance at June 30, 2008. This increase was primarily the result of portfolio seasoning (new loans transitioning into repayment) and higher loss estimates given current adverse economic conditions. The provision for loan losses, which is comprised of builds or releases in the loan loss reserves plus net charge-offs, decreased by $5.2 million for the first half of 2009 compared to the same period in 2008. Loan loss reserve builds in 2009 were lower than 2008 largely due to estimate enhancements made in the second quarter of 2008 associated with the seasoning of the Uninsured CitiAssist Custom portfolio. Charge-offs increased by $20.6 million for the first six months ended June 30, 2009 compared to the same period in 2008 primarily as a result of seasoning of the Uninsured CitiAssist Custom portfolio. The Company expects charge-offs will continue to increase as a result of the expected seasoning of the higher risk Uninsured CitiAssist Custom portfolio as well as credit deterioration across all portfolios. The Company no longer originates Uninsured CitiAssist Custom loans and the portfolio balance is starting to decrease.


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