<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
(Amended by Exch Act Rel No. 312905. eff 4/26/93.)
Commission File Number: 001-13251
------------------------
SLM HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-2013874
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11600 SALLIE MAE DRIVE, RESTON, VIRGINIA 20193
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (703) 810-3000
------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT MARCH 31, 2000
----- -----------------------------
<S> <C>
Common Stock, $.20 par value 156,604,186 shares
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SLM HOLDING CORPORATION
FORM 10-Q
INDEX
MARCH 31, 2000
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.............................. 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................. 28
Item 2. Changes in Securities............................. 28
Item 3. Defaults Upon Senior Securities................... 28
Item 4. Submission of Matters to a Vote of Security
Holders................................................. 28
Item 5. Other Information................................. 28
Item 6. Exhibits and Reports on Form 8-K.................. 28
SIGNATURES.................................................. 29
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SLM HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Student loans............................................... $31,927,725 $33,808,867
Warehousing advances........................................ 872,836 1,042,695
Academic facilities financings
Bonds--available-for-sale................................. 632,626 640,498
Loans..................................................... 389,690 387,267
----------- -----------
Total academic facilities financings.................. 1,022,316 1,027,765
Investments
Available-for-sale........................................ 3,087,589 4,396,776
Held-to-maturity.......................................... 890,065 788,180
----------- -----------
Total investments..................................... 3,977,654 5,184,956
Cash and cash equivalents................................... 105,772 589,750
Other assets, principally accrued interest receivable....... 2,328,595 2,370,751
----------- -----------
Total assets.......................................... $40,234,898 $44,024,784
=========== ===========
LIABILITIES
Short-term borrowings....................................... $33,039,012 $37,491,251
Long-term notes............................................. 5,049,865 4,496,267
Other liabilities........................................... 1,019,612 982,469
----------- -----------
Total liabilities..................................... 39,108,489 42,969,987
----------- -----------
COMMITMENTS AND CONTINGENCIES
Minority interest in subsidiary............................. 213,883 213,883
STOCKHOLDERS' EQUITY
Preferred stock, Series A, par value $.20 per share,
20,000,000 shares authorized, 3,300,000 shares issued at
stated value of $50 per share............................. 165,000 165,000
Common stock, par value $.20 per share, 250,000,000 shares
authorized: 186,237,095 and 186,069,619 shares issued,
respectively.............................................. 37,247 37,214
Additional paid-in capital.................................. 60,740 62,827
Unrealized gains on investments (net of tax of $159,046 and
$160,319, respectively)................................... 295,371 297,735
Retained earnings........................................... 1,587,637 1,462,034
----------- -----------
Stockholders' equity before treasury stock.................. 2,145,995 2,024,810
Common stock held in treasury at cost: 29,632,909 and
28,493,072 shares, respectively........................... 1,233,469 1,183,896
----------- -----------
Total stockholders' equity............................ 912,526 840,914
----------- -----------
Total liabilities and stockholders' equity............ $40,234,898 $44,024,784
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SLM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
INTEREST INCOME:
Student loans............................................. $667,657 $521,406
Warehousing advances...................................... 16,699 21,856
Academic facilities financings:
Taxable................................................. 8,894 9,893
Tax-exempt.............................................. 8,275 9,259
-------- --------
Total academic facilities financings...................... 17,169 19,152
Investments............................................... 118,191 52,951
-------- --------
Total interest income....................................... 819,716 615,365
INTEREST EXPENSE:
Short-term debt........................................... 573,056 354,791
Long-term debt............................................ 84,791 102,922
-------- --------
Total interest expense...................................... 657,847 457,713
-------- --------
Net interest income......................................... 161,869 157,652
Less: provision for losses.................................. 9,438 7,636
-------- --------
Net interest income after provision for losses.............. 152,431 150,016
-------- --------
OTHER INCOME:
Gains on student loan securitizations..................... 42,330 --
Servicing and securitization revenue...................... 62,119 85,871
Gains (losses) on sales of securities..................... 43,002 (17)
Other..................................................... 28,140 20,785
-------- --------
Total other income.......................................... 175,591 106,639
-------- --------
OPERATING EXPENSES:
Salaries and benefits..................................... 53,871 44,064
Other..................................................... 42,367 42,204
-------- --------
Total operating expenses.................................... 96,238 86,268
-------- --------
Income before income taxes and minority interest in net
earnings of subsidiary.................................... 231,784 170,387
-------- --------
INCOME TAXES:
Current................................................... 141,361 116,955
Deferred.................................................. (65,900) (63,050)
-------- --------
Total income taxes.......................................... 75,461 53,905
Minority interest in net earnings of subsidiary............. 2,674 2,673
-------- --------
NET INCOME.................................................. 153,649 113,809
Preferred stock dividends................................... 2,907 --
-------- --------
Net income attributable to common stock..................... $150,742 $113,809
======== ========
Basic earnings per share.................................... $ 0.96 $ 0.70
======== ========
Average common shares outstanding........................... 157,197 163,164
======== ========
Diluted earnings per share.................................. $ 0.93 $ 0.69
======== ========
Average common and common equivalent shares outstanding..... 162,256 165,679
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SLM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED COMMON STOCK SHARES ADDITIONAL
STOCK --------------------------------------- PREFERRED COMMON PAID-IN
SHARES ISSUED TREASURY OUTSTANDING STOCK STOCK CAPITAL
--------- ----------- ----------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998..... -- 184,453,866 (20,327,213) 164,126,653 $ -- $36,891 $26,871
Comprehensive income:
Net Income...................
Other comprehensive income,
Net of tax:................
Change in unrealized gains
(losses) on investments,
net of tax...............
Comprehensive income.........
Cash dividends:..............
Common stock ($.15 per
share)...................
Issuance of common shares.... 319,726 319,726 64 10,721
Tax benefit related to
employee stock option and
purchase plan.............. 2,497
Premiums on equity forward
Purchase contracts......... (5,989)
Repurchase of common
shares..................... (1,568,984) (1,568,984)
--------- ----------- ----------- ----------- -------- ------- -------
BALANCE AT MARCH 31, 1999........ -- 184,773,592 (21,896,197) 162,877,395 $ -- $36,955 $34,100
========= =========== =========== =========== ======== ======= =======
BALANCE AT DECEMBER 31, 1999..... 3,300,000 186,069,619 (28,493,072) 157,576,547 $165,000 $37,214 $62,827
Comprehensive income:
Net income...................
Other comprehensive income,
Net of tax:
Change in unrealized gains
(losses) on investments,
net of tax...............
Comprehensive income.........
Cash dividends:
Common stock ($.16 per
share)...................
Preferred stock ($.88 per
share)...................
Issuance of common shares...... 167,476 167,476 33 7,647
Premiums on equity forward
purchase contracts........... (9,734)
Repurchase of common shares.... (1,139,837) (1,139,837)
--------- ----------- ----------- ----------- -------- ------- -------
BALANCE AT MARCH 31, 2000........ 3,300,000 186,237,095 (29,632,909) 156,604,186 $165,000 $37,247 $60,740
========= =========== =========== =========== ======== ======= =======
<CAPTION>
UNREALIZED TOTAL
GAINS (LOSSES) RETAINED TREASURY STOCKHOLDERS'
ON INVESTMENTS EARNINGS STOCK EQUITY
-------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998..... $371,739 $1,060,334 $ (842,209) $653,626
Comprehensive income:
Net Income................... 113,809 113,809
Other comprehensive income,
Net of tax:................
Change in unrealized gains
(losses) on investments,
net of tax............... (28,337) (28,337)
--------
Comprehensive income......... 85,472
Cash dividends:..............
Common stock ($.15 per
share)................... (24,423) (24,423)
Issuance of common shares.... 10,785
Tax benefit related to
employee stock option and
purchase plan.............. 2,497
Premiums on equity forward
Purchase contracts......... (5,989)
Repurchase of common
shares..................... (61,618) (61,618)
-------- ---------- ----------- --------
BALANCE AT MARCH 31, 1999........ $343,402 $1,149,720 $ (903,827) $660,350
======== ========== =========== ========
BALANCE AT DECEMBER 31, 1999..... $297,735 $1,462,034 $(1,183,896) $840,914
Comprehensive income:
Net income................... 153,649 153,649
Other comprehensive income,
Net of tax:
Change in unrealized gains
(losses) on investments,
net of tax............... (2,364) (2,364)
--------
Comprehensive income......... 151,285
Cash dividends:
Common stock ($.16 per
share)................... (25,139) (25,139)
Preferred stock ($.88 per
share)................... (2,907) (2,907)
Issuance of common shares...... 7,680
Premiums on equity forward
purchase contracts........... (9,734)
Repurchase of common shares.... (49,573) (49,573)
-------- ---------- ----------- --------
BALANCE AT MARCH 31, 2000........ $295,371 $1,587,637 $(1,233,469) $912,526
======== ========== =========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SLM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 153,649 $ 113,809
Adjustments to reconcile net income to net cash provided
by operating activities:
Gains on student loan securitizations................... (42,330) --
Gains/losses on sales of securities..................... (43,002) 17
Provision for losses.................................... 9,438 7,636
Decrease in accrued interest receivable................. 44,390 76,803
(Decrease) in accrued interest payable.................. (4,289) (74,699)
(Increase) decrease in other assets..................... (2,900) 11,947
Increase in other liabilities........................... 42,704 346,840
------------- -------------
Total adjustments..................................... 4,011 368,544
------------- -------------
Net cash provided by operating activities................... 157,660 482,353
------------- -------------
INVESTING ACTIVITIES
Student loans purchased................................... (2,850,410) (2,959,699)
Reduction of student loans purchased:
Installment payments.................................... 564,247 868,675
Claims and resales...................................... 128,185 130,588
Proceeds from securitization of student loans........... 4,079,650 --
Proceeds from sales of student loans.................... 37,110 --
Warehousing advances made................................. (262,116) (263,153)
Warehousing advance repayments............................ 431,975 265,354
Academic facilities financings made....................... (9,000) --
Academic facilities financings repayments................. 12,398 19,564
Investments purchased..................................... (9,995,711) (3,568,591)
Proceeds from sale or maturity of investments............. 11,200,348 3,779,297
------------- -------------
Net cash provided by (used in) investing activities......... 3,336,676 (1,727,965)
------------- -------------
FINANCING ACTIVITIES
Short-term borrowings issued.............................. 173,032,184 104,190,574
Short-term borrowings repaid.............................. (174,416,718) (102,303,444)
Long-term notes issued.................................... 3,419,520 5,117,406
Long-term notes repaid.................................... (5,933,627) (5,641,387)
Equity forward contracts and stock issued................. (2,054) 7,293
Common stock repurchased.................................. (49,573) (61,618)
Common dividends paid..................................... (25,139) (24,423)
Preferred dividends paid.................................. (2,907) --
------------- -------------
Net cash (used in) provided by financing activities......... (3,978,314) 1,284,401
------------- -------------
Net (decrease) increase in cash and cash equivalents........ (483,978) 38,789
Cash and cash equivalents at beginning of year.............. 589,750 115,912
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 105,772 $ 154,701
============= =============
Cash disbursements made for:
Interest.............................................. $ 629,991 $ 477,124
============= =============
Income taxes.......................................... $ -- $ --
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
SLM HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of SLM Holding
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles ("GAAP") for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete consolidated financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results for the year ending December 31, 2000.
2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," which requires that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS 133, as amended by Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of Effective Date of FASB Statement No. 133," is effective
for the Company's financial statements beginning January 1, 2001. SFAS 133
requires that changes in the derivative instrument's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for derivative financial instruments that qualify as fair value
hedges allows a derivative instrument's gains and losses to offset related fair
value changes on the hedged item in the income statement. Derivative financial
instruments that qualify as cashflow hedges are reported as an adjustment to
stockholders' equity as a component of other comprehensive income and require
that a company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting treatment. SFAS 133 could result in
increased period to period volatility in reported net income. Management is
continuing to assess the potential impact of SFAS 133 on the Company's reported
results of operations and financial position. The Company will implement the new
standard in the first quarter of the year 2001.
On March 16, 2000, the Emerging Issues Task Force ("EITF") issued EITF Issue
No. 00-7 ("EITF No. 00-7"), "Application of Issue No. 96-13, 'Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock,' to Equity Derivative Instruments That Contain Certain
Provisions That Require Net Cash Settlement If Certain Events Occur". The EITF
announced a consensus that any equity derivative contract that could require net
cash settlement (as defined in Issue No. 96-13) must be accounted for as an
asset or liability and cannot be included in the permanent equity of the
Company. In addition, any equity derivative contracts that could require
physical settlement by a cash payment to the counterparty in exchange for the
issuer's shares, must be accounted for as temporary equity as defined by the SEC
under ASR 268. EITF No. 00-7 is effective immediately for all new contracts
entered into after March 16, 2000. For contracts in effect as of March 16, 2000,
EITF No. 00-7's effective date is delayed until December 31, 2000 in order to
allow
7
<PAGE>
SLM HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
companies to amend existing contracts. The Company currently accounts for its
equity forward contracts through equity in accordance with EITF Issue
No. 96-13. The Company intends to amend all equity forward contracts in place at
March 16, 2000 to satisfy the requirement of EITF No. 00-7 to allow accounting
through permanent equity. There can be no assurance, however, that the Company
will be successful in its efforts to amend its equity forward contracts. Under
such circumstances, or in the event that the Company is unable to terminate such
positions, EITF No. 00-7 could materially adversely affect the Company's capital
position as well as its reported earnings. Management is continuing to assess
the potential impact of EITF No. 00-7 on the Company's reported results of
operations and financial position. The Company has not entered into any new
contracts after March 16, 2000.
3. ALLOWANCE FOR LOSSES
The following table summarizes changes in the allowance for losses for the
three months ended March 31, 2000, and 1999, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
BALANCE AT BEGINNING OF YEAR............................ $303,743 $293,185
Additions
Provisions for losses................................. 9,439 7,636
Recoveries............................................ 2,755 732
Deductions
Reductions for student loan sales and
securitizations..................................... (8,009) -
Write-offs............................................ (7,874) (3,417)
-------- --------
BALANCE AT END OF PERIOD................................ $300,054 $298,136
======== ========
</TABLE>
4. STUDENT LOAN SECURITIZATION
During the first quarter of 2000, the Company securitized $4.0 billion of
student loans in two separate transactions and recorded pre-tax securitization
gains of $42 million, which was 1.05 percent of the portfolios securitized. In
the first quarter of 1999, the Company did not securitize loans and, as a
result, no securitization gain was recognized. At March 31, 2000 and
December 31, 1999, securitized student loans outstanding totaled $22.8 billion
and $19.5 billion, respectively.
5. COMMON STOCK
Basic earnings per common share are calculated using the weighted average
number of shares of common stock outstanding during each period. Diluted
earnings per common share reflect the potential dilutive effect of additional
common shares that are issuable upon exercise of outstanding stock options
8
<PAGE>
SLM HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. COMMON STOCK (CONTINUED)
and warrants, determined by the treasury stock method, and equity forwards,
determined by the reverse treasury stock method, as follows:
<TABLE>
<CAPTION>
NET INCOME
ATTRIBUTABLE
TO COMMON AVERAGE EARNINGS
STOCK SHARES PER SHARE
------------ ----------- ---------
(THOUSANDS) (THOUSANDS)
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000
Basic EPS.................................... $150,742 157,197 $ .96
Dilutive effect of stock options, warrants
and equity forwards........................ -- 5,059 (.03)
-------- ------- -----
Diluted EPS.................................. $150,742 162,256 $ .93
======== ======= =====
THREE MONTHS ENDED MARCH 31, 1999
Basic EPS.................................... $113,809 163,164 $ .70
Dilutive effect of stock options, warrants
and equity forwards........................ -- 2,515 (.01)
-------- ------- -----
Diluted EPS.................................. $113,809 165,679 $ .69
======== ======= =====
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
OVERVIEW
SLM HOLDING CORPORATION ("SLM HOLDING") WAS FORMED ON FEBRUARY 3, 1997, AS A
WHOLLY OWNED SUBSIDIARY OF THE STUDENT LOAN MARKETING ASSOCIATION (THE "GSE").
ON AUGUST 7, 1997, PURSUANT TO THE STUDENT LOAN MARKETING ASSOCIATION
REORGANIZATION ACT OF 1996 (THE "PRIVATIZATION ACT") AND APPROVAL BY
SHAREHOLDERS OF AN AGREEMENT AND PLAN OF REORGANIZATION, THE GSE WAS REORGANIZED
INTO A SUBSIDIARY OF SLM HOLDING (THE "REORGANIZATION"). SLM HOLDING IS A
HOLDING COMPANY THAT OPERATES THROUGH A NUMBER OF SUBSIDIARIES INCLUDING THE
GSE. REFERENCES IN THIS REPORT TO THE "COMPANY" REFER TO THE GSE AND ITS
SUBSIDIARIES FOR PERIODS PRIOR TO THE REORGANIZATION AND TO SLM HOLDING AND ITS
SUBSIDIARIES FOR PERIODS AFTER THE REORGANIZATION.
The Company is the nation's largest private source of financing and
servicing for education loans in the United States, primarily through its
participation in the Federal Family Education Loan Program ("FFELP"), formerly
the Guaranteed Student Loan Program. The Company's products and services include
student loan purchases and commitments to purchase student loans, as well as
operational support to originators of student loans and to post-secondary
education institutions and other education-related financial services. The
Company also originates, purchases and holds unguaranteed private loans.
The following Management's Discussion and Analysis contains forward-looking
statements and information that are based on management's current expectations
as of the date of this document. Discussions that utilize the words "intends,"
"anticipate," "believe," "estimate" and "expect" and similar expressions, as
they relate to the Company's management, are intended to identify forward-
looking statements. Such forward-looking statements are subject to risks,
uncertainties, assumptions and other factors that may cause the actual results
of the Company to be materially different from those reflected in such
forward-looking statements. Such factors include, among others, changes in the
terms of student loans and the educational credit marketplace arising from the
implementation of applicable laws and regulations and from changes in such laws
and regulations; which may reduce the volume, average term and costs of yields
on student loans under the FFELP or result in loans being originated or
refinanced under non-FFELP programs or may affect the terms upon which banks and
others agree to sell FFELP loans to the Company. The Company could also be
affected by changes in the demand for educational financing and consumer lending
or in financing preferences of lenders, educational institutions, students and
their families; and changes in the general interest rate environment and in the
securitization markets for education loans, which may increase the costs or
limit the availability of financings necessary to initiate, purchase or carry
education loans.
10
<PAGE>
SELECTED FINANCIAL DATA
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED INCREASE
MARCH 31, 2000 (DECREASE)
------------------- -------------------
2000 1999 $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net interest income......................................... $ 162 $158 $ 4 3%
Less: provision for losses.................................. 9 8 1 24
------ ---- ---- ---
Net interest income after provision for losses.............. 153 150 3 2
Gains on student loan securitizations....................... 42 -- 42 100
Servicing and securitization revenue........................ 62 86 (24) (28)
Other income................................................ 71 21 50 243
Operating expenses.......................................... 96 86 10 12
Income taxes................................................ 75 54 21 40
Minority interest in net earnings of subsidiary............. 3 3 -- --
------ ---- ---- ---
NET INCOME.................................................. 154 114 40 35
Preferred stock dividends................................... 3 -- 3 --
------ ---- ---- ---
Net income attributable to common stock..................... $ 151 $114 $ 37 32%
====== ==== ==== ===
BASIC EARNINGS PER SHARE.................................... $ .96 $.70 $.26 37%
====== ==== ==== ===
DILUTED EARNINGS PER SHARE.................................. $ .93 $.69 $.24 35%
====== ==== ==== ===
Dividends per common share.................................. $ .16 $.15 $.01 7%
====== ==== ==== ===
</TABLE>
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
MARCH 31, DECEMBER 31, -------------------
2000 1999 $ %
--------- ------------ -------- --------
<S> <C> <C> <C> <C>
ASSETS
Student loans........................................... $31,928 $33,809 $(1,881) (6)%
Warehousing advances.................................... 873 1,043 (170) (16)
Academic facilities financings.......................... 1,022 1,028 (6) (1)
Cash and investments.................................... 4,083 5,775 (1,692) (29)
Other assets............................................ 2,329 2,370 (41) (2)
------- ------- ------- ---
Total assets...................................... $40,235 $44,025 $(3,790) (9)%
======= ======= ======= ===
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings................................... $33,039 $37,491 $(4,452) (12)%
Long-term notes......................................... 5,050 4,496 554 12
Other liabilities....................................... 1,019 983 36 4
------- ------- ------- ---
Total liabilities....................................... 39,108 42,970 (3,862) (9)
======= ======= ======= ===
Minority interest in subsidiary......................... 214 214 -- --
Stockholders' equity before treasury stock.............. 2,146 2,025 121 6
Common stock held in treasury at cost................... 1,233 1,184 49 4
------- ------- ------- ---
Total stockholders' equity........................ 913 841 72 9
------- ------- ------- ---
Total liabilities and stockholders' equity........ $40,235 $44,025 $(3,790) (9)%
======= ======= ======= ===
</TABLE>
11
<PAGE>
RESULTS OF OPERATIONS
EARNINGS SUMMARY
The Company's "cash basis" net income was $137 million ($.83 diluted
earnings per share) for the three months ended March 31, 2000 versus
$119 million ($.72 diluted earnings per share) for the three months ended
March 31, 1999. The Company also reports "core cash basis" net income which
further excludes floor income and gains on the sales of investment securities or
student loans. For the three months ended March 31, 2000 "core cash basis" net
income was $108 million ($.65 diluted earnings per share) versus $92 million
($.55 diluted earnings per share) for the three months ended March 31, 1999.
(See "Pro-forma Statements of Income" for a detailed discussion of "cash basis"
net income).
The increase in "core cash basis" net income in the first quarter of 2000
versus the first quarter of 1999 is mainly due to the $6.9 billion increase in
the average balance of the Company's managed portfolio of student loans
partially offset by higher funding costs. The first quarter 2000 "cash basis"
results include $28 million after-tax in gains on sales of securities and an
insignificant amount of floor income, compared to no gains on sales of
securities and $27 million after-tax floor income in the year-ago quarter.
For the three months ended March 31, 2000, the Company's net income
calculated in accordance with generally accepted accounting principals ("GAAP")
was $154 million ($.93 diluted earnings per share), versus net income of
$114 million ($.69 diluted earnings per share) in the first quarter of 1999. The
increase in GAAP net income in the first quarter of 2000 versus the 1999 first
quarter is due to a $4.3 billion increase in the average balance of the
Company's on-balance sheet portfolio of student loans and to $28 million in
after-tax gains on sales of investment securities partially offset by a decrease
in floor revenues of $12 million, after-tax, lower servicing and securitization
revenue of $15 million, after-tax, and higher funding costs. Also, during the
first quarter of 2000, the Company securitized $4.0 billion of student loans in
two transactions and recorded after-tax securitization gains of $28 million. The
Company did not securitize any loans in the first quarter of 1999 and as a
result no securitization gains were recorded for that quarter.
During the first quarter of 2000, the Company repurchased 1.1 million common
shares through its share repurchase program, leaving outstanding shares at
157 million at March 31, 2000.
NET INTEREST INCOME
Net interest income is derived largely from the Company's portfolio of
student loans that remain on-balance sheet. Additional information regarding the
return on the Company's student loan portfolio is set forth under "Student
Loans--Student Loan Spread Analysis."
Taxable equivalent net interest income for the three months ended March 31,
2000 versus the three months ended March 31, 1999 increased by $6 million while
the net interest margin decreased by .27 percent. The increase in taxable
equivalent net interest income for the three months ended March 31, 2000 was
principally due to the $4.3 billion increase in the average balance of student
loans over the year-ago quarter. The decrease in the net interest margin for the
three months ended March 31, 2000 versus the year-ago quarter was mainly due to
the decrease in the student loan spread (discussed in more detail below) and to
the increase in the average balance of investments as a percentage of total
interest earning assets.
TAXABLE EQUIVALENT NET INTEREST INCOME
The Taxable Equivalent Net Interest Income analysis set forth below is
designed to facilitate a comparison of nontaxable asset yields to taxable yields
on a similar basis. The amounts in this table and
12
<PAGE>
the following table are adjusted for the impact of certain tax-exempt and
tax-advantaged investments based on the marginal federal corporate tax rate of
35 percent.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE
MARCH 31, (DECREASE)
------------------- -------------------
2000 1999 $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income
Student loans................................ $668 $521 $147 28%
Warehousing advances......................... 17 22 (5) (24)
Academic facilities financings............... 17 19 (2) (10)
Investments.................................. 118 53 65 123
Taxable equivalent adjustment................ 9 8 1 21
---- ---- ---- ---
Total taxable equivalent interest
income................................. 829 623 206 33
Interest expense............................... 658 458 200 44
---- ---- ---- ---
Taxable equivalent net interest income......... $171 $165 $ 6 (11)%
==== ==== ==== ===
</TABLE>
AVERAGE BALANCE SHEETS
The following table reflects the rates earned on earning assets and paid on
liabilities for the three months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------
2000 1999
------------------- -------------------
BALANCE RATE BALANCE RATE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
AVERAGE ASSETS
Student loans................................. 33,766 7.95% $29,443 7.18%
Warehousing advances.......................... 1,006 6.68 1,566 5.66
Academic facilities financings................ 1,049 8.29 1,204 8.13
Investments................................... 7,342 6.75 3,711 6.09
------- ---- ------- ----
Total interest earning assets................. 43,163 7.73% 35,924 7.03%
==== ====
Non-interest earning assets................... 2,371 2,112
------- -------
Total assets............................ $45,534 $38,036
======= =======
AVERAGE LIABILITIES AND STOCKHOLDERS' EQUITY
Six month floating rate notes................. $ 4,914 6.31% $ 4,097 5.24%
Other short-term borrowings................... 33,056 6.03 24,308 5.04
Long-term notes............................... 5,270 6.47 7,759 5.38
------- ---- ------- ----
Total interest bearing liabilities............ 43,240 6.12% 36,164 5.13%
==== ====
Non-interest bearing liabilities.............. 1,419 1,234
Stockholders' equity.......................... 875 638
------- -------
Total liabilities and stockholders'
equity................................ $45,534 $38,036
======= =======
Net interest margin........................... 1.60% 1.87%
==== ====
</TABLE>
13
<PAGE>
RATE/VOLUME ANALYSIS
The Rate/Volume Analysis below shows the relative contribution of changes in
interest rates and asset volumes.
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
TAXABLE ATTRIBUTABLE
EQUIVALENT TO CHANGE IN
INCREASE -------------------
(DECREASE) RATE VOLUME
---------- -------- --------
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS
ENDED MARCH 31, 1999
Taxable equivalent interest income.................. $206 $ 66 $140
Interest expense.................................... 200 92 108
---- ---- ----
Taxable equivalent net interest income.............. $ 6 $(26) $ 32
==== ==== ====
</TABLE>
STUDENT LOANS
STUDENT LOAN SPREAD ANALYSIS
The following table analyzes the reported earnings from student loans both
on-balance sheet and those off-balance sheet in securitization trusts. The line
captioned "Adjusted student loan yields" reflects contractual student loan
yields adjusted for the amortization of premiums paid to purchase loan
portfolios and the estimated costs of borrower benefits. For student loans
off-balance sheet, the Company earns servicing fee revenues over the life of the
securitized student loan portfolios. The off-balance sheet information presented
in "Securitization Program--Servicing and Securitization Revenue" analyzes the
on-going servicing revenue and residual interest earned on the securitized
portfolios of student loans. For an analysis of the Company's student loan
spread for the entire portfolio of managed student loans on a similar basis to
the on-balance sheet analysis, see "'Cash Basis' Student Loan Spread and Net
Interest Income."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
ON-BALANCE SHEET
Adjusted student loan yields.............................. 8.34% 7.54%
Consolidation loan rebate fees............................ (.25) (.22)
Offset fees............................................... (.14) (.14)
------- -------
Student loan income....................................... 7.95 7.18
Cost of funds............................................. (6.11) (5.09)
------- -------
Student loan spread....................................... 1.84% 2.09%
======= =======
Core student loan spread.................................. 1.82% 1.80%
======= =======
OFF-BALANCE SHEET
Servicing and securitization revenue...................... 1.23% 1.96%
======= =======
AVERAGE BALANCES
Student loans............................................. $33,766 $29,443
Securitized loans......................................... 20,328 17,785
------- -------
Managed student loans..................................... $54,094 $47,228
======= =======
</TABLE>
The Company's portfolio of student loans originated under the FFELP has a
variety of unique interest rate characteristics. The Company earns interest at
the greater of the borrower's rate or a
14
<PAGE>
floating rate determined by reference to the average of the weekly auctions of
91-day Treasury bills by the government, plus a fixed spread which is dependent
upon when the loan was originated. If the floating rate exceeds the borrower
rate, the Department of Education makes a payment directly to the Company based
upon the special allowance payment ("SAP") formula established under the Higher
Education Act. If the floating rate is less than the rate the borrower is
obligated to pay, the Company simply earns interest at the borrower rate. In all
cases, the rate a borrower is obligated to pay is the lowest interest rate or
the floor that the Company can earn on a student loan. The borrowers' interest
rates are either fixed to term or are reset annually on July 1 of each year
depending on when the loan was originated.
The Company generally finances its student loan portfolio with floating rate
debt tied to the average of the 91-day Treasury bill auctions, either directly
or through the use of derivative financial instruments, intended to mimic the
interest rate characteristics of the student loans. Such borrowings float over
all interest rate ranges. As a result, in periods of declining interest rates,
the portfolio of managed student loans may be earning at the borrower rate while
the Company's funding costs (exclusive of fluctuations in funding spreads)
continue to decline along with Treasury bill rates. When this happens, the
difference between the interest earned from the rate paid by the borrower and
the interest that would be earned as derived from the SAP formula is referred to
as "Floor Revenue". For loans where the borrower's interest rate is fixed to
term, declining interest rates may benefit the spread earned on student loans
for extended periods of time. For loans where the borrower's interest rate is
reset annually, any benefit of a declining interest rate environment will only
enhance student loan spreads through the next annual reset of the borrower's
interest rates, which occurs on July 1 of each year.
Due to the continued rise in Treasury bill rates since the second quarter of
1999 the Company earned Floor Revenues of $2 million in the first quarter of
2000 versus $21 million of such earnings in the year-ago quarter. Virtually all
of the floor income earned in the first quarter of 2000 was from student loans
whose borrower rates are fixed to term, while in the first quarter of 1999,
$13 million of the floor revenue earned was from student loans whose borrower
rates are fixed to term, and $8 million was from student loans whose borrower
rates reset annually. The reduction in Floor Revenue decreased the first quarter
2000 on-balance sheet student loan spread by 26 basis points versus the year-ago
quarter.
The Company's match funding of its student loan portfolio on a managed basis
affects servicing and securitization revenue in the opposite direction from its
effect on the on-balance sheet student loan spread. Specifically, the Company's
on-balance sheet use of funding indexed to the July 1999 reset of the 52-week
Treasury bill to fund off-balance sheet PLUS student loans decreased servicing
and securitization revenue by 8 million versus the prior year due to the rise in
Treasury bill rates which increased off-balance sheet funding costs for debt
indexed to the 91-day Treasury bill and funding plus loans. The opposite effect
occurs on-balance sheet as the Company uses the excess of off-balance sheet
91-day Treasury bill funding to fund on-balance sheet student loans indexed to
the 91-day Treasury bill.
15
<PAGE>
The following table analyzes the ability of the FFELP student loans in the
Company's managed student loan portfolio to earn at the minimum borrower
interest rate at March 31, 2000 and 1999, based on the last Treasury bill
auctions of 5.88 percent and 4.50 percent, respectively, which were applicable
to those periods (dollars in billions).
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
------------------------------ ------------------------------
ANNUALLY ANNUALLY
FIXED RESET FIXED RESET
BORROWER BORROWER BORROWER BORROWER
RATE RATE TOTAL RATE RATE TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Student loans eligible to earn at
the minimum borrower rate...... $13.1 $29.5 $42.6 $12.1 $ 26.5 $ 38.6
Less notional amount of floor
interest contracts............. (5.3) (3.1) (8.4) (4.9) (14.7) (19.6)
----- ----- ----- ----- ------ ------
Net student loans eligible to
earn at the minimum borrower
rate........................... $ 7.8 $26.4 $34.2 $ 7.2 $ 11.8 $ 19.0
===== ===== ===== ===== ====== ======
Net student loans earning at the
minimum borrower rate.......... $ 2.1 $ -- $ 2.1 $ 6.6 $ 11.7 $ 18.3
===== ===== ===== ===== ====== ======
</TABLE>
STUDENT LOAN FLOOR REVENUE CONTRACTS
For the three months ended March 31, 2000 and 1999, the amortization of the
upfront payments received from the sale of Floor Revenue Contracts on the
Company's on-balance sheet student loans with fixed borrower rates was
$5 million and $6 million, respectively, and for Floor Revenue Contracts with
annually reset borrower rates was $1 million and $8 million, respectively. At
March 31, 2000, unamortized payments received from the sale of Floor Revenue
Contracts totaled $20 million, $19 million of which related to contracts on
fixed rate loans and $1 million of which related to contracts on annual reset
loans. At March 31, 2000, the Company had $5.3 billion of outstanding fixed
borrower rate Floor Revenue Contracts which had expiration dates through the
year 2003, and $3.1 billion of annually reset borrower rate contracts which
expire on July 1, 2000.
ON-BALANCE SHEET FUNDING COSTS
The Company's borrowings are generally variable-rate indexed principally to
the 91-day Treasury bill rate. The following table summarizes the average
balance of on-balance sheet debt (by index, after giving effect to the impact of
interest rate swaps) for the three months ended March 31, 2000 and 1999 (dollars
in millions).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------------
2000 1999
------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE
INDEX BALANCE RATE BALANCE RATE
- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Treasury bill, principally 91-day........ $33,639 6.15% $28,527 5.11%
LIBOR.................................... 1,768 6.02 2,540 4.99
Discount notes........................... 4,647 5.70 3,190 4.80
Fixed.................................... 1,422 5.98 875 6.10
Zero coupon.............................. 164 11.17 147 11.14
Commercial paper......................... 947 6.25 - -
Other.................................... 653 5.50 885 4.75
------- ----- ------- -----
Total.................................... $43,240 6.12% $36,164 5.13%
======= ===== ======= =====
</TABLE>
16
<PAGE>
The following table details the spreads for the Company's Treasury bill
indexed borrowings and London Interbank Offered Rate ("LIBOR") indexed
borrowings:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
TREASURY BILL
Weighted average Treasury bill.......................... 5.61% 4.68%
Borrowing spread........................................ .54 .43
----- -----
Weighted average borrowing rate......................... 6.15% 5.11%
===== =====
LIBOR
Weighted average LIBOR.................................. 6.24% 5.23%
Borrowing spread........................................ (.22) (.24)
----- -----
Weighted average borrowing rate......................... 6.02% 4.99%
===== =====
</TABLE>
SECURITIZATION PROGRAM
During the first quarter of 2000, the Company completed two securitization
transactions in which a total of $4.0 billion of student loans were sold to a
special purpose finance subsidiary and by that subsidiary to trusts that issued
asset-backed securities to fund the student loans to term. During the first
quarter of 1999, the Company decided not to enter into securitization
transactions due to the turbulence in the global financial markets that
persisted after the Russian bond default in August 1998.
GAINS ON STUDENT LOAN SECURITIZATIONS
For the three months ended March 31, 2000 the Company recorded pre-tax
securitization gains of $42 million, which was 1.05 percent of the portfolios
securitized, versus no gains in the first quarter of 1999. Gains on future
securitizations will continue to vary depending on the size and the loan
characteristics of the loan portfolios securitized and the funding costs
prevailing in the securitization debt markets.
SERVICING AND SECURITIZATION REVENUE
The following table summarizes the components of servicing and
securitization revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Servicing revenue less amortization of servicing
asset................................................. $ 45 $ 40
Securitization revenue.................................. 17 46
---- ----
Total servicing and securitization revenue.............. $ 62 $ 86
==== ====
</TABLE>
The decrease in servicing and securitization revenue as a percentage of the
average balance of securitized student loans in the first quarter of 2000 versus
the first quarter of 1999 is mainly due to the impact of the rise in Treasury
bill rates since the second half of 1999, which decreased Floor Revenues from
student loans in the trusts by $20 million.
OTHER INCOME
Other income, exclusive of gains on student loan securitizations and
servicing and securitization revenue, totaled $71 million for the three months
ended March 31, 2000 versus $21 million for the
17
<PAGE>
three months ended March 31, 1999. Other income mainly includes late fees earned
on student loans, gains and losses on sales of investment securities, revenue
received from servicing third party portfolios of student loans and commitment
fees for letters of credit. The increase in other income for the first quarter
of 2000 versus the first quarter of 1999 is mainly due to $43 million of gains
on sales of investment securities versus none in the year-ago quarter. The
Company earned late fees of $11 million in the first quarter of 2000 versus
$8 million in the year-ago quarter.
OPERATING EXPENSES
The following table summarizes the components of operating expenses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Servicing and acquisition expenses...................... $ 60 $ 64
General and administrative expenses..................... 36 22
---- ----
Total operating expenses................................ $ 96 $ 86
==== ====
</TABLE>
Operating expenses include costs to service the Company's managed student
loan portfolio, operational costs incurred in the process of acquiring student
loan portfolios and general and administrative expenses. Operating expenses for
the three months ended March 31, 2000 and 1999 were $96 million and
$86 million, respectively. Total operating expenses as a percentage of average
managed student loans were 72 basis points and 74 basis points for the three
months ended March 31, 2000 and 1999, respectively. The increase in general and
administrative expenses of $14 million over the year-ago quarter was mainly due
to expenses related to Nellie Mae, which the Company acquired in the third
quarter of 1999, and to expenses of new business initiatives, specifically, SLM
Financial, SLM Solutions, and E-commerce initiatives. The expenses of SLM
Solutions includes those of Exeter Software acquired in the fourth quarter of
1999.
STUDENT LOAN PURCHASES
The following table summarizes the components of the Company's student loan
purchase activity:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Controlled channels...................................... $1,908 $2,208
Other commitment clients................................. 283 316
Spot purchases........................................... 154 27
Consolidations........................................... 208 151
Other.................................................... 297 258
------ ------
Total.................................................... $2,850 $2,960
====== ======
</TABLE>
The Company purchased $2.9 billion of student loans in the first quarter of
2000 compared with $3.0 billion in the year-ago quarter. In connection with the
restructuring of the Joint Venture with Chase Manhattan Bank ("Chase") ("Joint
Venture"), the Company acquired $1.0 billion of student loans in the first
quarter of 1999 that previously represented Chase's one-half interest in those
loans.
In the first quarter of 2000, the Company's controlled channels of loan
originations totaled $2.1 billion versus $1.8 billion in the year-ago quarter.
The pipeline of loans currently serviced and committed for purchase by the
Company was $3.5 billion at March 31, 2000 versus $5.1 billion at March 31,
1999. Included in the pipeline at March 31, 1999 was the remaining $592 million
of student
18
<PAGE>
loans that represented Chase's one-half interest in student loans co-owned by
the Company in the Joint Venture that were committed to the Company in the
restructuring of the Joint Venture. These loans were sold to the Company in the
second quarter of 1999.
The Department of Education offers existing FFELP borrowers the opportunity
to refinance FFELP loans into the Federal Direct Student Loan Program ("FDSLP")
loans. During the three months ended March 31, 2000 and 1999, approximately
$76 million and $312 million, respectively, of the Company's managed student
loans were accepted for refinancing into the FDSLP. The relatively high balance
in the first quarter of 1999 was the result of legislation passed in 1998 that
allowed borrowers to apply for consolidated student loans under the FDSLP at
advantages interest rates through January 31, 1999.
The following table summarizes the activity in the Company's managed
portfolio of student loans for the three months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Beginning balance...................................... $53,276 $46,342
Purchases.............................................. 2,850 2,960
Capitalized interest on securitized loans.............. 138 89
Repayments, claims, other.............................. (1,303) (1,300)
Loan sales............................................. (38) -
Loans consolidated from SLMH........................... (187) (437)
------- -------
Ending balance......................................... $54,736 $47,654
======= =======
</TABLE>
PRO-FORMA STATEMENTS OF INCOME
Under GAAP, the Company's securitization transactions have been treated as
sales. At the time of sale, in accordance with SFAS 125, the Company records a
gain equal to the present value of the estimated future net cash flows from the
portfolio of loans sold. Interest earned on the Interest Residual and fees
earned for servicing the loan portfolios are recognized over the life of the
securitization transaction as servicing and securitization revenue. Under
SFAS 125, income recognition is effectively accelerated through the recognition
of a gain at the time of sale while the ultimate realization of such income
remains dependent on the actual performance, over time, of the loans that were
securitized.
Management believes that, in addition to results of operations as reported
in accordance with GAAP, another important performance measure is pro-forma
results of operations under the assumption that the securitization transactions
are financings and that the securitized student loans were not sold. The
following pro-forma statements of income present the Company's results of
operations under the assumption that the securitization transactions are treated
as financings as opposed to sales of student loans. As such, no gain on sale or
subsequent servicing and securitization revenue is recognized. Instead, the
earnings of the student loans in the trusts and the related financing costs are
reflected over the life of the underlying pool of loans. Management refers to
these pro-forma results as "cash basis" statements of income. Management
monitors the periodic "cash basis" earnings of the Company's managed student
loan portfolio and believes that they assist in a better understanding of the
Company's student loan business. The following table presents the "cash basis"
statements of income and a reconciliation to net income as reflected in the
Company's consolidated statements of income. The Company also reports "core cash
basis" net income which excludes the effect of floor income and gains on sales
of investment securities and student loans.
19
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
"CASH BASIS" STATEMENTS OF INCOME:
Student loans........................................... $1,079 $ 852
Advances/Facilities/Investments......................... 153 95
------ -----
Total interest income................................... 1,232 947
Interest expense........................................ (986) (692)
------ -----
Net interest income..................................... 246 255
Less: provision for losses.............................. 14 12
------ -----
Net interest income after provision for losses.......... 232 243
------ -----
Other Income:
Gains on student loan securitizations................. - -
Servicing and securitization revenue.................. - -
Gains on sales of securities.......................... 43 -
Other................................................. 28 21
------ -----
Total other income...................................... 71 21
Total operating expenses................................ 96 86
------ -----
Income before taxes and minority interest in net
earnings of subsidiary................................ 207 178
Income taxes............................................ 67 56
Minority interest in net earnings of subsidiary......... 3 3
------ -----
"Cash basis" net income................................. 137 119
Preferred stock dividends............................... 3 -
------ -----
"Cash basis" net income attributable to common stock.... $ 134 $ 119
====== =====
"Cash basis" diluted earnings per share................. $ .83 $ .72
====== =====
"Core cash basis" net income............................ $ 108 $ 92
====== =====
"Core cash basis" diluted earnings per share............ $ .65 $ .55
====== =====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
-------- --------
<S> <C> <C>
RECONCILIATION OF GAAP NET INCOME TO "CASH BASIS" NET
INCOME:
GAAP net income........................................... $ 154 $ 114
----- -----
"Cash basis" adjustments:
Gains on student loan securitizations................... (42) -
Servicing and securitization revenue.................... (62) (86)
Net interest income..................................... 84 97
Provision for losses.................................... (5) (4)
----- -----
Total "cash basis" adjustments............................ (25) 7
Net tax effect (A)........................................ 8 (2)
----- -----
"Cash basis" net income................................... $ 137 $ 119
===== =====
</TABLE>
- ------------------------
(A) Such tax effect is based upon the Company's marginal tax rate for the
respective period.
20
<PAGE>
"CASH BASIS" STUDENT LOAN SPREAD AND NET INTEREST INCOME
The following table analyzes the reported earnings from the Company's
portfolio of managed student loans, which includes those on-balance sheet and
those off-balance sheet in securitization trusts. The line captioned "Adjusted
student loan yields" reflects contractual student loan yields adjusted for the
amortization of premiums paid to purchase loan portfolios and the estimated
costs of borrower benefits.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Adjusted student loan yields........................... 8.27% 7.56%
Consolidated loan rebate fees.......................... (.17) (.15)
Offset fees............................................ (.08) (.09)
------- -------
Student loan income.................................... 8.02 7.32
Cost of funds.......................................... (6.24) (5.16)
------- -------
Student loan spread.................................... 1.78% 2.16%
======= =======
Core student loan spread............................... 1.77% 1.81%
======= =======
AVERAGE BALANCES
Student loans.......................................... $54,094 $47,228
======= =======
</TABLE>
The decrease in the "cash basis" core student loan spread is mainly due to
higher financing spreads, including the impact of offset fees, which decreased
the first quarter of 2000 student loan spread by 5 basis points versus the
year-ago quarter.
Due to the continued rise in Treasury bill rates since the second quarter of
1999 the Company earned Floor Revenues of $2 million in the first quarter of
2000 versus $41 million of such earnings in the year-ago quarter. Virtually all
of the floor income earned in the first quarter of 2000 was from student loans
whose borrower rates are fixed to term, while in the first quarter of 1999,
$13 million of the floor revenue earned was from student loans whose borrower
rates are fixed to term, and $8 million was from student loans whose borrower
rates reset annually. The decrease in the first quarter 2000 Floor Income
decreased the "cash basis" student loan spread by 34 basis points versus the
year-ago quarter.
For the three months ended March 31, 2000 and 1999, the amortization of the
upfront payments received from the sale of Floor Interest Contracts with
annually reset borrower rates was $1 million and $10 million, respectively. The
reduced activity in Floor Interest Contracts with annually reset borrower rates
is directly related to the rise in Treasury bill rates since the borrower rate
reset on July 1. At March 31, 2000, unamortized payments received from the sale
of Floor Interest Contracts totaled $20 million, $19 million of which related to
contracts on fixed rate loans, and $1 million of which related to contracts on
annual reset loans. The $5.3 billion of outstanding fixed borrower rate Floor
Interest Contracts at March 31, 2000 have expiration dates through the year
2003, while the $3.1 billion of annually reset borrower rate contracts
outstanding at March 31, 2000 expire on July 1, 2000.
The "cash basis" net interest margin for the first quarters of 2000 and 1999
was 1.62 percent and 1.98 percent, respectively. The decrease in first quarter
of 2000 "cash basis" net interest margin versus the first quarter of 1999 is
mainly due to the decrease in the student loan spread discussed above and to the
increase in average balance of investments as a percentage of total earning
assets.
21
<PAGE>
"CASH BASIS" FUNDING COSTS
The following table details the spreads for the Company's Treasury bill
indexed borrowings and London Interbank Offered Rate ("LIBOR") indexed
borrowings on a "cash basis":
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------
INDEXED BORROWINGS 2000 1999
- ------------------ -------- --------
<S> <C> <C>
Treasury bill
Weighted average Treasury bill.............................. 5.64% 4.63%
Borrowing spread............................................ .61 .54
------ ------
Weighted average borrowing rate............................. 6.25% 5.17%
====== ======
LIBOR
Weighted average LIBOR...................................... 6.25% 5.23%
Borrowing spread............................................ .09 (.24)
------ ------
Weighted average borrowing rate............................. 6.34% 4.99%
====== ======
</TABLE>
FEDERAL AND STATE TAXES
The Company maintains a portfolio of tax-advantaged assets principally to
support education-related financing activities. That portfolio was primarily
responsible for the decrease in the effective federal income tax rate from the
statutory rate of 35 percent to 33 percent in the first quarter of 2000, and to
32 percent in the first quarter of 1999. The GSE is exempt from all state,
local, and District of Columbia income, franchise, sales and use, personal
property and other taxes, except for real property taxes. However, this tax
exemption applies only to the GSE and does not apply to SLM Holding or its other
operating subsidiaries. Under the Privatization Act, the Company's GSE and
non-GSE activities are separated, with non-GSE activities being subject to
taxation at the state and local level. State taxes were immaterial in the three
months ended March 31, 2000 and 1999 as the majority of the Company's business
activities were conducted through the GSE.
As business activity increasingly occurs outside of the GSE, the impact of
state and local taxes will increase accordingly. Management expects that
ultimately all business activities will occur outside of the GSE, which could
increase the Company's effective income tax rate by as much as five percent. The
loss of the GSE tax exemption for sales and use and personal property taxes
could increase operating costs by one percent.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital are to fund the Company's
operations, its purchases of student loans and the repayment of its debt
obligations while continuing to meet the GSE's statutory capital adequacy ratio
test. The Company's primary sources of liquidity are through debt issuances by
its GSE subsidiary, off-balance sheet financings through securitizations,
borrowings under its commercial paper program, and cash generated by its
subsidiaries' operations and distributed through dividends to the Company.
The Company's unsecured financing requirements are driven by three principal
factors: refinancing of existing liabilities as they mature; financing of
student loan portfolio growth; and the Company's level of securitization
activity. The lingering effects of the August 1998 Russian bond default has
caused funding spreads on both the Company's unsecured debt and its asset-backed
securities to remain wider than in recent years. Market conditions for Treasury
bill indexed debt improved in the first quarter of 2000 and the Company has
begun to lengthen the term of its GSE debt.
22
<PAGE>
In the first quarter of 2000, the Company completed two securitization
transactions totaling $4.0 billion in student loans and issued $3.8 billion in
LIBOR-based asset-backed securities. The Company manages the resulting
off-balance sheet basis risk with on-balance sheet financing and derivative
instruments, principally basis swaps and Eurodollar futures.
During the first quarter of 2000, the Company used the net proceeds from
student loan securitizations of $4.1 billion, net proceeds from the sale or
maturity of investments of $1.2 billion, and repayments and claim payments on
student loans of $692 million to purchase student loans of $2.9 billion, to
reduce total debt by $3.9 billion, and to repurchase $50 million of the
Company's common stock.
Operating activities provided net cash inflows of $158 million in the first
quarter of 2000, a decrease of $324 million from the net cash inflows of
$482 million in the year-ago quarter.
During the first quarter of 2000, the Company issued $3.4 billion of
long-term notes to refund maturing and repurchased obligations. At March 31,
2000, the Company had $5.0 billion of outstanding long-term debt issues of which
$731 million had stated maturities that could be accelerated through call
provisions. The Company uses interest rate and foreign currency swaps
(collateralized where appropriate), purchases of U.S. Treasury securities and
other hedging techniques to reduce its exposure to interest rate and currency
fluctuations that arise from its financing activities and to match the variable
interest rate characteristics of its earning assets. (See "Interest Rate Risk
Management.")
On January 1, 2000 the GSE's statutory capital adequacy ratio was increased
from 2.00 percent to 2.25 percent. At March 31, 2000, the GSE was in compliance
with the new ratio with a statutory capital adequacy ratio, after the effect of
the dividends to be paid in the second quarter of 2000, of 2.25 percent.
INTEREST RATE RISK MANAGEMENT
INTEREST RATE GAP ANALYSIS
The Company's principal objective in financing its operations is to minimize
its sensitivity to changing interest rates by matching the interest rate
characteristics of its borrowings to specific assets in order to lock in
spreads. The Company funds its floating rate managed loan assets (most of which
have weekly rate resets) with variable rate debt and fixed rate debt converted
to variable rates with interest rate swaps. The Company also uses interest rate
cap and collar agreements, foreign currency swaps, options on securities, and
financial futures contracts to further reduce interest rate risk and foreign
currency exposure on certain of its borrowings. Investments are funded on a
"pooled" approach, i.e., the pool of liabilities that funds the investment
portfolio has an average rate and maturity or reset date that corresponds to the
average rate and maturity or reset date of the investments which they fund.
In addition to term match funding, the Company's asset-backed securities
generally match the interest rate characteristics of the majority of the student
loans in the trusts by being indexed to the 91-day Treasury bill. However, at
March 31, 2000, there were approximately $2 billion of PLUS student loans
outstanding in the trusts, which have interest rates that reset annually based
on the final auction of 52-week Treasury bills before each July 1. The Company
manages this basis risk within the trusts through its on-balance sheet financing
activities. The effect of this basis risk management is included in the
following table as the impact of securitized student loans.
In the table below the Company's variable rate assets and liabilities are
categorized by reset date of the underlying index. Fixed rate assets and
liabilities are categorized based on their maturity dates. An interest rate gap
is the difference between volumes of assets and volumes of liabilities maturing
or
23
<PAGE>
repricing during specific future time intervals. The following gap analysis
reflects rate-sensitive positions at March 31, 2000 and is not necessarily
reflective of positions that existed throughout the period.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY PERIOD
---------------------------------------------------------------
3 MONTHS 6 MONTHS
3 MONTHS TO TO 1 TO 2 2 TO 5 OVER 5
OR LESS 6 MONTHS 1 YEAR YEARS YEARS YEARS
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Student loans................................... $29,820 $ 2,108 $ -- $ -- $ -- $ --
Warehousing advances............................ 843 15 -- -- 1 14
Academic facilities financings.................. 22 9 17 98 354 522
Cash and investments............................ 2,253 25 20 32 36 1,717
Other assets.................................... 26 30 61 106 305 1,801
------- ------- ------ ------ ------ -------
Total assets................................ 32,964 2,187 98 236 696 4,054
------- ------- ------ ------ ------ -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings........................... 26,803 2,821 3,415 -- -- --
Long-term notes................................. 3,035 12 -- 1,097 336 570
Other liabilities............................... -- -- -- -- -- 1,020
Minority interest in subsidiary................. -- -- -- -- -- 214
Stockholders' equity............................ -- -- -- -- -- 912
------- ------- ------ ------ ------ -------
Total liabilities and
stockholders' equity.......................... 29,838 2,833 3,415 1,097 336 2,716
------- ------- ------ ------ ------ -------
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Interest rate swaps............................. (1,004) (1,864) 3,047 835 -- (1,014)
Impact of securitized student loans............. (2,631) 2,631 -- -- -- --
------- ------- ------ ------ ------ -------
Total off-balance sheet financial instruments... (3,635) 767 3,047 835 -- (1,014)
------- ------- ------ ------ ------ -------
Period gap...................................... $ (509) $ 121 $ (270) $ (26) $ 360 $ 324
======= ======= ====== ====== ====== =======
Cumulative gap.................................. $ (509) $ (388) $ (658) $ (684) $ (324) $ --
======= ======= ====== ====== ====== =======
Ratio of interest-sensitive assets to
interest-sensitive liabilities................ 110.4% 76.1% 1.1% 11.9% 116.4% 395.3%
======= ======= ====== ====== ====== =======
Ratio of cumulative gap to total assets......... 1.3% 1.0% 1.6% 1.7% .8% --%
======= ======= ====== ====== ====== =======
</TABLE>
INTEREST RATE SENSITIVITY ANALYSIS
The effect of short-term movements in interest rates on the Company's
results of operations and financial position has been limited through the
Company's risk-management activities. The Company performed a sensitivity
analysis to determine the annual effect of a hypothetical increase in 2000
market interest rates of 10 percent on the Company's variable rate assets and
liabilities and a hypothetical 10 percent increase in spreads to their
underlying index. Based on this analysis there has not been a material change in
market risk from December 31, 1999 as reported in the Company's Form 10-K.
24
<PAGE>
AVERAGE TERMS TO MATURITY
The following table reflects the average terms to maturity for the Company's
managed earning assets and liabilities at March 31, 2000:
AVERAGE TERMS TO MATURITY (IN YEARS)
<TABLE>
<CAPTION>
ON- OFF-
BALANCE BALANCE
SHEET SHEET MANAGED
-------- -------- --------
<S> <C> <C> <C>
EARNING ASSETS
Student loans...................................... 7.0 4.2 5.9
Warehousing advances............................... 6.4 -- 6.4
Academic facilities financings..................... 7.0 -- 7.0
Cash and investments............................... 6.9 -- 6.9
--- --- ---
Total earning assets............................... 7.0 4.2 6.0
--- --- ---
BORROWINGS
Short-term borrowings.............................. .4 -- .4
Long-term borrowings............................... 3.1 4.2 4.0
--- --- ---
Total borrowings................................... .7 4.0 2.0
--- --- ---
</TABLE>
In the above table, Treasury receipts and variable rate asset-backed
securities, although generally liquid in nature, extend the weighted average
remaining term to maturity of cash and investments to 6.9 years. As student
loans are securitized, the need for long-term on-balance sheet financing will
decrease.
COMMON STOCK
The Company continued to reduce its investment portfolio and to reduce the
portfolio of other non-student loan earning assets using the released capital to
repurchase the Company's common stock. The Company repurchased 1.1 million
shares of common stock during the three months ended March 31, 2000, lowering
outstanding shares to 157 million at March 31, 2000. In addition, the Company
supplemented its open market common stock purchases during the quarter by
entering into equity forward contracts to purchase 1.7 million shares of common
stock. At March 31, 2000, the total common shares that could potentially be
acquired over the next five years under outstanding equity forward contracts was
22 million, and the Company has remaining authority to enter into additional
share repurchases and equity forward contracts for 1.9 million shares.
25
<PAGE>
The following table summarizes the Company's common share repurchase and
equity-forward activity for the three months ended March 31, 2000 and 1999. (All
amounts in the tables are common shares in millions.)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
COMMON SHARES REPURCHASED:
Open market............................................. -- 0.2
Equity forwards......................................... 1.1 1.4
------ ------
Total shares repurchased.................................... 1.1 1.6
====== ======
Average purchase price per share............................ $43.78 $39.25
====== ======
EQUITY FORWARD CONTRACTS:
Outstanding at beginning of year............................ 21.4 20.5
New contracts............................................... 1.7 1.5
Exercises................................................... (1.1) (1.4)
------ ------
Outstanding at end of period................................ 22.0 20.6
====== ======
Board of director authority at end of period................ 1.9 11.1
====== ======
</TABLE>
As of March 31, 2000, the expiration dates and range of purchase prices for
outstanding equity forward contracts are as follows:
<TABLE>
<CAPTION>
OUTSTANDING RANGE OF
YEAR OF MATURITY CONTRACTS MARKET PRICES
- ---------------- ----------- ---------------------
<S> <C> <C>
2000.............................................. 2.9 $41.01-$46.13
2001.............................................. 8.7 32.11- 46.68
2002.............................................. 3.5 42.94- 46.23
2003.............................................. 4.0 41.20- 47.50
2004.............................................. 2.9 36.04- 45.62
----
22.0
====
</TABLE>
OTHER RELATED EVENTS AND INFORMATION
On February 7, 2000, President Clinton submitted his Fiscal Year 2001 budget
proposal to Congress. The budget proposes significant savings from the student
loan programs, principally from the FFELP. The major proposals for student loans
are the following:
- Reduce special allowance payments 31 basis points from three-month
commercial paper plus 2.34% to three-month commercial paper plus 2.03%;
and
- Eliminate all special allowance on tax exempt loans subject to a 9.5%
interest rate floor.
All these proposals may be considered by Congress as it continues
deliberations on the FY 2001 budget. While the Company does not expect any of
these proposals to pass, if they were to pass as proposed, the Company's
earnings could be materially adversely affected.
YEAR 2000 ISSUE
The "Year 2000 issue" refers to a wide variety of potential computer program
processing and functionality issues that may arise from the inability of
computer programs to properly process
26
<PAGE>
date-sensitive information relating to the Year 2000, years thereafter and to a
lesser degree the Year 1999.
During 1996, the Company commenced a Year 2000 readiness project to assess
and remediate its internal software and hardware systems to avoid or mitigate
Year 2000 problems and to evaluate Year 2000 problems that may arise from
entities with which the Company interacts.
As of the date of this report, we have not experienced any significant year
2000 problems with any internal software or hardware systems or with any of our
significant external business partners.
The Company cannot be sure we will be completely successful in our efforts
to address the year 2000 issue or that problems arising from the year 2000 issue
will not cause a material adverse effect on our operating results or financial
condition. The Company believes, however, that our most reasonably likely
worst-case scenario would relate to problems with the systems of third parties
rather than with our internal systems. We are limited in our efforts to address
the year 2000 issue as it relates to third parties and rely solely on the
assurances of these third parties as to their year 2000 preparedness.
27
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Nothing to report.
ITEM 2. CHANGES IN SECURITIES.
Nothing to report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Nothing to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Nothing to report.
ITEM 5. OTHER INFORMATION.
Nothing to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by the Company during the
quarter ended March 31, 2000 or thereafter:
On January 6, 2000, the Company filed a Form 8-K reporting that President
Clinton signed the Ticket to Work and Work Incentives Improvement Act. This Act
included a provision changing the index on which lender returns are set under
the FFELP from the 91-day Treasury bill rate to a 3-month commercial paper rate.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
<TABLE>
<S> <C> <C>
SLM HOLDING CORPORATION
(Registrant)
By: /s/ JOHN F. REMONDI
-----------------------------------------
John F. Remondi
SENIOR VICE PRESIDENT, FINANCE
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
</TABLE>
Date: May 15, 2000
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 105,772
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,720,215
<INVESTMENTS-CARRYING> 890,065
<INVESTMENTS-MARKET> 890,182
<LOANS> 33,190,251
<ALLOWANCE> 300,054
<TOTAL-ASSETS> 40,234,898
<DEPOSITS> 0
<SHORT-TERM> 33,039,012
<LIABILITIES-OTHER> 1,233,495
<LONG-TERM> 5,049,865
0
165,000
<COMMON> 37,247
<OTHER-SE> 710,279
<TOTAL-LIABILITIES-AND-EQUITY> 40,234,898
<INTEREST-LOAN> 692,439
<INTEREST-INVEST> 127,277
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 819,716
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 657,847
<INTEREST-INCOME-NET> 161,869
<LOAN-LOSSES> 9,438
<SECURITIES-GAINS> 43,002
<EXPENSE-OTHER> 96,238
<INCOME-PRETAX> 231,784
<INCOME-PRE-EXTRAORDINARY> 153,649
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 153,649
<EPS-BASIC> 0.96
<EPS-DILUTED> 0.93
<YIELD-ACTUAL> 1.60
<LOANS-NON> 0
<LOANS-PAST> 630,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 303,743
<CHARGE-OFFS> (15,883)
<RECOVERIES> 2,755
<ALLOWANCE-CLOSE> 300,054
<ALLOWANCE-DOMESTIC> 300,054
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
