SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
THE STUDENT LOAN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 16-1427135
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
99 GARNSEY ROAD 14534
PITTSFORD, NEW YORK (Zip Code)
(Address of principal executive offices)
(716) 248-7187
(Registrant's telephone number, including area code)
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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
----- -----
On August 7, 1998, there were 20,000,000 shares of The Student Loan
Corporation's Common Stock outstanding.
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Form 10-Q
Part I Financial Information
Page
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Item 1 - Financial Statements
Statements of Income for the Three and Six Month Periods
Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . 3
Balance Sheets as of June 30, 1998 and December 31, 1997 . . . . 4
Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997 . .. . . . . . . . . . . . . . . . . . . 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 9-12
Part II Other Information
Item 4 - Submission of Matters to a Vote of Security Holders . . . . . . 13
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 13
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
In the opinion of the management of the Company, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the results
of operations for the three and six month periods ended June 30, 1998 and 1997
have been included.
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
THE STUDENT LOAN CORPORATION
STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
REVENUE
Interest income $162,704 $144,567 $319,539 $287,346
Interest expense 113,619 101,342 225,070 199,392
-------- -------- -------- --------
Net interest income 49,085 43,225 94,469 87,954
Provision for loan losses 894 747 1,682 1,452
-------- -------- -------- --------
Net interest income after
provision for loan losses 48,191 42,478 92,787 86,502
Fee and other income 416 20 778 42
-------- -------- -------- --------
Total revenue, net $ 48,607 $ 42,498 $ 93,565 $ 86,544
-------- -------- -------- --------
OPERATING EXPENSES
Salaries and employee benefits $ 8,288 $ 7,770 $ 17,218 $ 15,332
Other expenses 10,473 10,701 18,292 19,260
-------- -------- -------- --------
Total operating expenses $ 18,761 $ 18,471 $ 35,510 $ 34,592
-------- -------- -------- --------
Income before income taxes $ 29,846 $ 24,027 $ 58,055 $ 51,952
Income taxes 12,399 9,922 23,802 21,033
-------- -------- -------- --------
NET INCOME $ 17,447 $ 14,105 $ 34,253 $ 30,919
======== ======== ======== ========
NET INCOME - Core
(excluding floor income) $ 17,347 $ 13,845 $ 34,039 $ 30,340
======== ======== ======== ========
NET INCOME - Floor $ 100 $ 260 $ 214 $ 579
======== ======== ======== ========
DIVIDENDS DECLARED $ 3,000 $ 2,400 $ 6,000 $ 4,800
======== ======== ======== ========
BASIC and DILUTED EARNINGS PER COMMON SHARE
(based on 20 million average shares outstanding)
Net income - Core $ 0.86 $ 0.69 $ 1.70 $ 1.52
Net income - Floor $ 0.01 $ 0.01 $ 0.01 $ 0.03
------ ------ ------ ------
Net income $ 0.87 $ 0.70 $ 1.71 $ 1.55
====== ====== ====== ======
Dividends declared per common share $ 0.15 $ 0.12 $ 0.30 $ 0.24
====== ====== ====== ======
OPERATING RATIOS
Net interest margin 2.47% 2.42% 2.40% 2.48%
Net interest margin - Core 2.46% 2.39% 2.39% 2.45%
Operating expense as a
percentage of average
insured student loans 0.94% 1.03% 0.90% 0.97%
See accompanying notes to financial statements.
3
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THE STUDENT LOAN CORPORATION
BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
1998 1997
----------- -----------
ASSETS
Insured student loans $ 7,993,388 $ 7,625,157
Allowance for loan losses 2,240 2,014
----------- -----------
Insured student loans, net 7,991,148 7,623,143
Cash 142 2,108
Deferred tax benefits 37,914 41,581
Other assets 227,886 207,118
----------- -----------
Total Assets $ 8,257,090 $ 7,873,950
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 4,645,531 $ 5,696,605
Long-term notes 3,040,000 1,610,000
Payable to principal stockholder 15,385 17,063
Restructuring liabilities 17,495 17,724
Other liabilities 107,304 129,436
----------- -----------
Total Liabilities 7,825,715 7,470,828
----------- -----------
Common stock 200 200
Additional paid-in capital 134,380 134,380
Retained earnings 296,795 268,542
----------- -----------
Total Stockholders' Equity 431,375 403,122
----------- -----------
Total Liabilities and Stockholders' Equity $ 8,257,090 $ 7,873,950
=========== ===========
AVERAGE INSURED STUDENT LOANS $ 7,947,792 $ 7,269,249
=========== ===========
(year-to-date)
See accompanying notes to financial statements.
4
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THE STUDENT LOAN CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six months ended
June 30,
----------------------
1998 1997
--------- ---------
Cash flows from operating activities:
Net income $ 34,253 $ 30,919
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 2,758 2,938
Provision for loan losses 1,682 1,452
Deferred tax provision 3,667 3,267
Increase in accrued interest receivable (20,199) (20,976)
(Increase) decrease in other assets (247) 1,081
Decrease in other liabilities (23,811) (40,544)
Decrease in restructuring liabilities (229) --
---------- -----------
Net cash used in operating activities (2,126) (21,863)
---------- -----------
Cash flows from investing activities:
Disbursements of loans (846,134) (649,941)
Repayment of loans 488,625 354,847
Net (purchase) sale of loans (14,898) 22,472
Capital expenditures on furniture and equipment (359) (1,485)
---------- -----------
Net cash used in investing activities (372,766) (274,107)
---------- -----------
Cash flows from financing activities:
Net (decrease) increase in borrowings with
original maturities of one year or less (601,074) 225,798
Proceeds from long-term borrowings 1,430,000 175,000
Repayments of long-term debt (450,000) (100,000)
Dividends paid to stockholders (6,000) (4,800)
---------- -----------
Net cash provided by financing activities 372,926 295,998
---------- -----------
Net (decrease) increase in cash (1,966) 28
Cash - beginning of period 2,108 567
---------- -----------
Cash - end of period $ 142 $ 595
========== ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 214,532 $ 195,362
Income taxes $ 20,068 $ 10,482
See accompanying notes to financial statements.
5
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THE STUDENT LOAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The financial information of The Student Loan Corporation (the
"Company") as of June 30, 1998 and for the three and six-month periods
ended June 30, 1998 includes all adjustments (consisting of normal
recurring accruals) which, in the opinion of management, are necessary
to state the Company's financial position and results of operations in
accordance with generally accepted accounting principles.
Certain amounts in the prior period's financial statements have been
reclassified to conform with the current period's presentation. Such
reclassification had no effect on the results of operations as
previously reported.
DEFINITIONS
Core net income represents net income excluding the floor income that
is attributable to the fixed minimum interest rates on certain loans in
the Company's portfolio.
2. COMMITMENTS AND CONTINGENCIES
REGULATORY IMPACTS
Provisions of the Higher Education Act (the "Act") adopted in 1993
included increased costs and reduced interest payments to lenders
participating in the Federal Family Education Loan ("FFEL") program and
the introduction of a competitor program, the Federal Direct Student
Loan program. The impact of these provisions on the Company's future
originations is dependent on such factors as the ultimate success of
direct lending and the relative size of the FFEL program in the years
to come. The legislative changes have reduced the net interest margin
of the guaranteed student loan portfolio from pre-1994 levels.
Temporary legislation went into effect on July 1, 1998 that made
modifications to certain 1993 provisions that had called for changing
the interest rate on most new FFEL program disbursements made on or
after July 1, 1998 to an interest rate based on the 10-year Treasury
Bill rate. The temporary legislation maintains the current 91-day
Treasury Bill index, but reduces the interest rate paid by borrowers
for most loans originated on or after July 1, 1998 by 0.80%. This
temporary legislation calls for the interest rate reduction to be borne
0.30% by lenders and 0.50% by the Federal Government in the form of
interest subsidies. The Senate and the House of Representatives have
both passed separate similar bills that would make this interest rate
reduction as well as the 0.50% government interest subsidies permanent.
Specifics of the legislation will be determined as the reconcilement of
the Senate and House versions of the measure are completed. This
revised bill, which will reauthorize the Higher Education Act, is
expected to be approved and signed into law before September 30, 1998,
according to industry sources.
6
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3. RESTRUCTURING PLAN
In the fourth quarter of 1997, the Company announced a restructuring
plan which will realign its business and processing structure,
involving the outsourcing of a significant part of its operations to
subsidiaries of Citicorp, allowing the Company to take
advantage of the larger economies of scale and more global operating
systems configurations being employed by Citibank. The Company expects
the restructuring to impact substantially all of its approximately 800
Pittsford-based employees.
In connection with this plan, the Company incurred a $20.5 million
pre-tax charge in 1997, including $16.2 million in severance benefits,
$2.8 million in furniture and equipment write-downs and $1.5 million in
other costs. Additional costs, which did not qualify for recognition in
the initial $20.5 million charge, are being expensed as incurred in the
implementation of the restructuring plan. These costs are not expected
to be material.
A reserve in the amount of $17.7 million, which represents the
liability for future cash outflows associated with the restructuring
charge less the $2.8 million furniture and equipment write-downs taken
in 1997, was available at December 31, 1997. Of this reserve,
approximately $0.2 million was used in the first six months of 1998.
However, as of June 30, 1998, only a small number of staff reductions
have been made. The restructuring program is expected to be
complete by mid-1999.
4. RELATED PARTY TRANSACTIONS
Citibank (New York State) ("CNYS"), a subsidiary of Citicorp, owns 80%
of the outstanding common stock of the Company. A number of significant
transactions are carried out between the Company on the one hand and
Citicorp and its affiliates on the other hand. At June 30, 1998, the
Company had outstanding short-term and long-term borrowings of $4.6
billion and $3.0 billion, respectively, with CNYS, compared to
short-term and long-term borrowings of $5.7 billion and $1.6 billion,
respectively, with CNYS at December 31, 1997. The amounts classified as
short-term debt as of June 30, 1998 and December 31, 1997 included $0.9
billion and $1.4 billion, respectively, of debt originally issued as
long-term that, as of these dates, matures within 12 months. For the
three and six-month periods ended June 30, 1998, the Company incurred
$113.6 million and $225.1 million, respectively, in interest expense
payable to CNYS and its affiliates, compared to $92.4 million and
$176.3 million, respectively, in interest expenses payable to CNYS and
its affiliates for the same periods in 1997. In addition, Citicorp and
its subsidiaries engage in other transactions and servicing activities,
including cash management, data processing, income tax payments,
employee benefits and facilities management, with the Company.
Management believes that the terms of these transactions are, in the
aggregate, no less favorable to the Company than those which could be
obtained from unaffiliated parties.
5. INTEREST RATE SWAP AGREEMENTS
The Company, from time to time, enters into interest rate swap
agreements with related and third parties solely to hedge interest rate
exposure on certain interest bearing liabilities. The swap agreements
are intended to reduce the risk caused by differences between borrowing
and lending rates. Entering into swap agreements to pay interest based
on the interest rate characteristics of the Company's assets and to
receive interest based on the characteristics of the Company's
liabilities effectively limits the risk of the potential interest rate
variability. The counterparty for all interest rate swap agreements
outstanding at June 30, 1998 was Citibank, N.A., an affiliate of CNYS.
Interest rate swap agreements with a carrying value of $0.8 million,
representing accrued interest payable, were determined to have an
estimated fair value of $1.7 million payable at June 30,
7
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1998. At December 31, 1997, interest rate swap agreements with a
carrying value of $0.4 million of interest payable had an estimated
fair value of $0.6 million payable. The fair values were based on
approximate values obtained from Citibank, N.A., the Company's
dealer in these financial instruments, and represent the estimated
amounts which would be payable upon termination of the agreements.
Fair values vary from period to period based on changes in such
factors as LIBOR and Treasury Bill interest rates and the timing of
contractual settlements. The aggregate notional principal amounts
outstanding at June 30, 1998 and December 31, 1997 totaled $2.9
billion and $2.2 billion, respectively.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133
"Accounting for Derivative Instruments and Hedging Activities", which
will change the way the Company accounts for its interest rate swap
agreements. The Company is in the process of evaluating the impact of
the new standard. See additional discussion below under IMPACT OF
RECENTLY ISSUED ACCOUNTING STANDARDS.
6. SHORT AND LONG-TERM BORROWINGS
Effective March 1, 1998, an amendment to the existing Omnibus Credit
Agreement with CNYS increased the maximum allowable credit limit
available to the Company to $10 billion. In the first six months of
1998, $1.4 billion in new long-term borrowings was made, $0.5 billion
in original long-term borrowings was paid, and $0.6 billion of
borrowings with original maturities of one year or less was repaid. The
amounts classified as short-term debt as of June 30, 1998 and December
31, 1997 include $0.9 billion and $1.4 billion, respectively, of debt
originally issued as long-term that, as of these dates, matures within
twelve months.
7. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which changes the
disclosure requirements for employers' pensions and other retiree
benefits. The new standard is not expected to require any significant
change in the Company's reporting.
In June 1998, FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which becomes effective on
January 1, 2000 for calendar year companies such as the Company.
This new standard will significantly change the accounting treatment
of the Company's derivative contracts. Depending on the underlying
risk management strategy, these accounting changes could affect
reported earnings, assets, liabilities, and stockholders' equity. As
a result, the Company may have to reconsider its risk management
strategies, since the new standard would not reflect the results of
many of those strategies in the same manner as current accounting
practice. The Company is in the process of evaluating the impact of
the new standard.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESTRUCTURING PLAN
In the fourth quarter of 1997, the Company announced a restructuring plan which
will realign its business and processing structure, involving the outsourcing of
a significant part of its operations to subsidiaries of Citicorp,
allowing the Company to take advantage of the larger economies of scale and more
global operating systems configurations being employed by Citibank. The Company
expects the restructuring to impact substantially all of its approximately 800
Pittsford-based employees.
In connection with this plan, the Company incurred a $20.5 million pre-tax
charge in 1997, including $16.2 million in severance benefits, $2.8 million in
furniture and equipment write-downs and $1.5 million in other costs. Additional
costs, which did not qualify for recognition in the initial $20.5 million
charge, are being expensed as incurred in the implementation of the
restructuring plan. These costs are not expected to be material.
A reserve in the amount of $17.7 million, which represents the liability for
future cash outflows associated with the restructuring charge less the $2.8
million furniture and equipment write-downs taken in 1997, was available at
December 31, 1997. Of this reserve, approximately $0.2 million was used in the
first six months of 1998. However, as of June 30, 1998, only a small number of
staff reductions have been made. The restructuring program is expected to be
complete by mid-1999.
FINANCIAL CONDITION
During the six months ended June 30, 1998, the net insured student loan
portfolio of The Student Loan Corporation (the "Company") grew by $368.0 million
(5%) from the balance at December 31, 1997. This growth was the result of loan
disbursements totaling $846.1 million and loan purchases net of loan sales of
$14.9 million in the first six months of 1998, partially offset by $488.6
million in loan reductions (attributable to repayments and claims paid by
guarantors) and other adjustments of $4.4 million. This compares to loan
disbursements of $649.9 million, loan reductions of $354.8 million, loan sales
net of loan purchases of $22.5 million, and other adjustments of $3.3 million in
the first six months of 1997.
The Company's new loan disbursements of $846.1 million made in the first six
months of 1998 were $196.2 million (30%) more than those made in the same period
of 1997. This increase is attributable primarily to new Federal Family Education
Loan ("FFEL") program disbursements of $726.4 million in the first six months of
1998 compared to $644.7 million during the same period of 1997. This increase of
$81.7 million (13%) in FFEL program disbursements does not include originations
made under the Federal Loan Consolidation program, which, due to a change in
Federal regulations in the fourth quarter of 1997, now permits the Company to
consolidate Federal Direct Student Loans. The Company launched an initiative to
provide this expanded consolidation loan product in late 1997. As a result,
consolidation loan originations overall for the first six months of 1998 have
increased $58 million (94%) compared to the same period of 1997.
During the first two quarters of 1998, the Company made $214.5 million in
interest payments to CNYS or one of its affiliates, compared to $195.4 million
of interest paid in the same period in 1997. The difference is due to changes in
both the size of the borrowings and interest rates, as
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well as timing of interest payments. The Company paid $20.1 million in income
taxes during the first half of 1998, compared to $10.5 million for the same
period last year. The difference in the amount of taxes paid is primarily due to
a timing difference in making intercompany tax payments, and does not reflect
any significant changes in applicable income tax rates.
Other assets increased $20.8 million (10%) from the December 31, 1997 level,
principally as a result of increased interest receivable attributable to the
growth in the student loan portfolio and timing of interest receipts. Other
liabilities, principally comprised of accrued interest and income taxes payable,
decreased $22.1 million (17%) from December 31, 1997, primarily due to timing
differences in making payments of certain accrued liabilities.
Effective March 1, 1998, an amendment to the existing Omnibus Credit Agreement
with CNYS increased the maximum allowable credit limit available to the Company
to $10 billion. In the first six months of 1998, $1.4 billion in new long-term
borrowings was made, $0.5 billion in original long-term borrowings was paid, and
$0.6 billion of borrowings with original maturities of one year or less was
repaid. The amounts classified as short-term as of June 30, 1998 and December
31, 1997 include $0.9 billion and $1.4 billion, respectively, of debt originally
issued as long-term that, as of these dates, matures within twelve months.
The Company recognizes that the arrival of the Year 2000 poses a unique
worldwide challenge to the ability of all systems to recognize the date change
from December 31, 1999 to January 1, 2000. The Company has assessed and is
repairing its computer applications and business processes to provide for their
continuing functionality. In addition, an assessment of the readiness of
external entities with which the Company interfaces is ongoing. Unreadiness by
these entities would expose the Company to the potential for loss and impairment
of business processes and activities. The Company is assessing these risks and
is creating contingency plans intended to address perceived risks. The Company
cannot predict what effect the failure of a third party to address, in a timely
manner, the Year 2000 problem would have on the Company. For the Company's
computer applications, a process of inventory, scoping and analysis,
modification, testing and certification, and implementation is underway, funded
from a combination of reprioritization of technology initiatives and incremental
costs.
The Company does not anticipate that the related overall Year 2000 costs will be
material to any single year or quarter. The Company expects to incur
approximately $2.4 million of Year 2000-related costs in 1998 and approximately
$1.9 million in 1999. Of the $2.4 million Year 2000-related costs expected to be
incurred in 1998, approximately $0.6 million was expended in the first quarter
and $0.5 million was expended in the second quarter.
The Company paid a quarterly dividend of $0.15 per common share on June 1, 1998.
The Board of Directors has declared a regular quarterly dividend on the
Company's common stock of $0.15 per share to be paid on September 1, 1998 to
stockholders of record on August 19, 1998.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1998
Net income was $17.4 million ($0.87 basic earnings per share) for the second
quarter of 1998. This was an increase of $3.3 million (24%) from earnings for
the second quarter of 1997. The increase was primarily due to the receipt of a
one-time interest payment of $3.7 million ($2.2 million after-tax), representing
the Company's share of a judgement rendered in a lawsuit by lenders against the
Department of Education. The Department of Education was judged to have
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failed to have made certain required special allowance interest payments for the
period July 1, 1992 through January 1, 1995. Excluding this payment, second
quarter 1998 earnings were up $1.1 million (8%), attributable to greater
interest income generated by growth in the student loan portfolio and improved
net interest margins.
The net interest margin for the second quarter of 1998 was 2.47%, 0.05% better
than the 2.42% margin for the second quarter of 1997. The improvement in the
margin was primarily attributable to the June 1998 receipt of the $3.7 million
interest payments, representing proceeds from the Department of Education
lawsuit. If the Company had not received the lawsuit proceeds, the net interest
margin for the quarter would have been 2.28%, a decrease of 0.14% from the
second quarter 1997 margin. This 0.14% decline resulted primarily from the
increased portion of the portfolio that is comprised of newer loans carrying
lower in-school yields as well as less favorable funding spreads.
Total operating expenses for the second quarter of 1998 were up $0.3 million
(2%) from the same period last year, reflecting higher salary and employee
benefit costs. However, second quarter 1998 operating expenses as a percentage
of average insured student loans of 0.94% reflects a 0.09% improvement over the
second quarter 1997 expense ratio. The expense ratio decrease is primarily
attributable to productivity improvements and decreased marketing expenses
compared to the second quarter of 1997, when the Company was promoting its new
CitiAssist loan product.
The provision for loan losses was $0.9 million, $0.1 million (20%) higher for
the second quarter of 1998 than that reported for the same period last year.
This increase reflects the risk sharing loss estimates on greater potential
future default claims as a result of growth in the portion of the portfolio that
is subject to the 2% risk sharing provisions of the Omnibus Budget
Reconciliation Act of 1993.
SIX MONTHS ENDED JUNE 30, 1998
The Company earned net income of $34.3 million, or $1.71 basic earnings per
share, for the six months ended June 30, 1998, an increase of $3.3 million (11%)
from the first half of 1997. The increase was primarily due to the receipt of a
one-time interest payment of $3.7 million ($2.2 million after-tax), representing
lawsuit proceeds received from the Department of Education. Excluding this
payment, the earnings for the first six months of 1998 were $1.1 million (4%)
higher than that for the same period of 1997 as higher interest income generated
by growth in the student loan portfolio more than offset the effects of the
lower year-to-date net interest margins.
Total operating expenses for the first half of 1998 were $35.5 million, $0.9
million (3%) higher than expenses for the same period last year, reflecting
higher salary and employee benefit costs incurred to support the Company's
enhanced loan consolidation program and other initiatives. However, operating
expenses as a percentage of average insured student loans for the first half of
1998 decreased to 0.90%, an improvement of 0.07% compared to the first half of
1997, primarily attributable to productivity improvements and decreased spending
on marketing costs in 1998.
The provision for loan losses was $1.7 million, $0.2 million (16%) higher for
the first six months of 1998 than that reported for the same period last year.
This increase reflects the risk sharing loss estimates on greater potential
future default claims as a result of growth in the portion of the portfolio that
is subject to the 2% risk sharing provisions of the Omnibus Budget
Reconciliation Act of 1993.
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INCOME TAXES
The Company's effective tax rate was approximately 41.0% for the first half of
1998, compared to 40.5% for the same period in 1997.
REGULATORY IMPACTS
Provisions of the Higher Education Act (the "Act") adopted in 1993 included
increased costs and reduced interest payments to lenders participating in the
Federal Family Education Loan ("FFEL") program and the introduction of a
competitor program, the Federal Direct Student Loan program. The impact of these
provisions on the Company's future originations is dependent on such factors as
the ultimate success of direct lending and the relative size of the FFEL program
in the years to come. The legislative changes have reduced the net interest
margin of the guaranteed student loan portfolio from pre-1994 levels. Temporary
legislation went into effect on July 1, 1998 that made modifications to certain
1993 provisions that had called for changing the interest rate on most new FFEL
program disbursements made on or after July 1, 1998 to an interest rate based on
the 10-year Treasury Bill rate. The temporary legislation maintains the current
91-day Treasury Bill index, but reduces the interest rate paid by borrowers for
most loans originated on or after July 1, 1998 by 0.80%. This temporary
legislation has called for the interest rate reduction to be borne 0.30% by
lenders and 0.50% by the Federal Government in the form of interest subsidies.
The Senate and the House of Representatives have both passed separate similar
bills that would make this interest rate reduction as well as the 0.50%
government interest subsidies permanent. Specifics of the legislation will be
determined as the reconcilement of the Senate and House versions of the measure
are completed. This revised bill, which will reauthorize the Higher Education
Act, is expected to be approved and signed into law before September 30, 1998,
according to industry sources.
Since 1994, the Company has aggressively pursued both new and existing marketing
programs, expanded its guarantor relationships and sought new ways to meet the
education finance needs of schools and students, including the implementation of
loan programs, such as the Company's CitiAssist product, that are not dependent
on Federal funding, guarantees and authorization.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
At the Company's 1998 Annual Meeting of Stockholders, held May 8, 1998,
the Company's stockholders took the following actions:
1. Two directors were elected to the Board of Directors: Bill Beckmann (with
holders of 18,757,488 shares voting in favor, 707,791 abstaining and 1,102
withheld); Glenda Glover (with holders of 18,758,515 shares voting in favor,
707,791 abstaining and 75 withheld). Mr. Beckmann and Ms. Glover will each serve
until the year 2001 meeting of stockholders.
2. The selection of KPMG Peat Marwick L.L.P. as the Company's independent
auditors for the 1998 fiscal year was ratified, with holders of 19,464,681
shares voting in favor, 1,000 abstaining and 700 voting against.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K: none.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: August 10, 1998
The Student Loan Corporation
By /s/ Yiannis Zographakis
--------------------------
Yiannis Zographakis
Vice President and
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STUDENT
LOAN CORPORATION CURRENT REPORT ON FORM 10-Q FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 142
<SECURITIES> 0
<RECEIVABLES> 7,993,388
<ALLOWANCES> 2,240
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 679
<DEPRECIATION> 357
<TOTAL-ASSETS> 8,257,090
<CURRENT-LIABILITIES> 0
<BONDS> 3,040,000
0
0
<COMMON> 200
<OTHER-SE> 431,175
<TOTAL-LIABILITY-AND-EQUITY> 8,257,090
<SALES> 319,539
<TOTAL-REVENUES> 320,317
<CGS> 0
<TOTAL-COSTS> 225,070
<OTHER-EXPENSES> 35,510
<LOSS-PROVISION> 1,682
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 58,055
<INCOME-TAX> 23,802
<INCOME-CONTINUING> 34,253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,253
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
</TABLE>
