<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-K
__________________
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission File Number 1-11616
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)
750 Washington Blvd. 06901
Stamford, Connecticut (Zip Code)
(Address of principal executive offices)
(203) 975-6292
(Registrant's telephone number, including area code)
__________________
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
- --------------------------- -----------------------------------------
Common Stock New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
________________________________________________________________________________
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
The aggregate market value of voting stock held by non-affiliates of
the registrant as of February 28, 2000 was approximately $158 million. On that
date, there were 20,000,000 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement relating to the registrant's Annual
Meeting of Stockholders to be held May 18, 2000 are incorporated by reference
into Part III of this Report.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The following discussion should be read in conjunction with the financial
statements and accompanying notes.
Background
The Student Loan Corporation (the "Company") originates and holds federally
insured student loans through a trust agreement with Citibank (New York State)
in addition to providing loan servicing. The Company is one of the nation's
largest originators/holders of loans originated under the Federal Family
Education Loan ("FFEL") Program, authorized by the Department of Education (the
"Department") under the Federal Higher Education Act of 1965, as amended (the
"Act"). The Company also holds student loans that are not insured under the Act,
including CitiAssist loans, introduced in 1997.
The Company was incorporated in Delaware on November 4, 1992 and commenced
operations on December 22, 1992. For more than 25 years prior to December 22,
1992, the Company operated as a division (the "Division") of Citibank (New York
State) ("CNYS"), an indirect wholly-owned subsidiary of Citigroup Inc. On
December 22, 1992, the assets of the Division were exchanged with CNYS for 20
million shares of the Company's common stock and the Company's agreement to pay
approximately $2.8 billion to CNYS and to assume certain obligations of CNYS. On
December 23, 1992, CNYS sold four million shares of its holdings of the
Company's common stock in an initial public offering and continues to own 80% of
the Company's outstanding common stock.
In October 1999, Citigroup proposed to acquire by merger the 20% of the
Company's common stock not already owned by CNYS. The Board of Directors of the
Company formed a Special Committee of its independent directors to evaluate
Citigroup's proposal and negotiate the terms of an agreement to merge. On
February 17, 2000, Citigroup and the Special Committee announced the termination
of discussions regarding the proposal.
Forward-Looking Statements
Certain statements contained in this report that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those suggested by the forward-looking statements, which are typically
identified by the words or phrases "believe", "expect", "anticipate",
"estimate", "may increase", "may result in", and similar expressions or future
or conditional verbs such as "will", "should", "would", and "could". These
forward-looking statements involve risks and uncertainties including, but not
limited to, the following: the effects of future legislative changes; actual
credit losses experienced by the Company in future periods compared to the
estimates used in calculating reserves; fluctuations in the interest rates paid
by the Company for its funding and received on its loan portfolio; the success
of the Company's hedging policies; as well as general economic conditions,
including the performance of financial markets and the passage of regulatory
changes.
Future Application of Accounting Standards
See Note 17 to the financial statements for a discussion of recently issued
accounting pronouncements.
2
<PAGE>
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summary
The Company's 1999 net income was $89.5 million ($4.47 basic earnings per common
share), up $16.1 million (22%), or $0.80 per share, from 1998 net income of
$73.4 million ($3.67 basic earnings per common share). Net income for 1999
included $2.2 million ($1.3 million after tax) of restructuring reserve
adjustments and affiliated transition expenses of $1.2 million ($0.7 million
after tax). Net income for 1998 included $7.5 million ($4.4 million after tax)
of restructuring reserve adjustments, $3.7 million ($2.2 million after tax) of
affiliated transition expenses, and $3.7 million ($2.2 million after tax) of
interest income received from the Department of Education as a result of a
settlement of a lawsuit. See restructuring reserve discussion in Note 3 to the
financial statements for more information on transition expenses and the reserve
adjustments.
On a comparable basis, in which the restructuring reserve, transition and
litigation items listed above for 1999 and 1998 are excluded, 1999 net income
was $88.9 million (or $4.45 basic earnings per common share), $19.9 million
(29%) higher than 1998 net income of $69.0 million ($3.45 basic earnings per
common share). The increase of 1999 over 1998 net income was primarily
attributable to higher interest income generated by a $1.3 billion (16%)
increase in the Company's average loan portfolio, partially offset by higher
1999 pre-tax operating expenses of $3.4 million.
At December 31, 1999, the Company's insured student loan assets reached $10.9
billion, up 26% from the December 31, 1998 level of $8.6 billion. The increase
in loans outstanding was primarily due to new loan disbursements of $2.0 billion
and portfolio purchases of $1.5 billion in 1999, partially offset by repayments
of loans. Excluding consolidation loan disbursements, new FFEL Program
disbursements of $1,705 million for 1999 were up $117 million (7%) from 1998.
Disbursements in 1999 also included loan consolidations of $295 million, an
increase of $50 million (20%) from 1998. CitiAssist loans of $147 million,
disbursed in 1999 by CNYS but not yet acquired by the Company, are not included
in the Company's disbursements. In order to comply with certain legal and other
requirements, CitiAssist loans are originated by CNYS. The Company will purchase
most of the CitiAssist loans following full disbursement. The Company expects to
acquire substantially all of these CitiAssist originations during the first half
of 2000. CitiAssist loans originated by CNYS of $292 million in 1999 were $117
million (67%) higher than the prior year. Excluding the loan premium, the
Company's 1999 CitiAssist loan portfolio of $348 million grew $306 million from
the 1998 balance of $42 million.
Of the $1,540 million in 1999 portfolio purchases, $314 million were CitiAssist
loan purchases, $83 million were consolidation loan purchases and $1,143 million
were purchases of other portfolios. This compares to $30 million of CitiAssist
loan purchases, $65 million of consolidation loan purchases and $99 million of
other loan purchases in 1998.
The allowance for loan losses balance primarily represents estimated potential
losses arising from the risk-sharing provisions of the FFEL and CitiAssist
Programs. Most FFEL Program loans submitted for default claim are subject to the
2% risk-sharing provisions of the Act. CitiAssist loans are subject to 5%
risk-sharing losses in accordance with provisions of an agreement with Guaranty
National Insurance Company ("GNIC"), the primary insurer of these loans. A small
number of CitiAssist loans are not insured against loss. The allowance for loan
losses balance increased to $3.8 million at December 31, 1999 compared to $2.4
million at December 31, 1998, primarily reflecting growth in the portfolio of
loans that are in repayment and could incur risk-sharing losses on default
claims.
Restructuring Plan
See Note 3 to the financial statements for a discussion of the Company's
restructuring plan.
3
<PAGE>
Net Interest Income
Net interest income (interest earned from student loans less interest expense on
borrowings) for 1999 was $225.8 million, compared with 1998 net interest income
of $192.3 million which included $3.7 million of Department of Education lawsuit
proceeds. The increase of $33.5 million is a result of higher interest revenue
attributable to the growth in the loan portfolio. The $3.7 million ($2.2 million
after tax) of interest income was received as the Company's share of a judgement
rendered in a lawsuit by lenders against the Department of Education. The
judgement found that the Department of Education failed to make certain required
special allowance payments for the period July 1, 1992 through January 1, 1995.
Net interest margin for 1999 increased to 2.40%, compared to 2.37% in 1998. This
increase was primarily attributable to favorable funding spreads in the first
half of 1999 between the rates earned on the Company's assets and paid on its
funding. However, the legislated reduction of the lender yield on FFEL Program
loans originated on or after July 1, 1998, combined with other previously
legislated interest rate reductions, partially offset the margin improvement as
new loans at these rates were added to the portfolio.
In recent years, amendments to the Act have significantly reduced the net
interest margin of the guaranteed student loan portfolio as new loans with lower
yields were added to the portfolio and older, more profitable loans were repaid.
Pressure on margins will continue as more loans are originated with lower
yields. In addition, the Act may be amended by Congress at any time, possibly
resulting in further reductions in FFEL Program loan subsidies in the form of
increased risk-sharing costs and reduced interest margins. Recent budget
proposals by the administration seek to reduce lender yield again; however,
their prospects for enactment are uncertain. Any such amendment or budget
proposal could adversely affect the Company's business and prospects.
Therefore, in order to continue improving its net income in future years, the
Company has sought to increase the size of its portfolio to take advantage of
greater economies of scale. In recent years, the Company has aggressively
pursued both new and existing marketing programs, expanded its guarantor
relationships, and developed new loan products, such as CitiAssist, that are not
dependent on federal funding, guarantees and authorization.
The following table sets forth the average rates earned on interest earning
assets and paid on interest bearing liabilities.
Average Balance Sheet
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) INCOME/ INCOME/ INCOME/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average insured student loans $9,407 $ 720 7.65% $8,112 $ 646 7.96% $7,269 $ 588 8.09%
Average non-interest earning assets 279 252 222
- --------------------------------------------------------------------------------------------------------------------------------
Total average assets $9,686 $8,364 $7,491
================================================================================================================================
Average interest bearing liabilities $9,053 $ 494 5.46% $7,797 $ 454 5.82% $6,997 $ 412 5.89%
Average non-interest bearing
liabilities 135 136 110
Average equity 498 431 384
- --------------------------------------------------------------------------------------------------------------------------------
Total average liabilities and equity $9,686 $8,364 $7,491
================================================================================================================================
Net interest margin $9,407 $ 226 2.40% $8,112 $ 192 2.37% $7,269 $ 176 2.42%
================================================================================================================================
Average 91-day Treasury Bill rate
at the final auction date before
June 1st for Stafford revenue 4.62% 5.16% 5.16%
Average 52-week Treasury Bill rate
at the final auction date before
June 1st for PLUS/SLS reset 4.88% 5.65% 5.75%
================================================================================================================================
</TABLE>
4
<PAGE>
The following table shows the components of the annual changes in net interest
income.
Rate/Volume Analysis
<TABLE>
<CAPTION>
1999 COMPARED TO 1998 1998 COMPARED TO 1997
- --------------------------------------------------------------------------------------------------------
(Dollars in millions) INCREASE (DECREASE) DUE TO CHANGE IN: INCREASE (DECREASE) DUE TO CHANGE IN:
VOLUME RATE(a) NET(b) VOLUME RATE(a) NET(b)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets $ 99.9 ($ 26.5) $ 73.4 $ 67.3 ($ 9.2) $ 58.1
Interest bearing liabilities 69.9 (30.0) 39.9 46.6 (4.9) 41.7
- --------------------------------------------------------------------------------------------------------
Net interest earnings $ 30.0 $ 3.5 $ 33.5 $ 20.7 ($ 4.3) $ 16.4
========================================================================================================
</TABLE>
(a) Changes in rates for interest bearing liabilities refer to fluctuations in
Federal Funds, LIBOR and Treasury Bill indices.
(b) Rate/volume variance is allocated based on the percentage relationship of
changes in volume and changes in rate to the absolute dollar amount of
changes in each.
Special Allowance Income
Most FFEL Program loans originated prior to July 23, 1992 have fixed interest
rates whereas those issued later have variable rates. Most FFEL Program loans
also qualify for the federal government's special allowance payment ("SAP").
Whenever the stated interest rate on these FFEL Program loans provides less than
a market rate of return, the federal government makes a SAP which increases the
loan yield to various specified margins, depending on its origination date, over
a base rate tied to either the 91-day or 52-week Treasury Bill auction rates.
In 1999, the index used to calculate SAP on loans disbursed during the period
January 1, 2000 to June 30, 2003 was changed from the 91-day Treasury Bill rate
to the 90-day Commercial Paper rate.
Operating Expenses
Operating expenses for 1999 (excluding the restructuring reserve adjustments and
transition expenses discussed under Summary on page 3) were $72.8 million
or 0.77% of average insured student loans. For 1998, operating expenses
(excluding the restructuring reserve adjustments and transition expenses) were
$69.4 million or 0.86% of average insured student loans. The increase in
operating expenses of $3.4 million (5%) is primarily attributable to greater
loan servicing fees incurred as a result of holding a significantly larger loan
portfolio. The 0.09% improvement in the expense ratio was primarily attributable
to efficiencies in operational and administrative expenses. Including the
restructuring reserve adjustments and transition costs, the Company's 1999
operating expenses totaled $71.8 million (or 0.76% of average insured student
loans), $6.2 million (9%) higher than the prior year's expenses of $65.6 million
(or 0.81% of average insured student loans).
Income Taxes
The Company had deferred tax assets of $24.3 million and $31.9 million at
December 31, 1999 and 1998, respectively. The income tax benefits primarily
arose as a result of payments made by the Company to CNYS in exchange for the
transfer of assets to the Company and the execution of a noncompetition
agreement. Included in total deferred tax assets at December 31, 1999 and 1998
are the tax effects of the restructuring reserve as of those dates of $0.4
million and $3.2 million, respectively. See Notes 1 and 11 to the financial
statements for further discussion.
The Company's effective tax rates were 41.66% for 1999, 41.35% for 1998 and
40.82% for 1997.
1998 Compared to 1997
The Company's 1998 net income was $73.4 million ($3.67 basic earnings per common
share), up $21.7 million (42%) over net income of $51.7 million ($2.58 basic
earnings per common share) for 1997. Excluding restructuring reserve adjustments
of $4.4 million (after tax), transition costs of $2.2 million (after tax), and
interest income received from the Department of Education from a lawsuit
settlement of $2.2 million (after tax), 1998 net income was $69.0 million. This
was $6.9 million (11%) higher than 1997 net income of $62.1 million, which
excluded a restructuring charge of $12 million (after tax) and proceeds from the
sale of a non-strategic portfolio of $1.6 million (after tax). This increase in
net income was primarily attributable to higher interest income generated by
portfolio growth, partially offset by increased costs related to the Company's
year 2000 compliance efforts.
5
<PAGE>
At December 31, 1998, net loans outstanding reached $8.6 billion, an increase of
$1 billion (13%) from the December 31, 1997 balance. The increase in loans
outstanding was due primarily to new FFEL Program loan disbursements, partially
offset by loan repayments. Excluding consolidation loan disbursements, FFEL
Program disbursements of $1,588 million for 1998 were up $114 million (8%) from
1997 disbursement levels. Disbursements also included $245 million of loan
consolidations in 1998, an increase of $120 million (96%) from 1997. In
addition, the portfolio balance at year-end 1998 included loans originated
through the CitiAssist program of $45 million, $31 million more than at the
prior year-end. At $2.4 million, the allowance for loan losses balance at
December 31, 1998 was $0.4 million higher than the balance at the end of 1997.
This increase was attributable to the larger portfolio of loans that was in
repayment and could incur risk-sharing losses on default claims.
Including the Department of Education lawsuit proceeds, net interest income was
$192.3 million for 1998, compared with $175.9 million for 1997. The $16.4
million increase was a result of portfolio growth, partially offset by
diminished net interest margins. Net interest margin for 1998 declined to 2.37%
from 2.42% in 1997, primarily due to less favorable funding spreads as well as
lower yields on the FFEL Program loan portfolio.
Operating expenses, excluding the restructuring reserve adjustments and the
transition expenses discussed above, were $69.4 million (or 0.86% of average
insured student loans) for 1998, compared to $68.1 million (or 0.94% of average
insured student loans) for 1997. The $1.3 million increase in 1998 operating
expenses was due primarily to costs incurred in the Company's year 2000
compliance efforts and enhancement of the Company's sales force. Including the
restructuring reserve adjustments and the transition expenses, 1998 operating
expenses totaled $65.6 million (or 0.81% of average insured student loans),
which is $23.0 million lower than the 1997 operating expenses of $88.6 million
(or 1.22% of average insured student loans).
Regulatory Impacts
See discussion of the regulations to which the Company's student loan portfolios
are subject and their impact on the Company in Notes 1, 2 and 15 to the
financial statements.
Proposed Acquisition of Company Common Stock
In October 1999, Citigroup proposed to acquire by merger the 20% of the
Company's common stock not already owned by CNYS. The Board of Directors of the
Company formed a Special Committee of its independent directors to evaluate
Citigroup's proposal and negotiate the terms of an agreement to merge. On
February 17, 2000, Citigroup and the Special Committee announced the termination
of discussions regarding the proposal. The Company had engaged various
consultants and legal experts to assist with the evaluation. Approximately $1
million in fees was incurred for this work. Of this amount, $13,000 was incurred
and expensed in 1999 and the remainder will be expensed in 2000.
Risk Management
The Company considers risk management to be an important business objective and
believes that its greatest exposure is with market, credit, operational and
regulatory risks.
Market risk encompasses both liquidity risk and price risk. Liquidity risk is
the risk that an entity may be unable to meet a financial commitment to a
customer, creditor, or investor when due. Price risk is the risk to earnings
that arises from changes in interest rates. Market risk is managed through the
Company's Asset/ Liability Management Committee ("ALCO"). ALCO reviews the
current and prospective funding requirements and makes recommendations to
management. Also, the Company periodically reviews expectations for the market
and sets limits as to interest rate and liquidity risk exposure.
The Company manages credit risk by maintaining risk-sharing agreements with
servicers performing certain underwriting operations and by entering only into
interest rate swap agreements with counterparties having investment-grade
external credit ratings. In addition, the Company prepares annual credit
programs for its loan products, requiring the preparation of detailed risk
analysis by loan type and approval by senior management. Also, the Company is
periodically reviewed by Citigroup business risk review audit teams to ensure
portfolio quality and processing compliance. The Company has consistently scored
well on these reviews. Credit risk is minimized by the federal guarantees
maintained on its FFEL Program student loan portfolios.
6
<PAGE>
Operational risks are those risks arising from servicing defects that could
potentially result in losses to the guaranteed student loan portfolio. FFEL
Program loans that are not originated or serviced in accordance with Department
regulations risk loss of guarantee or interest penalties. The Company manages
operational and credit risk by conducting compliance and process reviews of the
Company's loan servicers and through contractual remedies for any losses
incurred due to servicing errors.
The Company's FFEL Program guaranteed loan portfolio is subject to regulatory
risk in the form of reduced interest subsidies and increased origination costs.
New legislation and the reauthorization process have periodically reduced the
net interest margin earned by lenders. Recent budget proposals from the
administration seek to reduce lender yield again; however, their prospects for
enactment are uncertain.
Market Risk
The Company's primary market risk exposure is to movements in U.S. dollar
interest rates. The Company may use interest rate swap agreements to manage
interest rate risk in response to changing market conditions and to change the
characteristics of the related underlying liabilities. When the interest rate
characteristics of particular liabilities closely match the characteristics of
the assets they fund, derivatives may not be required, as was the case at
year-end 1999. None of the Company's financial instruments were entered into for
purposes of trading. Additional information about interest rate swap agreements
is located in Note 12 to the financial statements.
Market risk is measured using various tools, including Earnings-at-Risk. The
Earnings-at-Risk calculation reflects the repricing gaps in the position
embedded in the portfolio. The Company prepares Earnings-at-Risk calculations to
measure the discounted pre-tax earnings impact over a preset time span of a
specified shift in the interest rate yield curve. The yield curve shift is
statistically derived as a two standard deviation change in a short-term
interest rate over the period required to defease the position (usually two
weeks). At December 31, 1999, the rate shift over a two-week defeasance period
applied to the interest yield curve for purposes of calculating Earnings-at-Risk
was 45 basis points.
As of December 31, 1999, a 45 basis point (two standard deviation) increase in
the interest yield curve would have a potential positive impact on the Company's
pre-tax earnings of approximately $5.5 million for 2000 and a potential negative
impact of approximately $5.2 million for the total five-year period 2000 to
2004. The table below illustrates potential impacts of both a 45 basis point
increase and a 45 basis point decrease in the interest yield curve by year.
The Earnings-at-Risk calculation below portrays the Company's exposure to
fluctuations in interest rates using a static approach to the balance sheet mix
and parallel shifts in the interest rate curves. It is a measure to look at
exposures based upon the Company's position at one particular point in time. In
addition, the Company has significantly greater exposure to uneven shifts in
interest rate curves (i.e. the Treasury Bill to LIBOR rate spreads). The
Company, through its ALCO, actively manages these risks by setting
Earnings-at-Risk limits and takes the appropriate actions if interest rates move
against the existing structure.
<TABLE>
<CAPTION>
EARNINGS AT RISK (ON PRE-TAX EARNINGS)
- ---------------------------------------------------------------------------------
(Dollars in millions) 2000 2001 2002 2003 2004 TOTAL
<S> <C> <C> <C> <C> <C> <C>
Two standard deviation increase $ 5.5 ($ 2.7) ($ 3.0) ($ 2.7) ($ 2.3) ($ 5.2)
Two standard deviation decrease (1.2) 3.8 3.9 3.5 3.0 13.0
- ---------------------------------------------------------------------------------
</TABLE>
Year 2000
The Company has devoted substantial resources to year 2000 compliance efforts
over the past several years in order to ensure continued systems functionality
after December 31, 1999. A systems failure could have disrupted the Company's
ability to meet its customer and other obligations on a timely basis. The
Company is not aware of any significant year 2000 problems encountered
internally or with the third parties with which it interfaces.
7
<PAGE>
Based on operations since January 1, 2000, the Company does not expect any
significant impact to its ongoing business as a result of the year 2000 issue.
However, it is possible that the full impact of year 2000 issues has not been
fully recognized and no assurances can be given that year 2000 problems will not
emerge.
The pre-tax cost associated with the required modifications and conversions
totaled approximately $5.2 million through December 31, 1999, funded from a
combination of a reprioritization of technology development initiatives and
incremental costs, and was expensed as incurred. Of the total, approximately
$2.0 million was incurred in 1999 and $2.4 million was incurred in 1998. No
significant costs related to year 2000 efforts are expected to be incurred after
1999.
Liquidity and Capital Resources
The Company's primary funding needs are those required to finance its loan
portfolio and meet its cash requirements for new loan originations and company
operations. The Company made no material capital expenditures in 1999 or in the
past three years, nor are any material capital expenditures presently
anticipated in 2000. Restructuring reserve expenditures to be paid of $1.0
million for remaining employee termination benefits will be paid from cash
generated from current operations. The Company does not expect that the payment
of the restructuring costs will have a material effect on its liquidity or
financial position. The Company's expectations constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act.
See preceding Forward-Looking Statements.
The Company's cash used for investing activities amounted to $2,242.4 million in
1999, $1,021.1 million in 1998 and $739.8 million in 1997. Investing activities
were financed in 1999, 1998 and 1997 primarily through the utilization of
available long- and short-term credit lines. New borrowings, net of repayments,
at December 31, 1999 and 1998 increased $2,316.0 million and $911.4 million,
respectively, compared to borrowings outstanding at the end of the previous
year.
The Company's future cash needs will depend primarily on the volume of new loan
disbursements and purchases as well as the cash provided (or used) by operating
activities. The Company expects new loan disbursements and purchases volumes to
continue to be funded primarily through additional borrowing.
The Company carefully weighs interest rate risk in choosing between funding
alternatives. It currently meets its funding requirements through credit
facilities provided by CNYS. On November 4, 1999, the Company replaced its March
1, 1998 credit agreement with CNYS with a new agreement that increased the
maximum aggregate credit limit for combined short- and long-term borrowings from
$10.0 billion to $15.0 billion. Maturity dates and terms for all existing
outstanding notes were unchanged. During 1999, $7.8 billion in new short-term
borrowings was made under this agreement or its predecessor agreement and $4.5
billion in original short-term borrowings was repaid. Also in 1999, $3.7
billion in new long-term borrowings was made and $4.7 billion was repaid. At
December 31, 1999, $7.2 billion in original short-term borrowings and $3.3
billion in long-term borrowings were outstanding under the CNYS agreement. The
credit facilities are at fixed and variable interest rates based on LIBOR,
federal funds or the 91-day Treasury Bill rate.
On March 1, 1998, the Company renegotiated its Omnibus Credit Agreement with
CNYS, increasing the maximum aggregate credit limit for combined short- and
long-term debt to $10.0 billion from $8.0 billion. During 1998, $0.3 billion in
new short-term borrowings was made under this agreement and $0.7 billion in
original short-term borrowings was repaid. Also in 1998, $2.7 billion in new
long-term borrowings was made and $1.4 billion was repaid. At December 31,
1998, $3.9 billion in original short-term borrowings and $4.3 billion in
long-term borrowings were outstanding under the CNYS agreement.
The Company currently has no specific plans for additional future financing
programs. However, the Company continues to explore alternative sources of
low-cost funding. Management currently considers liquidity and capital to be
sufficient to meet the Company's anticipated requirements for the next twelve
months. This is a forward-looking statement within the meaning of the Private
Securities Litigation Reform Act. See preceding Forward-Looking Statements.
8
<PAGE>
OTHER BUSINESS AND INDUSTRY INFORMATION
Student Loans
The Company's portfolio is comprised primarily of loans originated through the
FFEL Program. These loans consist of subsidized Federal Stafford loans,
unsubsidized Federal Stafford loans, Federal Parent Loans to Undergraduate
Students ("PLUS") loans and Federal Consolidation loans. The Company also owns a
portfolio of Health Professions Education loans ("HEAL" loans) which consists of
guaranteed student loans in designated health professions under a federally
insured loan program administered by the U.S. Department of Health and Human
Services. Although no new loans are being made under this program, the Company
has pursued acquisition of HEAL loans from other holders.
The U.S. Department of Education (the "Department") administers the FFEL Program
under Title IV of the Act. In order to comply with the provisions of the Act,
all of the Company's FFEL Program loans are held, and all new FFEL Program loans
are originated, by the Company through a trust established solely for the
benefit of the Company. An institution, such as the Company, that does not fall
within the Act's definition of "eligible lender" may hold and originate FFEL
Program loans only through a trust or similar arrangement with an eligible
lender. The Company's trust agreement is with CNYS, a New York State bank, which
qualifies as an eligible lender under the provisions of the Act.
The Company's portfolio also contains loans originated through alternative loan
programs, primarily CitiAssist and TERI. Alternative loan programs are available
for students who either do not qualify for government student loan programs or
need additional financial assistance beyond that available through government
programs. Alternative loans are offered based on the student's, parent's, or
co-signer's creditworthiness in addition to financial need, and most are insured
by a private insurer.
The Company is also active in the secondary student loan market and it purchases
portfolios of loans that consist of subsidized Federal Stafford loans,
unsubsidized Federal Stafford loans, PLUS loans and Consolidation loans, in
addition to HEAL loans.
Origination of FFEL Program Loans
In the years ended December 31, 1999 and 1998, the Company originated $2.0
billion and $1.8 billion, respectively, of FFEL Program loans. The Company's
main sources of borrowers include referrals from financial aid administrators,
repeat borrowers, Internet leads and college fair participants.
A student must attend an eligible educational institution to participate in the
FFEL Program. The eligible institutions can be divided into three categories:
four-year colleges and universities, two-year institutions, and proprietary
schools, most of which conduct one-year programs. In addition to other criteria,
school eligibility is determined by the default rate on guaranteed loans to its
students. Under the Act, eligible lenders, subject to certain restrictions, may
choose not to make loans to students attending certain schools, defined by
school type, geographic location or default experience.
The student and school complete a combined application/promissory note or master
promissory note and send it either to the Company or directly to the guarantor.
Both the guarantor and the Company must approve the application. If the
guarantor approves it, a guarantee certificate is then issued and sent to the
Company. After receiving the notice of guarantee, the Company makes
disbursements on the loan directly to the school and sends a disclosure
statement to the student confirming the terms of the loan.
9
<PAGE>
Seasonality
Origination of student loans is generally subject to seasonal trends, which
correspond to the beginning of the school year. Student loans are disbursed as
directed by the school and are usually divided into two or three equal
disbursements released at specified times during the school year. The two
periods of August through October and December through February account for
approximately 75% of the Company's total annual disbursements. While
applications are seasonal, the Company's earnings generally are not. Due to the
Company's large portfolio, new disbursements or run-off for any given month will
not materially change the size of the portfolio. Interest revenue is therefore
fairly stable throughout the year. Disbursement levels are generally highest at
the beginning of school semesters.
Marketing
Unlike many other lenders, the Company has a policy of holding and servicing
substantially all of the loans that it originates. Management believes that this
policy makes the repayment process easier for the borrower and gives the Company
a marketing advantage with potential borrowers and financial aid administrators
("FAAs"). The Company attributes its growth primarily to its emphasis on
providing service to FAAs, offering competitive and innovative products that
meet the needs of schools and students, expansion of marketing channels through
electronic commerce and its employment of a focused marketing and sales team.
Management believes that FAAs are one of the most important influences on lender
selection. An FAA, in order to streamline the financing process, may develop a
list of preferred lenders which students may utilize. Accordingly, the Company
focuses marketing efforts on meeting the needs of FAAs by offering a variety of
products and services that help FAAs aid students in financing their education.
The Company's Account Managers service the financial aid community and assist
FAAs by resolving problems and issues, providing updates on the Company's
programs and providing information for students.
The Company has made advancements in and will continue to develop its electronic
commerce initiatives. Redesigning the studentloan.com Web site has provided
better functionality for both students and FAAs. Development of online
application and approval capabilities has contributed to the growth of the
private loan CitiAssist product.
A lender can lose eligibility to participate in the FFEL Program if it does not
comply with certain rules specified in the Act. Lenders are prohibited from
offering points, premiums, payments or other inducements, directly or
indirectly, to any educational institution, guaranty agency or individual in
order to secure loan applications. Lenders may not offer loans as an inducement
to a prospective borrower, either directly or indirectly, to purchase insurance
policies or other products. Also, a lender may not conduct unsolicited mailings
of FFEL Program student loan applications to students who have not previously
received student loans from that lender. In addition, lenders may not engage in
fraudulent or misleading advertising.
The Company's borrowers are students and parents from all 50 states, the
District of Columbia and the U.S. territories. Approximately half of the
Company's loan portfolio is comprised of loans made to or on behalf of students
from New York and California.
Competition
The student loan industry is highly competitive and the Company competes with
thousands of eligible lenders.
The Company is one of the nation's largest originators of FFEL Program loans and
has been increasing its market share over the last seven years. As a large
participant in the student loan industry, the Company has been able to leverage
economies of scale to partially mitigate regulatory changes and increase market
share over most competitors. The Company competes by offering a full array of
FFEL Program and private loan products. In addition, unlike many other lenders,
the Company has a policy of holding and servicing substantially all of the loans
that it originates.
10
<PAGE>
The Company is the nation's second largest holder of FFEL Program loans. Sallie
Mae, the largest holder, has a portfolio that is several times larger than the
Company's. Upon Sallie Mae's acquisition of Nellie Mae, it became a direct
competitor of the Company. The Company also competes directly with Sallie Mae
and other secondary markets in making wholesale loan purchases.
The Federal Direct Student Lending ("FDSL") program, which also provides loans
to students and parents, has in recent years reduced the origination volume
available for FFEL Program loans. Currently, the FDSL program accounts for
approximately 35% of federal student loan program originations (exclusive of the
Perkins Loan program).
FFEL Program Guaranty Agencies
The Company is insured on its holdings of FFEL Program loans in the case of a
borrower's default, death, disability or bankruptcy. The coverage is provided by
certain state or non-profit guaranty agencies ("guarantors"), which are
reinsured by the federal government. The Act provides that guarantors have
contractual rights against the federal government to receive reinsurance in
accordance with its provisions.
If a guarantor's administrative or financial condition falls below specified
levels or the Secretary of Education determines that the agency is in danger of
financial collapse, the Secretary is authorized to undertake specified actions
to assure the continued payment of claims, including the transfer of guarantees
to another agency or to paying claims directly to lenders. To date, all claims
filed by the Company that had been approved for payment by guaranty agencies
have been paid.
Collection of FFEL Program Loans
The Company's FFEL Program loans are guaranteed as to principal and interest by
certain state or non-profit guaranty agencies, which are reinsured by the
federal government. However, certain requirements must be met in order to
maintain guarantee coverage. These requirements specify school and borrower
eligibility criteria and establish servicing requirements and procedural
guidelines. The Company's collections department, or that of its servicers,
begins contact in the event of delinquency shortly after payment delinquency
occurs and continues prescribed collection efforts through mailings, telephone
contact, and skip tracing, as needed.
At prescribed times, the Company requests collection assistance from the
relevant guaranty agency before submitting a claim. These requests serve to
notify the guaranty agency of seriously delinquent accounts before claim and
allow the agency to make additional attempts to collect on the loan. If a loan
is rejected for claim payment by a guarantor due to a violation of FFEL Program
collection requirements, the collection department again works the account for
payment and/or institutes a process to reinstate the guarantee.
The reauthorization of the Act in October 1998 included new provisions for
determining when a FFEL Program loan is considered to be in default. Under these
new provisions, loans with delinquencies occurring on or after October 7, 1998
that are 270 days past due are considered to be in default. Claims must be filed
with the guarantor no later than the 360th day of delinquency or loss of
guarantee could occur. The previously existing rules consider loans which are
180 days delinquent to be in default. Under those rules, federal regulations
required that claims be filed with the guarantor no later than the 270th day of
delinquency. Therefore, during 1999 the Company was under the new rules for
delinquencies starting on or after October 7, 1998 and under the previously
existing rules for delinquencies starting prior to October 7, 1998.
A claim may be rejected by a guaranty agency under certain circumstances,
including, for example, if a claim is not timely filed, adequate documentation
is not maintained, the loan is improperly serviced or the lender does not
perform the required collection due diligence. Once a loan ceases to be
guaranteed, it is ineligible for interest and special allowance benefits.
11
<PAGE>
Claims which are rejected may be "cured", involving reinstatement of the
guarantee, and may receive reinstated interest and special allowance benefits
when the lender locates the borrower in a case involving a timely claim filing
violation or by obtaining a payment or a new signed repayment agreement from the
borrower in the case of certain collection due diligence violations. In 1999,
the Company was able to cure approximately 70% of all rejected claims. For
rejected claims, the Company allows a full four months for the collections
department or servicers to work the accounts in attempts to effect cures before
they are written off as operating losses. Interest penalties may be assessed by
guarantors for certain violations of the due diligence requirements even though
the remainder of a claim may be paid. Examples of errors that cause interest
penalties include isolated missed collection calls or failures to send
collection letters as required.
The rate of student loan defaults tends to be higher than default rates for
other consumer loans, especially among students at proprietary schools. In an
effort to reduce the default rates, revised eligibility requirements for
schools, which include default rate limits, have been implemented by the
Department. In order to maintain eligibility in the FFEL Program, schools must
maintain default rates below the specified thresholds, and both guarantors and
lenders are required to ensure that loans are made to students attending schools
that meet default criteria. Accordingly, the Company has procedures designed to
assure that it lends only to students attending institutions which meet the
Act's default limits.
Quality and Regulatory Reviews
The Company recognizes the importance of maintaining compliance with Department
and guaranty agency regulations and reporting requirements. Accordingly, the
Company has implemented policies and procedures to monitor and review ongoing
processes that have an impact on, or may jeopardize, a loan guarantee or lender
eligibility. An affiliate of the Company that services most of the Company's
student loan portfolio also performs regular ongoing reviews at its facility. In
addition, the Company's internal compliance staff conducts regular reviews of
loan origination, disbursement and servicing work performed at the servicer to
ensure adherence with regulatory requirements.
The Company also has a formal quality assurance program that monitors and
measures performance and customer satisfaction levels. Management believes that
the Company's emphasis on service excellence has led to improved efficiencies
and increased customer satisfaction.
The Operations Audit Department performs its quality assurance reviews of
various processes throughout the business on a quarterly basis. Individual
departments review their own processes monthly. These reviews are done to ensure
compliance with federal, guarantor and bank policies/procedures. The reviews are
also done to identify or recommend process improvements.
Regulations of the Department of Education authorize the Department to limit,
suspend or terminate lenders from participation in the program, as well as
impose civil penalties if lenders violate program regulations. The Department
conducts frequent on-site audits of the Company's student loan servicing
activities. Guaranty agencies conduct similar audits on a biennial basis. During
1999, the Company was audited by three guaranty agencies and a third party
insurer, as well as by Citigroup Audit and Risk Review. None of the audit
reports showed any material exceptions.
Historically, the student loan industry has been subject to extensive regulatory
and reporting requirements, concentrated primarily in the areas of loan
servicing and due diligence. Both the Department and the guaranty agencies have
established stringent servicing requirements, along with mandatory audit
criteria that must be met by the lender in order to receive guarantee benefits.
Also, as an operating subsidiary of a New York State bank, the Company is
subject, in general, to examination and supervision by the New York State
Banking Department and the Federal Deposit Insurance Corporation. The Company is
subject to the New York Banking Law and the Federal Deposit Insurance Act, which
restrict affiliate transactions and limit the permissible investment and
business activities in which an operating subsidiary of a bank may engage.
12
<PAGE>
Employees
At December 31, 1999, the Company had approximately 323 employees, none of whom
was covered by a collective bargaining agreement. Under the Company's
restructuring plan, which was substantially completed in 1999, certain of the
Company's loan originations and servicing activities were contracted to other
Citigroup subsidiaries and certain administrative, finance, sales and marketing
functions were relocated to Stamford, CT. Approximately 200 employees remained
at the Pittsford, NY facility.
Properties
The Company's headquarters are maintained in Stamford, CT. Other facilities in
Pittsford, NY, housing primarily the accounting, school servicing, and
technology activities, are maintained under a renewable one-year lease agreement
with an affiliate expiring in December 2000.
Legal Proceedings
This section describes the major pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company is a party
or to which any of their property is subject.
Following the public announcement of Citigroup's proposal to acquire the 20% of
the Company's stock that Citigroup does not already beneficially own, in October
1999 six putative class action complaints were filed in Delaware Chancery Court
against the Company and its directors (as well as Citigroup and certain
subsidiaries). In November 1999, one of the six complaints was voluntarily
dismissed without prejudice. In December 1999, the Delaware Chancery Court
consolidated the five remaining complaints under the caption In re the Student
Loan Corp. Shareholders Litigation and, on February 3, 2000, plaintiffs filed a
consolidated amended complaint.
In the consolidated amended complaint, plaintiffs allege, among other things,
that because Citigroup holds a majority position in the Company there have been
no steps taken to ascertain the Company's true value and that defendants have
engaged in a series of self-dealing transactions artificially depressing the
Company's stock price. The relief plaintiffs seek includes enjoining Citigroup's
offer, or, if the proposed transaction is consummated, rescinding the
transaction and recovering unspecified monetary damages caused by defendants'
alleged breach of fiduciary duties.
On February 17, 2000, Citigroup and the Special Committee of the Company's
independent directors, formed to evaluate the proposal, publicly announced the
termination of discussions regarding the proposal. That same day, the Company
and several other defendants moved to dismiss the consolidated amended complaint
for failure to state a claim. That motion has not yet been ruled upon and the
action remains pending.
Later in February, three stockholders' derivative complaints, captioned Alan
Kahn v. Citigroup Inc., Kenneth Steiner v. Citigroup Inc., and Katherine F.
Petty v. Citigroup Inc., were filed in Delaware Chancery Court against the
Company and its directors (as well as Citigroup and certain subsidiaries). The
complaints allege, among other things, that defendants breached their fiduciary
duties by engaging in a series of self-dealing transactions that are unfair to
the Company and a waste of corporate assets. Plaintiffs assert that Citigroup
will continue to self-deal to benefit itself and further depress the price of
the Company's outstanding public stock so it can acquire the stock at a
depressed price in the future.
Each complaint seeks various forms of relief, including unspecified monetary
damages, rescission of certain contracts and transactions, and declaratory and
injunctive relief prohibiting Citigroup and its subsidiaries from engaging in
further self-dealing with the Company and requiring Citigroup and its
subsidiaries to conduct all future business with independent directors and
officers of the Company.
Also, various other legal proceedings arising out of the normal course of
business are pending against the Company. However, management presently believes
that the aggregate liability arising from these proceedings will not be material
to the Company's financial position or results of operations.
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The Student Loan Corporation
We have audited the accompanying balance sheets of The Student Loan Corporation
as of December 31, 1999 and 1998 and the related statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Student Loan Corporation as
of December 31, 1999 and 1998 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999 in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Rochester, New York
January 18, 2000, except as to Note 16, which is as of February 17, 2000.
14
<PAGE>
THE STUDENT LOAN
CORPORATION
Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) 1999 1998 1997
<S> <C> <C> <C>
REVENUE
Interest income (note 2) $ 719,949 $ 646,558 $ 588,480
Interest expense (notes 5, 6, and 9) 494,167 454,227 412,541
- -------------------------------------------------------------------------------------------
Net interest income 225,782 192,331 175,939
Provision for loan losses (note 2) 4,487 3,882 3,310
- -------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 221,295 188,449 172,629
Fee and other income (note 9) 3,794 2,323 3,292
- -------------------------------------------------------------------------------------------
Total revenue, net 225,089 190,772 175,921
- -------------------------------------------------------------------------------------------
OPERATING EXPENSES
Salaries and employee benefits (notes 9 and 10) 23,031 32,602 32,517
Restructuring reserve (adjustments)/expenses (note 3) (2,200) (7,500) 20,500
Other expenses (notes 8 and 9) 50,932 40,516 35,590
- -------------------------------------------------------------------------------------------
Total operating expenses 71,763 65,618 88,607
- -------------------------------------------------------------------------------------------
Income before income taxes 153,326 125,154 87,314
Income taxes (note 11) 63,868 51,745 35,644
- -------------------------------------------------------------------------------------------
Net income $ 89,458 $ 73,409 $ 51,670
- -------------------------------------------------------------------------------------------
Basic earnings per common share (note 14) $ 4.47 $ 3.67 $ 2.58
===========================================================================================
</TABLE>
See accompanying notes to financial statements.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
- ----------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) 1999 1998
<S> <C> <C>
ASSETS
Insured student loans (note 2) $10,864,980 $ 8,636,343
Allowance for loan losses (note 2) 3,768 2,370
- ----------------------------------------------------------------------------------------
Insured student loans, net 10,861,212 8,633,973
Cash 251 37
Deferred tax benefits (note 11) 24,325 31,936
Other assets (note 4) 310,680 237,196
- ----------------------------------------------------------------------------------------
Total Assets $11,196,468 $ 8,903,142
========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings (note 5) $ 7,312,061 $ 3,908,046
Long-term notes (note 6) 3,222,000 4,310,000
Payable to principal stockholder (note 11) 11,552 13,957
Restructuring reserve liabilities (note 3) 1,019 7,611
Other liabilities (note 7) 134,704 198,997
- ----------------------------------------------------------------------------------------
Total liabilities 10,681,336 8,438,611
========================================================================================
Stockholders' Equity
Preferred stock, par value $0.01 per share; authorized
10,000,000 shares; no shares issued or outstanding -- --
Common stock, par value $0.01 per share; authorized
50,000,000 shares, 20,000,000 shares issued and outstanding 200 200
Additional paid-in capital 134,523 134,380
Retained earnings 380,409 329,951
- ----------------------------------------------------------------------------------------
Total stockholders' equity 515,132 464,531
========================================================================================
Total Liabilities and Stockholders' Equity $11,196,468 $ 8,903,142
========================================================================================
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ 200 $ 134,109 $ 227,672 $ 361,981
Net income -- -- 51,670 51,670
Dividends declared, $0.54 per common share -- -- (10,800) (10,800)
Other -- 271 -- 271
- -------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 200 134,380 268,542 403,122
Net income -- -- 73,409 73,409
Dividends declared, $0.60 per common share -- -- (12,000) (12,000)
- -------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 200 134,380 329,951 464,531
Net income -- -- 89,458 89,458
Dividends declared, $1.95 per common share -- -- (39,000) (39,000)
Other -- 143 -- 143
- -------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $ 200 $ 134,523 $ 380,409 $ 515,132
===========================================================================================
</TABLE>
See accompanying notes to financial statements.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 89,458 $ 73,409 $ 51,670
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 10,442 5,889 6,103
Provision for loan losses 4,487 3,882 3,310
Deferred tax provision (benefit) 7,611 9,645 (2,338)
Restructuring reserve (adjustments)/expense (2,200) (7,500) 20,500
Increase in accrued interest receivable (66,433) (26,523) (25,415)
(Increase) Decrease in other assets (6,811) (3,079) 1,240
Increase (Decrease) in other liabilities (70,947) 63,842 (25,333)
- -------------------------------------------------------------------------------------------
Net cash (used in) provided by operating
activities (34,393) 119,565 29,737
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Disbursements of loans (1,999,990) (1,833,391) (1,599,749)
Purchase of loans (1,540,128) (194,293) (34,050)
Sale of loans 246,434 68,258 93,430
Repayment of loans 1,051,826 938,951 802,626
Capital expenditures on premises and equipment (550) (602) (2,007)
- -------------------------------------------------------------------------------------------
Net cash used in investing activities (2,242,408) (1,021,077) (739,750)
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in borrowings with
original maturities of one year or less 3,304,015 (413,559) 1,237,354
Proceeds from long-term borrowings 3,684,000 2,700,000 1,610,000
Repayments of long-term borrowings (4,672,000) (1,375,000) (2,125,000)
Dividends paid to stockholders (39,000) (12,000) (10,800)
- -------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,277,015 899,441 711,554
- -------------------------------------------------------------------------------------------
Net increase (decrease) in cash 214 (2,071) 1,541
Cash - beginning of period 37 2,108 567
- -------------------------------------------------------------------------------------------
Cash - end of period $ 251 $ 37 $ 2,108
===========================================================================================
SUPPLEMENTAL DISCLOSURE
Cash paid for:
Interest $ 542,446 $ 396,215 $ 432,212
Income taxes $ 43,167 $ 45,377 $ 27,798
===========================================================================================
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1 SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Student Loan Corporation (the "Company"), through a trust agreement with
Citibank (New York State) ("CNYS"), is an originator, holder, and servicer of
student loans, consisting primarily of loans made in accordance with federally
sponsored guaranteed student loan programs. The accounting policies of the
Company are in conformity with generally accepted accounting principles. The
Company is a single segment for financial reporting purposes.
CNYS, a subsidiary of Citicorp and Citigroup Inc., is the largest shareholder in
the Company, with an 80% interest. In October 1999, Citigroup proposed to
acquire by merger the 20% of the outstanding common stock not owned by CNYS.
Citigroup and the Special Committee of the Company's independent directors,
formed to evaluate Citigroup's proposal and negotiate the terms of an agreement
to merge, subsequently announced the termination of discussions regarding the
proposal. See Note 16 for further discussion.
The accompanying financial statements include expenses for facilities, employee
benefits, and certain services provided by CNYS and other Citigroup affiliates.
Such expenses are assessed based on actual usage or using other allocation
methods which, in the opinion of management, approximate actual usage.
Management believes that the allocation methods are reasonable and
representative of the amounts that such allocated expenses would have cost had
the Company operated as an unaffiliated entity. Services currently provided by
affiliates are expected to continue as needed.
Use of Estimates
Management has used a number of estimates and assumptions relating to the
reporting of assets and liabilities, the disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period in preparing the financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
Loans
Loans primarily consist of student loans originated under the Federal Family
Education Loan ("FFEL") Program authorized by the Department of Education (the
"Department") under the Federal Higher Education Act of 1965 as amended, ("the
Act"), and are insured by guarantors. Interest on student loans is recognized as
it is earned. Federally mandated loan origination or lender fees paid on
disbursements made on or after October 1, 1993, as well as other loan
origination costs and premiums and discounts on loan portfolio purchases, are
deferred and amortized to interest income on a level yield basis over the
average life of a student loan in those portfolios.
The Company also has a portfolio of alternative loans, primarily CitiAssist.
Most of these loans are insured against loss by a private insurer.
When a guarantor denies payment of a claim, the Company discontinues accruing
interest on the defaulted loan. FFEL Program loan claim denials can occur for a
number of reasons, such as the Company not following appropriate due diligence
procedures as defined in the guarantor's policies. At the time it is determined
that the guarantee cannot be reinstated, the Company charges off the outstanding
principal balance to operating expenses and reduces interest income by the
amounts of all previously accrued, uncollected interest. These amounts of
principal and interest write-offs are not material for the periods presented.
The Company continues its attempt to recover the loan balance from either the
guarantor or the borrower. Recoveries on loans previously charged off result in
lower current operating expenses. Non-interest accruing loans were $0.2 million
and $0.5 million at December 31, 1999 and 1998, respectively.
17
<PAGE>
Allowance for Loan Losses
Allowance for loan losses primarily represents a reserve for estimated losses on
the Company's FFEL Program loan portfolio under the risk-sharing provisions of
the Act. Under these provisions claims on defaulted FFEL Program student loans
disbursed on or after October 1, 1993 that are approved for payment by a
guarantor are paid net of a risk-sharing loss. The risk-sharing loss on these
loans represents 2% of the claimed amount, including principal and accrued
interest. The allowance for loan losses also includes estimates of CitiAssist
risk-sharing losses. CitiAssist Loans insured by Guaranty National Insurance
Company ("GNIC"), a private third party insurer, are subject to risk-sharing
losses of 5% of the combined principal and accrued interest balances. Estimated
loan losses are accrued when the guaranteed and third party insured student
loans reach 90 days of delinquency. Risk-sharing losses which arise from actual
claims with guarantors and GNIC are charged against the allowance as they occur.
Interest Rate Swap Agreements
From time to time the Company utilizes interest rate swap agreements to manage
its exposure to interest rate risk. Swaps are designated as hedges of certain
interest bearing liabilities and are effective in reducing the risk caused by
basis differences between borrowing and lending rates. Interest rate swap
agreements are maintained for purposes other than trading and are generally held
to their full contract maturity dates. Although there were no swap terminations
resulting in gains or losses in the three-year-period ended December 31, 1999,
the Company's policy is to defer and amortize any such gains or losses that do
arise consistent with the original hedge accounting strategy. Net swap interest
receivable or payable is accrued and recorded as an adjustment to interest
expense.
Income Taxes
The Company is included in the consolidated federal income tax return of
Citigroup, and is included in certain combined or unitary state/local income or
franchise tax returns of Citicorp/Citigroup or its subsidiaries. While the
Company is included in these consolidated, combined or unitary returns, it has
agreed to pay to CNYS an amount equal to the federal, state and local taxes the
Company would have paid had it filed its returns on a separate company basis and
the amount by which the tax liability of any unitary group (of which any
Citicorp/Citigroup affiliate other than the Company is a member) is increased by
virtue of the inclusion of the Company's activity in the group's unitary return.
CNYS has agreed to pay the Company an amount equal to the tax benefit of the
actual tax loss of the Company as if the Company filed a separate return and the
amount, if any, by which the tax liability of any unitary group (of which any
Citicorp/Citigroup affiliate other than the Company is a member) is reduced by
virtue of the inclusion of the Company's activity in the group's unitary return.
Deferred income taxes are recorded for the future tax consequences of events
that have been recognized in the financial statements or tax returns based upon
enacted tax laws and rates. The deferred tax asset is recognized subject to
management's judgement that realization is more likely than not.
Earnings Per Share
Basic earnings per common share is computed by dividing income applicable to
common stock (net income after deducting preferred stock dividends, if any) by
the weighted-average number of common shares outstanding for the period.
Diluted earnings per common share shows the dilutive effect that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or otherwise resulted in the issuance of common stock and is
computed by dividing net income by the weighted-average sum of common shares
outstanding and common stock equivalents for the period. In 1999, 1998 and 1997,
the Company had no securities or other contracts to issue company common stock
that could result in dilution.
18
<PAGE>
2 STUDENT LOANS
Student loans consist primarily of loans originated under government-sponsored
guaranteed loan programs, principally the FFEL Program and, generally, have
repayment terms of between five and ten years. Whenever the stated interest rate
on FFEL Program loans disbursed prior to July 1992 provides less than a market
rate of return, the federal government pays a special allowance payment ("SAP")
which increases the loan yield to 2.50, 3.10, 3.25 or 3.50 percentage points,
depending on its origination date, over a base rate tied either to the 91-day or
52-week Treasury Bill auction rates. The federal government generally pays both
the SAP (if any) and the stated interest rate on subsidized Federal Stafford
loans while the student is in school. Students generally defer both principal
and interest payments on Federal Stafford loans while they are in school.
The Company is currently eligible to make the following types of FFEL Program
loans: subsidized Federal Stafford loans, unsubsidized Federal Stafford loans,
Federal Parent Loans to Undergraduate Students ("PLUS") loans and Federal
Consolidation loans. Subsidized Federal Stafford loans are generally made to
students who pass certain need criteria. Unsubsidized Federal Stafford loans are
designed for students who do not qualify for subsidized Federal Stafford loans
due to parental and/or student income and assets in excess of permitted amounts
or whose need exceeds the basic Stafford limit. Federal PLUS loans are made to
parents of students who are dependents. The Federal Consolidation loan program
allows multiple FFEL Program loans or loans of both FFEL and Federal Direct
Student Loan Programs to be combined into one single aggregate insured loan with
an extended repayment term. In addition, the Company's portfolio includes
Federal Supplemental Loans for Students ("SLS loans") made prior to July 1994,
when new loans through this program were discontinued. Federal SLS loans include
loans to graduate, professional and independent undergraduate students, and,
under certain circumstances, dependent undergraduate students. In 1994, the SLS
program was replaced with an expanded unsubsidized Federal Stafford loan
program.
The Company's portfolio also contains loans originated through alternative loan
programs developed for students who either do not qualify for federal government
student loan programs or need additional financial assistance beyond that
available through the government programs. Alternative loans are offered based
on the student's, co-signer's, or parent's creditworthiness.
Prior to 1997, the majority of the Company's alternative loans were originated
through programs with The Educational Resource Institute ("TERI") to medical or
other graduate students for supplemental loans and Professional Education Plan
("PEP") loans. These loans are guaranteed by TERI, a not-for-profit corporation,
which is not reinsured by the federal government. The Company terminated its
originations program with TERI in 1997. As of December 31, 1999 and 1998, the
Company held $66.1 million and $74.7 million, respectively, of TERI insured
loans, which were serviced by a third party.
In early 1997, the Company launched its new alternative loan product,
CitiAssist, which provides another means to help students meet their educational
financing needs. CitiAssist loans help close the gap between students' higher
education costs and their available financial resources. The loan is prime rate
based with FFEL Program repayment characteristics, such as deferment of both
principal and interest payments while the student is in school.
In order to comply with certain legal and other requirements, CitiAssist loans
are originated by CNYS, the Company's principal shareholder. These loans are
serviced by the Company or a related party servicer. Expenses incurred by the
Company to underwrite, disburse and service CitiAssist loans for CNYS are
reflected in a service fee charged to CNYS based on the provisions of an
intercompany agreement. The loans are purchased by the Company at a premium at a
mutually agreed upon date after the final disbursement is made. The Company
amortizes the premium as a reduction of interest income over the average life of
a loan in the portfolio. As of December 31, 1999 and 1998, the Company's
CitiAssist portfolio totaled $347.5 million and $42.0 million, respectively,
excluding premiums on the purchases.
19
<PAGE>
The Company's student loan portfolio is summarized by program type as follows:
<TABLE>
<CAPTION>
DECEMBER 31
- -----------------------------------------------------------------------
($000's) 1999 1998
<S> <C> <C>
Stafford/Consolidation $ 9,313,096 $ 7,597,084
SLS/PLUS 1,012,978 883,862
Supplemental/PEP 66,055 74,712
CitiAssist 347,529 41,999
Deferred origination and premium costs, net 125,322 38,686
- -----------------------------------------------------------------------
Total student loans $10,864,980 $ 8,636,343
=======================================================================
</TABLE>
The Company's FFEL Program loan holdings are guaranteed in the event of a
borrower's default, death, disability or bankruptcy. Insurance on FFEL Program
loans is provided by certain state or non-profit guaranty agencies
("guarantors"), which are reinsured by the federal government.
The Act requires every state either to establish its own guarantor or to
contract with another guaranty agency in order to support the education
financing and credit needs of students at post-secondary schools. FFEL Program
guarantors generally guarantee loans for students attending institutions in
their particular state or region or for their residents attending schools in
another state. States that do not have their own guaranty agency contract with
United Student Aid Funds, a multi-state guaranty agency, or another state
agency.
For each FFEL Program loan, guaranty agencies may collect from the borrower a
one-time insurance premium that is 1% or less of the principal amount of the
loan. The Act also requires that the borrowers pay a combined loan origination
fee and insurance premium on unsubsidized Federal Stafford loan originations.
The lender deducts this fee from the loan disbursement before it is remitted to
the school and forwards it to the federal government. Current regulations
provide for a maximum 3% origination fee.
Most CitiAssist loans are insured against default and other losses through GNIC,
a private third party insurer. These loans are not reinsured by the federal
government. Most insured CitiAssist loans submitted for claim are paid the claim
amount less a risk sharing loss of 5% of the sum of the outstanding principal
and accrued interest balances. During 1999 and 1998, $401,000 and $8,000,
respectively, of CitiAssist loans were submitted for claim. Certain CitiAssist
loans are not insured against loss. At December 31, 1999 and 1998, the Company
held $45.9 million and $2.7 million, respectively, of CitiAssist loans that did
not carry third party insurance. Approximately one half of the uninsured
portfolio carries risk-sharing arrangements with a credit-worthy university. The
Company is exposed to losses of up to 100% on loans that do not carry insurance
or risk-sharing arrangements.
The following schedule provides an analysis of the Company's student loans by
guarantor/insurer:
<TABLE>
<CAPTION>
DECEMBER 31
- ------------------------------------------------------------------------------------------------------
($000's) 1999 % 1998 %
<S> <C> <C> <C> <C>
United Student Aid Funds $ 4,567,061 42 $ 3,841,874 44
ED Fund 2,423,788 22 1,901,904 22
New York State Higher Education Services Corp. 2,491,585 23 1,976,138 23
Illinois Student Aid Commission 385,785 4 327,338 4
TERI 66,055 1 74,712 1
GNIC 319,735 3 41,888 1
Other guarantors 564,855 5 468,723 5
- ------------------------------------------------------------------------------------------------------
Total guaranteed/insured 10,818,864 100 8,632,577 100
Not guaranteed/insured 46,116 -- 3,766 --
- ------------------------------------------------------------------------------------------------------
Total student loans $10,864,980 100 $ 8,636,343 100
======================================================================================================
</TABLE>
20
<PAGE>
FFEL Program loans are subject to regulatory requirements relating to servicing
in order to maintain the guarantee on principal and interest. In the event of
default on a student loan or borrower's death, disability, or bankruptcy, the
Company files a claim with the guarantor of the loan. Provided the loan has been
properly originated and serviced, the guarantor generally pays the Company 98%
of the sum of the unpaid principal and accrued interest on most claimed
defaulted loans. The 2% amount not reimbursed is charged off to allowance for
loan losses. Claims on FFEL Program loans filed due to a borrower's death,
disability, or bankruptcy are not subject to the 2% risk-sharing loss
provisions.
Claims not immediately honored by the guarantor because of servicing or
origination defects are returned to the Company for remedial servicing. During
the remedial servicing period, usually lasting several months, interest income
is not accrued. Non-interest accruing loans at December 31, 1999 and 1998 were
$0.2 million and $0.5 million, respectively. Certain claims are reduced by
interest penalties, charged against current interest income, for minor servicing
defects. Net operational losses resulting from servicing or origination defects
are charged to operating expenses as incurred and amounted to $0.4 million in
1999 and $1.3 million in each of 1998 and 1997.
Alternative loans insured by TERI are not subject to risk sharing provisions.
However, most CitiAssist loans insured by a third party are subject to risk
sharing provisions of 5%. A small amount of CitiAssist loans are not insured
against loss and are potentially exposed to losses of up to 100%. At December
31, 1999 and 1998, the Company's allowance for loan losses, established for
estimated risk-sharing and other credit losses on FFEL Program and CitiAssist
loans, were $3.8 million and $2.4 million, respectively.
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
($000's) 1999 1998 1997
- ------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 2,370 $ 2,014 $ 1,570
Provision for loan losses 4,487 3,882 3,310
Risk-sharing losses (3,089) (3,526) (2,866)
- ------------------------------------------------------------
Balance at end of year $ 3,768 $ 2,370 $ 2,014
============================================================
</TABLE>
In 1993, amendments of the Act were enacted which included other significant
changes to the FFEL Program. These amendments imposed additional costs and
income restrictions on originators and holders of FFEL Program loans in the form
of origination fees, risk-sharing costs, and interest rate reductions. These
amendments also instituted a competitor program, the Federal Direct Student Loan
("FDSL") program, by which student loans are made directly by the federal
government ("direct lending"), rather than by lending institutions such as the
Company. Direct lending accounted for approximately 35%*, on a national basis,
of all student loans made under federal programs in the 1997-98 and 1998-99
academic years.
In addition, the amendments imposed a 0.5% origination fee on new FFEL Program
disbursements and an annual fee of 1.05% on the portfolio balance of Federal
Consolidation loans held. The reauthorization of the Act on October 7, 1998
decreased the interest rate paid by borrowers on new Federal Stafford loans
disbursed on or after July 1, 1998 by 0.80%. Of the rate decrease, 0.30% is
borne by lenders and 0.50% is funded by the federal government through changes
in the special allowance formula.
Also, in 1999 the index used to calculate special allowance payments on loans
disbursed from January 1, 2000 to June 30, 2003 was changed from the 91-day
Treasury Bill rate to the 90-day Commercial Paper rate.
*Unaudited.
21
<PAGE>
3 RESTRUCTURING PLAN
In 1997, the Company announced a restructuring plan to realign its business and
processing structure, involving the outsourcing of various parts of its
operations, which had been based in the Company's Pittsford, NY office, to
affiliated companies and the transfer of other of its employees to new Company
facilities in Stamford, CT. The restructuring plan was designed to take
advantage of the larger economies of scale and more global operating systems
configurations being employed by its affiliates. During 1999, the restructuring
plan was substantially completed.
In connection with the restructuring plan, in 1997 the Company recorded
restructuring reserve charges of $20.5 million, consisting of $16.2 million in
severance benefits, $2.8 million in furniture and equipment write-downs and $1.5
million in other exit costs. Additional costs, including affiliated transition
costs of $1.2 million in 1999 and $3.7 million in 1998, did not qualify for
recognition in the initial $20.5 million charge and were expensed as incurred.
No further implementation costs are expected to be incurred in the future
related to this plan. The plan provisions involved the termination of
approximately 400 employees, 200 in each of 1999 and 1998, primarily in the loan
originating, loan servicing, marketing, finance, credit, and legal functions.
Most of those jobs were migrated to affiliates of CNYS, while the remainder were
transferred to the new Company headquarters in Stamford, Connecticut.
Of the $20.5 million total restructuring reserve charge, $2.8 million of
furniture and equipment write-downs were utilized in 1997. During 1998, $1.2
million of the reserve was utilized for severance and outplacement costs and
$1.4 million was utilized for exit costs related to the closure of the Company's
operating units. In 1999, $4.4 million was utilized for severance and
outplacement costs for the 200 employees placed on job discontinuance as of
January 1, 1999 year as well as for the 200 employees already on job
discontinuance as of January 1, 1999 still collecting benefits. The remaining
$1.0 million reserve balance at December 31, 1999 will be utilized for severance
and outplacement costs during the year 2000 for the 40 employees currently on
job discontinuance still receiving benefits.
Changes in estimates, attributable to facts and circumstances arising subsequent
to the original restructuring charge, resulted in adjustments to the reserve in
subsequent years. Changes in estimates of $2.2 million and $7.5 million were
recorded in 1999 and 1998, respectively, as reductions of operating expenses.
The reserve adjustments resulted primarily from a decision to retain
approximately 200 Pittsford-based employees primarily in technology and
accounting positions and the agreement of certain other employees in finance,
administration, sales and marketing positions to relocate to the facility in
Stamford. Greater than expected employee attrition, prior to eligibility for
severance pay benefits, also contributed to the reserve adjustments.
The status of the 1999, 1998 and 1997 restructuring reserve liabilities is
summarized in the following table:
<TABLE>
<CAPTION>
($000's) 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 7,611 $ 17,724 $ --
Original charge -- -- 20,500
Write-down of furniture and equipment -- -- (2,776)
Severance and outplacement costs (4,392) (1,211) --
Other exit costs -- (1,402) --
Changes in estimates (2,200) (7,500) --
- ------------------------------------------------------------------------
Balance at end of year $ 1,019 $ 7,611 $ 17,724
========================================================================
</TABLE>
22
<PAGE>
4 OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
($000's) 1999 1998
- -------------------------------------------------
<S> <C> <C>
Accrued interest receivable
from borrowers $238,425 $186,772
from federal government 59,889 45,109
Other 12,366 5,315
- -------------------------------------------------
Total other assets $310,680 $237,196
=================================================
</TABLE>
5 SHORT-TERM BORROWINGS
Short-term borrowings at December 31 are summarized below:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------------------
($000's) CONTRACTED CONTRACTED
WEIGHTED AVERAGE WEIGHTED AVERAGE
AMOUNT INTEREST RATE AMOUNT INTEREST RATE
<S> <C> <C> <C> <C>
Notes payable $7,212,061 5.67% $3,902,340 5.72%
Other short-term borrowings -- -- 5,706 8.75%
Short-term portion of long-term notes 100,000 6.16% -- --
- ------------------------------------------------------------------------------------------------------
Total short-term borrowings $7,312,061 5.67% $3,908,046 5.72%
======================================================================================================
</TABLE>
Short-term borrowings have an original or remaining term to maturity of one year
or less. At December 31, 1999 and 1998, notes payable consisted of borrowings
made under Omnibus Credit Agreements with CNYS. On November 4, 1999, the Company
replaced its credit agreement with CNYS with a new agreement that increased the
maximum aggregate credit limit available for combined short- and long-term
borrowings from $10 billion to $15 billion. During 1999, $7.8 billion in new
short-term borrowings was made under the new agreement or its predecessor
agreement and $4.5 billion in original short-term borrowings was repaid. During
1998, $0.3 billion of new short-term borrowings was made and $0.7 billion in
original short-term borrowings was repaid. The interest rates payable on the
credit facilities either are variable, based on the monthly Federal Funds rate,
or are fixed based on LIBOR.
Other short-term borrowings at December 31, 1998 represent funding obtained from
Citibank, N.A., an affiliate of Citigroup, at an overnight rate. The borrowing
was repaid on January 4, 1999.
23
<PAGE>
6 LONG-TERM NOTES
A summary of long-term notes follows:
<TABLE>
<CAPTION>
DECEMBER 31
- -------------------------------------------------------------------------------------------------------
($000's) 1999 1998
<S> <C> <C>
CNYS Notes, based on LIBOR (note at December 31, 1999: rate was 6.43%,
repricing quarterly, due on May 1, 2002; series at December 31, 1998:
rates ranged from 5.31% - 5.53%, repricing quarterly,
due between March 1, 2000 and November 1, 2001) $ 57,000 $ 4,210,000
CNYS Notes, based on LIBOR (note rate was 7.76% at
December 31, 1999, repricing weekly, due on
November 4, 2002) 3,000,000 --
- ------------------------------------------------------------------------------------------------------
CNYS Notes, based on LIBOR (note rates ranged from 6.13% - 6.34%
at December 31, 1999, fixed, series due between October 1, 2001
and October 15, 2001) 165,000 --
- ------------------------------------------------------------------------------------------------------
CNYS Note, based on attributes of both LIBOR and the 91-day
Treasury Bill rate (note rates were 6.16% and 6.75% at
December 31, 1999 and 1998, respectively, repricing quarterly,
due April 3, 2000) 100,000 100,000
- -------------------------------------------------------------------------------------------------------
Less: short-term portion (100,000) --
- -------------------------------------------------------------------------------------------------------
Total long-term notes $ 3,222,000 $ 4,310,000
=======================================================================================================
</TABLE>
At December 31, 1999 and 1998, long-term notes consisted of borrowings made
under Omnibus Credit Agreements with CNYS. On November 4, 1999, the Company
replaced its credit agreement with CNYS with a new agreement that increased the
maximum aggregate credit limit available for combined short- and long-term
borrowings from $10.0 billion to $15.0 billion. Maturity dates and terms for all
existing outstanding notes were unchanged. During 1999, $3.7 billion in new
long-term borrowings was made under the new agreement or its predecessor
agreement and $4.7 billion was repaid. During 1998, $2.7 billion in new
long-term borrowings was made and $1.4 billion in long-term notes was repaid.
The Company seeks to minimize interest rate exposure by funding floating rate
loans with floating rate liabilities. Additionally, the Company may enter into
interest rate swap agreements to better match the interest rate characteristics
of its borrowings with the interest rate characteristics of its assets.
Generally, under these swap agreements, indices of the interest obligations of
the Company's LIBOR-based notes are swapped into 52-week and 91-day Treasury
Bill rates. See Note 12 for further discussion.
7 OTHER LIABILITIES
Other liabilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
($000's) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest payable, primarily to CNYS and its affiliates $ 58,052 $106,331
Income tax liability, payable primarily to CNYS 26,719 13,766
Accrued liabilities and other 49,933 78,900
- --------------------------------------------------------------------------------
Total other liabilities $134,704 $198,997
================================================================================
</TABLE>
24
<PAGE>
8 OTHER EXPENSES
A summary of other expenses follows:
<TABLE>
<CAPTION>
DECEMBER 31
- ----------------------------------------------------------------------------------
($000's) 1999 1998 1997
<S> <C> <C> <C>
Data processing $ 6,409 $ 6,452 $ 4,312
Servicing, professional, guarantor
and other fees paid 30,718 14,259 9,068
Advertising and marketing 4,954 4,801 7,454
Stationery, supplies and postage 1,885 2,064 2,486
Premises, primarily rent 1,385 3,377 2,213
Communications 1,386 2,484 3,503
Depreciation 310 126 1,694
Operational losses on guaranteed student loans 439 1,343 1,297
Travel and entertainment 1,834 2,122 1,503
Minor equipment 838 959 477
Other 774 2,529 1,583
- ----------------------------------------------------------------------------------
Total other expenses $50,932 $40,516 $35,590
==================================================================================
</TABLE>
9 RELATED PARTY TRANSACTIONS
At December 31, 1999 and 1998, CNYS owned 80% of the outstanding stock of the
Company. Detailed below is a description of, and amounts relating to,
transactions with CNYS (or its affiliates), which relate to the Company and have
been reflected in the accompanying financial statements for the years ended
December 31, 1999, 1998 and 1997. A change in CNYS's percentage ownership of the
Company may change some of the agreements with related parties (e.g., employee
benefits).
As discussed in Note 11, the Company shares with CNYS 50% of the deferred tax
benefits resulting from the payments made to CNYS by the Company in November
1992 in exchange for the transfer of assets to the Company and the execution of
a noncompetition agreement.
The Company has a loan servicing agreement with CNYS to service CitiAssist loans
prior to purchase by the Company. Amounts earned by the Company for this service
are included in the chart below.
Certain of the Company's key employees participate in Citigroup's Stock
Incentive Plans. Under these Plans, options have been granted to certain key
employees to purchase Citigroup common stock at not less than the fair market
value of the shares at the date of grant for terms of up to 10 years.
Facilities and building services are provided by affiliates of Citigroup under a
facilities and building services agreement. Expenses (as presented in the
following chart) are assessed based on actual usage or other allocation methods
which, in the opinion of management, approximate actual usage. Also, as a result
of the Company's restructuring plan and the outsourcing of certain of its loan
originations and servicing activities to subsidiaries of Citigroup, the Company
incurred $24.3 million and $6.4 million in loan origination and servicing
expenses payable to subsidiaries of Citigroup in 1999 and 1998, respectively.
These amounts are included in the following chart. Management believes that such
agreements and transactions are on terms no less favorable to the Company than
those which could be obtained from unaffiliated third parties. It is the
Company's intent that these transactions be conducted at arm's length.
25
<PAGE>
Below is a summary of related party transactions with CNYS (or its affiliates),
other than CitiAssist loan transactions described in Note 2, employee benefit
related transactions described in Note 10, and income tax matters described in
Notes 1, 7 and 11:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------
($000's) 1999 1998 1997
<S> <C> <C> <C>
REVENUES
Fees for servicing of student loan portfolios $ 3,580 $ 2,185 $ 564
- -------------------------------------------------------------------------------------
EXPENSES
Cost of funding provided $496,041 $454,338 $372,310
Telecommunications -- 671 668
Facilities 1,348 3,316 1,986
Processing of payments and outgoing mail 843 416 470
Payroll and benefits administration 265 484 428
Data processing 4,608 4,078 2,062
Statement production 1,931 1,931 2,093
Loan originations and servicing 24,319 6,388 --
Other 1,342 703 632
- -------------------------------------------------------------------------------------
</TABLE>
10 EMPLOYEE BENEFITS
The Company's employees are covered under various Citigroup benefit plans,
including medical and life insurance plans that cover active, retired and
disabled employees; defined benefit pension; dental; savings incentive; salary
continuance for disabled employees; workers compensation; and stock purchase
plans. Citigroup charges the Company a fringe rate calculated by allocating a
portion of the total Citigroup cost of providing benefits based on the ratio of
the total Company salary expense to total Citigroup salaries. The fringe rate
applied to salaries was 29% for the first three months of 1999 and 21% for the
remainder of the year. In 1998 and 1997, the fringe rates were 29% and 32%,
respectively. In determining the fringe rate, Citigroup considers the historical
benefit and salary experience for all Citigroup employees, adjusted for expected
changes in experience reflected in actuarial assumptions.
If Citigroup's percentage ownership in the Company is reduced below 50%, the
Company will withdraw from participation in certain Citigroup benefit plans and
will procure benefits coverage for its employees independently. The expense
incurred for independent benefits coverage may be higher than the benefit costs
currently being paid.
Pension Plans
Substantially all of the Company's employees participate in Citigroup's
non-contributory defined benefit plans. The amounts of pension expense allocated
to the Company were $109,000, $742,000, and $947,000 in 1999, 1998 and 1997,
respectively. Effective January 1, 2000, the plans were amended to convert the
benefit formula for certain employees to a cash balance formula. Employees
satisfying certain age and service requirements remain covered under the prior
formula.
Postretirement Benefits
Under Citigroup benefit plans, the Company formerly provided non-contributory
postretirement healthcare and life insurance benefits to all eligible retired
employees. During 1999, the plan was modified to eliminate benefits for most
employees who did not meet certain age and service requirements. Citigroup
returned to its participating affiliates the amounts previously paid that will
no longer be needed for future benefits. In 1999, the Company received $195,000
from Citigroup for returned postretirement benefit costs. In 1998 and 1997, the
Company's net periodic postretirement benefit costs, representing the amount
charged by Citigroup for the periods, were $12,000 and $273,000, respectively.
26
<PAGE>
11 INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- -----------------------------------------------------------------
($000's) 1999 1998 1997
<S> <C> <C> <C>
Current
Federal $ 42,430 $ 32,160 $ 29,647
State 13,827 9,940 8,335
- -----------------------------------------------------------------
Total current 56,257 42,100 37,982
- -----------------------------------------------------------------
Deferred
Federal 5,740 7,368 (1,825)
State 1,871 2,277 (513)
- -----------------------------------------------------------------
Total deferred 7,611 9,645 (2,338)
- -----------------------------------------------------------------
Total income tax provision $ 63,868 $ 51,745 $ 35,644
=================================================================
</TABLE>
The 1997 income tax provision was decreased by $8.5 million for income tax
benefits related to the Company's restructuring plan in which $20.5 million in
employee termination benefits, furniture and equipment write-downs and other
exit costs were incurred. Due to restructuring reserve adjustments of $2.2
million in 1999 and $7.5 million in 1998, the tax provisions in 1999 and 1998
increased by $0.9 million and $3.1 million, respectively. (See Note 3.)
The Company's deferred tax assets of $24.3 million and $31.9 million at December
31, 1999 and 1998, respectively, arose primarily as a result of payments made by
the Company to CNYS in exchange for the transfer of assets to the Company and
the execution of a noncompetition agreement. The 1999 and 1998 deferred tax
asset balances also include $0.4 million and $3.2 million, respectively, in tax
benefits related to the restructuring reserve. Management believes that it is
more likely than not that the results of future operations will generate
sufficient taxable income to realize the Company's total deferred tax assets.
The Company has agreed to share with CNYS 50% of the deferred tax benefits
arising from the intercompany payments that the Company made to CNYS in exchange
for the transfer of assets. This liability to CNYS is recorded on the balance
sheet as payable to principal stockholder.
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
- -------------------------------------------------
($000's) 1999 1998
<S> <C> <C>
Loan premium $11,870 $15,112
Account relationship 7,183 8,087
Noncompetition agreement 2,272 2,559
Restructuring costs 424 3,166
Risk-sharing 1,568 905
Other 1,008 2,107
- -------------------------------------------------
Total deferred tax assets $24,325 $31,936
=================================================
</TABLE>
27
<PAGE>
The reconciliations of the income taxes computed at the federal statutory income
tax rate of 35% to the actual income tax provisions for 1999, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- -----------------------------------------------------------------------------------
($000's) 1999 1998 1997
<S> <C> <C> <C>
Income taxes computed at federal statutory rate $53,664 $43,804 $30,560
State tax provision, net of federal benefits 10,204 7,941 5,084
- -----------------------------------------------------------------------------------
Total income tax provision $63,868 $51,745 $35,644
===================================================================================
</TABLE>
12 INTEREST RATE SWAP AGREEMENTS
To better match the interest rate characteristics of its borrowings with its
loan assets, the Company from time to time enters into interest rate swap
agreements, generally with an affiliate of CNYS, on portions of its portfolio.
The Company generally receives payments based on the 3-month LIBOR and makes
payments based on the asset yield, usually the 91-day Treasury Bill rate.
Entering into basis swap agreements to receive interest based on the
characteristics of the Company's liabilities and pay interest based on the
interest rate characteristics of the Company's assets effectively reduces the
risk of the potential interest rate variability.
At December 31, 1999, the Company had no interest rate swap agreements
outstanding and managed interest rate risk directly through its funding
agreements. At December 31, 1998, $6.4 billion in aggregate notional principal
was outstanding on swap agreements. In 1999 and 1998, the Company's interest
expense from short- and long-term borrowings was reduced by $3.1 million and
$0.4 million, respectively, due to interest rate swaps. In 1997, interest
expense increased by $0.3 million due to interest rate swaps. The Company had no
accrued interest receivable on swaps at December 31, 1999 and $0.2 million
accrued at December 31, 1998. During 1999, 1998 and 1997, net payments of $2.1
million, $0.2 million, and $9.2 million, respectively, were made to meet
contracted swap agreement obligations.
Credit risk is the exposure to loss in the event of nonperformance by the other
party to a transaction and is a function of the ability of the counterparty to
honor its obligations to the Company. Credit risk has been managed by entering
into swaps with related parties having investment-grade external credit ratings.
As of December 31, 1998 and during portions of 1999, most interest rate swap
agreements were with Citibank, N.A., an affiliate of CNYS.
13 FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments as of December
31 is as follows:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
($000'S) CARRYING FAIR CARRYING FAIR
VALUE VALUE DIFFERENCE VALUE VALUE DIFFERENCE
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS
Insured student loans, net $10,861,212 $11,956,632 $ 1,095,420 $ 8,633,973 $ 9,350,312 $ 716,339
Cash 251 251 -- 37 37 --
Accrued interest receivable 298,314 298,314 -- 231,881 231,881 --
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES
Short-term borrowings $ 7,312,061 $ 7,312,061 $ -- $ 3,908,046 $ 3,908,046 $ --
Long-term notes 3,222,000 3,222,000 -- 4,310,000 4,310,000 --
Related derivatives asset -- -- -- (216) (3,389) (3,173)
Accrued interest payable 58,052 58,052 -- 106,547 106,547 --
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
The estimated fair values have been determined by the Company using available
market information and other valuation methodologies described below. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgement. Accordingly, the estimates may not be indicative of the
amounts that the Company could realize in a current market exchange. Changes in
assumptions could significantly affect the estimates.
As shown in the accompanying table above, the excess of fair value over carrying
value may vary from period to period based on changes in a wide range of
factors, including LIBOR and Treasury Bill interest rates, portfolio mix of
variable and fixed rate loans, growth of the portfolio, timing of contractual
repricing, portfolio age, and maturity or contractual settlement dates. The fair
value of insured student loans exceeded their carrying value by $1,095 million
at December 31, 1999, compared to $716 million at December 31, 1998. The primary
reason for the $379 million increase is due to portfolio growth and differences
in average ages of the portfolios.
Insured Student Loans, Net
The fair value of insured student loans, net of allowance for loan losses, is
calculated by discounting cash flows through expected maturity using estimated
current market rates for such loans. Delinquent loans are also valued using this
method. Credit risk is not a material component of the loan valuation due to the
guaranteed nature of the loans.
Cash, Accrued Interest Receivable and Payable and Short-Term Borrowings
Due to the short-term nature of these instruments, carrying value approximates
fair value.
Long-Term Notes
The fair value of these instruments is calculated by discounting cash flows
through maturity using estimated market discount rates. All of the long-term
notes outstanding at December 31, 1999 and 1998 reprice quarterly or more
frequently. Due to the frequency of repricing, carrying value approximates fair
value at these dates.
Derivatives
The carrying value of derivatives represents the estimated net interest the
Company would receive or pay to terminate interest rate swap agreements
associated with long-term notes.
14 EARNINGS PER SHARE
Basic and diluted earnings per common share ("EPS") have been calculated in
accordance with current accounting standards. Under these standards, outstanding
stock options are considered in the diluted earnings per share computation.
Small amounts of options to purchase shares of the Company's common stock were
outstanding during all of 1999, 1998 and 1997. However, they were not included
in the computation of diluted EPS as contingent issuance requirements had not
been met. Therefore, the Company had no dilutive common equivalents and the
calculation of both the basic and diluted EPS was the same in each of these
periods.
The net income available to common stockholders was $89.5 million for 1999,
$73.4 million for 1998, and $51.7 million for 1997. The weighted average shares
outstanding during all of 1999, 1998 and 1997 was 20 million. Basic (and
diluted) EPS was $4.47 for 1999, $3.67 for 1998, and $2.58 for 1997, calculated
by dividing income available to common stockholders by the number of weighted
average shares outstanding.
29
<PAGE>
15 COMMITMENTS AND CONTINGENCIES
The Company is obligated under several non-cancelable operating leases for
equipment. Those expenses totaled $0.4 million, $0.2 million, and $0.5 million
for each of the years ended December 31, 1999, 1998 and 1997, respectively. Such
expenses exclude payments of $1.3 million, $3.3 million, and $2.0 million in
1999, 1998 and 1997, respectively, under the related party facilities and
building services agreement referred to in Note 9. The facilities agreement is a
renewable one-year lease agreement expiring in December 2000.
Future minimum lease payments at December 31, 1999 under agreements classified
as operating leases with non-cancelable terms in excess of one year for the
calendar years after December 31, 1999 are as follows:
<TABLE>
<CAPTION>
($000's) MINIMUM LEASE PAYMENTS
--------------------------------------------------------------------
<S> <C>
2000 $257
2001 226
2002 202
2003 155
2004 83
After 2004 --
--------------------------------------------------------------------
Total $923
</TABLE>
At December 31, 1999 and 1998, variable rate FFEL Program loans in the amounts
of $498.4 million and $506.7 million, respectively, have been committed, but not
disbursed.
In October 1999, Citigroup proposed to acquire by merger the 20% of the
Company's common stock not already owned by CNYS. Citigroup and the Special
Committee of the Company's independent directors, formed to evaluate the
proposal and negotiate the terms of an agreement to merge, subsequently
announced the termination of discussions regarding the proposal. See Note 16 for
further discussion.
Also, various legal proceedings arising out of the normal course of business are
pending against the Company. However, management presently believes that the
aggregate liability arising from these proceedings will not be material to the
Company's financial position or results of operations.
In recent years, amendments to the Act have significantly reduced the net
interest margin of the guaranteed student loan portfolio as new loans with lower
yields were added to the portfolio and older, more profitable loans were repaid.
Pressure on margins will continue as more loans are originated with lower
yields. In addition, the Act may be amended by Congress at any time, possibly
resulting in further reductions in FFEL Program loan subsidies in the form of
increased risk-sharing costs and reduced interest margins. Recent budget
proposals by the administration seek to reduce lender yield again; however,
their prospects for enactment are uncertain. Any such amendment or budget
proposal could adversely affect the Company's business and prospects.
16 SUBSEQUENT EVENTS
In October 1999, Citigroup proposed to acquire by merger the 20% of the
Company's common stock not already owned by CNYS. The Board of Directors of the
Company formed a Special Committee of its independent directors to evaluate
Citigroup's proposal and negotiate the terms of an agreement to merge. On
February 17, 2000, Citigroup and the Special Committee announced the termination
of discussions regarding the proposal.
30
<PAGE>
Following the public announcement of Citigroup's proposal, six putative class
action complaints were filed in Delaware Chancery Court against the Company and
its directors (as well as Citigroup and certain subsidiaries) in October 1999.
In November 1999, one of those six complaints was voluntarily dismissed without
prejudice. In December 1999, the Delaware Chancery Court consolidated the five
remaining complaints under the caption In re the Student Loan Corp. Shareholders
Litigation and, on February 3, 2000, plaintiffs filed a consolidated amended
complaint.
In the consolidated amended complaint, plaintiffs allege, among other things,
that because Citigroup holds a majority position in the Company there have been
no steps taken to ascertain the Company's true value and that defendants have
engaged in a series of self-dealing transactions artificially depressing the
Company's stock price. The relief plaintiffs seek includes enjoining Citigroup's
offer, or, if the proposed transaction is consummated, rescinding the
transaction and recovering unspecified monetary damages caused by defendants'
alleged breach of fiduciary duties.
On February 17, 2000, Citigroup and the Special Committee of the Company's
independent directors, formed to evaluate the proposal, publicly announced the
termination of discussions regarding the proposal. That same day, the Company
and several other defendants moved to dismiss the consolidated amended complaint
for failure to state a claim. That motion has not yet been ruled upon and the
action remains pending.
Also in February, three stockholders' derivative complaints, captioned Alan Kahn
v. Citigroup Inc., Kenneth Steiner v. Citigroup Inc., and Katherine F. Petty v.
Citigroup Inc., were filed in Delaware Chancery Court against the Company and
its directors (as well as Citigroup and certain subsidiaries). The complaints
allege, among other things, that defendants breached their fiduciary duties by
engaging in a series of self-dealing transactions that are unfair to the Company
and a waste of corporate assets. Plaintiffs assert that Citigroup will continue
to self-deal to benefit itself and further depress the price of the Company's
outstanding public stock so it can acquire the stock at a depressed price in the
future.
Each complaint seeks various forms of relief, including unspecified monetary
damages, rescission of certain contracts and transactions, and declaratory and
injunctive relief prohibiting Citigroup and its subsidiaries from engaging in
further self-dealing with the Company and requiring Citigroup and its
subsidiaries to conduct all future business with independent directors and
officers of the Company.
17 FUTURE IMPACTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 137, "Accounting for Derivative
Instruments and Hedging Activities, Deferral of the Effective Date of FASB
Statement No. 133". This statement delays the effective date of the
implementation of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," until January 1, 2001 for calendar year companies such as
the Company. SFAS No. 133, issued in June 1998, will significantly change the
accounting treatment of any derivatives contracts held. Depending on the
underlying risk management strategy, these accounting changes could affect
reported earnings, assets, liabilities, and stockholders' equity. As a result,
the Company will have to reconsider its risk management strategies, since the
new standard will not reflect the results of risk strategies in the same manner
as current accounting practice. The Company continues to evaluate the potential
impact of implementing the new accounting standard, which will depend, among
other things, on the possibility of additional amendments and interpretations of
the standard prior to the effective date.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by Bill Beckmann, Chief Executive Officer of The Student Loan
Corporation, thereunto duly authorized, on March 24, 2000.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report was signed on March 24, 2000 by Bill Beckmann, Chief Executive Officer;
and Yiannis Zographakis, Chief Financial and Principal Accounting Officer.
The Directors of The Student Loan Corporation listed below executed power of
attorneys appointing Bill Beckmann their attorney-in-fact, empowering him to
sign this report on their behalf:
Peter M. Gallant, Glenda Glover, Evelyn E. Handler, Carl E. Levinson, and Laura
D. Williamson.
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors of The Student Loan Corporations
We consent to incorporation by reference in the registration statement
No. 33-63698 on Form S-8 of The Student Loan Corporation of our report dated
January 18, 2000, except as to Note 16, which is as of February 17, 2000,
relating to the balance sheets of The Student Loan Corporation as of December
31, 1999 and 1998, and the related statements of income, stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1999, which report has been incorporated by reference in the December 31, 1999
annual report on Form 10-K of The Student Loan Corporation.
/s/ KPMG LLP
Rochester, New York
March 24, 2000
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial statements filed for The Student Loan Corporation:
Statements of Income for the years ended December 31, 1999, 1998 and 1997
Balance Sheets as of December 31, 1999 and 1998
Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997
Statements of Stockholders' Equity for the years ended December 31, 1999, 1998
and 1997
Notes to Financial Statements
On October 22, 1999, The Student Loan Corporation filed a current report on
Form 8-K, dared October 21, 1999, reporting under Item 5 that Citigroup Inc.
proposed to acquire by merger all of the outstanding shares of The Student
Loan Corporation not owned by CNYS. No other reports on Form 8-K were filed
during the fourth quarter of 1999.
The Student Loan Corporation's Restated Certificate of Incorporation, Bylaws
of the Company, as amended, and certain other material contracts have been
previously filed with the Securities and Exchange Commission as exhibits to
various registration statements and periodic reports.
Powers of Attorney of Directors Gallant, Glover, Handler, Levinson, and
Williamson as Directors of The Student Loan Corporation are filed herewith.
The following exhibits are filed herewith with the Securities and Exchange
Commission and are incorporated by reference:
. Financial Data Schedule
. Omnibus Credit Agreement Dated November 4, 1999
. Powers of Attorney of Directors
Stockholders may obtain copies of such documents by writing to The Student
Loan Corporation, Investor Relations, 750 Washington Boulevard, 9th Floor,
Stamford, CT 06901.
32
<PAGE>
10-K CROSS REFERENCE INDEX
This Annual Report and Form 10-K incorporate into a single document the
requirements of the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Part I
<S> <C> <C>
Item 1 Business 2, 9-13
Item 2 Properties 13
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders None
Part II
Item 5 Market for the Registrant's Common Equity and Related Stockholder 34
Matters
Item 6 Selected Financial Data 35
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 2-8
Item 7A Quantitative and Qualitative Disclosures About Market Risk 7
Item 8 Financial Statements and Supplementary Data 15-31
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure None
Part III
Item 10 Directors and Executive Officers of the Registrant *
Item 11 Executive Compensation *
Item 12 Security Ownership of Certain Beneficial Owners and Management *
Item 13 Certain Relationships and Related Transactions *
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 32
Signatures 32
</TABLE>
* The Student Loan Corporation's 2000 Proxy Statement is incorporated herein
by reference. Such incorporation by reference shall not include the
information referred to in Item 402(a)(8) of Regulation S-K.
DIRECTORS AND EXECUTIVE OFFICERS
Directors
Bill Beckmann
President and Chief Executive Officer
The Student Loan Corporation
Peter M. Gallant
Vice President and Treasurer
Citicorp Inc. and Citibank, N.A.
Dr. Glenda B. Glover
Dean of School of Business
Jackson State University
Dr. Evelyn E. Handler
Former Executive Director
California Academy of Science
Carl E. Levinson
Division Executive
Citigroup Consumer Assets Division
Laura D. Williamson
Vice President
Citibank, N.A.
Executive Officers
Bill Beckmann
President and Chief Executive Officer
John R. Coffin
Vice President and General Counsel
Sallyann Colonna
Vice President and Director of Marketing
Sue F. Roberts
Senior Vice President and Director of Sales
Yiannis Zographakis
Vice President and Chief Financial Officer
33
<PAGE>
STOCKHOLDERS INFORMATION
Investor Relations
Copies of the Corporation's Form 10-K, other financial information, and general
information about The Student Loan Corporation may be obtained by writing to
Investor Relations, The Student Loan Corporation, 750 Washington Boulevard,
Stamford, CT 06901, or by telephone request to Bradley D. Svalberg, Director of
Investor Relations, at 203-975-6292. Information is also available on the
Company's Web site at http://www.studentloan.com.
Customer Service
For information or inquiries regarding student loan accounts, please call
1-800-967-2400. Hearing impaired customers with a Telecommunications Device for
the Deaf (TDD) may call 1-800-846-1298.
Annual Meeting
The Annual Meeting of Stockholders will be held at 11:00 a.m. on Thursday, May
18, 2000 in Stamford, CT.
Transfer Agent and Registrar
The Company's transfer agent and registrar is Citibank, N.A., Issuer Services,
Box 4855, New York, NY 10043.
Market for the Registrant's Common Equity and Related Stockholder Matters
Since December 17, 1992, the Company's common stock has been listed and traded
on the New York Stock Exchange under the symbol STU. The number of holders of
record of the common stock at January 28, 2000 was approximately 40. The
following table sets forth the high, low and close sales prices for the common
stock during each fiscal quarter of 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $49 1/16 $44 1/2 $45 11/16 $50 3/8 $49 13/16 $51 1/16 $50 7/16 $48
Low 37 3/8 37 15/16 40 40 5/16 43 7/16 47 43 9/16 40
Close 37 3/8 44 1/2 40 15/16 49 7/8 47 13/16 47 1/16 44 7/8 44 7/8
</TABLE>
The Company paid a quarterly dividend of $0.15 per share on the common stock for
each quarter of 1998. Quarterly dividends of $0.30 per share and $0.45 per share
were paid for the first and second quarters of 1999, respectively, and $0.60 per
share was paid for each of the third and fourth quarters of 1999.
34
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years ended December 31
(Dollars in millions, except per share amounts) 1999 1998 1997 1996 1995
================================================================================================================================
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA
Net interest income $ 225.8 $ 192.3 $ 175.9 $ 175.2 $ 161.9
Total operating expenses, excluding restructuring reserve
adjustments/expenses and affiliate transition costs 72.8 69.4 68.1 61.9 57.6
Restructuring reserve (adjustments)/expenses
and transition costs (1.0) (3.8) 20.5 -- --
Total operating expenses 71.8 65.6 88.6 61.9 57.6
Net income $ 89.5 $ 73.4 $ 51.7 $ 64.9 $ 60.6
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS DATA (as of December 31)
Total assets $ 11,196.5 $ 8,903.1 $ 7,874.0 $ 7,118.3 $ 6,387.4
Short-term notes 7,212.1 3,908.0 4,321.6 3,084.3 2,509.5
Long-term notes 3,222.0 4,310.0 1,610.0 2,075.0 3,400.0
Payable to principal stockholder $ 11.6 $ 14.0 $ 17.1 $ 19.8 $ 29.1
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS DATA
Cash dividends declared per common share $ 1.95 $ 0.60 $ 0.54 $ 0.30 $ 0.24
Basic and diluted earnings per common share $ 4.47 $ 3.67 $ 2.58 $ 3.25 $ 3.03
Net interest margin 2.40% 2.37% 2.42% 2.68% 2.85%
Operating expenses as a percentage of average
insured student loans, excluding restructuring reserve
adjustments/expenses and transition costs 0.77% 0.86% 0.94% 0.95% 1.02%
Total operating expenses as a percentage of
average insured student loans 0.76% 0.81% 1.22% 0.95% 1.02%
- --------------------------------------------------------------------------------------------------------------------------------
OTHER
Average insured student loans $ 9,406.6 $ 8,111.6 $ 7,269.2 $ 6,547.5 $ 5,669.4
Average number of loan accounts serviced
(thousands) 2,355 2,105 1,888 1,706 1,497
Loan disbursements (1)(2)(3) $ 2,292 $ 2,008 $ 1,667 $ 1,564 $ 1,645
Book value per share (as of December 31) $ 25.76 $ 23.23 $ 20.16 $ 18.10 $ 15.15
Common stock price (4)
High $ 50 3/8 $ 51 1/16 $ 53 5/16 $ 41 1/4 $ 35 1/2
Low $ 37 3/8 $ 40 $ 35 3/4 $ 32 1/8 $ 18 3/8
Close $ 49 7/8 $ 44 7/8 $ 49 3/8 $ 37 1/4 $ 34
Total number of employees (as of December 31) 323 464 844 810 790
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For 1996 and 1995, disbursements included $53 million and $127 million,
respectively, of loan consolidations made under specific agreements with
the Department of Education and several of its contractors. These
consolidation agreements were phased-out in mid-1996.
(2) For 1999, 1998 and 1997, disbursements included $295 million, $245 million
and $125 million of loan consolidations made under FFEL Program
regulations.
(3) Amounts include new CitiAssist loan commitments of $292 million, $175
million, and $67 million in 1999, 1998 and 1997, respectively.
(4) Common stock price is based on The New York Stock Exchange composite
listing.
35
<PAGE>
EXHIBIT 10.9
OMNIBUS CREDIT AGREEMENT
Dated as of November 4, 1999
Part I.
This Omnibus Credit Agreement dated as of November 4, 1999 between Citibank (New
York State), a banking corporation organized under the laws of the State of New
York ("CNYS") (the "Lender") and The Student Loan Corporation, a corporation
organized under the laws of the State of Delaware ("STU") (the "Borrower").
Certain terms used within this agreement shall have such meaning as defined in
Section 3.
This Omnibus Credit Agreement is intended to represent the rights, obligations
and duties of the respective parties and to provide various credit facilities
including Tranche A (A Line of Credit Facility), Tranche B (A Multiple Term Note
Credit Facility), Tranche C (A Multiple Term Note Facility), and Tranche D (A
Fixed Rate Term Note Credit Facility). CNYS shall make available to STU credit
as hereinafter described in an aggregate amount of $15.0 Billion.
This Omnibus Credit Agreement does not supersede that certain agreement dated as
of March 1, 1997, as amended (the "March 1, 1997 Agreement") between CNYS and
STU which also provides certain credit facilities. Advances under the March 1,
1997 Agreement may continue to remain outstanding subject to the terms and
maturities of that agreement and the respective promissory notes or may be
refinanced without prepayment penalty by an advance under this Omnibus Credit
Agreement, provided however, that the aggregate credit facilities provided by
the March 1, 1997 Agreement and this Omnibus Credit Agreement shall not exceed
the maximum amount of $15.0 Billion.
2. General Provisions. Interest on all advances made under this Omnibus
Credit Agreement shall be calculated on the basis of the actual number of days
outstanding and upon a year of 360 days. All interest rates shall be rounded to
five (5) decimal places (i.e. the nearest hundred thousandth of one percent).
3. Definitions.
For purposes of definitions 3a and 3b below, references to pages in H.15 (519)
or the Telerate Screen shall be deemed to refer to any other page that may
replace the specified page for purposes of displaying the rate referred to, and
references to H.15 (519) shall be deemed to refer to any successor or
replacement publication.
a) "LIBOR" means with respect to any renewal, maturity date, repricing date
or value date (each a determination date) the arithmetic mean of the
offered rates for deposits of not less than US $1 Million for a term
corresponding to the respective repricing term for any advance as
displayed at Telerate page 3750 as of two (2) London Banking Days
<PAGE>
prior to any determination date for any advance issued pursuant to this
Agreement expressed as an annualized rate of interest. If for any reason
the LIBOR rate is not available at such time, the rate shall be the
corresponding LIBOR rate most recently available prior to the
determination date.
b) "Overnight Federal Funds Rate" means, with respect to any determination
date, the rate for Overnight Federal Funds as published on Telerate page
118 under the heading "Federal Funds (Effective)" expressed as an
annualized rate of interest. In the event that such rate is not so
published by 9:00 A.M., New York City time, on the determination date,
the Overnight Federal Funds Rate shall be the most recently available
rate prior to the determination date.
d. Involuntary Repayment Event means the earlier of the following events
or times:
1. The first day on which less than 50% of the voting equity interest of
STU are owned or controlled by CNYS or any subsidiary of Citicorp.
2. The day on which the primary banking regulator of CNYS determines,
due to a change in law, regulation or policy that the advances made
under the Agreement exceed the legal lending limit of CNYS or are
otherwise prohibited or subject to reduction by law, provided that
repayment shall be required only to the extent necessary such that
the lending limit or other legal requirement shall be no longer
exceeded.
3. The first day after default in the payment of any principal or
interest upon any advance when same becomes due and payable.
4. The first day after default in the performance, or breach, of any
covenant, representation, or warranty of the Borrower in this
Agreement or any Note issued pursuant to this Agreement, and
continuance of such default or breach for a period of thirty (30)
days after that has been given a written notice specifying such
default or breach and requiring it to be remedied.
5. The first day after the appointment under applicable Federal or state
law of a receiver, liquidator, assignee, trustee, conservator,
sequestrator Or other similar official of the Borrower or of any
substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of thirty (30) consecutive
days.
<PAGE>
6. December 31, 2002
Except to the extent limited by 3 d.2. above, all outstanding advances made
available under this Omnibus Credit Agreement, together with interest thereon
shall become due and payable upon any Involuntary Repayment Event. A prepayment
occasioned by an Involuntary Repayment Event shall not be subject to any
prepayment premium provided for in this Omnibus Credit Agreement. CNYS shall
give STU written notice and demand upon the occurrence of any Involuntary
Repayment Event other than 3 d.6.
4. CNYS may assign some or all of its rights or obligations hereunder to any
other affiliate of Citicorp, or may sell participation and other interests
therein to any other entity, whether or not affiliated with Citicorp; provided
that CNYS shall remain solely responsible to STU for the performance of its
obligations hereunder. STU may not assign any of its rights or obligations
hereunder without the express written consent of CNYS.
5. Advances under this Omnibus Credit Agreement shall be used solely by STU to
fund the business of STU, which shall be primarily to engage in student
education lending and related businesses.
6. This Omnibus Credit Agreement shall be governed by the laws of the
State of New York.
7. All notices to CNYS shall be addressed to Citibank (New York State), 99
Garnsey Road, Pittsford, NY 14534, Attention: Treasurer. All notices to STU
shall be addressed to The Student Loan Corporation, 750 Washington Blvd., 9th
Floor, Stamford, CT 06901, Attention: Director of Treasury.
Part II.
TRANCHE A
(A Line of Credit Facility)
8. CNYS agrees to lend to STU from time to time and for a term which shall not
exceed one year an amount up to a maximum of U.S. $500 million. The amounts made
available under this Line of Credit Facility may be advanced, repaid and
readvanced subject to the terms herein. Availability of advances under this Line
of Credit Facility shall be unconditional for a period of one year from the date
of this Omnibus Credit Agreement, subject to Paragraphs 9 and 10 below. The
Facility may be renewed for one year periods beginning on each anniversary date
of this Omnibus Credit Agreement, provided however, that STU shall give CNYS
written notice of intent to renew no less than 1 day prior to the anniversary
date. In no event shall this Line of Credit Facility or CNYS's obligation to
advance funds under it extend beyond December 27, 2002. There shall be no
commitment fee for this Line of Credit Facility.
<PAGE>
9. All advances under this Line of Credit Facility shall be represented by a
promissory note in the form of Exhibit A. Interest shall be due and payable each
business day and upon maturity. Interest shall be due at the Overnight Federal
Funds Rate.
10. CNYS reserves the right to terminate its obligation to make advances under
this Line of Credit Facility upon giving 120 days written notice to STU.
Advances outstanding under the Overnight Federal Funds Rate promissory note will
be immediately due upon effective date of such termination notice.
Part III
TRANCHE B
(A Multiple Term Note Credit Facility)
11. CNYS agrees to lend to STU from time to time amounts under this Multiple
Term Note Credit Facility up to the maximum amount of $15 Billion as set forth
in Paragraph 1 of this Agreement. Advances under this Multiple Term Note
Facility shall be repayable upon mutually agreed upon dates, but no later than
December 31, 2002 and shall be evidenced by one or more promissory notes
substantially in the form of Exhibit B. Interest shall be due and payable on the
respective repricing date and the maturity date (or the next business day if
such date is not a business day) of each such advance at a rate equal to the
corresponding LIBOR plus a spread (if any) as indicated in the note evidencing
the transaction.
12. STU shall have no right to prepay advances under this Multiple Term
Note Facility.
Part IV
Tranche C
(A Multiple Term Note Credit Facility)
13. CNYS agrees to lend to STU from time to time amounts under
this Multiple Term Note Credit Facility up to the maximum amount of $15 Billion
as set forth in Paragraph 1 of this Agreement. An initial advance of no less
than $3.0 Billion shall be made by CNYS and accepted by STU which shall have a
maturity date of December 31, 2002. Other advances under this Multiple Term Note
Facility shall be repayable upon mutually agreed upon dates, but no later than
December 31, 2002 and all advances under this Multiple Term Note Credit Facility
shall be evidenced by one or more promissory notes substantially in the form of
Exhibit C. Interest shall be due and payable on the respective repricing date
(each Thursday of each week or the next business day if
<PAGE>
Thursday is not a business day) and the maturity date (or the next business day
if such date is not a business day) of each such advance at an annualized
interest rate equal to the 7-Day LIBOR from the preceding Tuesday or, if Tuesday
is not a business day, the next prior business day.
14. STU shall have no right to prepay advances under this Multiple Term Note
Facility.
Part V.
Tranche D
(A Fixed Rate Credit Facility)
15. CNYS agrees to lend to STU from time to time amounts under this Fixed Rate
Credit Facility up to the maximum amount of $15 Billion as set forth in
Paragraph 1 of this Agreement. Advances under this Fixed Rate Credit Facility
shall be repayable upon mutually agreed upon dates, but no later than December
31, 2002 and shall be evidenced by one or more promissory notes substantially in
the form of Exhibit D. Interest shall be due and payable as indicated on the
promissory note and the maturity date (or the next business day if such date is
not a business day) of each such advance at a rate equal to the annualized
interest rate as indicated in the promissory note evidencing the transaction.
16. STU shall have no right to prepay advances under this Fixed Rate Credit
Facility.
Citibank (New York State)
by:______________________
Title:___________________
Dated:___________________
The Student Loan Corporation
by:_______________________
Title:____________________
Dated:____________________
<PAGE>
EXHIBIT A
PROMISSORY NOTE
(Line of Credit Facility)
(Overnight Federal Funds Rate Based)
FOR VALUE RECEIVED, the Student Loan Corporation (the "Borrower") promises to
pay Citibank (New York State) (the "Lender") the principal amount of up to
U.S.$500,000,000, or such lesser amount as may be outstanding from time to time,
(the "advance") on ___________________, _____ (the initial maturity date)
together with all accrued interest to date of payment. The Borrower may extend
the maturity of this Promissory Note for one year from the date of maturity and
any subsequent maturity date(s) upon notice to Lender, but in no event shall its
maturity extend beyond December 31, 2002. The Borrower may repay the advance in
part of in full without premium or penalty, and may reborrow any or all of the
maximum amount until maturity.
The borrower promises to pay interest on the amount of the advance at a rate
equal to the Overnight Federal Funds Rate. Interest shall accrue from the date
of the advance until such advance is paid in full. Interest shall be due and
payable on each business day and on the maturity date. In the event that such
interest payment date is not a business day, interest shall be paid on the next
following business day.
The Lender may demand payment in full of this promissory note at any time prior
to maturity by giving Borrower 120 days prior written notice of such demand for
payment.
This Promissory Note is issued pursuant to an Omnibus Credit Agreement dated as
of November 4, 1999 between the Lender and Borrower (the "Loan Agreement") and
is entitled to the benefits of and is subject to the terms contained in the Loan
Agreement as the same may be amended and modified from time to time. The
Overnight Federal Funds Rate shall have the meaning set forth in the Loan
Agreement. The provisions of the Loan Agreement are hereby incorporated in this
Promissory Note to the same extent as if set forth at length herein.
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be executed in
its behalf by its officer thereunto duly authorized as of the _____day of
_____________________, ______.
<PAGE>
THE STUDENT LOAN CORPORATION
BY:_________________________
NAME:_______________________
TITLE:______________________
<PAGE>
EXHIBIT B
PROMISSORY NOTE
(Multiple Term Note Facility)
FOR VALUE RECEIVED, The Student Loan Corporation (the "Borrower") promises to
pay Citibank (New York State) (the "Lender") the principal amount of
U.S.$______________________________________ (the "advance") on
____________________________________________ together with all accrued interest
to date of payment. Interest shall be due and payable on each repricing date and
on the maturity date. In the event that such interest payment date is not a
business day, interest shall be paid on the following business day.
The interest rate shall be established on this date (the Value date) and the
first day (each a repricing date) of each _____month period thereafter (each a
repricing term) until its maturity. Borrower promises to pay interest on the
principal amount of each advance from the date hereof on each reset date until
maturity at an interest rate per annum equal to the ______month LIBOR rate plus
. of 1%.
LIBOR shall have the meaning set forth in the Loan Agreement.
This Promissory Note is issued pursuant to an Omnibus Credit Agreement dated as
of November 4, 1999 between the Lender and Borrower (the "Loan Agreement") and
is entitled to the benefits of and is subject to the terms contained in the Loan
Agreement as the same may be amended and modified from time to time. The
provisions of the Loan Agreement are hereby incorporated in this promissory note
to the same extent as if set forth at length herein.
IN WITNESS WHEREOF, Borrower has caused this promissory note to be executed in
its behalf by its duly authorized officer as of the _____day of
_____________________, _____.
THE STUDENT LOAN CORPORATION
BY:_________________________
NAME:_______________________
TITLE:______________________
<PAGE>
EXHIBIT C
PROMISSORY NOTE
(Multiple Term Note Facility)
FOR VALUE RECEIVED, The Student Loan Corporation (the "Borrower") promises to
pay Citibank (New York State) (the "Lender") the principal amount of
U.S.$______________________________________ (the "advance") on
____________________________________________ together with all accrued interest
to date of payment. Interest shall be due and payable on each repricing date and
on the maturity date. In the event that such interest payment date is not a
business day, interest shall be paid on the following business day.
The interest rate shall be established on this date (the Value date) and the
first day (each a repricing date) of each _____month period thereafter (each a
repricing term) until its maturity. Borrower promises to pay interest on the
principal amount of each advance from the date hereof on each reset date until
maturity at an interest rate per annum equal to the Seven-Day LIBOR rate.
LIBOR shall have the meaning set forth in the Loan Agreement.
This Promissory Note is issued pursuant to an Omnibus Credit Agreement dated as
of November 4, 1999 between the Lender and Borrower (the "Loan Agreement") and
is entitled to the benefits of and is subject to the terms contained in the Loan
Agreement as the same may be amended and modified from time to time. The
provisions of the Loan Agreement are hereby incorporated in this promissory note
to the same extent as if set forth at length herein.
IN WITNESS WHEREOF, Borrower has caused this promissory note to be executed in
its behalf by its duly authorized officer as of the _____day of
_____________________, _____.
THE STUDENT LOAN CORPORATION
BY:_________________________
NAME:_______________________
TITLE:______________________
<PAGE>
EXHIBIT D
PROMISSORY NOTE
(A FIXED RATE CREDIT FACILITY)
FOR VALUE RECEIVED, The Student Loan Corporation (the "Borrower") promises to
pay to Citibank (New York State) (the "Lender") the principal amount of
US$____________________ (the "advance") on ______________________(the "maturity
date") together with all accrued interest to the date of payment. Interest shall
be due and payable in full at maturity. In the event that such payment date is
not a business day, payment shall be made on the next following business day.
The Borrower agrees to pay interest on the advance at a fixed rate equal to
__________% per annum. Interest shall be calculated on the basis of the actual
number of days outstanding and upon a year of 360 days. Interest shall accrue
from the date of the advance until such advance is paid in full.
The Borrower shall have no right to prepay the advance prior to maturity.
This Promissory Note is issued pursuant to an Omnibus Credit Agreement dated as
of November 4, 1999 as amended, between the Lender and Borrower (the "Loan
Agreement") and is entitled to the benefits of and is subject to the terms
contained in the Loan Agreement as the same may be amended and modified from
time to time. The provisions of the Loan Agreement are hereby incorporated in
this Promissory Note to the same extent as if set forth at length herein.
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be executed in
its behalf by its officer thereunto duly authorized as of the ______ day of
________________,_________.
THE STUDENT LOAN CORPORATION
BY: ____________________________
NAME: ____________________________
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The Student
Loan Corporation, a Delaware corporation, does hereby constitute and appoint
Bill Beckmann to be my true and lawful attorney-in-fact and agent, acting alone,
to sign, in the name and on behalf of the undersigned as a director of the
Company, an Annual Report on Form 10-K of the Company for the Company's fiscal
year ended December 31, 1999, and all amendments thereto as said attorney-in-
fact and agent deems advisable or necessary and to file, or cause to be filed,
the same with all exhibits thereto (including this power of attorney), and other
documents in connection therewith with the Securities and Exchange Commission,
provided that such Annual Report on Form 10-K in final form, and any amendment
or amendments thereto and such other documents, be approved by said attorney-in-
fact and agent; and the undersigned does hereby grant unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents as of this 18th
day of February, 2000.
/s/ Peter M. Gallant
- -------------------------
(Signature)
POWER OF ATTORNEY
Annual Report on Form 10-K
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The Student
Loan Corporation, a Delaware corporation, does hereby constitute and appoint
Bill Beckmann to be my true and lawful attorney-in-fact and agent, acting alone,
to sign, in the name and on behalf of the undersigned as a director of the
Company, an Annual Report on Form 10-K of the Company for the Company's fiscal
year ended December 31, 1999, and all amendments thereto as said attorney-in-
fact and agent deems advisable or necessary and to file, or cause to be filed,
the same with all exhibits thereto (including this power of attorney), and other
documents in connection therewith with the Securities and Exchange Commission,
provided that such Annual Report on Form 10-K in final form, and any amendment
or amendments thereto and such other documents, be approved by said attorney-in-
fact and agent; and the undersigned does hereby grant unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent may
lawfully do or cause to be done by virtue hereof.
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed these presents as of this 18th
day of February, 2000.
/s/ Glenda B. Glover
- -------------------------
(Signature)
POWER OF ATTORNEY
Annual Report on Form 10-K
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The Student
Loan Corporation, a Delaware corporation, does hereby constitute and appoint
Bill Beckmann to be my true and lawful attorney-in-fact and agent, acting alone,
to sign, in the name and on behalf of the undersigned as a director of the
Company, an Annual Report on Form 10-K of the Company for the Company's fiscal
year ended December 31, 1999, and all amendments thereto as said attorney-in-
fact and agent deems advisable or necessary and to file, or cause to be filed,
the same with all exhibits thereto (including this power of attorney), and other
documents in connection therewith with the Securities and Exchange Commission,
provided that such Annual Report on Form 10-K in final form, and any amendment
or amendments thereto and such other documents, be approved by said attorney-in-
fact and agent; and the undersigned does hereby grant unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents as of this 18th
day of February, 2000.
/s/ Evelyn E. Handler
- --------------------------
(Signature)
POWER OF ATTORNEY
Annual Report on Form 10-K
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The Student
Loan Corporation, a Delaware corporation, does hereby constitute and appoint
Bill Beckmann to be my true and lawful attorney-in-fact and agent, acting alone,
to sign, in the name and on behalf of the undersigned as a director of the
Company, an Annual Report on Form 10-K of the Company for the Company's fiscal
year ended December 31, 1999, and all amendments thereto as said attorney-in-
fact and agent deems advisable or necessary and to file, or cause to be filed,
<PAGE>
the same with all exhibits thereto (including this power of attorney), and other
documents in connection therewith with the Securities and Exchange Commission,
provided that such Annual Report on Form 10-K in final form, and any amendment
or amendments thereto and such other documents, be approved by said attorney-in-
fact and agent; and the undersigned does hereby grant unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents as of this 18th
day of February, 2000.
/s/ Carl E. Levinson
- -------------------------
(Signature)
POWER OF ATTORNEY
Annual Report on Form 10-K
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The Student
Loan Corporation, a Delaware corporation, does hereby constitute and appoint
Bill Beckmann to be my true and lawful attorney-in-fact and agent, acting alone,
to sign, in the name and on behalf of the undersigned as a director of the
Company, an Annual Report on Form 10-K of the Company for the Company's fiscal
year ended December 31, 1999, and all amendments thereto as said attorney-in-
fact and agent deems advisable or necessary and to file, or cause to be filed,
the same with all exhibits thereto (including this power of attorney), and other
documents in connection therewith with the Securities and Exchange Commission,
provided that such Annual Report on Form 10-K in final form, and any amendment
or amendments thereto and such other documents, be approved by said attorney-in-
fact and agent; and the undersigned does hereby grant unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in or about the premises, as fully and
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents as of this 18th
day of February, 2000.
/s/ Laura D. Williamson
- -------------------------
(Signature)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STUDENT
LOAN CORPORATION CURRENT REPORT ON FORM 10-K FOR THE TWELVE MONTH PERIOD ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 251
<SECURITIES> 0
<RECEIVABLES> 10,864,980
<ALLOWANCES> 3,768
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,194
<DEPRECIATION> 6,478
<TOTAL-ASSETS> 11,196,468
<CURRENT-LIABILITIES> 0
<BONDS> 3,222,000
0
0
<COMMON> 200
<OTHER-SE> 134,523
<TOTAL-LIABILITY-AND-EQUITY> 11,196,468
<SALES> 719,949
<TOTAL-REVENUES> 723,743
<CGS> 494,167
<TOTAL-COSTS> 494,167
<OTHER-EXPENSES> 71,763
<LOSS-PROVISION> 4,487
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 153,326
<INCOME-TAX> 63,868
<INCOME-CONTINUING> 89,458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,458
<EPS-BASIC> 4.47
<EPS-DILUTED> 4.47
</TABLE>
