STAMFORD, Conn. -- The Student Loan Corporation (NYSE:STU) today reported net income of $46.1 million ($2.31 basic earnings per share) for the first quarter of 2006, a decrease of $20.0 million (30%), compared to net income of $66.1 million ($3.31 basic earnings per share) for the same period of 2005. The decrease in net income was primarily attributable to reduced floor income of $12.4 million (after tax) and the impact of the Deficit Reduction Act of $3.4 million (after tax) which reduced revenue by $1.9 million (after tax) and increased the provision for loan losses by $1.5 million (after tax). Net income was also reduced by an increase in operating expenses of $4.5 million (after tax) and by a higher effective tax rate compared to the prior year. The operating expense increase was primarily due to the $3.8 million (after tax) impact from the favorable settlement of certain state sales and use taxes in the first quarter of 2005 that did not reoccur in 2006. These impacts were partially offset by 13% growth in the average managed loan portfolio over the previous twelve months.

During the twelve month period ending March 31, 2006, the Company's managed loan assets grew by $3.3 billion (12%) to $31.5 billion. Combined Federal Family Education Loan Program (FFELP) Stafford and PLUS loan disbursements and new CitiAssist Loan commitments totaling $1,895 million for the first quarter of 2006 increased $166 million (10%) compared to the same period of 2005. FFELP Stafford and PLUS loan disbursements of $1,276 million increased $95 million (8%), and new CitiAssist Loan commitments of $619 million increased $71 million (13%), compared to the same period last year. In addition, secondary market and other loan procurement activities added approximately $993 million of loans to the Company's student loan portfolio during the first quarter of 2006, representing an increase of $112 million (13%), compared to the same quarter of 2005. Approximately 91% of the 2006 secondary market and other loan procurement volume was composed of FFELP Consolidation Loans. The Company's total revenue of $112.9 million for the first three months of 2006 was $14.7 million (11%) lower than total revenue of $127.5 million for the same period of 2005. Net interest income of $107.1 million for the first quarter of 2006 was $21.8 million (17%) lower than net interest income of $128.9 million for the same period of 2005. The decrease in net interest income was primarily attributable to an $18.3 million decrease in floor income for 2006. Floor income, as defined by management, is the amount of additional interest income generated when interest margin exceeds the minimum expected spreads. Floor income is described in greater detail in the Company's 2005 Form 10-K. In addition, net interest income was impacted by a $7.8 million net spread reduction in customer assets. The net interest margin for the first quarter of 2006 was 1.68%, a decrease of 35 basis points from 2.03% for the first quarter of 2005.

For the first quarter of 2006, gains on loan sales increased $6.7 million due to the sale of $214 million in assets. Fees and other income increased $6.0 million, primarily due to higher securitization related servicing fees.

Total operating expenses of $37.6 million for the first quarter of 2006 increased $9.6 million (34%) from the same period of 2005, primarily due to the impact from the favorable settlement of certain state sales and use taxes totaling $5.8 million in the first quarter of 2005, which did not reoccur in 2006. The remaining increase primarily reflects the incremental costs to originate, service and administer the larger managed loan portfolio. The Company's operating expense ratio (total operating expenses as a percentage of average managed student loans) for the first quarter of 2006 was 0.49%, eight basis points higher than the same quarter of 2005 primarily due to the tax settlement noted.

The Company's provision for loan losses for the first quarter of 2006 was $6.1 million, $5.5 million higher than the provision for the same period of 2005. Approximately $3.0 million of the increase was primarily attributable to an increase in the CitiAssist Loan portfolio in repayment. The remaining $2.5 million increase was attributable to the impact of the risk-sharing provisions of the recently enacted Deficit Reduction Act. The Deficit Reduction Act imposes a 1% risk-sharing deductible on FFELP default claims submitted after June 30, 2006 by loan servicers that have been designated as Exceptional Performers. (A 3% risk sharing deductible applies to loan servicers not so designated.) The Exceptional Performer designation is granted by the Department of Education in recognition of an exceptional level of performance in servicing federally guaranteed student loans. Currently, a recipient of this designation receives 100% reimbursement on all eligible FFELP claims as long as the recipient continues to meet eligibility standards. See the Company's 2005 Annual Report and Form 10-K for further information.