Here are the highlights from their 10-K, released on Friday:
Expects challenging business environment in 2010: "A dynamic
regulatory environment and ongoing uncertainty in the capital markets are
expected to make 2010 another challenging year."
On their ability to continue to originate FFEL loans in absence of ECASLA: As a result of the capital market dislocation experienced in
2008 and into 2009, these programs offered by ECASLA have been vital for lenders
of FFEL Program loans who want to continue to offer these products. If continued disruption is experienced in the markets and
these programs are not extended or similar programs are not made available,
student lenders, including the Company, may find it difficult to remain in this
segment of the industry."
Number of employees dropped by 30% in 2009 to 248 (from 355). Note: "These amounts do not include approximately 962 employees of Citibank (South Dakota), National Association primarily located in Sioux Falls and Kansas City, Missouri, who perform the majority of the loan originations and servicing work on the Company’s student loans under the provisions of an intercompany agreement."
- Company reported similar number of employees (960) for the origination and servicing functions in their 2008 10-K.
On STU's positioning within its parent company: The Company is part of a group of businesses within Citigroup, referred to as Citi Holdings. Citigroup intends to exit these businesses as quickly as practicable, yet possible in an economically rational manner through business divestitures, portfolio run-off and asset sales. The Company’s management is currently working with Citi Holdings to provide information necessary to support Citi Holdings’ efforts to explore possible disposition and combination alternatives with regard to its ownership in the Company.
- Quite a bit different from what they were saying a year ago: "The Company will be included within Citi Holdings. The Company does not currently expect this organizational realignment to adversely affect the Company's business or its operations, but there can be no assurance that future decisions with respect to the Company as a non-core business will have no impact on the Company or its relationships and transactions with CBNA or its affiliates."
Cost of funding under new credit agreement with Citi is higher: " ...cost of funding under this agreement is significantly higher than the borrowings that are expected to mature over the next twelve months. This will further compress the Company’s net interest margin."
- Cost of funding for private student loans is LIBOR + 450bp
Tightening forbearance policies will lead to higher losses: "In addition, in view of the current regulatory environment, the Company is likely to implement changes to the Company’s private education loan loss mitigation programs, including, among other things, that participation by borrowers in private education loan forbearance and loss mitigation programs be subject to more rigorous requirements, that shorter forbearance periods be granted and that minimum periods of payment performance be required between grants of forbearance. The Company expects that these changes, when implemented, will materially increase net credit losses attributable to private education loans."
Expect elevated delinquency trends to persist for at least next twelve months, with almost 20% of private loans in repayment less than a year being in forbearance (16.5%) or more than 30 days delinquent (2.5%): "Forbearance usage and delinquency rates generally increased between December 31, 2008 and December 31, 2009. The increase is primarily due to prevailing economic conditions, including the high unemployment rate. The table below shows the composition and status of the private education loan portfolio by number of months in repayment. The economic conditions are affecting new and established repayment borrowers. At December 31, 2009, approximately 19% of the loans that have been in repayment less than 12 months are either in forbearance or greater than 30 days delinquent, compared with 16% at December 31, 2008. A similar trend is also evident for loans that have been in repayment for 25 months or more, with the percentages at 8% and 6% at December 31, 2009 and December 31, 2008, respectively. The Company expects these trends to continue for at least the next twelve months and has increased its allowance for loan loss reserves accordingly."
Had also been offering an interest-only option as default prevention tool, used by 19% of borrowers, which they may need to modify: "Another default prevention tool offered to help private loan borrowers is an interest only payment plan. As of December 31, 2009, approximately $0.8 billion, or 19% of CitiAssist loans are using this repayment option. In view of the current regulatory environment, the Company is likely to implement changes to this requirement option currently available to private student loan borrowers."
Company continues to hold out hope that Dept. of Education will need to add additional servicers to manage DL business after July 1, 2010 [Citibank was not one of four servicers selected to service DL program]: "If H.R. 3221 is enacted without significant modification, the Company believes that the Department would be required to solicit additional proposals for servicing Federal Direct Lending Program loans after July 1, 2010."
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