Collegiate Funding Services, Inc. Reports 219 Percent Increase in
Second Quarter Net Income Federally Guaranteed and Private Loan
Originations Rise FREDERICKSBURG, Va., July 28
/PRNewswire-FirstCall/ -- Collegiate Funding Services, Inc.
(NASDAQ:CFSI) today reported that net income for the second quarter
ended June 30, 2005, rose to $6.6 million, or 20 cents per diluted
share, compared with net income of $2.1 million, or 9 cents per
diluted share, for the second quarter of 2004. (Logo:
http://www.newscom.com/cgi-bin/prnh/20050714/DCTH039LOGO ) For the
six months ended June 30, 2005, net income rose to $14.5 million,
or 45 cents per diluted share, compared with net income of $3.3
million, or 14 cents per diluted share, for the six months ended
June 30, 2004. "Our strong results for the 2005 second quarter
reflected year-over-year growth in fee income as well as the
consumer demand for federally guaranteed consolidation loans. The
increase in consolidation loan demand was driven primarily by the
July 1 rate increase," said J. Barry Morrow, chief executive
officer and president of Collegiate Funding Services, Inc. "During
the quarter, we also completed several initiatives to continue our
diversification and growth, including beginning to market a private
loan product that we can retain on our balance sheet and entering
the international student loan market by acquiring International
Education Finance Corporation. Our suite of in- school products
performed nicely, increasing substantially over the same period
last year." Second Quarter Results Net income. The growth in net
income for the second quarter of 2005 reflects a significant
increase in net revenue, which was driven primarily by the higher
fee income. The major components of Collegiate Funding Services'
net revenue are net interest income generated by its growing
federally guaranteed student loan portfolio and fee income produced
by loan sales and servicing activities. Loan Originations. Loan
originations totaled $1.0 billion for the second quarter of 2005,
an increase of 46 percent versus the $703.8 million originated in
the same period of 2004. Of the total originations, federally
guaranteed loans under the FFEL Program amounted to $942.8 million,
up 45 percent from $650.1 million in last year's second quarter,
and private loan originations amounted to $84.3 million, up 57
percent from $53.7 million in the same period of 2004. In June, the
company began to retain private loans originated under the new
in-school private education program. The company's portfolio of
federally guaranteed loans totaled $5.4 billion at June 30, 2005,
up 16 percent from $4.7 billion at December 31, 2004. Loans
Serviced. The total amount of student loans serviced was $11.9
billion at the end of the 2005 second quarter, a 20 percent
increase from $9.9 billion a year earlier. Net Revenue. Net revenue
was $53.6 million in the second quarter of 2005, rising 41 percent
from $38.1 million in the same period of 2004. The primary
contributor to the net revenue growth was an 85 percent increase in
fee income to $38.7 million from $21.0 million in the same period a
year ago. Interest income rose to $63.8 million from $31.2 million
in last year's second quarter. An increase of $31.2 million in
interest expense, resulting from an average interest rate of 3.42
percent in the 2005 period versus 1.60 percent in the 2004 period,
partially offset this growth. Also during the second quarter of
2005, the company recorded a provision for loan losses of $2.2
million, which includes $1.4 million related to the recent
withdrawal of the "exceptional performer" designation that had been
awarded by the Department of Education in the second quarter of
2004. In the 2004 period, the company recorded a reversal of loan
loss provision of $1.5 million. "Fee income during the quarter
reflects our strong consolidation loan volume," said Morrow.
"Nevertheless, we are cautious in our outlook for fee income given
a potential fourth quarter shift in the mix of loan purchasers.
This shift could result in a lower margin in loan sales and a
change in our loan retention strategy." Operating Expenses.
Operating expenses, which include salaries, marketing, and other
selling, general and administrative expenses, increased 21 percent
to $42.2 million in the second quarter of 2005 from $35.0 million
for the same period last year. Expenses related to expanded
marketing activities in advance of the July 1 rate increase
accounted for nearly one- half of the increase. Also included in
operating expenses in the 2005 period is a $1.6 million reserve
related to the withdrawal of the "exceptional performer"
designation. Derivatives. The net effect of swap interest and
derivative and investment mark-to-market valuations was an expense
of $0.5 million in the 2005 second quarter, versus income of $3.9
million in the same period a year ago. Dividend Accretion. The 2005
net income reflected no charge for the accretion of dividends on
preferred stock versus a $2.2 million charge in 2004. The
year-over-year difference reflects the payment last year of the
liquidation preference of the preferred stock using proceeds of the
initial public offering in July 2004. Year-to-Date Results Net
income. The increase in net income for the first six months of 2005
reflects a significant increase in net revenue, which was driven
primarily by higher fee income. Loan Originations. Loan
originations totaled $2.1 billion for the first six months of 2005,
an increase of 19 percent versus the $1.7 billion originated in the
same period of 2004. Of the total, federally guaranteed loans under
the FFEL Program amounted to $1.9 billion, up 16 percent from $1.6
billion in the 2004 period, and private loans amounted to $166.3
million, up 67 percent from $99.7 million in the same period of
2004. Partnerships. At the end of the second quarter of 2005, the
company had 1,130 school and affinity partnerships, an increase of
82 since December 31, 2004. Net Revenue. Net revenue was $100.6
million in the first six months of 2005, rising 38 percent from
$72.8 million in the same period of 2004. Contributing to the net
revenue growth was a 62 percent increase in fee income to $69.4
million from $42.7 million in the same period a year ago. Operating
Expenses. Operating expenses, which include salaries, marketing,
and other selling, general and administrative expenses, increased
24 percent to $77.6 million in the first six months of 2005 from
$62.8 million for the same period last year. Expenses related to
Youth Media & Marketing Networks, which the company acquired in
April 2004, and increased marketing efforts accounted for much of
the increase. Derivatives. The net effect of swap interest and
derivative and investment mark-to-market valuations was income of
$0.9 million in the first six months of 2005, versus income of $2.5
million in the same period a year ago. Dividend Accretion. The 2005
period net income also reflected no charge for the accretion of
dividends on preferred stock versus a $4.3 million charge in 2004.
Conference Call Information Collegiate Funding Services will
conduct a conference call and webcast at 10:30 a.m. Eastern Time
today, to discuss these results. Investors may access the company's
webcast on the company's website at http://www.cfsloans.com/ by
clicking on "Investor Relations," or at http://www.earnings.com/.
Listeners should allow extra time before the webcast begins to
register for the webcast and download any necessary audio software.
The conference call also may be accessed by dialing 866-831-6243
(international callers dial 617-213-8855) and using the passcode
12458111. A replay of the webcast will be available approximately
two hours after the completion of the call and will be accessible
on the company's investor relations website. A telephone replay
will be available by dialing 888-286-8010 (international callers
dial 617-801-6888) and using the passcode 80019720. About
Collegiate Funding Services Collegiate Funding Services is a
leading education finance company dedicated to providing students
and their families with the practical advice and loan solutions
they need to help manage and pay for the cost of higher education.
Collegiate Funding Services also offers a comprehensive portfolio
of education loan products and services -- including loan
origination, loan servicing, and campus-based scholarship and
affinity marketing tools -- to the higher education community. As
of June 30, 2005, Collegiate Funding Services had facilitated the
origination of more than $20 billion in education loans; the
company currently manages almost $12 billion in student loans for
more than 460,000 borrowers. For additional information, visit
http://www.cfsloans.com/ or call 1-888-423-7562. Forward-Looking
Statements This news release includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. When used in this release, the words "looking forward,"
"expects," "plans," "intends," "believes," "forecasts," or future
or conditional verbs, such as "will," "should," "could" or "may,"
and variations of such words or similar expressions are intended to
identify forward-looking statements. Among the key factors that may
have a direct bearing on the company's operating results,
performance, or financial condition are (1) our ability to
successfully implement our private, in-school loan strategy; (2)
changes in terms, regulations, and laws affecting student loans and
the educational credit marketplace, (3) changes in the demand for
educational financing or in financing preferences of educational
institutions, students and their families; (4) changes in the
credit quality or performance of the loans that we purchase, retain
and securitize; or (5) changes in interest rates and in the
securitization or secondary markets for education loans. Important
factors that could cause the company's actual results to differ
materially from the forward-looking statements the company makes in
this release are set forth in the company's filings with the
Securities and Exchange Commission, including in the section
entitled "Risk Factors" in the company's Quarterly Report on Form
10-Q for the Quarter Ended March 31, 2005. The company undertakes
no obligation to update or revise forward-looking statements which
may be made to reflect events or circumstances that arise after the
date made or to reflect the occurrence of unanticipated events
unless the company has an obligation to do so under the federal
securities laws. COLLEGIATE FUNDING SERVICES, INC. (dollars in
thousands, except per share data) Condensed Statements of Income
For the three For the six months ended months ended June 30, June
30, 2005 2004 2005 2004 (unaudited) Net revenue Interest income
$63,808 $31,194 $117,882 $58,058 Interest expense 46,743 15,518
83,857 28,596 Net interest income 17,065 15,676 34,025 29,462
Provision for (reversal of) loan losses 2,205 (1,467) 2,788 (540)
Net interest income after provision for (reversal of) loan losses
14,860 17,143 31,237 30,002 Fee income 38,747 20,976 69,373 42,749
Net revenue 53,607 38,119 100,610 72,751 Expenses Salaries and
related benefits 17,269 16,172 33,280 30,153 Marketing and mailing
costs 14,126 10,887 24,686 17,312 Other selling, general and
administrative expenses 10,842 7,964 19,614 15,324 Total operating
expenses 42,237 35,023 77,580 62,789 Swap interest (income) expense
(290) 2,023 (1,411) 3,605 Derivative and investment mark-to-market
(income) expense 819 (5,888) 513 (6,114) Total expenses 42,766
31,158 76,682 60,280 Income before income taxes and accretion of
dividends on preferred stock 10,841 6,961 23,928 12,471 Income tax
provision 4,260 2,705 9,478 4,909 Income before accretion of
dividends 6,581 4,256 14,450 7,562 Accretion of dividends on
preferred stock - 2,192 - 4,308 Net income $6,581 $2,064 $14,450
$3,254 Earnings per common share, basic $0.21 $0.10 $0.47 $0.15
Earnings per common share, diluted $0.20 $0.09 $0.45 $0.14 Weighted
average common share outstanding, basic 31,346,523 21,071,523
30,998,054 21,071,523 Weighted average common share outstanding,
diluted 32,413,322 22,925,616 32,413,187 22,924,733 Condensed
Balance Sheets June 30, December 31, 2005 2004 (unaudited) Assets
Cash and cash equivalents $14,242 $12,925 Restricted cash 128,087
80,128 Student loans, net of allowance of $6,900 and $4,961,
respectively 5,412,749 4,659,842 Goodwill 192,260 188,729 Other
assets 118,814 101,167 Total assets $5,866,152 $5,042,791
Liabilities and stockholders' equity Liabilities Asset-backed notes
and lines of credit $5,586,741 $4,782,670 Other debt obligations,
net 14,589 14,486 Other liabilities 57,542 53,923 Total liabilities
5,658,872 4,851,079 Stockholders' equity 207,280 191,712 Total
liabilities and $5,866,152 $5,042,791 stockholders' equity Other
Data For the three months For the six months ended ended June 30,
June 30, 2005 2004 2005 2004 (unaudited) Loan originations: FFELP
loans retained $404,765 $328,517 $949,885 $930,126 FFELP loans sold
538,070 321,552 938,334 701,934 Total FFELP loans $942,835 $650,069
$1,888,219 $1,632,060 Private loans retained $1,372 $- $1,372 $-
Private loans sold 82,898 53,709 164,932 99,675 Total private loans
$84,270 $53,709 $166,304 $99,675 Total loan volume $1,027,105
$703,778 $2,054,523 $1,731,735 Loan originations by status:
In-school loans: Private education $69,726 $37,345 $135,570 $66,327
PLUS and Stafford 5,284 502 13,920 1,590 Total in-school loans
$75,010 $37,847 $149,490 $67,917 Loans in repayment: Federal
consolidations $937,552 $649,567 $1,874,299 $1,630,470 Private
consolidations and other 14,543 16,364 30,734 33,348 Total loans in
repayment $952,095 $665,931 $1,905,033 $1,663,818 Total loan volume
$1,027,105 $703,778 $2,054,523 $1,731,735 Average student loans
$5,258,139 $3,608,697 $5,061,140 $3,368,574 Average asset-backed
notes and lines of credit 5,471,068 3,845,178 5,255,826 3,562,787
Student loans serviced (at end of period) 11,861,678 9,885,908
11,861,678 9,885,908 Fee income: Fees on loan application sales
$34,232 $17,148 $60,286 $35,721 Fees for servicing 3,255 3,180
6,463 6,380 Advertising income 1,260 648 2,624 648 Total fee income
$38,747 $20,976 $69,373 $42,749 Net Portfolio Margin Analysis The
following table sets forth the net portfolio margin on average
student loans and restricted cash for the periods indicated. Net
portfolio margin is a non-GAAP financial measure. Net portfolio
margin equals the weighted average yield on our loans and
restricted cash after amortization of capitalized origination costs
and purchase accounting adjustments, less the weighted average
interest expense on the debt we incur to finance our loans. We have
provided below a reconciliation of net portfolio margin to the most
comparable financial measurement that has been prepared in
accordance with GAAP. We believe that net portfolio margin provides
investors with information that is useful in evaluating the
earnings performance of our loan portfolio. Three months ended June
30, 2005 2004 (unaudited) Dollars % Dollars % (dollars in
thousands) Student loan and restricted cash yield $78,875 5.81%
$41,591 4.40% Department of Education rebate(1) (13,827) (1.02)
(9,581) (1.01) Amortization(2) (1,586) (0.11) (936) (0.10) Net
student loan and restricted cash yield 63,462 4.68 31,074 3.29
Asset-backed notes and lines of credit (46,279) (3.41) (14,546)
(1.54) Net portfolio margin 17,183 1.27% 16,528 1.75 Floor income
(759) (0.06) (6,358) (0.67) Net portfolio margin net of floor
income $16,424 1.21% $10,170 1.08% Reconciliation to net interest
income: Net portfolio margin net of floor income $16,424 $10,170
Plus: interest income on cash and cash equivalents 346 120 Less:
interest expense on other debt obligations, net (437) (931) Less:
interest expense on capital lease obligations (27) (41) Plus: floor
income 759 6,358 Net interest income $17,065 $15,676 Average
balance of student loans and restricted cash $5,442,801 $3,802,536
Six months ended June 30, 2005 2004 (unaudited) Dollars % Dollars %
(dollars in thousands) Student loan and restricted cash yield
$146,855 5.66% $77,422 4.42% Department of Education rebate(1)
(26,731) (1.03) (18,068) (1.03) Amortization(2) (2,918) (0.11)
(1,601) (0.09) Net student loan and restricted cash yield 117,206
4.52 57,753 3.30 Asset-backed notes and lines of credit (82,928)
(3.20) (26,952) (1.54) Net portfolio margin 34,278 1.32% 30,801
1.76 Floor income (2,835) (0.11) (12,895) (0.74) Net portfolio
margin net of floor income $31,443 1.21% $17,906 1.02%
Reconciliation to net interest income: Net portfolio margin net of
floor income $31,443 $17,906 Plus: interest income on cash and cash
equivalents 676 305 Less: interest expense on other debt
obligations, net (873) (1,570) Less: interest expense on capital
lease obligations (56) (74) Plus: floor income 2,835 12,895 Net
interest income $34,025 $29,462 Average balance of student loans
and restricted cash $5,226,201 $3,522,548 (1) Reflects the 1.05
percent per annum rebate fee that is paid monthly on FFELP
consolidation loans divided by the average balance of student loans
and restricted cash. (2) Represents the amortization of capitalized
origination costs and purchase accounting adjustments, including
the 0.50 percent fee payable to the Department of Education on the
origination of FFELP loans. Net Interest Margin Analysis The
following tables set forth, for the periods indicated, information
regarding the total amounts and rates of interest income from
interest-earning assets and interest expense from interest-bearing
liabilities. Three months ended June 30, 2005 (unaudited) Average
Interest rate Average income/ earned/ balance expense paid (dollars
in thousands) Interest-earning assets: Cash and cash equivalents
$18,218 $346 7.62% Restricted cash 178,645 1,455 3.27 Student loans
5,264,156 77,420 5.90 Department of Education rebate(1) (13,827)
(1.05) Amortization(2) (1,586) (0.12) Student loans after
Department of Education rebate and amortization 5,264,156 62,007
4.73 Total interest-earning assets $5,461,019 $63,808 4.69%
Interest-bearing liabilities: Asset-backed notes and lines of
credit $5,471,068 $46,279 3.39% Other debt obligations, net 14,564
437 12.04 Capital lease obligations 1,568 27 6.91 Total
interest-bearing liabilities $5,487,200 $46,743 3.42 Net interest
income and net interest margin $17,065 1.26%(3) Three months ended
June 30, 2004 (unaudited) Average Interest rate Average income/
earned/ balance expense paid (dollars in thousands)
Interest-earning assets: Cash and cash equivalents $11,994 $120
4.02% Restricted cash 189,097 348 0.74 Student loans 3,613,439
41,243 4.59 Department of Education rebate(1) (9,581) (1.07)
Amortization(2) (936) (0.10) Student loans after Department of
Education rebate and amortization 3,613,439 30,726 3.42 Total
interest-earning assets $3,814,530 $31,194 3.29% Interest-bearing
liabilities: Asset-backed notes and lines of credit $3,845,178
$14,546 1.52% Other debt obligations, net 60,858 931 6.15 Capital
lease obligations 1,752 41 9.41 Total interest-bearing liabilities
$3,907,788 $15,518 1.60 Net interest income and net interest margin
$15,676 1.65%(3) (1) Reflects the 1.05 percent per annum rebate fee
that is paid monthly on FFELP consolidation loans divided by the
average balance of student loans. (2) Represents the amortization
of capitalized origination costs and purchase accounting
adjustments, including the 0.50 percent fee payable to the
Department of Education on the origination of FFELP loans. (3) Net
interest margin is net interest income divided by the average total
interest-earning assets. Six months ended June 30, 2005 (unaudited)
Average Interest rate Average income/ earned/ balance expense paid
(dollars in thousands) Interest-earning assets: Cash and cash
equivalents $18,848 $676 7.23% Restricted cash 159,452 2,360 2.98
Student loans 5,066,749 144,495 5.75 Department of Education
rebate(1) (26,731) (1.06) Amortization(2) (2,918) (0.12) Student
loans after Department of Education rebate and amortization
5,066,749 114,846 4.57 Total interest-earning assets $5,245,049
$117,882 4.53% Interest-bearing liabilities: Asset-backed notes and
lines of credit $5,255,826 $82,928 3.18% Other debt obligations,
net 14,538 873 12.11 Capital lease obligations 1,629 56 6.93 Total
interest-bearing liabilities $5,271,993 $83,857 3.21 Net interest
income and net interest margin $34,025 1.31%(3) Six months ended
June 30, 2004 (unaudited) Average Interest rate Average income/
earned/ balance expense paid (dollars in thousands)
Interest-earning assets: Cash and cash equivalents $13,158 $305
4.65% Restricted cash 149,358 574 0.77 Student loans 3,373,190
76,848 4.57 Department of Education rebate(1) (18,068) (1.07)
Amortization(2) (1,601) (0.10) Student loans after Department of
Education rebate and amortization 3,373,190 57,179 3.40 Total
interest-earning assets $3,535,706 $58,058 3.29% Interest-bearing
liabilities: Asset-backed notes and lines of credit $3,562,787
$26,952 1.52% Other debt obligations, net 52,147 1,570 6.04 Capital
lease obligations 1,809 74 8.20 Total interest-bearing liabilities
$3,616,743 $28,596 1.59 Net interest income and net interest margin
$29,462 1.67%(3) (1) Reflects the 1.05 percent per annum rebate fee
that is paid monthly on FFELP consolidation loans divided by the
average balance of student loans. (2) Represents the amortization
of capitalized origination costs and purchase accounting
adjustments, including the 0.50 percent fee payable to the
Department of Education on the origination of FFELP loans. (3) Net
interest margin is net interest income divided by the average total
interest-earning assets.
http://www.newscom.com/cgi-bin/prnh/20050714/DCTH039LOGO
http://photoarchive.ap.org/ DATASOURCE: Collegiate Funding
Services, Inc. CONTACT: Investors: Edward Nebb of Euro RSCG Magnet,
+1-212-367-6848, , for Collegiate Funding Services, Inc.; or Media:
Ann Collier of Collegiate Funding Services, Inc., +1-800-762-6441,
ext. 5259, Web site: http://www.cfsloans.com/
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