CFSI Collegiate Funding Services (MM)

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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