Collegiate Funding Services (NASDAQ:CFSI)
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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.
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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.
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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/