CFSI Collegiate Funding Services (MM)

FREDERICKSBURG, Va., Feb. 9 /PRNewswire-FirstCall/ -- Collegiate Funding Services, Inc. (NASDAQ:CFSI) today reported that net income for the fourth quarter ended December 31, 2005, was $14.9 million, or 46 cents per diluted share, compared with net income of $17.7 million, or 55 cents per diluted share, for the fourth quarter ended December 31, 2004. (Logo: http://www.newscom.com/cgi-bin/prnh/20050714/DCTH039LOGO ) Full-year 2005 net income rose to $38.6 million, or $1.20 per diluted share, compared with net income of $28.6 million, or $1.05 per diluted share, for the full-year 2004. Fourth Quarter 2005 Results Net Income. Net income was $14.9 million, or 46 cents per diluted share, for the fourth quarter of 2005, compared with $17.7 million, or 55 cents per diluted share, for the same period of 2004. The decrease in net income reflects lower fee income due to rate reductions, as well as a net increase in operating expenses, which were partially offset by higher interest income. Loan Originations. Loan originations totaled $1.4 billion for fourth quarter 2005, compared with $1.5 billion originated in the same period of 2004. Of the total originations, federally guaranteed loans under the FFEL Program totaled $1.3 billion, compared with $1.4 billion in last year's fourth quarter, and private loan originations totaled $144.4 million for fourth quarter 2005, compared with $119.1 million in the same period of 2004. The company's portfolio of loans totaled $6.1 billion at December 31, 2005, compared with $4.7 billion at December 31, 2004. Loans Serviced. The total amount of student loans serviced was $11.0 billion at December 31, 2005, compared with $10.9 billion at December 31, 2004 and $12.1 billion at September 30, 2005. The December 31, 2005, amount reflects the termination of the servicing agreement with Educaid(R), Wachovia Education Finance, which resulted in the loss of $1.8 billion in volume in the fourth quarter of 2005. Net Revenue. Net revenue was $63.3 million for fourth quarter 2005, compared with $66.6 million in the same period of 2004. Interest income rose to $86.5 million from $44.7 million in last year's fourth quarter as a result of an increase in the company's portfolio of federally guaranteed and private loans and higher average interest rates. Interest expense increased to $67.0 million for fourth quarter 2005, compared with $27.8 million for the same period a year ago, primarily as a result of higher interest rates. Fee income was $41.9 million for fourth quarter 2005, compared with $50.4 million for the same period a year ago. The decline in fee income was primarily the result of reduced prices on loan sales. Fee income for the fourth quarter of 2005 includes the sale of approximately $250 million of federal consolidation loans to JPMorgan Chase, N.A., under a loan sale agreement that was signed in the third quarter of 2005. On December 16, 2005, the company's subsidiary, CFS-SunTech Servicing LLC, was awarded the Department of Education's Exceptional Performer designation. The designation is effective for the period from January 1, 2006 to December 31, 2006 and enables CFS-SunTech to receive 100 percent of the unpaid principal and interest on claims during that period, rather than the standard 98 percent; however, under the reauthorization of the Higher Education Act, the applicable percentages will be reduced to 99 percent and 97 percent, effective July 1, 2006. The company recorded a reversal of loan losses of $1.8 million in the fourth quarter of 2005, resulting from revisions to assumptions used to estimate the reserve and the impact of the Exceptional Performer designation. Operating Expenses. Operating expenses, which include salaries, marketing, and other selling, general and administrative expenses, were $39.1 million for fourth quarter 2005 compared with $37.6 million for the same period a year ago. The increase is due to higher marketing and other selling, general and administrative expense, partially offset by lower salaries and related expenses. Derivatives. The net effect of swap interest and derivative and investment mark-to-market valuations was income of $30,000 fourth quarter 2005, versus income of $452,000 for the same period a year ago. Full-Year 2005 Results Net income. Net income for 2005 rose to $38.6 million, or $1.20 per diluted share, compared with net income of $28.6 million, or $1.05 per diluted share, for 2004, reflecting a 14 percent increase in net revenue. This increase reflects higher net interest income and fee income for the full year 2005. Loan Originations. Loan originations totaled $4.8 billion for full-year 2005, compared with $4.4 billion originated in 2004. Federally guaranteed loans under the FFEL Program amounted to $4.2 billion, compared with $4.0 billion in 2004, and private loans amounted to $578.9 million for the full- year 2005, compared with $417.1 million for 2004. Net Revenue. Net revenue was $225.7 million for full-year 2005, compared with $198.4 million for 2004. Net revenue growth was driven by an increase in net interest income to $72.4 million for the full year 2005 from $62.9 million for the full year 2004 and an increase in fee income to $155.6 million for the full-year of 2005 from $136.4 million for 2004. Partnerships. At the end of 2005, the company had 1,271 school and affinity partnerships, a net increase of 223 since December 31, 2004. Operating Expenses. Operating expenses, which include salaries, marketing, and other selling, general and administrative expenses were $159.2 million for full-year 2005, compared with $145.0 million for 2004. Derivatives. The net effect of swap interest and derivative and investment mark-to-market valuations was income of $1.3 million for full-year 2005, versus income of $2.1 million for 2004. Debt Extinguishment. The 2005 period includes a charge of $4.3 million for debt extinguishment related to auction rate certificates that were replaced with a portion of the proceeds from an offering of floating-rate debt. Dividend Accretion. The 2005 period net income also reflected no charge for the accretion of dividends on preferred stock versus a $4.8 million charge for 2004. 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 December 31, 2005, Collegiate Funding Services had facilitated the origination of more than $23 billion in education loans and was servicing $11 billion in student loans for more than 432,000 borrowers. For additional information, visit http://www.cfsloans.com/ or call 1-888-423-7562. On December 15, 2005, the Collegiate Funding Services announced that it had entered into a definitive agreement, dated December 14, 2005, to be acquired by JPMorgan Chase Bank, National Association for $20.00 per share, in cash. A special meeting of the company's stockholders will be held on Tuesday, February 28, 2006, for the purpose of adopting the agreement and plan of merger. 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. These "forward-looking statements" may include, but are not limited to, information contained herein relating to the proposed merger and the contingencies and uncertainties of Collegiate Funding Services and to which Collegiate Funding Services may be subject, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "will," "should," "may," and other similar expressions. Such statements are made based upon management's current expectations and beliefs concerning future events and their potential effects on the company. Among the key factors that may have a direct bearing on the company's operating results, performance or financial condition are the failure to obtain shareholder or regulatory approval for the merger; adverse regulatory conditions imposed in connection with governmental approvals of the merger; changes in terms, regulations and laws affecting student loans and the educational credit marketplace; and changes in general economic conditions. 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 September 30, 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 twelve months ended months ended December 31, December 31, 2005 2004 2005 2004 (unaudited) Net revenue Interest income $ 86,545 $ 44,721 $ 278,881 $ 139,517 Interest expense 66,993 27,773 206,480 76,611 Net interest income 19,552 16,948 72,401 62,906 Provision for (reversal of) loan losses (1,846) 769 2,393 955 Net interest income after provision for loan losses 21,398 16,179 70,008 61,951 Fee income 41,922 50,376 155,649 136,435 Net revenue 63,320 66,555 225,657 198,386 Expenses Salaries and related benefits 15,472 16,390 67,147 63,966 Marketing and mailing costs 12,092 11,646 52,413 46,459 Other selling, general and administrative expenses 11,555 9,539 39,626 34,575 Total operating expenses 39,119 37,575 159,186 145,000 Swap interest (income) expense (933) (874) (2,660) 3,374 Derivative and investment mark-to-market (income) expense 903 422 1,409 (5,447) Debt extinguishment - - 4,329 - Total expenses 39,089 37,123 162,264 142,927 Income before income taxes and accretion of dividends on preferred stock 24,231 29,432 63,393 55,459 Income tax provision 9,367 11,702 24,795 22,016 Income before accretion of dividends 14,864 17,730 38,598 33,443 Accretion of dividends on preferred stock - - - 4,815 Net income $ 14,864 $ 17,730 $ 38,598 $ 28,628 Earnings per common share, basic $ 0.46 $ 0.58 $ 1.23 $ 1.13 Earnings per common share, diluted $ 0.46 $ 0.55 $ 1.20 $ 1.05 Weighted average common shares outstanding, basic 31,997,729 30,502,773 31,474,733 25,399,853 Weighted average common shares outstanding, diluted 32,281,475 32,351,370 32,251,677 27,254,317 Condensed Balance Sheets December 31, December 31, 2005 2004 Assets Cash and cash equivalents $ 26,180 $ 12,925 Restricted cash 83,253 80,128 Student loans, net of allowance of $5,813 and $4,961, respectively 6,094,676 4,659,842 Goodwill 194,728 188,729 Other assets 140,355 101,167 Total assets $ 6,539,192 $ 5,042,791 Liabilities and stockholders' equity Liabilities Asset-backed notes and lines of credit $ 6,216,044 $ 4,782,670 Other debt obligations, net 14,692 14,486 Other liabilities 75,168 53,923 Total liabilities 6,305,904 4,851,079 Stockholders' equity 233,288 191,712 Total liabilities and stockholders' equity $ 6,539,192 $ 5,042,791 Other Data For the three For the twelve months ended months ended December 31, December 31, 2005 2004 2005 2004 (unaudited) Loan originations: FFELP loans retained $ 803,774 $ 652,547 $2,150,156 $2,000,416 FFELP loans sold(1) 495,687 720,548 2,056,761 1,994,801 Total FFELP loans $1,299,461 $1,373,095 $4,206,917 $3,995,217 Private loans retained $ 34,949 $ - $ 88,192 $ - Private loans sold 109,414 119,126 490,735 417,091 Total private loans $ 144,363 $ 119,126 $ 578,927 $ 417,091 Total loan volume $1,443,824 $1,492,221 $4,785,844 $4,412,308 (1) Reflects the principal balance of loan application sales. Loan originations by status: In-school loans: Private education $ 134,646 $ 105,621 $ 529,475 $ 353,215 PLUS and Stafford 19,994 3,946 66,510 10,147 Total in-school loans $ 154,640 $ 109,567 $ 595,985 $ 363,362 Loans in repayment: Federal consolidations $1,279,467 $1,369,149 $4,140,407 $3,985,070 Private consolidations and other 9,717 13,505 49,452 63,876 Total loans in repayment $1,289,184 $1,382,654 $4,189,859 $4,048,946 Total loan volume $1,443,824 $1,492,221 $4,785,844 $4,412,308 Owned portfolio: Beginning balance $5,650,701 $4,079,242 $4,664,803 $2,860,564 Acquisitions, including capitalized interest, costs and deferred revenue 862,900 665,909 2,323,733 2,071,325 Repayments, claims and other (160,965) (79,216) (533,265) (263,279) Charge-offs to reserves (336) - (1,541) (130) Amortization of capitalized costs and deferred revenue (2,286) (1,132) (6,687) (3,677) Loan sales (249,525) - (346,554) - Ending balance $6,100,489 $4,664,803 $6,100,489 $4,664,803 Average student loans $5,891,316 $4,342,261 $5,397,528 $3,758,153 Average asset-backed notes and lines of credit 6,049,528 4,491,591 5,578,183 3,936,086 Student loans serviced (at end of period) 11,045,692 10,949,323 11,045,692 10,949,323 Fee income: Loan and loan application sales $ 36,696 $ 45,463 $ 137,191 $ 120,143 Servicing 3,647 3,276 13,206 12,895 Advertising 1,579 1,637 5,252 3,397 Total fee income $ 41,922 $ 50,376 $ 155,649 $ 136,435 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 December 31, 2005 2004 (unaudited) Dollars % Dollars % Student loan and restricted cash yield $ 104,757 6.88% $ 57,892 5.17% Borrower benefits (1,439) (0.09) (841) (0.08) Department of Education rebate(1) (15,250) (1.00) (11,535) (1.03) Amortization(2) (2,286) (0.15) (1,133) (0.10) Net student loan and restricted cash yield 85,782 5.64 44,383 3.96 Asset-backed notes and lines of credit (66,737) (4.39) (27,199) (2.43) Net portfolio margin 19,045 1.25 17,184 1.53 Floor income(3) (320) (0.02) (4,944) (0.45) Net portfolio margin net of floor income $ 18,725 1.23% $ 12,240 1.08% Reconciliation to net interest income: Net portfolio margin net of floor income $ 18,725 $ 12,240 Plus: interest income on cash and cash equivalents 763 338 Less: interest expense on other debt obligations, net (233) (542) Less: interest expense on capital lease obligations (23) (32) Plus: floor income(3) 320 4,944 Net interest income $ 19,552 $ 16,948 Average balance of student loans and restricted cash $6,033,258 $4,457,366 Twelve months ended December 31, 2005 2004 (unaudited) Dollars % Dollars % Student loan and restricted cash yield $ 345,168 6.22% $ 185,489 4.76% Borrower benefits (4,910) (0.09) (3,063) (0.08) Department of Education rebate(1) (56,465) (1.02) (40,014) (1.03) Amortization(2) (6,687) (0.12) (3,677) (0.09) Net student loan and restricted cash yield 277,106 4.99 138,735 3.56 Asset-backed notes and lines of credit (204,980) (3.69) (73,662) (1.89) Net portfolio margin 72,126 1.30 65,073 1.67 Floor income(3) (6,291) (0.11) (25,099) (0.65) Net portfolio margin net of floor income $ 65,835 1.19% $ 39,974 1.02% Reconciliation to net interest income: Net portfolio margin net of floor income $ 65,835 $ 39,974 Plus: interest income on cash and cash equivalents 1,775 782 Less: interest expense on other debt obligations, (1,397) (2,815) Less: interest expense on capital lease obligations (103) (134) Plus: floor income(3) 6,291 25,099 Net interest income $ 72,401 $ 62,906 Average balance of student loans and restricted cash $5,555,751 $3,898,366 (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, deferred revenue and purchase accounting adjustments, including the 0.50 percent fee payable to the Department of Education on the origination of FFELP loans. (3) Represents the amount by which fixed rate interest income exceeds the special payment allowance payment spread set by the Department of Education plus the applicable variable rate. The company previously reported this amount net of borrower benefits. 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 December 31, 2005 2004 (unaudited) Average Average Interest rate Interest rate Average income/ earned/ Average income/ earned/ balance expense paid balance expense paid (dollars in thousands) Interest-earning assets: Cash and cash equivalents $ 24,372 $ 763 12.42% $ 8,865 $ 338 15.17% Restricted cash 141,942 1,831 5.12 115,105 687 2.37 Student loans 5,891,316 102,926 6.93 4,342,261 57,205 5.24 Borrower benefits (1,439) (0.10) (841) (0.08) Department of Education rebate(1) (15,250) (1.03) (11,535) (1.06) Amortization(2) (2,286) (0.15) (1,133) (0.10) Student loans after Department of Education rebate and amortization 5,891,316 83,951 5.65 4,342,261 43,696 4.00 Total interest- earning assets $6,057,630 $86,545 5.67% $4,466,231 $44,721 3.98% Interest- bearing liabilities: Asset-backed notes and lines of credit $6,049,528 $66,737 4.38% $4,491,591 $27,199 2.41% Other debt obligations, net 14,666 233 6.30 20,809 542 10.36 Capital lease obligations 1,320 23 6.91 1,808 32 7.04 Total interest- bearing liabilities $6,065,514 $66,993 4.38 $4,514,208 $27,773 2.45 Net interest income and net interest margin $19,552 1.28%(3) $16,948 1.51%(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, deferred revenue 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. Twelve months ended December 31, 2005 2004 (unaudited) Average Average Interest rate Interest rate Average income/ earned/ Average income/ earned/ balance expense paid balance expense paid (dollars in thousands) Interest- earning assets: Cash and cash equivalents $ 20,585 $ 1,775 8.62% $ 11,302 $ 782 6.92% Restricted cash 158,223 5,714 3.61 140,213 1,847 1.32 Student loans 5,397,528 339,454 6.29 3,758,153 183,642 4.89 Borrower benefits (4,910) (0.09) (3,063) (0.09) Department of Education rebate(1) (56,465) (1.05) (40,014) (1.06) Amortization(2) (6,687) (0.12) (3,677) (0.10) Student loans after Department of Education rebate and amortization 5,397,528 271,392 5.03 3,758,153 136,888 3.64 Total interest- earning assets 5,576,336 278,881 5.00% $3,909,668 $139,517 3.57% Interest- bearing liabilities: Asset-backed notes and lines of credit $5,578,183 $204,980 3.67% $3,936,086 $ 73,662 1.87% Other debt obligations, net 14,589 1,397 9.58 38,605 2,815 7.29 Capital lease obligations 1,505 103 6.84 1,782 134 7.52 Total interest- bearing liabilities $5,594,277 $206,480 3.69 $3,976,473 $ 76,611 1.93 Net interest income and net interest margin $ 72,401 1.30%(3) $ 62,906 1.61%(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, deferred revenue 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. First Call Analyst: FCMN Contact: http://www.newscom.com/cgi-bin/prnh/20050714/DCTH039LOGO http://photoarchive.ap.org/ DATASOURCE: Collegiate Funding Services, Inc. CONTACT: Media: Ann Collier, Senior Vice President, Corporate Communications, +1-540-368-5970, , or Investors: Gary Tiedemann, Vice President, Investor Relations, +1-540-735-1235, , both of Collegiate Funding Services, Inc. Web site: http://www.cfsloans.com/

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