For Immediate Release
Contact: Paul Colasono, CFO
Franklin Credit Management Corporation
(201) 604-4402
pcolasono@franklincredit.com
FRANKLIN CREDIT MANAGEMENT REPORTS FULL YEAR AND FOURTH QUARTER 2005 EARNINGS
NEW YORK, April 26, 2006 -- Franklin Credit Management Corporation (Nasdaq: FCMC
- - News), a specialty consumer finance company primarily engaged in the
acquisition, origination, servicing and resolution of performing, reperforming
and nonperforming residential mortgage loans, today announced its operating
results for the full year and fourth quarter of 2005. The Company also restated
its operating results for the third quarter of 2005, the fourth quarter of 2004,
and the full year 2004.
For the full year ended December 31, 2005, total revenues increased 57% to
$121.4 million, compared with $77.2 million in the year ended December 31, 2004.
Net income declined to $7.9 million, compared with $8.4 million in 2004. The
annualized after-tax return on average stockholders' equity approximated 21% for
the full year 2005.
For the three months ended December 31, 2005, total revenues increased 23% to
$33.3 million, compared with $27.0 million in the fourth quarter of 2004. Net
income declined to $1.5 million in the fourth quarter of 2005, compared with net
income of $2.7 million in the three months ended December 31, 2004. Earnings per
diluted share declined to $0.18 in the three months ended December 31, 2005,
compared with $0.40 in the year-earlier quarter.
Earnings per diluted share declined to $1.09 for the twelve months ended
December 31, 2005, compared with $1.25 per diluted share in the previous year.
The decreases in earnings per diluted share for the fourth quarter and full year
were in part due to an increase in the number of shares outstanding as a result
of a stock offering completed during the third quarter of 2005. Reflecting the
issuance of 1.3 million shares of common stock, total shares outstanding
increased 24% to approximately 7.5 million at December 31, 2005, from 6.1
million shares outstanding at December 31, 2004.
Total assets increased 15% during the fourth quarter, to $1.33 billion at
December 31, 2005, when compared with total assets of $1.16 billion as of
September 30, 2005. Total assets increased 50% during the year 2005, when
compared with total assets of $884 million on December 31, 2004. Stockholders'
equity totaled $47.6 million, or $6.31 per share, and the stockholders'
equity-to-assets ratio was 3.58% as of December 31, 2005, compared with 2.96% at
December 31, 2004. Stockholders' equity increased $21.4 million during the year
2005, for an increase of 82% when compared with stockholders' equity of $26.1
million at December 31, 2004, as a result of additional equity raised in the
third quarter of 2005 and the retention of earnings in 2005.
"We are pleased to report higher revenues for both the quarter and year ended
December 31, 2005, despite the challenges of rising short-term interest rates
and a flattening of the yield curve, which compressed our net interest income
and earnings throughout the year," commented Thomas Axon, Chairman, Chief
Executive Officer and President of Franklin Credit Management Corporation. "This
revenue growth was driven by substantially higher volumes of loan purchases and
non-prime residential mortgage loan originations during 2005."
"2005 was a year of substantial progress and growth for Franklin Credit," added
Mr. Axon, "despite an adverse interest rate environment and intense competition
in the loan acquisition market for non-prime mortgage product, as evidenced by
the following:
o We earned $7.9 million after taxes, representing the second most
profitable year in the Company's history;
o We acquired and originated a record aggregate of $933 million in mortgage
loans ($506 million in purchased loans and $427 million in originated
non-prime mortgage loans);
o We successfully completed a public stock offering, listed our shares on
the Nasdaq National Market, and raised $12.6 million in additional equity;
o We obtained more favorable rates on new borrowings; and
o We seamlessly moved our operations to a state-of-the-art office facility
in Jersey City, New Jersey."
Higher short-term interest rates - which have increased over 300 basis points
since May 2004 -- were a key factor in the net income decline during the fourth
quarter of 2005, when compared with the same quarter in 2004. While interest
income increased 32% in the 2005 fourth quarter, this improvement was more than
offset by a 69% increase in interest expense, when compared with the prior-year
period. As of December 31, 2005, the Company's weighted average cost of
borrowings had increased to 7.26%, from 5.71% at December 31, 2004. Also, the
Company sold fewer loans in the fourth quarter of 2005, both from its portfolio
and from loans held specifically for sale in the secondary market. As a result,
fewer gains on such sales were recorded in the fourth quarter of 2005 versus the
year-earlier quarter.
For the three months ended December 31, 2005, net income totaled $1.5 million,
compared with net income of $1.7 million in the third quarter of 2005. The
primary contributors to the sequential 2005 quarterly net income decline
included lower gains on sales of loans originated for sale in the secondary
market, the absence of loans sold from the Company's portfolio, and an increase
in the provision for loan losses. In addition, collection, general and
administrative expenses increased 5.3% in the fourth quarter in 2005, compared
with the third quarter in 2005, reflecting the Company's significant growth in
assets. Loan acquisition and non-prime mortgage origination volumes aggregating
$318 million in the fourth quarter of 2005, coupled with the benefit of new
lower-cost term debt effectively replacing higher-cost term debt, more than
offset the impact of continued increasing short-term interest rates on the
Company's interest-sensitive borrowings. As a result, the Company's net interest
income increased in the final quarter of 2005, the first increase in three
quarters, when compared with net interest income in the previous quarter.
"While our quarterly earnings in 2005 were impacted by a challenging interest
rate environment, we believe that opportunities to both acquire nonconforming
mortgage loans and originate sub-prime mortgage loans to the most difficult
borrowers will expand should the residential real estate market continue to
soften in coming quarters," noted Axon. "Franklin Credit's business model is
designed to manage non-prime and nonconforming loans more efficiently than
traditional real estate lenders, and we are positioned to take advantage of a
deteriorating housing and mortgage market."
The Company announced on January 17, 2006 that Thomas J. Axon, Chairman and
Co-Founder of Franklin, was appointed by the Board of Directors to the
additional positions of Chief Executive Officer and President effective January
13, 2006. Mr. Axon has served as Chairman of the Company's Board of Directors
since December 1994, and he was Chief Executive Officer and President from
December 1994 through June 2000. He also served as the Company's President and a
member of the Board of Directors from the Company's inception in 1990 until its
merger with Miramar Resources, Inc. ("Miramar") in December 1994. Mr. Axon
served as President of Miramar from October 1991 until the merger, and as a
member of Miramar's Board of Directors from its inception in 1988.
"I am happy to once again be taking an active role in the day-to-day management
of Franklin Credit," commented Mr. Axon. "We have a strong senior management
team that is well-positioned to move the Company forward during a challenging
and opportunistic housing and residential mortgage market. I am also pleased to
report that in the next several days we expect to announce the addition of a new
CEO to the Franklin senior management team."
As previously reported, the Company's prior period financial statements are
revised and restated, and the above financial discussion reflects the effects of
these revisions for the three months ended September 30, 2005, the full year
2004 and the three months ended December 31, 2004. The historical financial
statements have been restated to (i) correct the Company's accounting for fees
and costs directly related to successful investments in purchased pools of
residential mortgage loans in accordance with SFAS No. 91, Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases; (ii) adjust its accounting treatment for success
fees currently and potentially payable to its principal lender following
repayment of existing term debt in accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities; (iii) classify the restricted
portion of previously reported "Cash and cash equivalents" separately on the
balance sheet with related adjustments to the statements of cash flows in
accordance with SFAS No. 95, Statement of Cash Flows; (iv) reclassify deferred
origination costs for loans sold from "Collection, general and administrative"
expenses to "Gain on sale of originated loans held for sale"; and (v) reflect
certain other adjustments. Consequently, reliance should not be placed upon the
financial statements for the aforementioned fiscal periods that have been
included in the Company's previous filings with the Securities and Exchange
Commission or included in previous announcements. The restatements relating to
items (iii) and (iv) above had no impact on previously reported net income.
"Accounting and reporting revisions that comprised the restatement of the
Company's prior period financial statements do not impact our business
operations, cash flows, investment decisions or compliance with borrowing
agreements with our lenders," noted Paul Colasono, Chief Financial Officer at
the Company.
The following table summarizes the net impact on earnings for the periods
discussed above:
THREE MONTHS ENDED, THREE MONTHS ENDED,
SEPTEMBER 30, 2005 DECEMBER 31, 2004
Previously Previously
Reported Restated Reported Restated
Income before taxes $ 3,381,306 $ 3,036,467 $ 6,038,206 $ 4,878,313
Net income $ 1,842,800 $ 1,655,438 $ 3,314,210 $ 2,678,450
Net income/common
share:
Basic $ 0.26 $ 0.23 $ 0.53 $ 0.45
Diluted $ 0.24 $ 0.22 $ 0.48 $ 0.40
YEAR ENDED,
DECEMBER 31, 2004
Previously
Reported Restated
Income before taxes $ 17,406,310 $ 15,309,953
Net income $ 9,506,310 $ 8,366,608
Net income/common
share:
Basic $ 1.60 $ 1.41
Diluted $ 1.43 $ 1.25
SHAREHOLDERS AND OTHER INTERESTED PARTIES MAY PARTICIPATE IN FRANKLIN'S EARNINGS
CONFERENCE CALL TODAY, APRIL 26, 2006 AT 2:00 PM EDT BY DIALING 800-373-2605
(INTERNATIONAL/LOCAL PARTICIPANTS DIAL 973-935-2968), AND REFERENCING THE
CONFERENCE ID 7326661 A FEW MINUTES BEFORE 2:00 PM EDT. THE CALL WILL ALSO BE
BROADCAST LIVE ON THE INTERNET AT
HTTP://WWW.VIDEONEWSWIRE.COM/EVENT.ASP?ID=33596. A REPLAY OF THE CALL WILL BE
AVAILABLE THROUGH MAY 5, 2006 BY DIALING 877-519-4471 (INTERNATIONAL CALLERS
DIAL 973-341-3080), AND THE REPLAY ACCESS CODE IS 7326661. THE CALL WILL ALSO BE
ARCHIVED ON THE INTERNET THROUGH MAY 15, 2006 AT
HTTP://WWW.VIDEONEWSWIRE.COM/EVENT.ASP?ID=33596 AND ON THE COMPANY'S WEBSITE AT
WWW.FRANKLINCREDIT.COM.
About Franklin Credit Management Corporation
Franklin Credit Management Corporation ("Franklin") is a specialty consumer
finance company primarily engaged in two related lines of business -- the
acquisition, servicing and resolution of performing, reperforming and
nonperforming residential mortgage loans; and the origination of non-prime
mortgage loans for the Company's portfolio and for sale into the secondary
market. Franklin focuses on acquiring and originating loans secured by 1-4
family residential real estate that generally fall outside the underwriting
standards of Fannie Mae and Freddie Mac and involve elevated credit risk as a
result of the nature or absence of income documentation, limited credit
histories, higher levels of consumer debt or past credit difficulties. The
Company typically purchases loan portfolios at a discount to the unpaid
principal balance and originates loans with interest rates and fees calculated
to provide a rate of return adjusted to reflect the elevated credit risk
inherent in these types of loans. Franklin originates non-prime loans through
its wholly-owned subsidiary, Tribeca Lending Corp. and generally holds for
investment the loans acquired and a significant portion of the loans originated.
The Company's executive offices are headquartered in New York City and its new
administrative and operations office is located in Jersey City, New Jersey.
Additional information on the company is available on the Internet at our
website at www.franklincredit.com. Franklin's common stock is listed on the
NASDAQ National Market under the symbol "FCMC".
Statements contained herein that are not historical fact may be 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,
that are subject to a variety of risks and uncertainties. There are a number of
important factors that could cause actual results to differ materially from
those projected or suggested in forward-looking statements made by the Company.
These factors include, but are not limited to: (i) unanticipated changes in the
U.S. economy, including changes in business conditions such as interest rates,
and changes in the level of growth in the finance and housing markets; (ii) the
status of our relations with our sole lender and the lender's willingness to
extend additional credit to us; (iii) the availability for purchases of
additional loans; (iv) the availability of sub-prime borrowers for the
origination of additional loans; (vi) changes in the statutes or regulations
applicable to our business or in the interpretation and enforcement thereof by
the relevant authorities; (vii) the status of our regulatory compliance; and
(viii) other risks detailed from time to time in our SEC reports and filings.
Additional factors that would cause actual results to differ materially from
those projected or suggested in any forward-looking statements are contained in
the Company's filings with the Securities and Exchange Commission, including,
but not limited to, those factors discussed under the caption "Interest Rate
Risk" and "Real Estate Risk" in the Company's Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q, and "Risk Factors" contained in the Company's
S-1 filing, which the Company urges investors to consider. The Company
undertakes no obligation to publicly release the revisions to such
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrences of unanticipated events,
except as other wise required by securities, and other applicable laws. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date thereof. The Company undertakes no obligation to
release publicly the results on any events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
FRANKLIN CREDIT MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
2005 2004
--------------- ---------------
ASSETS
Cash and cash equivalents ............................................ $ 3,886,506 $ 5,127,732
Restricted cash ...................................................... 17,008,649 14,520,539
Short-term investments ............................................... 16,954,019 --
Notes Receivable:
Principal .......................................................... 934,657,413 811,885,856
Purchase discount .................................................. (17,809,940) (32,293,669)
Allowance for loan losses .......................................... (67,276,155) (89,628,299)
--------------- ---------------
Net notes receivable ............................................ 849,571,318 689,963,888
Originated loans held for sale ....................................... 12,844,882 16,851,041
Originated loans held for investment, net ............................ 372,315,935 110,496,274
Accrued interest receivable .......................................... 13,341,964 8,506,252
Other real estate owned .............................................. 19,936,274 20,626,156
Deferred financing costs, net ........................................ 10,008,473 7,600,942
Other receivables .................................................... 7,309,505 5,366,500
Building, furniture and equipment, net ............................... 4,029,481 1,290,442
Deferred tax asset ................................................... -- 44,720
Other assets ......................................................... 1,033,583 3,197,756
--------------- ---------------
Total assets ......................................................... $ 1,328,240,589 $ 883,592,242
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable, net of debt discount of $3,002,767 in 2005 and
$2,131,041 in 2004 ............................................... $ 1,203,880,994 805,586,997
Financing agreements ............................................... 57,284,085 39,540,205
Accounts payable and accrued expenses .............................. 12,971,954 8,294,573
Success fee liability .............................................. 5,721,918 4,024,634
Deferred tax liability ............................................. 787,470 --
--------------- ---------------
Total liabilities ............................................... 1,280,646,421 857,446,409
--------------- ---------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; authorized 3,000,000; issued - none -- --
Common stock and additional paid-in capital, $.01 par value,
22,000,000 authorized shares; issued and outstanding: 7,539,295
in 2005 and 6,062,295 in 2004 .................................... 21,292,252 8,514,401
Retained earnings .................................................. 26,599,207 18,730,432
Unearned compensation .............................................. (297,291) (1,099,000)
--------------- ---------------
Total stockholders' equity ...................................... 47,594,168 26,145,833
--------------- ---------------
Total liabilities and stockholders' equity ........................... $ 1,328,240,589 $ 883,592,242
=============== ===============
CONSOLIDATED STATEMENTS OF INCOME YEAR 2005 AND 2004
QUARTER ENDED (UNAUDITED)
FOR THE YEAR ENDED ------------------------------------------
DECEMBER 31, DECEMBER SEPTEMBER DECEMBER
--------------------------- 31, 30, 31,
2005 2004 2005 2005 2004
------------ ------------ ------------ ------------ ------------
REVENUES:
Interest income ...................... $ 99,046,543 $ 59,481,422 $ 27,627,833 $ 24,563,184 $ 20,862,689
Purchase discount earned ............. 11,214,721 9,234,896 2,948,606 3,146,839 3,195,894
Gain on sale of notes receivable ..... 1,310,887 1,701,113 -- 644,985 626,372
Gain on sale of originated loans
held for sale ..................... 1,276,566 1,444,037 140,427 229,906 191,483
Gain on sale of other real estate
owned ............................. 1,758,351 542,202 566,660 535,308 314,651
Prepayment penalties and other income 6,792,146 4,787,388 1,994,340 1,753,121 1,791,461
------------ ------------ ------------ ------------ ------------
Total revenues .................... 121,399,214 77,191,058 33,277,866 30,873,343 26,982,550
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
Interest expense ..................... 68,329,965 33,166,815 20,552,831 18,283,805 12,126,971
Collection, general and administrative 28,700,133 21,752,591 7,237,316 6,874,657 7,558,586
Provision for loan losses ............ 4,745,126 3,705,333 1,414,039 1,080,155 1,268,570
Amortization of deferred financing
costs ............................. 4,105,218 2,761,476 1,166,408 1,233,089 1,023,434
Depreciation ......................... 1,077,296 494,890 297,299 365,170 126,676
------------ ------------ ------------ ------------ ------------
Total expenses .................... 106,957,738 61,881,105 30,667,893 27,836,876 22,104,237
------------ ------------ ------------ ------------ ------------
Income before provision for income
taxes ............................. 14,441,476 15,309,953 2,609,973 3,036,467 4,878,313
Provision for income taxes ........... 6,572,701 6,943,345 1,141,583 1,381,029 2,199,863
------------ ------------ ------------ ------------ ------------
Net income ........................... $ 7,868,775 $ 8,366,608 $ 1,468,390 $ 1,655,438 $ 2,678,450
============ ============ ============ ============ ============
NET INCOME PER COMMON SHARE:
Basic ................................ $ 1.19 $ 1.41 $ 0.20 $ 0.23 $ 0.45
------------ ------------ ------------ ------------ ------------
Diluted .............................. $ 1.09 $ 1.25 $ 0.18 $ 0.22 $ 0.40
------------ ------------ ------------ ------------ ------------