SOURCE: The First Marblehead Corporation

October 25, 2007 16:05 ET

First Marblehead Announces First Quarter Fiscal 2008 Results: Net Income Up 20% and Loans Available for Securitization Increase 46% for the Quarter

Loans Available for Securitization and Loans Securitized Were Both Quarterly Records of $2.2 Billion and $2.0 Billion, Respectively, in the First Quarter of Fiscal 2008

BOSTON, MA--(Marketwire - October 25, 2007) - The First Marblehead Corporation (NYSE: FMD) today announced its financial and operating results for the first quarter of fiscal 2008, which ended on September 30, 2007.

Total revenues for the first quarter of fiscal 2008 were $380 million, up 25% from $303 million for the same period last year. Net income increased 20% for the first quarter of fiscal 2008 to $169 million, or $1.80 per diluted share, from $141 million for the same period last year.

"We are off to a great start to the fiscal year as a result of record volumes in the first quarter. This fiscal quarter's volume of private student loans facilitated and available for securitization exceeded all such volume for fiscal 2005," said Jack L. Kopnisky, First Marblehead's Chief Executive Officer and President. "Even in the midst of one of the most volatile credit cycles, we completed our largest securitization to date, providing market leadership and helping to increase the availability of private student loan financing."

Loans available for securitization during the first quarter of fiscal 2008 increased to $2.2 billion, up 46% over the same period last year. The rolling twelve-month volume of loans available for securitization increased to $4.6 billion, up 37% for the twelve months ended September 30, 2007.

"At a time when the cost of higher education continues to rise and demand for a college degree remains high, First Marblehead is pleased to provide its clients with private financial solutions as an alternative for borrowers once students have exhausted scholarships, grants, and lower cost federal loans," said Kopnisky.

First Marblehead will host a conference call today, October 25, 2007 at 5:00 p.m. EDT to discuss these results. Mr. Kopnisky, and John A. Hupalo, Senior Executive Vice President and Chief Financial Officer, will host the call. Investors and other interested parties are invited to listen to the conference call by dialing (866) 202-3109 in the United States or (617) 213-8844 from abroad (passcode - 67605490), or via webcast at www.firstmarblehead.com, under Investors.

A replay will be available on First Marblehead's Web site for 14 days. A telephone replay will also be available for 14 days by dialing (888) 286-8010 from the U.S., or (617) 801-6888 for international callers, and entering the passcode 71563972.

About The First Marblehead Corporation -- First Marblehead provides financial solutions that help students achieve their dreams. The Company helps meet the growing demand for private education loans by providing national and regional financial institutions and educational institutions, as well as businesses and other enterprises, with an integrated suite of design, implementation and securitization services for student loan programs. First Marblehead supports responsible lending for borrowers and is a strong proponent of the smart borrowing principle, which encourages students to access scholarships, grants and federally-guaranteed loans before considering private education loans. For more information, go to www.firstmarblehead.com.

Statements in this press release, including the tables, regarding First Marblehead's future growth, annual financial results, securitization yields and the future performance of securitization trusts, as well as any other statements that are not purely historical, constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon our historical performance, the historical performance of the securitization trusts and on our plans, estimates and expectations as of October 25, 2007. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future results, plans, estimates or expectations contemplated by us will be achieved. You are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, legislative, regulatory, competitive and other factors, which may cause our actual financial or operational results, facilitated loan volumes or securitization-related revenues to be materially different than those expressed or implied by forward-looking statements. Important factors that could cause or contribute to such differences include: our success in structuring securitizations; the size, structure and timing of the securitizations that we facilitate; the estimates we make and the assumptions on which we rely in preparing our financial statements, including our discount rate assumptions; any variance between the actual performance of securitization trusts and the key assumptions we have used to estimate the present value of additional structural advisory fees and residual revenues; our loan facilitation volumes; our relationships with key clients; and the other factors set forth under the caption "Item 1A. Risk Factors" in First Marblehead's annual report on Form 10-K filed with the Securities and Exchange Commission on August 28, 2007. Important factors that could cause or contribute to differences between the actual performance of the securitization trusts and our key assumptions include economic, regulatory, competitive and other factors affecting prepayment, default and recovery rates on the underlying securitized loan portfolio, including full or partial prepayments and prepayments as a result of loan consolidation activity; capital market receptivity to private student loan asset-backed securities; and interest rate trends. We disclaim any obligation to update any forward-looking statements as a result of developments occurring after the date of this press release.

              The First Marblehead Corporation and Subsidiaries
               Condensed Consolidated Statements of Operations
       For the First Fiscal Quarters Ended September 30, 2007 and 2006
                                (Unaudited)
                  (in thousands, except per share amounts)


                                                       Three months ended
                                                          September 30,
                                                        2007       2006
                                                      ---------  ----------
Service revenues:
   Up-front structural advisory fees                  $ 177,542  $  173,310
   Additional structural advisory fees:
      From new securitizations                           24,304      16,586
      Trust updates                                       2,859       1,965
                                                      ---------  ----------
         Total additional structural advisory fees       27,163      18,551

   Residuals
      From new securitizations                          116,972      56,755
      Trust updates                                     (14,108)     11,908
                                                      ---------  ----------
         Total residuals                                102,864      68,663

   Processing fees from TERI                             46,249      37,071

   Administrative and other fees                         21,761       4,226
                                                      ---------  ----------

      Total service revenues                            375,579     301,821

   Net interest income                                    4,383       1,124
                                                      ---------  ----------

      Total revenues                                    379,962     302,945
                                                      ---------  ----------

Non-interest expenses:
   Compensation and benefits                             32,003      31,608
   General and administrative expenses                   65,498      33,991
                                                      ---------  ----------
      Total non-interest expenses                        97,501      65,599

      Income before income tax expense                  282,461     237,346

Income tax expense                                      113,641      96,338
                                                      ---------  ----------

Net income                                            $ 168,820  $  141,008
                                                      =========  ==========

      Net income per share, basic                     $    1.81  $     1.50
      Net income per share, diluted                        1.80        1.49
      Cash dividends declared per share                   0.275        0.10
      Weighted average shares outstanding, basic         93,437      94,290
      Weighted average shares outstanding, diluted       93,796      94,950




              The First Marblehead Corporation and Subsidiaries
                    Condensed Consolidated Balance Sheets
                 As of September 30, 2007 and June 30, 2007
                                (Unaudited)
                          (amounts in thousands)



                                                September 30,
                                                    2007      June 30, 2007
                                                ------------- -------------
Assets
   Cash, cash equivalents and investments       $     380,293 $     234,921
   Loans held for sale                                200,911        37,052
   Service receivables:
     Structural advisory fees                         160,807       133,644
     Residuals                                        767,979       665,115
     Processing fees from TERI                         14,304        10,909
                                                ------------- -------------
        Total service receivables                     943,090       809,668
                                                ------------- -------------

   Property and equipment, net                         42,162        41,911

   Goodwill                                             4,878         4,878
   Intangible assets, net                               2,432         2,597
   Prepaid income taxes                                     -        49,345
   Other prepaid expenses                              25,541        26,904
   Other assets                                        14,553         7,187
                                                ------------- -------------
        Total assets                            $   1,613,860 $   1,214,463
                                                ============= =============

Liabilities and Stockholders' Equity
   Liabilities:
     Deposits                                   $     123,769 $      53,523
     Education loan warehouse facility                 94,000             -
     Accounts payable and accrued expenses             49,781        59,044
     Income taxes payable                              58,167             -
     Net deferred income tax liability                289,346       247,748
     Other liabilities                                 10,625        11,528
                                                ------------- -------------
        Total liabilities                             625,688       371,843
                                                ------------- -------------

   Commitments and contingencies

   Stockholders' equity                               988,172       842,620
                                                ------------- -------------
        Total liabilities and stockholders'
         equity                                 $   1,613,860 $   1,214,463
                                                ============= =============




            The First Marblehead Corporation and Subsidiaries
                        Loan Facilitation Metrics
                          (Dollars in Millions)

                                                                     %
                                         September    September   Increase
                                          30, 2007     30, 2006  (Decrease)
                                        -----------  -----------  -------

Q1 Volume of Loans Available for
 Securitization
   Direct-to-Consumer Loans             $     1,931  $     1,199       61%
   School Channel Loans                         270          289       (7%)
                                        -----------  -----------
         Private Label Loans                  2,201        1,488       48%
         GATE Loans                              27           34      (21%)
                                        -----------  -----------
         Total Loan Facilitation Volume
          Available for Securitization  $     2,228  $     1,522       46%
                                        ===========  ===========

Rolling Twelve Month Volume of Loans
 Available for Securitization
   Direct-to-Consumer Loans             $     3,705  $     2,454       51%
   School Channel Loans                         789          779        1%
                                        -----------  -----------
         Private Label Loans                  4,494        3,233       39%
         GATE Loans                              84          108      (22%)
                                        -----------  -----------
         Total Loan Facilitation Volume
          Available for Securitization  $     4,578  $     3,341       37%
                                        ===========  ===========


Q1 Volume of Loans Not Available for
 Securitization
   Direct-to-Consumer Loans             $         1  $         7      (86%)
   School Channel Loans                         173          147       18%
                                        -----------  -----------
         Total Loan Facilitation Volume
          Not Available for
          Securitization                $       174  $       154       13%
                                        ===========  ===========

Rolling Twelve Month Volume of Loans
 Not Available for Securitization
   Direct-to-Consumer Loans             $        12  $        39      (69%)
   School Channel Loans                         428          405        6%
                                        -----------  -----------
         Total Loan Facilitation Volume
          Not Available for
          Securitization                $       440  $       444       (1%)
                                        ===========  ===========


Percentage of Loans Available for
 Securitization
   Q1                                            93%          91%
   Rolling Twelve Months                         91%          88%


End-of period Principal Balance of
 Loans Available for Securitization
 but not yet Securitized
   Direct-to-Consumer Loans             $       747  $       490
   School Channel Loans                         327          299
                                        -----------  -----------
      Private Label Loans                     1,074          789
      GATE Loans                                 29           38
                                        -----------  -----------

         Total Loan Principal Available
          for Securitization but not yet
          securitized                   $     1,103  $       827       33%
                                        ===========  ===========




               The First Marblehead Corporation and Subsidiaries
                           Income Statement Metrics

                             Private Label Loans
            Approximate Securitization Yields by Marketing Channel



                                    Up-front   Additional
                   Volume of Loans  Structural Structural  Residual  Total
                   Securitized ($   Advisory   Advisory    Revenue  Revenue
                      millions)     Fees (2)   Fees (2)      (2)      (4)
 Direct-to-Consumer

    Q1 2008 (1)    $  1,640   (81%)       9.6%       1.2%      6.6%   17.3%
    Q1 2007        $    973   (70%)      14.7%       1.2%      5.1%   21.0%

 School Channel

    Q1 2008 (1)    $    387   (19%)       5.1%       1.2%      2.5%    8.8%
    Q1 2007        $    413   (30%)       7.3%       1.2%      1.7%   10.2%

 Blended Yield (3)

    Q1 2008 (1)    $  2,027               8.7%       1.2%      5.8%   15.7%
    Q1 2007        $  1,386              12.5%       1.2%      4.1%   17.8%


(1)  Includes total principal and accrued interest balance of loans
     securitized in separate transactions involving The National Collegiate
     Student Loan Trust ("NCSLT") 2007-3 and NCSLT 2007-4.

(2)  Revenues are expressed as a percentage of the total principal and
     accrued interest balance of private label loans securitized in each
     channel at the date of securitization.

(3)  Blended yield represents securitization revenues as a percentage of
     the total principal and accrued interest balance of loans securitized
     for all marketing channels at the date of securitization.

(4)  Due to rounding and the complex nature of these calculations, the
     total yield by marketing channel and securitization may not represent
     the sum of the individual yields by revenue source.

Note: These yields by marketing channel represent an allocation of revenues and costs based on various estimates and assumptions regarding the relative profitability of these loans, and should be read with caution. Furthermore, these yields are dependent on a number of factors, including the mix of loans between marketing channels that are included in a particular securitization, the average life of loans, which can be impacted by the relative mix of loans from students with various expected terms to graduation, the structure, and prevailing market conditions at the time of a securitization, the marketing fees which our clients earn on loans we securitize for them, along with a number of other factors. Therefore, readers are cautioned that the blended yields and yields by marketing channel above may not be indicative of yields that we may be able to achieve in future securitizations.

               The First Marblehead Corporation and Subsidiaries
                            Balance Sheet Metrics
    Roll-forward of Structural Advisory Fees and Residuals Receivables
                           (Dollars in Thousands)



                                              Three Months   Three Months
                                                  Ended          Ended
                                              September 30,  September 30,
                                                  2007           2006
                                              -------------  -------------
Structural Advisory Fees Receivable
Beginning of period balance                   $     133,644  $      88,297

Additions from new securitizations                   24,304         16,586

Trust updates:
   Passage of time (fair value accretion)             2,410          1,590
   Other factors                                        449            375
                                              -------------  -------------
   Net accretion                                      2,859          1,965
                                              -------------  -------------

End of period balance                         $     160,807  $     106,848
                                              =============  =============


Residuals Receivable

Beginning of period balance                   $     665,115  $     452,823

Additions from new securitizations                  116,972         56,755

Trust updates:
   Passage of time (fair value accretion)            19,903         13,709
   Increase in discount rate assumptions            (25,182)             -
   Other factors                                     (8,829)        (1,801)
                                              -------------  -------------
   Net accretion                                    (14,108)        11,908
                                              -------------  -------------

End of period balance                         $     767,979  $     521,486
                                              =============  =============

Note: Factors affecting the valuation of structural advisory fees and residuals receivables include changes, if any, to the assumptions we use in estimating the fair value of these receivables.

In light of recent developments in the asset-backed securities market, we applied a discount rate of 12% as of September 30, 2007 in estimating the fair value of our residuals receivable from securitization trusts that have not issued Triple-B rated securities. We continued to apply a discount rate of 13% in estimating the fair value of our residuals receivable from fiscal 2007 securitization trusts that have issued Triple-B rated securities. The weighted average discount rate for our entire securitized portfolio was 12.25% as of September 30, 2007, up from 11.59% as of June 30, 2007.

We continue to monitor the performance of trust assets against our expectations, as well as other inputs necessary to estimate the present value of our structural advisory fee and residuals receivables. We will make such additional adjustments to our estimates as we believe are necessary to value properly our receivables balances at each balance sheet date.

Contact Information

  • Contact:

    Lee Jacobson
    Investor Relations
    617.638.2065

    Janice Walker
    Media Relations
    617.638.2047