SOURCE: The First Marblehead Corporation

August 09, 2007 16:05 ET

First Marblehead Announces Full Year and Fourth Quarter Fiscal 2007 Results: Net Income Up 57% and Earnings Per Share Up 60% for the Year

Loans Available for Securitization Increased by 39% in the Fourth Quarter of FY2007 Compared to the Same Time Period Last Year

BOSTON, MA--(Marketwire - August 9, 2007) - The First Marblehead Corporation (NYSE: FMD) today announced its financial and operating results for the fourth quarter of fiscal 2007 and for the fiscal year ended June 30, 2007.

Total revenues for the fiscal year ended June 30, 2007 were $881 million, up 55% from $569 million for the same period last year. Net income increased 57% for the fiscal year to $371 million, or $3.92 per diluted share.

"Fiscal 2007 was the strongest year in First Marblehead's history. Our focus on adding value to our clients has resulted in exceptional revenue, earnings, and EPS growth," said Jack L. Kopnisky, First Marblehead's President and Chief Executive Officer. "We processed a record 1.4 million loan applications resulting in $4.3 billion in student loans facilitated. Our business continues to grow as we remain focused on developing financial solutions to help students achieve their dreams."

For the fourth quarter of fiscal 2007, total revenues were $200 million, up 33% from $150 million for the same period last year. Operating income for the fourth quarter was $132 million, an increase of 31% over the same period last year. For the fourth quarter, net income was $78 million or $0.83 per diluted share.

The volume of loans facilitated during the fourth quarter of fiscal 2007 that are available for securitization increased 39% over the same period last year to $792 million. The rolling twelve-month volume of loans available for securitization increased 33% to $3.9 billion for the twelve months ended June 30, 2007.

First Marblehead will host a conference call today, August 9, 2007 at 5:00 p.m. EST 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 (800) 322-2803 in the United States or (617) 614-4925 from abroad (pass-code -- 62468507), or via simultaneous Internet broadcast on the Company's Web site 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 pass-code (52312128).

About The First Marblehead Corporation -- First Marblehead, a leader in creating solutions for education finance, provides outsourcing services for private, non-governmental education lending in the United States. 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 tailored to meet the needs of their respective customers, students, employees and members.

Statements in this press release, including the tables, regarding First Marblehead's future growth and 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 August 9, 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, 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 quarterly report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 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 Three Months and Fiscal Years Ended June 30, 2007 and 2006
                                (Unaudited)
                     (in thousands, except per share data)


                                    Three months ended  Fiscal years ended
                                         June 30,            June 30,
                                      2007      2006       2007      2006
                                    --------- --------  --------- ---------
Service revenues:
   Up-front structural advisory
    fees                            $  91,545 $ 53,551  $ 457,352 $ 208,178
   Additional structural advisory
    fees:
      From new securitizations          9,409   10,143     43,984    33,685
      Trust updates                       823     (162)     1,363     1,241
                                    --------- --------  --------- ---------
          Total additional
           structural advisory fees    10,232    9,981     45,347    34,926

   Residuals
      From new securitizations         43,303   51,660    182,744   177,309
      Trust updates                     9,613    2,643     29,548    28,239
                                    --------- --------  --------- ---------
          Total residuals              52,916   54,303    212,292   205,548

   Processing fees from TERI           35,884   28,294    134,845   106,072

   Administrative and other fees        6,496    2,703     21,497     8,848
                                    --------- --------  --------- ---------

      Total service revenues          197,073  148,832    871,333   563,572

   Net interest income                  2,757    1,230      9,371     5,463
                                    --------- --------  --------- ---------

      Total revenues                  199,830  150,062    880,704   569,035
                                    --------- --------  --------- ---------

Non-interest expenses:
   Compensation and benefits           26,470   23,205    111,364    89,214
   General and administrative
    expenses                           41,006   25,635    141,591    98,593
                                    --------- --------  --------- ---------
      Total non-interest expenses      67,476   48,840    252,955   187,807

Income from operations                132,354  101,222    627,749   381,228

   Other income                             3        -         16     2,526
                                    --------- --------  --------- ---------

      Income before income tax
       expense                        132,357  101,222    627,765   383,754

Income tax expense                     54,357   30,402    256,434   147,794
                                    --------- --------  --------- ---------

Net income                          $  78,000 $ 70,820  $ 371,331 $ 235,960
                                    ========= ========  ========= =========

      Net income per share, basic   $    0.83 $   0.75  $    3.94 $    2.47
      Net income per share, diluted      0.83     0.74       3.92      2.45
      Cash dividends declared per
       share                             0.25     0.08       0.62      0.32
      Weighted average shares
       outstanding, basic              93,770   94,448     94,296    95,366
      Weighted average shares
       outstanding, diluted            94,197   95,199     94,845    96,258



            The First Marblehead Corporation and Subsidiaries
                  Condensed Consolidated Balance Sheets
                  As of June 30, 2007 and June 30, 2006
                                 (Unaudited)
                      (in thousands, except share data)


                                                      June 30,    June 30,
                                                        2007        2006
                                                    ----------- -----------
Assets
   Cash, cash equivalents and investments           $   234,921 $   142,961
   Loans held for sale                                   37,052           -
   Service receivables:
        Structural advisory fees                        133,644      88,297
        Residuals                                       665,115     452,823
        Processing fees from TERI                        10,909      10,447
                                                    ----------- -----------
                Total service receivables               809,668     551,567
                                                    ----------- -----------

   Property and equipment, net                           41,911      36,743

   Goodwill                                               4,878       3,176
   Intangible assets, net                                 2,597       1,897
   Prepaid income taxes                                  49,345      11,649
   Other prepaid expenses                                26,904      17,272
   Other assets                                           7,187       5,081
                                                    ----------- -----------
                Total assets                        $ 1,214,463 $   770,346
                                                    =========== ===========

Liabilities and Stockholders' Equity
   Liabilities:
        Deposits                                    $    53,523 $         -
        Accounts payable and accrued expenses            59,044      34,430
        Net deferred income tax liability               247,748     144,240
        Notes payable and capital lease obligations       9,251      13,326
        Other liabilities                                 2,277       2,181
                                                    ----------- -----------
                Total liabilities                       371,843     194,177
                                                    ----------- -----------

   Commitments and contingencies

   Stockholders' equity                                 842,620     576,169
                                                    ----------- -----------
                Total liabilities and stockholders'
                 equity                             $ 1,214,463 $   770,346
                                                    =========== ===========

Note: There were 93,341,592 and 94,564,088 shares of common stock outstanding at June 30, 2007 and June 30, 2006, respectively. On November 10, 2006, the Board of Directors approved a three-for-two split of the Company's common stock which was effected in the form of a stock dividend distributed on December 4, 2006 to shareholders of record at the close of business on November 20, 2006. As such, all prior period share data have been retroactively adjusted to reflect the split.


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


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

Q4 Volume of Loans Available for
 Securitization
    Direct-to-Consumer Loans            $     703    $     473         49%
    School Channel Loans                       88           91         (3%)
                                        ---------    ---------
        Private Label Loans                   791          564         40%
        GATE Loans                              1            5        (80%)
                                        ---------    ---------
        Total Loan Facilitation
         Volume Available for
         Securitization                 $     792    $     569         39%
                                        =========    =========

Rolling Twelve Month Volume of Loans
 Available for Securitization
    Direct-to-Consumer Loans            $   2,973    $   2,071         44%
    School Channel Loans                      808          736         10%
                                        ---------    ---------
        Private Label Loans                 3,781        2,807         35%
        GATE Loans                             92          113        (19%)
                                        ---------    ---------
        Total Loan Facilitation Volume
         Available for Securitization   $   3,873    $   2,920         33%
                                        =========    =========


Q4 Volume of Loans Not Available for
 Securitization
    Direct-to-Consumer Loans            $       1    $       8        (88%)
    School Channel Loans                       46           45          2%
                                        ---------    ---------
        Total Loan Facilitation Volume
         Not Available for
         Securitization                 $      47    $      53       ( 11%)
                                        =========    =========

Rolling Twelve Month Volume of Loans
 Not Available for Securitization
    Direct-to-Consumer Loans            $      19    $      42        (55%)
    School Channel Loans                      400          401          0%
                                        ---------    ---------
        Total Loan Facilitation Volume
         Not Available for
         Securitization                 $     419    $     443         (5%)
                                        =========    =========


Percentage of Loans Available for
 Securitization
    Q4                                         94%          92%
    Rolling Twelve Month                       90%          87%


End-of period Principal Balance of
 Loans Available for Securitization
 but not yet Securitized
    Direct-to-Consumer Loans            $     401    $     249
    School Channel Loans                      429          411
                                        ---------    ---------
      Private Label Loans                     830          660
      GATE Loans                                2            4
                                        ---------    ---------
         Total Loan Principal Available
          for Securitization but        $     832    $     664         25%
          not yet securitized           =========    =========




           The First Marblehead Corporation and Subsidiaries
                         Income Statement Metrics

                          Private Label Loans (1)
         Approximate Securitization Yields by Marketing Channel



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

Q4 2007            $ 619   (81%)        12.6%         1.1%     5.9%   19.6%
Q4 2006            $ 490   (89%)         8.8%         1.5%     8.0%   18.3%


School Channel

Q4 2007            $ 148   (19%)         7.9%         1.1%     2.2%   11.2%
Q4 2006            $  62   (11%)         5.8%         1.2%     3.2%   10.2%


Blended Yield (3)

Q4 2007            $ 767                11.7%         1.1%     5.2%   18.0%
Q4 2006            $ 552                 8.4%         1.5%     7.5%   17.4%


(1)  Private label loans do not include GATE loans that were securitized
     in June 2007.

(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
Structural Advisory Fees Receivable           Ended           Year Ended
                                          June 30, 2007     June 30, 2007
                                          --------------    --------------

Beginning of period balance               $      123,412    $       88,297

Additions from new securitizations                 9,409            43,984

Trust updates:
   Passage of time (present value
    accretion)                                     2,090             7,503
   Increase in average prepayment rate
    assumption                                         -            (3,529)
   Other factors                                  (1,267)           (2,611)
                                          --------------    --------------
   Net accretion                                     823             1,363
                                          --------------    --------------

End of period balance                     $      133,644    $      133,644
                                          ==============    ==============


Residuals Receivable

Beginning of period balance               $      612,199    $      452,823

Additions from new securitizations                43,303           182,744

Trust updates:
   Passage of time (present value
    accretion)                                    18,059            66,428
   Increase in average prepayment rate
    assumption                                         -           (36,236)
   Decrease in discount rate assumptions               -            26,680
   Other factors                                  (8,446)          (27,324)
                                          --------------    --------------
   Net accretion                                   9,613            29,548
                                          --------------    --------------

End of period balance                     $      665,115    $      665,115
                                          ==============    ==============

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. To date, loans in the securitization trusts have experienced higher prepayment rates than we had estimated would occur. During the three months and fiscal year ended June 30, 2007, this reduced the positive net accretion that comes from updating the carrying value of our structural advisory fees and residuals receivables for the passage of time.

In light of prepayment rates and other factors, including the interest rate environment, we altered our assumption regarding the annual rate of student loan prepayments during the third quarter of fiscal 2007. The increase in our prepayment assumption from an average 7% to 8% resulted in decreases in the estimated fair value of our structural advisory fees and residuals receivables. These decreases were offset in part by a reduction in the discount rates we use to estimate the fair value of a portion of our residuals receivable. The weighted average discount rate was 11.59% as of June 30, 2007.

We continue to monitor the performance of trust assets against our expectations, and 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:

    At the Company

    Lee Jacobson
    Investor Relations
    617.638.2065

    Janice Walker
    Media Relations
    617.638.2047