SOURCE: The First Marblehead Corporation

January 25, 2007 16:51 ET

First Marblehead Announces Second Quarter Fiscal 2007 Results

Net Income Through First Two Quarters up 110% Over Same Period Last Year

BOSTON, MA -- (MARKET WIRE) -- January 25, 2007 -- The First Marblehead Corporation (NYSE: FMD) today announced its financial and operating results for the second quarter of fiscal 2007 and for the six-month period ended December 31, 2006.

Total revenues for the six months ended December 31, 2006 were $500.7 million, up 87% from $268.4 million for the same period last year. Net income for the six month period was $222.2 million, or $2.34 per diluted share, an increase of 110% in net income, and 115% in diluted earnings per share, over the same period last year. For the second quarter of fiscal 2007, total revenues were $197.8 million and net income was $81.2 million, or $0.85 per diluted share. Quarter to quarter comparisons may be less informative during this period given the Company's transition to a quarterly securitization cycle.

First Marblehead facilitated two securitization transactions during the six months ended December 31, 2006, completing a securitization of $1.4 billion of private student loans in the first quarter of fiscal 2007 and a securitization of $724 million of private student loans in the second quarter of fiscal 2007. These transactions generated aggregate service revenues of $392.4 million, including $261.9 million of up-front structural advisory fees. In contrast, the Company facilitated one securitization of $1.3 billion of private student loans during the six months ended December 31, 2005. This transaction, which closed in the second quarter of fiscal 2006, generated service revenues of $188.6 million, including $95.7 million of up-front structural advisory fees.

The volume of loans facilitated during the second quarter of fiscal 2007 that are available for securitization increased 26% to $687 million over the same period last year. The rolling twelve month volume of loans available for securitization increased 39% to $3.5 billion for the twelve months ended December 31, 2006 over the same period a year ago.

During the quarter the Company completed its acquisition of Union Federal Savings Bank. Union Federal is a federally chartered thrift with 13 employees and total assets of $41 million located in North Providence, Rhode Island.

"The Company had an excellent quarter and first six months of fiscal 2007," said Jack L. Kopnisky, First Marblehead's President and Chief Executive Officer. "Our facilitated loan volume remained strong, we added meaningful new clients, and we executed against our plan to complete quarterly securitizations. We remain focused on providing an excellent experience for our clients and value to our shareholders."

First Marblehead will host a conference call today, Thursday, January 25, 2007 at 5:00 p.m. EST, which will be simultaneously broadcast live over the Internet. Jack L. Kopnisky, President and Chief Executive Officer, and John A. Hupalo, Senior Executive Vice President and Chief Financial Officer, will host the call. To access the webcast, please log on to: www.firstmarblehead.com.

A replay will be available on First Marblehead's website 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 99071910.

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, securitization yields, market position, 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 January 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, regulatory, competitive and other factors, which may cause our actual financial results, facilitated loan volumes and 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 November 8, 2006. 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, 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 and Six Months Ended December 31, 2006 and 2005
                          (Unaudited)
          (in thousands, except per share data)


                           Three months ended         Six months ended
                              December 31,              December 31,
                            2006         2005         2006         2005
Service revenues:
  Up-front structural
   advisory fees        $     88,618 $     96,170 $    261,928 $     96,170
  Additional structural
   advisory fees:
    From new
     securitizations           8,861       14,778       25,447       14,778
    Trust updates                928        1,241        2,893        1,440
                        ------------ ------------ ------------ ------------
        Total
         additional
         structural
         advisory fees         9,789       16,019       28,340       16,218

  Residuals:
    From new
     securitizations          48,315       78,216      105,070       78,216
    Trust updates             13,865       12,491       25,773       19,973
                        ------------ ------------ ------------ ------------
        Total residual
         revenues             62,180       90,707      130,843       98,189

  Processing fees from
   TERI                       29,608       25,268       66,679       51,196
  Administrative and
   other fees                  4,727        2,331        8,953        3,793
                        ------------ ------------ ------------ ------------
    Total service
     revenues                194,922      230,495      496,743      265,566

  Net interest income          2,844        1,635        3,968        2,864
                        ------------ ------------ ------------ ------------

    Total revenues           197,766      232,130      500,711      268,430
                        ------------ ------------ ------------ ------------

 Non-interest expenses:
  Compensation and
   benefits
                              25,895       21,160       57,503       40,902
  General and
   administrative
   expenses                   33,088       22,891       67,079       48,816
                        ------------ ------------ ------------ ------------
    Total non-interest
     expenses                 58,983       44,051      124,582       89,718
                        ------------ ------------ ------------ ------------
Income from operations       138,783      188,079      376,129      178,712

  Other income                   ---        2,501          ---        2,501
                        ------------ ------------ ------------ ------------

    Income before
     income tax expense      138,783      190,580      376,129      181,213

Income tax expense            57,632       79,219      153,970       75,294
                        ------------ ------------ ------------ ------------

Net income              $     81,151 $    111,361 $    222,159 $    105,919
                        ============ ============ ============ ============

   Net income per
    share, basic        $       0.86 $       1.17 $       2.35 $       1.10

   Net income per
     share, diluted             0.85         1.16         2.34         1.09

   Cash dividends
    declared per share          0.12         0.08         0.22         0.16

   Weighted average
    shares
    outstanding, basic        94,496       95,324       94,393       96,348
   Weighted average
    shares
    outstanding,
    diluted                   95,069       96,266       95,020       97,343



                The First Marblehead Corporation and Subsidiaries
                     Condensed Consolidated Balance Sheets
                   As of December 31, 2006 and June 30, 2006
                                 (Unaudited)
                      (in thousands, except share data)

                                               December 31,     June 30,
                                                   2006           2006
                                            --------------- ---------------
Assets
     Cash, cash equivalents and
      investments                           $       256,617 $       142,961
     Loans held for sale                             14,929               -
     Service receivables:
       Structural advisory fees                     116,637          88,297
       Residuals                                    583,666         452,823
       Processing fees from TERI                     11,247          10,447

                                            --------------- ---------------
         Total service receivables                  711,550         551,567
                                            --------------- ---------------

     Property and equipment, net                     37,049          36,743

     Goodwill                                         4,878           3,176
     Intangible assets, net                           2,966           1,897
     Prepaid income taxes                                --          11,649
     Other prepaid expenses                          14,148          17,272
     Other assets                                     4,898           5,081
                                            --------------- ---------------
         Total assets                       $     1,047,035 $       770,346
                                            =============== ===============


Liabilities and Stockholders’ Equity
  Liabilities:
    Deposits                                $        36,511 $             -
    Accounts payable and other accrued
     expenses                                        37,135          34,430
    Income taxes payable                              5,446               -
    Net deferred income tax liability               179,744         144,240
    Notes payable and capital lease
     obligations                                     11,082          13,326
    Other liabilities                                 2,309           2,181
                                            --------------- ---------------
         Total liabilities                          272,227         194,177
                                            --------------- ---------------

  Commitments and contingencies

  Stockholders’ equity                              774,808         576,169
                                            --------------- ---------------
      Total liabilities and stockholders’
       equity                               $     1,047,035 $       770,346
                                            =============== ===============
Note: There were 94,591,522 and 94,564,088 shares of common stock outstanding at December 31, 2006 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)


                                          Dec. 31,   Dec. 31,   % Increase
                                            2006       2005     (Decrease)
Q2 Volume of Loans Available for
 Securitization
   Direct-to-Consumer Loans               $     513  $     380         35%
   School Channel Loans                         158        146          9%
                                          ---------  ---------
      Private Label Loans                       671        526         28%
      GATE Loans                                 16         17         (9%)
                                          ---------  ---------
         Total Loan Facilitation Volume
          Available for Securitization    $     687  $     543         26%
                                          =========  =========

Rolling Twelve Month Volume of Loans
 Available for Securitization
   Direct-to-Consumer Loans               $   2,587  $   1,764         47%
   School Channel Loans                         791        636         24%
                                          ---------  ---------
      Private Label Loans                     3,378      2,400         41%
      GATE Loans                                106        107         (1%)
                                          ---------  ---------
         Total Loan Facilitation Volume
          Available for Securitization    $   3,484  $   2,507         39%
                                          =========  =========


Q2 Volume of Loans Not Available for
 Securitization
   Direct-to-Consumer Loans               $       6  $      12        (51%)
   School Channel Loans                          66         80        (18%)
                                          ---------  ---------
     Total Loan Facilitation Volume Not
      Available for Securitization        $      72  $      92        (22%)
                                          =========  =========

Rolling Twelve Month Volume of Loans Not
 Available for Securitization
   Direct-to-Consumer Loans               $      32  $      56        (42%)
   School Channel Loans                         392        397        ( 1%)
                                          ---------  ---------
     Total Loan Facilitation Volume Not
      Available for Securitization        $     424  $     453        ( 6%)
                                          =========  =========


Percentage of Loans Available for
 Securitization
     Q2                                          91%        86%
     Rolling Twelve Month                        89%        85%


End-of period Principal Balance of Loans
 Available for Securitization but not
 yet Securitized
   Direct-to-Consumer Loans               $     334  $     374
   School Channel Loans                         399        342
                                          ---------  ---------
      Private Label Loans                       733        716
      GATE Loans                                 53         57
                                          ---------  ---------
         Total Loan Principal Available
          for Securitization but not
          yet Securitized                 $     786  $     773
                                          =========  =========




            The First Marblehead Corporation and Subsidiaries
                         Income Statement Metrics

                            Private Label Loans
          Approximate Securitization Yields by Marketing Channel

                    Volume of   Up-front   Additional
                      Loans    Structural  Structural
Direct-to          Securitized  Advisory    Advisory   Residual    Total
Consumer           ($millions)   Fees(1)     Fees(1)   Revenue(1) Revenue
                   -----------  ---------   --------   --------  ---------
Q2 2007            $  676 (93%)      12.6%       1.2%       7.0%      20.8%
Q2 2006            $  921 (73%)       8.8%       1.2%       7.5%      17.5%


School Channel
Q2 2007            $   48  (7%)       7.3%       1.2%       2.1%      10.6%
Q2 2006            $  344 (27%)       4.1%       1.2%       2.6%       7.8%


Total
Q2 2007            $  724
Q2 2006            $1,265


Blended Yield(2)
Q2 2007                              12.2%       1.2%       6.7%      20.1%
Q2 2006                               7.5%       1.2%       6.2%      14.9%




(1)  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.

(2)  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.

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 time of year that the loans are securitized and the relative mix of loans from students with various expected terms to graduation, the structure of, 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
                        Operating Expense Metrics
                          (Dollars in Thousands)


                                  Operating expenses
                        ----------------------------------------
                             Expenses reimbursed by TERI
                        ----------------------------------------
                                       General and     Subtotal
                        Compensation  administrative  operating
                        and benefits    expenses       expenses
                        ------------  ------------  ------------
Three months ended
December 31,
2006                    $     13,669  $     15,922  $     29,591
2005                          13,079        12,055        25,134

Six months ended
December 31,
2006                    $     30,699  $     35,922  $     66,621
2005                          25,930        25,001        50,931




                                        Operating expenses
                        ---------------------------------------------------
                                   Expenses not reimbursed by TERI
                        ---------------------------------------------------
                                      General and    Subtotal     Total
                        Compensation administrative operating   operating
                        and benefits   expenses      expenses    expenses
                        ------------ ------------ ------------ ------------
Three months ended
December 31,
2006                    $     12,226 $     17,166 $     29,392 $     58,983
2005                           8,081       10,836       18,917       44,051

Six months ended
December 31,
2006                    $     26,804 $     31,157 $     57,961 $    124,582
2005                          14,972       23,815       38,787       89,718



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



                                      Three Months Ended  Six Months Ended
                                      December 31, 2006  December 31, 2006
                                      -----------------  -----------------
Structural Advisory Fees Receivable

Beginning of period balance           $         106,848  $          88,297

Additions from new securitizations                8,861             25,447

Trust updates
   Passage of time (present value
    accretion)                                    1,821              3,411
   Other factors (See Note below)                  (893)              (518)
                                      -----------------  -----------------

 Net accretion                                      928              2,893
                                      -----------------  -----------------

End of period balance                 $         116,637  $         116,637
                                      =================  =================
Residuals Receivable

Beginning of period balance           $         521,486  $         452,823

Additions from new securitizations               48,315            105,070

Trust updates
   Passage of time (present value
    accretion)                                   16,430             30,140
   Other factors (See Note below)                (2,565)            (4,367)
                                      -----------------  -----------------

 Net accretion                                   13,865             25,773
                                      -----------------  -----------------

End of period balance                 $         583,666  $         583,666
                                      =================  =================

Note: During the three and six months ended December 31, 2006, the 10-year U.S. Treasury rate, on which we base our present value discounting of structural advisory fees receivable, increased 7 basis points and decreased 46 basis points, respectively. A decrease in the 10-year U.S. Treasury rate has the effect of increasing the estimated present value of our structural advisory fees receivable, while an increase in the rate has the opposite effect on their valuation.

Other factors affecting the valuation of structural advisory fees and residuals receivables include changes in the implied forward LIBOR curve, as well as adjustments, if any, of the assumptions we use in estimating the fair value of these receivables. During the first and second quarters of fiscal 2007, loans in the securitization trusts experienced higher prepayment rates than we had estimated would occur during these periods, which 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. We do not believe that it is necessary at this time to alter our assumptions regarding future prepayments that we use to estimate the fair value of these receivables. We continue to monitor the performance of trust assets against our expectations, and will make such adjustments to our estimates as we believe are necessary to value properly our receivables balance at each balance sheet date. Certain of these adjustments partially offset the effect of the higher prepayment rates during the three and six months ended December 31, 2006.

Contact Information

  • Contact:

    At the Company

    Gary F. Santo, Jr.
    Vice President, Investor Relations
    617.638.2000

    John A. Hupalo
    Chief Financial Officer
    617.638.2000

    At Fleishman-Hillard

    Eli Neusner
    Media Relations
    617.692.0531