SOURCE: The First Marblehead Corporation

April 26, 2007 16:00 ET

First Marblehead Announces Third Quarter Fiscal 2007 Results

Net Income up 78% and Earnings per Share up 81% Through the First Three Quarters of FY 2007

BOSTON, MA -- (MARKET WIRE) -- April 26, 2007 -- The First Marblehead Corporation (NYSE: FMD) today announced its financial and operating results for the third quarter of fiscal 2007 and for the nine months ended March 31, 2007.

Total revenues for the nine months ended March 31, 2007 were $681 million, up 63% from $419 million for the same period last year. Net income for the nine-month period was $293 million, or $3.09 per diluted share, an increase of 78% in net income, and 81% in diluted earnings per share over the same nine-month period last year. For the third quarter of fiscal 2007, total revenues were $180 million, up 20% from $151 million for the same period last year. Net income for the third quarter was $71 million, or $0.75 per diluted share, an increase of 20% in net income, and 21% in diluted earnings per share, over the same period last year.

The operating results also reflect adjustments to certain of the assumptions used by the company in estimating the value of its service receivables. Based on the current interest rate environment and securitization market, the company adjusted its prepayment and discount rate assumptions. The net effect of these adjustments reduced service receivables as well as the quarter's securitization revenues by a total of $16 million, or $.11 per diluted share.

The volume of loans facilitated during the third quarter of fiscal 2007 that are available for securitization increased 24% over the same period last year to $872 million. The rolling twelve-month volume of loans available for securitization increased 34% to $3.6 billion for the twelve months ended March 31, 2007.

"First Marblehead had a very strong third quarter and a terrific first nine months of fiscal 2007," said Jack L. Kopnisky, First Marblehead's President and Chief Executive Officer. "Our facilitated loan volume continues to grow, we continue to diversify our client base, and we remain dedicated to our mission of helping students finance their education dreams."

First Marblehead will host a conference call today, Thursday, April 26, 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) 202-4683 in the United States or (617) 213-8846 from abroad (pass-code 47300178), 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 39553149.

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 April 26, 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 February 8, 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 and Nine Months Ended March 31, 2007 and 2006
                                (Unaudited)
                  (in thousands, except per share data)



                                      Three months ended  Nine months ended
                                          March 31,         March 31,
                                        2007     2006     2007      2006
                                      -------- -------- --------- ---------
Service revenues:
   Up-front structural advisory fees  $103,879 $ 58,457 $ 365,807 $ 154,627

   Additional structural advisory fees:
      From new securitizations           9,128    8,764    34,575    23,542
      Trust updates                     (2,353)     (37)      540     1,403
                                      -------- -------- --------- ---------
         Total additional structural
          advisory fees                  6,775    8,727    35,115    24,945

   Residuals:
      From new securitizations          34,371   47,432   139,441   125,648
      Trust updates                     (5,838)   5,623    19,935    25,596
                                      -------- -------- --------- ---------
         Total residual revenues        28,533   53,055   159,376   151,244

   Processing fees from TERI            32,282   26,583    98,961    77,779

   Administrative and other fees         6,048    2,352    15,001     6,145
                                      -------- -------- --------- ---------

      Total service revenues           177,517  149,174   674,260   414,740

   Net interest income                   2,646    1,369     6,614     4,233
                                      -------- -------- --------- ---------

      Total revenues                   180,163  150,543   680,874   418,973
                                      -------- -------- --------- ---------

 Non-interest expenses:
   Compensation and benefits            27,391   25,107    84,894    66,009

   General and administrative expenses  33,506   24,140   100,585    72,956
                                      -------- -------- --------- ---------

      Total non-interest expenses       60,897   49,247   185,479   138,965
                                      -------- -------- --------- ---------

Income from operations                 119,266  101,296   495,395   280,008

   Other income                             13       25        13     2,526
                                      -------- -------- --------- ---------

      Income before income tax expense 119,279  101,321   495,408   282,534

Income tax expense                      48,107   42,099   202,077   117,393
                                      -------- -------- --------- ---------

Net income                            $ 71,172 $ 59,222 $ 293,331 $ 165,141
                                      ======== ======== ========= =========

      Net income per share, basic     $   0.75 $   0.63 $    3.11 $    1.73

      Net income per share, diluted       0.75     0.62      3.09      1.71


      Cash dividends declared per share   0.15     0.08      0.37      0.24
      Weighted average shares
       outstanding, basic               94,629   94,284    94,471    95,670
      Weighted average shares
       outstanding, diluted             95,110   95,046    95,055    96,588




            The First Marblehead Corporation and Subsidiaries
                  Condensed Consolidated Balance Sheets
                  As of March 31, 2007 and June 30, 2006
                               (Unaudited)
                    (in thousands, except share data)



                                                     March 31,    June 30,
                                                       2007        2006
                                                    ----------- -----------
Assets
   Cash, cash equivalents and investments           $   290,169 $   142,961
   Loans held for sale                                   14,295          --
   Service receivables:
      Structural advisory fees                          123,412      88,297
      Residuals                                         612,199     452,823
      Processing fees from TERI                          10,917      10,447

                                                    ----------- -----------
             Total service receivables                  746,528     551,567
                                                    ----------- -----------

   Property and equipment, net                           39,171      36,743

   Goodwill                                               4,878       3,176
   Intangible assets, net                                 2,767       1,897
   Prepaid income taxes                                      --      11,649
   Other prepaid expenses                                14,529      17,272
   Other assets                                           5,069       5,081
                                                    ----------- -----------
             Total assets                           $ 1,117,406 $   770,346
                                                    =========== ===========


Liabilities and Stockholders’ Equity
   Liabilities:
         Deposits                                   $    38,167 $        --
         Accounts payable and other accrued
          expenses                                       40,369      34,430
         Income taxes payable                            13,255          --
         Net deferred income tax liability              179,129     144,240
         Notes payable and capital lease
          obligations                                    10,242      13,326
         Other liabilities                                2,252       2,181
                                                    ----------- -----------
             Total liabilities                          283,414     194,177
                                                    ----------- -----------
   Commitments and contingencies

   Stockholders’ equity                                 833,992     576,169
                                                    ----------- -----------
             Total liabilities and stockholders’
              equity                                $ 1,117,406 $   770,346
                                                    =========== ===========
Note: There were 94,639,685 and 94,564,088 shares of common stock outstanding at March 31, 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)


                                                                     %
                                          March 31,  March 31,   Increase
                                            2007       2006     (Decrease)
                                          ---------  ---------
Q3 Volume of Loans Available for
 Securitization
   Direct-to-Consumer Loans               $     558  $     402         39%
   School Channel Loans                         273        253          8%
                                          ---------  ---------
      Private Label Loans                       831        655         27%
      GATE Loans                                 41         51        (20%)
                                          ---------  ---------
         Total Loan Facilitation Volume
          Available for Securitization    $     872  $     706         24%
                                          =========  =========

Rolling Twelve Month Volume of Loans
 Available for Securitization
   Direct-to-Consumer Loans               $   2,742  $   1,898         44%
   School Channel Loans                         812        715         14%
                                          ---------  ---------
      Private Label Loans                     3,554      2,613         36%
      GATE Loans                                 96        112        (14%)
                                          ---------  ---------
         Total Loan Facilitation Volume
          Available for Securitization    $   3,650  $   2,725         34%
                                          =========  =========



Q3 Volume of Loans Not Available for
 Securitization
   Direct-to-Consumer Loans               $       5  $      11        (55%)
   School Channel Loans                         142        134          6%
                                          ---------  ---------
     Total Loan Facilitation Volume Not
      Available for Securitization        $     147  $     145          1%
                                          =========  =========

Rolling Twelve Month Volume of Loans Not
 Available for Securitization
   Direct-to-Consumer Loans               $      26  $      49        (47%)
   School Channel Loans                         399        406         (2%)
                                          ---------  ---------
     Total Loan Facilitation Volume Not
      Available for Securitization        $     425  $     455         (7%)
                                          =========  =========


Percentage of Loans Available for
 Securitization
     Q3                                          86%        83%
     Rolling Twelve Month                        90%        86%


End-of period Principal Balance of Loans
 Available for Securitization but not yet
 Securitized
   Direct-to-Consumer Loans               $     321  $     257
   School Channel Loans                         489        384
                                          ---------  ---------
      Private Label Loans                       810        641
      GATE Loans                                 95        106
                                          ---------  ---------
         Total Loan Principal Available
          for Securitization but not
          yet Securitized                 $     905  $     747
                                          =========  =========



           The First Marblehead Corporation and Subsidiaries
                         Income Statement Metrics

                            Private Label Loans
          Approximate Securitization Yields by Marketing Channel

            Volume of     Up-front    Additional
Direct-to-    Loans      Structural   Structural
 Consumer  Securitized    Advisory     Advisory     Residual      Total
           ($millions)     Fees(1)      Fees(1)    Revenue(1)   Revenue(3)

Q3 2007    $  583 (75%)      14.7%        1.2%         5.2%        21.1%
Q3 2006    $  527 (71%)       8.7%        1.2%         7.7%        17.5%

School Channel

Q3 2007    $  193 (25%)       8.5%        1.2%         2.0%        11.6%
Q3 2006    $  214 (29%)       5.9%        1.2%         3.2%        10.3%


Blended Yield(2)

Q3 2007    $  776            13.1%        1.2%         4.4%        18.7%
Q3 2006    $  741             7.9%        1.2%         6.4%        15.5%


(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.

(3)  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   Nine Months
                                                Ended March   Ended March
                                                  31, 2007      31, 2007
                                              -------------  -------------
Structural Advisory Fees Receivable

Beginning of period balance                   $     116,637  $      88,297

Additions from new securitizations                    9,128         34,575

Trust updates:
   Passage of time (present value accretion)          2,001          5,413
   Increase in average prepayment rates              (3,529)        (3,529)
   Other factors                                       (825)        (1,344)
                                              -------------  -------------
   Net accretion                                     (2,353)           540
                                              -------------  -------------

End of period balance                         $     123,412  $     123,412
                                              =============  =============
Residuals Receivable

Beginning of period balance                   $     583,666  $     452,823

Additions from new securitizations                   34,371        139,441

Trust updates
   Passage of time (present value accretion)         18,229         48,369
   Increase in average prepayment rates             (36,236)       (36,236)
   Decrease in discount rate assumptions             26,680         26,680
   Other factors                                    (14,511)       (18,878)
                                              -------------  -------------
   Net accretion                                     (5,838)        19,935
                                              -------------  -------------

End of period balance                         $     612,199  $     612,199
                                              =============  =============
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 and nine months ended March 31, 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 recent prepayment rates and other factors, including the current 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 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 three securitization trusts that we facilitated during the first nine months of fiscal 2007 issued BBB-rated securities. We believe that market developments have now provided us with a meaningful basis for the discount rate to be applied in estimating the fair value of the pre-fiscal 2007 private label securitization trust residuals. The aggregated average discount rate for this period is 11.52%.

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
    Gary F. Santo, Jr.
    Vice President, Investor Relations
    617.638.2065