SOURCE: The First Marblehead Corporation

May 08, 2008 16:05 ET

First Marblehead Announces Third Quarter Fiscal 2008 Results

BOSTON, MA--(Marketwire - May 8, 2008) - The First Marblehead Corporation (NYSE: FMD) today announced its financial and operating results for the third quarter of fiscal 2008 and for the nine-month period ended March 31, 2008.

For the third quarter of fiscal 2008, the company recorded a net loss of $229.6 million or $2.36 per diluted share compared to net income of $71.2 million or $0.75 per diluted share for the third quarter of fiscal 2007. The Company's net loss for the nine-month period was $178.4 million or $1.88 per diluted share compared to net income of $293.3 million or $3.09 per diluted share for the same period last year. Total revenues for the nine months ended March 31, 2008 were $5.0 million, compared to $681 million for the same period last year. Revenues declined principally as a result of illiquidity in the financing market for private student loans, leading to the Company's inability to complete a securitization transaction. In addition, adjustments made to certain assumptions used to estimate the fair value of service receivables, which resulted in a $315 million pre-tax decrease in their total value. The voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code by The Education Resources Institute (TERI), on April 7, 2008, had a significant negative impact on the estimate of the fair value of service receivables.

"Our earnings this fiscal quarter were disappointing and affected by the continued disruption in the capital markets and the challenging consumer credit cycle. However, we recognize that the demand for private student loans and other services continues to be very strong," said Jack L. Kopnisky, First Marblehead's Chief Executive Officer and President.

During the third quarter of fiscal 2008, the Company facilitated student loan origination for its clients of $1.0 billion, up 19% over the same period last year. The rolling twelve-month volume increased to $5.0 billion, up 38% for the twelve months ended March 31, 2008.

"Management has taken a number of actions to reposition its business model in light of the current environment and as part of its planned transition into a diversified education finance products and services company. Earlier this week, we announced a significant reduction in our cost structure," said Kopnisky. "In addition, we continue to work with GS Capital Partners to close its investment."

First Marblehead will host a conference call today, May 8, 2008 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 via a simultaneous internet broadcast on the Company's Web site at www.firstmarblehead.com, under Investors, or by dialing (866) 356-4281 in the United States or (617) 597-5395 from abroad (pass code 83881784).

A replay will be available on First Marblehead's Web site for 7 days, beginning shortly after completion of the call. The replay will also be available for 7 days by dialing (888) 286-8010 from the U.S. or (617) 801-6888 from abroad, and entering the pass code 90020698.

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 education loan marketers, with an integrated suite of design, implementation and capital market services for student loan programs. First Marblehead supports responsible lending 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 financial and operating results, financing options, business model, the demand for private student loans, and future investment proceeds from GS Capital Partners, 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 May 8, 2008. 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 financing-related revenues, or the timing of events, 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 ability to structure securitizations or alternative financings; the size, structure and timing of any securitizations or alternative financings; our ability to develop alternatives to the loan guaranty and loan origination services that The Education Resources Institute, Inc. (TERI) has historically provided to our clients; the demand for, and market acceptance of, loan programs that are not TERI-guaranteed, including our success in providing such alternatives to former, current and prospective clients; degradation of credit quality or performance of the loan portfolios of the trusts First Marblehead has structured; the estimates we make and the assumptions on which we rely in preparing our financial statements; continued 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 relationships with key clients, including termination of client contracts in the context of TERI's reorganization in bankruptcy; our success in obtaining regulatory approvals to expand the scope of services that we perform directly for clients; closing conditions to the subsequent investment in First Marblehead by GS Capital Partners; 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 11, 2008. 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; capital market receptivity to private student loan asset-backed securities and interest rate trends, including with regard to auction rate notes. 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, 2008 and 2007
                                 (Unaudited)
                 (in thousands, except per share amounts)


                                 Three months ended     Nine months ended
                                      March 31,             March 31,
                                  2008       2007       2008       2007
                                ---------  ---------  ---------  ----------
Service revenues:
  Up-front structural advisory
   fees                         $     984  $ 103,879  $ 179,050  $  365,807
  Additional structural
   advisory fees:
    From new securitizations            -      9,128     24,304      34,575
    Trust updates                 (13,684)    (2,353)   (21,600)        540
                                ---------  ---------  ---------  ----------
      Total additional
       structural advisory fees   (13,684)     6,775      2,704      35,115

  Residuals
    From new securitizations            -     34,371    116,972     139,441
    Trust updates                (277,430)    (5,838)  (451,284)     19,935
                                ---------  ---------  ---------  ----------
      Total residuals            (277,430)    28,533   (334,312)    159,376

  Processing fees from TERI        25,328     32,282    108,857      98,961

  Administrative and other fees     5,217      6,061     30,107      15,014
                                ---------  ---------  ---------  ----------

    Total service revenues       (259,585)   177,530    (13,594)    674,273

  Net interest income               7,797      2,646     18,571       6,614
                                ---------  ---------  ---------  ----------

    Total revenues               (251,788)   180,176      4,977     680,887
                                ---------  ---------  ---------  ----------

Non-interest expenses:
  Compensation and benefits        27,670     27,391     79,407      84,894
  General and administrative
   expenses                        95,877     33,506    214,947     100,585
                                ---------  ---------  ---------  ----------
    Total non-interest expenses   123,547     60,897    294,354     185,479

    Income (loss) before income
     taxes                       (375,335)   119,279   (289,377)    495,408

Income tax expense (benefit)     (145,785)    48,107   (110,972)    202,077
                                ---------  ---------  ---------  ----------

Net income (loss)               $(229,550) $  71,172  $(178,405) $  293,331
                                =========  =========  =========  ==========

    Net income (loss) per
     share, basic               $   (2.36) $    0.75  $   (1.88) $     3.11
    Net income (loss) per
     share, diluted                 (2.36)      0.75      (1.88)       3.09
    Cash dividends declared per
     share                              -       0.15      0.395        0.37
    Weighted average shares
     outstanding, basic            97,103     94,629     94,691      94,471
    Weighted average shares
     outstanding, diluted          97,103     95,110     94,691      95,055




              The First Marblehead Corporation and Subsidiaries
                     Condensed Consolidated Balance Sheets
                    As of March 31, 2008 and June 30, 2007
                                 (Unaudited)
                           (amounts in thousands)


                                                     March 31,    June 30,
                                                       2008         2007
                                                    ----------- -----------
Assets
  Cash, cash equivalents and investments            $   291,964 $   234,921
  Loans held for sale                                   496,278      37,052
  Service receivables:
    Structural advisory fees                            136,348     133,644
    Residuals                                           330,803     665,115
    Processing fees from TERI                                 -      10,909
                                                    ----------- -----------
      Total service receivables                         467,151     809,668
                                                    ----------- -----------

  Property and equipment, net                            43,645      41,911

  Goodwill                                                4,878       4,878
  Intangible assets, net                                  2,122       2,597
  Prepaid income taxes                                        -      49,345
  Other prepaid expenses                                 11,467      26,904
  Mortgage loans, held to maturity                       11,327           -
  Other assets                                            4,548       7,187
                                                    ----------- -----------
      Total assets                                  $ 1,333,380 $ 1,214,463
                                                    =========== ===========

Liabilities and Stockholders' Equity
  Liabilities:
    Deposits                                        $   274,611 $    53,523
    Education loan warehouse facility                   242,900           -
    Accounts payable and accrued expenses                32,889      59,044
    Income taxes payable                                 12,078           -
    Net deferred income tax liability                    61,791     247,748
    Other liabilities                                    15,450      11,528
                                                    ----------- -----------
      Total liabilities                                 639,719     371,843
                                                    ----------- -----------

  Total Stockholders' Equity                            693,661     842,620
                                                    ----------- -----------
      Total liabilities and stockholders' equity    $ 1,333,380 $ 1,214,463
                                                    =========== ===========

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

                                                                    %
                                           March 31,  March 31,  Increase
                                             2008       2007    (Decrease)
                                           ---------  ---------  --------

Q3 Volume of Loans Available for
 Securitization
  Direct-to-Consumer Loans                 $     758  $     558        36%
  School Channel Loans                           253        273        (7%)
                                           ---------  ---------

    Private Label Loans                        1,011        831        22%
    GATE Loans                                    30         41       (27%)
                                           ---------  ---------
    Total Loan Facilitation Volume
     Available for Securitization          $   1,041  $     872        19%
                                           =========  =========

Rolling Twelve Month Volume of Loans
 Available for Securitization
  Direct-to-Consumer Loans                 $   4,230  $   2,742        54%
  School Channel Loans                           749        812        (8%)
                                           ---------  ---------
    Private Label Loans                        4,979      3,554        40%
    GATE Loans                                    64         96       (33%)
                                           ---------  ---------
    Total Loan Facilitation Volume
     Available for Securitization          $   5,043  $   3,650        38%
                                           =========  =========


Q3 Volume of Loans Not Available for
 Securitization
  Direct-to-Consumer Loans                 $       -  $       5      (100%)
  School Channel Loans                           208        142        46%
                                           ---------  ---------
    Total Loan Facilitation Volume Not
     Available for Securitization          $     208  $     147        41%
                                           =========  =========

Rolling Twelve Month Volume of Loans Not
 Available for Securitization
  Direct-to-Consumer Loans                 $       2  $      26       (92%)
  School Channel Loans                           525        399        32%
                                           ---------  ---------
    Total Loan Facilitation Volume Not
     Available for Securitization          $     527  $     425        24%
                                           =========  =========


Percentage of Loans Available for
 Securitization
  Q3                                              83%        86%
  Rolling Twelve Months                           91%        90%


End of period Principal Balance of Loans
 Available for Securitization but not yet
 Securitized
  Direct-to-Consumer Loans                 $   2,338  $     321
  School Channel Loans                           710        489
                                           ---------  ---------
    Private Label Loans                        3,048        810
    GATE Loans                                    65         95
                                           ---------  ---------
       Total Loan Principal Available for
        Securitization but not yet
        securitized                        $   3,113  $     905       244%
                                           =========  =========

           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         Ended
                                                  March 31,     March 31,
                                                    2008          2008
                                                ------------  ------------
Structural Advisory Fees Receivable
Beginning of period balance                     $    150,032  $    133,644

Additions from new securitizations                         -        24,304

Trust updates:
     Passage of time (fair value accretion)            2,650         7,720
     Assumption Changes:
        Increase in average prepayment rate                -        (3,535)
        Increase in discount rate                    (15,668)      (23,778)
        Increase in default rate                        (231)       (2,899)
        Increase in auction rate notes spread            (54)         (140)
        TERI's inability to pay claims                  (542)         (542)
     Other factors                                       161         1,574
                                                ------------  ------------
     Net change                                      (13,684)      (21,600)
                                                ------------  ------------

End of period balance                           $    136,348  $    136,348
                                                ============  ============

Residuals Receivable

Beginning of period balance                     $    608,233  $    665,115

Additions from new securitizations                         -       116,972

Trust updates:
     Passage of time (fair value accretion)           20,353        63,923
     Assumption Changes:
        Increase in average prepayment rate                -       (46,597)
        Increase in discount rate                    (20,626)      (92,306)
        Increase in default rate                      (6,050)      (42,223)
        Increase in auction rate notes spread        (59,491)      (93,813)
        TERI's inability to pay claims              (219,553)     (219,553)
     Other factors                                     7,937       (20,715)
                                                ------------  ------------
     Net change                                     (277,430)     (451,284)
                                                ------------  ------------

End of period balance                           $    330,803  $    330,803
                                                ============  ============

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 and our ongoing evaluation of actual trust performance, we changed certain assumptions used to determine the fair value of our residual and structural advisory fee receivables at March 31, 2008. 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
    Corporate Communications
    617.638.2047