FMD: Fourth Quarter Results

Ann Heffron, CFA

FMD: Fourth Quarter Results

On August 30, 2011, The First Marblehead Corporation (FMD) reported its fiscal fourth quarter results for the period ending June 30, 2011. For the quarter, FMD recorded a net loss from education financing of $19.5 million, or a diluted loss per share of $0.19. The total net loss, including the securitization trusts net loss of $64.5 million, was $83.8 million, or a $0.83 loss per diluted share.

Our fourth quarter loss estimate for the education financing segment was $13.4 million, or a loss of $0.13 per diluted share. The primary reasons for the shortfall from our estimate include: (1) administrative and other fees that were $1.8 million lower than our $11.5 million estimate, reflecting seasonally weaker revenues at TMS as typically occurs in the April-June quarter and (2) trust updates, usually very volatile and difficult to predict, had a loss of $2.4 million, $3.5 million below our estimate of a $1.1 million gain.

At this point, we are retaining our education financing diluted per share loss estimate of $0.52 for fiscal 2012, ending June 30, 2012. This compares to an education financing net loss of $87.4 million (excluding a $6 million of nonoperating gain) in fiscal 2011, or a $0.87 loss per diluted share.

From an operating perspective, FMD had an auspicious launch to its first peak origination student loan season since the beginning of the credit crisis in 2007. Including the Monogram-based loan programs at Sun Trust and Kinecta that began in July and September 2010, respectively, as well as at Union Federal Savings Bank (UFSB), which began on July 1, 2011, the Company has processed over 40,000 private student loan applications representing $430 million in loans, of which it has approved $107 million, or one-quarter of the $430 million total. Of the total $107 million amount approved, $23 million has been booked to date. These metrics demonstrate that loan demand is quite strong and that FMD is accepting only the cream of the crop, the top 25% of all loans submitted.

Future growth prospects for the Monogram loan program appear bright. FMD recently added nine people to its sales staff and now has a 16-member sales team that has visited over 1,100 schools across the country. FMD currently has Monogram lending programs at 300 schools in 30 states, a 50% increase from 200 schools at the end of the previous quarter in March. This is expected to grow significantly in 2012 due to the addition of UFSB.

For the fiscal year ending June 30, 2011, TMS, FMD’s payment processing subsidiary, processed $4 billion in tuition payments, a year-over-year increase of 8.1%, for 343,000 students at 770 schools nationally.

Founded in 1991, The First Marblehead Corporation (FMD), headquartered in Boston, Massachusetts, focused on creating private, nongovernment-sponsored, education loan programs. The company had its initial public offering on the NYSE in October 2003. First Marblehead currently has more than 200 employees. Through a fully integrated suite of services, the company offers outsourcing capabilities to national and regional financial institutions (banks-to-mutual institutions) and educational institutions (colleges and universities), with respect to the design and implementation of private education loan programs for undergraduates and graduates.

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