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FMD: Second Quarter Update

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FMD: Second Quarter Update

By Ann Heffron, CFA

The First Marblehead Corporation (NYSE:) reported its fiscal 2013 second quarter results for the period ended December 31, 2012, posting a net loss from continuing operations of $12.6 million, or a loss per share of $0.12, excluding a nonoperating gain of $0.3 million. This compares to a net loss from continuing operations of $16.9 million in the prior-year period, or a loss per share of $0.17, excluding a $12.6 one-time tax benefit ($0.12 per share) and $0.6 million nonoperating gains ($0.01 per share).

To download a free copy of the most recent FMD research report, please click here: FMD 3-15-13

During the second quarter, FMD expanded its Monogram lending program to 959 approved lender list positions, a 6% increase from 904 lender list positions at the end of the previous quarter in September and a 128% surge from the 421 list positions year-ago quarter.

Relative to the second quarter a year ago, net revenue increased $4.5 million, or 68%, to $11.2 million as net interest income doubled to $1.0 million on a higher net interest margin (1.25% versus 0.51%) and a greater level of loans and securities outstanding. In addition, TMS fees rose $0.2 million, or 3%, year over year to $7.4 million (up 9% after adjusting 2012 revenues for fees related to the sale of certain K-12 contracts), while administrative and other fees gained $0.3 million, or 13%, to $2.4 million as a $1.1 million decline in special servicing revenues was more than offset by $0.6 million of Cology revenues and a $0.8 million increase in Monogram-based revenues on a 42% jump in Monogram-based loan volumes. There was also a $3.6 million positive swing in the fair value change to service revenues receivable, to a $0.4 million gain in fiscal 2013’s second quarter from a $3.2 million loss in the prior-year quarter.

Operating expenses slid 1% year over year to $23.4 million, as a $0.2 million, or 2%, increase in compensation costs to $10.4 million were more than offset by a $0.5 million, or 4%, decrease in general and administrative expenses to $13.0 million, principally the result of lower costs related to marketing (down $1.0 million) and special servicing costs (a drop of $1.0 million), partially offset by costs related to the acquisition of Cology.

FMD should continue to benefit from its cost-cutting program, primarily related to reduced headcount at the legacy operations of the now-sold NCSLT and GATE Trusts. FMD expects annual compensation expense to be reduced by about $7 million and annual general and administrative expenses to be reduced $6.6 million, stemming from outsourcing operations and TMS’s call center, to begin in fiscal 2013’s second quarter. In total, annual cash operating usage is expected to be reduced by $13.6 million, or 26%, when all cuts have been implemented by the end of fiscal 2013 (ending June 30, 2013).

Founded in 1991, The First Marblehead Corporation , 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 300 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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