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First Marblehead Announces Full Year and Fourth Quarter Fiscal 2008 Results BOSTON, MA--(MARKET WIRE)--Aug 21, 2008 -- The First Marblehead Corporation (NYSE:FMD - News)
today announced its financial and operating results for
the fourth quarter
of fiscal 2008 and for the fiscal year ended June 30, 2008.
For the fiscal year ended June 30, 2008, the company recorded a net loss of $235.1 million or $2.46 per diluted share compared to net income of $371.3 million or $3.92 per diluted share for the fiscal year ended June 30, 2007. For the fourth fiscal quarter, the company recorded a net loss of $56.6 million or $0.57 per diluted share compared to net income of $78 million or $0.83 per diluted share for the fiscal quarter ended June 30, 2007. Total revenues for the fiscal year ended June 30, 2008 were $(28.4) million, compared to $881 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 during the last three fiscal quarters. In addition, adjustments made to certain assumptions used to estimate the fair value of service receivables, net of time value accretion, resulted in a $532.9 million pre-tax decrease in their total value. The voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code filed by The Education Resources Institute Inc. (TERI) on April 7, 2008 had a significant negative impact on the estimate of the fair value of service receivables for the year ended June 30, 2008. During the fourth quarter of fiscal 2008, facilitated loan volume that was available to the company for securitization totaled $268 million, down 66% over the same period last year. The rolling twelve-month facilitated loan volume increased to $5.0 billion, up 17% for the twelve months ended June 30, 2008. "Our fiscal results were negatively affected by the unprecedented market disruptions and TERI's bankruptcy, but the company looks forward to better results as we continue to adapt our business model to meet the very strong demand for high quality private student loans. This week's announcement of the completion of GS Capital Partners' investment of an additional $132.7 million further strengthens the company's balance sheet and positions the company for success in the future," said Jack L. Kopnisky, First Marblehead's Chief Executive Officer and President. First Marblehead plans to host a conference call with investors/analysts in September. 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 offering national and regional financial institutions and educational institutions 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, business model and the demand for private student loans, 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 August 21, 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, including the performance of securitization trusts and resulting cash flows, 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; 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; the inability of TERI to meet its guaranty obligations with regard to loans held by the securitization trusts; TERI's rejection of its guaranty obligations, or challenges to the trusts' security interests in segregated reserve accounts pledged by TERI to the trusts, in the context of TERI's bankruptcy; 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; 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 May 12, 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; trust expenses; 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 Months and Fiscal Years Ended June 30, 2008 and 2007
(Unaudited)
(in thousands, except per share amounts)
Three months ended Fiscal years ended
June 30, June 30,
2008 2007 2008 2007
---------- ----------- ---------- -----------
Service revenues:
Up-front structural
advisory fees $ 56 $ 91,545 $ 179,106 $ 457,352
Additional structural
advisory fees:
From new
securitizations - 9,409 24,304 43,984
Trust updates (22,506) 823 (44,106) 1,363
---------- ----------- ---------- -----------
Total additional
structural
advisory fees (22,506) 10,232 (19,802) 45,347
Residuals:
From new
securitizations - 43,303 116,972 182,744
Trust updates (37,548) 9,613 (488,832) 29,548
---------- ----------- ---------- -----------
Total residuals (37,548) 52,916 (371,860) 212,292
Processing fees from TERI 17,683 35,884 126,540 134,845
Administrative and other
fees 1,878 6,496 31,985 21,497
---------- ----------- ---------- -----------
Total service revenues (40,437) 197,073 (54,031) 871,333
Net interest income 6,664 2,757 25,622 9,371
---------- ----------- ---------- -----------
Total revenues (33,773) 199,830 (28,409) 880,704
---------- ----------- ---------- -----------
Non-interest expenses:
Compensation and benefits 17,328 26,470 96,735 111,364
General and administrative
expenses 46,478 41,006 261,812 141,591
---------- ----------- ---------- -----------
Total non-interest
expenses 63,806 67,476 358,547 252,955
Income (loss) from
Operations (97,579) 132,354 (386,956) 627,749
Other Income - 3 - 16
---------- ----------- ---------- -----------
Income (loss) before income
taxes (97,579) 132,357 (386,956) 627,765
Income tax expense
(benefit) (40,908) 54,357 (151,880) 256,434
---------- ----------- ---------- -----------
Net income (loss) $ (56,671) $ 78,000 $ (235,076) $ 371,331
========== =========== ========== ===========
Net income (loss) per
share, basic $ (0.57) $ 0.83 $ (2.46) $ 3.94
Net income (loss) per
share, diluted (0.57) 0.83 (2.46) 3.92
Cash dividends declared
per share - 0.25 0.395 0.62
Weighted average shares
outstanding, basic 98,878 93,770 95,732 94,296
Weighted average shares
outstanding, diluted 98,878 94,197 95,732 94,845
The First Marblehead Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
As of June 30, 2008 and June 30, 2007
(Unaudited)
(amounts in thousands)
June 30, 2008 June 30, 2007
------------- -------------
Assets
Cash, cash equivalents and investments $ 140,909 $ 224,587
Federal funds sold 80,215 10,334
Loans held for sale 497,324 37,052
Service receivables:
Structural advisory fees 113,842 133,644
Residuals 293,255 665,115
Processing fees from TERI 4,086 10,909
------------- -------------
Total service receivables 411,183 809,668
------------- -------------
Property and equipment, net 37,681 41,911
Goodwill 1,701 4,878
Intangible assets, net 1,956 2,597
Prepaid income taxes - 49,345
Other prepaid expenses 15,377 26,904
Mortgage loans, held to maturity, net 10,754 -
Other assets 3,798 7,187
------------- -------------
Total assets $ 1,200,898 $ 1,214,463
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 244,113 $ 53,523
Accounts payable and accrued expenses 20,543 59,044
Education loan warehouse facility 242,899 -
Income taxes payable 31,275 -
Net deferred income tax liability 10,385 247,748
Other liabilities 14,071 11,528
------------- -------------
Total liabilities 563,286 371,843
------------- -------------
Total Stockholders' Equity 637,612 842,620
------------- -------------
Total liabilities and
stockholders' equity $ 1,200,898 $ 1,214,463
============= =============
The First Marblehead Corporation and Subsidiaries
Loan Facilitation Metrics
(Dollars in Millions)
June 30, June 30, % Increase
2008 2007 (Decrease)
---------- ---------- ----------
Q4 Volume of Loans Available for
Securitization
Direct-to-Consumer Loans $ 199 $ 703 (72%)
School Channel Loans 67 88 (24%)
---------- ----------
Private Label Loans 266 791 (66%)
GATE Loans 2 1 100%
---------- ----------
Total Loan Facilitation Volume
Available for Securitization $ 268 $ 792 (66%)
========== ==========
Rolling Twelve Month Volume of Loans
Available for Securitization
Direct-to-Consumer Loans $ 3,726 $ 2,973 25%
School Channel Loans 728 808 (10%)
---------- ----------
Private Label Loans 4,454 3,781 18%
GATE Loans 66 92 (28%)
---------- ----------
Total Loan Facilitation Volume
Available for Securitization $ 4,520 $ 3,873 17%
========== ==========
Q4 Volume of Loans Not Available for
Securitization
Direct-to-Consumer Loans $ - $ 1 (100%)
School Channel Loans 4 46 (91%)
---------- ----------
Total Loan Facilitation Volume
Not Available for
Securitization $ 4 $ 47 (91%)
========== ==========
Rolling Twelve Month Volume of Loans
Not Available for Securitization
Direct-to-Consumer Loans $ 2 $ 19 (89%)
School Channel Loans 482 400 21%
---------- ----------
Total Loan Facilitation Volume
Not Available for
Securitization $ 484 $ 419 16%
========== ==========
Percentage of Loans Available for
Securitization
Q4 99% 94%
Rolling Twelve Months 90% 90%
End of period Principal Balance of
Loans Available for
Securitization but not yet
Securitized(1)
Direct-to-Consumer Loans $ 2,562 $ 401
School Channel Loans 770 429
---------- ----------
Private Label Loans 3,332 830
GATE Loans 67 2
---------- ----------
Total Loan Principal Available
for Securitization but not yet
securitized $ 3,399 $ 832 309%
========== ==========
(1) Includes $1.125 billion principal amount of loans with respect to
which our purchase rights terminated subsequent to June 30, 2008 in the
context of the TERI reorganization.
The First Marblehead Corporation and Subsidiaries
Balance Sheet Metrics
Roll-forward of Structural Advisory Fees and Residuals Receivables
(Dollars in Thousands)
Three Months
Ended Year Ended
June 30, 2008 June 30, 2008
-------------- --------------
Structural Advisory Fees Receivable
Beginning of period balance $ 136,348 $ 133,644
Additions from new securitizations - 24,304
Trust updates:
Passage of time (fair value accretion) 2,538 10,258
Assumption Changes:
Change in timing and average prepayment
rate - (3,535)
Increase in discount rate (29,737) (53,515)
Increase in timing and average default
rate (62) (2,961)
Other factors 4,755 5,647
-------------- --------------
Net change (22,506) (44,106)
-------------- --------------
End of period balance $ 113,842 $ 113,842
============== ==============
Residuals Receivable
Beginning of period balance $ 330,803 $ 665,115
Additions from new securitizations - 116,972
Trust updates:
Passage of time (fair value accretion) 11,147 75,070
Assumption Changes:
Change in timing and average prepayment
rate 11,832 (34,765)
Increase in discount rate (36,863) (129,169)
Increase in timing and average default
rate (7,706) (49,929)
Increase in auction rate notes spread - (93,813)
TERI's inability to pay claims - (219,553)
Increase in deliquency and collection
costs (15,946) (15,946)
Other factors (12) (20,727)
-------------- --------------
Net change (37,548) (488,832)
-------------- --------------
End of period balance $ 293,255 $ 293,255
============== ==============
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 June 30, 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: Contact:
Lee Jacobson
Investor Relations
617.638.2065
Janice Walker
Corporate Communications
617.638.2047
Source: The First Marblehead Corporation
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