FMD: First Quarter - Making Progress
Ann Heffron, CFA
On November 3, 2011, the
The First Marblehead Corporation (
or the Company)
reported its fiscal 2012 first quarter results for the period
ending September 30, 2011. For the quarter, FMD recorded a net loss
from education financing of $18.1 million, or a diluted loss per
share of $0.18, including a $1.1 million gain on proceeds from the
TERI settlement. Excluding the TERI gain, the diluted operating per
share loss was $0.19. The total net loss, including the
securitization trusts net loss of $69.3 million, was $88.0 million,
or a $0.87 loss per diluted share, including an $8.0 million gain
on proceeds from the TERI settlement.
Our first quarter loss estimate for the education financing segment
was $13.6 million, or a loss of $0.13 per diluted share. The
primary reason for the shortfall from our estimate was $4.5 million
in new marketing expenses, which boosted total noninterest expense
to $31.0 million and compares to our $27.4 million estimate.
Net revenue at $12.5 million fell short of our $14.5 million
estimate, though TMS performed satisfactorily. TMS posted
administrative fee revenue of $7.3 million on a 4% advance in
tuition payments processed to $1.3 billion and net interest income
of $0.25 million (since the TMS acquisition occurred on Dember 31,
2010, TMS is not included in the year-ago quarter).
Net income from the GATE Trusts, in which FMD owns 100% of the
residual interests, was $1.6 million, or $0.02 per share, the same
as it was in the prior-year quarter.
FMD has 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 53,000 private student loan
applications representing $557 million in loans, of which it has
approved $129.4 million, or almost one-quarter of the $550 million
total. Of the total $129.4 million amount approved, $43.6 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 23% of all loans submitted.
FMD also has made several recent announcements regading its
business. First, FMD sold its variable interests in its National
Collegiate Student Loan Trusts (NCSLT Trusts) to VCG Special
Opportunities Master Fund Limited (VCG) for $13 million in cash.
Notably, this will allow FMD to deconsolidate the NCSLT Trusts from
it financial statements, removing assets of $6.7 billion and
liabilities of $7.9 billion from its balance sheet, while at the
same time booking a $1.2 billion gain on the sale, thereby
eliminating the deficit in shareholders' equity related to the
Second, FMD amended its loan program agreement with SunTrust Bank,
extending the maturity to January 31, 2015 from April 20, 2012 and
greatly increasing lending volume through FMD's Monogram platform.
Finally, FMD disclosed that the Massachusetts Appellate Tax Board
(ATB) had issued an order (Order) in the cases relating to the
Massachusetts tax treatment of GATE Holdings, Inc., a former
subsidiary of FMD. In connection with the Order, FMD expects to
recognize an income tax benefit during the fiscal second quarter
ending December 31, 2011 of approximately $12.5 million. FMD also
expects to make net tax payments for GATE's taxable years ended
June 30, 2004, 2005 and 2006 of approximately $5.0 million during
its fiscal third quarter ending March 31, 2012.
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 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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