FMD: Second Quarter - Enhanced Clarity
Ann Heffron, CFA
On January 31, 2012, the
The First Marblehead Company (
reported its fiscal 2012 second quarter results for the period
ending December 31, 2011. For the quarter, FMD recorded a net loss
from education financing of $3.5 million, or a diluted loss per
share of $0.03, including a $0.3 million gain on proceeds from the
TERI settlement and a $12.5 million one-time tax benefit related to
FMD's settlement with the Massachusetts Appellate Tax Board.
Excluding the TERI gain and tax benefit, the net loss was $16.3
million or a diluted operating per share loss of $0.15.
Total net earnings, including the securitization trusts net income
of $1.2 billion, was $1.2 billion, or $10.82 per diluted share,
including a $1.2 billion gain from the deconsolidation of the NCSLT
Trusts when FMD sold its variable interests in these trusts on
November 14, 2011. Sale of these interests simplifies financial
statement presentation, leaving only education financing and the
GATE Trusts, in which FMD owns 100% of the residual interests, on
the balance sheet and income statement. This clarification will go
a long way toward improving understanding of the Company, in our
Our second quarter loss estimate for the education financing
segment was $18.1 million, or a loss of $0.18 per diluted share.
Both revenues and expenses came in lower than we had anticipated,
with the benefit from reduced costs outweighing the shortfall in
Net income from the GATE Trusts, in which FMD owns 100% of the
residual interests, was $1.3 million, or $0.01 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 72,000 private student loan
applications representing $718 million in loans, of which it has
approved $159 million, or almost one-quarter of the $718 million
total. Of the total $159 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 22% of all
loans submitted. This is further borne out by the credit quality
statistics of the loans that have been approved: a weighted-average
credit score of 759; 87% are cosigned, 62% are in immediate
repayment; 94% have repayment terms of 15 years or less; weighted
average interests rates of 6.10% for variable-rate loans and of
8.60% for fixed-rate loans; and 80% of loans are fixed rate,
generating a higher margin for FMD. To date, there has been only
one loan default in the Monogram program.
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
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.
To view a free copy of our most recent research report on FMD,
Ann Heffron's coverage page
FIRST MARBLEHD (
): Free Stock Analysis Report
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