FMD: First Quarter Update

Zacks Small Cap Research

By Ann Heffron, CFA

First Marblehead (FMD) reported its fiscal 2013 first quarter results for the period ended September 30, 2012, posting a net loss from continuing operations of $13.9 million, or a loss per share of $0.14. This compares to a net loss from continuing operations and excluding a $1.1 million gain ($0.01 per share) on the TERI settlement in the prior-year period of $19.9 million, or a loss per share of $0.20.

To download a free copy of the most recent FMD research report, please click here: FMD 1-4-12

During the first quarter, FMD expanded its Monogram lending program to 904 approved lender list positions, a 6% increase from 850 lender list positions at the end of the previous quarter in June and a 179% surge from the year-ago quarter.

Relative to the first quarter in the prior year, net revenue increased 15% to $12.6 million as net interest income jumped 192% to $0.9 million on a higher net interest margin (1.09% versus 0.30%) and a greater level of loans and securities outstanding. In addition, administrative and other fees advanced 43% to $3.4 million, reflecting increased loan processing and market support fees stemming from higher partnered lending loan disbursements.

Operating expenses slid 15% year over year to $26.2 million, as compensation costs fell 19% to $8.8 million due to reduced headcount and general and administrative expenses declined 12% to $17.4 million, principally the result of lower costs related to marketing (down $1.3 million) and special servicing and professional fees (a drop of $0.9 million).

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 (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 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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