SOURCE: The First Marblehead Corporation

The First Marblehead Corporation

January 29, 2010 08:00 ET

First Marblehead Announces Second Quarter Fiscal 2010 Financial Results

BOSTON, MA--(Marketwire - January 29, 2010) - The First Marblehead Corporation (NYSE: FMD) today announced its financial and operating results for the second quarter of fiscal 2010 and for the six-month period ended December 31, 2009.

Total revenues for the second quarter of fiscal 2010 were $10.1 million. Total non-interest expenses for the second quarter of fiscal 2010 were $31.2 million, including a $10.7 million unrealized loss on education loans held for sale, as compared to $59.1 million in total non-interest expenses for the second quarter of fiscal 2009, including a $29.3 million unrealized loss on education loans held for sale. For the second quarter of fiscal 2010, compensation and benefits expenses decreased $2.1 million, or 20%, and general and administrative expenses decreased $7.2 million, or 37%, compared to the same quarter in the prior fiscal year, largely as a result of the company's expense reduction initiatives.

For the second quarter of fiscal 2010, the company recorded a net loss of $11.7 million, or $0.12 per share, compared to a net loss of $93.4 million, or $0.94 per share, for the same period in the prior fiscal year.

Total revenues for the six-month period ended December 31, 2009 were $23.6 million. The net loss for the six-month period was $105.8 million, or $1.07 per share, an improvement over the net loss of $186.3 million, or $1.88 per share, for the same period in the prior fiscal year.

The company ended the quarter with $449.0 million in cash, cash equivalents and short-term investments. Net operating cash usage was approximately $11.5 million for the quarter ended December 31, 2009, down from approximately $14.7 million for the quarter ended September 30, 2009. (See below under the heading "Use of Non-GAAP Financial Measures"). Net operating cash usage was $26.2 million for the six months ended December 31, 2009, a 25% improvement over the same period in the prior fiscal year.

About The First Marblehead Corporation -- First Marblehead 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 markets services for student loan programs. For more information, go to www.firstmarblehead.com. 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. Please see www.SmartBorrowing.org.

Statements in this press release, including the financial tables, regarding First Marblehead's future financial and operating results and liquidity 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 that we have facilitated (the "Trusts") and on our plans, estimates and expectations as of January 29, 2010. 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 the 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: market acceptance of, and demand for, our Monogram loan product and fee-based service offerings, including our success in providing them to former, current and prospective clients; capital markets conditions and our ability to structure securitizations or alternative financings; the size, structure and timing of any such securitizations or alternative financings; any investigation, audit, claim, action or suit relating to the transfer of the trust certificate of NC Residuals Owners Trust or the asset services agreement between the purchaser and the company, including any such proceeding initiated by the Internal Revenue Service relating to any tax refund previously received; the estimates and assumptions we make in preparing our financial statements, including quantitative and qualitative factors used to estimate the fair value of additional structural advisory fees, asset servicing fees, residuals receivables and loans held for sale; our compliance with banking regulations and directives, including regulatory capital requirements and the terms of our supervisory agreement with the Office of Thrift Supervision (OTS) and the cease and desist order issued by the OTS to our subsidiary, Union Federal Savings Bank; and the other factors set forth under the caption "Part II - Item 1A. Risk Factors" in First Marblehead's quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 6, 2009. Important factors that could cause or contribute to future adjustments to the estimates and assumptions we make in preparing our financial statements include: actual transactions or market observations relating to asset-backed securities, loan portfolios or corporate debt securities; variance between our performance assumptions and the actual performance of the Trusts or loans held for sale; economic, legislative, regulatory, competitive and other factors affecting discount, default, recovery and prepayment rates on loan portfolios held for sale or held by the Trusts, including general economic conditions, the consumer credit environment and unemployment rates; management's determination of which qualitative and quantitative factors should be weighed in our estimates, and the weight to be given to such factors; capital market receptivity to securities backed by private student loans; developments in the bankruptcy proceedings of The Education Resources Institute, Inc., including the terms of any plan of reorganization and the outcome of the challenges to the enforceability of security interests of the Trusts, which could adversely affect the Trusts' rights to future recoveries on certain defaulted loans; and interest rate trends. 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 and Six Months Ended December 31, 2009 and 2008
                            (Unaudited)
      (dollars and shares in thousands, except per share amounts)
 
                                 Three months ended     Six months ended
                                    December 31,          December 31,
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  --------- 
Service revenues:
  Additional structural advisory
   fees-trust updates           $     278  $ (29,513) $     641  $ (47,403)
  Asset servicing fees:
    Fee income                      1,777          -      3,879          -
    Fee updates                       203          -        363          -
                                ---------  ---------  ---------  --------- 
      Total asset servicing 
       fees                         1,980          -      4,242          -
  Residuals-trust updates           1,453    (69,082)     2,277   (149,238)
  Administrative and other fees     4,932      5,026     10,529     11,030
                                ---------  ---------  ---------  --------- 

    Total service revenues          8,643    (93,569)    17,689   (185,611)

  Net interest income               1,501      7,474      5,941     14,612
                                ---------  ---------  ---------  --------- 

    Total revenues                 10,144    (86,095)    23,630   (170,999)

Non-interest expenses:
  Compensation and benefits         8,206     10,295     16,343     25,552
  General and administrative
   expenses                        12,355     19,540     30,494     43,987
  Unrealized loss on education
   loans held for sale             10,688     29,303    134,614     50,530
                                ---------  ---------  ---------  --------- 
    Total non-interest expenses    31,249     59,138    181,451    120,069
                                ---------  ---------  ---------  --------- 

Loss before income taxes          (21,105)  (145,233)  (157,821)  (291,068)

Income tax benefit                 (9,386)   (51,846)   (52,036)  (104,785)
                                ---------  ---------  ---------  --------- 

                                                                
Net loss                        $ (11,719) $ (93,387) $(105,785) $(186,283)
                                =========  =========  =========  ========= 
    Net loss per share:
      Basic                     $   (0.12) $   (0.94) $   (1.07) $   (1.88)
      Diluted                       (0.12)     (0.94)     (1.07)     (1.88)
    Weighted average shares
     outstanding:
      Basic                        99,247     99,116     99,224     99,040
      Diluted                      99,247     99,116     99,224     99,040






           The First Marblehead Corporation and Subsidiaries
                 Condensed Consolidated Balance Sheets
               As of December 31, 2009 and June 30, 2009
                              (Unaudited)
                        (dollars in thousands)
 
                                                  December 31,   June 30,
                                                      2009         2009
                                                  ------------ ------------
Assets
  Cash and cash equivalents                       $    399,016 $    158,770
  Federal funds sold                                       162       14,326
  Short-term investments, at cost                       50,000            -
  Investments held for sale                              6,784        8,450
  Education loans held for sale                         99,089      350,960
  Service receivables:
        Additional structural advisory fees             55,724       55,130
        Asset servicing fees                             6,627        2,385
        Residuals                                       12,237        9,960
                                                  ------------ ------------
                Total service receivables               74,588       67,475

  Property and equipment, net                           13,504       19,929
  Intangible assets, net                                 1,544        1,931
  Other prepaid expenses                                 4,046        3,571
  Mortgage loans held to maturity, net                   8,446        9,515
  Education loans held to maturity, net                  3,848            -
  Income taxes receivable                                  366      166,410
  Net deferred tax asset                                41,020       13,124
  Other assets                                           5,571        6,869
                                                  ------------ ------------
                Total assets                      $    707,984 $    821,330
                                                  ============ ============

Liabilities and Stockholders' Equity
  Liabilities:
        Deposits                                  $    144,953 $    154,462
        Education loan warehouse facility              228,900      230,137
        Accounts payable and accrued expenses           24,657       21,512
        Other liabilities                                7,670        9,754
                                                  ------------ ------------
                Total liabilities                      406,180      415,865

  Commitments and contingencies

  Stockholders' equity                                 301,804      405,465
                                                  ------------ ------------
                Total liabilities and
                 stockholders' equity             $    707,984 $    821,330
                                                  ============ ============






            The First Marblehead Corporation and Subsidiaries
                        Balance Sheet Metrics
   Roll-forward of Structural Advisory Fees and Residuals Receivables
                        (dollars in thousands)

                                                Three Months   Six Months
                                                   Ended         Ended
                                                December 31,  December 31,
                                                    2009          2009
                                                ------------  ------------ 
Additional Structural Advisory Fees Receivable
Fair value at beginning of period               $     55,469  $     55,130

Cash received from trust distributions                   (23)          (47)

Trust updates:
  Passage of time-fair value accretion                 1,583         3,329
  Increase in forward LIBOR curve                      3,611         1,563
  (Increase) decrease in discount rate
   assumptions                                        (3,755)        3,698
  Increase in timing and average default rate         (1,743)       (3,472)
  Other factors, net                                     582        (4,477)
                                                ------------  ------------ 
  Net change from trust updates                          278           641
                                                ------------  ------------ 

Fair value at end of period                     $     55,724  $     55,724
                                                ============  ============ 

Residuals Receivable
Fair value at beginning of period               $     10,784  $      9,960

Trust updates:
  Passage of time-fair value accretion                   433           859
  Increase in forward LIBOR curve                        112           134
  Decrease in discount rate assumption                     -         1,176
  Other factors, net                                     908           108
                                                ------------  ------------ 
  Net change from trust updates                        1,453         2,277
                                                ------------  ------------ 

Fair value at end of period                     $     12,237  $     12,237
                                                ============  ============
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 conditions 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 service receivables at December 31, 2009. 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 service 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.




Use of Non-GAAP Financial Measures

In addition to providing financial measurements based on generally accepted accounting principles in the United States ("GAAP"), the company has included in this press release an additional financial metric, "net operating cash usage," that was not prepared in accordance with GAAP. Legislative and regulatory guidance discourage the use of and emphasis on non-GAAP financial metrics and require companies to explain why a non-GAAP financial metric is relevant to management and investors.

First Marblehead believes that the inclusion of the non-GAAP financial metric helps investors to gain a better understanding of the company's quarterly results, including non-interest expenses and quarter-end liquidity position, particularly in light of ongoing capital markets dislocations that have prevented the company from accessing the securitization markets. Management uses the non-GAAP financial metric, in addition to GAAP financial measures, as a basis for measuring and forecasting the company's core operating performance and comparing such performance to that of prior periods. The non-GAAP financial measure is also used by management in its financial and operational decision-making.

There are limitations associated with reliance on the non-GAAP financial measure because it is specific to First Marblehead's operations and financial performance, which makes comparisons with other companies' financial results more challenging. Nevertheless, by providing both GAAP and non-GAAP financial measures, the company believes that investors are able to compare the company's GAAP results to those of other companies, while also gaining a better understanding of the company's operating performance, consistent with management's evaluation.

First Marblehead defines "net operating cash usage" to mean approximate cash used in operations, before tax payments. In accordance with the requirements of Regulation G promulgated by the Securities and Exchange Commission, the table below presents the most directly comparable GAAP financial measure, loss before income taxes, for the last four fiscal quarters and the first six months of fiscal 2010 and 2009 and reconciles the non-GAAP financial metric to the comparable GAAP measure:




                                            Three Months Ended
                                           --------------------            
                              December 31, September 30, June 30, March 31,
                                   2009      2009        2009       2009
                                ---------  ---------  ---------  --------- 
                                             (in thousands)
                                                                
Loss before income taxes        $ (21,105) $(136,716) $ (54,183) $(205,588)
  Depreciation and amortization     3,600      3,693      3,851      4,214
  Stock-based compensation
   expense                          1,499      1,540      1,468      1,587
  Unrealized loss on education
   loans held for sale             10,688    123,926     40,049     47,584
  Prepaid default prevention
   expense                              -          -          -      3,806
  Disposition of residuals              -          -          -    134,481
  Cash receipts from education
   loans                            3,134      4,738      4,342      4,692
  Cash receipts from trust
   distributions                       23         24         25         26
  Interest income accruals from
   education loans                 (4,973)    (8,127)    (8,269)    (8,547)
  Residuals-trust updates          (1,453)      (824)    (2,309)     1,885
  Asset servicing fees             (1,980)    (2,262)    (2,385)         -
  Additional structural
   advisory fees-trust updates       (278)      (363)     5,691      4,063

  Other                              (625)      (368)       973     (1,748)
                                ---------  ---------  ---------  --------- 
  Non-GAAP net operating cash
   usage                        $ (11,470) $ (14,739) $ (10,747) $ (13,545)
                                =========  =========  =========  ==========






                                                      Six Months Ended
                                                        December 31,
                                                  ------------------------  
                                                     2009          2008
                                                  ----------    ---------- 
                                                       (in thousands)
Loss before income taxes                          $ (157,821)   $ (291,068)
  Depreciation and amortization                        7,293         9,735
  Stock-based compensation expense                     3,039         4,230
  Unrealized loss on education loans
   held for sale                                     134,614        50,530
  Prepaid default prevention expense                       -         5,942
  Cash receipts from education loans                   7,872         7,157
  Cash receipts from trust distributions                  47         1,504
  Interest income accruals from education loans      (13,100)      (21,803)
  Residuals-trust updates                             (2,277)      149,238
  Asset servicing fees                                (4,242)            -
  Additional structural advisory fees-trust
   updates                                              (641)       47,403
  Other                                                 (993)        2,337
                                                  ----------    ---------- 
  Non-GAAP net operating cash usage               $  (26,209)   $  (34,795)
                                                  ==========    ==========

© The First Marblehead Corporation

Contact Information

  • Contact:
    Lee Jacobson
    Investor Relations
    First Marblehead
    800 Boylston Street, 34th FL
    Boston, MA 02199
    617.638.2065