SOURCE: The First Marblehead Corporation

The First Marblehead Corporation

April 23, 2010 08:00 ET

First Marblehead Announces Third Quarter Fiscal 2010 Financial Results

BOSTON, MA--(Marketwire - April 23, 2010) - The First Marblehead Corporation (NYSE: FMD) today announced its financial and operating results for the third quarter of fiscal 2010 and for the nine-month period ended March 31, 2010.

Total revenues for the third quarter of fiscal 2010 were ($16.8) million as compared to ($130.6) million for the same period last year. The negative revenues for the third quarter of fiscal 2010 were driven primarily by non-cash fair value adjustments to service receivables totaling ($22.0) million. A net adjustment of ($9.5) million can be attributed to changes in performance assumptions for loans in securitized trusts while an additional ($14.7) million can be attributed to the accompanying change in the discount rate. These adjustments were partially offset by accretion of $2.2 million due to the passage of time. The changes in performance assumptions were a result of the company's enhancements to its financial models, incorporating certain macro-economic factors in assessing future loan performance.

Total non-interest expenses for the third quarter of fiscal 2010 were $28.0 million, including a $4.2 million loss on education loans held for sale, as compared to $75.0 million in total non-interest expenses for the third quarter of fiscal 2009, including a $47.6 million loss on education loans held for sale. For the third quarter of fiscal 2010 total non-interest expenses, excluding losses on education loans held for sale, decreased $3.6 million, or 13%, compared to the same expenses for the third quarter of fiscal 2009, largely as a result of the company's expense reduction efforts.

For the third quarter of fiscal 2010, the company recorded a net loss of $29.4 million, or $0.30 per share, compared to a net loss of $140.7 million, or $1.42 per share, for the same period in the prior fiscal year.

Total revenues for the nine-month period ended March 31, 2010 were $6.8 million, as compared to total revenues of ($301.6) million for the same period in the prior fiscal year. The net loss for the nine-month period was $135.2 million, or $1.36 per share, an improvement over the net loss of $326.9 million, or $3.30 per share, for the same period in the prior fiscal year.

The company ended the quarter with $422.3 million in cash, cash equivalents and short-term investments. Net operating cash usage* was approximately $12.5 million for the quarter ended March 31, 2010, up from approximately $11.5 million for the quarter ended December 31, 2009, during which the company recouped $1.0 million in litigation expenses. Net operating cash usage* was $38.7 million for the nine months ended March 31, 2010, a 20% improvement over the same period in the prior fiscal year.

*See below under the heading "Use of Non-GAAP Financial Measures".

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 April 23, 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 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 February 9, 2010. 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 markets 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.

-financial tables to follow-

            The First Marblehead Corporation and Subsidiaries
             Condensed Consolidated Statements of Operations
        For the Three and Nine Months Ended March 31, 2010 and 2009
                              (Unaudited)
        (dollars and shares in thousands, except per share amounts)


                              Three months ended      Nine months ended
                                  March 31,               March 31,
                               2010        2009        2010        2009
                            ----------  ----------  ----------  ---------- 
Service revenues:
  Additional structural
   advisory fees-trust
   updates                  $  (21,440) $   (4,063) $  (20,799) $  (51,466)
  Asset servicing fees:
    Fee income                   2,133           -       6,012           -
    Fee updates                 (2,635)          -      (2,272)          -
                            ----------  ----------  ----------  ---------- 
      Total asset 
       servicing fees             (502)          -       3,740           -
  Residuals-trust updates          (91)   (136,366)      2,186    (285,604)
  Administrative and other
   fees                          4,561       4,015      15,090      15,046
                            ----------  ----------  ----------  ---------- 

    Total service revenues     (17,472)   (136,414)        217    (322,024)

  Net interest income              656       5,798       6,597      20,409
                            ----------  ----------  ----------  ---------- 

    Total revenues             (16,816)   (130,616)      6,814    (301,615)

Non-interest expenses:
  Compensation and benefits      8,594       8,782      24,937      34,334
  General and administrative
   expenses                     15,238      18,606      45,732      62,593
  Losses on education loans
   held for sale                 4,180      47,584     138,794      98,114
                            ----------  ----------  ----------  ---------- 
    Total non-interest
     expenses                   28,012      74,972     209,463     195,041
                            ----------  ----------  ----------  ---------- 

Loss before income taxes       (44,828)   (205,588)   (202,649)   (496,656)

Income tax benefit             (15,439)    (64,934)    (67,475)   (169,718)
                            ----------  ----------  ----------  ---------- 

Net loss                    $  (29,389) $ (140,654) $ (135,174) $ (326,938)
                            ==========  ==========  ==========  ========== 

    Net loss per share:
      Basic                 $    (0.30) $    (1.42) $    (1.36) $    (3.30)
      Diluted                    (0.30)      (1.42)      (1.36)      (3.30)
    Weighted average 
     shares outstanding:
      Basic                     99,248      99,121      99,232      99,067
      Diluted                   99,248      99,121      99,232      99,067







            The First Marblehead Corporation and Subsidiaries
                  Condensed Consolidated Balance Sheets
                 As of March 31, 2010 and June 30, 2009
                             (Unaudited)
                        (dollars in thousands)

                                                     March 31,    June 30,
                                                       2010        2009
                                                    ----------- -----------
Assets
  Cash and cash equivalents                         $   372,263 $   158,770
  Federal funds sold                                      2,003      14,326
  Short-term investments, at cost                        50,000           -
  Investments held for sale                               5,753       8,450
  Education loans held for sale                          98,758     350,960
  Service receivables:
    Additional structural advisory fees                  33,902      55,130
    Asset servicing fees                                  6,125       2,385
    Residuals                                            12,146       9,960
                                                    ----------- -----------
      Total service receivables                          52,173      67,475
  Property and equipment, net                            10,466      19,929
  Intangible assets, net                                  1,364       1,931
  Other prepaid expenses                                  3,052       3,571
  Loans held to maturity, net                             9,312       9,515
  Income taxes receivable                                 3,823     166,410
  Net deferred tax asset                                 53,143      13,124
  Other assets                                            5,467       6,869
                                                    ----------- -----------
      Total assets                                  $   667,577 $   821,330
                                                    =========== ===========

Liabilities and Stockholders' Equity
  Liabilities:
    Deposits                                        $   127,355 $   154,462
    Education loan warehouse facility                   227,894     230,137
    Accounts payable and accrued expenses                31,467      21,512
    Other liabilities                                     6,889       9,754
                                                    ----------- -----------
      Total liabilities                                 393,605     415,865

  Commitments and contingencies

  Stockholders' equity                                  273,972     405,465
                                                    ----------- -----------
      Total liabilities and stockholders' equity    $   667,577 $   821,330
                                                    =========== ===========





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

                                                  Three Months  Nine Months
                                                      Ended       Ended
                                                     March 31,   March 31,
                                                       2010        2010
                                                    ----------  ---------- 
Additional Structural Advisory Fees Receivable
Fair value at beginning of period                   $   55,724  $   55,130

Cash received from trust distributions                    (382)       (429)

Trust updates:
  Passage of time-fair value accretion                   1,686       5,015
  Increase in timing and average default rate          (39,144)    (42,616)
  Increase in discount rate assumption                 (14,727)    (11,029)
  Decrease in average prepayment rate                   25,338      25,338
  Increase in forward LIBOR curve                          175       1,738
  Other factors, net                                     5,232         755
                                                    ----------  ---------- 
  Net change from trust updates                        (21,440)    (20,799)
                                                    ----------  ---------- 

Fair value at end of period                         $   33,902  $   33,902
                                                    ==========  ========== 

Residuals Receivable
Fair value at beginning of period                   $   12,237  $    9,960

Trust updates:
  Passage of time-fair value accretion                     487       1,346
  Increase in timing and average default rate             (353)       (353)
  Decrease in discount rate assumption                       -       1,176
  Increase in forward LIBOR curve                           49         183
  Other factors, net                                      (274)       (166)
                                                    ----------  ---------- 
  Net change from trust updates                            (91)      2,186
                                                    ----------  ---------- 

Fair value at end of period                         $   12,146  $   12,146
                                                    ==========  ========== 

Note: Factors affecting the valuation of additional structural advisory fees and residuals receivables include changes, if any, to the assumptions and methodology we use in estimating the fair value of these receivables. In light of conditions in the asset-backed securities market, macro-economic factors and our ongoing evaluation of actual trust performance, we changed certain assumptions and methodologies used to determine the fair value of our service receivables at March 31, 2010. We continue to monitor the performance of trust assets against our expectations, as well as other inputs necessary to estimate the fair 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 dislocations in the private education loan industry and the capital markets that have affected the company. 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 nine months of fiscal 2010 and 2009 and reconciles the non-GAAP financial metric to the comparable GAAP measure:

 
                                          Three Months Ended
                            ---------------------------------------------- 
                             March 31,   December    September   June 30,  
                               2010      31, 2009    30, 2009     2009     
                            ----------  ----------  ----------  ---------- 
                                           (in thousands)
Loss before income taxes    $  (44,828) $  (21,105) $ (136,716) $  (54,183)
  Depreciation and
   amortization                  3,355       3,600       3,693       3,851
  Stock-based compensation
   expense                       1,492       1,499       1,540       1,468
  Losses on education loans
   held for sale                 4,180      10,688     123,926      40,049
  Cash receipts from
   education loans               3,311       3,134       4,738       4,342
  Cash receipts from trust
   distributions                   382          23          24          25
  Interest income accruals
   from education loans         (3,974)     (4,973)     (8,127)     (8,269)
  Residuals-trust updates           91      (1,453)       (824)     (2,309)
  Asset servicing fees             502      (1,980)     (2,262)     (2,385)
  Additional structural
   advisory fees-trust
   updates                      21,440        (278)       (363)      5,691
  Other                          1,589        (625)       (368)        973
                            ----------  ----------  ----------  ---------- 
  Non-GAAP net operating
   cash usage               $  (12,460) $  (11,470) $  (14,739) $  (10,747)
                            ==========  ==========  ==========  ========== 



                                                      Nine Months Ended
                                                          March 31,
                                                   -----------------------
                                                      2010         2009
                                                   ----------   ---------- 
                                                        (in thousands)
Loss before income taxes                           $ (202,649)  $ (496,656)
  Depreciation and amortization                        10,648       13,949
  Stock-based compensation expense                      4,531        5,817
  Losses on education loans held for sale             138,794       98,460
  Prepaid default prevention expense                        -        9,748
  Sale of NC Residuals Owner Trust                          -      134,481
  Cash receipts from education loans                   11,184       11,849
  Cash receipts from trust distributions                  429        1,530
  Interest income accruals from education loans       (17,075)     (30,350)
  Residuals-trust updates                              (2,186)     151,124
  Asset servicing fees                                 (3,740)           -
  Additional structural advisory fees-trust updates    20,799       51,466
  Other                                                   596          242
                                                   ----------   ---------- 
  Non-GAAP net operating cash usage                $  (38,669)  $  (48,340)
                                                   ==========   ========== 

© The First Marblehead Corporation

Contact Information

  • Contact:

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