SOURCE: The First Marblehead Corporation

The First Marblehead Corporation

August 17, 2009 17:00 ET

First Marblehead Announces Fourth Quarter and Full Year Fiscal 2009 Results

BOSTON, MA--(Marketwire - August 17, 2009) - The First Marblehead Corporation (NYSE: FMD) today announced its financial and operating results for the fourth quarter of fiscal 2009 and for the fiscal year ended June 30, 2009.

Quarterly revenues were positive for the first time since the first quarter of fiscal 2008. The fourth quarter of fiscal 2009 represents the third consecutive quarter of improved year-over-year quarterly results of operations.

Total revenues for the fourth quarter of fiscal 2009 were $11.6 million, as compared to ($33.8) million for the same period last year. Service revenues for the fourth quarter of fiscal 2009 reflected asset servicing fees in the amount of $2.4 million for services provided to the owner of NC Residuals Owners Trust, which holds the trust residual interests previously sold by the company.

Total non-interest expenses for the fourth quarter of fiscal 2009 were $65.8 million, including a $40.0 million unrealized loss on education loans held for sale, as compared to $63.8 million for the fourth quarter of fiscal 2008, including a $7.4 million unrealized loss on education loans held for sale. Compensation and benefits expenses decreased $9.4 million or 54% from the same period last year and general and administrative expenses decreased $21.3 million or 54% from the same period last year, as a result of the company's expense reduction initiatives.

For the fourth quarter of fiscal 2009, the company recorded a net loss of $36.1 million or $0.36 per share compared to a net loss of $56.7 million or $0.57 per share for the prior year fiscal fourth quarter.

For the fiscal year ended June 30, 2009, the company recorded a net loss of $363.0 million or $3.66 per share compared to a net loss of $235.1 million or $2.46 per share for the prior fiscal year.

Total revenues for the fiscal year ended June 30, 2009 were ($290.0) million, compared to ($28.4) million for fiscal 2008. Fiscal 2008 revenues included $320.4 million of revenues from new securitization transactions.

Total non-interest expenses for fiscal 2009 were $260.8 million, including a $138.2 million unrealized loss on education loans held for sale, as compared to $358.5 million for the prior year, including a $7.4 million unrealized loss on education loans held for sale. Compensation and benefits expenses decreased $54.5 million or 56% from the prior year and general and administrative expenses decreased $174.0 million or 68% from the prior year, as a result of the company's expense reduction initiatives.

The company ended the quarter with $167.2 million in cash, cash equivalents and investments. The sale of NC Residuals Owners Trust and the net operating losses are expected to generate a cash refund for taxes previously paid, and the company recorded an income tax receivable of approximately $166.4 million at June 30, 2009. Net operating cash usage* was approximately $11 million for the quarter ended June 30, 2009, down from approximately $14 million for the quarter ended March 31, 2009 (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. 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. For more information, go to www.firstmarblehead.com.

Statements in this press release, including the financial tables, regarding First Marblehead's future financial and operating results, liquidity and any potential tax refund, 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 and on our plans, estimates and expectations as of August 17, 2009. 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 securitization 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: our ability to structure securitizations or alternative financings, including with regard to any of our loans held for sale; the size, structure and timing of any such securitizations or alternative financings; U.S. federal or state income consequences, which are complex and uncertain, relating to the transfer of the trust certificate of NC Residuals Owners Trust and the asset services agreement between the purchaser and the company (collectively, the "Transactions"); any investigation, audit, claim, action or suit relating to the Transactions, including any such proceeding initiated by the Internal Revenue Service relating to the federal income tax treatment of any aspect of the Transactions or any tax refund previously received; developments in the bankruptcy proceedings of The Education Resources Institute, Inc. (TERI), including the terms of any plan of reorganization and the outcome of the challenges to the enforceability of security interests of securitization trusts; the demand for, and market acceptance of, loan programs that we develop, including our success in providing such products to former, current and prospective clients; degradation of credit quality, performance of the loan portfolios held by either the securitization trusts or us or value of any credit enhancements; the estimates we make and the assumptions on which we rely in preparing our financial statements, including with respect to the valuation of our loans held for sale; continued variance between the actual performance of securitization trusts and the key assumptions that we have used to estimate the fair value of additional structural advisory fees, asset serving fees and residual receivables; continued decreases in the estimated fair value of our loans held for sale, including as a result of actual transactions or market observations; our compliance with banking regulations and directives, including 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 May 8, 2009. Important factors that could cause or contribute to differences between the actual performance of the securitization trusts or our loans held for sale, on the one hand, and our key assumptions, on the other hand, include economic, regulatory, competitive and other factors affecting prepayment, default and recovery rates on the underlying loan portfolio; capital market receptivity to securities backed by private student loans, particularly direct-to-consumer 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 Months and Fiscal Years Ended June 30, 2009 and 2008
                              (Unaudited)
                (in thousands, except per share amounts)


                              Three months ended      Twelve months ended
                                   June 30,                June 30,
                               2009        2008        2009        2008
                            ----------  ----------  ----------  ----------
Service revenues:
  Up-front structural
   advisory fees            $        -  $       56  $        -  $  179,106

  Additional structural
   advisory fees
    From new
     securitizations                 -           -           -      24,304
    Trust updates               (5,691)    (22,506)    (57,157)    (44,106)
                            ----------  ----------  ----------  ----------
      Total additional
       structural advisory
       fees                     (5,691)    (22,506)    (57,157)    (19,802)

  Asset servicing fees
    Fee income                   2,350           -       2,350           -
    Fee updates                     35           -          35           -
                            ----------  ----------  ----------  ----------
      Total asset servicing
       fees                      2,385           -       2,385           -

  Residuals
    From new
     securitizations                 -           -           -     116,972
    Trust updates                2,309     (37,548)   (283,295)   (488,832)
                            ----------  ----------  ----------  ----------
      Total residuals            2,309     (37,548)   (283,295)   (371,860)

  Processing fees from TERI        162      17,683       3,050     126,540

  Administrative and other
   fees                          7,751       1,878      19,908      31,985
                            ----------  ----------  ----------  ----------

    Total service revenues       6,916     (40,437)   (315,109)    (54,031)

  Net interest income            4,694       6,664      25,103      25,622
                            ----------  ----------  ----------  ----------

    Total revenues              11,610     (33,773)   (290,006)    (28,409)
                            ----------  ----------  ----------  ----------

Non-interest expenses:
  Compensation and benefits      7,898      17,328      42,232      96,735
  General and administrative
   expenses                     17,846      39,105      80,438     254,439
  Unrealized loss on loans
   held for sale                40,049       7,373     138,163       7,373
                            ----------  ----------  ----------  ----------
      Total non-interest
       expenses                 65,793      63,806     260,833     358,547

(Loss) before income taxes     (54,183)    (97,579)   (550,839)   (386,956)

Income tax (benefit)           (18,101)    (40,908)   (187,819)   (151,880)
                            ----------  ----------  ----------  ----------

Net (loss)                  $  (36,082) $  (56,671) $ (363,020) $ (235,076)
                            ==========  ==========  ==========  ==========

      Net (loss) per share,
       basic                $    (0.36) $    (0.57) $    (3.66) $    (2.46)
      Net (loss) per share,
       diluted                   (0.36)      (0.57)      (3.66)      (2.46)
      Cash dividends
       declared per share            -           -           -       0.395
      Weighted average
       shares outstanding,
       basic                    99,122      98,878      99,081      95,732
      Weighted average
       shares outstanding,
       diluted                  99,122      98,878      99,081      95,732




           The First Marblehead Corporation and Subsidiaries
                Condensed Consolidated Balance Sheets
                As of June 30, 2009 and June 30, 2008
                             (Unaudited)
                        (amounts in thousands)


                                                     June 30,    June 30,
                                                       2009        2008
                                                    ----------- -----------
Assets
  Cash, cash equivalents and investments            $   167,220 $   140,909
  Federal funds sold                                     14,326      80,215
  Loans held for sale                                   350,960     497,324
  Service receivables:
        Structural advisory fees                         55,130     113,842
        Asset servicing fees                              2,385           -
        Residuals                                         9,960     293,255
        Other                                                47       4,086
                                                    ----------- -----------
                Total service receivables                67,522     411,183
                                                    ----------- -----------

  Property and equipment, net                            19,929      37,681

  Goodwill and intangible assets, net                     1,931       3,657
  Other prepaid expenses                                  3,571      15,377
  Mortgage loans held to maturity, net                    9,515      10,754
  Income taxes receivable                               166,410           -
  Net deferred tax asset                                 13,124           -
  Other assets                                            6,822       3,798
                                                    ----------- -----------
                Total assets                        $   821,330 $ 1,200,898
                                                    =========== ===========

Liabilities and Stockholders' Equity
  Liabilities:
        Deposits                                    $   154,462 $   244,113
        Education loan warehouse facility               230,137     242,899
        Accounts payable and accrued expenses            21,512      20,543
        Income taxes payable                                  -      31,275
        Net deferred tax liability                            -      10,385
        Other liabilities                                 9,754      14,071
                                                    ----------- -----------
                Total liabilities                       415,865     563,286
                                                    ----------- -----------

  Commitments and contingencies

  Stockholders' equity                                  405,465     637,612
                                                    ----------- -----------
                Total liabilities and stockholders'
                 equity                             $   821,330 $ 1,200,898
                                                    =========== ===========




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


                                              Three Months   Twelve Months
                                                  Ended          Ended
                                                June 30,       June 30,
                                                  2009           2009
                                              -------------  -------------
Structural Advisory Fees Receivable
Beginning of period balance                   $      60,846  $     113,842

Cash received from trust distributions                  (25)        (1,555)

Trust updates:
   Passage of time (fair value accretion)             1,947          9,362
   Decrease in average prepayment rate                    -          3,127
   (Increase) decrease in discount rate
    assumptions                                          92        (23,022)
   Increase in timing and average default
    rate                                             (2,464)       (11,262)
   Decrease in recovery assumption                   (9,416)        (9,416)
   Increase in auction rate notes spread                  -        (13,087)
   Increase (decrease) in forward libor curve         4,424        (12,517)
   Other factors, net                                  (274)          (342)
                                              -------------  -------------
   Net change from trust updates                     (5,691)       (57,157)
                                              -------------  -------------

End of period balance                         $      55,130  $      55,130
                                              =============  =============

Residuals Receivable

Beginning of period balance                   $       7,651  $     293,255

Trust updates:
   Passage of time (fair value accretion)               346         20,453
   Decrease in average prepayment rate                    -         11,336
   (Increase) decrease in discount rate
    assumptions                                       1,063        (82,571)
   Increase in timing and average default
    rate                                                  -        (50,108)
   Increase in auction rate notes spread                  -        (31,779)
   Increase (decrease) in forward libor curve            90        (22,009)
   Decrease to reflect disposition                        -       (134,481)
   Other factors, net                                   810          5,864
                                              -------------  -------------
   Net change from trust updates                      2,309       (283,295)
                                              -------------  -------------

End of period balance                         $       9,960  $       9,960
                                              =============  =============

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 residual and structural advisory fee receivables at June 30, 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 structural advisory fee and residuals 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 changes 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 four quarters of fiscal 2009 and reconciles the non-GAAP financial metric to the comparable GAAP measure:

                                      Three Months Ended
                                        (in thousands)
                      June 30,      March 31,   December 31,  September 30,
                        2009          2009          2008          2008
                    ------------  ------------  ------------  ------------
(Loss) before
 income taxes       $    (54,183) $   (205,588) $   (145,233) $   (145,835)
  Depreciation and
   amortization            3,851         4,214         4,680         5,055
  Stock-based
   compensation
   expense                 1,468         1,587         1,675         2,555
  Unrealized losses
   on loans held
   for sale
   and mortgage
   loans                  40,194        47,699        29,424        21,337
  Prepaid default
   prevention
   expense                     -         3,806         2,724         3,218
  Disposition of
   residuals                   -       134,481             -             -
  Cash receipts
   from student
   loans                   4,342         4,692         3,592         3,565
  Cash receipts
   from trust
   distributions              25            26            27         1,477
  Interest income
   accruals from
   student loans          (8,269)       (8,547)      (11,311)      (10,492)
  Net residual
   accretion from
   trust updates          (2,309)        1,885        69,082        80,156
  Asset servicing
   fee income             (2,385)            -             -             -
  Net structural
   advisory fees
   accretion
   from trust
   updates                 5,691         4,063        29,513        17,891
  Other                      828        (1,863)          796         1,309
                    ------------  ------------  ------------  ------------
  Non-GAAP net
   operating cash
   usage            $    (10,747) $    (13,545) $    (15,031) $    (19,764)
                    ============  ============  ============  ============

© 2009 First Marblehead

Contact Information

  • Contact:

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