SOURCE: The First Marblehead Corporation

The First Marblehead Corporation

May 16, 2011 19:33 ET

First Marblehead Announces Third Quarter Results; Bank Subsidiary to Begin Originating Private Education Loans

BOSTON, MA--(Marketwire - May 16, 2011) - The First Marblehead Corporation (NYSE: FMD) today announced its financial and operating results for the third quarter of fiscal 2011 and for the nine-month period ended March 31, 2011.

For the third quarter of fiscal 2011, the Company recorded a net loss of $39.3 million, or $0.39 per share, compared to a net loss for the third quarter of fiscal 2010 of $40.5 million, or $0.41 per share. For the first nine months of fiscal 2011, the Company's net loss was $137.7 million, or $1.37 per share, compared to a net loss of $175.3 million, or $1.77 per share, for the first nine months of fiscal 2010.

"Throughout the first three quarters of fiscal 2011, the Company continued to make progress in re-establishing itself as a leader in the industry," said Daniel Meyers, Chairman and Chief Executive Officer. "Loan programs based on our Monogram® platform are now recommended by more than 200 schools, and our subsidiary Tuition Management Systems LLC ("TMS") became cash flow positive a full quarter ahead of schedule. We have also made the decision to retain Union Federal Savings Bank, which is expected to begin originating Monogram-based private education loans in early fiscal 2012."

Following the consolidation of 14 securitization trusts on July 1, 2010, the Company presents two distinct reporting segments: Education Financing and Securitization Trusts. Results for the Education Financing segment are generally comparable to the operating performance reported by the Company for periods prior to July 1, 2010, although results after July 1, 2010 also give effect to the deconsolidation of an indirect subsidiary for which the Company is not considered to be the primary beneficiary. After January 1, 2011, results for the Education Financing segment also include the results of TMS. The Securitization Trusts segment reflects the results of the 14 consolidated trusts.

Education Financing Segment Results

The net loss for the Education Financing segment was $41.7 million, or $0.41 per share, for the quarter ended March 31, 2011 compared to a loss of $36.9 million, or $0.37 per share, for the same period in 2010. For the nine months ended March 31, 2011, the net loss was $61.9 million, or $0.61 per share, compared to a net loss for the nine months ended March 31, 2010 of $101.5 million, or $1.02 per share.

The net loss for the current quarter included a net non-cash adjustment of ($26.6) million, or ($0.26) per share, to the estimated fair value of service revenue receivables due from the Securitization Trusts segment attributable to changes in performance assumptions for the National Collegiate Student Loan Trusts. During the quarter, the Company completed a review of post-default loan recovery performance, including the impact of the recession on observed performance levels by risk segment and determined that a reduction to its recovery assumptions across risk segments was appropriate. The Company's performance expectations for loans based on its Monogram® platform remain unchanged.

Revenues from administrative and other fees increased to $11.4 million from $4.7 million over the comparable prior year quarter primarily as a result of $7.1 million in service revenues from TMS. Non-interest expenses increased to $27.2 million from $24.1 million over the comparable prior year quarter reflecting the addition of TMS partially offset by lower depreciation and amortization expense and occupancy costs.

Stockholders' equity for the Education Financing segment was $274.0 million as of March 31, 2011.

Securitization Trusts Segment Results

The net income for the Securitization Trusts segment was $2.3 million, or $0.02 per share, for the three months ended March 31, 2011. For the nine months ended March 31, 2011, the net loss for the Securitization Trust segment was $75.4 million, or $0.75 per share. Total revenues of ($7.5) million for the third quarter of fiscal 2011 principally reflect net interest income of $64.4 million and a provision for loan losses of $73.7 million. For the nine months ended March 31, 2011, total revenues of ($100.9) million reflect, among other things, net interest income of $202.4 million and a provision for loan losses of $305.7 million. Total non-interest expenses for the March 2011 quarter reflects a gain of $9.7 million as a result of a decrease in the estimated fair value of service fees payable to the Education Financing segment of $21.5 million.

Of the 14 consolidated securitization trusts reported in the Securitization Trusts segment, the Company does not own any residual interests in the 11 consolidated NCSLT securitization trusts, but owns 100% of the residual interests in the three GATE Trusts. Net income from the GATE Trusts for the three and nine month periods ended March 31, 2011 was $1.7 million, or $0.02 per share, and $4.9 million, or $0.05 per share, respectively.

Stockholders' deficit for the Securitization Trusts segment was $1.07 billion as of March 31, 2011.

Company Liquidity

As of March 31, 2011, the Company had $278.7 million in cash, cash equivalents, short-term investments and federal funds sold, compared to $293.8 million at December 31, 2010. During the quarter, TMS generated $524 thousand of positive cash flow, after capital expenditures. Net operating cash usage* for the quarter ended March 31, 2011 was approximately $13.1 million, which was relatively unchanged from $12.6 million from the comparable prior year quarter and up from approximately $11.5 million for the quarter ended December 31, 2010. Net operating cash usage for the second quarter of fiscal 2011 reflected $3.1 million in cash proceeds from settlements related to the TERI reorganization, partially offset by $1.1 million in other costs.

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

Quarterly Conference Call

First Marblehead will host a conference call on May 17, 2011 at 5:00 p.m. Eastern time to discuss its results. Investors and other interested parties are invited to listen to the conference call via a simultaneous internet broadcast on the company's website at www.firstmarblehead.com, under Investors, or by dialing (866) 202-4683 in the United States or (617) 213-8846 from abroad and entering the pass code 31324939.

About The First Marblehead Corporation -- First Marblehead helps meet the need for education financing by offering national and regional financial institutions and educational institutions the Monogram® platform, an integrated suite of design, implementation and credit risk management services for private label, customizable private education 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. First Marblehead also offers outsourced tuition planning, billing and payment technology services through its subsidiary Tuition Management Systems LLC. For more information, go to www.afford.com.

Statements in this press release, including the financial tables, regarding First Marblehead's future financial and operating results and liquidity, including the future origination of private education loans by Union Federal Savings Bank, 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 May 16, 2011. 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, intentions or expectations expressed or implied 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 and resulting cash flows 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 platform and fee-based service offerings; the volume, timing and performance of facilitated loans; the size and structure of any credit enhancement provided by First Marblehead in connection with the Monogram platform; our success in designing, implementing and commercializing private education loan programs through Union Federal Savings Bank, including receipt of and compliance with regulatory approvals and conditions with respect to such programs; 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, regulatory 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 First Marblehead, including as a result of the audit being conducted by the Internal Revenue Service relating to tax refunds previously received; resolution of pending litigation pertaining to our Massachusetts state income tax returns; 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 and residuals receivables; our success in integrating the operations of Tuition Management Systems LLC and realizing the anticipated benefits of our acquisition of TMS, including additional fee-based revenues: 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 16, 2011. 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; economic, legislative, regulatory, competitive and other factors affecting discount, default, recovery and prepayment rates on loan portfolios 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 education loans; and interest rate trends. We specifically disclaim any obligation to update any forward-looking statements as a result of developments occurring after the date of this press release, even if our estimates change, and you should not rely on those statements as representing our views as of any date subsequent to the date of this press release.



            The First Marblehead Corporation and Subsidiaries
   Condensed Consolidated Statements of Operations By Reporting Segment
            For the Three Months Ended March 31, 2011 and 2010
                                (Unaudited)
        (dollars and shares in thousands, except per share amounts)


                                Three months ended March 31,
                    ------------------------------------------------------
                                            2011
                    ------------------------------------------------------
                     Education   Securitization
                     Financing       Trusts     Eliminations      Total
                    ------------  ------------  ------------  ------------
                                    (dollars in thousands)
Revenues:
Net interest income:
  Interest income   $        557  $     79,323  $          9  $     79,889
  Interest expense          (206)      (14,881)           --       (15,087)
                    ------------  ------------  ------------  ------------
    Net interest
     income                  351        64,442             9        64,802
  Provision for loan
   losses                    (10)      (73,745)           --       (73,755)
                    ------------  ------------  ------------  ------------
      Net interest
       income (loss)
       after
       provision
       for loan
       losses                341        (9,303)            9        (8,953)
Non-interest
 revenues:
  Asset servicing
   fees:
    Fee income               170            --            --           170
    Fee updates           (5,129)           --            --        (5,129)
                    ------------  ------------  ------------  ------------
      Total asset
       servicing
       fees               (4,959)           --            --        (4,959)
  Additional
   structural
   advisory fees and
   residuals -- trust
   updates               (21,413)           --        21,646           233
  Administrative and
   other fees             11,414         1,818        (2,368)       10,864
                    ------------  ------------  ------------  ------------
      Total
       non-interest
       revenues          (14,958)        1,818        19,278         6,138
                    ------------  ------------  ------------  ------------
      Total revenues     (14,617)       (7,485)       19,287        (2,815)
Non-interest
 expenses:
  Compensation and
   benefits               11,615            --            --        11,615
  General and
   administrative
   expenses               15,563        (9,724)       19,157        24,996
  Losses on education
   loans held for
   sale                       --            --            --            --
                    ------------  ------------  ------------  ------------
      Total
       non-interest
       expenses           27,178        (9,724)       19,157        36,611
                    ------------  ------------  ------------  ------------
  Income (loss)
   before other
   income and
   income taxes          (41,795)        2,239           130       (39,426)
Other income -- gain
 from TERI
 settlements                  --            18            --            18
                    ------------  ------------  ------------  ------------
    Income (loss)
     before income
     taxes               (41,795)        2,257           130       (39,408)
Income tax expense
 (benefit)                   (82)           --            --           (82)
                    ------------  ------------  ------------  ------------
      Net income
       (loss)       $    (41,713) $      2,257  $        130  $    (39,326)
                    ============  ============  ============  ============
      Net income
       (loss) per
       basic and
       diluted
       share        $      (0.41) $       0.02  $         --  $      (0.39)
                    ============  ============  ============  ============

Basic and diluted
 weighted-average
 shares outstanding                                                100,834


                          Three months ended March 31,
                    ----------------------------------------
                                      2010
                    ----------------------------------------
                                 Deconsolidation
                     Education        and
                     Financing    Eliminations      Total
                    ------------  ------------  ------------
                            (dollars in thousands)
Revenues:
Net interest income:
  Interest income   $        605  $      3,777  $      4,382
  Interest expense          (615)       (3,111)       (3,726)
                    ------------  ------------  ------------
    Net interest
     income                  (10)          666           656
  Provision for loan
   losses                   (152)           --          (152)
                    ------------  ------------  ------------
      Net interest
       income (loss)
       after
       provision
       for loan
       losses               (162)          666           504
Non-interest
 revenues:
  Asset servicing
   fees:
    Fee income             2,133            --         2,133
    Fee updates           (2,635)           --        (2,635)
                    ------------  ------------  ------------
      Total asset
       servicing
       fees                 (502)           --          (502)
  Additional
   structural
   advisory fees and
   residuals -- trust
   updates               (21,531)           --       (21,531)
  Administrative and
   other fees              4,725          (164)        4,561
                    ------------  ------------  ------------
      Total
       non-interest
       revenues          (17,308)         (164)      (17,472)
                    ------------  ------------  ------------
      Total revenues     (17,470)          502       (16,968)
Non-interest
 expenses:
  Compensation and
   benefits                8,594            --         8,594
  General and
   administrative
   expenses               15,528          (442)       15,086
  Losses on education
   loans held for
   sale                       --         4,180         4,180
                    ------------  ------------  ------------
      Total
       non-interest
       expenses           24,122         3,738        27,860
                    ------------  ------------  ------------
  Income (loss)
   before other
   income and
   income taxes          (41,592)       (3,236)      (44,828)
Other income -- gain
 from TERI
 settlements                  --            --            --
                    ------------  ------------  ------------
    Income (loss)
     before income
     taxes               (41,592)       (3,236)      (44,828)
Income tax expense
 (benefit)                (4,647)          302        (4,345)
                    ------------  ------------  ------------
      Net income
       (loss)       $    (36,945) $     (3,538) $    (40,483)
                    ============  ============  ============
      Net income
       (loss) per
       basic and
       diluted
       share        $      (0.37) $      (0.04) $      (0.41)
                    ============  ============  ============

Basic and diluted
 weighted-average
 shares outstanding                                   99,248





            The First Marblehead Corporation and Subsidiaries
   Condensed Consolidated Statements of Operations By Reporting Segment
            For the Nine Months Ended March 31, 2011 and 2010
                                (Unaudited)
        (dollars and shares in thousands, except per share amounts)


                                 Nine months ended March 31,
                    ------------------------------------------------------
                                            2011
                    ------------------------------------------------------
                     Education   Securitization
                     Financing       Trusts     Eliminations      Total
                    ------------  ------------  ------------  ------------
                                    (dollars in thousands)
Revenues:
Net interest income:
  Interest income   $      1,478  $    251,346  $         29  $    252,853
  Interest expense          (823)      (48,974)           --       (49,797)
                    ------------  ------------  ------------  ------------
    Net interest
     income                  655       202,372            29       203,056
  Provision for loan
   losses                   (277)     (305,679)           --      (305,956)
                    ------------  ------------  ------------  ------------
      Net interest
       income (loss)
       after
       provision
       for loan
       losses                378      (103,307)           29      (102,900)
Non-interest
 revenues:
  Asset servicing
   fees:
    Fee income             1,929            --            --         1,929
    Fee updates           (6,165)           --            --        (6,165)
                    ------------  ------------  ------------  ------------
      Total asset
       servicing
       fees               (4,236)           --            --        (4,236)
  Additional
   structural
   advisory fees and
   residuals -- trust
   updates               (16,654)           --        16,552          (102)
  Administrative and
   other fees             20,199         2,393        (7,478)       15,114
                    ------------  ------------  ------------  ------------
      Total
       non-interest
       revenues             (691)        2,393         9,074        10,776
                    ------------  ------------  ------------  ------------
      Total revenues        (313)     (100,914)        9,103       (92,124)
Non-interest
 expenses:
  Compensation and
   benefits               27,640            --            --        27,640
  General and
   administrative
   expenses               40,088        17,083         9,538        66,709
  Losses on education
   loans held for
   sale                       --            --            --            --
                    ------------  ------------  ------------  ------------
      Total
       non-interest
       expenses           67,728        17,083         9,538        94,349
                    ------------  ------------  ------------  ------------
  Loss before other
   income and income
   taxes                 (68,041)     (117,997)         (435)     (186,473)
Other income -- gain
 from TERI
 settlements               8,112        42,587            --        50,699
                    ------------  ------------  ------------  ------------
    Loss before
     income taxes        (59,929)      (75,410)         (435)     (135,774)
Income tax expense
 (benefit)                 1,957            --            --         1,957
                    ------------  ------------  ------------  ------------
      Net loss      $    (61,886) $    (75,410) $       (435) $   (137,731)
                    ============  ============  ============  ============
      Net loss per
       basic and
       diluted
       share        $      (0.61) $      (0.75) $      (0.01) $      (1.37)
                    ============  ============  ============  ============

Basic and diluted
 weighted-average
 shares outstanding                                                100,809


                           Nine months ended March 31,
                    ----------------------------------------
                                      2010
                    ----------------------------------------
                                 Deconsolidation
                     Education        and
                     Financing    Eliminations      Total
                    ------------  ------------  ------------
                            (dollars in thousands)
Revenues:
Net interest income:
  Interest income   $      6,505  $     11,813  $     18,318
  Interest expense        (2,219)       (9,502)      (11,721)
                    ------------  ------------  ------------
    Net interest
     income                4,286         2,311         6,597
  Provision for loan
   losses                   (105)           --          (105)
                    ------------  ------------  ------------
      Net interest
       income (loss)
       after
       provision
       for loan
       losses              4,181         2,311         6,492
Non-interest
 revenues:
  Asset servicing
   fees:
    Fee income             6,012            --         6,012
    Fee updates           (2,272)           --        (2,272)
                    ------------  ------------  ------------
      Total asset
       servicing
       fees                3,740            --         3,740
  Additional
   structural
   advisory fees and
   residuals -- trust
   updates               (18,613)           --       (18,613)
  Administrative and
   other fees             15,588          (498)       15,090
                    ------------  ------------  ------------
      Total
       non-interest
       revenues              715          (498)          217
                    ------------  ------------  ------------
      Total revenues       4,896         1,813         6,709
Non-interest
 expenses:
  Compensation and
   benefits               24,937            --        24,937
  General and
   administrative
   expenses               45,516           111        45,627
  Losses on education
   loans held for
   sale                   63,573        75,221       138,794
                    ------------  ------------  ------------
      Total
       non-interest
       expenses          134,026        75,332       209,358
                    ------------  ------------  ------------
  Loss before other
   income and income
   taxes                (129,130)      (73,519)     (202,649)
Other income -- gain
 from TERI
 settlements                  --            --            --
                    ------------  ------------  ------------
    Loss before
     income taxes       (129,130)      (73,519)     (202,649)
Income tax expense
 (benefit)               (27,666)          299       (27,367)
                    ------------  ------------  ------------
      Net loss      $   (101,464) $    (73,818) $   (175,282)
                    ============  ============  ============
      Net loss per
       basic and
       diluted
       share        $      (1.02) $      (0.75) $      (1.77)
                    ============  ============  ============

Basic and diluted
 weighted-average
 shares outstanding                                   99,232





            The First Marblehead Corporation and Subsidiaries
        Condensed Consolidated Balance Sheet By Reporting Segment
                           As of March 31, 2011
                                (Unaudited)
                          (dollars in thousands)


                                       March 31, 2011
                    ------------------------------------------------------
                     Education   Securitization
                     Financing       Trusts     Eliminations      Total
                    ------------  ------------  ------------  ------------
                                    (dollars in thousands)
Assets:
Cash, cash equivalents
 and short-term
 investments        $    278,709  $         --  $         --  $    278,709
Restricted cash and
 investments              97,436       129,576            --       227,012
Education loans               --     7,135,334          (390)    7,134,944
Service revenue
 receivables              31,929            --       (22,140)        9,789
All other assets          83,296       108,931        (3,499)      188,728
                    ------------  ------------  ------------  ------------
  Total assets      $    491,370  $  7,373,841  $    (26,029) $  7,839,182
                    ============  ============  ============  ============
Liabilities:
Long-term
 borrowings         $         --  $  8,410,811  $         --  $  8,410,811
Other liabilities        217,334        28,716       (19,957)      226,093
                    ------------  ------------  ------------  ------------
  Total liabilities      217,334     8,439,527       (19,957)    8,636,904
  Total stockholders'
   equity (deficit)      274,036    (1,065,686)       (6,072)     (797,722)
                    ------------  ------------  ------------  ------------
  Total liabilities
   and stockholders'
   equity (deficit) $    491,370  $  7,373,841  $    (26,029) $  7,839,182
                    ============  ============  ============  ============





            The First Marblehead Corporation and Subsidiaries
              Condensed Consolidated Statements of Operations
        For the Three and Nine Months Ended March 31, 2011 and 2010
                                (Unaudited)
        (dollars and shares in thousands, except per share amounts)


                              Three months ended      Nine months ended
                                   March 31,               March 31,
                            ----------------------  ----------------------
                               2011        2010        2011        2010
                            ----------  ----------  ----------  ----------
Revenues:
Net interest income:
  Interest income           $   79,889  $    4,382  $  252,853  $   18,318
  Interest expense             (15,087)     (3,726)    (49,797)    (11,721)
                            ----------  ----------  ----------  ----------
    Net interest income         64,802         656     203,056       6,597
  Provision for loan losses    (73,755)       (152)   (305,956)       (105)
                            ----------  ----------  ----------  ----------
    Net interest income
     (loss) after provision
     for loan losses            (8,953)        504    (102,900)      6,492
Non-interest revenues:
  Asset servicing fees:
    Fee income                     170       2,133       1,929       6,012
    Fee updates                 (5,129)     (2,635)     (6,165)     (2,272)
                            ----------  ----------  ----------  ----------
      Total asset servicing
       fees                     (4,959)       (502)     (4,236)      3,740
  Additional structural
   advisory fees and
   residuals -- trust
   updates                         233     (21,531)       (102)    (18,613)
  Administrative and other
   fees                         10,864       4,561      15,114      15,090
                            ----------  ----------  ----------  ----------
      Total non-interest
       revenues                  6,138     (17,472)     10,776         217
                            ----------  ----------  ----------  ----------
      Total revenues            (2,815)    (16,968)    (92,124)      6,709
Non-interest expenses:
  Compensation and benefits     11,615       8,594      27,640      24,937
  General and administrative
   expenses                     24,996      15,086      66,709      45,627
  Losses on education loans
   held for sale                    --       4,180          --     138,794
                            ----------  ----------  ----------  ----------
      Total non-interest
       expenses                 36,611      27,860      94,349     209,358
                            ----------  ----------  ----------  ----------
  Loss before other income
   and income taxes            (39,426)    (44,828)   (186,473)   (202,649)
  Other income -- gain from
   TERI settlements                 18          --      50,699          --
                            ----------  ----------  ----------  ----------
      Loss before income
       taxes                   (39,408)    (44,828)   (135,774)   (202,649)
Income taxes                       (82)     (4,345)      1,957     (27,367)
                            ----------  ----------  ----------  ----------
      Net loss              $  (39,326) $  (40,483) $ (137,731) $ (175,282)
                            ==========  ==========  ==========  ==========

Net loss per share:
  Basic                     $    (0.39) $    (0.41) $    (1.37) $    (1.77)
  Diluted                        (0.39)      (0.41)      (1.37)      (1.77)

Weighted average shares
 outstanding:
  Basic                        100,834      99,248     100,809      99,232
  Diluted                      100,834      99,248     100,809      99,232





            The First Marblehead Corporation and Subsidiaries
                  Condensed Consolidated Balance Sheets
                  As of March 31, 2011 and June 30, 2010
                                (Unaudited)
                          (dollars in thousands)


                                                    March 31,    June 30,
                                                      2011         2010
                                                   -----------  -----------
ASSETS
Cash and cash equivalents                          $   226,709  $   329,047
Short-term investments and federal funds sold,
 at cost                                                52,000       52,000
Restricted cash and guaranteed investment
 contracts, at cost                                    227,012        1,026
Investments available for sale, at fair value            3,559        4,471
Education loans held for sale, at lower of cost
 or fair value                                              --      105,082
Education loans held to maturity, net of
 allowance of $447,940 and $24,804                   7,134,944          391
Mortgage loans held to maturity, net of allowance
 of $612 and $367                                        6,915        8,118
Interest receivable                                     73,570        2,457
Deposits for participation interest accounts,
 at fair value                                           8,505           --
Service revenue receivables, at fair value               9,789       53,279
Income taxes receivable                                     --        7,665
Goodwill                                                22,170           --
Intangible assets, net of accumulated amortization      27,820        1,194
Other assets                                            46,189       16,830
                                                   -----------  -----------
   Total assets                                    $ 7,839,182  $   581,560
                                                   ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Deposits                                           $    57,258  $   108,732
Restricted funds due to clients                         94,698           --
Accounts payable, accrued expenses and other
 liabilities                                            32,925       36,764
Income taxes payable                                    40,336           --
Net deferred tax liability                                 876          753
Education loan warehouse facility                           --      218,059
Long-term borrowings                                 8,410,811           --
                                                   -----------  -----------
   Total liabilities                                 8,636,904      364,308
Commitments and contingencies
   Total stockholders' equity (deficit)               (797,722)     217,252
                                                   -----------  -----------
   Total liabilities and stockholders' equity
    (deficit)                                      $ 7,839,182  $   581,560
                                                   ===========  ===========


Use of Non-GAAP Financial Measures

In addition to providing financial measurements based on accounting principles generally accepted in the United States ("GAAP"), the company has included in this press release an additional financial metric that we refer to as "net operating cash usage" and that was not prepared in accordance with GAAP. We define "net operating cash usage" to mean approximate cash requirements to fund our operations. "Net operating cash usage" is not directly comparable to our consolidated statement of cash flows 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.

Management and our board of directors use this non-GAAP financial metric, in addition to GAAP financial measures, as a basis for measuring and forecasting our core operating performance and comparing such performance to that of prior periods. The non-GAAP financial measure is also used by us in our financial and operational decision-making.

First Marblehead believes that the inclusion of the non-GAAP financial metric helps investors to gain a better understanding of the company's quarterly and annual results, including our 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. In addition, our presentation of this non-GAAP financial measure is consistent with how we expect that analysts may calculate their estimates of our financial results in their research reports and with how investors, analysts and financial news media may evaluate our financial results.

There are limitations associated with reliance on any 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.

"Net operating cash usage" should be considered in addition to, and not as a substitute for or superior to, financial information prepared in accordance with GAAP. Net operating cash usage relates solely to the Education Financing Segment, and excludes the effects of income taxes, acquisitions, participation interest account fundings and changes in other assets and liabilities that are solely related to short-term timing of cash payments or receipts and is not directly comparable to operating cash flows in the statement of cash flows.

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 three and nine month periods ended March 31, 2011 as well as the three months ended December 31, 2010, and reconciles the GAAP measure to the comparable non-GAAP financial metric:



                           Three months ended          Nine months ended
                     -------------------------------  --------------------
                     March 31,  December   March 31,  March 31,  March 31,
                       2011     31, 2010     2010       2011       2010
                     ---------  ---------  ---------  ---------  ---------
                                    (dollars in thousands)
Loss before income
 taxes               $ (39,408) $ (32,480) $ (44,828) $(135,774) $(202,649)
(Income) loss
 attributable to the
 Securitization
 Trusts segment and
 related eliminations   (2,387)    29,333      3,236     75,845     73,519
                     ---------  ---------  ---------  ---------  ---------
Education Financing
 net loss before
 income taxes          (41,795)    (3,147)   (41,592)   (59,929)  (129,130)
Adjustments for
 non-cash revenues
 and expenses:
  Trust update
   (gains) losses
   -- additional
   structural advisory
   fees and residuals:
      Consolidated
       NCSLT Trusts     21,646     (5,172)        --     16,552         --
      Off-balance
       sheet VIEs         (233)      (297)    21,531        102     18,613
  Asset servicing fees   4,959        346        502      4,236     (3,740)
  Non-cash gain from
   TERI Settlement          --     (5,021)        --     (5,021)        --
  Depreciation and
   amortization          2,125      1,920      3,355      6,573     10,648
  Stock-based
   compensation
   expense               1,276      1,199      1,492      3,526      4,531
  Losses on education
   loans held for sale
   of Union Federal         --         --         --         --     63,573
  TMS deferred revenue     558         --         --        558         --
  Cash receipts from
   education loans,
   net of interest
   income accruals         118        206        101        413     (2,078)
  Cash receipts from
   trust
   distributions            32        134        382        460        429
  Other                 (1,778)    (1,692)     1,588     (4,511)       596
                     ---------  ---------  ---------  ---------  ---------
    Non-GAAP cash
     usage           $ (13,092) $ (11,524) $ (12,641) $ (37,041) $ (36,558)
                     =========  =========  =========  =========  =========


Contact Information

  • Contact:

    David Hartung
    Investor Relations
    First Marblehead
    800 Boylston Street, 34th FL
    Boston, MA 02199
    617.638.2065