Exhibit 99.1
News for Immediate Release
Contact:
Lee Jacobson
Investor Relations
First Marblehead
800 Boylston Street, 34th FL
Boston, MA 02199
617.638.2065
First Marblehead Sharply Reduces Fiscal Fourth Quarter and Full Year 2010 Losses
BOSTON, MA, August 16, 2010 — The First Marblehead Corporation (NYSE: FMD) today announced its financial and operating results for the fourth quarter of fiscal 2010 and for the fiscal year ended June 30, 2010.
Total revenues in the fourth quarter of fiscal 2010 were $9.5 million compared with $11.6 million for the same period last year. The $2.1 million decrease reflects $1.4 million in lower net interest income on fewer education loans held for sale and $0.7 million less in service revenues. The company recorded a net loss of $10.4 million, or $0.10 per share, in the fourth quarter of fiscal 2010, compared with a net loss of $36.1 million, or $0.36 per share, for the same period a year earlier.
Total revenues for fiscal 2010 were $16.3 million, compared with total revenues of ($290.0) million for fiscal 2009. The $306.3 million increase was primarily the result of lower fair value adjustments to service receivables during fiscal 2010 that were partially offset by $15.2 million in lower net interest income. The net loss for fiscal 2010 was $145.5 million,
or $1.46 per share, an improvement from a net loss of $363.0 million, or $3.66 per share, in fiscal 2009.
“We expect operating results to generally improve during fiscal 2011 as the Company recognizes revenues from our Monogram product,” said Daniel Meyers, chairman and chief executive officer. “Our Monogram product launch is generating lender interest. Recent agreements with SunTrust Bank and Kinecta Federal Credit Union reflect the improving market conditions and the value of our products and services.”
Mr. Meyers noted that the Company has made significant progress on several key initiatives designed to adjust its business model and refine its product offerings. “This is not an overnight turnaround, but we are beginning to deliver the results of that effort. Our balance sheet is far stronger. Financial institutions have re-entered the market for private education loans. Colleges are increasingly expressing their needs. The Company’s recently appointed national sales team is already rebuilding strong relationships—not only with lenders, but also directly with schools, which represent a critically important distribution channel. We are intently focused on aggressively building our revenue streams,” he continued.
Total non-interest expenses for the fourth quarter of fiscal 2010 were $22.7 million, including a $7.8 million unrealized gain on education loans held for sale, compared with $65.8 million in total non-interest expenses for the fourth quarter of fiscal 2009, including a $40.1 million unrealized loss on education loans held for sale. For the fourth quarter of fiscal 2010, general and administrative expenses decreased $5.5 million, and compensation and benefits expenses increased $10.3 million, compared with the fourth quarter of fiscal 2009.
Total non-interest expenses for fiscal 2010 were $232.1 million, including a $131.0 million loss on education loans held for sale, compared with $260.8 million in total non-interest expenses for fiscal 2009, which included a $138.2 million unrealized loss on education loans held for sale. For fiscal
2010, general and administrative expenses decreased $22.4 million, and compensation and benefits expense increased $0.9 million, compared with fiscal 2009.
The Company ended fiscal 2010 with $380.1 million in cash, cash equivalents and short-term investments, compared with $158.8 million at the end of fiscal 2009. Net operating cash usage* was approximately $12.4 million for the quarter ended June 30, 2010, down from approximately $12.5 million for the quarter ended March 31, 2010. Net operating cash usage* was $51.1 million for fiscal 2010, a 14% improvement over 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 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 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.
Statements in this press release, including the financial tables, regarding First Marblehead’s future financial and operating results, liquidity, improvements in our operating results, interest in our Monogram product offering, and market conditions 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 August 16, 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, intentions 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 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 loan product 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 loan product; 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 First Marblehead, including the audit being conducted by the Internal Revenue Service relating to tax refunds 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 May 10, 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 education 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 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.
-financial tables to follow-
The First Marblehead Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three and Twelve Months Ended June 30, 2010 and 2009
(Unaudited)
(dollars and shares in thousands, except per share amounts)
| | Three months ended | | Twelve months ended | |
| | June 30, | | June 30, | |
| | 2010 | | 2009 | | 2010 | | 2009 | |
Service revenues: | | | | | | | | | |
Additional structural advisory fees-trust updates | | $ | 974 | | $ | (5,691 | ) | $ | (19,825 | ) | $ | (57,157 | ) |
Asset servicing fees: | | | | | | | | | |
Fee income | | 889 | | 2,350 | | 6,901 | | 2,350 | |
Fee updates | | (1,234 | ) | 35 | | (3,506 | ) | 35 | |
Total asset servicing fees | | (345 | ) | 2,385 | | 3,395 | | 2,385 | |
Residuals-trust updates | | 677 | | 2,309 | | 2,863 | | (283,295 | ) |
Administrative and other fees | | 4,877 | | 7,912 | | 19,967 | | 22,958 | |
| | | | | | | | | |
Total service revenues | | 6,183 | | 6,915 | | 6,400 | | (315,109 | ) |
| | | | | | | | | |
Net interest income | | 3,274 | | 4,694 | | 9,871 | | 25,103 | |
| | | | | | | | | |
Total revenues | | 9,457 | | 11,609 | | 16,271 | | (290,006 | ) |
| | | | | | | | | |
Non-interest expenses: | | | | | | | | | |
Compensation and benefits | | 18,159 | | 7,898 | | 43,096 | | 42,232 | |
General and administrative expenses | | 12,332 | | 17,845 | | 58,064 | | 80,438 | |
Losses(gains) on education loans held for sale | | (7,839 | ) | 40,049 | | 130,955 | | 138,163 | |
Total non-interest expenses | | 22,652 | | 65,792 | | 232,115 | | 260,833 | |
| | | | | | | | | |
Loss before income taxes | | (13,195 | ) | (54,183 | ) | (215,844 | ) | (550,839 | ) |
| | | | | | | | | |
Income tax benefit | | (2,845 | ) | (18,101 | ) | (70,320 | ) | (187,819 | ) |
| | | | | | | | | |
Net loss | | $ | (10,350 | ) | $ | (36,082 | ) | $ | (145,524 | ) | $ | (363,020 | ) |
| | | | | | | | | |
Net loss per share: | | | | | | | | | |
Basic | | $ | (0.10 | ) | $ | (0.36 | ) | $ | (1.46 | ) | $ | (3.66 | ) |
Diluted | | (0.10 | ) | (0.36 | ) | (1.46 | ) | (3.66 | ) |
Weighted average shares outstanding: | | | | | | | | | |
Basic | | 100,457 | | 99,122 | | 99,537 | | 99,081 | |
Diluted | | 100,457 | | 99,122 | | 99,537 | | 99,081 | |
-more-
The First Marblehead Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
As of June 30, 2010 and June 30, 2009
(Unaudited)
(dollars in thousands)
| | June 30,
2010 | | June 30,
2009 | |
Assets | | | | | |
Cash and cash equivalents | | $ | 330,073 | | $ | 158,770 | |
Federal funds sold | | 2,000 | | 14,326 | |
Short-term investments, at cost | | 50,000 | | — | |
Investments held for sale, at fair value | | 4,471 | | 8,450 | |
Education loans held for sale | | 107,434 | | 350,960 | |
Service receivables: | | | | | |
Additional structural advisory fees | | 34,676 | | 55,130 | |
Asset servicing fees | | 5,780 | | 2,385 | |
Residuals | | 12,823 | | 9,960 | |
Total service receivables | | 53,279 | | 67,475 | |
| | | | | |
Property and equipment, net | | 8,086 | | 19,929 | |
Loans held-to-maturity, net | | 8,573 | | 9,515 | |
Income taxes receivable | | 17,560 | | 166,410 | |
Net deferred tax asset | | 41,915 | | 13,124 | |
Other assets | | 9,979 | | 12,371 | |
Total assets | | $ | 633,370 | | $ | 821,330 | |
| | | | | |
Liabilities and Stockholders’ Equity | | | | | |
Liabilities: | | | | | |
Deposits | | $ | 108,732 | | $ | 154,462 | |
Education loan warehouse facility | | 218,059 | | 230,137 | |
Accounts payable and accrued expenses | | 30,235 | | 21,512 | |
Other liabilities | | 6,529 | | 9,754 | |
Total liabilities | | 363,555 | | 415,865 | |
| | | | | |
Commitments and contingencies | | | | | |
| | | | | |
Stockholders’ equity | | 269,815 | | 405,465 | |
Total liabilities and stockholders’ equity | | $ | 633,370 | | $ | 821,330 | |
-more-
The First Marblehead Corporation and Subsidiaries
Roll-forward of Additional Structural Advisory Fees and Residuals Receivables
(dollars in thousands)
| | Three Months
Ended | | Twelve Months
Ended | |
| | June 30,
2010 | | June 30,
2010 | |
Additional Structural Advisory Fees Receivable | | | | | |
Fair value at beginning of period | | $ | 33,902 | | $ | 55,130 | |
| | | | | |
Cash received from trust distributions | | (200 | ) | (629 | ) |
| | | | | |
Trust updates: | | | | | |
Passage of time-fair value accretion | | 1,179 | | 6,194 | |
Decrease (Increase) in timing and average default rate | | 535 | | (42,081 | ) |
Decrease (Increase) in discount rate assumption | | 1,226 | | (9,803 | ) |
Decrease in average prepayment rate | | — | | 25,338 | |
Decrease in forward LIBOR curve | | (4,043 | ) | (2,305 | ) |
Other factors, net | | 2,077 | | 2,832 | |
Net change from trust updates | | 974 | | (19,825 | ) |
| | | | | |
Fair value at end of period | | $ | 34,676 | | $ | 34,676 | |
| | | | | |
Residuals Receivable | | | | | |
Fair value at beginning of period | | $ | 12,146 | | $ | 9,960 | |
| | | | | |
Trust updates: | | | | | |
Passage of time-fair value accretion | | 482 | | 1,828 | |
Increase in timing and average default rate | | — | | (353 | ) |
Decrease in discount rate assumption | | — | | 1,176 | |
(Decrease) Increase in forward LIBOR curve | | (23 | ) | 160 | |
Other factors, net | | 218 | | 52 | |
Net change from trust updates | | 677 | | 2,863 | |
| | | | | |
Fair value at end of period | | $ | 12,823 | | $ | 12,823 | |
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 June 30, 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 and annual 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 twelve months ended June 30, 2010 and 2009, and reconciles the non-GAAP financial metric to the comparable GAAP measure:
| | Three Months Ended | |
| | June 30,
2010 | | March 31,
2010 | | December 31,
2009 | | September 30,
2009 | |
| | (in thousands) | |
Loss before income taxes | | (13,195 | ) | $ | (44,828 | ) | $ | (21,105 | ) | $ | (136,716 | ) |
Depreciation and amortization | | 2,711 | | 3,355 | | 3,600 | | 3,693 | |
Stock-based compensation expense | | 8,482 | | 1,492 | | 1,499 | | 1,540 | |
Losses on education loans held for sale | | (7,839 | ) | 4,180 | | 10,688 | | 123,926 | |
Cash receipts from education loans | | 3,719 | | 3,311 | | 3,134 | | 4,738 | |
Cash receipts from trust distributions | | 200 | | 382 | | 23 | | 24 | |
Interest income accruals from education loans | | (4,310 | ) | (3,974 | ) | (4,973 | ) | (8,127 | ) |
Residuals-trust updates | | (677 | ) | 91 | | (1,453 | ) | (824 | ) |
Asset servicing fees | | 345 | | 502 | | (1,980 | ) | (2,262 | ) |
Additional structural advisory fees-trust updates | | (974 | ) | 21,440 | | (278 | ) | (363 | ) |
Other | | (890 | ) | 1,589 | | (625 | ) | (368 | ) |
Non-GAAP net operating cash usage | | $ | (12,428 | ) | $ | (12,460 | ) | $ | (11,470 | ) | $ | (14,739 | ) |
| | | | | | | | | | | | | |
| | Twelve Months Ended | |
| | June 30, | |
| | 2010 | | 2009 | |
| | (in thousands) | |
Loss before income taxes | | $ | (215,844 | ) | $ | (550,839 | ) |
Depreciation and amortization | | 13,359 | | 17,800 | |
Stock-based compensation expense | | 13,013 | | 7,285 | |
Losses on education loans held for sale | | 130,955 | | 138,163 | |
Prepaid default prevention expense | | — | | 9,748 | |
Sale of NC Residuals Owner Trust | | — | | 134,481 | |
Cash receipts from education loans | | 14,902 | | 16,191 | |
Cash receipts from trust distributions | | 629 | | 1,555 | |
Interest income accruals from education loans | | (21,384 | ) | (38,619 | ) |
Residuals-trust updates | | (2,863 | ) | 148,814 | |
Asset servicing fees | | (3,395 | ) | (2,385 | ) |
Additional structural advisory fees-trust updates | | 19,825 | | 57,158 | |
Other | | (294 | ) | 1,561 | |
Non-GAAP net operating cash usage | | $ | (51,097 | ) | $ | (59,087 | ) |
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© The First Marblehead Corporation
