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Total revenues for the first quarter of fiscal 2010 were $13.5 million, as compared to ($84.9) million for the same period last year.
Total non-interest expenses for the first quarter of fiscal 2010 were $150.2 million, including a $121.5 million unrealized loss on education loans held for sale, as compared to $60.9 million for the first quarter of fiscal 2009, including a $21.2 million unrealized loss on education loans held for sale. Compensation and benefits expenses decreased by $7.1 million or 47% and general and administrative expenses decreased by $3.9 million or 16%, each respectively, from the same period last year, principally as a result of the company's expense reduction initiatives.
For the first quarter of fiscal 2010, the company recorded a net loss of $94.1 million or $0.95 per share compared to a net loss of $92.9 million or $0.94 per share for the same period last year.
The company ended the quarter with $176.9 million in cash, cash equivalents and investments. On October 1, 2009, the company received $176.6 million from the Internal Revenue Service as a refund for federal taxes previously paid. On October 16, 2009 the company received proceeds of $121.5 million upon the sale of a portfolio of private student loans held by its bank subsidiary. Following receipt of the tax refund and portfolio sale proceeds, the company had approximately $475 million of cash, cash equivalents and investments on a consolidated basis.
Net operating cash usage was approximately $14.7 million for the quarter ended September 30, 2009, up from approximately $10.7 million for the quarter ended June 30, 2009 (See below under the heading "Use of Non-GAAP Financial Measures"). The increase over June's cash usage was primarily due to transaction costs associated with the portfolio sale.
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 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 October 26, 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 the Trusts and resulting cash flows, facilitated loan volumes or financing-related revenues, or the timing of events, to be materially different than those expressed or implied by forward-looking statements. Important factors that could cause or contribute to such differences include: market acceptance of, and demand for, our Monogram loan product and fee-based service offerings, including our success in providing them to former, current and prospective clients; capital markets conditions and our ability to structure securitizations or alternative financings; the size, structure and timing of any such securitizations or alternative financings; any investigation, audit, claim, action or suit relating to the transfer of the trust certificate of NC Residuals Owners Trust or the asset services agreement between the purchaser and the company, including any such proceeding initiated by the Internal Revenue Service relating to any tax refund previously received; the estimates and assumptions we make in preparing our financial statements, including quantitative and qualitative factors used to estimate the fair value of additional structural advisory fees, asset servicing fees, residuals receivables and loans held for sale; our compliance with banking regulations and directives, including regulatory capital requirements and the terms of our supervisory agreement with the Office of Thrift Supervision (OTS) and the cease and desist order issued by the OTS to our subsidiary Union Federal Savings Bank; and the other factors set forth under the caption "Item 1A. Risk Factors" in our annual report on Form 10-K filed with the Securities and Exchange Commission on September 3, 2009. Important factors that could cause or contribute to future adjustments to the estimates and assumptions we make in preparing our financial statements include: actual transactions or market observations relating to asset-backed securities, loan portfolios or corporate debt securities; variance between our performance assumptions and the actual performance of the Trusts or our loans held for sale; economic, legislative, regulatory, competitive and other factors affecting discount, default, recovery and prepayment rates on loan portfolios held by us and the Trusts, including general economic conditions, the consumer credit environment and unemployment rates; management's determination of which qualitative and quantitative factors should be weighed in our estimates, and the weight to be given to such factors; capital market receptivity to securities backed by private student loans, particularly direct-to-consumer loans; developments in the bankruptcy proceedings of The Education Resources Institute, Inc., including the terms of any plan of reorganization and the outcome of the challenges to the enforceability of security interests of the Trusts, which could adversely affect the Trusts' rights to future recoveries on certain defaulted loans; and interest rate trends. We disclaim any obligation to update any forward-looking statements as a result of developments occurring after the date of this press release.
The First Marblehead Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three Months Ended September 30, 2009 and 2008
(Unaudited)
(dollars and shares in thousands, except per share amounts)
Three months ended
September 30,
--------------------
2009 2008
--------- ---------
Service revenues:
Additional structural advisory fees - trust updates $ 363 $ (17,890)
Asset servicing fees:
Fee income 2,102 -
Fee updates 160 -
--------- ---------
Total asset servicing fees 2,262 -
Residuals - trust updates 824 (80,156)
Administrative and other fees 5,597 6,004
--------- ---------
Total service revenues 9,046 (92,042)
Net interest income 4,440 7,137
--------- ---------
Total revenues 13,486 (84,905)
Non-interest expenses:
Compensation and benefits 8,137 15,257
General and administrative expenses 20,559 24,447
Unrealized loss on loans held for sale 121,506 21,226
--------- ---------
Total non-interest expenses 150,202 60,930
--------- ---------
Loss before income taxes (136,716) (145,835)
Income tax benefit (42,650) (52,938)
--------- ---------
Net loss $ (94,066) $ (92,897)
========= =========
Net loss per share, basic $ (0.95) $ (0.94)
Net loss per share, diluted (0.95) (0.94)
Weighted average shares outstanding, basic 99,156 98,964
Weighted average shares outstanding, diluted 99,156 98,964
The First Marblehead Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
As of September 30, 2009 and June 30, 2009
(Unaudited)
(dollars in thousands)
September 30, June 30,
2009 2009
------------ ------------
Assets
Cash, cash equivalents and investments $ 176,905 $ 167,220
Federal funds sold 10,780 14,326
Loans held for sale 232,775 350,960
Service receivables:
Additional structural advisory fees 55,469 55,130
Asset servicing fees 4,647 2,385
Residuals 10,784 9,960
------------ ------------
Total service receivables 70,900 67,475
Property and equipment, net 16,764 19,929
Intangible assets, net 1,733 1,931
Other prepaid expenses 3,521 3,571
Mortgage loans held to maturity, net 8,543 9,515
Income taxes receivable 159,084 166,410
Net deferred tax asset 49,707 13,124
Other assets 5,986 6,869
------------ ------------
Total assets $ 736,698 $ 821,330
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 156,372 $ 154,462
Education loan warehouse facility 229,474 230,137
Accounts payable and accrued expenses 30,248 21,512
Other liabilities 8,464 9,754
------------ ------------
Total liabilities 424,558 415,865
------------ ------------
Commitments and contingencies - -
Stockholders' equity 312,140 405,465
------------ ------------
Total liabilities and
stockholders' equity $ 736,698 $ 821,330
============ ============
The First Marblehead Corporation and Subsidiaries
Balance Sheet Metrics
Roll-forward of Additional Structural Advisory Fees and Residuals
Receivables
(Unaudited)
(dollars in thousands)
Three months ended
September 30,
--------------------
Additional Structural Advisory Fees Receivable 2009 2008
--------- ---------
Beginning of period balance $ 55,130 $ 113,842
Cash received from trust distributions (24) (1,477)
Trust updates:
Passage of time (fair value accretion) 1,746 2,789
Other factors, net (1,383) (20,679)
--------- ---------
Net change from trust updates 363 (17,890)
--------- ---------
End of period balance $ 55,469 $ 94,475
========= =========
Residuals Receivable
Beginning of period balance $ 9,960 $ 293,255
Trust updates:
Passage of time (fair value accretion) 426 10,931
Other factors, net 398 (91,087)
--------- ---------
Net change from trust updates 824 (80,156)
--------- ---------
End of period balance $ 10,784 $ 213,099
========= =========
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 additional structural advisory fee receivables at September 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 additional 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 ending September 30, 2009 and reconciles the GAAP measure to the non-GAAP financial metric:
Three months ended
(Unaudited)
(dollars in thousands)
September June 30, March 31, December
30, 2009 2009 2009 31, 2008
---------- ---------- ---------- ----------
(Loss) before income taxes $ (136,716) $ (54,183) $ (205,588) $ (145,233)
Depreciation and
amortization 3,693 3,851 4,214 4,680
Stock-based compensation
expense 1,540 1,468 1,587 1,675
Unrealized losses on loans
held for sale and mortgage
loans, net 121,456 40,194 47,699 29,424
Prepaid default
prevention expense - - 3,806 2,724
Disposition of residuals - - 134,481 -
Cash receipts from
student loans 4,738 4,342 4,692 3,592
Cash receipts from trust
distributions 24 25 26 27
Interest income accruals
from student loans (8,127) (8,269) (8,547) (11,311)
Net residual accretion
from trust updates (824) (2,309) 1,885 69,082
Asset servicing fee income (2,262) (2,385) - -
Net structural advisory
fees accretion from trust
updates (363) 5,691 4,063 29,513
Other, net 2,102 828 (1,863) 796
---------- ---------- ---------- ----------
Non-GAAP net operating
cash usage $ (14,739) $ (10,747) $ (13,545) $ (15,031)
---------- ---------- ---------- ----------
Copyright 2009 First Marblehead
Contact: Lee Jacobson Investor Relations First Marblehead 800 Boylston Street, 34th FL Boston, MA 02199 617.638.2065
SOURCE: The First Marblehead Corporation
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