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The First Marblehead Corporation: First Marblehead Signs Agreement With the Office of Thrift Supervision

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  Published in Business and Finance on Thursday, July 2nd 2009 at 13:10 GMT, Last Modified on 2009-07-02 13:10:21 by Market Wire
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BOSTON, MA--(Marketwire - July 2, 2009) - The First Marblehead Corporation (NYSE: [ FMD ]) today announced that it has entered into a Supervisory Agreement (Agreement) with the Office of Thrift Supervision (OTS) and that Union Federal Savings Bank (Bank), a wholly owned subsidiary of First Marblehead, has entered into a Stipulation and Consent agreeing to the issuance of an Order to Cease and Desist (Order) with the OTS. Pursuant to the Agreement and Order, First Marblehead and the Bank have agreed to take certain actions intended to address the concentration of private student loans on the balance sheet of the Bank. In addition, the Bank has agreed to take certain actions with respect to strengthening its compliance program as it relates to the Bank Secrecy Act. First Marblehead has filed a current report on Form 8-K with the Securities and Exchange Commission providing additional details, including copies of the Agreement and Order. The filing can be accessed through the EDGAR or IDEA systems on the SEC website at [ www.sec.gov ].

Both the Agreement and the Order relate to certain findings by the OTS in its examination of First Marblehead and the Bank completed in August 2008. Due to the disruptions in the capital markets that began in late 2007, First Marblehead and the Bank have not securitized a portfolio of newly originated private student loans since September 2007. As a result, the Bank has a higher balance of private student loans on its balance sheet than was projected in the business plan approved by the OTS in connection with First Marblehead's acquisition of the Bank in late 2006.

"We have been working diligently on addressing these issues in collaboration with the OTS. We have already taken several steps to reduce the private student loan concentration at the Bank, and First Marblehead has acted as a source of strength for the Bank, providing capital and operational support. We are committed to continuing this progress and resolving all of these issues completely," said Daniel M. Meyers, Chief Executive Officer of First Marblehead.

As of May 31, 2009, the Bank had a total risk-based capital ratio of 40.47%, a Tier 1 risk-based capital ratio of 40.50% and a Tier 1 core (leverage) capital ratio of 37.25%.

"The Bank has capital ratios that are significantly above regulatory minimums and the Bank's management team has been actively addressing the findings of the OTS' 2008 examination," said Rodney C. Whitwell, Chief Executive Officer of Union Federal. "We have strengthened our balance sheet significantly, decreasing the use of brokered deposits from approximately $150 million at June 30, 2008 to the current balance of approximately $25 million, and also by diversifying our other funding sources."

"On the compliance front, we implemented enhanced Bank Security Act procedures at our own initiative, without any regulatory prompting, in early 2008 when it became evident that a securitization transaction would not be possible under then prevailing capital market conditions. We will continue to look for opportunities to strengthen what we believe to be strong compliance operating procedures," added Whitwell. "This Order in no way affects our customers' deposit or loan accounts. All deposit accounts are fully covered up to the FDIC limits of $250,000, and customers can expect the same level of friendly and efficient service from the Bank."

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 market 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 ].

About Union Federal Savings Bank -- Union Federal is a community bank located in North Providence, Rhode Island and a wholly owned subsidiary of The First Marblehead Corporation. Union Federal offers an array of personal banking products designed to meet each customer's specific needs. Whether saving or borrowing, Union Federal also offers a high level of personal attention and service to each of its customers. For more information, go to [ www.unionfsb.com ]

Statements in this press release regarding the compliance by First Marblehead and the Bank with actions required by the OTS in the Agreement and the Order, and satisfactory resolution of the issues identified by the OTS in its 2008 examination, 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 and on our plans and expectations as of July 2, 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, 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 results, 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 whole loan sales, securitizations or alternative financings of the private student loans held by the Bank; the pricing, size, structure and timing of any such whole loan sales, securitizations or alternative financings; the eligibility of the private student loans held by the Bank to qualify as collateral under the Term Asset-Backed Lending Facility or other government programs; degradation of the performance of the private student loans held by the Bank; our ability to develop and implement business, liquidity and concentration reduction plans for the Bank that are satisfactory to the OTS; deposit attrition and availability to the Bank of alternative funding sources; regulatory conditions or requirements that may be required in connection with strategic plans of the Corporation or the Bank; changes in the interest rate environment, which could expand or reduce margins or adversely affect our critical accounting estimates, projected returns or fair value of assets; 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. We disclaim any obligation to update any forward-looking statements as a result of developments occurring after the date of this press release.