FIRST MARBLEHEAD CORP - FORM 10-K

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EX-23.1 - EX-23.1 - FIRST MARBLEHEAD CORP	d42235dex231.htm
EX-31.2 - EX-31.2 - FIRST MARBLEHEAD CORP	d42235dex312.htm
EX-31.1 - EX-31.1 - FIRST MARBLEHEAD CORP	d42235dex311.htm
EX-21.1 - EX-21.1 - FIRST MARBLEHEAD CORP	d42235dex211.htm
EX-32.2 - EX-32.2 - FIRST MARBLEHEAD CORP	d42235dex322.htm
EX-32.1 - EX-32.1 - FIRST MARBLEHEAD CORP	d42235dex321.htm
EX-10.46 - EX-10.46 - FIRST MARBLEHEAD CORP	d42235dex1046.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2015

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-31825

THE FIRST MARBLEHEAD CORPORATION

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		04-3295311 (I.R.S. Employer Identification No.)

One Cabot Road, Suite 200 Medford, Massachusetts (Address of principal executive offices)		02155 (Zip Code)

Registrant’s telephone number, including area code: (800) 895-4283

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common Stock, $0.01 par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) of this chapter is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer x

Non-accelerated filer ¨

(Do not check if a
smaller reporting company)

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of the voting and non-voting common equity held on December 31, 2014 by non-affiliates of the registrant (without admitting that any person whose shares are not included in the calculation is an affiliate) was approximately $50,205,901 based on the last reported sale price of the common stock on the New York Stock Exchange on December 31, 2014. For the purposes of the immediately preceding sentence, the term “affiliate” refers to each director, executive officer and greater than 10% stockholder of the registrant as of December 31, 2014 and ownership excludes shares issuable upon vesting of restricted stock units and exercise of outstanding stock options.

Number of shares of the registrant’s common stock outstanding as of September 4, 2015: 11,668,362.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended June 30, 2015. Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, information required by Items 10, 11, 12, 13 and 14 of Part III have been omitted from this report (except for information required with respect to our executive officers and code of ethics, which is set forth under “Executive Officers of the Registrant” and “Code of Ethics” in Part I of this annual report, respectively) and are incorporated by reference to the definitive proxy statement to be filed with the Securities and Exchange Commission.

THE FIRST MARBLEHEAD CORPORATION

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended June 30, 2015

TABLE OF CONTENTS


PART I			1
ITEM 1. BUSINESS			1
ITEM 1A. RISK FACTORS			18
ITEM 1B. UNRESOLVED STAFF COMMENTS			37
ITEM 2. PROPERTIES			37
ITEM 3. LEGAL PROCEEDINGS			38
ITEM 4. MINE SAFETY DISCLOSURES			41
PART II			42
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			42
ITEM 6. SELECTED FINANCIAL DATA			45
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			46
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			62
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			101
ITEM 9A. CONTROLS AND PROCEDURES			101
ITEM 9B. OTHER INFORMATION			104
PART III			104
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			104
ITEM 11. EXECUTIVE COMPENSATION			104
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			104
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			105
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES			105
PART IV			105
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			105

FIRSTMARBLEHEAD, MONOGRAM and UNION FEDERAL are registered service marks and GATE is a service mark of The First Marblehead Corporation. BORROWSMART is a registered service mark of Tuition Management Systems LLC. COLOGY and VOLTA are service marks of Cology LLC. All other trademarks, service marks or trade names appearing in this annual report are the property of their respective owners.

In addition to historical information, this annual report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Section 27A of the Securities Act of 1933, as amended, or the Securities Act. For this purpose, any statements contained herein regarding our strategy, future operations and products, financial performance and liquidity, future funding transactions, projected costs, projected loan portfolio performance, future market position, prospects, plans and outlook of management, other than statements of historical facts, are forward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “observe,” “plans,” “projects,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guaranty that we actually will achieve the plans, intentions or expectations expressed or implied in our forward-looking statements, which involve risks, assumptions and uncertainties. There are a number of important factors that could cause actual results, timing of events, levels of activity or performance to differ materially from those expressed or implied in the forward-looking statements we make. These important factors include our “critical accounting estimates” described in

Item 7 of this annual report, and factors including, but not limited to, those set forth under the caption “Risk Factors” in Item 1A of this annual report. Although we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and readers should not rely on those forward-looking statements as representing our views as of any date subsequent to September 9, 2015.

PART I

Unless otherwise indicated, or unless the context of the discussion requires otherwise, we use the terms “we,” “us,” “our” and similar references to refer to The First Marblehead Corporation and its subsidiaries, on a consolidated basis. We use the terms “First Marblehead” and “FMD” to refer to The First Marblehead Corporation on a stand-alone basis. We use the term “education loan” to refer to private education loans that are not guaranteed by the federal government. Our fiscal year ends on June 30, and we identify our fiscal years by the calendar years in which they end. For example, we refer to the fiscal year ended June 30, 2015 as “fiscal 2015.”

Item 1.

Business

Overview

We are a specialty finance company focused on the education financing marketplace in the United States. We offer our clients the opportunity to outsource key components of their education financing programs through various product and service offerings, including loan origination, tuition and refund management, loan processing and disbursement and portfolio management services.

Specifically, we design, develop and manage loan programs on behalf of our lender clients for undergraduate and graduate students and for college graduates seeking to refinance private education loan obligations. We offer a fully integrated suite of services through our Monogram^® loan product service platform, which we refer to as our Monogram platform. We partner with lenders to design and administer education loan programs through our Monogram platform, which are typically school-certified. These programs are designed to be marketed through educational institutions or to prospective borrowers and their families directly and to generate portfolios intended to be held by the originating lender or financed in the capital markets. We may provide credit enhancements for a Monogram-based program by funding participation interest accounts, which we refer to as participation accounts, to serve as a first-loss reserve for defaulted program loans. In consideration for funding participation accounts, we are entitled to receive a share of the interest income generated on the loans. We are paid for our origination and marketing services at the time approved education loans are disbursed and receive monthly payments for portfolio management services, credit enhancement and administrative services throughout the life of the loan. We also earn fees for the processing and disbursement of education loans on behalf of the approximately 335 credit union and other lender clients of FMD’s subsidiary Cology LLC.

In addition, we offer outsourced tuition planning, tuition billing, refund management and payment technology services for universities, colleges and secondary schools through FMD’s subsidiary Tuition Management Systems LLC, which we refer to as TMS. TMS provides such services on behalf of approximately 700 educational institutions.

Education loans are funded by private sector lenders and are not guaranteed by the federal government. They are intended to be used by borrowers who have first utilized other sources of education funding, including family savings, scholarships, grants and federal and state loans. For the 2013-2014 academic year, we believe that there was a “funding gap” in post-secondary education in the United States of approximately $150 billion between the costs of attendance and these sources of education funding, based on information from the National Center for Education Statistics and The College Board. We believe that enrollment in post-secondary education institutions will continue to increase over the next several years, as will costs of attendance. We also believe that education loan products will continue to be necessary for students and their families after applying family savings and exhausting all available scholarships, grants and federal and state loans.

The lifecycle of an education loan, which can be over 20 years long, consists of a series of processes, many of which are highly regulated, and involves many distinct parties. As a result, the activities associated with designing, implementing, financing and administering education loan programs are complex, resource intensive and costly. We offer specialized knowledge, experience and capabilities to assist clients in participating in the education loan market. Our service offerings are intended to serve a range of potential client needs throughout the life-cycle of an education loan. For example, we can assist clients in developing all aspects of an education

loan program based on our Monogram platform, or we can provide tailored loan origination, portfolio management and other services to meet our clients’ specific needs. In addition, through TMS, we provide students and their families with the opportunity to structure tuition payment plans that meet their financial needs while providing a broad array of tuition payment options.

Our clients in the past have typically been lenders that desired to supplement their existing federal education loan or other consumer lending programs with a private education loan offering. In response to legislative changes that eliminated the Federal Family Education Loan Program, or FFELP, as of July 2010, many lenders have re-evaluated their business strategies related to education lending. We believe that these legislative changes as well as general economic conditions, capital markets disruptions and the declining credit performance of consumer-related loans, including education loans, have contributed to an overall reluctance by many lenders to focus on their education lending business segments. As a result, we believe that there is significant unmet demand for education loans and generally less competition than previously in addressing that demand. As market conditions for other consumer finance segments continue to improve, we believe that more lenders will focus on education lending and consider education loans as part of an array of consumer lending products offered to their customers. One of our primary goals is to educate national and regional lenders on the opportunity to provide education loans in a manner that meets their desired risk control and return objectives. A related challenge, although growth in our partnered lending activities is not contingent upon it, is to successfully finance education loans generated through our Monogram platform through capital market transactions or other sources of capital.

Our near-term financial performance and future growth depend, in large part, on growing our client base by successfully marketing our Monogram platform, TMS services and Cology LLC services.

Business Model

Since the beginning of fiscal 2009, we have significantly refined our service offerings and added fee-for-service offerings. In fiscal 2010, we completed the development of our Monogram platform, including an enhanced application interface, an expanded credit decisioning model and additional reporting capabilities. We continue to incorporate refinements to our Monogram platform. In fiscal 2011, we began originating Monogram-based education loans under loan program agreements and began offering outsourced tuition planning, tuition billing and payment technology services for educational institutions through TMS. In fiscal 2012, we began offering refund management services to educational institutions and students through TMS. In fiscal 2013, we began providing education loan processing and disbursement services to credit union and other lender clients through Cology LLC. As of September 9, 2015, we have loan program agreements based on our Monogram platform with three lender clients.

Monogram Platform

Our Monogram platform integrates our program design, marketing support, loan origination and portfolio management service offerings. It enables lenders to offer consumers education loans with competitive terms and clear pricing alternatives, with product options based on the credit profiles of qualified applicants. Specifically, a lender can customize the range of loan terms offered to their qualified applicants, such as repayment options, repayment terms and borrower pricing.

The product can be structured to offer lenders and other financial institutions a “make and hold” or “make and sell” loan program. In “make and hold” loan programs, lenders finance the education loans on their balance sheet and generally intend to hold the loans through scheduled repayment, prepayment or default. In “make and sell” loan programs, lenders intend to hold the education loans on their balance sheet for some limited period of time before disposing of the loans in a capital market transaction or whole loan sale. We believe that the education loans generated through our Monogram platform will generally have shorter repayment periods, an increased percentage of borrowers making payments while in school, higher cosigner participation rates, an overall better credit profile and lower estimated default rates in each case when compared to loan products we previously facilitated.

We designed our Monogram platform to generate recurring revenue with less dependence on the securitization market and third-party credit enhancements. In connection with our Monogram platform, we have

invested, and may continue to invest, specified amounts of capital as a credit enhancement feature to various lenders’ loan programs. The amount of any contribution offered to a particular lender would be determined by the anticipated size of the lender’s program, the underwriting guidelines of the program and the particular terms of our business relationship with the lender. We believe this approach provides assurances to lenders that we are committed to the quality of our new proprietary scoring models and risk mitigation and pricing strategies. In connection with certain of our lender clients’ Monogram-based loan programs, we have provided credit enhancement by funding participation accounts to serve as a first-loss reserve for defaulted program loans. We have made initial deposits toward our credit enhancement arrangements and agreed to provide periodic supplemental deposits, up to specified limits, during the disbursement periods under our loan program agreements based on the credit mix and volume of disbursed program loans and adjustments to default projections, if any, for program loans. To the extent that outstanding loan volume decreases as a result of repayment, or if actual loan volumes or default experience are less than reflected in our funded amounts, we are eligible to receive periodic releases of funds. The timing and amount of releases, if any, from the participation accounts are uncertain and vary among the loan programs. In consideration for funding participation accounts, we are entitled to receive a share of the interest income generated on the loans.

As part of our Monogram platform, we monitor the performance of loan accounts after origination and tailor risk mitigation strategies according to the performance patterns of those accounts. We have built a flexible infrastructure to support our portfolio management strategy, which requires extensive operational and data integration among the loan servicer, multiple default prevention and recovery agencies and us. Finally, we provide extensive customer service to each client, including ongoing analysis and comprehensive reporting of loan performance data.

We offer the following fully integrated suite of services through our Monogram platform or as stand-alone services tailored for our clients’ specific needs:

Program Design

Education loans are a complex asset class that requires sophisticated analytical capabilities combining effective, quantitative underwriting, responsible marketing and dynamic portfolio management. At the core of our Monogram platform resides over 20 years of education loan performance data that we have used to create a suite of proprietary risk models, including proprietary underwriting, fraud and collectability scorecards. We believe that these risk models can be used throughout the lifecycle of an education loan to manage risk, optimize performance and potentially improve profitability.

Lenders face an array of choices in attempting to satisfy their strategic and financial goals, as well as the needs of their borrowers. In designing education loan programs, the factors that lenders generally consider include:

•

Borrower creditworthiness and eligibility criteria;

•

Loan limits, including minimum and maximum loan amounts on both an annual and aggregate basis;

•

Interest rates, including the frequency and method of adjustment;

•

Amount of fees charged to the borrower, including origination, guaranty and late fees;

•

Repayment terms, including maximum repayment term, minimum monthly payment amounts, rate reduction incentive programs and deferment and forbearance options;

•

Appropriate credit enhancement levels to ensure repayment of defaulted principal and interest payments;

•

Loan servicing, default management and collection arrangements;

•

Asset financing or loan disposition alternatives; and

•

Legal compliance with numerous federal laws and regulations as well as numerous state laws that replicate and, in some cases, expand upon, the requirements of federal laws.

We help lender clients design their education loan programs and customize each program for our lender clients in order to satisfy their particular needs. Although we assist lenders in selecting the underwriting criteria to be used in their loan programs, each lender has ultimate control over, and responsibility for, the selection of their underwriting criteria, and we are obligated to comply with the lender’s criteria.

Marketing Support

While creating their loan marketing programs, lenders face choices in the channels and media available to them to reach potential borrowers, including financial aid offices, online advertising, direct mail campaigns, e-mail campaigns and print advertising. As part of our Monogram platform, we can provide marketing support services for a fee based on loan volume disbursed, depending on the level of services provided to each client. With our focus on school-certified loan programs, we also believe that financial aid offices and other school contacts are, and will continue to be, an important distribution channel. In addition, we believe that TMS’ relationships with educational institutions and potential borrowers will complement our distribution strategy.

Loan Origination

As part of our Monogram platform, we offer loan origination services for a fee based on loan volume disbursed. We have developed proprietary processing platforms, applications and infrastructure, supplemented by customized vendor solutions, for use in providing loan processing services.

Prospective and current students and their families confront a complicated process when applying for financial aid. We provide online resources and a staff of customer service personnel who understand the terms of our clients’ education loan programs and the financial aid process as a whole. In addition to a customer service function, we can provide personnel to respond to requests for loan materials and loan applications.

Once an applicant submits an application for processing, our customized credit decision software applies parameters that have been configured for each lender client’s specific program and analyzes, often within seconds, the submitted application. This analysis results in a credit decision and also generates specific loan terms offered by the lender client, aligning product options made available to qualified applicants with their credit risk. Once a loan application is complete, we communicate an initial determination to the applicant(s), informing him or her whether the application has passed the credit analysis, been rejected or is in review. Once a loan application passes the credit analysis, and the applicant has selected his or her loan terms from the available options, we generate a credit agreement, which is a legal contract between the applicant, cosigner, if any, and lender that contains the terms and conditions of the loan for the applicant based on lender-specific templates.

Once we have obtained all applicant data, including the signed credit agreement, required certifications from the school or applicant, and any required income or employment verification, we approve the application. We refer to the education loan at this point in the process as having been “facilitated.” Once we disburse loan funds on behalf of the lender, we refer to the loan as fully or partially “disbursed.”

In performing our loan origination services, we are required to comply with applicable laws and regulations relating to loan documentation, disclosure and processing, including consumer protection disclosures. The lenders with which we work generally assume responsibility for compliance with federal and state laws regarding the forms of loan documentation and disclosure, and we are generally responsible for populating such forms in accordance with the program guidelines. We are also responsible for maintaining processes and systems that properly execute the lenders’ origination requirements and administer their credit agreement templates and required disclosures. In addition, we may deliver each lender’s privacy policy and prepare and deliver disclosures required by the Truth-in-Lending Act, or TILA, as well as various state law disclosures, to borrowers.

We also monitor developments in state and federal requirements for loan processing and implement changes to our systems and processes based on our analysis and input we receive from clients and industry groups.

Portfolio Management

Once loans are disbursed, holders of the loans may outsource the management of such loans to third-party service providers, such as us. In our role as portfolio manager, we monitor the performance of portfolio vendors,

including both loan servicers and collection agencies. For portfolio management services, we charge a fee generally based on the aggregate principal balance of education loans under management for the client.

We use a multi-faceted approach to portfolio management. To maximize the performance of each portfolio, we receive updated credit bureau data on each borrower and each cosigner each quarter and use it in combination with monthly performance data and experiential data to re-evaluate the risk profile of the portfolio. We use our proprietary risk models to develop portfolio management strategies and determine the level of resources we apply to each account, including when the account is outsourced to a collection agency and which agency is used in that process. For example, certain collection agencies may specialize in early-stage delinquencies while others may specialize in the collection of defaulted loans. This process requires a highly integrated infrastructure among the loan servicers, collection agencies and us and involves extensive data analysis on each account as it moves through its repayment lifecycle. We believe this approach allows us to manage and control losses over time.

We work with a network of vendors to manage education loans on behalf of our clients. The Pennsylvania Higher Education Assistance Agency, also known as AES and which we refer to as PHEAA, provides the servicing for a majority of the loans we facilitate. Generally, loan servicers establish and maintain contact with borrowers whose loans are current and collection agencies establish and maintain contact with borrowers whose loans are delinquent or defaulted. Duties of the portfolio management vendors include, for example, preparing repayment invoices, payment collection, maintaining borrower payment records, responding to borrower inquiries and reporting information to the loan owner. In addition, portfolio vendors may perform skip-tracing services, make collections calls and conduct other collections activities, and report borrower delinquencies or defaults to credit bureaus.

Loan Securitization

Although some lenders originate loans and then hold them for the life of the loan, other lenders originate and then seek to dispose of the loans, either through a sale of whole loans or by means of a securitization. Whole loans can be purchased by other financial institutions or by entities that serve to warehouse the loans for some period of time, pending permanent financing, including loan securitization. In the typical securitization process, a special purpose entity obtains education loans from the originating lenders or their assignees, which relinquish to the special purpose entity their ownership interest in the loans. The debt instruments issued by the special purpose entity to finance the purchase of these education loans are obligations of the special purpose entity, not the originating lenders or their assignees. Through both the structure of those asset-backed securities, or ABS, as well as the composition of the underlying portfolio, risk can be distributed in a manner which may appeal to potential ABS investors.

Securitizations have historically provided several benefits to lenders and developed into a diverse, flexible funding mechanism for the financing of private education loan pools. Among other things, securitizations enabled lender clients to sell potentially otherwise illiquid assets in both the public and private securities markets, and to limit credit and interest rate risk. Although this flexibility added to the complexity of the funding process, it also enabled the originating lender to reduce the cost of financing and recycle capital, thereby improving the economics of the loan program and improving loan terms by passing incremental savings back to the borrower.

Structuring securitizations requires a high level of specialized knowledge and experience regarding both the capital markets generally, and the borrower repayment and default characteristics specifically. The process of issuing ABS in a securitization requires compliance with state and federal securities laws, as well as coordination among originating lenders, servicers, securities rating agencies, attorneys, securities dealers, structural advisors, trust management providers and auditors.

We have structured and facilitated 38 securitizations, consisting entirely of education loans, involving debt issuances in the aggregate original principal amount of $17.5 billion. We have securitized loan pools using various financing structures, including both public offerings registered with the Securities and Exchange Commission, or SEC, and private placements, and have utilized various ABS, including borrowings from commercial paper conduits, London Interbank Offered Rate, or LIBOR, floating rate notes, auction-rate debt and senior-subordinate and third-party credit enhanced debt.

We believe that our capital markets experience gives us specialized insight into funding options available to our lender clients. In addition, the extensive database provided by our education loan repayment statistics dating back to 1986 has helped us in the past to optimize the financing of the education loan pools our clients generated. We have used this data to estimate the default, recovery and prepayment characteristics of the different types of loans that constitute a loan pool. We believe that our experience and historical data will assist us in future discussions with rating agencies, insurance providers, underwriters and securities investors relating to financing structures and terms.

We believe that conditions in the capital markets generally improved in both fiscal 2014 and fiscal 2015 as compared to recent years. In particular, investors in ABS demonstrated increased interest in ABS backed by private education loans, resulting in a reduction in credit spreads applicable to these securities. We believe that these trends indicate that the economics of private education loan ABS are starting to become more attractive to issuers in the private education loan securitization marketplace. However, we have not completed a securitization transaction since fiscal 2008, and if we execute a financing transaction in the capital markets, the structure and economics of any such transaction may be materially different from prior transactions that we have sponsored. Such differences may include lower revenues as a result of comparatively wider credit spreads and lower advance rates.

TMS

TMS offers outsourced tuition planning, tuition billing, refund management and payment technology services for universities, colleges and secondary schools. TMS provides such services on behalf of approximately 700 educational institutions. Through BorrowSmart^®, TMS helps students and their families manage education costs by developing sustainable, low cost tuition payment strategies. In addition, TMS provides solutions to schools for the collection and processing of tuition payments and data. These diverse product and service offerings are marketed as the “TMS Campus Advantage.” These services include:

•

Early affordability planning and counseling delivered through multiple channels, which allows students and their families to review and consider a series of education payment options that minimize borrowing through the utilization of payment plans and school specified loan products;

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Flexible payment plans, which aggregate school payments into a single reporting and disbursement interface for schools;

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Comprehensive tuition billing and presentment (paper-based and electronic), which maximize the effectiveness of paper and electronic bills for the student and the school;

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Payment processing, which allows schools to provide choices to their students and their families through multiple channels and methods;

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Student account management through the TMS Student Account Center, a web-based portal that reflects school branding, supports multi-channel access to TMS’ product suite and is tightly integrated with the school’s student information system, allowing schools to outsource billing and payment processing services to TMS while remaining the “system of record;” and

•

Refund management services, which facilitate for schools the process of disbursing student account credit balances that occur when payments, loan proceeds and/or financial aid credits exceed charges to the student account. The services allow schools to offer three refund choices: prepaid cards, ACH direct deposit and checks, allowing the schools to streamline their refund operations while reducing their overall disbursement expenses and enhancing the customer experience.

TMS earns enrollment and transaction-based fees from students and families that participate in its various payment plans. Enrollment fee revenue is recognized over the period in which services are provided to customers. Transaction-based fees are recognized in the period the transaction takes place. TMS also earns fees from schools for various billing, payment processing, refund management, implementation and subscription services. These fees are recognized over the period in which the services are provided. We believe that the size

and quality of TMS’ customer base provides an opportunity to expand our school relationships and offer diversified products and services that complement our education finance and loan processing capabilities, as well as serving as a source of significant recurring revenue.

Cology LLC

Cology LLC is a leading supplier of outsourced loan origination and technology solutions to education loan providers, including credit unions, community, regional and national banks and educational institutions. Through its services, Cology LLC provides easy market entry options for existing and new providers, targeted growth strategies to help organizations expand their education lending businesses and customized portfolio management services to help optimize the quality and performance of their education loan assets. These services include:

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Custom program design consultation—helping lenders and providers develop programs that meet the specific needs of their customers and members;

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Implementation and product launch services—providing quality and speed to market;

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Outsourced back-office services, including application intake, underwriting, document collection and disbursement—providing the people and processes needed to support lender programs without the need for significant infrastructure; and

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Outsourced and remote-access technology solutions—offering the flexibility to manage and administer the programs on a versatile, customizable technology platform.

Cology LLC supports over 780 education loan programs and provides education loan solutions to approximately 335 credit union and other lender clients.

General Developments

We have summarized below certain developments affecting our business since the beginning of fiscal 2015:

•

On April 2, 2014, FMD filed a complaint in the Delaware Court of Chancery, or Chancery Court, against NC Residuals Owners Trust, or NC Residuals, and The Wilmington Trust Company in its capacity as owner trustee, or the Owner Trustee, of certain of the securitization trusts that we previously facilitated, which we refer to as the GATE Trusts. On May 21, 2015, FMD and NC Residuals entered into a settlement agreement. As part of the settlement, FMD paid NC Residuals $5.0 million and NC Residuals released any and all claims of ownership of the GATE Trusts, including any and all claims to the cash distributions from the GATE Trusts, and agreed to cooperate with FMD to transfer ownership on the records of the Owner Trustee of the GATE Trusts to FMD, including executing any documents necessary to cause FMD to become properly reflected as the GATE Trusts’ registered owner in the Owner Trustee’s books and records. In addition, as part of the settlement, cash distributions of $4.2 million from the GATE Trusts that had previously been withheld, were paid to FMD. On July 10, 2015, the Chancery Court dismissed this matter with prejudice. See Item 3, “Legal Proceedings,” and Note 14, “Commitments and Contingencies—NC Residual Owners Trust Litigation,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

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In May 2014, the Board of Directors of FMD’s subsidiary Union Federal Savings Bank, or Union Federal, and the FMD Board of Directors each approved the dissolution of Union Federal and authorized Union Federal to prepare a plan of voluntary dissolution, which plan required the approval of the Union Federal Board of Directors, the Office of the Comptroller of the Currency, or OCC, and FMD, as the sole stockholder of Union Federal. In December 2014, the Union Federal Board of Directors, the FMD Board of Directors and FMD, as the sole stockholder of Union Federal, each approved the plan of voluntary dissolution and Union Federal submitted a dissolution application to the OCC for approval. On April 24, 2015, the OCC notified Union Federal that it had conditionally approved the dissolution application, subject to certain consummation requirements and conditions set forth in the OCC’s notification. On June 12, 2015, Union Federal paid a liquidating distribution in the form of a $21.7 million net cash

dividend to FMD and the OCC approved the dissolution of Union Federal and terminated Union Federal’s charter. On June 30, 2015, the Board of Governors of the Federal Reserve System, or the Federal Reserve, terminated FMD’s status as a savings and loan holding company. As a result of the dissolution of Union Federal and our evaluation under Accounting Standards Codification, or ASC, 205-20, Presentation of Financial Statements—Discontinued Operations, or ASC 205-20, we presented Union Federal as a discontinued operation in our consolidated financial statements. See Note 3, “Discontinued Operations,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

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On October 28, 2014, the United States District Court for the District of Massachusetts entered an order dismissing the purported class action against FMD, Daniel Meyers, FMD’s Chief Executive Officer and Chairman of the FMD Board of Directors, and Kenneth Klipper, FMD’s former Chief Financial Officer and Managing Director. The action is entitled Smith v. The First Marblehead Corp. et al., Civ. A. No. 13-cv-12121-PBS (D. Mass.). On December 4, 2014, the United States District Court for the District of Massachusetts entered an order dismissing without prejudice the related derivative action against Messrs. Meyers and Klipper and current and former members of the FMD Board of Directors Peter Drotch, George Daly, William Hansen, Thomas Eddy, Dort Cameron III, Nancy Bekavac, Stephen Anbinder, Peter Tarr, William Berkley and Henry Cornell. The action is entitled Noel v. Daniel Meyers, et al., Civ. A. No. 13-cv-12683-PBS (D. Mass.).

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On November 10, 2014, our subsidiary First Marblehead Education Resources, Inc., or FMER, entered into a loan origination services agreement with Nelnet Servicing, LLC d/b/a Firstmark Services, or Firstmark Services, and on May 14, 2015, FMER entered into a first amendment to the loan origination services agreement with Firstmark Services. We refer to the loan origination services agreement, as amended, as the Services Agreement. Pursuant to the Services Agreement, Firstmark Services had agreed to perform certain loan origination services, including application intake, call center services, the majority of loan processing services and certain program support functions, for our lender clients’ Monogram-based loan programs. On September 8, 2015, FMER terminated the Services Agreement, effective as of that date, because FMER had determined, after consultation with Firstmark Services, that Firstmark Services had not met certain criteria as of the date specified in the Services Agreement. As a result, FMER will continue to perform those origination services that were the subject of the Services Agreement.

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Also on November 10, 2014, FMD, FMER and SunTrust Bank entered into a sixteenth amendment to the loan program agreement, as amended, among FMD, FMER and SunTrust Bank. The sixteenth amendment, among other things, allows FMD and FMER to retain third parties as subcontractors to perform certain of the services to be provided by FMD or FMER under the loan program agreement, subject to the approval of SunTrust Bank.

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On December 18, 2014, the Internal Revenue Service, or IRS, informed us that it is no longer challenging the federal tax refunds we previously received in the amounts of $176.6 million and $45.1 million. The IRS has provided us with its final examination report confirming that the refunds were correct and we do not owe additional tax. The IRS’s decision not to challenge these federal tax refunds was subject to the review of the Joint Committee on Taxation, as is required for all refunds in excess of $5.0 million. On June 23, 2015, the IRS informed us that the Joint Committee on Taxation had completed its consideration of the IRS’s final examination report and had taken no exception to the conclusions reached by the IRS. As a result, the IRS’s audit of our tax returns for fiscal 2007 through fiscal 2010 is now complete. See Item 3, “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Fiscal Years ended June 30, 2015, June 30, 2014 and June 30, 2013—Overall Results—Internal Revenue Service Audit” included in Item 7 of this annual report and Note 14, “Commitments and Contingencies—Income Tax Matters,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

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We are involved in several matters relating to the Massachusetts tax treatment of GATE Holdings, Inc., or GATE, a former subsidiary of FMD, for GATE’s taxable years ended June 30, 2004, 2005 and 2006 as well as GATE’s taxable years ended June 30, 2008 and 2009. On November 9, 2011, the Massachusetts Appellate Tax Board, or ATB, issued an order, or the ATB Order, regarding GATE’s taxable years ended June 30, 2004, 2005 and 2006. On January 28, 2015, the Massachusetts Supreme Judicial Court, or the SJC, issued its opinion in the cases relating to the Massachusetts tax treatment of GATE for GATE’s taxable years ended June 30, 2004, 2005 and 2006 and affirmed the decision of the ATB. We were not required to make any payments to the Massachusetts Department of Revenue for GATE’s taxable years ended June 30, 2004, 2005 and 2006 at that time as we had made a $5.1 million payment to the Massachusetts Department of Revenue in the third quarter of fiscal 2012 that satisfied our obligations for those tax years. On February 11, 2015, we filed a petition for rehearing on this matter with the SJC, which was denied by the SJC on March 2, 2015. On May 31, 2015, we filed a petition for a writ of certiorari with the Supreme Court of the United States on this matter. In August 2013, the Massachusetts Department of Revenue delivered a notice of assessment for GATE’s taxable years ended June 30, 2008 and 2009. While we have filed an appeal on this matter with the ATB, it is on hold pending resolution of the petition for a writ of certiorari we filed with the Supreme Court of the United States on May 31, 2015. See Item 3, “Legal Proceedings,” and Note 14, “Commitments and Contingencies—Income Tax Matters,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

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On July 1, 2015, FMD entered into a license and services agreement with a financial institution and a credit solutions software provider. Pursuant to this agreement, FMD has licensed intellectual property consisting of proprietary risk scoring models and underwriting scorecards based on its historical education loan performance data. The credit solutions software provider has implemented the proprietary scorecards that are being utilized by the financial institution in determining credit eligibility for the financial institution’s in-school private education loan program. In addition, FMD has agreed to provide maintenance and support services and other professional services to the financial institution and the credit solutions software provider during the term. This agreement has an initial term of three years.

Outlook

Our long-term success depends on our ability to successfully and efficiently market our Monogram platform, TMS offerings and Cology LLC offerings, generate incremental loan volume through each of our clients or otherwise obtain additional sources of interim or permanent financing, such as securitizations or alternative financing transactions, and continue to actively manage our expenses. As of September 9, 2015, we have loan program agreements based on our Monogram platform with three lender clients. While we have demonstrated market demand for Monogram-based education loans, we are uncertain as to the degree of market acceptance that our Monogram platform will achieve, particularly in the current economic and regulatory environment where lenders continue to evaluate their education lending business models. Additionally, as one of our current lender clients provides the majority of our Monogram-based loan program fees, we are subject to concentration risk as it relates to this revenue stream until we are able to attract additional lender clients. We believe, however, that the credit quality characteristics and interest rates of the Monogram-based loan portfolios originated to date will be attractive to additional potential lender clients, as well as capital markets participants. We also believe that the ability to permanently finance private education loan portfolios through the capital markets would make our products and services more attractive to lenders and would accelerate improvement in our long-term financial results.

lender clients with lower credit enhancement levels and higher capital markets advance rates than those available today. We must also continue to achieve efficiencies in attracting applicants, through loan serialization or otherwise, in order to reduce our overall cost of loan acquisition.

Competition

Based on the range of services that we offer, we believe that SLM Corporation, also known as Sallie Mae, is our principal competitor. Our business could be adversely affected if Sallie Mae’s private education loan program continues to grow, or if Sallie Mae seeks to market more aggressively to third parties the full range of services that we offer. Other education loan competitors include Wells Fargo & Company and Discover Financial Services. In addition, Nelnet Business Solutions, TouchNet Information Systems, Inc. and Higher One Holdings, Inc. compete directly with TMS and LendKey Technologies, Inc. and Campus Door Holdings, Inc. compete directly with Cology LLC.

To the extent that loan originators, including our clients or former clients, develop an internal capability to provide any of the services that we currently offer, demand for our services would decline. For example, a loan originator that has developed, or decides to develop, a portfolio management or capital markets function may not choose to engage us for our services. Demand for our services could also be affected by developments with regard to federal loan programs. For example, in Spring 2015, the President announced a “Student Aid Bill of Rights” that would seek, among other initiatives, to increase certain grant aid and reduce certain tuitions, both of which could decrease the demand for private education loans. Historically, lenders in the education loan market have focused their lending activities on federal loans because of the relative size of the federal loan market and because the federal government guarantees repayment of those loans, thereby significantly limiting the lenders’ credit risk. Following the elimination of FFELP, lenders are more focused on private education loans and some may seek to develop an internal capability to conduct the services we provide, which could result in a decline in the potential market for our services. We believe the most significant competitive factors in terms of developing education loan products are technical and legal competence, including in connection with the process of originating education loans, cost, data relating to the performance of education loans, risk analytics capabilities, capital markets experience and reliability, quality and speed of service. We differentiate ourselves from other service providers by the range of services we can provide our clients, in a “turn-key” manner.

Several of our current and potential competitors have longer operating histories and significantly greater financial, marketing, technical or other competitive resources than we or our clients have, including funding capacity. As a result, our competitors or potential competitors may be better able to overcome capital markets dislocations, adapt more quickly to new or emerging technologies and changes in customer preferences, compete for skilled professionals, build upon efficiencies based on a larger volume of loan transactions, fund internal growth and compete for market share, or may be able to devote greater resources to the promotion and sale of their products and services. In particular, competitors with larger customer bases, greater name or brand recognition or more established customer relationships than those of our clients have an advantage in attracting loan applicants and making education loans on a recurring, or “serialized,” basis. These disadvantages for us are particularly acute as we have only been operating Monogram-based loan programs since fiscal 2011. In addition, competitors may be able to adopt more aggressive pricing policies in order to attract potential clients or borrowers, as applicable. We cannot assure you that we will be able to compete successfully with new or existing competitors. To remain competitive, we need to continue to invest in information technology, sales and marketing, legal, compliance and product development resources.

Proprietary Systems and Processes

Monogram Platform and Volta^SM Platform

In addition to our database that tracks historical education loan performance, we maintain advanced proprietary information processing systems, including our Monogram platform and Cology LLC’s Volta platform. We use these information systems to analyze loan applications efficiently, expedite loan processing and enhance our other services.

Key benefits of our information processing systems include:

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The ability to analyze and assess loan applications based on a variety of underwriting and product factors, including flexibility to adapt to different product parameters required in customized client implementations;

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A transaction/application processing system that includes automated updating of an applicant’s loan status that a borrower can access online or by telephone;

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Automated preparation and secure electronic delivery of loan documents, including credit agreements and certain legal disclosures;

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Online certification tools enabling financial aid offices to speed loan disbursement by quickly confirming student applicants’ enrollment status and financial need;

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Reporting tools enabling clients to track and sort information about student applicants and borrowers, including application status and disbursement dates;

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Custom built data transmission techniques designed to ensure that data are compiled, integrated and properly migrated both across our enterprise and to external third parties such as servicers, collection and placement agencies and other third-party vendors; and

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Interfaces with internal accounting systems intended to ensure proper booking and tracking of loan information for our clients, as well as support for our capital markets group in its financing activities.

We use a number of leading commercial products to secure, protect, manage and back-up data.

TMS

TMS maintains advanced proprietary systems in connection with the delivery of hosted, integrated education payment and refund solutions to schools and students and their families.

Key benefits of TMS’ systems include:

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Algorithms that use “affordability” parameters provided by the students or their families to create a series of education payment options that minimize borrowing through the utilization of payment plans and school specific loan products;

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Billing solutions that deliver enterprise resource planning integration, regulatory compliance, bill presentment, online document management, online marketing tools and payment channel integration;

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Aggregation of school payments across all channels and methods into a single reporting and disbursement interface, allowing a school to deliver choice to its students and families while reducing its workload burden;

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Refund disbursement solutions that enable student choice of refund method and provide school administrators a single reporting and disbursement interface, allowing a school to deliver choice to its students and families while reducing its workload burden;

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Real-time integration solutions for all major student information systems packages, which allows schools to outsource their billing and payment processing services to TMS without compromising information currency and timeliness; and

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Counseling services delivered through “Voice over Internet Protocol” contact management technology that allows integration between TMS’ contact management system and supporting systems to create an efficient personalized customer experience with reliable capture of data.

TMS uses a number of leading commercial products to secure, protect, manage and back-up data.

Intellectual Property

FIRSTMARBLEHEAD, the checkered logo, MONOGRAM, NATIONAL COLLEGIATE TRUST and UNION FEDERAL are registered service marks, GATE, GATE GUARANTEED ACCESS TO EDUCATION,

PREPGATE, TUITIONWISE and the Union Federal paper clip logo are service marks and RAISE^ is a trade mark of FMD. BORROWSMART, HELPING FAMILIES AFFORD EDUCATION, the partial apple logo, THE PROVEN PATH TO PAID STUDENTS IN YOUR CLASSROOMS, TUITION MANAGEMENT SYSTEMS, INC. and TUITIONCHARGE are registered service marks of TMS. COLOGY, SABERTOOTH and VOLTA are service marks of Cology LLC. The federal registrations for these registered service marks expire at various times between 2015 and 2025, but the registrations may be renewed for additional 10-year terms provided that we continue to use the trademarks.

Education Loan Market Seasonality

Origination of education loans is generally subject to seasonal trends, with the volume of loan applications increasing during the summer and early fall months with the approach of tuition payment dates. We have also tended to process an increased volume of loan applications during November, December and January, as students and their families seek to borrow money to pay tuition costs for the spring semester. Historically, this seasonality of loan originations has impacted the amount of processing fees that we earned in a particular quarter and the level of expenses incurred to generate loan application volume and process the higher origination activity. In addition, TMS’ financial and operational results are also subject to seasonal trends, with plan enrollment activity and expenses generally increasing from March to July as TMS hires temporary staff to meet higher demand for enrollment in tuition payment plans for the succeeding school year.

Government Regulation

We provide financial services in connection with the creation, management and disposition of education loans and education payment processing. Our business is highly regulated at both the state and federal level, through statutes and regulations that focus upon:

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Licensure and examination of industry participants;

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Regulation and disclosure of education loan terms;

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Regulation of loan origination processing; and

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Licensure and general regulation of loan collection and servicing.

Failure to conform to any of these statutes or regulations may result in civil and/or criminal fines, and may affect the enforceability of the underlying education loan assets.

Many states have statutes and regulations that require the licensure of small loan lenders, loan brokers, credit services organizations, loan arrangers, money transmitters and collection agencies. Some of these statutes are drafted or interpreted to cover a broad scope of activities. While we believe we have satisfied all material licensing, registration and other regulatory requirements that could be applicable to us based on current laws and the manner in which we currently conduct business, we may determine that we need to submit additional license applications, and we may otherwise become subject to additional state licensing, registration and other regulatory requirements in the future. In particular, certain state licenses or registrations may be required if we change our operations, if regulators reconsider their prior guidance or if federal or state laws or regulations are changed. Even if we are not physically present in a state, its regulators may take the position that registration or licensing is required because we provide services to borrowers located in the state by mail, telephone, the Internet or other remote means.

We may be subject to state consumer protection laws in each state where we do business and those laws may be interpreted and enforced differently in different states.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, established the Consumer Financial Protection Bureau, or CFPB, as an independent agency within the Federal Reserve. The CFPB has been given broad powers, including the power to:

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Supervise non-depository institutions, including those that offer or provide education loans;

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Supervise depository institutions with assets of $10 billion or more for compliance with consumer protection laws, as well as the service providers to such institutions;

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Regulate consumer financial products, including education loans, and services offered primarily for personal, family or household purposes;

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Promulgate rules with respect to unfair, deceptive or abusive practices; and

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Take enforcement action against institutions under its supervision.

The CFPB may institute regulatory measures that directly impact our business operations. The CFPB has initiated an examination program of non-depository institutions (which could include service providers such as FMER). The Federal Trade Commission, or FTC, maintains parallel authority to enforce Section 5 of the Federal Trade Commission Act prohibiting unfair or deceptive acts or practices against non-depository financial providers, such as FMER, TMS and Cology LLC.

The CFPB has significant rulemaking and enforcement powers and the potential reach of the CFPB’s broad new rulemaking powers and enforcement authority on the operations of financial institutions offering consumer financial products or services, including FMD, is currently unknown. In addition, the Dodd-Frank Act established a Student Loan Ombudsman within the CFPB, who, among other things, receives, reviews and attempts to resolve informally complaints from education loan borrowers. To date, the Student Loan Ombudsman has issued three Annual Reports. The first of these reports, the 2012 Annual Report of the Student Loan Ombudsman, noted concerns that private education loan borrowers may not have fully understood all the terms and conditions of their different loans. As a result, we expect private education loan marketing practices will continue to be carefully scrutinized. The 2013 Annual Report of the Student Loan Ombudsman analyzed complaints received by the CFPB regarding education loans during the prior year, noting trends in complaints related to payment processing, loan modification, treatment of military families and other servicing practices. The 2014 Annual Report of the Student Loan Ombudsman again analyzed complaints received by the CFPB regarding education loans during the prior year, noting trends in complaints related to servicing practices and focused on issues related to co-signers. In 2015, the CFPB issued a “Mid-Year Update on Student Loan Complaints” that again was strongly focused on servicing and collection concerns, including co-signers, payment allocation among billing groups, and the ability of borrowers to obtain payoff statements to allow them to refinance their education loan obligations. As a result, we expect marketing and origination statements made regarding co-signers to receive additional scrutiny. We also expect to see increased scrutiny of the entire life cycle of education loans by the CFPB and other regulatory and enforcement agencies.

As required by the Dodd-Frank Act, the CFPB and the Secretary of Education submitted a report in July 2012, addressing certain aspects of the private education loan market. In this report, the CFPB recommended that the U.S. Congress consider:

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Mandating school certification of borrowed amounts;

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Making private education loans dischargeable in bankruptcy;

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Clarifying the definition of private education loans under TILA to cover products that may serve as economic substitutes (such as credit lines for post-secondary expenses);

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Creating a mechanism to help borrowers better understand their total debt obligations (such as a centralized mechanism similar to the National Student Loan Data System); and

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Whether additional data should be required to enhance consumer decision-making and lender underwriting.

At the same time that it issued the July 2012 report, the CFPB issued revised draft model disclosures for its “Know Before You Owe” campaign designed to provide additional information to consumers. The CFPB also has an Office of Students intended to provide students with tools to facilitate decision making regarding various credit products, including education loans. These initiatives have increased, and could continue to increase, our costs and the complexity of our operations.

The Department of Education issued substantially similar recommendations in the July 2012 report, including that the U.S. Congress consider:

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Both mandating school certification of borrowed amounts and ensuring that students have exhausted federal financial aid before obtaining a private education loan;

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Making private education loans dischargeable in bankruptcy, taking into account the tradeoffs between increasing options for financial relief to distressed borrowers and the potential for higher costs and decreased availability of private education loans;

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Excluding from the definition of private education loans all types of federal education loans, and potentially excluding certain private education loans made by non-profit lenders; and

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Creating a centralized mechanism to help borrowers better understand their total student debt obligations.

The Dodd-Frank Act also includes several provisions that could affect our future portfolio funding transactions, if any, including potential risk retention requirements applicable to any entity that organizes and initiates an ABS transaction, new disclosure and reporting requirements for each tranche of ABS, including new loan-level data requirements, and new disclosure requirements relating to the representations, warranties and enforcement mechanisms available to ABS investors.

We will continue to review state registration and licensing requirements, and we intend to pursue registration or licensing in applicable jurisdictions where we are not currently registered or licensed if we elect to operate through an entity that does not enjoy federal preemption of such registration or licensing requirements. We cannot assure you that we will be successful in obtaining additional state licenses or registrations in a timely manner, or at all. If we determine that additional state registrations or licenses are necessary, we may be required to delay or restructure our activities in a manner that will not subject us to such licensing or registration requirements. Compliance with state licensing requirements could involve additional costs or delays, which could have a material adverse effect on our business. Our failure to comply with these laws could lead to, among other things:

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Curtailment of our ability to continue to conduct business in the relevant jurisdiction, pending a return to compliance or processing of registration or a license application;

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Administrative enforcement actions;

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Class action lawsuits;

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The assertion of legal defenses delaying or otherwise affecting the enforcement of loans; and

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Criminal as well as civil liability.

Any of the foregoing could have a material adverse effect on our business.

The Department of Education is currently engaged in a negotiated rulemaking process with respect to Part 668 of its regulations, including Subpart K, which governs how an institution requests, maintains, disburses and otherwise manages funds received under Title IV of the Higher Education Act of 1965. Among other things, there are current proposals under discussion in the rulemaking that would revise existing regulations to address the allowable methods and procedures for institutions to pay students their Title IV student aid credit balances. The comment period in the Department of Education’s Notice of Proposed Rulemaking closed in July 2015. It is possible that any revised provisions, once adopted and implemented, will limit the fees that we are able to charge related to disbursing refunds via prepaid cards, impact the terms and conditions under which refunds may be provided on those cards and reduce the number of institutions interested in disbursing refunds via prepaid cards, any of which could impede our ability to offer prepaid cards as a refund management option.

The education loan assets with which we deal are subject to the full panoply of state and federal regulation, and a defect in such assets could affect our business. Similarly, the growing complexity of regulation of loan origination and collection may affect the cost and efficiency of our operations. We have sought to minimize the risk created by education loan regulation in a number of ways. The securitizations that we facilitated prior to

fiscal 2009 have involved sales by financial institutions regulated by the Federal Deposit Insurance Corporation, or FDIC, and other parties which represented and warranted that the assets in question were originated in compliance with all applicable law and were valid, binding and enforceable in accordance with their terms. Similarly, the securitization trusts have benefited from an assignment of representations and warranties made by the lender and by the applicable loan servicer regarding compliance with law in the origination and servicing of loan assets.

In delivering services, our operations must conform to education loan regulations that apply to lenders. These regulations include, but are not limited to, compliance with the Consumer Financial Protection Act, TILA, the Higher Education Opportunity Act, the Fair Credit Reporting Act, the USA PATRIOT Act, the Equal Credit Opportunity Act, the Gramm Leach Bliley Act, the Federal Trade Commission Act, the Fair Debt Collection Practices Act and numerous state laws that replicate and expand upon the requirements of federal law. In addition, there is increasing regulation of the type of electronic loan application processing that we conduct, as well as regulation of access to and use of consumer information databases. A growing number of states are imposing disparate and costly requirements on our operations, including protections against identity theft, privacy protection and data security protection. The Fair and Accurate Credit Transactions Act of 2003 imposed significant federal law requirements on loan application processors, including requirements with respect to resolving address inconsistencies, responding to “red flags” of potential identity theft and identity theft notices, producing notices of adverse credit decisions based on credit scoring and other requirements affecting both automated loan processing and manual exception systems. It may be difficult to implement and maintain compliance with future legislative or regulatory requirements. Failure to comply with these requirements would interfere with our ability to develop and market our business model for processing services.

Employees

We had 262 employees at June 30, 2015, compared to 294 employees at June 30, 2014.

We are not subject to any collective bargaining agreements, and we believe our relationships with our employees are good.

Our Corporate Information

We were formed as a limited partnership in 1991 and were incorporated in Delaware in August 1994. Our principal executive offices are located at One Cabot Road, Suite 200, Medford, Massachusetts 02155. The telephone number of our principal executive offices is (800) 895-4283.

Available Information

Our Internet address is www.firstmarblehead.com. The contents of our website are not part of this annual report on Form 10-K, and our Internet address is included in this document as an inactive textual reference only. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports available free of charge on our website as soon as reasonably practicable after we file such reports with, or furnish such reports to, the SEC. Alternatively, reports filed with or furnished to the SEC are available from the SEC on its website, www.sec.gov, by request from the Public Reference Room at 100 F Street, NE, Washington, D.C. 20549 or by phone at (800) SEC-0330.

Executive Officers of the Registrant

The following table sets forth information regarding our executive officers as of September 9, 2015, including their ages as of such date:


Name	Age		Position
Daniel Meyers		52	Chief Executive Officer and Chairman of the Board of Directors
Seth Gelber		36	Managing Director, President, Chief Operating Officer and a member of the Board of Directors
Alan Breitman		45	Managing Director, Chief Financial Officer and Chief Accounting Officer
William Baumer		54	Managing Director and Chief Risk Officer
Barry Heneghan		41	Managing Director, Business Development and Product Strategy
Suzanne Murray		41	Managing Director, General Counsel and Secretary

Set forth below is certain information regarding the business experience of each of the above-named persons.

Daniel Meyers is a co-founder of First Marblehead. He has served as FMD’s Chief Executive Officer and as a member of the FMD Board of Directors since September 2008, and as Chairman of the Board of Directors since May 2010. From September 2008 to August 2013, he served as FMD’s President. Mr. Meyers also served as FMD’s Chief Executive Officer and Chairman of the Board of Directors from FMD’s incorporation in 1994 to September 2005 and as President from November 2004 to September 2005. Since October 2006, Mr. Meyers has served as the sole member, Chairman and Chief Executive Officer of Sextant Holdings, LLC, a private investment firm. From 1980 to 1991, Mr. Meyers was involved in arbitrage and derivatives trading at EF Hutton, Prudential Bache Securities, LF Rothschild Unterberg Towbin and Commodities Corporation, each of which were financial services firms. He began working on ABS financings in 1986. He currently serves as the Chair Emeritus of the Board of the Curry School of Education Foundation, as well as a consulting member of the finance committee of the Board of Visitors at the University of Virginia. Additionally, he is the Chairman of the Board of Steward Medical Group, a unit of Steward Healthcare System, a system of 11 hospitals headquartered in Boston, Massachusetts. He also serves on the Board of the Forum for the Future of Higher Education and is a member of the Education Funding Committee of the Consumer Bankers Association. Mr. Meyers received an A.B. in Economics from Brandeis University and completed the Owner President Management Program at the Harvard Graduate School of Business Administration.

Seth Gelber has served as a member of the FMD Board of Directors since November 2013, FMD’s President since August 2013, Chief Operating Officer since August 2012 and as a Managing Director since September 2008. He served as FMD’s Chief Administrative Officer from March 2010 to August 2012 and as FMD’s Senior Vice President, Corporate Development from August 2008 to September 2008. From 2001 to 2006, Mr. Gelber held various positions at FMD in the Capital Markets and Product Strategy groups. Since October 2006, Mr. Gelber has served as President of Sextant Holdings, LLC, a private investment firm, the sole member of which is Mr. Meyers. From 1998 to 2001, Mr. Gelber served as a Legislative Assistant to Congressman Jack Quinn (N.Y.), primarily focused on education, telecommunication and banking legislation. Mr. Gelber received a B.A. from The George Washington University.

Alan Breitman has served as FMD’s Managing Director, Chief Financial Officer and Chief Accounting Officer since August 2014. He served as a Managing Director of Corporate Fuel Advisors, LLC, a boutique investment bank working with middle market companies, from October 2006 to July 2014. From May 2001 to September 2006 and from September 1998 to October 1998, Mr. Breitman served as the Chief Financial Officer of MetroLights Advertising, LLC, a privately held domestic outdoor advertising company. From November 2000 to May 2001, he served as the Chief Financial Officer of TechSpace, Inc., a privately held provider of shared office space. From November 1998 to October 2000, he served as the Vice President Finance and Accounting and Treasurer of Register.com, Inc., a publicly held international registrar of domain names. From August 1997 to August 1998, Mr. Breitman served as the Manager of Financial Planning and Analysis at Allaire Corporation, a publicly held developer of Internet development tools. From May 1997 to July 1997, he served as the Manager

of Financial Planning and Analysis for Datamedic, a privately held developer of integrated point of care computerized patient record and practice management solutions. From May 1996 to May 1997, Mr. Breitman worked as both the Accounting Manager and Financial Analyst for Visibility, Inc., a privately held developer of manufacturing accounting systems. From 1995 to 1996, he was the Manager of Internal Financial Reporting for XTRA Corporation, a publicly held transportation lessor, and from 1992 to 1995, he was an auditor at Coopers & Lybrand, LLP, where he worked primarily with high technology and financial services companies. Mr. Breitman received a B.S. in business from Skidmore College.

William Baumer has served as FMD’s Chief Risk Officer since September 2007 and as a Managing Director since September 2008. Mr. Baumer served as the Chief Executive Officer and Chief Risk Officer of Union Federal from July 2010 to June 2015 and as FMD’s Senior Vice President, Compliance from July 2004 to September 2007. From 2003 to June 2004, Mr. Baumer served as the Compliance Manager for the nationwide mortgage operations at Bank of America, N.A. From 2000 to 2003, Mr. Baumer was the Compliance Director-Core Banking for Fleet Boston Financial Corporation, a bank that was acquired by Bank of America, and was responsible for regulatory compliance programs in Fleet’s consumer, commercial and administrative staff units. He joined Fleet in 1984 and held various leadership positions in the Compliance, Audit, Credit and Retail Banking business units. Mr. Baumer received a B.S. from Franklin Pierce College and has earned Certified Regulatory Compliance Manager, Certified Internal Auditor and Certified Anti-Money Laundering Specialist certifications.

Barry Heneghan has served as FMD’s Managing Director, Business Development and Product Strategy since January 2011. From August 2008 to December 2010, he served as a consultant to FMD. From February 2006 to August 2008, when it ceased active operations, Mr. Heneghan served as the Chief Executive Officer and President of Think Financial, a student loan marketing company. From 1996 to January 2006, Mr. Heneghan held various positions at FMD in the Business Development, Corporate Development and Product Strategy groups. From 1993 to 1996, Mr. Heneghan served as a Legislative Assistant to Congressman Jack Quinn (N.Y.). Mr. Heneghan received a B.A. from The George Washington University and an M.A. from Pennsylvania State University and attended the London School of Economics.

Suzanne Murray has served as FMD’s General Counsel since August 2012 and as a Managing Director and FMD’s Secretary since May 2012. Ms. Murray served as FMD’s Acting General Counsel from May 2012 to August 2012 and as FMD’s Senior Counsel, Corporate Law from March 2010 to April 2012. From October 2007 to February 2010, Ms. Murray was a Partner at Goodwin Procter LLP, a law firm, and from October 2000 to September 2007, Ms. Murray was an associate at Goodwin Procter. While at Goodwin Procter, Ms. Murray practiced general corporate and securities law, with an emphasis on mergers and acquisitions, SEC compliance and corporate governance matters. Ms. Murray received a B.A. from Boston College and a J.D. from Boston College Law School.

Code of Ethics

We have adopted a code of conduct that applies to FMD employees and officers, including FMD’s principal executive officer, principal financial officer, principal accounting officer or controller or persons serving similar functions. We have also adopted a statement of business ethics that applies to FMD directors. We will provide a copy of FMD’s code of conduct and statement of business ethics for FMD directors to any person without charge, upon written request to: Corporate Secretary, The First Marblehead Corporation, One Cabot Road, Suite 200, Medford, Massachusetts 02155. FMD’s code of conduct and statement of business ethics for FMD directors, as well as FMD’s corporate governance guidelines and the charters of the standing committees of the FMD Board of Directors, are posted on our website at www.firstmarblehead.com under the heading “For Investors—Corporate Information—Governance Documents,” and each of these documents is available in print to any stockholder who submits a written request to FMD’s corporate secretary. If we amend FMD’s code of conduct in the future or grant a waiver under FMD’s code of conduct to any of the FMD directors or executive officers, including FMD’s principal executive officer, principal financial officer, principal accounting officer or controller or anyone performing similar functions, we intend to post information about such amendment or waiver on our website.

Item 1A.

Risk Factors

Investing in FMD common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below in addition to the other information included in this annual report. If any of the following risks actually occurs, our business, financial condition or results of operations could be adversely affected, which, in turn, could have a negative impact on the price of FMD common stock. Although we have grouped risk factors by category, the categories are not mutually exclusive. Risks described under one category may also apply to another category, and you should carefully read the entire risk factors section, not just any one category of risk factors.

Risks Related to Our Industry, Business and Operations

We have incurred net losses since fiscal 2008 and could incur losses in the future.

We have generated significant net losses since fiscal 2008, and may continue to incur losses. There can be no assurance that we will report net income in any future period. We must develop new lender client relationships and substantially increase our revenues derived from our Monogram platform, TMS offerings and Cology LLC offerings. We are actively managing our expenses in the current economic environment and in light of the status of our business. To the extent that we are not able to increase our revenues and continue to manage our operating expenses, we will continue to experience net losses.

We will need to facilitate substantial loan volume, achieve market acceptance of our Monogram platform and TMS’ offerings and continue to manage our expenses, among other things, in order to return to profitability.

Our ability to achieve and sustain profitability is dependent on many factors. Primarily, we believe that the following must occur in order for us to return to profitability:

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We need to facilitate Monogram-based loan volumes substantially in excess of those that have been originated to date, and substantially in excess of those contemplated by our current lender clients’ Monogram-based loan programs. Because the revenues that we expect to generate for Monogram-based loan programs will depend in part on the size, credit mix and actual performance of our lender clients’ loan portfolios, it is difficult for us to forecast the level or timing of our revenues or cash flows with respect to our Monogram platform generally or a specific lender client’s Monogram-based loan program.

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We need to attract additional lender clients, or otherwise obtain additional sources of interim or permanent financing, such as securitizations or alternative financing transactions, particularly given that one of our current lender clients provides the majority of our Monogram-based loan program fees, which subjects us to concentration risk as it relates to this revenue stream.

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Deployment of our Monogram platform, and disbursed loan volume under our lender clients’ Monogram-based loan programs, has been limited, and we will need to gain widespread market acceptance of our Monogram platform among lenders, and of our lender clients’ Monogram-based loan programs among borrowers, in order to improve our long-term financial condition, results of operations and cash flow. If we do not succeed in doing so, we may need to re-evaluate our business plans and operations.

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We need to gain widespread market acceptance of our refund management services and Student Account Center product among TMS’ existing clients as well as new clients, in order to improve our long-term financial condition, results of operations and cash flow. In addition, it is uncertain whether our refund management services and Student Account Center product will generate the revenues required to be successful.

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We need to continue to actively manage our expenses in the current economic environment to better align costs with our business. In the past we have engaged in cost reduction initiatives and we may need to engage in similar cost reduction initiatives in the future. Despite our efforts to structure our business to operate in a cost-effective manner, some cost reduction measures could have unexpected negative consequences. If we are unable to successfully manage our expenses and run our business in a cost-effective manner, our results of operations would be harmed and it may impact our return to profitability.

Challenges exist in implementing revisions to our business model.

Since the beginning of fiscal 2009, we have taken several measures to adjust our business in response to economic conditions. Most significantly, we refined our service offerings and added fee-for-service offerings such as loan origination services and portfolio management. In fiscal 2010, we completed the development of our Monogram platform, including an expanded credit decisioning model and additional reporting capabilities. We continue to incorporate refinements to our Monogram platform. In fiscal 2011, we began originating Monogram-based education loans under loan program agreements and began offering outsourced tuition planning, tuition billing and payment technology services for educational institutions through TMS. In fiscal 2012, we began offering refund management services to educational institutions and students through TMS. In fiscal 2013, we began providing education loan processing and disbursement services to credit union and other lender clients through Cology LLC. Successful sales of our service offerings, particularly our Monogram platform, TMS offerings and Cology LLC offerings, will be critical to stemming our losses and growing and diversifying our revenues and client base in the future.

We are uncertain as to the degree of market acceptance that our Monogram platform will achieve, particularly in the current economic and regulatory environment where there has been reluctance by many lenders to focus on education lending opportunities. As of September 9, 2015, we have loan program agreements with three lender clients for Monogram-based loan programs. The process of negotiating loan program agreements can be lengthy and complicated. Both the timing and success of contractual negotiations are unpredictable and partially outside of our control, and we cannot assure you that we will successfully identify potential clients or ultimately reach acceptable terms with any particular party with which we begin negotiations. Furthermore, we cannot be sure that, if we do reach acceptable terms with any particular party, we will do so in a timely or cost-effective manner. Our failure to timely and cost-effectively enter into loan program agreements could have a material adverse effect on our business, results of operations and financial condition.

Moreover, we are uncertain of the extent to which borrowers will choose Monogram-based loans offered by our lender clients, which depends, in part, on competitive factors such as brand and pricing. Several of our current and potential competitors have longer operating histories and significantly greater financial, marketing, technical or other competitive resources than we or our clients have, including funding capacity. As a result, our competitors or potential competitors may be better able to overcome capital markets dislocations, adapt more quickly to new or emerging technologies and changes in customer preferences, compete for skilled professionals, build upon efficiencies based on a larger volume of loan transactions, fund internal growth and compete for market share, or may be able to devote greater resources to the promotion and sale of their products and services. In particular, competitors with larger customer bases, greater name or brand recognition or more established customer relationships than those of our clients have an advantage in attracting loan applicants and making education loans on a recurring, or “serialized,” basis. We are uncertain of the total application volume for fiscal 2016 and beyond, the extent to which application volume will ultimately result in disbursed loans and the overall characteristics of the disbursed loan portfolio.

Commercial banks have historically served as the initial funding sources for the education loans we facilitate and have been our principal clients. Since fiscal 2008, we have not facilitated securitization transactions to support the long-term funding of education loans, and commercial banks may be facing liquidity and credit challenges from other sources, in particular mortgage, auto loan and credit card lending losses. In addition, the synergies that previously existed between federal and private education loan marketing have been eliminated by legislation that eliminated FFELP. As a result, many lenders have re-evaluated their business strategies related to education lending. In light of legislative and regulatory changes, general economic conditions, capital markets disruptions and the overall credit performance of consumer-related loans, the education loan business may be less attractive to commercial banks than in the past. Demand for our services may not increase unless additional lenders enter or re-enter the marketplace, which could depend in part on capital markets conditions and improved market conditions for other consumer financing segments.

Some of our former clients and competitors have exited the education loan market completely. To the extent that commercial banks exit the education loan market, the number of our prospective clients diminishes. One of our primary challenges is to convince national and regional lenders that they can address this market opportunity

in a manner that meets their desired risk control and return objectives. A related challenge is to successfully finance education loans generated through our Monogram platform through capital market transactions or other sources of capital. We cannot assure you that we will be successful in either the short-term or the long-term in meeting these challenges.

Our business model depends on our ability to facilitate Monogram-based education loan volumes substantially in excess of those that have been originated to date and those contemplated by our current lender clients’ Monogram-based loan programs. We have been required to expend capital to support loan volume under our Monogram platform. Specifically, we have been required to provide credit enhancements for Monogram-based loans originated by certain of our lender clients by funding participation accounts to serve as a first-loss reserve for defaulted program loans. While we believe that we have sufficient capital resources to continue to provide such support to our Monogram platform under our business model, our ability to return to profitability while maintaining appropriate levels of liquidity will be predicated, in part, on our ability to fund participation accounts at levels lower than we are today, as well as the availability of higher capital markets advance rates than are available today.

If we fail to manage our cost reductions effectively, our business could be disrupted and our financial results could be adversely affected.

We have engaged in cost reduction initiatives in the past and we may engage in cost reduction initiatives in the future. These types of cost reduction activities are complex. Even if we carry out these strategies in the manner we expect, we may not be able to achieve the efficiencies or savings we anticipate, or on the timetable we anticipate, and any expected efficiencies and benefits might be delayed or not realized, and our operations and business could be disrupted.

We continue to experience negative net operating cash flows. Our continued use of cash to fund operations may necessitate further significant changes to our cost structure if we are unable to grow our revenue base to the level necessary to fund our ongoing operations.

In addition, cost reduction initiatives have placed and will continue to place a burden on our management, systems and resources, generally increasing our dependence on key persons and reducing functional back-ups. We must retain, train, supervise and manage our employees effectively during this period of change in our business and our ability to respond in a timely and effective fashion to unanticipated exigencies of our business model could be negatively affected during this transition.

Although we believe that our capital resources as of June 30, 2015 are sufficient to satisfy our operating needs for the succeeding 12 months, we cannot assure you that they will be sufficient. Insufficient funds could require us to, among other things, terminate additional employees, which could, in turn, place additional strain on any remaining employees and could further disrupt our business, including our ability to grow and expand our business.

We may outsource some borrower or client service functions in an effort to reduce costs, take advantage of technologies and effectively manage the seasonality associated with education loan volume and tuition payment processing. We rely on our vendors to provide high levels of service and support. Our reliance on external vendors subjects us to risks associated with inadequate or untimely service and could result in problems with service or support that we would not experience if we performed the service functions in-house.

If we are unable to manage our cost reductions, or if we lose key employees or are unable to attract and properly train new employees, our operations and our financial results could be adversely affected.

If we are unable to retain our key employees and hire qualified sales and technical personnel, our ability to compete could be harmed.

Our future success depends upon the continued services of our executive officers and other key personnel who have critical industry experience and relationships. If we were to lose the services of any of our executive officers and other key personnel and were not able to find replacements in a timely manner, our business could

be disrupted, it could hinder or delay the implementation of our business model and the development and introduction of, and negatively impact our ability to sell, our services and other key personnel might decide to leave.

Members of our senior management team and other key personnel have left First Marblehead over the years for a variety of reasons, some of whom possessed institutional knowledge and experience with our business that could not be immediately replaced through the hiring of new managers. In addition, there is significant competition for talented individuals in our industry, which affects both our ability to retain key employees and hire new ones.

We have provided credit enhancements in connection with Monogram-based loan programs for certain of our lender clients and may enter into similar arrangements in connection with future loan programs. As a result, we have capital at risk in connection with our lender clients’ loan programs. We may lose some or all of the capital we have provided and our financial results could be adversely affected.

In connection with certain of our lender clients’ Monogram-based loan programs, we have provided credit enhancements by funding participation accounts to serve as a first-loss reserve for defaulted program loans. We have limited amounts of cash available to offer to prospective clients, and there is a risk that lenders will not enter into loan program agreements with us unless we offer credit enhancement. We expect that the amount of any such credit enhancement arrangement offered to a particular lender would be determined based on the particular terms of the lender’s loan program, including the anticipated size of the lender’s program and the underwriting guidelines of the program, as well as the particular terms of our business relationship with the lender. Should additional lenders require credit enhancement from us as a condition to entering into a loan program agreement, our growth may be constrained by the level of capital available to us.

We have made deposits pursuant to our credit enhancement arrangements and agreed to provide periodic supplemental deposits, up to specified limits, during the disbursement periods under our loan program agreements based on the credit mix and volume of disbursed program loans and adjustments to default projections for program loans. To the extent that outstanding loan volume decreases as a result of repayments, or if actual loan volumes or default experience are less than our funded amounts, we are eligible to receive periodic releases of funds. The timing and amount of releases, if any, from the participation accounts are uncertain and vary among the loan programs. As of June 30, 2015, the fair value of our funded credit enhancements was $17.9 million. We could lose some or all of the amounts that we have deposited, or will deposit in the future, in the participation accounts, depending on the performance of the portfolio of program loans. Such losses would weaken our financial position and could damage business prospects for our Monogram platform.

Our Monogram platform is based on proprietary scoring models and risk mitigation and pricing strategies that we have developed. We have limited experience with the actual performance of loan portfolios generated by lenders based on our Monogram platform, and we may need to adjust marketing, pricing or other strategies from time to time based on the distribution of loan volume among credit tiers or competitive considerations. We must closely monitor the characteristics and performance of each lender’s loan portfolio in order to suggest adjustments to the lenders’ programs and tailor our default prevention and collection management strategies. The infrastructure that we have built for such monitoring requires extensive operational and data integration among the loan servicer, multiple default prevention and recovery collection agencies and us. To the extent that our infrastructure is inadequate or we are otherwise unsuccessful in identifying portfolio performance characteristics and trends, or to the extent that lenders are unwilling to adjust their loan programs, our risk of losing amounts deposited in the participation accounts may increase.

The outsourcing services market for education financing is competitive and if we are not able to compete effectively, our revenues and results of operations may be adversely affected.

We offer our clients and prospective clients, national and regional financial and educational institutions, services in structuring and supporting their education loan programs and tuition payment processing plans. The outsourcing services market in which we operate is competitive with a number of active participants, some of

which have longer operating histories and significantly greater financial, marketing, technical or other competitive resources than we or our clients have, including funding capacity. As a result, our competitors or potential competitors may be better able to overcome capital markets dislocations, adapt more quickly to new or emerging technologies and changes in customer preferences, compete for skilled professionals, build upon efficiencies based on a larger volume of loan transactions, fund internal growth and compete for market share, or may be able to devote greater resources to the promotion and sale of their products and services. In particular, competitors with larger customer bases, greater name or brand recognition or more established customer relationships than us or those of our clients have an advantage in attracting loan applicants at a lower acquisition cost. These disadvantages are particularly acute for us because we have only been operating Monogram-based loan programs since fiscal 2011.

Based on the range of services that we offer, we believe that Sallie Mae is our principal competitor. Our business could be adversely affected if Sallie Mae’s private education loan program continues to grow, or if Sallie Mae seeks to market more aggressively to third parties the full range of services that we offer. Other education loan competitors include Wells Fargo & Company and Discover Financial Services. In addition, Nelnet Business Solutions, TouchNet Information Systems, Inc. and Higher One Holdings, Inc. compete directly with TMS and LendKey Technologies, Inc. and Campus Door Holdings Inc. compete directly with Cology LLC.

We may face competition from loan originators, including our clients or former clients, if they choose to develop an internal capability to provide any of the services that we currently offer. For example, a loan originator that has developed, or decides to develop, a portfolio management or capital markets function may not choose to engage us for our services. Demand for our services could also be affected by developments with regard to federal loan programs. For example, in Spring 2015, the President announced a “Student Aid Bill of Rights” that would seek, among other initiatives, to increase certain grant aid and reduce certain tuitions, both of which could decrease the demand for private education loans. Historically, lenders in the education loan market have focused their lending activities on federal loans because of the relative size of the federal loan market and because the federal government guarantees repayment of those loans, thereby significantly limiting the lenders’ credit risk. Following the elimination of FFELP, lenders are more focused on private education loans and some may seek to develop an internal capacity to conduct the services that we provide, which could result in a decline in the potential market for our services.

We cannot assure you that we will be able to compete successfully with new or existing competitors. If we are not able to compete effectively, our results of operations may be adversely affected.

If our clients do not actively or successfully market and fund education loans, our business will be adversely affected.

We have in the past relied, and will continue to rely in part, on our clients to market and fund education loans to borrowers. If our clients do not devote sufficient time, emphasis or resources to marketing their Monogram-based loan programs or are not successful in these efforts, then we may not reach the full potential of our capacity for disbursed loan volume and our business will be adversely affected. In addition, our lender clients’ Monogram-based loan programs, and related marketing efforts, may not necessarily extend nationwide and, in fact, may focus on a limited geographic footprint.

In addition, if education loans were or are marketed by our clients in a manner that is found to be unfair, deceptive or abusive, or if the marketing, origination or servicing violated or violates any applicable law, federal or state unfair and deceptive practices acts could impose liability or, in limited circumstances, create defenses to the enforceability of the loan. Investigations by state Attorneys General, the CFPB, the U.S. Congress or others could have a negative impact on lenders’ desire to originate and market education loans. The Higher Education Opportunity Act creates significant additional restrictions on the marketing of education loans.

Our business could be adversely affected if PHEAA fails to provide adequate, proper or timely services or if our relationship with PHEAA terminates.

As of June 30, 2015, PHEAA served as the sole loan servicer for our Monogram-based loan programs. Our arrangements with PHEAA allow us to avoid the overhead investment in servicing operations, but require us to rely on PHEAA to adequately service the education loans, including collecting payments, responding to borrower inquiries, effectively implementing servicing guidelines applicable to loans and communicating with borrowers whose loans have become delinquent. Reliance on PHEAA and other third parties to perform education loan servicing or collections subjects us to risks associated with inadequate, improper or untimely services. In the case of PHEAA, these risks include the failure to properly administer servicing guidelines, including forbearance programs, and failure to provide notice of developments in prepayments, delinquencies and defaults, and usage rates for forbearance programs, including alternative payment plans. In the case of third-party collection agencies, these risks include failure to properly administer collections guidelines and compliance with federal and state laws and regulations relating to interactions with debtors. If our relationship with PHEAA terminates, we would either need to expand our operations or develop a relationship with another loan servicer, which could be time consuming and costly. In such event, our business could be adversely affected.

If competitors or potential competitors acquire or develop an education loan database, our business could be adversely affected.

We own a database of historical information on education loan performance that we use to help us enhance our proprietary origination risk score model, determine the terms of portfolio funding transactions and derive the estimates and assumptions we make in preparing our consolidated financial statements and cash flow models. We believe that our education loan database provides us with a competitive advantage in offering our services. A third party could create or acquire databases and systems such as ours. As lenders and other organizations in the education loan market originate or service loans, they compile over time information for their own education loan performance database. Our competitors and potential competitors may have originated or serviced a greater volume of education loans than we have over the past several years, which may have provided them with comparatively greater borrower or loan data, particularly during the most recent economic cycle. If a third party creates or acquires an education loan database, our competitive positioning, ability to attract new clients and business could be adversely affected.

If we are unable to protect the confidentiality of our proprietary information and processes, the value of our services and technology could be adversely affected.

We rely on trade secret laws and restrictions on disclosure to protect our proprietary information and processes. We have entered into confidentiality agreements with third parties and with most of our employees to maintain the confidentiality of our trade secrets and proprietary information. These methods may neither effectively prevent use or disclosure of our confidential or proprietary information nor provide meaningful protection for our confidential or proprietary information if there is unauthorized use or disclosure.

We own no material patents. Accordingly, our technology is not covered by patents that would preclude or inhibit competitors from entering our market. Monitoring unauthorized use of the systems and processes that we have developed is difficult, and we cannot be certain that the steps that we have taken will prevent unauthorized use of our technology. Furthermore, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our proprietary information. If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and services could be adversely affected.

An interruption in or breach of our information systems, or those of a third party on which we rely, may result in lost business.

We rely heavily upon communications and information systems to conduct our business. Our systems and operations are vulnerable to damage or interruption from network failure, hardware failure, software failure,

power or telecommunications failures, computer viruses and worms, penetration of our network by hackers or other unauthorized users and natural disasters. Any failure, interruption or breach in security of our information systems or the third-party information systems on which we rely could cause underwriting or other delays and could result in fewer loan applications being received, slower processing of applications or tuition-related payments and reduced efficiency in loan processing or our other services, including TMS’ and Cology LLC’s offerings. A failure, interruption or breach in security could also result in an obligation to notify clients in a number of states that require such notification, with possible civil liability and potentially large fines and penalties resulting from such failure, interruption or breach. Although we maintain and periodically test a business continuity and disaster recovery plan, the majority of our infrastructure and employees are concentrated in the Medford, Massachusetts, Warwick, Rhode Island and Sacramento, California metropolitan areas. An interruption in services for any reason could adversely affect our ability to activate our contingency plan if we are unable to communicate among locations or employees.

We cannot assure you that systems failures, interruptions or breaches will not occur, or if they do occur that we or the third parties on whom we rely will adequately address them. The precautionary measures that we have implemented to avoid systems outages and to minimize the effects of any data or communication systems interruptions may not be adequate, and we may not have anticipated or addressed all of the potential events that could threaten or undermine our information systems. The occurrence of any systems failure, interruption or breach could significantly impair the reputation of our brand, diminish the attractiveness of our services and harm our business.

Our business processes are becoming increasingly dependent upon technological advancement, and we could lose clients and market share if we are not able to keep pace with rapid changes in technology.

Our future success depends, in part, on our ability, or the ability of our third-party service providers, to process loan applications and tuition-related payments in an automated manner with high-quality service standards. The volume of loan originations and tuition-related payments that we and our third-party service providers are able to process is based, in large part, on the systems and processes we and they have implemented and developed. These systems and processes are becoming increasingly dependent upon technological advancement, such as the ability to process applications and payments via the Internet, accept electronic signatures and provide initial credit decisions instantly. Our future success also depends, in part, on our ability to develop and implement technology solutions that anticipate and keep pace with continuing changes in technology, industry standards and client preferences. We may not be successful in anticipating or responding to these developments on a timely basis. In addition, the industry in which TMS competes has undergone rapid technological change over the past several years. We have made, and need to continue to make, investments in our technology platform in order to provide competitive products and services to our clients. If competitors in any business line introduce products, services, systems and processes that are better than ours or that gain greater market acceptance, those that we offer or use may become obsolete or noncompetitive. In addition, if we or our third-party service providers fail to execute our lender clients’ origination requirements or properly deliver our lender clients’ credit agreements or required disclosures, if TMS fails to properly administer its tuition payment plans or other services or if Cology LLC fails to properly provide its education loan processing and disbursement services, we could be subject to breach of contract claims and related damages. Any one of these circumstances could have a material adverse effect on our business reputation and ability to obtain and retain clients.

We may be required to expend significant funds to develop or acquire new technologies. If we cannot offer new technologies as quickly as our competitors, we could lose clients and market share. We also could lose market share if our competitors develop more cost effective technologies than those we offer or develop.

If we or one of our third-party service providers experience a data security breach and confidential customer information is disclosed, we may be subject to penalties imposed by regulators, civil actions for damages and negative publicity, which could be costly, affect our customer relationships and have a material adverse effect on our business. In addition, state and federal legislative proposals, if enacted, may impose additional requirements on us to safeguard confidential customer information, which may result in increased compliance costs.

Data security breaches suffered by well-known companies and institutions have attracted a substantial amount of media attention, prompting state and federal legislation, legislative proposals and regulatory rule-making to address data privacy and security. Consequently, we may be subject to rapidly changing and increasingly extensive requirements intended to protect the consumer information that we process in connection with education loans and tuition payment plans. Implementation of systems and procedures to address these requirements has increased our compliance costs, and these costs may increase further as new requirements emerge. If we or one of our third-party service providers were to experience a data security breach, or if we were to otherwise improperly disclose confidential customer or consumer information, such breach or other disclosure could be costly, generate negative publicity about us and adversely affect our relationships with our clients, including the lenders and educational institutions with which we do business, any of which could have a material adverse effect on our business. In addition, such pending legislative proposals and regulations, if adopted, likely would result in substantial penalties for unauthorized disclosure of confidential consumer information. Failure to comply with those requirements could result in regulatory sanctions imposed on our lender clients and loss of business for us.

The growth of our business could be adversely affected by changes in government education loan programs or expansions in the population of students eligible for loans under government education loan programs.

We focus our business on the market for private education loans, and the majority of our business is concentrated in products for post-secondary education. The availability and terms of loans that the government originates or guarantees affects the demand for private education loans because students and their families often rely on private education loans to bridge a gap between available funds, including family savings, scholarships, grants and federal and state loans, and the costs of post-secondary education. The federal government currently places both annual and aggregate limitations on the amount of federal loans that any student can receive and determines the criteria for student eligibility. These guidelines are generally adjusted in connection with funding authorizations from the U.S. Congress for programs under the Higher Education Act of 1965. Recent federal legislation expanded federal grant and loan assistance, which could weaken the demand for private education loans. The President announced this Spring a “Student Aid Bill of Rights” that would seek, among other initiatives, to increase certain grant aid and reduce certain tuitions, both of which could decrease the demand for private education loans. The creation of similar federal or state programs that make additional government loan funds available could decrease the demand for private education loans.

Access to alternative means of financing the costs of education may reduce demand for private education loans.

The demand for private education loans could weaken if student borrowers use other vehicles to bridge the gap between available funds and costs of post-secondary education. These vehicles include, among others:

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Home equity loans or other borrowings available to families to finance their education costs;

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Pre-paid tuition plans, which allow families to pay tuition at today’s rates to cover tuition costs in the future;

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Section 529 plans, which include both pre-paid tuition plans and college savings plans, that allow a family to save funds on a tax-advantaged basis;

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Education IRAs, now known as Coverdell Education Savings Accounts, under which a holder can make annual contributions for education savings;

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Government education loan programs, generally, and interest rates on the loans under these programs, specifically; and

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Direct loans from colleges and universities.

In addition, certain colleges and universities offer discounts to tuition costs and fees as a way to maintain their competitive positioning in the education marketplace. If demand for private education loans weakens, we would experience reduced demand for our services, which could have a material adverse effect on our results of operations.

Continuation of the current economic conditions could adversely affect the education loan industry.

High unemployment rates and the unsteady financial sector have adversely affected many consumers, loan applicants and borrowers throughout the country. Loan applicants that have experienced trouble repaying credit obligations may not be able to meet the credit standards of our lender clients’ Monogram-based loan programs, which could limit our lending market or have a negative effect on the rate at which loan applications convert into disbursed loans. In addition, current borrowers may experience more trouble in repaying credit obligations, which could increase loan delinquencies, defaults and forbearance, or otherwise negatively affect loan portfolio performance and the estimated fair value of our service revenue receivables and participation accounts. Forbearance programs may have the effect of delaying default emergence, and alternative payment plans may reduce the utilization of basic forbearance. In addition, some consumers may find that higher education is an unnecessary investment during turbulent economic times and defer enrollment in educational institutions until the economy improves or turn to less costly forms of secondary education, thus decreasing education loan application and funding volumes. Finally, many lending institutions have been reluctant to lend and have significantly tightened their underwriting standards, and several clients and potential clients have exited the education loan business and may not seek our services as the economy improves. If the adverse economic environment continues, our financial condition may deteriorate for any one of the foregoing reasons.

We may face risks related to litigation that could result in significant legal expenses and settlement or damage awards.

From time to time, we are subject to claims and litigation, which could seriously harm our business and require us to incur significant costs. In the past, we have been named as a defendant in securities class action lawsuits. We are generally obligated, to the extent permitted by law, to indemnify our current and former officers and directors who are named as defendants in these lawsuits. Defending against litigation may require significant attention and resources of management. Regardless of the outcome, such litigation could result in significant legal expenses.

We may also be subject to employment claims in connection with employee terminations. In addition, companies in our industry whose employees accept positions with us may claim that we have engaged in unfair hiring practices. These claims may result in material litigation. We could incur substantial costs defending ourselves or our employees against those claims, regardless of their merits. In addition, defending ourselves from those types of claims could divert our management’s attention from our operations.

If we are a party to material litigation and if the defenses we claim are ultimately unsuccessful, or if we are unable to achieve a favorable settlement, we could be liable for large damage awards that could have a material adverse effect on our business and consolidated financial statements.

Risks Related to Our Financial Reporting and Liquidity

If sufficient funds to finance our business and meet our obligations are not available to us when needed or on acceptable terms, we may be required to delay, scale back, otherwise alter our strategy or cease operations.

We have generated significant net losses since fiscal 2008, and we cannot predict at this time when or if we will return to profitability. Furthermore, while we have made progress towards reducing our overall cash needs, we continue to utilize significant levels of cash to fund the many priorities required of a diverse business such as

ours. We may require additional funds for our products, operating expenses, including expenditures relating to TMS and Cology LLC, capital in connection with credit enhancement arrangements for Monogram-based loan programs or capital markets financings, the pursuit of regulatory approvals, acquisition opportunities and the expansion of our capabilities. In addition, under certain of Cology LLC’s loan origination agreements, it has agreed to indemnify those lender clients for certain claims and damages in connection with its performance under such agreements. As a result, we may incur substantial costs in the event of a claim for damages related to these agreements, which could have a material adverse effect on our liquidity or financial condition. See Note 14, “Commitments and Contingencies—Cology LLC Contingent Liability,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

Historically, we have satisfied our funding needs primarily through fees earned from education loan asset-backed securitizations. We have not accessed the securitization market since fiscal 2008, and the securitization market may not be accessible to us in the future or, if available, not on terms that are acceptable to us. We have also satisfied our funding needs through equity financings. We cannot be certain that additional public or private financing would be available in amounts or on terms acceptable to us, if at all. If sufficient funds to finance our business and meet our obligations are not available to us when needed or on acceptable terms, we may be required to delay, scale back or eliminate certain of our products, eliminate our ability to provide credit enhancement commitments to prospective clients relating to Monogram-based loan programs, curtail, delay or terminate plans for TMS or Cology LLC, terminate personnel, further scale back our expenses or cease operations.

Our liquidity could be adversely affected if we are unable to successfully resolve our pending state tax matters.

We are involved in several matters relating to the Massachusetts tax treatment of GATE for GATE’s taxable years ended June 30, 2004, 2005 and 2006 as well as GATE’s taxable years ended June 30, 2008 and 2009. On January 28, 2015, the SJC issued its opinion in the cases relating to the Massachusetts tax treatment of GATE for GATE’s taxable years ended June 30, 2004, 2005 and 2006 and affirmed the decision of the ATB. We were not required to make any payments to the Massachusetts Department of Revenue for GATE’s taxable years ended June 30, 2004, 2005 and 2006 at that time as we had made a $5.1 million payment to the Massachusetts Department of Revenue in the third quarter of fiscal 2012 that satisfied our obligations for those tax years. In affirming the ATB, the SJC’s opinion interpreted the controlling statute in a manner that is inconsistent with the ATB’s interpretation, as well as the interpretations advocated by both GATE and the Massachusetts Commissioner of Revenue, or the Commissioner, in their briefs. We believe the SJC’s statutory analysis is incorrect. On February 11, 2015, we filed a petition for rehearing on this matter with the SJC, which was denied by the SJC on March 2, 2015. On May 31, 2015, we filed a petition for a writ of certiorari with the Supreme Court of the United States.

On August 6, 2013, the Massachusetts Department of Revenue delivered a notice of assessment for GATE’s taxable years ended June 30, 2008 and 2009, which included an assessment for penalties of $4.1 million. We have not accrued for the penalties as we believe that it is more likely than not that the penalties will ultimately be abated, which is consistent with the Massachusetts Department of Revenue’s treatment of GATE’s taxable years ended June 30, 2004, 2005 and 2006. On August 26, 2013, we filed an application to have the assessed amounts abated in full. On March 26, 2014, the Massachusetts Department of Revenue denied our application. While we have filed an appeal on this matter with the ATB, it is on hold pending resolution of the petition for a writ of certiorari we filed with the Supreme Court of the United States on May 31, 2015 related to GATE’s taxable years ended June 30, 2004, 2005 and 2006. The SJC’s opinion in the cases related to GATE’s taxable years ended June 30, 2004, 2005 and 2006 may influence the outcome of our appeal for the taxable years ended June 30, 2008 and 2009. We plan to vigorously pursue the litigation pending before the ATB in the cases pertaining to GATE’s taxable years ended June 30, 2008 and 2009. If we are unsuccessful in this litigation, we could be required to make additional tax payments, including interest, for GATE’s taxable years ended June 30, 2008 and 2009, which could materially adversely affect our liquidity position. As of June 30, 2015, we had accrued a total income tax liability of $26.6 million, including interest, related to GATE’s tax returns for the taxable years ended June 30, 2008 and 2009, which amount was included in income taxes payable on our consolidated balance sheet. We cannot predict the outcome of this matter or the timing of such payments, if any, at this time.

See Item 3, “Legal Proceedings” and Note 14, “Commitments and Contingencies—Income Tax Matters,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

If the estimates we make, or the assumptions on which we rely, in preparing our consolidated financial statements prove inaccurate, our actual results may vary materially from those reflected in our consolidated financial statements.

Our consolidated financial statements include a number of estimates, which reflect management’s judgments. Some of our estimates also rely on certain assumptions. The most significant estimates we make include income taxes relating to uncertain tax positions under ASC 740, Income Taxes, or ASC 740, the valuation of our service revenue receivables and deposits for participation accounts and our determination of goodwill and intangible asset impairment.

In our determination of the fair value of our service revenue receivables and deposits for participation accounts, we use discounted cash flow modeling techniques and certain assumptions to estimate fair value because there are no quoted market prices.

Our key assumptions to estimate fair value include, as applicable:

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Discount rates, which we use to estimate the present value of our future cash flows;

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The annual rate and timing of education loan prepayments;

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The trend of interest rates over the life of the loan pool, including the forward LIBOR curve, which is a projection of future LIBOR rates over time;

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The expected annual rate and timing of education loan defaults, including the effects of various risk mitigation strategies, such as basic forbearance and alternative payment plans and school and lender guarantees;

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In the case of participation accounts, the timing of the return of capital;

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The expected amount and timing of recoveries on defaulted education loans; and

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The fees and expenses of the securitization trusts.

Because our estimates rely on quantitative and qualitative factors, including our historical experience, to predict default, recovery and prepayment rates, management’s ability to determine which factors should be more heavily weighted in our estimates, and to accurately incorporate those factors into our loan performance assumptions, are subjective and can have a material effect on valuations.

If the actual performance of the education loan portfolios held by us or our clients who hold Monogram-based loans were to vary appreciably from the assumptions we use, we might need to adjust our key assumptions. Such an adjustment could materially affect our earnings in the period in which our assumptions change. In addition, our actual service revenue receivables or releases from participation accounts could be significantly less than reflected in our current consolidated financial statements. In particular, economic, regulatory, competitive and other factors affecting the key assumptions used in the cash flow model could cause or contribute to differences between actual performance of the portfolios and our other key assumptions.

Changes in macro-economic conditions, including interest rates, could affect the value of our additional structural advisory fees, residual receivables and participation accounts, as well as demand for education loans and our services.

Education loans held by us and the securitization trusts facilitated by us typically carry floating interest rates tied to prevailing short-term interest rates. Changes in interest rates could have the following effects on us:

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Higher interest rates would increase the cost of the education loan to the borrower, which, in turn, could cause an increase in delinquency and default rates for outstanding education loans, as well as increased use of forbearance programs;

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Higher interest rates, or the perception that interest rates could increase in the future, could cause an increase in full or partial prepayments; or

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Higher interest rates could reduce borrowing for education generally, which, in turn, could cause the overall demand for our services to decline.

In addition to higher interest rates, other factors, such as challenging economic times, including high unemployment rates, can also lead to an increase in delinquency and default rates. If the prepayment or default rates increase for the education loans held by us or our Monogram platform clients, we may experience a decline in the value of service revenue receivables and our participation accounts, as well as a decline in fees related to Monogram-based loan programs in the future, which could cause a decline in the price of FMD common stock and could also prevent, or make more challenging, any future portfolio funding transactions.

A significant portion of the purchase price for our acquisition of TMS and our acquisition of a substantial portion of the operating assets of the Cology Sellers is allocated to goodwill and intangible assets that are subject to periodic impairment evaluations. An impairment loss could have a material adverse impact on our financial condition and results of operations.

At June 30, 2015, we had $20.1 million of goodwill and $19.5 million of intangible assets related to our acquisition of TMS and our acquisition of a substantial portion of the operating assets of Cology, Inc. and its affiliates, which we refer to as the Cology Sellers. As required by current accounting standards, we review intangible assets for impairment either annually or whenever changes in circumstances indicate that the carrying value may not be recoverable.

The risk of impairment to goodwill is higher during the early years following an acquisition. This is because the fair values of these assets align very closely with what we paid to acquire the reporting units to which these assets are assigned. As a result, the difference between the carrying value of the reporting unit and its fair value (typically referred to as “headroom”) is smaller at the time of acquisition. Until this headroom grows over time, due to business growth or lower carrying value of the reporting unit, a relatively small decrease in reporting unit fair value can trigger impairment charges. When impairment charges are triggered, they tend to be material due to the size of the assets involved. TMS’ business would be adversely affected, and impairment of goodwill could be triggered, if any of the following were to occur: higher attrition rates than planned as a result of the competitive environment or our inability to provide products and services that are competitive in the marketplace, lower-than-planned adoption rates of refund management and Student Account Center products, higher-than-expected expense levels to provide services to TMS clients, a lower interest rate environment than depicted by the LIBOR curve, shorter hold periods or lower cash balances than contemplated, which would reduce our overall net interest income opportunity for cash that is held by us on behalf of TMS school clients, increases in equity returns required by investors and changes in our business model that may impact one or more of these variables. Cology LLC’s business would be adversely affected, and impairment of goodwill could be triggered, if any of the following were to occur: higher attrition rates than planned, a lack of acceptance of Monogram products and services by its credit union and other lender clients, higher-than-expected expense levels to provide services to Cology LLC clients and changes in our business model that may impact one or more of these variables.

Risks Related to Regulatory Matters

We are subject to, or will become subject to, new supervision and regulations which could increase our costs of compliance and alter our business practices.

Various regulators have increased diligence and enforcement efforts and new laws and regulations have been passed or are under consideration in the U.S. Congress as a result of turbulence in the financial services industry. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and the federal agencies are given significant discretion in drafting the implementing rules and regulations. Consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for some time.

The Dodd-Frank Act established the CFPB as an independent agency within the Federal Reserve. The CFPB has been given broad powers, including the power to:

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Supervise non-depository institutions, including those that offer or provide education loans;

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Supervise depository institutions with assets of $10 billion or more for compliance with consumer protection laws, as well as the service providers to such institutions;

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Regulate consumer financial products, including education loans, and services offered primarily for personal, family or household purposes;

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Promulgate rules with respect to unfair, deceptive or abusive practices; and

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Take enforcement action against institutions under its supervision.

The CFPB may institute regulatory measures that directly impact our business operations. The CFPB has initiated an examination program of non-depository institutions (which could include service providers such as FMER). The FTC maintains parallel authority to enforce Section 5 of the Federal Trade Commission Act prohibiting unfair or deceptive acts or practices against non-depository financial providers, such as FMER, TMS and Cology LLC.

The CFPB’s initiatives could increase our costs and the complexity of our operations. See “Business—Government Regulation,” included in Item 1 of this annual report for additional information.

able to charge related to disbursing refunds via prepaid cards, impact the terms and conditions under which refunds may be provided on those cards and reduce the number of institutions interested in disbursing refunds via prepaid cards, any of which could impede our ability to offer prepaid cards as a refund management option.

We may become subject to additional state registration or licensing requirements, which could increase our compliance costs significantly and may result in other adverse consequences.

We may be subject to state consumer protection laws in each state where we do business and those laws may be interpreted and enforced differently in different states. We will continue to review state registration and licensing requirements, and we intend to pursue registration or licensing in applicable jurisdictions where we are not currently registered or licensed if we elect to operate through an entity that does not enjoy federal preemption of such registration or licensing requirements. We cannot assure you that we will be successful in obtaining additional state licenses or registrations in a timely manner, or at all. If we determine that additional state registrations or licenses are necessary, we may be required to delay or restructure our activities in a manner that will not subject us to such licensing or registration requirements. Compliance with state licensing requirements could involve additional costs or delays, which could have a material adverse effect on our business. Our failure to comply with these laws could lead to, among other things:

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Curtailment of our ability to continue to conduct business in the relevant jurisdiction, pending a return to compliance or processing of registration or a license application;

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Administrative enforcement actions;

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Class action lawsuits;

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The assertion of legal defenses delaying or otherwise affecting the enforcement of loans; and

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Criminal as well as civil liability.

Any of the foregoing could have a material adverse effect on our business.

We may be exposed to liability for failures of third parties with which we do business to comply with the registration, licensing and other requirements that apply to them.

Third parties with which we do, or have done, business, including federal and state chartered financial institutions and non-bank loan marketers, are subject to registration, licensing and governmental regulations, including TILA and other consumer protection laws and regulations. For example, some of the third-party marketers with which we have done or may do business may be subject to state registration or licensing requirements and laws and regulations, including those relating to loan brokers, small loan lenders, credit services organizations, loan arrangers and collection agencies. As a result of the activities that we conduct or may conduct for our clients, it may be asserted that we have some responsibility for compliance by third parties with whom we do business with the laws and regulations applicable to them, whether on contractual or other grounds. If it is determined that we have failed to comply with our obligations with respect to these third parties, we could be subject to civil or criminal liability. Even if we bear no legal liability for the actions of these third parties, the imposition of licensing and registration requirements on them, or any sanctions against them for conducting business without a license or registration, may reduce the volume of loans we process from them in the future.

Regulatory agencies have increased their expectations with respect to how regulated institutions oversee their relationships with service providers, which could impact us as both a provider of services to financial institutions as well as a consumer of such services by third-party service providers.

The CFPB, the OCC and the Federal Reserve have each issued guidance documents outlining their expectations of supervised banks and non-banks with respect to their relationships with service providers that increase the responsibilities of parties to vet and supervise the activities of service providers to ensure compliance with federal consumer financial laws. Regulators increasingly espouse a “life cycle” approach to vendor management that includes five important stages of the vendor relationship, including planning, due diligence and service provider selection, contract negotiation, ongoing monitoring and termination. The issuance of regulatory guidance, and the enforcement of the enhanced vendor management standards via examination and investigation of us or any third party with whom we do business, may increase our costs, require increased management attention and adversely impact our operations. In the event we should fail to meet the heightened standards for management of service providers, either in our supervision of vendors or as a result of acts or omissions of counter parties who are deficient in their supervision of us as a service provider, we could in the future be subject to supervisory orders to cease and desist, civil monetary penalties or other actions due to claimed noncompliance, which could have an adverse effect on our business, financial condition and operating results.

Failure to comply with consumer protection laws could subject us to civil and criminal penalties or litigation, including class actions, and have a material adverse effect on our business.

We are subject to a broad range of federal and state consumer protection laws applicable to our student lending activities, including laws governing fair lending, unfair, deceptive and abusive acts and practices, service member protections, licensing, interest rates and loan fees, disclosures of loan terms, marketing, brokering, servicing, collections and foreclosure.

Violations or changes in federal or state consumer protection laws or related regulations, or in the prevailing interpretations thereof, may expose us to litigation, result in greater compliance costs, constrain the marketing of education loans, adversely affect the collection of balances due on the loan assets held by securitization trusts or otherwise adversely affect our business. We could incur substantial additional expense complying with these requirements and may be required to create new processes and information systems. Moreover, changes in federal or state consumer protection laws and related regulations, or in the prevailing interpretations thereof, could invalidate or call into question the legality of certain of our services and business practices.

Violations of the laws or regulations governing our operations, or the operations of our clients, could result in the imposition of civil or criminal penalties, the cancellation of our contracts to provide services or our exclusion from participating in education loan programs. These penalties or exclusions, were they to occur, would impair our business reputation and ability to operate our business. In some cases, such violations may render the loan assets unenforceable.

Recent legislative proposals could affect the ability of an owner of an education loan to receive all of the principal and interest due, including proposals to change the non-dischargeability of education loans in bankruptcy, the obligation of borrowers who die or become disabled and the obligation of borrowers whose financial circumstances make repayment difficult. If the legislative proposals are enacted, it could adversely affect the loan portfolios under our Monogram platform, including loans for which we have provided credit enhancements with certain of our lender clients, and adversely affect the overall desirability of private education loan assets to investors.

Under current law, education loans can be discharged in bankruptcy only upon a court finding of “undue hardship” if the borrower were required to continue to make loan payments. Legislation has been introduced in both houses of the U.S. Congress that would generally end the bankruptcy exemption from dischargeability for certain private education loans. If enacted as initially proposed, this legislation would apply retroactively to private education loans already made, and would not require the borrower to make any payments before seeking discharge in bankruptcy. This legislation is substantially similar to legislation that was previously introduced in

both houses of the U.S. Congress. If enacted, such legislation may adversely affect the performance of the education loans under our Monogram platform, restrict the availability of capital to fund education loans and increase loan pricing to borrowers to compensate for the additional risk of bankruptcy discharge, which could adversely affect the competitiveness of our Monogram platform and our ability to engage lenders to fund loans based on our Monogram platform.

In addition, the CFPB’s annual reports in 2012, 2013 and 2014 recommended that the U.S. Congress reconsider the advisability of continuing the current non-dischargeable status of private education loans.

The CFPB has also raised concerns that education loan servicers have taken insufficient measures to enter into work-outs with borrowers who are having difficulties repaying their education loans, and there is legislation pending to affect the obligations of both borrowers and co-signers on loans obtained by a borrower who dies or becomes disabled. Similar to the dischargeability issue, although our operations would not be directly affected because we are not engaged in the servicing of education loans, these proposals may make private education loans less attractive to investors.

Recent litigation has sought to re-characterize certain loan marketers and other originators as lenders; if litigation on similar theories were successful against us or any third-party marketer we work with, the education loans that we facilitate would be subject to individual state consumer protection laws.

A majority of the lenders with which we work are federally-insured banks and credit unions. As a result, they are able to charge the interest rates, fees and other charges available to the most favored lender in their home state. In addition, our lender clients or prospective lender clients may be chartered by the federal government and enjoy preemption from enforcement of state consumer protection laws. In providing our education loan services to our lender clients, we do not act as a lender, guarantor or loan servicer, and the terms of the education loans that we facilitate are regulated in accordance with the laws and regulations applicable to the lenders.

The association between marketers of high-interest “payday” loans, tax-return anticipation loans, subprime credit cards and online payment services, on the one hand, and banks, on the other hand, has come under recent scrutiny. Recent litigation asserts that loan marketers use lenders with a bank charter that authorizes the lender to charge the most favored interest rate available in the lender’s home state in order to evade usury and interest rate caps, and other consumer protection laws imposed by the states where they do business. Such litigation has sought, successfully in some instances, to re-characterize the loan marketer as the lender for purposes of state consumer protection law restrictions. Similar civil actions have been brought in the context of gift cards. Moreover, federal banking regulators and the FTC have undertaken enforcement actions challenging the activities of certain loan marketers and their bank partners, particularly in the context of subprime credit cards. We believe that our activities, and the activities of third parties whose marketing on behalf of lenders may be coordinated by us, are distinguishable from the activities involved in these cases.

Additional state consumer protection laws would be applicable to the education loans we facilitate if we, or any third-party loan marketer engaged by us, were re-characterized as a lender, and the education loans (or the provisions governing interest rates, fees and other charges) could be unenforceable unless we or a third-party loan marketer had the requisite licenses or other authority to make such loans. In addition, we could be subject to claims by consumers, as well as enforcement actions by regulators. Even if we were not required to cease doing business with residents of certain states or to change our business practices to comply with applicable laws and regulations, we could be required to register or obtain licenses or regulatory approvals that could impose a substantial delay or cost to us. There have been no actions taken or threatened against us on the theory that we have engaged in unauthorized lending; however, if such actions occurred, they could have a material adverse effect on our business.

Risks Related to Asset-Backed Securitizations and Other Funding Sources

Our financial results and future growth may continue to be adversely affected if we are unable to structure securitizations or alternative financings.

Although our Monogram platform has been designed to generate recurring revenues with less dependence on the securitization market and third-party credit enhancement, a return to profitability is dependent on a number of factors, including the facilitation of Monogram-based loan volumes substantially in excess of those that have been originated to date, and substantially in excess of those contemplated by our current lender clients’ Monogram-based loan programs or other financing alternatives, expense management and growth at TMS and Cology LLC. Accordingly, our future financial results and growth may continue to be affected by our inability to structure securitizations or alternative financing transactions involving education loans on terms acceptable to us. In particular, such transactions may enable us to generate fee revenues or access and recycle capital previously deployed as credit enhancement for interim financing facilities. If we are able to facilitate securitizations in the near-term, we expect the structure and economics of the transactions to be substantially different from our past transactions, including lower revenues and lower advance rates.

If our inability to access the ABS market on acceptable terms continues, our revenues may continue to be adversely impacted, and we may continue to generate net losses, which would further erode our liquidity position.

A number of factors, some of which are beyond our control, have adversely affected or may adversely affect our portfolio funding activities and thereby adversely affect our results of operations.

The success of our business may depend on our ability to structure securitizations or other funding transactions for our clients’ loan portfolios. Several factors have had, or may have, a material adverse effect on both our ability to structure funding transactions and the revenue we may generate for providing our structural advisory and other services, including the following:

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Volatility in the capital markets generally or in the education loan ABS sector specifically, which could restrict or delay our access to the capital markets;

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The timing and size of education loan asset-backed securitizations that other parties facilitate, or the adverse performance of, or other problems with, such securitizations, which could impact pricing or demand for our future securitizations, if any;

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Challenges to the enforceability of education loans based on violations of federal or state consumer protection or licensing laws and related regulations, or imposition of penalties or liabilities on assignees of education loans for violations of such laws and regulations;

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Our inability to structure and gain market acceptance for new products or services to meet new demands of ABS investors, rating agencies or credit facility providers; and

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Changes to bankruptcy laws that change the current non-dischargeable status of private education loans, which could materially adversely affect the profitability of the loan portfolios if applied to loans originated prior to the date of the change.

Recent legislation will affect the terms of future securitization transactions.

The SEC is considering new rules governing issuance of securities backed by education loans, which may affect the desirability of issuing this type of ABS as a funding strategy. In addition, the Dodd-Frank Act grants federal banking regulators substantial discretion in developing specific risk retention requirements for all types of consumer credit products and requires the SEC to establish new data requirements for all issuers, including standards for data format, asset-level or loan-level data, the nature and extent of the compensation of the broker or originator and the amount of risk retention required by loan securitizers.

The Dodd-Frank Act and its implementing regulations, once adopted, will affect the terms of future securitization transactions, if any, that we facilitate and may result in greater risk retention and less flexibility for us in structuring such transactions.

In structuring and facilitating securitizations of our clients’ education loans, administering securitization trusts or providing portfolio management, we may incur liabilities to transaction parties.

We facilitated and structured a number of special purpose trusts that have been used in securitizations to finance education loans that our clients originated, including securitization trusts that have issued auction rate notes. Under applicable state and federal securities laws, if investors incur losses as a result of purchasing ABS that those securitization trusts have issued, we could be deemed responsible and could be liable to those investors for damages. We could also be liable to investors or other parties for certain updated information that we have provided subsequent to the original ABS issuances by the trusts. If we have failed to cause the securitization trusts or other transaction parties to disclose adequately all material information regarding an investment in any securities, if we or the trusts made statements that were misleading in any material respect in information delivered to investors in any securities or if we breached any duties as the structuring advisor, administrator or special servicer of the securitization trusts, it is possible that we could be sued and ultimately held liable to an investor or other transaction party. This risk includes failure to properly administer or oversee servicing or collections guidelines and may increase if the performance of the securitization trusts’ loan portfolios degrades, and rating agencies over the past several years have downgraded various ABS issued by the trusts we facilitated. Investigations by state Attorneys General, as well as private litigation, have focused on auction rate securities, including the marketing and trading of such securities. It is possible that we could become involved in such matters in the future. In addition, under various agreements entered into with underwriters or financial guaranty insurers of those ABS, as well as certain lenders, we are contractually bound to indemnify those persons if an investor is successful in seeking to recover any loss from those parties and the securitization trusts are found to have made a materially misleading statement or to have omitted material information.

If we are liable to an investor or other transaction party for a loss incurred in any of the securitizations that we have facilitated or structured and any insurance that we may have does not cover this liability or proves to be insufficient, our results of operations or financial position could be materially adversely affected.

We may determine to incur near-term losses based on longer-term strategic considerations.

We may consider long-term strategic considerations more important than near-term economic gains when assessing business arrangements and opportunities, including financing arrangements for education loans. For example, we expect the structure and pricing terms in near-term future securitization transactions, if any, to be substantially different from our past transactions, including lower revenues and lower advance rates. We may nevertheless determine to participate in, or structure, future financing transactions based on longer-term strategic considerations. As a result, net cash flows over the life of a future securitization trust, particularly any trust that we may facilitate in the near-term as we re-enter the securitization market, could be negative as a result of transaction size, transaction expenses or financing costs.

Risks Related to Ownership of FMD Common Stock

The price of FMD common stock may be volatile.

The trading price of FMD common stock may fluctuate substantially, depending on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose part or all of your investment in your shares of FMD common stock. Those factors that could cause fluctuations include, but are not limited to, the following:

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The success of our Monogram platform, our fee-for-service offerings, including our TMS offerings and our Cology LLC offerings, together with our ability to attract new clients for each of our product offerings;

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Announcements by us, our competitors or our potential competitors of acquisitions, new products or services, significant contracts, commercial relationships or capital markets activities;

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Actual or anticipated changes in our earnings or fluctuations in our operating results or in the expectations of securities analysts, including as a result of the timing, size or structure of any portfolio funding transactions;

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The resolution of litigation pending before the ATB in the cases pertaining to GATE’s Massachusetts state income tax returns for the taxable years ended June 30, 2008 and 2009;

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Difficulties we may encounter in structuring securitizations or alternative financings, including disruptions in the education loan ABS market or demand for securities offered by securitization trusts that we facilitate, or the loss of opportunities to structure securitization transactions;

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General economic conditions and trends, including unemployment rates and economic pressure on consumer asset classes such as education loans;

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Legislative initiatives affecting federal or private education loans, including initiatives relating to bankruptcy dischargeability and the federal budget and regulations implementing the Dodd-Frank Act;

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Changes in the education finance marketplace generally;

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Negative publicity about the education loan market generally or us specifically;

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Regulatory developments or sanctions directed at us;

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Price and volume fluctuations in the overall stock market and volatility in the ABS market, from time to time;

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Significant volatility in the market price and trading volume of financial services and process outsourcing companies;

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Major catastrophic events;

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Purchases or sales of large blocks of FMD common stock or other strategic investments involving us;

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Dilution from raising capital through a stock or other equity instrument issuance;

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Our ability to effectively and efficiently manage our expense base; or

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Departures or long-term unavailability of key personnel, including FMD’s Chief Executive Officer, who we believe has unique insights and experience at this point of change in our business and the education loan industry.

Following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. We have, in the past, been the target of securities litigation. Although we succeeded in having prior litigation dismissed without any compensation passing to plaintiffs or any of their attorneys, any future litigation could result in substantial costs and divert management’s attention and resources from our business.

Stockholders that own large blocks of FMD common stock could substantially influence matters requiring approval by FMD stockholders and could limit your ability to influence the outcome of key transactions, including a change of control.

There are certain investors that hold large blocks of FMD common stock, which could impact the outcome of key transactions. In addition, FMD’s directors and executive officers owned approximately 10.0% of the outstanding shares of FMD common stock as of June 30, 2015, excluding shares issuable upon vesting of outstanding restricted stock units and shares issuable upon exercise of outstanding vested stock options. These stockholders, if acting together, could substantially influence matters requiring approval by FMD stockholders, including the election of directors and the approval of mergers or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive FMD stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of FMD common stock.

Some provisions in FMD’s restated certificate of incorporation and amended and restated by-laws may deter third parties from acquiring us.

FMD’s restated certificate of incorporation and amended and restated by-laws contain provisions that may make the acquisition of our company more difficult without the approval of the FMD Board of Directors, including the following:

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Only the FMD Board of Directors, FMD’s Chairman of the Board or FMD’s President may call special meetings of FMD’s stockholders;

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FMD stockholders may take action only at a meeting of FMD stockholders and not by written consent;

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FMD has authorized undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

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FMD’s directors may be removed only by the holders of 75% of the votes that all stockholders would be entitled to cast in the election of directors; and

•

FMD imposes advance notice requirements for stockholder proposals.

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire.

Section 203 of the Delaware General Corporation Law may delay, defer or prevent a change in control that FMD stockholders might consider to be in their best interests.

We are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits “business combinations” between a Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock, for a three-year period following the date that such stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in control that FMD’s stockholders might consider to be in their best interests.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

We lease buildings for our executive offices and operations. Our headquarters are located in Medford, Massachusetts, and we have additional offices related to our continuing operations in Warwick, Rhode Island, Mather, California and Scottsdale, Arizona.

The following table summarizes information as of September 9, 2015 with respect to the principal facilities that we lease:


Location	Principal activities	Area (sq. feet)		Lease expiration date
Medford, MA	Headquarters		84,458		2017
Warwick, RI	TMS		27,249		2017
Mather, CA	Cology LLC		10,297		2016
Scottsdale, AZ	Cology LLC		2,911		2016
Northborough, MA	Information Technology		284		2016

In connection with our expense control initiatives, we have sought to reduce our occupancy costs. In particular:

•

The lease relating to our Medford, Massachusetts location originally covered 153,156 square feet. In November 2010, we amended the lease which, among other things, reduced the rented space by 59,790 square feet as of April 1, 2011 and extended the term of the lease to March 31, 2017. In July 2011, we further reduced the leased space by 8,908 square feet. In October 2014, we entered into a sublease agreement for 14,000 square feet through the remainder of our lease term.

•

In June 2014, we entered into a sublease agreement for our Scottsdale, Arizona location through the remainder of our lease term.

•

We entered into an agreement with a data center in Northborough, Massachusetts for a license to exclusively use certain space within the data center. The effective date of the agreement was September 1, 2014 with a commencement date of January 1, 2015 for a term of one year with renewal options.

We do not anticipate significant difficulty in obtaining lease renewals or alternate space as needed.

Item 3.

Legal Proceedings

Internal Revenue Service Audit

Effective March 31, 2009, we completed the sale of the trust certificate of NC Residuals, which we refer to as the Trust Certificate. In connection with the sale of the Trust Certificate, FMD entered into an asset services agreement, which we refer to as the Asset Services Agreement, pursuant to which FMD provided various consulting and advisory services to the purchaser of the Trust Certificate. As a result of the sale of the Trust Certificate, as well as our operating losses incurred in fiscal 2009, we recorded an income tax receivable for federal income taxes paid on taxable income in prior fiscal years. In fiscal 2010, we received a total of $189.3 million in federal and state income tax refunds related to our income tax receivables. Furthermore, we received a federal income tax refund of $45.1 million in October 2010 related to the operating losses in fiscal 2010, which we applied to taxable income from fiscal 2008. In April 2010, the IRS commenced an audit of our tax returns for fiscal 2007 through fiscal 2009, including a review of the tax treatment of the sale of the Trust Certificate and the federal tax refund previously received in the amount of $176.6 million. Such audits are required by the Internal Revenue Code. The IRS also commenced an audit of our fiscal 2010 tax return in light of the $45.1 million income tax refund that we received in October 2010.

On September 10, 2013 we received two Notices of Proposed Adjustments, or NOPAs, from the IRS. In the NOPAs, the IRS asserted that our sale of the Trust Certificate should not be recognized for federal income tax purposes primarily because we retained the economic benefits and burdens of the Trust Certificate, including, among other things, retaining certain repurchase rights and data rights. The IRS further concluded that the transaction should be characterized as a financing instead of a sale and asserted that the sale of the Trust Certificate and the execution of the Asset Services Agreement had the impact of converting taxable income to the owner from an accrual basis to a cash basis. As a result, the NOPAs proposed to disallow the loss that generated the tax refunds that we previously received as well as require us to include income from the Trust Certificate from the March 31, 2009 sale date through June 30, 2011 in our taxable income for such years.

On December 18, 2014, the IRS informed us that it is no longer challenging the federal tax refunds we previously received in the amounts of $176.6 million and $45.1 million. The IRS has provided us with its final examination report confirming that the refunds were correct and we do not owe additional tax. The IRS’s decision not to challenge these federal tax refunds was subject to the review of the Joint Committee on Taxation, as is required for all refunds in excess of $5.0 million. On June 23, 2015, the IRS informed us that the Joint Committee on Taxation had completed its consideration of the IRS’s final examination report and had taken no exception to the conclusions reached by the IRS. As a result, the IRS’s audit of our tax returns for fiscal 2007 through fiscal 2010 is now complete.

Massachusetts Appellate Tax Board Matters

GATE Holdings, Inc. Taxable Years Ended June 30, 2004, 2005 and 2006

We are involved in several matters relating to the Massachusetts tax treatment of GATE, a former subsidiary of FMD, including The First Marblehead Corp. v. Commissioner of Revenue, ATB Docket No. C293487, which was instituted on September 5, 2007; GATE Holdings, Inc. v. Commissioner of Revenue, ATB Docket No. C305217, which was instituted on March 16, 2010; The First Marblehead Corp. v. Commissioner of Revenue, ATB Docket No. C305241, which was instituted on March 22, 2010; and GATE Holdings, Inc. v. Commissioner of Revenue, ATB Docket No. C305240, which was instituted on March 22, 2010. On November 9, 2011, the ATB issued the ATB Order regarding these proceedings. On January 28, 2015, the SJC issued its opinion in these proceedings and affirmed the decision of the ATB. We were not required to make any payments to the Massachusetts Department of Revenue for GATE’s taxable years ended June 30, 2004, 2005 and 2006 at that time as we had made a $5.1 million payment to the Massachusetts Department of Revenue in the third quarter of fiscal 2012 that satisfied our obligations for those tax years. In affirming the ATB, the SJC’s opinion interpreted the controlling statute in a manner that is inconsistent with the ATB’s interpretation, as well as the interpretations advocated by both GATE and the Commissioner in their briefs. We believe the SJC’s statutory analysis is incorrect. On February 11, 2015, we filed a petition for rehearing on this matter with the SJC, which was denied by the SJC on March 2, 2015. On May 31, 2015, we filed a petition for a writ of certiorari with the Supreme Court of the United States on this matter.

Background

We took the position in these cases that GATE was properly taxable as a financial institution and not as a business corporation and was entitled to apportion its income under applicable provisions of Massachusetts tax law. The Commissioner took alternative positions: that GATE was properly taxable as a business corporation, or that GATE was taxable as a financial institution, but was not entitled to apportionment or was subject to 100% Massachusetts apportionment.

In September 2007, we filed a petition with the ATB seeking a refund of state taxes paid for our taxable year ended June 30, 2004, all of which taxes had previously been paid as if GATE were a business corporation. In December 2009, the Commissioner made additional assessments of taxes, along with accrued interest, of approximately $11.9 million for GATE’s taxable years ended June 30, 2004, 2005 and 2006, and approximately $8.1 million for our taxable years ended June 30, 2005 and 2006. For the 2005 and 2006 taxable years, only one of the two assessments made by the Commissioner would ultimately be allowed. In March 2010, we filed petitions with the ATB contesting the additional assessments against GATE and us.

On November 9, 2011, the ATB issued the ATB Order regarding these proceedings. The ATB Order reflected the following rulings and findings:

•

GATE was properly taxable as a financial institution, rather than a business corporation, for each of the tax years at issue;

•

GATE was entitled to apportion its income under applicable provisions of Massachusetts tax law for each of the tax years at issue;

•

GATE properly calculated one of the two applicable apportionment factors used to calculate GATE’s financial institution excise tax;

•

GATE incorrectly calculated the other apportionment factor, which we refer to as the Property Factor, by excluding all income from trust-owned education loans outside of Massachusetts rather than including such income for the purposes of GATE’s Massachusetts state tax returns; and

•

All penalties assessed to FMD and GATE were abated.

On April 17, 2013, the ATB issued its opinion confirming the rules and findings included in the ATB Order. On July 22, 2013, we filed an appeal of the ATB’s findings with regard to the Property Factor in the

Massachusetts Appeals Court (No. 2013-P-0935). On December 18, 2013, the SJC notified us that it had elected to hear our appeal of the ATB’s findings and heard arguments on the appeal on October 7, 2014. On January 28, 2015, the SJC issued its opinion affirming the decision of the ATB.

GATE’s Taxable Years Ended June 30, 2008 and 2009

We plan to vigorously pursue the litigation pending before the ATB in the cases pertaining to GATE’s taxable years ended June 30, 2008 and 2009. If we are unsuccessful in this litigation, we could be required to make additional tax payments, including interest, for GATE’s taxable years ended June 30, 2008 and 2009, which could materially adversely affect our liquidity position. As of June 30, 2015, we had accrued a total income tax liability of $26.6 million, including interest, related to GATE’s tax returns for the taxable years ended June 30, 2008 and 2009, which amount was included in income taxes payable on our consolidated balance sheet. We cannot predict the outcome of this matter or the timing of such payments, if any, at this time.

It is reasonably possible that our liability for this uncertain tax benefit may change within the next 12 months depending on the outcome of the litigation pending before the ATB in the cases pertaining to GATE’s taxable years ended June 30, 2008 and 2009. As of June 30, 2015, the range of potential change in our liability, excluding an assessment for penalties, was $0 to $26.6 million.

NC Residuals Owners Trust Litigation

On April 2, 2014, FMD filed a complaint in the Chancery Court against NC Residuals and the Owner Trustee. The action is entitled The First Marblehead Corporation v. NC Residuals Owners Trust, et. al., C.A. No. 9500-VCN.

GATE, a former subsidiary of FMD, was the owner of certain beneficial interests in the GATE Trusts as well as certain beneficial interests in certain of the other securitization trusts that we previously facilitated, which we refer to as the NCSLT Trusts. GATE assigned and transferred all of its interests in the GATE Trusts to FMD pursuant to a transfer and assignment agreement. As part of that agreement, GATE agreed to, among other things, execute and deliver all documents that might be necessary to transfer, assign and deliver to and vest in FMD ownership of the GATE Trusts on the records of the Owner Trustee. After the transfer of its interests in the GATE Trusts to FMD, GATE’s remaining assets consisted of its interests in the NCSLT Trusts and it was statutorily converted into NC Residuals and, immediately thereafter, the Trust Certificate was sold.

From 2009 until late 2013, FMD received regular cash distributions as the beneficial owner of the GATE Trusts and has continually reflected the GATE Trusts on its consolidated balance sheets. As of July 2013, the Owner Trustee had not received documentation required to transfer ownership on the records of the Owner Trustee of the GATE Trusts to FMD and the Owner Trustee’s books and records still reflected that GATE was the beneficial owner of the GATE Trusts. FMD requested that NC Residuals, as successor to GATE, execute certain documents necessary to cause FMD to become properly reflected as the GATE Trusts’ registered owner in the Owner Trustee’s books and records, in accordance with NC Residuals’ obligations under the transfer and assignment agreement. NC Residuals refused to comply with FMD’s request and claimed ownership of the GATE Trusts and also demanded that FMD deliver to it trust certificates reflecting ownership of the GATE Trusts and all cash distributions received on or after March 31, 2009 related to the GATE Trusts.

FMD and NC Residuals agreed to submit this matter to non-binding mediation, and the Chancery Court entered an order at the parties’ request staying the litigation pending completion of the mediation. On May 21, 2015, FMD and NC Residuals entered into a settlement agreement. As part of the settlement, FMD paid NC Residuals $5.0 million and NC Residuals released any and all claims of ownership of the GATE Trusts, including any and all claims to the cash distributions from the GATE Trusts, and agreed to cooperate with FMD to transfer ownership on the records of the Owner Trustee of the GATE Trusts to FMD, including executing any documents necessary to cause FMD to become properly reflected as the GATE Trusts’ registered owner in the Owner Trustee’s books and records. In addition, as part of the settlement, cash distributions of $4.2 million from the GATE Trusts that had previously been withheld, were paid to FMD. On July 10, 2015, the Chancery Court dismissed this matter with prejudice.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Holders

FMD common stock is listed on the New York Stock Exchange, or NYSE, under the trading symbol FMD. The following table sets forth the high and low sales prices of FMD common stock, as reported by the NYSE, for each quarterly period within our two most recent fiscal years, all adjusted for the 1-for-10 reverse stock split that was effective on December 2, 2013:


	High		Low
Fiscal 2015
First Quarter	$	5.90	$	2.83
Second Quarter		6.28		1.21
Third Quarter		6.40		4.88
Fourth Quarter		7.00		5.44

Fiscal 2014
First Quarter	$	19.20	$	6.70
Second Quarter		10.50		5.90
Third Quarter		7.50		5.40
Fourth Quarter		6.23		4.00

Computershare Trust Company, N.A. is the transfer agent and registrar for FMD common stock. As of the close of business on September 4, 2015, we had 147 holders of record of FMD common stock. This number does not include stockholders for whom shares are held in “street” or nominee name.

Performance Graph

The following graph compares the cumulative five-year total return attained by stockholders on FMD common stock relative to the cumulative total returns of the Russell 2000 Index and the Dow Jones U.S. Specialty Finance Index. The graph tracks the performance of a $100 investment in FMD common stock and in each of the indices (with the reinvestment of all dividends) from June 30, 2010 to June 30, 2015.

LOGO

The information included under the heading “Performance Graph” is “furnished” and not “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed to be “soliciting material” subject to Regulation 14A or incorporated by reference in any filing under the Securities Act or the Exchange Act.

Dividends

We did not declare any dividends in fiscal 2015 or fiscal 2014, and we do not expect to declare any dividends in the foreseeable future. Any decision to pay future dividends will be made by the FMD Board of Directors and will depend upon our earnings, financial condition and such other factors as the FMD Board of Directors deems relevant.

Issuer Purchases of Equity Securities

The following table provides information as of and for the fiscal quarter ended June 30, 2015 regarding shares of FMD common stock that were repurchased under our 2003 stock incentive plan, as amended and restated, which we refer to as our 2003 Plan, and our 2011 stock incentive plan, as amended, which we refer to as our 2011 Plan:


	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs
April 1 - 30, 2015		65	$	6.44		—	N/A
May 1 - 31, 2015		1,402		6.43		—	N/A
June 1 - 30, 2015		898		6.15		—	N/A

Total Purchases of Equity Securities(1)		2,365	$	6.32		—

(1)

Participants in our 2003 Plan and our 2011 Plan may elect to satisfy tax withholding obligations upon vesting of restricted stock units by delivering shares of FMD common stock, including shares retained from the restricted stock units creating the tax obligation. Our 2003 Plan was approved by stockholders on November 16, 2009 and expired on September 14, 2013. Our 2011 Plan was approved by stockholders on November 14, 2011 and has an expiration date of November 14, 2021.

Item 6.

Selected Financial Data

The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes under the heading, “Financial Statements and Supplementary Data,” included in Item 8 of this annual report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this annual report. We have derived the data from our consolidated financial statements, which were audited by KPMG LLP, an independent registered public accounting firm. The historical results presented here are not necessarily indicative of future results.


	Fiscal years ended June 30,
	2015			2014			2013			2012			2011
	(dollars and shares in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues:
Tuition payment processing fees	$	29,593		$	28,186		$	26,668		$	26,544		$	12,904
Administrative and other fees		14,722			13,640			11,238			9,778			10,338
Fair value changes to service revenue receivables		1,859			2,330			2,068			947			(23,178	)

Total revenues		46,174			44,156			39,974			37,269			64
Expenses:
Compensation and benefits		36,217			36,251			39,317			41,145			35,868
General and administrative		52,279			47,629			51,950			59,901			54,295

Total expenses		88,496			83,880			91,267			101,046			90,163
Other income:
Net interest income		92			202			349			699			654
Gain from deconsolidation of trusts		—			—			—			9,514			—
Other income		295			582			2,112			2,475			8,399

Total other income		387			784			2,461			12,688			9,053

Loss from continuing operations, before income taxes		(41,935	)		(38,940	)		(48,832	)		(51,089	)		(81,046	)
Income tax expense (benefit) from continuing operations		1,145			1,125			2,295			(17,956	)		194

Net loss from continuing operations		(43,080	)		(40,065	)		(51,127	)		(33,133	)		(81,240	)
Discontinued operations, net of taxes		(4,698	)		2,498			930			1,135,361			(140,321	)

Net (loss) income	$	(47,778	)	$	(37,567	)	$	(50,197	)	$	1,102,228		$	(221,561	)

Net (loss) income per basic common share:
From continuing operations	$	(3.75	)	$	(3.55	)	$	(4.77	)	$	(3.00	)	$	(8.05	)
From discontinued operations		(0.41	)		0.22			0.09			102.82			(13.90	)

Total basic net (loss) income per common share		(4.16	)		(3.33	)		(4.68	)		99.82			(21.95	)

Net (loss) income per diluted common share:
From continuing operations	$	(3.75	)	$	(3.55	)	$	(4.77	)	$	(2.99	)	$	(8.05	)
From discontinued operations		(0.41	)		0.22			0.09			102.59			(13.90	)

Total diluted net (loss) income per common share	$	(4.16	)	$	(3.33	)	$	(4.68	)	$	99.60		$	(21.95	)

Weighted-average shares outstanding:
Basic		11,493			11,270			10,735			10,157			10,092
Diluted		11,493			11,270			10,735			11,067			10,092


	June 30,
	2015		2014		2013		2012		2011
	(dollars in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	47,004	$	33,955	$	58,599	$	134,897	$	165,564
Short-term investments, at cost		16,002		40,057		55,179		85,007		48,005
Restricted cash		96,964		94,436		87,338		65,401		124,687
Deposits for participation interest accounts, at fair value		17,876		15,834		13,147		4,039		8,512
Service revenue receivables, at fair value		12,151		13,979		14,817		16,341		29,610
Goodwill and intangible assets		39,523		41,835		44,259		40,470		42,479
Total assets from continuing operations		240,806		254,078		285,217		356,885		433,619
Total assets from discontinued operations		—		188,806		187,076		100,920		7,219,163
Restricted funds due to clients		96,854		94,272		86,994		104,981		124,194
Income taxes payable		27,233		26,582		25,923		23,414		39,979
Total liabilities from continuing operations		138,606		133,559		127,495		146,151		188,413
Total liabilities from discontinued operations		—		162,827		165,471		84,666		8,344,308
Total stockholders’ equity (deficit)		102,200		146,498		179,327		226,988		(879,939	)*

The June 30, 2011 stockholders’ deficit includes an accumulated deficit of $1.13 billion related to the securitization trusts that we previously consolidated. Total stockholders’ equity at June 30, 2015, June 30, 2014 and June 30, 2013 no longer included this deficit as a result of the deconsolidation of these securitization trusts in fiscal 2012.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our “Selected Financial Data” included in Item 6 of this annual report and “Financial Statements and Supplementary Data” included in Item 8 of this annual report. In addition to historical information, this discussion of our financial condition and results of operations contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied by the forward-looking statements due to applications of our critical accounting policies and factors including, but not limited to, those set forth under the caption “Risk Factors” included in Item 1A of this annual report.

Executive Summary

Overview

Specifically, we design, develop and manage loan programs on behalf of our lender clients for undergraduate and graduate students and for college graduates seeking to refinance private education loan obligations. We offer a fully integrated suite of services through our Monogram platform. We partner with lenders to design and administer education loan programs through our Monogram platform, which are typically school-certified. These programs are designed to be marketed through educational institutions or to prospective borrowers and their families directly and to generate portfolios intended to be held by the originating lender or financed in the capital markets. We may provide credit enhancements for a Monogram-based program by funding participation accounts to serve as a first-loss reserve for defaulted program loans. In consideration for funding participation accounts, we are entitled to receive a share of the interest income generated on the loans. We are paid for our origination and marketing services at the time approved education loans are disbursed and receive monthly payments for portfolio management services, credit enhancement and administrative services throughout the life of the loan. We also earn fees for the processing and disbursement of education loans on behalf of the approximately 335 credit union and other lender clients of FMD’s subsidiary Cology LLC.

In addition, we offer outsourced tuition planning, tuition billing, refund management and payment technology services for universities, colleges and secondary schools through TMS. TMS provides such services on behalf of approximately 700 educational institutions.

For a detailed description of our product and service offerings, see “Business—Overview” included in Item 1 of this annual report.

Loan Processing and Origination

Our Monogram platform provides us with an opportunity to originate, administer, manage and finance education loans, and our lender clients’ Monogram-based loan programs are a significant component of our return to the education financing marketplace. As of September 9, 2015, we have loan program agreements with three lender clients. The Monogram-based loans that are originated on behalf of our lender clients are not included on our consolidated balance sheets but, rather, are included on the balance sheets of our lender clients. As such, none of the references in this annual report to education loans included on our consolidated balance sheets include the education loans processed by us on behalf of our lender clients.

Through Cology LLC, we process and disburse education loans on behalf of its credit union and other lender clients. Cology LLC supports over 780 education loan programs and provides education loan solutions to approximately 335 credit union and other lender clients. Cology LLC earns fees primarily based on the number of loan applications, loan certifications and disbursements it processes on behalf of its clients. Because Cology LLC is a loan processer, the education loans that it processes on behalf of its clients are not included on our consolidated balance sheets but, rather, are included on the balance sheets of its clients. As such, none of the references in this annual report to education loans included on our consolidated balance sheets include the education loans processed by Cology LLC on behalf of its clients.

The following table presents our loan facilitation metrics with respect to our Monogram-based programs, excluding Union Federal, for fiscal 2015 and fiscal 2014, as well as our loan facilitation metrics with respect to the education loans processed by Cology LLC for these periods. We use the term “facilitated loan” to mean an education loan that has been approved following receipt of all applicant data, including the signed credit agreement, required certifications from the school and applicant and any required income or employment verification. We use the term “disbursed loan” to mean a loan for which loan funds have been disbursed on behalf of the lender. Historically, we have processed the greatest loan application volume during the summer and early fall months, as students and their families seek to borrow money in order to pay tuition costs for the fall semester or the entire academic year.


	Fiscal 2015						Fiscal 2014
	Partnered Lending		Cology LLC		Total		Partnered Lending		Cology LLC		Total
	(dollars in thousands)
Facilitated Loans	$	117,667	$	701,419	$	819,086	$	89,268	$	579,755	$	669,023
Disbursed Loans		115,397		668,931		784,328		90,659		548,750		639,409

The increase in partnered lending loan volume from fiscal 2014 to fiscal 2015 was primarily the result of the Union Federal^® Private Student Loan Program funded by SunTrust Bank, which was launched in June 2014. In addition, marketing programs employed during peak season contributed to the increased loan volume in fiscal 2015.

The increase in Cology LLC loan volume from fiscal 2014 to fiscal 2015 was primarily the result of growth at existing clients, including new loan programs.

Portfolio Performance

Credit performance of consumer-related loans generally has been adversely affected by general economic conditions in the United States over the past seven years. These conditions have included higher unemployment rates and deteriorating credit performance, including higher levels of education loan defaults and lower

recoveries on such defaulted loans. Although these conditions have lessened to a certain extent in more recent years, they may have a material adverse effect on consumer loan portfolio performance in the future. Our Monogram-based education loan portfolios are not yet fully exposed to significant adverse portfolio performance because a majority of these portfolios have yet to experience any significant seasoning. Consequently, in evaluating loan portfolio performance, we review projected gross default rates and projected post-default recovery rates. Further, we evaluate the loan portfolio performance of the securitization trusts that we previously facilitated for loans that have similar credit characteristics as the Monogram-based education loan portfolios.

Capital Markets

Our capital markets experience coupled with our loan performance database and risk analytics capabilities enable us to provide specialized insight into funding options available to our lender clients. We have a right of first refusal should one of our lender clients wish to sell some or all of its education loan portfolio prior to maturity. In addition to traditional asset-backed securitizations, funding options may also include whole loan sales or other financing alternatives. We can also earn net interest income by retaining a portion of the equity in any of these transactions.

Uncertainties

Our near-term financial performance and future growth depends, in large part, on our ability to successfully and efficiently market our Monogram platform, TMS offerings and Cology LLC offerings so that we may grow and diversify our client base and revenues. Facilitated and disbursed loan volumes are key elements of our financial results and business strategy, and we believe that the results to date demonstrate market demand for Monogram-based education loans.

We have invested in our distribution capabilities over the course of the past four fiscal years, including school sales and TMS, but we face challenges in increasing loan volumes. For example, competitors with larger customer bases, greater name or brand recognition, or more established customer relationships than those of our clients, have an advantage in attracting loan applicants at a lower acquisition cost than us and making education loans on a recurring, or “serialized,” basis.

Although we believe that our capital resources as of June 30, 2015 are sufficient to satisfy our operating needs for the succeeding 12 months, we cannot assure you that they will be sufficient. In addition, our future financial results and liquidity position could be materially impacted by the proceedings related to our state income tax returns, including the resolution of litigation pending before the ATB in the cases pertaining to GATE’s Massachusetts state income tax returns for the taxable years ended June 30, 2008 and 2009. See Item 3, “Legal Proceedings,” and Note 14, “Commitments and Contingencies—Income Tax Matters,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

Outlook

have loan program agreements based on our Monogram platform with three lender clients. While we have demonstrated market demand for Monogram-based education loans, we are uncertain as to the degree of market acceptance that our Monogram platform will achieve, particularly in the current economic and regulatory environment where lenders continue to evaluate their education lending business models. Additionally, as one of our current lender clients provides the majority of our Monogram-based loan program fees, we are subject to concentration risk as it relates to this revenue stream until we are able to attract additional lender clients. We believe, however, that the credit quality characteristics and interest rates of the Monogram-based loan portfolios originated to date will be attractive to additional potential lender clients, as well as capital markets participants. We also believe that the ability to permanently finance private education loan portfolios through the capital markets would make our products and services more attractive to lenders and would accelerate improvement in our long-term financial results.

We are uncertain of the volume of education loans to be generated by the Monogram-based loan programs of our current lender clients, or any additional lender clients, including clients of Cology LLC. It is our view that returning to profitability will be dependent on a number of factors, including our ability to successfully and efficiently market our Monogram platform, TMS offerings and Cology LLC offerings, generate incremental loan volume through each of our clients or otherwise obtain additional sources of interim or permanent financing, such as securitizations or alternative financing transactions, and continue to actively manage our expenses. In particular, we need to generate loan volumes substantially greater than those that we have generated to date, as well as to develop funding capacity for Monogram-based loan programs at loan volume levels greater than those of our current lender clients with lower credit enhancement levels and higher capital markets advance rates than those available today. We must also continue to achieve efficiencies in attracting applicants, through loan serialization or otherwise, in order to reduce our overall cost of loan acquisition.

Any of the following factors could materially affect our financial results:

•

Demand for education financing, which may be affected by changes in limitations established by the federal government on the amount of federal loans that a student can receive, the terms and eligibility criteria for loans and grants under federal or state government programs and legislation currently under consideration;

•

The extent to which our services and products, including our Monogram platform, TMS offerings and Cology LLC offerings, gain market share and remain competitive at pricing favorable to us;

•

The amount of education loan volume disbursed under our lender clients’ Monogram-based loan programs;

•

Regulatory requirements applicable to TMS, Cology LLC and FMD;

•

Conditions in the education loan financing market, including the costs or availability of financing, rating agency assumptions or actions, and market receptivity to private education loan asset-backed securitizations;

•

The underlying loan performance of the Monogram-based loan programs, including the net default rates, and the timing and amounts of receipt of excess credit enhancements, if any, that may be material to us;

•

The resolution of litigation pending before the ATB in the cases pertaining to GATE’s Massachusetts state income tax returns for the taxable years ended June 30, 2008 and 2009;

•

Application of critical accounting policies and estimates, which impact the carrying value of assets and liabilities;

•

Application of the Dodd-Frank Act, through the supervisory authority of the CFPB, which has the authority to regulate consumer financial products such as education loans, and to take enforcement actions against institutions that act as service providers to originators and processers of education loans, such as our subsidiaries FMER and Cology LLC;

•

Applicable laws and regulations, which may affect the terms upon which lenders agree to make education loans, the terms of future portfolio funding transactions, including disclosure and risk retention requirements, recovery rates on defaulted education loans and the cost and complexity of our loan facilitation operations; and

•

Departures or long-term unavailability of key personnel.

Results of Operations—Fiscal Years ended June 30, 2015, June 30, 2014 and June 30, 2013

The financial results of operations include FMD and its subsidiaries for the fiscal years then ended. The results of Union Federal, for all fiscal years presented, are included in discontinued operations as discussed below.

Discontinued Operations

In May 2014, the Union Federal Board of Directors and the FMD Board of Directors each approved the dissolution of Union Federal and authorized Union Federal to prepare a plan of voluntary dissolution, which plan required the approval of the Union Federal Board of Directors, the OCC and FMD, as the sole stockholder of Union Federal. In December 2014, the Union Federal Board of Directors, the FMD Board of Directors and FMD, as the sole stockholder of Union Federal, each approved the plan of voluntary dissolution and Union Federal submitted a dissolution application to the OCC for approval. On April 24, 2015, the OCC notified Union Federal that it had conditionally approved the dissolution application, subject to certain consummation requirements and conditions set forth in the OCC’s notification. On June 12, 2015, Union Federal paid a liquidating distribution in the form of a $21.7 million net cash dividend to FMD and the OCC approved the dissolution of Union Federal and terminated Union Federal’s charter. On June 30, 2015, the Federal Reserve terminated FMD’s status as a savings and loan holding company.

As a result of the foregoing and our evaluation under ASC 205-20, we reported the operations and activities relating to Union Federal within discontinued operations for fiscal 2015, fiscal 2014 and fiscal 2013.

See Note 3, “Discontinued Operations,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

Overall Results

The following table summarizes the results of our consolidated operations:


	Fiscal years ended June 30,									Change between periods better (worse)
	2015			2014			2013			2015 - 2014			2014 - 2013
	(dollars in thousands)
Revenues:
Tuition payment processing fees	$	29,593		$	28,186		$	26,668		$	1,407		$	1,518
Administrative and other fees		14,722			13,640			11,238			1,082			2,402
Fair value changes to service revenue receivables		1,859			2,330			2,068			(471	)		262

Total revenues		46,174			44,156			39,974			2,018			4,182
Total expenses		88,496			83,880			91,267			(4,616	)		7,387
Total other income		387			784			2,461			(397	)		(1,677	)

Loss from continuing operations, before income taxes		(41,935	)		(38,940	)		(48,832	)		(2,995	)		9,892
Income tax expense from continuing operations		1,145			1,125			2,295			(20	)		1,170

Net loss from continuing operations		(43,080	)		(40,065	)		(51,127	)		(3,015	)		11,062
Discontinued operations, net of taxes		(4,698	)		2,498			930			(7,196	)		1,568

Net loss	$	(47,778	)	$	(37,567	)	$	(50,197	)	$	(10,211	)	$	12,630

The net loss from continuing operations for the fiscal year ended June 30, 2015 was $43.1 million, or $(3.75) per basic common share, compared to a net loss from continuing operations of $40.1 million, or $(3.55) per basic common share, for the fiscal year ended June 30, 2014. Total revenues increased by $2.0 million year-over-year; however, the increase in the net loss year-over-year was primarily attributable to a $4.6 million increase in expenses, a decline in other income of $397 thousand and a $20 thousand increase in income tax expense.

The net loss from continuing operations for the fiscal year ended June 30, 2014 was $40.1 million, or $(3.55) per basic common share, compared to a net loss from continuing operations of $51.1 million, or $(4.77) per basic common share, for the fiscal year ended June 30, 2013. The improvement in the net loss year-over-year was attributable to a $4.2 million increase in total revenues, a $7.4 million decline in expenses and a $1.2 million decrease in income tax expense, partially offset by a decline in other income of $1.7 million.

Revenues

Revenues include tuition payment processing fees earned by TMS, fee-for-service revenues for loan processing, origination and program support, fees for portfolio management services and fees related to our Monogram platform. Revenues also include fair value changes related to service revenue receivables.

Revenues were $46.2 million for the fiscal year ended June 30, 2015, up $2.0 million from $44.2 million for the fiscal year ended June 30, 2014. The increase in revenues for the fiscal year ended June 30, 2015 included a $1.4 million increase in tuition management fees, an increase of $714 thousand in fee income from Cology LLC and an increase of $762 thousand in Monogram-based fee revenues. These increases were partially offset by a decline of fair value changes to service revenue receivables of $471 thousand and $349 thousand in lower fees for portfolio management services. The increase in Monogram-based fee revenues was primarily the result of increased loan portfolio balances and an increase in disbursements, which was slightly offset by an increase in defaulted loans and fair value adjustments on the participation accounts at our lender clients. Due to the nature of the recurring fee structure under our Monogram-based programs, our Monogram-based fee income increases as portfolio sizes at our lender clients grow. The increase in tuition management fees was primarily due to increased credit card payment processing fees. The increase in income from Cology LLC was primarily due to increased loan volume as well as increased disbursement processing fees. The decrease in portfolio management services fees was principally due to a decrease for certain one-time services performed in fiscal 2014.

Revenues were $44.2 million for the fiscal year ended June 30, 2014, up $4.2 million from $40.0 million for the fiscal year ended June 30, 2013. The increase in revenues for the fiscal year ended June 30, 2014 included a $2.2 million increase in fee income from Cology LLC, an increase of $1.6 million in Monogram-based fee revenues, an increase of $1.5 million in tuition management fees and an increase of $1.2 million in fees for portfolio management services. These increases were partially offset by $2.0 million in lower revenues from special servicing. Cology LLC completed its acquisition of a substantial portion of the operating assets of the Cology Sellers in October 2012 and, as a result, the fiscal year ended June 30, 2013 included fee income only for the period from the date of acquisition through June 30, 2013. The increase in Monogram-based fee revenues was primarily the result of increased loan portfolio balances at our partner lender clients. The increase in tuition management fees was primarily due to increased credit card payment processing. The increase in portfolio management services fees was due to an increase in new clients as well as fees received for certain one-time services performed in fiscal 2014.

Fair value changes to service revenue receivables We record our service revenue receivables at fair value on our consolidated balance sheets. At June 30, 2015, our service revenue receivables consisted of additional structural advisory fees and residual receivables and represent the estimated fair value of our service revenue receivables expected to be collected over the life of the various separate securitization trusts that have purchased education loans facilitated by us, with no further service obligations on our part.

Changes in the estimated fair value of our service revenue receivables due, less any cash distributions received, are recorded in our consolidated statements of operations within fair value changes to service revenue receivables.

In the absence of market-based transactions, we use cash flow modeling techniques to derive an estimate of fair value for financial reporting purposes. Significant observable and unobservable inputs used to develop our fair value estimates include, but are not limited to, discount rates, prepayment rates, net recovery rates, default rates and the forward LIBOR curve. See Note 10, “Fair Value Measurements,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

Expenses

The following table reflects the composition of expenses:


	Fiscal years ended June 30,						Change between periods better (worse)
	2015		2014		2013		2015 - 2014			2014 - 2013
	(dollars in thousands)
Compensation and benefits	$	36,217	$	36,251	$	39,317	$	34		$	3,066
General and administrative:
Third-party services		13,457		14,689		14,651		1,232			(38	)
Depreciation and amortization		5,286		5,288		4,347		2			(941	)
Marketing		2,097		1,799		5,123		(298	)		3,324
Occupancy and equipment		9,988		10,856		11,379		868			523
Servicer fees		3		278		650		275			372
Merchant fees		8,818		7,773		6,663		(1,045	)		(1,110	)
Trust related special servicing expenses		—		—		1,639		—			1,639
Other		12,630		6,946		7,498		(5,684	)		552

Total general and administrative		52,279		47,629		51,950		(4,650	)		4,321

Total expenses	$	88,496	$	83,880	$	91,267	$	(4,616	)	$	7,387

Total number of employees from continuing operations at fiscal year-end		260		281		289

Compensation and benefits Compensation and benefits expenses decreased to $36.2 million in fiscal 2015 from $36.3 million in fiscal 2014. The decrease year-over-year was primarily driven by $765 thousand in lower bonus expense, offset by $615 thousand in increased severance-related costs.

Compensation and benefits expenses decreased to $36.3 million in fiscal 2014 from $39.3 million in fiscal 2013. The decrease of $3.0 million year-over-year was primarily driven by $2.1 million in lower salary expense due to a decline in average headcount and $1.2 million in lower severance-related costs.

General and administrative expenses General and administrative expenses increased to $52.3 million in fiscal 2015 from $47.6 million in fiscal 2014. The increase of $4.7 million was primarily driven by a $5.7 million increase in other expenses, principally the result of a $5.0 million legal settlement, and increased merchant fee expenses related to payment processing services performed by TMS of $1.0 million. These increases were partially offset by a decrease in third-party services of $1.2 million, primarily a result of decreases in consulting costs and legal fees.

General and administrative expenses decreased to $47.6 million in fiscal 2014 from $51.9 million in fiscal 2013. The decrease of $4.3 million was primarily driven by a $3.3 million decline in marketing costs coupled with a $1.6 million decrease in trust-related special servicing expenses as a result of the cessation of our special servicing obligations for certain of the securitization trusts that we previously facilitated. These decreases were partially offset by increased merchant fee expenses related to payment processing services performed by TMS of $1.1 million.

Other Income

The following table reflects the components of other income:


	Fiscal years ended June 30,
	2015			2014			2013
	(dollars in thousands)
Interest income	$	97		$	227		$	473
Interest expense		(5	)		(25	)		(124	)

Net interest income		92			202			349
Other income		295			582			2,112

Total other income	$	387		$	784		$	2,461

Net interest income Interest income primarily reflected interest earned on cash and cash equivalents and short-term investments of $79 thousand, $213 thousand and $435 thousand for fiscal 2015, fiscal 2014 and fiscal 2013, respectively. The remaining interest income related to interest earned on our interest-bearing restricted cash of $17 thousand, $14 thousand and $38 thousand for fiscal 2015, fiscal 2014 and fiscal 2013, respectively. The decrease in interest income from both fiscal 2014 to fiscal 2015 and fiscal 2013 to fiscal 2014 was the result of a decline in average balances held, and to a lesser extent, a decline in interest rates. Interest income for the fiscal years presented was partially offset by interest expense costs on various lease obligations.

Other income During fiscal 2015, we recorded other income of $295 thousand, consisting of $281 thousand in proceeds from The Education Resources Institute, Inc., or TERI, settlement, discussed below, and $77 thousand in cash recoveries on previously defaulted education loans held by FMD. These other income items were partially offset by a $63 thousand loss recognized on a sale of mortgage loans, which were acquired by FMD from Union Federal as part of the dissolution of Union Federal and subsequently sold to a third party prior to June 30, 2015.

During fiscal 2014, we recorded other income of $582 thousand, consisting of $281 thousand in proceeds from the TERI settlement, $225 thousand related to the sale of Cology LLC’s loan servicing business and $76 thousand in cash recoveries on previously defaulted education loans held by FMD.

During fiscal 2013, we recorded other income of $2.1 million, consisting of $702 thousand in proceeds from the TERI settlement, $946 thousand related to the sale of a defaulted loan portfolio, which was transferred by Union Federal to an indirect subsidiary of FMD in 2009, and $464 thousand in cash recoveries on previously defaulted education loans held by FMD.

The TERI settlement proceeds recognized in each fiscal year presented above are the result of the resolution of certain matters related to TERI’s confirmed plan of reorganization. This income represented cash distributions from the liquidating trust under TERI’s confirmed plan of reorganization. See Note 16, “Other Income,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

Income Taxes

We are subject to federal income tax, as well as income tax in multiple U.S. state and local jurisdictions. Our effective income tax rate is calculated on a consolidated basis. We remain subject to federal income tax examinations for fiscal 2012 through fiscal 2014. In addition, we are involved in several matters relating to the Massachusetts tax treatment of GATE, a former subsidiary of FMD. See Item 3, “Legal Proceedings,” and Note 14, “Commitments and Contingencies—Income Tax Matters,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information regarding these matters.

Our state income tax returns in jurisdictions other than Massachusetts remain subject to examination for various fiscal years ended between June 30, 2011 and June 30, 2015.

Income tax expense from continuing operations for fiscal 2015 was $1.1 million as compared to an income tax expense of $1.1 million in fiscal 2014 and income tax expense of $2.3 million in fiscal 2013. The decrease in

income tax expense from fiscal 2013 to fiscal 2014 was due to additional state tax liability and accrued interest of approximately $1.0 million recognized in fiscal 2013 related to the case pertaining to our Massachusetts state income tax returns for the 2008 and 2009 tax years.

Beginning in fiscal 2011, we no longer had any taxable income in prior periods to offset current period net operating losses for federal income tax purposes. As a result, we recorded a net operating loss carryforward asset as of June 30, 2015 and June 30, 2014, totaling $74.9 million and $58.1 million, respectively, for which we recorded a full valuation allowance.

Under current law, we do not have remaining taxes paid within available net operating loss carryback periods, and it is more likely than not that our deferred tax assets will not be realized through future reversals of existing temporary differences or available tax planning strategies. Accordingly, we have determined that a valuation allowance was necessary for all of our deferred tax assets not scheduled to reverse against existing deferred tax liabilities as of June 30, 2015 and June 30, 2014. We will continue to review the recognition of deferred tax assets on a quarterly basis.

Internal Revenue Service Audit

Effective March 31, 2009, we completed the sale of the Trust Certificate. In connection with the sale of the Trust Certificate, FMD entered into the Asset Services Agreement pursuant to which FMD provided various consulting and advisory services to the purchaser of the Trust Certificate. As a result of the sale of the Trust Certificate, as well as our operating losses incurred in fiscal 2009, we recorded an income tax receivable for federal income taxes paid on taxable income in prior fiscal years. In fiscal 2010, we received a total of $189.3 million in federal and state income tax refunds related to our income tax receivables. Furthermore, we received a federal income tax refund of $45.1 million in October 2010 related to the operating losses in fiscal 2010, which we applied to taxable income from fiscal 2008. In April 2010, the IRS commenced an audit of our tax returns for fiscal 2007 through fiscal 2009, including a review of the tax treatment of the sale of the Trust Certificate and the federal tax refund previously received in the amount of $176.6 million. Such audits are required by the Internal Revenue Code. The IRS also commenced an our fiscal 2010 tax return in light of the $45.1 million income tax refund that we received in October 2010.

On September 10, 2013 we received two NOPAs from the IRS. In the NOPAs, the IRS asserted that our sale of the Trust Certificate should not be recognized for federal income tax purposes primarily because we retained the economic benefits and burdens of the Trust Certificate, including, among other things, retaining certain repurchase rights and data rights. The IRS further concluded that the transaction should be characterized as a financing instead of a sale and asserted that the sale of the Trust Certificate and the execution of the Asset Services Agreement had the impact of converting taxable income to the owner from an accrual basis to a cash basis. As a result, the NOPAs proposed to disallow the loss that generated the tax refunds that we previously received as well as require us to include income from the Trust Certificate from the March 31, 2009 sale date through June 30, 2011 in our taxable income for such years.

Discontinued Operations, Net of Taxes

The discontinued operations of Union Federal, net of taxes, for the fiscal year ended June 30, 2015 was a net loss of $4.7 million, or $(0.41) per common share, compared to a net gain of $2.5 million, or $0.22 per common share, for the fiscal year ended June 30, 2014. The $7.2 million decline year-over-year was primarily attributable

to $3.1 million in decreased net interest income due to the liquidation of the related assets and liabilities, fair value write-downs on education loans of $2.6 million and fair value write-downs on mortgage loans of $577 thousand in fiscal 2015, and $2.1 million in gains on the sales of portfolios of education loans to RBS Citizens, N.A., or Citizens, in fiscal 2014. The year-over-year decline was also partially offset by a decrease in other-than-temporary impairment losses on investments available-for-sale of $969 thousand. Discontinued operations, net of taxes, for the fiscal year ended June 30, 2013 was a net gain of $930 thousand. The $1.6 million improvement year-over-year from fiscal 2013 to fiscal 2014 was primarily attributable to $2.1 million in gains on the sales of portfolios of education loans to Citizens and $600 thousand in increased net interest income, partially offset by other-than-temporary impairment losses on investments available-for-sale of $1.1 million. See Note 3, “Discontinued Operations,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

Financial Condition

The changes in our financial condition from June 30, 2015 to June 30, 2014 are discussed below. The assets and liabilities of Union Federal have been segregated and reported as assets and liabilities of discontinued operations on our fiscal 2014 consolidated balance sheet.

Continuing Operations

Cash, Cash Equivalents and Short-term Investments

We had combined cash, cash equivalents and short-term investments of $63.0 million and $74.0 million at June 30, 2015 and June 30, 2014, respectively, representing interest-bearing and non-interest-bearing deposits, money market funds and certificates of deposit with highly-rated financial institutions.

The decrease of $11.0 million was primarily a result of $31.9 million to fund continuing operations offset by $21.7 million received in connection with the dissolution of Union Federal.

Restricted Cash

At June 30, 2015, restricted cash on our consolidated balance sheets was $97.0 million, of which $94.6 million was held by TMS, $2.1 million was held by Cology LLC and $261 thousand was held by FMER. Restricted cash at June 30, 2014 was $94.4 million, of which $93.9 million was held by TMS, $412 thousand was held by Cology LLC and $95 thousand was held by FMER. The increase of $2.6 million from fiscal 2014 to fiscal 2015 in restricted cash was primarily due to the increased cash balance at Cology LLC and timing of payments to educational institutions.

Restricted cash held by TMS represents tuition payments collected from students or their families on behalf of educational institutions. These cash balances are held in escrow under a trust agreement for the benefit of TMS’ educational institution clients and are generally subject to cyclicality, tending to peak in August of each school year, early in the enrollment cycle, and to decrease in May, the end of the school year. Over the last 12 months, TMS’ restricted cash balances ranged from a high of $349.1 million during August 2014 to a low of $32.3 million during May 2015. Restricted cash held by Cology LLC represents loan origination proceeds that it collects and disburses on behalf of its lender clients. Restricted cash held by FMER relates to recoveries on defaulted education loans collected on behalf of clients as well as undistributed loan origination proceeds. We record a liability on our consolidated balance sheets representing tuition payments due to our TMS clients, loan origination proceeds due to our Cology LLC clients and recoveries on defaulted education loans and education loan proceeds due to schools.

Mortgage Loans Held-for-Sale

During fiscal 2015, FMD purchased a small mortgage loan portfolio from Union Federal for $1.4 million in June 2015 as part of the dissolution of Union Federal. This mortgage loan portfolio was subsequently sold by FMD to a third party prior to June 30, 2015. In conjunction with the third-party sale transaction, FMD received $1.4 million in aggregate sales proceeds and derecognized approximately $1.4 million of mortgage loans and accrued interest on its consolidated balance sheet.

Deposits for Participation Interest Accounts

We recorded deposits for participation accounts at fair value on our consolidated balance sheets. Deposits for participation accounts increased by $2.1 million from $15.8 million at June 30, 2014 to $17.9 million at June 30, 2015. The increase year-over-year was primarily attributable to increased fundings in fiscal 2015 due to an increase in disbursed loan volumes for our lender clients.

See Note 9, “Deposits for Participation Interest Accounts,” in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

Goodwill and Intangible Assets

Goodwill represents the excess of the cost of an acquisition over the fair value of the net tangible and other intangible assets acquired. Other intangible assets represent purchased assets that can be distinguished from goodwill because of contractual rights or because the assets can be exchanged on their own or in combination with a related contract, asset or liability. In connection with our acquisition of assets from TMS and from the Cology Sellers, we recorded other intangible assets related to the TMS customer list and tradename and the Cology Sellers customer list, each of which we amortize on a straight-line basis over 15 years, and TMS technology, which we amortize on a straight-line basis over six years. We record amortization expense in general and administrative expenses in our consolidated statements of operations.

As it relates to TMS, the customer list intangible asset is related to educational institutions with which TMS had existing tuition programs in place as of December 31, 2010, the closing date of the acquisition. The trade name intangible asset is related to the name and reputation of TMS in the tuition payment industry. Intangible assets attributable to technology represents the replacement cost of software and systems acquired that are necessary to support operations, net of an obsolescence factor. Goodwill represents the value ascribed to the acquisition of TMS that cannot be separately ascribed to a tangible or intangible asset.

As it relates to Cology LLC, the customer list intangible asset is related to clients, including credit union and other lender clients, with which the Cology Sellers had existing loan origination and servicing programs in place as of October 19, 2012, the closing date of the acquisition. Goodwill represents the value ascribed to the acquisition of a substantial portion of the operating assets of the Cology Sellers that cannot be separately ascribed to a tangible or intangible asset.

In fiscal 2015, we evaluated our goodwill for impairment on May 31, which is our annual impairment testing date, and concluded that the fair market values of the TMS and Cology LLC reporting units were approximately 55% and 101%, respectively, in excess of our recorded book value and, therefore, were not impaired as of that date. The fair values are estimates and may not represent the values achievable in the event that TMS and Cology LLC are offered for sale. In determining whether impairment exists, we assess impairment at the level of the TMS and Cology LLC reporting units. There have been no indicators of impairment since that date.

Various assumptions go into our assessment of whether there is any goodwill impairment to be recorded. The more meaningful assumptions that contribute to the cash flow model used to determine the fair value of the TMS reporting unit include the net retention rate of new and existing clients, the penetration rate achieved in the overall customer portfolio, adoption of refund management and Student Account Center products and pricing, the level of interest income to be earned by TMS on funds received but not yet disbursed to client schools, including the forward LIBOR curve, the level of cash balances and the applicable hold periods, all of which impact net interest income, expense levels at TMS and the discount rate used to determine the present value of the cash flow streams. TMS’ business would be adversely affected if any of the following were to occur: higher attrition rates than planned as a result of the competitive environment or our inability to provide products and services that are competitive in the marketplace, lower-than-planned adoption rates of refund management and Student Account Center products, higher-than-expected expense levels to provide services to TMS clients, a lower interest rate environment than depicted by the LIBOR curve, shorter hold periods or lower cash balances than contemplated, which would reduce our overall net interest income opportunity for cash that is held by us on behalf of TMS school clients, increases in equity returns required by investors and changes in our business model that may impact one or more of these variables. The more meaningful assumptions that contribute to the cash flow model

used to determine the fair value of the Cology LLC reporting unit include loan volume growth, revenues related to the cross-selling of Monogram-based products and services, client attrition, costs required to support the assumed volume of the business and discount rates. Cology LLC’s business would be adversely affected if any of the following were to occur: higher attrition rates than planned, a lack of acceptance of Monogram products and services by its credit union and other lender clients, higher-than-expected expense levels to provide services to Cology LLC clients and changes in our business model that may impact one or more of these variables.

At June 30, 2015 our goodwill balance was $20.1 million, of which $19.5 million related to TMS and $518 thousand related to Cology LLC.

At June 30, 2015, our net intangible assets balance was $19.5 million, of which $14.8 million related to TMS and $4.6 million related to Cology LLC. During the fiscal year ended June 30, 2015, we recorded amortization expense of $1.9 million related to TMS and $377 thousand related to Cology LLC.

Discontinued Operations

See Note 3, “Discontinued Operations,” in the notes to our consolidated financial statements included in Item 8 of this annual report for information regarding our discontinued operations.

Contractual Obligations

Our consolidated contractual obligations consist of commitments under operating leases.

The following table below summarizes our contractual cash obligations related to continuing operations by period at June 30, 2015, excluding the offsetting effect of payments due to us under subleases:


Contractual obligations	Payments due by period
Contractual obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(dollars in thousands)
Operating lease obligations(1)	$	4,536	$	2,620	$	1,916	$	—	$	—

(1)	For additional information on our operating leases, see Item 2, “Properties,” in this annual report.

Total Stockholders’ Equity

Total stockholders’ equity decreased from $146.5 million at June 30, 2014 to $102.2 million at June 30, 2015 as a result of our net loss of $47.8 million, partially offset by the change in accumulated other comprehensive income of $299 thousand for the net realized loss on our investments available-for-sale portfolio, an increase of $537 thousand in treasury stock through restricted stock units and an increase of $4.3 million in additional paid-in capital primarily for stock compensation.

Off-Balance Sheet Arrangements

We offer outsourcing services in connection with education loan programs, from program design through securitization of the education loans. We have historically structured and facilitated the securitization of education loans for our clients through a series of special purpose trusts. The principal uses of the securitization trusts we facilitated have been to generate sources of liquidity for our clients’ and make available more funds to students and colleges. In accordance with the guidance in ASC 810, Consolidation, we do not consolidate these securitization trusts as we are not deemed to be the primary beneficiary.

Liquidity and Capital Resources

Sources and Uses of Cash

The following is a discussion of sources and uses of cash on a U.S. generally accepted accounting principles, or GAAP, basis as presented in our consolidated statements of cash flows included in our consolidated financial statements included in Item 8 of this annual report. We also use a non-GAAP financial metric, “net operating cash usage,” when evaluating our cash and liquidity position, discussed below under “—Non-GAAP Measure: Net Operating Cash Usage.”

Net cash used in operating activities from continuing operations for fiscal 2015 was $29.5 million, compared with net cash used in operating activities from continuing operations of $36.3 million for fiscal 2014. The $6.8 million decrease in net cash used was principally the result of decreased funding for other assets as compared to the prior year of $5.2 million. The decrease in other assets was primarily the receipt of previously withheld residuals. Additionally, there was an overall increase of $2.9 million for accounts payable funding. These items were offset by a $3.0 million higher net loss from continuing operations.

We anticipate continuing to receive fees related to loan processing and origination and portfolio management services as well as fees related to Monogram-based loan programs. We believe that our cash, cash equivalents and short-term investments, coupled with the management of our expenses and these fees, will be adequate to fund our operating losses in the short term as we seek to expand our client and revenue base over the short and long term. We are uncertain, however, as to whether we will be successful in selling our Monogram platform to additional lenders or how much loan volume may be originated by current or any additional lenders in the future.

Net cash provided by investing activities from continuing operations for fiscal 2015 was $21.4 million compared with net cash used in investing activities of $12.3 million for fiscal 2014. The improvement of $9.1 million was primarily the result of the decreases in purchases of short-term investments and proceeds from maturities of short-term investments of $26.0 million and $17.0 million, respectively.

Net cash used in financing activities from continuing operations was $539 thousand for fiscal 2015 compared to net cash used in financing activities of $717 thousand during fiscal 2014. The decrease in net cash used in financing activities was primarily due to decreased repurchases of common stock during fiscal 2015.

Sources and Uses of Liquidity

We expect to fund our short-term liquidity requirements primarily through cash and cash equivalents and revenues from operations, and we expect to fund our long-term liquidity requirements through a combination of revenues from operations and various financing vehicles available to us. We may also utilize issuances of common stock, promissory notes or other securities or the potential sale of certain assets of FMD. We expect to assess our financing alternatives periodically and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements, or if we were to enter into a strategic arrangement with another company, we may need to sell additional equity or debt securities. Any sale of additional equity or convertible debt securities may result in additional dilution to FMD stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may be required to further delay, reduce the scope of or eliminate one or more aspects of our operational activities, which could harm our business.

Our liquidity and capital funding requirements may depend on a number of factors, including:

•

Cash necessary to fund our operations, including the operations of TMS and Cology LLC, and capital expenditures;

•

The extent to which our services and products, including our Monogram platform, TMS offerings and Cology LLC offerings, gain market share and remain competitive at pricing levels favorable to us;

•

The profitability of our Monogram platform, which is dependent on, among other things, the amount of loan volume our lender clients are able to generate and costs incurred to acquire such volume;

•

The extent to which we fund credit enhancement arrangements or contribute to credit facility providers in connection with our Monogram platform;

•

The ability to effectively and efficiently manage our expense base;

•

The resolution of litigation pending before the ATB in the cases pertaining to GATE’s Massachusetts state income tax returns for the taxable years ended June 30, 2008 and 2009; and

•

The timing, size, structure and terms of any securitization or other funding transactions that we structure, as well as the composition of the loan pool being securitized or sold.

Liquidity is required for capital expenditures, working capital, business development expenses, business acquisitions, income tax payments, costs associated with alternative financing transactions, general corporate expenses, capital provided in connection with Monogram-based loan program credit enhancement arrangements or capital markets transactions. In order to preserve capital and maximize liquidity in challenging market conditions, we have in the past taken certain broad measures to reduce the risk related to education loans and residual receivables on our consolidated balance sheet, change our fee structure, add new products and reduce our overhead expenses. In addition, the FMD Board of Directors has eliminated regular quarterly cash dividends for the foreseeable future.

Restricted Funds Due to Clients

As part of our operations, we have cash that is recorded as restricted cash on our consolidated balance sheets because it is deposited with third–party institutions and not available for our use. Included in restricted cash on our consolidated balance sheets are tuition payments due to schools, undisbursed loan origination proceeds and recoveries on defaulted education loans. We record a liability on our consolidated balance sheets representing tuition payments due to our TMS clients, loan origination proceeds due to our Cology LLC clients and recoveries on defaulted education loans and education loan proceeds due to schools.

Non-GAAP Measure: Net Operating Cash Usage

In addition to providing financial measurements based on GAAP, we present below an additional financial metric that we refer to as “net operating cash usage” that was not prepared in accordance with GAAP. We define “net operating cash usage” to approximate cash requirements to fund our operations. “Net operating cash usage” is not directly comparable to our consolidated statements 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 the FMD 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. This non-GAAP financial measure is also used by us in our financial and operational decision-making.

We believe that the inclusion of this non-GAAP financial metric helps investors to gain a better understanding of our results, including our expenses and liquidity position. 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 clients, investors, analysts and financial news media may evaluate our financial results.

There are limitations associated with reliance on any non-GAAP financial measure because any such measure is specific to our operations and financial performance, which makes comparisons with other companies’ financial results more challenging. Nevertheless, by providing both GAAP and non-GAAP financial measures, we believe that investors are able to compare our GAAP results to those of other companies, while also gaining a better understanding of our 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” excludes the effects of income taxes, acquisitions or divestitures, participation account net fundings and changes in other assets and other liabilities that are solely related to short-term timing of cash payments or receipts.

In accordance with the requirements of Regulation G promulgated by the SEC, the table below presents the most directly comparable GAAP financial measure, loss from continuing operations, before income taxes, for the fiscal year ended June 30, 2015 and June 30, 2014, and reconciles the GAAP measure to the comparable non-GAAP financial metric:


	Fiscal Year Ended June 30,
	2015			2014
	(dollars in thousands)
Loss from continuing operations, before income taxes	$	(41,935	)	$	(38,940	)
Adjustments to loss from continuing operations, before income taxes:
Fair value changes to service revenue receivables		(1,859	)		(2,330	)
Cash distributions from service revenue receivables		3,687			3,168
Depreciation and amortization		5,286			5,288
Stock-based compensation		4,313			4,400
Changes in TMS deferred revenue		26			(293	)
Additions to property and equipment		(2,410	)		(2,506	)
Other, net of cash flows from Union Federal		(488	)		2,817

Non-GAAP net operating cash usage	$	(33,380	)	$	(28,396	)

“Net operating cash usage” for the fiscal year ended June 30, 2015 was $33.4 million, a $5.0 million, or 18%, increase compared to the fiscal year ended June 30, 2014. The increase of $5.0 million for fiscal 2015 as compared to fiscal 2014 was largely the result of an increase in cash usage at Union Federal, discussed below. Union Federal’s increase in cash usage was offset by a decrease in cash usage for continuing operations. The continuing operations improvement was the result of an increase in cash revenues of $4.3 million from continuing operations offset by an increase in cash expenses of $3.7 million, which was principally the result of a $5.0 million legal settlement included in general and administrative expenses in fiscal 2015.

“Net operating cash usage” for the fiscal year ended June 30, 2015 included $1.5 million in cash usage from Union Federal, an increase of $5.7 million as compared to cash generated in fiscal 2014 of $4.2 million. The decline in cash generated from Union Federal for the fiscal year ended June 30, 2015 was primarily driven by decreased education loan and investment interest income as the portfolio volumes have declined as part of the dissolution process, as well as a decline in other income due to a $2.1 million gain recognized on the sale of education loans in fiscal 2014.

Inflation

Inflation was not a material factor in either revenues or operating expenses during the periods presented.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, at the date of our consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. We base our estimates, assumptions and judgments on our historical experience, economic conditions and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under varying assumptions or conditions. Our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies,” in the notes to our consolidated financial statements included in Item 8 of this annual report.

On an ongoing basis, we evaluate our estimates and judgments, particularly as they relate to accounting policies that we believe are most important to the portrayal of our financial condition and results of operations. We regard an accounting estimate or assumption underlying our consolidated financial statements to be a “critical accounting estimate” where:

•

The nature of the estimate or assumption is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

•

The impact of the estimates and assumptions on our financial condition or operating performance is material.

We have discussed our accounting policies with the Audit Committee of the FMD Board of Directors. We consider the following to be our critical accounting policies:

•

Income taxes relating to uncertain tax positions under ASC 740; and

•

The determination of goodwill and other intangible asset impairment.

Income Taxes

Certain areas of accounting for income taxes require management’s judgment, including determining the adequacy of liabilities for uncertain tax positions. Uncertain tax positions that meet the more likely than not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit that management believes has a greater than 50% likelihood of realization upon settlement. Tax benefits not meeting our realization criteria represent unrecognized tax benefits. Judgments are made regarding various tax positions, which are often subjective and involve assumptions about items that are inherently uncertain. If actual factors and conditions differ materially from estimates made by management, the actual realization of liabilities for uncertain tax positions could vary materially from the amounts previously recorded.

Deferred tax assets arise from items that may be used as a tax deduction or credit in future income tax returns, for which a financial statement tax benefit has already been recognized. The realization of the net deferred tax asset generally depends upon future levels of taxable income and the existence of prior years’ taxable income to which refund claims could be carried back. Valuation allowances are recorded against those deferred tax assets determined not likely to be realized. Deferred tax liabilities represent items that will require a future tax payment. They generally represent tax expense recognized in our consolidated financial statements for which payment has been deferred, or a deduction taken on our tax return but not yet recognized as an expense in our consolidated financial statements.

Review of Goodwill and Intangible Assets for Impairment

On December 31, 2010, we completed our acquisition of the assets, liabilities and operations of TMS, formerly a division of KeyBank National Association. On October 19, 2012, Cology LLC acquired a substantial portion of the operating assets, and assumed certain liabilities, of the Cology Sellers. As a result of these acquisitions, we recorded goodwill and intangible assets. We test goodwill for impairment annually and more frequently if circumstances warrant.

Intangible assets acquired consist of the TMS customer lists, technology and tradename and the Cology Sellers customer list. The values of these intangible assets were estimated using valuation techniques, based on discounted cash flow analysis. These intangible assets are being amortized over the period the assets are expected to contribute to our cash flows. These intangible assets are subject to impairment tests in accordance with GAAP, generally, whenever events or changes in circumstances indicate that their carrying amount may not be fully recoverable.

We evaluate goodwill for impairment by comparing the fair values of the operations of the TMS and Cology LLC reporting units to their carrying values, including goodwill. If the fair value of the reporting unit exceeds the carrying value, goodwill is not deemed to be impaired. If the fair value is less than the carrying value, a further analysis is required to determine the amount of impairment, if any.

There are significant judgments involved in determining the fair values of the TMS and Cology LLC reporting units, including assumptions regarding the estimates of future cash flows from existing and new business activities, customer relationships, the value of existing customer contracts and the value of other intangible assets, as well as assumptions regarding what we believe a third party is willing to pay for all of the assets and liabilities of TMS and Cology LLC. The calculation also requires us to estimate the appropriate discount and growth rates to apply to those projected cash flows and an appropriate control premium to apply to arrive at a final fair value. Since the businesses are not publicly traded, and often there is not comparable market data available, there is a higher degree of judgment applied and the use of cash flows is weighted more heavily than the use of market multiples. In the event that we determine that our goodwill or intangible assets are impaired, the recognition of an impairment charge could have an adverse impact on our results of operations in the period that the impairment occurred or on our financial position. For fiscal 2015 and fiscal 2014, we recorded no goodwill impairment. We evaluated goodwill for impairment at our annual impairment testing date of May 31.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Interest rate risk is the primary market risk associated with our continuing operations. Management monitors liquidity and interest rate risk matters and discusses such matters with the FMD Board of Directors. Interest rate risk is the risk of loss to future earnings due to changes in interest rates. Interest rate risk applies to our interest-bearing cash and cash equivalents and short-term investments, as well as our service revenue receivables and deposits for participation accounts.

We invest our excess cash primarily in money market funds and certificates of deposits with original maturities of less than one year. Management regularly reviews a wide variety of interest rate shift scenario results to evaluate interest rate risk exposure, including scenarios showing the effect of steepening or flattening changes in the yield curve. The changes contemplated in these interest rate scenarios would result in immaterial changes to our overall results, largely as a result of the short-term nature of our interest-bearing assets.

We use current market interest rates and our expectations of future interest rates to estimate the fair value of our service revenue receivables and deposits for participation accounts. We believe that this approach adequately reflects the interest rate risk inherent in those estimates.

Item 8.

Financial Statements and Supplementary Data

FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

The First Marblehead Corporation:

We have audited the accompanying consolidated balance sheets of The First Marblehead Corporation and subsidiaries (the Company) as of June 30, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2015, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of June 30, 2015, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated September 9, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Boston, Massachusetts

September 9, 2015

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 30, 2015 and 2014

(dollars and shares in thousands, except per share amounts)


	2015			2014
ASSETS
Cash and cash equivalents	$	47,004		$	33,955
Short-term investments, at cost		16,002			40,057
Restricted cash		96,964			94,436
Deposits for participation interest accounts, at fair value		17,876			15,834
Service revenue receivables, at fair value		12,151			13,979
Goodwill		20,066			20,066
Intangible assets, net		19,457			21,769
Property and equipment, net		5,259			5,819
Other assets		6,027			8,163

Assets from continuing operations		240,806			254,078
Assets from discontinued operations		—			188,806

Total assets	$	240,806		$	442,884

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Restricted funds due to clients	$	96,854		$	94,272
Accounts payable, accrued expenses and other liabilities		12,392			11,050
Income taxes payable		27,233			26,582
Net deferred income tax liability		2,127			1,655

Liabilities from continuing operations		138,606			133,559
Liabilities from discontinued operations		—			162,827

Total liabilities		138,606			296,386
Commitments and contingencies:
Stockholders’ equity:
Common stock, par value $0.01 per share; 25,000 shares authorized; 12,606 and 12,260 shares issued; 11,534 and 11,300 shares outstanding		126			122
Additional paid-in capital		466,640			462,328
Accumulated deficit		(176,169	)		(128,391	)
Treasury stock, 1,072 and 960 shares held, at cost		(188,397	)		(187,860	)
Accumulated other comprehensive income		—			299

Total stockholders’ equity		102,200			146,498

Total liabilities and stockholders’ equity	$	240,806		$	442,884

See accompanying notes to consolidated financial statements.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Fiscal years ended June 30, 2015, 2014 and 2013

(dollars and shares in thousands, except per share amounts)


	2015			2014			2013
Revenues:
Tuition payment processing fees	$	29,593		$	28,186		$	26,668
Administrative and other fees		14,722			13,640			11,238
Fair value changes to service revenue receivables		1,859			2,330			2,068

Total revenues		46,174			44,156			39,974
Expenses:
Compensation and benefits		36,217			36,251			39,317
General and administrative		52,279			47,629			51,950

Total expenses		88,496			83,880			91,267
Other income		387			784			2,461

Loss from continuing operations, before income taxes		(41,935	)		(38,940	)		(48,832	)
Income tax expense from continuing operations		1,145			1,125			2,295

Net loss from continuing operations		(43,080	)		(40,065	)		(51,127	)
Discontinued operations, net of taxes		(4,698	)		2,498			930

Net loss	$	(47,778	)	$	(37,567	)	$	(50,197	)

Net (loss) income per basic and diluted common share:
From continuing operations	$	(3.75	)	$	(3.55	)	$	(4.77	)
From discontinued operations		(0.41	)		0.22			0.09

Total basic and diluted net loss per common share	$	(4.16	)	$	(3.33	)	$	(4.68	)

Basic and diluted weighted-average common shares outstanding		11,493			11,270			10,735

See accompanying notes to consolidated financial statements.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Fiscal years ended June 30, 2015, 2014 and 2013

(dollars in thousands)


	2015			2014			2013
Net loss	$	(47,778	)	$	(37,567	)	$	(50,197	)
Other comprehensive (loss) income, net of tax:
Net unrealized losses on investments available-for-sale arising during the period		(138	)		(61	)		(1,352	)
Reclassification adjustment for net realized (gains) losses included in net loss		(161	)		1,102			—

Total other comprehensive (loss) income		(299	)		1,041			(1,352	)

Total comprehensive loss	$	(48,077	)	$	(36,526	)	$	(51,549	)

See accompanying notes to consolidated financial statements.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Fiscal years ended June 30, 2015, 2014 and 2013

(dollars and shares in thousands)


	Non-voting convertible preferred stock issued						Common stock										Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive income (loss), net of tax			Total stockholders’ equity
	Non-voting convertible preferred stock issued						Issued				In treasury
	Shares			Amount			Shares		Amount		Shares			Amount
Balance at June 30, 2012		133		$	1			11,066	$	110		(866	)	$	(186,828	)	$	453,722		$	(40,627	)	$	610		$	226,988
Comprehensive loss:
Net loss		—			—			—		—		—			—			—			(50,197	)		—			(50,197	)
Other comprehensive loss		—			—			—		—		—			—			—			—			(1,352	)		(1,352	)

Total comprehensive loss		—			—			—		—		—			—			—			(50,197	)		(1,352	)		(51,549	)
Net stock issuance from vesting of stock units		—			—			100		1		(31	)		(326	)		(1	)		—			—			(326	)
Stock-based compensation		—			—			—		—		—			—			4,214			—			—			4,214
Conversion of preferred stock to common stock		(133	)		(1	)		885		9		—			—			(8	)		—			—			—

Balance at June 30, 2013		—		$	—			12,051	$	120		(897	)	$	(187,154	)	$	457,927		$	(90,824	)	$	(742	)	$	179,327
Comprehensive loss:
Net loss		—			—			—		—		—			—			—			(37,567	)		—			(37,567	)
Other comprehensive income		—			—			—		—		—			—			—			—			1,041			1,041

Total comprehensive loss		—			—			—		—		—			—			—			(37,567	)		1,041			(36,526	)
Net stock issuance from vesting of stock units		—			—			209		2		(63	)		(706	)		(2	)		—			—			(706	)
Stock-based compensation		—			—			—		—		—			—			4,403			—			—			4,403

Balance at June 30, 2014		—		$	—			12,260	$	122		(960	)	$	(187,860	)	$	462,328		$	(128,391	)	$	299		$	146,498
Comprehensive loss:
Net loss		—			—			—		—		—			—			—			(47,778	)		—			(47,778	)
Other comprehensive loss		—			—			—		—		—			—			—			—			(299	)		(299	)

Total comprehensive loss		—			—			—		—		—			—			—			(47,778	)		(299	)		(48,077	)
Net stock issuance from vesting of stock units		—			—			346		4		(112	)		(537	)		(4	)		—			—			(537	)
Stock-based compensation		—			—			—		—		—			—			4,316			—			—			4,316

Balance at June 30, 2015		—		$	—			12,606	$	126		(1,072	)	$	(188,397	)	$	466,640		$	(176,169	)	$	—		$	102,200

See accompanying notes to consolidated financial statements.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal years ended June 30, 2015, 2014 and 2013

(dollars in thousands)


	2015			2014			2013
Cash flows from operating activities, net of effects of acquisition:
Net loss	$	(47,778	)	$	(37,567	)	$	(50,197	)
Discontinued operations, net of tax		4,698			(2,498	)		(930	)
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		5,286			5,288			4,347
Credit for loan losses		—			(76	)		(464	)
Deferred income tax expense		472			466			328
Stock-based compensation		4,313			4,400			4,209
Service revenue receivable distributions		3,687			3,168			3,592
Changes in assets/liabilities:
Participation interest accounts		(2,042	)		(2,687	)		(9,108	)
Fair value increase to service revenue receivables		(1,859	)		(2,330	)		(2,068	)
Other assets		2,472			(2,768	)		1,068
Accounts payable, accrued expenses and other liabilities		532			(2,328	)		(5,178	)
Income taxes payable		670			659			2,509
Loss on sale of mortgage loans		63			—			—

Cash used in operating activities—continuing operations		(29,486	)		(36,273	)		(51,892	)
Cash provided by (used in) operating activities—discontinued operations		(1,579	)		3,284			815

Net cash used in operating activities		(31,065	)		(32,989	)		(51,077	)
Cash flows from investing activities, net of effects of acquisition:
Net cash paid for acquisition of operating assets of Cology, Inc.		—			—			(4,757	)
Capital contributions to Union Federal		—			(450	)		(5,750	)
Purchases of short-term investments		(26,272	)		(52,245	)		(30,172	)
Proceeds from maturities of short-term investments		50,327			67,367			60,000
Net increase in restricted cash		(2,528	)		(7,098	)		(21,937	)
Net increase (decrease) in restricted funds due to clients		2,582			7,278			(17,987	)
Purchase of held-for-sale education loans		(252	)		—			—
Purchase of held-for-sale mortgage loans		(1,450	)		—			—
Sale of held-for-sale mortgage loans		1,387			—			—
Purchases of property and equipment		(2,410	)		(2,506	)		(3,465	)

Net cash provided by (used in) investing activities—continuing operations		21,384			12,346			(24,068	)
Net cash provided by (used in) investing activities—discontinued operations		97,744			62,457			(52,403	)

Net cash provided by (used in) investing activities		119,128			74,803			(76,471	)
Cash flows from financing activities:
Payments on capital lease obligations		(2	)		(11	)		(12	)
Repurchases of common stock		(537	)		(706	)		(326	)

Net cash used in financing activities—continuing operations		(539	)		(717	)		(338	)
Net cash (used in) provided by financing activities—discontinued operations		(160,869	)		(2,658	)		86,299

Net cash (used in) provided by financing activities		(161,408	)		(3,375	)		85,961

Net increase (decrease) in cash and cash equivalents		(73,345	)		38,439			(41,587	)
Cash and cash equivalents, beginning of year		120,349			81,910			123,497

Cash and cash equivalents, end of year		47,004			120,349			81,910
Less: cash and cash equivalents of discontinued operations, end of year		—			86,394			23,311

Cash and cash equivalents of continuing operations, end of year	$	47,004		$	33,955		$	58,599

Supplemental disclosures of cash flow information from continuing operations:
Income taxes paid	$	5		$	—		$	12
Supplemental disclosures of cash flow information from discontinued operations:
Income taxes paid		265			—			—
Supplemental disclosure of non-cash financing activities from continuing operations:
Conversion of preferred stock to common stock		—			—			8

See accompanying notes to consolidated financial statements.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015, 2014 and 2013

(1) Nature of Business

Unless otherwise indicated, or unless the context of the discussion requires otherwise, all references in these notes to “we,” “us,” “our” and similar references mean The First Marblehead Corporation and its subsidiaries, on a consolidated basis. All references in these notes to “First Marblehead” and “FMD” mean The First Marblehead Corporation on a stand-alone basis. We use the term “education loan” to refer to private education loans that are not guaranteed by the federal government. Our fiscal year ends on June 30, and we identify our fiscal years by the calendar years in which they end. For example, we refer to the fiscal year ended June 30, 2015 as “fiscal 2015.”

Specifically, we design, develop and manage loan programs on behalf of our lender clients for undergraduate and graduate students and for college graduates seeking to refinance private education loan obligations. We offer a fully integrated suite of services through our Monogram^® loan product service platform (Monogram platform). We partner with lenders to design and administer education loan programs through our Monogram platform, which are typically school-certified. These programs are designed to be marketed through educational institutions or to prospective borrowers and their families directly and to generate portfolios intended to be held by the originating lender or financed in the capital markets. We may provide credit enhancements for a Monogram-based program by funding participation interest accounts (participation accounts) to serve as a first-loss reserve for defaulted program loans. In consideration for funding participation accounts, we are entitled to receive a share of the interest income generated on the loans. We are paid for our origination and marketing services at the time approved education loans are disbursed and receive monthly payments for portfolio management services, credit enhancement and administrative services throughout the life of the loan. We also earn fees for the processing and disbursement of education loans on behalf of the approximately 335 credit union and other lender clients of FMD’s subsidiary Cology LLC.

In addition, we offer outsourced tuition planning, tuition billing, refund management and payment technology services for universities, colleges and secondary schools through FMD’s subsidiary Tuition Management Systems LLC (TMS). TMS provides such services on behalf of approximately 700 educational institutions.

As of September 9, 2015, we have loan program agreements based on our Monogram platform with three lender clients, one of which provides the majority of our Monogram-based loan program fees. As a result, we are subject to concentration risk as it relates to this revenue stream until we are able to attract additional lender clients.

The Monogram-based loans that are originated on behalf of our lender clients as well as the education loans that FMD’s subsidiary Cology LLC processes and disburses on behalf of its clients are not included on our consolidated balance sheets but, rather, are included on the balance sheets of our lender clients and Cology LLC’s clients, respectively. As such, none of the references in these notes to our consolidated financial statements to education loans included on our consolidated balance sheets include the education loans originated by our lender clients or by Cology LLC on behalf of its clients.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(2) Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). We eliminate from our financial results all significant intercompany transactions.

The preparation of our consolidated financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, at the date of our consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. We base our estimates, assumptions and judgments on our historical experience, economic conditions and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under varying assumptions or conditions. On an ongoing basis, we evaluate our estimates and judgments, particularly as they relate to accounting policies that we believe are most important to the portrayal of our financial condition and results of operations.

(a)

Consolidation

Our consolidated financial statements include the accounts of FMD and its subsidiaries. We evaluate our involvement with certain variable interest entities (VIEs) and whether they should be consolidated, in accordance with Accounting Standards Codification (ASC) 810, Consolidation.

We continually reassess our involvement with each VIE in which we have an interest and our determination of whether consolidation or deconsolidation of a VIE is appropriate. We monitor matters related to our ability to control economic performance, such as contractual changes in the services we provide, the extent of our ownership and the rights of third parties to terminate us as a service provider. In addition, we monitor the financial performance of each VIE for indications that we may or may not have the right to absorb benefits or the obligation to absorb losses associated with variability in the financial performance of the VIE that could potentially be significant to that VIE. If, for any reason, we determine that we can no longer be considered the primary beneficiary for a consolidated VIE, we would be required to deconsolidate such VIE. Deconsolidation of a VIE is accounted for in the same manner as the sale of a subsidiary, with a gain or loss recorded in our consolidated statements of operations to the extent that proceeds, if any, are more or less than the net assets of the VIE.

We monitor our involvement with nine off-balance sheet VIEs for which we have determined that we are not the primary beneficiary due to the sole, unilateral rights of other parties to terminate us in our role as service provider or due to a lack of obligation on our part to absorb benefits or losses of the VIE that would be significant to that VIE. A significant change to the pertinent rights of other parties or us, or a significant change to the ranges of possible financial performance outcomes used in our assessment of the variability of cash flows due to us, could cause us to change our determination of whether or not a VIE should be consolidated in future periods. Our determination to consolidate or deconsolidate a VIE may lead to increased volatility in our financial results and make comparisons of results between time periods challenging. Our maximum exposure to loss as a result of our involvement with such VIEs is the fair value of our service revenue receivables.

(b)

Cash Equivalents

We consider highly liquid debt instruments with original maturities of three months or less on the date of purchase and investments in money market funds and certificates of deposit to be cash equivalents. Cash equivalents are carried at cost, which also approximates fair value.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(2) Summary of Significant Accounting Policies (Continued)

(c)

Restricted Cash and Restricted Funds Due to Clients

As part of our operations, we have cash that is recorded as restricted cash on our consolidated balance sheets because it is deposited with third party institutions and is not available for our use. In the case of TMS, it collects tuition payments from students or their families on behalf of educational institutions that are held under a trust agreement for the benefit of TMS’ educational institution clients. In the case of Cology LLC, it collects and disburses loan origination proceeds on behalf of its clients. Restricted cash held by our other subsidiary, First Marblehead Education Resources, Inc. (FMER), relates to recoveries on defaulted education loans collected on behalf of clients as well as undistributed loan origination proceeds. We record a liability on our consolidated balance sheets representing tuition payments due to our TMS clients, loan origination proceeds due to our Cology LLC clients and recoveries on defaulted education loans and education loan proceeds due to schools.

(d)

Deposits for Participation Interest Accounts

We account for deposits for participation accounts in a manner similar to our service revenue receivables, which is discussed below, and we carry such deposits at fair value on our consolidated balance sheet. We estimate fair value based on the net present value of cash flows into and out of the participation accounts, based on the education loans originated by participating lenders at our consolidated balance sheet date. We record changes in estimated fair value, excluding cash funded by us or distributed out of the participation accounts to us, if any, in revenues as part of administrative and other fees. See Note 9, “Deposits for Participation Interest Accounts,” for additional information.

(e)

Service Revenue Receivables

Service revenue receivables consist of our additional structural advisory fee and residual receivables, which we carry at fair value on our consolidated balance sheet. As required under GAAP, we recognized the fair value of additional structural advisory fee and residual receivables as revenue at the time the securitization trust purchased the education loans, but before we actually received payment, as these revenues were deemed to be earned at the time of the securitization. These amounts were deemed earned at securitization because:

•

Evidence of an arrangement existed;

•

We provided the services;

•

The fee was fixed and determinable based upon a discounted cash flow analysis; and

•

There were no future contingencies or obligations due on our part.

Payment of these receivables is contingent upon the following:

•

Additional structural advisory fees are paid to us over time, based on the payment priorities established in the applicable indenture for each of the securitization trusts. We generally become entitled to receive these additional fees, plus interest, if applicable, once the ratio of securitization trust assets to liabilities, which we refer to as the parity ratio, reaches a stipulated level or after all noteholders have been paid in full.

•

Residuals associated with any securitization trusts that we facilitated are typically junior in priority to the rights of the holders of the asset-backed securities (ABS) issued in the securitizations and any additional structural advisory fees. In the absence of readily determinable market values, we estimate the fair value of service revenue receivables based on the present value of expected future cash flows at our consolidated balance sheet dates. Such estimate includes assumptions regarding discount rates, prepayment rates, default rates, recovery rates and forward interest rates, among others. If readily

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(2) Summary of Significant Accounting Policies (Continued)

determinable market values became available or if actual performance were to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in material differences from the recorded carrying amounts.

(f)

Goodwill and Intangible Assets

Goodwill represents the excess of the cost of an acquisition over the fair value of the net tangible and other intangible assets acquired. Other intangible assets represent purchased assets that can be distinguished from goodwill because of contractual rights or because the asset can be exchanged on their own or in combination with a related contract, asset or liability. In connection with our acquisition of TMS, we recorded other intangible assets related to the TMS customer list and tradename, each of which we amortize on a straight-line basis over 15 years, and technology, which we amortize on a straight-line basis over six years. In connection with our acquisition of a substantial portion of the operating assets of Cology, Inc. and its affiliates, which we refer to as the Cology Sellers, we recorded an intangible asset related to the Cology Sellers customer list, which we amortize on a straight-line basis over 15 years. We record amortization expense in general and administrative expenses in our consolidated statements of operations.

Goodwill is not amortized, but is subject to an annual evaluation for impairment (or more frequently if indicators of impairment exist). Impairment of goodwill is deemed to exist if the carrying value of a reporting unit, including its allocation of goodwill and other intangible assets, exceeds its estimated fair value. Impairment of other intangible assets is deemed to exist if the balance of the other intangible assets exceeds the cumulative expected net cash inflows related to the asset over its remaining estimated useful life when the other intangible losses are evaluated. If we determine that goodwill or other intangible assets are impaired based on our periodic reviews, we would write down the values of these assets through a charge included in general and administrative expenses.

(g)

Property and Equipment

We record leasehold improvements, furniture and fixtures, computers, software and other equipment at cost less accumulated depreciation and amortization. We record depreciation and amortization in general and administrative expenses and calculate them using the straight-line method over the estimated useful life of the asset or, for leasehold improvements, the remaining term of the lease, if shorter. We charge maintenance and repairs to general and administrative expenses as incurred.

Costs related to internal-use software development projects are capitalized if the software is expected to yield long-term operational benefits, such as operational efficiencies and/or incremental revenue streams.

(h)

Investments

We classify investments with original maturities greater than three months and remaining maturities of less than one year at the date of purchase as short-term investments and carry such short-term investments at cost, which approximates fair value.

We classify investments in marketable debt securities as available-for-sale, trading or held-to-maturity. Management determines the appropriate classification of securities at the time of purchase. We carry available-for-sale investments at fair value, with net unrealized gains and losses recorded in other comprehensive income, a component of stockholders’ equity. Trading securities are securities held in anticipation of short-term market movements and are carried at fair value with net unrealized gains and losses recorded in our consolidated statements of operations. We classify investments as held-to-maturity when we have both the ability and intent to

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(2) Summary of Significant Accounting Policies (Continued)

hold the securities until maturity. We carry held-to-maturity investments at amortized cost. We currently do not own any investments in marketable debt securities.

(i)

Loans Held-for-Sale

Once a decision has been made to sell loans that were not originated with the intent to sell, we transfer such loans into the held-for-sale classification at the lower of cost or fair value. Any reduction in the loan’s value is reflected as a write-down of the recorded investment resulting in a new cost basis. After a loan or group of loans is transferred to the held-for-sale account, the loans are revalued at each subsequent reporting date until sold and reported at the lower of cost or fair value. The amortization of any deferred loan origination fees or costs is discontinued and recognition is deferred until the loans are sold. Further, loans transferred to held-for-sale continue to be accorded the same past due and non-accrual treatment as other loans. We currently hold a small portfolio of education loans held-for-sale, which were purchased from our former subsidiary Union Federal Savings Bank (Union Federal) as part of Union Federal’s dissolution. See Note 3, “Discontinued Operations,” and Note 8, “Education Loans Held-for-Sale,” for additional information.

When available, fair value of loans held-for-sale is based on quoted market values. In the absence of readily determined market values, fair value for loans held-for-sale is estimated by discounting the scheduled cash flows through the estimated maturity of the loans. Such estimate includes assumptions for default rates, recovery rates, prepayment rates and a discount rate commensurate with the risks involved. Loans held-for-sale are valued on an aggregate portfolio basis. We record changes in the carrying value of loans held-for-sale in our consolidated statements of operations.

(j)

Fair Value of Financial Instruments

Fair value is defined as the price that would be received in the sale of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. A three-level hierarchy is used to categorize fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date:

•

Level 1—Quoted prices (unadjusted) for identical assets or liabilities in active markets.

•

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs that are observable or can be corroborated, either directly or indirectly, for substantially the full term of the financial instrument.

•

Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in the markets and which reflect our market assumptions.

We apply quoted market prices, where available, to determine fair value of eligible assets. For financial instruments for which quotes from recent exchange transactions are not available, we base fair value on discounted cash flow analysis and comparison to similar instruments. Discounted cash flow analysis is dependent upon estimated future cash flows and the level of interest rates.

The methods we use for current fair value estimates may not be indicative of net realizable value or reflective of future fair values. If readily determinable market values became available or if actual performance were to vary appreciably from assumptions used, we might need to adjust our assumptions, which could result in material differences from the recorded carrying amounts. We believe our methods of determining fair value are

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(2) Summary of Significant Accounting Policies (Continued)

appropriate and consistent with other market participants. However, the use of different methodologies or different assumptions to value certain financial instruments could result in a different estimate of fair value.

(k)

Revenue Recognition

Tuition Payment Processing Fees

Tuition payment processing fees include revenues generated by TMS, including program enrollment fees, late fees, convenience fees, tuition billing fees and refund management fees. Program enrollment fees are up-front nonrefundable fees, the recognition of which is deferred and amortized into revenue over the payment term which approximates when services are provided. Late fees and convenience fees are recognized in the period in which the transactions occur and tuition billing fees are recognized in the period that the services are provided. Refund management fees include processing fees and card-based fees. Processing fees are fees charged to administer the disbursement of refunds to students, which are recognized in the period that the services are provided. Card-based fees are earned when students elect their refund disbursement in the form of a prepaid card. Fees charged as a result of prepaid card usage are recognized in the period in which the transactions occur.

Administrative and Other Fees

Revenue recognition associated with our Monogram platform is subject to accounting guidance under Accounting Standards Update (ASU) 2009-13, Revenue Recognition-Multiple-Deliverable Revenue Arrangements (ASU 2009-13). ASU 2009-13 requires that revenue under a contract be allocated to separately-identifiable deliverables based on a fair value analysis and prohibits separate recognition for each element of a contract unless certain criteria are met. We have applied the guidance in ASU 2009-13 to our recognition of revenues related to our Monogram platform.

In addition, we provide other services on a stand-alone, fee-for-service basis that may be based on the volume of education loans disbursed, the number of applications processed or other contractual terms. Our recognition of such fees is based on these contractual terms.

Our consolidated statements of operations for a portion of fiscal 2013 included special servicing fees due from certain securitization trusts that we previously facilitated, which represented compensation to us for managing the performance of default prevention and collections management services. Such fees were based, in part, upon the volume of assets under management, and, in part, upon the reimbursement of expenses. We recognized such fees as the services were performed or as the reimbursable expenses were incurred, as applicable.

Fair Value Changes to Service Revenue Receivables

We record changes in the fair value of additional structural advisory fee and residual receivables as revenues in our consolidated statements of operations. We record any change in the assumptions used to estimate fair value in our consolidated statements of operations in the period in which the change is made.

(l)

Income Taxes

In determining a provision for income taxes, we base our estimated annual effective tax rate on expected annual income or loss, statutory tax rates, our ability to utilize net operating loss carryforwards and tax planning opportunities available to us in the various jurisdictions in which we operate. The estimated annual effective income tax rate also includes our best estimate of the ultimate outcome of income tax audits.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(2) Summary of Significant Accounting Policies (Continued)

We use the asset and liability method of accounting for the recognition of deferred income taxes. Under the asset and liability method, we recognize deferred tax assets and liabilities in connection with the tax effects of temporary differences between our financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carrybacks and carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income or loss in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect of a change in tax rates on deferred tax assets and liabilities as tax expense (benefit) in the period that includes the enactment date. We establish a deferred tax asset valuation allowance if we consider it more likely than not that all or a portion of the deferred tax assets will not be realized. We recognize the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We also record interest related to unrecognized tax benefits in income tax expense. Penalties would be recognized as a component of income tax expense in the period in which the minimum statutory threshold is exceeded.

(m)

Net Income (Loss) Per Share

We compute basic net income or loss per share by dividing net income or loss by the weighted-average number of shares outstanding. We compute diluted net income or loss per share by dividing net income or loss by the sum of the weighted-average number of shares determined for the basic earnings per common share computation and the number of common stock equivalents that would have a dilutive effect. To the extent that there is a net loss, we assume all common stock equivalents to be anti-dilutive, and they are excluded from diluted weighted-average shares outstanding. We determine common stock equivalent shares outstanding in accordance with the treasury stock method.

When we have a discontinued operation, we use income or loss from continuing operations as the control number in determining whether common stock equivalents are dilutive or anti-dilutive. That is, the same number of common stock equivalents used in computing the diluted per-share amount for income or loss from continuing operations is used in computing all other reported diluted per-share amounts even if those amounts will be anti-dilutive to their respective basic per-share amounts.

(n)

Stock-based Compensation

We record compensation expense equal to the estimated fair value on the grant date of stock options granted to purchase common stock, on a straight-line basis over the options’ service period. We record compensation expense for equity-based awards other than options based on the timing of vesting and the grant date fair value.

We use the Black-Scholes option pricing model to determine the fair value of any option granted. The fair value of any equity-based award other than an option, such as a restricted stock unit (RSU), is based on the price of FMD common stock on the date of grant.

(o)

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as all changes in equity, except for those resulting from transactions with stockholders. Net income (loss) is a component of comprehensive income (loss), with all other components referred to in the aggregate as other comprehensive income (loss).

(p)

Cash Flows

For purposes of reporting cash flows, cash and cash equivalents include money market funds and deposits due from banks.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(2) Summary of Significant Accounting Policies (Continued)

(q)

Discontinued Operations

A discontinued operation is a component of an entity that either has been disposed of, or that is classified as held-for-sale, and (1) whose operations and cash flows have been or will be eliminated from the ongoing operations of the entity in the disposal transaction and (2) whose operations will not have significant continuing involvement with the ongoing entity after the disposal transaction. The financial information of a discontinued operation is excluded from the respective captions in our consolidated financial statements and related notes for all fiscal years presented.

(r)

Recently Issued Accounting Pronouncements

ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11), is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. ASU 2013-11 requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss (NOL) carryforward, a similar tax loss or tax credit carryforward, rather than as a liability when (1) the uncertain tax position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction and (2) the entity intends to use the deferred tax asset for that purpose. The adoption of ASU 2013-11 did not have an impact on our consolidated financial statements.

ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08), is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted, but only for disposals (or classifications as held-for-sale) that have not been reported in the financial statements previously issued or available for issuance. ASU 2014-08 elevates the threshold for a disposal transaction to qualify as a discontinued operation. Under ASU 2014-08, only those disposals of components of an entity that represent a strategic shift that has or will have a major effect on an entity’s operations and financial results will be required to be reported as discontinued operations in the financial statements. Further, ASU 2014-08 expands disclosure requirements for transactions that meet the definition of a discontinued operation and requires entities to disclose information about individually significant components that are disposed of or held-for-sale and do not qualify as discontinued operations. We have not early adopted ASU 2014-08 nor do we expect the adoption to have a material impact on our consolidated financial statements.

ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those reporting periods. Early adoption is not permitted. ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The impact of ASU 2014-09 on our consolidated financial statements is not yet known. On April 29, 2015, the Financial Accounting Standards Board (FASB) issued for public comment a proposed ASU that would defer the effective date of this new revenue recognition standard by one year. On July 9, 2015, the FASB affirmed its proposal to defer the effective date of the new revenue standard for all entities by one year. The ASU, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, will permit public organizations to apply the new revenue standard to annual reporting periods beginning after December 15, 2017 (that is, beginning in the first interim period within the year of adoption). Additionally, the ASU will permit organizations to adopt the new revenue standard early, but not before the original public organization effective date (that is, annual reporting periods beginning after December 15, 2016).

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(2) Summary of Significant Accounting Policies (Continued)

ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) (ASU 2014-15), is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, ASU 2014-15 provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014-15 also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The adoption of ASU 2014-15 may result in additional disclosures in our consolidated financial statements in future periods depending on management’s assessment as to our ability to continue as a going concern.

ASU 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (ASU 2015-01), is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity may also apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. ASU 2015-01 eliminates the concept of extraordinary items and expands the presentation and disclosure guidance for items that are unusual in nature or occur infrequently to include items that are both unusual in nature and infrequently occurring. We do not expect the adoption of ASU 2015-01 to have a material impact on our consolidated financial statements.

ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (ASU 2015-02), is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. A reporting entity may apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively. Early adoption is permitted. ASU 2015-02 changes the way reporting entities evaluate whether (1) they should consolidate limited partnerships and similar entities, (2) fees paid to a decision maker or service provider are variable interests in a VIE, and (3) variable interests in a VIE held by related parties of the reporting entity require the reporting entity to consolidate the VIE. ASU 2015-02 also eliminates the VIE consolidation model based on majority exposure to variability that applied to certain investment companies and similar entities. We do not expect the adoption of ASU 2015-02 to have a material impact on our consolidated financial statements.

We do not expect any other recently issued, but not yet effective, accounting pronouncements to have a material impact on our consolidated financial statements.

(3) Discontinued Operations

In May 2014, the Union Federal Board of Directors and the FMD Board of Directors each approved the dissolution of Union Federal and authorized Union Federal to prepare a plan of voluntary dissolution, which plan required the approval of the Union Federal Board of Directors, the Office of the Comptroller of the Currency (OCC) and FMD, as the sole stockholder of Union Federal. In December 2014, the Union Federal Board of Directors, the FMD Board of Directors and FMD, as the sole stockholder of Union Federal, each approved the plan of voluntary dissolution and Union Federal submitted a dissolution application to the OCC for approval. On April 24, 2015, the OCC notified Union Federal that it had conditionally approved the dissolution application, subject to certain consummation requirements and conditions set forth in the OCC’s notification. On June 12, 2015, the OCC confirmed that Union Federal paid a liquidating distribution in the form of a $21.7 million net

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(3) Discontinued Operations (Continued)

cash dividend to FMD and the OCC approved the dissolution of Union Federal and terminated Union Federal’s charter. On June 30, 2015, the Board of Governors of the Federal Reserve System terminated FMD’s status as a savings and loan holding company.

We evaluated the dissolution of Union Federal in accordance with ASC 205-20, Presentation of Financial Statements—Discontinued Operations. Based on the evaluation performed, we concluded that Union Federal met each of the criterion required for classification as a discontinued operation. Specifically, we concluded that (1) Union Federal qualified as a component of an entity, as its operations and cash flows can clearly be distinguished from the rest of FMD, (2) the operations and cash flows of Union Federal would be eliminated from the ongoing operations of FMD subsequent to the dissolution and (3) there would be no continuing involvement of FMD in the operations of Union Federal subsequent to the dissolution.

As a result of the foregoing, we reported the operations and activities relating to Union Federal within discontinued operations for fiscal 2015, fiscal 2014 and fiscal 2013. Assets and liabilities related to these operations have been segregated and reported as assets and liabilities from discontinued operations on our consolidated balance sheets.

Assets and liabilities

The assets and liabilities of Union Federal classified as discontinued operations on our consolidated balance sheets, after the effect of elimination entries, are presented below:


	June 30, 2015		June 30, 2014
	(dollars in thousands)
Assets:
Cash and cash equivalents	$	—	$	86,394
Investments available-for-sale		—		62,309
Education loans held-for-sale		—		21,944
Mortgage loans held-for-sale		—		16,371
Other assets		—		1,788

Total assets	$	—	$	188,806

Liabilities:
Deposits	$	—	$	161,067
Other liabilities		—		1,760

Total liabilities	$	—	$	162,827

Investments available-for-sale As of June 30, 2014, investments available-for-sale were principally comprised of mortgage-backed securities issued by government-sponsored enterprises and U.S. government agencies and were recorded at fair value. During fiscal 2015, Union Federal liquidated its investment portfolio primarily through a series of sale transactions. In conjunction with the sale transactions, Union Federal received $54.5 million in sales proceeds and derecognized approximately $54.3 million of investments available-for-sale from its consolidated balance sheet.

Education loans held-for-sale During fiscal 2015, Union Federal sold the majority of its education loan portfolio through a series of sale transactions with third party buyers. In conjunction with these sale transactions, Union Federal received $20.7 million in aggregate sales proceeds and derecognized approximately $20.4 million of education loans and accrued interest from its consolidated balance sheet. A small portfolio of education loans remained after these transactions, which were sold by Union Federal to an indirect subsidiary of FMD in June 2015.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(3) Discontinued Operations (Continued)

Mortgage loans held-for-sale During fiscal 2015, Union Federal sold the majority of its mortgage loan portfolio in a transaction with a third party buyer. A small portfolio of mortgage loans remained after this transaction, which were sold by Union Federal to FMD in June 2015. In conjunction with these sale transactions, Union Federal received $14.7 million in aggregate sales proceeds and derecognized approximately $14.8 million of mortgage loans and accrued interest from its consolidated balance sheet.

Deposits On June 5, 2015, Union Federal sold to BofI Federal Bank (BofI) all of its Federal Deposit Insurance Corporation-insured cash deposits, including individual checking, money market savings and certificates of deposit accounts. In conjunction with the transaction, BofI received approximately $41.6 million in cash and assumed the deposits at par value with no purchase premium.

Revenues and expenses

The revenues and expenses of the discontinued operations of Union Federal presented in our consolidated statements of operations for the fiscal years ended 2015, 2014 and 2013, after the effects of elimination entries, were as follows:


	Fiscal Year Ended June 30,
	2015			2014		2013
	(dollars in thousands)
Total revenues	$	1,056		$	4,443	$	3,661
Total expenses		3,118			2,657		2,730
Total other (expense) income		(2,635	)		962		—

(Loss) income from discontinued operations, before income taxes		(4,697	)		2,748		931
Income tax expense		1			250		1

Discontinued operations, net of taxes	$	(4,698	)	$	2,498	$	930

Other (expense) income Other expense for the fiscal year ended June 30, 2015 included fair value write-downs of $2.6 million and $577 thousand on Union Federal’s education loan portfolio and mortgage loan portfolio, respectively, as well as $277 thousand in other-than-temporary impairment losses on Union Federal’s investment portfolio. In addition, other expense included $19 thousand and $48 thousand of losses recognized on sale transactions related to Union Federal’s education loan portfolio and mortgage loan portfolio, respectively. These other expense items were partially offset by other income of $845 thousand, which included $644 thousand for the reversal of a reserve for certain aged loan repurchase obligations, $145 thousand in net realized gains on securities sold and $56 thousand for a gain recognized on the sale of education loans. The net realized gains on securities sold recognized included $161 thousand of net realized gains on securities that were reclassified out of accumulated other comprehensive loss. There was no tax benefit reclassified out of accumulated other comprehensive loss as there was a full valuation allowance against the deferred tax asset.

Other income for the fiscal year ended June 30, 2014 included $2.1 million in gains recognized on the sales of portfolios of education loans to RBS Citizens, N.A., partially offset by $1.1 million in losses reclassified out of accumulated other comprehensive income. The $1.1 million reclassification adjustment represented $132 thousand in net realized losses on securities sold during the year and the remaining $970 thousand represented other-than-temporary impairment losses as we no longer had the intent and ability to hold the securities to recovery. There was no tax benefit reclassified out of accumulated other comprehensive income as there was a full valuation allowance against the corresponding deferred tax asset.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(3) Discontinued Operations (Continued)

Exit costs The table below presents a reconciliation of the beginning and ending liability balances for both severance and retention costs associated with the Union Federal’s dissolution. As of June 30, 2015, the cumulative amounts incurred for severance and retention costs were $253 thousand and $308 thousand, respectively. In addition to the severance and retention costs, there were also contract and lease termination costs of $455 thousand and $180 thousand, respectively, associated with Union Federal’s dissolution.


	Severance			Retention
	(dollars in thousands)
Balance, June 30, 2014	$	246		$	24
Additional expense incurred during the period		7			284
Payments made during the period		(20	)		(53	)
Transfer of liability to FMD		(233	)		(255	)

Balance, June 30, 2015	$	—		$	—

(4) Asset Acquisition of Cology, Inc.

On October 19, 2012, FMD’s subsidiary Cology LLC completed its acquisition of a substantial portion of the operating assets of the Cology Sellers for $4.7 million in cash and the assumption of certain liabilities. Cology LLC provides education loan processing and disbursement services to approximately 335 credit union and other lender clients. Cology LLC earns fees based primarily on the number of loan applications, loan certifications and disbursements it processes on behalf of its clients. Cology LLC does not originate education loans for its own account.

In connection with the transaction, we established a performance incentive plan that provided for payment of bonuses to eligible employees based on Cology LLC’s achievement of certain profitability targets for the periods ending June 30, 2013, 2014 and 2015. Since the achievement of these profitability targets were not achieved, we did not accrue any amounts under the performance incentive plan as of June 30, 2015.

(5) Cash and Cash Equivalents

The following table summarizes our cash and cash equivalents:


	June 30,
	2015		2014
	(dollars in thousands)
Cash equivalents (money market funds)	$	37,845	$	29,856
Certificates of deposit		5,002		—
Interest-bearing deposits with banks		1,606		2,793
Non-interest-bearing deposits with banks		2,551		1,306

Total cash and cash equivalents	$	47,004	$	33,955

(6) Short-term Investments

Short-term investments of $16.0 million at June 30, 2015 and $40.1 at million June 30, 2014 included certificates of deposit with highly-rated financial institutions, carried at cost. These certificates of deposits have a range of maturities between 1.9 months to 8.0 months.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(7) Education Loans Held-to-Maturity

We hold a small portfolio of education loans held-to-maturity totaling $772 thousand at June 30, 2015 and $838 thousand at June 30, 2014, which was transferred by Union Federal to an indirect subsidiary of FMD in 2009, prior to the launch of our Monogram platform. These loans were fully reserved for at June 30, 2015 and June 30, 2014.

(8) Education Loans Held-for-Sale

We hold a small portfolio of education loans held-for-sale totaling $252 thousand at June 30, 2015, which were sold by Union Federal to an indirect subsidiary of FMD in June 2015, as part of Union Federal’s dissolution. This portfolio was classified within other assets on the consolidated balance sheet at June 30, 2015.

(9) Deposits for Participation Interest Accounts

In connection with certain of our lender clients’ Monogram-based loan programs, we have provided credit enhancements by funding participation accounts to serve as a first-loss reserve for defaulted program loans. We have made deposits toward our credit enhancement arrangements and agreed to provide periodic supplemental deposits, up to specified limits, during the disbursement periods under our loan program agreements based on the credit mix and volume of disbursed program loans and adjustments to default projections for program loans.

Participation accounts serve as a first-loss reserve to the originating lenders for defaults experienced in Monogram-based loan program portfolios. As defaults occur, our lender clients withdraw the outstanding balance of defaulted principal and interest from the participation account applicable to their respective programs. As amounts are recovered from borrowers, those amounts are deposited back into the appropriate participation account, if applicable. Legal ownership of the defaulted education loan may be transferred to us or continue to be owned by the lender client, depending on the terms of the loan program agreement. Defaulted education loans transferred to us are immediately charged-off and the recoveries are deposited back to the applicable participation account regardless of our ownership of the education loan.

Cash balances in the participation accounts earn interest at market rates applicable to commercial interest-bearing deposit accounts at each program lender. In addition, participation account administration fees are deposited directly by our lender clients into the applicable participation accounts. These fees represent compensation to us for providing the credit enhancement, and are distributed from the participation accounts to us monthly and are not eligible to be used as credit enhancement. Interest and fees deposited into the participation accounts are not recognized as revenue in our consolidated statements of operations. Instead, accretion due to discounting and other changes in fair value are recognized in revenue.

To the extent that the credit enhancement balance in participation accounts is in excess of contractually required amounts, as a result of declining loan balances, or if actual loan volumes or default experience are less than our funded amounts, we are eligible to receive periodic releases of funds, in addition to the monthly participation account administration fee, pursuant to the terms of the applicable loan program agreement. The timing and amount of releases, if any, from the participation accounts are uncertain and vary among the loan programs.

We carry deposits for participation accounts at fair value on our consolidated balance sheets. Fair value is equal to the amount of cash on deposit in the participation account adjusted for unrealized gains or losses. Due to the lack of availability of market prices for financial instruments of this type, we estimate unrealized gains and losses related to the participation accounts based on the net present value of expected future cash flows into and out of the participation account related to education loans originated as of our consolidated balance sheet dates,

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(9) Deposits for Participation Interest Accounts (Continued)

using an estimate of prepayments, defaults and recoveries, and the timing of the return of our capital, if any, at a discount rate commensurate with the risks and durations involved. We record changes in the estimated fair value of participation accounts, if any, in revenues as part of administrative and other fees.

The following table presents detailed activity related to our participation accounts for the fiscal years ended June 30, 2015 and 2014:


	Fiscal Year Ended June 30, 2015			Fiscal Year Ended June 30, 2014
Balance, beginning of period	$	15,834		$	13,147
Net fundings		3,549			3,075
Defaults		(828	)		(385	)
Recoveries		107			19
Interest earned/other		212			67
Fair value adjustment		(998	)		(89	)

Balance, end of period	$	17,876		$	15,834

The amount of participation account administration fees paid into the participation accounts and subsequently withdrawn by FMD during the fiscal years ended June 30, 2015 and 2014 was $2.8 million and $2.7 million, respectively.

Under three of our Monogram-based loan program agreements, FMD provides an amount of first-loss credit enhancement, funded upfront into a participation account by FMD, based on the loans originated and the expected lifetime gross defaults of the loans agreed to by the parties under the applicable loan program agreement. The maximum amount of credit exposure related to our first-loss credit enhancement arrangements is equal to the cash value or the amount on deposit in the participation account. As of June 30, 2015 and 2014, the aggregate amount of our funded first-loss credit enhancement was $18.5 million and $15.7 million, respectively.

(10) Fair Value Measurements

(a)

Financial Instruments Recorded at Fair Value on our Consolidated Balance Sheets

For financial instruments recorded at fair value on our consolidated balance sheets, we base that financial instrument’s categorization within the valuation hierarchy upon the lowest level of input that is significant to the fair value measurement.

The following is a description of the valuation methodologies used for financial instruments recorded at fair value on our consolidated balance sheets:

Deposits for Participation Interest Accounts

We record deposits for participation accounts at fair value using cash flow modeling techniques as they do not have available market prices. As such, we estimate fair value using the net present value of expected future cash flows. At both June 30, 2015 and June 30, 2014, the fair value of deposits for participation accounts was not materially different from the cash balance of the underlying interest-bearing deposits. These assets are classified within Level 3 of the valuation hierarchy. Our significant observable and unobservable inputs are discussed below.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(10) Fair Value Measurements (Continued)

Service Revenue Receivables

We record our service revenue receivables at fair value on our consolidated balance sheets. Our service revenue receivables consist of additional structural advisory fees and residual receivables and represent the estimated fair value of our service revenue receivables expected to be collected over the life of the various securitization trusts that have purchased education loans facilitated by us, with no further service obligations on our part. Changes in the estimated fair value of our service revenue receivables due, less any cash distributions received, are recorded in our consolidated statements of operations within fair value changes to service revenue receivables. In the absence of market-based transactions, we use cash flow modeling techniques to derive a Level 3 estimate of fair value for financial reporting purposes. Our significant observable and unobservable inputs are discussed below.

The following table presents financial instruments carried at fair value on our consolidated balance sheets, in accordance with the valuation hierarchy described above, on a recurring basis. There have been no transfers in or out of Level 3 of the hierarchy, or between Levels 1 and 2, for the years presented.


	June 30,
	2015								2014
	Level 1		Level 2		Level 3		Total carrying value		Level 1		Level 2		Level 3		Total carrying value
	(dollars in thousands)
Assets:
Deposits for participation interest accounts	$	—	$	—	$	17,876	$	17,876	$	—	$	—	$	15,834	$	15,834
Service revenue receivables		—		—		12,151		12,151		—		—		13,979		13,979

Total assets	$	—	$	—	$	30,027	$	30,027	$	—	$	—	$	29,813	$	29,813

The following table presents activity related to our financial assets categorized as Level 3 of the valuation hierarchy, valued on a recurring basis, for fiscal 2015 and fiscal 2014. All realized and unrealized gains and losses recorded during the years presented relate to assets still held at our consolidated balance sheet dates.


	Fiscal years ended June 30,
	2015						2014
	Deposits for participation interest accounts			Service revenue receivables			Deposits for participation interest accounts			Service revenue receivables
	(dollars in thousands)
Fair value, beginning of year	$	15,834		$	13,979		$	13,147		$	14,817
Realized and unrealized (losses) gains		(1,695	)		1,859			(455	)		2,330
Net contributions (distributions)		3,737			(3,687	)		3,142			(3,168	)

Fair value, end of year	$	17,876		$	12,151		$	15,834		$	13,979

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(10) Fair Value Measurements (Continued)

The following table presents additional quantitative information about the assets recorded at fair value on a recurring basis for which we have utilized Level 3 inputs to determine fair value at June 30, 2015:


Asset	Fair Value		Valuation Techniques	Significant Unobservable Inputs	Range
	(dollars in thousands)
Deposits for participation interest accounts	$	17,876	Discounted cash flows	Discount rate		8-15	%
				Annual prepayment rates		5.75-15.0	%
				Annual net recovery rates		2.67	%
				Annual default rates		0-2.5	%

Service revenue receivables	$	12,151	Discounted cash flows	Discount rate		10-16	%
				Annual prepayment rates		3-9	%
				Annual net recovery rates		2-2.5	%
				Annual default rates		1-10	%

(b)

Level 3 Inputs Used to Determine Fair Value

The unobservable inputs used to determine the fair value of our service revenue receivables and deposits for participation accounts include, but are not limited to, discount rates, prepayment rates, net recovery rates and default rates. The forward London Interbank Offered Rate (LIBOR) curve is a key observable input utilized in determining the fair value of expected future cash flows from these assets. While there was some change in the LIBOR curve from June 30, 2014, the change did not have a material impact on the fair value of our service revenue receivables or deposits for participation accounts. There have been no other significant changes in these inputs from June 30, 2014.

Sensitivity to Changes in Assumptions

The service revenue receivables recorded at June 30, 2015 and June 30, 2014 were related to certain of the securitization trusts we previously facilitated. Substantially all of the education loans held by these securitization trusts have guarantees from schools, and, in some cases, from a third-party bank. These guarantees help to partially mitigate the overall impact of defaults and sensitivity to changes in default activity to the residual interest and additional structural advisory fee holders. In addition, the recoveries on guaranteed defaults are returned back to the schools or banks, as applicable, not the residual interest and additional structural advisory fee holders, therefore, limiting the impact and sensitivity of the holders to recoveries. Further, due to the seasoning of these trusts, many of the residual interests and additional structural advisory fees have relatively short weighted-average lives and are currently cash-flowing, and, as such, are not significantly impacted by other assumptions, such as discount rates.

The fair value of our deposits for participation accounts may be impacted by changes in prepayment rates, net default rates, the forward LIBOR curve and the timing of capital releases, if any.

(c)

Fair Values of Other Financial Instruments

Fair value estimates for financial instruments not carried at fair value on our consolidated balance sheets are generally subjective in nature, and are made as of a specific point in time based on the characteristics of the financial instruments and relevant market information. The fair value estimates for the financial instruments disclosed below do not necessarily incorporate the exit price concept used to record financial instruments at fair value.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(10) Fair Value Measurements (Continued)

The following tables present the carrying amount, estimated fair value and placement in the fair value hierarchy for our financial instruments not recorded at fair value on our consolidated balance sheets at June 30, 2015 and June 30, 2014. The carrying amount for these instruments approximates fair value principally due to their short maturities.


June 30, 2015	Carrying Amount		Estimated Fair Value		Fair Value Measurements
June 30, 2015	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	47,004	$	47,004	$	47,004	$	—	$	—
Short-term investments		16,002		16,002		16,002		—		—
Restricted cash		96,964		96,964		96,964		—		—
Financial Liabilities:
Restricted funds due to clients	$	96,854	$	96,854	$	96,854	$	—	$	—


June 30, 2014	Carrying Amount		Estimated Fair Value		Fair Value Measurements
June 30, 2014	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	33,955	$	33,955	$	33,955	$	—	$	—
Short-term investments		40,057		40,057		40,057		—		—
Restricted cash		94,436		94,436		94,436		—		—
Financial Liabilities:
Restricted funds due to clients	$	94,272	$	94,272	$	94,272	$	—	$	—

(11) Goodwill and Intangible Assets

(a)

Cology LLC

Cology LLC completed its acquisition of a substantial portion of the operating assets of the Cology Sellers during fiscal 2013. We recorded a customer list intangible asset of $5.7 million for the approximately 250 credit union and other lender clients that the Cology Sellers did business with as of the acquisition date along with $518 thousand of goodwill. The customer list intangible asset is being amortized over a 15-year period on a straight line basis. Amortization expense related to the intangible asset is approximately $377 thousand per year. We expect amortization of the intangible asset and goodwill to be fully deductible for income tax purposes over a 15-year period. We recorded no goodwill or intangible asset impairment through June 30, 2015.

(b)

TMS

We completed our acquisition of TMS during fiscal 2011. We recorded goodwill of $22.2 million at the acquisition date. We also recorded intangible assets for the customer list acquired, certain technology necessary to support the customer relationships and the value of the TMS tradename. On June 30, 2011, TMS sold a portfolio of K-12 school contracts to Nelnet Business Solutions, Inc. in a transaction that eliminated $2.6 million of goodwill and decreased its customer list intangible asset by $4.1 million. As a result, $19.5 million of goodwill remained at June 30, 2015 and 2014 and the adjusted cost basis of TMS’ customer list intangible was $17.9 million. The technology and tradename have a cost basis of $3.7 million and $2.0 million, respectively. The customer list and tradename intangible assets are being amortized over a 15-year period on a straight line basis. The technology intangible asset is being amortized over a six year period on a straight line basis. Amortization

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(11) Goodwill and Intangible Assets (Continued)

expense related to the customer list and tradename intangible assets is approximately $1.3 million per year. Amortization expense related to the technology intangible asset is approximately $608 thousand per year. We expect amortization of the intangible assets and goodwill to be fully deductible for income tax purposes over a 15-year period. We recorded no goodwill or intangible asset impairment through June 30, 2015.

(c)

Impairment Review of Goodwill

In fiscal 2015, we evaluated our goodwill for impairment on May 31, 2015, which is our annual impairment testing date, and concluded that the fair market value of the TMS and Cology LLC reporting units were in excess of our recorded book value and, therefore, were not impaired as of that date. In determining whether impairment exits, we assess impairment at the level of the TMS and Cology LLC reporting units. There have been no indicators of impairment since that date.

(d)

Intangible Assets

Intangible assets at June 30, 2015 include the following:


	Amortization period		Adjusted cost basis		Accumulated amortization			Net
	(in years)		(dollars in thousands)
Intangible assets:
Customer lists		15	$	23,600	$	(6,421	)	$	17,179
Technology		6		3,650		(2,737	)		913
Tradename		15		1,950		(585	)		1,365

Total intangible assets at June 30, 2015			$	29,200	$	(9,743	)	$	19,457

Amortization expense recorded during the fiscal years ended June 30, 2015 and 2014 was $2.3 million and $2.4 million, respectively.

Estimated annual amortization expense for each of the fiscal years subsequent to June 30, 2015 and thereafter is as follows:


	Customer lists		Technology		Tradename		Total
	(dollars in thousands)
Estimated amortization expense:
2016	$	1,573	$	608	$	130	$	2,311
2017		1,573		305		130		2,008
2018		1,573		—		130		1,703
2019		1,573		—		130		1,703
2020		1,573		—		130		1,703
Thereafter		9,314		—		715		10,029

Total	$	17,179	$	913	$	1,365	$	19,457

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(12) Property and Equipment

Property and equipment is recorded at cost less accumulated depreciation and amortization. We calculate depreciation and amortization for financial reporting purposes using the straight line method over the estimated useful life of the asset.


	June 30,
	2015			2014			Useful life
	(dollars in thousands)
Equipment	$	13,904		$	13,725		3-5 years
Software		43,713			41,557		3 years
Software under development		3			343
Leasehold improvements		12,248			11,840		lesser of 5 years or lease term
Capital leases (equipment, furniture and fixtures)		17,463			17,463		lesser of 3-5 years or lease term
Furniture and fixtures		2,717			2,706		5 years

		90,048			87,634
Less accumulated depreciation and amortization		(84,789	)		(81,815	)

Total property and equipment, net	$	5,259		$	5,819

(13) Restricted Funds Due to Clients

As part of our operations, we have cash that is recorded as restricted cash on our consolidated balance sheets because it is deposited with third-party institutions and not available for our use. Included in restricted cash on our consolidated balance sheets are tuition payments due to schools, undisbursed loan origination proceeds and recoveries on defaulted education loans. We record a liability on our consolidated balance sheets representing tuition payments due to our TMS clients, loan origination proceeds due to our Cology LLC clients and recoveries on defaulted education loans and education loan proceeds due to schools.

(14) Commitments and Contingencies

(a)

Income Tax Matters

Internal Revenue Service Audit

Effective March 31, 2009, we completed the sale of the trust certificate of NC Residuals Owners Trust (the Trust Certificate). In connection with the sale of the Trust Certificate, FMD entered into an asset services agreement (the Asset Services Agreement) pursuant to which FMD provided various consulting and advisory services to the purchaser of the Trust Certificate. As a result of the sale of the Trust Certificate, as well as our operating losses incurred in fiscal 2009, we recorded an income tax receivable for federal income taxes paid on taxable income in prior fiscal years. In fiscal 2010, we received a total of $189.3 million in federal and state income tax refunds related to our income tax receivables. Furthermore, we received a federal income tax refund of $45.1 million in October 2010 related to the operating losses in fiscal 2010, which we applied to taxable income from fiscal 2008. In April 2010, the Internal Revenue Service (IRS) commenced an audit of our tax returns for fiscal 2007 through fiscal 2009, including a review of the tax treatment of the sale of the Trust Certificate and the federal tax refund previously received in the amount of $176.6 million. Such audits are required by the Internal Revenue Code. The IRS also commenced an audit of our fiscal 2010 tax return in light of the $45.1 million income tax refund that we received in October 2010.

On September 10, 2013 we received two Notices of Proposed Adjustment (NOPAs) from the IRS. In the NOPAs, the IRS asserted that our sale of the Trust Certificate should not be recognized for federal income tax

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(14) Commitments and Contingencies (Continued)

purposes primarily because we retained the economic benefits and burdens of the Trust Certificate, including, among other things, retaining certain repurchase rights and data rights. The IRS further concluded that the transaction should be characterized as a financing instead of a sale and asserted that the sale of the Trust Certificate and the execution of the Asset Services Agreement had the impact of converting taxable income to the owner from an accrual basis to a cash basis. As a result, the NOPAs proposed to disallow the loss that generated the tax refunds that we previously received as well as require us to include income from the Trust Certificate from the March 31, 2009 sale date through June 30, 2011 in our taxable income for such years.

Massachusetts Appellate Tax Board Matters

GATE Holdings, Inc. Taxable Years Ended June 30, 2004, 2005 and 2006

We are involved in several matters relating to the Massachusetts tax treatment of GATE Holdings, Inc. (GATE), a former subsidiary of FMD. On November 9, 2011, the Massachusetts Appellate Tax Board (ATB) issued an order (ATB Order) regarding these proceedings. On January 28, 2015, the Massachusetts Supreme Judicial Court (SJC) issued its opinion in these proceedings and affirmed the decision of the ATB. We were not required to make any payments to the Massachusetts Department of Revenue for GATE’s taxable years ended June 30, 2004, 2005 and 2006 at that time as we had made a $5.1 million payment to the Massachusetts Department of Revenue in the third quarter of fiscal 2012 that satisfied our obligations for those tax years. In affirming the ATB, the SJC’s opinion interpreted the controlling statute in a manner that is inconsistent with the ATB’s interpretation, as well as the interpretations advocated by both GATE and the Massachusetts Commissioner of Revenue (Commissioner) in their briefs. We believe the SJC’s statutory analysis is incorrect. On February 11, 2015, we filed a petition for rehearing on this matter with the SJC, which was denied by the SJC on March 2, 2015. On May 31, 2015, we filed a petition for a writ of certiorari with the Supreme Court of the United States.

Background

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(14) Commitments and Contingencies (Continued)

of the two assessments made by the Commissioner would ultimately be allowed. In March 2010, we filed petitions with the ATB contesting the additional assessments against GATE and us.

On November 9, 2011, the ATB issued the ATB Order regarding these proceedings. The ATB Order reflected the following rulings and findings:

•

GATE was properly taxable as a financial institution, rather than a business corporation, for each of the tax years at issue;

•

GATE was entitled to apportion its income under applicable provisions of Massachusetts tax law for each of the tax years at issue;

•

GATE properly calculated one of the two applicable apportionment factors used to calculate GATE’s financial institution excise tax;

•

All penalties assessed to FMD and GATE were abated.

On April 17, 2013, the ATB issued its opinion confirming the rulings and findings included in the ATB Order. On July 22, 2013, we filed an appeal of the ATB’s findings with regard to the Property Factor in the Massachusetts Appeals Court. On December 18, 2013, the SJC notified us that it had elected to hear our appeal of the ATB’s findings and heard arguments on the appeal on October 7, 2014. On January 28, 2015, the SJC issued its opinion affirming the decision of the ATB.

GATE’s Taxable Years Ended June 30, 2008 and 2009

On August 6, 2013, the Massachusetts Department of Revenue delivered a notice of assessment for our taxable years ended June 30, 2008 and 2009, which included an assessment for penalties of $4.1 million. We have not accrued for the penalties as we believe that it is more likely than not that the penalties will ultimately be abated, which is consistent with the Massachusetts Department of Revenue’s treatment of GATE’s taxable years ended June 30, 2004, 2005 and 2006. On August 26, 2013, we filed an application to have the assessed amounts abated in full. On March 26, 2014, the Massachusetts Department of Revenue denied our application. While we have filed an appeal on this matter with the ATB, it is on hold pending resolution of the petition for a writ of certiorari we filed with the Supreme Court of the United States on May 31, 2015 related to GATE’s taxable years ended June 30, 2004, 2005 and 2006. The SJC’s opinion in the cases related to GATE’s taxable years ended June 30, 2004, 2005 and 2006 may influence the outcome of our appeal for the taxable years ended June 30, 2008 and 2009.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(14) Commitments and Contingencies (Continued)

taxable years ended June 30, 2008 and 2009. As of June 30, 2015, the range of potential change in our liability, excluding an assessment for penalties, was $0 to $26.6 million.

(b)

NC Residuals Owners Trust Litigation

On April 2, 2014, FMD filed a complaint in the Delaware Court of Chancery (Chancery Court) against NC Residuals Owners Trust (NC Residuals) and The Wilmington Trust Company in its capacity as owner trustee (the Owner Trustee) of certain of the securitization trusts that we previously facilitated (the GATE Trusts). The action is entitled The First Marblehead Corporation v. NC Residuals Owners Trust, et. al., C.A. No. 9500-VCN.

GATE, a former subsidiary of FMD, was the owner of certain beneficial interests in the GATE Trusts as well as certain beneficial interests in certain of the other securitization trusts that we previously facilitated (the NCSLT Trusts). GATE assigned and transferred all of its interests in the GATE Trusts to FMD pursuant to a transfer and assignment agreement. As part of that agreement, GATE agreed to, among other things, execute and deliver all documents that might be necessary to transfer, assign and deliver to and vest in FMD ownership of the GATE Trusts on the records of the Owner Trustee. After the transfer of its interests in the GATE Trusts to FMD, GATE’s remaining assets consisted of its interests in the NCSLT Trusts and it was statutorily converted into NC Residuals and, immediately thereafter, the Trust Certificate was sold.

(c)

Operating Leases

We lease office space and equipment under non-cancelable operating leases expiring at various times through March 2017. Rent expense under operating leases from continuing operations for fiscal 2015, fiscal 2014 and fiscal 2013 was approximately $3.6 million, $4.2 million and $4.2 million, respectively.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(14) Commitments and Contingencies (Continued)

The future minimum office space lease payments required under operating leases for each of the succeeding fiscal years subsequent to June 30, 2015 are as follows:


Fiscal years ending June 30,	Lease obligations
	(dollars in thousands)
2016	$	2,620
2017		1,916
2018 and thereafter		—

Total minimum lease payments	$	4,536

We are entitled to receive approximately $605 thousand under non-cancelable subleases of office space through fiscal 2017.

(d)

TMS Guarantee Payments

TMS is subject to guarantee arrangements with certain educational institutions for a portion of eligible monthly education payment plans. We record a liability for those guarantee arrangements, which is included in other liabilities on the June 30, 2015 consolidated balance sheet. The liability pertaining to the guarantee arrangement was approximately $210 thousand at June 30, 2015. We also record a bad debt expense if it is probable that a loss will result and the amount of the loss can be reasonably estimated, which is included as a miscellaneous expense in general and administrative expenses on the fiscal 2015 consolidated statement of operations. We recorded approximately $85 thousand in bad debt expense related to the guarantee arrangements for fiscal 2015. Although we believe that our estimate related to TMS’ guarantee arrangements are reasonable, we cannot make any assurances with regard to the accuracy of our estimates, and actual results could differ materially.

(e)

Cology LLC Contingent Liability

Under certain of Cology LLC’s loan origination agreements, it has agreed to indemnify those lender clients for certain claims and damages in connection with its performance under such agreements. As of June 30, 2015, we recorded a liability of $350 thousand, which is included in other liabilities on our consolidated balance sheet, with a corresponding contingent loss included in general and administrative expenses on our consolidated statement of operations. Based on the information obtained, combined with management’s judgment regarding all of the facts and circumstances of the matter, we determined that a contingent loss is probable and that the amount of such loss can be estimated, ranging from approximately $13 thousand to $420 thousand. In determining the range and amount of the contingent loss, we took into consideration advice received from our external counsel, who has extensive experience in the specific matter, as well as other factors. Should the judgments and estimates made by management be incorrect, we may need to record additional contingent losses that could materially adversely impact our results of operations. Alternatively, if the judgments and estimates made by management are incorrect and the contingent loss does not occur, the contingent loss recorded would be reversed thereby favorably impacting our results of operations.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(15) Net Interest Income

The following table reflects the components of net interest income, presented within other income on our consolidated statements of operations:


	Fiscal years ended June 30,
	2015		2014		2013
	(dollars in thousands)
Interest income:
Cash and cash equivalents	$	32	$	37	$	98
Short-term investments		47		176		337
Restricted cash		17		14		38
Education loan interest income		1		—		—

Total interest income		97		227		473
Interest expense:
Lease obligations		5		25		124

Total interest expense		5		25		124

Net interest income	$	92	$	202	$	349

(16) Other Income

During fiscal 2015, we recorded other income of $295 thousand, consisting of $281 thousand in proceeds from the TERI settlement, discussed below, and $77 thousand in cash recoveries on previously defaulted education loans held by FMD. These other income items were partially offset by a $63 thousand loss recognized on a sale of mortgage loans, which were acquired by FMD from Union Federal as part of the dissolution of Union Federal and subsequently sold to a third party prior to June 30, 2015.

The Education Resources Institute, Inc. (TERI) was a private, not-for-profit Massachusetts organization. In its role as guarantor in the education lending market, TERI previously agreed to reimburse many of the securitization trusts we facilitated for unpaid principal and interest on defaulted education loans. In April 2008, TERI filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code (the TERI Reorganization). As a result of the TERI Reorganization, the securitization trusts facilitated by us have not been able to fully realize TERI’s guarantee obligations. Under TERI’s confirmed plan of reorganization, which became effective in November 2010, general unsecured creditors of TERI, including us, are entitled to receive a pro rata share of cash and future recoveries or other proceeds in respect of a portfolio of defaulted education loans held by a liquidating trust. In addition, FMD and certain subsidiaries entered into a stipulation with TERI and the Official Committee of Unsecured Creditors of TERI that became effective in October 2010 that resolved all claims and controversies among the parties to the agreement. The proceeds from the TERI settlement represented cash distributions from the liquidating trust under TERI’s confirmed plan of reorganization.

During fiscal 2013, we recorded other income of $2.1 million, consisting of $702 thousand in proceeds from the TERI settlement, $946 thousand related to the sale of a defaulted education loan portfolio, which was transferred by Union Federal to an indirect subsidiary of FMD in 2009, and $464 thousand in cash recoveries on previously defaulted education loans held by FMD.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(17) General and Administrative Expenses

The following table reflects the components of general and administrative expenses:


	Fiscal years ended June 30,
	2015		2014		2013
	(dollars in thousands)
General and administrative expenses:
Third-party services	$	13,457	$	14,689	$	14,651
Depreciation and amortization		5,286		5,288		4,347
Marketing		2,097		1,799		5,123
Occupancy and equipment		9,988		10,856		11,379
Servicer fees		3		278		650
Merchant fees		8,818		7,773		6,663
Trust related special servicing expenses		—		—		1,639
Other		12,630		6,946		7,498

Total	$	52,279	$	47,629	$	51,950

The largest component of general and administrative expenses was third-party services, which primarily consisted of legal fees in support of ongoing litigation as well as outside consultant and temporary employment costs. Included in other expenses in fiscal 2015, fiscal 2014 and fiscal 2013 were fees of $1.2 million, $1.1 million and $1.2 million, respectively, paid to Sextant Holdings, LLC (Sextant) under a time-sharing agreement for business-related use of a private aircraft. Under the time sharing agreement, the fees may not exceed the actual expense of each specific flight as authorized by federal aviation regulations. In addition to the time sharing agreement, the FMD Board of Directors approved 75 hours of flight time for personal flight reimbursement each fiscal year. The reimbursement for personal travel time was $488 thousand for fiscal 2015, $522 thousand for fiscal 2014 and $400 thousand for fiscal 2013. The reimbursements for personal travel were included in compensation and benefits. The sole manager and member of Sextant is Daniel Meyers, FMD’s Chief Executive Officer and Chairman of the Board. The increase of other expenses in fiscal 2015 as compared to fiscal 2014 was principally the result of a $5.0 million legal settlement.

(18) Income Taxes

We are subject to federal income tax, as well as income tax in multiple U.S. state and local jurisdictions. Our effective income tax rate is calculated on a consolidated basis. We remain subject to federal income tax examinations for fiscal 2012 through fiscal 2014. In addition, we are involved in several matters relating to the Massachusetts tax treatment of GATE, a former subsidiary of FMD. See Note 14, “Commitments and Contingencies—Income Tax Matters,” for additional information regarding these matters.

Our state income tax returns in jurisdictions other than Massachusetts remain subject to examination for various fiscal years ended between June 30, 2011 and June 30, 2015.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(18) Income Taxes (Continued)

The following table reflects components of income tax expense attributable to loss from continuing operations before income taxes:


	Fiscal years ended June 30,
	2015		2014		2013
	(dollars in thousands)
Current:
Federal	$	—	$	—	$	—
State		675		659		1,967

Total current tax expense		675		659		1,967
Deferred:
Federal		355		361		431
State		115		105		(103	)

Total deferred tax expense		470		466		328

Income tax expense from continuing operations	$	1,145	$	1,125	$	2,295

The following table reconciles the expected federal income tax expense from continuing operations (computed by applying the federal statutory tax rate to loss before income taxes) to recorded income tax expense from continuing operations:


	Fiscal years ended June 30,
	2015			2014			2013
	(dollars in thousands)
Computed federal tax benefit	$	(14,677	)	$	(13,629	)	$	(17,091	)
State tax, net of federal benefit		514			496			1,212
Federal valuation allowance		14,548			13,022			17,393
Non-deductible compensation		895			1,134			661
Other, net		(135	)		102			120

Income tax expense from continuing operations	$	1,145		$	1,125		$	2,295

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(18) Income Taxes (Continued)

The following table reflects the tax effects of temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases that give rise to significant deferred tax assets and deferred tax liabilities:


	June 30,
	2015			2014
	(dollars in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	74,946		$	58,106
Federal benefit of unrecognized tax benefits		9,297			9,062
Depreciation and amortization		1,191			3,294
Allowance for loan losses		6,965			5,966
Amortization of deferred costs		2,296			2,720
Other, net		10,787			9,058

Gross deferred tax assets		105,482			88,206
Valuation allowance		(96,623	)		(79,911	)

Total net deferred tax asset		8,859			8,295
Deferred tax liabilities:
Additional structural advisory fees		(559	)		(774	)
Residual fees		(7,014	)		(6,063	)
Other, net		(3,413	)		(3,113	)

Total deferred tax liability		(10,986	)		(9,950	)

Net deferred tax liability	$	(2,127	)	$	(1,655	)

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	Fiscal years ended June 30,
	2015		2014		2013
	(dollars in thousands)
Beginning unrecognized tax benefits	$	20,452	$	20,452	$	19,630
Additional state tax liability recognized for the 2008 and 2009 tax years		—		—		822

Ending unrecognized tax benefits	$	20,452	$	20,452	$	20,452

Beginning accrued interest	$	5,441	$	4,787	$	3,451
Interest expense recognized		671		654		1,336

Ending accrued interest	$	6,112	$	5,441	$	4,787

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(18) Income Taxes (Continued)

The ending balance at June 30, 2015, 2014, and 2013 if recognized would favorably affect our effective income tax rate. We recognize interest and penalties in income tax expense when incurred.

(19) Net Loss per Share

The following table sets forth the computation of basic and diluted net loss per share of common stock:


	Fiscal years ended June 30,
	2015			2014			2013
	(dollars and shares in thousands, except per share amounts)
Net loss from continuing operations available and allocated to common shares outstanding	$	(43,080	)	$	(40,065	)	$	(51,127	)
(Loss) income from discontinued operations, net of taxes, available and allocated to common shares outstanding		(4,698	)		2,498			930

Net loss available and allocated to common shares outstanding	$	(47,778	)	$	(37,567	)	$	(50,197	)

Net (loss) income per basic and diluted common share:
From continuing operations	$	(3.75	)	$	(3.55	)	$	(4.77	)
From discontinued operations		(0.41	)		0.22			0.09

Total basic and diluted net loss per common share	$	(4.16	)	$	(3.33	)	$	(4.68	)

Basic and diluted weighted-average common shares outstanding		11,493			11,270			10,735

The following table presents the weighted-average shares outstanding for RSUs and stock options that were anti-dilutive, and, therefore, not included in the calculation of diluted earnings per common share:


	Fiscal years ended June 30,
	2015		2014		2013
	(in thousands)
RSUs		679		377		316
Stock options		601		603		607

(20) Stockholders’ Equity

(a)

Preferred Stock

As of June 30, 2015 and June 30, 2014, we had 20,000,000 shares of preferred stock, at a par value of $0.01 per share, authorized with no shares issued or outstanding.

(b)

2003 Employee Stock Purchase Plan

In 2003, the FMD Board of Directors and stockholders approved the 2003 employee stock purchase plan (ESPP). A total of 60,000 shares of common stock were authorized for issuance under the ESPP. The ESPP permitted eligible employees to purchase shares of FMD’s common stock at the lower of 85% of its fair market value at the beginning or at the end of each offering period. Participation was voluntary. In April 2008, the FMD

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(20) Stockholders’ Equity (Continued)

Board of Directors, which administers the ESPP, terminated the offering period that began on January 1, 2008 and indefinitely suspended the ESPP. As a result, no shares were issued under the ESPP in fiscal 2015, fiscal 2014 or fiscal 2013. At June 30, 2015, 40,555 shares were available for future purchase under the ESPP.

(c)

Treasury Stock

Treasury stock was $188.4 million (1,072,000 shares) and $187.9 million (960,000 shares) at June 30, 2015 and June 30, 2014, respectively. The increase in shares was a result of common stock withheld from employees to satisfy statutory minimum withholding obligations as equity compensation awards vest.

(21) Stock-Based Compensation

Stock-based compensation expense was $4.3 million, $4.4 million and $4.2 million for fiscal 2015, fiscal 2014 and fiscal 2013, respectively. As of June 30, 2015, there was $5.9 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of approximately two years.

(a)

Stockholder Approved Plans

We have stock awards outstanding under three stock-based incentive compensation plans, each approved by both the FMD Board of Directors and stockholders in 2002 (2002 Plan), 2003 (2003 Plan) and 2011 (2011 Plan).

Under the 2002 Plan, we granted non-statutory stock options to non-employee members of the FMD Board of Directors. In 2006, the FMD Board of Directors suspended new awards under the 2002 Plan. As of June 30, 2015, 600 shares of common stock were issuable upon exercise of awards granted under the 2002 Plan.

Under the 2003 Plan, we granted stock based awards to employees, directors and consultants. No further awards may be granted under the 2003 Plan following the stockholder approval of the 2011 Plan in November 2011; however, 15,698 shares of common stock were issuable upon the vesting of awards granted under the 2003 Plan as of June 30, 2015.

Under the 2011 Plan, the FMD Board of Directors, or one or more sub-committees of the FMD Board of Directors, may grant options, restricted stock, RSUs, or other stock based awards or performance awards to employees, directors, consultants or advisors. As of June 30, 2015, 180,608 shares were available for future grant under the 2011 Plan and 814,178 shares of common stock were issuable upon the vesting of awards granted under the 2011 Plan. We typically issue new shares of common stock as opposed to using treasury shares.

(b)

Stock Options

The following table summarizes information about stock options outstanding at June 30, 2015:


Exercise prices	Number outstanding		Weighted-average remaining contractual term (in years)		Weighted-average exercise price		Number exercisable
	(shares in thousands)
$60.00(1)		200		3.06	$	60.00		200
$120.00(1)		200		3.06		120.00		200
$160.00(1)		200		3.06		160.00		200
$190.40		1		0.22		190.40		1

$60.00 - $190.40		601		3.06		113.41		601

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(21) Stock-Based Compensation (Continued)

(1)

These options were not issued under any of our existing stockholder-approved incentive plans. The FMD Board of Directors elected Daniel Meyers as President and Chief Executive Officer and as a member of the FMD Board of Directors, effective September 1, 2008. In connection with the election, the FMD Board of Directors and a subcommittee of the Compensation Committee of the FMD Board of Directors approved the grant in August 2008 (Grant Date) of stock options to Mr. Meyers to purchase (a) 200,000 shares of FMD common stock, at an exercise price of $60.00 per share, that vested and became exercisable in full on August 18, 2012; (b) 200,000 shares of FMD common stock, at an exercise price of $120.00 per share, that vested and became exercisable in full on November 30, 2008 and (c) 200,000 shares of FMD common stock, at an exercise price of $160.00 per share, that vested and became exercisable in full on November 30, 2008. Each of the stock options will expire ten years from the Grant Date.

The options exercisable at June 30, 2015 have no intrinsic value as the exercise prices are above market price. The weighted-average remaining contractual term of options exercisable is approximately three years. Options expire at a maximum of ten years from the grant date.

The following table presents stock option activity for fiscal 2015, fiscal 2014 and fiscal 2013:


	Number of options			Weighted- average exercise price per share
	(shares in thousands)
Outstanding options at June 30, 2012		610			114.32
Exercised		(1	)		200.37
Expired		(2	)		33.30

Outstanding options at June 30, 2013		607			114.31
Forfeited		(1	)		260.05
Expired		(3	)		85.75

Outstanding options at June 30, 2014		603			114.13
Expired		(2	)		329.70

Outstanding options at June 30, 2015		601			113.41

(c)

Stock Units

Each stock unit, including both RSUs and director stock units, represents a contingent right to receive one share of FMD common stock upon vesting. Shares in respect of vested stock units are issued as soon as practicable after each vesting date.

Pursuant to a directors’ compensation program formerly under the 2003 Plan and now under the 2011 Plan, our non-employee directors are entitled to stock units for their service. Stock units granted to non-employee directors are fully vested upon grant. In May 2010, the director compensation program was amended to provide for the grant of 1,000 stock units upon initial election to the FMD Board of Directors and an annual grant of 1,000 stock units on September 20 of each year, if the non-employee director has then served on the FMD Board of Directors for at least 180 days. During fiscal 2015, fiscal 2014 and fiscal 2013, 5,000 stock units, 6,000 stock units and 6,000 stock units were granted to non-employee directors, respectively.

RSUs may be granted to employees and outside consultants. During fiscal 2015, approximately 580,000 RSUs were granted to employees (other than Daniel Meyers), including executive officers, all of which were due

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2015, 2014 and 2013

(21) Stock-Based Compensation (Continued)

to vest over the next four years and an additional 220,000 RSUs were granted to Daniel Meyers, all of which vested immediately. During fiscal 2014, approximately 305,400 RSUs were granted to employees (other than Daniel Meyers), including executive officers, all of which were due to vest over the next four years and an additional 110,000 RSUs were granted to Daniel Meyers, all of which vested immediately. During fiscal 2013, approximately 223,700 RSUs were granted to employees, including executive officers, all of which vest over four years from the grant date.

The following table presents stock unit activity, including both RSUs and director stock units, for fiscal 2015, fiscal 2014 and fiscal 2013:


	Number of stock units			Weighted- average grant date fair value per share
	(shares in thousands)
Outstanding stock units at June 30, 2012		183			26.84
Granted		230			11.72
Vested and issued		(100	)		25.46
Forfeited		(14	)		12.64

Outstanding stock units at June 30, 2013		299			16.36
Granted		421			9.88
Vested and issued		(208	)		12.40
Forfeited		(120	)		11.32

Outstanding stock units at June 30, 2014		392			12.44
Granted		805			4.80
Vested and issued		(346	)		7.45
Forfeited		(21	)		10.58

Outstanding stock units at June 30, 2015		830			7.16

(22) Defined Contribution Plans

We sponsor a 401(k) retirement savings plan for the benefit of all full time employees. Eligible employees can join the plan after three months of employment. Investment decisions are made by individual employees. At our option, we can contribute to the plan for the benefit of employees. Employee and employer contributions vest immediately. We made contributions of approximately $800 thousand for each of the fiscal years ended June 30, 2015, June 30, 2014 and June 30, 2013.

SUPPLEMENTARY DATA

UNAUDITED QUARTERLY INFORMATION

The table below summarizes unaudited quarterly information for each of the three month periods in fiscal 2015 and fiscal 2014:


	Three months ended
	September 30, 2014			December 31, 2014			March 31, 2015			June 30, 2015
	(dollars in thousands, except per share data)
Revenues	$	14,117		$	11,142		$	13,181		$	7,734
Expenses		24,458			24,097			20,693			19,248
Other income (expense)		56			318			37			(24	)
Income tax expense		243			275			360			267

Loss from continuing operations		(10,528	)		(12,912	)		(7,835	)		(11,805	)
Discontinued operations, net of taxes		(2,913	)		207			(761	)		(1,231	)

Net loss	$	(13,441	)	$	(12,705	)	$	(8,596	)	$	(13,036	)

Net (loss) income per basic and diluted common share:
From continuing operations	$	(0.92	)	$	(1.12	)	$	(0.68	)	$	(1.03	)
From discontinued operations		(0.26	)		0.02			(0.07	)		(0.10	)

Total basic and diluted net loss per common share	$	(1.18	)	$	(1.10	)	$	(0.75	)	$	(1.13	)


	Three months ended
	September 30, 2013			December 31, 2013			March 31, 2014			June 30, 2014
	(dollars in thousands, except per share data)
Revenues	$	12,696		$	10,639		$	13,283		$	7,538
Expenses		24,466			19,421			19,912			20,081
Other income		72			359			71			282
Income tax expense		275			258			334			258

Loss from continuing operations		(11,973	)		(8,681	)		(6,892	)		(12,519	)
Discontinued operations, net of taxes		419			1,033			1,779			(733	)

Net loss	$	(11,554	)	$	(7,648	)	$	(5,113	)	$	(13,252	)

Net (loss) income per basic and diluted common share:
From continuing operations	$	(1.07	)	$	(0.77	)	$	(0.61	)	$	(1.10	)
From discontinued operations		0.04			0.09			0.16			(0.07	)

Total basic and diluted net loss per common share	$	(1.03	)	$	(0.68	)	$	(0.45	)	$	(1.17	)

100

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of FMD’s Chief Executive Officer and Chief Financial Officer (FMD’s principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2015, FMD’s Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

101

Management’s Annual Report on Internal Control Over Financial Reporting

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of The First Marblehead Corporation and subsidiaries (Company) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

•

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

•

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2015. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (1992).

Based on our assessment, management concluded that, as of June 30, 2015, the Company’s internal control over financial reporting is effective based on those criteria.

The Company’s independent auditors have issued an audit report on the Company’s internal control over financial reporting. That report appears on page 103 of this annual report.

/S/ DANIEL MEYERS

Chief Executive Officer and

Chairman of the Board of Directors

/s/ ALAN BREITMAN

Managing Director and Chief Financial Officer and Chief Accounting Officer

102

Audit Report of our Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

The First Marblehead Corporation:

We have audited The First Marblehead Corporation’s (the Company) internal control over financial reporting as of June 30, 2015, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2015, based on criteria established in Internal Control—Integrated Framework (1992) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The First Marblehead Corporation and subsidiaries as of June 30, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2015, and our report dated September 9, 2015 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Boston, Massachusetts

September 9, 2015

103

Change in Internal Control Over Financial Reporting

No change in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, occurred during the fiscal quarter ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information

Not applicable.

PART III

Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, information required by Part III (Items 10, 11, 12, 13 and 14) is being incorporated by reference herein from our definitive proxy statement to be filed with the SEC within 120 days of the end of the fiscal year ended June 30, 2015 in connection with our 2015 annual meeting of stockholders, which we refer to below as our 2015 Proxy Statement.

Item 10.

Directors, Executive Officers and Corporate Governance

The information required by this item with respect to our executive officers and code of ethics is included in Item 1, “Business,” of this annual report.

The information required by this item with respect to directors will be contained in our 2015 Proxy Statement under the caption “Discussion of Proposals—Proposal One: Election of Directors” and is incorporated in this annual report by reference.

The information required by this item with regard to Section 16(a) beneficial ownership reporting compliance will be contained in our 2015 Proxy Statement under the caption “Other Information—Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated in this annual report by reference.

The information required by this item with respect to corporate governance matters will be contained in our 2015 Proxy Statement under the caption “Information About Corporate Governance—Board Committees” and is incorporated in this annual report by reference. Complete copies of the charters of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, as well as FMD’s corporate governance guidelines, are available on our website at www.firstmarblehead.com. Alternatively, paper copies of these documents may be obtained free of charge by writing to Investor Relations, The First Marblehead Corporation, One Cabot Road, Suite 200, Medford, Massachusetts 02155 or e-mailing Investor Relations at info@fmd.com.

Item 11.

Executive Compensation

The information required by this item will be contained in our 2015 Proxy Statement under the captions “Information About Corporate Governance” and “Information About Our Executive Officers” and is incorporated in this annual report by this reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item with regard to security ownership of certain beneficial owners and management will be contained in our 2015 Proxy Statement under the caption “Other Information—Principal Stockholders” and is incorporated in this annual report by reference.

The information required by this item with regard to securities authorized for issuance under equity compensation plans will be contained in our 2015 Proxy Statement under the caption “Information About Corporate Governance” and is incorporated in this annual report by reference.

104

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this item with regard to certain relationships and related-person transactions will be contained in our 2015 Proxy Statement under the caption “Information About Our Executive Officers” and is incorporated in this annual report by reference.

The information required by this item with regard to director independence will be contained in our 2015 Proxy Statement under the caption “Information About Corporate Governance” and is incorporated in this annual report by reference.

Item 14.

Principal Accountant Fees and Services

The information required by this item will be contained in our 2015 Proxy Statement under the caption “Discussion of Proposals—Proposal Two: Ratification of Appointment of Independent Registered Public Accounting Firm” and is incorporated in this annual report by reference.

PART IV

Item 15.

Exhibits and Financial Statement Schedules

(a)	The following documents are filed as part of this annual report:

(1)

Financial Statements.

Our consolidated financial statements are included as Item 8, “Financial Statements and Supplementary Data,” herein and are filed as part of this annual report. Our consolidated financial statements include the reports made in Item 9A, “Controls and Procedures,” herein.

(2)

Financial Statement Schedules.

None.

(3)

Exhibits.

The exhibits set forth on the Exhibit Index following this annual report are filed as part of this annual report. This list of exhibits identifies each management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report.

105

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


THE FIRST MARBLEHEAD CORPORATION

By:		/S/ DANIEL MEYERS
		Daniel Meyers
		Chief Executive Officer and Chairman of the Board of Directors

Date:		September 9, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:


Signature	Title(s)	Date

/S/ DANIEL MEYERS Daniel Meyers	Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)	September 9, 2015

/S/ ALAN BREITMAN Alan Breitman	Managing Director and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	September 9, 2015

/S/ NANCY Y. BEKAVAC Nancy Y. Bekavac	Director	September 9, 2015

/S/ PETER S. DROTCH Peter S. Drotch	Director	September 9, 2015

/S/ THOMAS P. EDDY Thomas P. Eddy	Director	September 9, 2015

/S/ SETH GELBER Seth Gelber	Director	September 9, 2015

/S/ WILLIAM D. HANSEN William D. Hansen	Director	September 9, 2015

106

EXHIBIT INDEX


Number		Description

2.1(1)††		Loan Purchase and Sale Agreement, dated January 23, 2014, by and among Union Federal Savings Bank, RBS Citizens, N.A. and the Registrant

2.2(2)		Loan Purchase and Sale Agreement, dated June 25, 2014, by and among Union Federal Savings Bank, RBS Citizens, N.A. and the Registrant

3.1(3)		Restated Certificate of Incorporation of the Registrant, as amended

3.2(4)		Certificate of Amendment of Restated Certificate of Incorporation of the Registrant, dated December 2, 2013

3.3(5)		Amended and Restated By-laws of the Registrant

4.1(6)		Indenture, dated July 18, 2007, among UFSB Private Loan SPV, LLC, CIESCO, LLC, Citicorp North America, Inc., U.S. Bank National Association and Union Federal Savings Bank, as amended by Amendment No. 1 to Indenture, Limited Waiver and Acknowledgement dated April 15, 2009, among UFSB Private Loan SPV, LLC, CIESCO, LLC, Citicorp North America, Inc., U.S. Bank National Association and Union Federal Savings Bank, as amended by Amendment No. 2 to Indenture dated April 16, 2010, among UFSB Private Loan SPV, LLC, CIESCO, LLC, Citicorp North America, Inc., U.S. Bank National Association, the Registrant and Union Federal Savings Bank

4.2(6)		Settlement Agreement and Release, dated April 16, 2010, among UFSB Private Loan SPV, LLC, CIESCO, LLC, Citicorp North America, Inc., U.S. Bank National Association, the Registrant, The National Collegiate Funding II, LLC, The National Collegiate Student Loan Trust 2009-1 and Union Federal Savings Bank

10.1(5)#		2002 Director Stock Plan

10.2(5)#		2003 Employee Stock Purchase Plan

10.3(7)#		2003 Stock Incentive Plan, as amended and restated

10.4(8)#		2011 Stock Incentive Plan, as amended

10.5(3)#		Executive Incentive Compensation Plan

10.6(2)#		Summary of non-employee director compensation arrangements

10.7(9)#		Form of Nonstatutory Stock Option Agreement evidencing grants under the 2002 Director Stock Plan

10.8(10)#		Forms of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement evidencing grants under the 2003 Stock Incentive Plan

10.9(11)#		Form of Restricted Stock Unit Agreement evidencing grants under the 2003 Stock Incentive Plan

10.10(12)#		Form of Restricted Stock Unit Agreement evidencing grants under the 2011 Stock Incentive Plan

10.11(11)#		Form of Invention, Non-disclosure, Non-competition and Non-solicitation Agreement

10.12(13)#		Employment Agreement, dated as of August 18, 2008, between the Registrant and Daniel Meyers

10.13(14)#		First Amendment to Employment Agreement, dated as of May 17, 2010, between the Registrant and Daniel Meyers

10.14(13)#		Indemnification Agreement, dated August 18, 2008, between the Registrant and Daniel Meyers

107


Number		Description

10.15(14)#		First Amendment to Indemnification Agreement, dated as of July 22, 2010, between the Registrant and Daniel Meyers

10.16(15)#		Non-Statutory Stock Option Agreement for $60.00 stock options between the Registrant and Daniel Meyers

10.17(15)#		Non-Statutory Stock Option Agreement for $120.00 stock options between the Registrant and Daniel Meyers

10.18(15)#		Non-Statutory Stock Option Agreement for $160.00 stock options between the Registrant and Daniel Meyers

10.19(14)#		Letter Agreement, dated September 22, 2008, between the Registrant and Seth Gelber, as supplemented

10.20(16)#		Letter Agreement, dated June 7, 2004, between the Registrant and William P. Baumer, as supplemented

10.21(16)#		Letter Agreement, dated January 11, 2011, between the Registrant and Barry Heneghan

10.22(17)#		Letter Agreement, dated June 20, 2014, between the Registrant and Alan Breitman

10.23(2)#		Letter Agreement, dated May 29, 2014, between the Registrant and Richard Neely

10.24(18)		Time Sharing Agreement, dated February 4, 2009, between the Registrant and Sextant Holdings, LLC

10.25(15)		Commercial Lease, dated August 13, 2004, between the Registrant and Cabot Road Partners, LLC, as amended

10.26(19)		Second Amendment to Lease, dated as of November 3, 2010, between the Registrant and Cabot Road Owner—VEF VI, LLC

10.27(11)		Third Amendment to Lease, dated as of July 1, 2011, between the Registrant and Cabot Road Owner—VEF VI, LLC

10.28(20)		Purchase Agreement, dated as of March 31, 2009, among the Registrant, VCG Owners Trust and VCG Securities LLC

10.29(20)		Letter Agreement, dated as of March 31, 2009, delivered by Vanquish Advisors LLC to the Registrant

10.30(20)		Asset Services Agreement, dated as of March 31, 2009, among the Registrant, First Marblehead Education Resources, Inc., VCG Owners Trust and VCG Securities LLC

10.31(20)		Data Sharing and License Agreement, dated as of March 31, 2009, between the Registrant and VCG Owners Trust

10.32(20)		Indemnification Agreement, dated as of March 31, 2009, between the Registrant, VCG Owners Trust and VCG Securities LLC

10.33(21)		Loan Purchase and Sale Agreement, dated October 13, 2009, between Union Federal Savings Bank and Wells Fargo Bank, N.A.

10.34(21)		Performance Guarantee, dated October 16, 2009, delivered by the Registrant to Wells Fargo Bank, N.A.

10.35(22)††		Amended and Restated Private Student Loan Servicing Agreement, dated as of September 28, 2006, between the Registrant and Pennsylvania Higher Education Assistance Agency

10.36(15)††		Amendments to Amended and Restated Private Student Loan Servicing Agreement, dated as of September 28, 2006, between the Registrant and Pennsylvania Higher Education Assistance Agency

108


Number		Description
10.37(23)††		Private Student Loan Monogram Program Agreement, dated as of February 5, 2010, between the Registrant and Pennsylvania Higher Education Assistance Agency

10.38(23)††		Loan Program Agreement, dated as of April 20, 2010, among the Registrant, First Marblehead Education Resources, Inc. and SunTrust Bank

10.39(23)††		Certificate of Satisfaction and First Amendment to Loan Program Agreement, dated as of July 15, 2010, among the Registrant, First Marblehead Education Resources, Inc. and SunTrust Bank

10.40(24)††		Fifth Amendment to Loan Program Agreement dated November 14, 2011, among the Registrant, First Marblehead Education Resources, Inc. and SunTrust Bank

10.41(25)††		Twelfth Amendment to Loan Program Agreement dated as of April 30, 2014, among the Registrant, First Marblehead Education Resources, Inc. and SunTrust Bank

10.42(2)††		Thirteenth Amendment to Loan Program Agreement dated as of May 30, 2014, among the Registrant, First Marblehead Education Resources, Inc. and SunTrust Bank

10.43(26)††		Sixteenth Amendment to Loan Program Agreement dated as of November 10, 2014, among the Registrant, First Marblehead Education Resources, Inc. and SunTrust Bank

10.44(27)††		Loan Program Agreement, dated as of August 2, 2012, among the Registrant, First Marblehead Education Resources, Inc., and SunTrust Bank

10.45(26)††		Loan Origination Services Agreement dated as of November 10, 2014, by and between First Marblehead Education Resources, Inc. and Nelnet Servicing, LLC d/b/a Firstmark Services

10.46††		First Amendment, dated May 14, 2015, to Loan Origination Services Agreement dated as of November 10, 2014, by and between First Marblehead Education Resources, Inc. and Nelnet Servicing, LLC d/b/a Firstmark Services

10.47(28)		Stipulation Resolving Claims of First Marblehead Education Resources, Inc., the Registrant, and First Marblehead Data Services, Inc. dated as of October 7, 2010

10.48(29)		Asset Purchase Agreement among FM Systems LLC, KeyBank National Association and, for solely purposes of Sections 7.1.6 and 7.12, the Registrant, dated November 21, 2010

10.49(30)		Purchase and Assignment Agreement dated November 14, 2011, among the Registrant, First Marblehead Education Resources, Inc. and VCG Special Opportunities Master Fund Limited

10.50(30)		Inducement Agreement dated November 14, 2011, among the Registrant, First Marblehead Education Resources, Inc., VCG Owners Trust and VCG Securities LLC

10.51(31)		Purchase and Assumption Agreement, dated as of December 19, 2014, by and among BofI Federal Bank, Union Federal Savings Bank and, solely for purposes of Sections 7.7 and 7.11 and Articles 10, 11 and 12, the Registrant

21.1		List of Subsidiaries

23.1		Consent of Independent Registered Public Accounting Firm

31.1		Chief Executive Officer—Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Chief Financial Officer—Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Chief Executive Officer—Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

109


Number		Description
32.2		Chief Financial Officer—Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Instance Document

101.SCH		Taxonomy Extension Schema Document

101.CAL		Taxonomy Calculation Linkbase Document

101.LAB		Taxonomy Label Linkbase Document

101.PRE		Taxonomy Presentation Linkbase Document

101.DEF		Taxonomy Extension Definition Linkbase Document

(1)	Incorporated by reference to the exhibits to the Registrant’s quarterly report on Form 10-Q filed with the SEC on February 10, 2014.

(2)	Incorporated by reference to the exhibits to the Registrant’s annual report on Form 10-K filed with the SEC on September 10, 2014.

(3)	Incorporated by reference to the exhibits to the Registrant’s annual report on Form 10-K filed with the SEC on August 29, 2008.

(4)	Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on December 2, 2013.

(5)	Incorporated by reference to the exhibits to the Registrant’s registration statement on Form S-1 (File No. 333-108531).

(6)	Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on April 20, 2010.

(7)	Incorporated by reference to the exhibits to the Registrant’s registration statement on Form S-8 (File No. 333-163141).

(8)	Incorporated by reference to Annex A to the Registrant’s definitive proxy statement on Schedule 14A filed with the SEC on October 2, 2013.

(9)	Incorporated by reference to the exhibits to the Registrant’s annual report on Form 10-K filed with the SEC on September 15, 2004.

(10)	Incorporated by reference to the exhibits to the Registrant’s annual report on Form 10-K filed with the SEC on September 7, 2005.

(11)	Incorporated by reference to the exhibits to the Registrant’s annual report on Form 10-K filed with the SEC on September 8, 2011.

(12)	Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on January 31, 2012.

(13)	Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on August 18, 2008.

(14)	Incorporated by reference to the exhibits to the Registrant’s annual report on Form 10-K filed with the SEC on September 2, 2010.

(15)	Incorporated by reference to the exhibits to the Registrant’s annual report on Form 10-K filed with the SEC on September 3, 2009.

110

(16)	Incorporated by reference to the exhibits to the Registrant’s annual report on Form 10-K filed with the SEC on September 13, 2013.

(17)	Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on July 2, 2014.

(18)	Incorporated by reference to the exhibits to the Registrant’s quarterly report on Form 10-Q filed with the SEC on February 9, 2009.

(19)	Incorporated by reference to the exhibit to the Registrant’s current report on Form 8-K filed with the SEC on November 5, 2010.

(20)	Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on April 6, 2009.

(21)	Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on October 16, 2009.

(22)	Incorporated by reference to the exhibits to the Registrant’s quarterly report on Form 10-Q filed with the SEC on November 8, 2006.

(23)	Incorporated by reference to the exhibits to the Registrant’s Amendment No. 1 to annual report on Form 10-K filed with the SEC on November 18, 2010.

(24)	Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on November 15, 2011.

(25)	Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on May 6, 2014.

(26)	Incorporated by reference to the exhibits to the Registrant’s quarterly report on Form 10-Q filed with the SEC on February 9, 2015.

(27)	Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on August 2, 2012.

(28)	Incorporated by reference to the exhibit to the Registrant’s current report on Form 8-K filed with the SEC on October 14, 2010.

(29)	Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on November 22, 2010.

(30)	Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on November 14, 2011.

(31)	Incorporated by reference to the exhibit to the Registrant’s current report on Form 8-K filed with the SEC on June 11, 2015.

††	Confidential treatment has been granted or requested for certain provisions of this Exhibit pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.

#	This Exhibit is a management contract or compensatory plan or arrangement.

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FIRST MARBLEHEAD CORP - FORM 10-K - September 9, 2015

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