10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

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

For the quarterly period ended March 31, 2013

OR

¨ 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	04-3295311
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
The Prudential Tower 800 Boylston Street, 34th Floor Boston, Massachusetts	02199-8157
(Address of principal executive offices)	(Zip Code)

(800) 895-4283

(Registrant’s telephone number, including area code)

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 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 Exchange Act).    Yes  ¨    No  x

As of May 7, 2013, the registrant had 111,458,014 shares of common stock, $0.01 par value per share, outstanding.

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

Table of Contents

Part I. Financial Information			1
Item 1	—	Financial Statements	1
	—	Consolidated Balance Sheets as of March 31, 2013 and June 30, 2012	1
	—	Consolidated Statements of Operations for the three and nine months ended March 31, 2013 and 2012	2
	—	Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended March 31, 2013 and 2012	3
	—	Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the nine months ended March 31, 2013 and 2012	4
	—	Consolidated Statements of Cash Flows for the nine months ended March 31, 2013 and 2012	5
	—	Notes to Unaudited Consolidated Financial Statements	6
Item 2	—	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3	—	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4	—	Controls and Procedures	38
Part II. Other Information			40
Item 1	—	Legal Proceedings	40
Item 1A	—	Risk Factors	41
Item 2	—	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 6	—	Exhibits	59
SIGNATURES			60
EXHIBIT INDEX			61

Part I. Financial Information

Item 1. Financial Statements

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

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

	March 31, 2013			June 30, 2012
ASSETS
Cash and cash equivalents	$	141,534		$	123,497
Short-term investments, at cost		50,116			85,007
Restricted cash		36,641			65,401
Investments available-for-sale, at fair value		83,898			68,598
Education loans held-to-maturity, net of allowance of $1,546 and $1,309		62,082			33,095
Mortgage loans held-to-maturity, net of allowance of $642 and $591		11,529			7,811
Deposits for participation interest accounts, at fair value		10,847			4,039
Service revenue receivables, at fair value		15,655			16,341
Goodwill		20,066			19,548
Intangible assets, net		24,808			20,922
Property and equipment, net		5,947			4,570
Other assets		10,208			8,976
Total assets	$	473,331		$	457,805
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits	$	164,219		$	83,428
Restricted funds due to clients		76,288			104,981
Accounts payable, accrued expenses and other liabilities		11,732			18,133
Income taxes payable		24,647			23,414
Net deferred income tax liability		1,181			861
Total liabilities		278,067			230,817
Commitments and contingencies:
Stockholders’ equity:
Preferred stock, par value $0.01 per share; 20,000 shares authorized; 0 and 133 shares issued and outstanding		—			1
Common stock, par value $0.01 per share; 250,000 shares authorized; 119,867 and 110,658 shares issued; 111,110 and 102,002 shares outstanding		1,198			1,106
Additional paid-in capital		455,857			452,726
Accumulated deficit		(75,631	)		(40,627	)
Treasury stock, 8,757 and 8,656 shares held, at cost		(186,930	)		(186,828	)
Accumulated other comprehensive income		770			610
Total stockholders’ equity		195,264			226,988
Total liabilities and stockholders’ equity	$	473,331		$	457,805

See accompanying notes to unaudited consolidated financial statements.

1

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

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

	Three months ended March 31,						Nine months ended March 31,
	2013			2012			2013			2012
Revenues:
Net interest income:
Interest income	$	1,527		$	950		$	4,087		$	2,230
Interest expense		(406	)		(209	)		(1,020	)		(679	)
Net interest income		1,121			741			3,067			1,551
(Provision) credit for loan losses		(70	)		222			50			476
Net interest income after (provision) credit for loan losses		1,051			963			3,117			2,027
Non-interest revenues:
Tuition payment processing fees		7,466			7,697			22,264			22,172
Administrative and other fees		3,437			2,604			9,238			7,102
Fair value changes to service revenue receivables		838			2,454			2,057			202
Total non-interest revenues		11,741			12,755			33,559			29,476
Total revenues		12,792			13,718			36,676			31,503
Non-interest expenses:
Compensation and benefits		10,454			11,307			29,663			32,396
General and administrative		11,172			13,816			41,573			47,128
Total non-interest expenses		21,626			25,123			71,236			79,524
Loss from operations		(8,834	)		(11,405	)		(34,560	)		(48,021	)
Other income:
Gain from deconsolidation of trusts		—			9,156			—			9,514
Proceeds from TERI settlement		421			—			702			1,405
Total other income		421			9,156			702			10,919
Loss from continuing operations, before income taxes		(8,413	)		(2,249	)		(33,858	)		(37,102	)
Income tax expense (benefit) from continuing operations		376			(5,197	)		1,146			(17,489	)
Net (loss) income from continuing operations		(8,789	)		2,948			(35,004	)		(19,613	)
Discontinued operations, net of taxes		—			6,910			—			1,135,781
Net (loss) income	$	(8,789	)	$	9,858		$	(35,004	)	$	1,116,168
Net (loss) income per basic common share:
From continuing operations	$	(0.08	)	$	0.03		$	(0.33	)	$	(0.18	)
From discontinued operations		—			0.06			—			10.30
Total basic net (loss) income per share	$	(0.08	)	$	0.09		$	(0.33	)	$	10.12
Net (loss) income per diluted common share:
From continuing operations	$	(0.08	)	$	0.03		$	(0.33	)	$	(0.18	)
From discontinued operations		—			0.06			—			10.28
Total diluted net (loss) income per share	$	(0.08	)	$	0.09		$	(0.33	)	$	10.10
Weighted-average common shares outstanding:
Basic		111,110			101,554			105,988			101,459
Diluted		111,110			110,573			105,988			110,499

See accompanying notes to unaudited consolidated financial statements.

2

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited)

(dollars in thousands)

	Three months ended March 31,					Nine months ended March 31,
	2013			2012		2013			2012
Net (loss) income	$	(8,789	)	$	9,858	$	(35,004	)	$	1,116,168
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on investments available-for-sale arising during the period		(793	)		117		160			199
Total comprehensive (loss) income	$	(9,582	)	$	9,975	$	(34,844	)	$	1,116,367

See accompanying notes to unaudited consolidated financial statements.

3

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited)

(dollars and shares in thousands)

	Non-voting convertible preferred stock						Common stock										Additional			Accumulated deficit			Accumulated other		Total stockholders’
	issued						Issued				In treasury						paid-in capital						comprehensive income,  net of tax		equity (deficit)
	Shares			Amount			Shares		Amount		Shares			Amount
Balance at June 30, 2011		133		$	1			109,717	$	1,097		(8,399	)	$	(186,551	)	$	448,088		$	(1,142,855	)	$	281	$	(879,939	)
Comprehensive income:
Net income		—			—			—		—		—			—			—			1,116,168			—		1,116,168
Accumulated other comprehensive income		—			—			—		—		—			—			—			—			199		199
Total comprehensive income		—			—			—		—		—			—			—			1,116,168			199		1,116,367
Net stock issuance from vesting of stock units		—			—			301		3		(61	)		(78	)		(2	)		—			—		(77	)
Stock-based compensation		—			—			—		—		—			—			3,603			—			—		3,603
Balance at March 31, 2012		133		$	1			110,018	$	1,100		(8,460	)	$	(186,629	)	$	451,689		$	(26,687	)	$	480	$	239,954
Balance at June 30, 2012		133		$	1			110,658	$	1,106		(8,656	)	$	(186,828	)	$	452,726		$	(40,627	)	$	610	$	226,988
Comprehensive loss:
Net loss		—			—			—		—		—			—			—			(35,004	)		—		(35,004	)
Accumulated other comprehensive income		—			—			—		—		—			—			—			—			160		160
Total comprehensive loss		—			—			—		—		—			—			—			(35,004	)		160		(34,844	)
Net stock issuance from vesting of stock units		—			—			362		4		(101	)		(102	)		(3	)		—			—		(101	)
Stock-based compensation		—			—			—		—		—			—			3,221			—			—		3,221
Conversion of preferred stock		(133	)		(1	)		8,847		88		—			—			(87	)		—			—		—
Balance at March 31, 2013		—		$	—			119,867	$	1,198		(8,757	)	$	(186,930	)	$	455,857		$	(75,631	)	$	770	$	195,264

See accompanying notes to unaudited consolidated financial statements.

4

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

	Nine months ended March 31,
	2013			2012
Cash flows from operating activities, net of effects of acquisition:
Net (loss) income	$	(35,004	)	$	1,116,168
Discontinued operations, net of tax		—			(1,135,781	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Non-cash gain from deconsolidation of trusts		—			(9,514	)
Depreciation and amortization		3,159			3,635
Credit for loan losses		(50	)		(476	)
Deferred income tax expense		320			208
Stock-based compensation		3,221			3,603
Service revenue receivable sales proceeds and distributions		2,743			13,574
Other non-cash benefits		—			(5,261	)
Changes in assets/liabilities:
Net deposits for participation interest accounts		(6,808	)		4,786
Fair value increase to service revenue receivables		(2,057	)		(202	)
Other assets		(1,076	)		2,422
Accounts payable, accrued expenses and other liabilities		(8,094	)		(7,173	)
Income taxes payable		1,233			(16,276	)
Cash used in operating activities - continuing operations		(42,413	)		(30,287	)
Cash provided by operating activities - discontinued operations		—			50,470
Net cash (used in) provided by operating activities		(42,413	)		20,183
Cash flows from investing activities, net of effects of acquisition:
Net cash paid for acquisition of operating assets of Cology, Inc.		(4,757	)		—
Purchases of short-term investments		—			(70,000	)
Proceeds from maturities of short-term investments		34,891			50,000
Net increase in education loans held-to-maturity		(28,814	)		(30,582	)
Net decrease in restricted cash		28,760			78,732
Net decrease in restricted funds due to clients		(28,693	)		(40,363	)
Purchases of investments available-for-sale		(24,695	)		(62,555	)
Principal repayments from investments available-for-sale		9,555			2,932
Net increase in mortgage loans held-to-maturity		(3,819	)		(1,541	)
Purchases of property and equipment		(2,661	)		(295	)
Net cash used in investing activities - continuing operations		(20,233	)		(73,672	)
Net cash provided by investing activities - discontinued operations		—			143,140
Net cash (used in) provided by investing activities		(20,233	)		69,468
Cash flows from financing activities, net of effects of acquisition:
Net increase in deposits		80,791			13,291
Payments on capital lease obligations		(6	)		—
Repurchases of common stock		(102	)		(78	)
Net cash provided by financing activities - continuing operations		80,683			13,213
Net cash used in financing activities - discontinued operations		—			(179,706	)
Net cash provided by (used in) financing activities		80,683			(166,493	)
Net increase (decrease) in cash and cash equivalents		18,037			(76,842	)
Cash and cash equivalents, beginning of period		123,497			217,367
Cash and cash equivalents, end of period	$	141,534		$	140,525
Supplemental disclosures of cash flow information from continuing operations:
Interest paid	$	909		$	476
Income taxes paid		61			5,177
Supplemental disclosure of non-cash investing and financing activities from continuing operations:
Interest receivable capitalized to loan principal	$	255		$	23
Conversion of preferred stock to common stock		87			—

See accompanying notes to unaudited consolidated financial statements.

5

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) General Information

Overview

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” or “FMD” to refer to The First Marblehead Corporation on a stand-alone basis. We use the term “education loans” 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 ending June 30, 2013 as “fiscal 2013.” References to our “Annual Report” mean our annual report on Form 10-K for the fiscal year ended June 30, 2012 filed with the Securities and Exchange Commission (SEC) on September 12, 2012.

We are a specialty finance company focused on the education financing marketplace in the United States. We provide loan programs on behalf of our lender clients for K-12, undergraduate and graduate students and for college graduates seeking to consolidate private education loan obligations. We offer a fully integrated suite of services through our Monogram^® loan product service platform (Monogram platform), as well as certain services on a stand-alone, fee-for-service basis. We partner with lenders to design and administer education loan programs through our Monogram platform, which are typically school-certified and designed to be marketed through educational institutions or to prospective borrowers and their families directly and designed to generate portfolios intended to be held by the originating lender or financed in the capital markets. We also offer a number of ancillary services in support of our clients, including loan origination, retail banking, portfolio management and securitization services.

Through FMD’s subsidiary, Tuition Management Systems LLC (TMS), we offer tuition planning, tuition billing, refund management and payment technology services. Our bank subsidiary, Union Federal Savings Bank (Union Federal^®), offers traditional retail banking products on a stand-alone basis. On October 19, 2012, we acquired a substantial portion of the operating assets, and assumed certain liabilities, of Cology, Inc. and its affiliates. We refer to Cology, Inc. and its affiliates as the Cology Sellers. We refer to the FMD subsidiary that acquired the operating assets of the Cology Sellers as Cology LLC. Through Cology LLC, we provide loan processing services to approximately 250 credit unions. Because Cology LLC is a loan processer, none of the education loans that it processes on behalf of its clients are included on our consolidated balance sheet but, rather, are included on the balance sheets of its clients. As such, none of the references in this quarterly report to education loans included in our consolidated balance sheet include the education loans originated by Cology LLC on behalf of its clients. Our consolidated financial statements for the nine months ended March 31, 2013 reflect income and expenses of Cology LLC since the date of acquisition.

Basis of Financial Reporting

The accompanying unaudited consolidated financial statements as of March 31, 2013 and for the three and nine months ended March 31, 2013 and 2012 have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations for the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of the results of fiscal 2013. The accompanying unaudited consolidated financial statements should be read in conjunction with our Annual Report.

Recently Issued Accounting Pronouncements

Accounting Standards Update (ASU) 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05), is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. ASU 2011-05 eliminates the option in GAAP to present other comprehensive income in our consolidated statement of changes in stockholders’ equity (deficit). ASU 2011-05 requires that non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions of ASU 2011-05 were applied retrospectively and were effective for fiscal years and interim periods beginning in the first quarter of fiscal 2013. We elected to present comprehensive income in a separate financial statement, our consolidated statements of comprehensive income. The adoption of ASU 2011-05 did not have a material impact on our consolidated financial statements.

ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02), is effective prospectively for annual reporting periods beginning after December 15, 2012 and interim periods within those years. ASU 2013-02 requires entities to disclose: (1) for items reclassified out of accumulated other comprehensive income and into net income for their entirety, the effect of the reclassification on each affected net income line item; and (2) for accumulated other comprehensive income reclassification items that are not reclassified in their entirety into net income, a cross reference to other required GAAP disclosures. We do not expect the adoption of ASU 2013-02 to have a material impact on our consolidated financial statements.

6

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

Summary of Significant Accounting Policies

There have been no changes to our significant accounting policies since we filed our Annual Report with the SEC on September 12, 2012. See Note 2, “Summary of Significant Accounting Policies,” in the notes to our consolidated financial statements included in Item 8 of Part II of our Annual Report for the full disclosure of our significant accounting policies.

(2) Discontinued Operations

Upon our adoption of ASU 2009-16, Transfers and Servicing (Topic 860)—Accounting for Transfers of Financial Assets, and ASU 2009-17, Consolidation (Topic 810)—Improvements to Financial Reporting by Enterprises Involved With Variable Interest Entities, effective July 1, 2010, we consolidated 14 securitization trusts that we facilitated during fiscal 2004 through fiscal 2008. The education loans purchased by certain of the securitization trusts (Trusts) were initially subject to a default repayment guaranty by The Education Resources Institute, Inc. (TERI), while the education loans purchased by other securitization trusts (NCT Trusts) were, with limited exceptions, not TERI-guaranteed. Of the 14 securitization trusts consolidated on July 1, 2010, 11 were Trusts and 3 were NCT Trusts. We refer to the consolidated Trusts as the NCSLT Trusts and the consolidated NCT Trusts as the GATE Trusts.

On November 14, 2011, we sold to a third party all of our interests in the structuring advisory agreements relating to the Trusts and the related asset services agreement for $13.0 million in cash. Our variable interests in the Trusts included our right to receive the additional structural advisory fees and the asset servicing fees under those respective agreements. As a result of this sale, we no longer held a variable interest in the NCSLT Trusts and were, therefore, no longer the primary beneficiary of the NCSLT Trusts. Accordingly, we deconsolidated $6.61 billion of assets and $7.85 billion of liabilities from our consolidated balance sheet and recognized a $1.24 billion non-cash gain in our consolidated statement of operations during the second quarter of fiscal 2012, representing the accumulated deficit in the NCSLT Trusts.

On March 2, 2012, FMD sold to a third party all of its outstanding capital stock in its subsidiary First Marblehead Data Services, Inc. (FMDS) for $13.7 million in cash. FMDS served as the trust administrator of the NCT Trusts. On March 30, 2012, the new third party owner of FMDS terminated the agreement, effective September 30, 2012, with FMD’s subsidiary First Marblehead Education Resources, Inc. (FMER) for the special servicing of the NCT Trusts. With the termination of this agreement, we no longer had the power to direct the activities that most significantly impact the performance of the GATE Trusts and, therefore, we were no longer considered the primary beneficiary of these trusts. As a result, we deconsolidated the GATE Trusts effective March 31, 2012. We deconsolidated $258.4 million of assets and $260.1 million of liabilities from our consolidated balance sheet and recognized a $1.7 million non-cash gain in our consolidated statement of operations during the third quarter of fiscal 2012, representing the accumulated deficit in the GATE Trusts. In addition to the non-cash gain of $1.7 million, we also recorded an additional gain of $9.2 million representing the fair value of the residual interests and additional structural advisory fees related to these trusts that were previously eliminated through consolidation, resulting in a total non-cash gain of $10.9 million for the deconsolidation event.

On April 13, 2012, FMER provided its notice of resignation as special servicer of the Trusts. The resignation became effective June 21, 2012. Pursuant to the terms of the resignation, FMER assisted the new special servicer of the Trusts for a transition period that terminated on November 30, 2012.

During the fourth quarter of fiscal 2012, we determined that we no longer had any significant continuing involvement in the operations relating to the NCSLT Trusts and the GATE Trusts. Further, we concluded that this would occur within an appropriate assessment period for both the NCSLT Trusts and the GATE Trusts. As a result, we reported the operations and activities relating to the NCSLT Trusts, the GATE Trusts and FMDS within discontinued operations for all periods presented. The non-cash gains representing the accumulated deficit recognized upon deconsolidations of the NCSLT Trusts and the GATE Trusts, as discussed above, were included in discontinued operations. Further, the gain recognized as the result of the sale of FMDS, as well as the revenues and expenses of FMDS prior to the sale, were recorded in discontinued operations for fiscal 2012.

The revenues and expenses of discontinued operations for the three and nine months ended March 31, 2012 were as follows:

	For the three months ended March 31, 2012			For the nine months ended March 31, 2012
	(dollars in thousands)
Total revenues	$	(1,048	)	$	(100,737	)
Total expenses		610			15,408
Other income		14,280			1,258,524
Income from discontinued operations, before income taxes		12,622			1,142,379
Income tax expense		5,712			6,598
Discontinued operations, net of taxes	$	6,910		$	1,135,781

7

The securitization trusts previously consolidated were considered pass-through entities for income tax purposes and, accordingly, the net income or loss of the trusts was included in the tax returns of the trust owners rather than the trust entities themselves. Income taxes allocated to discontinued operations were related to the sale and operations of FMDS.

(3) 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. Our consolidated financial statements for the nine months ended March 31, 2013 reflect income and expenses of Cology LLC since the date of acquisition. Cology LLC provides education loan processing and disbursement services to approximately 250 credit unions in the United States as well as offering life-of-loan servicing. Cology LLC earns fees based primarily on the number of loan applications, disbursements and loan certifications it processes on behalf of its clients. Cology LLC does not originate education loans for its own account.

In addition to the purchase price, we entered into special retention agreements with certain Cology LLC employees that provide for a bonus payment to those employees who are employed by Cology LLC on the one-year anniversary of the acquisition date, subject to the attainment of certain reductions in operating expenses by Cology LLC. We have not accrued any amounts under the special retention agreements as of March 31, 2013. We also established a performance incentive plan that provides 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. We have not accrued any amounts under the performance incentive plan as of March 31, 2013.

(4) Cash and Cash Equivalents

The following table summarizes our cash and cash equivalents:

	March 31, 2013		June 30, 2012
	(dollars in thousands)
Cash equivalents (money market funds)	$	70,084	$	80,574
Interest-bearing deposits with the Federal Reserve		56,557		27,396
Interest-bearing deposits with banks		1,272		14,026
Non-interest-bearing deposits with banks		13,421		1,302
Federal funds sold		200		199
Total cash and cash equivalents	$	141,534	$	123,497

Cash and cash equivalents of Union Federal of $70.2 million and $29.9 million at March 31, 2013 and June 30, 2012, respectively, were not available for dividends without prior approval from the Office of the Comptroller of the Currency (OCC), Union Federal’s regulator.

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, money market funds, amounts due from banks and federal funds sold. Generally, federal funds sold are on an overnight basis.

(5) Short-term Investments

Short-term investments of $50.1 million at March 31, 2013 and $85.0 million at June 30, 2012 included certificates of deposit with highly-rated financial institutions, carried at cost. These certificates of deposit have a range of maturities from 0.5 months to 7.9 months.

(6) Investments Available-for-Sale

We categorize available-for-sale investment securities by major security type and class of security. Government-sponsored enterprises (GSE) are comprised of debt securities issued by the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association.

The following table provides a summary of investments available-for-sale by major category:

	Amortized cost		Unrealized gains		Unrealized losses			Fair value
	(dollars in thousands)
At March 31, 2013:
GSE mortgage-backed securities	$	68,870	$	623	$	(46	)	$	69,447
Mortgage-backed securities issued by U.S. government agencies		14,258		207		(14	)		14,451
Total	$	83,128	$	830	$	(60	)	$	83,898
At June 30, 2012:
GSE mortgage-backed securities	$	51,972	$	369	$	(56	)	$	52,285
Mortgage-backed securities issued by U.S. government agencies		16,016		299		(2	)		16,313
Total	$	67,988	$	668	$	(58	)	$	68,598

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At March 31, 2013 and June 30, 2012, three investment securities, totaling $20.6 million and $16.0 million, respectively, had unrealized losses of $60 thousand and $58 thousand, respectively, and had been in an unrealized loss position for less than one year. Management evaluates impairments in values, whether caused by adverse interest rates or credit movements, to determine if they are other-than-temporary. Additionally, management evaluates whether it intends to sell or will be required to sell the debt securities before the anticipated recovery of their remaining amortized cost. Management concluded the unrealized losses at March 31, 2013 and June 30, 2012 were temporary in nature.

The amortized cost basis of available-for-sale securities by maturity as of March 31, 2013 is presented below. These securities were classified based on their weighted-average maturities, after adjusting contractual maturities by anticipated prepayments. Contractual maturities on the securities range from 9 to 29 years.

	March 31, 2013
	Due in one year or less			Due after one year but within five years			Due after five years but within ten years			Due after ten years			Total
	(dollars in thousands)
Securities available-for-sale:
GSE mortgage-backed securities:
Amortized cost	$	117		$	51,577		$	17,176		$	—		$	68,870
Weighted average yield		1.09	%		2.02	%		1.74	%		—	%		1.95	%
Mortgage-backed securities issued by U.S. government agencies:
Amortized cost	$	—		$	14,258		$	—		$	—		$	14,258
Weighted average yield		—	%		2.12	%		—	%		—	%		2.12	%
Total available-for-sale securities:
Amortized cost	$	117		$	65,835		$	17,176		$	—		$	83,128
Weighted average yield		1.09	%		2.04	%		1.74	%		—	%		1.98	%
Fair value	$	117		$	66,366		$	17,415		$	—		$	83,898

At March 31, 2013, the expected weighted average remaining life of the available-for-sale securities was 3.2 years.

(7) Education Loans

(a) Gross Education Loans Outstanding

We began originating Monogram-based loans through Union Federal in fiscal 2012. At March 31, 2013 and June 30, 2012, education loans outstanding primarily consisted of education loans held by Union Federal, totaling $62.5 million and $33.3 million, respectively. Other education loans consisted of loans totaling $1.1 million at both March 31, 2013 and June 30, 2012, which were 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 March 31, 2013 and June 30, 2012.

The following table summarizes the composition of the net carrying value of our education loans held-to-maturity as of the dates indicated:

	March 31, 2013			June 30, 2012
	(dollars in thousands)
Gross loan principal outstanding	$	63,628		$	34,404
Allowance for loan losses		(1,546	)		(1,309	)
Education loans held-to-maturity, net of allowance	$	62,082		$	33,095

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(b) Education Loan Allowance for Loan Losses and the Related Provision for Loan Losses

We recorded the following activity in the allowance for loan losses for education loans:

	Three months ended March 31,						Nine months ended March 31,
	2013			2012			2013			2012
	(dollars in thousands)
Balance, beginning of period	$	1,464		$	1,255		$	1,309		$	1,336
Provision (credit) for loan losses		26			(170	)		(151	)		(472	)
Reserves reclassified from interest receivable for capitalized interest		4			5			26			16
Charge-offs		(30	)		(41	)		(86	)		(192	)
Recoveries from borrowers		82			227			448			588
Balance, end of period	$	1,546		$	1,276		$	1,546		$	1,276

To estimate the allowance for loan losses on our newly originated Monogram-based loan portfolio, we utilized specific default and recovery rates projected for our Monogram-based loan portfolio over the 12-month loss confirmation period. We may also apply qualitative adjustments in determining the allowance for loan losses. Our default experience with this loan portfolio is limited by the seasoning of the portfolio; however, we have utilized our historical database and experience in projecting the level of defaults and recoveries of our Monogram-based loan portfolio relying in part on historical results from our securitization trusts that we previously facilitated for loans that have similar credit characteristics to those in our Monogram-based loan portfolio.

At March 31, 2013 and June 30, 2012, there were $82 thousand and $54 thousand, respectively, of education loans that were in non-accrual status and no education loans that had specific reserves. These loans consisted of loans that were transferred by Union Federal to an indirect subsidiary of FMD in 2009, prior to the launch of our Monogram platform. Our policy is to have a specific allowance for loans greater than 180 days past due, but not yet charged-off. At March 31, 2013, there were $29 thousand of Monogram-based education loans issued through Union Federal that were greater than 180 days past due.

Overall Education Loan Credit Quality

Management monitors the credit quality of an education loan based on loan status, as outlined below. The impact of changes in loan status, such as delinquency and time in repayment, is incorporated into the quarterly allowance for loan loss calculation, through our projection of defaults. The following table represents our loan origination metrics with respect to our Monogram-based programs held at Union Federal at March 31, 2013 and June 30, 2012:

	March 31, 2013			June 30, 2012
Weighted-average FICO score		752			753
Co-signers		84.0	%		84.8	%
Delinquent loans		0.90	%		0.03	%

The following table provides information on the status of education loans outstanding:

	March 31, 2013		As a percentage of total			June 30,  2012		As a percentage of total
	(dollars in thousands)
Principal of loans outstanding:
In basic forbearance	$	665		1.0	%	$	171		0.5	%
In school and in deferment		23,759		37.3			14,781		43.0
In repayment, including alternative payment plans, classified as:
Current: £30 days past due		38,465		60.5			19,289		56.0
Delinquent: >30 days past due, but £120 days past due		657		1.0			109		0.3
Delinquent: >120 days past due, but £180 days past due		53		0.1			54		0.2
In default: >180 days past due, but not yet charged-off		29		0.1			—		—
Total gross loan principal outstanding	$	63,628		100.0	%	$	34,404		100.0	%
Non-accrual loan principal (>120 days past due)	$	82		0.1	%	$	54		0.2	%
Past due loan principal (>90 days, but £120 days past due still accruing interest)		126		0.2			11		0.0
In alternative payment plans		531		0.8			263		0.8

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We use the following terms to describe borrowers’ payment status:

In School and In Deferment Pursuant to the terms of the education loans, a borrower may choose to defer principal and interest payments while carrying a specified academic course load and may be eligible to defer payments for an additional six months after graduation during a grace period. At the end of the deferment period, any remaining accrued but unpaid interest is capitalized and added to principal outstanding.

In Repayment We determine the repayment status of a borrower, including a borrower making payments pursuant to alternative payment plans, by contractual due dates. A borrower making reduced payments for a limited period of time pursuant to an alternative payment plan will be considered current if such reduced payments are timely made. Under our Monogram platform, borrowers may be in repayment while in school. Payment options while in school include full principal and interest, partial interest and interest only.

Forbearance Pursuant to the terms of the education loans, a borrower may apply for forbearance, which is a temporary reprieve from making full contractual payments. Forbearance can take many forms, at the option of the creditor. The most common forms of forbearance include the following:

• Basic forbearance—Cessation of all contractual payments for a maximum allowable forbearance period of one year, granted in three-month increments. Although basic forbearance is available as part of our Monogram-based programs, it has not been substantially utilized due to the seasoning of our Monogram-based education loan portfolio.

• Alternative payment plans—Pursuant to an alternative payment plan, a borrower can make a reduced payment for a limited period of time. The amount of the payment varies depending on the program and may be set at a fixed dollar amount, a percentage of contractual required payments or interest-only payments. Generally, approval for alternative payment plans is granted for a maximum of six to 24 months, depending on the program. Although these plans are available as part of our Monogram-based programs, they have not been substantially utilized due to the seasoning of our Monogram-based education loan portfolio.

The use of forbearance is contemplated at the origination of an education loan and, as noted in the credit agreement with the borrower, is granted at the lender’s discretion. Under both basic forbearance and alternative payment plans, the education loan continues to accrue interest. When forbearance ceases, unpaid interest is capitalized and added to principal outstanding, and the borrower’s required payments are recalculated at a higher amount to pay off the loan, plus the additional accrued and capitalized interest, at the original stated interest rate by the original maturity date. There is no forgiveness of principal or interest, reduction in the interest rate or extension of the maturity date.

Forbearance programs result in a delay in the timing of payments received from borrowers, but at the same time, assuming the collection of the forborne amounts, provide for an increase in the gross volume of cash receipts over the term of the education loan due to the additional accrued interest capitalized while in forbearance. Forbearance programs may have the effect of delaying default emergence, and alternative payment plans may reduce the utilization of basic forbearance.

(8) 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 interest accounts (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 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. We expect education loans originated under our Monogram platform to perform better in general than the education loans held by the securitization trusts facilitated by us as a result of the relative credit characteristics of the loan portfolios.

Cash balances in the participation accounts earn interest at market rates applicable to commercial interest-bearing deposit accounts. 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

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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 statement 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 from the participation accounts are uncertain and vary among the loan programs.

We carry participation accounts at fair value in our consolidated balance sheet. 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 unrealized losses related to the participation accounts based on the net present value of expected future cash flows into and out of the account related to education loans originated as of our balance sheet date, 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 estimated fair value of participation accounts, if any, in non-interest revenues as part of administrative and other fees.

(9) Goodwill and Intangible Assets

(a) Cology LLC

As a result of our acquisition of a substantial portion of the operating assets of the Cology Sellers in October 2012, we recorded a customer list intangible asset of $5.7 million for the approximately 250 credit union clients that the Cology Sellers did business with as of the acquisition date along with $518 thousand of goodwill. Our customer list intangible asset will be amortized over a 15-year period on a straight line basis. We expect amortization expense related to the Cology LLC intangible asset to be 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.

(b) TMS

We completed our acquisition of TMS during fiscal 2011. We recorded goodwill of $22.2 million at the acquisition date. On June 30, 2011, TMS sold a portfolio of contracts with K-12 schools to Nelnet Business Solutions, Inc. in a transaction that eliminated a portion of goodwill by $2.6 million and decreased our customer list intangible asset by $4.1 million. As a result, $19.5 million of goodwill remained at June 30, 2012 and 2011 and the adjusted cost basis of our customer list intangible was $17.9 million. We recorded no goodwill or intangible asset impairment during fiscal 2012.

Intangible assets at March 31, 2013 consisted of the following:

	Amortization period		Adjusted cost basis		Accumulated amortization			Net
	(in years)		(dollars in thousands)
Intangible assets:
Customer list		15	$	23,600	$	(2,881	)	$	20,719
Technology		6		4,400		(1,969	)		2,431
Tradename		15		1,950		(292	)		1,658
Total intangible assets at March 31, 2013			$	29,950	$	(5,142	)	$	24,808

Estimated annual amortization expense for each of the remainder of fiscal 2013 and the full fiscal years subsequent thereafter is as follows:

	Customer list		Technology		Tradename		Total
	(dollars in thousands)
Estimated amortization expense:
Remainder of 2013	$	488	$	190	$	32	$	710
2014		1,573		721		130		2,424
2015		1,573		608		130		2,311
2016		1,573		608		130		2,311
2017		1,573		304		130		2,007
Thereafter		13,939		—		1,106		15,045
Total	$	20,719	$	2,431	$	1,658	$	24,808

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(10) Fair Value Measurements

(a) Financial Instruments Recorded at Fair Value on our Consolidated Balance Sheet

For financial instruments recorded at fair value on our consolidated balance sheet, 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. During the first nine months of fiscal 2013 and the first nine months of fiscal 2012, there were no transfers between the hierarchy levels.

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

Investments Available-for-Sale

Investments available-for-sale include GSE mortgage-backed securities and mortgage-backed securities issued by U.S. government agencies that were recorded at fair value using matrix pricing with inputs that were observable in the market or can be derived principally from or corroborated by market data. The fair value pricing was obtained from a third party pricing service and was compared to another source to validate the accuracy of the prices. These investments are classified as Level 2 in the hierarchy.

Participation Interest Account Deposits

We recorded participation account deposits 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 March 31, 2013 and June 30, 2012, 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.

Service Revenue Receivables

We recorded our service revenue receivables at fair value on our consolidated balance sheet. 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 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 statement of operations within the 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. Significant observable and unobservable inputs used to develop our fair value estimates include, but are not limited to, recovery, net default and prepayment rates, discount rates and the forward London Interbank Offered Rate (LIBOR) curve. These inputs have not changed significantly from June 30, 2012. Our significant unobservable inputs are included below.

The following table presents financial instruments carried at fair value on our consolidated balance sheet, in accordance with the valuation hierarchy described above, on a recurring basis:

	March 31, 2013								June 30, 2012
	Level 1		Level 2		Level 3		Total carrying value		Level 1		Level 2		Level 3		Total carrying value
	(dollars in thousands)
Assets:
Investments available-for-sale	$	—	$	83,898	$	—	$	83,898	$	—	$	68,598	$	—	$	68,598
Deposits for participation interest accounts		—		—		10,847		10,847		—		—		4,039		4,039
Service revenue receivables		—		—		15,655		15,655		—		—		16,341		16,341
Total assets	$	—	$	83,898	$	26,502	$	110,400	$	—	$	68,598	$	20,380	$	88,978

The following table presents activity related to our financial assets categorized as Level 3 of the valuation hierarchy, valued on a recurring basis, for the three and nine months ended March 31, 2013 and 2012. All realized and unrealized gains and losses recorded during the periods presented relate to assets still held at our balance sheet date. There have been no transfers in or out of Level 3 of the hierarchy, or between Levels 1 and 2, for the periods presented.

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	Three months ended March 31,
	2013						2012
	Deposits for participation interest accounts			Service revenue receivables			Deposits for participation interest accounts		Service revenue receivables
	(dollars in thousands)
Fair value, beginning of period	$	9,637		$	16,004		$	3,584	$	14,304
Realized and unrealized gains (losses)		(57	)		838			25		2,454
Net contributions (distributions)		1,267			(1,187	)		117		(520	)
Fair value, end of period	$	10,847		$	15,655		$	3,726	$	16,238

	Nine months ended March 31,
	2013						2012
	Deposits for participation interest accounts			Service revenue receivables			Deposits for participation interest accounts			Service revenue receivables
	(dollars in thousands)
Fair value, beginning of period	$	4,039		$	16,341		$	8,512		$	29,610
Realized and unrealized gains (losses)		(180	)		2,057			(9	)		202
Net contributions (distributions)		6,988			(2,743	)		(4,777	)		(13,574	)
Fair value, end of period	$	10,847		$	15,655		$	3,726		$	16,238

The following table presents additional quantitative information about the assets measured at fair value on a recurring basis for which we have utilized Level 3 inputs to determine fair value at March 31, 2013:

Asset	Fair Value		Valuation Techniques		Significant Unobservable Inputs	Range
	(dollars in thousands)
Deposits for participation interest accounts	$	10,847		Discounted cash flows	Discount rate	8-15%
					Annual prepayment rates	5-12%
					Annual net recovery rates	2.67%
					Annual default rates	0-2.25%
Service revenue receivables	$	15,655		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 participation accounts include, but are not limited to, discount rates, default and prepayment rates and recovery rates. The forward LIBOR curve is a key observable input utilized in determining the fair value of expected future cash flows from these assets. There have been no significant changes in these inputs from June 30, 2012.

Sensitivity to Changes in Assumptions

The service revenue receivables recorded at March 31, 2013 and June 30, 2012 were related to the GATE Trusts and other securitization trusts we previously facilitated. Substantially all of the 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 holder. In addition, the recoveries on guaranteed defaults are returned back to the schools or bank, as applicable, not the residual interest holder therefore limiting the impact and sensitivity of the residual interest holder to recoveries. Further, due to the seasoning of these trusts, many of the residual interests 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.

(c) Fair Values of Other Financial Instruments

Fair value estimates for financial instruments not carried at fair value on our consolidated balance sheet 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 available market information. The fair value estimates for the financial instruments disclosed below does not necessarily incorporate the exit price concept used to record financial instruments at fair value on our consolidated balance sheet.

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Cash and Cash Equivalents, Short-term Investments, Restricted Cash and Restricted Funds Due to Clients

The carrying amount approximates fair value principally due to the short maturities of these instruments.

Mortgages

The fair value of the fixed-rate mortgage portfolio was determined by discounting the cash flows using rates obtained from a third party as of our balance sheet date. The fair value of the variable rate portfolio was determined by discounting the scheduled cash flows through the estimated maturity of the loans using the interest rates offered as of our balance sheet date that reflect the current interest rate inherent in the loans. This method of estimating fair value does not incorporate the exit price concept of fair value. Mortgage loans were classified within Level 3 of the fair value hierarchy.

Education Loans

The fair value of education loans was determined by discounting the scheduled cash flows through the estimated maturity of the loans using interest rates offered as of our balance sheet date that reflect the credit and interest rate risk inherent in the loans. The estimate of maturity was based on our historical repayment experience. Since the education loans held were principally variable rate, carrying value approximates fair value. This method of estimating fair value does not incorporate the exit price concept of fair value. Education loans were classified within Level 3 of the fair value hierarchy.

Time Deposits

The fair value of time deposits was determined by discounting the scheduled cash flows either using the rates we offered as of our balance sheet date for deposits with similar remaining maturities or rates of our competitors. In determining our offering rates, we compare our rates on a continuous basis to other banks and competitors. As such, time deposits were classified within Level 2 of the fair value hierarchy.

Savings, Checking and Money Market Deposits

The fair value of our savings, checking and money market deposits with no stated maturity were equal to the amounts payable upon demand.

The following tables present the carrying amount, estimated fair value and placement in the fair value hierarchy for our financial instruments not measured at fair value on our consolidated balance sheet at March 31, 2013 and June 30, 2012:

March 31, 2013	Carrying		Estimated		Fair Value Measurements
	Amount		Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	141,534	$	141,534	$	141,534	$	—	$	—
Short-term investments		50,116		50,116		50,116		—		—
Restricted cash		36,641		36,641		36,641		—		—
Mortgage loans, net of allowance		11,529		11,748		—		—		11,748
Education loans, net of allowance		62,082		62,287		—		—		62,287
Financial Liabilities:
Time deposits	$	45,506	$	45,881	$	—	$	45,881	$	—
Savings, checking and money market deposits		118,713		118,713		118,713		—		—
Restricted funds due to clients		76,288		76,288		76,288		—		—

June 30, 2012	Carrying		Estimated		Fair Value Measurements
	Amount		Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	123,497	$	123,497	$	123,497	$	—	$	—
Short-term investments		85,007		85,007		85,007		—		—
Restricted cash		65,401		65,401		65,401		—		—
Mortgage loans, net of allowance		7,811		7,811		—		—		7,811
Education loans, net of allowance		33,095		33,280		—		—		33,280
Financial Liabilities:
Time deposits	$	43,155	$	43,248	$	—	$	43,248	$	—
Savings, checking and money market deposits		40,273		40,273		40,273		—		—
Restricted funds due to clients		104,981		104,981		104,981		—		—

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(11) Commitments and Contingencies

(a) Income Tax Matters

Internal Revenue Service Audit

As a result of the sale of the trust certificate of NC Residuals Owners Trust (the Trust Certificate), effective March 31, 2009, 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. In April 2010, the Internal Revenue Service (IRS) commenced an audit of our tax returns for fiscal 2007 through fiscal 2009. Such audits are consistent with the practice of the Joint Committee of Taxation, which requires the IRS to perform additional procedures, including an audit of a taxpayer who receives a tax refund in excess of $2.0 million. In connection with this audit, the IRS is reviewing, among other things, the tax treatment of the sale of the Trust Certificate, including the related income tax refund previously received by us. The IRS has also expanded its audit to include our tax return for fiscal 2010 in light of the $45.1 million tax refund that we received in October 2010. We cannot predict the timing or outcome of the IRS audit. As of March 31, 2013, as well as through the filing of this quarterly report on May 10, 2013, the IRS had not issued any notice of proposed adjustment in connection with its audit.

Massachusetts Appellate Tax Board Matters

We are involved in several matters before the Massachusetts Appellate Tax Board (ATB) relating to the Massachusetts tax treatment of GATE Holdings, Inc. (GATE), a former subsidiary of FMD. We took the position in these proceedings 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 Massachusetts Commissioner of Revenue (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 Commission would ultimately be allowed. In March 2010, we filed petitions with the ATB contesting the additional assessments against GATE and us. In April 2011, the ATB held an evidentiary hearing on the foregoing, and the parties filed their final briefs in September 2011. On November 9, 2011, the ATB issued an order (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.

In connection with the ATB Order, as well as the expiration of the statute of limitations applicable to GATE’s taxable year ended June 30, 2007, we recognized an income tax benefit of $12.5 million during the second quarter of fiscal 2012. In the third quarter of fiscal 2012, we made a $5.1 million payment that satisfied our obligation to the Massachusetts Department of Revenue for GATE’s taxable years ended June 30, 2004, 2005 and 2006.

On April 17, 2013, the ATB issued its opinion confirming the rulings and findings included in the ATB Order (the ATB Opinion). We had argued that the loan servicers’ activities, which were conducted outside of Massachusetts on behalf of the trusts, determined the location of the loans for purposes of the Property Factor. The ATB disagreed and determined that the loan servicers’ activities should not be attributed to GATE and further determined that, for purposes of the Property Factor, the trust-owned education loans were located in Massachusetts, GATE’s commercial domicile.

We are reviewing the ATB Opinion, but we would expect to pursue an appeal of the ATB’s finding with regard to the Property Factor. The Commissioner may also consider an appeal of the ATB’s other findings. If we are unsuccessful in an appeal of the ATB Order, 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. We have accrued a total of $24.0 million at March 31, 2013 related to this matter, which amount was included in income taxes payable on our consolidated balance sheet. We have not accrued penalties associated with the matter as the Massachusetts Department of Revenue has waived penalties associated with tax years 2004 through 2006 for GATE. We cannot predict the outcome of this matter or the timing of such payments, if any, at this time.

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(b) Indemnifications—Sale of FMDS

In connection with the sale of FMDS, we have agreed to indemnify the buyer for breaches of representations, warranties and covenants, subject to certain terms, conditions and exceptions.

The buyer’s rights to indemnification with respect to breaches of certain of our representations and warranties in the purchase agreement (the Non-Fundamental Representations) are subject to:

• An aggregate deductible of $1.0 million (the Deductible);

• An aggregate cap of $2.0 million (the Non-Fundamental Cap); and

• A survival limitation requiring the buyer to assert claims within 18 months after the closing date of March 2, 2012 (the Survival Limitation).

With respect to breaches of Non-Fundamental Representations, the buyer would be entitled to indemnification if its aggregate indemnifiable losses were to exceed the Deductible. In that event, the buyer would be entitled to indemnification to the extent that its losses exceeded $750 thousand, up to the Non-Fundamental Cap; provided, however, that if the Non-Fundamental Cap were reached and the buyer were to have suffered additional indemnifiable losses solely as a result of a breach of our representations and warranties with regard to legal compliance, the buyer would be entitled to recover up to an additional $2.0 million in the aggregate.

The buyer’s rights to indemnification with respect to breaches of our other representations and warranties in the purchase agreement (the Fundamental Representations) are not subject to the Deductible or the Survival Limitation and are subject to a cap equal to the purchase price minus the aggregate amount paid by us in connection with breaches of Non-Fundamental Representations. We refer to this cap as the Fundamental Cap. The Fundamental Representations include representations and warranties by FMD with regard to its organization, its authorization of the transaction, the absence of broker’s fees and its ownership of the shares of capital stock of FMDS. The Fundamental Representations also include representations and warranties by FMD with regard to FMDS’ organization, qualification and corporate power, FMDS’ capitalization, the absence of broker’s fees, the absence of subsidiaries and certain tax matters.

The buyer’s rights to indemnification would not be subject to the Deductible, the Non-Fundamental Cap, the Fundamental Cap or the Survival Limitation in the case of any breach or nonperformance by us or any of our covenants or obligations set forth in the purchase agreement. In addition, we have agreed to provide a separate, unconditional indemnity with regard to tax matters related to FMDS arising prior to the closing date, including the audit currently being conducted by the IRS, as discussed above. This special indemnity is not subject to the Deductible, the Non-Fundamental Cap, the Fundamental Cap or the Survival Limitation. Finally, we have agreed to indemnify and defend the buyer from certain other specified matters. The buyer’s rights to such indemnification would be initially capped at the purchase price, and the applicable cap would then decrease over time. We believe that at the time of the sale of FMDS and at March 31, 2013, the likelihood of making any payment under these indemnifications was remote. As such, the fair value of any such liability for the indemnifications would, therefore, also be immaterial to our consolidated financial statements.

(c) Performance Guaranty

In connection with Union Federal’s sale of an education loan portfolio in October 2009, FMD delivered a performance guaranty pursuant to which FMD guarantees the performance by Union Federal of its obligations and agreements under the loan purchase and sale agreement relating to the transaction. We were not aware of any contingencies existing at March 31, 2013 that were both probable and estimable for which we would record a reserve, nor can we estimate a range of possible losses at this time.

(d) Assumption of Potential Contingent Liabilities of Union Federal

In April 2010, FMD and certain of its subsidiaries entered into agreements relating to the restructuring of the education loan warehouse facility of FMD’s indirect subsidiary, UFSB Private Loan SPV, LLC (UFSB-SPV). In connection with the restructuring, the third-party conduit lender released potential claims against Union Federal and UFSB-SPV pursuant to the indenture relating to the facility based upon events arising prior to April 16, 2010, to the extent such claims would exceed a liability limit of $20.0 million in the aggregate. Except in the case of third-party claims, neither Union Federal nor UFSB-SPV would have any liability until the conduit lender’s aggregate losses exceeded a deductible of $3.5 million, at which point Union Federal and UFSB-SPV would only be liable for amounts above the deductible up to the liability limit. Neither the liability limit nor the deductible would apply in cases of fraud, willful misconduct or gross negligence. In addition, the release was not deemed a waiver of rights previously reserved but not exercised by the conduit lender, except as specifically released pursuant to the settlement agreement in connection with the restructuring.

FMD assumed any remaining contingent liability of Union Federal and its affiliates, other than UFSB-SPV, under the facility arising prior to April 16, 2010, subject to the liability limit discussed above. In addition, FMD assumed any contingent liability of Union Federal under the facility arising prior to April 16, 2010 based on fraud, willful misconduct or gross negligence, and agreed to provide

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a separate indemnity for third-party claims by or on behalf of borrowers against the conduit lender based on loan origination errors. In December 2011, FMD and certain of its subsidiaries entered into a letter agreement with the conduit lender and other secured parties pursuant to which, among other things, the conduit lender foreclosed on the collateral in satisfaction of UFSB-SPV’s obligations under the facility and the parties agreed to maintain existing servicing agreements with respect to the education loan portfolio formerly serving as collateral. The obligations assumed by FMD, but not its separate indemnity, terminated on June 30, 2012. We were not aware of any contingencies existing at our balance sheet date that were both probable and estimable for which we would record a reserve, nor can we estimate a range of possible losses at this time.

(12) Net (Loss) Income per Share

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

	Three months ended March 31,					Nine months ended March 31,
	2013			2012		2013			2012
	(dollars and shares in thousands, except per share amounts)
Net (loss) income from continuing operations	$	(8,789	)	$	2,948	$	(35,004	)	$	(19,613	)
Less: Earnings (loss) allocated to participating securities		—			236		—			(1,573	)
Net (loss) income from continuing operations allocated to common shares outstanding	$	(8,789	)	$	2,712	$	(35,004	)	$	(18,040	)
Income from discontinued operations, net of taxes	$	—		$	6,910	$	—		$	1,135,781
Less: Earnings allocated to participating securities		—			554		—			91,090
Income from discontinued operations allocated to common shares outstanding	$	—		$	6,356	$	—		$	1,044,691
Net (loss) income per basic common share:
From continuing operations	$	(0.08	)	$	0.03	$	(0.33	)	$	(0.18	)
From discontinued operations		—			0.06		—			10.30
Total basic net (loss) income per share	$	(0.08	)	$	0.09	$	(0.33	)	$	10.12
Net (loss) income per diluted common share:
From continuing operations	$	(0.08	)	$	0.03	$	(0.33	)	$	(0.18	)
From discontinued operations		—			0.06		—			10.28
Total diluted net (loss) income per share	$	(0.08	)	$	0.09	$	(0.33	)	$	10.10
Weighted-average common shares outstanding
Basic		111,110			101,554		105,988			101,459
Diluted		111,110			110,573		105,988			110,499
Anti-dilutive common stock equivalents		231			—		26			—

For the periods in which a net loss was incurred, common stock equivalents are considered anti-dilutive, and, therefore, are excluded from diluted weighted-average shares outstanding. For the fiscal 2013 periods, common stock equivalents include restricted stock units and stock options. For the majority of stock options outstanding, the conversion or exercise price exceeds fair market value at the reporting date.

In December 2007, FMD entered into an investment agreement with GS Parthenon A, L.P. and GS Parthenon B, L.P., affiliates of GS Capital Partners, which we refer to as the Purchasers. Pursuant to the investment agreement, FMD issued 132,701 shares of newly designated Series B Non-Voting Convertible Preferred Stock, $0.01 par value per share (Series B Preferred Stock), at a purchase price of $1 thousand per share. The Series B Preferred Stock was automatically convertible into FMD’s common stock upon the sale or transfer by any holder of the Series B Preferred Stock to any party other than an affiliate of such holder. The number of common shares issuable upon conversion was equal to the initial purchase price of the Series B Preferred Stock, divided by the conversion price of $15.00 per share. On November 30, 2012, the Purchasers entered into a purchase agreement with a third party to sell, in a private transaction, all 132,701 shares of Series B Preferred Stock then outstanding. On December 4, 2012, the transaction was settled and the Series B Preferred Stock was converted into 8,846,733 shares of FMD’s common stock and was issued to the third-party purchaser. Following this transaction, there are no longer any shares of Series B Preferred Stock outstanding.

(13) Union Federal Regulatory Matters

Union Federal is a federally-chartered thrift that is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in initiation of certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on our liquidity. Under capital adequacy

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guidelines and the regulatory framework for prompt corrective action, Union Federal must meet specific capital guidelines that involve quantitative measures of Union Federal’s assets and liabilities as calculated under regulatory accounting practices. The capital amounts and classifications, however, are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Union Federal’s equity capital was $22.7 million and $16.3 million at March 31, 2013 and June 30, 2012, respectively. During the nine months ended March 31, 2013, Union Federal received capital contributions of $5.8 million from FMD.

Quantitative measures established by regulation to ensure capital adequacy require Union Federal to maintain minimum amounts and ratios of total capital and Tier 1 capital to risk-weighted assets (each as defined in the regulations). As of March 31, 2013 and June 30, 2012, Union Federal was well capitalized under the regulatory framework for prompt corrective action.

Union Federal’s regulatory capital ratios were as follows as of the dates below:

	Regulatory Guidelines
	Minimum			Well capitalized			March 31, 2013			June 30, 2012
Capital ratios:
Tier 1 risk-based capital		4.0	%		6.0	%		25.7	%		31.3	%
Total risk-based capital		8.0			10.0			25.9			31.7
Tier 1 (core) capital		4.0			5.0			9.5			11.0

FMD is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System (the Federal Reserve), as a savings and loan holding company, and Union Federal is subject to regulation, supervision and examination by the OCC.

The OCC regulates all capital distributions by Union Federal directly or indirectly to FMD, including dividend payments. Union Federal is required to file a notice with the OCC at least 30 days before the proposed declaration of a dividend or approval of a proposed capital distribution by Union Federal’s Board of Directors. Union Federal must file an application to receive the approval of the OCC for a proposed capital distribution when, among other circumstances, the total amount of all capital distributions (including the proposed capital distribution) for the applicable calendar year exceeds net income for that year to date plus the retained net income for the preceding two years.

A notice or application to make a capital distribution by Union Federal may be disapproved or denied by the OCC if it determines that, after making the capital distribution, Union Federal would fail to meet minimum required capital levels or if the capital distribution raises safety or soundness concerns or is otherwise restricted by statute, regulation or agreement between Union Federal and the OCC, or a condition imposed by an OCC agreement. Under the Federal Deposit Insurance Corporation Improvement Act (FDICIA), a Federal Deposit Insurance Corporation-insured depository institution such as Union Federal is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is used in the FDICIA).

In March 2010, the FMD Board of Directors adopted resolutions required by the U.S. Office of Thrift Supervision (OTS), Union Federal’s regulator at that time, undertaking to support the implementation by Union Federal of its business plan, so long as Union Federal is owned or controlled by FMD, and to notify the OTS in advance of any distribution to our stockholders in excess of $1.0 million per fiscal quarter and any incurrence or guarantee of debt in excess of $5.0 million. These resolutions continue to be applied by the Federal Reserve. Distribution to our stockholders may be further restricted by the Federal Reserve’s required approval in those instances when such distributions exceed the net earnings of the prior 12-month period.

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Item 2. 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 unaudited consolidated financial statements and accompanying notes included in Part I of this quarterly report and in conjunction with our audited consolidated financial statements included in our annual report on Form 10-K for the fiscal year ended June 30, 2012 filed with the Securities and Exchange Commission, or SEC, on September 12, 2012, which we refer to as our Annual Report.

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” or “FMD” to refer to The First Marblehead Corporation on a stand-alone basis. We use the term “education loans” 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 ending June 30, 2013 as “fiscal 2013.”

Factors That May Affect Future Results

In addition to historical information, this quarterly 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. 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,” “will,” “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 results, 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” set forth in Note 2, “Summary of Significant Accounting Policies,” in the notes to our consolidated financial statements included in Item 8 of Part II of our Annual Report and factors including, but not limited to, those set forth under the caption “Risk Factors” in Item 1A of Part II of this quarterly 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 May 10, 2013.

Executive Summary

Overview

We are a specialty finance company focused on the education financing marketplace in the United States. We provide loan programs on behalf of our lender clients for K-12, undergraduate and graduate students and for college graduates seeking to consolidate private education loan obligations, as well as tuition planning, tuition billing, refund management and payment technology services. We offer a fully integrated suite of services through our Monogram^® loan product service platform, which we refer to as our Monogram platform, as well as certain services on a stand-alone, fee-for-service basis. We partner with lenders to design and administer education loan programs through our Monogram platform, which are typically school-certified and designed to be marketed through educational institutions or to prospective borrowers and their families directly and designed to generate portfolios intended to be held by the originating lender or financed in the capital markets. We also offer a number of ancillary services in support of our clients, including loan origination, retail banking, portfolio management and securitization services.

On October 19, 2012, we acquired a substantial portion of the operating assets, and assumed certain liabilities, of Cology, Inc. and its affiliates. We refer to Cology, Inc. and its affiliates as the Cology Sellers. We refer to the FMD subsidiary that acquired the operating assets of the Cology Sellers as Cology LLC. Through Cology LLC, we provide loan processing services to approximately 250 credit unions. Because Cology LLC is a loan processer, none of the education loans that it processes on behalf of its clients are included on our consolidated balance sheet but, rather, are included on the balance sheets of its clients. As such, none of the references in this quarterly report to education loans included in our consolidated balance sheet include the education loans processed by Cology LLC on behalf of its clients. Our consolidated financial statements for the nine months ended March 31, 2013 reflect income and expenses of Cology LLC since the date of acquisition.

Our product and service offerings are part of a change in our revenue model that we have been implementing since fiscal 2009 with a focus on fee-based revenues. Our long-term success depends on the continued development of our four principal revenue lines:

• Partnered lending—We provide customized Monogram-based education loan programs for lenders who wish to hold originated portfolios to maturity. We may provide credit enhancements by funding participation interest accounts, which we refer to as participation accounts, or, in the case of FMD’s subsidiary Union Federal Savings Bank, which we refer to as Union Federal^®, deposit 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 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.

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• Banking services—Union Federal offers traditional retail banking products on a stand-alone basis. In addition, Union Federal generates additional revenues by originating Monogram-based education loan portfolios, subject to regulatory conditions, with the intent of holding them to maturity.

• Capital markets—Our capital markets experience coupled with our loan performance database and risk analytics expertise provide specialized insight into funding options available to our clients. We have a right of first refusal should one of our partner lenders wish to sell some of or its entire 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.

• Fee-for-service—Loan origination, portfolio management, analytical and structuring services, tuition billing and payment processing and refund management services are each available on a stand-alone, fee-for-service basis. We offer outsourced tuition planning, tuition billing and payment technology services for universities, colleges and secondary schools through FMD’s subsidiary Tuition Management Systems LLC, which we refer to as TMS. Through FMD’s subsidiary Cology LLC, we earn fees for the processing of education loans on behalf of approximately 250 credit union clients.

Business Trends, Uncertainties and Outlook

The following discussion of business trends, uncertainties and outlook focuses on certain developments affecting our business since the beginning of fiscal 2013.

Loan Processing and Origination

In the beginning of fiscal 2011, we began providing services for two lender clients related to school-certified education loan programs, including originating education loans, based on our Monogram platform. During fiscal 2012, we began performing services for Union Federal related to school-certified education loan programs based on our Monogram platform, including a K-12 loan program. In June 2012, we launched a Monogram-based loan program with a new lender client and, in August 2012, we launched a Monogram-based loan consolidation program with an existing client. Our Monogram platform continues to provide 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 a result of our acquisition in October 2012 of a substantial portion of the operating assets, and assumption of certain liabilities, of the Cology Sellers, we process and disburse education loans on behalf of approximately 250 credit unions. Cology LLC earns fees primarily based on the number of loan applications, disbursements and loan certifications it processes on behalf of its clients. The results of Cology LLC have been consolidated in our financial statements since the date of acquisition.

The following table presents our loan facilitation metrics with respect to our Monogram-based programs for the three and nine months ended March 31, 2013 and 2012, as well as the education loans processed by Cology LLC for the period since the date of acquisition through March 31, 2013. Because Cology LLC is a loan processer, none of the education loans that it processes on behalf of its clients are included on our consolidated balance sheet but, rather, are included on the balance sheets of its clients. 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 or 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.

	Three months ended March 31,
	2013										2012
	Partnered Lending		Union Federal		Monogram Loan Programs Total		Cology LLC		Total		Partnered Lending		Union Federal		Monogram Loan Programs Total
	(dollars in thousands)
Facilitated Loans	$	12,182	$	3,713	$	15,895	$	52,916	$	68,811	$	2,268	$	7,238	$	9,506
Disbursed Loans		40,064		12,462		52,526		215,596		268,122		8,262		14,464		22,726

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	Nine months ended March 31,
	2013										2012
	Partnered Lending		Union Federal		Monogram Loan Programs Total		Cology  LLC (since acquisition)		Total		Partnered Lending		Union Federal		Monogram Loan Programs Total
	(dollars in thousands)
Facilitated Loans	$	88,474	$	29,100	$	117,574	$	102,650	$	220,224	$	20,081	$	32,809	$	52,890
Disbursed Loans		89,270		31,409		120,679		273,896		394,575		20,572		31,683		52,255

Historically, we have processed the greatest Monogram-based 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. The following table represents our loan origination metrics with respect to our Monogram-based programs held at Union Federal at March 31, 2013 and 2012:

	March 31, 2013			March 31, 2012
Weighted-average FICO score		752			753
Co-signers		84.0	%		85.7	%
Delinquent loans		0.90	%		0.47	%

Portfolio Performance

Credit performance of consumer-related loans generally has been adversely affected by general economic conditions in the United States over the past four 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 recently, 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 more than 12 months of 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. The service revenue receivables from these trusts that remain on our consolidated balance sheet at March 31, 2013 and June 30, 2012 have not been significantly impacted by defaults or recoveries since these trusts possess guarantees that help to partially negate the overall impact of any default activity. Many of these securitization trusts are also cash flowing, seasoned portfolios that, for the most part, have relatively short weighted-average lives.

Capital Markets

We believe that conditions in the capital markets generally improved in fiscal 2012 and during the nine months ended March 31, 2013 compared to recent years. In particular, investors in asset-backed securities, or ABS, demonstrated increased interest in ABS backed by private education loans, resulting in a reduction in credit spreads applicable to these securities. Additionally, during the third quarter of fiscal 2013 a private education loan ABS issuance by a third party included a subordinate bond, the first such bond to be included in a new issuance since 2007. The inclusion of this subordinate bond served to increase the advance rate, or amount of funds raised as a percentage of the collateral in the issuance. We believe that these trends during the nine months ended March 31, 2013 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, 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.

Uncertainties

Our near-term financial performance and future growth depends in large part on our ability to successfully and efficiently market our Monogram platform, Cology LLC offerings and TMS offerings so that we may grow and diversify our client base and revenues. Facilitated and disbursed loan volumes are a key element of our financial results and business strategy, and we believe that the results from the current peak origination season through the first nine months of fiscal 2013 demonstrate market demand for Monogram-based education loans.

We have invested in our distribution capabilities over the course of the past two years, including our school channel sales force and TMS, but we face challenges in increasing loan volumes after our prolonged absence from the marketplace. For example, competitors

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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.

Outlook

Our long-term success depends on our ability to attract additional lender clients, or otherwise obtain additional sources of interim or permanent financing. This is particularly true because of the regulatory conditions and approvals relating to the Union Federal Private Student Loan Program. To date, we have entered into education loan program agreements based on our Monogram platform with four lender clients, including FMD’s subsidiary Union Federal. We are uncertain as to the degree of market acceptance that our Monogram platform will achieve, particularly in the current economic environment where lenders continue to evaluate their education lending business models. We believe, however, that the credit quality characteristics and interest rates of the loan portfolios originated in the 2011-2012 and the 2012-2013 academic years 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 four lender clients, one of which is FMD’s subsidiary Union Federal, or any additional lender clients, including clients acquired through our acquisition of a substantial portion of the operating assets of the Cology Sellers in October 2012. It is our view that returning to profitability will be dependent on a number of factors, including our loan capacity and related volumes, expense management and growth at TMS, Cology LLC and Union Federal, and the availability of financing alternatives, including our ability to successfully re-enter the securitization market. 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 four 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 acquisition. In the case of Cology LLC, we expect to continue to provide loan processing services to the former customers of the Cology Sellers similar to the services provided to them by the Cology Sellers prior to the asset acquisition. In addition, we expect to provide various Monogram-based products and services to these customers to assist them in education loan product design, pricing, marketing, reporting and analysis, as well as education loan portfolio management services.

Changes in 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, Cology LLC offerings and TMS 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;

• Our ability to sell Monogram products and services to Cology LLC’s customers;

• An adverse outcome relating to the federal income tax treatment of our sale of the trust certificate of NC Residuals Owners Trust, which we refer to as the Trust Certificate, in fiscal 2009 or our asset services agreement with the purchaser of the Trust Certificate, including any challenge related to federal tax refunds previously received in the amount of $176.6 million as a result of the audit currently being conducted by the Internal Revenue Service, or IRS;

• Regulatory requirements applicable to Union Federal, TMS and FMD, including conditions and approvals relating to the Union Federal Private Student Loan Program, which limit Union Federal’s ability to fund education loans;

• 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 any appeal of the order of the Massachusetts Appellate Tax Board, or ATB, in the cases pertaining to our Massachusetts state income tax returns;

• Application of critical accounting policies and estimates, which impact the carrying value of assets and liabilities, as well as our determinations to consolidate or deconsolidate a variable interest entity, or VIE;

• Application of The Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, enacted in July 2010, through the supervisory authority of the Consumer Financial Protection Bureau, or CFPB, which has the authority to regulate consumer financial products such as education loans, and to take enforcement actions against institutions marketing and selling consumer financial products under its supervision, such as Union Federal, and institutions that act as service providers to originators and processers of education loans, such as FMD’s subsidiaries First Marblehead Education Resources, or FMER, and Cology LLC;

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• 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.

Critical Accounting Policies and Estimates

During the nine months ended March 31, 2013, there were no significant changes in our critical accounting policies from those disclosed in Item 7 of Part II of our Annual Report under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Critical Accounting Policies and Estimates.”

Results of Operations—Three and Nine Months Ended March 31, 2013 and 2012

Financial Results Summary

The financial results of operations include FMD and its subsidiaries for the interim periods then ended. These results are reported through our continuing operations. Previously consolidated securitization trusts and the results of FMD’s subsidiary First Marblehead Data Services, Inc., or FMDS, are included in discontinued operations as discussed below for the fiscal 2012 interim periods then ended.

Discontinued Operations

Upon our adoption of Accounting Standards Update, or ASU, 2009-16, Transfers and Servicing (Topic 860)—Accounting for Transfers of Financial Assets, or ASU 2009-16, and ASU 2009-17, Consolidation (Topic 810)—Improvements to Financial Reporting by Enterprises Involved With Variable Interest Entities, or ASU 2009-17, effective July 1, 2010, we consolidated 14 securitization trusts that we facilitated during fiscal 2004 through fiscal 2008. The education loans purchased by certain of the securitization trusts, which we refer to as the Trusts, were initially subject to a default repayment guaranty by The Education Resources Institute, Inc., or TERI, while the education loans purchased by other securitization trusts, which we refer to as the NCT Trusts, were, with limited exceptions, not TERI-guaranteed. Of the 14 securitization trusts consolidated on July 1, 2010, 11 were Trusts and 3 were NCT Trusts. We refer to the consolidated Trusts as the NCSLT Trusts and the consolidated NCT Trusts as the GATE Trusts.

Consistent with our goal of refining our business model and focusing on our Monogram platform and tuition billing and payment processing services, we disposed of certain components of our business in fiscal 2012. In particular, we sold our remaining variable interests in the Trusts, we sold our trust administrator, FMDS, and we resigned as the special servicer of the Trusts, including the NCSLT Trusts. In addition, the new third party owner of FMDS terminated the agreement, effective September 30, 2012, with FMD’s subsidiary FMER for the special servicing of the NCT Trusts, including the GATE Trusts. During the fourth quarter of fiscal 2012, we determined that we no longer had any significant continuing involvement in the operations relating to the NCSLT Trusts and the GATE Trusts. Further, we concluded that this would occur within an appropriate assessment period for both the NCSLT Trusts and the GATE Trusts. As a result, we reported the operations and activities relating to the NCSLT Trusts, the GATE Trusts and FMDS within discontinued operations for all fiscal 2012 periods presented.

For additional information, see Note 2, “Discontinued Operations,” in the notes to our unaudited consolidated financial statements included in Part I of this quarterly report and Note 3, “Discontinued Operations,” in the notes to our consolidated financial statements included in Item 8 of Part II of our Annual Report.

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Overall Results

The following table summarizes the results of our consolidated operations:

	Three months ended March 31,						Change between periods			Nine months ended March 31,						Change between periods
	2013			2012			2013 - 2012			2013			2012			2013 - 2012
	(dollars in thousands)
Revenues:
Net interest income:
Interest income	$	1,527		$	950		$	577		$	4,087		$	2,230		$	1,857
Interest expense		(406	)		(209	)		(197	)		(1,020	)		(679	)		(341	)
Net interest income		1,121			741			380			3,067			1,551			1,516
(Provision) credit for loan losses		(70	)		222			(292	)		50			476			(426	)
Net interest income after (provision) credit for loan losses		1,051			963			88			3,117			2,027			1,090
Non-interest revenues:
Tuition payment processing fees		7,466			7,697			(231	)		22,264			22,172			92
Administrative and other fees		3,437			2,604			833			9,238			7,102			2,136
Fair value changes to service revenue receivables		838			2,454			(1,616	)		2,057			202			1,855
Total non-interest revenues		11,741			12,755			(1,014	)		33,559			29,476			4,083
Total revenues		12,792			13,718			(926	)		36,676			31,503			5,173
Total non-interest expenses		21,626			25,123			3,497			71,236			79,524			8,288
Loss from operations		(8,834	)		(11,405	)		2,571			(34,560	)		(48,021	)		13,461
Other income:
Gain from deconsolidation of trusts		—			9,156			(9,156	)		—			9,514			(9,514	)
Proceeds from TERI settlement		421			—			421			702			1,405			(703	)
Total other income		421			9,156			(8,735	)		702			10,919			(10,217	)
Loss from continuing operations, before income taxes		(8,413	)		(2,249	)		(6,164	)		(33,858	)		(37,102	)		3,244
Income tax expense (benefit) from continuing operations		376			(5,197	)		(5,573	)		1,146			(17,489	)		(18,635	)
Net (loss) income from continuing operations		(8,789	)		2,948			(11,737	)		(35,004	)		(19,613	)		(15,391	)
Discontinued operations, net of taxes		—			6,910			(6,910	)		—			1,135,781			(1,135,781	)
Net (loss) income	$	(8,789	)	$	9,858		$	(18,647	)	$	(35,004	)	$	1,116,168		$	(1,151,172	)

The net loss from continuing operations for the three months ended March 31, 2013 was $8.8 million, or $(0.08) per common share, compared to net income from continuing operations of $2.9 million, or $0.03 per common share for the three months ended March 31, 2012. The decrease quarter over quarter was primarily attributable to a $9.2 million gain recorded during the three months ended March 31, 2012 as a result of the deconsolidation of the GATE Trusts, a $5.6 million increase in income tax expense due to a benefit of $5.2 million recorded for the three months ended March 31, 2012 partially offset by a decline in non-interest expenses of $3.5 million.

The net loss from continuing operations for the nine months ended March 31, 2013 was $35.0 million compared to a net loss from continuing operations of $19.6 million for the nine months ended March 31, 2012. The $15.4 million change was driven by a $13.5 million improvement in the loss from operations offset by a $10.2 million decrease in other income due to the gain on deconsolidation of the trusts and an income tax benefit of $17.5 million in fiscal 2012.

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The net loss for the three and nine months ended March 31, 2013 was $8.8 million, or $(0.08) per common share, and $35.0 million, or $(0.33) per common share, respectively. The net income for the three and nine months ended March 31, 2012 was $9.9 million, or $0.09 per basic common share, and $1.12 billion, or $10.12 per basic common share, respectively. The prior period results include income from discontinued operations of $6.9 million and $1.14 billion, respectively, related to the operations of the NCSLT Trusts, the GATE Trusts and FMDS.

See Note 2, “Discontinued Operations,” in the notes to our unaudited consolidated financial statements included in Part I of this quarterly report for additional information.

Net Interest Income after (Provision) Credit for Loan Losses

Net interest income after (provision) credit for loan losses for the three and nine months ended March 31, 2013 increased by $88 thousand and $1.1 million, respectively, compared to the three and nine months ended March 31, 2012. The increase resulted from an improved net interest margin primarily as a result of increased investments in our higher-yielding education loans and investment securities.

Non-Interest Revenues

Non-interest revenues include tuition payment processing fees earned by TMS, fee-for-service revenues for loan processing and origination and program support and fees related to our Monogram platform, as well as fees for portfolio management. Non-interest revenues for the three months ended March 31, 2013 were $11.7 million, down $1.0 million from the three months ended March 31, 2012. The decrease was primarily related to decreases in the valuation of our service revenue receivables of $1.6 million partially offset by the inclusion of $906 thousand of revenues from Cology LLC for loan processing. Non-interest revenues for the nine months ended March 31, 2013 were $33.6 million, up $4.1 million from the nine months ended March 31, 2012. The increase was principally the result of increased loan processing from Cology LLC and fee income received in conjunction with our Monogram platform as a result of significantly higher partnered lending loan disbursements.

Fair value changes to service revenue receivables We record our service revenue receivables at fair value on our consolidated balance sheet. At March 31, 2013, our service revenue receivables consisted of additional structural advisory fee 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, were recorded in our consolidated statement of operations in fair value changes to service revenue receivables. Prior to the sale of our variable interests in the Trusts on November 14, 2011, we recorded asset servicing fees and additional structural advisory fees related to the NCSLT Trusts. As compensation for our services related to asset servicing, we were entitled to a monthly asset servicing fee based on the aggregate outstanding principal balance of the education loans owned by the Trusts.

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. Significant observable and unobservable inputs used to develop our fair value estimates include, but are not limited to, recovery, net default and prepayment rates, discount rates and the forward London Interbank Offered Rate, or LIBOR, curve. For additional information, see Note 10, “Fair Value Measurements,” in the notes to our unaudited consolidated financial statements included in Part I of this quarterly report.

Non-Interest Expenses

The following table reflects the composition of non-interest expenses:

	Three months ended March 31,				Change between periods			Nine months ended March 31,				Change between periods
	2013		2012		2013 - 2012			2013		2012		2013 - 2012
	(dollars in thousands)
Compensation and benefits	$	10,454	$	11,307	$	(853	)	$	29,663	$	32,396	$	(2,733	)
General and administrative:
Third-party services		2,931		5,043		(2,112	)		13,242		17,208		(3,966	)
Depreciation and amortization		1,165		1,138		27			3,159		3,635		(476	)
Marketing		687		940		(253	)		4,569		7,198		(2,629	)
Occupancy and equipment		2,910		3,034		(124	)		8,782		8,337		445
Servicer fees		192		180		12			551		528		23
Other		3,287		3,481		(194	)		11,270		10,222		1,048
Total general and administrative		11,172		13,816		(2,644	)		41,573		47,128		(5,555	)
Total non-interest expenses	$	21,626	$	25,123	$	(3,497	)	$	71,236	$	79,524	$	(8,288	)
Total number of employees at fiscal quarter-end		332		317		15

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Compensation and Benefits Compensation and benefits expenses for the three and nine months ended March 31, 2013 were $10.5 million and $29.7 million, respectively. The decrease of $2.7 million for the nine months ended March 31, 2013 as compared to the nine months ended March 31, 2012 was primarily driven by severance costs incurred during the nine months ended March 31, 2012, which resulted in lower salary and benefit related expenses during the nine month period ended March 31, 2013.

General and Administrative General and administrative expenses for the three and nine months ended March 31, 2013 decreased by $2.6 million and $5.6 million, respectively, when compared to the same periods a year ago. The decreases were largely driven by third party services expenses, which declined primarily as a result of the cessation of our special servicing obligations for the NCSLT Trusts and the GATE Trusts. Third party services expenses for the three and nine months ended March 31, 2013 decreased by $2.1 million and $4.0 million, respectively, when compared to the same periods a year ago. Marketing costs decreased by $253 thousand and $2.6 million, respectively, related to our improved loan acquisition efforts.

Other Income

Other income for the three and nine months ended March 31, 2013 decreased by $8.7 million and $10.2 million, respectively, compared to the three and nine months ended March 31, 2012. The decrease was primarily attributable to the $9.2 million and $9.5 million gains recorded during the three month and nine months ended March 31, 2012, respectively, as a result of the deconsolidation of the GATE Trusts. The gains recorded represent the fair value of the residual interests and additional structural advisory fees related to these trusts that were previously eliminated as a result of the consolidation of the GATE Trusts.

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. The IRS is auditing our tax returns for fiscal years 2007 through 2010. In addition, we are involved in several matters before the ATB relating to the Massachusetts tax treatment of GATE Holdings, Inc., which we refer to as GATE, a former subsidiary of FMD. See Note 11, “Commitments and Contingencies—Income Tax Matters,” in the notes to our unaudited consolidated financial statements included in Part I of this quarterly 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, 2009 and June 30, 2012.

Income tax expense (benefit) from continuing operations for the three months ended March 31, 2013 increased by $5.6 million as compared to the three months ended March 31, 2012 primarily as a result of our recognition of an income tax benefit of $5.2 million during the third quarter of fiscal 2012 which included a $5.7 million benefit related to the gain on the sale of FMDS. Income tax expense (benefit) from continuing operations for the nine months ended March 31, 2013 increased by $18.6 million as compared to the nine months ended March 31, 2012 primarily as a result of our recognition of an income tax benefit of $12.5 million during the second quarter of fiscal 2012 in connection with the order issued by the ATB on November 9, 2011, which we refer to as the ATB Order, in the cases pertaining to our Massachusetts state income tax returns for fiscal 2004 through fiscal 2006, as well as the expiration of the statute of limitations applicable to GATE’s taxable year ended June 30, 2007. Beginning in fiscal 2011, we no longer had any taxable income in prior periods to offset current period net operating losses. As a result, we recorded a net federal operating loss carryforward asset as of March 31, 2013 and June 30, 2012, totaling $39.6 million and $28.0 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 is necessary for all of our deferred tax assets not scheduled to reverse against existing deferred tax liabilities as of March 31, 2013 and June 30, 2012. We will continue to review the recognition of deferred tax assets on a quarterly basis.

Financial Condition

Total assets increased $15.5 million, or 3.4%, to $473.3 million at March 31, 2013 from $457.8 million at June 30, 2012. Total stockholders’ equity decreased $31.7 million, or 14.0%, to $195.3 million at March 31, 2013 from $227.0 million at June 30, 2012. The changes in our financial position from June 30, 2012 to March 31, 2013 are discussed in detail below.

Cash, Cash Equivalents and Short-term Investments

We had combined cash, cash equivalents and short-term investments of $191.6 million and $208.5 million at March 31, 2013 and June 30, 2012, respectively. Of this total, FMD and its non-bank subsidiaries held $121.4 million in interest-bearing and non-interest-bearing deposits, money market funds and certificates of deposit with highly-rated financial institutions at March 31, 2013. Union Federal held a total of $70.2 million in interest-bearing and non-interest-bearing deposits and money market funds at March 31, 2013. Union Federal is subject to restrictions on the payment of dividends without prior approval from the Office of the Comptroller of the Currency, or the OCC.

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The decrease of $16.9 million resulted primarily from $32.4 million to fund operations, $6.8 million to fund deposits in participation accounts on behalf of certain of our partnered lenders as a result of higher loan origination activity and $4.7 million of cash paid in connection with the acquisition of a substantial portion of the operating assets of the Cology Sellers, offset in part by a $36.5 million increase in cash and cash equivalents attributable to $80.8 million in increased deposits, less $44.3 million of investments at Union Federal in education loans and investments available for sale.

Restricted Cash

At March 31, 2013, restricted cash on our consolidated balance sheet included cash held by TMS of $30.7 million, net of $40.0 million held at Union Federal, $5.8 million restricted cash held by Cology LLC and restricted cash held by FMD of $89 thousand.

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 through May, the end of the school year. Over the last 12 months, TMS’ restricted cash balances ranged from a high of $341.1 million during August 2012 to a low of $55.3 million during May 2012. In December 2011, we transferred $40.0 million of TMS deposits from a third party institution to Union Federal. The deposit remains subject to a trust agreement between TMS and a third party trustee. Subject to the capital requirements and other laws, regulations, and restrictions applicable to Union Federal, the cash that is deposited with Union Federal in connection with the tuition payment plans is not restricted at Union Federal and, accordingly, is not included in restricted cash and investments in our consolidated financial statements. This treatment is consistent with how third party institutions handle cash deposits by TMS. Restricted cash held by our other subsidiaries 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 sheet representing tuition payments due to our TMS clients and education loan proceeds due to schools.

Investments Available-for-Sale

Investments classified as available-for-sale are reported at fair value on our balance sheet date. Our investment portfolio provides a source of short-term liquidity and acts as a counterbalance to our loan and deposit flows. Investments available-for-sale principally consisted of mortgage-backed federal agency securities held by Union Federal at both March 31, 2013 and June 30, 2012. The investments available-for-sale increased by $15.3 million from $68.6 million as of June 30, 2012 to $83.9 million at March 31, 2013 primarily as a result of Union Federal’s purchases of $24.7 million in mortgage-backed securities, partially offset by $9.6 million in principal repayments, during the first nine months of fiscal 2013. The portfolio had generated net unrealized gains of $770 thousand and $610 thousand at March 31, 2013 and June 30, 2012, respectively, which were recognized in accumulated other comprehensive income, a component of stockholders’ equity.

See Note 6, “Investments Available-for-Sale,” in the notes to our unaudited consolidated financial statements included in Part I of this quarterly report for additional information.

Loans

At March 31, 2013 and June 30, 2012, we classified all education loans and substantially all mortgage loans as held-to-maturity. The net carrying value of loans consisted of the following, as of the dates indicated:

	March 31, 2013		June 30, 2012
	(dollars in thousands)
Education loans held-to-maturity, net	$	62,082	$	33,095
Mortgage loans held-to-maturity, net		11,529		7,811

The increase of $29.0 million in education loans at March 31, 2013 from June 30, 2012 was principally related to disbursed education loans through our Monogram platform at Union Federal.

See Note 7, “Education Loans,” in the notes to our unaudited consolidated financial statements included in Part I of this quarterly report for additional information.

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Allowance for Education Loan Losses

The following is a roll forward of the net carrying value of education loans held-to-maturity during the three and nine months ended March 31, 2013 and 2012:

	Three months ended March 31,
	2013									2012
	Gross loans outstanding			Allowance for loan losses			Net carrying value			Gross loans outstanding			Allowance for loan losses			Net carrying value
	(dollars in thousands)
Balance, beginning of period	$	52,125		$	(1,464	)	$	50,661		$	18,287		$	(1,255	)	$	17,032
Disbursements of principal to borrowers		12,466			—			12,466			14,854			—			14,854
Principal receipts from borrowers		(1,074	)		—			(1,074	)		(1,024	)		—			(1,024	)
Interest capitalized on loans in deferment and forbearance		55			—			55			22			—			22
Reserves reclassified from interest receivable for capitalized interest		4			(4	)		—			5			(5	)		—
(Provision) credit for loan losses		—			(26	)		(26	)		—			170			170
Net charge-offs:
Charge-offs		(30	)		30			—			(41	)		41			—
Recoveries from borrowers		82			(82	)		—			227			(227	)		—
Net charge-offs		52			(52	)		—			186			(186	)		—
Balance, end of period	$	63,628		$	(1,546	)	$	62,082		$	32,330		$	(1,276	)	$	31,054

	Nine months ended March 31,
	2013									2012
	Gross loans outstanding			Allowance for loan losses			Net carrying value			Gross loans outstanding			Allowance for loan losses			Net carrying value
	(dollars in thousands)
Balance, beginning of period	$	34,404		$	(1,309	)	$	33,095		$	1,336		$	(1,336	)	$	—
Disbursements of principal to borrowers		31,413			—			31,413			32,073			—			32,073
Principal receipts from borrowers		(2,832	)		—			(2,832	)		(1,514	)		—			(1,514	)
Interest capitalized on loans in deferment and forbearance		255			—			255			23			—			23
Reserves reclassified from interest receivable for capitalized interest		26			(26	)		—			16			(16	)		—
Credit for loan losses		—			151			151			—			472			472
Net charge-offs:
Charge-offs		(86	)		86			—			(192	)		192			—
Recoveries from borrowers		448			(448	)		—			588			(588	)		—
Net charge-offs		362			(362	)		—			396			(396	)		—
Balance, end of period	$	63,628		$	(1,546	)	$	62,082		$	32,330		$	(1,276	)	$	31,054

To estimate the allowance for loan losses on our newly originated Monogram-based loan portfolio, we utilized specific default and recovery rates projected for our Monogram-based loan portfolio over the 12-month loss confirmation period. We may also apply qualitative adjustments in determining the allowance for loan losses. Our default experience with this loan portfolio is limited by the seasoning of the portfolio; however, we have utilized our historical database and experience in projecting the level of defaults and recoveries of our Monogram-based loan portfolio relying in part on historical results from our securitization trusts that we previously facilitated for loans that have similar credit characteristics to those in our Monogram-based loan portfolio.

At March 31, 2013 and June 30, 2012, there were $82 thousand and $54 thousand, respectively, of education loans that were on non-accrual status and no education loans that had specific reserves. These loans consisted of loans that were transferred by Union Federal to an indirect subsidiary of FMD in 2009, prior to the launch of our Monogram platform. Our policy is to have a specific allowance for loans greater than 180 days past due, but not yet charged-off. At March 31, 2013, there were $29 thousand of Monogram-based education loans issued through Union Federal that were greater than 180 days past due.

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See Note 7, “Education Loans,” in the notes to our unaudited consolidated financial statements included in Part I of this quarterly report for additional information.

Mortgage Loan Allowances for Loan Losses

Through Union Federal we carry a held-to-maturity portfolio of mortgage loans. We maintain an allowance for loan losses for our mortgage loan portfolio held-to-maturity on a specific-identification basis when the loan becomes 30 days past due or the borrower makes modified payments. We set the allowance for loan losses at an amount believed to be adequate so that the net carrying value of the mortgage loan does not exceed the net realizable value of the collateral. In addition, we establish a general allowance for loan losses for mortgage loans less than 30 days past due based upon characteristics attributable to the loans in the portfolio and the related collateral. A mortgage loan for which we have foreclosed on the property is reclassified to other real estate owned, a component of other assets, and is carried at estimated net realizable value after any initial write-downs through the allowance for loan losses. We do not have any mortgage loans greater than 90 days past due that are accruing interest.

Service Revenue Receivables

We record our service revenue receivables at fair value on our consolidated balance sheet. At March 31, 2013 and June 30, 2012, our service revenue receivables consisted of additional structural advisory fees and residual receivables and represented 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 related to the GATE Trusts and other securitization trusts we previously facilitated.

For additional information, see Note 10, “Fair Value Measurements,” in the notes to our unaudited consolidated financial statements included in Part 1 of this quarterly report.

Deposits for Participation Interest Accounts

Participation accounts serve as a first-loss reserve to the originating lenders for defaults experienced in Monogram-based loan portfolios. Cash balances in the participation accounts earn interest at market rates applicable to commercial interest-bearing deposit accounts.

The participation accounts increased $6.8 million in the nine months ended March 31, 2013 due to funding for fiscal 2013 education loan volume.

For additional information, see Note 8, “Deposits for Participation Interest Accounts,” in the notes to our unaudited consolidated financial statements included in Part 1 of this quarterly report.

Goodwill & 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 its own or in combination with a related contract, asset or liability. In connection with our acquisition of assets from TMS and the Cology Sellers, we recorded other intangible assets related to the TMS customer list and tradename and the Cology Sellers customer list, respectively, 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 6 years. We record amortization expense in general and administrative expenses in our consolidated statement of operations.

Our customer list intangible asset is related to educational institutions with which TMS had existing client relationships in place as of December 31, 2010 and financial institutions with which the Cology Sellers had existing client relationships in place as of October 19, 2012. The trade name intangible asset relates to the name and reputation of TMS in the tuition payment industry. Intangible assets attributable to TMS technology represented the replacement cost of software and systems acquired that are necessary to support operations, net of an obsolescence factor. Goodwill represents the value attributed to our acquisition of assets from TMS and the Cology Sellers that cannot be separately attributed to a tangible or intangible asset.

In 2012, we evaluated our TMS goodwill for impairment on May 31, which is our annual impairment testing date, and concluded that the fair market value of the TMS reporting unit was greater than 10% in excess of our recorded book value, and therefore, was not impaired as of that date. In determining whether impairment exists, we assess impairment at the level of the TMS reporting unit. There have been no indicators of impairment since that date. For purposes of impairment testing, Cology LLC will be considered its own reporting unit.

Various assumptions go into our assessment of whether there is any TMS 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 Campus Advantage 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’

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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 TMS’ inability to provide products and services that are competitive in the marketplace, lower-than-planned adoption rates of refund management and Campus Advantage 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 the 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.

We have not evaluated our goodwill for impairment as it relates to Cology LLC as the asset acquisition took place on October 19, 2012. There have been no indicators of impairment since the acquisition date and Cology LLC goodwill will be tested for impairment on our annual impairment testing date of May 31, 2013.

During the nine months ended March 31, 2013, we recorded amortization expenses on our intangible assets of $1.8 million.

Contractual Obligations

Our consolidated contractual obligations consist of commitments under operating leases. At March 31, 2013, there were no material changes from the contractual obligations disclosed under Item 7 of Part II of our Annual Report under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Contractual Obligations.”

Total Stockholders’ Equity

Total stockholders’ equity decreased during the nine months ended March 31, 2013 from June 30, 2012 as a result of our net loss of $35.0 million, partially offset by an increase in additional paid in capital for stock compensation of $3.2 million and a $160 thousand increase in accumulated other comprehensive income for the net unrealized gains on the investments available-for-sale portfolio, net of tax.

In December 2007, FMD entered into an investment agreement with GS Parthenon A, L.P. and GS Parthenon B, L.P., affiliates of GS Capital Partners, which we refer to as the Purchasers. Pursuant to the investment agreement, FMD issued 132,701 shares of newly designated Series B Non-Voting Convertible Preferred Stock, $0.01 par value per share, or Series B Preferred Stock, at a purchase price of $1 thousand per share. The Series B Preferred Stock was automatically convertible into FMD’s common stock upon the sale or transfer by any holder of the Series B Preferred Stock to any party other than an affiliate of such holder. The number of common shares issuable upon conversion was equal to the initial purchase price of the Series B Preferred Stock, divided by the conversion price of $15.00 per share. On November 30, 2012, the Purchasers entered into a purchase agreement with a third party to sell, in a private transaction, all 132,701 shares of Series B Preferred Stock then outstanding. On December 4, 2012, the transaction was settled and the Series B Preferred Stock was converted into 8,846,733 shares of FMD’s common stock and was issued to the third-party purchaser. Following this transaction, there are no longer any shares of Series B Preferred Stock outstanding.

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 Union Federal’s assets sold into such trusts and make available more funds to students and colleges. See Note 2, “Summary of Significant Accounting Policies—Consolidation,” in the notes to our consolidated financial statements included in Item 8 of Part II of our Annual Report for a discussion of our determination to not consolidate these securitization trusts.

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Consolidated Average Balance Sheet

The following tables reflect our consolidated average balance sheet, net interest income and yields earned and paid on interest-earning assets and interest-bearing liabilities from continuing operations:

	Three months ended March 31,
	2013								2012
	Average Balance			Interest		Average Yield			Average Balance			Interest		Average Yield
	(dollars in thousands)
Assets:
Interest-bearing cash and cash equivalents	$	128,670		$	46		0.14	%	$	160,243		$	71		0.18	%
Short-term investments		50,884			69		0.55			64,725			80		0.50
Interest-bearing restricted cash		17,724			6		0.14			43,767			49		0.45
Investments available-for-sale		84,417			389		1.84			56,532			273		1.93
Education loans held-to-maturity		59,379			906		6.19			26,040			407		6.26
Mortgage loans held-to-maturity		11,396			111		3.90			8,153			70		3.42
Total interest-earning assets		352,470			1,527		1.76			359,460			950		1.06
Non-interest-bearing cash		780								11,006
Allowance for loan losses and lower of cost or fair value adjustments		(2,071	)							(1,877	)
Other assets		149,700								100,737
Total assets	$	500,879							$	469,326
Liabilities:
Time and savings account deposits	$	51,937		$	139		1.08	%	$	42,290		$	97		0.92	%
Money market account deposits		94,925			239		1.02			28,793			57		0.81
Other interest-bearing liabilities		1,819			28		6.34			3,637			55		5.97
Total interest-bearing liabilities		148,681			406		1.11			74,720			209		1.13
All other liabilities		152,799								160,002
Total liabilities		301,480								234,722
Stockholders’ equity		199,399								234,604
Total liabilities and stockholders’ equity	$	500,879							$	469,326
Total interest-earning assets	$	352,470							$	359,460
Net interest income				$	1,121							$	741
Net interest margin							1.29	%							0.83	%

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	Nine months ended March 31,
	2013								2012
	Average Balance			Interest		Average Yield			Average Balance			Interest		Average Yield
	(dollars in thousands)
Assets:
Interest-bearing cash and cash equivalents	$	127,234		$	147		0.15	%	$	183,730		$	202		0.15	%
Short-term investments		58,334			255		0.58			54,873			189		0.46
Interest-bearing restricted cash		21,016			36		0.23			94,130			482		0.68
Investments available-for-sale		77,228			1,094		1.89			32,231			513		2.13
Education loans held-to-maturity		48,207			2,247		6.21			12,954			610		6.27
Mortgage loans held-to-maturity		10,158			308		4.04			7,520			234		4.15
Total interest-earning assets		342,177			4,087		1.59			385,438			2,230		0.77
Non-interest-bearing cash		904								5,685
Allowance for loan losses and lower of cost or fair value adjustments		(2,005	)							(2,072	)
Other assets		158,733								114,302
Total assets	$	499,809							$	503,353
Liabilities:
Time and savings account deposits	$	51,009		$	405		1.06	%	$	41,714		$	290		0.92	%
Money market account deposits		65,512			512		1.04			25,964			184		0.95
Other interest-bearing liabilities		2,197			103		6.25			4,623			205		5.85
Total interest-bearing liabilities		118,718			1,020		1.14			72,301			679		1.25
All other liabilities		171,338								191,950
Total liabilities		290,056								264,251
Stockholders’ equity		209,753								239,102
Total liabilities and stockholders’ equity	$	499,809							$	503,353
Total interest-earning assets	$	342,177							$	385,438
Net interest income				$	3,067							$	1,551
Net interest margin							1.19	%							0.53	%

Analysis of changes in net interest income

	Change between periods for three months ended March  31,
	2013 - 2012
	Due to change in
	Volume			Rate			Net change
	(dollars in thousands)
Interest-bearing cash and cash equivalents	$	(11	)	$	(14	)	$	(25	)
Short-term investments		(19	)		8			(11	)
Interest-bearing restricted cash		(9	)		(34	)		(43	)
Investments available-for-sale		128			(12	)		116
Education loans held-to-maturity		509			(10	)		499
Mortgage loans held-to-maturity		32			9			41
Total interest income								577
Time and savings account deposits		26			16			42
Money market account deposits		166			16			182
Other interest-bearing liabilities		(28	)		1			(27	)
Total interest expense								197
Net increase in net interest income							$	380

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	Change between periods for nine months ended March  31,
	2013 - 2012
	Due to change in
	Volume			Rate			Net change
	(dollars in thousands)
Interest-bearing cash and cash equivalents	$	(66	)	$	11		$	(55	)
Short-term investments		15			51			66
Interest-bearing restricted cash		(125	)		(321	)		(446	)
Investments available-for-sale		637			(56	)		581
Education loans held-to-maturity		1,643			(6	)		1,637
Mortgage loans held-to-maturity		80			(6	)		74
Total interest income								1,857
Time and savings account deposits		74			41			115
Money market account deposits		310			18			328
Other interest-bearing liabilities		(114	)		12			(102	)
Total interest expense								341
Net increase in net interest income							$	1,516

Liquidity and Capital Resources

Sources and Uses of Cash

The following is a discussion of the sources and uses of cash on an U.S. generally accepted accounting principles, or GAAP, basis as presented in our consolidated statements of cash flows included in our unaudited consolidated financial statements included in Part I of this quarterly 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 the nine months ended March 31, 2013 was $42.4 million, compared with net cash used in operating activities from continuing operations of $30.3 million for the nine months ended March 31, 2012. The increase in cash used was principally the result of the receipt of $13.0 million from the sale of certain service revenue receivables on November 14, 2011 coupled with an increase in net funding of participation accounts of $11.6 million for the nine months ended March 31, 2013. These changes were partially offset by a $13.5 million lower loss from operations for the nine months ended March 31, 2013 as compared to the nine months ended March 31, 2012.

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 significant cash, cash equivalents and 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 used in investing activities from continuing operations for the nine months ended March 31, 2013 was $20.2 million, compared with net cash used in investing activities from continuing operations of $73.7 million for the nine months ended March 31, 2012. The improvement of $53.5 million was primarily due to the transfer of $40.0 million of restricted cash from TMS to Union Federal and the implementation of the asset diversification process at Union Federal partially offset by the $4.7 million of cash used for the acquisition of the operating assets from the Cology Sellers. Net cash provided by financing activities from continuing operations was $80.7 million for the nine months ended March 31, 2013 primarily reflecting an increase in deposits.

The OCC regulates all capital distributions by Union Federal directly or indirectly to FMD, including dividend payments. Union Federal is required to file a notice with the OCC at least 30 days before the proposed declaration of a dividend or approval of a proposed capital distribution by Union Federal’s Board of Directors. Union Federal must file an application to receive the approval of the OCC for a proposed capital distribution when, among other circumstances, the total amount of all capital distributions (including the proposed capital distribution) for the applicable calendar year exceeds net income for that year to date plus the retained net income for the preceding two years.

A notice or application to make a capital distribution by Union Federal may be disapproved or denied by the OCC if it determines that, after making the capital distribution, Union Federal would fail to meet minimum required capital levels or if the capital distribution raises safety or soundness concerns or is otherwise restricted by statute, regulation or agreement between Union Federal and the OCC or a condition imposed by an OCC agreement. Under the Federal Deposit Insurance Corporation Improvement Act, or FDICIA, a Federal Deposit Insurance Corporation, or FDIC, insured depository institution such as Union Federal is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is used in the FDICIA).

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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 in the ABS markets and may 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 our 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 Union Federal, 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 results of the audit conducted by the IRS of our tax returns for fiscal 2007 through fiscal 2010, which could result in challenges to tax refunds previously received in the amount of $176.6 million in connection with our sale of the Trust Certificate;

• 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 access wholesale financing opportunities within Union Federal to help meet the liquidity needs generated by Monogram-based loans;

• The regulatory capital requirements applicable to Union Federal (see “—Support of Subsidiary Bank” below for additional information) as well as any capital contributions or credit enhancements FMD may make to Union Federal;

• The resolution of any appeal of the ATB Order, which could also affect our state tax liabilities for fiscal 2008 and fiscal 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.

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 and maintaining the regulatory capital of Union Federal. In order to preserve capital and maximize liquidity in challenging market conditions, we have in past periods taken certain broad measures to reduce the risk related to education loans and residual receivables on our consolidated balance sheet, to change our fee structure and to add new products and reduce our overhead expenses. See Item 7 of Part II of our Annual Report under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Summary—Overview,” for an expanded description of actions taken by us since fiscal 2009 in response to the economic challenges facing us. In addition, the FMD Board of Directors has eliminated regular quarterly cash dividends for the foreseeable future.

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Deposits

Union Federal has liabilities for retail time, money market and savings deposits accounts. The following table summarizes Union Federal’s time deposits greater than $100 thousand by maturity at March 31, 2013:

	(dollars in thousands)
Within three months	$	5,580
Three to six months		4,966
Six months to twelve months		3,278
Greater than twelve months		5,974
Total time deposits >$100 thousand	$	19,798

The maturities of these deposits are not directly indicative of the future timing of cash needed for financing activities because they do not take into account the customers that may reinvest their funds into new time deposits or into other types of deposit accounts.

Restricted Funds Due to Clients

As part of its operations, TMS collects tuition payments from students or their families on behalf of educational institutions. Also included in restricted cash due to clients on our consolidated balance sheet are recoveries on defaulted education loans due to our portfolio management clients and undisbursed education loan proceeds for our loan origination clients. These cash balances are recorded as restricted cash due to clients on our consolidated balance sheet because they are deposited in segregated depository accounts. Included in restricted funds due to clients on our consolidated balance sheet were tuition payments due to our TMS clients and education loan proceeds due to students or schools.

Line of Credit

At March 31, 2013, through Union Federal we had $79.9 million available for borrowing under an unused line of credit with the Federal Home Loan Bank of Boston. There were no borrowings outstanding under this line of credit at March 31, 2013 or June 30, 2012.

Support of Subsidiary Bank

Union Federal is a federally-chartered thrift that is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in initiation of certain mandatory and possible additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on our liquidity. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Union Federal must meet specific capital guidelines that involve quantitative measures of Union Federal’s assets and liabilities as calculated under regulatory accounting practices. The capital amounts and classifications, however, are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Union Federal’s equity capital was $22.7 million at March 31, 2013, up from $16.3 million at June 30, 2012, principally due to $5.8 million in capital contributions made by FMD to Union Federal during the nine months ended March 31, 2013. Quantitative measures established by regulation to ensure capital adequacy require Union Federal to maintain minimum amounts and ratios of total capital and Tier 1 capital to risk-weighted assets (each as defined in the regulations). As of March 31, 2013 and June 30, 2012, Union Federal was well capitalized under the regulatory framework for prompt corrective action.

Union Federal’s regulatory capital ratios were as follows as of the dates below:

	Regulatory Guidelines
	Minimum			Well Capitalized			March 31, 2013			June 30, 2012
Capital ratios:
Tier 1 risk-based capital		4.0	%		6.0	%		25.7	%		31.3	%
Total risk-based capital		8.0			10.0			25.9			31.7
Tier 1 (core) capital		4.0			5.0			9.5			11.0

FMD is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System, or the Federal Reserve, as a savings and loan holding company, and Union Federal is subject to regulation, supervision and examination by the OCC.

In March 2010, the FMD Board of Directors adopted resolutions required by the U.S. Office of Thrift Supervision, or OTS, Union Federal’s regulator at that time, undertaking to support the implementation by Union Federal of its business plan, so long as Union Federal is owned or controlled by FMD, and to notify the OTS in advance of any distribution to our stockholders in excess of $1.0 million per fiscal quarter and any incurrence or guarantee of debt in excess of $5.0 million. These resolutions continue to be applied by the Federal Reserve. Distribution to our stockholders may be further restricted by the Federal Reserve’s required approval in those instances when such distributions exceed the net earnings of the prior 12-month period.

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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 required to fund our operations. “Net operating cash usage” is not directly comparable to our consolidated statement of cash flows prepared in accordance with GAAP. Legislative and regulatory guidance discourage the use of, and emphasis on, non-GAAP financial metrics and require companies to explain why a non-GAAP financial metric is relevant to management and investors.

Management and 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 non-interest 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 three and nine months ended March 31, 2013 and 2012 and reconciles the GAAP measure to the comparable non-GAAP financial metric:

	Three months ended March 31,						Nine months ended March 31,
	2013			2012			2013			2012
	(dollars in thousands)
Loss from continuing operations, before income taxes	$	(8,413	)	$	(2,249	)	$	(33,858	)	$	(37,102	)
Adjustments to net loss from continuing operations, before income taxes:
Non-cash gain from deconsolidation of trusts		—			(9,156	)		—			(9,514	)
Fair value changes to service revenue receivables		(838	)		(2,454	)		(2,057	)		(202	)
Cash receipts from service revenue receivables		1,187			520			2,743			575
Depreciation and amortization		1,165			1,138			3,159			3,635
Stock-based compensation		1,072			1,081			3,221			3,603
TMS deferred revenue		(1,618	)		(1,601	)		(2,528	)		(3,694	)
Other, net of cash flows from FMDS in 2012		(407	)		457			(3,041	)		1,140
Non-GAAP net operating cash usage	$	(7,852	)	$	(12,264	)	$	(32,361	)	$	(41,559	)

“Net operating cash usage” for the three months ended March 31, 2013 improved by $4.4 million, or 36%, compared to the three months ended March 31, 2012. The decrease of $4.4 million for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 was largely the result of a decrease in non-interest expenses of $3.5 million driven principally by decreases of $2.6 million in general and administrative expenses and $853 thousand in compensation and benefits expenses. The decline in general and administrative expenses was largely due to a decrease of $2.1 million in third party services expenses as a result of cessation of our special servicing obligations for the NCSLT Trusts and the GATE Trusts. The improvement can also be partially attributed to increased cash receipts from service revenue receivables of $667 thousand.

“Net operating cash usage” for the nine months ended March 31, 2013 improved by $9.2 million, or 22%, compared to the nine months ended March 31, 2012. The decrease of $9.2 million for the nine months ended March 31, 2013 as compared to the nine months ended March 31, 2012 was largely the result of a decrease in non-interest expenses of $8.3 million driven principally by decreases of $5.6 million in general and administrative expenses and $2.7 million in compensation and benefits expenses. The decrease in general and administrative expenses was largely due to a decrease of $4.0 million in third party services expenses as a result of cessation of our special servicing obligations for the NCSLT Trusts and the GATE Trusts. The improvement can also be attributed to increased cash receipts from service revenue receivables of $2.2 million offset by approximately $3.2 million of cash flows related to FMDS not received in the nine months ended March 31, 2013.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest rate risk is the primary market risk associated with our operations. Management monitors liquidity and interest rate risk matters. These matters are discussed with the FMD Board of Directors and the Union Federal Board of Directors, as applicable. Interest rate risk is the risk of loss to future earnings due to changes in interest rates. Interest rate risk applies to all of our interest-bearing assets and liabilities, as well as service revenue receivables.

Our interest-bearing assets are largely made up of our investments available-for-sale, education loans, mortgage loans and cash in interest-bearing accounts. The mix of fixed rate versus variable rate instruments for our investments available-for-sale and loan portfolios as of March 31, 2013 are presented in the table below:

March 31, 2013	Amount		Variable		% Variable			Fixed		% Fixed
	(dollars in thousands)
Investments available-for-sale	$	83,898	$	17,416		20.8	%	$	66,482		79.2	%
Education loans held-to-maturity		62,082		62,082		100.0			—		—
Mortgage loans held-to-maturity		11,529		3,346		29.0			8,186		71.0
	$	157,509	$	82,844		52.6	%	$	74,668		47.4	%

As shown above, at March 31, 2013, our education loan portfolio consisted entirely of variable rate loans that generally reprice in accordance with LIBOR. Additionally, approximately 21% of our investments available-for-sale and approximately 29% of our mortgage loan portfolio were also variable rate instruments. As market rates increase or decrease, our variable rate interest-bearing assets are likely to be immediately impacted while our interest-bearing liabilities would be slower to reprice. The balance of the interest-bearing assets in the table above were fixed rate instruments. Of these fixed rate instruments, approximately 89% were available-for-sale securities, which had a weighted average life of 3.2 years. In addition to the interest-bearing assets in the table above, our interest-bearing assets included short-term investments of $50.1 million at March 31, 2013, which consisted of fixed-rate certificates of deposit that have maturities of less than one year.

Our interest-bearing liabilities consisted of customer deposits held at Union Federal, totaling $164.2 million at March 31, 2013. Of these deposits, approximately 72% were comprised of demand deposits, including savings deposits and money market deposits, which are generally subject to daily re-pricing. The remaining approximately 28% of customer deposits represented fixed-rate time deposits, of which approximately 25% had maturities in excess of 12 months from March 31, 2013.

Deposit pricing is subject to regular examination by a committee of senior managers from Union Federal and FMD’s Finance and Risk and Compliance Departments. The committee considers competitors’ pricing, inflows and outflows of deposit balances and Union Federal’s funding requirements to make pricing decisions in order to attain the desired volume of deposits in each given duration and product type.

Our investment decisions with respect to the interest rate characteristics of our interest-bearing assets are driven by the nature, volume and duration of our interest-bearing liabilities. Generally, our interest-bearing liabilities are either variable-rate instruments or are of a short duration, as discussed above. Accordingly, we generally seek to invest in interest-bearing assets that are subject to frequent repricing or are of limited duration. As noted above, approximately 29% of Union Federal’s mortgage loans, approximately 21% of its available-for-sale securities and all of its education loans had variable interest rates at March 31, 2013. Although these variable interest rate assets generally reprice more frequently and have longer duration than our deposits, interest rate risk with respect to net interest revenues is mitigated by similarities in the interest rate and market risks underlying loan and deposit pricing. We invest our excess cash primarily in money market funds, federal funds sold, time deposits with original maturities of less than one year and U.S. federal agency mortgage-backed securities.

Management regularly reviews a wide variety of interest rate shift scenario results in order 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 a high percentage of assets that possess variable interest rates. Further, increases in interest rates may have an adverse impact on our consolidated balance sheet as the unrealized gains and losses on the investments available-for-sale portfolio would result in unrealized losses.

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

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of March 31,

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2013. 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 March 31, 2013, our 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.

No changes 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 March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings.

Massachusetts Appellate Tax Board Matters

We are involved in several matters before the ATB 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. We took the position in these proceedings 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 Massachusetts Commissioner of Revenue, or 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 Commission would ultimately be allowed. In March 2010, we filed petitions with the ATB contesting the additional assessments against GATE and us. In April 2011, the ATB held an evidentiary hearing on the foregoing, and the parties filed their final briefs in September 2011. 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.

In connection with the ATB Order, as well as the expiration of the statute of limitations applicable to GATE’s taxable year ended June 30, 2007, we recognized an income tax benefit of $12.5 million during the second quarter of fiscal 2012. In the third quarter of fiscal 2012, we made a $5.1 million payment that satisfied our obligation to the Massachusetts Department of Revenue for GATE’s taxable years ended June 30, 2004, 2005 and 2006.

On April 17, 2013, the ATB issued its opinion confirming the rulings and findings included in the ATB Order, which we refer to as the ATB Opinion. We had argued that the loan servicers’ activities, which were conducted outside of Massachusetts on behalf of the trusts, determined the location of the loans for purposes of the Property Factor. The ATB disagreed and determined that the loan servicers’ activities should not be attributed to GATE and further determined that, for purposes of the Property Factor, the trust-owned education loans were located in Massachusetts, GATE’s commercial domicile.

We are reviewing the ATB Opinion, but we would expect to pursue an appeal of the ATB’s finding with regard to the Property Factor. The Commissioner may also consider an appeal of the ATB’s other findings. If we are unsuccessful in an appeal of the ATB Order, 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. We have accrued a total of $24.0 million at March 31, 2013 related to this matter, which amount was included in income taxes payable on our consolidated balance sheet. We have not accrued penalties associated with the matter as the Massachusetts Department of Revenue has waived penalties associated with tax years 2004 through 2006 for GATE. We cannot predict the outcome of this matter or the timing of such payments, if any, at this time.

There were no material developments during the third quarter of fiscal 2013 in the matters entitled “Internal Revenue Service Audit” included in Item 3 of Part I of our Annual Report.

We are involved from time to time in routine legal proceedings occurring in the ordinary course of business. In the opinion of management, there are no matters outstanding, other than those referenced above, that would have a material adverse impact on our operations or financial condition.

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Item 1A. Risk Factors.

Investing in our 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 quarterly 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 our 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.

We have updated the risk factors described in this Item 1A to reflect financial and operating information for the most recently completed fiscal quarter. In addition, we have made material changes to the following risk factors as compared to the version disclosed in Item 1A of Part I of our Annual Report under the heading “Risk Factors”:

• Challenges exist in implementing revisions to our business model.

• Our business, financial condition, results of operations and cash flows will be adversely affected if we do not achieve widespread market acceptance of our Monogram platform as well as our TMS offerings and Cology LLC offerings.

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

• If competitors or potential competitors acquire or develop an education loan database or advanced loan information processing systems, our 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.

• Our liquidity could be adversely affected if the sale of the Trust Certificate does not result in the tax consequences that we expect or if we are unable to successfully resolve the state tax matters pending before the ATB.

• We have consolidated and subsequently deconsolidated certain securitization trusts in our financial results and we may be required to consolidate and deconsolidate VIEs in the future, which would result in significant changes to the presentation of our consolidated financial statements and may result in increased volatility in our reported financial condition and results of operations.

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

• 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.

• 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.

• 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.

• Recent legislative proposals could affect the non-dischargeability of education loans in bankruptcy. 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 our partnered lenders, and adversely affect the overall desirability of private education loan assets to investors.

• Stockholders that own large blocks of our common stock could exercise substantial control over us and could limit your ability to influence the outcome of key transactions, including a change of control.

In addition, we added the following risk factor:

• We may be unable to integrate our business successfully and realize all of the anticipated benefits of our acquisition of a substantial portion of the operating assets of the Cology Sellers.

We also deleted the following risk factors:

• We may acquire other businesses, and we may have difficulty integrating these businesses or generating an acceptable return from acquisitions.

• ASC 810 may result in increased volatility in our reported financial condition and results of operations.

• Recent legislative proposals could affect the prepayment of education loans. If the legislative proposals are enacted, they could adversely affect the loan portfolio performance of our Monogram platform.

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Risks Related to Our Industry, Business and Operations

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 portfolio management. During 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. During 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 November 2011, we began offering refund management services to education institutions and students through TMS. In October 2012, FMD’s subsidiary Cology LLC completed its acquisition of a substantial portion of the operating assets of the Cology Sellers. Cology LLC provides education loan processing and disbursement services to approximately 250 credit unions in the United States as well as offering life-of-loan servicing. Successful sales of our service offerings, particularly our Monogram platform, Cology LLC offerings and TMS 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 environment where there has been reluctance by many lenders to focus on education lending opportunities. 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. We are uncertain of the total application volume for fiscal 2013 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 the first quarter of fiscal 2008, we have not facilitated take-out 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 the Federal Family Education Loan Program, or 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.

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. 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 we have originated to date and those contemplated by our four lender clients’ Monogram-based loan programs. We have been required to expend capital to support loan volume under our Monogram platform. Specifically, a portion of the loan volume to date under our Monogram platform has been originated by FMD’s subsidiary Union Federal and we have been further required to provide credit enhancements for Monogram-based loans originated by certain of our lender clients by funding participation accounts or, in the case of Union Federal, deposit 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, including the continued re-emergence of subordinated bonds in the private education loan securitization market, than are available today.

We will need to facilitate substantial loan volume in order to return to profitability.

We designed our Monogram platform, in part, to reduce our dependence on the securitization market in order to generate revenue. Although we expect to generate ongoing monthly revenue through the maturity of the Monogram-based program loans, we will need to facilitate loan volumes substantially in excess of those that we have originated to date, and substantially in excess of those contemplated by our four lender clients’ Monogram-based loan programs, in order to return to profitability. We need to attract additional lender clients, or otherwise obtain additional sources of interim or permanent financing, particularly in light of regulatory conditions and approvals relating to Union Federal’s Monogram-based loan programs. As a result of legislative changes that significantly reduced the profit margins of traditional non-governmental providers of federal education loans and eliminated FFELP as of July 2010, as well as the capital markets disruptions and declining credit performance of consumer-related loans, including education loans, many lenders have re-evaluated their business strategies related to education lending and exited the marketplace altogether. Demand for our services may

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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. In addition, 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.

Our business, financial condition, results of operations and cash flows will be adversely affected if we do not achieve widespread market acceptance of our Monogram platform as well as our TMS offerings and Cology LLC offerings.

Through May 10, 2013, we have entered into loan program agreements with four lender clients for Monogram-based loan programs, including FMD’s subsidiary Union Federal. 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. 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.

The Union Federal Private Student Loan Program has generated a significant percentage of the loan volumes that we have processed through May 10, 2013. This loan program is subject to regulatory approvals and conditions, as well as regulatory capital requirements. In particular, Union Federal’s business plan includes a limit on the amount of education loans to be held on its balance sheet, and any material change to Union Federal’s business plan would be subject to regulatory conditions as well as prior regulatory approval for any interim or permanent financing of education loan portfolios held by Union Federal, including future securitization transactions. As a result, we cannot assure you that Union Federal will be able to serve as a meaningful funding lender in the future for Monogram-based loan programs.

TMS began offering refund management services to education institutions and students in November 2011 and began offering its Campus Advantage product in November 2012. Deployment of these offerings has been limited, and we will need to gain widespread market acceptance of our refund management services and Campus Advantage product in order to improve our long-term financial condition, results of operations and cash flow. In addition, FMD’s subsidiary Cology LLC completed its acquisition of a substantial portion of the operating assets of the Cology Sellers in October 2012. Cology LLC offers education loan processing and disbursement services as well as offering life-of-loan servicing. We believe that there is an opportunity to cross-sell aspects of our Monogram platform on a stand-alone basis to Cology LLC’s credit union clients. We cannot assure you that we will be able to achieve widespread market acceptance by these credit union clients of these additional services. Successful sales of our Monogram platform offerings to Cology LLC’s clients will be an important factor in realizing the benefits of the asset acquisition and in diversifying our revenues.

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 or, in the case of Union Federal, deposit 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. In addition, growth of Union Federal’s Monogram-based loan programs may be constrained by the amount of capital we are able to provide.

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 from the participation accounts are uncertain and vary among the loan programs. As of March 31, 2013, the balance of our funded credit enhancements was $11.0 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 erode our liquidity position and could damage business prospects for our Monogram platform.

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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 or, in the case of Union Federal, deposit 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 remains 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, than we are. 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 at a lower acquisition cost than us. 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 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, Fynanz Inc. and Campus Door Holdings Inc. compete directly with Cology LLC and Nelnet Business Solutions, TouchNet Information Systems, Inc. and Higher One Holdings, Inc. compete directly with TMS.

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. 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 as of July 2010, 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.

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 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:

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

• Pre-paid tuition plans, which allow students 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;

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

• Government education loan programs, generally; and

• Direct loans from colleges and universities.

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 our 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.

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 facilitated 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 or deceptive, 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 even, 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 market education loans. The Higher Education Opportunity Act creates significant additional restrictions on the marketing of education loans.

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. Furthermore, 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. Furthermore, we believe that retaining our employees may become more difficult as we face an increasingly competitive landscape with respect to talented employees as the economy continues to re-emerge from the financial crisis. We are particularly dependent on the continuing members of our management team and the loss of any of these key employees could adversely affect our business.

As part of our previous cost reduction initiatives we have terminated employees, including members of senior management. Although we believe that our capital resources as of March 31, 2013, which include proceeds of tax refunds under audit, are sufficient to satisfy our operating needs for the succeeding 12 months, we cannot assure you that they will be sufficient, particularly in light of ongoing income tax audits. 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.

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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 competitors or potential competitors acquire or develop an education loan database or advanced loan information processing systems, 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 have also developed a proprietary loan information processing system to enhance our application processing and loan origination capabilities. We believe that our education loan database and loan information processing system provide us with a competitive advantage in offering our services. A third party could create or acquire databases and systems such as ours, especially in light of the transition of our special servicing to third parties. 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 or develops a loan information processing system, 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, including our loan information processing systems, 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.

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 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 are able to process is based, in large part, on the systems and processes we have implemented and developed. These systems and processes are becoming increasingly dependent upon technological advancement, such as the ability to process loans and payments over the Internet, accept electronic signatures and provide initial 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 fail to execute our lender clients’ origination requirements or properly administer our clients’ credit agreement templates 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.

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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.

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 March 31, 2013, Pennsylvania Higher Education Assistance Agency, also known as AES and which we refer to as 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.

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 potentially 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 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 Boston, Massachusetts, Providence, 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.

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 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 generate negative publicity about us and could adversely affect our relationships with our clients, including the lenders and educational institutions with which we do business. This 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.

We may be unable to integrate our business successfully and realize all of the anticipated benefits of our acquisition of a substantial portion of the operating assets of the Cology Sellers.

Our acquisition of a substantial portion of the operating assets of the Cology Sellers is an important transaction for us. We have made several assumptions regarding cost and revenue synergies in connection with the acquisition, many of which are dependent upon how successful we are in integrating the business of Cology LLC. The difficulties of integrating Cology LLC’s operations include, among other things:

• Retaining customers;

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• Consolidating corporate and administrative functions;

• Coordinating sales and marketing functions;

• The ability to sell Monogram products and services to Cology LLC clients;

• Persuading employees that the First Marblehead and Cology LLC business cultures are compatible, maintaining morale and retaining key employees; and

• The difficulty of integrating Cology LLC’s accounting, financial reporting, management, information, human resource and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not implemented.

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of each company’s business and the loss of key personnel. The diversion of management’s attention and any delays or difficulties encountered in connection with the acquisition and the integration of Cology LLC’s operations could harm our business, results of operations, financial condition or prospects and impair the value of goodwill or intangible assets.

Risks Related to Our Financial Reporting and Liquidity

Our liquidity could be adversely affected if the sale of the Trust Certificate does not result in the tax consequences that we expect or if we are unable to successfully resolve the state tax matters pending before the ATB.

Effective March 31, 2009, we completed the sale of the Trust Certificate. The sale generated a cash refund of income taxes previously paid of $189.3 million. The federal and state income tax consequences of the sale of the Trust Certificate, however, are complex and uncertain. The IRS has begun an audit of our tax returns for fiscal 2007 through fiscal 2010, including a review of the tax treatment of the sale of the Trust Certificate, as well as the $45.1 million income tax refund that we received in October 2010. The IRS or a state taxing authority could challenge our tax position in connection with the transactions, notwithstanding our receipt of any income tax refund. If such a challenge were successful, in whole or in part, we may not keep all or a portion of any refund of income taxes previously paid, or we may not eliminate our income tax obligations relating to the Trust Certificate. In either case, our near-term and long-term financial condition and liquidity would be materially adversely affected. In addition, any investigation, audit or suit relating to the sale of the Trust Certificate, including any such proceeding brought by the IRS, could result in substantial costs. As of March 31, 2013, as well as through the filing of this quarterly report on May 10, 2013, the IRS had not issued any notice of proposed adjustment in connection with its audit.

In addition, we are involved in several matters before the ATB relating to the Massachusetts tax treatment of GATE. We took the position in these proceedings 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 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. On November 9, 2011, the ATB issued the ATB Order, which concurred with our position that GATE was a financial institution but disagreed with our methodology utilized to apportion income. In the third quarter of fiscal 2012, we made a $5.1 million payment that satisfied our obligation to the Massachusetts Department of Revenue for GATE’s taxable years ended June 30, 2004, 2005 and 2006. On April 17, 2013, the ATB issued the ATB Opinion. We are reviewing the ATB Opinion, but we would expect to pursue an appeal of the ATB’s finding with regard to the Property Factor. Any appeal of the ATB’s findings could include a refund claim with respect to the $5.1 million payment made in the third quarter of fiscal 2012. The Commissioner may also consider an appeal of the ATB’s findings. We have accrued for an aggregate income tax liability of $24.0 million, including interest, as of March 31, 2013 related to this matter. If we are unsuccessful in an appeal of the ATB Order, we could be required to make additional tax payments for GATE’s taxable years ended June 30, 2008 and 2009, which could materially adversely affect our liquidity position. Such potential tax payments were included on our consolidated balance sheet under income taxes payable. We cannot predict the outcome of this matter or the timing of such payments, if any, at this time.

See Note 11, “Commitments and Contingencies—Income Tax Matters,” in the notes to our unaudited consolidated financial statements included in Part I of this quarterly report for additional information on the IRS audit and the ATB matters.

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We have consolidated and subsequently deconsolidated certain securitization trusts in our financial results and we may be required to consolidate and deconsolidate VIEs in the future, which would result in significant changes to the presentation of our consolidated financial statements and may result in increased volatility in our reported financial condition and results of operations.

Effective July 1, 2010, we adopted ASU 2009-16 and ASU 2009-17, which amended the accounting for consolidation of VIEs. We are required to continually reassess our involvement with each VIE in which we have an interest, both on- and off-balance sheet, and our determination of whether consolidation or deconsolidation of a VIE is appropriate.

ASU 2009-17 requires us to make additional judgments that are subject to change based on new facts and circumstances, and evolving interpretations and practices. Under ASU 2009-17, the determination of whether to consolidate a VIE is based on whether the company is considered to be the primary beneficiary. Such determination is based on both the power to direct the activities of the entity that most significantly impact the entity’s economic performance, and the obligation to absorb losses or the right to receive benefits that could be significant to the entity. The nature of these determinations, made on an entity-by-entity basis, requires a high level of subjectivity and judgment. As a result, determinations that we make from time to time will be susceptible to change.

We continue to monitor our involvement with each unconsolidated VIE and we have determined that we are not the primary beneficiary of any unconsolidated VIE 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 range 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. Given the size of each of our VIEs, any decision to consolidate or deconsolidate a VIE could result in significant changes to our reported assets and liabilities and results of operations during the fiscal quarter in which the change occurs and could make comparisons of our financial performance between periods challenging to investors.

For example, upon our adoption of ASU 2009-16 and ASU 2009-17 on July 1, 2010, we consolidated 11 NCSLT Trusts and 3 GATE Trusts, and we deconsolidated our indirect subsidiary UFSB Private Loan SPV, LLC, or UFSB-SPV. As of November 14, 2011, we deconsolidated $6.61 billion of total assets of the NCSLT Trusts, including $6.39 billion of education loans, and $7.85 billion of total liabilities of the NCSLT Trusts, including $7.81 billion of long-term borrowings. We recognized a non-cash gain of $1.24 billion in our consolidated statement of operations upon deconsolidation, representing the accumulated deficits in these trusts, net of any elimination entries. As of March 31, 2012, we deconsolidated $258.4 million of total assets and $260.1 million of total liabilities of the GATE Trusts. We recognized a non-cash gain of $1.7 million in our consolidated statement of operations upon deconsolidation, representing the accumulated deficits in these trusts. We also recognized an additional gain of $9.2 million at the time of deconsolidation, representing the residual interests related to the GATE Trusts that were previously eliminated through consolidation, resulting in a total non-cash gain of $10.9 million upon the deconsolidation event. See Note 2, “Discontinued Operations,” in the notes to our unaudited consolidated financial statements included in Part I of this quarterly report for additional information.

The accounting for these matters is complex. Changes in circumstances or technical interpretations of ASU 2009-17 could result in additional consolidation or deconsolidation of VIEs, which could materially affect our consolidated financial statements and make analysis of our financial standing difficult. As we continue to execute our business model, we may be required to consolidate future financing transactions in accordance with ASU 2009-17.

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 the determination of which securitization trusts to consolidate, income taxes relating to uncertain tax positions accrued for under Accounting Standards Codification 740, Income Taxes, the valuation of our 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:

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

• The annual rate and timing of education loan prepayments;

• 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;

• 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;

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

• 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 may 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 revenues 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.

We have guaranteed the performance of Union Federal’s obligations under a loan purchase and sale agreement and assumed potential contingent liabilities of Union Federal under an indenture. We may incur substantial costs if we have to perform or assume obligations of Union Federal, which could have a material adverse effect on our liquidity or financial condition.

In connection with Union Federal’s sale of an education loan portfolio in October 2009, FMD delivered a performance guaranty to the purchaser of the loan portfolio. See Note 11, “Commitments and Contingencies—Performance Guaranty,” in the notes to our unaudited consolidated financial statements included in Part I of this quarterly report for additional information. If Union Federal were to default in the performance of any of its obligations or agreements under the loan purchase and sale agreement, including its indemnification or loan repurchase obligations, FMD would be required to perform such obligations. As a result, we may incur substantial costs pursuant to the performance guaranty if Union Federal were unable to perform its obligations.

In April 2010, FMD and certain of its subsidiaries entered into agreements relating to the restructuring of the education loan warehouse facility of UFSB-SPV. In connection with the restructuring, the third-party conduit lender released potential claims against Union Federal and UFSB-SPV pursuant to an indenture relating to the facility based upon events arising prior to April 16, 2010, subject to certain liability limits. FMD assumed any remaining contingent liability of Union Federal and its affiliates, other than UFSB-SPV, under the facility arising prior to April 16, 2010, subject to the same liability limits. In addition, FMD assumed any contingent liability of Union Federal under the facility arising prior to April 16, 2010 based on fraud, willful misconduct or gross negligence, and agreed to provide a separate indemnity for third-party claims by or on behalf of borrowers against the conduit lender based on loan origination errors. In December 2011, FMD and certain of its subsidiaries entered into a letter agreement with the conduit lender and other secured parties pursuant to which, among other things, the conduit lender foreclosed on the collateral in satisfaction of UFSB-SPV’s obligations under the facility and the parties agreed to maintain existing servicing arrangements with respect to the education loan portfolio formerly serving as collateral. The obligations assumed by FMD, but not its separate indemnity, terminated on June 30, 2012. See Note 11, “Commitments and Contingencies—Assumption of Potential Contingent Liabilities of Union Federal,” in the notes to our unaudited consolidated financial statements included in Part I of this quarterly report for additional information. As a result, we may incur substantial costs in the event of a claim for damages related to the facility, which could have a material adverse effect on our liquidity or financial condition.

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:

• Higher interest rates would increase the cost of the 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;

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

• An increase in 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 our common stock and could also prevent, or make more challenging, any future portfolio funding transactions.

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

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. 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 and, if available, 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. Although we believe that our capital resources as of March 31, 2013, which include proceeds of tax refunds under audit, are sufficient to satisfy our operating needs for the succeeding 12 months, we cannot assure you that they will be sufficient, particularly in light of ongoing income tax audits. Insufficient funds could require us 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 or further scale back our expenses. If any of the aforementioned occurs, our ability to expand could become adversely affected. In addition, our short-term financing needs are subject to regulatory capital requirements related to Union Federal. See Note 13, “Union Federal Regulatory Matters,” in the notes to our unaudited consolidated financial statements included in Part I of this quarterly report for additional information.

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 March 31, 2013, we had $20.1 million of goodwill and $24.7 million of intangible assets related to our acquisition of TMS and our acquisition of a substantial portion of the operating assets of 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 Campus Advantage products, higher-than-expected expense levels to provide services to TMS clients, a lower interest rate environment, shorter hold periods or lower cash balances than contemplated, which would reduce 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 impacted and impairment 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 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.

Our financial and operating results are subject to seasonality and cyclicality.

Our financial and operational results are subject to seasonal trends. For example, the volume of education loan applications typically increases with the approach of tuition payment dates. 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. We expect this seasonality of education loan originations to continue to impact the amount of processing fees that we earn in a particular fiscal quarter and the level of expenses we incur to generate loan application volume and process the higher origination activity. In addition, TMS’ financial and operating 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. In addition, TMS holds restricted cash that represents tuition payments collected from students or their families on behalf of educational institutions. This cash is generally subject to cyclicality, tending to peak in August of each school year, early in the enrollment cycle, and to decrease through May, the end of the school year. Over the last 12 months, TMS’ restricted cash balances ranged from a high of $341.1 million during August 2012 to a low of $55.3 million during May 2012.

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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.

In the past, we did not charge separate fees for many of our services, but generally entered into agreements with clients giving us the exclusive right to securitize the education loans that they did not intend to hold. As a result, we have historically recognized a significant portion of our revenues and substantially all of our income from structuring securitization transactions. We have not completed a securitization since the first quarter of fiscal 2008.

Although our Monogram platform has been designed to generate recurring revenues with less dependence on the securitization market and third-party credit enhancement, we will need to facilitate loan volumes substantially in excess of those that we have originated to date, and substantially in excess of those contemplated by our four lender clients’ Monogram-based loan programs, in order to return to profitability. 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:

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

• Material breach of our obligations to clients, including securitization trusts and former or current lender clients;

• 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;

• 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 violation of such laws and regulations;

• 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

• Changes to bankruptcy laws that change the current non-dischargeable status of private education loans, which could materially adversely affect recovery rates on defaulted loans.

Recent legislation will affect the terms of future securitization transactions.

The SEC has proposed new rules governing ABS issuance that, due to the requirements for risk retention, may affect the desirability of issuing 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

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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. TERI’s confirmed plan of reorganization provides exculpation for certain of our actions as administrator of the securitization trusts in connection with the TERI reorganization, but the exculpation may not cover all of our actions as administrator of the trusts during the TERI reorganization. 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 short-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 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, which was signed into law on July 21, 2010, 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 many months or years.

The Dodd-Frank Act also restructures the regulation of depository institutions. Under the Dodd-Frank Act, the OTS, which historically was the primary federal regulator for FMD and Union Federal, transferred its authority to the Federal Reserve and the OCC on July 21, 2011. On that date, the OCC, the primary federal regulator for national banks, became the primary federal regulator for federal thrifts, including Union Federal, and the Federal Reserve became the primary regulator for all savings and loan holding companies that were formerly regulated by the OTS, including FMD. Although the OCC and Federal Reserve are directed to implement existing OTS regulations, orders, resolutions, determinations and agreements for thrifts and their holding companies under the Home Owners’ Loan Act, or HOLA, the transition of supervisory functions from the OTS to the OCC (with respect to Union Federal) and the Federal Reserve (with respect to FMD) are expected, over time, to alter the supervisory approach for Union Federal and FMD. This could, in turn, affect the operations of FMD and Union Federal. The Dodd-Frank Act also will impose consolidated capital requirements on savings and loan holding companies, but they are not effective for five years after enactment.

In addition, the Dodd-Frank Act changes the federal preemption of state consumer protection laws. Prior to the enactment of the Dodd-Frank Act, OTS regulations provided that the HOLA, which authorized the creation of federal savings associations, and the OTS regulations that interpret the HOLA, preempted the entire field of state regulation in the critical areas of lending and deposit-taking, resulting in federal preemption of the bulk of state consumer protection laws in those areas. The Dodd-Frank Act, effective July 21, 2011, changed the legal standard for federal savings association preemption of state laws. As a result, state laws are now preempted only if those laws stand in conflict with federal laws. This “conflict” preemption standard is consistent with the standard for national bank preemption of state laws.

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

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

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

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

• Take enforcement action against institutions under its supervision.

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The CFPB may institute regulatory measures that directly impact our business operations. The CFPB has initiated its 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, Cology LLC and Union Federal’s operating subsidiary FM Loan Origination Services, LLC, or FMLOS. The OCC maintains parallel authority to enforce Section 5 of the Federal Trade Commission Act against federal savings associations, such as Union Federal, as well as authority to examine and supervise federal savings associations with assets of less than $10 billion, such as Union Federal, for compliance with consumer protection laws.

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 only issued its first Annual Report, which we refer to as the Report. The Report focused on issues relating to private education loan servicing. The Report noted that most private education loans do not have certain borrower protections that are common in federal education loans, such as income-based repayment plans, discharges upon death or military deferments. The Report compared education loan servicing to mortgage loan servicing, noting that, like mortgage borrowers, private education loan borrowers make their payments and inquiries to loan servicers, which are often different than the lender itself. The Report noted that of the approximately 2,900 complaints that the CFPB has received regarding education loans, only 5% concerned borrower issues relating to obtaining the loan, the aspect of the process in which we operate. However, many of the servicing issues noted by the Report could have consequences for us, as they may indicate areas in which the CFPB will seek to create further consumer disclosures or take other actions that relate to the origination process. These issues include the Report’s concern that borrowers are often unable to refinance their private education loans at lower rates following the beginning of repayment, the fact that co-signers (such as parents or relatives) may have difficulties removing themselves from liability on the loan, and concerns about consumer confusion about differences among education loans regarding how much they owe and how deferment and forbearance may work. Especially in light of the concerns noted in the Report that private education loan borrowers may not have fully understood all the terms and conditions of their different loans, we expect private education loan marketing practices to be carefully scrutinized.

The CFPB’s initiatives and similar efforts with respect to other credit and retail banking products could increase our costs and the complexity of our operations. See Item 1, “Business—Government Regulation,” included in Part I of our Annual Report for additional information.

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. The Dodd-Frank Act may have a material impact on our operations, including through increased operating and compliance costs.

We are subject to regulation as a savings and loan holding company, and Union Federal is regulated extensively. We could incur additional costs in complying with regulations applicable to savings and loan holding companies and savings banks, or significant penalties if we fail to comply.

As a result of our acquisition of Union Federal in November 2006, we became subject to regulation as a savings and loan holding company, and our business is limited to activities that are financial or real-estate related. FMD is subject to regulation, supervision and examination by the Federal Reserve. The Federal Reserve and the OCC each have certain types of enforcement authority over us, including the ability in certain circumstances to review and approve changes in management and compensation arrangements, issue cease-and-desist orders, force divestiture of Union Federal and impose civil and monetary penalties for violations of federal banking laws and regulations or for unsafe or unsound banking practices. Any such actions could adversely affect our reputation, liquidity or ability to execute our business plan. In addition, we could incur additional costs in complying with differing interpretations by these new regulators, or significant penalties if we fail to comply.

Union Federal is subject to regulation, supervision and examination by the OCC and the FDIC. Such regulation covers all banking business, including activities and investments, lending practices, safeguarding deposits, capitalization, risk management policies and procedures, relationships with affiliated companies, efforts to combat money laundering, recordkeeping and conduct and qualifications of personnel. In particular, the failure to meet minimum capital requirements could result in initiation of certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material adverse effect on our operations and our consolidated financial statements. We have in the past been required to make capital infusions to Union Federal, and regulatory authorities could require us to make additional capital infusions or to take other corrective measures in the future.

We could incur additional costs in complying with regulations applicable to savings and loan holding companies and savings banks, or significant penalties if we fail to comply. Our ability to comply with all applicable laws and rules depends largely on our establishment and maintenance of a system to ensure such compliance, as well as our ability to attract and retain qualified compliance

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personnel. Further reductions in staffing levels could make it difficult to retain experienced personnel to maintain adequate internal controls related to regulatory matters. If severe failures in internal controls occur, regulatory authorities could impose sanctions on Union Federal or us. 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.

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.

Many states have statutes and regulations that require the licensure of small loan lenders, loan brokers, credit services organizations, loan arrangers and collection agencies. Some of these statutes are drafted or interpreted to cover a broad scope of activities. While we believe we have 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. For example, the Dodd-Frank Act eliminated the federal preemption of state licensing requirements for federal savings association operating subsidiaries, such as Union Federal’s operating subsidiary, FMLOS. 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.

Absent a change in federal law, either by judicial interpretation or legislation, to the extent that our services are conducted through Union Federal, we believe it is less likely that state regulatory requirements affecting loan brokers, small loan lenders, credit services organizations, loan arrangers or collection agencies will be asserted. In addition, we may now 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:

• 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;

• Administrative enforcement actions;

• Class action lawsuits;

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

• 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 Truth-in-Lending Act, or 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.

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, mortgage lending and other retail banking activities, including laws governing fair lending, unfair, deceptive and abusive acts and practices, service member protections, interest rates and loan fees, disclosures of loan terms, marketing, brokering, servicing, collections and foreclosure.

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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 non-dischargeability of education loans in bankruptcy. 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 our partnered lenders, 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 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 introduced in both houses of Congress in the last Congress. If enacted in this Congress, 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 July 2012 report on private education lending released by the CFPB recommended that the U.S. Congress reconsider the advisability of continuing the current non-dischargeable status of private education loans.

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, or 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.

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Risks Related to Ownership of Our Common Stock

The price of our common stock may be volatile.

The trading price of our 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 our common stock. Those factors that could cause fluctuations include, but are not limited to, the following:

• The success of our Monogram platform, our fee-for-service offerings, our TMS offerings and our Cology LLC offerings;

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

• 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;

• Unfavorable developments in litigation or proceedings in which we are involved, including any challenges to tax refunds previously received in the amount of $176.6 million as a result of the ongoing IRS audit of our past tax returns and the resolution of any appeal of the ATB Order in the cases pertaining to our Massachusetts state income tax returns;

• 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;

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

• 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;

• Changes in demand for our product and service offerings or in the education finance marketplace generally;

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

• Regulatory developments or sanctions directed at Union Federal or us;

• Application of accounting policies and pronouncements, and their effects on our reported financial condition and results of operations, including future determinations under ASU 2009-17 to consolidate or deconsolidate VIEs;

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

• Delisting of our common stock from the New York Stock Exchange, or NYSE, for failure to comply with NYSE continued listing standards, including without limitation, the NYSE’s average closing price standard;

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

• Major catastrophic events;

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

• Dilution from raising capital through a stock issuance; or

• Departures or long-term unavailability of key personnel, including our 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 our common stock could exercise substantial control over us 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 our common stock, which could impact the outcome of key transactions. In addition, our directors and executive officers owned approximately 8.7% of the outstanding shares of our common stock as of March 31, 2013, 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 our 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 our 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 our common stock.

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

Our 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:

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

• Our stockholders may take action only at a meeting of our stockholders and not by written consent;

• We have authorized undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

• Our directors may be removed only for cause by the affirmative vote of a majority of the directors present at a meeting duly held at which a quorum is present, or by the holders of 75% of the votes that all stockholders would be entitled to cast in the election of directors; and

• We impose 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 our 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 our stockholders might consider to be in their best interests.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities

The following table provides information for the fiscal quarter ended March 31, 2013 regarding shares of our common stock that were repurchased under our 2003 stock incentive plan, as amended and restated, which we refer to as the 2003 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
January 1—31, 2013		37,319	$	0.78		—		N/A
February 1—28, 2013		—		—		—		N/A
March 1—31, 2013		—		—		—		N/A
Total Purchases of Equity Securities(1)		37,319	$	0.78		—		N/A

(1) Participants in our 2003 Plan may elect to satisfy tax withholding obligations upon vesting of restricted stock units by delivering shares of our 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 has an expiration date of September 14, 2013.

Item 6. Exhibits.

See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this quarterly report, which Exhibit Index is incorporated herein by this reference.

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SIGNATURES

Pursuant to the requirements 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
Date: May 10, 2013	By:	/s/    Kenneth Klipper
		Kenneth Klipper
		Managing Director and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

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EXHIBIT INDEX

Exhibit Number	Description
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(b) 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
32.2	Chief Financial Officer—Certification pursuant to Rule 13a-14(b) 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(1)	Instance Document
101.SCH(1)	Taxonomy Extension Schema Document
101.CAL(1)	Taxonomy Calculation Linkbase Document
101.LAB(1)	Taxonomy Label Linkbase Document
101.PRE(1)	Taxonomy Presentation Linkbase Document
101.DEF(1)	Taxonomy Extension Definition Linkbase Document

(1) These interactive data files shall not be deemed filed for purposes of Section 11 or Section 12 of the Securities Act of 1933, as amended, or Section 18 of the Exchange Act or otherwise be subject to liability under those sections.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Daniel Meyers, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The First Marblehead Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 10, 2013

/s/ Daniel Meyers

Daniel Meyers

Chairman, Chief Executive Officer and President

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Kenneth Klipper, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The First Marblehead Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 10, 2013

/s/ Kenneth Klipper

Kenneth Klipper

Managing Director and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of The First Marblehead Corporation (the “Company”) for the quarter ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel Meyers, Chairman, Chief Executive Officer and President of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 10, 2013	/s/ Daniel Meyers
	Daniel Meyers
	Chairman, Chief Executive Officer and President

A signed original of this written statement required by Section 906 has been provided to The First Marblehead Corporation and will be retained by The First Marblehead Corporation and furnished to the SEC or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of The First Marblehead Corporation (the “Company”) for the quarter ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kenneth Klipper, Managing Director and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 10, 2013	/s/ Kenneth Klipper
	Kenneth Klipper
	Managing Director and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to The First Marblehead Corporation and will be retained by The First Marblehead Corporation and furnished to the SEC or its staff upon request.

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Education Loans - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Mar. 31, 2013	Jun. 30, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Education loans outstanding	$ 63,628	$ 34,404
Maximum loss confirmation period	12 months
Education loans on non-accrual status	82	54
Basic forbearance grant incremental period	3 months
Monogram -Based loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Education loans outstanding	1,100	1,100
Alternative payment plan period, minimum	6 months
Alternative payment plan period, maximum	24 months
Monogram -Based loans | Union Federal
Accounts, Notes, Loans and Financing Receivable [Line Items]
Education loans outstanding	62,500	33,300
Education loan issued	$ 29
Maximum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Basic forbearance period	1 year

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Union Federal Regulatory Matters - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended		1 Months Ended	9 Months Ended
	Mar. 31, 2013 Union Federal Savings Bank	Jun. 30, 2012 Union Federal Savings Bank	Mar. 31, 2010 Minimum	Mar. 31, 2013 Minimum
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Equity capital	$ 22.7	$ 16.3
Capital contribution received from FMD	5.8
Notice period before proposed declaration of a dividend or approval of a proposed capital distribution				30 days
Distribution to stockholders per fiscal quarter			1.0
Guarantee of debt			$ 5.0

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Activity Related to Financial Assets Categorized as Level Three Valued on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012
Deposits for participation interest accounts
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair value, beginning of period	$ 9,637	$ 3,584	$ 4,039	$ 8,512
Realized and unrealized gains (losses)	(57)	25	(180)	(9)
Net contributions (distributions)	1,267	117	6,988	(4,777)
Fair value, end of period	10,847	3,726	10,847	3,726
Servicing Assets
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair value, beginning of period	16,004	14,304	16,341	29,610
Realized and unrealized gains (losses)	838	2,454	2,057	202
Net contributions (distributions)	(1,187)	(520)	(2,743)	(13,574)
Fair value, end of period	$ 15,655	$ 16,238	$ 15,655	$ 16,238

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Quantitative Measures Established by Regulation to Maintain Minimum Amounts and Ratios of Total Capital and Tier One Capital to Risk-weighted Assets (Detail)	Mar. 31, 2013	Jun. 30, 2012
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Regulatory Guidelines minimum capital ratios for Tier 1 risk-based capital	4.00%
Regulatory Guidelines minimum capital ratios for Total risk-based capital	8.00%
Regulatory Guidelines minimum capital ratios for Tier 1 (core) capital	4.00%
Capital ratios for Tier 1 risk-based capital to be well capitalized	6.00%
Capital ratios for Total risk-based capital to be well capitalized	10.00%
Capital ratios for Tier 1 (core) capital to be well capitalized	5.00%
Tier 1 risk-based capital	25.70%	31.30%
Total risk-based capital	25.90%	31.70%
Tier 1 (core) capital	9.50%	11.00%

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Estimated Annual Amortization Expense (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Jun. 30, 2012
Estimated amortization expense:
Remainder of 2013	$ 710
2014	2,424
2015	2,311
2016	2,311
2017	2,007
Thereafter	15,045
Intangible assets net	24,808	20,922
Customer List
Estimated amortization expense:
Remainder of 2013	488
2014	1,573
2015	1,573
2016	1,573
2017	1,573
Thereafter	13,939
Intangible assets net	20,719
Technology
Estimated amortization expense:
Remainder of 2013	190
2014	721
2015	608
2016	608
2017	304
Intangible assets net	2,431
Tradename
Estimated amortization expense:
Remainder of 2013	32
2014	130
2015	130
2016	130
2017	130
Thereafter	1,106
Intangible assets net	$ 1,658

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Summary of Cash and Cash Equivalents (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2011
Cash and Cash Equivalents [Line Items]
Cash equivalents (money market funds)	$ 70,084	$ 80,574
Interest-bearing deposits with the Federal Reserve	56,557	27,396
Interest-bearing deposits with banks	1,272	14,026
Non-interest-bearing deposits with banks	13,421	1,302
Federal funds sold	200	199
Total cash and cash equivalents	$ 141,534	$ 123,497	$ 140,525	$ 217,367

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Education Loans (Tables)

9 Months Ended

Mar. 31, 2013

Composition of Net Carrying Value of Education Loans Held-to-Maturity

The following table summarizes the composition of the net carrying value of our education loans held-to-maturity as of the dates indicated:

	March 31, 2013			June 30, 2012
	(dollars in thousands)
Gross loan principal outstanding	$	63,628		$	34,404
Allowance for loan losses		(1,546	)		(1,309	)
Education loans held-to-maturity, net of allowance	$	62,082		$	33,095

Allowance for Loan Losses for Education Loans

We recorded the following activity in the allowance for loan losses for education loans:

	Three months ended March 31,						Nine months ended March 31,
	2013			2012			2013			2012
	(dollars in thousands)
Balance, beginning of period	$	1,464		$	1,255		$	1,309		$	1,336
Provision (credit) for loan losses		26			(170	)		(151	)		(472	)
Reserves reclassified from interest receivable for capitalized interest		4			5			26			16
Charge-offs		(30	)		(41	)		(86	)		(192	)
Recoveries from borrowers		82			227			448			588
Balance, end of period	$	1,546		$	1,276		$	1,546		$	1,276

Loan Origination Metrics With Respect To Monogram-Based Programs Held at Union Federal

The following table represents our loan origination metrics with respect to our Monogram-based programs held at Union Federal at March 31, 2013 and June 30, 2012:

	March 31, 2013			June 30, 2012
Weighted-average FICO score		752			753
Co-signers		84.0	%		84.8	%
Delinquent loans		0.90	%		0.03	%

Information on Status of Education Loans Outstanding

The following table provides information on the status of education loans outstanding:

	March 31, 2013		As a percentage of total			June 30,  2012		As a percentage of total
	(dollars in thousands)
Principal of loans outstanding:
In basic forbearance	$	665		1.0	%	$	171		0.5	%
In school and in deferment		23,759		37.3			14,781		43.0
In repayment, including alternative payment plans, classified as:
Current: £30 days past due		38,465		60.5			19,289		56.0
Delinquent: >30 days past due, but £120 days past due		657		1.0			109		0.3
Delinquent: >120 days past due, but £180 days past due		53		0.1			54		0.2
In default: >180 days past due, but not yet charged-off		29		0.1			—		—
Total gross loan principal outstanding	$	63,628		100.0	%	$	34,404		100.0	%
Non-accrual loan principal (>120 days past due)	$	82		0.1	%	$	54		0.2	%
Past due loan principal (>90 days, but £120 days past due still accruing interest)		126		0.2			11		0.0
In alternative payment plans		531		0.8			263		0.8

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Carrying Amount, Estimated Fair Value and Placement in Fair Value Hierarchy for Financial Instruments (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Jun. 30, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Restricted funds due to clients	$ 76,288	$ 104,981
Level 1
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	141,534	123,497
Short-term investments	50,116	85,007
Restricted cash	36,641	65,401
Savings, checking and money market deposits	118,713	40,273
Restricted funds due to clients	76,288	104,981
Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Time deposits	45,881	43,248
Level 3
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Mortgage loans, net of allowance	11,748	7,811
Education loans, net of allowance	62,287	33,280
Carrying Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	141,534	123,497
Short-term investments	50,116	85,007
Restricted cash	36,641	65,401
Mortgage loans, net of allowance	11,529	7,811
Education loans, net of allowance	62,082	33,095
Time deposits	45,506	43,155
Savings, checking and money market deposits	118,713	40,273
Restricted funds due to clients	76,288	104,981
Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	141,534	123,497
Short-term investments	50,116	85,007
Restricted cash	36,641	65,401
Mortgage loans, net of allowance	11,748	7,811
Education loans, net of allowance	62,287	33,280
Time deposits	45,881	43,248
Savings, checking and money market deposits	118,713	40,273
Restricted funds due to clients	$ 76,288	$ 104,981

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Loan Origination Metrics With Respect To Monogram-Based Programs Held at Union Federal (Detail) (Monogram -Based loans, Union Federal)	Mar. 31, 2013	Jun. 30, 2012
Monogram -Based loans | Union Federal
Accounts, Notes, Loans and Financing Receivable [Line Items]
Weighted-average FICO score	752	753
Co-signers	84.00%	84.80%
Delinquent loans	0.90%	0.03%

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Investments Available-for-Sale - Additional Information (Detail) (USD $)	Mar. 31, 2013 Investment	Jun. 30, 2012 Investment
Schedule of Available-for-sale Securities [Line Items]
Number of investment securities	3	3
Investment securities in unrealized loss position for less than one year	$ 20,600,000	$ 16,000,000
Unrealized loss	$ 60,000	$ 58,000
Expected weighted average remaining life of available for sale securities	3 years 2 months 12 days
Minimum
Schedule of Available-for-sale Securities [Line Items]
Contractual maturities, mortgage-backed securities	9
Maximum
Schedule of Available-for-sale Securities [Line Items]
Contractual maturities, mortgage-backed securities	29

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Basic and Diluted Net Income (Loss) Per Share of Common Stock (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Net (loss) income from continuing operations	$ (8,789)	$ 2,948	$ (35,004)	$ (19,613)
Net (loss) income from continuing operations allocated to common shares outstanding	(8,789)	2,712	(35,004)	(18,040)
Income from discontinued operations, net of taxes		6,910		1,135,781
Income from discontinued operations allocated to common shares outstanding		6,356		1,044,691
Net (loss) income per basic common share:
From continuing operations	$ (0.08)	$ 0.03	$ (0.33)	$ (0.18)
From discontinued operations		$ 0.06		$ 10.30
Total basic net (loss) income per share	$ (0.08)	$ 0.09	$ (0.33)	$ 10.12
Net (loss) income per diluted common share:
From continuing operations	$ (0.08)	$ 0.03	$ (0.33)	$ (0.18)
From discontinued operations		$ 0.06		$ 10.28
Total diluted net (loss) income per share	$ (0.08)	$ 0.09	$ (0.33)	$ 10.10
Weighted-average common shares outstanding
Basic	111,110	101,554	105,988	101,459
Diluted	111,110	110,573	105,988	110,499
Anti-dilutive common stock equivalents	231		26
Continuing Operations
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Less: Earnings (loss) allocated to participating securities		236		(1,573)
Discontinued Operations
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Less: Earnings (loss) allocated to participating securities		$ 554		$ 91,090

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Financial Instruments Carried at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Jun. 30, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments available-for-sale	$ 83,898	$ 68,598
Deposits for participation interest accounts	10,847	4,039
Service revenue receivables	15,655	16,341
Total assets	110,400	88,978
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments available-for-sale	83,898	68,598
Total assets	83,898	68,598
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Deposits for participation interest accounts	10,847	4,039
Service revenue receivables	15,655	16,341
Total assets	$ 26,502	$ 20,380

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Discontinued Operations

9 Months Ended

Mar. 31, 2013

Discontinued Operations

(2) Discontinued Operations

Upon our adoption of ASU 2009-16, Transfers and Servicing (Topic 860)—Accounting for Transfers of Financial Assets, and ASU 2009-17, Consolidation (Topic 810)—Improvements to Financial Reporting by Enterprises Involved With Variable Interest Entities, effective July 1, 2010, we consolidated 14 securitization trusts that we facilitated during fiscal 2004 through fiscal 2008. The education loans purchased by certain of the securitization trusts (Trusts) were initially subject to a default repayment guaranty by The Education Resources Institute, Inc. (TERI), while the education loans purchased by other securitization trusts (NCT Trusts) were, with limited exceptions, not TERI-guaranteed. Of the 14 securitization trusts consolidated on July 1, 2010, 11 were Trusts and 3 were NCT Trusts. We refer to the consolidated Trusts as the NCSLT Trusts and the consolidated NCT Trusts as the GATE Trusts.

On November 14, 2011, we sold to a third party all of our interests in the structuring advisory agreements relating to the Trusts and the related asset services agreement for $13.0 million in cash. Our variable interests in the Trusts included our right to receive the additional structural advisory fees and the asset servicing fees under those respective agreements. As a result of this sale, we no longer held a variable interest in the NCSLT Trusts and were, therefore, no longer the primary beneficiary of the NCSLT Trusts. Accordingly, we deconsolidated $6.61 billion of assets and $7.85 billion of liabilities from our consolidated balance sheet and recognized a $1.24 billion non-cash gain in our consolidated statement of operations during the second quarter of fiscal 2012, representing the accumulated deficit in the NCSLT Trusts.

On March 2, 2012, FMD sold to a third party all of its outstanding capital stock in its subsidiary First Marblehead Data Services, Inc. (FMDS) for $13.7 million in cash. FMDS served as the trust administrator of the NCT Trusts. On March 30, 2012, the new third party owner of FMDS terminated the agreement, effective September 30, 2012, with FMD’s subsidiary First Marblehead Education Resources, Inc. (FMER) for the special servicing of the NCT Trusts. With the termination of this agreement, we no longer had the power to direct the activities that most significantly impact the performance of the GATE Trusts and, therefore, we were no longer considered the primary beneficiary of these trusts. As a result, we deconsolidated the GATE Trusts effective March 31, 2012. We deconsolidated $258.4 million of assets and $260.1 million of liabilities from our consolidated balance sheet and recognized a $1.7 million non-cash gain in our consolidated statement of operations during the third quarter of fiscal 2012, representing the accumulated deficit in the GATE Trusts. In addition to the non-cash gain of $1.7 million, we also recorded an additional gain of $9.2 million representing the fair value of the residual interests and additional structural advisory fees related to these trusts that were previously eliminated through consolidation, resulting in a total non-cash gain of $10.9 million for the deconsolidation event.

On April 13, 2012, FMER provided its notice of resignation as special servicer of the Trusts. The resignation became effective June 21, 2012. Pursuant to the terms of the resignation, FMER assisted the new special servicer of the Trusts for a transition period that terminated on November 30, 2012.

During the fourth quarter of fiscal 2012, we determined that we no longer had any significant continuing involvement in the operations relating to the NCSLT Trusts and the GATE Trusts. Further, we concluded that this would occur within an appropriate assessment period for both the NCSLT Trusts and the GATE Trusts. As a result, we reported the operations and activities relating to the NCSLT Trusts, the GATE Trusts and FMDS within discontinued operations for all periods presented. The non-cash gains representing the accumulated deficit recognized upon deconsolidations of the NCSLT Trusts and the GATE Trusts, as discussed above, were included in discontinued operations. Further, the gain recognized as the result of the sale of FMDS, as well as the revenues and expenses of FMDS prior to the sale, were recorded in discontinued operations for fiscal 2012.

The revenues and expenses of discontinued operations for the three and nine months ended March 31, 2012 were as follows:

	For the three months ended March 31, 2012			For the nine months ended March 31, 2012
	(dollars in thousands)
Total revenues	$	(1,048	)	$	(100,737	)
Total expenses		610			15,408
Other income		14,280			1,258,524
Income from discontinued operations, before income taxes		12,622			1,142,379
Income tax expense		5,712			6,598
Discontinued operations, net of taxes	$	6,910		$	1,135,781

The securitization trusts previously consolidated were considered pass-through entities for income tax purposes and, accordingly, the net income or loss of the trusts was included in the tax returns of the trust owners rather than the trust entities themselves. Income taxes allocated to discontinued operations were related to the sale and operations of FMDS.

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Information on Status of Education Loans Outstanding (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Jun. 30, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal of loans outstanding	$ 63,628	$ 34,404
Non-accrual loan principal	82	54
Principal of loans outstanding, as a percentage of total	100.00%	100.00%
In basic forbearance
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal of loans outstanding	665	171
Principal of loans outstanding, as a percentage of total	1.00%	0.50%
In school and in deferment
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal of loans outstanding	23,759	14,781
Principal of loans outstanding, as a percentage of total	37.30%	43.00%
Less than 30 days past due
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal of loans outstanding	38,465	19,289
Principal of loans outstanding, as a percentage of total	60.50%	56.00%
Greater than 30 days past due, but Less than 120 days past due
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal of loans outstanding	657	109
Principal of loans outstanding, as a percentage of total	1.00%	0.30%
Greater than 120 days past due, but Less than 180 days past due
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal of loans outstanding	53	54
Principal of loans outstanding, as a percentage of total	0.10%	0.20%
Greater than 180 days past due, but not yet charged-off
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal of loans outstanding	29
Principal of loans outstanding, as a percentage of total	0.10%
Greater than 120 days past due
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loan principal	82	54
Non-accrual loan principal, as a percentage of total	0.10%	0.20%
Greater than 90 days, but Less than 120 days past due still accruing interest
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past due loan principal	126	11
Past due loan principal , as a percentage of total	0.20%	0.00%
Alternative Payment Plans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal of loans outstanding	$ 531	$ 263
Principal of loans outstanding, as a percentage of total	0.80%	0.80%

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Union Federal Regulatory Matters (Tables)

9 Months Ended

Mar. 31, 2013

Union Federal's Regulatory Capital Ratios

Union Federal’s regulatory capital ratios were as follows as of the dates below:

	Regulatory Guidelines
	Minimum			Well capitalized			March 31, 2013			June 30, 2012
Capital ratios:
Tier 1 risk-based capital		4.0	%		6.0	%		25.7	%		31.3	%
Total risk-based capital		8.0			10.0			25.9			31.7
Tier 1 (core) capital		4.0			5.0			9.5			11.0

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Net (Loss) Income per Share (Tables)

9 Months Ended

Mar. 31, 2013

Basic and Diluted Net Loss Per Share of Common Stock

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

	Three months ended March 31,					Nine months ended March 31,
	2013			2012		2013			2012
	(dollars and shares in thousands, except per share amounts)
Net (loss) income from continuing operations	$	(8,789	)	$	2,948	$	(35,004	)	$	(19,613	)
Less: Earnings (loss) allocated to participating securities		—			236		—			(1,573	)
Net (loss) income from continuing operations allocated to common shares outstanding	$	(8,789	)	$	2,712	$	(35,004	)	$	(18,040	)
Income from discontinued operations, net of taxes	$	—		$	6,910	$	—		$	1,135,781
Less: Earnings allocated to participating securities		—			554		—			91,090
Income from discontinued operations allocated to common shares outstanding	$	—		$	6,356	$	—		$	1,044,691
Net (loss) income per basic common share:
From continuing operations	$	(0.08	)	$	0.03	$	(0.33	)	$	(0.18	)
From discontinued operations		—			0.06		—			10.30
Total basic net (loss) income per share	$	(0.08	)	$	0.09	$	(0.33	)	$	10.12
Net (loss) income per diluted common share:
From continuing operations	$	(0.08	)	$	0.03	$	(0.33	)	$	(0.18	)
From discontinued operations		—			0.06		—			10.28
Total diluted net (loss) income per share	$	(0.08	)	$	0.09	$	(0.33	)	$	10.10
Weighted-average common shares outstanding
Basic		111,110			101,554		105,988			101,459
Diluted		111,110			110,573		105,988			110,499
Anti-dilutive common stock equivalents		231			—		26			—

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Goodwill and Intangible Assets - Additional Information (Detail) (USD $)	12 Months Ended			9 Months Ended		12 Months Ended
	Jun. 30, 2011	Mar. 31, 2013	Jun. 30, 2012	Mar. 31, 2013 Cology, Inc Entity	Oct. 19, 2012 Cology, Inc Entity	Jun. 30, 2011 Customer List	Mar. 31, 2013 Customer List	Jun. 30, 2012 Customer List
Goodwill and Intangible Assets Disclosure [Line Items]
Acquisition of assets and affiliates				$ 5,700,000	$ 4,700,000
Number of credit unions and lending institutions served by Cology				250	250
Goodwill acquired	22,200,000			518,000
Customer list intangible asset amortization period				15 years
Amortization expenses related to intangible asset				377,000
Amortization of intangible asset and goodwill, deductible period				15 years
Goodwill eliminated	2,600,000
Intangible assets eliminated						4,100,000
Goodwill	19,548,000	20,066,000	19,548,000
Intangible assets		$ 29,950,000					$ 23,600,000	$ 17,900,000

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Discontinued Operations - Additional Information (Detail) (USD $)	1 Months Ended	3 Months Ended	9 Months Ended				1 Months Ended			3 Months Ended
	Nov. 14, 2011	Mar. 31, 2012	Mar. 31, 2012	Mar. 31, 2013	Jun. 30, 2012	Jun. 30, 2010 Entity	Mar. 02, 2012 First Marblehead Data Services Inc	Nov. 14, 2011 NCSLT Trusts	Jun. 30, 2010 NCSLT Trusts Entity	Sep. 30, 2012 GATE Trusts	Mar. 31, 2012 GATE Trusts	Jun. 30, 2010 GATE Trusts Entity
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Number of securitization trusts consolidated						14			11			3
Sale of interests	$ 13,000,000
Deconsolidated assets				473,331,000	457,805,000			6,610,000,000			258,400,000
Deconsolidated liabilities				278,067,000	230,817,000			7,850,000,000			260,100,000
Gain from deconsolidation of trusts		9,156,000	9,514,000					1,240,000,000		10,900,000	1,700,000
Sale of outstanding stock in subsidiary							13,700,000
Gain representing fair value of residual interests related to trusts that were previously eliminated through consolidation										$ 9,200,000

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Revenues and Expenses of Discontinued Operations (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Mar. 31, 2012	Mar. 31, 2012
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Total revenues	$ (1,048)	$ (100,737)
Total expenses	610	15,408
Other income	14,280	1,258,524
Income from discontinued operations, before income taxes	12,622	1,142,379
Income tax expense	5,712	6,598
Discontinued operations, net of taxes	$ 6,910	$ 1,135,781

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General Information

9 Months Ended

Mar. 31, 2013

General Information

(1) General Information

Overview

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” or “FMD” to refer to The First Marblehead Corporation on a stand-alone basis. We use the term “education loans” 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 ending June 30, 2013 as “fiscal 2013.” References to our “Annual Report” mean our annual report on Form 10-K for the fiscal year ended June 30, 2012 filed with the Securities and Exchange Commission (SEC) on September 12, 2012.

We are a specialty finance company focused on the education financing marketplace in the United States. We provide loan programs on behalf of our lender clients for K-12, undergraduate and graduate students and for college graduates seeking to consolidate private education loan obligations. We offer a fully integrated suite of services through our Monogram^® loan product service platform (Monogram platform), as well as certain services on a stand-alone, fee-for-service basis. We partner with lenders to design and administer education loan programs through our Monogram platform, which are typically school-certified and designed to be marketed through educational institutions or to prospective borrowers and their families directly and designed to generate portfolios intended to be held by the originating lender or financed in the capital markets. We also offer a number of ancillary services in support of our clients, including loan origination, retail banking, portfolio management and securitization services.

Through FMD’s subsidiary, Tuition Management Systems LLC (TMS), we offer tuition planning, tuition billing, refund management and payment technology services. Our bank subsidiary, Union Federal Savings Bank (Union Federal^®), offers traditional retail banking products on a stand-alone basis. On October 19, 2012, we acquired a substantial portion of the operating assets, and assumed certain liabilities, of Cology, Inc. and its affiliates. We refer to Cology, Inc. and its affiliates as the Cology Sellers. We refer to the FMD subsidiary that acquired the operating assets of the Cology Sellers as Cology LLC. Through Cology LLC, we provide loan processing services to approximately 250 credit unions. Because Cology LLC is a loan processer, none of the education loans that it processes on behalf of its clients are included on our consolidated balance sheet but, rather, are included on the balance sheets of its clients. As such, none of the references in this quarterly report to education loans included in our consolidated balance sheet include the education loans originated by Cology LLC on behalf of its clients. Our consolidated financial statements for the nine months ended March 31, 2013 reflect income and expenses of Cology LLC since the date of acquisition.

Basis of Financial Reporting

The accompanying unaudited consolidated financial statements as of March 31, 2013 and for the three and nine months ended March 31, 2013 and 2012 have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations for the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of the results of fiscal 2013. The accompanying unaudited consolidated financial statements should be read in conjunction with our Annual Report.

Recently Issued Accounting Pronouncements

Accounting Standards Update (ASU) 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05), is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. ASU 2011-05 eliminates the option in GAAP to present other comprehensive income in our consolidated statement of changes in stockholders’ equity (deficit). ASU 2011-05 requires that non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions of ASU 2011-05 were applied retrospectively and were effective for fiscal years and interim periods beginning in the first quarter of fiscal 2013. We elected to present comprehensive income in a separate financial statement, our consolidated statements of comprehensive income. The adoption of ASU 2011-05 did not have a material impact on our consolidated financial statements.

ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02), is effective prospectively for annual reporting periods beginning after December 15, 2012 and interim periods within those years. ASU 2013-02 requires entities to disclose: (1) for items reclassified out of accumulated other comprehensive income and into net income for their entirety, the effect of the reclassification on each affected net income line item; and (2) for accumulated other comprehensive income reclassification items that are not reclassified in their entirety into net income, a cross reference to other required GAAP disclosures. We do not expect the adoption of ASU 2013-02 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.

Summary of Significant Accounting Policies

There have been no changes to our significant accounting policies since we filed our Annual Report with the SEC on September 12, 2012. See Note 2, “Summary of Significant Accounting Policies,” in the notes to our consolidated financial statements included in Item 8 of Part II of our Annual Report for the full disclosure of our significant accounting policies.

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Asset Acquisition of Cology, Inc. - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Mar. 31, 2013 First Payment	Mar. 31, 2013 Second Payment	Mar. 31, 2013 Third Payment	Mar. 31, 2013 Cology, Inc Entity	Oct. 19, 2012 Cology, Inc Entity
Asset Acquisition [Line Items]
Acquisition of assets and affiliates				$ 5.7	$ 4.7
Number of credit unions and lending institutions served by Cology				250	250
Bonus payment date	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2015

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Composition of Net Carrying Value of Education Loans Held to Maturity (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loan principal outstanding	$ 63,628		$ 34,404
Allowance for loan losses	(1,546)	(1,464)	(1,309)	(1,276)	(1,255)	(1,336)
Education loans held-to-maturity, net of allowance	$ 62,082		$ 33,095

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Net (Loss) Income per Share - Additional Information (Detail) (USD $)			1 Months Ended
	Mar. 31, 2013	Jun. 30, 2012	Dec. 31, 2007 Series B Preferred Stock	Dec. 04, 2012 Series B Preferred Stock
Earnings Per Share Disclosure [Line Items]
Issuance of Non-Voting Convertible preferred stock			132,701
Preferred stock, par value	$ 0.01	$ 0.01	$ 0.01
Preferred stock, purchase price per share			$ 1,000
Stock conversion, price per share			$ 15.00
Common stock shares issued upon conversion of preferred stock				8,846,733

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Jun. 30, 2012
ASSETS
Cash and cash equivalents	$ 141,534	$ 123,497
Short-term investments, at cost	50,116	85,007
Restricted cash	36,641	65,401
Investments available-for-sale, at fair value	83,898	68,598
Education loans held-to-maturity, net of allowance of $1,546 and $1,309	62,082	33,095
Mortgage loans held-to-maturity, net of allowance of $642 and $591	11,529	7,811
Deposits for participation interest accounts, at fair value	10,847	4,039
Service revenue receivables, at fair value	15,655	16,341
Goodwill	20,066	19,548
Intangible assets, net	24,808	20,922
Property and equipment, net	5,947	4,570
Other assets	10,208	8,976
Total assets	473,331	457,805
Liabilities:
Deposits	164,219	83,428
Restricted funds due to clients	76,288	104,981
Accounts payable, accrued expenses and other liabilities	11,732	18,133
Income taxes payable	24,647	23,414
Net deferred income tax liability	1,181	861
Total liabilities	278,067	230,817
Commitments and contingencies:
Stockholders' equity:
Preferred stock, par value $0.01 per share; 20,000 shares authorized; 0 and 133 shares issued and outstanding		1
Common stock, par value $0.01 per share; 250,000 shares authorized; 119,867 and 110,658 shares issued; 111,110 and 102,002 shares outstanding	1,198	1,106
Additional paid-in capital	455,857	452,726
Accumulated deficit	(75,631)	(40,627)
Treasury stock, 8,757 and 8,656 shares held, at cost	(186,930)	(186,828)
Accumulated other comprehensive income	770	610
Total stockholders' equity	195,264	226,988
Total liabilities and stockholders' equity	$ 473,331	$ 457,805

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Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Jun. 30, 2012
Finite-Lived Intangible Assets [Line Items]
Intangible assets adjusted cost basis	$ 29,950
Intangible assets accumulated amortization	(5,142)
Intangible assets net	24,808	20,922
Customer List
Finite-Lived Intangible Assets [Line Items]
Intangible assets amortization period	15 years
Intangible assets adjusted cost basis	23,600	17,900
Intangible assets accumulated amortization	(2,881)
Intangible assets net	20,719
Technology
Finite-Lived Intangible Assets [Line Items]
Intangible assets amortization period	6 years
Intangible assets adjusted cost basis	4,400
Intangible assets accumulated amortization	(1,969)
Intangible assets net	2,431
Trade Names
Finite-Lived Intangible Assets [Line Items]
Intangible assets amortization period	15 years
Intangible assets adjusted cost basis	1,950
Intangible assets accumulated amortization	(292)
Intangible assets net	$ 1,658

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Consolidated Statements of Changes In Stockholders' Equity (Deficit) (USD $) In Thousands, unless otherwise specified	Total	Non-voting convertible preferred stock issued	Common stock Issued	Common stock in treasury	Additional paid-in capital	Accumulated deficit	Accumulated other comprehensive income, net of tax
Beginning Balance at Jun. 30, 2011	$ (879,939)	$ 1	$ 1,097	$ (186,551)	$ 448,088	$ (1,142,855)	$ 281
Beginning Balance (in shares) at Jun. 30, 2011		133	109,717	(8,399)
Comprehensive income:
Net income	1,116,168					1,116,168
Accumulated other comprehensive income	199						199
Total comprehensive (loss) income	1,116,367					1,116,168	199
Net stock issuance from vesting of stock units (in shares)			301	(61)
Net stock issuance from vesting of stock units	(77)		3	(78)	(2)
Stock-based compensation	3,603				3,603
Ending Balance at Mar. 31, 2012	239,954	1	1,100	(186,629)	451,689	(26,687)	480
Ending Balance (in shares) at Mar. 31, 2012		133	110,018	(8,460)
Beginning Balance at Jun. 30, 2012	226,988	1	1,106	(186,828)	452,726	(40,627)	610
Beginning Balance (in shares) at Jun. 30, 2012		133	110,658	(8,656)
Comprehensive income:
Net income	(35,004)					(35,004)
Accumulated other comprehensive income	160						160
Total comprehensive (loss) income	(34,844)					(35,004)	160
Net stock issuance from vesting of stock units (in shares)			362	(101)
Net stock issuance from vesting of stock units	(101)		4	(102)	(3)
Stock-based compensation	3,221				3,221
Conversion of preferred stock (in shares)		(133)	8,847
Conversion of preferred stock		(1)	88		(87)
Ending Balance at Mar. 31, 2013	$ 195,264		$ 1,198	$ (186,930)	$ 455,857	$ (75,631)	$ 770
Ending Balance (in shares) at Mar. 31, 2013			119,867	(8,757)

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Short Term Investments - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Mar. 31, 2013	Jun. 30, 2012
Schedule of Investments [Line Items]
Short-term investments including certificates of deposit	50,116	85,007
Minimum
Schedule of Investments [Line Items]
Certificates of deposit, maturity period	15 days	15 days
Maximum
Schedule of Investments [Line Items]
Certificates of deposit, maturity period	7 months 27 days	7 months 27 days

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Discontinued Operations (Tables)

9 Months Ended

Mar. 31, 2013

Revenues and Expenses of Discontinued Operations

The revenues and expenses of discontinued operations for the three and nine months ended March 31, 2012 were as follows:

	For the three months ended March 31, 2012			For the nine months ended March 31, 2012
	(dollars in thousands)
Total revenues	$	(1,048	)	$	(100,737	)
Total expenses		610			15,408
Other income		14,280			1,258,524
Income from discontinued operations, before income taxes		12,622			1,142,379
Income tax expense		5,712			6,598
Discontinued operations, net of taxes	$	6,910		$	1,135,781

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Summary of Investments Available for Sale by Major Category (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Jun. 30, 2012
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 83,128	$ 67,988
Unrealized gains	830	668
Unrealized losses	(60)	(58)
Fair value	83,898	68,598
GSE mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	68,870	51,972
Unrealized gains	623	369
Unrealized losses	(46)	(56)
Fair value	69,447	52,285
Mortgage-backed securities issued by U.S. government agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	14,258	16,016
Unrealized gains	207	299
Unrealized losses	(14)	(2)
Fair value	$ 14,451	$ 16,313

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Investments Available-for-Sale (Tables)

9 Months Ended

Mar. 31, 2013

Summary of Investments Available-For-Sale by Major Category

The following table provides a summary of investments available-for-sale by major category:

	Amortized cost		Unrealized gains		Unrealized losses			Fair value
	(dollars in thousands)
At March 31, 2013:
GSE mortgage-backed securities	$	68,870	$	623	$	(46	)	$	69,447
Mortgage-backed securities issued by U.S. government agencies		14,258		207		(14	)		14,451
Total	$	83,128	$	830	$	(60	)	$	83,898
At June 30, 2012:
GSE mortgage-backed securities	$	51,972	$	369	$	(56	)	$	52,285
Mortgage-backed securities issued by U.S. government agencies		16,016		299		(2	)		16,313
Total	$	67,988	$	668	$	(58	)	$	68,598

Contractual Maturities of Available for Sale Securities

The amortized cost basis of available-for-sale securities by maturity as of March 31, 2013 is presented below. These securities were classified based on their weighted-average maturities, after adjusting contractual maturities by anticipated prepayments. Contractual maturities on the securities range from 9 to 29 years.

	March 31, 2013
	Due in one year or less			Due after one year but within five years			Due after five years but within ten years			Due after ten years			Total
	(dollars in thousands)
Securities available-for-sale:
GSE mortgage-backed securities:
Amortized cost	$	117		$	51,577		$	17,176		$	—		$	68,870
Weighted average yield		1.09	%		2.02	%		1.74	%		—	%		1.95	%
Mortgage-backed securities issued by U.S. government agencies:
Amortized cost	$	—		$	14,258		$	—		$	—		$	14,258
Weighted average yield		—	%		2.12	%		—	%		—	%		2.12	%
Total available-for-sale securities:
Amortized cost	$	117		$	65,835		$	17,176		$	—		$	83,128
Weighted average yield		1.09	%		2.04	%		1.74	%		—	%		1.98	%
Fair value	$	117		$	66,366		$	17,415		$	—		$	83,898

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flows from operating activities, net of effects of acquisition:
Net (loss) income	$ (35,004)	$ 1,116,168
Discontinued operations, net of tax		(1,135,781)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Non-cash gain from deconsolidation of trusts		(9,514)
Depreciation and amortization	3,159	3,635
Credit for loan losses	(50)	(476)
Deferred income tax expense	320	208
Stock-based compensation	3,221	3,603
Service revenue receivable sales proceeds and distributions	2,743	13,574
Other non-cash benefits		(5,261)
Changes in assets/liabilities:
Net deposits for participation interest accounts	(6,808)	4,786
Fair value increase to service revenue receivables	(2,057)	(202)
Other assets	(1,076)	2,422
Accounts payable, accrued expenses and other liabilities	(8,094)	(7,173)
Income taxes payable	1,233	(16,276)
Cash used in operating activities - continuing operations	(42,413)	(30,287)
Cash provided by operating activities - discontinued operations		50,470
Net cash (used in) provided by operating activities	(42,413)	20,183
Cash flows from investing activities, net of effects of acquisition:
Net cash paid for acquisition of operating assets of Cology, Inc.	(4,757)
Purchases of short-term investments		(70,000)
Proceeds from maturities of short-term investments	34,891	50,000
Net increase in education loans held-to-maturity	(28,814)	(30,582)
Net decrease in restricted cash	28,760	78,732
Net decrease in restricted funds due to clients	(28,693)	(40,363)
Purchases of investments available-for-sale	(24,695)	(62,555)
Principal repayments from investments available-for-sale	9,555	2,932
Net increase in mortgage loans held-to-maturity	(3,819)	(1,541)
Purchases of property and equipment	(2,661)	(295)
Net cash used in investing activities - continuing operations	(20,233)	(73,672)
Net cash provided by investing activities - discontinued operations		143,140
Net cash (used in) provided by investing activities	(20,233)	69,468
Cash flows from financing activities, net of effects of acquisition:
Net increase in deposits	80,791	13,291
Payments on capital lease obligations	(6)
Repurchases of common stock	(102)	(78)
Net cash provided by financing activities - continuing operations	80,683	13,213
Net cash used in financing activities - discontinued operations		(179,706)
Net cash provided by (used in) financing activities	80,683	(166,493)
Net increase (decrease) in cash and cash equivalents	18,037	(76,842)
Cash and cash equivalents, beginning of period	123,497	217,367
Cash and cash equivalents, end of period	141,534	140,525
Supplemental disclosures of cash flow information from continuing operations:
Interest paid	909	476
Income taxes paid	61	5,177
Supplemental disclosure of non-cash investing and financing activities from continuing operations:
Interest receivable capitalized to loan principal	255	23
Conversion of preferred stock to common stock	$ 87

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Mar. 31, 2013	Jun. 30, 2012
Education loans held to maturity, allowance	$ 1,546	$ 1,309
Mortgage loans held to maturity, allowance	$ 642	$ 591
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	20,000	20,000
Preferred stock, shares issued	0	133
Preferred stock, shares outstanding	0	133
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	250,000	250,000
Common stock, shares issued	119,867	110,658
Common stock, shares outstanding	111,110	102,002
Treasury stock, shares	8,757	8,656

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Fair Value Measurements

9 Months Ended

Mar. 31, 2013

Fair Value Measurements

(10) Fair Value Measurements

(a) Financial Instruments Recorded at Fair Value on our Consolidated Balance Sheet

For financial instruments recorded at fair value on our consolidated balance sheet, 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. During the first nine months of fiscal 2013 and the first nine months of fiscal 2012, there were no transfers between the hierarchy levels.

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

Investments Available-for-Sale

Investments available-for-sale include GSE mortgage-backed securities and mortgage-backed securities issued by U.S. government agencies that were recorded at fair value using matrix pricing with inputs that were observable in the market or can be derived principally from or corroborated by market data. The fair value pricing was obtained from a third party pricing service and was compared to another source to validate the accuracy of the prices. These investments are classified as Level 2 in the hierarchy.

Participation Interest Account Deposits

We recorded participation account deposits 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 March 31, 2013 and June 30, 2012, 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.

Service Revenue Receivables

We recorded our service revenue receivables at fair value on our consolidated balance sheet. 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 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 statement of operations within the 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. Significant observable and unobservable inputs used to develop our fair value estimates include, but are not limited to, recovery, net default and prepayment rates, discount rates and the forward London Interbank Offered Rate (LIBOR) curve. These inputs have not changed significantly from June 30, 2012. Our significant unobservable inputs are included below.

The following table presents financial instruments carried at fair value on our consolidated balance sheet, in accordance with the valuation hierarchy described above, on a recurring basis:

	March 31, 2013								June 30, 2012
	Level 1		Level 2		Level 3		Total carrying value		Level 1		Level 2		Level 3		Total carrying value
	(dollars in thousands)
Assets:
Investments available-for-sale	$	—	$	83,898	$	—	$	83,898	$	—	$	68,598	$	—	$	68,598
Deposits for participation interest accounts		—		—		10,847		10,847		—		—		4,039		4,039
Service revenue receivables		—		—		15,655		15,655		—		—		16,341		16,341
Total assets	$	—	$	83,898	$	26,502	$	110,400	$	—	$	68,598	$	20,380	$	88,978

The following table presents activity related to our financial assets categorized as Level 3 of the valuation hierarchy, valued on a recurring basis, for the three and nine months ended March 31, 2013 and 2012. All realized and unrealized gains and losses recorded during the periods presented relate to assets still held at our balance sheet date. There have been no transfers in or out of Level 3 of the hierarchy, or between Levels 1 and 2, for the periods presented.

	Three months ended March 31,
	2013						2012
	Deposits for participation interest accounts			Service revenue receivables			Deposits for participation interest accounts		Service revenue receivables
	(dollars in thousands)
Fair value, beginning of period	$	9,637		$	16,004		$	3,584	$	14,304
Realized and unrealized gains (losses)		(57	)		838			25		2,454
Net contributions (distributions)		1,267			(1,187	)		117		(520	)
Fair value, end of period	$	10,847		$	15,655		$	3,726	$	16,238

	Nine months ended March 31,
	2013						2012
	Deposits for participation interest accounts			Service revenue receivables			Deposits for participation interest accounts			Service revenue receivables
	(dollars in thousands)
Fair value, beginning of period	$	4,039		$	16,341		$	8,512		$	29,610
Realized and unrealized gains (losses)		(180	)		2,057			(9	)		202
Net contributions (distributions)		6,988			(2,743	)		(4,777	)		(13,574	)
Fair value, end of period	$	10,847		$	15,655		$	3,726		$	16,238

The following table presents additional quantitative information about the assets measured at fair value on a recurring basis for which we have utilized Level 3 inputs to determine fair value at March 31, 2013:

Asset	Fair Value		Valuation Techniques		Significant Unobservable Inputs	Range
	(dollars in thousands)
Deposits for participation interest accounts	$	10,847		Discounted cash flows	Discount rate	8-15%
					Annual prepayment rates	5-12%
					Annual net recovery rates	2.67%
					Annual default rates	0-2.25%
Service revenue receivables	$	15,655		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 participation accounts include, but are not limited to, discount rates, default and prepayment rates and recovery rates. The forward LIBOR curve is a key observable input utilized in determining the fair value of expected future cash flows from these assets. There have been no significant changes in these inputs from June 30, 2012.

Sensitivity to Changes in Assumptions

The service revenue receivables recorded at March 31, 2013 and June 30, 2012 were related to the GATE Trusts and other securitization trusts we previously facilitated. Substantially all of the 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 holder. In addition, the recoveries on guaranteed defaults are returned back to the schools or bank, as applicable, not the residual interest holder therefore limiting the impact and sensitivity of the residual interest holder to recoveries. Further, due to the seasoning of these trusts, many of the residual interests 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.

(c) Fair Values of Other Financial Instruments

Fair value estimates for financial instruments not carried at fair value on our consolidated balance sheet 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 available market information. The fair value estimates for the financial instruments disclosed below does not necessarily incorporate the exit price concept used to record financial instruments at fair value on our consolidated balance sheet.

Cash and Cash Equivalents, Short-term Investments, Restricted Cash and Restricted Funds Due to Clients

The carrying amount approximates fair value principally due to the short maturities of these instruments.

Mortgages

The fair value of the fixed-rate mortgage portfolio was determined by discounting the cash flows using rates obtained from a third party as of our balance sheet date. The fair value of the variable rate portfolio was determined by discounting the scheduled cash flows through the estimated maturity of the loans using the interest rates offered as of our balance sheet date that reflect the current interest rate inherent in the loans. This method of estimating fair value does not incorporate the exit price concept of fair value. Mortgage loans were classified within Level 3 of the fair value hierarchy.

Education Loans

The fair value of education loans was determined by discounting the scheduled cash flows through the estimated maturity of the loans using interest rates offered as of our balance sheet date that reflect the credit and interest rate risk inherent in the loans. The estimate of maturity was based on our historical repayment experience. Since the education loans held were principally variable rate, carrying value approximates fair value. This method of estimating fair value does not incorporate the exit price concept of fair value. Education loans were classified within Level 3 of the fair value hierarchy.

Time Deposits

The fair value of time deposits was determined by discounting the scheduled cash flows either using the rates we offered as of our balance sheet date for deposits with similar remaining maturities or rates of our competitors. In determining our offering rates, we compare our rates on a continuous basis to other banks and competitors. As such, time deposits were classified within Level 2 of the fair value hierarchy.

Savings, Checking and Money Market Deposits

The fair value of our savings, checking and money market deposits with no stated maturity were equal to the amounts payable upon demand.

The following tables present the carrying amount, estimated fair value and placement in the fair value hierarchy for our financial instruments not measured at fair value on our consolidated balance sheet at March 31, 2013 and June 30, 2012:

March 31, 2013	Carrying		Estimated		Fair Value Measurements
	Amount		Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	141,534	$	141,534	$	141,534	$	—	$	—
Short-term investments		50,116		50,116		50,116		—		—
Restricted cash		36,641		36,641		36,641		—		—
Mortgage loans, net of allowance		11,529		11,748		—		—		11,748
Education loans, net of allowance		62,082		62,287		—		—		62,287
Financial Liabilities:
Time deposits	$	45,506	$	45,881	$	—	$	45,881	$	—
Savings, checking and money market deposits		118,713		118,713		118,713		—		—
Restricted funds due to clients		76,288		76,288		76,288		—		—

June 30, 2012	Carrying		Estimated		Fair Value Measurements
	Amount		Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	123,497	$	123,497	$	123,497	$	—	$	—
Short-term investments		85,007		85,007		85,007		—		—
Restricted cash		65,401		65,401		65,401		—		—
Mortgage loans, net of allowance		7,811		7,811		—		—		7,811
Education loans, net of allowance		33,095		33,280		—		—		33,280
Financial Liabilities:
Time deposits	$	43,155	$	43,248	$	—	$	43,248	$	—
Savings, checking and money market deposits		40,273		40,273		40,273		—		—
Restricted funds due to clients		104,981		104,981		104,981		—		—

XML

Document and Entity Information	9 Months Ended
	Mar. 31, 2013	May 07, 2013
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Trading Symbol	FMD
Entity Registrant Name	FIRST MARBLEHEAD CORP
Entity Central Index Key	0001262279
Current Fiscal Year End Date	--06-30
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		111,458,014

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Commitments and Contingencies

9 Months Ended

Mar. 31, 2013

Commitments and Contingencies

(11) Commitments and Contingencies

(a) Income Tax Matters

Internal Revenue Service Audit

As a result of the sale of the trust certificate of NC Residuals Owners Trust (the Trust Certificate), effective March 31, 2009, 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. In April 2010, the Internal Revenue Service (IRS) commenced an audit of our tax returns for fiscal 2007 through fiscal 2009. Such audits are consistent with the practice of the Joint Committee of Taxation, which requires the IRS to perform additional procedures, including an audit of a taxpayer who receives a tax refund in excess of $2.0 million. In connection with this audit, the IRS is reviewing, among other things, the tax treatment of the sale of the Trust Certificate, including the related income tax refund previously received by us. The IRS has also expanded its audit to include our tax return for fiscal 2010 in light of the $45.1 million tax refund that we received in October 2010. We cannot predict the timing or outcome of the IRS audit. As of March 31, 2013, as well as through the filing of this quarterly report on May 10, 2013, the IRS had not issued any notice of proposed adjustment in connection with its audit.

Massachusetts Appellate Tax Board Matters

We are involved in several matters before the Massachusetts Appellate Tax Board (ATB) relating to the Massachusetts tax treatment of GATE Holdings, Inc. (GATE), a former subsidiary of FMD. We took the position in these proceedings 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 Massachusetts Commissioner of Revenue (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 Commission would ultimately be allowed. In March 2010, we filed petitions with the ATB contesting the additional assessments against GATE and us. In April 2011, the ATB held an evidentiary hearing on the foregoing, and the parties filed their final briefs in September 2011. On November 9, 2011, the ATB issued an order (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.

In connection with the ATB Order, as well as the expiration of the statute of limitations applicable to GATE’s taxable year ended June 30, 2007, we recognized an income tax benefit of $12.5 million during the second quarter of fiscal 2012. In the third quarter of fiscal 2012, we made a $5.1 million payment that satisfied our obligation to the Massachusetts Department of Revenue for GATE’s taxable years ended June 30, 2004, 2005 and 2006.

On April 17, 2013, the ATB issued its opinion confirming the rulings and findings included in the ATB Order (the ATB Opinion). We had argued that the loan servicers’ activities, which were conducted outside of Massachusetts on behalf of the trusts, determined the location of the loans for purposes of the Property Factor. The ATB disagreed and determined that the loan servicers’ activities should not be attributed to GATE and further determined that, for purposes of the Property Factor, the trust-owned education loans were located in Massachusetts, GATE’s commercial domicile.

We are reviewing the ATB Opinion, but we would expect to pursue an appeal of the ATB’s finding with regard to the Property Factor. The Commissioner may also consider an appeal of the ATB’s other findings. If we are unsuccessful in an appeal of the ATB Order, 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. We have accrued a total of $24.0 million at March 31, 2013 related to this matter, which amount was included in income taxes payable on our consolidated balance sheet. We have not accrued penalties associated with the matter as the Massachusetts Department of Revenue has waived penalties associated with tax years 2004 through 2006 for GATE. We cannot predict the outcome of this matter or the timing of such payments, if any, at this time.

(b) Indemnifications—Sale of FMDS

In connection with the sale of FMDS, we have agreed to indemnify the buyer for breaches of representations, warranties and covenants, subject to certain terms, conditions and exceptions.

The buyer’s rights to indemnification with respect to breaches of certain of our representations and warranties in the purchase agreement (the Non-Fundamental Representations) are subject to:

• An aggregate deductible of $1.0 million (the Deductible);

• An aggregate cap of $2.0 million (the Non-Fundamental Cap); and

• A survival limitation requiring the buyer to assert claims within 18 months after the closing date of March 2, 2012 (the Survival Limitation).

With respect to breaches of Non-Fundamental Representations, the buyer would be entitled to indemnification if its aggregate indemnifiable losses were to exceed the Deductible. In that event, the buyer would be entitled to indemnification to the extent that its losses exceeded $750 thousand, up to the Non-Fundamental Cap; provided, however, that if the Non-Fundamental Cap were reached and the buyer were to have suffered additional indemnifiable losses solely as a result of a breach of our representations and warranties with regard to legal compliance, the buyer would be entitled to recover up to an additional $2.0 million in the aggregate.

The buyer’s rights to indemnification with respect to breaches of our other representations and warranties in the purchase agreement (the Fundamental Representations) are not subject to the Deductible or the Survival Limitation and are subject to a cap equal to the purchase price minus the aggregate amount paid by us in connection with breaches of Non-Fundamental Representations. We refer to this cap as the Fundamental Cap. The Fundamental Representations include representations and warranties by FMD with regard to its organization, its authorization of the transaction, the absence of broker’s fees and its ownership of the shares of capital stock of FMDS. The Fundamental Representations also include representations and warranties by FMD with regard to FMDS’ organization, qualification and corporate power, FMDS’ capitalization, the absence of broker’s fees, the absence of subsidiaries and certain tax matters.

The buyer’s rights to indemnification would not be subject to the Deductible, the Non-Fundamental Cap, the Fundamental Cap or the Survival Limitation in the case of any breach or nonperformance by us or any of our covenants or obligations set forth in the purchase agreement. In addition, we have agreed to provide a separate, unconditional indemnity with regard to tax matters related to FMDS arising prior to the closing date, including the audit currently being conducted by the IRS, as discussed above. This special indemnity is not subject to the Deductible, the Non-Fundamental Cap, the Fundamental Cap or the Survival Limitation. Finally, we have agreed to indemnify and defend the buyer from certain other specified matters. The buyer’s rights to such indemnification would be initially capped at the purchase price, and the applicable cap would then decrease over time. We believe that at the time of the sale of FMDS and at March 31, 2013, the likelihood of making any payment under these indemnifications was remote. As such, the fair value of any such liability for the indemnifications would, therefore, also be immaterial to our consolidated financial statements.

(c) Performance Guaranty

In connection with Union Federal’s sale of an education loan portfolio in October 2009, FMD delivered a performance guaranty pursuant to which FMD guarantees the performance by Union Federal of its obligations and agreements under the loan purchase and sale agreement relating to the transaction. We were not aware of any contingencies existing at March 31, 2013 that were both probable and estimable for which we would record a reserve, nor can we estimate a range of possible losses at this time.

(d) Assumption of Potential Contingent Liabilities of Union Federal

In April 2010, FMD and certain of its subsidiaries entered into agreements relating to the restructuring of the education loan warehouse facility of FMD’s indirect subsidiary, UFSB Private Loan SPV, LLC (UFSB-SPV). In connection with the restructuring, the third-party conduit lender released potential claims against Union Federal and UFSB-SPV pursuant to the indenture relating to the facility based upon events arising prior to April 16, 2010, to the extent such claims would exceed a liability limit of $20.0 million in the aggregate. Except in the case of third-party claims, neither Union Federal nor UFSB-SPV would have any liability until the conduit lender’s aggregate losses exceeded a deductible of $3.5 million, at which point Union Federal and UFSB-SPV would only be liable for amounts above the deductible up to the liability limit. Neither the liability limit nor the deductible would apply in cases of fraud, willful misconduct or gross negligence. In addition, the release was not deemed a waiver of rights previously reserved but not exercised by the conduit lender, except as specifically released pursuant to the settlement agreement in connection with the restructuring.

FMD assumed any remaining contingent liability of Union Federal and its affiliates, other than UFSB-SPV, under the facility arising prior to April 16, 2010, subject to the liability limit discussed above. In addition, FMD assumed any contingent liability of Union Federal under the facility arising prior to April 16, 2010 based on fraud, willful misconduct or gross negligence, and agreed to provide a separate indemnity for third-party claims by or on behalf of borrowers against the conduit lender based on loan origination errors. In December 2011, FMD and certain of its subsidiaries entered into a letter agreement with the conduit lender and other secured parties pursuant to which, among other things, the conduit lender foreclosed on the collateral in satisfaction of UFSB-SPV’s obligations under the facility and the parties agreed to maintain existing servicing agreements with respect to the education loan portfolio formerly serving as collateral. The obligations assumed by FMD, but not its separate indemnity, terminated on June 30, 2012. We were not aware of any contingencies existing at our balance sheet date that were both probable and estimable for which we would record a reserve, nor can we estimate a range of possible losses at this time.

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Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012
Net interest income:
Interest income	$ 1,527	$ 950	$ 4,087	$ 2,230
Interest expense	(406)	(209)	(1,020)	(679)
Net interest income	1,121	741	3,067	1,551
(Provision) credit for loan losses	(70)	222	50	476
Net interest income after (provision) credit for loan losses	1,051	963	3,117	2,027
Non-interest revenues:
Tuition payment processing fees	7,466	7,697	22,264	22,172
Administrative and other fees	3,437	2,604	9,238	7,102
Fair value changes to service revenue receivables	838	2,454	2,057	202
Total non-interest revenues	11,741	12,755	33,559	29,476
Total revenues	12,792	13,718	36,676	31,503
Non-interest expenses:
Compensation and benefits	10,454	11,307	29,663	32,396
General and administrative	11,172	13,816	41,573	47,128
Total non-interest expenses	21,626	25,123	71,236	79,524
Loss from operations	(8,834)	(11,405)	(34,560)	(48,021)
Other income:
Gain from deconsolidation of trusts		9,156		9,514
Proceeds from TERI settlement	421		702	1,405
Total other income	421	9,156	702	10,919
Loss from continuing operations, before income taxes	(8,413)	(2,249)	(33,858)	(37,102)
Income tax expense (benefit) from continuing operations	376	(5,197)	1,146	(17,489)
Net (loss) income from continuing operations	(8,789)	2,948	(35,004)	(19,613)
Discontinued operations, net of taxes		6,910		1,135,781
Net (loss) income	$ (8,789)	$ 9,858	$ (35,004)	$ 1,116,168
Net (loss) income per basic common share:
From continuing operations	$ (0.08)	$ 0.03	$ (0.33)	$ (0.18)
From discontinued operations		$ 0.06		$ 10.30
Total basic net (loss) income per share	$ (0.08)	$ 0.09	$ (0.33)	$ 10.12
Net (loss) income per diluted common share:
From continuing operations	$ (0.08)	$ 0.03	$ (0.33)	$ (0.18)
From discontinued operations		$ 0.06		$ 10.28
Total diluted net (loss) income per share	$ (0.08)	$ 0.09	$ (0.33)	$ 10.10
Weighted-average common shares outstanding:
Basic	111,110	101,554	105,988	101,459
Diluted	111,110	110,573	105,988	110,499

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Short-term Investments

9 Months Ended

Mar. 31, 2013

Short-term Investments

(5) Short-term Investments

Short-term investments of $50.1 million at March 31, 2013 and $85.0 million at June 30, 2012 included certificates of deposit with highly-rated financial institutions, carried at cost. These certificates of deposit have a range of maturities from 0.5 months to 7.9 months.

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Cash and Cash Equivalents

9 Months Ended

Mar. 31, 2013

Cash and Cash Equivalents

(4) Cash and Cash Equivalents

The following table summarizes our cash and cash equivalents:

	March 31, 2013		June 30, 2012
	(dollars in thousands)
Cash equivalents (money market funds)	$	70,084	$	80,574
Interest-bearing deposits with the Federal Reserve		56,557		27,396
Interest-bearing deposits with banks		1,272		14,026
Non-interest-bearing deposits with banks		13,421		1,302
Federal funds sold		200		199
Total cash and cash equivalents	$	141,534	$	123,497

Cash and cash equivalents of Union Federal of $70.2 million and $29.9 million at March 31, 2013 and June 30, 2012, respectively, were not available for dividends without prior approval from the Office of the Comptroller of the Currency (OCC), Union Federal’s regulator.

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, money market funds, amounts due from banks and federal funds sold. Generally, federal funds sold are on an overnight basis.

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Cash and Cash Equivalents (Tables)

9 Months Ended

Mar. 31, 2013

Summary of Cash and Cash Equivalents

The following table summarizes our cash and cash equivalents:

	March 31, 2013		June 30, 2012
	(dollars in thousands)
Cash equivalents (money market funds)	$	70,084	$	80,574
Interest-bearing deposits with the Federal Reserve		56,557		27,396
Interest-bearing deposits with banks		1,272		14,026
Non-interest-bearing deposits with banks		13,421		1,302
Federal funds sold		200		199
Total cash and cash equivalents	$	141,534	$	123,497

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Net (Loss) Income per Share

9 Months Ended

Mar. 31, 2013

Net (Loss) Income per Share

(12) Net (Loss) Income per Share

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

	Three months ended March 31,					Nine months ended March 31,
	2013			2012		2013			2012
	(dollars and shares in thousands, except per share amounts)
Net (loss) income from continuing operations	$	(8,789	)	$	2,948	$	(35,004	)	$	(19,613	)
Less: Earnings (loss) allocated to participating securities		—			236		—			(1,573	)
Net (loss) income from continuing operations allocated to common shares outstanding	$	(8,789	)	$	2,712	$	(35,004	)	$	(18,040	)
Income from discontinued operations, net of taxes	$	—		$	6,910	$	—		$	1,135,781
Less: Earnings allocated to participating securities		—			554		—			91,090
Income from discontinued operations allocated to common shares outstanding	$	—		$	6,356	$	—		$	1,044,691
Net (loss) income per basic common share:
From continuing operations	$	(0.08	)	$	0.03	$	(0.33	)	$	(0.18	)
From discontinued operations		—			0.06		—			10.30
Total basic net (loss) income per share	$	(0.08	)	$	0.09	$	(0.33	)	$	10.12
Net (loss) income per diluted common share:
From continuing operations	$	(0.08	)	$	0.03	$	(0.33	)	$	(0.18	)
From discontinued operations		—			0.06		—			10.28
Total diluted net (loss) income per share	$	(0.08	)	$	0.09	$	(0.33	)	$	10.10
Weighted-average common shares outstanding
Basic		111,110			101,554		105,988			101,459
Diluted		111,110			110,573		105,988			110,499
Anti-dilutive common stock equivalents		231			—		26			—

For the periods in which a net loss was incurred, common stock equivalents are considered anti-dilutive, and, therefore, are excluded from diluted weighted-average shares outstanding. For the fiscal 2013 periods, common stock equivalents include restricted stock units and stock options. For the majority of stock options outstanding, the conversion or exercise price exceeds fair market value at the reporting date.

In December 2007, FMD entered into an investment agreement with GS Parthenon A, L.P. and GS Parthenon B, L.P., affiliates of GS Capital Partners, which we refer to as the Purchasers. Pursuant to the investment agreement, FMD issued 132,701 shares of newly designated Series B Non-Voting Convertible Preferred Stock, $0.01 par value per share (Series B Preferred Stock), at a purchase price of $1 thousand per share. The Series B Preferred Stock was automatically convertible into FMD’s common stock upon the sale or transfer by any holder of the Series B Preferred Stock to any party other than an affiliate of such holder. The number of common shares issuable upon conversion was equal to the initial purchase price of the Series B Preferred Stock, divided by the conversion price of $15.00 per share. On November 30, 2012, the Purchasers entered into a purchase agreement with a third party to sell, in a private transaction, all 132,701 shares of Series B Preferred Stock then outstanding. On December 4, 2012, the transaction was settled and the Series B Preferred Stock was converted into 8,846,733 shares of FMD’s common stock and was issued to the third-party purchaser. Following this transaction, there are no longer any shares of Series B Preferred Stock outstanding.

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Deposits for Participation Interest Accounts

9 Months Ended

Mar. 31, 2013

Deposits for Participation Interest Accounts

(8) 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 interest accounts (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 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. We expect education loans originated under our Monogram platform to perform better in general than the education loans held by the securitization trusts facilitated by us as a result of the relative credit characteristics of the loan portfolios.

Cash balances in the participation accounts earn interest at market rates applicable to commercial interest-bearing deposit accounts. 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 statement 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 from the participation accounts are uncertain and vary among the loan programs.

We carry participation accounts at fair value in our consolidated balance sheet. 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 unrealized losses related to the participation accounts based on the net present value of expected future cash flows into and out of the account related to education loans originated as of our balance sheet date, 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 estimated fair value of participation accounts, if any, in non-interest revenues as part of administrative and other fees.

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Investments Available-for-Sale

9 Months Ended

Mar. 31, 2013

Investments Available-for-Sale

(6) Investments Available-for-Sale

We categorize available-for-sale investment securities by major security type and class of security. Government-sponsored enterprises (GSE) are comprised of debt securities issued by the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association.

The following table provides a summary of investments available-for-sale by major category:

	Amortized cost		Unrealized gains		Unrealized losses			Fair value
	(dollars in thousands)
At March 31, 2013:
GSE mortgage-backed securities	$	68,870	$	623	$	(46	)	$	69,447
Mortgage-backed securities issued by U.S. government agencies		14,258		207		(14	)		14,451
Total	$	83,128	$	830	$	(60	)	$	83,898
At June 30, 2012:
GSE mortgage-backed securities	$	51,972	$	369	$	(56	)	$	52,285
Mortgage-backed securities issued by U.S. government agencies		16,016		299		(2	)		16,313
Total	$	67,988	$	668	$	(58	)	$	68,598

At March 31, 2013 and June 30, 2012, three investment securities, totaling $20.6 million and $16.0 million, respectively, had unrealized losses of $60 thousand and $58 thousand, respectively, and had been in an unrealized loss position for less than one year. Management evaluates impairments in values, whether caused by adverse interest rates or credit movements, to determine if they are other-than-temporary. Additionally, management evaluates whether it intends to sell or will be required to sell the debt securities before the anticipated recovery of their remaining amortized cost. Management concluded the unrealized losses at March 31, 2013 and June 30, 2012 were temporary in nature.

The amortized cost basis of available-for-sale securities by maturity as of March 31, 2013 is presented below. These securities were classified based on their weighted-average maturities, after adjusting contractual maturities by anticipated prepayments. Contractual maturities on the securities range from 9 to 29 years.

	March 31, 2013
	Due in one year or less			Due after one year but within five years			Due after five years but within ten years			Due after ten years			Total
	(dollars in thousands)
Securities available-for-sale:
GSE mortgage-backed securities:
Amortized cost	$	117		$	51,577		$	17,176		$	—		$	68,870
Weighted average yield		1.09	%		2.02	%		1.74	%		—	%		1.95	%
Mortgage-backed securities issued by U.S. government agencies:
Amortized cost	$	—		$	14,258		$	—		$	—		$	14,258
Weighted average yield		—	%		2.12	%		—	%		—	%		2.12	%
Total available-for-sale securities:
Amortized cost	$	117		$	65,835		$	17,176		$	—		$	83,128
Weighted average yield		1.09	%		2.04	%		1.74	%		—	%		1.98	%
Fair value	$	117		$	66,366		$	17,415		$	—		$	83,898

At March 31, 2013, the expected weighted average remaining life of the available-for-sale securities was 3.2 years.

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Education Loans

9 Months Ended

Mar. 31, 2013

Education Loans

(7) Education Loans

(a) Gross Education Loans Outstanding

We began originating Monogram-based loans through Union Federal in fiscal 2012. At March 31, 2013 and June 30, 2012, education loans outstanding primarily consisted of education loans held by Union Federal, totaling $62.5 million and $33.3 million, respectively. Other education loans consisted of loans totaling $1.1 million at both March 31, 2013 and June 30, 2012, which were 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 March 31, 2013 and June 30, 2012.

The following table summarizes the composition of the net carrying value of our education loans held-to-maturity as of the dates indicated:

	March 31, 2013			June 30, 2012
	(dollars in thousands)
Gross loan principal outstanding	$	63,628		$	34,404
Allowance for loan losses		(1,546	)		(1,309	)
Education loans held-to-maturity, net of allowance	$	62,082		$	33,095

(b) Education Loan Allowance for Loan Losses and the Related Provision for Loan Losses

We recorded the following activity in the allowance for loan losses for education loans:

	Three months ended March 31,						Nine months ended March 31,
	2013			2012			2013			2012
	(dollars in thousands)
Balance, beginning of period	$	1,464		$	1,255		$	1,309		$	1,336
Provision (credit) for loan losses		26			(170	)		(151	)		(472	)
Reserves reclassified from interest receivable for capitalized interest		4			5			26			16
Charge-offs		(30	)		(41	)		(86	)		(192	)
Recoveries from borrowers		82			227			448			588
Balance, end of period	$	1,546		$	1,276		$	1,546		$	1,276

To estimate the allowance for loan losses on our newly originated Monogram-based loan portfolio, we utilized specific default and recovery rates projected for our Monogram-based loan portfolio over the 12-month loss confirmation period. We may also apply qualitative adjustments in determining the allowance for loan losses. Our default experience with this loan portfolio is limited by the seasoning of the portfolio; however, we have utilized our historical database and experience in projecting the level of defaults and recoveries of our Monogram-based loan portfolio relying in part on historical results from our securitization trusts that we previously facilitated for loans that have similar credit characteristics to those in our Monogram-based loan portfolio.

At March 31, 2013 and June 30, 2012, there were $82 thousand and $54 thousand, respectively, of education loans that were in non-accrual status and no education loans that had specific reserves. These loans consisted of loans that were transferred by Union Federal to an indirect subsidiary of FMD in 2009, prior to the launch of our Monogram platform. Our policy is to have a specific allowance for loans greater than 180 days past due, but not yet charged-off. At March 31, 2013, there were $29 thousand of Monogram-based education loans issued through Union Federal that were greater than 180 days past due.

Overall Education Loan Credit Quality

Management monitors the credit quality of an education loan based on loan status, as outlined below. The impact of changes in loan status, such as delinquency and time in repayment, is incorporated into the quarterly allowance for loan loss calculation, through our projection of defaults. The following table represents our loan origination metrics with respect to our Monogram-based programs held at Union Federal at March 31, 2013 and June 30, 2012:

	March 31, 2013			June 30, 2012
Weighted-average FICO score		752			753
Co-signers		84.0	%		84.8	%
Delinquent loans		0.90	%		0.03	%

The following table provides information on the status of education loans outstanding:

	March 31, 2013		As a percentage of total			June 30,  2012		As a percentage of total
	(dollars in thousands)
Principal of loans outstanding:
In basic forbearance	$	665		1.0	%	$	171		0.5	%
In school and in deferment		23,759		37.3			14,781		43.0
In repayment, including alternative payment plans, classified as:
Current: £30 days past due		38,465		60.5			19,289		56.0
Delinquent: >30 days past due, but £120 days past due		657		1.0			109		0.3
Delinquent: >120 days past due, but £180 days past due		53		0.1			54		0.2
In default: >180 days past due, but not yet charged-off		29		0.1			—		—
Total gross loan principal outstanding	$	63,628		100.0	%	$	34,404		100.0	%
Non-accrual loan principal (>120 days past due)	$	82		0.1	%	$	54		0.2	%
Past due loan principal (>90 days, but £120 days past due still accruing interest)		126		0.2			11		0.0
In alternative payment plans		531		0.8			263		0.8

We use the following terms to describe borrowers’ payment status:

In School and In Deferment Pursuant to the terms of the education loans, a borrower may choose to defer principal and interest payments while carrying a specified academic course load and may be eligible to defer payments for an additional six months after graduation during a grace period. At the end of the deferment period, any remaining accrued but unpaid interest is capitalized and added to principal outstanding.

In Repayment We determine the repayment status of a borrower, including a borrower making payments pursuant to alternative payment plans, by contractual due dates. A borrower making reduced payments for a limited period of time pursuant to an alternative payment plan will be considered current if such reduced payments are timely made. Under our Monogram platform, borrowers may be in repayment while in school. Payment options while in school include full principal and interest, partial interest and interest only.

Forbearance Pursuant to the terms of the education loans, a borrower may apply for forbearance, which is a temporary reprieve from making full contractual payments. Forbearance can take many forms, at the option of the creditor. The most common forms of forbearance include the following:

• Basic forbearance—Cessation of all contractual payments for a maximum allowable forbearance period of one year, granted in three-month increments. Although basic forbearance is available as part of our Monogram-based programs, it has not been substantially utilized due to the seasoning of our Monogram-based education loan portfolio.

• Alternative payment plans—Pursuant to an alternative payment plan, a borrower can make a reduced payment for a limited period of time. The amount of the payment varies depending on the program and may be set at a fixed dollar amount, a percentage of contractual required payments or interest-only payments. Generally, approval for alternative payment plans is granted for a maximum of six to 24 months, depending on the program. Although these plans are available as part of our Monogram-based programs, they have not been substantially utilized due to the seasoning of our Monogram-based education loan portfolio.

The use of forbearance is contemplated at the origination of an education loan and, as noted in the credit agreement with the borrower, is granted at the lender’s discretion. Under both basic forbearance and alternative payment plans, the education loan continues to accrue interest. When forbearance ceases, unpaid interest is capitalized and added to principal outstanding, and the borrower’s required payments are recalculated at a higher amount to pay off the loan, plus the additional accrued and capitalized interest, at the original stated interest rate by the original maturity date. There is no forgiveness of principal or interest, reduction in the interest rate or extension of the maturity date.

Forbearance programs result in a delay in the timing of payments received from borrowers, but at the same time, assuming the collection of the forborne amounts, provide for an increase in the gross volume of cash receipts over the term of the education loan due to the additional accrued interest capitalized while in forbearance. Forbearance programs may have the effect of delaying default emergence, and alternative payment plans may reduce the utilization of basic forbearance.

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Goodwill and Intangible Assets

9 Months Ended

Mar. 31, 2013

Goodwill and Intangible Assets

(9) Goodwill and Intangible Assets

(a) Cology LLC

As a result of our acquisition of a substantial portion of the operating assets of the Cology Sellers in October 2012, we recorded a customer list intangible asset of $5.7 million for the approximately 250 credit union clients that the Cology Sellers did business with as of the acquisition date along with $518 thousand of goodwill. Our customer list intangible asset will be amortized over a 15-year period on a straight line basis. We expect amortization expense related to the Cology LLC intangible asset to be 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.

(b) TMS

We completed our acquisition of TMS during fiscal 2011. We recorded goodwill of $22.2 million at the acquisition date. On June 30, 2011, TMS sold a portfolio of contracts with K-12 schools to Nelnet Business Solutions, Inc. in a transaction that eliminated a portion of goodwill by $2.6 million and decreased our customer list intangible asset by $4.1 million. As a result, $19.5 million of goodwill remained at June 30, 2012 and 2011 and the adjusted cost basis of our customer list intangible was $17.9 million. We recorded no goodwill or intangible asset impairment during fiscal 2012.

Intangible assets at March 31, 2013 consisted of the following:

	Amortization period		Adjusted cost basis		Accumulated amortization			Net
	(in years)		(dollars in thousands)
Intangible assets:
Customer list		15	$	23,600	$	(2,881	)	$	20,719
Technology		6		4,400		(1,969	)		2,431
Tradename		15		1,950		(292	)		1,658
Total intangible assets at March 31, 2013			$	29,950	$	(5,142	)	$	24,808

Estimated annual amortization expense for each of the remainder of fiscal 2013 and the full fiscal years subsequent thereafter is as follows:

	Customer list		Technology		Tradename		Total
	(dollars in thousands)
Estimated amortization expense:
Remainder of 2013	$	488	$	190	$	32	$	710
2014		1,573		721		130		2,424
2015		1,573		608		130		2,311
2016		1,573		608		130		2,311
2017		1,573		304		130		2,007
Thereafter		13,939		—		1,106		15,045
Total	$	20,719	$	2,431	$	1,658	$	24,808

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Cash and Cash Equivalents - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2011
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	$ 141,534	$ 123,497	$ 140,525	$ 217,367
Union Federal
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	$ 70,200	$ 29,900

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Commitments and Contingencies - Additional Information (Detail) (USD $)	1 Months Ended	12 Months Ended				1 Months Ended	3 Months Ended			12 Months Ended	1 Months Ended				9 Months Ended
	Oct. 31, 2010	Jun. 30, 2010	Mar. 31, 2013	Jun. 30, 2012	Apr. 30, 2010	Apr. 30, 2010 Minimum	Mar. 31, 2012 GATE Holdings, Inc.	Dec. 31, 2011 GATE Holdings, Inc.	Mar. 31, 2013 GATE Holdings, Inc.	Jun. 30, 2010 GATE Holdings, Inc. Massachusetts	Dec. 31, 2009 GATE Holdings, Inc. Massachusetts Period 1	Dec. 31, 2009 GATE Holdings, Inc. Massachusetts Period 2	Mar. 31, 2013 Indemnification Aggregate Deductible	Mar. 31, 2013 Indemnification Aggregate Cap	Mar. 31, 2013 Indemnification Agreement	Mar. 31, 2013 Other Indemnifications
Commitments and Contingencies Disclosure [Line Items]
Amount of income tax refunds received	$ 45,100,000	$ 189,300,000
Amount of income tax refunds that IRS requires to audit						2,000,000
Income tax, state apportionment										100.00%
Additional assessments of tax, along with accrued interest											11,900,000	8,100,000
Income tax benefit								12,500,000
Net income tax and interest payment							5,100,000
Accrual Income tax payable			24,647,000	23,414,000					24,000,000
Estimated possible loss													1,000,000	2,000,000
Claim period															18 months
Additional estimated loss																750,000
Additional cost buyer could recover in aggregate															2,000,000
Liability cap					20,000,000
Contingent liability exposure					$ 3,500,000

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General Information (Policies)

9 Months Ended

Mar. 31, 2013

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

Accounting Standards Update (ASU) 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05), is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. ASU 2011-05 eliminates the option in GAAP to present other comprehensive income in our consolidated statement of changes in stockholders’ equity (deficit). ASU 2011-05 requires that non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions of ASU 2011-05 were applied retrospectively and were effective for fiscal years and interim periods beginning in the first quarter of fiscal 2013. We elected to present comprehensive income in a separate financial statement, our consolidated statements of comprehensive income. The adoption of ASU 2011-05 did not have a material impact on our consolidated financial statements.

ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02), is effective prospectively for annual reporting periods beginning after December 15, 2012 and interim periods within those years. ASU 2013-02 requires entities to disclose: (1) for items reclassified out of accumulated other comprehensive income and into net income for their entirety, the effect of the reclassification on each affected net income line item; and (2) for accumulated other comprehensive income reclassification items that are not reclassified in their entirety into net income, a cross reference to other required GAAP disclosures. We do not expect the adoption of ASU 2013-02 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.

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Goodwill and Intangible Assets (Tables)

9 Months Ended

Mar. 31, 2013

Intangible Assets

Intangible assets at March 31, 2013 consisted of the following:

	Amortization period		Adjusted cost basis		Accumulated amortization			Net
	(in years)		(dollars in thousands)
Intangible assets:
Customer list		15	$	23,600	$	(2,881	)	$	20,719
Technology		6		4,400		(1,969	)		2,431
Tradename		15		1,950		(292	)		1,658
Total intangible assets at March 31, 2013			$	29,950	$	(5,142	)	$	24,808

Estimated Annual Amortization Expense

Estimated annual amortization expense for each of the remainder of fiscal 2013 and the full fiscal years subsequent thereafter is as follows:

	Customer list		Technology		Tradename		Total
	(dollars in thousands)
Estimated amortization expense:
Remainder of 2013	$	488	$	190	$	32	$	710
2014		1,573		721		130		2,424
2015		1,573		608		130		2,311
2016		1,573		608		130		2,311
2017		1,573		304		130		2,007
Thereafter		13,939		—		1,106		15,045
Total	$	20,719	$	2,431	$	1,658	$	24,808

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Assets Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified						9 Months Ended
	Mar. 31, 2013	Jun. 30, 2012	Mar. 31, 2013 Level 3	Jun. 30, 2012 Level 3	Mar. 31, 2013 Fair Value, Measurements, Recurring Level 3	Mar. 31, 2013 Fair Value, Measurements, Recurring Level 3 Discounted Cash Flows Deposits for participation interest accounts	Mar. 31, 2013 Fair Value, Measurements, Recurring Level 3 Discounted Cash Flows Deposits for participation interest accounts Minimum	Mar. 31, 2013 Fair Value, Measurements, Recurring Level 3 Discounted Cash Flows Deposits for participation interest accounts Maximum	Mar. 31, 2013 Fair Value, Measurements, Recurring Level 3 Discounted Cash Flows Service revenue receivables Minimum	Mar. 31, 2013 Fair Value, Measurements, Recurring Level 3 Discounted Cash Flows Service revenue receivables Maximum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Deposits for participation interest accounts	$ 10,847	$ 4,039	$ 10,847	$ 4,039	$ 10,847
Service revenue receivables	$ 15,655	$ 16,341	$ 15,655	$ 16,341	$ 15,655
Discount rate							8.00%	15.00%	10.00%	16.00%
Annual prepayment rates							5.00%	12.00%	3.00%	9.00%
Annual default rates							0.00%	2.25%	1.00%	10.00%
Annual net recovery rates						2.67%			2.00%	2.50%

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Allowance for Loan Losses for Education Loans (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Balance, beginning of period	$ 1,464	$ 1,255	$ 1,309	$ 1,336
Provision (credit) for loan losses	26	(170)	(151)	(472)
Reserves reclassified from interest receivable for capitalized interest	4	5	26	16
Charge-offs	(30)	(41)	(86)	(192)
Recoveries from borrowers	82	227	448	588
Balance, end of period	$ 1,546	$ 1,276	$ 1,546	$ 1,276

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Consolidated Statements Of Comprehensive (Loss) Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012
Net (loss) income	$ (8,789)	$ 9,858	$ (35,004)	$ 1,116,168
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on investments available-for-sale arising during the period	(793)	117	160	199
Total comprehensive (loss) income	$ (9,582)	$ 9,975	$ (34,844)	$ 1,116,367

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Asset Acquisition of Cology, Inc.

9 Months Ended

Mar. 31, 2013

Asset Acquisition of Cology, Inc.

(3) 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. Our consolidated financial statements for the nine months ended March 31, 2013 reflect income and expenses of Cology LLC since the date of acquisition. Cology LLC provides education loan processing and disbursement services to approximately 250 credit unions in the United States as well as offering life-of-loan servicing. Cology LLC earns fees based primarily on the number of loan applications, disbursements and loan certifications it processes on behalf of its clients. Cology LLC does not originate education loans for its own account.

In addition to the purchase price, we entered into special retention agreements with certain Cology LLC employees that provide for a bonus payment to those employees who are employed by Cology LLC on the one-year anniversary of the acquisition date, subject to the attainment of certain reductions in operating expenses by Cology LLC. We have not accrued any amounts under the special retention agreements as of March 31, 2013. We also established a performance incentive plan that provides 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. We have not accrued any amounts under the performance incentive plan as of March 31, 2013.

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Fair Value Measurements (Tables)

9 Months Ended

Mar. 31, 2013

Financial Instruments Carried at Fair Value on Recurring Basis

The following table presents financial instruments carried at fair value on our consolidated balance sheet, in accordance with the valuation hierarchy described above, on a recurring basis:

	March 31, 2013								June 30, 2012
	Level 1		Level 2		Level 3		Total carrying value		Level 1		Level 2		Level 3		Total carrying value
	(dollars in thousands)
Assets:
Investments available-for-sale	$	—	$	83,898	$	—	$	83,898	$	—	$	68,598	$	—	$	68,598
Deposits for participation interest accounts		—		—		10,847		10,847		—		—		4,039		4,039
Service revenue receivables		—		—		15,655		15,655		—		—		16,341		16,341
Total assets	$	—	$	83,898	$	26,502	$	110,400	$	—	$	68,598	$	20,380	$	88,978

Activity Related to Financial Assets Categorized as Level Three Valued on Recurring Basis

The following table presents activity related to our financial assets categorized as Level 3 of the valuation hierarchy, valued on a recurring basis, for the three and nine months ended March 31, 2013 and 2012. All realized and unrealized gains and losses recorded during the periods presented relate to assets still held at our balance sheet date. There have been no transfers in or out of Level 3 of the hierarchy, or between Levels 1 and 2, for the periods presented.

	Three months ended March 31,
	2013						2012
	Deposits for participation interest accounts			Service revenue receivables			Deposits for participation interest accounts		Service revenue receivables
	(dollars in thousands)
Fair value, beginning of period	$	9,637		$	16,004		$	3,584	$	14,304
Realized and unrealized gains (losses)		(57	)		838			25		2,454
Net contributions (distributions)		1,267			(1,187	)		117		(520	)
Fair value, end of period	$	10,847		$	15,655		$	3,726	$	16,238

	Nine months ended March 31,
	2013						2012
	Deposits for participation interest accounts			Service revenue receivables			Deposits for participation interest accounts			Service revenue receivables
	(dollars in thousands)
Fair value, beginning of period	$	4,039		$	16,341		$	8,512		$	29,610
Realized and unrealized gains (losses)		(180	)		2,057			(9	)		202
Net contributions (distributions)		6,988			(2,743	)		(4,777	)		(13,574	)
Fair value, end of period	$	10,847		$	15,655		$	3,726		$	16,238

Additional Quantitative Information About Assets Measured at Fair Value on Recurring Basis

The following table presents additional quantitative information about the assets measured at fair value on a recurring basis for which we have utilized Level 3 inputs to determine fair value at March 31, 2013:

Asset	Fair Value		Valuation Techniques		Significant Unobservable Inputs	Range
	(dollars in thousands)
Deposits for participation interest accounts	$	10,847		Discounted cash flows	Discount rate	8-15%
					Annual prepayment rates	5-12%
					Annual net recovery rates	2.67%
					Annual default rates	0-2.25%
Service revenue receivables	$	15,655		Discounted cash flows	Discount rate	10-16%
					Annual prepayment rates	3-9%
					Annual net recovery rates	2-2.5%
					Annual default rates	1-10%

Carrying Amount, Estimated Fair Value and Placement in Fair Value Hierarchy for Financial Instruments

The following tables present the carrying amount, estimated fair value and placement in the fair value hierarchy for our financial instruments not measured at fair value on our consolidated balance sheet at March 31, 2013 and June 30, 2012:

March 31, 2013	Carrying		Estimated		Fair Value Measurements
	Amount		Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	141,534	$	141,534	$	141,534	$	—	$	—
Short-term investments		50,116		50,116		50,116		—		—
Restricted cash		36,641		36,641		36,641		—		—
Mortgage loans, net of allowance		11,529		11,748		—		—		11,748
Education loans, net of allowance		62,082		62,287		—		—		62,287
Financial Liabilities:
Time deposits	$	45,506	$	45,881	$	—	$	45,881	$	—
Savings, checking and money market deposits		118,713		118,713		118,713		—		—
Restricted funds due to clients		76,288		76,288		76,288		—		—

June 30, 2012	Carrying		Estimated		Fair Value Measurements
	Amount		Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	123,497	$	123,497	$	123,497	$	—	$	—
Short-term investments		85,007		85,007		85,007		—		—
Restricted cash		65,401		65,401		65,401		—		—
Mortgage loans, net of allowance		7,811		7,811		—		—		7,811
Education loans, net of allowance		33,095		33,280		—		—		33,280
Financial Liabilities:
Time deposits	$	43,155	$	43,248	$	—	$	43,248	$	—
Savings, checking and money market deposits		40,273		40,273		40,273		—		—
Restricted funds due to clients		104,981		104,981		104,981		—		—

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Contractual Maturities of Available for Sale Securities (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Jun. 30, 2012
Schedule of Available-for-sale Securities [Line Items]
Due in one year or less, amortized cost	$ 117
Due after one year but within five years, amortized cost	65,835
Due after five years but within ten years, amortized cost	17,176
Due after ten years, amortized cost
Total, amortized cost	83,128
Due in one year or less, weighted average yield	1.09%
Due after one year but within five years, weighted average yield	2.04%
Due after five years but within ten years, weighted average yield	1.74%
Due after ten years, weighted average yield
Total, weighted average yield	1.98%
Due in one year or less, fair value	117
Due after one year but within five years, fair value	66,366
Due after five years but within ten years, fair value	17,415
Due after ten years, fair value
Fair value	83,898	68,598
GSE mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Due in one year or less, amortized cost	117
Due after one year but within five years, amortized cost	51,577
Due after five years but within ten years, amortized cost	17,176
Due after ten years, amortized cost
Total, amortized cost	68,870
Due in one year or less, weighted average yield	1.09%
Due after one year but within five years, weighted average yield	2.02%
Due after five years but within ten years, weighted average yield	1.74%
Due after ten years, weighted average yield
Total, weighted average yield	1.95%
Fair value	69,447	52,285
Mortgage-backed securities issued by U.S. government agencies
Schedule of Available-for-sale Securities [Line Items]
Due after one year but within five years, amortized cost	14,258
Due after ten years, amortized cost
Total, amortized cost	14,258
Due after one year but within five years, weighted average yield	2.12%
Due after ten years, weighted average yield
Total, weighted average yield	2.12%
Fair value	$ 14,451	$ 16,313

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Union Federal Regulatory Matters

9 Months Ended

Mar. 31, 2013

Union Federal Regulatory Matters

(13) Union Federal Regulatory Matters

Union Federal is a federally-chartered thrift that is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in initiation of certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on our liquidity. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Union Federal must meet specific capital guidelines that involve quantitative measures of Union Federal’s assets and liabilities as calculated under regulatory accounting practices. The capital amounts and classifications, however, are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Union Federal’s equity capital was $22.7 million and $16.3 million at March 31, 2013 and June 30, 2012, respectively. During the nine months ended March 31, 2013, Union Federal received capital contributions of $5.8 million from FMD.

Quantitative measures established by regulation to ensure capital adequacy require Union Federal to maintain minimum amounts and ratios of total capital and Tier 1 capital to risk-weighted assets (each as defined in the regulations). As of March 31, 2013 and June 30, 2012, Union Federal was well capitalized under the regulatory framework for prompt corrective action.

Union Federal’s regulatory capital ratios were as follows as of the dates below:

	Regulatory Guidelines
	Minimum			Well capitalized			March 31, 2013			June 30, 2012
Capital ratios:
Tier 1 risk-based capital		4.0	%		6.0	%		25.7	%		31.3	%
Total risk-based capital		8.0			10.0			25.9			31.7
Tier 1 (core) capital		4.0			5.0			9.5			11.0

FMD is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System (the Federal Reserve), as a savings and loan holding company, and Union Federal is subject to regulation, supervision and examination by the OCC.

The OCC regulates all capital distributions by Union Federal directly or indirectly to FMD, including dividend payments. Union Federal is required to file a notice with the OCC at least 30 days before the proposed declaration of a dividend or approval of a proposed capital distribution by Union Federal’s Board of Directors. Union Federal must file an application to receive the approval of the OCC for a proposed capital distribution when, among other circumstances, the total amount of all capital distributions (including the proposed capital distribution) for the applicable calendar year exceeds net income for that year to date plus the retained net income for the preceding two years.

A notice or application to make a capital distribution by Union Federal may be disapproved or denied by the OCC if it determines that, after making the capital distribution, Union Federal would fail to meet minimum required capital levels or if the capital distribution raises safety or soundness concerns or is otherwise restricted by statute, regulation or agreement between Union Federal and the OCC, or a condition imposed by an OCC agreement. Under the Federal Deposit Insurance Corporation Improvement Act (FDICIA), a Federal Deposit Insurance Corporation-insured depository institution such as Union Federal is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is used in the FDICIA).

In March 2010, the FMD Board of Directors adopted resolutions required by the U.S. Office of Thrift Supervision (OTS), Union Federal’s regulator at that time, undertaking to support the implementation by Union Federal of its business plan, so long as Union Federal is owned or controlled by FMD, and to notify the OTS in advance of any distribution to our stockholders in excess of $1.0 million per fiscal quarter and any incurrence or guarantee of debt in excess of $5.0 million. These resolutions continue to be applied by the Federal Reserve. Distribution to our stockholders may be further restricted by the Federal Reserve’s required approval in those instances when such distributions exceed the net earnings of the prior 12-month period.