First Marblehead Corporation (The) (FMD)

FMD 
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The First Marblehead (FMD)

Q2 2013 Earnings Call

February 07, 2013 5:00 pm ET

Executives

Gary F. Santo - Managing Director and Head of Capital Markets

Daniel Maxwell Meyers - Co-Founder, Chairman, Chief Executive Officer, President and Member of Award Committee

Kenneth S. Klipper - Chief Financial Officer, Principal Accounting Officer and Managing Director

Analysts

Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division

Ann H. Heffron - Zacks Investment Research Inc.

Presentation

Operator

Good day, and welcome to the First Marblehead Corporation Second Quarter Fiscal 2013 Earnings Conference Call and webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Gary Santo, Managing Director, Capital Markets. Excuse me, Mr. Santo, the floor is yours, sir.

Gary F. Santo

Thank you, Mike and good afternoon. Welcome to the First Marblehead's earnings call for the second quarter of fiscal 2013. On today's call, we have Dan Meyers, our Chairman and CEO; and Ken Klipper, our CFO.

Before we begin, please note that various remarks that we may make about the company's future financial and operating performance, expectations, plans and prospects, including with regard to Union Federal Savings Bank, Tuition Management Systems, Cology, LLC and Monogram-based loan programs, as well as the prospects of the private education finance industry, constitute forward-looking statements for the purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not a representation by us that the future results, plans, estimates or expectations expressed or implied by us will be achieved.

Matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, legislative, regulatory, competitive and other factors, which may cause our actual results or the timing of events to be materially different than those expressed or implied by our forward-looking statements.

Important factors that could cause or contribute to those differences include: Demand for our Monogram platform; the successful marketing and sales of our clients' Monogram-based loan offerings and the products and services offered by TMS and Cology; the volume, timing and performance of disbursed loans; our success in designing, implementing and commercializing private education loan programs through Union Federal and our compliance with regulatory approvals and conditions; the general interest rate and consumer credit environments; proceedings relating to state and federal income tax matters; and the other factors set forth under the caption Risk Factors in our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 8, 2012. Any forward-looking statements represent our views only as of February 7, 2013. Although we may elect to update our forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. Therefore, you should not rely upon these forward-looking statements as representing our view as of any date subsequent to February 7.

During this call, we'll refer to net operating cash usage, which is a non-GAAP financial measure. A reconciliation to loss before income taxes, the most directly comparable GAAP measure, is included in the earnings press release posted on our website under the heading For Investors.

I'll now turn the call over to Dan.

Daniel Maxwell Meyers

Thank you, Gary and welcome to this evening's call. Please bear with me as I apologize in advance for having a terrible cold, and will do my best.

Our strong fiscal year 2013 continues with our pretax operating results for the first 6 months improving 27% on a year-over-year basis. During the second quarter, which is a typically slow quarter for student loans given the cycle of the school year, we saw more evidence that the market is adopting our Monogram loan programs. Our products are now recommended on 959 school lender lists, more than doubling our 421 school list from a year ago.

Consumers are choosing Monogram as well. Since June 30, 2012, the application volume is up more than 87%. Approved application volume has risen approximately 91% and book volume has increased more than 158%. The ultrahigh credit quality of our book portfolio has persisted, as demonstrated by a weighted average FICO score of 758 with 88% of loans cosigned, more than 62% cash flowing and over 92% of borrowers selecting repayment terms of 15 years or less. Offering choice to consumers works.

While it is still early in its life cycle, actual retainment performance on the portfolio continues to exceed expectations, with delinquencies of 31 or more days less than 1/2 of 1% in defaults, approximately 1/8 of 1% percent of loans as repayment as of December 31.

As I mentioned last quarter, adverse behavior in these portfolios is most prevalent during the first 3 years of repayment. In light of the macroeconomic pressures that all consumers continue to experience, we continue to be more than pleased by these early results.

Turning now to our subsidiary, Tuition Management Systems. Over the first 6 months of fiscal 2013, TMS improved its cash usage by approximately $2.6 million [ph] compared to the first 6 months of fiscal 2012. Tuition dollars processed over that time were $2.46 billion, and on track to exceed management's expectations of $4 billion dispersed during fiscal 2013.

Payment plan enrollments are now up over 10% from the prior year, attributable to the solid execution of our traditional marketing campaigns, a significant expansion of our e-mail marketing efforts and the integration of our new school-branded web pages into school websites.

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