First Marblehead Corporation (The) (FMD)

FMD 
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The First Marblehead (FMD)

Q3 2013 Earnings Call

April 29, 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 Third 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. Mr. Santo, the floor is yours, sir.

Gary F. Santo

Thank you, Mike, and good afternoon. Welcome to First Marblehead's earnings call for the third 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 related 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 February 8, 2013. Any forward-looking statements represent our views only as of April 29, 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 April 29.

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. I am pleased to report that First Marblehead continued to make substantial progress in implementing its business plan. Over the first 9 months of fiscal 2013, revenues have increased 16%, expenses have declined 10% and net operating cash usage has been reduced by 22% on a year-over-year basis.

The combination of our growing business lines, coupled with management's expense reduction efforts, has resulted in a 28% improvement in our fiscal year-to-date pre-tax operating results through March 31 as compared to 1 year ago.

The third quarter of the fiscal year is historically the quietest from a loan origination perspective. With peak season just a few months away, the majority of the activity in the quarter comes from second disbursements on existing book volume. That said, First Marblehead facilitated approximately $16 million in new Monogram-based originations during the quarter, raising our total for the fiscal year to approximately $118 million, a 122% increase over the same period last year.

Our presence in the marketplace continue to grow, with Monogram-based products now recommended on over 1,000 school lender lists nationwide, an increase of over 42% compared to this time last year.

Reaching the 1,000-college milestone in such a short period -- time period is a testament both to Monogram's comparative advantage in its product structure and to our national sales coverage team. In addition, our Monogram-based products continue to gain market acceptance as students and their families seek choice in their options to finance a college education. We believe that we are poised to take advantage of this demand as we enter the upcoming peak processing season.

We are pleased by the ultrahigh credit quality of the portfolios that our Monogram-based programs have generated. The weighted average FICO score on our book portfolio remains a strong 758, with cosigners represented on approximately 87% of these loans. 62% of applicants on book loans have selected immediately cash-flowing repayment options, and 93% selected repayment terms of 15 years or less. As the brand has matured and the portfolio grew, one thing has remained: Our steadfast commitment to providing prudent and responsible underwriting through an application process designed to provide transparency and choice to our borrowers.

Performance on loans in our payment continue to be extremely strong. The percentage of loans, 31 or more days delinquent, remained less than 1%. Forbearance usage was also less than 1%, while defaults to date were less than 1/8 of 1%. With the portfolio still early in its life cycle, performance to date has met or exceeded expectations.

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