First Marblehead Corporation (The) (FMD)

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The First Marblehead Corporation (FMD)

F2Q2014 Earnings Call

February 10, 2014 8:00 AM ET

Executives

Suzanne Murray - MD, General Counsel and Secretary

Daniel Meyers - Chairman and CEO

Kenneth Klipper - CFO

Analysts

Michael Tarkan - Compass Point

Christopher Donat - Sandler O'Neill

Ann Heffron - Zacks Investment Research

Presentation

Operator

Good day and welcome to The First Marblehead Corporation Second Quarter Fiscal 2014 Earnings Conference Call and Webcast. [Operator Instructions]. Please note, this event is being recorded.

I would now like to turn the conference over to Suzanne Murray, Managing Director and General Counsel. Please go ahead.

Suzanne Murray

Thank you and good morning. Welcome to First Marblehead's earnings call for the second quarter of fiscal 2014. 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 regards to Tuition Management Systems, Cology LLC, Union Federal Savings Bank and Monogram-based loan program, and the sale of our Union Federal Portfolio private education loans, proceedings related to our federal and state income tax returns, including any challenge to the tax refunds previously received as a result of the audit being conducted by the Internal Revenue Service, and 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 client's 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 of regulatory approvals and conditions; the resolution of any proceedings related to state and federal income tax matters, including the audit being conducted by the IRS; our net purchasing ability to meet required closing conditions and consummate the sale of Union Federal, of the portfolio of private education loans; the general interest rate and consumer credit environment 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, 2013.

Any forward-looking statements represent our views only as of February 10, 2014. 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 views as of any date subsequent to February 10.

During this call, we'll refer to net operating cash usage, which is a non-GAAP financial measure. A reconciliation to loss from operations, to 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 Meyers

Thank you, Suzanne, and good morning everyone. Our second quarter is historically a quiet one, given the academic calendar, but we have been busy. For the quarter, our facilitated loan volume was $94 million, including $14 million of facilitated Monogram volume, a 40% increase from the same period of last year. For the first six months of the year, we facilitated $527 million in total loan volume, which includes $90.4 million of facilitate Monogram loan volume.

As of December 31, 2013, on a consolidated basis, we were processing private student loans for approximately 275 lenders and credit unions, and our products are listed on over 1,130 school lender lists around the country. Over the first half of the year, facilitated Monogram volumes were down 11%, primarily, as a result of a 29% decline in Monogram loans made at our bank, Union Federal. We have been purposefully slowing the growth of Monogram loans made at Union Federal, as we have been cautious in managing the bank's balance sheet capital requirements and other regulatory parameters of Union Federal.

As part of our efforts to manage the Union Federal balance sheet, we recently announced that Union Federal and First Marblehead have instituted into a loan purchase and sale agreement with RBS Citizens. Pursuant to the sale agreement, Union Federal agreed to sell to RBS Citizens a portfolio of Monogram-based loans, with an aggregate outstanding principal balance of approximately $53.9 million as of December 31, 2013. Subject to regulatory approval, we expect to sell these loans to RBS Citizens before the end of the fiscal year.

This is an important transaction for us for several reasons; first, we believe it is another validation of the value of ultra high credit quality Monogram loans. It certainly shows that consumer friendly flexibility of loan terms and repayment options do not commit the sacrifice of credit quality. I believe that our origination on our payment data shows that borrowers and co-borrowers, utilize choice actively to manage their obligations.

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