Q2 2005 First Marblehead Corporation Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day, ladies and gentlemen, and welcome to the second-quarter 6 months earnings conference call. My name is Kristen and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host for today's call, Mr. Porter, President of Porter, LeVey and Rose.

MICHAEL PORTER, PRESIDENT, PORTER, LEVAY AND ROSE: Thank you, operator. Good morning, ladies and gentlemen, and welcome to the First Marblehead Corporation second-quarter 6 months conference call. I would like to remind you that this presentation includes forward-looking statements related to the Company that involves risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. Those forward-looking statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. For further information about these factors that could affect the Company's future results, please see the Company's filings with the Securities and Exchange Commission.

With that out of the way, I'd like to turn the meeting over to Dan. Good morning, Dan.

DAN MEYERS, CHAIRMAN AND CEO, FIRST MARBLEHEAD: Good morning, Michael. Good morning, everyone and welcome to our second-quarter conference call for fiscal year 2005. Before I talk about our strong second-quarter, I'd like to give a quick update on our market. Not surprisingly all the news we've heard since the College Board updated the private loan market data last quarter has supported long-term trends. These trends which we've talked about before include increasing enrollment rates, stagnant government support for higher education financing, and increasing tuition costs.

For example, the State University of New York system is currently contemplating tuition increases of between 11 and 14 percent for the 2005/2006 academic year. This of course is just another data point that reinforces one of the long-term fundamentals driving the growth of our market and our business. As we stated during our last call, the College Board reported that the private loan market grew 43 percent to 10.6 billion in 2003, '04.

I'm pleased to report that our business continues to grow faster than the market as our volume for the first 6 months of this fiscal year is just shy of $1.6 billion, up 62 percent over the same period last year and represents nearly the total volume facilitated in all of fiscal year '04. And as you will recall, in Q1 we facilitated roughly the same volume we did in all of fiscal year 2003.

More importantly, the volume available for future securitization grew 66 percent over the second quarter of last year and for the first 6 months of the fiscal year, volume eligible for future securitization has increased 76 percent. Don Peck, our CFO, will get into greater detail on the financial results of the second quarter but we are happy to report that revenue grew 101 percent and net income grew 103 percent compared with the same quarter last year.

During the second quarter we announced an exciting partnership with Banc One on a new school channel product suite. The Banc One Campus loan program will be available in spring of 2005 and marketed to educational institutions by Banc One Education Finance, an affiliate of J.P. Morgan Chase. We will provide program management and operational support services to Banc One and we plan to securitize the loans generated in this program.

On the lender and marketer side, we added 4 new clients in the second quarter and we now operate over 90 programs for over 60 lender and marketing clients including 15 out of the top 20 Federal Loan originators. Additionally, we continued to administer institutional loan programs directly on campus in conjunction with Banc of America.

It is clear that market demands for our increased processing capacity, program breadth, operational sophistication, risk management expertise, and reliable asset dispensation arrangements are building substantial barriers to entry for new entrants. And as we continue to use our ever-growing private loan database to build new products for new clients, we are adding to these barriers.

As the strong fundamental dynamics underlying our market and business continue to spur growth, we remain focused on execution. Our access to the securitization markets continues to be strong. We announced this morning that we will close a securitization transaction on or about February 23. The loans in this securitization were originated from several different banks under various loan programs. The Trust expects to raise approximately $910 million from the sale of asset-backed securities and plans to acquire private student loans with a principal and accrued interest balance of approximately $685 million. The Trust expects approximately 67 percent of the loans to be purchased will be direct-to-consumer loans while the remaining 33 percent will be school channel.

Of the school channel volume, approximately $180 million will be Banc …