Q3 2021 Navient Corp Earnings Call

Okay.

Good day, and thank you for standing by.

Well got into the Navient third quarter 2021 earnings call.

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I would now like to hand, the conference over to your speaker today.

Sure Nathan Rutledge head of Investor Relations. Please go ahead.

Thanks, Ron.

And welcome to <unk> third quarter 2021 earnings call with me today are Jack Remondi, our CEO and Joe Fisher our CFO.

After their prepared remarks, we will open up the call for questions before we begin keep in mind, our discussion will contain predictions expectations forward looking statements and other information about our business that is based on management's current expectations as of the date of this presentation actual results in the future maybe materially.

Different from those discussed here this could be due to a variety of factors listeners should refer to the discussion of those factors on the Companys Form 10-K, and other filings with the SEC.

During this conference call, we will refer to non-GAAP financial measures, including core earnings adjusted tangible equity ratio and various other non-GAAP financial measures derived from core earnings our GAAP results and description of our non-GAAP financial measures and a full reconciliation to GAAP can be found in the third quarter.

2021 supplemental earnings disclosure. This is posted on the Investor page at Navient Dot com. Thank you and I'll now I'll turn the call over to Jack now. Thanks, Nathan Good morning, everyone and thank you for joining us today and for your interest in Navient.

Our business model and execution continued to deliver strong results and create value. This quarter's financial results build on our efforts to maximize cash flow from our legacy portfolio create value from the origination of high quality student loans and leverage our operating platform to deliver valuable outsourcing service.

As to our clients across multiple business lines.

For the quarter core earnings totaled $149 million with an adjusted core earnings per share of <unk> 92.

With another quarter of exceptional financial performance.

We are again, raising our adjusted core EPS forecast for 2021 to at least $4 50 per share.

Projected earnings per share for 2021 are now more than 40% higher than our forecast at the start of the year.

This quarters results were driven by stable margins in our lending segments.

Strong demand for our private education loan products.

And continued strength in delivering services to our state and local clients and our business processing solutions segment.

Net interest income remained robust this quarter, increasing $17 million over the prior quarter.

We continue to benefit from a favorable interest rate environment, lower funding cost and an increase in our private education loan balances.

During the quarter, we originated $1 $5 billion in refi student loans, an increase of 16% over the year ago quarter.

Though the extension of the interest waiver on federal direct loans through January 31st significantly tempered demand for our refi loan product this year.

We were able to grow by helping.

Helping borrowers with private private loans lower their interest rate.

We do expect demand to increase in 2022 with the exploration of the interest in payment waiver next January.

In school loan volume in the quarter totaled $153 million and for the full year, we expect loan volume to exceed $200 million.

These loans are purchased after they're fully disbursed.

We're also confident that the combined loan volume will exceed our original forecast of $5 $5 billion for 2021.

And our business processing segment revenue increased 36% over the year ago quarter. As a result of the extension of our contracts assisting states and various COVID-19 related project work.

Through this work we've been able to demonstrate the agility of our platforms and people to respond to new and large needs with speed efficiency and effectiveness.

While these contracts are expected to end. This year, we are focused on leveraging this experience and demonstration demonstrating our value proposition to develop new opportunities.

We are optimistic about our opportunities here, but acknowledged that the more typical RFP timeline and startup schedules are significantly longer than what we experienced during the pandemic.

Credit performance remains very strong we are seeing continued resilience from our felt and private education loan borrowers leading to low levels of delinquency and default.

Our outlook remains cautious given the planned return to repayment of the federal direct loan portfolio in February and our loan loss reserves to reflect this.

Operating efficiency was strong with an efficiency ratio of 50% this quarter.

Maintaining a strong efficiency ratio is a key focus as our bps project work winds down and we complete our direct loan servicing transition.

Yeah.

At the beginning of the pandemic the decline in interest rates and higher loan loss provisions negatively impacted our capital ratios are strong earnings through the pandemic and significantly better than anticipated credit performance to date has seen our capital ratios returned to their targeted levels of 6% or more.

We continue to prioritize our allocation of capital beyond our capital targets, two growing our student lending and bps opportunities, maintaining our dividend and returning excess capital to investors.

As such we purchased $26 9 million shares this year or 14% of shares outstanding.

And a significant development this quarter, we announced an agreement to transfer our servicing contract with the department of education to Maximus.

This transfer is now complete with the receipt of innovation by the Department last week.

For a period of time, we will provide transition services to Maximus.

This transfer brings to an end the services, we provide to the federal direct loan program.

We will continue our existing business in the <unk> sector.

The road to this point started over a year ago, when we declined to accept the Nextgen servicing contract award.

With this decision it became clear that direct loan servicing was unlikely to be part of our future with only the effective date to be determined.

Given our strong desire to facilitate an orderly transition we began to explore solutions that would deliver a smooth transfer for borrowers and the 800 employees who supported this contract.

This summer we identified a potential solution to work with Maximus one of the providers under the nexgen servicing contract.

We approach the department with a constructive proposal that would deliver a smooth transition for our borrowers.