Q4 2022 Navient Corp Earnings Call
The conference will begin shortly to raise and lower Johan during Q&A.
Okay.
Ladies and gentlemen, thank you for standing by welcome on Board.
Fourth quarter 'twenty to 'twenty two earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Just a question. During the session you will need to press star one one on your telephone.
Here in automatic message revising your hand this race.
To withdraw your question. Please press star one one again, please be advised that today's conference maybe recorded I would now like to turn the conference over to your speaker host for today, Jennifer <unk> head of Investor Relations. Please go ahead.
Hello, Good morning, and welcome to Navient earnings call for the fourth quarter of 2022 with me today are Jack or Monday, Navient CEO , Joe Fisher Navient 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 expectation as of the date of this presentation.
Actual results in the future may be materially different from those discussed here.
This could be due to a variety of factors so listen listeners should refer to the discussion of those factors on the Companys Form 10-K, and other filings with the SEC.
This conference call, we will refer to non-GAAP financial measures, including core earnings adjustable tangible equity ratio and various other non-GAAP financial measures that are derived from core earnings.
We will also refer to adjusted core earnings which are measurements derived from core earnings adjusted to exclude one time expenses related to regulatory and restructuring costs.
Our GAAP results and a description of our non-GAAP financial measures can be found in the fourth quarter 2020 to supplement earnings disclosure, which is posted on the investors page at Navient Dot Com you will find more information about these measures beginning on page 18.
Navient fourth quarter earnings release, Theres also a full reconciliation of core earnings to GAAP results included in the disclosure.
And now I will turn the call over to.
Jacques.
Thank you John Good morning, everyone and thank you for joining us today and thank you for your interest in Navient we.
We completed 2022 with another quarter of strong financial performance we delivered.
Adjusted core earnings at <unk>, 85 cents for the quarter and $3.43 for the year.
And a core return on equity of 17%.
These results demonstrate our ability to deliver solid financial performance, even in disrupted economic environments.
The business environment ended 2022 very differently than it started.
For example, inflation pressured operating expenses rising rates and the cares Act extension virtually eliminated current demand for student loan refinancing.
And rule changes impacting the management of defaulted federal loans ended our portfolio management business earlier than anticipated.
A strength of our franchise is our ability to adjust to both expected and unexpected events to deliver for our customers and investors.
For example in school originations grew 52% this year without growth outlook increasing.
We are leveraging our client relationships to win new business processing contracts.
We successfully reduced operating expense at a high inflationary environment.
And our hedging strategies and efficient funding programs mitigated the impact of rising rates through our net interest margins.
Your management team is focused on delivering exceptional results by executing our strategy.
Delivering on our growth potential.
<unk> in our loan portfolio cash flows.
When you're asleep, improving our operating efficiency and prudent and consistent capital management.
In consumer lending, we are focused on growing originations of high quality loans with attractive risk adjusted returns.
In 2020 to rising rates and zero interest federal loans reduced our opportunities in refi to one 7 billion in new originations.
We rapidly adopt adapted to these conditions to slash marketing spend and focus on our in school products.
Here, we grew new loan volume by 52% over last year to $321 million.
Estimated 10 times market growth.
We also continue to build relationships with students planning to go to college, adding over 700000, new students to our going Mary platform.
Here, we help students and families complete the pasta compare financial aid award packages from schools and apply for scholarships.
We see these products as important ways of helping students and families are out they're going to and paying for college journey.
And our business processing solutions segment, we grew non pandemic related revenue by 25 million or 11%.
It's also worth noting that our pandemic related contracts extended longer than the original award.
We have been able to leverage this password to win several new contracts in 2022.
Both strong statements on the value we provided we provided to our clients.
Our large and profitable portfolio of student loans as a key contributor to earnings a gold has and continues to be to maximize the performance of this portfolio.
This includes helping borrowers navigate repayment options and avoid default and.
An innovative funding and hedging strategies to maximize net interest income.
Our funding and hedging strategies helped deliver a stable net interest margin. Despite the rapid rise in rates this year.
Since our founding in 2014 with clearly excelled at maximizing the value of our portfolio.
And we will continue to do so.
We are also continuously improving our operating efficiency.
In 2022 operating expense declined by 21% or $205 million we.
We delivered improved efficiency in our operating segments and we continue to take actions that reduced our risk profile.
Okay.
And the final area, we seek to be excellent stewards of your capital our goals are to be efficient and prudent while delivering attractive returns.
Here, our priorities remain unchanged invest capital and attractive and relevant growth opportunities support our dividend and return excess capital to you via share repurchases.
This consistent and transparent approach supports our business growth our debt investors, our corporate ratings and enabled the return of $491 million via dividends and share repurchases last year.
Our financial and business success last year positions us for another year of strong performance.
Our 2023, we are focused on the same four objectives.
Profitably growing our loan origination and bps revenue.
Maximizing the performance of our loan portfolios, improving operating efficiency and prudent and consistent capital management.
In consumer lending, we expect to double in school loan originations building on the progress we made in 2022.
We expect that demand for refi loans will continue to be suppressed.
But we are prepared to move quickly when market conditions change.
We will also continue to grow and build long term relationships with students and families as we support they're going to college journey.
Yeah.
In bps, we're well positioned to deliver 10% growth in revenue from our traditional clients.
With this growth we also expect to earn a high teens EBITDA margin.
And new contract wins in late 2022, and expansions of existing contracts have created a clear path to these goals.
As a result of our ongoing focus on operating efficiency, we will reduce operating expense by an additional 10% in 2023.
And in capital management, our plan is to complete approximately $310 million in share repurchases.
Our results this quarter.
Quarter capped a strong year for navient.
Reflect our commitment and ability to generate high quality high value products and services and.
And deliver solid financial results, even in volatile and changing markets.
They also reflect our ongoing commitment to simplify our business model and reduce our risk profile.
More importantly, our efforts have built a solid foundation from which.
To create and deliver value.
Our guidance for 2023 reflects our confidence in our ongoing ability to grow new business maximize portfolio performance deliver.
Deliver better margins through operating efficiency and deliver attractive returns on capital.
I want to thank my colleagues for their efforts and commitment to success and together, we look forward to delivering another great year of results in 2023.
Joe will now provide a more detailed review of our results. Thank you for your time and I look forward to your questions later in the call.
Thank you Jack and thank you to everyone on today's call for your interest in Navient.
During my prepared remarks, I will review the fourth quarter and full year results for 2022 and provide our outlook for 2023.
I'll be referencing the earnings call presentation, which can be found on the company's website in the investors section.
In 2022, we successfully met or exceeded our original full year guidance targets.
Key highlights from the quarter and year beginning on slide three includes fourth quarter adjusted core EPS of <unk> 85.
Full year EPS of $3 43.
Achieved an ROE of 17% and an overall efficiency ratio of 52% for the year in the face of a challenging inflationary environment.
Belt NIM of 94 basis points and full year NIM of 101 basis points.
Private NIM of 287 basis points and full year NIM of 281 basis points.
Who in school originations by 52% to $322 million for the full year.
<unk> total originations of $2 billion.
Reported bps revenues of $70 million in the quarter and $330 million for the year, while achieving full year EBIT margins at 16%.
Priest, our adjusted tangible equity ratio to seven 7%, while returning $491 million to shareholders through dividends and repurchases.
I will provide additional detail on the quarter and our 2023 full year outlook by segment, beginning with federal education loans on slide five.
And the federal Education loans segment, we achieved a net interest margin of 101 basis points for the full year exceeding our original mid 19th guidance in a volatile interest rate environment.
The quarter's results continued to be impacted by an incremental level of consolidation activity from previously announced loan forgiveness proposals.
Incremental prepayments that were processed during the fourth quarter represented 3% of our portfolio.
This activity reduced net interest margin by 11 basis points to 94 basis points.
There has since been a significant decline in consolidation requests to historical levels.
Our expectation for full year 2023 felt NIM of 100 to 110 basis points assumes that prepayment speeds remain at historical levels in 2020.
Delinquency rates decreased to 15, 6% from 18, 6% in the third quarter and charge offs declined by $1 million, resulting in a net charge off rate of 13 basis points in the quarter.
We anticipate a net charge off rate between 10, and 20 basis points for the full year 2023.
Let's turn to our consumer lending segment on slide six.
Net interest income in the quarter was $147 million and resulted in a net interest margin of 287 basis points, an improvement of 11 basis points compared to the prior year.
We are seeing a slowdown in prepayment speeds in the overall portfolio as borrowers with fixed interest rates of less of an incentive to refinance in the current environment, which is benefiting net interest income we.
We anticipate our full year net interest margin for 2023 to be between 280 and 290 basis points.
Our credit trends continue to perform as expected as net charge offs ended on the low end of our original guidance of one 5% to 2% with 156 basis points for the quarter and 159 basis points for the full year of 2022.
$17 million of provisions in the quarter included $3 million related to new originations.
We feel confident that we are adequately reserved for the expected life of loan losses, given the wealth seasons and high credit quality of our portfolio and.
We anticipate net charge offs to remain in the 1.5% to 2% range for 2023.
In the quarter, we originated $169 million of private education loans.
Was comprised of $35 million of new in school volume, representing a 52% increase compared to the prior year.
The expected decline in refinance loan origination volume to $134 million was primarily driven by the higher rate environment and delay and department of education loans entering repayment.
We expect that the higher rate environment continues throughout 2023, and the extension of the cares Act will result in lower quarterly originations for our re byproducts.
Yes.
Let's continue to slide seven to review our business processing segment.
Revenue from our traditional bps services increased 27% from the year ago quarter, partially offsetting the expected wind down of revenue from pandemic related services.
Fourth quarter revenues totaled $70 million and earned an 11% EBITDA margin.
11% margin was below our targeted levels due to wind down costs associated with pandemic related services in the quarter.
We anticipate the benefit of recent efficiency initiatives to increase the margin in this segment as we progress throughout the year.
We expect to see continued fee revenue growth of 10% and our traditional services in 2023 with full year EBITDA margins in the high teens.
Turning to our financing and capital allocation activity that is highlighted on slide eight.
During the year, we reduced our share count by 13% due to the purchase of $24 8 million shares.
In total we returned $491 million to shareholders through share repurchases and dividends, while increasing our adjusted tangible equity ratio was seven 7% from five 9% a year ago.
Our 2023 guidance includes the repurchase of $310 million of shares while building, our adjusted tangible equity ratio to a range of 8% to 9%.
Turning to GAAP results on slide nine.
According fourth quarter, GAAP net income of $105 million or <unk> 78 per share compared with a net loss of $11 million or a loss of <unk> <unk> per share in 2021 for the same period.
In closing and turning to our outlook for 2023 on slide 10, the success of 2022 and steps we've taken to simplify the business improve efficiency, while building capital positions us well for 2023.
As a result, we expect our 2023 adjusted core earnings per share to be $3 15.
And $3 $333 30.
Reflecting our continued efforts to improve efficiency.
Outlook excludes regulatory and restructuring costs assumes no gains or losses from future loan sales or debt repurchases reflects a continued rising interest rate environment and no meaningful impact from an exploration of the cares Act in 2023.
Thank you for your time and I will now open the call for questions.
Thank you, ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
And our first question coming from the line of Matthew <unk> with Jefferies. Your line is open.
Hi, there amongst <unk>, John Hecht and thanks for taking our questions.
Our first one is just about funding markets, if you could provide a bit more detail.
Puts and takes for NIM over the next few quarters that'd be helpful.
So from a funding perspective, we feel we're very well positioned we have a $1 billion III due this coming year of which $1 billion is actually being paid off today. So we have a 1 billion five sitting on our balance sheet at the end of the year. So we're well Cushing for the remainder of 2020.
Three and also we feel we're well placed for entering into 2024.
We certainly think that the securitization market overall is starting to move out and you're starting to see benefits here over the last month.
And.
For us well, we expect to do fewer securitizations compared to prior years, that's primarily driven just by the growth of our refi business. So we do anticipate that they'll be less originations on the refi side compared to prior year, but as that market potentially picks up if you see a change in the interest rate environment or the exploration of <unk>.
<unk> I would anticipate that you would see further securitizations from us.
Okay, great. Thank you and the second question.
Would be mix of business in the business services segment.
Its growing or shrinking you mentioned COVID-19 services flowing down could you provide more detail on mix otherwise.
Sure.
So during the pandemic, we picked up a number of contracts with various states and municipalities to deliver.
To help them.
Deliver our Covid relief initiatives some of that would be things like unemployment insurance contact tracing vaccination awareness et cetera those.
Those naturally do run off and Thats, a good thing right that theyre, writing off because it means we yes. This is.
As a country, we don't need them any longer.
Is growing as our traditional services. So these would be things that we do for states and municipalities toll authorities and health care institutions.
We're pretty excited about the growth opportunities in these areas. Some of them were certainly suppressed during during the pandemic and theyre starting to rebound.
But more importantly, and as I mentioned in my comments, we've been able to leverage the work we did for a number of entities during the pandemic and translate that into a new more permanent contracts.
This is work we do handling.
Immunizations for these entities, both inbound and outbound and kind of omni channel types of directions processing forms completing applications things of that nature. So it's really right within our wheelhouse.
<unk>.
Years and years of experience with developed in loan servicing.
So this is as we said we expect to grow that revenue by 10% next year on the traditional sides of that excludes all the pandemic related revenue, we generated and we are forecasting a high teens EBITDA margin in that business.
Got it thanks very much.
Okay.
And our next question coming from the line of Bill Ryan with Seaport. Your line is now open.
Thanks, and good morning couple of questions first to start off with.
There has been some proposed changes and itr and debt forgiveness in the Federal Register.
I'm wondering if you've taken a look at it and maybe give some initial thoughts about how it might impact your business. It seems like the administration is trying to do an end run around the debt forgiveness program.
Thanks, guys just first question.
Sure. Thanks, Bill so on the first on.
Broad based loan forgiveness. This is this is in.
<unk> right now.
A number of states filed lawsuits against that proposed administration and it is now.
Schedule for hearing at the Supreme Court sometime later this year.
Brito just being filed.
As we speak so we'll learn more about where that goes in the next couple of weeks and months.
As you pointed out the administration also announced broad changes to the income based repayment programs that they offer to students in the federal the federal program side of the equation.
These are our proposed right now they are open for comments.
Questions. They are pretty significant in terms of their reach compared to what was in place before and what Congress had.
Initially established as the guidelines for income based repayment plans.
So we have to wait and see here, what those comments are and what kinds of challenges might arise.
But to some extent youre looking at what's the impact on the private loan originations business.
In the area that probably is going to have the greatest impact would be on the graduate school side of the equation graduate school demand and how that is financed.
I think the bigger questions that we would have as a as a.
Taxpayer might be how do these programs.
We leased pressure on schools to kind of that control the cost of education does it make it more likely or not that college costs increase faster. Those those are some of the policy issues that we'll be watching.
Thanks, and just as a follow up it looks like you're kind of bumped up pure.
Adjusted tangible equity ratio target.
From what it had been historically and that's reflected in the buyback is that in anticipation of growing the in school loans, which have higher capital requirements or is there something other types that you might be looking at.
Yes, that's a good question. So in terms of the 8% to 9% guidance that is purely a function of what we anticipate our book to look like over the next year and beyond so as the refinance loan originations as we anticipate shrinking.
For this year, we hold 5% capital against refinance loans, and we hold closer to 10% for our in school. So it really is benefiting the overall capital ratio that mix shift of growing the in school volume.
<unk> brings us above our are levels that we had guided last year of about 6% to that range of 8% to 9% for this coming year.
Thanks for taking my questions.
Thank you.
And our next question coming from the line of son, Joseph <unk> with <unk>. Your line is open.
Thanks, Good morning.
Could you provide us an update around the loan forgiveness plan I think it's what the Supreme Court right now.
Maybe also just to.
To the extent that it has an adverse ruling.
<unk> intends to proceed going forward.
Sure.
As I mentioned the <unk>.
It is at the Supreme Court.
This had been file from the department of education in the states.
<unk>.
Briefs are due this friday.
Hearings will be scheduled some time I think in February .
When the Supreme Court will issue their opinion is.
Unknown, but obviously we expected before.
Recess in the June July timeframe.
Right now the proposal from the administration is only for direct loans. So fell balloons are not eligible and borrowers cannot become that help borrowers cannot become eligible the loan consolidations. So.
It's not clear how that would necessarily impact on perception versus reality, but.
As Joe mentioned in his comments.
Last year, we saw a significant increase in consolidation activity.
Borrowers as they were hoping to qualify for various.
Forgiveness initiatives from the administration are announced by the administration that stopped and.
Large and returned to pre pandemic levels.
December and January .
So far so we expect more of that.
However, I think that the politics of SMA.
An area that we will continue to watch very closely and be able to manage our portfolio and react to changes that may be announced feature changes that may be announced by the administration down the road.
Okay, Great and then maybe just.
A question on economy, and and how you how you see your consumer your customer is behaving.
I think you added a little bit to the reserve this quarter I mean.
What are you guys assuming inside your economic forecasts and are you seeing any potential weakness of any kind.
Yeah. So we are.
Earlier last year, we began to be.
Concerned about changes in economic outlook.
And and reflect a more conservative position in terms of <unk>.
Rising rates.
And potentially.
Potentially.
A significant or mild slowdown in the economy.
We're still positioned for that we look at our reserve and really see it as the hedging strategies that we've been able to deploy.
Those have helped mitigate the rising rates that took place in 2022.
Our nims were relatively stable our reserve levels. We believe are are adequate for the economic outlook that we see in front of us you're.
You're definitely seeing some rising delinquency and charge off rates in both our felt and private loan portfolios.
These are consistent with what we were while they are actually better than what we expected.
During the Covid during the pandemic, we offered a number of different payment relief options and as those and did some borrowers that were previously on a path to default.
Slowed down and didn't and now they are kind of jumping a bundling together and youre seeing some rise in delinquency and default rates, we expect those to return.
To more normalized levels next year.
So the outlook for delinquencies or defaults.
<unk> remains.
Pretty consistent with what we saw last year and but it does take into consideration our belief that we will have an economic slowdown here.
Okay. Great is there a specific like unemployment rate assumption you guys are using.
Not not not in terms of.
The generic default rates so our portfolio when we look at what drives delinquencies and defaults in our portfolio, it's really a function of that.
Where the borrowers are in their lifecycle. So students who are graduating from college or leaving college early that's where we have our greatest exposure and where unemployment rates tend to have the biggest impact on delinquencies and defaults, we have a relatively small exposure to that right now.
For borrowers that had been in repayment for extended periods of time have high levels of income high levels of employee ability. These are generally people who have graduated earn their degree and have an established career.
We see less sensitivity to.
Changes in unemployment rates and thats been consistent for years and years or decades in the student loan space.
Unemployment rates for college graduates typically run about half the national average so while you might see those numbers spy.
Spiking in different areas, they tend to impact college graduates.
Definitely impact college graduates less than they do the rest of the population.
Okay, great. Thank you so much.
Okay.
Thank you.
And our next question coming from the line of Mike <unk> with Barclays. Your line is open.
Yes. Thanks, just wanted to clarify some of the comments around the film and the guidance.
Joe did you imply that there was about an 11 basis point drag in the quarter from from elevated prepayment speeds and if that normalizes that gets you to about 105 basis points kind of the midpoint of your guidance range for 2023.
That is correct. So that the incremental activity was above what we were anticipating as we entered into this in the third quarter. So absent that impact we would have been at 105 basis points.
Okay got it.
Can you give us any sense of how kind of rate sensitive your guidance is for both the film.
And private student loan NIM.
If you got a 100 basis point rate shock kind of up or down what might that do to your expected NIM.
Sure so from a.
Felt perspective keep in mind, it's really the pace at which it increases so the assets themselves are resetting daily and our liabilities typically lag so they're resetting either monthly or quarterly so as you've seen over the last year you get a benefit as rates continue to increase so for the first half of the year where the.
Pectase use that those rates continue to increase you would see a little bit of a pickup before that levels out.
About 100 basis points shock upwards would be a benefit to us any downward movement that we would see in terms of where we are we would start to benefit from a floor income perspective. So we feel pretty confident just based off of where the forward rate curve is today within the guidance of that 102.
110 basis points, and then we provide the ultimate shocks in our Qs and K. So you can take a look at that of what that impact is for the overall earnings. Similarly on the private side. The impact. There is again you have a lag of assets that are earning off of prime and funded through LIBOR. So you have the.
Reverse where there is a drag from the rate environment, increasing and then again as we.
We anticipate that leveling out in the back half of the year, you would get a slight benefit there.
Okay.
In terms of cadence over the course of the.
Or should we expect.
But it's a little more front end loaded and then.
For private it's a little bit more backend loaded in terms of where the NIM averages out too.
Yeah, I'd say just overall it should be fairly consistent throughout the year within that band, but that's a decent way of thinking about it.
Okay, great. Thank you.
Thank you Juan long before our next question.
And our next question coming from the line of Moshe Orenbuch from Credit Suisse. Your line is now open.
Great. Thanks.
Just Joe So a little further clarification on the guide.
You mentioned that on the felt you expect.
Kind of normal Prepays I mean, it's hard to know exactly what normal is given especially since they have been elevated and elevated beyond your earlier expectations. The last couple of.
Last couple of quarters.
And.
Same sort of thing is like what's the assumption in the guide for.
For the consumer loan a private loan given the.
The level of originations.
No.
So our overall prepay assumptions for the <unk> portfolio towards Stafford loans, we tend to think about that is 8% CPR for consolidation, 5% on the private portfolio.
You see our assumptions of 15% for the refi and 10% for our legacy book, Obviously, if you go back a year on the refi side of the equation that was much higher than that in a lower rate environment. So we are benefiting from the fact that for our refi portfolio with less incentive to prepay.
A slowing of those ctr's and similarly on the film side to your point about the last two quarters, we've seen a dramatic drop off.
At the start of this year in terms of just overall consolidation requests. So we would anticipate that that remains at these historical levels going forward.
Yes, I mean, I guess the real question is going to do you have.
Borrower perception is with respect to the rule changes in response to the earlier question on <unk> on <unk> and other sorts of things.
On the business on the business services, I guess, the 10% growth.
What base is that off could you just be a little more specific and maybe what actions you have to take to get the margins from where they are too.
The guidance level.
And that base is off a $247 million that we achieved for for this year in terms of the non endemic related revenues and just to compare that to 2021, we had $222 million and I would say more traditional services.
Great.
And then sorry, the second part of your question just the actions that are taken. So this is just some investments in technology that we've taken on in the third quarter and fourth quarter in terms of.
New phone systems the efficiency initiatives.
Initiatives and some of the restructuring that you saw in this quarter, we would expect to benefit us into the into 2023.
Okay. Thanks, Joe.
One moment please for our next question.
And our next question coming from the line of Richard Shane with Jpmorgan. Your line is open.
Thanks, guys.
For taking my questions. This morning.
Look you guys have done a really good job managing expenses, you've done a really good job of managing capital.
In the face of a shrinking balance sheet and revenue declines.
When we look at the different business units should we expect this year to by year end.
Loan balances in the consumer lending segment.
On a year over year basis should we see that inflection this year, what would need to happen for.
For that to occur.
So yes, so it's from a private side no. We would continue to expect a slight decline year over year.
If you think about the CPR assumptions that I just provided in the last question.
Book is running off on the legacy side greater than 10% on refi, 15%. So our originations overall that Jack cited would not make up for the overall just decline in the book.
Got it and when we look at the contour of that run off.
As we moved into the beginning of 2022, you were starting to show growth there.
And then that obviously decelerated with the inflection in rate is the big variable there to ultimately sort of drive that growth going to be.
The opportunity on the consolidation side and what type of rate environment would you need to see that inflection.
Well I think it's a combination of both the refi opportunities in the in school side of the equation refi, obviously as well.
Historically has been a greater opportunity in terms of immediate impact because you're addressing all loans outstanding whereas in school you are only addressing.
That students who are actually in school and borrowing in the private loan segments. So it's a bit of a smaller opportunity set year over year.
The the difference the other big difference between the loans as the in school portfolio has a much longer average life and so a lower prepayment speed compared to refi, which.
Has typically been about a three year average life portfolio.
We are getting closer to the inflection point no question about it on the private side of the equation.
And it will be a function of what our overall originations are and to your point how quickly.
The refi marketplace rebounds, right now.
The rise in rates, we saw about an 80% decline in what we would say is the addressable market size, which with which means borrowers that have a coupon.
Higher than existing coupon on their on their student loans higher than what we would be offering today most of that's in the.
Federal space.
In the private loan side of the equation a significant.
A portion of outstanding inventory is variable rate and there is an opportunity for us to be able to offer our refinance product to those customers.
Made some changes to our products to allow for example.
<unk> on our refi loan that would give us the opportunity to.
Target undergraduate in.
In school borrowings that have a variable prime rate for example.
Even in this high rate environment. So we are working to two.
To address some of that and create additional opportunities for borrowers to save money by through the refinancing activity we.
This product for what it is it is.
We've always said that the two biggest risks in student lending or will the student graduates and their income upon graduation support their debt levels and refi those risk factors are known or the answers to those questions are no and I should say and so we continue to be highly.
Highly focused on driving volume in that area when the opportunities exist.
Okay got it and if you would indulge one last question.
Trying to see where the green shoots will be in terms of growth and clearly it's going to be on the.
In school consumer lending can you talk a little bit more about your go to market. There is it traditional been on preferred lending list is it omni channel and when you think about the growth in 'twenty three is it a function of higher penetration for the <unk>.
<unk> institutions are adding new institutions that I apologize for such a long question.
Sure.
This market is definitely in the marketplace and how students and families secure financing for paying for college has been changing so it has moved from almost universally through the financial aid office and a requirement to be on their preferred lender list to some online activity some referral.
<unk>.
The in school at the financial aid office continues to be an important channel. So our go to market strategy is really driven by those different segments and we try to target.
Our marketing activities and the outreach that we make whether it be digital mail or or.
Financial aid office.
With different approaches for those different market segments, one area that we see as a significant.
New opportunity for US is working with high school students and their families in the guidance.
Office guidance offices of high schools through.
Through our going Mary products by building relationships with those consumers, helping them complete the fast helping them compare theyre different.
Award letters that they receive from college on acceptance helping.
Helping them lower their need to.
Borrow through scholarship opportunities as an opportunity for us to build those relationships and if and if and when they do need private student loans be there for them with that additional <unk>.
As well so these are different ways, we're kind of targeting.
Our opportunities in the in school marketplace.
With a doubling.
Of originations next year.
We expect to continue to grow our market share in that space. We mentioned, we grew 52% this year, which we think is 10 times the market rate. So.
It's a it's a very high growth opportunity for us.
Just starting off of a relatively small.
Origination base.
Great. Thank you so much for the answers.
Okay.
And as a reminder, ladies and gentlemen for like ask a question. Please press star one on your telephone keypad and our next question coming from the lineup Juliano from Compass point. Your line is open.
Good morning, Thanks for taking my question one thing I was curious about was when we look at the NIM.
Look.
The 100 to 110 basis points in parts of your kind of 105, and Thats roughly call it 10 basis points from.
The original outlook. When you guys are going into 2022, four for 2022 and there was discussion I believe in the last two quarters about how.
How are you guys were able to hedge out some of your foreign income.
During the lowest from a rate perspective, and that that was having a benefit on a flow through basis.
I'm curious, how we should think about that impact and if theres any kind of.
Duration to those hedges that might roll off.
In a higher rate environment.
That could impact NIM as we move throughout 'twenty three 'twenty four.
Sure. So two things here in terms of benefits.
We are completely hedged for 2023 as it relates to the floor income.
On on the benefit that we've seen that I've been talking about the last several quarters that has to do more so with the fact that we have increased our fixed rate funding in 2021 compared to what we have done historically, so that benefit will continue to offset the component of the unhedged floor income that has.
It has declined over the last call it.
Four quarters here. So we've seen the benefits from that funding environment continue throughout this year, we expect that benefit to continue into 2023 as we enter into 2024, and we look at our interest rate assumptions, let's see if there's opportunities there too to swap to floating but otherwise we feel very.
Confidant based off of the current curves of achieving that 100 to 110 basis point range.
Okay.
Okay. That's great. Thank you alright, appreciate it and I'll jump back in the queue.
Thank you and our next question coming from the line of Sean <unk> with Bank of America. Your line is now open.
Hey, good morning, guys. Thanks for taking my question.
I know you mentioned that you are paying off the $1 billion of notes due in January with cash today.
I guess you guys still have the $1 2 billion of unsecured maturities through the first half of 'twenty. Four can you just talk about.
Your appetite and kind of the attractiveness of refinancing that and the high yield markets currently that seem to have opened up a little bit and then.
Can you remind us of how much capacity you have to refinance a portion of that.
The ABS market.
Sure. So we have as I said before we have a 1 billion and a half of cash on hand, we provided our cash flow projections on the private portfolio in the <unk> portfolio in our earnings deck. So you can see the cash being generated with upcoming maturities as well as we have $1 6 billion of unencumbered felt and.
Private assets that we have the ability to tap into an additional $5 2 billion of Overcollateralization. So we have a number of funding mechanisms available to us to address maturities in 'twenty three 'twenty four and beyond.
Your comment about the unsecured markets starting to.
Come back positively that's certainly something that we keep an eye on and as we've done in the past and more recently in 2021, we've been opportunistic so should there be an opportunity available to us.
And in attractive markets, we may refinance that through unsecured debt otherwise, we will look at the other options that we have available to us whether that's cash on hand or the other elements that I just mentioned.
Okay. Thanks, and then I guess given the delay in the CFPB resolution of <unk>.
<unk> senior status last year have you guys had conversations with the rating agencies on potential upgrades I know that.
That lawsuit with kind of.
A point for some of the rating agencies.
But just wondering now that that's kind of been delayed.
If there's been an ability to kind of get beyond that or the conversation has been a non starter given the current regulatory environment.
So we have very frequent conversations with the rating agencies certainly as recently as just yesterday just in prep for this call today. So that dialog has continued unfortunately, there is no update to provide to the agencies on the on the path of that court case, but I do think.
From a quantitative perspective that we should certainly be rated higher across the board in terms of elements within our control our capital ratios are increasing reduced our debt stack I think we've done everything that we can do in terms of.
Meeting certainly fixed income investors questions getting their expectations and positioned positioning ourselves well for the.
The remainder of this year as well as 2024.
Great. Thanks, guys.
Thank you I'm showing no further questions at this time I would now like to turn the call back over to Jennifer <unk> for any closing remarks.
Thank you Olivia.
We'd like to thank everyone for joining us on today's call.
Please contact me if you have any other follow up questions. This concludes today's call. Thank you.
Ladies and gentlemen that doesn't go conference for today. Thank you for your participation you may now disconnect.
The conference will begin shortly.
Two reasons lower Johan during Q&A, you can dial star one one.
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Okay.
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Okay.
Yes.
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