Q1 2023 Navient Corporation Earnings Call
[music].
Okay.
Good day, and thank you for standing by welcomed.
Welcome to the Navient first quarter 2023 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 to ask a question. During this session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again please.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today Gen area, Vice President Investor Relations. Please go ahead.
Thank you Shannon.
Well good morning, and welcome to Navient earnings call for the first quarter of 2023.
With me today are Jack Remondi, Navient, CEO , and 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.
That could be due to a variety of factors.
Listeners should refer to the caution that 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 are derived from core earnings. We will also refer to adjusted.
Which are measurements derived from core earnings adjusted to exclude expenses related to regulatory and restructuring costs.
Our GAAP results and a description of our non-GAAP financial measures can be found in the first quarter of 2023 supplemental earnings disclosure, which is posted on Navient Dotcom, Washington Boston.
You will find more information about these measures beginning on page 15 of Navient first quarter 2023 earnings release Theres also a full reconciliation of core earnings to GAAP results included in the disclosure you can view and download presentation slides, including fly do you mean by altering this fall.
A presentation section of Navient dotcom question, but thank.
Thank you and I now will turn the call over to Josh.
Thanks, John Good morning, everyone and thank you for joining us today for review and discussion of a very good first quarters results, but thank you for your interest in Navient.
Our first quarter's results demonstrate the stability of our business, even in varying economic environments as well.
We execute the four pillars of our strategy.
<unk> on a gross potential maximizing loan portfolio performance.
Actually improving operating efficiency and disciplined capital management.
Our results. This quarter include adjusted core EPS of $1 six.
Strong belt and private net interest margins.
And improved credit performance.
And continued operating efficiency gains.
Combined we delivered a core return on equity of 19% this quarter.
Turning to the business segment results, we remain very focused on delivering on our growth potential.
In consumer lending, we are preparing for the upcoming lending season.
And this quarter, we originated $168 million in private education loans.
While demand for in school loans is seasonally low in the first quarter.
We remain confident in our guidance to more than double new in school loan originations in 2023.
And business processing solutions, we're off to a strong start with revenue from traditional services, increasing 26% over the year ago quarter.
Here, we continue to promote our data driven processing and customer contact capabilities, which we forecast will deliver 10% growth in revenue along with a high teens EBITDA margin for the full year.
As Joe will discuss more fully while this quarter's results include expect include expected startup costs that reduced profitability by <unk> <unk> per share.
Our full year profit forecast remains intact.
Last year, we saw accelerated prepayments in our portfolio.
Bell prepayments have now fallen well below historical levels.
The resulting slower amortization of loan premiums drove this quarter's $10 million loan loss provision.
Our effective funding programs and interest rate management helped to deliver stable and for net interest margins in both our help and private loan portfolios.
Even as interest rates rose again in the quarter.
Importantly, our strategy of funding our loan portfolio for the life of alone via asset backed securities.
Currently 85% of our funding mix really shows its value during times of liquidity challenges.
Credit performance remains an area of strength, we saw improvements in delinquencies and private loan defaults were significantly lower than expected for the quarter.
Our results also include two significant items impacting the provision for loan losses this quarter.
One was a $52 million benefit permanent accounting rule change for modified loans.
This was reflected as a reduction in the provision for loan losses.
Second was an agreement to resolve several bankruptcy related class actions, resulting in an increase in provision for loan losses of $23 million.
We believe this agreement provides a clear framework for the treatment of loans and bankruptcy from these legacy student loan programs.
This nationwide agreement, which is subject to court approval.
Resolve several class proceedings related to this limit limited category of legacy private loans.
Originated years before at Navient was formed.
Ian has never made any loans in these categories.
<unk> has long advocated for student loan bankruptcy reform, along with calls for a clear and consistent treatment for loans and bankruptcy that are easily understood by borrowers and lenders.
Our focus on efficiency delivered a reduction in operating expense versus the FERC fourth quarter.
First quarter operating expense, including includes several significant seasonal items and also includes the startup expenses associated with new business processing contracts.
We will continue to pursue initiatives to improve our overall operating efficiency.
Now on capital management, we repurchased four 9 million shares and paid $21 million in dividends in the quarter.
We earned a core return on equity of 19% and improved our adjusted tangible equity ratio to eight 5%.
Okay.
These results demonstrate our commitment and ability to deliver strong risk adjusted returns by investing your capital and attractive opportunities.
While returning excess capital to you.
All while maintaining a strong capital position.
Our results this quarter are a strong start for navient, they reflect our commitment and ability to generate high quality high.
High value products and services and deliver solid financial results, even in volatile and challenging markets.
They also reflect our ongoing commitment to simplify our business model and reduce stress.
More importantly, our effort to build the foundation from which to create and deliver value.
Our affirmation of our guidance for 2023 reflects our confidence in our ongoing ability to deliver on our growth potential maximize portfolio performance.
Deliver better margins through operating efficiency.
And deliver attractive risk adjusted returns on capital.
I want to thank my colleagues for their efforts and commitment to our success.
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 Jim and <unk>.
Jack and thank you to everyone on today's call for your interest in Navient.
During my prepared remarks, I will review the first quarter results for 2023.
I'll be referencing the earnings call presentation, which can be found on the company's website in the investors section.
The first quarter's strong results position us well to meet our full year 2023 guidance targets with key highlights from the quarter beginning on slide three.
Including first quarter adjusted core EPS of $1, six which includes a net provision release that I will provide additional detail on later in my remarks.
Achieved an ROE of 19% and an overall efficiency ratio of 53%.
Felt NIM of 112 basis points.
Private NIM of 312 basis points.
Originations of $168 million.
EPS revenues of $72 million and increased our adjusted tangible equity ratio to eight 5%, while returning $106 million to shareholders through dividends and repurchases.
Provide additional detail by segment, beginning with federal education loans on slide five.
Sure.
And federal Education loans segment, we achieved a net interest margin of 112 basis points compared to 104 basis points a year ago.
Since November there's been a significant decline in prepayment activity and we are seeing consolidation requests that are below historical levels.
Our expectation for full year 2023 felt NIM of 100 to 110 basis points assumes that prepayment speeds remain at these levels for the remainder of 2023.
Compared to the fourth quarter helped delinquency rates decreased to 14, 4% from 15, 6%.
And for burn rates decreased to 16, 9% from 18, 1%.
We saw charge offs increased to 22 basis points in the quarter and we anticipate a net charge off rate between 10% and 20 basis points for full year 2023.
While credit trends have improved the slowdown in prepayments that we are experiencing is expected to increase the life of the portfolio, which results in an increase to unamortized premium allocated to expected future defaults.
As a result, we added $10 million in provision in the quarter for Pep wounds lets.
Let's turn to our consumer lending segment on slide six.
Net interest income in the quarter was $153 million and resulted in a net interest margin of 312 basis points, an improvement of 32 basis points compared to the prior year driven largely by improved funding spreads.
We continue to see a slowdown in prepayment speeds in the overall portfolio as borrowers with fixed interest rates had less of an incentive to refinance in the current rate environment, which is benefiting net interest income.
We anticipate our full year net interest margin for 2023 to be between 280 to 290 basis points.
Our credit performance improved from the prior quarter as total delinquency rates declined from 5% to four 5% with forbearance rates improving from two 1% to one 9%.
Net charge offs remained flat at one, 6% and $75 million compared to the fourth quarter.
While credit trends are improving the net $24 million release of provision for private education loans in the quarter was largely driven by the adoption of the new accounting guidance for modified loans.
Our private education loan modification program provides borrowers with options to successfully navigate their loan process in times of financial hardship.
During which we offer a lower interest rate to help the customer successfully make a lower payment that advertisers Malone.
Prior to adopting the new accounting guidance, we calculated the present value of the amount of interest for Kevin kill loans currently in the modification program and include it as part of the allowance for loan loss.
This reserve element is no longer allowed when borrowers enter new loan modification programs.
At the end of 2022.
Our loan loss allowance included $77 million related to this practice.
We elected to adopt this new guidance, respectively, resulting in a release of this allowance overtime as borrowers that had previously entered into a modification program exit those programs over the next two years this quarter $52 million of the $77 million was released at the majority of these programs are typically short term in nature.
Sure.
And the remaining $25 million in allowance, we expect a little over half to be released this year with the remainder of 2024.
In the quarter, we reserved an additional $5 million related to new origination volume and 23 million pertaining to the bankruptcy related resolution that Jack discussed.
We remain confident that we are adequately reserved for the expected life of loan losses, given the well seasoned and high credit quality of our portfolio and anticipate net charge offs to remain in the 152% range for 2023.
In the quarter, we originated $168 million of private education loans.
This was comprised of $33 million of new in school volume and refinance loan origination volume of $135 million.
The decline of the refi volume from the prior year is primarily driven by the higher rate environment and delay and department of education loans entering repayment.
We anticipate quarterly refi origination volume to remain at these lower levels through.
Throughout 2023, as we expect the exploration of the cares act to provide no meaningful impact in the current rate environment.
Continuing to slide seven to review our business processing segment.
Revenue from our traditional Bts services increased 26% from a year ago, partially offsetting the expected wind down of revenue from pandemic related services first.
First quarter revenues totaled $72 million and 97% EBIT margin.
The margin was impacted by startup costs, primarily related to new government services contracts, which reduced the overall margin by 600 basis points.
We expect to see continued fee revenue growth of at least 10% in our traditional services in 2023.
With full year EBIT margins in the high teens as we benefit from the addition of new contracts and efficiency initiatives throughout the year.
Turning to our financing and capital allocation activity that is highlighted on slide eight.
The recent market turmoil emphasizes the importance of strong asset liability and capital management, we ended the quarter with 85% of our education loan portfolio funded to term and reduced our total unsecured debt outstanding by 14% or $1 billion in it.
Additionally, we reduced our share count by 3% through the repurchase of $4 9 million shares.
In total we returned $106 million to shareholders through share repurchases and dividends this quarter, while increasing our adjusted tangible equity ratio to eight 5% from 7% a year ago.
Our 2023 guidance includes the repurchase of $225 million for the remainder of the year.
Turning to GAAP results on slide nine we recorded first quarter GAAP net income of $111 million.
Or <unk> 86 per share compared to $255 million or $1 67 per share from a year ago.
Closing and turning to our outlook for 2023 on slide 10 the.
The adjusted first quarter results of $1 six when the efficiency ratio of 53% and core return on equity of 19% reflect the steps we've taken to simplify the business build capital and provide consistency in the face of a volatile rate environment.
The continued efforts to improve efficiency and success across all of our business lines contributed to the strong quarterly results.
As a result of this quarter's performance and our outlook for the remainder of 2023, we are maintaining our EPS guidance range of $3 15 to $3 30 for the full year.
Our outlook excludes regulatory and restructuring costs and assumes no gains or losses from future loan sales or debt repurchases.
It also includes the impact of provision related to the accounting change for the remainder of the year.
<unk> scenario that is based on the recent forward curve and assumes that we do not see an acceleration of prepayments speeds related to changes in the federal programs.
Thank you for your time and I'll now open the call for questions.
Thank you.
As a reminder to ask a question. Please press star one one on your telephone and wafer your name to be announced.
Withdraw your question. Please press star one again.
Please stand by while we compile the Q&A roster.
Yes.
Our first question comes from the line of Mark Devries with Barclays. Your line is now open.
Yes. Thanks.
You called out.
$15 million of revenue growth from ongoing government healthcare revenues for bps can you talk more about that and also kind of what additional opportunities there are to grow revenue in that segment.
Sure.
We're continuing to see.
A strong pipeline for growth really leveraging some of the service the skills that we've developed over the years and managing on servicing our internal student loan portfolios.
Flying them to different businesses. So we work with clients and governments in both government services transportation and health care.
Each of them are a little bit different but they are really relying on the same kinds of skills.
Data analytics, driven approach to helping customers their clients and customers resolve activity.
So where we see strong growth right now are really in the government services space. We did win a large new contract in that area lash in the fourth quarter. It has been implemented in the first quarter as an example in that correct earnings this period.
But it involves inbound and outbound telephony customer communication and transaction processing related work in health care. We also see similar growth opportunities and there we're working with hospitals, primarily primarily as they manage their end to end.
Patient admittance in revenue cycle management.
Activities.
Okay, Great and are there any remaining pandemic related revenues in that segment.
Expected to run off.
And this quarter there are no pandemic related services.
Okay, great. Thank you.
Thank you.
Our next question comes from the line of John Hecht with Jefferies. Your line is now open.
Thanks, guys.
You gave some.
Good confirmation of the guidance that you provided earlier in the year, but I'm just I'm wondering how do you see given all the kind of moving.
Kind of.
The moving parts with respect to potential government policy changes and this and that and inflation and so forth. How do you see kind of the demand trends for loans ramping up again, the consumer category ramping over the year.
Yeah, So I think.
And we have two different products in that side of the equation and then certainly in our refi loan product.
This is this is a program that allows students who have graduated earn their degree and have.
<unk> demonstrated a track record of successful repayment to refinance their loans at a lower rates. Obviously when interest rates are rising that opportunity is smaller.
And we wouldn't be one we wouldnt encourage borrowers to refinance if they can't get a lower rate, but demand is definitely lower.
Our preparation for 2023 is to be ready when market conditions return and to be able to meet whatever demand comes from that side. Our focus in 2023 has been primarily on the in school side of the equation. Here. This is a market that is demand is driven primarily by.
New students enrolling in school.
And those trends have been more positive enrollment levels were down coming out of Covid, they're now starting to rebound and that gives us the confidence.
To be able to say, we're going to double loan originations in 2023.
Overall, we look at that market is growing about 5% to 6% a year. So clearly if we're doubling volume we expect to be able to.
We're expecting to take market share in this in this arena and we're doing so by an ease of an application process and underwriting program that is.
Leverages, our 40 years of experience.
And both originating and servicing student loans, and really working with customers to explain and help them understand the cost of attendance and how they can minimize their overall borrowing costs.
One of the one of the programs that we we didn't talk about in the prepared remarks, but that we offer is a series of options that help students and families complete the fast.
Apply for scholarships and then compare their overall financial award letters that they get once they are accepted.
And these are the types of things that we think can help elevate our products in the in school marketplace to higher prominence and more value to the customer overall.
Okay. Thanks, very much for that and then a little follow up on Mark's question before in the business processing segment.
It seems like Youre going to have a pretty strong ramp in the EBITDA margin throughout the rest of the year.
The new contracts consistent from a call it from an economic perspective relative to the call.
Call. It maybe some more of the contracts that you've had over the years or are kind of terms, improving where youre going to get a better net margin over time as you scale.
Well I think you get a little bit of both of that but.
This quarter's margin was definitely negatively impacted by the startup cost so just provisioning and.
Does that come with ramping up of large.
Contract, where we hired.
Over 350 people to meet the needs of the client.
And that space and had to provision equipment et cetera to them. So we certainly are expecting those margins to increase significantly.
New contracts as we move through.
2023.
Okay. Thanks very much.
This is.
Thank you.
Our next question comes from the line of <unk>.
<unk> with Citi. Your line is now open.
Thanks, I was wondering if you could just talk a little bit more about the government contracts that you were just referencing what are these specifically related to and with the length in term of these and as this.
New area that youre going into it sounded obviously, you said startup costs I don't know if thats, just new because it's a new contract or if it's kind of a new specific area or entering into.
Yes, so it's not it's not a new area for us we've been providing services.
To various government municipal and state agencies for a number of years now.
And most of these contracts rely on the same types of activities.
<unk>, it's fielding inbound and outbound communications with their clients, it's processing transactional activities.
So obviously no two contracts are identical.
But the services that we're providing are leveraging the same technology platforms. The same telephony platforms the same.
Processing activities that we have done.
And our business processing solutions that are really leveraging our student loan servicing piece.
The startup costs here are just related to the new contract with just just the sheer volume of.
Starting up something.
New with our clients.
Youre pre positioning people technology equipment into the field et cetera, and revenue follows that so it's just a little bit of a timing related issue there.
Okay.
And then in terms of you listed a few one time items in the in.
In the prepared remarks, I don't know if I grabbed on to.
Startup cost the slower amortization, maybe you could just lift.
What those what those are I didn't see them in the in the.
Yes.
Release or the slide.
Slide presentation.
So just to be clear our guidance of $3 15 to $3 30 is based off of the quarterly reported number of $1. Six so that is how we're thinking about the remainder of the year, but in terms of the items that were impacting the quarter that some.
Some analysts had modeled some did not but ill highlight some obviously, we wouldn't have known about the $52 million.
What's included in some of our analysts and some of the street's numbers not related to the accounting update then you had the $23 million related to the bankruptcy protection settlements here that Jack discussed I know a number of balance also did not have the $10 million of self provision.
That I referenced and then Jack referenced the <unk> as it related to the startup costs. So those would have been I would say.
Four significant items that were not either included in everyone's models, where it was at least a mix but are to be clear our guidance of $3 15 to $3 30, it's based off of the $1 six for this quarter.
Great. Thank you.
Okay.
Thank you.
Our next question comes from the line of Moshe Orenbuch with Credit Suisse. Your line is now open.
Great. Thanks, Jack you mentioned that in.
And congratulations.
The consolidation levels have kind of moved down could you talk a little bit about what we're likely to see from the federal programs over the next or what we could see various scenarios over the next couple of months and which of them would.
It would allow that to continue which of them might concept.
Anything that might constitute change.
Sure.
Our crystal ball and predicting.
Legal resolution and then congressional an administrative action, it's a pretty good crystal ball and.
I'm not sure I possess that but.
Look I think the environment here has been one where the focus I think right now from this administration has been on the direct loan portfolio and the forgiveness programs like I looked at the launch there.
Our portfolio is more seasoned therein repayments they are pretty well established at this point in time.
I think we're super proud of the fact that we were able to work with our customers and return them successfully return help them return to repayment.
With lower delinquency rates and default rates and we saw pre pandemic.
Levels.
When when the administration offered up.
Some additional one time programs, particularly on public student loan forgiveness, we did see.
A higher increase in consolidation activity that has.
Effectively stopped right and as I said their consolidation activities now.
Below historical levels and so that's that's really been a positive for us our job and one of our key priorities is to really just maximize the performance of that portfolio that means working with customers to keep them in repayment successfully pay off their loans.
And inform them of different options as they become available, but it's a little hard to know exactly.
What happens next pending a Supreme Court decision.
Fair enough Joe.
Margins broke felt in private.
Two separate questions I guess on that.
There was a kind of a higher level of derivatives activity I guess you probably.
Could you talk a little bit about how that impacted Q1 and any go forward impact.
On the private side, you mentioned kind of better funding spreads, but the most recent securitization deal kind of showed that those those margins have been declining.
Pretty pretty sharply in the Costa.
Borrowing there is roughly equal to the yields.
Can you just talk about those two things.
Yeah, So certainly from the hedging activity perspective, what you don't see in our recent securitization is the benefit we get from hedging against those interest rates, which would.
Would bolster the performance of that individual's securitization by about 100, just under a 140 basis points. So that's something that you don't get to see problem from the reporting that's external so you have to take into account that benefit.
As it relates to the self and private NIM going forward certainly it's been a fairly volatile environment. The last several quarters and we've been consistent in our range and showing.
Higher performance there its just one quarters of results. So we feel very confident that we'll be in that 100 to 110 basis point range as it relates to our first quarter's performance. So we're just not in a position on both south and private where we're going to.
But raise that guidance. It certainly felt feel very good about meeting and potentially exceeding on the private side.
For the private NIM again to your point about just the funding spreads we've continued to see that improve year over year as well as just from the prior quarter. So we're very well positioned to meet and potentially exceed but it's just one quarter in a fairly.
Fluid rate environment of which our latest forward curve would suggest two rate curves in sorry, two rate cuts in the back half of the year. So those are things that we're taking into consideration as we as we didn't update our guidance for this quarter.
Great. Thank you.
Thank you.
Our next question comes from the line of Sanjay <unk> with <unk>. Your line is now open.
Hi, This is actually Steven Kwok filling in for Sanjay. Thanks for taking my question I guess, just a follow up around the NIM question, just like what would need to happen in order to get to the high versus the low end of the guidance how much sensitivity is there prepayment speeds and other factors.
Yes, So I think we're in terms of the prepayment speeds I think youre seeing the benefit from just a slowdown on both.
On both the private and the federal side. So I would say the reverse would be if something were to occur where there is an increase in prepayment speeds or that could impact negatively. The NIM. We're not assuming that occurs is based off of the activity. We're seeing in our in our current forecast for this year's interest rate environment.
Other things that would potentially improve.
Improve our outlook here would just be improved funding.
Oh sure just referenced the ABS market.
Seeing higher credit spreads the normal so any improvement there could be a benefit to us as we look to issue in the ABS market or potentially issue unsecured debt.
To come down at attractive levels.
Got it got it and then just a clarification around what's the ongoing impact from the TD our allowance change.
So for the <unk>.
For the remainder of the year or sorry.
For the next two years, there is $25 million of allowance remaining and a little we are estimating is a little more than half of that will come through and provision release for the next nine months.
And is there anything on the P&L side or is it just on the allowance side.
And that's the impact from the accounting change, it's just on the provision side.
Understood great. Thanks for taking my questions.
Thank you.
Our next question comes from the line of Bill Ryan with Seaport Research Partners. Your line is now open.
Good morning, Thanks for taking my questions.
First question I know you guys are focused on efficiency.
And looking at the.
Federal loan segment, you had a nice drop in expenses could you maybe talk about what drove the reduction in expenses and as the.
$20 million roughly a run rate, we should be thinking about going forward.
So I mean, there's a couple of things bill that go into that I mean, certainly as we've been winding down some of the fee revenue contracts.
We're able to reduce the expenses associated with those those were all planned activities, but in the loan servicing side of the equation the big drivers for us our automation and different.
Techniques that we use to identify what our customer needs and therefore be able to respond to that in some form of highly efficient way. So examples and we have over.
85% of our customers communicating us with us electronically on a monthly basis that that's a way to reduce that postage and print expense.
The other thing that we benefit from is as delinquency rates come down delinquent accounts, our most expensive cost to service.
And so we get a little bit of relief as we see improvements on that side of the equation as well.
And then the last piece I would just mentioned is consolidation activity. So when consolidation activity is happening we incurred transaction costs associated with that so as that volume has come down we benefit from it as well.
Okay, and just one follow up just kind of go into a high level and thinking about into the future. What do you see as your market share potential in the in school channel over call. It a long period of time.
While our aspirations right now is we want to be a top top three lender in the in school origination side of the equation and we don't see any reason why we can't get there.
Okay. Thanks for taking my questions.
Thank you.
Our next question comes from Giuliano Bologna with Compass point. Your line is now open.
Good morning, Thanks for taking my question, one thing I'd be curious about it.
I've touched on it.
Alright.
We have a potential for <unk>.
A recovery in refinance volumes.
Specifically, what I'm curious about is.
The road to profitability.
Actually some upfront provisions.
At relatively low seasonal charges.
I'm curious when you started originating new vintage or ramping up does it become kind of a profitable on an EPS basis within two quarters or three quarters are picking up that timeline.
Sure.
Sure. So I mean, the demand here is really a function of borrowers who have been in repayment.
Successfully been in repayment and their ability to obtain a lower rate. So as interest rates have been rising new federal originations have been private loans are being originated at higher interest rates when we get to a more stable interest rate environment.
You can start to see demand returning in that side of the equation and if we start to see a falling rate environment.
Which is kind of whats forecasted for later in 2023, you can start to see.
An acceleration of demand in that space.
In terms of profitability when you originate alone whether its a refi loan our consumer loan Cecil accounting requires you to book.
100% of the provision that you expect for.
For our life of loan losses day, one so that kurtz.
Profitability in that particular period, and then subsequent quarters are generally profitable from a going forward perspective.
Sure.
Yes.
Somewhat touched on during the call as well, but when you think about that itself and then obviously there are some positive carry on on X when rates move up.
If you think about perfect.
Stabilized.
It should be for the call portfolio once things normalize a bit more rather than here obviously.
Rising rate environment.
Yes, so our current forecast as I said earlier just includes two rate cuts in the back half of the year. So there would be negative pressure associated with that as we've discussed in a rising rate environment the assets themselves reset quicker than the liability. So you get a benefit so you would get some pressure.
Come to fruition in terms of.
A decreasing rate environment in terms of normalized level of uncertainty we've seen over the last two years.
Treatment.
Low ninety's to mid to high <unk>.
110 range and I'm, saying that in somewhere in that range is where we would anticipate in terms of a flat rate environment is closer to 100 basis points, but that's something that and we just haven't seen a flat environment in several quarters here.
That's great. Thank you very much and thanks for answering the question I'll jump back in the queue.
Thank you. Our next question comes from the line of Jeff Adelson with Morgan Stanley . Your line is now open.
Yes, hi, Thanks for taking my question related to the provision expense for the bankruptcy related items this quarter.
Based on what you know today and what are you seeing the portfolio are there any potential items that could come through in the future on this maybe as we get some more bankruptcy related to perform in the future.
Yes.
Well this is less of a political.
Reform issue and more of a an interpretation change thats been happening at some of the court side of the equation and it really impacts.
Loan categories that we inherited at the separation from Sallie Mae they were originated.
A long time ago, we don't originate any loan products in the second in these categories today, they're generally non title for schools and then loan that were dispersed.
Directly to the student rather than through the schools.
The courts have been.
Moving around in terms of different interpretations of what qualifies as discharge a bowl and what doesn't.
This resolution brings a hopefully brings a uniform approach to this to these categories of loans and to the extent that it has an impact in the future for future defaults will be for loans that.
File for bankruptcy from these categories.
In the future that is included in our estimates of our life of loan losses.
Got it helpful and then just.
Just to circle back on the comment that moratorium ends no meaningful benefit to refi volumes I guess, just trying to think through like what rate.
What might you need to see from rates before you do start to see meaningful uptake or maybe something back towards.
Pre tax pre pandemic levels and volumes do.
This backlog.
And you've got disbursements that are coming through at higher rates do we need to see something like the two year dropped below 3% is it more like 2% just trying to think through.
How meaningful the benefit can be if rates do drop.
Well pre.
Pre pandemic volume was certainly benefiting from.
Yeah.
Our pre interest rate increase volume was benefiting from the fact that rates were so low.
Relative to historical loan origination activities today, most of our refinance demand is coming from borrowers that have existing private student loans, and so you're seeing those customers, particularly ones with variable rates looking defined.
Solutions that allow them to lock in a fixed rate program for themselves and capture.
Better terms and conditions.
In terms of getting that volume activity back up to where we're we saw in years past.
We're looking at a fairly significant depletion rates that are.
And measured in percentage points versus basis points.
Thank you.
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Our next question comes from the line of Rick Shane with Jpmorgan. Your line is now open.
Thanks, guys for taking my questions. This morning.
When we adjust for the significant items in the quarter in terms of provision.
We get a quarterly earnings.
<unk> in the low eighties.
Implicitly for the remainder of the year based upon guidance and.
What you earned to date. It suggests a run rate of about 75 cents a quarter at the high end.
Should we think about and again in the context.
GAAP earnings core earnings adjusted core earnings should we think about recurring earnings.
And that sort of 75% to 85% range is that a good place to be center.
And so adjusted core earnings is how we give our guidance and how we have been for several years. So that I think thats the appropriate way to think about it and Rick you're right. If you are just taking that dollar of <unk>.
Versus the $3 15 to $3 30 year in that 70 to high 70% range, depending on the quarter.
To get to that math, so that's an appropriate way to think about it.
We're not again quarter by quarter the items.
Oh, sorry, Jeff go ahead.
No I'd, just say, we're not going to give quarter by quarter guidance, but obviously there is some movement. When you think about the third quarter of in school origination related seasonal accounting works that you are taking larger provisions.
Sure.
On the front end there. So those are things that you have to consider the costs associated within score originations and provisions upfront that you would be taking in the third quarter that you wouldn't see in other quarters. So there is some movement from quarter to quarter, but overall you should be in that range is a decent way to think about it.
Got it that's helpful, Yes, and again.
We understand the rationale for the adjusted core.
But at the same time, just sort of getting that level set.
In terms of.
Again, excluding seasonality.
The recurring earnings power is a helpful way to look at it too so thank you.
Thank you and I'm currently showing no further questions at this time I'd like to hand, the call back over to Jim <unk> for closing remarks.
Thanks, Shannon wed like to thank everyone for joining us on today's call.
Please contact me if you have any other follow up question.
Today's call.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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