Q2 2023 Navient Corporation Earnings Call
[music].
Yeah.
Good day, and thank you for standing by.
Welcome to the Navient second quarter 2023 earnings call.
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Thank you Shannon and Hello, Good morning, and welcome to Navient earnings call for the second quarter of 2023 with me today are Dave E. L N Navient CEO and Joe Fisher CFO .
After their prepared remarks, we will open the call up for questions you can view and download presentation slides, including slides you may find useful during this call on Navient dot com slash investors, but before we get you can keep in mind, our discussion will contain predictions expectations forward looking statements and other information.
All of our business, but it's based on management's current expectations 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.
Listeners should refer to the discussion of those factors on the Companys Form 10-K and other filings.
Yeah.
During this conference call, we will refer to non-GAAP financial measures, including core earnings adjustable tangible equity ratio and other various non-GAAP financial measures that are also derived from core earnings.
Our GAAP results and a description of our non-GAAP financial measures can be found in the second quarter of 2023 supplemental earnings disclosure, which is also posted on that.
Yes.
You will find more information about these measures beginning on page 18 of Navient second quarter 2023 earnings release Theres also a full reconciliation of core earnings to GAAP income.
And the disclosure.
Thank you and I will now turn the call over to Dave.
Thanks, Jim.
Everyone.
Thank you for joining the call and for your interest in that.
I want to begin with my new colleagues to Navient.
Open and warm welcome Dave provided me since I assumed this role.
As most of you know about halfway through the second quarter.
Transition from a member of Navient Board of directors to the role of Navient CEO .
It was a little more than 10 weeks under my belt I can share that many of the views I howled about navient as a board member had been reaffirmed.
Namely I found a strong foundation of assets and capabilities and a talented group of people.
I'd also become more familiar with the great work well underway to simplify the business reduce risk and improve efficiency.
These activities remained full steam ahead.
On today's call I plan to spend some time sharing my perspectives on that.
Specifically, where and why I see value in the company today and our future potential.
And I also want to share with you. Some information on the work we are undertaking to deliver more of that value to our shareholders.
As we communicated when I was appointed in May.
And I shared our view that it was the right time to explore and consider change.
As such I'm currently undertaking.
In holistic review of our business with.
With the goal of identifying a range of alternative opportunities to deliver greater value to our shareholders.
The board and I have a sense of urgency around this review.
But also intend to be comprehensive data analysis, and thoughtful about any decisions and actions we may take.
At this early point in this journey, it's too soon to report any observations or sense of direction from that review.
Look forward to keeping you informed as we move through the process.
Turning now to my current views of the business.
Let me start with slide two.
As a quick refresher for those who might be newer to the organization.
Navient is organized around three business segments.
Federal Education loans segment, the consumer lending segment and the business processing segment.
The vast majority of revenue and margin in our federal segment comes from our portfolio loans.
Our consumer lending segments primary source of revenue and margin from our private loan portfolio.
That portfolio consists of two distinct parts.
One includes refi and in school loans originated by Navient in the past several years.
Second consists of season loans.
Majority of which were originated prior to Navient creation in 2014.
And the third business segment, our business processing segment includes businesses that provide a variety of services.
To state local and federal government entities.
As well as revenue cycle management, and other services to health care providers.
Our strategy is underpinned by the four imperatives, you'll see on slide three.
Maximize the cash flows from our loan portfolio.
Enhance the value of our growth businesses.
We maintain a strong balance sheet and distribute excess capital.
And continuously simplify the business and increase efficiency.
While executing these imperatives, we continue to help customers meet their financial needs continuously strengthen our control environment.
And be good citizens in the communities in which we operate.
Now to provide an overview of our golf portfolio.
There are substantial cash flows we project to receive over the next few years.
As a reminder, these are cash flow forecasts after the related secured facilities are paid.
On the right hand side of slide four you will see the key assumptions used to make these projections.
On slide five you'll see the even more substantial cash flows would be project to receive from our current consumer lending private education loan portfolio over the next few years.
To be clear this is a snapshot of the projected cash flows from our existing portfolio.
They do not include additional cash flows from future loan originations.
These are projected on the same basis as stop cash flows.
Loan cash inflows net of secured financing outflows.
We've provided the cash flow projections like those on slides four and five.
Our investor presentation for several years now.
We plan to continue to provide these estimates which will include any new net cash flows from loans, we bring onto our balance sheet each quarter.
In fact slide six to remind you of the refi and in school loan originations over the last several years, along with our target for full year 2023 originations.
As you know the addressable market for refined loans has declined in the current higher rate environment.
The peak in school origination period occurs during the third quarter of the year as students begin their fall semesters.
Cycle unique from those of other consumer finance products.
Let me now turn to slide seven.
At the foundation of these businesses is a mission to support and build the financial futures of our customers.
Helping borrowers manage their loans is an essential part of that.
Customers report being highly satisfied with the simple and clear experience they have with our earnest brand.
In fact, Ernest is routinely recognized as a top student loan lender by sites such as U S News <unk> wallet and has some of the highest ratings in the industry. According to trust pilot reviews.
These accolades are testament to our customer focus team.
Our to support students in their financial journey in other ways as well.
<unk> married by Ernest offers digital tools to a growing number of students to help them identify.
I understand and navigate grants and scholarships.
Slide eight combines the substantial cash flows from our two loan segments and provide some insights into what we are focused on in these portfolios.
As you can see the projections show there are portfolios will produce cash flows just shy of one $5 billion ballpark each of the next five years.
Each of the next years.
We also have a proven record and effectively managing net interest rate funding and the credit elements of these loan portfolios.
Our net interest margin or NIM has been relatively resilient to variations in the interest rate environment.
As one proof point slide nine shows the NIM on the two portfolios since Q4 of 2019.
This period includes a full fed rate cycle from.
From interest rates being cut by the fed at the onset of the pandemic to.
Two interest rate increases at incredible speeds as inflationary pressures emerge during the pandemic recovery period.
Even with a 500 basis point range on the fed funds rate.
NIM on both of these portfolios remained relatively stable.
And in a relatively narrow range.
Slides 10, and 11 shows credit performance as measured by net charge offs.
Our loan loss allowance coverage against these two portfolios over the same four plus year time period.
Starting pre pandemic Q4 2019.
Specifically slide 10 shows our south allowance coverage has remained relatively stable over this period.
As you know the federal government guarantees, 97% or more principal and interest on these loans.
The allowance as a percent of outstanding balances reflects the federal guarantee on all but 3% of principal and interest.
Net charge offs in this portfolio over this period.
Period, which included pandemic forbearance and other bar relief programs.
And low and actually declined.
As borrowers had exited those programs net charge offs have as expected increased.
We attribute this increase to be a catch up of charge offs that would've otherwise occurred during the period of the pandemic.
We expect charge offs levels to return to historical levels.
This catch up cycle runs its course absent changes in macroeconomic variables.
The net charge off trends in the consumer lending portfolio reflect similar dynamics as Phil.
Decreasing charge offs, while pandemic borrower relief programs were in place and.
Increases as expected as borrowers exited the pandemic relief programs.
Loan loss allowance coverage levels here are explained primarily by the changing mix of the portfolio over time.
Our refi loan originations were substantial during the low rate environment.
They represent a significant and growing percent of the total portfolio.
Because of the lower risk profile and demonstrated credit performance.
Allowance held against refi loans is lower than the allowance held against season or in school loans.
This trend has lowered the loan loss allowance as a percent of loans outstanding.
Using the trust performance of Navient sponsored felt backed securities fell ABS you.
You can gain a sense of the prepayments occurring on our portfolio over the same period.
As you can see on slide 12.
There was an increase in prepayment rates during the second half of last year.
This prepayment increase was driven in large part by felt borrowers who consolidated into federal direct loans and the expectation that they might participate in the administration's debt reduction proposals.
You can see the prepayment activity has declined and stabilized in the first half of this year.
Future prepayment levels remained uncertain under the.
Administration recently announced actions and proposals on reducing student debt.
There's been a lot of talk in the news about federal direct student loan payments resuming this fall.
Slide 13 shows that the vast majority of our consumer lending portfolio is in active repayments.
The resumption of student loan payments you hear about it in the news relates to only to loans owned by the U S government.
Not our portfolios.
Within our portfolio as the percentage of borrowers in repayment declined at the outset of the pandemic.
As borrowers entered relief programs that we offered at that time.
For most borrowers those programs ended in the first quarter of 2022.
As a result over 95% of this portfolio is currently and repayments status.
Now for our third business segment.
Slide 14 gives an overview of the broad array of services and diversified customer segments.
Third in our business processing solutions Division.
We serve over 500 government and health care clients and touched tens of millions of people in this business.
Slide 15 shows revenue on our business processing segment over the last three years.
You can see that total revenue rose significantly as.
As we took on a variety of pandemic related services.
And then decreased as those contracts were phased out as the pandemic came to an app.
Normalizing for that revenue you can see that our revenue from traditional that is non pandemic contracts has grown strongly and steadily over this period. Thanks to the good work of the bps team.
In fact, we were recently awarded our largest ever contract in this segment.
And revenues for Mitt and other contracts project revenue growth again this year.
I wanted to take this moment to reiterate our long standing capital allocation framework as you can see on slide 16.
We are committed to a strong balance sheet.
Through which we retain the flexibility to support business growth as well as to respond to unexpected adverse economic environments and.
We are also committed to returning excess capital to shareholders.
Slide 17 provides some additional color on our strategic imperatives.
I've covered many of the items on this page.
There are a couple of additional things I wanted to mention here.
One is how I think about what may be described as the free cash flows from our loan portfolios.
Cash flow projections, we showed on earlier slides.
Before we consider the cash flows from consolidated expenses.
These include unsecured debt expenses and repayments and all operating expenses, such as loan servicing expenses corporate function expenses and taxes among others.
Navient is experienced substantial changes and its business footprint.
For example business processing solutions was created largely through acquisitions.
After Navient began in 2014.
We originated refi loans, starting in 2017 with the acquisition of our earnest subsidiary.
We decided to exit the department of education loan servicing contract and transfer in 2021.
These changes and others represented significant changes and the scale and scope of our business operations.
In conducting the in depth review.
And then focusing on simplicity and efficiency.
We want to ensure that the scale of our operations is aligned appropriately with the scale of our current and future business needs.
In addition, we.
Where appropriate and when possible, we will seek to make our expense base more variable.
Which provides more operating and financial flexibility.
These strategic imperatives around maximizing loan cash flows and simplicity and efficiency are designed to increase the free cash flows that are available to enhance the value of our growth businesses and return capital to shareholders.
We will keep you apprised as we identify with the sense of urgency additional ways to increase these cash flows and as we make decisions on how to best deploy that.
With that I will turn it over to Joe.
You have this quarter's results.
And I look forward to your questions later in the call.
Thank you, Dave and thank you to everyone on today's call for your interest in Navient.
During my prepared remarks, I will review the second quarter results for 2023 and provide updated guidance for the remainder of the year.
First I would like to note that we will no longer be providing the non-GAAP financial measure of adjusted core earnings per share.
Our full year 2023 earnings per share guidance will now include our expectations for regulatory and restructuring expenses.
We believe this will make it easier to follow our reported earnings and provide for greater consistency coverage estimates. In addition, we've made formatting changes to our earnings presentation to the extent information no longer appears in this presentation. We may still find it published in the full range of materials, we provide including the 10-Q.
Turning to results.
Our year to date reported core earnings per share was $1 73 to the second quarter and we are updating our full year guidance to a range of $3 15 to $3 30.
Core earnings per share.
The updated positive guidance now includes expenses of $22 million or <unk> 13.
Related to regulatory and restructuring expense that occurred through the first six months.
Along with our expected ongoing regulatory expense for the rest of 2023.
The second quarter's positive results positioned us well for the remainder of the year with key highlights from the quarter beginning on slide 19, including second quarter GAAP EPS of <unk> 52.
And core EPS of <unk> 70.
Both of which improved $15 million of restructuring expenses, primarily associated with the CEO transition that took place in may.
NIM of 97 basis points.
Private NIM of 297 basis points.
Originations of $197 million.
Business processing revenues of $83 million and overall efficiency ratio of 56% and maintained an adjusted tangible equity ratio of eight 4%, while returning $100 million to shareholders through dividends and repurchases.
I'll provide additional detail by segment, beginning with federal education loans on slide 20.
Yeah.
And the federal Education loans segment, we achieved a net interest margin of 97 basis points compared to 111 basis points a year ago.
The decline from the year ago period was primarily driven by a lower balance of loans eligible to earn floor income.
Compared to the prior year, we saw net charge offs increased to 22 basis points, which is consistent with the first quarter and anticipate that the net charge off rate will decline and fall in a range of 10 to 20 basis points for the full year.
And Craig <unk>.
While credit trends are within our expectations. The slowdown in prepayments that were experiencing is expected to increase the life of the portfolio, which results in an increase in future cash flows along with expected future defaults.
Now, let's turn to our consumer lending segment on slide 21.
Net interest income in the quarter was $143 million and resulted in a net interest margin of 297 basis points, an improvement of 31 basis points compared to the prior year driven largely by our improved funding spreads.
We continue to see a slowdown in prepayment speeds in the overall portfolio as borrowers with fixed interest rates have less of an incentive to refinance in the current rate environment, which is benefiting net interest income.
In the quarter, we originated $197 million of private education loans.
This was comprised of $142 million of refi loan origination volume and $55 million of new in school origination volume.
The decline in refi volume originations from the prior year was primarily driven by the higher rate environment. We.
We anticipate quarterly refi origination volume to remain at these lower levels throughout 2023, as we expect the restart of department of education loan payments. This fall to provide no significant impact in the current rate environment.
As anticipated we are seeing an improvement in credit from the first quarter compared to the first quarter net charge off rates improved to 139% from $1 63%.
Total delinquencies improved to four 4% from $4 five.
Turning to allowance for loan losses and related coverage on slide 22.
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.
At the end of the second quarter, our allowance for loan losses was just over $1 1 billion for our entire education loan portfolio.
While credit metrics are improving we remain cautious in our outlook as borrowers with over $1 five trillion in education loan balances that are not on our balance sheet, but held by the U S government will be required to start making payments for the first time since March of 2020.
While the portfolio was primarily amortizing, we reserved an additional $5 million for felt loans related largely to a projected extension in the life of the portfolio and $6 million for private education loans of which $4 million was related to new origination volume.
Let's continue to slide 23 to review our business processing segment.
Revenue from our Bts services increased $11 million from the first quarter to $83 million.
The EBIT margin increased to 10% from 7% and we expect it to be in the high teens for the second half of the year as we benefit from ongoing efficiency initiatives.
We expect to see revenue of at least $310 million for the full year 2023, primarily driven by the addition of new government services contracts.
Send to our capital allocation and financing activity that is highlighted on slide 24.
We continue to maintain strong asset liability and capital management with 84% of our education loan portfolio funded to term during.
During the quarter, we issued $500 million of unsecured debt and $718 million of asset backed securities our.
Our adjusted tangible equity ratio of eight 4% is in line with our targeted range of 8% to 9% and up from seven 5% a year ago.
In the quarter, we reduced our share count by 4% to the repurchase of $4 9 million shares.
<unk> total, we returned $100 million to shareholders through share repurchases and dividends.
Our 2023 EPS guidance includes a further reduction in share count from the projected share repurchases of $145 million for the remainder of the year.
Turning to operating expenses on slide 25.
The continued efforts to improve efficiency and success across all of our business lines contributed to the strong quarterly results.
The increases in consumer lending expenses were primarily related to marketing for the upcoming peak in school origination season.
We saw a 28% decline in expenses in the federal education segment due to lower transition services and a 17% decline in the overall portfolio.
We achieved an efficiency ratio of 56% in the quarter, which is consistent with our full year guidance of $55 to 58%.
In closing the second quarter's core earning results of seven reflect the steps we have taken to simplify the business maintained strong capital levels and provide consistency in the face of a volatile rate environment.
Our updated core EPS guidance range of $3 15 to $3 30 for the full year, which includes all regulatory restructuring costs incurred to date as a result of this quarter's strong performance and our outlook for the remainder of 2023.
Our outlook assumes a rate scenario that is based on the recent forward curve and that we do not see an acceleration of prepayment speeds related to changes in the federal student loan programs.
As we continue to conduct the in depth reviews that Dave mentioned in his remarks I'd like to thank team Navient for the continued dedication and commitment to increasing value for all stakeholders.
Thank you for your time and I'll now open the call for questions.
Thank you.
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To withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.
Our first question comes from the line of Bill Ryan with Seaport Research Partners. Your line is now open.
Good morning, Thanks for taking my questions and welcome Dave.
So I appreciate youre, not yet ready to kind of discuss the individual lines of business in <unk>.
What you may be emphasizing a little bit more maybe deemphasizing some other areas, but and you talked about cash flows and commitment to capital returns.
One of the questions I had was about EPS, it's been fairly stable the last several years.
As part of the initiatives that you are looking at doing could we expect maybe some directional change maybe in the EPS.
So I think next year, you're going to be hitting a revenue inflection point.
Where the recurring businesses are growing faster than the runoff that obviously is a question about how you are looking at the EPS side of the equation. Thanks.
Sure. So thanks, Bill I'll take that one just in terms of guidance and obviously, we're not yet providing 2020 for guidance here, but as we think of the bps business long term historically, we've thought of those non pandemic related services that business growing at about 10% a year in terms of <unk>.
<unk> growth that's certainly the target that we look to achieve from a growth perspective, we are far exceeding that so far throughout this year, but with that 10% growth. We're also focused on high teens margins. So.
How I would think about next year for 2024 is that we'll continue to look to target that 10% at at that high teens EBITDA margin levels and then you can translate that to your EPS assumptions.
Okay and one quick follow up if you could talk maybe a little about the competitive landscape here in school originations, obviously your kind of early on in the peak origination quarter.
If you could talk about how navigator product offering is being received in the marketplace and do you still expect originations to roughly double this year.
So nice to meet you Bill Thanks for your question.
So if we feel.
It's too early in the season to make a call on loan originations as I'm sure you know where third quarter being the peak season, we feel really good about.
Products that we're offering through the <unk> subsidiary, we're focused on being very disciplined about the margins and the returns that we hope to achieve on that.
We'll certainly be ready to give you a more robust update in the third quarter on volumes, but.
Too soon to call, but we feel really good about the products, we're offering in the distribution channels that we have.
Team that Ernest is very focused on providing our customers with a simple experience.
That has gotten some great reviews from us so.
I think it's wait and see on in school for this year, it's a little too.
It's too early to make a call on that.
Okay. Thanks for taking my questions.
You bet.
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 questions and Dave welcome and congratulations on the new role.
Just maybe to start on the comment that Joe made on.
Not expect any meaningful benefit to refi volumes.
Food and loan repayments that going later this year.
Another big lender in this space has been making some noise in saying that there is a ramp coming in there pitching that borrowers are going to be refining into these longer term loans as they look to lower their monthly payment I'm. Just curious is this something that youre not expecting or expecting or are there any differences in your approach to the market.
That are more idiosyncratic that we should be aware of.
So thanks for the welcome Jeff and Thanks for the question look I think we as.
Joe indicated in his remarks, our experience in all of our insight into the market is that it is very much a rate driven market and given.
The fact that contract rates aren't declining, but the fed may increase them and at least one more time here.
We don't see the addressable market, increasing significantly because of payment pause.
So that's our view of it we are absolutely open for business.
Ernest has.
Again demonstrated a capacity.
To.
Market those loans effectively at scale, we've got the operational and financial.
Flexibility, if theres more demand, but youll see in our loan forecast that.
It was included in the slides that I spoke to we have not increased that for the full year.
So wait and see.
We're open for business, but we don't see.
A significant increase in that.
That addressable market until and unless rates began to decline.
Got it that's helpful and.
Just one other question for me on the NIM outlook, just wondering on the sofa transition away from <unk>.
LIBOR or are there any impacts we should be thinking about in your.
Asset liability management, and how to think about the trajectory of impacts from here as rates change versus what was happening under the oil construct.
So that was actually baking into our original guidance that we have provided so I don't have any changes to the guidance at this point and we have.
Obviously changed our systems implemented the change from my part so far to sofa and things are going smoothly at this point.
Okay got it thanks, that's all for me.
Thank you.
Our next question comes from the line of Rick Shane with J P. Morgan. Your line is now open.
Thanks for taking my questions. This morning.
We really appreciate the additional slides and.
Any change to the way you guys are providing guidance is helpful.
Wanted to talk a little bit about the consumer lending segment in private student lending.
Two things first when we look at slide five.
I'm assuming that.
Growth.
<unk> cash flows over the next three years is just a reflection of.
In school loans going to repayment and Thats why we see the spike in 'twenty six and then it start to.
Sort of Teekay as you would expect with the prepayment speed.
So actually there are no originations projected in those cash flow slides. So that you do not get the benefit of the future originations. It's actually a total nonsense at 631 the portfolio out but it is a good call out in terms of the increase that actually has to do with certain financings that are taking place in those outer years.
As you know Rick we have various repurchase facilities that we use to fund.
Existing trust and borrow against that over Collateralization. So what this reflects is calling those trusts at that time and refinancing them into more traditional securitizations after paying down that debt. So it is an increase but it has to do with the fine the way, we finance today versus new originations.
Joe. Thank you that's really helpful. David I apologize welcome.
Wanted to ask you a question related to this segment as well as you're conducting or your strategic review.
If you were to go out and create a bank today. It would look very different than the way you created a bank, even a decade or two decades ago. As you think about re entering the private student lending market and growing market share there.
What do you see strategically that you will do different than perhaps the way the business was done.
A decade ago was it about chasing.
Preferred lenders lists or is it more about.
Direct marketing and online how does that business evolve if you could create it.
2023.
So thanks for the welcome Rick.
Thanks for the feedback on the slides we appreciate that.
Trying to provide information thats clear and helpful to you.
Look I think in consumer lending you can look and see what we do today and particularly what we've done with <unk>, which is designed to provide.
And experience for our customers upfront that is.
Largely if not exclusively digital.
A simple experience.
As you know many financial products, if you think about the.
Marketing funnel for those yet you lose a lot of people when they first engaged because they need to provide information that is not readily available and so its about simplicity at point of sale that I think we have.
Focused on we don't it's clear we don't need to be a bank in order to be simple point of sale.
<unk>.
In terms of our.
Financial structure, obviously, we feel like we have.
A lot of capacity cost effective sources of capital to.
To finance our loans, there's a history of navient managing through a wide variety of <unk>.
Markets scenarios and environments.
Team here is.
As a former treasurer I can tell you the key areas really get it.
Finding capital in a really cost effective way to and managing the interest rates and other elements of.
Other financial risks associated with these loans.
It's.
It's about simplicity at the point of sale offering.
Innovations in products, whether it's rate driven payment resin et cetera.
Having a.
Our strong financial capacity to support that business model, we feel like we have those today.
We'll be looking for ways across all of our businesses.
Do better, but we feel good about the foundation of assets and capabilities that we have today that allow us to compete effectively.
Terrific. Thank you.
We look forward to hearing what's next.
Okay. Thanks, Thank you.
Reminder, to ask a question at this time, Please press star one one Oriental stone telephone.
Our next question comes from the line of Sanjay <unk> with <unk>. Your line is now open.
Okay.
Welcome Dave.
Maybe you could just elaborate a little bit more on the review you're undertaking I know you mentioned you are in the process and you touched a little bit upon it before but I was also just hoping you could elaborate on the philosophy that you might apply versus what was the case before obviously you were on the board as well. So maybe you could just give us a little bit of a lay of land in terms of how we should think.
About this on a go forward basis.
Thanks Sanjay.
So the question I think I'd call you to the.
The imperatives that we put on the page those are the four things that I'm focused on and I think to your.
I suggest to your point those four things are not new.
They are focusing on our maximizing our cash flows and enhancing the value of growth.
Being more simple and more efficient.
And distributing capital to shareholders, while retaining a strong balance sheet growth.
What.
Any change in leadership does is when you look at things with a different lens and perhaps.
Wider aperture than we've had before that's how I would sort of characterize.
I'm thinking about looking at those four imperatives I think those are the right four imperatives for the company I don't see those changing as we think about this but I think any new leader looks at in my experience.
You have a different lens and so you look at things in a different way.
Yes.
Im charge with the board and what I would describe it as having a wider aperture to think about so.
So nothing is off the table.
I'm not here to put anything on the table because it's too soon to do that.
I talked a little bit at the end on.
But some of my thinking here. This is a company that as I am.
Undergone some pretty significant changes in its footprint.
Whether it's the acquisition of <unk>.
<unk> processing segment.
Beginning some would say resumption if you go back to the Sallie Mae days.
Being a loan originator.
And.
Our decision to exit the Ed servicing contract that as you can imagine that significantly changed.
The scope and scale of our loan servicing operations inside I talked about making sure that the scale of our.
Business in our operations is aligned with the scale.
Of our current and future business needs.
Also talked about trying to variable is expenses I think thats.
Critical whether youre growing or whether it's in some parts of our business like sell.
Revenue is declining and here the company has a record of doing that.
Sold.
Our servicing platform a couple of years ago, and effectively converted that fixed expense into.
Pay by the drink expense I think that's a good example of what we've done historically and we're going to look for more opportunities to do things like that.
Got it and I guess, along those same lines that CFPB litigation is still sort of looming out there I'm, just curious sort of where we're at.
How amenable you might be to that.
But different.
Outcome in some ways in terms of the process.
Update us on that as well.
Yes, sure so as you know.
Both parties.
Motions for summary judgment in May of 2020.
Those motions have been breached.
No trial or hearing date.
Has been set.
For those motions.
We feel.
Really confident about the strength of our case.
But having said that I think we are.
Certainly open and wed like to find a solution that's acceptable to all parties.
That would put the matter behind us.
Okay great.
Alright, thank you.
Okay.
Thank you.
As a reminder to ask a question at this time. Please press star one one Orient headstones telephones.
Our next question comes from Courtney Baughman with Barclays. Your line is now open.
Hi, Thanks for the question and welcome David just a really quick one from me most of my questions have already been answered.
I apologize if I missed but is there any change to the way that you all are thinking about bond repurchases or liability management exercises in the in the course of operations here.
Now there is no change Courtney.
From our perspective, we're in a very good position in terms of our upcoming maturities. We have $1 3 billion of cash on hand, we have the future cash flows coming over the next several quarters that we.
<unk> described in our presentation as well as $1 4 billion of unencumbered loans and another just over $5 billion of OCC that we have the ability to borrow against so we feel.
In a very good position here to address the upcoming maturities and as Ive spoken with you before if there's opportunities to get those bonds at a discount we certainly evaluate that but there just hasn't been as many opportunities recently.
Understood. Thank you.
Thank you.
Thank you.
Our next question is a follow up from Bill Ryan with Seaport Research Partners. Your line is now open.
Thanks.
Quick follow up.
Theres been some proposals made on changes to <unk> and debt forgiveness.
What's the process by which those changes would be implemented.
Like what kind of timeframe and second do you see any potential impact on your portfolios from this changes specifically in the federal loan segment.
Sure Bill so the way I think about just the various programs that have been announced and programs that have been announced over the years here is that there are over 56 different repayment options available to federal student loan borrowers today. So there are <unk>.
Ways to reduce the payments to have forgiveness and I view this as another option Thats again more attractive. So we saw obviously prepayments increase a year ago.
With the or actually less than a year ago with just the announcements surrounding debt forgiveness, while we would anticipate some level of prepayment activity with another program.
At this point, it's just too early to gauge what that would look like.
I've said in the past there has been significant opportunities over the years, whether it's interest rate reductions debt forgiveness various IPR programs.
Got it very well seasoned <unk> portfolio at this time, so with each introduction has been less and less of an impact.
Okay and then.
What kind of timeframe are we thinking about if they get implemented assays will be a year from now or so.
Yes, I think thats, a tough one to tell but I think your timeframe is the right way to think about it okay. Thank you.
Welcome.
Thank you.
Our next question comes from the line of Giuliano Bologna with Compass point. Your line is now open.
Good morning, Thanks for taking my questions and congratulations on the new role.
One question would be curious about and this might be a little bit of a follow up to what bill was just touching on I'd be curious if you can provide a sense of what percentage of your book is enrolled in IV our funds currently.
It is a way to think about how that could flow through to some of the newer aircraft.
Given these programs related RDR funds.
Yes, so in terms of ABR programs today as a percent of the overall portfolio its about 35% of borrowers and 45% of balances.
Very helpful.
Then.
Realize a lot of these questions have been asked in many different forms.
I'm curious when you think about the opportunities in the review process.
Do you think there is a greater emphasis on the figure out ways to optimize the cost structure or or on the other side is there a greater focus on trying to figure out new growth verticals for the different businesses or is it on.
All inclusive just trying to get a sense of if you think there is.
Our enhanced focus on growth versus cost cutting or vice versa.
Yes, I think so thanks for the question.
Again, I think at this point it's.
It's a very broad aperture that we have and so it definitely includes an under simplicity and efficiency.
That includes becoming more efficient from looking at operating expenses looking at the scale and scope of our operations really carefully as I've indicated finding ways.
Variable is as many expenses as we can but it also includes enhancing the value of our growth businesses and if that requires the idea behind trying to increase the free cash flows from our portfolios is it gives us greater flexibility and greater capacity to invest in <unk>.
Good businesses and or and returned capital to shareholders. Our first step is to undertake and see if we can increase those free cash flows and then as we're able to do that we'll share with you how we're going to deploy that.
At this point it's.
It's too soon to make a call on one versus the other I think at this point.
So it sounds like maybe one quick follow up on that thread you obviously.
And with a great funding structure capital when cash flow I'd be curious if you consider looking at M&A for <unk>.
Manufacturing platforms or if you think you have to kind of asset growth platforms internally now or can obviously build them internally.
Hi.
I guess I'd say two things I'd say.
Everything's on the table, but I would say that I think we feel.
Really good and confident about the capabilities we have to originate.
Private education finance loans, I think the earn as demonstrated particularly in the low rate environment.
And ability to.
Originates.
Refi loans education finance loans at scale.
Way that.
Please customers and in a way that is.
We feel really good returns for our shareholders.
So I think we've got that.
Platform I think has we think has more capacity in it.
So I think we feel pretty good about where we are I wouldn't take anything off the table, but I do feel pretty comfortable with our ability to.
At scale originate private education loans at the moment.
That's great. Thank you so much for taking my questions.
Jump back in the queue.
Alright. Thanks, guys. Thank you I would now like to hand, the conference back over to Jim <unk> for closing remarks.
Thank you Shannon wed like to thank everyone for joining us on today's call.
Please contact me if you have any follow up questions. This concludes today's call.
This concludes today's conference call. Thank you for participating you may now disconnect.
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