Q1 2025 Navient Corp Earnings Call
Good day, and thank you for standing by and welcome to the Navient first quarter 2025 earnings call.
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I turn the conference over to your first speaker today Gen ear, yes.
Speaker Change: Head of Investor Relations. Please go ahead.
Speaker Change: Hello, Good morning, and welcome to Navient earnings call for the first quarter of 2025.
Speaker Change: With me today are David Gillan, Navient, CEO and Joe Fisher Navient CFO after their prepared remarks, we will open up the call for questions.
Speaker Change: A presentation accompanies today's discussion, which you can find on Navient dot com slash investors.
Speaker Change: Before we began 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.
Speaker Change: Actual results in the future may be materially different from those discussed here.
Speaker Change: This could be due to a variety of factors.
Speaker Change: Listeners should refer to the doctors and the discussion of them on the company's Form 10-K, and other filings with the SEC.
Speaker Change: 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 that are derived from core earnings.
Speaker Change: Our GAAP results descriptions of our non-GAAP financial measures and a reconciliation of core earnings to GAAP results can be found in <unk> first quarter 2025 earnings release, which is posted on our website.
Speaker Change: You and I now will turn the call over today.
Speaker Change: Thanks, Jen good morning, everyone. Thank you for joining the call until your interest in Navient.
Speaker Change: This morning, we reported results that reflect strong loan growth and strong performance against most of our key business drivers.
Speaker Change: Joe will take you through the details in a few minutes.
Speaker Change: Let me take a few minutes to step back and ground you in where we came from where.
Speaker Change: We are and where we're headed.
Speaker Change: 2024 was a year of great transformation.
Speaker Change: And then executed on all of the steps, we promised divestitures of our bps businesses.
Speaker Change: Outsourcing of loan servicing at the beginning of deep cost reductions that those moves enabled.
Speaker Change: 2025 is the year, where we will achieve the cost reductions enabled by the steps we took in 2024.
Speaker Change: And focus on how best to deploy our capital to grow our earnings business and return capital to shareholders.
Speaker Change: Our first quarter results have got some residual noise from our actions in 2024.
Speaker Change: As well as demonstrate our capacity to deliver growth and return capital.
Speaker Change: Let me touch on some of the highlights of our performance during the quarter.
Speaker Change: Joe will then provide more information on our business on a continuing basis, excluding the impacts of our strategic actions.
Joe Fisher: First we saw strong loan origination growth and a relatively stable ratings.
Joe Fisher: Our refi loan volume doubled from the same period a year ago.
Joe Fisher: Starting in a 46% increase in originations compared to last.
Joe Fisher: Increasingly borrowers appear to be getting off the refinancing trends as the expectation for loan forgiveness is diminished and other federal student loan repayment related programs.
Joe Fisher: Our growth in originations was also driven by either the improvements we are making overtime and converting prospects into customers was closed loans.
Joe Fisher: The profile of these borrowers is strong roughly.
Joe Fisher: Roughly 55% of this quarter's refi originations for students with graduate degrees and reflect the high credit quality of this targeted core.
Joe Fisher: Second we saw strong improvement in NIM in our <unk> portfolio.
Joe Fisher: Here, the lower levels of prepayment activity.
Joe Fisher: Large part a result of the exploration or elimination of federal loan forgiveness programs created a lower loan premium amortization expense.
Joe Fisher: Third we closed on the sale of our government services business in February.
Joe Fisher: Completing the divestiture of bps.
Joe Fisher: Our operating expenses show that we are tracking well against our ambitious targets to reduce expenses.
Joe Fisher: Altogether, because thats been a bps outsource taking servicing and streamlining of corporate expenses are resulting in dramatic changes in our <unk>.
And employee footprint.
Joe Fisher: During the quarter roughly 1300 employees part of the company. So we the business sale or job eliminations.
Joe Fisher: At the end of the quarter, our employee base with more than 80% lower than at year end 2023.
Joe Fisher: Completing the sales of our bps business gives us greater visibility into the timing of completing our expense reduction objectives.
Joe Fisher: Transition services, we're providing under the outsource servicing and health care business, our transactions are expected to be largely complete.
Joe Fisher: During the second quarter of this year.
Joe Fisher: While we are preparing to eliminate these expenses earlier.
Joe Fisher: The government services TSA expenses could climb through the first quarter of 2026.
Joe Fisher: The reduction of our corporate expenses is ongoing and we're keenly focused on identifying additional areas of efficiency across the enterprise.
Joe Fisher: Provision expense for the quarter reflects the continuation of recent trends in consumer credit in general and for student loans in particular.
Joe Fisher: Some of the same trends that are driving refi loan growth and NIM expansion.
Joe Fisher: Turning to repayment and reduced loan forgiveness.
Joe Fisher: Also influencing repayment behavior.
Joe Fisher: During the quarter.
Joe Fisher: We repurchased $35 million of shares under our existing authority.
Joe Fisher: We said in January that our share repurchase strategy would be more opportunistic and less programmatic and it has been in the past and will continue to be balanced with financing strong growth.
Joe Fisher: Our shares continue to trade during the quarter.
Joe Fisher: At a significant discount to tangible book value.
Joe Fisher: We will continue to balance the opportunity to purchase feature valued at a discount with opportunities to invest in growth.
Our outlook for the year is as always dependent in large part on macroeconomic conditions.
Joe Fisher: The current outlook is exceptionally uncertain.
Joe Fisher: A range of outcomes is wide and even the future direction of certain drivers of our business such as interest rates is fluid.
Joe Fisher: We are continuing to operate our business according to our plan.
Joe Fisher: The financial and operating flexibility to respond to changes in the environment.
Joe Fisher: Date, we have not yet seen any significant change in loan origination volume or felt prepayments during April.
Joe Fisher: We are thus maintaining our full year guidance at this point in time.
Joe Fisher: <unk> is subject to change, especially considering the uncertain macroeconomic environment.
Joe Fisher: In summary, our operating results demonstrate our capacity to deliver strong loan growth generate strong revenues and cash flows from our legacy assets.
Joe Fisher: Lease operating expenses and invest for growth, while also distributing capital to shareholders.
Joe Fisher: I want to acknowledge and thank my colleagues in the organization to deliver these strong results.
Jeff: With that let me turn it over to Jeff.
Speaker Change: And good day, everyone on today's call for your interest in that.
We had a strong start to the year delivering first quarter core earnings per share of <unk> 25.
Speaker Change: Adjusting for regulatory and restructuring expenses, we earned 28 on a core basis.
Speaker Change: Our results for the quarter includes <unk> <unk> of net expense that will be eliminated after completion of our transition services agreement I will provide further context on the results by segment beginning with the federal education loans segment on slide six.
Speaker Change: The net interest margin for the first quarter with 61 basis points.
Speaker Change: 18 basis points higher than the fourth quarter.
Speaker Change: This exceeded the high end of our guided range of 45 to 60 basis points.
Speaker Change: The increase was partially driven by a slowdown in policy driven prepayment activity prepay.
Speaker Change: Prepayments were $256 million in the quarter compared to $1 6 billion a year ago.
Speaker Change: We expect our prepayment activity will remain low in the near term as we are seeing historically low requests for consolidations the direct loan program.
Compared to the prior year are greater than 90 day delinquency rates increased to 10, 2%.
Speaker Change: Charge off rate improved to 10 basis points and forbearance rates decreased to 14, 4%.
Speaker Change: While there has been much discussion about the resumption of federal loan repayments and the curtailment of loan forgiveness options.
Speaker Change: Worth remembering there remain numerous payment options available for borrowers to help manage their payments now, let's turn to our consumer lending segment on slide seven.
Speaker Change: Net interest margin in this segment was 276 basis points in the quarter compared to 277 basis points in the fourth quarter and in the middle of our stated range of 270 to 280 basis points.
Speaker Change: Total originations nearly doubled to $508 million compared.
Speaker Change: Compared to $259 million a year ago.
Speaker Change: This volume is more than triple our originations just two years ago.
Speaker Change: This was a strong start to the year and positions us well to achieve our 2025 origination target of $1 8 billion.
Speaker Change: We are not assuming any changes in federal education loan policy.
Speaker Change: We are well positioned with the capacity products and customer experience to meet any potential expanded opportunities.
Speaker Change: Late stage delinquencies declined from two 7% in the fourth quarter to two 6%.
Speaker Change: Forbearance rates decreased from two 7% to one 8% as borrowers exited the natural disaster forbearance.
Speaker Change: Despite the improvement from last quarter, our delinquency rates are marginally higher than our expectations and reflect the macroeconomic and student lending headwinds Dave mentioned.
Speaker Change: Our allowance for loan loss, excluding expected future recoveries on previously charged off loans, Brian entire education loan portfolio of $753 million, which is highlighted on slide eight.
Speaker Change: 8 million provision for <unk> phones, and the $22 million provision for private education loans.
Speaker Change: Primarily driven by higher than expected delinquency rates.
Speaker Change: Slide nine shows the results from our business processing segment.
Speaker Change: In February we completed the sale of the government services business.
Speaker Change: This sale along with the sale of our healthcare services business last year resulted in over $400 million of net proceeds and represent the divestment of the entirety of Navient business processing segment.
Speaker Change: Under the terms of these agreements we will continue to provide transition services to both bps businesses for a period of time.
Speaker Change: The expenses and revenues from all of our transition services agreements or <unk> are reported in the other segment.
Total core earnings expenses for the quarter were lower by nearly 30% to $130 million.
Speaker Change: These expenses include three items that I want to call out on slide 10.
Speaker Change: First there are $20 million of non continuing expenses offset by $23 million of non continuing revenues related to the final two months of operating government services prior to the close.
Speaker Change: Second there are TSA expenses of $10 million offset by $11 million in TSA revenues.
Speaker Change: Third there are $8 million of expenses incurred during the quarter that will be eliminated upon completion of the GSA.
Speaker Change: Our corporate shared services expenses are nearly 20% lower than a year ago, and we remain highly confident in our ability to meet our overall expense reduction targets.
Speaker Change: Let's turn to our capital allocation and financing activity that is highlighted on slide 11.
In the quarter, we repurchased $2 6 million shares for $35 million, while remaining well capitalized with an adjusted tangible equity ratio of nine 9% compared to eight 4% a year ago.
Speaker Change: In total we returned $51 million to shareholders through share repurchases and dividends.
Speaker Change: Our current cash and capital positions provide ample capacity to repurchase shares when we believe the current discount presents an attractive opportunity.
Speaker Change: The strength of the first quarter results give us confidence in achieving our full year core earnings guidance of $1 to $1 20 per share.
Speaker Change: This range estimate continues to include 26 of net expense on a full year basis that are not part of our continuing operations.
Speaker Change: While we have seen a lot of volatility in the market. Our guidance reflects our current expectation of moderately lower rates in the back half of 2025 and no changes to federal student loan policy.
Speaker Change: As I close I'd like to thank all of our <unk> team members for their continued dedication to generating value for all stakeholders.
Speaker Change: Thank you for your time and I will now open the call for any questions.
Thank you and as a reminder to ask a question you will need to press star one on your telephone and wait for name to be announced to withdraw. Your question. Please press star one again.
Speaker Change: <unk> will compile the Q&A roster.
Speaker Change: One moment for our first question.
Speaker Change: Our first question will come from the line of Bill Ryan from Seaport Research Partners. Your line is open.
Speaker Change: Good morning, David Joe.
Speaker Change: Obviously got a little bit of excitement on Monday, I think that was the first time, we actually saw a proposal to eliminate grad plus as part of the budget budget reconciliation process.
Speaker Change: Could you remind us.
Speaker Change: What percentage of loans in the Grad plus program do you think are under writable by the private sector and how <unk> products may differ from its peers.
Speaker Change: And along the same lines do you think there might be any changes to the direct loan program, which could be impactful to your business as well.
Speaker Change: Okay.
Bill Ryan: Good morning Bill.
Speaker Change: And thanks for the question.
Speaker Change: We talked in the first quarter as you indicated there were some very broad proposals about changes in the federal government generally things like project 2025, and a couple other even broader proposals, but more limited to federal education lending.
Speaker Change: Monday.
Speaker Change: House.
Speaker Change: Workforce education and workforce Committee.
Speaker Change: Published a bill which is designed to meet the budget targets of the house reconciliation efforts.
That bill is.
Speaker Change: It has some is complex.
Speaker Change: Its definitely got some puts and takes.
Speaker Change: On the.
Speaker Change: Changes in the federal education policy, and it's not clear exactly the extent to which dose.
Speaker Change: Changes if enacted.
Speaker Change: Would expand the private loan market. So we're going to have to wait and see there is there are similar there is the elimination of some of the plus programs, but there is some replacement with other federal programs as well so we'll see how those puts and takes.
Speaker Change: Work out.
Speaker Change: Two things that I would say is one is I think we've demonstrated today in our results bags, we don't need an expansion of products to grow.
Speaker Change: We are confident in our ability to grow with the products that we have.
Speaker Change: If you think about the graduate customer in general where are Ernest.
Speaker Change: Distribution network and business model is built for purpose around the graduate cohort that have high loan balances relatively.
Speaker Change: Low and efficient acquisition costs.
Speaker Change: Tend to be distributed on a digital way as opposed to a to a.
Speaker Change: Financial aid officers et cetera. So we're confident that if there is an expansion of the Grad plus program.
Speaker Change: Private lending to them that we can take our fair share of that if that opportunity presents itself I think with respect to broader changes indirect loan.
Speaker Change: Great Businessperson are not public policy expert and we'll have to see how that evolves.
Speaker Change: But again, we're focused on the plan we have this year and are anxious to look at any developments and opportunities that come out of that but I think it's premature at this point based on Mondays.
Speaker Change: Bill.
Bill Ryan: Make any predictions about that.
Bill Ryan: Great. Thanks for that and just one follow up obviously the provision was up both in the <unk> portfolio and private credit.
Bill Ryan: You cited increases in delinquent balances.
Bill Ryan: Maybe if you could provide us a little bit more color on what you actually see going on there is this kind of unrelated to the moral hazard of all of these loans being in deferment for a long period of time.
Bill Ryan: And I presume that the reserve build in private is still concentrated in the private legacy portfolio.
Bill Ryan: Yes, Bill I think there is a couple of things that we thought that we would call out one is.
Bill Ryan: There is a general macroeconomic impact I think that's happening if you look at for example, the <unk>.
Bill Ryan: Disengage of credit card balances, where borrowers are paying minimum balance there I think their highest point in over 10 years, obviously inflation and rising interest rates are creating some pressure on borrowers across the industry and so I think we're seeing that and others are seeing that to varying degrees.
Bill Ryan: With different asset classes.
Bill Ryan: I think student loans in general have gone through a.
Bill Ryan: Unique distinct if not unique experience through the pandemic.
Bill Ryan: So when the federal loan program and many private borrowers like us provided forbearance programs during the.
Bill Ryan: During the pandemic, we saw credit statistics, and delinquencies and charge offs declined rapidly knowing that they would rebound once things normalize do it's taken quite a bit of time for that to happen, particularly on the federal side would be ending a prepayment holiday et cetera.
Bill Ryan: So what we're doing now is looking at our portfolio. We're doing two things that we've always done with respect to our borrowers one we're working with them very proactively to help them repay.
Bill Ryan: That alone we have programs that we've had in place for some time, we can help them do that and secondly from a financial perspective.
Bill Ryan: Responding to what we see in making sure that we've got the right progression against.
Bill Ryan: Okay.
Speaker Change: Thanks for taking my questions.
Bill Ryan: You bet Joe.
Bill Ryan: One moment for our next question.
Speaker Change: Next question will come from the line of Sanjay <unk> from <unk>. Your line is open.
Speaker Change: Thanks, Good morning.
Speaker Change: Had a question on the strategic actions sort of multi multi question here I guess, one is I just wanted to make sure I understand so.
Speaker Change: The expense number that you guys outlined in terms of getting to a pro forma over like what time period should we expect to get to that $204 million of I guess is the intention to get to an earnings power that's closer to sort of where you guys were before all this began somewhere north of $2.
Speaker Change: And then just secondly.
Speaker Change: In terms of the growth initiatives is that.
Speaker Change: Are we certain we're going to go down that path and maybe what kind of expenses should we consider for those growth initiatives.
Sanjay: So thanks for the question Sanjay.
Speaker Change: Okay.
Speaker Change: With the completion of the sale of government services in the first quarter.
Speaker Change: US visibility now in terms of the timing.
Speaker Change: When we can take out the expenses that we first start <unk> back in January of 2024, right and so that was $400 million on a 2023 actual base salaries or target that still is our target.
Speaker Change: We still think thats well within our grasp we're well past the sixth inning.
Speaker Change: Our accounting address in terms of where we are.
Speaker Change: What government services does is it allows us to understand what the remaining services that we're going to provide to the buyer of that business are and those we now think will last.
Speaker Change: As long as 12 months, perhaps shorter or both we and they are motivated to try to and that TSA sooner and so we will work to do that and we're planning and preparing to do that but assume that thats going to be Q1 of 2026.
Speaker Change: And then after we were done providing those TSA services.
Speaker Change: <unk> that we still have but are now stranded theyre not providing services to those businesses anymore, it's going to take us a quarter or two to get those out and so by middle of next year, we would expect to fully run through.
Speaker Change: The $400 million that we articulated in 2023.
Speaker Change: Your other part of your question is the earnings power of the company I think we showed and we did show in January.
Speaker Change: The impact.
Speaker Change: Impact of those savings remember the $400 million was also associated with.
Speaker Change: $285 million worth of <unk>.
Speaker Change: Revenue as well and so the net savings and the net earnings power from what we're doing on a continuing basis.
Speaker Change: There's a little more than a dollar a share at our current share count.
Speaker Change: Additional.
Speaker Change: Earnings will come from growth initiatives from deployment of capital to repurchase shares we talked about sharing more information about our plans.
Speaker Change: Relative to Ernest and growth initiatives in the second half of the year and so I'd ask you to.
Speaker Change: Wait for that we're still on target to do that.
Speaker Change: Then the growth initiatives the key for US I think in earnest is demonstrating that we can grow and maintain operating leverage and so that's why the products.
Speaker Change: Purpose that we built earnest around is this high balance low acquisition cost hike.
Speaker Change: High credit quality digitally distributed customary that we think has some significant operating leverage associated with that.
Speaker Change: Got it thank you.
Speaker Change: Just one quick follow up on that so there were a Dave mentioned $285 million of revenues is actually $285 million of expenses and a little north of $320 million of revenues associated with that and to your point about the expenses that we've identified as the 26 cents that I had mentioned.
Speaker Change: Marks $300 to $1 20 in terms of our EPS range that includes the 26.
Speaker Change: Net expenses that we've identified for removal on Dave's timeline.
Speaker Change: Got it thank you guys.
Speaker Change: We're not.
Speaker Change: We don't think we're done as we are.
Speaker Change: We see the light at the end of that tunnel, we're looking for other opportunities to be more efficient across the enterprise and we'll share our.
Speaker Change: Plans and actions with yours may develop.
Perfect. Thank you so much for reviewing that just one follow up question Joe on the NIM just going forward you mentioned the slowdown in prepayments for the felt NIM like should we then expect.
Speaker Change: The NIM to sort of stabilize here going forward because of that is there more are there more tailwind as prepayments normalize I'm. Just curious if you could give us a little bit of color on the on the NIM progression on a go forward basis, and then just one more on bills Bill second question on the delinquencies going forward guidance.
Speaker Change: Guys feel like you have a good handle on it in the reserve now such that there is no more reserve builds associated with the pressures that youre seeing.
Speaker Change: Thanks, Sanjay so on the NIM certainly pleased that we're on the high end or actually exceeded our range I would say that.
Speaker Change: <unk> basis, the second quarter I would anticipate.
Speaker Change: So we would be again in that high end of the range with the rate cuts that are other moderate expected in the second half of the year as you may remember that does.
Some pressure in terms of the way that the assets reset on a daily basis versus our funding is monthly and quarterly. So there is a bit of a lag there that creates pressure. So all in all I feel very confident in terms of achieving our range, but there are some.
Speaker Change: So puts and takes here in terms of how that will play out through each quarter, but I do feel very good in terms of where we are to start the year and our outlook.
We look for.
Speaker Change: For the remainder of the year as it relates to delinquencies.
Speaker Change: As I noted and Dave noted, we were certainly expecting higher delinquencies in the first quarter just as it related to some of the borrowers exiting the various disaster forbearance programs and that starting to flow through we did see improvement, but it was marginally higher than what.
Speaker Change: Our expectations were so we appropriately took the provision for that so I feel good just based off of where we are but its certainly something we will continue to monitor throughout the year.
Speaker Change: I'll say, one thing I would add on the prepay.
Speaker Change: Prepayments is with the change in the administration I think there is a sort of fundamentally different.
Speaker Change: Dynamic that's going on right in the prior administration there were.
Speaker Change: A series of programs.
Speaker Change: Programs would have various levels of pickup.
Speaker Change: Impact us through consolidation activity fell some of those actions if not most of them are challenged by the court and so it was a kind of a roller coaster period of prepayments spiking in them.
Speaker Change: And then following off rather quickly it was highly unpredictable for us and for you because we couldnt sell what the administration is going to do though they were certainly inclined to look for ways to grant more forgiveness, rather than glass with the change in the administration that it is really a lack of action on forgiveness.
Speaker Change: They have.
Speaker Change: Different philosophy about loan forgiveness, so it's not as if theyre going to.
Speaker Change: At the moment the outlook would be it's not as if theyre going to take action, they're not going to take action and so that provides two things I think can provide a little more visibility.
Speaker Change: For us in terms of what to expect over the next at least.
Speaker Change: Six to nine months.
Speaker Change:
Speaker Change: And.
Speaker Change: And therefore, I think it's just a different dynamic than it was in the prior administration.
Speaker Change: Understood. Thank you so much.
Speaker Change: One moment for our next question.
Speaker Change: Our next question will come from the line of.
Raycom: Raycom from Bank of America. Your line is open.
Speaker Change: Good morning, and thanks for taking my question.
Speaker Change: I wanted to touch on originations for a second I know you're reiterating the $1 $8 billion guide for the year.
I was curious if there's any like changes to your outlook in terms of the timing or the timing of the volumes.
Speaker Change: I think previously you're expecting 10% growth in school and like 40% to 50% and refinance like some back half weighting, but <unk> seems like cadence to be off to a much stronger start so just curious to feel like.
Speaker Change: This is some pull forward youre expecting or just.
Speaker Change: Hi, guys conservatism and overall origination guide.
Speaker Change: And so there is no change in terms of our outlook on the timing. If you go back to our remarks in the fourth quarter, we had sort of a similar view on interest rates, even with all of the volatility I would say that the first quarter certainly it gives us high confidence that we'll be able to achieve that but it's just a little.
Speaker Change: Early at this stage to comment on the second half and certainly one of the bigger drivers of what could create volume beyond what we're projecting is a decline in interest rates and as I said just fairly similar to what we had in the fourth quarter as our guidance. So I don't have any change at this point.
Speaker Change: Okay, That's fair and I think as a follow up to that.
Speaker Change: I guess like.
Speaker Change: It was early because I guess the threshold, where you think there is a good inflection point to those originations for refi is it like a 50 basis points paying or like a 100 or more basis points I'm. Just curious how you guys are thinking about that.
Speaker Change: And so it's a factor of two things certainly one is just the overall interest rates, but also just the general funding environment in terms of how we set our pricing. So certainly a 50 basis point decline both in rates as well as the funding environment would create a significant improvement in our outlook. This year at this.
Speaker Change: Point, though as I said very similar to what we were forecasting in the fourth quarter.
Speaker Change: Okay. That's all for me thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question was offline.
Orenbuch: Orenbuch from Cowen Your line is open.
Orenbuch: Your line is open.
Speaker Change: I'm sorry can you.
Can you hear me now.
Orenbuch: Can hear you Moshe.
Orenbuch: So.
Speaker Change: And following up on that last question could you talk a little bit about the spreads.
Speaker Change: Return on equity of the new business that you're putting on now like what does that look like in the current environment.
Speaker Change: So she is.
Speaker Change: We've talked about before the.
Speaker Change: The economics of that product in that business are.
Speaker Change: There has been by a variety of the all in cost of all the factors of that so that includes cost of acquisition cost credit cost service et cetera, We think this.
Speaker Change: Quarters originations sit nicely and so the portfolio that we have.
Speaker Change: That we've built over time.
Speaker Change: Kind of mid teens Roe.
Speaker Change: At time of course, there is an upfront cost associated with <unk>.
Speaker Change: Booking those loans.
Speaker Change: From a location and cost of acquisition perspective, but these fit nicely into the portfolio. We have we believe.
Speaker Change: Moshe I would just add that securitization that we did in the quarter was in line with our plan. So certainly as we think about just the cost of funds.
Speaker Change: For the first quarter here.
Speaker Change: Certainly meeting our expectations in terms of how we plan for originations on the costs associated with them.
Speaker Change: Got it.
And then maybe just to come back on the Dave on the commentary on share repurchase when you say that opportunistic.
Speaker Change: And then you talk about the the difference between the current price and tangible book like.
Speaker Change: Maybe could you just expand on what opportunistic means is it a certain amount of dollars. If the price is below a certain level or otherwise.
Speaker Change: Just flesh out how you kind of think about that.
Speaker Change: Yes, I think there is.
Speaker Change: It's a little bit of a decision tree for us the first sort of level as we have capital to deploy and we want to we have a choice between investing for growth or returning to shareholders right. In this quarter, we balance that off and managed to both what we've said as recently as.
Speaker Change: January is we will continue to look at that and if there is if we think theres opportunities to invest for growth.
Speaker Change: To create market value greater than the amount that we invested and where.
Speaker Change: We're going to take that money and Thats, what were going to do with that again this quarter. We managed to do both but that's sort of the first level decisions and then the second level of decision is to the extent, we're going to return capital to shareholders.
Speaker Change: The greater the.
Speaker Change: Discount to tangible book value and the market price all other things being equal the more we would buyer then more rapidly woodbine.
Speaker Change: An example of what we mean by opportunistic.
Speaker Change: While our prior practices more programmatic, we'd say here's the amount, we're going to repurchase and we repurchased that I won't say independent of the share price, but not really driven by kind of a plus.
Speaker Change: Okay, great. Thanks very much.
Speaker Change: Okay.
Speaker Change: One moment for our next question.
Speaker Change: Our next question will come from line of Mark Devries from Deutsche Bank. Your line is open.
Speaker Change: Yes, Thanks, I have a couple of follow up questions.
Speaker Change: First is on <unk> last question.
Joe Fisher: Maybe for Joe is there a.
Joe Fisher: When we think about what's available to deploy whether it's growth or returning to capital shall we assume that youre going to manage to.
Joe Fisher: This adjusted tangible equity ratio close to 10% of all dependent on kind of mix of the balance sheet. How should we think about what the governor is there and what that means in terms of capital that's for you to either.
Joe Fisher: Returning to deploy.
Joe Fisher: And it really.
Joe Fisher: It's a good question Mike.
Joe Fisher: To your point it does depend on the mix here. So as we've talked about in the past our in school portfolio typically we hold 10% capital against those loans and we hold closer to 5% against our.
Joe Fisher: <unk> so in terms of the mix there.
Joe Fisher: That's at two <unk>.
Joe Fisher: The 8% has been our long term guided growth in terms or sorry, our guided range.
Joe Fisher: Range, and so I would expect us to be north of 8% going forward.
Joe Fisher: Day, just looking at our EPS targets of where we are.
Joe Fisher: Absent of any obviously large opportunities.
Joe Fisher: That created from a drop in interest rates that would drive volumes and refi or if theres a change in federal policy that drive volumes and in school I would think that it's going to be fairly stable for the remainder of the year, but it is driven by the mix of those two portfolios.
Speaker Change: Okay got it and then just.
Speaker Change: Just to follow up on some of the questions around delinquency trends in reserves.
Speaker Change: Actually it looks to me like reserves, you took down during the quarter. Both on a dollar basis, but also on a ratio basis. It was down 40 basis points.
Speaker Change: The horizon and delinquencies can you just talk about kind of what drove the reduction of the coverage ratio in the quarter.
Speaker Change: You cut off a little bit, but I believe just in terms of the coverage ratios for both portfolios.
Speaker Change: So portfolio relatively stable from quarter to quarter.
Speaker Change: The portfolio ticked down slightly from the previous quarter and Thats more generated just by the mix of loans that we have so.
Speaker Change: We have a lower allowance as it relates to our refi buckets as they're very high credit quality borrowers with a much lower life of loan loss expectation, so as that mix shifts to more refi loans, we would anticipate that coverage ratio to continue to decline.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: One moment our next question.
Speaker Change: Our next question will come from the line of Rick Shane from Jpmorgan. Your line is open.
Rick Shane: Good morning, guys. Thanks for taking my questions.
Speaker Change: Look the consolidation businesses is going well and you guys lay out a strong case, there in terms of credit quality and efficiency.
Rick Shane: At the same time he has been.
Rick Shane: Back in the in school lending business now for over five years market share.
Rick Shane: Still less than 1%.
Rick Shane: And obviously.
Rick Shane: One of the key.
Rick Shane: Initiatives.
Rick Shane: More broadly as to reinvigorate growth.
Speaker Change: I'm curious why you're not leaning in more to that opportunity the volume.
Speaker Change: This quarter almost suggest youre sort of passively in that business I'm curious if there is.
Speaker Change: A window to accelerate the growth, there and whether or not that's something you really want to do.
Rick Shane: Thanks for the question Rick.
Speaker Change: I would.
Speaker Change: I don't think were we don't view ourselves being passive only in that business I think.
Speaker Change: If you think the business model that Ernest has.
Speaker Change: Given.
Speaker Change: Our economics is predicated on.
Speaker Change: This low cost of acquisition high customer balance high credit quality and so it's more of a customer focused rather than a market share focus right. We're not even in some of the markets that the largest incumbent in this spaces and right. We don't do <unk>.
Speaker Change: For profit school lending for example, so we limit ourselves in that way, that's all very purposeful I think we're more.
Speaker Change: More customer focused and making sure that we're.
Speaker Change: We're looking for customers that.
Speaker Change: Our business model is built for and our capabilities are built for and Thats digital distribution.
Speaker Change: It's.
Speaker Change: Higher average balances, which leads us to the young professional and graduate cohort, where I think we compete very effectively against some of the other players.
Speaker Change: Got it okay. Thank you very much.
Speaker Change: Yes.
Speaker Change: Thank you one moment for our next question and as a reminder, Thats star one for questions. Our next question comes from the line of Jeff Adelson from Morgan Stanley. Your line is open.
Jeff Adelson: Hey, good morning, Thanks for taking my questions.
Speaker Change: Dave you've been you've been willing to take a pretty hard look at the business and execute on some strategic actions here I'm just curious.
Speaker Change: If you were to see the government opportunity open up for the in school graduate market would you take a look at some strategic strategic actions for the <unk> business, including a sale potentially or is that one year youre fully happy to lean into and keep within the existing model. Thanks.
Speaker Change: Yes, I think Youre a couple of steps ahead of our thinking we're focus Jeff on executing against the plan we have.
Speaker Change: Today.
Speaker Change: We do intend to share more thinking about the strategic direction of earnest in the second half and so we're continuing to do that work I'm going to ask you to just be patient on that piece.
Speaker Change: Again, we're focused on executing against the plan. We have we do plan on sharing more information with you in the second half of the year.
Speaker Change: Okay. Thanks, that's helpful.
Speaker Change: And just to circle back on <unk> question on the NIM I guess understood on the near term here, where some of the puts and takes with lower rates, but I guess is there a path over the medium term should you guys getting back to this kind of 80 to 100 basis point range for the Falcon anymore or what would it take for that to happen.
Speaker Change: Yes.
Speaker Change: I think.
Speaker Change: Really what would it take us a couple I want to say.
Speaker Change: $25 50 basis points in terms of rate jobs for you to start really picking up that floor income and now while that is occurring.
Speaker Change: You do have the pressure from the resets that I mentioned, but once that once you've hit those levels and then you start to see those.
Speaker Change: Those expectations flatten out that that's what I would consider the environment that you saw in not too long ago, where we were above 80 basis points, where we did have that additional floor income that was contributing to that felt NIM of 80 to 90 plus percent in terms of the NIM. So I think it really does take a couple of cuts to.
Speaker Change: Get there, but also once that has occurred you need the stability of those rates staying there for a period of time.
Speaker Change: Okay, great. Thanks.
Speaker Change: Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Jen for any closing remarks.
Jen: Thanks, Victor and thank you for everybody for joining the call today. Please contact me if you have any follow up questions.
Jen: Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.
Jen: Okay.
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