Q3 2025 Navient Corp Earnings Call
Let's call this call is being recorded.
Currently all participants are in a listen only mode. Following their remarks, we will conduct a question and answer session instructions will be provided at that time.
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At this time I will now turn the call over to Jenn areas.
<unk> head of Investor Relations. Please go ahead.
Hello, Good morning, and welcome to Navient earnings call for the third quarter of 2025.
With me today are David Gillan, Navient, CEO and Joe Fisher CFO. After their prepared remarks, we will open up the call for question.
Speaker #1: Please stand by. Your program is about to begin. Good morning and welcome to the Navient Third Quarter 2025 Earnings Conference Call.
Today's discussion is accompanied by a presentation, which you can find on <unk> dot com slash investors.
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.
Speaker #1: This call is being recorded . Currently , all participants are in a listen only mode . Following the remarks , we will conduct a question and answer session .
Actual results in the future may be materially different from those discussed here this could be due to a variety of factors.
Speaker #1: Instructions will be provided at that time . If anyone should require assistance during the call , please press the star key followed by zero on your telephone keypad .
The nurse should refer to the discussion of those factors on the Companys Form 10-K, and other filings with the SEC.
During this conference call, we will refer to non-GAAP financial measures, including core earnings adjusted tangible equity ratio and various other non-GAAP financial measures that are derived from core earnings.
Speaker #1: At this time, I will now turn the call over to Jen Earyes, Navient Head of Investor Relations. Please go ahead.
Speaker #2: Hello . Good morning and welcome to Navient earnings call for the third quarter of 2025 . With me today are David Yowan Navient , CEO and Joe Fisher Navient , CFO .
Our GAAP results descriptions of our non-GAAP financial measures and a reconciliation of core earnings to GAAP results can be found in <unk> third quarter 2025 earnings release, which is posted on our website.
Speaker #2: After the prepared remarks , we will open up the call for questions . Today's discussion is accompanied by a presentation which you can find on Navient investors .
And now I will turn the call over to Dave.
Thanks, Jim Good morning, everyone.
Speaker #2: Before we begin, please keep in mind that our discussion will contain predictions, expectations, forward-looking statements, and other information about our business.
Thank you for joining the call and for your interest in Navient.
This morning, we reported results that highlight our ability to drive high quality loan growth and reduce operating expenses.
Speaker #2: That is 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.
Our expected life of loan cash flows increased substantially as our legacy loan portfolio experienced lower prepayments speeds.
Speaker #2: This could be due to a variety of factors . Listeners should refer to the discussion of those factors on the company's form 10-K and other filings with the SEC .
We also updated default rate financing unsecured debt service assumptions.
Regulatory and restructuring charges.
Speaker #2: 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 .
Adjusting for these assumption changes and charges core EPS was <unk> 29 for the quarter.
A summary of the significant items can be found on slide two.
Speaker #2: Our GAAP results , description of our non-GAAP financial measures , and a reconciliation of core earnings to GAAP results can be found in Navient third quarter 2020 earnings release , which is posted on our website .
We're also announcing a new share repurchase authorization of $100 million.
This authorization provides additional capacity and flexibility to purchase future value added discount.
Speaker #2: Thank you . And now I will turn the call over to Dave . Thanks , Jen .
Turning to our engine for future growth for the third straight quarter, Ernest doubled origination volume year over year.
Speaker #3: Good morning everyone . Thank you for joining the call and for your interest in Navient . This morning . We reported results that highlight our ability to drive high quality loan growth and reduce operating expenses .
Totaling approximately $800 million in new loans.
This included $528 million in refi loans, our highest quarterly volume this year.
Speaker #3: Our cash flow increased substantially as our legacy loan portfolios experienced lower prepayment speeds . We also updated default rate financing and secured debt service assumptions and incurred regulatory and restructuring charges .
Company by credit quality, there is among the strongest in our refi history.
In school lending also saw a record peak season with $260 million originated also the highest quarterly volume in our history.
Our strong performance across both product lines demonstrates our ability to attract high quality high balanced customers. Many of them graduate students by offering products and a customer experience that meets their needs and exceed their expectations.
Speaker #3: Adjusting for these assumption changes and charges, core EPS was $0.29 for the quarter. A summary of these significant items can be found on slide two.
Speaker #3: We're also announcing a new share repurchase authorization this authorization provides additional capacity and flexibility to account . Turning to our engine for future growth .
Ernest refinance business helps high earning early professionals move from managing debt to building wells with.
Speaker #3: For the third straight quarter , Ernest doubled origination volume year over year , totaling approximately $800 million in new loans . This included 528 million in refi loans .
We focus on customers with prime to Super Prime credit.
Most earning over six figures and about half holding graduate degrees.
We succeed with this segment through a streamlined transparent application process.
Speaker #3: Our highest quarterly volume this year was accompanied by credit quality that is among the strongest in our refinancing history. School lending also saw a record peak season with $260 million originated.
Honest underwriting personalized pricing and in in House U S based client happiness team with industry, leading trust pilot scores.
Borrowers can select up from up to 240 term and rate combination.
Speaker #3: Also the highest quarterly volume in our history . Our strong performance across both product lines demonstrates our ability to attract high quality , high balanced customers , many of them graduate students by offering products and a customer experience that meets their needs .
Making ours one of the most flexible refinance products in the market.
Data driven marketing at a mobile optimized process allow us to efficiently attract and serve financially sophisticated borrowers.
Our scalable platform supports higher volumes and additional products.
Speaker #3: Ernest refinanced business helps high earning early professionals move from managing debt to building wealth . We focus on customers with Prime and Super prime credit .
We're proud of our momentum excited about future growth, especially with the backdrop of potential fed rate reductions and expanded product and market opportunities.
Speaker #3: Most earning over six figures and about half holding graduate degrees . We succeed with this segment through a streamlined , transparent application process .
Turning to our ongoing effort to aggressively reduce expenses. We're pleased to report that we will exceed our ambitious expense reduction targets ahead of schedule.
Speaker #3: Advanced underwriting , personalized pricing , and an in-house US based client . Happiness team with industry leading Trustpilot scores up from up to 240 .
You'll recall that less than two years ago.
Sure the ambitious goals related to our strategic initiatives.
Speaker #3: Term and rate combination . Making ours one of the most flexible refinance products in the market . Data driven marketing and a mobile optimized process allow us to efficiently attract and serv financially sophisticated borrowers .
Outsource loan servicing diverse bps, and reshape our infrastructure and corporate footprint.
The removal of a large amount of infrastructure and corporate expenses was dependent on the successful completion of the first two objectives.
We have now completed our final obligations under the last transition services agreement.
Speaker #3: Our scalable platform supports higher volumes and additional products . We're proud of our momentum , excited about future growth , especially with the backdrop of potential fed rate reductions and expanded product and market opportunities .
The final milestone in our phase one transformation.
This is earlier than both our original timing and the timing and we shared last quarter.
Navient has done a phenomenal job to accomplish this feat.
Speaker #3: Turning to our ongoing efforts to aggressively reduce expenses . We're pleased to report that we will exceed our ambitious expense reduction targets ahead of schedule .
Completing our obligations under the final TSA allows us to accelerate the removal of final expenses that were previously identified for removal.
Speaker #3: You'll recall that less than two years ago , we shared the ambitious goals related to our strategic initiatives outsourced loan servicing , divest and reshape our infrastructure and corporate footprint .
These expenses include $14 million in the third quarter that were supporting the TSA as well as additional expenses that cannot be eliminated until all TSA obligations were complete.
All of which will further reduce our corporate footprint.
Speaker #3: The removal of a large amount of infrastructure and corporate expenses was dependent on the successful completion of the first two objectives . We have now completed our final obligations under the last transition Services Agreement .
These expense removals are already underway and are expected to be completed in the first few months of 2026.
Once complete.
We exceeded our initial goal of 400 million run rate expense reduction target set in January 2024.
Speaker #3: The final
We're now on track to remove over 90% of this expense reduction target by the end of 2025.
Let me now turn to the cash flows we expect to harvest from our legacy loan portfolios.
As you know a significant portion of our portfolio is comprised of cell and private loans originated over a decade or more ago.
Our portfolios have generally been experiencing lower levels of prepayments over the last few quarters.
Jen Earyes: Quarter that we're supporting the TSA, as well as additional expenses that could not be eliminated until all TSA obligations were complete, all of which will further reduce our corporate footprint. These expense removals are already underway and are expected to be completed in the first few months of 2026. Once complete, we will have exceeded our initial goal of the $400 million run-rate expense reduction target set in January 2024. We're now on track to remove over 90% of this expense reduction target by the end of 2025. Let me now turn to the cash flows we expect to harvest from our legacy loan portfolios. As you know, a significant portion of our portfolio is comprised of FFELP and private loans originated over a decade or more ago. Our portfolios have generally been experiencing lower levels of prepayments over the last few quarters.
Our ongoing process of reviewing portfolio performance was supplemented by our phase two review.
The trends we are seeing are incorporated into our life of loan cash flow assumptions.
Trends are largely driven by changes in public policy and customer repayment behavior.
The result is the increase in projected life of loan cash flows by approximately $195 million.
All other factors held constant.
To this quarter's assumption changes had a significant impact on expected future cash levels.
First we lowered prepayment rate assumptions, reflecting changes in public policy under the current administration.
Which is not proposed nor encourage federal and felt loan forgiveness programs.
As a result of these changes alone expected future cash flows increased by approximately $280 million across all of our outstanding loan portfolios.
Jen Earyes: Our ongoing process of reviewing portfolio performance was supplemented by our phase two review. The trends we are seeing have been incorporated into our lifelong cash flow assumptions. The trends are largely driven by changes in public policy and customer repayment behavior. The result is the increase of projected lifelong cash flows by approximately $195 million, all other factors held constant. Two of this quarter's assumptions changes had a significant impact on expected future cash flows. First, we lowered prepayment rate assumptions reflecting changes in public policy under the current administration, which has not proposed nor encouraged federal and FFELP loan forgiveness programs. As a result of these changes alone, expected future cash flows increased by approximately $280 million across all of our outstanding loan portfolios. All of these future expected cash flows, no part of them is reflected in Q3 results.
All of these future expected cash flows.
Part of them is reflected in Q3 results.
Secondly, we've revised default and post default recovery assumptions across all previously originated loans fees.
These updates reflect slower portfolio amortization.
Continuation of recent credit trends in customer repayment.
Recent recovery trends on defaulted loans.
As a result expected net LIFO loan charge offs increased by $151 million.
Unlike the increase in expected cash flows from slower prepayment speeds all of these reductions and future cash flows are reflected as provision expense in Q3 results.
In addition, we updated certain financing and securitized debt service assumptions.
Net effect of these changes was to increase expected life of loan cash flows by $66 million.
Collectively this set of changes increased life of loan cash flows by $195 million.
As we do each quarter life of loan cash flow projections were updated for actual loan repayments and originations and benchmark interest rate assumptions among other factors.
Jen Earyes: Secondly, we've revised default and post-default recovery assumptions across all previously originated loans. These updates reflect slower portfolio amortization, continuation of recent credit trends in customer repayment, and recent recovery trends on defaulted loans. As a result, expected net lifelong charge-offs increased by $151 million. Unlike the increase in expected cash flows from slower prepayment speeds, all of these reductions in future cash flows are reflected as provision expense in Q3 results. In addition, we updated certain financing and securitized debt service assumptions. The net effect of these changes was to increase expected lifelong cash flows by $66 million. Collectively, this set of changes increased lifelong cash flows by $195 million. As we do each quarter, lifelong cash flow projections were updated for actual loan repayments, new originations, and benchmark interest rate assumptions, among other factors.
Given our strong origination volume this quarter. These updated volumes further increase expected life of loan cash flows.
The increase in expected life of loan cash flows from these updated assumptions and the actual results provide additional fuel for the growth strategy, we have been working on.
In addition, we recently completed our fourth term ABS financing of the year backed by refi loan collateral.
We continue to experience strong investor demand for these securities.
We are achieving effective cash advance rates that demonstrate our ability to grow more rapidly with low capital intensity.
So we have more fuel for our growth strategy and we are growing at a more fuel efficient way.
We plan to provide an update on the progress of our going forward growth strategy for our earnings.
On November 19.
Look forward to sharing our observations and initiatives at that time.
With that I'll turn it over to Joe.
Jen Earyes: Given our strong origination volume this quarter, these updated volumes further increase expected lifelong cash flows. The increase in expected lifelong cash flows from these updated assumptions and the actual results provide additional fuel for the growth strategy we have been working on. In addition, we recently completed our fourth term ABS financing of the year, backed by refi loan collateral. We continue to experience strong investor demand for these securities and are achieving effective cash advance rates that demonstrate our ability to grow more rapidly with low capital intensity. We have more fuel for our growth strategy, and we are growing in a more fuel-efficient way. We plan to provide an update on the progress of our going forward growth strategy for our Earnest business on November 19. We look forward to sharing our observations and initiatives at that time. With that, I'll turn it over to Joe.
Thank you, Dave and everyone on today's call for your interest in Navient.
In the third quarter, we reported core loss per share of <unk> 84.
Adjusting for significant items, we earned <unk> 29 per share.
During the quarter, we demonstrated strong loan origination growth in both the refi and in school lending products.
We reduced our operating expenses in line with our long term efficiency initiatives and increase our reserves.
Our reported results include the upfront costs of higher origination volumes along with the following significant items.
First provision of $168 million of which $151 million or $1 17 per share.
Rates to previously originated loans.
While our delinquency rates are improving they remained elevated and the provision reflects a continuation of both the credit trends and lower levels of prepayment activity we are experiencing.
Second and interest income benefit of $11 million or <unk> <unk> per share, resulting from the impact lower prepayment expectations have on loan premium loan discount and deferred financing fee amortization.
Joe Fisher: Thank you, Dave, and everyone on today's call for your interest in Navient. In the third quarter, we reported a core loss per share of $0.84. Adjusting for significant items, we earned $0.29 per share. During the quarter, we demonstrated strong loan origination growth in both the refi and in-school lending products, reduced our operating expenses in line with our long-term efficiency initiatives, and increased our reserves. Our reported results include the upfront costs of higher origination volumes, along with the following significant items. First, provision of $168 million, of which $151 million or $1.17 per share relates to previously originated loans. While our delinquency rates are improving, they remained elevated, and the provision reflects a continuation of both the credit trend and lower levels of prepayment activity we are experiencing.
And third regulatory and restructuring expenses of $5 million <unk> per share.
Our outlook for the fourth quarter is a range of 30 to 35 per share.
Our fourth quarter guidance range would place us within the full year guidance of $1 to $1 20, a share at the beginning of the year before the significant items, we are announcing this quarter.
Our reported results include the upfront costs of higher origination volumes, along with the following significant items.
I'll walk through our results by segment, beginning with the federal education loans segment on slide seven.
The net interest margin for Q3 was 84 basis points.
This is 14 basis points higher than the second quarter.
First provision of $168 million, of which $151 million, or $0.0117 per share, relates to previously originated loans.
The increase in the quarter included reduced premium amortization from lowering our prepayment rate assumptions, resulting in a 23 basis point benefit.
Joe Fisher: Second, an interest income benefit of $11 million or $0.08 per share, resulting from the impact lower prepayment expectations have on loan premium, loan discount, and deferred financing fee amortization. Third, regulatory and restructuring expenses of $5 million or $0.04 per share. Our outlook for the fourth quarter is a range of $0.30 to $0.35 per share. Our fourth quarter guidance range would place us within the full year guidance of $1 to $1.20 a share, set at the beginning of the year. Announcing this quarter. I'll walk through our results by segment, beginning with the federal education loan segment on slide seven. The net interest margin for Q3 was 84 basis points. This is 14 basis points higher than the second quarter. The increase in the quarter included reduced premium amortization from lowering our prepayment rate assumptions, resulting in a 23 basis point benefit.
Prepayments were $268 million in the quarter.
Third to $1 billion a year ago.
In the quarter, we earned $13 million of floor income on $3 billion of eligible loans.
With respect to floor income if rates were on average 50 basis points lower throughout the quarter or income would have increased by an additional $4 million.
While our delinquency rates are improving they remained elevated and the provision reflects, a continuation of both the credit Trends and lower levels of prepayment activity. We are experiencing second, an interest income benefit of 11 million or 8 cents per share resulting from the impact lower prepayment expectations. Have on loan premium loan discount and deferred financing fee, amortization.
And third, regulatory and restructuring expenses of $5 million, or $0.04 per share.
We expect fourth quarter NIM to range between 55, and 60 basis points, which assumes moderately lower rates in the quarter.
Our outlook for the fourth quarter is a range of 30 cents to 35 cents per share.
Compared to the second quarter, our total delinquencies declined from 19% to 18, 1% and the net charge off rate increased one basis point to 15 basis points.
Our fourth quarter guidance range would Place us within the full year. Guidance of a dollar to a dollar 20 cents, a share set at the beginning of the year, announcing this quarter.
A walkthrough of our results by segment, beginning with the federal education loan segment on slide 7.
Provision expense is driven in part by the expected extension of that portfolio from continued low levels of prepayments.
The net interest margin for Q3 was 84 basis points.
This is 14 basis points higher than the second quarter.
Now, let's turn to our consumer lending segment on slide eight.
Total loan originations in the quarter grew to $788 million, an increase of 58% from the year ago period.
Joe Fisher: Prepayments were $268 million in the quarter, compared to $1 billion a year ago. In the quarter, we earned $13 million of floor income on $3 billion of eligible loans. With respect to floor income, if rates were on average 50 basis points lower throughout the quarter, floor income would have increased by an additional $4 million. Quarter NIM to range between 55 and 60 basis points, which assumes moderately lower rates in the quarter. Compared to the second quarter, our total delinquencies declined from 19% to 18.1%, and the net charge-off rate increased one basis point to 15 basis points. The FFELP provision expense is driven in part by the expected extension of that portfolio from continued low levels of prepayments. Now let's turn to our consumer lending segment on slide eight.
The increase in the quarter included reduced premium amortization from lowering, our prepayment rate assumptions resulting in a 23 basis point benefit
This was driven by over 100% growth in refi originations and 9% growth and in school originations.
prepayments were 268 million in the quarter compared to a billion dollars a year ago.
In the quarter, we earned $13 million of floor income on $3 billion of eligible loans.
The doubling of refi originations demonstrates our capabilities to attract high quality prospects and convert them to customers with improved efficiency.
The external environment is providing a tailwind as lower benchmark rates coincide with an increase in federal borrowers seeking to lower their rate and payments.
With respect to floor income. If rates were on average, 50 basis points lower throughout the quarter, or income would have increased by an additional 4 million, a quarter name for range between 55 and 60 basis points, which assumes moderately lower rates in the quarter.
Our record high quarterly in school originations of $260 million included $119 million of borrowers pursuing graduate degrees.
compared to the second quarter, our total delinquencies declined from 19% to 18.1% and the net charge offer rate increased 1 basis point to 15 basis points,
We are raising our full year total loan origination guidance to be around $2 $4 billion or over 30% higher than our guidance provided at the beginning of the year.
the felt provision expense is driven in part by the expected extension of that portfolio from continued low levels of prepayments
Joe Fisher: Total loan originations in the quarter grew to $788 million, an increase of 58% from the year-ago period. This was driven by over 100% growth in refi originations and 9% growth in in-school originations. The doubling of refi originations demonstrates our capabilities to attract high-quality prospects and convert them to customers with improved efficiency. The external environment is providing a tailwind as lower benchmark rates coincide with an increase in federal borrowers seeking to lower their rate and payments. A record high quarterly in-school origination of $260 million included $119 million of borrowers pursuing graduate degrees. We are raising our full year total loan originations guidance to be around $2.4 billion, or over 30% higher than our guidance provided at the beginning of the year. Net interest margin in this segment was 239 basis points in the quarter, compared to 232 basis points in the second quarter.
Now, let's turn to our consumer lending segment on Slide 8.
Net interest margin in this segment was 239 basis points in the quarter compared to 232 basis points in the second quarter.
Total Loan originations in the quarter, grew to 788 million and increase of 58% from the year ago, period.
Unlike <unk>, where we have a net loan premium on our books are private legacy portfolio is on our books at a net discount to par.
This was driven by over 100% growth in refi. Originations and 9% growth in in-school. Originations
Thus lowering our prepayment rate assumptions reduced net interest income in the portfolio by $7 million or 17 basis points.
The doubling of refire originations demonstrates our capabilities to attract high-quality prospects and convert them to customers with improved efficiency.
We expect consumer lending NIM for the fourth quarter to range between 255, and 265 basis points.
When looking at delinquency and default trends over the last year or so some context might be helpful.
The external environment is providing a tailwind as a lower benchmark, rates coincide with an increase in federal borrowers seeking to lower their rate and payments.
In 2020 for FEMA declared 90 major disasters in the U S is sizeable increase when compared to the 30 year average of 55 major disasters.
Our record high quarterly and school originations of 260 million included 119 million of borrowers, pursuing graduate degrees.
As a result, forbearance balances were elevated and we're two 8% of balances a year ago compared to one 5% in the current quarter.
We are raising our full year total loan. Originations guidance to be around 2.4 billion dollars or over 30% higher than our guidance provided at the beginning of the year.
As these borrowers exited disaster related forbearance and returned to repayment, we saw 91, plus delinquency rates right to 3% in the second quarter of this year and begin to decline.
Joe Fisher: Unlike FFELP, where we have a net loan premium on our books, our private legacy portfolio is on our books at a net discount to par. Thus, lowering our prepayment rate assumptions reduced net interest income in the portfolio by $7 million, or 17 basis points. We expect consumer lending NIM for the fourth quarter to range between 255 and 265 basis points. When looking at delinquency and default trends over the last year or so, some context might be helpful. In 2024, FEMA declared 90 major disasters in the U.S., a sizable increase when compared to the 30-year average of 55 major disasters. As a result, forbearance balances were elevated and were 2.8% of balances a year ago, compared to 1.5% in the current quarter.
That interest margin in this segment was 239, basis points in the quarter compared to 232 basis points in the second quarter.
Events coincided with changes in federal loan policy and broader economic pressures that have influenced repayment behavior.
I'm like fell where we have a net loan premium on our books. Our private Legacy portfolio is on our books at a net discount to par
While we are seeing improvement in delinquency rates they continue to remain elevated.
Thus lowering our prepayment rate, assumptions reduced, net interest income in the portfolio by 7 million or 17 basis points.
Of the $155 million of private education loan provisions that we took in the quarter $17 million is related to new originations and the remainder reflects our macroeconomic outlook and recent credit trends.
We expect consumer lending name for the fourth quarter to range between 255 and 265 basis points.
Our allowance for loan loss, excluding expected future recoveries on previously charged off loans for our entire education loan portfolio was $765 million, which is highlighted on slide nine.
When looking at delinquency and default trends over the last year or so, some contacts might be helpful.
in 2024 FEMA declared 90 major disasters in the US a sizable increase when compared to the 30-year average of 55, major disasters,
The total reserve build in the quarter is driven by a variety of factors, including changes in student loan borrower behavior elevated delinquency rates.
Joe Fisher: As these borrowers exited disaster-related forbearance and returned to repayment, we saw 91-plus delinquency rates rise to 3% in the second quarter of this year and begin to decline. These events coincided with changes in federal loan policy and broader economic pressures that have influenced repayment behavior. While we are seeing improvement in delinquency rates, they continue to remain elevated. Of the $155 million of private education loan provisions that we took in the quarter, $17 million is related to new originations, and the remainder reflects our macroeconomic outlook and recent credit trends. Our allowance for loan loss, excluding expected future recoveries on previously charged-off loans for our entire education loan portfolio, is $765 million, which is highlighted on slide nine.
As a result forbearance balances were elevated and were 2.8% of balance of a year ago compared to 1 and a half percent in the current quarter.
Macro economic outlook changes, new originations and the extension of the <unk> portfolio.
Slide 10 shows the results from our business processing segment.
As these borrowers, exited disaster, related forbearance and returned to repayment. We saw 91, plus delinquency rates rise to 3% in the second quarter of this year and begin to decline.
As of October 17th we have no further obligations to provide transition services for our government services business.
these events coincided with changes in Federal Loan policy and broader economic pressures, that have influenced repayment Behavior,
The TSA revenues and expenses from this quarter totaled $7 million and $6 million, respectively and are reported in the other segment.
Rates. They continue to remain elevated.
This final step allows us to begin removing $14 million of shared expenses, primarily consisting of it infrastructure that was leveraged to support multiple business lines prior to the strategic transformation.
Of the 155 million private education loan Provisions that we order seventh million dollars is related to originations and the remainder reflects our macroeconomic Outlook and recent credit trends.
Once removed we will have exceeded our original target of $400 million of expense savings that we outlined in January of 2024.
Joe Fisher: The total reserve build in the quarter is driven by a variety of factors, including changes in student loan borrower behavior, elevated delinquency rates, macroeconomic outlook changes, new originations, and the extension of the FFELP portfolio. Slide 10 shows the results from our business process outsourcing segment. As of October 17, we have no further obligations to provide transition services for our government services business. The TSA totaled $7 million and $6 million, respectively, and are reported in the other segment. This final step allows us to begin removing $14 million of shared expenses, primarily consisting of IT infrastructure that was leveraged to support multiple business lines prior to the strategic transformation. Once removed, we will have exceeded our original target of $400 million of expense savings that we outlined in January of 2024. More detail on total operating expenses can be found on slide 11.
Our allowance for loan loss. Excluding expected future. Recoveries on previously charged off loans, for our entire education. Loan portfolio is 765 million, which is highlighted on slide 9.
More detail on total operating expenses can be found on slide 11.
Compared to a year ago, our total core expenses for the quarter declined by $93 million to $109 million.
The total reserve bill in the quarter is driven by a variety of factors, including changes in student loan borrower behavior, elevated delinquency rates, macroeconomic outlook changes, new originations, and the extension of the FEL portfolio.
The substantial decrease was driven by our focused efforts to significantly reduce our expense base through the divestiture of the bps business transition to a variable servicing structure and reductions in our corporate shared service expenses.
Slide 10 shows the results from our business processing segment.
As of October 17th, we have no further obligations to provide transition services for our government services business.
Turning to our capital allocation and financing activity that is highlighted on slide 12.
The TSA totaled $7 million and $6 million, respectively, and are reported in the Other segment.
This month, we completed our fourth securitization of the year.
Year to date, we have issued nearly $2 2 billion of <unk>.
Term ABS financing.
These transactions were characterized by strong investor demand and high advance rates.
This final step allows us to begin removing $14 million of shared expenses, primarily consisting of IT infrastructure that was leveraged to support multiple business lines prior to the strategic transformation.
Our current cash and capital positions provide ample capacity to distribute capital and invest in strong loan origination growth.
Once removed, we will have exceeded our original Target of million dollars of expense savings that we outlined in January of 2024.
In the quarter, we repurchased 2 million shares at an average price of $13 19.
Joe Fisher: Compared to a year ago, our total core expenses for the quarter declined by $93 million to $109 million. This substantial decrease was driven by our focused efforts to significantly reduce our expense base through the divestiture of the business process outsourcing business, transition to a variable servicing structure, and reductions in our corporate shared service expenses. Turn to our capital allocation and financing activity that is highlighted on slide 12. This month, we completed our fourth securitization of the year. Year to date, we have issued nearly $2.2 billion of term asset-backed securitizations financing. These transactions were characterized by strong investor demand and high advance rates. Our current cash and capital positions provide ample capacity to distribute capital and invest in strong loan origination growth. In the quarter, we repurchased 2 million shares at an average price of $13.19, as our shares remain significantly below tangible book value.
More detail on total operating expenses can be found on slide 11.
As our shares remain significantly below tangible book value.
In total we returned $42 million to shareholders through share repurchases and dividends, while maintaining a strong balance sheet with an adjusted tangible equity ratio of nine 3%.
Compared to a year ago, our total core expenses for the quarter declined by 93 million to 109 million.
Our quarterly guidance of 30 to 35 per share incorporates continued strong origination growth boosted by moderately lower interest rates and continued expense reductions.
This substantial decrease was driven by our focused efforts significantly reduce our expense space through the best of the Beats business transition to a variable servicing structure, and reductions in our corporate, shared service extensions,
Turn to our Capital, allocation and financing activity, that is highlighted on slide 12.
Thank you for your time and I'll now open the call for any questions.
This month, we completed our fourth securitization of the year.
If you have a question at this time, please press star and one on your telephone keypad.
Year to date. We have issued nearly 2.2 billion dollars of term ABS financing.
These transactions were characterized by strong investor demand and high Advance rates.
Your question has been answered you may remove yourself from the queue by pressing star and two so others can hear your questions. Clearly we ask that you pick up your handset for best sound quality.
Our current cash and capital positions, provide ample capacity to distribute capital and invest in strong loan origination growth.
Take our first question from Bill Ryan with Seaport Research Partners. Please go ahead. Your line is open.
In the quarter, we purchased 2 million shares at an average price of $13.19.
Joe Fisher: In total, we returned $42 million to shareholders through share repurchases and dividends, while maintaining a strong balance sheet with an adjusted tangible equity ratio of 9.3%. Our quarterly guidance of $0.30 to $0.35 per share incorporates continued strong origination growth, boosted by moderately lower interest rates and continued expense reductions. Thank you for your time, and I'll now open the call for any questions.
As our shares remain significantly below tangible Book value.
Thanks, and good morning, David Joe.
First question, obviously relates to the provision and delinquencies that you noted on the call.
I'll look back last year.
I'd say the last six or seven years, we've seen delinquency rates go up from Q3, Q4 Q2 to Q3 <unk>.
In total, we returned $42 million to shareholders through share repurchases and dividends while maintaining a strong balance sheet with an adjusted tangible equity ratio of 9.3%.
Actually went down both into 30, plus 90, plus this year forbearance rates as you noted had moved lower as well.
Our quarterly guidance of $0.30 to $0.35 per share incorporates continued strong origination growth, boosted by moderately lower interest rates and continued expense reductions.
And I was wondering if you could kind of talk about the decision process to do what looks like a Q3 cleanup provision.
Thank you for your time, and I'll now open the call for any questions.
Operator: If you have a question at this time, please press the star and one on your telephone keypad. If your question has been answered, you may remove yourself from the queue by pressing star and two. To ensure others can hear your questions clearly, we ask that you pick up your handset for best sound quality. We'll take our first question from Bill Ryan with Seaport Research Partners. Please go ahead, your line is open.
Obviously, the very well upside to what we've seen in the last couple of quarters, and if you could maybe <unk> a little bit more specific about the default and recovery assumptions and now embedded in the reserve rate.
If you have a question at this time, please press the star and 1 on your telephone keypad.
And how those compare to current trend line.
If your question has been answered, you may remove yourself from the queue by pressing star and 2, so others can hear your questions. Clearly, we ask that you pick up your handset for the best sound quality.
Hey, Bill Thanks for the questions since day one.
Tried to step back and provide some context to the changes we made.
We'll take our first question from Bill. Ryan, with C Port Research Partners. Please go ahead. Your line is open.
Bill Ryan: Thanks, and good morning, Dave and Joe. First question obviously relates to the provision and delinquencies that you noted on the call. I look back, last, I'd say in the last six of the seven years, we've seen delinquency rates go up from Q2 to Q3. Actually, it went down both in the 30+ and 90+ this year. Forbearance rates, as you noted, have moved lower as well. I was wondering if you could kind of talk about the decision process to do what looks like a Q3 cleanup provision. It was obviously very well outside of what we've seen in the last couple of quarters. If you could maybe, Joe, be a little bit more specific about the default and recovery assumptions now embedded in the reserve rate and how those compare to current trend line.
Around default and prepayment rates and I think our situation is distinct because of our legacy portfolio.
Uh thanks and uh good morning, Dave and Joe.
Uh, first question obviously relates to the provision and delinquencies that you noted on the call.
We first established a life of loan loss reserves in January 2020.
When seasonal replace the incurred loss model across lending in the U S.
You know, I look back last uh I'd say in the last 6 of the 7 years we've seen delinquency rates. Go up from Q3 to Q4. Excuse me Q2 to Q3
Within a couple of months of recording that see some reserve of course, the pandemic began.
And we unlike many other lenders provided COVID-19 related forbearance, so private loan borrowers of course, the federal government provide.
Actually went down uh, both in the 30th 90 plus this year forbearance rates, as you noted have moved lower as well. Um, you know, I was wondering if you could kind of talk about the decision process to do, what looks like, you know, a Q3 uh, cleanup provision.
Providing federal borrowers with payment relief.
And they also provided consumers and small businesses with broad financial support programs.
As a result delinquency rates and charge offs in our legacy portfolios fell significantly during this period and they remained at historically low levels for some period of time.
Uh, if it's opposite very well outside to what we've seen in the last couple of quarters and yeah, if you could maybe uh Joe be a little bit more specific about the default and Recovery assumptions. And now embedded in the reserve rate, uh and how those compare to current uh trend line.
David Yowan: Joe, thanks for the question. This is Dave. Let me try to step back and provide some context to the changes we've made around default and prepayment rates. I think our situation is distinct because of our legacy portfolios. We first established lifelong loss reserves in January 2020 when CECL replaced the incurred loss model across lending in the U.S. Within a couple of months of reporting that CECL reserve, the pandemic began. We, like many other lenders, provided COVID-related forbearance to private loan borrowers. The federal government provided federal borrowers with payment relief. They also provided consumers and small businesses with broad financial support programs. As a result, delinquency rates and charge-offs in our legacy portfolios fell significantly during this period, and they remained at historically low levels for some period of time.
We didn't release reserves during that period as we expected the defaults that we.
Still, uh, thanks for the questions. This is Dave. Let me, uh, try to step back and provide some context to the changes we made.
<unk> assumed would happen we are being deferred not avoided.
Around default and prepayment rates. And I think our situation is distinct because of our Legacy portfolios.
Federal loan payment relief programs remain in place for an extended period of time.
Life alone. Loss. Reserves in January, 2020.
Federal loan forgiveness programs were also proposed.
When Cecil replaced the incurred loss model across U.S. lending.
It's only about two years ago, the federal loan payments resumed.
And about a year ago that credit Bureau reporting also resumed.
Within a couple of months of recording that Cecil reserve, of course, the pandemic began.
As these relief programs are being wound down.
We did in fact see over time as you just.
Okay.
And charge offs.
These included charge offs that were deferred during from during the pandemic.
And we and like many other lenders provided coid, related forbearance to private loan borrowers. Of course, the federal government provided federal borrowers with payment relief. And they also provided consumers and small businesses with broad financial support programs
We also experienced as Joe indicated some disaster forbearance volumes, which further but temporarily increased our delinquency and default rates.
David Yowan: We didn't release reserves during that period, as we expected that the defaults that we assumed would happen were being deferred, not avoided. Federal loan payment relief programs were in place for an extended period of time. Federal loan forgiveness programs were also proposed. It's only about two years ago that federal loan payments resumed, and about a year ago that credit bureau reporting also resumed. As these relief programs were being wound down, we did, in fact, see over time, as you just pointed out, increases in delinquency rates and charge-offs. These included charge-offs that were deferred from during the pandemic. We also experienced, as Joe indicated, some disaster forbearance volumes, which further but temporarily increased our delinquency and default rates. At the same time, in recent quarters, we also began to experience incremental defaults. We continue to see those incremental defaults.
As a result, delinquency rates and charge-offs in our legacy portfolios fell significantly during this period, and they remained at historically low levels for some time.
At the same time in recent quarters, we also began to experience incremental performance.
We continue to see those incremental defaults and.
We didn't release reserves during that period. As we expected the the the defaults that we um assumed would happen, were being deferred, not avoided.
These are due to a wide variety of factors, including changes in borrower repayment behavior and macroeconomic conditions.
Federal Loan payment relief. Programs were made in place for an extended period of time.
The provision expense we recorded this quarter assumes that these incremental defaults will continue for some time into the future.
Federal loan. Forgiveness, programs were also proposed
You know, it's only about 2 years ago that Federal loan payments resumed.
In recent quarters, we also began to see substantially lower levels of prepayments, especially within the <unk> portfolio.
About a year ago, that credit bureau reporting also resumed.
As being wound down.
These are also continued.
They are due to a wide variety of factors as well, but particularly public policy around federal loan forgiveness.
we did, in fact, see over time as you just pointed out, increases in delinquency rates and charge offs
The prepayment.
Assumption changes we made this quarter also assume that these low levels of prepayments that we're experiencing will continue for some time into the future as well.
These included charge offs that were deferred during from during the pandemic.
And bill to your question about recovery rate assumption.
We also experienced as Joe indicated, some disaster, forbearance volumes, which further, but temporarily increased, our delinquency and default rates.
It's about our portfolio today, our recovery rate assumption is about 17% on the private portfolio. If you go back five or 10 years that would have been a higher recovery rate assumptions, we've been primarily driven by as these loans had seasons, we've lowered that recovery rate over the years, but relatively flat.
At the same time in recent quarters, we also began to experience incremental, defaults,
David Yowan: These are due to a wide variety of factors, including changes in borrower repayment behavior and macroeconomic conditions. The provision expense we recorded this quarter assumes that these incremental defaults will continue for some time into the future. In recent quarters, we also began to see substantially lower levels of prepayments, especially within the FFELP portfolio. These have also continued. They're due to a wide variety of factors as well, but particularly public policy around federal loan forgiveness. The prepayment assumption changes we made this quarter also assume that these low levels of prepayments that we're experiencing will continue for some time into the future as well. Bill, to your question about recovery rate assumptions, think about our portfolio today. Our recovery rate assumption is about 17% on the private portfolio. If you go back five or ten years, that would have been a higher recovery rate assumption.
We continue to see those incremental defaults.
These are due to a wide variety of factors including changes in borrow or repayment behavior and macroeconomic conditions.
Over the last couple of quarters and 17%.
The provision expense recorded this quarter assumes that these incremental defaults will continue for some time into the future.
Okay, and then if we could kind of go.
Go to the gross default assumption as well.
In recent quarters, we also began to see substantially lower levels of repayments, especially within the felt portfolio.
Sure in terms of the net charge off rate that we've seen historically, we've given a charge off rate range of 152%.
These have also continued.
They're due to a wide variety of factors as well, but particularly public policy around Federal loan forgiveness.
We are trending slightly higher than that over the first nine months outside of our range. When we think about the new origination that we're making today, especially on the refi side those are very high quality as Dave highlighted in his prepared remarks, some of the highest credit course credit scores that we've seen in our history.
The prepayment Assumption changes. We made this quarter also assume that these low levels of prepayments that were experiencing will continue for some time in the future as well.
So that charge off rate assumption has.
Roughly around one 5% in terms of the new loans that we're making on the refi side.
David Yowan: Loans have seasoned. We've lowered that recovery rate over the years, but it's been relatively flat over the last couple of quarters at 17%.
Okay and just one quick follow up your guide for Q4, 30% to 35.
I know you don't want to provide a 2026 outlet just yet but.
Bill Ryan: Okay. If we could kind of go to the gross default assumption as well.
The bill to your question about recovery rate assumptions. Think about our portfolio today, our recovery rate assumption about 17% on the price portfolio. If you go back 5 or 10 years, that would have been a higher recovery rate. Assumption loans have seasoned, we lowered that recovery rate over the years. But relatively flat over the last couple quarters and said that 17%
Should we be thinking that range as a potential starting point for moving into next year.
Okay. And then, uh, if we could kind of
Go to the gross default assumption, uh, as well.
David Yowan: Sure. In terms of the net charge-off rate that we've seen historically, we've given a charge-off rate range of 1.5% to 2%. We're trending slightly higher than that over the first nine months outside of our range. When we think about the new originations that we're making today, especially on the refi side, those are very high quality, as Dave highlighted in his prepared remarks, some of the highest credit scores that we've seen in our history. That charge-off rate assumption is roughly around 1.5% in terms of the new loans that we're making on the refi side.
So I wouldn't use that as a baseline just primarily because obviously, we've got a lot of opportunities here in terms of the next year that will address.
During our upcoming IND.
Investor update as well as during the next quarter's earnings calls so depending on interest rate assumptions that youre, making obviously to be a significant tailwind for us as it relates to refi originations there is an opportunity.
From the elimination of the Grad plus program.
As we circle those numbers.
Look forward to next year, obviously, there is higher provisioning expense that you take upfront in terms of the costs associated with those loans. So as we did even better guidance into next year I would just keep in mind as upfront costs that you take.
Bill Ryan: Okay. Just one quick follow-up. Your guide for Q4, you know, $0.30 to $0.35. I know you don't want to provide a 2026 outlook just yet, but you know, should we be thinking that range as a potential starting point for moving into next year?
Sure. In terms of the, well, net charge off rate that we've seen historically, we've given a charge off rate, range of 1 and a half 2%, we're trending slightly higher than that over the first 9 months outside of our range. When we think about the new originations that we're making today, especially on the refi side, those are very high quality as as Dave highlighted in his prepared remarks. Some of the highest credit course credit scores that we've seen in our history. Um and so that charge up rate, assumption has uh is rough around 1 and a half percent in terms of the new loans that we're making on the refi side.
Okay, and just 1 uh quick follow-up. Uh, your guide for Q4, you'll be the 35 cents.
During that time of origination will be a driver that you won't see necessarily in the fourth quarter.
So I can just.
You know, I know you don't want to provide a 2026 Outlook just yet but you know should be thinking that uh range as a potential starting point for uh moving into next year.
Add to that a bit so look where we are.
David Yowan: I wouldn't use it as a baseline, just primarily because obviously we've got a lot of opportunities here in terms of the next year that we'll address during our upcoming investor update, as well as during the next quarter's earnings calls. Depending on interest rate assumptions that you're making, obviously it could be a significant tailwind for us as it relates to refi origination. There's an opportunity, as you know, from the elimination of the Grad PLUS program. As we circle those numbers and look forward to next year, obviously there's higher provision expense that you take upfront in terms of the cost associated with those loans. As we give you better guidance into next year, I would just keep in mind those will be a driver that you won't see necessarily in the fourth quarter.
If you think about the fourth quarter, we still have some expenses that we're going to take out.
That.
We expect to get rid of by the end of the first quarter of 2026. So we are not run rate there.
Operating expenses.
I doubt it would be lower we're looking for additional opportunities to do that I think the thing I would just emphasize that Joe just said is as you think about 2006 as we see substantial opportunities to grow to continue to grow as we have and so the key variable in terms of run rate and will be the acquisition costs and the upfront cost.
Traditional loan originations.
Okay, yes, thanks for taking my questions.
You bet.
We will take our next question from Mark Devries with Deutsche Bank. Please go ahead. Your line is open.
Program. So as we Circle those numbers and you know, look forward to next year, obviously there's higher provision expense that you take upfront in terms of the costs associated with those ones. So as we give you better guidance into next year, I would just keep in mind
David Yowan: I could just add to that a bit. If you think about the fourth quarter, we still have some expenses that we're going to take out that we expect to get rid of by the end of the first quarter of 2026. We're not quite at run rate there. Operating expenses will undoubtedly be lower. We're looking for additional opportunities to do that. I think the thing I would just emphasize that Joe just said is, as you think about 2026, we see substantial opportunities to grow, to continue to grow as we have. The key variable in terms of run rate will be the acquisition cost and the upfront cost of additional loan originations.
Yes. Thanks.
I was hoping to get a better sense of kind of where within consumer lending youre seeing the credit weakness and what's driving the reserve build I mean, it looks like the.
will be a driver that you won't see necessarily in the fourth quarter bill. So I could just, uh, add to that a bit. So so look, we're we're um, if you think about the fourth quarter, we still have some expenses that we're going to take out. Uh,
Consolidation loan credit has been relatively stable. So it seems like it's the rest of the portfolio.
Is the weakness mainly coming from kind of a legacy private student loans or are you also seeing weakness in some of the more recent in school loans that you've made.
Yeah, Hey, Mark this is Dave Thanks for the question.
If you think back to.
So the first part of my answer to Phil's question.
The majority of what we're seeing is is focus on the legacy portfolios that we have.
Bill Ryan: Okay. Yeah, thanks for taking my questions.
That, um, you know, we expect to get rid of, by the end of the first quarter of 2026. So we're not a quite a run rate there. Uh, operating expenses, uh, will will undoubtedly be lower. We're looking for additional opportunities to do that. I think the thing, I would just emphasize that Joe just said, is, um, as you think about 26, is we see substantial opportunities to grow to continue to grow as we have. And so the key variable, in terms of run rate will be the acquisition cost of The Upfront cost of additional uh loan originations.
That's why I went through the establishment of the see some reserve the conditions that have changed since then and so that's where the majority of the provision expense has been.
David Yowan: You bet.
Okay. Yeah, thanks for taking my questions.
Operator: We'll take our next question from Mark DeVries with Deutsche Bank. Please go ahead. Your line is open.
[Analyst]: Yeah, thanks. I was hoping to get a better sense of where within consumer lending you're seeing the credit weakness and what's driving the reserve build. It looks like the consolidation loan credit has been relatively stable. It seems like it's the rest of the portfolio. Is the weakness mainly coming from legacy private student loans, or are you also seeing weakness in some of the more recent in-school loans that you've made?
We'll take our next question from Mark. Deise with Deutsche Bank, please go ahead. Your line is open
The other products there have been some changes but.
Yeah, thanks. Um,
They are not they are not as significant as the changes in the private legacy portfolio in particular.
Okay, and so just to clarify based on the comments you made it.
Is it kind of your observation that the primary source of the weakness now is just kind of the end of some of the more extended forbearance options that they have been granted under.
David Yowan: Yeah. Hey, Mark, this is Dave. Thanks for the question. If you think back to the first part of my answer to Bill's question, the majority of what we're seeing is focused on the legacy portfolios that we have. That's why I went through the establishment of the CECL reserve, the conditions that have changed since then. That's where the majority of the provision expense has been. The other products, there have been some changes, but you know they're not as significant as the changes in the private legacy portfolio in particular.
I was hoping to get a better sense of kind of where um within consumer lending, you're you're seeing the credit weakness and what's driving The the Reserve bill. I mean it looks like um, the consolidation loan credit has been relatively stable, so it seems like it's the rest of the portfolio or or is is the weakness mainly coming from kind of Legacy privacy student loans. Are you also seeing weakness in some of the more recent in school loans that you've made?
On other loans that they hold is that what's kind of driving the weakness.
Yes, that's certainly that's one part of it there is a variety of factors macroeconomic conditions have weakened part of our reserve increase not a significant part is due to weakening of the Moody's economic forecast that was a contributor to the second quarter as well.
Yeah. Hey Mark, this is Dave. Thanks for the question. The the if you think back my the first part of my answer to uh Bill's question.
The majority of what we're seeing is uh, is focused on the Legacy portfolios that we have.
Um, that's why I went through the establishment.
Think about the primary source of the provision being the legacy portfolios and that's why I go back to when we established the life of loan reserves.
Really I think we can all agree was in a very different ecosystem for.
To see some reserve, the conditions that have changed since then. And so that's where the majority of the provision expenses have been. The other products that...
Are those loans than exists today as they've come through the pandemic.
Been some changes but uh, you know, they're not they're not a significant, as the changes in the private Legacy portfolio.
[Analyst]: Okay. Just to clarify, based on the comments you made, is it your observation that the primary source of the weakness now is the end of some of the more extended forbearance options that they've been granted on other loans that they hold? Is that what's driving the weakness?
In particular.
Part of the lower prepayment speeds.
Which we're seeing in both cell and in private legacy.
Loans that pay off.
Default rates. So part of the reason we've tried to make sure that you see the relationship between the incremental cash flows from.
David Yowan: Yeah, that's certainly one part of our reserve increase. Not a significant part is due to weakening of the Moody's economic forecast. That was a contributor to the second quarter as well. The primary source of the provision being the legacy portfolios. Again, that's why I go back to when we established the lifelong reserves. It was really, I think we can all agree, it was in a very different ecosystem for those loans than exist today as they've come through the pandemic. You know, part of the lower prepayment speeds don't default, right? Part of the reason we've tried to make sure that you see the relationship between the incremental cash flows from longer portfolios from slower prepayment speeds, that's also a contributing factor to higher provision as well, because higher average balances outstanding can create higher charge-offs as well.
Okay. And so just to clarify based on on the comments you made it did, is it kind of your observation that the primary source of the weakness? Now is just kind of the end of some of the the more extended forbearance options that they've been granted under, you know, um, on other loans that they hold is is that what's kind of driving the weakness?
Longer portfolios from slower prepayment speeds. That's also a contributing factor to higher provision as well because higher average balances outstanding can create higher.
<unk>.
Charge offs as well so there's a variety of factors that are at play here.
Yeah, that's certainly that's that's 1 Thing. Part of our Reserve, increase. Not a significant part is due to weakening of the Moody's, economic forecasts. That was a contributor to the second quarter as well.
Okay.
Just wanted to get your comfort level with how conservative is revise assumptions are in.
The very source of the provision being the legacy portfolios. Again, that's why I go back to when we established the life alone reserves.
What kind of risk to.
Further negative revisions.
Look we are.
We're responding to what we're seeing with current with current trends Mark.
It was really, I think we can all agree, in a very different ecosystem for those loans than exists today. As they've come through the pandemic,
I'm not going to give a life alone.
Forecast for that I think we feel.
You know, part of the lower prepayment speeds.
We've done the appropriate thing here, obviously to reflect what we're seeing in the portfolio today and I'll just leave it at that.
Okay fair enough thanks for the comments.
Yes.
Yeah.
We will take our next question from Moshe Orenbuch with TD Cowen. Please go ahead. Your line is open.
Great. Thanks.
The cash flow assumption changes and noticed that more than all of the increase comes in 2030 and beyond in 2026 to 2029, it's actually.
David Yowan: There's a variety of factors that are at play here.
[Analyst]: Okay, just wanted to gauge your comfort level with how conservative these revised assumptions are, and you know what kind of risk, if any, is there to further negative revisions.
Don't default, right? So part of the, the reason we've tried to, uh, make sure that you see the relationship between the incremental, cash flows from, uh, longer portfolios from slower prepayment speeds. That's also a contributing factor to higher provision as well. Because higher average balance is outstanding can create higher, um, uh, charge offs as well. So there's a, there's a variety of factors that are at play here.
Almost $200 million less than you had in Q2.
What's the driver for that.
The primary driver.
The lowering of the prepayment speeds Moshe So if you think about the cell portfolio, we lowered our overall CPR from 5% to 3%.
David Yowan: Look, we're responding to what we're seeing with current trends, Mark. I'm not going to give a lifelong forecast for that. I think we feel we've done the appropriate thing here, obviously, to reflect what we're seeing in the portfolio today. I'll just leave it at that.
Okay? And, and just wanted to get your comfort level with how conservative these revised assumptions are. And um, you know what, kind of risk if any is there to to further negative revisions?
And that we have going in and so through 2028 and then.
Again, increasing back to 5% more historical levels. So as a result that impacts the cash flows that are coming in your earlier periods and increases those cash flows in the 2030 and out similarly on the private portfolio, we lowered them on the legacy portion of our portfolio, we lowered our ctr speed from.
[Analyst]: Okay, fair enough. Thanks for the comments.
Look, we we are. Um, we're responding to what we're seeing with current with, uh, current trends Mark. Um, I'm not going to give a life alone, uh, uh, forecast for that. I think we feel, uh, we've done the uh, appropriate thing here, obviously to, uh, reflect what we're seeing in the portfolio today and I'll just leave it at that.
David Yowan: Yep.
Fair enough. Uh, thanks for the comments.
Operator: We'll take our next question from Moshe Orenbuch with TD Cowen. Please go ahead. Your line is open.
10% to 8%. So that's really the biggest driver of the movement from the earlier periods into the outer years.
Moshe Orenbuch: Great, thanks. I looked through the cash flow assumption changes and noticed that more than all of the increase comes in 2030 and beyond. From 2026 to 2029, it's actually almost $200 million less than you had in Q2. What's the driver for that?
We'll take our next question from Moshe Orin, buck with TD Cohen, please go ahead. Your line is open
And maybe if you mentioned this already I missed it and I apologize but.
Yes.
Is there an ongoing impact on private margin from that.
Great, thanks. I I looked through the um, cash flow, assumption changes. And notice that, you know, more than all of the increase comes in 2030 and Beyond. And from 2026 to 2029, it's actually
You mentioned, what the impact was in this quarter, but is there an ongoing impact on the margin from slower prepays.
David Yowan: The primary driver is the lower. If you think about the FFELP portfolio, we lowered our overall CPR from 5% to 3%. That we have going until through 2028, then increasing back to 5% more historical levels. As a result, that impacts the cash flows that are coming in your earlier periods and increases those cash flows in 2030 and out. Similarly, on the private portfolio, we lowered on the legacy portion of our portfolio, we lowered our CPR speeds from 10% to 8%. That's really the biggest driver of the movement from the earlier periods into the outer years.
Almost 200 million less than you had in Q2. What uh what's the driver for that?
So we adjust for that every single quarter.
So really the biggest driver in terms of margin impacts when you look back historically and what I'd say lowered the margins overall is that as our balance has shifted more towards the refi portfolio from the legacy in school loans that we originated we typically have lower margins on the refi, albeit at <unk>.
The primary driver is the Miller. If you think about the Fel portfolio, we lowered our overall CPR from 5% to 3%, and that we have going in until June 2028.
Again, increasing back to 5% more historical level.
Levels. So as a result, that impacts the cash flows that are coming in your earlier periods and increasing,
Much higher credit quality and so that's the push on the margin in the recent years as that has become a higher percentage of our balance.
But still the margin go forward on the legacy book would be lower at a slower prepay rate right.
It really shouldn't impact overall, when you take that charge in the quarter and have to catch up assuming that.
Moshe Orenbuch: If you've mentioned this already, I missed it and I apologize, but is there an ongoing impact on the private margin from that? You mentioned what the impact was in this quarter, but is there an ongoing impact on the margin from slower prepays?
We increased those cash flows in 2030 and out. Similarly, on the private portfolio, we lowered the Legacy portion of our portfolio. We lowered our CPR speeds from 10% to 8%. So that's really the biggest driver of the movement from the earlier periods into the outer years.
And maybe I, if you've mentioned this already, I missed it and I apologize. But
The the rate we have in place continues they really shouldn't be much of an impact to the margin.
Got it okay.
And then okay.
How do you think about <unk>.
David Yowan: We adjust for that every single quarter. Really, the biggest driver in terms of margin impacts when you look back historically and what's, I'd say, lowered the margins overall is that as our balances shifted more towards the refi portfolio from the legacy in-school loans that we originated, we typically have lower margins on the refi. That's the push on the margin in the recent years as that has become a higher percentage of our balance.
Is there an ongoing impact on the private margin from that? You know, you mentioned what the impact was in this quarter but is there an ongoing impact on the margin from slower prepays?
Capital needs given the potential for significant asset growth.
If you have.
<unk> expanded plans for Ernest.
Yes look I think we feel very confident about our ability to finance.
Rapid asset growth, we're doing that today, we've called out in the last two.
Releases more ships you've seen.
S issuances I can't.
Overseeing how important that is to.
Moshe Orenbuch: Still, the margin going forward on the legacy book would be lower at a slower prepay rate, right?
So we we adjust for that uh every single quarter. Uh so really the the biggest driver in terms of margin impacts when you look back historically and and what's I'd say lower the margins overall is that as our balance is shifted more towards the Levee portfolio from the Legacy in school, uh, loans that we originated, we typically have lower margins on the refi. And so that's the, the push on the margin and the recent years is that has become a higher percentage of our balance.
Two are.
Outlook for this business and how we are comfortable with our ability to grow it in a much more as I call. It fuel efficient way, meaning less capital, we're achieving advance rates in our most recent ABS securitizations that are <unk>.
But still, the margin going forward on the legacy book would be lower at a slower prepay rate, right?
David Yowan: It really shouldn't impact it overall. I mean, you take that charge in the quarter and have the catch-up, but assuming that the rate we have in place continues, there really shouldn't be much of an impact to the margin.
Higher than we have historically achieved so we're getting a majority of the financing we need to originate those loans from the ABS market, therefore, requiring less.
It really shouldn't impact it overall. I mean, you take that charge in the quarter and and have the catch up, but assuming that uh,
Moshe Orenbuch: Okay. How do you think about capital needs given the potential for significant asset growth, if you have expanded plans for Earnest?
The the rate we have in place continues, there really shouldn't be much of an impact to the, to the margin.
God, okay. And then
Equity and other sources of risk capital to finance the loans.
We've also got other avenues that we haven't exercised levers before like loan sales et cetera, you combine what we're seeing in the ABS market with some of the flexibility that we think we have and we're highly confident in our ability to finance.
How do you think about you know Capital needs given the you know, the potential for significant uh asset growth?
David Yowan: Yeah, look, I think we feel very confident about our ability to finance rapid asset growth. We're doing that today. We've called out in the last two releases, Moshe, if you've seen our ABS issuances. I can't overstate how important that is to our outlook for this business and how we're comfortable with our ability to grow it in a much more, as I call it, fuel-efficient way, meaning less capital. We're achieving advanced ABS securitizations that are higher than we have historically achieved. We're getting a majority of the financing we need to originate those loans from the ABS market, therefore requiring less equity and other sources of risk capital to finance the loans. We've also got other avenues that we haven't exercised leverage before, like loan sales, etc.
you know, if if you have, uh, you know, expanded plans for earnest,
Yeah, look, I think we feel, you know, very confident about our ability to finance.
Higher levels of loan originations.
Just.
Rapid asset growth. We're doing that today. We've called out in the last 2. Um,
Just to follow up I mean is.
As his loan sales for our loan sales kind of a key part of the strategy is that something that you are.
But you've got a program in place or how do you think about that.
Yes.
I think I'm not going to preview our.
November presentation or.
Or.
Our 26 plan at this point.
Historically been an opportunistic seller of loans again, I think we feel confident in our ability on a make and hold basis to continue to originate loans, making sell as an option we have and it's good to have that flexibility.
Great will be listening on the 19th.
David Yowan: You combine what we're seeing in the ABS market with some of the flexibility that we think we have, and we're highly confident in our ability to finance higher levels of loan originations.
You bet.
Yes.
We will take our next question from Rick Shane with JP Morgan. Please go ahead. Your line is open.
Hey, guys. Thanks for taking my questions. This morning.
Moshe Orenbuch: Just to follow up, is loan sales or are loan sales kind of a key part of the strategy? Is that something that you've got a program in place, or how do you think about that?
Uh, releases not sure if you've seen our ABS issuances, I can't. Um, yeah. Overseeing how important that is, uh, to our, uh, outlook for this business and, and how we're comfortable with our ability to grow it in a much more as I call it fuel efficient way. Meaning less Capital, we're achieving Advanced and absurd that are higher than we have historically achieved. So we're getting a majority of the financing. We need to to uh originated those loans, from the ABS Market, therefore requiring less equity and other sources of risk Capital that's financed the loans. Um, we've also got other avenues that we haven't exercised levers before like loan sales Etc. You combine what we're seeing in the ABS Market, with some of the flexibility that we think we have. And we're highly confident in our ability to finance, uh, higher levels of loan. Originations
Look.
Launching and part of the narrative is sort of the.
Decline in the reserve rate due to consolidation loans and the relative.
Loan quality and if we look back.
David Yowan: Yeah, I think I'm not going to preview our, you know, November presentation or, you know, our 2026 plan at this point. We've historically been an opportunistic seller of loans. Again, I think we feel confident in our ability on a make and hold basis to continue to originate loans. Make and sell is an option we have, and it's good to have that flexibility.
Just a a just to follow up. I mean is uh is is loan sales or our loan sales? Kind of a a key part of the strategy is that something that you're you know, that you've got, you know, program in place or how do you think about that?
Consistently the provision is that well below charge offs on any given quarter and the private.
Yeah. Um,
I got a preview of our, uh,
Or.
The consumer book.
Have we reached the inflection point when you think about for example fourth quarter guidance.
Does that assume that the reserve rate is now stabilized in the mid <unk> or how should we think about that going forward.
Moshe Orenbuch: Great. We'll be listening on the 19th. Thanks.
You know, our 26th plan at this point, you know, we've historically been an opportunistic seller of loans. Again, I think we feel confident in our ability on a make and hold basis to continue originate loans, make and sell as an option. We have uh and it's good to have that flexibility.
Yes, so the way I would think about it going forward and thats going to be a function of also new origination and what makes it so as I said in the in my earlier response for the refi origination we're reserving at one 5% in terms of life of loan loss assumption so for.
David Yowan: You bet.
Great. We'll be listening on the 19th. Thanks.
Operator: We'll take our next question from Rick Shane with JPMorgan. Please go ahead. Your line is open.
Rick Shane: Hey guys, thanks for taking my questions this morning. Look, a long-standing part of the narrative is sort of the decline in the reserve rate, due to consolidation loans and the relative loan quality. If we look back, consistently, the provision is well below charge-offs on any given quarter in the private, in the consumer book. Have we reached the inflection point when you think about, for example, fourth quarter guidance? Does that assume that the reserve rate is now stabilized in the mid-250s, or how should we think about that going forward?
Chain with JP Morgan. Please go ahead, your line is open.
Hey guys, thanks for taking my questions this morning. Um look
Every dollar we're adding there, it's one 5% and which would lower our overall allowance so as that balance shifts.
Just imagine that that allowance would come down some more.
To reflect just the greater percentage of refi loans to the extent that we are.
Longstanding part of the narrative, is sort of the um, decline in the reserve rate, uh, due to consolidation loans and the relative uh, loan quality. And and if we look back,
See a opportunity here, obviously in the Grad plus marketing grab opportunity there those loans typically are originated with license loan loss assumptions closer to 6%. So that's the balance and the tradeoff there otherwise just naturally amortizing portfolio, where we have life of loan loss.
Consistently. The provision has been well below charge offs on any given quarter in the private, um, in, in the consumer book.
Have we reached the inflection point? When you think about, for example, fourth quarter guidance, um, does that assume that the reserve rate is now stabilized in the mid 250s? Or how should we think about that going forward?
I would imagine that that allowance would come down all else equal as the portfolio runs off.
David Yowan: Yeah, so the way I would think also new originations and what we're making. As I said in my earlier response, for the refi originations, we're reserving at 1.5% in terms of lifelong loss assumptions. For every dollar we're adding there, it's 1.5%, which would lower our overall allowance. As that balance shifts, I would just imagine that that allowance would come down more to reflect just the greater percentage of refi loans. To the extent that we are, we see an opportunity here, obviously, in the Grad PLUS market and Grad opportunity there. Those loans typically are originated with lifelong loss assumptions closer to 6%. That's the balance and the trade-off there. Otherwise, just in a naturally amortizing portfolio where we have lifelong loss expectations, I would imagine that that allowance would come down, all else equal, as the portfolio runs off.
Got it.
Just to be clear and I don't know if I missed this or not but you're suggesting that the.
Reserve Murphy.
On the consolidation loans was not changed this increase that we saw today.
For new originations no. It was not so if you think about the refi portfolio as Dave mentioned very high credit quality high earners. Some of us that we've seen in terms of our history there.
Yeah, so I the way I would think also new originations and what we're making. So as a aside in the in my earlier response for the leafy, originations were reserving, at 1 and a half percent in terms of Life of loan loss assumptions. So for every dollar we're adding there, it's, it's 1 and a half percent it and which would lower our overall allowance. So, as that balance shifts, I would just imagine that that allowance would come down to more, uh,
And the early trends that we've seen over the last year.
Had not given any indication that we would need to change that.
But does that suggest that on the legacy older stuff not the new originations that the <unk> rate on the consolidation loans did change.
So on the on the refi, but you keep saying consolidation so on the refi book.
Yes, we did take up our reserves on when the refi originations primarily as we've looked at some of the back book and vintages that were call it four or five years old.
Rick Shane: Got it. Just to be clear, I don't know if I missed this or not, but you're suggesting that the reserve rate on the consolidation loans was not changed despite this increase that we saw today.
To, to reflect just the greater percentage of refi loans to the extent that we are. Um, we see a opportunity here, obviously, in in the Grad, Plus Market and grad, uh, opportunity. There, those loans typically are originated, um, with life of loan loss assumptions closer to 6%. So that's the balance and the trade-off there, otherwise just in a naturally advertising portfolio where we have life of loan loss expectations. I would imagine that that allowance would come down all else, equal as the portfolio runs off.
got it and, and
Okay. Thank you.
Well take our next question from Sanjay <unk> with <unk>. Please go ahead. Your line is open.
David Yowan: For new originations, no, it was not. If you think about the refi portfolio, as Dave mentioned, very high credit quality of high earners, some of the best that we've seen in terms of our history there. The early trends that we've seen over the last year have not given any indication that we would need to change that.
Just to be clear and I don't know if I missed this or not, but you're suggesting that the uh Reserve rate on the consolidation loans was not changed as of this increase that we saw today.
Thank you.
Follow up on some of the credit quality questions. Just on this provision that you did take the $1 51, how much of it was credit related versus just the cash flows extending out because of lower.
Rick Shane: Wait, does that suggest that on the older stuff, not the new originations, the CECL rate on the consolidation loans did change?
Payment speeds I'm, just curious on that and then I guess just follow up on that as well.
Yeah, for for new originations know. It was not. So if you think about the refi portfolio, as Dave mentioned, very high credit quality of high earners. Some of the best that we've seen in terms of our history there and the early trends that we've seen over the last year, um have not given any indication that we would need to change that.
It sounds like when I look at the slide you guys.
Wait, but does that suggest that on the leg on the older stuff? Not the new originations that the Cecil rate on the consolidation loans did change.
David Yowan: On the refi book, if you're saying consolidation, on the refi book, yes, we did take up our reserves on the refi originations, primarily as we looked at some of the back book in vintages that were called four or five years old.
Every third quarter, you sort of true up to that to that number and look at the back book I'm, just curious like what I understand like things have changed post pandemic, but what changed between last year and this year. So was it just the repayment behaviors are.
That changed I'm, just curious what you think drove that because you would have thought.
Rick Shane: Okay, thank you.
So, on the, on the refi book, was you keep saying consolidation? So on the refi book? Uh, yes we did. Take up a our, uh, reserves on the, on the refi originations primarily as we looked at some of the back book in vintages that were called 4 or 5 years old
The conditions post pandemic have been fairly stable more recently than they were.
Okay, thank you.
Operator: We'll take our next question from Sanjay Sakhrani with KBW. Please go ahead. Your line is open.
Some of the years sort of been doing that thanks.
Bill Ryan: Thank you. Just to follow up on some of the credit quality questions, just on this provision that you did take, the $151 million, how much of it was credit-related versus just the cash flows extending out because of lower payment speeds? I'm just curious on that. I guess just follow up on that as well. It sounds like when I look at the slide, you guys, every third quarter, you sort of true up that number and look at the back book. I'm just curious, like what I understand, like things have changed post-pandemic, but what changed between last year and this year? Was it just the repayment behaviors or that changed? I'm just curious what you think drove that because you know, you would have thought the conditions post-pandemic have been fairly stable more recently than they were in some of the years sort of ensuing that. Thanks.
Yeah. So thanks for the question Sanjay if you think about the narrative that I went through with Bill's question.
Well, take our next question from Sanjay. SI with KBW, please go ahead. Your line is open.
<unk>.
The change in public policy, particularly around the desktop loans for example is a.
Thank you. Um, just to follow up on some of the credit quality questions, just on the provision that you did take, the $151 million, how much of it was credit-related versus...
New administration policy right prior to the.
To the inauguration the prior administration had a very proactive view of loan forgiveness.
Payment relief programs et cetera.
The New administration is not exhibited the same appetite for that and in fact is not.
Not proposed anything and so we are.
Three months three quarters excuse me into that New administration and we've now.
Just because of lower um, payment speeds. I'm just curious on that and then I guess just follow up on that as well. Um it sounds like, when I look at the slide, you guys uh every third quarter you sort of chew up that that number and look at the back. Look, I'm just curious. Like what I? I understand like things have changed post, pandemic. But what changed between last year and this year, was it just the the repayment behaviors or, uh, that that changed. And I'm just curious what you think, drove that because, you know, you would have thought the
For prepayment and default rates looked at trends that we're seeing when you see a trend that occurs over several quarters.
The conditions post pandemic have been fairly stable more recently than they were, you know, in some of the years sort of ensuing that thanks.
David Yowan: Yeah. Thanks for the question, Sanjay. If you think about the narrative that I went through with Bill's question, the change in public policy, particularly around the FFELP loans, for example, is a new administration policy, right? Prior to the inauguration, the prior administration had a very proactive view of loan forgiveness, payment relief programs, etc. The new administration has not exhibited that same appetite for that, and in fact, has not proposed anything. We're three months, three quarters, excuse me, into that new administration, and we've now both for prepayment and default rates looked at trends that we're seeing. When you see a trend that occurs over several quarters, we've appropriately stepped back and said, let's take a look at if we continue to see these trends both on prepayment and default rates, here's the impact on lifelong cash flows.
We've appropriately stepped back and said, let's take a look at if we continue to see these trends both on prepayment and default rates.
Here's the impact on LIFO and cash flows and then of course, the accounting treatment for each one of those is very different there is none of the future cash flows from extension that gets booked in the current quarter.
Yeah, so thanks for the question Sanjay. If you think about, you know, the narrative that I went through with Bill's question. The um,
The change in public policy, particularly around the stealth loans, for example, is a ...
New Administration policy, right? Prior to the, um,
And all of the provision expense gets booked in the current quarter.
Got it.
To the inauguration prior administration, had a very um, proactive view of loan, forgiveness.
I think in terms of the I.
Im not going to try to attribute all of the different factors here, we've laid them out I think we could.
Uh, payment relief programs Etc.
Turn it into a world series game of 18 earnings.
and so, we're
A lot of factors going on the ones, we've called out are really the impact of the.
3 months, 3 quarters, excuse me, into that new Administration. And we've now
Everything that went on in the pandemic related to Covid relief related to federal alone.
Given us the macroeconomic conditions that we've seen and again this is a distinct.
Portfolio for Us just given the age of this.
The majority of the provision we're taking again is on loans that originated a decade or more ago and I think that's distinct from certainly from the loans that we're booking today are distinct from maybe other players that have a different.
David Yowan: Of course, the accounting treatment for each one of those is very different. There's none of the future cash flows from extension that gets booked in the current quarter, and all of the provision expense gets booked in the current quarter.
Story to tell this quarter.
Bill Ryan: Got it.
And of that $1 51.
Both for prepayment and default rates little trends that we're seeing when you see a difference. Over several quarters, we've appropriately, stepped back and said, let's take a look. At if we continue to see these Trends, both on prepayment and default rates, you know, here's the impact on lifelong, cash flows. And then, of course, the accounting treatment for each 1 of those, is very difficult. There's none of the future, cash flows from extension that gets booked in the current, uh, quarter, uh, and all of the provision expense gets booked in the, in the current quarter.
David Yowan: I think in terms of the, I'm not going to try to attribute all the different factors here. We've laid them out. I think we could, you know, turn it into a World Series game of 18 innings. There's a lot of factors going on. The ones we've called out are really the impact of everything that went on in the pandemic related to COVID relief, related to federal loan forgiveness, the macroeconomic conditions that we've seen. This is a distinct portfolio for us, just given the age of this. The majority of the provision we're taking, again, is on loans that originated a decade or more ago. I think that's distinct from certainly from the loans that we're booking today and distinct from, you know, maybe other players that have a different story to tell this quarter.
Got it.
Is there a breakdown of that like how much of it is credit and how much of it is extension of duration.
Yes.
I'm not going to.
There's so many factors involved we don't have that execution.
Okay got it and then Mike just one last one on so it seems like the delinquency rates are necessarily.
I think, in terms of the, I'm not going to try to attribute all the different factors here, we we've laid them out, I think we could, um, you know, turn it into a, a World Series game of 18 Innings. There's a, there's a lot of factors going on. The ones we've called out are really the impact of the
Showing the same type of deterioration that the charge offs are so should we expect.
That severity of loss to like so the roll rates to be higher on a go forward basis Im just curious Joe as we think about.
everything that went on in the pandemic related to co relief related to Federal Loan
Tim where this all for innovation.
Yes, they should be lower so.
The driver obviously of just the charge offs in this quarter as the timing of those borrowers coming out of the various disaster relief programs in forbearance as so to your point, we're seeing early stage delinquencies that are improving and late stage delinquencies for that matter on the consumer lending side. So from that standpoint, we would expect.
Bill Ryan: Of that $151 million, is there a breakdown of that? Like how much of it is credit and how much of it is extension of duration?
Forgiveness and the macroeconomic conditions that we've seen. And again, this is a distinct portfolio for us, just given the age of this. The majority of the provision we're taking again is on loans that originated a decade or more ago. I think that's distinct, certainly from the loans that we're booking today, and distinct from, you know, maybe other players that have a different story to tell this quarter.
Lower charge offs going forward and where we are seeing an improving low rates.
David Yowan: Yeah, I'm not going to, there are so many factors involved, we don't have that attribution, Sanjay.
And of that. 151, I mean, is there a breakdown of that like how much of it is credit and how much of it is extension of duration?
Sorry, I lied I have one more question.
On you hear a lot about.
Bill Ryan: Okay, got it. One last one on this. It seems like the delinquency rates aren't necessarily showing the same type of deterioration that the charge-offs are. Should we expect that severity of loss, like the roll rates, to be higher on a go-forward basis? I'm just curious, Joe, as we think about sort of where this all falls out.
Yeah, I'm not going to... There are so many factors involved. We don't have that attribution.
High levels of unemployment among graduate students I'm just curious if you guys are seeing anything in your portfolio or that you've accounted for any of that in this provision increase thanks.
Okay, got it. And then like this 1 last 1 on, um, so it seems like the delinquency rates aren't necessarily, you know, showing the same type of deterioration that the charge offs are so should we expect
We are not seeing that certainly when you look at the originations that we've been making we've been doing that since 2020.
That severity of loss to like. So the the roll rates to, to be higher on a go forward basis. I'm just curious, Joe, as we think about
They predominantly been too I should say more than half had been to graduate students and we're just not seeing that in terms of those.
David Yowan: Yeah, they should be lower. A big driver, obviously, of just the charge-offs in this quarter is the timing of those borrowers coming out of the various disaster relief programs and forbearances. To your point, we're seeing early-stage delinquencies that are improving and late-stage delinquencies for that matter on the consumer lending side. From that standpoint, we would expect lower charge-offs going forward, and we are seeing improving roll rates.
Um to where this all falls know they.
That have graduated here in the early term, but it's not been the impact that youre seeing in the headlines.
Got it thank you.
Welcome Ben.
We will take our next question from Mihir Bhatia with Bank of America. Please go ahead. Your line is open.
Yeah, they should, they should be lower. So, uh, a Big Driver, obviously of just the the charge off in this quarter is the timing of those borrowers, coming out out of the various disaster relief programs and forbearances. So, to your point, we're seeing early stage delinquencies that are improving and late stages and I can see for that matter on the consumer lending side. So from that standpoint, we would
Hi, Good morning, and thank you for taking my question.
Bill Ryan: Sorry, I might have one more question. You know, you hear a lot about high levels of unemployment among graduate students. I'm just curious if you guys are seeing anything in your portfolio or that you've accounted for any of that in this provision increase. Thanks.
Would expect, um, what we're charged off, going forward. And and we're, we are seeing an improving role rates.
Apologize upfront. It's another question on the provision and just trying to understand the moving pieces.
You mentioned the $155 million increase in provision in the consumer segment $17 million was due to new originations.
Is there a way to break out the remaining 138 between the macro policy changes and just higher delinquencies even.
David Yowan: No, we are not seeing that. Certainly, when you look at the originations that we've been making, we've been doing that since 2020. I should say more than half have been to graduate students, and we're just not seeing that in terms of those that have graduated here in their early terms. There has not been the impact that you're seeing in the headlines.
Employment among graduate students. I'm just curious; if you guys are seeing anything in your portfolio, or if you've accounted for any of that in this provision increase. Thanks.
Just trying to understand the moving pieces, how much is coming from macro assumptions of policy assumptions changing how much is coming from Matt Joe like delinquency, because the delinquencies don't like the trends in delinquency I think of some of the previous analysts also mentioned don't seem that bad I mean, I understand they are higher than earlier, but.
Bill Ryan: Got it. Thank you.
So just trying to understand the moving pieces. Thank you.
No, we we are not seeing that um, certainly when you look at the originations that we've been making, we've been doing that since 2020 to I should say more than a half, have been to graduate students and we're just not seeing that in terms of those, uh, those that have graduated here in the early terms, but it's not been the impact that you're seeing in the headlines.
David Yowan: You're welcome.
Yeah look I appreciate the question.
Operator: We'll take our next question from Mahir Bhatia with Bank of America. Please go ahead. Your line is open.
You're welcome, good.
The macroeconomic condition piece this quarter is relatively small.
[Analyst]: Hi, good morning, and thank you for taking my question. I apologize upfront. It's another question on the provision and just trying to understand the moving pieces. You mentioned the $155 million increase in provision in the consumer segment. $17 million was due to new originations. Is there a way to break out the remaining $138 million between the macro policy changes and just higher delinquencies even? I guess we're just trying to understand the moving pieces. How much is coming from macro assumptions and policy assumptions changing? How much is coming from actual delinquency? Because the delinquencies don't, like the trends in delinquency, I think, as some of the previous analysts also mentioned, don't seem that bad. I mean, I understand they're higher than earlier, but just trying to understand the moving pieces. Thank you.
We'll take her next question, from Maher. Bhatia with Bank of America, please go ahead. Your line is open.
The rest is that there is the trends we're seeing.
In the portfolio.
And our assumption and expectation that those trends are going to continue again.
Hi, uh, good morning. And thank you for taking my questions. Um, I apologize up front. It's another question on the provision and just trying to understand the moving pieces.
Uh,
Go back to the narrative that is.
He has to answer Bill's question upfront.
you mentioned the 155 million increase in provision in the consumer segments of 17 million was due to new originations.
I think you really have to look at the private legacy portfolio.
Look at the establishment of the reserve back in 2020 think about the five years. Since then see what we're seeing now that's what we're responding to there is a variety of factors on that very seasoned portfolio.
We're responding to their thats the majority of the story is 161.
Is there a way to break out the remaining 138 between the macro policy changes and just higher delinquencies? Even I guess we're just trying to understand the moving pieces. How much is coming from macro assumptions and policy assumptions changing? How much is coming from actual? Like delinquency? Because the delinquencies don't like the trends in delinquency? I think as some of the previous analysts also mentioned, don't seem that bad. I mean I understand they're higher than earlier, but
So, just trying to understand the moving pieces. Thank you.
David Yowan: Yeah, look, I appreciate the question. The macroeconomic condition piece this quarter is relatively small. The rest of it is the trends we're seeing in the portfolio and our assumption and expectation that those trends are going to continue. Again, go back to the narrative that I used to answer Bill's question up front. I think you really have to look at the private legacy portfolio, look at the establishment of the reserve back in 2020, think about the five years since then, see what we're seeing now. That's what we're responding to. There's a variety of factors on that very seasoned portfolio that we're responding to there. That's the majority of the story of the $151 million.
Okay.
And then maybe just on the refinance side.
As you've had some more time to digest some of the changes that are going on the graduate side.
yeah, look at the question, the the um, the macroeconomic, uh, condition piece, this quarter, is relatively small
And.
So maybe just a question like both on the in school opportunity for New loans, and then just on the refinance side even.
Is there.
Something for us to be thinking about with all of the policy changes going on there where there could be some type of refinance benefit also.
Used to answer Bill's question up front.
Yes. So thanks for the question, Yes, we do what Youre seeing in our results today, I think the opportunity and refi and our ability to capitalize on it.
I mentioned at last quarters release, one of the things that.
Again, not to keep going back to 2020, but prior to the pandemic.
Um, I think you really have to look at the private Legacy portfolio. Look at the establishment of the reserve back in 2020; think about the 5 years since then. See what we're seeing now; that's what we're responding to. There's a variety of factors on that very seasoned portfolio that we're responding to here. That's the majority of the story of the 151.
[Analyst]: Okay. Maybe just on the refinance side, as you've had some more time to digest some of the changes that are going on on the graduate side. Maybe just a question, like both on the in-school opportunity for new loans and then just on the refinance side even, is there something for us to be thinking about with all the policy changes going on there where there could be some type of refinance benefit also?
Our refi originations were roughly 50% coming from federal loan borrowers.
Then during the pandemic period, which also coincided with a period of higher benchmark interest rates and volumes lower.
Okay. Um, and then maybe just on the refinance side. Um,
Roughly 20% of our.
As you as you've had some more time to digest, you know, some of the changes in the going on on The Graduate side. Uh, and
Refi origination volume was coming from federal loan borrowers.
In the first.
Half of the year, roughly 40% of our borrowers.
Coming from from consolidating out of federal loans, and this quarter, 50%, we're consolidating out of federal loans.
David Yowan: Yeah, thanks for the question. Yeah, we do. You're seeing in our results today, I think the opportunity in refi and our ability to capitalize on it. I mentioned at last quarter's release, one of the things that, not to keep going back to 2020, but prior to the pandemic, our refi originations were roughly 50% coming from federal loan borrowers. During the pandemic period, which also coincided with a period of higher benchmark interest rates and volumes lower, roughly 20% of our refi origination volume was coming from federal loan borrowers. In the first half of the year, roughly 40% of our borrowers were coming from, and this quarter, 50% were consolidating out of federal loans.
So, maybe just a question like both on the in-school opportunity for new loans and then just on the refinance side even. Is there something for us to be thinking about, with all the policy changes going on there, where there could be some type of refinance benefit? Also,
The <unk>.
The impact of.
Federal Public policy Center, a lone public policy on payment relief programs et cetera has made to federal loan value proposition to borrowers less attractive than it once was and therefore, the private loan the refi loans, becoming more attractive we think thats whats.
Yeah, so thanks for the question. Um, yeah, we do. Well, you're seeing in our results today, I think the opportunity in refi and our ability to capitalize on it, um, I mentioned, uh, at last quarter is released 1 of the things that um, again, let's keep going back to 2020, but prior to the pandemic,
Our refi originations were roughly 50% coming from Federal Loan Borrowers.
Driving.
Part of the increase in the growth in <unk> that we're seeing we would expect that to continue.
Then during the pandemic period, which also coincided with a period of higher Benchmark, interest rates and volumes lower.
Lower benchmark interest rates only further increase the addressable market there.
Roughly 20% of our uh uh refi origination volume was coming from Federal Loan Borrowers.
If you look at.
Interest rates on federal loans, I think it's over it was over $100 billion et cetera loans originated in the last six years.
Uh, this in the first.
Above 7% coupon.
David Yowan: The impact of policy, federal loan public policy on payment relief programs, etc., has made the value proposition to borrowers less attractive than it once was, and therefore the private loan, the refi loan, becoming more attractive. We think that's what's driving the growth in refi that we're seeing. We would expect that to continue. Lower benchmark interest rates only further increase the addressable market there. If you look at the interest rates on federal loans, I think it's over, there's over $100 billion of federal loans originated in the last six years that have above 7% coupon. That's a significant and substantial opportunity, not all of which meets our targeted customer base, but the refi opportunity is significant and substantial. The Grad PLUS piece is still, we don't know what, I don't think anyone knows for sure what that's going to look like.
Thats, a significant and substantial opportunity not all of which meets our targeted customer base.
Half of the year, roughly 40% of our borrowers were coming from. This quarter, 50% were consolidating out of federal loans. So, the impact of...
The refi opportunity is.
Significant and substantial.
Policy. So our loan public policy on payment relief programs, etc. has...
<unk> plus piece is still.
We don't know what I don't think anybody knows for sure what that's going to look like we feel confident in our ability demonstrated this quarter again to attract.
The value proposition to borrowers is less attractive than it once was, and therefore, private loans and refinancing loans are becoming more attractive. We think that's what's happening.
High credit quality.
High balance borrowers predominantly graduate schemes and so when those students present themselves that are looking for a GAAP to help finance their education, we're confident in our ability to meet them meet their needs and exceed their expectations.
Understood. Thank you for taking my questions.
Driving and the growth in refi that we're seeing. We would expect that to continue, uh, lower Benchmark, interest rates, only further, increase the addressable Market there. You know, if you look at, um, the interest rates on Federal loans, I think it's over, there's over a hundred billion of Federal loans originally
In the last 6 years.
You bet.
We will take our next question from Ryan Shelley with Bank of America. Please go ahead. Your line is open.
Hey, guys. Thanks for the question most of mine have been answered I just wanted to ask about your outlook on competition.
That have above 7% coupon, you know that's a significant and substantial opportunity. Not all of which leads to our targeted customer base, but the refi opportunity is, you know, sub-significant and substantial.
Going forward, so obviously, what changes to federal policy. It sounded like there is going to be.
you know, the Grad Plus piece is still um
Our Greenfield I know you just said heartbreak.
David Yowan: We feel confident in our ability, demonstrated this quarter again, to attract high credit quality, high balance borrowers, predominantly graduate students. When those students present themselves and are looking for a gap to help finance their education, we're confident in our ability to meet them, meet their needs, and exceed their expectations.
Hard to exactly size that but big picture. It sounds like there will be more opportunity how do you see that changing the competitive landscape and any commentary around what youre doing.
We don't know what. I don't think anyone knows for sure what that's going to look like. We feel confident in our ability.
Demonstrated this quarter again to attract, uh, High credit quality.
Prepare yourself to more effectively compete thank you.
Alright, I think that we've done a good job in terms of our.
Our entrance into the market over the last several years here have positioned ourselves very well to take advantage of the opportunity when when we look at our competition as it relates to.
[Analyst]: Understood. Thank you for taking my questions.
High balance, uh, borrowers predominantly graduate students. And so when those uh, students present themselves and are looking for a gap to help Finance their education, we're confident in our ability to meet them, meet their needs, and exceed their expectations.
David Yowan: You bet.
Understood. Thank you for taking my questions.
Operator: We'll take our next question from Ryan Shelley with Bank of America. Please go ahead. Your line is open.
In school graduate loan originations.
Just looking at public data.
Bill Ryan: Hey guys, thanks for the question. Most of mine have been answered. I just wanted to ask about your outlook on competition going forward. Obviously, with changes to federal policy, it sounds like there's going to be more greenfield. I know you just said it's hard to exactly size that, but big picture, it sounds like there will be more opportunity. How do you see that changing the competitive landscape, and any commentary around what you're doing to prepare yourself to more effectively compete? Thank you.
We'll take our next question from Ryan, Shelly with Bank of America, please go ahead. Your line is open.
Roughly over $200 million in terms of graduate originations when you look at last year we.
We estimated that market to be between $1 billion and $1 billion for if you look at some of our competitors and what they suggest as the market that's fairly consistent so roughly a 20% market share there and I think that the product suite that we offer is very attractive in the early stages of what we've seen here just really with some of the reforms.
Hey guys, thanks for the question. Uh most of them might have been answered. I just wanted to ask about your outlook on competition. Uh, going for obviously what changes to federal policy. It sounds like there's going to be
That have taken place we've had a number of financial aid offices reach out we've been able to add in terms of the percentage of the top 200 schools that we participate in over the last two quarters here. So.
David Yowan: All right. I think that we've done a good job in terms of our entrance into the market over the last several years here. Positioned ourselves very well to take advantage of the opportunity. When we look at our competition as it relates to new in-school graduate loan originations, just looking at public data, we're roughly over $200 million in terms of graduate originations when you look at last year. We estimated that market to be between $1 billion and $1.4 billion. If you look at some of our competitors and what they suggest is the market, that's fairly consistent. So roughly a 20% market share there, and I think that the product suite that we offer is very attractive.
For Greenfield. I know you just said, it's hard to exactly sized that but big picture. It sounds like there will be more opportunity. How do you see that changing the competitive landscape and any commentary around? You know what you're doing? Uh, to, you know, prepare yourself to more, effectively compete. Thank you.
An additional 9% to 10% increase there. So certainly we're taking advantage of the opportunity here that's in front of us.
And the normal competitors in that place our debt.
Obviously, the largest player in the market will still has a significant share there.
We haven't yet seen new entrants that have made a significant impact.
And on the refi side, there is a significant opportunity for growth there.
Obviously rates fall.
Predominantly just us and one other larger competitor in the market, we don't see other players stepping in yet to like we did.
David Yowan: In the early stages of what we've seen here and just really with some of the reforms that have taken place, we've had a number of financial aid offices reach out. We've been able to add in terms of the percentage of the top 200 schools that we participate in over the last two quarters here. Call it an additional 9% to 10% increase there. Certainly, you know, we're taking advantage of the opportunity here that's in front of us. The normal competitors in that place are obviously the largest player in the market. We'll still have a significant share there. We haven't yet seen new entrants that have made a significant impact. On the refi side, that's predominantly just us and one other larger competitor in the market.
Five years ago, where they were.
More diverse players in the refi space. So today I'd say, it's really a two person race in terms of refi originations and we're not seeing any changes in.
Really outsized coupons that are changing or pressure on rates that are being charged to borrowers at this stage. So we feel good about where we are and well positioned for all of 2020.
Got it very comprehensive thank you.
School graduate loan, originations, uh, just looking at public data, we're roughly over 200 million dollars in terms of graduate. Originations, when you look at last year, uh, we estimated that market to be between a billion and a billion 4. If you look at some of our competitors, and what they suggest is, is the market that's fairly consistent. So roughly a 20% market share there. And I think that the product Suite that we offer is very attractive in the early stages of what we've seen here in the just really, with some of the reforms that have taken place. We've had a number of financial aid offices, Reach Out. We've been able to add in terms of the percentage of the top 200 schools that we participate in over the the last 2 quarters here. So call it, uh, an additional 9 to 10% increase there. So certainly, you know, we're taking advantage of the, the opportunity here that's in front of us. Um, and the, the normal competitors in that place.
And as a reminder, if you'd like to ask a question today. Please press the star and <unk> on your telephone keypad.
We will take our next question from Jeff Adelson with Morgan Stanley. Please go ahead. Your line is open.
Are you know that obviously the largest player in the market will still uh, has a significant share their. Um, we haven't yet seen new entrance that has made a significant impact.
And on the refi side there, there's a significant.
David Yowan: We don't see other players stepping in yet, like we did, call it five years ago, where there were more diverse players in the refi space. Today, I'd say it's really a two-person race in terms of refi originations, and we're not seeing any changes in really outsized coupons that are changing or pressure on rates that are being charged to borrowers at this stage. We feel good about where we are and, yes.
Hey, good morning, Thanks for taking my questions.
It's already been asked already but just in terms of the <unk>.
Potential grad plus opportunity here is there any more work you've done over the past quarter to kind of better sort of ring fence. The opportunity here, where your work has shown year and I think one of your competitors has been out there on the <unk> side talking about a $4 to $5 billion opportunity annually is that theme maybe in the ballpark for you all.
It's predominantly just us and 1 other larger competitor in the market. We don't see other players, uh, stepping in, yet to uh, like we did called 5 years ago. Where there were
Or are there any maybe differences and how you would think about that.
More diverse players in in the Wei space. So today I'd say it's really a a 2-person race in terms of refi originations. And we're not seeing any changes in, um, really outside coupons that are changing or pressure on a rates that are being charged to borrowers at this stage. So we feel good about where we are. And what
Or should we be expecting something on this in November update around sort of market size opportunity there. Thanks.
Bill Ryan: Got it. Very comprehensive. Thank you.
Got it for comprehensive. Thank you.
Operator: As a reminder, if you'd like to ask a question today, please press the star and one keys on your telephone keypad. We'll take our next question from Jeff Adelson with Morgan Stanley. Please go ahead. Your line is open.
So I would think of it is that the market share today is a $1 billion 2 billion for in terms of what the graduate market represents for private players I would say grad plus.
And as a reminder, if you'd like to ask a question today, please press the star and 1 keys, on your telephone keypad.
A total of $14 billion market. So I don't view that as just one for one replacement that youre, adding $14 billion and to one of our competitors and said $4 billion to $5 billion is the expansion. Another one of our competitors is quoted as closer to $10 billion. So from US. We certainly think there's going to be a level of multiples of expansion, there and where.
[Analyst]: Hey, Morgan, thanks for taking my questions. In terms of the potential Grad PLUS opportunity here, is there any more work you've done over the past quarter to try to better sort of ring-fence the opportunity here where your work has shown you? I think one of your competitors has been out there on the in-school side talking about a $4 to $5 billion opportunity annually. Does that seem maybe in the ballpark for you, or are there any maybe differences in how you would think about that? Should we be maybe expecting something on this November update around sort of Navient's opportunity there? Thanks.
We'll take our next question from Jeff. Aiden with Morgan Stanley. Please go ahead. Your line is open.
Hey, good morning. Thanks for taking my questions. Um just in terms of the you know, potential grab plus opportunity. Here is, is there any more work you've done?
We're excited about the opportunity and that's where I'd leave it.
Okay. Thanks, that's helpful. And then just on the refi side I think you had said you're about 50% is now as of this quarter coming back from the government refi side of things more in line with pre Covid do you think there is an opportunity for that to expand even further above even where pre COVID-19 was.
David Yowan: I would think of it as the market share today is $1 billion to $1.4 billion in terms of what the graduate market represents for private players. I would say Grad PLUS as a total is a $14 billion market. I don't view that as just one-for-one replacement that you're adding $14 billion. I know one of our competitors has said $4 billion to $5 billion is the expansion. Another one of our competitors has quoted as closer to $10 billion. From us, we certainly think there's going to be a level of multiples of expansion there, and we're excited about the opportunity. That's where I'd leave it.
Um, over the past quarter to try to better sort of ring fence the opportunity here where your work has shown you. And I think, you know, 1 of your competitors has been out there on the in school side, talking about a 4, to 5, uh billion dollar opportunity annually. Is that seeing maybe in the ballpark for you or other any maybe differences and and how you would think about that and um or or should we be maybe expecting something on this November update, um, around sort of Marcus as opportunity there, thanks?
Just as sort of rates fall from here and the government policy on <unk>.
Forgiveness and repayment plans. After next year is going to get a little bit worse.
Absolutely I think there is opportunities when you think about just the rate environment here. So I'll just seems.
So, I would think of it as the market share today being a billion to a billion four in terms of what the graduate market represents for private players. Obviously, Grad Plus as a...
One example, if I look at the Grad plus program going back the last 14 years, there's only been one instance, where the rates that are reset every single year has been below 6% and if you look at the last.
Four years those rates have been up seven 5% or higher in just two years ago was at 9%. So as rates fall here I think there's a tremendous opportunity. When you think of the volume of high quality borrowers that have attended and graduate weighted with the graduate degree I think it's a great opportunity in front of us to increase that percentage.
total of the 141 Replacements that you're adding 14 billion dollars into 1 of our competitors has said 4 to 5 billion is the expansion. Another 1 of our competitors is included as closer to 10 million dollars. So from us we think there's going to be a level of multiples of expansion there and we're excited about the opportunity and that's where I do.
[Analyst]: Okay. Thanks. That's helpful. Just on the refi side, I think you had said about 50% is now as of this quarter coming back from the government refi side of things, more in line with pre-COVID. Do you think there's an opportunity for that to expand even further above even where pre-COVID was, just as sort of rates fall from here and the government policy on forgiveness and repayment plans after next year is going to get a little bit worse?
Ultimately increase the volume.
You don't have to go that far back to see just very high level volumes from US back in 2021 were close to $6 billion in terms of originations. So I think it's really going to be rate driven and we'll have to see what happens here in the next couple of quarters.
It. Okay thanks that's helpful. And just on the refi side, I think you had said your about 50% is now as of this quarter coming back from the the government refi side of things um more in line with pre preco, do you think there's an opportunity for that to expand even further about even more preco was um, just as sort of rates fall from here and the government policy on
David Yowan: Absolutely. I think there's opportunities when you think about just the rate environment here. I'll just use one example. If I look at the Grad PLUS program, really going back the last 14 years, there's only been one instance where the rates that are reset every single year have been below 6%. If you look at the last four years, those rates have been at 7.5% or higher, and just two years ago was at 9%. As rates fall here, I think there's a tremendous opportunity when you think of the volume of high-quality borrowers that have attended and graduated with a graduate degree. I think it's a great opportunity in front of us to increase that percentage and ultimately increase the volume. You don't have to go that far back to see just very high-level volumes from us.
Um, forgiveness and repayment plans. After next year, it's going to get a little bit worse.
Okay. Thanks for taking my questions.
And there are no further questions on the line at this time I'll turn the program back to <unk> CEO, David <unk> for any additional or closing remarks.
Yes, Thank you and thanks for joining us today before we close I'd just like that.
Put into context. This quarter's results the way we see it now I'd actually call your attention to slide three in our slide package. We've included this slide eight.
Eight or nine quarters now.
That's four elements to it that we're attempting to deliver on I'll just go through them one maximize the cash flows from our loan portfolios based on the trends that we're seeing today that we have recorded and put it into our life of loan cash flow assumptions.
David Yowan: Back in 2021, we were close to $6 billion in terms of originations. I think it's really going to be rate-driven, and we'll have to see what happens here in the next couple of quarters.
Those combined to have a $195 million increase in the life of loan cash bonds.
[Analyst]: Okay, thanks for taking my questions.
Really going to be rate, driven, and we'll have to see what happens here in the next couple quarters.
Okay, thanks for taking my questions.
Operator: There are no further questions on the line at this time. I'll turn the program back to Navient CEO David Yowan for any additional or closing remarks.
The second thing, we said, we'd deliver on was enhanced the value of our growth businesses.
The third straight quarter, we doubled our origination volume from prior quarters, we had our highest peak season.
David Yowan: Yeah, thank you, and thanks for joining today. Before we close, I'd just like to put into context this quarter's results the way that we see it. I'd actually call your attention to slide 3 in our slide package. We've included this slide for eight or nine quarters now. It has four elements to it that we're attempting to deliver on. I'll just go through them. One, maximize the cash flows from our loan portfolios. Based on the trends that we're seeing today that we have recorded and put into our lifelong cash flow assumptions, those combined to have a $195 million increase in the lifelong cash flows that we saw. The second thing we said we'd deliver on was enhance the value of our growth businesses. For the third straight quarter, we've doubled our origination volume from prior quarters.
And there are no further questions on the line at this time, I'll turn the program back to Navi and CEO, David yoin for any additional or closing remarks.
In school lending in our history credit quality is exceptionally high customer satisfaction remains very high and so we're positioning ourselves for further growth in market and product opportunities.
Yeah, thank you and thanks for joining today. You know, before we close. I, I just like to
Continue to see simplified the business and increase efficiency I'd call your attention to slide 11, where operating expenses. This quarter are roughly 55% of what they were just in the year ago quarter.
And leads identified within the amounts we incurred this quarter $14 million of expenses that we know are going to go away. We are in the process of getting rid of those that would bring our operating expenses down to less than half the level. They were they were a year ago and we're committed to continue to look for ways to be more.
Put into context this quarter's results, the way that we see it, and it actually call your attention to slide 3 and our, uh, slide package. We've included this Slide for 8 or 9 quarters now. So that's 4 elements to it that were attending to deliver on. We'll just go through them 1 Maxim. The cash flows from our loan portfolios based on the trends that we're seeing today that we have recorded and and put into our lifelong cash flow assumptions.
Those combined to have a 195 million increase in the lifelong cash flows that we saw.
<unk>.
David Yowan: We had our highest peak season in in-school lending in our history. Credit quality is exceptionally high. Customer satisfaction remains very high. We're positioning ourselves for further growth in market and product opportunities. Continuously simplify the business and increase efficiency. I'd call your attention to slide 11, where operating expenses this quarter are roughly 55% of what they were just in the year-ago quarter. We've identified within the amounts we incurred this quarter, $14 million of expenses that we know are going to go away. We're in the process of getting rid of those. That would bring our operating expenses down to less than half the level they were a year ago. We're committed to continue to look for ways to be more efficient. Fourthly, maintain a strong balance sheet and distribute excess capital. We have an adjusted tangible equity ratio of 9.3%, which remains above our long-term average.
And then fourthly maintain a strong balance sheet and distributing excess capital we have.
Adjusted tangible equity ratio of nine 3%, which remains above our long term average and we were able to grow.
The second thing we said, we deliver on was enhanced, the value of our growth businesses through the third straight quarter, we've doubled our origination volume from prior quarters. We had our highest peak season in, in school, lending in our history. Credit quality is exceptionally High. Customer satisfaction remains very high and so we're positioning ourselves for
Loans at the levels, we grew at and still distributed $42 million worth of capital for our shareholders. So we feel like we have this quarter is a great. A great example of our ability to check all four of those boxes in a very meaningful way and I hope you can see our results in that same context.
Further growth in market and product opportunities.
Contingency simplified the business and increased efficiency. Call your attention to slide 11. Our operating expenses this quarter are roughly 55% of what they were in the year-ago quarter.
<unk>.
Your time and attention.
We look forward to speaking to you in November.
Thanks for joining today's call.
Hi, David.
Go right ahead Chad.
I think this is going to offer anybody with questions. We didn't get to please contact me after the call.
And we've identified within the amount, we incurred, this quarter 14 million of expenses, that we know are going to go away. We're in the process of getting rid of those that would bring our operating expenses. Down to less than half the level they were, they were a year ago and we're committed to continue to look for ways to be more efficient.
Conversation and thank you David.
Absolutely. Thank you all for your participation you may does.
David Yowan: We were able to grow loans at the levels we grew at and still distributed 42 holders. We feel like this quarter is a great example of our ability to check all four of those boxes in a very meaningful way. I hope you can see our results in that same context. Appreciate your time and attention. We look forward to speaking to you in November.
And then fourthly maintain a strong balance sheet and distribute excess Capital. We have an adjusted tangible, equity ratio of 9.3%, which remains above our long-term average and
We were able to grow uh loans at the levels we grew at and still to do distributed 42 year olds. So we feel like we this quarter is a great op. A great example of our ability to check all 4 of those boxes in a very meaningful way and I hope you can see our results in that same context.
Appreciate your time and attention.
We look forward to speaking to you, in November.
Jen Earyes: Thanks for joining today's call. Sorry, David.
Operator: Go right ahead, Jen.
Thanks for joining today's call. Oh sorry. David,
Jen Earyes: I was just going to offer anybody whose question we didn't get to, please contact me after the call. Happy to have some more conversations. Thank you, David.
Go right at Chad.
Operator: Absolutely. Thank you all for your participation. You may disconnect at this time.
Oh, I was just somebody whose question we didn't get to. Please call after the call, Happy. I have some more conversation, and thank you, David.
Absolutely. Thank you all for your participation. You may disconnect at this time.