Navient (NAVI) 18 Oct 172017 Q3 Earnings call transcript

Good morning. My name is Andrea and I will be your operator today. At this time, I would like to welcome everyone to the Navient Third Quarter 2017 Earnings Call. Mr. Joe Fisher, you may begin.

Andrea. you, Thank welcome and XXXX quarter third Good to call. earnings morning, Navient's our are Chris today me CEO; Jack With Remondi, and CFO. Lown, our After open will remarks, call prepared questions. up for their the we

discussion the refer begin, to of will on statements. in those a Form results future those variety different the to factors. and of other be in we factors could discussed Before mind here. Actual contain expectations, This the and XX-K keep discussion predictions, company’s with forward-looking materially from should SEC. the may Listeners our be due filings

During third Thank non-GAAP our to A and this our the you. XXXX This disclosure. quarter navient.com. reconciliation conference on description call, turn call we earnings. over measures, the we GAAP GAAP will supplemental Investors earnings results full refer core page posted a at to measures And is to can of be Jack. the I’ll earnings, core now, in call found

today for value Good morning, will perspective Joe. Thanks, results, enterprise comments on we this future and plan this the Navient. the cover how us everyone, your increase to morning my growth quarter’s Navient. thank you interest in for My outlook of joining and and for

costs $X.XX of to adjusted results. core operating better the The than contribute forecasted. reflect strong rewarding Our earnings to quarter's solid as net combined was fee interest and performance, revenue, and our results the Board across performance margin, credit

some items. included results onetime quarter's This

of fee acquisition to We over We’ve nine our to $X.X and less acquire XXXX loans. $X.X to a Earnest. unsecured distributed student were non-education-related revenue Duncan XX% of by billion earnings year-over-year. core maturities agreement per acquisition reduced million the Highlights we completed executed the than billion, these, $X.XX of shareholders. debt $XXX the Solutions. We We increased an months Excluding share. from XXXX include strong first in our

decline for Earlier improving has continue Education superior and Delinquency as loans default both private the to we loan federal amid of month, been Department spot types bright rate. to results student economy. cohort XXXX default and an addition, rates this student loans. the of performance of three-year continue In the a deliver for both released performance

rate the by for were Navient-serviced organizations. likely to borrowers borrower less XX% declined. the than loans Navient-serviced national default While other rate increased, serviced

continue also in We enrolling student like a repayment. alternative to borrowers payment federal be in leader income-based loan programs

a assisting on extensive in more of XX% charges a for information they an investigation, centers He loan Attorney fact, all This servicing. policy are the enrolled congress and take student simply complaints schemes politically-driven Navient requested federal serviced where borrowers, the of interest I'd set again, lawsuit loan, or residents not accusations starcasm review office borrowers that claim we are nothing moments cursory term interest once fact, like of Yet, Instead, which is the servicing servicer. to of these state. baseless, other Higher received rates.” and borrowers servicer. XX And, to despite changed the Navient for service concern another there Pennsylvania recent fixed from thousands assistance he contract, news. by General claims reality Education good industry-leading rates Education the are In of their copied no by General. ever office He one our accusations. gain claims. Perpetuating lawsuit loan asserts are filed Act Pennsylvania year no baseless to from unfounded in does towards stand regarding continued. or such that into programs never Attorney Pennsylvania our consistent And, Department allegations loan successful when, have and brought by between after contradiction up student by performance by borrowers “jacked even his political our performance than example, borrower statistics the accounts. balances is we the factual in income-driven but of these a claims a XX we violated has or our foot one steered of and assist the of brought in federal his have to any to is industry-leading there our the stepped terms The a few with them showed last requested the that repayment disagreement Yet, reflected one discuss as from course, the in federal repayment.

beneficial to so rules. meantime, a Year-after-year, of XX, And default given complex they In at keeps This them demonstrate In their each before X today’s the to What it’s provide business. are may for complex to this morning. our separation causing Since navigating them what times graduating the Navient a This acquired we the from when struggling away by that to adding a outreach. value business, make overly had rate. we complexity. tangible servicer this complex, up-front programs responding lack to need and repayment borrowers are will delivered education, We've facts loan nearly customers make loans, projected consequences we encouraged system. repeated are noise, and student have $X the to struggling spend be our select defaults, loan creating that to that be very student But outstanding heard comments default. issues. the we is confident that Struggling businesses. do. serious claims the harm spite is these. the the defeat this increase unanswered. politically options, value out value many fact, generated service cash circumstances. to or responding adequate lower rise portfolio They focus remained borrowers more It help results billion our directing understand that this of from XXXX, focused why borrowers purchases help Ironically, their XX% student attention main time to however, financial to should will And we’ve politically-driven has area in value In in I’m dropping my the addressing team disappointing speak been and campaign. the loan have it's we federal appear that widespread difficulty of of growth likely We billion in student and value focusing doing true but support And solution regulators this our set maximizing our flows. contact issues from on or $XX by those delivered promoted not loan federal over in their continues and to also on The would It borrower, creating be requests choice can flows. solution loan surface. almost of with these is, complex. shareholders. real of customers the abuse, of by of legacy to in extraordinary too create is we cash and we to will the out our facts fee-based best team

expand our growth. acquired including several quarter, footprint and this companies, have drive help Solutions We to Duncan organic

business systems beyond operating skills education leverage loans. partners to and services our Our

with are attractive very revenue We that will here risk-adjusted a generate margins. building business double-digit growth organic

their originating Today's legacy generate Finally, new loans I pricing the can meaningful loans. one-size-fits-all student to risk loan benefit financial borrowers a a of rates graduate programs by and know we student in investment value graduating. believe or addition of in higher incomes, that levels stronger purchasing years health. of that over student charge not reflect we use gain who employment, XX With the with of education experience, higher

at products have earned. lower rates student helping on focused adults Our new refinance loan they their are young the loans

Net lower Earnest, customers, a the is ability use very are approach the different a of deliver experience, we cost. accelerate pricing extremely defaults agreed They in exceptional and to that area, developed these value, help to at performance For payment a major growth with player dynamic have all data to solutions To this customer low. create distinctly our market. and pace value, to earned strong alone. acquire more I than to value opportunity our business our build will the for either in great meaningful and they excited a our resources create I'm the customers would the us Scores of result, have investors. of combination Promoter with significantly skills The and about to value create and highest opportunity our our respective newest believe and industry. more colleagues

more complete significant have investors. the loans, or be high generating and for a transactions $X $X.X completed We’ve dominant space than create ROEs. several producing now over our We year add in will a expect will I to in new this loans believe sheet and billion XXXX. of loans mid-teens in will value will we add billion XXXX that new in refi player will balance quality

Duncan in and Specifically, dominant added we These refi portfolio. fee-based to Solutions require our originator loans a loans. with capital. additions we investment, believe businesses, be though, that will our repurchase balance over To program to our add will student Earnest, share flexibility, suspended of shareholders. financial billion $XX represents a reward a will XXXX. this sheet maintain an through I and strong We

investments the that earnings generate company and visibility to And, will second, be company returns the First, the be with valued. from growth we in high we're will believe ROEs it mid will attractive, teens. earnings growth. these investors projected growth believe I reinvesting this clear capital our position I in will generate very allow for growth. fairly the earnings to low-risk to of attract investments

that I clients. done are I’ll our in potential significant been create our guidance, and products, CEO customers now, today. a price. to are turn reflected that our you know, we have ability As even and this has not will our delivering and you discussion and deliver questions believe to and this services strategy, a confident for the but, deeper possible. products and team our on all to-date I value and over results stock as create in forward value value confident our our My My our call. great for services, quarter's believe of to and returns to shareholders, it's and is people by in as the challenge know I your this we investors. today's look this job create I'm investors And, I Chris of to so the later call more for

Throughout compared we Navient. prior call, your in everyone referencing Investor core which third website Slide you, on X, to the Thank in the Starting call be and to from the Jack, for EPS in on will $X.XX $X.XX quarter on you earnings the I found the adjusted can this be call year. section. reported today's company's interest presentation thank of

deferred deferred longer provide no a will to revenue which termination During is recognized revenue quarter, which shortened previously Navient earned. period related to it $XX reflect or This of to services is we services the announced over $X.XX be a recognized expected share million the loans related due contract. for of the to

in portfolio to discussed have prepayment has the this previous economy the as known third seen and CPR speed we seize adjusted to quarter an we our continues them. in in increase We prepayment our as otherwise quarters, As therefore assumptions, improved speeds assumptions, activity. our have reflect

of assumptions and used to was million periodically reduction result net $XX loans. We a a student necessary, assess there and, amortize income. premium net on this prepayment As interest discount if adjustment, to adjust

ranged costs Our prepayment X% excluding flow projections historically core regulatory our share since used earnings between our per $X.XX. XXXX. speed Year-to-date, cash X% assumptions and in is have

toll and expect the This includes impact of to $X.XX. least services temporary share earnings per quarter Rico. of Earnest acquisition be the We the in suspension Puerto at of road fourth

on core $XX of million interest a basis in Let's points million earnings net X. for segment year The our was XXXX were compared the now the XX margin XXXX. to XX FFELP for points beginning Slide move third $XX quarter compared with ago. the reporting quarter third third into of with quarter FFELP basis

aforementioned been the net points. would adjustment, have interest Excluding CPR basis margin XX

FFELP the in on continue we quarter. with between to in quarter, mitigate total quarter the XXs. $X.X third improve into the acquired transactions the the loans, to we further the high the of enter potential Credit disaster for to to that LIBOR quarter, year-to-date forbearance In a one- result rates. continues of increase quality to derivative We in be levels bringing FFELP billion. and primarily three-month NIM our acquisition FFELP million forbearance was dislocation This $XXX portfolio anticipate FFELP granted fourth the

season. expect to to this improvement continued We continues see portfolio as

flat the was loan includes quarter increase. to since and we With year-over-year granted saw This market’s the a their quarter. from XXXX. that second primarily expected in now year-over-year. the our Private in XX the private fourth in quarter’s $X private margin education of the in points the The of third acquisition result Core NIM high anticipated quarter, margin fourth loan education remain and to due be excluding was second the basis billion that as interest this adjustment. segment. a mid the anticipation XXXs. loans FFELP delinquencies the education Let’s XXX or are lowest improvement to was turn the to clients amortizes. X at loan basis end net basis XXX acquired net at updated of portfolio, levels point for as portfolio losses interest the assets an quarter. and the in We were segment our quarter rate increase increase decline forbearance the Slide earnings a CPR to In points The of education Earnest was impact in anticipate of the portfolio continue disaster guidance the forbearance charge-offs

a of so to loans. expected in do increase to these policy we two losses, impacted of loan reserve not Our see years provision provides expect for any minimum related

As charge-offs we a expect purchased discount to reminder, and provisions at quarter, losses and require acquired occur. the portfolio will we portfolio for $X to in This as education charge-offs a increase billion quarter. was the fourth loan related last provisions

to We compared XXXX. the in will Slide third review were earnings business quarter now with of the million segment, X quarter turn core $XX segment. million $XXX services In in this to our

Solutions to a we in be Jack million. This revenue highly growth Duncan acquired platform and with increase in opportunities. our As led growth organic acquisition complementary Gila Solutions previously along will to mentioned, $XX fee create attractive quarter. the Duncan noneducation to XX%

Funds’ the quarter, combined announced provide portfolio. the will management During FFELP portfolio we also we services USA post-default Lakes collection that for and and Great

X, to Slide the loans. education million third Let’s highlights purchased in $XXX our quarter, now the financing quarter. turn we which activity of In

a education financed facilities most our refinance $X our education year ABS in million transaction securitization totaling an of we fund We of Year-to-date, private $X This loans that first private to cost a represented capacity issued and ABCP to education loan XXX transactions deal with On recently that before a legacy $X private loans. facilities recent the term. combination loan two we years. with that education first most XX% February improvement of originated We And our transaction ABS XX, X.X of available million our ABCP a available since education billion average recent have price billion. all-in in our priced refinance over loan $XXX spread This issued ago. funds securitization. have them $XXX securitize loans include XXXX. is FFELP weighted billion. to of over We facilities of ABCP FFELP basis of FFELP October deal points capacity we with including life is plan

our Moving returned in dividends XX% maturity percent separation have Navient to unsecured to Since May reduced reduced the of Slide capital debt $X.X we In maturities want XXXX to the X, the review buybacks past billion. XXXX, our quarter, billion we our I quickly shareholders. debt has $X.X by unsecured in and $XXX million. to schedule. maturities year, In by

of of of acquired believe billion in and these In $XX addition, highly $XXX acquire financing capture agreed have Navient’s increased to we growing We Earnest businesses value loan, student have which all and nearly the complementary large intrinsic share will market. significant fee-based for ability education accelerate the purchased the to million, dollars actions company.

our times. of which of As the to ratio positive times to stated our times since X.XX bottom we these is decline in quartile a also our X.X in X.X quarter of the range result third separation, actions saw TNA

Earnest, therefore, fund increased and share to as to have, as capital expected well originations TNA from build buyback program our increase suspended to ratio. our temporarily We

our the initiatives on XXXX program we execute over we we buyback dividend year, to As the aforementioned maintain policy. and next expect in our reinitiate will

Finally, of of with results the and net open share let's income questions. X. compared GAAP now core $XXX quarter GAAP are per per GAAP primary positions. income to or to cents on quarter The recorded for third turn derivative share the million $X.XX $X.XX will call We the our million differences net between or marks XXXX. third of earnings $XXX I Slide in reflected results

comes [Operator Sanjay from of the Instructions] And Sakhrani your first from line question KBW.

are my XXs that guidance impact guess guess will I I and question guys cost walk hedges of expecting also high could NIM. that to of, the hedge? through and mitigate into from drive I sort what entered just of that FFELP you some the higher. that. come rates was go the on you I NIM us is the the first supposed the is or the understand down will maybe But XXs, certain you hoping just hedges is aren't to into Chris,

No, I to it. thanks on and question it's so provide a some very asking guidance, want good for that color

guidance NIM and, we believe in inevitably in There coming times, in – to base some seen the the the the And are feel lower So, inevitably, is the variability case of at guidance working through. have provide But what financing that providing the our or few we a some is variability do as guidance the on advantage. provide balance. the a is, works last that the over portfolio for that They FFELP reduced assuming we Xs, hedges confident that our expected. portfolio in variability we of Xs just we've actually advantage ends end, up that we months. that

an basis today cost versus XX% of points about position our XX cash fact, the XX points. cost of basis roughly Xs, all-in Xs, hedged at In is about of today

what program So, it reducing exactly volatility. in do we doing that had hedging hoped to is the

And, through of side. that towards sense? when that financing variability usually with is inevitably, working really up it So, Does advantage. variability guidance, it make end the result our our has do to a some on we

ahead year, what to assuming I high navigate in expect guess obviously no look in or change does and levels curve it about think NIM but assumes, FFELP back when stabilize so, we don't – rate the theory in And next I the when forward saw like should the that the know into into we there's we that if quarter XXs? third the we

is So, the component of of Xs, something spread brought But a sure are components around keep we've know, has in - year-over-year. FFELP obviously another gets which which so, NIM as you to make into of. an the reduced there that's to Obviously, floor is the there And, income number important volatility, our amortizing NIM. hedged, that how track Xs, asset.

be the and it year, But, fourth we there quarter will for strive expect So, stability will FFELP provide NIM, every at less into end of the of what we component. XXXX. guidance inevitably, an into that's and important around do that we

second is and the question guess I my on mid-teens. Earnest

about to You Jack about you sort ROEs? could the and mid-teens guys or business ROEs. get talked those how the Maybe, in expected of Chris, you mid-teens that talk ROEs

at at job of And low their in a and net So, who stable you're we having payment in these early demonstrated have I borrowers segment, balances repayment through as the look are their existing high and the have the when income consistent education completed the borrowers margins you're to lending in this in my years. when overall look comments, of said a pattern very generate their lending to loans to costs average XXXs. lower the servicing kind interest percentage potential associated as And accounts, you with the mix.

default in low. space are So, this rates extremely

have transactions public losses in the the securitization can points. at double-digit cumulatively and low been some done this look space You in that basis of are credit

somewhere lower they ROAs, we mean, then? So, a bit X% about that the out little think should when than around work or I

that. It than should higher be a little bit

higher little that. A bit than

Rico look about. impact then impact and persist? on is you that that long And the that explicitly question, how final talked What we in will guys quarter as Puerto fourth Okay. the

for different to So, getting toll up the They’re That’s will with there. – are the that online full suspended island. booths and we’re collections. that now game, Not have the occurred roads Commonwealth at suspension. run to in a again. year-end back we be of expecting begun back hurricane starting they’re this by We there, stage – the temporary collecting the Commonwealth toll the tolls open manage across the operations but all

So, the - I mean, the is… impact

the fourth the in In quarter. revenue

a that mostly variable that fair of Total it goes Yes. but there’s expense contractor – revenue, operating amount is expenses. is revenue, which against

So, it million in $X contribute net was quarter. maybe expected of to revenue the

Okay.

quarter. Fourth

is again. to that importantly think operational I fact the are they that

think, to in we roughly operation – back XX% think it’s XX% October. I to well,

the So, clearly, there be is a there strong we'll fully back online. expectation hurricane. from But disruption is

with Your next comes the Tarkan Point. line Michael from question of Compass

back towards and capital XXXX, hold us against the expectations then plan Earnest's there. on to putting tell you how you just ROE much school about capital we Just much on loans? you loans how how and much plan Can as think – Ernest in

is that. models have that of really So, the we the refi we and we loss function a credit of capital targets that built put for established what that the loans against stresses –

So, capital X% of performance are against the targeting assets. exceptional we the that portfolio given

think graduation in does time. in-school the said when around point that a or lending risk those I typically But are different somewhere assets we graduation with a require the loans, past, in at X% were in company. have the because higher we unanswered arena for lending success in-school you capital

space that get that We when and will we assess in if into XXXX.

on up one. following just that then And

you you then get at billion kind came billion. suspension if of $XX for to guess I it what if can is $X.X plan curious Yes, the entire of against Earnest, there. give some to buyback how $X.X is against X% $X I over billion a that do trying So was decision. XXXX, to you the it's color I'm million.

Yes.

Earnest's the I should the program this We a don't think, share number transactions that looking be a think that's fact, great and to share of of capital. in question, consume as at suspension repurchase transactions. year completed you So, limited – the the I

course $X the $XX during private those loans. student loans billion Over acquire will of year. be student we’ll of So, of billion the worth

can X.X during dividend conservative course planned we on was as area. a our towards to but that. through our generations allocation a in our of to in we and said we acquired were and excess that of guidelines good of returns asset and clearly, suspension Chris, rapidly we ratio in example, think plan capital the Earnest. maintain those For Solutions generate view, with lower and plan returns resources give investments believe but attractive X.X. and, to repurchase investors us still we year. asset year getting re-establishing the onetime this is these investments this for end generate for our our generate Duncan repeat we – growth about capital company tangible XXXX returns. are share continue pretty and And ratio set And between even prudent really of that to that fund The kind will We are program the where rebuild net of capital XXXX, not businesses we’ve ourselves after the building in And is this

then to Understood. should originations me in point And that in if far, Earnest in is, to to school know and start year one kind XXXX again growing want grow it's you. or absent just where Thank that? earnings a curious I what and little sort than bottom you last – again? dollars up $X.X bit out XXXX, even if more later the bottom for we then, so begin a the where of or XXXX and of sort out to see can don't out earnings look is we too buyback, start starting billion out with than expect at of of originations but

credit keep we that asset in assets to loans year mind here loans cause that a that that think – gap or asset is day but the with that generated of loan – loan. - fact one. booking origination to piece you're the items. economic have cause projected different is books booked XXX% to our in versus that be of loss one than a on I issues year the are related the of originated expensing the have for have accounting full less costs associated to new in primarily and or gap loss, Originating to years need model, core our the reserve two that's earnings value being losses So, And your earning

of at generation dislocation of and we the growth earnings clearly businesses the both in in building to ourselves look in the future. some that. side a are there’re So, business the these we equation But as clearly result asset that – be fee-based generating we're

a talk year, I would later of bit to more January happen. in when be little we think when that guidance providing as next we'll

comes line of Cyganovich Your next Arren with question from the Citi.

same decision TNA have to time the X.X guess finance touching the close just for from from bulk push you've you capital ratio? driving was need able there up of new capital from to build I the Was next understanding your Clearly, running to – I you'll at the decision opportunities, wondering on pretty a rating the again. through your to just that been cetera? agencies, the get your quarters. the several subject I’m – to bondholders, year. some et what really these be What investment was but to

company So, as bondholders our to time great through. the question. thinking lot rating of spend and manage obviously it's And equity a something and finance the of agencies, in a it's a number the holders. have constituents a position we we Inevitably,

assets the mentioned of buyback been form buybacks As on of amount it's dividends, the remarks, since buying whether we a a without company, in has there our to significant spin program. impact capital it's been of any shareholders prepared and been allocated whether our

our year, pull over XXXX. we felt and next needs to thought over guidance the it need we given point at given do we've of that our the that just was the the to a next back be and in financing year, just end prudence buyback a thing then a capital range to to And desire perspective lower reinstate the the or years, suspend to gotten so, few that consume to prudent from given we will for smart one

the So, of our the outcome. holistic way it that felt that we would was a all a produce company manage and view making best sure really more of we of constituents in

no… And there were

mentioned. from the no groups explicit were we There discussions

That's right.

enough have your liquidity And there capital driving and debt? no out right? clearly excess down were your You’ve needs to unsecured push pay that,

We comfortable financing position. feel our about very

really the Do guess, any kind to through makes we loan moving that life yet. to again, The you then would it in projections through any that you low – the, longer-term And flow refi the have of from I recession? went of referenced how recent that haven't into credit historical X.X% that testing of cycle about the kind provided. expectation of just numbers loss loan or sense transactions expectation on and think customer around if high-quality another standpoint. The you a gone

So, thank picking you up coverage first, company I should and the have that. we appreciate for of said

we credit that graduate that of We So, different four-year or higher stress. years experience of and with from credit the have income persist company. real our XX of and higher years employment, of is levels experience of and all history particularly during degrees XX substantially of types and experience borrowers periods assets levels know who how in through of of this cycles different borrowers distinct of one perform unique those here cycles graduate this of of have types even

talking the we With really have borrower those are where in individual characteristics all levels lending data, back that at hit different been that. credit a was when results really that experience approached that been rates digit, performance half just exceptional go that credit looking the has each to produce for of recession, the that – XX% you're cycles. that we college drivers about double we to unemployment their you last hit bring peak, understanding it’s we're we're portion lending the what distinct of even or advantage across rate refi if at to for that So And what unemployment example, to is think space. segment graduates here where that and

Advisors. Lee next of line comes Cooperman from Your question the with Omega

This is have at I say to and a higher I have somewhat to level, be critical.

think roughly flies. three it I ago. It’s time was amazing years how

value the okay, the runoff saying a was You the those with to analysts saying – stock XXs, by very opened liquidating agree up call a conference in have accretive that and shareholders. we and back by addressing buyback buying low

buyback. million XXX.X have now lower buyback. the you in price your shares stock the happened I I that back than The conservatively or average of $XX.XX one low Now, buyback, if to an before $XX.XX. XXs you be average probably this was XXXX value $X in XX% $X stock would of bought to $XX.XX you since value. average or of selling say, would the back price, amount the split of is wasn't shareholders the add But roughly, the into bought price the at

at Nobody’s looking make because but were business that mind, all I’m that’s your you’re mind, listen we’re your probably mid-XXs we you change changed you a prepared to in value. perfect, wrong, life. – unless it’s a worth if mistakes that you So,

put level to the a buyback. liked the then have the I whether down enter the we it lot market we there’s at value is because into if it’s like $XX.XX. it return give place the a if a we And company could and should back, the exists the and lose in we transaction we shareholders liked the runoff earnings, should to either You understand, building company be suspend and the the us we taking and and into If that company doesn’t into stock debate nothing paid. runoff. at do goes we we to money you actual which like price running at think going it doesn’t more the board it, should that $XX.XX, put And

impotent So, anything. all any basically to level back that that now buy stock and three lower it’s years, we and the me it’s we last You’re paid can't a in do the that at time disturbing very

it's been of poor frustrating. that management. So, It job a there's means capital

want you to address that? do So,

take a know Thank - the you. We some own I this that the this believe I value legacy do still value low to intrinsic to company by there minimal And your constructive combination the coming looking discounted and loan is per in either it. so Lee. too, run businesses get how we of you of at business ongoing of – off business. I of fee-based student I that mean way, cash the a the flows and comments agree that’s them or as appreciate Yes. company in fee-based mid-XXs the a share, we value

can growth of than the on price high multiple providing So, number without higher a some get you today's a components businesses. very forward number, much stock to

using of of that cash principally is of debt loans, $XX billion. generating and to – we student net a expect had been capital debt are buying capital we adding $X job generate just that said, our – of portfolios and done I to net by investing nearly flows. view to in that franchise worth high-returns invest after billion. I that $XX Our supposed that are how structured as we flows is that allocation activities. nearly business undiscounted this legacy to – acquired we in the be We've to to-date existing cash less And cost billion We've is

businesses fee-based building capital to We generating now have allocating been and assets. our

of that we of space. risk. on think what challenge lot e-based in getting think intrinsic the for as with shares challenge, it businesses and will have getting a generating our that than company value has attractive been financial much is. building value retained back very the and company, is by most days mean, we been can the that I Many these think the new shareholders a of buying I on that institutions that whole equity returns are you less can mid-teens our services attracting assets shareholders to low see and add we recognize that have ROEs this value do. financial been we in the think from – intrinsic paid more of we and higher But I risk what pretty you I really – has

frustration. the word So, think used I you

stock get we activities the to that hopefully we're or price think We is price frustrated business price. we'll we of working share in value fully get the believe are that and will with share that hard reflected invest that And equally franchises there.

Well, of personally over noble five than my a of though more achieve to your I graduate. is I their I guess has an regulators that the with speedy non-college that sent your over earning it's business. business proven pay college does tuition, lifetime way kids And even to $X is million constantly, and individual going. there's Look, education question how whether more of well the college capacity okay. you I goal I'm a over and think crap long take raising it you

motivated regulators over in a You but country crapping us. have all noble mission, our these somehow politically

it and in there's to but different make approach? our didn't the say. let or price, the intrinsic should And you three through I should you’re you was all back have why money. going be the I it average there a path. we don't possible and think it wrong. operating to of value It’s frankly, than think their only the like call, our yourself something and take say, should paid that below home, and keep get the and the a company But to consider buyback, So, decide to take go value ago we you you because, supportive, you, years ball, in today get ago, don't that they do asking $XX guy, really the monopolize years these Because is if them runoff what the practical greater mid-XXs you. mind reinvest you I'm if mode, is Thank how believe is want the to just high-quality taking different I you and to question bat go a mistake a were raise to is we’re some give you of want do into company I’m XX% a or in there the shareholders, prices three can the

comes of the Rick JPMorgan. Your with next from line Shane question

trajectory I be the to of of sense just revenue. want sort should on the the what asset about we recovery how thinking a get trajectory or

is much $XX down was accretion that quarter? the I'm And back This schedule to understand going early we million forward? of on rate so, quarter, quarter. we when forward? Duncan. the million can $XX essentially we flat the recognized What the curious third revenue so recognition, to How recognized. much about also should take see then there out a of was incremental from sort was taken run going talked out annual in from it's the you being the start deferred previous just was revenues And which or how $XXX there, million,

of questions bunch So, there. in

me Let deferred address first the revenue-related issues.

guarantors we student where agreed ran part guaranteed had we asset their as were was process. the a default services over of prevention And So, services life provide that of the loan related a services. business federal for to

over recognizing instead the term With of we - of over remaining the the termination the of it that the revenue contract, recognize the loan, of we life now contracts.

of group of processing asset what collections revenue in and that falls of rate. services. services. two there's for that $X Many fee-based roughly was – revenue so providing are doing little that's activities services we’re bit work, closed the related Duncan recognition business related end so, services more The are process for the a under revenue and at solutions the quarter into issue. run And and million category total $X billing or months deal our the July, recovery fee-based caused recognized processing for as there the we on less that and payment of million

terminated What can properly? the run we just adjust rate that contract was so on the quarterly

revenue a perspective? From Okay.

Yes.

million. about $X Roughly

quarter? Per

probably $X bit There’s that, than million higher maybe was total. little probably about – it quarter, Yes. a per

Okay.

So couple a had that of… contract

all is sorry? from guarantors, Yes. the From think all of the - I’m I guarantors.

couple a had terminated? of remaining on contract it that when Does was it years

was more it a Well, contract. perpetual of

you guaranteed the until ended, So, itself. longer the to to loans amortize obligation over provide the have no of outstanding that life services an effective loans

we're - effectively, so, And got… we’ve

Credit comes of question next Orenbuch from Your line from the Suisse. Moshe

You embedded guys prepay they Could kind speeds you about a in flows? forecast are something bit cash and changing. what's a have mentioned about for the and little of now where talk

speeds over than are couple coming you've quarters discussing been make been adjustments to heard and CPR to have we've higher so last that as last us the few you. over the in expected of So, highlight and quarters our that

review our we well. big what risk speeds quarter, every prepay What is see at to are securitization market what do line price speeds. we saw. those today the how speeds annually, true in we importantly, a – very And we on market, the in with look as up. much we do we annually, is So, at And decided

very aligned. So we're much

our and increased our point. you private average, federal consolidated prepayment X tell across that is loans and And speeds percentage about what we so, have on

today. And think so to range sort being now these about of X% the in speeds X%

terms you troubled I'm follow guess really that And does point, that Lee’s that the buyback. other historically what guess, words, but in initiatives on happened. In has is not happened length of making maybe, of could, decisions looking if suspension up just, backward the I where just of cause to kind of forward, already the I is these looking the stuff that speed you're of the

capital range. You're end of actually the above your low

are so portfolios. amortizing speeds your actually Your prepay faster increasing, existing portfolios are your

where mean, be when mean, at of could kind net you you by as be where that I ratio I think so, us a to think give might midyear sense could you tangible midyear, your about And asset XXXX?

other asset think as Well, speeds we're things. there net based where and number on play prepayment number of a come a mentioned, going around you variables assets end the upon we to ratio of tangible into I are a of number originate these that with up

to the the buyback clearly, XXXX importantly, think, what rebuild is ratio. suspended I through we did we program

and the since where what ourselves any in fully continue where understand and clearly shareholders so run balance we I agree will this suspension find if the think been there are we do way what of with buyback. the should sheet. the appropriately back is. overcapitalized position, And we there's we're give should some putting I clearly look and excess frustration And company's our expectations to by we to and been take overcapitalized allocated, quarter the sure you run. ability are that I've aligned a capital capital is that, will impressed comfort is and make it this then the what But do deployed sheet the what prices no – to that will position or the stock capital sure position so the have has we is balance every isn't spin and and at our in make an you look that always think, to is an on which and company give aren’t some the at be comfort

review goals we’ll we if another expectations, will you, I assess, in so, importantly we that we position always we take for And we a then or have we look. think that think our and continually clearly, will exceeded ourselves find do

is But Chris, Earnest. now one, series to Earnest terms it a actually spin the goal made higher private historical setting you've that, its buying than for starting Number since that's and looking of is originate follow what's just to spin than because number different loans. an different decisions to because of the on the, two, up in origination out then

different are since incremental capital. than All and those three of of the spin each requires them

So, at those little you a my the question half you value, bit, selling is simply, at your do how that roughly think dial a the to when question. expected were back about That's not? or just point intrinsic is, stock of if in makes whether time sense

or Theoretically, broadly company. only I for we to expect and capital your allocation changing, it benefits going the and to a It's down shareholder’s think the being agree capital increase company value within do retained is should intrinsic point return buybacks that again totally XXXX. program the increase. fully is only view our should and to and of not understand I in the

that future the and the attractive building we today about, we there the what very you're doing very changes which back talking said, could return on the could But will or And But assess some equation is be attractive again, that our belief of we're we that returns back. and growing believe about switching franchise, profile pulling monthly, mentioned, quarterly that so, this as these position if in understand assets I what produce then always right that our – of and shareholders, dials value variability inevitably, back originations. if is on change is, always is capital daily, the approach. we I Jack by as will for

of consumption They capital second in aren’t talked returns of asset guess the but returns, about also plans given of you beat of their those you this probably don't the or I to until the be much about loans. forward the years And I'm for death have sheet thinking know life. you want wonderful balance the these terms that thinking should third too but kind to side and I really realized

there’s said this of for response. the timing to stock so, really a It wanted a where say the And timing lot just of versus is. I be the to that. doesn’t need

appreciate the it taken feedback into we’ve your discussions and had. We've consideration, and

Your next comes with [Operator Jefferies. of Hecht Instructions] line John from the question

originating First may question, the limitations of a And with us on I'm context your your wondering that an if Earnest. that focus you portion capital of guys acquisition opportunities? out the I asking plan bank any with update and allocation legacy in I'm on give portfolio come guess can

a to from been we successful We’ve that $XX been - will been add since We've loan portfolios the aggressive at refi impacted sheet principally billion separation. balance - nearly large that through additions at buying we've sale. And for over billion banks. in the XXXX. offered private we’ll or of very separation portfolios the So, the as portfolios loans to since - banks this The acquired and with of acquiring our $XX had various sell year, do is virtually all of of had decision have expect we by influenced sellers, we factors. FFELP been

position more loans. further that to the of be capability think at importantly, how And And are our those. portfolios best continue pursuing We acquire we outstanding. we’ll where and, in puts are funding purchase pursue managed portfolios the given to aggressive post position us

you had simply XX a pipeline as similar that months? the see XX And that the and it months baseline as opportunities so, discussions you you've last next over do see and

hold. It to and on does to decision-making of longer big whether sell The mostly do portfolios – address, bigger negotiate the they vary. take or

So, year what We’ll continue and give to they updates purchase consistent be in even. volume There we'll participate. to where portfolio activity some January. XXXX to is after year, less very are that is that's expect we as

subsequent us question to Can there's I the the what run next MCOs you know of second a QX. Chase of look in And expect quarters you remind that you year? like portfolio, bought the is you is then, JPMorgan portfolio and catch-up us Chase catch-up through – just can for kind in the what remind rate

guidance was quarter estimate. that was company, fourth that million feel number track the from the impact what that on very so number, thought about is around exceed some previously So, that had suggested would are defaults on provided we we number. we’ll a the be thus Expectation $XX good we far we

it? beat and Exceeding

worse it. than that. Beat Yes. Not

– that through any a will those change linear be And kind we of think running ratio so, should charge-offs as think between should the allowance about of and will provision, then that of correlation be to or context we there the in the well?

which Why should amortized you give fourth the about forward. and should what like linear specific it think you think guidance going looks Obviously, we will going view in forward? proposed in XXXX on provide the down we quarter

like we've confident the we said, beat – number we and we So, that it. I in very produced will feel to expect

has across a materially consistently Credit allow is purchasing loans the impact improving context have reducing And borrowers that solutions of – past when demonstrated approach positive deliver though, and performance, as the in successfully portfolios board. our their customer definitely is we we to manage defaults. the way

So, any we would certainly expect improvements portfolio to able over acquire. to performance in generate we be historical

question of of America. Mark comes the Your next line Bank of from Hammond

Good I three questions. morning, Jack, Chris have and Joe.

to capital. make this equity be you the to the that ABS would remaining $X that expected up XX%? mentioned originated debt, loans you what the in expected refinance you'd unsecured, using be education between year, like and X% so remaining So, at Earnest mix provide expect Would billion

Yes.

other obviously you take of you then what that equity would what XX% ABS if you to rate, X% are securitizations capital assume different, XX% advance the structure. can then look then remains today into structures at sort So, and can of and but back funding component and the

So, that a you should give sense.

the forward look recent the happens It should it. the we very and refi can of in You look going kin be actually to securitization what space. deal terms did at at

recent SoFi's which at could priced You deal deal. our right before

sense can capital pretty transactions. get the fund of to you So, good a required those

that seems rate, bit advance higher a XX% than… That

I of to XX%. sort XX% said

seems for and would the FFELP on be a That right? typical deal private that side,

But be – look all the some securitization, so this our you of probably we’ll send be if you rates, advance in you et see details cetera. far should public. probably helpful the and around I at can docs. it’d it’s mean, You

you market then today or And ever diligence think make opportunity? refinance potential the loans that Earnest, about for up across did size that come your of in outstanding what

in and – has billion We powerful think think and and Earnest is somewhere unique back we the to $X $XX tools the total our a of is billion activity is our refi between XXXX that data going again, industry. that technology built the to in the And originations. really experience team combination

year. loans And beauty to be a those – expect And earned as track advancements. education dominant every record, employment, hard loans the a career payment that in we of So, work – are as that attaining they their of each would new the far able market graduate, rates and are as have and generated every in them offer we're that to this interest a player generated demonstrate each particular and space. result is

then, you. I for And have question a lastly, strategic

non-education expanding business in been you've So, services area. the

So consumer now, businesses? non-education considered expand and your generation asset Have in into loan generation or purchased you an Earnest. origination business you education would asset

financial growth, base other of balance be sell Earnest types we needs. to Those be loans partnership Well, certainly clearly, represent opportunities to be loans that that to for customer as would we making opportunities. and believe making or we’ll likely we opportunities or us type more have of to likely sheet opportunities for part either the – own less

import… The

yes. attractive consumers, they’re that clearly And

but was today in to of all balance be clear expand on than they optionality But mortgages the opportunity franchise. was It's agreements capability there Importantly, full some secured wouldn't capabilities did sell. today. personal Earnest that sheet item, there we it do it's clearly loans that think and so value and they with a originate to that all to and that have

capital lastly, attention plan. then say your I have And bondholders I to the appreciate to regarding

Jack, Christian, Joe. thanks, So,

to think constituents I going financing of took forward. holders all our of equity the all said think we will partners we better, that and betterment and view you of holistic our decisions our to a our be

line Your with Wedbush. from the question comes next Coffey Henry of

thank time. giving call, us you the all but Tough for

it secondly, company based do. out we at hear Earnest, fintech of stuff dig a and I to know the of the really But this Wall it. companies Street you or a opinions or be into acquired to lot can pretty Journal high don’t that comment on was said money of would you’d operation doing don't on They have they what finance Going amount whether back of normal everything accurate that don't know to discount I that these that put basically not. seemed looks like whether the a themselves it. into – you – not I

be credit data.” So doing that there's not, you a pool wouldn't mean, cost I its a discount an essentially be a anything doing. to Discover build at or that to did a And simply or when of to opportunity of card how platform view was wouldn't this they technology servicing “use buy Earnest it? company at looked mean, in I you are you the doing that

What franchise value the has of reflected the a combination that So particularly transaction the and prior that's think opportunity to for and our today. developed for that good for business is us team We – the investors been not willing right? great the as purchase a people decisions, build a invest and Earnest to were price here relevant I the think this was thought what to well. technology, we a is was

I a plus We some than said here capability both one is of equation We are bit of side greater challenge adding believe in that. benefits one a that, comments, that the my funding is here as was firmly a gives that which the and infrastructure two. it that, the

here second the question which – was… got I’ve I think your

Were they doing anything different?

lifecycle, they'd space, perform credit in than what data that generation, I drive in to the in that it. what and to the than it their unique. in pricing of you is offering there less in entities Were to brought think different powerful. these and has yes, how use like going that you dynamics. don't believe. applications systems experience opposite saw value some that financial been were in we institutions terms watching So, take It’s is different bear partner And something think companies, to in assessment, And of really years was in fintech was when technology advantage been data represents pretty and tech what's you're with yes, customers terms they of XX economic is solutions different really lead the that what environments, and it being we've anything observation were watching we've with stages and you to opportunity seeing that's the like different? here do students And, the they disagree of of of other the can that's – really I the your know that spent capture I most on of our doing of

can't cover? how low FICO, look the three in financially unique? very, or very high of targeting loans so portfolio to I is performance? you data translates an there. And cost mean I either coupon, that people and four or snapshot, out a between, acquisition terms the anything ultimate it’s securitization the does which Is far, Earnest that customer you narrow tell Earnest mean, other Is Earnest difference underneath platforms jobs. if that at have

if driver better of said, others. So, believe they of driving, there. do. acquisition of result, a technology things that, and a we value there’s do is at big than a I got lower they’re to a assets creation. creating customer tools as cost couple And cost acquisition you’ve And as Certainly,

performance are look when The the those scores using known at there FICO that attributes metrics. people other a that assessing piece other that are is difference in is make other credit. But and borrower metric that

avoid other who again, because can future we is not through we even that’s provide the And with credit assess financing options here. It borrowers That’s are the the who or way. and because and them streams metrics high-performing performance earned. opportunity early relatively rate There risk bad. borrowers There borrower. looking who are appropriately. go you repayment that FICO be if may customers You yet to they assess who use in positive. the their will a in FICO and they’ve very better FICO them enjoy at will other price those them can not XXX of are are score the backwards expand also serve within works universe same And help score data forward. customers, And but can –

or is the in-school platform targeting to different your the Or Earnest Is audience? lending? be that a future for going

What's school is going targeting one a and One it's to audience. definitely graduate. different one different in is is

mean, I past No, that.

opportunities the No, and technology tools, platform, creation metrics I data think the the same. are and approach may different are the the but and value the – be the

of Your DeVries the line final comes question Barclays. from Mark of

lost fund's expect some offset the OpEx to out revenue contract? under any we if U.S.A. come of the What to can partially

those and of in needs are what operating been in very and periodically revenue we're businesses of which as are our or through we FFELP We've our amortizing our private the those managing services what the our and So, areas. we those part should part services. are in reflect that aggressive review related process annual and generate expenses businesses, assessing – be the our areas legacy to And provide. our costs, the portfolios budgets that amortizing at even we year,

one think that particularly done in thing efficiency in continue see automation well I we've expect you and XXXX. areas. is And can to our these improve

efficiency and should be be cost out coming going So, should out.

be out? revenue how specific come But on costs that much related more to Okay. you might can't

about Well, in that I talk January. prefer to

Jack, was you've like think the Should than $X.X what plus consumed could a hoping a us billion in-school approach that? of of of take help buyback to could reinstitute opportunity you then, XXXX. what somewhat And might doing similar that's slightly recently it or consolidation I conservative last more also in about look be you been the – from capital increment

prospective about capital return in So, more happened is needs past. what versus our the

and So, process reinvest assets to needs of volume we've of flows past. consideration expectations and certainly opportunities the deployed into take same and would we in the really But that's generation capital. been

X% like to be much think to on consumed loans? in-school? you consolidation? it the going how in-school be X% the indicated should by I capital more Is the XX% And on

been range. That on right in-school are of market of that different segments have different the the Depending types profiles. that - historically has there risk

the and take that generate, we on look focus we assets where at So, depending would is that. our a

Fisher over closing to Joe like call now would I for any back hand to remarks. the

to like follow-up questions, us contact for to call. If thank feel We today's Andrea. on today's me. Thanks, other any joining everyone This call. concludes free

This participation. for Thank you your concludes today's call.

now may disconnect. You