Navient (NAVI) 27 Jul 222022 Q2 Earnings call transcript

Good morning, ladies and gentlemen. Thank you for standing by and welcome to Navient Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. I would now like to turn the conference over to speaker host, Jen Ines [ph]. Please go ahead.

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

discussion begin, this of results XX-K will and due in factors. presentation. different from those information here. to business current Actual future on our the in is about a we the be expectations of SEC. the Before mind, variety filings should as may other factors materially be contain expectations, the discussion of forward-looking keep predictions, Listeners statements This based management's that discussed to the our date and refer on could with those of company's other Form

non-GAAP tangible measures earnings, including During this financial core conference measures, equity non-GAAP financial and call, adjusted various derived other from earnings. to core we ratio refer will

our results This I'll page in full Thank can now turn to and GAAP description GAAP you. Jack. over at XXXX the Our earnings financial quarter of a with the to And measures Investors reconciliation posted on second supplemental found and be navient.com. non-GAAP call the is disclosure.

declined revenue Navient. report operating today results. good you, for am us Thank and interest and as interest strength in rose. and and saw demand I We rates credit another to in fee thank expense for income, and everyone pleased quarter performance, joining of your financial you Jen morning, [ph] strong loan interest net even

reduce ongoing risk. to Our is financial leverage our of performance our strengths and result efforts the our

to are to inflation. political Several higher planning for results in for also rates prepare environment a The contributing and factors the reduction economic quarter's loans. our demand current proactive and refi significant this. to This reflect have led rising

the could from For increase balance loans has by of interest that the refinancing more benefit X/X. in example, rates than reduced interest, the

led and loans a borrowers and loan forgiveness interest on the extensions have the payment the program broad-based wait-and-see a waiver addition, approach. In for potential multiple pause to of take Federal direct

the conditions benefits renewed delivers. As expect given strong financial to refi loans these see it we change, demand for

earned per we the With guidance. our XX% earnings adjusted core the once we core of $X.XX $X.XX, return again high-quality and quarter, return For and in loans $X.XX be In and core expect raising the a adjusted a on earnings We equity. million are year-to-date earnings year $XXX -- in consumer during now to adjusted for per we full earnings quarter. $X.XX originated between lending, share. education share

peak and financial for Going acquired a from to seniors Merry, school that their We with offers year easily for enter families Through Going for Last fast year, continue we and which the the project we provides Merry originations juniors to digital compare students season. strong aid can high set, going help college. national tools as more and in-school scholarships prepare counselors apply and schools. multiple local for guidance complete

clients In with value in our to of students and a the Merry's are the going health services, value are continue consumer user we over $XXX,XXX and explore all leverage enhancement These Processing college for engaged go the cost tools the seniors reduce of that commercial their planning skills of Going includes and to enhance year. families estimated to to decisions academic our their operational processing, workflow contact help school in financial high XX% XXXX degree, now during It XXXX and and and we developing Business revenue make base of help who education. an Through college. government, relationships capture informed by care core earning products. college these sectors. highlight cycle ways Solutions, to increased customer students lending

payment proposition. meaningful our This growth expected revenue as been expected rates significantly to and see win expected. to for strong and stronger value pandemic-related projects, the pauses than delinquency has as has with The strong. in given default we includes increase wind of performance planned pandemic-related new Credit particularly an came return While repayment business. leveraging happened remains our end, the decreased down COVID performance to our year-over-year potential not

of loan default pre-pandemic plan year economic In rates credit anticipation steps than are spreads. expect rising of market in fact, for we lower and environment. our levels. private rate the continue. needs a several beginning hedging these We've prefunding changing included last delinquency trends to in This rates and higher to and taken liquidity some for

loan in In refi the new are our BPS reflect reduction demand. addition, we focused on the services. operating pandemic-related expenses levels to and of managing

impact are We operating efforts the to efficiency. our ongoing and inflation improve also of focused on managing consistently

support our X.X%. both ratio seek BPS capital adjusted growth and healthy our and consumer assets June remain XX, robust At in and we our equity segments. was very the existing Our levels a tangible lending

strong XXXX ongoing and of months to Our pleased the flows We've would their results manage to cash particularly very support dividend six agility capital and to and teammates plans. conditions first ratios delivered our demand. share our thank with changing like my volatile through repurchase I'm for continue efforts. I and

financial value our on to rate ability and successfully turn look investors. later I and for pleased results. managing questions our interest and building with focus now efficiency operating call. growth ongoing and forward to volatility, disciplined management our assets, improving performance deliver our over I'll capital businesses, is I'm call Joe? quarter our for excited the customers Our generating strong confident profitably continue strong and in the on details high-quality delivering your more in to the to clients I'm Joe

thank you you, and interest Thank your to in for Navient. call today's everyone on Jack

second section. X EPS review found referencing the be the beginning I'll in call remarks, quarter, which presentation my the can During results be quarter earnings I the website of quarter Key $X.XX. second for the will company's on from includes prepared on Slide GAAP highlights XXXX. Investors

adjusted private to X.X%, education Second loans, reported and tangible of Private our million of basis $XXX $X.XX. quarter million million adjusted $XX ratio core returning of dividends through $XXX of points, BPS equity XXX EPS to while shareholders revenues and increased repurchases. NIM originated

funding full remainder for per range the the the with for provide share $X.XX on additional year $X.XX the As the a to an earnings the quarter Federal in benefit Education rate as quarter and to asset and are the contributed increase XXX of prior detail the year. of income of and the rising to of a compared environment prior outlook earnings segment to increased $X quarter income. we of XX%. a on to by more the quarter points year result X. Net to basis unhedged guidance decisions offset outlook Loans along our over basis from our beginning prior our Slide resets, even I'll margin XX both interest interest leading The year, of the strong we points portfolio rate declined year, increasing the million increase of reduction this made ago in the floor with and anticipation than

As in Lending the XXXX. Slide expected, felt Consumer declined decline rate attributable and the servicing contract October delinquency of and are rates this at to a Education revenue XX.X% ago Department in fee rates in XX.X% X -- with prior increased quarter operating charge-off occurred of primarily transfer segment. X compared forbearance that in our to year to basis of expenses the turn to segment year let's from points. The the to

of lower basis prior the of the margin expected basis This quarter's as quarter compared a XX first as than increase interest the XXX the delinquency balances primarily interest points period. in rose reserve points net result was late-stage to

levels consumer total reserved continue below We While to are of loans. more doing quality year. well-seasoned of of normalized our rates given exceed education of and to high with that portfolio. to million with X.X% the we levels, line we full credit expected the expectations trends life our are originated X% rates losses the that for the in expect loan private charge-off return to feel guidance confident refinance our In adequately $XXX we quarter, for credit pre-pandemic

quarter in Act. the the to decline and higher continuation environment due This refinance an saw loans rate demand the of for CARES expected

rate provide XXXX. a extension that roughly $X.X X% for interest the outstanding will of Our XX% forecast Act this federal the government the of trillion assumes an for through loans continue year CARES originations to education of to remainder of the

While in Slide the expected partially interest of net than provide less rates offset in of speeds slowdown customers volume for review as Processing X loan is interest prepayment being by our this incentive a Continuing an lower income, results to existing reduced the prepay. higher Business new segment. overall portfolio to to

certain for health revenue quarter our related revenue our from $XX quarter and the government offsetting is BPS services due traditional trailing down The to revenues high-teen for XX% of of expected Second EBITDA services, targets quarter. services. care in margin the wind from partially with costs pandemic-related million the shy increasing totaled dynamic

leverage meet emerging to our that full margins demand. the our and high-teen continue solutions EBITDA we existing For platform technology-enabled to infrastructure target year, we provide as dynamic market

Turning allocation on to our X. activity financing and that is capital Slide highlighted

During at repurchase of our share the $XXX our we adjusted increasing we've equity to We share additional X%. million shareholders X% and -- million, shares. of we X tangible $XXX X.X%. dividends the repurchases through share ratio reduced price, count to today's the outstanding through count returned reduced XXXX of our share remainder while for an by quarter, by In our total, million repurchases planned

refi the locking benefited of ABS. private quarters continue actions portfolio in-school as securitizations, have and for second mitigate by and rising our loan the loan loan. of life recent our $XXX During margins rates issued each risk expected million quarter, volume in we in rate on fixed rise. of issuing education origination to us the rates These refinance hedging We

fourth issuance near-term no left debt first XXXX. subsequent with maturities of maturities unsecured unsecured reduction quarter and the until Our of in of quarter us upcoming the XXXX

We share with GAAP million XXXX. for $XXX outlook Slide or Finishing X. or Slide XXXX $X.XX on income second on in share $X.XX XX. net income quarter per results of per million our compared with GAAP to Turning of recorded net $XXX

efficiency loan face the through the efforts of share reflect the efforts interest updated and outlook to these and guidance $X.XX business us an while our The the assumes of overall the continued updated repurchases improving XX% and December challenging to excludes simplify allowed is of debt rising reflects from earnings Act the costs, efficiencies in XX% achieve restructuring expectations. XXXX. increase an in of core gains CARES compared or $X.XX environment adjusted sales This original Our of no year-to-date. extension to a quarter XX, XXXX rate and ratio environment to regulatory XX% per

open welcome to the questions, and to turn questions. solutions call segments. now to Jen I Relations all to quarter Investor across success products and and recognize in and These I I new time led teammates Ines your while my our like Before efforts as for you for results clients. the our continued [ph] would positive innovative of to providing Head Thank will

[Operator Instructions] Our line first question the from John Jefferies. Hecht of coming from

The all first question. more of questions that on we've think of been one taking is lot industry an I just it. a

collections industry competitors dischargeability review one-off Or that? loans. wondering, of guys instigated ramifications for policies do One do and regarding an a industry? of your tied more that, to And think internal of I'm of you there's kind just any to you tied bankrupt broader that's the think

of You're don't oh, in I we the know exam involved the circumstances particular to that -- referring any investigation. -- don't or know

I process you I up of by have our been years, of our continue student than to going think sense audited we combined. entities of -- in the forward. agencies think through think practices stand Obviously ways several student if the in we works probably practices the from to contract, been that all we more very for there's strong believe And examined borrowers. Department we regulatory less our and loan that program the with that and have Education to servicing exit loan expect with improve work loan agencies less activity that see the of

to guess, the -- I'm date And the annual that? the guide, should trends second the on in contribute the Okay. at -- to of And we comment you hedging NIM does kind just towards I -- then guidance? half towards wondering, maybe the a level toward performance the longer of incremental year see the some can of how the NIM looking drive versus that the strategy

assume So that are certainly the rate we're the margin FFELP given expecting remainder remain environment of net elevated. for interest interest the I would that the will in year,

of above our quarter, the remain points in you of the while mid-XXs, would half basis that guidance remainder I was points will XXX for So the saw expect basis the this XXX original year. second

in late-stage So early-stage original we're to movement of perspective, pace And on cause be saw provided. or you that that guidance to guidance. loan the NIM well this high from to but private million pressure in the terms could certainly quarter exceed we're the from exceed we the just loans on some either our to delinquency. It from of education the increase reserve our $XXX end that as also interest continued pace we originally

coming question from with of Mark next our Barclays. line DeVries And the

about Can face still funding refi there? you the of your like borrower? your addressable and private a currently today much of costs pricing How the incentive rates? loans market does talk is look And higher for in what to refi

of in our taken had arena earned from they client the of out law Master's some refi of were who degrees. being was loans base in historically, degree, degree refinanced PLUS what degree. So an came advanced Doctor or students had And most those a form Grad or pursuit that

today. than are risen, majority customers we the have of the vast offer the lower As rates Grad PLUS, Grad would interest older interest PLUS what rates

private is variable student those loans private loans. And so demand refi borrowers coming most and from rate of our with student primarily are

expect below that Grad at and of their interest that the interest now, can comments, But are eligible in interest customer borrowers crop rates, base will on school that their loan demand right we really stabilize X/X come borrowing said I the we rates programs in federal are rates is begin current as to return. offer. Plus to down, space, see this my of loans new going We what as higher at and

low primarily in marketplace. in offering to coupons in funding funding ABS so And the that -- funding Our mix, average -- Xs. sources mid-Xs today our sources we're the are the

the a the FFELP XXXX not I on Joe, heard follow-up yet providing you I just expect kind question you of above comment NIM. great. but then that you're remain year. And know Okay, to guidance it in XXX the guidance for to? of where is year the way right trends eventually of bps been about have the Is going it think of the to half kind back kind 'XXs the

it guidance environment on want more future, I asset as to the we from to normalized here levels away would as the think to you as rate stay Yes. much. from I I expect XXXX in out rising but model benefit do the return rate

Our next with question Orenbuch Moshe Credit the from line coming Suisse. of

disaggregate from follow about that unhedged how left that Could floor of on a the Can little you kind Maybe just income floor please? bit up the Joe. that, talk quarter and impact what mismatch in you impact benefit you you to on and of that the the impact in versus that talk about income. question, got funding the get interplay you've

Sure.

So of XX we earned of points about of roughly component basis private the unhedged terms NIM. floors that in

roughly the it, were. call basis where points of down, where so in that's or [indiscernible] from quarter the prior So quarter X prior from of we terms

the been think as as fixed forward, that we offset than well about benefited more of rates, terms the So in increase have the we in I going proactive fact mix. funding as that rate our

make and we're XX% at prior about is look you our fixed rate. of year, in liabilities if terms assets our roughly to funding fixed So our call up, compared XX% rate funded rate it, fixed

a portfolio on So delta contributing the that's is whole. as and that

on into on and benefit will here a continue the that you both year. belt as the So next contribute we but benefit stable to enter private

And I say guess, down? Got to did are self-prepay it. I they speeds rising I definitely mean, been thought in... you expected they have that -- guess I come

Yes.

offset. contributing that somewhat two factors there's So here

a that way If to program. you seeing you forgiveness, loan are loan direct consolidating public borrowers think are about service the

prepay to you the make more a but the to following the But a number inclined see just just are we just are that forgiveness less that portfolio, started prepay a sort want rising recent that don't discussion, see inclined So loan prepayments put lower months. to happens think of pressure less being in of bring there this seeing certainly waiting prepayment up away not environment, in to less is borrowers rate just to certainly as speeds. and does benefit FFELP of those also terms terms proactively of seeing a what result. and rate I with of think borrowers borrowers are in I naturally given of you're what make

on up Joe. guess a I follow that, just

they forgiveness, noted to be forgiveness. corporate had they'd in the the you like consolidate, about competitors your rapidly quarter words, because last loans, prepays order public of with sector talking have in were potentially to One other to their that for expected rise sector, loan eligible

you I on have perspective do a guess So that?

who be not would Well, I only some indicated the and on that stage lack game, would clear a with there the be The be and income program -- think would at eligible. this the of XX,XXX the forgiveness be of look that they the President like. should program. in is how and any there of It's details kind are loan might might programs amount implemented what caps thing whether has

base and with Our imply balances is which degrees. their advanced given -- loans customer primarily borrowers consolidation

though borrower borrower of would based And announced, we on there forgiveness details to said, is are I possibility all have still some forcing if But also programs, base, one base so would was programs X that take as the they've school announced. be versus And of the the where be there the you a income expect those are would program then on some place another. -- programs of percentage meaningful the any into closed everyone commentary determined. at that this. will that look borrower literally these or caps. been be you But program how on they've like that ineligible the publicly implemented Even even

of line Sakhrani Sanjay KBW. with the from coming question Next

scenarios the not it moratorium you whether extended. sort if think I'm that you've on of maybe And or how going be guys SIM loan [ph] and to the wondering you impacts have considered? heard it's anything

our our about. read and Ed the department as the longer we the us don't press what on a former direct yet. what that the the servicing in that some just of -- same loan Department in has are sources had And to has contracts. are no guess business our customers with of service colleagues I So been talked communicate we

I believe Joe of assumptions extend that hard payment it X% think in all and date it's where it's does working waiver interest get in August given we our that XX, through the is our extended. the end to the calendar the said, assumptions, will for XXXX. us as of not are And

that And contemplated your in guidance? you've

Yes.

should I'm business lot quite we just more continues of you're sort sense portfolio One BPS you DOE thinking to that Okay. large how follow-up the when about a the That that it thinking long on term? how just business. about Obviously, segment. maybe well. curious of -- high-level made how about that have do but think you're whole about servicing for strategically talk

workflow ability omnichannel really Well, our manage and developed payment that to delivering volume the in and processing we was loan types scale had activities. skills our levels the outreach and we a are strategies activities of when segment, were enhancement and of And in in customer for it contact for cycle flows that creative skills communication high we servicing, launched and BPS the leveraging then owned comprehensive those revenue sure. and

and of COVID the outreach them and was and some demand the unfortunately, be to some vaccination components respond about segments increase state's answer for able helping spike forms hard-to-reach And to levels. calls, pandemic, to overall of vaccination to included that to inbound understand them customers. were scheduled programs the included for get taking It was During different but the call population these there. able appointments processing states the we That about services for spike, the help unemployment them. to and outreach insurance

a remain skill longer the And loan leveraging were sets those that had. though we we of skill us, For even Education Department service. no we're sets

us. FFELP own that of side effective And our the the We're the loans. front servicing still equation through help on more loans, telephony, systems, expertise analytics data private our still we're also we've learned the still the workflow center and servicing to years remains. So skills the us for be are that

to in the going years levels big X to two from and very demand I to be responded services rapidly. almost during high contracts for BPS from difference think needed last the in pandemic forward the very rose is

go were operations normalized in and contracts basis. a of started letters. award we -- matter business offered we in RFPs, So some contract services were bid We'll cases, awarded in through processing a more days solutions

to the cycle. longer-term so existing to and And with we're as had But pandemic space new and to to pandemic and leverage the well a work going well frame new our capabilities as both seeing arrangements has in longer was we forward. longer-term contracts expect that that time clients, from performance that able replace that we during regarded be

next is And Ryan. question Bill from

questions. of couple A

on loan demand. starting First, your off in-school

is and incremental an about I kind of the seeing of $X things $XXX the year, Looking bit the in the it's are reserves early losses. And in loan CECL volume. little looked about that with progressing? X.X% originations, you been million, had the existing back believe, then the the changes How competition terms of kind loan what related demand? related there's just of million bit of $XX -- refinance you last with the volume. any second, you provision but on pullback in associated just coming talked you And of to school volumes? did pretty $XX I the million in the portfolio there about light you like And had there portfolio know are I the It know extension a And has for been earlier? little duration a market refi of of like much loan million in to on on new about adjustment volume. in

the So thanks questions. for

product, demand for origination very is as that we that and Our we'll see originate. this year the will outlook SLO, said, I about our the optimistic -- volume we're in-school

season. peak As point is out, in it you early

are is flows. an families in FAFSA pay like also application our how find products and, students of the that to a little the and in to starting making significant scholarship engine taking better about advantage us. bit reduce The plan peaks local said, that it the engine that we're the is Going by the and year they is college are a families search for of terms we're design, value for but outreach we comments that product made enhancements different help positive. demand Merry These I enhancers made when flow of So cycles we've believe see Every just application in only really has need And and for search both borrow. and scholarship hopefully, the country the the completing using ways things we're the it's national enhances help opportunity scholarships proposition bringing what to amount value I the students to to to as table. and

side is On what expected. our said, the of performance, strong. as particularly the better provision been equation, been outlook has our I we credit It's than

the however, economy. outlook, Our portfolio, credit in for credit loan But said, up reserve just given uncertainty levels, remain, have in life as better expected. the or of loss or or our of not positioned I conservatively than of think, we estimates terms the changed in-school significantly refi down been date to we terms in has legacy performance

with coming Bahlman from of is line Barclays. Courtney Our question next the Instructions] [Operator

on congrats your role. the Jen Joe Jack, on congrats results new and [ph]

into your opportunistic how So repurchases quick with you for thinking guys might maturities those handling one the how of a color allocation fit just you'd the aside, about valuations I that in bonds, And the mentioned are you for that given XXXX? that remainder liquidity current be priorities? on know capital of you your release any near-term guys.

Yes.

as the a I past, opportunistic think in So done good we've is word.

look opportunities. well it's the of XX when in over attractive if years there's XX availability, certainly you the enough us. our XX beyond So even And maturities we've where that months there past, extent gone at is to next out to and the

raise to there down opportunity unsecured comfortable very from an feel liquidity should availability quickly us the we a And So pay cash perspective. be debt. to of

been take some And quarters if to advantage those continue we two comes that that any to So about, unfortunately, haven't look but certainly near the in Operator, last there more of the that. for questions? there will it. take term of are in down opportunities we

your open. [Indiscernible] is line

just early I the was load on And the in case I'm of the your case. case, specific of wondering the private is if guessing but change small and bankruptcy. or and view on would there it's specifics just a on loans kind comment know that of changes ruling you're instead comment on this a possible dischargeability material love dischargeability can and court just in you material it's student change But a the July on probably view. any on

for And should repayment what we on have discharge and to bankruptcy long been of in So borrowers incur dischargeability. our generally forms we eligible for similar have proposals credit focused some financial time period have then brief advocates been other they after some that for and -- be who school reform hardship of products.

coming some it's caught a our Sallie products rulings to definition whether the residency of or the that. years but for ago today get out up I programs is under advocates think that even have those But I are said, study that small of an piece reform. bar here component XX like and for Mae that relatively do of component as with loan loans offer over And eligible loan we a we been or own we've some products offered us. a loan some the direct-to-consumer in

would I borrowers point is remind one state in just in a bankruptcy in that already typically think situation, game. the the that folks at I make default

And the so it's here. really coverability balance impacted recovering more the about that of loan gets defaulted

over not would now questions I'm further call back closing Jen to for to like [ph] turn this Ines remarks. at time. the any any showing I

call. to follow-up We'd contact me today's on any concludes other if Please like have for everyone This call. Thanks, joining you questions. today's Olivia. us thank

today. your does conference and Ladies you for the participation. conclude for that gentlemen, Thank

You may disconnect. now