Navient Corporation

Thank you for standing by and welcome to Naviant's fourth quarter 2020 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Mr. Nathan Rutledge, you may begin.

Thanks, Andrew. Good morning and welcome to Navient's fourth quarter 2020 earnings call. With me today are Jack Crombondy, our CEO, and Joe Fisher, our CFO. After their prepared remarks, we will open up the call for questions. 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 expectations as of the date of this presentation. Actual results in the future may be materially different from those discussed here. This could be due to a variety of factors, including, among other things, uncertainties associated with the severity, magnitude, and duration of the COVID-19 pandemic and the related economic impact. As reported previously, the work from home policies and travel restrictions that have been put in place have not negatively affected our ability to close our books and maintain our financial reporting systems. internal controls over financial reporting or disclosure controls and procedures. Listen to the discussion of those factors on the company's Form 10-K and other filings with the SEC. During the conference call, we will refer to non-GAAP financial measures, including core earnings, adjusted tangible equity ratio, and other non-GAAP financial measures derived from core earnings. Our GAAP results and description of our non-GAAP financial measures with a full reconciliation to GAAP, can be found in the fourth quarter 2020 Supplemental Earnings Disclosure. This is posted on the investor page at Navient.com. Thank you. Now I'll turn over the call to Jack.

Thanks, Nathan. Good morning, everyone, and thank you for joining us today. I appreciate your interest in Navient, and I'm excited to share some highlights of how we delivered value in a challenging year, as well as our outlook for 2021. 2020 was a tumultuous year. The pandemic impacted virtually every aspect of the economy, our business, and the lives of our employees and customers. Our response at Navient was rapid, impactful, and solutions-driven. Like other businesses, we rapidly moved our team out of our office to work from home. This was done quickly while maintaining our quality standards and high levels of productivity. We also responded to the rapidly changing needs of our customers and clients, and we developed and implemented new programs to advance racial equity. For our FELP and private loan borrowers, we implemented and continue to offer payment relief options to help those in need by reducing or eliminating monthly payment obligations. As the economy began to recover, those who could returned to repayment. Today, our credit performance metrics are better than pre-COVID levels. We also worked with our business processing clients, including federal agencies, public sector entities, and healthcare institutions to offer relief where needed. These changes in both our loan servicing and business processing areas dramatically reduced our daily transaction volume and our fee revenue. At the same time, our team saw that our clients were quickly becoming overwhelmed in other areas. We were able to reposition our teammates and adapt our platform to provide immediate resources to assist our clients, including processing much needed unemployment benefits and providing contact tracing services. As the needs of our clients expanded, our team once again delivered as we hired, trained, and deployed all virtually thousands of new employees to help our clients provide these critical services to their constituents. Our ability to respond efficiently and effectively is a great demonstration of our operational and platform agility. My colleagues also demonstrated their deep personal commitment to meeting these needs. In a recent example, our team literally worked around the clock over the weekend to ensure we could provide hundreds of new agents to meet a client's growing requirements. I'm super proud of our response, the quality of our work, and the commitment of our team. These efforts, along with the quality of our portfolio and business design, delivered truly exceptional results in a challenging year. For the year, we earned $3.40 in adjusted core earnings per share, a 29% increase over 2019 results. Adjusted core net income increased nearly 8% to $663 million. This year's results build on a solid trend. Even with a 23% decline in the last three years in our average student loan portfolio due to expected amortization, Our focus on new student loan originations and our processing business has helped us to deliver strong annual growth for several years now. For example, we've delivered a three-year compound annual growth rate for core net income of 10% and a three-year compound annual growth rate for core EPS of 28%. Our results this year were driven by strong performance across all areas of the business. Net interest income increased 4%, even as our average managed loan portfolio declined 7%, as we benefited from better funding costs in a favorable interest rate environment. As mentioned, credit performance was similarly strong across both our FELP and private loan portfolios, and this trend is expected to continue into 2021. The economy, however, remains fragile, so our reserves remain sizable, and capable of absorbing significant credit losses. In our business processing segment, 2020 saw significant declines in transaction volume and fee revenue as people stayed home. Our ability to deliver critical services in new areas generated over $95 million in new revenue, more than offsetting this decline and leading to an 18% increase in year-over-year BPS segment revenue. The ability to respond to these new needs illustrates the strength of our business model and client relationships and is a clear example of the operational and platform agility we have built. Our continuing efforts to deliver our services efficiently also contributed to our exceptional results. Total adjusted operating expenses declined 5% in 2020 to $931 million, even as BPS segment expenses increased as we added the new services. This resulted in an impressive efficiency ratio of 48%. We will continue our focus on improving operating efficiency. Capital and liquidity remained strong throughout 2020, and our strong capital levels allowed us to return $523 million to investors during the year. And while we used We also used our liquidity to fund new originations and retire over $1 billion of unsecured debt. Our strong financial performance, term funding approach, and conservative capital management will allow us to continue to return excess capital in 2021 with a planned $400 million allocated for share repurchases and a continuation of our dividend during the year. We are projecting that the strong performance of our franchise in 2020 will continue with a 2021 adjusted core EPS forecast of $3.10 to $3.25. Our results this year demonstrate the strength of our business model and our ability to deliver predictable and meaningful cash flow and earnings in all types of economic environments. Several factors, including 2020's EPS growth of 29% our three-year compound annual growth rate of 28 percent, our strong and consistent capital return, including a dividend yield of 5.4 percent, and our 2021 earnings forecast combined to make a very compelling investment opportunity. Finally, I would like to acknowledge my appreciation for my teammates. 2020 was a challenging year. The fear and anxiety caused by the pandemic could have led many to hunker down. My colleagues, however, chose not to focus on what couldn't be done, but how they could help those impacted by the pandemic with relief programs, empathy, and solutions. I'm proud of their efforts and commitment, and it's an honor to lead our company and this team. Thank you for your time, and I look forward to your questions later in the call. I'll now turn it over to Joe for more color on the quarter and our outlook for 2021. Joe?