Navient Corporation

Good day and thank you for standing by. Welcome to the Naviant First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised, today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Nathan Rutledge. Please go ahead.

Thanks, Mary. Good morning and welcome to Navient's first quarter 2021 earnings call. With me today are Jack Raimondi, 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 discussions 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. Listeners should refer to the discussion of those factors on the company's Form 10-K and other filings with the SEC. During this conference call, we will refer to non-GAAP financial measures, including core earnings, adjusted tangible equity ratio, and various other non-GAAP financial measures derived from core earnings. Our GAAP results and description of our non-GAAP financial measures, and with a reconciliation to GAAP, can be found in the first quarter 2021 supplemental earnings disclosure. This is posted on the investor page at Navient.com. Thank you, and now I'll turn over the call to Jack.

Thank you, Nathan. Good morning, everyone, and thank you for joining us today, and thank you for your interest in Navient. Our results this quarter were exceptional. In fact, they were a record high for a quarter. They are the result of our continued ability to adapt to the changing economic environment and the changing needs of our customers and clients. Our operational agility has been a long-term source of strength for Navient, but never has it been more apparent than during the pandemic. As a result of our ability to adapt and respond, we were able to provide relief to student loan borrowers in need, assist others in securing lower-cost loans, and respond to clients with systems and people to address their rapidly growing and changing needs. And we opportunistically captured the benefits of this low interest rate environment and strong investor appetite for quality assets. The benefits this quarter include historically low delinquency rates in both our FELP and private loan portfolio, strong net interest margins as we continue to execute on several lower cost funding transactions increased BPS revenue as we met our clients' changing needs, and two loan portfolio sales that accelerated cash flow and earnings with combined gains and related reserve release of $191 million. In total, we earned $304.5 million in core net income and delivered adjusted core earnings of $1.71 per share, an increase of 235 percent over the year-ago quarter. This quarter, we sold $560 million in legacy private education loans in the residual from a $1 billion securitized refi loan portfolio. Both sales produced gains driven by lower discount rates on expected future cash flows and expectations of strong credit performance. Both highlight the value of our legacy and refi loan portfolios and the benefits our servicing brings to these portfolios. Demand for longer duration fixed income investments led investors to increase their valuation of private loan portfolios given the strong credit performance and steady cash flows generated by the loans. While we don't intend to be a make and sell originator, strong investor demand made this an attractive time to sell. And it clearly demonstrates the value we create when we originate new refi loans. Even with the current interest holiday on government-owned federal loans and the calls for broad-based loan forgiveness, we saw solid demand from graduates looking to lock in today's low interest rates and save thousands in interest expense by refinancing their student loans. One noticeable change we see is a higher portion of the loans refinanced are private loans. We see continued opportunity to help people save thousands in interest expense and further opportunity to expand the share of private loans being refinanced. I'm also optimistic of our ability to grow our in-school lending business. As the vaccines are more widely delivered, we expect the upcoming school year to return to a more traditional experience with more typical demand for responsible and transparent education financing solutions. Combined, we are reconfirming our projections for at least $5.5 billion in new loan originations in 2021. In our BPS segment, we're pleased to be able to respond quickly and in size to our state clients' needs. We leveraged our adaptable technology platforms so our teammates could provide much needed support in processing unemployment claims, providing contact tracing assistance, and more recently, resources to help accelerate vaccinations. While we're happy to continue to provide this critical assistance, we do hope the need for these services will decrease as the pandemic subsides. Our ability to adapt our systems and operations, to hire thousands of new remote employees and contractors, and respond with active assistance, often within just a few days, has been a great demonstration of the value we bring to a client. As the COVID project work begins to wind down, we are focused on leveraging our proven experience, capabilities, and flexibility to deliver value and innovation to longer-term solutions. In our consumer lending business, a year ago, we, like many other lenders, increased our loan loss reserves in the face of significant economic uncertainty and rapidly rising unemployment. As the economy regained its footing, many consumers were able to manage their loans, including their student loans. In fact, the challenges created by the pandemic further demonstrated the value of a college education, as this segment of the population was more likely to be able to work remotely. Though credit performance to date has clearly outperformed our original expectations, with the economic outlook still uncertain, we have maintained our strong level of reserves. Our ongoing efforts to improve profitability contributed to our positive results this quarter. While traditionally this means a focus on operating expense, at Naviant, this also includes a strong focus on reducing interest expense. We completed several new financings this quarter that achieve our lower cost objectives, and we've continued to reduce the balances of our most expensive debt, our corporate unsecured notes. Operating expense initiatives include enhanced web tools and ongoing automation efforts that both improve the customer experience and increase operating efficiency. We're also reviewing our space needs and have recently exited a lease on one of our more expensive offices. Our efforts to improve both operating and funding efficiency will continue. The implementation of CECL and the subsequent decline in interest rates impacted our targeted capital ratios earlier this year. I'm happy to report that with our strong financial performance over several quarters and the expected reversal of some of the derivative marks, we exceeded our target adjusted tangible equity ratio at March 31st. As a result, with the acceleration of earnings and release of capital from the loan sales, We will also accelerate our return of capital by increasing our planned share repurchases in 2021 by $200 million to $600 million for the full year. Finally, I remain optimistic about our outlook for the rest of 2021. Our portfolio performance remains strong, our loan origination and fee revenue forecasts are intact, and our earnings outlook is well ahead of plan. In fact, we are well on a path to deliver our fourth year of year-over-year growth. Before I turn the call over to Joe, I want to thank my colleagues. Our results this quarter are the product of their efforts and commitment to serve our customers and clients. Thank you. Thank you for listening, and I'll now turn the call over to Joe for more detail on this quarter's results.