Navient Corporation

Good day and thank you for standing by. Welcome to the Denavient 3rd Quarter 2021 Earnings Call. At this time, all participants are in the listen-only mode. After the speaker 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 that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Nathan Rutledge, Head of Investor Relations. Please go ahead.

Thanks, Renz. Good morning, and welcome to Navient's third quarter 2021 earnings call. With me today are Jack Ramondi, 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. 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 a full reconciliation to GAAP can be found in the third quarter 2021 supplemental earnings disclosure. This is posted on the investor page at Navient.com. Thank you, and I'll turn the call over to Jack now.

Thanks, Nathan. Good morning, everyone, and thank you for joining us today and for your interest in Navient. Our business model and execution continue to deliver strong results and create value. This quarter's financial results build on our efforts to maximize cash flow from our legacy portfolio, create value from the origination of high-quality student loans, and leverage our operating platform to deliver valuable outsourcing services to our clients across multiple business lines. For the quarter, core earnings totaled $149 million with an adjusted core earnings per share of 92 cents. With another quarter of exceptional financial performance, we are again raising our adjusted core EPS forecast for 2021 to at least $4.50 per share. Projected earnings per share for 2021 are now more than 40% higher than our forecast at the start of the year. This quarter's results were driven by stable margins in our lending segments, strong demand for our private education loan products, and continued strength in delivering services to our state and local clients in our business processing solutions segment. Net interest income remained robust this quarter, increasing $17 million over the prior quarter. We continue to benefit from a favorable interest rate environment, lower funding costs, and an increase in our private education loan balances. During the quarter, we originated $1.5 billion in refi student loans, an increase of 16% over the year-ago quarter. Though the extension of the interest waiver on federal direct loans through January 31st significantly tempered demand for our refi loan product this year, we were able to grow by helping borrowers with private loans lower their interest rate. We do expect demand to increase in 2022 with the expiration of the interest and payment waiver next January. In-school loan volume in the quarter totaled $153 million, and for the full year, we expect loan volume to exceed $200 million. These loans are purchased after they are fully dispersed. We are also confident that the combined loan volume will exceed our original forecast of $5.5 billion for 2021. In our business processing segment, revenue increased 36% over the year-ago quarter as a result of the extension of our contracts assisting states in various COVID-related project work. Through this work, we've been able to demonstrate the agility of our platforms and people to respond to new and large needs with speed, efficiency, and effectiveness. While these contracts are expected to end this year, we are focused on leveraging this experience and demonstrating our value proposition to develop new opportunities. We are optimistic about our opportunities here, but acknowledge that the more typical RFP timelines and startup schedules are significantly longer than what we experienced during the pandemic. Credit performance remains very strong. We are seeing continued resilience from our FELP and private education loan borrowers, leading to low levels of delinquency and default. Our outlook remains cautious, given the planned return to repayment of the federal direct loan portfolio in February, and our loan loss reserves reflect this. Operating efficiency was strong with an efficiency ratio of 50% this quarter. Maintaining a strong efficiency ratio is a key focus as our BPS project work winds down and we complete our direct loan servicing transition. At the beginning of the pandemic, the decline in interest rates and higher loan loss provisions negatively impacted our capital ratios. Our strong earnings through the pandemic and significantly better than anticipated credit performance to date has seen our capital ratios return to their targeted levels of 6 percent or more. We continue to prioritize our allocation of capital beyond our capital targets to growing our student lending and BPS opportunities, maintaining our dividend, and returning excess capital to investors. As such, we purchased 26.9 million shares this year, or 14 percent of shares outstanding. In a significant development, this quarter we announced an agreement to transfer our servicing contract with the Department of Education to Maximus. This transfer is now complete with the receipt of the novation by the department last week. For a period of time, we will provide transition services to Maximus. This transfer brings to an end the services we provide to the Federal Direct Loan Program. We will continue our existing business in the Phelps sector. The road to this point started over a year ago when we declined to accept the NextGen Service and Contract Award. With this decision, it became clear that direct loan servicing was unlikely to be part of our future, with only the effective date to be determined. Given our strong desire to facilitate an orderly transition, we began to explore solutions that would deliver a smooth transfer for borrowers in the 800 employees who supported this contract. This summer, we identified a potential solution to work with Maximus, one of the providers under the NextGen servicing contract. We approached the department with a constructive proposal that would deliver a smooth transition for borrowers, provide a new home for our 800 employees, and provide the department with needed servicing capacity. All parties worked collaboratively to ensure a strong solution. We are very proud of our long track record of successfully assisting borrowers in repaying their student loans. We've been the leader in income-driven repayment plan enrollment, and we have consistently led with the lowest default rates. We're also pleased to see that many of our recommendations are now being implemented. This contract, however, generates only 6% of our revenue and was unlikely to grow in the future. It also significantly complicated our investment story given its heightened political and regulatory position. While it is difficult to say goodbye to 800 of my colleagues, I believe we found the best solution for them and for the 5.6 million borrowers we served. This transfer will simplify our story and allow for our full attention to center on growing our consumer lending and business processing segments. creating increased value for our investors. This has been a busy and a productive quarter at Navient. We continue to deliver strong earnings with capital generation while building our loan origination and business processing opportunities. Our decision to transfer our direct loan servicing contract better positions our company to focus on our meaningful growth opportunities while simplifying and de-risking our investment story. These accomplishments are the result of the hard work of a dedicated team focused on creating value for our customers and clients and for our investors. I'm looking forward to a strong finish to 2021 and continuing to deliver on our potential in 2022 and beyond. I'll now ask Joe to provide more details on the quarter, and I look forward to taking your questions later in the call. Joe?