Navient Corporation

Good day and thank you for standing by. Welcome to the Navient fourth 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 this time, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nathan Rutledge, Head of Investor Relations. Please go ahead.

Thanks, Debra. Good morning and welcome to Navient's fourth 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 discussion will contain predictions, expectations, and 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 other various non-GAAP financial measures derived from core earnings. Our GAAP results and description of our non-GAAP financial measures and with a full reconciliation to GAAP can be found in the fourth quarter 2021 supplemental earnings disclosure. This is posted on the investors page at Navient.com. Thank you, and now I'll turn the call over to Jack.

Thanks, Nathan. Good morning, everyone, and thank you for joining us today and for your interest in Navient. 2021 was a year that presented some significant opportunities along with a few challenges. Our company responded to both with agility, determination, and success, positioning us well for 2022 and beyond. In 2021, we delivered outstanding financial results, simplified and de-risked our business, and demonstrated a continued ability to deliver attractive returns and sustainable growth. For example, in consumer lending, we originated $6 billion in attractive ROE student loans, a 30% increase, making Navient the largest private education lender in the country. In federal education loans, we achieved a major objective to simplify and de-risk the business with a constructive solution to transfer our Department of Education loan servicing contract to a third party. This provided a seamless transition for millions of borrowers, ensured ongoing servicing capacity for the department, and ongoing employment for 700 teammates. We leveraged our business processing platform to provide technology-enabled solutions to address pandemic-related needs. This included retraining existing resources, hiring 9,000 temporary customer service representatives, and providing data analytics to improve performance and efficiency for our clients. We responded to the pandemic with payment relief options across our loan programs and then assisted hundreds of thousands of customers who were ready to successfully return to repayment. Today, in both our federal and private loan portfolios, delinquency and forbearance rates are below pre-COVID levels. And we continue to execute on new financings and transactions that reduce interest expense and improve our net interest margin. For example, we identified an opportunity to sell an older portfolio of loans, delivering both a significant gain and reducing our reliance on our most expensive funding source. Recognizing and capturing diverse opportunities across our business is not unique at Navient. We are deploying these same skills in 2022 to continue creating and delivering value for our shareholders with our strategy to maximize cash flows, invest in our growth businesses, and return excess capital to investors. While Joe will provide the financial highlights for the quarter in the full year, I would describe our performance in 2021 as our most complete and successful year ever. It was a year where we exceeded all of our goals. This execution drove adjusted core earnings to $4.45 per share, 31% above 2020 results. New loan originations increased, as already mentioned, by 30% in 2021 to $6 billion, even as the federal direct loan interest and payment pause was in place for the full year after being extended several times. We are generating this volume efficiently and profitably. We are also achieving very high customer satisfaction scores. Credit performance has also been strong. The rebound in the economy and numerous stimulus programs have helped consumers strengthen their overall financial position. In fact, private credit loan losses are well below pre-pandemic levels as are delinquency and forbearance rates. Our multi-channel approach to communication continues to help our customers learn about and evaluate their options and avoid the negative consequences of delinquency and default. We also made significant progress in simplifying our business and reducing our risk profile. First, we completed the transfer of our Department of Education contracts, and while we delivered strong performance for the department, this business was a small contributor to revenue, was no longer growing, and presented a challenging political risk profile that was unlikely to change. The solution we developed ensured a smooth transition for millions of borrowers, and ongoing employment for our teammates. In addition to simplifying our business and focus, it also materially reduces our operating risk. Following this, we announced the resolution of all of the state lawsuits and investigations. These matters began more than eight years ago and have consumed significant resources and expense. During these years, the exhaustive examination and discovery process identified no evidence to substantiate the theories and claims made. This is the outcome we knew to be the case. Unfortunately, the legal process was and remains lengthy and costly. Our decision to resolve these cases eliminates the significant time and expense we would incur to pursue our defense to the end. Closing these cases in this manner is a net positive and it simplifies our business. While the CAPB action, which is based on virtually identical claims, remains outstanding, it is much further along and we remain committed to a vigorous defense. These two actions mark another set of milestones in our active management of our cost-based and efficiency optimization. Together with the sale of the loan servicing technology platform, we have created a significantly more efficient and variable long-term cost structure for our business. Throughout 2021, we also supported our team members with flexible work locations, thousands of hours of training, and new leadership development programs and employee resource groups, yielding strong increases in employee engagement. And Team Navient was active in our communities through local and national organizations, including a significant national partnership with the Boys and Girls Club of America. We're also proud to have received recognition for board diversity and military support, among other awards. As we begin the new year, we are excited to be able to turn our full focus to creating value. We will maximize cash flows, grow loan originations with high-quality, high-value products, and grow business processing revenue, improve operating efficiency, and still return excess capital to investors. In consumer lending, our goal is to originate at least $7 billion in refi and in-school loans, an increase of 16% over 2021. Our product design, application flow, and underwriting expertise have driven significant growth in market share with lower-than-market acquisition costs and better-than-market credit performance. We remain committed to our profitability targets for both refi and in-school loans, and we see a significant opportunity to deploy our capital at scale at attractive ROEs. In BPS, virtually all of our COVID project work ended in 2021, with just a small carryover into the new year. This project work totaled $265 million in revenue last year. And as our clients return to more normal operational volume, we expect to grow traditional BPS revenue by 10% in 2022. and we remain confident in our ability to continue to grow revenue at similar double-digit rates over the next several years. While the COVID projects may have been short-term, the relationships we built with key states and municipal clients are not. These partnerships have accelerated BPS's relevance, reputation, and growth potential. Our BPS business leverages our platform and capabilities to generate attractive margin, asset light, fee income. On capital, our first priority remains the generation and retention of sufficient capital to support our growth businesses and our dividend. The balance will be returned to shareholders through our projected $400 million in share repurchases in 2022 as part of the billion-dollar authorization approved by the Board in the fourth quarter. Our capital generation supports a strong balance sheet, maintenance of our credit ratings, and the ability to support meaningful growth while returning capital to shareholders. I couldn't be more pleased with our 2021 results and would like to thank my colleagues across Team Navient for their contributions. Our 2021 results reflect our strong commitment and focus on delivering high-quality, high-value services to our customers and clients and an intentional effort to simplify our business model and reduce risk. Our ability to identify and capture new opportunities created and delivered clear value. And it was particularly satisfying to see investor recognition of this success and the strong share price appreciation. I'm even more excited about the opportunities ahead of us, and I'm confident of our ability to continue to maximize cash flow, grow loan originations and BPS revenue, and return excess capital to investors as we deliver sustainable earnings growth year after year. I'll now turn the call over to Joe, and I look forward to your questions later in the call. Joe?