Navient Corporation

Good day and thank you for standing by. Welcome to the Naviance of First Quarter 2022 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 our speaker today, Mr. Nathan Rutledge, Head of Investor Relations. Sir, please go ahead.

Thanks, Renz. Good morning, and welcome to Navient's first quarter 2022 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 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 the full reconciliation to GAAP can be found in the first quarter 2022 supplemental earnings disclosure and is posted on the investor page at Navient.com. Thank you and I'll now turn the call over to Jack.

Thank you Nathan. Good morning everyone and thank you for joining us today and for your interest in Avian. Our year is off to a strong start and we are excited to share with you the results of another very successful quarter. For the quarter we earned 90 cents in adjusted core earnings ahead of our forecast and consensus. Our earnings were driven by strong across the board performance For example, net interest income, provision for loan losses, fee revenue, and operating expense all outperformed our forecast and contributed to this quarter's results. Our ability to deliver consistently strong financial performance is a direct result of our focus on profitably building our growth businesses, actions we have taken to minimize exposure to interest rate volatility, our focus on generating high-quality assets, and maintaining strong reserves for future credit losses, our constant efforts to improve operating efficiency, and our disciplined capital allocation. Our earnings generated a very healthy 21% core return on equity this quarter, demonstrating our ability to consistently generate and deliver value for investors. With a very strong start to the year, our success in managing a volatile interest rate environment, and demonstrated agility in capturing opportunities for growth, we're raising guidance for full year earnings to $3.20 to $3.30 per share. In consumer lending this quarter, we originated just under a billion dollars in new student loans. Since the start of the year, higher than expected increases in interest rates have decreased the potential value of refinancing. In addition, the Biden administration extended the 0% interest rate period on federally owned loans again, increasing borrower perception that this waiver will continue and that loan balances may be canceled. These recent developments have and will continue to significantly reduce the overall demand for student loan refi products in 2022. We do expect demand for refi loans will rebound once direct federal loans return to repayment. We believe in the value and the long-term potential of our refi products, which provide qualified borrowers with the ability to reduce their interest rate, save thousands in interest expense, and realize their financial goals as they pay off their loans faster. We will remain disciplined in our focus on originating high quality loans that meet our return targets. Our outlook for in-school volume is getting stronger. We now expect faster growth as we deliver high value products to students and families. Our updated forecast for combined new refi and in-school loan volume is $3 billion for the year. In our VPS segment, we are also more optimistic about our growth opportunities this year as we leverage our pandemic-related experience to secure new business. And we are seeing steady growth in our traditional services. Our results this quarter provide a good example of our ability to leverage this experience to grow revenue and deliver high value for our clients. Credit performance has been stronger than our forecast at the start of the year. The pandemic led to an unprecedented pause in federally-owned student loans, helping people navigate the challenges created during the pandemic. We also offered relief programs to our federal and private loan borrowers based on need. As our programs ended, we planned for elevated delinquency and default trends compared to pre-pandemic levels. To date, these rates have remained below those pre-pandemic levels. While we have retained our prior higher loss forecast as we monitor the future impact of the end of the federal payment pause, portfolio performance to date and our outlook are very positive. We successfully reduced operating expense by 14% versus the fourth quarter. The reduction is the result of our ongoing business simplification efforts and the transfer of our Department of Education loan servicing business. We expect to realize ongoing operating expense reductions as the transition services we are providing end over the course of 2022. Also contributing to this quarter's results and our outlook is our ongoing focus on operating efficiency. Our capital management and allocation approach has delivered strong capital ratios and the capital needed to support our growth. As of March 31st, our adjusted tangible equity ratio was a very healthy 7%. Consistent with our capital allocation plans, we returned $139 million in capital to investors, $24 million in dividends, and $115 million in share repurchases. We plan to complete an additional $285 million in share repurchases in 2022. Our highly predictable capital generation will allow us to continue to meet our capital ratio targets while we fund the projected growth in our business and complete our share repurchase plans. We are off to a very strong start to the year. Our focus on profitably building our growth businesses, successfully managing interest rate volatility, generating high-quality assets, improving operating efficiencies, and our disciplined capital management is delivering value for our customers, clients, and investors. I am pleased with our strong financial performance, and I am excited and confident in our ongoing ability to continue to produce strong results. I want to thank my colleagues for their efforts and contributions in a challenging environment. Their commitment, passion, and agility helps Naviant deliver for our customers, clients, and investors. Before I turn the call over to Joe, I'd also like to acknowledge Board Member Kate Lehman, who is not standing for reelection due to changing professional responsibilities. Kate has been an outstanding board member, and I thank her for her guidance and support to me, the management team, and the board. And earlier this month, our board nominated Ed Bramson, partner of Sherburn Investors, our largest shareholder, to the proxy slate. I look forward to Ed joining the board subject to his election by shareholders. With that, I'll now turn the call over to Joe for more details in the quarter, and I look forward to your questions later in the call. Thank you.