Navient Corporation

Good day, and thank you for standing by. Welcome to the Navient First Quarter 2023 Earnings Conference 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jen Arias, Vice President, Investor Relations. Please go ahead.

Thank you, Shannon. Hello, good morning, and welcome to Navient's earnings call for the first quarter of 2023. With me today are Jack Ramondi, Navient's CEO, and Joe Fisher, Navient's 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 that are derived from core earnings. We will also refer to adjusted core earnings, which are measurements derived from core earnings and adjusted to exclude expenses related to regulatory and restructuring costs. Our GAAP results and description of our non-GAAP financial measures can be found in the first quarter of 2023 supplemental earnings disclosure, which is posted on Navient.com slash investors. You will find more information about these measures beginning on page 15 of Navient's first quarter 2023 earnings release. There is also a full reconciliation of core earnings to GAAP results included in the disclosure. You can view and download presentation slides, including slides you may find useful during this fall, on the events and presentation section of Navient.com slash investors. Thank you, and I now will turn the call over to Jack.

Thanks, Jen. Good morning, everyone, and thank you for joining us today for a review and discussion of a very good first quarter's results, and thank you for your interest in NAMIA. Our first quarter's results demonstrate the stability of our business, even in varying economic environments, as we execute the four pillars of our strategy, delivering on our growth potential, maximizing loan portfolio performance, continuously improving operating efficiency, and disciplined capital management. Our results this quarter include adjusted core EPS of $1.06, strong BELP and private net interest margins, strong and improved credit performance, and continued operating efficiency gains. Combined, we delivered a core return in equity of 19% this quarter. Turning to the business segment results, we remain very focused on delivering on our growth potential. In consumer lending, we are preparing for the upcoming lending season. In this quarter, we originated $168 million in private education loans. While demand for in-school loans is seasonally low in the first quarter, we remain confident in our guidance to more than double new in-school loan originations in 2023. In business processing solutions, we're off to a strong start, with revenue from traditional services increasing 26% over the year-ago quarter. Here, we continue to promote our data-driven processing and customer contact capabilities, which we forecast will deliver 10% growth in revenue, along with a high-teens EBITDA margin for the full year. As Joe will discuss more fully, while this quarter's results include expected startup costs that reduce profitability by 3 cents per share, our full-year profit forecast remains intact. Last year, we saw accelerated prepayments in our FELP portfolio. FELP prepayments have now fallen well below historical levels. The resulting slower amortization of loan premiums drove this quarter's $10 million FELP loan loss provision. Our effective funding programs and interest rate management helped to deliver stable net interest margins in both our FELP and private loan portfolios, even as interest rates rose again in the quarter. Importantly, our strategy of funding our loan portfolio for the life of the loan via asset-backed securities currently 85% of our funding mix, really shows its value during times of liquidity challenges. Credit performance remains an area of strength. We saw improvements in delinquencies, and private loan defaults were significantly lower than expected for the quarter. Our results also include two significant items impacting the provision for loan losses this quarter. One was a $52 million benefit from an accounting rule change for modified loans. This was reflected as a reduction in the provision for loan losses. And the second was an agreement to resolve several bankruptcy-related class actions, resulting in an increase in provision for loan losses of $23 million. We believe this agreement provides a clear framework for the treatment of loans and bankruptcy from these legacy student loan programs. This nationwide agreement, which is subject to court approval, resolves several class proceedings related to this limited category of legacy private loans originated years before Navient was formed. Navient has never made any loans in these categories. Navient has long advocated for student loan bankruptcy reform, along with calls for clear and consistent treatment for loans in bankruptcy. that are easily understood by borrowers and lenders. Our focus on efficiency delivered a reduction in operating expense versus the fourth quarter. First quarter operating expense includes several significant seasonal items and also includes the startup expenses associated with new business processing contracts. We will continue to pursue initiatives to improve our overall operating efficiency. Now on capital management, we repurchased 4.9 million shares and paid $21 million in dividends in the quarter. We earned a core return on equity of 19% and improved our adjusted tangible equity ratio to 8.5%. These results demonstrate our commitment and ability to deliver strong risk-adjusted returns by investing your capital in attractive opportunities while returning excess capital to you, all while maintaining a strong capital position. Our results this quarter are a strong start for Navient. They reflect our commitment and ability to generate high-quality, high-value products and services and deliver solid financial results, even in volatile and challenging markets. They also reflect our ongoing commitment to simplify our business model and reduce risk. More importantly, our efforts have built a foundation from which to create and deliver value. Our affirmation of our guidance for 2023 reflects our confidence and our ongoing ability to deliver on our growth potential, maximize portfolio performance, deliver better margins through operating efficiency, and deliver attractive risk-adjusted returns on capital. I want to thank my colleagues for their efforts and commitment to our success. And together, we look forward to delivering another great year of results in 2023. Joe will now provide a more detailed review of our results. Thank you for your time. And I look forward to your questions later in the call. Joe?