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?

Thank you, Jack. And thank you to everyone on today's call for your interest in Navient. During my prepared remarks, I will review the first quarter results for 2023. I'll be referencing the earnings call presentation, which can be found on the company's website in the investor section. The first quarter's strong results positioned us well to meet our full year 2023 guidance targets, with key highlights from the quarter beginning on slide three, including first quarter adjusted core EPS of $1.06, which includes a net provision release that I will provide additional detail on later in my remarks, achieved an ROE of 19% and an overall efficiency ratio of 53%, felt NIM of 112 basis points, private NIM of 312 basis points, originations of $168 million, BPS revenues of $72 million, and increased our adjusted tangible equity ratio to 8.5% while returning $106 million to shareholders through dividends and repurchases. Provide additional detail by segment beginning with federal education loans on slide five. In the federal education loan segment, we achieved a net interest margin of 112 basis points compared to 104 basis points a year ago. Since November, there's been a significant decline in prepayment activity, and we are seeing consolidation requests that are below historical levels. Our expectation for full year 2023 felt NIN of 100 to 110 basis points assumes that prepayment speeds remain at these levels for the remainder of 2023. Compared to the fourth quarter, Self-delinquency rates decreased to 14.4% from 15.6%, and forbearance rates decreased to 16.9% from 18.1%. We saw charge-offs increase to 22 basis points in the quarter, and we anticipate a net charge-off rate between 10 and 20 basis points for full year 2023. While credit trends have improved, the slowdown in prepayments that we are experiencing is expected to increase the life of the portfolio which results in an increase to unamortized premium allocated to expected future defaults. As a result, we added $10 million in provision in the quarter for felt loans. Let's turn to our consumer lending segment on slide six. Net interest income in the quarter was $153 million and resulted in a net interest margin of 312 basis points, an improvement of 32 basis points compared to the prior year, driven largely by improved funding spreads. We continue to see a slowdown in prepayment speeds in the overall portfolio as borrowers with fixed interest rates have less of an incentive to refinance in the current rate environment, which is benefiting net interest income. We anticipate our full year net interest margin for 2023 to be between 280 and 290 basis points. Our credit performance improved from the prior quarter as total delinquency rates declined from 5% to 4.5%, with forbearance rates improving from 2.1% to 1.9%. Net charge-offs remain flat at 1.6% and $75 million compared to the fourth quarter. While credit trends are improving, the net $24 million release of provisions for private education loans in the quarter was largely driven by the adoption of the new accounting guidance for modified loans. Our private education loan modification program provide borrowers with options to successfully navigate their loan process through times of financial hardship, during which we offer a lower interest rate to help the customer successfully make a lower payment that amortizes the loan. Prior to adopting the new accounting guidance, we calculated the present value of the amount of interest forgiven to loans currently in the modification program and included it as part of the allowance for loan loss. This reserve element is no longer allowed when borrowers enter new loan modification programs. At the end of 2022, our loan loss allowance included $77 million related to this practice. We elected to adopt this new guidance prospectively, resulting in a release of this allowance over time as borrowers that had previously entered into modification programs exit those programs over the next two years. This quarter, $52 million of the $77 million was released as the majority of these programs are typically short-term in nature. Of the remaining $25 million in allowance, we expect a little over half to be released this year, with the remainder in 2024. In the quarter, we reserved an additional $5 million related to new origination volume and $23 million pertaining to the bankruptcy-related resolution that Jack discussed. We remain confident that we are adequately reserved for the expected life of loan losses given the well-seasoned and high credit quality of our portfolio and anticipate net charge-offs to remain in the 1.5% to 2% range for 2023. In the quarter, we originated $168 million of private education loans. This was comprised of $33 million of new in-school volume and refinance loan origination volume of $135 million. The decline of the refi volume from the prior year is primarily driven by the higher rate environment and delay in Department of Education loans entering repayment. We anticipate quarterly refi origination volume to remain at these lower levels throughout 2023 as we expect the expiration of the CARES Act to provide no meaningful impact in the current rate environment. Continuing to slide seven to review our business processing segment, Revenue from our traditional BTS services increased 26% from a year ago, partially offsetting the expected wind-down of revenue from pandemic-related services. First quarter revenues totaled $72 million and earned a 7% EBITDA margin. The margin was impacted by startup costs, primarily related to new government services contracts, which reduced the overall margin by 600 basis points. We expect to see continued fee revenue growth of at least 10% in our traditional services in 2023, with full-year EBITDA margins in the high teens as we benefit from the addition of new contracts and efficiency initiatives throughout the year. Let's turn to our financing and capital allocation activity that is highlighted on slide 8. The recent market turmoil emphasizes the importance of strong asset liability in capital management. We ended the quarter with 85% of our education loan portfolio funded to term and reduced our total unsecured debt outstanding by 14% for $1 billion. In addition, we reduced our share count by 3% through the repurchase of 4.9 million shares. In total, we returned $106 million to shareholders who share repurchases and dividends this quarter while increasing our adjusted tangible equity ratio to 8.5% from 7% a year ago. Our 2023 guidance includes the purchase of $225 million for the remainder of the year. Turning to GAAP results on slide 9, we recorded first quarter GAAP net income of $111 million, or 86 cents per share, compared to $255 million, or $1.67 per share from a year ago. In closing, and turning to our outlook for 2023 on slide 10, the adjusted first quarter's results of $1.06 when the efficiency ratio of 53% and core return on equity of 19% reflect the steps we have taken to simplify the business, build capital, and provide consistency in the face of a volatile rate environment. The continued efforts to improve efficiency and success across all of our business lines contributed to the strong quarterly results. As a result of this quarter's performance and our outlook for the remainder of 2023, we are maintaining our EPS guidance range of $3.15 to $3.30 for the whole year. Our outlook excludes regulatory and restructuring costs and assumes no gains or losses from future loan sales or debt repurchases. It also includes the impact of provision related to the accounting change for the remainder of the year. A rate scenario that is based on the recent forward curve and assumes that we do not see an acceleration of prepayment speeds related to changes in the federal programs. Thank you for your time, and I will now open the call for questions.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Mark Devery with Barclays. Your line is now open.

Yeah, thanks. You called out, I think, $15 million of revenue growth from ongoing government and healthcare revenues for BPS. Can you talk a little more about that and also kind of what additional opportunities there are to grow revenue in that segment?

Sure. We're continuing to see, you know, a strong pipeline for growth. really leveraging some of the skills that we've developed over the years and managing on servicing our internal student loan portfolios and applying them to different businesses. So we work with clients in both government services, transportation, and healthcare. Each of them are a little bit different, but they're really relying on the same kinds of skills, the data analytics, driven approach to helping customers, their clients and customers resolve activity. So where we see strong growth right now are really in the government services space. We did win a large new contract in that area in the fourth quarter. It's being implemented in the first quarter as an example, and that dragged earnings this period. But it involves inbound and outbound telephony, customer communication, and transaction processing-related work. In healthcare, we also see similar growth opportunities, and there we're working with hospitals primarily as they manage their end-to-end patient admittance and revenue cycle management activities.

Okay, great. And are there any remaining pandemic-related revenues in that segment that's still expected to run off?

In this quarter, there are no pandemic-related services.

Okay, great. Thank you.

Thank you. Our next question comes from the line of John Hecht with Jefferies. Your line is now open.

Thanks, guys. You gave some good confirmation of the guidance that you provided earlier in the year, but I'm wondering, how do you see, given all the kind of moving kind of the moving parts with respect to potential government policy changes and this and that and inflation and so forth. How do you see kind of the demand trends for loans ramping up in the consumer category, ramping over the year?

Yeah, so I think, you know, we have two different products on that side of the equation, and certainly in our refi loan product, This is a program that allows students who have graduated, earned their degree, and have demonstrated a track record of successful repayment to refinance their loans at a lower rate. Obviously, when interest rates are rising, that opportunity is smaller, and one, we wouldn't encourage borrowers to refinance if they can't get a lower rate, but demand is definitely lower. Our preparation for 2023 is to be ready when market conditions return and to be able to meet whatever demand comes from that side. Our focus in 2023 has been primarily on the in-school side of the equation. Here, this is a market that is demand is driven primarily by new students enrolling in school. And those trends have been more positive. Enrollment levels were down coming out of COVID. They are now starting to rebound. And that gives us the confidence to be able to say we're going to double loan originations in 2023. Overall, we look at that market as growing about 5% to 6% a year. So clearly, if we're doubling volume, we're expecting to take market share in this arena. And we're doing so by an ease of an application process, an underwriting program that is – leverages our 40 years of experience in both originating and servicing student loans and really working with customers to explain and help them understand the cost of attendance and how they can minimize their overall borrowing costs. One of the programs that we didn't talk about in our prepared remarks but that we offer is a series of options that help students and families complete the FAFSA, apply for scholarships, and then compare their overall financial award letters that they get once they're accepted. And these are the types of things that we think can help elevate our products in the in-school marketplace to higher prominence and more value to the customer overall.

Okay. Thanks very much for that. And then a little follow-up on Mark's question before in the business processing segment. It seems like you're going to have a pretty strong ramp in the EBITDA margin throughout the rest of the year. Are the new contracts consistent from an economic perspective relative to the, to call it maybe some more of the contracts that you've had over the years, or are terms improving where you're going to get a better net margin over time as you scale?

Well, I think you get a little bit of both of that, but this quarter's margin was definitely negatively impacted by the startup cost. So, just provisioning in the expenses that come with ramping up a large contract where we hired over 350 people to meet the needs of the client, and that basin had to provision equipment, et cetera, to them. we certainly are expecting those margins to increase significantly on new contracts as we move through 2023. Okay.

Thanks very much.

Thank you. Our next question comes from the line of Aaron Siganovich with Citi. Your line is now open.

Thanks. I was wondering if you could just talk a little bit more about the government contracts that you were just referencing. What are these specifically related to and what's the length and term of these and is this a new area that you're going into? It sounded, you know, obviously you said startup costs. I don't know if that's just new because it's a new contract or if it's kind of a new specific area that you're entering into.

Yeah, so it's not a new area for us. We've been providing services online. to various government, municipal, and state agencies for a number of years now. And most of these contracts rely on the same types of activities. It's telephony. It's fielding inbound and outbound communications with their clients. It's processing transactional activities. So, you know, obviously no two contracts are identical. But the services that we are providing are leveraging the same technology platforms, the same telephony platforms, the same processing activities that we have done in our business processing solutions that are really leveraging our student loan servicing piece. The startup costs here are just related to the new contractor, just the sheer volume of starting up something new with a client. you know, you're pre-positioning people, technology, equipment into the field, et cetera, and revenue follows that. So it's just a little bit of a timing-related issue there.

Okay. And then in terms of you listed a few one-time items in the prepared remarks. I don't know if I grabbed all of them. The startup cost, the slower amortization, maybe you could just, you know, list some. what those are. I didn't see them in the release or the slide presentation.

So just to be clear, our guidance of 315 to 330 is based off of the quarterly reported number of $1.06. So that is how we're thinking about the remainder of the year. But in terms of the items that were impacting the quarter that some analysts had in the model, some did not, but I'll highlight some. Obviously, we wouldn't have known about the 52 million was included in some of our analysts and some of the STREETS numbers, and that related to the accounting update. Then you had the 23 million related to the bankruptcy potential settlements here that Jack discussed. I know a number of analysts also did not have the 10 million of felt provision. that I referenced, and then Jack referenced the $0.03 as it related to the startup cost. So those would have been, I would say, four significant items that were not either included in everyone's models or it was at least a mix. But to be clear, our guidance of $315 to $330 is based off of the $1.06 for this quarter. Great. Thank you.

Thank you. Our next question comes from the line of Moshi Orenbuck with Credit Suisse. Your line is now open.

Great, thanks. Jack, you mentioned that, you know, and congratulations that the, you know, the consolidation levels have kind of moved down. Could you talk a little bit about, you know, what we're likely to see from the federal programs over the, or what we could see various scenarios over the next couple of months and which of them would, you know, would allow that to continue, which of them might cause it to, you know, or anything that might cause it to change?

Sure. You know, a crystal ball in predicting legal resolution and then congressional and administrative actions, a pretty good crystal ball. I'm not sure I possess that. But, you know, look, I think the environment here has been one where the focus, I think, right now from this administration has been on the direct loan portfolio and the forgiveness programs that they're looking to launch there. Our portfolio is more seasoned. They're in repayment. They're pretty well established at this point in time. I think we're super proud of the fact that we were able to work with our customers and return them, successfully return, help them return to repayment with lower delinquency rates and default rates than we saw pre-pandemic levels. When the administration offered up some additional one-time programs particularly on public student loan forgiveness we did see a higher increase in consolidation activity that has effectively stopped right and as I said there consolidation activities now below historical levels and so that's that's really been the positive for us our job in one of our key priorities is to really just maximize the performance of that portfolio. That means working with customers to keep them in repayment, successfully pay off their loans, and inform them of different options as they become available. But, you know, it's a little hard to know exactly, you know, what happens next pending the Supreme Court decision.

Fair enough. Joe, on the margins, both FELP and private, two kind of separate questions. I guess on the there was a kind of a higher level of derivatives activity. I guess you probably, you know, could you talk a little bit about, you know, how that impacted Q1 and any go forward impacts? And on the private side, you mentioned kind of better funding spreads, but the most recent securitization deal kind of showed that, you know, those, those margins have been declining, you know, pretty, pretty sharply. I mean, the cost of borrowing there is roughly equal to the yield on the loans. You just talk about those two things.

So certainly from the hedging activity perspective, what you don't see in our recent securitization is the benefit we get from hedging against those interest rates, which would bolster the performance of that individual securitization by just under 140 basis points. So that's something that you don't get to see from the reporting that's external. So you have to take into account that benefit. As it relates to the SELP and private NIM going forward, certainly it's been a fairly volatile environment the last several quarters, and we've been consistent in our range and showing higher performance there. It's just one-quarters of results, so we feel very confident that we'll be in that 100 to 110 basis point range as it relates to our first quarter's performance. So we're just not in a position on both SELP and private where we're going to – raise that guidance. It certainly feels very good about meeting and potentially exceeding on the private side. For the private NIM, again, to your point about just the funding spread, we continue to see that improve year over year, as well as just from the prior quarter. So, we're very well positioned to meet and potentially exceed, but it's just one quarter in a fairly fluid rate environment, of which our latest forward curve would suggest two rate cuts in the back half of the year. So those are things that we're taking into consideration as we then update our guidance for this quarter. Great. Thank you.

Thank you. Our next question comes from the line of Sanjay Sakrani with KVW. Your line is now open.

hi this is actually stephen clock filling in for sanjay thanks for taking my question i guess just follow up around the nim question um just like what would need to happen in order to get to the high versus the low end of the guidance um how much sensitivity is there on prepayment speeds and other factors thanks so i think where

In terms of the prepayment speeds, I think you're seeing the benefit from just the flow down on both the private and the federal side. So I would say the reverse would be if something were to occur where there's an increase in prepayment speeds where that could impact negatively the NIM. We're not assuming that occurs. It's based off of the activity we're seeing in our current forecast for this year's interest rate environment. Other things that would potentially improve... improve our outlook here would just be improved funding. OSHA just referenced the ABS market. You're seeing higher credit spreads than normal. So any improvement there could be a benefit to us as we look to issue in the ABS market or potentially issue unsecured debt if it was to come down at attractive levels.

Got it. And just a clarification around what's the ongoing impact from the TDR allowance change?

So for the remainder of the year, or sorry, for the next two years, there's $25 million of allowance remaining, and a little, what we are estimating is a little more than half of that will come through in provision release for the next nine months.

Is it anything on the P&L side, or is it just on the allowance side? That's the impact from the accounting change. It's just on the provision side. Understood. Great. Thanks for taking my questions.

Thank you. Our next question comes from the line of Bill Ryan with Seaport Research Partners. Your line is now open.

Good morning. Thanks for taking my questions. First question, I know you guys always are focused on efficiency. In looking at the federal loan segment, you had a nice drop in expenses. Could you maybe talk about what drove the reduction in expenses and is the $20 million roughly a run rate we should be thinking about going forward?

So, I mean, there's a couple of things, Bill, that go into that. I mean, certainly, as we've been winding down some of the key revenue contracts, we were able to reduce the expenses associated with those. Those were all planned activities. But in the loan servicing side of the equation, the big drivers for us are automation in different areas. techniques that we use to identify what a customer needs and be able to respond to that in some form of highly efficient way. So examples, we have over 85% of our customers communicating with us electronically on a monthly basis. That's a way to reduce postage and print expense. The other thing that we benefit from is as delinquency rates come down, delinquent accounts are most expensive cost to service. And so we get a little bit of relief as we see improvements on that side of the equation as well. And then the last piece I would just mention is consolidation activity. So when consolidation activity is happening, we incur transaction costs associated with that. So that volume has come down. We benefit from it as well.

Okay. And just one follow-up, just kind of going to a high level and thinking about into the future, you know, what do you see as your market share potential in the in-school channel over, you know, call it a long period of time?

Well, our aspirations right now is we want to be, you know, a top three lender in the in-school originations out of the equation, and we don't see any reason why we can't get there.

Okay. Thanks for taking my questions.

Thank you. Our next question comes from Juliano Bologna with CompassPoint. Your line is now open.

Good morning. Thanks for taking my questions. One thing I've been curious about, and you may have touched on it during the call already, is the potential for kind of a recovery in refinance volumes. And specifically what I'm curious about is kind of the role to profitability. What I mean by that is actually some upfront provisions Those have relatively low seasonal charges, so I'm curious in a sense, when you start originating a new vintage or ramping up, does it become kind of profitable on an EPS basis within two quarters or three quarters or thinking about that timeline?

Sure. So, I mean, the demand here is really a function of borrowers who have been in repayment, successfully been in repayment, and their ability to obtain a lower rate. So, As interest rates have been rising, new federal originations and private loans are being originated at higher interest rates. When we get to a more stable interest rate environment, we can start to see demand returning in that side of the equation. And if we start to see a falling rate environment, which is kind of what's forecasted for later in 2023, you can start to see an acceleration of demand in that space. In terms of profitability, when you originate a loan, whether it's a refi loan or a consumer loan, you know, CECL accounting requires you to book 100% of the provision that you expect for life of loan losses day one. So that hurts profitability in that particular period. And then subsequent quarters are generally profitable from a going forward perspective.

That's great. And then, you know, this topic was somewhat touched on during the call as well, but when you think about the FELP NIM, obviously there's some positive carry dynamics when rates move up. I'd be curious if you think about what the stabilized NIM should be for the FELP portfolio once things normalize a bit more rather than, you know, obviously a rising rate environment like we're currently in.

Yeah, so our current forecast, as I said earlier, just includes two rate cuts in the back half of the year, so there would be negative pressure associated with that. As we've discussed in a rising rate environment, the assets themselves reset quicker than the liabilities, so you get a benefit. So you would get some pressure should that come to fruition in terms of a decreasing rate environment. In terms of normalized levels that we've seen over the last two years, really between that call it low 90s to mid to high 110 range. I would say that somewhere in that range is where we would anticipate in terms of a flat rate environment is closer to 100 basis points, but that's something that we just haven't seen a flat environment in several quarters here.

That's great. Thank you very much. Thanks for answering my question. I'll jump back in the queue.

Thank you. Our next question comes from the line of Jeff Adelson with Morgan Stanley. Your line is now open.

Yes, hi. Thanks for taking my question. Related to the provision expense for the bankruptcy-related items this quarter, based on what you know today and what you see in the portfolio, are there any potential items that could come through in the future on this, maybe as we get some more bankruptcy-related reform in the future?

Well, this is less of a political reform issue and more of an interpretation change that's been happening at some of the court side of the equation. And it really impacts loan categories that we inherited at the separation from Sally Mae. They were originated a long time ago. We don't originate any loan products in these categories today. They're generally non-Title IV schools and then loan categories. that were dispersed directly to the student rather than through the schools. The courts have been moving around in terms of different interpretations of what qualifies as dischargeable and what doesn't. This resolution brings a, hopefully brings a uniform approach to these categories of loans. And to the extent that it has an impact in the future, for future defaults, it will be for loans that file for bankruptcy from these categories in the future. That is included in our estimates of our life of loan losses.

Got it. Helpful. And then just to circle back on the comment that, you know, moratorium ends, no meaningful benefit to refi bonds, I guess just trying to think through like what rate you know, what might you need to see from rates before you do start to see meaningful uptake or maybe something back towards pre-pandemic levels of volumes? You do have this backlog and, you know, you've got disbursements that are coming through at higher rates. Do we need to see something like the two-year drop below 3%? Is it more like 2%? Just trying to think through how meaningful the benefit can be if rates do drop.

Well, Pre-pandemic volume was certainly benefiting from pre-interest rate increase volume was benefiting from the fact that rates were so low relative to historical loan origination activities. Today, most of our refinance demand is coming from borrowers that have existing private student loans. And so you're seeing those customers, particularly ones with variable rates, looking to find solutions that allow them to lock in a fixed-rate program for themselves and capture better terms and conditions. You know, in terms of getting that volume activity back up to where we saw in years past, you know, we're looking at a fairly significant decrease in rates, you know, that are you know, measured in percentage points versus basis points.

Thank you. As a reminder, to ask a question at this time, please press star 11 or any touchstone telephone. Our next question comes from the line of Rick Shane with JP Morgan. Your line is now open.

Thanks, guys, for taking my questions this morning. So when we adjust for the significant items in the quarter in terms of provision, we get a quarterly earnings number in the low 80s implicitly for the remainder of the year based upon guidance and what you've earned to date. It suggests a run rate of about 75 cents a quarter at the high end. Should we think about, and again, in the context of GAAP earnings, core earnings, adjusted core earnings. Should we think about recurring earnings being in that sort of 75 to 85 cent range? Is that a good place to be centered?

So, adjusted core earnings is how we give our guidance and how we have been for several years. So, I think that's the appropriate way to think about it. Rick, you're right. If you're just taking that $1.06 versus a $3.15 to $3.30, you're in that $0.70 to high $0.70 range, depending on the quarter, to get to that math. So that's an appropriate way to think about it. There is, we're not thinking quarter by quarter guidance. Oh, sorry, Joe. Go ahead. No, I just said we're not going to give quarter-by-quarter guidance, but obviously there is some movement when you think about the third quarter of in-school originations and the way CECL accounting works, but you're taking larger provisions just on the front end there. So those are things that you have to consider, the costs associated with in-school originations and provisions up front that you would be taking in the third quarter that you wouldn't see in other quarters. So there is some movement from quarter to quarter, but overall you should be in that range. It's a decent way to think about it.

Got it. That's helpful. Yeah. And again, we understand the rationale for the adjusted core, but at the same time, just sort of getting that level set in terms of, again, excluding seasonality, the recurring earnings power is a helpful way to look at it, too. So, thank you.

Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Jen Arias for closing remarks.

Thanks Shannon. We'd like to thank everyone for joining us on today's call. Please contact me if you have any other follow-up questions. This concludes today's call.

This concludes today's conference call. Thank you for participating. You may now disconnect.