Navient Corporation
Q4 2020 Earnings Call Transcript

Published: 27 Jan 2021

[Operator:]

Thank you for standing by and welcome to Navient’s Fourth Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Mr. Nathan Rutledge, you may begin.

[Nathan Rutledge:]

Thanks, Andrea. Good morning and welcome to Navient's fourth quarter 2020 earnings call. With me today are Jack Remondi, our CEO; and Joe Fisher, our CFO. After their prepared remarks, we will open up the call for questions.

[Jack Remondi:]

Thanks, Nathan. Good morning, everyone. And thank you for joining us today. I appreciate your interest in Navient. And I'm excited to share some highlights of how we delivered value in a challenging year, as well our outlook for 2021. 2020 was a tumultuous year. The pandemic impacted virtually every aspect of the economy, our business and the lives of our employees and customers. Our response at Navient was rapid, impactful and solutions-driven. Like other businesses, we rapidly moved our team out of our office to work from home. This was done quickly, while maintaining our quality standards and high levels of productivity. We also responded to the rapidly changing needs of our customers and clients and we developed and implemented new programs to advance racial equity. For our FFELP and private loan borrowers, we implemented and continue to offer payment relief options to help those in need by reducing or eliminating monthly payment obligations. As the economy began to recover, those who could returned to repayment. Today, our credit performance metrics are better than pre-COVID levels.

[Joe Fisher:]

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 fourth quarter and full year results for 2020. I'll be referencing the earnings call presentation, which can be found on the company's website in the Investors section. Before I turn to the highlights of the quarter, I'd like to echo Jack's comments on the outstanding work that team Navient has been delivering on behalf of our customers throughout this crisis. We have meaningfully outperformed our original 2020 targets that were set in January of last year and our outperformance would not have been possible without the dedication of our thousands of employees across the country. As a result of their efforts, we are well-positioned for 2021 and beyond. Our outlook for 2021 is provided on slide four. We are providing 2021 adjusted core earnings per share guidance of $3.10 to $3.25 per share. Our outlook excludes regulatory and restructuring costs, reflects a favorable interest rate environment that we expect to continue for the full year and includes $400 million of planned share repurchases. I'll provide additional detail on our outlook as I walk through the fourth quarter and full year results that begin on slide five. Key highlights from the quarter and full year include, delivered first quarter GAAP EPS of $0.99 per share and full year GAAP EPS of $2.12, adjusted core EPS of $0.97 per share and full-year adjusted core EPS of $3.40, nearly 10% higher than the high end of our original projected guidance at the beginning of 2020. Provided continued relief options to borrowers impacted by COVID-19, originated $4.6 billion of private refi loans in the year, achieved BPS EBITDA margin of 23% in the quarter and 19% for the full year, improved efficiency ratio to 48% for 2020, strengthened our capital position, reduced outstanding unsecured debt by $1.1 billion for the year, while returning $523 million to shareholders in the form of repurchases and dividends, and increased our adjusted tangible equity ratio to 5% or 7.1% after excluding the cumulative negative mark-to-market losses related to derivative accounting. Let's move to segment reporting beginning with federal education loans on slide six. Our portfolio continues to reflect strong positive trends as FFELP borrowers transitioned back to repayment, resulting in continued reductions in forbearance usage to 13.8%, down over 50% since peaking at 28.5% in the second quarter.

[Operator:]

. Your first question comes from the line of Sanjay Sakhrani of KBW.

[Sanjay Sakhrani:]

Good morning. Good results. I guess first question is sort of the EPS targets you guys are thinking about this year and their sustainability. I know the Business Processing Segment's benefiting from some of the contact tracing programs and such. Could you just talk about the sustainability of that EPS and sort of maybe parsing out that benefit in the BPS segment?

[Jack Remondi:]

Sure. So, Sanjay, this is Jack. And thanks for your comment and question. On the fee income side of the equation, we are continuing to see lower transaction volume in some of our - in both the transportation and healthcare areas. They have not yet fully recovered. And our forecast for 2021 does not assume they recover fully until very late in the year. So, as you move beyond 2021, we would expect that a combination of the wind down of the COVID-related projects and the ramp up of our traditional activities would start to offset one another. We're also working hard with our clients in the state and municipal side of the equation. And I think this - the work we have done for them on some unemployment insurance and the contact tracing and, more recently, some of the vaccine management activities are demonstrating what our capabilities are. And both the sophistication of the technology platforms we're able to bring, the analytics and insight that we can add to the equations and we're working with them to see where those types of skills can be used in a more long-term, more permanent opportunities.

[Sanjay Sakhrani:]

Okay, great. And then, the $20 million of regulatory-related expenses, could you just drill down on sort of what those were and maybe give us an update on where we are with the CFPB lawsuit too? Thanks.

[Jack Remondi:]

Sure. So, these regulatory expenses come from both the legal defense-related activities, as well as some reserves we have for some of the open items on the federal student loan program side. On the cases, both the state attorney generals in the CFPB cases, they continue their frustratingly slow process through the legal system. We're, obviously, very active, are very interested in getting these cases, particularly on the CFPB side, getting it to trial and having the opportunity to defend ourselves through that legal process. It is just unfortunately a slow slog. I do think also the transition here of change in administrations both at the state and the federal level is slowing that down a little bit. But there are no new developments or new issues associated with those cases at this point. And as we've said before and through the legal documents, despite tons of time and access to documents and information to do their discovery in the CFPB case, they have yet to find a borrower that supports their claims.

[Sanjay Sakhrani:]

All right, thank you.

[Operator:]

Your next question comes from the line of Bill Ryan with Compass Point.

[Bill Ryan:]

Good morning. And a couple of questions. First question on slide 13. Just looking at the cash flows. It looks like the cash flows off the portfolio are expected to - they were down about $600 million quarter-over-quarter, but also your unsecured debt was down $1.2 billion. So, you had a net positive about $600 million in that number in the run-off analysis. Could you talk about the dynamics of that? Was that related to better cash flows that you're seeing or just a redeployment of excess liquidity? And then second question, this is probably going to be an ongoing question, but it's - any update on the Department of Education's servicing contract? Is this something that you think we could end up being talking about for another three or four years? I'm just curious as to what your thought process is on that? Thanks.

[Joe Fisher:]

Sure. So, I'll take the first part of that. On the cash flows, as we updated our cash flow assumptions, there weren't, excuse me, any material changes to the assumptions as you look at the five year forecast. And obviously, we provide a greater outlook in terms of the overall 20 years. So, no real changes in terms of CPR assumptions there. I think where the benefit is, the $600 million came in a little higher than what our short term expectations were as we continue to benefit from this favorable interest rate environment. And as we think about the greatest sort of expenses here in the company, it's really the interest expense. So, utilizing those excess cash flows to reduce our maturities over the next several years and smooth them out to better match the cash flow forecast that we have is certainly a primary objective and reducing the overall interest expense. So, we saw an opportunity here to reduce the total debt outstanding, one through just natural maturities, but also by retiring some of our debt that was coming due in March early here. So, in terms of our capital expectations for next year, we talk about $400 million being returned in the form of share repurchases and we'll look to lower our overall unsecured debt footprint as well.

[Jack Remondi:]

And as Joe described here, I think as you're pointing out, if you look at what our forecast net of unsecured debt outstanding was at the end of 2019 to where it is at the end of 2020, plus the cash that we collected, our balances are up $1.4 billion higher than what you would have expected, and that is the combination of lowering our interest expense by being more creative and innovative in our funding strategies, the favorable interest rate environment and, of course, the addition of new loans that we are originating in our both refi and in-school business segments. On the Department of Ed loan servicing, this has been obviously a long - also a long drawn-out process. Most recently, the department pulled back its latest RFP for the servicing contract and announced that it is going to look to extend the existing contracts with the existing service providers for another two years as it tries to figure out what's the right direction to take for the long-term. We haven't seen that proposal yet. We're waiting for it. I think one of the things we've been able to demonstrate over the last year is more insight and systems capabilities to be able to respond to some of the changes that came in very, very rapidly in terms of bringing interest rates to zero, bringing payments on pause - putting payments on pause for long periods. And that's something that has been, I think, appreciated and noticed. We've also participated trying to provide insight as to how different programs or aspects of the whole student loan program could better serve borrowers both during the pandemic, as well as beyond post-COVID timeframes.

[Bill Ryan:]

Thank you.

[Operator:]

Your next question comes from the line of Rick Shane with JPMorgan.

[Rick Shane:]

Hey, guys. Good morning. And thanks for taking my questions. You provide good guidance and detailed guidance across the board. Within the Consumer Lending segment, can you give us a little bit more idea of what the strategy will be for on-campus lending this year? It's obviously been a slower ramp. Can you talk about disbursements as we move into second semester? But more importantly, sort of what the strategy will be given the strength of the refi programs that you guys have effected?

[Jack Remondi:]

So, we see that the two programs as being complementary to one another and the work we're doing on the in-school side of the equation is really focused on first time borrowers. And so, as a result of that, you expect the ramp to be much slower at the beginning because you're not making any second loans or serial loans to borrowers as they come back to school. This academic year, obviously, was very unusual. We saw just an enormous level of disruption in terms of students going back to - who is going back to school, who was doing virtual learning, just enrollment levels in general were down, and then you also saw a very significant increases, I think, in financial aid packages from schools to families and all of that combined to reduce borrowing levels. We would expect as we get back to a more normal academic environment of on-campus learning that you would start to see demand returning in that side of the equation. In addition to first time borrowers, our focus in the in-school arena is also on a much more narrow segment of the total college going population. We're focused on students attending higher quality four year educational institutions and really looking at the value proposition of what that tuition really is relative to job prospects and ultimately earnings. Very similar to what we do in the refi side of the equation, which is very much focused on a very high-quality borrower and the financial benefits associated with that investment in one's education.

[Rick Shane:]

Great. Jack, thank you. And if I can pivot that question a little bit towards Joe. Joe, can you talk about the loss component you would expect between the two private student loans, the refi and the on-campus, and how you look at it from a CECL perspective?

[Joe Fisher:]

Sure, Rick. So, on the refi product, the way we think about the loss component and provisioning, you would have estimated over the life of the loan that that would be somewhere probably a little south of 1.25% in terms of our life of loss expectation on the refi. Obviously, we're seeing something much lower than that today and we have historically if you look at our trust data. You're talking about numbers that are half of that at this point. So, very encouraged by the signs that we're seeing so far early on in that product. In terms of the in-school component, I would say it's a little bit of a different dynamic because the greatest indicator of whether or not that borrower will repay the loan is whether they graduate. So, to Jack's point, in terms of what we're targeting, it's traditional four-year institutions. So, when we think of life of loan loss expectations, historically, you're somewhere around 6% for those types of schools. Obviously, we're not targeting at this stage any for-profit schools or other schools that may have led to higher default rate expectations in the past.

[Rick Shane:]

Got it. And I'm assuming, given the guidance, that the mix is going to remain highly, highly skewed to refi, given the CECL impacts and how we would think about that for your outlook?

[Joe Fisher:]

That's right. So, for your modeling purposes, I think a good way to think about it is, for every billion or so of originations, you're talking about somewhere around $12 million of provision expenses associated with that.

[Rick Shane:]

Excellent. Thank you guys very much.

[Operator:]

Your next question comes from the line of Arren Cyganovich of Citi.

[Arren Cyganovich:]

Thanks. On the credit quality, maybe you could just talk little about your Consumer Lending estimate for net charge-offs and how that relates to your current reserve and whether that level of charge-offs is still supported by that reserve level? So, essentially, as you just mentioned that the new originations will essentially be the main driver of future provisioning.

[Jack Remondi:]

So, we look at obviously the trends in the performance of our borrowers. And the vast majority of our borrower base is still what we would call older legacy loans, right? So, not just the new refi or the new - or in-school volume. What we are seeing, and as Joe mentioned in his comments, we are seeing that as borrowers have been exiting the disaster forbearances that we provided early on in this pandemic, that as jobs held, income levels held, these borrowers have been able to return to repayment and the delinquency statistics that we're seeing are better than what we were seeing pre-COVID. I think there's a lot behind that. Obviously, I think the pandemic and keeping people home has left some folks with more disposable income. It's also impacted other folks much more severely. And for those, we are providing - continuing to provide payment relief through continuation of disaster forbearances or interest rate reductions in order for them to be able to continue to make progress in paying down their down their loans. What our reserve levels are, still assume and are forecasting a fair amount of risk in the economy. As I said, the economy still remains very fragile. I think as a result of that, we're being conservative in terms of potential delinquencies and defaults that might result of that. Our view is, is that our reserve levels as they stand today are capable of absorbing significantly higher credit losses, reflecting that potential outlook, but we're seeing good signs right now, and that's something we'll continue to monitor as we move through 2021.

[Arren Cyganovich:]

Okay. Thanks. And then, on to the share repurchases, is the intent to have it more ratably then throughout the year or would you expect to do an accelerated share repurchase earlier in the year?

[Joe Fisher:]

I think for your purposes, just assume it's going to be ratably over the year. But, certainly, if there is opportunities, we'll look to take advantage of that, but for modeling evenly across each quarter.

[Arren Cyganovich:]

Okay. Thank you.

[Operator:]

Your next question comes from the line of Vincent Caintic of Stephens.

[Vincent Caintic:]

Hey, good morning. Thank you for taking my questions. I wanted to talk about on the potential student debt relief, the $10,000 that's been talked about by the Biden administration, and what that would mean for Navient. It seems like it's more likely to happen now, but wanted to get your thoughts there. And then specifically on it, if I wanted to get your math on how much net cash would come to Navient if you were to get those accelerated payments and after you retire the related leverage? Thank you.

[Jack Remondi:]

So, I think at this stage in the game, the answers to that question are a little difficult, in part because there have been no real specifics other than the talk of a potential $10,000 loan forgiveness. There are no specifics, for example, as to who would get it, which loans would be prioritized or even when that would happen. Obviously, if it were to be broad based, if there was a broad based loan forgiveness program where every borrower for loans that we own or service has a $10,000 loan forgiveness, it would have an impact on earnings. But I think as you point out - a meaningful impact on earnings. But as you point out, it would also have a positive meaningful impact on cash flow as loans are paid and cash is received from those payments, but also released from the trust, the various trusts that we have. And our rough estimates of that would be, it is a very significant number that could be in the range of in the high hundreds to just under $1 billion net.

[Vincent Caintic:]

Okay, very helpful. Thank you for that. Next, just a quick follow-up on the FFELP NIM. And so, it's nice to see the high - mid high 90s guidance range. I was just kind of wondering if you could talk about how that looks exiting 2021 in terms of run rate just because I know there was some benefits in 2020 you had, the nice low interest rates and maybe some of that resets this year. So, if you could just talk about how 2021 exits in terms of the FFELP NIM? Thank you.

[Joe Fisher:]

Sure. So, there are some dynamics that occur in the first quarter where typically your NIM is lower than where you are for the second and third quarter in terms of just the day count and how the floors are actually paid here. So, when you think about where we're going to exit the fourth quarter, at this stage, if the interest rate environment remains stable and favorable as we're expecting, we would anticipate being higher in the fourth quarter than we would in the first quarter, but ultimately within that band. So, I think, to give you color on that, I would say first quarter should be our lowest quarter in that range, all else equal.

[Vincent Caintic:]

Okay, very helpful. Thanks so much.

[Operator:]

Your next question comes from the line of Mark DeVries of Barclays.

[Mark DeVries:]

Yeah. Thank you. Can you just remind us what kind of macro assumptions are embedded in your reserves? And also, just how your current forecast of credit trends are comparing to those assumptions?

[Joe Fisher:]

Sure. So, we're certainly performing much more favorably to what our assumptions had predicted in both the second and the third quarter. As Jack referenced, we're somewhat conservative here as there is a lot of still unknowns early on in this year. So, we use like many other financial institutions, the Moody's model. And from that standpoint, we feel very adequately reserved in terms of our assumptions based off of the current economic environment, as well as our ability to absorb any significant losses that could potentially occur here over the next couple of quarters.

[Mark DeVries:]

Okay. That's helpful. And then, any ability to kind of quantify for us if credit continues to trend as it has been, how much reserve could ultimately come back?

[Joe Fisher:]

Yeah, I think it's too early to make that kind of assertion. Certainly, we feel very comfortable of where we are. And as I continue to stress, it is early, but the trends are positive and we've seen that now for a few months. So, continuing to see that trend would obviously have us take a look at that allowance. But at this stage, it's just - it's early given a lot of uncertainty here early in the year.

[Mark DeVries:]

Okay. And then, what do you need to see from a macro perspective or within your own portfolio to get a little bit more comfortable with that and think about releasing some of your reserves?

[Jack Remondi:]

I think you need to see more consistency in terms of forecast of the economic outlook. Right now, as Joe said, there's a lot of variability here and a lot of, well, if this happens, that could happen type of commentary. So, I think that's really the big question. And probably on everyone's mind is, at what point do we start to return to an economic activity in this country that is more normal, right? And until we have more visibility on that, both in terms of its size and timing, I think it's prudent for us to be cautious in terms of our reserve outlook.

[Mark DeVries:]

Okay. Thank you.

[Operator:]

Your next question comes from the line of Lee Cooperman with Omega Family Office.

[Lee Cooperman:]

Thank you. I'm looking at a table, I just would like you to comment on it. The S&P 500 is 23 times earnings. You are 3.6 times earnings. The S&P is 4 times book value. You're about 87% of book value. The S&P yields 1.55%. You yield 5.4%. The S&P is earning 23% on equity. And you're earning in the high 20s, call it 26% return on equity. What do you think the market is thinking about you and can you be more aggressive in capitalizing what seems to be a mispricing of our equity? I assume you would think your book value is real. So, you have the chance to buy it back at discount to book, which accretes the remaining shares. I think you started you whole buyback a number of years ago when the stock was close to $30. So, why aren't we not more aggressive? I understand the environment, but it seems to me, if they will forgive student debt, you're going to have a lot more cash to deal with.

[Jack Remondi:]

So, I agree with your comparisons, obviously, Lee. It's been frustrating. And as I mentioned in my opening remarks, we've got a three year track record here of delivering strong compound annual growth for a business that many, I think, look at as something that was going to be amortizing and declining. We've been able to offset the declines in the legacy portfolio through new loan originations and some additional fee income. I think when we started this year in terms of our ability to return capital more aggressively, we had to adjust our outlook here for the implications on capital as a result of CECL, which, although I would argue is nothing more than a geography line item, it did - the rating agencies, I think, look at that as being more of an increased capital requirement for financial institutions. So, we've been restoring that and building it. We're close to where we want to be. And as a result, you'll see us, I think, proportionately continue to be aggressive in terms of our share repurchases. So, even though our capital base is lower, we're expecting to return a similar amount of capital in 2021 as we did in 2020. And our goal here, of course, is to demonstrate what we are able to do, the consistency of our earnings and cash flows in all economic environments, and get folks to focus on that part of the story versus perhaps what this - what a new administration might do in the student loan space.

[Lee Cooperman:]

Well, I guess, my dollar, I would either raise a dividend or accelerate the repurchase. One of the two. But you're doing a fine job and I guess just go along whatever you think.

[Jack Remondi:]

Great. Thank you, Lee.

[Operator:]

Your next question comes from the line of Lance Jessurun of Jefferies.

[Lance Jessurun:]

Hey. Thanks for taking my questions today, guys. I'm on for John Hecht. Super quick question for you guys. Sorry to keep going on the share repurchases. But as we think about the adjustable tangible equity ratios and how they affect the share repurchases, are there any limitations there essentially for you guys and how should we think about that?

[Joe Fisher:]

Sure. So, $400 million takes into account getting back to that 5.5% adjusted tangible equity ratio. We monitor, certainly, the rating agencies and where they are and what they're comfortable with. So to the extent we outperform from an earnings perspective, or there is opportunities that we can address both that and accelerate share buybacks and be above that threshold, we would look to take advantage of that. So, I would say that the 5.5% and the $400 million get us comfortably within where we need to be for our current ratings outlook and any excess that could be derived during the year as an opportunity to either buy back additional shares, but we will also have a focus on reducing unsecured debt.

[Lance Jessurun:]

Sounds good. Thanks. And then, one more quick one on expenses. So, is a 50% efficiency ratio a bit more kind of the going assumption for ‘21 and ‘22 and what's a little bit baked into that compared to - it was a little closer to 47% during 2020 outside of the last quarter?

[Joe Fisher:]

So, our current guidance of the 52% for next year really takes into account the shifting mix of our growth businesses, so that would be both the Consumer Lending and the Business Processing Solutions here. So, from that standpoint, obviously, the Federal Education Loan segment continues to represent less of a portion or less of a percentage of our overall revenue expense mix. So, as that comes down and our growth businesses grow, you're going to see a little bit of a pressure in terms of the efficiency ratio because the attractive margins that we're earning on the BPS, obviously, it's a capital light business in the mid-teens, just that general mix shift is going to increase your efficiency ratio.

[Lance Jessurun:]

Sounds good. Thank you very much.

[Operator:]

. Your next question comes from the line of Mark Hammond of Bank of America.

[Mark Hammond:]

Hi, Joe, Jack and Nathan. I had two questions. So, the first is on the adjustable tangible equity ratio target and just seeing how you arrived at that 5.5% and whether or not that longer term - or if it's a longer term 6% target that you came out with originally in 2020, if that still stands longer term?

[Joe Fisher:]

When we came out with that above 6% guidance, that was not contemplating the impact of CECL and the very quick change - or the rapid change that we saw in terms of the interest rates and the derivative marks that came along with that. So, as we think about our longer-term focus, we are focused on maintaining the rating agency metrics and that 5.5% growing to 6% puts us in that range. So, if you look at the WACC ratio for S&P, that would be 7% that they're using and then sort of a similar levels for Moody's and Fitch. So, as we grow here over the next year and beyond, we feel comfortable above 5.5% and, ultimately, as those derivative marks come back, that should get us above those - above that 6% level.

[Mark Hammond:]

Okay. So, it's more of longer term, I mean beyond 2020. I don't know if it's still stands really.

[Joe Fisher:]

Right. So, if you exclude the derivative marks today, you're above 7%.

[Mark Hammond:]

Right. And then, my second question is just a follow-up on an earlier question. I think it was Vince who asked about debt forgiveness. So, is that - high hundreds or under a $1 billion figure that Jack gave, is that net of secured debt paydown and allocated unsecured debt paydown or just secured debt paydown?

[Jack Remondi:]

It's net of the secured debt paydowns. But on the FFELP side of the equation, it's virtually all the loans are funded with secured debt at this point.

[Mark Hammond:]

Thank you, all.

[Operator:]

Your next question comes from the line of Henry Coffey of Wedbush.

[Henry Coffey:]

Good morning. And let me add my congratulations on what's been an amazing year for Navient. Two items, both completely unrelated. SoFi is merging with a SPAC at a valuation level that one would call modestly frothy, 40 times plus earnings. And is there anything that they're doing in their student loan refinance business and in terms of harvesting that valuation opportunity, that value prop in terms of bringing in new products that you need to be looking at that would help accelerate the growth? I know they offer a whole suite of products. Maybe that's something you should be considering. Or are you sort of satisfied with the way the business is running?

[Jack Remondi:]

So, I do think there - our customer relationships on the refi side in particular are super strong. We have net promoter scores from that customer base that generally run in the low 70s and that - which is very, very high for financial service products. And we do think that at some point it might make sense for us to partner with others to explore the potential to sell other products to those customers. I think in SoFi's case, the other piece of - they made a big deal in their presentation about cross selling, but they also have a big technology platform that seems to be a part of their evaluation story. But I made the case for the fact that our fundamentals here justifying support at much higher stock price, but I wasn't arguing for a SoFi multiple.

[Henry Coffey:]

I thought you were. No. It's worth noting - and you are right - they have some other - the tech products are a very small part of the overall earnings and revenue contribution. They do add a little bit to the froth. An unrelated matter, the derivative accounting impact on equity, how quickly does that get recaptured or how quickly can that $616 million get recaptured into earnings?

[Joe Fisher:]

So, the speed is going to be somewhat a function of the interest rate environment. So, if the interest rate environment remains as it is forecasted today, that should be somewhat ratable over the next three years. If we have an increase in rates, the way the derivative marks would work is that would actually come back faster to us.

[Jack Remondi:]

But just the passage of time which is going to cause that to happen - and in fact, the majority of the increase in the ratio this quarter from September was just because of the passage of time.

[Henry Coffey:]

Great, thank you very much.

[Operator:]

Your next question comes from the line of Moshe Orenbuch of Credit Suisse.

[Moshe Orenbuch:]

Great, thanks. And most of my questions have been asked and answered, but congrats on the buyback. I think that's a good step. On the private margin, just talk a little more of that how much of an impact to expect in 2021 and then beyond from the whole modification and loans coming off forbearance? And is there an opportunity -- in the past, you harvested some cash from the structures in that portfolio. Are there other opportunities to do that as we go forward? Thanks.

[Jack Remondi:]

Yeah. So, two questions there. On the private loan net interest margin, there is more variability sometimes on a seasonal basis, but really driven by the changing mix of the portfolio. So, as our refi loans become a higher proportion of our total private loan balance, obviously, the net interest margin is impacted by that. And I think we're upwards of - that ratio has moved from about 26% of the average loans a year ago quarter to 36%, almost 37% this quarter. One of the other factors that is impacting the net interest margin in that portfolio is CECL. And when loans become 90 days past due, we are taking into the net interest margin, effectively, the reserve on that interest, putting those loans on non-accrual effectively and the interest component. So, as the loan delinquency rates were coming down in 2020, that was a positive. And as they are starting to move back up, particularly in the fourth quarter, that becomes more of a drag. And it was more than half of the driver of the impact in the net interest margin this quarter, for example. In terms of funding, I think one of the things that we have been very focused on, and as Joe mentioned in his comments, interest expense is our largest expense, significantly larger than operating expense. And over the last several years, we've made a very strong effort to take advantage of kind of innovative financing strategies to lower that expense. And as you point out, we've been able to - you called it harvest. We've been able to borrow against the excess collateral that has been building up in our securitization trust, particularly our private loan trusts, at rates that are 300, 400 basis points lower than what our traditional funding source would have been which was unsecured debt. We continue to take advantage of those opportunities. We continue to broaden our investor base in our ABS securities. The deal we did just a couple of weeks ago was 50 basis points inside the deal we did in the fourth quarter. So, very strong performance and obviously all of that serves to reduce our overall interest expense and we'll continue that effort overall.

[Moshe Orenbuch:]

Thanks, Jack. The second question that I had has to do with the in-school market and, unfortunately, accounting. You've seen a number of players, including Wells Fargo and others, leaving or selling - and even Sallie Mae is selling a significant percentage of its production on an annual basis because of the cost related to CECL. I guess given how critical the whole capital return function is, I mean, how do you think about that business and your capital plans as you go forward?

[Jack Remondi:]

So, we obviously view the business attractively since we're working to get into the business. I think to your point, I think there is a lot of different strategies that can be executed as to how one finances those loans long-term, either through direct ownership or through whole loan sales or some other funding vehicles that address the capital tax that CECL places on long duration assets like this. And those would certainly be part of our approach and overall balance sheet management going forward.

[Moshe Orenbuch:]

Okay. Thank you.

[Operator:]

And at this time, there are no further questions. I would like to hand the call back to Mr. Rutledge for any closing remarks.

[Nathan Rutledge:]

Thanks, Andrea. 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.

[Operator:]

Thank you for your participation. This concludes today's call. You may now disconnect.