Navient Corporation

Good day and thank you for standing by. Welcome to the Naviant second quarter 2025 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 Erief, Head of Investor Relations. Please go ahead.

Hello. Good morning and welcome to Navient's earnings call for the second quarter of 2025. With me today are David Yohan, Navient's CEO, and Joe Fisher, Navient's CFO. After the prepared remarks, we will open up the call for questions. Today's discussion is accompanied by a presentation which you can find on Naviant.com slash investors. 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. Our GAAP results, description of our non-GAAP financial measures, and a reconciliation of core earnings to GAAP results can be found in Navient's second quarter 2025 earnings release, which is posted on our website. Thank you, and I now will turn the call over to Dave.

Thanks, Jen. Good morning, everyone. Thank you for joining the call and for your interest in Navient. This morning, we reported results that demonstrate our ability to generate high-quality loan growth, efficiently finance our lending activities, and deliver on our commitment to improve our operating efficiency. Also during the quarter, provision expenses are elevated due to several factors. Joe will take you through these results in a few minutes. Before I turn it over to him, let me touch on a few highlights in the quarter. First, we delivered another strong quarter of loan origination growth. We originated $443 million in refinance loans this quarter. This is twice the volume from the same period last year. As a result, Our total refi originations for the first half of the year have more than doubled, even while benchmark rates were generally comparable to the year-ago period. These strong originations underscore our ability to attract high quality and high average balances. Second, I'd like to comment on recent legislation passed into law earlier this month. This legislation introduced changes to federal student loan programs, which will take effect over time, and we believe will expand our opportunities with our targeted customer segment across our product set. The change that has received most of the headlines is the way the government will lend to graduate students. The bill will eliminate the Grad Plus loan program at the end of June next year. Grad Plus originations were roughly $14 billion. The private in-school graduate market in which we participate was roughly 10%, of the Grad Plus originations. The elimination of Grad Plus is one important change in the federal loan ecosystem that increases our future opportunities in a customer segment we know well. The bill also changes borrowing limits across federal loan programs. Although there are several moving parts, it is clear that demand for private in-school graduate loans will increase significantly over time. We've been leaning into graduate segments with high quality borrowers and higher average loan balances across our in-school and refi products. In fact, for our in-school product, graduate students represented 48% of our 2024 volume and 56% of our year-to-date volume. In refi, 41% of our 2024 volume and 57% of our year-to-date volume were made to graduate students. There are a number of other changes to the federal loan system. Some changes are a result of the bill, and others are due to modifications to the federal loan portfolio, including the resumption of loan payments post-pandemic and changes to loan forgiveness programs. These changes could significantly benefit Navient given our portfolio and product set. For example, the bill simplifies federal student loan repayment plans. We expect the repayment plan changes will reduce FELP consolidation activity. Lower FELP prepayments increase life alone net income and cash flows. The lifetime net income and cash flow increases are accompanied by increases in provision, but some loans that would have prepaid will default. You can see these impacts in our results this quarter. we expect the low level of consolidations to persist over the medium term. The changes might also increase the attractiveness of our private refinance product to federal loan borrowers. For example, federal borrowers enrolled in the SAVE plan will begin to accrue and pay interest on their loans beginning August 1st. We believe this upcoming change is a proximate cause of an increase in top of the funnel traffic for our refi product over the last few weeks. We're working to convert this traffic into high-quality loans. It's too soon to know whether this increased interest is temporary or part of a larger and longer trend. Third, I want to highlight our recent ABS issuance. I typically do not call out capital market transactions on earnings calls, but the financing transaction completed in the second quarter is worth spending some time on from an equity and cost of capital perspective. In June, we issued our inaugural in-school ABS deal. This securitization was backed by a representative mix of earnest in-school originations. We believe this transaction was also the first student loan ABS with a significant graduate component representing 45% of the pool balance. Investors responded with enthusiasm to this offering which was nearly six times oversubscribed. More significantly, through the issuance and related private financings, we raised total gross cash proceeds of roughly 98% of loan principal, while retaining, as we typically have done, a substantial economic interest in the pool. This highly capital efficient financing structure compares quite favorably to our historical student loan ABS financing transactions. We believe the success of this transaction was driven in large part by the high quality of our loans and the substantial proportion of graduate loans. Thus, we are very well positioned to benefit from increased market opportunities in refi and in-school products with the graduate school customer segment. We have a differentiated value proposition through the strength of our earnest brand, tailored products, payment flexibility, operating leverage, and positive customer experiences. We also have the operational and financial capacity to support higher volumes. Fourth, let me shift to our expense base. This quarter we achieved two more significant milestones in our strategic initiatives to reduce operating expenses. We completed the transition service agreements that followed last year's outsourcing of servicing and the sale of our healthcare business. These were completed on schedule, leading to the wind down of associated activities and planned expense reductions. We continue to provide TSA support related to the Q1 sale of our government services business. Last quarter, we indicated that the completion of that agreement and the related wind down activities would occur during the first half of next year. We now expect to complete the TSA earlier than planned, allowing us to accelerate the remaining wind down and expense reductions. These milestones are among the final steps in our phase one transformation. While we are not across the goal line yet in simplifying and streamlining Naviant, I am proud of the incredible work our teams across the organization have done to achieve the savings we are realizing. Their determination to complete the job gives me confidence that we will meet the ambitious $400 million expense reduction targets we established 18 months ago. Fifth, changes in the external environment are reflected in our results for the quarter. We continue to experience low levels of felt consolidation activity, which enhance interest margins and increase lifetime cash flows. These low levels of prepayments are primarily driven to changes in the federal loan forgiveness programs pursued under the prior administration. The provision expense for the quarter reflects a higher level of refi originations, as well as a weakening in both the macroeconomic scenarios we use to estimate life of loan defaults, as well as this quarter's trends in delinquency rates. The quarter end delinquency metrics reflect in part the impact of borrowers exiting forbearance programs, we offer borrowers impacted by natural disasters. It also reflects in part changes in federal loan repayment and student loan repayment behavior in general. The macroeconomic outlook and delinquency trends contributed roughly equally to the provision expense on previously originated private and self loans. During the quarter, we purchased $24 million of shares under existing authority. We will continue to balance the opportunity to purchase future value at a discount the book value with opportunities to invest in growth. Finally, we are making good progress developing phase two of our transformation. We continue to analyze opportunities to grow more rapidly and to identify additional significant expense reductions. As we indicated in January, we plan to provide an update by the end of the year. Joe will share a revised four-year outlook shortly. It reflects an increase in our first half and expected loan originations and the upfront costs associated with them, low levels of FELP prepayments and the provision expense associated with them, and the elevated provision expense we recorded in the first half of the year. It also reflects our disciplined operating expense. In summary, our operating results reflect our ability to drive meaningful loan growth, generate strong revenue and cash flows from our legacy assets, our capacity to efficiently finance our loans, significantly reduce operating expenses and invest in future growth, all while continuing to return capital to shareholders. I want to acknowledge and thank our colleagues in the organization who delivered these strong results. With that, Let me turn it over to Joe.