Navient Corporation

Please stand by, your meeting is about to begin. Good day and welcome to the Navient second quarter 2026 earnings conference call. This call is being recorded. Currently all participants are in a listen only mode. Following the remarks, we will conduct a question and answer session. Instructions will be given at that time. If anyone should require assistance during the call, Please press the star key followed by zero on your telephone keypad. At this time, I will turn the call over to Roger Yancoup, Navient's Treasurer and Head of Investor Relations. Please go ahead.

Roger Yancoup Hello. Good afternoon and welcome to Navient's earnings call for the second quarter of 2026. Joining me today are Ed Bramson, Navient's Chief Executive Officer and Chair of the Board, and Steve Hauber, Navient's Chief Financial Officer. After Ed and Steve's prepared remarks, we will open up the call for questions. Today's discussion is accompanied by a presentation, which you can find on Navient.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 the presentation. Actual results in the future may differ materially from those discussed today due to a variety of risks and uncertainties. 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 certain non-GAAP financial measures, including core earnings, adjusted tangible equity ratio, and various other non-GAAP financial measures derived from core earnings. Our GAAP results, description of our non-GAAP financial measures, and a reconciliation of core earnings to GAAP results can be found in Navient's second quarter 2026 earnings release, which is posted on our website. Thank you, and I will now turn the call over to Ed.

Thank you, Roger, and thank you to everyone for joining the call today. Before turning to the results themselves, I want to express our thanks to David Yowan, my predecessor's CEO, who stepped down from the role in June of this year. David led the Navigants team through a period of significant strategic change. Under his leadership, we bolstered our liquidity and accomplished a major structural reduction in fixed costs. This is a much stronger position to compete in the areas that represent offshore growth. In fact, we're already benefiting from this transformation, and I'll highlight a few of these benefits at length in my remarks. As you have seen from the release, we're having a second quarter of core earnings of $0.29 a share. During the quarter, a few significant items affected the results. We realized a gain on investment. This was partially offset by regulatory and restructuring expenses, and an upfront expense from electing to call a felt trust. The net impact of those items is a benefit of about $0.04 per share, so excluding them, core EPS would have been $0.25 for the quarter, and that compares to core EPS of $0.20 in 2025. Steve will discuss these items when he takes us through the slide presentation, and he will also cover some adjustments to loss provisions in the private loan back book, which mostly offset each other in the quarter. There are a couple of trends in the second quarter that I think are worth highlighting, as they indicate that we're seeing the initial benefits from our strategic transformation program. I also want to mention a change in capital allocation, which will support the acceleration and growth that we're experiencing. First thing I'd like to highlight is originations, which grew in both refinance and in-school products. combined originations were up by more than 60% versus the same quarter of 2025 to $815 million in total. The second item was operating expenses, which were 18% lower than they were in Q2 of last year. The rapid growth in our private loan originations in the current quarter was principally due to increased demand for student loan refinancing. In the second half of this year, we expect also have demand for in-school products, which will increase significantly as well, partly due to seasonality and partly to changes in government policy and graduate education lending. Looking a bit further ahead, as we complete the testing phase of our new personal loan products, we can foresee additional demand growth for them in 2027 and beyond. With respect to the capital allocation that I mentioned earlier, With this level of growth and originations, we think it now makes sense to consider redeploying some of the capital from our large portfolio of private legacy loans into the more strategically important product areas that we're now focusing on. Our legacy private loan portfolio is around $5.4 billion and it's profitable. but we don't make those type of loans anymore so they really don't help us strategically and their gradual decline in balances doesn't fit with our growth objectives. As a result, at the end of Q2, we classified $528 million or just under 10% of these legacy loans as held for sale and we may consider reclassifying more of them in the future. The reclassification released $19 million of allowance for losses related to these loans, which we essentially reallocated back to the balance of the loan portfolio. We've also made a change that relates to our in-school products, both graduate and undergraduate. Beginning in Q3, we'll be accounting for newly originated in-school loans at fair value. The loans we originated in Q2 and earlier are unaffected and will continue to be accounted for at amortized costs that we cease to reserve. Since essentially all of these future originations are intended to be securitized or sold, we believe that fair value will represent the economic impact of these products on our financial position better. Steve will be taking us through the slide presentations at this point.