Summary of Navient's Strategy Update Conference Call Company Overview - **Company**: Navient - **Division Highlighted**: Earnest, focusing on student loan refinancing and personal loans Key Points and Arguments Phase One and Phase Two Strategy - **Phase One**: Aimed at maximizing cash flows from legacy portfolios, resulting in an additional $2 billion of discretionary cash for growth or distributions [5][6] - **Phase Two**: Focused on growing earnings and changing market perception of Navient from a student lender to a specialty finance company [5][6][7] Earnest's Role and Business Model - **Earnest**: Represents Navient's student loan refinancing and personal loan business, with a strategy to generate long-term relationships with high lifetime value customers [9][10] - **Customer Profile**: Average customer age is in the early to mid-30s, with an income of approximately $120,000 and a FICO score above 770, indicating a high potential customer base [11] Financial Performance and Projections - **2025 Financial Snapshot**: Expected operating profit of around $70 million with $10 billion in outstanding loans, primarily securitized [12][14] - **Return on Equity (ROE)**: Aiming for a pre-tax ROE of about 12%, with potential for significant increases through optimized securitization strategies [42][45] Securitization Strategy - **Securitization Changes**: Transitioning from horizontal to vertical securitization to maximize return on equity, despite lower net interest income [20][22] - **Loan Sales**: Exploring loan sales as a method to remove loans from the balance sheet and accelerate income [22][23] Market Opportunities - **Total Addressable Market (TAM)**: - Education and graduate lending market estimated at $12 billion annually [32] - Student loan refinancing market projected to grow from $8 billion in 2025 to $11 billion in 2026 [32] - Personal lending market expected to be around $36 billion by 2028, targeting existing customers [33][34] Competitive Landscape - **Market Positioning**: Aiming to be competitive at lower origination levels compared to peers like Upstart and SoFi, with a focus on maintaining low sales and marketing expenses [26][27] - **Customer Acquisition**: Approximately $350 million spent to acquire the current customer base, with plans to monetize through multiple products as customer needs evolve [30] Technology and Operations - **New Lending Platform**: Launched a modular lending platform to improve operational efficiency and increase loan automation, enhancing conversion rates [17][18] - **Data Science Integration**: Expanding the use of machine learning for credit decisioning and pricing to improve competitiveness [18] Future Outlook - **Growth Projections**: Anticipating a significant increase in originations, with a goal of reaching around $4 billion in originations in the near term [40] - **Transition Year**: 2026 is seen as a pivotal year for transitioning into personal lending and expanding market presence [39] Additional Important Insights - **Talent Acquisition**: Efforts to attract industry talent to enhance operational capabilities and market competitiveness [12][13] - **Investor Relations**: Emphasis on improved disclosures to better communicate the value of Earnest as part of Navient [28][29] This summary encapsulates the strategic direction and financial outlook of Navient, particularly focusing on the Earnest division and its role in the company's growth strategy.

Earnest's Strategy and Financial Performance - Navient's restructuring program has increased future cash flows, adding approximately $2 billion to existing net cash flow for growth investments or distributions[13] - Earnest aims to achieve overall efficiency equal to or greater than peers at lower breakeven volumes[15] - Earnest has over 375,000 unique customer relationships as of September 30, 2025, with over 40,000 expected to be added in 2026[20] - For 2025E, Earnest's total revenue is projected to be $219 million, with net interest income of $168 million and servicing revenue of $51 million[26] - Earnest's total assets are projected to be $10,007 million, with securitized loans of $8,255 million and equity of $724 million as of December 31, 2025[28] Growth and Efficiency Improvements - Annual originations are expected to increase 2.5x from $971 million in 2023 to $2,400 million in 2025E[37] - Quarterly rate check volume (Q3) for SLR is expected to increase 3.9x from $1.4 billion in 2023 to $5.4 billion in 2025E[37] - Sales & Marketing expenses as a percentage of originations are expected to decrease by 59% from 5.6% in 2023 to 2.3% in 2025E[37] - Loan automation (Q3) is expected to increase 1.4x from 57% in 2023 to 79% in 2025E[37] Market Opportunity and Future Plans - The total Earnest opportunity in non-education loans is projected to be $47 billion in 2026 and $101 billion in 2028[46]

Financial Performance - Third-quarter 2025 net loss was $86 million ($0.87 diluted loss per share), compared to a net loss of $2 million ($0.02 diluted loss per share) in the same quarter last year, representing a significant increase in losses [47][53]. - Core Earnings net loss for the third quarter was $83 million ($0.84 diluted loss per share), compared to a profit of $160 million ($1.45 diluted per share) in the prior year [48]. - Net income for the third quarter of 2025 was $35 million, compared to $27 million in the same quarter of 2024, reflecting a 30% increase [67]. - Net income (loss) for the three months ended September 30, 2025, was a loss of $86 million [123]. - Net income for the nine months ended September 30, 2025, was $(75) million, compared to $107 million for the same period in 2024 [186]. Loan Performance - The provision for loan losses totaled $168 million, with $155 million attributed to Consumer Lending, reflecting elevated delinquency balances and macroeconomic forecasts [50][54]. - Delinquencies greater than 90 days increased to $2.5 billion from $1.9 billion year-over-year [67]. - The delinquency rate for FFELP loans greater than 90 days increased to 10.5% as of September 30, 2025, from 8.7% as of December 31, 2024 [101]. - The percentage of loans in repayment increased to 82.8% as of September 30, 2025, compared to 80.1% on September 30, 2024 [204]. - Loans delinquent greater than 90 days increased to $2,539 million, representing 10.5% of loans in repayment as of September 30, 2025, compared to 7.3% on September 30, 2024 [204]. Capital Management - Total capital returned to shareholders in Q3 2025 was $42 million, down from $50 million in Q3 2024 [28]. - The company has authorized a new $100 million share repurchase program in October 2025, in addition to approximately $26 million of unused authorization as of September 30, 2025 [26]. - The company repurchased $26 million of common shares and authorized a new $100 million share repurchase program [50]. - The company repurchased a total of 2.0 million shares at an average price of $13.19 during the third quarter of 2025 [160]. - The company has approximately $26 million of unused authorization remaining under its share repurchase programs as of September 30, 2025 [160]. Operational Efficiency - Operating expenses were $105 million, a decrease of 43% from $184 million in the prior year [52]. - Operating expenses decreased by $200 million, primarily due to a decline in business processing expenses from the sale of the government services and healthcare services businesses [61]. - The company reduced its headcount by over 80% since the beginning of 2024 as part of its strategic actions to simplify the company [33]. - Total expenses for the quarter were $109 million, with direct operating expenses amounting to $61 million [123]. - Total expenses amounted to $341 million, with direct operating expenses at $189 million and unallocated shared services expenses at $144 million [127]. Loan Originations - The company originated $1.8 billion of Private Education Loans in the first nine months of 2025, a 73% increase from $1.0 billion a year ago [22]. - Total originations of Private Education Loans nearly doubled to $1.8 billion in the first nine months of 2025 compared to $1.0 billion a year ago [36]. - The company originated $788 million in Private Education Loans, marking a 58% increase compared to the previous year [50]. - The company originated $687 million in new loans during the three months ended September 30, 2025, compared to $407 million in the same period of 2024 [100]. - The company originated $788 million of Private Education Loans in Q3 2025, a 58% increase compared to $500 million in Q3 2024 [80]. Asset Management - Ending total education loans, net, stood at $44.4 billion, down from $47.5 billion year-over-year [45]. - Total assets decreased to $49.3 billion as of September 30, 2025, down from $51.8 billion at the end of 2024, representing a decline of approximately 4.8% [169]. - Total liabilities decreased to $46.87 billion, down from $49.15 billion, reflecting a decrease of approximately 4.6% [169]. - The company reported unrestricted cash of $571 million as of September 30, 2025, down from $1.143 billion a year earlier [111]. - The total balance of loans in forbearance for Private Education Loans decreased from $445 million as of September 30, 2024, to $239 million as of September 30, 2025, a reduction of approximately 46.3% [102]. Interest Income and Expenses - Total interest income decreased by 18% to $781 million in the third quarter, down from $948 million in the same period last year [52]. - The company reported a total interest expense of $639 million, leading to a net interest income of $142 million before provisions [123]. - Total interest income for the three months ended September 30, 2025, was $781 million, with education loans contributing $760 million [123]. - Total interest income for the nine months ended September 30, 2025, was $2,361 million, down from $2,948 million in 2024, representing a decrease of approximately 20% [172]. - The company incurred $4 million in restructuring and other reorganization expenses during the quarter [123]. Future Outlook - The passage of the "Big Beautiful Bill" on July 3, 2025, is expected to drive increased demand for private in-school graduate loans, presenting a growth opportunity for Navient [40]. - The company plans to focus on market expansion and new product development as part of its future strategy [125]. - The company anticipates continued focus on market expansion and new product development in the upcoming quarters [127]. - The company has no further obligations to provide transition services for its government services business as of October 2025 [89]. - The company expects to fund ongoing liquidity needs, including the repayment of $0.5 billion of senior unsecured notes maturing in the short term and $4.8 billion maturing in the long term, with 69% maturing by 2031 [109].

Financial Data and Key Metrics Changes - The company reported core earnings per share of $0.29 for the quarter, adjusting for significant items, while the core loss per share was $0.84 [14] - The expected life of loan cash flows increased by approximately $195 million due to lower prepayment speeds and updated assumptions [10][11] - The company announced a new share repurchase authorization of $100 million, providing additional capacity to purchase future value at a discount [4] Business Line Data and Key Metrics Changes - Total loan originations in the Consumer Lending segment grew to $788 million, a 58% increase from the previous year, driven by over 100% growth in Refi originations [17] - The Refi loans accounted for $528 million, marking the highest quarterly volume this year, while in-school lending reached a record $260 million [5][17] - The net interest margin for the Consumer Lending segment was 239 basis points, an increase from 232 basis points in the previous quarter [18] Market Data and Key Metrics Changes - The company experienced a decline in total delinquencies from 19% to 18.1%, while the net charge-off rate increased by 1 basis point to 15 basis points [16] - The provision expense for the quarter was $168 million, with $151 million related to previously originated loans, reflecting elevated delinquency rates [14][15] Company Strategy and Development Direction - The company is focused on aggressively reducing expenses and has exceeded its initial goal of $400 million in run-rate expense reductions ahead of schedule [8][22] - The company plans to provide an update on the growth strategy for its Earnest business on November 19th, indicating ongoing strategic initiatives [13] - The company is well-positioned to capitalize on opportunities in the Refi market, particularly as federal loan policies become less attractive to borrowers [79] Management's Comments on Operating Environment and Future Outlook - Management noted that the expected future cash flows increased due to changes in public policy and customer repayment behavior, with a focus on legacy loan portfolios [10][29] - The outlook for the fourth quarter is a range of $0.30-$0.35 per share, which would place the company within the full-year guidance of $1-$1.20 per share [15] - Management expressed confidence in the ability to finance rapid asset growth through ABS issuances, indicating a strong capital position [48][49] Other Important Information - The company completed its fourth term ABS financing of the year, backed by Refi loan collateral, demonstrating strong investor demand [12] - The total reserve build in the quarter was driven by various factors, including changes in borrower behavior and macroeconomic outlook [21] Q&A Session Summary Question: Regarding the provision and delinquencies noted - Management explained that the provision expense reflects incremental defaults and lower prepayment rates, which are expected to continue [26][29] Question: Where is the credit weakness coming from? - Management indicated that the majority of the weakness is focused on legacy portfolios, with some changes in other products but not as significant [38] Question: Breakdown of the $151 million provision - Management stated that the majority of the provision is related to trends in the private legacy portfolio, with macroeconomic conditions contributing only a small part [75] Question: Outlook on competition and market opportunities - Management highlighted that the company is well-positioned to take advantage of opportunities in the market, particularly in graduate loan originations [84] Question: Potential Grad PLUS opportunity - Management estimated the Grad PLUS market to be around $14 billion, with expectations for significant expansion opportunities [91]

Financial Data and Key Metrics Changes - The company reported core earnings per share of $0.29 for the quarter, adjusting for significant items, while the core loss per share was $0.84 [14][4] - The expected life of loan cash flows increased by approximately $195 million due to lower prepayment speeds and updated assumptions [10][11] - The company announced a new share repurchase authorization of $100 million to enhance shareholder value [4] Business Line Data and Key Metrics Changes - Total loan originations in the Consumer Lending segment grew to $788 million, a 58% increase year-over-year, driven by over 100% growth in refinance originations [17] - The Federal Education Loan segment's net interest margin for Q3 was 84 basis points, up 14 basis points from the previous quarter [15] - The Consumer Lending segment's net interest margin was 239 basis points, compared to 232 basis points in the second quarter [18] Market Data and Key Metrics Changes - The company experienced a record high in school lending originations of $260 million, the highest quarterly volume in its history [5] - Delinquency rates improved from 19% to 18.1%, while the net charge-off rate increased slightly to 15 basis points [16] - The company raised its full-year total loan originations guidance to approximately $2.4 billion, over 30% higher than initial guidance [17] Company Strategy and Development Direction - The company is focused on reducing operating expenses and has exceeded its initial goal of $400 million in run-rate expense reductions ahead of schedule [8][22] - The company aims to capitalize on growth opportunities in the refinance market, particularly among high-quality borrowers, as interest rates potentially decrease [6][13] - The company plans to provide an update on its growth strategy for the Earnest business on November 19th [13] Management's Comments on Operating Environment and Future Outlook - Management noted that the operating environment is influenced by changes in public policy and borrower repayment behavior, which have affected delinquency and charge-off rates [27][66] - The outlook for the fourth quarter is a range of $0.30 to $0.35 per share, reflecting continued strong origination growth and expense reductions [15][23] - Management expressed confidence in the company's ability to finance rapid asset growth through ABS issuances and other financing strategies [49][50] Other Important Information - The company completed its fourth term ABS financing of the year, backed by refinance loan collateral, indicating strong investor demand [12] - The total reserve build in the quarter was driven by various factors, including changes in borrower behavior and macroeconomic outlook [20][21] Q&A Session Summary Question: Inquiry about provision and delinquencies - Management explained that the provision expense reflects incremental defaults and lower prepayment rates, particularly in legacy portfolios [26][28] Question: Clarification on credit weakness sources - Management indicated that the majority of credit weakness is concentrated in legacy portfolios, with some changes in newer products but not as significant [38] Question: Discussion on reserve rate stabilization - Management noted that the reserve rate is influenced by new originations and the quality of loans, with expectations for the allowance to decrease as the portfolio runs off [57] Question: Impact of macroeconomic conditions on provisions - Management stated that macroeconomic conditions contributed minimally to the current provision, with the majority driven by trends in the legacy portfolio [77] Question: Outlook on competition and market opportunities - Management highlighted the company's strong position in the market and the potential for growth in both refinance and in-school lending segments [86][88]

Financial Data and Key Metrics Changes - The company reported core earnings per share of $0.29 for the quarter, adjusting for significant items, while the core loss per share was $0.84 [12][4] - The expected life of loan cash flows increased by approximately $195 million due to lower prepayment speeds and updated assumptions [9][10] - The company announced a new share repurchase authorization of $100 million to enhance shareholder value [4] Business Line Data and Key Metrics Changes - Total loan originations in the Consumer Lending segment grew to $788 million, a 58% increase year-over-year, driven by over 100% growth in refinance originations [15] - The Federal Education Loan segment's net interest margin for Q3 was 84 basis points, up 14 basis points from the previous quarter [13] - In-school lending reached a record high of $260 million, marking the highest quarterly volume in the company's history [5] Market Data and Key Metrics Changes - The company experienced strong investor demand for asset-backed securities (ABS), completing its fourth term ABS financing of the year [11][20] - The total reserve build in the quarter was driven by changes in borrower behavior, elevated delinquency rates, and macroeconomic outlook changes [17][18] Company Strategy and Development Direction - The company is focused on aggressively reducing expenses, exceeding its initial goal of $400 million in run-rate expense reductions ahead of schedule [6][8] - The company aims to capitalize on growth opportunities in the refinance market, particularly as federal loan policies become less attractive to borrowers [88][90] - The company plans to provide an update on its growth strategy for the Earnest business on November 19th [11] Management's Comments on Operating Environment and Future Outlook - Management noted that delinquency rates are improving but remain elevated, reflecting ongoing credit trends and lower prepayment activity [12][25] - The outlook for Q4 is a range of $0.30 to $0.35 per share, with expectations of continued strong origination growth [13][21] - Management emphasized the importance of macroeconomic conditions and public policy changes in shaping future performance [71][72] Other Important Information - The company has completed its final obligations under the Transition Services Agreement, allowing for further expense reductions [7][18] - The allowance for loan loss, excluding expected future recoveries, stands at $765 million for the entire education loan portfolio [17] Q&A Session Summary Question: Can you discuss the provision and delinquencies noted on the call? - Management explained that the provision expense reflects incremental defaults due to changes in borrower repayment behavior and macroeconomic conditions, particularly affecting legacy portfolios [24][25] Question: Where within consumer lending are you seeing credit weakness? - The majority of credit weakness is concentrated in legacy portfolios, with some changes in newer products but not as significant [36][38] Question: What is the breakdown of the $151 million provision? - Management indicated that the macroeconomic condition piece is relatively small, with the majority driven by trends in the private legacy portfolio [84][86] Question: How do you view the competition going forward? - The company believes it is well-positioned to take advantage of opportunities in the market, particularly in graduate loan originations and refinancing [96][98] Question: What is the potential opportunity in the Grad PLUS market? - Management estimates the Grad PLUS market to be around $14 billion, with expectations of significant expansion opportunities [103]

Financial Performance - Core Earnings per Share was $(0.84), but adjusted for significant items, it was $0.29[4] - The company reported a GAAP net loss of $(86) million and a Core Earnings net loss of $(83) million[15, 42] - Total expenses for the quarter were $109 million, compared to $202 million a year ago, reflecting increased efficiency[28, 30] Strategic Actions and Cost Reductions - The company is on track to exceed its original operating expense reduction target of $400 million[6, 11] - Phase 1 strategic actions focused on cost reductions are expected to result in expense reductions exceeding $400 million[11] - Total Shared and Corporate Expense is adjusted to $204 million after accounting for various expense reductions[12] Loan Portfolio and Originations - Consumer Lending originated $788 million of Private Education Loans, a 58% increase compared to the year-ago quarter[19] - Refinance loan originations were $528 million, compared to $262 million in the same quarter of the previous year[19] - The Federal Education Loan portfolio is projected to generate $1.9 billion through the end of 2029[57] Allowance for Loan Losses - The total provision expense was $168 million in 3Q25[24] - This includes $13 million for the FFELP portfolio and $155 million for the Private Education portfolio[24]

Financial Performance - Navient reported a GAAP net loss of $86 million, translating to a diluted loss per share of $0.87 for Q3 2025[3]. - Core Earnings net loss was $83 million, with a diluted loss per share of $0.84, impacted by a $168 million provision for loan losses[3]. - Net income for Q3 2025 was $(86) million, a decrease from $14 million in Q2 2025 and $(2) million in Q3 2024[19]. - Diluted earnings per share for Q3 2025 was $(0.87), compared to $0.13 in Q2 2025 and $(0.02) in Q3 2024[21]. - The company reported a significant increase in net income (loss) before income tax expense to $(117) million in Q3 2025, down from $18 million in Q2 2025 and $12 million in Q3 2024[21]. - For the three months ended September 30, 2025, the net loss was $86 million, or $0.87 diluted loss per common share, compared to a net loss of $2 million, or $0.02 diluted loss per common share for the same period in 2024[24]. - The net loss for the nine months ended September 30, 2025, was $75 million, or $0.75 diluted loss per share, compared to net income of $107 million, or $0.95 diluted earnings per share for the same period last year[29]. Loan Performance - The Federal Education Loans segment generated a net income of $35 million, with a net interest margin of 0.84%[4]. - Consumer Lending segment reported a net loss of $76 million, with a significant increase in provision for loan losses to $155 million, primarily due to elevated delinquency balances[9]. - The greater than 90-days delinquency rate for Private Education Loans was 2.8%, reflecting an increase from the previous year[9]. - Provisions for loan losses increased significantly to $168 million in Q3 2025, compared to $37 million in Q2 2025 and $42 million in Q3 2024[21]. - The allowance for loan losses increased to $186 million for FFELP Loans and $406 million for Private Education Loans as of September 30, 2025[23]. - The total provision for loan losses was $68 million, with a gross charge-off of $301 million during the period[39]. - The net charge-offs for Private Education Loans were $29 million, representing 0.14% of average loans in repayment, while FFELP Loans had net charge-offs of $261 million, or 2.15%[39]. Revenue and Income - Total interest income for Q3 2025 was $781 million, a slight increase from $778 million in Q2 2025 but a decrease of $167 million (18%) from $948 million in Q3 2024[21]. - Net interest income after provisions for loan losses was $(26) million in Q3 2025, down from $91 million in Q2 2025 and $78 million in Q3 2024[21]. - The company reported interest income of $2.361 billion for the three months ended September 30, 2025, a decrease of $587 million or 20% from the previous year[22]. - The company reported a total of $4 million in net impact from derivative accounting adjustments for the quarter[56]. - Total other income for the quarter was $19 million, with servicing revenue accounting for $13 million[54]. Expenses and Liabilities - Operating expenses totaled $105 million, with $6 million related to transition services from strategic initiatives[4]. - Total expenses for the quarter were $110 million, including direct operating expenses of $61 million and unallocated shared services expenses of $44 million[54]. - Total liabilities were $46.867 billion as of September 30, 2025, compared to $50.746 billion a year prior[23]. - The company’s total equity decreased to $2.439 billion as of September 30, 2025, down from $2.694 billion a year earlier[23]. Shareholder Actions - The company repurchased $26 million of common shares and authorized a new $100 million share repurchase program[4]. - The company repurchased 2.0 million shares of common stock for $26 million in Q3 2025, with $26 million of unused share repurchase authority remaining[43]. - The company repurchased 6.4 million shares during the nine months ended September 30, 2025, resulting in a decrease of 12 million average outstanding diluted shares (or 11%) from the year-ago period[32]. Strategic Initiatives - The company is focusing on market expansion and new product development as part of its strategic initiatives moving forward[66]. - The company expects to fund ongoing liquidity needs through cash on hand, operating cash flows, and potential additional debt issuance[42].

Loan Portfolio and Originations - Navient owns and manages a portfolio of $29.6 billion of federally guaranteed Federal Family Education Loan Program (FFELP) Loans[21]. - The company originated $1.0 billion of Private Education Loans in the first half of 2025, an 87% increase from $538 million a year ago[22]. - Total originations of Private Education Loans nearly doubled to $1.0 billion in the first half of 2025 compared to $538 million a year ago[36]. - The company originated $500 million in Private Education Loans during the quarter, reflecting ongoing efforts to expand its lending portfolio[50]. - The total acquisitions (originations and purchases) for FFELP loans in the three months ended June 30, 2025, is $472 million, while for the same period in 2024, it was $247 million, showing a significant increase of 91.5%[101]. Financial Performance - Second-quarter 2025 net income was $14 million ($0.13 diluted earnings per share), a decrease of 61% compared to $36 million ($0.32 diluted earnings per share) in the same quarter of 2024[53]. - Core Earnings net income for the second quarter of 2025 was $21 million ($0.20 diluted Core Earnings per share), down from $33 million ($0.29 diluted Core Earnings per share) in the prior year, reflecting a 36% decline[48]. - Net income for the six months ended June 30, 2025, was $11 million, or $0.11 diluted earnings per share, compared to $109 million, or $0.97 diluted earnings per share, for the same period in 2024[58]. - Net income decreased to $26 million in Q2 2025, down 57% from $60 million in Q2 2024[80]. - Net income for Q2 2025 was $14 million, a decrease of 61% from $36 million in Q2 2024[175]. Loan Loss Provisions and Delinquencies - Provision for loan losses increased to $37 million in the second quarter of 2025, up from $14 million in the same quarter of 2024, primarily due to higher delinquencies and increased originations[50]. - Provisions for loan losses increased by $41 million, from $26 million to $67 million, with the provision for Private Education Loan losses rising from $27 million to $51 million[62]. - Delinquencies greater than 90 days increased to $2.5 billion compared to $1.9 billion in the previous year, while forbearances decreased from $5.3 billion to $3.7 billion[65]. - The total number of loans delinquent greater than 90 days for FFELP loans is 2,526 million as of June 30, 2025, which is an increase from 1,857 million on June 30, 2024, indicating a rise in long-term delinquencies[102]. - The percentage of loans greater than 90 days delinquent was 3% of total private education loans as of June 30, 2025, highlighting ongoing challenges in loan recovery[203]. Capital Management and Shareholder Returns - Total capital returned to shareholders in Q2 2025 was $40 million, consisting of $24 million in share repurchases and $16 million in dividends[28]. - Navient's share repurchase program authorized the purchase of up to $1 billion of the company's outstanding common stock, with $52 million remaining as of June 30, 2025[26]. - The company repurchased $24 million of common shares during the quarter, with $52 million of common share repurchase authority remaining outstanding[50]. - The company purchased 1.9 million shares of common stock for $24 million in the first quarter of 2025, with $52 million of unused share repurchase authority as of June 30, 2025[112]. - The company has a remaining $68 million available under its $1 billion share repurchase program approved in December 2021[160]. Operating Expenses and Efficiency - Operating expenses were $100 million in Q2 2025, a decrease of 40% from $166 million in Q2 2024[52]. - The company has recognized $42 million in restructuring and reorganization charges in 2024 and the first half of 2025, primarily related to severance[33]. - Operating expenses decreased by $123 million, primarily due to a decline in business processing expenses related to the aforementioned sales[62]. - The company reduced its headcount by over 80% since the beginning of 2024 as part of its strategic actions to simplify the company[33]. - Operating expenses included $47 million in unallocated shared services expenses[125]. Interest Income and Margin - Total interest income decreased by 20% to $778 million in Q2 2025 from $973 million in Q2 2024, while total interest expense also fell by 23% to $650 million[52]. - The net interest margin for the Federal Education Loans segment improved to 0.70% in Q2 2025, compared to 0.36% in Q2 2024, while the Consumer Lending segment's net interest margin was 2.32%, down from 2.89%[45]. - Net interest income decreased by $24 million, primarily due to the paydown of the FFELP and Private Education Loan portfolios, with prepayments dropping from $4.1 billion in the year-ago period to $485 million in the current period[62]. - Total interest income for the three months ended June 30, 2025, was $778 million, with education loans contributing $756 million[125]. - Net interest income after provisions for loan losses was $91 million, reflecting a decrease of 19% compared to the previous period[125]. Tax and Regulatory Compliance - The effective income tax rate decreased from 20% in the year-ago period to 9% in the current period, influenced by state tax expenses and changes in valuation allowances[62]. - The company’s disclosure controls and procedures were evaluated as effective as of June 30, 2025, ensuring compliance with SEC rules[162]. Asset and Liability Management - The company had unrestricted cash of $712 million and total liquidity of $1.273 billion as of June 30, 2025[113]. - The company has unsecured debt totaling $5.3 billion as of June 30, 2025, rated below investment grade by three credit rating agencies[110]. - Total assets decreased to $50.22 billion as of June 30, 2025, down from $51.79 billion at the end of 2024, representing a decline of approximately 3.1%[168]. - Total liabilities decreased to $47.66 billion, down from $49.15 billion, reflecting a decrease of about 3.0%[168]. - The company reported total unencumbered tangible assets of $2.9 billion, including $1.3 billion in unencumbered education loans[115].

Financial Data and Key Metrics Changes - The company reported core earnings per share of $0.20, adjusting for regulatory and restructuring expenses to $0.21 on a core basis [24] - The net interest margin (NIM) for Q2 was 70 basis points, nine basis points higher than the first quarter, exceeding the guided range of 45 to 60 basis points [25] - Provision expense for the quarter reflects a less benign macroeconomic outlook and trends in delinquency rates, with greater than ninety-day delinquency rates increasing to 10.1% [25][26] Business Line Data and Key Metrics Changes - Total loan originations in the first half of the year doubled to just over $1,000,000,000 compared to a year ago, driven by substantial growth in refinance originations [26] - In the Federal Education Loan segment, prepayments were $228,000,000 in the quarter compared to $2,500,000,000 a year ago, indicating historically low prepayment activity [25] - The consumer lending segment's net interest margin was 232 basis points in the quarter, down from 276 basis points in the first quarter due to loans entering delinquency [27] Market Data and Key Metrics Changes - The company expects the full year NIM to range between 55 and 65 basis points, reflecting a stable rate environment and low prepayment activity [25] - The elimination of the Grad PLUS loan program is expected to increase demand for private in-school graduate loans significantly over time [9][10] - The company has seen an increase in top-of-the-funnel traffic for its refinance product, attributed to changes in federal loan repayment plans [13] Company Strategy and Development Direction - The company is focused on expanding opportunities in the graduate student segment, which represents a significant portion of its loan origination volume [11][49] - The company aims to achieve $400,000,000 in expense reductions as part of its strategic initiatives [18] - The company is well-positioned to benefit from increased market opportunities in refinance and in-school products with the graduate school customer segment [16] Management's Comments on Operating Environment and Future Outlook - Management noted that low levels of FFELP consolidation activity enhance interest margins and increase lifetime cash flows [19] - The macroeconomic outlook and delinquency trends contributed equally to the provision expense on previously originated private and self loans [20] - Management expressed confidence in meeting ambitious expense reduction targets and indicated that the upcoming changes in federal loan programs could significantly benefit the company [12][22] Other Important Information - The company completed its inaugural in-school ABS deal, which was nearly six times oversubscribed, raising total gross cash proceeds of roughly 98% of loan principal [15] - The company repurchased $24,000,000 worth of shares under existing authority and returned $40,000,000 to shareholders through share repurchases and dividends [21][33] Q&A Session Summary Question: Concerns about reserve true-up and delinquency trends - Management acknowledged positive trends in early-stage delinquencies but noted elevated levels of delinquencies versus internal expectations, indicating they feel appropriately provided from an allowance perspective [39][40] Question: EPS guidance and TSA costs - Management clarified that TSA expenses for the quarter were $13,000,000, offset by $14,000,000 of revenues, and indicated that they anticipate TSA expenses to continue through the back half of the year [41][44] Question: Opportunities from Grad PLUS reform - Management highlighted that the elimination of Grad PLUS presents substantial opportunities in the graduate student market, with a focus on high-quality borrowers [48][49] Question: Market share and capacity to meet demand - Management expressed confidence in maintaining a 20% market share in the graduate market, emphasizing their established distribution channels and product offerings [64][66] Question: Balancing growth and capital allocation - Management indicated that they will continue to balance investments in growth with shareholder distributions, leveraging their strong balance sheet and capital-efficient financing strategies [70][73]