Good morning, ladies and gentlemen. My name is Ryan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Navient Second Quarter Earnings Call. [Operator Instructions] I would now like to turn our call over to the Vice President of Investor Relations, Joe Fisher. Please go ahead.

Thank you, Ryan. Good morning, and welcome to Navient's 2014 Second Quarter Earnings Call. With me today are Jack Remondi, our CEO; and Somsak Chivavibul, our CFO. After their prepared remarks, we will open up the call for questions. Before we begin, keep in mind that our discussion will contain predictions, expectations and forward-looking statements. 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 and other filings with the SEC. During this conference call, we will refer to non-GAAP measures we call our core earnings. A description of core earnings, a full reconciliation to GAAP measures and our GAAP results can be found in the second quarter 2014 supplemental earnings disclosure. This is posted along with the earnings press release on the Investors page at navient.com. Thank you. And now I'll turn the call over to Somsak.

Thanks, Joe. Good morning, everyone. I'll be referencing the earnings call presentation, which is available on our website. But before I get into a discussion of Navient's first earnings release as a standalone company, let me provide an update of the definition of core earnings. Core earnings exclude unrealized mark-to-market adjustments on derivatives, as well as the amortization of goodwill and intangible assets. In order to provide transparency in comparing results to prior periods, core earnings has also been redefined to include the results of the consumer banking -- to exclude the results of the consumer banking prior to the spin-off as well as the related restructuring and reorganization expenses. So let's begin with Slide 3. In the second quarter, we delivered solid earnings of $0.56 per share, completed the spin-off from Navient from SLM Corporation, announced a $400 million share buyback authority and returned $128 million to shareholders through share repurchases and dividends. We saw our 90-day-plus delinquency in annualized charge-off rates for Private Education Loans drop to their lowest levels since 2008. And finally, we received notification that Navient's servicing contract with the Department of Education has been extended for 5 years. Slide 4 provides a summary of our core earnings. For the quarter, core earnings were $0.56 per share, an increase of $0.04 per share from the prior year. Our 2014 core earnings guidance of $2.05 excludes regulatory remediation expenses recorded in the first quarter. Our second quarter operating expenses totaled $195 million, a decrease of $12 million versus the first quarter. Compared to the second quarter 2013, expenses increased $10 million. This increase was primarily due to higher third-party servicing and asset recovery activities that grew revenue by $38 million. Now let's turn to Slide 5 to discuss our FFELP segment results. FFELP core earnings were…

Thanks, Somsak. Good morning, everyone. And welcome to the first earnings call for Navient. After a year of hard work, we are now Navient, and it feels very good to say that. With the legal separation complete, we are focused on the final steps to complete the process. This includes the transfer of bank-owned loans to their servicing platform and the introduction of Navient as the new name in loan servicing to our 12 million customers. We are well on our way to successfully completing this operational transition this fall into ensuring it's a simple and clear experience for our customers. The process to separate into 2 companies was significant and complex. Despite this, we completed it on schedule and with minimal disruption to our day-to-day businesses. I'm particularly proud of the work of our team and what we accomplished. And I would like to take this moment to acknowledge this hard work by so many. Thank you. As a newly independent company, our attention is on creating value for our customers, our employees and our shareholders. One of the benefits of our separation will be a tighter focus on our businesses. I have a deep appreciation of the benefit of a tight focus, and I expect this to create meaningful growth opportunities over time for Navient. Our results for the second quarter were strong on a number of fronts. As Somsak noted, this quarter's results included core earnings of $241 million, or $0.56 a share; private credit charge-offs of $166 million, a decrease of 24% over the first quarter; a 6-year low in federal and private loan delinquencies; and the return of $128 million to shareholders in dividends and through share repurchases. This quarter was a very good start for Navient, and I am confident of our ability to…

[Operator Instructions] Your first question comes from the line of Michael Tarkan from Compass Point.

So I noticed you're reiterating the $2.05 guidance for 2014. It looks like there will be a little slowdown in the second half, and I know we're getting the impact from the GA [ph] fee cuts. But is there anything else in there that's driving some of the conservatism?

Nothing at this point. I mean, I think at this stage in the game, we expect our -- all elements of our segments to be fairly steady for the balance of the year. And you're right about the impact of the rehab fee cut that's running through the second half of the year. But nothing in particular at this point, Mike.

Okay. And then on the credit side. If I heard you correctly, I think you were guiding to provision expenses basically flatlining the rest of the year. Why wouldn't we continue to see that trend lower if credit is continuing to improve?

Yes, we do expect credit to improve, but one of the things you've got to take into account, Mike, is the fact that we've got to reserve for our TDR portfolio on a life of loan basis. And so I think that element of the portfolio has to be taken into account as we look at our provisioning for the balance of the year.

Okay, understood. And then just one more. Can you just provide a little color on the FFELP acquisitions during the quarter? Was it a number of smaller portfolios or more concentrated? And then as a follow-up on that, with the third-largest FFELP-holder putting their portfolio into held-for-sale, do you think we're finally now at the inflection point where you're going to see some legacy holders look to get rid of these portfolios?

So the acquisitions, year-to-date, are primarily from smaller holders. That is correct. In terms of acquisitions from some of the larger players, this is something we expected to see. It is driven by the fact that it is a -- it's a legacy asset, no new loans are being originated, higher capital requirements for banks and increasing regulatory issues there. So selling to people who have demonstrated skills in those areas and can add to it, I think, are -- is what we would expect to see.

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

I understand you can't be too specific, but, Jack, could you give us high-level thoughts on how you're going to approach share repurchases going forward? I mean, should we expect an approach similar to what we saw at Sallie Mae, where there may be multiple authorizations in the year that you feel kind of dependent on your need for capital to fund any asset acquisitions? And if you don't do any, should we expect a total payout in excess of 100% given the runoff that you have in the private student loan book?

So we -- we're in the fortunate position that we're generating a substantial amount of capital through earnings each year. And how we deploy that is a function of opportunities, as you say, in the space to acquire loan portfolios or build our businesses. And if those opportunities are less attractive than returning it to shareholders, then the dollars go to shareholders. When we asked for and received authorization for the $400 million, that was an expectation of what we had available through -- for share repurchases for the 2014 calendar year. I prefer to run that on an annual basis rather than a quarterly or semiannual basis going forward.

Got it. Next question is the $195 million OpEx in the quarter, is that a reasonable run rate going forward, subject to changes in level of activity of servicing and collections or any kind of onetime items to call out in that?

There are some seasonal aspects to our operating expense levels, particularly as new classes of borrowers enter a repayment or new accounts are added to the portfolio. But I do think this is a reasonable number. There's nowhere near the seasonality that existed when we were combined with the Consumer Lending business, as an example.

Okay, got it. And then just finally, are you seeing any early signs of confusion among borrowers with the change in the name from Sallie to Navient? And any kind of concern that you can see a spike in delinquencies?

Well, until -- so our customers are continued to be serviced under the Sallie Mae name until later this fall when the bank is ready to take on servicing responsibility for bank-owned loans. So -- but that activity won't take place until later this year. We have been sending communication to customers to alert them of what's happening, and we have a very detailed and comprehensive plan to guide customers through the transition. And we expect this to be as seamless and unconfusing as possible for our customers.

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

I guess, just a follow-up question on the Wells Fargo portfolio. I mean, Jack, is there any color you could give us on Wells Fargo? Like, do you guys see -- service the portfolio or does a third party service the portfolio? Just any anecdotal color that you might be able to provide would be helpful. And then secondly, obviously, Sallie Mae Bank will be selling, and possibly have sold, loans. Is there any reason to believe that you wouldn't be buyers, maybe in the third quarter? I know in the second quarter, they really wanted to test the market outside of you guys. But as we look into the third quarter, is there any reason to believe that you guys wouldn't be aggressive buyers of the loans that they're selling?

So we are clearly interested in acquiring both FFELP loan portfolios and Private Education Loan portfolios. And we would include acquisition -- interest in buying loans from the bank as well. We think we're a strong buyer because of our scale, our cost efficiency, what we bring to the loan performance. It's all through default prevention. And as long -- when we can pick up portfolios and, particularly, if we can put them on our system for servicing, those are benefits -- distinct advantages for us. And we think they bring advantages for the seller as well because they'll know that their loan portfolios are being served -- well serviced, and their customers will be more likely to avoid default than if they were serviced someplace else. And in terms of the large holders of loans, typically, are not serviced on the Sallie Mae servicing platform. Different lenders have different agreements. Some of them are held -- are serviced under life of loan servicing contracts. Some of them are -- would have the ability to be transferred, and each is somewhat unique at each lender. I think that's probably the most I can say in terms of specific lenders at this point.

Okay. I guess, conversely, I mean, what's the opportunity to sell residual today? Is that just a nonopportunity today, given the pricing paradigm?

I think it depends on the portfolio itself. I mean, we saw in a transaction that occurred in the first quarter extremely aggressive pricing on a portfolio. We do think that was a little unusual in terms of its strength. So we do look at each opportunity or opportunities to go buy and sell in this particular space. Right now, given the value that we are generating from the earnings stream itself and the amount of capital that we allocate and so the returns on equity that we can create based on our servicing process, servicing performance, we think we're better off being buyers than sellers. But that could change.

And I guess, final question, just on the contingency collection side, obviously, you'll have an impact starting the third quarter. Have you seen anything change in the market, as you might have suspected it would, among the guarantors? I mean, the other income line was a little bit stronger than what we expected it to be in the quarter. I mean, is there anything that you're seeing on the margin that could be helpful despite the reduction in revenues you're expecting to see?

Well, we are aggressively pursuing opportunities in an area that we've been building for the last couple of years, which I would call state, local municipal areas. We continue to pursue opportunities in that space. And those are contracts that are certainly smaller in size than, say, the Department of Education [ph] contract would be. But it is -- we think that we can build a very nice portfolio in that space. And the skill sets that we bring of low-cost performance and compliance are highly attractive in that area to the clients we manage portfolios for.

Your next question comes from the line of Sameer Gokhale from Janney.

I just wanted to drill down a little bit more into the provisioning and the expectation for the rest of the year. And I think what I'm a little bit confused by is the fact that you had that $68 million incremental provision relating to recovery shortfalls. So the first question is, if your recovery rates are trending below your previous expectations, then why not reduce that 27% estimated recovery rate to something more realistic? And then the second question is -- I'm assuming this is kind of a catch-up that you do periodically, the $68 million. And Somsak, I know you talked about an inventory of TDRs, but given the improvement in charge-off performance and the fact that you seem to have made the catch-up adjustment already, then, all else equal, it still seems like your incremental provisioning should be driven by your charge-off performance in the portfolio, which is declining. So I'm just a little bit confused about the dynamics between the 2. So if you could just provide some more detail, that would be helpful.

Sure. Sure, Sameer. Yes, you're absolutely right, that we did increase the reserve for our recovery shortfalls. Just from a P&L perspective, that provisioning or that reserve that we've got at this point really gets us to down from a 27% to roughly a 20% recovery rate. So we feel like we're pretty much -- from a P&L perspective there on to the 20% rate. That increase in the reserve was more than offset by the reserve that we take for future charge-offs. And that was taken in -- just given the fact that our charge-offs have declined by $52 million from quarter-to-quarter, we did take a decrease in the reserve to account for that improvement in performance in the charge-off portfolio. So all in, we took an increase in our recovery rate reserve. And then that was more than offset by the improvement that we saw in our charge-off performance. Going forward, I'm not sure you're going to see the same decline that you -- in charge-offs that you see from first quarter to second. And as a result, I think if you combine that with the TDR performance, I think you're -- that's why we're saying that our provision for losses for the rest of the year will be equivalent to the second quarter levels.

Just to add to that, Sameer. I think the -- when you look at the recovery rates, we historically recovered at 27%. Loans that defaulted during the recession -- the Great Recession are not performing at that same level. And we want to make sure, before we finalize on a new number, that we realize that -- was that a temporary phenomenon based on the economy at the time and the longer duration it takes for those borrowers to recover versus what we've seen in the past.

And we are seeing the recovery rate on the more recent cohort are coming in higher than 20%.

I see. Okay. No, that is very helpful. The other question I had was the last time I looked at some of the data in terms of portfolios aside from the other large company that also has a portfolio of FFELP assets, it seemed like there were maybe about $80 billion or so of loans -- of FFELP Loans that were held by other banks and other nonprofits. And of that, roughly $10 billion would be Wells Fargo. So if you look at the remaining $70 billion, call it, can you give us a sense for how much of that $70 billion in loans are serviced by third parties versus how much you service? And do you have a sense for how many of those have life of loan servicing versus a fixed contract period? Because I'm trying to get a sense for how much of that potential inventory you could actually win, where you could bid for them. So could you help us size some of that? That would be helpful.

Well, we would certainly be interested in acquiring loans that -- in the FFELP space from sellers regardless of whether they are capable of being moved on to our portfolio or if they were subject to a life of loan servicing contract. What it impacts is what is the price that we can pay for that. If it's serviced by a third party, we cannot change the cost structure associated with that or the performance of the loans themselves. So if our customers, as an example, default at a 30% lower rate than the national average, we can't bring that skill and that performance improvement to bear on third-party serviced loans. Lenders don't publicly disclose the terms of their servicing contracts, so I couldn't tell you specifically who -- I can tell you where the portfolios are, but I couldn't tell you whether it's life of loan or a portfolio that could be moved. The Department of Ed does publish the top holders list. And so that list is very well known. It is -- it includes the large banks. And then a bunch of entities that were consolidators of student loans several years ago. We think there's opportunities to acquire portfolios from that whole range of institutions, including even, potentially, some of the not-for-profit holders as well.

Okay. So maybe let me ask the question another way. What is the size of your portfolio of third-party loans, non-FDLP Loans? So third-party FFELP Loans that you are currently servicing?

Our third-party service portfolio is relatively small. For most of these institutions, we were competitors and did not -- the third-party service work we did were businesses that had forward purchase sale commitments to us. So they would originate, hold for a period of time and then sell. And for the most part, we've acquired most of those loans already off of our servicing platform.

Okay. And then just my last question. You talked about municipal collections earlier. It sounds like you've already been collecting on that type of paper -- those receivables. What type of receivables, in particular, are you collecting on? I mean, because there are a wide variety of receivables you can collect on when you talk about municipal collections. I mean, it could be fines for parking tickets, library fines, other types of things, taxes. So are there any specific verticals you're focused on?

Yes, so in the state and local arena, we do everything -- we do work to run amnesty programs, for example. We do collect on unpaid taxes, just as a regular course of business. It could include property income, excise types of taxes. We do court fines and penalties in that space. Obviously, there's a different level of activity that goes on for high-ticket versus low-ticket items. But generally speaking, the business that we do in our contingency collection work is that there's an incentive for the customer to want to resolve the open account. That may mean that they can release a lien on their property, they can reregister their automobile, those types of things. So what we don't do in the collection space is really straight up collection work, I'd say, credit card portfolios as an example.

[Operator Instructions] Your next question comes from the line of Alan Straus from Schroder.

Just a quick question on the reserve on private loans sitting at 6%. Where do you think that can normalize down to over the next few years as the portfolio runs off? And at the same time, I'm making assumption -- maybe you can correct me, that when you buy private student loans from other entities, those would be brought in on a mark-to-market basis so you don't put up an initial reserve at all? So could you clarify what that might look like going out 12, 24 months?

Well, certainly, in terms of performance of loan portfolio, you're correct that as loans make payments, the incidence of default drops dramatically. That's true in both private as well as federal loans. And we do provide, in the earnings presentation in the appendix, the actual history of how the default rates or charge-off rates perform as borrowers make more payments. And typically, they drop almost close to half as you move from the first year of repayment to the second, et cetera. So that would give you a good indication of where things are headed. I think what Sak was referring to earlier in the troubled debt restructuring accounting requirement is, as you deal with delinquent borrowers and make accommodations to get them back on track in repaying their loans, that you move from a periodic loss forecast to a life of loan loss forecast, and an increasing portion of our, what I would call our at-risk portfolio default is qualified for the TDR status. And that's driving the reserve in the opposite way of improving credit trends. When you buy a portfolio and you look at your loss levels, it all depends on how you acquire it. If you're acquiring a distressed portfolio, you are correct in that your price does reflect that, and you run it through at that level. If you're buying a portfolio in the normal course of business, nondistressed, you do book the reserves as periodically as we do the loans that are on our books today.

And I'll add that today, about 1/3 of our portfolio was reserved on -- under the TDR accounting model on a life of loan basis.

Okay. And you guys care to give a forecast of how low this could run? Because I'm making the assumption that 6% won't be necessary on a go-forward basis, especially on your purchases because they will be cosigned in much higher quality?

I think you're right in the direction of where this is headed. We're just giving guidance through the balance of this year at this point.

Your next question comes from the line of Eric Beardsley from Goldman Sachs.

In terms of the contingency collections, is this current level in the second quarter an appropriate run rate, excluding the decline you expect? Or was there anything that made this quarter particularly high relative to what it might be otherwise?

Well, we did get a benefit from rehabilitations. In the rehabilitation space, you have to sell -- the loan has to be sold in order for the revenue to be earned by the guarantor and then paid to the contingency collection agency. And we did see sales accelerate in the second quarter. But most of what you're looking at in terms of decline will be as a result of the rehabilitation fee cuts that Somsak described. And we -- as I said, we're looking to grow this business through new contracts with parties in the state and local arena.

Got it. And then just back to the reserve coverage. You talked about a large percentage of your portfolio having life of loan. But if we were just to look at it on a number of years of charge-offs, and what are you guys targeting now for that? I mean, 3 years seems like quite a bit of coverage?

It certainly is. I think our policy has not changed in this sense. We have loans that are not TDR we reserve for a 2-year loss cycle. In loans that are TDR, are reserved for life of loan. And as a bigger percentage of the portfolio, that would be more -- the at-risk kinds of accounts fall into that category. You move from -- to the higher levels. And so that will shrink over time. But it may not shrink as much as you would expect had we -- as loans do not move back and forth -- does not move into the TDR status. They don't move back and forth.

Got it. So you're looking at a 2-year forward loss for the rest of the book that's non-TDR?

Right.

Right.

Okay. And then as you're looking at loan acquisitions, what's your target hurdle rate?

I'm smiling because that's -- we don't disclose that. If we did, everyone would know how much to bid, higher...

To bid. Yes.

Well, obviously, you guys have different economics than everyone else so the bidding there would take into account your servicing cost and everything else you could achieve in terms of bringing it onto your platform. So I don't know if that's entirely the case. You could have a required rate of return that would be the same as someone else, but you could arguably pay more. So just curious on any color, whether it's high double digits, low double digits or how you think about what the returns that you need are before you buy something.

You're right, Eric. We -- if we have low -- we have better cost structure and better loan performance, we can pay more if we can bring the loans onto our platform. We look -- we're buying -- I mean, the equity we're investing requires an equity-like return. And that's probably as much as I want to say on that.

Okay. Is there any color you can share? You had mentioned that the first quarter residual sale that you saw was priced aggressively. I mean, what would the return have been for you if you had acquired that? Do you have a sense?

We've got that portfolio at yields in the single digits.

Your next question comes from the line of David Hochstim from Buckingham Research.

Just to go back to the loss provisions and the reserves. Just -- so in the quarter, the $68 million was in the provision and the provision also reflected the $54 million improvement in charge-offs. That's the way to think about it?

Yes. Over the next 2-year period.

Yes. And so looking forward, your guidance were kind of flat; provisions, we'd assume, then, that there isn't much of a further improvement at all in charge-offs? So if there was a further decline in charge-offs, should we expect the provision to come down?

Yes, I mean, David, quarter-over-quarter, our charge-offs went from $218 million to $166 million. That's a huge improvement. And I just don't see that same dollar amount of improvement continuing on for the rest of the year because change of gain [ph]. I think it will improve but not at that rate.

Okay. But is it reasonable to think that provisions could still come in below charge-offs in most periods?

Yes. I think that's true. Just kind of look at $166 million versus the -- of charge-offs versus the $145 million that we booked this quarter.

Right, okay. But there shouldn't really be another kind of sort of onetime true-up like we had this quarter for release of some vintages [ph], and unless -- unless you're...

You mean, you're referring to...

The $68 million.

Yes. I think that's accurate.

Okay. And then can you just give us an update on the direct loan origination contract. What's the timeline? And what's kind of the next step? And do you think -- is the government going to have one originator or maybe more than one this time?

So the contract went through an initial round of a qualification kind of RFP. We were 1 of 4 entities that cleared that hurdle. The new -- the final RFP has not been issued yet. We're expecting it in the next several weeks or so. We think we are well qualified to deliver the services that are required there and, in particular, can work with customers to help them better understand the debt that they're taking on. The incumbent has done a good job in this space, so it's going to be a -- I would expect it to be a challenging RFP. But it's something we're very interested in doing.

Okay. And then just on the $1.3 billion of loans that you bought during the first 6 months. Was that split pretty evenly between the 2 quarters? Or...

I think it's $900 million for this quarter and then $400 million in the first quarter.

Okay. And are there small portfolios that could continue to trickle in at those kinds of rates or we have an...

Yes, we believe so.

Your next question comes from the line of Brad Ball from Evercore.

Regarding the remaining separation items, Jack, how much of Sallie Mae's private loans are you currently servicing? What's the dollar value?

We're servicing, right now, 100% of the loan portfolios of the combined companies. Later this fall, the bank's loan servicing platform will be up and running, and there are roughly -- was it $8 billion, $9 billion worth of private loans will move. The $1 billion of federal loans will not. And actually, that -- the portfolio of the bank will not move in its entirety, accounts that where borrowers have a loan owned by Navient, a split account, in effect, will stay on the Navient system as well for the customer ease perspective.

And is there a financial impact from the move that you're describing this fall?

No. It -- it's -- there's a slight revenue-related impact, but there's no -- it's a nominal earnings contributor.

Okay. And I'm sorry, did you say that you will continue to service the FFELP assets owned by Sallie Mae, the $1 billion or so will stay on your platform?

And there's -- in any loans that are serial or where there's a subsequent private loan that Navient owns on the Navient platform.

Okay. And would you expect that if you acquire FFELP assets, Private Education Loan assets from Sallie, newly originated, would you be acquiring the servicing as well? Or would they retain the servicing?

We would -- for Private Education Loans, we would be very focused on acquiring the servicing. It's -- most of what we see in the servicing space is on -- on Private Education Loans is more of a compliance-driven servicing operation and having control over the ability to manage and work with the customer to get them in the repayment programs and keep them out of default are something that's very important to the economics of the portfolio.

Your last question comes from the line of Moshe Orenbuch from Crédit Suisse.

Jack, could you talk a little bit about the opportunities on the private loan side? I mean, it seemed like late last year, there were some discussion about that, and then it kind of cooled down. Just give us some sense there.

Yes. So we do think -- we know the bank -- Sallie Mae Bank is going to be a seller of Private Education Loans. That's part of their strategy, and we would certainly be interested in acquiring portfolios in that space. There's also a handful of lenders that have legacy portfolios or Private Education Loans that they're not servicing or not originating anymore today. And not dissimilar to FFELP, these loans are -- they require a unique level of regulatory -- they have a unique set of regulatory rules and compliance associated with them compared to other consumer assets. We're obviously well-structured to provide and comply with those rules. And as I said earlier, one of the things that we do better than anyone else is default prevention. And that has just an enormous benefit, obviously, to the economics but also an enormous benefit to the customer. And we would expect those factors, much as we expect them in the FFELP side of the equation, to encourage banks who are not in the business anymore to sell.

And when you think about why they haven't sold yet, is it more of a price issue? Or is it more like a rep and warrant type issue? What's -- what do you think the holdup's been? I'm not talking about Sallie Mae Bank. [indiscernible].

Yes, there's a variety of factors. It depends on the institution itself. So it could be just they're relatively small portfolios, and they just haven't gotten to focus on this piece of the business yet. As you know, banks have been under tremendous pressure on the regulatory front on a -- in a number of different areas. And as they work through those issues, then, they turn their focus to their student loan portfolios, right? I mean, you'd have to really look and talk to each institution one-by-one.

Right. Okay. Just the last thing, and not to beat up too much on this whole reserving thing, but given the runoff of the portfolio and the fact that the performance is improving, but there is a time lag for TDRs to go reperforming, I mean, could you talk a little about what that time lag is and what that might mean for when you would see kind of that process kind of rollover where the reserve requirements would be lower?

Well, we wouldn't say TDR loans. In many instances, when we work with a customer to put them -- get them engaged and enrolled in a repayment solution, the performance of the portfolio improves dramatically. So we have something, I think 75%, 80% of customers, who go into what we call a rate reduction program, come out of the program, and 1 year after that, they are current on their accounts. But that is -- under GAAP accounting, that loan must be reserved for its remaining life [ph] under a life of loan loss forecast. But look, and in a portfolio that's amortizing, by definition, the reserves and the provisioning have to go to 0. And it's really the timing differences of that. So the higher percentage of the loans go to TDR, your provisioning issues actually stop. So it's a more conservative approach. But we think the direction of where we're headed here is lower provisions, lower charge-offs.

And it's fair to say that the older loans have higher reserves on them.

Yes.

Yes.

We have no further questions in the queue. I would now like to turn our call back over to the presenters.

Thank you for joining Navient's earnings call today. That concludes the call. Thank you, Ryan.

This concludes today's conference call. You may now disconnect.