NAVI

Good morning, welcome to the Navient Q1 2026 earnings conference call. This call is being recorded. Currently, all participants are in listen-only mode. Following the remarks, we will conduct a question and answer session. Instructions will be provided at that time. If anyone should require assistance during the call, please press the star key followed by the 0 on your telephone keypad. At this time, I will turn the call over to Jen Earyes, Head of Investor Relations. Please go ahead.

Hello, good morning, and welcome to Navient's earnings call for the Q1 of 2026. With me today are David Yowan, Navient CEO, and Steve Hauber, Navient 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 navient.com/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 Q1 2026 earnings release, which is posted on our website. Thank you. Now I will turn the call over to David.

Thanks, Jen. Good morning, everyone. Thank you for joining the call and for your interest in Navient. This morning, we reported Q1 results that demonstrate continued momentum in our ability to deliver high-quality loan growth while maintaining expense discipline. Our reported results are in line with the full-year outlook we provided in January and that's a strong start towards achieving those targets. Overall, this quarter reinforces the strength of our platform, driving consistent growth, improving efficiency, and delivering strong credit performance.

Total originations grew over 60% year-over-year. We financed loan originations grew 65% year-over-year, marking our 10th consecutive quarter of growth, driven by continued strength in demand generation and our ability to capture that demand. At the same time, we're seeing that volume growth come through more efficiently as we scale our loan production.

Marketing and other operating costs continue to improve as a percentage of originations. Thirdly, credit quality strengthened with Q1 refi originations having an average FICO of 775. We're seeing continued strength in demand from borrowers with established credit and employment histories. Together, these outcomes demonstrate the effectiveness and scalability of our platform, enabling us to grow efficiently while delivering stronger credit performance.

In-school lending had a solid quarter, originating $40 million of new loans with strong credit quality and margins. This performance and the peak season preparation we are doing increases our confidence in capturing the on-strategy opportunities in graduate lending contained in our outlook. Operating expense levels compared to the year-ago period reflect the actions we've taken to eliminate costs and significantly reduce our expense base.

With the phase I strategic actions in our rearview mirror, the final expenses associated with our wind-down activities were incurred this quarter. We saw sequential improvement in credit performance across all of our private portfolios. Delinquency rates in private legacy improved from year-end but continued to run above long-term historical trends. Steve will take you through these and other parts of our results in greater detail in a few minutes.

We repurchased $23 million of shares during the quarter as we viewed the share price that prevailed for the quarter as an opportunity to repurchase shares at a greater discount to book value. We are mindful of a more volatile macro and geopolitical environment and are monitoring it closely. We have the flexibility to adjust quickly as and if conditions evolve.

The successful completion of the strategic initiatives and the accompanying expense reduction targets that were announced in January 2024 are a natural time for me to step out of the CEO role. Edward Bramson will step into the CEO role in a few weeks' time. I'm proud of what's been achieved and grateful for the commitment of the many colleagues who accomplished it.

The actions we have completed creates a foundation for a more strategically focused, flexible, and efficient organization to support future growth. Ed has been heavily involved in the development of our strategies and initiatives. I look forward to continuing to guide and support management as I remain on the board. With that, I will turn it over to Steve, who will provide more detail on Q1 results.

Thank you, David Yowan, and thanks to everyone for joining today's call. As David Yowan highlighted, our results for the quarter were in line with our 2026 outlook and included strong contributions across the business. I'll provide additional detail on Q1 results beginning on slide 3. In the Q1, we recognized Core Earnings per share of $0.20. We delivered these results while driving strong originations growth and maintaining strict expense discipline. Credit trends also improved, with lower delinquency rates across our private and FFELP portfolios.

Turning to slide 4, Earnest continued its robust refinance loan origination growth in the Q1. Refinance originations were $778 million, up 65% year-over-year and on pace with our 2026 target. We drove this growth through strong demand generation and engagement, with rate check volume up 62% year-over-year.

We are also seeing continued strength in credit, with new loan average FICO increasing to 775, underscoring the quality of borrowers we are attracting. Slide five highlights our in-school lending growth. In-school originations were $40 million in the Q1, consistent with our plan. We are well-positioned for the upcoming peak season and the expected expansion of the in-school graduate addressable market, a customer segment that we know well. Slide six provides our consumer lending segment results.

Q1 net income was $35 million, reflecting the mix shift toward more refi loans in the portfolio and the impact of rate changes from different index resets across the segment's assets and debt. That same mix shift also drove net growth in our private portfolio, with outstanding balances increasing approximately $200 million quarter-over-quarter as refi and in-school originations outpaced portfolio pay downs.

Consumer lending expenses in the Q1 were $39 million. This represents a $4 million increase compared to the prior-year quarter, primarily reflecting marketing and other expenses associated with the growth of our lending businesses. Credit trends were favorable in the quarter, with private charge-off rates declining from 2.26% in the fourth quarter to 1.91% in the Q1.

Delinquency rates also improved quarter-over-quarter, with 31-plus day delinquency rates decreasing from 6.3% to 5.5% and 91-plus day delinquencies decreasing from 2.9% to 2.5%. We recorded a provision of $18 million in the Q1, $11 million of which was related to new originations.

While the improvement in year-to-date credit performance is encouraging, private legacy delinquency and charge-off rates continue to run above our longer-term historical levels. Federal education loan segment results are on slide 7. Q1 net income was $22 million, slightly down from $24 million a year ago. Portfolio pay down reduced net interest income by $3 million, which is offset by a $3 million reduction in expenses.

This offset highlights the impact of our cost reduction efforts, including the variable cost benefits from outsourcing servicing. Provision in the Federal segment in the Q1 was $9 million, and the net charge-off rate increased to 29 basis points. These largely reflect loans to borrowers affected by 2024 natural disasters that were written off in the Q1.

The bulk of the impacts from this cohort is now behind us, and delinquency rates improved significantly during the quarter. The 31-day plus delinquency rate improved from 17.5% to 15.2%, while the 91-day plus delinquency rate improved from 10.0% to 8.5%. The allowance for loan loss, excluding expected future recoveries on previously charged-off loans for our entire loan portfolio, is $645 million, which is highlighted on slide 8.

Operating expense results are on slide 9. Q1 total Core operating expenses were $89 million, a 30% improvement compared to the Q1 of 2025. Q1 expenses were consistent with our plan for the quarter and the $350 million expense outlook for the year. Capital allocation and financing activity is highlighted on slide 10.

In the Q1, we completed our first securitization of the year, $683 million in bonds backed by high-quality, recently originated refinance loans. We continue to see strong investor demand for our refi-backed notes, and we are achieving attractive pricing and a high effective cash advance rate. Additionally, last week we priced our first in-school securitization of the year. The $550 million transaction was significantly oversubscribed, executed at favorable pricing, and will release warehouse capacity in advance of our peak in-school lending season.

The strong investor reception on both our refinance and in-school deals demonstrates investor confidence in the quality of the assets we are generating. The in-school transaction underscores the resilience of our funding programs to provide cost-effective financing in uncertain market conditions.

Turning to our cash and capital positions, we have ample capacity to invest in attractive loan originations and distribute capital. In the Q1, we repurchased 2.3 million shares at an average price of $9.91 as our shares remain significantly below tangible book value. In total, we returned $38 million to shareholders through share repurchases and dividends.

Our Adjusted Tangible Equity Ratio remained above our long-term target at 8.9% and demonstrates our commitment to a strong and resilient balance sheet. In summary, our Q1 performance was a solid start 2026 and keeps us on track with our outlook for the year. While we remain mindful of macro and geopolitical volatility, we are encouraged by the progress we're making and the momentum we are building as we execute on the opportunities ahead.

As I wrap up, I want to thank the Navient team for their contribution this quarter and their continued dedication throughout our strategic transformation. Thank you for your time, I'll now open the call for questions.

Thank you. If you have a question at this time, please press star one on your telephone keypad. If your question has been answered, you may remove yourself from the queue by pressing star two. We do ask that you limit yourself to one question and a follow-up. For optimal sound quality and so others can hear your questions clearly, please pick up your handsets. We'll take our first question from William Ryan with Seaport Research Partners. Please go ahead.

Thanks. Good morning. First question just related to the credit numbers that you highlighted in the prepared remarks. You had very nice improvement in the private portfolio. I think it was down 80 basis points in delinquencies quarter-over-quarter, 90 basis points year-over-year. Yet you also kind of talked about it's still kind of underperforming relative to past patterns.

Are we now at a new base level, you know, at which we could expect to see normal seasonal credit trends develop? Do you think there's additional room for at least some improvement from this point forward? The second part of that related to it is, does the provision or the allowance level today capture sort of the underperformance that you're currently seeing? I have 1 follow-up.

Great. Good morning, William. On the first question, right, we did see significant improvement in delinquencies across our portfolios. We are still above our historical levels as well as we do believe there we will see future improvement, so continued improvement along the lines of what we saw in the Q1. We are not at kind of the level that we expect to be. We expect further improvement from this point forward. In terms of the reserve levels, reserve levels do reflect our, you know, that expectation that we have going forward.

Okay. Just one follow-up on the loan originations. Your origination mix right now is about 50/50 grad/undergrad. Just kind of thinking about it, on the in-school side, and looking forward, obviously July 1st opens up some new opportunities. Is that mix going to be, I'm doing some kind of back of the envelope math, it seems like it might move to like 70/30 grad/undergrad, you know, starting in the Q3? Is that the right way to think about it? Has there been any additional thoughts on the change in the funding, for the incremental grad loans that are going to be put on the balance sheet?

Thanks for the question, William. We're maintaining our outlook for the year in terms of total originations for in-school. You know, we talk about peak season being in the Q3. We're really in peak season, particularly with the changes to Grad PLUS. We're in active discussions with financial aid offices who are trying to figure out, particularly at the graduate level, you know, how they're going to fill the gap for their students between lending that used to come from the federal government and now will be supplied by private lenders.

We're encouraged by, you know, those conversations. We continue to be confident in the products that we have that are well established with us and our ability to provide a customer experience that's tailored to graduate needs.

You know, the Q1 originations is really not a, not a peak, not a part of peak season. Though I would point out in the Q1 that we originated or we dispersed almost 4x the amount of volume that we certified, which is the $40 million. We have a substantial, you know, footprint in that marketplace.

I would expect that in fact the graduate percentage of our volume probably would be higher than it has been in prior years. You know, I think everybody, including competitors who we are actively running into in this space, as you might imagine, are all in a little bit of a learning and wait-and-see mode on what that, what the actual volume and what that mix is going to look like.

Okay. Thanks for taking my questions. I'll hop back in queue.

Thank you. We'll go next to Jeffrey Adelson with Morgan Stanley. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. Maybe just to follow up with the last question. I guess just as we all sort of try to grapple with what the opportunity is here in the graduate market and who has the right to win here, is there any sort of like early learnings or early market research you've done in terms of, you know, what you think your share of this new market could look like? I know, I think you pointed in prior quarters to having 20% of the graduate market.

Just kind of curious, based on the work you've done and some of the efforts around your marketing and product development, you know, that gives you some more confidence around what you'd be able to get there.

Yeah. Hey, Jeff, let me just give you a couple examples of the experience we've had and, you know, not that it's unique to us. One example I would give is, you know, there are more than a handful of graduate schools that provide degrees that we've traditionally funded. Professional degrees, for example, that have only relied on Grad PLUS for funding.

There's a number of schools that don't even have preferred lending lists coming into this. That allows somebody like us to get in on the ground floor with those kind of institutions, explain our product offering, explain the customer service that we have, show them our ability to surprise and delight students with the ease of applying and flexibility of our products.

It's one example of, you know, a lot of work that we're doing to try to educate people about what we have to offer them. I would say that, you know, early signs are there's certainly a keen interest coming in, created because of the elimination of Grad PLUS, which we all knew. We're seeing that. We're seeing others compete. We're alongside us. We continue to be confident about what we bring to the table and, you know, look forward to reporting our results in the Q3.

I think that's all I have. Thanks.

Thank you. We'll take our next question from Karoline Lada with Bank of America. Please go ahead.

Hi. How should we think about the cadence of OpEx through the year? Should we expect it to be more front half loaded as you guys prep for Grad PLUS?

On OpEx throughout the quarters, I think the way to think about that, during, first of all, the first quarter, we, as David mentioned, we incurred the final remaining expenses that we had as part of our transformation and completion of phase I. First quarter does have about $5 million of wind down costs that we would not expect to recur going forward.

In terms of the rest of the quarters, Q3 would have some probably the highest operating expense quarter compared to the others given the origination activity that we expect for in school that quarter. Feeling good about how that all fits together and our ability to hit the $350 million target that we set for the year.

Okay. Maybe just a similar question on origination. Should we expect Q2 originations to be similar to Q1, then we'll see the bump in the back half?

Yeah. I think that's a fair way to approach the, yeah, Q2 and Q1 being very similar. We would expect to see in-school kick off some in Q2 compared to Q1, but really the meaningful difference gets to be Q3, where you see the majority of our in-school originations in that quarter.

Okay. Thank you.

Thank you. We'll take our next question from Ryan Shelley with Bank of America. Please go ahead.

Hey, guys. Thanks for the question. First one here, I know it's still very early days, but can you give us any update or any, you know, learnings you've had, on some of the, you know, trials you've had on the personal loan front? I have one more I'll follow up back with.

Hey, Ryan. Thanks for the question. As we indicated, you know, this year and certainly the beginning of the year is a testing and learning phase for us on personal lending. We did go live in the fourth quarter in our existing base in some tests that we're conducting. We went live in the first quarter with a sample of prospects.

We're testing different product offerings, different ways to create demand, different ways to pull that demand through to conversion. We're testing our credit and fraud capabilities in this process as well. I'd say at this point, we're pleased with the learnings that we have. It's too soon to give an update on any of the results which are very immaterial at this point in time.

We're very pleased with the learnings that we're making in that product and following along the path that we laid out last November.

Got it. Thanks. Just one more quick one on funding throughout the year. You know, you have an unsecured maturity coming up here in June. You know, originations are projected to be up, you know, 50% year-over-year. My question is just any color you can give us around funding and where you think the most attractive cost of capital is at the moment, would be much appreciated. Thanks.

Had a little trouble hearing the question. I think the question there related to how we're feeling about kind of both the unsecured. We have an unsecured maturity coming up in June, which we certainly have the right liquidity and plan to address. For upcoming peak season and our lending, I'm feeling really good about our ability to fund those. We've had a lot of success in terms of our funding through our ABS securitizations, and just have a clean path ahead here in terms of how we're feeling about funding for this year.

Got it. Thanks.

Yeah.

As a reminder, if you would like to ask a question, that is the star and 1 on your telephone keypad. We'll take a follow-up question from William Ryan with Seaport Research Partners. Please go ahead.

Thanks for taking my follow-up. I didn't think I'd cycle through this quickly, but I know there's quite a few competing calls this morning. I'm gonna take a step back and at a higher level, just kind of ask this question. You know, stock price kind of around $9 a share, and if you start to look at it and you kind of value the FFELP portfolio, you know, it looks like, basically you're paying the price today of what the FFELP portfolio value is worth on a present value basis and runoff.

The optionality is on the lending business, where some people might say the optionality is actually on the FFELP portfolio and we're valuing the lending business.

You know, either way, it looks like, you know, on an intrinsic value basis, the stock price is well below probably what the end of the day price should be. Just, you know, kind of throwing it out there, it seems like there's an opportunity or could be at some point for more of a strategic type maneuver. I'm just kind of curious, you know, how you're thinking about that in terms of the stock price in relation to what the intrinsic value of the company might really be worth.

Thanks for the question, William. We certainly agree that we don't think the stock price does reflect the intrinsic value of the company. Our share repurchases in the quarter and our share repurchases in the past year have been designed to help the rest of our shareholders capture that by buying back stock that we think is cheaper than that. Like, we're I'd say two things.

One is we're very focused on the strategy and the plan that we have and executing against that. I'd also say that we're always interested in and looking at any ways that we can enhance the value of the firm.

You know, you can be assured that we're trying to think of all the things that we could do to get the share price a better reflection of the intrinsic value and the growth prospects of the company.

Okay. Thanks for that.

Operator, are you on?

At this time, I am At this time, there are no further questions in queue. I'd like to turn the call back over to Jen Earyes for closing remarks.

Thanks, Erica. Before we conclude, I want to note that beginning next quarter, our earnings calls will take place after market close. For the Q2 of 2026 earnings call, the date will be adjusted from our historical cadence. We'll share the specific date and time for the next call when we announce our earnings release schedule in July. Thank you for joining today's call. Please contact me as you have follow-up questions. This concludes today's call. Thank you.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.