Navient Aktie

Good day, and welcome to the Navient Second Quarter 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions]

At this time, I will turn the call over to Roger Yankoupe, Navient's Treasurer and Head of Investor Relations. Please go ahead.

Hello. Good afternoon, and welcome to Navient's earnings call for the second quarter of 2026.

Joining me today are Ed Bramson, Navient's Chief Executive Officer and Chair of the Board; and Steve Hauber, Navient Chief Financial Officer.

After Ed and Steve's prepared remarks, we will open up the call for questions. Today's discussion is accompanied by a presentation, which you can find on navient.com/investors.

Before we begin, keep in mind our discussion will contain predictions, expectations, forward-looking statements and other information about our business that is based on management's current expectations as of the date of the presentation. Actual results in the future may differ materially from those discussed today due to a variety of risks and uncertainties. Listeners should refer to the discussion of those factors on the company's Form 10-K and other filings with the SEC.

During this conference call, we will refer to certain non-GAAP financial measures, including core earnings, adjusted tangible equity ratio and various other non-GAAP financial measures derived from core earnings. Our GAAP results, description of our non-GAAP financial measures and a reconciliation of core earnings to GAAP results can be found in Navient's second quarter 2026 earnings release, which is posted on our website. Thank you.

And I will now turn the call over to Ed.

Thank you, Roger, and thank you to everyone for joining the call today. Before turning to the results themselves, I want to express our thanks to Dave Yowan, our predecessor CEO, who stepped down from the role in June of this year. David led the Navient team through a period of significant strategic change. Under his leadership, we bolstered our liquidity and accomplished a major structural reduction in fixed costs. This has put us in a much stronger position to compete in the areas that represent our future growth. In fact, we're already benefiting from this transformation, and I'll highlight a few of these benefits later in my remarks.

As you have seen from the release, Navient's second quarter core earnings were $0.29 a share. During the quarter, a few significant items affected the results. We realized a gain on investment. This was partially offset by regulatory and restructuring expenses and the upfront expense from electing to call a FFELP securitization trust. The net impact of those items was a benefit of about $0.04 per share. So excluding them, core EPS would have been $0.25 for the quarter, and that compares to core EPS of $0.20 in 2025. Steve will discuss these items when he takes you through the slide presentation, and he will also cover some adjustments to loss provisions in the private loan back book, which mostly offset each other in the quarter.

There are a couple of trends in the second quarter that I think are worth highlighting as they indicate that we're seeing the initial benefits from our strategic transformation program. I also want to mention a change in capital allocation, which will support the acceleration in growth that we're experiencing. First thing I'd like to highlight is originations, which grew in both refinance and in-school products. Combined originations were up by more than 60% versus the same quarter of 2025 to $815 million in total. The second item was operating expenses, which were 18% lower than they were in Q2 of last year.

The rapid growth in our private loan originations in the current quarter was principally due to increased demand for student loan refinancing. In the second half of this year, we expect also to have demand for our in-school products, which will increase significantly as well, partly due to seasonality and partly to changes in government policy in graduate education lending. Looking a bit further ahead, as we complete the testing phase of our new personal loan products, we can foresee additional demand growth for them in 2027 and beyond.

With respect to the capital allocation that I mentioned earlier, with this level of growth in originations, we think it now makes sense to consider redeploying some of the capital from our large portfolio of private legacy loans into the more strategically important product areas that we're now focusing on. Our legacy private loan portfolio is around $5.4 billion and is profitable. But we don't make those type of loans anymore, so they really don't help us strategically and the gradual decline in balances doesn't fit with our growth objectives. As a result, at the end of Q2, we classified $528 million or just under 10% of these legacy loans as held for sale, and we may consider reclassifying more of them in the future. The reclassification of at least $19 million of allowance for losses related to these loans, which we've essentially reallocated back to the balance of the loan portfolio.

We've also made a change that relates to our in-school products, both graduate and undergraduate. Beginning in Q3, we will be accounting for newly originated in-school loans at fair value. The loans we originated in Q2 and earlier are unaffected and will continue to be accounted for at amortized cost less the CECL reserve. Since essentially all of these future originations are intended to be securitized or sold, we believe the fair value will represent the economic impact of these products on our financial position measure.

Steve will be taking you through the slide presentation. At this point, I'll turn it over to you.

Thank you, Ed. I appreciate everyone joining us for today's call. In the second quarter, we delivered strong business performance and solid financial results and took steps to better position the company around today's lending products. I'll provide additional detail on the quarter, starting with Slide 4.

Core earnings per share were $0.29 for the quarter. Our results included several significant items, a $12 million realized gain on an investment, partially offset by a $3 million loss resulting from the call of a FFELP securitization trust and $4 million of regulatory and restructuring expenses. In total, these items contributed a net $0.04 to second quarter results. We also recorded provision of $26 million in the quarter, which I'll cover in more detail when we review the allowance.

Moving to Slide 5. Earnest continues to drive sustained demand and originations growth in our refinance product. Rate check and origination volume were both up over 60% compared to a year ago. The $735 million of originations in the quarter brings year-to-date originations above $1.5 billion, keeping us on pace with our 2026 origination volume outlook. Credit quality also remains strong with weighted average FICO on new refinance originations at 774 and roughly 60% of our volume coming from borrowers with graduate degrees. In addition to improving operating leverage from higher volume, we also saw lower cost of acquisition year-over-year.

Slide 6 covers in-school lending. We originated $80 million of volume in the quarter, up 40% from the same period last year. That momentum has continued in recent weeks with year-over-year growth rates continuing to build as we move through peak season and serve borrowers and schools in the expanded graduate school market. Importantly, we are achieving this growth while also improving efficiency year-over-year. As Ed mentioned, we have elected the fair value option for in-school loans originated after June 30, 2026. Under this accounting model, we will record these loans at fair value on our balance sheet with no CECL allowance or provision.

Under the prior model, in-school originations in the back half of the year would have resulted in additional provision expense in 2026. The fair value option better aligns the accounting with how we manage and evaluate these loans while also removing that near-term provision impact.

Slide 7 summarizes our Consumer Lending segment results for the second quarter. Net income was $27 million compared with $26 million a year ago. These results included a $6 million year-over-year increase in expenses, primarily reflecting marketing and origination-related costs associated with higher volume. Even with that higher spend, our lending efficiency metrics continue to improve as we scale and optimize our strategies.

Turning to credit. Private delinquency rate improved modestly in the second quarter. Private charge-off rates decreased from 1.9% in the first quarter to 1.8% in the second quarter. Delinquencies also improved with 31-plus rates declining from 5.5% to 5.4% and 91-plus rates declining from 2.5% to 2.4%.

Let's move to Slide 8 and the allowance for loan losses. We recorded $26 million of provision in the second quarter with $8 million related to FFELP and $18 million related to the private loan portfolio. The private provision had 3 components. First, we recorded $14 million of provision associated with second quarter originations. The second component relates to the $528 million of legacy loans that we classified as held for sale at the end of the second quarter, consistent with our broader effort to align the balance sheet with today's lending products. We recognized a $19 million provision benefit from releasing the allowance associated with those loans.

The third component is a $23 million reserve build on the remaining private portfolio. While private credit performance continued to improve in the second quarter, the pace of improvement moderated as the quarter progressed. Given those trends and the broader macroeconomic environment, the build reflects our current view of lifetime loss expectations across the remaining private portfolio as we continue to monitor performance.

Slide 9 summarizes the results of our Federal Education Loan segment. Net income was $26 million compared with $30 million a year ago. As expected, net interest income and operating expenses both declined as the FFELP portfolio continued to pay down. Second quarter results also reflect the acceleration of $3 million of interest expense from the call of a securitization trust. While that reduced earnings in the quarter, the trust call is expected to lower interest expense in future periods and provide additional liquidity. FFELP credit trends continue to normalize as disaster forbearance-related activity subsided. FFELP charge-off rates improved from 29 basis points in the first quarter to 18 basis points in the second quarter, and 91-plus delinquency rates declined to 8.0%, which is 50 basis points better than last quarter and more than 200 basis points lower than the year ago quarter.

Expense results are on Slide 10. Total expenses in the second quarter were $85 million compared with $100 million in the second quarter of 2025. Year-to-date operating expenses, excluding regulatory and restructuring expenses were $167 million. We remain on pace for our full year operating expense outlook of $350 million or lower.

Capital and financing activity are highlighted on Slide 11. During the quarter, we completed our first in-school securitization of the year and our second refinance loan securitization. We continue to see strong investor demand for our recently originated refinance and in-school loans, and we are achieving attractive pricing and advance rates on these securitizations. We also issued $500 million of unsecured debt while retiring approximately $500 million of unsecured bonds at maturity. We continue to have ample capacity to invest in attractive loan originations while maintaining balance sheet flexibility. In the second quarter, we returned $17 million to shareholders through dividends and share repurchases.

In summary, the second quarter continued our solid start to the year and reflected the progress we are making in positioning the company around today's lending products and future growth. The fair value option for new in-school originations and the held-for-sale classification of a portion of the legacy private portfolio both support that strategic direction. We enter the back half of the year with strong lending activity and are encouraged about both our sustained refinance growth and our ability to compete in the expanded graduate in-school lending market. We remain focused on executing with discipline as we build from that position.

Before we move to Q&A, I want to thank the Navient team for their continued focus and contributions throughout the quarter. We appreciate your time, and we'll now open the call for questions.

[Operator Instructions] We'll take our first question from Bill Ryan with Seaport Research Partners.

Also kind of glad to see you adopt fair value accounting. I know we've had discussions about that over the past, I think, about a year now. But if you can maybe talk about on the fair value side of the equation, looking forward in terms of your loan sales and if you're talking about doing some loan sales through ABS, some to investors and maybe some on the balance sheet, could you maybe give us some idea of what the mix of what you're anticipating that will look like going forward? And as it relates to the fair value accounting itself, what the initial economics might look like relative to where the CECL charge is today on the loans?

Yes. I'll cover the back half of that first. In terms of the economics from the adoption of the fair value option, the way to look at that for our in-school product, given our lending mix over the past 6 to 12 months between graduate and undergraduate and really the overall mix of the loans that we've been generating, we've been at a net reserve rate in the low to mid-3% range. So when you think about the provision, it's really -- that's the reserve rate applied against volume expectations. Our expectations for the full year on the in-school side were for 50% growth, and that was on a base of $401 million from last year.

So if you look at that, that would put it just above $600 million for the year. We've done $120 million through the first half of the year. So around $480 million or so of originations would be in our outlook, which is still on track, and you can use that along with the net reserve rate in order to estimate really the impact kind of above and beyond what our original outlook was for EPS for the year.

Okay. And just quickly on that question on the initial fair value mark, obviously, the CECL going away, will the initial fair value mark be in positive territory, I assume it is given the duration of the loans?

Yes, we feel good about the valuation. Of course, the exact number of the valuation will depend upon the loans that we're generating as we speak here in the third quarter. And so TBD in terms of exactly where that comes out in terms of the fair value mark, we'll be looking forward to providing that information when we close out the third quarter and share results here in the next call.

Okay. And then just kind of going back to the first part of that question. The thought process between what you might be going -- passing through in securitizations versus loan sales versus retaining on the balance sheet? And will the securitization structures change in any way to be off balance sheet or will they still be on balance sheet?

I think our expectation would be, I mean, similar structure or same structure in terms of securitizations and how we structure them on balance sheet. In terms of the question of how much would we be retaining on our balance sheet versus selling or securitizing selling, I think all of that depends upon the general economics of the deals in question and what we see in terms of kind of from a deal-to-deal basis, what makes the most sense for us. So we have experience kind of across all of those different options. And so I'd say there's not a kind of a change in direction right now, but certainly open to kind of whatever avenue makes the most economic and strategic sense for us.

Just to add to that a little bit, specifically with relation to in-school, the volumes we've had have been relatively small. So your options on what to do with them are somewhat limited. So we -- that's why the sales for us is ABS. As you start to get more merchandise, you might start to look to actually do complete sales. But for right now, I would look at it as it's essentially all going to be securitized in the short run.

[Operator Instructions] We'll take our next question from Moshe Orenbuch with TD Cowen.

I was hoping we could get a little more detail on that $23 million reserve increase in the private loan portfolio. I mean, is that primarily on the newer loans that you've been making? Is that on the loans -- the older loans that are the legacy loans that you just took a $19 million reserve back on? Like what -- which ones are those?

Yes, sure. It's a mix. I mean it's primarily on the legacy loans, private legacy loans. So when Ed talked about the $5.5 billion balance, which represents our legacy portfolio, that's where the bulk of the adjustment is. I think the way we're thinking about that $23 million, the charge-offs and delinquency rates in the quarter, while they improved, the pace of improvement was a lot higher kind of from fourth quarter to first quarter, saw some improvement in the first half of the second quarter and then that started flattening out some. So I felt like in light of that, it made sense for us to address the uncertainty there by booking this additional reserve build. And like I said, it primarily relates to the legacy portfolio.

So they improved just not as much as you expected, I guess, is that what you're saying?

That's exactly right. So we're operating still at a bit of an elevated level compared to what our longer-term historical norms were. We expect continued improvement here, which will put us more in line with what those historical norms would be. So exactly right that really the pace of improvement during the quarter was a little bit shy of what we expected, and so we provided accordingly.

But the loans that you chose to classify as held for sale, I guess you pick those to be better than the ones that are still on the balance sheet. Is that a fair understanding?

I'd say not really. I'd say it's a discrete portfolio or segment within that portfolio that we are evaluating and have the intent to sell. So it was a portfolio where when we made that determination, the reserve gets released from there, the reserve build for the remainder of the portfolio, not for that portfolio. So really, they're kind of independent items. However, they both relate to that legacy loan portfolio in general.

I think an additional point is that if you look at the overall portfolio, a lot of it is securitized. So a part of it, you have a risk retention requirement that makes it more difficult if you did want to sell them. This particular portfolio did not have that. So that's a reason for it.

Got it. And then as we think about the refinance market and your cost of funds, right, interest rates have been rising somewhat. So when you think about the second half of the year, you mentioned that demand is strong. How should we think about the spread on those loans?

It's not a great period at this moment. Rates are higher long-term reason to do this, and we're gaining share and we want to do that. The NIM isn't the same as you get on other products, but the losses are lower, too. So I think we're thinking in the second half will probably be total like first.

Got it. And then given this -- all these changes, in other words, more originations and other sort of things going on, I noticed that the buyback was relatively low in Q2. Should we think about that as kind of a level for the back half of the year? Or is there something unusual in the second quarter?

You want to take that one?

Yes. I mean I think, first of all, the -- we have a $100 million authorization for the year, and I have, I think, around $75 million, $76 million remaining. So I think what we saw in the second quarter was certainly lower than what we had in the first quarter. And I think we have capacity to do more share repurchases as conditions warrant in the back half of the year. Ed, I don't know if you want to add to that.

Well, I would say there are 2 things. One of them is, obviously, if you're going to grow at the rates we're growing at, you need to think about how you're going to provide the capital for. That's the broad issue. The narrow one is that for a large part of the quarter, we're really buying under a 10b5-1 plan. And so if you set the number where we did, we don't buy any shares. So I wouldn't read too much into this quarter, but it's a fair question.

[Operator Instructions] We have a follow-up from Bill Ryan with Seaport Research Partners.

Yes. Just a couple of follow-ups. One, just for clarification purposes. The $23 million on the private portfolio, the legacy portfolio, it sounds like you feel like based on what you know today that you're fully trued up on the reserve level on the private portfolio. And the second question is maybe if you could talk about what you expect your capital requirements are going to be in terms of your adjusted tangible equity ratio going forward?

So first on the loan loss reserve, and we go through a very thorough process every quarter, evaluating not only the trends that we're seeing, but the composition of the portfolio, macroeconomics, et cetera. And so as with every quarter, we put that through a very thorough review process, feel good about where we ended up at the quarter. Of course, there's always uncertainty. And so we'll continue to evaluate the reserve as we move to the third and fourth quarter and onward like we always would do. In terms of the adjusted tangible equity ratio, you can see that we went up slightly from, I think, 8.9% to 9% during the quarter here. We've been managing that at a level of 8% or above. So I think kind of being in that 8% to 9% range is a reasonable expectation going forward.

[Operator Instructions] It appears we have no further questions at this time. I will turn the floor back to Roger Yankoupe for closing remarks.

Thanks, Tasha. Thank you for joining today's call and for your continued interest in Navient. If you have any follow-up questions, please contact me or Mike Andrews. We look forward to speaking with you again next quarter. Thank you.

This concludes today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.

Good morning, and welcome to the Navient First Quarter 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions]. At this time, I will turn the call over to Jen Earyes, Head of Investor Relations.

Hello, good morning, and welcome to Navient's earnings call for the first quarter of 2026. With me today are David Yowan, Navient's CEO; and Steve Hauber, Navient's CFO. After the prepared remarks, we will open up the call for questions. Today's discussion is accompanied by a presentation, which you can find on 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 first quarter 2026 earnings release, which is posted on our website. Thank you. And now I will turn the call over to Dave.

Thanks, Jen. Good morning, everyone. Thank you for joining the call and for your interest in Navient. This morning, we reported 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. Refinance 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 1 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 continue 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 view 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.

Ed 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 create the 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, Dave, and thanks to everyone for joining today's call. As Dave 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 first quarter results, beginning on Slide 3. In the first quarter, 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 first quarter. 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 5 highlights our in-school lending growth. In-school originations were $40 million in the first quarter, 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 6 provides our Consumer Lending segment results. First quarter 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 paydowns. Consumer lending expenses in the first quarter 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 first quarter. 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 first quarter, $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. First quarter net income was $22 million, slightly down from $24 million a year ago. Portfolio paydown 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 first quarter 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 first quarter. The bulk of the impact 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. First quarter total core operating expenses were $89 million, a 30% improvement compared to the first quarter of 2025. First quarter 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 first quarter, we completed our first securitization of the year, $683 million in bonds backed by high-quality recently originated refinanced 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 financings 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 first quarter, 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 first quarter performance was a solid start to 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 contributions this quarter and their continued dedication throughout our strategic transformation. Thank you for your time, and I'll now open the call for questions.

[Operator Instructions]. We'll take our first question from Bill Ryan with Seaport Research Partners.

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 still kind of underperforming relative to past patterns. So are we now at a new base level at which we could expect to see normal seasonal credit trends develop? Or do you think there's additional room for at least some improvement from this point forward? And 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? And I have one follow-up.

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 first quarter. So 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 -- that expectation that we have going forward.

And just one follow-up on the loan originations. The origination mix right now is about 50-50 grad, undergrad. And just kind of thinking about it on the in-school side. And looking forward, obviously, July 1 opens up some new opportunities. Is that mix going to be doing kind of back of the envelope math, it seems like it might move to like 70-30 grad, undergrad starting in the third quarter. Is that the right way to think about it? And 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?

We're maintaining our outlook for the year in terms of total originations for in-school. We talk about peak season being in the third quarter. 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, 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 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.

The first quarter originations is really -- not a part of peak season, but I would point out in the first quarter that we originated or we disbursed almost 4x the amount of volume that we certified, which is $40 million. So we have a substantial 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. But 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.

And we'll go next to Jeff Adelson with Morgan Stanley.

Maybe just to follow up on 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 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 marketing and product development that gives you some more confidence around what you'd be able to get there?

Jeff, let me just give you a couple of examples of the experience we've had and not that it's unique to us. But one example I would give is there are more than a handful of graduate schools that provide degrees that we've traditionally funded. So professional degrees, for example, that have not relied on -- have only relied on Grad PLUS for funding. So there's a number of schools that don't even have preferred lending list coming into this. And so 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 the -- our ability to surprise and delight students with the ease of applying and the flexibility of our products.

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

And we'll take our next question from Caroline Latta with Bank of America.

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 Dave mentioned, we incurred the final remaining expenses that we had as part of our transformation and completion of Phase 1. So 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, third quarter 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. So feeling good about how that all fits together and our ability to hit the $350 million target that we set for the year.

And then maybe just a similar question on originations. Should we expect Q2 originations to be similar to Q1 and then we'll see the bump in the back half?

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

And we'll take our next question from Ryan Shelley with Bank of America.

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

So as we indicated, 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 the conversion. We're testing our credit and fraud capabilities in this process as well. And 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. But 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.

And then just one more quick one on funding throughout the year. So you have an unsecured maturity coming up here in June. Originations are projected to be up 50% year-over-year. So my question is just any color you can give us around funding where you think the most attractive cost of capital is at the moment would be much appreciated.

I had a little trouble hearing the question, but 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. And then 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.

[Operator Instructions]. We'll take a follow-up question from Bill Ryan with Seaport Research Partners.

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 take a step back at a higher level, just kind of ask this question. So stock price is kind of around $9 a share. And if you start to look at it and you kind of value the FFELP portfolio, it looks like basically, you're paying the price today of what the FFELP portfolio value is worth on a present value basis in runoff.

And the optionality is on the lending business where some people might say the optionality is actually on the FFELP portfolio, more value in the lending business. But either way, it looks like on an intrinsic value basis, the stock price is well below probably what the end of the day price should be. And just 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. And I'm just kind of curious 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.

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. Look, we're -- I'd say 2 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. And so 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.

Operator, are you on?

Yes. 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. And for the second quarter 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.

Good morning, and welcome to the Navient Fourth Quarter 2025 Earnings Conference Call. This call is being recorded. [Operator Instructions]

At this time, I will turn the call over to Jen Earyes, Navient's Head of Investor Relations. Please go ahead.

Hello. Good morning, and welcome to Navient's Earnings Call for the Fourth Quarter of 2025. With me today are David Yowan, Navient's CEO; and Stephen Hauber, Navient's CFO. After their 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 the reconciliation of core earnings to GAAP results can be found in Navient's Fourth Quarter 2025 earnings release, which is posted on our website. Thank you.

And now I will turn the call over to Dave.

Thanks, Jen. Good morning, everyone. Thank you for joining the call and for your interest in Navient. First, Joe Fisher is joining me this morning. I want to extend our sincere thanks to Joe for his dedicated service over 20-plus years and the solid foundation and team he helped build. We wish Joe all the best in his next endeavor.

I'm also joined this morning by Steve Hauber, who was appointed Chief Financial Officer earlier this month. Steve is also a 20-plus-year veteran of the company and brings strong leadership and deep experience to the role. He most recently served as our Chief Administrative Officer and played a key role in managing our transformation and our expense reduction efforts. Steve's appointment is part of a broader set of changes that better align our management structure with the business strategy for Earnest and Navient that we shared in November.

As we mentioned in November, starting January 1, our in-school lending business was transferred from Earnest to Navient to consolidate our education activities, which also includes the legacy FFELP and private loan portfolios. This morning, we reported Q4 and full year results that demonstrate our underlying ability to drive high-quality loan growth, while at the same time reducing operating expenses. Our reported results include an additional provision on our private legacy portfolio and restructuring costs, largely related to our expense reduction initiatives.

During 2025, we effectively completed our Phase 1 transformation within legacy Navient and will exceed our $400 million expense reduction objective. These operating expense reductions increase our already substantial future life of loan cash flows by $2 billion cumulatively, providing increased financial flexibility and even greater levels of capital for new growth. The benefits of our investments at Earnest and the expense reductions we have achieved are reflected in the operating leverage within our 2026 outlook.

We expect that we can fund year-on-year loan growth of $1.5 billion or 60% with total expenses that are lower than last year by roughly 20%. As set out in November, we are operating with lower expenses and also with improved capital efficiency, which should enable us to finance our growth plans simply by utilizing the capital being released with the existing back book portfolio.

Earnest had its strongest quarter of the year, more than doubling origination volume year-over-year, accompanied by high credit quality, totaling approximately $634 million in new refi loans. This brings to $2.1 billion, more than doubling volume from the prior year. In-school lending also had a great year, originating its highest ever level of new loans of $401 million, with strong credit quality and margins. Steve will take you through some more detailed statistics showing the continued momentum at Earnest in a few minutes.

We continue to invest in capabilities in Earnest. An important part of the executive changes we made earlier this month was the establishment of a vertically integrated CFO role at Earnest. We're currently conducting a search for fintech experience to fill it. The momentum in Earnest and the actions we took in 2025 position us well going into the new year.

Turning to guidance for 2026. We're currently targeting total loan originations of $4 billion, which would represent growth of approximately [ 60% ] over 2025. We expect refi and in-school lending growth of over 50% each and less than $100 million for personal lending, while we continue our pilot program.

As you see, we took incremental provision in the fourth quarter, largely relating to the private legacy portfolio, which were loans originated more than a decade ago. There were minimal additional provisions for FFELP or refi loans. While this provision has a significant impact on reported earnings per share, the effect on the life of loan cash we expect to receive from the legacy portfolios was immaterial. Steve will take you through these in more detail in just a minute.

We also continue to return capital to shareholders through share repurchases and dividends and expect to continue to do so in 2026, with share repurchases being opportunistic as they were in 2025.

When I assumed the CEO role in 2023, the company had multiple business lines and products supported by a significant shared service footprint of capabilities and expenses. The executive organizational structure at that time reflected an operating company business model with multiple enterprise functional heads reporting into the CEO. We have been migrating and expect to continue to migrate toward a holding company management structure with carefully managed and lower central costs.

Earnest's and Navient's education finance activities will both manage directly more of the services needed to operate their respective business. The organizational structure we announced earlier this month are another step in this migration. I'm very excited about Navient and Earnest prospects for 2026, and we look forward to reporting on our achievements in the coming quarters.

With that, I'll turn it over to Steve who will provide more detail on Q4 results and our 2026 outlook.

Thank you, Dave, and thank you, everyone, for joining today's call. I will review the fourth quarter and full year 2025 results, and will provide our outlook for 2026. During the fourth quarter, our actions to further reduce operating expenses position us to over-deliver on the $400 million expense reduction target and our legacy activities established 2 years ago. At the same time, Earnest continued to demonstrate strong loan origination growth with its highest refi quarter of the year, ending the year with total originations of $2.5 billion.

We also provided for additional expected credit losses in our private legacy portfolio and recorded restructuring costs related to our expense reduction efforts. In total, core earnings per share for the fourth quarter were $0.02. On a full year basis, we reported core loss per share of $0.35.

Let's turn to Slide 6, where I will review Earnest loan origination growth in 2025. Refi originations were $2.1 billion in 2025, which doubled the volume from the prior year. Refi rate check volume measured as prospective refi customers, completing a soft credit pool to receive a personalized rate quote increased nearly 3x from 2024 to 2025. This growth demonstrates positive tailwinds and strong demand for our refi product.

We are generating demand and converting volume efficiently. As you can see on the slide, both sales and marketing and other operating expenses as a percentage of originations improved meaningfully year-over-year, down 29% and 35%, respectively. These efficiency gains are lowering our cost per dollar of volume and driving stronger operating leverage as we scale.

Capital efficiency is also improving. As we shifted toward vertical securitization structures, the amount of equity required to finance these loans has declined materially. To summarize the refi story in 2025, demand is improving, we're efficiently converting that demand into high-quality loan volume, we deliver a great customer experience, and we're benefiting from both stronger operating leverage and improved capital efficiency. In-school originations also grew to $401 million in 2025, approximately half of which related to borrowers pursuing graduate degrees.

We remain focused on the 2026 peak season, the expanded market opportunities and targeting strong growth in 2026. We are approaching the graduate lending market expansion with disciplined and strong momentum. Our platform, partnerships and underwriting discipline put us in a good position to serve our target customer segments with our highly rated products and customer experience.

Slide 7 provides similar loan origination growth information and compares to the fourth quarter of 2025 to the same quarter in the prior year. We maintained our positive growth momentum in the fourth quarter, with refi origination growth of 2x, improving trajectory for our expense efficiency metrics and strong credit quality.

I'll now cover segment financial results, beginning with the Consumer Lending segment on Slide 8. Fourth quarter net income was $25 million compared to $37 million in the fourth quarter of 2024. Consumer lending net interest income declined year-over-year, mostly due to lower outstanding balances and the product mix of the portfolio. Looking forward, we expect consumer lending net interest income in 2026 to remain relatively stable compared to the back half of '25.

We expect new originations to outpace the amortization of the portfolio in 2026, leading to growth in our total outstanding balance of private loans. Year-over-year expenses in the fourth quarter were down slightly as efficiency gains more than offset the expense impact from higher origination volume.

Moving to credit. Private charge-off rates declined from 2.48% in the third quarter to 2.24% in the fourth quarter. Delinquency rates increased from the third quarter to fourth quarter with 31-plus day delinquency rates increasing from 6.1% to 6.3% and 91-plus delinquencies increasing from 2.8% to 2.9%.

We recorded a provision of $43 million in the fourth quarter, $9 million of which was related to new origination. The remainder primarily reflects the weaker macroeconomic outlook and in response to fourth quarter delinquency trends, largely within our legacy private loan portfolio.

Federal Education Loans segment results are on Slide 9. Fourth quarter net income of $27 million was $8 million lower than the third quarter, mostly due to third quarter net interest income benefiting from the adoption of lower prepayment rate assumptions. Comparing Q4 to the prior year quarter, net income was $17 million higher. The increase reflects lower provision and the impact of decreasing interest rates on the different index resets on assets and debt. Additionally, expenses in this segment were 20% lower facilitated by our variable cost structure from outsourcing the servicing of our portfolio. Provision in the Federal segment in the fourth quarter fell to $1 million.

The total delinquency rate improved slightly from Q3 declining from 18.1% to 17.5%, while the net charge-off rate rose 8 basis points to 23 basis points. The higher charge-off rate in the quarter primarily reflects loans to borrowers affected by 2024 natural disasters that were written off in the quarter. Self prepayments remained historically low at $225 million in the fourth quarter compared to $322 million a year ago and over $1 billion 2 years ago.

With the slow amortization of the self-loan portfolio, we expect relatively stable net interest income throughout 2026, barring unexpected macro events impacting the interest rate environment. The allowance for loan loss, excluding expected future recoveries on previously charged-off loans for our entire education loan portfolio is $707 million, which is highlighted on Slide 10.

The Slide 11 shows the results from our Business Processing segment. In October, we completed our final obligations under the transition services agreement, or TSA, for our Government Services business. The TSA revenues and expenses from this quarter represents the tail end of this activity totaled less than $1 million and are reported in the other segment. The earlier-than-expected completion of the TSA allowed us to begin our final push to remove remaining legacy shared expenses. We will overdeliver on our $400 million expense reduction target. More detail on the total expenses can be found on Slide 12.

We closed 2025 with fourth quarter total core operating expenses of $88 million, a 40% improvement compared to the fourth quarter of 2024. Restructuring expenses were $11 million in the quarter as we recognized charges related to our legacy structure and environment that will no longer be in our expense run rate. This included $6 million of restructuring costs related to the earlier-than-expected retirement of significant components of our former technology infrastructure.

Full year 2025 total expenses were $438 million, a decrease of close to 50% compared to 2023. This decrease is the direct result of our focused and aggressive efforts to reduce our expense base through [indiscernible] the BPS business, transitioning to a variable servicing expense structure and significantly reducing our corporate expenses. As illustrated on Slide 12, this momentum is continuing into 2026.

Let's turn to our capital allocation and financing activity that is highlighted on Slide 13. In the fourth quarter, we completed our fourth securitization of the year, bringing our total issuance in 2025 to nearly $2.2 billion of term ABS finance. We continue to see strong investor demand and achieved high effective cash advance rates in these financings. Our current cash and capital positions provide ample capacity to distribute capital and invest in strong loan origination growth.

In the fourth quarter, we repurchased 2.1 million shares at an average price of $12.67 as our shares remain significantly below tangible book value. In total, we returned $41 million to shareholders through share repurchases and dividends while maintaining a strong balance sheet with an adjusted tangible equity ratio of 9.1%.

Slide 14 provides our outlook for full year 2026. We are targeting total loan originations of $4 billion, with growth rates over 50% for both our refi and in-school loan products. We expect to achieve this growth while reaping the benefits of our investments in capabilities at Earnest and our legacy expense reduction efforts. Specifically, we expect expenses in 2026 of $350 million, which is $88 million lower than 2025 total expenses.

Our outlook for full year 2026 core EPS is a range of $0.65 to $0.80. This range is net of a $0.35 to $0.40 per share impact due to upfront CECL charges and operating expenses related to our expected $1.5 billion year-over-year increase in loan originations.

As I wrap up my comments, I want to express my appreciation to Joe for his years of valuable contributions to the company. I'd also like to thank the Navient team for their continued dedication throughout our strategic transformation.

Thank you for your time, and I will now open the call for any questions.

[Operator Instructions] We'll take our first question from Bill Ryan with Seaport Research Partners.

Congratulations, Steve. First question is on the credit metrics of the private legacy portfolio. Obviously, a big question among investors, it's about reserve adequacy and there's been some deterioration since you took the charge in the third quarter. Could you maybe walk us through what you saw over the course of the quarter that prompted you to bump up the reserve rates or build the reserves for that portfolio in the provision and some idea of what the ending reserve rate on the legacy portfolio is? And I have one follow-up.

Bill, thanks for your comments. Let me start out by providing some context of the -- what we've seen across our portfolios over the last 2 quarters and the actions that we've taken to respond to those. If you go back to the third quarter, we conducted a comprehensive review of the assumptions underlying the life of loan cash flows for our legacy portfolios. And we did that, we made assumption changes around the level of prepayments that we're seeing in both the FFELP portfolio and the private legacy portfolios. Those assumptions extended the life of the portfolios significantly in some cases.

We also looked at the default and delinquency experiences that we've had over the preceding recent history and we made some adjustments based on what we have seen there about the life of loan cash flows. We also made some assumption changes about future financings that impact the periodicity and the amount of the life of loan cash flows. So we did that all in the third quarter and cumulatively and in isolation from everything else that was going on in the portfolio, those assumption changes increased our expected life of loan cash flows by a little less than $200 million.

As we went into the fourth quarter, the recording that you see there really reflects 2 things. One is there was a deterioration or further deterioration in the macroeconomic scenario that deterioration impacts all portfolios and represents about 20% of the back book provision that we're taking this quarter, the rest of the back book provision is almost exclusively focused and related to the private legacy portfolio. These are loans originated more than a decade ago, where we did see the sequential increases in delinquency rates that Steve described for you.

Those delinquency rates are in the consumer lending segment, which includes private legacy, refi and in-school well. If you look into the segments there, the delinquency increases were almost exclusively focused in private legacy and so our provision expense responds to what we saw in the fourth quarter with what we think is an appropriate provision.

I think Steve can talk about the end of quarter reserve levels, which is the second part of your question.

Yes. On the reserve coverage, we ended the year in the mid-3% range. I think the way to think about that, clearly, that reserve coverage will shift over time as the mix of our portfolio for private changes with more of the portfolio centered around refi. And so when you think about the 3.5%, it's a blend similar to what Dave was saying, as we look at the statistics in the Consumer Lending segment, similarly, you have that blend and mix issue with the refi and legacy. The 3.5% is the amount we were at, at year-end.

And if you look today, Bill, over half of the private legacy portfolio is refi, that percentage given where originating and where we're rolling off is only going to increase into the future. And so reserve ratios, et cetera, are migrating more towards the representative of the refi portfolio and less of private legacy on a segment basis.

Okay. And one follow-up, more of an accounting-related question. Obviously, the $4 billion origination is above the consensus, I believe it's somewhere between $3.4 billion and $3.5 billion. And you noted that the growth investments included the expected CECL charges. You're out looking for a fintech-type CFO. Has there been any internal discussion or thought about the use of fair value accounting? Obviously, that would kind of like alleviate some of the pressures that you're facing as it relates to the CECL tags and puts you on a level playing field with several of your peers that have already adopted that accounting methodology?

Yes, Bill, we're certainly looking at others in the space that have utilized [indiscernible]. We're not ready to announce any [ name ] certainly at this point in time, but it's certainly something that's on our radar screen is what I would say.

We'll take our next question from Jeff Adelson with Morgan Stanley.

It's nice to see the origination guide and you made reference to this additional $1.5 billion. I guess I'm just curious with -- given the opportunity you've got ahead, I know you're still maybe piloting in the personal loan space here. You do have this nice plus opportunity ahead. I'm curious if, number one, you've continued to do any work or any findings you can share with us on what you think that plus opportunity could be for you ultimately maybe on an annual basis?

And just in light of the acceleration in originations and that plus opportunity, you still do have this runoff overall in the portfolio from the legacy and [indiscernible]. Just kind of curious like how you're thinking about eventually returning to positive loan growth, positive top line growth? And how long that might take at this point in your view?

Yes. Thanks for the question, Jeff. There's a lot there. I'll try to address all parts of it. Look, the personal loan launch, we did manage to cross-sell launch in the fourth quarter. We've also begun to go outside our existing customer base. [indiscernible] were very much -- it's too early to call or share any results from that other than to say that we're achieving the testing and learning that we set out in the initial launch, and we're encouraged by the initial results. Even if we address our less than $100 million that we've talked about, it's still going to be a pilot year for us in 2026. And so it's not going to impact our financials in any meaningful way in 2026.

The plus opportunity, we sized that for '26 in the November presentation at around $3 billion. I would say that '26 is clearly your transition, and I think you're seeing this from others in the industry as well. I think there's a high degree of variability and uncertainty about exactly how that -- how long that transition period is going to be and exactly what the market opportunity are. We're very excited and confident about our ability to grow that book of business at 150% in 2026, and we're very focused on that.

In terms of the runoff in the mix, I think Steve provided an interesting comment in his remarks. I don't know this for sure, but it may be the first time in a while, but the balances in the private legacy portfolio are actually going to be stable year-over-year. So we're originating loans that is more than offsetting the runoff of private legacy and other portfolios as well. That's been a long time coming, as I'm sure you can appreciate the loan book that we are projecting and targeting for this year which we have a lot of momentum.

You can see in the fourth quarter, it was our best quarter ever. At Earnest, one of the things -- for the year, one of the things that we are seeing is an increased interest from federal borrowers to refinance. You go to the November presentation as well in the appendix, we showed some of the interest rates that are associated with federal lending over the last few years. There's opportunities for customers to lower their rates and for us to make high-quality loans, we continue to see that into January. And so we're very optimistic and confident about our ability to continue the momentum on that loan growth in that particular product.

Okay. Great. And maybe you could just touch on any of the early conversations you've been having with some institutions regarding some more formal whole loan sale or flow programs. I know you're already executing on the securitization strategy in a more capital-light manner, but just any sort of expectations around potential for promoting sales from here?

Yes. Look, I think we've said consistently and so I'll continue to say that we feel like we have a number of opportunities, channels for us to distribute loans, both the loans that we're making today as well as any potential expanded opportunities that we can fine as we leverage the platform at Earnest. Right now, and you can see this in the slides that we -- that Steve referred to, securitizations in 2025 for us for an incredibly -- for us, an incredibly capital efficient way for us to finance the production of refi and in-school as well.

The initial equity requirement is lower by a significant percentage and is just a fraction of what the legacy portfolio is required in terms of equity capital and unsecured capital. And so given the economics of securitization and our ability to finance them, that's why we've continued to throughout 2025, have a make and hold strategy, and that's why our target is to continue to have that.

If the relative economics of securitization and loan sales and flow goes changed, if the -- we identify origination opportunities that have a better source of capital than the securitization market that we have then we feel confident in our ability to pivot and take advantage of the opportunities that those different financings present.

We'll take our next question from Terry Ma with Barclays.

I want to talk about credit. You guys so far have highlighted just the delinquency trends in the legacy book, kind of talked about the reserve associated with that. But when I look at the private refi book, there's also a noticeable uptick in delinquencies there. For 90-day delinquencies is about 20 basis points year-over-year. It looks like it drove the bulk of the dollar increase and 90-day delinquencies for the total book.

So maybe just kind of talk about what you're seeing there with respect to credit performance? And then since you're kind of leaning into originations there, maybe just talk about reserve adequacy and kind of like direction of travel for credit metrics for the private refi book?

Yes. Thanks, Terry. I think in terms of refi and what we're seeing, we are seeing did see slight uptick in delinquency levels from year-end and from last quarter. We feel really good about our overall position with refi. What we see there, of course, is on an absolute basis, very low delinquency rates. We've seen signs and have expectations that, that will improve as we move forward here. I think also important to reference on refi would be the high quality of the loans that we originated in 2025, which is also what we saw in 2024. And so we're feeling good about that.

And in terms of the reserve levels for refi, that was part of when we did our review back in the third quarter, we did make adjustments to refi to add to the reserve levels there modestly. I feel good about that being the right level of reserves going forward for refi and still thinking about that refi book being on a life of loan basis below 2% in terms of lifetime losses.

Got it. And then maybe just on the origination outlook. I may have missed it, but you called out 50% upside for -- or increase in-school originations. Your business there has kind of outgrown the overall growth in the market the last 2 years. But as to the material step-up, are you seeing -- what's driving the incremental opportunity? Is there something changing in competitive dynamics? Or are you just kind of going after the market more aggressively?

Yes. So we're -- coming off 2025 was the best year we've had in-school since we entered that marketplace 5 or 6 years ago. So we have a lot of momentum in that space. Just based on the organic customers that we serve and obviously the additional opportunity from Grad PLUS even in a transition year, which 2026 is, gives us confidence that we can accelerate the growth rates in that particular product. That's why you see the 50% increase there.

We'll take our next question from Rick Shane with JPMorgan.

A couple of things. I guess it's all related. You expect to grow the private book being '26. You have about $525 million in maturities on the debt side. Over the last decade, you guys have been very disciplined about returning capital to equity holder -- using cash flows to return capital to equity holders and consistently paying down debt. As the strategy transitions and you start to at least grow the private book, you talked about being opportunistic in terms of equity repurchases, what does that look like? Obviously, you're trading at a huge discount to tangible book, assuming yesterday's close. So opportunistic seems to be there today. Should we expect sort of consistent purchases in '26 with the levels we saw in '25?

Yes. Thanks, Rick. Look, we're not signaling any change in the way we're thinking about share repurchase. I think you summarized it well in terms of what we've been doing from a capital management perspective. The one thing I would say is that as you think about '26 and you think about the share authorization that we received from our Board last December in the fourth quarter, which was $100 million as the share count has come down significantly over the years, the amount of share repurchases has declined as well overall, the opportunistic is, in fact, based in part on the valuation of the shares, and we continue to believe that the discount to tangible book value provides an opportunity for us to repurchase. So same strategy scale to the size of the share repurchase authorization that you saw, which is scaled to the overall size of market cap and shares outstanding of the company.

Got it. Okay. I appreciate that. And I would be remiss not to congratulate Steve and also equally importantly, not to thank Joe for all of his conversations and help over the years as well. So congratulations.

[Operator Instructions] We'll take our next question from [ Caroline Lada ] with Bank of America.

Sorry about that. So the guidance slide says it reflects the current outlook. So what are the macro assumptions underpinning the guide specifically in terms of unemployment rate and then also in terms of interest rates, thinking about refi volumes next year or this year, sorry?

Caroline, thanks for the question. Look here, I don't have them right in front of me, but you can think of those as really like the blue chip consensus for unemployment and interest rates. We don't have an in-house economist. So we're relying as many firms do on some of the providers of those scenarios and Jen could provide those to you off-line, but it's really a consensus macroeconomic assumption for next year.

We'll take our next question from Sanjay Sakhrani with KBW.

Can we go back to the deterioration in the private legacy portfolio? I'm just curious like what exactly is driving deterioration on loans that were originated a decade ago. And I'm just curious, like -- is it that those students? Or are those consumers are now seeing job loss? I mean, what's the driver of the higher delinquencies there?

Yes. Thanks, Sanjay. I think probably important for us to zoom out a bit and some of what Dave was talking about earlier when we did our third quarter review. Our private legacy portfolio, which, as you know, was originated more than a decade ago, it's a portfolio that has gone through some cycles. And so clearly, there's a strong component of that portfolio that's been making payments consistently. You have other borrowers who have struggled at times and we've been there to help them with payment programs and the like as we managed through things.

If we go over the course of the year, clearly going through the pandemic, the pandemic release cycle, the return to repayment cycle with many of these borrowers having federal loans as well. It's put them through some changes and some challenges there. I think what we're seeing here is that the performance quarter-to-quarter, even though it slipped, we're seeing positive momentum in terms of those borrowers getting on track and heading into 2026. We're optimistic that, that will that those trends will improve.

I think in terms of really what's affecting borrowers, I mean, clearly, there's a variety of factors, including those I mentioned. There's also macroeconomic factors, inflation and the like. But I'd say in terms of just how we're sizing it up in general, I think it's just important to remember kind of the cycle they went through and now that we're past a lot of that kind of the positive momentum that we expect to see going forward.

Okay. Great. And then I know you guys didn't really like kind of give a whole lot on the outlook for NIM and provisions. I'm just curious as we think about those other components for 2026, is there any way to contextualize sort of the path for NIM because it was a little bit weaker than we had anticipated for both FFELP and consumer lending. And then obviously, kind of what's being baked into provisions given some of the delinquency trends and the growth differences that you talked about?

Yes. So first on the NIM side of things, for the FFELP portfolio, we're expecting relatively stable NIM given the slowdown in the prepayment of the FFELP loans. So year-over-year, I'd expect that to be relatively consistent. In terms of the private or the consumer lending side, the -- what we saw in the second half of 2025 is a good barometer for 2026. And clearly, what we're seeing there is with the portfolio remaining stable or increasing slightly in 2026. That's a positive. The mix of the portfolio towards more refi is -- goes the other way in terms of overall margin. So it's a -- I'd say it's a relatively stable outlook there as well. In terms of provision, what's in the forecast here is provision on new originations. And obviously, our reserve levels that we have at the end of the year or what we expect going forward. So really that's what the provision entails for 2026.

We'll take our next question from Mark DeVries with Deutsche Bank.

Yes. As we look out to 2027, should we expect the same level of net incremental growth investments, which you called out is weighing on the on the '26 earnings expectations by $0.35 to $0.40 a share? Or does that -- is that going to trail off?

Mark, thanks for the question. Look, we're focused at the moment on '26 and trying to execute against that. I think if you go back to the November strategy presentation, Earnest is now very focused on some products that have particularly high growth rates, high addressable TAMs. The personal loan product is going to be in pilot 2026. And we're encouraged by the opportunities there and trying to test and learn and make sure we can understand where we can best take advantage of that highly addressable TAM.

The refi market has -- every year, there's federal loans that are being made in significant amounts that add to the addressable TAM in that market and the expansion of the Grad PLUS opportunity. So there's lots of room for growth. We're not here to give a 2027 outlook. But if you just look at those 3 products that we have, the addressable market and the market expansion opportunities, we think are large and sustainable as well. So I'd sort of leave it at that for 2027.

Thank you. At this time, there are no further questions in queue. I would now like to turn it back to Jen Earyes for closing remarks.

Thanks, Angela. And thank you, everybody, for joining today's call. Please contact me if you have any follow-up questions. This concludes today's call.

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

Good morning, everyone, and welcome to Navient's Strategy Update Conference Call and Webcast. Please note that this call is being recorded. [Operator Instructions]

I'll now turn the call over to Jen Earyes, Navient's Head of Investor Relations.

Good morning. Thank you for joining Navient's strategy update. With me today are Edward Bramson, Chair of the Navient Board of Directors; David Yowan, Navient's CEO; and Matt Palese, Earnest SVP. After the presentation, we will open up the call to take your questions.

During today's call, we will refer to a strategy update 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. We will discuss an illustrative financial model related to Earnest, a division of Navient. This model primarily makes adjustments for anticipated changes in operations as well as a more optimized funding structure, among other things.

This discussion is meant for illustrative purposes only and is not intended to be a forecast of future results. 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, and various other non-GAAP financial measures that are derived from core earnings. Thank you.

And it is my pleasure to turn the call now to Edward Bramson.

Good morning, everybody. Thank you for joining us. I'm going to start on Page 3. And I'm Ed Bramson, the Chairman of Navient. With me today is David Yowan, who is the Chief Executive Officer; and Matt Palese, who runs Earnest, which is a lot of what we're going to talk about today, and we appreciate you joining us for the update on Phase 2 of our strategy.

So if we go to Page 4, I'm not going to spend a lot of time on Phase 1 because it's now behind us. But just to remind you, the purpose of Phase 1 was to maximize the cash flows from our legacy portfolios into the future. And David and his team have done an excellent job on that. I have a fair amount of experience in turning around. We've done a dozen or more. And this one has been about as well executed as I would've assumed. And the upshot of that good work is that in addition to the cash flow coming in that we had before, we've added another $2 billion of discretionary cash that we can use for growth or for other effective distributions.

Moving on to Phase 2. That starts on Page 5. And Phase 2 is about growing Earnest. Taking a step back, when we started this -- actually, Phase 1 and Phase 2 started at the same time. It's just that we didn't talk much about Phase 2. And what we concluded was that our stock has suffered from inertia for a long time now. And part of that inertia comes from the fact that people still think of Navient as a student lender, which it actually isn't anymore. We make some student loans, but they're relatively small. So in order to break away from that, we decided that we had to do some different things and explain them differently.

So as we go through the presentation today, when we talk about Navient, what that's going to do is our legacy loans, FFELP, private, our in-school business, which currently is in Earnest, but we're moving to Navient, and that's what Navient will do as we go through the presentation.

Earnest means our student loan refinancing business, personal loans which we're in the process of entering and some other products that we expect to add in the future. The purpose of doing this is twofold. Firstly, what Earnest does is more akin to what a fintech does. And what Navient does is more akin to a specialty finance company. So we're trying to help people see the differences.

The other thing is that going back even a couple of years, it struck me that as I listen to our earnings calls, we spent a lot of time talking about things that we report that actually don't control, like floor income or net interest margin on legacy loans. We spent a lot of time controlling things at Earnest that weren't talking about them, and that's one of the things that we want to change going forward. So as we think about Earnest and recognizing it's in a different sector, we said, "Look, we need to start measuring the shareholder value metrics for Earnest differently."

And so on the table here, the things that we look at principally at Earnest are its growth rate, our capital intensity, the proportion of fee income that it has. And the ultimate measurement is return on equity. So it's not interest margin or other things, it's return on equity. And as we go through the presentation, we'll tell you about how we've addressed these things.

So the first 2 points on the slide are, let's say, [ reoriented ] in how we explain things. The third thing on the slide is a specific strategic objective that we started a couple of years ago. And we decided to grow Earnest because we thought it was such an interesting opportunity. And the easy thing to do is just go out and grow it. And what you can do when you do that is to say, "Look, we're not competitive today, but if we double or triple, it will take care of itself." The problem with that strategy is that the people you compete with are also doubling and tripling. So we run the risk of ending up in a place where you're still not competitive, [ you bigger ]. So the goal that we set was to say that at a relatively modest origination level, we'd be competitive. And then when we are, we grow from there.

So should we go to Page 7. I think it might be helpful just to remind everybody of what Earnest actually is. We bought Earnest in 2017, 2018. At the time, we probably had a strategy that was run, those were SoFi was at that time. We changed that to focus more on education lending. In the last couple of years, we've been moving back in that earlier direction. So what Earnest is today, it's actually a brand name of Navient. We do track it. It has its own measurement, but it's actually a division of Earnest at the moment. What it's been doing is it's originated all new loans essentially that Navient has made over the last 7 years, and it's developed all of the new customer-facing software that Navient does.

Earnest is fairly self-contained, but we're in the process of completing that movement to being able to stand alone. And the key thing we're doing at the moment is integrating our capital markets capability into Earnest from Navient, which we'll talk about. And Earnest's strategy to date has been to generate long-term relationships with high lifetime value customers, and we'll talk about that in a moment. We do plan to go beyond that, but I think it's useful to look at who our customers are.

So if you go to Page 8, this is a snapshot of Earnest customers. We have about 375,000 unique customer relationships today. Going into next year, we expect to add maybe another 40,000 to that. At the time that we became customers of Earnest, they averaged 29 years of age. So that says that our average customer now is probably somewhere in the early to middle 30s. Their income is about $200,000 a year, and their FICO score is above 770. So if you think about it, that's a very high potential customer group to have.

If you go to Page 9, this is our people. So Earnest today has about 330 employees, which actually is more employees than Navient has now. There are 3 hubs in Oakland, California; Austin, Texas and Salt Lake City, and Salt Lake is where we run our servicing -- customer satisfaction operation from. It's a pretty long group. Its average age is about 33. The executive team has an average age of 44, and that's right about where [indiscernible].

If you go to Page 10, one of the points I want to make here is that there are a lot of homegrown Earnest people in very responsible positions, including the person who runs lending, the person who runs servicing, the person who's handling, the person who runs the introduction, the person who runs compliance. They're all long-term Earnest team members. But what we've been doing recently is to expand the pool of people that we fish on to the industry as a whole.

So in the last 2 years, we've started to add people from a broad industry background. There's a person on the chart here, Leanne, who I would like to call out specially. She's the Head of our People Operation. She's built an excellent recruiting team. What's helped in doing that is when people in the industry who do know who Earnest is, come in and talk to us, they're very excited about what we're doing. And so I think it's very encouraging that we're becoming a destination for superior talent. And if you look at the slide, you see such places they come from.

So if you go to Page 12, this is just a snapshot of Earnest as we look at it. What this is, it's the expected income statement for Earnest for 2025 on the basis that we have already moved out the in-school and graduate lending that they actually do at the moment back [indiscernible]. So on that basis, you'll see that we have a couple of hundred million of revenue, roughly 25% of that is still income from servicing. And I think the other numbers speak for themselves. So for the year, we're expecting an operating profit of around $70 million.

If you go to Page 13, what this says basically is that at the moment, Earnest has about $10 billion of outstanding loans. Most of them have already been securitized. The ones that are in warehouse will be securitized. I think the point to make here is that the securitized loans actually, although they're on our balance sheet, we don't own them. They've been sold to securitization trusts. So we account for them as if they were our assets. They're actually not.

If you look at liabilities, the securitization trust borrowings are borrowings in those trusts. They're not ours. We just account for them that way. The warehouse borrowings are actually on our balance sheet, and they get paid off when we securitize, [ divest it]. Similarly, on our balance sheet of about $10 billion, we have about 7% of it in equity at the present time.

If you go to 15, back at the beginning, we talked about how do you get ready to really compete. And that falls into 3 key areas. Another thing is that you need to be competitive at the scale you're actually at, which is lower than our competitors. So in marketing and product development, we made quite a few changes to significantly strengthened that team. And the mandate for that was increase the lead generation we're getting and get lower lead costs. And we'll talk about how that turned out.

Another thing that we've been doing is that our marketing is quite effective, but it's reactive marketing. What it does is it says if you know that you want a loan, we will make sure you know that we're there. We're in the process of adding to that a more proactive marketing strategy, which says maybe you need a loan, you haven't thought about it. And also if you have thought about a loan before and didn't take it, maybe you should think about it. And as we start to cross-sell, that's going to be an increasingly important thing that we do.

And then the final piece of expanding the team is as we move into personal loans, it's not that it's very different from what we do today, but there are some differences, and we wanted to enhance the expertise in the team in advance of that introduction.

So moving to technology and operations, that's our biggest cost center. And within that, the biggest single piece by far is IT. And when we started out, we had a perfectly serviceable lending platform, but it really wasn't state-of-the-art and it caused a number of issues for us when we tried to change things. So the team actually developed, built and rolled out a completely new lending platform on a pretty tight schedule and it came online in February of this year, and it's a tremendous achievement that the team deserves a lot of congratulations for it.

The difference with the old one is it's a modular architecture, which means that all the things that everybody needs are in a central core, the things that are specific to student loan, refinance or personal lending, and modules on top, which means that you can change things a lot quicker and you don't run the risk of corrupting the core. And we've got a lot of useful things out of that, including that we now have the basis growth for the loan sales platform, which you'll see is in our time line later in the presentation.

Another thing that we got out of this was increased amount of automation. And that's two things. It obviously helps you with operating leverage as you grow the business, but it's also helped us to increase our conversion rate quite dramatically, which you'll also see as we move on.

And then the final part is that Earnest for a long time, uses machine learning to do credit decisioning and pricing. And as we expand what we're doing, we want to have more data science that goes into that machine learning. This platform enables us to do that.

And that brings us to the third thing on the page, which is financing. And I want to take a little bit of time on this because it's perhaps not intuitive. The first thing we did in the financing area is by anybody's estimation, Earnest is a very, very, very good digital marketer. It's also a very, very good software developer. Navient has an excellent capital markets group, particularly in securitizations. And Navient has secured over its history, hundreds of billions of issuer loans. And it's one of the most highly regarded, most experienced securitization teams in the industry. The only thing is they work in Navient. And what we did is bring those groups together, and we're starting to see some of the product of that so that we're optimizing our products now to fit better with the requirements of our investors and we're starting to see some results.

The other important thing we do is actually to change how we securitize. And at the risk of repeating myself, securitization is easy to sell. The economics of the securitization are determined by the portfolio construction in the pool. How the economics get allocated is determined by the form of securitization that we do.

So in the past, we've typically used a horizontal securitization structure. That's good if you want to maximize net interest income. It's not as good if you want to maximize return on equity. It's also saleable, but it's not easy to sell. So the structure that we use now, starting literally this year, is vertical securitization. That doesn't give you as good net interest income, but it gives you the best return on equity. And if you want to sell, it's the easiest one to sell. And there is a third thing, a hybrid, which if you plan to keep something, might be better than [indiscernible], but it's literally almost impossible to sell [indiscernible]. So what we see going forward, all the securitizations are vertical securitizations.

And if you go to Page 16, one of the things we've had up to now, the things we've actually completed and it shows that on the slide if you notice. This next issue comes back against financing, it's something that's ongoing. We want to get the loans that we generate in the future off balance sheet as much as we can. The fashionable way of doing that at the moment is through loan sales. And loan sales have a particularly good attribute, which is that they get the loans off the balance sheet, they accelerate the income that you get and there's no continuing equity.

So from an accounting standpoint, completely profitable. But everything has a cost. And so a lot of the economics that are involved in those loans can end up being transferred to the buyer from that. Securitization actually is a cheaper way of financing. And if you think about it, the securitization market is enormous. It's very deep. It's very liquid.

All of the securitizations that we do are registered, they're tradeable and they have an agency rating. So the liquidity premium that goes with that actually accrues to us, which is why it's such an effective way of financing. It does require some continuing equity, and it does have to be on the balance sheet. So that's the downside of it. What we're looking at the moment is maybe innovating in some ways that will enable us to get the accounting benefits and the economic benefits. I can't promise you we'll be able to do that, but we'll come back to it in 2026.

So if we go to Page 17. So we can do all the stuff, how do you turn to that? Back at the beginning, we talked about the way we want to measure Earnest from a shareholder value point of view. And first thing we talked about was getting the growth rate up. So the base year we're using here is 2023, and that's because it's before we started Phase 1 and 2. Since that time, you'll see that our originations are about 2.5x what they were.

More importantly, in some ways, statistical quarterly rate check volume has quadrupled. What that is when somebody is interested in getting a loan from us and request a quote, that's a rate check. So when we talk about getting our lead generation up, that's really what that is. If you look at our sales and marketing expenses, even though those statistics have doubled and quadrupled, our sales and marketing expense actually stayed about flat. So we've achieved the goal of getting the lead generation up and generating a lower cost. And what it means is our sales and marketing expense to originations is down to 2.3% this year.

The next category was getting efficient from an operating standpoint. And if you look at loan origination, for example, the new platform has taken us from 57% up to almost 80% and we have room to grow there. The conversion rate, which is a critical economic factor, is up almost 50%. We're supporting 3 product lines instead of 2, and we're doing that with about 4% of originations, which is a bit better than the 6% we were at.

Turning to the bottom of the slide. This compares a typical 2024 securitization with a typical 2025 securitization. And normally, you would expect that when our volume is going up as much as it is, the way you would do that is that your credit score would go further down so you can address a bigger part of the market. If you look at the chart, our FICO has actually went up, and that's actually deliberate. The reason for it is that with the higher end credit in the pool, we're able to increase the percentage of the pool that's rated AAA, which enables us to reduce the initial economic equity we have to put in. So when you're focused on return on equity and use vertical securitization, that's the impact to this. So that's also, I think, been quite successful as you'll see.

If we go to Page 18, going back to what our original goal was, it actually wasn't to get better. It was to get to be competitive with other people, which is a completely different measure. And also to be competitive with them at the lower volumes that we currently operate in. So if you look at this chart, it has some efficiency measures on it, which I think you can read for yourself. It says that our originations at the moment, they're growing well, I say the 1/4 of upstarts and maybe 15th place on SoFi. So we have to address that. But even at that lower scale, our sales and marketing expense to originations and our operating expense to originations are well in competition with these people. Two years ago, you could not have said that.

So this is exactly what we set out to do. It's exactly what this young and enthusiastic team of people has done. And I talked to one my colleagues about this and said if this were a good, I'd do a mic drop. It simply isn't like that which takes us to Page 19. What does this mean for shareholders? What we have on the chart here is Earnest, which actually doesn't have a listing, so it doesn't have its own valuation, but it's part of Navient and the peers that we've talked about. It's pretty good to hear a management team not finding about how the market doesn't understand how great they are. So I'm not going to bother doing that.

But if you look at the price/earnings and market values from comps, they're obviously much better than Navient. Earnest is part of the Navient. In addition, it has, I believe, $700 million of cash at the end of last quarter. It's got significant discretionary cash flow coming from its existing investments. It's going to have an in-school origination business and beyond generally Earnest. So the only point I would make is that for those firms to do 0.6 of book compared to the others seems like it's an interesting opportunity.

So how do you work on that gap? That comes back to the improved disclosures that we talked about, presenting the information in a different way. And if we think and hope that over time, the perception will become to a greater and greater extent that Earnest is Navient and we hope that, that will help to address this valuation of that.

If we go to Page 20, in order to accomplish what we say we want to do, we've now become competitive at small scale, we have to get to be bigger scale, which means that we need to address markets that are bigger. And I'll talk about that in a moment. If you take the core business of Earnest, which is the high lifetime value customers, we spent about $250 million over the years to acquire our current customer base. The way to think about it is that a 30-year-old comes in by refinancing their student debt. Over their life, they're going to need other products in various stages that we may or may not want to provide to them. And probably by the time they retire, they want wealth management.

The way we would monetize those things really depends on what they are. We could do new products like some people do. We could do partnerships with some of them. And the ones that are really interesting, big opportunities, you might even make an acquisition. The fact is, though, that because our customers are late 20s and early 30s, they actually don't need most of these things yet. But the next logical thing that they're going to be interested in is personal loans. The reason for that is they're moving into a stage of life where they have those needs, and they're also bringing down the student loan refinancing debt, which gives them more capacity. So we're going into that.

One of the benefits of it is that, that $300 million that we spent, we can now maybe amortize over 2 or 3 products rather than just one. So that's the lifetime customer value statement. And having the infrastructure that it takes to do all those things in marketing, technology and so on, we do have an infrastructure that we can leverage over different markets. It's not a novel observation. Other people are doing it. But we do have it in our time line to add a loan sales platform within the [indiscernible].

Page 21, so if you need a growth opportunity, markets need to be bigger, what are you going to do it? So we've moved the education and graduate lending down into a bullet. That's about a $12 billion annual opportunity, which helps for Navient going to be addressing itself. So that leaves Earnest with student loan refinancing and person lending. So in 2025, student loan refinancing, the total addressable market is somewhere around $8 billion. Because of the tailwinds from interest rates and other factors, we think in 2026, that's going to be $11 billion.

But it's worth taking a second to talk about that. The actual TAM for student loan refinancing in '26 is going to be about $135 billion. The fact is that nobody has ever been able to get more than 8% of the people who would benefit from taking a loan to take one. So one of our marketing strategies is to start to move that percentage up. But that's not what has changed here.

In personal lending, we don't do any this year. In 2026, we're not expecting to do very much. We're talking about just a proof-of-concept type lending. The $36 billion we've put on there, I think it's important to say what that is. Those people who -- it's about 4% of the personal loan market, by the way. Those people are those who have a 750-plus FICO and have a credit file that's aged from 5 to 15 years. If that sounds like an SLR customer, because that's who that is. In 2028, the customers are the same. It's just because they're aged, they're now moving into an age category where they have a higher propensity to do personal bond. So it's the same people that's getting a little bit older.

On the $36 billion, I think an interesting point to make is if you look at all of the people in that category, there are 2.4 million of them. We have 400,000 customers who look like that who clearly have a relationship with us, and there are a lot more of them who know what we are. So in that group as it moves through its financial lifetime, we're very well positioned. If you look at the thing a bit more broadly, what we're saying is in 2025, our total addressable market is somewhere between $8 billion and $10 billion. In 2028, if we just do what we're doing today, the addressable market is maybe 10x as big. So I think we're not really troubled about the opportunity to find new assets when we need to prove out our strategy.

If we go to Page 22, there's a lot of growth here, how are you going to finance it? So the way we think about it is this on our current balance sheet because of the way we've been financing our securitizations, we have about 7% equity to assets. In the future, as those loans come in, we're going to get 7% back and we're either going to put out something less than 3% or we're going to sell them and put out nothing.

So our expectation is that as we currently look at things, all the equity that Earnest has today is all the equity it's going to need. But if we see additional opportunities by being part of Navient, which is very well financed and has a very large amount of discretionary cash flow, we have all the capital we might need to take advantage of those opportunities if they come up.

And then the other thing I didn't want to forget is we said that one of our objectives is to increase the proportion of fee income in the mix. As that origination volume grows, the servicing comes with it. And as we go into personal lending, there's also an opportunity for origination fee income.

So on 23, we talked about our time line. This is a very deviated version of it. As you can see, from now to '28, we're going to be putting a lot of effort into expanding that 8% of the addressable market that again is student loan refinance. In '26, we are making some personal loans. The reason we're doing it is to have a big enough sample to get the rating agency rating. And we're assuming it's going to take to the end of '26 to do that. This is why we're not assuming a great deal of binding.

If it happened a bit sooner, we would accelerate because we'd then be in a position to securitize the loans that we generate. And if we want to sell them, we need the same data to sell them anyway. The full launch is therefore assumed to be in 2027 for those high-value customers, the 4% in the market. And then in '28, we would launch a sales platform. The reason we wouldn't do it soon is if you don't have the inventory, you don't need it yet. And then finally, ongoing is the transfer of the in-school and graduate loans to Navient.

So to sum up on Page 24, we started Phase 2 and same time, we started Phase 1. It's just happening in the background. During those 2 years, we've completely transformed Earnest's ability to compete and to compete in expanded market. Because of what we're doing and making it clear that what we're doing and what our objectives are, we think we can increase the ability of the market to discern what is really going on and how to value that.

And then the last point is momentum, and '26 is a transitional year. We have a little bit of personal lending, but it really doesn't kick in until 2027. On the other hand, the rate check volume in SLR sets us up for, I think, a pretty good year next year. There will be some personal lending, maybe more than we think. And there are some drivers in the graduate in-school business that could also include Earnest increase Navient's overall originations. So we are looking even in this transitional period to be able to get to maybe around $4 billion of originations this year. That's not a forecast. It's not guidance. We'll do that later in the year. And then hopefully grow from there.

So that's it. I've been talking a lot. So we do have to take some questions. But it's middle of the day, the market is open. So we'd like to just take a few and I'd like to issue an open invitation to anybody who wants to discuss this further. If you contact Investor Relations, we'll be happy to set up a one-on-one call and answer any other questions that you might have.

So with that, I'd like to open it up for questions.

[Operator Instructions] Our first question will come from Bill Ryan with Seaport Research Partners.

First question relates to Page 12, the Earnest financial snapshot. It shows $75 million of operating profit. And then on the other slide, there's $644 million of tangible equity. So it looks like a pretax ROE of about 12%. And since it's 2025 snapshot, I assume there's no loan sales in there. There's obviously a CECL charge. But during the presentation, you talked about pursuing capital-light structures for funding. And so is it fair to assume that kind of like the 12% is the baseline that we're starting off at that if you pursue the capital-light structures that it would give a quite a bit of boost from that level? And also following up on that question, what is the pickup in the ROE as you change your securitization structures towards vertical?

This is Ed. I'll take those questions. But before I do, I don't think I quite understood the last question that you raised about ROE. Could you say that again, please?

Yes. I was just wondering what the pickup in ROE is between your 2 securitization structures as you move to vertical.

Fair enough. So on the 12% ROE, I'm not sure if -- I didn't actually run the calculation. I'll take your word for it. That would be pretax, of course. I mean there are a lot of things that we talked about doing to actually move all of the loans off balance sheet. There are other reasons to get them off, including volatility that's not helpful.

I think the way to think about it is that if you look at the existing balance sheet, you could do everything on there that's currently got $700 million of equity in that if you turn it all over for about $200 million. So whatever the return on equity is now everything else equal, you're looking at maybe 2 or 3x that by going to a different securitization strategy. It's not quite linear, but it's sort of linear.

Okay. And then as a follow-up, just kind of a question about the TAM that you highlight for lending in the in-school channel. It's $12 billion; $9 billion of undergraduate, $3 billion of graduate. And I'm thinking about it that way, it's like if you take the $9 billion, it's a little bit less than what the private student loan origination market is today. So it looks like you may have excluded possibly some pockets of lending in private school lending.

And secondly, as it relates to the graduate side, the $3 billion, I think the number you used historically is about $1.5 billion of that is currently private. And so is it the number to assume that you're assuming about $1.5 billion comes in from Grad PLUS in the second half of next year?

I'm not the best person to answer that because I've been talking about Earnest and we're moving that over to Navient. But maybe David would like to take that or...

Yes. Bill, this is Dave Yowan. Thanks for the question. Yes, I think the -- yes, I think you've got it about right in terms of how we get to the $12 billion. As you know, there's a variety of different estimates of size of market depending on what your underwriting standards are, et cetera. Certainly, that's true with Grad PLUS as well. There's a lot of uncertainty. The ecosystem has been -- will be disturbed beginning next year.

I think what we're trying to communicate is that for us, the in-school product sits well with specialty finance from a financial profile, from a competitive set perspective. We just completed in the third quarter, our highest quarterly volume of in-school product. And so we're confident in our capabilities to find the customer segment that we've been targeting. It's predominantly the graduate student. Those capabilities that we've been developing, we're going to continue to rely on. They're not leaving the company.

But since they have that different financial profile and different competitive set, we're going to have those outside of Earnest, and we've got a very experienced team that's still going to manage that product. We've got executives at Earnest -- or at Navient, excuse me, that have decades of experience in student loan originations. So we're confident in our ability to take advantage of those opportunities as they present themselves.

Our next question will come from Jeff Adelson with Morgan Stanley.

I guess maybe just wanted to dig in a little bit more into what gave you the confidence to decide this pivot into a newer product in personal loans. It's a pretty competitive space. You mentioned this is a natural extension of customer need where I think you're largely refinancing that customer student loans today. But is your research indicating that a high percentage of those customers are looking for personal loans, like they're leaving your ecosystem to get a personal loan? I guess maybe how do you think about your go-to-market strategy here in a way that would let you get that share, allow -- drive consumers to you over the competition? Like what do you think your advantage is here at this point? And maybe also just touch on like it sounds like you're targeting existing customers, but like maybe what's the mix of existing versus new that you're thinking about as you kind of roll this business out?

Well, this is Ed, again. I'm going to open it up to others to speak. I think an important thing to bear in mind is what we're looking to do here. We're in pilot at the moment. So let's take -- let's assume that next year, we will do $4 billion of originations, almost none of them will be personal lending. And let's assume that the growth rate we're looking for is 50% in 2027. That basically says you don't need to get a lot of loans. We have 400,000 customers already in that category that we're starting to market to on a pilot basis today. We're feeling our way into the market. Once we get that done successfully, all sorts of other avenues will open up.

And if you go back to the team page, if you look at the people we've brought in, these people are the cream of the crop in personal lending. Emily is from Credit Karma, for example. They know that market very well. Amir is from Upstart. So I would say that at the moment, we have a very clear idea of how we're going to get the first few billion. And after that, we'll see where it goes.

But I'm now going to turn it over to Matt because he knows much more about it than I do.

Thanks, Ed. Jeff, thanks for the question. Yes, I think to Ed's point, what I would add on to that is we've been helping customers pay down debt for the last 10 years. And we are and have been focused on a very specific demographic. And so we know exactly what they do. We know where they shop. We know how they behave. And we've been extremely successful at executing that. And a lot of the things that made us successful is by bringing a differentiated product to the market.

And the way we think about being differentiated is by having more flexible, more transparent and best-in-class customer service. The combination of those 3 things has built significant trust from these customers, which, as you know, as these customers evolve throughout their financial journey, they're looking for a partner and for a lender that they can trust.

And so to Ed's point, I'm highly confident that we have the capabilities. We've made the right investments, and we're delivering a differentiated product with the right features that will resonate with this customer base and allow us to compete successfully.

Okay. Great. And could you maybe just -- I know it's kind of early. You're talking about the loan sale opportunity not really coming until 2028 here potentially. But any sort of early conversations you're having with private credit players or other investors, whole loan buyers who might be interested in actually taking a look at this product and maybe even just extend that to some of the conversations you're having on the student loan side from the whole -- potential whole loan sale or flow side as well?

David, do you want to take that one?

Yes. Look, we feel really confident about our ability to distribute products to the investment community in whatever way it makes sense for us economically. I think Ed laid out the fact that today, securitization is -- has the preferable economics associated with it in terms of lifetime economics. To the extent that we need to and have opportunities to sell loans, which accelerates the income in that, we feel really confident in our ability to do that.

I'm not going to get into discussions about any particular avenue to do that other than to say I think our record in distributing products to the investment community speaks for itself. Ed talked about it, not just in securitization, we have done sales that are securitization based in the past. And so these are not unproven or untested capabilities. They're credentials that we have.

The only other thing I'd add to that is if you look at the time line for '26, we're focused on getting an agency rating for our personal loan securitizations. The reason for that is that the information that the rating agencies want is exactly same information that you need when you get into loan sales. So we've been talking to people and basically, the situation is once you have that data ready, let's sit down and talk about it. So I think that's a broader way of looking at it, the 2026 issue.

Our next question will come from Moshe Orenbuch with TD Cowen.

I guess kind of pulling up at a high level, just trying to understand the time frame here. I guess I'm kind of struggling with this. You tout the idea that the originations are up 2.5x from 2023, but they're still down over 50% from the peak a couple of years -- a few years before that. So you certainly have the scale, I guess, at some point to do those originations.

So to be planning this stuff 2 to 3 years out seems to be the uncertainty around what other players will be doing in that time, what capital markets might look like versus where they are today. I guess it's just not clear to me what's been going on over that last 2 years and why this needs to be something. I guess I'm struggling with this kind of time frame.

This is Ed, again. I'll open it up to others if they want to speak. I think firstly, if you are struggling, probably the thing to do is to give us a call, and we'll have a one-on-one to discuss all of your questions. I think the other thing is that rather than get into why this is good or bad, I would say what I always say to people, just look at the numbers and see what happens. But I think that's probably the best answer I can give you today, but you're more than welcome to give us a call if you contact IR.

So I think we have time now for maybe one more question or might do that next, but do we have another question in the chat?

Our next question will come from Rick Shane with JPMorgan.

So I guess I'm a little bit surprised that we didn't hear more Grad PLUS. I understand the pivot towards Earnest. But the disclosure that was given today, you show net interest income for Earnest in the last -- on a sort of pro forma basis for '25 of $168 million. I'm trying to go through the disclosure and sort of link this up to what we know about the company today. Earnest is largely in the consumer finance segment. The net interest income there over the last 12 months is over $400 million, but Earnest represents, I think, about 2/3 of the assets in that business.

So I guess I have really two questions. How do we reconcile the numbers that we're seeing here with the size of the balance sheet? And also going forward, you guys have said in these slides that you're going to provide -- you're going to break Earnest out. Are you going to break out -- like I'm just trying to think about what the disclosure is going to look like. There's going to be an education lending business separate from Earnest. Earnest is going to have consolidation loans and personal loans. Education is probably going to have FFELP runoff. And I assume any private student loans in-school, whether it's undergrad or grad. Is that right? And how do we reconcile this Earnest snapshot with the information we have today?

Again, I'm not quite sure I get your full question. But what I would suggest is let's have a call after we wrap this one up, and we can probably go into a bit more detail for you. So I think that, that's probably the end of the question session for today. I really appreciate everybody who's joined. And I'll extend the invitation again to contact IR. We'll be happy to talk to you more. I would like to suggest we wrap it up.

Thank you. This concludes today's strategy update conference call and webcast. Please disconnect your lines at this time, and have a wonderful day.

Good morning, and welcome to the Navient Third Quarter 2025 Earnings Conference Call. This call is being recorded. [Operator Instructions]

At this time, I will now turn the call over to Jen Earyes, Navient's Head of Investor Relations. Please go ahead.

Hello. Good morning, and welcome to Navient's earnings call for the third quarter of 2025.

With me today are David Yowan, Navient's CEO; and Joe Fisher, Navient's CFO. After their 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 third quarter 2025 earnings release, which is posted on our website.

Thank you. And now, I will turn the call over to Dave.

Thanks, Jen. Good morning, everyone. Thank you for joining the call and for your interest in Navient.

This morning, we reported results that highlight our ability to drive high-quality loan growth and reduce operating expenses. Our expected life of loan cash flows increased substantially as our legacy loan portfolios experienced lower prepayment speeds. We also updated default rate, financing and secured debt service assumptions and incurred regulatory and restructuring charges. Adjusting for these assumption changes and charges, core EPS was $0.29 for the quarter. A summary of these significant items can be found on Slide 2. We're also announcing a new share repurchase authorization of $100 million. This authorization provides additional capacity and flexibility to purchase future value at a discount.

Turning to our engine for future growth. For the third straight quarter, Earnest doubled origination volume year-over-year, totaling approximately $800 million in new loans. This included $528 million in refi loans, our highest quarterly volume this year, accompanied by credit quality that is among the strongest in our refi history. In-school lending also saw a record peak season with $260 million originated, also the highest quarterly volume in our history.

Our strong performance across both product lines demonstrates our ability to attract high-quality, high-balance customers, many of them graduate students by offering products and a customer experience that meets their needs and exceeds their expectations. Earnest refinance business helps high-earning early professionals move from managing debt to building wealth. We focus on customers with prime to super-prime credit, most earning over 6 figures and about half holding graduate degrees.

We succeed with this segment through a streamlined, transparent application process, advanced underwriting, personalized pricing and an in-house U.S.-based client happiness team with industry-leading Trustpilot scores. Borrowers can select from up to 240 term and rate combination, making ours one of the most flexible refinance products in the market. Data-driven marketing and a mobile optimized process allow us to efficiently attract and serve financially sophisticated borrowers. Our scalable platform supports higher volume and additional products. We're proud of our momentum, excited about future growth, especially with the backdrop of potential Fed rate reductions and expanded product and market opportunities.

Turning to our ongoing effort to aggressively reduce expenses. We're pleased to report that we will exceed our ambitious expense reduction targets ahead of schedule. You'll recall that less than 2 years ago, we shared the ambitious goals related to our strategic initiatives, outsource loan servicing, divest BPS and reshape our infrastructure and corporate footprint. The removal of a large amount of infrastructure and corporate expenses was dependent on the successful completion of the first 2 objectives.

We have now completed our final obligations under the last transition services agreement, the final milestone in our Phase 1 transformation. This is earlier than both our original timing and the timing we shared last quarter. Team Navient has done a phenomenal job to accomplish this feat. Completing our obligations under the final TSA allows us to accelerate the removal of final expenses that were previously identified for removal.

These expenses include $14 million in the third quarter that were supporting the TSA, as well as additional expenses that could not be eliminated until all TSA obligations were complete, all of which will further reduce our corporate footprint. These expense removals are already underway, and are expected to be completed in the first few months of 2026. Once complete, we have exceeded our initial goal of $400 million run-rate expense reduction target set in January 2024. We're now on track to remove over 90% of this expense reduction target by the end of 2025.

Let me now turn to the cash flows we expect to harvest from our legacy loan portfolios. As you know, a significant portion of our portfolio is comprised of FFELP and private loans originated over a decade or more ago. Our portfolios have generally been experiencing lower levels of prepayments over the last few quarters. Our ongoing process of reviewing portfolio performance was supplemented by our Phase 2 review. The trends we are seeing have incorporated into our life of loan cash flow assumptions. The trends are largely driven by changes in public policy and customer repayment behavior. The result is the increase of projected life of loan cash flows by approximately $195 million. All other factors held constant.

Two of this quarter's assumptions changes had a significant impact on expected future cash flows. First, we lowered prepayment rate assumptions, reflecting changes in public policy under the current administration, which has not proposed, nor encouraged federal and FFELP loan forgiveness programs. As a result of these changes alone, expected future cash flows increased by approximately $280 million across all of our outstanding loan portfolios. All of these future expected cash flows, no part of them is reflected in Q3 results.

Secondly, we've revised default and post-default recovery assumptions across all previously originated loans. These updates reflect slower portfolio amortization, continuation of recent credit trends in customer repayment and recent recovery trends on defaulted loans. As a result, expected net life of loan charge-offs increased by $151 million. Unlike the increase in expected cash flows from slower prepayment speeds, all of these reductions in future cash flows are reflected as provision expense in Q3 results.

In addition, we updated certain financing and securitized debt service assumptions. The net effect of these changes was to increase expected life of loan cash flows by $66 million. Collectively, this set of changes increased life of loan cash flows by $195 million. As we do each quarter, life of loan cash flow projections were updated for actual loan repayments, new originations and benchmark interest rate assumptions, among other factors. Given our strong origination volume this quarter, these updated volumes further increase expected life of loan cash flows. The increase in expected life of loan cash flows from these updated assumptions and the actual results provides additional fuel for the growth strategy we have been working on.

In addition, we recently completed our fourth term ABS financing of the year, backed by refi loan collateral. We continue to experience strong investor demand for these securities and are achieving effective cash advance rates that demonstrate our ability to grow more rapidly with low capital intensity. So, we have more fuel for our growth strategy, and we are growing in a more fuel-efficient way. We plan to provide an update on the progress of our going-forward growth strategy for our Earnest business on November 19. We look forward to sharing our observations and initiatives at that time.

With that, I'll turn it over to Joe.

Thank you, Dave, and everyone on today's call for your interest in Navient.

In the third quarter, we reported core loss per share of $0.84. Adjusting for significant items, we earned $0.29 per share. During the quarter, we demonstrated strong loan origination growth in both the refi and in-school lending products, reduced our operating expenses in line with our long-term efficiency initiatives and increased our reserves. Our reported results include the upfront costs of higher origination volumes along with the following significant items.

First, provision of $168 million, of which $151 million, or $1.17 per share relates to previously originated loans. While our delinquency rates are improving, they remain elevated and the provision reflects a continuation of both the credit trends and lower levels of prepayment activity we are experiencing. Second, an interest income benefit of $11 million, or $0.08 per share, resulting from the impact lower prepayment expectations have on loan premium, loan discount and deferred financing fee amortization.

And third, regulatory and restructuring expenses of $5 million, or $0.04 per share. Our outlook for the fourth quarter is a range of $0.30 to $0.35 per share. Our fourth quarter guidance range would place us within the full-year guidance of $1 to $1.20 a share, set at the beginning of the year before the significant items we are announcing this quarter.

I'll walk through our results by segment, beginning with the Federal Education Loan segment on Slide 7. The net interest margin for Q3 was 84 basis points. This is 14 basis points higher than the second quarter. The increase in the quarter included reduced premium amortization from lowering our prepayment rate assumptions, resulting in a 23 basis point benefit. Prepayments were $268 million in the quarter compared to $1 billion a year ago. In the quarter, we earned $13 million of floor income on $3 billion of eligible loans.

With respect to Floor Income, if rates were, on average, 50 basis points lower throughout the quarter, Floor Income would have increased by an additional $4 million. We expect fourth quarter NIM to range between 55 basis points and 60 basis points, which assumes moderately lower rates in the quarter. Compared to the second quarter, our total delinquencies declined from 19% to 18.1%, and the net charge-off rate increased 1 basis point to 15 basis points. The FFELP provision expense is driven, in part, by the expected extension of that portfolio from continued low levels of prepayments.

Now, let's turn to our Consumer Lending segment on Slide 8. Total loan originations in the quarter grew to $788 million, an increase of 58% from the year ago period. This was driven by over 100% growth in refi originations and 9% growth in in-school originations. The doubling of refi originations demonstrates our capabilities to attract high-quality prospects and convert them to customers with improved efficiency. The external environment is providing a tailwind as lower benchmark rates coincide with an increase in federal borrowers seeking to lower their rate and payments.

Our record high quarterly in-school originations of $260 million included $119 million of borrowers pursuing graduate degrees. We are raising our full-year total loan originations guidance to be around $2.4 billion, or over 30% higher than our guidance provided at the beginning of the year. Net interest margin in this segment was 239 basis points in the quarter compared to 232 basis points in the second quarter. Unlike FFELP, where we have a net loan premium on our books, our private legacy portfolio is on our books at a net discount to par, thus lowering our prepayment rate assumptions, reduced net interest income in the portfolio by $7 million or 17 basis points.

We expect Consumer Lending NIM for the fourth quarter to range between 255 basis points and 265 basis points. When looking at delinquency and default trends over the last year or so, some context might be helpful. In 2024, FEMA declared 90 major disasters in the U.S., a sizable increase when compared to the 30-year average of 55 major disasters. As a result, forbearance balances were elevated and were 2.8% of balances a year ago compared to 1.5% in the current quarter.

As these borrowers exited disaster-related forbearance and returned to repayment, we saw 91-plus delinquency rates rise to 3% in the second quarter of this year and begin to decline. These events coincided with changes in federal loan policy and broader economic pressures that have influenced repayment behavior. While we are seeing improvement in delinquency rates, they continue to remain elevated. Of the $155 million of private education loan provisions that we took in the quarter, $17 million is related to new originations and the remainder reflects our macroeconomic outlook and recent credit trends.

Our allowance for loan loss, excluding expected future recoveries on previously charged-off loans for our entire education loan portfolio is $765 million, which is highlighted on Slide 9. The total reserve build in the quarter is driven by a variety of factors, including changes in student loan borrower behavior, elevated delinquency rates, macroeconomic outlook changes, new originations and the extension of the FFELP portfolio.

Slide 10 shows the results from our Business Processing segment. As of October 17, we have no further obligations to provide transition services for our government services business. The TSA revenues and expenses from this quarter totaled $7 million and $6 million, respectively, and are reported in the other segment. This final step allows us to begin removing $14 million of shared expenses, primarily consisting of IT infrastructure that was leveraged to support multiple business lines prior to the strategic transformation.

Once removed, we will have exceeded our original target of $400 million of expense savings that we outlined in January of 2024. More detail on total operating expenses can be found on Slide 11. Compared to a year ago, our total core expenses for the quarter declined by $93 million to $109 million. This substantial decrease was driven by our focused efforts to significantly reduce our expense base through the divestiture of the BPS business, transition to a variable servicing structure and reductions in our corporate shared service expenses.

Turning to our capital allocation and financing activity that is highlighted on Slide 12. This month, we completed our fourth securitization of the year. Year-to-date, we have issued nearly $2.2 billion of term ABS financing. These transactions were characterized by strong investor demand and high advance rates. Our current cash and capital positions provide ample capacity to distribute capital and invest in strong loan origination growth. In the quarter, we repurchased 2 million shares at an average price of $13.19, as our shares remain significantly below tangible book value.

In total, we returned $42 million to shareholders through share repurchases and dividends while maintaining a strong balance sheet with an adjusted tangible equity ratio of 9.3%. Our quarterly guidance of $0.30 to $0.35 per share incorporates continued strong origination growth boosted by moderately lower interest rates and continued expense reductions.

Thank you for your time. And I'll now open the call for any questions.

[Operator Instructions] We'll take our first question from Bill Ryan with Seaport Research Partners.

First question, obviously, relates to the provision and delinquencies that you noted on the call. I look back last -- I'd say, in the last 6 of the 7 years, we've seen delinquency rates go up from Q3 to Q4 -- excuse me, Q2 to Q3, actually went down both in the 30-plus and 90-plus this year. Forbearance rates, as you noted, have moved lower as well. I was wondering if you could kind of talk about the decision process to do what looks like a Q3 cleanup provision. It's obviously very well upside to what we've seen in the last couple of quarters. And if you could maybe, Joe, be a little more specific about the default and recovery assumptions now embedded in the reserve rate and how those compare to current trend line?

Bill, thanks for the question. This is Dave. Let me try to step back and provide some context to the changes we've made around default and prepayment rates. And I think our situation is distinct because of our legacy portfolios. We first established life of loan loss reserves in January 2020 when CECL replaced the incurred loss model across lending in the U.S. Within a couple of months of recording that CECL reserve, of course, the pandemic began. And we and like many other lenders, provided COVID-related forbearance to private loan borrowers. Of course, the federal government, provided federal borrowers with payment relief, and they also provided consumers and small businesses with broad financial support programs.

As a result, delinquency rates and charge-offs in our legacy portfolios fell significantly during this period, and they remained at historically low levels for some period of time. We didn't release reserves during that period as we expect the defaults that we assumed would happen were being deferred, not avoided. Federal loan payment relief programs remain in place for an extended period of time. Federal loan forgiveness programs were also proposed. It's only about 2 years ago that federal loan payments resumed and about a year ago, that credit bureau reporting also resumed.

As these relief programs are being wound down, we did, in fact, see over time, as you just pointed out, increases in delinquency rates and charge-offs. These included charge-offs that were deferred during the pandemic. We also experienced, as Joe indicated, some disaster forbearance volumes, which further but temporarily increased our delinquency and default rates. At the same time, in recent quarters, we also began to experience incremental defaults. We continue to see those incremental defaults. These are due to a wide variety of factors, including changes in borrower repayment behavior and macroeconomic conditions.

The provision expense we recorded this quarter assumes that these incremental defaults will continue for some time into the future. In recent quarters, we also began to see substantially lower levels of prepayments, especially within the FFELP portfolio. These have also continued. They're due to a wide variety of factors as well, but particularly public policy around federal loan forgiveness. The prepayment assumption changes we made this quarter also assume that these low levels of prepayments that we're experiencing will continue for some time into the future as well.

And Bill, to your question about recovery rate assumptions, think about our portfolio today, our recovery rate assumption is about 17% on the private portfolio. If you go back 5 or 10 years, that would have been a higher recovery rate assumption, reason primarily driven by as these loans have seasoned, we've lowered that recovery rate over the years, but relatively flat over the last couple of quarters at 17%.

Okay. And then if we could kind of go to the gross default assumption as well?

Sure. In terms of the -- well, net charge-off rate that we've seen historically, we've given a charge-off rate range of 1.5% to 2%. We are trending slightly higher than that over the first 9 months outside of our range. When we think about the new originations that we're making today, especially on the refi side, those are very high quality, as Dave highlighted in his prepared remarks, some of the highest credit scores that we've seen in our history. And so that charge-off rate assumption is roughly around 1.5% in terms of the new loans that we're making on the refi side.

Okay. And just one quick follow-up. Your guide for Q4, $0.30 to $0.35. I know you don't want to provide a 2026 outlook just yet, but should we be thinking that range as a potential starting point for moving into next year?

So I wouldn't use it as a baseline, just primarily because, obviously, we've got a lot of opportunities here in terms of addressing during our upcoming investor update as well as during the next quarter's earnings calls. So depending on interest rate assumptions that you're making, obviously, it could be a significant tailwind for us as it relates to refi originations. There's an opportunity, as you know, from the elimination of the Grad PLUS program. So as we circle those numbers and look forward to next year, obviously, there's higher provision expense that you take upfront in terms of the costs associated with those loans. So as we give you better guidance into next year, I would just keep in mind those upfront costs that you take during that time of origination will be a driver that you won't see necessarily in the fourth quarter.

Bill, if I could just add to that a bit. So look, we're -- if you think about the fourth quarter, we still have some expenses that we're going to take out, that we expect to get rid of by the end of the first quarter of 2026. So, we're not at quite a run rate there. Operating expenses will undoubtedly be lower. We're looking for additional opportunities to do that. I think the thing I would just emphasize that Joe just said is, as you think about '26 is we see substantial opportunities to continue to grow as we have. And so the key variable in terms of run rate will be the acquisition costs and the upfront cost of additional loan originations.

We'll take our next question from Mark DeVries with Deutsche Bank.

I was hoping to get a better sense of kind of where within Consumer Lending, you're seeing the credit weakness and what's driving the reserve build. I mean, it looks like the consolidation loan credit has been relatively stable. So it seems like it's the rest of the portfolio. Is the weakness mainly coming from kind of legacy private student loans? Or are you also seeing weakness in some of the more recent in-school loans that you've made?

Yes. Mark, this is Dave. Thanks for the question. If you think back the first part of my answer to Bill's question, the majority of what we're seeing is focused on the legacy portfolios that we have. That's why I went through the establishment of the CECL reserve, the conditions that have changed since then. And so that's where the majority of the provision expense has been. The other products, there have been some changes, but they're not as significant as the changes in the private legacy portfolio in particular.

Okay. And so just to clarify, based on the comments you made, is it kind of your observation that the primary source of the weakness now is just kind of the end of some of the more extended forbearance options that they've been granted under on other loans that they hold? Is that what's kind of driving the weakness?

Yes, that's certainly -- that's one part of it. There's a variety of factors. Macroeconomic conditions have weakened part of our reserve increase, not a significant part is due to weakening of the Moody's economic forecast. That was a contributor to the second quarter as well. But if you think about the primary source of the provision being the legacy portfolios, again, that's why I go back to when we established the life of loan reserves. It was really -- I think we can all agree, it was in a very different ecosystem for those loans than exists today as they've come through the pandemic.

Part of the lower prepayment speeds, which we're seeing in both FFELP and in private legacy, loans that pay off don't default, right? So, part of the reason we've tried to make sure that you see the relationship between the incremental cash flows from longer portfolios from slower prepayment speeds, that's also a contributing factor to higher provision as well because higher average balances outstanding can create higher charge-offs as well. So, there's a variety of factors that are at play here.

Okay. And just wanted to gauge your comfort level with how conservative these revised assumptions are and what kind of risk, if any, is there to further negative revisions?

Look, we're responding to what we're seeing with current trends, Mark. I'm not going to give a life of loan forecast for that. I think we feel we've done the appropriate thing here, obviously, to reflect what we're seeing in the portfolio today. And I'll just leave it at that.

We'll take our next question from Moshe Orenbuch with TD Cowen.

I looked through the cash flow assumption changes and noticed that more than all of the increase comes in 2030 and beyond. And from 2026 to 2029, it's actually almost $200 million less than you had in Q2. What's the driver for that?

The primary driver is the lowering of the prepayment speeds, Moshe. So if you think about the FFELP portfolio, we lowered our overall CPR from 5% to 3%, and that we have going until through 2028 and then again, increasing back to 5% more historical levels. So as a result, that impacts the cash flows that are coming in your earlier periods and increases those cash flows in the 2030 and out. Similarly, on the private portfolio, on the legacy portion of our portfolio, we lowered our CPR speeds from 10% to 8%. So, that's really the biggest driver of the movement from the earlier periods into the outer years.

And maybe if you mentioned this already, I missed it, and I apologize, but is there an ongoing impact on the private margin from that? You mentioned what the impact was in this quarter, but is there an ongoing impact on the margin from slower prepays?

So, we adjust for that every single quarter. So really, the biggest driver in terms of margin impacts when you look back historically and what's, I'd say, lowered the margins overall is that as our balance has shifted more towards the refi portfolio from the legacy in-school loans that we originated, we typically have lower margins on the refi, albeit at much higher credit quality. And so that's the push on the margin in the recent years as that has become a higher percentage of our balance.

But still the margin going forward on the legacy book would be lower at a slower prepay rate, right?

It really shouldn't impact it overall. I mean, you take that charge in the quarter and have the catch-up, assuming that the rate we have in place continues, there really shouldn't be much of an impact to the margin.

Got it. Okay. And then how do you think about capital needs given the potential for significant asset growth if you have expanded plans for Earnest?

Yes. Look, I think we feel very confident about our ability to finance rapid asset growth. We're doing that today. We've called out in the last 2 releases, Moshe, if you've seen, our ABS issuances. I can't overstate how important that is to our outlook for this business and how we're comfortable with our ability to grow it in a much more, as I call it, fuel-efficient way, meaning less capital. We're achieving advanced rates in our most recent ABS securitizations that are higher than we have historically achieved.

So, we're getting a majority of the financing we need to originate those loans from the ABS market, therefore, requiring less equity and other sources of risk capital to finance the loans. We've also got other avenues that we haven't exercised levers before like loan sales, et cetera. You combine what we're seeing in the ABS market with some of the flexibility that we think we have, and we're highly confident in our ability to finance higher levels of loan originations.

Just to follow up, I mean, is loan sales or are loan sales kind of a key part of the strategy? Is that something that you've got a program in place? Or how do you think about that?

I think I'm not going to preview our November presentation or our '26 plan at this point. We've historically been an opportunistic seller of loans. Again, I think we feel confident in our ability on a make-and-hold basis to continue to originate loans. Make and sell is an option we have, and it's good to have that flexibility.

Great. We'll be listening on the 19.

We'll take our next question from Rick Shane with JPMorgan.

Look, a long-standing part of the narrative is sort of the decline in the reserve rate due to consolidation of loans and the relative loan quality. And if we look back consistently, the provision has been well below charge-offs on any given quarter in the private -- in the consumer book. Have we reached the inflection point when you think about, for example, fourth quarter guidance, does that assume that the reserve rate is now stabilized in the mid-2.50s? Or how should we think about that going forward?

So the way I would think about it going forward is going to be a function of also new originations and what we're making. So as I said in my earlier response, for the refi originations, we're reserving at 1.5% in terms of life of loan loss assumptions. So for every dollar we're adding there, it's 1.5%, which would lower our overall allowance. So as that balance shifts, I would just imagine that, that allowance would come down to more -- to reflect just the greater percentage of refi loans.

To the extent that we are -- we see an opportunity here, obviously, in the Grad PLUS

market and grab opportunity there, those loans typically are originated with life of loan loss assumptions closer to 6%. So, that's the balance and the trade-off there. Otherwise, just in a naturally amortizing portfolio where we have life of loan loss expectations, I would imagine that, that allowance would come down, all else equal as the portfolio runs off.

Got it. And just to be clear, and I don't know if I missed this or not, but you're suggesting that the reserve rate on the consolidation loans was not changed of this increase that we saw today?

For new originations, no, it was not. So if you think about the refi portfolio, as Dave mentioned, very high credit quality, high earners, that's some of the best that we've seen in terms of our history there. And the early trends that we've seen over the last year have not given any indication that we would need to change that.

Great. But does that suggest that on the older stuff, not the new originations that the CECL rate on the consolidation loans did change?

So on the refi book -- we keep saying consolidation. So on the refi book, yes, we did take up our reserves on the refi originations, primarily as we looked at some of the back books and vintages that were, call it, 4 or 5 years old.

We'll take our next question from Sanjay Sakhrani with KBW.

Just a follow-up on some of the credit quality questions. Just on this provision that you did take, the $151 million, how much of it was credit related versus just the cash flows extending out because of lower payment speeds? I'm just curious on that.

And then I guess just a follow-up on that as well. It sounds like when I look at the slide, you guys -- every third quarter, you sort of true up that number and look at the back book. I'm just curious like what -- I understand like things have changed post-pandemic, but what changed between last year and this year? Was it just the repayment behaviors that changed? I'm just curious what you think drove that because you would have thought the conditions post-pandemic have been fairly stable more recently than they were in some of the years sort of ensuing that.

Yes. So, thanks for the question, Sanjay. If you think about the narrative that I went through with Bill's question, the change in public policy, particularly around the FFELP loans, for example, is a new administration policy, right? Prior to the inauguration, the prior administration had a very proactive view of loan forgiveness, payment relief programs, et cetera. The new administration has not exhibited that same appetite for that and in fact, has not proposed anything. And so we're 3 months -- 3 quarters, excuse me, into that new administration, and we've now both for prepayment and default rates, looked at trends that we're seeing when you see a trend that occurs over several quarters, we've appropriately stepped back and said, let's take a look at if we continue to see these trends, both on prepayment and default rates, here's the impact on life of loan cash flows. And then, of course, the accounting treatment for each one of those is very different. There's none of the future cash flows from extension that gets booked in the current quarter and all of the provision expense gets booked in the current quarter.

I think in terms of the -- I'm not going to try to attribute all the different factors here. We've laid them out. I think we could turn it into a World Series game of 18 innings. There's a lot of factors going on. The ones we've called out are really the impact of the -- everything that went on in the pandemic related to COVID relief, related to federal loan forgiveness, the macroeconomic conditions that we've seen. And again, this is a distinct portfolio for us, just given the age of this. The majority of the provision we're taking, again, is on loans that originated a decade or more ago. And I think that's distinct certainly from the loans that we're booking today and distinct from maybe other players that have a different story to tell this quarter.

And of that $151 million, I mean, is there a breakdown of that? Like how much of it is credit? How much of it is extension of duration?

Yes. I'm not going to -- there are so many factors involved. We don't have that attribution, Sanjay.

Okay. Got it. And then just one last one on -- so it seems like the delinquency rates aren't necessarily showing the same type of deterioration that the charge-offs are. So, should we expect that severity of loss -- like so that the roll rates to be higher on a go-forward basis? I'm just curious, Joe, as we think about sort of where this all falls.

Yes, they should be lower. So a big driver, obviously, of just the charge-offs in this quarter is the timing of those borrowers coming out of the various disaster relief programs and forbearances. So to your point, we're seeing early-stage delinquencies that are improving and late-stage delinquencies for that matter on the Consumer Lending side. So from that standpoint, we would expect lower charge-offs going forward and we are seeing improving roll rates.

Sorry, I have one more question. You hear a lot about high levels of unemployment among graduate students. I'm just curious if you guys are seeing anything in your portfolio that you've accounted for any of that in this provision increase?

No, we are not seeing that. Certainly, when you look at the originations that we've been making, we've been doing that since 2020. They've predominantly been to -- I should say, more than half have been to graduate students. And we're just not seeing that in terms of those that have graduated here in the early term, there has not been the impact that you're seeing in the headlines.

We'll take our next question from Mihir Bhatia with Bank of America.

I apologize upfront. It's another question on the provision. I'm just trying to understand the moving pieces. You mentioned the $155 million increase in provision in the consumer segment. $17 million was due to new originations. Is there a way to break out the remaining $138 million between the macro policy changes and just higher delinquencies even?

I guess we're just trying to understand the moving pieces, how much is coming from macro assumptions and policy assumptions changing? How much is coming from actual like delinquency? Because the delinquencies don't -- like the trends in delinquency, I think, as some of the previous analysts also mentioned don't seem that bad. I mean, I understand they're higher than earlier, but -- so just trying to understand the moving pieces.

Yes. Look, I appreciate the question. The macroeconomic condition piece this quarter is relatively small. The rest of it there is the trends we're seeing in the portfolio, and our assumption and expectation that those trends are going to continue. Again, I go back to the narrative that I used to answer Bill's question upfront. I think you really have to look at the private legacy portfolio, look at the establishment of the reserve back in 2020, think about the 5 years since then, see what we're seeing now, that's what we're responding to. There's a variety of factors on that very seasoned portfolio that we're responding to there. That's the majority of the story of the

$151 million.

Okay. And then maybe just on the refinance side. As you had some more time to digest some of the changes that are going on, on the graduate side and so maybe just a question like both on the in-school opportunity for new loans and then just on the refinance side even. Is there something for us to be thinking about with all the policy changes going on there where there could be some type of refinance benefit also?

Yes. So, thanks for the question. Yes, we do -- well, you're seeing in our results today, I think the opportunity in refi and our ability to capitalize on it. I mentioned at last quarter's release, one of the things that, again, I keep going back to 2020, but prior to the pandemic, our refi originations were roughly 50% coming from federal loan borrowers. Then during the pandemic period, which also coincided with a period of higher benchmark interest rates and volumes lower, roughly 20% of our refi origination volume was coming from federal loan borrowers.

In the first half of the year, roughly 40% of our borrowers were coming from consolidating out of federal loans. And this quarter, 50% were consolidating out of federal loans. So the impact of federal public policy -- federal loan public policy on payment relief programs, et cetera, has made the federal loan value proposition to borrowers less attractive than it once was. And therefore, the private loan, the refi loans becoming more attractive. We think that's what's driving a part of the increase in the growth in refi that we're seeing. We would expect that to continue.

Lower benchmark interest rates only further increased the addressable market there. If you look at the interest rates on federal loans, I think it's over -- there's over $100 billion of federal loans originated in the last 6 years that have above 7% coupon. That's a significant and substantial opportunity, not all of which meets our targeted customer base, but the refi opportunity is significant and substantial. The Grad PLUS piece is still -- we don't know what -- I don't think anyone knows for sure what that's going to look like. We feel confident in our ability demonstrated this quarter again to attract high credit quality, high balance borrowers, predominantly graduate students. And so when those students present themselves and are looking for a gap to help finance their education, we're confident in our ability to meet them, meet their needs and exceed their expectations.

We'll take our next question from Ryan Shelley with Bank of America.

Most of mine have been answered. I just wanted to ask about your outlook on competition going forward. So, obviously, with changes to federal policy, it sounds like there's going to be more greenfield. I know you just said it's hard to exactly size that. But big picture, it sounds like there will be more opportunity. How do you see that changing the competitive landscape? And any commentary around what you're doing to prepare yourself to more effectively compete?

I think that we've done a good job in terms of our entrance into the market over the last several years here, positioned ourselves very well to take advantage of the opportunity. When we look at our competition as it relates to new in-school graduate loan originations, just looking at public data, we're roughly over $200 million in terms of graduate originations when you look at last year. We estimated that market to be between $1 billion and $1.4 billion. If you look at some of our competitors and what they suggest is the market that's fairly consistent. So, roughly a 20% market share there. And I think that the product suite that we offer is very attractive.

In the early stages of what we've seen here and just really with some of the reforms that have taken place, we've had a number of financial aid offices reach out. We've been able to add in terms of the percentage of the top 200 schools that we participate in over the last 2 quarters here. So call it, an additional 9% to 10% increase there. So certainly, we're taking advantage of the opportunity here that's in front of us. And the normal competitors in that place are obviously the largest player in the market. We still -- has a significant share there. We haven't yet seen new entrants that have made a significant impact.

And on the refi side, there's a significant opportunity for growth there if, obviously, rates fall. It's predominantly just us and one other larger competitor in the market. We don't see other players stepping in yet to, like we did, call it, 5 years ago, where there were more diverse players in the refi space. So today, I'd say it's really a 2-person race in terms of refi originations, and we're not seeing any changes in really outsized coupons that are changing or pressure on rates that are being charged to borrowers at this stage. So, we feel good about where we are and we're well positioned for all of 2026.

[Operator Instructions] We'll take our next question from Jeff Adelson with Morgan Stanley.

I know it's already been asked already, but just in terms of the potential Grad PLUS opportunity here, is there any more work you've done over the past quarter to try to better sort of ring-fence the opportunity here, what your work has shown you? And I think one of your competitors has been out there on the in-school side talking about a $4 billion to $5 billion opportunity annually. Does that seem maybe in the ballpark for you? Or are there any maybe differences in how you would think about that? Or should we be maybe expecting something on this November update around sort of market size opportunity there?

So, I would think of it as the market share today is $1 billion to $1.4 billion in terms of what the graduate market represents for the private players. I would say Grad PLUS as a total is a $14 billion market. So, I don't view that as just one-for-one replacement that you're adding $14 billion. I know one of our competitors has said $4 billion to $5 billion is the expansion. Another one of our competitors has quoted is closer to $10 billion. So from us, we certainly think there's going to be a level of multiples of expansion there, and we're excited about the opportunity and that's where I leave it.

Okay. That's helpful. And then just on the refi side, I think you had said your -- about 50% is now as of this quarter coming back from the government refi side of things more in line with pre-COVID. Do you think there's an opportunity for that to expand even further above even where pre-COVID was just as sort of rates fall from here and the government policy on forgiveness and repayment plans after next year is going to get a little bit worse?

Absolutely, I think there's opportunities when you think about just the rate environment here. So, I'll just use one example. If I look at the Grad PLUS program, going back the last 14 years, there's only been one instance where the rates that are reset every single year has been below 6%. And if you look at the last 4 years, those rates have been at 7.5% or higher and just 2 years ago, it was at 9%.

So as rates fall here, I think there's a tremendous opportunity when you think of the volume of high-quality borrowers that have attended and graduated with a graduate degree. I think it's a great opportunity in front of us to increase that percentage and ultimately increase the volume. You don't have to go that far back to see just very high-level volumes from us. Back in 2021, we were close to $6 billion in terms of originations. So, I think it's really going to be rate driven, and we'll have to see what happens here in the next couple of quarters.

And there are no further questions on the line at this time. I'll turn the program back to Navient's CEO, David Yowan, for any additional or closing remarks.

Yes. Thank you, and thanks for joining today.

Before we close, I'd just like to put into context this quarter's results the way that we see it. And I'd actually call your attention to Slide 3 in our slide package. We've included this slide for 8 or 9 quarters now. So it has 4 elements to it that we're attempting to deliver on. I'll just go through them.

One, maximize the cash flows from our loan portfolios. Based on the trends that we're seeing today that we have recorded and put into our life of loan cash flow assumptions, those combined to have a $195 million increase in the life of loan cash flows that we saw.

The second thing we said we'd deliver on was enhance the value of our growth businesses. For the third straight quarter, we've doubled our origination volume from prior quarters. We had our highest peak season in in-school lending in our history. Credit quality is exceptionally high. Customer satisfaction remains very high. And so we're positioning ourselves for further growth in market and in product opportunities.

Continuously simplify the business and increase efficiency, I'd call your attention to Slide 11, where operating expenses this quarter are roughly 55% of what they were just in the year ago quarter. And we've identified within the amounts we incurred this quarter, $14 million of expenses that we know are going to go away. We're in the process of getting rid of those. That would bring our operating expenses down to less than half the level they were a year ago, and we're committed to continue to look for ways to be more efficient.

And then fourthly, maintain a strong balance sheet and distribute excess capital. We have an adjusted tangible equity ratio of 9.3%, which remains above our long-term average and we were able to grow loans at the levels we grew at and still distribute $42 million worth of capital for our shareholders. So, we feel like this quarter is a great example of our ability to check all 4 of those boxes in a very meaningful way. And I hope you can see our results in that same context.

Appreciate your time and attention. We look forward to speaking to you in November.

Thanks for joining today's call. Sorry, David.

Go right ahead, Jen.

I was just going to offer anybody whose question we didn't get to, please contact me after the call. Happy to have some more conversations. And thank you, David.

Absolutely. Thank you all for your participation. You may disconnect at this time.