Navient - Q4 2025

Transcript

Operator (participant)

Good morning, and welcome to the Navient fourth quarter 2025 earnings conference call. This call is being recorded. Currently, all participants are in a listen-only mode. Following the remarks, we will conduct a question-and-answer session. Instructions will be provided at that time. If anyone should require assistance during the call, please press the star key followed by zero on your telephone keypad. At this time, I will turn the call over to Jen Earyes, Navient's Head of Investor Relations. Please go ahead.

Jen Earyes (Head of Investor Relations)

Hello, good morning, and welcome to Navient's earnings call for the fourth quarter of 2025. With me today are David Yowan, Navient CEO, and Steve Hauber, Navient 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 fourth quarter 2025 earnings release, which is posted on our website. Thank you, and now I will turn the call over to Dave.

Dave Yowan (President and CEO)

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+ 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+-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 first, 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 one 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 an 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 full-year refi originations 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 at 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 at 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, 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 is 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 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's 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.

Steve Hauber (CFO)

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 positioned us to over-deliver on the $400 million expense reduction target in 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 pull to receive a personalized rate quote, increased nearly 3 times 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 discipline 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 seven provides similar loan origination growth information and compares 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 eight. 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 2025.

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+ day delinquency rates increasing from 6.1% to 6.3%, and 91+ delinquencies increasing from 2.8% to 2.9%. We recorded 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 a response to fourth quarter delinquency trends, largely within our legacy private loan portfolio. Federal education loan segment results are on slide nine. 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. FFELP prepayments remained historically low at $225 million in the fourth quarter, compared to $322 million a year ago and over $1 billion two years ago. With the slow amortization of the FFELP 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. 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 represent 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 divesting 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 financing. We continued 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 remained 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 and 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-$0.80.

This range is net of a $0.35-$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 (participant)

If you have a question at this time, please press star one on your telephone keypad. If your question has been answered, you may remove yourself from the queue by pressing star two. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Additionally, we ask that you please limit yourself to one question and one follow-up. We'll take our first question from Will Ryan with Seaport Research Partners.

Will Ryan (Managing Director and Senior Equity Research Analyst)

Good morning, Dave, and congratulations, Steve. First question is on the credit metrics of the private legacy portfolio. Obviously, a big question among investors is 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 rate or build the reserves for that portfolio and the provision, and some idea of what the ending reserve rate on the legacy portfolio is? And I have one follow-up.

Dave Yowan (President and CEO)

Hey, hey, Will. Good morning. Thanks for your comments. Let me start out by providing some context of the what we've seen in the and across our portfolios over the last two 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. When we did that, we made assumption changes around the level of prepayments that we're seeing in both the FFEL 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 had 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 two 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 as 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.

Will Ryan (Managing Director and Senior Equity Research Analyst)

Yeah. 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, you know, similarly, you have that blend and mix issue with the refi and legacy. The 3.5% is the amount we're at at year-end.

Dave Yowan (President and CEO)

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

Will Ryan (Managing Director and Senior Equity Research Analyst)

Okay. Thank you for that. 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 tax and puts you on a level playing field with several of your peers that have already adopted that accounting methodology.

Dave Yowan (President and CEO)

Yeah, Bill, we're certainly, you know, looking at others in the space that have utilized fair value accounting. We're not ready to announce that at any. Certainly at this point in time, but, it's certainly something that's on our radar screen, is what I would say.

Will Ryan (Managing Director and Senior Equity Research Analyst)

Okay, thank you.

Operator (participant)

Thank you. We'll take our next question from Jeff Adelson with Morgan Stanley. Your line is open. Please go ahead.

Jeff Adelson (Executive Director)

Yeah. Hey, good morning. Thanks for taking my questions. It's nice to see the origination guide, and, you know, you make reference to this, you know, additional $1.5 billion. I guess I'm just curious with, you know, 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, you know, 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 the FFELP book. 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?

Dave Yowan (President and CEO)

Yeah, thanks for the question, Jeff. There's a lot there. I'll try to address all parts of that. 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. We're 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, you know, 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.

You know, the PLUS opportunity, we sized that for 2026 in the November presentation at around $3 billion. You know, I would say that 2026 is clearly a year of 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 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 more than 50% in 2026, and we're very focused on that. In terms of the runoff in the mix, I think Steve provided some interesting comment in his remarks.

I, 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, that's been a long time coming, as I'm sure you can appreciate. And the loan growth 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, you know, very optimistic and confident about our ability to continue the momentum on that loan growth in that particular product.

Jeff Adelson (Executive Director)

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, you know, whole loan sale or flow programs. I know you're already executing on the securitization strategy in a more capital-like manner, but just any sort of expectations around potential for loan sales from here?

Dave Yowan (President and CEO)

Yeah, look, I think we've, 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 find as we leverage the platform at Earnest. You know, right now, and you can see this in the slides that Steve referred to, securitizations in 2025 for us were 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 a, just a fraction of what the legacy portfolio has 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 agreements change, if 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.

Jeff Adelson (Executive Director)

Okay, great. Thank you, guys.

Operator (participant)

Thank you. We'll take our next question from Terry Ma with Barclays. Your line is open. Please go ahead.

Terry Ma (Senior Equity Research Analyst)

Hey, thank you. Good morning. 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 ninety-day delinquencies, it's about 20 basis points year-over-year. It looks like it drove the bulk of the dollar increase in ninety-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 origination there, maybe just talk about reserve adequacy and kind of, like, direction of travel for credit metrics for the private refi book.

Dave Yowan (President and CEO)

Yeah. Thanks, Terry. I think in terms of refi and what we're seeing, we are seeing did see a 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 2020, 2025, which is also what we saw in 2024.

And so we're feeling, 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. 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.

Terry Ma (Senior Equity Research Analyst)

Got it. Thank you. And then, maybe just on the origination outlook, I may have missed it, but you called out 50% upside for or increase in in-school originations. Your business there has kind of outgrown the overall growth in the market the last two years. But as to the material step-up, are you seeing so 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? Thank you.

Dave Yowan (President and CEO)

Yeah. So, you know, we're coming off 2025 was the best year we've had in in-school since we entered that marketplace five or six 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 if in a transition year, which 2026 is, you know, gives us confidence that we can accelerate the growth rates in that particular product. That's why you see the, you know, the 50% increase there.

Terry Ma (Senior Equity Research Analyst)

Got it. Thank you.

Operator (participant)

Thank you. We'll take our next question from Rick Shane with J.P. Morgan. Your line is open. Please go ahead.

Rick Shane (Managing Director and Senior Equity Research)

Good morning, everybody. A couple things. I guess it's all related. You expect to grow the private book in 2026. You have about $525 million in maturities on the debt side. Over the last decade, you guys have been very disciplined about 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 talk 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 2026 with the levels we saw in 2025?

Dave Yowan (President and CEO)

Yeah. Thanks, Rick. Look, we're not signaling any change in the way we're thinking about share purchases. 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 if you think about 2026 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 scaled to the size of the share repurchase authorization that you saw, which is scaled to the, you know, to the overall size of market cap and shares outstanding in the company.

Rick Shane (Managing Director and Senior Equity Research)

Got it. Okay, I appreciate that. And, 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 thank you guys, and congratulations.

Steve Hauber (CFO)

Thank you, Rick.

Operator (participant)

Once again, if you would like to ask a question, please press Star and one on your keypad now. We'll take our next question from Caroline Latta with Bank of America. Your line is open. Please go ahead. Caroline, your line is open. Please proceed with your question.

Caroline Latta (Equity Research Analyst)

Oh, hey, 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.

Steve Hauber (CFO)

Caroline, thanks for the question. Look, there, 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. You know, 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 I've Jen to provide those to you offline, but it's really a consensus macroeconomic assumption for next year.

Caroline Latta (Equity Research Analyst)

Okay, thanks.

Steve Hauber (CFO)

Yeah.

Operator (participant)

Thank you. We'll take our next question from Sanjay Sakhrani with KBW. Your line is open. Please go ahead.

Sanjay Sakhrani (Managing Director)

Thank you. Good morning. 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? I'm just curious, like, is it that those students or those consumers are now seeing job loss? I mean, what's the driver of the higher delinquencies there?

Steve Hauber (CFO)

Yeah, thanks, Sanjay. I think it's 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 manage through things. If we go over the course of the years, clearly going through the pandemic, the pandemic relief cycle, these borrowers having federal loans as well, you know, 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's 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, you know, 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, you know, just how we're sizing it up in general, yeah, 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.

Sanjay Sakhrani (Managing Director)

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.

Steve Hauber (CFO)

Yeah. So first, on the NIM side of things, for the FFELP portfolio, we're expecting, you know, relatively stable down 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, what we saw in the second half of 2025 is a good barometer for 2026, and clearly what we're seeing there is, you know, with the portfolio remaining stable or increasing slightly in 2026, that's a positive. The mix of the portfolio towards more refi is, you know, goes the other way in terms of overall margin.

So it's, you know, 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. You know, obviously our reserve levels that we have at the end of the year are what we expect going forward. So really, that's what the provision entails for 2026.

Sanjay Sakhrani (Managing Director)

Got it. All right. Thank you very much. Appreciate it.

Operator (participant)

Thank you. We'll take our next question from Mark DeVries with Deutsche Bank. Your line is open. Please go ahead.

Mark DeVries (Senior Research Analyst)

Yeah, thank you. As we look out to 2027, should we expect the same level of net incremental growth investments, which you called out as weighing on the 2026 earnings expectations by $0.35-$0.40 a share? Or is that going to trail off?

Dave Yowan (President and CEO)

Hey, Mark, thanks for the question. Look, we're focused at the moment on 2026 and trying to execute against that. I think if you go back to the November strategy presentation, you know, 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 in 2026. And you know, 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.

You know, 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 three products that we have, the addressable market and the market expansion opportunities, you know, we think are large and sustainable as well. So I'd sort of leave it at that for 2027.

Mark DeVries (Senior Research Analyst)

Okay, fair enough. Thank you.

Operator (participant)

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.

Jen Earyes (Head of Investor Relations)

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.

Operator (participant)

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