Earnings call transcript: Navient Q1 2025 beats EPS forecast, stock dips

Navient Corporation reported its first-quarter 2025 earnings, surpassing analysts' expectations with an earnings per share (EPS) of $0.25, compared to the forecasted $0.2175. However, the company's revenue fell short of expectations, coming in at $156 million against a forecast of $179 million. Despite the EPS beat, the stock experienced a premarket decline of 2.36%, trading at $12.4, reflecting investor concerns over revenue shortfalls. According to InvestingPro data, Navient currently trades near its Fair Value, with an overall financial health score rated as "FAIR."

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Key Takeaways

• Navient's Q1 2025 EPS exceeded expectations by 15%.
• Revenue missed forecasts by approximately 12.9%.
• The stock fell 2.36% in premarket trading despite the EPS beat.
• Loan originations nearly doubled year-over-year.
• The company maintains a strong focus on graduate lending.

Company Performance

Navient demonstrated robust performance in Q1 2025, with core earnings per share reaching $0.25, adjusted to $0.28. The company reported significant growth in loan originations, which nearly doubled to $580 million compared to the previous year. This growth underscores Navient's strategic focus on high-balance, low-acquisition cost graduate lending markets. The company also repurchased $35 million in shares, reflecting confidence in its financial health.

Financial Highlights

• Revenue: $156 million (missed forecast by $23 million)
• Earnings per share: $0.25 (beat forecast by 0.0325)
• Loan originations: $580 million (up from $259 million YoY)
• Adjusted tangible equity ratio: 9.9% (up from 8.4% YoY)

Earnings vs. Forecast

Navient's EPS of $0.25 surpassed the consensus forecast of $0.2175 by 15%. However, the revenue of $156 million fell short of the expected $179 million, marking a 12.9% miss. This revenue shortfall, despite the EPS beat, may have contributed to the negative market reaction.

Market Reaction

Following the earnings release, Navient's stock price declined by 2.36% in premarket trading, settling at $12.4. This drop came despite a 3.84% increase in the previous session, where the stock closed at $12.7. The decline reflects investor concerns over the revenue miss, overshadowing the EPS beat. InvestingPro data shows analyst targets ranging from $10 to $18, with the stock showing a significant 9.58% return over the past week despite recent volatility.

Outlook & Guidance

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Navient maintains its full-year core earnings guidance of $1.00 to $1.20 per share. The company is optimistic about achieving its $1.8 billion origination target for 2025. Management anticipates potential growth opportunities with expected interest rate declines and plans to explore further enterprise efficiency initiatives.

Executive Commentary

CEO David Yohan highlighted the company's strategic focus: "2025 is the year where we will achieve more of the cost reductions enabled by the steps we took in 2024." CFO Joe Fisher added, "We're not done as we see the light at the end of that tunnel. We're looking for other opportunities to be more efficient across the enterprise."

Risks and Challenges

• Macroeconomic pressures could impact borrower repayment capabilities.
• Revenue misses could signal underlying demand issues.
• Changes in the Grad PLUS loan program could affect future earnings.
• The transition following the sale of the government services business adds operational complexity.
• Potential regulatory changes in student lending markets.

Q&A

During the earnings call, analysts inquired about potential changes to the Grad PLUS loan program and the company's share repurchase strategy. Management clarified that share repurchases are more opportunistic, and provision increases are due to macroeconomic pressures. Additionally, Navient addressed net interest margin (NIM) expectations, citing potential future improvements.

Full transcript - Navient Corp (NAVI) Q1 2025:

Conference Operator: Good day and thank you for standing by. Welcome to the Navient First Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Jen Irias, Head of Investor Relations. Please go ahead.

Jen Irias, Head of Investor Relations, Navient: Hello. Good morning, welcome to Navient's earnings call for the first quarter of twenty twenty five. With me today are David Yohan, Navient's CEO and Joe Fisher, Navient's CFO. After their prepared remarks, we will open up the call for questions. A presentation accompanies today's discussion, 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 those factors in a discussion of them on the company's Form 10 ks 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 twenty twenty five earnings release, which is posted on our website. Thank you, and I now will turn the call over to Dave.

David Yohan, CEO, Navient: Thanks, Jen. Good morning, everyone. Thank you for joining the call and for your interest in Navient. This morning, we reported results that reflect strong loan growth and strong performance against most of our key business drivers. Joe will take you through the details in a few minutes.

Let me take a few minutes to step back and ground you in where we came from, where we are, and where we are headed. 2024 was a year of great transformation. We announced and then executed on all the steps we promised, divestiture of our BPS businesses, the outsourcing of loan servicing, and the beginning of deep cost reductions that those moves enabled. 2025 is the year where we will achieve more of the cost reductions enabled by the steps we took in 2024 and focus on how best to deploy our capital to grow our earnings business and return capital to shareholders. Our first quarter results have both some residual noise from our actions in 2024 as well as demonstrate our capacity to deliver growth and return capital.

Let me touch on some of the highlights of our performance during the quarter. Joe will then provide more information on our business on a continuing basis, excluding the impacts of our strategic actions. First, we saw strong loan origination growth in a relatively stable rate environment. Our refi loan volume doubled from the same period a year ago, resulting in a 46% increase in originations compared to last quarter. Increasingly, borrowers appear to be getting off the refinancing fence as the expectation for loan forgiveness has diminished and other federal student loan repayment related programs have ended.

Our growth in originations was also driven by iterative improvements we are making over time in converting prospects into customers with closed loans. The profile of these borrowers is strong. Roughly 55% of this quarter's refi originations were to students with graduate degrees and reflect the high credit quality of this targeted cohort. Second, we saw strong improvement in NIM in our FFELP portfolio. Here, the lower levels of prepayment activity, in large part a result of the expiration or elimination of federal loan forgiveness programs, created a lower loan premium amortization expense.

Third, we closed on the sale of our government services business in February, completing the divestiture of BPS. Our operating expenses show that we are tracking well against our ambitious targets to reduce expenses. Altogether, the divestment of BPS, outsourcing and servicing, and streamlining of corporate expenses are resulting in dramatic changes in our expense and employee footprint. During the quarter, roughly 1,300 employees departed the company through the business sale or job eliminations. At the end of the quarter, our employee base was more than 80% lower than at year end 2023.

Completing the sales of our BPS business gives us greater visibility into the timing of completing our expense reduction objectives. Transition services we're providing under the outsourced servicing and healthcare business sale transactions are expected to be largely complete during the second quarter of this year. While we are preparing to eliminate these expenses earlier, the government services TSA expenses could run through the first quarter of twenty twenty six. The reduction of our corporate expenses is ongoing, and we're keenly focused on identifying additional areas of efficiency across the enterprise. Provision expense for the quarter reflects a continuation of recent trends in consumer credit in general and for student loans in particular.

Some of the same trends that are driving refi loan growth and NIM expansion, the return to repayment and reduced loan forgiveness are also influencing repayment behavior. During the quarter, we repurchased 35,000,000 of shares under our existing authority. We said in January that our share repurchase strategy would be more opportunistic and less programmatic than it has been in the past and would continue to be balanced with financing strong growth. Our shares continue to trade during the quarter at a significant discount to tangible book value. We will continue to balance the opportunity to purchase future value at a discount with opportunities to invest in growth.

Our outlook for the year is, as always, dependent in large part on macroeconomic conditions. The current outlook is exceptionally uncertain. The range of outcomes is wide and even the future direction of certain drivers of our business, such as interest rates, is fluid. We are continuing to operate our business according to our plan. We have the financial and operating flexibility to respond to changes in the environment.

To date, we have not yet seen any significant change in loan origination volume or felt prepayments during April. We are thus maintaining our full year guidance at this point in time, which is subject to change, especially considering the uncertain macroeconomic environment. In summary, our operating results demonstrate our capacity to deliver strong loan growth, generate strong revenues and cash flows from our legacy assets, reduce operating expenses and invest for growth while also distributing capital to shareholders. I want to acknowledge and thank my colleagues in the organization who delivered these strong results. With that, let me turn it over to Joe.

Thank you, Dave, and everyone on today's call for your interest in Navient. We had a strong start to the year, delivering first quarter core earnings per share of $0.25 Adjusting for regulatory and restructuring expenses, we earned $0.28 on a core basis. Our results for the quarter include $06 of net expense that will be eliminated after completion of our transition services agreement. I will provide further context on the results by segment beginning with the Federal Education Loan segment on Slide six. The net interest margin for the first quarter was 61 basis points, 18 basis points higher than the fourth quarter.

This exceeded the high end of our guided range of 45 to 60 basis points. The increase was partially driven by a slowdown in policy driven prepayment activity. Prepayments were $256,000,000 in the quarter compared to $1,600,000,000 a year ago. We expect that prepayment activity will remain low in the near term as we are seeing historically low requests for consolidation to the direct loan program. Compared to the prior year, our greater than ninety day delinquency rates increased to 10.2%.

The charge off rate improved to 10 basis points and forbearance rates decreased to 14.4%. While there's been much discussion about the resumption of federal loan repayments and the curtailment of loan forgiveness options, it's worth remembering there remain numerous payment options available for borrowers to help manage their payments. Now let's turn to our consumer lending segment on slide seven. Net interest margin in this segment was two seventy six basis points in the quarter compared to two seventy seven basis points in the fourth quarter and in the middle of our stated range of two seventy to two eighty basis points. Total originations nearly doubled to $5.00 $8,000,000 compared to $259,000,000 a year ago.

This volume is more than triple our originations just two years ago. This was a strong start to the year and positions us well to achieve our 2025 origination target of $1,800,000,000 We are not assuming any changes in federal education loan policy, but we are well positioned with the capacity, products and customer experience to meet any potential expanded opportunities. Late stage delinquencies declined from two point seven percent in the fourth quarter to two point six percent. Forbearance rates decreased from two point seven percent to one point eight percent as borrowers exited the natural disaster forbearance. Despite the improvement from last quarter, our delinquency rates are marginally higher than our expectations and reflect the macroeconomic and student lending headwinds Dave mentioned.

Our allowance for loan loss, excluding expected future recoveries on previously charged off loans for our entire education loan portfolio is seven fifty three million dollars which is highlighted on slide eight. The $8,000,000 provision for FFELP loans and the $22,000,000 provision for private education loans is primarily driven by higher than expected delinquency rates. Slide nine shows the results from our Business Processing segment. In February, we completed the sale of the Government Services business. This sale along with the sale of our Healthcare Services business last year resulted in over $400,000,000 of net proceeds and represent the divestment of the entirety of Navient's business processing segment.

Under the terms of these agreements, we will continue to provide transition services to both BPS businesses for a period of time. The expenses and revenues from all of our transition services agreements or TSAs are reported in the other segment. Total core earnings expenses for the quarter were lower by nearly 30% to 130,000,000 These expenses include three items that I want to call out on slide 10. First, there are $20,000,000 of non continuing expenses offset by $23,000,000 of non continuing revenues related to the final two months of operating government services prior to the close. Second, there are TSA expenses of $10,000,000 offset by $11,000,000 in TSA revenues.

Third, there are $8,000,000 of expenses incurred during the quarter that will be eliminated upon completion of the TSAs. Our corporate shared services expenses are nearly 20% lower than a year ago, and we remain highly confident in our ability to meet our overall expense reduction targets. Let's turn to our capital allocation and financing activity that is highlighted on Slide 11. In the quarter, we repurchased 2,600,000.0 shares for $35,000,000 while remaining well capitalized with an adjusted tangible equity ratio of 9.9% compared to 8.4% a year ago. In total, we returned $51,000,000 to shareholders through share repurchases and dividends.

Our current cash and capital positions provide ample capacity to repurchase shares, and we believe the current discount presents an attractive opportunity. The strength of the first quarter results give us confidence in achieving our full year core earnings guidance of $1 to $1.2 per share. This range estimate continues to include $0.26 of net expense on a full year basis that are not part of our continuing operations. While we have seen a lot of volatility in the market, our guidance reflects a current expectation of moderately lower rates in the back half of twenty twenty five and no changes to federal student loan policy. As I close, I'd like to thank all of our Navient team members for their continued dedication to generating value for all stakeholders.

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

Conference Operator: Thank you. Our first question will come from the line of Bill Ryan from Seaport Research Partners. Your line is open.

Bill Ryan, Analyst, Seaport Research Partners: Good morning Dave and Joe. Obviously got a little bit of excitement on Monday. I think that was the first time we actually saw a proposal to eliminate Grad PLUS as part of the budget reconciliation process. Could you remind us what percentage of loans in the Grab Plus program you think are under writable by the private sector and how Navi's products may differ from its peers? And along the same lines, do you think there might be any changes to the direct loan program, which could be impactful to your business as well?

David Yohan, CEO, Navient: Good morning, Bill, and thanks for the question. We talked in the first quarter, as you indicated, there were some very broad proposals about changes in the federal government, generally things like Project twenty twenty five, and a couple other even broader proposals, but more limited to federal education lending. Monday, the House Education and Workforce Committee published a bill that's designed to meet the budget targets of the House reconciliation efforts. That bill is, you know, has some, it's complex. It's definitely got some puts and takes on the changes in the federal education policy.

And it's not clear exactly the extent to which those changes if enacted would expand the private loan market. So we're gonna have to wait and see. Some elimination of some of the plus programs, but there's some replacement with other federal programs as well. So we're going to see how those puts and takes work out. The two things that I would say is one is I think we demonstrated today in our results that we don't need an expansion of products to grow.

We feel confident in our ability to grow with the products that we have. If you think about the graduate customer in general, you know, we're our earnest distribution network and business model is built for purpose around the graduate cohort. They have high loan balances, relatively low and efficient acquisition costs, and tend to be distributed on a digital way as opposed to a financial aid offices, etc. So we're confident if there is an expansion of the Grad PLUS program, private lending to them that we can take our fair share of that if that opportunity presents itself. I think with respect to broader changes in direct loan, I'm going to play business person and not public policy expert and we'll have to see how that evolves.

But again, we're focused on the plan we have this year and are anxious to look at any developments and opportunities that come out of that. But I think it's premature at this point based on Monday's bill to make any predictions about that.

Bill Ryan, Analyst, Seaport Research Partners: Okay, thanks for that. And just one follow-up, obviously the provision was up both in the FFELP portfolio and private credit. You cited increases in delinquent balances. Maybe if you could provide us a little bit more color on what you actually see going on there. Is this kind of related to the moral hazard of all these loans being in deferment for a long period of time?

And I presume that the reserve build in private is still concentrated in the private legacy portfolio?

David Yohan, CEO, Navient: Yeah, Bill, I think there's a couple things that we would call out. One is, there's a general macroeconomic impact, I think, that's happening. If you look at, for example, the percentage of credit card balances where borrowers are paying their minimum balance there, I think, highest point in over ten years. Obviously, inflation and rising interest rates are creating some pressure on borrowers across the industry. And so I think we're seeing that and others are seeing that to varying degrees with different asset classes.

I think student loans in general have gone through a unique or distinct, if not unique experience through the pandemic. And so when the federal loan program and many private borrowers like us provided forbearance programs during the pandemic, we saw credit statistics and delinquencies and charge offs decline rapidly, knowing that they would rebound once things normalized. It's taken quite a bit of time for that to happen, particularly on the federal side with the ending of the payment holiday, etcetera. So what we're doing now is looking at our portfolio. We're doing the two things that we've always done with respect to borrowers.

One, we're working with them very proactively to help them repay their loan. We have programs that we've had in place for some time to help them do that. And secondly, from a financial perspective, you know, we're responding to what we see and making sure that we've got the right provision against that. So Okay.

Bill Ryan, Analyst, Seaport Research Partners: Thanks for taking my questions.

David Yohan, CEO, Navient: You bet, Joe.

Conference Operator: One moment for our next question. Next question comes from the line of Sanjay Sakhrani from KBW. Your line is open.

Sanjay Sakhrani, Analyst, KBW: Thanks. Good morning. Just had a question on the strategic actions, sort of multi question here. I guess one is, I just wanted to make sure I understand. So the expense numbers that you guys outlined in terms of getting to a pro form a over like what time period should we expect to get to that $2.00 $4,000,000 And I guess is the intention to get to an earnings power that's closer to sort of where you guys were before all of this began somewhere north of $2 And then just secondly, in terms of the growth initiatives, is that are we certain we're going to go down that path?

And maybe what kind of expenses should we consider for those growth initiatives? Thanks.

David Yohan, CEO, Navient: Yes, so the thanks for the question Sanjay. When the completion of the sale of government services in the first quarter gives us the visibility now in terms of the timing of when we can take out the expenses that we first articulated back in January of twenty twenty four. Right? And so that was $400,000,000 on a 2023 actual basis. That was our target.

That still is our target. And we still think that's well within our grasp. We're well past the sixth inning in our accounting of this in terms of where we are. What government services does is it allows us to understand what the remaining services that we're going to provide to the buyer of that business are. And those we now think will last as long as twelve months, perhaps shorter.

Both we and they are motivated to try to end that TSA sooner. And so we'll work to do that and we're planning and preparing to do that, but assume that that's going to be Q1 of twenty twenty six. And then after we were done providing those TSA services, the costs that we still have that are now stranded, they're not providing services to those businesses anymore. It's going to take us a quarter or two to get those out. And so by middle of next year, we would expect to fully run through the $400,000,000 that we articulated in 2023.

Your other part of your question is, you know, the earnings power of the company. I think we showed in we did show in January, the impact of those savings. Remember, the $400,000,000 was also associated with $285,000,000 worth of revenue as well. And so the net savings and the net earnings power from what we're doing on a continuing basis is a little more than $1 a share at our current share count. Additional earnings will come from growth initiatives, from deployment of capital to repurchase shares.

We talked about sharing more information about our plans relative to earnest and growth initiatives in the second half of the year. And so I'd ask you to wait for that. We're still on target to do that. And then the growth initiatives, the key for us, I think, earnest is demonstrating that we can grow and maintain operating leverage. And so that's why the products that we picked, the purpose that we built earnest around is this high balance, low acquisition cost, high credit quality, digitally distributed customer that we think has some significant operating leverage associated with it.

Got it. Thank you very much. Sanjay, just one quick follow-up on that. So there were Dave mentioned $285,000,000 of revenues is actually $285,000,000 of expenses and a little north of $320,000,000 of revenues associated with that. And to your point about the expenses that we've identified, that's the $0.26 that I had mentioned in my remarks.

So had a dollar to a dollar 20 in terms of our EPS range, but that includes the $0.26 of net expenses that we've identified for removal on Dave's timeline. Got it. Think the last thing I'd add, Sanjay, we're not we don't think we're done as we're we see the light at the end of that tunnel. We're looking for other opportunities to be more efficient across the enterprise and we'll share our plans and actions with you as we develop.

Sanjay Sakhrani, Analyst, KBW: Perfect. Thank you so much for reviewing that. Just one follow-up question, Joe, on the NIM. Just going forward, you mentioned the slowdown in prepayments for the felt NIM. Like, should we then expect the NIM to sort of stabilize here going forward because of that?

Is there more are there more tailwinds as prepayments normalize? I'm just curious if you could give us a little bit of color on the NIM progression a go forward basis. And just one more on Bill's second question. On the delinquencies, just going forward, do you guys feel like you have a good handle on it in the reserve now such that there's no more reserve builds associated with the pressures that you're seeing? Thanks.

David Yohan, CEO, Navient: Thanks Sanjay. So on the FELT NIM, generally pleased that we're on the high end or actually exceeded our range. I would say that on a quarterly basis, the second quarter, I would anticipate that we would be again in that high end of the range with the rate cuts that other moderate expected in the second half of the year. As you may remember, that does bring some pressure in terms of the way that the assets reset on a daily basis versus our funding is monthly and quarterly. So there is a bit of a lag there that creates pressure.

So all in all, feel very confident in terms of achieving our range, but there are some sort of puts and takes here in terms of how that will play out through each quarter. But I do feel very good in terms of where we are to start the year and our outlook for remainder of the year. As it relates to delinquencies, as I noted and Dave noted, we were certainly expecting higher delinquencies in the first quarter just as it related to some of the borrowers exiting the various disaster forbearance programs and that's starting to flow through. We did see improvement, but it was marginally higher than what our expectations were. So we appropriately took the provision for that.

So I feel good just based off of where we are, but it's certainly something we'll continue to monitor throughout the year. I'll say one thing I would add on the prepayments is, with the change in the administration, I think there's a sort of fundamentally different dynamic that's going on. In the prior administration, there were a series of programs. Those programs would have various levels of take up that would impact us through consolidation activity itself. Some of those actions, if not most of them, were challenged by the court.

And so it was a kind of a roller coaster period of prepayments spiking and falling off rather quickly. It was highly unpredictable for us and for you because we couldn't tell what the administration was going to do, though they were certainly inclined to look for ways to grant more forgiveness rather than less. With the change in the administration, it's really a lack of action on forgiveness. They have a different philosophy about loan forgiveness. So it's not as if they're gonna, at the moment, the outlook would be, it's not as if they're gonna take an action.

They're not going to take action. And so that provides two things. I think it provides a little more visibility, at least for us in terms of what to expect over the next, know, at least six to nine months. And therefore, you know, I think it's just a different dynamic than it was in the prior administration.

Sanjay Sakhrani, Analyst, KBW: Understood. Thank you so much.

Conference Operator: One moment for our next question. Our next question will come from the line of Nate Rickham from Bank of America. Your line is open.

Nate Rickham, Analyst, Bank of America: Good morning, and thanks for taking my question. I want to touch on originations for a second. I know you're reiterating the $1,800,000,000 guide for the year. I was curious if there's any, like, changes to your outlook in terms of the timing or the like, yeah, the timing of the volumes. I think previously, you're expecting like 10% growth in in school and like 40% to 50% in refinance with like some back half weighting, but 1Q seems to be off like to a much stronger start.

So just curious to see like if this is some pull forward you're expecting or just, I guess conservatives in the overall origination guide.

David Yohan, CEO, Navient: So there's no change in terms of our outlook on the timing. If you go back to our remarks in the fourth quarter, we had sort of a similar view on interest rates even with all of the volatility. I would say that the first quarter certainly gives us high confidence that we'll be able to achieve that. But it's just a little early at this stage to comment on the second half and certainly one of the bigger drivers of what could create volume beyond what we're projecting is a decline in interest rates. And as I said, just fairly similar to what we had in the fourth quarter as our guidance.

So I don't have any change at this point.

Nate Rickham, Analyst, Bank of America: Okay. Well, that's fair. And I think as a follow-up to that, I guess, like, is there like a, I guess, a threshold where you think there's like an inflection point to those originations for refi? Is it like a 50 basis points thing or like 100 or more basis points? Just curious how you guys are thinking about that.

David Yohan, CEO, Navient: Yes. So it's a factor of two things. Certainly, one is just overall interest rates, but also just the general funding environment in terms of how we set our pricing. So certainly a 50 basis point decline both in rates as well as the funding environment would create a significant improvement in our outlook this year. At this point though, as I said, very similar to what we were forecasting in the fourth quarter.

Nate Rickham, Analyst, Bank of America: Okay. That's all for me. Thank you.

Conference Operator: One moment for our next question. Our next question comes from line of Moshe Orenbuch from TD Cowen. Your line is open. Moshe, your line is open.

Moshe Orenbuch, Analyst, TD Cowen: Oh, sorry. Can you hear me now?

David Yohan, CEO, Navient: I can hear you, Moshe.

Moshe Orenbuch, Analyst, TD Cowen: Great. Thanks. So following up on that last question, could you talk a little bit about the spreads and return on equity of the new business that you're putting on now? Like, what does that look like in the current environment?

David Yohan, CEO, Navient: Yeah. So, Ashish, we've talked about before the, you know, the economics of that product and that business are are, driven by a variety of the all in costs of all the factors of that. So that includes cost of acquisition, cost of credit, cost of service, etcetera. Do you think this quarter's originations fit nicely into the portfolio that we have, that we've built over time? That's a kind of mid teens ROE.

In time, of course, there's an upfront cost associated with booking those loans from a provision and cost of acquisition perspective, but these fit nicely into the portfolio we have, we believe. And Moshe, I would just add that the securitization that we did in the quarter was in line with our plan. So certainly, as we think about just the cost of funds that for the first quarter here, certainly meeting our expectations in terms of how we plan for originations and the costs associated with them.

Moshe Orenbuch, Analyst, TD Cowen: Got it. Thanks. And then maybe just to come back on the Dave, the commentary on share repurchase. When you say that opportunistic and then you talk about the difference between the current price and tangible book? Like, maybe could you just expand on what opportunistic means?

Is it a certain amount of dollars if the price is below a certain level or or otherwise, like, know, just, you know, flesh out how you kind of think about that.

David Yohan, CEO, Navient: Yeah, I think there's it's a little bit of a decision tree, right, for us. The first sort of level is we have capital to deploy and we want to we have a choice between investing for growth or returning to shareholders, right? And this quarter we balanced that off and managed to do both. What we've said as recently as January is we'll continue to look at that. And if there's if we think there's opportunities to invest for growth, they're going to create to market value greater than the amount that we invested, then we're going to take that money and that's what we're going to do with that.

Again, this quarter we managed to do both, but that's sort of the first level of decision. Then the second level of decision is to the extent we're going to return capital to shareholders, the greater the discount or tangible book value in the market price, all other things being equal, the more we would buy or the more rapidly would buy. And that's an example of what we mean by opportunistic. Where our prior practice was more programmatic, we'd say, here's the amount we're going to repurchase and we repurchase it. I won't say independent of the share price, but not really driven by the share Okay,

Moshe Orenbuch, Analyst, TD Cowen: great. Thanks very much.

Conference Operator: One moment for our next question. Our next question comes from the line of Mark DeVries from Deutsche Bank. Your line is open.

Mark DeVries, Analyst, Deutsche Bank: Yeah, thanks. I have a couple of follow-up questions. First is on Moshe's last question. Maybe for Joe, is there a when we think about what's available to deploy, whether it's in the growth or returning to capital, should we assume that you're going to manage to this adjusted tangible equity ratio close to 10% or will it depend on kind of mix of the balance sheet? How should we think about what the governor is there and what that means in terms of capital that's free to either return or deploy?

David Yohan, CEO, Navient: It's a good question, Mark. So to your point, it does depend on the mix here. So as we've talked about in the past, our in school portfolio typically will hold 10% capital against those loans and we hold closer to 5% against our refi book. So in terms of the mix there, that's a call it 8% has been our long term guided growth in terms or sorry, our guided ATE range. And so I would expect us to be north of 8% going forward.

And today, just looking at our EPS targets of where we are, absent of any obviously large opportunities that created from a drop in interest rates that would drive volumes in refi or if there's a change in federal policy that drive volumes in in school, I would think that it's going be fairly stable for the remainder of the year, but it is driven by the mix of those two portfolios.

Mark DeVries, Analyst, Deutsche Bank: Okay, got it. And then just to follow-up on some of the questions around delinquency trends and reserves. Actually, it looks to me like reserves you took down during the quarter, both on a dollar basis, but also on a ratio basis, it was down 40 basis points despite the rise in delinquencies. Can you just talk about kind of what drove the reduction in the coverage ratio in the quarter?

David Yohan, CEO, Navient: So you cut off a little bit, but I believe just in terms of the coverage ratios for both portfolios. So for the self portfolio relatively stable from quarter to quarter, the private portfolio ticked down slightly from the previous quarter and that's more generated just by the mix of loans that we have. So we have a lower allowance as it relates to our refi book as they are very high credit quality bars with a much lower life of loan loss expectation. So as that mix shifts to more refi loans, we would anticipate that coverage ratio to continue to decline. Okay, thank you.

Conference Operator: One moment for our next question. Our next question will come from the line of Rick Shane from JPMorgan. Your line is open.

Rick Shane, Analyst, JPMorgan: Good morning, guys. Thanks for taking my questions. Look, the consolidation business is going well and you guys lay out a strong case there in terms of credit quality and efficiency. At the same time, you have been back in the in school lending business now for over five years, market share still less than 1%. And obviously, one of the key initiatives more broadly is to reinvigorate growth.

I'm curious why you're not leaning in more to that opportunity. The volume this quarter almost suggests you're sort of pass ively in that business. I'm curious if there is a window to accelerate the growth there and whether or not that's something you really want to do.

David Yohan, CEO, Navient: Thanks for the question, Rick. I would I don't think we're we don't view ourselves being passively in that business. I think, you know, you think the business model that Ernest has given our economics is predicated on this low cost of acquisition, high customer balance, high credit quality. And so it's more of a customer focus rather than a market share focus, right? We're not even in some of the markets that the largest incumbent in the space is in, right?

We don't do for profit school lending, for example. So we limit ourselves in that way. That's all very purposeful. I think we're more customer focused and making sure that looking for customers that our business model is built for and our capabilities are built for. And that's digital distribution.

It's high average balances, which leads us to the young professional and graduate cohort where I think we compete very effectively against some of the other players.

Rick Shane, Analyst, JPMorgan: Got it. Okay. Thank you very much.

Conference Operator: Thank you. Our next question will come from the line of Jeff Adelson from Morgan Stanley. Your line is open.

Jeff Adelson, Analyst, Morgan Stanley: Hey, good morning. Thanks for taking my questions. Dave, you've been willing to take a pretty hard look at the business and execute on some strategic actions here. I'm just curious, if you were to see the government opportunity open up for the in school graduate market, would you take a look at some strategic actions for the Uranus business, including a sale potentially? Or is that one you're fully happy to lean into and keep within the existing model?

Thanks.

David Yohan, CEO, Navient: Yes, I think you're a couple steps ahead of our thinking. We're focused, Jeff, on executing against the plan we have today. We do intend to share more thinking about the strategic direction of earnest in the second half. And so we're continuing to do that work. I'm going to ask you to just be patient on that piece.

Again, we're focused on executing against the plan we have. We do plan on sharing more information with you in the second half of the year.

Jeff Adelson, Analyst, Morgan Stanley: Okay. Thanks. That's helpful. And just to circle back on Sanjay's question on the NIM. I guess, understood on the near term here with some of the puts and takes with lower rates.

But I guess, is there a path over the medium term to you guys getting back to this kind of 80 to 100 basis point range for the FELP NIM? What would it take for that to happen? Thanks.

David Yohan, CEO, Navient: Yeah. So I think really what would it take is a couple, I want to say, maybe 25, 50 basis points in terms of rate drops for you to start really picking up that for income. And now while that is occurring, you do have the pressure from the resets that I mentioned. But once that you've hit once you've hit those levels and then you start to see those expectations flatten out, that that's what I would consider the environment that you saw not too long ago where we were above 80 basis points where we did have that additional for income that was contributing to the FELP NIM of 80 to 90 plus percent in terms of the NIM. So I think it really does take a couple of cuts to get there.

But also, once that has occurred, you need the stability of those rates staying there for a period of time.

Jeff Adelson, Analyst, Morgan Stanley: Okay, great. Thanks.

Conference Operator: Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Jen for any closing remarks.

Jen Irias, Head of Investor Relations, Navient: Thanks, Victor, and thank you for everybody for joining the call today. Please contact me if you have any follow-up questions.

Conference Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

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