Gator Capital Management Q2 2026 Investor Letter

Dear Gator Partners:

We are pleased to provide you with the 2026 2^ⁿd quarter investor letter for Gator Financial Partners, LLC, Gator Offshore Partners, Ltd., and Gator Qualified Partners, LLC (collectively, the “Funds”). This letter reviews our 2026 Q2 performance and shares our investment thesis on Navient Corporation (NAVI).

Review of Q2 2026

During the 2 ^ⁿd quarter of 2026, the Funds had strong absolute and decent relative performance. We barely underperformed the broader market, but we outperformed the Financials sector benchmark by a good margin. The Funds’ holdings in small and mid-cap Financials slightly outperformed the largest bank and insurance companies again this quarter.

Our long positions in Compass, UBS (UBS), UMB Financial (UMBF), Voya Financial (VOYA), and Société Générale (SCGLY) were the top contributors to the Funds’ performance. The largest detractors were long positions in Fiserv (FI) and Carlyle (CG) and short positions in TD Bank (TD), Citigroup (C), and KeyCorp (KEY).

The second quarter rebounded from the weak first quarter. We had strong results in April and June, driven by a rebound in several of the poor performers from Q1, such as Compass and UBS. We thought Q1 earnings season was strong for bank credit quality. Small and mid-cap banks continued to have strong performance through Q2.

Investment Thesis on Navient Corporation (“NAVI”)

Navient trades at roughly 40% of tangible book value as investors continue to view it as a runoff portfolio of legacy student loans, in other words, a melting ice cube. We believe that Navient is becoming a growth lender again, and investor perception will shift in time. The private student lending market is entering its first meaningful expansion in more than fifteen years, an activist investor has completed a major restructuring of the company, and early evidence suggests Navient’s loan portfolio may be returning to growth for the first time in years.

Background on Student Lending

To understand the opportunity in Navient’s stock, we believe it is important to understand some of the dynamics and history of the student lending industry. Since there are only three publicly traded companies focused on the student lending industry and their combined market cap is only $10 billion, the vast majority of investors are not knowledgeable on the subject.

During the 1980s and 1990s, most student loans were made by banks and consumer finance companies and received a guarantee from the federal government for 97% of the principal under the Federal Family Education Loan Program (FFELP). In 1994, the federal government started the William D. Ford Federal Direct Loan Program, which made loans directly to students and cut the private lenders out of the process. Between 1994 and 2010, the Direct Loan Program had market share ranging between 20% and 33%. During the 2000s, there was a perception among several Congressmen and Senators that the banks participating in the FFELP program were receiving the excess benefits of that program and the federal government should get the profits offered by the guarantee that it was paying for.

In 2010, the federal government effectively nationalized student lending by ending FFELP. Private lenders could still make student loans when students and/or their parents needed funding above the limits of the Federal Direct Loan Program. This drastically altered the businesses of the student lenders. Currently, the Federal Direct Loan Program makes about 90% of all student loans. Private student lenders, like Sallie Mae (SLM) and Navient, make the other 10% of student loans.

Sallie Mae and Navient’s 2014 Spin-Off

In response to the 2010 shift in the student loan industry, in 2014, Sallie Mae separated into two publicly traded companies, Sallie Mae and Navient. The “new” Sallie Mae retained the consumer banking and private student loan origination business, while Navient inherited the servicing platform, collections operations, and a large portfolio of legacy student loans, particularly FFELP loans. Navient would have substantial recurring cash flows from its existing loan portfolio but limited opportunities for organic growth. While the “new” Sallie Mae would have faster growth from its large origination platform but a small existing portfolio of loans.

After the spin-off, Navient’s management responded by aggressively returning capital to shareholders. Over the past decade, Navient has returned billions of dollars to shareholders through share repurchases, shrinking its share count by almost 80%. The company also diversified beyond servicing legacy student loans through acquisitions and internal investments. In 2017, Navient acquired Earnest, a technology-driven lender focused on student loan refinancing and private student loans. Earnest gave Navient more student loan origination capabilities.

Navient also used its loan servicing platform to expand into Business Process Outsourcing ((“BPO”)), providing technology-enabled customer care, payment processing, healthcare revenue cycle management, government services, and collections for third-party clients. Although the BPO business generated stable fee income and diversified earnings away from education finance, it lacked meaningful strategic overlap with the core lending franchise.

Because Navient was prohibited from originating new in-school private student loans until 2019 due to the spin-off with Sallie Mae, its lending business was dependent on refinancing existing student debt. Because Navient’s FFELP loan portfolio has been declining and it struggles to generate enough refinance loans to show growth in its private student loan portfolio, investors view the company as a company whose earnings steadily decline over time. They have placed low earnings multiples (between 3x and 8x) on Navient’s earnings. However, on the bright side, Navient has been able to repurchase stock at these low earnings multiples and manufacture growth in earnings per share.

Why the Current Opportunity Exists in Navient’s Stock

Navient is widely perceived as a shrinking student loan servicer managing a legacy portfolio in decline. We believe that view soon may change. After more than a decade of balance sheet simplification, aggressive capital allocation, and corporate restructuring, we believe Navient is positioned to benefit from the first meaningful expansion in the private student lending market in over fifteen years. At roughly 40% of tangible book value, investors appear to value the company as though its future is one of perpetual decline.

For much of the past five years, Navient’s core refinancing businesses have faced challenging industry conditions. Low interest rates and the federal payment moratorium on student loans made refinancing less compelling to borrowers. Then, the potential for student loan forgiveness during the Biden Administration made refinancing government student loans even less attractive. At the same time, Navient’s in-school private lending did not help to improve its loan growth because the company has had trouble getting added to approved lender lists in financial aid offices.

We believe another issue with Navient’s stock price is investors’ perception of the credit quality of the company’s loan portfolio. We admit the current credit quality metrics that Navient has reported are mixed. The absolute level of delinquencies is high, but the recent data has shown improvement. The company has publicly expressed that current credit quality is not where they expect it to be in the medium term. One problem has been the sub-par vintages of 2023 and 2024 loans, meanwhile Navient’s 2025 vintage of loans appears to be performing better.

Another gap in investors’ perception exists because of Navient’s confusing accounting. Navient often uses derivatives to hedge the embedded options in its FFELP loan portfolio. Also, because the FFELP loan portfolio is so low risk, it allows for massive leverage. This makes Navient’s balance sheet appear top-heavy.

A final issue affecting the company’s stock price is the company is only marginally profitable with the size of its current loan portfolio. We expect as Navient grows its loan portfolio, it will display significant operating leverage and improve its profitability.

Huge Industry Change

A fundamental shift in U.S. higher education financing has materially improved the long-term growth outlook for private student lenders. With the passage of the “One Big Beautiful Bill Act” in the summer of 2025, Congress eliminated the federal Grad PLUS loan program. As a result, the federal government will no longer originate graduate student loans through that program, leaving private lenders to fill much of the resulting financing gap. We estimate that this change will increase the addressable market for private student lenders by approximately 80%, creating a meaningful long-term growth opportunity for companies such as Navient.

We believe this change will help Navient get its foot in the door in more college financial aid offices. The end of the Grad PLUS loan program has caused college financial aid officers to scramble to fill the funding gap for students. We believe they have been more open to conversations with student lenders, like Navient, who have not previously been on their preferred lender lists.

In our view, investors are discounting the benefits of this industry change because it will take two to three years to show up in earnings. In late 2025, Sallie Mae told investors that 2026 would be an investment year as they geared up for the opportunity from the end of the Grad PLUS loan program. Sallie Mae said it would ramp up spending to prepare for the opportunity, but loan volumes would take three years to build. As investors often do, they are asking how do I get paid right now. They don’t want to own a stock when the payoff is in three years. We see a huge growth opportunity that is not discounted in the student lender stocks.

A New Steward Has Spent 4 Years Changing the Business

In 2022, an activist investor, Edward Bramson of Sherborne Investors, built a 29 million share or 19% ownership position in Navient. Although Bramson has not added to his holdings since 2022, his percentage ownership has increased to 31% as Navient has consistently repurchased shares. He has a long history as a successful activist investor. He usually focuses on one activist investment at a time. Often, he will take an executive position at the company, which took place at Navient when Bramson assumed the CEO role in June of this year. In 5 of his last 7 activist investments, he has doubled his investors’ money. With Navient, the stock must double to get back to his cost basis in the $16-17 range.

At Bramson’s suggestion, Navient’s management sold the BPO unit for cash. Navient also restructured its workforce by outsourcing its loan servicing operations to a third party. This was important because it shifted Navient’s expense base to a variable cost structure. With the decline in lending balances, this has protected profitability at the company.

We see the past four years of work put in by the activist investor, but the stock doesn’t reflect any of the positive changes. We do not have to wait for a catalyst. Our catalyst is already in place, he owns 31% of the stock, and he is the CEO.

An Overlooked Growth Datapoint

While investors remain focused on the declining legacy FFELP portfolio, we believe they are overlooking a much more important development: the re-emergence of growth in private student lending. In the 1 ^st quarter of 2026, Navient grew its student loan portfolio for the first time since the 4 ^th quarter of 2021. We believe this is the early sign of a turn in the growth of this portfolio for 3 reasons: 1) the moratorium on student loan payments has ended so prospective customers are more likely to seek out and refinance their existing loans, 2) the volume of indicative refinance offers Navient has made has increased dramatically in the recent quarters, and 3) the end of Grad PLUS Loans this Fall provides Navient a huge opportunity to get onto preferred lender lists at on-campus financial aid offices.

Navient’s lending platform, Earnest, has expanded beyond refinancing to include in-school loan originations, allowing the company to establish relationships with borrowers at the beginning of their educational journeys rather than only after graduation. More importantly, recent legislative changes are reducing the federal government’s role in graduate student lending, creating a meaningful expansion in the addressable market for private lenders. For more than a decade, private lenders originated only about 10% of student loans while the federal government dominated the market. We believe that mix could shift materially over the coming years, creating one of the strongest growth opportunities the private student lending industry has experienced in decades.

The first quarter may already be signaling this inflection, with growth returning to Navient’s private lending business.

Valuation

Today, Navient trades at approximately 40% of tangible book value. The low level of valuation tells us that 1) investors are worried about the existing credit quality of Navient’s loan portfolio 2) they don’t have a clear understanding of the profitability potential of Navient’s business, and 3) they don’t believe in the potential future growth of Navient. As long as Navient’s management believes they can fund future loan growth through internally generated capital and the shares remain so deeply discounted, we agree that they should continue repurchasing shares.

The valuation also creates an unusual alignment with Sherborne Investors. Based on public disclosures, Sherborne’s average cost is estimated to be approximately $16–17 per share, well above the current share price. Bramson has demonstrated throughout his career that he remains engaged until value is realized. If Sherborne simply succeeds in recovering its investment, shareholders purchasing shares today could potentially realize a return of approximately 100%.

Potential risks

Navient could be a value trap. Navient’s management appears to be unwavering in their commitment to growing the loan portfolio. If they are not able to grow the loan portfolio, they have not signaled that they’d be willing to run off the loan portfolio and use the proceeds to return capital to shareholders. They may not create any value for shareholders.

It is not clear that Navient’s refinance lending business has any franchise value. If Navient’s management were to try to monetize the business, we don’t know of any potential acquirers who want Navient’s lending business. The potential acquirers may be financial buyers who would require a discount to tangible book value to manage the run-off of the loan portfolio.

Student lending always has political risk. Fortunately for Navient, the most recent turn of political risk was a huge positive when in the summer of 2025, the Big Beautiful Bill ended the Grad PLUS Loan Program. The largest political risk going forward is if Congress got rid of the fact that student loans are not dischargeable in bankruptcy. If this changed, it would drastically affect Navient’s loan quality. Luckily, there is no current momentum to make this change.

Conclusion

Successful investments often arise when investor perception lags business reality. We believe Navient represents precisely that opportunity. The market continues to price the company as though it is merely managing the decline of a legacy loan portfolio with mixed credit metrics. In our view, the combination of an expanding addressable market, a focused management team with substantial skin in the game, disciplined capital allocation, and an attractive valuation creates the potential for a significant re-rating and earnings growth over the next several years.

Portfolio Analysis

Largest Positions

Below are the Funds’ five largest common equity long positions. All data is as of June 30, 2026.

Long

Société GénéraleBNP Paribas (BNPQY)Compass Inc. (COMP)First Citizens BancShares (FCNCA)UMB Financial

Sub-sector Weightings

Below is a table showing the Funds’ positioning within the Financials sector as of June 30, 2026.

The Funds’ gross exposure is 205.76%, and its net exposure is 49.34%. From this table, we exclude fixed-income instruments such as preferred stock. Preferred stock positions account for an additional 7.55% of the portfolio.

Conclusion

Thank you for entrusting us with a portion of your wealth. We are grateful to you, our investors, who believe in and trust our strategy. On a personal level, Derek Pilecki, the Fund’s Portfolio Manager, continues to invest more than 80% of his liquid net worth in the Fund.

As always, we welcome the opportunity to speak with you and discuss the Fund.

Sincerely,

Gator Capital Management, LLC

References

1. Gator Financial Partners, LLC’s inception date was July 1, 2008. Gator Offshore Partners, Ltd. and Gator Qualified Partners, LLC have inception dates of April 1, 2014 and July 1, 2025, respectively.
2. Performance presented assumes reinvestment of dividends, is net of fees, brokerage, and other commissions, and other expenses an investor in the Fund would have paid. Past performance is not indicative of future results.
3. Performance presented assumes reinvestment of dividends. No fees or other expenses have been deducted.
4. ‘Financials sector’ is defined as companies included in the Global Industry Classification Standard (“GICS”) sectors 40 and 60, which contain financial and real estate companies.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.