NAVIENT CORP Q3 FY2024 earnings call

• The third quarter was productive with healthy loan origination growth, strong expense discipline, and lower FFELP prepayments.
• Outsourced loan servicing, completed borrower conversion, and reached agreement with CFPB to settle long-term investigation.
• Sold healthcare business for $369 million, wrote down goodwill in government services due to contract developments.
• Restructuring expenses from strategic actions, strong loan growth in Ernest with $1.37 billion YTD originations, 39% higher than last year.
• Doubling share repurchases in Q4, retired unsecured debt maturity in Q4, and confident in funding incremental loan origination in lower rate environment.

Federal Education Loan segment

• Net interest margin increased to 46 basis points from 36 basis points in Q2, with prepayments declining to just under $1 billion from $2.5 billion.
• Greater than 90 day delinquency rates improved to 7.3%, charge-off rate to 14 basis points, and forbearance rates remained flat at 16.4%.

Consumer lending segment

• Net interest margin was 284 basis points in Q3, down from 317 a year ago. Originations grew over 30% to $500 million. Late stage delinquency and forbearance rates increased.

Business Processing segment

• Total fee revenue was $70 million with 20% EBITDA margins. Government services revenue was $42 million due to an unfunded federal program, and uncertainty exists regarding congressional funding approval for the ASAP program.

• Fourth quarter EPS expected between $0.25 and $0.32.
• Full year 2024 core earnings per share outlook $2.45 to $2.50, reflecting variable cost servicing structure, completed healthcare sale, CFPB resolution, and strategic expense reductions.
• Doubling share repurchases in Q4 compared to Q3, with $1.1 billion cash on hand and $1.1 billion unsecured debt maturities.

• Uncertainty in prepayment trends and whether current low prepayment levels are temporary or permanent.
• Potential impact of government contract developments on government services revenue and associated expenses.
• Sensitivity of net interest margin to interest rate changes, particularly affecting FFELP spread.

Q: On the expense side, initial target for unallocated corporate overhead was $200 million annualized run rate, and current Q3 results?

A: Pleased with expense takeout, but have TSA expenses moving segments, on pace to be better than $200 million but work ahead.

Q: Dollar amount of securitizations in early amortization and chances to release capital?

A: Can provide offline, look at trust-by-trust economically, no specific time frame given.

Q: Reason for expected decline in private student loan recovery values?

A: Evaluate critical accounting assumptions quarterly, higher quality borrowers and seasoned assets make recovery challenging, currently comfortable with 17% recovery rate.

Q: Sensitivity of net interest margins to 100 basis points rate drop?

A: Pickup in floor income starts offsetting, flat low rate environment returns to historical NIMs.

Q: Repurchase cadence in 2025?

A: Combination of debt reduction, share repurchases, and loan growth depending on market conditions.

Q: Status of 80%-90% reduction in force?

A: About halfway through, including MOHELA transfer, healthcare transaction, and ongoing corporate expense reductions.

Q: Update on in-school lending business growth?

A: Met targets, low single-digit market share, CFPB matter not an impediment.

Q: Timing of government services sale and P&L impact?

A: Working urgently, no specific timing, goodwill impairment already accounted for potential sale.

Q: Addressable market for refi loans with 100 basis points rate cuts?

A: ~$30 billion market from 10% of $1.5 trillion direct loan portfolio, but wild card is forgiveness programs.

Q: Buyback run rate in future quarters?

A: Targeting $65 million in Q4, capacity and flexibility to allocate to loan growth, repurchases, or debt reduction.

Q: Return on tangible book value planning?

A: Growth business targeting mid teens returns, refi margins below 2%, legacy assets above 4%.

Q: Delinquency trend in private lending?

A: Early stage flat, late stage elevated, additional $92 million relief in October will slightly reduce delinquencies next quarter.

Q: Impact of government actions end of on ramp in October?

A: No impact seen yet on FFELP portfolio.

Q: Addressing upcoming debt maturity?

A: $1.1 billion cash on hand, $7.4 billion available liquidity, comfortable with position, may consider market issuance if attractive.