NAVIENT CORP Q4 FY2024 earnings call

• Transformation Journey: Achieved key transactions in 2024 including divestment of government services, servicing outsourcing, and healthcare sale. Created platform with consumer segment focused on growth and legacy portfolio on maximizing cash flows. Transition services for outsourcing and healthcare expected to wind down in first half of 2025, for government services into early 2026.
• Consumer Lending Growth: Strong loan origination growth in 2024; refi volume up over $1B (+60% y-o-y), in-school volume up 13%. Plan to increase loan origination volume by 30% in 2025, back-loaded in second half. Well positioned to grow origination volume and demonstrate operating leverage in 2025.
• Cost Reductions: Phase 1 of cost reductions with $120M annual savings from reducing shared costs. Simplified business through disposals of non-strategic units (government services, healthcare) and implemented variable cost servicing model, realizing expense reducing benefits sooner than expected

Federal Education Loan segment

• Q4 net interest margin was 43 basis points, 3 basis points lower than prior quarter. Full-year segment NIM was 45 basis points, with expected 2025 NIM in range of 45 to 60 basis points. Prepayments were $300 million (1% of FFELP portfolio) in Q4 vs. $1.7 billion per quarter average for first nine months of 2024. FFELP portfolio balance expected to total nearly $27 billion at end of 2025. Greater than 90-day delinquency rates increased to 8.7%, charge off rate improved to 11 basis points, forbearance rates decreased to 14.7%.

Consumer Lending segment

• Q4 net interest margin was 277 basis points (vs. 284 basis points in Q3). 2025 NIM anticipated between 270 and 280 basis points. Balance of private education loans to decline by 4% as legacy book runs off. Originations grew over 60% to $363 million (vs. $223 million a year ago). Full year origination volume grew to $1.4 billion (vs. $970 million a year ago). Late-stage delinquencies increased to 2.7%, forbearance rates decreased; decrease in forbearance due to disaster relief borrowers returning to repayment.

Business Processing segments

• Anticipated closing divestment of government services business in first quarter. Classified as held for sale in Q4, recognized $28 million loss or $0.20 per share. After Q4 classification, government services business had book value of approximately $40 million. Completed sale of healthcare services business in Q3 for $369 million, resulting in $219 million gain on sale. Together, transactions will result in over $400 million of net proceeds, divesting entirety of Navient's Business Processing segment

• 2025 core earnings guidance $1 to $1.20 per share, excluding $0.26 net expenses from transition services agreements. Plan to increase loan origination volume by 30% in 2025, back-loaded in second half. Opportunistic share repurchasing with $111M remaining authorization on share repurchase, balancing capital allocation to loan growth and excess capital for repurchases

• Factors impacting results: High prepayment activity, loan premium amortization, regulatory/restructuring costs, and potential policy changes affecting federal education loans. - Legacy loan portfolio issues: Reserves and recovery rates for private education loans; impact of economic factors on delinquencies in FFELP portfolio

Q: Is the decision to focus on growth expected to curtail capital return? And talk about accelerating originations and expense run rate.

A: Ed Bramson stated it's mid-turnaround, more detail to come in second half. Basic question on company outlook, and expense run rate is a real number based on TSA expenses running off with more to come Q: Talk about capacity to ramp up in-student lending if government programs materialize.

A: David Yowan said there are foreseeable impacts of federal education loan policy changes, including lower loan forgiveness and potential elimination of Grad PLUS program. Navient has products, customer experience, and capacity to take on greater volumes if opportunities present Q: How thinking about 2025 in-school loan product and rate cuts outlook.

A: David Yowan said 2 rate cuts expected, with origination growth back-loaded in second half. Breaking down 30% origination growth, roughly 10% in-school growth and 40-50% refi growth in back half Q: Discuss recovery outlook and its impact.

A: David Yowan said recovery rate is a small change on large legacy volume. Legacy issue with loans originated decades ago, continuously updating assumptions on recovery, but recent vintages' recovery rate in line with expectations Q: Follow up on Grad PLUS opportunity and its fit with Earnest.

A: Joe Fisher said Grad PLUS opportunity is complementary, as Navient's in-school origination is in that segment and fits with Earnest brand Q: Question on FFELP portfolio paydowns, debt maturities, and access to money markets.

A: Joe Fisher said good job matching maturity profile with cash flows, has funding flexibility, and would consider issuance if attractive opportunities arise Q: Question on FFELP delinquencies increase and implications.

A: Joe Fisher said multiple factors like interest rate environment and economy, tougher challenge with loan forgiveness and policy limiting borrower connection, monitored continuously