Navient Corporation · NASDAQ:NAVI
Navient — Q3 2019 Earnings Presentation
53 slides from Navient's earnings presentation, Nov 4, 2019
Slide 1: 2019 3rd Quarter Investor Deck
2019 3rd Quarter Investor Deck November 4, 2019
Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures
Forward-Looking Statements; Non-GAAP Financial Measures The following information is current as of September 30, 2019 (unless otherwise noted) and should be read in connection with Navient Corporation’s “Navient” Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”),
Slide 3: Navient is a leader in education loan management and business processing solutions
• Navient is a leader in education loan management and business processing solutions for education, healthcare and government clients at the federal, state, and local levels. We help our clients and millions of Americans achieve financial success through our services and support. - Industry leading
Slide 4: Operating Results: Core Earnings Basis
Operating Results “Core Earnings ” Basis 1 Selected Financial Information and Ratios 3rd Quarter Highlights (In millions, except per Q3 19 Q2 19 Q3 18 share amounts) • Adjusted Core Earnings per share of $0.65 compared to $0.56 in the year-ago quarter 2 GAAP diluted EPS $0.63 $0.64 $0.43 Adjusted Co
Slide 5: On Track to Meet or Exceed Original Target Financial Metrics
On Track to Meet or Exceed Original 1 Target Financial Metrics Key Company & Business Segment Metrics 2018 2019 Actual Original 1 Target Core Earnings Return on Equity 2 15% Mid-teens Core Earnings Efficiency Ratio 3 47% ~50% Tangible Net Asset Ratio 4 1.25x 1.23x – 1.25x Net Interest Margin – Feder
Slide 6: Federal Education Loans Segment
Federal Education Loans Segment “Core Earnings” Basis Selected Financial Information and Ratios 3rd Quarter Highlights ($ In millions) Q3 19 Q2 19 Q3 18 Federal Education Segment net interest margin 0.82% 0.81% 0.82% • Net Interest Margin: 82 basis points • Charge-off Rate: 6 basis points FFELP Loan
Slide 7: Consumer Lending Segment
Consumer Lending Segment “Core Earnings Basis” Selected Financial Information and Ratios 3rd Quarter Highlights ($ In millions) Q3 19 Q2 19 Q3 18 Consumer Lending Segment net interest margin 3.45% 3.22% 3.35% • Net Interest Margin: 3.45% • Charge-off Rate: 1.6% Private Education Loans (including Ref
Slide 8: Originating Education Loans is an Attractive Opportunity
Originating Education Loans is an Attractive Opportunity Sizable Market With Attractive Yields 1 Estimated Outstanding Education Loan Market 2 Estimated Total Market Annual Originations and Yields $1.5 Trillion as of FFYE 9/30/2018 ($’s in billions) ($’s in billions) $12 $12 $11 Grad PLUS, $67 ~7% ~
Slide 9: Typical Private Education Refi Borrower Profile
Typical Private Education Refi Borrower Profile We serve technology first, financially responsible, digital native young professionals Typical Borrower More Accurate Assessment Weighted Underwriters assess loan Average applications down to the transaction-level where available Borrower Age 32 Months
Slide 10: Consumer Loan Segment Credit Detail
Consumer Loan Segment Credit Detail Credit Metrics Allowance for Loan Loss TDR Loans ($ in millions) 3Q 19 2Q 19 3Q 18 September 30, 2019 Ending Allow ance as Total delinquencies $911 $944 $1,202 ($ in millions) Allow ance Balance % of Ending Balance Total delinquency rate as a % of loans 10.6% 10.8
Slide 11: Business Processing Segment
Business Processing Segment “Core Earnings” Basis Selected Financial Information and Ratios 3rd Quarter Highlights ($ In millions) Q3 19 Q2 19 Q3 18 Business Processing Government Services $39 $40 $40 • EBITDA Margin 1: 20% Healthcare RCM Services $27 $25 $24 Total Business Processing $66 $65 $64 •
Slide 12: Focused on Improving Margin and Organic Business Processing Growth
Focused on Improving Margin and Organic Business Processing Growth Well Positioned for Long-Term Growth Growing Fee Revenues at Attractive Margins • Providing business processing services for Total Business Processing Fee Revenues approximately 600 clients in Government and ($ in millions) Healthcar
Slide 13: Navient Is Focused On Expense Efficiency
Navient Is Focused On Expense Efficiency Full-Year 2018 Comparable Core YTD 2019 Comparable Core Earnings Total Expenses Earnings Total Expenses ($’s in Millions) ($’s in Millions) $950 $750 $900 (11%) (3%) $850 $725 $800 $750 $700 $700 $650 $675 $600 $550 $500 $650 2017 2018 YTD 18 YTD 19 Continued
Slide 14: Higher Education Industry
Higher Education Industry © 2019 Navient Solutions, LLC. All rights reserved. 14
Slide 15: Federal government is the largest consumer lender
Federal government is the largest consumer lender, owning or guaranteeing $1.4 trillion in student loans • Federal loan interest rates, limits and terms are set by Congress. • All federal loans are issued directly by the U.S. Department of Education since 2010 when federally guaranteed loans ended.
Slide 16: In its role as a student loan servicer, Navient helps borrowers repay
In its role as a student loan servicer, Navient helps borrowers successfully repay their loans Servicers begin helping borrowers navigate repayment after important financial decisions about the total cost and experience of their education have already been made. © 2019 Navient Solutions, LLC. All ri
Slide 17: There are solutions to many of the challenges faced by borrowers
There are solutions to many of the challenges faced by borrowers © 2019 Navient Solutions, LLC. All rights reserved. 17
Slide 18: Navient's default prevention expertise has reduced the national default rate
Navient’s default prevention expertise has been a key factor in the decline of the national default rate • The cohort default rate (CDR) 2016 three-year cohort default rate measures the percent of borrowers 10.1% who defaulted on a student loan within three years of entering Navient's CDR is 37 perc
Slide 19: Borrowers who struggle most are often non-completers with less debt
The borrowers who struggle most are often non-completers with less than $10,000 in debt Borrowers who do not complete a degree … As a result, borrowers who run into trouble default at a rate almost three times higher repaying usually have below-average amounts than borrowers who earned a degree … of
Slide 20: In 1990, there were two repayment plans
In 1990, there were two repayment plans, and the most complex area was deferment Forbearance Deferment Discretionary Forbearance 1. School Full-Time • Hardship Forbearance 2. School Half-Time 3. Graduate Fellowship 4. Unemployment Deferment – 2 years 5. Rehabilitation Training Program 6. Teacher Sho
Slide 21: Today's repayment options are numerous and complex
Today’s repayment options are numerous and complex Forbearance Deferment Discretionary Forbearance 1. School (1) • Hardship Forbearance 2. School Full-Time (2) Mandatory Forbearance 3. School Half-Time (2) • Medical or Dental Internship Residency 4. Post Enrollment (1) • Department of Defense Studen
Slide 22: We've piloted solutions to reduce complexity
We’ve piloted solutions to reduce complexity IDR eSign Enrollment PRO Plan Navient launched a pilot program focusing on past-due FFELP Navient created a personalized report to help new-to-repayment borrowers to explore whether a simpler process could produce borrowers to compare their options. bette
Slide 23: Navient delivers strong performance for borrowers
Navient delivers strong performance for borrowers Navient-serviced borrowers are 37% less likely Forbearance usage is in-line with other servicers to default Borrowers in forbearance as a percent of repayment* 10.1% 20 forbearance (%) Default rate (%) 6.8% Borrowers in 15 Navient's CDR is 37 percent
Slide 24: Funding & Liquidity
Funding & Liquidity © 2019 Navient Solutions, LLC. All rights reserved. 24
Slide 25: Q3 2019 Capital Management
Q3 2019 Capital Management Capital Return Repurchased 9.7 million common shares for $130 million • Since inception 1, returned $3.1 billion through share repurchases Paid $36 million in dividends to shareholders • Since inception 1, returned $1.1 billion through dividends The tangible net asse
Slide 26: FFELP ABS Transactions
FFELP ABS Transactions NAVSL 2019-4 NAVSL 2019-3 Pricing Date: October 16, 2019 September 17, 2019 Settlement Date: October 25, 2019 September 26, 2019 Issuance Amount: $497M $749M U.S. Government Guaranteed U.S. Government Guaranteed Collateral: FFELP Consolidation, FFELP Non-Consolidation Loans, F
Slide 27: Private Education Loan ABS Transactions
Private Education Loan ABS Transactions NAVSL 2019-F NAVSL 2019-E Pricing Date: October 17, 2019 July 23, 2019 Settlement Date: October 24, 2019 August 1, 2019 Issuance Amount: $714M $535M Collateral: Private Education Refi Loans Private Education Refi Loans Prepayment 12% Constant Prepayment Rate 1
Slide 28: Long-term Capital Allocation Philosophy
Long-term Capital Allocation Philosophy Consistently balance capital adequacy with capital allocation opportunities, including dividends, organic growth, stock repurchases and acquisitions ✓ Execute dynamic capital allocation policy to maintain appropriate leverage that supports our credit ratings a
Slide 29: Actual Cash Flows From Education Loan Portfolio Exceeding Initial Projections
Actual Cash Flows From Our Education Loan Portfolio Are Exceeding Initial Projections Projected vs. Actual Cash Flows Received Since separation, Navient has primarily used excess from June 30, 2014 to December 31, 2018 cash flows to reduce unsecured debt and return capital ($’s in Billions) to share
Slide 30: Optimized Capital Structure
Optimized Capital Structure Long-Term Conservative Funding Approach 1 Managing Unsecured Debt Maturities • Important to maintain our credit ratings which (par value, $ in billions) support ongoing access to the unsecured debt markets - We pursue opportunities to repurchase debt in the open market $7
Slide 31: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities On October 18, 2019, announced fourth- quarter make-whole call of $1 billion of unsecured debt, which is expected to reduce 2020 maturity balance to $1.1 billion (par value, $ in billions) $2.2 $2.1 $2.1 $1.8 $1.8 $1.6 $1.4 $1.4 $1.5 $1.5 $1.4 $1.4 $1.4 $0.6 $0.6 $
Slide 32: Education Loan Portfolio Generates Significant Cash Flows
Education Loan Portfolio Generates Significant Cash Flows Projected Life of Loan Cash Flows over ~20 Years Enhancing Cash Flows $’s in Billions • Generated $1.9 billion of cash flows in YTD 2019 FFELP Cash Flows 9/30/19 Secured • Paid down unsecured debt of $1.0 billion in YTD 2019 Residual (includi
Slide 33: Education loan portfolio generates meaningful cash flows over next five years
Education loan portfolio generates meaningful cash flows over the next five years Projected Annual Private Education Loan Cash Flows Projected Annual FFELP Loan Cash Flows $1.6 $1.5 $1.6 $1.4 $1.3 $1.4 $1.3 $1.2 $1.1 $1.2 $1.1 ($’s in Billions) $1.0 $1.0 ($’s in Billions) $1.0 $1.0 $0.9 $0.8 $0.8 $0
Slide 34: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable $’s in millions as of 9/30/2019 2019 2020 2021 2022 2023 2024 2025 2026 Projected FFELP Average Balance $64,663 $60,455 $54,061 $47,924 $42,202 $36,744 $31,541 $26,665 Projected Excess Spread $214 $628 $569 $508 $458 $411 $369 $349 Projected Servicing Revenue $80
Slide 35: Secured Cash Flow
Secured Cash Flow $ in Millions 3Q19YTD 2018 2017 2016 FFELP Term Securitized Servicing (Cash Paid) $ 193 $ 288 $ 314 $ 342 Net Residual1 (Excess Distributions) $ 538 583 643 624 Other Secured FFELP 2, 3 Net Cash Flow 128 706 612 503 Total FFELP $ 859 $ 1,577 $ 1,569 $ 1,469 Private Credit Term Secu
Slide 36: FFELP ABS
FFELP ABS © 2019 Navient Solutions, LLC. All rights reserved. 36
Slide 37: Recent FFELP ABS Issuance Characteristics
Recent FFELP ABS Issuance Characteristics FFELP ABS Transaction Features Collateral Characteristics • Issue size of $500M+ • Guarantee of underlying collateral insulates bondholders from most risk of • Senior and subordinate notes loss of principal 1 • Amortizing tranches with 1 to 12(+) year averag
Slide 38: FFELP Loan Program Characteristics
FFELP Loan Program Characteristics Parameter Subsidized Stafford Unsubsidized Stafford PLUS/Grad PLUS Consolidation Borrower Student Student Parents or Graduate Students Student or Parents Needs Based Yes No No N/A Federal Guarantee of Principal 97 - 100% 97 - 100% 97 - 100% 97 - 100% and Accrued In
Slide 39: Navient Stafford & PLUS Loan Prepayments
Navient Stafford & PLUS Loan Prepayments • Annualized CPRs for Stafford/PLUS ABS trusts have decreased from pre-2008 levels as incentives for borrowers to consolidate have declined • Higher prepayment activity in mid-2012 was related to the short term availability of the Special Direct Consolidation
Slide 40: Navient Consolidation Loan Prepayments
Navient Consolidation Loan Prepayments • CPRs for Consolidation ABS trusts declined significantly following legislation effective in 2006 that prevented in-school and re-consolidation of borrowers’ loans • Higher prepayment activity in mid 2012 was related to the short term availability of the Speci
Slide 41: Private Education Loan ABS
Private Education Loan ABS © 2019 Navient Solutions, LLC. All rights reserved. 41
Slide 42: Recent Private Education Loan ABS Issuance Characteristics
Recent Private Education Loan ABS Issuance Characteristics Private Education Loan ABS Transaction Features Collateral Characteristics • Issue size of $500M+ • Collateralized by loans made to students and parents to fund college tuition, room • Senior and subordinate notes and board - Seasoned assets
Slide 43: Navient Private Education Loan Programs
Navient Private Education Loan Programs Undergrad/Grad/ Direct-to-Consumer Private Education Smart Option Consolidation (Legacy) Private Education Refi Med/Law/MBA (DTC) Origination Origination Channel School School Direct-to-Consumer Lender Lender School College Graduates & Typical Borrower Student
Slide 44: Navient Private Education Trusts
Navient Private Education Trusts Navient 2015-2019 YTD Issuance Program NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV 15-A 15-B 15-C 16-A 17-A 18-A 18-B 18-C 18-D 18-E 19-A 19-B 19-C 19-D 19-E 19-F Bond Amount ($mil) 689 700 359 488 662 507 521 632 626 688 647 550 610 560 535 714 I
Slide 45: Private Education Legacy Loan Trusts – Prepayment Analysis
Navient Private Education Legacy Loan Trusts – Prepayment Analysis • Constant prepayment rates have increased since 2014 on increased seasoning-related voluntary prepayment and the emergence of the external student loan refinance market 20% Constant Prepayment Rate (CPR) 18% 16% 14% 12% 10% 8% 6% 4%
Slide 46: Navient Corporation Appendix
Navient Corporation Appendix © 2019 Navient Solutions, LLC. All rights reserved. 46
Slide 47: Navient Is Focused On Expense Efficiency
Navient Is Focused On Expense Efficiency Notable Items Impacting Total Expenses Compared to Prior Periods ($ In millions) Q3 19 Q3 18 YTD Q3 19 YTD Q3 18 Reported Core Earnings Expenses $253 $256 $753 $741 Year over Year Change in Reported Core Earnings Expenses (1%) 2% Restructuring & Reorganizatio
Slide 48: Notable Items Impacting Total Expenses Compared to Prior Year
Notable Items Impacting Total Expenses Compared to Prior Year Compared to Prior Year ($ In millions) 2018 2017 Reported Core Earnings Expenses $997 $995 Year over Year Change in Reported Core Earnings Expenses –% Restructuring & Reorganization Expenses $13 $29 Regulatory-Related Expenses $29 $14 Adj
Slide 49: GAAP Results
GAAP Results (In millions, except per share amounts) Q3 19 Q2 19 Q3 18 Net income (loss) $145 $153 $114 Diluted earnings (loss) per common share $0.63 $0.64 $0.43 Operating expenses $251 $241 $255 Provision for loan losses $64 $68 $85 Average Education Loans $89,411 $91,547 $98,689 © 2019 Navient So
Slide 50: Notes on Non-GAAP Financial Measures
Notes on Non-GAAP Financial Measures (Dollars in Millions) In addition to financial results reported on a GAAP basis, Navient also provides certain performance measures which are non-GAAP financial measures. The following non-GAAP financial measures are presented within this Presentation: 1. Core Ea
Slide 51: Differences Between Core Earnings And GAAP
Differences Between Core Earnings And GAAP Quarters Ended Core Earnings adjustments to GAAP: Sep. 30, Jun. 30, Sep. 30, (Dollars in Millions) 2019 2019 2018 GAAP net income (loss) $145 $153 $114 Net impact of derivative accounting (7) 23 12 Net impact of goodwill and acquired intangible assets 6 11
Slide 52: Investor Relations Website
Investor Relations Website www.navient.com/investors www.navient.com/abs • NAVI / SLM student loan trust data (Debt/asset backed securities – NAVI / SLM Student Loan Trusts) - Static pool information – detailed portfolio stratifications by trust as of the cutoff date - Accrued interest factors - Qua
Slide 53: Navient
NAVIENT.