Navient Corporation · NASDAQ:NAVI
Navient — Q2 2019 Earnings Presentation
53 slides from Navient's earnings presentation, Aug 5, 2019
Slide 1: 2019 2nd Quarter Investor Deck
2019 2nd Quarter Investor Deck August 5, 2019
Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures
Forward-Looking Statements; Non-GAAP Financial Measures The following information is current as of June 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”), file
Slide 3: Navient company overview
• 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 2nd Quarter Highlights (In millions, except per Q2 19 Q1 19 Q2 18 share amounts) • Adjusted Core Earnings per share of $0.74 compared to $0.52 in the year-ago quarter 2 GAAP diluted EPS $0.64 $0.52 $0.31 Adjusted Co
Slide 5: On Track to Meet or Exceed Original Target Financial Metrics
On Track to Meet or Exceed Original 1 Target Financial Metrics Key Company & Business Segment Metrics 2018 2019 Actual Original 1 Target Core Earnings Return on Equity 2 15% Mid-teens Core Earnings Efficiency Ratio 3 47% ~50% Tangible Net Asset Ratio 4 1.25x 1.23x – 1.25x Net Interest Margin – Feder
Slide 6: Federal Education Loans Segment
Federal Education Loans Segment “Core Earnings” Basis Selected Financial Information and Ratios 2nd Quarter Highlights ($ In millions) Q2 19 Q1 19 Q2 18 Federal Education Segment net interest margin 0.81% 0.80% 0.82% • Net Interest Margin: 81 basis points • Charge-off Rate: 5 basis points FFELP Loan
Slide 7: Consumer Lending Segment
Consumer Lending Segment “Core Earnings Basis” Selected Financial Information and Ratios 2nd Quarter Highlights ($ In millions) Q2 19 Q1 19 Q2 18 Consumer Lending Segment net interest margin 3.22% 3.22% 3.21% • Net Interest Margin: 3.22% • 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, $67 ~7% ~
Slide 9: Typical Private Education Refi Borrower Profile
Typical Private Education Refi Borrower Profile We serve technology first, financially responsible, digital native young professionals Typical Borrower 1 More Accurate Assessment Weighted Underwriters assess loan Average applications down to the transaction-level where available Borrower Age 32 Mont
Slide 10: Consumer Loan Segment Credit Detail
Consumer Loan Segment Credit Detail Credit Metrics Allowance for Loan Loss TDR Loans ($ in millions) 2Q 19 1Q 19 2Q 18 June 30, 2019 Total delinquencies $944 $1,014 $1,116 Ending Allow ance as ($ in millions) Allow ance Balance % of Ending Balance Total delinquency rate as a % of loans 10.8% 11.3% 1
Slide 11: Business Processing Segment
Business Processing Segment “Core Earnings” Basis Selected Financial Information and Ratios 2nd Quarter Highlights ($ In millions) Q2 19 Q1 19 Q2 18 Business Processing Government Services $40 $42 $41 • EBITDA Margin: 17% Healthcare RCM Services $25 $26 $24 Total Business Processing $65 $68 $65 • Co
Slide 12: Focused on Improving Margin and Organic Business Processing Growth
Focused on Improving Margin and Organic Business Processing Growth Well Positioned for Long-Term Growth Growing Fee Revenues at Attractive Margins • Leveraging existing infrastructure along with 40 Total Business Processing Fee Revenues years of data, analytics and processing experience ($ in millio
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 $550 $900 (11%) $500 (5%) $850 $450 $800 $400 $750 $350 $700 $300 $650 $250 $600 $200 $550 $150 $500 $100 2017 201
Slide 14: Higher Education Industry
Higher Education Industry © 2019 Navient Solutions, LLC. All rights reserved. 14
Slide 15: Federal government is the largest non-mortgage consumer lender
At $1.4 trillion in student loans, the federal government is the largest non-mortgage consumer lender • 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. • F
Slide 16: Navient's role as a student loan servicer
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: Default prevention expertise and declining 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) 2015 three-year cohort default rate measures the percent of borrowers 10.8% who defaulted on a student loan within three years of entering Navient's CDR is 35 perc
Slide 19: Struggling borrowers are often non-completers with low 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 35% less likely Forbearance usage is in-line with other servicers to default Borrowers in forbearance as a percent of repayment* 10.8% forbearance (%) 20 Borrowers in 15 Default rate (%) 7.5% Navient's CDR is 10 35 perc
Slide 24: Funding & Liquidity
Funding & Liquidity © 2019 Navient Solutions, LLC. All rights reserved. 24
Slide 25: Q2 2019 Capital Management
Q2 2019 Capital Management ✓ Capital Return Repurchased 9.6 million common shares for $126 million, $207 million in remaining authority Paid $37 million in dividends to shareholders The tangible net asset ratio 1 increased to 1.27x ✓ ABS Financing Issued FFELP ABS transaction totaling $747 m
Slide 26: FFELP ABS Transactions
FFELP ABS Transactions NAVSL 2019-2 NAVSL 2019-1 Pricing Date: April 9, 2019 January 15, 2019 Settlement Date: April 18, 2019 January 24, 2019 Issuance Amount: $747M $748M U.S. Government Guaranteed U.S. Government Guaranteed Collateral: FFELP Consolidation and Non-Consolidation Loans FFELP Consolid
Slide 27: Private Education Loan ABS Transactions
Private Education Loan ABS Transactions NAVSL 2019-D NAVSL 2019-C Pricing Date: June 19, 2019 May 7, 2019 Settlement Date: June 27, 2019 May 16, 2019 Issuance Amount: $560M $610M Collateral: Private Education Loans Private Education Refi Loans Prepayment 6% CPR 12% CPR Speed 1: Ratings Ratings Class
Slide 28: Long-term Capital Allocation Philosophy
Long-term Capital Allocation Philosophy Consistently balance capital adequacy with capital allocation opportunities, including dividends, organic growth, stock repurchases and acquisitions ✓ Execute dynamic capital allocation policy to maintain appropriate leverage that supports our credit ratings a
Slide 29: Actual Cash Flows From Education Loan Portfolio Exceeding Projections
Actual Cash Flows From Our Education Loan Portfolio Are Exceeding Initial Projections Projected vs. Actual Cash Flows Received Since separation, Navient has primarily used excess from June 30, 2014 to December 31, 2018 cash flows to reduce unsecured debt and return capital ($’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 continue to opportunistically repurchase debt in the open mar
Slide 31: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities (par value, $ in billions) $2.3 $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 $0.5 $0.5 $0.0 $0.0 $0.0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028+ As of June 30, 2018 As of June 30, 2019 Long-term Conservative Funding Approach • Unsec
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 $1.3 billion of cash flows in YTD 2019 FFELP Cash Flows 6/30/19 Secured • Paid down unsecured debt of nearly $1.0 billion in YTD Residual (inclu
Slide 33: Meaningful Cash Flows Over the 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 $1.6 $1.4 $1.4 $1.3 $1.4 $1.3 $1.2 $1.2 $1.1 $1.1 $1.2 ($’s in Billions) ($’s in Billions) $1.0 $1.0 $1.0 $0.9 $0.8 $0.7 $0
Slide 34: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable $’s in millions Remaining as of 6/30/2019 2019 2020 2021 2022 2023 2024 2025 2026 Projected FFELP Average Balance $65,705 $60,568 $54,174 $48,032 $42,313 $36,803 $31,564 $26,632 Projected Excess Spread $396 $657 $597 $537 $489 $439 $399 $377 Projected Servicing Re
Slide 35: Secured Cash Flow
Secured Cash Flow $ in Millions 2Q19YTD 2018 2017 2016 FFELP Term Securitized Servicing (Cash Paid) $ 131 $ 288 $ 314 $ 342 Net Residual1 (Excess Distributions) 362 583 643 624 Other Secured FFELP 2, 3 Net Cash Flow 105 706 612 503 Total FFELP $ 598 $ 1,577 $ 1,569 $ 1,469 Private Credit Term Securi
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 $500M+ • Collateralized by loans made to students and parents to fund college tuition, room • Senior and subordinate notes and board - Seasoned assets
Slide 43: Navient Private Education Loan Programs
Navient Private Education Loan Programs Undergraduate/Graduate/ Smart Option Direct-to-Consumer (DTC) Consolidation (Legacy) Private Education Refi Med/Law/MBA Origination Channel School School Direct-to-Consumer Lender Lender College Graduates & Select Typical Borrower Student Student Student Colle
Slide 44: Navient Private Education Trusts
Navient Private Education Trusts Navient 2015-2019 YTD NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV Issuance Program 15-A 15-B 15-C 16-A 17-A 18-A 18-B 18-C 18-D 18-E 19-A 19-B 19-C 19-PTA 19-D 19-E Bond Amount ($mil) 689 700 359 488 662 507 521 632 626 688 647 550 610 - 560 535 I
Slide 45: Private Education Loan Trusts Prepayment Analysis
Navient Private Education 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 18% Constant Prepayment Rate (CPR) 16% 14% 12% 10% 8% 6% 4% 2% 0% 2002
Slide 46: Navient Corporation Appendix
Navient Corporation Appendix © 2019 Navient Solutions, LLC. All rights reserved. 46
Slide 47: Notable Items Impacting Total Expenses Compared to Prior Period
Notable Items Impacting Total Expenses Compared to Prior Period Compared to Prior Period ($ In millions) Q2 19 Q2 18 YTD Q2 19 YTD Q2 18 Reported Core Earnings Expenses $242 $203 $499 $485 Year over Year Change in Reported Core Earnings Expenses 19% 3% Restructuring & Reorganization Expenses $1 $2 $
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) Q2 19 Q1 19 Q2 18 Net income (loss) $153 $128 $83 Diluted earnings (loss) per common share $0.64 $0.52 $0.31 Operating expenses $241 $256 $201 Provision for loan losses $68 $76 $112 Average Education Loans $91,547 $93,987 $101,490 © 2019 Navient S
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: Jun. 30, Mar. 31, Jun. 30, (Dollars in Millions) 2019 2019 2018 GAAP net income (loss) $153 $128 $83 Net impact of derivative accounting 23 6 $51 Net impact of goodwill and acquired intangible assets 11 7 6
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.