Navient Corporation · NASDAQ:NAVI
Navient — Q4 2018 Earnings Presentation
52 slides from Navient's earnings presentation, Feb 26, 2019
Slide 1: 2018 4th Quarter and Full Year Investor Deck
NAVIENT. 2018 4 Quarter and Full Year Investor Deck February 26, 2019
Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures
Forward-Looking Statements; Non-GAAP Financial Measures The following information is current as of December 31, 2018 {unless otherwise noted) and should be read in connection with Navient Corporation's (Navient) Annual Report on Form 10: for the year ended December 31, 2018 (the “2018 Form 10-K") fi
Slide 3: Navient company overview
NAVIENT. « 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
Slide 4: Operating Results
Operating Results “Core Earnings *” Basis {In millions, except per share amounts) | Qai7 2018 2017 GAAP diluted EPS $0.28 ($0.32) $1.49 $1.04 Adjusted Core Earnings EPS? $0.58 $0.43 $2.09 $1.79 Restructuring and regulatory-related ($0.03) ($0.08) ($0.13) ($0.10) expenses DTA Remeasurement Loss = ($0
Slide 5: Establishing Clear Targets to Measure Success
Establishing Clear Targets to Measure Success Key Comp: & Business Segment Metrics 2019 Target Core Earnings Return on Equity * 15% Mid-teens Core Earnings Efficiency Ratio 2 47% ~50% Tangible Net Asset Ratio * 1.25x 1.23x -1.25x Net Interest Margin — Federal Education Loan ee Segment 0.83% Low to M
Slide 6: Federal Education Loans Segment
Federal Education Loans Segment Core Earnings Basis In this segment, Navient holds and acquires FFELP loans and performs servicing and asset recover own loan portfolio, federal education loans owned by the U.S. Department of Education and other institutions. Segment net interest margin 0.86% 0.87% 0
Slide 7: Consumer Lending Segment
Consumer Lending Segment Core Earnings Basis In this segment, Na ates and acquires consumer loans and performs servicing a ies on its own loan portfolio. ‘Segment net interest margin 3.18% 3.31% 3.24% 3.33% 3.41% Private Education Loans (including Refinance Loans): Provision for loan losses $75 $97
Slide 8: Originating Education Loans is an Attractive Opportunity
Originating Education Loans is an Attractive Opportunity Sizable Market With Attractive Yields * Estimated Outstanding Education Loan Market ? Estimated Total Market Annual Originations and Yields $1.5 Trillion as of FFYE 9/30/2018 ($'s in billions) (S's in billions) $12 $12 $11 Grad PLUS, 76% ~8% P
Slide 9: Typical Private Education Refi Borrower Profile
Typical Private Education Refi Borrower Profile Typical Borrower More Accurate Assessment Weighted Underwriters assess loan Average applications down to the transaction level where available Borrower Age 33 Months since Graduation 78 Education 68% advanced degrees FICO 763 Income $133,722 Monthly Re
Slide 10: Consumer Loan Segment Credit Detail
Consumer Loan Segment Credit Detail Delinquency & Forbearance Usage 218_| 2017 TDR Loans ($ in millions) Total delinquencies Total delinquency rate as a % of loans in repayment Loans delinquent greater than 90 days Greater than 90 days delinquency rate Forbearance Forbearance rate Non-TDR Loans (S i
Slide 11: Business Processing Segment
Business Processing Segment Core Earnings Basis ($'s in millions) FY 2018 FY 2017 FY 2016 Government Services $174 Healthcare RCM Services $25 $22 $93 $78 $68 Total Business Processing $66 $60 ‘$267 $212 $174 Revenue Operating Expenses $57 $55 $229 $187 $149 EBITDA * $10 $6 $44 $28 $27 EBITDA Margin
Slide 12: Focused on Improving Margin and Organic Business Processing Growth
Focused on Improving Margin and Organic Business Processing Growth Well Positioned for Long-Term Growth + Leveraging existing infrastructure along with 40 years of data, analytics and processing experience to deliver best in class performance and compliance + Providing business processing services f
Slide 13: Navient Is Focused On Expense Efficiency
Navient Is Focused On Expense Efficiency Full-Year Adjusted Core Earnings 4Q Adjusted Core Expenses Earnings Expenses ($’s in Millions) ($’s in Millions) $950 $260 (14%) $900 NX $240 (14%) $850 $220 NN $800 $200 $750 $180 $700 $650 $160 $600 $140 $550 $120 $500 $100 2017 2018 4Q17 4Q18 Continued to
Slide 14: Higher Education Industry
Higher Education Industry
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: Navient helps borrowers successfully repay their loans
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. Congress sets product terms and inclu
Slide 17: Five Recommendations for Better Student Loans
Five Recommendations for Better Student Loans @ Providing better information before borrowing @ Improving the college completion rate ® Simplifying repayment @ Helping borrowers pay off faster ® Encouraging borrower contact with servicers For adivona information, please read five Recommencations for
Slide 18: Default prevention expertise and the decline of 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) 2015 three-year cohort default rate measures the percent of borrowers 10.8% who defaulted on a student loan within three years of entering aver s COR is percent lo
Slide 19: Borrowers who struggle most 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 ..
Slide 20: In 1990, there were two repayment plans
In 1990, there were two repayment plans, and the most complex area was deferment Forbearance Discretionary Forbearance + Hardship Forbearance Repayment Plans 1. Standard 2. Graduated Contdentiat ane proprietary information © 2019 Navient Selutens, LLC: All its reserved. Deferment 44 12. 13 School Fu
Slide 21: Today's repayment options are numerous and complex
Today’s repayment options are numerous and complex Forbearance Deferment Discretionary Forbearance + Hardship Forbearance ‘School Full-Time (2) Mandatory Forbearance ‘School Half-Time (2) Medical or Dental internship Residency Department of Defense Student Loan Repayment T 2. 3. 4, Post Enrollment (
Slide 22: We've piloted solutions to reduce complexity
We've piloted solutions to reduce complexity IDR eSign Enrollment Pilot Navient launched a pilot program focusing on past-due FFELP borrowers to explore whether a simpler process could produce better results. Under the pilot, we made contact with the borrower, gathered salary and family information
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 10.8% Borrowers in forbearance as a percent of repayment” 20 15 10 javient's CDR is 35 percent lower than all others Default rate (%) Borrower
Slide 24: Funding & Liquidity
Funding & Liquidity
Slide 25: Q4 2018 Capital Management
Q4 2018 Capital Management Capital Return @ Repurchased 10.6 million common shares for $125 million in the quarter, leaving $440 million in remaining authority @ Returned $40 million in dividends to shareholders @ The tangible net asset ratio’ increased to 1.25x from 1.20x, in the year ago quarter U
Slide 26: FFELP ABS Transactions
FFELP ABS Transactions NAVSL 201 NAVSL 2018-4 Pricing Date: January 15, 2019 September 10, 2018 Settlement Date: January 24, 2019 September 20, 2018 Issuance Amount: $748M $992M Collateral: US Govt. Guaranteed US Govt. Guaranteed . FFELP Stafford, Plus and Consolidation Loans FFELP Stafford, Plus an
Slide 27: Navient Private Education Loan ABS Transactions
Navient Private Education Loan ABS Transactions Pricing Date: February 11, 2019 Settlement Date: February 21, 2019 Issuance Amount: ‘$647M Collateral: Private Education Refi Loans Prepayment Speed *: 12% CPR Tranching: Expected. Class Rating «Amt (M) WAL? (S0)" AT ARAIABA $316 128 AZA AAAIABA $2228.
Slide 28: Long-term Capital Allocation Philosophy
Long-term Capital Allocation Philosophy Consistently balance capital adequacy with capital allocation opportunities, including dividends, organic growth, stock repurchases and acquisitions v Execute dynamic capital allocation policy to maintain appropriate leverage that supports our credit ratings a
Slide 29: Returning Excess Cash Flows to Equity Holders and Paying Down Debt
Navient Continues to Return Excess Cash Flows to Equity Holders and Paydown Unsecured Debt Historical Use of Exceus Cash Flows June 30, 2014 to December 31, 2018 January 1, 2019 to December 31, 2019 ($’s in Billions) ($’s in Billions) $1.5Bn 89% = Reduction of Unsecured Debt = Reduction of Unsecured
Slide 30: Optimized Capital Structure
Optimized Capital Structure Long-Term Conservative Funding Approach Managing Unsecured Debt Maturities + Important to maintain our credit ratings which support ongoing access to the unsecured debt markets - Navient holds a stable outlook with all 3 credit rating agencies - We continue to opportunist
Slide 31: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities (par value, $ in billions) $0.0 $0.0 $24 $2.4 $2.4 $1.8 $1.8 $1.4 $4.4 $1.5 $1.5 $4.4 $1.4 $0.8 $0.6 $0.6 _ -s 2019 2020 2021 2022 2024 2025 2026 wAs of December 31,2017 —_ mAs of December 31, 2018 2027 S15 $4.5 2028+ Long-term Conservative Funding Approach + Impor
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 $2.6 billion of cash flows in 2018 FFELP Cash Flows 12131118 Secured + Reduced unsecured debt by $2.5 billion in 2018 Residual (including O/C) $
Slide 33: Education Loan Portfolio 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 $2.5 $2.5 $2.0 $2.0 $2.0 z $s ? Ss 1.5, 1.5, a $1.3 $12 2 oa o £ $1.0 = $1.0 2 2 2 e $0.5 $0.5 T i $0.0 + $0.0 + 2019 2020 2021
Slide 34: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable $'s in millions as of 12/31/2018 2019 2020 2021 2022 2023 2024 2025 2026 Projected FFELP Average Balance $67,862 $61,159 $54,734 $48,612 $42,772 $37,048 $31,606 $26,472 rojected Excess Spread $755 $655 $597 $542 $497 $441 $413 $380 rojected Servicing Revenue $347
Slide 35: Secured Cash Flow
Secured Cash Flow FFELP Term Securitized Servicing (Cash Paid) $ 288 «$ 314 $ 342 $ 387 Net Residual’ (Excess Distributions) 583 643 624 724 Other Secured FFELP Net Cash Flow ** 706 612 503 244 Total FFELP $ 1577 _ $ 1,569 $ 1,469 _$ 1,354 Private Credit Term Securitized Servicing (Cash Paid) $s 147
Slide 36: FFELP ABS
FFELP ABS
Slide 37: Recent FFELP ABS Issuance Characteristics
Recent FFELP ABS Issuance Characteristics FFELP ABS Transaction Features Collateral Characteristics + Issue size of $500M to $1.0B + Insurance or guarantee of underlying collateral insulates bondholders from + Denominated in US$ most risk of loss of principal ' + Senior and subordinate notes * Typic
Slide 38: FFELP Loan Program Characteristics
FFELP Loan Program Characteristics Subsidized Stafford Unsubsidized Stafford | PLUS/Grad PLUS Consolidation Borrower Student ‘Student Parents or Graduate Students Needs Based Yes No No Federal Guarantee of Principal anid ‘Accrued Interest ‘97 - 100% 97 - 100% 97 - 100% Interest Subsidy Payments Yes
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
Slide 42: Recent Navient Private Education Loan ABS
Recent Navient Private Education Loan ABS Issuance Characteristics Private Education Loan ABS Transaction Features + Issue size of $500M to $750M + Senior and subordinate notes + Amortizing tranches with 1 to 10 year average lives + Fixed rate or floating rate tied to 1 month LIBOR * Compliant with
Slide 43: Navient Private Education Loan Programs
Navient Private Education Loan Programs F | sraopion | 2 Origination Channel School Direct-to-Consumer Lender Lender A College Graduates & Select Typical Borrower Student Student College Graduates Roonaaise ‘Typical Co-signer Parent Parent Parent Parent, as applicable $10k avg orig bal, 10 yr avg '$
Slide 44: Navient Private Education Trusts
Navient Private Education Trusts 2014-2019 YTD ie Issuance Program bead ‘Send Amount ($m) ee Initial ARA Enhancement (%) 30% 30% = 32% 0% 28H TEKH HH Intial Enhancement (%) 17% 22% «23% 38H Loan Program (%) ‘SignatureiLawMBAMed 0% = 20% 27% BRIANA Smart Option 0% = 50% 51% OM Ce ee 9 Consolidation 0
Slide 45: Navient Private Education Loan Trusts Prepayment Analysis
Navient Private Education Loan Trusts — Prepayment Analysis * Constant prepayment rates have increased since 2014 on increased seasoning-related voluntary prepayment and the emergence of the external student loan refinance market 16% BoB ex 8 Constant Prepayment Rate (CPR) ° 2 PPS FP FHS SF FPF SS O
Slide 46: Appendix
Navient Corporation Appendix
Slide 47: Navient Is Focused On Expense Efficiency
Navient Is Focused On Expense Efficiency ($ In millions) 0418 Q417 2018 | 2017 Reported Core Earnings Expenses $256 ‘$289 $997 $995, ——— eS Restructuring & Reorganization Expenses $4 $29 $13 $29 Regulatory-Related Expenses $8 $3 $29 $14 Duncan & Earnest Operating Expenses $22 $22 $100 $30 39 Party T
Slide 48: GAAP Results
GAAP Results (In millions, except per share amounts) 418 Net income (loss) $72 Diluted earnings (loss) per common share $0.28 Operating expenses $252 Provision for loan losses $85 Average Education Loans $96,380 Consent! and proprietary information © 2019 Navient Solutions, LLC. All ights reserved:
Slide 49: 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: 4s 4 5. E
Slide 50: Differences Between Core Earnings And GAAP
Differences Between Core Earnings And GAAP Quarters Ended Years Ended Core Earnings adjustments to GAAP: Dec. 31, Dec. 31, Dec. 31, Dec. 31, (Dollars in Millions) 2018 2017 2018 2017 GAAP net income (loss) $72 (84) $395 $292 Net impact of derivative accounting 59 (47) 90 (45) Net impact of goodwill
Slide 51: Investor Relations Website
Investor Relations Website www.navient.com/investors www.navient.com/abs Beginning November 5, 2018, Cohort Default Triangles can be found at navient.com/about/investors/debtasset + NAVI/ SLM student loan trust data (Debt/asset backed securities —- NAVI / SLM Student Loan Trusts) Static pool informa
Slide 52: Navient
NAVIENT.