Navient Corporation · NASDAQ:NAVI
Navient — Q2 2014 Earnings Presentation
55 slides from Navient's earnings presentation, Aug 4, 2014
Slide 1: 2014 2nd Quarter Investor Deck
Exhibit 99.1 2014 2nd Quarter Investor Deck August 4, 2014
Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures
Forward-Looking Statements; Non-GAAP Financial Measures The following information is current as of August 4, 2014 (unless otherwise noted) and should be read in connection with the Registration Statement on Form 10, as amended (the “Form 10”), filed by Navient Corporation (“Navient”) with the Securi
Slide 3: Navient Corporation Overview
Navient Corporation Overview Confidential and proprietary information © 2014 Navient Solutions, Inc. All rights reserved. 3
Slide 4: About Us, Key Businesses, Financial Statistics
About Us We are the leading education loan management, servicing and asset recovery company Key Businesses • FFELP Loan Portfolio • Private Education Loan Portfolio • Largest Education Loan Servicer (FFELP, ED, private) • Asset Recovery Services • Guarantor Servicing • Student Assistance and Outreac
Slide 5: Operating Results "Core Earning" Basis
Operating Results “Core Earning” Basis (In millions, except per share amounts) Q2 14 Q1 14 Q2 13 Net income $241 $142 $447 EPS $0.56 $0.33 $1.00 Adjusted EPS1,2 $0.56 $0.49 $0.52 Operating expenses (excluding remediation reserve¹) $195 $207 $185 Provision $155 $146 $202 Average total student loans $
Slide 6: FFELP Loans Segment "Core Earnings" Basis
FFELP Loans Segment “Core Earnings” Basis (In millions) Q2 14 Q1 14 Q2 13 Net income $72 $64 $238 Average FFELP Loans $100,467 $102,329 $112,891 FFELP Loan spread 0.98% 0.95% 0.97% Charge-off rate 0.08% 0.12% 0.10% Greater than 90-day delinquency rate 7.0% 7.3% 8.1% • $257 million pre-tax gain from
Slide 7: FFELP Loans Segment Portfolio Characteristics
FFELP Loans Segment Portfolio Characteristics • Largest holder of FFELP Loans, $100 billion portfolio • 97-98% of portfolio is government guaranteed • 86% of portfolio funded to term with securitizations • Fully integrated servicing and asset recovery support operations Confidential and proprietary
Slide 8: FFELP Loans Segment Credit Quality
FFELP Loans Segment Credit Quality “Core Earnings” Basis FFELP Education Loan Portfolio June 30, 2014 June 30, 2013 Balance % Balance % Loans in-school/grace/deferment $11,794 $15,120 Loans in forbearance 14,929 15,018 Loans in repayment and percentage of each status Loans current 61,438 85.2% 64,26
Slide 9: Federal Student Loan Market
Federal Student Loan Market Outstanding Government Student Loan Market Distribution FFYE 9/30/2013 ($ in billions) FFELP owned by ED, $146 FFELP owned by Navient, $106 FDLP, $614 FFELP Loans, $158 Source: Department of Education, U.S. Department of Education FY 2013 Agency Financial Report, Navient
Slide 10: Top Holders of FFELP Loans Excluding Navient
Top Holders of FFELP Loans Excluding Navient Top Ten Not-For-Profit Holders of FFELP Loans Top Ten For-Profit Holders of FFELP Loans Lender $’s in Billions Lender $’s in Billions Brazos $8.7 Nelnet $25.2 PHEAA $7.3 Wells Fargo $12.9 Access Group $4.1 Chase $7.5 Northstar $3.4 PNC $6.1 CLC $5.7 MOHEL
Slide 11: Private Education Loans Segment "Core Earnings" Basis
Private Education Loans Segment “Core Earnings” Basis (In millions, except FICO score) Q2 14 Q1 14 Q2 13 Net income $86 $74 $61 Average Private Education Loans $31,408 $31,525 $32,619 Private Education Loan spread 4.10% 4.01% 4.10% Provision for loan losses $145 $136 $189 Charge-offs $166 $218 $212
Slide 12: Private Education Loans Segment Portfolio Characteristics
Private Education Loans Segment Portfolio Characteristics • $30 billion portfolio • 23% of Navient’s total student loan portfolio • Approximately 64% of portfolio has a cosigner, typically a parent • Average FICO at origination of 718 • Higher education loans typically non-dischargeable in bankruptc
Slide 13: Private Education Loans Segment Credit Quality
Private Education Loans Segment Credit Quality “Core Earnings” Basis Private Education Loan Portfolio June 30, 2014 June 30, 2013 Balance % Balance % Loans in-school/grace/deferment $3,375 $3,599 Loans in forbearance 1,201 1,156 Loans in repayment and percentage of each status Loans current 25,202 9
Slide 14: Private Education Loans Segment High Quality Portfolio
Private Education Loans Segment High Quality Portfolio Private Credit: % of Portfolio Outstanding by Segment Private Credit Charge-Off Rate by Segment 100% 25% 11% 11% 10% 9% 8% 14% 13% 21.3% 90% 80% 25% 25% 20% 27% 29% 29% 17.3% 28% 29% 70% 60% 15% 12.6% 50% 11.1% 10.4% 9.4% 40% 10% 8.2% 64% 66% 67
Slide 15: Private Education Loans Segment Default Performance
Private Education Loans Segment Default Performance Historical Defaults by Payments Made 92% 94% 96% 98% 99% 99% 100% 100% 88% 90% 84% 86% 80% 76% 69% 57%57% 50% 11% 7% 5% 3% 3% 2% 2% 2% 2% 2% 2% 1% 1% 1% 0% 12 24 36 48 60 72 84 96 108 120 132 144 156 168 180 # Payments Made Defaults Per Payments Ma
Slide 16: Loan Seasoning – Core Earnings Basis (June 30, 2014)
Loan Seasoning – “Core Earnings” Basis June 30, 2014 Traditional Portfolio Monthly Scheduled Payments Due Loan Status 0-12 payments 13-24 payments 25-36 payments 37-48 payments More than 48 payments Total Not Yet in Repayment 3,036 Loans in Forbearance 461 17.5% 178 4.8% 153 3.6% 114 2.6% 153 1.4% 1
Slide 17: Loan Seasoning – Core Earnings Basis (June 30, 2013)
Loan Seasoning – “Core Earnings” Basis June 30, 2013 Traditional Portfolio Monthly Scheduled Payments Due Loan Status 0-12 payments 13-24 payments 25-36 payments 37-48 payments More than 48 payments Total Not Yet in Repayment 3,203 Loans in Forbearance 496 10.2% 169 3.8% 148 3.0% 86 1.9% 113 1.3% 1,
Slide 18: Business Services Segment "Core Earnings" Basis
Business Services Segment “Core Earnings” Basis (In millions) Q2 14 Q1 14 Q2 13 Net income $130 $116 $168 Federal loans serviced ($’s in billions) $272 $271 $245 Third-party loan servicing revenue $40 $40 $33 Asset recovery revenue $132 $111 $109 Department of Education accounts serviced 5.8 5.8 5.2
Slide 19: Business Services Segment Federal Loan Servicing & Customer Success
Business Services Segment Federal Loan Servicing & Customer Success Federal Loans Serviced by Navient $300 • Largest servicer of federal student loans • Federal loans serviced by Navient have a 30% $275 better cohort default rate • Direct Loan borrowers serviced by Navient are $250 more likely to be
Slide 20: Business Services Segment Asset Recovery
Business Services Segment Asset Recovery Contingency Asset Recovery Receivables $18 • Requires little capital and generates high returns on equity $16 $14 • Consistent top performer on the Department of Education collections contract $12 • Successfully performing on over 300 state, local $10 and fed
Slide 21: Funding and Liquidity
Funding and Liquidity Confidential and proprietary information © 2014 Navient Solutions, Inc. All rights reserved. 21
Slide 22: 2014 Capital Markets Summary
2014 Capital Markets Summary • Issued $2.7 billion of FFELP ABS • Closed on an $8 billion FFELP ABCP facility • Refinanced $1.1 billion of FFELP reset notes to term • Issued $1.1 billion of Private ABS • Closed on a $1 billion Private ABCP facility • Issued $850 million of long-term unsecured debt •
Slide 23: Secured Funding
Secured Funding 2013 Issuance Issuer Total ($mm) Asset Class • Navient is among the largest issuers 1 Citi 12,325 Credit Card of ABS globally, having issued over 2 Ford 12,080 3 Navient(1) 9,600 Auto Student Loan $250 billion of Private and FFELP 4 Chase 7,685 Credit Card ABS transactions to date 5
Slide 24: Recent FFELP ABS Transactions
Recent FFELP ABS Transactions Issue $747M NAVSL Trust 2014-1 $992M SLM Trust 2014-2 $994M SLM Trust 2014-1 Pricing Date May 20, 2014 March 18, 2014 January 15, 2014 Collateral US Govt. Guaranteed or Insured US Govt. Guaranteed or Insured US Govt. Guaranteed or Insured FFELP Stafford, Plus and FFELP
Slide 25: Recent Private Education Loan ABS Transactions
Recent Private Education Loan ABS Transactions Issue $463M NAVSL Trust 2014-CT $676M SLM Trust 2014-A $624M SLM Trust 2013-C Pricing Date July 15, 2014 February 25, 2014 September 18, 2013 Collateral Private Education Loans Private Education Loans Private Education Loans Prepayment Speed (1) 6% 4% 4
Slide 26: Unsecured Debt
Unsecured Debt Maturity Table As of June 30, 2014 (par value, $ in billions) $4.5 $2.8 $2.3 $2.5 $1.8 $1.5 $1.6 $0.6 $0.1 2014 2015 2016 2017 2018 2019 2020 2021 2022+ Fitch Moody’s S&P Senior Unsecured Debt BB Ba3 BB Outlook Stable Stable Stable Confidential and proprietary information © 2014 Navie
Slide 27: Education Loan Portfolio Generates Significant Cash Flows
Education Loan Portfolio Generates Significant Cash Flows Projected Life of Loan Cash Flows* As of June 30, 2014 • Over $36 billion of estimated future cash flows FFELP Cash Flows - Highly predictable Secured Residual (including O/C) $7.1 - Includes ~$11 billion of overcollateralization to be releas
Slide 28: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable as of 6/30/14 2H 2014 2015 2016 2017 2018 2019 2020 2021 Projected FFELP Average Balance $95,247 $89,240 $80,752 $72,614 $65,178 $57,821 $50,777 $44,106 Projected Excess Spread $406 $843 $800 $712 $646 $575 $501 $448 Projected Servicing Revenue $256 $489 $451 $413
Slide 29: Secured Cash Flow
Secured Cash Flow $ in Millions 2Q14 YTD 2013 2012 2011 FFELP Term Securitized Servicing (Cash Paid) $ 244 $ 507 $ 526 $ 563 Net Residual* (Excess Distributions) 319 476 628 715 Other Secured FFELP Net Cash Flow 66 1,199 934 568 Total FFELP $ 629 $ 2,182 $ 2,088 $ 1,846 Private Credit Term Securitiz
Slide 30: FFELP ABS Appendix
FFELP ABS Appendix Confidential and proprietary information © 2014 Navient Solutions, Inc. All rights reserved. 30
Slide 31: Recent FFELP ABS Issuance Characteristics
Recent FFELP ABS Issuance Characteristics FFELP ABS Transaction Features Collateral Characteristics • Issue size of $500M to $1.5B • Insurance or guarantee of underlying collateral insulates bondholders from • Tranches or pass-through denominated in virtually any loss of principal (1) US$ • Typicall
Slide 32: FFELP Loan Program Characteristics
FFELP Loan Program Characteristics Unsubsidized Parameter Subsidized Stafford Unsubsidized Stafford PLUS/Grad PLUS Subsidized Consolidation Consolidation Parents or Graduate Borrower Student Student Student or Parents Student or Parents Students Needs Based Yes No No N/A N/A Federal Guarantee of Pri
Slide 33: Navient Stafford & PLUS Loan Prepayments
Navient Stafford & PLUS Loan Prepayments • Annualized CPRs for Stafford/PLUS ABS trusts have decreased significantly as incentives for borrowers to consolidate have declined • After a temporary increase in mid 2012 due to the Special Direct Consolidation Loan program, CPRs decreased in the fourth qu
Slide 34: 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 • After a temporary increase in mid 2012 due to the Special Direct Consolidation Loan program, C
Slide 35: Private Education Loan ABS Appendix
Private Education Loan ABS Appendix Confidential and proprietary information © 2014 Navient Solutions, Inc. All rights reserved. 35
Slide 36: 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 to $1.5B • Collateralized by loans made to students and parents to fund college tuition, room • Triple-A rated senior notes, Single-A and board
Slide 37: Navient Private Education Loan Programs
Navient Private Education Loan Programs Undergraduate/Graduate/ Smart Option Med/Law/MBA Direct-to-Consumer (DTC) Consolidation Career Training Origination Channel School School Direct-to-Consumer Lender School Typical Borrower Student Student Student College Graduates Student Typical Co-signer Pare
Slide 38: Navient Private Education Trusts
Navient Private Education Trusts 09-CT 10-A 10-B 10-C 11-A 11-B 11-C 12-A 12-B 12-C 12-D 12-E 13-A 13-B 13-C 14-A 14-CT Bond Amount ($mil) 590 1,550 869 1,701 562 825 721 547 891 1,135 640 976 1,108 1,135 624 676 463 Initial AAA Enhancement (%) 37% 23% 45% 37% 21% 18% 24% 27% 26% 25% 25% 21% 26% 22%
Slide 39: Navient Private Education Loan Trusts – Prepayment Analysis
Navient Private Education Loan Trusts – Prepayment Analysis • Constant prepayment rates increased in 2007 due to the introduction of Private Education Consolidation loans, then declined following SLM’s decision to suspend its consolidation loan program in 2008 14 12 10 8 6 4 2 0 2002-A 2003-A 2003-B
Slide 40: Cohort Default Triangles
Cohort Default Triangles • The following cohort default triangles provide loan performance information for certain Private Education Loans of Navient Corporation and its consolidated subsidiaries that meet such subsidiaries’ current securitization criteria (including those criteria listed below): -
Slide 41: Cohort Default Triangles
Cohort Default Triangles • The cohort default triangles featured on subsequent slides are segmented by loan program type, FICO score, cosigner status, and school type • Terms and calculations used in the cohort default triangles are defined below: - Repayment Year – The calendar year loans entered r
Slide 42: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) Disbursed Principal Entering Periodic Defaults by Years in Repayment (2),(3) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $11 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.4% 0.8% 0.4% 0.2% 1.5% 0.7% 0.4% 0.3% 0.0% 0.1% 5.0% 1999
Slide 43: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate (1) With Co-signer Disbursed Principal Entering Periodic Defaults by Years in Repayment (2),(3) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $6 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.6% 1.0% 0.4% 0.0% 0.2% 1.1% 0.1% 0.0% 0.0%
Slide 44: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) Non-Profit Disbursed Principal Entering Periodic Defaults by Years in Repayment (2),(3) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $11 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.4% 0.4% 0.4% 0.2% 1.1% 0.7% 0.3% 0.3% 0.0% 0.1
Slide 45: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate (1) Loans, FICO 740-850 (2) Disbursed Principal Entering Periodic Defaults by Years in Repayment (3),(4) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $3 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.4% 0.4% 0.9% 0.9% 0.0%
Slide 46: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) Loans, FICO 670-699 (2) Disbursed Principal Entering Periodic Defaults by Years in Repayment (3),(4) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $3 0.0% 0.0% 0.0% 0.0% 0.0% 0.6% 0.6% 0.3% 0.5% 0.3% 2.8% 0.0% 0.5% 0
Slide 47: Cohort Default Triangles
Cohort Default Triangles Private Consolidation Loans With Co-signer Disbursed Principal Entering Periodic Defaults by Years in Repayment (1),(2) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 Total 2006 $249 0.0% 0.1% 0.1% 0.5% 0.6% 0.6% 0.4% 0.3% 0.3% 0.0% 2.9% 2007 $675 0.0% 0.0% 0.2% 0.4% 0.6%
Slide 48: Cohort Default Triangles
Cohort Default Triangles DTC With Co-signer, FICO 670(1) Disbursed Principal Entering Periodic Defaults by Years in Repayment (2),(3) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 Total 2004 $8 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.1% 0.4% 0.0% 0.2% 0.0% 0.0% 0.9% 2005 $65 0.0% 0.1% 0.8% 0.7% 1.
Slide 49: Cohort Default Triangles
Cohort Default Triangles Career Training Loans, 670+ FICO (1) Disbursed Principal Entering Periodic Defaults by Years in Repayment (2),(3) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 Total 2003 $291 0.0% 0.4% 1.4% 1.6% 1.8% 1.4% 1.3% 1.0% 0.8% 0.5% 0.4% 0.2% 0.0% 11.0% 2004 $382 0.0%
Slide 50: Navient Corporation Appendix
Navient Corporation Appendix Confidential and proprietary information © 2014 Navient Solutions, Inc. All rights reserved. 50
Slide 51: GAAP Results
GAAP Results (In millions, except per share amounts) Q2 14 Q1 14 Q2 13 Net income $307 $219 $543 EPS $0.71 $0.49 $1.20 Operating expenses $211 $366 $244 Provision $165 $185 $201 Average total student loans $134,737 $142,679 $152,135 Confidential and proprietary information © 2014 Navient Solutions,
Slide 52: Differences between "Core Earnings" and GAAP
Differences between “Core Earnings” and GAAP Quarter ended June 30, 2014 ($ in millions) “Core Earnings” adjustments to GAAP: GAAP net income $ 307 Net impact of SLM BankCo 36 Net impact of derivative accounting (150) Net impact of goodwill and acquired intangible assets 2 Net income tax effect 46 T
Slide 53: Changes for Investors
Changes for Investors A consistent platform, team, and management Before Separation After Separation Parent Company SLM Corporation Navient Corporation Headquarters Newark, DE Newark, DE Issuing Entity SLM Student Loan Navient Student Loan Trust 201X-A Trust 201X-A SLABS Bloomberg Ticker SLMA NAVSL
Slide 54: Investor Relations Website
Investor Relations Website https://www.navient.com/about/investors/ SLM / NAVI student loan trust data (Debt/asset backed securities – SLM / NAVI Student Loan Trusts) Static pool information – detailed portfolio stratifications by trust as of the cutoff date Accrued interest factors Quarterly distri
Slide 55: NAVIENT
NAVIENT