Navient Corporation · NASDAQ:NAVI
Navient — Q4 2020 Earnings Presentation
53 slides from Navient's earnings presentation, Mar 1, 2021
Slide 1: 2020 4th Quarter Investor Deck
2020 4th Quarter Investor Deck March 1, 2021
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, 2020 (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, 2020 (the “2020 Form 10-K”),
Slide 3: Leader in education loan management and business processing solutions
We are the 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, leveraging our 45+ years
Slide 4: Delivering Long-term Value to Shareholders
Delivering Long-term Value to Shareholders Federal Education Loans Consumer Lending Segment Business Processing Segment Segment Providing payment relief to Originated $4.6 billion of Leveraged our technology borrowers impacted by Private Education Refinance enabled platform to win new COVID-19
Slide 5: Actual Cash Flows From Our Education Loan Portfolio Have Exceeded Projections
Actual Cash Flows From Our Education Loan Portfolio Have Exceeded Projections Actual Cash Flows Continue to Prudent Investment of Cash Flows Exceed Projections 1 Drives Margins and Creates Value December, 2017 to December 31, 2020 Cash flows generated Q4 2017 - Q4 2020 ($’s in Billions) were investe
Slide 6: Lifetime Cash Flows Will Exceed Original Projections
Lifetime Cash Flows Will Exceed Original Projections Navient’s student loan portfolios continues to exceed expectations 1 ($’s in Billions) $21.9 Life of Loan Projections Q4 2017 Q4 2020 $8.3 Net Cash Flow Total FFELP Cash Flows $12.7 $8.3 Projection at Q4 2020 Total Private Education Cash Flows $15
Slide 7: Originating Education Loans is An Attractive Opportunity
Originating Education Loans is An Attractive Opportunity Sizable Market With Attractive Yields1 Leveraging Our Existing Infrastructure to Generate Value Estimated Total Market Annual Originations and Yields ($’s in billions) • Private Education Refinance Loans: Grad PLUS - Using our data and experti
Slide 8: Growing Earnings and Generating Shareholder Value
Growing Earnings and Generating Shareholder Value Driving EPS Accretion for Shareholders Delivering Value Adjusted Core EPS Long-term value for shareholders driven by $3.40 consistent earnings and capital return Allocating capital to attractive investments, $2.64 including portfolio acquisitions
Slide 9: Navient is Focused on Cost Efficiency
Navient is Focused on Cost Efficiency Industry-leading Efficiency Continuously Rationalizing Our Expense Base Innovative financing reduces interest expense, Focused on reducing expenses and improving maximizing cashflow and shareholder value efficiency across our businesses Continue to drive s
Slide 10: Asset Generation Drives Meaningful Returns
Asset Generation Drives Meaningful Returns Since 2014 Separation 1 Originated Loan Our competitive franchise, with its highly attractive return Originations $12+ billion of profile, leverages our core expertise to drive profits and growth Education Refi Loans Loan Portfolios Accretive, high-retu
Slide 11: Outlook
Outlook Key Company & Business Segment Metrics 2020 2020 2021 Original 1 Targets Actuals Guidance Core Earnings Return on Equity 2 High Teens to Low Twenties 30% ✓ Low Twenties Core Earnings Efficiency Ratio 2 ~50% 48% ✓ ~52% 5.0% Adjusted Tangible Equity Ratio 3 Above 6.0% (Pro forma Adjusted Tangi
Slide 12: Funding & Liquidity
Funding & Liquidity © 2021 Navient Solutions, LLC. All rights reserved. 12
Slide 13: 2020 Financing and Capital Management
2020 Financing and Capital Management Capital Management Financing Committed to returning excess capital to Issued $6.3 billion of Private Education Loan shareholders ABS transactions in 2020 • Returned $523 million through dividends • Issued 2 Private Education Loan ABS and share repurchases tr
Slide 14: FFELP ABS Transactions
FFELP ABS Transactions NAVSL 2021-1 NAVSL 2020-2 Pricing Date: February 8, 2021 October 14, 2020 Settlement Date: February 18, 2021 October 22, 2020 Issuance $1,015,900,000 $776,800,000 Amount: U.S. Government Guaranteed U.S. Government Guaranteed Collateral: FFELP Consolidation, and FFELP Non-Conso
Slide 15: Private Education Loan ABS Transactions
Private Education Loan ABS Transactions NAVSL 2021-A NAVSL 2020-I Pricing Date: January 19, 2021 December 1, 2020 Settlement Date: January 28, 2021 December 10, 2020 Issuance $817,800,000 $604,000,000 Amount: Collateral: Private Education Refi Loans Private Education Refi Loans Prepayment 15% CPR 15
Slide 16: Optimized Capital Structure
Optimized Capital Structure Long-Term Conservative Funding Approach 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 - We
Slide 17: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities (par value, $ in billions) On January 28, 2021, issued $500 million of unsecured debt due March 2028 $1.8 $1.8 $1.5 $1.5 $1.5 $1.4 $1.4 $1.1 $1.1 $0.7 $0.7 $0.6 $0.6 $0.5 $0.5 $0.2 $0.2 $0.0 $0.0 $0.0 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030+ As of Decembe
Slide 18: 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 $2.7 billion of cash flows in 2020 FFELP Cash Flows 12/31/20 Secured • Reduced total unsecured debt by $1.1 billion Residual (including O/C) $4.
Slide 19: Education Loan Portfolio Generates 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 $1.2 $1.1 $1.6 $1.0 $1.0 $1.4 $1.0 $0.9 $1.2 $0.8 $1.2 ($’s in Billions) ($’s in Billions) $0.8 $1.0 $1.0 $1.0 $0.9 $0.8 $0.6 $0
Slide 20: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable $’s in millions as of 12/31/2020 2021 2022 2023 2024 2025 2026 2027 2028 Projected FFELP Average Balance $54,649 $48,521 $42,753 $37,436 $32,510 $27,882 $23,606 $19,649 Projected Excess Spread $579 $521 $459 $406 $364 $337 $301 $263 Projected Servicing Revenue $26
Slide 21: Secured Cash Flow
Secured Cash Flow $ in Millions 2020 2019 2018 2017 FFELP Term Securitized Servicing (Cash Paid) $ 227 $ 253 $ 288 $ 314 1, 2 Net Cash Flow 830 969 1,290 1,255 Total FFELP $ 1,057 $ 1,223 $ 1,577 $ 1,569 Private Credit Term Securitized Servicing (Cash Paid) $ 124 $ 135 $ 147 $ 163 Net Cash Flow 3 1,
Slide 22: FFELP ABS
FFELP ABS © 2021 Navient Solutions, LLC. All rights reserved. 22
Slide 23: FFELP ABS Issuance Characteristics
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 10(+) year average lives
Slide 24: 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 25: 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 26: 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 27: Private Education Loan ABS
Private Education Loan ABS © 2021 Navient Solutions, LLC. All rights reserved. 27
Slide 28: Private Education Loan ABS Issuance Characteristics
Private Education Loan ABS Issuance Characteristics Private Education Loan ABS Transaction Features Collateral Characteristics • Issue size of $500M+ • Collateralized by loans made to students and parents to fund college tuition, room • Senior and subordinate notes and board - Seasoned assets benefi
Slide 29: Navient Private Education Loan Programs
Navient Private Education Loan Programs Undergrad/Grad/ Direct-to-Consumer Private Education Smart Option Consolidation (Legacy) Private Education Refi Med/Law/MBA (DTC) Origination Origination Channel School School Direct-to-Consumer Lender Lender School College Graduates & Typical Borrower Student
Slide 30: Navient Private Education Trusts
Navient Private Education As of the respective cutoff dates for each transaction Trusts 2019-2021YTD Navient Issuance Program NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV 19-A 19-B 19-C 19-D 19-E 19-F 19-G 20-A 20-B 20-C 20-D 20-E 20-F 20-G 20-H 20-I 21-A Bond Amount ($mil) 64
Slide 31: Private Education Legacy Loan Trusts – Prepayment Analysis
Navient Private Education Legacy Loan Trusts – Prepayment Analysis • Constant prepayment rates increased beginning 2014 on increased seasoning-related voluntary prepayment and the emergence of the external student loan refinance market • Prepayments have declined in 2020 during the COVID-19 crisis a
Slide 32: Higher Education Industry
Higher Education Industry © 2021 Navient Solutions, LLC. All rights reserved. 32
Slide 33: Federal government is the largest non-mortgage consumer lender
At $1.5 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 34: Navient helps borrowers successfully repay their loans
In its role as a federal 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. © 2021 Navient Solutions, LLC
Slide 35: There are solutions to many of the challenges faced by borrowers
There are solutions to many of the challenges faced by borrowers © 2021 Navient Solutions, LLC. All rights reserved. 35
Slide 36: Borrowers who struggle most are often non-completers with less than $10,000 in debt
The borrowers who struggle most are often non-completers with less than $10,000 in debt Borrowers who do not complete a degree … As a result, borrowers who run into trouble default at a rate almost three times higher repaying usually have below-average amounts than borrowers who earned a degree … of
Slide 37: Today's federal repayment options are numerous and complex
Today’s federal repayment options are numerous and complex Forbearance Deferment Discretionary Forbearance 1. School (1) • Hardship Forbearance 2. School Full-Time (2) Mandatory Forbearance 3. School Half-Time (2) • Medical or Dental Internship Residency 4. Post Enrollment (1) • Department of Defens
Slide 38: We've piloted solutions to reduce complexity
We’ve piloted solutions to reduce complexity IDR eSign Enrollment Repayment Guide for New Graduates Navient launched a pilot program focusing on past-due FFELP Navient created a personalized report to help new-to-repayment borrowers to explore whether a simpler process could produce borrowers to com
Slide 39: Navient delivers strong performance for borrowers
Navient delivers strong performance for borrowers Navient-serviced borrowers are 26% less likely Navient helps borrowers use forbearance responsibly to default Pre-COVID forbearance usage is in line with other servicers 9.7% 20 forbearance (%) Default rate (%) 7.5% Borrowers in 15 Navient's CDR is 1
Slide 40: Student Loan Options During the National Emergency
Student Loan Options During the National Emergency: What You Need to Know If you have impacted by COVID, options depend on your loan types. Contact your servicer to discuss what’s right for you. Department of Education • These loans have been automatically placed into forbearance (payments suspended
Slide 41: Navient Corporation Appendix
Navient Corporation Appendix © 2021 Navient Solutions, LLC. All rights reserved. 41
Slide 42: Assisting Borrowers Through the Crisis
Assisting Borrowers Through the Crisis Total Private Education Loans in Forbearance 1 Total Private Education Loans in Current Repayment 1 ($’s in billions) ($’s in billions) $3.5 $24.0 $3.0 $22.0 $20.0 $2.5 $18.0 $2.0 $16.0 $1.5 $14.0 $1.0 $12.0 $0.5 $10.0 • Implemented an extensive, data driven ou
Slide 43: Navient Is Focused On Expense Efficiency
Navient Is Focused On Expense Efficiency Notable Items Impacting Total Expenses Compared to Prior Periods ($ In millions) Q4 20 Q4 19 2020 2019 Reported Core Earnings Expenses $269 $237 $973 $990 Year over Year Change in Reported Core Earnings Expenses 14% (2%) Restructuring & Reorganization Expense
Slide 44: Operating Results – Core Earnings Basis
Operating Results “Core Earnings ” Basis 1 Selected Financial Information and Ratios (In millions, except per share amounts) Q4 20 Q4 19 2020 2019 GAAP diluted EPS $0.99 $0.78 $2.12 $2.56 Adjusted Core Earnings EPS 1, 2 $0.97 $0.67 $3.40 $2.64 Restructuring and regulatory-related ($0.09) $0.02 ($0.1
Slide 45: Federal Education Loans Segment
Federal Education Loans Segment “Core Earnings” Basis Selected Financial Information and Ratios Full Year and 4th Quarter Highlights ($ In millions) Q4 20 Q4 19 2020 2019 Federal Education Segment net interest margin 1.06% 0.87% 0.99% 0.83% • Q4 20 Net Interest Margin: 106 basis points • Q4 20 Charg
Slide 46: Consumer Lending Segment
Consumer Lending Segment “Core Earnings” Basis Selected Financial Information and Ratios Full Year and 4th Quarter Highlights ($ In millions) Q4 20 Q4 19 2020 2019 Consumer Lending • Q4 20 Net Interest Margin: 302 basis points Segment net interest margin 3.02% 3.31% 3.20% 3.30% • Q4 20 Charge-off Ra
Slide 47: Business Processing Segment
Business Processing Segment “Core Earnings” Basis Selected Financial Information and Ratios Full Year and 4th Quarter Highlights ($ In millions) Q4 20 Q4 19 2020 2019 Business Processing Government Services $58 $34 $191 $154 • Q4 20 EBITDA Margin 1: 23% Healthcare RCM Services $35 $25 $113 $104 • Fu
Slide 48: GAAP Results
GAAP Results (In millions, except per share Q4 20 Q4 19 2020 2019 amounts) Net income (loss) $186 $171 $412 $597 Diluted earnings (loss) per common $0.99 $0.78 $2.12 $2.56 share Operating expenses $269 $235 $964 $984 Provision for loan losses $2 $50 $155 $258 Average Education Loans $81,685 $88,266
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: 1. Core Ea
Slide 50: Notes on Non-GAAP Financial Measures
Notes on Non-GAAP Financial Measures (Dollars in Millions) 4. Earnings before Interest, Taxes, Depreciation and Amortization Expense (“EBITDA”) – This metric measures the operating performance of the Business Processing segment and is used by management and our equity investors to monitor operating
Slide 51: 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, 2020 2019 (Dollars in Millions) 2020 2019 GAAP net income (loss) $186 $171 $412 $597 Net impact of derivative accounting (28) (27) 265 (5) Net impact of goodwill and acquired in
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.