Navient Corporation · NASDAQ:NAVI
Navient — Q4 2019 Earnings Presentation
51 slides from Navient's earnings presentation, Feb 21, 2020
Slide 1: 2019 4th Quarter Investor Deck
2019 4th Quarter Investor Deck February 21, 2020
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, 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
• 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: Core Earnings Basis Operating Results
Operating Results “Core Earnings ” Basis 1 Selected Financial Information and Ratios (In millions, except per share amounts) Q4 19 Q4 18 2019 2018 GAAP diluted EPS $0.78 $0.28 $2.56 $1.49 Adjusted Core Earnings EPS 2 $0.67 $0.58 $2.64 $2.09 Restructuring and regulatory-related $0.02 ($0.03) ($0.04)
Slide 5: Well Positioned to Continue on Our Successful Financial Performance
Well Positioned to Continue on Our Successful Financial Performance Key Company & Business Segment Metrics 2019 2019 2020 Original 2 Targets Actual Targets Core Earnings Return on Equity 3 Mid Teens 19% ✓ High Teens to Low Twenties Core Earnings Efficiency Ratio 4 ~50% 49% ✓ ~50% Tangible Net Asset
Slide 6: Federal Education Loans Segment
Federal Education Loans Segment “Core Earnings” Basis Selected Financial Information and Ratios ($ In millions) Q4 19 Q4 18 2019 2018 Segment net interest margin 0.87% 0.86% 0.83% 0.83% FFELP Loans: Provision for loan losses $8 $10 $30 $70 Charge-offs $9 $13 $42 $54 Charge-off rate 0.06% 0.09% 0.07%
Slide 7: Consumer Lending Segment
Consumer Lending Segment “Core Earnings Basis” Selected Financial Information and Ratios ($ In millions) Q4 19 Q4 18 2019 2018 Segment net interest margin 3.31% 3.18% 3.30% 3.24% Private Education Loans (including Refinance Loans): Provision for loan losses $42 $75 $228 $300 Charge-offs 1 $97 $102 $
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 $1.6 Trillion as of FFYE 9/30/2019 ($’s in billions) ($’s in billions) $16 $13 Grad PLUS, $11 $75 Feder
Slide 9: Typical Private Education Refi Borrower Profile
Typical Private Education Refi Borrower Profile We serve technology first, financially responsible, digital native young professionals Typical Borrower More Accurate Assessment Weighted Underwriters assess loan Average applications down to the transaction-level where available Borrower Age 32 Months
Slide 10: Consumer Loan Segment Credit Detail
Consumer Loan Segment Credit Detail Credit Metrics Allowance for Loan Loss TDR Loans ($ in millions) 2019 2018 2017 December 31, 2019 Ending Allow ance as Total delinquencies $885 $1,135 $1,045 ($ in millions) Allow ance Balance % of Ending Balance Total delinquency rate as a % of loans 10.5% 12.6%
Slide 11: Business Processing Segment
Business Processing Segment “Core Earnings” Basis Selected Financial Information and Ratios Full Year and 4th Quarter Highlights ($ In millions) Q419 Q4 18 2019 2018 Business Processing Government Services $34 $41 $154 $174 • Q4 19 EBITDA Margin 1: 18% Healthcare RCM Services $25 $25 $104 $93 • Full
Slide 12: Focused on Improving Margin and Organic Business Processing Growth
Focused on Improving Margin and Organic Business Processing Growth Well Positioned for Long-Term Growth Growing Fee Revenues at Attractive Margins • Providing business processing services for over Total Business Processing EBITDA 1 500 clients in Government and Healthcare Services ($ in millions) $4
Slide 13: Higher Education Industry
Higher Education Industry © 2020 Navient Solutions, LLC. All rights reserved. 13
Slide 14: 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 15: 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. © 2020 Navient Solutions, LLC. All ri
Slide 16: There are solutions to many of the challenges faced by borrowers
There are solutions to many of the challenges faced by borrowers © 2020 Navient Solutions, LLC. All rights reserved. 16
Slide 17: Navient's default prevention expertise and 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 % of borrowers who 10.1% defaulted on a student loan within three years of entering repayment Navient's CDR is • I
Slide 18: Struggling borrowers are often non-completers with small 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 19: 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 20: 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 21: 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 22: 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 % of repayment* 10.1% 20 forbearance (%) Default rate (%) 6.8% Borrowers in 15 Navient's CDR is 37% lower 10 tha
Slide 23: Funding & Liquidity
Funding & Liquidity © 2020 Navient Solutions, LLC. All rights reserved. 23
Slide 24: Q4 2019 Capital Management
Q4 2019 Capital Management Capital Return Repurchased 5.8 million common shares for $77 million in the quarter • Repurchased 34.5 million shares in 2019, a 13% reduction in shares outstanding • Since inception 1, returned $3.2 billion through share repurchases Paid $34 million in dividends to sh
Slide 25: 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 26: Private Education Loan ABS Transactions
Private Education Loan ABS Transactions NAVSL 2020-B NAVSL 2020-A Pricing Date: February 10, 2020 January 21, 2020 Settlement Date: February 20, 2020 January 30, 2020 Issuance Amount: $712M $620M Collateral: Private Education Refi Loans Private Education Legacy Loans Prepayment 15% CPR 8% CPR Speed
Slide 27: 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 28: 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 29: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities (par value, $ in billions) • Issued $700 million of March 2027 Unsecured debt $2.1 • Reduced total 2021 maturities by $190 million $1.8 $1.8 $1.4 $1.4 $1.5 $1.5 $1.5 $1.4 $1.4 $1.3 $1.1 $0.6 $0.6 $0.5 $0.5 $0.0 $0.0 $0.0 $0.0 2020 2021 2022 2023 2024 2025 2026 2027
Slide 30: 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 2019 FFELP Cash Flows 12/31/19 Secured • Paid down unsecured debt of $2.0 billion in 2019 Residual (including O/C)
Slide 31: 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 $1.6 $1.4 $1.4 $1.4 $1.2 $1.2 $1.2 $1.2 $1.1 $1.2 ($’s in Billions) ($’s in Billions) $1.0 $1.0 $1.0 $0.9 $1.0 $0.9 $0.8 $0
Slide 32: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable $’s in millions as of 12/31/2019 2020 2021 2022 2023 2024 2025 2026 2027 Projected FFELP Average Balance $60,467 $54,062 $47,930 $42,195 $36,797 $31,634 $26,799 $22,287 Projected Excess Spread $569 $592 $529 $475 $428 $388 $363 $321 Projected Servicing Revenue $30
Slide 33: Secured Cash Flow
Secured Cash Flow $ in Millions 2019 2018 2017 2016 FFELP Term Securitized Servicing (Cash Paid) $ 253 $ 288 $ 314 $ 342 Net Residual 1 (Excess Distributions) $ 743 583 643 624 Other Secured FFELP 2, 3 Net Cash Flow 227 706 612 503 Total FFELP $ 1,223 $ 1,577 $ 1,569 $ 1,469 Private Credit Term Secu
Slide 34: FFELP ABS
FFELP ABS © 2020 Navient Solutions, LLC. All rights reserved. 34
Slide 35: 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 12(+) year average lives
Slide 36: 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 37: 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 38: 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 39: Private Education Loan ABS
Private Education Loan ABS © 2020 Navient Solutions, LLC. All rights reserved. 39
Slide 40: Private Education Loan ABS Issuance Characteristics
Private Education Loan ABS Issuance Characteristics Private Education Loan ABS Transaction Features Collateral Characteristics • Issue size of $500M+ • Collateralized by loans made to students and parents to fund college tuition, room • Senior and subordinate notes and board - Seasoned assets benefi
Slide 41: Navient Private Education Loan Programs
Navient Private Education Loan Programs Undergrad/Grad/ Direct-to-Consumer Private Education Smart Option Consolidation (Legacy) Private Education Refi Med/Law/MBA (DTC) Origination Origination Channel School School Direct-to-Consumer Lender Lender School College Graduates & Typical Borrower Student
Slide 42: Navient Private Education Loan Trusts
Navient Private Education Loan Trusts Navient 2018-2020YTD Issuance Program NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL 18-A 18-B 18-C 18-D 18-E 19-A 19-B 19-C 19-D 19-E 19-F 19-G 20-A 20-B Bond Amount ($mil) 507 521 632 626 688 647 550 610 560 535 714 498 620
Slide 43: 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 18% Constant Prepayment Rate (CPR) 16% 14% 12% 10% 8% 6% 4% 2%
Slide 44: Navient Corporation Appendix
Navient Corporation Appendix © 2020 Navient Solutions, LLC. All rights reserved. 44
Slide 45: Navient Is Focused On Expense Efficiency
Navient Is Focused On Expense Efficiency Notable Items Impacting Total Expenses Compared to Prior Periods ($ In millions) Q4 19 Q4 18 2019 2018 Reported Core Earnings Expenses $237 $256 $990 $997 Year over Year Change in Reported Core Earnings Expenses (7%) (1%) Restructuring & Reorganization Expens
Slide 46: GAAP Results
GAAP Results (In millions, except per share amounts) Q4 19 Q4 18 2019 2018 Net income (loss) $171 $72 $597 $395 Diluted earnings (loss) per common share $0.78 $0.28 $2.56 $1.49 Operating expenses $235 $252 $984 $984 Provision for loan losses $50 $85 $258 $370 Average Education Loans $88,266 $96,380
Slide 47: 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 48: Notes on Non-GAAP Financial Measures
Notes on Non-GAAP Financial Measures (Dollars in Millions) 4. Tangible Net Asset Ratio (TNA) – The Tangible Net Asset Ratio measures the amount of assets available to retire the Company’s unsecured debt. Management and Navient’s equity investors, credit rating agencies and debt capital investors use
Slide 49: 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, 2019 2018 (Dollars in Millions) 2019 2018 GAAP net income (loss) $171 $72 $597 $395 Net impact of derivative accounting (27) 59 (5) 90 Net impact of goodwill and acquired intang
Slide 50: 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 51: Navient
NAVIENT.