Navient Corporation · NASDAQ:NAVI

Navient — Q2 2021 Earnings Presentation

53 slides from Navient's earnings presentation, Jul 29, 2021

1. Slide 1: 2021 2nd Quarter Investor Deck

   2021 2nd Quarter Investor Deck July 29, 2021

2. Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures

   Forward-Looking Statements; Non-GAAP Financial Measures The following information is current as of March 31, 2021 (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”), fil

3. 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

4. Slide 4: Delivering Long-term Value

   Delivering Long-term Value Federal Education Loans Consumer Lending Business Processing Segment Segment Segment  Providing payment relief to  Originated $1.3 billion of high-  Over 3,600 Navient employees borrowers impacted by quality Private Education support our state and municipal COVID-19 Loa

5. Slide 5: 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

6. 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) $24.0 Life of Loan Projections Q4 2017 Q2 2021 $7.6 Net Cash Flow Projection at Total FFELP Cash Flows $12.7 $8.1 Q2 2021 Total Private Education Cash Flows $15

7. Slide 7: Growing Earnings and Generating Shareholder Value

   Growing Earnings and Generating Shareholder Value Driving EPS Accretion for Shareholders Delivering Value Adjusted Core EPS $3.40  Long-term value for shareholders driven by consistent earnings and capital return $2.64  Allocating capital to attractive investments, $2.09 including portfolio acquis

8. Slide 8: 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

9. Slide 9: 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 $15+ billion of profile, leverages our core expertise to drive profits and growth Education Refi Loans Loan Portfolios  Accretive, high-retu

10. Slide 10: Outlook

    Outlook Key Company & Business Segment Metrics 2021 Year to Date 2021 Original 2 Targets Actuals Core Earnings Return on Equity 1 Low Twenties ✓ 39% Core Earnings Efficiency Ratio 1 ~52% ✓ 47% 6.3% Adjusted Tangible Equity Ratio 3 ~5.5% ✓ (Pro forma Adjusted Tangible Equity Ratio of 8.0%) 3 Net Inte

11. Slide 11: Funding, Liquidity, & Cashflow

    Funding, Liquidity, & Cashflow © 2021 Navient Solutions, LLC. All rights reserved. 11

12. Slide 12: Q2 2021 Financing and Capital Management

    Q2 2021 Financing and Capital Management Capital Management Financing ✓ Returned $227 million through share  Issued $2.1 billion of Term Education Loan repurchases and dividends ABS transactions • Paid dividends of $27 million • On July 19, priced $1.0 billion of • Repurchased 11.8 million shares f

13. Slide 13: FFELP ABS Transactions

    FFELP ABS Transactions NAVSL 2021-2 NAVSL 2021-1 Pricing Date: April 12, 2021 February 8, 2021 Settlement Date: April 22, 2021 February 18, 2021 Issuance $1,011,600,000 $1,015,900,000 Amount: U.S. Government Guaranteed U.S. Government Guaranteed Collateral: FFELP Consolidation and FFELP Non-Consolid

14. Slide 14: Private Education Loan ABS Transactions

    Private Education Loan ABS Transactions NAVSL 2021-E NAVSL 2021-D Pricing Date: July 19, 2021 May 14, 2021 Settlement Date: July 29, 2021 May 20, 2021 Issuance $1,019,000,000 $558,000,000 Amount: Collateral: Private Education Refi Loans Private Education Legacy Loans Prepayment 15% CPR 8% CPR Speed

15. Slide 15: 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 $1.4 billion of cash flows in YTD 2021 FFELP Cash Flows 06/30/21 Secured • Paid down unsecured debt of $0.8 billion in YTD 2021 Residual (includ

16. Slide 16: 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 Cash Flows assuming call option can be exercised at 10% Cash Flows assuming trusts run to maturity $1.2 $1.2 $1.1 $1.0 $1.0 $1.0

17. Slide 17: FFELP Cash Flows are Highly Predictable

    FFELP Cash Flows are Highly Predictable $’s in millions as of 06/30/2021 2021 2022 2023 2024 2025 2026 2027 2028 Remaining Projected FFELP Average Balance $53,685 $49,058 $43,479 $38,314 $33,585 $29,113 $24,921 $21,018 Projected Excess Spread $297 $555 $494 $437 $392 $364 $328 $287 Projected Servici

18. Slide 18: Secured Cash Flow

    Secured Cash Flow $ in Millions Q2 2021 YTD 2020 2019 2018 FFELP Term Securitized Servicing (Cash Paid) $ 104 $ 227 $ 253 $ 288 Other Secured FFELP 2, 3 Net Cash Flow $ 436 $ 830 $ 969 $ 1,290 Total FFELP $ 540 $ 1,057 $ 1,223 $ 1,577 Private Credit Term Securitized Servicing (Cash Paid) $ 61 $ 124

19. Slide 19: 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

20. Slide 20: Managing Unsecured Debt Maturities

    Managing Unsecured Debt Maturities (par value, $ in billions) As of July 12th, called $750 million of unsecured debt that would have matured in January of 2022, reducing 2022 maturities to under $1 billion $1.8 $1.7 $1.5 $1.5 $1.4 $1.4 $1.1 $1.1 $0.7 $0.7 $0.6 $0.6 $0.6 $0.5 $0.5 $0.5 $0.2 $0.2 $0.0

21. Slide 21: FFELP ABS

    FFELP ABS © 2021 Navient Solutions, LLC. All rights reserved. 21

22. Slide 22: 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

23. Slide 23: 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

24. Slide 24: Quarterly CPR: Stafford & PLUS Loan Prepayments

    Navient Stafford & PLUS Loan Prepayments • Higher prepayment activity in mid-2012 was related to the short-term availability of the Special Direct Consolidation Loan program • Prepayment increases occurred in 2015 and 2018 as we exercised our option to purchase assets from selected transactions to m

25. Slide 25: Quarterly CPR: 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

26. Slide 26: Private Education Loan ABS

    Private Education Loan ABS © 2021 Navient Solutions, LLC. All rights reserved. 26

27. Slide 27: 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

28. Slide 28: Navient Private Education Loan Programs

    Navient Private Education Loan Programs Smart Option Undergrad/Grad/ Med/Law/MBA Direct-to-Consumer (DTC) Origination Channel School School Direct-to-Consumer Typical Borrower Student Student Student Typical Co-signer Parent Parent Parent $10k avg orig bal, 10 yr avg term, in-school $10k avg orig ba

29. Slide 29: Navient Private Education Loan Programs

    Navient Private Education Loan Programs Consolidation (Legacy) Private Education Refi Private Education Origination Origination Channel Lender Lender School College Graduates & Select Non- Typical Borrower College Graduates Student Graduates Typical Co-signer Parent Parent Parent $15k avg orig bal,

30. Slide 30: Navient Private Education Trusts

    Navient Private Education As of the respective cutoff dates for each transaction Trusts 2020-2021YTD Navient Issuance Program NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV 20-A 20-B 20-C 20-D 20-E 20-F 20-G 20-H 20-I 21-A 21-B 21-C 21-D 21-E Bond Amount ($mil) 620 712 546 808 499 781 786 9

31. 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 • Prepayment activity declined in 2020 during the COVID-19 crisi

32. Slide 32: Higher Education Industry

    Higher Education Industry © 2021 Navient Solutions, LLC. All rights reserved. 32

33. Slide 33: Federal government is the largest non-mortgage consumer lender

    At $1.6 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

34. 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

35. Slide 35: There are solutions to many of the challenges faced by borrowers

    There are solutions to many of the challenges faced by borrowers 5 Recommendations to improve student loan program success: 1 Provide front-end support to improve They should be and can be simplified. For example, collapsing the multiple income-driven repayment options decision making. into one plan

36. Slide 36: Borrowers who struggle most are often non-completers with less 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

37. 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

38. 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

39. 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

40. 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

41. Slide 41: Navient Corporation Appendix

    Navient Corporation Appendix © 2021 Navient Solutions, LLC. All rights reserved. 41

42. Slide 42: Core Earnings Basis Operating Results

    Operating Results “Core Earnings ” Basis 1 Selected Financial Information and Ratios 2nd Quarter Highlights (In millions, except per Q2 21 Q1 21 Q2 20 • Adjusted Core Earnings 1 per share increased 8% to $0.98 share amounts) compared to $0.91 in the year ago quarter GAAP diluted EPS $1.05 $2.00 $0.6

43. Slide 43: Federal Education Loans Segment

    Federal Education Loans Segment “Core Earnings” Basis Selected Financial Information and Ratios 2nd Quarter Highlights ($ In millions) Q2 21 Q1 21 Q2 20 Federal Education Segment net interest margin 0.97% 0.97% 1.07% • Q2 21 Net Interest Margin: 97 basis points • Q2 21 Annualized Charge-off Rate: 4

44. Slide 44: Consumer Lending Segment

    Consumer Lending Segment “Core Earnings” Basis Selected Financial Information and Ratios 2nd Quarter Highlights ($ In millions) Q2 21 Q1 21 Q2 20 Consumer Lending • Q2 21 Net Interest Margin: 295 basis points Segment net interest margin 2.95% 2.99% 3.20% • Q2 21 Annualized Charge-off Rate: 71 basis

45. Slide 45: Business Processing Segment

    Business Processing Segment “Core Earnings” Basis Selected Financial Information and Ratios 2nd Quarter Highlights ($ In millions) Q2 21 Q1 21 Q2 20 Business Processing Government Services $66 $63 $43 • Q2 21 EBITDA Margin 1: 30% Healthcare RCM Services $64 $62 $21 • Revenue increased $66 million or

46. Slide 46: Other Segment

    Other Segment “Core Earnings” Basis YTD 2021 Unallocated Shared Services Expenses Shared Services Overview $131 million CEO, Corporate Marketing & Other • Shared services are related to the management of the entire company or shared by multiple reporting segments HR & Corporate Facilities 3% 9% Info

47. Slide 47: Navient Continues to Advance ESG Initiatives

    Navient Continues to Advance Environmental, Social and Governance Initiatives Social Initiatives Environmental Initiatives Community partnerships • Ongoing efforts to reduce already low carbon footprint • National partnership with Boys & Girls Clubs of America to • Enterprise-wide emphasis on electr

48. Slide 48: GAAP Results

    GAAP Results (In millions, except per share Q2 21 Q1 20 Q2 20 amounts) Net income (loss) $185 $370 $125 Diluted earnings (loss) per common $1.05 $2.00 $0.64 share Operating expenses $252 $259 $213 Provision for loan losses $(1) $(87) $44 Average Education Loans $77,379 $80,221 $85,149 © 2021 Navient

49. 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

50. 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

51. 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) 2021 2021 2020 GAAP net income (loss) $185 $370 $125 Net impact of derivative accounting (30) (91) 59 Net impact of goodwill and acquired intangible assets 5

52. 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

53. Slide 53: NAVIENT.

    NAVIENT.

Navient — Q2 2021 Earnings Presentation on 6ix