Navient Corporation · NASDAQ:NAVI
Navient — Q2 2019 Earnings Presentation
53 slides from Navient's earnings presentation, Aug 5, 2019
Slide 1: 2019 Second Quarter Investor Deck
NAVIENT 2019 24 Quarter Investor Deck August 5, 2019 oe ee
Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures
Forward-Looking Statements; Non-GAAP Financial Measures
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 EG econ eae ean tsorscorpnsio (GAAP dite EFS ‘ose $052 $031 ‘$0.52 nthe year-ago quarter? oar aa rr eae: + Originated $846 milion of Private Education Refinance ret! Loans in the quarter ‘Restructuring and Crt alr) egulatonyelated ‘+ Continued significant imp
Slide 5: On Track to Meet or Exceed Original Target
On Track to Meet or Exceed Original’ Target Financial Metrics ‘Core Earnings Return on Equity ® 15% Midtoons ‘core Earnings Etclency Ratio? 4% 0% Tangible Net Asset Ratio © 125% 1204-1254 ‘et intrest Margin ~ Federal Edscaton Loan me ocean ‘Segment # Charg-of Rate ~ Federal Education Loan can oman S
Slide 6: Federal Education Loans Segment
Federal Education Loans Segment “Core Earnings” Basis ‘Segmentnetinteestmargn O81 OBO OSH FFELP Loans: Prowsin rican esses 8 8 Mo Ccharge-ts 7 s7 iT ‘charge-orato (los) Tone) / Toate restr han 90-day 105% 110% 180% Geinaueney rte Greater nan 90-cay8 Gin) Bae || Taw Gotnaueney rate Fortearance rte 2%
Slide 7: Consumer Lending Segment
Consumer Lending Segment “Core Earnings Basis” Consumer Lending + Net Interest Margin: 322% + Charge-off Rate: 1.6% ‘+ Originated $846 milion of Private Education Refinance Loans Inthe quarter, an increase from $629 milion in the year-ago quarter + Credit continues its strong performance Delinquency
Slide 8: Originating Education Loans is an Attractive Opportunity
Originating Education Loans is an Attractive Opportunity Estimated Tota Market Annual Origination and Yields $1.8 Tilion as of FFYE 83072018 (Ssinbitions) (S's in bilions) 32 $12 si a = Faure ror ovat | i | [] | : - a“ [] + Estimated average yields since 2014 for newly man 2019 Orgran mats Ange Yes
Slide 9: Typical Private Education Refi Borrower Profile
Typical Private Education Refi Borrower Profile We serve technology first, financially responsible, digital native young professionals Weighted Underwriters assess loan ‘Average applications down to the transaction-level where available as & acme 5 ees es = a = SS en aS cen cae
Slide 10: Consumer Loan Segment Credit Detail
Consumer Loan Segment Credit Detail ‘Total deinquencion sou site| stnt6 Gal Rica ances (Shrmens) —_Alowance _Gaunce__ Sof Gnsng Bunce Tolaldeinquencyraie aa %otioans 108% 19% 122% ees been inrepayment NeoTORLons $$ 3190 om ans denguent greater than SOdays S477 S512 S831 100 __96 57% sit vst 72706 49
Slide 11: Business Processing Segment
Business Processing Segment “Core Earnings” Basis + Contingent collections receivables inventory increased 29% 0 $15.0 bilion from the year-ago quarter as a result of new placements ‘+ Won and implemented new RCO engagements in 20 19 + Delivering high-teen margins through reductions in fixed costs ‘
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 Grow + Leveraging existing infrastructure along with 40 years of data, analytics and processing experience + Providing business processing services for over 600 non-education related clients + Government
Slide 13: Navient Is Focused On Expense Efficiency
Navient Is Focused On Expense Efficiency Full-Year 2018 Comparable Core YTD 2019 Comparable Core Earnings Total Expenses Eamings Total Expenses (S's in Millions) (8 in Millions) $950 $560 $000 am 500 $850 NX $480 ed ‘$800 Se \ $750 $350 700 $300 $850 $250 $800 $200 $550 $150 $600 $100 2017 2018 yro
Slide 14: Higher Education Industry
Higher Education Industry
Slide 15: At $1.4 trillion in student loans, the federal government is the largest non-mortgage consumer lender
At $1.4 trillion in student loans, the federal government is the largest non-mortgage consumer lender ‘Total student ioan originations, by type ‘Ownership distribution of student ans tions.$ BBssssssss
Slide 16: In its role as a student loan servicer, Navient helps borrowers successfully repay
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 land experience of their education have already been made. A ina od epamen poten a — Qo asses
Slide 17: 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: O) eeerehenteniremucereineron feiss eer eer ceased [alee opel olarreaaanne-eraet fauThbindotvicmusrtiepsanstoerocstes ee eran © improvetne ctlegecompletionrate tours ee ster ot
Slide 18: Navient's default prevention expertise has been a key factor in 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 2015 three-year cohort default rate "Navients COR 35 lower 7.5% Default rate (%)
Slide 19: The 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 ata 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, and the most complex area was deferment
In 1990, there were two repayment plans, and the most complex area was deferment Forbearance Deferment Discretionary Forbearance School Full-Time + Hardship Forbearance School Half-Time Graduate Feliowship . Unemployment Deferment - 2 years 5. Rehabiltation Training Program . Teacher Shortage Intern
Slide 21: Today's repayment options are numerous and complex
Today's repayment options are numerous and complex Forbearance Decora [ i j ‘tec ate ta Fret bana PostneRA ) {ihn 0 FFELP boner et a oan mde on of at dy 3.1603; AL DL oe gle trcone Senere (2) Utes FFELP baer ia ans mad on er a ay 85 an por, 193: OL eile ¢ treone Gorangent Ver. 1(5) ‘erowa fan FEL an
Slide 22: 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. bett
Slide 23: Navient delivers strong performance for borrowers
Navient delivers strong performance for borrowers Navient-serviced borrowers are 35% less likely to default 10.8% ‘Navient's CDR is 35 percent lower than all others Default rate (%) All borrowers. Navient-serviced borrowers Forbearance usage is in-line with other servicers Borrowers in forbearance a
Slide 24: Funding & Liquidity
Funding & Liquidity
Slide 25: Q2 2019 Capital Management
Q2 2019 Capital Management ¥ Capital Retum @Repurchased 9.6 million common shares for $126 million, $207 million in remaining authority Paid $37 million in dividends to shareholders The tangible net asset ratio ' increased to 1.27x ABS Financing @ Issued FFELP ABS transaction totaling $747 milion, w
Slide 26: FFELP ABS Transactions
FFELP ABS Transactions NAVSL 20 Pricing Date: poata,209 taraay 15,2018 Setement ate: Rais 200 ‘non 24 2019 eswance Amount: sun erie Us. coverent Guranteed Us. Goverment Gusantees Goce FFELP cancion and Nr-Conclaon Loa FFELP Conohston and Non-Comciten Loan Sromeet {CPR Conlon 6% CPR Non-Conoten {0% C
Slide 27: Private Education Loan ABS Transactions
Private Education Loan ABS Transactions NAVSL 2019.0 NAVSL 2019-¢ Pricing Date: June 19,2018 May 7.2010 ‘Setement Date: one 27,2010 ay 16,2010 taavance Amount: ‘seo 510M rate Easton Loans Prvate Easton Rf Loans Prepayment ; ‘Speed ex cer r2KCPR Ratings 2 Fatings a ‘cis Fatings amit (SM)_ WAL Pricing
Slide 28: Long-term Capital Allocation Philosophy
Long-term Capital Allocation Philosophy Consistently balan including dividends, organic growth, capital adequacy with capital allocation opportunities, tock repurchases and acquisitions v Execute dynamic capital allocation policy to maintain appropriate leverage that supports our credit ratings and
Slide 29: Actual Cash Flows From Our Education Loan Portfolio Are Exceeding Initial Projections
Actual Cash Flows From Our Education Loan Portfolio Are Exceeding Initial Projections Projected vs. Actual Cash Flows Received ‘Since separation, Navient has primarily used excess from June 30, 2014 to December 31, 2018 ‘cash flows to reduce unsecured debt and return capital (6's in Bitions) to shar
Slide 30: Optimized Capital Structure
Optimized Capital Structure + Important to maintain our credit ratings which (par value, $ i blions) ‘support ongoing access to the unsecured debt markets ~ We continue to opportunistically repurchase debt in the open market ke + 83% of our education loan portfolio is funded to 0) term ~ Issued $1.2
Slide 31: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities {par value, $ in billions) ws mas san ee A | I mm. mo mt eo 20232028 2027 As of June 30,2018 As of June 30,2019 Funding Approach + Unsecured debt is a critical part of Navient's capital structure ~ Focused on maintaining our credit ratings to Support access to capi
Slide 32: Education Loan Portfolio Generates Significant Cash Flows
Education Loan Portfolio Generates Significant Cash Flows S's in sitions + Generated $1.3 billon of cash flows in YTD 2018 EFELP Cash Flows Soa Secwed + Paid down unsecured debt of neary $1.0 bilion in YTD Residual (nctuding O1C) 95 2019 Foor income 15 Serving 25 __« Retuned $0. bilin to shareholder
Slide 33: 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 fee Ze 3 sos 3 sos = tos = tos © soa © soa al En een oe = Sa esninit ee Be eg ace “ESSE aaa, * Beeman maa SEesee Soe: pecqesiaba
Slide 34: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable Seinmions Remaining ‘sof 6902019 oro” 2020 zoak_ oz 2023 20k 2028228 Projected FFELP Average Balance $65,705 $60,568 $54,174 $48,002 $42,518 $98,803 $31,504 $28882 Projected Excess Spread $306 $657 S507 537, S480 S30 $0977 Projected Servicing Revenue ss Sagas 2S]
Slide 35: Secured Cash Flow
Secured Cash Flow sin mu 2016 ‘FFELP Term Securiized Servicing (Cash Paid) S191 $288 SS HD [Not Residual! (Excess Distributions) 362 583 43 624 (Other Secured FFELP Not Cash Flow ** 405 706 e12 503 Total FFELP A KE Private Credit “Term Securtized Servicing (Cash Paid) s es 7s 163 180 Residual (Exces
Slide 36: FFELP ABS
FFELP ABS
Slide 37: Recent FFELP ABS Issuance Characteristics
Recent FFELP ABS Issuance Characteristics + Issue size of $S00M+ + Guarantee of underlying collateral insulates bondholders from most risk of + Senior and subordinate notes loss of principal ‘Amortizing tranches with 1 to 12(+) year average lives + Typically non-dischargeable in bankruptcy Floating
Slide 38: FFELP Loan Program Characteristics
FFELP Loan Program Characteristics Berrovee Sudent ‘Statent Parents or Graduate Sudents _Statentor Parents Needs Gases Yeo ne No NA Federal Guarani of Precpal a Seca ar 97-10% 97- 100% 97-100% 97-10% Interest Suosity Payments Yes Ne No Yes: Special Alowance Payments oo ros — Yee Yee x x 120 months U
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 Private Education Loan ABS Issuance Characteristics
Recent Private Education Loan ABS Issuance Characteristics Issue size of SSOOM+ + Senior and subordinate notes Amortizing tranches with 1 to 10 year average lives + Fixed rate and floating rate securities + Compliant with U.S. risk retention and on occasions with European risk retention + Navient So
Slide 43: Navient Private Education Loan Programs
Navient Private Education Loan Programs Lm oon soe arm ro = Settee tet emt mt ot tn nn Sete alam ot rant at net oot Sxegegta Oye ape eaveemoneaes ee petting vexng ages tem sormgugh. sem WagEnel 12 “aren tetany deterred aie waeel repayment te Mt a Ay 0 an a pH = a a nares Scteeuand | eecceeatond — Om
Slide 44: Navient Private Education Trusts
Navient Private Education Trusts Bint Arce Ss) om 3 Mt ORR mT] 1] 95 bpeawatrarcenet(s) 3 WK KOI DIK ZOOS oe ee a a a oom ean Pegram 6) ‘SoumatmnOAlled 2k OER oad ue as ox ‘Seaton Se eee Bee ie Pn Easton Ra ees Ce a a 00% ‘recta Conner mom RM Om cs cot aa cometary : i me Se a ae ements ‘Sooa.Gese On
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 ialse WIRTPIPA SSRs OO a0 AL 22 2
Slide 46: Navient Corporation Appendix
Navient Corporation Appendix
Slide 47: Notable Items Impacting Total Expenses Compared to Prior Period
Notable Items Impacting Total Expenses Compared to Prior Period
Slide 48: Notable Items Impacting Total Expenses Compared to Prior Year
Notable Items Impacting Total Expenses Compared to Prior Year Reported Core Earnings Expenses Bd 5 Sos z pe sd Sa 5 = oe a zs PES = = aa a a = Se SS] hey at 5 - — i z Soo : ———— a : ee | ooo = = SSeS os
Slide 49: GAAP Results
GAAP Results {in millions, except per share amounts) 0219 119 021 ‘Net income (loss) $153 $128 $83) Diluted eamings (loss) per common share $0.64 $0.52 so3t ‘Operating expenses S241 $356 $201 Provision for loan losses $68 $76 112 ‘Average Education Loans $91547 $03,967 $101,490 Wl
Slide 50: Notes on Non-GAAP Financial Measures
Notes on Non-GAAP Financial Measures (Dollars in Millions) ‘naston otrancal sus repre on GAAP bas, Naver ao owe eta pesxmance measire ich we on GAAP trae eases. The owing nn GARD ‘col raat we son nahn te Preston 1 ove Earnings The oerece betwee he company’s Cat Earns and ts GAAP et at Cre Eanng ence
Slide 51: Differences Between Core Earnings And GAAP
Differences Between Core Earnings And GAAP Quarters Ended ‘Core Earnings adjustments to GAAP: Jun,30, Mar31,—Jun.30, (Dolars in Mitions) 2019 2019 2018 GAAP net income (oss) $183 S128 $69 Net impacto donvatve accountng 2 6 ssi "Net impact of goodwill and acquired intangible assets " 7 6 Not income t
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 portolio stratications by ust as of the cutot date ‘Accrued interest factors Quartery distri
Slide 53: NAVIENT
NAVIENT.