Navient Corporation · NASDAQ:NAVI
Navient — Q1 2019 Earnings Presentation
53 slides from Navient's earnings presentation, May 6, 2019
Slide 1: 2019 1st Quarter Investor Deck
NAVIENT 2019 1St Quarter Investor Deck May 6, 2019
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, 2019 (unless otherwise noted) and should be read in connection with Navient Corporation's “Navient” Annual Report on Form 10-K forthe year ended December 31, 2018 (the “2018 Form 10-K"), fied
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 Q119 418 Q118 + Adjusted Core Earnings per share of $0.58 compared to share amounts) $0.43 in the year-ago quarter 2 ghlights GAAP diluted EPS $0.52 $0.28 $0.47 + Originated $984 million of Private Education Refinance Adjusted Core Earnings $0.58 $0.58 $0.43 L
Slide 5: On Track to Achieve 2019 Targets
On Track to Achieve 2019 Targets 2019 Target Core Earnings Return on Equity 15% Mid-teens Core Earnings Efficiency Ratio 2 47% ~50% Tangible Net Asset Ratio * 1.25x 1.23x — 1.25x ae Margin — Federal Education Loan 0.83% Low to Mid 80's ee Rate — Federal Education Loan 0.09% 0.08% - 0.10% Net Interes
Slide 6: Federal Education Loans Segment
Federal Education Loans Segment “Core Earnings” Basis Selected Financial Information and Ratios ($ In millions) ato | aais a1 18 Segment net interest margin 0.80% 0.86% 0.83% FFELP Loans: Provision for loan losses $8 $10 $10 Charge-offs $17 $13 $11 Charge-off rate 0.11% 0.09% 0.07% Greater than 30-d
Slide 7: Consumer Lending Segment
Consumer Lending Segment “Core Earnings Basis” cted Financial Inf 15 Quarter Highlights ‘Segment net interest margin 322% 318% 3.23% . ee Interest Margin: se Private Education Loans (including eaiUharve-of Rateuic Refinance Loans): Provision for loan losses. $68 $75 $77 + Launched innovative, digita
Slide 8: Originating Education Loans is an Attractive Opportunity
Originating Education Loans is an Attractive Opportunity Sizable Market With Attractive Yields * Estimated Outstanding Education Loan Market ? Estimated Total Market Annual Originations and Yields $1.5 Trillion as of FFYE 9/30/2018 ($'s in billions) (S's in billions) $12 $12 $11 Grad PLUS, 76% ~8% P
Slide 9: Typical Private Education Refi Borrower Profile
Typical Private Education Refi Borrower Profile We serve financially responsible, digitally native young professionals Typical Borrower More Accurate Assessme Weighted Underwriters assess loan Average applications down to the transaction-level where available Borrower Age 32 Months since Graduation
Slide 10: Consumer Loan Segment Credit Detail
Consumer Loan Segment Credit Detail TDR Loans ($ iT | 1019 | 4018 March 31, 2019 coans ($ in millions) | | 1018 | - — Total delinquencies $1,014 $1,135 $1,065 (Sin millions) Allowance __Balance % of Ending Balance Total delinquency rate asa% ofloans 11.3% 12.6% 11.6% hen TOR toons 5 qi § aN 8% in re
Slide 11: Business Processing Segment
Business Processing Segment “Core Earnings” Basis Selected Financial Information and Ratios Quarter Highlights (Sin millions) ai19 Government Services $42 Healthcare RCM Services $26 Total Business Processing $68 Revenue Operating Expenses $55 EBITDA * $14 EBITDA Margin * 21% ‘Net Income $10 Lee ee
Slide 12: Focused on Improving Margin and Organic Business Processing Growth
Focused on Improving Margin and Organic Business Processing Growth Well Positioned for Long-Term Growth + Leveraging existing infrastructure along with 40 years of data, analytics and processing experience to deliver best-in-class performance and compliance + Providing business processing services f
Slide 13: Navient Is Focused On Expense Efficiency
Navient Is Focused On Expense Efficiency Full-Year 2018 Comparable Core Q1 2019 Comparable Core Earnings Total Expenses Earnings Total Expenses ($’s in Millions) ($’s in Millions) $950 $280 $900 (11%) $260 $850 $240 ee) $800 $220 $750 $200 $700 $180 $650 $160 $600 $140 $550 $120 $500 $100 2017 2018
Slide 14: Higher Education Industry
Higher Education Industry
Slide 15: Federal government is the largest consumer lender
Federal government is the largest consumer lender, owning or guaranteeing $1.4 trillion in student loans + 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
Slide 16: Navient's role as a student loan servicer
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. Congress sets product terms and inclu
Slide 17: Five Recommendations for Better Student Loans
Five Recommendations for Better Student Loans @ Providing better information before borrowing @ Improving the college completion rate ® Simplifying repayment @ Helping borrowers pay off faster ® Encouraging borrower contact with servicers For adivona information, please read five Recommencations for
Slide 18: 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) 2015 three-year cohort default rate measures the percent of borrowers 10.8% who defaulted on a student loan within three years of entering even s COR is percent lo
Slide 19: Borrowers who struggle most are often non-completers
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 ..
Slide 20: In 1990 there were two repayment plans
In 1990, there were two repayment plans, and the most complex area was deferment Forbearance Discretionary Forbearance + Hardship Forbearance Repayment Plans 1. Standard 2. Graduated © 2018 Navlent Solusons, LLC. All nights eserves Deferment 44 12. 13 School Full-Time School Half-Time Graduate Fello
Slide 21: Today's repayment options are numerous and complex
Today’s repayment options are numerous and complex Forbearance Deferment Discretionary Forbearance + Hardship Forbearance ‘School Full-Time (2) Mandatory Forbearance ‘School Half-Time (2) Medical or Dental internship Residency Department of Defense Student Loan Repayment T 2. 3. 4, Post Enrollment (
Slide 22: We've piloted solutions to reduce complexity
We've piloted solutions to reduce complexity IDR eSign Enrollment Pilot Navient launched a pilot program focusing on past-due FFELP borrowers to explore whether a simpler process could produce better results. Under the pilot, we made contact with the borrower, gathered salary and family information
Slide 23: Navient delivers strong performance for borrowers
Navient delivers strong performance for borrowers Navient-serviced borrowers are 35% less likely Forbearance usage is in-line with other servicers to default 10.8% Borrowers in forbearance as a percent of repayment” 20 javient's CDR is 35 percent lower than all others Borrowers in forbearance (%) =
Slide 24: Funding & Liquidity
Funding & Liquidity
Slide 25: Q1 2019 Capital Management
Q1 2019 Capital Management v¥ Capital Return (™ Repurchased 9.4 million common shares for $107 million, $333 million in remaining authority @ Paid $39 million in dividends to shareholders @ The tangible net asset ratio’ remained stable at 1.25x v_ ABS Financing @% Two Private Education Loan ABS deal
Slide 26: FFELP ABS Transactions
FFELP ABS Transactions NAVSL 201 NAVSL 2019. Pricing Date: April 9, 2019 January 15, 2019 Settlement Date: April 18, 2019 January 24, 2019 Issuance Amount: $747M $748M Collateral: US Govt. Guaranteed US Govt. Guaranteed . FFELP Stafford, Plus and Consolidation Loans FFELP Stafford, Plus and Consolid
Slide 27: Private Education Loan ABS Transactions
Private Education Loan ABS Transactions NAVSL Trust 2019: NAVSL Trust 201 Ps ate ae inte ran 32 Issuance Amount: ‘$5SOM $647 Collateral: Private Education Loans Private Education Refi Loans Prepayment Speed®: 100% PPC? 12% CPR Tranching: Expected Class ee Amt. (M) WAL? Pricing Class 0 ‘Amt. (M) WAL?
Slide 28: Long-term Capital Allocation Philosophy
Long-term Capital Allocation Philosophy Consistently balance capital adequacy with capital allocation opportunities, including dividends, organic growth, stock repurchases and acquisitions v Execute dynamic capital allocation policy to maintain appropriate leverage that supports our credit ratings a
Slide 29: Actual Cash Flows From Our Education Loan Portfolio Are Exceeding Projections
Actual Cash Flows From Our Education Loan Portfolio Are Exceeding Initial Projections Projected vs. Actual Cash Flows Received from June 30, 2014 to December 31, 2018 ($’s in Billions) $21 $15 Projected Cash Flows # Actual Cash Flows Received Additional cash flows of $6 bi Since separation, Navient
Slide 30: 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 continue to opportunistically repurchase debt in the open m
Slide 31: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities (par value, $ in billions) $23 $2.4 $2.4 $1.8 $1.8 sta $14 HESS sa ga $0.8 $0.6 $0.6 i - «» 2019 2020 2021 2022 2024 2025 2026 2027 wAs of March 31, 2018 wAs of March 31, 2019 16 gi 2028+ ing-term Conservative Funding Approach + Unsecured debt is a critical part of
Slide 32: 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 + Realized $0.7 billion of cash flows in Q1 19 FFELP Cash Flows 3/3119 ‘Secured + Paid down unsecured debt of $46 million Q1 19 Residual (including O/C) $57
Slide 33: Education Loan Portfolio Generates Meaningful Cash Flows Over Next Five Years
Education Loan Portfolio Generates Meaningful Cash Flows Over The Next Five Years $2.5 $2.5 $2.0 $2.0 oe $1.5 5 $15 a $1.0 = $1.0 2 ¢ $0.5 $0.5 $0.0 $0.0 2019 2019 2020 2021 2022 2023 Remaining Remaining Cash Flows assuming call option can be exercised at 10% "Cash Flows assuming trusts run to matur
Slide 34: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable $'s in millions as of 3/31/2019 2019 2020 2021 2022 2023 2024 2025 2026 Projected FFELP Average Balance $66,600 $60,562 $54,148 $48,056 $42,293 $36,679 $31,367 $26,366 Projected Excess Spread $544 $657 $597 $538 $496 $440 $404 $377 Projected Servicing Revenue $252
Slide 35: Secured Cash Flow
Secured Cash Flow Sin 2018 2017 2016 ELP Term Securitized Senicing (Cash Paid) $ 67 S$ 288 $ 314 $ 342 Net Residual’ (Excess Distributions) 193 583 643 624 Other Secured FFELP Net Cash Flow ?? 49 706 612 503 Total FFELP” $ 309 _ $ 157s T569_$ TA69 Private Credit Term Securitized Senicing (Cash Paid)
Slide 36: FFELP ABS
FFELP ABS
Slide 37: Recent FFELP ABS Issuance Characteristics
Recent FFELP ABS Issuance Characteristics FFELP ABS Transaction Features Collateral Characteristics + Issue size of $500M to $1.0B + Insurance or guarantee of underlying collateral insulates bondholders from + Denominated in US$ most risk of loss of principal ' + Senior and subordinate notes * Typic
Slide 38: FFELP Loan Program Characteristics
FFELP Loan Program Characteristics Subsidized Stafford Unsubsidized Stafford | PLUS/Grad PLUS Consolidation Borrower Student ‘Student Parents or Graduate Students Needs Based Yes No No Federal Guarantee of Principal anid ‘Accrued Interest ‘97 - 100% 97 - 100% 97 - 100% Interest Subsidy Payments Yes
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 Navient Private Education Loan ABS Issuance Characteristics
Recent Navient Private Education Loan ABS Issuance Characteristics Private Education Loan ABS Transaction Features + Issue size of $500M to $750M + Senior and subordinate notes Amortizing tranches with 1 to 10 year average lives Fixed rate or floating rate tied to 1 month LIBOR Compliant with U.S. r
Slide 43: Navient Private Education Loan Programs
Navient Private Education Loan Programs F | sraopion | 2 Origination Channel School Direct-to-Consumer Lender Lender 5 College Graduates & Select Typical Borrower Student Student College Graduates Noa Greduaise ‘Typical Co-signer Parent Parent Parent Parent, as applicable $10k avg orig bal, 10 yr av
Slide 44: Navient Private Education Trusts
Navient Private Education Trusts Navient NAV NAV 17-A 18-0 2014-2018 YTD Issuance Program Bond Amount (Smil) 463 664 689 700 359 488 662 507 $21 632 647 $50 Initial AAA Enhancement (%) 30% 30% 32% 36% 48% 41% 22% 12% (28% 15% 14% 21% Initial Enhancement (%) 17% 22% 23% 36% 40% 34% 12% 4% 16% 6% 5% 1
Slide 45: Navient Private Education Loan Trusts — Prepayment Analysis
Navient Private Education Loan Trusts — Prepayment Analysis * Constant prepayment rates have increased since 2014 on increased seasoning-related voluntary prepayment and the emergence of the external student loan refinance market Constant Prepayment Rate (CPR) PSK I SF SF LF FS SF FF FO SY — 2002-4
Slide 46: Appendix
Navient Corporation Appendix
Slide 47: Notable Items Impacting Total Expenses Compared to Prior Quarter
Notable Items Impacting Total Expenses Compared to Prior Quarter ($In millions) | a1 19 | ai18 Reported Core Earnings Expenses $257 $282 Year over Year Change in Reported Core Earnings Expenses (9%) EEE Restructuring & Reorganization Expenses 1 87 Reguiatory-Related Expenses s7 $4 Adjusted Core Earn
Slide 48: Notable Items Impacting Total Expenses Compared to Prior Year
Notable Items Impacting Total Expenses Compared to Prior Year ($ In millions) | 2018 | 2017 Reported Core Earnings Expenses $997, $995 Year over Year Change in Reported Core Earnings Expenses % ay Restructuring & Reorganization Expenses $13 $29 Regulatory-Related Expenses $29 $14 Adjusted Core Earni
Slide 49: GAAP Results
GAAP Results (In millions, except per share amounts) |} Q418 | Net income (loss) $128 $72 Diluted earnings (loss) per common share $0.52 $0.28 Operating expenses $256 $252 Provision for loan losses $76 $85 Average Education Loans $93,987 $96,380 © 2018 Navient Solusons, LLC. Al nghis reserved. Q118
Slide 50: 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 2 3 4 5.
Slide 51: Differences Between Core Earnings And GAAP
Differences Between Core Earnings And GAAP Quarters Ended Core Earnings adjustments to GAAP: Mar.31, Dec. 31, Mar. 31, (Dollars in Millions) 2019 2018 2018 GAAP net income (loss) $128 $72 $126 Net impact of derivative accounting 6 59 (31) Net impact of goodwill and acquired intangible assets 7 8 9 N
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 Quarterly
Slide 53: NAVIENT
NAVIENT.