Navient Corporation · NASDAQ:NAVI
Navient — Q2 2015 Earnings Presentation
55 slides from Navient's earnings presentation, Aug 5, 2015
Slide 1: 2015 2nd Quarter Investor Deck
Exhibit 99.1 nd 2015 2 Quarter Investor Deck August 4, 2015
Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures
Forward-Looking Statements; Non-GAAP Financial Measures The following information is current as of August 4, 2015 (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, 2014 (the “2014 Form 10-K”), fil
Slide 3: Navient Corporation Overview
Navient Corporation Overview Confidential and proprietary information © 2015 Navient Solutions, Inc. All rights reserved. 3
Slide 4: We are the leading loan management, servicing and asset recovery company
We are the leading loan management, servicing and asset recovery company Key Businesses Highlights Asset Management • FFELP Loan Portfolio • $100 Billion FFELP Portfolio • Private Education Loan Portfolio • $28 Billion Private Education Loan Portfolio Servicing • FFELP Loans • Over 12 Million Borrow
Slide 5: Operating Results "Core Earnings" Basis
Operating Results “Core Earnings” Basis (In millions, except per share amounts) Q2 15 Q1 15 Q2 14 Reported Core EPS $0.40 $0.48 $0.56 Operating expenses $225 $230 $195 Net income $154 $194 $241 Provision $198 $125 $155 Average student loans $130,512 $133,722 $131,875 Confidential and proprietary inf
Slide 6: Student Loan Market
Student Loan Market Estimated Outstanding Student Loan Market Distribution $1.2 Trillion as of FFYE 9/30/2014 ($ in billions) Private Loans, $62 Private Owned by Navient, $30 Federal Loans FFELP owned by owned by ED, $875 Navient, $98 FFELP Loans, $157 Source: Navient estimates for total outstanding
Slide 7: High Quality Education Loan Portfolio
High Quality Education Loan Portfolio FFELP Portfolio Private Education Portfolio • Largest holder of FFELP loans • Largest holder of Private Education loans • 97-98% of portfolio is government • Seasoned portfolio with 93% of loans in guaranteed repayment status having made more than 12 payments •
Slide 8: FFELP Loans Segment "Core Earnings" Basis
FFELP Loans Segment “Core Earnings” Basis (In millions) Q2 15 Q1 15 Q2 14 Net income $93 $85 $72 Average FFELP Loans $101,305 $103,617 $100,467 FFELP Loan spread 0.91% 0.96% 0.98% Net interest margin 0.81% 0.88% 0.89% Annualized charge-off rate 0.05% 0.03% 0.08% Greater than 90-day delinquency rate
Slide 9: FFELP Loans Segment Credit Quality "Core Earnings" Basis
FFELP Loans Segment Credit Quality “Core Earnings” Basis ($'s in millions) FFELP Education Loan Portfolio June 30, 2015 June 30, 2014 Balance % Balance % Loans in-school/grace/deferment $9,760 $11,794 Loans in forbearance 14,203 14,929 Loans in repayment and percentage of each status Loans current 6
Slide 10: Private Education Loans Segment "Core Earnings" Basis
Private Education Loans Segment “Core Earnings” Basis (In millions, except FICO score) Q2 15 Q1 15 Q2 14 Net income $22 $77 $86 Average Private EducationLoans $29,207 $30,105 $31,408 Private Education Loanspread 3.66% 3.87% 4.10% Net interest margin 3.55% 3.74% 4.00% Provision for loan losses $191 $
Slide 11: Private Education Loans Segment Credit Quality "Core Earnings" Basis
Private Education Loans Segment Credit Quality “Core Earnings” Basis ($'s in millions) Private Education Loan Portfolio June 30, 2015 June 30, 2014 Balance % Balance % Loans in-school/grace/deferment $2,439 $3,375 Loans in forbearance 998 1,201 Loans in repayment and percentage of each status Loans
Slide 12: Private Education Loans Segment High Quality Portfolio
Private Education Loans Segment High Quality Portfolio Private Education Loan % of Portfolio Outstanding by Segment Private Education Loan Charge-Off 1 Rate by Segment 100% 11% 11% 10% 9% 8% 8% 14% 13% 90% 25% 80% 24% 24% 21.3% 27% 25% 29% 29% 28% 29% 70% 20% 17.3% 60% 50% 15% 12.6% 40% 10.4% 11.1%
Slide 13: Private Education Loans Segment High Quality Portfolio
Private Education Loans Segment High Quality Portfolio Private Education Loan Charge-Off 1 Rate by Segment Private Education Loan Portfolio 14% 12.7% • Seasoned portfolio with 93% of loans in repayment status having made more than 12 12% payments 9.9% 10% 9.2% 8% 6.9% 6.8% 5.4% • Non-traditional loa
Slide 14: Private Education Loans Segment Default Performance
Private Education Loans Segment Default Performance Historical Defaults by Payments Made 92% 94% 96% 97% 99% 99% 100% 100% 87% 89% 91% 81% 85% 76% 69% 57% 57% 50% 12% 8% 5% 4% 3% 2% 2% 1% 2% 2% 1% 1% 1% 1% 0% 12 24 36 48 60 72 84 96 108 120 132 144 156 168 180 Defaults Per Payments Made Cumulative D
Slide 15: Loan Seasoning – "Core Earnings" Basis
Loan Seasoning – “Core Earnings” Basis June 30, 2015 Traditional Portfolio Monthly Scheduled Payments Received Loan Status 0-12 payments 13-24 payments 25-36 payments 37-48 payments More than 48 payments Total Not Yet in Repayment 2,218 Loans in Forbearance 332 17.3% 131 5.6% 122 3.5% 108 2.9% 187 1
Slide 16: Loan Seasoning – "Core Earnings" Basis
Loan Seasoning – “Core Earnings” Basis June 30, 2014 Traditional Portfolio Monthly Scheduled Payments Received Loan Status 0-12 payments 13-24 payments 25-36 payments 37-48 payments More than 48 payments Total Not Yet in Repayment 3,036 Loans in Forbearance 461 16.8% 178 4.8% 153 3.6% 114 2.7% 153 1
Slide 17: Business Services Segment "Core Earnings" Basis
Business Services Segment “Core Earnings” Basis (In millions) Q2 15 Q1 15 Q2 14 Net income $90 $86 $130 Federal Loans serviced ($’s in billions) $281 $282 $272 Third-Party Loan servicing revenue $47 $44 $42 Asset recovery revenue $99 $89 $132 Department of Education accounts serviced 6.1 6.2 5.8 Con
Slide 18: Business Services Segment Federal Loan Servicing
Business Services Segment Federal Loan Servicing Total Federal Loans Serviced $300 $275 $250 $225 $200 $175 $150 2011 2012 2013 2014 Q2 15 Confidential and proprietary information © 2015 Navient Solutions, Inc. All rights reserved. 18
Slide 19: Business Services Segment Asset Recovery
Business Services Segment Asset Recovery Contingent Asset Recovery Receivables Key Characteristics • Generated $188 million of revenue YTD 1 $20.1 billion as of June 30, 2015 • Strong compliance infrastructure Other 46% Student Loan • Opportunities to expand into state, court and Related municipalit
Slide 20: Funding and Liquidity
Funding and Liquidity Confidential and proprietary information © 2015 Navient Solutions, Inc. All rights reserved. 20
Slide 21: 2015 Capital Markets Summary
2015 Capital Markets Summary • Acquired $1.8 billion 1 of student loans • Issued $2.8 billion of FFELP ABS • Issued $689 million of Private Education Loan ABS • Issued $500 million of long-term unsecured debt • Repurchased over $1 billion of long-term unsecured debt • Returned $724 million 1 to shar
Slide 22: Secured Funding
Secured Funding 2015 YTD Issuance 1 Ford 7,607 Auto / Floorplans • Navient is among the largest issuers 2 Chase 6,125 Credit Card of ABS globally, having issued over 3 Ally 4,800 Auto/ Floorplans $275 billion of Private and FFELP 4 Hyundai 4,132 Auto 5 Santander Drive 3,621 Auto ABS transactions to
Slide 23: Recent FFELP ABS Transactions
Recent FFELP ABS Transactions NAVSL 2015-3 NAVSL 2015-2 Priced: June 10, 2015 April 14, 2015 Settled: June 18, 2015 April 23, 2015 Issuance Amount: $758M $997M US Govt. Guaranteed US Govt. Guaranteed Collateral: FFELP Stafford, Plus and Consolidation Loans FFELP Stafford and Plus Loans Prepayment Sp
Slide 24: Recent Private Education Loan ABS Transactions
Recent Private Education Loan ABS Transactions NAVSL Trust 2015-A NAVSL Trust 2014-A Priced: January 13, 2015 October 15, 2014 Settled: January 22, 2015 October 23, 2014 Issuance Amount: $689M $664M Collateral: Private Education Loans Private Education Loans Prepayment Speed (1): 4% Constant Prepaym
Slide 25: Unsecured Debt Maturities
Unsecured Debt Maturities As of June 30, 2015 (par value, $ in billions) $4.2 $2.8 $2.5 $2.1 $1.8 $1.2 $0.6 $0.8 $0.5 2015 2016 2017 2018 2019 2020 2021 2022 2023+ Fitch Moody’s S&P Senior Unsecured Debt BB Ba3 BB Outlook Stable Stable Stable Confidential and proprietary information © 2015 Navient S
Slide 26: Conservative Unsecured Debt Profile
Conservative Unsecured Debt Profile $70 Years Ending December 31 1.35 (par value, $ in billions) $60 1.30 $51.7 $48.7 $47.2 $50 $45.1 1.25 $39.4 $38.0 $40 1.20 $30.2 $30 $28.0 1.15 $24.0 $22.4 $23.0 $22.1 $20.1 $21.8 $20.3 $17.0 $17.8 $18.3 $17.5 $16.2 $20 1.10 $10 1.05 $0 1.00 2006 2007 2008 2009 2
Slide 27: 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 Cash Flow Projection as of 12/31/14 $36.2 B FFELP Cash Flows 6/30/15 12/31/14 Secured - Cash Flows Realized from Loan Portfolio (1.6) B - Cash Flows from Fi
Slide 28: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable $’s in millions as of 6/30/15 Q3-Q4 2015 2016 2017 2018 2019 2020 2021 2022 Projected FFELP Average Balance $95,924 $89,958 $81,400 $73,052 $65,223 $57,360 $49,792 $42,626 Projected Excess Spread $431 $829 $738 $655 $590 $518 $456 $404 Projected Servicing Revenue
Slide 29: Secured Cash Flow
Secured Cash Flow $ in Millions 2Q15 YTD 2014 2013 2012 FFELP Term Securitized Servicing (Cash Paid) $ 199 $ 407 $ 507 $ 526 Net Residual* (Excess Distributions) 375 680 476 628 Other Secured FFELP Net Cash Flow 170 216 1,199 934 Total FFELP $ 744 $ 1,302 $ 2,182 $ 2,088 Private Credit Term Securiti
Slide 30: FFELP ABS Appendix
FFELP ABS Appendix Confidential and proprietary information © 2015 Navient Solutions, Inc. All rights reserved. 30
Slide 31: Recent FFELP ABS Issuance Characteristics
Recent FFELP ABS Issuance Characteristics FFELP ABS Transaction Features Collateral Characteristics • Issue size of $500M to $1.5B • Insurance or guarantee of underlying collateral insulates bondholders from • Tranches or pass-through denominated in virtually any loss of principal (1) US$ • Triple-A
Slide 32: FFELP Loan Program Characteristics
FFELP Loan Program Characteristics Unsubsidized Parameter Subsidized Stafford Unsubsidized Stafford PLUS/Grad PLUS Subsidized Consolidation Consolidation Parents or Graduate Borrower Student Student Student or Parents Student or Parents Students Needs Based Yes No No N/A N/A Federal Guarantee of Pri
Slide 33: 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 34: 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 35: Private Education Loan ABS Appendix
Private Education Loan ABS Appendix Confidential and proprietary information © 2015 Navient Solutions, Inc. All rights reserved. 35
Slide 36: Recent Private Education Loan ABS Issuance Characteristics
Recent Private Education Loan ABS Issuance Characteristics Private Education Loan ABS Transaction Features Collateral Characteristics • Issue size of $500M to $1.5B • Collateralized by loans made to students and parents to fund college tuition, room • Triple-A rated senior notes, Single-A rated and
Slide 37: Navient Private Education Loan Programs
Navient Private Education Loan Programs Undergraduate/Graduate/ Smart Option Direct-to-Consumer (DTC) Consolidation Career Training Med/Law/MBA Origination Channel School School Direct-to-Consumer Lender School Typical Borrower Student Student Student College Graduates Student Typical Co-signer Pare
Slide 38: Navient Private Education Trusts
Navient Private Education Trusts Summary Information 2011-2015YTD Issuance Program Navient NAV NAV NAV 11-A 11-B 11-C 12-A 12-B 12-C 12-D 12-E 13-A 13-B 13-C 14-A 14-CT 14-A 15-A Bond Amount ($mil) 562 825 721 547 891 1,135 640 976 1,108 1,135 624 676 463 664 689 Initial AAA Enhancement (%) 21% 18%
Slide 39: Navient Portfolio Transition to Seasoned Collateral
Navient Portfolio Transition to Seasoned Collateral • Securitized collateral will continue to season as the company transitions from originations to portfolio acquisition and management • Most defaults occur early in repayment; loan performance improves as loans season • As of June 2015, the private
Slide 40: Navient Private Education Loan Trusts – Prepayment Analysis
Navient Private Education Loan Trusts – Prepayment Analysis • Constant prepayment rates increased in 2007 due to the introduction of Private Education Consolidation loans, then declined following our decision to suspend our consolidation loan program in 2008 Confidential and proprietary information
Slide 41: Cohort Default Triangles
Cohort Default Triangles • The following cohort default triangles provide loan performance information for certain Private Education Loans of Navient Corporation and its consolidated subsidiaries that meet such subsidiaries’ current securitization criteria (including those criteria listed below): -
Slide 42: Cohort Default Triangles
Cohort Default Triangles • The cohort default triangles featured on subsequent slides are segmented by loan program type, FICO score, cosigner status, and school type • Terms and calculations used in the cohort default triangles are defined below: - Repayment Year – The calendar year loans entered r
Slide 43: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate (1) Disbursed Principal (2),(3) Entering Periodic Defaults by Years in Repayment Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $11 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.4% 0.8% 0.4% 0.2% 1.5% 0.7% 0.4% 0.3% 0.0% 0.1% 5.0% 199
Slide 44: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) With Co-signer Disbursed Principal Entering Periodic Defaults by Years in Repayment (2),(3) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $6 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.6% 1.0% 0.4% 0.0% 0.2% 1.1% 0.1% 0.0% 0.0%
Slide 45: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate (1) Non-Profit Disbursed Principal Entering Periodic Defaults by Years in Repayment (2),(3) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $11 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.4% 0.4% 0.4% 0.2% 1.1% 0.7% 0.3% 0.4% 0.0% 0.
Slide 46: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate (1) Loans, FICO 740-850 (2) Disbursed Principal Entering Periodic Defaults by Years in Repayment (3),(4) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $3 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.4% 0.4% 0.9% 0.9% 0.0%
Slide 47: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate (1) Loans, FICO 670-699 (2) Disbursed Principal Entering Periodic Defaults by Years in Repayment (3),(4) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $3 0.0% 0.0% 0.0% 0.0% 0.0% 0.6% 0.6% 0.3% 0.5% 0.3% 2.8% 0.0% 0.5%
Slide 48: Cohort Default Triangles
Cohort Default Triangles Private Consolidation Loans With Co-signer Disbursed Principal Entering Periodic Defaults by Years in Repayment (1),(2) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 Total 2006 $249 0.0% 0.1% 0.1% 0.5% 0.6% 0.6% 0.4% 0.3% 0.4% 0.3% 0.0% 3.2% 2007 $675 0.0% 0.0% 0.2% 0
Slide 49: Cohort Default Triangles
Cohort Default Triangles DTC With Co-signer, FICO 670(1) Disbursed Principal (2),(3) Entering Periodic Defaults by Years in Repayment Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 Total 2004 $8 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.1% 0.4% 0.0% 0.2% 0.0% 0.0% 0.9% 2005 $65 0.0% 0.1% 0.8% 0.7% 1.
Slide 50: Cohort Default Triangles
Cohort Default Triangles Career Training Loans, 670+ FICO(1) Disbursed Principal Entering Periodic Defaults by Years in Repayment (2),(3) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 Total 2003 $291 0.0% 0.4% 1.4% 1.6% 1.7% 1.4% 1.4% 1.0% 0.8% 0.5% 0.4% 0.3% 0.1% 11.1% 2004 $382 0.0% 0
Slide 51: Navient Corporation Appendix
Navient Corporation Appendix Confidential and proprietary information © 2015 Navient Solutions, Inc. All rights reserved. 51
Slide 52: GAAP Results
GAAP Results (In millions, except per share amounts) Q2 15 Q1 15 Q2 14 Net income $182 $292 $307 EPS $0.47 $0.72 $0.71 Operating expenses $225 $230 $211 Provision $198 $125 $165 Average Student Loans $130,512 $133,722 $134,737 Confidential and proprietary information © 2015 Navient Solutions, Inc. A
Slide 53: Differences between "Core Earnings" and GAAP
Differences between “Core Earnings” and GAAP Quarter ended June 30, 2015 ($ in millions) “Core Earnings” adjustments to GAAP: GAAP net income $ 182 Net impact of SLM BankCo 1 29 Net impact of derivative accounting (83) Net impact of goodwill and acquired intangible assets 3 Net income tax effect 23
Slide 54: Investor Relations Website
Investor Relations Website https://www.navient.com/about/investors/ • SLM / NAVI student loan trust data (Debt/asset backed securities – SLM / NAVI Student Loan Trusts) - Static pool information – detailed portfolio stratifications by trust as of the cutoff date - Accrued interest factors - Quarterl
Slide 55: NAVIENT
NAVI=NT.