Navient Corporation · NASDAQ:NAVI
Navient — Q4 2015 Earnings Presentation
71 slides from Navient's earnings presentation, Feb 26, 2016
Slide 1: 2015 4th Quarter Investor Deck
2015 4th Quarter Investor Deck February 26, 2016 Exhibit 99.1
Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures
Forward-Looking Statements; Non-GAAP Financial Measures The following information is current as of February 26, 2016 (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, 2015 (the “2015 Form 10-K”)
Slide 3: Key Businesses Highlights
Key Businesses Highlights Asset Management FFELP Loan Portfolio Private Education Loan Portfolio $96 Billion FFELP Portfolio $26 Billion Private Education Loan Portfolio Asset Servicing FFELP Loans Private Education Loans Department of Education Servicing Contract Guarantor Servicing Over 12 Million
Slide 4: Operating Results "Core Earnings" Basis
Operating Results “Core Earnings” Basis (In millions, except per share amounts) Q4 15 Q4 14 2015 2014 Reported Core EPS $0.48 $0.53 $1.82 $1.93 Net income $172 $217 $694 $818 Operating expenses $235 $215 $918 $924 Provision $115 $138 $561 $579 Average student loans $125,023 $130,192 $129,224 $131,44
Slide 5: High Quality Education Loan Portfolio
High Quality Education Loan Portfolio Note: Financial data as of 12/31/2015 Private Education Portfolio Balance ($bn, net of allowance) $26 Avg. Loan Size $9,979 Avg. Recent FICO 718 % Cosigner 64% Largest holder of FFELP loans 97-98% of portfolio is government guaranteed 78% of portfolio funded to
Slide 6: FFELP Loans Segment "Core Earnings" Basis
(In millions) Q4 15 Q4 14 2015 2014 Net income $74 $85 $321 $299 Average FFELP Loans $97,472 $99,323 $100,421 $100,202 Net interest margin 0.84% 0.91% 0.84% 0.90% Annualized charge-off rate 0.07% 0.05% 0.05% 0.08% Greater than 90-day delinquency rate 8.3% 8.5% 8.3% 8.5% FFELP Loans Segment “Core Ear
Slide 7: FFELP Loans Segment Credit Quality
FFELP Loans Segment Credit Quality “Core Earnings” Basis (1) Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar ex
Slide 8: Private Education Loans Segment "Core Earnings" Basis
Private Education Loans Segment “Core Earnings” Basis (In millions) Q4 15 Q4 14 2015 2014 Net income $56 $92 $233 $351 Average Private Education Loans $27,551 $30,869 $28,803 $31,243 Net interest margin 3.61% 3.89% 3.67% 3.94% Provision for loan losses $110 $128 $538 $539 Charge-offs1 $141 $174 $659
Slide 9: Private Education Loans Segment Credit Quality
Private Education Loans Segment Credit Quality “Core Earnings” Basis (1) Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace
Slide 10: Private Education Loans Segment High Quality Portfolio
Private Education Loans Segment High Quality Portfolio Private Education Loan Charge-Off Rate by Segment Private Education Loan Recent FICO Score by Segment As the portfolio seasons defaults continue to decline and recent FICO scores are rising
Slide 11: Private Education Loans Segment Default Performance
Private Education Loans Segment Default Performance As of December 31, 2015 Private Education Loan Historical Defaults by Payments Made Private Education Loans Outstanding by Payments Made The average number of payments made for the Private Education Loan Portfolio is 55 The probability of default s
Slide 12: Loan Seasoning – Core Earnings Basis December 31, 2015
Loan Seasoning – “Core Earnings” Basis December 31, 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 1,859 Loans in Forbearance 292 18.8% 118 6.7% 122 4.5% 109 3.1% 2
Slide 13: Loan Seasoning – Core Earnings Basis December 31, 2014
Loan Seasoning – “Core Earnings” Basis December 31, 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 2,777 Loans in Forbearance 376 15.7% 149 5.2% 133 3.4% 111 2.7% 1
Slide 14: Business Services Segment "Core Earnings" Basis
Business Services Segment “Core Earnings” Basis (In millions) Q4 15 Q4 14 2015 2014 Net income $81 $95 $338 $425 Federal Loans serviced ($’s in billions) $288 $276 $288 $276 Intercompany loan servicing revenue $103 $111 $427 $456 Third-Party Loan servicing revenue $54 $46 $191 $176 Asset recovery &
Slide 15: Business Services Segment Federal Loan Servicing
Business Services Segment Federal Loan Servicing
Slide 16: Asset Recovery & Business Processing
Business Services Segment Asset Recovery & Business Processing Non Federal Student Loan Related Revenues Strong business franchise Large sophisticated operating infrastructure Compliance focused Industry leading performance Total contingent collections receivables inventory of $20.2 billion1 Over 1,
Slide 17: Higher Education Industry
Higher Education Industry
Slide 18: Navient's Role is to Help Student Borrowers Successfully Repay Their Loans
Navient’s Role is to Help Student Borrowers Successfully Repay Their Loans
Slide 19: The Majority of Student Loan Balances Are Less Than $25,000
The Majority of Student Loan Balances Are Less Than $25,000 Distribution Of Student Loan Balances, 4Q 2014 Federal Reserve Bank Of New York, "Student Loan Borrowing and Repayment Trends, 2015," 4/16/15
Slide 20: On an Individual Basis, Student Debt is More Reasonable
On an Individual Basis, Student Debt is More Reasonable Than May Be Evident Source: College Board: "Trends in Student Aid 2015", "Average Cumulative Debt in 2014 Dollars: Bachelor’s Degree Recipients at Public and Private Nonprofit Four-Year Institutions, 2003-04, 2008-09, and 2013-14"; National Cen
Slide 21: Defaults Are a Bigger Problem For Students Who Drop Out
Defaults Are a Bigger Problem For Students Who Drop Out Than For Degree Holders Percent Of Students In Default Federal Loan Default Rates By Attainment One of the strongest indicators of whether a borrower will default is whether they make it to graduation Dropouts are over four times more likely to
Slide 22: Recent College Graduates Have Seen Wages Increase Substantially
Source: Federal Reserve Bank Of New York, "The Labor Market for Recent College Graduates: Wages," last updated January 29, 2016. Notes: Annual wages are expressed in constant 2015 dollars. Recent college graduates are those aged 22 to 27 with a bachelor's degree only; high school graduates are those
Slide 23: Navient Customer Success Has Improved Every Year Since 2009
Navient Customer Success Has Improved Every Year Since End of the Recession in 2009 January 2010 To May 2015 Federal Loan Delinquency Rates Six Months After End of Grace Period and Unemployment for Bachelor's Degree Holders Delinquency Rate (%) Unemployment Rate (%) Unemployment Source: Navient data
Slide 24: Navient's Default Prevention Expertise and the National Default Rate
Navient’s Default Prevention Expertise Was a Key Factor in the Decline of the National Default Rate 2012 Three-Year Cohort Default Rate Default Rate (%) The cohort default rate (CDR) measures the percent of borrowers who defaulted on a student loan within three years of entering repayment. In 2015,
Slide 25: The Benefits of a College Degree Outweigh the Costs
The Benefits of Obtaining a College Degree Outweigh the Costs by a Wide Margin Source: College Board: Education Pays 2013, NYT Upshot, Georgetown University Center on Education and the Workforce Cumulative Earnings Net Of College Repayment Costs Cumulative Earnings (2011 USD) Age A college degree pa
Slide 26: More Degree Holders Have Paid Off College Debt
More Bachelor’s and Advanced Degree Holders Have Paid Off College Debt Even Though Borrowing is Higher Those without a degree have borrowed less but fewer have paid off their borrowing (ages 22-35) Source: Navient/Ipsos “Money Under 35,”a national study of 3,000 Americans ages 22 to 35, December 201
Slide 27: Program Complexity Can Be Streamlined
Program Complexity Can Be Streamlined Forbearance Discretionary Forbearance Hardship Forbearance Mandatory Forbearance Medical or Dental Internship Residency Department of Defense Student Loan Repayment Programs National Service Active Military State Duty Student Loan Debt Burden Teacher Loan Forgiv
Slide 28: Funding and Liquidity
Funding and Liquidity
Slide 29: Capital Markets Summary
Acquired $3.7 billion of student loans Issued $2.8 billion of FFELP ABS Issued $1.7 billion of Private Education Loan ABS Raised approximately $500 million through a new two year Private Education Loan repurchase facility involving three securitizations (SLM Student Loan Trusts 2012-C, 2012-D, 2012-
Slide 30: Secured Funding
Secured Funding Navient is among the largest issuers of ABS globally, having issued over $275 billion of Private Education and FFELP ABS transactions to date Over $94 billion1 of securitizations on balance sheet Available capacity under FFELP secured facilities is $3.6 billion1 Available capacity un
Slide 31: Recent FFELP ABS Transactions
NAVSL 2015-3 NAVSL 2015-2 Priced: Settled: June 10, 2015 June 18, 2015 April 14, 2015 April 23, 2015 Issuance Amount: $758M $997M Collateral: US Govt. Guaranteed FFELP Stafford, Plus and Consolidation Loans US Govt. Guaranteed FFELP Stafford and Plus Loans Prepayment Speed (1): 6% CPR Stafford / 4%
Slide 32: Recent Private Education Loan ABS Transactions
Recent Private Education Loan ABS Transactions Estimated based on a variety of assumptions concerning loan repayment behavior, as more fully described in the related prospectus, which may be obtained at https://www.navient.com/about/investors/debtasset/slmsltrusts/. Actual average life may vary sign
Slide 33: Unsecured Debt Maturities
Unsecured Debt Maturities Fitch Moody’s S&P Long-Term Rating BB Ba3 BB Outlook Stable Stable Negative
Slide 34: Conservative Unsecured Debt Profile
Conservative Unsecured Debt Profile December 31, 2006 December 31, 2010 December 31, 2015 Total Managed Student Loans $142.1 Billion $184.3 Billion $122.9 Billion Unsecured Debt Outstanding $48.7 Billion $20.1 Billion $15.1 Billion Tangible Equity Ratio 1.9% 2.2% 2.5% Tangible Net Asset Ratio 1.06x
Slide 35: Projected Life of Loan Cash Flows over ~20 Years
Projected Life of Loan Cash Flows over ~20 Years These projections are based on internal estimates and assumptions and are subject to ongoing review and modification. These projections may prove to be incorrect. Enhancing Cash Flows1 Education Loan Portfolio Generates Significant Cash Flows Reduced
Slide 36: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable Total Cash Flows from Projected Excess Spread = $7.0 Billion Total Cash Flows from Projected Servicing Revenues = $3.5 Billion Assumptions No Floor Income, CPR/CDR = Stafford & Plus (3%), Consolidation (3%) These projections are based on internal estimates and ass
Slide 37: Secured Cash Flow
Secured Cash Flow Note: Totals may not add due to rounding *Net residual represents excess distribution, net of payments on floor contracts and receipts from basis swaps
Slide 38: FFELP ABS
FFELP ABS
Slide 39: Legal Final Maturity Date Update Sponsor Support Activities
Legal Final Maturity Date Update Sponsor Support Activities Exercise Optional Servicer Clean-Up Calls: In 2015, Navient exercised cleanup call options related to 12 FFELP ABS trusts totaling $1.1 billion of bonds outstanding Exercise Optional Servicer Purchases: We amended the servicing agreements f
Slide 40: Legal Final Maturity Date Update Sponsor Support Activities
Legal Final Maturity Date Update Sponsor Support Activities Disclosure of Loan Performance Data: Enhanced our quarterly reporting spreadsheets for Navient-sponsored FFELP ABS trusts to provide additional information on: The level of enrollment in the IDR program The payments owed by FFELP loans enro
Slide 41: Recent FFELP ABS Issuance Characteristics
Recent FFELP ABS Issuance Characteristics FFELP ABS Transaction Features Collateral Characteristics (1) Principal and accrued interest on underlying FFELP loan collateral carry insurance or guarantee of 97%-100% dependent on origination year and on meeting the servicing requirements of the U.S. Depa
Slide 42: FFELP Loan Program Characteristics
FFELP Loan Program Characteristics (1) Aggregate loan limit for a Dependent Undergraduate is $31,000 Note: As of July 1, 2011 . Parameter Subsidized Stafford Unsubsidized Stafford PLUS/Grad PLUS Subsidized Consolidation Unsubsidized Consolidation Borrower Student Student Parents or Graduate Students
Slide 43: 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 Loan program Prepayments increased beginning
Slide 44: 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 Special Direct Consolidation Loan program Navien
Slide 45: Private Education Loan ABS
Private Education Loan ABS
Slide 46: 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 Triple-A rated senior notes, Single-A rated subordinated notes 20-40% Triple-A overcollateralization Amortizing tranches with 1 to 10 yea
Slide 47: Private Education Loan Program Types
Smart Option Undergraduate/Graduate/ Med/Law/MBA Direct-to-Consumer (DTC) Consolidation Career Training Origination Channel School School Direct-to-Consumer Lender School Typical Borrower Student Student Student College Graduates Student Typical Co-signer Parent Parent Parent Parent Parent, Spouse T
Slide 48: Navient Private Education Trusts
Navient Private Education Trusts (1) Assumes Prime/LIBOR spread of 3.00% for all transactions.
Slide 49: 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 December 2015, the private s
Slide 50: 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 Navient Private Education Loan Trusts – Prepayment Analysis
Slide 51: 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’ securitization criteria (including those criteria listed below): Program type
Slide 52: 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 repayme
Slide 53: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 12/31/15. Undergraduate/Graduate loans marketed under the Signature Student Loan brand. Periodic Defaults for the most recent calendar Year in Repayment are for a partial year. Numerator is the amount of principal in each cohort that defaulted in each Year i
Slide 54: Cohort Default Triangles – With Co-signer
Cohort Default Triangles Undergraduate/Graduate(1) With Co-signer Note: Data as of 12/31/15. Undergraduate/Graduate loans marketed under the Signature Student Loan brand. Periodic Defaults for the most recent calendar Year in Repayment are for a partial year. Numerator is the amount of principal in
Slide 55: Cohort Default Triangles – Without Co-signer
Cohort Default Triangles Undergraduate/Graduate(1) Without Co-signer Note: Data as of 12/31/15. Undergraduate/Graduate loans marketed under the Signature Student Loan brand. Periodic Defaults for the most recent calendar Year in Repayment are for a partial year. Numerator is the amount of principal
Slide 56: Cohort Default Triangles – Non-Profit
Cohort Default Triangles Note: Data as of 12/31/15. Undergraduate/Graduate loans marketed under the Signature Student Loan brand. Periodic Defaults for the most recent calendar Year in Repayment are for a partial year. Numerator is the amount of principal in each cohort that defaulted in each Year i
Slide 57: Cohort Default Triangles – For-Profit
Cohort Default Triangles Note: Data as of 12/31/15. Undergraduate/Graduate loans marketed under the Signature Student Loan brand. Periodic Defaults for the most recent calendar Year in Repayment are for a partial year. Numerator is the amount of principal in each cohort that defaulted in each Year i
Slide 58: Cohort Default Triangles – FICO 740-850
Cohort Default Triangles Undergraduate/Graduate(1) Loans, FICO 740-850(2) Note: Data as of 12/31/15. Undergraduate/Graduate loans marketed under the Signature Student Loan brand. FICO scores are based on the greater of the borrower and co-borrower scores as of a date near the loan application. Perio
Slide 59: Cohort Default Triangles – FICO 700-739
Cohort Default Triangles Undergraduate/Graduate(1) Loans, FICO 700-739(2) Note: Data as of 12/31/15. Undergraduate/Graduate loans marketed under the Signature Student Loan brand. FICO scores are based on the greater of the borrower and co-borrower scores as of a date near the loan application. Perio
Slide 60: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 12/31/15. Undergraduate/Graduate loans marketed under the Signature Student Loan brand. FICO scores are based on the greater of the borrower and co-borrower scores as of a date near the loan application. Periodic Defaults for the most recent calendar Year in
Slide 61: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 12/31/15. Undergraduate/Graduate loans marketed under the Signature Student Loan brand. FICO scores are based on the greater of the borrower and co-borrower scores as of a date near the loan application. Periodic Defaults for the most recent calendar Year in
Slide 62: Cohort Default Triangles – Private Consolidation Loans
Cohort Default Triangles Private Consolidation Loans Without Co-signer Private Consolidation Loans With Co-signer Note: Data as of 12/31/15. Periodic Defaults for the most recent calendar Year in Repayment are for a partial year. Numerator is the amount of principal in each cohort that defaulted in
Slide 63: Cohort Default Triangles – DTC
Cohort Default Triangles Note: Data as of 12/31/15. Periodic Defaults for the most recent calendar Year in Repayment are for a partial year. Numerator is the amount of principal in each cohort that defaulted in each Year in Repayment. Denominator is the amount of disbursed principal for that Repayme
Slide 64: Cohort Default Triangles – DTC FICO
Cohort Default Triangles Note: Data as of 12/31/15. FICO scores are based on the greater of the borrower and co-borrower scores as of a date near the loan application. Periodic Defaults for the most recent calendar Year in Repayment are for a partial year. Numerator is the amount of principal in eac
Slide 65: Cohort Default Triangles – DTC FICO
Cohort Default Triangles Note: Data as of 12/31/15. FICO scores are based on the greater of the borrower and co-borrower scores as of a date near the loan application. Periodic Defaults for the most recent calendar Year in Repayment are for a partial year. Numerator is the amount of principal in eac
Slide 66: Cohort Default Triangles – Career Training Loans
Cohort Default Triangles Note: Data as of 12/31/15. FICO scores are based on the greater of the borrower and co-borrower scores as of a date near the loan application. Periodic Defaults for the most recent calendar Year in Repayment are for a partial year. Numerator is the amount of principal in eac
Slide 67: Navient Corporation Appendix
Navient Corporation Appendix
Slide 68: GAAP Results
GAAP Results (In millions, except per share amounts) Q4 15 Q4 14 2015 2014 Net income $286 $263 $997 $1,149 EPS $0.79 $0.64 $2.61 $2.69 Operating expenses $235 $215 $918 $987 Provision $115 $138 $561 $628 Average Student Loans $125,023 $130,192 $129,224 $134,334
Slide 69: Differences between Core Earnings and GAAP
Quarter ended December 31, 2015 ($ in millions) Differences between “Core Earnings” and GAAP “Core Earnings” adjustments to GAAP: GAAP net income $ 286 Net impact of derivative accounting (186) Net impact of goodwill and acquired intangible assets 5 Net income tax effect 67 Total “Core Earnings” adj
Slide 70: Investor Relations Website
Investor Relations Website 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 Quarterly distribution factors Historical trust performan
Slide 71: NAVIENT.
NAVIENT.