Navient Corporation · NASDAQ:NAVI
Navient — Q2 2020 Earnings Presentation
53 slides from Navient's earnings presentation, Aug 6, 2020
Slide 1: 2020 2nd Quarter Investor Deck
2020 2nd Quarter Investor Deck August 6, 2020
Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures
Forward-Looking Statements; Non-GAAP Financial Measures The following information is current as of June 30, 2020 (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, 2019 (the “2019 Form 10-K”), file
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
Slide 4: We Leverage Our Core Servicing Expertise in Education Finance and Business Processing
We Leverage Our Core Servicing Expertise in Education Finance and Business Processing Federal Education Loans Consumer Lending Segment Business Processing Segment Segment Own and Service Originate and Refinance Provide Processing Services for Education Loans Education Loans Healthcare & Government C
Slide 5: Successfully Building Long-term Value in Challenging Environment
Successfully Building Long-term Value in Challenging Environment Federal Education Loans Consumer Lending Segment Business Processing Segment Segment Provided immediate payment Dynamically adjusted our Rapidly pivoted from COVID-19 relief to 6 million borrowers originations in response to impa
Slide 6: Consistent, Growing Earnings To Shareholders
Consistent, Growing Earnings To Shareholders Long-term value for shareholders driven by consistent earnings and capital return Allocating capital to attractive investments, including portfolio acquisitions and new originations Continuously driving efficiency improvements and expense structure
Slide 7: 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
Slide 8: Navient Is Focused On Cost Efficiency
Navient Is Focused On Cost Efficiency Industry-Leading Efficiency Continuously Rationalizing Our Expense Base Maintaining a consistent efficiency ratio while Focus on reducing expenses across all of our managing an amortizing portfolio businesses, including third party efficiency studies Conti
Slide 9: 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 ✓ Execute dynamic capital allocation policy to maintain appropriate leverage that supports our credit ratings a
Slide 10: Consistently Executing On Our Capital Philosophy
Consistently Executing On Our Capital Philosophy Since 2014 Separation 1 Reduce Optimizing capital structure and return profile, and ensuring Reduced unsecured unsecured debt ongoing access to unsecured debt markets debt by $7.7 billion Paid $1.2 billion Dividends Consistent quarterly distributi
Slide 11: 2020 Outlook
2020 Outlook Key Company & Business Segment Metrics Full Year 2020 Year to Date 2020 Full Year 2020 Original Targets 1 Actuals Updated Guidance Core Earnings Return on Equity 2 High Teens to Low Twenties 21% ✓ Low to Mid Twenties Core Earnings Efficiency Ratio 3 ~50% 48% ✓ ~50% 3.6% Adjusted Tangibl
Slide 12: Funding & Liquidity
Funding & Liquidity © 2020 Navient Solutions, LLC. All rights reserved. 12
Slide 13: Q2 2020 Financing and Capital Management
Q2 2020 Financing and Capital Management Financing Issued 2 Private Education Loan ABS transactions for $1.3 billion Improvement in enhancement levels for high quality assets increases financing efficiency and reduces reliance on alternative funding Extended a FFELP Facility for two years and
Slide 14: FFELP ABS Transactions
FFELP ABS Transactions NAVSL 2019-4 NAVSL 2019-3 Pricing Date: October 16, 2019 September 17, 2019 Settlement Date: October 25, 2019 September 26, 2019 Issuance $497M $749M Amount: U.S. Government Guaranteed U.S. Government Guaranteed Collateral: FFELP Consolidation, FFELP Non-Consolidation Loans, F
Slide 15: Private Education Loan ABS Transactions
Private Education Loan ABS Transactions NAVSL 2020-F NAVSL 2020-E Pricing Date: July 20, 2020 June 18, 2020 Settlement Date: July 30, 2020 June 25, 2020 Issuance Amount: $781M $499M Collateral: Private Education Refi Loans Private Education Refi Loans Prepayment 15% CPR 15% CPR Speed 1: TALF Eligibi
Slide 16: 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
Slide 17: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities (par value, $ in billions) $2.1 $1.8 $1.8 $1.5 $1.5 $1.4 $1.4 $1.4 $1.3 $1.3 $1.3 $0.7 $0.5 $0.6 $0.6 $0.5 $0.5 $0.0 $0.0 $0.0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029+ As of June 30, 2019 As of June 30, 2020 Long-term Conservative Funding Approach • Navie
Slide 18: Education Loan Portfolio Generates Significant Cash Flows
Education Loan Portfolio Generates Significant Cash Flows Projected Life of Loan Cash Flows over ~20 Years Optimizing Cash Flows $’s in Billions • Generated $1.4 billion of cash flows YTD 2020 FFELP Cash Flows 06/30/20 Secured • Paid down unsecured debt of $0.7 billion YTD 2020 Residual (including O
Slide 19: 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 $1.4 $1.6 $1.2 $1.2 $1.4 $1.2 $1.0 $1.0 $1.0 $1.2 ($’s in Billions) $0.9 ($’s in Billions) $1.0 $1.0 $0.9 $0.9 $0.8 $0.8 $0.6 $0
Slide 20: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable $’s in millions as of 06/30/2020 2020 2021 2022 2023 2024 2025 2026 2027 Projected FFELP Average Balance $59,259 $54,283 $48,081 $42,238 $36,860 $31,798 $27,058 $22,658 Projected Excess Spread $294 $549 $488 $433 $386 $345 $325 $288 Projected Servicing Revenue $14
Slide 21: Secured Cash Flow
Secured Cash Flow $ in Millions Q2 2020 YTD 2019 2018 2017 FFELP Term Securitized Servicing (Cash Paid) $ 118 $ 253 $ 288 $ 314 Other Secured FFELP 2, 3 Net Cash Flow 530 794 634 694 Total FFELP $ 648 $ 1,223 $ 1,577 $ 1,569 Private Credit Term Securitized Servicing (Cash Paid) $ 60 $ 135 $ 147 $ 16
Slide 22: FFELP ABS
FFELP ABS © 2020 Navient Solutions, LLC. All rights reserved. 22
Slide 23: 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 12(+) year average lives
Slide 24: 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
Slide 25: 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 26: 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 27: Private Education Loan ABS
Private Education Loan ABS © 2020 Navient Solutions, LLC. All rights reserved. 27
Slide 28: Private Education Loan ABS Issuance Characteristics
Private Education Loan ABS Issuance Characteristics Private Education Loan ABS Transaction Features Collateral Characteristics • Issue size of $500M+ • Collateralized by loans made to students and parents to fund college tuition, room • Senior and subordinate notes and board - Seasoned assets benefi
Slide 29: Navient Private Education Loan Programs
Navient Private Education Loan Programs Undergrad/Grad/ Direct-to-Consumer Private Education Smart Option Consolidation (Legacy) Private Education Refi Med/Law/MBA (DTC) Origination Origination Channel School School Direct-to-Consumer Lender Lender School College Graduates & Typical Borrower Student
Slide 30: Navient Private Education Trusts
Navient Private Education As of the respective cutoff dates for each transaction Trusts 2018-2020YTD Navient Issuance Program NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV 18-D 18-E 19-A 19-B 19-C 19-D 19-E 19-F 19-G 20-A 20-B 20-C 20-D 20-E 20-F Bond Amount ($mil) 626 688 647 550 610
Slide 31: Navient Private Education Legacy Loan Trusts – Prepayment Analysis
Navient Private Education Legacy 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 18% Constant Prepayment Rate (CPR) 16% 14% 12% 10% 8% 6% 4% 2%
Slide 32: Higher Education Industry
Higher Education Industry © 2020 Navient Solutions, LLC. All rights reserved. 32
Slide 33: Federal government is the largest non-mortgage consumer lender
At $1.5 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
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. © 2020 Navient Solutions, LLC
Slide 35: There are solutions to many of the challenges faced by borrowers
There are solutions to many of the challenges faced by borrowers © 2020 Navient Solutions, LLC. All rights reserved. 35
Slide 36: 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 $10,000 in debt Borrowers who do not complete a degree … As a result, borrowers who run into trouble default at a rate almost three times higher repaying usually have below-average amounts than borrowers who earned a degree … of
Slide 37: Today's federal repayment options are numerous and complex
Today’s federal repayment options are numerous and complex Forbearance Deferment Discretionary Forbearance 1. School (1) • Hardship Forbearance 2. School Full-Time (2) Mandatory Forbearance 3. School Half-Time (2) • Medical or Dental Internship Residency 4. Post Enrollment (1) • Department of Defens
Slide 38: We've piloted solutions to reduce complexity
We’ve piloted solutions to reduce complexity IDR eSign Enrollment Repayment Guide for New Graduates Navient launched a pilot program focusing on past-due FFELP Navient created a personalized report to help new-to-repayment borrowers to explore whether a simpler process could produce borrowers to com
Slide 39: Navient delivers strong performance for borrowers
Navient delivers strong performance for borrowers Navient-serviced borrowers are 37% less likely Forbearance usage is in-line with other servicers to default Borrowers in forbearance as a % of repayment* 10.1% 20 forbearance (%) Default rate (%) 6.8% Borrowers in 15 Navient's CDR is 10 37% lower tha
Slide 40: Student Loan Options During the National Emergency
Student Loan Options During the National Emergency: What You Need to Know As a Navient customer, you have payment relief options available to you no matter what type of loan you have. Department of Education • These loans have been automatically placed into forbearance (payments suspended) until Oct
Slide 41: Consumer Lending Segment Assisting Borrowers Through the Crisis
Consumer Lending Segment Assisting Borrowers Through the Crisis Total Private Education Loans in Forbearance 1 Total Private Education Loans in Current Repayment 1 ($’s in billions) ($’s in billions) $3.5 $24.0 $22.0 $3.0 $20.0 $2.5 $18.0 $2.0 $16.0 $1.5 $14.0 $1.0 $12.0 $0.5 $10.0 • Implemented an
Slide 42: Navient Corporation Appendix
Navient Corporation Appendix © 2020 Navient Solutions, LLC. All rights reserved. 42
Slide 43: Navient Is Focused On Expense Efficiency
Navient Is Focused On Expense Efficiency Notable Items Impacting Total Expenses Compared to Prior Periods ($ In millions) Q2 20 Q2 19 Q2 20 YTD Q2 19 YTD Reported Core Earnings Expenses $214 $242 $469 $499 Year over Year Change in Reported Core Earnings Expenses (12%) (6%) Restructuring & Reorganiza
Slide 44: Operating Results: Core Earnings Basis
Operating Results “Core Earnings ” Basis 1 Selected Financial Information and Ratios (In millions, except per share Q2 20 Q1 20 Q2 19 2019 2018 amounts) GAAP diluted EPS $0.64 ($0.53) $0.64 $2.56 $1.49 Adjusted Core Earnings EPS 2 $0.91 $0.51 $0.74 $2.64 $2.09 Restructuring and regulatory- $0.01 ($0
Slide 45: Federal Education Loans Segment Core Earnings Basis
Federal Education Loans Segment “Core Earnings” Basis Selected Financial Information and Ratios 2nd Quarter Highlights ($ In millions) Q2 20 Q1 20 Q2 19 Federal Education • Q2 20 Net Interest Margin: 107 basis points Segment net interest margin 1.07% 0.81% 0.81% • Q2 20 Charge-off Rate: 11 basis poi
Slide 46: Consumer Lending Segment Core Earnings Basis
Consumer Lending Segment “Core Earnings” Basis Selected Financial Information and Ratios 2nd Quarter Highlights ($ In millions) Q2 20 Q1 20 Q2 19 Consumer Lending • Q2 20 Net Interest Margin: 3.20% Segment net interest margin 3.20% 3.31% 3.22% • Q2 20 Charge-off Rate: 1.0% Private Education Loans (i
Slide 47: Business Processing Segment Core Earnings Basis
Business Processing Segment “Core Earnings” Basis Selected Financial Information and Ratios 2nd Quarter Highlights ($ In millions) Q2 20 Q1 20 Q2 19 Business Processing Government Services $43 $33 $40 • Q2 20 EBITDA Margin 1: 13% Healthcare RCM Services $21 $24 $25 • New Government Services contract
Slide 48: GAAP Results
GAAP Results (In millions, except per share amounts) Q2 20 Q1 20 Q2 19 Net income (loss) $125 ($106) $153 Diluted earnings (loss) per common share $0.64 ($0.53) $0.64 Operating expenses $213 $251 $241 Provision for loan losses $44 $95 $68 Average Education Loans $85,149 $87,006 $91,547 © 2020 Navien
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
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
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) 2020 2020 2019 GAAP net income (loss) $125 ($106) $153 Net impact of derivative accounting 59 247 23 Net impact of goodwill and acquired intangible assets 5 5
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
Slide 53: NAVIENT.
NAVIENT.