Navient Corporation · NASDAQ:NAVI
Navient — Q1 2016 Earnings Presentation
72 slides from Navient's earnings presentation, Apr 29, 2016
Slide 1: 2016 1st Quarter Investor Deck
2016 1st Quarter Investor Deck April 29, 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 April 29, 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”), fil
Slide 3: Key Businesses Highlights
Key Businesses Highlights Asset Management FFELP Loan Portfolio Private Education Loan Portfolio $95 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) Q1 16 Q4 15 Q1 15 Adjusted Core EPS before regulatory-related costs $0.44 $0.49 $0.48 Regulatory-related costs ($0.01) ($0.01) - Reported Core EPS $0.43 $0.48 $0.48 Operating expenses (excluding regulatory-related costs)
Slide 5: High Quality Education Loan Portfolio
High Quality Education Loan Portfolio Note: Financial data as of 3/31/2016 Private Education Portfolio Balance ($bn, net of allowance) $26 Avg. Loan Size $9,931 Avg. Recent FICO 716 % Cosigner 64% Largest holder of FFELP loans 97-98% of portfolio is government guaranteed 77% of portfolio funded to t
Slide 6: FFELP Loans Segment "Core Earnings" Basis
(In millions) Q1 16 Q4 15 Q1 15 Net income $66 $74 $85 Average FFELP Loans $95,721 $97,472 $103,617 Net interest margin 0.81% 0.84% 0.88% Annualized charge-off rate 0.08% 0.07% 0.03% Greater than 90-day delinquency rate 7.0% 8.3% 8.4% FFELP Loans Segment “Core Earnings” Basis
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) Q1 16 Q4 15 Q1 15 Net income $61 $56 $77 Average Private Education Loans $26,577 $27,551 $30,105 Net interest margin 3.56% 3.61% 3.74% Provision for loan losses $104 $110 $120 Charge-offs $144 $141 $190 Annualized charge-off rate 2.
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: Seasoning Drives Improved Credit Quality
Private Education Loans Segment Seasoning Drives Improved Credit Quality Private Education Loan Charge-Off Rate by Segment Private Education Loan Total Delinquencies by Segment Private Education Loan Recent FICO Score by Segment
Slide 11: Private Education Loans Segment Default Performance
Private Education Loans Segment Default Performance As of March 31, 2016 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 subs
Slide 12: Loan Seasoning – March 31, 2016
Loan Seasoning – “Core Earnings” Basis March 31, 2016 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 1,756 Loans in Forbearance 259 20.7% 108 7.2% 108 4.6% 100 3.0% 234
Slide 13: Loan Seasoning – March 31, 2015
Loan Seasoning – “Core Earnings” Basis March 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 2,630 Loans in Forbearance 361 17.5% 138 5.5% 127 3.4% 109 2.8% 174
Slide 14: Business Services Segment "Core Earnings" Basis
Business Services Segment “Core Earnings” Basis (In millions) Q1 16 Q4 15 Q1 15 Net income $75 $81 $86 Federal Loans serviced ($’s in billions) $291 $288 $282 Intercompany loan servicing revenue $101 $103 $111 Third-Party Loan servicing revenue $54 $54 $44 Asset recovery & business processing revenu
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 $19.2 billion1 Over 1,
Slide 17: Higher Education Industry
Higher Education Industry
Slide 18: Navient's Role is to Help Student Borrowers Successfully Repay
Navient’s Role is to Help Student Borrowers Successfully Repay Their Loans
Slide 19: 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
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 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: 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: College Completion: The Key to Financial Health
Money Under 35 finds that 30% of millennials have a college degree Yet, 31% of millennials have some college but no degree More than half of them (53%) borrowed to pay for college Money Under 35 finds that borrowing for no credential affects young adults in many aspects of their lives Report the low
Slide 27: 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 28: 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 29: Funding and Liquidity
Funding and Liquidity
Slide 30: Funding and Liquidity Highlights
Acquired $1.5 billion of student loans Issued $1.1 billion of FFELP ABS On April 14, 2016 Navient issued an additional $497 million of FFELP ABS Extended the legal final maturity date for 3 Navient-sponsored FFELP securitization trusts totaling $2.2 billion of bonds In April, Navient extended the le
Slide 31: 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 Nearly $93 billion1 of securitizations on balance sheet Available capacity under FFELP secured facilities is $1.2 billion1 Available capacity
Slide 32: Recent FFELP ABS Transactions
NAVSL 2016-2 NAVSL 2016-1 Priced: Settled: April 5, 2016 April 14, 2016 February 26, 2016 March 10, 2016 Issuance Amount: $497M $1,110M Collateral: US Govt. Guaranteed FFELP Stafford, Plus and Consolidation Loans US Govt. Guaranteed FFELP Stafford1 and Consolidation Loans Prepayment Speed (2): 6% CP
Slide 33: 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 34: Unsecured Debt Maturities
Unsecured Debt Maturities Fitch Moody’s S&P Long-Term Rating BB Ba3 BB Outlook Stable Stable Negative
Slide 35: Conservative Unsecured Debt Profile
Conservative Unsecured Debt Profile December 31, 2006 December 31, 2010 March 31, 2016 Total Managed Student Loans $142.1 Billion $184.3 Billion $120.6 Billion Unsecured Debt Outstanding $48.7 Billion $20.1 Billion $14.1 Billion Tangible Equity Ratio 1.9% 2.2% 2.4% Tangible Net Asset Ratio 1.06x 1.1
Slide 36: 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 37: Total Cash Flows from Projected Excess Spread
Total Cash Flows from Projected Excess Spread = $7.1 Billion Total Cash Flows from Projected Servicing Revenues = $3.4 Billion FFELP Cash Flows Highly Predictable Assumptions No Floor Income, CPR/CDR = 4% These projections are based on internal estimates and assumptions and are subject to ongoing re
Slide 38: Secured Cash Flow
Secured Cash Flow Note: Totals may not add due to rounding 1 Net residual represents excess distribution, net of payments on floor contracts and receipts from basis swaps 2 Total FFELP cash flows were reduced by floor payments of $96 million that occurred on March 31, 2016 that would typically occur
Slide 39: FFELP ABS
FFELP ABS
Slide 40: 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 41: Legal Final Maturity Date Update: Sponsor Support Activities (cont.)
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 42: 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 43: 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 44: 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 45: 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 46: Private Education Loan ABS
Private Education Loan ABS
Slide 47: 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 48: Private Education Loan Programs
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 49: Navient Private Education Trusts
Navient Private Education Trusts (1) Assumes Prime/LIBOR spread of 3.00% for all transactions.
Slide 50: 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 March 2016, the private secu
Slide 51: 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 52: 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 53: Cohort Default Triangles: Definitions
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 54: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 3/31/16. 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 in
Slide 55: Cohort Default Triangles: With Co-signer
Cohort Default Triangles Undergraduate/Graduate(1) With Co-signer Note: Data as of 3/31/16. 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 e
Slide 56: Cohort Default Triangles: Without Co-signer
Cohort Default Triangles Undergraduate/Graduate(1) Without Co-signer Note: Data as of 3/31/16. 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 i
Slide 57: Cohort Default Triangles: Non-Profit
Cohort Default Triangles Note: Data as of 3/31/16. 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 in
Slide 58: Cohort Default Triangles: For-Profit
Cohort Default Triangles Note: Data as of 3/31/16. 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 in
Slide 59: Cohort Default Triangles: FICO 740-850
Cohort Default Triangles Undergraduate/Graduate(1) Loans, FICO 740-850(2) Note: Data as of 3/31/16. 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. Period
Slide 60: Cohort Default Triangles: FICO 700-739
Cohort Default Triangles Undergraduate/Graduate(1) Loans, FICO 700-739(2) Note: Data as of 3/31/16. 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. Period
Slide 61: Cohort Default Triangles: FICO 670-699
Cohort Default Triangles Note: Data as of 3/31/16. 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: FICO 640-669
Cohort Default Triangles Note: Data as of 3/31/16. 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 63: 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 3/31/16. 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 e
Slide 64: Cohort Default Triangles: DTC With and Without Co-signer
Cohort Default Triangles Note: Data as of 3/31/16. 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 Repaymen
Slide 65: Cohort Default Triangles: DTC FICO Bands
Cohort Default Triangles Note: Data as of 3/31/16. 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 each
Slide 66: Cohort Default Triangles: DTC FICO Bands (cont.)
Cohort Default Triangles Note: Data as of 3/31/16. 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 each
Slide 67: Cohort Default Triangles: Career Training Loans
Cohort Default Triangles Note: Data as of 3/31/16. 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 each
Slide 68: Navient Corporation Appendix
Navient Corporation Appendix
Slide 69: GAAP Results
GAAP Results (In millions, except per share amounts) Q1 16 Q4 15 Q1 15 Net income $181 $286 $292 EPS $0.53 $0.79 $0.72 Operating expenses $247 $235 $230 Provision $111 $115 $125 Average Student Loans $122,298 $125,023 $133,722
Slide 70: Differences between "Core Earnings" and GAAP
Quarter ended March 31, 2016 ($ in millions) Differences between “Core Earnings” and GAAP “Core Earnings” adjustments to GAAP: GAAP net income $ 181 Net impact of derivative accounting (54) Net impact of goodwill and acquired intangible assets 4 Net income tax effect 16 Total “Core Earnings” adjustm
Slide 71: 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 72: Navient
NAVIENT.