Navient Corporation · NASDAQ:NAVI
Navient — Q3 2016 Earnings Presentation
72 slides from Navient's earnings presentation, Nov 8, 2016
Slide 1: 2016 3rd Quarter Investor Deck
2016 3rd Quarter Investor Deck November 8, 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 September 30, 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: We are the leading loan management, servicing and asset recovery company
We are the leading loan management, servicing and asset recovery company $114 billion education loan portfolio, of which 79% is insured or guaranteed Servicing more than $300 billion in student loans, the company supports the educational and economic achievements of more than 12 million Americans As
Slide 4: Operating Results "Core Earnings" Basis
Operating Results “Core Earnings” Basis (In millions, except per share amounts) Q3 16 Q2 16 Q3 15 Adjusted Core EPS before regulatory-related costs $0.51 $0.48 $0.48 Regulatory-related costs ($0.01) ($0.01) ($0.01) Reported Core EPS $0.50 $0.47 $0.47 Operating expenses (excluding regulatory-related
Slide 5: High Quality Education Loan Portfolio
High Quality Education Loan Portfolio Note: Financial data as of 6/30/2016 Private Education Portfolio Balance ($bn, net of allowance) $24 Avg. Loan Size $9,828 Avg. Recent FICO 719 % Cosigner 64% Largest holder of FFELP loans 97-98% of portfolio is government guaranteed 79% of portfolio funded to t
Slide 6: FFELP Loans Segment "Core Earnings" Basis
(In millions) Q3 16 Q2 16 Q3 15 Net income $69 $68 $70 Average FFELP Loans $91,502 $93,900 $99,367 Net interest margin 0.87% 0.85% 0.81% Annualized charge-off rate 0.09% 0.10% 0.06% Greater than 90-day delinquency rate 6.8% 7.2% 8.5% 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) Q3 16 Q2 16 Q3 15 Net income $60 $57 $77 Average Private Education Loans $24,948 $25,700 $28,383 Net interest margin 3.48% 3.50% 3.77% Provision for loan losses $92 $100 $117 Charge-offs $112 $127 $148 Annualized charge-off rate 1.9
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 Continued Improving Credit Quality
Private Education Loans Segment Continued Improving 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 September 30, 2016 Private Education Loan Historical Defaults by Payments Made Private Education Loans Outstanding by Payments Made The average number of payments made on loans in the Private Education Loan Portfolio is 61 The probability of
Slide 12: Private Education Loan Seasoning – September 30, 2016
Private Education Loan Seasoning – “Core Earnings” Basis September 30, 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 1,405 Loans in Forbearance 250 21.0% 107 8.5%
Slide 13: Private Education Loan Seasoning – September 30, 2015
Private Education Loan Seasoning – “Core Earnings” Basis September 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 2,128 Loans in Forbearance 324 19.3% 135 6.4%
Slide 14: Business Services Segment "Core Earnings" Basis
Business Services Segment “Core Earnings” Basis (In millions) Q3 16 Q2 16 Q3 15 Net income $81 $81 $79 Intercompany loan servicing revenue $96 $99 $106 Third-Party Loan servicing revenue $53 $51 $47 Asset recovery & business processing revenue $97 $101 $85 Federal Loans serviced ($’s in billions) $2
Slide 15: Business Services Segment Federal Loan Servicing
Business Services Segment Federal Loan Servicing
Slide 16: Top Performing Asset Recovery & Business Processing Business
Top Performing Asset Recovery & Business Processing Business Key Characteristics Strong business franchise Large sophisticated operating infrastructure Compliance focused Industry leading performance Year-to-date 2016* revenues of $288 million Total contingent collections receivables inventory of $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 Than May Be Evident
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: The Borrowers Who Struggle The Most Are Often Non-Completers
The Borrowers Who Struggle The Most Are Often Non-Completers With Low Levels Of Debt Source: President's Council of Economic Advisors, "Investing In Higher Education: Benefits, Challenges, And The State Of Student Debt," July 2016 Note: Years are fiscal years. Loan size is based on balance of loan w
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: Class Of 2015 Student Loan Delinquency Rates Lower Than Class Of 2010
Class Of 2015 Student Loan Delinquency Rates Approximately 3 Times Lower Than Class Of 2010 January 2010 To June 2016 Federal loan delinquency rates six months after end of grace period and unemployment for bachelor's degree holders Delinquency Rate (%) Unemployment Rate (%) Unemployment Source: Nav
Slide 24: Navient's Default Prevention Expertise Was A Key Factor In Declining Default Rate
Navient’s Default Prevention Expertise Was A Key Factor In The Decline Of The National Default Rate 2013 three-year cohort 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 2016, the Department of
Slide 25: The Benefits Of Obtaining A College Degree Outweigh The Costs
The Benefits Of Obtaining A College Degree Outweigh The Costs By A Wide Margin Source: Sandy Baum, Jennifer Ma, and Kathleen Payea, “Education Pays 2013,” College Board, 2013; Guillaume Vandenbroucke, “Lifetime Benefits of an Education Have Never Been So High,” St. Louis Fed, July 2015; Anthony Carn
Slide 26: Young Adults That Complete A College Degree Score Higher On Financial Health
Young Adults That Complete A College Degree Score Higher On Financial Health, Including Employment & Incomes College degree (associate or higher) No college degree $ Dollars ($) $ $ $ $ Financial health self-assessment Financial health index score Median personal income Employed part time Employed f
Slide 27: Overall, 4 In 10 Did Not Borrow For Their Education
Young adults between 28 and 30 years old, who were likely to have attended college during the Great Recession, borrowed more often (63 percent). At the same time, 22–24 year-olds – who were more likely to have attended college during the economic upturn that followed the recession and are likely to
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 & Liquidity
Funding & Liquidity
Slide 30: YTD 2016 Capital Markets Summary
Acquired $2.8 billion of student loans Issued seven FFELP ABS transactions totaling $5.8 billion1 Issued one Private Education Loan ABS transaction totaling $488 million Extended FFELP ABCP facility to March 2018 Current maximum financing capacity of $7.5 billion in this facility Extended Private Ed
Slide 31: Secured Funding Table
Secured Funding Table Source: J.P. Morgan, ABS volume priced as of October 31, 2016 1Santander includes Drive Auto Receivables Trust (“DRIVE”) and Chrysler Capital Auto Receivables Trust (“CCART”) deals Navient is among the largest issuers of ABS globally, having issued over $280 billion of Private
Slide 32: Recent FFELP ABS Transactions
NAVSL 2016-7 NAVSL 2016-6 Pricing Date: Settlement Date: October 26, 2016 November 3, 2016 October 12, 2016 October 20, 2016 Issuance Amount: $896M $1,005M Collateral: US Govt. Guaranteed FFELP Stafford, Plus and Consolidation Loans (100% Rehabilitated Loans) US Govt. Guaranteed FFELP Stafford, Plus
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 from the underwriters of these transactions. Actual average life may vary significantly from estimat
Slide 34: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities Important to maintain our credit ratings to support ongoing access to the unsecured debt markets Manage tangible net asset ratio to a range of 1.2x to 1.3x 1.24x as of September 30, 2016 Reduced total unsecured maturities to $13.9 billion1 from $16.0 billion a year
Slide 35: Conservative Unsecured Debt Profile
Conservative Unsecured Debt Profile December 31, 2006 December 31, 2010 September 30, 2016 Total Managed Student Loans $142.1 Billion $184.3 Billion $114.2 Billion Unsecured Debt Outstanding $48.7 Billion $20.1 Billion $14.6 Billion Tangible Equity Ratio 1.9% 2.2% 2.4% Tangible Net Asset Ratio 1.06x
Slide 36: Education Loan Portfolio Generates Significant Cash Flows
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 Generate
Slide 37: FFELP Cash Flows Highly Predictable
Total Cash Flows from Projected Excess Spread = $6.8 Billion Total Cash Flows from Projected Servicing Revenues = $3.2 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 $41 million that occurred on June 30, 2016 that would typically occur
Slide 39: FFELP ABS
FFELP ABS
Slide 40: FFELP ABS Servicer Actions
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. On August 30, 2016, announced the exercise of the optional servicer clean-up call for 2004-4 and 2004-7, causing $175 million of bonds
Slide 41: Enhanced Disclosure and Investor Communication
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 enrolled in the IDR program The distribution of FFELP loans in d
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) Only on the subsidized portion of the loan (2) Only applies for loans made between July 1, 1987 through January 1, 2000 if cap is reached (3) Aggregate loan limit for a Dependent Undergraduate is $31,000 Note: As of July 1, 2011 . Parameter Subsidized Stafford
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 $250M to $750M Triple-A rated senior notes, Single-A rated subordinated notes 20-40% Triple-A overcollateralization Amortizing tranches with 1 to 10 yea
Slide 48: Navient Private Education Loan Programs
Navient Private Education Loan Programs Smart Option Undergraduate/Graduate/ Med/Law/MBA Direct-to-Consumer (DTC) Consolidation Career Training Origination Channel School School Direct-to-Consumer Lender School Typical Borrower Student Student Student College Graduates Student Typical Co-signer Pare
Slide 49: Navient Private Education Trusts
Navient Private Education Trusts (1) Assumes Prime/LIBOR spread of 3.00% for all transactions. Summary Information SLM 11-A SLM 11-B SLM 11-C SLM 12-A SLM 12-B SLM 12-C SLM 12-D SLM 12-E SLM 13-A SLM 13-B SLM 13-C SLM 14-A NAV 14-CT NAV 14-A NAV 15-A NAV 15-B NAV 15-C NAV 16-A Bond Amount ($mil) 562
Slide 50: Navient Portfolio Transition To Seasoned Collateral
Navient Portfolio Transition To Seasoned Collateral Securitized collateral will continue to season given the company transitioned from originations to portfolio acquisition and management Most defaults occur early in repayment; loan performance improves as loans season As of September 2016, the priv
Slide 51: 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 Navient Private Education Loan Trusts – Prepayment Analysis
Slide 52: Cohort Default Triangles Introduction
The following cohort default triangles provide loan performance information for certain Private Education Loans of Navient Corporation and its consolidated subsidiaries that meet our securitization criteria (including those criteria listed below): Program types include Undergraduate/Graduate(1), Dir
Slide 53: Cohort Default Triangle Definitions
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 repayment Disbursed Principal En
Slide 54: Undergraduate/Graduate Cohort Default Triangles
Note: Data as of 9/30/16. 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 Repayment. Denominator i
Slide 55: Undergraduate/Graduate With Co-signer
Undergraduate/Graduate(1) With Co-signer Note: Data as of 9/30/16. 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
Slide 56: Undergraduate/Graduate Without Co-signer
Undergraduate/Graduate(1) Without Co-signer Note: Data as of 9/30/16. 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 defaul
Slide 57: Undergraduate/Graduate Non-Profit
Note: Data as of 9/30/16. 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 Repayment. Denominator i
Slide 58: Undergraduate/Graduate For-Profit
Note: Data as of 9/30/16. 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 Repayment. Denominator i
Slide 59: Undergraduate/Graduate Loans, FICO 740-850
Undergraduate/Graduate(1) Loans, FICO 740-850(2) Note: Data as of 9/30/16. 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
Slide 60: Undergraduate/Graduate Loans, FICO 700-739
Undergraduate/Graduate(1) Loans, FICO 700-739(2) Note: Data as of 9/30/16. 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
Slide 61: Undergraduate/Graduate Loans, FICO 670-699
Note: Data as of 9/30/16. 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 Repayment are for a parti
Slide 62: Undergraduate/Graduate Loans, FICO 640-669
Note: Data as of 9/30/16. 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 Repayment are for a parti
Slide 63: Private Consolidation Loans Cohort Default Triangles
Private Consolidation Loans Without Co-signer Private Consolidation Loans With Co-signer Note: Data as of 9/30/16. 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. De
Slide 64: DTC Cohort Default Triangles
Note: Data as of 9/30/16. 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 Repayment Year. DTC With Co-signe
Slide 65: DTC Loans, FICO 740-850 and 700-739
Note: Data as of 9/30/16. 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 cohort that defaulted in
Slide 66: DTC Loans, FICO 670-699 and 640-669
Note: Data as of 9/30/16. 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 cohort that defaulted in
Slide 67: Career Training Loans Cohort Default Triangles
Note: Data as of 9/30/16. 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 cohort that defaulted in
Slide 68: Navient Corporation Appendix
Navient Corporation Appendix
Slide 69: GAAP Results
GAAP Results (In millions, except per share amounts) Q3 16 Q2 16 Q3 15 Net income $230 $125 $237 EPS $0.73 $0.38 $0.63 Operating expenses $228 $230 $228 Provision $106 $110 $123 Average Student Loans $116,450 $119,600 $127,750
Slide 70: Differences Between "Core Earnings" And GAAP
Differences Between “Core Earnings” And GAAP Quarters Ended “Core Earnings” adjustments to GAAP: Sept. 30, 2016 June 30, 2016 Sept. 30, 2015 GAAP net income $230 $125 $237 Net impact of derivative accounting (139) 32 (108) Net impact of goodwill and acquired intangible assets 12 6 3 Net impact from
Slide 71: Investor Relations Website
Investor Relations Website 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 distribution factors Historical trust performan
Slide 72: NAVIENT.
NAVIENT.