Navient Corporation · NASDAQ:NAVI
Navient — Q3 2015 Earnings Presentation
58 slides from Navient's earnings presentation, Nov 2, 2015
Slide 1: 2015 3rd Quarter Investor Deck
2015 3rd Quarter Investor Deck November 2, 2015 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 November 2, 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”), f
Slide 3: Navient Corporation Overview
Navient Corporation Overview
Slide 4: 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 Private Education Loan Portfolio $98 Billion FFELP Portfolio $27 Billion Private Education Loan Portfolio Asset Servicing FFELP Loans Private Education Loans Depar
Slide 5: Operating Results "Core Earnings" Basis
Operating Results “Core Earnings” Basis (In millions, except per share amounts) Q3 15 Q2 15 Q3 14 Reported Core EPS $0.47 $0.40 $0.52 Net income $174 $154 $218 Operating expenses $228 $225 $195 Provision $123 $198 $140 Average student loans $127,750 $130,512 $129,915
Slide 6: Student Loan Market
Student Loan Market Source: Navient estimates for total outstanding FFELP and federally-owned based on FSA Data Center, Portfolio Summary, September 30, 2014, and Federal Student Aid Annual Report, November 2014; MeasureOne, Private Student Loan Performance Report, Q3 2014; Navient 10Q filings Estim
Slide 7: High Quality Education Loan Portfolio
High Quality Education Loan Portfolio Note: Financial data as of 9/30/2015 Private Education Portfolio Balance ($bn, net of allowance) $27 Avg. Loan Size $10,035 Avg. FICO at Orig. 718 % Cosigner 65% 90+ Day Delinquent 3.4% Largest holder of FFELP loans 97-98% of portfolio is government guaranteed 7
Slide 8: FFELP Loans Segment
FFELP Loans Segment “Core Earnings” Basis (In millions) Q3 15 Q2 15 Q3 14 Net income $70 $93 $79 Average FFELP Loans $99,367 $101,305 $98,736 FFELP Loan spread 0.90% 0.91% 1.02% Net interest margin 0.81% 0.81% 0.93% Annualized charge-off rate 0.06% 0.05% 0.08% Greater than 90-day delinquency rate 8.
Slide 9: 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 10: Private Education Loans Segment
Private Education Loans Segment “Core Earnings” Basis (In millions) Q3 15 Q2 15 Q3 14 Net income $77 $22 $98 Average Private Education Loans $28,383 $29,207 $31,179 Private Education Loan spread 3.88% 3.66% 4.06% Net interest margin 3.77% 3.55% 3.96% Provision for loan losses $117 $191 $130 Charge-o
Slide 11: 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 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-Off1 Rate by Segment Low Risk = Smart Option, Legacy Traditional Cosigned, and Law/MBA/MED/CT/Other Moderate Risk = Legacy Traditional Non-Cosigned Elevat
Slide 13: Private Education Loans Segment Credit Trends
Private Education Loans Segment Credit Trends Private Education Loan Charge-Off Rate by Segment Private Education Loan Total Delinquency Rate by Segment Low Risk = Smart Option, Legacy Traditional Cosigned, and Law/MBA/MED/CT/Other Moderate Risk = Legacy Traditional Non-Cosigned Elevated Risk = Non-
Slide 14: Private Education Loans Segment Default Performance
Private Education Loans Segment Default Performance Historical Defaults by Payments Made The probability of default substantially diminishes as the number of payments and years of seasoning increases.
Slide 15: Loan Seasoning – Core Earnings Basis September 30, 2015
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% 135 4.2% 114 3.1%
Slide 16: Loan Seasoning – Core Earnings Basis September 30, 2014
Loan Seasoning – “Core Earnings” Basis September 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 3,128 Loans in Forbearance 466 17.1% 183 5.3% 157 3.8% 127 3.0%
Slide 17: Business Services Segment
Business Services Segment “Core Earnings” Basis (In millions) Q3 15 Q2 15 Q3 14 Net income $79 $91 $85 Federal Loans serviced ($’s in billions) $289 $281 $277 Third-Party Loan servicing revenue $47 $47 $46 Asset recovery revenue $85 $99 $65 Department of Education accounts serviced 6.3 6.1 6.1 Conti
Slide 18: Business Services Segment Federal Loan Servicing
Business Services Segment Federal Loan Servicing
Slide 19: Business Services Segment Asset Recovery
Business Services Segment Asset Recovery Non Federal Student Loan Related Asset Recovery Revenues Strong business franchise Large sophisticated operating infrastructure Compliance focused Industry leading performance Total contingent collections receivables inventory of $25.8 billion Total Asset Rec
Slide 20: Acquisition of Xtend Healthcare
Business Services Segment Acquisition of Xtend Healthcare Leveraging Capabilities in Asset Recovery and Business Services Leverages our expertise and scale in asset recovery and business process outsourcing services. Focuses on the attractive health care payments sector - specializes in both insuran
Slide 21: Funding and Liquidity
Funding and Liquidity NAVIENT.
Slide 22: 2015 Capital Markets Summary
2015 Capital Markets Summary Acquired $2.9 billion1 of student loans Issued $2.8 billion of FFELP ABS Issued $1.4 billion of Private Education Loan ABS Issued $500 million of long-term unsecured debt Repurchased over $1 billion of long-term unsecured debt Returned $958 million1 to shareholders throu
Slide 23: 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 $97 billion of securitizations on balance sheet Additional capacity under FFELP secured facilities is over $10 billion Maximum capacity u
Slide 24: Recent FFELP ABS Transactions
Recent FFELP 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/. Actual average life may vary significantly from estimates. Pri
Slide 25: 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 26: Unsecured Debt Maturities
Unsecured Debt Maturities Fitch Moody’s S&P Senior Unsecured Debt BB Ba3 BB Outlook Stable Stable Stable
Slide 27: Conservative Unsecured Debt Profile
Conservative Unsecured Debt Profile December 31, 2006 December 31, 2010 September 30, 2015 Total Managed Student Loans $142.1 Billion $184.3 Billion $125.8 Billion Unsecured Debt Outstanding $48.7 Billion $20.1 Billion $15.8 Billion Tangible Equity Ratio 1.9% 2.2% 2.4% Tangible Net Asset Ratio 1.06x
Slide 28: 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 Flows Education Loan Portfolio Generates Significant Cash Flows $’s in Bi
Slide 29: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable Total Cash Flows from Projected Excess Spread = $6.7 Billion Total Cash Flows from Projected Servicing Revenues = $3.7 Billion Assumptions No Floor Income, CPR/CDR = Stafford & Plus (3%), Consolidation (3%) These projections are based on internal estimates and ass
Slide 30: 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 31: FFELP ABS Appendix
FFELP ABS Appendix NAVIENT.
Slide 32: ABS rated to timely interest and ultimate principal by legal final maturity
ABS transactions are rated to timely payment of interest and ultimate payment of principal by the legal final maturity (LFM) date Legal final maturity dates are set at issuance based on rating agency assumptions Certain ABS are experiencing extension due to slower than expected student loan principa
Slide 33: Update on FFELP ABS – Addressing Legal Final Maturity Concerns
1 As of October 31, 2015 Navient is working with the rating agencies and developing actions to support our investors and the continued investment-grade ratings status of our FFELP ABS Navient submitted formal response to Moody’s on October 19th Exercised cleanup call option on $1.5 billion of bonds
Slide 34: Recent FFELP ABS Issuance Characteristics
Recent FFELP ABS Issuance Characteristics FFELP ABS Transaction Features Collateral Characteristics Issue size of $500M to $1.5B Tranches or pass-through denominated in US$ Triple-A rated senior notes make up to 97% of issue structure Floating rate tied to 1 month LIBOR Amortizing tranches with 1 to
Slide 35: 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 36: 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 Loa
Slide 37: 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 Special D
Slide 38: Private Education Loan ABS Appendix
Private Education Loan ABS Appendix
Slide 39: 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 40: 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 41: Navient Private Education Trusts
Navient Private Education Trusts (1) Assumes Prime/LIBOR spread of 3.00% for all transactions.
Slide 42: 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 September 2015, the private
Slide 43: 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
Slide 44: 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): Prog
Slide 45: 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 46: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 9/30/15. Undergraduate/Graduate loans marketed under the Signature Student Loan brand. Periodic Defaults for the most recent two calendar Years in Repayment are for a partial year. Numerator is the amount of principal in each cohort that defaulted in each Ye
Slide 47: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 9/30/15. Undergraduate/Graduate loans marketed under the Signature Student Loan brand. Periodic Defaults for the most recent two calendar Years in Repayment are for a partial year. Numerator is the amount of principal in each cohort that defaulted in each Ye
Slide 48: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 9/30/15. Undergraduate/Graduate loans marketed under the Signature Student Loan brand. Periodic Defaults for the most recent two calendar Years in Repayment are for a partial year. Numerator is the amount of principal in each cohort that defaulted in each Ye
Slide 49: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 9/30/15. 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 two calendar Year
Slide 50: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 9/30/15. 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 two calendar Year
Slide 51: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 9/30/15. Periodic Defaults for the most recent two calendar Years 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 Rep
Slide 52: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 9/30/15. 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 two calendar Years in Repayment are for a partial year. Numerator is the amount of principal in
Slide 53: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 9/30/15. 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 two calendar Years in Repayment are for a partial year. Numerator is the amount of principal in
Slide 54: Navient Corporation Appendix
Navient Corporation Appendix
Slide 55: GAAP Results
GAAP Results (In millions, except per share amounts) Q3 15 Q2 15 Q3 14 Net income $237 $182 $359 EPS $0.63 $0.47 $0.85 Operating expenses $228 $225 $195 Provision $123 $198 $140 Average Student Loans $127,750 $130,512 $129,915
Slide 56: Core Earnings adjustments to GAAP
“Core Earnings” adjustments to GAAP: GAAP net income $ 237 Net impact of derivative accounting (108) Net impact of goodwill and acquired intangible assets 3 Net income tax effect 42 Total “Core Earnings” adjustments to GAAP (63) “Core Earnings” net income $174 Quarter ended September 30, 2015 ($ in
Slide 57: SLM / NAVI student loan trust data
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 performance – monthly charge-off, de
Slide 58: NAVIENT
NAVIENT.