Navient Corporation · NASDAQ:NAVI
Navient — Q3 2018 Earnings Presentation
48 slides from Navient's earnings presentation, Nov 5, 2018
Slide 1: 2018 3rd Quarter Investor Deck
NAVIENT. 2018 3 Quarter Investor Deck November 5, 2018
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, 2018 {unless otherwise noted) and should be read in connection with Navient Corporation's (Navient) Annus Report on Form 10K for the year ended December 31, 2017 (the “2017 Form 10-K") f
Slide 3: Navient company overview
NAVIENT. ¢ Navient is a leading provider of asset 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. - Indust
Slide 4: Operating Results
Operating Results Core Earnings Basis (In millions, except per share amounts) Q3 18 Q317 YTD 18 | YTD 17 Adjusted Core EPS * $0.56 $0.56 $1.51 $1.36 Restructuring and regulatory expenses ($0.03) ($0.01) ($0.09) ($0.02) Reported Core EPS $0.53 $0.55 $1.42 1.34 Average common stock equivalent 264 274
Slide 5: Opportunities to Create Value in 2018 and Beyond
Opportunities to Create Value in 2018 and Beyond Federal Education Loans + Loan servicing & asset recovery * Default prevention & portfolio management Consumer Lending ¢ Refinancing education loans « Non-compete for new in-school Private Education Loan originations ends December 31, 2018 Business Pr
Slide 6: Federal Education Loans Segment
Federal Education Loans Segment Core Earnings Basis In this segment, Navient holds and acquires FFELP loans and performs servicing and asset recover own loan portfolio, federal education loans owned by the epartment of Education and other institutions. Segment net interest margin 0.71% 0.84% FFELP L
Slide 7: Consumer Lending Segment
Consumer Lending Segment Core Earnings Basis In this segment, Navient holds, originates and acquires consumer loans and performs servicing a ies on its own loan portfolio. Segment net interest margin 3.35% 357% 3.33% 3.41% Private Education Loans (including Refinance Loans): Provision for loan losse
Slide 8: Refinancing Education Loans is an Attractive Asset
Refinancing Education Loans is an Attractive Asset Generating Opportunity + Leverages our 40-plus years of data, analytics, capital markets and industry experience + Graduation, employment and proven cash flows meaningfully reduce credit risk + Opportunity to acquire assets from other originators +
Slide 9: Typical Private Education Refi Borrower Profile
Typical Private Education Refi Borrower Profile Typical Borrower More Accurate Assessment Weighted Underwriters assess loan Average applications down to the transaction level where available Borrower Age 32 Months since Graduation 7 © Education 70% advanced degrees el] es Ee Loan and FICO 767 Person
Slide 10: Consumer Loan Segment Credit Detail
Consumer Loan Segment Credit Detail Delinquency & Forbearance Usage Allowance for Loan Los: TDR Loans ($ in millions) 3a18 | 2018 | 3017 | ‘September 30, 2018 ! Ending Allow ance as Totatetnquoncies SUZDEEESEUONESLOION) §—(S in tons) Allowance _Balance__% of Ending Balance Total delinquency rate as
Slide 11: Business Processing Segment
Business Processing Segment Core Earnings Basis In this segment, Navient performs business processing services for non-education related government and healthcare ($’s in millions) Q318 FY 2017 FY 2016 FY 2015 Government Services Healthcare RCM Services $24 Total Business Processing $64 Revenue Oper
Slide 12: Expanding our Reach in Growing Markets
Expanding our Reach in Growing Markets Navient business processing has grown from a student loan and tax-centric collections business to a revenue-cycle BPO business serving government and healthcare markets, realizing $212M in non- education related revenue in 2017. Government * Services Healthcare
Slide 13: Navient Is Focused On Expense Efficiency
Navient Is Focused On Expense Efficiency Reported Total Core Earnings Expenses $256 ‘$707 SSSSSG---s-—_—_—_ BB Bee IN AAD Restructuring & Reorganization Expenses $1 cS $10 - Regulatory-Related Expenses $9 $3 $21 $11 Duncan & Earnest Operating Expenses $25 $8 $78 $8 3 Party Transfer Fee B : $9 Transi
Slide 14: Higher Education Industry
Higher Education Industry
Slide 15: Federal government is the largest consumer lender
Federal government is the largest consumer lender, owning or guaranteeing $1.4 trillion in student loans + 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
Slide 16: In its role as a student loan servicer, Navient helps borrowers repay
In its role as a 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. Congress sets product terms and inclu
Slide 17: Five Recommendations for Better Student Loans
Five Recommendations for Better Student Loans @ Providing better information before borrowing @ Improving the college completion rate ® Simplifying repayment @ Helping borrowers pay off faster ® Encouraging borrower contact with servicers
Slide 18: Default prevention expertise and the decline of the national default rate
Navient’s default prevention expertise has been a key factor in the decline of the national default rate + The cohort default rate (CDR) 2015 three-year cohort default rate measures the percent of borrowers 10.8% who defaulted on a student loan within three years of entering aver s COR is percent lo
Slide 19: Struggling borrowers are often non-completers with small 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 ..
Slide 20: In 1990, there were two repayment plans
In 1990, there were two repayment plans, and the most complex area was deferment Forbearance Discretionary Forbearance + Hardship Forbearance Repayment Plans 1. Standard 2. Graduated Contgentiat ane proprietary formation © 2078 Navient Solutions, LLC. Al igs reserves Deferment 41. School Full-Time 2
Slide 21: Today's repayment options are numerous and complex
Today’s repayment options are numerous and complex Deferment Forbearance T School (1) Discretionary Forbearance ‘School Full-Time (2) + Hardship Forbearance ‘School Half-Time (2) Mandatory Forbearance Post Enrollment (1) Medical or Dental internship Residency Department of Defense Student Loan Repay
Slide 22: We've piloted solutions to reduce complexity
We've piloted solutions to reduce complexity IDR eSign Enrollment Pilot Navient launched a pilot program focusing on past-due FFELP borrowers to explore whether a simpler process could produce better results. Under the pilot, we made contact with the borrower, gathered salary and family information
Slide 23: Navient delivers strong performance for borrowers
Navient delivers strong performance for borrowers Navient-serviced borrowers are 35% less likely Forbearance usage is in-line with other servicers to default 7 . 10.8% Borrowers in forbearance as a percent of repayment’ c = 20 : bf | SS 2 javient's CDR is zs & 10 G = 35 percent lower Eo 5 s than all
Slide 24: Funding & Liquidity
Funding & Liquidity
Slide 25: 3rd Quarter 2018 Capital Markets Activity
3 Quarter 2018 Capital Markets Activity » Facility funding capacity for education loans 4 Available capacity under FFELP secured facilities is $2.6 billion 4 Available capacity under Private Education Loan secured facilities is $108 million >» FFELP ABS Financing 4 In the third quarter of 2018, Navi
Slide 26: FFELP ABS Transactions
FFELP ABS Transactions NAVSL 2018-4 NAVSL 2018-3 Pricing Date: September 10, 2018 June 20, 2018 Settlement Date: September 20, 2018 June 28, 2018 Issuance Amount: $992M $997M Collateral: US Govt. Guaranteed US Govt. Guaranteed ° FFELP Stafford, Plus and Consolidation Loans FFELP Stafford, Plus and C
Slide 27: Private Education Loan ABS Transactions
Private Education Loan ABS Transactions NAVSL Trust 2018. NAVSL Trust 2018-C Pricing Date: Settlement Date: Issuance Amount: Collateral: Prepayment Speed ?: Tranching: ‘Represents ratings by SSP ans OBRS. October 18, 2018 October 25, 2018 $626M Private Education Loans and Private Education Refi Loan
Slide 28: 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 v Execute dynamic capital allocation policy to maintain appropriate leverage that supports our credit ratings a
Slide 29: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities (par value, $ in billions) $2.2 $2.4 $24 $1.8 $16 $1.6 $1414 S15 S15 S15 sya ga $0.6 $0.6 ee 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028+ @As of September 30,2017 mAs of September 30, 2018 Rating Agency Profile Lon rm Conservative Funding Approach : + Im
Slide 30: Education Loan Portfolio Generates Significant Cash Flows
Education Loan Portfolio Generates Significant Cash Flows $'s in Billions + Generated $2.0 billion of cash flows in YTD 2018 FFELP Cash Flows 09/30/18 Secured + Issued $0.5 billion of unsecured debt and paid down $1.5 Residual (including O/C) $6.1 billion in YTD 2018 Floor Income 14 Servicing ____ 2
Slide 31: Education Loan Portfolio Generates Meaningful Cash Flows Over Next Five Years
Education Loan Portfolio Generates Meaningful Cash Flows Over The Next Five Years $2. $2.5 $1.8 $1.6 $2.0 z $1.4 z S $12 & sts am sto a £ £ @ $08 = sto 2 $0.6 & $0.4 $0.5 a $0.2 $0.0 + $0.0 + 8 2019 a 2019 2021 2018 2018 #Cash Flows assuming call option can be exercised at 10% =Cash Flows assuming t
Slide 32: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable $'s in millions Remaining as of 09/30/2018 2018 2019 2020 2021 2022 2023 2024 2025 rojected FFELP Average Balance $72,677 $68,617 $61,976 $55,385 $49,170 $43,135 $37,269 $31,679 rojected Excess Spread $205 $780 $703 $633 $568 $518 $460 $417 rojected Servicing Reve
Slide 33: Secured Cash Flow
Secured Cash Flow FFELP Term Securitized Servicing (Cash Paid) $ 218 $ 314 $ 342 $ 387 Net Residual’ (Excess Distributions) 392 643 624 724 Other Secured FFELP Net Cash Flow ** 630 612 503, 244 Total FFELP $ 1,240 $ 1,569 _ $ 1,469 $ 1,354 Private Credit Term Securitized Servicing (Cash Paid) $ 111
Slide 34: FFELP ABS
FFELP ABS
Slide 35: Recent FFELP ABS Issuance Characteristics
Recent FFELP ABS Issuance Characteristics FFELP ABS Transaction Features Collateral Characteristics + Issue size of $500M to $1.0B + Insurance or guarantee of underlying collateral insulates bondholders from + Denominated in US$ most risk of loss of principal + Senior and subordinate notes * Typical
Slide 36: FFELP Loan Program Characteristics
FFELP Loan Program Characteristics Subsidized Stafford Unsubsidized Stafford | PLUS/Grad PLUS Consolidation Borrower student Student Needs Based Yes No Fo Ce Ee 97- 100% 97 - 100% Interest Subsidy Payments Yes No Special ees Eames Yes Yes Original Repayment Term * 120 months 120 months Undergraduate
Slide 37: 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 38: 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 39: Private Education Loan ABS
Private Education Loan ABS
Slide 40: Recent Private Education Loan ABS Issuance Characteristics
Recent Private Education Loan ABS Issuance Characteristics Private Education Loan ABS Transaction Features + Issue size of $250M to $750M + Senior and subordinate notes + Amortizing tranches with 1 to 10 year average lives - Fixed rate or floating rate tied to 1 month LIBOR * Compliant with U.S. ris
Slide 41: Navient Private Education Loan Programs
Navient Private Education Loan Programs Direct-to-Consumer Lender Lender College Graduates & Select Student College Graduates Nome Parent Parent Parent, as applicable $10k avg orig bal, 10 yr avg '350k-75k avg orig bal, 5-20 ‘TpkealLaon term, in-school payments of $10k avg orig bal, 15 yr term, $12k
Slide 42: Navient Private Education Trusts
Navient Private Education Trusts Bond Amount (Smil) 664 Initial AXA Enhancement (%) 30% Initial Enhancement (%) 22% Loan Program (%) Signature/LawiNBANed 0% 26% 27% + «= 52% = 1% «= 43% «= 17% 0% 29% 0% Smart Option 0% 50% 51% 0% 0% 29% 30% 0% 16% 0% Consolidation 0% 9% 2% 8% 3% 9% 0% 0% 7% 0% Priva
Slide 43: Navient Private Education Loan Trusts Prepayment Analysis
Navient Private Education 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 16% ars ex S ez 8% + 6% + 4% + Constant Prepayment Rate (CPR) 2% 0% SP
Slide 44: Appendix
Navient Corporation Appendix Consent! and proprietary informaton © 2078 Navient Solutions, LC. AN gts reserves:
Slide 45: GAAP Results
GAAP Results (In millions, except per share amounts) Q3 18 Net income $114 EPS $0.43 Operating expenses $255 Provision $85 Average Student Loans $98,689 Consent! and proprietary informaton © 2078 Navient Solutions, LC. AN gts reserves: $112 $101,490
Slide 46: Differences Between Core Earnings And GAAP
Differences Between Core Earnings And GAAP Core Earnings adjustments to GAAP: (Dollars in Millions) GAAP net income Net impact of derivative accounting Net impact of goodwill and acquired intangible assets Net income tax effect Total Core Earnings adjustments to GAAP Core Earnings net income Quarter
Slide 47: Investor Relations Website
Investor Relations Website www.navient.com/investors www.navient.com/abs Beginning November 5, 2018, Cohort Default Triangles can be found at navient.com/about/investors/debtasset + NAVI/ SLM student loan trust data (Debt/asset backed securities - NAVI / SLM Student Loan Trusts) Static pool informat
Slide 48: NAVIENT.
NAVIENT.