Navient Corporation · NASDAQ:NAVI
Navient — Q3 2014 Earnings Presentation
54 slides from Navient's earnings presentation, Nov 4, 2014
Slide 1: 2014 3rd Quarter Investor Deck
Exhibit 99.1 2014 3rd Quarter Investor Deck November 4, 2014
Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures
Forward-Looking Statements; Non-GAAP Financial Measures The following information is current as of November 4, 2014 (unless otherwise noted) and should be read in connection with the Registration Statement on Form 10, as amended (the “Form 10”), filed by Navient Corporation (“Navient”) with the Secu
Slide 3: Navient Corporation Overview
Navient Corporation Overview Confidential and proprietary information © 2014 Navient Solutions, Inc. All rights reserved. 3
Slide 4: We are the 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 • $98 Billion FFELP Portfolio • Private Education Loan Portfolio • $30 Billion Private Education Loan Portfolio Servicing • FFELP Loans • Over 12 Million Borrowe
Slide 5: Operating Results "Core Earning" Basis
Operating Results “Core Earning” Basis (In millions, except per share amounts) Q3 14 Q2 14 Q3 13 Net income $218 $241 $259 EPS $0.52 $0.56 $0.58 Operating expenses $195 $195 $190 Provision $140 $155 $187 Average student loans $129,915 $131,875 $138,572 Confidential and proprietary information © 2014
Slide 6: FFELP Loans Segment "Core Earnings" Basis
FFELP Loans Segment “Core Earnings” Basis (In millions) Q3 14 Q2 14 Q3 13 Net income $79 $72 $91 Average FFELP Loans $98,736 $100,467 $106,316 FFELP Loan spread 1.02% 0.98% 1.03% Annualized charge-off rate 0.08% 0.08% 0.07% Greater than 90-day delinquency rate 7.6% 7.0% 8.8% • Acquired $1.8 billion
Slide 7: FFELP Loans Segment Portfolio Characteristics
FFELP Loans Segment Portfolio Characteristics • Largest holder of FFELP Loans, $98 billion portfolio (1) • Portfolio is 97-98% government guaranteed • 87% of portfolio funded to term with securitizations • Fully integrated servicing and asset recovery support operations (1) Ending FFELP Loans, net,
Slide 8: FFELP Loans Segment Credit Quality "Core Earnings" Basis
FFELP Loans Segment Credit Quality “Core Earnings” Basis ($'s in millions) FFELP Education Loan Portfolio September 30, 2014 September 30, 2013 Balance % Balance % Loans in-school/grace/deferment $10,868 $14,484 Loans in forbearance 14,452 13,004 Loans in repayment and percentage of each status Loan
Slide 9: Federal Student Loan Market
Federal Student Loan Market Outstanding Government Student Loan Market Distribution FFYE 9/30/2013 ($ in billions) Source: Department of Education, U.S. Department of Education FY 2013 Agency Financial Report, Navient Confidential and proprietary information © 2014 Navient Solutions, Inc. All rights
Slide 10: Top Holders of FFELP Loans Excluding Navient
Top Holders of FFELP Loans Excluding Navient Top Ten Not-For-Profit Holders of FFELP Loans Top Ten For-Profit Holders of FFELP Loans Lender $’s in Billions Lender $’s in Billions Brazos $8.7 Nelnet $25.2 PHEAA $7.3 Wells Fargo $12.9 Access Group $4.1 Chase $7.5 Northstar $3.4 PNC $6.1 MOHELA $2.9 CL
Slide 11: Private Education Loans Segment "Core Earnings" Basis
Private Education Loans Segment “Core Earnings” Basis ($’s in millions) Q3 14 Q2 14 Q3 13 Net income $98 $86 $75 Average Private Education Loans $31,179 $31,408 $32,256 Private Education Loan spread 4.06% 4.10% 4.12% Provision for loan losses $130 $145 $176 Charge-offs $158 $166 $205 Annualized char
Slide 12: Private Education Loans Segment Portfolio Characteristics
Private Education Loans Segment Portfolio Characteristics • $30 billion portfolio (1) • 24% of Navient’s total student loan portfolio • Approximately 64% of portfolio has a cosigner, typically a parent • Average FICO at origination of 718 • Higher education loans typically non-dischargeable in bankr
Slide 13: Private Education Loans Segment Credit Quality "Core Earnings" Basis
Private Education Loans Segment Credit Quality “Core Earnings” Basis ($'s in millions) Private Education Loan Portfolio September 30, 2014 September 30, 2013 Balance % Balance % Loans in-school/grace/deferment $3,436 $3,850 Loans in forbearance 1,258 1,103 Loans in repayment and percentage of each s
Slide 14: Private Education Loans Segment High Quality Portfolio
Private Education Loans Segment High Quality Portfolio Private Credit: % of Portfolio Outstanding by Segment Private Credit Charge-Off 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-Tr
Slide 15: Private Education Loans Segment Default Performance
Private Education Loans Segment Default Performance Historical Defaults by Payments Made • Seasoned portfolio with 91% of loans having made more than 12 payments • The probability of default substantially diminishes as the number of payments and years of seasoning increases Confidential and propriet
Slide 16: Loan Seasoning – "Core Earnings" Basis (Sept 30, 2014)
Loan Seasoning – “Core Earnings” Basis September 30, 2014 Traditional Portfolio Monthly Scheduled Payments Due 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 17.8% 183 5.3% 1
Slide 17: Loan Seasoning – "Core Earnings" Basis (Sept 30, 2013)
Loan Seasoning – “Core Earnings” Basis September 30, 2013 Traditional Portfolio Monthly Scheduled Payments Due Loan Status 0-12 payments 13-24 payments 25-36 payments 37-48 payments More than 48 payments Total Not Yet in Repayment $ - $ - $ - $ - $ - $ 3,446 Loans in Forbearance 448 12.3% 165 3.7% 1
Slide 18: Business Services Segment "Core Earnings" Basis
Business Services Segment “Core Earnings” Basis (In millions) Q3 14 Q2 14 Q3 13 Net income $85 $130 $127 Federal Loans serviced ($’s in billions) $277 $272 $262 Third-Party Loan servicing revenue $46 $42 $39 Asset recovery revenue $65 $132 $104 Department of Education accounts serviced 6.1 5.8 5.7 C
Slide 19: Business Services Segment Federal Loan Servicing & Customer Success
Business Services Segment Federal Loan Servicing & Customer Success Federal Loans Serviced by Navient Key Characteristics • Largest servicer of federal student loans • Federal loans serviced by Navient have a 40% better cohort default rate • Federal borrowers serviced by Navient are less likely to p
Slide 20: Business Services Segment Asset Recovery
Business Services Segment Asset Recovery Contingency Asset Recovery Receivables Key Characteristics • Generated $308 million of revenue in the first nine months of 2014 • Consistent top performer on the Department of Education collections contract • Strong compliance infrastructure • Opportunities t
Slide 21: Funding and Liquidity
Funding and Liquidity Confidential and proprietary information © 2014 Navient Solutions, Inc. All rights reserved. 21
Slide 22: 2014 Capital Markets Summary
2014 Capital Markets Summary • Issued $4.0 billion of FFELP ABS • Closed on an $8 billion FFELP ABCP facility • Refinanced $1.1 billion of FFELP reset notes to term • Issued $1.8 billion of Private ABS • Closed on a $1 billion Private ABCP facility • Issued $850 million of long-term unsecured debt •
Slide 23: Secured Funding
Secured Funding 2014 YTD Issuance Issuer Total ($mm) Asset Class • Navient is among the largest issuers 1 Ally 12,239 Auto of ABS globally, having issued over 2 Ford 9,381 Auto 3 Citigroup 9,050 Credit Card $250 billion of Private and FFELP 4 Santander Drive 6,184 Auto ABS transactions to date 5 Cha
Slide 24: Recent FFELP ABS Transactions
Recent FFELP ABS Transactions NAVSL 2014-2 thru 2014-7 NAVSL 2014-1 SLM 2014-2 August 7, 2014 May 20, 2014 March 18, 2014 Priced Settled August 14, 2014 May 29, 2014 March 27, 2014 Issuance Amount $1,264M $747M $992M US Govt. Guaranteed or Insured US Govt. Guaranteed or Insured US Govt. Guaranteed o
Slide 25: Recent Private Education Loan ABS Transactions
Recent Private Education Loan ABS Transactions NAVSL Trust 2014-A NAVSL Trust 2014-CT SLM Trust 2014-A Priced Settled October 15, 2014 July 15, 2014 February 25, 2014 October 23, 2014 July 24, 2014 March 6, 2014 Issuance Amount $664M $463M $676M Collateral Private Education Loans Private Education L
Slide 26: Unsecured Debt
Unsecured Debt Fitch Moody’s S&P Senior Unsecured Debt BB Ba3 BB Outlook Stable Stable Stable Confidential and proprietary information © 2014 Navient Solutions, Inc. All rights reserved. 26
Slide 27: Education Loan Portfolio Generates Significant Cash Flows
Education Loan Portfolio Generates Significant Cash Flows Projected Life of Loan Cash Flows Key Portfolio Characteristics • Since 12/31/13, we have added $2.9 billion of cash flows through new loan acquisitions and improved portfolio performance • $36 billion of estimated future cash flows over ~ 20
Slide 28: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable as of 9/30/14 4Q 2014 2015 2016 2017 2018 2019 2020 2021 Projected FFELP Average Balance $94,471 $89,240 $80,752 $72,614 $65,178 $57,821 $50,777 $44,106 Projected Excess Spread $223 $843 $800 $712 $646 $575 $501 $448 Projected Servicing Revenue $178 $489 $451 $413
Slide 29: Secured Cash Flow
Secured Cash Flow $ in Millions 3Q14 YTD 2013 2012 2011 FFELP Term Securitized Servicing (Cash Paid) $ 363 $ 507 $ 526 $ 563 Net Residual* (Excess Distributions) 512 476 628 715 Other Secured FFELP Net Cash Flow 134 1,199 934 568 Total FFELP $ 1,008 $ 2,182 $ 2,088 $ 1,846 Private Credit Term Securi
Slide 30: FFELP ABS Appendix
FFELP ABS Appendix Confidential and proprietary information © 2014 Navient Solutions, Inc. All rights reserved. 30
Slide 31: Recent FFELP ABS Issuance Characteristics
Recent FFELP ABS Issuance Characteristics FFELP ABS Transaction Features Collateral Characteristics • Issue size of $500M to $1.5B • Insurance or guarantee of underlying collateral insulates bondholders from • Tranches or pass-through denominated in virtually any loss of principal (1) US$ • Typicall
Slide 32: FFELP Loan Program Characteristics
FFELP Loan Program Characteristics Unsubsidized Parameter Subsidized Stafford Unsubsidized Stafford PLUS/Grad PLUS Subsidized Consolidation Consolidation Parents or Graduate Borrower Student Student Student or Parents Student or Parents Students Needs Based Yes No No N/A N/A Federal Guarantee of Pri
Slide 33: Navient Stafford & PLUS Loan Prepayments
Navient Stafford & PLUS Loan Prepayments • Annualized CPRs for Stafford/PLUS ABS trusts have decreased significantly as incentives for borrowers to consolidate have declined • After a temporary increase in mid 2012 due to the Special Direct Consolidation Loan program, CPRs decreased in the fourth qu
Slide 34: 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 • After a temporary increase in mid 2012 due to the Special Direct Consolidation Loan program, C
Slide 35: Private Education Loan ABS Appendix
Private Education Loan ABS Appendix Confidential and proprietary information © 2014 Navient Solutions, Inc. All rights reserved. 35
Slide 36: 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 $1.5B • Collateralized by loans made to students and parents to fund college tuition, room • Triple-A rated senior notes, Single-A and board
Slide 37: Navient Private Education Loan Programs
Navient Private Education Loan Programs Undergraduate/Graduate/ Smart Option Direct-to-Consumer (DTC) Consolidation Career Training Med/Law/MBA Origination Channel School School Direct-to-Consumer Lender School Typical Borrower Student Student Student College Graduates Student Typical Co-signer Pare
Slide 38: Navient Private Education Trusts
Navient Private Education Trusts Summary Information 2011-2014YTD Issuance Program Navient 11-A 11-B 11-C 12-A 12-B 12-C 12-D 12-E 13-A 13-B 13-C 14-A 14-CT 14-A Bond Amount ($mil) 562 825 721 547 891 1,135 640 976 1,108 1,135 624 676 463 664 Initial AAA Enhancement (%) 21% 18% 24% 27% 26% 25% 25% 2
Slide 39: Navient 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 Confidential and proprietary information
Slide 40: 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): -
Slide 41: 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 r
Slide 42: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) Disbursed Principal Entering Periodic Defaults by Years in Repayment (2),(3) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $11 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.4% 0.8% 0.4% 0.2% 1.5% 0.7% 0.4% 0.3% 0.0% 0.1% 5.0% 1999
Slide 43: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) With Co-signer Disbursed Principal (2),(3) Entering Periodic Defaults by Years in Repayment Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $6 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.6% 1.0% 0.4% 0.0% 0.2% 1.1% 0.1% 0.0% 0.0%
Slide 44: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) Non-Profit Disbursed Principal (2),(3) Entering Periodic Defaults by Years in Repayment Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $11 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.4% 0.4% 0.4% 0.2% 1.1% 0.7% 0.3% 0.3% 0.0% 0.1
Slide 45: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) Loans, FICO 740-850(2) Disbursed Principal (3),(4) Entering Periodic Defaults by Years in Repayment Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $3 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.4% 0.4% 0.9% 0.9% 0.0% 0.
Slide 46: Cohort Default Triangles
Cohort Default Triangles Undergraduate/Graduate(1) Loans, FICO 670-699(2) Disbursed Principal (3),(4) Entering Periodic Defaults by Years in Repayment Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total 1998 $3 0.0% 0.0% 0.0% 0.0% 0.0% 0.6% 0.6% 0.3% 0.5% 0.3% 2.8% 0.0% 0.5% 0.
Slide 47: Cohort Default Triangles
Cohort Default Triangles Private Consolidation Loans With Co-signer Disbursed Principal Entering Periodic Defaults by Years in Repayment (1),(2) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 Total 2006 $249 0.0% 0.1% 0.1% 0.5% 0.6% 0.6% 0.4% 0.3% 0.4% 0.0% 2.9% 2007 $675 0.0% 0.0% 0.2% 0.4% 0.6%
Slide 48: Cohort Default Triangles
Cohort Default Triangles DTC With Co-signer, FICO 670(1) Disbursed Principal (2),(3) Entering Periodic Defaults by Years in Repayment Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 Total 2004 $8 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.1% 0.4% 0.0% 0.2% 0.0% 0.0% 0.9% 2005 $65 0.0% 0.1% 0.8% 0.7% 1.
Slide 49: Cohort Default Triangles
Cohort Default Triangles Career Training Loans, 670+ FICO(1) Disbursed Principal Entering Periodic Defaults by Years in Repayment (2),(3) Repayment Year Repayment ($m) 0 1 2 3 4 5 6 7 8 9 10 11 12 Total 2003 $291 0.0% 0.4% 1.4% 1.6% 1.8% 1.4% 1.3% 1.0% 0.8% 0.5% 0.4% 0.3% 0.1% 11.0% 2004 $382 0.0% 0
Slide 50: Navient Corporation Appendix
Navient Corporation Appendix Confidential and proprietary information © 2014 Navient Solutions, Inc. All rights reserved. 50
Slide 51: GAAP Results
GAAP Results (In millions, except per share amounts) Q3 14 Q2 14 Q3 13 Net income $359 $307 $260 EPS $0.85 $0.71 $0.57 Operating expenses $195 $211 $257 Provision $140 $165 $207 Average Student Loans $129,915 $134,737 $145,585 Confidential and proprietary information © 2014 Navient Solutions, Inc. A
Slide 52: Differences between "Core Earnings" and GAAP
Differences between “Core Earnings” and GAAP Quarter ended September 30, 2014 ($ in millions) “Core Earnings” adjustments to GAAP: GAAP net income $ 359 Net impact of SLM BankCo 1 14 Net impact of derivative accounting (226) Net impact of goodwill and acquired intangible assets 2 Net income tax effe
Slide 53: Investor Relations Website
Investor Relations Website https://www.navient.com/about/investors/ • 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 - Quarterl
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