Navient Corporation · NASDAQ:NAVI
Navient — Q1 2021 Earnings Presentation
53 slides from Navient's earnings presentation, Apr 30, 2021
Slide 1: 2021 1st Quarter Investor Deck
2021 1st Quarter Investor Deck April 30, 2021
Slide 2: Forward-Looking Statements; Non-GAAP Financial Measures
Forward-Looking Statements; Non-GAAP Financial Measures The following information is current as of March 31, 2021 (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, 2020 (the “2020 Form 10-K”), fil
Slide 3: Leader in education loan management and business processing solutions
We are the leader in education loan 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, leveraging our 45+ years
Slide 4: Delivering Long-term Value
Delivering Long-term Value Federal Education Loans Consumer Lending Business Processing Segment Segment Segment Providing payment relief to Originated $1.7 billion of high- Over 4,500 Navient employees borrowers impacted by quality Private Education support our state and municipal COVID-19 Loa
Slide 5: Originating Education Loans is An Attractive Opportunity
Originating Education Loans is An Attractive Opportunity Sizable Market With Attractive Yields1 Leveraging Our Existing Infrastructure to Generate Value Estimated Total Market Annual Originations and Yields ($’s in billions) • Private Education Refinance Loans: Grad PLUS - Using our data and experti
Slide 6: Lifetime Cash Flows Will Exceed Original Projections
Lifetime Cash Flows Will Exceed Original Projections Navient’s student loan portfolios continues to exceed expectations 1 ($’s in Billions) $22.9 $7.6 Life of Loan Projections Q4 2017 Q1 2021 Net Cash Flow Projection at Total FFELP Cash Flows $12.7 $8.0 Q1 2021 Total Private Education Cash Flows $15
Slide 7: Growing Earnings and Generating Shareholder Value
Growing Earnings and Generating Shareholder Value Driving EPS Accretion for Shareholders Delivering Value Adjusted Core EPS $3.40 Long-term value for shareholders driven by consistent earnings and capital return $2.64 Allocating capital to attractive investments, $2.09 including portfolio acquis
Slide 8: Navient is Focused on Cost Efficiency
Navient is Focused on Cost Efficiency Industry-leading Efficiency Continuously Rationalizing Our Expense Base Innovative financing reduces interest expense, Focused on reducing expenses and improving maximizing cashflow and shareholder value efficiency across our businesses Continue to drive s
Slide 9: Asset Generation Drives Meaningful Returns
Asset Generation Drives Meaningful Returns Since 2014 Separation 1 Originated Loan Our competitive franchise, with its highly attractive return Originations $14+ billion of profile, leverages our core expertise to drive profits and growth Education Refi Loans Loan Portfolios Acquired over $43 Ac
Slide 10: Outlook
Outlook Key Company & Business Segment Metrics 2021 Q1 2021 Original 2 Targets Actuals Core Earnings Return on Equity 1 Low Twenties ✓ 54% Core Earnings Efficiency Ratio 1 ~52% ✓ 44% 6.2% Adjusted Tangible Equity Ratio 3 ~5.5% ✓ (Pro forma Adjusted Tangible Equity Ratio of 8.1%) 3 Net Interest Margi
Slide 11: Funding & Liquidity
Funding & Liquidity © 2021 Navient Solutions, LLC. All rights reserved. 11
Slide 12: Q1 2021 Financing and Capital Management
Q1 2021 Financing and Capital Management Capital Management Financing ✓ Returned $129 million through share Issued $2.8 billion of Term Education Loan repurchases and dividends ABS transactions • Paid dividends of $29 million • Repurchased 8.2 million shares for Issued $500 million of unsecured
Slide 13: FFELP ABS Transactions
FFELP ABS Transactions NAVSL 2021-2 NAVSL 2021-1 Pricing Date: April 12, 2021 February 8, 2021 Settlement Date: April 22, 2021 February 18, 2021 Issuance $1,011,600,000 $1,015,900,000 Amount: U.S. Government Guaranteed U.S. Government Guaranteed Collateral: FFELP Consolidation and FFELP Non-Consolid
Slide 14: Private Education Loan ABS Transactions
Private Education Loan ABS Transactions NAVSL 2021-B NAVSL 2021-A Pricing Date: March 16, 2021 January 19, 2021 Settlement Date: March 25, 2021 January 28, 2021 Issuance $1,006,600,000 $817,800,000 Amount: Collateral: Private Education Refi Loans Private Education Refi Loans Prepayment 15% CPR 15% C
Slide 15: Education Loan Portfolio Generates Significant Cash Flows
Education Loan Portfolio Generates Significant Cash Flows Projected Life of Loan Cash Flows over ~20 Years Enhancing Cash Flows $’s in Billions • Generated $0.7 billion of cash flows in 1Q 21 1 FFELP Cash Flows 03/31/21 Secured • Paid down unsecured debt of $0.7 billion in 1Q 21 Residual (including
Slide 16: Education loan portfolio generates meaningful cash flows over the next five years
Education loan portfolio generates meaningful cash flows over the next five years Projected Annual Private Education Loan Cash Flows Projected Annual FFELP Loan Cash Flows $1.2 $1.2 $1.1 $1.1 $1.0 $1.0 $1.0 $1.0 $0.9 $0.9 $0.9 $0.9 $0.8 $0.8 $0.8 $0.7 ($’s in Billions) ($’s in Billions) $0.6 $0.6 $0
Slide 17: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable $’s in millions as of 03/31/2021 2021 2022 2023 2024 2025 2026 2027 2028 Projected FFELP Average Balance $54,293 $48,816 $43,169 $38,018 $33,276 $28,786 $24,601 $20,693 Projected Excess Spread $436 $531 $472 $418 $381 $355 $318 $277 Projected Servicing Revenue $19
Slide 18: Secured Cash Flow
Secured Cash Flow $ in Millions 1Q 2021 2020 2019 2018 FFELP Servicing (Cash Paid) $ 52 $ 227 $ 253 $ 288 1, 2 Net Cash Flow $ 216 $ 830 $ 969 $ 1,290 Total FFELP $ 268 $ 1,057 $ 1,223 $ 1,577 Private Credit Servicing (Cash Paid) $ 31 $ 124 $ 135 $ 147 Net Cash Flow 1 $ 177 $ 1,307 $ 1,065 $ 907 Tot
Slide 19: Optimized Capital Structure
Optimized Capital Structure Long-Term Conservative Funding Approach Managing Unsecured Debt Maturities • Important to maintain our credit ratings which (par value, $ in billions) support ongoing access to the unsecured debt markets - We pursue opportunities to repurchase debt in the open market - We
Slide 20: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities (par value, $ in billions) As of April 5th, called $627 million of unsecured debt that would have matured this year, reducing 2021 maturities to $0 $1.8 $1.7 $1.5 $1.5 $1.4 $1.4 $1.3 $1.1 $1.1 $0.7 $0.7 $0.6 $0.6 $0.6 $0.5 $0.5 $0.5 $0.2 $0.2 $0.0 2021 2022 2023 20
Slide 21: FFELP ABS
FFELP ABS © 2021 Navient Solutions, LLC. All rights reserved. 21
Slide 22: FFELP ABS Issuance Characteristics
FFELP ABS Issuance Characteristics FFELP ABS Transaction Features Collateral Characteristics • Issue size of $500M+ • Guarantee of underlying collateral insulates bondholders from most risk of • Senior and subordinate notes loss of principal 1 • Amortizing tranches with 1 to 10(+) year average lives
Slide 23: FFELP Loan Program Characteristics
FFELP Loan Program Characteristics Parameter Subsidized Stafford Unsubsidized Stafford PLUS/Grad PLUS Consolidation Borrower Student Student Parents or Graduate Students Student or Parents Needs Based Yes No No N/A Federal Guarantee of Principal 97 - 100% 97 - 100% 97 - 100% 97 - 100% and Accrued In
Slide 24: Quarterly CPR: Stafford & PLUS Loan Prepayments
Navient Stafford & PLUS Loan Prepayments • Higher prepayment activity in mid-2012 was related to the short-term availability of the Special Direct Consolidation Loan program • Prepayments increases occurred in 2015 and 2018 as we exercised our option to purchase assets from selected transactions to
Slide 25: Quarterly CPR: 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 26: Private Education Loan ABS
Private Education Loan ABS © 2021 Navient Solutions, LLC. All rights reserved. 26
Slide 27: Private Education Loan ABS Issuance Characteristics
Private Education Loan ABS Issuance Characteristics Private Education Loan ABS Transaction Features Collateral Characteristics • Issue size of $500M+ • Collateralized by loans made to students and parents to fund college tuition, room • Senior and subordinate notes and board - Seasoned assets benefi
Slide 28: Navient Private Education Loan Programs
Navient Private Education Loan Programs Smart Option Undergrad/Grad/ Med/Law/MBA Direct-to-Consumer (DTC) Origination Channel School School Direct-to-Consumer Typical Borrower Student Student Student Typical Co-signer Parent Parent Parent $10k avg orig bal, 10 yr avg term, in-school $10k avg orig ba
Slide 29: Navient Private Education Loan Programs
Navient Private Education Loan Programs Consolidation (Legacy) Private Education Refi Private Education Origination Origination Channel Lender Lender School College Graduates & Select Non- Typical Borrower College Graduates Student Graduates Typical Co-signer Parent Parent Parent $15k avg orig bal,
Slide 30: Navient Private Education Trusts
Navient Private Education As of the respective cutoff dates for each transaction Trusts 2019-2021YTD Navient Issuance Program NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV NAV 19-A 19-B 19-C 19-D 19-E 19-F 19-G 20-A 20-B 20-C 20-D 20-E 20-F 20-G 20-H 20-I 21-A 21-B Bond Amount
Slide 31: Constant Prepayment Rate (CPR)
Navient Private Education Legacy Loan Trusts – Prepayment Analysis • Constant prepayment rates increased beginning 2014 on increased seasoning-related voluntary prepayment and the emergence of the external student loan refinance market • Prepayments have declined in 2020 during the COVID-19 crisis a
Slide 32: Higher Education Industry
Higher Education Industry © 2021 Navient Solutions, LLC. All rights reserved. 32
Slide 33: Federal government is the largest non-mortgage consumer lender
At $1.5 trillion in student loans, the federal government is the largest non-mortgage consumer lender • 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. • F
Slide 34: Navient helps borrowers successfully repay their loans
In its role as a federal 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. © 2021 Navient Solutions, LLC
Slide 35: There are solutions to many of the challenges faced by borrowers
There are solutions to many of the challenges faced by borrowers 5 Recommendations to improve student loan program success: Provide front-end support to improve They should be and can be simplified. For example, 1 collapsing the multiple income-driven repayment options decision making. into one plan
Slide 36: Borrowers who struggle most are often non-completers
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 … of
Slide 37: Today's federal repayment options are numerous and complex
Today’s federal repayment options are numerous and complex Forbearance Deferment Discretionary Forbearance 1. School (1) • Hardship Forbearance 2. School Full-Time (2) Mandatory Forbearance 3. School Half-Time (2) • Medical or Dental Internship Residency 4. Post Enrollment (1) • Department of Defens
Slide 38: We've piloted solutions to reduce complexity
We’ve piloted solutions to reduce complexity IDR eSign Enrollment Repayment Guide for New Graduates Navient launched a pilot program focusing on past-due FFELP Navient created a personalized report to help new-to-repayment borrowers to explore whether a simpler process could produce borrowers to com
Slide 39: Navient delivers strong performance for borrowers
Navient delivers strong performance for borrowers Navient-serviced borrowers are 26% less likely Navient helps borrowers use forbearance responsibly to default Pre-COVID forbearance usage is in line with other servicers 9.7% 20 forbearance (%) Default rate (%) 7.5% Borrowers in 15 Navient's CDR is 1
Slide 40: Student Loan Options During the National Emergency
Student Loan Options During the National Emergency: What You Need to Know If you have impacted by COVID, options depend on your loan types. Contact your servicer to discuss what’s right for you. Department of Education • These loans have been automatically placed into forbearance (payments suspended
Slide 41: Navient Corporation Appendix
Navient Corporation Appendix © 2021 Navient Solutions, LLC. All rights reserved. 41
Slide 42: Core Earnings Basis: Operating Results
Operating Results “Core Earnings ” Basis 1 Selected Financial Information and Ratios 1st Quarter Highlights (In millions, except per Q1 21 Q4 20 Q1 20 • Adjusted Core Earnings 1 per share increased 235% to $1.71 share amounts) compared to $0.51 in the year ago quarter GAAP diluted EPS $2.00 $0.99 ($
Slide 43: Federal Education Loans Segment
Federal Education Loans Segment “Core Earnings” Basis Selected Financial Information and Ratios 1st Quarter Highlights ($ In millions) Q1 21 Q4 20 Q1 20 Federal Education Segment net interest margin 0.97% 1.06% 0.81% • Q1 21 Net Interest Margin: 97 basis points • Q1 21 Annualized Charge-off Rate: 6
Slide 44: Consumer Lending Segment
Consumer Lending Segment “Core Earnings” Basis Selected Financial Information and Ratios 1st Quarter Highlights ($ In millions) Q1 21 Q4 20 Q1 20 Consumer Lending • Q1 21 Net Interest Margin: 299 basis points Segment net interest margin 2.99% 3.02% 3.31% • Q1 21 Annualized Charge-off Rate: 68 basis
Slide 45: Consumer Lending Segment: Q1 2021 Loan Sales
Consumer Lending Segment: Q1 2021 Loan Sales Loan Sale Proceeds: Impact & Use Non-Refi Private Refi Residual 1 Loan Sale Principal $560 million $1.0 billion 2 Gain on Sale $46 million $43 million 3 Reserve Release $88 million $14 million ✓ Principal proceeds from the sale of non-refi ✓ Proceeds from
Slide 46: Business Processing Segment
Business Processing Segment “Core Earnings” Basis Selected Financial Information and Ratios 1st Quarter Highlights ($ In millions) Q1 21 Q4 20 Q1 20 Business Processing Government Services $63 $58 $33 • Q1 21 EBITDA Margin 1: 29% Healthcare RCM Services $62 $35 $24 • Revenue increased $68 million or
Slide 47: Total Expenses Compared to Prior Periods
Total Expenses Compared to Prior Periods ($ In millions) Q1 21 Q1 20 Reported Core Earnings Expenses $265 $256 Year over Year Change in Reported Core Earnings Expenses 4% Restructuring & Reorganization Expenses $6 $5 Regulatory-Related Expenses $8 $7 Adjusted Core Earnings Expenses 1 $251 $244 Year
Slide 48: GAAP Results
GAAP Results (In millions, except per share Q1 21 Q4 20 Q1 20 amounts) Net income (loss) $370 $186 ($106) Diluted earnings (loss) per common $2.00 $0.99 ($0.53) share Operating expenses $259 $269 $251 Provision for loan losses ($87) $2 $95 Average Education Loans $80,221 $81,685 $87,006 © 2021 Navie
Slide 49: Notes on Non-GAAP Financial Measures
Notes on Non-GAAP Financial Measures (Dollars in Millions) In addition to financial results reported on a GAAP basis, Navient also provides certain performance measures which are non-GAAP financial measures. The following non-GAAP financial measures are presented within this Presentation: 1. Core Ea
Slide 50: Notes on Non-GAAP Financial Measures
Notes on Non-GAAP Financial Measures (Dollars in Millions) 4. Earnings before Interest, Taxes, Depreciation and Amortization Expense (“EBITDA”) – This metric measures the operating performance of the Business Processing segment and is used by management and our equity investors to monitor operating
Slide 51: Differences Between Core Earnings And GAAP
Differences Between Core Earnings And GAAP Quarters Ended Core Earnings adjustments to GAAP: Mar. 31, Dec. 31, Mar. 31, (Dollars in Millions) 2021 2020 2020 GAAP net income (loss) $370 $186 ($106) Net impact of derivative accounting (91) (28) 247 Net impact of goodwill and acquired intangible assets
Slide 52: Investor Relations Website
Investor Relations Website www.navient.com/investors www.navient.com/abs • 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 - Qua
Slide 53: NAVIENT.
NAVIENT.