Navient Corporation · NASDAQ:NAVI
Navient — Q2 2016 Earnings Presentation
72 slides from Navient's earnings presentation, Jul 25, 2016
Slide 1: 2016 2nd Quarter Investor Deck
2016 2nd Quarter Investor Deck July 25, 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 June 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”), file
Slide 3: We are the leading loan management, servicing and asset recovery company
We are the leading loan management, servicing and asset recovery company $117 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) Q2 16 Q1 16 Q2 15 Adjusted Core EPS before regulatory-related costs $0.48 $0.44 $0.40 Regulatory-related costs ($0.01) ($0.01) ($0.00) Reported Core EPS $0.47 $0.43 $0.40 Operating expenses (excluding regulatory-related
Slide 5: High Quality Education Loan Portfolio
High Quality Education Loan Portfolio Note: Financial data as of 6/30/2016 Private Education Portfolio Balance ($bn, net of allowance) $25 Avg. Loan Size $9,880 Avg. Recent FICO 720 % 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) Q2 16 Q1 16 Q2 15 Net income $68 $66 $93 Average FFELP Loans $93,900 $95,721 $101,305 Net interest margin 0.85% 0.81% 0.81% Annualized charge-off rate 0.10% 0.08% 0.05% Greater than 90-day delinquency rate 7.2% 7.0% 8.4% 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) Q2 16 Q1 16 Q2 15 Net income $57 $61 $22 Average Private Education Loans $25,700 $26,577 $29,207 Net interest margin 3.50% 3.56% 3.55% Provision for loan losses $100 $104 $191 Charge-offs1 $127 $144 $179 Annualized charge-off rate1
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 June 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 59 The probability of defau
Slide 12: Loan Seasoning – "Core Earnings" Basis (June 30, 2016)
Loan Seasoning – “Core Earnings” Basis June 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 1,489 Loans in Forbearance 252 19.8% 103 7.3% 103 4.6% 99 3.1% 235 1.
Slide 13: Loan Seasoning – "Core Earnings" Basis (June 30, 2015)
Loan Seasoning – “Core Earnings” Basis 1 In the second quarter of 2015, the portion of the loan amount charged off at default increased from 73 percent to 79 percent. This change resulted in a $330 million reduction to the balance of the receivable for partially charged-off loans which is not includ
Slide 14: Business Services Segment "Core Earnings" Basis
Business Services Segment “Core Earnings” Basis (In millions) Q2 16 Q1 16 Q2 15 Net income $81 $75 $91 Intercompany loan servicing revenue $99 $101 $108 Third-Party Loan servicing revenue $51 $54 $47 Asset recovery & business processing revenue $101 $90 $99 Federal Loans serviced ($’s in billions) $
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 Total 2015 revenues of $367 million1 Total contingent collections receivables inventory of $19.2 bil
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: Defaults Are a Bigger Problem For Students Who Drop Out Than For Degree Holders
Defaults Are a Bigger Problem For Students Who Drop Out Than For Degree Holders Percent Of Students In Default Federal Loan Default Rates By Attainment One of the strongest indicators of whether a borrower will default is whether they make it to graduation Dropouts are over four times more likely to
Slide 22: Recent College Graduates Have Seen Wages Increase Substantially Since the Great Recession
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 the Decline of the National Default Rate
Navient’s Default Prevention Expertise Was a Key Factor in the Decline of the National Default Rate 2012 Three-Year Cohort Default Rate 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 2015,
Slide 25: The Benefits of Obtaining a College Degree Outweigh the Costs by a Wide Margin
The Benefits of Obtaining a College Degree Outweigh the Costs by a Wide Margin Source: College Board: Education Pays 2013, NYT Upshot, Georgetown University Center on Education and the Workforce Cumulative Earnings Net Of College Repayment Costs Cumulative Earnings (2011 USD) Age A college degree pa
Slide 26: Borrowing Without a Degree: Money Under 35 Findings
Money Under 35 finds that 30% of millennials have a college degree Yet, 31% of millennials have some college but no degree More than half of them (53%) borrowed to pay for college Money Under 35 finds that borrowing for no credential affects young adults in many aspects of their lives Report the low
Slide 27: More Bachelor's and Advanced Degree Holders Have Paid Off College Debt
More Bachelor’s and Advanced Degree Holders Have Paid Off College Debt Even Though Borrowing is Higher Those without a degree have borrowed less but fewer have paid off their borrowing (ages 22-35) Source: Navient/Ipsos “Money Under 35,”a national study of 3,000 Americans ages 22 to 35, December 201
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 and Liquidity
Funding and Liquidity
Slide 30: YTD 2016 Capital Markets Summary
Acquired $2.2 billion of student loans Issued $2.9 billion of FFELP ABS Extended FFELP ABCP facility to 2018 Current maximum financing capacity of $7.5 billion in this facility Extended Private Education Loan ABCP facility one year Current maximum financing capacity of $750 million in this facility
Slide 31: Secured Funding
Secured Funding 1As of June 30, 2016 2Santander includes Drive Auto Receivables Trust (“DRIVE”) and Chrysler Capital Auto Receivables Trust (“CCART”) deals Table Source: J.P. Morgan 1 As of June 30, 2016 2016 YTD Issuance ($mm)1 1 Ford 7,415 Auto / Floorplans 2 AmeriCredit / GM Financial 5,572 Auto
Slide 32: Recent FFELP ABS Transactions
NAVSL 2016-4 NAVSL 2016-3 Pricing Date: Settlement Date: June 24, 2016 June 29, 2016 June 7, 2016 June 16, 2016 Issuance Amount: $520M $761M Collateral: US Govt. Guaranteed FFELP Stafford, Plus and Consolidation Loans; 100% Rehabilitated Loans US Govt. Guaranteed FFELP Stafford, Plus and Consolidati
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 1.25x as of June 30, 2016 Reduced total unsecured maturities to under $14 billion today through opportunistic
Slide 35: Conservative Unsecured Debt Profile
Conservative Unsecured Debt Profile December 31, 2006 December 31, 2010 June 30, 2016 Total Managed Student Loans $142.1 Billion $184.3 Billion $117.4 Billion Unsecured Debt Outstanding $48.7 Billion $20.1 Billion $13.9 Billion Tangible Equity Ratio 1.9% 2.2% 2.4% Tangible Net Asset Ratio 1.06x 1.19
Slide 36: 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 Flows1 Education Loan Portfolio Generates Significant Cash Flows Reduced
Slide 37: FFELP Cash Flows Highly Predictable
Total Cash Flows from Projected Excess Spread = $6.9 Billion Total Cash Flows from Projected Servicing Revenues = $3.3 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: Legal Final Maturity Date Update: Sponsor Support Activities
Legal Final Maturity Date Update Sponsor Support Activities 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 Exercise Optional Servicer Purchases: We amended the servicing agreements f
Slide 41: Legal Final Maturity Date Update: Disclosure and Investor Communication
Legal Final Maturity Date Update Sponsor Support Activities 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 enro
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) 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 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 $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 48: Private Education Loan Programs by Origination Channel
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 Parent Parent Parent Parent Parent, Spouse T
Slide 49: Navient Private Education Trusts
Navient Private Education Trusts (1) Assumes Prime/LIBOR spread of 3.00% for all transactions. Summary Information 2011 - 2016YTD Issuance Program Sallie Mae Navient 07-A 10-A 10-B 10-C SLM11-A SLM 11-B SLM 11-C SLM 12-A SLM 12-B SLM 12-C SLM 12-D SLM12-E SLM13-A SLM13-B SLM13-C SLM14-A NAV14-CT NAV
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 June 2016, the private s
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
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’ securitization criteria (including those criteria listed below): Program type
Slide 53: Cohort Default Triangles: Definitions
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 54: Cohort Default Triangles: Undergraduate/Graduate
Cohort Default Triangles Note: Data as of 6/30/16. 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
Slide 55: Cohort Default Triangles: Undergraduate/Graduate With Co-signer
Cohort Default Triangles Undergraduate/Graduate(1) With Co-signer Note: Data as of 6/30/16. 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 e
Slide 56: Cohort Default Triangles: Undergraduate/Graduate Without Co-signer
Cohort Default Triangles Undergraduate/Graduate(1) Without Co-signer Note: Data as of 6/30/16. 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 i
Slide 57: Cohort Default Triangles: Undergraduate/Graduate Non-Profit
Cohort Default Triangles Note: Data as of 6/30/16. 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
Slide 58: Cohort Default Triangles: Undergraduate/Graduate For-Profit
Cohort Default Triangles Note: Data as of 6/30/16. 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
Slide 59: Cohort Default Triangles: FICO 740-850
Cohort Default Triangles Undergraduate/Graduate(1) Loans, FICO 740-850(2) Note: Data as of 6/30/16. 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. Period
Slide 60: Cohort Default Triangles: FICO 700-739
Cohort Default Triangles Undergraduate/Graduate(1) Loans, FICO 700-739(2) Note: Data as of 6/30/16. 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. Period
Slide 61: Cohort Default Triangles: FICO 670-699
Cohort Default Triangles Note: Data as of 6/30/16. 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
Slide 62: Cohort Default Triangles: FICO 640-669
Cohort Default Triangles Note: Data as of 6/30/16. 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
Slide 63: Cohort Default Triangles: Private Consolidation Loans
Cohort Default Triangles Private Consolidation Loans Without Co-signer Private Consolidation Loans With Co-signer Note: Data as of 6/30/16. 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 e
Slide 64: Cohort Default Triangles: DTC With and Without Co-signer
Cohort Default Triangles Note: Data as of 6/30/16. 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 Repaymen
Slide 65: Cohort Default Triangles: DTC FICO 740-850 and 700-739
Cohort Default Triangles Note: Data as of 6/30/16. 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
Slide 66: Cohort Default Triangles: DTC FICO 670-699 and 640-669
Cohort Default Triangles Note: Data as of 6/30/16. 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
Slide 67: Cohort Default Triangles: Career Training Loans
Cohort Default Triangles Note: Data as of 6/30/16. 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
Slide 68: Navient Corporation Appendix
Navient Corporation Appendix
Slide 69: GAAP Results
GAAP Results (In millions, except per share amounts) Q2 16 Q1 16 Q2 15 Net income $125 $181 $182 EPS $0.38 $0.53 $0.47 Operating expenses $230 $247 $225 Provision $110 $111 $198 Average Student Loans $119,600 $122,298 $130,512
Slide 70: Differences between "Core Earnings" and GAAP
Differences between “Core Earnings” and GAAP Quarters Ended “Core Earnings” adjustments to GAAP: June 30, 2016 March 31, 2016 June 30, 2015 GAAP net income $ 125 $181 $182 Net impact of derivative accounting 32 (54) (83) Net impact of goodwill and acquired intangible assets 6 4 3 Net impact from spi
Slide 71: Investor Relations Website
Investor Relations Website 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 performan
Slide 72: NAVIENT.
NAVIENT.