Navient Corporation · NASDAQ:NAVI
Navient — Q2 2023 Earnings Presentation
34 slides from Navient's earnings presentation, Jul 26, 2023
Slide 1: 2Q 2023 Earnings Call Presentation
2Q 2023 Earnings Call Presentation Confidential and proprietary information © 2023 Navient Solutions, LLC. All rights reserved. 1
Slide 2: Business
Business Federal Consumer Processing Education Loans Lending Solutions • Federal Family • Private Education • Government Services Education Loan Refinance and • Healthcare Services Program (FFELP) In-School Loan Originations Federally guaranteed loans • Seasoned Private Education Loan Portfolio Conf
Slide 3: Strategic Imperatives
Strategic Imperatives While focusing on… Maximize the cash flows from our Enhance the value of our loan portfolios growth businesses • Conducting in-depth review • Continuously strengthening our control environment • Driving customer satisfaction and social responsibility Continuously simplify the M
Slide 4: Federal Education Loans – Overview
Federal Education Loans – Overview • FFELP portfolio of $41 billion - No newly originated FFELP loans since 2010 ($ in millions) - 97-100% of principal and interest 5-Year Projected Annual FFELP Cash Flows 1 guaranteed by U.S. government $800 • Holding 50 basis points of equity capital against portf
Slide 5: Consumer Lending – Overview
Consumer Lending – Overview • Private Education Loan portfolio of $18 billion ($ in millions) - Refinance education loan originations since 2017 $1,000 5-Year Projected Annual Private Education Cash Flows 1 - In-school loan originations starting in 2019 and the seasoned loan portfolio • Holding equi
Slide 6: Consumer Lending – Loan Originations
Consumer Lending – Loan Originations • Our Earnest subsidiary originates high- quality private education loan products ($ in millions) Refinance Loans Originations • Refi loans help student loan borrowers lower their interest rate and/or their $7,000 monthly payment $6,000 - Total addressable market
Slide 7: Consumer Lending – Tools to Build Financial Futures
Consumer Lending – • Earnest’s products help users manage the rising costs of higher education Tools to Build Financial Futures through all stages of their academic journey • Going Merry by Earnest offers free digital tools that empower people to find grants, scholarships, and simplify the FAFSA app
Slide 8: Total Education Loan Portfolio – Projected Cash Flows
Total Education Loan Portfolio – • Total Education Loan portfolio of $59 billion, undiscounted projected Projected Cash Flows cash flows are: ($ in millions) - $6.5 billion through end of 2027 $1,800 5-Year Projected Annual Education Portfolio Cash Flows 1 - $13.3 billion generated over 20 years $1,
Slide 9: Net Interest Margin
Net Interest Margin NIM & Fed Funds (%) 6% • Net interest margin (NIM) has remained 5% stable in a narrow range across an interest rate cycle. Our asset liability 4% management strategy actively seeks, through our funding and hedging activities, to match to the extent possible 3% the term and repric
Slide 10: Federal Education Loans – Allowance Coverage
Federal Education Loans – Allowance Coverage Adoption of 0.6% CECL • Allowance as a percentage of 0.5% outstanding loans has been stable, reflecting low and stable FFELP loss severity 0.4% • Net charge-offs have increased temporarily as borrowers exited our 0.3% pandemic relief programs by early 202
Slide 11: Consumer Lending – Allowance Coverage
Consumer Lending – Allowance Coverage Adoption of 8% CECL 7% • Allowance as a percentage of loans outstanding has been migrating lower, 6% primarily reflecting the changing mix between seasoned loans and newer, 5% high-quality refinance loan originations • Net charge-offs increased temporarily, 4% a
Slide 12: Federal Education Loans – Constant Prepayment Rate
Federal Education Loans – Constant Prepayment Rate 25% • Prepayment activity declined during the first half of this year toward historical 20% levels • Prepayments increased in the second 15% half of last year after the August 2022 announcement of federal student loan debt reduction proposals 10% •
Slide 13: Consumer Lending Loans – In Repayment
Consumer Lending Loans – In Repayment 100% 95% • A high percentage of Consumer Lending loans remained in repayment 90% during the pandemic 85% • Borrowers who entered our pandemic 80% relief programs have returned to repayment status in early 2022 75% 70% 65% 60% 55% 50% 4Q19 1Q20 2Q20 3Q20 4Q20 1Q2
Slide 14: Business Processing Solutions – Overview
Business Processing Solutions – Overview Supporting Government and Healthcare Clients Serving 500+ clients and tens of millions of people through: • Helping clients achieve their missions • Omnichannel customer experience contact centers and support their communities • Healthcare revenue cycle manag
Slide 15: Business Processing – Revenue
Business Processing – Revenue ($ in millions) $500 $450 • Revenues from our traditional BPS services are growing $400 • BPS organic growth can be $350 supported with light capital $300 • Total BPS revenues have declined from their 2021 peak as we emerged $250 from the pandemic $200 $150 $100 $50 $-
Slide 16: Capital Allocation Framework
Capital Allocation Framework Reliably distribute excess capital to shareholders in form of dividends and share Consistently balance capital repurchases adequacy with capital allocation opportunities, including dividends, share Deploy capital to support planned business growth and repurchases, organi
Slide 17: Delivering Value to Shareholders
Delivering Value to Shareholders • Invest in capabilities to grow high-quality • Manage credit and interest rate risk and private education loan originations that help borrowers manage loans generate targeted returns Maximize the cash Enhance the value INCREASED FREE CASH FLOWS flows from our • Orig
Slide 18: 2Q 2023 Earnings Results
2Q 2023 Earnings Results Confidential and proprietary information © 2023 Navient Solutions, LLC. All rights reserved. 18
Slide 19: 2Q 2023 Results
2Q 2023 Results “Over my first 10 weeks, my priority has been to undertake an in-depth review of our businesses. We are evaluating a broad range of alternative impactful strategies that deliver value GAAP Core Earnings 2 to our shareholders. In the meantime, we remain focused on our efforts to maxim
Slide 20: Federal Education Loans – 2Q 2023 Core Earnings Results
Federal Education Loans – • Net income was $76 million compared to $110 million 2Q 2023 Core Earnings Results • Revenue (before provision) declined $48 million compared to 2Q22 - Net interest income decreased 2Q23 2Q22 $40 million primarily as loan balances declined - Other revenue decreased $8 mill
Slide 21: Consumer Lending – 2Q 2023 Core Earnings Results
Consumer Lending – • Net income was $75 million compared to $71 million 2Q 2023 Core Earnings Results • Revenue (before provision) increased $2 million compared to 2Q22 - Net interest income increased 2Q23 2Q22 $1 million - Other revenue increased $1 million Revenue (Before Provision) $148 million $
Slide 22: 2Q 2023 Allowance for Loan Losses
2Q 2023 Allowance for Loan Losses ($ in millions) $1,188 • Our total provision expense was $11 million during 2Q23 $1,119 • This primarily consists of: - $5 million for our FEELP portfolio related to an extension of the portfolio - $4 million for new Private Education Loan originations - $2 million
Slide 23: Business Processing – 2Q 2023 Core Earnings Results
Business Processing – 2Q 2023 Core Earnings Results 2Q 23 2Q 22 • Net income was $6 million compared to $10 million Revenue $83 million $87 million • Revenue was $83 million, $4 million lower than the year ago period as: Operating Expense $75 million $74 million - Revenue from pandemic-related contr
Slide 24: 2Q 2023 Capital Allocation
2Q 2023 Capital Allocation • Our Adjusted Tangible Equity 2 ratio of 8.4% is within our targeted range of 8-9% • We distributed $100 million, or 152% of net income, to shareholders through dividends and share repurchases • We ended the quarter with 84% of our Total Education Loan Portfolio funded to
Slide 25: 2Q 2023 Operating Expenses
2Q 2023 Operating Expenses ($ in millions) $200 $190 $182 $180 $160 $56 • We are focused on becoming more $47 efficient across all segments $140 • Operating expenses for the quarter $120 were $182 million compared to $190 million a year ago quarter $100 $74 $75 • This quarter’s results include $2 mi
Slide 26: Forward-Looking Statements and Non-GAAP Financial Measures
Forward-Looking Statements and Non-GAAP Financial Measures The following information is current as of June 30, 2023 (unless otherwise noted) and should be read in connection with Navient Corporation’s “Navient” Annual Report on 2022 Form 10-K for the year end December 31, 2022 (the “2022 Form 10-K”)
Slide 27: Differences Between Core Earnings and GAAP
Differences Between Core Earnings and GAAP Quarters Ended Core Earnings adjustments to GAAP: Jun. 30, Mar. 31, Jun. 30, (Dollars in Millions) 2023 2023 2022 GAAP net income $66 $111 $180 Net impact of derivative accounting 17 27 (72) Net impact of goodwill and acquired intangible assets 3 3 3 Net in
Slide 28: 2Q 2023 GAAP to Core Earnings
2Q 2023 GAAP to Core Earnings • We evaluate our business segments on a basis that differs from GAAP ($ in millions) • We refer to this different basis as Core Earnings 2 • The two items we remove to result in Core Earnings are: - Mark-to-market gains/losses from our use of derivative instruments tha
Slide 29: Notes on Non-GAAP Financial Measures
Notes on Non-GAAP Financial Measures In addition to financial results reported on a GAAP basis, Navient also provides certain performance measures which are non-GAAP financial measures. Definitions for the non-GAAP financial measures and reconciliations are provided below and in the body of the comp
Slide 30: Appendix
Appendix Confidential and proprietary information © 2023 Navient Solutions, LLC. All rights reserved. 30
Slide 31: Responsibility to Our Customers and Communities
Responsibility to Our Customers Team engagement, and Communities development and inclusion Supporting education and economic opportunity We are committed to creating a Our education finance solutions help people pursue higher education and successfully workplace where employees are manage their fina
Slide 32: For More Information
For More Information www.navient.com/investors www.navient.com/abs • Environmental Social Governance (ESG) information - Navient Corporate Social Responsibility report • Student loan asset-backed security (ABS) trust data - Static pool information – detailed portfolio stratifications by trust as of
Slide 33: Footnotes
Footnotes 1. Projections are based on internal estimates and assumptions and are subject to ongoing review and modification. These projections may prove to be incorrect. 2. Item is a Non-GAAP Financial Measure. See page 29 of this presentation and pages 18 – 28 of Navient’s second quarter 2023 earni
Slide 34: Confidential and proprietary information © 2023 Navient Solutions, LLC. All rights reserved.
Confidential and proprietary information © 2023 Navient Solutions, LLC. All rights reserved. 34