Navient Corporation · NASDAQ:NAVI
Navient — Q4 2017 Earnings Presentation
71 slides from Navient's earnings presentation, Feb 27, 2018
Slide 1: 2017 4th Quarter Investor Deck
2017 4th Quarter Investor Deck February 27, 2018 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 December 31, 2017 (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, 2017 (the “2017 Form 10-K”),
Slide 3: Navient company overview
Navient provides asset management and business processing solutions to 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. $105 billion education loan portfoli
Slide 4: Operating Results Core Earnings Basis
Operating Results “Core Earnings” Basis (In millions, except per share amounts) Q4 17 Q4 16 2017 2016 Adjusted Core EPS 1 $0.43 $0.43 $1.79 $1.86 Restructuring and regulatory-related expenses ($0.08) ($0.00) ($0.10) ($0.04) DTA Remeasurement Loss ($0.85) - ($0.80) - Reported Core EPS ($0.50) $0.43 $
Slide 5: Opportunities for Growth in 2018 and Beyond
Opportunities for Growth in 2018 and Beyond Legacy Education Loans Business Processing Solutions Government Services – Federal, State, and Municipal Asset Generation Refinancing Education Loans Loan servicing Default prevention & portfolio management Non-compete for new Private Education Loan origin
Slide 6: High Quality, Well Seasoned Education Loan Portfolio
Largest holder of Private Education loans with over $23 billion outstanding Average recent FICO score of 724 Over 90% of loans in repayment status having made more than 12 payments Charge-offs declined $41 million to $89 million, compared to the fourth quarter 2016 Predicted to generate over $15 bil
Slide 7: FFELP Loans Segment Core Earnings Basis
FFELP Loans Segment “Core Earnings” Basis ($ In millions) Q4 17 Q4 16 2017 2016 Net income $65 $68 $219 $272 Average FFELP Loans $82,908 $88,914 $84,989 $92,497 Net interest margin 0.87% 0.89% 0.79% 0.85% Provision for loan losses $12 $13 $42 $43 Charge-offs $13 $12 $49 $54 Annualized charge-off rat
Slide 8: FFELP Loans Segment Credit Quality
FFELP Loans Segment Credit Quality “Core Earnings” Basis 1 Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam p
Slide 9: Private Education Loans Segment Core Earnings Basis
Private Education Loans Segment “Core Earnings” Basis ($ In millions) Q4 17 Q4 16 2017 2016 Net income $43 $41 $177 $219 Average Private Education Loans $24,073 $24,237 $23,762 $25,361 Net interest margin 3.31% 3.08% 3.33% 3.41% Provision for loan losses $97 $87 $382 $383 Charge-offs $89 $130 $443 $
Slide 10: 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 the loans, e.g., residency periods for medical students or a grace per
Slide 11: Probability of default diminishes as payments made increase
The probability of default substantially diminishes as the number of payments made increases Average number of payments made on loans in the Private Education Loan Portfolio is 70 As of December 31, 2017, 69% of the portfolio has made more than 48 payments compared with 54% two years ago
Slide 12: Refinancing education loans is an attractive asset generating opportunity
Refinancing education loans is an attractive asset generating opportunity Estimated Outstanding Education Loan Market 1 Overview Leverages our 40 years of data, analytics, capital markets and industry experience Graduation, employment and proven cash flows meaningfully reduce credit risk Opportunity
Slide 13: Private Education Loans Segment Credit Detail
Private Education Loans Segment Credit Detail Delinquency & Forbearance Usage Receivable for Partially Charged-Off Private Education Loans (RPCO) Allowance for Loan Loss 1 TDR Loans ($ in millions) 2017 2016 2015 Total delinquencies $1,045 $1,365 $1,355 Total delinquency rate as a % of loans in repa
Slide 14: Business Services Segment Core Earnings Basis
Business Services Segment “Core Earnings” Basis Q4 17 Q4 16 2017 2016 Government services $37 $23 $132 $104 Healthcare $22 $16 $78 $68 Other $0 $1 $1 $2 Total non-education related revenues $59 $40 $211 $174 Intercompany loan servicing $84 $93 $348 $389 ED servicing contract $38 $39 $150 $151 Other
Slide 15: Government Services and Healthcare Revenue Cycle Management
Government * Services Healthcare Revenue Cycle Management (RCM) Market Opportunities & Potential Large addressable market, fragmented and growing $3.0B Market for collections and payment processing services to state and local entities $2.8B toll services market growing 10% YOY Steady growth, diverse
Slide 16: Higher Education Industry
Higher Education Industry
Slide 17: Navient helps borrowers successfully repay their loans
In its role as a student loan servicer, Navient helps borrowers successfully repay their loans
Slide 18: Majority of student loan balances are less than $20,000
The majority of student loan balances are less than $20,000 Source: College Board, "Distribution Of Borrowers By Amount Of Outstanding Education Debt, 2017," Trends In Student Aid 2017 22% Distribution of borrowers by average balance, 2017 *
Slide 19: On an individual basis, student debt is more reasonable than evident
On an individual basis, student debt is more reasonable than may be evident Source: College Board: Trends in Student Aid 2017, "Cumulative Debt: Bachelor’s Degree Recipients"; National Center for Education Statistics, "Degrees/certificates conferred by postsecondary institutions, by control of insti
Slide 20: Borrowers who struggle most are often non-completers with low debt
The borrowers who struggle the most are often non-completers with low levels of debt Source: President's Council of Economic Advisors, "Investing In Higher Education: Benefits, Challenges, And The State Of Student Debt," July 2016 Note: Years are fiscal years. Loan size is based on balance of loan w
Slide 21: College graduates experience substantial earnings premium
Source: Federal Reserve Bank Of New York, "The Labor Market for Recent College Graduates: Wages," last updated January 12, 2018. Notes: Annual wages are expressed in constant 2017 dollars. Recent college graduates are those aged 22 to 27 with a bachelor's degree only; high school graduates are those
Slide 22: Delinquency rates for Class of 2016 are one-third of Class of 2010
Delinquency rates for the Class of 2016 are one-third that of the Class of 2010 January 2010 to June 2017 Federal loan delinquency rates six months after end of grace period and unemployment for bachelor's degree holders Delinquency Rate (%) Unemployment Rate (%) Unemployment Source: Navient data an
Slide 23: Default prevention expertise and the decline in national default rate
Navient's default prevention expertise was a key factor in the decline of the national default rate 2014 three-year cohort 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 2017, the Department of
Slide 24: Benefits of a college degree outweigh the costs
The benefits of obtaining a college degree outweigh the costs by a wide margin Source: Jennifer Ma, Matea Pender, and Meredith Welch, "Education Pays 2016," College Board, 2016; Guillaume Vandenbroucke, "Lifetime Benefits of an Education Have Never Been So High," St. Louis Fed, July 2015; Anthony Ca
Slide 25: College is a solid investment for those who complete their degree
College is a solid investment for those who complete their degree. College degree holders are more likely to be employed and have higher incomes than those with some college education but no degree. Additionally, 54 percent of young adults believe they will be better off than their parents. 60 perce
Slide 26: Non-completers have the highest instances of poor financial health
Non-completers of college have the highest instances of poor financial health Percentage Of Respondents Some college, no degree Average financial health index score by education level, 2017 Source: Navient, Money Under 35 2017 Self-reported financial health scores increase with higher levels of educ
Slide 27: Today's repayment options are numerous and complex
Today's repayment options are numerous and complex 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 Teache
Slide 28: Funding & Liquidity
Funding & Liquidity
Slide 29: 2017 Capital Markets activity
Acquired $10 billion of education loans Available capacity under FFELP secured facilities is $2.4 billion Available capacity under Private Education Loan secured facilities is $0.9 billion FFELP ABS Transactions Issued $5.7B at reoffer of 1-month LIBOR + 0.92%, 5.6 years WAL Private Credit ABS Trans
Slide 30: Secured Funding
Secured Funding Navient is among the largest issuers of ABS globally, having issued over $280 billion of Private Education and FFELP ABS transactions to date Nearly $85 billion of securitizations on balance sheet Available capacity under FFELP secured facilities is $2.4 billion Available capacity un
Slide 31: FFELP ABS Transactions
FFELP ABS Transactions 1 Represents ratings by Moody’s, S&P, and DBRS 2 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 s
Slide 32: Private Education Loan ABS Transactions
Private Education Loan ABS Transactions 1 Represents ratings by S&P and DBRS 2 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
Slide 33: Long-term capital allocation philosophy
Long-term capital allocation philosophy 1 The tangible net asset (TNA) ratio equals GAAP tangible assets less secured debt and other liabilities adjusted for the impact of derivative accounting under GAAP and unamortized net floor premiums divided by unsecured debt. Execute dynamic capital allocatio
Slide 34: Capital allocation prioritization
Capital allocation prioritization Returned over $800 million to shareholders in dividends since separation Expect to maintain quarterly dividend of 16 cents per share, or over $160 million in 2018 Opportunistic acquirer of education loans, having acquired nearly $30 billion in education loans since
Slide 35: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities Long-term Conservative Funding Approach Fitch Moody’s S&P Unsecured Debt Rating BB Ba3 B+ Outlook Stable Stable Negative Retired or repurchased $1.5 billion of unsecured debt, including $745 million maturing in 2018 Strategically issued $1.6 billion of unsecured de
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 Flows Education Loan Portfolio Generates Significant Cash Flows Generated
Slide 37: Education loan portfolio generates meaningful cash flows over next five years
Education loan portfolio generates meaningful cash flows over the next five years The Private Education Loan portfolio is projected to generate nearly $8 billion in cash flows over the next five years excluding operating expenses, taxes and unsecured debt principal and interest payments Future loan
Slide 38: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable Total Cash Flows from Projected Excess Spread = $7.3 Billion Total Cash Flows from Projected Servicing Revenues = $2.7 Billion Assumptions No Floor Income, CPR/CDR = 5% These projections are based on internal estimates and assumptions and are subject to ongoing re
Slide 39: Secured Cash Flow
Secured Cash Flow Note: For the full year 2017, the FFELP “Net Residual (Excess Distribution)” has been revised and includes the impact of all floor contracts and other derivative activity. The FFELP “Net Residual (Excess Distribution)” was revised to $462 M, $303 M, and $140 M for 3Q17YTD, 2Q17YTD,
Slide 40: FFELP ABS
FFELP ABS
Slide 41: FFELP ABS transaction features and collateral characteristics
Issue size of $500M to $1.0B Denominated in US$ Senior and subordinate notes Floating rate tied to 1 month LIBOR Amortizing tranches with 1 to 15(+) year average lives Compliant with U.S. risk retention regulations Navient Solutions, LLC is master servicer Recent FFELP ABS Issuance Characteristics F
Slide 42: FFELP Loan Program Characteristics
FFELP Loan Program Characteristics 1 Only on the subsidized portion of the loan. 2 Only applies for loans made between July 1, 1987 through January 1, 2000 if cap is reached. 3 Aggregate loan limit for a Dependent Undergraduate is $31,000. 4 Repayment Term may be extended through various repayment o
Slide 43: 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 44: 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 45: Private Education Loan ABS
Private Education Loan ABS
Slide 46: 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 $250M to $750M Senior and subordinate notes Amortizing tranches with 1 to 10 year average lives Fixed rate or floating rate tied to 1 month LIBOR Compli
Slide 47: Navient Private Education Loan Programs
Navient Private Education Loan Programs 1 Title IV Institutions are post-secondary institutions that have a written agreement with the Secretary of Education that allows the institution to participate in any of the Title IV federal student financial assistance programs and the National Early Interve
Slide 48: Navient Private Education Trusts
Navient Private Education Trusts (1) Assumes Prime/LIBOR spread of 3.00% for all transactions. NAV 14-CT NAV 14-A NAV 15-A NAV 15-B NAV 15-C NAV 16-A NAV 17-A NAV 18-A Bond Amount ($mil) 463 664 689 700 359 488 662 507 Initial AAA Enhancement (%) 30% 30% 32% 36% 48% 41% 22% 12% Initial Enhancement (
Slide 49: 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 December 2017, the priva
Slide 50: 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 51: Cohort default triangles introduction
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 types include Undergraduate/G
Slide 52: Cohort default triangle definitions
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 repayment Disbursed Principal En
Slide 53: Cohort Default Triangles
Cohort Default Triangles Note: Data as of 12/31/17. 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 i
Slide 54: Cohort Default Triangles With/Without Co-signer
Cohort Default Triangles Undergraduate/Graduate 1 With Co-signer Note: Data as of 12/31/17. 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 55: Cohort Default Triangles Without Co-signer
Cohort Default Triangles Undergraduate/Graduate 1 Without Co-signer Note: Data as of 12/31/17. 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 56: Cohort Default Triangles Non-Profit
Cohort Default Triangles Note: Data as of 12/31/17. 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 i
Slide 57: Cohort Default Triangles For-Profit
Cohort Default Triangles Note: Data as of 12/31/17. 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 i
Slide 58: Cohort Default Triangles FICO 740-850
Cohort Default Triangles Undergraduate/Graduate 1 Loans, FICO 740-850 2 Note: Data as of 12/31/17. 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. Periodi
Slide 59: Cohort Default Triangles FICO 700-739
Cohort Default Triangles Undergraduate/Graduate 1 Loans, FICO 700-739 2 Note: Data as of 12/31/17. 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. Periodi
Slide 60: Cohort Default Triangles FICO 670-699
Cohort Default Triangles Note: Data as of 12/31/17. 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 61: Cohort Default Triangles FICO 640-669
Cohort Default Triangles Note: Data as of 12/31/17. 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 Private Consolidation Loans
Cohort Default Triangles Private Consolidation Loans Without Co-signer Private Consolidation Loans With Co-signer Note: Data as of 12/31/17. 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
Slide 63: Cohort Default Triangles DTC With/Without Co-signer
Cohort Default Triangles Note: Data as of 12/31/17. 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 Repayme
Slide 64: Cohort Default Triangles DTC FICO 740-850 and 700-739
Cohort Default Triangles Note: Data as of 12/31/17. 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 eac
Slide 65: Cohort Default Triangles DTC FICO 670-699 and 640-669
Cohort Default Triangles Note: Data as of 12/31/17. 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 eac
Slide 66: Cohort Default Triangles Career Training Loans
Cohort Default Triangles Note: Data as of 12/31/17. 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 eac
Slide 67: Navient Corporation Appendix
Navient Corporation Appendix
Slide 68: GAAP Results
GAAP Results (In millions, except per share amounts) 4Q 17 4Q 16 2017 2016 Net income ($84) $145 $292 $681 EPS ($0.32) $0.48 $1.04 $2.12 Operating expenses $260 $246 $966 $951 Provision $109 $102 $426 $429 Average Student Loans $106,981 $113,151 $108,751 $117,858
Slide 69: Differences between Core Earnings and GAAP
Differences between “Core Earnings” and GAAP Quarters Ended Years Ended “Core Earnings” adjustments to GAAP: (Dollars in Millions) Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2016 GAAP net income ($84) $145 $292 $681 Net impact of derivative accounting (47) (50) (45) (212) Net impact of goodw
Slide 70: Investor Relations Website
Investor Relations Website 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 Quarterly distribution factors Historical trust performan
Slide 71: NAVIENT
NAVIENT.