Navient Corporation · NASDAQ:NAVI
Navient — Q4 2019 Earnings Presentation
51 slides from Navient's earnings presentation, Feb 21, 2020
Slide 1: Navient 2019 4th Quarter Investor Deck
NAVIENT 2019 4' Quarter Investor Deck February 21, 2020
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, 2019 {unless otherwite noted) and should be read in connection with Navient Corporation's *Navient” Annual Report on Form 10-K forthe year ended December 31, 2018 (the “2018 Form 10-K") fi
Slide 3: Navient
NAVIENT. « Navient is a 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. - Industry
Slide 4: Operating Results
Operating Results “Core Earnings” Basis (in millions, except per share amounts) a a Q419 Q418 GAAP diluted EPS $0.78 $0.28 $2.56 $1.49 Adjusted Core Earnings EPS? $0.67 $0.58 $2.64 $2.09 Pet LEB asa le $0.02 ($0.03) ($0.04) ($0.13) Reported Core Earnings EPS* $0,69 $0.55 $2.60 $1.96 Average common s
Slide 5: Well Positioned to Continue on Our Successful Financial Performance
Well Positioned to Continue on Our Successful Financial Performance Key Company & Business Segment Metrics 2019 2019 2020 Original 2 Tar Actual gets Core Earnings Return on Equity 2 Mid Teens 19% v High Teens to Low Twenties Core Earnings Efficiency Ratio 4 ~50% 49% v ~50% Tangible Net Asset Ratio °
Slide 6: Federal Education Loans Segment
Federal Education Loans Segment “Core Earnings” Basis Selected Financial Information and Ratios ($ In millions) 0419 | as18 2019 2018 Segment net interest margin 0.87% 0.86% 0.83% 0.83% FFELP Loans: Provision for loan losses $8 $10 $30 $70 Charge-offs $9 $13 $42 $54 Charge-off rate 0.06% 0.09% 0.07%
Slide 7: Consumer Lending Segment
Consumer Lending Segment “Core Earnings Basis” Selected Financial Information and Ratios ($n millions) 419 | Qa 18 2019 2018 ‘Segment net interest margin 3.31% 3.18% 3.30% 3.24% Private Education Loans (including Refinance Loans): Provision for loan losses $42 $75 $228 $300 Charge-offs ' $97 $102 $3
Slide 8: Originating Education Loans is an Attractive Opportunity
Originating Education Loans is an Attractive Opportunity Sizable Market With Attractive Yields * Estimated Outstanding Education Loan Market ? Estimated Total Market Annual Originations and Yields $1.6 Trillion as of FFYE 9/30/2019 ($'s in billions) ($’s in billions) $16 $13 ae FEUSy $11 Federal Loa
Slide 9: Typical Private Education Refi Borrower Profile
Typical Private Education Refi Borrower Profile We serve technology first, financially responsible, digital native young professionals Typical Borrower More Accurate Assessme Weighted Underwriters assess loan Average applications down to the transaction-level where available Borrower Age 32 Months s
Slide 10: Consumer Loan Segment Credit Detail
Consumer Loan Segment Credit Detail Credit Metrics Allowance for Loan Loss TDR Loans ($ in millions) Total delinquencies Total delinquency rate as a % of loans in repayment Loans delinquent greater than 90 days Greater than 90 days delinquency rate Forbearance Forbearance rate Charge-off rate as a %
Slide 11: Business Processing Segment
Business Processing Segment “Core Earnings” Basis (S$ In millions) Q419 | Q418 | 2019 2018 Government Services $34 $41 $154 $174 Healthcare RCM Services $25 $25 $104 $93 Total Business Processing $59 $66 $258 $267 Revenue Operating Expenses $49 $57 $215 $229 EBITDA * $11 $10 $49 $44 EBITDA Margin *
Slide 12: Focused on Improving Margin and Organic Business Processing Growth
Focused on Improving Margin and Organic Business Processing Growth Well Positioned for Long-Term Growth + Providing business processing services for over 500 clients in Government and Healthcare Services - Integrated technology solutions and superior data-driven approach allows governments to achiev
Slide 13: Higher Education Industry
Higher Education Industry
Slide 14: 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 +
Slide 15: Navient's role as a student loan servicer
In its role as a 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. Congress sets product terms and inclu
Slide 16: Solutions to many of the challenges faced by borrowers
There are solutions to many of the challenges faced by borrowers (1) Provide more front-end resources to improve decision making. Students and their families need tools to understand how much they'll need to borrow to earn the degree—not simply the current semester—and to assess the likely economic
Slide 17: Default prevention expertise and the decline of the national default rate
Navient’s default prevention expertise has been a key factor in the decline of the national default rate + The cohort default rate (CDR) 2016 three-year cohort default rate measures the % of borrowers who 10.1% defaulted on a student loan within three years of entering repayment + In 2019, the Depar
Slide 18: 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 ..
Slide 19: In 1990, there were two repayment plans
In 1990, there were two repayment plans, and the most complex area was deferment Forbearance Deferment Discretionary Forbearance 1. School Full-Time + Hardship Forbearance 2. School Half-Time 3. Graduate Fellowship 4. Unemployment Deferment — 2 years 5. Rehabilitation Training Program 6. Teacher Sho
Slide 20: Today's repayment options are numerous and complex
Today’s repayment options are numerous and complex Forbearance Discretionary Forbearance Mandatory Forbearance Mandatory Administrative Forbearance Forgiveness LOENDAEEN= Hardship Forbearance Medical or Dental Internship Residency Department of Defense Student Loan Repayment Programs National Servic
Slide 21: We've piloted solutions to reduce complexity
We've piloted solutions to reduce complexity IDR eSign Enrollment PRO Plan 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 compare their options. bette
Slide 22: Navient delivers strong performance for borrowers
Navient delivers strong performance for borrowers Navient-serviced borrowers are 37% less likely Forbearance usage is in-line with other servicers te detent 0.1% Borrowers in forbearance as a % of repayment” N o javient's CDR is 37% lower than all others Borrowers In forbearance (%) ae ek onoa Defau
Slide 23: Funding & Liquidity
Funding & Liquidity
Slide 24: Q4 2019 Capital Management
Q4 2019 Capital Management Capital Return y¥_ Repurchased 5.8 million common shares for $77 million in the quarter + Repurchased 34.5 million shares in 2019, a 13% reduction in shares outstanding + Since inception ', returned $3.2 billion through share repurchases ¥ Paid $34 million in dividends to
Slide 25: FFELP ABS Transactions
FFELP ABS Transactions Pricing Date: October 16, 2019 September 17, 2019 Settlement Date: October 25, 2019 September 26, 2019 Issuance Amount: ‘$497M $749M us i U.S. Goverment Guaranteed Collateral: FFELP Consolidation, FFELP Non-Consolidation Loans, Aid HEAL Coane FFELP Consolidation and FFELP Non-
Slide 26: Private Education Loan ABS Transactions
Private Education Loan ABS Transactions Pricing Date: Settlement Date: Issuance Amount: Collateral: Prepayment Speed *: Class At Tranching: A2 B NAVS! 20-B February 10, 2020 February 20, 2020 $712M Private Education Refi Loans 15% CPR eae ‘Amt (SM) AAA/ AAA $325 AAAI AAA $343 NRIAA $44 WAL 1.00 4.59
Slide 27: Long-term Capital Allocation Philosophy
Long-term Capital Allocation Philosophy Consistently balance capital adequacy with capital allocation opportunities, including dividends, organic growth, stock repurchases and acquisitions v Execute dynamic capital allocation policy to maintain appropriate leverage that supports our credit ratings a
Slide 28: 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 29: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities (par value, $ in billions) + Issued $700 million of March 2027 Unsecured debt + Reduced total 2021 maturities by $190 million 18 $1.8 $2.4 $1.4 $1.4 $1.5 $14.5 $1.5 $1.4 $1.4 $1.3 $14 $0.6 $0.6 $0.5 $0.5 a | tI $0.0 $0.0 $058 2020 2021 2022 2023 2024 2025 2026 2027
Slide 30: 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 FFELP Cash Flows Secured Residual (including O/C) Floor Income Servicing Total Secured Unencumbered Total FFELP Cash Flows Private Credit Cash Flows Secured
Slide 31: Education Loan Portfolio Generates Meaningful Cash Flows Over 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 $1.6 $1.6 $1.4 $1.4 $1.2 $1.2 a a 5 $1.0 2 $1.0 g $08 am $0.8 & € ‘= 908 = sos 2 $0.4 & $0.4 $0.2 $0.2 $0.0 + $0.0 + 2023 2024 2
Slide 32: FFELP Cash Flows Highly Predictable
FFELP Cash Flows Highly Predictable $'s in millions as of 12/31/2019 2020 2021 2022 2023 2024 2025 2026 2027 Projected FFELP Average Balance $60,467 $54,062 $47,930 $42,195 $36,797 $31,634 $26,799 $22,287 Projected Excess Spread $569 $592 $529 $475 $428 $388 $363 $321 Projected Senicing Revenue $302
Slide 33: Secured Cash Flow
Secured Cash Flow EEEEP: Term Securitized Servicing (Cash Paid) $ 253 $§$ 288 314 342 Net Residual ' (Excess Distributions) $ 743 583 643 624 Other Secured FFELP Net Cash Flow ** 227 706 612 503 Total FFELP $ 1,223 $ 1,577 1,569 1,469 Private Credit Term Securitized Servicing (Cash Paid) $ 135 $ 147
Slide 34: FFELP ABS
FFELP ABS
Slide 35: 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 * + Amortizing tranches with 1 to 12(+) year average lives
Slide 36: FFELP Loan Program Characteristics
FFELP Loan Program Characteristics Subsidized Stafford Unsubsidized Stafford | PLUS/Grad PLUS Consolidation Borrower Student ‘Student Parents or Graduate Students ‘Student or Parents Needs Based Yes No No NA Federal Guarantee of Principal anid ‘Accrued Interest ‘97 - 100% 97 - 100% 97 - 100% 97 - 10
Slide 37: Navient Stafford & PLUS Loan Prepayments
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
Slide 38: 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 + Higher prepayment activity in mid 2012 was related to the short term availability of the Speci
Slide 39: Private Education Loan ABS
Private Education Loan ABS
Slide 40: Private Education Loan ABS Issuance Characteristics
Private Education Loan ABS Issuance Characteristics Private Education Loan ABS Transaction Features + Issue size of $500M+ + Senior and subordinate notes « Amortizing tranches with 1 to 10 year average lives - Fixed rate and floating rate securities * Compliant with U.S. risk retention and on occasi
Slide 41: Navient Private Education Loan Programs
Navient Private Education Loan Programs Education Re Origination Channel School ‘School Direct-to-Consumer Lender Lender School College Graduates & ‘Typical Borrower ‘Student ‘Student ‘Student College Graduates Select Non-Graduates ‘Student ‘Typical Co-signer Parent Parent Parent Parent Parent Paren
Slide 42: Navient Private Education Loan Trusts
Navient Private Education Loan Trusts 2018-2020YTD eyiens eaanee' Proce NAVSL |NAVSL NAVSL | NAVSL NAVSL | NAVSL| NAVSL NAVSL NAVSL|NAVSL NAVSL | NAVSL NAVSL | NAVSL 18A | 18B 18C 18.0 18E 19A 198 19.C 19D 19E 19F 19.G _20A__20.B ‘Bond Amount (Sm!) so7 621 32_—(iBC(ité«i:C(‘<‘i‘im TOC IHC(BHTHHB 7H
Slide 43: Navient Private Education Legacy Loan Trusts — Prepayment Analysis
Navient Private Education Legacy Loan Trusts — Prepayment Analysis * Constant prepayment rates have increased since 2014 on increased seasoning-related voluntary prepayment and the emergence of the external student loan refinance market PF SPP PP PS SPP HP GP sO yO NN AY MY 9 HO Ah ne O_O 2 WO ML XO
Slide 44: Appendix
Navient Corporation Appendix
Slide 45: Navient Is Focused On Expense Efficiency
Navient Is Focused On Expense Efficiency (Sin millions) | a419 0418 | 2019 | 2018 Reported Core Earnings Expenses $237, ‘$256 $990 $997, Year over Year Change in Reported Core Earnings Expenses (7%) (1%) eee SSS Restructuring & Reorganization Expenses $2 $4 $6 $13 Regulatory-Related Expenses ($9) $8
Slide 46: GAAP Results
GAAP Results (In millions, except per share amounts) Net income (loss) Diluted earnings (loss) per common share Operating expenses Provision for loan losses Average Education Loans © 2020 Navient Solusons, LLC. All nghis reserved. $88,266 $252 $85 $96,380 $370 $100,252 46
Slide 47: 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 vithin this Presentation: 1, Core Ea
Slide 48: Notes on Non-GAAP Financial Measures
Notes on Non-GAAP Financial Measures (Dollars in Millions) 4, Tangible Net Asset Ratio (TNA) — The Tangible Net Asset Ratio measures the amount of assets available to retire the Company's unsecured debt. Management and Navient's equity investors, credit rating agencies and debt capital investors use
Slide 49: Differences Between Core Earnings And GAAP
Differences Between Core Earnings And GAAP Quarters Ended Years Ended Core Earnings adjustments to GAAP: Dec. 31, Dec. 31, (Dollars in Millions) 2019 2018 aon 2018 GAAP net income (loss) $171 $72 $597 $395 Net impact of derivative accounting (27) 59 (5) 30 Net impact of goodwill and acquired intangi
Slide 50: 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 Quarterly
Slide 51: Navient
NAVIENT.