Navient Corporation · NASDAQ:NAVI
Navient — Q1 2020 Earnings Presentation
49 slides from Navient's earnings presentation, May 4, 2020
Slide 1: 2020 1st Quarter Investor Deck
2020 1st Quarter Investor Deck May 4, 2020
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, 2020 (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, 2019 (the “2019 Form 10-K”), fil
Slide 3: Navient is a leader in education loan management and business processing
• 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 leading
Slide 4: Response to COVID-19
Response to COVID-19 Supporting our Employees and Communities • Quickly transitioned 90% of workforce to work from home • Extended flexible hours and emergency pay for impacted employees • Reassigning experienced customer support staff to aid state efforts in processing unemployment claims • Donated
Slide 5: Student Loan Options During the National Emergency: What You Need to Know
Student Loan Options During the National Emergency: What You Need to Know As a Navient customer, you have payment relief options available to you no matter what type of loan you have. Department of Education • These loans have been automatically placed into forbearance (payments suspended) until Oct
Slide 6: Operating Results: Core Earnings Basis
Operating Results “Core Earnings ” Basis 1 Selected Financial Information and Ratios (In millions, except per share Q1 20 Q4 19 Q1 19 2019 2018 amounts) GAAP diluted EPS ($0.53) $0.78 $0.52 $2.56 $1.49 Adjusted Core Earnings EPS 2 $0.51 $0.67 $0.58 $2.64 $2.09 Restructuring and regulatory- ($0.05) $
Slide 7: Federal Education Loans Segment
Federal Education Loans Segment “Core Earnings” Basis Selected Financial Information and Ratios 1st Quarter Highlights ($ In millions) Q1 20 Q4 19 Q1 19 Federal Education • Q1 20 Net Interest Margin: 81 basis points Segment net interest margin 0.81% 0.87% 0.80% • Q1 20 Charge-off Rate: 15 basis poin
Slide 8: Consumer Lending Segment
Consumer Lending Segment “Core Earnings” Basis Selected Financial Information and Ratios 1st Quarter Highlights ($ In millions) Q1 20 Q4 19 Q1 19 Consumer Lending • Q1 20 Net Interest Margin: 3.31% Segment net interest margin 3.31% 3.31% 3.22% • Q1 20 Charge-off Rate: 1.3% Private Education Loans (i
Slide 9: Originating Education Loans is an Attractive Opportunity
Originating Education Loans is an Attractive Opportunity Sizable Market With Attractive Yields 1 Estimated Outstanding Education Loan Market 2 Estimated Total Market Annual Originations and Yields $1.6 Trillion as of FFYE 9/30/2019 ($’s in billions) ($’s in billions) $16 $13 Grad PLUS, $11 $75 Feder
Slide 10: Typical Private Education Refi Borrower Profile
Typical Private Education Refi Borrower Profile We serve technology first, financially responsible, digital native young professionals Typical Borrower More Accurate Assessment Weighted Underwriters assess loan Average applications down to the transaction-level where available Borrower Age 33 Months
Slide 11: Business Processing Segment
Business Processing Segment “Core Earnings” Basis Selected Financial Information and Ratios 1st Quarter Highlights ($ In millions) Q1 20 Q4 19 Q1 19 Business Processing Government Services $33 $34 $42 • Q1 20 EBITDA Margin 1: 7% Healthcare RCM Services $24 $25 $26 • Government services has been nega
Slide 12: Focused on Improving Margin and Organic Business Processing Growth
Focused on Improving Margin and Organic Business Processing Growth Well Positioned for Long-Term Growth Growing Fee Revenues at Attractive Margins • Providing business processing services for over Total Business Processing EBITDA 1 500 clients in Government and Healthcare Services ($ in millions) $4
Slide 13: Higher Education Industry
Higher Education Industry © 2020 Navient Solutions, LLC. All rights reserved. 13
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. • F
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. © 2020 Navient Solutions, LLC. All ri
Slide 16: There are solutions to many of the challenges faced by borrowers
There are solutions to many of the challenges faced by borrowers © 2020 Navient Solutions, LLC. All rights reserved. 16
Slide 17: Navient's default prevention expertise and 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 Navient's CDR is • I
Slide 18: Borrowers who struggle most are often non-completers with less debt
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 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 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 Defense Studen
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 to default Borrowers in forbearance as a % of repayment* 10.1% 20 forbearance (%) Default rate (%) 6.8% Borrowers in 15 Navient's CDR is 10 37% lower tha
Slide 23: Funding & Liquidity
Funding & Liquidity © 2020 Navient Solutions, LLC. All rights reserved. 23
Slide 24: Q1 2020 Financing and Capital Management
Q1 2020 Financing and Capital Management Financing Issued 3 Private Education Loan ABS transactions for $1.9 billion Refinanced 2 Credit Facilities for $472 million, extending terms and reducing costs On April 1, 2020: Extended FFELP Facility for two years, to April 1, 2022, with a capacity
Slide 25: Q1 Impacts on Loan Loss Reserve and Capital
Q1 Impacts on Loan Loss Reserve and Capital Primary Drivers of Change in Equity 1 Adoption of CECL - Increase in allowance resulted in a reduction of equity equal to $620 million. 2 Marks on Derivatives – Cumulative marks on interest rate hedges reduced equity by $629 million 1, which will reverse t
Slide 26: FFELP ABS Transactions
FFELP ABS Transactions NAVSL 2019-4 NAVSL 2019-3 Pricing Date: October 16, 2019 September 17, 2019 Settlement Date: October 25, 2019 September 26, 2019 Issuance Amount: $497M $749M U.S. Government Guaranteed U.S. Government Guaranteed Collateral: FFELP Consolidation, FFELP Non-Consolidation Loans, F
Slide 27: Private Education Loan ABS Transactions
Private Education Loan ABS Transactions NAVSL 2020-C NAVSL 2020-B Pricing Date: March 10, 2020 February 10, 2020 Settlement Date: March 19, 2020 February 20, 2020 Issuance Amount: $546M $712M Collateral: Private Education Loans Private Education Refi Loans Prepayment 8% CPR 15% CPR Speed 1: Ratings
Slide 28: 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 ✓ Execute dynamic capital allocation policy to maintain appropriate leverage that supports our credit ratings a
Slide 29: 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 $5.4
Slide 30: Managing Unsecured Debt Maturities
Managing Unsecured Debt Maturities (par value, $ in billions) $2.1 $1.8 $1.8 $1.5 $1.5 $1.5 $1.4 $1.4 $1.4 $1.3 $1.3 $0.7 $0.5 $0.6 $0.6 $0.5 $0.5 $0.0 $0.0 $0.0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029+ As of March 31, 2019 As of March 31, 2020 Long-term Conservative Funding Approach • Iss
Slide 31: Secured Cash Flow
Secured Cash Flow $'s in Millions 1Q 2020 2019 2018 2017 FFELP Secured Servicing (Cash Paid) $ 60 $ 253 $ 288 $ 314 1 Net Cash Flow 156 969 1,290 1,255 Total FFELP $ 216 $ 1,223 $ 1,577 $ 1,569 Private Credit Secured Servicing (Cash Paid) $ 32 $ 135 $ 147 $ 163 Net Cash Flow 444 1,065 907 579 Total
Slide 32: FFELP ABS
FFELP ABS © 2020 Navient Solutions, LLC. All rights reserved. 32
Slide 33: 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 12(+) year average lives
Slide 34: 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 35: 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 36: 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 37: Private Education Loan ABS
Private Education Loan ABS © 2020 Navient Solutions, LLC. All rights reserved. 37
Slide 38: Private Education Loan ABS Issuance Characteristics
Private Education Loan ABS Issuance Characteristics Private Education Loan ABS Transaction Features Collateral Characteristics • Issue size of $500M+ • Collateralized by loans made to students and parents to fund college tuition, room • Senior and subordinate notes and board - Seasoned assets benefi
Slide 39: Navient Private Education Loan Programs
Navient Private Education Loan Programs Undergrad/Grad/ Direct-to-Consumer Private Education Smart Option Consolidation (Legacy) Private Education Refi Med/Law/MBA (DTC) Origination Origination Channel School School Direct-to-Consumer Lender Lender School College Graduates & Typical Borrower Student
Slide 40: Navient Private Education Trusts
Navient Private Education Trusts Navient 2018-2020YTD Issuance Program NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL NAVSL 18-A 18-B 18-C 18-D 18-E 19-A 19-B 19-C 19-D 19-E 19-F 19-G 20-A 20-B 20-C Bond Amount ($mil) 507 521 632 626 688 647 550 610 560 535 714 4
Slide 41: 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 18% Constant Prepayment Rate (CPR) 16% 14% 12% 10% 8% 6% 4% 2%
Slide 42: Navient Corporation Appendix
Navient Corporation Appendix © 2020 Navient Solutions, LLC. All rights reserved. 42
Slide 43: Navient Is Focused On Expense Efficiency
Navient Is Focused On Expense Efficiency Notable Items Impacting Total Expenses Compared to Prior Periods ($ In millions) Q1 20 Q1 19 Reported Core Earnings Expenses $256 $257 Year over Year Change in Reported Core Earnings Expenses (0%) Restructuring & Reorganization Expenses $5 $1 Regulatory-Relat
Slide 44: GAAP Results
GAAP Results (In millions, except per share amounts) Q1 20 Q4 19 Q1 19 Net income (loss) ($106) $171 $128 Diluted earnings (loss) per common share ($0.53) $0.78 $0.52 Operating expenses $251 $235 $256 Provision for loan losses $95 $50 $76 Average Education Loans $87,006 $88,266 $93,987 © 2020 Navien
Slide 45: 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 46: 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 47: 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) 2020 2019 2019 GAAP net income (loss) ($106) $171 $128 Net impact of derivative accounting 247 (27) 6 Net impact of goodwill and acquired intangible assets 5
Slide 48: 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 49: NAVIENT.
NAVIENT.