Navient : 2019 Third-Quarter Earnings Presentation (PDF, 665 KB)

2019 3rd Quarter

Earnings Call Presentation

October 23, 2019

Forward-Looking Statements; Non-GAAP Financial Measures

The following information is current as of September 30, 2019 (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, 2018 (the "2018 Form 10-K"), filed by Navient with the Securities and Exchange Commission (the "SEC") on February 26, 2019 and subsequent reports filed by Navient with the SEC. Definitions for capitalized terms in this presentation not defined herein can be found in the 2018 Form 10-K. This presentation contains "forward-looking statements", within the meaning of the federal securities laws, about our business, and other information that is based on management's current expectations as of the date of this presentation. Statements that are not historical facts, including statements about the company's beliefs, opinions or expectations and statements that assume or are dependent upon future events, are forward-looking statements and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "may," "could," "should," "goal," or "target." Forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those reflected in such forward-looking statements.

For Navient, these factors include, among others, the risks and uncertainties associated with:

• increases in financing costs;
• the availability of financing or limits on our liquidity resulting from disruptions in the capital markets or other factors;
• unanticipated increases in costs associated with compliance with federal, state or local laws and regulations;
• changes in the demand for asset management and business processing solutions or other changes in marketplaces in which we compete (including increased competition);
• changes in accounting standards including but not limited to changes pertaining to loan loss reserves and estimates or other accounting standards that may impact our operations;
• adverse outcomes in any significant litigation to which the company is a party;
• credit risk associated with the company's underwriting standards or exposure to third parties, including counterparties to hedging transactions; and
• changes in the terms of education loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws).

The company could also be affected by, among other things:

• unanticipated repayment trends on loans including prepayments or deferrals in our securitization trusts that could accelerate or delay repayment of the bonds;
• reductions to our credit ratings, the credit ratings of asset-backed securitizations we sponsor or the credit ratings of the United States of America;
• failures of our operating systems or infrastructure or those of third-party vendors;
• risks related to cybersecurity including the potential disruption of our systems or those of our third-party vendors or customers or potential disclosure of confidential customer information;
• damage to our reputation resulting from cyber-breaches, litigation, the politicization of student loan servicing or other actions or factors;
• failure to successfully implement cost-cutting initiatives and adverse effects of such initiatives on our business;
• failure to adequately integrate acquisitions or realize anticipated benefits from acquisitions including delays or errors in converting portfolio acquisitions to our servicing platform;
• changes in law and regulations whether new laws or regulations or new interpretations of existing laws and regulations applicable to any of our businesses or activities or those of our vendors, suppliers or customers;
• changes in the general interest rate environment, including the availability of any relevant money-market index rate, including LIBOR, or the relationship between the relevant money-market index rate and the rate at which our assets are priced;
• our ability to successfully effectuate any acquisitions and other strategic initiatives;
• activities by shareholder activists, including a proxy contest or any unsolicited takeover proposal;
• changes in general economic conditions; and
• the other factors that are described in the "Risk Factors" section of the 2018 Form 10-K and in our other reports filed with the Securities and Exchange Commission.

The preparation of the company's consolidated financial statements also requires management to make certain estimates and assumptions including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect and actual results could differ materially. All forward-looking statements contained in this release are qualified by these cautionary statements and are made only as of the date of this release. The company does not undertake any obligation to update or revise these forward-looking statements except as required by law.

Navient reports financial results on a GAAP basis and also provides certain non-GAAP performance measures, including Core Earnings, Tangible Net Asset Ratio, and various other non-GAAP financial measures derived from Core Earnings. When compared to GAAP results, Core Earnings exclude the impact of: (1) mark-to-market gains/losses on derivatives; and (2) goodwill and acquired intangible asset amortization and impairment. Navient provides Core Earnings measures because this is what management uses when making management decisions regarding Navient's performance and the allocation of corporate

resources. Navient Core Earnings are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. For additional information, see Core Earnings in Navient's third quarter earnings release and pages 19 & 20 of this presentation for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.

© 2019 Navient Solutions, LLC. All rights reserved.

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Operating Results

"Core Earnings 1" Basis

Selected Financial Information and Ratios

(In millions, except per	Q3 19	Q2 19	Q3 18
share amounts)
GAAP diluted EPS	$0.63	$0.64	$0.43
Adjusted Core Earnings	$0.65	$0.74	$0.56
EPS 2
Restructuring and	($0.03)	($0.00)	($0.03)
regulatory-related
expenses
Reported Core	$0.62	$0.74	$0.53
Earnings EPS 1
Average common stock	228	238	264
equivalent
Ending total education	$87,933	$89,520	$96,704
loans, net
Average total education	$89,411	$91,547	$98,689
loans

3rd Quarter Highlights

• Adjusted Core Earnings per share of $0.65 compared to $0.56 in the year-ago quarter 2
• Originated $1.4 billion of Private Education Refinance Loans in the quarter
• Sustained improvement in credit quality
• • Private Education loan delinquency rate declined 24%
  • FFELP loan delinquency rate declined 10%
• Well prepared for the Current Expected Credit Losses accounting standard, to take effect January 1, 2020
• Returned $166 million to shareholders through dividends and share repurchases in the quarter
• • Repurchased 9.7 million shares for $130 million
  • TNA Ratio was unchanged, at 1.27x 3

1. Item is a non-GAAP financial measure. See note 1 on slide 19.
2. Adjusted diluted Core Earnings per share excludes: $9 million, $2 million, and $10 million of restructuring and regulatory -related expenses in third-quarter 2019, second-quarter 2019, and third-quarter 2018, respectively.
3. Item is a non-GAAP financial measure. See note 4 on slide 19.

© 2019 Navient Solutions, LLC. All rights reserved.

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Federal Education Loans Segment

"Core Earnings" Basis

Selected Financial Information and Ratios

($ In millions)	Q3 19	Q2 19	Q3 18
Segment net interest margin	0.82%	0.81%	0.82%
FFELP Loans:
Provision for loan losses	$8	$8	$10
Charge-offs	$9	$7	$13
Charge-off rate	0.06%	0.05%	0.09%
Greater than 30-days	10.3%	10.5%	11.4%
delinquency rate
Greater than 90-days	5.8%	6.1%	6.6%
delinquency rate
Forbearance rate	12.6%	12.9%	12.4%
Average FFELP Loans	67,206	$69,084	$75,582
Operating Expense	$89	$89	$94
Net Income	$128	$131	$143
Number of accounts serviced	5.7	5.7	6.0
for ED (in millions)
Total federal loans serviced	$289	$289	$294
(in billions)
Contingent collections	$23.3	$26.3	$27.3
receivables inventory -
education loans (billions)

3rd Quarter Highlights

Federal Education

• • Net Interest Margin: 82 basis points
  • Charge-offRate: 6 basis points
• A balanced hedging strategy has yielded strong and consistent net interest margins
• Asset recovery revenue increased $15 million, or 36%, from the year ago quarter
• FFELP loan credit continued its strong performance
• • Charge-offsdeclined 31% from the year-ago quarter
  • Delinquency rate declined 10% from the year-ago quarter

© 2019 Navient Solutions, LLC. All rights reserved.

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Consumer Lending Segment

"Core Earnings Basis"

Selected Financial Information and Ratios

($ In millions)	Q3 19	Q2 19	Q3 18
Segment net interest margin	3.45%	3.22%	3.35%
Private Education Loans (including
Refinance Loans):
Provision for loan losses	$56	$60	$75
Charge-offs1	$87	$87	$116
Annualized charge-off rate 1	1.6%	1.6%	2.1%
Greater than 30-days delinquency	4.8%	5.0%	6.3%
rate
Greater than 90-days delinquency	2.3%	2.5%	2.9%
rate
Forbearance rate	3.0%	2.9%	3.9%
Average Private Education Loans	22,205	$22,463	$23,107
Operating Expense	$44	$34	$38
Net Income	$79	$85	$72

3rd Quarter Highlights

Consumer Lending

• • Net Interest Margin: 3.45%
  • Charge-offRate: 1.6%
• Originated $1.4 billion of Private Education Refinance Loans in the quarter, a 57% increase from the year-ago quarter
• Credit continues its strong performance
• • Charge-offsdeclined 25% from the year-ago quarter
  • Forbearance rate declined 23% from the year-ago quarter
  • Delinquency rate declined 24% from the year-ago quarter
• Continued our best in class secured funding strategy
• • Issued Private Education ABS transaction for $535 million
  • Available capacity under Private Education Loan facilities is $306 million

1 Excluding the $21 million and $32 million of charge-offs on the receivable for partially charged-off loans in third-quarter 2019 and third-quarter 2018, respectively, that occurred as a result of changing the charge-off rate from 80.5% to 81% in third quarter 2019 and from 79% to 80.5% in third-quarter 2018.

© 2019 Navient Solutions, LLC. All rights reserved.

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