Navient : Fourth Quarter 2018 Earnings Release

NAVIENT REPORTS FOURTH-QUARTER

2018 FINANCIAL RESULTS

WILMINGTON, Del., Jan. 22, 2019 - Navient (Nasdaq: NAVI) today released its fourth-quarter and full-year 2018 financial results.

FOURTH QUARTER RESULTS

• • GAAP net income of $72 million ($0.28 diluted earnings per share) compared to a net loss of $84 million ($0.32 diluted loss per share) in the year-ago period.

• • Adjusted(1) diluted Core Earnings(2) per share of $0.58 compared to $0.43 in the year-ago period.

• • Core Earnings of $140 million ($0.55 diluted Core Earnings per share) compared to a net loss of $131 million ($0.50 diluted Core Earnings loss per share) in the year-ago period.

  FULL YEAR RESULTS

• • GAAP net income of $395 million ($1.49 diluted earnings per share) compared to $292 million ($1.04 diluted earnings per share) in the year-ago period.

• • Adjusted(1) diluted Core Earnings per share of $2.09 compared to $1.79 in the year-ago period.

• • Core Earnings of $519 million ($1.96 diluted earnings per share) compared to $251 million ($0.89 diluted Core Earnings per share) in the year-ago period.

CEO COMMENTARY - "This year's results reflect successful and disciplined management across our businesses as we've continued to deliver private education refinance loan growth, lower loan charge-offs, increased revenue in our business processing segment, new strategies that yielded reduced financing costs, and lower adjusted expenses across the company," said Jack Remondi, president and CEO. "I'm proud of our performance and momentum. We also celebrate the achievements of more than 565,000 student loan borrowers who successfully paid off their loans in 2018."

FOURTH QUARTER HIGHLIGHTS

FEDERAL EDUCATION LOANS SEGMENT

• • FFELP loan delinquency rate at lowest level in over 10 years.

• • Contingent collections receivables inventory increased $13.3 billion (89 percent) from the year-ago quarter.

• CONSUMER LENDING SEGMENT

• • Originated $769 million of Private Education Refinance Loans.

• • Private Education Loan provision declined $22 million from the year-ago quarter.

  BUSINESS PROCESSING SEGMENT

• • Fee revenue increased 10 percent to $66 million from year-ago quarter.

• • Contingent collections receivables inventory increased 26 percent to $14.4 billion from the year-ago quarter.

  CAPITAL

• • Repurchased 10.6 million common shares.

• • $440 million repurchase authority remains.

• • Common stock dividend of $0.16 per share.

• • Tangible net asset ratio(2) of 1.25x.

  FUNDING & LIQUIDITY

• • Issued $1.3 billion in term ABS.

• • Retired $1.4 billion of senior unsecured debt resulting in an $18 million Core Earnings gain.

• EXPENSES

• • Fourth-quarter 2018 adjusted Core Earnings expenses(3) decreased 5 percent to $244 million.

• (1) Adjusted diluted Core Earnings per share excludes: (1) $12 million, $32 million, $42 million and $43 million of restructuring and regulatory-related expenses in fourth-quarter 2018, fourth-quarter 2017, full-year 2018 and full-year 2017, respectively, and (2) the $224 million reduction to our deferred tax asset ("DTA Remeasurement Loss") recorded in fourth-quarter 2017 due to the "Tax Cuts and Jobs Act" ("TCJA").

• (2) Item is a non-GAAP financial measure. For an explanation and reconciliation of our non-GAAP financial measures, see page 4.

• (3) Adjusted Core Earnings expenses exclude $12 million and $32 million of restructuring and regulatory-related expenses in fourth-quarter 2018 and fourth-quarter 2017, respectively.

SEGMENT RESULTS - CORE EARNINGS

FEDERAL EDUCATION LOANS

In this segment, Navient holds and acquires FFELP Loans and performs servicing and asset recovery services on its own loan portfolio, federal education loans owned by the U.S. Department of Education and other institutions.

FINANCIAL RESULTS AND KEY PERFORMANCE METRICS

(Dollars in millions)

4Q18

3Q18

4Q17

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loan losses ...................................... Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

• 165 $

163 $ 187

10

10 12

116

127 116

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

271

280 291

89

94 74

Pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

182

186

217

$ 147

$ 143

$ 143

Segment net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FFELP Loans:

FFELP Loan spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loan losses ................................. Charge-offs ............................................ Charge-off rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Greater than 30-days delinquency rate . . . . . . . . . . . . . . . . . . . . . Greater than 90-days delinquency rate . . . . . . . . . . . . . . . . . . . . . Forbearance rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.86% .92%

.82% .87% .89% .96%

$ $

10

13

$ $

10 13

• $ 12

• $ 13

.09%

10.2%

5.3%

12.3%

.09% .08% 11.4% 12.7% 6.6% 6.2% 12.4% 11.2%

(Dollars in billions)

Number of accounts serviced for ED (in millions) .................. Total federal loans serviced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contingent collections receivables inventory . . . . . . . . . . . . . . . . . . . . . .

5.9

6.0

6.1

$ 292	$ 294	$ 296
$ 28.3	$ 27.3	$ 15.0

DISCUSSION OF RESULTS - 4Q18 vs. 4Q17

• • Core Earnings of $147 million, an increase from $143 million in the year-ago quarter.

• • Net interest income decreased $22 million primarily due to the natural paydown of the portfolio.

• • Provision for loan losses decreased $2 million.

• • On an adjusted basis, expenses were $5 million lower primarily as a result of ongoing cost-saving initiatives. Adjusted 2018 expenses exclude $13 million due to a new 2018 revenue recognition accounting standard and $7 million of costs in connection with the 2018 First Data transition services agreement.

• • Income tax expense was $25 million lower as a result of the TCJA.

• • The company acquired $256 million of FFELP Loans in the quarter.

• • At December 31, 2018, Navient held $72.3 billion of FFELP Loans, compared with $81.7 billion of FFELP Loans at December 31, 2017.

• • FFELP loan delinquency rate at lowest level in over 10 years.

• • Contingent collections receivables inventory increased $13.3 billion (89 percent) from the year-ago quarter as a result of new placements.

CONSUMER LENDING

In this segment, Navient holds, originates and acquires consumer loans and performs servicing activities on its own loan portfolio.

FINANCIAL RESULTS AND KEY PERFORMANCE METRICS

(Dollars in millions)

4Q18

3Q18

4Q17

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

189

$

202

• $ 208

  75

  3

  75 97 3 3

  Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  117

  130 114

  36

  38 44

  Pre-taxincome ................................................ Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  81

  92

  70

  • $ 66

  • $ 72

• $ 45

  Segment net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Private Education Loans (including Refinance Loans):

  Private Education Loan spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charge-offs(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charge-off rate(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Greater than 30-days delinquency rate ....................... Greater than 90-days delinquency rate ....................... Forbearance rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Private Education Refinance Loans:

  3.18% 3.41%

  3.35% 3.31% 3.60% 3.57%

  $ $

  75

  102

  $ $

  75 116

• $ 97

• $ 89

  1.8%

  5.9%

  2.8%

  Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Greater than 90-days delinquency rate .................. Average balance of Private Education Refinance Loans . . . . Ending balance of Private Education Refinance Loans . . . . . Private Education Refinance Loan originations . . . . . . . . . . .

  $

  3.0% .1 -%

  2.1% 1.5% 6.3% 5.8% 2.9% 2.6% 3.9% 3.8%

  • $ .1

    -%

• $ - -%

$2,962 $3,212 $ 769

$2,196

• $ 479

  $2,562

• $ 761

  $ 903

• $ 233

(1) Third-quarter 2018 excludes the $32 million of charge-offs on the receivable for partially charged-off loans that occurred as a result of changing the charge-off rate from 79 percent to 80.5 percent in third-quarter 2018.

DISCUSSION OF RESULTS - 4Q18 vs. 4Q17

• • Originated $769 million of Private Education Refinance Loans in the quarter.

• • Core Earnings of $66 million, an increase from $45 million in the year-ago quarter.

• • Net interest income decreased $19 million primarily due to the natural paydown of the portfolio.

• • Provision for loan losses decreased $22 million. Private Education Loan performance results include:

  • O Charge-offs of $102 million, up $13 million from $89 million in fourth-quarter 2017. This increase was expected with the expiration of the temporary natural disaster forbearances granted at the end of 2017 and beginning of 2018.

  • O Private Education Loan delinquencies greater than 90-days: $614 million, up $17 million from $597 million in fourth-quarter 2017.

  • O Private Education Loan delinquencies greater than 30-days: $1.3 billion, down $38 million from fourth-quarter 2017.

  • O Private Education Loan forbearances: $676 million, down $219 million from $895 million in fourth-quarter 2017.

• • Expenses were $8 million lower primarily as a result of ongoing cost-saving initiatives.

• • Income tax expense was $11 million lower as a result of the TCJA.

• • At December 31, 2018, Navient held $22.2 billion of Private Education Loans (of which $3.2 billion were Refinance Loans), compared with $23.4 billion of Private Education Loans at December 31, 2017.

BUSINESS PROCESSING

In this segment, Navient performs business processing services for non-education related government and healthcare clients.

FINANCIAL RESULTS AND KEY PERFORMANCE METRICS

4Q18	3Q18	4Q17
$	41	$	40	$	38
25	24	22
Total fee revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	66	64	60
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57	59	55
Pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9	5	5
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$	7	$	4	$	4
EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$	10	$	8	$	6
EBITDA Margin(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15%	13%	10%
Contingent collections receivables inventory (in billions) ..........	$	14.4	$	13.1	$	11.4

Revenue from government services ........................... Revenue from healthcare services ............................

(Dollars in millions)

(1) Item is a non-GAAP financial measure. For an explanation and reconciliation of our non-GAAP financial measures, see below.

DISCUSSION OF RESULTS - 4Q18 vs. 4Q17

• • Core Earnings of $7 million, an increase from $4 million in the year-ago quarter.

• • EBITDA was $10 million, up 67 percent from the year-ago quarter.

• • Contingent collections receivables inventory increased 26 percent to $14.4 billion from the year-ago quarter as a result of new placements.

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. The following non-GAAP financial measures are presented within this Earnings Release:

1. Core Earnings

The difference between the company's Core Earnings and its GAAP results is that Core Earnings excludes the impacts of: (1) mark-to-market gains/losses on derivatives and (2) goodwill and acquired intangible asset amortization and impairment. Management uses Core Earnings in making decisions regarding the company's performance and the allocation of corporate resources and, as a result, our segment results are presented using Core Earnings. In addition, Navient's equity investors, credit rating agencies and debt capital investors use these Core Earnings measures to monitor the company's business performance. See "Core Earnings" on pages 13 - 22 for a reconciliation between GAAP net income and Core Earnings.

2. Tangible Net Asset Ratio

This ratio measures the amount of assets available to retire the company's unsecured debt. Management and our equity investors, credit rating agencies and debt capital investors use this ratio to monitor and make decisions about the appropriate level of unsecured funding. See "Tangible Net Asset Ratio" on page 23 for a reconciliation of the tangible net asset ratio calculation.

3. 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 performance and determine the value of those businesses. See "Earnings before Interest, Taxes, Depreciation and Amortization Expense ('EBITDA')" on page 23 for a reconciliation of the EBITDA calculation for the Business Processing segment.

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Definitions for capitalized terms in this release can be found in Navient's Annual Report on Form 10-K for the year ended Dec. 31, 2017 (filed with the SEC on Feb. 26, 2018). Certain reclassifications have been made to the balances as of and for the three months ended December 31, 2017, to be consistent with classifications adopted for 2018, and had no effect on net income, total assets or total liabilities.

Navient will host an earnings conference call tomorrow, January 23, at 8 a.m. EST. Navient executives will be on hand to discuss various highlights of the quarter and to answer questions related to the company's performance. To participate, join a live audio webcast at navient.com/investors or dial 855-838-4156 (USA and Canada) or dial 267-751-3600 (international) and use access code 50696463 starting at 7:45 a.m. EST.

Presentation slides for the conference call, as well as additional information about the company's loan portfolios, operating segments and other details, may be accessed atwww.navient.com/investorsunder the webcasts tab.

A replay of the conference call will be available approximately two hours after the call's conclusion through February 6 at navient.com/investors or by dialing 855-859-2056 (USA and Canada) or 404-537-3406 (international) with access code 50696463.

This news release contains "forward-looking statements" and other information that is based on management's current expectations as of the date of this release. 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," 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; changes in general economic conditions; and the other factors that are described in the "Risk Factors" section of Navient's Annual Report on 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.

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