8-K
NAVIENT CORP false 0001593538 0001593538 2022-10-25 2022-10-25 0001593538 us-gaap:CommonStockMember 2022-10-25 2022-10-25 0001593538 navi:M6SeniorNotesDueDecember152043Member 2022-10-25 2022-10-25

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 25, 2022

 

 

Navient Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-36228   46-4054283

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

 

123 Justison Street, Wilmington, Delaware   19801
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (302) 283-8000

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common stock, par value $.01 per share   NAVI   The NASDAQ Global Select Market
6% Senior Notes due December 15, 2043   JSM   The NASDAQ Global Select Market

 

 

 


ITEM 2.02

RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On October 25, 2022, Navient Corporation (the “Company”) issued an informational press release announcing its financial results for the quarter ended September 30, 2022 were available on the “Investor” page of its website located at https://www.Navient.com/investors. Additionally, on October 25, 2022, the Company posted its financial results for the quarter ended September 30, 2022 to its above-referenced web location. A copy of each press release is furnished as Exhibit 99.1 and Exhibit 99.2 hereto.

 

ITEM 9.01

FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits

 

Exhibit
Number

  

Description

99.1*    Press Release, dated October 25, 2022.
99.2*    Financial Press Release, dated October 25, 2022.
104    Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

*

Furnished herewith.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    NAVIENT CORPORATION
Date: October 25, 2022     By:  

/s/ JOE FISHER

      Joe Fisher
      Chief Financial Officer
EX-99.1

Exhibit 99.1

 

 

 

LOGO

 

NEWS RELEASE

For immediate release

Navient posts third quarter 2022 financial results

WILMINGTON, Del., Oct. 25, 2022 — Navient (Nasdaq: NAVI), a leader in technology-enabled education finance and business processing solutions, today posted its 2022 third quarter financial results. The complete financial results release is available on the company’s website at Navient.com/investors. The results will also be available on Form 8-K on the SEC’s website at www.sec.gov.

Navient will hold a live audio webcast Wednesday, Oct. 26, 2022, at 8 a.m. ET, hosted by Jack Remondi, president and CEO, and Joe Fisher, CFO.

Analysts and investors who wish to ask questions are requested to pre-register at Navient.com/investors at least 15 minutes ahead of start time to receive their personal dial-in access details. Others who wish to join in listen-only mode do not need to pre-register and may simply visit Navient.com/investors to access the webcast.

Supplemental financial information and presentation slides used during the call will be available no later than the start time. A replay of the webcast will be available approximately two hours after the event’s conclusion.

* * *

About Navient

Navient (Nasdaq: NAVI) provides technology-enabled education finance and business processing solutions that simplify complex programs and help millions of people achieve success. Our customer-focused, data-driven services deliver exceptional results for clients in education, healthcare and government. Learn more at navient.com.

Contact:

Media:     Paul Hartwick, 302-283-4026, paul.hartwick@navient.com

Investors: Jen Earyes, 703-984-6801, jen.earyes@navient.com

# # #

EX-99.2

Exhibit 99.2

 

LOGO   

NAVIENT REPORTS THIRD-QUARTER     

2022 FINANCIAL RESULTS     

 

LOGO

WILMINGTON, Del., October 25, 2022 — Navient (Nasdaq: NAVI) today released its third-quarter 2022 financial results.

 

 

OVERALL
RESULTS

  

 

•   GAAP net income of $105 million ($0.75 diluted earnings per share).

 

•   Adjusted Core Earnings(1) diluted earnings per share of $0.75.

 

•   Core Earnings(1) of $87 million ($0.62 diluted earnings per share).

SIGNIFICANT

ITEMS

  

 

•   Third-quarter 2022 GAAP, Core Earnings and Adjusted Core Earnings results included

 

   a net reduction to pre-tax income of $10 million ($0.05 diluted loss per share) related to incremental FFELP Loan consolidation activity in connection with recently announced loan forgiveness plans.

 

   $28 million of provision for loan losses in anticipation of a deteriorating economy.

 

•   Third-quarter 2022 GAAP and Core Earnings results also included:

 

   Regulatory expenses of $3 million ($0.01 diluted loss per share).

 

   Restructuring expenses of $21 million ($0.12 diluted loss per share).

 

CEO COMMENTARY – “Navient delivered solid results across all segments in a challenging climate,” said Jack Remondi, president and CEO of Navient. “In line with our strategy, we grew our in-school originations by over 40%, strengthened our capital position, and achieved attractive EBITDA margins in our business processing segment while consistently providing solutions that address our clients’ new and existing needs. In addition, we remain defensively positioned given our outlook for more challenging economic conditions.”

 

 

  THIRD-QUARTER HIGHLIGHTS

 

 

FEDERAL
EDUCATION
LOANS SEGMENT

 

  

•   Net income of $94 million.

 

•   FFELP net interest margin of 0.94%.

 

•   Includes a net reduction to pre-tax income of $10 million related to incremental FFELP Loan consolidation activity in connection with recently announced loan forgiveness plans.

 

•   $13 million of the provision for loan losses in anticipation of a deteriorating economy.

CONSUMER

LENDING
SEGMENT

  

•   Net income of $65 million.

 

•   Originated $447 million of Private Education Loans.

 

•   Private Education Loan delinquency rate of 4.4% remains below pre-pandemic levels.

 

•   $15 million of the provision for loan losses in anticipation of a deteriorating economy.

BUSINESS
PROCESSING
SEGMENT
  

•   EBITDA(1) of $13 million.

 

•   Revenue of $79 million.

CAPITAL   

•   Adjusted tangible equity ratio(1) of 7.8%.

 

•   Repurchased $95 million of common shares. $685 million common share repurchase authority remains outstanding.

 

•   Paid $22 million in common stock dividends.

EXPENSES   

•   Adjusted Core Earnings expenses(1) of $191 million.

 

(1) 

Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures” on pages 18 – 29.

 

1


 

SEGMENT RESULTS — CORE EARNINGS

 

 

 

  FEDERAL EDUCATION LOANS

 

In this segment, Navient owns FFELP Loans and performs servicing and asset recovery services for this loan portfolio, as well as for FFELP Loans owned by other institutions.

FINANCIAL RESULTS AND KEY PERFORMANCE METRICS

 

(Dollars in millions)

     3Q22        2Q22        3Q21  

Net interest income

    $ 120         $ 146        $ 151   

Provision for loan losses

     —          —          —    

Other revenue

     28          23          61    
  

 

 

    

 

 

    

 

 

 

Total revenue

     148          169          212    

Expenses

     25          25          53    
  

 

 

    

 

 

    

 

 

 

Pre-tax income

     123          144          159    
  

 

 

    

 

 

    

 

 

 

Net income

    $ 94         $ 110         $ 122    
  

 

 

    

 

 

    

 

 

 

Segment net interest margin

     0.94%       1.11%       1.04% 

FFELP Loans:

        

FFELP Loan spread

     1.05%       1.19%       1.10% 

Provision for loan losses

    $ —         $ —         $ —    

Net charge-offs

    $ 12         $ 10         $ 8    

Net charge-off rate

     .12%       .09%       .07% 

Greater than 30-days delinquency rate

     18.6%       15.9%       8.5% 

Greater than 90-days delinquency rate

     10.1%       7.4%       4.3% 

Forbearance rate

     16.4%       13.1%       15.4% 

Average FFELP Loans

    $ 48,443         $ 50,534         $ 55,435    

Ending FFELP Loans, net

    $ 46,891         $ 49,214         $ 54,350    

(Dollars in billions)

                    

Total federal loans serviced(1)

    $ 54         $ 57         $ 284    

 

  (1) 

Closed on the novation and transfer of our Department of Education (ED) servicing contract to a third party in October 2021. As of September 30, 2022, we serviced $54 billion in FFELP (federally guaranteed) loans.

DISCUSSION OF RESULTS — 3Q22 vs. 3Q21

 

 

Third-quarter 2022 results included a net reduction to pre-tax income of $10 million related to incremental FFELP Loan consolidation activity in connection with the recently announced loan forgiveness plans (i.e., Public Service Loan Forgiveness and Student Debt Relief Plans or the “Loan Forgiveness Plans”).

 

 

Net income was $94 million compared to $122 million.

 

 

Net interest income decreased $31 million primarily due to $27 million of additional loan premium and deferred financing fee amortization as a result of the Loan Forgiveness Plans discussed above, as well as the paydown of the portfolio.

 

 

Provision for loan losses was unchanged at $0, but the current period provision includes a $13 million increase related to an increase in expected losses in anticipation of a deteriorating economy, and a $13 million decrease as a result of the Loan Forgiveness Plans discussed above. The increases in charge-offs and delinquencies detailed below are primarily the result of loans that were experiencing repayment difficulties pre-COVID returning to repayment after pandemic relief.

 

     

Net charge-offs were $12 million compared to $8 million.

 

     

Delinquencies greater than 90 days were $3.8 billion compared to $1.9 billion.

 

     

Forbearances were $7.4 billion compared to $8.0 billion.

 

 

Other revenue decreased $33 million which was primarily a result of the transfer of the ED servicing contract to a third party in October 2021. In the current period, there was $4 million of fee revenue as a result of the Loan Forgiveness Plans discussed above.

 

 

Expenses were $28 million lower primarily as a result of the decrease in other revenue discussed above.

 

2


CONSUMER LENDING

In this segment, Navient owns, originates, acquires and services consumer loans.

FINANCIAL RESULTS AND KEY PERFORMANCE METRICS

 

(Dollars in millions)

   3Q22      2Q22      3Q21  

Net interest income

    $ 153        $ 142        $ 163    

Provision for loan losses

     28          18          22    

Other revenue

     3          4          —    
  

 

 

    

 

 

    

 

 

 

Total revenue

     128          128          141    

Expenses

     43          35          45    
  

 

 

    

 

 

    

 

 

 

Pre-tax income

     85          93          96    
  

 

 

    

 

 

    

 

 

 

Net income

    $ 65        $ 71        $ 73    
  

 

 

    

 

 

    

 

 

 

Segment net interest margin

     2.90%       2.66%       2.98% 

Private Education Loans (including Refinance Loans):

        

Private Education Loan spread

     3.03%       2.80%       3.17% 

Provision for loan losses

    $ 28         $ 18         $ 22    

Net charge-offs(1)

    $ 99         $ 70         $ 39    

Net charge-off rate(1)

     2.01%       1.40%       .77% 

Greater than 30-days delinquency rate

     4.4%       4.1%       3.0% 

Greater than 90-days delinquency rate

     2.0%       2.0%       1.1% 

Forbearance rate

     1.9%       1.5%       3.9% 

Average Private Education Loans

    $ 20,308         $ 20,856         $ 20,938    

Ending Private Education Loans, net

    $ 19,151         $ 19,668         $ 20,018    

Private Education Refinance Loans:

        

Net charge-offs

    $ 4         $ 4         $ 3    

Greater than 90-days delinquency rate

     .2%       .1%       .1% 

Average Private Education Refinance Loans

    $ 9,966         $ 10,119         $ 8,987    

Ending Private Education Refinance Loans, net

    $ 9,751         $ 9,905         $ 9,171    

Private Education Refinance Loan originations

    $ 231         $ 374         $ 1,489    

 

  (1) 

Excluding the $30 million and $16 million of charge-offs on the expected future recoveries of previously fully charged-off loans in third-quarters 2022 and 2021, respectively, that occurred as a result of changing the net charge-off rate on defaulted loans from 81.7% to 81.9% in third-quarter 2022 and from 81.4% to 81.7% in third-quarter 2021.

DISCUSSION OF RESULTS — 3Q22 vs. 3Q21

 

 

Originated $447 million of Private Education Loans compared to $1.6 billion.

 

     

Refinance Loan originations were $231 million compared to $1.5 billion.

 

     

In-school loan originations increased 41% to $216 million compared to $153 million.

 

 

Net income was $65 million compared to $73 million.

 

 

Net interest income decreased $10 million primarily due to the increase in the relative proportion of the higher quality, lower yielding Private Education Refinance Loan portfolio compared to the non-refinance loan portfolio.

 

 

Provision for loan losses increased $6 million. The provision for loan losses of $28 million in the current period included $13 million of provision in connection with loan originations and $15 million related to an increase in expected losses in anticipation of a deteriorating economy. The provision in the year-ago quarter primarily related to loan originations. The increases in charge-offs and delinquencies detailed below are primarily the result of loans that were experiencing repayment difficulties pre-COVID returning to repayment after pandemic relief.

 

     

Excluding the $30 million and $16 million, respectively, related to the change in the net charge-off rate on defaulted loans, net charge-offs were $99 million compared with $39 million.

 

     

Private Education Loan delinquencies greater than 90 days: $394 million, up $178 million from $216 million.

 

     

Private Education Loan forbearances: $371 million, down $443 million from $814 million.

 

 

Expenses decreased $2 million primarily due to lower refinance loan originations as a result of the higher interest rate environment and the potential for loan forgiveness.

 

3


BUSINESS PROCESSING

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

FINANCIAL RESULTS AND KEY PERFORMANCE METRICS

 

(Dollars in millions)

       3Q22              2Q22              3Q21      

Revenue from government services

    $ 47         $ 53         $ 75    

Revenue from healthcare services

     32          34          47    
  

 

 

    

 

 

    

 

 

 

Total fee revenue

     79          87          122    

Expenses

     67          74          87    
  

 

 

    

 

 

    

 

 

 

Pre-tax income

     12          13          35    
  

 

 

    

 

 

    

 

 

 

Net income

    $ 9         $ 10         $ 27    
  

 

 

    

 

 

    

 

 

 

EBITDA(1)

    $ 13         $ 14         $ 38    

EBITDA margin(1)

     16%       16%       31% 

 

  (1) 

Item is a non-GAAP financial measure. For an explanation and reconciliation of our non-GAAP financial measures, see pages 18 – 29.

DISCUSSION OF RESULTS — 3Q22 vs. 3Q21

 

 

Net income was $9 million compared to $27 million.

 

 

Revenue decreased $43 million, or 35%, due to the expected $51 million reduction in revenue from the wind-down of pandemic-related contracts, which was partially offset by an $8 million increase in revenue from services for our traditional government and healthcare services clients.

 

 

EBITDA was $13 million, down $25 million, or 66%. The decrease in EBITDA was primarily the result of the revenue decrease discussed above.

 

 

Definitions for capitalized terms in this release can be found in Navient’s Annual Report on Form 10-K for the year ended December 31, 2021 (filed with the SEC on February 25, 2022).

Navient will hold a live audio webcast Wednesday, October 26, 2022, at 8 a.m. ET, hosted by Jack Remondi, president and CEO, and Joe Fisher, CFO.

Analysts and investors who wish to ask questions are requested to pre-register at Navient.com/investors at least 15 minutes ahead of start time to receive their personal dial-in access details. Others who wish to join in listen-only mode do not need to pre-register and may simply visit Navient.com/investors to access the webcast.

Supplemental financial information and presentation slides used during the call will be available no later than start time. A replay of the webcast will be available approximately two hours after the event’s conclusion.

This news release contains “forward-looking statements,” within the meaning of the federal securities law, about our business and prospects 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,” “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 continuing impact of the COVID-19 pandemic, including changes in the macroeconomic environment, restrictions on business, individual or travel activities intended to slow the spread of the pandemic and volatility in market conditions resulting from the pandemic including interest rates, the value of equities and other financial assets; 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

 

4


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 the CARES Act or other new laws and the implementation of existing laws). The company could also be affected by, among other things: unanticipated repayment trends on education loans including prepayments or deferrals resulting from new interpretations of current laws, rules or regulations or future laws, executive orders or other policy initiatives which operate to encourage or require consolidation, abolish existing or create additional income-based repayment or debt forgiveness programs or establish other policies and programs which may increase the prepayment rates on education loans and accelerate repayment of the bonds in our securitization trusts; 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 or litigation; 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, including the potential impact of persistent inflation; and the other factors that are described in the “Risk Factors” section of Navient’s Annual Report on Form 10-K for the year ended December 31, 2021, 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.

* * *

About Navient

Navient (Nasdaq: NAVI) provides technology-enabled education finance and business processing solutions that simplify complex programs and help millions of people achieve success. Our customer-focused, data-driven services deliver exceptional results for clients in education, health care and government. Learn more at Navient.com.

Contact:

 

Media:   

Paul Hartwick, 302-283-4026, paul.hartwick@navient.com

Investors:   

Jen Earyes, 703-984-6801, jen.earyes@navient.com

# # #

 

 

LOGO

 

5


 

SELECTED HISTORICAL FINANCIAL INFORMATION AND RATIOS

 

 

     QUARTERS ENDED             NINE MONTHS ENDED  

(In millions, except per share data)

   September 30,
2022
     June 30,
2022
     September 30,
2021
            September 30,
2022
     September 30,
2021
 

GAAP Basis

                 

Net income

    $ 105         $ 180         $ 173            $ 540         $ 728    

Diluted earnings per common share

    $ .75         $ 1.22         $ 1.04            $ 3.67         $ 4.15    

Weighted average shares used to compute diluted earnings per share

     141          147          167             147          176    

Return on assets

     .57%       .96%       .86%          .96%       1.19% 

Core Earnings Basis(1)

                 

Net income(1)

    $ 87         $ 134         $ 149            $ 356         $ 618    

Diluted earnings per common share(1)

    $ .62         $ .91         $ .89            $ 2.42         $ 3.52    

Adjusted diluted earnings per common share(1)

    $ .75         $ .92         $ .92            $ 2.58         $ 3.65    

Weighted average shares used to compute diluted earnings per share

     141          147          167             147          176    

Net interest margin, Federal Education Loan segment

     .94%       1.11%       1.04%          1.03%       .99% 

Net interest margin, Consumer Lending segment

     2.90%       2.66%       2.98%          2.78%       2.98% 

Return on assets

     .47%       .72%       .73%          .63%       1.01% 

Education Loan Portfolios

                 

Ending FFELP Loans, net

    $ 46,891         $   49,214         $ 54,350            $ 46,891         $ 54,350    

Ending Private Education Loans, net

     19,151          19,668          20,018             19,151          20,018    
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Ending total education loans, net

    $ 66,042         $ 68,882         $ 74,368            $ 66,042         $ 74,368    
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Average FFELP Loans

    $ 48,443         $ 50,534         $ 55,435            $ 50,398         $ 56,711    

Average Private Education Loans

     20,308          20,856          20,938             20,771          21,266    
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Average total education loans

    $ 68,751         $ 71,390         $ 76,373            $ 71,169         $ 77,977    
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

 

(1) 

Item is a non-GAAP financial measure. For a description and reconciliation, see the section titled “Non-GAAP Financial Measures — Core Earnings” at pages 18 – 29.

 

6


 

  RESULTS OF OPERATIONS

 

We present the results of operations below first in accordance with GAAP. Following our discussion of earnings results on a GAAP basis, we present our results on a segment basis. We have four reportable operating segments: Federal Education Loans, Consumer Lending, Business Processing and Other. These segments operate in distinct business environments and we manage and evaluate the financial performance of these segments using non-GAAP financial measures we call Core Earnings (see “Non-GAAP Financial Measures – Core Earnings” for further discussion).

 

 

  GAAP INCOME STATEMENTS (UNAUDITED)

 

 

            September 30, 2022
vs.
June 30, 2022
     September 30, 2022
vs.
September 30, 2021
 
     QUARTERS ENDED      Increase
(Decrease)
     Increase
(Decrease)
 

(In millions, except per share data)

   September 30,
2022
     June 30,
2022
     September 30,
2021
     $      %      $      %  

Interest income:

                    

FFELP Loans

    $ 553       $ 410       $ 368        $ 143         35%      $ 185         50%  

Private Education Loans

     309        277        291         32         12         18         6   

Cash and investments

     19        5        1         14         280         18         1,800   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income

     881        692        660         189         27         221         33   

Total interest expense

     641        371        326         270         73         315         97   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     240        321        334         (81)        (25)        (94)        (28)  

Less: provisions for loan losses

     28        18        22         10         56         6         27   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provisions
for loan losses

     212        303        312         (91)        (30)        (100)        (32)  

Other income (loss):

                    

Servicing revenue

     24        17        47         7         41         (23)        (49)  

Asset recovery and business processing revenue

     80        88        135         (8)        (9)        (55)        (41)  

Other income (loss)

     6        7        3         (1)        (14)        3         100  

Losses on debt repurchases

     —        —        (20)        —         —         20         (100)  

Gains (losses) on derivative and hedging activities, net

     40        22        (5)        18         82         45         900   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other income (loss)

     150        134        160         16         12         (10)        (6)  

Expenses:

                    

Operating expenses

     194        190        248         4         2         (54)        (22)  

Goodwill and acquired intangible
asset impairment and amortization expense

     10        3        4         7           233         6           150   

Restructuring/other reorganization expenses

     21        —        —         21         100         21         100   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     225        193        252         32         17         (27)        (11)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax expense

     137        244        220         (107)        (44)        (83)        (38)  

Income tax expense

     32        64        47         (32)        (50)        (15)        (32)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

    $ 105       $ 180       $ 173        $ (75)        (42)%    $ (68)        (39)%
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

    $ .75       $ 1.23       $ 1.05        $ (.48)        (39)%    $ (.30)        (29)%
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

    $ .75       $ 1.22       $ 1.04        $ (.47)        (39)%    $ (.29)        (28)%
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Dividends per common share

    $ .16       $ .16       $ .16        $ —         —%    $ —         —%
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

7


     NINE MONTHS ENDED
September 30,
     Increase
(Decrease)
 

(In millions, except per share data)

   2022      2021              $                      %          

Interest income:

           

FFELP Loans

    $ 1,312        $ 1,106        $ 206         19%

Private Education Loans

     862         905         (43)        (5)  

Cash and investments

     25         2         23         1,150   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income

     2,199         2,013         186         9   

Total interest expense

     1,301         995         306         31   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     898         1,018         (120)        (12)  

Less: provisions for loan losses

     62         (66)        128         194   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provisions for loan losses

     836         1,084         (248)        (23)  

Other income (loss):

           

Servicing revenue

     60         149         (89)        (60)  

Asset recovery and business processing revenue

     264         416         (152)        (37)  

Other income (loss)

     22         9         13         144   

Gains on sales of loans

     —         78         (78)        (100)  

Losses on debt repurchases

     —         (32)        32         (100)  

Gains (losses) on derivative and hedging activities, net

     161           21           140         667   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other income (loss)

     507         641         (134)        (21)  

Expenses:

           

Operating expenses

     588         758         (170)        (22)  

Goodwill and acquired intangible asset impairment and amortization expense

     17         14         3         21   

Restructuring/other reorganization expenses

     25         8         17         213   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     630         780         (150)        (19)  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax expense

     713         945         (232)        (25)  

Income tax expense

     173         217         (44)        (20)  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 540       $ 728       $ (188)        (26)%
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

   $ 3.71       $ 4.20       $ (.49)        (12)%
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

   $ 3.67       $ 4.15       $ (.48)        (12)%
  

 

 

    

 

 

    

 

 

    

 

 

 

Dividends per common share

   $ .48       $ .48       $ —        —%
  

 

 

    

 

 

    

 

 

    

 

 

 

 

8


  GAAP BALANCE SHEETS (UNAUDITED)

 

 

(In millions, except share and per share data)

  September 30,
2022
    June 30,
2022
    September 30,
2021
 

Assets

     

FFELP Loans (net of allowance for losses of $233, $245 and $269, respectively)

   $ 46,891     $ 49,214     $ 54,350 

Private Education Loans (net of allowance for losses of $852, $921 and $980, respectively)

    19,151      19,668      20,018 

Investments

    176      201      295 

Cash and cash equivalents

    1,364      976      1,050 

Restricted cash and cash equivalents

    2,548      2,460      2,261 

Goodwill and acquired intangible assets, net

    708      718      721 

Other assets

    2,787      2,828      3,244 
 

 

 

   

 

 

   

 

 

 

Total assets

   $ 73,625     $ 76,065     $ 81,939 
 

 

 

   

 

 

   

 

 

 

Liabilities

     

Short-term borrowings

   $ 5,677     $ 4,609     $ 2,781 

Long-term borrowings

    63,998      67,738      75,629 

Other liabilities

    977      791      795 
 

 

 

   

 

 

   

 

 

 

Total liabilities

    70,652      73,138      79,205 
 

 

 

   

 

 

   

 

 

 

Commitments and contingencies

     

Equity

     

Series A Participating Preferred Stock, par value $0.20 per share; 2 million shares authorized at December 31, 2021; no shares issued or outstanding

    —      —      — 

Common stock, par value $0.01 per share; 1.125 billion shares authorized: 461 million, 461 million and 459 million shares, respectively, issued

           

Additional paid-in capital

    3,309      3,305      3,277 

Accumulated other comprehensive income (loss), net of tax

    84        30        (189)  

Retained earnings

    4,406      4,323      3,975 
 

 

 

   

 

 

   

 

 

 

Total Navient Corporation stockholders’ equity before treasury stock

    7,803      7,662      7,067 

Less: Common stock held in treasury: 325 million, 319 million and 297 million shares, respectively

    (4,830)       (4,735)       (4,344)  
 

 

 

   

 

 

   

 

 

 

Total Navient Corporation stockholders’ equity

    2,973      2,927      2,723 

Noncontrolling interest

    —      —      11 
 

 

 

   

 

 

   

 

 

 

Total equity

    2,973      2,927      2,734 
 

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 73,625     $ 76,065     $ 81,939 
 

 

 

   

 

 

   

 

 

 

 

9


 

  COMPARISON OF 2022 RESULTS WITH 2021

Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021

For the three months ended September 30, 2022, net income was $105 million, or $0.75 diluted earnings per common share, compared with net income of $173 million, or $1.04 diluted earnings per common share, for the year-ago period.

The primary contributors to the change in net income are as follows:

 

   

Third-quarter 2022 results included a net reduction to pre-tax income of $10 million related to incremental FFELP Loan consolidation activity in connection with the recently announced loan forgiveness plans (i.e., Public Service Loan Forgiveness and the Student Debt Relief Plans or the “Loan Forgiveness Plans”).

 

   

Net interest income decreased by $94 million as a result of a decline in Floor Income on the FFELP portfolio due to the increase in interest rates, the continued paydown of the FFELP and non-refinance Private Education Loan portfolios, and $27 million of additional loan premium and deferred financing fee amortization as a result of the Loan Forgiveness Plans discussed above. Partially offsetting this decrease was the growth in the Private Education Refinance Loan portfolio as a result of both an increase in the portfolio size as well as an increase in the net interest margin.

 

   

Provisions for loan losses increased $6 million from $22 million to $28 million:

 

     

The provision for FFELP Loan losses remained unchanged at $0.

 

     

The provision for Private Education Loan losses increased $6 million from $22 million to $28 million.

The FFELP Loan provision for loan losses was unchanged at $0, but the current period provision includes a $13 million increase related to an increase in expected losses in anticipation of a deteriorating economy, and a $13 million decrease as a result of the Loan Forgiveness Plans discussed above.

The Private Education Loan provision for loan losses of $28 million in the current period included $13 million of provision in connection with loan originations and $15 million related to an increase in expected losses in anticipation of a deteriorating economy. The provision in the year-ago quarter primarily related to loan originations.

 

   

Servicing revenue decreased $23 million primarily related to the transfer of the ED servicing contract to a third party in October 2021. To aid in the transition, Navient is providing limited services in 2022 to the third party through a transition services agreement.

 

   

Asset recovery and business processing revenue decreased $55 million primarily as a result of a $43 million decrease in revenue earned in our Business Processing segment due to the expected $51 million reduction in revenue from the wind-down of pandemic-related contracts, which was partially offset by an $8 million increase in revenue from services for our traditional government and healthcare services clients.

 

   

Other income in the current period had $4 million of fee revenue as a result of the Loan Forgiveness Plans discussed above.

 

   

Losses on debt repurchases decreased $20 million. We repurchased $757 million of debt at a $20 million loss in the year-ago quarter. There were no debt repurchases in the current period.

 

   

Net gains on derivative and hedging activities increased $45 million. The primary factors affecting the change were interest rate and foreign currency fluctuations, which impact the valuations of derivative instruments including Floor Income Contracts, standard swaps (variable to fixed or fixed to variable), basis swaps and foreign currency hedges during each period. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivative and hedging activities may vary significantly in future periods.

 

   

Excluding net regulatory-related expenses of $3 million and $6 million in the third quarters of 2022 and 2021, respectively, operating expenses were $191 million and $242 million in the third quarters of 2022 and 2021, respectively. This $51 million decrease was primarily related to the transfer of the ED servicing contract as well as the decline in Business Processing segment revenue.

 

   

During the three months ended September 30, 2022 and 2021, the Company incurred $21 million and $0, respectively, of restructuring/other reorganization expenses, primarily severance-related costs and facility lease terminations.

 

10


We repurchased 6.3 million and 7.0 million shares of our common stock during the third quarters of 2022 and 2021, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 26 million common shares (or 16%) from the year-ago period.    

Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021

For the nine months ended September 30, 2022, net income was $540 million, or $3.67 diluted earnings per common share, compared with net income of $728 million, or $4.15 diluted earnings per common share, for the year-ago period.

The primary contributors to the change in net income are as follows:

 

   

Net interest income decreased by $120 million as a result of the continued paydown of the FFELP and non-refinance Private Education Loan portfolios, a decline in Floor Income on the FFELP portfolio due to the increase in interest rates, and $27 million of additional loan premium and deferred financing fee amortization as a result of the Loan Forgiveness Plans previously discussed. Partially offsetting this decrease was the growth in the Private Education Refinance Loan portfolio as a result of both an increase in the portfolio size as well as an increase in the net interest margin.

 

   

Provisions for loan losses increased $128 million from $(66) million to $62 million:

 

     

The provision for FFELP Loan losses remained unchanged at $0.

 

     

The provision for Private Education Loan losses increased $128 million from $(66) million to $62 million.

The FFELP Loan provision for loan losses was unchanged at $0, but the current period provision includes a $13 million increase related to an increase in expected losses in anticipation of a deteriorating economy, and a $13 million decrease as a result of the Loan Forgiveness Plans discussed above.

The Private Education Loan provision for loan losses of $62 million in the current period included $31 million of provision in connection with loan originations and $31 million related to an increase in expected losses in anticipation of a deteriorating economy. The negative provision of $(66) million in the year-ago period was primarily related to the reversal of both $107 million of allowance for loan losses in connection with the sale of approximately $1.6 billion of Private Education Loans discussed below and $8 million related to a decrease in expected losses for the overall portfolio, partially offset by $49 million of provision primarily related to loan originations.

 

   

Servicing revenue decreased $89 million primarily related to the transfer of the ED servicing contract to a third party in October 2021. To aid in the transition, Navient is providing limited services in 2022 to the third party through a transition services agreement (see discussion below related to “Other income”).

 

   

Asset recovery and business processing revenue decreased $152 million primarily as a result of a $117 million decrease in revenue earned in our Business Processing segment due to the expected $127 million reduction in revenue from the wind-down of pandemic-related contracts, which was partially offset by an $10 million increase in revenue from services for our traditional government and healthcare services clients.

 

   

Other income increased $13 million primarily related to the transition services being performed in connection with the transfer of the ED servicing contract to a third party, as discussed above.

 

   

Gains on sales of loans decreased $78 million in connection with the sale of approximately $1.6 billion of Private Education Loans in first-quarter 2021. There was a $13 million gain related to derivatives that were used to hedge this transaction that did not qualify for hedge accounting. As a result, this gain related to the derivatives was included as a part of “gains (losses) on derivative and hedging activities, net” on the income statement. There were no such sales in the current period.

 

   

Losses on debt repurchases decreased $32 million. We repurchased $1.5 billion of debt at a $32 million loss in the year-ago period. There were no debt repurchases in the current period.

 

   

Net gains on derivative and hedging activities increased $140 million. The primary factors affecting the change were interest rate and foreign currency fluctuations, which impact the valuations of derivative instruments including Floor Income Contracts, standard swaps (variable to fixed or fixed to variable), basis swaps and foreign currency hedges during each period. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivative and hedging activities may vary significantly in future periods.

 

   

Excluding net regulatory-related expenses of $5 million and $22 million in the nine months ended September 30, 2022 and 2021, respectively, operating expenses were $583 million and $736 million in the nine months ended

 

11


 

September 30, 2022 and 2021, respectively. This $153 million decrease was primarily related to the transfer of the ED servicing contract as well as the decline in Business Processing segment revenue.

 

   

During the nine months ended September 30, 2022 and 2021, the Company incurred $25 million and $8 million, respectively, of restructuring/other reorganization expense, primarily severance-related costs and facility lease terminations.

We repurchased 19.4 million and 26.9 million shares of our common stock during the nine months ended September 30, 2022 and 2021, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 29 million common shares (or 16%) from the year-ago period.    

 

 

PRIVATE EDUCATION LOANS PORTFOLIO PERFORMANCE

 

Private Education Loan Delinquencies and Forbearance

 

    September 30,
2022
    June 30,
2022
    September 30,
2021
 

(Dollars in millions)

          Balance                     %                     Balance                     %                     Balance                     %          

Loans in-school/grace/deferment(1)

  $ 348      $ 348      $ 389   

Loans in forbearance(2)

    371        303        814   

Loans in repayment and percentage of each status:

           

Loans current

    18,426      95.6%       19,116      95.9%       19,196      97.0%  

Loans delinquent 31-60 days(3)

    305      1.6        269      1.3        247      1.2   

Loans delinquent 61-90 days(3)

    159      .8        152      .8        136      .7   

Loans delinquent greater than 90 days(3)

    394      2.0        401      2.0        216      1.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Private Education Loans in repayment

    19,284      100%       19,938      100%       19,795      100%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Private Education Loans, gross

    20,003        20,589        20,998   

Private Education Loan allowance for losses

    (852)         (921)         (980)    
 

 

 

     

 

 

     

 

 

   

Private Education Loans, net

  $ 19,151      $ 19,668      $ 20,018   
 

 

 

     

 

 

     

 

 

   

Percentage of Private Education Loans in repayment

      96.4%         96.8%         94.3%  
   

 

 

     

 

 

     

 

 

 

Delinquencies as a percentage of Private Education Loans in repayment

      4.4%         4.1%         3.0%  
   

 

 

     

 

 

     

 

 

 

Loans in forbearance as a percentage of loans in repayment and forbearance

      1.9%         1.5%         3.9%  
   

 

 

     

 

 

     

 

 

 

Cosigner rate(4)

      33%         33%         36%  
   

 

 

     

 

 

     

 

 

 

 

(1) 

Loans for customers who are attending school or are in other permitted educational activities and are not yet required to make payments on their loans, e.g., internship periods, as well as loans for customers who have requested and qualify for other permitted program deferments such as various military eligible deferments.

 

(2) 

Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs, consistent with established loan program servicing policies and procedures.

 

(3) 

The period of delinquency is based on the number of days scheduled payments are contractually past due.

 

(4) 

Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for third-quarter 2022, second-quarter 2022, and third-quarter 2021.

 

12


 

ALLOWANCE FOR LOAN LOSSES

 

 

 

    QUARTER ENDED  
    September 30, 2022  

(Dollars in millions)

  FFELP
        Loans        
     Private
        Education        
Loans
            Total          

Allowance at beginning of period

   $ 245        $ 921       $ 1,166   

Total provision

    —         28        28   

Charge-offs:

      

Gross charge-offs

    (12)          (118)       (130)  

Expected future recoveries on current period gross charge-offs

    —         19          19   
 

 

 

    

 

 

   

 

 

 

Total(1)

    (12)        (99)         (111)  

Adjustment resulting from the change in charge-off rate(2)

    —           (30)         (30)  
 

 

 

    

 

 

   

 

 

 

Net charge-offs

    (12)        (129)       (141)  

Decrease in expected future recoveries on previously fully charged-off loans(3)

    —         32        32   
 

 

 

    

 

 

   

 

 

 

Allowance at end of period (GAAP)

    233         852        1,085   

Plus: expected future recoveries on previously fully charged-off loans(3)

    —         280        280   
 

 

 

    

 

 

   

 

 

 

Allowance at end of period excluding expected future recoveries on previously fully charged-off loans (Non-GAAP Financial Measure)(4)

   $ 233        $ 1,132       $ 1,365   
 

 

 

    

 

 

   

 

 

 

Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in the charge-off rate (annualized)(2)

    .12%      2.01%  

Net adjustment resulting from the change in the charge-off rate as a percentage of average loans in repayment (annualized)(2)

    —%      .60%  
 

 

 

    

 

 

   

Net charge-offs as a percentage of average loans in repayment (annualized)

    .12%      2.61%  

Allowance coverage of charge-offs (annualized)(4)

    5.0         2.2        (Non-GAAP)

Allowance as a percentage of the ending total loan balance(4)

    .5%      5.7%     (Non-GAAP)  

Allowance as a percentage of ending loans in repayment(4)

    .6%      5.9%     (Non-GAAP)  

Ending total loans

   $ 47,124        $ 20,003     

Average loans in repayment

   $ 39,573        $ 19,628     

Ending loans in repayment

   $ 37,731        $ 19,284     

 

    QUARTER ENDED  
    June 30, 2022  

(Dollars in millions)

  FFELP
        Loans        
     Private
        Education        
Loans
             Total          

Allowance at beginning of period

   $ 255        $ 964        $ 1,219   

Total provision

    —         18         18   

Charge-offs

       

Gross charge-offs

    (10)          (82)        (92)  

Expected future recoveries on current period gross charge-offs

    —           12           12   
 

 

 

    

 

 

    

 

 

 

Total(1)

    (10)        (70)          (80)  

Adjustment resulting from the change in charge-off rate(2)

    —         —           —     
 

 

 

    

 

 

    

 

 

 

Net charge-offs

    (10)        (70)        (80)  

Decrease in expected future recoveries on previously fully charged-off loans(3)

    —         9         9   
 

 

 

    

 

 

    

 

 

 

Allowance at end of period (GAAP)

    245         921         1,166   

Plus: expected future recoveries on previously fully charged-off loans(3)

    —         312         312   
 

 

 

    

 

 

    

 

 

 

Allowance at end of period excluding expected future recoveries on previously fully charged-off loans (Non-GAAP Financial Measure)(4)

   $ 245        $ 1,233        $ 1,478   
 

 

 

    

 

 

    

 

 

 

Net charge-offs as a percentage of average loans in repayment (annualized)

    .09%      1.40%   

Allowance coverage of charge-offs (annualized) (4)

    6.4         4.4         (Non-GAAP)

Allowance as a percentage of the ending total loan balance(4)

    .5%      6.0%      (Non-GAAP)  

Allowance as a percentage of ending loans in repayment(4)

    .6%      6.2%      (Non-GAAP)  

Ending total loans

   $ 49,459        $ 20,589      

Average loans in repayment

   $ 42,163        $ 20,162      

Ending loans in repayment

   $ 41,168        $ 19,938      

 

13


    QUARTER ENDED  
    September 30, 2021  

(Dollars in millions)

  FFELP
        Loans        
     Private
        Education        
Loans
             Total          

Allowance at beginning of period

   $ 277        $ 976        $ 1,253   

Total provision

    —         22         22   

Charge-offs:

       

Gross charge-offs

    (8)          (45)        (53)  

Expected future recoveries on current period gross charge-offs

    —           6           6   
 

 

 

    

 

 

    

 

 

 

Total(1)

    (8)        (39)          (47)  

Adjustment resulting from the change in charge-off rate(2)

    —         (16)          (16)  
 

 

 

    

 

 

    

 

 

 

Net charge-offs

    (8)        (55)        (63)  

Decrease in expected future recoveries on previously fully charged-off loans(3)

    —         37         37   
 

 

 

    

 

 

    

 

 

 

Allowance at end of period (GAAP)

    269         980         1,249   

Plus: expected future recoveries on previously fully charged-off loans(3)

    —         397         397   
 

 

 

    

 

 

    

 

 

 

Allowance at end of period excluding expected future recoveries on previously fully charged-off loans (Non-GAAP Financial Measure)(4)

   $ 269        $ 1,377        $ 1,646   
 

 

 

    

 

 

    

 

 

 

Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in the charge-off rate (annualized)(2)

    .07%      .77%   

Net adjustment resulting from the change in the charge-off rate as a percentage of average loans in repayment (annualized)(2)

    —%      .33%   
 

 

 

    

 

 

    

Net charge-offs as a percentage of average loans in repayment (annualized)

    .07%      1.10%   

Allowance coverage of charge-offs (annualized)(4)

    8.4         6.3         (Non-GAAP )

Allowance as a percentage of the ending total loan balance(4)

    .5%      6.6%      (Non-GAAP

Allowance as a percentage of ending loans in repayment(4)

    .6%      7.0%      (Non-GAAP

Ending total loans

   $ 54,619        $ 20,998      

Average loans in repayment

   $ 45,201        $ 19,894      

Ending loans in repayment

   $ 44,160        $ 19,795      

 

    NINE MONTHS ENDED  
    September 30, 2022  

(Dollars in millions)

  FFELP
        Loans        
     Private
        Education        
Loans
             Total          

Allowance at beginning of period

   $ 262        $ 1,009        $ 1,271   

Total provision

    —         62         62   

Charge-offs:

       

Gross charge-offs

    (29)          (281)        (310)  

Expected future recoveries on current period gross charge-offs

    —           43           43   
 

 

 

    

 

 

    

 

 

 

Total(1)

    (29)        (238)          (267)  

Adjustment resulting from the change in charge-off rate(2)

    —         (30)          (30)  
 

 

 

    

 

 

    

 

 

 

Net charge-offs

    (29)        (268)        (297)  

Decrease in expected future recoveries on previously fully charged-off loans(3)

    —         49         49   
 

 

 

    

 

 

    

 

 

 

Allowance at end of period (GAAP)

    233         852         1,085   

Plus: expected future recoveries on previously fully charged-off loans(3)

    —         280         280   
 

 

 

    

 

 

    

 

 

 

Allowance at end of period excluding expected future recoveries on previously fully charged-off loans (Non-GAAP Financial Measure)(4)

   $ 233        $ 1,132        $ 1,365   
 

 

 

    

 

 

    

 

 

 

Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in the charge-off rate (annualized)(2)

    .09%      1.59%   

Net adjustment resulting from the change in the charge-off rate as a percentage of average loans in repayment (annualized)(2)

    —%      .20%   
 

 

 

    

 

 

    

Net charge-offs as a percentage of average loans in repayment (annualized)

    .09%      1.79%   

Allowance coverage of charge-offs (annualized) (4)

    6.1         3.2         (Non-GAAP )

Allowance as a percentage of the ending total loan balance(4)

    .5%      5.7%      (Non-GAAP

Allowance as a percentage of ending loans in repayment(4)

    .6%      5.9%      (Non-GAAP

Ending total loans

   $ 47,124        $ 20,003      

Average loans in repayment

   $ 41,793        $ 20,056      

Ending loans in repayment

   $ 37,731        $ 19,284      

 

14


    NINE MONTHS ENDED  
    September 30, 2021  

(Dollars in millions)

  FFELP
        Loans        
     Private
        Education        
Loans
             Total          

Allowance at beginning of period

  $ 288       $ 1,089       $ 1,377   

Provision:

       

Reversal of allowance related to loan sales(5)

    —           (107)        (107)  

Remaining provision

    —         41         41   
 

 

 

    

 

 

    

 

 

 

Total provision

    —         (66)        (66)  

Charge-offs:

       

Gross charge-offs

    (19)          (125)        (144)  

Expected future recoveries on current period gross charge-offs

    —           16           16   
 

 

 

    

 

 

    

 

 

 

Total(1)

    (19)        (109)          (128)  

Adjustment resulting from the change in charge-off rate(2)

    —         (16)          (16)  
 

 

 

    

 

 

    

 

 

 

Net charge-offs

    (19)        (125)        (144)  

Decrease in expected future recoveries on previously fully charged-off loans(3)

    —         82         82   
 

 

 

    

 

 

    

 

 

 

Allowance at end of period

    269         980         1,249   

Plus: expected future recoveries on previously fully charged-off loans(3)

    —         397         397   
 

 

 

    

 

 

    

 

 

 

Allowance at end of period excluding expected future recoveries on previously fully charged-off loans (Non-GAAP Financial Measure)(4)

  $ 269       $ 1,377       $ 1,646   
 

 

 

    

 

 

    

 

 

 

Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in the charge-off rate (annualized)(2)

    .06%      .72%   

Net adjustment resulting from the change in the charge-off rate as a percentage of average loans in repayment (annualized)(2)

    —%      .11%   
 

 

 

    

 

 

    

Net charge-offs as a percentage of average loans in repayment (annualized)

    .06%      .83%     

Allowance coverage of charge-offs (annualized)(4)

    10.5         8.3         (Non-GAAP)

Allowance as a percentage of the ending total loan balance(4)

    .5%      6.6%      (Non-GAAP)  

Allowance as a percentage of ending loans in repayment(4)

    .6%      7.0%      (Non-GAAP)  

Ending total loans

  $ 54,619       $ 20,998   

Average loans in repayment

  $ 46,191       $ 20,145   

Ending loans in repayment

  $ 44,160       $ 19,795   

 

(1)

Charge-offs are reported net of expected recoveries. For Private Education Loans, we charge off the estimated loss of a defaulted loan balance by charging off the entire defaulted loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” For FFELP Loans, the recovery is received at the time of charge-off.

 

(2)

In third-quarters 2022 and 2021, the net charge-off rate on defaulted Private Education Loans increased from 81.7% to 81.9% and from 81.4% to 81.7%, respectively. These changes resulted in a $30 million and $16 million reduction in the balance of expected future recoveries on previously fully charged-off loans in third-quarters 2022 and 2021, respectively.

 

(3)

At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as “expected future recoveries on previously fully charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the expected future recoveries on previously fully charged-off loans:

 

   

 

QUARTERS ENDED

 

          

 

NINE MONTHS ENDED

 

 

(Dollars in millions)

  September 30,
2022
        June 30,    
2022
    September 30,
2021
           September 30,
2022
    September 30,
2021
 

Beginning of period expected future recoveries on previously fully charged-off loans

   $ 312       $ 321       $ 434          $ 329       $ 479   

Expected future recoveries of current period defaults

    19        12                 43        16   

Recoveries (cash collected)

    (14)       (15)       (22)          (43)       (69)  

Charge-offs (as a result of lower recovery expectations)

    (37)       (6)       (21)          (49)       (29)  
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 

End of period expected future recoveries on previously fully charged-off loans

   $ 280       $ 312       $ 397          $ 280       $ 397   
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 

Change in balance during period

   $ (32)      $ (9)      $ (37)         $ (49)      $ (82)  

 

(4)

For Private Education Loans, the item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

 

(5) 

In connection with the sale of approximately $30 million and $1.6 billion of Private Education Loans in second-quarter 2021 and first-quarter 2021, respectively.

 

15


 

  LIQUIDITY AND CAPITAL RESOURCES

 

We expect to fund our ongoing liquidity needs, including the repayment of $1.3 billion of senior unsecured notes that mature in the short term (i.e., over the next 12 months) and the remaining $5.7 billion of senior unsecured notes that mature in the long term (from 2023 to 2043 with 80% maturing by 2029), through a number of sources. These sources include our cash on hand, unencumbered FFELP Loan and Private Education Refinance Loan portfolios (see “Sources of Primary Liquidity” below), the predictable operating cash flows provided by operating activities, the repayment of principal on unencumbered education loan assets, and the distribution of overcollateralization from our securitization trusts. We may also, depending on market conditions and availability, draw down on our secured FFELP Loan and Private Education Loan facilities, issue term ABS, enter into additional Private Education Loan ABS repurchase facilities, or issue additional unsecured debt.

We originate Private Education Loans (a portion of which are done through a forward purchase agreement). We also have purchased and may purchase, in future periods, Private Education Loan and FFELP Loan portfolios from third parties. Loan originations and purchases are part of our ongoing liquidity needs. We repurchased 6.3 million shares of common stock for $95 million in the third quarter of 2022 and have $685 million of unused share repurchase authority as of September 30, 2022.

 

 

  SOURCES OF LIQUIDITY

 

Sources of Primary Liquidity

 

(Dollars in millions)

   September 30,
2022
           June 30,      
2022
     September 30,
2021
 

Ending balances:

        

Total unrestricted cash and liquid investments

    $ 1,364      $ 976      $ 1,050 

Unencumbered FFELP Loans

     151       89       106 

Unencumbered Private Education Refinance Loans

     270       42       520 
  

 

 

    

 

 

    

 

 

 

Total

    $ 1,785      $ 1,107      $ 1,676   
  

 

 

    

 

 

    

 

 

 

 

    

 

QUARTERS ENDED

 

           

 

NINE MONTHS ENDED

 

 

(Dollars in millions)

   September 30,
2022
           June 30,      
2022
     September 30,
2021
            September 30,
2022
     September 30,
2021
 

Average balances:

                 

Total unrestricted cash and liquid investments

     $ 1,363      $ 875      $ 1,047         $ 1,037      $ 1,166 

Unencumbered FFELP Loans

     123       215       296          172       297 

Unencumbered Private Education Refinance Loans

     165       135       566          213       668 
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Total

    $ 1,651      $ 1,225      $ 1,909         $ 1,422      $ 2,131 
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

 

16


Sources of Additional Liquidity

Liquidity may also be available under our secured credit facilities. Maximum borrowing capacity under the FFELP Loan and Private Education Loan asset-backed commercial paper (ABCP) facilities will vary and be subject to each agreement’s borrowing conditions, including, among others, facility size, current usage and availability of qualifying collateral from unencumbered loans. The following tables detail the additional borrowing capacity of these facilities with maturity dates ranging from October 2022 to April 2024.

 

(Dollars in millions)

   September 30,
2022
           June 30,      
2022
     September 30,
2021
 

Ending balances:

        

FFELP Loan ABCP facilities

   $ 200    $ 185    $ 184  

Private Education Loan ABCP facilities

     2,203      2,184      2,597
  

 

 

    

 

 

    

 

 

 

Total

   $ 2,403    $ 2,369    $ 2,781
  

 

 

    

 

 

    

 

 

 

 

     QUARTERS ENDED             NINE MONTHS ENDED  

(Dollars in millions)

   September 30,
2022
         June 30,    
2022
     September 30,
2021
            September 30,
2022
     September 30,
2021
 

Average balances:

                 

FFELP Loan ABCP facilities

   $ 190    $ 337    $ 385       $ 404    $ 538

Private Education Loan ABCP facilities

     2,186      2,018      2,143         2,147      2,328
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Total

   $ 2,376    $ 2,355    $ 2,528       $ 2,551    $ 2,866
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

At September 30, 2022, we had a total of $4.3 billion of unencumbered tangible assets inclusive of those listed in the table above as sources of primary liquidity. Total unencumbered education loans comprised $2.0 billion of our unencumbered tangible assets of which $1.8 billion and $151 million related to Private Education Loans and FFELP Loans, respectively. In addition, as of September 30, 2022, we had $5.1 billion of encumbered net assets (i.e., overcollateralization) in our various financing facilities (consolidated variable interest entities). Our secured financing facilities include Private Education Loan ABS Repurchase Facilities, which had $0.8 billion outstanding as of September 30, 2022. These repurchase facilities are collateralized by the net assets in previously issued Private Education Loan ABS trusts and have had a cost of funds lower than that of a new unsecured debt issuance.

The following table reconciles encumbered and unencumbered assets and their net impact on total Tangible Equity.

 

(Dollars in billions)

   September 30,
2022
         June 30,    
2022
     September 30,
2021
 

Net assets of consolidated variable interest entities
(encumbered assets) — FFELP Loans

   $ 3.7     $ 3.8     $ 3.8 

Net assets of consolidated variable interest entities
(encumbered assets) — Private Education Loans

     1.4       1.9       1.7   

Tangible unencumbered assets(1)

     4.3       3.8       4.9 

Senior unsecured debt

     (7.0)        (7.0)        (7.4)  

Mark-to-market on unsecured hedged debt(2)

     .3         .1         (.5)  

Other liabilities, net

     (.5)        (.4)        (.5)  
  

 

 

    

 

 

    

 

 

 

Total Tangible Equity(1)

   $ 2.2     $ 2.2     $ 2.0 
  

 

 

    

 

 

    

 

 

 

 

(1) 

Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

 

(2) 

At September 30, 2022, June 30, 2022 and September 30, 2021, there were $(305) million, $(112) million and $406 million, respectively, of net gains (losses) on derivatives hedging this debt in unencumbered assets, which partially offset these gains (losses).

 

17


  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. We present the following non-GAAP financial measures: (1) Core Earnings (as well as Adjusted Core Earnings), (2) Tangible Equity (as well as the Adjusted Tangible Equity Ratio and Pro Forma Adjusted Tangible Equity Ratio), (3) EBITDA for the Business Processing segment, and (4) Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans.

1. Core Earnings

We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide certain Core Earnings disclosures in the notes to our consolidated financial statements for our business segments.

Core Earnings are not a substitute for reported results under GAAP. We use Core Earnings to manage our business segments because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that can create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that Core Earnings provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information because we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. When compared to GAAP results, the two items we remove to result in our Core Earnings presentations are:

 

  (1)

Mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness; and

 

  (2)

The accounting for goodwill and acquired intangible assets.

While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our Core Earnings basis of presentation does not. Core Earnings are subject to certain general and specific limitations that investors should carefully consider. For example, there is no comprehensive, authoritative guidance for management reporting. Our Core Earnings are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Accordingly, our Core Earnings presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not be able to compare our performance with that of other financial services companies based upon Core Earnings. Core Earnings results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, our board of directors, credit rating agencies, lenders and investors to assess performance.

 

18


The following tables show Core Earnings for each reportable segment and our business as a whole along with the adjustments made to the income/expense items to reconcile the amounts to our reported GAAP results as required by GAAP.

 

    QUARTER ENDED SEPTEMBER 30, 2022  

(Dollars in millions)

  Federal
Education
Loans
    Consumer
Lending
    Business
Processing
    Other     Total
Core
Earnings
    Adjustments        
  Reclassifications     Additions/
(Subtractions)
    Total
Adjustments(1)
    Total
GAAP
 

Interest income:

                 

Education loans

  $ 555      $ 309      $ —        $ —      $ 864      $ —        $ (2)     $ (2)     $ 862   

Cash and investments

    9        3        —        7        19        —        —        —        19   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    564        312        —        7        883        —        (2)       (2)       881   

Total interest expense

    444        159        —        33        636        (1)       6        5        641   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss)

    120        153        —        (26)       247        1        (8)       (7)       240   

Less: provisions for loan losses

    —        28        —        —        28        —        —        —        28   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss) after provisions for loan losses

    120        125        —        (26)       219        1        (8)       (7)       212   

Other income (loss):

                 

Servicing revenue

    21        3        —        —        24        —        —        —        24   

Asset recovery and business processing revenue

    1        —        79        —        80        —        —        —        80   

Other income (loss)

    6        —        —        —          6        (1)         41        40        46   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss)

    28        3        79        —        110        (1)         41          40          150   

Expenses:

                 

Direct operating expenses

    25        43        67        —        135        —        —        —        135   

Unallocated shared services expenses

    —        —        —        59        59        —        —        —        59   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

    25        43        67        59        194        —        —        —        194   

Goodwill and acquired intangible asset impairment and amortization

    —        —        —        —        —        —        10        10        10   

Restructuring/other reorganization expenses

    —        —        —        21        21        —        —        —        21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    25        43        67        80        215        —        10        10        225   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense (benefit)

    123        85        12        (106)       114        —        23        23          137   

Income tax expense (benefit)(2)

    29        20        3        (25)       27        —        5        5        32   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 94      $ 65      $ 9      $ (81)     $ 87      $ —        $ 18      $ 18      $ 105   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Core Earnings adjustments to GAAP:

 

     QUARTER ENDED SEPTEMBER 30, 2022  

(Dollars in millions)

   Net Impact of
Derivative
Accounting
     Net Impact of
Goodwill and
Acquired
Intangibles
     Total  

Net interest income after provisions for loan losses

   $ (7)      $ —       $ (7)  

Total other income (loss)

     40         —         40   

Goodwill and acquired intangible asset impairment and amortization

     —         10         10   
  

 

 

    

 

 

    

 

 

 

Total Core Earnings adjustments to GAAP

   $ 33       $ (10)        23   
  

 

 

    

 

 

    

Income tax expense (benefit)

           5   
        

 

 

 

Net income (loss)

         $ 18   
        

 

 

 

 

(2) 

Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 

19


    QUARTER ENDED JUNE 30, 2022  

(Dollars in millions)

  Federal
Education
Loans
    Consumer
Lending
    Business
Processing
    Other     Total
Core
Earnings
    Adjustments        
  Reclassifications     Additions/
(Subtractions)
    Total
Adjustments(1)
    Total
GAAP
 

Interest income:

                 

Education loans

  $ 409      $ 277      $ —      $ —      $ 686      $ 4      $ (3)      $ 1      $ 687   

Cash and investments

    3        1        —        1        5        —        —        —        5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    412        278        —        1        691        4        (3)       1        692   

Total interest expense

    266        136        —        18        420        4        (53)       (49)       371   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss)

    146        142        —        (17)       271        —        50        50        321   

Less: provisions for loan losses

    —        18        —        —        18        —        —        —        18   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss) after provisions for loan losses

    146        124        —        (17)       253        —        50        50        303   

Other income (loss):

                 

Servicing revenue

    14        3        —        —        17        —        —        —        17   

Asset recovery and business processing revenue

    1        —        87        —        88        —        —        —        88   

Other income (loss)

    8        1        —        (2)       7        —          22        22        29   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss)

    23        4        87        (2)       112        —          22        22          134   

Expenses:

                 

Direct operating expenses

    25        35        74        —        134        —        —        —        134   

Unallocated shared services expenses

    —        —        —        56        56        —        —        —        56   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

    25        35        74        56        190        —        —        —        190   

Goodwill and acquired intangible asset impairment and amortization

    —        —        —        —        —        —        3        3        3   

Restructuring/other reorganization expenses

    —        —        —        —        —        —        —        —        —   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    25        35        74        56        190        —        3        3        193   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense (benefit)

    144        93        13        (75)       175        —        69        69          244   

Income tax expense (benefit)(2)

    34        22        3        (18)       41        —        23        23        64   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 110      $ 71      $ 10      $ (57)     $ 134      $ —      $ 46      $ 46      $ 180   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Core Earnings adjustments to GAAP:

 

     QUARTER ENDED JUNE 30, 2022  

(Dollars in millions)

   Net Impact of
Derivative
Accounting
     Net Impact of
Goodwill and
Acquired
Intangibles
     Total  

Net interest income after provisions for loan losses

   $ 50       $ —       $ 50   

Total other income (loss)

     22         —         22   

Goodwill and acquired intangible asset impairment and amortization

     —         3         3   
  

 

 

    

 

 

    

 

 

 

Total Core Earnings adjustments to GAAP

   $ 72       $ (3)        69   
  

 

 

    

 

 

    

Income tax expense (benefit)

           23   
        

 

 

 

Net income (loss)

         $     46   
        

 

 

 

 

(2) 

Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 

20


    QUARTER ENDED SEPTEMBER 30, 2021  

(Dollars in millions)

  Federal
Education
Loans
    Consumer
Lending
    Business
Processing
    Other     Total
Core
Earnings
    Adjustments        
  Reclassifications     Additions/
(Subtractions)
    Total
Adjustments(1)
    Total
GAAP
 

Interest income:

                 

Education loans

  $ 353      $ 291      $ —      $  —      $ 644      $ 25      $ (10)     $ 15      $ 659   

Cash and investments

    —        1        —        —        1        —        —        —        1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    353        292        —        —        645        25        (10)       15        660   

Total interest expense

    202        129        —        15        346        (3)       (17)       (20)       326   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss)

    151        163        —        (15)       299        28        7        35        334   

Less: provisions for loan losses

    —        22        —        —        22        —        —        —        22   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss) after provisions for loan losses

    151        141        —        (15)       277        28        7        35        312   

Other income (loss):

                 

Servicing revenue

    47        —        —        —        47        —        —        —        47   

Asset recovery and business processing revenue

    13        —        122        —        135        —        —        —        135   

Other income (loss)

    1          —        —        2        3        (28)       23        (5)       (2)  

Losses on debt repurchases

    —        —        —        (20)       (20)       —        —        —        (20)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss)

    61        —        122        (18)       165        (28)       23        (5)        160   

Expenses:

                 

Direct operating expenses

    53        45        87        —        185        —        —        —        185   

Unallocated shared services expenses

    —        —        —        63        63        —        —        —        63   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

    53        45        87        63        248        —        —        —        248   

Goodwill and acquired intangible asset impairment and amortization

    —        —        —        —        —        —        4        4        4   

Restructuring/other reorganization expenses

    —        —        —        —        —        —        —        —        —   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    53        45        87        63        248        —        4        4        252   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense (benefit)

    159        96        35        (96)       194        —        26        26        220   

Income tax expense (benefit)(2)

    37        23        8        (23)       45        —        2        2        47   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 122      $ 73      $ 27      $ (73)     $ 149      $ —      $ 24      $ 24      $ 173   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Core Earnings adjustments to GAAP:

 

         QUARTER ENDED SEPTEMBER 30, 2021      

(Dollars in millions)

   Net Impact of
Derivative
Accounting
     Net Impact of
Goodwill and
Acquired
Intangibles
     Total  

Net interest income after provisions for loan losses

   $ 35       $ —       $ 35   

Total other income (loss)

     (5)        —         (5)  

Goodwill and acquired intangible asset impairment and amortization

     —         4         4   
  

 

 

    

 

 

    

 

 

 

Total Core Earnings adjustments to GAAP

   $ 30       $ (4)        26   
  

 

 

    

 

 

    

Income tax expense (benefit)

           2   
        

 

 

 

Net income (loss)

         $ 24   
        

 

 

 

 

(2) 

Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 

21


    NINE MONTHS ENDED SEPTEMBER 30, 2022  

(Dollars in millions)

  Federal
Education
Loans
    Consumer
Lending
    Business
Processing
    Other     Total
Core
Earnings
    Adjustments        
  Reclassifications     Additions/
(Subtractions)
    Total
Adjustments(1)
    Total
GAAP
 

Interest income:

                 

Education loans

  $ 1,298      $ 862      $ —      $ —      $ 2,160      $ 23      $ (9)     $ 14      $ 2,174   

Cash and investments

    12        5        —        8        25        —        —        —        25   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    1,310        867        —        8        2,185        23        (9)       14        2,199   

Total interest expense

    905        421        —        65        1,391        3        (93)       (90)       1,301   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss)

    405        446        —        (57)       794        20        84        104        898   

Less: provisions for loan losses

    —        62        —        —        62        —        —        —        62   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss) after provisions for loan losses

    405        384        —        (57)       732        20        84        104        836   

Other income (loss):

                 

Servicing revenue

    51        9        —        —        60        —        —        —        60   

Asset recovery and business processing revenue

    4        —        260        —        264        —        —        —        264   

Other income (loss)

    24        1        —        (3)       22        (20)         181        161        183   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss)

    79        10        260        (3)       346        (20)         181          161          507   

Expenses:

                 

Direct operating expenses

    79        113        216        —        408        —        —        —        408   

Unallocated shared services expenses

    —        —        —        180        180        —        —        —        180   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

    79        113        216        180        588        —        —        —        588   

Goodwill and acquired intangible asset impairment and amortization

    —        —        —        —        —        —        17        17        17   

Restructuring/other reorganization expenses

    —        —        —        25        25        —        —        —        25   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    79        113        216        205        613        —        17       17        630   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense (benefit)

    405        281        44        (265)       465        —        248        248          713   

Income tax expense (benefit)(2)

    95        66        11        (63)       109        —        64        64        173   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 310      $ 215      $ 33      $ (202)     $ 356      $ —      $ 184      $ 184      $ 540   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Core Earnings adjustments to GAAP:

 

     NINE MONTHS ENDED SEPTEMBER 30, 2022  

(Dollars in millions)

   Net Impact of
Derivative
Accounting
     Net Impact of
Goodwill and
Acquired
Intangibles
     Total  

Net interest income after provisions for loan losses

   $ 104       $ —       $ 104   

Total other income (loss)

     161         —         161   

Goodwill and acquired intangible asset impairment and amortization

     —         17         17   
  

 

 

    

 

 

    

 

 

 

Total Core Earnings adjustments to GAAP

   $ 265       $ (17)        248   
  

 

 

    

 

 

    

Income tax expense (benefit)

           64   
        

 

 

 

Net income (loss)

         $     184   
        

 

 

 

 

(2) 

Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 

22


    NINE MONTHS ENDED SEPTEMBER 30, 2021  

(Dollars in millions)

  Federal
Education
Loans
    Consumer
Lending
    Business
Processing
    Other     Total
Core
Earnings
    Adjustments        
  Reclassifications     Additions/
(Subtractions)
    Total
Adjustments(1)
    Total
GAAP
 

Interest income:

                 

Education loans

  $ 1,062      $ 905      $ —      $  —      $ 1,967      $ 73      $ (29)     $ 44      $ 2,011   

Cash and investments

    —        1        —        1        2        —        —        —        2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    1,062        906        —        1        1,969        73        (29)       44        2,013   

Total interest expense

    627        416        —        51        1,094        (6)       (93)       (99)       995   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss)

    435        490        —        (50)       875        79        64        143        1,018   

Less: provisions for loan losses

    —        (66)       —        —        (66)       —        —        —        (66)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss) after provisions for loan losses

    435        556        —        (50)       941        79        64        143        1,084   

Other income (loss):

                 

Servicing revenue

    146        3        —        —        149        —        —        —        149   

Asset recovery and business processing revenue

    39        —        377        —        416        —        —        —        416   

Other income (loss)

    3          1        —        5        9        (66)       87        21        30   

Gains on sales of loans

    —        91        —        —        91        (13)       —        (13)         78   

Losses on debt repurchases

    —        —        —        (32)       (32)       —        —        —        (32)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss)

    188        95        377        (27)       633        (79)       87        8        641   

Expenses:

                 

Direct operating expenses

    170        124        270        —        564        —        —        —        564   

Unallocated shared services expenses

    —        —        —        194        194        —        —        —        194   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

    170        124        270        194        758        —        —        —        758   

Goodwill and acquired intangible asset impairment and amortization

    —        —        —        —        —        —        14        14        14   

Restructuring/other reorganization expenses

    —        —        —        8        8        —        —        —        8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    170        124        270        202        766        —        14        14        780   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense (benefit)

    453        527        107        (279)       808        —        137        137        945   

Income tax expense (benefit)(2)

    107        123        25        (65)       190        —        27        27        217   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 346      $ 404      $ 82      $ (214)     $ 618      $ —      $ 110      $ 110      $ 728   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Core Earnings adjustments to GAAP:

 

     NINE MONTHS ENDED SEPTEMBER 30, 2021  

(Dollars in millions)

   Net Impact of
Derivative
Accounting
     Net Impact of
Goodwill and
Acquired
Intangibles
     Total  

Net interest income after provisions for loan losses

   $ 143       $ —       $ 143   

Total other income (loss)

     8         —         8   

Goodwill and acquired intangible asset impairment and amortization

     —         14         14   
  

 

 

    

 

 

    

 

 

 

Total Core Earnings adjustments to GAAP

   $ 151       $ (14)        137   
  

 

 

    

 

 

    

Income tax expense (benefit)

           27   
        

 

 

 

Net income (loss)

         $ 110   
        

 

 

 

 

(2) 

Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 

23


The following discussion summarizes the differences between Core Earnings and GAAP net income and details each specific adjustment required to reconcile our Core Earnings segment presentation to our GAAP earnings.

 

     QUARTERS ENDED             NINE MONTHS ENDED  

(Dollars in millions)

   September 30,
2022
         June 30,    
2022
     September 30,
2021
            September 30,
2022
     September 30,
2021
 

Core Earnings net income

    $ 87       $ 134       $ 149          $ 356       $ 618  

Core Earnings adjustments to GAAP:

                 

Net impact of derivative accounting

     33        72        30           265        151  

Net impact of goodwill and acquired intangible assets

     (10)       (3)       (4)          (17)       (14) 

Net tax effect

     (5)       (23)       (2)          (64)       (27) 
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Total Core Earnings adjustments to GAAP

     18        46        24           184        110  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

GAAP net income

    $ 105       $ 180       $ 173          $ 540       $ 728  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

 

(1)

Derivative Accounting: Core Earnings exclude periodic gains and losses that are caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, as well as the periodic mark-to-market gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. Under GAAP, for our derivatives that are held to maturity, the mark-to-market gain or loss over the life of the contract will equal $0 except for Floor Income Contracts, where the mark-to-market gain will equal the amount for which we originally sold the contract. In our Core Earnings presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.

 

24


The table below quantifies the adjustments for derivative accounting between GAAP and Core Earnings net income.

 

     QUARTERS ENDED             NINE MONTHS ENDED  

(Dollars in millions)

   September 30,
2022
         June 30,    
2022
     September 30,
2021
            September 30,
2022
     September 30,
2021
 

Core Earnings derivative adjustments:

                 

Gains (losses) on derivative and hedging activities, net, included in other income

    $ 40       $ 22       $ (5)         $ 161       $ 21  

Plus: Gains (losses) on fair value hedging activity included in interest expense

     (6)       50        10           85        71  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Total gains (losses)

     34        72        5           246        92  

Plus: Settlements on derivative and hedging activities, net(1)

     1        —        28           20        66  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Mark-to market gains (losses) on derivative and hedging activities, net(2)

     35        72        33           266        158  

Amortization of net premiums on Floor Income Contracts in net interest income for Core Earnings

     (2)       (3)       (10)          (9)       (30) 

Other derivative accounting adjustments(3)

     —        3        7           8        23  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Total net impact of derivative accounting

    $ 33         $ 72       $ 30          $ 265         $ 151  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

 

(1) 

Derivative accounting requires net settlement income/expense on derivatives that do not qualify as hedges to be recorded in a separate income statement line item below net interest income. Under our Core Earnings presentation, these settlements are reclassified to the income statement line item of the economically hedged item. For our Core Earnings net interest income, this would primarily include: (a) reclassifying the net settlement amounts related to our Floor Income Contracts to education loan interest income; and (b) reclassifying the net settlement amounts related to certain of our interest rate swaps to debt interest expense. The table below summarizes these net settlements on derivative and hedging activities and the associated reclassification on a Core Earnings basis.

 

    QUARTERS ENDED            NINE MONTHS ENDED  

(Dollars in millions)

  September 30,
2022
    June 30,
2022
    September 30,
2021
           September 30,
2022
    September 30,
2021
 

Reclassification of settlements on derivative and hedging activities:

            

Net settlement expense on Floor Income Contracts reclassified to net interest income

  $ —     $ (4)    $ (25)       $ (23)    $ (73) 

Net settlement income (expense) on interest rate swaps reclassified to net interest income

    (1)        4         (3)           3         (6)   

Net realized gains (losses) on terminated derivative contracts reclassified to other income

    —       —       —          —       13  
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 

Total reclassifications of settlements on derivative and hedging activities

  $ (1)      $ —       $ (28)       $ (20)      $ (66) 
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 

 

(2) 

“Mark-to-market gains (losses) on derivative and hedging activities, net” is comprised of the following:

 

   

 

QUARTERS ENDED

 

          

 

NINE MONTHS ENDED  

 

 

(Dollars in millions)

  September 30,
2022
    June 30,
2022
    September 30,
2021
           September 30,
2022
    September 30,
2021
 

Floor Income Contracts

  $ —       $ 9       $ 23          $ 65       $ 81    

Basis swaps

    (3)        (4)         1            (6)         5    

Foreign currency hedges

    (23)      40       3          34       48  

Other

    61      27       6          173       24  
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 

Total mark-to-market gains (losses) on derivative and hedging activities, net

  $ 35     $ 72     $ 33        $ 266     $