8-K
NAVIENT CORP false 0001593538 0001593538 2023-01-24 2023-01-24 0001593538 us-gaap:CommonStockMember 2023-01-24 2023-01-24 0001593538 navi:M6SeniorNotesDueDecember152043Member 2023-01-24 2023-01-24

 

 

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): January 24, 2023

 

 

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 January 24, 2023, Navient Corporation (the “Company”) issued an informational press release announcing its financial results for the quarter ended December 31, 2022 were available on the “Investor” page of its website located at https://www.Navient.com/investors. Additionally, on January 24, 2023, the Company posted its financial results for the quarter ended December 31, 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 January 24, 2023.
99.2*    Financial Press Release, dated January 24, 2023.
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: January 24, 2023     By:  

/s/ JOE FISHER

      Joe Fisher
      Chief Financial Officer
EX-99.1

     Exhibit 99.1

 

 

LOGO

 

NEWS RELEASE

For immediate release

Navient posts fourth quarter 2022 financial results

WILMINGTON, Del., Jan. 24, 2023 — Navient (Nasdaq: NAVI), a leader in technology-enabled education finance and business processing solutions, today posted its 2022 fourth 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 tomorrow, Jan. 25, 2023, 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 FOURTH-QUARTER     

2022 FINANCIAL RESULTS     

 

LOGO

WILMINGTON, Del., January 24, 2023 — Navient (Nasdaq: NAVI) today released its fourth-quarter 2022 financial results.

 

 

FOURTH

QUARTER –
OVERALL

RESULTS

  

 

•   GAAP net income of $105 million ($0.78 diluted earnings per share).

 

•   Adjusted Core Earnings(1) diluted earnings per share of $0.85.

 

•   Core Earnings(1) of $102 million ($0.76 diluted earnings per share).

 

 

FOURTH

QUARTER –

SIGNIFICANT

ITEMS

  

 

•   GAAP and Core Earnings results included:

 

   Regulatory expenses of $2 million ($0.01 diluted loss per share).

 

   Restructuring expenses of $12 million ($0.08 diluted loss per share).

 

 

FULL YEAR

RESULTS

  

 

•   GAAP net income of $645 million ($4.49 diluted earnings per share).

 

•   Adjusted Core Earnings(1) diluted earnings per share of $3.43.

 

•   Core Earnings(1) of $458 million ($3.19 diluted earnings per share).

 

CEO COMMENTARY – “With full year adjusted core earnings per share of $3.43, Navient delivered strong results driven by our business strategy,” said Jack Remondi, president and CEO of Navient. “We are successfully achieving our goal to create long-term value by growing our in-school loan origination and business processing solution franchises, effectively and efficiently managing cash flows from our legacy student-loan portfolios and reducing both our risk and our expenses. Our 2022 accomplishments position the company to continue on a successful path in 2023 and beyond.”

 

 

  FOURTH-QUARTER HIGHLIGHTS

 

 

 

FEDERAL
EDUCATION
LOANS SEGMENT

 

  

•   Net income of $97 million.

 

•   Net interest margin of 0.94%.

CONSUMER LENDING
SEGMENT

 

  

•   Net income of $84 million.

 

•   Net interest margin of 2.87%.

 

•   Originated $169 million of Private Education Loans.

BUSINESS
PROCESSING
SEGMENT

 

  

•   EBITDA(1) of $8 million.

 

•   Revenue of $70 million.

CAPITAL

 

  

•   Adjusted tangible equity ratio(1) of 7.7%.

 

•   Repurchased $85 million of common shares. $600 million common share repurchase authority remains outstanding.

 

•   Paid $21 million in common stock dividends.

EXPENSES

 

  

•   Adjusted Core Earnings expenses(1) of $185 million.

 

 

(1) 

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


 

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)

     4Q22        3Q22        4Q21  

Net interest income

    $ 115         $ 120         $ 140    

Provision for loan losses

     —            —            —      

Other revenue

     23          28          49    
  

 

 

    

 

 

    

 

 

 

Total revenue

     138          148          189    

Expenses

     27          25          52    
  

 

 

    

 

 

    

 

 

 

Pre-tax income

     111          123          137    
  

 

 

    

 

 

    

 

 

 

Net income

    $ 97         $ 94         $ 108    
  

 

 

    

 

 

    

 

 

 

Segment net interest margin

     .94%         .94%         .99%   

FFELP Loans:

        

FFELP Loan spread

     1.08%       1.05%       1.06% 

Provision for loan losses

    $ —         $ —         $ —    

Net charge-offs

    $ 11         $ 12         $ 7    

Net charge-off rate

     .13%         .12%         .06%   

Greater than 30-days delinquency rate

     15.6%       18.6%       10.6% 

Greater than 90-days delinquency rate

     9.6%       10.1%       4.8% 

Forbearance rate

     18.1%       16.4%       12.4% 

Average FFELP Loans

    $ 45,580         $ 48,443         $ 53,960    

Ending FFELP Loans, net

    $ 43,525         $ 46,891         $ 52,641    

(Dollars in billions)

                    

Total federal loans serviced

    $ 51         $ 54         $ 61    

DISCUSSION OF RESULTS — 4Q22 vs. 4Q21

 

 

Net income was $97 million compared to $108 million.

 

 

Net interest income decreased $25 million primarily due to the paydown of the portfolio as well as an increase in interest rates.

 

 

Provision for loan losses remained at $0.

 

     

Net charge-offs were $11 million compared to $7 million.

 

     

Delinquencies greater than 90 days were $3.3 billion compared to $2.1 billion.

 

     

Forbearances were $7.6 billion compared to $6.3 billion.

 

 

Other revenue decreased $26 million due to a decrease in transition services as well as a decrease in asset recovery revenue.

 

 

Expenses were $25 million lower as a result of the paydown of the loan portfolio as well as 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)

   4Q22      3Q22      4Q21  

Net interest income

    $ 147         $ 153         $ 152    

Provision for loan losses

     17          28          5    

Other revenue

     3          3          2    
  

 

 

    

 

 

    

 

 

 

Total revenue

     133          128          149    

Expenses

     36          43          37    
  

 

 

    

 

 

    

 

 

 

Pre-tax income

     97          85          112    
  

 

 

    

 

 

    

 

 

 

Net income

    $ 84         $ 65         $ 89    
  

 

 

    

 

 

    

 

 

 

Segment net interest margin

     2.87%       2.90%       2.76% 

Private Education Loans (including Refinance Loans):

        

Private Education Loan spread

     3.01%       3.03%       2.92% 

Provision for loan losses

    $ 17         $ 28         $ 5    

Net charge-offs(1)

    $ 75         $ 99         $ 44    

Net charge-off rate(1)

     1.56%       2.01%       .87%   

Greater than 30-days delinquency rate

     5.0%       4.4%       3.2% 

Greater than 90-days delinquency rate

     2.2%       2.0%       1.5% 

Forbearance rate

     2.1%       1.9%       2.6% 

Average Private Education Loans

    $ 19,790         $ 20,308         $ 21,106    

Ending Private Education Loans, net

    $ 18,725         $ 19,151         $ 20,171    

Private Education Refinance Loans:

        

Net charge-offs

    $ 7         $ 4         $ 2    

Greater than 90-days delinquency rate

     .2%         .2%         .1%   

Average Private Education Refinance Loans

    $ 9,772         $ 9,966         $ 9,631    

Ending Private Education Refinance Loans, net

    $ 9,516         $ 9,751         $ 9,791    

Private Education Refinance Loan originations

    $ 134           $ 231           $ 1,366      

 

  (1)

Third-quarter 2022 excludes $30 million of charge-offs on the expected future recoveries of previously fully charged-off loans as a result of increasing the net charge-off rate on defaulted loans.

DISCUSSION OF RESULTS — 4Q22 vs. 4Q21

 

 

Originated $169 million of Private Education Loans compared to $1.4 billion.

 

     

Refinance Loan originations were $134 million compared to $1.4 billion.

 

     

In-school loan originations increased 52% to $35 million compared to $23 million.

 

 

Net income was $84 million compared to $89 million.

 

 

Net interest income decreased $5 million primarily due to the paydown of the non-refinance loan portfolio. This was partially offset by an increase in the net interest margin on the Refinance Loan portfolio.

 

 

Provision for loan losses increased $12 million. The provision for loan losses of $17 million in the current period included $3 million of provision in connection with loan originations and $14 million related to a reserve build. The provision of $5 million in the year-ago quarter included $15 million in connection with loan originations and $(10) million related to a reserve release. 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 $75 million compared with $44 million.

 

     

Private Education Loan delinquencies greater than 90 days: $411 million, up $114 million from $297 million.

 

     

Private Education Loan forbearances: $401 million, down $134 million from $535 million.

 

 

Expenses decreased $1 million primarily due to lower marketing spend.

 

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)

       4Q22              3Q22              4Q21      

Revenue from government services

    $ 39         $ 47         $ 54    

Revenue from healthcare services

     31          32          57    
  

 

 

    

 

 

    

 

 

 

Total fee revenue

     70          79          111    

Expenses

     63          67          90    
  

 

 

    

 

 

    

 

 

 

Pre-tax income

     7          12          21    
  

 

 

    

 

 

    

 

 

 

Net income

    $ 6         $ 9         $ 17    
  

 

 

    

 

 

    

 

 

 

EBITDA(1)

    $ 8         $ 13         $ 23    

EBITDA margin(1)

     11%       16%       20% 

 

  (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 — 4Q22 vs. 4Q21

 

 

Net income was $6 million compared to $17 million.

 

 

Revenue decreased $41 million due to the expected $55 million reduction in revenue from the wind-down of pandemic-related contracts, which was partially offset by a $14 million increase in revenue from services for our traditional government and healthcare services clients.

 

 

EBITDA was $8 million, down $15 million, or 65%. 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 tomorrow, January 25, 2023, 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 reserves and estimates or other accounting standards that may impact our operations; adverse outcomes in any

 

4


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

 

           

 

YEARS ENDED

 

 

(In millions, except per share data)

   December 31,
2022
     September 30,
2022
     December 31,
2021
            December 31,
2022
     December 31,
2021
 

GAAP Basis

                 

Net income (loss)(1)

    $ 105         $ 105         $ (11)            $ 645         $ 717    

Diluted earnings (loss) per common share

    $ .78         $ .75         $ (.07)            $ 4.49         $ 4.18    

Weighted average shares used to compute diluted earnings per share

     134          141          157              144          172    

Return on assets

     .60%         .57%         (.06)%            .87%         .88%   

Core Earnings Basis(2)

                 

Net income (loss)(1)(2)

    $ 102         $ 87         $ (67)            $ 458         $ 551    

Diluted earnings (loss) per common share(2)

    $ .76         $ .62         $ (.43)            $ 3.19         $ 3.21    

Adjusted diluted earnings per common share(2)

    $ .85         $ .75         $ .78             $ 3.43         $ 4.45    

Weighted average shares used to compute diluted earnings per share

     134          141          157              144          172    

Net interest margin, Federal Education Loan segment

     .94%         .94%         .99%             1.01%       .99%   

Net interest margin, Consumer Lending segment

     2.87%       2.90%       2.76%           2.81%       2.92% 

Return on assets

     .58%         .47%         (.33)%            .62%         .68%   

Education Loan Portfolios

                 

Ending FFELP Loans, net

    $ 43,525         $ 46,891         $ 52,641             $ 43,525         $ 52,641    

Ending Private Education Loans, net

     18,725          19,151          20,171              18,725          20,171    
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Ending total education loans, net

    $ 62,250         $ 66,042         $ 72,812             $ 62,250         $ 72,812    
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Average FFELP Loans

    $ 45,580         $ 48,443         $ 53,960             $ 49,183         $ 56,018    

Average Private Education Loans

     19,790          20,308          21,106              20,524          21,225    
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Average total education loans

    $ 65,370         $ 68,751         $ 75,066             $ 69,707         $ 77,243    
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

 

 

(1) 

Regulatory expenses (which are excluded from Adjusted Core Earnings(2) expenses) for fourth-quarter 2021 and full-year 2021 included $170 million, on an after-tax basis, related to the resolution of previously disclosed litigation. See “GAAP Comparison of 2022 Results with 2021” for further details. This expense equaled $1.08 per share for fourth-quarter 2021 and $0.99 per share for full-year 2021.

 

(2) 

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)

 

 

 

 

           

December 31, 2022
vs.
September 30, 2022

     December 31, 2022
vs.
December 31, 2021
 
     QUARTERS ENDED      Increase
(Decrease)
     Increase
(Decrease)
 

(In millions, except per share data)

   December 31,
2022
     September 30,
2022
    December 31,
2021
     $      %      $      %  

Interest income:

                   

FFELP Loans

    $ 655       $ 553      $ 359        $ 102         18%       $ 296         82%  

Private Education Loans

     332        309       276         23         7         56         20   

Cash and investments

     37        19       1         18         95         36         3,600   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income

     1,024        881       636         143         16         388         61   

Total interest expense

     801        641       322         160         25         479         149   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     223        240       314         (17)        (7)        (91)        (29)    

Less: provisions for loan losses

     17        28       5         (11)          (39)        12         240   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provisions for loan losses

     206        212       309         (6)          (3)        (103)        (33)    

Other income (loss):

                   

Servicing revenue

     17        24       18         (7)          (29)        (1)          (6)    

Asset recovery and business processing revenue

     72        80       123         (8)          (10)        (51)          (41)    

Other income (loss)

     10        6       22         4         67         (12)          (55)    

Losses on debt repurchases

     —        —       (41)        —         —           41          (100)    

Gains (losses) on derivative and hedging activities, net

     10        40       43         (30)          (75)          (33)          (77)    
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other income (loss)

     109        150       165         (41)          (27)          (56)          (34)    

Expenses:

                   

Operating expenses

     187        194       448         (7)          (4)          (261)          (58)    

Goodwill and acquired intangible asset impairment and amortization expense

     3        10       16         (7)          (70)          (13)          (81)    

Restructuring/other reorganization expenses

     12        21       18         (9)          (43)          (6)          (33)    
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     202        225       482         (23)          (10)          (280)          (58)    
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income tax expense

     113        137       (8)        (24)          (18)          121         1,513   

Income tax expense

     8        32       3         (24)          (75)          5         167   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

    $ 105       $ 105      $ (11)       $ —         —%       $ 116         1,055%
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings (loss) per common share

    $ .79       $ .75      $ (.07)       $ .04         5%     $ .86         1,229%
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings (loss) per common share

    $ .78       $ .75      $ (.07)       $ .03         4%     $ .85         1,214%
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Dividends per common share

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

7


     YEARS ENDED
December 31,
     Increase
(Decrease)
 

(In millions, except per share data)

   2022      2021              $                      %          

Interest income:

           

FFELP Loans

    $ 1,966        $ 1,464        $ 502         34%

Private Education Loans

     1,195         1,181         14         1   

Cash and investments

     62         3         59         1,967   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income

     3,223         2,648         575         22   

Total interest expense

     2,102         1,316         786         60   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     1,121         1,332         (211)        (16)  

Less: provisions for loan losses

     79         (61)        140         230   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provisions for loan losses

     1,042         1,393         (351)        (25)  

Other income (loss):

           

Servicing revenue

     77         168         (91)        (54)  

Asset recovery and business processing revenue

     336         539         (203)        (38)  

Other income (loss)

     32         30         2         7   

Gains on sales of loans

     —         78         (78)        (100)  

Losses on debt repurchases

     —         (73)        73         (100)  

Gains (losses) on derivative and hedging activities, net

     171         64         107         167   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other income (loss)

     616         806         (190)        (24)  

Expenses:

           

Operating expenses

     776         1,207         (431)        (36)  

Goodwill and acquired intangible asset impairment and amortization expense

     19         30         (11)        (37)  

Restructuring/other reorganization expenses

     36         26         10         38   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     831         1,263         (432)        (34)  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax expense

     827         936         (109)        (12)  

Income tax expense

     182         219         (37)        (17)  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 645       $ 717       $ (72)        (10)%  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

   $ 4.54       $ 4.23       $ .31         7%
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

   $ 4.49       $ 4.18       $ .31         7%
  

 

 

    

 

 

    

 

 

    

 

 

 

Dividends per common share

   $ .64       $ .64       $ —         —%  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

8


GAAP BALANCE SHEETS (UNAUDITED)

 

(In millions, except share and per share data)

   December 31,
2022
     September 30,
2022
     December 31,
2021
 

Assets

        

FFELP Loans (net of allowance for losses of $222, $233 and $262, respectively)

    $ 43,525      $ 46,891      $ 52,641 

Private Education Loans (net of allowance for losses of $800, $852 and $1,009, respectively)

     18,725       19,151       20,171 

Investments

     167       176       267 

Cash and cash equivalents

     1,535       1,364       905 

Restricted cash and cash equivalents

     3,272       2,548       2,673 

Goodwill and acquired intangible assets, net

     705       708       725 

Other assets

     2,866       2,787       3,223 
  

 

 

    

 

 

    

 

 

 

Total assets

    $ 70,795      $ 73,625      $ 80,605 
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Short-term borrowings

    $ 5,870      $ 5,677      $ 2,490 

Long-term borrowings

     61,026       63,998       74,488 

Other liabilities

     922       977       1,019 
  

 

 

    

 

 

    

 

 

 

Total liabilities

     67,818       70,652       77,997 
  

 

 

    

 

 

    

 

 

 

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

     3,313       3,309       3,282 

Accumulated other comprehensive income (loss), net of tax

     87         84         (133)  

Retained earnings

     4,490       4,406       3,939 
  

 

 

    

 

 

    

 

 

 

Total Navient Corporation stockholders’ equity before treasury stock

     7,894       7,803       7,092 

Less: Common stock held in treasury: 331 million, 325 million and 305 million shares, respectively

     (4,917)        (4,830)        (4,495)  
  

 

 

    

 

 

    

 

 

 

Total Navient Corporation stockholders’ equity

     2,977       2,973       2,597 

Noncontrolling interest

     —         —         11 
  

 

 

    

 

 

    

 

 

 

Total equity

     2,977       2,973       2,608 
  

 

 

    

 

 

    

 

 

 

Total liabilities and equity

    $ 70,795      $ 73,625      $ 80,605 
  

 

 

    

 

 

    

 

 

 

 

9


 

  GAAP COMPARISON OF 2022 RESULTS WITH 2021

 

Three Months Ended December 31, 2022 Compared with Three Months Ended December 31, 2021

For the three months ended December 31, 2022, net income was $105 million, or $0.78 diluted earnings per common share, compared with net loss of $11 million, or $0.07 diluted loss 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 $91 million primarily as a result of an increase in interest rates as well as the paydown of the FFELP and non-refinance Private Education Loan portfolios. This was partially offset by an increase in net interest income from the Private Education Refinance Loan portfolio as a result of increases in both the portfolio size (average balance) and net interest margin.

 

   

Provisions for loan losses increased $12 million from $5 million to $17 million:

 

     

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

 

     

The provision for Private Education Loan losses increased $12 million from $5 million to $17 million.

The Private Education Loan provision for loan losses of $17 million in the current period included $3 million of provision in connection with loan originations and $14 million related to a reserve build. The provision of $5 million in the year-ago quarter included $15 million in connection with loan originations and $(10) million related to a reserve release.

 

   

Asset recovery and business processing revenue decreased $51 million primarily as a result of a $41 million decrease in revenue earned in our Business Processing segment due to the expected $55 million reduction in revenue from the wind-down of pandemic-related contracts, which was partially offset by a $14 million increase in revenue from services for our traditional services clients. The remaining $10 million decrease was related to revenue earned in our Federal Education Loan segment and was due to the Cares Act’s impact on collection activities.

 

   

Other income decreased $12 million primarily as a result of the decrease in transition services being performed in connection with the transfer of the ED servicing contract.

 

   

Losses on debt repurchases decreased $41 million. We repurchased $1.1 billion of debt at a $41 million loss in the year-ago quarter. There were no debt repurchases in the current period.

 

   

Net gains on derivative and hedging activities decreased $33 million. The primary factors affecting the change were interest rate fluctuations. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates 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 $2 million and $211 million in the fourth quarters of 2022 and 2021, respectively, operating expenses were $185 million and $237 million in the fourth quarters of 2022 and 2021, respectively. This $52 million decrease was primarily related to the transfer of the ED servicing contract and the decline in Business Processing segment pandemic-related revenue. Included in fourth-quarter 2021 regulatory expenses was $205 million related to the resolution of previously disclosed litigation.

 

   

During the three months ended December 31, 2022 and 2021, the Company incurred $12 million and $18 million, respectively, of restructuring/other reorganization expenses, primarily due to severance-related costs, facility lease terminations and the impairment of a facility held for sale. See discussion that follows related to the full year expenses for further details.

 

   

The effective income tax rates for the current and year-ago quarters were 7% and (38)%, respectively. The movement in the effective income tax rate was primarily driven by the reduction of tax and interest on state uncertain tax positions in the current period and the settlements with State Attorneys General recorded in the year-ago period, of which a portion was not deductible for tax.

We repurchased 5.4 million and 7.4 million shares of our common stock during the fourth quarters of 2022 and 2021, respectively. As a result, our average outstanding diluted shares decreased by 23 million common shares (or 15%) from the year-ago period.

 

10


Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

For the year ended December 31, 2022, net income was $645 million, or $4.49 diluted earnings per common share, compared with net income of $717 million, or $4.18 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 $211 million primarily as a result of the paydown of the FFELP and non-refinance Private Education Loan portfolios and an increase in interest rates. This was partially offset by an increase in net interest income from the Private Education Refinance Loan portfolio as a result of increases in both the portfolio size (average balance) and net interest margin.

 

   

Provisions for loan losses increased $140 million from $(61) million to $79 million:

 

     

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

 

     

The provision for Private Education Loan losses increased $140 million from $(61) million to $79 million.

The Private Education Loan provision for loan losses of $79 million in the current period included $34 million of provision in connection with loan originations and $45 million related to a reserve build. The negative provision of $(61) 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 $18 million related to a reserve release, partially offset by $64 million of provision related to loan originations.

 

   

Servicing revenue decreased $91 million primarily related to the transfer of the ED servicing contract to a third party in October 2021.

 

   

Asset recovery and business processing revenue decreased $203 million primarily as a result of a $158 million decrease in revenue earned in our Business Processing segment due to the expected $183 million reduction in revenue from the wind-down of pandemic-related contracts, which was partially offset by a $25 million increase in revenue from services for our traditional services clients. The remaining $45 million decrease was related to revenue earned in our Federal Education Loan segment and was due to the Cares Act’s impact on collection activities.

 

   

Gains on sales of loans decreased $78 million in connection with the sale of approximately $1.6 billion of Private Education Loans in 2021. There were no such sales in the current period.

 

   

Losses on debt repurchases decreased $73 million. We repurchased $2.6 billion of debt at a $73 million loss in the year-ago period. There were no debt repurchases in the current period.

 

   

Net gains on derivative and hedging activities increased $107 million. The primary factors affecting the change were interest rate fluctuations. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates 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 $7 million and $233 million in 2022 and 2021, respectively, operating expenses were $769 million and $974 million in 2022 and 2021, respectively. This $205 million decrease was primarily related to the transfer of the ED servicing contract and the decline in Business Processing segment pandemic-related revenue. Included in 2021 regulatory expenses was $205 million related to the resolution of previously disclosed litigation.

 

   

During 2022 and 2021, the Company incurred $36 million and $26 million, respectively, of restructuring/other reorganization expenses, primarily due to severance-related costs, facility lease terminations and the impairment of a facility held for sale. Expense in 2022 primarily relates to severance in connection with the Company’s decision to exit and consolidate certain business lines and other efficiency initiatives. Expense in 2021 primarily relates to facility lease terminations and the impairment of a facility that was sold as the Company reduced and consolidated its facility footprint to become more efficient.

We repurchased 24.8 million and 34.4 million shares of our common stock during 2022 and 2021, respectively. As a result, our average outstanding diluted shares decreased by 28 million common shares (or 16%) from the year-ago period.

 

11


 

PRIVATE EDUCATION LOANS PORTFOLIO PERFORMANCE

 

Private Education Loan Delinquencies and Forbearance

 

    December 31,
2022
    September 30,
2022
    December 31,
2021
 

(Dollars in millions)

          Balance                     %                     Balance                     %                     Balance                     %          

Loans in-school/grace/deferment(1)

   $ 354       $ 348      $ 361   

Loans in forbearance(2)

    401        371        535   

Loans in repayment and percentage of each status:

           

Loans current

    17,838      95.0%       18,426      95.6%       19,634      96.8%  

Loans delinquent 31-60 days(3)

    335      1.8        305      1.6        222      1.1   

Loans delinquent 61-90 days(3)

    186      1.0        159      .8          131       .6     

Loans delinquent greater than 90 days(3)

    411      2.2        394      2.0        297      1.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Private Education Loans in repayment

    18,770      100%       19,284      100%       20,284      100%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Private Education Loans, gross

    19,525        20,003        21,180   

Private Education Loan allowance for losses

    (800)         (852)         (1,009)    
 

 

 

     

 

 

     

 

 

   

Private Education Loans, net

   $ 18,725      $ 19,151      $ 20,171   
 

 

 

     

 

 

     

 

 

   

Percentage of Private Education Loans in repayment

      96.1%         96.4%         95.8%  
   

 

 

     

 

 

     

 

 

 

Delinquencies as a percentage of Private Education Loans in repayment

      5.0%         4.4%         3.2%  
   

 

 

     

 

 

     

 

 

 

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

      2.1%         1.9%         2.6%  
   

 

 

     

 

 

     

 

 

 

Cosigner rate(4)

      33%         33%         35%  
   

 

 

     

 

 

     

 

 

 

 

(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 fourth-quarter 2022, third-quarter 2022, and fourth-quarter 2021.

 

12


 

ALLOWANCE FOR LOAN LOSSES

 

 

     QUARTER ENDED  
     December 31, 2022  

(Dollars in millions)

   FFELP
        Loans        
     Private
        Education        
Loans
             Total          

Allowance at beginning of period

    $ 233        $ 852        $ 1,085   

Total provision

     —           17         17   

Charge-offs:

        

Gross charge-offs

     (11)          (88)          (99)    

Expected future recoveries on current period gross charge-offs

     —           13           13   
  

 

 

    

 

 

    

 

 

 

Total(1)

     (11)          (75)          (86)    

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

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Net charge-offs

     (11)          (75)          (86)    

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

     —           6         6   
  

 

 

    

 

 

    

 

 

 

Allowance at end of period (GAAP)

     222         800         1,022   

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

     —           274         274   
  

 

 

    

 

 

    

 

 

 

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

    $ 222        $ 1,074        $ 1,296   
  

 

 

    

 

 

    

 

 

 

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

     .13%        1.56%   

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

     4.7         3.6         (Non-GAAP)  

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

     .5%        5.5%      (Non-GAAP)    

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

     .6%        5.8%      (Non-GAAP)    

Ending total loans

    $ 43,747        $ 19,525      

Average loans in repayment

    $ 35,996        $ 19,023      

Ending loans in repayment

    $ 34,372        $ 18,770      

 

     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      

 

13


     QUARTER ENDED  
     December 31, 2021  

(Dollars in millions)

   FFELP
        Loans        
     Private
        Education        
Loans
             Total          

Allowance at beginning of period

    $ 269        $ 980        $ 1,249   

Total provision

     —           5         5   

Charge-offs:

        

Gross charge-offs

     (7)          (50)          (57)    

Expected future recoveries on current period gross charge-offs

     —           6           6   
  

 

 

    

 

 

    

 

 

 

Total(1)

     (7)          (44)          (51)    

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

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Net charge-offs

     (7)          (44)          (51)    

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

     —           68         68   
  

 

 

    

 

 

    

 

 

 

Allowance at end of period (GAAP)

     262        1,009         1,271   

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

     —           329         329   
  

 

 

    

 

 

    

 

 

 

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

    $ 262        $ 1,338        $ 1,600   
  

 

 

    

 

 

    

 

 

 

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

     .06%        .87%     

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

     9.2         7.7         (Non-GAAP)  

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

     .5%        6.3%      (Non-GAAP)    

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

     .6%        6.6%      (Non-GAAP)    

Ending total loans

    $ 52,903        $ 21,180      

Average loans in repayment

    $ 44,567        $ 20,168      

Ending loans in repayment

    $ 44,390        $ 20,284      

 

     YEAR ENDED  
     December 31, 2022  

(Dollars in millions)

   FFELP
        Loans        
     Private
        Education        
Loans
             Total          

Allowance at beginning of period

    $ 262        $ 1,009        $ 1,271   

Total provision

     —           79         79   

Charge-offs:

        

Gross charge-offs

     (40)          (370)          (410)    

Expected future recoveries on current period gross charge-offs

     —           57           57   
  

 

 

    

 

 

    

 

 

 

Total(1)

     (40)          (313)          (353)    

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

     —           (30)          (30)    
  

 

 

    

 

 

    

 

 

 

Net charge-offs

     (40)          (343)          (383)    

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

     —           55         55   
  

 

 

    

 

 

    

 

 

 

Allowance at end of period (GAAP)

     222         800         1,022   

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

     —           274         274   
  

 

 

    

 

 

    

 

 

 

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

    $ 222        $ 1,074        $ 1,296   
  

 

 

    

 

 

    

 

 

 

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

     .10%        1.59%   

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

     —%        .15%     
  

 

 

    

 

 

    

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

     .10%        1.74%   

Allowance coverage of charge-offs(4)

     5.5         3.1         (Non-GAAP)  

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

     .5%        5.5%      (Non-GAAP)    

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

     .6%        5.7%      (Non-GAAP)    

Ending total loans

    $ 43,747        $ 19,525      

Average loans in repayment

    $ 40,332        $ 19,796      

Ending loans in repayment

    $ 34,372        $ 18,770      

 

14


 

     YEAR ENDED  
     December 31, 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

     —           46         46   
  

 

 

    

 

 

    

 

 

 

Total provision

     —           (61)          (61)    

Charge-offs:

        

Gross charge-offs

     (26)          (175)          (201)    

Expected future recoveries on current period gross charge-offs

     —           22           22   
  

 

 

    

 

 

    

 

 

 

Total(1)

     (26)          (153)          (179)    

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

     —           (16)          (16)    
  

 

 

    

 

 

    

 

 

 

Net charge-offs

     (26)          (169)          (195)    

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

     —           150         150   
  

 

 

    

 

 

    

 

 

 

Allowance at end of period

     262         1,009         1,271   

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

     —           329         329   
  

 

 

    

 

 

    

 

 

 

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

   $ 262       $ 1,338       $ 1,600   
  

 

 

    

 

 

    

 

 

 

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

     .06%        .76%     

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

     —%        .08%     
  

 

 

    

 

 

    

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

     .06%        .84%     

Allowance coverage of charge-offs(4)

     10.0         7.9         (Non-GAAP )

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

     .5%        6.3%      (Non-GAAP

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

     .6%        6.6%      (Non-GAAP

Ending total loans

   $ 52,903       $ 21,180      

Average loans in repayment

   $ 45,781       $ 20,150      

Ending loans in repayment

   $ 44,390       $ 20,284      

 

(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-quarter 2022 and 2021, an increase in the net charge-off rate on defaulted Private Education Loans resulted in a $30 million and $16 million reduction in the balance of expected future recoveries on previously fully charged-off loans.

 

(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

 

          

 

YEARS ENDED

 

 

(Dollars in millions)

      December 31,    
2022
        September 30,    
2022
        December 31,    
2021
               December 31,    
2022
        December 31,    
2021
 

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

   $ 280         $ 312       $ 397          $ 329       $ 479   

Expected future recoveries of current period defaults

    13          19                 57        22   

Recoveries (cash collected)

    (13)        (14)       (18)          (56)       (87)  

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

    (6)         (37)       (6)          (56)       (35)  

Reduction in expected recoveries related to regulatory settlement(6)

    —          —        (50)          —        (50)  
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 

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

   $ 274         $ 280       $ 329          $ 274       $ 329   
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

 

Change in balance during period

   $ (6)        $ (32)      $ (68)         $ (55)      $ (150)  

 

(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 $1.6 billion of Private Education Loans in 2021.

 

(6)

See “GAAP Comparison of 2022 Results with 2021” for further details.

 

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 2024 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 obtained 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 5.4 million shares of common stock for $85 million in the fourth quarter of 2022 and have $600 million of unused share repurchase authority as of December 31, 2022.

 

  SOURCES OF LIQUIDITY

 

Sources of Primary Liquidity

 

(Dollars in millions)

      December 31,    
2022
          September 30,      
2022
        December 31,    
2021
 

Ending balances:

     

Total unrestricted cash and liquid investments

   $ 1,535     $ 1,364     $ 905 

Unencumbered FFELP Loans

    68      151      124 

Unencumbered Private Education Refinance Loans

    55      270      383 
 

 

 

   

 

 

   

 

 

 

Total

   $ 1,658     $ 1,785     $ 1,412 
 

 

 

   

 

 

   

 

 

 

 

    

 

QUARTERS ENDED

 

           

 

YEARS ENDED

 

 

(Dollars in millions)

   December 31,
2022
     September 30,
2022
     December 31,
2021
            December 31,
2022
     December 31,
2021
 

Average balances:

                 

Total unrestricted cash and liquid investments

    $ 1,517      $ 1,363      $ 1,339         $ 1,157      $ 1,209 

Unencumbered FFELP Loans

     153       123       119          167       220 

Unencumbered Private Education Refinance Loans

     300       165       565          235       642 
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Total

    $ 1,970      $ 1,651      $ 2,023         $ 1,559      $ 2,071 
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

 

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 June 2023 to April 2024.

 

(Dollars in millions)

         December 31,      
2022
           September 30,      
2022
           December 31,      
2021
 

Ending balances:

        

FFELP Loan ABCP facilities

   $ 101    $ 200    $ 546

Private Education Loan ABCP facilities

     1,248      2,203      2,235
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,349    $ 2,403    $ 2,781
  

 

 

    

 

 

    

 

 

 

 

     QUARTERS ENDED          YEARS ENDED  

(Dollars in millions)

       December 31,    
2022
         September 30,    
2022
         December 31,    
2021
   

  

       December 31,    
2022
         December 31,    
2021
 

Average balances:

                

FFELP Loan ABCP facilities

   $ 193    $ 190    $ 441      $ 275    $ 514

Private Education Loan ABCP facilities

     1,556      2,186      2,419        1,998      2,351
  

 

 

    

 

 

    

 

 

   

 

  

 

 

    

 

 

 

Total

   $ 1,749    $ 2,376    $ 2,860      $ 2,273    $ 2,865
  

 

 

    

 

 

    

 

 

   

 

  

 

 

    

 

 

 

At December 31, 2022, we had a total of $4.1 billion of unencumbered tangible assets inclusive of those listed in the table above as sources of primary liquidity. Total unencumbered education loans comprised $1.6 billion of our unencumbered tangible assets of which $1.5 billion and $68 million related to Private Education Loans and FFELP Loans, respectively. In addition, as of December 31, 2022, we had $5.2 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 $0.7 billion outstanding as of December 31, 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)

       December 31,    
2022
         September 30,    
2022
         December 31,    
2021
 

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

   $ 3.7     $ 3.7     $ 3.8 

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

     1.5       1.4       1.7 

Tangible unencumbered assets(1)

     4.1       4.3       4.5 

Senior unsecured debt

     (7.0)        (7.0)        (7.0)  

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

     .3         .3         (.3)  

Other liabilities, net

     (.3)        (.5)        (.8)  
  

 

 

    

 

 

    

 

 

 

Total Tangible Equity(1)

   $ 2.3     $ 2.2     $ 1.9 
  

 

 

    

 

 

    

 

 

 

 

(1) 

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

 

(2) 

At December 31, 2022, September 30, 2022 and December 31, 2021, there were $(285) million, $(305) million and $324 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 DECEMBER 31, 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

  $ 658      $ 332      $ —        $ —      $ 990      $ —      $ (3)     $ (3)     $ 987     

Cash and investments

    20        5        —          12        37        —          —          —          37     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total interest income

    678        337        —          12        1,027        —          (3)         (3)         1,024     

Total interest expense

    563        190        —          42        795        5        1        6        801     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net interest income (loss)

    115        147        —          (30)         232        (5)         (4)         (9)         223     

Less: provisions for loan losses

    —          17        —          —          17        —          —          —          17     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net interest income (loss) after provisions for loan losses

    115        130        —          (30)         215        (5)         (4)         (9)         206     

Other income (loss):

                   

Servicing revenue

    14        3        —          —          17        —          —          —          17     

Asset recovery and business processing revenue

    2        —          70        —          72        —          —          —          72     

Other income (loss)

    7        —          —          3          10        5          5        10        20     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total other income (loss)

    23        3        70        3        99        5          5          10          109     

Expenses:

                   

Direct operating expenses

    27        36        63        —          126        —          —          —          126     

Unallocated shared services expenses

    —          —          —          61        61        —          —          —          61     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Operating expenses

    27        36        63        61        187        —          —          —          187     

Goodwill and acquired intangible asset impairment and amortization

    —          —          —          —          —          —          3        3        3     

Restructuring/other reorganization
expenses

    —          —          —          12        12        —          —          —          12     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total expenses

    27        36        63        73        199        —          3        3        202     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) before income tax expense (benefit)

    111        97        7        (100)         115        —          (2)         (2)         113     

Income tax expense (benefit)(2)

    14        13        1        (15)         13        —          (5)         (5)         8     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net income (loss)

  $ 97      $ 84      $ 6      $ (85)     $ 102      $ —      $ 3      $ 3      $ 105     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

(1)

Core Earnings adjustments to GAAP:

 

    

 

QUARTER ENDED DECEMBER 31, 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

   $ (9)      $ —         $ (9)  

Total other income (loss)

     10         —           10   

Goodwill and acquired intangible asset impairment and amortization

     —           3         3   
  

 

 

    

 

 

    

 

 

 

Total Core Earnings adjustments to GAAP

   $ 1       $ (3)        (2)    
  

 

 

    

 

 

    

Income tax expense (benefit)

           (5)    
        

 

 

 

Net income (loss)

         $ 3   
        

 

 

 

 

(2) 

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

 

19


    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.

 

20


    QUARTER ENDED DECEMBER 31, 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

  $ 343      $ 276      $ —      $ —      $ 619      $ 25      $ (9)     $ 16      $ 635   

Cash and investments

    —          1        —          —          1        —          —          —          1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    343        277        —          —          620        25        (9)         16        636   

Total interest expense

    203        125        —          20        348        (2)         (24)         (26)         322   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss)

    140        152        —          (20)         272        27        15        42        314   

Less: provisions for loan losses

    —          5        —          —          5        —          —          —          5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss) after provisions for loan losses

    140        147        —          (20)         267        27        15        42        309   

Other income (loss):

                 

Servicing revenue

    16        2        —          —          18        —          —          —          18   

Asset recovery and business processing revenue

    12        —          111        —          123        —          —          —          123   

Other income (loss)

    21          —          —          1        22        (27)         70        43        65   

Losses on debt repurchases

    —          —          —          (41)         (41)         —          —          —          (41)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss)

    49        2        111        (40)         122        (27)         70        43        165   

Expenses:

                 

Direct operating expenses

    52        37        90        —          179        —          —          —          179   

Unallocated shared services expenses

    —          —          —          269        269        —          —          —          269   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

    52        37        90        269        448        —          —          —          448   

Goodwill and acquired intangible asset impairment and amortization

    —          —          —          —          —          —          16        16        16   

Restructuring/other reorganization expenses

    —          —          —          18        18        —          —          —          18   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    52        37        90        287        466        —          16        16        482   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense (benefit)

    137        112        21        (347)         (77)         —          69        69        (8)    

Income tax expense (benefit)(2)

    29        23        4        (66)         (10)         —          13        13        3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 108      $ 89      $ 17      $ (281)     $ (67)     $ —      $ 56      $ 56      $ (11)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Core Earnings adjustments to GAAP:

 

         QUARTER ENDED DECEMBER 31, 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

   $ 42       $ —       $ 42   

Total other income (loss)

     43         —           43   

Goodwill and acquired intangible asset impairment and amortization

     —           16         16   
  

 

 

    

 

 

    

 

 

 

Total Core Earnings adjustments to GAAP

   $ 85       $ (16)        69   
  

 

 

    

 

 

    

Income tax expense (benefit)

           13   
        

 

 

 

Net income (loss)

         $ 56   
        

 

 

 

 

(2) 

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

 

21


    YEAR ENDED DECEMBER 31, 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

  $ 1,955      $ 1,195      $ —      $ —      $ 3,150      $ 23      $ (12)     $ 11      $ 3,161   

Cash and investments

    32        10        —          20        62        —          —          —          62   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    1,987        1,205        —          20        3,212        23        (12)         11        3,223   

Total interest expense

    1,468        611        —          107        2,186        8        (92)         (84)         2,102   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss)

    519        594        —          (87)         1,026        15        80        95          1,121   

Less: provisions for loan losses

    —          79        —          —          79        —          —          —          79   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss) after provisions for loan losses

    519        515        —          (87)         947        15        80        95        1,042   

Other income (loss):

                 

Servicing revenue

    65        12        —          —          77        —          —          —          77   

Asset recovery and business processing revenue

    6        —          330        —          336        —          —          —          336   

Other income (loss)

    31        1        —          —          32        (15)         186        171        203   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss)

    102        13        330        —          445        (15)         186          171          616   

Expenses:

                 

Direct operating expenses

    106        148        280        —          534        —          —          —          534   

Unallocated shared services expenses

    —          —          —          242        242        —          —          —          242   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

    106        148        280        242        776        —          —          —          776   

Goodwill and acquired intangible asset impairment and amortization

    —          —          —          —          —          —          19        19        19   

Restructuring/other reorganization
expenses

    —          —          —          36        36        —          —          —          36   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    106        148        280        278        812        —          19        19        831   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense (benefit)

    515        380        50        (365)         580        —          247        247          827   

Income tax expense (benefit)(2)

    108        80        10        (76)         122        —          60        60        182   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 407      $ 300      $ 40      $ (289)     $ 458      $ —      $ 187      $ 187      $ 645   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Core Earnings adjustments to GAAP:

 

         YEAR ENDED DECEMBER 31, 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

   $ 95       $ —       $ 95   

Total other income (loss)

     171         —           171   

Goodwill and acquired intangible asset impairment and amortization

     —           19         19   
  

 

 

    

 

 

    

 

 

 

Total Core Earnings adjustments to GAAP

   $ 266       $ (19)        247   
  

 

 

    

 

 

    

Income tax expense (benefit)

           60   
        

 

 

 

Net income (loss)

         $ 187   
        

 

 

 

 

(2) 

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

 

22


    YEAR ENDED DECEMBER 31, 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

  $ 1,405      $ 1,181      $ —      $ —      $ 2,586      $ 98      $ (39)     $ 59      $ 2,645   

Cash and investments

    —          2        —          1        3        —          —          —          3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    1,405        1,183        —          1        2,589        98        (39)         59        2,648   

Total interest expense

    830        541        —          70        1,441        (8)         (117)         (125)         1,316   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss)

    575        642        —          (69)         1,148        106        78        184        1,332   

Less: provisions for loan losses

    —          (61)         —          —          (61)         —          —          —          (61)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (loss) after provisions for loan losses

    575        703        —          (69)         1,209        106        78        184        1,393   

Other income (loss):

                 

Servicing revenue

    162        6        —          —          168        —          —          —          168   

Asset recovery and business processing revenue

    51        —          488        —          539        —          —          —          539   

Other income (loss)

    25          —          —          5        30        (93)         157        64        94   

Gains on sales of loans

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

Losses on debt repurchases

    —          —          —          (73)         (73)         —          —          —          (73)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss)

    238        97        488        (68)         755        (106)         157        51        806   

Expenses:

                 

Direct operating expenses

    223        162        360       —          745        —          —          —          745   

Unallocated shared services expenses

    —          —          —          462        462        —          —          —          462   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

    223        162        360        462        1,207        —          —          —          1,207   

Goodwill and acquired intangible asset impairment and amortization

    —          —          —          —          —          —          30        30        30   

Restructuring/other reorganization expenses

    —          —          —          26        26        —          —          —          26   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    223        162        360        488        1,233        —          30        30        1,263   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense (benefit)

    590        638        128        (625)         731        —          205        205        936   

Income tax expense (benefit)(2)

    136        146        29        (131)         180        —          39        39        219   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 454      $ 492      $ 99      $ (494)     $ 551      $ —      $ 166      $ 166      $ 717   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Core Earnings adjustments to GAAP:

 

     YEAR ENDED DECEMBER 31, 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

   $ 184       $ —       $ 184   

Total other income (loss)

     51         —           51   

Goodwill and acquired intangible asset impairment and amortization

     —           30         30   
  

 

 

    

 

 

    

 

 

 

Total Core Earnings adjustments to GAAP

   $ 235       $ (30)        205   
  

 

 

    

 

 

    

Income tax expense (benefit)

           39   
        

 

 

 

Net income (loss)

         $ 166   
        

 

 

 

 

(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             YEARS ENDED  

(Dollars in millions)

   December 31,
2022
     September 30,
2022
     December 31,
2021
            December 31,
2022
     December 31,
2021
 

Core Earnings net income

    $ 102       $ 87       $ (67)         $ 458       $ 551  

Core Earnings adjustments to GAAP:

                 

Net impact of derivative accounting

     1        33        85           266        235  

Net impact of goodwill and acquired intangible assets

     (3)         (10)         (16)            (19)         (30)   

Net tax effect

     5        (5)         (13)            (60)         (39)   
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Total Core Earnings adjustments to GAAP

     3        18        56           187        166  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

GAAP net income

    $ 105       $ 105       $ (11)         $ 645       $ 717  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

 

(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           YEARS ENDED  

(Dollars in millions)

    December 31,  
2022
      September 30,  
2022
      December 31,  
2021
            December 31,  
2022
      December 31,  
2021
 

Core Earnings derivative adjustments:

           

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

   $ 10      $ 40      $ 43        $ 171      $ 64  

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

    (2)        (6)        17         83       88  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total gains (losses)

    8       34       60         254       152  

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

    (5)        1       27         15       93  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

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

    3       35       87         269       245  

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

    (3)        (2)        (9)          (12)        (39)   

Other derivative accounting adjustments(3)

    1       —         7         9       29  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total net impact of derivative accounting

   $ 1        $ 33        $ 85        $ 266        $ 235  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

 

(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           YEARS ENDED  

(Dollars in millions)

    December 31,  
2022
      September 30,  
2022
      December 31,  
2021
            December 31,  
2022
      December 31,  
2021
 

Reclassification of settlements on derivative and hedging activities:

           

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

  $ —     $ —     $ (25)      $ (23)    $ (98) 

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

    5         (1)        (2)          8         (8)   

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

    —         —         —           —         13