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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

or

☐

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36228

Navient Corporation

(Exact name of registrant as specified in its charter)

Delaware

46-4054283

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

13865 Sunrise Valley Drive, Herndon, Virginia 20171

(703) 810-3000

(Address of principal executive offices)

(Telephone Number)

(703) 810-3000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

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

Preferred Stock Purchase Rights

 

None

 

The NASDAQ Global Select Market

As of September 30, 2023, there were 117,571,091 shares of common stock outstanding.

 

 

 

 

 

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TABLE OF CONTENTS

Organization of Our Form 10-Q

The order and presentation of content in our Form 10-Q differs from the traditional Securities and Exchange Commission (SEC) Form 10-Q format. Our format is designed to improve readability and to better present how we organize and manage our business. See Appendix A, "Form 10-Q Cross-Reference Index" for a cross-reference index to the traditional SEC Form 10-Q format.

 

Page

Number

 

Forward-Looking and Cautionary Statements

1

Use of Non-GAAP Financial Measures

2

 

 

Business

3

Overview and Fundamentals of Our Business

3

How We Organize Our Business

5

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

6

Selected Historical Financial Information and Ratios

6

The Quarter in Review

7

Results of Operations

9

Segment Results

12

Financial Condition

20

Liquidity and Capital Resources

25

Critical Accounting Policies and Estimates

28

Non-GAAP Financial Measures

28

 

 

Legal Proceedings

39

Risk Factors

39

Quantitative and Qualitative Disclosures about Market Risk

40

 

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

45

Controls and Procedures

46

Exhibits

47

Financial Statements

48

Signatures

90

Appendix A – Form 10-Q Cross-Reference Index

91

 

 

 

 

 

 

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking” statements and other information that is based on management’s current expectations as of the date of this report. Statements that are not historical facts, including statements about our 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,” “goals,” or “target.” Such statements are based on management's expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties are discussed more fully under the section titled “Risk Factors” and include, but are not limited to the following:

•
the continuing impacts of the COVID-19 pandemic and related risks;
•
general economic conditions, including the potential impact of persistent inflation and increasing interest rates on Navient and its clients and customers and on the creditworthiness of third parties;
•
increased defaults on education loans held by us;
•
the cost and availability of funding in the capital markets;
•
changes in the general interest rate environment, including the availability of any relevant money-market index rate, including LIBOR or SOFR, or the relationship between the relevant money-market index rate and the rate at which our assets are priced;
•
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 that 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;
•
our unhedged Floor Income is dependent on the future interest rate environment and therefore is variable;
•
a reduction in our credit ratings;
•
adverse market conditions or an inability to effectively manage our liquidity risk or access liquidity could negatively impact us;
•
the interest rate characteristics of our assets do not always match those of our funding arrangements;
•
our use of derivatives exposes us to credit and market risk;
•
our ability to continually and effectively align our cost structure with our business operations;
•
a failure or breach of our operating systems, infrastructure or information technology systems;
•
failure by any third party providing us material services or products or a breach or violation of law by one of these third parties;
•
changes to applicable laws, rules, regulations and government policies and expanded regulatory and governmental oversight;
•
our work with government clients exposes us to additional risks inherent in the government contracting environment;
•
shareholder activism;
•
shareholders’ percentage ownership in Navient may be diluted in the future;
•
reputational risk and social factors;
•
obligations owed to parties under various transaction agreements that were executed as part of the spin-off of Navient from SLM Corporation (the Spin-Off); and
•
acquisitions or strategic investments that we pursue.

 

Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business.

The preparation of our 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 report are qualified by these cautionary statements and are made only as of the date of this report. We do not undertake any obligation to update or revise these forward-looking statements except as required by law.

Through this discussion and analysis, we intend to provide the reader with some narrative context for how our management views our consolidated financial statements, additional context within which to assess our operating results, and information on the quality and variability of our earnings, liquidity and cash flows.

 

 

1

 

USE OF NON-GAAP FINANCIAL MEASURES

We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present our financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings, which is a non-GAAP financial measure. 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 include this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation is our measure of profit or loss for our segments, we are required by GAAP to provide Core Earnings disclosures in the notes to our consolidated financial statements for our business segments.

In addition to Core Earnings, we present the following other non-GAAP financial measures: Tangible Equity, Adjusted Tangible Equity Ratio, Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA) (for the Business Processing segment), and Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans. Definitions for the non-GAAP financial measures and reconciliations are provided below, except that reconciliations of forward-looking non-GAAP financial measures are not provided because the company is unable to provide such reconciliations without unreasonable effort due to the uncertainty and inherent difficulty of predicting the occurrence and financial impact of certain items, including, but not limited to, the impact of any mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.

 

2

 

Overview and Fundamentals of Our Business

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.

With a focus on data-driven insights, service, compliance and innovative support, Navient’s business consists of:

 

https://cdn.kscope.io/e44c311029ecc3bd944f604eca548bd5-img126569964_1.jpg 

 

•
Federal Education Loans

We own a portfolio of $39.6 billion of federally guaranteed Federal Family Education Loan Program (FFELP) Loans. As a servicer on our own portfolio and for third parties, we deploy data-driven approaches to support the success of our customers. Our flexible and scalable infrastructure manages large volumes of complex transactions, simplifying the customer experience and continually improving efficiency.

•
Consumer Lending

We help students and families succeed through the college journey with innovative planning tools, student loans and refinancing products. Our $17.3 billion Private Education Loan portfolio demonstrates high customer success rates. In the third quarter of 2023, we originated $382 million of Private Education Loans.

•
Business Processing

We leverage our loan servicing expertise to provide business processing solutions for approximately 500 public sector and healthcare organizations, and their tens of millions of clients, patients, and constituents. Our suite of omnichannel customer experience, digital processing and revenue cycle solutions enables our clients to deliver better results for the people they serve.

 

Superior Operational Performance with a Strong Customer Service and Compliance Commitment

 

We help our customers — both individuals and institutions — navigate the path to financial success through proactive, data-driven, simplified service and innovative solutions.

•
Delivering superior performance. Whether supporting student loan borrowers in successfully managing their loans, designing and implementing omnichannel contact center solutions for public sector agencies, generating additional revenue for hospitals and medical systems, or helping a state manage communications or recover revenue that funds essential services, Navient delivers value for our clients and customers.

We leverage our customer service expertise, data-driven insights, technology platforms, and scale to maximize value for our clients.

•
Scalable, data-driven solutions. Annually, we support tens of millions of people in conducting hundreds of millions of transactions and interactions. Our systems are built for scale and rapid implementation. We harness the power of data to build tailored programs with analytics that optimize our clients’ results.

 

 

 

3

 

•
Simplify complex processes. On our clients’ behalf, we help individuals successfully navigate a broad spectrum of complex transactions. Our people and platforms simplify complex programs to help customers and constituents achieve their goals.
•
Improving customer experience and success. We continually make enhancements to improve the customer experience, drawing from a variety of inputs including customer surveys, research panels, analysis of customer inquiries and activities, complaint data, and regulator commentary. Across our businesses, our customer-facing representatives are trained to provide empathetic, accurate support.
•
Commitment to compliance. We maintain a robust, multi-layered compliance management system and thoroughly understand and comply with applicable federal, state, and local laws. We use a “Three Lines of Defense” compliance framework, considered best practice by the U.S. Federal Financial Institutions Examination Council (FFIEC). This framework and other compliance protocols ensure we adhere to key industry laws and regulations including: Fair and Accurate Credit Transactions Act (FACTA); Fair Credit Reporting Act (FCRA); Fair Debt Collection Practices Act (FDCPA); Electronic Funds Transfer Act (EFTA); Equal Credit Opportunity Act (ECOA); Federal Information Security Management Act (FISMA); Gramm-Leach-Bliley Act (GLBA); Health Insurance Portability and Accountability Act (HIPAA); IRS Publication 1075; Servicemembers Civil Relief Act (SCRA); Military Lending Act (MLA); Telephone Consumer Protection Act (TCPA); Truth in Lending Act (TILA); Unfair, Deceptive, or Abusive Acts and Practices (UDAAP); state laws; and state and city licensing.
•
Corporate social responsibility. We are committed to contributing to the social and economic wellbeing of our communities; fostering the success of our customers; supporting a culture of integrity, inclusion and equality in our workforce; and embracing sustainable business practices. Navient has earned recognition from the Forum of Executive Women, Human Rights Campaign Foundation, and military publisher VIQTORY, among other organizations, for our continued commitment to fostering diversity. Our employees are active in our communities, through local and national organizations, including a national partnership with Boys & Girls Clubs of America.

Navient is committed to a sustainable future. We leverage technology that minimizes energy use in our office buildings and promote widespread adoption of “paperless” digital customer communications. Navient prioritizes the usage of power-saving features to our buildings to reduce energy usage. Energy efficiency and reducing CO2 and CO2 equivalents are among the many factors considered in our growth and real estate decisions.

 

Strong Financial Performance Resulting in a Strong Capital Return

 

Our third-quarter 2023 results continue to demonstrate the strength of our business model and our ability to deliver predictable and meaningful cash flow and earnings in all types of economic environments.

 

Our significant earnings generate significant capital, which allows for a strong capital return to our investors. Navient expects to continue to return excess capital to shareholders through dividends and share repurchases in accordance with our capital allocation policy.

 

By optimizing capital adequacy and allocating capital to highly accretive opportunities, including organic growth and acquisitions, we remain well positioned to pay dividends and repurchase stock, while maintaining appropriate leverage that supports our credit ratings and ensures ongoing access to capital markets.

 

In December 2021, our Board approved a share repurchase program authorizing the purchase of up to $1 billion of the Company’s outstanding common stock. At September 30,2023, $360 million remained in share repurchase authorization.

 

To inform our capital allocation decisions, we use the Adjusted Tangible Equity Ratio(1) in addition to other metrics. Our Adjusted Tangible Equity Ratio(1) was 8.7% as of September 30, 2023.

 

 

(Dollars and shares in millions)

 

Q3-23

 

 

Q3-22

 

Shares repurchased

 

 

4.2

 

 

 

6.3

 

Reduction in shares outstanding

 

 

3

%

 

 

4

%

Total repurchases in dollars

 

$

75

 

 

$

95

 

Dividends paid

 

$

19

 

 

$

22

 

Total Capital Returned(2)

 

$

94

 

 

$

117

 

Adjusted Tangible Equity Ratio(1)

 

 

8.7

%

 

 

7.8

%

 

(1)
Item is a non-GAAP financial measure. For a description and reconciliation, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures.”
(2)
Capital Returned is defined as share repurchases and dividends paid.

4

 

How We Organize Our Business

We operate our business in three primary segments: Federal Education Loans, Consumer Lending and Business Processing.

https://cdn.kscope.io/e44c311029ecc3bd944f604eca548bd5-img126569964_2.jpg 

 

Federal Education Loans Segment

Navient owns FFELP Loans and performs servicing on this portfolio. We also service FFELP Loans owned by other institutions. Our servicing quality, data-driven strategies and omnichannel education about federal repayment options translate into positive results for the millions of borrowers we serve. We generate revenue primarily through net interest income on our FFELP Loans and servicing-related fee income.

Consumer Lending Segment

Navient owns, originates and services in-school and refinance Private Education Loans. "In-school" Private Education Loans are loans originally made to borrowers while they are attending school whereas "Refinance" Private Education Loans are loans where a borrower has refinanced their education loans. We generate revenue primarily through net interest income on our Private Education Loan portfolio.

Navient helps students and families through the going-to and paying-for-college journey. Our digital tools empower people to find grants and scholarships, compare financial aid offers and complete the FAFSA. Our Private Education Loans offer easy-to-understand payment options. After graduation, we offer student loan refinancing to help people simplify their repayment and earn a better rate. We believe our 50 years of experience, product design, digital marketing strategies, and origination and servicing platform provide a unique competitive advantage. We see meaningful growth opportunities in originating Private Education Loans, generating attractive long-term, risk-adjusted returns.

Business Processing Segment

Navient provides business processing solutions such as omnichannel contact center services, workflow processing, and revenue cycle optimization. We leverage the same expertise and intelligent tools we use to deliver successful results for portfolios we own. Our support enables our clients to ensure better constituent outcomes, meet rapidly changing needs, improve technology, reduce operating expenses, manage risk and optimize revenue opportunities. Our clients include:

•
Government: We offer our solutions to federal agencies, state governments, tolling and parking authorities, and other public sector clients.
•
Healthcare: Our clients include hospitals, hospital systems, medical centers, large physician groups, other healthcare providers and public health departments.

Other Segment

This segment consists of our corporate liquidity portfolio, gains and losses incurred on the repurchase of debt, unallocated expenses of shared services (which includes regulatory expenses) and restructuring/other reorganization expenses.

5

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Selected Historical Financial Information and Ratios

 

 

Three Months Ended September 30,

 

 

Nine Months Ended
September 30,

 

(In millions, except per share data)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

GAAP Basis

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

79

 

 

$

105

 

 

$

256

 

 

$

540

 

Diluted earnings per common share

 

$

.65

 

 

$

.75

 

 

$

2.04

 

 

$

3.67

 

Weighted average shares used to compute diluted
   earnings per share

 

 

121

 

 

 

141

 

 

 

125

 

 

 

147

 

Return on assets

 

 

.51

%

 

 

.57

%

 

 

.53

%

 

 

.96

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Core Earnings Basis(1)

 

 

 

 

 

 

 

 

 

 

 

 

Net income(1)

 

$

57

 

 

$

87

 

 

$

278

 

 

$

356

 

Diluted earnings per common share(1)

 

$

.47

 

 

$

.62

 

 

$

2.22

 

 

$

2.42

 

Weighted average shares used to compute diluted
   earnings per share

 

 

121

 

 

 

141

 

 

 

125

 

 

 

147

 

Net interest margin, Federal Education Loans segment

 

 

1.52

%

 

 

.94

%

 

 

1.20

%

 

 

1.03

%

Net interest margin, Consumer Lending segment

 

 

3.17

%

 

 

2.90

%

 

 

3.09

%

 

 

2.78

%

Return on assets

 

 

.37

%

 

 

.47

%

 

 

.58

%

 

 

.63

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Education Loan Portfolios

 

 

 

 

 

 

 

 

 

 

 

 

Ending FFELP Loans, net

 

$

39,581

 

 

$

46,891

 

 

$

39,581

 

 

$

46,891

 

Ending Private Education Loans, net

 

 

17,333

 

 

 

19,151

 

 

 

17,333

 

 

 

19,151

 

Ending total education loans, net

 

$

56,914

 

 

$

66,042

 

 

$

56,914

 

 

$

66,042

 

Average FFELP Loans

 

$

40,554

 

 

$

48,443

 

 

$

41,886

 

 

$

50,398

 

Average Private Education Loans

 

 

18,165

 

 

 

20,308

 

 

 

18,710

 

 

 

20,771

 

Average total education loans

 

$

58,719

 

 

$

68,751

 

 

$

60,596

 

 

$

71,169

 

(1)
Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

 

6

 

The Quarter in Review

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 include 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. See “Non-GAAP Financial Measures — Core Earnings” for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.

Third-quarter 2023 GAAP net income was $79 million ($0.65 diluted earnings per share), compared with $105 million ($0.75 diluted Core Earnings per share) for the year-ago quarter. See “Results of Operations – GAAP Comparison of Third-Quarter 2023 Results with Third-Quarter 2022" for a discussion of the primary contributors to the change in GAAP earnings between periods.

Third-quarter 2023 Core Earnings net income was $57 million ($0.47 diluted Core Earnings per share), compared with $87 million ($0.62 diluted Core Earnings per share) for the year-ago quarter. See “Segment Results” for a discussion of the primary contributors to the change in Core Earnings between periods.

GAAP and Core Earnings results included a net reduction to pre-tax income of $58 million ($0.37 diluted loss per share), comprised of the following significant items:

•
$12 million ($0.07 diluted earnings per share) benefit related to the continued extension of the FFELP Loan portfolio ($48 million of additional net interest income partially offset by $36 million of provision for loan losses),
•
$10 million ($0.06 diluted earnings per share) benefit of additional Private Education Loan net interest income related to a decrease in the speed of loan premium amortization primarily in connection with a decline in the Refinance Loans' prepayment rate,
•
$29 million ($0.18 diluted loss per share) of provision for loan losses related to lowering the expected recovery percentage on defaulted Private Education Loans, and
•
$51 million ($0.32 diluted loss per share) of regulatory-related and restructuring expenses, of which $45 million relates to recent developments in connection with CFPB matters.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

Financial highlights of third-quarter 2023 include:

Federal Education Loans segment:

•
Net income of $94 million.
•
Net interest margin of 1.52%.

Consumer Lending segment:

•
Net income of $56 million.
•
Net interest margin of 3.17%.
•
Originated $382 million of Private Education Loans.

Business Processing segment:

•
Revenue of $85 million.
•
Net income of $9 million and EBITDA(1) of $13 million.

Capital, funding and liquidity:

•
GAAP equity-to-asset ratio of 4.6% and adjusted tangible equity ratio(1) of 8.7%.
•
Repurchased $75 million of common shares. $360 million common share repurchase authority remains outstanding.
•
Paid $19 million in common stock dividends.

Operating Expenses:

•
Operating expenses of $186 million, excluding $47 million of regulatory-related expenses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)
Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

 

 

8

 

Results of Operations

GAAP Income Statements (Unaudited)

 

 

Three Months Ended September 30,

 

 

Increase
(Decrease)

 

 

Nine Months Ended September 30,

 

 

Increase
(Decrease)

 

(In millions, except per share data)

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loans

 

$

778

 

 

$

553

 

 

$

225

 

 

 

41

%

 

$

2,191

 

 

$

1,312

 

 

$

879

 

 

 

67

%

Private Education Loans

 

 

351

 

 

 

309

 

 

 

42

 

 

 

14

 

 

 

1,036

 

 

 

862

 

 

 

174

 

 

 

20

 

Cash and investments

 

 

41

 

 

 

19

 

 

 

22

 

 

 

116

 

 

 

111

 

 

 

25

 

 

 

86

 

 

 

344

 

Total interest income

 

 

1,170

 

 

 

881

 

 

 

289

 

 

 

33

 

 

 

3,338

 

 

 

2,199

 

 

 

1,139

 

 

 

52

 

Total interest expense

 

 

879

 

 

 

641

 

 

 

238

 

 

 

37

 

 

 

2,636

 

 

 

1,301

 

 

 

1,335

 

 

 

103

 

Net interest income

 

 

291

 

 

 

240

 

 

 

51

 

 

 

21

 

 

 

702

 

 

 

898

 

 

 

(196

)

 

 

(22

)

Less: provisions for loan losses

 

 

72

 

 

 

28

 

 

 

44

 

 

 

157

 

 

 

68

 

 

 

62

 

 

 

6

 

 

 

10

 

Net interest income after provisions
   for loan losses

 

 

219

 

 

 

212

 

 

 

7

 

 

 

3

 

 

 

634

 

 

 

836

 

 

 

(202

)

 

 

(24

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

15

 

 

 

24

 

 

 

(9

)

 

 

(38

)

 

 

48

 

 

 

60

 

 

 

(12

)

 

 

(20

)

Asset recovery and business
   processing revenue

 

 

85

 

 

 

80

 

 

 

5

 

 

 

6

 

 

 

240

 

 

 

264

 

 

 

(24

)

 

 

(9

)

Other revenue

 

 

5

 

 

 

6

 

 

 

(1

)

 

 

(17

)

 

 

15

 

 

 

22

 

 

 

(7

)

 

 

(32

)

Gains (losses) on derivative and
   hedging activities, net

 

 

26

 

 

 

40

 

 

 

(14

)

 

 

(35

)

 

 

44

 

 

 

161

 

 

 

(117

)

 

 

(73

)

Total other income

 

 

131

 

 

 

150

 

 

 

(19

)

 

 

(13

)

 

 

347

 

 

 

507

 

 

 

(160

)

 

 

(32

)

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Operating expenses

 

 

233

 

 

 

194

 

 

 

39

 

 

 

20

 

 

 

601

 

 

 

588

 

 

 

13

 

 

 

2

 

   Goodwill and acquired
      intangible assets impairment
      and amortization expense

 

 

3

 

 

 

10

 

 

 

(7

)

 

 

(70

)

 

 

8

 

 

 

17

 

 

 

(9

)

 

 

(53

)

   Restructuring/other reorganization
      expenses

 

 

4

 

 

 

21

 

 

 

(17

)

 

 

(81

)

 

 

23

 

 

 

25

 

 

 

(2

)

 

 

(8

)

Total expenses

 

 

240

 

 

 

225

 

 

 

15

 

 

 

7

 

 

 

632

 

 

 

630

 

 

 

2

 

 

 

—

 

Income before income tax expense

 

 

110

 

 

 

137

 

 

 

(27

)

 

 

(20

)

 

 

349

 

 

 

713

 

 

 

(364

)

 

 

(51

)

Income tax expense

 

 

31

 

 

 

32

 

 

 

(1

)

 

 

(3

)

 

 

93

 

 

 

173

 

 

 

(80

)

 

 

(46

)

Net income

 

$

79

 

 

$

105

 

 

$

(26

)

 

 

(25

)%

 

$

256

 

 

$

540

 

 

$

(284

)

 

 

(53

)%

Basic earnings per common
   share

 

$

.66

 

 

$

.75

 

 

$

(.09

)

 

 

(12

)%

 

$

2.06

 

 

$

3.71

 

 

$

(1.65

)

 

 

(44

)%

Diluted earnings per common
   share

 

$

.65

 

 

$

.75

 

 

$

(.10

)

 

 

(13

)%

 

$

2.04

 

 

$

3.67

 

 

$

(1.63

)

 

 

(44

)%

Dividends per common share

 

$

.16

 

 

$

.16

 

 

$

—

 

 

 

—

 

 

$

.48

 

 

$

.48

 

 

$

—

 

 

 

—

 

 

9

 

GAAP Comparison of Third-Quarter 2023 Results with Third-Quarter 2022

For the three months ended September 30, 2023, net income was $79 million, or $0.65 diluted earnings per common share, compared with net income of $105 million, or $0.75 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 increased by $51 million primarily as a result of a $48 million benefit related to the decrease in the speed of loan premium amortization in connection with the continued extension of the FFELP Loan portfolio and a $25 million increase in mark-to-market gains on fair value hedges recorded in interest expense. This was partially offset by the paydown of the FFELP and Private Education Loan portfolios and an increase in interest rates.
•
Provisions for loan losses increased $44 million from $28 million to $72 million:
o
The provision for FFELP Loan losses increased $36 million from $0 to $36 million.
o
The provision for Private Education Loan losses increased $8 million from $28 million to $36 million.

The FFELP Loan provision for loan losses of $36 million in the current period was primarily a result of the continued extension of the portfolio and the resulting increase in both the expected future defaults and the premium allocated to all expected future defaults.

The Private Education Loan provision for loan losses of $36 million in the current period included $29 million related to changes in the net charge-off rates on defaulted loans and $12 million in connection with loan originations, partially offset by a $5 million reserve release. The provision of $28 million in the year-ago quarter included $33 million related to changes in the net charge-off rates on defaulted loans and $13 million in connection with loan originations, partially offset by an $18 million reserve release.

•
Servicing revenue decreased $9 million primarily as a result of the paydown of the FFELP Loan portfolio.
•
Asset recovery and business processing revenue increased $5 million primarily as a result of a $21 million increase in revenue from services for our traditional Business Processing clients, which was partially offset by the expected $15 million reduction in revenue from the wind-down of Business Processing pandemic-related contracts and a $1 million decrease related to revenue earned in our Federal Education Loans segment as a result of exiting that business line in fourth-quarter 2022.
•
Net gains on derivative and hedging activities decreased $14 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.
•
Operating expenses increased $39 million primarily as a result of recording a $45 million contingency loss (regulatory-related expense) related to recent developments in connection with CFPB matters (see "Note 9 – Commitments, Contingencies and Guarantees" for further discussion). The remaining $6 million decrease was primarily the result of a decline in overall servicing costs which was partially offset by an increase in expenses in the Business Processing segment in connection with the related increase in revenue.
•
Restructuring expenses decreased $17 million due to a decline in severance-related costs and facility lease terminations. The year-ago period included $21 million of restructuring expenses primarily due to costs for severance and facility lease terminations in connection with the Company’s decision to exit the FFELP asset recovery business, consolidate certain business lines, and implement other efficiency initiatives.

We repurchased 4.2 million and 6.3 million shares of our common stock during the third quarters of 2023 and 2022, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 20 million common shares (or 14%) from the year-ago period.

 

 

10

 

GAAP Comparison of Nine Months Ended September 30, 2023 Results with Nine Months Ended September 30, 2022

For the nine months ended September 30, 2023, net income was $256 million, or $2.04 diluted earnings per common share, compared with net income of $540 million, or $3.67 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 $196 million primarily as a result of a $108 million decrease in mark-to-market gains on fair value hedges recorded in interest expense, the paydown of the FFELP and Private Education Loan portfolios and an increase in interest rates.
•
Provisions for loan losses increased $6 million from $62 million to $68 million:
o
The provision for FFELP Loan losses increased $51 million from $0 to $51 million.
o
The provision for Private Education Loan losses decreased $45 million from $62 million to $17 million.

The FFELP Loan provision for loan losses of $51 million in the current period was primarily a result of the continued extension of the portfolio and the resulting increase in both the expected future defaults and the premium allocated to all expected future defaults.

The Private Education Loan provision for loan losses of $17 million in the current period included $29 million related to changes in the net charge-off rates on defaulted loans, $21 million in connection with loan originations, $23 million in connection with the resolution of certain private legacy loans in bankruptcy in the first quarter of 2023 and $7 million related to a reserve build, which was partially offset by a $63 million reduction in connection with the adoption of a new accounting standard (ASU 2022-02). The provision of $62 million in the year-ago period included $33 million related to changes in the net charge-off rates on defaulted loans and $31 million in connection with loan originations, partially offset by a $2 million reserve release.

We adopted ASU No. 2022-02, “Financial Instruments – Credit Losses: Troubled Debt Restructurings and Vintage Disclosures” on January 1, 2023. This new ASU eliminates the troubled debt restructurings (TDRs) recognition and measurement guidance. Prior to adopting this new guidance, as it relates to interest rate concessions granted as part of our Private Education Loan modification program, a discounted cash flow model was used to calculate the amount of interest forgiven for loans that were in the program and the present value of that interest rate concession was included as a part of the allowance for loan loss. This new guidance no longer allows the measurement and recognition of this element of our allowance for loan loss for new modifications that occur subsequent to January 1, 2023. As of December 31, 2022, the allowance for loan loss included $77 million related to this interest rate concession component of the allowance for loan loss. We elected to adopt this amendment using a prospective transition method which results in the $77 million releasing in 2023 and 2024 as the borrowers exit their current modification programs. $63 million of the $77 million was released in the period.

•
Asset recovery and business processing revenue decreased $24 million primarily as a result of the expected $79 million reduction in revenue from the wind-down of Business Processing pandemic-related contracts, which was partially offset by a $59 million increase in revenue from services for our traditional Business Processing clients. The remaining $4 million decrease was related to revenue earned in our Federal Education Loans segment and was a result of exiting that business line in fourth-quarter 2022.
•
Net gains on derivative and hedging activities decreased $117 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.
•
Operating expenses increased $13 million primarily as a result of recording a $45 million contingency loss (regulatory-related expense) related to recent developments in connection with CFPB matters (see "Note 9 – Commitments, Contingencies and Guarantees" for further discussion). The partially offsetting $32 million decrease was primarily related to a decline in overall servicing costs as well as exiting the Federal Education Loans segment’s asset recovery business line in the fourth quarter of 2022.
•
Restructuring expenses declined $2 million. Restructuring expenses in the current period were primarily due to severance costs in connection with the CEO transition. Restructuring expenses in the year-ago period were primarily due to costs for severance and facility lease terminations in connection with the Company’s decision to exit the FFELP asset recovery business, consolidate certain business lines and implement other efficiency initiatives.

11

 

We repurchased 13.9 million and 19.4 million shares of our common stock during the nine months ended September 30, 2023 and 2022, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 22 million common shares (or 15%) from the year-ago period.

 

Segment Results

Federal Education Loans Segment

The following table presents Core Earnings results for our Federal Education Loans segment.

 

 

Three Months Ended September 30,

 

 

% Increase
(Decrease)

 

 

Nine Months Ended September 30,

 

 

% Increase
(Decrease)

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023 vs. 2022

 

 

2023

 

 

2022

 

 

2023 vs. 2022

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loans

 

$

778

 

 

$

555

 

 

 

40

%

 

$

2,194

 

 

$

1,298

 

 

 

69

%

Cash and investments

 

 

19

 

 

 

9

 

 

 

111

 

 

 

56

 

 

 

12

 

 

 

367

 

Total interest income

 

 

797

 

 

 

564

 

 

 

41

 

 

 

2,250

 

 

 

1,310

 

 

 

72

 

Total interest expense

 

 

636

 

 

 

444

 

 

 

43

 

 

 

1,859

 

 

 

905

 

 

 

105

 

Net interest income

 

 

161

 

 

 

120

 

 

 

34

 

 

 

391

 

 

 

405

 

 

 

(3

)

Less: provision for loan losses

 

 

36

 

 

 

—

 

 

 

100

 

 

 

51

 

 

 

—

 

 

 

100

 

Net interest income after
   provision for loan losses

 

 

125

 

 

 

120

 

 

 

4

 

 

 

340

 

 

 

405

 

 

 

(16

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

12

 

 

 

21

 

 

 

(43

)

 

 

39

 

 

 

51

 

 

 

(24

)

Asset recovery and business
   processing revenue

 

 

—

 

 

 

1

 

 

 

(100

)

 

 

—

 

 

 

4

 

 

 

(100

)

Other revenue

 

 

3

 

 

 

6

 

 

 

(50

)

 

 

10

 

 

 

24

 

 

 

(58

)

Total other income

 

 

15

 

 

 

28

 

 

 

(46

)

 

 

49

 

 

 

79

 

 

 

(38

)

Direct operating expenses

 

 

17

 

 

 

25

 

 

 

(32

)

 

 

55

 

 

 

79

 

 

 

(30

)

Income before income tax
   expense

 

 

123

 

 

 

123

 

 

 

—

 

 

 

334

 

 

 

405

 

 

 

(18

)

Income tax expense

 

 

29

 

 

 

29

 

 

 

—

 

 

 

78

 

 

 

95

 

 

 

(18

)

Net income

 

$

94

 

 

$

94

 

 

 

—

 

 

$

256

 

 

$

310

 

 

 

(17

)%

Comparison of Third-Quarter 2023 Results with Third-Quarter 2022

 

•
Net income was $94 million, unchanged from the year-ago quarter.
•
Net interest income increased $41 million primarily due to a $48 million benefit in the current period related to the decrease in the speed of loan premium amortization in connection with the continued extension of the FFELP loan portfolio. This was partially offset by the paydown of the loan portfolio.
•
Provision for loan losses increased $36 million. The $36 million of provision for loan losses in the current period primarily was a result of the continued extension of the portfolio and the resulting increase in both the expected future defaults and the premium allocated to all expected future defaults.
o
Net charge-offs were $16 million compared to $12 million.
o
Delinquencies greater than 90 days were $2.9 billion compared to $3.8 billion.
o
Forbearances were $6.2 billion compared to $7.4 billion.
•
Other income decreased $13 million primarily due to lower contract-exit transition services and the paydown of the loan portfolio.
•
Expenses were $8 million lower as a result of the paydown of the loan portfolio as well as lower contract-exit transition services discussed above.

 

 

12

 

Key performance metrics are as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Segment net interest margin

 

 

1.52

%

 

 

.94

%

 

 

1.20

%

 

 

1.03

%

FFELP Loans:

 

 

 

 

 

 

 

 

 

 

 

 

      FFELP Loan spread

 

 

1.63

%

 

 

1.05

%

 

 

1.31

%

 

 

1.12

%

      Provision for loan losses

 

$

36

 

 

$

—

 

 

$

51

 

 

$

—

 

      Net charge-offs

 

$

16

 

 

$

12

 

 

$

53

 

 

$

29

 

      Net charge-off rate

 

 

.19

%

 

 

.12

%

 

 

.21

%

 

 

.09

%

      Greater than 30-days delinquency rate

 

 

16.8

%

 

 

18.6

%

 

 

16.8

%

 

 

18.6

%

      Greater than 90-days delinquency rate

 

 

9.2

%

 

 

10.1

%

 

 

9.2

%

 

 

10.1

%

      Forbearance rate

 

 

16.4

%

 

 

16.4

%

 

 

16.4

%

 

 

16.4

%

      Average FFELP Loans

 

$

40,554

 

 

$

48,443

 

 

$

41,886

 

 

$

50,398

 

      Ending FFELP Loans, net

 

$

39,581

 

 

$

46,891

 

 

$

39,581

 

 

$

46,891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in billions)

 

 

 

 

 

 

 

 

 

 

 

 

Total federal loans serviced

 

$

46

 

 

$

54

 

 

$

46

 

 

$

54

 

Net Interest Margin

The following table details the net interest margin.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

FFELP Loan yield

 

 

7.12

%

 

 

4.16

%

 

 

6.55

%

 

 

3.00

%

Floor Income

 

 

.49

 

 

 

.39

 

 

 

.45

 

 

 

.44

 

FFELP Loan net yield

 

 

7.61

 

 

 

4.55

 

 

 

7.00

 

 

 

3.44

 

FFELP Loan cost of funds

 

 

(5.98

)

 

 

(3.50

)

 

 

(5.69

)

 

 

(2.32

)

FFELP Loan spread

 

 

1.63

 

 

 

1.05

 

 

 

1.31

 

 

 

1.12

 

Other interest-earning asset spread impact

 

 

(.11

)

 

 

(.11

)

 

 

(.11

)

 

 

(.09

)

Net interest margin(1)

 

 

1.52

%

 

 

.94

%

 

 

1.20

%

 

 

1.03

%

(1)
The average balances of the interest-earning assets for the respective periods are:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

FFELP Loans

 

$

40,554

 

 

$

48,443

 

 

$

41,886

 

 

$

50,398

 

Other interest-earning assets

 

 

1,504

 

 

 

2,124

 

 

 

1,697

 

 

 

1,991

 

Total FFELP Loan interest-earning assets

 

$

42,058

 

 

$

50,567

 

 

$

43,583

 

 

$

52,389

 

The $48 million benefit in third-quarter 2023 related to the decrease in the speed of loan premium amortization in connection with the continued extension of the FFELP Loan portfolio contributed to 45 basis points and 15 basis points of the increase in net interest margin for the three and nine months ended September 30, 2023 versus the year-ago periods, respectively.

As of September 30, 2023, our FFELP Loan portfolio totaled $39.6 billion, comprised of $14.2 billion of FFELP Stafford Loans and $25.4 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of September 30, 2023 was 7 years and 8 years, respectively, assuming a Constant Prepayment Rate (CPR) of 7% and 5%, respectively.

As of December 31, 2022, our FFELP Loan portfolio totaled $43.5 billion, comprised of $15.7 billion of FFELP Stafford Loans and $27.8 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of December 31, 2022 was 7 years and 8 years, respectively, assuming a CPR of 8% and 5%, respectively.

 

13

 

Floor Income

The following table analyzes on a Core Earnings basis the ability of the FFELP Loans in our portfolio to earn Floor Income after September 30, 2023 and 2022, based on interest rates as of those dates.

 

 

 

 

 

 

 

(Dollars in billions)

 

September 30, 2023

 

 

September 30, 2022

 

Education loans eligible to earn Floor Income

 

$

39.2

 

 

$

46.5

 

Less: post-March 31, 2006 disbursed loans required
   to rebate Floor Income

 

 

(18.6

)

 

 

(21.9

)

Less: economically hedged Floor Income

 

 

(5.4

)

 

 

(12.5

)

Education loans eligible to earn Floor Income after
   rebates and economically hedged

 

$

15.2

 

 

$

12.1

 

Education loans earning Floor Income

 

$

.4

 

 

$

.1

 

The following table presents a projection of the average balance of FFELP Consolidation Loans for which Fixed Rate Floor Income has been economically hedged with derivatives for the period October 1, 2023 to December 31, 2027.

(Dollars in billions)

 

October 1, 2023
to
December 31, 2023

 

 

2024

 

 

2025

 

 

2026

 

 

2027

 

Average balance of FFELP Consolidation Loans
   whose Floor Income is economically hedged

 

$

4.7

 

 

$

2.0

 

 

$

1.0

 

 

$

1.0

 

 

$

.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing Revenue

Servicing revenue decreased $9 million primarily as a result of the paydown of the FFELP Loan portfolio.

Asset Recovery and Business Processing Revenue

Asset recovery and business processing revenue decreased $1 million as a result of exiting the FFELP asset recovery business in the fourth quarter of 2022.

Other Revenue

Other revenue decreased $3 million primarily related to lower contract-exit transition services.

Operating Expenses

Operating expenses for the Federal Education Loans segment primarily include costs incurred to perform servicing on our FFELP Loan portfolio and federal education loans held by other institutions. Expenses were $8 million lower primarily as a result of the paydown of the loan portfolio as well as lower contract-exit transition services discussed above.

 

14

 

Federal Loan Forgiveness

 

On August 24, 2022, the Biden-Harris Administration announced its Student Debt Relief (SDR) Plan. The SDR Plan provided up to $20,000 in one-time debt relief to income-qualified recipients with ED held student loans and a repayment pause on ED held loans. Privately held FFELP Loans, like ours, were not eligible for debt forgiveness under the SDR Plan

Following publication of the SDR Plan, a number of states and private organizations initiated legal challenges to the SDR Plan in various courts throughout the country, which ultimately resulted in the implementation of the SDR Plan being disallowed. The Biden-Harris Administration and ED subsequently appealed both cases to the Supreme Court of the United States. On June 30, 2023, the Supreme Court ruled that ED was prohibited from implementing the SDR Plan, and student loan payments on ED held loans resumed in October 2023. While the current version of the SDR Plan has been invalidated, ED recently announced that it has begun a new rulemaking process to consider other ways to provide debt relief to borrowers, which could include borrowers with privately held FFELP Loans.

Further, on July 10, 2023, ED issued final regulations on income-driven repayment plans for Direct loans, which are student loans held by ED. Eligible FFELP borrowers can access the new changes by consolidating their loans into the Direct Loan Program. The new regulations are effective July 1, 2024; however, ED has elected early implementation for some features starting July 30, 2023. The regulations provide a lower monthly loan payment on a Direct loan by decreasing discretionary income (i.e., taxable income over 225% of the federal poverty guideline), decreasing the percentage of discretionary income that must be paid toward a Direct loan to 5% (for undergraduates), and providing the option for married borrowers to exclude their spouse’s income from being factored by filing a separate tax return. Other changes provide for the elimination of accrued interest that is not covered by the monthly payment amount, provide credit towards loan forgiveness that counts certain periods of deferment and forbearance, a shorter loan forgiveness period (10-years) for borrowers with an original principal balance less than or equal to $12,000, and credit toward loan forgiveness for eligible payments on a Direct or FFELP loan that is repaid by a Direct Consolidation loan. This new income-driven repayment plan may increase consolidation activity in the future as FFELP borrowers consolidate their loans into the Direct Loan Program in order to be eligible for the new income-driven repayment plan. This could have a material impact on the Company’s results in future periods.

 

 

 

15

 

Consumer Lending Segment

The following table presents Core Earnings results for our Consumer Lending segment.

 

 

Three Months Ended September 30,

 

 

% Increase
(Decrease)

 

 

Nine Months Ended September 30,

 

 

% Increase
(Decrease)

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023 vs. 2022

 

 

2023

 

 

2022

 

 

2023 vs. 2022

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private Education Loans

 

$

351

 

 

$

309

 

 

 

14

%

 

$

1,036

 

 

$

862

 

 

 

20

%

Cash and investments

 

 

7

 

 

 

3

 

 

 

133

 

 

 

20

 

 

 

5

 

 

 

300

 

Interest income

 

 

358

 

 

 

312

 

 

 

15

 

 

 

1,056

 

 

 

867

 

 

 

22

 

Interest expense

 

 

208

 

 

 

159

 

 

 

31

 

 

 

610

 

 

 

421

 

 

 

45

 

Net interest income

 

 

150

 

 

 

153

 

 

 

(2

)

 

 

446

 

 

 

446

 

 

 

—

 

Less: provision for loan losses

 

 

36

 

 

 

28

 

 

 

29

 

 

 

17

 

 

 

62

 

 

 

(73

)

Net interest income after provision
   for loan losses

 

 

114

 

 

 

125

 

 

 

(9

)

 

 

429

 

 

 

384

 

 

 

12

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Servicing revenue

 

 

3

 

 

 

3

 

 

 

—

 

 

 

9

 

 

 

9

 

 

 

—

 

   Other revenue

 

 

1

 

 

 

—

 

 

 

100

 

 

 

2

 

 

 

1

 

 

 

100

 

Total other income

 

 

4

 

 

 

3

 

 

 

33

 

 

 

11

 

 

 

10

 

 

 

10

 

Direct operating expenses

 

 

44

 

 

 

43

 

 

 

2

 

 

 

124

 

 

 

113

 

 

 

10

 

Income before income tax
   expense

 

 

74

 

 

 

85

 

 

 

(13

)

 

 

316

 

 

 

281

 

 

 

12

 

Income tax expense

 

 

18

 

 

 

20

 

 

 

(10

)

 

 

75

 

 

 

66

 

 

 

14

 

Net income

 

$

56

 

 

$

65

 

 

 

(14

)%

 

$

241

 

 

$

215

 

 

 

12

%

Comparison of Third-Quarter 2023 Results with Third-Quarter 2022

•
Originated $382 million of Private Education Loans compared to $447 million.
o
Refinance Loan originations were $178 million compared to $231 million. The decrease in originations is primarily the result of borrowers with fixed interest rate loans having less of an incentive to refinance in light of the significant increase in interest rates that occurred in 2022.
o
In-school loan originations were $204 million compared to $216 million.
•
Net income was $56 million compared to $65 million.
•
Net interest income decreased $3 million primarily due to the paydown of the loan portfolio, offset by an increase in the net interest margin primarily due to improved funding spreads.
•
Provision for loan losses increased $8 million. The provision for loan losses of $36 million in the current period included $29 million related to changes in the net charge-off rates on defaulted loans and $12 million in connection with loan originations, which was partially offset by a $5 million reserve release. The provision of $28 million in the year-ago period included $33 million related to changes in the net charge-off rates on defaulted loans and $13 million in connection with loan originations, which was partially offset by an $18 million reserve release.
o
Excluding the $25 million and $30 million, respectively, related to the change in the net charge-off rate on defaulted loans, net charge-offs were $73 million, down $26 million from $99 million.
o
Private Education Loan delinquencies greater than 90 days: $334 million, down $60 million from $394 million.
o
Private Education Loan forbearances: $344 million, down $27 million from $371 million.

 

 

16

 

Key performance metrics are as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Segment net interest margin

 

 

3.17

%

 

 

2.90

%

 

 

3.09

%

 

 

2.78

%

Private Education Loans (including Refinance Loans):

 

 

 

 

 

 

 

 

 

 

 

 

   Private Education Loan spread

 

 

3.29

%

 

 

3.03

%

 

 

3.23

%

 

 

2.93

%

   Provision for loan losses

 

$

36

 

 

$

28

 

 

$

17

 

 

$

62

 

   Net charge-offs(1)

 

$

73

 

 

$

99

 

 

$

209

 

 

$

238

 

   Net charge-off rate(1)

 

 

1.66

%

 

 

2.01

%

 

 

1.56

%

 

 

1.59

%

   Greater than 30-days delinquency rate

 

 

4.7

%

 

 

4.4

%

 

 

4.7

%

 

 

4.4

%

   Greater than 90-days delinquency rate

 

 

1.9

%

 

 

2.0

%

 

 

1.9

%

 

 

2.0

%

   Forbearance rate

 

 

2.0

%

 

 

1.9

%

 

 

2.0

%

 

 

1.9

%

   Average Private Education Loans

 

$

18,165

 

 

$

20,308

 

 

$

18,710

 

 

$

20,771

 

   Ending Private Education Loans, net

 

$

17,333

 

 

$

19,151

 

 

$

17,333

 

 

$

19,151

 

Private Education Refinance Loans:

 

 

 

 

 

 

 

 

 

 

 

 

   Net charge-offs

 

$

8

 

 

$

4

 

 

$

23

 

 

$

14

 

   Greater than 90-day delinquency rate

 

 

.3

%

 

 

.2

%

 

 

.3

%

 

 

.2

%

   Average balance of Private Education Refinance Loans

 

$

9,091

 

 

$

9,966

 

 

$

9,300

 

 

$

10,056

 

   Ending balance of Private Education Refinance Loans

 

$

8,897

 

 

$

9,751

 

 

$

8,897

 

 

$

9,751

 

   Private Education Refinance Loan originations

 

$

178

 

 

$

231

 

 

$

456

 

 

$

1,546

 

 

(1)
Excluding the $25 million and $30 million of charge-offs on the expected future recoveries of previously fully charged-off loans in third-quarters 2023 and 2022, respectively, that occurred as a result of changing the net charge-off rate on defaulted loans from 81.9% to 82.3% in third-quarter 2023 and from 81.7% to 81.9% in third-quarter 2022.

Net Interest Margin

The following table details the net interest margin.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Private Education Loan yield

 

 

7.66

%

 

 

6.04

%

 

 

7.41

%

 

 

5.55

%

Private Education Loan cost of funds

 

 

(4.37

)

 

 

(3.01

)

 

 

(4.18

)

 

 

(2.62

)

Private Education Loan spread

 

 

3.29

 

 

 

3.03

 

 

 

3.23

 

 

 

2.93

 

Other interest-earning asset spread impact

 

 

(.12

)

 

 

(.13

)

 

 

(.14

)

 

 

(.15

)

Net interest margin(1)

 

 

3.17

%

 

 

2.90

%

 

 

3.09

%

 

 

2.78

%

 

 

 

(1)
The average balances of the interest-earning assets for the respective periods are:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Private Education Loans

 

$

18,165

 

 

$

20,308

 

 

$

18,710

 

 

$

20,771

 

Other interest-earning assets

 

 

565

 

 

 

580

 

 

 

603

 

 

 

659

 

Total Private Education Loan interest-earning assets

 

$

18,730

 

 

$

20,888

 

 

$

19,313

 

 

$

21,430

 

The increase in the net interest margin from the prior year is primarily a result of improved funding spreads.

As of September 30, 2023, our Private Education Loan portfolio totaled $17.3 billion, comprised of $8.9 billion of refinance loans and $8.4 billion of non-refinance loans. The weighted-average life of these portfolios as of September 30, 2023 was 4 years and 5 years, respectively, assuming a CPR of 10% and 10%, respectively.

As of December 31, 2022, our Private Education Loan portfolio totaled $18.7 billion, comprised of $9.5 billion of refinance loans and $9.2 billion of non-refinance loans. The weighted-average life of these portfolios as of December 31, 2022 was 4 years and 5 years, respectively, assuming a CPR of 15% and 10%, respectively.

 

17

 

Provision for Loan Losses

The provision for Private Education Loan losses increased $8 million. The provision for loan losses of $36 million in the current period included $29 million related to changes in the net charge-off rates on defaulted loans and $12 million in connection with loan originations, partially offset by a $5 million reserve release. The provision of $28 million in the year-ago quarter included $33 million related to changes in the net charge-off rates on defaulted loans and $13 million in connection with loan originations, partially offset by an $18 million reserve release.

Operating Expenses

Operating expenses for our consumer lending segment include costs to originate, acquire, service and collect on our consumer loan portfolio. Operating expenses increased $1 million primarily as a result of marketing for the peak in-school loan origination season.

 

Business Processing Segment

The following table presents Core Earnings results for our Business Processing segment.

 

 

Three Months Ended September 30,

 

 

% Increase
(Decrease)

 

 

Nine Months Ended September 30,

 

 

% Increase
(Decrease)

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023 vs. 2022

 

 

2023

 

 

2022

 

 

2023 vs. 2022

 

Business processing revenue

 

$

85

 

 

$

79

 

 

 

8

%

 

$

240

 

 

$

260

 

 

 

(8

)%

Direct operating expenses

 

 

73

 

 

 

67

 

 

 

9

 

 

 

215

 

 

 

216

 

 

 

—

 

Income before income tax
   expense

 

 

12

 

 

 

12

 

 

 

—

 

 

 

25

 

 

 

44

 

 

 

(43

)

Income tax expense

 

 

3

 

 

 

3

 

 

 

—

 

 

 

6

 

 

 

11

 

 

 

(45

)

Net income

 

$

9

 

 

$

9

 

 

 

—

%

 

$

19

 

 

$

33

 

 

 

(42

)%

Comparison of Third-Quarter 2023 Results with Third-Quarter 2022

•
Revenue was $85 million, $6 million higher due to a $21 million increase in revenue from services for our traditional Business Processing clients, which was partially offset by the expected $15 million reduction in revenue from the wind-down of pandemic-related contracts.
•
Net income was unchanged at $9 million.
•
EBITDA(1) was unchanged at $13 million.

 

Key performance metrics are as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue from government services

 

$

57

 

 

$

47

 

 

$

149

 

 

$

149

 

Revenue from healthcare services

 

 

28

 

 

 

32

 

 

 

91

 

 

 

111

 

Total fee revenue

 

$

85

 

 

$

79

 

 

$

240

 

 

$

260

 

EBITDA(1)

 

$

13

 

 

$

13

 

 

$

27

 

 

$

46

 

EBITDA margin(1)

 

 

15

%

 

 

16

%

 

 

11

%

 

 

18

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)
Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

 

18

 

Other Segment

The following table presents Core Earnings results for our Other segment.

 

 

Three Months Ended September 30,

 

 

% Increase
(Decrease)

 

 

Nine Months Ended September 30,

 

 

% Increase
(Decrease)

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023 vs. 2022

 

 

2023

 

 

2022

 

 

2023 vs. 2022

 

Net interest loss after provision for
   loan losses

 

$

(31

)

 

$

(26

)

 

 

19

%

 

$

(84

)

 

$

(57

)

 

 

47

%

Other revenue (loss)

 

 

1

 

 

 

—

 

 

 

100

 

 

 

3

 

 

 

(3

)

 

 

200

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated shared services
   operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Unallocated information
      technology costs

 

 

22

 

 

 

21

 

 

 

5

 

 

 

60

 

 

 

64

 

 

 

(6

)

   Unallocated corporate costs

 

 

77

 

 

 

38

 

 

 

103

 

 

 

147

 

 

 

116

 

 

 

27

 

Total unallocated shared services
   operating expenses

 

 

99

 

 

 

59

 

 

 

68

 

 

 

207

 

 

 

180

 

 

 

15

 

Restructuring/other reorganization
   expenses

 

 

4

 

 

 

21

 

 

 

(81

)

 

 

23

 

 

 

25

 

 

 

(8

)

Total expenses

 

 

103

 

 

 

80

 

 

 

29

 

 

 

230

 

 

 

205

 

 

 

12

 

Loss before income tax benefit

 

 

(133

)

 

 

(106

)

 

 

25

 

 

 

(311

)

 

 

(265

)

 

 

17

 

Income tax benefit

 

 

(31

)

 

 

(25

)

 

 

24

 

 

 

(73

)

 

 

(63

)

 

 

16

 

Net income (loss)

 

$

(102

)

 

$

(81

)

 

 

26

%

 

$

(238

)

 

$

(202

)

 

 

18

%

 

Net Interest Loss after Provision for Loan Losses

Net interest loss after provision for loan losses is due to the negative carrying cost of our corporate liquidity portfolio. The amount of the net interest loss is primarily a result of the size of the liquidity portfolio as well as the cost of funds of the debt funding the corporate liquidity portfolio.

Unallocated Shared Services Operating Expenses

Unallocated shared services operating expenses are comprised of costs primarily related to information technology costs related to infrastructure and operations, stock-based compensation expense, accounting, finance, legal, compliance and risk management, regulatory-related expenses, human resources, certain executive management and the board of directors. Regulatory-related expenses include actual settlement amounts as well as third-party professional fees we incur in connection with such regulatory matters and are presented net of any insurance reimbursements for covered costs related to such matters. Expenses increased $40 million from the year-ago quarter primarily as a result of a $44 million increase in regulatory-related expenses. Regulatory-related expenses were $47 million and $3 million, respectively, in the third quarters of 2023 and 2022 with the current quarter including a $45 million contingency loss related to recent developments in connection to CFPB matters.

See “Note 9 – Commitments and Contingencies” for a discussion of legal and regulatory matters where it is reasonably possible that a loss contingency exists. The Company is unable to anticipate the timing of a resolution or the impact that certain matters may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows. As a result, it is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection with certain matters and reserves have not been established. It is possible that an adverse ruling or rulings may have a material adverse impact on the Company.

Restructuring/Other Reorganization Expenses

During the third quarters of 2023 and 2022, the Company incurred $4 million and $21 million, respectively, of restructuring/other reorganization expenses in connection with an effort to reduce costs and improve operating efficiency. The year-ago period included $21 million of restructuring expenses primarily due to costs for severance and facility lease terminations in connection with the Company’s decision to exit the FFELP asset recovery business, consolidate certain business lines, and implement other efficiency initiatives.

 

19

 

Financial Condition

This section provides information regarding the balances, activity and credit performance metrics of our education loan portfolio.

Summary of Our Education Loan Portfolio

Ending Education Loan Balances, net

 

 

September 30, 2023

 

(Dollars in millions)

 

FFELP
Stafford and
Other

 

 

FFELP
Consolidation
Loans

 

 

Total
FFELP
Loans

 

 

Private
Education
Loans

 

 

Total
Portfolio

 

Total education loan portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-school(1)

 

$

13

 

 

$

—

 

 

$

13

 

 

$

66

 

 

$

79

 

Grace, repayment and other(2)

 

 

14,390

 

 

 

25,398

 

 

 

39,788

 

 

 

17,892

 

 

 

57,680

 

Total

 

 

14,403

 

 

 

25,398

 

 

 

39,801

 

 

 

17,958

 

 

 

57,759

 

Allowance for loan losses

 

 

(159

)

 

 

(61

)

 

 

(220

)

 

 

(625

)

 

 

(845

)

Total education loan portfolio

 

$

14,244

 

 

$

25,337

 

 

$

39,581

 

 

$

17,333

 

 

$

56,914

 

% of total FFELP

 

 

36

%

 

 

64

%

 

 

100

%

 

 

 

 

 

 

% of total

 

 

25

%

 

 

45

%

 

 

70

%

 

 

30

%

 

 

100

%

 

 

December 31, 2022

 

(Dollars in millions)

 

FFELP
Stafford and
Other

 

 

FFELP
Consolidation
Loans

 

 

Total
FFELP
Loans

 

 

Private
Education
Loans

 

 

Total
Portfolio

 

Total education loan portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-school(1)

 

$

16

 

 

$

—

 

 

$

16

 

 

$

54

 

 

$

70

 

Grace, repayment and other(2)

 

 

15,834

 

 

 

27,897

 

 

 

43,731

 

 

 

19,471

 

 

 

63,202

 

Total

 

 

15,850

 

 

 

27,897

 

 

 

43,747

 

 

 

19,525

 

 

 

63,272

 

Allowance for loan losses

 

 

(159

)

 

 

(63

)

 

 

(222

)

 

 

(800

)

 

 

(1,022

)

Total education loan portfolio

 

$

15,691

 

 

$

27,834

 

 

$

43,525

 

 

$

18,725

 

 

$

62,250

 

% of total FFELP

 

 

36

%

 

 

64

%

 

 

100

%

 

 

 

 

 

 

% of total

 

 

25

%

 

 

45

%

 

 

70

%

 

 

30

%

 

 

100

%

 

 

 

September 30, 2022

 

(Dollars in millions)

 

FFELP
Stafford and
Other

 

 

FFELP
Consolidation
Loans

 

 

Total
FFELP
Loans

 

 

Private
Education
Loans

 

 

Total
Portfolio

 

Total education loan portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-school(1)

 

$

17

 

 

$

—

 

 

$

17

 

 

$

31

 

 

$

48

 

Grace, repayment and other(2)

 

 

16,851

 

 

 

30,256

 

 

 

47,107

 

 

 

19,972

 

 

 

67,079

 

Total

 

 

16,868

 

 

 

30,256

 

 

 

47,124

 

 

 

20,003

 

 

 

67,127

 

Allowance for loan losses

 

 

(165

)

 

 

(68

)

 

 

(233

)

 

 

(852

)

 

 

(1,085

)

Total education loan portfolio

 

$

16,703

 

 

$

30,188

 

 

$

46,891

 

 

$

19,151

 

 

$

66,042

 

% of total FFELP

 

 

36

%

 

 

64

%

 

 

100

%

 

 

 

 

 

 

% of total

 

 

25

%

 

 

46

%

 

 

71

%

 

 

29

%

 

 

100

%

 

(1)
Loans for customers still attending school and are not yet required to make payments on the loan.
(2)
Includes loans in deferment or forbearance.

 

 

20

 

Education Loan Activity

 

 

 

Three Months Ended September 30, 2023

 

(Dollars in millions)

 

FFELP
Stafford and
Other

 

 

FFELP
Consolidation
Loans

 

 

Total
FFELP
Loans

 

 

Private
Education
Loans

 

 

Total
Portfolio

 

Beginning balance

 

$

14,695

 

 

$

26,156

 

 

$

40,851

 

 

$

17,732

 

 

$

58,583

 

Acquisitions (originations and purchases)(1)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

302

 

 

 

302

 

Capitalized interest and premium/discount
   amortization

 

 

175

 

 

 

153

 

 

 

328

 

 

 

50

 

 

 

378

 

Refinancings and consolidations to third
   parties

 

 

(169

)

 

 

(399

)

 

 

(568

)

 

 

(58

)

 

 

(626

)

Repayments and other

 

 

(457

)

 

 

(573

)

 

 

(1,030

)

 

 

(693

)

 

 

(1,723

)

Ending balance

 

$

14,244

 

 

$

25,337

 

 

$

39,581

 

 

$

17,333

 

 

$

56,914

 

 

 

 

Three Months Ended September 30, 2022

 

(Dollars in millions)

 

FFELP
Stafford and
Other

 

 

FFELP
Consolidation
Loans

 

 

Total
FFELP
Loans

 

 

Private
Education
Loans

 

 

Total
Portfolio

 

Beginning balance

 

$

17,339

 

 

$

31,875

 

 

$

49,214

 

 

$

19,668

 

 

$

68,882

 

Acquisitions (originations and purchases)(1)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

249

 

 

 

249

 

Capitalized interest and premium/discount
   amortization

 

 

166

 

 

 

187

 

 

 

353

 

 

 

55

 

 

 

408

 

Refinancings and consolidations to third
   parties

 

 

(477

)

 

 

(1,251

)

 

 

(1,728

)

 

 

(62

)

 

 

(1,790

)

Repayments and other

 

 

(325

)

 

 

(623

)

 

 

(948

)

 

 

(759

)

 

 

(1,707

)

Ending balance

 

$

16,703

 

 

$

30,188

 

 

$

46,891

 

 

$

19,151

 

 

$

66,042

 

 

 

 

Nine Months Ended September 30, 2023

 

(Dollars in millions)

 

FFELP
Stafford and
Other

 

 

FFELP
Consolidation
Loans

 

 

Total
FFELP
Loans

 

 

Total Private
Education
Loans

 

 

Total
Portfolio

 

Beginning balance

 

$

15,691

 

 

$

27,834

 

 

$

43,525

 

 

$

18,725

 

 

$

62,250

 

Acquisitions (originations and purchases)(1)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

741

 

 

 

741

 

Capitalized interest and premium/discount
   amortization

 

 

440

 

 

 

466

 

 

 

906

 

 

 

139

 

 

 

1,045

 

Refinancings and consolidations to third
   parties

 

 

(585

)

 

 

(1,180

)

 

 

(1,765

)

 

 

(190

)

 

 

(1,955

)

Repayments and other

 

 

(1,302

)

 

 

(1,783

)

 

 

(3,085

)

 

 

(2,082

)

 

 

(5,167

)

Ending balance

 

$

14,244

 

 

$

25,337

 

 

$

39,581

 

 

$

17,333

 

 

$

56,914

 

 

 

 

Nine Months Ended September 30, 2022

 

(Dollars in millions)

 

FFELP
Stafford and
Other

 

 

FFELP
Consolidation
Loans

 

 

Total
FFELP
Loans

 

 

Total Private
Education
Loans

 

 

Total
Portfolio

 

Beginning balance

 

$

18,219

 

 

$

34,422

 

 

$

52,641

 

 

$

20,171

 

 

$

72,812

 

Acquisitions (originations and purchases)(1)

 

 

1

 

 

 

—

 

 

 

1

 

 

 

1,764

 

 

 

1,765

 

Capitalized interest and premium/discount
   amortization

 

 

491

 

 

 

555

 

 

 

1,046

 

 

 

163

 

 

 

1,209

 

Refinancings and consolidations to third
   parties

 

 

(996

)

 

 

(2,698

)

 

 

(3,694

)

 

 

(394

)

 

 

(4,088

)

Repayments and other

 

 

(1,012

)

 

 

(2,091

)

 

 

(3,103

)

 

 

(2,553

)

 

 

(5,656

)

Ending balance

 

$

16,703

 

 

$

30,188

 

 

$

46,891

 

 

$

19,151

 

 

$

66,042

 

 

 

(1)
Includes the origination of $42 million and $57 million of Private Education Refinance Loans in the third quarters of 2023 and 2022, and $144 million and $353 million in the nine months ended September 30, 2023 and 2022, respectively, that refinanced FFELP and Private Education Loans that were on our balance sheet.

 

 

21

 

FFELP Loan Portfolio Performance

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

September 30, 2022

 

(Dollars in millions)

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

Loans in-school/grace/deferment(1)

 

$

1,636

 

 

 

 

 

$

1,772

 

 

 

 

 

$

1,983

 

 

 

 

Loans in forbearance(2)

 

 

6,248

 

 

 

 

 

 

7,603

 

 

 

 

 

 

7,410

 

 

 

 

Loans in repayment and percentage of each status:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans current

 

 

26,566

 

 

 

83.2

%

 

 

29,004

 

 

 

84.4

%

 

 

30,720

 

 

 

81.4

%

Loans delinquent 31-60 days(3)

 

 

1,481

 

 

 

4.6

 

 

 

1,247

 

 

 

3.6

 

 

 

1,917

 

 

 

5.1

 

Loans delinquent 61-90 days(3)

 

 

949

 

 

 

3.0

 

 

 

833

 

 

 

2.4

 

 

 

1,291

 

 

 

3.4

 

Loans delinquent greater than 90 days(3)

 

 

2,921

 

 

 

9.2

 

 

 

3,288

 

 

 

9.6

 

 

 

3,803

 

 

 

10.1

 

Total FFELP Loans in repayment

 

 

31,917

 

 

 

100

%

 

 

34,372

 

 

 

100

%

 

 

37,731

 

 

 

100

%

Total FFELP Loans

 

 

39,801

 

 

 

 

 

 

43,747

 

 

 

 

 

 

47,124

 

 

 

 

FFELP Loan allowance for losses

 

 

(220

)

 

 

 

 

 

(222

)

 

 

 

 

 

(233

)

 

 

 

FFELP Loans, net

 

$

39,581

 

 

 

 

 

$

43,525

 

 

 

 

 

$

46,891

 

 

 

 

Percentage of FFELP Loans in repayment

 

 

 

 

 

80.2

%

 

 

 

 

 

78.6

%

 

 

 

 

 

80.1

%

Delinquencies as a percentage of FFELP Loans in
   repayment

 

 

 

 

 

16.8

%

 

 

 

 

 

15.6

%

 

 

 

 

 

18.6

%

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

 

 

 

 

 

16.4

%

 

 

 

 

 

18.1

%

 

 

 

 

 

16.4

%

(1)
Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships.
(2)
Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making payments due to hardship or other factors such as disaster relief, including COVID-19 relief programs.
(3)
The period of delinquency is based on the number of days scheduled payments are contractually past due.

 

Private Education Loan Portfolio Performance

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

September 30, 2022

 

(Dollars in millions)

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

Loans in-school/grace/deferment(1)

 

$

365

 

 

 

 

 

$

354

 

 

 

 

 

$

348

 

 

 

 

Loans in forbearance(2)

 

 

344

 

 

 

 

 

 

401

 

 

 

 

 

 

371

 

 

 

 

Loans in repayment and percentage of each status:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans current

 

 

16,435

 

 

 

95.3

%

 

 

17,838

 

 

 

95.0

%

 

 

18,426

 

 

 

95.6

%

Loans delinquent 31-60 days(3)

 

 

304

 

 

 

1.8

 

 

 

335

 

 

 

1.8

 

 

 

305

 

 

 

1.6

 

Loans delinquent 61-90 days(3)

 

 

176

 

 

 

1.0

 

 

 

186

 

 

 

1.0

 

 

 

159

 

 

 

.8

 

Loans delinquent greater than 90 days(3)

 

 

334

 

 

 

1.9

 

 

 

411

 

 

 

2.2

 

 

 

394

 

 

 

2.0

 

Total Private Education Loans in repayment

 

 

17,249

 

 

 

100

%

 

 

18,770

 

 

 

100

%

 

 

19,284

 

 

 

100

%

Total Private Education Loans

 

 

17,958

 

 

 

 

 

 

19,525

 

 

 

 

 

 

20,003

 

 

 

 

Private Education Loan allowance for losses

 

 

(625

)

 

 

 

 

 

(800

)

 

 

 

 

 

(852

)

 

 

 

Private Education Loans, net

 

$

17,333

 

 

 

 

 

$

18,725

 

 

 

 

 

$

19,151

 

 

 

 

Percentage of Private Education Loans in
   repayment

 

 

 

 

 

96.1

%

 

 

 

 

 

96.1

%

 

 

 

 

 

96.4

%

Delinquencies as a percentage of Private Education
   Loans in repayment

 

 

 

 

 

4.7

%

 

 

 

 

 

5.0

%

 

 

 

 

 

4.4

%

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

 

 

 

 

 

2.0

%

 

 

 

 

 

2.1

%

 

 

 

 

 

1.9

%

Percentage of Private Education Loans with a
   cosigner(4)

 

 

 

 

 

33

%

 

 

 

 

 

33

%

 

 

 

 

 

33

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 all periods presented.

 

22

 

Allowance for Loan Losses

 

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

(Dollars in millions)

 

FFELP Loans

 

 

Private Education Loans

 

 

Total

 

 

FFELP Loans

 

 

Private Education Loans

 

 

Total

 

Beginning balance

 

$

200

 

 

$

657

 

 

$

857

 

 

$

245

 

 

$

921

 

 

$

1,166

 

Total provision

 

 

36

 

 

 

36

 

 

 

72

 

 

 

—

 

 

 

28

 

 

 

28

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross charge-offs

 

 

(16

)

 

 

(85

)

 

 

(101

)

 

 

(12

)

 

 

(118

)

 

 

(130

)

Expected future recoveries on current period gross
   charge-offs

 

 

—

 

 

 

12

 

 

 

12

 

 

 

—

 

 

 

19

 

 

 

19

 

Total(1)

 

 

(16

)

 

 

(73

)

 

 

(89

)

 

 

(12

)

 

 

(99

)

 

 

(111

)

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

 

 

—

 

 

 

(25

)

 

 

(25

)

 

 

—

 

 

 

(30

)

 

 

(30

)

Net charge-offs

 

 

(16

)

 

 

(98

)

 

 

(114

)

 

 

(12

)

 

 

(129

)

 

 

(141

)

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

 

 

—

 

 

 

30

 

 

 

30

 

 

 

—

 

 

 

32

 

 

 

32

 

Allowance at end of period (GAAP)

 

 

220

 

 

 

625

 

 

 

845

 

 

 

233

 

 

 

852

 

 

 

1,085

 

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

 

 

—

 

 

 

232

 

 

 

232

 

 

 

—

 

 

 

280

 

 

 

280

 

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

 

$

220

 

 

$

857

 

 

$

1,077

 

 

$

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)

 

 

.19

%

 

 

1.66

%

 

 

 

 

 

.12

%

 

 

2.01

%

 

 

 

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

 

 

—

%

 

 

.56

%

 

 

 

 

 

—

%

 

 

.60

%

 

 

 

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

 

 

.19

%

 

 

2.22

%

 

 

 

 

 

.12

%

 

 

2.61

%

 

 

 

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

 

 

3.5

 

 

 

2.2

 

 

 (Non-GAAP)

 

 

 

5.0

 

 

 

2.2

 

 

 (Non-GAAP)

 

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

 

 

.6

%

 

 

4.8

%

 

 (Non-GAAP)

 

 

 

.5

%

 

 

5.7

%

 

 (Non-GAAP)

 

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

 

 

.7

%

 

 

5.0

%

 

 (Non-GAAP)

 

 

 

.6

%

 

 

5.9

%

 

 (Non-GAAP)

 

Ending total loans

 

$

39,801

 

 

$

17,958

 

 

 

 

 

$

47,124

 

 

$

20,003

 

 

 

 

Average loans in repayment

 

$

32,696

 

 

$

17,470

 

 

 

 

 

$

39,573

 

 

$

19,628

 

 

 

 

Ending loans in repayment

 

$

31,917

 

 

$

17,249

 

 

 

 

 

$

37,731

 

 

$

19,284

 

 

 

 

 

(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, the net charge-off rate on defaulted Private Education Loans increased from 81.7% to 81.9% and in third-quarter 2023, it increased from 81.9% to 82.3%. These changes resulted in a $25 million and $30 million reduction to the balance of the expected future recoveries on previously fully charged-off loans in third-quarter 2023 and 2022, respectively.
(3)
At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as "expected future recoveries on previously fully charged-off loans." If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the expected future recoveries on previously fully charged-off loans:

 

 

Three Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

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

 

$

262

 

 

$

312

 

Expected future recoveries of current period defaults

 

 

12

 

 

 

19

 

Recoveries (cash collected)

 

 

(11

)

 

 

(14

)

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

 

 

(31

)

 

 

(37

)

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

 

$

232

 

 

$

280

 

Change in balance during period

 

$

(30

)

 

$

(32

)
(4)
The allowance used for these metrics excludes the expected future recoveries on previously fully charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

 

 

23

 

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

(Dollars in millions)

 

FFELP Loans

 

 

Private Education Loans

 

 

Total

 

 

FFELP Loans

 

 

Private Education Loans

 

 

Total

 

Beginning balance

 

$

222

 

 

$

800

 

 

$

1,022

 

 

$

262

 

 

$

1,009

 

 

$

1,271

 

Total provision

 

 

51

 

 

 

17

 

 

 

68

 

 

 

—

 

 

 

62

 

 

 

62

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross charge-offs

 

 

(53

)

 

 

(245

)

 

 

(298

)

 

 

(29

)

 

 

(281

)

 

 

(310

)

Expected future recoveries on current period
   gross charge-offs

 

 

—

 

 

 

36

 

 

 

36

 

 

 

—

 

 

 

43

 

 

 

43

 

Total(1)

 

 

(53

)

 

 

(209

)

 

 

(262

)

 

 

(29

)

 

 

(238

)

 

 

(267

)

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

 

 

—

 

 

 

(25

)

 

 

(25

)

 

 

—

 

 

 

(30

)

 

 

(30

)

Net charge-offs

 

 

(53

)

 

 

(234

)

 

 

(287

)

 

 

(29

)

 

 

(268

)

 

 

(297

)

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

 

 

—

 

 

 

42

 

 

 

42

 

 

 

—

 

 

 

49

 

 

 

49

 

Allowance at end of period (GAAP)

 

 

220

 

 

 

625

 

 

 

845

 

 

 

233

 

 

 

852

 

 

 

1,085

 

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

 

 

—

 

 

 

232

 

 

 

232

 

 

 

—

 

 

 

280

 

 

 

280

 

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

 

$

220

 

 

$

857

 

 

$

1,077

 

 

$

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)

 

 

.21

%

 

 

1.56

%

 

 

 

 

 

.09

%

 

 

1.59

%

 

 

 

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

 

 

—

%

 

 

.18

%

 

 

 

 

 

—

%

 

 

.20

%

 

 

 

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

 

 

.21

%

 

 

1.74

%

 

 

 

 

 

.09

%

 

 

1.79

%

 

 

 

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

 

 

3.1

 

 

 

2.7

 

 

 (Non-GAAP)

 

 

 

6.1

 

 

 

3.2

 

 

 (Non-GAAP)

 

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

 

 

.6

%

 

 

4.8

%

 

 (Non-GAAP)

 

 

 

.5

%

 

 

5.7

%

 

 (Non-GAAP)

 

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

 

 

.7

%

 

 

5.0

%

 

 (Non-GAAP)

 

 

 

.6

%

 

 

5.9

%

 

 (Non-GAAP)

 

Ending total loans

 

$

39,801

 

 

$

17,958

 

 

 

 

 

$

47,124

 

 

$

20,003

 

 

 

 

Average loans in repayment

 

$

33,591

 

 

$

18,000

 

 

 

 

 

$

41,793

 

 

$

20,056

 

 

 

 

Ending loans in repayment

 

$

31,917

 

 

$

17,249

 

 

 

 

 

$

37,731

 

 

$

19,284

 

 

 

 

 

(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, the net charge-off rate on defaulted Private Education Loans increased from 81.7% to 81.9% and in third-quarter 2023, it increased from 81.9% to 82.3%. These changes resulted in a $25 million and $30 million reduction to the balance of the expected future recoveries on previously fully charged-off loans in third-quarter 2023 and 2022, respectively.
(3)
At the end of each month, for Private Education Loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance by charging off the entire loan balance and estimating recoveries on a pool basis. These estimated recoveries are referred to as "expected future recoveries on previously fully charged-off loans." If actual periodic recoveries are less than expected, the difference is immediately reflected as a reduction to expected future recoveries on previously fully charged-off loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The following table summarizes the activity in the expected future recoveries on previously fully charged-off loans:

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

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

 

$

274

 

 

$

329

 

Expected future recoveries of current period defaults

 

 

36

 

 

 

43

 

Recoveries (cash collected)

 

 

(35

)

 

 

(43

)

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

 

 

(43

)

 

 

(49

)

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

 

$

232

 

 

$

280

 

Change in balance during period

 

$

(42

)

 

$

(49

)

 

(4)
The allowance used for these metrics excludes the expected future recoveries on previously fully charged-off loans to better reflect the current expected credit losses remaining in the portfolio.

 

 

24

 

Liquidity and Capital Resources

Funding and Liquidity Risk Management

The following “Liquidity and Capital Resources” discussion concentrates primarily on our Federal Education Loans and Consumer Lending segments. Our Business Processing and Other segments require minimal liquidity and funding.

We define liquidity as cash and high-quality liquid assets that we can use to meet our cash requirements. Our two primary liquidity needs are: (1) servicing our debt and (2) our ongoing ability to meet our cash needs for running the operations of our businesses (including derivative collateral requirements) throughout market cycles, including during periods of financial stress. Secondary liquidity needs, which can be adjusted as needed, include the origination of Private Education Loans, acquisitions of Private Education Loan and FFELP Loan portfolios, acquisitions of companies, the payment of common stock dividends and the repurchase of our common stock. To achieve these objectives, we analyze and monitor our liquidity needs and maintain excess liquidity and access to diverse funding sources including the issuance of unsecured debt and the issuance of secured debt primarily through asset-backed securitizations and/or other financing facilities.

We define our liquidity risk as the potential inability to meet our obligations when they become due without incurring unacceptable losses or to invest in future asset growth and business operations at reasonable market rates. Our primary liquidity risk relates to our ability to service our debt, meet our other business obligations and to continue to grow our business. The ability to access the capital markets is impacted by general market and economic conditions, our credit ratings, as well as the overall availability of funding sources in the marketplace. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter derivatives.

Credit ratings and outlooks are opinions subject to ongoing review by the rating agencies and may change, from time to time, based on our financial performance, industry and market dynamics and other factors. Other factors that influence our credit ratings include the rating agencies’ assessment of the general operating environment, our relative positions in the markets in which we compete, reputation, liquidity position, the level and volatility of earnings, corporate governance and risk management policies, capital position and capital management practices. A negative change in our credit rating could have a negative effect on our liquidity because it might raise the cost and availability of funding and potentially require additional cash collateral or restrict cash currently held as collateral on existing borrowings or derivative collateral arrangements. It is our objective to improve our credit ratings so that we can continue to efficiently access the capital markets even in difficult economic and market conditions. We have unsecured debt totaling $6.2 billion at September 30, 2023. Three credit rating agencies currently rate our long-term unsecured debt at below investment grade.

We expect to fund our ongoing liquidity needs, including the repayment of $0.9 billion of senior unsecured notes that mature in the short term (i.e., over the next 12 months) and the remaining $5.3 billion of senior unsecured notes that mature in the long term (from 2024 to 2043 with 70% 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 is 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 purchased 4.2 million shares of common stock for $75 million in the third quarter of 2023 and have $360 million of unused share repurchase authority as of September 30, 2023.

 

 

25

 

Sources of Primary Liquidity

 

 

 

 

 

 

 

 

 

 

(Dollars in millions)

 

September 30, 2023

 

 

December 31, 2022

 

 

September 30, 2022

 

Ending Balances:

 

 

 

 

 

 

 

 

 

Total unrestricted cash and liquid investments

 

$

977

 

 

$

1,535

 

 

$

1,364

 

Unencumbered FFELP Loans

 

 

88

 

 

 

68

 

 

 

151

 

Unencumbered Private Education Refinance
   Loans

 

 

49

 

 

 

55

 

 

 

270

 

Total

 

$

1,114

 

 

$

1,658

 

 

$

1,785

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(Dollars in millions)

 

September 30, 2023

 

 

December 31, 2022

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Average Balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total unrestricted cash and
  liquid investments

 

$

1,141

 

 

$

1,517

 

 

$

1,363

 

 

$

977

 

 

$

1,037

 

Unencumbered FFELP Loans

 

 

85

 

 

 

153

 

 

 

123

 

 

 

88

 

 

 

172

 

Unencumbered Private
   Education Refinance Loans

 

 

118

 

 

 

300

 

 

 

165

 

 

 

95

 

 

 

213

 

Total

 

$

1,344

 

 

$

1,970

 

 

$

1,651

 

 

$

1,160

 

 

$

1,422

 

Sources of Additional Liquidity

Liquidity may also be available under our secured credit facilities. Maximum borrowing capacity under the FFELP Loan and Private Education Loan asset-backed commercial paper (ABCP) facilities will vary and be subject to each agreement’s borrowing conditions, including, among others, facility size, current usage and availability of qualifying collateral from unencumbered loans. The following tables detail the additional borrowing capacity of these facilities with maturity dates ranging from October 2023 to June 2025.

 

(Dollars in millions)

 

September 30, 2023

 

 

December 31, 2022

 

 

September 30, 2022

 

Ending Balances:

 

 

 

 

 

 

 

 

 

FFELP Loan ABCP facilities

 

$

28

 

 

$

101

 

 

$

200

 

Private Education Loan ABCP facilities

 

 

1,697

 

 

 

1,248

 

 

 

2,203

 

Total

 

$

1,725

 

 

$

1,349

 

 

$

2,403

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(Dollars in millions)

 

September 30, 2023

 

 

December 31, 2022

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Average Balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loan ABCP facilities

 

$

35

 

 

$

193

 

 

$

190

 

 

$

70

 

 

$

404

 

Private Education Loan ABCP
   facilities

 

 

1,966

 

 

 

1,556

 

 

 

2,186

 

 

 

1,777

 

 

 

2,147

 

Total

 

$

2,001

 

 

$

1,749

 

 

$

2,376

 

 

$

1,847

 

 

$

2,551

 

At September 30, 2023, we had a total of $3.1 billion of unencumbered tangible assets inclusive of those listed in the table above as sources of primary liquidity. Total unencumbered education loans comprised $1.2 billion principal of our unencumbered tangible assets of which $1.1 billion and $88 million related to Private Education Loans and FFELP Loans, respectively. In addition, as of September 30, 2023, we had $5.5 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 $0.5 billion outstanding as of September 30, 2023. 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.

 

26

 

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

(Dollars in billions)

 

September 30, 2023

 

 

December 31, 2022

 

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

 

$

3.5

 

 

 

3.7

 

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

 

 

2.0

 

 

 

1.5

 

Tangible unencumbered assets(1)

 

 

3.1

 

 

 

4.1

 

Senior unsecured debt

 

 

(6.2

)

 

 

(7.0

)

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

 

 

.3

 

 

 

.3

 

Other liabilities, net

 

 

(.5

)

 

 

(.3

)

Total Tangible Equity (3)

 

$

2.2

 

 

$

2.3

 

(1)
Excludes goodwill and acquired intangible assets.
(2)
At September 30, 2023 and December 31, 2022, there were $(351) million and $(285) million, respectively, of net gains (losses) on derivatives hedging this debt in unencumbered assets, which partially offset these gains (losses).
(3)
Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

 

Borrowings

Ending Balances

 

 

September 30, 2023

 

 

December 31, 2022

 

(Dollars in millions)

 

Short
Term

 

 

Long
Term

 

 

Total

 

 

Short
Term

 

 

Long
Term

 

 

Total

 

Unsecured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Senior unsecured debt

 

$

856

 

 

$

5,355

 

 

$

6,211

 

 

$

1,301

 

 

$

5,711

 

 

$

7,012

 

Total unsecured borrowings

 

 

856

 

 

 

5,355

 

 

 

6,211

 

 

 

1,301

 

 

 

5,711

 

 

 

7,012

 

Secured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   FFELP Loan securitizations

 

 

62

 

 

 

36,961

 

 

 

37,023

 

 

 

76

 

 

 

42,675

 

 

 

42,751

 

   Private Education Loan securitizations

 

 

498

 

 

 

11,766

 

 

 

12,264

 

 

 

725

 

 

 

12,744

 

 

 

13,469

 

   FFELP Loan ABCP facilities

 

 

1,510

 

 

 

456

 

 

 

1,966

 

 

 

923

 

 

 

386

 

 

 

1,309

 

   Private Education Loan ABCP facilities

 

 

1,702

 

 

 

859

 

 

 

2,561

 

 

 

2,734

 

 

 

—

 

 

 

2,734

 

   Other

 

 

44

 

 

 

40

 

 

 

84

 

 

 

121

 

 

 

—

 

 

 

121

 

Total secured borrowings

 

 

3,816

 

 

 

50,082

 

 

 

53,898

 

 

 

4,579

 

 

 

55,805

 

 

 

60,384

 

Core Earnings basis borrowings(1)

 

 

4,672

 

 

 

55,437

 

 

 

60,109

 

 

 

5,880

 

 

 

61,516

 

 

 

67,396

 

Adjustment for GAAP accounting treatment

 

 

(10

)

 

 

(530

)

 

 

(540

)

 

 

(10

)

 

 

(490

)

 

 

(500

)

GAAP basis borrowings

 

$

4,662

 

 

$

54,907

 

 

$

59,569

 

 

$

5,870

 

 

$

61,026

 

 

$

66,896

 

Average Balances

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

(Dollars in millions)

 

Average
Balance

 

 

Average
Rate

 

 

Average
Balance

 

 

Average
Rate

 

 

Average
Balance

 

 

Average
Rate

 

 

Average
Balance

 

 

Average
Rate

 

Unsecured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured debt

 

$

6,490

 

 

 

9.02

%

 

$

7,007

 

 

 

6.08

%

 

$

6,367

 

 

 

8.62

%

 

$

7,010

 

 

 

5.07

%

Total unsecured borrowings

 

 

6,490

 

 

 

9.02

 

 

 

7,007

 

 

 

6.08

 

 

 

6,367

 

 

 

8.62

 

 

 

7,010

 

 

 

5.07

 

Secured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loan securitizations

 

 

37,728

 

 

 

5.85

 

 

 

46,615

 

 

 

3.37

 

 

 

39,399

 

 

 

5.56

 

 

 

48,623

 

 

 

2.16

 

Private Education Loan
   securitizations

 

 

12,601

 

 

 

3.50

 

 

 

14,298

 

 

 

2.70

 

 

 

12,934

 

 

 

3.40

 

 

 

14,401

 

 

 

2.47

 

FFELP Loan ABCP facilities

 

 

1,983

 

 

 

6.56

 

 

 

1,222

 

 

 

3.43

 

 

 

1,707

 

 

 

6.27

 

 

 

899

 

 

 

2.58

 

Private Education Loan
   ABCP facilities

 

 

2,318

 

 

 

7.27

 

 

 

2,460

 

 

 

3.90

 

 

 

2,526

 

 

 

6.74

 

 

 

2,543

 

 

 

2.73

 

Other

 

 

113

 

 

 

(.37

)

 

 

142

 

 

 

2.68

 

 

 

109

 

 

 

3.32

 

 

 

189

 

 

 

1.29

 

Total secured borrowings

 

 

54,743

 

 

 

5.39

 

 

 

64,737

 

 

 

3.24

 

 

 

56,675

 

 

 

5.14

 

 

 

66,655

 

 

 

2.26

 

Core Earnings basis
   borrowings(1)

 

 

61,233

 

 

 

5.77

 

 

 

71,744

 

 

 

3.52

 

 

 

63,042

 

 

 

5.49

 

 

 

73,665

 

 

 

2.52

 

Adjustment for GAAP
   accounting treatment

 

 

—

 

 

 

(.07

)

 

 

—

 

 

 

.02

 

 

 

—

 

 

 

.10

 

 

 

—

 

 

 

(.16

)

GAAP basis borrowings

 

$

61,233

 

 

 

5.70

%

 

$

71,744

 

 

 

3.54

%

 

$

63,042

 

 

 

5.59

%

 

$

73,665

 

 

 

2.36

%

 

(1)
Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.” The differences in derivative accounting give rise to the difference above.

 

 

 

27

 

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). A discussion of our critical accounting policies, which includes the allowance for loan losses, goodwill impairment assessment, premium and discount amortization, and the impact of the SDR Plan on our accounting policies and estimates, can be found in our 2022 Form 10-K. See "Federal Education Loans Segment – Federal Loan Forgiveness" for an update on the SDR Plan.

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, (2) Tangible Equity (as well as the 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. Definitions for the non-GAAP financial measures and reconciliations are provided below, except that reconciliations of forward-looking non-GAAP financial measures are not provided because the company is unable to provide such reconciliations without unreasonable effort due to the uncertainty and inherent difficulty of predicting the occurrence and financial impact of certain items, including, but not limited to, the impact of any mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks.

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.

 

28

 

The following tables show our consolidated GAAP results, Core Earnings results (including for each reportable segment) along with the adjustments made to the income/expense items to reconcile the consolidated GAAP results to the Core Earnings results as required by GAAP and reported in “Note 11 — Segment Reporting.”

 

 

 

Three Months Ended September 30, 2023

 

 

 

 

 

 

Adjustments

 

 

 

 

 

Reportable Segments

 

(Dollars in millions)

 

Total
GAAP

 

 

Reclassi-
fications

 

 

Additions/
(Subtractions)

 

 

Total
Adjustments (1)

 

 

Total
Core
Earnings

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

1,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

778

 

 

$

351

 

 

$

—

 

 

$

—

 

Cash and investments

 

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

7

 

 

 

—

 

 

 

15

 

Total interest income

 

 

1,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

797

 

 

 

358

 

 

 

—

 

 

 

15

 

Total interest expense

 

 

879

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

636

 

 

 

208

 

 

 

—

 

 

 

46

 

Net interest income
   (loss)

 

 

291

 

 

$

7

 

 

$

(18

)

 

$

(11

)

 

$

280

 

 

 

161

 

 

 

150

 

 

 

—

 

 

 

(31

)

Less: provisions for loan
   losses

 

 

72

 

 

 

 

 

 

 

 

 

 

 

 

72

 

 

 

36

 

 

 

36

 

 

 

—

 

 

 

—

 

Net interest income
   (loss) after provisions
   for loan losses

 

 

219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

125

 

 

 

114

 

 

 

—

 

 

 

(31

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

3

 

 

 

—

 

 

 

—

 

Asset recovery and
   business processing
   revenue

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

85

 

 

 

—

 

Other revenue

 

 

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

1

 

 

 

—

 

 

 

1

 

Total other income
   (loss)

 

 

131

 

 

 

(7

)

 

 

(19

)

 

 

(26

)

 

 

105

 

 

 

15

 

 

 

4

 

 

 

85

 

 

 

1

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating
   expenses

 

 

134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

44

 

 

 

73

 

 

 

—

 

Unallocated shared
   services expenses

 

 

99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

99

 

Operating expenses

 

 

233

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

233

 

 

 

17

 

 

 

44

 

 

 

73

 

 

 

99

 

Goodwill and acquired
   intangible asset
   impairment and
   amortization

 

 

3

 

 

 

—

 

 

 

(3

)

 

 

(3

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Restructuring/other
   reorganization
   expenses

 

 

4

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4

 

Total expenses

 

 

240

 

 

 

—

 

 

 

(3

)

 

 

(3

)

 

 

237

 

 

 

17

 

 

 

44

 

 

 

73

 

 

 

103

 

Income (loss) before
   income tax expense
   (benefit)

 

 

110

 

 

 

—

 

 

 

(34

)

 

 

(34

)

 

 

76

 

 

 

123

 

 

 

74

 

 

 

12

 

 

 

(133

)

Income tax expense
   (benefit)(2)

 

 

31

 

 

 

—

 

 

 

(12

)

 

 

(12

)

 

 

19

 

 

 

29

 

 

 

18

 

 

 

3

 

 

 

(31

)

Net income (loss)

 

$

79

 

 

$

—

 

 

$

(22

)

 

$

(22

)

 

$

57

 

 

$

94

 

 

$

56

 

 

$

9

 

 

$

(102

)

 

(1)
Core Earnings adjustments to GAAP:

 

 

Three Months Ended September 30, 2023

 

(Dollars in millions)

 

Net Impact of
Derivative
Accounting

 

 

Net Impact of
Goodwill and
Acquired
Intangibles

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

(11

)

 

$

—

 

 

$

(11

)

Total other income (loss)

 

 

(26

)

 

 

—

 

 

 

(26

)

Goodwill and acquired intangible asset impairment and amortization

 

 

—

 

 

 

(3

)

 

 

(3

)

Total Core Earnings adjustments to GAAP

 

$

(37

)

 

$

3

 

 

 

(34

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

(12

)

Net income (loss)

 

 

 

 

 

 

 

$

(22

)

 

(2)
Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 

29

 

 

 

Three Months Ended September 30, 2022

 

 

 

 

 

 

Adjustments

 

 

 

 

 

Reportable Segments

 

(Dollars in millions)

 

Total
GAAP

 

 

Reclassi-
fications

 

 

Additions/
(Subtractions)

 

 

Total
Adjustments (1)

 

 

Total
Core
Earnings

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

555

 

 

$

309

 

 

$

—

 

 

$

—

 

Cash and investments

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

3

 

 

 

—

 

 

 

7

 

Total interest income

 

 

881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

564

 

 

 

312

 

 

 

—

 

 

 

7

 

Total interest expense

 

 

641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

444

 

 

 

159

 

 

 

—

 

 

 

33

 

Net interest income (loss)

 

 

240

 

 

$

(1

)

 

$

8

 

 

$

7

 

 

$

247

 

 

 

120

 

 

 

153

 

 

 

—

 

 

 

(26

)

Less: provisions for loan
   losses

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

—

 

 

 

28

 

 

 

—

 

 

 

—

 

Net interest income (loss)
   after provisions for loan
   losses

 

 

212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

120

 

 

 

125

 

 

 

—

 

 

 

(26

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

3

 

 

 

—

 

 

 

—

 

Asset recovery and
   business processing
   revenue

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

—

 

 

 

79

 

 

 

—

 

Other revenue

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

—

 

 

 

—

 

 

 

—

 

Total other income (loss)

 

 

150

 

 

 

1

 

 

 

(41

)

 

 

(40

)

 

 

110

 

 

 

28

 

 

 

3

 

 

 

79

 

 

 

—

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating
   expenses

 

 

135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

43

 

 

 

67

 

 

 

—

 

Unallocated shared
   services expenses

 

 

59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

59

 

Operating expenses

 

 

194

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

194

 

 

 

25

 

 

 

43

 

 

 

67

 

 

 

59

 

Goodwill and acquired
   intangible asset
   impairment and
   amortization

 

 

10

 

 

 

—

 

 

 

(10

)

 

 

(10

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Restructuring/other
   reorganization
   expenses

 

 

21

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

21

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

21

 

Total expenses

 

 

225

 

 

 

—

 

 

 

(10

)

 

 

(10

)

 

 

215

 

 

 

25

 

 

 

43

 

 

 

67

 

 

 

80

 

Income (loss) before
   income tax expense
   (benefit)

 

 

137

 

 

 

—

 

 

 

(23

)

 

 

(23

)

 

 

114

 

 

 

123

 

 

 

85

 

 

 

12

 

 

 

(106

)

Income tax expense
   (benefit)(2)

 

 

32

 

 

 

—

 

 

 

(5

)

 

 

(5

)

 

 

27

 

 

 

29

 

 

 

20

 

 

 

3

 

 

 

(25

)

Net income (loss)

 

$

105

 

 

$

—

 

 

$

(18

)

 

$

(18

)

 

$

87

 

 

$

94

 

 

$

65

 

 

$

9

 

 

$

(81

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)
Core Earnings adjustments to GAAP:

 

 

Three Months Ended September 30, 2022

 

(Dollars in millions)

 

Net Impact of
Derivative
Accounting

 

 

Net Impact of
Goodwill and
Acquired
Intangibles

 

 

Total

 

Net interest income (loss) 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.

 

 

30

 

 

 

 

Nine Months Ended September 30, 2023

 

 

 

 

 

 

Adjustments

 

 

 

 

 

Reportable Segments

 

(Dollars in millions)

 

Total
GAAP

 

 

Reclassi-
fications

 

 

Additions/
(Subtractions)

 

 

Total
Adjustments (1)

 

 

Total
Core
Earnings

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

3,227

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,194

 

 

$

1,036

 

 

$

—

 

 

$

—

 

Cash and investments

 

 

111

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56

 

 

 

20

 

 

 

—

 

 

 

35

 

Total interest income

 

 

3,338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,250

 

 

 

1,056

 

 

 

—

 

 

 

35

 

Total interest expense

 

 

2,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,859

 

 

 

610

 

 

 

—

 

 

 

119

 

Net interest income
   (loss)

 

 

702

 

 

$

24

 

 

$

27

 

 

$

51

 

 

$

753

 

 

 

391

 

 

 

446

 

 

 

—

 

 

 

(84

)

Less: provisions for loan
   losses

 

 

68

 

 

 

 

 

 

 

 

 

 

 

 

68

 

 

 

51

 

 

 

17

 

 

 

—

 

 

 

—

 

Net interest income
   (loss) after provisions
   for loan losses

 

 

634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

340

 

 

 

429

 

 

 

—

 

 

 

(84

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

9

 

 

 

—

 

 

 

—

 

Asset recovery and
   business processing
   revenue

 

 

240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

240

 

 

 

—

 

Other revenue

 

 

59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

2

 

 

 

—

 

 

 

3

 

Total other income
   (loss)

 

 

347

 

 

 

(24

)

 

 

(20

)

 

 

(44

)

 

 

303

 

 

 

49

 

 

 

11

 

 

 

240

 

 

 

3

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating
   expenses

 

 

394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55

 

 

 

124

 

 

 

215

 

 

 

—

 

Unallocated shared
   services expenses

 

 

207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

207

 

Operating expenses

 

 

601

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

601

 

 

 

55

 

 

 

124

 

 

 

215

 

 

 

207

 

Goodwill and acquired
   intangible asset
   impairment and
   amortization

 

 

8

 

 

 

—

 

 

 

(8

)

 

 

(8

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Restructuring/other
   reorganization
   expenses

 

 

23

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

23

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

23

 

Total expenses

 

 

632

 

 

 

—

 

 

 

(8

)

 

 

(8

)

 

 

624

 

 

 

55

 

 

 

124

 

 

 

215

 

 

 

230

 

Income (loss) before
   income tax expense
   (benefit)

 

 

349

 

 

 

—

 

 

 

15

 

 

 

15

 

 

 

364

 

 

 

334

 

 

 

316

 

 

 

25

 

 

 

(311

)

Income tax expense
   (benefit)(2)

 

 

93

 

 

 

—

 

 

 

(7

)

 

 

(7

)

 

 

86

 

 

 

78

 

 

 

75

 

 

 

6

 

 

 

(73

)

Net income (loss)

 

$

256

 

 

$

—

 

 

$

22

 

 

$

22

 

 

$

278

 

 

$

256

 

 

$

241

 

 

$

19

 

 

$

(238

)

 

(1)
Core Earnings adjustments to GAAP:

 

 

Nine Months Ended September 30, 2023

 

(Dollars in millions)

 

Net Impact of
Derivative
Accounting

 

 

Net Impact of
Goodwill and
Acquired
Intangibles

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

51

 

 

$

—

 

 

$

51

 

Total other income (loss)

 

 

(44

)

 

 

—

 

 

 

(44

)

Goodwill and acquired intangible asset impairment and amortization

 

 

—

 

 

 

(8

)

 

 

(8

)

Total Core Earnings adjustments to GAAP

 

$

7

 

 

$

8

 

 

 

15

 

Income tax expense (benefit)

 

 

 

 

 

 

 

 

(7

)

Net income (loss)

 

 

 

 

 

 

 

$

22

 

 

(2)
Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 

 

 

31

 

 

 

 

Nine Months Ended September 30, 2022

 

 

 

 

 

 

Adjustments

 

 

 

 

 

Reportable Segments

 

(Dollars in millions)

 

Total
GAAP

 

 

Reclassi-
fications

 

 

Additions/
(Subtractions)

 

 

Total
Adjustments (1)

 

 

Total
Core
Earnings

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

2,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,298

 

 

$

862

 

 

$

—

 

 

$

—

 

Cash and investments

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

5

 

 

 

—

 

 

 

8

 

Total interest income

 

 

2,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,310

 

 

 

867

 

 

 

—

 

 

 

8

 

Total interest expense

 

 

1,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

905

 

 

 

421

 

 

 

—

 

 

 

65

 

Net interest income
   (loss)

 

 

898

 

 

$

(20

)

 

$

(84

)

 

$

(104

)

 

$

794

 

 

 

405

 

 

 

446

 

 

 

—

 

 

 

(57

)

Less: provisions for loan
   losses

 

 

62

 

 

 

 

 

 

 

 

 

 

 

 

62

 

 

 

—

 

 

 

62

 

 

 

—

 

 

 

—

 

Net interest income
   (loss) after provisions
   for loan losses

 

 

836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

405

 

 

 

384

 

 

 

—

 

 

 

(57

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51

 

 

 

9

 

 

 

—

 

 

 

—

 

Asset recovery and
   business processing
   revenue

 

 

264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

—

 

 

 

260

 

 

 

—

 

Other revenue

 

 

183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

1

 

 

 

—

 

 

 

(3

)

Total other income
   (loss)

 

 

507

 

 

 

20

 

 

 

(181

)

 

 

(161

)

 

 

346

 

 

 

79

 

 

 

10

 

 

 

260

 

 

 

(3

)

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating
   expenses

 

 

408

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

79

 

 

 

113

 

 

 

216

 

 

 

—

 

Unallocated shared
   services expenses

 

 

180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

180

 

Operating expenses

 

 

588

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

588

 

 

 

79

 

 

 

113

 

 

 

216

 

 

 

180

 

Goodwill and acquired
   intangible asset
   impairment and
   amortization

 

 

17

 

 

 

—

 

 

 

(17

)

 

 

(17

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Restructuring/other
   reorganization
   expenses

 

 

25

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

25

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

25

 

Total expenses

 

 

630

 

 

 

—

 

 

 

(17

)

 

 

(17

)

 

 

613

 

 

 

79

 

 

 

113

 

 

 

216

 

 

 

205

 

Income (loss) before
   income tax expense
   (benefit)

 

 

713

 

 

 

—

 

 

 

(248

)

 

 

(248

)

 

 

465

 

 

 

405

 

 

 

281

 

 

 

44

 

 

 

(265

)

Income tax expense
   (benefit)(2)

 

 

173

 

 

 

—

 

 

 

(64

)

 

 

(64

)

 

 

109

 

 

 

95

 

 

 

66

 

 

 

11

 

 

 

(63

)

Net income (loss)

 

$

540

 

 

$

—

 

 

$

(184

)

 

$

(184

)

 

$

356

 

 

$

310

 

 

$

215

 

 

$

33

 

 

$

(202

)

 

(1)
Core Earnings adjustments to GAAP:

 

 

Nine Months Ended September 30, 2022

 

(Dollars in millions)

 

Net Impact of
Derivative
Accounting

 

 

Net Impact of
Goodwill and
Acquired
Intangibles

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

(104

)

 

$

—

 

 

$

(104

)

Total other income (loss)

 

 

(161

)

 

 

—

 

 

 

(161

)

Goodwill and acquired intangible asset impairment and amortization

 

 

—

 

 

 

(17

)

 

 

(17

)

Total Core Earnings adjustments to GAAP

 

$

(265

)

 

$

17

 

 

 

(248

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

(64

)

Net income (loss)

 

 

 

 

 

 

 

$

(184

)
(2)
Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 

 

 

32

 

 

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

GAAP net income

 

$

79

 

 

$

105

 

 

$

256

 

 

$

540

 

Core Earnings adjustments to GAAP:

 

 

 

 

 

 

 

 

 

 

 

 

Net impact of derivative accounting

 

 

(37

)

 

 

(33

)

 

 

7

 

 

 

(265

)

Net impact of goodwill and acquired intangible assets

 

 

3

 

 

 

10

 

 

 

8

 

 

 

17

 

Net income tax effect

 

 

12

 

 

 

5

 

 

 

7

 

 

 

64

 

Total Core Earnings adjustments to GAAP

 

 

(22

)

 

 

(18

)

 

 

22

 

 

 

(184

)

Core Earnings net income

 

$

57

 

 

$

87

 

 

$

278

 

 

$

356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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.

The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria are met. The gains and losses recorded in “Gains (losses) on derivative and hedging activities, net” and interest expense (for qualifying fair value hedges) are primarily caused by interest rate and foreign currency exchange rate volatility and changing credit spreads during the period as well as the volume and term of derivatives not receiving hedge accounting treatment. We believe that our derivatives are effective economic hedges, and as such, are a critical element of our interest rate and foreign currency risk management strategy. However, some of our derivatives, primarily Floor Income Contracts, basis swaps and at times, certain other LIBOR swaps do not qualify for hedge accounting treatment and the stand-alone derivative is adjusted to fair value in the income statement with no consideration for the corresponding change in fair value of the hedged item. See our 2022 10-K for further discussion.

 

 

33

 

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended
September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Core Earnings derivative adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(26

)

 

$

(40

)

 

$

(44

)

 

$

(161

)

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

 

 

(19

)

 

 

6

 

 

 

23

 

 

 

(85

)

Total (gains) losses in GAAP net income

 

 

(45

)

 

 

(34

)

 

 

(21

)

 

 

(246

)

Plus: Reclassification of settlement income (expense) on
   derivative and hedging activities, net(1)

 

 

7

 

 

 

(1

)

 

 

24

 

 

 

(20

)

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

 

 

(38

)

 

 

(35

)

 

 

3

 

 

 

(266

)

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

 

 

—

 

 

 

2

 

 

 

3

 

 

 

9

 

Other derivative accounting adjustments(3)

 

 

1

 

 

 

—

 

 

 

1

 

 

 

(8

)

Total net impact of derivative accounting

 

$

(37

)

 

$

(33

)

 

$

7

 

 

$

(265

)

 

(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.

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Reclassification of settlements on derivative and
   hedging activities:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(23

)

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

 

 

7

 

 

 

(1

)

 

 

24

 

 

 

3

 

Total reclassifications of settlement income
   (expense) on derivative and hedging activities

 

$

7

 

 

$

(1

)

 

$

24

 

 

$

(20

)

 

 

 

 

 

 

 

 

 

 

 

 

 
(2)
“Mark-to-market (gains) losses on derivative and hedging activities, net” is comprised of the following:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Fair value hedges

 

$

(3

)

 

$

(17

)

 

$

13

 

 

$

(51

)

Foreign currency hedges

 

 

(16

)

 

 

23

 

 

 

10

 

 

 

(34

)

Floor Income Contracts

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(65

)

Basis swaps

 

 

—

 

 

 

3

 

 

 

—

 

 

 

6

 

Other

 

 

(19

)

 

 

(44

)

 

 

(20

)

 

 

(122

)

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

 

$

(38

)

 

$

(35

)

 

$

3

 

 

$

(266

)

 

(3)
Other derivative accounting adjustments consist of adjustments related to certain terminated derivatives that did not receive hedge accounting treatment under GAAP but were economic hedges under Core Earnings and, as a result, such gains or losses are amortized into Core Earnings over the life of the hedged item.

 

34

 

Cumulative Impact of Derivative Accounting under GAAP compared to Core Earnings

As of September 30, 2023, derivative accounting has increased GAAP equity by approximately $73 million as a result of cumulative net mark-to-market gains (after tax) recognized under GAAP, but not in Core Earnings. The following table rolls forward the cumulative impact to GAAP equity due to these after-tax mark-to-market net gains and losses related to derivative accounting.

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Beginning impact of derivative accounting on
   GAAP equity

 

$

67

 

 

$

39

 

 

$

122

 

 

$

(299

)

Net impact of net mark-to-market gains (losses)
   under derivative accounting(1)

 

 

6

 

 

 

79

 

 

 

(49

)

 

 

417

 

Ending impact of derivative accounting on
   GAAP equity

 

$

73

 

 

$

118

 

 

$

73

 

 

$

118

 

 

(1)
Net impact of net mark-to-market gains (losses) under derivative accounting is composed of the following:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Total pre-tax net impact of derivative accounting
   recognized in net income(2)

 

$

37

 

 

$

33

 

 

$

(7

)

 

$

265

 

Tax and other impacts of derivative accounting
   adjustments

 

 

(9

)

 

 

(8

)

 

 

2

 

 

 

(65

)

Change in mark-to-market gains (losses) on
   derivatives, net of tax recognized in other
   comprehensive income

 

 

(22

)

 

 

54

 

 

 

(44

)

 

 

217

 

Net impact of net mark-to-market gains (losses)
    under derivative accounting

 

$

6

 

 

$

79

 

 

$

(49

)

 

$

417

 

 

(2)
See “Core Earnings derivative adjustments” table above.

 

 

 

35

 

Hedging Embedded Floor Income

We use Floor Income Contracts, pay-fixed swaps and fixed rate debt to economically hedge embedded Floor Income in our FFELP Loans. Historically, we have used these instruments on a periodic basis and depending upon market conditions and pricing, we may enter into additional hedges in the future. Under GAAP, the Floor Income Contracts do not qualify for hedge accounting and the pay-fixed swaps are accounted for as cash flow hedges. The table below shows the amount of hedged Floor Income that will be recognized in Core Earnings in future periods based on these hedge strategies.

(Dollars in millions)

 

September 30, 2023

 

 

September 30, 2022

 

Total hedged Floor Income, net of tax(1)(2)

 

$

115

 

 

$

224

 

(1)
$151 million and $293 million on a pre-tax basis as of September 30, 2023 and September 30, 2022, respectively.
(2)
Of the $115 million as of September 30, 2023, approximately $21 million, $38 million, $21 million and $18 million will be recognized as part of Core Earnings net income in the remainder of 2023, 2024, 2025 and 2026, respectively.

(2) Goodwill and Acquired Intangible Assets: Our Core Earnings exclude goodwill and intangible asset impairment and the amortization of acquired intangible assets. The following table summarizes the goodwill and acquired intangible asset adjustments.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Core Earnings goodwill and acquired intangible
   asset adjustments

 

$

3

 

 

$

10

 

 

$

8

 

 

$

17

 

 

 

 

 

 

 

36

 

2. Tangible Equity and Adjusted Tangible Equity Ratio

Adjusted Tangible Equity Ratio measures the ratio of Navient’s Tangible Equity to its tangible assets. We adjust this ratio to exclude the assets and equity associated with our FFELP Loan portfolio because FFELP Loans are no longer originated and the FFELP Loan portfolio bears a 3% maximum loss exposure under the terms of the federal guaranty. Management believes that excluding this portfolio from the ratio enhances its usefulness to investors. Management uses this ratio, in addition to other metrics, for analysis and decision making related to capital allocation decisions. The Adjusted Tangible Equity Ratio is calculated as:

(Dollars in millions)

 

September 30, 2023

 

 

September 30, 2022

 

Navient Corporation's stockholders' equity

 

$

2,898

 

 

$

2,973

 

Less: Goodwill and acquired intangible assets

 

 

697

 

 

 

708

 

Tangible Equity

 

 

2,201

 

 

 

2,265

 

Less: Equity held for FFELP Loans

 

 

198

 

 

 

234

 

Adjusted Tangible Equity

 

$

2,003

 

 

$

2,031

 

Divided by:

 

 

 

 

 

 

Total assets

 

$

63,414

 

 

$

73,625

 

Less:

 

 

 

 

 

 

Goodwill and acquired intangible assets

 

 

697

 

 

 

708

 

FFELP Loans

 

 

39,581

 

 

 

46,891

 

Adjusted tangible assets

 

$

23,136

 

 

$

26,026

 

Adjusted Tangible Equity Ratio

 

 

8.7

%

 

 

7.8

%

 

3. Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA)

This measures the operating performance of the Business Processing segment and is used by management and equity investors to monitor operating performance and determine the value of those businesses. EBITDA for the Business Processing segment is calculated as:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Pre-tax income

 

$

12

 

 

$

12

 

 

$

25

 

 

$

44

 

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization expense(1)

 

 

1

 

 

 

1

 

 

 

2

 

 

 

2

 

EBITDA

 

$

13

 

 

$

13

 

 

$

27

 

 

$

46

 

Divided by:

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

85

 

 

$

79

 

 

$

240

 

 

$

260

 

EBITDA margin

 

 

15

%

 

 

16

%

 

 

11

%

 

 

18

%

 

(1)
There is no interest expense in this segment.

 

 

 

37

 

4. Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off

Loans

The allowance for loan losses on the Private Education Loan portfolio used for the three credit metrics below excludes the expected future recoveries on previously fully charged-off loans to better reflect the current expected credit losses remaining in connection with the loans on balance sheet that have not charged off. That is, as of September 30, 2023, the $857 million Private Education Loan allowance for loan losses excluding expected future recoveries on previously fully charged-off loans represents the current expected credit losses that remain in connection with the $17,333 million Private Education Loan portfolio. The $232 million of expected future recoveries on previously fully charged-off loans, which is collected over an average 15-year period, mechanically is a reduction to the overall allowance for loan losses. However, it is not related to the $17,333 million Private Education Loan portfolio on our balance sheet and, as a result, management excludes this impact to the allowance to better evaluate and assess our overall credit loss coverage on the Private Education Loan portfolio. We believe this provides a more meaningful and holistic view of the available credit loss coverage on our non-charged-off Private Education Loan portfolio. We believe this information is useful to our investors, lenders and rating agencies.

Allowance for Loan Losses Metrics – Private Education Loans

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Allowance at end of period (GAAP)

 

$

625

 

 

$

852

 

 

$

625

 

 

$

852

 

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

 

 

232

 

 

 

280

 

 

 

232

 

 

 

280

 

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

 

$

857

 

 

$

1,132

 

 

$

857

 

 

$

1,132

 

Ending total loans

 

$

17,958

 

 

$

20,003

 

 

$

17,958

 

 

$

20,003

 

Ending loans in repayment

 

$

17,249

 

 

$

19,284

 

 

$

17,249

 

 

$

19,284

 

Net charge-offs

 

$

98

 

 

$

129

 

 

$

234

 

 

$

268

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance coverage of charge-offs (annualized):

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

 

1.6

 

 

 

1.7

 

 

 

2.0

 

 

 

2.4

 

Adjustment(1)

 

 

.6

 

 

 

.5

 

 

 

.7

 

 

 

.8

 

Non-GAAP Financial Measure(1)

 

 

2.2

 

 

 

2.2

 

 

 

2.7

 

 

 

3.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as a percentage of the ending total
   loan balance:

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

 

3.5

%

 

 

4.3

%

 

 

3.5

%

 

 

4.3

%

Adjustment(1)

 

 

1.3

 

 

 

1.4

 

 

 

1.3

 

 

 

1.4

 

Non-GAAP Financial Measure(1)

 

 

4.8

%

 

 

5.7

%

 

 

4.8

%

 

 

5.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as a percentage of the ending loans in
   repayment:

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

 

3.6

%

 

 

4.4

%

 

 

3.6

%

 

 

4.4

%

Adjustment(1)

 

 

1.4

 

 

 

1.5

 

 

 

1.4

 

 

 

1.5

 

Non-GAAP Financial Measure(1)

 

 

5.0

%

 

 

5.9

%

 

 

5.0

%

 

 

5.9

%

 

 

(1)
The allowance used for these credit metrics excludes the expected future recoveries on previously fully charged-off loans. See discussion above.

 

 

 

 

 

 

38

 

For a discussion of legal matters as of September 30, 2023, please refer to “Note 9 – Commitments and Contingencies” to our consolidated financial statements included in this report, which is incorporated into this item by reference.

Risk Factors

The risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Form 10-K”) should be considered together with information included in this Quarterly Report on Form 10-Q. For a discussion of our risk factors, please see the section entitled "Risk Factors" in our 2022 Form 10-K, as updated by the section entitled "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023. These are not the only risks to which we are exposed.

39

 

Quantitative and Qualitative Disclosures about Market Risk

LIBOR Transition

On June 30, 2023, the LIBOR administrator ceased publication (on a representative basis) of all USD LIBOR rates, including one-month and three-month LIBOR.

In preparation for the transition, we worked internally as well as with external parties to ensure an orderly transition from one-month and three-month LIBOR to an alternative benchmark rate by the June 30, 2023 transition date. We established an internal LIBOR transition team whose purpose was to assess impacts, recommend plans and coordinate transition efforts among different business areas. Executive management and the LIBOR transition team provide quarterly reports to our Board of Directors. We also established internal LIBOR working groups comprised of members from different business areas who met regularly to assess specific business-level impacts and to implement operational changes necessary to effectuate a successful transition from LIBOR. In addition to our enterprise-wide efforts, we engaged with market participants, industry groups and regulators, including the Alternative Reference Rates Committee (the ARRC), to develop plans and documentation to facilitate the transition to an alternative benchmark rate.

We worked to align with the ARRC’s recommended best practices for completing the transition from LIBOR. All our new variable rate Private Education Loans issued since December 2021 are indexed to SOFR. Also, as of December 31, 2021, we ceased entering into any other new contracts that are indexed to LIBOR and, where practicable, have engaged with counterparties to modify certain existing contracts to transition the existing reference rate from LIBOR to SOFR. With respect to our legacy variable rate Private Education Loans and other financial contracts that reference USD LIBOR and contain fallback provisions that clearly specify a method for the transition from LIBOR, we successfully transitioned such loans using such existing fallbacks. We engaged with our IT vendors and impacted internal work groups to prepare and update our systems, procedures and processes to transition LIBOR-indexed contracts to SOFR. With respect to our financial instruments that do not include fallback provisions that clearly specify a method for the transition from LIBOR to an alternative benchmark rate, where practicable and commercially reasonable, we made efforts to engage with customers, counterparties and investors to modify such instruments. Due to stringent noteholder consent requirements, it was not practicable to modify certain financial instruments like certain of our ABS. Further, the SAP formula for our FFELP Loans, which is indexed to one-month LIBOR, was not able to be modified without legislative action. Thus, in such instances, we needed to rely on federal legislation to transition to SOFR.

On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act) was signed into law. The LIBOR Act provides that for contracts that contain no fallback provision or contain fallback provisions that do not identify a specific USD LIBOR benchmark replacement (including the SAP formula for FFELP Loans), a benchmark replacement based on SOFR, as recommended by the Federal Reserve Bank of New York, will automatically replace the USD LIBOR benchmark in the contract after June 30, 2023. On December 16, 2022, the Federal Reserve Bank of New York adopted a final rule that implements the LIBOR Act by identifying benchmark rates based on SOFR that will replace LIBOR in certain financial contracts after June 30, 2023. Following the enactment and implementation of the LIBOR Act, all of our financial instruments which were indexed to USD LIBOR as of June 30, 2023 have transitioned, or will transition, to SOFR after June 30, 2023. Specifically, after June 30, 2023, the SAP formula for FFELP Loans transitioned to 30-day Average SOFR and our LIBOR-indexed FFELP ABS contracts that are subject to the LIBOR Act transitioned to 30-day or 90-day Average SOFR. Our LIBOR-indexed Private Education Loan ABS contracts that are subject to the LIBOR Act transitioned to 1-month or 3-month Term SOFR. Similarly, our LIBOR-indexed Private Education Loans transitioned to 1-month or 3-month Term SOFR. Our LIBOR-indexed derivatives transitioned to the Fallback Rate (SOFR) as defined in the ISDA 2020 IBOR Fallbacks Protocol published by the International Swaps and Derivatives Association, Inc. on October 23, 2020.

For a discussion of the risks related to the LIBOR transition, see “Risk Factors – Market, Funding & Liquidity Risk – The transition away from the LIBOR reference rate to the Secured Overnight Financing Rate (SOFR) may create uncertainty in the capital markets and may negatively impact the value of existing LIBOR based financial instruments and our financial results and business” in our Form 10-K.

 

40

 

Interest Rate Sensitivity Analysis

Our interest rate risk management seeks to limit the impact of movements in interest rates on our results of operations and financial position. The following tables summarize the potential effect on earnings over the next 12 months and the potential effect on fair values of balance sheet assets and liabilities at September 30, 2023 and 2022, based upon a sensitivity analysis performed by management assuming a hypothetical increase and decrease in market interest rates of 100 basis points. The earnings sensitivities assume an immediate increase and decrease in market interest rates of 100 basis points and are applied only to financial assets and liabilities, including hedging instruments, that existed at the balance sheet date and do not take into account any new assets, liabilities or hedging instruments that may arise over the next 12 months.

 

 

 

As of September 30, 2023

 

 

As of September 30, 2022

 

 

 

Impact on Annual Earnings If:

 

 

Impact on Annual Earnings If:

 

 

 

Interest Rates

 

 

Interest Rates

 

(Dollars in millions, except per share amounts)

 

Increase
100 Basis
Points

 

 

Decrease
100 Basis
Points

 

 

Increase
100 Basis
Points

 

 

Decrease
100 Basis
Points

 

Effect on Earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Change in pre-tax net income before mark-to
   -market gains (losses) on derivative and
   hedging activities

 

$

30

 

 

$

9

 

 

$

53

 

 

$

(38

)

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

 

 

36

 

 

 

(33

)

 

 

22

 

 

 

(22

)

Increase (decrease) in income before taxes

 

$

66

 

 

$

(24

)

 

$

75

 

 

$

(60

)

Increase (decrease) in net income after taxes

 

$

51

 

 

$

(18

)

 

$

58

 

 

$

(46

)

Increase (decrease) in diluted earnings per
   common share

 

$

.43

 

 

$

(.16

)

 

$

.42

 

 

$

(.34

)

 

41

 

 

 

 

At September 30, 2023

 

 

 

 

 

 

Interest Rates:

 

 

 

 

 

 

Change from
Increase of
100 Basis
Points

 

 

Change from
Decrease of
100 Basis
Points

 

(Dollars in millions)

 

Fair Value

 

 

$

 

 

%

 

 

$

 

 

%

 

Effect on Fair Values:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education Loans

 

$

54,598

 

 

$

(63

)

 

 

—

%

 

$

101

 

 

 

—

%

Other earning assets

 

 

2,950

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other assets

 

 

3,550

 

 

 

45

 

 

 

1

 

 

 

(5

)

 

 

—

 

Total assets gain/(loss)

 

$

61,098

 

 

$

(18

)

 

 

—

%

 

$

96

 

 

 

—

%

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

$

57,240

 

 

$

(241

)

 

 

—

%

 

$

260

 

 

 

—

%

Other liabilities

 

 

947

 

 

 

158

 

 

 

17

 

 

 

(129

)

 

 

(14

)

Total liabilities (gain)/loss

 

$

58,187

 

 

$

(83

)

 

 

—

%

 

$

131

 

 

 

—

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2022

 

 

 

 

 

 

Interest Rates:

 

 

 

 

 

 

Change from
Increase of
100 Basis
Points

 

 

Change from
Decrease of
100 Basis
Points

 

(Dollars in millions)

 

Fair Value

 

 

$

 

 

%

 

 

$

 

 

%

 

Effect on Fair Values:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education Loans

 

$

59,306

 

 

$

(81

)

 

 

—

%

 

$

120

 

 

 

—

%

Other earning assets

 

 

4,974

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other assets

 

 

3,571

 

 

 

36

 

 

 

1

 

 

 

(29

)

 

 

(1

)

Total assets gain/(loss)

 

$

67,851

 

 

$

(45

)

 

 

—

%

 

$

91

 

 

 

—

%

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

$

63,531

 

 

$

(250

)

 

 

—

%

 

$

272

 

 

 

—

%

Other liabilities

 

 

922

 

 

 

125

 

 

 

14

 

 

 

(134

)

 

 

(15

)

Total liabilities (gain)/loss

 

$

64,453

 

 

$

(125

)

 

 

—

%

 

$

138

 

 

 

—

%

A primary objective in our funding is to minimize our sensitivity to changing interest rates by generally funding our floating rate education loan portfolio with floating rate debt and our fixed rate education loan portfolio with fixed rate debt although we can have a mismatch at times. In addition, we can have a mismatch in the index (including the frequency of reset) of floating rate debt versus floating rate assets. In addition, due to the ability of some FFELP Loans to earn Floor Income, we can have a fixed versus floating mismatch in funding if the education loan earns at the fixed borrower rate and the funding remains floating. We use Floor Income Contracts, pay-fixed swaps and fixed rate debt to economically hedge embedded Floor Income in our FFELP loans. Historically, we have used these instruments on a periodic basis and depending upon market conditions and pricing, we may enter into additional hedges in the future. The result of these hedging transactions is to fix the relative spread between the education loan asset rate and the funding instrument rate.

In the preceding tables, under the scenario where interest rates increase or decrease by 100 basis points, the change in pre-tax net income before the mark-to-market gains (losses) on derivative and hedging activities is primarily due to the impact of (i) our unhedged FFELP Loans being in a fixed-rate mode due to Floor Income, while being funded with variable rate debt in low interest rate environments; (ii) certain FFELP fixed rate loans becoming variable interest rate loans when variable interest rates rise above a certain level (Special Allowance Payment of “SAP”). When these loans are funded with fixed rate debt (as we do for a portion of the portfolio to economically hedge Floor Income) we earn additional interest income when earning the higher variable rate that is in effect; and (iii) a portion of our variable rate assets being funded with fixed rate liabilities. Item (i) will generally cause income to decrease when interest rates increase and income to increase when interest rates decrease. Item (ii) and (iii) have the opposite effect. The change due to the interest rate scenario where interest rates increase by 100 basis points in the current period is primarily a result of item (ii) having a more significant impact than item (i) as a result of interest rates being significantly higher compared to the prior period. The change due to the interest scenario where interest rates decrease by 100 basis points in the current period is primarily a result of item (i) having a more significant impact (specifically related to the annual reset floors in connection with a portion of the Stafford FFELP loan portfolio) than item (ii) as a result of interest rates being significantly higher compared to the prior period. The relative changes from the prior period are a result of interest rates being significantly lower in the prior period. In addition, item (iii) had more of an impact in the prior period due to a higher balance of variable rate assets being funded with fixed rate liabilities.

42

 

In the preceding tables, under the scenario where interest rates increase or decrease by 100 basis points, the change in mark-to-market gains (losses) on derivative and hedging activities in both periods is primarily due to (i) the notional amount and remaining term of our derivative portfolio and related hedged debt and (ii) the interest rate environment. In both periods, the mark-to-market gains (losses) are primarily related to derivatives that don’t qualify for hedge accounting that are used to economically hedge the origination of fixed rate Private Education Refinance loans. As a result of not qualifying for hedge accounting, there is not an offsetting mark- to-market of the hedged item in this analysis.

In addition to interest rate risk addressed in the preceding tables, we are also exposed to risks related to foreign currency exchange rates. Foreign currency exchange risk is primarily the result of foreign currency denominated debt issued by us. When we issue foreign denominated corporate unsecured and securitization debt, our policy is to use cross currency interest rate swaps to swap all foreign currency denominated debt payments (fixed and floating) to USD SOFR using a fixed exchange rate. In the tables above, there would be an immaterial impact on earnings if exchange rates were to decrease or increase, due to the terms of the hedging instrument and hedged items matching. The balance sheet interest-bearing liabilities would be affected by a change in exchange rates; however, the change would be materially offset by the cross-currency interest rate swaps in other assets or other liabilities. In certain economic environments, volatility in the spread between spot and forward foreign exchange rates has resulted in mark-to-market impacts to current period earnings which have not been factored into the above analysis. The earnings impact is noncash, and at maturity of the instruments the cumulative mark-to-market impact will be zero. Navient has not issued foreign currency denominated debt since 2008.

Asset and Liability Funding Gap

The table below presents our assets and liabilities (funding) arranged by underlying indices as of September 30, 2023. Management analyzes interest rate risk and in doing so includes all derivatives that are economically hedging our debt whether they qualify as effective hedges or not (Core Earnings basis). Accordingly, we present the asset and liability funding gap on a Core Earnings basis. The difference between the asset and the funding is the funding gap for the specified index. This represents our exposure to interest rate risk in the form of basis risk and repricing risk, which is the risk that the different indices may reset at different frequencies or may not move in the same direction or at the same magnitude.

 

 

 

 

 

43

 

 

Index
(Dollars in billions)

 

Frequency of
Variable
Resets

 

Assets

 

 

Funding

 

 

Funding
Gap

 

3 month Treasury bill

 

weekly

 

$

2.1

 

 

$

—

 

 

$

2.1

 

3 month Treasury bill

 

annual

 

 

.1

 

 

 

—

 

 

 

.1

 

Prime

 

annual

 

 

.1

 

 

 

—

 

 

 

.1

 

Prime

 

quarterly

 

 

1.1

 

 

 

—

 

 

 

1.1

 

Prime

 

monthly

 

 

3.6

 

 

 

—

 

 

 

3.6

 

3 month Term SOFR

 

quarterly

 

 

.5

 

 

 

1.4

 

 

 

(.9

)

3 month Term SOFR (1)

 

monthly

 

 

—

 

 

 

.5

 

 

 

(.5

)

1 month Term SOFR

 

monthly

 

 

2.2

 

 

 

1.2

 

 

 

1.0

 

Overnight SOFR(2)

 

daily

 

 

37.2

 

 

 

35.6

 

 

 

1.6

 

Non Discrete reset (1)

 

monthly

 

 

—

 

 

 

5.0

 

 

 

(5.0

)

Non Discrete reset (3)

 

daily/weekly

 

 

2.9

 

 

 

—

 

 

 

2.9

 

Fixed Rate (4)

 

 

 

 

13.8

 

 

 

19.9

 

 

 

(6.1

)

Total

 

 

 

$

63.6

 

 

$

63.6

 

 

$

—

 

(1)
Funding includes Loan Repurchase facilities, auction rate ABS and ABCP facilities.
(2)
The assets are indexed to 30-day average overnight SOFR. A portion of the funding uses the daily average of overnight SOFR from a period preceding the accrual period of the asset ("lookback debt"). Funding includes $17.5 billion of 30-day average SOFR lookback debt and $14.3 billion of 90-day average SOFR lookback debt.
(3)
Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes the obligation to return cash collateral held related to derivatives exposures.
(4)
Assets include receivables and other assets (including goodwill and acquired intangibles). Funding includes other liabilities and stockholders' equity.

 

We use interest rate swaps and other derivatives to achieve our risk management objectives. Our asset liability management strategy is to match assets with debt (in combination with derivatives) that have the same underlying index and reset frequency or, when economical, have interest rate characteristics that we believe are highly correlated. Interest earned on our FFELP Loans is primarily indexed to 30-day average overnight SOFR reset daily and our cost of funds is primarily indexed to overnight SOFR but resetting at different times than the asset. A source of variability in FFELP net interest income could also be Floor Income we earn on certain FFELP Loans. Pursuant to the terms of the FFELP, certain FFELP Loans can earn interest at the stated fixed rate of interest as underlying debt interest rate expense remains variable. We refer to this additional spread income as “Floor Income.” Floor Income can be volatile since it is dependent on interest rate levels. We frequently hedge this volatility to lock in the value of the Floor Income over the term of the contract. Interest earned on our Private Education Refinance Loans is generally fixed rate with the related cost of funds generally fixed rate as well. Interest earned on the remaining Private Education Loans is generally indexed to either one-month Prime or term SOFR rates and our cost of funds is primarily indexed to one-month or three-month term SOFR. The use of funding with index types and reset frequencies that are different from our assets exposes us to interest rate risk in the form of basis and repricing risk. This could result in our cost of funds not moving in the same direction or with the same magnitude as the yield on our assets. While we believe this risk is low, as all of these indices are short-term with rate movements that are highly correlated over a long period of time, market disruptions (which have occurred in prior years) can lead to a temporary divergence between indices resulting in a negative impact to our earnings. See previous discussion at "Quantitative and Qualitative Disclosures about Market Risk – LIBOR Transition" regarding the transition of the LIBOR indexed instruments to SOFR that occurred after June 30, 2023.

44

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

As previously announced on December 13, 2021, our Board approved a new share repurchase program (“Share Repurchase Plan”) authorizing the purchase of up to $1 billion of the Company’s outstanding common stock, which Share Repurchase Plan began upon the completion of the prior program. Our Share Repurchase Plan does not have an expiration date. As of September 30, 2023, $360 million remains in share repurchase authorization under the Share Repurchase Plan. The Company has no other share repurchase plans outstanding, nor did any share repurchase plans expire during the quarter ended September 30, 2023.

The Company adopted its Share Repurchase Plan with the goal of returning excess capital to shareholders in accordance with our capital allocation policy. The Share Repurchase Plan permits the exercise of the plan through open-market repurchases, private transactions, accelerated stock repurchases and other similar transactions. Given the goal is to return excess capital to shareholders, the Company does not attempt to “time the market”. Rather, it purchases shares through open-market repurchases on a nearly daily basis where the amount of shares purchased on any given day is established primarily on the desired amount of quarterly purchases.

The Company also routinely enters into “Rule 10b5-1 trading arrangements” prior to the end of each quarter, which trading arrangements provide for the purchase of the Company’s common stock during such period. Typically, this period runs approximately one month and ends a pre-determined number of days after the Company announces its quarterly results. Each Rule 10b5-1 trading arrangement is intended to satisfy the affirmative defense conditions of Securities Exchange Act Rule 10b5-1. The Company only enters into one Rule 10b5-1 trading arrangement during any quarter and the only share repurchases effectuated during the blackout period are pursuant to such Rule 10b5-1 trading arrangement. Each Rule 10b5-1 trading arrangement sets forth pre-established terms, including the amount, price and purchase period, and the Company has no further discretion over such purchases.

On September 14, 2023, the Company entered into a “Rule 10b5-1 trading arrangement” which provides for the purchase of up to $37.6 million aggregate value of shares of the Company’s common stock, pursuant to the terms of the plan. The plan terminates no later than October 27, 2023, subject to early termination for certain specified events set forth in the plan. As of September 30, 2023, the Company has purchased 685,451 shares pursuant to this trading plan; see Exhibit 26, “Issuer Purchases of Equity Securities,” filed with this Form 10-Q for more information regarding purchases made under the Rule 10b5-1 trading arrangement.

The Company’s officers and directors are required to comply with the Company’s securities trading policy at all times, including during a repurchase program. The securities trading policy, among other things, prohibits trading in the Company’s securities when in possession of material non-public information and restricts the ability of certain officers or director from transacting in the Company’s securities during specific blackout periods, subject to certain limited exceptions, including transactions pursuant to a Rule 10b5-1 trading plan that complies with the conditions of Securities Exchange Act Rule 10b5-1. For more information about Rule 10b5-1 trading plans that have been adopted by our officers and directors during the third quarter of 2023, see “Other Information – Director and Officer Trading Arrangements,” below.

Company Rule 10b5-1 Trading Arrangements

See “Purchases of Equity Securities by the Issuer and Affiliated Purchasers,” above, for information on Rule 10b5-1 trading arrangements entered into by the Company during the quarter ended September 30, 2023.

 

 

45

 

Other Information

 

Director and Officer Trading Arrangements

During the quarter ended September 30, 2023, none of the Company’s directors or officers who are subject to the filing requirements of Section 16 of the Securities Exchange Act adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408, except as described in the table below:

 

Name (Title)

Adoption/
Termination Date

Type of Trading Arrangement

Duration of Trading Arrangement(1)

Aggregate Number of Shares to be Purchased or Sold

Mark Heleen
(Executive Vice President
and Chief Legal Officer)

Adopted August
9, 2023

Trading plan intended to satisfy
the affirmative defense
conditions of Securities
Exchange Act Rule 10b5-1(c).

August 9, 2023 –
May 15, 2024 (subject to early termination for certain specified events set forth in the plan)

Sale of up to 30,000
shares

John Kane 
(Executive Vice President
and Group President, Business
Processing Solutions)

Adopted August
23, 2023

Trading plan intended to satisfy
the affirmative defense
conditions of Securities
Exchange Act Rule 10b5-1(c).

August 23, 2023 –
November 21, 2024 (subject to early termination for certain specified events set forth in the plan)

Sale of up to 150,132 
shares

(1)
Trading arrangements may expire on an earlier date upon the completion of all trades under the applicable trading arrangement (or the expiration of the orders relating to such trades without execution) or the occurrence of such other termination events as specified in the applicable trading arrangement.

 

 

 

Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive and Principal Financial Officers, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of September 30, 2023. Based on this evaluation, our Principal Executive and Principal Financial Officers concluded that, as of September 30, 2023, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to our management, including our Principal Executive and Principal Financial Officers as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

46

 

 

Exhibits

26*

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

 

 

 

31.1*

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2*

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1**

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2**

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document.

 

 

 

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

 

 

 

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

* Filed herewith

** Furnished herewith

47

 

Financial Statements

 

NAVIENT CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(Unaudited)

 

 

September 30, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

FFELP Loans (net of allowance for losses of $220 and $222, respectively)

 

$

39,581

 

 

$

43,525

 

Private Education Loans (net of allowance for losses of $625 and $800,
   respectively)

 

 

17,333

 

 

 

18,725

 

Investments

 

 

149

 

 

 

167

 

Cash and cash equivalents

 

 

977

 

 

 

1,535

 

Restricted cash and cash equivalents

 

 

1,824

 

 

 

3,272

 

Goodwill and acquired intangible assets, net

 

 

697

 

 

 

705

 

Other assets

 

 

2,853

 

 

 

2,866

 

Total assets

 

$

63,414

 

 

$

70,795

 

Liabilities

 

 

 

 

 

 

Short-term borrowings

 

$

4,662

 

 

$

5,870

 

Long-term borrowings

 

 

54,907

 

 

 

61,026

 

Other liabilities

 

 

947

 

 

 

922

 

Total liabilities

 

 

60,516

 

 

 

67,818

 

Commitments and contingencies

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Series A Junior 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:
   464 million and 461 million shares issued, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

3,349

 

 

 

3,313

 

Accumulated other comprehensive income (net of tax expense
   of $14 and $29, respectively)

 

 

43

 

 

 

87

 

Retained earnings

 

 

4,685

 

 

 

4,490

 

Total stockholders’ equity before treasury stock

 

 

8,081

 

 

 

7,894

 

Less: Common stock held in treasury at cost: 346 million and 331 million
   shares, respectively

 

 

(5,183

)

 

 

(4,917

)

Total equity

 

 

2,898

 

 

 

2,977

 

Total liabilities and equity

 

$

63,414

 

 

$

70,795

 

 

Supplemental information — assets and liabilities of consolidated variable interest entities:

 

 

September 30, 2023

 

 

December 31, 2022

 

FFELP Loans

 

$

39,493

 

 

$

43,465

 

Private Education Loans

 

 

16,189

 

 

 

17,207

 

Restricted cash

 

 

1,798

 

 

 

3,233

 

Other assets, net

 

 

1,615

 

 

 

1,356

 

Short-term borrowings

 

 

3,772

 

 

 

4,458

 

Long-term borrowings

 

 

49,849

 

 

 

55,598

 

Net assets of consolidated variable interest entities

 

$

5,474

 

 

$

5,205

 

 

 

 

See accompanying notes to consolidated financial statements.

48

 

 

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loans

 

$

778

 

 

$

553

 

 

$

2,191

 

 

$

1,312

 

Private Education Loans

 

 

351

 

 

 

309

 

 

 

1,036

 

 

 

862

 

Cash and investments

 

 

41

 

 

 

19

 

 

 

111

 

 

 

25

 

Total interest income

 

 

1,170

 

 

 

881

 

 

 

3,338

 

 

 

2,199

 

Total interest expense

 

 

879

 

 

 

641

 

 

 

2,636

 

 

 

1,301

 

Net interest income

 

 

291

 

 

 

240

 

 

 

702

 

 

 

898

 

Less: provisions for loan losses

 

 

72

 

 

 

28

 

 

 

68

 

 

 

62

 

Net interest income after provisions for loan losses

 

 

219

 

 

 

212

 

 

 

634

 

 

 

836

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

15

 

 

 

24

 

 

 

48

 

 

 

60

 

Asset recovery and business processing revenue

 

 

85

 

 

 

80

 

 

 

240

 

 

 

264

 

Other revenue

 

 

5

 

 

 

6

 

 

 

15

 

 

 

22

 

Gains (losses) on derivative and hedging activities, net

 

 

26

 

 

 

40

 

 

 

44

 

 

 

161

 

Total other income

 

 

131

 

 

 

150

 

 

 

347

 

 

 

507

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

99

 

 

 

106

 

 

 

302

 

 

 

337

 

Other operating expenses

 

 

134

 

 

 

88

 

 

 

299

 

 

 

251

 

Total operating expenses

 

 

233

 

 

 

194

 

 

 

601

 

 

 

588

 

Goodwill and acquired intangible asset impairment and
   amortization expense

 

 

3

 

 

 

10

 

 

 

8

 

 

 

17

 

Restructuring/other reorganization expenses

 

 

4

 

 

 

21

 

 

 

23

 

 

 

25

 

Total expenses

 

 

240

 

 

 

225

 

 

 

632

 

 

 

630

 

Income before income tax expense

 

 

110

 

 

 

137

 

 

 

349

 

 

 

713

 

Income tax expense

 

 

31

 

 

 

32

 

 

 

93

 

 

 

173

 

Net income

 

$

79

 

 

$

105

 

 

$

256

 

 

$

540

 

Basic earnings per common share

 

$

.66

 

 

$

.75

 

 

$

2.06

 

 

$

3.71

 

Average common shares outstanding

 

 

120

 

 

 

139

 

 

 

124

 

 

 

145

 

Diluted earnings per common share

 

$

.65

 

 

$

.75

 

 

$

2.04

 

 

$

3.67

 

Average common and common equivalent shares
   outstanding

 

 

121

 

 

 

141

 

 

 

125

 

 

 

147

 

Dividends per common share

 

$

.16

 

 

$

.16

 

 

$

.48

 

 

$

.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

49

 

 

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

 

$

79

 

 

$

105

 

 

$

256

 

 

$

540

 

Net changes in cash flow hedges, net of taxes(1)

 

 

(22

)

 

 

54

 

 

 

(44

)

 

 

217

 

Total comprehensive income

 

$

57

 

 

$

159

 

 

$

212

 

 

$

757

 

 

(1)
See “Note 4 – Derivative Financial Instruments.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

50

 

 

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In millions, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Shares

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-In

 

 

Comprehensive

 

 

Retained

 

 

Treasury

 

 

Stockholders'

 

 

Noncontrolling

 

 

Total

 

 

 

Issued

 

 

Treasury

 

 

Outstanding

 

 

Stock

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Stock

 

 

Equity

 

 

Interest

 

 

Equity

 

Balance at June 30, 2022

 

 

461,013,036

 

 

 

(319,134,333

)

 

 

141,878,703

 

 

$

4

 

 

$

3,305

 

 

$

30

 

 

$

4,323

 

 

$

(4,735

)

 

$

2,927

 

 

$

—

 

 

$

2,927

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

105

 

 

 

—

 

 

 

105

 

 

 

—

 

 

 

105

 

Other comprehensive
   income (loss), net of
   tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

54

 

 

 

—

 

 

 

—

 

 

 

54

 

 

 

—

 

 

 

54

 

Total comprehensive income
   (loss)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

159

 

 

 

—

 

 

 

159

 

Cash dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.16 per
   share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(22

)

 

 

—

 

 

 

(22

)

 

 

—

 

 

 

(22

)

Dividend equivalent units
   related to employee
   stock-based compensation
   plans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Issuance of common shares

 

 

3,165

 

 

 

—

 

 

 

3,165

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Stock-based compensation
   expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4

 

 

 

—

 

 

 

4

 

Common stock repurchased

 

 

—

 

 

 

(6,261,736

)

 

 

(6,261,736

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(95

)

 

 

(95

)

 

 

—

 

 

 

(95

)

Shares repurchased related
   to employee stock-based
   compensation plans

 

 

—

 

 

 

(5,959

)

 

 

(5,959

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net activity in noncontrolling
   interest

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Balance at
   September 30, 2022

 

 

461,016,201

 

 

 

(325,402,028

)

 

 

135,614,173

 

 

$

4

 

 

$

3,309

 

 

$

84

 

 

$

4,406

 

 

$

(4,830

)

 

$

2,973

 

 

$

—

 

 

$

2,973

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2023

 

 

463,534,781

 

 

 

(341,932,917

)

 

 

121,601,864

 

 

$

4

 

 

$

3,343

 

 

$

65

 

 

$

4,625

 

 

$

(5,107

)

 

$

2,930

 

 

$

—

 

 

$

2,930

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

79

 

 

 

—

 

 

 

79

 

 

 

—

 

 

 

79

 

Other comprehensive
   income (loss), net of
   tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(22

)

 

 

—

 

 

 

—

 

 

 

(22

)

 

 

—

 

 

 

(22

)

Total comprehensive income
   (loss)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

57

 

 

 

—

 

 

 

57

 

Cash dividends:

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.16 per
   share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(19

)

 

 

—

 

 

 

(19

)

 

 

—

 

 

 

(19

)

Dividend equivalent units
   related to employee
   stock-based compensation
   plans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Issuance of common shares

 

 

147,497

 

 

 

—

 

 

 

147,497

 

 

 

—

 

 

 

2

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

—

 

 

 

2

 

Stock-based compensation
   expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4

 

 

 

—

 

 

 

4

 

Common stock repurchased

 

 

—

 

 

 

(4,164,937

)

 

 

(4,164,937

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(75

)

 

 

(75

)

 

 

—

 

 

 

(75

)

Shares repurchased related
  to employee stock-based
  compensation plans

 

 

—

 

 

 

(13,333

)

 

 

(13,333

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1

)

 

 

(1

)

 

 

—

 

 

 

(1

)

Balance at
   September 30, 2023

 

 

463,682,278

 

 

 

(346,111,187

)

 

 

117,571,091

 

 

$

4

 

 

$

3,349

 

 

$

43

 

 

$

4,685

 

 

$

(5,183

)

 

$

2,898

 

 

$

—

 

 

$

2,898

 

 

See accompanying notes to consolidated financial statements.

 

51

 

 

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In millions, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Shares

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-In

 

 

Comprehensive

 

 

Retained

 

 

Treasury

 

 

Stockholders'

 

 

Noncontrolling

 

 

Total

 

 

 

Issued

 

 

Treasury

 

 

Outstanding

 

 

Stock

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Stock

 

 

Equity

 

 

Interest

 

 

Equity

 

Balance at
   December 31, 2021

 

 

458,629,384

 

 

 

(304,886,613

)

 

 

153,742,771

 

 

$

4

 

 

$

3,282

 

 

$

(133

)

 

$

3,939

 

 

$

(4,495

)

 

$

2,597

 

 

$

11

 

 

$

2,608

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

540

 

 

 

—

 

 

 

540

 

 

 

—

 

 

 

540

 

Other comprehensive
   income (loss), net of
   tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

217

 

 

 

—

 

 

 

—

 

 

 

217

 

 

 

—

 

 

 

217

 

Total comprehensive income
   (loss)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

757

 

 

 

—

 

 

 

757

 

Cash dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.48 per
   share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(69

)

 

 

—

 

 

 

(69

)

 

 

—

 

 

 

(69

)

Dividend equivalent units
   related to employee
   stock-based compensation
   plans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(4

)

 

 

—

 

 

 

(4

)

 

 

—

 

 

 

(4

)

Issuance of common shares

 

 

2,386,817

 

 

 

—

 

 

 

2,386,817

 

 

 

—

 

 

 

11

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

11

 

 

 

—

 

 

 

11

 

Stock-based compensation
   expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

16

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

16

 

 

 

—

 

 

 

16

 

Common stock repurchased

 

 

—

 

 

 

(19,394,977

)

 

 

(19,394,977

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(315

)

 

 

(315

)

 

 

—

 

 

 

(315

)

Shares repurchased related
   to employee stock-based
   compensation plans

 

 

—

 

 

 

(1,120,438

)

 

 

(1,120,438

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(20

)

 

 

(20

)

 

 

—

 

 

 

(20

)

Net activity in noncontrolling
   interest

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(11

)

 

 

(11

)

Balance at
   September 30, 2022

 

 

461,016,201

 

 

 

(325,402,028

)

 

 

135,614,173

 

 

$

4

 

 

$

3,309

 

 

$

84

 

 

$

4,406

 

 

$

(4,830

)

 

$

2,973

 

 

$

—

 

 

$

2,973

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at
   December 31, 2022

 

 

461,087,590

 

 

 

(330,878,152

)

 

 

130,209,438

 

 

$

4

 

 

$

3,313

 

 

$

87

 

 

$

4,490

 

 

$

(4,917

)

 

$

2,977

 

 

$

—

 

 

$

2,977

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

256

 

 

 

—

 

 

 

256

 

 

 

—

 

 

 

256

 

Other comprehensive
   income (loss), net of
   tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(44

)

 

 

—

 

 

 

—

 

 

 

(44

)

 

 

—

 

 

 

(44

)

Total comprehensive income
   (loss)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

212

 

 

 

—

 

 

 

212

 

Cash dividends:

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.48 per
   share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(59

)

 

 

—

 

 

 

(59

)

 

 

—

 

 

 

(59

)

Dividend equivalent units
   related to employee
   stock-based compensation
   plans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2

)

 

 

—

 

 

 

(2

)

 

 

—

 

 

 

(2

)

Issuance of common shares

 

 

2,594,688

 

 

 

—

 

 

 

2,594,688

 

 

 

—

 

 

 

15

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

15

 

 

 

—

 

 

 

15

 

Stock-based compensation
   expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

21

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

21

 

 

 

—

 

 

 

21

 

Common stock repurchased

 

 

—

 

 

 

(13,940,160

)

 

 

(13,940,160

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(240

)

 

 

(240

)

 

 

—

 

 

 

(240

)

Shares repurchased related
   to employee stock-based
   compensation plans

 

 

—

 

 

 

(1,292,875

)

 

 

(1,292,875

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(24

)

 

 

(24

)

 

 

—

 

 

 

(24

)

Other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2

)

 

 

(2

)

 

 

—

 

 

 

(2

)

Balance at
   September 30, 2023

 

 

463,682,278

 

 

 

(346,111,187

)

 

 

117,571,091

 

 

$

4

 

 

$

3,349

 

 

$

43

 

 

$

4,685

 

 

$

(5,183

)

 

$

2,898

 

 

$

—

 

 

$

2,898

 

 

See accompanying notes to consolidated financial statements.

52

 

 

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

256

 

 

$

540

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Goodwill and acquired intangible asset impairment and amortization expense

 

 

8

 

 

 

17

 

Stock-based compensation expense

 

 

21

 

 

 

16

 

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

 

 

(8

)

 

 

(607

)

Provisions for loan losses

 

 

68

 

 

 

62

 

Increase in accrued interest receivable

 

 

(71

)

 

 

(51

)

(Decrease) increase in accrued interest payable

 

 

(10

)

 

 

56

 

Decrease in other assets

 

 

56

 

 

 

334

 

Increase (decrease) in other liabilities

 

 

46

 

 

 

(269

)

Total adjustments

 

 

110

 

 

 

(442

)

Net cash provided by operating activities

 

 

366

 

 

 

98

 

Cash flows from investing activities

 

 

 

 

 

 

Education loans originated and acquired

 

 

(741

)

 

 

(1,765

)

Proceeds from payments on education loans

 

 

6,068

 

 

 

8,488

 

Other investing activities, net

 

 

6

 

 

 

89

 

Net cash provided by investing activities

 

 

5,333

 

 

 

6,812

 

Cash flows from financing activities

 

 

 

 

 

 

Borrowings collateralized by loans in trust - issued

 

 

844

 

 

 

2,243

 

Borrowings collateralized by loans in trust - repaid

 

 

(7,813

)

 

 

(9,225

)

Asset-backed commercial paper conduits, net

 

 

485

 

 

 

735

 

Long-term unsecured notes issued

 

 

495

 

 

 

—

 

Long-term unsecured notes repaid

 

 

(1,302

)

 

 

(15

)

Other financing activities, net

 

 

(115

)

 

 

70

 

Common stock repurchased

 

 

(240

)

 

 

(315

)

Common dividends paid

 

 

(59

)

 

 

(69

)

Net cash used in financing activities

 

 

(7,705

)

 

 

(6,576

)

Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents

 

 

(2,006

)

 

 

334

 

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period

 

 

4,807

 

 

 

3,578

 

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period

 

$

2,801

 

 

$

3,912

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash disbursements made (refunds received) for:

 

 

 

 

 

 

Interest paid

 

$

2,568

 

 

$

1,208

 

Income taxes paid

 

$

33

 

 

$

29

 

Income taxes refunds received

 

$

(2

)

 

$

(6

)

Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated
   Balance Sheets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

977

 

 

$

1,364

 

Restricted cash and restricted cash equivalents

 

 

1,824

 

 

 

2,548

 

Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period

 

$

2,801

 

 

$

3,912

 

 

See accompanying notes to consolidated financial statements.

 

53

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, consolidated financial statements of Navient have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements include the accounts of Navient and its majority-owned and controlled subsidiaries and those Variable Interest Entities (VIEs) for which we are the primary beneficiary, after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2022 or for any other period. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the 2022 Form 10-K). Definitions for certain capitalized terms used but not otherwise defined in this Quarterly Report on Form 10-Q can be found in our 2022 Form 10-K.

Recently Issued Accounting Pronouncements

Effective in 2020 and Forward

Rate Reform

In March 2020 (and as amended in December 2022), the FASB issued ASU No. 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional temporary relief for companies who were preparing for the discontinuation of interest rates indexed to the London Interbank Offered Rate (LIBOR). The ASU provides companies with guidance in the form of expedients and exceptions related to contract modifications and hedge accounting to ease the burden of and simplify the accounting associated with transitioning away from LIBOR. Modifications of qualifying contracts are accounted for as the continuation of an existing contract rather than as a new contract. Modifications of qualifying hedging relationships will not require discontinuation of the existing hedge accounting relationships. One-month and three-month LIBOR were discontinued as of June 30, 2023. Our hedging instruments that were indexed to one-month and three-month LIBOR are now indexed to SOFR. There was $12 billion of debt as of June 30, 2023, that was in either a fair value or cash flow hedge relationship using LIBOR swaps. We used the hedge accounting expedients in this ASU when those swaps transitioned to SOFR on July 1, 2023. As a result, these hedges did not result in the discontinuation of the existing hedge accounting relationships.

Troubled Debt Restructurings

In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses: Troubled Debt Restructurings and Vintage Disclosures,” which eliminates the troubled debt restructurings (TDRs) recognition and measurement guidance and instead requires an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan. The ASU also enhances the disclosure requirements for certain modifications of receivables made to borrowers experiencing financial difficulty. This guidance was effective on January 1, 2023. Prior to adopting this new guidance on January 1, 2023, as it relates to interest rate concessions granted as part of our Private Education Loan modification program, a discounted cash flow model was used to calculate the amount of interest forgiven for loans that were in the program and the present value of that interest rate concession was included as a part of the allowance for loan loss. This new guidance no longer allows the measurement and recognition of this element of our allowance for loan loss for new modifications that occur subsequent to January 1, 2023. As of December 31, 2022, the allowance for loan loss included $77 million related to this interest rate concession component of the allowance for loan loss. We elected to adopt this amendment using a prospective transition method which results in the $77 million releasing in 2023 and 2024 as the borrowers exit their current modification programs. $63 million of the $77 million was released in the nine months ended September 30, 2023.

 

54

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

2. Allowance for Loan Losses

Allowance for Loan Losses Roll Forward

 

 

Three Months Ended September 30, 2023

 

(Dollars in millions)

 

FFELP
Loans

 

 

Private
Education
Loans

 

 

Total

 

Beginning balance

 

$

200

 

 

$

657

 

 

$

857

 

Total provision

 

 

36

 

 

 

36

 

 

 

72

 

Charge-offs:

 

 

 

 

 

 

 

 

 

   Gross charge-offs

 

 

(16

)

 

 

(85

)

 

 

(101

)

   Expected future recoveries on current period gross charge-offs

 

 

—

 

 

 

12

 

 

 

12

 

   Total(1)

 

 

(16

)

 

 

(73

)

 

 

(89

)

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

 

 

—

 

 

 

(25

)

 

 

(25

)

Net charge-offs

 

 

(16

)

 

 

(98

)

 

 

(114

)

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

 

 

—

 

 

 

30

 

 

 

30

 

Allowance at end of period

 

$

220

 

 

$

625

 

 

$

845

 

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

 

 

.19

%

 

 

1.66

%

 

 

 

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

 

 

—

%

 

 

.56

%

 

 

 

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

 

 

.19

%

 

 

2.22

%

 

 

 

Ending total loans

 

$

39,801

 

 

$

17,958

 

 

 

 

Average loans in repayment

 

$

32,696

 

 

$

17,470

 

 

 

 

Ending loans in repayment

 

$

31,917

 

 

$

17,249

 

 

 

 

 

(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 2023, the net charge-off rate on defaulted Private Education Loans increased from 81.9% to 82.3%. This change resulted in a $25 million reduction to the balance of the expected future recoveries on previously fully charged-off loans.
(3)
At the end of each month, for Private Education Loans that are 212 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:

 

 

Three Months Ended September 30,

 

(Dollars in millions)

 

2023

 

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

 

$

262

 

Expected future recoveries of current period defaults

 

 

12

 

Recoveries (cash collected)

 

 

(11

)

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

 

 

(31

)

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

 

$

232

 

Change in balance during period

 

$

(30

)

 

55

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

2. Allowance for Loan Losses (Continued)

 

 

Three Months Ended September 30, 2022

 

(Dollars in millions)

 

FFELP Loans

 

 

Private Education Loans

 

 

Total

 

Beginning balance

 

$

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

 

$

233

 

 

$

852

 

 

$

1,085

 

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

 

 

.12

%

 

 

2.01

%

 

 

 

Net adjustment resulting from the change in 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

%

 

 

 

Ending total loans

 

$

47,124

 

 

$

20,003

 

 

 

 

Average loans in repayment

 

$

39,573

 

 

$

19,628

 

 

 

 

Ending loans in repayment

 

$

37,731

 

 

$

19,284

 

 

 

 

 

(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, the net charge-off rate on defaulted Private Education Loans increased from 81.7% to 81.9%. This change resulted in a $30 million reduction to the balance of the expected future recoveries on previously fully charged-off loans.
(3)
At the end of each month, for Private Education Loans that are 212 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:

 

 

 

Three Months Ended September 30,

 

(Dollars in millions)

 

2022

 

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

 

$

312

 

Expected future recoveries of current period defaults

 

 

19

 

Recoveries (cash collected)

 

 

(14

)

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

 

 

(37

)

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

 

$

280

 

Change in balance during period

 

$

(32

)

 

 

56

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

2. Allowance for Loan Losses (Continued)

 

 

Nine Months Ended September 30, 2023

 

(Dollars in millions)

 

FFELP Loans

 

 

Private Education Loans

 

 

Total

 

Beginning balance

 

$

222

 

 

$

800

 

 

$

1,022

 

Total provision

 

 

51

 

 

 

17

 

 

 

68

 

Charge-offs:

 

 

 

 

 

 

 

 

 

   Gross charge-offs

 

 

(53

)

 

 

(245

)

 

 

(298

)

   Expected future recoveries on current period gross charge-offs

 

 

—

 

 

 

36

 

 

 

36

 

   Total(1)

 

 

(53

)

 

 

(209

)

 

 

(262

)

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

 

 

—

 

 

 

(25

)

 

 

(25

)

Net charge-offs

 

 

(53

)

 

 

(234

)

 

 

(287

)

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

 

 

—

 

 

 

42

 

 

 

42

 

Allowance at end of period

 

$

220

 

 

$

625

 

 

$

845

 

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

 

 

.21

%

 

 

1.56

%

 

 

 

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

 

 

—

%

 

 

.18

%

 

 

 

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

 

 

.21

%

 

 

1.74

%

 

 

 

Ending total loans

 

$

39,801

 

 

$

17,958

 

 

 

 

Average loans in repayment

 

$

33,591

 

 

$

18,000

 

 

 

 

Ending loans in repayment

 

$

31,917

 

 

$

17,249

 

 

 

 

 

(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 2023, the net charge-off rate on defaulted Private Education Loans increased from 81.9% to 82.3%. This change resulted in a $25 million reduction to the balance of the expected future recoveries on previously fully charged-off loans.
(3)
At the end of each month, for Private Education Loans that are 212 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:

 

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

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

 

$

274

 

Expected future recoveries of current period defaults

 

 

36

 

Recoveries (cash collected)

 

 

(35

)

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

 

 

(43

)

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

 

$

232

 

Change in balance during period

 

$

(42

)

 

 

57

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

2. Allowance for Loan Losses (Continued)

 

 

Nine Months Ended September 30, 2022

 

(Dollars in millions)

 

FFELP Loans

 

 

Private Education Loans

 

 

Total

 

Beginning balance

 

$

262

 

 

$

1,009

 

 

$

1,271

 

Total provision

 

 

—

 

 

 

62

 

 

 

62

 

Charge-offs:

 

 

 

 

 

 

 

 

 

   Gross charge-offs

 

 

(29

)

 

 

(281

)

 

 

(310

)

   Expected future recoveries on current period gross charge-offs

 

 

—

 

 

 

43

 

 

 

43

 

   Total(1)

 

 

(29

)

 

 

(238

)

 

 

(267

)

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

 

 

—

 

 

 

(30

)

 

 

(30

)

Net charge-offs

 

 

(29

)

 

 

(268

)

 

 

(297

)

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

 

 

—

 

 

 

49

 

 

 

49

 

Allowance at end of period

 

$

233

 

 

$

852

 

 

$

1,085

 

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

 

 

.09

%

 

 

1.59

%

 

 

 

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

 

 

—

%

 

 

.20

%

 

 

 

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

 

 

.09

%

 

 

1.79

%

 

 

 

Ending total loans

 

$

47,124

 

 

$

20,003

 

 

 

 

Average loans in repayment

 

$

41,793

 

 

$

20,056

 

 

 

 

Ending loans in repayment

 

$

37,731

 

 

$

19,284

 

 

 

 

 

(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, the net charge-off rate on defaulted Private Education Loans increased from 81.7% to 81.9%. This change resulted in a $30 million reduction to the balance of the expected future recoveries on previously fully charged-off loans.
(3)
At the end of each month, for Private Education Loans that are 212 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:

 

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2022

 

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

 

$

329

 

Expected future recoveries of current period defaults

 

 

43

 

Recoveries (cash collected)

 

 

(43

)

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

 

 

(49

)

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

 

$

280

 

Change in balance during period

 

$

(49

)

 

 

58

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

2. Allowance for Loan Losses (Continued)

Key Credit Quality Indicators

We assess and determine the collectability of our education loan portfolios by evaluating certain risk characteristics we refer to as key credit quality indicators. Key credit quality indicators are incorporated into the allowance for loan losses calculation.

FFELP Loans

FFELP Loans are substantially insured and guaranteed as to their principal and accrued interest in the event of default. The key credit quality indicators are loan status and loan type.

 

 

FFELP Loan Delinquencies

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

September 30, 2022

 

(Dollars in millions)

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

Loans in-school/grace/deferment(1)

 

$

1,636

 

 

 

 

 

$

1,772

 

 

 

 

 

$

1,983

 

 

 

 

Loans in forbearance(2)

 

 

6,248

 

 

 

 

 

 

7,603

 

 

 

 

 

 

7,410

 

 

 

 

Loans in repayment and percentage of each status:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans current

 

 

26,566

 

 

 

83.2

%

 

 

29,004

 

 

 

84.4

%

 

 

30,720

 

 

 

81.4

%

Loans delinquent 31-60 days(3)

 

 

1,481

 

 

 

4.6

 

 

 

1,247

 

 

 

3.6

 

 

 

1,917

 

 

 

5.1

 

Loans delinquent 61-90 days(3)

 

 

949

 

 

 

3.0

 

 

 

833

 

 

 

2.4

 

 

 

1,291

 

 

 

3.4

 

Loans delinquent greater than 90 days(3)

 

 

2,921

 

 

 

9.2

 

 

 

3,288

 

 

 

9.6

 

 

 

3,803

 

 

 

10.1

 

Total FFELP Loans in repayment

 

 

31,917

 

 

 

100

%

 

 

34,372

 

 

 

100

%

 

 

37,731

 

 

 

100

%

Total FFELP Loans

 

 

39,801

 

 

 

 

 

 

43,747

 

 

 

 

 

 

47,124

 

 

 

 

FFELP Loan allowance for losses

 

 

(220

)

 

 

 

 

 

(222

)

 

 

 

 

 

(233

)

 

 

 

FFELP Loans, net

 

$

39,581

 

 

 

 

 

$

43,525

 

 

 

 

 

$

46,891

 

 

 

 

Percentage of FFELP Loans in repayment

 

 

 

 

 

80.2

%

 

 

 

 

 

78.6

%

 

 

 

 

 

80.1

%

Delinquencies as a percentage of FFELP Loans in
   repayment

 

 

 

 

 

16.8

%

 

 

 

 

 

15.6

%

 

 

 

 

 

18.6

%

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

 

 

 

 

 

16.4

%

 

 

 

 

 

18.1

%

 

 

 

 

 

16.4

%

(1)
Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships.
(2)
Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment 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.

Loan type:

(Dollars in millions)

 

September 30, 2023

 

 

September 30, 2022

 

 

Change

 

Stafford Loans

 

$

12,781

 

 

$

14,956

 

 

$

(2,175

)

Consolidation Loans

 

 

23,199

 

 

 

27,766

 

 

 

(4,567

)

Rehab Loans

 

 

3,821

 

 

 

4,402

 

 

 

(581

)

Total loans, gross

 

$

39,801

 

 

$

47,124

 

 

$

(7,323

)

 

 

59

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

2. Allowance for Loan Losses (Continued)

Private Education Loans

The key credit quality indicators are credit scores (FICO scores), loan status, loan seasoning, certain loan modifications, the existence of a cosigner and school type. The FICO score is the higher of the borrower or co-borrower score and is updated at least every six months while school type is assessed at origination. The other Private Education Loan key quality indicators are updated quarterly.

 

 

 

Private Education Loan Credit Quality Indicators by Origination Year

 

 

 

September 30, 2023

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Total

 

 

% of Total

 

Credit Quality
   Indicators

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FICO Scores:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

640 and above

 

$

603

 

 

$

1,641

 

 

$

4,056

 

 

$

1,303

 

 

$

1,226

 

 

$

7,471

 

 

$

16,300

 

 

 

91

%

Below 640

 

 

10

 

 

 

53

 

 

 

105

 

 

 

26

 

 

 

43

 

 

 

1,421

 

 

 

1,658

 

 

 

9

 

Total

 

$

613

 

 

$

1,694

 

 

$

4,161

 

 

$

1,329

 

 

$

1,269

 

 

$

8,892

 

 

$

17,958

 

 

 

100

%

Loan Status:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-school/grace/
   deferment/forbearance

 

$

40

 

 

$

73

 

 

$

87

 

 

$

20

 

 

$

27

 

 

$

462

 

 

$

709

 

 

 

4

%

Current/90 days or
   less delinquent

 

 

572

 

 

 

1,614

 

 

 

4,062

 

 

 

1,305

 

 

 

1,236

 

 

 

8,126

 

 

 

16,915

 

 

 

94

 

Greater than 90 days
   delinquent

 

 

1

 

 

 

7

 

 

 

12

 

 

 

4

 

 

 

6

 

 

 

304

 

 

 

334

 

 

 

2

 

Total

 

$

613

 

 

$

1,694

 

 

$

4,161

 

 

$

1,329

 

 

$

1,269

 

 

$

8,892

 

 

$

17,958

 

 

 

100

%

Seasoning(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-12 payments

 

$

576

 

 

$

451

 

 

$

36

 

 

$

8

 

 

$

4

 

 

$

59

 

 

$

1,134

 

 

 

7

%

13-24 payments

 

 

—

 

 

 

1,185

 

 

 

1,948

 

 

 

17

 

 

 

15

 

 

 

68

 

 

 

3,233

 

 

 

18

 

25-36 payments

 

 

—

 

 

 

—

 

 

 

2,123

 

 

 

624

 

 

 

44

 

 

 

124

 

 

 

2,915

 

 

 

16

 

37-48 payments

 

 

—

 

 

 

—

 

 

 

—

 

 

 

669

 

 

 

791

 

 

 

202

 

 

 

1,662

 

 

 

9

 

More than 48
   payments

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

402

 

 

 

8,247

 

 

 

8,649

 

 

 

48

 

Loans in-school/
   grace/deferment

 

 

37

 

 

 

58

 

 

 

54

 

 

 

11

 

 

 

13

 

 

 

192

 

 

 

365

 

 

 

2

 

Total

 

$

613

 

 

$

1,694

 

 

$

4,161

 

 

$

1,329

 

 

$

1,269

 

 

$

8,892

 

 

$

17,958

 

 

 

100

%

Certain Loan
   Modifications(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Modified

 

$

—

 

 

$

28

 

 

$

116

 

 

$

43

 

 

$

78

 

 

$

5,926

 

 

$

6,191

 

 

 

34

%

Non-Modified

 

 

613

 

 

 

1,666

 

 

 

4,045

 

 

 

1,286

 

 

 

1,191

 

 

 

2,966

 

 

 

11,767

 

 

 

66

 

Total

 

$

613

 

 

$

1,694

 

 

$

4,161

 

 

$

1,329

 

 

$

1,269

 

 

$

8,892

 

 

$

17,958

 

 

 

100

%

Cosigners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With cosigner(3)

 

$

159

 

 

$

183

 

 

$

97

 

 

$

24

 

 

$

8

 

 

$

5,410

 

 

$

5,881

 

 

 

33

%

Without cosigner

 

 

454

 

 

 

1,511

 

 

 

4,064

 

 

 

1,305

 

 

 

1,261

 

 

 

3,482

 

 

 

12,077

 

 

 

67

 

Total

 

$

613

 

 

$

1,694

 

 

$

4,161

 

 

$

1,329

 

 

$

1,269

 

 

$

8,892

 

 

$

17,958

 

 

 

100

%

School Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not-for-profit

 

$

576

 

 

$

1,604

 

 

$

3,919

 

 

$

1,270

 

 

$

1,181

 

 

$

7,483

 

 

$

16,033

 

 

 

89

%

For-profit

 

 

37

 

 

 

90

 

 

 

242

 

 

 

59

 

 

 

88

 

 

 

1,409

 

 

 

1,925

 

 

 

11

 

Total

 

$

613

 

 

$

1,694

 

 

$

4,161

 

 

$

1,329

 

 

$

1,269

 

 

$

8,892

 

 

$

17,958

 

 

 

100

%

Allowance for loan
   losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(625

)

 

 

 

Total loans, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

17,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-Offs

 

$

—

 

 

$

(5

)

 

$

(7

)

 

$

(4

)

 

$

(5

)

 

$

(213

)

 

$

(234

)

 

 

100

%

(1)
Number of months in active repayment for which a scheduled payment was received.
(2)
Loan Modifications represents the historical definition of a troubled debt restructuring (“TDR”) prior to the implementation of ASU 2022-02 on January 1, 2023. Any loan that meets the historical definition of a TDR retains that classification for the life of the loan (including loans that meet that definition in 2023). This includes loans given rate modifications, term extensions or forbearance greater than 3 months in the prior 24-month period. This classification is not intended to reconcile in any way to the new modification disclosures required under ASU 2022-02.
(3)
Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for total loans at September 30, 2023.

60

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

2. Allowance for Loan Losses (Continued)

 

 

 

Private Education Loan Credit Quality Indicators by Origination Year

 

 

 

September 30, 2022

 

(Dollars in millions)

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

Prior

 

 

Total

 

 

% of Total

 

Credit Quality
   Indicators

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FICO Scores:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

640 and above

 

$

1,503

 

 

$

4,708

 

 

$

1,593

 

 

$

1,502

 

 

$

556

 

 

$

8,485

 

 

$

18,347

 

 

 

92

%

Below 640

 

 

17

 

 

 

64

 

 

 

19

 

 

 

37

 

 

 

20

 

 

 

1,499

 

 

 

1,656

 

 

 

8

 

Total

 

$

1,520

 

 

$

4,772

 

 

$

1,612

 

 

$

1,539

 

 

$

576

 

 

$

9,984

 

 

$

20,003

 

 

 

100

%

Loan Status:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-school/grace/
   deferment/forbearance

 

$

31

 

 

$

88

 

 

$

28

 

 

$

34

 

 

$

13

 

 

$

525

 

 

$

719

 

 

 

4

%

Current/90 days or
   less delinquent

 

 

1,488

 

 

 

4,678

 

 

 

1,582

 

 

 

1,499

 

 

 

560

 

 

 

9,083

 

 

 

18,890

 

 

 

94

 

Greater than 90 days
   delinquent

 

 

1

 

 

 

6

 

 

 

2

 

 

 

6

 

 

 

3

 

 

 

376

 

 

 

394

 

 

 

2

 

Total

 

$

1,520

 

 

$

4,772

 

 

$

1,612

 

 

$

1,539

 

 

$

576

 

 

$

9,984

 

 

$

20,003

 

 

 

100

%

Seasoning(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-12 payments

 

$

1,499

 

 

$

2,186

 

 

$

14

 

 

$

10

 

 

$

2

 

 

$

95

 

 

$

3,806

 

 

 

19

%

13-24 payments

 

 

—

 

 

 

2,534

 

 

 

736

 

 

 

39

 

 

 

8

 

 

 

102

 

 

 

3,419

 

 

 

17

 

25-36 payments

 

 

—

 

 

 

—

 

 

 

846

 

 

 

968

 

 

 

19

 

 

 

177

 

 

 

2,010

 

 

 

10

 

37-48 payments

 

 

—

 

 

 

—

 

 

 

—

 

 

 

503

 

 

 

287

 

 

 

293

 

 

 

1,083

 

 

 

5

 

More than 48
   payments

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

254

 

 

 

9,083

 

 

 

9,337

 

 

 

47

 

Loans in-school/
   grace/deferment

 

 

21

 

 

 

52

 

 

 

16

 

 

 

19

 

 

 

6

 

 

 

234

 

 

 

348

 

 

 

2

 

Total

 

$

1,520

 

 

$

4,772

 

 

$

1,612

 

 

$

1,539

 

 

$

576

 

 

$

9,984

 

 

$

20,003

 

 

 

100

%

Certain Loan
   Modifications(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Modified

 

$

6

 

 

$

48

 

 

$

28

 

 

$

62

 

 

$

35

 

 

$

6,617

 

 

$

6,796

 

 

 

34

%

Non-Modified

 

 

1,514

 

 

 

4,724

 

 

 

1,584

 

 

 

1,477

 

 

 

541

 

 

 

3,367

 

 

 

13,207

 

 

 

66

 

Total

 

$

1,520

 

 

$

4,772

 

 

$

1,612

 

 

$

1,539

 

 

$

576

 

 

$

9,984

 

 

$

20,003

 

 

 

100

%

Cosigners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With cosigner(3)

 

$

24

 

 

$

109

 

 

$

28

 

 

$

11

 

 

$

—

 

 

$

6,425

 

 

$

6,597

 

 

 

33

%

Without cosigner

 

 

1,496

 

 

 

4,663

 

 

 

1,584

 

 

 

1,528

 

 

 

576

 

 

 

3,559

 

 

 

13,406

 

 

 

67

 

Total

 

$

1,520

 

 

$

4,772

 

 

$

1,612

 

 

$

1,539

 

 

$

576

 

 

$

9,984

 

 

$

20,003

 

 

 

100

%

School Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not-for-profit

 

$

1,427

 

 

$

4,496

 

 

$

1,541

 

 

$

1,434

 

 

$

529

 

 

$

8,338

 

 

$

17,765

 

 

 

89

%

For-profit

 

 

93

 

 

 

276

 

 

 

71

 

 

 

105

 

 

 

47

 

 

 

1,646

 

 

 

2,238

 

 

 

11

 

Total

 

$

1,520

 

 

$

4,772

 

 

$

1,612

 

 

$

1,539

 

 

$

576

 

 

$

9,984

 

 

$

20,003

 

 

 

100

%

Allowance for loan
   losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(852

)

 

 

 

Total loans, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

19,151

 

 

 

 

 

(1)
Number of months in active repayment for which a scheduled payment was received.
(2)
Loan Modifications represents the historical definition of a troubled debt restructuring (“TDR”) prior to the implementation of ASU 2022-02 on January 1, 2023. Any loan that meets the historical definition of a TDR retains that classification for the life of the loan (including loans that meet that definition in 2023). This includes loans given rate modifications, term extensions or forbearance greater than 3 months in the prior 24-month period. This classification is not intended to reconcile in any way to the new modification disclosures required under ASU 2022-02.
(3)
Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for total loans at September 30, 2022.

 

 

 

61

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

2. Allowance for Loan Losses (Continued)

 

 

 

Private Education Loan Delinquencies

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

September 30, 2022

 

(Dollars in millions)

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

Loans in-school/grace/deferment(1)

 

$

365

 

 

 

 

 

$

354

 

 

 

 

 

$

348

 

 

 

 

Loans in forbearance(2)

 

 

344

 

 

 

 

 

 

401

 

 

 

 

 

 

371

 

 

 

 

Loans in repayment and percentage of each status:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans current

 

 

16,435

 

 

 

95.3

%

 

 

17,838

 

 

 

95.0

%

 

 

18,426

 

 

 

95.6

%

Loans delinquent 31-60 days(3)

 

 

304

 

 

 

1.8

 

 

 

335

 

 

 

1.8

 

 

 

305

 

 

 

1.6

 

Loans delinquent 61-90 days(3)

 

 

176

 

 

 

1.0

 

 

 

186

 

 

 

1.0

 

 

 

159

 

 

 

.8

 

Loans delinquent greater than 90 days(3)

 

 

334

 

 

 

1.9

 

 

 

411

 

 

 

2.2

 

 

 

394

 

 

 

2.0

 

Total loans in repayment

 

 

17,249

 

 

 

100

%

 

 

18,770

 

 

 

100

%

 

 

19,284

 

 

 

100

%

Total loans

 

 

17,958

 

 

 

 

 

 

19,525

 

 

 

 

 

 

20,003

 

 

 

 

Allowance for losses

 

 

(625

)

 

 

 

 

 

(800

)

 

 

 

 

 

(852

)

 

 

 

Loans, net

 

$

17,333

 

 

 

 

 

$

18,725

 

 

 

 

 

$

19,151

 

 

 

 

Percentage of loans in repayment

 

 

 

 

 

96.1

%

 

 

 

 

 

96.1

%

 

 

 

 

 

96.4

%

Delinquencies as a percentage of loans in
   repayment

 

 

 

 

 

4.7

%

 

 

 

 

 

5.0

%

 

 

 

 

 

4.4

%

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

 

 

 

 

 

2.0

%

 

 

 

 

 

2.1

%

 

 

 

 

 

1.9

%

 

(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.

 

 

62

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

2. Allowance for Loan Losses (Continued)

Loan Modifications to Borrowers Experiencing Financial Difficulty

We adjust the terms of Private Education Loans for certain borrowers when we believe such changes will help our customers better manage their student loan obligations, achieve better outcomes and increase the collectability of the loans. These changes generally take the form of a temporary interest rate reduction, a temporary forbearance of payments, a temporary interest only payment, and a temporary interest rate reduction with a permanent extension of the loan term. The effect of modifications of loans made to borrowers who are experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance. The model design predicts borrowers that will have financial difficulty in the future and require loan modification and increased life of loan default risk.

Under our current forbearance practices, temporary hardship forbearance of payments generally cannot exceed 12 months over the life of the loan. However, exceptions can be made in cases where borrowers have shown the ability to make a substantial number of monthly principal and interest payments and in those cases borrowers can be granted up to 24 months of hardship forbearance over the life of the loan. We offer other administrative forbearances (e.g., death and disability, bankruptcy, military service, and disaster forbearance) that are either required by law (such as the Servicemembers Civil Relief Act) or are considered separate from our active loss mitigation programs and therefore are not considered to be loan modifications requiring disclosure under ASU No. 2022-02.

FFELP loans are at least 97 percent guaranteed as to their principal and accrued interest by the federal government in the event of default and, therefore, we do not deem FFELP loans as nonperforming from a credit risk perspective at any point in their life cycle prior to claim payment and continue to accrue interest on those loans through the date of claim. Further, FFELP loan modification events are either legal entitlements subject to regulatory-driven eligibility criteria or addressed in the promissory note terms, so we do not consider these events as a component of our loan modification programs.

The following tables show the amortized cost basis as of September 30, 2023 of the loans to borrowers experiencing financial difficulty that were modified in the three and nine months ended September 30, 2023.

 

 

 

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

 

 

 

Three Months Ended September 30, 2023

 

(Dollars in millions)

 

Interest Rate Reductions(1)

 

 

More Than an Insignificant Payment Delay (2)

 

 

Combination Rate Reduction and Term Extension

 

Loan Type

 

Amortized Cost

 

 

% of Loan Type

 

 

Amortized Cost

 

 

% of Loan Type

 

 

Amortized Cost

 

 

% of Loan Type

 

Private Education
   Loans

 

$

592

 

 

 

3.3

%

 

$

305

 

 

 

1.7

%

 

$

42

 

 

 

.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2023

 

(Dollars in millions)

 

Interest Rate Reductions(1)

 

 

More Than an Insignificant Payment Delay (2)

 

 

Combination Rate Reduction and Term Extension

 

Loan Type

 

Amortized Cost

 

 

% of Loan Type

 

 

Amortized Cost

 

 

% of Loan Type

 

 

Amortized Cost

 

 

% of Loan Type

 

Private Education
   Loans

 

$

1,488

 

 

 

8.3

%

 

$

773

 

 

 

4.3

%

 

$

119

 

 

 

.7

%

 

(1)
As of September 30, 2023, there was $1.2 billion of loans in the interest rate reduction program.
(2)
More Than an Insignificant Payment Delay includes loans granted more than 3 months of short-term interest only payments or hardship forbearance.

 

 

63

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

2. Allowance for Loan Losses (Continued)

For those loans modified in the three and nine months ended September 30, 2023, the following tables show the impact of such modification.

 

Three Months Ended September 30, 2023

Loan Type

Interest Rate Reductions

More Than an Insignificant Payment Delay

Combination Rate Reduction and Term Extension

Private Education Loans

Reduced the weighted average contractual rate from 13.4% to 5.5%

Added an average 6 months to the remaining life of the loans

Added an average 7 years to the remaining life of the loans and reduced the weighted average contractual rate from
 13% to 5.4%.

 

 

 

 

Nine Months Ended September 30, 2023

Loan Type

Interest Rate Reductions

More Than an Insignificant Payment Delay

Combination Rate Reduction and Term Extension

Private Education Loans

Reduced the weighted average contractual rate from 13.1% to 5.2%

Added an average 6 months to the remaining life of the loans

Added an average 8 years to the remaining life of the loans and reduced the weighted average contractual rate from
 12.6% to 5.2%.

 

 

 

 

64

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

2. Allowance for Loan Losses (Continued)

The following table provides the amount of loan modifications for which a payment default occurred in the three and nine months ended September 30, 2023 and receiving a loan modification since January 1, 2023, the effective date of adoption for ASU No. 2022-02. We define payment default as 60 days or more past due for purposes of this disclosure. We closely monitor performance of the loans to borrowers experiencing financial difficulty that are modified to understand the effectiveness of the modification efforts.

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2023

 

 

Nine Months Ended September 30, 2023

 

Loan Type

 

Modified Loans
(Amortized Cost)

 

 

Payment Default (Par)

 

 

Modified Loans
(Amortized Cost)

 

 

Payment Default (Par)

 

Private Education Loans(1)

 

$

65

 

 

$

67

 

 

$

123

 

 

$

126

 

 

(1)
For the three months ended September 30, 2023, the modified loans include $44 million of Interest Rate Reduction, $3 million of Combination Rate Reduction and Term Extension, and $18 million of More Than Insignificant Payment Delay. For the nine months ended September 30, 2023, the modified loans include $78 million of Interest Rate Reduction, $6 million of Combination Rate Reduction and Term Extension, and $39 million of More Than Insignificant Payment Delay.

 

 

The following table provides the performance and related loan status as of September 30, 2023 of loans that were modified in the nine months ended September 30, 2023.

 

(Dollars in millions)

 

 

 

 

 

Loan Type:

 

 

 

 

 

Private Education Loans

 

Status

 

Payment status (Amortized Cost)

 

 

 

Loans in School/Deferment

 

$

16

 

 

 

Loans in Forbearance

 

 

67

 

 

 

Loans current

 

 

2,039

 

 

 

Loans delinquent 31 - 60 days

 

 

133

 

 

 

Loans delinquent 61 - 90 days

 

 

61

 

 

 

Loans delinquent greater than 90 days

 

 

64

 

 

 

  Total Modified Loans

 

$

2,380

 

 

(1)
For the nine months ended September 30, 2023, $5 million of loans modified during the period were charged off.

 

65

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

2. Allowance for Loan Losses (Continued)

Prior to our adoption of ASU 2022-02 on January 1, 2023, we accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. Certain Private Education Loans for which we have granted either a forbearance of greater than three months, an interest rate reduction or an extended repayment plan were classified as TDRs.

The following table provides the amount of loans modified in the period presented that resulted in a TDR. Additionally, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the current period within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2022

 

 

2022

 

Modified loans

 

$

68

 

 

$

186

 

Charge-offs

 

$

101

 

 

$

217

 

Payment default

 

$

13

 

 

$

31

 

 

66

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

3. Borrowings

The following table summarizes our borrowings.

 

 

September 30, 2023

 

 

December 31, 2022

 

(Dollars in millions)

 

Short
Term

 

 

Long
Term

 

 

Total

 

 

Short
Term

 

 

Long
Term

 

 

Total

 

Unsecured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured debt(1)

 

$

856

 

 

$

5,355

 

 

$

6,211

 

 

$

1,301

 

 

$

5,711

 

 

$

7,012

 

Total unsecured borrowings

 

 

856

 

 

 

5,355

 

 

 

6,211

 

 

 

1,301

 

 

 

5,711

 

 

 

7,012

 

Secured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loan securitizations(2)(3)

 

 

62

 

 

 

36,961

 

 

 

37,023

 

 

 

76

 

 

 

42,675

 

 

 

42,751

 

Private Education Loan securitizations(4)

 

 

498

 

 

 

11,766

 

 

 

12,264

 

 

 

725

 

 

 

12,744

 

 

 

13,469

 

FFELP Loan ABCP facilities

 

 

1,510

 

 

 

456

 

 

 

1,966

 

 

 

923

 

 

 

386

 

 

 

1,309

 

Private Education Loan ABCP facilities

 

 

1,702

 

 

 

859

 

 

 

2,561

 

 

 

2,734

 

 

 

—

 

 

 

2,734

 

Other(5)

 

 

44

 

 

 

40

 

 

 

84

 

 

 

121

 

 

 

—

 

 

 

121

 

Total secured borrowings

 

 

3,816

 

 

 

50,082

 

 

 

53,898

 

 

 

4,579

 

 

 

55,805

 

 

 

60,384

 

Total before hedge accounting adjustments

 

 

4,672

 

 

 

55,437

 

 

 

60,109

 

 

 

5,880

 

 

 

61,516

 

 

 

67,396

 

Hedge accounting adjustments

 

 

(10

)

 

 

(530

)

 

 

(540

)

 

 

(10

)

 

 

(490

)

 

 

(500

)

Total

 

$

4,662

 

 

$

54,907

 

 

$

59,569

 

 

$

5,870

 

 

$

61,026

 

 

$

66,896

 

 

(1)
Includes principal amount of $856 million and $1.3 billion of short-term debt as of September 30, 2023 and December 31, 2022, respectively. Includes principal amount of $5.4 billion and $5.7 billion of long-term debt as of September 30, 2023 and December 31, 2022, respectively.
(2)
Includes $62 million and $76 million of short-term debt related to the FFELP Loan ABS repurchase facilities (FFELP Loan Repurchase Facilities) and as of September 30, 2023 and December 31, 2022, respectively. Includes $127 million and $0 million of long-term debt related to the FFELP Loan ABS repurchase facilities (FFELP Loan Repurchase Facilities) as of September 30, 2023 and December 31, 2022, respectively.
(3)
Includes defaulted FFELP secured debt tranches with a remaining principal amount of $1.7 billion as of September 30, 2023 as a result of not maturing by their respective contractual maturity dates. Notices were delivered to the trustee, rating agencies and bondholders alerting them to these maturity date defaults. At this time, it is expected the bonds will be paid in full between 2030 and 2036. There is no impact to the principal amount owed or the coupon at which the bonds accrue, and there is no revised contractual maturity date.
(4)
Includes $498 million and $725 million of short-term debt related to the Private Education Loan ABS repurchase facilities (Private Education Loan Repurchase Facilities) as of September 30, 2023 and December 31, 2022, respectively.
(5)
“Other” primarily includes the obligation to return cash collateral held related to derivative exposure.

 

 

67

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

3. Borrowings (Continued)

Variable Interest Entities

We consolidated the following financing VIEs as of September 30, 2023 and December 31, 2022, as we are the primary beneficiary. As a result, these VIEs are accounted for as secured borrowings.

 

 

 

September 30, 2023

 

 

 

Debt Outstanding

 

 

Carrying Amount of Assets Securing
Debt Outstanding

 

(Dollars in millions)

 

Short
Term

 

 

Long
Term

 

 

Total

 

 

Loans

 

 

Cash

 

 

Other
Assets

 

 

Total

 

Secured Borrowings — VIEs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loan securitizations

 

$

62

 

 

$

36,961

 

 

$

37,023

 

 

$

37,509

 

 

$

1,313

 

 

$

1,624

 

 

$

40,446

 

Private Education Loan securitizations

 

 

498

 

 

 

11,766

 

 

 

12,264

 

 

 

13,294

 

 

 

349

 

 

 

106

 

 

 

13,749

 

FFELP Loan ABCP facilities

 

 

1,510

 

 

 

456

 

 

 

1,966

 

 

 

1,984

 

 

 

36

 

 

 

79

 

 

 

2,099

 

Private Education Loan ABCP facilities

 

 

1,702

 

 

 

859

 

 

 

2,561

 

 

 

2,895

 

 

 

100

 

 

 

57

 

 

 

3,052

 

Total before hedge accounting
   adjustments

 

 

3,772

 

 

 

50,042

 

 

 

53,814

 

 

 

55,682

 

 

 

1,798

 

 

 

1,866

 

 

 

59,346

 

Hedge accounting adjustments

 

 

—

 

 

 

(193

)

 

 

(193

)

 

 

—

 

 

 

—

 

 

 

(251

)

 

 

(251

)

Total

 

$

3,772

 

 

$

49,849

 

 

$

53,621

 

 

$

55,682

 

 

$

1,798

 

 

$

1,615

 

 

$

59,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

Debt Outstanding

 

 

Carrying Amount of Assets Securing
Debt Outstanding

 

(Dollars in millions)

 

Short
Term

 

 

Long
Term

 

 

Total

 

 

Loans

 

 

Cash

 

 

Other
Assets

 

 

Total

 

Secured Borrowings — VIEs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loan securitizations

 

$

76

 

 

$

42,675

 

 

$

42,751

 

 

$

42,148

 

 

$

2,705

 

 

$

1,544

 

 

$

46,397

 

Private Education Loan securitizations

 

 

725

 

 

 

12,744

 

 

 

13,469

 

 

 

14,168

 

 

 

367

 

 

 

105

 

 

 

14,640

 

FFELP Loan ABCP facilities

 

 

923

 

 

 

386

 

 

 

1,309

 

 

 

1,317

 

 

 

39

 

 

 

44

 

 

 

1,400

 

Private Education Loan ABCP facilities

 

 

2,734

 

 

 

—

 

 

 

2,734

 

 

 

3,039

 

 

 

122

 

 

 

(81

)

 

 

3,080

 

Total before hedge accounting
   adjustments

 

 

4,458

 

 

 

55,805

 

 

 

60,263

 

 

 

60,672

 

 

 

3,233

 

 

 

1,612

 

 

 

65,517

 

Hedge accounting adjustments

 

 

—

 

 

 

(207

)

 

 

(207

)

 

 

—

 

 

 

—

 

 

 

(256

)

 

 

(256

)

Total

 

$

4,458

 

 

$

55,598

 

 

$

60,056

 

 

$

60,672

 

 

$

3,233

 

 

$

1,356

 

 

$

65,261

 

 

 

68

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

4. Derivative Financial Instruments

Summary of Derivative Financial Statement Impact

The following tables summarize the fair values and notional amounts of all derivative instruments and their impact on net income and other comprehensive income.

Impact of Derivatives on Balance Sheet

 

 

 

 

Cash Flow

 

 

Fair Value(3)

 

 

Trading

 

 

Total

 

(Dollars in millions)

 

Hedged Risk
Exposure

 

Sep 30, 2023

 

 

Dec 31, 2022

 

 

Sep 30, 2023

 

 

Dec 31, 2022

 

 

Sep 30, 2023

 

 

Dec 31, 2022

 

 

Sep 30, 2023

 

 

Dec 31, 2022

 

Fair Values(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

Interest rate

 

$

—

 

 

$

—

 

 

$

17

 

 

$

55

 

 

$

—

 

 

$

1

 

 

$

17

 

 

$

56

 

Cross-currency interest rate
   swaps

 

Foreign currency and
interest rate

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total derivative assets(2)

 

 

 

 

—

 

 

 

—

 

 

 

17

 

 

 

55

 

 

 

—

 

 

 

1

 

 

 

17

 

 

 

56

 

Derivative Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

Interest rate

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2

)

 

 

(1

)

 

 

(3

)

 

 

(1

)

 

 

(5

)

Floor Income Contracts

 

Interest rate

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Cross-currency interest rate
   swaps

 

Foreign currency and
interest rate

 

 

—

 

 

 

—

 

 

 

(250

)

 

 

(253

)

 

 

—

 

 

 

—

 

 

 

(250

)

 

 

(253

)

Total derivative liabilities(2)

 

 

 

 

—

 

 

 

—

 

 

 

(250

)

 

 

(255

)

 

 

(1

)

 

 

(3

)

 

 

(251

)

 

 

(258

)

Net total derivatives

 

 

 

$

—

 

 

$

—

 

 

$

(233

)

 

$

(200

)

 

$

(1

)

 

$

(2

)

 

$

(234

)

 

$

(202

)

(1)
Fair values reported are exclusive of collateral held and pledged and accrued interest. Assets and liabilities are presented without consideration of master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements and classified in other assets or other liabilities depending on whether in a net positive or negative position.
(2)
The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:

 

 

Other Assets

 

 

Other Liabilities

 

(Dollar in millions)

 

September 30, 2023

 

 

December 31, 2022

 

 

September 30, 2023

 

 

December 31, 2022

 

Gross position

 

$

17

 

 

$

56

 

 

$

(251

)

 

$

(258

)

Impact of master netting agreements

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Derivative values with impact of master netting
   agreements (as carried on balance sheet)

 

 

17

 

 

 

56

 

 

 

(251

)

 

 

(258

)

Cash collateral (held) pledged

 

 

(8

)

 

 

(80

)

 

 

51

 

 

 

62

 

Net position

 

$

9

 

 

$

(24

)

 

$

(200

)

 

$

(196

)

 

(3)
The following table shows the carrying value of liabilities in fair value hedges and the related fair value hedging adjustments to these liabilities:

 

 

 

As of September 30, 2023

 

 

As of December 31, 2022

 

(Dollar in millions)

 

Carrying
 Value

 

 

Hedge Basis Adjustments

 

 

Carrying
 Value

 

 

Hedge Basis Adjustments

 

Short-term borrowings

 

$

839

 

 

$

(10

)

 

$

1,289

 

 

$

(10

)

Long-term borrowings

 

$

5,624

 

 

$

(533

)

 

$

6,188

 

 

$

(494

)

 

 

69

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

4. Derivative Financial Instruments (Continued)

The above fair values include adjustments when necessary for counterparty credit risk for both when we are exposed to the counterparty, net of collateral postings, and when the counterparty is exposed to us, net of collateral postings. The net adjustments decreased the asset position at September 30, 2023 and December 31, 2022 by $4 million and $6 million, respectively. In addition, the above fair values reflect adjustments for illiquid derivatives as indicated by a wide bid/ask spread in the interest rate indices to which the derivatives are indexed. These adjustments decreased the overall net asset positions at September 30, 2023 and December 31, 2022 by $1 million and $1 million, respectively.

 

 

Cash Flow

 

 

Fair Value

 

 

Trading

 

 

Total

 

(Dollars in billions)

 

Sep 30, 2023

 

 

Dec 31, 2022

 

 

Sep 30, 2023

 

 

Dec 31, 2022

 

 

Sep 30, 2023

 

 

Dec 31, 2022

 

 

Sep 30, 2023

 

 

Dec 31, 2022

 

Notional Values:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

4.2

 

 

$

8.3

 

 

$

5.4

 

 

$

6.2

 

 

$

1.7

 

 

$

17.4

 

 

$

11.3

 

 

$

31.9

 

Floor Income Contracts

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6.0

 

 

 

—

 

 

 

6.0

 

Cross-currency interest rate swaps

 

 

—

 

 

 

—

 

 

 

1.7

 

 

 

1.8

 

 

 

—

 

 

 

—

 

 

 

1.7

 

 

 

1.8

 

Total derivatives

 

$

4.2

 

 

$

8.3

 

 

$

7.1

 

 

$

8.0

 

 

$

1.7

 

 

$

23.4

 

 

$

13.0

 

 

$

39.7

 

 

Mark-to-Market Impact of Derivatives on Statements of Income

 

 

Total Gains (Losses)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Fair Value Hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate Swaps

 

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) recognized in net income on derivatives

 

$

(65

)

 

$

(193

)

 

$

(66

)

 

$

(629

)

Gains (losses) recognized in net income on hedged
   items

 

 

68

 

 

 

210

 

 

 

53

 

 

 

680

 

Net fair value hedge ineffectiveness gains (losses)

 

 

3

 

 

 

17

 

 

 

(13

)

 

 

51

 

Cross currency interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) recognized in net income on derivatives

 

 

(15

)

 

 

(127

)

 

 

4

 

 

 

(217

)

Gains (losses) recognized in net income on hedged
   items

 

 

31

 

 

 

104

 

 

 

(14

)

 

 

251

 

Net fair value hedge ineffectiveness gains (losses)

 

 

16

 

 

 

(23

)

 

 

(10

)

 

 

34

 

Total fair value hedges(1)(2)

 

 

19

 

 

 

(6

)

 

 

(23

)

 

 

85

 

Cash Flow Hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Total cash flow hedges(2)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Trading:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

26

 

 

 

40

 

 

 

44

 

 

 

120

 

Floor income contracts

 

 

—

 

 

 

—

 

 

 

—

 

 

 

41

 

Cross currency interest rate swaps

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total trading derivatives(3)

 

 

26

 

 

 

40

 

 

 

44

 

 

 

161

 

Mark-to-market gains (losses) recognized

 

$

45

 

 

$

34

 

 

$

21

 

 

$

246

 

(1)
Recorded in interest expense in the consolidated statements of income.
(2)
The accrued interest income (expense) on fair value hedges and cash flow hedges is recorded in interest expense and is excluded from this table.
(3)
Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.

 

 

70

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

4. Derivative Financial Instruments (Continued)

Impact of Derivatives on Other Comprehensive Income (Equity)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Total gains (losses) on cash flow hedges

 

$

4

 

 

$

52

 

 

$

19

 

 

$

179

 

Reclassification adjustments for derivative (gains) losses
    included in net income (interest expense)(1)

 

 

(26

)

 

 

2

 

 

 

(63

)

 

 

38

 

Net changes in cash flow hedges, net of tax

 

$

(22

)

 

$

54

 

 

$

(44

)

 

$

217

 

(1)
Includes net settlement income/expense.

Collateral

The following table details collateral held and pledged related to derivative exposure between us and our derivative counterparties:

(Dollars in millions)

 

September 30, 2023

 

 

December 31, 2022

 

Collateral held:

 

 

 

 

 

 

Cash (obligation to return cash collateral is recorded in short-term borrowings)

 

$

8

 

 

$

80

 

Securities at fair value — corporate derivatives (not recorded in financial
   statements)(1)

 

 

—

 

 

 

—

 

Securities at fair value — on-balance sheet securitization derivatives (not
   recorded in financial statements)(2)

 

 

—

 

 

 

—

 

Total collateral held

 

$

8

 

 

$

80

 

Derivative asset at fair value including accrued interest

 

$

16

 

 

$

85

 

Collateral pledged to others:

 

 

 

 

 

 

Cash (right to receive return of cash collateral is recorded in investments)

 

$

51

 

 

$

62

 

Total collateral pledged

 

$

51

 

 

$

62

 

Derivative liability at fair value including accrued interest and premium
   receivable

 

$

258

 

 

$

266

 

(1)
The Company has the ability to sell or re-pledge securities it holds as collateral.
(2)
The trusts do not have the ability to sell or re-pledge securities they hold as collateral.

 

Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully collateralized our corporate derivative liability position (including accrued interest and net of premiums receivable) of $0 with our counterparties. Downgrades in our unsecured credit rating would not result in any additional collateral requirements. Trust related derivatives do not contain credit contingent features related to our or the trusts’ credit ratings.

The table below highlights credit exposure related to our derivative counterparties at September 30, 2023.

(Dollars in millions)

 

Corporate
Contracts

 

 

Securitization
Trust
Contracts

 

Exposure, net of collateral

 

$

11

 

 

$

—

 

Percent of exposure to counterparties with credit ratings
   below S&P AA- or Moody’s Aa3

 

 

100

%

 

 

—

%

Percent of exposure to counterparties with credit ratings
   below S&P A- or Moody’s A3

 

 

—

%

 

 

—

%

 

71

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

5. Other Assets

The following table provides the detail of our other assets.

(Dollars in millions)

 

September 30, 2023

 

 

December 31, 2022

 

Accrued interest receivable

 

$

2,102

 

 

$

2,031

 

Benefit and insurance-related investments

 

 

456

 

 

 

452

 

Income tax asset, net

 

 

85

 

 

 

132

 

Derivatives at fair value

 

 

17

 

 

 

56

 

Accounts receivable

 

 

97

 

 

 

83

 

Fixed assets

 

 

67

 

 

 

74

 

Other

 

 

29

 

 

 

38

 

Total

 

$

2,853

 

 

$

2,866

 

72

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

6. Stockholders’ Equity

The following table summarizes common share repurchases, issuances and dividends paid.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars and shares in millions, except per share amounts)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Common stock repurchased(1)

 

 

4.2

 

 

 

6.3

 

 

 

13.9

 

 

 

19.4

 

Common stock repurchased (in dollars)(1)

 

$

75

 

 

$

95

 

 

$

240

 

 

$

315

 

Average purchase price per share(1)

 

$

18.01

 

 

$

15.19

 

 

$

17.22

 

 

$

16.25

 

Remaining common stock repurchase authority(1)

 

$

360

 

 

$

685

 

 

$

360

 

 

$

685

 

Shares repurchased related to employee stock-
   based compensation plans(2)

 

 

—

 

 

 

—

 

 

 

1.3

 

 

 

1.1

 

Average purchase price per share(2)

 

$

—

 

 

$

—

 

 

$

18.44

 

 

$

17.91

 

Common shares issued(3)

 

 

.1

 

 

 

—

 

 

 

2.6

 

 

 

2.4

 

Dividends paid

 

$

19

 

 

$

22

 

 

$

59

 

 

$

69

 

Dividends per share

 

$

.16

 

 

$

.16

 

 

$

.48

 

 

$

.48

 

(1)
Common shares purchased under our share repurchase program. Our board of directors authorized a $1 billion multi-year share repurchase program in December 2021.
(2)
Comprises shares withheld from stock option exercises and vesting of restricted stock for employees’ tax withholding obligations and shares tendered by employees to satisfy option exercise costs.
(3)
Common shares issued under our various compensation and benefit plans.

The closing price of our common stock on September 29, 2023 was $17.22.

7. Earnings (Loss) per Common Share

Basic earnings (loss) per common share (EPS) are calculated using the weighted average number of shares of common stock outstanding during each period. A reconciliation of the numerators and denominators of the basic and diluted EPS calculations on a GAAP basis follows.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In millions, except per share data)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

79

 

 

$

105

 

 

$

256

 

 

$

540

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used to compute basic EPS

 

 

120

 

 

 

139

 

 

 

124

 

 

 

145

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of stock options, restricted stock,
   restricted stock units, performance stock units,
   and Employee Stock Purchase Plan (ESPP)(1)

 

 

1

 

 

 

2

 

 

 

1

 

 

 

2

 

Dilutive potential common shares(2)

 

 

1

 

 

 

2

 

 

 

1

 

 

 

2

 

Weighted average shares used to compute
   diluted EPS

 

 

121

 

 

 

141

 

 

 

125

 

 

 

147

 

Basic earnings per common share

 

$

.66

 

 

$

.75

 

 

$

2.06

 

 

$

3.71

 

Diluted earnings per common share

 

$

.65

 

 

$

.75

 

 

$

2.04

 

 

$

3.67

 

 

(1)
Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options, restricted stock, restricted stock units, performance stock units and the outstanding commitment to issue shares under applicable ESPPs, determined by the treasury stock method.
(2)
For the three months ended September 30, 2023 and 2022, securities covering approximately 0 million and 0 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive. For the nine months ended September 30, 2023 and 2022, securities covering approximately 0 million and 0 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive

 

 

73

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

 

8. Fair Value Measurements

We use estimates of fair value in applying various accounting standards in our financial statements. We categorize our fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. The fair value of the items discussed below are separately disclosed in this footnote.

During the three and nine months ended September 30, 2023, there were no significant transfers of financial instruments between levels, or changes in our methodology used to value our financial instruments.

The following table summarizes the valuation of our financial instruments that are marked-to-market on a recurring basis. During the third quarters of 2023 and 2022, there were no significant transfers of financial instruments between levels.

 

 

 

Fair Value Measurements on a Recurring Basis

 

 

 

September 30, 2023

 

 

December 31, 2022

 

(Dollars in millions)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

—

 

 

 

17

 

 

 

—

 

 

 

17

 

 

 

—

 

 

 

55

 

 

 

1

 

 

 

56

 

Cross-currency interest rate swaps

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total derivative assets(2)

 

 

—

 

 

 

17

 

 

 

—

 

 

 

17

 

 

 

—

 

 

 

55

 

 

 

1

 

 

 

56

 

Total

 

$

—

 

 

$

17

 

 

$

—

 

 

$

17

 

 

$

—

 

 

$

55

 

 

$

1

 

 

$

56

 

Liabilities(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

—

 

 

$

—

 

 

$

(1

)

 

$

(1

)

 

$

—

 

 

$

(2

)

 

$

(3

)

 

$

(5

)

Floor Income Contracts

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Cross-currency interest rate swaps

 

 

—

 

 

 

—

 

 

 

(250

)

 

 

(250

)

 

 

—

 

 

 

—

 

 

 

(253

)

 

 

(253

)

Total derivative liabilities(2)

 

 

—

 

 

 

—

 

 

 

(251

)

 

 

(251

)

 

 

—

 

 

 

(2

)

 

 

(256

)

 

 

(258

)

Total

 

$

—

 

 

$

—

 

 

$

(251

)

 

$

(251

)

 

$

—

 

 

$

(2

)

 

$

(256

)

 

$

(258

)

 

(1)
Fair value of derivative instruments excludes accrued interest and the value of collateral.
(2)
See "Note 4 – Derivative Financial Instruments" for a reconciliation of gross positions without the impact of master netting agreements to the balance sheet classification.
(3)
Borrowings which are the hedged item in a fair value hedge relationship and which are adjusted for changes in value due to benchmark interest rates only are not carried at full fair value and not reflected in this table.

 

 

74

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

8. Fair Value Measurements (Continued)

The following tables summarize the change in balance sheet carrying value associated with level 3 financial instruments carried at fair value on a recurring basis.

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

 

Derivative instruments

 

 

Derivative instruments

 

(Dollars in millions)

 

Interest
Rate Swaps

 

 

Cross
Currency
Interest
Rate Swaps

 

 

Other

 

 

Total
Derivative
Instruments

 

 

Interest
Rate Swaps

 

 

Cross
Currency
Interest
Rate Swaps

 

 

Other

 

 

Total
Derivative
Instruments

 

Balance, beginning of
   period

 

$

(2

)

 

$

(234

)

 

$

—

 

 

$

(236

)

 

$

(3

)

 

$

(279

)

 

$

—

 

 

$

(282

)

Total gains/(losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings(1)

 

 

1

 

 

 

(27

)

 

 

—

 

 

 

(26

)

 

 

1

 

 

 

(141

)

 

 

—

 

 

 

(140

)

Included in other
   comprehensive
   income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Settlements

 

 

—

 

 

 

11

 

 

 

—

 

 

 

11

 

 

 

—

 

 

 

13

 

 

 

—

 

 

 

13

 

Transfers in and/or out
   of level 3

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Balance, end of period

 

$

(1

)

 

$

(250

)

 

$

—

 

 

$

(251

)

 

$

(2

)

 

$

(407

)

 

$

—

 

 

$

(409

)

Change in mark-to-
   market gains/(losses)
   relating to instruments
   still held at the
   reporting date(2)

 

$

1

 

 

$

(16

)

 

$

—

 

 

$

(15

)

 

$

1

 

 

$

(128

)

 

$

—

 

 

$

(127

)

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

 

Derivative instruments

 

 

Derivative instruments

 

(Dollars in millions)

 

Interest
Rate Swaps

 

 

Cross
Currency
Interest
Rate Swaps

 

 

Other

 

 

Total
Derivative
Instruments

 

 

Interest
Rate Swaps

 

 

Cross
Currency
Interest
Rate Swaps

 

 

Other

 

 

Total
Derivative
Instruments

 

Balance, beginning of
   period

 

$

(2

)

 

$

(253

)

 

$

—

 

 

$

(255

)

 

$

(4

)

 

$

(190

)

 

$

—

 

 

$

(194

)

Total gains/(losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings(1)

 

 

1

 

 

 

(33

)

 

 

—

 

 

 

(32

)

 

 

1

 

 

 

(244

)

 

 

—

 

 

 

(243

)

Included in other
   comprehensive
   income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Settlements

 

 

—

 

 

 

36

 

 

 

—

 

 

 

36

 

 

 

1

 

 

 

27

 

 

 

—

 

 

 

28

 

Transfers in and/or out
   of level 3

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Balance, end of
   period

 

$

(1

)

 

$

(250

)

 

$

—

 

 

$

(251

)

 

$

(2

)

 

$

(407

)

 

$

—

 

 

$

(409

)

Change in mark-to-
   market gains/(losses)
   relating to instruments
   still held at the
   reporting date(2)

 

$

1

 

 

$

3

 

 

$

—

 

 

$

4

 

 

$

1

 

 

$

(217

)

 

$

—

 

 

$

(216

)

 

(1)
“Included in earnings” is comprised of the following amounts recorded in the specified line item in the consolidated statements of income:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Gains (losses) on derivative and hedging activities, net

 

$

1

 

 

$

1

 

 

$

1

 

 

$

1

 

Interest expense

 

 

(27

)

 

 

(141

)

 

 

(33

)

 

 

(244

)

Total

 

$

(26

)

 

$

(140

)

 

$

(32

)

 

$

(243

)

(2)
Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.

 

 

75

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

8. Fair Value Measurements (Continued)

The following table presents the significant inputs that are unobservable or from inactive markets used in the recurring valuations of the level 3 financial instruments detailed above.

(Dollars in millions)

 

Fair Value at September 30, 2023

 

 

Valuation
Technique

 

Input

 

Range and
Weighted
Average

Derivatives

 

 

 

 

 

 

 

 

 

Prime/LIBOR basis swaps

 

$

(1

)

 

Discounted cash flow

 

Constant Prepayment Rate

 

10%

 

 

 

 

 

 

 

Bid/ask adjustment to
discount rate

 

.08%

Cross-currency interest rate swaps

 

 

(250

)

 

Discounted cash flow

 

Constant Prepayment Rate

 

5%

Other

 

 

—

 

 

 

 

 

 

 

Total

 

$

(251

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.

 

 

September 30, 2023

 

 

December 31, 2022

 

(Dollars in millions)

 

Fair
Value

 

 

Carrying
Value

 

 

Difference

 

 

Fair
Value

 

 

Carrying
Value

 

 

Difference

 

Earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loans

 

$

38,180

 

 

$

39,581

 

 

$

(1,401

)

 

$

41,426

 

 

$

43,525

 

 

$

(2,099

)

Private Education Loans

 

 

16,418

 

 

 

17,333

 

 

 

(915

)

 

 

17,880

 

 

 

18,725

 

 

 

(845

)

Cash and investments

 

 

2,950

 

 

 

2,950

 

 

 

—

 

 

 

4,974

 

 

 

4,974

 

 

 

—

 

Total earning assets

 

 

57,548

 

 

 

59,864

 

 

 

(2,316

)

 

 

64,280

 

 

 

67,224

 

 

 

(2,944

)

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

4,670

 

 

 

4,662

 

 

 

(8

)

 

 

5,879

 

 

 

5,870

 

 

 

(9

)

Long-term borrowings

 

 

52,570

 

 

 

54,907

 

 

 

2,337

 

 

 

57,652

 

 

 

61,026

 

 

 

3,374

 

Total interest-bearing liabilities

 

 

57,240

 

 

 

59,569

 

 

 

2,329

 

 

 

63,531

 

 

 

66,896

 

 

 

3,365

 

Derivative financial instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Floor Income Contracts

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Interest rate swaps

 

 

16

 

 

 

16

 

 

 

—

 

 

 

51

 

 

 

51

 

 

 

—

 

Cross-currency interest rate swaps

 

 

(250

)

 

 

(250

)

 

 

—

 

 

 

(253

)

 

 

(253

)

 

 

—

 

Other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Excess of net asset fair value over carrying value

 

 

 

 

 

 

 

$

13

 

 

 

 

 

 

 

 

$

421

 

 

 

76

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

9. Commitments, Contingencies and Guarantees

We and our subsidiaries and affiliates are subject to various claims, lawsuits and other actions that arise in the normal course of business. We believe that these claims, lawsuits and other actions will not, individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations, except as otherwise disclosed. Most of these matters are claims including individual and class action lawsuits against our servicing or business processing subsidiaries alleging the violation of state or federal laws in connection with servicing or collection activities on education loans and other debts.

In the ordinary course of our business, the Company and our subsidiaries and affiliates receive information and document requests and investigative demands from various entities including State Attorneys General, U.S. Attorneys, legislative committees, individual members of Congress and administrative agencies. These requests may be informational, regulatory or enforcement in nature and may relate to our business practices, the industries in which we operate, or companies with whom we conduct business. Generally, our practice has been and continues to be to cooperate with these bodies and to be responsive to any such requests.

The number of these inquiries and the volume of related information demands have normalized at elevated levels and therefore the Company must continue to expend time and resources to timely respond to these requests which may, depending on their outcome, result in payments of restitution, fines and penalties.

Contingencies

In the ordinary course of business, we and our subsidiaries are defendants in or parties to pending and threatened legal actions and proceedings including actions brought on behalf of various classes of claimants. These actions and proceedings may be based on alleged violations of consumer protection, securities, employment and other laws. In certain of these actions and proceedings, claims for substantial monetary damage are asserted against us and our subsidiaries. We and our subsidiaries are also subject to potential unasserted claims by third parties.

In the ordinary course of business, we and our subsidiaries are subject to regulatory examinations, information gathering requests, inquiries and investigations. In connection with formal and informal inquiries in these cases, we and our subsidiaries receive requests, subpoenas and orders for documents, testimony and information in connection with various aspects of our regulated activities.

In view of the inherent difficulty of predicting the outcome of litigation and regulatory matters, we may not be able to predict what the eventual outcome of the pending matters will be, what the timing or the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties, if any, related to each pending matter may be.

The Company accrues a liability for litigation, regulatory matters, and unasserted contract claims when those matters present loss contingencies that are both probable and reasonably estimable. When loss contingencies are not both probable and reasonably estimable, we do not accrue a liability. Based on current knowledge, management does not believe that loss contingencies, if any, arising from pending investigations, litigation or regulatory matters will have a material adverse effect on our consolidated financial position, liquidity, results of operations or cash flows, except as otherwise disclosed.

The Company evaluates its outstanding legal and regulatory matters each reporting period, and makes adjustments to the accrued liabilities for such matters, upward or downward, as appropriate, based on the relevant facts and circumstances. The Company's accrued liabilities and estimated range of possible losses pertaining to certain matters can involve significant judgment given factors such as: the varying stages of the proceedings; the existence of numerous yet to be resolved issues; the breadth of the claims (often spanning multiple years and wide ranges of business activities); unspecified damages, civil money penalties or fines and/or the novelty of the legal issues presented; and the attendant uncertainty of the various potential outcomes of such proceedings, including where the Company has made assumptions concerning future rulings by the court or other adjudicator, or about the behavior or incentives of adverse parties or regulatory authorities. Various aspects of the legal proceedings underlying these estimates will change from time to time. Actual losses therefore may vary significantly from any estimates.

Due to recent developments in connection with the Company's CFPB matter, the Company accrued a probable incurred loss of $45 million in the third quarter of 2023. The litigation process is not predictable and can lead to unexpected results. Therefore, it is reasonably possible that the Company’s exposure to loss may exceed any amounts accrued.

 

77

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

9. Commitments, Contingencies and Guarantees (Continued)

The Company believes the estimate of the aggregate range of reasonably possible losses (meaning the likelihood of losses is more than remote but less than likely) in connection with this matter, is from $0 to $250 million. This estimated range of reasonably possible losses was based on currently available information for this matter. This estimate does not represent the Company's maximum potential loss exposure, and further developments could result in the matter being resolved for more or less than the amount currently accrued. It is possible that an adverse outcome may have a material impact on the Company.

Set forth below are descriptions of the Company’s material legal proceedings.

Certain Cases

In January 2017, the Consumer Financial Protection Bureau (the CFPB) and Attorneys General for the State of Illinois and the State of Washington initiated civil actions naming Navient Corporation and several of its subsidiaries as defendants alleging violations of certain Federal and State consumer protection statutes, including the CFPA, FCRA, FDCPA and various state consumer protection laws. The Attorneys General for the States of Pennsylvania, California, Mississippi, and New Jersey also initiated actions against the Company and certain subsidiaries alleging violations of various state and federal consumer protection laws based upon similar alleged acts or failures to act. In addition to these matters, a number of lawsuits have been filed by nongovernmental parties or, in the future, may be filed by additional governmental or nongovernmental parties seeking damages or other remedies related to similar issues raised by the CFPB and the State Attorneys General. In January 2022, we entered into a series of Consent Judgment and Orders (the “Agreements”) with 40 State Attorneys General to resolve all matters in dispute related to the State Attorneys General cases as well as the related investigations, subpoenas, civil investigative demands and inquiries from various other state regulators. These Agreements do not resolve the litigation involving the Company and the CFPB.

As the Company has previously stated, we believe the allegations in the CFPB suit are false and that they improperly seek to impose penalties on Navient based on new, previously unannounced servicing standards applied retroactively against only one servicer. We therefore have denied these allegations and are vigorously defending against the allegations in that case.

On April 12, 2023, the Company reached an agreement in principle (“Settlement”) with certain plaintiffs for a nationwide settlement of claims raised in the following bankruptcy adversary actions: Coyle v. Navient Solutions, LLC, No. 22-80018 (Bankr. W.D. Mich.); Homaidan v. SLM Corp., No. 1:17-ap-01085 (Bankr. E.D.N.Y.); Mazloom v. Navient Solutions, LLC, No. 20-80033-6 (Bankr. N.D.N.Y.); and Woodard v. Navient Solutions, LLC, No. 08-81442 (Bankr. D. Neb.) collectively referred to as the “Bankruptcy Cases.” This settlement in principle is subject, among other things, to final documentation and final court approval. Under the Settlement, Navient will forego the collection of defined balances for borrowers or co-borrowers of certain private loans — all of which were originated prior to our company separation — who have received a discharge in bankruptcy during the periods covered by the agreements. As a result, we recorded a $23 million additional private loan provision for loan losses in the first quarter of 2023 related to the estimated future charge offs that are expected to occur. The Company has also agreed to fund settlement funds. It anticipates that any cash contribution it will be required to make to these funds will not exceed $44 million in the aggregate and will be fully covered by insurance. The net impact to operating expense for this element of the settlement for the first quarter of 2023 was $0 due to the accrual of the offsetting insurance reimbursements.

 

78

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

9. Commitments, Contingencies and Guarantees (Continued)

Regulatory Matters

The Company has been named as defendant in a number of putative class action cases alleging violations of various state and federal consumer protection laws including the Telephone Consumer Protection Act (TCPA), the Consumer Financial Protection Act of 2010 (CFPA), the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA), in adversarial proceedings under the U.S. Bankruptcy Code, and various state consumer protection laws. At this point in time, the Company is unable to anticipate the timing of a resolution or the impact that these legal proceedings may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows. As a result, it is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection with these matters and loss contingency accruals have not been established. It is possible that an adverse ruling or rulings may have a material adverse impact on the Company.

In addition, Navient and its subsidiaries are subject to examination or regulation by various federal regulatory, state licensing or other regulatory agencies as part of its ordinary course of business including the SEC, CFPB, FFIEC and ED. Items or matters similar to or different from those described above may arise during the course of those examinations. We also routinely receive inquiries or requests from various regulatory entities or bodies or government agencies concerning our business or our assets. Generally, the Company endeavors to cooperate with each such inquiry or request. The Company has received separate CIDs or subpoenas from multiple State Attorneys General that are similar to the CIDs or subpoenas that preceded the lawsuits referenced above. Those CIDs and subpoenas have been resolved as part of the Company’s settlement with the State Attorneys General. Nevertheless, we have received and, in the future may receive, additional CIDs or subpoenas and other inquiries from these or other Attorneys General with respect to similar or different matters.

Under the terms of the Separation and Distribution Agreement between the Company and SLM BankCo, Navient agreed to indemnify SLM BankCo for claims, actions, damages, losses or expenses that may arise from the conduct of activities of pre-Spin-Off SLM BankCo occurring prior to the Spin-Off other than those specifically excluded in that agreement. Also, as part of the Separation and Distribution Agreement, SLM BankCo agreed to indemnify Navient for certain claims, actions, damages, losses or expenses subject to the terms, conditions and limitations set forth in that agreement. As a result, subject to the terms, conditions and limitations set forth in that agreement, Navient agreed to indemnify and hold harmless Sallie Mae and its subsidiaries, including Sallie Mae Bank from liabilities arising out of the regulatory matters and CFPB and State Attorneys General lawsuits mentioned above. In addition, we asserted various claims for indemnification against Sallie Mae and Sallie Mae Bank for such specifically excluded items arising out of the CFPB and the State Attorneys General lawsuits if and to the extent any indemnified liabilities exist now or in the future. Navient has no accrued liabilities related to indemnification matters with SLM BankCo as of September 30, 2023.

 

 

79

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

10. Revenue from Contracts with Customers Accounted for in Accordance with ASC 606

The following tables illustrate the disaggregation of revenue from contracts accounted for under ASC 606 with customers according to service type and client type by reportable operating segment.

Revenue by Service Type

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

(Dollars in millions)

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

Federal Education Loan
   asset recovery services

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Government services

 

 

—

 

 

 

57

 

 

 

57

 

 

 

—

 

 

 

47

 

 

 

47

 

Healthcare services

 

 

—

 

 

 

28

 

 

 

28

 

 

 

—

 

 

 

32

 

 

 

32

 

Total

 

$

—

 

 

$

85

 

 

$

85

 

 

$

—

 

 

$

79

 

 

$

79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

(Dollars in millions)

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

Federal Education Loan
   asset recovery services

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1

 

 

$

—

 

 

$

1

 

Government services

 

 

—

 

 

 

149

 

 

 

149

 

 

 

—

 

 

 

149

 

 

 

149

 

Healthcare services

 

 

—

 

 

 

91

 

 

 

91

 

 

 

—

 

 

 

111

 

 

 

111

 

Total

 

$

—

 

 

$

240

 

 

$

240

 

 

$

1

 

 

$

260

 

 

$

261

 

 

 

 

80

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

10. Revenue from Contracts with Customers Accounted for in Accordance with ASC 606 (Continued)

Revenue by Client Type

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

(Dollars in millions)

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

Federal government

 

$

—

 

 

$

20

 

 

$

20

 

 

$

—

 

 

$

2

 

 

$

2

 

Guarantor agencies

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

State and local government

 

 

—

 

 

 

17

 

 

 

17

 

 

 

—

 

 

 

27

 

 

 

27

 

Tolling authorities

 

 

—

 

 

 

20

 

 

 

20

 

 

 

—

 

 

 

18

 

 

 

18

 

Hospitals and other
   healthcare providers

 

 

—

 

 

 

28

 

 

 

28

 

 

 

—

 

 

 

32

 

 

 

32

 

Total

 

$

—

 

 

$

85

 

 

$

85

 

 

$

—

 

 

$

79

 

 

$

79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

(Dollars in millions)

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

Federal government

 

$

—

 

 

$

43

 

 

$

43

 

 

$

—

 

 

$

6

 

 

$

6

 

Guarantor agencies

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

1

 

State and local government

 

 

—

 

 

 

52

 

 

 

52

 

 

 

—

 

 

 

95

 

 

 

95

 

Tolling authorities

 

 

—

 

 

 

54

 

 

 

54

 

 

 

—

 

 

 

48

 

 

 

48

 

Hospitals and other
   healthcare providers

 

 

—

 

 

 

91

 

 

 

91

 

 

 

—

 

 

 

111

 

 

 

111

 

Total

 

$

—

 

 

$

240

 

 

$

240

 

 

$

1

 

 

$

260

 

 

$

261

 

As of September 30, 2023 and September 30, 2022, there was $88 million and $76 million respectively, of net accounts receivable related to these contracts. Navient had no material contract assets or contract liabilities.

 

81

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

11. Segment Reporting

We monitor and assess our ongoing operations and results based on the following four reportable operating segments: Federal Education Loans, Consumer Lending, Business Processing and Other.

These segments meet the quantitative thresholds for reportable operating segments. Accordingly, the results of operations of these reportable operating segments are presented separately. The underlying operating segments are used by the Company’s chief operating decision maker to manage the business, review operating performance and allocate resources, and qualify to be aggregated as part of the primary reportable operating segments. As discussed further below, we measure the profitability of our operating segments based on Core Earnings net income. Accordingly, information regarding our reportable operating segments net income is provided on a Core Earnings basis.

Federal Education Loans Segment

Navient owns FFELP Loans and performs servicing on this portfolio. We also service FFELP Loans owned by other institutions. Our servicing quality, data-driven strategies and omnichannel education about federal repayment options translate into positive results for the millions of borrowers we serve. We generate revenue primarily through net interest income on our FFELP Loans and servicing-related fee income.

The following table includes asset information for our Federal Education Loans segment.

(Dollars in millions)

 

September 30, 2023

 

 

December 31, 2022

 

FFELP Loans, net

 

$

39,581

 

 

$

43,525

 

Cash and investments(1)

 

 

1,350

 

 

 

2,746

 

Other

 

 

2,116

 

 

 

2,229

 

Total assets

 

$

43,047

 

 

$

48,500

 

 

(1)
Includes restricted cash and investments.

Consumer Lending Segment

Navient owns, originates and services in-school and refinance Private Education Loans. "In-school" Private Education Loans are loans originally made to borrowers while they are attending school whereas "Refinance" Private Education Loans are loans where a borrower has refinanced their education loans. We generate revenue primarily through net interest income on our Private Education Loan portfolio.

Navient helps students and families through the going-to and paying-for-college journey. Our digital tools empower people to find grants and scholarships, compare financial aid offers and complete the FAFSA. Our Private Education Loans offer easy-to-understand payment options. After graduation, we offer student loan refinancing to help people simplify their repayment and earn a better rate. We believe our 50 years of experience, product design, digital marketing strategies, and origination and servicing platform provide a unique competitive advantage.

The following table includes asset information for our Consumer Lending segment.

(Dollars in millions)

 

September 30, 2023

 

 

December 31, 2022

 

Private Education Loans, net

 

$

17,333

 

 

$

18,725

 

Cash and investments(1)

 

 

532

 

 

 

617

 

Other

 

 

541

 

 

 

453

 

Total assets

 

$

18,406

 

 

$

19,795

 

 

(1)
Includes restricted cash and investments.

 

82

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

11. Segment Reporting (Continued)

Business Processing Segment

Navient provides business processing solutions such as omnichannel contact center services, workflow processing, and revenue cycle optimization. We leverage the same expertise and intelligent tools we use to deliver successful results for portfolios we own. Our support enables our clients to ensure better constituent outcomes, meet rapidly changing needs, improve technology, reduce operating expenses, manage risk and optimize revenue opportunities. Our clients include:

•
Government: We offer our solutions to federal agencies, state governments, tolling and parking authorities, and other public sector clients.
•
Healthcare: Our clients include hospitals, hospital systems, medical centers, large physician groups, other healthcare providers and public health departments.

At September 30, 2023 and December 31, 2022, the Business Processing segment had total assets of $390 million and $390 million, respectively.

Other Segment

This segment consists of our corporate liquidity portfolio, gains and losses incurred on the repurchase of debt, unallocated expenses of shared services (which includes regulatory expenses) and restructuring/other reorganization expenses.

Unallocated shared services expenses are comprised of costs primarily related to information technology costs related to infrastructure and operations, stock-based compensation expense, accounting, finance, legal, compliance and risk management, regulatory-related expenses, human resources, certain executive management and the board of directors. Regulatory-related expenses include actual settlement amounts as well as third-party professional fees we incur in connection with such regulatory matters and are presented net of any insurance reimbursements for covered costs related to such matters.

At September 30, 2023 and December 31, 2022, the Other segment had total assets of $1.6 billion and $2.1 billion, respectively.

 

 

83

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

11. Segment Reporting (Continued)

Measure of Profitability

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 Core Earnings disclosure 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.

84

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

11. Segment Reporting (Continued)

Segment Results and Reconciliations to GAAP

 

 

Three Months Ended September 30, 2023

 

 

 

 

 

 

Adjustments

 

 

 

 

 

Reportable Segments

 

(Dollars in millions)

 

Total
GAAP

 

 

Reclassi-
fications

 

 

Additions/
(Subtractions)

 

 

Total
Adjustments (1)

 

 

Total
Core
Earnings

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

1,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

778

 

 

$

351

 

 

$

—

 

 

$

—

 

Cash and investments

 

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

7

 

 

 

—

 

 

 

15

 

Total interest income

 

 

1,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

797

 

 

 

358

 

 

 

—

 

 

 

15

 

Total interest expense

 

 

879

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

636

 

 

 

208

 

 

 

—

 

 

 

46

 

Net interest income
   (loss)

 

 

291

 

 

$

7

 

 

$

(18

)

 

$

(11

)

 

$

280

 

 

 

161

 

 

 

150

 

 

 

—

 

 

 

(31

)

Less: provisions for loan
   losses

 

 

72

 

 

 

 

 

 

 

 

 

 

 

 

72

 

 

 

36

 

 

 

36

 

 

 

—

 

 

 

—

 

Net interest income
   (loss) after provisions
   for loan losses

 

 

219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

125

 

 

 

114

 

 

 

—

 

 

 

(31

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

3

 

 

 

—

 

 

 

—

 

Asset recovery and
   business processing
   revenue

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

85

 

 

 

—

 

Other revenue

 

 

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

1

 

 

 

—

 

 

 

1

 

Total other income
   (loss)

 

 

131

 

 

 

(7

)

 

 

(19

)

 

 

(26

)

 

 

105

 

 

 

15

 

 

 

4

 

 

 

85

 

 

 

1

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating
   expenses

 

 

134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

44

 

 

 

73

 

 

 

—

 

Unallocated shared
   services expenses

 

 

99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

99

 

Operating expenses

 

 

233

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

233

 

 

 

17

 

 

 

44

 

 

 

73

 

 

 

99

 

Goodwill and acquired
   intangible asset
   impairment and
   amortization

 

 

3

 

 

 

—

 

 

 

(3

)

 

 

(3

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Restructuring/other
   reorganization
   expenses

 

 

4

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4

 

Total expenses

 

 

240

 

 

 

—

 

 

 

(3

)

 

 

(3

)

 

 

237

 

 

 

17

 

 

 

44

 

 

 

73

 

 

 

103

 

Income (loss) before
   income tax expense
   (benefit)

 

 

110

 

 

 

—

 

 

 

(34

)

 

 

(34

)

 

 

76

 

 

 

123

 

 

 

74

 

 

 

12

 

 

 

(133

)

Income tax expense
   (benefit)(2)

 

 

31

 

 

 

—

 

 

 

(12

)

 

 

(12

)

 

 

19

 

 

 

29

 

 

 

18

 

 

 

3

 

 

 

(31

)

Net income (loss)

 

$

79

 

 

$

—

 

 

$

(22

)

 

$

(22

)

 

$

57

 

 

$

94

 

 

$

56

 

 

$

9

 

 

$

(102

)

 

(1)
Core Earnings adjustments to GAAP:

 

 

Three Months Ended September 30, 2023

 

(Dollars in millions)

 

Net Impact of
Derivative
Accounting

 

 

Net Impact of
Goodwill and
Acquired
Intangibles

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

(11

)

 

$

—

 

 

$

(11

)

Total other income (loss)

 

 

(26

)

 

 

—

 

 

 

(26

)

Goodwill and acquired intangible asset impairment and amortization

 

 

—

 

 

 

(3

)

 

 

(3

)

Total Core Earnings adjustments to GAAP

 

$

(37

)

 

$

3

 

 

 

(34

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

(12

)

Net income (loss)

 

 

 

 

 

 

 

$

(22

)

 

(2)
Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 

85

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

11. Segment Reporting (Continued)

 

 

Three Months Ended September 30, 2022

 

 

 

 

 

 

Adjustments

 

 

 

 

 

Reportable Segments

 

(Dollars in millions)

 

Total
GAAP

 

 

Reclassi-
fications

 

 

Additions/
(Subtractions)

 

 

Total
Adjustments (1)

 

 

Total
Core
Earnings

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

555

 

 

$

309

 

 

$

—

 

 

$

—

 

Cash and investments

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

3

 

 

 

—

 

 

 

7

 

Total interest income

 

 

881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

564

 

 

 

312

 

 

 

—

 

 

 

7

 

Total interest expense

 

 

641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

444

 

 

 

159

 

 

 

—

 

 

 

33

 

Net interest income (loss)

 

 

240

 

 

$

(1

)

 

$

8

 

 

$

7

 

 

$

247

 

 

 

120

 

 

 

153

 

 

 

—

 

 

 

(26

)

Less: provisions for loan
   losses

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

—

 

 

 

28

 

 

 

—

 

 

 

—

 

Net interest income (loss)
   after provisions for loan
   losses

 

 

212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

120

 

 

 

125

 

 

 

—

 

 

 

(26

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

3

 

 

 

—

 

 

 

—

 

Asset recovery and
   business processing
   revenue

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

—

 

 

 

79

 

 

 

—

 

Other revenue

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

—

 

 

 

—

 

 

 

—

 

Total other income (loss)

 

 

150

 

 

 

1

 

 

 

(41

)

 

 

(40

)

 

 

110

 

 

 

28

 

 

 

3

 

 

 

79

 

 

 

—

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating
   expenses

 

 

135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

43

 

 

 

67

 

 

 

—

 

Unallocated shared
   services expenses

 

 

59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

59

 

Operating expenses

 

 

194

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

194

 

 

 

25

 

 

 

43

 

 

 

67

 

 

 

59

 

Goodwill and acquired
   intangible asset
   impairment and
   amortization

 

 

10

 

 

 

—

 

 

 

(10

)

 

 

(10

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Restructuring/other
   reorganization
   expenses

 

 

21

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

21

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

21

 

Total expenses

 

 

225

 

 

 

—

 

 

 

(10

)

 

 

(10

)

 

 

215

 

 

 

25

 

 

 

43

 

 

 

67

 

 

 

80

 

Income (loss) before
   income tax expense
   (benefit)

 

 

137

 

 

 

—

 

 

 

(23

)

 

 

(23

)

 

 

114

 

 

 

123

 

 

 

85

 

 

 

12

 

 

 

(106

)

Income tax expense
   (benefit)(2)

 

 

32

 

 

 

—

 

 

 

(5

)

 

 

(5

)

 

 

27

 

 

 

29

 

 

 

20

 

 

 

3

 

 

 

(25

)

Net income (loss)

 

$

105

 

 

$

—

 

 

$

(18

)

 

$

(18

)

 

$

87

 

 

$

94

 

 

$

65

 

 

$

9

 

 

$

(81

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)
Core Earnings adjustments to GAAP:

 

 

Three Months Ended September 30, 2022

 

(Dollars in millions)

 

Net Impact of
Derivative
Accounting

 

 

Net Impact of
Goodwill and
Acquired
Intangibles

 

 

Total

 

Net interest income (loss) 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.

 

 

 

86

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

11. Segment Reporting (Continued)

 

 

Nine Months Ended September 30, 2023

 

 

 

 

 

 

Adjustments

 

 

 

 

 

Reportable Segments

 

(Dollars in millions)

 

Total
GAAP

 

 

Reclassi-
fications

 

 

Additions/
(Subtractions)

 

 

Total
Adjustments (1)

 

 

Total
Core
Earnings

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

3,227

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,194

 

 

$

1,036

 

 

$

—

 

 

$

—

 

Cash and investments

 

 

111

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56

 

 

 

20

 

 

 

—

 

 

 

35

 

Total interest income

 

 

3,338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,250

 

 

 

1,056

 

 

 

—

 

 

 

35

 

Total interest expense

 

 

2,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,859

 

 

 

610

 

 

 

—

 

 

 

119

 

Net interest income
   (loss)

 

 

702

 

 

$

24

 

 

$

27

 

 

$

51

 

 

$

753

 

 

 

391

 

 

 

446

 

 

 

—

 

 

 

(84

)

Less: provisions for loan
   losses

 

 

68

 

 

 

 

 

 

 

 

 

 

 

 

68

 

 

 

51

 

 

 

17

 

 

 

—

 

 

 

—

 

Net interest income
   (loss) after provisions
   for loan losses

 

 

634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

340

 

 

 

429

 

 

 

—

 

 

 

(84

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

9

 

 

 

—

 

 

 

—

 

Asset recovery and
   business processing
   revenue

 

 

240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

240

 

 

 

—

 

Other revenue

 

 

59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

2

 

 

 

—

 

 

 

3

 

Total other income
   (loss)

 

 

347

 

 

 

(24

)

 

 

(20

)

 

 

(44

)

 

 

303

 

 

 

49

 

 

 

11

 

 

 

240

 

 

 

3

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating
   expenses

 

 

394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55

 

 

 

124

 

 

 

215

 

 

 

—

 

Unallocated shared
   services expenses

 

 

207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

207

 

Operating expenses

 

 

601

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

601

 

 

 

55

 

 

 

124

 

 

 

215

 

 

 

207

 

Goodwill and acquired
   intangible asset
   impairment and
   amortization

 

 

8

 

 

 

—

 

 

 

(8

)

 

 

(8

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Restructuring/other
   reorganization
   expenses

 

 

23

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

23

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

23

 

Total expenses

 

 

632

 

 

 

—

 

 

 

(8

)

 

 

(8

)

 

 

624

 

 

 

55

 

 

 

124

 

 

 

215

 

 

 

230

 

Income (loss) before
   income tax expense
   (benefit)

 

 

349

 

 

 

—

 

 

 

15

 

 

 

15

 

 

 

364

 

 

 

334

 

 

 

316

 

 

 

25

 

 

 

(311

)

Income tax expense
   (benefit)(2)

 

 

93

 

 

 

—

 

 

 

(7

)

 

 

(7

)

 

 

86

 

 

 

78

 

 

 

75

 

 

 

6

 

 

 

(73

)

Net income (loss)

 

$

256

 

 

$

—

 

 

$

22

 

 

$

22

 

 

$

278

 

 

$

256

 

 

$

241

 

 

$

19

 

 

$

(238

)

 

(1)
Core Earnings adjustments to GAAP:

 

 

 

Nine Months Ended September 30, 2023

 

(Dollars in millions)

 

Net Impact of
Derivative
Accounting

 

 

Net Impact of
Goodwill and
Acquired
Intangibles

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

51

 

 

$

—

 

 

$

51

 

Total other income (loss)

 

 

(44

)

 

 

—

 

 

 

(44

)

Goodwill and acquired intangible asset impairment and amortization

 

 

—

 

 

 

(8

)

 

 

(8

)

Total Core Earnings adjustments to GAAP

 

$

7

 

 

$

8

 

 

 

15

 

Income tax expense (benefit)

 

 

 

 

 

 

 

 

(7

)

Net income (loss)

 

 

 

 

 

 

 

$

22

 

 

(2)
Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 

87

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

11. Segment Reporting (Continued)

 

 

Nine Months Ended September 30, 2022

 

 

 

 

 

 

Adjustments

 

 

 

 

 

Reportable Segments

 

(Dollars in millions)

 

Total
GAAP

 

 

Reclassi-
fications

 

 

Additions/
(Subtractions)

 

 

Total
Adjustments (1)

 

 

Total
Core
Earnings

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

2,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,298

 

 

$

862

 

 

$

—

 

 

$

—

 

Cash and investments

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

5

 

 

 

—

 

 

 

8

 

Total interest income

 

 

2,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,310

 

 

 

867

 

 

 

—

 

 

 

8

 

Total interest expense

 

 

1,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

905

 

 

 

421

 

 

 

—

 

 

 

65

 

Net interest income
   (loss)

 

 

898

 

 

$

(20

)

 

$

(84

)

 

$

(104

)

 

$

794

 

 

 

405

 

 

 

446

 

 

 

—

 

 

 

(57

)

Less: provisions for loan
   losses

 

 

62

 

 

 

 

 

 

 

 

 

 

 

 

62

 

 

 

—

 

 

 

62

 

 

 

—

 

 

 

—

 

Net interest income
   (loss) after provisions
   for loan losses

 

 

836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

405

 

 

 

384

 

 

 

—

 

 

 

(57

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51

 

 

 

9

 

 

 

—

 

 

 

—

 

Asset recovery and
   business processing
   revenue

 

 

264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

—

 

 

 

260

 

 

 

—

 

Other revenue

 

 

183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

1

 

 

 

—

 

 

 

(3

)

Total other income
   (loss)

 

 

507

 

 

 

20

 

 

 

(181

)

 

 

(161

)

 

 

346

 

 

 

79

 

 

 

10

 

 

 

260

 

 

 

(3

)

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating
   expenses

 

 

408

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

79

 

 

 

113

 

 

 

216

 

 

 

—

 

Unallocated shared
   services expenses

 

 

180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

180

 

Operating expenses

 

 

588

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

588

 

 

 

79

 

 

 

113

 

 

 

216

 

 

 

180

 

Goodwill and acquired
   intangible asset
   impairment and
   amortization

 

 

17

 

 

 

—

 

 

 

(17

)

 

 

(17

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Restructuring/other
   reorganization
   expenses

 

 

25

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

25

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

25

 

Total expenses

 

 

630

 

 

 

—

 

 

 

(17

)

 

 

(17

)

 

 

613

 

 

 

79

 

 

 

113

 

 

 

216

 

 

 

205

 

Income (loss) before
   income tax expense
   (benefit)

 

 

713

 

 

 

—

 

 

 

(248

)

 

 

(248

)

 

 

465

 

 

 

405

 

 

 

281

 

 

 

44

 

 

 

(265

)

Income tax expense
   (benefit)(2)

 

 

173

 

 

 

—

 

 

 

(64

)

 

 

(64

)

 

 

109

 

 

 

95

 

 

 

66

 

 

 

11

 

 

 

(63

)

Net income (loss)

 

$

540

 

 

$

—

 

 

$

(184

)

 

$

(184

)

 

$

356

 

 

$

310

 

 

$

215

 

 

$

33

 

 

$

(202

)

 

(1)
Core Earnings adjustments to GAAP:

 

 

 

Nine Months Ended September 30, 2022

 

(Dollars in millions)

 

Net Impact of
Derivative
Accounting

 

 

Net Impact of
Goodwill and
Acquired
Intangibles

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

(104

)

 

$

—

 

 

$

(104

)

Total other income (loss)

 

 

(161

)

 

 

—

 

 

 

(161

)

Goodwill and acquired intangible asset impairment and amortization

 

 

—

 

 

 

(17

)

 

 

(17

)

Total Core Earnings adjustments to GAAP

 

$

(265

)

 

$

17

 

 

 

(248

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

(64

)

Net income (loss)

 

 

 

 

 

 

 

$

(184

)

 

(2)
Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 

 

88

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2023 and for the three and nine months ended

September 30, 2023 and 2022 is unaudited)

 

11. Segment Reporting (Continued)

Summary of Core Earnings Adjustments to GAAP

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

GAAP net income

 

$

79

 

 

$

105

 

 

$

256

 

 

$

540

 

Core Earnings adjustments to GAAP:

 

 

 

 

 

 

 

 

 

 

 

 

Net impact of derivative accounting(1)

 

 

(37

)

 

 

(33

)

 

 

7

 

 

 

(265

)

Net impact of goodwill and acquired
  intangible assets(2)

 

 

3

 

 

 

10

 

 

 

8

 

 

 

17

 

Net tax effect(3)

 

 

12

 

 

 

5

 

 

 

7

 

 

 

64

 

Total Core Earnings adjustments to GAAP

 

 

(22

)

 

 

(18

)

 

 

22

 

 

 

(184

)

Core Earnings net income

 

$

57

 

 

$

87

 

 

$

278

 

 

$

356

 

 

(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 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.
(2)
Goodwill and acquired intangible assets: Our Core Earnings exclude goodwill and intangible asset impairment and amortization of acquired intangible assets.
(3)
Net tax effect: Such tax effect is based upon our Core Earnings effective tax rate for the year.

 

 

 

 

 

89

 

 

SIGNATURES

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

 

 

 

 

 

NAVIENT CORPORATION

(Registrant)

 

 

By:

 

 /s/ JOE FISHER

 

 

Joe Fisher

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

Date: October 25, 2023

90

 

APPENDIX A

form 10-Q cross-reference index

 

 

Page

Number

 

 

Part I. Financial Information

 

 

 

 

 

 

Item 1.

Financial Statements

48-89

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

6-38

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

40-44

 

 

 

Item 4.

Controls and Procedures

46

 

 

Part II. Other Information

 

 

 

 

Item 1.

Legal Proceedings

39, 77

 

 

 

Item 1A.

Risk Factors

39

 

 

 

Item 2.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

45

 

 

 

Item 3.

Defaults Upon Senior Securities

Not Applicable

 

 

 

Item 4.

Mine Safety Disclosures

Not Applicable

 

 

 

Item 5.

Other Information

46

 

 

 

Item 6.

Exhibits

47

 

 

 

Signatures

 

90

 

91
EX-26

 

Exhibit 26

ISSUER PURCHASES OF EQUITY SECURITIES

 

Use the checkbox to indicate if any officer or director reporting pursuant to section 16(a) of the Exchange Act (15 U.S.C. 78p(a)), or for foreign private issuers as defined by Rule 3b-4(c) (17 CFR 240.3b-4(c)), any director or member of senior management who would be identified pursuant to Item 1 of Form 20-F (17 CFR 249.220f), purchased or sold shares of the class of the issuer’s equity securities that are registered pursuant to section 12 of the Exchange Act and subject of a publicly announced plan or program within four (4) business days before or after the issuer’s announcement of such repurchase plan or program or the announcement of an increase of an existing share repurchase plan or program. ☐

 

Execution Date

Class of Shares

Total Number of Shares Purchased

 

Average Price Paid per Share

 

Total Number of Shares Purchased as part of Publicly Announced Plans or Programs

 

Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Plans or Programs

 

Total Number of Shares Purchased on the Open Market

 

Total Number of Shares Purchased that are Intended to Qualify for the Safe Harbor in Rule
10b-18

 

Total Number of Shares Purchased Pursuant to a Plan that is Intended to Satisfy the Affirmative Defense Conditions of Rule 10b5-1c(1)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7/3/2023

common stock

 

66,740

 

$

18.77

 

 

66,740

 

$

433,751,353

 

 

66,740

 

 

66,740

 

 

66,740

 

7/5/2023

common stock

 

67,014

 

$

18.57

 

 

67,014

 

$

432,506,681

 

 

67,014

 

 

67,014

 

 

67,014

 

7/6/2023

common stock

 

69,340

 

$

18.08

 

 

69,340

 

$

431,252,966

 

 

69,340

 

 

69,340

 

 

69,340

 

7/7/2023

common stock

 

68,107

 

$

18.37

 

 

68,107

 

$

430,001,609

 

 

68,107

 

 

68,107

 

 

68,107

 

7/10/2023

common stock

 

68,097

 

$

18.39

 

 

68,097

 

$

428,748,985

 

 

68,097

 

 

68,097

 

 

68,097

 

7/11/2023

common stock

 

66,345

 

$

18.81

 

 

66,345

 

$

427,501,281

 

 

66,345

 

 

66,345

 

 

66,345

 

7/12/2023

common stock

 

65,640

 

$

19.08

 

 

65,640

 

$

426,248,712

 

 

65,640

 

 

65,640

 

 

65,640

 

7/13/2023

common stock

 

64,990

 

$

19.11

 

 

64,990

 

$

425,006,994

 

 

64,990

 

 

64,990

 

 

64,990

 

7/14/2023

common stock

 

65,925

 

$

19.00

 

 

65,925

 

$

423,754,333

 

 

65,925

 

 

65,925

 

 

65,925

 

7/17/2023

common stock

 

64,930

 

$

19.30

 

 

64,930

 

$

422,501,437

 

 

64,930

 

 

64,930

 

 

64,930

 

7/18/2023

common stock

 

64,490

 

$

19.43

 

 

64,490

 

$

421,248,371

 

 

64,490

 

 

64,490

 

 

64,490

 

7/19/2023

common stock

 

64,110

 

$

19.54

 

 

64,110

 

$

419,995,738

 

 

64,110

 

 

64,110

 

 

64,110

 

7/20/2023

common stock

 

65,086

 

$

19.24

 

 

65,086

 

$

418,743,438

 

 

65,086

 

 

65,086

 

 

65,086

 

7/21/2023

common stock

 

65,425

 

$

19.14

 

 

65,425

 

$

417,490,916

 

 

65,425

 

 

65,425

 

 

65,425

 

7/24/2023

common stock

 

64,854

 

$

19.38

 

 

64,854

 

$

416,233,987

 

 

64,854

 

 

64,854

 

 

64,854

 

7/25/2023

common stock

 

64,580

 

$

19.47

 

 

64,580

 

$

414,976,646

 

 

64,580

 

 

64,580

 

 

64,580

 

7/26/2023

common stock

 

66,010

 

$

18.96

 

 

66,010

 

$

413,725,064

 

 

66,010

 

 

66,010

 

 

66,010

 

7/27/2023

common stock

 

66,700

 

$

18.81

 

 

66,700

 

$

412,470,243

 

 

66,700

 

 

66,700

 

 

66,700

 

7/28/2023

common stock

 

66,762

 

$

18.96

 

 

66,762

 

$

411,204,329

 

 

66,762

 

 

66,762

 

 

66,762

 

7/31/2023

common stock

 

61,200

 

$

19.00

 

 

61,200

 

$

410,041,602

 

 

61,200

 

 

61,200

 

 

-

 

8/1/2023

common stock

 

61,700

 

$

18.85

 

 

61,700

 

$

408,878,792

 

 

61,700

 

 

61,700

 

 

-

 

8/2/2023

common stock

 

62,700

 

$

18.52

 

 

62,700

 

$

407,717,387

 

 

62,700

 

 

62,700

 

 

-

 

8/3/2023

common stock

 

63,200

 

$

18.37

 

 

63,200

 

$

406,556,182

 

 

63,200

 

 

63,200

 

 

-

 

8/4/2023

common stock

 

63,000

 

$

18.45

 

 

63,000

 

$

405,393,775

 

 

63,000

 

 

63,000

 

 

-

 

8/7/2023

common stock

 

62,600

 

$

18.56

 

 

62,600

 

$

404,232,026

 

 

62,600

 

 

62,600

 

 

-

 

8/8/2023

common stock

 

60,000

 

$

18.33

 

 

60,000

 

$

403,132,418

 

 

60,000

 

 

60,000

 

 

-

 

8/9/2023

common stock

 

63,800

 

$

18.25

 

 

63,800

 

$

401,968,374

 

 

63,800

 

 

63,800

 

 

-

 

8/10/2023

common stock

 

65,100

 

$

17.88

 

 

65,100

 

$

400,804,510

 

 

65,100

 

 

65,100

 

 

-

 

8/11/2023

common stock

 

65,500

 

$

17.77

 

 

65,500

 

$

399,640,725

 

 

65,500

 

 

65,500

 

 

-

 

8/14/2023

common stock

 

66,039

 

$

17.64

 

 

66,039

 

$

398,475,758

 

 

66,039

 

 

66,039

 

 

-

 

8/15/2023

common stock

 

67,310

 

$

17.31

 

 

67,310

 

$

397,310,770

 

 

67,310

 

 

67,310

 

 

-

 

8/16/2023

common stock

 

67,272

 

$

17.32

 

 

67,272

 

$

396,145,773

 

 

67,272

 

 

67,272

 

 

-

 

8/17/2023

common stock

 

67,038

 

$

17.38

 

 

67,038

 

$

394,980,787

 

 

67,038

 

 

67,038

 

 

-

 

8/18/2023

common stock

 

66,281

 

$

17.58

 

 

66,281

 

$

393,815,792

 

 

66,281

 

 

66,281

 

 

-

 

8/21/2023

common stock

 

59,705

 

$

17.41

 

 

59,705

 

$

392,776,346

 

 

59,705

 

 

59,705

 

 

-

 

8/22/2023

common stock

 

67,555

 

$

17.32

 

 

67,555

 

$

391,606,348

 

 

67,555

 

 

67,555

 

 

-

 

8/23/2023

common stock

 

67,003

 

$

17.46

 

 

67,003

 

$

390,436,355

 

 

67,003

 

 

67,003

 

 

-

 

8/24/2023

common stock

 

66,123

 

$

17.69

 

 

66,123

 

$

389,266,368

 

 

66,123

 

 

66,123

 

 

-

 

8/25/2023

common stock

 

67,028

 

$

17.46

 

 

67,028

 

$

388,096,374

 

 

67,028

 

 

67,028

 

 

-

 

8/28/2023

common stock

 

66,411

 

$

17.62

 

 

66,411

 

$

386,926,378

 

 

66,411

 

 

66,411

 

 

-

 

8/29/2023

common stock

 

66,332

 

$

17.63

 

 

66,332

 

$

385,757,025

 

 

66,332

 

 

66,332

 

 

-

 

 

8/30/2023

common stock

 

66,264

 

$

17.66

 

 

66,264

 

$

384,587,041

 

 

66,264

 

 

66,264

 

 

-

 

8/31/2023

common stock

 

66,216

 

$

17.63

 

 

66,216

 

$

383,419,580

 

 

66,216

 

 

66,216

 

 

-

 

9/1/2023

common stock

 

64,650

 

$

18.10

 

 

64,650

 

$

382,249,628

 

 

64,650

 

 

64,650

 

 

-

 

9/5/2023

common stock

 

65,527

 

$

17.86

 

 

65,527

 

$

381,079,637

 

 

65,527

 

 

65,527

 

 

-

 

9/6/2023

common stock

 

66,607

 

$

17.57

 

 

66,607

 

$

379,909,659

 

 

66,607

 

 

66,607

 

 

-

 

9/7/2023

common stock

 

68,186

 

$

17.16

 

 

68,186

 

$

378,739,675

 

 

68,186

 

 

68,186

 

 

-

 

9/8/2023

common stock

 

68,784

 

$

17.01

 

 

68,784

 

$

377,569,687

 

 

68,784

 

 

68,784

 

 

-

 

9/11/2023

common stock

 

67,577

 

$

17.32

 

 

67,577

 

$

376,399,355

 

 

67,577

 

 

67,577

 

 

-

 

9/12/2023

common stock

 

67,761

 

$

17.28

 

 

67,761

 

$

375,228,343

 

 

67,761

 

 

67,761

 

 

-

 

9/13/2023

common stock

 

67,508

 

$

17.34

 

 

67,508

 

$

374,057,430

 

 

67,508

 

 

67,508

 

 

-

 

9/14/2023

common stock

 

66,157

 

$

17.70

 

 

66,157

 

$

372,886,531

 

 

66,157

 

 

66,157

 

 

-

 

9/15/2023

common stock

 

66,207

 

$

17.85

 

 

66,207

 

$

371,704,551

 

 

66,207

 

 

66,207

 

 

-

 

9/18/2023

common stock

 

66,635

 

$

17.27

 

 

66,635

 

$

370,553,684

 

 

66,635

 

 

66,635

 

 

66,635

 

9/19/2023

common stock

 

68,200

 

$

17.16

 

 

68,200

 

$

369,383,174

 

 

68,200

 

 

68,200

 

 

68,200

 

9/20/2023

common stock

 

67,867

 

$

17.24

 

 

67,867

 

$

368,213,269

 

 

67,867

 

 

67,867

 

 

67,867

 

9/21/2023

common stock

 

69,055

 

$

16.94

 

 

69,055

 

$

367,043,333

 

 

69,055

 

 

69,055

 

 

69,055

 

9/22/2023

common stock

 

69,629

 

$

16.80

 

 

69,629

 

$

365,873,315

 

 

69,629

 

 

69,629

 

 

69,629

 

9/25/2023

common stock

 

67,573

 

$

16.91

 

 

67,573

 

$

364,730,777

 

 

67,573

 

 

67,573

 

 

67,573

 

9/26/2023

common stock

 

69,570

 

$

16.87

 

 

69,570

 

$

363,557,034

 

 

69,570

 

 

69,570

 

 

69,570

 

9/27/2023

common stock

 

69,825

 

$

16.96

 

 

69,825

 

$

362,372,599

 

 

69,825

 

 

69,825

 

 

69,825

 

9/28/2023

common stock

 

68,800

 

$

17.22

 

 

68,800

 

$

361,188,035

 

 

68,800

 

 

68,800

 

 

68,800

 

9/29/2023

common stock

 

68,297

 

$

17.33

 

 

68,297

 

$

360,004,558

 

 

68,297

 

 

68,297

 

 

68,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Totals

 

4,164,937

 

$

18.01

 

 

4,164,937

 

 

 

 

4,164,937

 

 

4,164,937

 

 

1,940,596

 

 

 

 

(1)
On June 15, 2023, the Company entered into a "Rule 10b5-1 trading arrangement" intended to satisfy the affirmative defense conditions of Rule 10b5-1, pursuant to which the Company purchased the applicable shares from July 3, 2023 to July 28, 2023. This plan terminated on July 28, 2023 in accordance with its terms.

 

(2)
On September 14, 2023, the Company entered into a "Rule 10b5-1 trading arrangement" intended to satisfy the affirmative defense conditions of Rule 10b5-1, pursuant to which the Company purchased the applicable shares from September 18, 2023 to September 29, 2023. This plan will terminate no later than October 27, 2023, subject to early termination for certain specified events set forth in the plan.
EX-31.1

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David Yowan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Navient Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

/s/ DAVID YOWAN

 

David Yowan

Chief Executive Officer

(Principal Executive Officer)

October 25, 2023

 

 

 

 

EX-31.2

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Joe Fisher, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Navient Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

/s/ JOE FISHER

 

Joe Fisher

Chief Financial Officer

(Principal Financial and Accounting Officer)

October 25, 2023

 

 

EX-32.1

 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Navient Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Yowan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

/s/ DAVID YOWAN

 

David Yowan

Chief Executive Officer

(Principal Executive Officer)

October 25, 2023

 

EX-32.2

 

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Navient Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joe Fisher, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

 

/s/ JOE FISHER

 

Joe Fisher

Chief Financial Officer

(Principal Financial and Accounting Officer)

October 25, 2023