UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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☑ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2024
or
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☐ | | 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)
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Delaware | 46-4054283 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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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):
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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.
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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 March 31, 2024, there were 111,824,749 shares of common stock outstanding.
TABLE OF CONTENTS
Organization of Our Form 10-Q
The order and presentation of content in our Quarterly Report on Form 10-Q (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.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This 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:
•general economic conditions, including the potential impact of inflation and interest rates on Navient and its clients and customers and on the creditworthiness of third parties;
•increased defaults on education loans held by us;
•unanticipated repayment trends on education loans including prepayments or deferrals resulting from new interpretations or the timing of the execution and implementation 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 or extensions of previously announced deadlines which may increase or decrease the prepayment rates on education loans and accelerate or slow down the repayment of the bonds in our securitization trusts;
•a reduction in our credit ratings;
•changes to applicable laws, rules, regulations and government policies and expanded regulatory and governmental oversight;
•changes in the general interest rate environment, including the availability of any relevant money-market index rate or the relationship between the relevant money-market index rate and the rate at which our assets are priced;
•the interest rate characteristics of our assets do not always match those of our funding arrangements;
•adverse market conditions or an inability to effectively manage our liquidity risk or access liquidity could negatively impact us;
•the cost and availability of funding in the capital markets;
•our ability to earn Floor Income and our ability to enter into hedges relative to that Floor Income are dependent on the future interest rate environment and therefore is variable;
•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;
•our work with government clients exposes us to additional risks inherent in the government contracting environment;
•acquisitions, strategic initiatives and investments or divestitures that we pursue;
•shareholder activism; and
•reputational risk and social factors.
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.
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.
Business
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:
We own a portfolio of $35.9 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.
We help students and families succeed through the college journey with innovative planning tools, student loans and refinancing products. Our $16.6 billion Private Education Loan portfolio demonstrates high customer success rates. In the first quarter of 2024, we originated approximately $259 million of Private Education Loans.
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.
•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, 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 follow the industry-leading “Three Lines Model” compliance framework. This framework and other compliance protocols ensure we adhere to key industry laws and regulations including but not limited to: 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); 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 a variety of leading organizations for our continued commitment to fostering diversity. Our employees are engaged in our communities through company-sponsored volunteering and philanthropic programs.
Navient is committed to a sustainable future. We leverage technologies that minimize 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 carbon dioxide (CO2) and CO2 equivalents are among the many factors considered in our real estate decisions.
Strong Financial Performance Resulting in a Strong Capital Return
Our first-quarter 2024 results continue to demonstrate the strength of our business model and our ability to deliver predictable and meaningful cash flow and earnings in a variety 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 of Directors approved a share repurchase program authorizing the purchase of up to $1 billion of the Company’s outstanding common stock. At March 31, 2024, $247 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 GAAP equity-to-asset ratio was 4.7% and our Adjusted Tangible Equity Ratio(1) was 8.4% as of March 31, 2024.
| | | | | | | | |
(Dollars and shares in millions) | | Q1-24 | | | Q1-23 | |
Shares repurchased | | | 2.6 | | | | 4.9 | |
Reduction in shares outstanding | | | 1 | % | | | 3 | % |
Total repurchases in dollars | | $ | 43 | | | $ | 85 | |
Dividends paid | | $ | 18 | | | $ | 21 | |
Total Capital Returned(2) | | $ | 61 | | | $ | 106 | |
GAAP equity-to-asset ratio | | | 4.7 | % | | | 4.4 | % |
Adjusted Tangible Equity Ratio(1) | | | 8.4 | % | | | 8.5 | % |
(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.
Recent Business Developments
On January 30, 2024, as a result of an in-depth review of our business, Navient announced strategic actions to simplify our company, reduce our expense base, and enhance our flexibility. The three strategic actions are:
•Adopt a variable, outsourced servicing model. Navient entered into a binding letter of intent on January 29, 2024 that will transition our student loan servicing to MOHELA, a leading provider of student loan servicing for government and commercial enterprises. This transaction is intended to create a variable cost structure for the servicing of our student loan portfolios and provides attractive unit economics across a wide range of servicing volume scenarios. Navient and MOHELA will work toward ensuring a seamless transition in the coming months and providing customers with uninterrupted servicing of their loans. This transition is expected to include nearly 900 employees becoming employees of MOHELA and utilize the same servicing system provider currently used by Navient.
•Explore strategic options for the business processing segment, including potential divestment. Navient has launched a process to explore a range of value-creating options for our business processing segment. Through various subsidiary brands, this segment provides high-quality business processing services to a variety of government and healthcare clients, including hospitals, toll-road authorities, state revenue divisions, and federal agencies. In conjunction with the decision to outsource student loan servicing, exploring options for the business processing segment increases the opportunities for shared cost reduction. Navient is working with financial and legal advisors to assist the Company in exploring strategic options for this segment, which may include a sale of the segment in whole or in part.
•Streamline shared services infrastructure and corporate footprint. As we implement the above actions, we also plan to reshape our shared services functions and corporate footprint to align with the needs of a more focused, flexible and streamlined company.
Since the announcement on January 30, 2024, we have made substantial progress on the above strategic actions. We are nearing completion of a final outsourcing agreement with MOHELA. Further, we expect to learn much more about the possible range of outcomes from the business processing segment divestment process during the second quarter. We are beginning to execute our plans for a leaner company. We continue to expect to be largely complete with these strategic actions by mid to end of 2025.
How We Organize Our Business
We operate our business in three primary segments: Federal Education Loans, Consumer Lending and Business Processing.
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.
Consumer Lending Segment
Navient owns, originates and services refinance and in-school Private Education Loans. "Refinance" Private Education Loans are loans where a borrower has refinanced their education loans, and "In-school" Private Education Loans are loans originally made to borrowers while they are attending school. We generate revenue primarily through net interest income on our Private Education Loan portfolio.
Through our Earnest brand, we help students and families on the planning and paying for college journey. Our digital tools empower people to find scholarships and compare financial aid offers. 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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Selected Historical Financial Information and Ratios
| | | | | | | | |
| | Three Months Ended March 31, | |
(In millions, except per share data) | | 2024 | | | 2023 | |
GAAP Basis | | | | | | |
Net income | | $ | 73 | | | $ | 111 | |
Diluted earnings per common share | | $ | .64 | | | $ | .86 | |
Weighted average shares used to compute diluted earnings per share | | | 114 | | | | 130 | |
Return on common stockholders' equity | | | .51 | % | | | .68 | % |
| | | | | | |
Core Earnings Basis(1) | | | | | | |
Net income(1) | | $ | 54 | | | $ | 133 | |
Diluted earnings per common share(1) | | $ | .47 | | | $ | 1.02 | |
Weighted average shares used to compute diluted earnings per share | | | 114 | | | | 130 | |
Net interest margin, Federal Education Loans segment | | | .55 | % | | | 1.12 | % |
Net interest margin, Consumer Lending segment | | | 2.99 | % | | | 3.12 | % |
Return on assets | | | .37 | % | | | .82 | % |
| | | | | | |
Education Loan Portfolios | | | | | | |
Ending FFELP Loans, net | | $ | 35,879 | | | $ | 42,148 | |
Ending Private Education Loans, net | | | 16,608 | | | | 18,275 | |
Ending total education loans, net | | $ | 52,487 | | | $ | 60,423 | |
Average FFELP Loans | | $ | 37,158 | | | $ | 43,263 | |
Average Private Education Loans | | | 17,385 | | | | 19,289 | |
Average total education loans | | $ | 54,543 | | | $ | 62,552 | |
(1)Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures — Core Earnings.”
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.
First-quarter 2024 GAAP net income was $73 million ($0.64 diluted earnings per share), compared with $111 million ($0.86 diluted earnings per share) for the year-ago quarter. See “Results of Operations – GAAP Comparison of First-Quarter 2024 Results with First-Quarter 2023" for a discussion of the primary contributors to the change in GAAP earnings between periods.
First-quarter 2024 Core Earnings net income was $54 million ($0.47 diluted Core Earnings per share), compared with $133 million ($1.02 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 $23 million ($0.16 diluted loss per share) comprised of the following items:
•$14 million ($0.10 diluted loss per share) of regulatory-related and restructuring expenses, of which $12 million is due to an accrual in connection with recent developments related to CFPB matters.
•FFELP Loan prepayments were $1.6 billion (compared to approximately $700 million in the year-ago quarter). This resulted in the write-off of an additional $9 million ($0.06 diluted loss per share) of loan premium, a non-cash reduction to net interest income.
Financial highlights of first-quarter 2024 include:
Federal Education Loans segment:
•Net income of $40 million.
•Net interest margin of 0.55%.
Consumer Lending segment:
•Net income of $73 million.
•Net interest margin of 2.99%.
•Originated $259 million of Private Education Loans.
Business Processing segment:
•Net income of $6 million and EBITDA(1) of $9 million.
Capital, funding and liquidity:
•GAAP equity-to-asset ratio of 4.7% and adjusted tangible equity ratio(1) of 8.4%.
•Repurchased $43 million of common shares. $247 million common share repurchase authority remains outstanding.
•Paid $18 million in common stock dividends.
Operating Expenses:
•Operating expenses of $170 million, excluding $13 million of regulatory-related expenses.
(1)Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”
Results of Operations
GAAP Income Statements (Unaudited)
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | Increase
(Decrease) | |
(In millions, except per share data) | | 2024 | | | 2023 | | | $ | | | % | |
Interest income | | | | | | | | | | | | |
FFELP Loans | | $ | 661 | | | $ | 693 | | | $ | (32 | ) | | | (5 | )% |
Private Education Loans | | | 328 | | | | 344 | | | | (16 | ) | | | (5 | ) |
Cash and investments | | | 38 | | | | 34 | | | | 4 | | | | 12 | |
Total interest income | | | 1,027 | | | | 1,071 | | | | (44 | ) | | | (4 | ) |
Total interest expense | | | 875 | | | | 837 | | | | 38 | | | | 5 | |
Net interest income | | | 152 | | | | 234 | | | | (82 | ) | | | (35 | ) |
Less: provisions for loan losses | | | 12 | | | | (14 | ) | | | 26 | | | | 186 | |
Net interest income after provisions for loan
losses | | | 140 | | | | 248 | | | | (108 | ) | | | (44 | ) |
Other income (loss): | | | | | | | | | | | | |
Servicing revenue | | | 17 | | | | 17 | | | | — | | | | — | |
Asset recovery and business processing
revenue | | | 77 | | | | 72 | | | | 5 | | | | 7 | |
Other income | | | 9 | | | | 7 | | | | 2 | | | | 29 | |
Gains (losses) on derivative and hedging
activities, net | | | 32 | | | | (8 | ) | | | 40 | | | | 500 | |
Total other income | | | 135 | | | | 88 | | | | 47 | | | | 53 | |
Expenses: | | | | | | | | | | | | |
Operating expenses | | | 183 | | | | 185 | | | | (2 | ) | | | (1 | ) |
Goodwill and acquired intangible assets
impairment and amortization expense | | | 3 | | | | 3 | | | | — | | | | — | |
Restructuring/other reorganization expenses | | | 1 | | | | 4 | | | | (3 | ) | | | (75 | ) |
Total expenses | | | 187 | | | | 192 | | | | (5 | ) | | | (3 | ) |
Income before income tax expense | | | 88 | | | | 144 | | | | (56 | ) | | | (39 | ) |
Income tax expense | | | 15 | | | | 33 | | | | (18 | ) | | | (55 | ) |
Net income | | $ | 73 | | | $ | 111 | | | $ | (38 | ) | | | (34 | )% |
Basic earnings per common share | | $ | .65 | | | $ | .87 | | | $ | (.22 | ) | | | (25 | )% |
Diluted earnings per common share | | $ | .64 | | | $ | .86 | | | $ | (.22 | ) | | | (26 | )% |
Dividends per common share | | $ | .16 | | | $ | .16 | | | $ | — | | | | — | |
GAAP Comparison of First-Quarter 2024 Results with First-Quarter 2023
For the three months ended March 31, 2024, net income was $73 million, or $0.64 diluted earnings per common share, compared with net income of $111 million, or $0.86 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 $82 million primarily as a result of increased interest rates and the paydown of the FFELP and Private Education Loan portfolios, which includes an increase in prepayments of the FFELP Loan portfolio. This was partially offset by a $6 million decrease in mark-to-market losses on fair value hedges recorded in interest expense.
•Provisions for loan losses increased $26 million from $(14) million to $12 million:
oThe provision for FFELP Loan losses decreased $9 million from $10 to $1 million.
oThe provision for Private Education Loan losses increased $35 million from $(24) million to $11 million.
The FFELP Loan provision for loan losses of $1 million in the current period was the result of relatively stable credit trends.
The Private Education Loan provision for loan losses of $11 million in the current period included $5 million in connection with loan originations and $6 million related to a general reserve build. The provision of $(24) million in the year-ago period included $(52) million in connection with the adoption of Accounting Standards Update (ASU) No. 2022-02, "Financial Instruments – Credit Losses: Troubled Debt Restructurings and Vintage Disclosures," $5 million in connection with loan originations and $23 million in connection with the resolution of certain private legacy loans in bankruptcy. See our Annual Report on Form 10-K for the year ended December 31, 2023 (the 2023 Form 10-K) for further discussion on the adoption of ASU No. 2022-02, as well as the resolution of certain private legacy loans in bankruptcy.
•Asset recovery and business processing revenue increased $5 million primarily due to continued organic growth in our Business Processing segment.
•Net gains on derivative and hedging activities increased $40 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 decreased $2 million primarily a result of a decline in overall servicing costs as well as lower in-school loan marketing spend. This was partially offset by a $12 million contingency loss accrual (regulatory-related expense) recorded in the current period related to recent developments in connection with CFPB matters.
•Restructuring expenses decreased $3 million due to a decline in severance-related costs and facility lease terminations.
•The effective income tax rates for the current and year-ago periods were 17% and 23%, respectively. The movement in the effective income tax rate was primarily driven by the reduction of tax and interest on state uncertain tax positions in the current period.
We repurchased 2.6 million and 4.9 million shares of our common stock during the first quarters of 2024 and 2023, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 16 million common shares (or 12%) 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 March 31, | | | % Increase
(Decrease) | |
(Dollars in millions) | | 2024 | | | 2023 | | | 2024 vs. 2023 | |
Interest income: | | | | | | | | | |
FFELP Loans | | $ | 661 | | | $ | 695 | | | | (5 | )% |
Cash and investments | | | 23 | | | | 20 | | | | 15 | |
Total interest income | | | 684 | | | | 715 | | | | (4 | ) |
Total interest expense | | | 631 | | | | 590 | | | | 7 | |
Net interest income | | | 53 | | | | 125 | | | | (58 | ) |
Less: provision for loan losses | | | 1 | | | | 10 | | | | (90 | ) |
Net interest income after provision for
loan losses | | | 52 | | | | 115 | | | | (55 | ) |
Other income (loss): | | | | | | | | | |
Servicing revenue | | | 13 | | | | 14 | | | | (7 | ) |
Other income | | | 4 | | | | 5 | | | | (20 | ) |
Total other income | | | 17 | | | | 19 | | | | (11 | ) |
Direct operating expenses | | | 17 | | | | 20 | | | | (15 | ) |
Income before income tax expense | | | 52 | | | | 114 | | | | (54 | ) |
Income tax expense | | | 12 | | | | 27 | | | | (56 | ) |
Net income | | $ | 40 | | | $ | 87 | | | | (54 | )% |
Comparison of First-Quarter 2024 Results with First-Quarter 2023
•Net income was $40 million compared to $87 million.
•Net interest income decreased $72 million primarily due to the impact of increased interest rates on the different index resets for the segment’s assets and debt, as well as the paydown of the loan portfolio which included an increase in prepayments.
•Provision for loan losses decreased $9 million. The $1 million of provision for loan losses in first-quarter 2024 was the result of relatively stable credit trends.
oNet charge-offs were $10 million compared to $18 million.
oDelinquencies greater than 90 days were $1.9 billion compared to $2.7 billion.
oForbearances were $5.5 billion compared to $6.8 billion.
•Other income decreased $2 million primarily due to the paydown of the loan portfolio serviced for third parties.
•Expenses were $3 million lower primarily as a result of the paydown of the loan portfolio.
Key performance metrics are as follows:
| | | | | | | | |
| | Three Months Ended March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Segment net interest margin | | | .55 | % | | | 1.12 | % |
FFELP Loans: | | | | | | |
FFELP Loan spread | | | .66 | % | | | 1.25 | % |
Provision for loan losses | | $ | 1 | | | $ | 10 | |
Net charge-offs | | $ | 10 | | | $ | 18 | |
Net charge-off rate | | | .13 | % | | | .22 | % |
Greater than 30-days delinquency rate | | | 13.2 | % | | | 14.4 | % |
Greater than 90-days delinquency rate | | | 6.6 | % | | | 7.9 | % |
Forbearance rate | | | 16.0 | % | | | 16.9 | % |
Average FFELP Loans | | $ | 37,158 | | | $ | 43,263 | |
Ending FFELP Loans, net | | $ | 35,879 | | | $ | 42,148 | |
| | | | | | |
(Dollars in billions) | | | | | | |
Total federal loans serviced | | $ | 42 | | | $ | 49 | |
Net Interest Margin
The following table details the net interest margin.
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
FFELP Loan yield | | | 6.91 | % | | | 6.07 | % |
Floor Income | | | .24 | | | | .45 | |
FFELP Loan net yield | | | 7.15 | | | | 6.52 | |
FFELP Loan cost of funds | | | (6.49 | ) | | | (5.27 | ) |
FFELP Loan spread | | | .66 | | | | 1.25 | |
Other interest-earning asset spread impact | | | (.11 | ) | | | (.13 | ) |
Net interest margin(1) | | | .55 | % | | | 1.12 | % |
(1)The average balances of the interest-earning assets for the respective periods are:
| | | | | | | | |
| | Three Months Ended March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
FFELP Loans | | $ | 37,158 | | | $ | 43,263 | |
Other interest-earning assets | | | 1,861 | | | | 1,972 | |
Total FFELP Loan interest-earning assets | | $ | 39,019 | | | $ | 45,235 | |
The decrease in the net interest margin is primarily due to the impact of increased interest rates on the different index resets for the segment's assets and debt which resulted in a decrease of floor income and an increased cost of funds. In addition, there was an increase in prepayments which contributed to an increase in the amortization of loan premium, a non-cash reduction to interest margin.
As of March 31, 2024, our FFELP Loan portfolio totaled $35.9 billion, comprised of $12.7 billion of FFELP Stafford Loans and $23.2 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of March 31, 2024 was 7 years and 8 years, respectively, assuming a Constant Prepayment Rate (CPR) of 7% and 5%, respectively.
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 March 31, 2024 and 2023, based on interest rates as of those dates.
| | | | | | | | |
| | | | | | |
(Dollars in billions) | | March 31, 2024 | | | March 31, 2023 | |
Education loans eligible to earn Floor Income | | $ | 35.6 | | | $ | 41.8 | |
Less: post-March 31, 2006 disbursed loans required to rebate
Floor Income | | | (16.9 | ) | | | (19.9 | ) |
Less: economically hedged Floor Income | | | (2.0 | ) | | | (9.1 | ) |
Education loans eligible to earn Floor Income after rebates and
economically hedged | | $ | 16.7 | | | $ | 12.8 | |
Education loans earning Floor Income | | $ | 1.1 | | | $ | — | |
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 April 1, 2024 to December 31, 2028.
| | | | | | | | | | | | | | | | | | | | |
(Dollars in billions) | | April 1, 2024
to
December 31, 2024 | | | 2025 | | | 2026 | | | 2027 | | | 2028 | |
Average balance of FFELP Consolidation Loans
whose Floor Income is economically hedged | | $ | 1.7 | | | $ | .9 | | | $ | .7 | | | $ | .3 | | | $ | .3 | |
| | | | | | | | | | | | | | | |
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 $3 million lower as a result of the paydown of the loan portfolio.
Various Federal Loan Forgiveness Plans
On August 24, 2022, the Biden-Harris Administration announced its Student Debt Relief (SDR) Plan. The SDR Plan would have 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.
A number of states and private organizations initiated legal challenges to the SDR Plan in various courts throughout the country. 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. After the invalidation of the SDR Plan, ED announced that it had begun a new rulemaking process to consider other ways to provide debt relief to borrowers, which could include borrowers with privately held FFELP Loans. ED held several public meeting sessions with a negotiated rulemaking committee in the fourth quarter of 2023 and in the first quarter of 2024. ED is expected to publish proposed regulations for public comment in May 2024.
In addition, 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.
Several lawsuits have been filed or announced (which Navient is not party to) looking to overturn these regulations.
The proposed borrower debt relief regulations as well as the new income-driven repayment plan have increased, and may continue to increase, consolidation activity in the future as FFELP borrowers consolidate their loans into the Direct Loan Program in order to be eligible for potential debt relief and the new income-driven repayment plan. This consolidation activity could have a material impact on the Company’s results.
Consumer Lending Segment
The following table presents Core Earnings results for our Consumer Lending segment.
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | | % Increase
(Decrease) | |
(Dollars in millions) | | 2024 | | | 2023 | | | 2024 vs. 2023 | |
Interest income: | | | | | | | | | |
Private Education Loans | | $ | 328 | | | $ | 344 | | | | (5 | )% |
Cash and investments | | | 7 | | | | 6 | | | | 17 | |
Interest income | | | 335 | | | | 350 | | | | (4 | ) |
Interest expense | | | 201 | | | | 197 | | | | 2 | |
Net interest income | | | 134 | | | | 153 | | | | (12 | ) |
Less: provision for loan losses | | | 11 | | | | (24 | ) | | | 146 | |
Net interest income after provision for loan losses | | | 123 | | | | 177 | | | | (31 | ) |
Other income (loss): | | | | | | | | | |
Servicing revenue | | | 4 | | | | 3 | | | | 33 | |
Other revenue | | | — | | | | — | | | | — | |
Total other income | | | 4 | | | | 3 | | | | 33 | |
Direct operating expenses | | | 32 | | | | 37 | | | | (14 | ) |
Income before income tax expense | | | 95 | | | | 143 | | | | (34 | ) |
Income tax expense | | | 22 | | | | 33 | | | | (33 | ) |
Net income | | $ | 73 | | | $ | 110 | | | | (34 | )% |
Comparison of First-Quarter 2024 Results with First-Quarter 2023
•Originated $259 million of Private Education Loans compared to $168 million.
oRefinance Loan originations were $228 million compared to $135 billion.
oIn-school loan originations were $31 million compared to $33 million.
•Net income was $73 million compared to $110 million.
•Net interest income decreased $19 million primarily due to the paydown of the loan portfolio.
•Provision for loan losses increased $35 million. The provision for loan losses of $11 million in first quarter 2024 included $5 million in connection with loan originations and $6 million related to a general reserve build. The negative provision of $(24) million in the year-ago period included $(52) million in connection with the adoption of a new accounting standard (ASU No. 2022-02), $5 million in connection with loan originations and $23 million in connection with the resolution of certain private legacy loans in bankruptcy.
oNet charge-offs were $99 million, up $24 million from $75 million.
oPrivate Education Loan delinquencies greater than 90 days: $351 million, down $13 million from $364 million.
oPrivate Education Loan forbearances: $297 million, down $57 million from $354 million.
•Expenses decreased $5 million due to lower in-school loan marketing spend.
Key performance metrics are as follows:
| | | | | | | | |
| | Three Months Ended March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Segment net interest margin | | | 2.99 | % | | | 3.12 | % |
Private Education Loans (including Refinance Loans): | | | | | | |
Private Education Loan spread | | | 3.10 | % | | | 3.28 | % |
Provision for loan losses | | $ | 11 | | | $ | (24 | ) |
Net charge-offs | | $ | 99 | | | $ | 75 | |
Net charge-off rate | | | 2.40 | % | | | 1.63 | % |
Greater than 30-days delinquency rate | | | 5.0 | % | | | 4.5 | % |
Greater than 90-days delinquency rate | | | 2.1 | % | | | 2.0 | % |
Forbearance rate | | | 1.8 | % | | | 1.9 | % |
Average Private Education Loans | | $ | 17,385 | | | $ | 19,289 | |
Ending Private Education Loans, net | | $ | 16,608 | | | $ | 18,275 | |
Private Education Refinance Loans: | | | | | | |
Net charge-offs | | $ | 11 | | | $ | 8 | |
Greater than 90-day delinquency rate | | | .5 | % | | | .3 | % |
Average balance of Private Education Refinance Loans | | $ | 8,796 | | | $ | 9,521 | |
Ending balance of Private Education Refinance Loans | | $ | 8,619 | | | $ | 9,274 | |
Private Education Refinance Loan originations | | $ | 228 | | | $ | 135 | |
Net Interest Margin
The following table details the net interest margin.
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
Private Education Loan yield | | | 7.58 | % | | | 7.24 | % |
Private Education Loan cost of funds | | | (4.48 | ) | | | (3.96 | ) |
Private Education Loan spread | | | 3.10 | | | | 3.28 | |
Other interest-earning asset spread impact | | | (.11 | ) | | | (.16 | ) |
Net interest margin(1) | | | 2.99 | % | | | 3.12 | % |
| |
(1)The average balances of the interest-earning assets for the respective periods are:
| | | | | | | | |
| | Three Months Ended March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Private Education Loans | | $ | 17,385 | | | $ | 19,289 | |
Other interest-earning assets | | | 543 | | | | 625 | |
Total Private Education Loan interest-earning assets | | $ | 17,928 | | | $ | 19,914 | |
As of March 31, 2024, our Private Education Loan portfolio totaled $16.6 billion, comprised of $8.6 billion of refinance loans and $8.0 billion of non-refinance loans. The weighted-average life of these portfolios as of March 31, 2024 was 5 years and 5 years, respectively, assuming a CPR of 10% and 10%, respectively.
Provision for Loan Losses
The provision for Private Education Loan losses increased $35 million. The provision for loan losses of $11 million in the current period included $5 million in connection with loan originations and $6 million related to a general reserve build. The provision of $(24) million in the year-ago quarter included $(52) million in connection with the adoption of a new accounting standard (ASU No. 2022-02), $5 million in connection with loan originations and $23 million in connection with the resolution of certain private legacy loans in bankruptcy.
Operating Expenses
Operating expenses for our consumer lending segment include costs to originate, acquire, service and collect on our consumer loan portfolio. Operating expenses decreased $5 million primarily due to lower in-school loan marketing spend.
Business Processing Segment
The following table presents Core Earnings results for our Business Processing segment.
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | | % Increase
(Decrease) | |
(Dollars in millions) | | 2024 | | | 2023 | | | 2024 vs. 2023 | |
Business processing revenue | | $ | 77 | | | $ | 72 | | | | 7 | % |
Direct operating expenses | | | 69 | | | | 67 | | | | 3 | |
Income before income tax expense | | | 8 | | | | 5 | | | | 60 | |
Income tax expense | | | 2 | | | | 1 | | | | 100 | |
Net income | | $ | 6 | | | $ | 4 | | | | 50 | % |
Comparison of First-Quarter 2024 Results with First-Quarter 2023
•Revenue was $77 million, $5 million higher due to continued organic growth.
•Net income was $6 million compared to $4 million.
•EBITDA(1) was $9 million, up $4 million, primarily the result of the increase in revenue and the reduction of certain costs.
•EBITDA margin was 11%, up from 7%.
Key performance metrics are as follows:
| | | | | | | | |
| | Three Months Ended March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Revenue from government services | | $ | 48 | | | $ | 40 | |
Revenue from healthcare services | | | 29 | | | | 32 | |
Total fee revenue | | $ | 77 | | | $ | 72 | |
EBITDA(1) | | $ | 9 | | | $ | 5 | |
EBITDA margin(1) | | | 11 | % | | | 7 | % |
(1)Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”
Other Segment
The following table presents Core Earnings results for our Other segment.
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | | % Increase
(Decrease) | |
(Dollars in millions) | | 2024 | | | 2023 | | | 2024 vs. 2023 | |
Net interest loss after provision for loan losses | | $ | (24 | ) | | $ | (25 | ) | | | (4 | )% |
Other revenue | | | 5 | | | | 2 | | | | 150 | |
Expenses: | | | | | | | | | |
Unallocated shared services operating expenses: | | | | | | | | | |
Unallocated information technology costs | | | 22 | | | | 19 | | | | 16 | |
Unallocated corporate costs | | | 43 | | | | 42 | | | | 2 | |
Total unallocated shared services operating expenses | | | 65 | | | | 61 | | | | 7 | |
Restructuring/other reorganization expenses | | | 1 | | | | 4 | | | | (75 | ) |
Total expenses | | | 66 | | | | 65 | | | | 2 | |
Loss before income tax benefit | | | (85 | ) | | | (88 | ) | | | (3 | ) |
Income tax benefit | | | (20 | ) | | | (20 | ) | | | — | |
Net income (loss) | | $ | (65 | ) | | $ | (68 | ) | | | (4 | )% |
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 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 $1 million from the year-ago quarter primarily as a result of an $11 million increase in regulatory-related expenses. Regulatory-related expenses were $13 million and $2 million in first-quarter 2024 and first-quarter 2023, respectively, with first quarter 2024 including a $12 million contingency loss accrual related to recent developments in connection to CFPB matters. The remaining $10 million decrease in expenses was primarily the result of ongoing initiatives to reduce costs and improve operating efficiency.
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
These expenses declined $3 million and primarily related to severance and facility exit costs.
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
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | |
(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 | | | $ | 91 | | | $ | 104 | |
Grace, repayment and other(2) | | | 12,816 | | | | 23,256 | | | | 36,072 | | | | 17,055 | | | | 53,127 | |
Total | | | 12,829 | | | | 23,256 | | | | 36,085 | | | | 17,146 | | | | 53,231 | |
Allowance for loan losses | | | (152 | ) | | | (54 | ) | | | (206 | ) | | | (538 | ) | | | (744 | ) |
Total education loan portfolio | | $ | 12,677 | | | $ | 23,202 | | | $ | 35,879 | | | $ | 16,608 | | | $ | 52,487 | |
% of total FFELP | | | 35 | % | | | 65 | % | | | 100 | % | | | | | | |
% of total | | | 24 | % | | | 44 | % | | | 68 | % | | | 32 | % | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 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) | | $ | 12 | | | $ | — | | | $ | 12 | | | $ | 70 | | | $ | 82 | |
Grace, repayment and other(2) | | | 13,708 | | | | 24,420 | | | | 38,128 | | | | 17,449 | | | | 55,577 | |
Total | | | 13,720 | | | | 24,420 | | | | 38,140 | | | | 17,519 | | | | 55,659 | |
Allowance for loan losses | | | (156 | ) | | | (59 | ) | | | (215 | ) | | | (617 | ) | | | (832 | ) |
Total education loan portfolio | | $ | 13,564 | | | $ | 24,361 | | | $ | 37,925 | | | $ | 16,902 | | | $ | 54,827 | |
% of total FFELP | | | 36 | % | | | 64 | % | | | 100 | % | | | | | | |
% of total | | | 25 | % | | | 44 | % | | | 69 | % | | | 31 | % | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 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) | | $ | 15 | | | $ | — | | | $ | 15 | | | $ | 73 | | | $ | 88 | |
Grace, repayment and other(2) | | | 15,339 | | | | 27,008 | | | | 42,347 | | | | 18,908 | | | | 61,255 | |
Total | | | 15,354 | | | | 27,008 | | | | 42,362 | | | | 18,981 | | | | 61,343 | |
Allowance for loan losses | | | (155 | ) | | | (59 | ) | | | (214 | ) | | | (706 | ) | | | (920 | ) |
Total education loan portfolio | | $ | 15,199 | | | $ | 26,949 | | | $ | 42,148 | | | $ | 18,275 | | | $ | 60,423 | |
% of total FFELP | | | 36 | % | | | 64 | % | | | 100 | % | | | | | | |
% of total | | | 25 | % | | | 45 | % | | | 70 | % | | | 30 | % | | | 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.
Education Loan Activity
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 | |
(Dollars in millions) | | FFELP
Stafford and
Other | | | FFELP
Consolidation
Loans | | | Total
FFELP
Loans | | | Private
Education
Loans | | | Total
Portfolio | |
Beginning balance | | $ | 13,564 | | | $ | 24,361 | | | $ | 37,925 | | | $ | 16,902 | | | $ | 54,827 | |
Acquisitions (originations and purchases)(1) | | | — | | | | — | | | | — | | | | 363 | | | | 363 | |
Capitalized interest and premium/discount
amortization | | | 134 | | | | 140 | | | | 274 | | | | 60 | | | | 334 | |
Refinancings and consolidations to third
parties | | | (482 | ) | | | (788 | ) | | | (1,270 | ) | | | (51 | ) | | | (1,321 | ) |
Repayments and other | | | (539 | ) | | | (511 | ) | | | (1,050 | ) | | | (666 | ) | | | (1,716 | ) |
Ending balance | | $ | 12,677 | | | $ | 23,202 | | | $ | 35,879 | | | $ | 16,608 | | | $ | 52,487 | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 | |
(Dollars in millions) | | FFELP
Stafford and
Other | | | FFELP
Consolidation
Loans | | | Total
FFELP
Loans | | | Private
Education
Loans | | | Total
Portfolio | |
Beginning balance | | $ | 15,691 | | | $ | 27,834 | | | $ | 43,525 | | | $ | 18,725 | | | $ | 62,250 | |
Acquisitions (originations and purchases)(1) | | | — | | | | — | | | | — | | | | 274 | | | | 274 | |
Capitalized interest and premium/discount
amortization | | | 146 | | | | 163 | | | | 309 | | | | 49 | | | | 358 | |
Refinancings and consolidations to third
parties | | | (252 | ) | | | (435 | ) | | | (687 | ) | | | (72 | ) | | | (759 | ) |
Repayments and other | | | (386 | ) | | | (613 | ) | | | (999 | ) | | | (701 | ) | | | (1,700 | ) |
Ending balance | | $ | 15,199 | | | $ | 26,949 | | | $ | 42,148 | | | $ | 18,275 | | | $ | 60,423 | |
(1)Includes the origination of $47 million and $50 million of Private Education Refinance Loans in the first-quarters of 2024 and 2023, that refinanced FFELP and Private Education Loans that were on our balance sheet.
FFELP Loan Portfolio Performance
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | | December 31, 2023 | | | March 31, 2023 | |
(Dollars in millions) | | Balance | | | % | | | Balance | | | % | | | Balance | | | % | |
Loans in-school/grace/deferment(1) | | $ | 1,562 | | | | | | $ | 1,557 | | | | | | $ | 1,778 | | | | |
Loans in forbearance(2) | | | 5,538 | | | | | | | 6,147 | | | | | | | 6,844 | | | | |
Loans in repayment and percentage of each status: | | | | | | | | | | | | | | | | | | |
Loans current | | | 25,162 | | | | 86.8 | % | | | 26,204 | | | | 86.1 | % | | | 28,886 | | | | 85.6 | % |
Loans delinquent 31-60 days(3) | | | 1,163 | | | | 4.0 | | | | 1,193 | | | | 3.9 | | | | 1,270 | | | | 3.8 | |
Loans delinquent 61-90 days(3) | | | 747 | | | | 2.6 | | | | 746 | | | | 2.5 | | | | 902 | | | | 2.7 | |
Loans delinquent greater than 90 days(3) | | | 1,913 | | | | 6.6 | | | | 2,293 | | | | 7.5 | | | | 2,682 | | | | 7.9 | |
Total FFELP Loans in repayment | | | 28,985 | | | | 100 | % | | | 30,436 | | | | 100 | % | | | 33,740 | | | | 100 | % |
Total FFELP Loans | | | 36,085 | | | | | | | 38,140 | | | | | | | 42,362 | | | | |
FFELP Loan allowance for losses | | | (206 | ) | | | | | | (215 | ) | | | | | | (214 | ) | | | |
FFELP Loans, net | | $ | 35,879 | | | | | | $ | 37,925 | | | | | | $ | 42,148 | | | | |
Percentage of FFELP Loans in repayment | | | | | | 80.3 | % | | | | | | 79.8 | % | | | | | | 79.6 | % |
Delinquencies as a percentage of FFELP Loans in
repayment | | | | | | 13.2 | % | | | | | | 13.9 | % | | | | | | 14.4 | % |
FFELP Loans in forbearance as a percentage of
loans in repayment and forbearance | | | | | | 16.0 | % | | | | | | 16.8 | % | | | | | | 16.9 | % |
(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
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | | December 31, 2023 | | | March 31, 2023 | |
(Dollars in millions) | | Balance | | | % | | | Balance | | | % | | | Balance | | | % | |
Loans in-school/grace/deferment(1) | | $ | 369 | | | | | | $ | 360 | | | | | | $ | 369 | | | | |
Loans in forbearance(2) | | | 297 | | | | | | | 363 | | | | | | | 354 | | | | |
Loans in repayment and percentage of each status: | | | | | | | | | | | | | | | | | | |
Loans current | | | 15,661 | | | | 95.0 | % | | | 15,935 | | | | 94.9 | % | | | 17,439 | | | | 95.5 | % |
Loans delinquent 31-60 days(3) | | | 303 | | | | 1.9 | | | | 308 | | | | 1.8 | | | | 290 | | | | 1.6 | |
Loans delinquent 61-90 days(3) | | | 165 | | | | 1.0 | | | | 173 | | | | 1.0 | | | | 165 | | | | .9 | |
Loans delinquent greater than 90 days(3) | | | 351 | | | | 2.1 | | | | 380 | | | | 2.3 | | | | 364 | | | | 2.0 | |
Total Private Education Loans in repayment | | | 16,480 | | | | 100 | % | | | 16,796 | | | | 100 | % | | | 18,258 | | | | 100 | % |
Total Private Education Loans | | | 17,146 | | | | | | | 17,519 | | | | | | | 18,981 | | | | |
Private Education Loan allowance for losses | | | (538 | ) | | | | | | (617 | ) | | | | | | (706 | ) | | | |
Private Education Loans, net | | $ | 16,608 | | | | | | $ | 16,902 | | | | | | $ | 18,275 | | | | |
Percentage of Private Education Loans in
repayment | | | | | | 96.1 | % | | | | | | 95.9 | % | | | | | | 96.2 | % |
Delinquencies as a percentage of Private Education
Loans in repayment | | | | | | 5.0 | % | | | | | | 5.1 | % | | | | | | 4.5 | % |
Loans in forbearance as a percentage of loans in
repayment and forbearance | | | | | | 1.8 | % | | | | | | 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 66%, 65% and 65% for first-quarter 2024, fourth-quarter 2023 and first quarter 2023, respectively.
Allowance for Loan Losses
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
(Dollars in millions) | | FFELP Loans | | | Private Education Loans | | | Total | | | FFELP Loans | | | Private Education Loans | | | Total | |
Beginning balance | | $ | 215 | | | $ | 617 | | | $ | 832 | | | $ | 222 | | | $ | 800 | | | $ | 1,022 | |
Total provision | | | 1 | | | | 11 | | | | 12 | | | | 10 | | | | (24 | ) | | | (14 | ) |
Charge-offs: | | | | | | | | | | | | | | | | | | |
Gross charge-offs | | | (10 | ) | | | (110 | ) | | | (120 | ) | | | (18 | ) | | | (88 | ) | | | (106 | ) |
Expected future recoveries on current period gross
charge-offs | | | — | | | | 11 | | | | 11 | | | | — | | | | 13 | | | | 13 | |
Net charge-offs(1)(2) | | | (10 | ) | | | (99 | ) | | | (109 | ) | | | (18 | ) | | | (75 | ) | | | (93 | ) |
Decrease in expected future recoveries on previously
fully charged-off loans(3) | | | — | | | | 9 | | | | 9 | | | | — | | | | 5 | | | | 5 | |
Allowance at end of period (GAAP) | | | 206 | | | | 538 | | | | 744 | | | | 214 | | | | 706 | | | | 920 | |
Plus: expected future recoveries on previously fully
charged-off loans(3) | | | — | | | | 217 | | | | 217 | | | | — | | | | 268 | | | | 268 | |
Allowance at end of period excluding expected future
recoveries on previously fully charged-off loans
(Non-GAAP Financial Measure)(4) | | $ | 206 | | | $ | 755 | | | $ | 961 | | | $ | 214 | | | $ | 974 | | | $ | 1,188 | |
Net charge-offs as a percentage of average loans in
repayment (annualized) | | | .13 | % | | | 2.40 | % | | | | | | .22 | % | | | 1.63 | % | | | |
Allowance coverage of charge-offs (annualized)(4) | | | 5.3 | | | | 1.8 | | | (Non-GAAP) | | | | 2.9 | | | | 3.2 | | | (Non-GAAP) | |
Allowance as a percentage of the ending total loan
balance(4) | | | .6 | % | | | 4.4 | % | | (Non-GAAP) | | | | .5 | % | | | 5.1 | % | | (Non-GAAP) | |
Allowance as a percentage of ending loans in
repayment(4) | | | .7 | % | | | 4.6 | % | | (Non-GAAP) | | | | .6 | % | | | 5.4 | % | | (Non-GAAP) | |
Ending total loans | | $ | 36,085 | | | $ | 17,146 | | | | | | $ | 42,362 | | | $ | 18,981 | | | | |
Average loans in repayment | | $ | 29,736 | | | $ | 16,671 | | | | | | $ | 34,305 | | | $ | 18,552 | | | | |
Ending loans in repayment | | $ | 28,985 | | | $ | 16,480 | | | | | | $ | 33,740 | | | $ | 18,258 | | | | |
(1)$28 million of first-quarter 2024 Private Education Loan net charge-offs is in connection with the resolution of certain private legacy loans in bankruptcy. This was previously reserved for in 2023.
(2)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.
(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 March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Beginning of period expected future recoveries on
previously fully charged-off loans | | $ | 226 | | | $ | 274 | |
Expected future recoveries of current period defaults | | | 11 | | | | 13 | |
Recoveries (cash collected) | | | (11 | ) | | | (13 | ) |
Charge-offs (as a result of lower recovery expectations) | | | (9 | ) | | | (6 | ) |
End of period expected future recoveries on previously
fully charged-off loans | | $ | 217 | | | $ | 268 | |
Change in balance during period | | $ | (9 | ) | | $ | (5 | ) |
(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.
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 segment requires 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 $5.9 billion at March 31, 2024. 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 $0.6 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 2025 to 2043 with 60% 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 asset-backed commercial paper (ABCP) facilities, issue term ABS, enter into additional Private Education Loan and FFELP 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 2.6 million shares of common stock for $43 million in the first quarter of 2024 and have $247 million of unused share repurchase authority as of March 31, 2024.
Sources of Primary Liquidity
| | | | | | | | | | | | |
| | | | | | | | | |
(Dollars in millions) | | March 31, 2024 | | | December 31, 2023 | | | March 31, 2023 | |
Ending Balances: | | | | | | | | | |
Total unrestricted cash and liquid investments | | $ | 823 | | | $ | 839 | | | $ | 570 | |
Unencumbered FFELP Loans | | | 133 | | | | 92 | | | | 62 | |
Unencumbered Private Education Refinance
Loans | | | 88 | | | | 236 | | | | 37 | |
Total | | $ | 1,044 | | | $ | 1,167 | | | $ | 669 | |
| | | | | | | | | | | | |
| | Three Months Ended | |
(Dollars in millions) | | March 31, 2024 | | | December 31, 2023 | | | March 31, 2023 | |
Average Balances: | | | | | | | | | |
Total unrestricted cash and liquid
investments | | $ | 767 | | | $ | 1,167 | | | $ | 825 | |
Unencumbered FFELP Loans | | | 115 | | | | 92 | | | | 85 | |
Unencumbered Private Education
Refinance Loans | | | 218 | | | | 137 | | | | 66 | |
Total | | $ | 1,100 | | | $ | 1,396 | | | $ | 976 | |
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 ABCP facilities will vary and be subject to each agreement’s borrowing conditions, including, among others, facility size, current usage and availability of qualifying collateral from unencumbered loans. The following tables detail the additional borrowing capacity of these facilities with maturity dates ranging from June 2024 to April 2026.
| | | | | | | | | | | | |
(Dollars in millions) | | March 31, 2024 | | | December 31, 2023 | | | March 31, 2023 | |
Ending Balances: | | | | | | | | | |
FFELP Loan ABCP facilities | | $ | 409 | | | $ | 408 | | | $ | 57 | |
Private Education Loan ABCP facilities | | | 1,340 | | | | 1,719 | | | | 1,028 | |
Total | | $ | 1,749 | | | $ | 2,127 | | | $ | 1,085 | |
| | | | | | | | | | | | |
| | Three Months Ended | |
(Dollars in millions) | | March 31, 2024 | | | December 31, 2023 | | | March 31, 2023 | |
Average Balances: | | | | | | | | | |
FFELP Loan ABCP facilities | | $ | 408 | | | $ | 203 | | | $ | 107 | |
Private Education Loan ABCP facilities | | | 1,563 | | | | 1,693 | | | | 1,141 | |
Total | | $ | 1,971 | | | $ | 1,896 | | | $ | 1,248 | |
At March 31, 2024, we had a total of $2.8 billion of unencumbered tangible assets inclusive of those listed in the table above as sources of primary liquidity. Total unencumbered education loans comprised $1.1 billion principal of our unencumbered tangible assets of which $957 million and $133 million related to Private Education Loans and FFELP Loans, respectively. In addition, as of March 31, 2024, we had $5.5 billion of encumbered net assets (i.e., overcollateralization) in our various financing facilities (consolidated variable interest entities). We enter into repurchase facilities at times to borrow against the encumbered net assets of these financing vehicles. As of March 31, 2024, $0.6 billion of repurchase facility borrowings were outstanding.
The following table reconciles encumbered and unencumbered assets and their net impact on total Tangible Equity.
| | | | | | | | |
(Dollars in billions) | | March 31, 2024 | | | December 31, 2023 | |
Net assets of consolidated variable interest
entities (encumbered assets) — FFELP Loans | | $ | 3.3 | | | | 3.4 | |
Net assets of consolidated variable interest entities
(encumbered assets) — Private Education Loans | | | 2.2 | | | | 2.1 | |
Tangible unencumbered assets(1) | | | 2.8 | | | | 3.0 | |
Senior unsecured debt | | | (5.9 | ) | | | (5.9 | ) |
Mark-to-market on unsecured hedged debt(2) | | | .2 | | | | .2 | |
Other liabilities, net | | | (.5 | ) | | | (.7 | ) |
Total Tangible Equity (3) | | $ | 2.1 | | | $ | 2.1 | |
(1)Excludes goodwill and acquired intangible assets.
(2)At March 31, 2024 and December 31, 2023, there were $(236) million and $(181) 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
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | | December 31, 2023 | |
(Dollars in millions) | | Short
Term | | | Long
Term | | | Total | | | Short
Term | | | Long
Term | | | Total | |
Unsecured borrowings: | | | | | | | | | | | | | | | | | | |
Senior unsecured debt | | $ | 556 | | | $ | 5,303 | | | $ | 5,859 | | | $ | 506 | | | $ | 5,351 | | | $ | 5,857 | |
Total unsecured borrowings | | | 556 | | | | 5,303 | | | | 5,859 | | | | 506 | | | | 5,351 | | | | 5,857 | |
Secured borrowings: | | | | | | | | | | | | | | | | | | |
FFELP Loan securitizations | | | 55 | | | | 33,787 | | | | 33,842 | | | | 59 | | | | 35,626 | | | | 35,685 | |
Private Education Loan securitizations | | | 383 | | | | 11,214 | | | | 11,597 | | | | 435 | | | | 11,754 | | | | 12,189 | |
FFELP Loan ABCP facilities | | | 1,719 | | | | 89 | | | | 1,808 | | | | 1,854 | | | | 89 | | | | 1,943 | |
Private Education Loan ABCP facilities | | | 1,659 | | | | 784 | | | | 2,443 | | | | 1,286 | | | | 821 | | | | 2,107 | |
Other | | | 62 | | | | 39 | | | | 101 | | | | 95 | | | | 39 | | | | 134 | |
Total secured borrowings | | | 3,878 | | | | 45,913 | | | | 49,791 | | | | 3,729 | | | | 48,329 | | | | 52,058 | |
Core Earnings basis borrowings(1) | | | 4,434 | | | | 51,216 | | | | 55,650 | | | | 4,235 | | | | 53,680 | | | | 57,915 | |
Adjustment for GAAP accounting treatment | | | (7 | ) | | | (368 | ) | | | (375 | ) | | | (9 | ) | | | (278 | ) | | | (287 | ) |
GAAP basis borrowings | | $ | 4,427 | | | $ | 50,848 | | | $ | 55,275 | | | $ | 4,226 | | | $ | 53,402 | | | $ | 57,628 | |
Average Balances
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
(Dollars in millions) | | Average
Balance | | | Average
Rate | | | Average
Balance | | | Average
Rate | |
Unsecured borrowings: | | | | | | | | | | | | |
Senior unsecured debt | | $ | 5,858 | | | | 9.25 | % | | $ | 6,279 | | | | 8.14 | % |
Total unsecured borrowings | | | 5,858 | | | | 9.25 | | | | 6,279 | | | | 8.14 | |
Secured borrowings: | | | | | | | | | | | | |
FFELP Loan securitizations | | | 34,860 | | | | 6.35 | | | | 41,377 | | | | 5.15 | |
Private Education Loan securitizations | | | 11,907 | | | | 3.56 | | | | 13,172 | | | | 3.25 | |
FFELP Loan ABCP facilities | | | 1,893 | | | | 6.98 | | | | 1,288 | | | | 5.90 | |
Private Education Loan ABCP facilities | | | 2,242 | | | | 7.27 | | | | 2,828 | | | | 6.25 | |
Other | | | 111 | | | | (1.67 | ) | | | 108 | | | | 5.03 | |
Total secured borrowings | | | 51,013 | | | | 5.75 | | | | 58,773 | | | | 4.79 | |
Core Earnings basis borrowings(1) | | | 56,871 | | | | 6.11 | | | | 65,052 | | | | 5.11 | |
Adjustment for GAAP accounting treatment | | | — | | | | .08 | | | | — | | | | .11 | |
GAAP basis borrowings | | $ | 56,871 | | | | 6.19 | % | | $ | 65,052 | | | | 5.22 | % |
(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.
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 2023 Form 10-K. See "Segment Results —Federal Education Loans Segment — Various Federal Loan Forgiveness Plans" 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.
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 March 31, 2024 | |
| | | | | 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 | | $ | 989 | | | | | | | | | | | | | | | $ | 661 | | | $ | 328 | | | $ | — | | | $ | — | |
Cash and investments | | | 38 | | | | | | | | | | | | | | | | 23 | | | | 7 | | | | — | | | | 8 | |
Total interest income | | | 1,027 | | | | | | | | | | | | | | | | 684 | | | | 335 | | | | — | | | | 8 | |
Total interest expense | | | 875 | | | | | | | | | | | | | | | | 631 | | | | 201 | | | | — | | | | 32 | |
Net interest income
(loss) | | | 152 | | | $ | 10 | | | $ | 1 | | | $ | 11 | | | $ | 163 | | | | 53 | | | | 134 | | | | — | | | | (24 | ) |
Less: provisions for loan
losses | | | 12 | | | | | | | | | | | | | 12 | | | | 1 | | | | 11 | | | | — | | | | — | |
Net interest income
(loss) after provisions
for loan losses | | | 140 | | | | | | | | | | | | | | | | 52 | | | | 123 | | | | — | | | | (24 | ) |
Other income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Servicing revenue | | | 17 | | | | | | | | | | | | | | | | 13 | | | | 4 | | | | — | | | | — | |
Asset recovery and
business processing
revenue | | | 77 | | | | | | | | | | | | | | | | — | | | | — | | | | 77 | | | | — | |
Other revenue | | | 41 | | | | | | | | | | | | | | | | 4 | | | | — | | | | — | | | | 5 | |
Total other income
(loss) | | | 135 | | | | (10 | ) | | | (22 | ) | | | (32 | ) | | | 103 | | | | 17 | | | | 4 | | | | 77 | | | | 5 | |
Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating
expenses | | | 118 | | | | | | | | | | | | | | | | 17 | | | | 32 | | | | 69 | | | | — | |
Unallocated shared
services expenses | | | 65 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 65 | |
Operating expenses | | | 183 | | | | — | | | | — | | | | — | | | | 183 | | | | 17 | | | | 32 | | | | 69 | | | | 65 | |
Goodwill and acquired
intangible asset
impairment and
amortization | | | 3 | | | | — | | | | (3 | ) | | | (3 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Restructuring/other
reorganization
expenses | | | 1 | | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | 1 | |
Total expenses | | | 187 | | | | — | | | | (3 | ) | | | (3 | ) | | | 184 | | | | 17 | | | | 32 | | | | 69 | | | | 66 | |
Income (loss) before
income tax expense
(benefit) | | | 88 | | | | — | | | | (18 | ) | | | (18 | ) | | | 70 | | | | 52 | | | | 95 | | | | 8 | | | | (85 | ) |
Income tax expense
(benefit)(2) | | | 15 | | | | — | | | | 1 | | | | 1 | | | | 16 | | | | 12 | | | | 22 | | | | 2 | | | | (20 | ) |
Net income (loss) | | $ | 73 | | | $ | — | | | $ | (19 | ) | | $ | (19 | ) | | $ | 54 | | | $ | 40 | | | $ | 73 | | | $ | 6 | | | $ | (65 | ) |
(1)Core Earnings adjustments to GAAP:
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 | |
(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) | | | (32 | ) | | | — | | | | (32 | ) |
Goodwill and acquired intangible asset impairment and amortization | | | — | | | | (3 | ) | | | (3 | ) |
Total Core Earnings adjustments to GAAP | | $ | (21 | ) | | $ | 3 | | | | (18 | ) |
Income tax expense (benefit) | | | | | | | | | 1 | |
Net income (loss) | | | | | | | | $ | (19 | ) |
(2)Income taxes are based on a percentage of net income before tax for the individual reportable segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 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 | | $ | 1,037 | | | | | | | | | | | | | | | $ | 695 | | | $ | 344 | | | $ | — | | | $ | — | |
Cash and investments | | | 34 | | | | | | | | | | | | | | | | 20 | | | | 6 | | | | — | | | | 8 | |
Total interest income | | | 1,071 | | | | | | | | | | | | | | | | 715 | | | | 350 | | | | — | | | | 8 | |
Total interest expense | | | 837 | | | | | | | | | | | | | | | | 590 | | | | 197 | | | | — | | | | 33 | |
Net interest income
(loss) | | | 234 | | | $ | 12 | | | $ | 7 | | | $ | 19 | | | $ | 253 | | | | 125 | | | | 153 | | | | — | | | | (25 | ) |
Less: provisions for loan
losses | | | (14 | ) | | | | | | | | | | | | (14 | ) | | | 10 | | | | (24 | ) | | | — | | | | — | |
Net interest income
(loss) after provisions
for loan losses | | | 248 | | | | | | | | | | | | | | | | 115 | | | | 177 | | | | — | | | | (25 | ) |
Other income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Servicing revenue | | | 17 | | | | | | | | | | | | | | | | 14 | | | | 3 | | | | — | | | | — | |
Asset recovery and
business processing
revenue | | | 72 | | | | | | | | | | | | | | | | — | | | | — | | | | 72 | | | | — | |
Other revenue | | | (1 | ) | | | | | | | | | | | | | | | 5 | | | | — | | | | — | | | | 2 | |
Total other income
(loss) | | | 88 | | | | (12 | ) | | | 20 | | | | 8 | | | | 96 | | | | 19 | | | | 3 | | | | 72 | | | | 2 | |
Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating
expenses | | | 124 | | | | | | | | | | | | | | | | 20 | | | | 37 | | | | 67 | | | | — | |
Unallocated shared
services expenses | | | 61 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 61 | |
Operating expenses | | | 185 | | | | — | | | | — | | | | — | | | | 185 | | | | 20 | | | | 37 | | | | 67 | | | | 61 | |
Goodwill and acquired
intangible asset
impairment and
amortization | | | 3 | | | | — | | | | (3 | ) | | | (3 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Restructuring/other
reorganization
expenses | | | 4 | | | | — | | | | — | | | | — | | | | 4 | | | | — | | | | — | | | | — | | | | 4 | |
Total expenses | | | 192 | | | | — | | | | (3 | ) | | | (3 | ) | | | 189 | | | | 20 | | | | 37 | | | | 67 | | | | 65 | |
Income (loss) before
income tax expense
(benefit) | | | 144 | | | | — | | | | 30 | | | | 30 | | | | 174 | | | | 114 | | | | 143 | | | | 5 | | | | (88 | ) |
Income tax expense
(benefit)(2) | | | 33 | | | | — | | | | 8 | | | | 8 | | | | 41 | | | | 27 | | | | 33 | | | | 1 | | | | (20 | ) |
Net income (loss) | | $ | 111 | | | $ | — | | | $ | 22 | | | $ | 22 | | | $ | 133 | | | $ | 87 | | | $ | 110 | | | $ | 4 | | | $ | (68 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)Core Earnings adjustments to GAAP:
| | | | | | | | | | | | |
| | Three Months Ended March 31, 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 | | $ | 19 | | | $ | — | | | $ | 19 | |
Total other income (loss) | | | 8 | | | | — | | | | 8 | |
Goodwill and acquired intangible asset impairment and amortization | | | — | | | | (3 | ) | | | (3 | ) |
Total Core Earnings adjustments to GAAP | | $ | 27 | | | $ | 3 | | | | 30 | |
Income tax expense (benefit) | | | | | | | | | 8 | |
Net income (loss) | | | | | | | | $ | 22 | |
(2)Income taxes are based on a percentage of net income before tax for the individual reportable segment.
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 March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
GAAP net income | | $ | 73 | | | $ | 111 | |
Core Earnings adjustments to GAAP: | | | | | | |
Net impact of derivative accounting | | | (21 | ) | | | 27 | |
Net impact of goodwill and acquired intangible assets | | | 3 | | | | 3 | |
Net income tax effect | | | (1 | ) | | | (8 | ) |
Total Core Earnings adjustments to GAAP | | | (19 | ) | | | 22 | |
Core Earnings net income | | $ | 54 | | | $ | 133 | |
| | | | | | |
(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 interest rate 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 2023 Form 10-K for further discussion.
The table below quantifies the adjustments for derivative accounting between GAAP and Core Earnings net income.
| | | | | | | | |
| | Three Months Ended March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Core Earnings derivative adjustments: | | | | | | |
(Gains) losses on derivative and hedging activities, net, included in other income | | $ | (32 | ) | | $ | 8 | |
Plus: (Gains) losses on fair value hedging activity included in interest expense | | | — | | | | 6 | |
Total (gains) losses in GAAP net income | | | (32 | ) | | | 14 | |
Plus: Reclassification of settlement income (expense) on derivative and hedging
activities, net(1) | | | 10 | | | | 12 | |
Mark-to-market (gains) losses on derivative and hedging activities, net(2) | | | (22 | ) | | | 26 | |
Amortization of net premiums on Floor Income Contracts in net interest income for
Core Earnings | | | — | | | | 2 | |
Other derivative accounting adjustments(3) | | | 1 | | | | (1 | ) |
Total net impact of derivative accounting | | $ | (21 | ) | | $ | 27 | |
(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 March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Reclassification of settlements on derivative and hedging activities: | | | | | | |
Net settlement expense on Floor Income Contracts reclassified to net
interest income | | $ | — | | | $ | — | |
Net settlement income (expense) on interest rate swaps reclassified to net
interest income | | | 10 | | | | 12 | |
Total reclassifications of settlement income (expense) on derivative and
hedging activities | | $ | 10 | | | $ | 12 | |
(2)“Mark-to-market (gains) losses on derivative and hedging activities, net” is comprised of the following:
| | | | | | | | |
| | Three Months Ended March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Fair value hedges | | $ | (3 | ) | | $ | 4 | |
Foreign currency hedges | | | 3 | | | | 2 | |
Floor Income Contracts | | | — | | | | — | |
Basis swaps | | | — | | | | 2 | |
Other | | | (22 | ) | | | 18 | |
Total mark-to-market (gains) losses on derivative and hedging activities, net | | $ | (22 | ) | | $ | 26 | |
(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.
Cumulative Impact of Derivative Accounting under GAAP compared to Core Earnings
As of March 31, 2024, derivative accounting has increased GAAP equity by approximately $11 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 March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Beginning impact of derivative accounting on GAAP equity | | $ | (1 | ) | | $ | 122 | |
Net impact of net mark-to-market gains (losses) under derivative accounting(1) | | | 12 | | | | (41 | ) |
Ending impact of derivative accounting on GAAP equity | | $ | 11 | | | $ | 81 | |
(1)Net impact of net mark-to-market gains (losses) under derivative accounting is composed of the following:
| | | | | | | | |
| | Three Months Ended March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Total pre-tax net impact of derivative accounting recognized in net income(2) | | $ | 21 | | | $ | (27 | ) |
Tax and other impacts of derivative accounting adjustments | | | (5 | ) | | | 7 | |
Change in mark-to-market gains (losses) on derivatives, net of tax
recognized in other comprehensive income | | | (4 | ) | | | (21 | ) |
Net impact of net mark-to-market gains (losses) under derivative accounting | | $ | 12 | | | $ | (41 | ) |
(2)See “Core Earnings derivative adjustments” table above.
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) | | March 31, 2024 | | | March 31, 2023 | |
Total hedged Floor Income, net of tax(1)(2) | | $ | 80 | | | $ | 166 | |
(1)$104 million and $217 million on a pre-tax basis as of March 31, 2024 and March 31, 2023, respectively.
(2)Of the $80 million as of March 31, 2024, approximately $26 million, $20 million, $16 million and $10 million will be recognized as part of Core Earnings net income in the remainder of 2024, 2025, 2026 and 2027, 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 March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Core Earnings goodwill and acquired intangible
asset adjustments | | $ | 3 | | | $ | 3 | |
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) | | March 31, 2024 | | | March 31, 2023 | |
Navient Corporation's stockholders' equity | | $ | 2,766 | | | $ | 2,958 | |
Less: Goodwill and acquired intangible assets | | | 692 | | | | 703 | |
Tangible Equity | | | 2,074 | | | | 2,255 | |
Less: Equity held for FFELP Loans | | | 179 | | | | 211 | |
Adjusted Tangible Equity | | $ | 1,895 | | | $ | 2,044 | |
Divided by: | | | | | | |
Total assets | | $ | 59,029 | | | $ | 66,913 | |
Less: | | | | | | |
Goodwill and acquired intangible assets | | | 692 | | | | 703 | |
FFELP Loans | | | 35,879 | | | | 42,148 | |
Adjusted tangible assets | | $ | 22,458 | | | $ | 24,062 | |
Adjusted Tangible Equity Ratio | | | 8.4 | % | | | 8.5 | % |
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 March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Pre-tax income | | $ | 8 | | | $ | 5 | |
Plus: | | | | | | |
Depreciation and amortization expense(1) | | | 1 | | | | — | |
EBITDA | | $ | 9 | | | $ | 5 | |
Divided by: | | | | | | |
Total revenue | | $ | 77 | | | $ | 72 | |
EBITDA margin | | | 11 | % | | | 7 | % |
(1)There is no interest expense in this segment.
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 March 31, 2024, the $755 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 $17,146 million Private Education Loan portfolio. The $217 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 $17,146 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 March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Allowance at end of period (GAAP) | | $ | 538 | | | $ | 706 | |
Plus: expected future recoveries on previously fully charged-off loans | | | 217 | | | | 268 | |
Allowance at end of period excluding expected future recoveries on
previously fully charged-off loans (Non-GAAP Financial Measure) | | $ | 755 | | | $ | 974 | |
Ending total loans | | $ | 17,146 | | | $ | 18,981 | |
Ending loans in repayment | | $ | 16,480 | | | $ | 18,258 | |
Net charge-offs | | $ | 99 | | | $ | 75 | |
| | | | | | |
Allowance coverage of charge-offs (annualized): | | | | | | |
GAAP | | | 1.3 | | | | 2.3 | |
Adjustment(1) | | | .5 | | | | .9 | |
Non-GAAP Financial Measure(1) | | | 1.8 | | | | 3.2 | |
| | | | | | |
Allowance as a percentage of the ending total loan balance: | | | | | | |
GAAP | | | 3.1 | % | | | 3.7 | % |
Adjustment(1) | | | 1.3 | | | | 1.4 | |
Non-GAAP Financial Measure(1) | | | 4.4 | % | | | 5.1 | % |
| | | | | | |
Allowance as a percentage of the ending loans in repayment: | | | | | | |
GAAP | | | 3.3 | % | | | 3.9 | % |
Adjustment(1) | | | 1.3 | | | | 1.5 | |
Non-GAAP Financial Measure(1) | | | 4.6 | % | | | 5.4 | % |
(1)The allowance used for these credit metrics excludes the expected future recoveries on previously fully charged-off loans. See discussion above.
Legal Proceedings
For a discussion of legal matters as of March 31, 2024, 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 2023 Form 10-K should be considered together with information included in this Form 10-Q. These are not the only risks to which we are exposed. The following information amends and restates in its entirety the previously disclosed risk factor in our 2023 Form 10-K relating to potential impacts of prepayments on our loans. Except for such additional information, we believe there have been no material changes from the risk factors previously disclosed in our 2023 Form 10-K.
Prepayments on our loans can materially impact our profitability, results of operations, financial condition, cash flows or future business prospects.
The rate at which borrowers prepay their loans can have a material impact on profitability, results of operations, financial condition, cash flows or future business prospects by affecting our net interest margin, the future cash flows from our loans including loans held by our securitization trusts. Higher or lower prepayments can result from a variety of causes including borrower activity and changes in the education loan market as a result of market conditions, interest rate movements, loan forgiveness or other government sponsored initiatives or programs. FFELP Loans and Private Education Loans may be voluntarily prepaid without penalty by the borrower, refinanced or consolidated with the borrower’s other loans through refinancing or repaid by the Department of Education (ED) in connection with certain government sponsored programs. Prepayment rates on education loans are subject to a variety of economic, political, competitive and other factors, including changes in our competitors’ business strategies, changes in interest rates, availability of alternative financings (including refinance and consolidations), legislative, executive, policy and regulatory changes affecting the education loan market and the general economy. Refinance products offered by us, our competitors, and the Federal Government may increase the repayment rate on our FFELP Loans and Private Education Loans.
In particular, new interpretations of current laws, rules or regulations or future laws, executive orders or other policy initiatives which operate to encourage or require consolidation, abolish existing or create additional income-based repayment or debt forgiveness programs or establish other policies and programs also may increase or decrease the prepayment rates on education loans. In addition, the timing of the implementation and execution of certain government sponsored programs, like the Borrower Defense Loan Discharge program, may also increase or decrease the prepayment rates on FFELP Loans. For example, after the invalidation of the Student Debt Relief (SDR) Plan, ED announced that it had begun a new rulemaking process to consider other ways to provide debt relief to borrowers, which could include borrowers with privately held FFELP Loans. ED held several public meeting sessions with a negotiated rulemaking committee in the fourth quarter of 2023 and in the first quarter of 2024. ED is expected to publish proposed regulations for public comment in May 2024. 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. 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.
These proposed borrower debt relief regulations, the new income-driven repayment plan and the timing of the implementation and execution of certain government sponsored programs have increased, and may continue to increase, the prepayment rates of our existing education loan portfolio and could materially and adversely impact our profitability, results of operations, financial condition, cash flows or future business prospects. We cannot predict what (if any) plans or policies regarding debt relief or other related policies or programs may ultimately be implemented, the timing of when such plans or policies may be implemented, and/or the outcome of such actions.
FFELP Loans may also be repaid after default by the Guarantors of FFELP Loans. Conversely, borrowers might not choose to prepay their education loans, or the terms of their education loans may be extended as a result of grace periods, deferment periods, income-driven repayment plans, or other repayment terms or monthly payment amount modifications agreed to by the servicer, for example. FFELP Loan borrowers may be eligible for various existing income-based repayment programs under which borrowers can qualify for reduced or zero monthly payment or even debt forgiveness after a certain number of years of repayment. Prolonged introductions of significant amounts of subsidized funding at below market interest rates — whether from federal or private sources — could increase the prepayment rates of our existing Private Education Loans and have a material adverse effect on our profitability, results of operations, financial condition, cash flows or future business prospects.
With respect to our securitization trusts when, as a result of unanticipated prepayment levels, education loans within a securitization trust amortize faster than originally contracted, the trust’s pool balance may decline at a rate faster than the prepayment rate assumed when the trust’s bonds were originally issued. If the trust’s pool balance declines faster than originally anticipated, in most of our securitization structures, the bonds issued by that trust will also be repaid faster than originally anticipated. In such cases, our net interest income may decrease and our future cash flows from the trust may similarly decline. Conversely, when education loans within a securitization trust amortize more slowly than originally contracted, the trust’s pool balance may decline more slowly than the prepayment rate assumed when the trust’s bonds were originally issued, and the bonds may be repaid more slowly than originally anticipated. In these cases, our net interest income increases and our future cash flows from the trust may increase. It is also possible, if the prepayment rate is especially slow and certain rights of the sellers or the servicer are not exercised or are insufficient or other action is not taken to counter the slower prepayment rate, the trust’s bonds may not be repaid by their legal final maturity date(s), which could result in an event of default under the underlying securitization agreements.
Quantitative and Qualitative Disclosures about Market Risk
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 March 31, 2024 and 2023, 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 March 31, 2024 | | | As of March 31, 2023 | |
| | 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 | | $ | 16 | | | $ | 2 | | | $ | 39 | | | $ | (26 | ) |
Mark-to-market gains (losses) on derivative and
hedging activities | | | 58 | | | | (60 | ) | | | 32 | | | | (33 | ) |
Increase (decrease) in income before taxes | | $ | 74 | | | $ | (58 | ) | | $ | 71 | | | $ | (59 | ) |
Increase (decrease) in net income after taxes | | $ | 57 | | | $ | (45 | ) | | $ | 55 | | | $ | (45 | ) |
Increase (decrease) in diluted earnings per
common share | | $ | .51 | | | $ | (.40 | ) | | $ | .43 | | | $ | (.36 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | At March 31, 2024 | |
| | | | | 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 | | $ | 51,343 | | | $ | (75 | ) | | | — | % | | $ | 111 | | | | — | % |
Other earning assets | | | 3,077 | | | | — | | | | — | | | | — | | | | — | |
Other assets | | | 3,465 | | | | 29 | | | | 1 | | | | 27 | | | | 1 | |
Total assets gain/(loss) | | $ | 57,885 | | | $ | (46 | ) | | | — | % | | $ | 138 | | | | — | % |
Liabilities | | | | | | | | | | | | | | | |
Interest-bearing liabilities | | $ | 53,882 | | | $ | (261 | ) | | | — | % | | $ | 277 | | | | 1 | % |
Other liabilities | | | 988 | | | | 121 | | | | 12 | | | | (69 | ) | | | (7 | ) |
Total liabilities (gain)/loss | | $ | 54,870 | | | $ | (140 | ) | | | — | % | | $ | 208 | | | | — | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | At December 31, 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 | | $ | 52,877 | | | $ | (88 | ) | | | — | % | | $ | 130 | | | | — | % |
Other earning assets | | | 2,939 | | | | — | | | | — | | | | — | | | | — | |
Other assets | | | 3,609 | | | | 7 | | | | — | | | | 50 | | | | 1 | |
Total assets gain/(loss) | | $ | 59,425 | | | $ | (81 | ) | | | — | % | | $ | 180 | | | | — | % |
Liabilities | | | | | | | | | | | | | | | |
Interest-bearing liabilities | | $ | 55,803 | | | $ | (274 | ) | | | — | % | | $ | 295 | | | | 1 | % |
Other liabilities | | | 987 | | | | 113 | | | | 11 | | | | (67 | ) | | | (7 | ) |
Total liabilities (gain)/loss | | $ | 56,790 | | | $ | (161 | ) | | | — | % | | $ | 228 | | | | — | % |
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) a portion of our unhedged FFELP Loans being in a fixed-rate mode due to Floor Income, while being funded with variable rate debt; (ii) certain FFELP fixed rate loans becoming variable interest rate loans when variable interest rates rise above a certain level (Special Allowance Payment or “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 (iii) as well as item (ii) having a more significant impact than item (i) as a result of interest rates being 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 (including annual reset floors in connection with a portion of the Stafford FFELP loan portfolio) than item (ii) as a result of interest rates being higher compared to the prior period. The relative changes from the prior period are a result of interest rates being lower in the prior period.
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 March 31, 2024. 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.
| | | | | | | | | | | | | | |
Index
(Dollars in billions) | | Frequency of
Variable
Resets | | Assets | | | Funding | | | Funding
Gap | |
3 month Treasury bill | | weekly | | $ | 1.9 | | | $ | — | | | $ | 1.9 | |
3 month Treasury bill | | annual | | | .1 | | | | — | | | | .1 | |
Prime | | annual | | | .1 | | | | — | | | | .1 | |
Prime | | quarterly | | | 1.0 | | | | — | | | | 1.0 | |
Prime | | monthly | | | 3.4 | | | | — | | | | 3.4 | |
3 month Term SOFR | | quarterly | | | .2 | | | | 1.2 | | | | (1.0 | ) |
3 month Term SOFR (1) | | monthly | | | — | | | | .4 | | | | (.4 | ) |
1 month Term SOFR | | monthly | | | 2.3 | | | | 1.0 | | | | 1.3 | |
Overnight SOFR(2) | | daily | | | 33.7 | | | | 34.7 | | | | (1.0 | ) |
Non Discrete reset (1) | | monthly | | | — | | | | 4.7 | | | | (4.7 | ) |
Non Discrete reset (3) | | daily/weekly | | | 3.0 | | | | — | | | | 3.0 | |
Fixed Rate (4) | | | | | 13.5 | | | | 17.2 | | | | (3.7 | ) |
Total | | | | $ | 59.2 | | | $ | 59.2 | | | $ | — | |
(1)Funding includes debt related to Repurchase 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 $16.2 billion of 30-day average SOFR lookback debt and $16.0 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.
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following tables provide information relating to our purchases of shares of our common stock in the three months ended March 31, 2024.
| | | | | | | | | | | | | | | | |
(In millions, except per share data) | | Total Number
of Shares
Purchased(1) | | | Average Price
Paid per
Share | | | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(1)(2) | | | Approximate Dollar
Value of Shares
That May Yet Be
Purchased Under
Publicly Announced
Plans or
Programs(1) | |
Period: | | | | | | | | | | | | |
January 1 — January 31, 2024 | | | .9 | | | $ | 17.69 | | | | .9 | | | $ | 275 | |
February 1 — February 29, 2024 | | | .9 | | | | 16.16 | | | | .9 | | | $ | 261 | |
March 1 — March 31, 2024 | | | .8 | | | | 16.70 | | | | .8 | | | $ | 247 | |
Total first-quarter 2024 | | | 2.6 | | | $ | 16.84 | | | | 2.6 | | | | |
(1)On December 10, 2021, our Board of Directors approved a $1 billion multi-year share repurchase program (the Share Repurchase Program). The Share Repurchase Program does not have an expiration date.
(2)On December 12, 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 during January 2024. No shares were purchased under this plan during the fourth-quarter 2023. This plan terminated by its terms on January 31, 2024. On March 14, 2024, 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 during first-quarter 2024 from March 18, 2024 to March 28, 2024. This plan terminates by its terms on April 30, 2024.
| | | | | | | | | | | | |
Execution Date | Total Number of Shares Purchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as part of Publicly Announced Plans or Programs(1)(2) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Plans or Programs(1) | |
1/2/2024 | | 38,510 | | $ | 18.53 | | | 38,510 | | $ | 289,296,075 | |
1/3/2024 | | 39,290 | | $ | 18.16 | | | 39,290 | | $ | 288,582,749 | |
1/4/2024 | | 39,284 | | $ | 18.16 | | | 39,284 | | $ | 287,869,332 | |
1/5/2024 | | 38,975 | | $ | 18.30 | | | 38,975 | | $ | 287,155,945 | |
1/8/2024 | | 39,423 | | $ | 18.05 | | | 39,423 | | $ | 286,444,234 | |
1/9/2024 | | 39,532 | | $ | 17.81 | | | 39,532 | | $ | 285,740,276 | |
1/10/2024 | | 40,804 | | $ | 17.46 | | | 40,804 | | $ | 285,027,899 | |
1/11/2024 | | 40,895 | | $ | 17.39 | | | 40,895 | | $ | 284,316,792 | |
1/12/2024 | | 41,167 | | $ | 17.33 | | | 41,167 | | $ | 283,603,360 | |
1/16/2024 | | 41,430 | | $ | 17.22 | | | 41,430 | | $ | 282,889,877 | |
1/17/2024 | | 41,099 | | $ | 17.05 | | | 41,099 | | $ | 282,188,942 | |
1/18/2024 | | 43,250 | | $ | 16.73 | | | 43,250 | | $ | 281,465,288 | |
1/19/2024 | | 42,133 | | $ | 16.95 | | | 42,133 | | $ | 280,751,175 | |
1/22/2024 | | 41,150 | | $ | 17.57 | | | 41,150 | | $ | 280,027,997 | |
1/23/2024 | | 40,589 | | $ | 17.60 | | | 40,589 | | $ | 279,313,675 | |
1/24/2024 | | 40,508 | | $ | 17.68 | | | 40,508 | | $ | 278,597,299 | |
1/25/2024 | | 40,250 | | $ | 17.81 | | | 40,250 | | $ | 277,880,507 | |
1/26/2024 | | 39,660 | | $ | 18.07 | | | 39,660 | | $ | 277,163,918 | |
1/29/2024 | | 38,969 | | $ | 18.13 | | | 38,969 | | $ | 276,457,434 | |
1/30/2024 | | 39,692 | | $ | 18.22 | | | 39,692 | | $ | 275,734,321 | |
1/31/2024 | | 41,214 | | $ | 17.59 | | | 41,214 | | $ | 275,009,511 | |
2/5/2024 | | 48,571 | | $ | 16.00 | | | 48,571 | | $ | 274,232,618 | |
2/6/2024 | | 48,205 | | $ | 16.12 | | | 48,205 | | $ | 273,455,630 | |
2/7/2024 | | 49,158 | | $ | 15.81 | | | 49,158 | | $ | 272,678,639 | |
2/8/2024 | | 48,511 | | $ | 16.02 | | | 48,511 | | $ | 271,901,648 | |
2/9/2024 | | 48,342 | | $ | 16.07 | | | 48,342 | | $ | 271,124,657 | |
2/12/2024 | | 46,941 | | $ | 16.57 | | | 46,941 | | $ | 270,346,671 | |
2/13/2024 | | 48,496 | | $ | 16.04 | | | 48,496 | | $ | 269,568,688 | |
2/14/2024 | | 48,262 | | $ | 16.12 | | | 48,262 | | $ | 268,790,710 | |
2/15/2024 | | 47,316 | | $ | 16.44 | | | 47,316 | | $ | 268,012,735 | |
2/16/2024 | | 47,451 | | $ | 16.40 | | | 47,451 | | $ | 267,234,748 | |
2/20/2024 | | 47,467 | | $ | 16.39 | | | 47,467 | | $ | 266,456,754 | |
2/21/2024 | | 48,413 | | $ | 16.07 | | | 48,413 | | $ | 265,678,762 | |
2/22/2024 | | 48,192 | | $ | 16.14 | | | 48,192 | | $ | 264,900,774 | |
2/23/2024 | | 47,501 | | $ | 16.38 | | | 47,501 | | $ | 264,122,789 | |
2/26/2024 | | 47,971 | | $ | 16.22 | | | 47,971 | | $ | 263,344,800 | |
2/27/2024 | | 48,504 | | $ | 16.04 | | | 48,504 | | $ | 262,566,805 | |
2/28/2024 | | 48,959 | | $ | 15.89 | | | 48,959 | | $ | 261,788,817 | |
2/29/2024 | | 48,068 | | $ | 16.19 | | | 48,068 | | $ | 261,010,822 | |
3/1/2024 | | 42,779 | | $ | 16.36 | | | 42,779 | | $ | 260,310,834 | |
3/4/2024 | | 42,500 | | $ | 16.43 | | | 42,500 | | $ | 259,612,385 | |
3/5/2024 | | 42,500 | | $ | 16.43 | | | 42,500 | | $ | 258,914,101 | |
3/6/2024 | | 42,700 | | $ | 16.35 | | | 42,700 | | $ | 258,215,862 | |
3/7/2024 | | 42,500 | | $ | 16.43 | | | 42,500 | | $ | 257,517,728 | |
3/8/2024 | | 42,500 | | $ | 16.44 | | | 42,500 | | $ | 256,818,862 | |
3/11/2024 | | 42,200 | | $ | 16.56 | | | 42,200 | | $ | 256,120,148 | |
3/12/2024 | | 41,700 | | $ | 16.69 | | | 41,700 | | $ | 255,424,383 | |
3/13/2024 | | 41,500 | | $ | 16.87 | | | 41,500 | | $ | 254,724,486 | |
3/14/2024 | | 41,713 | | $ | 16.62 | | | 41,713 | | $ | 254,031,124 | |
3/15/2024 | | 43,000 | | $ | 16.50 | | | 43,000 | | $ | 253,321,474 | |
3/18/2024 | | 42,563 | | $ | 16.45 | | | 42,563 | | $ | 252,621,478 | |
3/19/2024 | | 42,489 | | $ | 16.47 | | | 42,489 | | $ | 251,921,489 | |
3/20/2024 | | 41,819 | | $ | 16.74 | | | 41,819 | | $ | 251,221,497 | |
3/21/2024 | | 37,200 | | $ | 16.95 | | | 37,200 | | $ | 250,590,998 | |
3/22/2024 | | 46,484 | | $ | 16.89 | | | 46,484 | | $ | 249,805,721 | |
3/25/2024 | | 39,600 | | $ | 17.11 | | | 39,600 | | $ | 249,128,311 | |
3/26/2024 | | 44,700 | | $ | 17.18 | | | 44,700 | | $ | 248,360,321 | |
3/27/2024 | | 42,000 | | $ | 17.20 | | | 42,000 | | $ | 247,637,749 | |
3/28/2024 | | 35,250 | | $ | 17.39 | | | 35,250 | | $ | 247,024,857 | |
| | 2,551,849 | | $ | 16.84 | | | 2,551,849 | | | |
(1)On December 10, 2021, our Board of Directors approved a $1 billion multi-year share repurchase program (the Share Repurchase Program). The Share Repurchase Program does not have an expiration date.
(2)On December 12, 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 during January 2024. No shares were purchased under this plan during the fourth-quarter 2023. This plan terminated by its terms on January 31, 2024. On March 14, 2024, 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 during first-quarter 2024 from March 18, 2024 to March 28, 2024. This plan terminates by its terms on April 30, 2024.
Other Information
Director and Officer Trading Arrangements
None of our directors or officers (as defined in Rule 16a–1(f)) adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the first quarter of 2024.
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 March 31, 2024. Based on this evaluation, our Principal Executive and Principal Financial Officers concluded that, as of March 31, 2024, 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 March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Exhibits
* Filed herewith
** Furnished herewith
Financial Statements
NAVIENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(Unaudited)
| | | | | | | | |
| | March 31, 2024 | | | December 31, 2023 | |
Assets | | | | | | |
FFELP Loans (net of allowance for losses of $206 and $215, respectively) | | $ | 35,879 | | | $ | 37,925 | |
Private Education Loans (net of allowance for losses of $538 and $617,
respectively) | | | 16,608 | | | | 16,902 | |
Investments | | | 129 | | | | 146 | |
Cash and cash equivalents | | | 823 | | | | 839 | |
Restricted cash and cash equivalents | | | 2,125 | | | | 1,954 | |
Goodwill and acquired intangible assets, net | | | 692 | | | | 695 | |
Other assets | | | 2,773 | | | | 2,914 | |
Total assets | | $ | 59,029 | | | $ | 61,375 | |
Liabilities | | | | | | |
Short-term borrowings | | $ | 4,427 | | | $ | 4,226 | |
Long-term borrowings | | | 50,848 | | | | 53,402 | |
Other liabilities | | | 988 | | | | 987 | |
Total liabilities | | | 56,263 | | | | 58,615 | |
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:
465 million and 464 million shares issued, respectively | | | 4 | | | | 4 | |
Additional paid-in capital | | | 3,360 | | | | 3,353 | |
Accumulated other comprehensive income (net of tax expense
of $4 and $6, respectively) | | | 15 | | | | 19 | |
Retained earnings | | | 4,691 | | | | 4,638 | |
Total stockholders’ equity before treasury stock | | | 8,070 | | | | 8,014 | |
Less: Common stock held in treasury at cost: 353 million and 350 million
shares, respectively | | | (5,304 | ) | | | (5,254 | ) |
Total equity | | | 2,766 | | | | 2,760 | |
Total liabilities and equity | | $ | 59,029 | | | $ | 61,375 | |
Supplemental information — assets and liabilities of consolidated variable interest entities:
| | | | | | | | |
| | March 31, 2024 | | | December 31, 2023 | |
FFELP Loans | | $ | 35,745 | | | $ | 37,832 | |
Private Education Loans | | | 15,603 | | | | 15,759 | |
Restricted cash | | | 2,109 | | | | 1,937 | |
Other assets, net | | | 1,580 | | | | 1,744 | |
Short-term borrowings | | | 3,816 | | | | 3,634 | |
Long-term borrowings | | | 45,724 | | | | 48,169 | |
Net assets of consolidated variable interest entities | | $ | 5,497 | | | $ | 5,469 | |
See accompanying notes to consolidated financial statements.
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
Interest income: | | | | | | |
FFELP Loans | | $ | 661 | | | $ | 693 | |
Private Education Loans | | | 328 | | | | 344 | |
Cash and investments | | | 38 | | | | 34 | |
Total interest income | | | 1,027 | | | | 1,071 | |
Total interest expense | | | 875 | | | | 837 | |
Net interest income | | | 152 | | | | 234 | |
Less: provisions for loan losses | | | 12 | | | | (14 | ) |
Net interest income after provisions for loan losses | | | 140 | | | | 248 | |
Other income (loss): | | | | | | |
Servicing revenue | | | 17 | | | | 17 | |
Asset recovery and business processing revenue | | | 77 | | | | 72 | |
Other income | | | 9 | | | | 7 | |
Gains (losses) on derivative and hedging activities, net | | | 32 | | | | (8 | ) |
Total other income | | | 135 | | | | 88 | |
Expenses: | | | | | | |
Salaries and benefits | | | 101 | | | | 105 | |
Other operating expenses | | | 82 | | | | 80 | |
Total operating expenses | | | 183 | | | | 185 | |
Goodwill and acquired intangible asset impairment and
amortization expense | | | 3 | | | | 3 | |
Restructuring/other reorganization expenses | | | 1 | | | | 4 | |
Total expenses | | | 187 | | | | 192 | |
Income before income tax expense | | | 88 | | | | 144 | |
Income tax expense | | | 15 | | | | 33 | |
Net income | | $ | 73 | | | $ | 111 | |
Basic earnings per common share | | $ | .65 | | | $ | .87 | |
Average common shares outstanding | | | 113 | | | | 129 | |
Diluted earnings per common share | | $ | .64 | | | $ | .86 | |
Average common and common equivalent shares outstanding | | | 114 | | | | 130 | |
Dividends per common share | | $ | .16 | | | $ | .16 | |
See accompanying notes to consolidated financial statements.
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
Net income | | $ | 73 | | | $ | 111 | |
Net changes in cash flow hedges, net of tax(1) | | | (4 | ) | | | (21 | ) |
Total comprehensive income | | $ | 69 | | | $ | 90 | |
(1)See “Note 4 – Derivative Financial Instruments.”
See accompanying notes to consolidated financial statements.
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, 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 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 111 | | | | — | | | | 111 | | | | — | | | | 111 | |
Other comprehensive
income (loss), net of
tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | (21 | ) | | | — | | | | — | | | | (21 | ) | | | — | | | | (21 | ) |
Total comprehensive income
(loss) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 90 | | | | — | | | | 90 | |
Cash dividends: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock ($.16 per
share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (21 | ) | | | — | | | | (21 | ) | | | — | | | | (21 | ) |
Dividend equivalent units
related to employee
stock-based
compensation plans | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
Issuance of common shares | | | 2,420,932 | | | | — | | | | 2,420,932 | | | | — | | | | 13 | | | | — | | | | — | | | | — | | | | 13 | | | | — | | | | 13 | |
Stock-based compensation
expense | | | — | | | | — | | | | — | | | | — | | | | 9 | | | | — | | | | — | | | | — | | | | 9 | | | | — | | | | 9 | |
Common stock repurchased | | | — | | | | (4,888,812 | ) | | | (4,888,812 | ) | | | — | | | | — | | | | — | | | | — | | | | (85 | ) | | | (85 | ) | | | — | | | | (85 | ) |
Shares repurchased related
to employee
stock-based
compensation plans | | | — | | | | (1,276,713 | ) | | | (1,276,713 | ) | | | — | | | | — | | | | — | | | | — | | | | (23 | ) | | | (23 | ) | | | — | | | | (23 | ) |
Other | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | (1 | ) | | | — | | | | (1 | ) |
Balance at
March 31, 2023 | | | 463,508,522 | | | | (337,043,677 | ) | | | 126,464,845 | | | $ | 4 | | | $ | 3,335 | | | $ | 66 | | | $ | 4,579 | | | $ | (5,026 | ) | | $ | 2,958 | | | $ | — | | | $ | 2,958 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at
December 31, 2023 | | | 463,715,048 | | | | (350,210,737 | ) | | | 113,504,311 | | | $ | 4 | | | $ | 3,353 | | | $ | 19 | | | $ | 4,638 | | | $ | (5,254 | ) | | $ | 2,760 | | | $ | — | | | $ | 2,760 | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 73 | | | | — | | | | 73 | | | | — | | | | 73 | |
Other comprehensive
income (loss), net of
tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | (4 | ) | | | — | | | | — | | | | (4 | ) | | | — | | | | (4 | ) |
Total comprehensive income
(loss) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 69 | | | | — | | | | 69 | |
Cash dividends: | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock ($.16 per
share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (18 | ) | | | — | | | | (18 | ) | | | — | | | | (18 | ) |
Dividend equivalent units
related to employee
stock-based compensation
plans | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2 | ) | | | — | | | | (2 | ) | | | — | | | | (2 | ) |
Issuance of common shares | | | 1,316,257 | | | | — | | | | 1,316,257 | | | | — | | | | 2 | | | | — | | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
Stock-based compensation
expense | | | — | | | | — | | | | — | | | | — | | | | 5 | | | | — | | | | — | | | | — | | | | 5 | | | | — | | | | 5 | |
Common stock repurchased | | | — | | | | (2,551,849 | ) | | | (2,551,849 | ) | | | — | | | | — | | | | — | | | | — | | | | (43 | ) | | | (43 | ) | | | — | | | | (43 | ) |
Shares repurchased related
to employee stock-based
compensation plans | | | — | | | | (443,970 | ) | | | (443,970 | ) | | | — | | | | — | | | | — | | | | — | | | | (7 | ) | | | (7 | ) | | | — | | | | (7 | ) |
Other | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Balance at
March 31, 2024 | | | 465,031,305 | | | | (353,206,556 | ) | | | 111,824,749 | | | $ | 4 | | | $ | 3,360 | | | $ | 15 | | | $ | 4,691 | | | $ | (5,304 | ) | | $ | 2,766 | | | $ | — | | | $ | 2,766 | |
See accompanying notes to consolidated financial statements.
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
Cash flows from operating activities | | | | | | |
Net income | | $ | 73 | | | $ | 111 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Goodwill and acquired intangible asset impairment and amortization expense | | | 3 | | | | 3 | |
Stock-based compensation expense | | | 5 | | | | 9 | |
Mark-to-market (gains) losses on derivative and hedging activities, net | | | (36 | ) | | | 65 | |
Provisions for loan losses | | | 12 | | | | (14 | ) |
Decrease (increase) in accrued interest receivable | | | 109 | | | | (12 | ) |
Decrease in accrued interest payable | | | (15 | ) | | | (49 | ) |
Decrease in other assets | | | 47 | | | | 58 | |
Decrease in other liabilities | | | (16 | ) | | | (26 | ) |
Total adjustments | | | 109 | | | | 34 | |
Net cash provided by operating activities | | | 182 | | | | 145 | |
Cash flows from investing activities | | | | | | |
Education loans originated and acquired | | | (363 | ) | | | (274 | ) |
Proceeds from payments on education loans | | | 2,679 | | | | 2,118 | |
Other investing activities, net | | | 14 | | | | 4 | |
Net cash provided by investing activities | | | 2,330 | | | | 1,848 | |
Cash flows from financing activities | | | | | | |
Borrowings collateralized by loans in trust - repaid | | | (2,450 | ) | | | (3,047 | ) |
Asset-backed commercial paper conduits, net | | | 201 | | | | 189 | |
Long-term unsecured notes repaid | | | (1 | ) | | | (1,001 | ) |
Other financing activities, net | | | (46 | ) | | | (57 | ) |
Common stock repurchased | | | (43 | ) | | | (85 | ) |
Common dividends paid | | | (18 | ) | | | (21 | ) |
Net cash used in financing activities | | | (2,357 | ) | | | (4,022 | ) |
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents | | | 155 | | | | (2,029 | ) |
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period | | | 2,793 | | | | 4,807 | |
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | | $ | 2,948 | | | $ | 2,778 | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash disbursements made (refunds received) for: | | | | | | |
Interest paid | | $ | 866 | | | $ | 845 | |
Income taxes paid | | $ | 8 | | | $ | 6 | |
Income taxes refunds received | | $ | — | | | $ | (2 | ) |
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated
Balance Sheets: | | | | | | |
Cash and cash equivalents | | $ | 823 | | | $ | 570 | |
Restricted cash and restricted cash equivalents | | | 2,125 | | | | 2,208 | |
Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | | $ | 2,948 | | | $ | 2,778 | |
See accompanying notes to consolidated financial statements.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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 months ended March 31, 2024 are not necessarily indicative of the results for the year ending December 31, 2024 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 2023 Form 10-K. Definitions for certain capitalized terms used but not otherwise defined in this Form 10-Q can be found in our 2023 Form 10-K.
Recently Issued Accounting Pronouncements
Segment Reporting
In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, “Segment Reporting – Improvements to Reportable Segment Disclosures,” which requires expanded disclosures regarding significant segment expenses for each reportable segment. Significant segment expenses include expenses that are regularly provided to the chief operating decision maker (CODM) and included in each reported measure of segment profit or loss. The ASU also requires disclosure of the CODM’s title and position and permits companies to disclose multiple segment profit or loss measures if the CODM uses these measures to allocate resources and assess segment performance. Companies must reconcile each measure of profit or loss quarterly to the consolidated income statement. This guidance became effective beginning after January 1, 2024, for fiscal years, and beginning after January 1, 2025, for interim periods. The Company continues to assess the impact of the reportable segment disclosure requirements.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
2. Allowance for Loan Losses
Allowance for Loan Losses Roll Forward
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 | |
(Dollars in millions) | | FFELP
Loans | | | Private
Education
Loans | | | Total | |
Beginning balance | | $ | 215 | | | $ | 617 | | | $ | 832 | |
Total provision | | | 1 | | | | 11 | | | | 12 | |
Charge-offs: | | | | | | | | | |
Gross charge-offs | | | (10 | ) | | | (110 | ) | | | (120 | ) |
Expected future recoveries on current period gross charge-offs | | | — | | | | 11 | | | | 11 | |
Net charge-offs(1)(2) | | | (10 | ) | | | (99 | ) | | | (109 | ) |
Decrease in expected future recoveries on previously fully
charged-off loans(3) | | | — | | | | 9 | | | | 9 | |
Allowance at end of period | | $ | 206 | | | $ | 538 | | | $ | 744 | |
Net charge-offs as a percentage of average loans in repayment
(annualized) | | | .13 | % | | | 2.40 | % | | | |
Ending total loans | | $ | 36,085 | | | $ | 17,146 | | | | |
Average loans in repayment | | $ | 29,736 | | | $ | 16,671 | | | | |
Ending loans in repayment | | $ | 28,985 | | | $ | 16,480 | | | | |
(1)$28 million of Private Education Loan net charge-offs is in connection with the resolution of certain private legacy loans in bankruptcy. This was previously reserved for in 2023.
(2)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.
(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 March 31, | |
(Dollars in millions) | | 2024 | |
Beginning of period expected future recoveries on previously fully charged-off loans | | $ | 226 | |
Expected future recoveries of current period defaults | | | 11 | |
Recoveries (cash collected) | | | (11 | ) |
Charge-offs (as a result of lower recovery expectations) | | | (9 | ) |
End of period expected future recoveries on previously fully charged-off loans | | $ | 217 | |
Change in balance during period | | $ | (9 | ) |
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
2. Allowance for Loan Losses (Continued)
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 | |
(Dollars in millions) | | FFELP Loans | | | Private Education Loans | | | Total | |
Beginning balance | | $ | 222 | | | $ | 800 | | | $ | 1,022 | |
Total provision | | | 10 | | | | (24 | ) | | | (14 | ) |
Charge-offs: | | | | | | | | | |
Gross charge-offs | | | (18 | ) | | | (88 | ) | | | (106 | ) |
Expected future recoveries on current period gross charge-offs | | | — | | | | 13 | | | | 13 | |
Net charge-offs(1) | | | (18 | ) | | | (75 | ) | | | (93 | ) |
Decrease in expected future recoveries on previously fully
charged-off loans(2) | | | — | | | | 5 | | | | 5 | |
Allowance at end of period | | $ | 214 | | | $ | 706 | | | $ | 920 | |
Net charge-offs as a percentage of average loans in repayment
(annualized) | | | .22 | % | | | 1.63 | % | | | |
Ending total loans | | $ | 42,362 | | | $ | 18,981 | | | | |
Average loans in repayment | | $ | 34,305 | | | $ | 18,552 | | | | |
Ending loans in repayment | | $ | 33,740 | | | $ | 18,258 | | | | |
(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)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 March 31, | |
(Dollars in millions) | | 2023 | |
Beginning of period expected future recoveries on previously fully charged-off loans | | $ | 274 | |
Expected future recoveries of current period defaults | | | 13 | |
Recoveries (cash collected) | | | (13 | ) |
Charge-offs (as a result of lower recovery expectations) | | | (6 | ) |
End of period expected future recoveries on previously fully charged-off loans | | $ | 268 | |
Change in balance during period | | $ | (5 | ) |
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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 | |
| | March 31, 2024 | | | December 31, 2023 | | | March 31, 2023 | |
(Dollars in millions) | | Balance | | | % | | | Balance | | | % | | | Balance | | | % | |
Loans in-school/grace/deferment(1) | | $ | 1,562 | | | | | | $ | 1,557 | | | | | | $ | 1,778 | | | | |
Loans in forbearance(2) | | | 5,538 | | | | | | | 6,147 | | | | | | | 6,844 | | | | |
Loans in repayment and percentage of each status: | | | | | | | | | | | | | | | | | | |
Loans current | | | 25,162 | | | | 86.8 | % | | | 26,204 | | | | 86.1 | % | | | 28,886 | | | | 85.6 | % |
Loans delinquent 31-60 days(3) | | | 1,163 | | | | 4.0 | | | | 1,193 | | | | 3.9 | | | | 1,270 | | | | 3.8 | |
Loans delinquent 61-90 days(3) | | | 747 | | | | 2.6 | | | | 746 | | | | 2.5 | | | | 902 | | | | 2.7 | |
Loans delinquent greater than 90 days(3) | | | 1,913 | | | | 6.6 | | | | 2,293 | | | | 7.5 | | | | 2,682 | | | | 7.9 | |
Total FFELP Loans in repayment | | | 28,985 | | | | 100 | % | | | 30,436 | | | | 100 | % | | | 33,740 | | | | 100 | % |
Total FFELP Loans | | | 36,085 | | | | | | | 38,140 | | | | | | | 42,362 | | | | |
FFELP Loan allowance for losses | | | (206 | ) | | | | | | (215 | ) | | | | | | (214 | ) | | | |
FFELP Loans, net | | $ | 35,879 | | | | | | $ | 37,925 | | | | | | $ | 42,148 | | | | |
Percentage of FFELP Loans in repayment | | | | | | 80.3 | % | | | | | | 79.8 | % | | | | | | 79.6 | % |
Delinquencies as a percentage of FFELP Loans in
repayment | | | | | | 13.2 | % | | | | | | 13.9 | % | | | | | | 14.4 | % |
FFELP Loans in forbearance as a percentage of
loans in repayment and forbearance | | | | | | 16.0 | % | | | | | | 16.8 | % | | | | | | 16.9 | % |
(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) | | March 31, 2024 | | | March 31, 2023 | | | Change | |
Stafford Loans | | $ | 11,398 | | | $ | 13,592 | | | $ | (2,194 | ) |
Consolidation Loans | | | 21,177 | | | | 24,697 | | | | (3,520 | ) |
Rehab Loans | | | 3,510 | | | | 4,073 | | | | (563 | ) |
Total loans, gross | | $ | 36,085 | | | $ | 42,362 | | | $ | (6,277 | ) |
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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 | |
| | March 31, 2024 | |
(Dollars in millions) | | 2024 | | | 2023 | | | 2022 | | | 2021 | | | 2020 | | | Prior | | | Total | | | % of Total | |
Credit Quality
Indicators | | | | | | | | | | | | | | | | | | | | | | | | |
FICO Scores: | | | | | | | | | | | | | | | | | | | | | | | | |
640 and above | | $ | 259 | | | $ | 877 | | | $ | 1,514 | | | $ | 3,744 | | | $ | 1,175 | | | $ | 7,827 | | | $ | 15,396 | | | | 90 | % |
Below 640 | | | 5 | | | | 14 | | | | 70 | | | | 128 | | | | 31 | | | | 1,502 | | | | 1,750 | | | | 10 | |
Total | | $ | 264 | | | $ | 891 | | | $ | 1,584 | | | $ | 3,872 | | | $ | 1,206 | | | $ | 9,329 | | | $ | 17,146 | | | | 100 | % |
Loan Status: | | | | | | | | | | | | | | | | | | | | | | | | |
In-school/grace/
deferment/forbearance | | $ | 12 | | | $ | 65 | | | $ | 66 | | | $ | 84 | | | $ | 21 | | | $ | 418 | | | $ | 666 | | | | 4 | % |
Current/90 days or
less delinquent | | | 252 | | | | 824 | | | | 1,508 | | | | 3,772 | | | | 1,182 | | | | 8,591 | | | | 16,129 | | | | 94 | |
Greater than 90 days
delinquent | | | — | | | | 2 | | | | 10 | | | | 16 | | | | 3 | | | | 320 | | | | 351 | | | | 2 | |
Total | | $ | 264 | | | $ | 891 | | | $ | 1,584 | | | $ | 3,872 | | | $ | 1,206 | | | $ | 9,329 | | | $ | 17,146 | | | | 100 | % |
Seasoning(1): | | | | | | | | | | | | | | | | | | | | | | | | |
1-12 payments | | $ | 252 | | | $ | 782 | | | $ | 50 | | | $ | 28 | | | $ | 5 | | | $ | 48 | | | $ | 1,165 | | | | 7 | % |
13-24 payments | | | — | | | | 51 | | | | 1,188 | | | | 124 | | | | 12 | | | | 64 | | | | 1,439 | | | | 8 | |
25-36 payments | | | — | | | | — | | | | 299 | | | | 3,478 | | | | 38 | | | | 126 | | | | 3,941 | | | | 23 | |
37-48 payments | | | — | | | | — | | | | — | | | | 196 | | | | 1,020 | | | | 267 | | | | 1,483 | | | | 9 | |
More than 48
payments | | | — | | | | — | | | | — | | | | — | | | | 121 | | | | 8,628 | | | | 8,749 | | | | 51 | |
Loans in-school/
grace/deferment | | | 12 | | | | 58 | | | | 47 | | | | 46 | | | | 10 | | | | 196 | | | | 369 | | | | 2 | |
Total | | $ | 264 | | | $ | 891 | | | $ | 1,584 | | | $ | 3,872 | | | $ | 1,206 | | | $ | 9,329 | | | $ | 17,146 | | | | 100 | % |
Certain Loan
Modifications(2): | | | | | | | | | | | | | | | | | | | | | | | | |
Modified | | $ | — | | | $ | 1 | | | $ | 52 | | | $ | 144 | | | $ | 51 | | | $ | 5,680 | | | $ | 5,928 | | | | 35 | % |
Non-Modified | | | 264 | | | | 890 | | | | 1,532 | | | | 3,728 | | | | 1,155 | | | | 3,649 | | | | 11,218 | | | | 65 | |
Total | | $ | 264 | | | $ | 891 | | | $ | 1,584 | | | $ | 3,872 | | | $ | 1,206 | | | $ | 9,329 | | | $ | 17,146 | | | | 100 | % |
Cosigners: | | | | | | | | | | | | | | | | | | | | | | | | |
With cosigner(3) | | $ | 45 | | | $ | 268 | | | $ | 174 | | | $ | 90 | | | $ | 22 | | | $ | 4,993 | | | $ | 5,592 | | | | 33 | % |
Without cosigner | | | 219 | | | | 623 | | | | 1,410 | | | | 3,782 | | | | 1,184 | | | | 4,336 | | | | 11,554 | | | | 67 | |
Total | | $ | 264 | | | $ | 891 | | | $ | 1,584 | | | $ | 3,872 | | | $ | 1,206 | | | $ | 9,329 | | | $ | 17,146 | | | | 100 | % |
School Type: | | | | | | | | | | | | | | | | | | | | | | | | |
Not-for-profit | | $ | 239 | | | $ | 844 | | | $ | 1,500 | | | $ | 3,647 | | | $ | 1,153 | | | $ | 7,984 | | | $ | 15,367 | | | | 90 | % |
For-profit | | | 25 | | | | 47 | | | | 84 | | | | 225 | | | | 53 | | | | 1,345 | | | | 1,779 | | | | 10 | |
Total | | $ | 264 | | | $ | 891 | | | $ | 1,584 | | | $ | 3,872 | | | $ | 1,206 | | | $ | 9,329 | | | $ | 17,146 | | | | 100 | % |
Allowance for loan
losses | | | | | | | | | | | | | | | | | | | | | (538 | ) | | | |
Total loans, net | | | | | | | | | | | | | | | | | | | | $ | 16,608 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Charge-Offs | | $ | — | | | $ | (1 | ) | | $ | (2 | ) | | $ | (4 | ) | | $ | (1 | ) | | $ | (91 | ) | | $ | (99 | ) | | | 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 No. 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 modification disclosures required under ASU No. 2022-02.
(3)Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 66% for total loans at March 31, 2024.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
2. Allowance for Loan Losses (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Private Education Loan Credit Quality Indicators by Origination Year | |
| | March 31, 2023 | |
(Dollars in millions) | | 2023 | | | 2022 | | | 2021 | | | 2020 | | | 2019 | | | Prior | | | Total | | | % of Total | |
Credit Quality
Indicators | | | | | | | | | | | | | | | | | | | | | | | | |
FICO Scores: | | | | | | | | | | | | | | | | | | | | | | | | |
640 and above | | $ | 167 | | | $ | 1,761 | | | $ | 4,368 | | | $ | 1,438 | | | $ | 1,353 | | | $ | 8,133 | | | $ | 17,220 | | | | 91 | % |
Below 640 | | | 3 | | | | 40 | | | | 92 | | | | 24 | | | | 43 | | | | 1,559 | | | | 1,761 | | | | 9 | |
Total | | $ | 170 | | | $ | 1,801 | | | $ | 4,460 | | | $ | 1,462 | | | $ | 1,396 | | | $ | 9,692 | | | $ | 18,981 | | | | 100 | % |
Loan Status: | | | | | | | | | | | | | | | | | | | | | | | | |
In-school/grace/
deferment/forbearance | | $ | 9 | | | $ | 67 | | | $ | 91 | | | $ | 27 | | | $ | 31 | | | $ | 498 | | | $ | 723 | | | | 4 | % |
Current/90 days or
less delinquent | | | 161 | | | | 1,729 | | | | 4,360 | | | | 1,432 | | | | 1,359 | | | | 8,853 | | | | 17,894 | | | | 94 | |
Greater than 90 days
delinquent | | | — | | | | 5 | | | | 9 | | | | 3 | | | | 6 | | | | 341 | | | | 364 | | | | 2 | |
Total | | $ | 170 | | | $ | 1,801 | | | $ | 4,460 | | | $ | 1,462 | | | $ | 1,396 | | | $ | 9,692 | | | $ | 18,981 | | | | 100 | % |
Seasoning(1): | | | | | | | | | | | | | | | | | | | | | | | | |
1-12 payments | | $ | 161 | | | $ | 1,386 | | | $ | 80 | | | $ | 9 | | | $ | 8 | | | $ | 71 | | | $ | 1,715 | | | | 9 | % |
13-24 payments | | | — | | | | 362 | | | | 4,084 | | | | 32 | | | | 23 | | | | 86 | | | | 4,587 | | | | 24 | |
25-36 payments | | | — | | | | — | | | | 242 | | | | 1,251 | | | | 106 | | | | 157 | | | | 1,756 | | | | 9 | |
37-48 payments | | | — | | | | — | | | | — | | | | 155 | | | | 1,190 | | | | 272 | | | | 1,617 | | | | 9 | |
More than 48
payments | | | — | | | | — | | | | — | | | | — | | | | 53 | | | | 8,884 | | | | 8,937 | | | | 47 | |
Loans in-school/
grace/deferment | | | 9 | | | | 53 | | | | 54 | | | | 15 | | | | 16 | | | | 222 | | | | 369 | | | | 2 | |
Total | | $ | 170 | | | $ | 1,801 | | | $ | 4,460 | | | $ | 1,462 | | | $ | 1,396 | | | $ | 9,692 | | | $ | 18,981 | | | | 100 | % |
Certain Loan
Modifications(2): | | | | | | | | | | | | | | | | | | | | | | | | |
Modified | | $ | — | | | $ | 14 | | | $ | 89 | | | $ | 38 | | | $ | 72 | | | $ | 6,279 | | | $ | 6,492 | | | | 34 | % |
Non-Modified | | | 170 | | | | 1,787 | | | | 4,371 | | | | 1,424 | | | | 1,324 | | | | 3,413 | | | | 12,489 | | | | 66 | |
Total | | $ | 170 | | | $ | 1,801 | | | $ | 4,460 | | | $ | 1,462 | | | $ | 1,396 | | | $ | 9,692 | | | $ | 18,981 | | | | 100 | % |
Cosigners: | | | | | | | | | | | | | | | | | | | | | | | | |
With cosigner(3) | | $ | 35 | | | $ | 189 | | | $ | 103 | | | $ | 26 | | | $ | 9 | | | $ | 5,894 | | | $ | 6,256 | | | | 33 | % |
Without cosigner | | | 135 | | | | 1,612 | | | | 4,357 | | | | 1,436 | | | | 1,387 | | | | 3,798 | | | | 12,725 | | | | 67 | |
Total | | $ | 170 | | | $ | 1,801 | | | $ | 4,460 | | | $ | 1,462 | | | $ | 1,396 | | | $ | 9,692 | | | $ | 18,981 | | | | 100 | % |
School Type: | | | | | | | | | | | | | | | | | | | | | | | | |
Not-for-profit | | $ | 158 | | | $ | 1,704 | | | $ | 4,202 | | | $ | 1,397 | | | $ | 1,300 | | | $ | 8,150 | | | $ | 16,911 | | | | 89 | % |
For-profit | | | 12 | | | | 97 | | | | 258 | | | | 65 | | | | 96 | | | | 1,542 | | | | 2,070 | | | | 11 | |
Total | | $ | 170 | | | $ | 1,801 | | | $ | 4,460 | | | $ | 1,462 | | | $ | 1,396 | | | $ | 9,692 | | | $ | 18,981 | | | | 100 | % |
Allowance for loan
losses | | | | | | | | | | | | | | | | | | | | | (706 | ) | | | |
Total loans, net | | | | | | | | | | | | | | | | | | | | $ | 18,275 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | |
Charge-Offs | | $ | — | | | $ | (2 | ) | | $ | (2 | ) | | $ | (1 | ) | | $ | (2 | ) | | $ | (68 | ) | | $ | (75 | ) | | | 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 No. 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 modification disclosures required under ASU No. 2022-02.
(3)Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for total loans at March 31, 2023.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
2. Allowance for Loan Losses (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Private Education Loan Delinquencies | |
| | March 31, 2024 | | | December 31, 2023 | | | March 31, 2023 | |
(Dollars in millions) | | Balance | | | % | | | Balance | | | % | | | Balance | | | % | |
Loans in-school/grace/deferment(1) | | $ | 369 | | | | | | $ | 360 | | | | | | $ | 369 | | | | |
Loans in forbearance(2) | | | 297 | | | | | | | 363 | | | | | | | 354 | | | | |
Loans in repayment and percentage of each status: | | | | | | | | | | | | | | | | | | |
Loans current | | | 15,661 | | | | 95.0 | % | | | 15,935 | | | | 94.9 | % | | | 17,439 | | | | 95.5 | % |
Loans delinquent 31-60 days(3) | | | 303 | | | | 1.9 | | | | 308 | | | | 1.8 | | | | 290 | | | | 1.6 | |
Loans delinquent 61-90 days(3) | | | 165 | | | | 1.0 | | | | 173 | | | | 1.0 | | | | 165 | | | | .9 | |
Loans delinquent greater than 90 days(3) | | | 351 | | | | 2.1 | | | | 380 | | | | 2.3 | | | | 364 | | | | 2.0 | |
Total loans in repayment | | | 16,480 | | | | 100 | % | | | 16,796 | | | | 100 | % | | | 18,258 | | | | 100 | % |
Total loans | | | 17,146 | | | | | | | 17,519 | | | | | | | 18,981 | | | | |
Allowance for losses | | | (538 | ) | | | | | | (617 | ) | | | | | | (706 | ) | | | |
Loans, net | | $ | 16,608 | | | | | | $ | 16,902 | | | | | | $ | 18,275 | | | | |
Percentage of loans in repayment | | | | | | 96.1 | % | | | | | | 95.9 | % | | | | | | 96.2 | % |
Delinquencies as a percentage of loans in
repayment | | | | | | 5.0 | % | | | | | | 5.1 | % | | | | | | 4.5 | % |
Loans in forbearance as a percentage of
loans in repayment and forbearance | | | | | | 1.8 | % | | | | | | 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.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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 Service members 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 March 31, 2024 and 2023 of the loans to borrowers experiencing financial difficulty that were modified during the respective period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 | |
| | Loan Modifications Made to Borrowers Experiencing Financial Difficulty | |
(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 | | $ | 545 | | | | 3.2 | % | | $ | 337 | | | | 2.0 | % | | $ | 39 | | | | .2 | % |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 | |
| | Loan Modifications Made to Borrowers Experiencing Financial Difficulty | |
(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 | | $ | 611 | | | | 3.2 | % | | $ | 275 | | | | 1.4 | % | | $ | 46 | | | | .2 | % |
(1)As of March 31, 2024 and 2023, there was $1.1 billion and $1.1 billion, respectively, 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.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
2. Allowance for Loan Losses (Continued)
For those loans modified in the three months ended March 31, 2024 and 2023, the following tables show the impact of such modification.
| | | |
Three Months Ended March 31, 2024 |
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 13.3% to 5.4% | Added an average 5 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
12.9% to 5.3%. |
| | | |
Three Months Ended March 31, 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 12.9% to 4.9% | 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
12.5% to 5.1%. |
The following table provides the amount of loan modifications for which a charge-off or payment default occurred in the respective period and within 12 months of the loan receiving a loan modification. 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.
| | | | | | | | |
| | Three Months Ended March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Modified loans (amortized cost) (1) | | $ | 179 | | | $ | 2 | |
Payment default (par) | | $ | 183 | | | $ | 2 | |
Charge-offs (par) | | $ | 11 | | | $ | — | |
(1)For the three months ended March 31, 2024, the modified loans include $123 million of Interest Rate Reduction, $12 million of Combination Rate Reduction and Term Extension, and $44 million of More Than Insignificant Payment Delay. For the three months ended March 31, 2023, the modified loans include $1.6 million of Interest Rate Reduction and $0.1 million of Combination Rate Reduction and Term Extension.
The following table provides the performance and related loan status of Private Education Loans that have been modified during the respective reporting periods.
| | | | | | | | | | | | |
(Dollars in millions) | | Payment Status (Amortized Cost) | |
Loan Status | | March 31, 2024 | | | December 31, 2023 | | | March 31, 2023 | |
Loans in school/deferment | | $ | 1 | | | $ | 22 | | | $ | 2 | |
Loans in forbearance | | | 33 | | | | 93 | | | | 22 | |
Loans current | | | 872 | | | | 2,199 | | | | 891 | |
Loans delinquent 31 - 60 days | | | 9 | | | | 160 | | | | 8 | |
Loans delinquent 61 - 90 days | | | 2 | | | | 96 | | | | 2 | |
Loans delinquent greater than 90 days | | | 4 | | | | 159 | | | | 7 | |
Total modified loans | | $ | 921 | | | $ | 2,729 | | | $ | 932 | |
| | | | | | | | | |
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
3. Borrowings
The following table summarizes our borrowings.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | | December 31, 2023 | |
(Dollars in millions) | | Short
Term | | | Long
Term | | | Total | | | Short
Term | | | Long
Term | | | Total | |
Unsecured borrowings: | | | | | | | | | | | | | | | | | | |
Senior unsecured debt(1) | | $ | 556 | | | $ | 5,303 | | | $ | 5,859 | | | $ | 506 | | | $ | 5,351 | | | $ | 5,857 | |
Total unsecured borrowings | | | 556 | | | | 5,303 | | | | 5,859 | | | | 506 | | | | 5,351 | | | | 5,857 | |
Secured borrowings: | | | | | | | | | | | | | | | | | | |
FFELP Loan securitizations(2)(3) | | | 55 | | | | 33,787 | | | | 33,842 | | | | 59 | | | | 35,626 | | | | 35,685 | |
Private Education Loan securitizations(4) | | | 383 | | | | 11,214 | | | | 11,597 | | | | 435 | | | | 11,754 | | | | 12,189 | |
FFELP Loan ABCP facilities | | | 1,719 | | | | 89 | | | | 1,808 | | | | 1,854 | | | | 89 | | | | 1,943 | |
Private Education Loan ABCP facilities | | | 1,659 | | | | 784 | | | | 2,443 | | | | 1,286 | | | | 821 | | | | 2,107 | |
Other(5) | | | 62 | | | | 39 | | | | 101 | | | | 95 | | | | 39 | | | | 134 | |
Total secured borrowings | | | 3,878 | | | | 45,913 | | | | 49,791 | | | | 3,729 | | | | 48,329 | | | | 52,058 | |
Total before hedge accounting adjustments | | | 4,434 | | | | 51,216 | | | | 55,650 | | | | 4,235 | | | | 53,680 | | | | 57,915 | |
Hedge accounting adjustments | | | (7 | ) | | | (368 | ) | | | (375 | ) | | | (9 | ) | | | (278 | ) | | | (287 | ) |
Total | | $ | 4,427 | | | $ | 50,848 | | | $ | 55,275 | | | $ | 4,226 | | | $ | 53,402 | | | $ | 57,628 | |
(1)Includes principal amount of $557 million and $506 million of short-term debt as of March 31, 2024 and December 31, 2023, respectively. Includes principal amount of $5.3 billion and $5.4 billion of long-term debt as of March 31, 2024 and December 31, 2023, respectively.
(2)Includes $55 million and $59 million of short-term debt and $116 million and $122 million of long-term debt related to the FFELP Loan ABS repurchase facilities (FFELP Loan Repurchase Facilities) as of March 31, 2024 and December 31, 2023, respectively.
(3)Includes defaulted FFELP secured debt tranches with a remaining principal amount of $1.5 billion as of March 31, 2024 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 2031 and 2037. 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 $383 million and $435 million of short-term debt related to the Private Education Loan ABS repurchase facilities (Private Education Loan Repurchase Facilities) as of March 31, 2024 and December 31, 2023, respectively.
(5)“Other” primarily includes the obligation to return cash collateral held related to derivative exposure.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
3. Borrowings (Continued)
Variable Interest Entities
We consolidated the following financing VIEs as of March 31, 2024 and December 31, 2023, as we are the primary beneficiary. As a result, these VIEs are accounted for as secured borrowings.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | |
| | 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 | | $ | 55 | | | $ | 33,787 | | | $ | 33,842 | | | $ | 33,995 | | | $ | 1,575 | | | $ | 1,557 | | | $ | 37,127 | |
Private Education Loan securitizations | | | 383 | | | | 11,214 | | | | 11,597 | | | | 12,842 | | | | 363 | | | | 113 | | | | 13,318 | |
FFELP Loan ABCP facilities | | | 1,719 | | | | 89 | | | | 1,808 | | | | 1,750 | | | | 84 | | | | 79 | | | | 1,913 | |
Private Education Loan ABCP facilities | | | 1,659 | | | | 784 | | | | 2,443 | | | | 2,761 | | | | 87 | | | | 55 | | | | 2,903 | |
Total before hedge accounting
adjustments | | | 3,816 | | | | 45,874 | | | | 49,690 | | | | 51,348 | | | | 2,109 | | | | 1,804 | | | | 55,261 | |
Hedge accounting adjustments | | | — | | | | (150 | ) | | | (150 | ) | | | — | | | | — | | | | (224 | ) | | | (224 | ) |
Total | | $ | 3,816 | | | $ | 45,724 | | | $ | 49,540 | | | $ | 51,348 | | | $ | 2,109 | | | $ | 1,580 | | | $ | 55,037 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 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 | | $ | 59 | | | $ | 35,626 | | | $ | 35,685 | | | $ | 35,935 | | | $ | 1,441 | | | $ | 1,673 | | | $ | 39,049 | |
Private Education Loan securitizations | | | 435 | | | | 11,754 | | | | 12,189 | | | | 13,396 | | | | 350 | | | | 119 | | | | 13,865 | |
FFELP Loan ABCP facilities | | | 1,854 | | | | 89 | | | | 1,943 | | | | 1,897 | | | | 77 | | | | 92 | | | | 2,066 | |
Private Education Loan ABCP facilities | | | 1,286 | | | | 821 | | | | 2,107 | | | | 2,363 | | | | 69 | | | | 50 | | | | 2,482 | |
Total before hedge accounting
adjustments | | | 3,634 | | | | 48,290 | | | | 51,924 | | | | 53,591 | | | | 1,937 | | | | 1,934 | | | | 57,462 | |
Hedge accounting adjustments | | | — | | | | (121 | ) | | | (121 | ) | | | — | | | | — | | | | (190 | ) | | | (190 | ) |
Total | | $ | 3,634 | | | $ | 48,169 | | | $ | 51,803 | | | $ | 53,591 | | | $ | 1,937 | | | $ | 1,744 | | | $ | 57,272 | |
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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 | | Mar 31, 2024 | | | Dec 31, 2023 | | | Mar 31, 2024 | | | Dec 31, 2023 | | | Mar 31, 2024 | | | Dec 31, 2023 | | | Mar 31, 2024 | | | Dec 31, 2023 | |
Fair Values(1) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swaps | | Interest rate | | $ | — | | | $ | — | | | $ | 37 | | | $ | 55 | | | $ | — | | | $ | — | | | $ | 37 | | | $ | 55 | |
Cross-currency interest rate
swaps | | Foreign currency and
interest rate | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Total derivative assets(2) | | | | | — | | | | — | | | | 37 | | | | 55 | | | | — | | | | — | | | | 37 | | | | 55 | |
Derivative Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swaps | | Interest rate | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | (1 | ) | | | (1 | ) | | | (1 | ) |
Floor Income Contracts | | Interest rate | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Cross-currency interest rate
swaps | | Foreign currency and
interest rate | | | — | | | | — | | | | (223 | ) | | | (189 | ) | | | — | | | | — | | | | (223 | ) | | | (189 | ) |
Total derivative liabilities(2) | | | | | — | | | | — | | | | (223 | ) | | | (189 | ) | | | (1 | ) | | | (1 | ) | | | (224 | ) | | | (190 | ) |
Net total derivatives | | | | $ | — | | | $ | — | | | $ | (186 | ) | | $ | (134 | ) | | $ | (1 | ) | | $ | (1 | ) | | $ | (187 | ) | | $ | (135 | ) |
(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) | | March 31, 2024 | | | December 31, 2023 | | | March 31, 2024 | | | December 31, 2023 | |
Gross position | | $ | 37 | | | $ | 55 | | | $ | (224 | ) | | $ | (190 | ) |
Impact of master netting agreements | | | — | | | | — | | | | — | | | | — | |
Derivative values with impact of master netting
agreements (as carried on balance sheet) | | | 37 | | | | 55 | | | | (224 | ) | | | (190 | ) |
Cash collateral (held) pledged | | | (28 | ) | | | (60 | ) | | | 37 | | | | 46 | |
Net position | | $ | 9 | | | $ | (5 | ) | | $ | (187 | ) | | $ | (144 | ) |
(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 March 31, 2024 | | | As of December 31, 2023 | |
(Dollar in millions) | | Carrying
Value | | | Hedge Basis Adjustments | | | Carrying
Value | | | Hedge Basis Adjustments | |
Short-term borrowings | | $ | 492 | | | $ | (7 | ) | | $ | 490 | | | $ | (9 | ) |
Long-term borrowings | | $ | 5,204 | | | $ | (371 | ) | | $ | 5,341 | | | $ | (281 | ) |
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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 March 31, 2024 and December 31, 2023 by $4 million and $5 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 position at March 31, 2024 and December 31, 2023 by $0.5 million and $1 million, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash Flow | | | Fair Value | | | Trading | | | Total | |
(Dollars in billions) | | Mar 31, 2024 | | | Dec 31, 2023 | | | Mar 31, 2024 | | | Dec 31, 2023 | | | Mar 31, 2024 | | | Dec 31, 2023 | | | Mar 31, 2024 | | | Dec 31, 2023 | |
Notional Values: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swaps | | $ | 1.0 | | | $ | 2.2 | | | $ | 4.6 | | | $ | 4.6 | | | $ | 2.2 | | | $ | 1.9 | | | $ | 7.8 | | | $ | 8.7 | |
Floor Income Contracts | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Cross-currency interest rate swaps | | | — | | | | — | | | | 1.5 | | | | 1.6 | | | | — | | | | — | | | | 1.5 | | | | 1.6 | |
Total derivatives | | $ | 1.0 | | | $ | 2.2 | | | $ | 6.1 | | | $ | 6.2 | | | $ | 2.2 | | | $ | 1.9 | | | $ | 9.3 | | | $ | 10.3 | |
Mark-to-Market Impact of Derivatives on Statements of Income
| | | | | | | | |
| | Total Gains (Losses) | |
| | Three Months Ended March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Fair Value Hedges: | | | | | | |
Interest Rate Swaps | | | | | | |
Gains (losses) recognized in net income on derivatives | | $ | (55 | ) | | $ | 78 | |
Gains (losses) recognized in net income on hedged items | | | 58 | | | | (82 | ) |
Net fair value hedge ineffectiveness gains (losses) | | | 3 | | | | (4 | ) |
Cross currency interest rate swaps | | | | | | |
Gains (losses) recognized in net income on derivatives | | | (33 | ) | | | 29 | |
Gains (losses) recognized in net income on hedged items | | | 30 | | | | (31 | ) |
Net fair value hedge ineffectiveness gains (losses) | | | (3 | ) | | | (2 | ) |
Total fair value hedges(1)(2) | | | — | | | | (6 | ) |
Cash Flow Hedges: | | | | | | |
Total cash flow hedges(2) | | | — | | | | — | |
Trading: | | | | | | |
Interest rate swaps | | | 32 | | | | (8 | ) |
Floor income contracts | | | — | | | | — | |
Cross currency interest rate swaps | | | — | | | | — | |
Other | | | — | | | | — | |
Total trading derivatives(3) | | | 32 | | | | (8 | ) |
Mark-to-market gains (losses) recognized | | $ | 32 | | | $ | (14 | ) |
(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.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
4. Derivative Financial Instruments (Continued)
Impact of Derivatives on Other Comprehensive Income (Equity)
| | | | | | | | |
| | Three Months Ended March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Total gains (losses) on cash flow hedges | | $ | 4 | | | $ | (3 | ) |
Reclassification adjustments for derivative (gains) losses
included in net income (interest expense)(1) | | | (8 | ) | | | (18 | ) |
Net changes in cash flow hedges, net of tax | | $ | (4 | ) | | $ | (21 | ) |
(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) | | March 31, 2024 | | | December 31, 2023 | |
Collateral held: | | | | | | |
Cash (obligation to return cash collateral is recorded in short-term borrowings) | | $ | 28 | | | $ | 60 | |
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 | | $ | 28 | | | $ | 60 | |
Derivative asset at fair value including accrued interest | | $ | 35 | | | $ | 62 | |
Collateral pledged to others: | | | | | | |
Cash (right to receive return of cash collateral is recorded in investments) | | $ | 37 | | | $ | 46 | |
Total collateral pledged | | $ | 37 | | | $ | 46 | |
Derivative liability at fair value including accrued interest and premium
receivable | | $ | 230 | | | $ | 197 | |
(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. At March 31, 2024 and December 31, 2023, we had a net positive exposure (derivative gain positions to us less collateral which has been posted by counterparties to us) related to Navient Corporation derivatives of $10 million and $6 million, respectively. The trusts are not required to post collateral to the counterparties. At March 31, 2024 and December 31, 2023, the net positive exposure on swaps in securitization trusts was $0 million and $0 million, respectively.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
5. Other Assets
The following table provides the detail of our other assets.
| | | | | | | | |
(Dollars in millions) | | March 31, 2024 | | | December 31, 2023 | |
Accrued interest receivable | | $ | 1,972 | | | $ | 2,081 | |
Benefit and insurance-related investments | | | 452 | | | | 460 | |
Income tax asset, net | | | 117 | | | | 122 | |
Derivatives at fair value | | | 37 | | | | 55 | |
Accounts receivable | | | 91 | | | | 101 | |
Fixed assets | | | 61 | | | | 62 | |
Other | | | 43 | | | | 33 | |
Total | | $ | 2,773 | | | $ | 2,914 | |
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
6. Stockholders’ Equity
The following table summarizes common share repurchases, issuances and dividends paid.
| | | | | | | | |
| | Three Months Ended March 31, | |
(Dollars and shares in millions, except per share amounts) | | 2024 | | | 2023 | |
Common stock repurchased(1) | | | 2.6 | | | | 4.9 | |
Common stock repurchased (in dollars)(1) | | $ | 43 | | | $ | 85 | |
Average purchase price per share(1) | | $ | 16.84 | | | $ | 17.40 | |
Remaining common stock repurchase authority(1) | | $ | 247 | | | $ | 515 | |
Shares repurchased related to employee stock-based compensation plans(2) | | | .4 | | | | 1.3 | |
Average purchase price per share(2) | | $ | 16.07 | | | $ | 18.44 | |
Common shares issued(3) | | | 1.3 | | | | 2.4 | |
Dividends paid | | $ | 18 | | | $ | 21 | |
Dividends per share | | $ | .16 | | | $ | .16 | |
(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 the vesting of restricted stock for employees’ tax withholding obligations.
(3)Common shares issued under our various compensation and benefit plans.
The closing price of our common stock on March 28, 2024 was $17.40.
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 March 31, | |
(In millions, except per share data) | | 2024 | | | 2023 | |
Numerator: | | | | | | |
Net income | | $ | 73 | | | $ | 111 | |
Denominator: | | | | | | |
Weighted average shares used to compute basic EPS | | | 113 | | | | 129 | |
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 | | | | 1 | |
Dilutive potential common shares(2) | | | 1 | | | | 1 | |
Weighted average shares used to compute diluted EPS | | | 114 | | | | 130 | |
Basic earnings per common share | | $ | .65 | | | $ | .87 | |
Diluted earnings per common share | | $ | .64 | | | $ | .86 | |
(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 March 31, 2024 and 2023, 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.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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 months ended March 31, 2024, 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 first-quarters of 2024 and 2023, there were no significant transfers of financial instruments between levels.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements on a Recurring Basis | |
| | March 31, 2024 | | | December 31, 2023 | |
(Dollars in millions) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative instruments:(1) | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swaps | | $ | — | | | $ | 37 | | | $ | — | | | $ | 37 | | | $ | — | | | $ | 55 | | | $ | — | | | $ | 55 | |
Cross-currency interest rate swaps | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Total derivative assets(2) | | | — | | | | 37 | | | | — | | | | 37 | | | | — | | | | 55 | | | | — | | | | 55 | |
Total | | $ | — | | | $ | 37 | | | $ | — | | | $ | 37 | | | $ | — | | | $ | 55 | | | $ | — | | | $ | 55 | |
Liabilities(3) | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative instruments(1) | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swaps | | $ | — | | | $ | — | | | $ | (1 | ) | | $ | (1 | ) | | $ | — | | | $ | — | | | $ | (1 | ) | | $ | (1 | ) |
Floor Income Contracts | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Cross-currency interest rate swaps | | | — | | | | — | | | | (223 | ) | | | (223 | ) | | | — | | | | — | | | | (189 | ) | | | (189 | ) |
Total derivative liabilities(2) | | | — | | | | — | | | | (224 | ) | | | (224 | ) | | | — | | | | — | | | | (190 | ) | | | (190 | ) |
Total | | $ | — | | | $ | — | | | $ | (224 | ) | | $ | (224 | ) | | $ | — | | | $ | — | | | $ | (190 | ) | | $ | (190 | ) |
(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.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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 March 31, | |
| | 2024 | | | 2023 | |
| | 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 | | $ | (1 | ) | | $ | (189 | ) | | $ | — | | | $ | (190 | ) | | $ | (2 | ) | | $ | (253 | ) | | $ | — | | | $ | (255 | ) |
Total gains/(losses): | | | | | | | | | | | | | | | | | | | | | | | | |
Included in earnings(1) | | | — | | | | (44 | ) | | | — | | | | (44 | ) | | | — | | | | 15 | | | | — | | | | 15 | |
Included in other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Settlements | | | — | | | | 10 | | | | — | | | | 10 | | | | — | | | | 14 | | | | — | | | | 14 | |
Transfers in and/or out
of level 3 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Balance, end of period | | $ | (1 | ) | | $ | (223 | ) | | $ | — | | | $ | (224 | ) | | $ | (2 | ) | | $ | (224 | ) | | $ | — | | | $ | (226 | ) |
Change in mark-to-
market gains/
(losses) relating
to instruments
still held at the
reporting date(2) | | $ | — | | | $ | (34 | ) | | $ | — | | | $ | (34 | ) | | $ | — | | | $ | 29 | | | $ | — | | | $ | 29 | |
(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 March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
Gains (losses) on derivative and hedging activities, net | | $ | — | | | $ | — | |
Interest expense | | | (44 | ) | | | 15 | |
Total | | $ | (44 | ) | | $ | 15 | |
(2)Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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 March 31, 2024 | | | Valuation
Technique | | Input | | Range and
Weighted
Average |
Derivatives | | | | | | | | | |
Prime basis swaps | | $ | (1 | ) | | Discounted cash flow | | Constant Prepayment Rate | | 10% |
| | | | | | | Bid/ask adjustment to
discount rate | | .08% |
Cross-currency interest rate swaps | | | (223 | ) | | Discounted cash flow | | Constant Prepayment Rate | | 5% |
Other | | | — | | | | | | | |
Total | | $ | (224 | ) | | | | | | |
| | | | | | | | | |
The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | | December 31, 2023 | |
(Dollars in millions) | | Fair
Value | | | Carrying
Value | | | Difference | | | Fair
Value | | | Carrying
Value | | | Difference | |
Earning assets | | | | | | | | | | | | | | | | | | |
FFELP Loans | | $ | 35,251 | | | $ | 35,879 | | | $ | (628 | ) | | $ | 36,590 | | | $ | 37,925 | | | $ | (1,335 | ) |
Private Education Loans | | | 16,092 | | | | 16,608 | | | | (516 | ) | | | 16,287 | | | | 16,902 | | | | (615 | ) |
Cash and investments | | | 3,077 | | | | 3,077 | | | | — | | | | 2,939 | | | | 2,939 | | | | — | |
Total earning assets | | | 54,420 | | | | 55,564 | | | | (1,144 | ) | | | 55,816 | | | | 57,766 | | | | (1,950 | ) |
Interest-bearing liabilities | | | | | | | | | | | | | | | | | | |
Short-term borrowings | | | 4,436 | | | | 4,427 | | | | (9 | ) | | | 4,237 | | | | 4,226 | | | | (11 | ) |
Long-term borrowings | | | 49,446 | | | | 50,848 | | | | 1,402 | | | | 51,566 | | | | 53,402 | | | | 1,836 | |
Total interest-bearing liabilities | | | 53,882 | | | | 55,275 | | | | 1,393 | | | | 55,803 | | | | 57,628 | | | | 1,825 | |
Derivative financial instruments | | | | | | | | | | | | | | | | | | |
Floor Income Contracts | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Interest rate swaps | | | 36 | | | | 36 | | | | — | | | | 54 | | | | 54 | | | | — | |
Cross-currency interest rate swaps | | | (223 | ) | | | (223 | ) | | | — | | | | (189 | ) | | | (189 | ) | | | — | |
Other | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Excess of net asset fair value over carrying value | | | | | | | | $ | 249 | | | | | | | | | $ | (125 | ) |
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
9. Commitments, Contingencies and Guarantees
Legal Proceedings
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 developments in the second half of 2023 and the first quarter of 2024 in connection with the Company's CFPB matter, the Company concluded a loss was probable and reasonably estimable. As of December 31, 2023 and March 31, 2024, the contingency loss liability was $73 million and $85 million, respectively. 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.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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. The Company has cancelled the loan balance of approximately 66,000 borrowers with qualifying Private Education Loans that were originated largely between 2002 and 2010 and later defaulted and charged off. The loans cancelled have aggregate outstanding balances of approximately $1.7 billion. The expense to the Company to cancel these loans was approximately $50 million which represents the amount of expected future recoveries of these charged-off loans on the balance sheet. In addition, the Company agreed to make a one-time payment of approximately $145 million to the states. In the fourth quarter of 2021 when such loss became probable, the Company recognized total regulatory expenses of approximately $205 million related to this matter..
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.” The Settlement has received 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. We anticipate that any cash contribution we 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.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
9. Commitments, Contingencies and Guarantees (Continued)
Regulatory Matters
The Company has been named as defendant in a number of putative class action and other 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 March 31, 2024.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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 March 31, | |
| | 2024 | | | 2023 | |
(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 | | | — | | | | 48 | | | | 48 | | | | — | | | | 40 | | | | 40 | |
Healthcare services | | | — | | | | 29 | | | | 29 | | | | — | | | | 32 | | | | 32 | |
Total | | $ | — | | | $ | 77 | | | $ | 77 | | | $ | — | | | $ | 72 | | | $ | 72 | |
Revenue by Client Type
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
(Dollars in millions) | | Federal Education Loans | | | Business Processing | | | Total Revenue | | | Federal Education Loans | | | Business Processing | | | Total Revenue | |
Federal government | | $ | — | | | $ | 15 | | | $ | 15 | | | $ | — | | | $ | 2 | | | $ | 2 | |
Guarantor agencies | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
State and local government | | | — | | | | 17 | | | | 17 | | | | — | | | | 22 | | | | 22 | |
Tolling authorities | | | — | | | | 16 | | | | 16 | | | | — | | | | 16 | | | | 16 | |
Hospitals and other
healthcare providers | | | — | | | | 29 | | | | 29 | | | | — | | | | 32 | | | | 32 | |
Total | | $ | — | | | $ | 77 | | | $ | 77 | | | $ | — | | | $ | 72 | | | $ | 72 | |
As of March 31, 2024 and March 31, 2023, there was $84 million and $68 million respectively, of net accounts receivable related to these contracts. Navient had no material contract assets or contract liabilities.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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. We generate revenue primarily through net interest income on our FFELP Loans.
The following table includes asset information for our Federal Education Loans segment.
| | | | | | | | |
(Dollars in millions) | | March 31, 2024 | | | December 31, 2023 | |
FFELP Loans, net | | $ | 35,879 | | | $ | 37,925 | |
Cash and investments(1) | | | 1,661 | | | | 1,520 | |
Other | | | 2,040 | | | | 2,128 | |
Total assets | | $ | 39,580 | | | $ | 41,573 | |
(1)Includes restricted cash and investments.
Consumer Lending Segment
Navient owns, originates and services refinance and in-school Private Education Loans. "Refinance" Private Education Loans are loans where a borrower has refinanced their education loans, and "In-school" Private Education Loans are loans originally made to borrowers while they are attending school. We generate revenue primarily through net interest income on our Private Education Loan portfolio.
The following table includes asset information for our Consumer Lending segment.
| | | | | | | | |
(Dollars in millions) | | March 31, 2024 | | | December 31, 2023 | |
Private Education Loans, net | | $ | 16,608 | | | $ | 16,902 | |
Cash and investments(1) | | | 532 | | | | 497 | |
Other | | | 545 | | | | 577 | |
Total assets | | $ | 17,685 | | | $ | 17,976 | |
(1)Includes restricted cash and investments.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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. 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 March 31, 2024 and December 31, 2023, the Business Processing segment had total assets of $366 million and $380 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 March 31, 2024 and December 31, 2023, the Other segment had total assets of $1.4 billion and $1.4 billion, respectively.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 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.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
11. Segment Reporting (Continued)
Segment Results and Reconciliations to GAAP
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 | |
| | | | | 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 | | $ | 989 | | | | | | | | | | | | | | | $ | 661 | | | $ | 328 | | | $ | — | | | $ | — | |
Cash and investments | | | 38 | | | | | | | | | | | | | | | | 23 | | | | 7 | | | | — | | | | 8 | |
Total interest income | | | 1,027 | | | | | | | | | | | | | | | | 684 | | | | 335 | | | | — | | | | 8 | |
Total interest expense | | | 875 | | | | | | | | | | | | | | | | 631 | | | | 201 | | | | — | | | | 32 | |
Net interest income
(loss) | | | 152 | | | $ | 10 | | | $ | 1 | | | $ | 11 | | | $ | 163 | | | | 53 | | | | 134 | | | | — | | | | (24 | ) |
Less: provisions for loan
losses | | | 12 | | | | | | | | | | | | | 12 | | | | 1 | | | | 11 | | | | — | | | | — | |
Net interest income
(loss) after provisions
for loan losses | | | 140 | | | | | | | | | | | | | | | | 52 | | | | 123 | | | | — | | | | (24 | ) |
Other income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Servicing revenue | | | 17 | | | | | | | | | | | | | | | | 13 | | | | 4 | | | | — | | | | — | |
Asset recovery and
business processing
revenue | | | 77 | | | | | | | | | | | | | | | | — | | | | — | | | | 77 | | | | — | |
Other revenue | | | 41 | | | | | | | | | | | | | | | | 4 | | | | — | | | | — | | | | 5 | |
Total other income
(loss) | | | 135 | | | | (10 | ) | | | (22 | ) | | | (32 | ) | | | 103 | | | | 17 | | | | 4 | | | | 77 | | | | 5 | |
Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating
expenses | | | 118 | | | | | | | | | | | | | | | | 17 | | | | 32 | | | | 69 | | | | — | |
Unallocated shared
services expenses | | | 65 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 65 | |
Operating expenses | | | 183 | | | | — | | | | — | | | | — | | | | 183 | | | | 17 | | | | 32 | | | | 69 | | | | 65 | |
Goodwill and acquired
intangible asset
impairment and
amortization | | | 3 | | | | — | | | | (3 | ) | | | (3 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Restructuring/other
reorganization
expenses | | | 1 | | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | 1 | |
Total expenses | | | 187 | | | | — | | | | (3 | ) | | | (3 | ) | | | 184 | | | | 17 | | | | 32 | | | | 69 | | | | 66 | |
Income (loss) before
income tax expense
(benefit) | | | 88 | | | | — | | | | (18 | ) | | | (18 | ) | | | 70 | | | | 52 | | | | 95 | | | | 8 | | | | (85 | ) |
Income tax expense
(benefit)(2) | | | 15 | | | | — | | | | 1 | | | | 1 | | | | 16 | | | | 12 | | | | 22 | | | | 2 | | | | (20 | ) |
Net income (loss) | | $ | 73 | | | $ | — | | | $ | (19 | ) | | $ | (19 | ) | | $ | 54 | | | $ | 40 | | | $ | 73 | | | $ | 6 | | | $ | (65 | ) |
(1)Core Earnings adjustments to GAAP:
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 | |
(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) | | | (32 | ) | | | — | | | | (32 | ) |
Goodwill and acquired intangible asset impairment and amortization | | | — | | | | (3 | ) | | | (3 | ) |
Total Core Earnings adjustments to GAAP | | $ | (21 | ) | | $ | 3 | | | | (18 | ) |
Income tax expense (benefit) | | | | | | | | | 1 | |
Net income (loss) | | | | | | | | $ | (19 | ) |
(2)Income taxes are based on a percentage of net income before tax for the individual reportable segment.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
11. Segment Reporting (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 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 | | $ | 1,037 | | | | | | | | | | | | | | | $ | 695 | | | $ | 344 | | | $ | — | | | $ | — | |
Cash and investments | | | 34 | | | | | | | | | | | | | | | | 20 | | | | 6 | | | | — | | | | 8 | |
Total interest income | | | 1,071 | | | | | | | | | | | | | | | | 715 | | | | 350 | | | | — | | | | 8 | |
Total interest expense | | | 837 | | | | | | | | | | | | | | | | 590 | | | | 197 | | | | — | | | | 33 | |
Net interest income
(loss) | | | 234 | | | $ | 12 | | | $ | 7 | | | $ | 19 | | | $ | 253 | | | | 125 | | | | 153 | | | | — | | | | (25 | ) |
Less: provisions for loan
losses | | | (14 | ) | | | | | | | | | | | | (14 | ) | | | 10 | | | | (24 | ) | | | — | | | | — | |
Net interest income
(loss) after provisions
for loan losses | | | 248 | | | | | | | | | | | | | | | | 115 | | | | 177 | | | | — | | | | (25 | ) |
Other income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Servicing revenue | | | 17 | | | | | | | | | | | | | | | | 14 | | | | 3 | | | | — | | | | — | |
Asset recovery and
business processing
revenue | | | 72 | | | | | | | | | | | | | | | | — | | | | — | | | | 72 | | | | — | |
Other revenue | | | (1 | ) | | | | | | | | | | | | | | | 5 | | | | — | | | | — | | | | 2 | |
Total other income
(loss) | | | 88 | | | | (12 | ) | | | 20 | | | | 8 | | | | 96 | | | | 19 | | | | 3 | | | | 72 | | | | 2 | |
Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating
expenses | | | 124 | | | | | | | | | | | | | | | | 20 | | | | 37 | | | | 67 | | | | — | |
Unallocated shared
services expenses | | | 61 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 61 | |
Operating expenses | | | 185 | | | | — | | | | — | | | | — | | | | 185 | | | | 20 | | | | 37 | | | | 67 | | | | 61 | |
Goodwill and acquired
intangible asset
impairment and
amortization | | | 3 | | | | — | | | | (3 | ) | | | (3 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Restructuring/other
reorganization
expenses | | | 4 | | | | — | | | | — | | | | — | | | | 4 | | | | — | | | | — | | | | — | | | | 4 | |
Total expenses | | | 192 | | | | — | | | | (3 | ) | | | (3 | ) | | | 189 | | | | 20 | | | | 37 | | | | 67 | | | | 65 | |
Income (loss) before
income tax expense
(benefit) | | | 144 | | | | — | | | | 30 | | | | 30 | | | | 174 | | | | 114 | | | | 143 | | | | 5 | | | | (88 | ) |
Income tax expense
(benefit)(2) | | | 33 | | | | — | | | | 8 | | | | 8 | | | | 41 | | | | 27 | | | | 33 | | | | 1 | | | | (20 | ) |
Net income (loss) | | $ | 111 | | | $ | — | | | $ | 22 | | | $ | 22 | | | $ | 133 | | | $ | 87 | | | $ | 110 | | | $ | 4 | | | $ | (68 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)Core Earnings adjustments to GAAP:
| | | | | | | | | | | | |
| | Three Months Ended March 31, 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 | | $ | 19 | | | $ | — | | | $ | 19 | |
Total other income (loss) | | | 8 | | | | — | | | | 8 | |
Goodwill and acquired intangible asset impairment and amortization | | | — | | | | (3 | ) | | | (3 | ) |
Total Core Earnings adjustments to GAAP | | $ | 27 | | | $ | 3 | | | | 30 | |
Income tax expense (benefit) | | | | | | | | | 8 | |
Net income (loss) | | | | | | | | $ | 22 | |
(2)Income taxes are based on a percentage of net income before tax for the individual reportable segment.
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2024 and for the three months ended
March 31, 2024 and 2023 is unaudited)
11. Segment Reporting (Continued)
Summary of Core Earnings Adjustments to GAAP
| | | | | | | | |
| | Three Months Ended March 31, | |
(Dollars in millions) | | 2024 | | | 2023 | |
GAAP net income | | $ | 73 | | | $ | 111 | |
Core Earnings adjustments to GAAP: | | | | | | |
Net impact of derivative accounting(1) | | | (21 | ) | | | 27 | |
Net impact of goodwill and acquired intangible assets(2) | | | 3 | | | | 3 | |
Net income tax effect(3) | | | (1 | ) | | | (8 | ) |
Total Core Earnings adjustments to GAAP | | | (19 | ) | | | 22 | |
Core Earnings net income | | $ | 54 | | | $ | 133 | |
(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.
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: April 24, 2024
APPENDIX A
form 10-Q cross-reference index
