NAVIENT CORP - Quarter Report: 2023 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☑ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023
or
☐ |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-36228
Navient Corporation
(Exact name of registrant as specified in its charter)
Delaware |
46-4054283 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
13865 Sunrise Valley Drive, Herndon, Virginia 20171 |
(703) 810-3000 |
(Address of principal executive offices) |
(Telephone Number) |
(703) 810-3000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
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☒ |
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Accelerated filer |
|
☐ |
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
☐ |
Emerging growth company |
|
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Securities registered pursuant to Section 12(b) of the Act.
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common stock, par value $.01 per share |
|
NAVI |
|
The NASDAQ Global Select Market |
6% Senior Notes due December 15, 2043 |
|
JSM |
|
The NASDAQ Global Select Market |
Preferred Stock Purchase Rights |
|
|
The NASDAQ Global Select Market |
As of September 30, 2023, there were 117,571,091 shares of common stock outstanding.
TABLE OF CONTENTS
Organization of Our Form 10-Q
The order and presentation of content in our Form 10-Q differs from the traditional Securities and Exchange Commission (SEC) Form 10-Q format. Our format is designed to improve readability and to better present how we organize and manage our business. See Appendix A, "Form 10-Q Cross-Reference Index" for a cross-reference index to the traditional SEC Form 10-Q format.
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Page Number
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1 |
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2 |
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3 |
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3 |
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5 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
6 |
6 |
|
7 |
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9 |
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12 |
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20 |
|
25 |
|
28 |
|
28 |
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39 |
|
39 |
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40 |
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
45 |
46 |
|
47 |
|
48 |
|
90 |
|
91 |
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking” statements and other information that is based on management’s current expectations as of the date of this report. Statements that are not historical facts, including statements about our beliefs, opinions, or expectations and statements that assume or are dependent upon future events, are forward-looking statements and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “may,” “could,” “should,” “goals,” or “target.” Such statements are based on management's expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties are discussed more fully under the section titled “Risk Factors” and include, but are not limited to the following:
Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business.
The preparation of our consolidated financial statements also requires management to make certain estimates and assumptions including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect and actual results could differ materially. All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this report. We do not undertake any obligation to update or revise these forward-looking statements except as required by law.
Through this discussion and analysis, we intend to provide the reader with some narrative context for how our management views our consolidated financial statements, additional context within which to assess our operating results, and information on the quality and variability of our earnings, liquidity and cash flows.
1
USE OF NON-GAAP FINANCIAL MEASURES
We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present our financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings, which is a non-GAAP financial measure. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also include this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation is our measure of profit or loss for our segments, we are required by GAAP to provide Core Earnings disclosures in the notes to our consolidated financial statements for our business segments.
In addition to Core Earnings, we present the following other non-GAAP financial measures: Tangible Equity, Adjusted Tangible Equity Ratio, Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA) (for the Business Processing segment), and Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans. Definitions for the non-GAAP financial measures and reconciliations are provided below, except that reconciliations of forward-looking non-GAAP financial measures are not provided because the company is unable to provide such reconciliations without unreasonable effort due to the uncertainty and inherent difficulty of predicting the occurrence and financial impact of certain items, including, but not limited to, the impact of any mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.
2
Overview and Fundamentals of Our Business
Navient (Nasdaq: NAVI) provides technology-enabled education finance and business processing solutions that simplify complex programs and help millions of people achieve success. Our customer-focused, data-driven services deliver exceptional results for clients in education, health care and government. Learn more at navient.com.
With a focus on data-driven insights, service, compliance and innovative support, Navient’s business consists of:
We own a portfolio of $39.6 billion of federally guaranteed Federal Family Education Loan Program (FFELP) Loans. As a servicer on our own portfolio and for third parties, we deploy data-driven approaches to support the success of our customers. Our flexible and scalable infrastructure manages large volumes of complex transactions, simplifying the customer experience and continually improving efficiency.
We help students and families succeed through the college journey with innovative planning tools, student loans and refinancing products. Our $17.3 billion Private Education Loan portfolio demonstrates high customer success rates. In the third quarter of 2023, we originated $382 million of Private Education Loans.
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.
We leverage our customer service expertise, data-driven insights, technology platforms, and scale to maximize value for our clients.
3
Navient is committed to a sustainable future. We leverage technology that minimizes energy use in our office buildings and promote widespread adoption of “paperless” digital customer communications. Navient prioritizes the usage of power-saving features to our buildings to reduce energy usage. Energy efficiency and reducing CO2 and CO2 equivalents are among the many factors considered in our growth and real estate decisions.
Strong Financial Performance Resulting in a Strong Capital Return
Our third-quarter 2023 results continue to demonstrate the strength of our business model and our ability to deliver predictable and meaningful cash flow and earnings in all types of economic environments.
Our significant earnings generate significant capital, which allows for a strong capital return to our investors. Navient expects to continue to return excess capital to shareholders through dividends and share repurchases in accordance with our capital allocation policy.
By optimizing capital adequacy and allocating capital to highly accretive opportunities, including organic growth and acquisitions, we remain well positioned to pay dividends and repurchase stock, while maintaining appropriate leverage that supports our credit ratings and ensures ongoing access to capital markets.
In December 2021, our Board approved a share repurchase program authorizing the purchase of up to $1 billion of the Company’s outstanding common stock. At September 30,2023, $360 million remained in share repurchase authorization.
To inform our capital allocation decisions, we use the Adjusted Tangible Equity Ratio(1) in addition to other metrics. Our Adjusted Tangible Equity Ratio(1) was 8.7% as of September 30, 2023.
(Dollars and shares in millions) |
|
Q3-23 |
|
|
Q3-22 |
|
||
Shares repurchased |
|
|
4.2 |
|
|
|
6.3 |
|
Reduction in shares outstanding |
|
|
3 |
% |
|
|
4 |
% |
Total repurchases in dollars |
|
$ |
75 |
|
|
$ |
95 |
|
Dividends paid |
|
$ |
19 |
|
|
$ |
22 |
|
Total Capital Returned(2) |
|
$ |
94 |
|
|
$ |
117 |
|
Adjusted Tangible Equity Ratio(1) |
|
|
8.7 |
% |
|
|
7.8 |
% |
4
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 and servicing-related fee income.
Consumer Lending Segment
Navient owns, originates and services in-school and refinance Private Education Loans. "In-school" Private Education Loans are loans originally made to borrowers while they are attending school whereas "Refinance" Private Education Loans are loans where a borrower has refinanced their education loans. We generate revenue primarily through net interest income on our Private Education Loan portfolio.
Navient helps students and families through the going-to and paying-for-college journey. Our digital tools empower people to find grants and scholarships, compare financial aid offers and complete the FAFSA. Our Private Education Loans offer easy-to-understand payment options. After graduation, we offer student loan refinancing to help people simplify their repayment and earn a better rate. We believe our 50 years of experience, product design, digital marketing strategies, and origination and servicing platform provide a unique competitive advantage. We see meaningful growth opportunities in originating Private Education Loans, generating attractive long-term, risk-adjusted returns.
Business Processing Segment
Navient provides business processing solutions such as omnichannel contact center services, workflow processing, and revenue cycle optimization. We leverage the same expertise and intelligent tools we use to deliver successful results for portfolios we own. Our support enables our clients to ensure better constituent outcomes, meet rapidly changing needs, improve technology, reduce operating expenses, manage risk and optimize revenue opportunities. Our clients include:
Other Segment
This segment consists of our corporate liquidity portfolio, gains and losses incurred on the repurchase of debt, unallocated expenses of shared services (which includes regulatory expenses) and restructuring/other reorganization expenses.
5
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Selected Historical Financial Information and Ratios
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
(In millions, except per share data) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
GAAP Basis |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
79 |
|
|
$ |
105 |
|
|
$ |
256 |
|
|
$ |
540 |
|
Diluted earnings per common share |
|
$ |
.65 |
|
|
$ |
.75 |
|
|
$ |
2.04 |
|
|
$ |
3.67 |
|
Weighted average shares used to compute diluted |
|
|
121 |
|
|
|
141 |
|
|
|
125 |
|
|
|
147 |
|
Return on assets |
|
|
.51 |
% |
|
|
.57 |
% |
|
|
.53 |
% |
|
|
.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Core Earnings Basis(1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income(1) |
|
$ |
57 |
|
|
$ |
87 |
|
|
$ |
278 |
|
|
$ |
356 |
|
Diluted earnings per common share(1) |
|
$ |
.47 |
|
|
$ |
.62 |
|
|
$ |
2.22 |
|
|
$ |
2.42 |
|
Weighted average shares used to compute diluted |
|
|
121 |
|
|
|
141 |
|
|
|
125 |
|
|
|
147 |
|
Net interest margin, Federal Education Loans segment |
|
|
1.52 |
% |
|
|
.94 |
% |
|
|
1.20 |
% |
|
|
1.03 |
% |
Net interest margin, Consumer Lending segment |
|
|
3.17 |
% |
|
|
2.90 |
% |
|
|
3.09 |
% |
|
|
2.78 |
% |
Return on assets |
|
|
.37 |
% |
|
|
.47 |
% |
|
|
.58 |
% |
|
|
.63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Education Loan Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Ending FFELP Loans, net |
|
$ |
39,581 |
|
|
$ |
46,891 |
|
|
$ |
39,581 |
|
|
$ |
46,891 |
|
Ending Private Education Loans, net |
|
|
17,333 |
|
|
|
19,151 |
|
|
|
17,333 |
|
|
|
19,151 |
|
Ending total education loans, net |
|
$ |
56,914 |
|
|
$ |
66,042 |
|
|
$ |
56,914 |
|
|
$ |
66,042 |
|
Average FFELP Loans |
|
$ |
40,554 |
|
|
$ |
48,443 |
|
|
$ |
41,886 |
|
|
$ |
50,398 |
|
Average Private Education Loans |
|
|
18,165 |
|
|
|
20,308 |
|
|
|
18,710 |
|
|
|
20,771 |
|
Average total education loans |
|
$ |
58,719 |
|
|
$ |
68,751 |
|
|
$ |
60,596 |
|
|
$ |
71,169 |
|
6
The Quarter in Review
We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also include this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide certain Core Earnings disclosures in the notes to our consolidated financial statements for our business segments. See “Non-GAAP Financial Measures — Core Earnings” for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.
Third-quarter 2023 GAAP net income was $79 million ($0.65 diluted earnings per share), compared with $105 million ($0.75 diluted Core Earnings per share) for the year-ago quarter. See “Results of Operations – GAAP Comparison of Third-Quarter 2023 Results with Third-Quarter 2022" for a discussion of the primary contributors to the change in GAAP earnings between periods.
Third-quarter 2023 Core Earnings net income was $57 million ($0.47 diluted Core Earnings per share), compared with $87 million ($0.62 diluted Core Earnings per share) for the year-ago quarter. See “Segment Results” for a discussion of the primary contributors to the change in Core Earnings between periods.
GAAP and Core Earnings results included a net reduction to pre-tax income of $58 million ($0.37 diluted loss per share), comprised of the following significant items:
7
Financial highlights of third-quarter 2023 include:
Federal Education Loans segment:
Consumer Lending segment:
Business Processing segment:
Capital, funding and liquidity:
Operating Expenses:
8
Results of Operations
GAAP Income Statements (Unaudited)
|
|
Three Months Ended September 30, |
|
|
Increase |
|
|
Nine Months Ended September 30, |
|
|
Increase |
|
||||||||||||||||||||
(In millions, except per share data) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||||||
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
FFELP Loans |
|
$ |
778 |
|
|
$ |
553 |
|
|
$ |
225 |
|
|
|
41 |
% |
|
$ |
2,191 |
|
|
$ |
1,312 |
|
|
$ |
879 |
|
|
|
67 |
% |
Private Education Loans |
|
|
351 |
|
|
|
309 |
|
|
|
42 |
|
|
|
14 |
|
|
|
1,036 |
|
|
|
862 |
|
|
|
174 |
|
|
|
20 |
|
Cash and investments |
|
|
41 |
|
|
|
19 |
|
|
|
22 |
|
|
|
116 |
|
|
|
111 |
|
|
|
25 |
|
|
|
86 |
|
|
|
344 |
|
Total interest income |
|
|
1,170 |
|
|
|
881 |
|
|
|
289 |
|
|
|
33 |
|
|
|
3,338 |
|
|
|
2,199 |
|
|
|
1,139 |
|
|
|
52 |
|
Total interest expense |
|
|
879 |
|
|
|
641 |
|
|
|
238 |
|
|
|
37 |
|
|
|
2,636 |
|
|
|
1,301 |
|
|
|
1,335 |
|
|
|
103 |
|
Net interest income |
|
|
291 |
|
|
|
240 |
|
|
|
51 |
|
|
|
21 |
|
|
|
702 |
|
|
|
898 |
|
|
|
(196 |
) |
|
|
(22 |
) |
Less: provisions for loan losses |
|
|
72 |
|
|
|
28 |
|
|
|
44 |
|
|
|
157 |
|
|
|
68 |
|
|
|
62 |
|
|
|
6 |
|
|
|
10 |
|
Net interest income after provisions |
|
|
219 |
|
|
|
212 |
|
|
|
7 |
|
|
|
3 |
|
|
|
634 |
|
|
|
836 |
|
|
|
(202 |
) |
|
|
(24 |
) |
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Servicing revenue |
|
|
15 |
|
|
|
24 |
|
|
|
(9 |
) |
|
|
(38 |
) |
|
|
48 |
|
|
|
60 |
|
|
|
(12 |
) |
|
|
(20 |
) |
Asset recovery and business |
|
|
85 |
|
|
|
80 |
|
|
|
5 |
|
|
|
6 |
|
|
|
240 |
|
|
|
264 |
|
|
|
(24 |
) |
|
|
(9 |
) |
Other revenue |
|
|
5 |
|
|
|
6 |
|
|
|
(1 |
) |
|
|
(17 |
) |
|
|
15 |
|
|
|
22 |
|
|
|
(7 |
) |
|
|
(32 |
) |
Gains (losses) on derivative and |
|
|
26 |
|
|
|
40 |
|
|
|
(14 |
) |
|
|
(35 |
) |
|
|
44 |
|
|
|
161 |
|
|
|
(117 |
) |
|
|
(73 |
) |
Total other income |
|
|
131 |
|
|
|
150 |
|
|
|
(19 |
) |
|
|
(13 |
) |
|
|
347 |
|
|
|
507 |
|
|
|
(160 |
) |
|
|
(32 |
) |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Operating expenses |
|
|
233 |
|
|
|
194 |
|
|
|
39 |
|
|
|
20 |
|
|
|
601 |
|
|
|
588 |
|
|
|
13 |
|
|
|
2 |
|
Goodwill and acquired |
|
|
3 |
|
|
|
10 |
|
|
|
(7 |
) |
|
|
(70 |
) |
|
|
8 |
|
|
|
17 |
|
|
|
(9 |
) |
|
|
(53 |
) |
Restructuring/other reorganization |
|
|
4 |
|
|
|
21 |
|
|
|
(17 |
) |
|
|
(81 |
) |
|
|
23 |
|
|
|
25 |
|
|
|
(2 |
) |
|
|
(8 |
) |
Total expenses |
|
|
240 |
|
|
|
225 |
|
|
|
15 |
|
|
|
7 |
|
|
|
632 |
|
|
|
630 |
|
|
|
2 |
|
|
|
— |
|
Income before income tax expense |
|
|
110 |
|
|
|
137 |
|
|
|
(27 |
) |
|
|
(20 |
) |
|
|
349 |
|
|
|
713 |
|
|
|
(364 |
) |
|
|
(51 |
) |
Income tax expense |
|
|
31 |
|
|
|
32 |
|
|
|
(1 |
) |
|
|
(3 |
) |
|
|
93 |
|
|
|
173 |
|
|
|
(80 |
) |
|
|
(46 |
) |
Net income |
|
$ |
79 |
|
|
$ |
105 |
|
|
$ |
(26 |
) |
|
|
(25 |
)% |
|
$ |
256 |
|
|
$ |
540 |
|
|
$ |
(284 |
) |
|
|
(53 |
)% |
Basic earnings per common |
|
$ |
.66 |
|
|
$ |
.75 |
|
|
$ |
(.09 |
) |
|
|
(12 |
)% |
|
$ |
2.06 |
|
|
$ |
3.71 |
|
|
$ |
(1.65 |
) |
|
|
(44 |
)% |
Diluted earnings per common |
|
$ |
.65 |
|
|
$ |
.75 |
|
|
$ |
(.10 |
) |
|
|
(13 |
)% |
|
$ |
2.04 |
|
|
$ |
3.67 |
|
|
$ |
(1.63 |
) |
|
|
(44 |
)% |
Dividends per common share |
|
$ |
.16 |
|
|
$ |
.16 |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
.48 |
|
|
$ |
.48 |
|
|
$ |
— |
|
|
|
— |
|
9
GAAP Comparison of Third-Quarter 2023 Results with Third-Quarter 2022
For the three months ended September 30, 2023, net income was $79 million, or $0.65 diluted earnings per common share, compared with net income of $105 million, or $0.75 diluted earnings per common share, for the year-ago period.
The primary contributors to the change in net income are as follows:
The FFELP Loan provision for loan losses of $36 million in the current period was primarily a result of the continued extension of the portfolio and the resulting increase in both the expected future defaults and the premium allocated to all expected future defaults.
The Private Education Loan provision for loan losses of $36 million in the current period included $29 million related to changes in the net charge-off rates on defaulted loans and $12 million in connection with loan originations, partially offset by a $5 million reserve release. The provision of $28 million in the year-ago quarter included $33 million related to changes in the net charge-off rates on defaulted loans and $13 million in connection with loan originations, partially offset by an $18 million reserve release.
We repurchased 4.2 million and 6.3 million shares of our common stock during the third quarters of 2023 and 2022, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 20 million common shares (or 14%) from the year-ago period.
10
GAAP Comparison of Nine Months Ended September 30, 2023 Results with Nine Months Ended September 30, 2022
For the nine months ended September 30, 2023, net income was $256 million, or $2.04 diluted earnings per common share, compared with net income of $540 million, or $3.67 diluted earnings per common share, for the year-ago period.
The primary contributors to the change in net income are as follows:
The FFELP Loan provision for loan losses of $51 million in the current period was primarily a result of the continued extension of the portfolio and the resulting increase in both the expected future defaults and the premium allocated to all expected future defaults.
The Private Education Loan provision for loan losses of $17 million in the current period included $29 million related to changes in the net charge-off rates on defaulted loans, $21 million in connection with loan originations, $23 million in connection with the resolution of certain private legacy loans in bankruptcy in the first quarter of 2023 and $7 million related to a reserve build, which was partially offset by a $63 million reduction in connection with the adoption of a new accounting standard (ASU 2022-02). The provision of $62 million in the year-ago period included $33 million related to changes in the net charge-off rates on defaulted loans and $31 million in connection with loan originations, partially offset by a $2 million reserve release.
We adopted ASU No. 2022-02, “Financial Instruments – Credit Losses: Troubled Debt Restructurings and Vintage Disclosures” on January 1, 2023. This new ASU eliminates the troubled debt restructurings (TDRs) recognition and measurement guidance. Prior to adopting this new guidance, as it relates to interest rate concessions granted as part of our Private Education Loan modification program, a discounted cash flow model was used to calculate the amount of interest forgiven for loans that were in the program and the present value of that interest rate concession was included as a part of the allowance for loan loss. This new guidance no longer allows the measurement and recognition of this element of our allowance for loan loss for new modifications that occur subsequent to January 1, 2023. As of December 31, 2022, the allowance for loan loss included $77 million related to this interest rate concession component of the allowance for loan loss. We elected to adopt this amendment using a prospective transition method which results in the $77 million releasing in 2023 and 2024 as the borrowers exit their current modification programs. $63 million of the $77 million was released in the period.
11
We repurchased 13.9 million and 19.4 million shares of our common stock during the nine months ended September 30, 2023 and 2022, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 22 million common shares (or 15%) from the year-ago period.
Segment Results
Federal Education Loans Segment
The following table presents Core Earnings results for our Federal Education Loans segment.
|
|
Three Months Ended September 30, |
|
|
% Increase |
|
|
Nine Months Ended September 30, |
|
|
% Increase |
|
||||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 vs. 2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 vs. 2022 |
|
||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
FFELP Loans |
|
$ |
778 |
|
|
$ |
555 |
|
|
|
40 |
% |
|
$ |
2,194 |
|
|
$ |
1,298 |
|
|
|
69 |
% |
Cash and investments |
|
|
19 |
|
|
|
9 |
|
|
|
111 |
|
|
|
56 |
|
|
|
12 |
|
|
|
367 |
|
Total interest income |
|
|
797 |
|
|
|
564 |
|
|
|
41 |
|
|
|
2,250 |
|
|
|
1,310 |
|
|
|
72 |
|
Total interest expense |
|
|
636 |
|
|
|
444 |
|
|
|
43 |
|
|
|
1,859 |
|
|
|
905 |
|
|
|
105 |
|
Net interest income |
|
|
161 |
|
|
|
120 |
|
|
|
34 |
|
|
|
391 |
|
|
|
405 |
|
|
|
(3 |
) |
Less: provision for loan losses |
|
|
36 |
|
|
|
— |
|
|
|
100 |
|
|
|
51 |
|
|
|
— |
|
|
|
100 |
|
Net interest income after |
|
|
125 |
|
|
|
120 |
|
|
|
4 |
|
|
|
340 |
|
|
|
405 |
|
|
|
(16 |
) |
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Servicing revenue |
|
|
12 |
|
|
|
21 |
|
|
|
(43 |
) |
|
|
39 |
|
|
|
51 |
|
|
|
(24 |
) |
Asset recovery and business |
|
|
— |
|
|
|
1 |
|
|
|
(100 |
) |
|
|
— |
|
|
|
4 |
|
|
|
(100 |
) |
Other revenue |
|
|
3 |
|
|
|
6 |
|
|
|
(50 |
) |
|
|
10 |
|
|
|
24 |
|
|
|
(58 |
) |
Total other income |
|
|
15 |
|
|
|
28 |
|
|
|
(46 |
) |
|
|
49 |
|
|
|
79 |
|
|
|
(38 |
) |
Direct operating expenses |
|
|
17 |
|
|
|
25 |
|
|
|
(32 |
) |
|
|
55 |
|
|
|
79 |
|
|
|
(30 |
) |
Income before income tax |
|
|
123 |
|
|
|
123 |
|
|
|
— |
|
|
|
334 |
|
|
|
405 |
|
|
|
(18 |
) |
Income tax expense |
|
|
29 |
|
|
|
29 |
|
|
|
— |
|
|
|
78 |
|
|
|
95 |
|
|
|
(18 |
) |
Net income |
|
$ |
94 |
|
|
$ |
94 |
|
|
|
— |
|
|
$ |
256 |
|
|
$ |
310 |
|
|
|
(17 |
)% |
Comparison of Third-Quarter 2023 Results with Third-Quarter 2022
12
Key performance metrics are as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Segment net interest margin |
|
|
1.52 |
% |
|
|
.94 |
% |
|
|
1.20 |
% |
|
|
1.03 |
% |
FFELP Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
FFELP Loan spread |
|
|
1.63 |
% |
|
|
1.05 |
% |
|
|
1.31 |
% |
|
|
1.12 |
% |
Provision for loan losses |
|
$ |
36 |
|
|
$ |
— |
|
|
$ |
51 |
|
|
$ |
— |
|
Net charge-offs |
|
$ |
16 |
|
|
$ |
12 |
|
|
$ |
53 |
|
|
$ |
29 |
|
Net charge-off rate |
|
|
.19 |
% |
|
|
.12 |
% |
|
|
.21 |
% |
|
|
.09 |
% |
Greater than 30-days delinquency rate |
|
|
16.8 |
% |
|
|
18.6 |
% |
|
|
16.8 |
% |
|
|
18.6 |
% |
Greater than 90-days delinquency rate |
|
|
9.2 |
% |
|
|
10.1 |
% |
|
|
9.2 |
% |
|
|
10.1 |
% |
Forbearance rate |
|
|
16.4 |
% |
|
|
16.4 |
% |
|
|
16.4 |
% |
|
|
16.4 |
% |
Average FFELP Loans |
|
$ |
40,554 |
|
|
$ |
48,443 |
|
|
$ |
41,886 |
|
|
$ |
50,398 |
|
Ending FFELP Loans, net |
|
$ |
39,581 |
|
|
$ |
46,891 |
|
|
$ |
39,581 |
|
|
$ |
46,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Dollars in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total federal loans serviced |
|
$ |
46 |
|
|
$ |
54 |
|
|
$ |
46 |
|
|
$ |
54 |
|
Net Interest Margin
The following table details the net interest margin.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
FFELP Loan yield |
|
|
7.12 |
% |
|
|
4.16 |
% |
|
|
6.55 |
% |
|
|
3.00 |
% |
Floor Income |
|
|
.49 |
|
|
|
.39 |
|
|
|
.45 |
|
|
|
.44 |
|
FFELP Loan net yield |
|
|
7.61 |
|
|
|
4.55 |
|
|
|
7.00 |
|
|
|
3.44 |
|
FFELP Loan cost of funds |
|
|
(5.98 |
) |
|
|
(3.50 |
) |
|
|
(5.69 |
) |
|
|
(2.32 |
) |
FFELP Loan spread |
|
|
1.63 |
|
|
|
1.05 |
|
|
|
1.31 |
|
|
|
1.12 |
|
Other interest-earning asset spread impact |
|
|
(.11 |
) |
|
|
(.11 |
) |
|
|
(.11 |
) |
|
|
(.09 |
) |
Net interest margin(1) |
|
|
1.52 |
% |
|
|
.94 |
% |
|
|
1.20 |
% |
|
|
1.03 |
% |
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
FFELP Loans |
|
$ |
40,554 |
|
|
$ |
48,443 |
|
|
$ |
41,886 |
|
|
$ |
50,398 |
|
Other interest-earning assets |
|
|
1,504 |
|
|
|
2,124 |
|
|
|
1,697 |
|
|
|
1,991 |
|
Total FFELP Loan interest-earning assets |
|
$ |
42,058 |
|
|
$ |
50,567 |
|
|
$ |
43,583 |
|
|
$ |
52,389 |
|
The $48 million benefit in third-quarter 2023 related to the decrease in the speed of loan premium amortization in connection with the continued extension of the FFELP Loan portfolio contributed to 45 basis points and 15 basis points of the increase in net interest margin for the three and nine months ended September 30, 2023 versus the year-ago periods, respectively.
As of September 30, 2023, our FFELP Loan portfolio totaled $39.6 billion, comprised of $14.2 billion of FFELP Stafford Loans and $25.4 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of September 30, 2023 was 7 years and 8 years, respectively, assuming a Constant Prepayment Rate (CPR) of 7% and 5%, respectively.
As of December 31, 2022, our FFELP Loan portfolio totaled $43.5 billion, comprised of $15.7 billion of FFELP Stafford Loans and $27.8 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of December 31, 2022 was 7 years and 8 years, respectively, assuming a CPR of 8% and 5%, respectively.
13
Floor Income
The following table analyzes on a Core Earnings basis the ability of the FFELP Loans in our portfolio to earn Floor Income after September 30, 2023 and 2022, based on interest rates as of those dates.
|
|
|
|
|
|
|
||
(Dollars in billions) |
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||
Education loans eligible to earn Floor Income |
|
$ |
39.2 |
|
|
$ |
46.5 |
|
Less: post-March 31, 2006 disbursed loans required |
|
|
(18.6 |
) |
|
|
(21.9 |
) |
Less: economically hedged Floor Income |
|
|
(5.4 |
) |
|
|
(12.5 |
) |
Education loans eligible to earn Floor Income after |
|
$ |
15.2 |
|
|
$ |
12.1 |
|
Education loans earning Floor Income |
|
$ |
.4 |
|
|
$ |
.1 |
|
The following table presents a projection of the average balance of FFELP Consolidation Loans for which Fixed Rate Floor Income has been economically hedged with derivatives for the period October 1, 2023 to December 31, 2027.
(Dollars in billions) |
|
October 1, 2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|||||
Average balance of FFELP Consolidation Loans |
|
$ |
4.7 |
|
|
$ |
2.0 |
|
|
$ |
1.0 |
|
|
$ |
1.0 |
|
|
$ |
.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing Revenue
Servicing revenue decreased $9 million primarily as a result of the paydown of the FFELP Loan portfolio.
Asset Recovery and Business Processing Revenue
Asset recovery and business processing revenue decreased $1 million as a result of exiting the FFELP asset recovery business in the fourth quarter of 2022.
Other Revenue
Other revenue decreased $3 million primarily related to lower contract-exit transition services.
Operating Expenses
Operating expenses for the Federal Education Loans segment primarily include costs incurred to perform servicing on our FFELP Loan portfolio and federal education loans held by other institutions. Expenses were $8 million lower primarily as a result of the paydown of the loan portfolio as well as lower contract-exit transition services discussed above.
14
Federal Loan Forgiveness
On August 24, 2022, the Biden-Harris Administration announced its Student Debt Relief (SDR) Plan. The SDR Plan provided up to $20,000 in one-time debt relief to income-qualified recipients with ED held student loans and a repayment pause on ED held loans. Privately held FFELP Loans, like ours, were not eligible for debt forgiveness under the SDR Plan
Following publication of the SDR Plan, a number of states and private organizations initiated legal challenges to the SDR Plan in various courts throughout the country, which ultimately resulted in the implementation of the SDR Plan being disallowed. The Biden-Harris Administration and ED subsequently appealed both cases to the Supreme Court of the United States. On June 30, 2023, the Supreme Court ruled that ED was prohibited from implementing the SDR Plan, and student loan payments on ED held loans resumed in October 2023. While the current version of the SDR Plan has been invalidated, ED recently announced that it has begun a new rulemaking process to consider other ways to provide debt relief to borrowers, which could include borrowers with privately held FFELP Loans.
Further, on July 10, 2023, ED issued final regulations on income-driven repayment plans for Direct loans, which are student loans held by ED. Eligible FFELP borrowers can access the new changes by consolidating their loans into the Direct Loan Program. The new regulations are effective July 1, 2024; however, ED has elected early implementation for some features starting July 30, 2023. The regulations provide a lower monthly loan payment on a Direct loan by decreasing discretionary income (i.e., taxable income over 225% of the federal poverty guideline), decreasing the percentage of discretionary income that must be paid toward a Direct loan to 5% (for undergraduates), and providing the option for married borrowers to exclude their spouse’s income from being factored by filing a separate tax return. Other changes provide for the elimination of accrued interest that is not covered by the monthly payment amount, provide credit towards loan forgiveness that counts certain periods of deferment and forbearance, a shorter loan forgiveness period (10-years) for borrowers with an original principal balance less than or equal to $12,000, and credit toward loan forgiveness for eligible payments on a Direct or FFELP loan that is repaid by a Direct Consolidation loan. This new income-driven repayment plan may increase consolidation activity in the future as FFELP borrowers consolidate their loans into the Direct Loan Program in order to be eligible for the new income-driven repayment plan. This could have a material impact on the Company’s results in future periods.
15
Consumer Lending Segment
The following table presents Core Earnings results for our Consumer Lending segment.
|
|
Three Months Ended September 30, |
|
|
% Increase |
|
|
Nine Months Ended September 30, |
|
|
% Increase |
|
||||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 vs. 2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 vs. 2022 |
|
||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Private Education Loans |
|
$ |
351 |
|
|
$ |
309 |
|
|
|
14 |
% |
|
$ |
1,036 |
|
|
$ |
862 |
|
|
|
20 |
% |
Cash and investments |
|
|
7 |
|
|
|
3 |
|
|
|
133 |
|
|
|
20 |
|
|
|
5 |
|
|
|
300 |
|
Interest income |
|
|
358 |
|
|
|
312 |
|
|
|
15 |
|
|
|
1,056 |
|
|
|
867 |
|
|
|
22 |
|
Interest expense |
|
|
208 |
|
|
|
159 |
|
|
|
31 |
|
|
|
610 |
|
|
|
421 |
|
|
|
45 |
|
Net interest income |
|
|
150 |
|
|
|
153 |
|
|
|
(2 |
) |
|
|
446 |
|
|
|
446 |
|
|
|
— |
|
Less: provision for loan losses |
|
|
36 |
|
|
|
28 |
|
|
|
29 |
|
|
|
17 |
|
|
|
62 |
|
|
|
(73 |
) |
Net interest income after provision |
|
|
114 |
|
|
|
125 |
|
|
|
(9 |
) |
|
|
429 |
|
|
|
384 |
|
|
|
12 |
|
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Servicing revenue |
|
|
3 |
|
|
|
3 |
|
|
|
— |
|
|
|
9 |
|
|
|
9 |
|
|
|
— |
|
Other revenue |
|
|
1 |
|
|
|
— |
|
|
|
100 |
|
|
|
2 |
|
|
|
1 |
|
|
|
100 |
|
Total other income |
|
|
4 |
|
|
|
3 |
|
|
|
33 |
|
|
|
11 |
|
|
|
10 |
|
|
|
10 |
|
Direct operating expenses |
|
|
44 |
|
|
|
43 |
|
|
|
2 |
|
|
|
124 |
|
|
|
113 |
|
|
|
10 |
|
Income before income tax |
|
|
74 |
|
|
|
85 |
|
|
|
(13 |
) |
|
|
316 |
|
|
|
281 |
|
|
|
12 |
|
Income tax expense |
|
|
18 |
|
|
|
20 |
|
|
|
(10 |
) |
|
|
75 |
|
|
|
66 |
|
|
|
14 |
|
Net income |
|
$ |
56 |
|
|
$ |
65 |
|
|
|
(14 |
)% |
|
$ |
241 |
|
|
$ |
215 |
|
|
|
12 |
% |
Comparison of Third-Quarter 2023 Results with Third-Quarter 2022
16
Key performance metrics are as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Segment net interest margin |
|
|
3.17 |
% |
|
|
2.90 |
% |
|
|
3.09 |
% |
|
|
2.78 |
% |
Private Education Loans (including Refinance Loans): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Private Education Loan spread |
|
|
3.29 |
% |
|
|
3.03 |
% |
|
|
3.23 |
% |
|
|
2.93 |
% |
Provision for loan losses |
|
$ |
36 |
|
|
$ |
28 |
|
|
$ |
17 |
|
|
$ |
62 |
|
Net charge-offs(1) |
|
$ |
73 |
|
|
$ |
99 |
|
|
$ |
209 |
|
|
$ |
238 |
|
Net charge-off rate(1) |
|
|
1.66 |
% |
|
|
2.01 |
% |
|
|
1.56 |
% |
|
|
1.59 |
% |
Greater than 30-days delinquency rate |
|
|
4.7 |
% |
|
|
4.4 |
% |
|
|
4.7 |
% |
|
|
4.4 |
% |
Greater than 90-days delinquency rate |
|
|
1.9 |
% |
|
|
2.0 |
% |
|
|
1.9 |
% |
|
|
2.0 |
% |
Forbearance rate |
|
|
2.0 |
% |
|
|
1.9 |
% |
|
|
2.0 |
% |
|
|
1.9 |
% |
Average Private Education Loans |
|
$ |
18,165 |
|
|
$ |
20,308 |
|
|
$ |
18,710 |
|
|
$ |
20,771 |
|
Ending Private Education Loans, net |
|
$ |
17,333 |
|
|
$ |
19,151 |
|
|
$ |
17,333 |
|
|
$ |
19,151 |
|
Private Education Refinance Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net charge-offs |
|
$ |
8 |
|
|
$ |
4 |
|
|
$ |
23 |
|
|
$ |
14 |
|
Greater than 90-day delinquency rate |
|
|
.3 |
% |
|
|
.2 |
% |
|
|
.3 |
% |
|
|
.2 |
% |
Average balance of Private Education Refinance Loans |
|
$ |
9,091 |
|
|
$ |
9,966 |
|
|
$ |
9,300 |
|
|
$ |
10,056 |
|
Ending balance of Private Education Refinance Loans |
|
$ |
8,897 |
|
|
$ |
9,751 |
|
|
$ |
8,897 |
|
|
$ |
9,751 |
|
Private Education Refinance Loan originations |
|
$ |
178 |
|
|
$ |
231 |
|
|
$ |
456 |
|
|
$ |
1,546 |
|
Net Interest Margin
The following table details the net interest margin.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Private Education Loan yield |
|
|
7.66 |
% |
|
|
6.04 |
% |
|
|
7.41 |
% |
|
|
5.55 |
% |
Private Education Loan cost of funds |
|
|
(4.37 |
) |
|
|
(3.01 |
) |
|
|
(4.18 |
) |
|
|
(2.62 |
) |
Private Education Loan spread |
|
|
3.29 |
|
|
|
3.03 |
|
|
|
3.23 |
|
|
|
2.93 |
|
Other interest-earning asset spread impact |
|
|
(.12 |
) |
|
|
(.13 |
) |
|
|
(.14 |
) |
|
|
(.15 |
) |
Net interest margin(1) |
|
|
3.17 |
% |
|
|
2.90 |
% |
|
|
3.09 |
% |
|
|
2.78 |
% |
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Private Education Loans |
|
$ |
18,165 |
|
|
$ |
20,308 |
|
|
$ |
18,710 |
|
|
$ |
20,771 |
|
Other interest-earning assets |
|
|
565 |
|
|
|
580 |
|
|
|
603 |
|
|
|
659 |
|
Total Private Education Loan interest-earning assets |
|
$ |
18,730 |
|
|
$ |
20,888 |
|
|
$ |
19,313 |
|
|
$ |
21,430 |
|
The increase in the net interest margin from the prior year is primarily a result of improved funding spreads.
As of September 30, 2023, our Private Education Loan portfolio totaled $17.3 billion, comprised of $8.9 billion of refinance loans and $8.4 billion of non-refinance loans. The weighted-average life of these portfolios as of September 30, 2023 was 4 years and 5 years, respectively, assuming a CPR of 10% and 10%, respectively.
As of December 31, 2022, our Private Education Loan portfolio totaled $18.7 billion, comprised of $9.5 billion of refinance loans and $9.2 billion of non-refinance loans. The weighted-average life of these portfolios as of December 31, 2022 was 4 years and 5 years, respectively, assuming a CPR of 15% and 10%, respectively.
17
Provision for Loan Losses
The provision for Private Education Loan losses increased $8 million. The provision for loan losses of $36 million in the current period included $29 million related to changes in the net charge-off rates on defaulted loans and $12 million in connection with loan originations, partially offset by a $5 million reserve release. The provision of $28 million in the year-ago quarter included $33 million related to changes in the net charge-off rates on defaulted loans and $13 million in connection with loan originations, partially offset by an $18 million reserve release.
Operating Expenses
Operating expenses for our consumer lending segment include costs to originate, acquire, service and collect on our consumer loan portfolio. Operating expenses increased $1 million primarily as a result of marketing for the peak in-school loan origination season.
Business Processing Segment
The following table presents Core Earnings results for our Business Processing segment.
|
|
Three Months Ended September 30, |
|
|
% Increase |
|
|
Nine Months Ended September 30, |
|
|
% Increase |
|
||||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 vs. 2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 vs. 2022 |
|
||||||
Business processing revenue |
|
$ |
85 |
|
|
$ |
79 |
|
|
|
8 |
% |
|
$ |
240 |
|
|
$ |
260 |
|
|
|
(8 |
)% |
Direct operating expenses |
|
|
73 |
|
|
|
67 |
|
|
|
9 |
|
|
|
215 |
|
|
|
216 |
|
|
|
— |
|
Income before income tax |
|
|
12 |
|
|
|
12 |
|
|
|
— |
|
|
|
25 |
|
|
|
44 |
|
|
|
(43 |
) |
Income tax expense |
|
|
3 |
|
|
|
3 |
|
|
|
— |
|
|
|
6 |
|
|
|
11 |
|
|
|
(45 |
) |
Net income |
|
$ |
9 |
|
|
$ |
9 |
|
|
|
— |
% |
|
$ |
19 |
|
|
$ |
33 |
|
|
|
(42 |
)% |
Comparison of Third-Quarter 2023 Results with Third-Quarter 2022
Key performance metrics are as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenue from government services |
|
$ |
57 |
|
|
$ |
47 |
|
|
$ |
149 |
|
|
$ |
149 |
|
Revenue from healthcare services |
|
|
28 |
|
|
|
32 |
|
|
|
91 |
|
|
|
111 |
|
Total fee revenue |
|
$ |
85 |
|
|
$ |
79 |
|
|
$ |
240 |
|
|
$ |
260 |
|
EBITDA(1) |
|
$ |
13 |
|
|
$ |
13 |
|
|
$ |
27 |
|
|
$ |
46 |
|
EBITDA margin(1) |
|
|
15 |
% |
|
|
16 |
% |
|
|
11 |
% |
|
|
18 |
% |
18
Other Segment
The following table presents Core Earnings results for our Other segment.
|
|
Three Months Ended September 30, |
|
|
% Increase |
|
|
Nine Months Ended September 30, |
|
|
% Increase |
|
||||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 vs. 2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 vs. 2022 |
|
||||||
Net interest loss after provision for |
|
$ |
(31 |
) |
|
$ |
(26 |
) |
|
|
19 |
% |
|
$ |
(84 |
) |
|
$ |
(57 |
) |
|
|
47 |
% |
Other revenue (loss) |
|
|
1 |
|
|
|
— |
|
|
|
100 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
200 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Unallocated shared services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Unallocated information |
|
|
22 |
|
|
|
21 |
|
|
|
5 |
|
|
|
60 |
|
|
|
64 |
|
|
|
(6 |
) |
Unallocated corporate costs |
|
|
77 |
|
|
|
38 |
|
|
|
103 |
|
|
|
147 |
|
|
|
116 |
|
|
|
27 |
|
Total unallocated shared services |
|
|
99 |
|
|
|
59 |
|
|
|
68 |
|
|
|
207 |
|
|
|
180 |
|
|
|
15 |
|
Restructuring/other reorganization |
|
|
4 |
|
|
|
21 |
|
|
|
(81 |
) |
|
|
23 |
|
|
|
25 |
|
|
|
(8 |
) |
Total expenses |
|
|
103 |
|
|
|
80 |
|
|
|
29 |
|
|
|
230 |
|
|
|
205 |
|
|
|
12 |
|
Loss before income tax benefit |
|
|
(133 |
) |
|
|
(106 |
) |
|
|
25 |
|
|
|
(311 |
) |
|
|
(265 |
) |
|
|
17 |
|
Income tax benefit |
|
|
(31 |
) |
|
|
(25 |
) |
|
|
24 |
|
|
|
(73 |
) |
|
|
(63 |
) |
|
|
16 |
|
Net income (loss) |
|
$ |
(102 |
) |
|
$ |
(81 |
) |
|
|
26 |
% |
|
$ |
(238 |
) |
|
$ |
(202 |
) |
|
|
18 |
% |
Net Interest Loss after Provision for Loan Losses
Net interest loss after provision for loan losses is due to the negative carrying cost of our corporate liquidity portfolio. The amount of the net interest loss is primarily a result of the size of the liquidity portfolio as well as the cost of funds of the debt funding the corporate liquidity portfolio.
Unallocated Shared Services Operating Expenses
Unallocated shared services operating expenses are comprised of costs primarily related to information technology costs related to infrastructure and operations, stock-based compensation expense, accounting, finance, legal, compliance and risk management, regulatory-related expenses, human resources, certain executive management and the board of directors. Regulatory-related expenses include actual settlement amounts as well as third-party professional fees we incur in connection with such regulatory matters and are presented net of any insurance reimbursements for covered costs related to such matters. Expenses increased $40 million from the year-ago quarter primarily as a result of a $44 million increase in regulatory-related expenses. Regulatory-related expenses were $47 million and $3 million, respectively, in the third quarters of 2023 and 2022 with the current quarter including a $45 million contingency loss related to recent developments in connection to CFPB matters.
See “Note 9 – Commitments and Contingencies” for a discussion of legal and regulatory matters where it is reasonably possible that a loss contingency exists. The Company is unable to anticipate the timing of a resolution or the impact that certain matters may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows. As a result, it is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection with certain matters and reserves have not been established. It is possible that an adverse ruling or rulings may have a material adverse impact on the Company.
Restructuring/Other Reorganization Expenses
During the third quarters of 2023 and 2022, the Company incurred $4 million and $21 million, respectively, of restructuring/other reorganization expenses in connection with an effort to reduce costs and improve operating efficiency. The year-ago period included $21 million of restructuring expenses primarily due to costs for severance and facility lease terminations in connection with the Company’s decision to exit the FFELP asset recovery business, consolidate certain business lines, and implement other efficiency initiatives.
19
Financial Condition
This section provides information regarding the balances, activity and credit performance metrics of our education loan portfolio.
Summary of Our Education Loan Portfolio
Ending Education Loan Balances, net
|
|
September 30, 2023 |
|
|||||||||||||||||
(Dollars in millions) |
|
FFELP |
|
|
FFELP |
|
|
Total |
|
|
Private |
|
|
Total |
|
|||||
Total education loan portfolio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
In-school(1) |
|
$ |
13 |
|
|
$ |
— |
|
|
$ |
13 |
|
|
$ |
66 |
|
|
$ |
79 |
|
Grace, repayment and other(2) |
|
|
14,390 |
|
|
|
25,398 |
|
|
|
39,788 |
|
|
|
17,892 |
|
|
|
57,680 |
|
Total |
|
|
14,403 |
|
|
|
25,398 |
|
|
|
39,801 |
|
|
|
17,958 |
|
|
|
57,759 |
|
Allowance for loan losses |
|
|
(159 |
) |
|
|
(61 |
) |
|
|
(220 |
) |
|
|
(625 |
) |
|
|
(845 |
) |
Total education loan portfolio |
|
$ |
14,244 |
|
|
$ |
25,337 |
|
|
$ |
39,581 |
|
|
$ |
17,333 |
|
|
$ |
56,914 |
|
% of total FFELP |
|
|
36 |
% |
|
|
64 |
% |
|
|
100 |
% |
|
|
|
|
|
|
||
% of total |
|
|
25 |
% |
|
|
45 |
% |
|
|
70 |
% |
|
|
30 |
% |
|
|
100 |
% |
|
|
December 31, 2022 |
|
|||||||||||||||||
(Dollars in millions) |
|
FFELP |
|
|
FFELP |
|
|
Total |
|
|
Private |
|
|
Total |
|
|||||
Total education loan portfolio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
In-school(1) |
|
$ |
16 |
|
|
$ |
— |
|
|
$ |
16 |
|
|
$ |
54 |
|
|
$ |
70 |
|
Grace, repayment and other(2) |
|
|
15,834 |
|
|
|
27,897 |
|
|
|
43,731 |
|
|
|
19,471 |
|
|
|
63,202 |
|
Total |
|
|
15,850 |
|
|
|
27,897 |
|
|
|
43,747 |
|
|
|
19,525 |
|
|
|
63,272 |
|
Allowance for loan losses |
|
|
(159 |
) |
|
|
(63 |
) |
|
|
(222 |
) |
|
|
(800 |
) |
|
|
(1,022 |
) |
Total education loan portfolio |
|
$ |
15,691 |
|
|
$ |
27,834 |
|
|
$ |
43,525 |
|
|
$ |
18,725 |
|
|
$ |
62,250 |
|
% of total FFELP |
|
|
36 |
% |
|
|
64 |
% |
|
|
100 |
% |
|
|
|
|
|
|
||
% of total |
|
|
25 |
% |
|
|
45 |
% |
|
|
70 |
% |
|
|
30 |
% |
|
|
100 |
% |
|
|
September 30, 2022 |
|
|||||||||||||||||
(Dollars in millions) |
|
FFELP |
|
|
FFELP |
|
|
Total |
|
|
Private |
|
|
Total |
|
|||||
Total education loan portfolio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
In-school(1) |
|
$ |
17 |
|
|
$ |
— |
|
|
$ |
17 |
|
|
$ |
31 |
|
|
$ |
48 |
|
Grace, repayment and other(2) |
|
|
16,851 |
|
|
|
30,256 |
|
|
|
47,107 |
|
|
|
19,972 |
|
|
|
67,079 |
|
Total |
|
|
16,868 |
|
|
|
30,256 |
|
|
|
47,124 |
|
|
|
20,003 |
|
|
|
67,127 |
|
Allowance for loan losses |
|
|
(165 |
) |
|
|
(68 |
) |
|
|
(233 |
) |
|
|
(852 |
) |
|
|
(1,085 |
) |
Total education loan portfolio |
|
$ |
16,703 |
|
|
$ |
30,188 |
|
|
$ |
46,891 |
|
|
$ |
19,151 |
|
|
$ |
66,042 |
|
% of total FFELP |
|
|
36 |
% |
|
|
64 |
% |
|
|
100 |
% |
|
|
|
|
|
|
||
% of total |
|
|
25 |
% |
|
|
46 |
% |
|
|
71 |
% |
|
|
29 |
% |
|
|
100 |
% |
20
Education Loan Activity
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||
(Dollars in millions) |
|
FFELP |
|
|
FFELP |
|
|
Total |
|
|
Private |
|
|
Total |
|
|||||
Beginning balance |
|
$ |
14,695 |
|
|
$ |
26,156 |
|
|
$ |
40,851 |
|
|
$ |
17,732 |
|
|
$ |
58,583 |
|
Acquisitions (originations and purchases)(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
302 |
|
|
|
302 |
|
Capitalized interest and premium/discount |
|
|
175 |
|
|
|
153 |
|
|
|
328 |
|
|
|
50 |
|
|
|
378 |
|
Refinancings and consolidations to third |
|
|
(169 |
) |
|
|
(399 |
) |
|
|
(568 |
) |
|
|
(58 |
) |
|
|
(626 |
) |
Repayments and other |
|
|
(457 |
) |
|
|
(573 |
) |
|
|
(1,030 |
) |
|
|
(693 |
) |
|
|
(1,723 |
) |
Ending balance |
|
$ |
14,244 |
|
|
$ |
25,337 |
|
|
$ |
39,581 |
|
|
$ |
17,333 |
|
|
$ |
56,914 |
|
|
|
Three Months Ended September 30, 2022 |
|
|||||||||||||||||
(Dollars in millions) |
|
FFELP |
|
|
FFELP |
|
|
Total |
|
|
Private |
|
|
Total |
|
|||||
Beginning balance |
|
$ |
17,339 |
|
|
$ |
31,875 |
|
|
$ |
49,214 |
|
|
$ |
19,668 |
|
|
$ |
68,882 |
|
Acquisitions (originations and purchases)(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
249 |
|
|
|
249 |
|
Capitalized interest and premium/discount |
|
|
166 |
|
|
|
187 |
|
|
|
353 |
|
|
|
55 |
|
|
|
408 |
|
Refinancings and consolidations to third |
|
|
(477 |
) |
|
|
(1,251 |
) |
|
|
(1,728 |
) |
|
|
(62 |
) |
|
|
(1,790 |
) |
Repayments and other |
|
|
(325 |
) |
|
|
(623 |
) |
|
|
(948 |
) |
|
|
(759 |
) |
|
|
(1,707 |
) |
Ending balance |
|
$ |
16,703 |
|
|
$ |
30,188 |
|
|
$ |
46,891 |
|
|
$ |
19,151 |
|
|
$ |
66,042 |
|
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||
(Dollars in millions) |
|
FFELP |
|
|
FFELP |
|
|
Total |
|
|
Total Private |
|
|
Total |
|
|||||
Beginning balance |
|
$ |
15,691 |
|
|
$ |
27,834 |
|
|
$ |
43,525 |
|
|
$ |
18,725 |
|
|
$ |
62,250 |
|
Acquisitions (originations and purchases)(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
741 |
|
|
|
741 |
|
Capitalized interest and premium/discount |
|
|
440 |
|
|
|
466 |
|
|
|
906 |
|
|
|
139 |
|
|
|
1,045 |
|
Refinancings and consolidations to third |
|
|
(585 |
) |
|
|
(1,180 |
) |
|
|
(1,765 |
) |
|
|
(190 |
) |
|
|
(1,955 |
) |
Repayments and other |
|
|
(1,302 |
) |
|
|
(1,783 |
) |
|
|
(3,085 |
) |
|
|
(2,082 |
) |
|
|
(5,167 |
) |
Ending balance |
|
$ |
14,244 |
|
|
$ |
25,337 |
|
|
$ |
39,581 |
|
|
$ |
17,333 |
|
|
$ |
56,914 |
|
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||||||||||
(Dollars in millions) |
|
FFELP |
|
|
FFELP |
|
|
Total |
|
|
Total Private |
|
|
Total |
|
|||||
Beginning balance |
|
$ |
18,219 |
|
|
$ |
34,422 |
|
|
$ |
52,641 |
|
|
$ |
20,171 |
|
|
$ |
72,812 |
|
Acquisitions (originations and purchases)(1) |
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
1,764 |
|
|
|
1,765 |
|
Capitalized interest and premium/discount |
|
|
491 |
|
|
|
555 |
|
|
|
1,046 |
|
|
|
163 |
|
|
|
1,209 |
|
Refinancings and consolidations to third |
|
|
(996 |
) |
|
|
(2,698 |
) |
|
|
(3,694 |
) |
|
|
(394 |
) |
|
|
(4,088 |
) |
Repayments and other |
|
|
(1,012 |
) |
|
|
(2,091 |
) |
|
|
(3,103 |
) |
|
|
(2,553 |
) |
|
|
(5,656 |
) |
Ending balance |
|
$ |
16,703 |
|
|
$ |
30,188 |
|
|
$ |
46,891 |
|
|
$ |
19,151 |
|
|
$ |
66,042 |
|
21
FFELP Loan Portfolio Performance
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|
September 30, 2022 |
|
|||||||||||||||
(Dollars in millions) |
|
Balance |
|
|
% |
|
|
Balance |
|
|
% |
|
|
Balance |
|
|
% |
|
||||||
Loans in-school/grace/deferment(1) |
|
$ |
1,636 |
|
|
|
|
|
$ |
1,772 |
|
|
|
|
|
$ |
1,983 |
|
|
|
|
|||
Loans in forbearance(2) |
|
|
6,248 |
|
|
|
|
|
|
7,603 |
|
|
|
|
|
|
7,410 |
|
|
|
|
|||
Loans in repayment and percentage of each status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans current |
|
|
26,566 |
|
|
|
83.2 |
% |
|
|
29,004 |
|
|
|
84.4 |
% |
|
|
30,720 |
|
|
|
81.4 |
% |
Loans delinquent 31-60 days(3) |
|
|
1,481 |
|
|
|
4.6 |
|
|
|
1,247 |
|
|
|
3.6 |
|
|
|
1,917 |
|
|
|
5.1 |
|
Loans delinquent 61-90 days(3) |
|
|
949 |
|
|
|
3.0 |
|
|
|
833 |
|
|
|
2.4 |
|
|
|
1,291 |
|
|
|
3.4 |
|
Loans delinquent greater than 90 days(3) |
|
|
2,921 |
|
|
|
9.2 |
|
|
|
3,288 |
|
|
|
9.6 |
|
|
|
3,803 |
|
|
|
10.1 |
|
Total FFELP Loans in repayment |
|
|
31,917 |
|
|
|
100 |
% |
|
|
34,372 |
|
|
|
100 |
% |
|
|
37,731 |
|
|
|
100 |
% |
Total FFELP Loans |
|
|
39,801 |
|
|
|
|
|
|
43,747 |
|
|
|
|
|
|
47,124 |
|
|
|
|
|||
FFELP Loan allowance for losses |
|
|
(220 |
) |
|
|
|
|
|
(222 |
) |
|
|
|
|
|
(233 |
) |
|
|
|
|||
FFELP Loans, net |
|
$ |
39,581 |
|
|
|
|
|
$ |
43,525 |
|
|
|
|
|
$ |
46,891 |
|
|
|
|
|||
Percentage of FFELP Loans in repayment |
|
|
|
|
|
80.2 |
% |
|
|
|
|
|
78.6 |
% |
|
|
|
|
|
80.1 |
% |
|||
Delinquencies as a percentage of FFELP Loans in |
|
|
|
|
|
16.8 |
% |
|
|
|
|
|
15.6 |
% |
|
|
|
|
|
18.6 |
% |
|||
FFELP Loans in forbearance as a percentage of |
|
|
|
|
|
16.4 |
% |
|
|
|
|
|
18.1 |
% |
|
|
|
|
|
16.4 |
% |
Private Education Loan Portfolio Performance
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|
September 30, 2022 |
|
|||||||||||||||
(Dollars in millions) |
|
Balance |
|
|
% |
|
|
Balance |
|
|
% |
|
|
Balance |
|
|
% |
|
||||||
Loans in-school/grace/deferment(1) |
|
$ |
365 |
|
|
|
|
|
$ |
354 |
|
|
|
|
|
$ |
348 |
|
|
|
|
|||
Loans in forbearance(2) |
|
|
344 |
|
|
|
|
|
|
401 |
|
|
|
|
|
|
371 |
|
|
|
|
|||
Loans in repayment and percentage of each status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans current |
|
|
16,435 |
|
|
|
95.3 |
% |
|
|
17,838 |
|
|
|
95.0 |
% |
|
|
18,426 |
|
|
|
95.6 |
% |
Loans delinquent 31-60 days(3) |
|
|
304 |
|
|
|
1.8 |
|
|
|
335 |
|
|
|
1.8 |
|
|
|
305 |
|
|
|
1.6 |
|
Loans delinquent 61-90 days(3) |
|
|
176 |
|
|
|
1.0 |
|
|
|
186 |
|
|
|
1.0 |
|
|
|
159 |
|
|
|
.8 |
|
Loans delinquent greater than 90 days(3) |
|
|
334 |
|
|
|
1.9 |
|
|
|
411 |
|
|
|
2.2 |
|
|
|
394 |
|
|
|
2.0 |
|
Total Private Education Loans in repayment |
|
|
17,249 |
|
|
|
100 |
% |
|
|
18,770 |
|
|
|
100 |
% |
|
|
19,284 |
|
|
|
100 |
% |
Total Private Education Loans |
|
|
17,958 |
|
|
|
|
|
|
19,525 |
|
|
|
|
|
|
20,003 |
|
|
|
|
|||
Private Education Loan allowance for losses |
|
|
(625 |
) |
|
|
|
|
|
(800 |
) |
|
|
|
|
|
(852 |
) |
|
|
|
|||
Private Education Loans, net |
|
$ |
17,333 |
|
|
|
|
|
$ |
18,725 |
|
|
|
|
|
$ |
19,151 |
|
|
|
|
|||
Percentage of Private Education Loans in |
|
|
|
|
|
96.1 |
% |
|
|
|
|
|
96.1 |
% |
|
|
|
|
|
96.4 |
% |
|||
Delinquencies as a percentage of Private Education |
|
|
|
|
|
4.7 |
% |
|
|
|
|
|
5.0 |
% |
|
|
|
|
|
4.4 |
% |
|||
Loans in forbearance as a percentage of loans in |
|
|
|
|
|
2.0 |
% |
|
|
|
|
|
2.1 |
% |
|
|
|
|
|
1.9 |
% |
|||
Percentage of Private Education Loans with a |
|
|
|
|
|
33 |
% |
|
|
|
|
|
33 |
% |
|
|
|
|
|
33 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Allowance for Loan Losses
|
|
Three Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||
(Dollars in millions) |
|
FFELP Loans |
|
|
Private Education Loans |
|
|
Total |
|
|
FFELP Loans |
|
|
Private Education Loans |
|
|
Total |
|
||||||
Beginning balance |
|
$ |
200 |
|
|
$ |
657 |
|
|
$ |
857 |
|
|
$ |
245 |
|
|
$ |
921 |
|
|
$ |
1,166 |
|
Total provision |
|
|
36 |
|
|
|
36 |
|
|
|
72 |
|
|
|
— |
|
|
|
28 |
|
|
|
28 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross charge-offs |
|
|
(16 |
) |
|
|
(85 |
) |
|
|
(101 |
) |
|
|
(12 |
) |
|
|
(118 |
) |
|
|
(130 |
) |
Expected future recoveries on current period gross |
|
|
— |
|
|
|
12 |
|
|
|
12 |
|
|
|
— |
|
|
|
19 |
|
|
|
19 |
|
Total(1) |
|
|
(16 |
) |
|
|
(73 |
) |
|
|
(89 |
) |
|
|
(12 |
) |
|
|
(99 |
) |
|
|
(111 |
) |
Adjustment resulting from the change in charge-off |
|
|
— |
|
|
|
(25 |
) |
|
|
(25 |
) |
|
|
— |
|
|
|
(30 |
) |
|
|
(30 |
) |
Net charge-offs |
|
|
(16 |
) |
|
|
(98 |
) |
|
|
(114 |
) |
|
|
(12 |
) |
|
|
(129 |
) |
|
|
(141 |
) |
Decrease in expected future recoveries on previously |
|
|
— |
|
|
|
30 |
|
|
|
30 |
|
|
|
— |
|
|
|
32 |
|
|
|
32 |
|
Allowance at end of period (GAAP) |
|
|
220 |
|
|
|
625 |
|
|
|
845 |
|
|
|
233 |
|
|
|
852 |
|
|
|
1,085 |
|
Plus: expected future recoveries on previously fully |
|
|
— |
|
|
|
232 |
|
|
|
232 |
|
|
|
— |
|
|
|
280 |
|
|
|
280 |
|
Allowance at end of period excluding expected future |
|
$ |
220 |
|
|
$ |
857 |
|
|
$ |
1,077 |
|
|
$ |
233 |
|
|
$ |
1,132 |
|
|
$ |
1,365 |
|
Net charge-offs as a percentage of average loans in |
|
|
.19 |
% |
|
|
1.66 |
% |
|
|
|
|
|
.12 |
% |
|
|
2.01 |
% |
|
|
|
||
Net adjustment resulting from the change in charge |
|
|
— |
% |
|
|
.56 |
% |
|
|
|
|
|
— |
% |
|
|
.60 |
% |
|
|
|
||
Net charge-offs as a percentage of average loans in |
|
|
.19 |
% |
|
|
2.22 |
% |
|
|
|
|
|
.12 |
% |
|
|
2.61 |
% |
|
|
|
||
Allowance coverage of charge-offs |
|
|
3.5 |
|
|
|
2.2 |
|
|
(Non-GAAP) |
|
|
|
5.0 |
|
|
|
2.2 |
|
|
(Non-GAAP) |
|
||
Allowance as a percentage of the ending total loan |
|
|
.6 |
% |
|
|
4.8 |
% |
|
(Non-GAAP) |
|
|
|
.5 |
% |
|
|
5.7 |
% |
|
(Non-GAAP) |
|
||
Allowance as a percentage of the ending loans in |
|
|
.7 |
% |
|
|
5.0 |
% |
|
(Non-GAAP) |
|
|
|
.6 |
% |
|
|
5.9 |
% |
|
(Non-GAAP) |
|
||
Ending total loans |
|
$ |
39,801 |
|
|
$ |
17,958 |
|
|
|
|
|
$ |
47,124 |
|
|
$ |
20,003 |
|
|
|
|
||
Average loans in repayment |
|
$ |
32,696 |
|
|
$ |
17,470 |
|
|
|
|
|
$ |
39,573 |
|
|
$ |
19,628 |
|
|
|
|
||
Ending loans in repayment |
|
$ |
31,917 |
|
|
$ |
17,249 |
|
|
|
|
|
$ |
37,731 |
|
|
$ |
19,284 |
|
|
|
|
|
|
Three Months Ended September 30, |
|
|||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
||
Beginning of period expected future recoveries on |
|
$ |
262 |
|
|
$ |
312 |
|
Expected future recoveries of current period defaults |
|
|
12 |
|
|
|
19 |
|
Recoveries (cash collected) |
|
|
(11 |
) |
|
|
(14 |
) |
Charge-offs (as a result of lower recovery expectations) |
|
|
(31 |
) |
|
|
(37 |
) |
End of period expected future recoveries on previously |
|
$ |
232 |
|
|
$ |
280 |
|
Change in balance during period |
|
$ |
(30 |
) |
|
$ |
(32 |
) |
23
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||
(Dollars in millions) |
|
FFELP Loans |
|
|
Private Education Loans |
|
|
Total |
|
|
FFELP Loans |
|
|
Private Education Loans |
|
|
Total |
|
||||||
Beginning balance |
|
$ |
222 |
|
|
$ |
800 |
|
|
$ |
1,022 |
|
|
$ |
262 |
|
|
$ |
1,009 |
|
|
$ |
1,271 |
|
Total provision |
|
|
51 |
|
|
|
17 |
|
|
|
68 |
|
|
|
— |
|
|
|
62 |
|
|
|
62 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross charge-offs |
|
|
(53 |
) |
|
|
(245 |
) |
|
|
(298 |
) |
|
|
(29 |
) |
|
|
(281 |
) |
|
|
(310 |
) |
Expected future recoveries on current period |
|
|
— |
|
|
|
36 |
|
|
|
36 |
|
|
|
— |
|
|
|
43 |
|
|
|
43 |
|
Total(1) |
|
|
(53 |
) |
|
|
(209 |
) |
|
|
(262 |
) |
|
|
(29 |
) |
|
|
(238 |
) |
|
|
(267 |
) |
Adjustment resulting from the change in |
|
|
— |
|
|
|
(25 |
) |
|
|
(25 |
) |
|
|
— |
|
|
|
(30 |
) |
|
|
(30 |
) |
Net charge-offs |
|
|
(53 |
) |
|
|
(234 |
) |
|
|
(287 |
) |
|
|
(29 |
) |
|
|
(268 |
) |
|
|
(297 |
) |
Decrease in expected future recoveries on |
|
|
— |
|
|
|
42 |
|
|
|
42 |
|
|
|
— |
|
|
|
49 |
|
|
|
49 |
|
Allowance at end of period (GAAP) |
|
|
220 |
|
|
|
625 |
|
|
|
845 |
|
|
|
233 |
|
|
|
852 |
|
|
|
1,085 |
|
Plus: expected future recoveries on previously |
|
|
— |
|
|
|
232 |
|
|
|
232 |
|
|
|
— |
|
|
|
280 |
|
|
|
280 |
|
Allowance at end of period excluding expected |
|
$ |
220 |
|
|
$ |
857 |
|
|
$ |
1,077 |
|
|
$ |
233 |
|
|
$ |
1,132 |
|
|
$ |
1,365 |
|
Net charge-offs as a percentage of average loans |
|
|
.21 |
% |
|
|
1.56 |
% |
|
|
|
|
|
.09 |
% |
|
|
1.59 |
% |
|
|
|
||
Net adjustment resulting from the change in |
|
|
— |
% |
|
|
.18 |
% |
|
|
|
|
|
— |
% |
|
|
.20 |
% |
|
|
|
||
Net charge-offs as a percentage of average |
|
|
.21 |
% |
|
|
1.74 |
% |
|
|
|
|
|
.09 |
% |
|
|
1.79 |
% |
|
|
|
||
Allowance coverage of charge-offs |
|
|
3.1 |
|
|
|
2.7 |
|
|
(Non-GAAP) |
|
|
|
6.1 |
|
|
|
3.2 |
|
|
(Non-GAAP) |
|
||
Allowance as a percentage of the ending total |
|
|
.6 |
% |
|
|
4.8 |
% |
|
(Non-GAAP) |
|
|
|
.5 |
% |
|
|
5.7 |
% |
|
(Non-GAAP) |
|
||
Allowance as a percentage of the ending loans in |
|
|
.7 |
% |
|
|
5.0 |
% |
|
(Non-GAAP) |
|
|
|
.6 |
% |
|
|
5.9 |
% |
|
(Non-GAAP) |
|
||
Ending total loans |
|
$ |
39,801 |
|
|
$ |
17,958 |
|
|
|
|
|
$ |
47,124 |
|
|
$ |
20,003 |
|
|
|
|
||
Average loans in repayment |
|
$ |
33,591 |
|
|
$ |
18,000 |
|
|
|
|
|
$ |
41,793 |
|
|
$ |
20,056 |
|
|
|
|
||
Ending loans in repayment |
|
$ |
31,917 |
|
|
$ |
17,249 |
|
|
|
|
|
$ |
37,731 |
|
|
$ |
19,284 |
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
||
Beginning of period expected future recoveries on |
|
$ |
274 |
|
|
$ |
329 |
|
Expected future recoveries of current period defaults |
|
|
36 |
|
|
|
43 |
|
Recoveries (cash collected) |
|
|
(35 |
) |
|
|
(43 |
) |
Charge-offs (as a result of lower recovery expectations) |
|
|
(43 |
) |
|
|
(49 |
) |
End of period expected future recoveries on previously |
|
$ |
232 |
|
|
$ |
280 |
|
Change in balance during period |
|
$ |
(42 |
) |
|
$ |
(49 |
) |
24
Liquidity and Capital Resources
Funding and Liquidity Risk Management
The following “Liquidity and Capital Resources” discussion concentrates primarily on our Federal Education Loans and Consumer Lending segments. Our Business Processing and Other segments require minimal liquidity and funding.
We define liquidity as cash and high-quality liquid assets that we can use to meet our cash requirements. Our two primary liquidity needs are: (1) servicing our debt and (2) our ongoing ability to meet our cash needs for running the operations of our businesses (including derivative collateral requirements) throughout market cycles, including during periods of financial stress. Secondary liquidity needs, which can be adjusted as needed, include the origination of Private Education Loans, acquisitions of Private Education Loan and FFELP Loan portfolios, acquisitions of companies, the payment of common stock dividends and the repurchase of our common stock. To achieve these objectives, we analyze and monitor our liquidity needs and maintain excess liquidity and access to diverse funding sources including the issuance of unsecured debt and the issuance of secured debt primarily through asset-backed securitizations and/or other financing facilities.
We define our liquidity risk as the potential inability to meet our obligations when they become due without incurring unacceptable losses or to invest in future asset growth and business operations at reasonable market rates. Our primary liquidity risk relates to our ability to service our debt, meet our other business obligations and to continue to grow our business. The ability to access the capital markets is impacted by general market and economic conditions, our credit ratings, as well as the overall availability of funding sources in the marketplace. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter derivatives.
Credit ratings and outlooks are opinions subject to ongoing review by the rating agencies and may change, from time to time, based on our financial performance, industry and market dynamics and other factors. Other factors that influence our credit ratings include the rating agencies’ assessment of the general operating environment, our relative positions in the markets in which we compete, reputation, liquidity position, the level and volatility of earnings, corporate governance and risk management policies, capital position and capital management practices. A negative change in our credit rating could have a negative effect on our liquidity because it might raise the cost and availability of funding and potentially require additional cash collateral or restrict cash currently held as collateral on existing borrowings or derivative collateral arrangements. It is our objective to improve our credit ratings so that we can continue to efficiently access the capital markets even in difficult economic and market conditions. We have unsecured debt totaling $6.2 billion at September 30, 2023. Three credit rating agencies currently rate our long-term unsecured debt at below investment grade.
We expect to fund our ongoing liquidity needs, including the repayment of $0.9 billion of senior unsecured notes that mature in the short term (i.e., over the next 12 months) and the remaining $5.3 billion of senior unsecured notes that mature in the long term (from 2024 to 2043 with 70% maturing by 2029), through a number of sources. These sources include our cash on hand, unencumbered FFELP Loan and Private Education Refinance Loan portfolios (see “Sources of Primary Liquidity” below), the predictable operating cash flows provided by operating activities, the repayment of principal on unencumbered education loan assets, and the distribution of overcollateralization from our securitization trusts. We may also, depending on market conditions and availability, draw down on our secured FFELP Loan and Private Education Loan facilities, issue term ABS, enter into additional Private Education Loan ABS repurchase facilities, or issue additional unsecured debt.
We originate Private Education Loans (a portion of which is obtained through a forward purchase agreement). We also have purchased and may purchase, in future periods, Private Education Loan and FFELP Loan portfolios from third parties. Loan originations and purchases are part of our ongoing liquidity needs. We purchased 4.2 million shares of common stock for $75 million in the third quarter of 2023 and have $360 million of unused share repurchase authority as of September 30, 2023.
25
Sources of Primary Liquidity
|
|
|
|
|
|
|
|
|
|
|||
(Dollars in millions) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|
September 30, 2022 |
|
|||
Ending Balances: |
|
|
|
|
|
|
|
|
|
|||
Total unrestricted cash and liquid investments |
|
$ |
977 |
|
|
$ |
1,535 |
|
|
$ |
1,364 |
|
Unencumbered FFELP Loans |
|
|
88 |
|
|
|
68 |
|
|
|
151 |
|
Unencumbered Private Education Refinance |
|
|
49 |
|
|
|
55 |
|
|
|
270 |
|
Total |
|
$ |
1,114 |
|
|
$ |
1,658 |
|
|
$ |
1,785 |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||
(Dollars in millions) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|||||
Average Balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total unrestricted cash and |
|
$ |
1,141 |
|
|
$ |
1,517 |
|
|
$ |
1,363 |
|
|
$ |
977 |
|
|
$ |
1,037 |
|
Unencumbered FFELP Loans |
|
|
85 |
|
|
|
153 |
|
|
|
123 |
|
|
|
88 |
|
|
|
172 |
|
Unencumbered Private |
|
|
118 |
|
|
|
300 |
|
|
|
165 |
|
|
|
95 |
|
|
|
213 |
|
Total |
|
$ |
1,344 |
|
|
$ |
1,970 |
|
|
$ |
1,651 |
|
|
$ |
1,160 |
|
|
$ |
1,422 |
|
Sources of Additional Liquidity
Liquidity may also be available under our secured credit facilities. Maximum borrowing capacity under the FFELP Loan and Private Education Loan asset-backed commercial paper (ABCP) facilities will vary and be subject to each agreement’s borrowing conditions, including, among others, facility size, current usage and availability of qualifying collateral from unencumbered loans. The following tables detail the additional borrowing capacity of these facilities with maturity dates ranging from October 2023 to June 2025.
(Dollars in millions) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|
September 30, 2022 |
|
|||
Ending Balances: |
|
|
|
|
|
|
|
|
|
|||
FFELP Loan ABCP facilities |
|
$ |
28 |
|
|
$ |
101 |
|
|
$ |
200 |
|
Private Education Loan ABCP facilities |
|
|
1,697 |
|
|
|
1,248 |
|
|
|
2,203 |
|
Total |
|
$ |
1,725 |
|
|
$ |
1,349 |
|
|
$ |
2,403 |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||
(Dollars in millions) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|||||
Average Balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
FFELP Loan ABCP facilities |
|
$ |
35 |
|
|
$ |
193 |
|
|
$ |
190 |
|
|
$ |
70 |
|
|
$ |
404 |
|
Private Education Loan ABCP |
|
|
1,966 |
|
|
|
1,556 |
|
|
|
2,186 |
|
|
|
1,777 |
|
|
|
2,147 |
|
Total |
|
$ |
2,001 |
|
|
$ |
1,749 |
|
|
$ |
2,376 |
|
|
$ |
1,847 |
|
|
$ |
2,551 |
|
At September 30, 2023, we had a total of $3.1 billion of unencumbered tangible assets inclusive of those listed in the table above as sources of primary liquidity. Total unencumbered education loans comprised $1.2 billion principal of our unencumbered tangible assets of which $1.1 billion and $88 million related to Private Education Loans and FFELP Loans, respectively. In addition, as of September 30, 2023, we had $5.5 billion of encumbered net assets (i.e., overcollateralization) in our various financing facilities (consolidated variable interest entities). Our secured financing facilities include Private Education Loan ABS Repurchase Facilities, which had $0.5 billion outstanding as of September 30, 2023. These repurchase facilities are collateralized by the net assets in previously issued Private Education Loan ABS trusts and have had a cost of funds lower than that of a new unsecured debt issuance.
26
The following table reconciles encumbered and unencumbered assets and their net impact on total Tangible Equity.
(Dollars in billions) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Net assets of consolidated variable interest |
|
$ |
3.5 |
|
|
|
3.7 |
|
Net assets of consolidated variable interest entities |
|
|
2.0 |
|
|
|
1.5 |
|
Tangible unencumbered assets(1) |
|
|
3.1 |
|
|
|
4.1 |
|
Senior unsecured debt |
|
|
(6.2 |
) |
|
|
(7.0 |
) |
Mark-to-market on unsecured hedged debt(2) |
|
|
.3 |
|
|
|
.3 |
|
Other liabilities, net |
|
|
(.5 |
) |
|
|
(.3 |
) |
Total Tangible Equity (3) |
|
$ |
2.2 |
|
|
$ |
2.3 |
|
Borrowings
Ending Balances
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||
(Dollars in millions) |
|
Short |
|
|
Long |
|
|
Total |
|
|
Short |
|
|
Long |
|
|
Total |
|
||||||
Unsecured borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Senior unsecured debt |
|
$ |
856 |
|
|
$ |
5,355 |
|
|
$ |
6,211 |
|
|
$ |
1,301 |
|
|
$ |
5,711 |
|
|
$ |
7,012 |
|
Total unsecured borrowings |
|
|
856 |
|
|
|
5,355 |
|
|
|
6,211 |
|
|
|
1,301 |
|
|
|
5,711 |
|
|
|
7,012 |
|
Secured borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
FFELP Loan securitizations |
|
|
62 |
|
|
|
36,961 |
|
|
|
37,023 |
|
|
|
76 |
|
|
|
42,675 |
|
|
|
42,751 |
|
Private Education Loan securitizations |
|
|
498 |
|
|
|
11,766 |
|
|
|
12,264 |
|
|
|
725 |
|
|
|
12,744 |
|
|
|
13,469 |
|
FFELP Loan ABCP facilities |
|
|
1,510 |
|
|
|
456 |
|
|
|
1,966 |
|
|
|
923 |
|
|
|
386 |
|
|
|
1,309 |
|
Private Education Loan ABCP facilities |
|
|
1,702 |
|
|
|
859 |
|
|
|
2,561 |
|
|
|
2,734 |
|
|
|
— |
|
|
|
2,734 |
|
Other |
|
|
44 |
|
|
|
40 |
|
|
|
84 |
|
|
|
121 |
|
|
|
— |
|
|
|
121 |
|
Total secured borrowings |
|
|
3,816 |
|
|
|
50,082 |
|
|
|
53,898 |
|
|
|
4,579 |
|
|
|
55,805 |
|
|
|
60,384 |
|
Core Earnings basis borrowings(1) |
|
|
4,672 |
|
|
|
55,437 |
|
|
|
60,109 |
|
|
|
5,880 |
|
|
|
61,516 |
|
|
|
67,396 |
|
Adjustment for GAAP accounting treatment |
|
|
(10 |
) |
|
|
(530 |
) |
|
|
(540 |
) |
|
|
(10 |
) |
|
|
(490 |
) |
|
|
(500 |
) |
GAAP basis borrowings |
|
$ |
4,662 |
|
|
$ |
54,907 |
|
|
$ |
59,569 |
|
|
$ |
5,870 |
|
|
$ |
61,026 |
|
|
$ |
66,896 |
|
Average Balances
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||||
(Dollars in millions) |
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
||||||||
Unsecured borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Senior unsecured debt |
|
$ |
6,490 |
|
|
|
9.02 |
% |
|
$ |
7,007 |
|
|
|
6.08 |
% |
|
$ |
6,367 |
|
|
|
8.62 |
% |
|
$ |
7,010 |
|
|
|
5.07 |
% |
Total unsecured borrowings |
|
|
6,490 |
|
|
|
9.02 |
|
|
|
7,007 |
|
|
|
6.08 |
|
|
|
6,367 |
|
|
|
8.62 |
|
|
|
7,010 |
|
|
|
5.07 |
|
Secured borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
FFELP Loan securitizations |
|
|
37,728 |
|
|
|
5.85 |
|
|
|
46,615 |
|
|
|
3.37 |
|
|
|
39,399 |
|
|
|
5.56 |
|
|
|
48,623 |
|
|
|
2.16 |
|
Private Education Loan |
|
|
12,601 |
|
|
|
3.50 |
|
|
|
14,298 |
|
|
|
2.70 |
|
|
|
12,934 |
|
|
|
3.40 |
|
|
|
14,401 |
|
|
|
2.47 |
|
FFELP Loan ABCP facilities |
|
|
1,983 |
|
|
|
6.56 |
|
|
|
1,222 |
|
|
|
3.43 |
|
|
|
1,707 |
|
|
|
6.27 |
|
|
|
899 |
|
|
|
2.58 |
|
Private Education Loan |
|
|
2,318 |
|
|
|
7.27 |
|
|
|
2,460 |
|
|
|
3.90 |
|
|
|
2,526 |
|
|
|
6.74 |
|
|
|
2,543 |
|
|
|
2.73 |
|
Other |
|
|
113 |
|
|
|
(.37 |
) |
|
|
142 |
|
|
|
2.68 |
|
|
|
109 |
|
|
|
3.32 |
|
|
|
189 |
|
|
|
1.29 |
|
Total secured borrowings |
|
|
54,743 |
|
|
|
5.39 |
|
|
|
64,737 |
|
|
|
3.24 |
|
|
|
56,675 |
|
|
|
5.14 |
|
|
|
66,655 |
|
|
|
2.26 |
|
Core Earnings basis |
|
|
61,233 |
|
|
|
5.77 |
|
|
|
71,744 |
|
|
|
3.52 |
|
|
|
63,042 |
|
|
|
5.49 |
|
|
|
73,665 |
|
|
|
2.52 |
|
Adjustment for GAAP |
|
|
— |
|
|
|
(.07 |
) |
|
|
— |
|
|
|
.02 |
|
|
|
— |
|
|
|
.10 |
|
|
|
— |
|
|
|
(.16 |
) |
GAAP basis borrowings |
|
$ |
61,233 |
|
|
|
5.70 |
% |
|
$ |
71,744 |
|
|
|
3.54 |
% |
|
$ |
63,042 |
|
|
|
5.59 |
% |
|
$ |
73,665 |
|
|
|
2.36 |
% |
27
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). A discussion of our critical accounting policies, which includes the allowance for loan losses, goodwill impairment assessment, premium and discount amortization, and the impact of the SDR Plan on our accounting policies and estimates, can be found in our 2022 Form 10-K. See "Federal Education Loans Segment – Federal Loan Forgiveness" for an update on the SDR Plan.
Non-GAAP Financial Measures
In addition to financial results reported on a GAAP basis, Navient also provides certain performance measures which are non-GAAP financial measures. We present the following non-GAAP financial measures: (1) Core Earnings, (2) Tangible Equity (as well as the Adjusted Tangible Equity Ratio), (3) EBITDA for the Business Processing segment, and (4) Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans. Definitions for the non-GAAP financial measures and reconciliations are provided below, except that reconciliations of forward-looking non-GAAP financial measures are not provided because the company is unable to provide such reconciliations without unreasonable effort due to the uncertainty and inherent difficulty of predicting the occurrence and financial impact of certain items, including, but not limited to, the impact of any mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks.
1. Core Earnings
We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide certain Core Earnings disclosures in the notes to our consolidated financial statements for our business segments.
Core Earnings are not a substitute for reported results under GAAP. We use Core Earnings to manage our business segments because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that can create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that Core Earnings provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information because we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. When compared to GAAP results, the two items we remove to result in our Core Earnings presentations are:
While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our Core Earnings basis of presentation does not. Core Earnings are subject to certain general and specific limitations that investors should carefully consider. For example, there is no comprehensive, authoritative guidance for management reporting. Our Core Earnings are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Accordingly, our Core Earnings presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not be able to compare our performance with that of other financial services companies based upon Core Earnings. Core Earnings results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, our board of directors, credit rating agencies, lenders and investors to assess performance.
28
The following tables show our consolidated GAAP results, Core Earnings results (including for each reportable segment) along with the adjustments made to the income/expense items to reconcile the consolidated GAAP results to the Core Earnings results as required by GAAP and reported in “Note 11 — Segment Reporting.”
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||||||||||||||||||
|
|
|
|
|
Adjustments |
|
|
|
|
|
Reportable Segments |
|
||||||||||||||||||||||||
(Dollars in millions) |
|
Total |
|
|
Reclassi- |
|
|
Additions/ |
|
|
Total |
|
|
Total |
|
|
Federal Education Loans |
|
|
Consumer Lending |
|
|
Business Processing |
|
|
Other |
|
|||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Education loans |
|
$ |
1,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
778 |
|
|
$ |
351 |
|
|
$ |
— |
|
|
$ |
— |
|
||||
Cash and investments |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
7 |
|
|
|
— |
|
|
|
15 |
|
||||
Total interest income |
|
|
1,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
797 |
|
|
|
358 |
|
|
|
— |
|
|
|
15 |
|
||||
Total interest expense |
|
|
879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
636 |
|
|
|
208 |
|
|
|
— |
|
|
|
46 |
|
||||
Net interest income |
|
|
291 |
|
|
$ |
7 |
|
|
$ |
(18 |
) |
|
$ |
(11 |
) |
|
$ |
280 |
|
|
|
161 |
|
|
|
150 |
|
|
|
— |
|
|
|
(31 |
) |
Less: provisions for loan |
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
72 |
|
|
|
36 |
|
|
|
36 |
|
|
|
— |
|
|
|
— |
|
|||
Net interest income |
|
|
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125 |
|
|
|
114 |
|
|
|
— |
|
|
|
(31 |
) |
||||
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Servicing revenue |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
||||
Asset recovery and |
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
85 |
|
|
|
— |
|
||||
Other revenue |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
||||
Total other income |
|
|
131 |
|
|
|
(7 |
) |
|
|
(19 |
) |
|
|
(26 |
) |
|
|
105 |
|
|
|
15 |
|
|
|
4 |
|
|
|
85 |
|
|
|
1 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Direct operating |
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
44 |
|
|
|
73 |
|
|
|
— |
|
||||
Unallocated shared |
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
99 |
|
||||
Operating expenses |
|
|
233 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
233 |
|
|
|
17 |
|
|
|
44 |
|
|
|
73 |
|
|
|
99 |
|
Goodwill and acquired |
|
|
3 |
|
|
|
— |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restructuring/other |
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
Total expenses |
|
|
240 |
|
|
|
— |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
237 |
|
|
|
17 |
|
|
|
44 |
|
|
|
73 |
|
|
|
103 |
|
Income (loss) before |
|
|
110 |
|
|
|
— |
|
|
|
(34 |
) |
|
|
(34 |
) |
|
|
76 |
|
|
|
123 |
|
|
|
74 |
|
|
|
12 |
|
|
|
(133 |
) |
Income tax expense |
|
|
31 |
|
|
|
— |
|
|
|
(12 |
) |
|
|
(12 |
) |
|
|
19 |
|
|
|
29 |
|
|
|
18 |
|
|
|
3 |
|
|
|
(31 |
) |
Net income (loss) |
|
$ |
79 |
|
|
$ |
— |
|
|
$ |
(22 |
) |
|
$ |
(22 |
) |
|
$ |
57 |
|
|
$ |
94 |
|
|
$ |
56 |
|
|
$ |
9 |
|
|
$ |
(102 |
) |
|
|
Three Months Ended September 30, 2023 |
|
|||||||||
(Dollars in millions) |
|
Net Impact of |
|
|
Net Impact of |
|
|
Total |
|
|||
Net interest income (loss) after provisions for loan losses |
|
$ |
(11 |
) |
|
$ |
— |
|
|
$ |
(11 |
) |
Total other income (loss) |
|
|
(26 |
) |
|
|
— |
|
|
|
(26 |
) |
Goodwill and acquired intangible asset impairment and amortization |
|
|
— |
|
|
|
(3 |
) |
|
|
(3 |
) |
Total Core Earnings adjustments to GAAP |
|
$ |
(37 |
) |
|
$ |
3 |
|
|
|
(34 |
) |
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
(12 |
) |
||
Net income (loss) |
|
|
|
|
|
|
|
$ |
(22 |
) |
29
|
|
Three Months Ended September 30, 2022 |
|
|||||||||||||||||||||||||||||||||
|
|
|
|
|
Adjustments |
|
|
|
|
|
Reportable Segments |
|
||||||||||||||||||||||||
(Dollars in millions) |
|
Total |
|
|
Reclassi- |
|
|
Additions/ |
|
|
Total |
|
|
Total |
|
|
Federal Education Loans |
|
|
Consumer Lending |
|
|
Business Processing |
|
|
Other |
|
|||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Education loans |
|
$ |
862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
555 |
|
|
$ |
309 |
|
|
$ |
— |
|
|
$ |
— |
|
||||
Cash and investments |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
3 |
|
|
|
— |
|
|
|
7 |
|
||||
Total interest income |
|
|
881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
564 |
|
|
|
312 |
|
|
|
— |
|
|
|
7 |
|
||||
Total interest expense |
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
444 |
|
|
|
159 |
|
|
|
— |
|
|
|
33 |
|
||||
Net interest income (loss) |
|
|
240 |
|
|
$ |
(1 |
) |
|
$ |
8 |
|
|
$ |
7 |
|
|
$ |
247 |
|
|
|
120 |
|
|
|
153 |
|
|
|
— |
|
|
|
(26 |
) |
Less: provisions for loan |
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
— |
|
|
|
28 |
|
|
|
— |
|
|
|
— |
|
|||
Net interest income (loss) |
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120 |
|
|
|
125 |
|
|
|
— |
|
|
|
(26 |
) |
||||
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Servicing revenue |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
||||
Asset recovery and |
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
— |
|
|
|
79 |
|
|
|
— |
|
||||
Other revenue |
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||||
Total other income (loss) |
|
|
150 |
|
|
|
1 |
|
|
|
(41 |
) |
|
|
(40 |
) |
|
|
110 |
|
|
|
28 |
|
|
|
3 |
|
|
|
79 |
|
|
|
— |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Direct operating |
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
43 |
|
|
|
67 |
|
|
|
— |
|
||||
Unallocated shared |
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
59 |
|
||||
Operating expenses |
|
|
194 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
194 |
|
|
|
25 |
|
|
|
43 |
|
|
|
67 |
|
|
|
59 |
|
Goodwill and acquired |
|
|
10 |
|
|
|
— |
|
|
|
(10 |
) |
|
|
(10 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restructuring/other |
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
Total expenses |
|
|
225 |
|
|
|
— |
|
|
|
(10 |
) |
|
|
(10 |
) |
|
|
215 |
|
|
|
25 |
|
|
|
43 |
|
|
|
67 |
|
|
|
80 |
|
Income (loss) before |
|
|
137 |
|
|
|
— |
|
|
|
(23 |
) |
|
|
(23 |
) |
|
|
114 |
|
|
|
123 |
|
|
|
85 |
|
|
|
12 |
|
|
|
(106 |
) |
Income tax expense |
|
|
32 |
|
|
|
— |
|
|
|
(5 |
) |
|
|
(5 |
) |
|
|
27 |
|
|
|
29 |
|
|
|
20 |
|
|
|
3 |
|
|
|
(25 |
) |
Net income (loss) |
|
$ |
105 |
|
|
$ |
— |
|
|
$ |
(18 |
) |
|
$ |
(18 |
) |
|
$ |
87 |
|
|
$ |
94 |
|
|
$ |
65 |
|
|
$ |
9 |
|
|
$ |
(81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2022 |
|
|||||||||
(Dollars in millions) |
|
Net Impact of |
|
|
Net Impact of |
|
|
Total |
|
|||
Net interest income (loss) after provisions for loan losses |
|
$ |
7 |
|
|
$ |
— |
|
|
$ |
7 |
|
Total other income (loss) |
|
|
(40 |
) |
|
|
— |
|
|
|
(40 |
) |
Goodwill and acquired intangible asset impairment and amortization |
|
|
— |
|
|
|
(10 |
) |
|
|
(10 |
) |
Total Core Earnings adjustments to GAAP |
|
$ |
(33 |
) |
|
$ |
10 |
|
|
|
(23 |
) |
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
(5 |
) |
||
Net income (loss) |
|
|
|
|
|
|
|
$ |
(18 |
) |
30
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||||||||||||||||||
|
|
|
|
|
Adjustments |
|
|
|
|
|
Reportable Segments |
|
||||||||||||||||||||||||
(Dollars in millions) |
|
Total |
|
|
Reclassi- |
|
|
Additions/ |
|
|
Total |
|
|
Total |
|
|
Federal Education Loans |
|
|
Consumer Lending |
|
|
Business Processing |
|
|
Other |
|
|||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Education loans |
|
$ |
3,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,194 |
|
|
$ |
1,036 |
|
|
$ |
— |
|
|
$ |
— |
|
||||
Cash and investments |
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
20 |
|
|
|
— |
|
|
|
35 |
|
||||
Total interest income |
|
|
3,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,250 |
|
|
|
1,056 |
|
|
|
— |
|
|
|
35 |
|
||||
Total interest expense |
|
|
2,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,859 |
|
|
|
610 |
|
|
|
— |
|
|
|
119 |
|
||||
Net interest income |
|
|
702 |
|
|
$ |
24 |
|
|
$ |
27 |
|
|
$ |
51 |
|
|
$ |
753 |
|
|
|
391 |
|
|
|
446 |
|
|
|
— |
|
|
|
(84 |
) |
Less: provisions for loan |
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
68 |
|
|
|
51 |
|
|
|
17 |
|
|
|
— |
|
|
|
— |
|
|||
Net interest income |
|
|
634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340 |
|
|
|
429 |
|
|
|
— |
|
|
|
(84 |
) |
||||
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Servicing revenue |
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
||||
Asset recovery and |
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
240 |
|
|
|
— |
|
||||
Other revenue |
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
2 |
|
|
|
— |
|
|
|
3 |
|
||||
Total other income |
|
|
347 |
|
|
|
(24 |
) |
|
|
(20 |
) |
|
|
(44 |
) |
|
|
303 |
|
|
|
49 |
|
|
|
11 |
|
|
|
240 |
|
|
|
3 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Direct operating |
|
|
394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
124 |
|
|
|
215 |
|
|
|
— |
|
||||
Unallocated shared |
|
|
207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
207 |
|
||||
Operating expenses |
|
|
601 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
601 |
|
|
|
55 |
|
|
|
124 |
|
|
|
215 |
|
|
|
207 |
|
Goodwill and acquired |
|
|
8 |
|
|
|
— |
|
|
|
(8 |
) |
|
|
(8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restructuring/other |
|
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
23 |
|
Total expenses |
|
|
632 |
|
|
|
— |
|
|
|
(8 |
) |
|
|
(8 |
) |
|
|
624 |
|
|
|
55 |
|
|
|
124 |
|
|
|
215 |
|
|
|
230 |
|
Income (loss) before |
|
|
349 |
|
|
|
— |
|
|
|
15 |
|
|
|
15 |
|
|
|
364 |
|
|
|
334 |
|
|
|
316 |
|
|
|
25 |
|
|
|
(311 |
) |
Income tax expense |
|
|
93 |
|
|
|
— |
|
|
|
(7 |
) |
|
|
(7 |
) |
|
|
86 |
|
|
|
78 |
|
|
|
75 |
|
|
|
6 |
|
|
|
(73 |
) |
Net income (loss) |
|
$ |
256 |
|
|
$ |
— |
|
|
$ |
22 |
|
|
$ |
22 |
|
|
$ |
278 |
|
|
$ |
256 |
|
|
$ |
241 |
|
|
$ |
19 |
|
|
$ |
(238 |
) |
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||
(Dollars in millions) |
|
Net Impact of |
|
|
Net Impact of |
|
|
Total |
|
|||
Net interest income (loss) after provisions for loan losses |
|
$ |
51 |
|
|
$ |
— |
|
|
$ |
51 |
|
Total other income (loss) |
|
|
(44 |
) |
|
|
— |
|
|
|
(44 |
) |
Goodwill and acquired intangible asset impairment and amortization |
|
|
— |
|
|
|
(8 |
) |
|
|
(8 |
) |
Total Core Earnings adjustments to GAAP |
|
$ |
7 |
|
|
$ |
8 |
|
|
|
15 |
|
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
(7 |
) |
||
Net income (loss) |
|
|
|
|
|
|
|
$ |
22 |
|
31
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||||||||||||||||||||||||||
|
|
|
|
|
Adjustments |
|
|
|
|
|
Reportable Segments |
|
||||||||||||||||||||||||
(Dollars in millions) |
|
Total |
|
|
Reclassi- |
|
|
Additions/ |
|
|
Total |
|
|
Total |
|
|
Federal Education Loans |
|
|
Consumer Lending |
|
|
Business Processing |
|
|
Other |
|
|||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Education loans |
|
$ |
2,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,298 |
|
|
$ |
862 |
|
|
$ |
— |
|
|
$ |
— |
|
||||
Cash and investments |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
5 |
|
|
|
— |
|
|
|
8 |
|
||||
Total interest income |
|
|
2,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,310 |
|
|
|
867 |
|
|
|
— |
|
|
|
8 |
|
||||
Total interest expense |
|
|
1,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
905 |
|
|
|
421 |
|
|
|
— |
|
|
|
65 |
|
||||
Net interest income |
|
|
898 |
|
|
$ |
(20 |
) |
|
$ |
(84 |
) |
|
$ |
(104 |
) |
|
$ |
794 |
|
|
|
405 |
|
|
|
446 |
|
|
|
— |
|
|
|
(57 |
) |
Less: provisions for loan |
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
— |
|
|
|
62 |
|
|
|
— |
|
|
|
— |
|
|||
Net interest income |
|
|
836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
405 |
|
|
|
384 |
|
|
|
— |
|
|
|
(57 |
) |
||||
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Servicing revenue |
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
||||
Asset recovery and |
|
|
264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
— |
|
|
|
260 |
|
|
|
— |
|
||||
Other revenue |
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
1 |
|
|
|
— |
|
|
|
(3 |
) |
||||
Total other income |
|
|
507 |
|
|
|
20 |
|
|
|
(181 |
) |
|
|
(161 |
) |
|
|
346 |
|
|
|
79 |
|
|
|
10 |
|
|
|
260 |
|
|
|
(3 |
) |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Direct operating |
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79 |
|
|
|
113 |
|
|
|
216 |
|
|
|
— |
|
||||
Unallocated shared |
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
180 |
|
||||
Operating expenses |
|
|
588 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
588 |
|
|
|
79 |
|
|
|
113 |
|
|
|
216 |
|
|
|
180 |
|
Goodwill and acquired |
|
|
17 |
|
|
|
— |
|
|
|
(17 |
) |
|
|
(17 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restructuring/other |
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
Total expenses |
|
|
630 |
|
|
|
— |
|
|
|
(17 |
) |
|
|
(17 |
) |
|
|
613 |
|
|
|
79 |
|
|
|
113 |
|
|
|
216 |
|
|
|
205 |
|
Income (loss) before |
|
|
713 |
|
|
|
— |
|
|
|
(248 |
) |
|
|
(248 |
) |
|
|
465 |
|
|
|
405 |
|
|
|
281 |
|
|
|
44 |
|
|
|
(265 |
) |
Income tax expense |
|
|
173 |
|
|
|
— |
|
|
|
(64 |
) |
|
|
(64 |
) |
|
|
109 |
|
|
|
95 |
|
|
|
66 |
|
|
|
11 |
|
|
|
(63 |
) |
Net income (loss) |
|
$ |
540 |
|
|
$ |
— |
|
|
$ |
(184 |
) |
|
$ |
(184 |
) |
|
$ |
356 |
|
|
$ |
310 |
|
|
$ |
215 |
|
|
$ |
33 |
|
|
$ |
(202 |
) |
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||
(Dollars in millions) |
|
Net Impact of |
|
|
Net Impact of |
|
|
Total |
|
|||
Net interest income (loss) after provisions for loan losses |
|
$ |
(104 |
) |
|
$ |
— |
|
|
$ |
(104 |
) |
Total other income (loss) |
|
|
(161 |
) |
|
|
— |
|
|
|
(161 |
) |
Goodwill and acquired intangible asset impairment and amortization |
|
|
— |
|
|
|
(17 |
) |
|
|
(17 |
) |
Total Core Earnings adjustments to GAAP |
|
$ |
(265 |
) |
|
$ |
17 |
|
|
|
(248 |
) |
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
(64 |
) |
||
Net income (loss) |
|
|
|
|
|
|
|
$ |
(184 |
) |
32
The following discussion summarizes the differences between GAAP and Core Earnings net income and details each specific adjustment required to reconcile our GAAP earnings to our Core Earnings segment presentation.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
GAAP net income |
|
$ |
79 |
|
|
$ |
105 |
|
|
$ |
256 |
|
|
$ |
540 |
|
Core Earnings adjustments to GAAP: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net impact of derivative accounting |
|
|
(37 |
) |
|
|
(33 |
) |
|
|
7 |
|
|
|
(265 |
) |
Net impact of goodwill and acquired intangible assets |
|
|
3 |
|
|
|
10 |
|
|
|
8 |
|
|
|
17 |
|
Net income tax effect |
|
|
12 |
|
|
|
5 |
|
|
|
7 |
|
|
|
64 |
|
Total Core Earnings adjustments to GAAP |
|
|
(22 |
) |
|
|
(18 |
) |
|
|
22 |
|
|
|
(184 |
) |
Core Earnings net income |
|
$ |
57 |
|
|
$ |
87 |
|
|
$ |
278 |
|
|
$ |
356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Derivative Accounting: Core Earnings exclude periodic gains and losses that are caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, as well as the periodic mark-to-market gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. Under GAAP, for our derivatives that are held to maturity, the mark-to-market gain or loss over the life of the contract will equal $0 except for Floor Income Contracts, where the mark-to-market gain will equal the amount for which we originally sold the contract. In our Core Earnings presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.
The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria are met. The gains and losses recorded in “Gains (losses) on derivative and hedging activities, net” and interest expense (for qualifying fair value hedges) are primarily caused by interest rate and foreign currency exchange rate volatility and changing credit spreads during the period as well as the volume and term of derivatives not receiving hedge accounting treatment. We believe that our derivatives are effective economic hedges, and as such, are a critical element of our interest rate and foreign currency risk management strategy. However, some of our derivatives, primarily Floor Income Contracts, basis swaps and at times, certain other LIBOR swaps do not qualify for hedge accounting treatment and the stand-alone derivative is adjusted to fair value in the income statement with no consideration for the corresponding change in fair value of the hedged item. See our 2022 10-K for further discussion.
33
The table below quantifies the adjustments for derivative accounting between GAAP and Core Earnings net income.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Core Earnings derivative adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Gains) losses on derivative and hedging activities, net, |
|
$ |
(26 |
) |
|
$ |
(40 |
) |
|
$ |
(44 |
) |
|
$ |
(161 |
) |
Plus: (Gains) losses on fair value hedging activity included |
|
|
(19 |
) |
|
|
6 |
|
|
|
23 |
|
|
|
(85 |
) |
Total (gains) losses in GAAP net income |
|
|
(45 |
) |
|
|
(34 |
) |
|
|
(21 |
) |
|
|
(246 |
) |
Plus: Reclassification of settlement income (expense) on |
|
|
7 |
|
|
|
(1 |
) |
|
|
24 |
|
|
|
(20 |
) |
Mark-to-market (gains) losses on derivative and hedging |
|
|
(38 |
) |
|
|
(35 |
) |
|
|
3 |
|
|
|
(266 |
) |
Amortization of net premiums on Floor Income Contracts |
|
|
— |
|
|
|
2 |
|
|
|
3 |
|
|
|
9 |
|
Other derivative accounting adjustments(3) |
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
(8 |
) |
Total net impact of derivative accounting |
|
$ |
(37 |
) |
|
$ |
(33 |
) |
|
$ |
7 |
|
|
$ |
(265 |
) |
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Reclassification of settlements on derivative and |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net settlement expense on Floor Income Contracts |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(23 |
) |
Net settlement income (expense) on interest rate |
|
|
7 |
|
|
|
(1 |
) |
|
|
24 |
|
|
|
3 |
|
Total reclassifications of settlement income |
|
$ |
7 |
|
|
$ |
(1 |
) |
|
$ |
24 |
|
|
$ |
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Fair value hedges |
|
$ |
(3 |
) |
|
$ |
(17 |
) |
|
$ |
13 |
|
|
$ |
(51 |
) |
Foreign currency hedges |
|
|
(16 |
) |
|
|
23 |
|
|
|
10 |
|
|
|
(34 |
) |
Floor Income Contracts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(65 |
) |
Basis swaps |
|
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
6 |
|
Other |
|
|
(19 |
) |
|
|
(44 |
) |
|
|
(20 |
) |
|
|
(122 |
) |
Total mark-to-market (gains) losses on derivative |
|
$ |
(38 |
) |
|
$ |
(35 |
) |
|
$ |
3 |
|
|
$ |
(266 |
) |
34
Cumulative Impact of Derivative Accounting under GAAP compared to Core Earnings
As of September 30, 2023, derivative accounting has increased GAAP equity by approximately $73 million as a result of cumulative net mark-to-market gains (after tax) recognized under GAAP, but not in Core Earnings. The following table rolls forward the cumulative impact to GAAP equity due to these after-tax mark-to-market net gains and losses related to derivative accounting.
|
|
Three Months Ended |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Beginning impact of derivative accounting on |
|
$ |
67 |
|
|
$ |
39 |
|
|
$ |
122 |
|
|
$ |
(299 |
) |
Net impact of net mark-to-market gains (losses) |
|
|
6 |
|
|
|
79 |
|
|
|
(49 |
) |
|
|
417 |
|
Ending impact of derivative accounting on |
|
$ |
73 |
|
|
$ |
118 |
|
|
$ |
73 |
|
|
$ |
118 |
|
|
|
Three Months Ended |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Total pre-tax net impact of derivative accounting |
|
$ |
37 |
|
|
$ |
33 |
|
|
$ |
(7 |
) |
|
$ |
265 |
|
Tax and other impacts of derivative accounting |
|
|
(9 |
) |
|
|
(8 |
) |
|
|
2 |
|
|
|
(65 |
) |
Change in mark-to-market gains (losses) on |
|
|
(22 |
) |
|
|
54 |
|
|
|
(44 |
) |
|
|
217 |
|
Net impact of net mark-to-market gains (losses) |
|
$ |
6 |
|
|
$ |
79 |
|
|
$ |
(49 |
) |
|
$ |
417 |
|
35
Hedging Embedded Floor Income
We use Floor Income Contracts, pay-fixed swaps and fixed rate debt to economically hedge embedded Floor Income in our FFELP Loans. Historically, we have used these instruments on a periodic basis and depending upon market conditions and pricing, we may enter into additional hedges in the future. Under GAAP, the Floor Income Contracts do not qualify for hedge accounting and the pay-fixed swaps are accounted for as cash flow hedges. The table below shows the amount of hedged Floor Income that will be recognized in Core Earnings in future periods based on these hedge strategies.
(Dollars in millions) |
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||
Total hedged Floor Income, net of tax(1)(2) |
|
$ |
115 |
|
|
$ |
224 |
|
(2) Goodwill and Acquired Intangible Assets: Our Core Earnings exclude goodwill and intangible asset impairment and the amortization of acquired intangible assets. The following table summarizes the goodwill and acquired intangible asset adjustments.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Core Earnings goodwill and acquired intangible |
|
$ |
3 |
|
|
$ |
10 |
|
|
$ |
8 |
|
|
$ |
17 |
|
36
2. Tangible Equity and Adjusted Tangible Equity Ratio
Adjusted Tangible Equity Ratio measures the ratio of Navient’s Tangible Equity to its tangible assets. We adjust this ratio to exclude the assets and equity associated with our FFELP Loan portfolio because FFELP Loans are no longer originated and the FFELP Loan portfolio bears a 3% maximum loss exposure under the terms of the federal guaranty. Management believes that excluding this portfolio from the ratio enhances its usefulness to investors. Management uses this ratio, in addition to other metrics, for analysis and decision making related to capital allocation decisions. The Adjusted Tangible Equity Ratio is calculated as:
(Dollars in millions) |
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||
Navient Corporation's stockholders' equity |
|
$ |
2,898 |
|
|
$ |
2,973 |
|
Less: Goodwill and acquired intangible assets |
|
|
697 |
|
|
|
708 |
|
Tangible Equity |
|
|
2,201 |
|
|
|
2,265 |
|
Less: Equity held for FFELP Loans |
|
|
198 |
|
|
|
234 |
|
Adjusted Tangible Equity |
|
$ |
2,003 |
|
|
$ |
2,031 |
|
Divided by: |
|
|
|
|
|
|
||
Total assets |
|
$ |
63,414 |
|
|
$ |
73,625 |
|
Less: |
|
|
|
|
|
|
||
Goodwill and acquired intangible assets |
|
|
697 |
|
|
|
708 |
|
FFELP Loans |
|
|
39,581 |
|
|
|
46,891 |
|
Adjusted tangible assets |
|
$ |
23,136 |
|
|
$ |
26,026 |
|
Adjusted Tangible Equity Ratio |
|
|
8.7 |
% |
|
|
7.8 |
% |
3. Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA)
This measures the operating performance of the Business Processing segment and is used by management and equity investors to monitor operating performance and determine the value of those businesses. EBITDA for the Business Processing segment is calculated as:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Pre-tax income |
|
$ |
12 |
|
|
$ |
12 |
|
|
$ |
25 |
|
|
$ |
44 |
|
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization expense(1) |
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
2 |
|
EBITDA |
|
$ |
13 |
|
|
$ |
13 |
|
|
$ |
27 |
|
|
$ |
46 |
|
Divided by: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
85 |
|
|
$ |
79 |
|
|
$ |
240 |
|
|
$ |
260 |
|
EBITDA margin |
|
|
15 |
% |
|
|
16 |
% |
|
|
11 |
% |
|
|
18 |
% |
37
4. Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off
Loans
The allowance for loan losses on the Private Education Loan portfolio used for the three credit metrics below excludes the expected future recoveries on previously fully charged-off loans to better reflect the current expected credit losses remaining in connection with the loans on balance sheet that have not charged off. That is, as of September 30, 2023, the $857 million Private Education Loan allowance for loan losses excluding expected future recoveries on previously fully charged-off loans represents the current expected credit losses that remain in connection with the $17,333 million Private Education Loan portfolio. The $232 million of expected future recoveries on previously fully charged-off loans, which is collected over an average 15-year period, mechanically is a reduction to the overall allowance for loan losses. However, it is not related to the $17,333 million Private Education Loan portfolio on our balance sheet and, as a result, management excludes this impact to the allowance to better evaluate and assess our overall credit loss coverage on the Private Education Loan portfolio. We believe this provides a more meaningful and holistic view of the available credit loss coverage on our non-charged-off Private Education Loan portfolio. We believe this information is useful to our investors, lenders and rating agencies.
Allowance for Loan Losses Metrics – Private Education Loans
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Allowance at end of period (GAAP) |
|
$ |
625 |
|
|
$ |
852 |
|
|
$ |
625 |
|
|
$ |
852 |
|
Plus: expected future recoveries on previously |
|
|
232 |
|
|
|
280 |
|
|
|
232 |
|
|
|
280 |
|
Allowance at end of period excluding expected |
|
$ |
857 |
|
|
$ |
1,132 |
|
|
$ |
857 |
|
|
$ |
1,132 |
|
Ending total loans |
|
$ |
17,958 |
|
|
$ |
20,003 |
|
|
$ |
17,958 |
|
|
$ |
20,003 |
|
Ending loans in repayment |
|
$ |
17,249 |
|
|
$ |
19,284 |
|
|
$ |
17,249 |
|
|
$ |
19,284 |
|
Net charge-offs |
|
$ |
98 |
|
|
$ |
129 |
|
|
$ |
234 |
|
|
$ |
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Allowance coverage of charge-offs (annualized): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP |
|
|
1.6 |
|
|
|
1.7 |
|
|
|
2.0 |
|
|
|
2.4 |
|
Adjustment(1) |
|
|
.6 |
|
|
|
.5 |
|
|
|
.7 |
|
|
|
.8 |
|
Non-GAAP Financial Measure(1) |
|
|
2.2 |
|
|
|
2.2 |
|
|
|
2.7 |
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Allowance as a percentage of the ending total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP |
|
|
3.5 |
% |
|
|
4.3 |
% |
|
|
3.5 |
% |
|
|
4.3 |
% |
Adjustment(1) |
|
|
1.3 |
|
|
|
1.4 |
|
|
|
1.3 |
|
|
|
1.4 |
|
Non-GAAP Financial Measure(1) |
|
|
4.8 |
% |
|
|
5.7 |
% |
|
|
4.8 |
% |
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Allowance as a percentage of the ending loans in |
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP |
|
|
3.6 |
% |
|
|
4.4 |
% |
|
|
3.6 |
% |
|
|
4.4 |
% |
Adjustment(1) |
|
|
1.4 |
|
|
|
1.5 |
|
|
|
1.4 |
|
|
|
1.5 |
|
Non-GAAP Financial Measure(1) |
|
|
5.0 |
% |
|
|
5.9 |
% |
|
|
5.0 |
% |
|
|
5.9 |
% |
38
Legal Proceedings
For a discussion of legal matters as of September 30, 2023, please refer to “Note 9 – Commitments and Contingencies” to our consolidated financial statements included in this report, which is incorporated into this item by reference.
Risk Factors
The risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Form 10-K”) should be considered together with information included in this Quarterly Report on Form 10-Q. For a discussion of our risk factors, please see the section entitled "Risk Factors" in our 2022 Form 10-K, as updated by the section entitled "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023. These are not the only risks to which we are exposed.
39
Quantitative and Qualitative Disclosures about Market Risk
LIBOR Transition
On June 30, 2023, the LIBOR administrator ceased publication (on a representative basis) of all USD LIBOR rates, including one-month and three-month LIBOR.
In preparation for the transition, we worked internally as well as with external parties to ensure an orderly transition from one-month and three-month LIBOR to an alternative benchmark rate by the June 30, 2023 transition date. We established an internal LIBOR transition team whose purpose was to assess impacts, recommend plans and coordinate transition efforts among different business areas. Executive management and the LIBOR transition team provide quarterly reports to our Board of Directors. We also established internal LIBOR working groups comprised of members from different business areas who met regularly to assess specific business-level impacts and to implement operational changes necessary to effectuate a successful transition from LIBOR. In addition to our enterprise-wide efforts, we engaged with market participants, industry groups and regulators, including the Alternative Reference Rates Committee (the ARRC), to develop plans and documentation to facilitate the transition to an alternative benchmark rate.
We worked to align with the ARRC’s recommended best practices for completing the transition from LIBOR. All our new variable rate Private Education Loans issued since December 2021 are indexed to SOFR. Also, as of December 31, 2021, we ceased entering into any other new contracts that are indexed to LIBOR and, where practicable, have engaged with counterparties to modify certain existing contracts to transition the existing reference rate from LIBOR to SOFR. With respect to our legacy variable rate Private Education Loans and other financial contracts that reference USD LIBOR and contain fallback provisions that clearly specify a method for the transition from LIBOR, we successfully transitioned such loans using such existing fallbacks. We engaged with our IT vendors and impacted internal work groups to prepare and update our systems, procedures and processes to transition LIBOR-indexed contracts to SOFR. With respect to our financial instruments that do not include fallback provisions that clearly specify a method for the transition from LIBOR to an alternative benchmark rate, where practicable and commercially reasonable, we made efforts to engage with customers, counterparties and investors to modify such instruments. Due to stringent noteholder consent requirements, it was not practicable to modify certain financial instruments like certain of our ABS. Further, the SAP formula for our FFELP Loans, which is indexed to one-month LIBOR, was not able to be modified without legislative action. Thus, in such instances, we needed to rely on federal legislation to transition to SOFR.
On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act) was signed into law. The LIBOR Act provides that for contracts that contain no fallback provision or contain fallback provisions that do not identify a specific USD LIBOR benchmark replacement (including the SAP formula for FFELP Loans), a benchmark replacement based on SOFR, as recommended by the Federal Reserve Bank of New York, will automatically replace the USD LIBOR benchmark in the contract after June 30, 2023. On December 16, 2022, the Federal Reserve Bank of New York adopted a final rule that implements the LIBOR Act by identifying benchmark rates based on SOFR that will replace LIBOR in certain financial contracts after June 30, 2023. Following the enactment and implementation of the LIBOR Act, all of our financial instruments which were indexed to USD LIBOR as of June 30, 2023 have transitioned, or will transition, to SOFR after June 30, 2023. Specifically, after June 30, 2023, the SAP formula for FFELP Loans transitioned to 30-day Average SOFR and our LIBOR-indexed FFELP ABS contracts that are subject to the LIBOR Act transitioned to 30-day or 90-day Average SOFR. Our LIBOR-indexed Private Education Loan ABS contracts that are subject to the LIBOR Act transitioned to 1-month or 3-month Term SOFR. Similarly, our LIBOR-indexed Private Education Loans transitioned to 1-month or 3-month Term SOFR. Our LIBOR-indexed derivatives transitioned to the Fallback Rate (SOFR) as defined in the ISDA 2020 IBOR Fallbacks Protocol published by the International Swaps and Derivatives Association, Inc. on October 23, 2020.
For a discussion of the risks related to the LIBOR transition, see “Risk Factors – Market, Funding & Liquidity Risk – The transition away from the LIBOR reference rate to the Secured Overnight Financing Rate (SOFR) may create uncertainty in the capital markets and may negatively impact the value of existing LIBOR based financial instruments and our financial results and business” in our Form 10-K.
40
Interest Rate Sensitivity Analysis
Our interest rate risk management seeks to limit the impact of movements in interest rates on our results of operations and financial position. The following tables summarize the potential effect on earnings over the next 12 months and the potential effect on fair values of balance sheet assets and liabilities at September 30, 2023 and 2022, based upon a sensitivity analysis performed by management assuming a hypothetical increase and decrease in market interest rates of 100 basis points. The earnings sensitivities assume an immediate increase and decrease in market interest rates of 100 basis points and are applied only to financial assets and liabilities, including hedging instruments, that existed at the balance sheet date and do not take into account any new assets, liabilities or hedging instruments that may arise over the next 12 months.
|
|
As of September 30, 2023 |
|
|
As of September 30, 2022 |
|
||||||||||
|
|
Impact on Annual Earnings If: |
|
|
Impact on Annual Earnings If: |
|
||||||||||
|
|
Interest Rates |
|
|
Interest Rates |
|
||||||||||
(Dollars in millions, except per share amounts) |
|
Increase |
|
|
Decrease |
|
|
Increase |
|
|
Decrease |
|
||||
Effect on Earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in pre-tax net income before mark-to |
|
$ |
30 |
|
|
$ |
9 |
|
|
$ |
53 |
|
|
$ |
(38 |
) |
Mark-to-market gains (losses) on derivative and |
|
|
36 |
|
|
|
(33 |
) |
|
|
22 |
|
|
|
(22 |
) |
Increase (decrease) in income before taxes |
|
$ |
66 |
|
|
$ |
(24 |
) |
|
$ |
75 |
|
|
$ |
(60 |
) |
Increase (decrease) in net income after taxes |
|
$ |
51 |
|
|
$ |
(18 |
) |
|
$ |
58 |
|
|
$ |
(46 |
) |
Increase (decrease) in diluted earnings per |
|
$ |
.43 |
|
|
$ |
(.16 |
) |
|
$ |
.42 |
|
|
$ |
(.34 |
) |
41
|
|
At September 30, 2023 |
|
|||||||||||||||||
|
|
|
|
|
Interest Rates: |
|
||||||||||||||
|
|
|
|
|
Change from |
|
|
Change from |
|
|||||||||||
(Dollars in millions) |
|
Fair Value |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|||||
Effect on Fair Values: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Education Loans |
|
$ |
54,598 |
|
|
$ |
(63 |
) |
|
|
— |
% |
|
$ |
101 |
|
|
|
— |
% |
Other earning assets |
|
|
2,950 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other assets |
|
|
3,550 |
|
|
|
45 |
|
|
|
1 |
|
|
|
(5 |
) |
|
|
— |
|
Total assets gain/(loss) |
|
$ |
61,098 |
|
|
$ |
(18 |
) |
|
|
— |
% |
|
$ |
96 |
|
|
|
— |
% |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest-bearing liabilities |
|
$ |
57,240 |
|
|
$ |
(241 |
) |
|
|
— |
% |
|
$ |
260 |
|
|
|
— |
% |
Other liabilities |
|
|
947 |
|
|
|
158 |
|
|
|
17 |
|
|
|
(129 |
) |
|
|
(14 |
) |
Total liabilities (gain)/loss |
|
$ |
58,187 |
|
|
$ |
(83 |
) |
|
|
— |
% |
|
$ |
131 |
|
|
|
— |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2022 |
|
|||||||||||||||||
|
|
|
|
|
Interest Rates: |
|
||||||||||||||
|
|
|
|
|
Change from |
|
|
Change from |
|
|||||||||||
(Dollars in millions) |
|
Fair Value |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|||||
Effect on Fair Values: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Education Loans |
|
$ |
59,306 |
|
|
$ |
(81 |
) |
|
|
— |
% |
|
$ |
120 |
|
|
|
— |
% |
Other earning assets |
|
|
4,974 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other assets |
|
|
3,571 |
|
|
|
36 |
|
|
|
1 |
|
|
|
(29 |
) |
|
|
(1 |
) |
Total assets gain/(loss) |
|
$ |
67,851 |
|
|
$ |
(45 |
) |
|
|
— |
% |
|
$ |
91 |
|
|
|
— |
% |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest-bearing liabilities |
|
$ |
63,531 |
|
|
$ |
(250 |
) |
|
|
— |
% |
|
$ |
272 |
|
|
|
— |
% |
Other liabilities |
|
|
922 |
|
|
|
125 |
|
|
|
14 |
|
|
|
(134 |
) |
|
|
(15 |
) |
Total liabilities (gain)/loss |
|
$ |
64,453 |
|
|
$ |
(125 |
) |
|
|
— |
% |
|
$ |
138 |
|
|
|
— |
% |
A primary objective in our funding is to minimize our sensitivity to changing interest rates by generally funding our floating rate education loan portfolio with floating rate debt and our fixed rate education loan portfolio with fixed rate debt although we can have a mismatch at times. In addition, we can have a mismatch in the index (including the frequency of reset) of floating rate debt versus floating rate assets. In addition, due to the ability of some FFELP Loans to earn Floor Income, we can have a fixed versus floating mismatch in funding if the education loan earns at the fixed borrower rate and the funding remains floating. We use Floor Income Contracts, pay-fixed swaps and fixed rate debt to economically hedge embedded Floor Income in our FFELP loans. Historically, we have used these instruments on a periodic basis and depending upon market conditions and pricing, we may enter into additional hedges in the future. The result of these hedging transactions is to fix the relative spread between the education loan asset rate and the funding instrument rate.
In the preceding tables, under the scenario where interest rates increase or decrease by 100 basis points, the change in pre-tax net income before the mark-to-market gains (losses) on derivative and hedging activities is primarily due to the impact of (i) our unhedged FFELP Loans being in a fixed-rate mode due to Floor Income, while being funded with variable rate debt in low interest rate environments; (ii) certain FFELP fixed rate loans becoming variable interest rate loans when variable interest rates rise above a certain level (Special Allowance Payment of “SAP”). When these loans are funded with fixed rate debt (as we do for a portion of the portfolio to economically hedge Floor Income) we earn additional interest income when earning the higher variable rate that is in effect; and (iii) a portion of our variable rate assets being funded with fixed rate liabilities. Item (i) will generally cause income to decrease when interest rates increase and income to increase when interest rates decrease. Item (ii) and (iii) have the opposite effect. The change due to the interest rate scenario where interest rates increase by 100 basis points in the current period is primarily a result of item (ii) having a more significant impact than item (i) as a result of interest rates being significantly higher compared to the prior period. The change due to the interest scenario where interest rates decrease by 100 basis points in the current period is primarily a result of item (i) having a more significant impact (specifically related to the annual reset floors in connection with a portion of the Stafford FFELP loan portfolio) than item (ii) as a result of interest rates being significantly higher compared to the prior period. The relative changes from the prior period are a result of interest rates being significantly lower in the prior period. In addition, item (iii) had more of an impact in the prior period due to a higher balance of variable rate assets being funded with fixed rate liabilities.
42
In the preceding tables, under the scenario where interest rates increase or decrease by 100 basis points, the change in mark-to-market gains (losses) on derivative and hedging activities in both periods is primarily due to (i) the notional amount and remaining term of our derivative portfolio and related hedged debt and (ii) the interest rate environment. In both periods, the mark-to-market gains (losses) are primarily related to derivatives that don’t qualify for hedge accounting that are used to economically hedge the origination of fixed rate Private Education Refinance loans. As a result of not qualifying for hedge accounting, there is not an offsetting mark- to-market of the hedged item in this analysis.
In addition to interest rate risk addressed in the preceding tables, we are also exposed to risks related to foreign currency exchange rates. Foreign currency exchange risk is primarily the result of foreign currency denominated debt issued by us. When we issue foreign denominated corporate unsecured and securitization debt, our policy is to use cross currency interest rate swaps to swap all foreign currency denominated debt payments (fixed and floating) to USD SOFR using a fixed exchange rate. In the tables above, there would be an immaterial impact on earnings if exchange rates were to decrease or increase, due to the terms of the hedging instrument and hedged items matching. The balance sheet interest-bearing liabilities would be affected by a change in exchange rates; however, the change would be materially offset by the cross-currency interest rate swaps in other assets or other liabilities. In certain economic environments, volatility in the spread between spot and forward foreign exchange rates has resulted in mark-to-market impacts to current period earnings which have not been factored into the above analysis. The earnings impact is noncash, and at maturity of the instruments the cumulative mark-to-market impact will be zero. Navient has not issued foreign currency denominated debt since 2008.
Asset and Liability Funding Gap
The table below presents our assets and liabilities (funding) arranged by underlying indices as of September 30, 2023. Management analyzes interest rate risk and in doing so includes all derivatives that are economically hedging our debt whether they qualify as effective hedges or not (Core Earnings basis). Accordingly, we present the asset and liability funding gap on a Core Earnings basis. The difference between the asset and the funding is the funding gap for the specified index. This represents our exposure to interest rate risk in the form of basis risk and repricing risk, which is the risk that the different indices may reset at different frequencies or may not move in the same direction or at the same magnitude.
43
Index |
|
Frequency of |
|
Assets |
|
|
Funding |
|
|
Funding |
|
|||
3 month Treasury bill |
|
weekly |
|
$ |
2.1 |
|
|
$ |
— |
|
|
$ |
2.1 |
|
3 month Treasury bill |
|
annual |
|
|
.1 |
|
|
|
— |
|
|
|
.1 |
|
Prime |
|
annual |
|
|
.1 |
|
|
|
— |
|
|
|
.1 |
|
Prime |
|
quarterly |
|
|
1.1 |
|
|
|
— |
|
|
|
1.1 |
|
Prime |
|
monthly |
|
|
3.6 |
|
|
|
— |
|
|
|
3.6 |
|
3 month Term SOFR |
|
quarterly |
|
|
.5 |
|
|
|
1.4 |
|
|
|
(.9 |
) |
3 month Term SOFR (1) |
|
monthly |
|
|
— |
|
|
|
.5 |
|
|
|
(.5 |
) |
1 month Term SOFR |
|
monthly |
|
|
2.2 |
|
|
|
1.2 |
|
|
|
1.0 |
|
Overnight SOFR(2) |
|
daily |
|
|
37.2 |
|
|
|
35.6 |
|
|
|
1.6 |
|
Non Discrete reset (1) |
|
monthly |
|
|
— |
|
|
|
5.0 |
|
|
|
(5.0 |
) |
Non Discrete reset (3) |
|
daily/weekly |
|
|
2.9 |
|
|
|
— |
|
|
|
2.9 |
|
Fixed Rate (4) |
|
|
|
|
13.8 |
|
|
|
19.9 |
|
|
|
(6.1 |
) |
Total |
|
|
|
$ |
63.6 |
|
|
$ |
63.6 |
|
|
$ |
— |
|
We use interest rate swaps and other derivatives to achieve our risk management objectives. Our asset liability management strategy is to match assets with debt (in combination with derivatives) that have the same underlying index and reset frequency or, when economical, have interest rate characteristics that we believe are highly correlated. Interest earned on our FFELP Loans is primarily indexed to 30-day average overnight SOFR reset daily and our cost of funds is primarily indexed to overnight SOFR but resetting at different times than the asset. A source of variability in FFELP net interest income could also be Floor Income we earn on certain FFELP Loans. Pursuant to the terms of the FFELP, certain FFELP Loans can earn interest at the stated fixed rate of interest as underlying debt interest rate expense remains variable. We refer to this additional spread income as “Floor Income.” Floor Income can be volatile since it is dependent on interest rate levels. We frequently hedge this volatility to lock in the value of the Floor Income over the term of the contract. Interest earned on our Private Education Refinance Loans is generally fixed rate with the related cost of funds generally fixed rate as well. Interest earned on the remaining Private Education Loans is generally indexed to either one-month Prime or term SOFR rates and our cost of funds is primarily indexed to one-month or three-month term SOFR. The use of funding with index types and reset frequencies that are different from our assets exposes us to interest rate risk in the form of basis and repricing risk. This could result in our cost of funds not moving in the same direction or with the same magnitude as the yield on our assets. While we believe this risk is low, as all of these indices are short-term with rate movements that are highly correlated over a long period of time, market disruptions (which have occurred in prior years) can lead to a temporary divergence between indices resulting in a negative impact to our earnings. See previous discussion at "Quantitative and Qualitative Disclosures about Market Risk – LIBOR Transition" regarding the transition of the LIBOR indexed instruments to SOFR that occurred after June 30, 2023.
44
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
As previously announced on December 13, 2021, our Board approved a new share repurchase program (“Share Repurchase Plan”) authorizing the purchase of up to $1 billion of the Company’s outstanding common stock, which Share Repurchase Plan began upon the completion of the prior program. Our Share Repurchase Plan does not have an expiration date. As of September 30, 2023, $360 million remains in share repurchase authorization under the Share Repurchase Plan. The Company has no other share repurchase plans outstanding, nor did any share repurchase plans expire during the quarter ended September 30, 2023.
The Company adopted its Share Repurchase Plan with the goal of returning excess capital to shareholders in accordance with our capital allocation policy. The Share Repurchase Plan permits the exercise of the plan through open-market repurchases, private transactions, accelerated stock repurchases and other similar transactions. Given the goal is to return excess capital to shareholders, the Company does not attempt to “time the market”. Rather, it purchases shares through open-market repurchases on a nearly daily basis where the amount of shares purchased on any given day is established primarily on the desired amount of quarterly purchases.
The Company also routinely enters into “Rule 10b5-1 trading arrangements” prior to the end of each quarter, which trading arrangements provide for the purchase of the Company’s common stock during such period. Typically, this period runs approximately one month and ends a pre-determined number of days after the Company announces its quarterly results. Each Rule 10b5-1 trading arrangement is intended to satisfy the affirmative defense conditions of Securities Exchange Act Rule 10b5-1. The Company only enters into one Rule 10b5-1 trading arrangement during any quarter and the only share repurchases effectuated during the blackout period are pursuant to such Rule 10b5-1 trading arrangement. Each Rule 10b5-1 trading arrangement sets forth pre-established terms, including the amount, price and purchase period, and the Company has no further discretion over such purchases.
On September 14, 2023, the Company entered into a “Rule 10b5-1 trading arrangement” which provides for the purchase of up to $37.6 million aggregate value of shares of the Company’s common stock, pursuant to the terms of the plan. The plan terminates no later than October 27, 2023, subject to early termination for certain specified events set forth in the plan. As of September 30, 2023, the Company has purchased 685,451 shares pursuant to this trading plan; see Exhibit 26, “Issuer Purchases of Equity Securities,” filed with this Form 10-Q for more information regarding purchases made under the Rule 10b5-1 trading arrangement.
The Company’s officers and directors are required to comply with the Company’s securities trading policy at all times, including during a repurchase program. The securities trading policy, among other things, prohibits trading in the Company’s securities when in possession of material non-public information and restricts the ability of certain officers or director from transacting in the Company’s securities during specific blackout periods, subject to certain limited exceptions, including transactions pursuant to a Rule 10b5-1 trading plan that complies with the conditions of Securities Exchange Act Rule 10b5-1. For more information about Rule 10b5-1 trading plans that have been adopted by our officers and directors during the third quarter of 2023, see “Other Information – Director and Officer Trading Arrangements,” below.
Company Rule 10b5-1 Trading Arrangements
See “Purchases of Equity Securities by the Issuer and Affiliated Purchasers,” above, for information on Rule 10b5-1 trading arrangements entered into by the Company during the quarter ended September 30, 2023.
45
Other Information
Director and Officer Trading Arrangements
During the quarter ended September 30, 2023, none of the Company’s directors or officers who are subject to the filing requirements of Section 16 of the Securities Exchange Act adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408, except as described in the table below:
Name (Title) |
Adoption/ |
Type of Trading Arrangement |
Duration of Trading Arrangement(1) |
Aggregate Number of Shares to be Purchased or Sold |
Mark Heleen |
Adopted August |
Trading plan intended to satisfy |
(subject to early termination for certain specified events set forth in the plan) |
Sale of up to 30,000 |
John Kane |
Adopted August |
Trading plan intended to satisfy |
(subject to early termination for certain specified events set forth in the plan) |
Sale of up to 150,132 |
Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Principal Executive and Principal Financial Officers, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of September 30, 2023. Based on this evaluation, our Principal Executive and Principal Financial Officers concluded that, as of September 30, 2023, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to our management, including our Principal Executive and Principal Financial Officers as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
46
Exhibits
26* |
|
Purchases of Equity Securities by the Issuer and Affiliated Purchasers. |
|
|
|
31.1* |
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2* |
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1** |
|
|
|
|
|
32.2** |
|
|
|
|
|
101.INS* |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith
** Furnished herewith
47
Financial Statements
NAVIENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(Unaudited)
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Assets |
|
|
|
|
|
|
||
FFELP Loans (net of allowance for losses of $220 and $222, respectively) |
|
$ |
39,581 |
|
|
$ |
43,525 |
|
Private Education Loans (net of allowance for losses of $625 and $800, |
|
|
17,333 |
|
|
|
18,725 |
|
Investments |
|
|
149 |
|
|
|
167 |
|
Cash and cash equivalents |
|
|
977 |
|
|
|
1,535 |
|
Restricted cash and cash equivalents |
|
|
1,824 |
|
|
|
3,272 |
|
Goodwill and acquired intangible assets, net |
|
|
697 |
|
|
|
705 |
|
Other assets |
|
|
2,853 |
|
|
|
2,866 |
|
Total assets |
|
$ |
63,414 |
|
|
$ |
70,795 |
|
Liabilities |
|
|
|
|
|
|
||
Short-term borrowings |
|
$ |
4,662 |
|
|
$ |
5,870 |
|
Long-term borrowings |
|
|
54,907 |
|
|
|
61,026 |
|
Other liabilities |
|
|
947 |
|
|
|
922 |
|
Total liabilities |
|
|
60,516 |
|
|
|
67,818 |
|
|
|
|
|
|
|
|||
Equity |
|
|
|
|
|
|
||
Series A Junior Participating Preferred Stock, par value $0.20 per share; |
|
|
— |
|
|
|
— |
|
Common stock, par value $0.01 per share, 1.125 billion shares authorized: |
|
|
4 |
|
|
|
4 |
|
Additional paid-in capital |
|
|
3,349 |
|
|
|
3,313 |
|
Accumulated other comprehensive income (net of tax expense |
|
|
43 |
|
|
|
87 |
|
Retained earnings |
|
|
4,685 |
|
|
|
4,490 |
|
Total stockholders’ equity before treasury stock |
|
|
8,081 |
|
|
|
7,894 |
|
Less: Common stock held in treasury at cost: 346 million and 331 million |
|
|
(5,183 |
) |
|
|
(4,917 |
) |
Total equity |
|
|
2,898 |
|
|
|
2,977 |
|
Total liabilities and equity |
|
$ |
63,414 |
|
|
$ |
70,795 |
|
Supplemental information — assets and liabilities of consolidated variable interest entities:
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
FFELP Loans |
|
$ |
39,493 |
|
|
$ |
43,465 |
|
Private Education Loans |
|
|
16,189 |
|
|
|
17,207 |
|
Restricted cash |
|
|
1,798 |
|
|
|
3,233 |
|
Other assets, net |
|
|
1,615 |
|
|
|
1,356 |
|
Short-term borrowings |
|
|
3,772 |
|
|
|
4,458 |
|
Long-term borrowings |
|
|
49,849 |
|
|
|
55,598 |
|
Net assets of consolidated variable interest entities |
|
$ |
5,474 |
|
|
$ |
5,205 |
|
See accompanying notes to consolidated financial statements.
48
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
FFELP Loans |
|
$ |
778 |
|
|
$ |
553 |
|
|
$ |
2,191 |
|
|
$ |
1,312 |
|
Private Education Loans |
|
|
351 |
|
|
|
309 |
|
|
|
1,036 |
|
|
|
862 |
|
Cash and investments |
|
|
41 |
|
|
|
19 |
|
|
|
111 |
|
|
|
25 |
|
Total interest income |
|
|
1,170 |
|
|
|
881 |
|
|
|
3,338 |
|
|
|
2,199 |
|
Total interest expense |
|
|
879 |
|
|
|
641 |
|
|
|
2,636 |
|
|
|
1,301 |
|
Net interest income |
|
|
291 |
|
|
|
240 |
|
|
|
702 |
|
|
|
898 |
|
Less: provisions for loan losses |
|
|
72 |
|
|
|
28 |
|
|
|
68 |
|
|
|
62 |
|
Net interest income after provisions for loan losses |
|
|
219 |
|
|
|
212 |
|
|
|
634 |
|
|
|
836 |
|
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Servicing revenue |
|
|
15 |
|
|
|
24 |
|
|
|
48 |
|
|
|
60 |
|
Asset recovery and business processing revenue |
|
|
85 |
|
|
|
80 |
|
|
|
240 |
|
|
|
264 |
|
Other revenue |
|
|
5 |
|
|
|
6 |
|
|
|
15 |
|
|
|
22 |
|
Gains (losses) on derivative and hedging activities, net |
|
|
26 |
|
|
|
40 |
|
|
|
44 |
|
|
|
161 |
|
Total other income |
|
|
131 |
|
|
|
150 |
|
|
|
347 |
|
|
|
507 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Salaries and benefits |
|
|
99 |
|
|
|
106 |
|
|
|
302 |
|
|
|
337 |
|
Other operating expenses |
|
|
134 |
|
|
|
88 |
|
|
|
299 |
|
|
|
251 |
|
Total operating expenses |
|
|
233 |
|
|
|
194 |
|
|
|
601 |
|
|
|
588 |
|
Goodwill and acquired intangible asset impairment and |
|
|
3 |
|
|
|
10 |
|
|
|
8 |
|
|
|
17 |
|
Restructuring/other reorganization expenses |
|
|
4 |
|
|
|
21 |
|
|
|
23 |
|
|
|
25 |
|
Total expenses |
|
|
240 |
|
|
|
225 |
|
|
|
632 |
|
|
|
630 |
|
Income before income tax expense |
|
|
110 |
|
|
|
137 |
|
|
|
349 |
|
|
|
713 |
|
Income tax expense |
|
|
31 |
|
|
|
32 |
|
|
|
93 |
|
|
|
173 |
|
Net income |
|
$ |
79 |
|
|
$ |
105 |
|
|
$ |
256 |
|
|
$ |
540 |
|
Basic earnings per common share |
|
$ |
.66 |
|
|
$ |
.75 |
|
|
$ |
2.06 |
|
|
$ |
3.71 |
|
Average common shares outstanding |
|
|
120 |
|
|
|
139 |
|
|
|
124 |
|
|
|
145 |
|
Diluted earnings per common share |
|
$ |
.65 |
|
|
$ |
.75 |
|
|
$ |
2.04 |
|
|
$ |
3.67 |
|
Average common and common equivalent shares |
|
|
121 |
|
|
|
141 |
|
|
|
125 |
|
|
|
147 |
|
Dividends per common share |
|
$ |
.16 |
|
|
$ |
.16 |
|
|
$ |
.48 |
|
|
$ |
.48 |
|
See accompanying notes to consolidated financial statements.
49
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net income |
|
$ |
79 |
|
|
$ |
105 |
|
|
$ |
256 |
|
|
$ |
540 |
|
Net changes in cash flow hedges, net of taxes(1) |
|
|
(22 |
) |
|
|
54 |
|
|
|
(44 |
) |
|
|
217 |
|
Total comprehensive income |
|
$ |
57 |
|
|
$ |
159 |
|
|
$ |
212 |
|
|
$ |
757 |
|
See accompanying notes to consolidated financial statements.
50
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions, except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
Common Stock Shares |
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Retained |
|
|
Treasury |
|
|
Stockholders' |
|
|
Noncontrolling |
|
|
Total |
|
|||||||||||
|
|
Issued |
|
|
Treasury |
|
|
Outstanding |
|
|
Stock |
|
|
Capital |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Stock |
|
|
Equity |
|
|
Interest |
|
|
Equity |
|
|||||||||||
Balance at June 30, 2022 |
|
|
461,013,036 |
|
|
|
(319,134,333 |
) |
|
|
141,878,703 |
|
|
$ |
4 |
|
|
$ |
3,305 |
|
|
$ |
30 |
|
|
$ |
4,323 |
|
|
$ |
(4,735 |
) |
|
$ |
2,927 |
|
|
$ |
— |
|
|
$ |
2,927 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
105 |
|
|
|
— |
|
|
|
105 |
|
|
|
— |
|
|
|
105 |
|
Other comprehensive |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
54 |
|
|
|
— |
|
|
|
— |
|
|
|
54 |
|
|
|
— |
|
|
|
54 |
|
Total comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
159 |
|
|
|
— |
|
|
|
159 |
|
Cash dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Common stock ($.16 per |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22 |
) |
|
|
— |
|
|
|
(22 |
) |
|
|
— |
|
|
|
(22 |
) |
Dividend equivalent units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of common shares |
|
|
3,165 |
|
|
|
— |
|
|
|
3,165 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
Common stock repurchased |
|
|
— |
|
|
|
(6,261,736 |
) |
|
|
(6,261,736 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(95 |
) |
|
|
(95 |
) |
|
|
— |
|
|
|
(95 |
) |
Shares repurchased related |
|
|
— |
|
|
|
(5,959 |
) |
|
|
(5,959 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net activity in noncontrolling |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at |
|
|
461,016,201 |
|
|
|
(325,402,028 |
) |
|
|
135,614,173 |
|
|
$ |
4 |
|
|
$ |
3,309 |
|
|
$ |
84 |
|
|
$ |
4,406 |
|
|
$ |
(4,830 |
) |
|
$ |
2,973 |
|
|
$ |
— |
|
|
$ |
2,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at June 30, 2023 |
|
|
463,534,781 |
|
|
|
(341,932,917 |
) |
|
|
121,601,864 |
|
|
$ |
4 |
|
|
$ |
3,343 |
|
|
$ |
65 |
|
|
$ |
4,625 |
|
|
$ |
(5,107 |
) |
|
$ |
2,930 |
|
|
$ |
— |
|
|
$ |
2,930 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
79 |
|
|
|
— |
|
|
|
79 |
|
|
|
— |
|
|
|
79 |
|
Other comprehensive |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22 |
) |
|
|
— |
|
|
|
— |
|
|
|
(22 |
) |
|
|
— |
|
|
|
(22 |
) |
Total comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
57 |
|
|
|
— |
|
|
|
57 |
|
Cash dividends: |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Common stock ($.16 per |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19 |
) |
|
|
— |
|
|
|
(19 |
) |
|
|
— |
|
|
|
(19 |
) |
Dividend equivalent units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of common shares |
|
|
147,497 |
|
|
|
— |
|
|
|
147,497 |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
Common stock repurchased |
|
|
— |
|
|
|
(4,164,937 |
) |
|
|
(4,164,937 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(75 |
) |
|
|
(75 |
) |
|
|
— |
|
|
|
(75 |
) |
Shares repurchased related |
|
|
— |
|
|
|
(13,333 |
) |
|
|
(13,333 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
Balance at |
|
|
463,682,278 |
|
|
|
(346,111,187 |
) |
|
|
117,571,091 |
|
|
$ |
4 |
|
|
$ |
3,349 |
|
|
$ |
43 |
|
|
$ |
4,685 |
|
|
$ |
(5,183 |
) |
|
$ |
2,898 |
|
|
$ |
— |
|
|
$ |
2,898 |
|
See accompanying notes to consolidated financial statements.
51
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions, except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
Common Stock Shares |
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Retained |
|
|
Treasury |
|
|
Stockholders' |
|
|
Noncontrolling |
|
|
Total |
|
|||||||||||
|
|
Issued |
|
|
Treasury |
|
|
Outstanding |
|
|
Stock |
|
|
Capital |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Stock |
|
|
Equity |
|
|
Interest |
|
|
Equity |
|
|||||||||||
Balance at |
|
|
458,629,384 |
|
|
|
(304,886,613 |
) |
|
|
153,742,771 |
|
|
$ |
4 |
|
|
$ |
3,282 |
|
|
$ |
(133 |
) |
|
$ |
3,939 |
|
|
$ |
(4,495 |
) |
|
$ |
2,597 |
|
|
$ |
11 |
|
|
$ |
2,608 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
540 |
|
|
|
— |
|
|
|
540 |
|
|
|
— |
|
|
|
540 |
|
Other comprehensive |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
217 |
|
|
|
— |
|
|
|
— |
|
|
|
217 |
|
|
|
— |
|
|
|
217 |
|
Total comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
757 |
|
|
|
— |
|
|
|
757 |
|
Cash dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Common stock ($.48 per |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(69 |
) |
|
|
— |
|
|
|
(69 |
) |
|
|
— |
|
|
|
(69 |
) |
Dividend equivalent units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
|
|
(4 |
) |
Issuance of common shares |
|
|
2,386,817 |
|
|
|
— |
|
|
|
2,386,817 |
|
|
|
— |
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
|
— |
|
|
|
11 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
16 |
|
Common stock repurchased |
|
|
— |
|
|
|
(19,394,977 |
) |
|
|
(19,394,977 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(315 |
) |
|
|
(315 |
) |
|
|
— |
|
|
|
(315 |
) |
Shares repurchased related |
|
|
— |
|
|
|
(1,120,438 |
) |
|
|
(1,120,438 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
|
|
(20 |
) |
|
|
— |
|
|
|
(20 |
) |
Net activity in noncontrolling |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11 |
) |
|
|
(11 |
) |
Balance at |
|
|
461,016,201 |
|
|
|
(325,402,028 |
) |
|
|
135,614,173 |
|
|
$ |
4 |
|
|
$ |
3,309 |
|
|
$ |
84 |
|
|
$ |
4,406 |
|
|
$ |
(4,830 |
) |
|
$ |
2,973 |
|
|
$ |
— |
|
|
$ |
2,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at |
|
|
461,087,590 |
|
|
|
(330,878,152 |
) |
|
|
130,209,438 |
|
|
$ |
4 |
|
|
$ |
3,313 |
|
|
$ |
87 |
|
|
$ |
4,490 |
|
|
$ |
(4,917 |
) |
|
$ |
2,977 |
|
|
$ |
— |
|
|
$ |
2,977 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
256 |
|
|
|
— |
|
|
|
256 |
|
|
|
— |
|
|
|
256 |
|
Other comprehensive |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(44 |
) |
|
|
— |
|
|
|
— |
|
|
|
(44 |
) |
|
|
— |
|
|
|
(44 |
) |
Total comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
212 |
|
|
|
— |
|
|
|
212 |
|
Cash dividends: |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Common stock ($.48 per |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(59 |
) |
|
|
— |
|
|
|
(59 |
) |
|
|
— |
|
|
|
(59 |
) |
Dividend equivalent units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
— |
|
|
|
(2 |
) |
|
|
— |
|
|
|
(2 |
) |
Issuance of common shares |
|
|
2,594,688 |
|
|
|
— |
|
|
|
2,594,688 |
|
|
|
— |
|
|
|
15 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
|
— |
|
|
|
15 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
21 |
|
Common stock repurchased |
|
|
— |
|
|
|
(13,940,160 |
) |
|
|
(13,940,160 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(240 |
) |
|
|
(240 |
) |
|
|
— |
|
|
|
(240 |
) |
Shares repurchased related |
|
|
— |
|
|
|
(1,292,875 |
) |
|
|
(1,292,875 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(24 |
) |
|
|
(24 |
) |
|
|
— |
|
|
|
(24 |
) |
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
— |
|
|
|
(2 |
) |
Balance at |
|
|
463,682,278 |
|
|
|
(346,111,187 |
) |
|
|
117,571,091 |
|
|
$ |
4 |
|
|
$ |
3,349 |
|
|
$ |
43 |
|
|
$ |
4,685 |
|
|
$ |
(5,183 |
) |
|
$ |
2,898 |
|
|
$ |
— |
|
|
$ |
2,898 |
|
See accompanying notes to consolidated financial statements.
52
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net income |
|
$ |
256 |
|
|
$ |
540 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Goodwill and acquired intangible asset impairment and amortization expense |
|
|
8 |
|
|
|
17 |
|
Stock-based compensation expense |
|
|
21 |
|
|
|
16 |
|
Mark-to-market (gains) losses on derivative and hedging activities, net |
|
|
(8 |
) |
|
|
(607 |
) |
Provisions for loan losses |
|
|
68 |
|
|
|
62 |
|
Increase in accrued interest receivable |
|
|
(71 |
) |
|
|
(51 |
) |
(Decrease) increase in accrued interest payable |
|
|
(10 |
) |
|
|
56 |
|
Decrease in other assets |
|
|
56 |
|
|
|
334 |
|
Increase (decrease) in other liabilities |
|
|
46 |
|
|
|
(269 |
) |
Total adjustments |
|
|
110 |
|
|
|
(442 |
) |
Net cash provided by operating activities |
|
|
366 |
|
|
|
98 |
|
Cash flows from investing activities |
|
|
|
|
|
|
||
Education loans originated and acquired |
|
|
(741 |
) |
|
|
(1,765 |
) |
Proceeds from payments on education loans |
|
|
6,068 |
|
|
|
8,488 |
|
Other investing activities, net |
|
|
6 |
|
|
|
89 |
|
Net cash provided by investing activities |
|
|
5,333 |
|
|
|
6,812 |
|
Cash flows from financing activities |
|
|
|
|
|
|
||
Borrowings collateralized by loans in trust - issued |
|
|
844 |
|
|
|
2,243 |
|
Borrowings collateralized by loans in trust - repaid |
|
|
(7,813 |
) |
|
|
(9,225 |
) |
Asset-backed commercial paper conduits, net |
|
|
485 |
|
|
|
735 |
|
Long-term unsecured notes issued |
|
|
495 |
|
|
|
— |
|
Long-term unsecured notes repaid |
|
|
(1,302 |
) |
|
|
(15 |
) |
Other financing activities, net |
|
|
(115 |
) |
|
|
70 |
|
Common stock repurchased |
|
|
(240 |
) |
|
|
(315 |
) |
Common dividends paid |
|
|
(59 |
) |
|
|
(69 |
) |
Net cash used in financing activities |
|
|
(7,705 |
) |
|
|
(6,576 |
) |
Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents |
|
|
(2,006 |
) |
|
|
334 |
|
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period |
|
|
4,807 |
|
|
|
3,578 |
|
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period |
|
$ |
2,801 |
|
|
$ |
3,912 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Cash disbursements made (refunds received) for: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
2,568 |
|
|
$ |
1,208 |
|
Income taxes paid |
|
$ |
33 |
|
|
$ |
29 |
|
Income taxes refunds received |
|
$ |
(2 |
) |
|
$ |
(6 |
) |
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
977 |
|
|
$ |
1,364 |
|
Restricted cash and restricted cash equivalents |
|
|
1,824 |
|
|
|
2,548 |
|
Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period |
|
$ |
2,801 |
|
|
$ |
3,912 |
|
See accompanying notes to consolidated financial statements.
53
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
1. Significant Accounting Policies
Basis of Presentation
The accompanying unaudited, consolidated financial statements of Navient have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements include the accounts of Navient and its majority-owned and controlled subsidiaries and those Variable Interest Entities (VIEs) for which we are the primary beneficiary, after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2022 or for any other period. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the 2022 Form 10-K). Definitions for certain capitalized terms used but not otherwise defined in this Quarterly Report on Form 10-Q can be found in our 2022 Form 10-K.
Recently Issued Accounting Pronouncements
Effective in 2020 and Forward
Rate Reform
In March 2020 (and as amended in December 2022), the FASB issued ASU No. 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional temporary relief for companies who were preparing for the discontinuation of interest rates indexed to the London Interbank Offered Rate (LIBOR). The ASU provides companies with guidance in the form of expedients and exceptions related to contract modifications and hedge accounting to ease the burden of and simplify the accounting associated with transitioning away from LIBOR. Modifications of qualifying contracts are accounted for as the continuation of an existing contract rather than as a new contract. Modifications of qualifying hedging relationships will not require discontinuation of the existing hedge accounting relationships. One-month and three-month LIBOR were discontinued as of June 30, 2023. Our hedging instruments that were indexed to one-month and three-month LIBOR are now indexed to SOFR. There was $12 billion of debt as of June 30, 2023, that was in either a fair value or cash flow hedge relationship using LIBOR swaps. We used the hedge accounting expedients in this ASU when those swaps transitioned to SOFR on July 1, 2023. As a result, these hedges did not result in the discontinuation of the existing hedge accounting relationships.
Troubled Debt Restructurings
In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses: Troubled Debt Restructurings and Vintage Disclosures,” which eliminates the troubled debt restructurings (TDRs) recognition and measurement guidance and instead requires an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan. The ASU also enhances the disclosure requirements for certain modifications of receivables made to borrowers experiencing financial difficulty. This guidance was effective on January 1, 2023. Prior to adopting this new guidance on January 1, 2023, as it relates to interest rate concessions granted as part of our Private Education Loan modification program, a discounted cash flow model was used to calculate the amount of interest forgiven for loans that were in the program and the present value of that interest rate concession was included as a part of the allowance for loan loss. This new guidance no longer allows the measurement and recognition of this element of our allowance for loan loss for new modifications that occur subsequent to January 1, 2023. As of December 31, 2022, the allowance for loan loss included $77 million related to this interest rate concession component of the allowance for loan loss. We elected to adopt this amendment using a prospective transition method which results in the $77 million releasing in 2023 and 2024 as the borrowers exit their current modification programs. $63 million of the $77 million was released in the nine months ended September 30, 2023.
54
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
2. Allowance for Loan Losses
Allowance for Loan Losses Roll Forward
|
|
Three Months Ended September 30, 2023 |
|
|||||||||
(Dollars in millions) |
|
FFELP |
|
|
Private |
|
|
Total |
|
|||
Beginning balance |
|
$ |
200 |
|
|
$ |
657 |
|
|
$ |
857 |
|
Total provision |
|
|
36 |
|
|
|
36 |
|
|
|
72 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|||
Gross charge-offs |
|
|
(16 |
) |
|
|
(85 |
) |
|
|
(101 |
) |
Expected future recoveries on current period gross charge-offs |
|
|
— |
|
|
|
12 |
|
|
|
12 |
|
Total(1) |
|
|
(16 |
) |
|
|
(73 |
) |
|
|
(89 |
) |
Adjustment resulting from the change in charge-off rate(2) |
|
|
— |
|
|
|
(25 |
) |
|
|
(25 |
) |
Net charge-offs |
|
|
(16 |
) |
|
|
(98 |
) |
|
|
(114 |
) |
Decrease in expected future recoveries on previously fully charged-off |
|
|
— |
|
|
|
30 |
|
|
|
30 |
|
Allowance at end of period |
|
$ |
220 |
|
|
$ |
625 |
|
|
$ |
845 |
|
Net charge-offs as a percentage of average loans in repayment, |
|
|
.19 |
% |
|
|
1.66 |
% |
|
|
|
|
Net adjustment resulting from the change in charge-off rate as a |
|
|
— |
% |
|
|
.56 |
% |
|
|
|
|
Net charge-offs as a percentage of average loans in repayment |
|
|
.19 |
% |
|
|
2.22 |
% |
|
|
|
|
Ending total loans |
|
$ |
39,801 |
|
|
$ |
17,958 |
|
|
|
|
|
Average loans in repayment |
|
$ |
32,696 |
|
|
$ |
17,470 |
|
|
|
|
|
Ending loans in repayment |
|
$ |
31,917 |
|
|
$ |
17,249 |
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
(Dollars in millions) |
|
2023 |
|
|
Beginning of period expected future recoveries on previously fully charged-off loans |
|
$ |
262 |
|
Expected future recoveries of current period defaults |
|
|
12 |
|
Recoveries (cash collected) |
|
|
(11 |
) |
Charge-offs (as a result of lower recovery expectations) |
|
|
(31 |
) |
End of period expected future recoveries on previously fully charged-off loans |
|
$ |
232 |
|
Change in balance during period |
|
$ |
(30 |
) |
55
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
2. Allowance for Loan Losses (Continued)
|
|
Three Months Ended September 30, 2022 |
|
|||||||||
(Dollars in millions) |
|
FFELP Loans |
|
|
Private Education Loans |
|
|
Total |
|
|||
Beginning balance |
|
$ |
245 |
|
|
$ |
921 |
|
|
$ |
1,166 |
|
Total provision |
|
|
— |
|
|
|
28 |
|
|
|
28 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|||
Gross charge-offs |
|
|
(12 |
) |
|
|
(118 |
) |
|
|
(130 |
) |
Expected future recoveries on current period gross charge-offs |
|
|
— |
|
|
|
19 |
|
|
|
19 |
|
Total(1) |
|
|
(12 |
) |
|
|
(99 |
) |
|
|
(111 |
) |
Adjustment resulting from the change in charge-off rate(2) |
|
|
— |
|
|
|
(30 |
) |
|
|
(30 |
) |
Net charge-offs |
|
|
(12 |
) |
|
|
(129 |
) |
|
|
(141 |
) |
Decrease in expected future recoveries on previously fully charged-off |
|
|
— |
|
|
|
32 |
|
|
|
32 |
|
Allowance at end of period |
|
$ |
233 |
|
|
$ |
852 |
|
|
$ |
1,085 |
|
Net charge-offs as a percentage of average loans in repayment, |
|
|
.12 |
% |
|
|
2.01 |
% |
|
|
|
|
Net adjustment resulting from the change in charge-off rate as a |
|
|
— |
% |
|
|
.60 |
% |
|
|
|
|
Net charge-offs as a percentage of average loans in repayment |
|
|
.12 |
% |
|
|
2.61 |
% |
|
|
|
|
Ending total loans |
|
$ |
47,124 |
|
|
$ |
20,003 |
|
|
|
|
|
Average loans in repayment |
|
$ |
39,573 |
|
|
$ |
19,628 |
|
|
|
|
|
Ending loans in repayment |
|
$ |
37,731 |
|
|
$ |
19,284 |
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
(Dollars in millions) |
|
2022 |
|
|
Beginning of period expected future recoveries on previously fully charged-off loans |
|
$ |
312 |
|
Expected future recoveries of current period defaults |
|
|
19 |
|
Recoveries (cash collected) |
|
|
(14 |
) |
Charge-offs (as a result of lower recovery expectations) |
|
|
(37 |
) |
End of period expected future recoveries on previously fully charged-off loans |
|
$ |
280 |
|
Change in balance during period |
|
$ |
(32 |
) |
56
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
2. Allowance for Loan Losses (Continued)
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||
(Dollars in millions) |
|
FFELP Loans |
|
|
Private Education Loans |
|
|
Total |
|
|||
Beginning balance |
|
$ |
222 |
|
|
$ |
800 |
|
|
$ |
1,022 |
|
Total provision |
|
|
51 |
|
|
|
17 |
|
|
|
68 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|||
Gross charge-offs |
|
|
(53 |
) |
|
|
(245 |
) |
|
|
(298 |
) |
Expected future recoveries on current period gross charge-offs |
|
|
— |
|
|
|
36 |
|
|
|
36 |
|
Total(1) |
|
|
(53 |
) |
|
|
(209 |
) |
|
|
(262 |
) |
Adjustment resulting from the change in charge-off rate(2) |
|
|
— |
|
|
|
(25 |
) |
|
|
(25 |
) |
Net charge-offs |
|
|
(53 |
) |
|
|
(234 |
) |
|
|
(287 |
) |
Decrease in expected future recoveries on previously fully charged-off |
|
|
— |
|
|
|
42 |
|
|
|
42 |
|
Allowance at end of period |
|
$ |
220 |
|
|
$ |
625 |
|
|
$ |
845 |
|
Net charge-offs as a percentage of average loans in repayment, |
|
|
.21 |
% |
|
|
1.56 |
% |
|
|
|
|
Net adjustment resulting from the change in charge-off rate as a |
|
|
— |
% |
|
|
.18 |
% |
|
|
|
|
Net charge-offs as a percentage of average loans in repayment |
|
|
.21 |
% |
|
|
1.74 |
% |
|
|
|
|
Ending total loans |
|
$ |
39,801 |
|
|
$ |
17,958 |
|
|
|
|
|
Average loans in repayment |
|
$ |
33,591 |
|
|
$ |
18,000 |
|
|
|
|
|
Ending loans in repayment |
|
$ |
31,917 |
|
|
$ |
17,249 |
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
(Dollars in millions) |
|
2023 |
|
|
Beginning of period expected future recoveries on previously fully charged-off loans |
|
$ |
274 |
|
Expected future recoveries of current period defaults |
|
|
36 |
|
Recoveries (cash collected) |
|
|
(35 |
) |
Charge-offs (as a result of lower recovery expectations) |
|
|
(43 |
) |
End of period expected future recoveries on previously fully charged-off loans |
|
$ |
232 |
|
Change in balance during period |
|
$ |
(42 |
) |
57
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
2. Allowance for Loan Losses (Continued)
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||
(Dollars in millions) |
|
FFELP Loans |
|
|
Private Education Loans |
|
|
Total |
|
|||
Beginning balance |
|
$ |
262 |
|
|
$ |
1,009 |
|
|
$ |
1,271 |
|
Total provision |
|
|
— |
|
|
|
62 |
|
|
|
62 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|||
Gross charge-offs |
|
|
(29 |
) |
|
|
(281 |
) |
|
|
(310 |
) |
Expected future recoveries on current period gross charge-offs |
|
|
— |
|
|
|
43 |
|
|
|
43 |
|
Total(1) |
|
|
(29 |
) |
|
|
(238 |
) |
|
|
(267 |
) |
Adjustment resulting from the change in charge-off rate(2) |
|
|
|
|
|
(30 |
) |
|
|
(30 |
) |
|
Net charge-offs |
|
|
(29 |
) |
|
|
(268 |
) |
|
|
(297 |
) |
Decrease in expected future recoveries on previously fully charged-off |
|
|
— |
|
|
|
49 |
|
|
|
49 |
|
Allowance at end of period |
|
$ |
233 |
|
|
$ |
852 |
|
|
$ |
1,085 |
|
Net charge-offs as a percentage of average loans in repayment, |
|
|
.09 |
% |
|
|
1.59 |
% |
|
|
|
|
Net adjustment resulting from the change in charge-off rate as a |
|
|
— |
% |
|
|
.20 |
% |
|
|
|
|
Net charge-offs as a percentage of average loans in repayment |
|
|
.09 |
% |
|
|
1.79 |
% |
|
|
|
|
Ending total loans |
|
$ |
47,124 |
|
|
$ |
20,003 |
|
|
|
|
|
Average loans in repayment |
|
$ |
41,793 |
|
|
$ |
20,056 |
|
|
|
|
|
Ending loans in repayment |
|
$ |
37,731 |
|
|
$ |
19,284 |
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
(Dollars in millions) |
|
2022 |
|
|
Beginning of period expected future recoveries on previously fully charged-off loans |
|
$ |
329 |
|
Expected future recoveries of current period defaults |
|
|
43 |
|
Recoveries (cash collected) |
|
|
(43 |
) |
Charge-offs (as a result of lower recovery expectations) |
|
|
(49 |
) |
End of period expected future recoveries on previously fully charged-off loans |
|
$ |
280 |
|
Change in balance during period |
|
$ |
(49 |
) |
58
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
2. Allowance for Loan Losses (Continued)
Key Credit Quality Indicators
We assess and determine the collectability of our education loan portfolios by evaluating certain risk characteristics we refer to as key credit quality indicators. Key credit quality indicators are incorporated into the allowance for loan losses calculation.
FFELP Loans
FFELP Loans are substantially insured and guaranteed as to their principal and accrued interest in the event of default. The key credit quality indicators are loan status and loan type.
|
|
FFELP Loan Delinquencies |
|
|||||||||||||||||||||
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|
September 30, 2022 |
|
|||||||||||||||
(Dollars in millions) |
|
Balance |
|
|
% |
|
|
Balance |
|
|
% |
|
|
Balance |
|
|
% |
|
||||||
Loans in-school/grace/deferment(1) |
|
$ |
1,636 |
|
|
|
|
|
$ |
1,772 |
|
|
|
|
|
$ |
1,983 |
|
|
|
|
|||
Loans in forbearance(2) |
|
|
6,248 |
|
|
|
|
|
|
7,603 |
|
|
|
|
|
|
7,410 |
|
|
|
|
|||
Loans in repayment and percentage of each status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans current |
|
|
26,566 |
|
|
|
83.2 |
% |
|
|
29,004 |
|
|
|
84.4 |
% |
|
|
30,720 |
|
|
|
81.4 |
% |
Loans delinquent 31-60 days(3) |
|
|
1,481 |
|
|
|
4.6 |
|
|
|
1,247 |
|
|
|
3.6 |
|
|
|
1,917 |
|
|
|
5.1 |
|
Loans delinquent 61-90 days(3) |
|
|
949 |
|
|
|
3.0 |
|
|
|
833 |
|
|
|
2.4 |
|
|
|
1,291 |
|
|
|
3.4 |
|
Loans delinquent greater than 90 days(3) |
|
|
2,921 |
|
|
|
9.2 |
|
|
|
3,288 |
|
|
|
9.6 |
|
|
|
3,803 |
|
|
|
10.1 |
|
Total FFELP Loans in repayment |
|
|
31,917 |
|
|
|
100 |
% |
|
|
34,372 |
|
|
|
100 |
% |
|
|
37,731 |
|
|
|
100 |
% |
Total FFELP Loans |
|
|
39,801 |
|
|
|
|
|
|
43,747 |
|
|
|
|
|
|
47,124 |
|
|
|
|
|||
FFELP Loan allowance for losses |
|
|
(220 |
) |
|
|
|
|
|
(222 |
) |
|
|
|
|
|
(233 |
) |
|
|
|
|||
FFELP Loans, net |
|
$ |
39,581 |
|
|
|
|
|
$ |
43,525 |
|
|
|
|
|
$ |
46,891 |
|
|
|
|
|||
Percentage of FFELP Loans in repayment |
|
|
|
|
|
80.2 |
% |
|
|
|
|
|
78.6 |
% |
|
|
|
|
|
80.1 |
% |
|||
Delinquencies as a percentage of FFELP Loans in |
|
|
|
|
|
16.8 |
% |
|
|
|
|
|
15.6 |
% |
|
|
|
|
|
18.6 |
% |
|||
FFELP Loans in forbearance as a percentage of |
|
|
|
|
|
16.4 |
% |
|
|
|
|
|
18.1 |
% |
|
|
|
|
|
16.4 |
% |
Loan type:
(Dollars in millions) |
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
Change |
|
|||
Stafford Loans |
|
$ |
12,781 |
|
|
$ |
14,956 |
|
|
$ |
(2,175 |
) |
Consolidation Loans |
|
|
23,199 |
|
|
|
27,766 |
|
|
|
(4,567 |
) |
Rehab Loans |
|
|
3,821 |
|
|
|
4,402 |
|
|
|
(581 |
) |
Total loans, gross |
|
$ |
39,801 |
|
|
$ |
47,124 |
|
|
$ |
(7,323 |
) |
59
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
2. Allowance for Loan Losses (Continued)
Private Education Loans
The key credit quality indicators are credit scores (FICO scores), loan status, loan seasoning, certain loan modifications, the existence of a cosigner and school type. The FICO score is the higher of the borrower or co-borrower score and is updated at least every six months while school type is assessed at origination. The other Private Education Loan key quality indicators are updated quarterly.
|
|
Private Education Loan Credit Quality Indicators by Origination Year |
|
|||||||||||||||||||||||||||||
|
|
September 30, 2023 |
|
|||||||||||||||||||||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
Prior |
|
|
Total |
|
|
% of Total |
|
||||||||
Credit Quality |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
FICO Scores: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
640 and above |
|
$ |
603 |
|
|
$ |
1,641 |
|
|
$ |
4,056 |
|
|
$ |
1,303 |
|
|
$ |
1,226 |
|
|
$ |
7,471 |
|
|
$ |
16,300 |
|
|
|
91 |
% |
Below 640 |
|
|
10 |
|
|
|
53 |
|
|
|
105 |
|
|
|
26 |
|
|
|
43 |
|
|
|
1,421 |
|
|
|
1,658 |
|
|
|
9 |
|
Total |
|
$ |
613 |
|
|
$ |
1,694 |
|
|
$ |
4,161 |
|
|
$ |
1,329 |
|
|
$ |
1,269 |
|
|
$ |
8,892 |
|
|
$ |
17,958 |
|
|
|
100 |
% |
Loan Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
In-school/grace/ |
|
$ |
40 |
|
|
$ |
73 |
|
|
$ |
87 |
|
|
$ |
20 |
|
|
$ |
27 |
|
|
$ |
462 |
|
|
$ |
709 |
|
|
|
4 |
% |
Current/90 days or |
|
|
572 |
|
|
|
1,614 |
|
|
|
4,062 |
|
|
|
1,305 |
|
|
|
1,236 |
|
|
|
8,126 |
|
|
|
16,915 |
|
|
|
94 |
|
Greater than 90 days |
|
|
1 |
|
|
|
7 |
|
|
|
12 |
|
|
|
4 |
|
|
|
6 |
|
|
|
304 |
|
|
|
334 |
|
|
|
2 |
|
Total |
|
$ |
613 |
|
|
$ |
1,694 |
|
|
$ |
4,161 |
|
|
$ |
1,329 |
|
|
$ |
1,269 |
|
|
$ |
8,892 |
|
|
$ |
17,958 |
|
|
|
100 |
% |
Seasoning(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
1-12 payments |
|
$ |
576 |
|
|
$ |
451 |
|
|
$ |
36 |
|
|
$ |
8 |
|
|
$ |
4 |
|
|
$ |
59 |
|
|
$ |
1,134 |
|
|
|
7 |
% |
13-24 payments |
|
|
— |
|
|
|
1,185 |
|
|
|
1,948 |
|
|
|
17 |
|
|
|
15 |
|
|
|
68 |
|
|
|
3,233 |
|
|
|
18 |
|
25-36 payments |
|
|
— |
|
|
|
— |
|
|
|
2,123 |
|
|
|
624 |
|
|
|
44 |
|
|
|
124 |
|
|
|
2,915 |
|
|
|
16 |
|
37-48 payments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
669 |
|
|
|
791 |
|
|
|
202 |
|
|
|
1,662 |
|
|
|
9 |
|
More than 48 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
402 |
|
|
|
8,247 |
|
|
|
8,649 |
|
|
|
48 |
|
Loans in-school/ |
|
|
37 |
|
|
|
58 |
|
|
|
54 |
|
|
|
11 |
|
|
|
13 |
|
|
|
192 |
|
|
|
365 |
|
|
|
2 |
|
Total |
|
$ |
613 |
|
|
$ |
1,694 |
|
|
$ |
4,161 |
|
|
$ |
1,329 |
|
|
$ |
1,269 |
|
|
$ |
8,892 |
|
|
$ |
17,958 |
|
|
|
100 |
% |
Certain Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Modified |
|
$ |
— |
|
|
$ |
28 |
|
|
$ |
116 |
|
|
$ |
43 |
|
|
$ |
78 |
|
|
$ |
5,926 |
|
|
$ |
6,191 |
|
|
|
34 |
% |
Non-Modified |
|
|
613 |
|
|
|
1,666 |
|
|
|
4,045 |
|
|
|
1,286 |
|
|
|
1,191 |
|
|
|
2,966 |
|
|
|
11,767 |
|
|
|
66 |
|
Total |
|
$ |
613 |
|
|
$ |
1,694 |
|
|
$ |
4,161 |
|
|
$ |
1,329 |
|
|
$ |
1,269 |
|
|
$ |
8,892 |
|
|
$ |
17,958 |
|
|
|
100 |
% |
Cosigners: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
With cosigner(3) |
|
$ |
159 |
|
|
$ |
183 |
|
|
$ |
97 |
|
|
$ |
24 |
|
|
$ |
8 |
|
|
$ |
5,410 |
|
|
$ |
5,881 |
|
|
|
33 |
% |
Without cosigner |
|
|
454 |
|
|
|
1,511 |
|
|
|
4,064 |
|
|
|
1,305 |
|
|
|
1,261 |
|
|
|
3,482 |
|
|
|
12,077 |
|
|
|
67 |
|
Total |
|
$ |
613 |
|
|
$ |
1,694 |
|
|
$ |
4,161 |
|
|
$ |
1,329 |
|
|
$ |
1,269 |
|
|
$ |
8,892 |
|
|
$ |
17,958 |
|
|
|
100 |
% |
School Type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Not-for-profit |
|
$ |
576 |
|
|
$ |
1,604 |
|
|
$ |
3,919 |
|
|
$ |
1,270 |
|
|
$ |
1,181 |
|
|
$ |
7,483 |
|
|
$ |
16,033 |
|
|
|
89 |
% |
For-profit |
|
|
37 |
|
|
|
90 |
|
|
|
242 |
|
|
|
59 |
|
|
|
88 |
|
|
|
1,409 |
|
|
|
1,925 |
|
|
|
11 |
|
Total |
|
$ |
613 |
|
|
$ |
1,694 |
|
|
$ |
4,161 |
|
|
$ |
1,329 |
|
|
$ |
1,269 |
|
|
$ |
8,892 |
|
|
$ |
17,958 |
|
|
|
100 |
% |
Allowance for loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(625 |
) |
|
|
|
|||||||
Total loans, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,333 |
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Charge-Offs |
|
$ |
— |
|
|
$ |
(5 |
) |
|
$ |
(7 |
) |
|
$ |
(4 |
) |
|
$ |
(5 |
) |
|
$ |
(213 |
) |
|
$ |
(234 |
) |
|
|
100 |
% |
60
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
2. Allowance for Loan Losses (Continued)
|
|
Private Education Loan Credit Quality Indicators by Origination Year |
|
|||||||||||||||||||||||||||||
|
|
September 30, 2022 |
|
|||||||||||||||||||||||||||||
(Dollars in millions) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
Prior |
|
|
Total |
|
|
% of Total |
|
||||||||
Credit Quality |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
FICO Scores: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
640 and above |
|
$ |
1,503 |
|
|
$ |
4,708 |
|
|
$ |
1,593 |
|
|
$ |
1,502 |
|
|
$ |
556 |
|
|
$ |
8,485 |
|
|
$ |
18,347 |
|
|
|
92 |
% |
Below 640 |
|
|
17 |
|
|
|
64 |
|
|
|
19 |
|
|
|
37 |
|
|
|
20 |
|
|
|
1,499 |
|
|
|
1,656 |
|
|
|
8 |
|
Total |
|
$ |
1,520 |
|
|
$ |
4,772 |
|
|
$ |
1,612 |
|
|
$ |
1,539 |
|
|
$ |
576 |
|
|
$ |
9,984 |
|
|
$ |
20,003 |
|
|
|
100 |
% |
Loan Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
In-school/grace/ |
|
$ |
31 |
|
|
$ |
88 |
|
|
$ |
28 |
|
|
$ |
34 |
|
|
$ |
13 |
|
|
$ |
525 |
|
|
$ |
719 |
|
|
|
4 |
% |
Current/90 days or |
|
|
1,488 |
|
|
|
4,678 |
|
|
|
1,582 |
|
|
|
1,499 |
|
|
|
560 |
|
|
|
9,083 |
|
|
|
18,890 |
|
|
|
94 |
|
Greater than 90 days |
|
|
1 |
|
|
|
6 |
|
|
|
2 |
|
|
|
6 |
|
|
|
3 |
|
|
|
376 |
|
|
|
394 |
|
|
|
2 |
|
Total |
|
$ |
1,520 |
|
|
$ |
4,772 |
|
|
$ |
1,612 |
|
|
$ |
1,539 |
|
|
$ |
576 |
|
|
$ |
9,984 |
|
|
$ |
20,003 |
|
|
|
100 |
% |
Seasoning(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
1-12 payments |
|
$ |
1,499 |
|
|
$ |
2,186 |
|
|
$ |
14 |
|
|
$ |
10 |
|
|
$ |
2 |
|
|
$ |
95 |
|
|
$ |
3,806 |
|
|
|
19 |
% |
13-24 payments |
|
|
— |
|
|
|
2,534 |
|
|
|
736 |
|
|
|
39 |
|
|
|
8 |
|
|
|
102 |
|
|
|
3,419 |
|
|
|
17 |
|
25-36 payments |
|
|
— |
|
|
|
— |
|
|
|
846 |
|
|
|
968 |
|
|
|
19 |
|
|
|
177 |
|
|
|
2,010 |
|
|
|
10 |
|
37-48 payments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
503 |
|
|
|
287 |
|
|
|
293 |
|
|
|
1,083 |
|
|
|
5 |
|
More than 48 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
254 |
|
|
|
9,083 |
|
|
|
9,337 |
|
|
|
47 |
|
Loans in-school/ |
|
|
21 |
|
|
|
52 |
|
|
|
16 |
|
|
|
19 |
|
|
|
6 |
|
|
|
234 |
|
|
|
348 |
|
|
|
2 |
|
Total |
|
$ |
1,520 |
|
|
$ |
4,772 |
|
|
$ |
1,612 |
|
|
$ |
1,539 |
|
|
$ |
576 |
|
|
$ |
9,984 |
|
|
$ |
20,003 |
|
|
|
100 |
% |
Certain Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Modified |
|
$ |
6 |
|
|
$ |
48 |
|
|
$ |
28 |
|
|
$ |
62 |
|
|
$ |
35 |
|
|
$ |
6,617 |
|
|
$ |
6,796 |
|
|
|
34 |
% |
Non-Modified |
|
|
1,514 |
|
|
|
4,724 |
|
|
|
1,584 |
|
|
|
1,477 |
|
|
|
541 |
|
|
|
3,367 |
|
|
|
13,207 |
|
|
|
66 |
|
Total |
|
$ |
1,520 |
|
|
$ |
4,772 |
|
|
$ |
1,612 |
|
|
$ |
1,539 |
|
|
$ |
576 |
|
|
$ |
9,984 |
|
|
$ |
20,003 |
|
|
|
100 |
% |
Cosigners: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
With cosigner(3) |
|
$ |
24 |
|
|
$ |
109 |
|
|
$ |
28 |
|
|
$ |
11 |
|
|
$ |
— |
|
|
$ |
6,425 |
|
|
$ |
6,597 |
|
|
|
33 |
% |
Without cosigner |
|
|
1,496 |
|
|
|
4,663 |
|
|
|
1,584 |
|
|
|
1,528 |
|
|
|
576 |
|
|
|
3,559 |
|
|
|
13,406 |
|
|
|
67 |
|
Total |
|
$ |
1,520 |
|
|
$ |
4,772 |
|
|
$ |
1,612 |
|
|
$ |
1,539 |
|
|
$ |
576 |
|
|
$ |
9,984 |
|
|
$ |
20,003 |
|
|
|
100 |
% |
School Type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Not-for-profit |
|
$ |
1,427 |
|
|
$ |
4,496 |
|
|
$ |
1,541 |
|
|
$ |
1,434 |
|
|
$ |
529 |
|
|
$ |
8,338 |
|
|
$ |
17,765 |
|
|
|
89 |
% |
For-profit |
|
|
93 |
|
|
|
276 |
|
|
|
71 |
|
|
|
105 |
|
|
|
47 |
|
|
|
1,646 |
|
|
|
2,238 |
|
|
|
11 |
|
Total |
|
$ |
1,520 |
|
|
$ |
4,772 |
|
|
$ |
1,612 |
|
|
$ |
1,539 |
|
|
$ |
576 |
|
|
$ |
9,984 |
|
|
$ |
20,003 |
|
|
|
100 |
% |
Allowance for loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(852 |
) |
|
|
|
|||||||
Total loans, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,151 |
|
|
|
|
61
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
2. Allowance for Loan Losses (Continued)
|
|
Private Education Loan Delinquencies |
|
|||||||||||||||||||||
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|
September 30, 2022 |
|
|||||||||||||||
(Dollars in millions) |
|
Balance |
|
|
% |
|
|
Balance |
|
|
% |
|
|
Balance |
|
|
% |
|
||||||
Loans in-school/grace/deferment(1) |
|
$ |
365 |
|
|
|
|
|
$ |
354 |
|
|
|
|
|
$ |
348 |
|
|
|
|
|||
Loans in forbearance(2) |
|
|
344 |
|
|
|
|
|
|
401 |
|
|
|
|
|
|
371 |
|
|
|
|
|||
Loans in repayment and percentage of each status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans current |
|
|
16,435 |
|
|
|
95.3 |
% |
|
|
17,838 |
|
|
|
95.0 |
% |
|
|
18,426 |
|
|
|
95.6 |
% |
Loans delinquent 31-60 days(3) |
|
|
304 |
|
|
|
1.8 |
|
|
|
335 |
|
|
|
1.8 |
|
|
|
305 |
|
|
|
1.6 |
|
Loans delinquent 61-90 days(3) |
|
|
176 |
|
|
|
1.0 |
|
|
|
186 |
|
|
|
1.0 |
|
|
|
159 |
|
|
|
.8 |
|
Loans delinquent greater than 90 days(3) |
|
|
334 |
|
|
|
1.9 |
|
|
|
411 |
|
|
|
2.2 |
|
|
|
394 |
|
|
|
2.0 |
|
Total loans in repayment |
|
|
17,249 |
|
|
|
100 |
% |
|
|
18,770 |
|
|
|
100 |
% |
|
|
19,284 |
|
|
|
100 |
% |
Total loans |
|
|
17,958 |
|
|
|
|
|
|
19,525 |
|
|
|
|
|
|
20,003 |
|
|
|
|
|||
Allowance for losses |
|
|
(625 |
) |
|
|
|
|
|
(800 |
) |
|
|
|
|
|
(852 |
) |
|
|
|
|||
Loans, net |
|
$ |
17,333 |
|
|
|
|
|
$ |
18,725 |
|
|
|
|
|
$ |
19,151 |
|
|
|
|
|||
Percentage of loans in repayment |
|
|
|
|
|
96.1 |
% |
|
|
|
|
|
96.1 |
% |
|
|
|
|
|
96.4 |
% |
|||
Delinquencies as a percentage of loans in |
|
|
|
|
|
4.7 |
% |
|
|
|
|
|
5.0 |
% |
|
|
|
|
|
4.4 |
% |
|||
Loans in forbearance as a percentage of |
|
|
|
|
|
2.0 |
% |
|
|
|
|
|
2.1 |
% |
|
|
|
|
|
1.9 |
% |
62
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
2. Allowance for Loan Losses (Continued)
Loan Modifications to Borrowers Experiencing Financial Difficulty
We adjust the terms of Private Education Loans for certain borrowers when we believe such changes will help our customers better manage their student loan obligations, achieve better outcomes and increase the collectability of the loans. These changes generally take the form of a temporary interest rate reduction, a temporary forbearance of payments, a temporary interest only payment, and a temporary interest rate reduction with a permanent extension of the loan term. The effect of modifications of loans made to borrowers who are experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance. The model design predicts borrowers that will have financial difficulty in the future and require loan modification and increased life of loan default risk.
Under our current forbearance practices, temporary hardship forbearance of payments generally cannot exceed 12 months over the life of the loan. However, exceptions can be made in cases where borrowers have shown the ability to make a substantial number of monthly principal and interest payments and in those cases borrowers can be granted up to 24 months of hardship forbearance over the life of the loan. We offer other administrative forbearances (e.g., death and disability, bankruptcy, military service, and disaster forbearance) that are either required by law (such as the Servicemembers Civil Relief Act) or are considered separate from our active loss mitigation programs and therefore are not considered to be loan modifications requiring disclosure under ASU No. 2022-02.
FFELP loans are at least 97 percent guaranteed as to their principal and accrued interest by the federal government in the event of default and, therefore, we do not deem FFELP loans as nonperforming from a credit risk perspective at any point in their life cycle prior to claim payment and continue to accrue interest on those loans through the date of claim. Further, FFELP loan modification events are either legal entitlements subject to regulatory-driven eligibility criteria or addressed in the promissory note terms, so we do not consider these events as a component of our loan modification programs.
The following tables show the amortized cost basis as of September 30, 2023 of the loans to borrowers experiencing financial difficulty that were modified in the three and nine months ended September 30, 2023.
|
|
Loan Modifications Made to Borrowers Experiencing Financial Difficulty |
|
|||||||||||||||||||||
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||||||
(Dollars in millions) |
|
Interest Rate Reductions(1) |
|
|
More Than an Insignificant Payment Delay (2) |
|
|
Combination Rate Reduction and Term Extension |
|
|||||||||||||||
Loan Type |
|
Amortized Cost |
|
|
% of Loan Type |
|
|
Amortized Cost |
|
|
% of Loan Type |
|
|
Amortized Cost |
|
|
% of Loan Type |
|
||||||
Private Education |
|
$ |
592 |
|
|
|
3.3 |
% |
|
$ |
305 |
|
|
|
1.7 |
% |
|
$ |
42 |
|
|
|
.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||||||
(Dollars in millions) |
|
Interest Rate Reductions(1) |
|
|
More Than an Insignificant Payment Delay (2) |
|
|
Combination Rate Reduction and Term Extension |
|
|||||||||||||||
Loan Type |
|
Amortized Cost |
|
|
% of Loan Type |
|
|
Amortized Cost |
|
|
% of Loan Type |
|
|
Amortized Cost |
|
|
% of Loan Type |
|
||||||
Private Education |
|
$ |
1,488 |
|
|
|
8.3 |
% |
|
$ |
773 |
|
|
|
4.3 |
% |
|
$ |
119 |
|
|
|
.7 |
% |
63
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
2. Allowance for Loan Losses (Continued)
For those loans modified in the three and nine months ended September 30, 2023, the following tables show the impact of such modification.
Three Months Ended September 30, 2023 |
|||
Loan Type |
Interest Rate Reductions |
More Than an Insignificant Payment Delay |
Combination Rate Reduction and Term Extension |
Private Education Loans |
Reduced the weighted average contractual rate from 13.4% to 5.5% |
Added an average 6 months to the remaining life of the loans |
Added an average 7 years to the remaining life of the loans and reduced the weighted average contractual rate from |
|
|
|
|
Nine Months Ended September 30, 2023 |
|||
Loan Type |
Interest Rate Reductions |
More Than an Insignificant Payment Delay |
Combination Rate Reduction and Term Extension |
Private Education Loans |
Reduced the weighted average contractual rate from 13.1% to 5.2% |
Added an average 6 months to the remaining life of the loans |
Added an average 8 years to the remaining life of the loans and reduced the weighted average contractual rate from |
64
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
2. Allowance for Loan Losses (Continued)
The following table provides the amount of loan modifications for which a payment default occurred in the three and nine months ended September 30, 2023 and receiving a loan modification since January 1, 2023, the effective date of adoption for ASU No. 2022-02. We define payment default as 60 days or more past due for purposes of this disclosure. We closely monitor performance of the loans to borrowers experiencing financial difficulty that are modified to understand the effectiveness of the modification efforts.
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|||||||
|
|
Three Months Ended September 30, 2023 |
|
|
Nine Months Ended September 30, 2023 |
|
||||||||||
Loan Type |
|
Modified Loans |
|
|
Payment Default (Par) |
|
|
Modified Loans |
|
|
Payment Default (Par) |
|
||||
Private Education Loans(1) |
|
$ |
65 |
|
|
$ |
67 |
|
|
$ |
123 |
|
|
$ |
126 |
|
The following table provides the performance and related loan status as of September 30, 2023 of loans that were modified in the nine months ended September 30, 2023.
(Dollars in millions) |
|
|
|
|
|
|
Loan Type: |
|
|
|
|
|
|
Private Education Loans |
|
Status |
|
Payment status (Amortized Cost) |
|
|
|
|
Loans in School/Deferment |
|
$ |
16 |
|
|
|
Loans in Forbearance |
|
|
67 |
|
|
|
Loans current |
|
|
2,039 |
|
|
|
Loans delinquent 31 - 60 days |
|
|
133 |
|
|
|
Loans delinquent 61 - 90 days |
|
|
61 |
|
|
|
Loans delinquent greater than 90 days |
|
|
64 |
|
|
|
Total Modified Loans |
|
$ |
2,380 |
|
65
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
2. Allowance for Loan Losses (Continued)
Prior to our adoption of ASU 2022-02 on January 1, 2023, we accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. Certain Private Education Loans for which we have granted either a forbearance of greater than three months, an interest rate reduction or an extended repayment plan were classified as TDRs.
The following table provides the amount of loans modified in the period presented that resulted in a TDR. Additionally, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the current period within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||
(Dollars in millions) |
|
2022 |
|
|
2022 |
|
||
Modified loans |
|
$ |
68 |
|
|
$ |
186 |
|
Charge-offs |
|
$ |
101 |
|
|
$ |
217 |
|
Payment default |
|
$ |
13 |
|
|
$ |
31 |
|
66
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
3. Borrowings
The following table summarizes our borrowings.
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||
(Dollars in millions) |
|
Short |
|
|
Long |
|
|
Total |
|
|
Short |
|
|
Long |
|
|
Total |
|
||||||
Unsecured borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Senior unsecured debt(1) |
|
$ |
856 |
|
|
$ |
5,355 |
|
|
$ |
6,211 |
|
|
$ |
1,301 |
|
|
$ |
5,711 |
|
|
$ |
7,012 |
|
Total unsecured borrowings |
|
|
856 |
|
|
|
5,355 |
|
|
|
6,211 |
|
|
|
1,301 |
|
|
|
5,711 |
|
|
|
7,012 |
|
Secured borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
FFELP Loan securitizations(2)(3) |
|
|
62 |
|
|
|
36,961 |
|
|
|
37,023 |
|
|
|
76 |
|
|
|
42,675 |
|
|
|
42,751 |
|
Private Education Loan securitizations(4) |
|
|
498 |
|
|
|
11,766 |
|
|
|
12,264 |
|
|
|
725 |
|
|
|
12,744 |
|
|
|
13,469 |
|
FFELP Loan ABCP facilities |
|
|
1,510 |
|
|
|
456 |
|
|
|
1,966 |
|
|
|
923 |
|
|
|
386 |
|
|
|
1,309 |
|
Private Education Loan ABCP facilities |
|
|
1,702 |
|
|
|
859 |
|
|
|
2,561 |
|
|
|
2,734 |
|
|
|
— |
|
|
|
2,734 |
|
Other(5) |
|
|
44 |
|
|
|
40 |
|
|
|
84 |
|
|
|
121 |
|
|
|
— |
|
|
|
121 |
|
Total secured borrowings |
|
|
3,816 |
|
|
|
50,082 |
|
|
|
53,898 |
|
|
|
4,579 |
|
|
|
55,805 |
|
|
|
60,384 |
|
Total before hedge accounting adjustments |
|
|
4,672 |
|
|
|
55,437 |
|
|
|
60,109 |
|
|
|
5,880 |
|
|
|
61,516 |
|
|
|
67,396 |
|
Hedge accounting adjustments |
|
|
(10 |
) |
|
|
(530 |
) |
|
|
(540 |
) |
|
|
(10 |
) |
|
|
(490 |
) |
|
|
(500 |
) |
Total |
|
$ |
4,662 |
|
|
$ |
54,907 |
|
|
$ |
59,569 |
|
|
$ |
5,870 |
|
|
$ |
61,026 |
|
|
$ |
66,896 |
|
67
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
3. Borrowings (Continued)
Variable Interest Entities
We consolidated the following financing VIEs as of September 30, 2023 and December 31, 2022, as we are the primary beneficiary. As a result, these VIEs are accounted for as secured borrowings.
|
|
September 30, 2023 |
|
|||||||||||||||||||||||||
|
|
Debt Outstanding |
|
|
Carrying Amount of Assets Securing |
|
||||||||||||||||||||||
(Dollars in millions) |
|
Short |
|
|
Long |
|
|
Total |
|
|
Loans |
|
|
Cash |
|
|
Other |
|
|
Total |
|
|||||||
Secured Borrowings — VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
FFELP Loan securitizations |
|
$ |
62 |
|
|
$ |
36,961 |
|
|
$ |
37,023 |
|
|
$ |
37,509 |
|
|
$ |
1,313 |
|
|
$ |
1,624 |
|
|
$ |
40,446 |
|
Private Education Loan securitizations |
|
|
498 |
|
|
|
11,766 |
|
|
|
12,264 |
|
|
|
13,294 |
|
|
|
349 |
|
|
|
106 |
|
|
|
13,749 |
|
FFELP Loan ABCP facilities |
|
|
1,510 |
|
|
|
456 |
|
|
|
1,966 |
|
|
|
1,984 |
|
|
|
36 |
|
|
|
79 |
|
|
|
2,099 |
|
Private Education Loan ABCP facilities |
|
|
1,702 |
|
|
|
859 |
|
|
|
2,561 |
|
|
|
2,895 |
|
|
|
100 |
|
|
|
57 |
|
|
|
3,052 |
|
Total before hedge accounting |
|
|
3,772 |
|
|
|
50,042 |
|
|
|
53,814 |
|
|
|
55,682 |
|
|
|
1,798 |
|
|
|
1,866 |
|
|
|
59,346 |
|
Hedge accounting adjustments |
|
|
— |
|
|
|
(193 |
) |
|
|
(193 |
) |
|
|
— |
|
|
|
— |
|
|
|
(251 |
) |
|
|
(251 |
) |
Total |
|
$ |
3,772 |
|
|
$ |
49,849 |
|
|
$ |
53,621 |
|
|
$ |
55,682 |
|
|
$ |
1,798 |
|
|
$ |
1,615 |
|
|
$ |
59,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|||||||||||||||||||||||||
|
|
Debt Outstanding |
|
|
Carrying Amount of Assets Securing |
|
||||||||||||||||||||||
(Dollars in millions) |
|
Short |
|
|
Long |
|
|
Total |
|
|
Loans |
|
|
Cash |
|
|
Other |
|
|
Total |
|
|||||||
Secured Borrowings — VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
FFELP Loan securitizations |
|
$ |
76 |
|
|
$ |
42,675 |
|
|
$ |
42,751 |
|
|
$ |
42,148 |
|
|
$ |
2,705 |
|
|
$ |
1,544 |
|
|
$ |
46,397 |
|
Private Education Loan securitizations |
|
|
725 |
|
|
|
12,744 |
|
|
|
13,469 |
|
|
|
14,168 |
|
|
|
367 |
|
|
|
105 |
|
|
|
14,640 |
|
FFELP Loan ABCP facilities |
|
|
923 |
|
|
|
386 |
|
|
|
1,309 |
|
|
|
1,317 |
|
|
|
39 |
|
|
|
44 |
|
|
|
1,400 |
|
Private Education Loan ABCP facilities |
|
|
2,734 |
|
|
|
— |
|
|
|
2,734 |
|
|
|
3,039 |
|
|
|
122 |
|
|
|
(81 |
) |
|
|
3,080 |
|
Total before hedge accounting |
|
|
4,458 |
|
|
|
55,805 |
|
|
|
60,263 |
|
|
|
60,672 |
|
|
|
3,233 |
|
|
|
1,612 |
|
|
|
65,517 |
|
Hedge accounting adjustments |
|
|
— |
|
|
|
(207 |
) |
|
|
(207 |
) |
|
|
— |
|
|
|
— |
|
|
|
(256 |
) |
|
|
(256 |
) |
Total |
|
$ |
4,458 |
|
|
$ |
55,598 |
|
|
$ |
60,056 |
|
|
$ |
60,672 |
|
|
$ |
3,233 |
|
|
$ |
1,356 |
|
|
$ |
65,261 |
|
68
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
4. Derivative Financial Instruments
Summary of Derivative Financial Statement Impact
The following tables summarize the fair values and notional amounts of all derivative instruments and their impact on net income and other comprehensive income.
Impact of Derivatives on Balance Sheet
|
|
|
|
Cash Flow |
|
|
Fair Value(3) |
|
|
Trading |
|
|
Total |
|
||||||||||||||||||||
(Dollars in millions) |
|
Hedged Risk |
|
Sep 30, 2023 |
|
|
Dec 31, 2022 |
|
|
Sep 30, 2023 |
|
|
Dec 31, 2022 |
|
|
Sep 30, 2023 |
|
|
Dec 31, 2022 |
|
|
Sep 30, 2023 |
|
|
Dec 31, 2022 |
|
||||||||
Fair Values(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Derivative Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate swaps |
|
Interest rate |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
17 |
|
|
$ |
55 |
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
17 |
|
|
$ |
56 |
|
Cross-currency interest rate |
|
Foreign currency and |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total derivative assets(2) |
|
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
55 |
|
|
|
— |
|
|
|
1 |
|
|
|
17 |
|
|
|
56 |
|
Derivative Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate swaps |
|
Interest rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(5 |
) |
Floor Income Contracts |
|
Interest rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cross-currency interest rate |
|
Foreign currency and |
|
|
— |
|
|
|
— |
|
|
|
(250 |
) |
|
|
(253 |
) |
|
|
— |
|
|
|
— |
|
|
|
(250 |
) |
|
|
(253 |
) |
Total derivative liabilities(2) |
|
|
|
|
— |
|
|
|
— |
|
|
|
(250 |
) |
|
|
(255 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(251 |
) |
|
|
(258 |
) |
Net total derivatives |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(233 |
) |
|
$ |
(200 |
) |
|
$ |
(1 |
) |
|
$ |
(2 |
) |
|
$ |
(234 |
) |
|
$ |
(202 |
) |
|
|
Other Assets |
|
|
Other Liabilities |
|
||||||||||
(Dollar in millions) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||
Gross position |
|
$ |
17 |
|
|
$ |
56 |
|
|
$ |
(251 |
) |
|
$ |
(258 |
) |
Impact of master netting agreements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
with impact of master netting |
|
|
17 |
|
|
|
56 |
|
|
|
(251 |
) |
|
|
(258 |
) |
Cash collateral (held) pledged |
|
|
(8 |
) |
|
|
(80 |
) |
|
|
51 |
|
|
|
62 |
|
Net position |
|
$ |
9 |
|
|
$ |
(24 |
) |
|
$ |
(200 |
) |
|
$ |
(196 |
) |
|
|
As of September 30, 2023 |
|
|
As of December 31, 2022 |
|
||||||||||
(Dollar in millions) |
|
Carrying |
|
|
Hedge Basis Adjustments |
|
|
Carrying |
|
|
Hedge Basis Adjustments |
|
||||
Short-term borrowings |
|
$ |
839 |
|
|
$ |
(10 |
) |
|
$ |
1,289 |
|
|
$ |
(10 |
) |
Long-term borrowings |
|
$ |
5,624 |
|
|
$ |
(533 |
) |
|
$ |
6,188 |
|
|
$ |
(494 |
) |
69
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
4. Derivative Financial Instruments (Continued)
The above fair values include adjustments when necessary for counterparty credit risk for both when we are exposed to the counterparty, net of collateral postings, and when the counterparty is exposed to us, net of collateral postings. The net adjustments decreased the asset position at September 30, 2023 and December 31, 2022 by $4 million and $6 million, respectively. In addition, the above fair values reflect adjustments for illiquid derivatives as indicated by a wide bid/ask spread in the interest rate indices to which the derivatives are indexed. These adjustments decreased the overall net asset positions at September 30, 2023 and December 31, 2022 by $1 million and $1 million, respectively.
|
|
Cash Flow |
|
|
Fair Value |
|
|
Trading |
|
|
Total |
|
||||||||||||||||||||
(Dollars in billions) |
|
Sep 30, 2023 |
|
|
Dec 31, 2022 |
|
|
Sep 30, 2023 |
|
|
Dec 31, 2022 |
|
|
Sep 30, 2023 |
|
|
Dec 31, 2022 |
|
|
Sep 30, 2023 |
|
|
Dec 31, 2022 |
|
||||||||
Notional Values: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate swaps |
|
$ |
4.2 |
|
|
$ |
8.3 |
|
|
$ |
5.4 |
|
|
$ |
6.2 |
|
|
$ |
1.7 |
|
|
$ |
17.4 |
|
|
$ |
11.3 |
|
|
$ |
31.9 |
|
Floor Income Contracts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6.0 |
|
|
|
— |
|
|
|
6.0 |
|
Cross-currency interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
1.7 |
|
|
|
1.8 |
|
|
|
— |
|
|
|
— |
|
|
|
1.7 |
|
|
|
1.8 |
|
Total derivatives |
|
$ |
4.2 |
|
|
$ |
8.3 |
|
|
$ |
7.1 |
|
|
$ |
8.0 |
|
|
$ |
1.7 |
|
|
$ |
23.4 |
|
|
$ |
13.0 |
|
|
$ |
39.7 |
|
Mark-to-Market Impact of Derivatives on Statements of Income
|
|
Total Gains (Losses) |
|
|||||||||||||
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Fair Value Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Rate Swaps |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gains (losses) recognized in net income on derivatives |
|
$ |
(65 |
) |
|
$ |
(193 |
) |
|
$ |
(66 |
) |
|
$ |
(629 |
) |
Gains (losses) recognized in net income on hedged |
|
|
68 |
|
|
|
210 |
|
|
|
53 |
|
|
|
680 |
|
Net fair value hedge ineffectiveness gains (losses) |
|
|
3 |
|
|
|
17 |
|
|
|
(13 |
) |
|
|
51 |
|
Cross currency interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gains (losses) recognized in net income on derivatives |
|
|
(15 |
) |
|
|
(127 |
) |
|
|
4 |
|
|
|
(217 |
) |
Gains (losses) recognized in net income on hedged |
|
|
31 |
|
|
|
104 |
|
|
|
(14 |
) |
|
|
251 |
|
Net fair value hedge ineffectiveness gains (losses) |
|
|
16 |
|
|
|
(23 |
) |
|
|
(10 |
) |
|
|
34 |
|
Total fair value hedges(1)(2) |
|
|
19 |
|
|
|
(6 |
) |
|
|
(23 |
) |
|
|
85 |
|
Cash Flow Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total cash flow hedges(2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Trading: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps |
|
|
26 |
|
|
|
40 |
|
|
|
44 |
|
|
|
120 |
|
Floor income contracts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
41 |
|
Cross currency interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total trading derivatives(3) |
|
|
26 |
|
|
|
40 |
|
|
|
44 |
|
|
|
161 |
|
Mark-to-market gains (losses) recognized |
|
$ |
45 |
|
|
$ |
34 |
|
|
$ |
21 |
|
|
$ |
246 |
|
70
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
4. Derivative Financial Instruments (Continued)
Impact of Derivatives on Other Comprehensive Income (Equity)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Total gains (losses) on cash flow hedges |
|
$ |
4 |
|
|
$ |
52 |
|
|
$ |
19 |
|
|
$ |
179 |
|
Reclassification adjustments for derivative (gains) losses |
|
|
(26 |
) |
|
|
2 |
|
|
|
(63 |
) |
|
|
38 |
|
Net changes in cash flow hedges, net of tax |
|
$ |
(22 |
) |
|
$ |
54 |
|
|
$ |
(44 |
) |
|
$ |
217 |
|
Collateral
The following table details collateral held and pledged related to derivative exposure between us and our derivative counterparties:
(Dollars in millions) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Collateral held: |
|
|
|
|
|
|
||
Cash (obligation to return cash collateral is recorded in short-term borrowings) |
|
$ |
8 |
|
|
$ |
80 |
|
Securities at fair value — corporate derivatives (not recorded in financial |
|
|
— |
|
|
|
— |
|
Securities at fair value — on-balance sheet securitization derivatives (not |
|
|
— |
|
|
|
— |
|
Total collateral held |
|
$ |
8 |
|
|
$ |
80 |
|
Derivative asset at fair value including accrued interest |
|
$ |
16 |
|
|
$ |
85 |
|
Collateral pledged to others: |
|
|
|
|
|
|
||
Cash (right to receive return of cash collateral is recorded in investments) |
|
$ |
51 |
|
|
$ |
62 |
|
Total collateral pledged |
|
$ |
51 |
|
|
$ |
62 |
|
Derivative liability at fair value including accrued interest and premium |
|
$ |
258 |
|
|
$ |
266 |
|
Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully collateralized our corporate derivative liability position (including accrued interest and net of premiums receivable) of $0 with our counterparties. Downgrades in our unsecured credit rating would not result in any additional collateral requirements. Trust related derivatives do not contain credit contingent features related to our or the trusts’ credit ratings.
The table below highlights credit exposure related to our derivative counterparties at September 30, 2023.
(Dollars in millions) |
|
Corporate |
|
|
Securitization |
|
||
Exposure, net of collateral |
|
$ |
11 |
|
|
$ |
— |
|
Percent of exposure to counterparties with credit ratings |
|
|
100 |
% |
|
|
— |
% |
Percent of exposure to counterparties with credit ratings |
|
|
— |
% |
|
|
— |
% |
71
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
5. Other Assets
The following table provides the detail of our other assets.
(Dollars in millions) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Accrued interest receivable |
|
$ |
2,102 |
|
|
$ |
2,031 |
|
Benefit and insurance-related investments |
|
|
456 |
|
|
|
452 |
|
Income tax asset, net |
|
|
85 |
|
|
|
132 |
|
Derivatives at fair value |
|
|
17 |
|
|
|
56 |
|
Accounts receivable |
|
|
97 |
|
|
|
83 |
|
Fixed assets |
|
|
67 |
|
|
|
74 |
|
Other |
|
|
29 |
|
|
|
38 |
|
Total |
|
$ |
2,853 |
|
|
$ |
2,866 |
|
72
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
6. Stockholders’ Equity
The following table summarizes common share repurchases, issuances and dividends paid.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars and shares in millions, except per share amounts) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Common stock repurchased(1) |
|
|
4.2 |
|
|
|
6.3 |
|
|
|
13.9 |
|
|
|
19.4 |
|
Common stock repurchased (in dollars)(1) |
|
$ |
75 |
|
|
$ |
95 |
|
|
$ |
240 |
|
|
$ |
315 |
|
Average purchase price per share(1) |
|
$ |
18.01 |
|
|
$ |
15.19 |
|
|
$ |
17.22 |
|
|
$ |
16.25 |
|
Remaining common stock repurchase authority(1) |
|
$ |
360 |
|
|
$ |
685 |
|
|
$ |
360 |
|
|
$ |
685 |
|
Shares repurchased related to employee stock- |
|
|
— |
|
|
|
— |
|
|
|
1.3 |
|
|
|
1.1 |
|
Average purchase price per share(2) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
18.44 |
|
|
$ |
17.91 |
|
Common shares issued(3) |
|
|
.1 |
|
|
|
— |
|
|
|
2.6 |
|
|
|
2.4 |
|
Dividends paid |
|
$ |
19 |
|
|
$ |
22 |
|
|
$ |
59 |
|
|
$ |
69 |
|
Dividends per share |
|
$ |
.16 |
|
|
$ |
.16 |
|
|
$ |
.48 |
|
|
$ |
.48 |
|
The closing price of our common stock on September 29, 2023 was $17.22.
7. Earnings (Loss) per Common Share
Basic earnings (loss) per common share (EPS) are calculated using the weighted average number of shares of common stock outstanding during each period. A reconciliation of the numerators and denominators of the basic and diluted EPS calculations on a GAAP basis follows.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(In millions, except per share data) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
79 |
|
|
$ |
105 |
|
|
$ |
256 |
|
|
$ |
540 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares used to compute basic EPS |
|
|
120 |
|
|
|
139 |
|
|
|
124 |
|
|
|
145 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of stock options, restricted stock, |
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
Dilutive potential common shares(2) |
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
Weighted average shares used to compute |
|
|
121 |
|
|
|
141 |
|
|
|
125 |
|
|
|
147 |
|
Basic earnings per common share |
|
$ |
.66 |
|
|
$ |
.75 |
|
|
$ |
2.06 |
|
|
$ |
3.71 |
|
Diluted earnings per common share |
|
$ |
.65 |
|
|
$ |
.75 |
|
|
$ |
2.04 |
|
|
$ |
3.67 |
|
73
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
8. Fair Value Measurements
We use estimates of fair value in applying various accounting standards in our financial statements. We categorize our fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. The fair value of the items discussed below are separately disclosed in this footnote.
During the three and nine months ended September 30, 2023, there were no significant transfers of financial instruments between levels, or changes in our methodology used to value our financial instruments.
The following table summarizes the valuation of our financial instruments that are marked-to-market on a recurring basis. During the third quarters of 2023 and 2022, there were no significant transfers of financial instruments between levels.
|
|
Fair Value Measurements on a Recurring Basis |
|
|||||||||||||||||||||||||||||
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||||||||||
(Dollars in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Derivative instruments:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate swaps |
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
55 |
|
|
|
1 |
|
|
|
56 |
|
Cross-currency interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total derivative assets(2) |
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
55 |
|
|
|
1 |
|
|
|
56 |
|
Total |
|
$ |
— |
|
|
$ |
17 |
|
|
$ |
— |
|
|
$ |
17 |
|
|
$ |
— |
|
|
$ |
55 |
|
|
$ |
1 |
|
|
$ |
56 |
|
Liabilities(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Derivative instruments(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate swaps |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(1 |
) |
|
$ |
(1 |
) |
|
$ |
— |
|
|
$ |
(2 |
) |
|
$ |
(3 |
) |
|
$ |
(5 |
) |
Floor Income Contracts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cross-currency interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
(250 |
) |
|
|
(250 |
) |
|
|
— |
|
|
|
— |
|
|
|
(253 |
) |
|
|
(253 |
) |
Total derivative liabilities(2) |
|
|
— |
|
|
|
— |
|
|
|
(251 |
) |
|
|
(251 |
) |
|
|
— |
|
|
|
(2 |
) |
|
|
(256 |
) |
|
|
(258 |
) |
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(251 |
) |
|
$ |
(251 |
) |
|
$ |
— |
|
|
$ |
(2 |
) |
|
$ |
(256 |
) |
|
$ |
(258 |
) |
74
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
8. Fair Value Measurements (Continued)
The following tables summarize the change in balance sheet carrying value associated with level 3 financial instruments carried at fair value on a recurring basis.
|
|
Three Months Ended September 30, |
|
|||||||||||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||||||||||
|
|
Derivative instruments |
|
|
Derivative instruments |
|
||||||||||||||||||||||||||
(Dollars in millions) |
|
Interest |
|
|
Cross |
|
|
Other |
|
|
Total |
|
|
Interest |
|
|
Cross |
|
|
Other |
|
|
Total |
|
||||||||
Balance, beginning of |
|
$ |
(2 |
) |
|
$ |
(234 |
) |
|
$ |
— |
|
|
$ |
(236 |
) |
|
$ |
(3 |
) |
|
$ |
(279 |
) |
|
$ |
— |
|
|
$ |
(282 |
) |
Total gains/(losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
(1) |
|
|
1 |
|
|
|
(27 |
) |
|
|
— |
|
|
|
(26 |
) |
|
|
1 |
|
|
|
(141 |
) |
|
|
— |
|
|
|
(140 |
) |
Included in other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Settlements |
|
|
— |
|
|
|
11 |
|
|
|
— |
|
|
|
11 |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
13 |
|
Transfers in and/or out |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance, end of period |
|
$ |
(1 |
) |
|
$ |
(250 |
) |
|
$ |
— |
|
|
$ |
(251 |
) |
|
$ |
(2 |
) |
|
$ |
(407 |
) |
|
$ |
— |
|
|
$ |
(409 |
) |
Change in mark-to- |
|
$ |
1 |
|
|
$ |
(16 |
) |
|
$ |
— |
|
|
$ |
(15 |
) |
|
$ |
1 |
|
|
$ |
(128 |
) |
|
$ |
— |
|
|
$ |
(127 |
) |
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||||||||||
|
|
Derivative instruments |
|
|
Derivative instruments |
|
||||||||||||||||||||||||||
(Dollars in millions) |
|
Interest |
|
|
Cross |
|
|
Other |
|
|
Total |
|
|
Interest |
|
|
Cross |
|
|
Other |
|
|
Total |
|
||||||||
Balance, beginning of |
|
$ |
(2 |
) |
|
$ |
(253 |
) |
|
$ |
— |
|
|
$ |
(255 |
) |
|
$ |
(4 |
) |
|
$ |
(190 |
) |
|
$ |
— |
|
|
$ |
(194 |
) |
Total gains/(losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
(1) |
|
|
1 |
|
|
|
(33 |
) |
|
|
— |
|
|
|
(32 |
) |
|
|
1 |
|
|
|
(244 |
) |
|
|
— |
|
|
|
(243 |
) |
Included in other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Settlements |
|
|
— |
|
|
|
36 |
|
|
|
— |
|
|
|
36 |
|
|
|
1 |
|
|
|
27 |
|
|
|
— |
|
|
|
28 |
|
Transfers in and/or out |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance, end of |
|
$ |
(1 |
) |
|
$ |
(250 |
) |
|
$ |
— |
|
|
$ |
(251 |
) |
|
$ |
(2 |
) |
|
$ |
(407 |
) |
|
$ |
— |
|
|
$ |
(409 |
) |
Change in mark-to- |
|
$ |
1 |
|
|
$ |
3 |
|
|
$ |
— |
|
|
$ |
4 |
|
|
$ |
1 |
|
|
$ |
(217 |
) |
|
$ |
— |
|
|
$ |
(216 |
) |
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
|
|
(27 |
) |
|
|
(141 |
) |
|
|
(33 |
) |
|
|
(244 |
) |
|
|
$ |
(26 |
) |
|
$ |
(140 |
) |
|
$ |
(32 |
) |
|
$ |
(243 |
) |
75
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
8. Fair Value Measurements (Continued)
The following table presents the significant inputs that are unobservable or from inactive markets used in the recurring valuations of the level 3 financial instruments detailed above.
(Dollars in millions) |
|
Fair Value at September 30, 2023 |
|
|
Valuation |
|
Input |
|
Range and |
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
Prime/LIBOR basis swaps |
|
$ |
(1 |
) |
|
|
|
10% |
||
|
|
|
|
|
|
|
Bid/ask adjustment to |
|
.08% |
|
Cross-currency interest rate swaps |
|
|
(250 |
) |
|
|
Constant Prepayment Rate |
|
5% |
|
Other |
|
|
— |
|
|
|
|
|
|
|
Total |
|
$ |
(251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||
(Dollars in millions) |
|
Fair |
|
|
Carrying |
|
|
Difference |
|
|
Fair |
|
|
Carrying |
|
|
Difference |
|
||||||
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
FFELP Loans |
|
$ |
38,180 |
|
|
$ |
39,581 |
|
|
$ |
(1,401 |
) |
|
$ |
41,426 |
|
|
$ |
43,525 |
|
|
$ |
(2,099 |
) |
Private Education Loans |
|
|
16,418 |
|
|
|
17,333 |
|
|
|
(915 |
) |
|
|
17,880 |
|
|
|
18,725 |
|
|
|
(845 |
) |
Cash and investments |
|
|
2,950 |
|
|
|
2,950 |
|
|
|
— |
|
|
|
4,974 |
|
|
|
4,974 |
|
|
|
— |
|
Total earning assets |
|
|
57,548 |
|
|
|
59,864 |
|
|
|
(2,316 |
) |
|
|
64,280 |
|
|
|
67,224 |
|
|
|
(2,944 |
) |
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Short-term borrowings |
|
|
4,670 |
|
|
|
4,662 |
|
|
|
(8 |
) |
|
|
5,879 |
|
|
|
5,870 |
|
|
|
(9 |
) |
Long-term borrowings |
|
|
52,570 |
|
|
|
54,907 |
|
|
|
2,337 |
|
|
|
57,652 |
|
|
|
61,026 |
|
|
|
3,374 |
|
Total interest-bearing liabilities |
|
|
57,240 |
|
|
|
59,569 |
|
|
|
2,329 |
|
|
|
63,531 |
|
|
|
66,896 |
|
|
|
3,365 |
|
Derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Floor Income Contracts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Interest rate swaps |
|
|
16 |
|
|
|
16 |
|
|
|
— |
|
|
|
51 |
|
|
|
51 |
|
|
|
— |
|
Cross-currency interest rate swaps |
|
|
(250 |
) |
|
|
(250 |
) |
|
|
— |
|
|
|
(253 |
) |
|
|
(253 |
) |
|
|
— |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Excess of net asset fair value over carrying value |
|
|
|
|
|
|
|
$ |
13 |
|
|
|
|
|
|
|
|
$ |
421 |
|
76
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
9. Commitments, Contingencies and Guarantees
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 recent developments in connection with the Company's CFPB matter, the Company accrued a probable incurred loss of $45 million in the third quarter of 2023. The litigation process is not predictable and can lead to unexpected results. Therefore, it is reasonably possible that the Company’s exposure to loss may exceed any amounts accrued.
77
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
9. Commitments, Contingencies and Guarantees (Continued)
The Company believes the estimate of the aggregate range of reasonably possible losses (meaning the likelihood of losses is more than remote but less than likely) in connection with this matter, is from $0 to $250 million. This estimated range of reasonably possible losses was based on currently available information for this matter. This estimate does not represent the Company's maximum potential loss exposure, and further developments could result in the matter being resolved for more or less than the amount currently accrued. It is possible that an adverse outcome may have a material impact on the Company.
Set forth below are descriptions of the Company’s material legal proceedings.
Certain Cases
In January 2017, the Consumer Financial Protection Bureau (the CFPB) and Attorneys General for the State of Illinois and the State of Washington initiated civil actions naming Navient Corporation and several of its subsidiaries as defendants alleging violations of certain Federal and State consumer protection statutes, including the CFPA, FCRA, FDCPA and various state consumer protection laws. The Attorneys General for the States of Pennsylvania, California, Mississippi, and New Jersey also initiated actions against the Company and certain subsidiaries alleging violations of various state and federal consumer protection laws based upon similar alleged acts or failures to act. In addition to these matters, a number of lawsuits have been filed by nongovernmental parties or, in the future, may be filed by additional governmental or nongovernmental parties seeking damages or other remedies related to similar issues raised by the CFPB and the State Attorneys General. In January 2022, we entered into a series of Consent Judgment and Orders (the “Agreements”) with 40 State Attorneys General to resolve all matters in dispute related to the State Attorneys General cases as well as the related investigations, subpoenas, civil investigative demands and inquiries from various other state regulators. These Agreements do not resolve the litigation involving the Company and the CFPB.
As the Company has previously stated, we believe the allegations in the CFPB suit are false and that they improperly seek to impose penalties on Navient based on new, previously unannounced servicing standards applied retroactively against only one servicer. We therefore have denied these allegations and are vigorously defending against the allegations in that case.
On April 12, 2023, the Company reached an agreement in principle (“Settlement”) with certain plaintiffs for a nationwide settlement of claims raised in the following bankruptcy adversary actions: Coyle v. Navient Solutions, LLC, No. 22-80018 (Bankr. W.D. Mich.); Homaidan v. SLM Corp., No. 1:17-ap-01085 (Bankr. E.D.N.Y.); Mazloom v. Navient Solutions, LLC, No. 20-80033-6 (Bankr. N.D.N.Y.); and Woodard v. Navient Solutions, LLC, No. 08-81442 (Bankr. D. Neb.) collectively referred to as the “Bankruptcy Cases.” This settlement in principle is subject, among other things, to final documentation and final court approval. Under the Settlement, Navient will forego the collection of defined balances for borrowers or co-borrowers of certain private loans — all of which were originated prior to our company separation — who have received a discharge in bankruptcy during the periods covered by the agreements. As a result, we recorded a $23 million additional private loan provision for loan losses in the first quarter of 2023 related to the estimated future charge offs that are expected to occur. The Company has also agreed to fund settlement funds. It anticipates that any cash contribution it will be required to make to these funds will not exceed $44 million in the aggregate and will be fully covered by insurance. The net impact to operating expense for this element of the settlement for the first quarter of 2023 was $0 due to the accrual of the offsetting insurance reimbursements.
78
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
9. Commitments, Contingencies and Guarantees (Continued)
Regulatory Matters
The Company has been named as defendant in a number of putative class action cases alleging violations of various state and federal consumer protection laws including the Telephone Consumer Protection Act (TCPA), the Consumer Financial Protection Act of 2010 (CFPA), the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA), in adversarial proceedings under the U.S. Bankruptcy Code, and various state consumer protection laws. At this point in time, the Company is unable to anticipate the timing of a resolution or the impact that these legal proceedings may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows. As a result, it is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection with these matters and loss contingency accruals have not been established. It is possible that an adverse ruling or rulings may have a material adverse impact on the Company.
In addition, Navient and its subsidiaries are subject to examination or regulation by various federal regulatory, state licensing or other regulatory agencies as part of its ordinary course of business including the SEC, CFPB, FFIEC and ED. Items or matters similar to or different from those described above may arise during the course of those examinations. We also routinely receive inquiries or requests from various regulatory entities or bodies or government agencies concerning our business or our assets. Generally, the Company endeavors to cooperate with each such inquiry or request. The Company has received separate CIDs or subpoenas from multiple State Attorneys General that are similar to the CIDs or subpoenas that preceded the lawsuits referenced above. Those CIDs and subpoenas have been resolved as part of the Company’s settlement with the State Attorneys General. Nevertheless, we have received and, in the future may receive, additional CIDs or subpoenas and other inquiries from these or other Attorneys General with respect to similar or different matters.
Under the terms of the Separation and Distribution Agreement between the Company and SLM BankCo, Navient agreed to indemnify SLM BankCo for claims, actions, damages, losses or expenses that may arise from the conduct of activities of pre-Spin-Off SLM BankCo occurring prior to the Spin-Off other than those specifically excluded in that agreement. Also, as part of the Separation and Distribution Agreement, SLM BankCo agreed to indemnify Navient for certain claims, actions, damages, losses or expenses subject to the terms, conditions and limitations set forth in that agreement. As a result, subject to the terms, conditions and limitations set forth in that agreement, Navient agreed to indemnify and hold harmless Sallie Mae and its subsidiaries, including Sallie Mae Bank from liabilities arising out of the regulatory matters and CFPB and State Attorneys General lawsuits mentioned above. In addition, we asserted various claims for indemnification against Sallie Mae and Sallie Mae Bank for such specifically excluded items arising out of the CFPB and the State Attorneys General lawsuits if and to the extent any indemnified liabilities exist now or in the future. Navient has no accrued liabilities related to indemnification matters with SLM BankCo as of September 30, 2023.
79
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
10. Revenue from Contracts with Customers Accounted for in Accordance with ASC 606
The following tables illustrate the disaggregation of revenue from contracts accounted for under ASC 606 with customers according to service type and client type by reportable operating segment.
Revenue by Service Type
|
|
Three Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||
(Dollars in millions) |
|
Federal Education Loans |
|
|
Business Processing |
|
|
Total Revenue |
|
|
Federal Education Loans |
|
|
Business Processing |
|
|
Total Revenue |
|
||||||
Federal Education Loan |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Government services |
|
|
— |
|
|
|
57 |
|
|
|
57 |
|
|
|
— |
|
|
|
47 |
|
|
|
47 |
|
Healthcare services |
|
|
— |
|
|
|
28 |
|
|
|
28 |
|
|
|
— |
|
|
|
32 |
|
|
|
32 |
|
Total |
|
$ |
— |
|
|
$ |
85 |
|
|
$ |
85 |
|
|
$ |
— |
|
|
$ |
79 |
|
|
$ |
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||
(Dollars in millions) |
|
Federal Education Loans |
|
|
Business Processing |
|
|
Total Revenue |
|
|
Federal Education Loans |
|
|
Business Processing |
|
|
Total Revenue |
|
||||||
Federal Education Loan |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
1 |
|
Government services |
|
|
— |
|
|
|
149 |
|
|
|
149 |
|
|
|
— |
|
|
|
149 |
|
|
|
149 |
|
Healthcare services |
|
|
— |
|
|
|
91 |
|
|
|
91 |
|
|
|
— |
|
|
|
111 |
|
|
|
111 |
|
Total |
|
$ |
— |
|
|
$ |
240 |
|
|
$ |
240 |
|
|
$ |
1 |
|
|
$ |
260 |
|
|
$ |
261 |
|
80
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
10. Revenue from Contracts with Customers Accounted for in Accordance with ASC 606 (Continued)
Revenue by Client Type
|
|
Three Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||
(Dollars in millions) |
|
Federal Education Loans |
|
|
Business Processing |
|
|
Total Revenue |
|
|
Federal Education Loans |
|
|
Business Processing |
|
|
Total Revenue |
|
||||||
Federal government |
|
$ |
— |
|
|
$ |
20 |
|
|
$ |
20 |
|
|
$ |
— |
|
|
$ |
2 |
|
|
$ |
2 |
|
Guarantor agencies |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
State and local government |
|
|
— |
|
|
|
17 |
|
|
|
17 |
|
|
|
— |
|
|
|
27 |
|
|
|
27 |
|
Tolling authorities |
|
|
— |
|
|
|
20 |
|
|
|
20 |
|
|
|
— |
|
|
|
18 |
|
|
|
18 |
|
Hospitals and other |
|
|
— |
|
|
|
28 |
|
|
|
28 |
|
|
|
— |
|
|
|
32 |
|
|
|
32 |
|
Total |
|
$ |
— |
|
|
$ |
85 |
|
|
$ |
85 |
|
|
$ |
— |
|
|
$ |
79 |
|
|
$ |
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||
(Dollars in millions) |
|
Federal Education Loans |
|
|
Business Processing |
|
|
Total Revenue |
|
|
Federal Education Loans |
|
|
Business Processing |
|
|
Total Revenue |
|
||||||
Federal government |
|
$ |
— |
|
|
$ |
43 |
|
|
$ |
43 |
|
|
$ |
— |
|
|
$ |
6 |
|
|
$ |
6 |
|
Guarantor agencies |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
State and local government |
|
|
— |
|
|
|
52 |
|
|
|
52 |
|
|
|
— |
|
|
|
95 |
|
|
|
95 |
|
Tolling authorities |
|
|
— |
|
|
|
54 |
|
|
|
54 |
|
|
|
— |
|
|
|
48 |
|
|
|
48 |
|
Hospitals and other |
|
|
— |
|
|
|
91 |
|
|
|
91 |
|
|
|
— |
|
|
|
111 |
|
|
|
111 |
|
Total |
|
$ |
— |
|
|
$ |
240 |
|
|
$ |
240 |
|
|
$ |
1 |
|
|
$ |
260 |
|
|
$ |
261 |
|
As of September 30, 2023 and September 30, 2022, there was $88 million and $76 million respectively, of net accounts receivable related to these contracts. Navient had no material contract assets or contract liabilities.
81
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
11. Segment Reporting
We monitor and assess our ongoing operations and results based on the following four reportable operating segments: Federal Education Loans, Consumer Lending, Business Processing and Other.
These segments meet the quantitative thresholds for reportable operating segments. Accordingly, the results of operations of these reportable operating segments are presented separately. The underlying operating segments are used by the Company’s chief operating decision maker to manage the business, review operating performance and allocate resources, and qualify to be aggregated as part of the primary reportable operating segments. As discussed further below, we measure the profitability of our operating segments based on Core Earnings net income. Accordingly, information regarding our reportable operating segments net income is provided on a Core Earnings basis.
Federal Education Loans Segment
Navient owns FFELP Loans and performs servicing on this portfolio. We also service FFELP Loans owned by other institutions. Our servicing quality, data-driven strategies and omnichannel education about federal repayment options translate into positive results for the millions of borrowers we serve. We generate revenue primarily through net interest income on our FFELP Loans and servicing-related fee income.
The following table includes asset information for our Federal Education Loans segment.
(Dollars in millions) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
FFELP Loans, net |
|
$ |
39,581 |
|
|
$ |
43,525 |
|
Cash and investments(1) |
|
|
1,350 |
|
|
|
2,746 |
|
Other |
|
|
2,116 |
|
|
|
2,229 |
|
Total assets |
|
$ |
43,047 |
|
|
$ |
48,500 |
|
Consumer Lending Segment
Navient owns, originates and services in-school and refinance Private Education Loans. "In-school" Private Education Loans are loans originally made to borrowers while they are attending school whereas "Refinance" Private Education Loans are loans where a borrower has refinanced their education loans. We generate revenue primarily through net interest income on our Private Education Loan portfolio.
Navient helps students and families through the going-to and paying-for-college journey. Our digital tools empower people to find grants and scholarships, compare financial aid offers and complete the FAFSA. Our Private Education Loans offer easy-to-understand payment options. After graduation, we offer student loan refinancing to help people simplify their repayment and earn a better rate. We believe our 50 years of experience, product design, digital marketing strategies, and origination and servicing platform provide a unique competitive advantage.
The following table includes asset information for our Consumer Lending segment.
(Dollars in millions) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Private Education Loans, net |
|
$ |
17,333 |
|
|
$ |
18,725 |
|
Cash and investments(1) |
|
|
532 |
|
|
|
617 |
|
Other |
|
|
541 |
|
|
|
453 |
|
Total assets |
|
$ |
18,406 |
|
|
$ |
19,795 |
|
82
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
11. Segment Reporting (Continued)
Business Processing Segment
Navient provides business processing solutions such as omnichannel contact center services, workflow processing, and revenue cycle optimization. We leverage the same expertise and intelligent tools we use to deliver successful results for portfolios we own. Our support enables our clients to ensure better constituent outcomes, meet rapidly changing needs, improve technology, reduce operating expenses, manage risk and optimize revenue opportunities. Our clients include:
At September 30, 2023 and December 31, 2022, the Business Processing segment had total assets of $390 million and $390 million, respectively.
Other Segment
This segment consists of our corporate liquidity portfolio, gains and losses incurred on the repurchase of debt, unallocated expenses of shared services (which includes regulatory expenses) and restructuring/other reorganization expenses.
Unallocated shared services expenses are comprised of costs primarily related to information technology costs related to infrastructure and operations, stock-based compensation expense, accounting, finance, legal, compliance and risk management, regulatory-related expenses, human resources, certain executive management and the board of directors. Regulatory-related expenses include actual settlement amounts as well as third-party professional fees we incur in connection with such regulatory matters and are presented net of any insurance reimbursements for covered costs related to such matters.
At September 30, 2023 and December 31, 2022, the Other segment had total assets of $1.6 billion and $2.1 billion, respectively.
83
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
11. Segment Reporting (Continued)
Measure of Profitability
We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide Core Earnings disclosure in the notes to our consolidated financial statements for our business segments.
Core Earnings are not a substitute for reported results under GAAP. We use Core Earnings to manage our business segments because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that can create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that Core Earnings provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information because we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. When compared to GAAP results, the two items we remove to result in our Core Earnings presentations are:
While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our Core Earnings basis of presentation does not. Core Earnings are subject to certain general and specific limitations that investors should carefully consider. For example, there is no comprehensive, authoritative guidance for management reporting. Our Core Earnings are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Accordingly, our Core Earnings presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not be able to compare our performance with that of other financial services companies based upon Core Earnings. Core Earnings results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, our board of directors, credit rating agencies, lenders and investors to assess performance.
84
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
11. Segment Reporting (Continued)
Segment Results and Reconciliations to GAAP
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||||||||||||||||||
|
|
|
|
|
Adjustments |
|
|
|
|
|
Reportable Segments |
|
||||||||||||||||||||||||
(Dollars in millions) |
|
Total |
|
|
Reclassi- |
|
|
Additions/ |
|
|
Total |
|
|
Total |
|
|
Federal Education Loans |
|
|
Consumer Lending |
|
|
Business Processing |
|
|
Other |
|
|||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Education loans |
|
$ |
1,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
778 |
|
|
$ |
351 |
|
|
$ |
— |
|
|
$ |
— |
|
||||
Cash and investments |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
7 |
|
|
|
— |
|
|
|
15 |
|
||||
Total interest income |
|
|
1,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
797 |
|
|
|
358 |
|
|
|
— |
|
|
|
15 |
|
||||
Total interest expense |
|
|
879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
636 |
|
|
|
208 |
|
|
|
— |
|
|
|
46 |
|
||||
Net interest income |
|
|
291 |
|
|
$ |
7 |
|
|
$ |
(18 |
) |
|
$ |
(11 |
) |
|
$ |
280 |
|
|
|
161 |
|
|
|
150 |
|
|
|
— |
|
|
|
(31 |
) |
Less: provisions for loan |
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
72 |
|
|
|
36 |
|
|
|
36 |
|
|
|
— |
|
|
|
— |
|
|||
Net interest income |
|
|
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125 |
|
|
|
114 |
|
|
|
— |
|
|
|
(31 |
) |
||||
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Servicing revenue |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
||||
Asset recovery and |
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
85 |
|
|
|
— |
|
||||
Other revenue |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
||||
Total other income |
|
|
131 |
|
|
|
(7 |
) |
|
|
(19 |
) |
|
|
(26 |
) |
|
|
105 |
|
|
|
15 |
|
|
|
4 |
|
|
|
85 |
|
|
|
1 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Direct operating |
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
44 |
|
|
|
73 |
|
|
|
— |
|
||||
Unallocated shared |
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
99 |
|
||||
Operating expenses |
|
|
233 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
233 |
|
|
|
17 |
|
|
|
44 |
|
|
|
73 |
|
|
|
99 |
|
Goodwill and acquired |
|
|
3 |
|
|
|
— |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restructuring/other |
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
Total expenses |
|
|
240 |
|
|
|
— |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
237 |
|
|
|
17 |
|
|
|
44 |
|
|
|
73 |
|
|
|
103 |
|
Income (loss) before |
|
|
110 |
|
|
|
— |
|
|
|
(34 |
) |
|
|
(34 |
) |
|
|
76 |
|
|
|
123 |
|
|
|
74 |
|
|
|
12 |
|
|
|
(133 |
) |
Income tax expense |
|
|
31 |
|
|
|
— |
|
|
|
(12 |
) |
|
|
(12 |
) |
|
|
19 |
|
|
|
29 |
|
|
|
18 |
|
|
|
3 |
|
|
|
(31 |
) |
Net income (loss) |
|
$ |
79 |
|
|
$ |
— |
|
|
$ |
(22 |
) |
|
$ |
(22 |
) |
|
$ |
57 |
|
|
$ |
94 |
|
|
$ |
56 |
|
|
$ |
9 |
|
|
$ |
(102 |
) |
|
|
Three Months Ended September 30, 2023 |
|
|||||||||
(Dollars in millions) |
|
Net Impact of |
|
|
Net Impact of |
|
|
Total |
|
|||
Net interest income (loss) after provisions for loan losses |
|
$ |
(11 |
) |
|
$ |
— |
|
|
$ |
(11 |
) |
Total other income (loss) |
|
|
(26 |
) |
|
|
— |
|
|
|
(26 |
) |
Goodwill and acquired intangible asset impairment and amortization |
|
|
— |
|
|
|
(3 |
) |
|
|
(3 |
) |
Total Core Earnings adjustments to GAAP |
|
$ |
(37 |
) |
|
$ |
3 |
|
|
|
(34 |
) |
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
(12 |
) |
||
Net income (loss) |
|
|
|
|
|
|
|
$ |
(22 |
) |
85
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
11. Segment Reporting (Continued)
|
|
Three Months Ended September 30, 2022 |
|
|||||||||||||||||||||||||||||||||
|
|
|
|
|
Adjustments |
|
|
|
|
|
Reportable Segments |
|
||||||||||||||||||||||||
(Dollars in millions) |
|
Total |
|
|
Reclassi- |
|
|
Additions/ |
|
|
Total |
|
|
Total |
|
|
Federal Education Loans |
|
|
Consumer Lending |
|
|
Business Processing |
|
|
Other |
|
|||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Education loans |
|
$ |
862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
555 |
|
|
$ |
309 |
|
|
$ |
— |
|
|
$ |
— |
|
||||
Cash and investments |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
3 |
|
|
|
— |
|
|
|
7 |
|
||||
Total interest income |
|
|
881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
564 |
|
|
|
312 |
|
|
|
— |
|
|
|
7 |
|
||||
Total interest expense |
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
444 |
|
|
|
159 |
|
|
|
— |
|
|
|
33 |
|
||||
Net interest income (loss) |
|
|
240 |
|
|
$ |
(1 |
) |
|
$ |
8 |
|
|
$ |
7 |
|
|
$ |
247 |
|
|
|
120 |
|
|
|
153 |
|
|
|
— |
|
|
|
(26 |
) |
Less: provisions for loan |
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
— |
|
|
|
28 |
|
|
|
— |
|
|
|
— |
|
|||
Net interest income (loss) |
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120 |
|
|
|
125 |
|
|
|
— |
|
|
|
(26 |
) |
||||
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Servicing revenue |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
||||
Asset recovery and |
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
— |
|
|
|
79 |
|
|
|
— |
|
||||
Other revenue |
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||||
Total other income (loss) |
|
|
150 |
|
|
|
1 |
|
|
|
(41 |
) |
|
|
(40 |
) |
|
|
110 |
|
|
|
28 |
|
|
|
3 |
|
|
|
79 |
|
|
|
— |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Direct operating |
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
43 |
|
|
|
67 |
|
|
|
— |
|
||||
Unallocated shared |
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
59 |
|
||||
Operating expenses |
|
|
194 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
194 |
|
|
|
25 |
|
|
|
43 |
|
|
|
67 |
|
|
|
59 |
|
Goodwill and acquired |
|
|
10 |
|
|
|
— |
|
|
|
(10 |
) |
|
|
(10 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restructuring/other |
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
Total expenses |
|
|
225 |
|
|
|
— |
|
|
|
(10 |
) |
|
|
(10 |
) |
|
|
215 |
|
|
|
25 |
|
|
|
43 |
|
|
|
67 |
|
|
|
80 |
|
Income (loss) before |
|
|
137 |
|
|
|
— |
|
|
|
(23 |
) |
|
|
(23 |
) |
|
|
114 |
|
|
|
123 |
|
|
|
85 |
|
|
|
12 |
|
|
|
(106 |
) |
Income tax expense |
|
|
32 |
|
|
|
— |
|
|
|
(5 |
) |
|
|
(5 |
) |
|
|
27 |
|
|
|
29 |
|
|
|
20 |
|
|
|
3 |
|
|
|
(25 |
) |
Net income (loss) |
|
$ |
105 |
|
|
$ |
— |
|
|
$ |
(18 |
) |
|
$ |
(18 |
) |
|
$ |
87 |
|
|
$ |
94 |
|
|
$ |
65 |
|
|
$ |
9 |
|
|
$ |
(81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2022 |
|
|||||||||
(Dollars in millions) |
|
Net Impact of |
|
|
Net Impact of |
|
|
Total |
|
|||
Net interest income (loss) after provisions for loan losses |
|
$ |
7 |
|
|
$ |
— |
|
|
$ |
7 |
|
Total other income (loss) |
|
|
(40 |
) |
|
|
— |
|
|
|
(40 |
) |
Goodwill and acquired intangible asset impairment and amortization |
|
|
— |
|
|
|
(10 |
) |
|
|
(10 |
) |
Total Core Earnings adjustments to GAAP |
|
$ |
(33 |
) |
|
$ |
10 |
|
|
|
(23 |
) |
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
(5 |
) |
||
Net income (loss) |
|
|
|
|
|
|
|
$ |
(18 |
) |
86
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
11. Segment Reporting (Continued)
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||||||||||||||||||
|
|
|
|
|
Adjustments |
|
|
|
|
|
Reportable Segments |
|
||||||||||||||||||||||||
(Dollars in millions) |
|
Total |
|
|
Reclassi- |
|
|
Additions/ |
|
|
Total |
|
|
Total |
|
|
Federal Education Loans |
|
|
Consumer Lending |
|
|
Business Processing |
|
|
Other |
|
|||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Education loans |
|
$ |
3,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,194 |
|
|
$ |
1,036 |
|
|
$ |
— |
|
|
$ |
— |
|
||||
Cash and investments |
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
20 |
|
|
|
— |
|
|
|
35 |
|
||||
Total interest income |
|
|
3,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,250 |
|
|
|
1,056 |
|
|
|
— |
|
|
|
35 |
|
||||
Total interest expense |
|
|
2,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,859 |
|
|
|
610 |
|
|
|
— |
|
|
|
119 |
|
||||
Net interest income |
|
|
702 |
|
|
$ |
24 |
|
|
$ |
27 |
|
|
$ |
51 |
|
|
$ |
753 |
|
|
|
391 |
|
|
|
446 |
|
|
|
— |
|
|
|
(84 |
) |
Less: provisions for loan |
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
68 |
|
|
|
51 |
|
|
|
17 |
|
|
|
— |
|
|
|
— |
|
|||
Net interest income |
|
|
634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340 |
|
|
|
429 |
|
|
|
— |
|
|
|
(84 |
) |
||||
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Servicing revenue |
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
||||
Asset recovery and |
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
240 |
|
|
|
— |
|
||||
Other revenue |
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
2 |
|
|
|
— |
|
|
|
3 |
|
||||
Total other income |
|
|
347 |
|
|
|
(24 |
) |
|
|
(20 |
) |
|
|
(44 |
) |
|
|
303 |
|
|
|
49 |
|
|
|
11 |
|
|
|
240 |
|
|
|
3 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Direct operating |
|
|
394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
124 |
|
|
|
215 |
|
|
|
— |
|
||||
Unallocated shared |
|
|
207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
207 |
|
||||
Operating expenses |
|
|
601 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
601 |
|
|
|
55 |
|
|
|
124 |
|
|
|
215 |
|
|
|
207 |
|
Goodwill and acquired |
|
|
8 |
|
|
|
— |
|
|
|
(8 |
) |
|
|
(8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restructuring/other |
|
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
23 |
|
Total expenses |
|
|
632 |
|
|
|
— |
|
|
|
(8 |
) |
|
|
(8 |
) |
|
|
624 |
|
|
|
55 |
|
|
|
124 |
|
|
|
215 |
|
|
|
230 |
|
Income (loss) before |
|
|
349 |
|
|
|
— |
|
|
|
15 |
|
|
|
15 |
|
|
|
364 |
|
|
|
334 |
|
|
|
316 |
|
|
|
25 |
|
|
|
(311 |
) |
Income tax expense |
|
|
93 |
|
|
|
— |
|
|
|
(7 |
) |
|
|
(7 |
) |
|
|
86 |
|
|
|
78 |
|
|
|
75 |
|
|
|
6 |
|
|
|
(73 |
) |
Net income (loss) |
|
$ |
256 |
|
|
$ |
— |
|
|
$ |
22 |
|
|
$ |
22 |
|
|
$ |
278 |
|
|
$ |
256 |
|
|
$ |
241 |
|
|
$ |
19 |
|
|
$ |
(238 |
) |
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||
(Dollars in millions) |
|
Net Impact of |
|
|
Net Impact of |
|
|
Total |
|
|||
Net interest income (loss) after provisions for loan losses |
|
$ |
51 |
|
|
$ |
— |
|
|
$ |
51 |
|
Total other income (loss) |
|
|
(44 |
) |
|
|
— |
|
|
|
(44 |
) |
Goodwill and acquired intangible asset impairment and amortization |
|
|
— |
|
|
|
(8 |
) |
|
|
(8 |
) |
Total Core Earnings adjustments to GAAP |
|
$ |
7 |
|
|
$ |
8 |
|
|
|
15 |
|
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
(7 |
) |
||
Net income (loss) |
|
|
|
|
|
|
|
$ |
22 |
|
87
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
11. Segment Reporting (Continued)
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||||||||||||||||||||||||||
|
|
|
|
|
Adjustments |
|
|
|
|
|
Reportable Segments |
|
||||||||||||||||||||||||
(Dollars in millions) |
|
Total |
|
|
Reclassi- |
|
|
Additions/ |
|
|
Total |
|
|
Total |
|
|
Federal Education Loans |
|
|
Consumer Lending |
|
|
Business Processing |
|
|
Other |
|
|||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Education loans |
|
$ |
2,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,298 |
|
|
$ |
862 |
|
|
$ |
— |
|
|
$ |
— |
|
||||
Cash and investments |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
5 |
|
|
|
— |
|
|
|
8 |
|
||||
Total interest income |
|
|
2,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,310 |
|
|
|
867 |
|
|
|
— |
|
|
|
8 |
|
||||
Total interest expense |
|
|
1,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
905 |
|
|
|
421 |
|
|
|
— |
|
|
|
65 |
|
||||
Net interest income |
|
|
898 |
|
|
$ |
(20 |
) |
|
$ |
(84 |
) |
|
$ |
(104 |
) |
|
$ |
794 |
|
|
|
405 |
|
|
|
446 |
|
|
|
— |
|
|
|
(57 |
) |
Less: provisions for loan |
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
— |
|
|
|
62 |
|
|
|
— |
|
|
|
— |
|
|||
Net interest income |
|
|
836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
405 |
|
|
|
384 |
|
|
|
— |
|
|
|
(57 |
) |
||||
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Servicing revenue |
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
||||
Asset recovery and |
|
|
264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
— |
|
|
|
260 |
|
|
|
— |
|
||||
Other revenue |
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
1 |
|
|
|
— |
|
|
|
(3 |
) |
||||
Total other income |
|
|
507 |
|
|
|
20 |
|
|
|
(181 |
) |
|
|
(161 |
) |
|
|
346 |
|
|
|
79 |
|
|
|
10 |
|
|
|
260 |
|
|
|
(3 |
) |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Direct operating |
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79 |
|
|
|
113 |
|
|
|
216 |
|
|
|
— |
|
||||
Unallocated shared |
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
180 |
|
||||
Operating expenses |
|
|
588 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
588 |
|
|
|
79 |
|
|
|
113 |
|
|
|
216 |
|
|
|
180 |
|
Goodwill and acquired |
|
|
17 |
|
|
|
— |
|
|
|
(17 |
) |
|
|
(17 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restructuring/other |
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
Total expenses |
|
|
630 |
|
|
|
— |
|
|
|
(17 |
) |
|
|
(17 |
) |
|
|
613 |
|
|
|
79 |
|
|
|
113 |
|
|
|
216 |
|
|
|
205 |
|
Income (loss) before |
|
|
713 |
|
|
|
— |
|
|
|
(248 |
) |
|
|
(248 |
) |
|
|
465 |
|
|
|
405 |
|
|
|
281 |
|
|
|
44 |
|
|
|
(265 |
) |
Income tax expense |
|
|
173 |
|
|
|
— |
|
|
|
(64 |
) |
|
|
(64 |
) |
|
|
109 |
|
|
|
95 |
|
|
|
66 |
|
|
|
11 |
|
|
|
(63 |
) |
Net income (loss) |
|
$ |
540 |
|
|
$ |
— |
|
|
$ |
(184 |
) |
|
$ |
(184 |
) |
|
$ |
356 |
|
|
$ |
310 |
|
|
$ |
215 |
|
|
$ |
33 |
|
|
$ |
(202 |
) |
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||
(Dollars in millions) |
|
Net Impact of |
|
|
Net Impact of |
|
|
Total |
|
|||
Net interest income (loss) after provisions for loan losses |
|
$ |
(104 |
) |
|
$ |
— |
|
|
$ |
(104 |
) |
Total other income (loss) |
|
|
(161 |
) |
|
|
— |
|
|
|
(161 |
) |
Goodwill and acquired intangible asset impairment and amortization |
|
|
— |
|
|
|
(17 |
) |
|
|
(17 |
) |
Total Core Earnings adjustments to GAAP |
|
$ |
(265 |
) |
|
$ |
17 |
|
|
|
(248 |
) |
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
(64 |
) |
||
Net income (loss) |
|
|
|
|
|
|
|
$ |
(184 |
) |
88
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2023 and for the three and nine months ended
September 30, 2023 and 2022 is unaudited)
11. Segment Reporting (Continued)
Summary of Core Earnings Adjustments to GAAP
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
GAAP net income |
|
$ |
79 |
|
|
$ |
105 |
|
|
$ |
256 |
|
|
$ |
540 |
|
Core Earnings adjustments to GAAP: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net impact of derivative accounting(1) |
|
|
(37 |
) |
|
|
(33 |
) |
|
|
7 |
|
|
|
(265 |
) |
Net impact of goodwill and acquired |
|
|
3 |
|
|
|
10 |
|
|
|
8 |
|
|
|
17 |
|
Net tax effect(3) |
|
|
12 |
|
|
|
5 |
|
|
|
7 |
|
|
|
64 |
|
Total Core Earnings adjustments to GAAP |
|
|
(22 |
) |
|
|
(18 |
) |
|
|
22 |
|
|
|
(184 |
) |
Core Earnings net income |
|
$ |
57 |
|
|
$ |
87 |
|
|
$ |
278 |
|
|
$ |
356 |
|
89
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
NAVIENT CORPORATION (Registrant) |
|
|
By: |
/s/ JOE FISHER |
|
|
Joe Fisher |
|
|
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
Date: October 25, 2023
90
APPENDIX A
form 10-Q cross-reference index
|
|
Page Number |
Part I. Financial Information |
||
|
|
|
|
|
|
Item 1. |
48-89 |
|
|
|
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
6-38 |
|
|
|
Item 3. |
40-44 |
|
|
|
|
Item 4. |
46 |
|
|
|
|
Part II. Other Information |
|
|
|
|
|
Item 1. |
39, 77 |
|
|
|
|
Item 1A. |
39 |
|
|
|
|
Item 2. |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
45 |
|
|
|
Item 3. |
Defaults Upon Senior Securities |
Not Applicable |
|
|
|
Item 4. |
Mine Safety Disclosures |
Not Applicable |
|
|
|
Item 5. |
46 |
|
|
|
|
Item 6. |
47 |
|
|
|
|
|
90 |
91