Financial Data and Key Metrics Changes - The company reported an adjusted core EPS of $1.06 for the first quarter, with a return on equity (ROE) of 19% and an efficiency ratio of 53% [3][32] - The adjusted tangible equity ratio increased to 8.5% from 7% a year ago, and the company returned $106 million to shareholders through dividends and share repurchases [4][32] - GAAP net income for the first quarter was $111 million or $0.86 per share, compared to $255 million or $1.67 per share from the previous year [38] Business Line Data and Key Metrics Changes - In the Federal Education Loans segment, the net interest margin (NIM) was 112 basis points, up from 104 basis points a year ago, with a full-year NIM expectation of 100 to 110 basis points [33][24] - The Consumer Lending segment achieved a net interest income of $153 million with a NIM of 312 basis points, an improvement of 32 basis points compared to the prior year [125] - Revenue from traditional business processing services increased by 26% year-over-year, with a forecast of 10% revenue growth and high teens EBITDA margin for the full year [30][37] Market Data and Key Metrics Changes - The company noted a decrease in self-delinquency rates to 14.4% from 15.6% and forbearance rates decreased to 16.9% from 18.1% [24] - The origination of private education loans totaled $168 million, with $33 million from new in-school volume and $135 million from refinanced loans, reflecting a decline in refinancing due to a higher rate environment [36][125] - The company anticipates a net charge-off rate between 10 basis points and 20 basis points for the full year 2023 [24] Company Strategy and Development Direction - The company aims to double loan originations in 2023, focusing on the in-school market driven by new student enrollments, which are rebounding post-COVID [10][124] - The strategy includes maximizing loan portfolio performance, improving operating efficiency, and disciplined capital management [19][22] - The company is leveraging its experience in servicing student loans to expand into government services, healthcare, and transportation sectors [9][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting full-year guidance despite start-up costs impacting profitability by $0.03 per share [20][32] - The company anticipates continued improvements in credit performance, with lower delinquency and default rates than pre-pandemic levels [120] - Management highlighted the importance of strong asset liability and capital management, with 85% of the education loan portfolio funded to term [65] Other Important Information - The company recorded a $52 million benefit from an accounting rule change for modified loans, which reduced the provision for loan losses [31] - The company expects to repurchase $225 million worth of shares for the remainder of the year [4] - The company has seen a significant decline in prepayment activity, which is expected to increase the life of the portfolio [61] Q&A Session Summary Question: Can you elaborate on the revenue growth from government healthcare services? - Management noted strong growth in government services, winning a large new contract that involves inbound and outbound telephony and customer communication [41] Question: What are the remaining pandemic-related revenues in the segment? - Management confirmed that there are no pandemic-related services expected to continue [127] Question: What is the company's market share potential in the in-school channel? - The company aspires to be a top 3 lender in the in-school origination market and believes it can achieve this [90] Question: How does the company view the impact of interest rates on refinancing demand? - Management indicated that demand for refinancing is lower due to rising interest rates, and a more stable rate environment is needed to see a return in demand [92] Question: What are the expectations for the net interest margin (NIM) going forward? - Management expects NIM to remain stable, with potential fluctuations based on prepayment speeds and interest rate changes [83][104]

Financial Performance - Navient's Federal Education Loans portfolio was valued at $43.5 billion, with a net interest margin of 1.01% in 2022[40]. - The company originated $2.0 billion in Private Education Loans in 2022, with a total Private Education Loan portfolio of $18.7 billion[29]. - Net income for 2022 was $645 million, a decrease from $717 million in 2021, with diluted earnings per share of $4.49[64]. - The return on common stockholders' equity was 22% in 2022, down from 27% in 2021[64]. - The company generated EBITDA of $53 million in 2022, down $83 million, or 61%, from 2021, primarily due to a $158 million decrease in revenue[48]. - Total capital returned to shareholders in 2022 was $491 million, including $400 million in share repurchases and $91 million in dividends[37]. - 2022 GAAP net income was $645 million, or $4.49 diluted earnings per share, down from $717 million, or $4.18 diluted earnings per share in 2021, representing a 10% decrease[66][74]. - 2022 Core Earnings net income was $458 million, or $3.19 diluted Core Earnings per share, compared to $551 million, or $3.21 diluted Core Earnings per share in 2021, reflecting a decrease of 17%[67]. Loan Portfolio and Originations - Navient's total loan originations in 2022 were $2.0 billion, down from $6.0 billion in 2021[45]. - In 2022, Private Education Refinance Loans originations were $1.7 billion, a significant decrease from $5.8 billion in 2021, attributed to rising interest rates[44]. - In-school loan originations increased by 52% to $322 million in 2022 compared to $212 million in 2021[44]. - The average balance of Private Education Loans was $20.524 billion in 2022, down from $21.225 billion in 2021[102]. - The ending balance of Private Education Loans, net, was $18.725 billion in 2022, compared to $20.171 billion in 2021[102]. - The company originated $2,051 million in new loans in 2022, a decrease from $6,104 million in 2021, reflecting a decline of approximately 66.4%[122]. Interest Income and Expenses - Total interest income increased by $575 million to $3,223 million in 2022, a rise of 22% compared to 2021[73]. - Net interest income decreased by $211 million to $1,121 million in 2022, primarily due to the paydown of loan portfolios and rising interest rates[76]. - The net interest margin decreased to 2.81% in 2022 from 2.92% in 2021, primarily due to a higher proportion of lower-yielding Private Education refinance loans[102]. - The total interest expense for 2021 was $1,316 million, a decrease from $2,046 million in 2020, reflecting a decline of approximately 35.8%[189]. Loan Loss Provisions and Charge-offs - Provisions for loan losses increased by $140 million, from a negative provision of $(61) million in 2021 to $79 million in 2022[74][76]. - Net charge-offs for Private Education Loans increased to $343 million from $153 million[99]. - The total provision for loan losses in 2022 was $79 million, reflecting a focus on managing credit risk[126]. - The allowance for loan losses for Private Education Loans was $800 million at the end of 2022, down from $1,089 million in 2020[126]. Compliance and Risk Management - The company emphasizes compliance with various federal and state regulations, maintaining a robust compliance management system[36]. - The company maintains comprehensive risk management practices to identify and control significant risks[209]. - Risk management responsibilities are assigned at various levels within the organization, including the board of directors[210]. Shareholder Returns and Equity - Navient's share repurchase program authorized the purchase of up to $1 billion, with $600 million remaining as of December 31, 2022[36]. - The company repurchased 24.8 million shares of common stock in 2022, reducing the average outstanding diluted shares by 16%[75]. - Adjusted Tangible Equity Ratio was reported at 7.7% as of December 31, 2022, an increase from 5.9% in 2021[36]. Economic Conditions and Future Outlook - The company anticipates potential negative impacts on the loan portfolio due to the end of payment relief and stimulus benefits in 2023[155]. - The company noted a decline in forecasted economic conditions, including increased unemployment rates and decreased GDP, impacting the allowance for loan losses[155]. - The company is subject to significant uncertainty regarding the potential impact of the SDR Plan changes on its financial results, which may differ from estimates[180].

Navient Corporation (NASDAQ:NAVI) Q4 2022 Earnings Conference Call January 25, 2023 8:00 AM ET Company Participants Jennifer Earyes - Head of Investor Relations Jack Remondi - President and Chief Executive Officer Joe Fisher - Executive Vice President and Chief Financial Officer Conference Call Participants William Ryan - Seaport Research Partners Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc. Mark DeVries - Barclays Bank PLC Moshe Orenbuch - Credit Suisse Richard Shane - JPMorgan Chase & Co. Giuliano And ...

Confidential and proprietary information © 2023 Navient Solutions, LLC. All rights reserved. 3 The company could also be affected by, among other things: Federal Education Loans Segment Selected Financial Information and Ratios January 25, 2023 The following information is current as of December 31, 2022 (unless otherwise noted) and should be read in connection with Navient Corporation's "Navient" Annual Report on Form 10-K for the year end December 31, 2021 (the "2021 Form 10-K"), filed by Navient with the ...

[Forward-Looking and Cautionary Statements](index=3&type=section&id=FORWARD-LOOKING%20AND%20CAUTIONARY%20STATEMENTS) This section highlights that the report contains forward-looking statements subject to risks and uncertainties, advising readers to consult the 'Risk Factors' section - The report contains forward-looking statements based on management's current expectations, subject to various risks and uncertainties, with readers advised to review the 'Risk Factors' section[10](index=10&type=chunk)[11](index=11&type=chunk) - Key risks encompass the continuing impacts of the COVID-19 pandemic, general economic conditions including **persistent inflation**, increased education loan defaults, funding costs, interest rate changes, and unanticipated repayment trends from new policies[10](index=10&type=chunk)[14](index=14&type=chunk) [Use of Non-GAAP Financial Measures](index=4&type=section&id=USE%20OF%20NON-GAAP%20FINANCIAL%20MEASURES) Navient uses 'Core Earnings' and other non-GAAP financial measures to evaluate business segments, present financial results, and inform internal management decisions - Navient evaluates business segments and presents financial results using **'Core Earnings,'** a non-GAAP financial measure, for internal management decisions and resource allocation[16](index=16&type=chunk) - Other non-GAAP measures include Adjusted Core Earnings, Tangible Equity, Adjusted Tangible Equity Ratio, Pro forma Adjusted Tangible Equity Ratio, Business Processing EBITDA, and Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans[17](index=17&type=chunk) [Business](index=5&type=section&id=Business) Navient delivers technology-enabled education finance and business processing solutions, managing substantial FFELP and Private Education Loan portfolios while focusing on operational excellence and capital returns [Overview and Fundamentals of Our Business](index=5&type=section&id=Overview%20and%20Fundamentals%20of%20Our%20Business) Navient provides technology-enabled education finance and business processing solutions, managing significant FFELP and Private Education Loan portfolios with a focus on operational excellence and capital returns - Navient provides technology-enabled education finance and business processing solutions, delivering customer-focused, data-driven services to clients in education, healthcare, and government[19](index=19&type=chunk) Education Loan Portfolios (as of Q3 2022) | Portfolio Type | Balance ($ Billion) | Q3 2022 Originations ($ Million) | | :------------- | :------------------ | :------------------------------- | | FFELP Loans | $46.9 | N/A | | Private Education Loans | $19.2 | $447 | - Navient provides business processing solutions to approximately **500 public sector and healthcare organizations**[22](index=22&type=chunk) - The company commits to superior operational performance, leveraging experience, data-driven insights, technology, and scale to simplify complex processes and enhance customer experience[23](index=23&type=chunk)[25](index=25&type=chunk) Capital Return Highlights (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 | Q3 2021 | Change | | :-------------------------- | :------ | :------ | :----- | | Shares Repurchased (Million) | 6.3 | 7.0 | (0.7) | | Reduction in shares outstanding | 4% | 4% | 0% | | Total Repurchases ($ Million) | $95 | $150 | ($55) | | Dividends Paid ($ Million) | $22 | $26 | ($4) | | Total Capital Returned ($ Million) | $117 | $176 | ($59) | | Adjusted Tangible Equity Ratio | 7.8% | 6.4% | +1.4% | [How We Organize Our Business](index=8&type=section&id=How%20We%20Organize%20Our%20Business) Navient organizes its business into Federal Education Loans, Consumer Lending, Business Processing, and an 'Other' segment, each focusing on distinct financial services and client solutions - The Federal Education Loans segment owns and services FFELP Loans, generating revenue primarily through **net interest income**[33](index=33&type=chunk) - The Consumer Lending segment assists students and families with private education loans and refinancing products, generating revenue primarily through **net interest income** on its portfolio[34](index=34&type=chunk) - The Business Processing segment provides omnichannel contact center services, workflow processing, and revenue cycle optimization to government and healthcare clients[35](index=35&type=chunk) - The 'Other' segment encompasses the corporate liquidity portfolio, gains/losses on debt repurchases, and unallocated shared services expenses[35](index=35&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=9&type=section&id=Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Navient's financial performance, highlighting a significant decline in GAAP and Core Earnings net income for Q3 2022 and a decrease in total education loan portfolios [Selected Historical Financial Information and Ratios](index=9&type=section&id=Selected%20Historical%20Financial%20Information%20and%20Ratios) This section presents key historical financial data and ratios, showing a decline in GAAP and Core Earnings net income and diluted EPS for Q3 2022, alongside a decrease in total education loan portfolios Selected Financial Information (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 | Q3 2021 | Change ($ Million) | Change (%) | | :---------------------------------- | :------ | :------ | :----------------- | :--------- | | **GAAP Basis** | | | | | | Net income | $105 | $173 | ($68) | (39)% | | Diluted EPS | $0.75 | $1.04 | ($0.29) | (28)% | | Weighted Average Shares (Million) | 141 | 167 | (26) | (16)% | | Return on assets | 0.57% | 0.86% | (0.29)% | (33.7)% | | **Core Earnings Basis** | | | | | | Net income | $87 | $149 | ($62) | (41.6)% | | Diluted EPS | $0.62 | $0.89 | ($0.27) | (30.3)% | | Adjusted diluted EPS | $0.75 | $0.92 | ($0.17) | (18.5)% | | Net interest margin, Federal Education Loans segment | 0.94% | 1.04% | (0.10)% | (9.6)% | | Net interest margin, Consumer Lending segment | 2.90% | 2.98% | (0.08)% | (2.7)% | | Return on assets | 0.47% | 0.73% | (0.26)% | (35.6)% | | **Education Loan Portfolios (Ending, Net)** | | | | | | FFELP Loans ($ Million) | $46,891 | $54,350 | ($7,459) | (13.7)% | | Private Education Loans ($ Million) | $19,151 | $20,018 | ($867) | (4.3)% | | Total Education Loans ($ Million) | $66,042 | $74,368 | ($8,326) | (11.2)% | [The Quarter in Review](index=10&type=section&id=The%20Quarter%20in%20Review) This section reviews Q3 2022 performance, noting declines in GAAP and Core Earnings net income, segment-specific results, a **7.8% Adjusted Tangible Equity Ratio**, and **$95 million** in share repurchases Q3 2022 vs Q3 2021 Net Income and EPS | Metric | Q3 2022 | Q3 2021 | Change ($ Million) | Change (%) | | :-------------------------- | :------ | :------ | :----------------- | :--------- | | GAAP Net Income | $105 | $173 | ($68) | (39)% | | GAAP Diluted EPS | $0.75 | $1.04 | ($0.29) | (28)% | | Core Earnings Net Income | $87 | $149 | ($62) | (41.6)% | | Core Earnings Diluted EPS | $0.62 | $0.89 | ($0.27) | (30.3)% | | Adjusted Diluted Core EPS | $0.75 | $0.92 | ($0.17) | (18.5)% | - Federal Education Loans segment net income was **$94 million** with a FFELP net interest margin of **0.94%**[41](index=41&type=chunk) - Consumer Lending segment net income was **$65 million**, originating **$447 million** of Private Education Loans, with a delinquency rate of **4.4%**[41](index=41&type=chunk) - Business Processing segment EBITDA was **$13 million** on **$79 million** revenue[41](index=41&type=chunk) - The Adjusted Tangible Equity Ratio was **7.8%**; **$95 million** of common shares were repurchased, with **$685 million** common share repurchase authority remaining[41](index=41&type=chunk) [Navient's Response to COVID-19](index=11&type=section&id=Navient's%20Response%20to%20COVID-19) Navient prioritized employee safety and customer support during the COVID-19 pandemic, though its future impacts on business operations and financial condition remain uncertain - Navient prioritized employee safety and customer support in response to the COVID-19 pandemic[42](index=42&type=chunk) - The future direct and indirect impact of the pandemic on business operations, results, and financial condition remains uncertain, with potential adverse effects from deteriorating economic or public health conditions[42](index=42&type=chunk) [Results of Operations](index=11&type=section&id=Results%20of%20Operations) Navient's GAAP net income significantly decreased in Q3 2022 due to lower net interest income, higher loan loss provisions, and reduced servicing revenue, partially offset by derivative gains and lower debt repurchase losses GAAP Income Statement Highlights (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 ($ Million) | Q3 2021 ($ Million) | Change ($ Million) | Change (%) | | :------------------------------------------ | :------------------ | :------------------ | :----------------- | :--------- | | Total interest income | $881 | $660 | $221 | 33% | | Total interest expense | $641 | $326 | $315 | 97% | | Net interest income | $240 | $334 | ($94) | (28)% | | Provisions for loan losses | $28 | $22 | $6 | 27% | | Net interest income after provisions | $212 | $312 | ($100) | (32)% | | Servicing revenue | $24 | $47 | ($23) | (49)% | | Asset recovery & business processing revenue | $80 | $135 | ($55) | (41)% | | Losses on debt repurchases | $0 | ($20) | $20 | (100)% | | Gains (losses) on derivative activities, net | $40 | ($5) | $45 | 900% | | Total other income | $150 | $160 | ($10) | (6)% | | Operating expenses | $194 | $248 | ($54) | (22)% | | Restructuring/other reorganization expenses | $21 | $0 | $21 | 100% | | Net income | $105 | $173 | ($68) | (39)% | | Diluted EPS | $0.75 | $1.04 | ($0.29) | (28)% | - Net interest income decreased by **$94 million** due to a decline in Floor Income on the FFELP portfolio, continued loan portfolio paydown, and **$27 million** of additional loan premium and deferred financing fee amortization from loan forgiveness plans[49](index=49&type=chunk) - Servicing revenue decreased **$23 million** primarily due to the transfer of the Department of Education (ED) servicing contract to a third party in October 2021[49](index=49&type=chunk) - Asset recovery and business processing revenue decreased **$55 million**, primarily from a **$43 million** decrease in the Business Processing segment due to the wind-down of pandemic-related contracts[49](index=49&type=chunk) - Operating expenses decreased **$51 million**, primarily related to the transfer of the ED servicing contract and the decline in Business Processing segment revenue[49](index=49&type=chunk) - Restructuring/other reorganization expenses increased by **$21 million** in Q3 2022, primarily due to severance-related costs and facility lease terminations[49](index=49&type=chunk) [Segment Results](index=14&type=section&id=Segment%20Results) This section details Navient's financial performance across its Federal Education Loans, Consumer Lending, Business Processing, and Other segments, analyzing Core Earnings, revenue, expenses, and profitability drivers [Federal Education Loans Segment](index=14&type=section&id=Federal%20Education%20Loans%20Segment) The Federal Education Loans segment reported **$94 million** net income in Q3 2022, a **23% decrease**, driven by lower net interest income and servicing revenue, with the SDR Plan not materially impacting current results Federal Education Loans Segment Core Earnings (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 ($ Million) | Q3 2021 ($ Million) | Change ($ Million) | Change (%) | | :-------------------------------- | :------------------ | :------------------ | :----------------- | :--------- | | Net income | $94 | $122 | ($28) | (23)% | | Net interest income | $120 | $151 | ($31) | (21)% | | Servicing revenue | $21 | $47 | ($26) | (55)% | | Asset recovery & business processing revenue | $1 | $13 | ($12) | (92)% | | Direct operating expenses | $25 | $53 | ($28) | (53)% | - Net interest income decreased primarily due to **$27 million** of additional loan premium and deferred financing fee amortization from Loan Forgiveness Plans and portfolio paydown[59](index=59&type=chunk) - Servicing revenue decreased **$33 million** primarily related to the transfer of the ED servicing contract to a third party in October 2021[59](index=59&type=chunk)[67](index=67&type=chunk) FFELP Loan Performance Metrics (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 | Q3 2021 | Change | | :-------------------------------- | :------ | :------ | :----- | | Net interest margin | 0.94% | 1.04% | (0.10)% | | Net Charge-offs ($ Million) | $12 | $8 | $4 | | Net charge-off rate | 0.12% | 0.07% | +0.05% | | Delinquency rate (>90 days) | 10.1% | 4.3% | +5.8% | | Forbearance rate | 16.4% | 15.4% | +1.0% | | Ending FFELP Loans, Net ($ Billion) | $46.9 | $54.4 | ($7.5) | - The Student Debt Relief (SDR) Plan is not expected to materially impact Q3 accounting results, as privately held FFELP Loans do not qualify for forgiveness, and the consolidation application deadline has passed[75](index=75&type=chunk)[76](index=76&type=chunk) [Consumer Lending Segment](index=18&type=section&id=Consumer%20Lending%20Segment) The Consumer Lending segment's net income decreased **11%** to **$65 million** in Q3 2022, driven by lower net interest income, significantly reduced private loan originations, and increased provisions for loan losses Consumer Lending Segment Core Earnings (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 ($ Million) | Q3 2021 ($ Million) | Change ($ Million) | Change (%) | | :-------------------------------- | :------------------ | :------------------ | :----------------- | :--------- | | Net income | $65 | $73 | ($8) | (11)% | | Net interest income | $153 | $163 | ($10) | (6)% | | Provision for loan losses | $28 | $22 | $6 | 27% | | Direct operating expenses | $43 | $45 | ($2) | (4)% | - Private Education Loan originations decreased significantly to **$447 million** in Q3 2022 from **$1.6 billion** in Q3 2021, with refinance loan originations falling from **$1.5 billion** to **$231 million**[80](index=80&type=chunk) - Net interest income decreased primarily due to the increased proportion of higher quality, lower yielding Private Education Refinance Loans in the portfolio[80](index=80&type=chunk) - Provision for loan losses increased **$6 million**, including **$15 million** related to an increase in expected losses due to an anticipated deteriorating economy[80](index=80&type=chunk)[85](index=85&type=chunk) Private Education Loan Performance Metrics (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 | Q3 2021 | Change | | :-------------------------------- | :------ | :------ | :----- | | Net interest margin | 2.90% | 2.98% | (0.08)% | | Net Charge-offs ($ Million) | $99 | $39 | $60 | | Net charge-off rate | 2.01% | 0.77% | +1.24% | | Delinquency rate (>90 days) | 2.0% | 1.1% | +0.9% | | Forbearance rate | 1.9% | 3.9% | (2.0)% | | Ending Private Education Loans, Net ($ Billion) | $19.2 | $20.0 | ($0.8) | [Business Processing Segment](index=20&type=section&id=Business%20Processing%20Segment) The Business Processing segment's net income decreased **67%** to **$9 million** in Q3 2022, with revenue declining **$43 million** primarily due to the wind-down of pandemic-related contracts Business Processing Segment Core Earnings (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 ($ Million) | Q3 2021 ($ Million) | Change ($ Million) | Change (%) | | :-------------------------- | :------------------ | :------------------ | :----------------- | :--------- | | Net income | $9 | $27 | ($18) | (67)% | | Business processing revenue | $79 | $122 | ($43) | (35)% | | Direct operating expenses | $67 | $87 | ($20) | (23)% | | EBITDA | $13 | $38 | ($25) | (66)% | | EBITDA margin | 16% | 31% | (15)% | (48.4)% | - Revenue decreased primarily due to an expected **$51 million** reduction from the wind-down of pandemic-related contracts, partially offset by an **$8 million** increase from traditional government and healthcare client services[93](index=93&type=chunk) [Other Segment](index=21&type=section&id=Other%20Segment) The Other segment reported an **$81 million** net loss in Q3 2022, primarily due to the negative carrying cost of the corporate liquidity portfolio and increased restructuring expenses Other Segment Core Earnings (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 ($ Million) | Q3 2021 ($ Million) | Change ($ Million) | Change (%) | | :------------------------------------------ | :------------------ | :------------------ | :----------------- | :--------- | | Net income (loss) | ($81) | ($73) | ($8) | 11% | | Net interest loss after provision for loan losses | ($26) | ($15) | ($11) | 73% | | Losses on debt repurchases | $0 | ($20) | $20 | (100)% | | Unallocated shared services expenses | $59 | $63 | ($4) | (6)% | | Restructuring/other reorganization expenses | $21 | $0 | $21 | 100% | - The net interest loss primarily results from the negative carrying cost of the corporate liquidity portfolio[96](index=96&type=chunk) - Restructuring/other reorganization expenses increased by **$21 million** in Q3 2022, primarily due to severance-related costs and facility lease terminations[100](index=100&type=chunk) [Financial Condition](index=22&type=section&id=Financial%20Condition) This section details Navient's financial condition, focusing on education loan portfolio balances, activity, and credit performance metrics for FFELP and Private Education Loans, including delinquencies and allowance for loan losses [Summary of Our Education Loan Portfolio](index=22&type=section&id=Summary%20of%20Our%20Education%20Loan%20Portfolio) As of September 30, 2022, Navient's total education loan portfolio, net of allowance for loan losses, was **$66.042 billion**, a decrease from **$74.368 billion** in September 2021 Ending Education Loan Balances, Net (as of Sep 30, 2022 vs. Sep 30, 2021) | Portfolio Type | Sep 30, 2022 ($ Million) | Sep 30, 2021 ($ Million) | Change ($ Million) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :----------------- | :--------- | | FFELP Loans, Net ($ Million) | $46,891 | $54,350 | ($7,459) | (13.7)% | | Private Education Loans, Net ($ Million) | $19,151 | $20,018 | ($867) | (4.3)% | | Total Education Loans, Net ($ Million) | $66,042 | $74,368 | ($8,326) | (11.2)% | [Education Loan Activity](index=23&type=section&id=Education%20Loan%20Activity) For the nine months ended September 30, 2022, Navient's total education loan portfolio decreased by **$6.77 billion** due to refinancings, consolidations, and repayments, partially offset by originations Education Loan Activity (Nine Months Ended Sep 30, 2022) | Activity Type | Amount ($ Million) | | :------------------------------------ | :----------------- | | Beginning balance | $72,812 | | Acquisitions (originations & purchases) | $1,765 | | Capitalized interest & premium/discount amortization | $1,209 | | Refinancings & consolidations to third parties | ($4,088) | | Repayments & other | ($5,656) | | Ending balance | $66,042 | - Private Education Refinance Loan originations were **$353 million** for the nine months ended September 30, 2022, a significant decrease from **$1.4 billion** in the prior year[106](index=106&type=chunk) [FFELP Loan Portfolio Performance](index=24&type=section&id=FFELP%20Loan%20Portfolio%20Performance) As of September 30, 2022, the FFELP Loan portfolio totaled **$47.124 billion**, with significant increases in both overall and **90+ day delinquencies** and a rise in loans in forbearance FFELP Loan Portfolio Performance (as of Sep 30, 2022 vs. Sep 30, 2021) | Metric | Sep 30, 2022 ($ Million) | Sep 30, 2021 ($ Million) | Change ($ Million) | Change (%) | | :------------------------------------------ | :----------------------- | :----------------------- | :----------------- | :--------- | | Total FFELP Loans ($ Million) | $47,124 | $54,619 | ($7,495) | (13.7)% | | Loans in Forbearance ($ Million) | $7,410 | $8,029 | ($619) | (7.7)% | | Loans in Repayment ($ Million) | $37,731 | $44,160 | ($6,429) | (14.6)% | | Delinquencies as % of loans in repayment | 18.6% | 8.5% | +10.1% | 118.8% | | Delinquencies >90 days as % of loans in repayment | 10.1% | 4.3% | +5.8% | 134.9% | | Forbearance rate (as % of repayment & forbearance) | 16.4% | 15.4% | +1.0% | 6.5% | [Private Education Loan Portfolio Performance](index=25&type=section&id=Private%20Education%20Loan%20Portfolio%20Performance) As of September 30, 2022, the Private Education Loan portfolio totaled **$20.003 billion**, experiencing increased delinquencies but a significant decrease in loans in forbearance Private Education Loan Portfolio Performance (as of Sep 30, 2022 vs. Sep 30, 2021) | Metric | Sep 30, 2022 ($ Million) | Sep 30, 2021 ($ Million) | Change ($ Million) | Change (%) | | :------------------------------------------ | :----------------------- | :----------------------- | :----------------- | :--------- | | Total Private Education Loans ($ Million) | $20,003 | $20,998 | ($995) | (4.7)% | | Loans in Forbearance ($ Million) | $371 | $814 | ($443) | (54.4)% | | Loans in Repayment ($ Million) | $19,284 | $19,795 | ($511) | (2.6)% | | Delinquencies as % of loans in repayment | 4.4% | 3.0% | +1.4% | 46.7% | | Delinquencies >90 days as % of loans in repayment | 2.0% | 1.1% | +0.9% | 81.8% | | Forbearance rate (as % of repayment & forbearance) | 1.9% | 3.9% | (2.0)% | (51.3)% | | Percentage of loans with a cosigner | 33% | 36% | (3)% | (8.3)% | [Allowance for Loan Losses](index=26&type=section&id=Allowance%20for%20Loan%20Losses) The total GAAP allowance for loan losses was **$1.085 billion** at September 30, 2022, with a **$28 million** provision and **$141 million** net charge-offs for Q3, and a significant increase in the Private Education Loan net charge-off rate Allowance for Loan Losses (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 ($ Million) | Q3 2021 ($ Million) | Change ($ Million) | Change (%) | | :------------------------------------------ | :------------------ | :------------------ | :----------------- | :--------- | | Beginning balance | $1,166 | $1,253 | ($87) | (6.9)% | | Total provision | $28 | $22 | $6 | 27.3% | | Net charge-offs | ($141) | ($63) | ($78) | 123.8% | | Allowance at end of period (GAAP) | $1,085 | $1,249 | ($164) | (13.1)% | | Private Education Loans Net charge-off rate (annualized) | 2.61% | 1.10% | +1.51% | 137.3% | - The net charge-off rate on defaulted Private Education Loans increased from **81.7% to 81.9%** in Q3 2022, resulting in a **$30 million** reduction to the balance of expected future recoveries on previously fully charged-off loans[115](index=115&type=chunk) - The Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans (Non-GAAP) for Private Education Loans was **$1.132 billion** at September 30, 2022[114](index=114&type=chunk)[183](index=183&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Navient manages liquidity and capital to meet obligations, relying on diverse funding sources, including cash, unencumbered loan portfolios, operating cash flows, and securitization distributions, with capital market access influenced by credit ratings [Funding and Liquidity Risk Management](index=28&type=section&id=Funding%20and%20Liquidity%20Risk%20Management) Navient manages liquidity risk by defining primary and secondary needs, funding through cash, unencumbered loan portfolios, and securitization distributions, with credit ratings significantly impacting capital market access - Navient's primary liquidity needs involve servicing debt and meeting operational cash requirements, while secondary needs include loan originations, acquisitions, dividends, and share repurchases[123](index=123&type=chunk) - Liquidity risk is the potential inability to meet obligations or invest in future growth at reasonable rates, influenced by access to capital markets and credit ratings[124](index=124&type=chunk) - Navient expects to fund its **$1.3 billion** short-term and **$5.7 billion** long-term senior unsecured notes through cash on hand, unencumbered loan portfolios, operating cash flows, and securitization trust distributions[126](index=126&type=chunk) - Navient repurchased **$95 million** of common stock in Q3 2022 and has **$685 million** of unused share repurchase authority as of September 30, 2022[127](index=127&type=chunk) [Sources of Primary Liquidity](index=29&type=section&id=Sources%20of%20Primary%20Liquidity) As of September 30, 2022, Navient's total primary liquidity increased to **$1.785 billion**, comprising unrestricted cash, liquid investments, unencumbered FFELP Loans, and Private Education Refinance Loans Sources of Primary Liquidity (as of Sep 30, 2022 vs. Dec 31, 2021) | Metric | Sep 30, 2022 ($ Million) | Dec 31, 2021 ($ Million) | Change ($ Million) | Change (%) | | :------------------------------------------ | :----------------------- | :----------------------- | :----------------- | :--------- | | Total Unrestricted Cash and Liquid Investments ($ Million) | $1,364 | $905 | $459 | 50.7% | | Unencumbered FFELP Loans ($ Million) | $151 | $124 | $27 | 21.8% | | Unencumbered Private Education Refinance Loans ($ Million) | $270 | $383 | ($113) | (29.5)% | | Total | $1,785 | $1,412 | $373 | 26.4% | [Sources of Additional Liquidity](index=29&type=section&id=Sources%20of%20Additional%20Liquidity) Navient holds **$2.403 billion** in additional borrowing capacity from secured credit facilities, alongside **$4.3 billion** in unencumbered tangible assets and **$5.1 billion** in encumbered net assets within securitization trusts Additional Borrowing Capacity from Secured Credit Facilities (as of Sep 30, 2022 vs. Sep 30, 2021) | Facility Type | Sep 30, 2022 ($ Million) | Sep 30, 2021 ($ Million) | Change ($ Million) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :----------------- | :--------- | | FFELP Loan ABCP Facilities ($ Million) | $200 | $184 | $16 | 8.7% | | Private Education Loan ABCP Facilities ($ Million) | $2,203 | $2,597 | ($394) | (15.2)% | | Total | $2,403 | $2,781 | ($378) | (13.6)% | - Total unencumbered tangible assets were **$4.3 billion**, of which **$2.0 billion** related to unencumbered education loans (**$1.8 billion** Private Education Loans and **$151 million** FFELP Loans)[131](index=131&type=chunk) - Navient had **$5.1 billion** of encumbered net assets (overcollateralization) in its various financing facilities[131](index=131&type=chunk) [Borrowings](index=30&type=section&id=Borrowings) As of September 30, 2022, Navient's total GAAP borrowings decreased to **$69.675 billion**, with unsecured debt at **$7.008 billion** and secured debt at **$63.342 billion**, while average borrowing rates increased Ending Borrowings (as of Sep 30, 2022 vs. Dec 31, 2021) | Borrowing Type | Sep 30, 2022 ($ Million) | Dec 31, 2021 ($ Million) | Change ($ Million) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :----------------- | :--------- | | Unsecured Borrowings ($ Million) | $7,008 | $7,014 | ($6) | (0.1)% | | Secured Borrowings ($ Million) | $63,342 | $69,707 | ($6,365) | (9.1)% | | GAAP Basis Borrowings ($ Million) | $69,675 | $76,978 | ($7,303) | (9.5)% | Average Borrowing Rates (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 Rate | Q3 2021 Rate | Change | | :-------------------------- | :----------- | :----------- | :----- | | Senior unsecured debt | 6.08% | 4.38% | +1.70% | | FFELP Loan securitizations | 3.37% | 1.24% | +2.13% | | Private Education Loan securitizations | 2.70% | 2.34% | +0.36% | | Core Earnings basis borrowings | 3.52% | 1.75% | +1.77% | - FFELP Loan securitizations include **$778 million** of defaulted secured debt tranches that did not mature by their contractual dates but are expected to be paid in full between 2030 and 2035[309](index=309&type=chunk) [Critical Accounting Policies and Estimates](index=31&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Navient's critical accounting policies are influenced by economic conditions, and while the current SDR Plan is not expected to materially impact Q3 2022 results, future changes could significantly affect prepayments, amortization, and goodwill impairment - Critical accounting estimates, including allowance for loan losses and goodwill impairment, consider the current and potential negative impact of **historically high inflation** and **increased interest rates**[137](index=137&type=chunk) - The SDR Plan is not expected to materially impact Q3 2022 accounting results, as privately held FFELP Loans do not qualify for debt forgiveness, and the consolidation application deadline has passed[140](index=140&type=chunk)[142](index=142&type=chunk) - Future changes to the SDR Plan could materially impact Navient through increased prepayments, accelerating amortization of loan premiums (**$419 million**) and debt deferred financing fees (**$328 million**), and potential impairment of FFELP-related goodwill (**$232 million**)[141](index=141&type=chunk)[145](index=145&type=chunk) [Non-GAAP Financial Measures](index=33&type=section&id=Non-GAAP%20Financial%20Measures) Navient uses various non-GAAP financial measures, including Core Earnings and Adjusted Core Earnings, to provide a clearer view of ongoing operations by adjusting GAAP results for derivative accounting, goodwill, and restructuring expenses - Core Earnings exclude periodic mark-to-market gains/losses on derivatives not qualifying for hedge accounting and the accounting for goodwill and acquired intangible assets, providing a useful basis to evaluate ongoing operations[150](index=150&type=chunk) - Adjusted Core Earnings further exclude restructuring and regulatory-related expenses to provide additional insights into performance[177](index=177&type=chunk) Core Earnings Adjustments to GAAP Net Income (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 ($ Million) | Q3 2021 ($ Million) | Change ($ Million) | Change (%) | | :------------------------------------------ | :------------------ | :------------------ | :----------------- | :--------- | | Core Earnings net income | $87 | $149 | ($62) | (41.6)% | | Net impact of derivative accounting | $33 | $30 | $3 | 10.0% | | Net impact of goodwill & acquired intangibles | ($10) | ($4) | ($6) | 150.0% | | Net income tax effect | ($5) | ($2) | ($3) | 150.0% | | Total Core Earnings adjustments to GAAP | $18 | $24 | ($6) | (25.0)% | | GAAP net income | $105 | $173 | ($68) | (39.3)% | - The Adjusted Tangible Equity Ratio (excluding the FFELP portfolio) was **7.8%** as of September 30, 2022, up from **6.4%** in September 2021[179](index=179&type=chunk) - EBITDA for the Business Processing segment was **$13 million** in Q3 2022, with an EBITDA margin of **16%**[181](index=181&type=chunk) - The Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans for Private Education Loans was **$1.132 billion** at September 30, 2022, providing a more meaningful view of credit loss coverage on the non-charged-off portfolio[183](index=183&type=chunk)[184](index=184&type=chunk) [Legal Proceedings](index=44&type=section&id=Legal%20Proceedings) Navient faces various legal claims, lawsuits, and regulatory actions, including ongoing litigation with the CFPB and past settlements with State Attorneys General - Navient is subject to various legal claims, lawsuits, and regulatory actions, including class action lawsuits and inquiries from State Attorneys General and the CFPB[372](index=372&type=chunk)[373](index=373&type=chunk) - The company reached tentative agreements to settle cases with **40 State Attorneys General** in January 2022, resulting in total regulatory expenses of approximately **$205 million** (including **$1.7 billion** in loan cancellations and a **$145 million** payment to the states)[376](index=376&type=chunk) - The litigation involving the Company and the CFPB remains unresolved; Navient denies the allegations and is vigorously defending the case, whose outcome could have a **material adverse impact**[380](index=380&type=chunk) - Reserves for litigation and regulatory matters are established only when loss contingencies are both probable and estimable[390](index=390&type=chunk) [Risk Factors](index=44&type=section&id=Risk%20Factors) This section outlines various risks, particularly focusing on how loan prepayments, influenced by market conditions and policy changes, can materially impact Navient's financial performance and future prospects - Prepayments on Navient's loans can materially impact profitability, results of operations, financial condition, cash flows, or future business prospects[188](index=188&type=chunk)[189](index=189&type=chunk) - Prepayment rates are influenced by borrower activity, market conditions, interest rate movements, availability of alternative financings, and legislative, executive, and regulatory changes affecting the education loan market[189](index=189&type=chunk) - New policy initiatives, such as broad-based student loan forgiveness or programs encouraging consolidation into Direct Loans, could significantly increase prepayments on FFELP and Private Education Loans, leading to a **material adverse impact**[190](index=190&type=chunk) - If education loans within a securitization trust amortize faster than anticipated, net interest income and future cash flows may decrease; conversely, slower amortization can increase net interest income but risks an event of default if bonds are not repaid by their legal final maturity date[194](index=194&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=46&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Navient is transitioning from LIBOR to SOFR for variable rate loans and manages market risk through asset-liability matching and derivatives, with interest rate changes impacting pre-tax net income - Navient is actively transitioning from LIBOR to SOFR, with all new variable rate Private Education Loans indexed to SOFR since December 2021[196](index=196&type=chunk) - The Adjustable Interest Rate (LIBOR) Act ensures that all USD LIBOR-indexed financial instruments will transition to SOFR by no later than **June 30, 2023**[197](index=197&type=chunk) Impact on Annual Earnings from 100 Basis Point Interest Rate Change (as of Sep 30, 2022) | Metric | Increase 100 Basis Points ($ Million) | Decrease 100 Basis Points ($ Million) | | :------------------------------------------ | :------------------------------------ | :------------------------------------ | | Change in pre-tax net income (before MTM) | $53 | ($38) | | Mark-to-market gains (losses) on derivatives | $22 | ($22) | | Increase (decrease) in income before taxes | $75 | ($60) | | Increase (decrease) in net income after taxes | $58 | ($46) | | Increase (decrease) in diluted EPS | $0.42 | ($0.34) | - Navient uses Floor Income Contracts, pay-fixed swaps, and fixed rate debt to economically hedge embedded floor income in FFELP loans, aiming to fix the relative spread between the asset rate and the variable rate liability[203](index=203&type=chunk) - The company's asset-liability management strategy is to match assets with debt (in combination with derivatives) that have the same underlying index and reset frequency or highly correlated interest rate characteristics[216](index=216&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details Navient's common stock repurchases, including **6.3 million shares** for **$95 million** in Q3 2022, with **$685 million** remaining in repurchase authority Common Stock Repurchases (Q3 2022) | Metric | Q3 2022 | | :------------------------------------------ | :------ | | Total Number of Shares Purchased (Million) | 6.3 | | Average Price Paid per Share | $15.19 | | Total Repurchases in Dollars ($ Million) | $95 | | Remaining Repurchase Authority ($ Million) | $685 | - The share repurchase program, authorizing up to **$1 billion** of common stock, was approved by the Board in December 2021[220](index=220&type=chunk) [Controls and Procedures](index=51&type=section&id=Controls%20and%20Procedures) As of September 30, 2022, Navient's management concluded that the company's disclosure controls and procedures were effective - As of September 30, 2022, Navient's management concluded that the company's disclosure controls and procedures were effective[221](index=221&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended September 30, 2022[222](index=222&type=chunk) [Exhibits](index=52&type=section&id=Exhibits) The exhibits filed with the Form 10-Q include Sarbanes-Oxley Act certifications and various Inline XBRL documents for financial data - The exhibits filed with the Form 10-Q include certifications pursuant to the Sarbanes-Oxley Act (31.1, 31.2, 32.1, 32.2) and various Inline XBRL documents for financial data[226](index=226&type=chunk) [Financial Statements](index=53&type=section&id=Financial%20Statements) This section presents Navient's consolidated financial statements, including balance sheets, income statements, comprehensive income, changes in equity, cash flows, and detailed notes [Consolidated Balance Sheets](index=53&type=section&id=NAVIENT%20CORPORATION%20CONSOLIDATED%20BALANCE%20SHEETS) As of September 30, 2022, Navient's total assets decreased to **$73.625 billion**, total liabilities decreased to **$70.652 billion**, while total stockholders' equity increased to **$2.973 billion** Consolidated Balance Sheet Highlights (as of Sep 30, 2022 vs. Dec 31, 2021) | Metric | Sep 30, 2022 ($ Million) | Dec 31, 2021 ($ Million) | Change ($ Million) | Change (%) | | :------------------------------------------ | :----------------------- | :----------------------- | :----------------- | :--------- | | Total Assets ($ Million) | $73,625 | $80,605 | ($6,980) | (8.7)% | | FFELP Loans, Net ($ Million) | $46,891 | $52,641 | ($5,750) | (10.9)% | | Private Education Loans, Net ($ Million) | $19,151 | $20,171 | ($1,020) | (5.1)% | | Total Liabilities ($ Million) | $70,652 | $77,997 | ($7,345) | (9.4)% | | Short-term Borrowings ($ Million) | $5,677 | $2,490 | $3,187 | 128.0% | | Long-term Borrowings ($ Million) | $63,998 | $74,488 | ($10,490) | (14.1)% | | Total Navient Corporation Stockholders' Equity ($ Million) | $2,973 | $2,597 | $376 | 14.5% | - Net assets of consolidated variable interest entities were **$5.143 billion** at September 30, 2022[229](index=229&type=chunk) [Consolidated Statements of Income](index=54&type=section&id=NAVIENT%20CORPORATION%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME) For Q3 2022, Navient reported **$105 million** net income (**$0.75** diluted EPS), a decrease from Q3 2021, primarily due to lower net interest income and total other income, partially offset by reduced total expenses Consolidated Statements of Income (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 ($ Million) | Q3 2021 ($ Million) | Change ($ Million) | Change (%) | | :------------------------------------------ | :------------------ | :------------------ | :----------------- | :--------- | | Total interest income | $881 | $660 | $221 | 33.5% | | Total interest expense | $641 | $326 | $315 | 96.6% | | Net interest income | $240 | $334 | ($94) | (28.1)% | | Provisions for loan losses | $28 | $22 | $6 | 27.3% | | Total other income | $150 | $160 | ($10) | (6.3)% | | Total operating expenses | $194 | $248 | ($54) | (21.8)% | | Goodwill & acquired intangible asset impairment & amortization expense | $10 | $4 | $6 | 150.0% | | Restructuring/other reorganization expenses | $21 | $0 | $21 | 100.0% | | Net income | $105 | $173 | ($68) | (39.3)% | | Diluted earnings per common share | $0.75 | $1.04 | ($0.29) | (27.9)% | [Consolidated Statements of Comprehensive Income](index=55&type=section&id=NAVIENT%20CORPORATION%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) For Q3 2022, Navient reported total comprehensive income of **$159 million**, a decrease from Q3 2021, comprising **$105 million** net income and **$54 million** net changes in cash flow hedges Consolidated Statements of Comprehensive Income (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 ($ Million) | Q3 2021 ($ Million) | Change ($ Million) | Change (%) | | :------------------------------------------ | :------------------ | :------------------ | :----------------- | :--------- | | Net income | $105 | $173 | ($68) | (39.3)% | | Net changes in cash flow hedges, net of taxes | $54 | $20 | $34 | 170.0% | | Total comprehensive income | $159 | $193 | ($34) | (17.6)% | [Consolidated Statements of Changes in Stockholders' Equity](index=56&type=section&id=NAVIENT%20CORPORATION%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20STOCKHOLDERS'%20EQUITY) Navient's total stockholders' equity increased to **$2.973 billion** at September 30, 2022, influenced by net income, other comprehensive income, dividends, stock-based compensation, and common stock repurchases Key Changes in Stockholders' Equity (Q3 2022) | Metric | Amount ($ Million) | | :------------------------------------------ | :----------------- | | Balance at June 30, 2022 | $2,927 | | Net income | $105 | | Other comprehensive income (loss), net of tax | $54 | | Cash dividends ($.16 per share) | ($22) | | Stock-based compensation expense | $4 | | Common stock repurchased | ($95) | | Balance at September 30, 2022 | $2,973 | [Consolidated Statements of Cash Flows](index=60&type=section&id=NAVIENT%20CORPORATION%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) For the nine months ended September 30, 2022, net cash from operating activities significantly decreased to **$98 million**, while investing activities provided **$6.812 billion**, and financing activities used **$6.576 billion**, resulting in a **$334 million** increase in total cash Consolidated Statements of Cash Flows (Nine Months Ended Sep 30, 2022 vs. Sep 30, 2021) | Metric | 9M 2022 ($ Million) | 9M 2021 ($ Million) | Change ($ Million) | Change (%) | | :------------------------------------------ | :------------------ | :------------------ | :----------------- | :--------- | | Net cash provided by operating activities | $98 | $534 | ($436) | (81.6)% | | Net cash provided by investing activities | $6,812 | $5,113 | $1,699 | 33.2% | | Net cash used in financing activities | ($6,576) | ($5,873) | ($703) | 12.0% | | Net increase (decrease) in cash, etc. | $334 | ($226) | $560 | 247.8% | | Cash, etc. at end of period | $3,912 | $3,311 | $601 | 18.1% | - Investing activities were significantly impacted by **$8.488 billion** in proceeds from payments on education loans[246](index=246&type=chunk) - Financing activities included **$9.225 billion** in repayments of borrowings collateralized by loans in trust and **$315 million** in common stock repurchases[246](index=246&type=chunk) [Notes to Consolidated Financial Statements](index=61&type=section&id=NAVIENT%20CORPORATION%20NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) The notes to Navient's consolidated financial statements provide detailed disclosures on accounting policies, loan losses, borrowings, derivatives, equity, earnings per share, fair value, commitments, revenue, and segment reporting [1. Significant Accounting Policies](index=61&type=section&id=1.%20Significant%20Accounting%20Policies) Navient's unaudited consolidated financial statements adhere to GAAP, requiring management estimates, and a new ASU effective January 1, 2023, eliminates TDR recognition guidance while enhancing loan modification disclosures - The financial statements are prepared in accordance with GAAP for interim financial information, requiring management to make estimates and assumptions[250](index=250&type=chunk) - ASU No. 2022-02, effective **January 1, 2023**, eliminates TDR recognition guidance, requiring evaluation of modifications as new or continuing loans and enhancing disclosures for financially distressed borrowers[251](index=251&type=chunk) [2. Allowance for Loan Losses](index=62&type=section&id=2.%20Allowance%20for%20Loan%20Losses) The allowance for loan losses was **$1.085 billion** in Q3 2022, with a **$28 million** provision and **$141 million** net charge-offs, and significant increases in Private Education Loan charge-off rates and overall delinquencies Allowance for Loan Losses (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 ($ Million) | Q3 2021 ($ Million) | Change ($ Million) | Change (%) | | :------------------------------------------ | :------------------ | :------------------ | :----------------- | :--------- | | Beginning balance | $1,166 | $1,253 | ($87) | (6.9)% | | Total provision | $28 | $22 | $6 | 27.3% | | Net charge-offs | ($141) | ($63) | ($78) | 123.8% | | Allowance at end of period | $1,085 | $1,249 | ($164) | (13.1)% | | Private Education Loans Net charge-off rate (annualized) | 2.61% | 1.10% | +1.51% | 137.3% | - The net charge-off rate on defaulted Private Education Loans increased from **81.7% to 81.9%** in Q3 2022, resulting in a **$30 million** reduction to the balance of expected future recoveries[256](index=256&type=chunk) - The unpaid principal balance of TDR loans in an interest rate reduction program was **$900 million** as of September 30, 2022[275](index=275&type=chunk) FFELP Loan Delinquencies (as of Sep 30, 2022 vs. Sep 30, 2021) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change | | :------------------------------------------ | :----------- | :----------- | :----- | | Delinquencies as % of loans in repayment | 18.6% | 8.5% | +10.1% | | Delinquencies >90 days as % of loans in repayment | 10.1% | 4.3% | +5.8% | Private Education Loan Delinquencies (as of Sep 30, 2022 vs. Sep 30, 2021) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change | | :------------------------------------------ | :----------- | :----------- | :----- | | Delinquencies as % of loans in repayment | 4.4% | 3.0% | +1.4% | | Delinquencies >90 days as % of loans in repayment | 2.0% | 1.1% | +0.9% | [3. Borrowings](index=72&type=section&id=3.%20Borrowings) Navient's total GAAP borrowings were **$69.675 billion** at September 30, 2022, consisting of **$7.008 billion** unsecured and **$63.342 billion** secured debt, including defaulted FFELP tranches expected to be paid by 2035 Total Borrowings (as of Sep 30, 2022 vs. Dec 31, 2021) | Borrowing Type | Sep 30, 2022 ($ Million) | Dec 31, 2021 ($ Million) | Change ($ Million) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :----------------- | :--------- | | Unsecured Borrowings ($ Million) | $7,008 | $7,014 | ($6) | (0.1)% | | Secured Borrowings ($ Million) | $63,342 | $69,707 | ($6,365) | (9.1)% | | Total GAAP Basis Borrowings ($ Million) | $69,675 | $76,978 | ($7,303) | (9.5)% | - FFELP Loan securitizations include **$778 million** of defaulted secured debt tranches that did not mature by their contractual dates but are expected to be paid in full between 2030 and 2035[309](index=309&type=chunk) - Navient consolidated financing Variable Interest Entities (VIEs) as secured borrowings, with total debt outstanding of **$62.875 billion** at September 30, 2022[313](index=313&type=chunk)[314](index=314&type=chunk) [4. Derivative Financial Instruments](index=74&type=section&id=4.%20Derivative%20Financial%20Instruments) Navient uses various derivative instruments, including interest rate swaps and Floor Income Contracts, to manage risk, with net total derivatives having a fair value of **($360) million** as of September 30, 2022 Fair Values of Derivative Instruments (as of Sep 30, 2022 vs. Dec 31, 2021) | Metric | Sep 30, 2022 ($ Million) | Dec 31, 2021 ($ Million) | Change ($ Million) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :----------------- | :--------- | | Total Derivative Assets ($ Million) | $56 | $224 | ($168) | (75.0)% | | Total Derivative Liabilities ($ Million) | ($416) | ($260) | ($156) | 60.0% | | Net Total Derivatives ($ Million) | ($360) | ($36) | ($324) | 900.0% | Notional Values of Derivative Instruments (as of Sep 30, 2022 vs. Dec 31, 2021) | Metric | Sep 30, 2022 ($ Billion) | Dec 31, 2021 ($ Billion) | Change ($ Billion) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :----------------- | :--------- | | Interest Rate Swaps ($ Billion) | $41.6 | $46.7 | ($5.1) | (10.9)% | | Floor Income Contracts ($ Billion) | $6.0 | $12.5 | ($6.5) | (52.0)% | | Cross-currency Interest Rate Swaps ($ Billion) | $1.9 | $2.1 | ($0.2) | (9.5)% | | Total Derivatives ($ Billion) | $49.5 | $61.3 | ($11.8) | (19.2)% | - Navient has fully collateralized its corporate derivative liability position (including accrued interest and net of premiums receivable) of **$0.5 million** with its counterparties at its current unsecured credit rating[332](index=332&type=chunk) [5. Other Assets](index=77&type=section&id=5.%20Other%20Assets) Navient's total other assets decreased to **$2.787 billion** at September 30, 2022, primarily due to decreases in income tax assets, derivatives at fair value, and accounts receivable Other Assets (as of Sep 30, 2022 vs. Dec 31, 2021) | Asset Type | Sep 30, 2022 ($ Million) | Dec 31, 2021 ($ Million) | Change ($ Million) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :----------------- | :--------- | | Accrued Interest Receivable ($ Million) | $1,933 | $1,881 | $52 | 2.8% | | Income Tax Asset, Net ($ Million) | $145 | $369 | ($224) | (60.7)% | | Derivatives at Fair Value ($ Million) | $56 | $218 | ($162) | (74.3)% | | Accounts Receivable ($ Million) | $91 | $159 | ($68) | (42.8)% | | Total | $2,787 | $3,223 | ($436) | (13.5)% | [6. Stockholders' Equity](index=78&type=section&id=6.%20Stockholders'%20Equity) Navient repurchased **6.3 million common shares** for **$95 million** in Q3 2022, with **$685 million** remaining in repurchase authority, and paid **$22 million** in common stock dividends Common Stock Repurchases and Dividends (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 | Q3 2021 | Change | | :------------------------------------------ | :------ | :------ | :----- | | Common Stock Repurchased (Million Shares) | 6.3 | 7.0 | (0.7) | | Common Stock Repurchased (Dollars, $ Million) | $95 | $150 | ($55) | | Remaining Common Stock Repurchase Authority ($ Million) | $685 | $150 | $535 | | Dividends Paid ($ Million) | $22 | $26 | ($4) | | Dividends per share | $0.16 | $0.16 | $0.00 | [7. Earnings (Loss) per Common Share](index=79&type=section&id=7.%20Earnings%20(Loss)%20per%20Common%20Share) For Q3 2022, Navient reported basic and diluted earnings per common share of **$0.75**, a decrease from Q3 2021, with weighted average diluted shares decreasing to **141 million** Earnings per Common Share (Q3 2022 vs. Q3 2021) | Metric | Q3 2022 | Q3 2021 | Change | | :------------------------------------------ | :------ | :------ | :----- | | Net Income ($ Million) | $105 | $173 | ($68) | | Weighted Average Shares (Basic, Million) | 139 | 165 | (26) | | Weighted Average Shares (Diluted, Million) | 141 | 167 | (26) | | Basic earnings per common share | $0.75 | $1.05 | ($0.30)| | Diluted earnings per common share | $0.75 | $1.04 | ($0.29)| [8. Fair Value Measurements](index=79&type=section&id=8.%20Fair%20Value%20Measurements) Navient categorizes fair value estimates using a three-level framework, reporting **$56 million** in derivative assets and **$416 million** in derivative liabilities as of September 30, 2022, with no significant valuation changes or transfers - Fair value estimates are categorized based on a three-level hierarchical framework of price transparency[350](index=350&type=chunk) Fair Value Measurements on a Recurring Basis (as of Sep 30, 2022) | Instrument Type | Level 1 ($ Million) | Level 2 ($ Million) | Level 3 ($ Million) | Total ($ Million) | | :-------------------------- | :------------------ | :------------------ | :------------------ | :---------------- | | Derivative Assets | $0 | $56 | $0 | $56 | | Derivative Liabilities | $0 | ($7) | ($409) | ($416) | - There were no significant transfers of financial instruments between levels or changes in valuation methodology during the three and nine months ended September 30, 2022[351](index=351&type=chunk)[355](index=355&type=chunk) - The change in mark-to-market gains/(losses) relating to Level 3 instruments still held at the reporting date was **($127) million** for the three months ended September 30, 2022[362](index=362&type=chunk) [9. Commitments and Contingencies](index=83&type=section&id=9.%20Commitments%20and%20Contingencies) Navient is involved in various legal and regulatory matters, including ongoing CFPB litigation and an OIG audit, with reserves established only when losses are probable and estimable - Navient is defending against CFPB litigation, which could have a **material adverse impact**, despite settling with **40 State Attorneys General** for **$205 million** (including **$1.7 billion** in loan cancellations and a **$145 million** payment to states)[376](index=376&type=chunk)[380](index=380&type=chunk) - The company is appealing an OIG audit finding regarding Special Allowance Payments (SAP) and has established a reserve for this matter[387](index=387&type=chunk) - Reserves for litigation and regulatory matters are established only when losses are both probable and estimable[390](index=390&type=chunk) [10. Revenue from Contracts with Customers Accounted for in Accordance with ASC 606](index=86&type=section&id=10.%20Revenue%20from%20Contracts%20with%20Customers%20Accounted%20for%20in%20Accordance%20with%20ASC%20606) Navient's revenue from contracts with customers (ASC 606) was **$79 million** in Q3 2022, a decrease from Q3 2021, primarily due to the wind-down of pandemic-related contracts, disaggregated by service and client type Revenue by Service Type (Q3 2022 vs. Q3 2021) | Service Type | Q3 2022 ($ Million) | Q3 2021 ($ Million) | Change ($ Million) | Change (%) | | :-------------------------- | :------------------ | :------------------ | :----------------- | :--------- | | Government services | $47 | $75 | ($28) | (37.3)% | | Healthcare services | $32 | $47 | ($15) | (31.9)% | | Total | $79 | $127 | ($48) | (37.8)% | Revenue by Client Type (Q3 2022 vs. Q3 2021) | Client Type | Q3 2022 ($ Million) | Q3 2021 ($ Million) | Change ($ Million) | Change (%) | | :-------------------------- | :------------------ | :------------------ | :----------------- | :--------- | | Federal government | $2 | $4 | ($2) | (50.0)% | | State and local government | $27 | $56 | ($29) | (51.8)% | | Hospitals and other healthcare providers | $32 | $47 | ($15) | (31.9)% | | Total | $79 | $127 | ($48) | (37.8)% | [11. Segment Reporting](index=88&type=section&id=11.%20Segment%20Reporting) Navient reports operations across four segments (

NAVIENT 2022 3rd Quarter Earnings Call Presentation October 26, 2022 Forward-Looking Statements; Non-GAAP Financial Measures The following information is current as of September 30, 2022 (unless otherwise noted) and should be read in connection with Navient Corporation's "Navient" Annual Report on Form 10-K for the year end December 31, 2021 (the "2021 Form 10-K"), filed by Navient with the Securities and Exchange Commission (the "SEC") on February 25, 2022 and subsequent reports filed by Navient with the S ...

Navient Corporation (NASDAQ:NAVI) Q3 2022 Earnings Conference Call October 26, 2022 8:00 AM ET Company Participants Jennifer Earyes - Head of Investor Relations Jack Remondi - President & Chief Executive Officer Joe Fisher - Executive Vice President & Chief Financial Officer Conference Call Participants Mark DeVries - Barclays Bill Ryan - Seaport Steven Kwok - KBW Moshe Orenbuch - Credit Suisse Rick Shane - JPMorgan Jeff Adelson - Morgan Stanley Courtney Bahlman - Barclays Operator Good day, ladies and gent ...

[Business](index=5&type=section&id=Business) Navient's core business encompasses federal and private education loan management, alongside business processing solutions [Overview and Fundamentals of Our Business](index=5&type=section&id=Overview%20and%20Fundamentals%20of%20Our%20Business) Navient operates in three main areas: **Federal Education Loans**, **Consumer Lending**, and **Business Processing** - Navient's business is composed of three core areas: **Federal Education Loans**, **Consumer Lending**, and **Business Processing solutions**[19](index=19&type=chunk) Loan Portfolio Overview (as of Q2 2022) | Loan Type | Portfolio Size | Key Activities | | :--- | :--- | :--- | | Federal Education Loans (FFELP) | **$49.2 billion** | Servicing and asset recovery | | Consumer Lending (Private) | **$19.7 billion** | Owning, servicing, and originating. Originated **$420 million** in Q2 2022 | - The **Business Processing segment** provides solutions for over **600 public sector and healthcare organizations**, focusing on omnichannel communication, machine learning, and secure cloud computing[22](index=22&type=chunk) Capital Return Summary (Q2 2022 vs Q2 2021) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Shares Repurchased (millions) | 6.9 | 11.8 | | Total Repurchases | **$105 million** | **$200 million** | | Dividends Paid | **$23 million** | **$27 million** | | Total Capital Returned | **$128 million** | **$227 million** | | Adjusted Tangible Equity Ratio | **7.5%** | 6.3% | - As of June 30, 2022, **$780 million** remained under the company's **$1 billion share repurchase authorization** approved in December 2021[30](index=30&type=chunk) [How We Organize Our Business](index=8&type=section&id=How%20We%20Organize%20Our%20Business) Navient's operations are structured into three primary segments: **Federal Education Loans**, **Consumer Lending**, and **Business Processing** - The company operates through three main segments: **Federal Education Loans**, **Consumer Lending**, and **Business Processing**[33](index=33&type=chunk) - **Federal Education Loans**: Owns, services, and performs asset recovery on a portfolio of **FFELP Loans**[34](index=34&type=chunk) - **Consumer Lending**: Owns, originates, acquires, and services private education loans, including refinance and in-school loans[35](index=35&type=chunk) - **Business Processing**: Provides services to government and healthcare clients, including revenue cycle outsourcing and support for state agencies and municipalities[36](index=36&type=chunk) - **Other**: Includes the corporate liquidity portfolio, debt repurchase gains/losses, and unallocated corporate expenses[37](index=37&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=9&type=section&id=Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a comprehensive analysis of Navient's financial performance, condition, and liquidity, including segment results [Selected Historical Financial Information and Ratios](index=9&type=section&id=Selected%20Historical%20Financial%20Information%20and%20Ratios) This section provides a comparative overview of key financial metrics on both **GAAP** and **Core Earnings** bases GAAP Basis Financial Highlights | Metric (in millions, except per share) | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | **$180** | **$185** | **$435** | **$555** | | Diluted EPS | **$1.22** | **$1.05** | **$2.90** | **$3.08** | Core Earnings Basis Financial Highlights | Metric (in millions, except per share) | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | **$134** | **$165** | **$269** | **$469** | | Diluted EPS | **$0.91** | **$0.94** | **$1.79** | **$2.61** | Education Loan Portfolio (Net, End of Period) | Portfolio (in millions) | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | FFELP Loans | **$49,214** | **$55,550** | | Private Education Loans | **$19,668** | **$19,725** | | **Total Education Loans** | **$68,882** | **$75,275** | [The Quarter in Review](index=10&type=section&id=The%20Quarter%20in%20Review) Navient reported Q2 2022 **GAAP** net income of **$180 million** and **Core Earnings** net income of **$134 million**, highlighting key operational achievements Q2 2022 vs Q2 2021 Performance Summary | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | GAAP Net Income | **$180M** | **$185M** | | GAAP Diluted EPS | **$1.22** | **$1.05** | | Core Earnings Net Income | **$134M** | **$165M** | | Core Earnings Diluted EPS | **$0.91** | **$0.94** | - Key operational highlights for Q2 2022 include: - **Federal Education Loans**: Net interest margin of **1.11%** - **Consumer Lending**: Originated **$420 million** of **Private Education Loans** - **Business Processing**: Generated **EBITDA** of **$14 million** - **Capital Return**: Repurchased **$105 million** of common shares and paid **$23 million** in dividends[42](index=42&type=chunk) [Navient's Response to COVID-19](index=11&type=section&id=Navient%27s%20Response%20to%20COVID-19) The company acknowledges the ongoing and unpredictable impact of the COVID-19 pandemic on its business operations - The COVID-19 pandemic continues to be dynamic and unpredictable, affecting business operations throughout 2021 and the first half of 2022[43](index=43&type=chunk) - The future direct and indirect impact of the pandemic on the company's business, results, and financial condition remains uncertain, with potential for adverse effects if economic conditions deteriorate or the pandemic worsens[43](index=43&type=chunk) [Results of Operations](index=11&type=section&id=Results%20of%20Operations) This section details the company's **GAAP** financial performance, comparing Q2 and YTD 2022 results against prior periods [Comparison of Second-Quarter 2022 Results with Second-Quarter 2021](index=12&type=section&id=Comparison%20of%20Second-Quarter%202022%20Results%20with%20Second-Quarter%202021) **GAAP** net income was **$180 million** in Q2 2022, slightly down from **$185 million** in Q2 2021 - Servicing revenue decreased by **$33 million**, primarily due to the transfer of the **Department of Education (ED) servicing contract** in October 2021[48](index=48&type=chunk) - Asset recovery and business processing revenue fell by **$54 million**, mainly from a **$43 million** decrease in the **Business Processing segment** as pandemic-related contracts wound down[48](index=48&type=chunk) - Operating expenses decreased by **$56 million** (excluding regulatory expenses), largely related to the transfer of the **Department of Education (ED) servicing contract** and lower **Business Processing segment** revenue[48](index=48&type=chunk) - Provision for loan losses increased by **$19 million**, from a negative provision of **$(1) million** in Q2 2021 to a provision of **$18 million** in Q2 2022[46](index=46&type=chunk)[48](index=48&type=chunk) - Average outstanding diluted shares decreased by **16%** year-over-year due to share repurchases, contributing to the rise in diluted EPS despite a slight drop in net income[47](index=47&type=chunk) [Comparison of Six Months Ended June 30, 2022 Results with Six Months Ended June 30, 2021](index=13&type=section&id=Comparison%20of%20Six%20Months%20Ended%20June%2030%2C%202022%20Results%20with%20Six%20Months%20Ended%20June%2030%2C%202021) **GAAP** net income for the first six months of 2022 was **$435 million**, down from **$555 million** in the prior-year period - Net interest income decreased by **$27 million**, impacted by the natural paydown of loan portfolios and the **$1.6 billion** private loan sale in Q1 2021[51](index=51&type=chunk) - Provision for loan losses increased by **$122 million** year-over-year. The 2021 period included a significant reversal of allowance related to a **$1.6 billion** loan sale[49](index=49&type=chunk)[51](index=51&type=chunk) - Gains on sales of loans decreased by **$78 million**, as there were no loan sales in the first half of 2022, compared to a large sale in Q1 2021[51](index=51&type=chunk) - Operating expenses (excluding regulatory costs) decreased by **$102 million**, mainly due to the transfer of the **Department of Education (ED) servicing contract** and lower **Business Processing** revenue[51](index=51&type=chunk) [Segment Results](index=14&type=section&id=Segment%20Results) This section provides a detailed performance analysis of Navient's four operating segments on a **Core Earnings** basis [Federal Education Loans Segment](index=14&type=section&id=Federal%20Education%20Loans%20Segment) The **Federal Education Loans segment** reported Q2 2022 **Core Earnings** net income of **$110 million**, slightly down from **$113 million** Federal Education Loans Segment Performance (Q2 2022 vs Q2 2021) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Income (Core) | **$110M** | **$113M** | | Net Interest Margin | **1.11%** | **0.97%** | | >30-day Delinquency Rate | **15.9%** | **8.3%** | | Charge-off Rate | **0.09%** | **0.04%** | | Ending FFELP Loans, net | **$49.2B** | **$55.6B** | - Servicing revenue decreased by **$33 million** due to the transfer of the **Department of Education (ED) servicing contract** in October 2021. Servicing revenue from this contract was **$0** in Q2 2022 compared to **$34 million** in Q2 2021[63](index=63&type=chunk)[64](index=64&type=chunk) - The portfolio of education loans eligible to earn unhedged Floor Income was **$13.8 billion** as of June 30, 2022, down from **$15.9 billion** a year prior[61](index=61&type=chunk) [Consumer Lending Segment](index=17&type=section&id=Consumer%20Lending%20Segment) The **Consumer Lending segment** generated Q2 2022 **Core Earnings** net income of **$71 million**, down from **$96 million** Consumer Lending Segment Performance (Q2 2022 vs Q2 2021) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Income (Core) | **$71M** | **$96M** | | Private Education Loan Originations | **$420M** | **$1.3B** | | Net Interest Margin | **2.66%** | **2.95%** | | Provision for Loan Losses | **$18M** | **$(1)M** | | >90-day Delinquency Rate | **2.0%** | **1.0%** | | Charge-off Rate | **1.40%** | **0.71%** | - The provision for loan losses increased by **$19 million**, with the current period including **$11 million** for increased expected losses on the overall portfolio as loans returned to repayment after pandemic relief[72](index=72&type=chunk)[77](index=77&type=chunk) - The net interest margin decreased from **2.95%** to **2.66%** year-over-year, primarily because the higher-quality, lower-yielding refinance loan portfolio now constitutes a larger percentage of the total portfolio[72](index=72&type=chunk)[75](index=75&type=chunk) [Business Processing Segment](index=19&type=section&id=Business%20Processing%20Segment) The **Business Processing segment** reported Q2 2022 **Core Earnings** net income of **$10 million**, significantly down from **$29 million** Business Processing Segment Performance (Q2 2022 vs Q2 2021) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Income (Core) | **$10M** | **$29M** | | Total Revenue | **$87M** | **$130M** | | EBITDA | **$14M** | **$40M** | | EBITDA Margin | **16%** | **30%** | - The **$43 million** revenue decrease was primarily driven by the expected wind-down of pandemic-related contracts, which accounted for a **$46 million** reduction[84](index=84&type=chunk) [Other Segment](index=20&type=section&id=Other%20Segment) The **Other segment** recorded a Q2 2022 **Core Earnings** net loss of **$57 million**, an improvement from a **$73 million** loss - The net loss narrowed to **$57 million** from **$73 million** in the prior-year quarter[86](index=86&type=chunk) - Losses on debt repurchases decreased by **$12 million**, as there were no repurchases in Q2 2022 compared to **$692 million** of debt repurchased at a loss in Q2 2021[88](index=88&type=chunk) - Unallocated shared services expenses, excluding regulatory costs, decreased by **$4 million** from the year-ago quarter[89](index=89&type=chunk) [Financial Condition](index=21&type=section&id=Financial%20Condition) This section details the composition and performance of Navient's education loan portfolio [Summary of Our Education Loan Portfolio](index=21&type=section&id=Summary%20of%20Our%20Education%20Loan%20Portfolio) As of June 30, 2022, Navient's total net education loan portfolio was **$68.9 billion**, comprising **FFELP** and **Private Education Loans** Ending Education Loan Balances, Net (in millions) | Loan Type | June 30, 2022 | Dec 31, 2021 | June 30, 2021 | | :--- | :--- | :--- | :--- | | FFELP Loans | **$49,214** | **$52,641** | **$55,550** | | Private Education Loans | **$19,668** | **$20,171** | **$19,725** | | **Total Portfolio** | **$68,882** | **$72,812** | **$75,275** | - In Q2 2022, the company originated and purchased **$425 million** in **Private Education Loans**, while repayments and consolidations across the entire portfolio totaled approximately **$3.0 billion**[97](index=97&type=chunk) [FFELP Loan Portfolio Performance](index=23&type=section&id=FFELP%20Loan%20Portfolio%20Performance) As of June 30, 2022, **83.2%** of the **FFELP** portfolio was in repayment FFELP Loan Performance Metrics | Metric | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | % of Loans in Repayment | **83.2%** | 82.1% | | Delinquency % of Loans in Repayment | **15.9%** | **8.3%** | | Forbearance % of Loans in Repayment & Forbearance | **13.1%** | 13.9% | [Private Education Loan Portfolio Performance](index=24&type=section&id=Private%20Education%20Loan%20Portfolio%20Performance) As of June 30, 2022, **96.8%** of the **Private Education Loan** portfolio was in repayment Private Education Loan Performance Metrics | Metric | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | % of Loans in Repayment | **96.8%** | 95.1% | | Delinquency % of Loans in Repayment | **4.1%** | **2.6%** | | Forbearance % of Loans in Repayment & Forbearance | **1.5%** | **3.0%** | [Allowance for Loan Losses](index=25&type=section&id=Allowance%20for%20Loan%20Losses) The total provision for loan losses for Q2 2022 was **$18 million**, primarily for the **Private Education Loan** portfolio Allowance for Loan Losses Activity (Q2 2022 vs Q2 2021) | Metric (in millions) | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Total Provision | **$18** | **$(1)** | | Total Charge-offs | **$80** | **$40** | | Allowance at End of Period | **$1,166** | **$1,253** | - For **Private Education Loans**, the charge-off rate (annualized) increased to **1.40%** in Q2 2022 from **0.71%** in Q2 2021[106](index=106&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) Navient maintains a strong liquidity position to service debt and fund operations Sources of Primary Liquidity (Ending Balances, in millions) | Source | June 30, 2022 | Dec 31, 2021 | June 30, 2021 | | :--- | :--- | :--- | :--- | | Total unrestricted cash and liquid investments | **$976** | **$905** | **$1,453** | | Unencumbered FFELP Loans | **$89** | **$124** | **$309** | | Unencumbered Private Education Refinance Loans | **$42** | **$383** | **$574** | | **Total** | **$1,107** | **$1,412** | **$2,336** | - Additional liquidity is available through secured credit facilities, with total available capacity of **$2.37 billion** as of June 30, 2022[122](index=122&type=chunk)[123](index=123&type=chunk) - The company has **$7.0 billion** in total unsecured debt as of June 30, 2022, with **$1.0 billion** maturing in the next 12 months[117](index=117&type=chunk)[118](index=118&type=chunk)[127](index=127&type=chunk) Total Borrowings (Ending Balances, in millions) | Borrowing Type | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Unsecured Borrowings | **$7,005** | **$7,014** | | Secured Borrowings | **$65,703** | **$69,707** | | **Total GAAP Borrowings** | **$72,347** | **$76,978** | [Critical Accounting Policies and Estimates](index=30&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Management confirms critical accounting policies are consistent with the 2021 **Form 10-K**, with no material Q2 2022 economic impact - The company's critical accounting policies remain consistent with its 2021 **Form 10-K**[128](index=128&type=chunk) - Management assessed the potential negative economic impacts from inflation, interest rates, and the war in Ukraine on its critical accounting policies and concluded there was no material impact in Q2 2022[128](index=128&type=chunk) [Non-GAAP Financial Measures](index=30&type=section&id=Non-GAAP%20Financial%20Measures) Navient utilizes non-GAAP financial measures like **Core Earnings**, **Adjusted Tangible Equity Ratio**, and **EBITDA** to evaluate its business - The company uses non-GAAP measures, primarily '**Core Earnings**', to manage its business segments and evaluate performance internally[130](index=130&type=chunk) - **Core Earnings** adjusts **GAAP** results by excluding: 1. Mark-to-market gains/losses from derivative instruments that do not qualify for hedge accounting 2. The accounting impact of goodwill and acquired intangible assets (impairment and amortization)[132](index=132&type=chunk) Reconciliation of Core Earnings to GAAP Net Income (Q2 2022) | Description (in millions) | Amount | | :--- | :--- | | **Core Earnings net income** | **$134** | | Net impact of derivative accounting | **$72** | | Net impact of goodwill and acquired intangible assets | **$(3)** | | Net income tax effect | **$(23)** | | **GAAP net income** | **$180** | Adjusted Tangible Equity Ratio Calculation | Metric | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Adjusted Tangible Equity | **$1,963M** | **$1,697M** | | Adjusted Tangible Assets | **$26,133M** | **$27,072M** | | **Adjusted Tangible Equity Ratio** | **7.5%** | 6.3% | [Legal Proceedings](index=40&type=section&id=Legal%20Proceedings) Navient is involved in various legal proceedings and regulatory matters - In January 2022, Navient settled with **40 State Attorneys General**, agreeing to cancel approximately **$1.7 billion** in defaulted private education loan balances and pay **$145 million** to the states[342](index=342&type=chunk) - The settlement with the **State Attorneys General** does not resolve the ongoing litigation with the **Consumer Financial Protection Bureau (CFPB)**[342](index=342&type=chunk) - The company believes the **CFPB's** allegations are false but acknowledges a loss is reasonably possible. However, it cannot estimate a range of potential exposure and has not established reserves for this matter[345](index=345&type=chunk) [Risk Factors](index=40&type=section&id=Risk%20Factors) This section updates and restates key risk factors from the 2021 **Form 10-K** - Loan prepayment rates pose a material risk, as they can be significantly influenced by government actions such as debt forgiveness programs, which could adversely impact profitability[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk) - Changes in interest rates and capital market volatility affect funding costs and availability. Rising rates and inflation may also negatively impact demand for **Private Education Loans**[175](index=175&type=chunk) - The company faces significant risks from breaches of its information technology systems, including unauthorized access and cyber-attacks, which could lead to financial losses and reputational damage[176](index=176&type=chunk) - Persistent inflation, as experienced in the first half of 2022, could significantly increase ongoing operating costs and reduce net income[179](index=179&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=43&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details Navient's management of market risks, primarily interest rate risk and the **LIBOR** transition - The company is managing the transition from **LIBOR** to **SOFR**, which will be completed by June 30, 2023, aided by the federal Adjustable Interest Rate (**LIBOR**) Act[181](index=181&type=chunk)[183](index=183&type=chunk) Interest Rate Sensitivity Analysis on Annual Earnings (as of June 30, 2022) | Scenario | Impact on Pre-Tax Income | Impact on Net Income After Taxes | | :--- | :--- | :--- | | +100 Basis Points | **+$50 million** | **+$39 million** | | -100 Basis Points | **-$40 million** | **-$31 million** | - The company's asset and liability management strategy aims to match floating-rate assets with floating-rate debt to minimize interest rate sensitivity, though some basis and repricing risk exists due to different indices and reset frequencies[194](index=194&type=chunk)[203](index=203&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2022, Navient repurchased **6.9 million** shares for **$105 million**, with **$780 million** remaining under authorization Share Repurchases (Q2 2022) | Metric | Value | | :--- | :--- | | Total Shares Purchased | **6.9 million** | | Average Price Paid per Share | **$15.26** | | Total Cost | **$105 million** | | Remaining Authority (as of June 30, 2022) | **$780 million** | [Controls and Procedures](index=48&type=section&id=Controls%20and%20Procedures) Management evaluated the company's disclosure controls and procedures as of June 30, 2022, concluding they were effective - As of June 30, 2022, management concluded that the company's disclosure controls and procedures were effective[208](index=208&type=chunk) - No material changes occurred in the company's internal control over financial reporting during the fiscal quarter ended June 30, 2022[209](index=209&type=chunk) [Financial Statements](index=50&type=section&id=Financial%20Statements) This section presents Navient's consolidated financial statements, including balance sheets, income statements, and cash flows [Consolidated Balance Sheets](index=50&type=section&id=Consolidated%20Balance%20Sheets) The Consolidated Balance Sheets present the company's financial position as of June 30, 2022, compared to December 31, 2021 Consolidated Balance Sheet Summary (in millions) | Account | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | **$76,065** | **$80,605** | | Total Liabilities | **$73,138** | **$77,997** | | Total Stockholders' Equity | **$2,927** | **$2,597** | [Consolidated Statements of Income](index=51&type=section&id=Consolidated%20Statements%20of%20Income) The Consolidated Statements of Income detail the company's revenues, expenses, and profitability for the three and six months ended June 30 Consolidated Income Statement Summary (in millions) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | **$321** | **$322** | **$658** | **$685** | | Total Other Income | **$134** | **$176** | **$357** | **$480** | | Total Expenses | **$193** | **$259** | **$405** | **$528** | | **Net Income** | **$180** | **$185** | **$435** | **$555** | [Consolidated Statements of Comprehensive Income](index=52&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This statement reconciles net income to total comprehensive income Comprehensive Income Summary (in millions) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | **$180** | **$185** | **$435** | **$555** | | Net changes in cash flow hedges | **$49** | **$17** | **$163** | **$65** | | **Total Comprehensive Income** | **$229** | **$202** | **$598** | **$620** | [Consolidated Statements of Changes in Stockholders' Equity](index=53&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) These statements detail changes in stockholders' equity during the reported periods, reflecting net income, dividends, and share repurchases - For the six months ended June 30, 2022, stockholders' equity increased from **$2.608 billion** to **$2.927 billion**. Key activities included **$435 million** in net income, **$220 million** in common stock repurchases, and **$47 million** in common dividends paid[231](index=231&type=chunk) [Consolidated Statements of Cash Flows](index=57&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement outlines the sources and uses of cash from operating, investing, and financing activities Cash Flow Summary (Six Months Ended June 30, in millions) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | **$30** | **$333** | | Net Cash from Investing Activities | **$3,956** | **$4,219** | | Net Cash from Financing Activities | **$(4,128)** | **$(4,327)** | | **Net Change in Cash** | **$(142)** | **$225** | [Notes to Consolidated Financial Statements](index=58&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures supporting the consolidated financial statements, covering loan losses, borrowings, and segment reporting

Navient Corporation (NASDAQ:NAVI) Q2 2022 Earnings Conference Call July 27, 2022 8:00 AM ET CompanyParticipants Joe Fisher - Executive Vice President & Chief Financial Officer Jack Remondi - President & Chief Executive Officer Conference Call Participants John Hecht - Jefferies Mark DeVries - Barclays Moshe Orenbuch - Credit Suisse Sanjay Sakhrani - KBW Bill Ryan - Seaport Research Courtney Bahlman - Barclays Operator Good morning, ladies and gentlemen. Thank you for standing by and welcome to Navient Secon ...

[Forward-Looking and Cautionary Statements](index=3&type=section&id=FORWARD-LOOKING%20AND%20CAUTIONARY%20STATEMENTS) This section details forward-looking statements and inherent risks, advising readers to consult risk disclosures - This report contains forward-looking statements based on management's current expectations, which involve risks and uncertainties that could cause actual results to differ materially[10](index=10&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements and are urged to review risk disclosures in this Form 10-Q and other SEC filings[11](index=11&type=chunk) - Key risks include impacts of the COVID-19 pandemic, economic conditions, increased loan defaults, funding costs, LIBOR transition, interest rate volatility, credit rating reductions, regulatory changes, and legal proceedings[14](index=14&type=chunk) [Use of Non-GAAP Financial Measures](index=4&type=section&id=USE%20OF%20NON-GAAP%20FINANCIAL%20MEASURES) Navient uses non-GAAP financial measures, including Core Earnings, to provide a clearer view of operational performance - Navient evaluates its business segments and presents financial results using '**Core Earnings**,' a non-GAAP financial measure, in addition to GAAP[16](index=16&type=chunk) - Core Earnings is used internally for management decisions, resource allocation, and in presentations to credit rating agencies, lenders, and investors[16](index=16&type=chunk) - Other non-GAAP measures presented include Adjusted Core Earnings, Tangible Equity, Adjusted Tangible Equity Ratio, Pro forma Adjusted Tangible Equity Ratio, and EBITDA (for Business Processing segment)[17](index=17&type=chunk) [Business](index=5&type=section&id=Business) This section outlines Navient's core business operations, encompassing education finance and business processing solutions [Overview and Fundamentals of Our Business](index=5&type=section&id=Overview%20and%20Fundamentals%20of%20Our%20Business) Navient provides technology-enabled education finance and business processing solutions, managing loan portfolios and serving diverse clients - Navient provides technology-enabled education finance and business processing solutions, focusing on **data-driven services** for education, healthcare, and government clients[19](index=19&type=chunk) - - **Federal Education Loans:** Owns a **$51.0 billion** portfolio of federally guaranteed FFELP Loans, providing servicing and asset recovery services[20](index=20&type=chunk) - **Consumer Lending:** Owns, services, and originates Private Education Loans, with a **$20.1 billion** portfolio. Originated **$966 million** in Private Education Loans in Q1 2022[21](index=21&type=chunk) - **Business Processing:** Provides solutions for **over 600** public sector and healthcare organizations, leveraging technology, machine learning, and analytics[22](index=22&type=chunk) - The company reported **strong Q1 2022 results**, generating significant capital and expects to continue **returning excess capital** to shareholders through dividends and share repurchases[27](index=27&type=chunk)[28](index=28&type=chunk) Capital Return and Adjusted Tangible Equity Ratio (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 | Q1 2021 | | :-------------------------- | :------ | :------ | | Shares repurchased (millions) | 6.2 | 8.2 | | Reduction in shares outstanding | 3% | 4% | | Total repurchases (dollars) | $115 million | $100 million | | Dividends paid | $24 million | $29 million | | Total Capital Returned | $139 million | $129 million | | Adjusted Tangible Equity Ratio | 7.0% | 6.2% | [How We Organize Our Business](index=8&type=section&id=How%20We%20Organize%20Our%20Business) Navient structures operations into Federal Education Loans, Consumer Lending, Business Processing, and an 'Other' segment, each managed distinctly - Navient operates in three primary segments: Federal Education Loans, Consumer Lending, and Business Processing, plus an 'Other' segment[33](index=33&type=chunk) - - **Federal Education Loans Segment:** Focuses on owning, servicing, and asset recovery for FFELP Loans[34](index=34&type=chunk) - **Consumer Lending Segment:** Manages the ownership, origination, acquisition, and servicing of Private Education Loans, generating revenue primarily from net interest income[35](index=35&type=chunk)[36](index=36&type=chunk) - **Business Processing Segment:** Provides business processing services to over 600 government and healthcare clients, including government and healthcare-specific solutions[37](index=37&type=chunk) - The 'Other' segment includes the corporate liquidity portfolio, debt repurchase gains/losses, unallocated shared services expenses (e.g., regulatory), and restructuring costs[37](index=37&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=9&type=section&id=Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Navient's financial condition and operational results, covering key metrics and segment performance [Selected Historical Financial Information and Ratios](index=9&type=section&id=Selected%20Historical%20Financial%20Information%20and%20Ratios) This section summarizes Navient's key financial metrics and loan portfolio balances for Q1 2022 versus Q1 2021, on GAAP and Core Earnings bases Selected Historical Financial Information and Ratios (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 | Q1 2021 | | :------------------------------------- | :------ | :------ | | **GAAP Basis** | | | | Net income | $255 million | $370 million | | Diluted earnings per common share | $1.67 | $2.00 | | Weighted average shares (diluted) | 153 million | 185 million | | Return on assets | 1.34% | 1.78% | | **Core Earnings Basis** | | | | Net income | $135 million | $305 million | | Diluted earnings per common share | $0.88 | $1.65 | | Adjusted diluted earnings per common share | $0.90 | $1.71 | | Net interest margin, Federal Education Loans | 1.04% | 0.97% | | Net interest margin, Consumer Lending | 2.80% | 2.99% | | Return on assets | 0.71% | 1.46% | | **Education Loan Portfolios (Ending)** | | | | FFELP Loans, net | $51,013 million | $56,873 million | | Private Education Loans, net | $20,088 million | $19,742 million | | Total education loans, net | $71,101 million | $76,615 million | [The Quarter in Review](index=10&type=section&id=The%20Quarter%20in%20Review) Navient reported lower Q1 2022 GAAP and Core Earnings net income, with varied segment performance and continued capital return Q1 2022 Financial Performance Overview | Metric | Q1 2022 | | :------------------------------------ | :------ | | GAAP Net income | $255 million | | GAAP Diluted EPS | $1.67 | | Core Earnings Net income | $135 million | | Core Earnings Diluted EPS | $0.88 | | Adjusted diluted Core Earnings per share | $0.90 | | Federal Education Loans net income | $107 million | | FFELP Loan delinquency rate | 13.5% | | Consumer Lending net income | $79 million | | Private Education Loan originations | $966 million | | Private Education Loan delinquency rate | 4.0% | | Business Processing EBITDA | $19 million | | Business Processing Revenue | $94 million | | Adjusted tangible equity ratio | 7.0% | | Common shares repurchased | $115 million | | Common stock dividends paid | $24 million | | Term ABS issued | $952 million | | Adjusted Core Earnings expenses | $204 million | [Navient's Response to COVID-19](index=11&type=section&id=Navient's%20Response%20to%20COVID-19) Navient prioritized employee and customer safety during COVID-19, but future impacts remain uncertain, with potential adverse effects - Navient prioritized employee safety and customer/community support during the COVID-19 pandemic[44](index=44&type=chunk) - The pandemic continued to affect business operations in 2021 and Q1 2022, with future impacts remaining uncertain[44](index=44&type=chunk) - Deteriorating economic conditions or worsening pandemic could adversely affect business, results of operations, and financial condition[44](index=44&type=chunk) [Results of Operations](index=11&type=section&id=Results%20of%20Operations) Navient's Q1 2022 GAAP net income decreased by 31% due to higher loan loss provisions, lower net interest income, and reduced servicing revenue GAAP Income Statement Highlights (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | Change ($M) | Change (%) | | :------------------------------------------ | :----------- | :----------- | :---------- | :--------- | | Net income | $255 | $370 | $(115) | (31)% | | Diluted earnings per common share | $1.67 | $2.00 | $(0.33) | (17)% | | Total interest income | $626 | $692 | $(66) | (10)% | | Total interest expense | $289 | $329 | $(40) | (12)% | | Net interest income | $337 | $363 | $(26) | (7)% | | Provisions for loan losses | $16 | $(87) | $103 | (118)% | | Net interest income after provisions | $321 | $450 | $(129) | (29)% | | Servicing revenue | $18 | $53 | $(35) | (66)% | | Asset recovery and business processing revenue | $97 | $139 | $(42) | (30)% | | Gains on sales of loans | $0 | $76 | $(76) | (100)% | | Gains (losses) on derivative and hedging activities, net | $98 | $36 | $62 | 172% | | Total operating expenses | $205 | $259 | $(54) | (21)% | | Restructuring/other reorganization expenses | $3 | $6 | $(3) | (50)% | - The **$103 million increase** in provision for loan losses was primarily due to loan originations in Q1 2022, contrasting with a **$102 million reversal** of allowance for loan losses in Q1 2021 related to loan sales[47](index=47&type=chunk)[49](index=49&type=chunk) - Average outstanding diluted shares decreased by **32 million (17%)** due to share repurchases of **6.2 million shares** in Q1 2022 and **8.2 million** in Q1 2021[48](index=48&type=chunk) [Segment Results](index=13&type=section&id=Segment%20Results) Navient's Core Earnings segment results show varied performance, with declining net income in Federal Education Loans and Consumer Lending, and reduced Business Processing revenue [Federal Education Loans Segment](index=13&type=section&id=Federal%20Education%20Loans%20Segment) The Federal Education Loans segment experienced a net income decrease due to portfolio paydown and reduced servicing and asset recovery revenue Federal Education Loans Segment Core Earnings (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | Change (%) | | :------------------------------------ | :----------- | :----------- | :--------- | | Net income | $107 | $112 | (4)% | | Net interest income | $139 | $144 | (3)% | | Servicing revenue | $15 | $52 | (71)% | | Asset recovery and business processing revenue | $3 | $14 | (79)% | | Other income | $11 | $0 | 100% | | Direct operating expenses | $28 | $63 | (56)% | - Net interest income decreased primarily due to the natural paydown of the portfolio[53](index=53&type=chunk) - Other revenue decreased **$37 million** primarily due to the transfer of the ED servicing contract to a third party in October 2021[61](index=61&type=chunk) - Expenses were **$35 million lower** primarily as a result of the decrease in servicing and asset recovery revenue[65](index=65&type=chunk) Federal Education Loans Key Performance Metrics (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 | Q1 2021 | | :------------------------------------ | :------ | :------ | | Segment net interest margin | 1.04% | 0.97% | | FFELP Loan spread | 1.11% | 1.03% | | Charge-offs | $7 million | $6 million | | Charge-off rate | 0.07% | 0.06% | | Greater than 30-days delinquency rate | 13.5% | 8.3% | | Greater than 90-days delinquency rate | 6.4% | 3.5% | | Forbearance rate | 12.9% | 15.5% | | Ending FFELP Loans, net | $51,013 million | $56,873 million | | Number of accounts serviced for ED | 0 million | 5.6 million | - Education loans eligible to earn Floor Income after rebates and economically hedged decreased to **$14.1 billion** at March 31, 2022, from **$17.0 billion** at March 31, 2021[59](index=59&type=chunk) [Consumer Lending Segment](index=16&type=section&id=Consumer%20Lending%20Segment) The Consumer Lending segment's net income significantly declined due to the absence of prior year loan sale gains and increased loan loss provisions Consumer Lending Segment Core Earnings (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | Change (%) | | :------------------------------------ | :----------- | :----------- | :--------- | | Net income | $79 | $234 | (66)% | | Private Education Loan originations | $966 | $1,700 | (43)% | | Net interest income | $152 | $169 | (10)% | | Provision for loan losses | $16 | $(87) | 118% | | Gains on sales of loans | $0 | $89 | (100)% | | Direct operating expenses | $35 | $41 | (15)% | - The **$155 million decrease** in net income was primarily due to the absence of **$1.6 billion** in loan sales in Q1 2021 (which generated **$89 million** in gains and a **$102 million** allowance reversal) and an increase in loan loss provisions[70](index=70&type=chunk) - Net interest income decreased due to the natural paydown of the non-refinance loan portfolio and Q1 2021 loan sales, partially offset by growth in the Private Education Refinance Loan portfolio[70](index=70&type=chunk) - Provision for loan losses increased **$103 million**, with Q1 2022 provision primarily related to loan originations, while Q1 2021 included a **$102 million reversal** from loan sales[75](index=75&type=chunk) Consumer Lending Key Performance Metrics (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 | Q1 2021 | | :------------------------------------ | :------ | :------ | | Segment net interest margin | 2.80% | 2.99% | | Private Education Loan spread | 2.97% | 3.21% | | Charge-offs | $69 million | $35 million | | Charge-off rate | 1.38% | 0.68% | | Greater than 30-days delinquency rate | 4.0% | 2.3% | | Greater than 90-days delinquency rate | 1.6% | 0.9% | | Forbearance rate | 2.0% | 3.9% | | Ending Private Education Loans, net | $20,088 million | $19,742 million | | Ending Private Education Refinance Loans | $9,995 million | $7,882 million | | Private Education Refinance Loan originations | $941 million | $1,671 million | [Business Processing Segment](index=18&type=section&id=Business%20Processing%20Segment) The Business Processing segment saw reduced revenue and EBITDA primarily due to the expected winddown of pandemic-related contracts Business Processing Segment Core Earnings (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | Change (%) | | :------------------------------------ | :----------- | :----------- | :--------- | | Net income | $14 | $26 | (46)% | | Business processing revenue | $94 | $125 | (25)% | | Direct operating expenses | $76 | $91 | (16)% | | EBITDA | $19 | $36 | (47)% | | EBITDA margin | 20% | 29% | | - Revenue decreased primarily due to the expected winddown of pandemic-related contracts, partially offset by revenue from traditional government and healthcare services clients[82](index=82&type=chunk) [Other Segment](index=19&type=section&id=Other%20Segment) The 'Other' segment's net loss improved slightly due to a smaller corporate liquidity portfolio and lower cost of funds Other Segment Core Earnings (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | Change (%) | | :------------------------------------ | :----------- | :----------- | :--------- | | Net income (loss) | $(65) | $(67) | (3)% | | Net interest loss after provision for loan losses | $(15) | $(18) | (17)% | | Unallocated shared services expenses | $66 | $64 | 3% | | Restructuring/other reorganization expenses | $3 | $6 | (50)% | - The decrease in net interest loss was primarily due to a smaller corporate liquidity portfolio and a decrease in the cost of funds[85](index=85&type=chunk) - Unallocated shared services expenses, adjusted for regulatory-related expenses, increased **$9 million**, primarily due to a **$10 million** insurance reimbursement in the prior year[86](index=86&type=chunk) - Restructuring/other reorganization expenses were primarily due to facility lease terminations and severance-related costs[88](index=88&type=chunk) [Financial Condition](index=20&type=section&id=Financial%20Condition) This section reviews Navient's education loan portfolio balances and credit performance, noting a decrease in total loans, increasing delinquencies, and generally decreasing forbearance rates [Summary of Our Education Loan Portfolio](index=20&type=section&id=Summary%20of%20Our%20Education%20Loan%20Portfolio) This section summarizes Navient's education loan portfolio, detailing the composition and balances of FFELP and Private Education Loans Ending Education Loan Balances, Net (March 31, 2022 vs. December 31, 2021 vs. March 31, 2021) | Metric | March 31, 2022 ($M) | December 31, 2021 ($M) | March 31, 2021 ($M) | | :-------------------------- | :------------------ | :--------------------- | :------------------ | | FFELP Loans, net | $51,013 | $52,641 | $56,873 | | Private Education Loans, net | $20,088 | $20,171 | $19,742 | | Total education loans, net | $71,101 | $72,812 | $76,615 | | % of total FFELP Loans | 72% | 72% | 74% | | % of total Private Education Loans | 28% | 28% | 26% | - As of March 31, 2022, FFELP Loans comprised **72%** of the total education loan portfolio, while Private Education Loans comprised **28%**[91](index=91&type=chunk) [Education Loan Activity](index=21&type=section&id=Education%20Loan%20Activity) This section outlines Navient's education loan activity, including acquisitions, refinancings, loan sales, and repayments, impacting ending balances Education Loan Activity (Q1 2022 vs. Q1 2021) | Activity | Q1 2022 ($M) | Q1 2021 ($M) | | :------------------------------------ | :----------- | :----------- | | Beginning balance | $72,812 | $79,363 | | Acquisitions (originations and purchases) | $1,091 | $1,734 | | Refinancings and consolidations to third parties | $(1,153) | $(819) | | Loan sales | $0 | $(1,465) | | Repayments and other | $(2,055) | $(2,644) | | Ending balance | $71,101 | $76,615 | - Private Education Refinance Loan originations were **$218 million** in Q1 2022, down from **$593 million** in Q1 2021[94](index=94&type=chunk) [FFELP Loan Portfolio Performance](index=22&type=section&id=FFELP%20Loan%20Portfolio%20Performance) This section details the performance of the FFELP loan portfolio, highlighting changes in repayment status, delinquencies, and forbearance rates FFELP Loan Portfolio Performance (March 31, 2022 vs. March 31, 2021) | Metric | March 31, 2022 ($M) | March 31, 2021 ($M) | | :------------------------------------ | :------------------ | :------------------ | | Total FFELP Loans | $51,268 | $57,155 | | Loans in-school/grace/deferment | $2,232 | $2,781 | | Loans in forbearance | $6,312 | $8,452 | | Loans in repayment | $42,724 | $45,922 | | Delinquencies as % of FFELP Loans in repayment | 13.5% | 8.3% | | FFELP Loans in forbearance as % of loans in repayment and forbearance | 12.9% | 15.5% | | Loans delinquent greater than 90 days | $2,740 | $1,605 | - FFELP Loan delinquencies (greater than 30 days) as a percentage of loans in repayment increased significantly from **8.3% to 13.5%** year-over-year[96](index=96&type=chunk) [Private Education Loan Portfolio Performance](index=23&type=section&id=Private%20Education%20Loan%20Portfolio%20Performance) This section details the performance of the Private Education Loan portfolio, highlighting changes in repayment status, delinquencies, and forbearance rates Private Education Loan Portfolio Performance (March 31, 2022 vs. March 31, 2021) | Metric | March 31, 2022 ($M) | March 31, 2021 ($M) | | :------------------------------------ | :------------------ | :------------------ | | Total Private Education Loans | $21,052 | $20,734 | | Loans in-school/grace/deferment | $377 | $457 | | Loans in forbearance | $418 | $797 | | Loans in repayment | $20,257 | $19,480 | | Delinquencies as % of Private Education Loans in repayment | 4.0% | 2.3% | | Loans in forbearance as % of loans in repayment and forbearance | 2.0% | 3.9% | | Loans delinquent greater than 90 days | $314 | $181 | | Percentage of Private Education Loans with a cosigner | 34% | 40% | - Private Education Loan delinquencies (greater than 30 days) as a percentage of loans in repayment increased from **2.3% to 4.0%** year-over-year[99](index=99&type=chunk) - The unpaid principal balance of Troubled Debt Restructuring (TDR) loans in an interest rate reduction program was **$838 million** at March 31, 2022[218](index=218&type=chunk) [Allowance for Loan Losses](index=24&type=section&id=Allowance%20for%20Loan%20Losses) This section details the allowance for loan losses, including provisions, charge-offs, and ending balances for FFELP and Private Education Loans Allowance for Loan Losses Activity (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | | :------------------------------------ | :----------- | :----------- | | Allowance at beginning of period | $1,271 | $1,377 | | Total provision | $16 | $(87) | | Charge-offs | $(76) | $(41) | | Allowance at end of period | $1,219 | $1,274 | | FFELP Loans allowance at end of period | $255 | $282 | | Private Education Loans allowance at end of period | $964 | $992 | | Charge-offs as % of average loans in repayment (annualized) - FFELP | 0.07% | 0.06% | | Charge-offs as % of average loans in repayment (annualized) - Private | 1.38% | 0.68% | | Allowance coverage of charge-offs (annualized) - FFELP | 8.8 | 10.7 | | Allowance coverage of charge-offs (annualized) - Private | 4.6 | 10.2 | - The **$103 million increase** in total provision for loan losses was primarily due to loan originations in Q1 2022, compared to a **$102 million reversal** of allowance in Q1 2021 related to Private Education Loan sales[103](index=103&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) Navient manages liquidity through diverse funding sources, with primary and additional liquidity decreasing, and unsecured debt totaling $7.1 billion, influenced by credit ratings [Funding and Liquidity Risk Management](index=25&type=section&id=Funding%20and%20Liquidity%20Risk%20Management) This section defines liquidity and liquidity risk, outlining Navient's unsecured debt and diverse funding sources, impacted by credit ratings - Liquidity is defined as cash and high-quality liquid assets to meet debt servicing and operational cash requirements[107](index=107&type=chunk) - Liquidity risk is the potential inability to meet obligations without unacceptable losses or to invest in future growth at reasonable market rates[108](index=108&type=chunk) - Unsecured debt totaled **$7.1 billion** at March 31, 2022, with **$1.0 billion** maturing in the next 12 months[109](index=109&type=chunk)[110](index=110&type=chunk) - The company's long-term unsecured debt is rated below investment grade by three credit rating agencies, which can impact funding cost and availability[109](index=109&type=chunk) - Funding sources include cash, unencumbered loan portfolios, operating cash flows, securitization trust overcollateralization, secured credit facilities, term ABS, and unsecured debt[110](index=110&type=chunk) [Sources of Primary Liquidity](index=26&type=section&id=Sources%20of%20Primary%20Liquidity) This section details Navient's primary liquidity sources, including cash, liquid investments, and unencumbered loan portfolios Sources of Primary Liquidity (March 31, 2022 vs. March 31, 2021) | Metric | March 31, 2022 ($M) | March 31, 2021 ($M) | | :------------------------------------ | :------------------ | :------------------ | | Total unrestricted cash and liquid investments | $708 | $1,497 | | Unencumbered FFELP Loans | $222 | $259 | | Unencumbered Private Education Refinance Loans | $232 | $936 | | **Total** | **$1,162** | **$2,692** | [Sources of Additional Liquidity](index=26&type=section&id=Sources%20of%20Additional%20Liquidity) This section outlines Navient's additional liquidity sources, primarily from FFELP and Private Education Loan ABCP facilities Sources of Additional Liquidity (March 31, 2022 vs. March 31, 2021) | Metric | March 31, 2022 ($M) | March 31, 2021 ($M) | | :------------------------------------ | :------------------ | :------------------ | | FFELP Loan ABCP facilities | $352 | $826 | | Private Education Loan ABCP facilities | $2,137 | $2,844 | | **Total** | **$2,489** | **$3,670** | - At March 31, 2022, Navient had **$4.0 billion** of unencumbered tangible assets, including **$2.1 billion** in unencumbered education loans (**$1.9 billion** Private Education Loans and **$222 million** FFELP Loans)[116](index=116&type=chunk) - The company also had **$5.7 billion** of encumbered net assets (overcollateralization) in its various financing facilities[116](index=116&type=chunk) Total Tangible Equity (March 31, 2022 vs. December 31, 2021) | Metric | March 31, 2022 ($B) | December 31, 2021 ($B) | | :------------------------------------ | :------------------ | :--------------------- | | Total Tangible Equity | $2.1 | $1.9 | [Borrowings](index=27&type=section&id=Borrowings) This section presents Navient's ending and average borrowings, categorized as unsecured and secured, along with their average interest rates Ending Borrowings (March 31, 2022 vs. December 31, 2021) | Metric | March 31, 2022 ($M) | December 31, 2021 ($M) | | :------------------------------------ | :------------------ | :--------------------- | | Unsecured borrowings | $7,017 | $7,014 | | Secured borrowings | $67,719 | $69,707 | | **GAAP basis borrowings** | **$74,627** | **$76,978** | Average Borrowings and Rates (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 Avg. Balance ($M) | Q1 2022 Avg. Rate | Q1 2021 Avg. Balance ($M) | Q1 2021 Avg. Rate | | :------------------------------------ | :------------------------ | :---------------- | :------------------------ | :---------------- | | Unsecured borrowings | $7,015 | 4.30% | $8,675 | 4.60% | | Secured borrowings | $68,645 | 1.54% | $73,858 | 1.56% | | **GAAP basis borrowings** | **$75,660** | **1.55%** | **$82,533** | **1.61%** | [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Navient's critical accounting policies cover loan losses, goodwill impairment, and premium/discount amortization, with management monitoring inflation and geopolitical impacts - Key critical accounting policies include allowance for loan losses, goodwill impairment assessment, and premium and discount amortization[120](index=120&type=chunk) - Management considered the potential negative impact of high inflation and the war in Ukraine in Q1 2022, concluding no material impact at this time[120](index=120&type=chunk) - These factors will continue to be monitored and assessed during 2022[120](index=120&type=chunk) [Non-GAAP Financial Measures](index=28&type=section&id=Non-GAAP%20Financial%20Measures) Navient uses non-GAAP financial measures like Core Earnings, Adjusted Tangible Equity Ratio, and EBITDA to provide a clearer view of operational performance, adjusting for volatile GAAP items [Core Earnings](index=28&type=section&id=Core%20Earnings) Core Earnings is a non-GAAP measure used internally for segment evaluation and resource allocation, adjusting GAAP for derivative mark-to-market and intangible asset accounting - Core Earnings is a non-GAAP measure used internally to evaluate business segments and allocate resources, adjusting GAAP for derivative mark-to-market gains/losses and goodwill/acquired intangible asset accounting[122](index=122&type=chunk)[124](index=124&type=chunk) Core Earnings Net Income and Adjustments to GAAP (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | | :------------------------------------ | :----------- | :----------- | | Core Earnings net income | $135 | $305 | | Net impact of derivative accounting | $159 | $91 | | Net impact of goodwill and acquired intangible assets | $(4) | $(5) | | Net income tax effect | $(35) | $(21) | | **Total Core Earnings adjustments to GAAP** | **$120** | **$65** | | GAAP net income | $255 | $370 | - Derivative accounting adjustments primarily relate to mark-to-market valuations on derivatives that do not qualify for hedge accounting or result in ineffectiveness, such as Floor Income Contracts and basis swaps[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk)[135](index=135&type=chunk) Cumulative Impact of Derivative Accounting on GAAP Equity (March 31, 2022 vs. March 31, 2021) | Metric | March 31, 2022 ($M) | March 31, 2021 ($M) | | :------------------------------------ | :------------------ | :------------------ | | Beginning impact of derivative accounting on GAAP equity | $(299) | $(616) | | Net impact of net mark-to-market gains (losses) under derivative accounting | $236 | $117 | | **Ending impact of derivative accounting on GAAP equity** | **$(63)** | **$(499)** | Total Hedged Floor Income, Net of Tax (March 31, 2022 vs. March 31, 2021) | Metric | March 31, 2022 ($M) | March 31, 2021 ($M) | | :------------------------------------ | :------------------ | :------------------ | | Total hedged Floor Income, net of tax | $289 | $364 | [Adjusted Tangible Equity Ratio](index=35&type=section&id=Adjusted%20Tangible%20Equity%20Ratio) The Adjusted Tangible Equity Ratio measures Navient's Tangible Equity to tangible assets, excluding the FFELP portfolio for enhanced investor usefulness - The Adjusted Tangible Equity Ratio measures the ratio of Navient's Tangible Equity to its tangible assets, excluding the FFELP portfolio to enhance usefulness for investors and capital allocation decisions[149](index=149&type=chunk) Adjusted Tangible Equity Ratio (March 31, 2022 vs. March 31, 2021) | Metric | March 31, 2022 | March 31, 2021 | | :------------------------------------ | :------------- | :------------- | | Navient Corporation's stockholders' equity | $2,824 million | $2,723 million | | Tangible Equity | $2,102 million | $1,992 million | | Adjusted Tangible Equity | $1,847 million | $1,708 million | | Adjusted tangible assets | $26,423 million | $27,353 million | | **Adjusted Tangible Equity Ratio** | **7.0%** | **6.2%** | | Pro forma Adjusted Tangible Equity Ratio | 7.2% | 8.1% | [Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA)](index=35&type=section&id=Earnings%20before%20Interest,%20Taxes,%20Depreciation%20and%20Amortization%20Expense%20(EBITDA)) EBITDA measures the operating performance of the Business Processing segment, used by management and equity investors - EBITDA measures the operating performance of the Business Processing segment and is used by management and equity investors[151](index=151&type=chunk) Business Processing Segment EBITDA (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | | :------------------------------------ | :----------- | :----------- | | Pre-tax income | $18 | $34 | | Depreciation and amortization expense | $1 | $2 | | **EBITDA** | **$19** | **$36** | | Total revenue | $94 | $125 | | **EBITDA margin** | **20%** | **29%** | [Legal Proceedings](index=36&type=section&id=Legal%20Proceedings) This section refers to Note 9 for a detailed discussion of Navient's legal matters and commitments as of March 31, 2022 - For a discussion of legal matters as of March 31, 2022, refer to "Note 9 – Commitments and Contingencies" in the consolidated financial statements[153](index=153&type=chunk) [Risk Factors](index=36&type=section&id=Risk%20Factors) This section advises considering risk factors from the Annual Report on Form 10-K, supplemented by information in this Quarterly Report - Risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, should be considered, along with information in this Quarterly Report[154](index=154&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses Navient's exposure to market risks, including interest rate sensitivity and the ongoing LIBOR transition [LIBOR Transition](index=37&type=section&id=LIBOR%20Transition) Navient is preparing for the LIBOR to SOFR transition by June 30, 2023, with new loans indexed to SOFR and the LIBOR Act mandating SOFR replacement for certain contracts - Navient is working towards an orderly transition from one-month and three-month LIBOR to an alternative benchmark rate, primarily SOFR, by **June 30, 2023**[156](index=156&type=chunk)[157](index=157&type=chunk) - All new variable rate Private Education Loans issued since December 2021 are indexed to SOFR, and the company ceased entering new LIBOR-indexed contracts as of **December 31, 2021**[157](index=157&type=chunk) - The Adjustable Interest Rate (LIBOR) Act, signed on **March 15, 2022**, mandates that for contracts without specific fallback provisions (including FFELP Loans), a SOFR-based benchmark will automatically replace USD LIBOR after **June 30, 2023**[158](index=158&type=chunk) [Interest Rate Sensitivity Analysis](index=38&type=section&id=Interest%20Rate%20Sensitivity%20Analysis) Navient's interest rate risk management aims to limit short-term rate impacts, with a 100 basis point increase potentially raising Q1 2022 net income by $52 million - Interest rate risk management seeks to limit the impact of short-term interest rate movements on results of operations and financial position[161](index=161&type=chunk) Impact on Annual Earnings from Hypothetical 100 Basis Point Interest Rate Change (As of March 31, 2022) | Metric | Interest Rates Increase 100 Basis Points ($M) | Interest Rates Decrease 100 Basis Points ($M) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Change in pre-tax net income (before MTM) | $25 | $4 | | Mark-to-market gains (losses) on derivatives | $43 | $(63) | | Increase (decrease) in income before taxes | $68 | $(59) | | Increase (decrease) in net income after taxes | $52 | $(45) | | Increase (decrease) in diluted earnings per common share | $0.35 | $(0.30) | - The change in pre-tax net income is primarily due to unhedged FFELP Loans in a fixed-rate mode funded with variable-rate debt, and variable-rate assets funded with fixed-rate liabilities[165](index=165&type=chunk) - Mark-to-market gains (losses) on derivative and hedging activities are primarily related to derivatives that do not qualify for hedge accounting, such as those used to economically hedge Floor Income and fixed-rate Private Education Refinance loans[166](index=166&type=chunk) [Asset and Liability Funding Gap](index=40&type=section&id=Asset%20and%20Liability%20Funding%20Gap) Navient analyzes its asset and liability funding gap on GAAP and Core Earnings bases to understand interest rate risk exposure, revealing significant funding gaps for LIBOR and fixed-rate assets - The funding gap represents exposure to interest rate risk in the form of basis risk and repricing risk, where different indices may reset at different frequencies or not move in the same direction/magnitude[169](index=169&type=chunk) GAAP Basis Asset and Liability Funding Gap (As of March 31, 2022) | Index | Assets ($B) | Funding ($B) | Gap ($B) | | :---------------- | :---------- | :----------- | :--------- | | 3-month LIBOR (quarterly) | $0.3 | $22.2 | $(21.9) | | 1-month LIBOR (monthly) | $3.4 | $29.8 | $(26.4) | | 1-month LIBOR (daily) | $48.2 | $0.0 | $48.2 | | Fixed Rate | $13.4 | $21.6 | $(8.2) | Core Earnings Basis Asset and Liability Funding Gap (As of March 31, 2022) | Index | Assets ($B) | Funding ($B) | Gap ($B) | | :---------------- | :---------- | :----------- | :--------- | | 3-month LIBOR (quarterly) | $0.3 | $4.2 | $(3.9) | | 1-month LIBOR (monthly) | $3.4 | $46.4 | $(43.0) | | 1-month LIBOR (daily) | $48.2 | $0.0 | $48.2 | | Fixed Rate | $13.3 | $22.9 | $(9.6) | - Navient's asset liability management strategy is to match assets with debt (in combination with derivatives) that have the same underlying index and reset frequency or highly correlated interest rate characteristics[178](index=178&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details common stock repurchases and the use of proceeds, including the multi-year share repurchase program Common Stock Repurchases (Q1 2022) | Period | Total Number of Shares Purchased (millions) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (millions) | Approximate Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Plans or Programs ($M) | | :-------------------------- | :------------------------------------------ | :--------------------------- | :--------------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------------- | | January 1 — January 31, 2022 | 2.0 | $20.03 | 1.9 | $963 | | February 1 — February 28, 2022 | 3.5 | $18.12 | 2.7 | $913 | | March 1 — March 31, 2022 | 1.9 | $17.00 | 1.6 | $885 | | **Total first-quarter 2022** | **7.4** | **$18.33** | **6.2** | | - In December 2021, the Board approved a **$1 billion** multi-year share repurchase program, with **$885 million** remaining authorization as of **March 31, 2022**[182](index=182&type=chunk) - The total shares purchased include shares under the repurchase program and shares tendered to satisfy stock option exercise prices and tax withholding obligations for employee stock-based compensation plans[181](index=181&type=chunk) [Controls and Procedures](index=42&type=section&id=Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control - Management, with the participation of Principal Executive and Financial Officers, concluded that disclosure controls and procedures were effective as of **March 31, 2022**[183](index=183&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended **March 31, 2022**[184](index=184&type=chunk) [Exhibits](index=43&type=section&id=Exhibits) This section lists various exhibits filed with the report, including agreements and certifications required by regulatory acts - - 10.1†* Form of Navient Corporation 2014 Omnibus Incentive Plan Performance Stock Unit Agreement[187](index=187&type=chunk) - 31.1* Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002[187](index=187&type=chunk) - 31.2* Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002[187](index=187&type=chunk) - 32.1** Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002[188](index=188&type=chunk) - 32.2** Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002[188](index=188&type=chunk) - 101.INS* Inline XBRL Instance Document[188](index=188&type=chunk) - 104 Cover Page Interactive Data File (formatted as Inline XBRL)[188](index=188&type=chunk) [Financial Statements](index=44&type=section&id=Financial%20Statements) This section presents Navient's consolidated financial statements, including balance sheets, income statements, and cash flow highlights Consolidated Balance Sheets Highlights (March 31, 2022 vs. December 31, 2021) | Metric | March 31, 2022 ($M) | December 31, 2021 ($M) | | :------------------------------------ | :------------------ | :--------------------- | | FFELP Loans, net | $51,013 | $52,641 | | Private Education Loans, net | $20,088 | $20,171 | | Total assets | $78,158 | $80,605 | | Short-term borrowings | $3,802 | $2,490 | | Long-term borrowings | $70,825 | $74,488 | | Total liabilities | $75,328 | $77,997 | | Total Navient Corporation stockholders' equity | $2,824 | $2,597 | Consolidated Statements of Income Highlights (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | | :------------------------------------ | :----------- | :----------- | | Total interest income | $626 | $692 | | Total interest expense | $289 | $329 | | Net interest income | $337 | $363 | | Provisions for loan losses | $16 | $(87) | | Total other income | $223 | $304 | | Total expenses | $212 | $270 | | Net income | $255 | $370 | | Diluted earnings per common share | $1.67 | $2.00 | | Dividends per common share | $0.16 | $0.16 | Consolidated Statements of Cash Flows Highlights (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | | :------------------------------------ | :----------- | :----------- | | Net cash (used in) provided by operating activities | $(109) | $179 | | Net cash provided by investing activities | $1,751 | $2,885 | | Net cash used in financing activities | $(2,006) | $(2,499) | | Net (decrease) increase in cash, cash equivalents, restricted cash | $(364) | $565 | | Cash, cash equivalents, restricted cash at end of period | $3,214 | $4,102 | [Notes to Consolidated Financial Statements](index=50&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes to Navient's consolidated financial statements, explaining significant accounting policies and specific financial items [Note 1. Significant Accounting Policies](index=50&type=section&id=Note%201.%20Significant%20Accounting%20Policies) This note outlines Navient's significant accounting policies, including the basis of presentation for interim financial statements and the assessment of a new ASU on troubled debt restructurings - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information, requiring management to make estimates and assumptions[205](index=205&type=chunk) - Operating results for **Q1 2022** are not necessarily indicative of results for the full year or any other period[205](index=205&type=chunk) - ASU No. 2022-02, effective **January 1, 2023**, eliminates TDR recognition/measurement guidance and enhances disclosure requirements for certain loan modifications; the company is assessing its impact[206](index=206&type=chunk) [Note 2. Allowance for Loan Losses](index=51&type=section&id=Note%202.%20Allowance%20for%20Loan%20Losses) This note details the allowance for loan losses, which decreased to $1.219 billion, with a significant increase in Q1 2022 provision due to originations and credit quality indicators presented Allowance for Loan Losses Metrics (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | | :------------------------------------ | :----------- | :----------- | | Allowance at beginning of period | $1,271 | $1,377 | | Total provision | $16 | $(87) | | Charge-offs | $(76) | $(41) | | Allowance at end of period | $1,219 | $1,274 | | FFELP Loans allowance at end of period | $255 | $282 | | Private Education Loans allowance at end of period | $964 | $992 | | Charge-offs as % of average loans in repayment (annualized) - FFELP | 0.07% | 0.06% | | Charge-offs as % of average loans in repayment (annualized) - Private | 1.38% | 0.68% | - The unpaid principal balance of Troubled Debt Restructuring (TDR) loans in an interest rate reduction program was **$838 million** at March 31, 2022[218](index=218&type=chunk) Troubled Debt Restructurings (TDRs) Activity (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | | :------------------------------------ | :----------- | :----------- | | Modified loans | $55 | $40 | | Charge-offs | $56 | $26 | | Payment default | $9 | $5 | FFELP Loan Delinquencies (March 31, 2022 vs. March 31, 2021) | Metric | March 31, 2022 | March 31, 2021 | | :------------------------------------ | :------------- | :------------- | | Delinquencies as % of FFELP Loans in repayment | 13.5% | 8.3% | | Loans delinquent greater than 90 days | 6.4% | 3.5% | | Loans in forbearance as % of loans in repayment and forbearance | 12.9% | 15.5% | Private Education Loan Delinquencies (March 31, 2022 vs. March 31, 2021) | Metric | March 31, 2022 | March 31, 2021 | | :------------------------------------ | :------------- | :------------- | | Delinquencies as % of Private Education Loans in repayment | 4.0% | 2.3% | | Loans delinquent greater than 90 days | 1.6% | 0.9% | | Loans in forbearance as % of loans in repayment and forbearance | 2.0% | 3.9% | | Percentage of Private Education Loans with a cosigner | 34% | 40% | [Note 3. Borrowings](index=59&type=section&id=Note%203.%20Borrowings) Navient's total GAAP borrowings decreased to $74.627 billion, primarily due to reduced FFELP Loan securitizations, with details on assets securing debt for consolidated VIEs Ending Borrowings (March 31, 2022 vs. December 31, 2021) | Metric | March 31, 2022 ($M) | December 31, 2021 ($M) | | :------------------------------------ | :------------------ | :--------------------- | | Unsecured borrowings | $7,017 | $7,014 | | Secured borrowings | $67,719 | $69,707 | | **GAAP basis borrowings** | **$74,627** | **$76,978** | - Secured borrowings include **$49.622 billion** in FFELP Loan securitizations and **$14.553 billion** in Private Education Loan securitizations at March 31, 2022[247](index=247&type=chunk) - As of March 31, 2022, **$683 million** in FFELP secured debt tranches were in maturity date default, with full payment expected between 2029 and 2035[249](index=249&type=chunk) Secured Borrowings from Consolidated VIEs (March 31, 2022) | Metric | Debt Outstanding ($M) | Carrying Amount of Assets Securing Debt Outstanding ($M) | | :------------------------------------ | :-------------------- | :------------------------------------------------------- | | FFELP Loan securitizations | $49,622 | $53,419 | | Private Education Loan securitizations | $14,553 | $16,123 | | FFELP Loan ABCP facilities | $764 | $795 | | Private Education Loan ABCP facilities | $2,576 | $2,866 | | **Total before hedge accounting adjustments** | **$67,515** | **$73,203** | [Note 4. Derivative Financial Instruments](index=61&type=section&id=Note%204.%20Derivative%20Financial%20Instruments) This note summarizes Navient's derivative instruments, including fair values, notional amounts, and their impact on financial statements, noting collateralization and net positive exposure Fair Values of Derivative Instruments (March 31, 2022 vs. December 31, 2021) | Metric | March 31, 2022 ($M) | December 31, 2021 ($M) | | :------------------------------------ | :------------------ | :--------------------- | | Total derivative assets | $151 | $224 | | Total derivative liabilities | $(239) | $(260) | | **Net total derivatives** | **$(88)** | **$(36)** | Notional Values of Derivative Instruments (March 31, 2022 vs. December 31, 2021) | Metric | March 31, 2022 ($B) | December 31, 2021 ($B) | | :------------------------------------ | :------------------ | :--------------------- | | Interest rate swaps | $44.4 | $46.7 | | Floor Income Contracts | $8.1 | $12.5 | | Cross-currency interest rate swaps | $2.0 | $2.1 | | **Total derivatives** | **$54.5** | **$61.3** | Mark-to-Market Impact of Derivatives on Statements of Income (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | | :------------------------------------ | :----------- | :----------- | | Total fair value hedges | $41 | $45 | | Total trading derivatives | $98 | $36 | | **Mark-to-market gains (losses) recognized** | **$139** | **$81** | - Navient's corporate derivatives liability position of **$24 million** was fully collateralized at **March 31, 2022**, at its current unsecured credit rating[271](index=271&type=chunk) - Net positive exposure related to Navient Corporation derivatives was **$15 million** at **March 31, 2022**[271](index=271&type=chunk)[272](index=272&type=chunk) [Note 5. Other Assets](index=64&type=section&id=Note%205.%20Other%20Assets) This note breaks down Navient's other assets, totaling $2.911 billion, with accrued interest receivable and benefit/insurance-related investments as major components Other Assets Breakdown (March 31, 2022 vs. December 31, 2021) | Metric | March 31, 2022 ($M) | December 31, 2021 ($M) | | :------------------------------------ | :------------------ | :--------------------- | | Accrued interest receivable | $1,834 | $1,881 | | Benefit and insurance-related investments | $456 | $462 | | Income tax asset, net | $255 | $369 | | Derivatives at fair value | $151 | $218 | | Accounts receivable | $109 | $159 | | Fixed assets | $91 | $95 | | Other | $15 | $39 | | **Total** | **$2,911** | **$3,223** | [Note 6. Stockholders' Equity](index=65&type=section&id=Note%206.%20Stockholders'%20Equity) This note details changes in Navient's stockholders' equity, including common share repurchases of 6.2 million shares for $115 million and dividends paid Common Share Activity (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 | Q1 2021 | | :------------------------------------ | :------ | :------ | | Common stock repurchased (millions of shares) | 6.2 | 8.2 | | Common stock repurchased (in dollars) | $115 million | $100 million | | Average purchase price per share | $18.41 | $12.23 | | Remaining common stock repurchase authority | $885 million | $500 million | | Shares repurchased related to employee stock-based compensation plans (millions) | 1.1 | 2.2 | | Common shares issued (millions) | 2.4 | 3.6 | | Dividends paid | $24 million | $29 million | | Dividends per share | $0.16 | $0.16 | - The remaining common stock repurchase authority was **$885 million** as of **March 31, 2022**, from a **$1 billion** multi-year program approved in December 2021[277](index=277&type=chunk) [Note 7. Earnings (Loss) per Common Share](index=66&type=section&id=Note%207.%20Earnings%20(Loss)%20per%20Common%20Share) This note reconciles basic and diluted earnings per common share (EPS) calculations for Q1 2022, based on weighted average shares outstanding and anti-dilutive exclusions Earnings Per Common Share (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 | Q1 2021 | | :------------------------------------ | :------ | :------ | | Net income | $255 million | $370 million | | Weighted average shares used to compute basic EPS (millions) | 151 | 183 | | Basic earnings per common share | $1.69 | $2.02 | | Weighted average shares used to compute diluted EPS (millions) | 153 | 185 | | Diluted earnings per common share | $1.67 | $2.00 | - Securities covering approximately **0 million shares** in Q1 2022 (compared to **2 million** in Q1 2021) were anti-dilutive and excluded from the diluted EPS computation[284](index=284&type=chunk) [Note 8. Fair Value Measurements](index=66&type=section&id=Note%208.%20Fair%20Value%20Measurements) This note describes Navient's fair value estimates, categorized by a three-level hierarchical framework, detailing derivative assets and liabilities with no significant valuation changes - Navient categorizes fair value estimates based on a three-level hierarchical framework of price transparency[285](index=285&type=chunk) Fair Value Measurements of Derivative Instruments (March 31, 2022) | Metric | Level 1 ($M) | Level 2 ($M) | Level 3 ($M) | Total ($M) | | :------------------------------------ | :----------- | :----------- | :----------- | :--------- | | Total derivative assets | $0 | $150 | $1 | $151 | | Total derivative liabilities | $0 | $(9) | $(230) | $(239) | - The change in balance sheet carrying value for Level 3 financial instruments (derivative liabilities) was **$(229) million** at **March 31, 2022**, primarily from cross-currency interest rate swaps[295](index=295&type=chunk) Fair Value of Earning Assets and Interest-Bearing Liabilities (March 31, 2022) | Metric | Fair Value ($M) | Carrying Value ($M) | Difference ($M) | | :------------------------------------ | :-------------- | :------------------ | :-------------- | | FFELP Loans | $50,375 | $51,013 | $(638) | | Private Education Loans | $20,213 | $20,088 | $125 | | Total earning assets | $74,012 | $74,525 | $(513) | | Total interest-bearing liabilities | $73,328 | $74,627 | $1,299 | [Note 9. Commitments and Contingencies](index=70&type=section&id=Note%209.%20Commitments%20and%20Contingencies) Navient faces various legal proceedings, including a $1.7 billion settlement with State Attorneys General, ongoing CFPB litigation, and an OIG audit regarding Special Allowance Payments - Navient is subject to various claims, lawsuits, and regulatory actions alleging violations of state or federal consumer protection laws[302](index=302&type=chunk)[306](index=306&type=chunk) - In January 2022, Navient settled with **40 State Attorneys General**, agreeing to cancel approximately **$1.7 billion** in private education loans (resulting in a **$50 million** expense for expected future recoveries) and make a one-time payment of **$145 million** to the states[309](index=309&type=chunk) - Total regulatory expenses of approximately **$205 million** related to the State Attorneys General settlement were recognized in **Q4 2021**[309](index=309&type=chunk) - Litigation with the Consumer Financial Protection Bureau (CFPB) remains ongoing, with Navient vigorously defending against allegations; an adverse ruling could have a material adverse impact[310](index=310&type=chunk) - An OIG audit regarding Special Allowance Payments (SAP) resulted in an administrative law judge's decision affirmed by the Acting Secretary of Education, which Navient is challenging in federal court; a reserve was established for this matter[315](index=315&type=chunk) [Note 10. Revenue from Contracts with Customers Accounted for in Accordance with ASC 606](index=73&type=section&id=Note%2010.%20Revenue%20from%20Contracts%20with%20Customers%20Accounted%20for%20in%20Accordance%20with%20ASC%20606) This note disaggregates Navient's revenue from customer contracts under ASC 606 by service and client type, showing a decrease in Q1 2022 primarily from government and healthcare services Revenue by Service Type (Q1 2022 vs. Q1 2021) | Service Type | Q1 2022 ($M) | Q1 2021 ($M) | | :------------------------------------ | :----------- | :----------- | | Federal Education Loan asset recovery services | $1 | $5 | | Government services | $49 | $63 | | Healthcare services | $45 | $62 | | **Total Revenue** | **$95** | **$130** | Revenue by Client Type (Q1 2022 vs. Q1 2021) | Client Type | Q1 2022 ($M) | Q1 2021 ($M) | | :------------------------------------ | :----------- | :----------- | | Federal government | $2 | $9 | | Guarantor agencies | $1 | $4 | | State and local government | $33 | $42 | | Tolling authorities | $14 | $13 | | Hospitals and other healthcare providers | $45 | $62 | | **Total Revenue** | **$95** | **$130** | - Net accounts receivable related to these contracts was **$90 million** as of **March 31, 2022**[325](index=325&type=chunk) [Note 11. Segment Reporting](index=74&type=section&id=Note%2011.%20Segment%20Reporting) This note provides detailed financial information for Navient's four operating segments, with profitability measured by Core Earnings net income, and reconciles segment results to GAAP - Navient monitors and assesses operations based on four reportable operating segments: Federal Education Loans, Consumer Lending, Business Processing, and Other[327](index=327&type=chunk) - Profitability of operating segments is measured based on Core Earnings net income, which adjusts GAAP financial results for derivative mark-to-market gains/losses and goodwill/acquired intangible assets[328](index=328&type=chunk)[343](index=343&type=chunk)[345](index=345&type=chunk) Total Assets by Segment (March 31, 2022 vs. December 31, 2021) | Segment | March 31, 2022 ($M) | December 31, 2021 ($M) | | :------------------------------------ | :------------------ | :--------------------- | | Federal Education Loans | $54,900 | $56,895 | | Consumer Lending | $21,582 | $21,810 | | Business Processing | $402 | $397 | | Other | $1,300 | $1,500 | Core Earnings Net Income by Segment (Q1 2022) | Segment | Net Income (Loss) ($M) | | :------------------------------------ | :--------------------- | | Federal Education Loans | $107 | | Consumer Lending | $79 | | Business Processing | $14 | | Other | $(65) | | **Total Core Earnings Net Income** | **$135** | Summary of Core Earnings Adjustments to GAAP (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 ($M) | Q1 2021 ($M) | | :------------------------------------ | :----------- | :----------- | | Core Earnings net income | $135 | $305 | | Net impact of derivative accounting | $159 | $91 | | Net impact of goodwill and acquired intangible assets | $(4) | $(5) | | Net tax effect | $(35) | $(21) | | **Total Core Earnings adjustments to GAAP** | **$120** | **$65** | | GAAP net income | $255 | $370 | [Signatures](index=80&type=section&id=SIGNATURES) This section confirms the report was signed by Navient Corporation's Chief Financial Officer on April 27, 2022 - The report was signed on behalf of Navient Corporation by Joe Fisher, Chief Financial Officer (Principal Financial and Accounting Officer), on **April 27, 2022**[358](index=358&type=chunk) [Appendix A – Form 10-Q Cross-Reference Index](index=81&type=section&id=APPENDIX%20A%20%E2%80%93%20Form%2010-Q%20Cross-Reference%20Index) Appendix A provides a cross-reference index to the traditional SEC Form 10-Q format, indicating page numbers for various items - Appendix A provides a cross-reference index to the traditional SEC Form 10-Q format, indicating the page numbers for various items within Navient's customized report structure[7](index=7&type=chunk)[360](index=360&type=chunk)