Navient(NAVI) - 2025 Q1 - Quarterly Report

Business Navient focuses on managing education loan portfolios, simplifying operations through divestitures, and growing its private education loan originations Overview and Fundamentals of Our Business Navient provides technology-enabled education finance solutions, primarily managing its Federal Family Education Loan Program (FFELP) and Private Education Loan portfolios, with a strategy focused on maximizing cash flows, maintaining a strong balance sheet, and returning capital to shareholders - Navient's business is centered on managing two key loan portfolios: $30.2 billion in FFELP Loans and $15.7 billion in Private Education Loans[20][21] - In the first quarter of 2025, the company originated approximately $508 million of Private Education Loans through its Earnest brand[21] - The company maintains a $1 billion share repurchase program, approved in December 2021, with $76 million remaining available for repurchases as of March 31, 2025[24] Capital Return and Key Ratios (Q1 2025 vs. Q1 2024) | (Dollars and shares in millions) | Q1-25 | Q1-24 | | :--- | :--- | :--- | | Shares repurchased | 2.6 | 2.6 | | Reduction in shares outstanding | 2% | 1% | | Total repurchases in dollars | $35 | $43 | | Dividends paid | $16 | $18 | | Total Capital Returned | $51 | $61 | | GAAP equity-to-asset ratio | 5.1% | 4.7% | | Adjusted Tangible Equity Ratio | 9.9% | 8.4% | Recent Business Developments Navient has made significant progress on strategic actions to simplify the company and reduce costs, including outsourcing loan servicing and divesting its Business Processing segment, resulting in an 80% headcount reduction and a near doubling of Private Education Loan originations - Completed the divestiture of the Business Processing segment, with the healthcare services business sold in September 2024 and the government services business sold in February 2025[31] - Reduced headcount by 80% since the beginning of 2024 as part of strategic restructuring[31] - Recognized $42 million in restructuring and reorganization charges in 2024 and Q1 2025, primarily for severance[31] - Private Education Loan originations nearly doubled to $508 million in Q1 2025 compared to $259 million in Q1 2024, reflecting a strategic focus on this growth area[34] How We Organize Our Business Following recent divestitures, Navient operates through two primary segments: Federal Education Loans and Consumer Lending, with a third "Other" segment for corporate liquidity and unallocated expenses - The company now operates two primary segments: Federal Education Loans and Consumer Lending[32] - The Federal Education Loans segment owns and manages FFELP Loans, generating revenue from net interest income[35] - The Consumer Lending segment owns, manages, refinances, and originates Private Education Loans through its Earnest brand[36] - The Business Processing segment was fully divested with the sale of its government services businesses in February 2025[38] - The Other segment consists of the corporate liquidity portfolio, unallocated shared services expenses, restructuring costs, and revenue/expenses from transition services[40] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an in-depth analysis of Navient's financial performance and condition, highlighting key trends, segment results, and liquidity management Selected Historical Financial Information and Ratios This section presents a high-level comparison of key financial data for the first quarters of 2025 and 2024, highlighting a shift from GAAP net income in 2024 to a net loss in 2025, a decrease in Core Earnings, and a reduction in the overall education loan portfolio size Q1 Financial Comparison (GAAP Basis) | (In millions, except per share data) | 2025 | 2024 | | :--- | :--- | :--- | | Net income (loss) | $(2) | $73 | | Diluted earnings (loss) per common share | $(.02) | $.64 | Q1 Financial Comparison (Core Earnings Basis) | (In millions, except per share data) | 2025 | 2024 | | :--- | :--- | :--- | | Net income | $26 | $54 | | Diluted earnings per common share | $.25 | $.47 | Education Loan Portfolio Balances (Net) | (In millions) | Ending March 31, 2025 | Ending March 31, 2024 | | :--- | :--- | :--- | | Ending FFELP Loans, net | $30,244 | $35,879 | | Ending Private Education Loans, net | $15,690 | $16,608 | | Ending total education loans, net | $45,934 | $52,487 | The Quarter in Review In Q1 2025, Navient reported a GAAP net loss of $2 million, a stark contrast to the $73 million net income in Q1 2024, with Core Earnings also declining, while key activities included completing the sale of the Business Processing segment, repurchasing shares, paying dividends, and originating Private Education Loans - Reported a Q1 2025 GAAP net loss of $2 million ($0.02 per share) compared to a $73 million net income ($0.64 per share) in Q1 2024[44] - Core Earnings net income for Q1 2025 was $26 million ($0.25 per share), down from $54 million ($0.47 per share) in the prior-year quarter[45] - Completed the sale of the remaining Business Processing segment businesses for net consideration of $44 million in February 2025[46] - Returned capital to shareholders by repurchasing $35 million of common shares and paying $16 million in dividends[48] Results of Operations The company's shift from a $73 million net income in Q1 2024 to a $2 million net loss in Q1 2025 was driven by several factors, including a $22 million fall in net interest income, an $18 million increase in provisions for loan losses, a $57 million decrease in gains on derivatives, and a $54 million drop in revenue from the divested Business Processing segment, partially offset by a $56 million reduction in operating expenses GAAP Income Statement Highlights (Q1 2025 vs. Q1 2024) | (In millions) | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $130 | $152 | $(22) | (14)% | | Provisions for loan losses | $30 | $12 | $18 | 150% | | Total other income | $26 | $135 | $(109) | (81)% | | Total expenses | $131 | $187 | $(56) | (30)% | | Net income (loss) | $(2) | $73 | $(75) | (103)% | - Net interest income decreased by $22 million, primarily from the paydown of loan portfolios and interest rate impacts[54] - Provisions for loan losses increased by $18 million, reflecting higher provisions for both FFELP and Private Education Loans due to rising delinquencies[54][51][52] - Asset recovery and business processing revenue fell by $54 million due to the sale of the healthcare and government services businesses[54] - Net gains on derivative and hedging activities decreased by $57 million, primarily due to interest rate fluctuations[54] Segment Results This section provides a detailed breakdown of Core Earnings performance across Navient's operating segments, where both Federal Education Loans and Consumer Lending segments saw year-over-year declines in net income due to lower net interest income and higher provisions, while the Business Processing segment's results reflect its divestiture and the Other segment's loss narrowed due to lower expenses Federal Education Loans Segment The Federal Education Loans segment's net income decreased to $24 million in Q1 2025 from $40 million in Q1 2024, primarily caused by a $4 million drop in net interest income and a $7 million increase in the provision for loan losses, which rose to $8 million due to higher delinquency balances, with delinquencies greater than 90 days increasing to $2.5 billion from $1.9 billion year-over-year Federal Education Loans Segment Core Earnings (Q1 2025 vs. Q1 2024) | (Dollars in millions) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Net interest income | $49 | $53 | (8)% | | Provision for loan losses | $8 | $1 | 700% | | Net income | $24 | $40 | (40)% | - Provision for loan losses increased by $7 million to $8 million, driven by a rise in delinquency balances[58] Federal Education Loans Key Performance Metrics | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Segment net interest margin | 0.61% | 0.55% | | Greater than 90-days delinquency rate | 10.2% | 6.6% | | Forbearance rate | 14.4% | 16.0% | | Ending FFELP Loans, net | $30,244M | $35,879M | Consumer Lending Segment The Consumer Lending segment's net income fell to $46 million in Q1 2025 from $73 million in Q1 2024, driven by a $21 million decrease in net interest income from portfolio paydowns and an $11 million increase in the provision for loan losses, despite significant growth in loan originations which rose to $508 million from $259 million year-over-year Consumer Lending Segment Core Earnings (Q1 2025 vs. Q1 2024) | (Dollars in millions) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Net interest income | $113 | $134 | (16)% | | Provision for loan losses | $22 | $11 | 100% | | Net income | $46 | $73 | (37)% | - Originated $508 million of Private Education Loans, a significant increase from $259 million in Q1 2024, including $470 million in Refinance Loans and $38 million in In-school loans[72] - Provision for loan losses increased by $11 million to $22 million, with $7 million for new originations and $15 million for a general reserve build due to higher delinquencies[72][77] Consumer Lending Key Performance Metrics | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Segment net interest margin | 2.76% | 2.99% | | Greater than 90-days delinquency rate | 2.6% | 2.1% | | Ending Private Education Loans, net | $15,690M | $16,608M | Business Processing Segment Navient no longer provides business processing services following the sale of its government services business in February 2025, with the segment generating $2 million in net income on $23 million in revenue for the partial first quarter of 2025, reflecting a steep decline from the prior year due to the divestiture - With the sale of its government services business in February 2025, Navient has fully exited the Business Processing segment[83] Business Processing Segment Core Earnings (Q1 2025 vs. Q1 2024) | (Dollars in millions) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Business processing revenue | $23 | $77 | (70)% | | Net income | $2 | $6 | (67)% | | EBITDA | $3 | $9 | (67)% | Other Segment The Other segment reported a net loss of $46 million, an improvement from a $65 million loss in Q1 2024, primarily due to a $12 million decrease in unallocated shared services operating expenses and increased other revenue from transition services related to recent divestitures Other Segment Core Earnings (Q1 2025 vs. Q1 2024) | (Dollars in millions) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Net interest loss | $(18) | $(24) | (25)% | | Other revenue | $15 | $5 | 200% | | Total expenses | $56 | $66 | (15)% | | Net loss | $(46) | $(65) | (29)% | - Unallocated shared services operating expenses decreased by $12 million, primarily due to a $12 million drop in regulatory-related expenses compared to the prior-year quarter[88] - Restructuring expenses increased by $2 million due to higher severance costs related to strategic initiatives[90] Financial Condition As of March 31, 2025, Navient's total net education loan portfolio was $45.9 billion, down from $52.5 billion a year earlier, reflecting the continued paydown of the FFELP portfolio, with increased delinquency rates for both FFELP and Private Education loans and a total allowance for loan losses of $579 million Ending Education Loan Balances, net | (Dollars in millions) | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Total FFELP Loans | $30,244 | $35,879 | | Total Private Education Loans | $15,690 | $16,608 | | Total Portfolio | $45,934 | $52,487 | FFELP Loan Portfolio Performance | Metric (% of loans in repayment) | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Delinquent greater than 90 days | 10.2% | 6.6% | | In forbearance | 14.4% | 16.0% | Private Education Loan Portfolio Performance | Metric (% of loans in repayment) | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Delinquent greater than 90 days | 2.6% | 2.1% | | In forbearance | 1.8% | 1.8% | Allowance for Loan Losses Roll-Forward (Q1 2025) | (Dollars in millions) | FFELP Loans | Private Education Loans | Total | | :--- | :--- | :--- | :--- | | Allowance at beginning of period | $180 | $441 | $621 | | Total provision | $8 | $22 | $30 | | Net charge-offs | $(6) | $(72) | $(78) | | Allowance at end of period | $182 | $397 | $579 | Liquidity and Capital Resources Navient maintains liquidity to service its debt and fund operations, with primary sources including cash, operating cash flows, and loan repayments, holding $1.2 billion in primary liquidity and access to an additional $1.8 billion from credit facilities, while managing $5.3 billion in unsecured debt and aiming to improve credit ratings Sources of Primary Liquidity (Ending Balances) | (Dollars in millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Unrestricted cash | $642 | $722 | | Unencumbered FFELP Loans | $61 | $232 | | Unencumbered Private Education Refinance Loans | $488 | $242 | | Total | $1,191 | $1,196 | Sources of Additional Liquidity (Ending Balances) | (Dollars in millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | FFELP Loan ABCP facilities | $223 | $424 | | Private Education Loan ABCP facilities | $1,626 | $1,490 | | Total | $1,849 | $1,914 | - The company has $5.3 billion in senior unsecured debt outstanding as of March 31, 2025, with $0.5 billion maturing within the next 12 months[101][102] - The Adjusted Tangible Equity Ratio was 9.9% as of March 31, 2025, compared to 8.4% a year prior[132] Critical Accounting Policies and Estimates This section directs readers to the company's 2024 Form 10-K for a comprehensive discussion of its critical accounting policies, including the allowance for loan losses, goodwill impairment assessment, and premium and discount amortization, with no changes or new policies noted for the current period - The report references the 2024 Form 10-K for a full discussion of critical accounting policies[112] - Key critical accounting policies include allowance for loan losses, goodwill impairment assessment, and premium and discount amortization[112] Non-GAAP Financial Measures Navient utilizes several non-GAAP financial measures to evaluate its business, including Core Earnings, Tangible Equity, EBITDA, and a modified Allowance for Loan Losses, believing these measures provide a clearer view of operational performance by adjusting for items like derivative mark-to-market volatility and goodwill accounting, with detailed definitions and reconciliations provided - Navient uses Core Earnings as its primary measure for managing business segments, adjusting GAAP results by removing mark-to-market gains/losses on certain derivatives and the accounting for goodwill and acquired intangible assets[114][115] Reconciliation of GAAP Net Income to Core Earnings Net Income (Q1 2025) | (Dollars in millions) | Amount | | :--- | :--- | | GAAP net income (loss) | $(2) | | Net impact of derivative accounting | $39 | | Net impact of goodwill and acquired intangible assets | $1 | | Net income tax effect | $(12) | | Core Earnings net income | $26 | - The Adjusted Tangible Equity Ratio, which excludes FFELP loans and related equity, is used for capital allocation decisions and stood at 9.9% at the end of Q1 2025[132] - A non-GAAP allowance for loan losses metric is presented, which excludes expected future recoveries on previously charged-off loans to better reflect expected credit losses on the current on-balance sheet portfolio[135] Legal Proceedings The company is involved in various claims, lawsuits, and regulatory inquiries arising from its normal business operations, with detailed information referenced in Note 10 of the financial statements, and management currently believes these matters will not have a material adverse effect on the company's financial condition, although the outcomes are inherently unpredictable - The company is subject to various legal and regulatory actions in the normal course of business, including class action lawsuits related to loan servicing and collection activities[244][253] - For a detailed discussion of legal matters, the report incorporates by reference "Note 10 – Commitments, Contingencies and Guarantees"[137] - Management does not believe that pending legal and regulatory matters will have a material adverse effect, but notes the difficulty in predicting outcomes and potential losses[244][251] Risk Factors This section states that there have been no material changes to the risk factors that were previously disclosed in the company's 2024 Form 10-K - There have been no material changes to the risk factors previously disclosed in the company's 2024 Form 10-K[138] Quantitative and Qualitative Disclosures about Market Risk Navient's primary market risk is interest rate sensitivity, with a hypothetical 100 basis point increase in interest rates projected to increase annual pre-tax income by $62 million, while a 100 basis point decrease would lower it by $56 million, largely driven by mark-to-market adjustments on derivatives, and the company also hedges foreign currency risk Impact on Annual Earnings from a +/- 100 Basis Point Interest Rate Change (as of March 31, 2025) | (Dollars in millions) | Increase 100 Basis Points | Decrease 100 Basis Points | | :--- | :--- | :--- | | Change in pre-tax net income (before MTM) | $(9) | $19 | | Mark-to-market gains (losses) on derivatives | $71 | $(75) | | Increase (decrease) in income before taxes | $62 | $(56) | - The mark-to-market gains and losses are primarily related to derivatives that economically hedge the origination of fixed-rate Private Education Loans but do not qualify for hedge accounting[143] - The company is exposed to basis risk, as the indices on its floating-rate assets (e.g., 30-day average SOFR) may not move in tandem with the indices on its floating-rate liabilities (e.g., overnight SOFR)[145][147] - Foreign currency exchange risk from foreign-denominated debt is hedged with cross-currency interest rate swaps, resulting in an immaterial impact on earnings from exchange rate changes[144] Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2025, Navient repurchased 2.6 million shares of its common stock for a total of $35 million under the $1 billion share repurchase program authorized in December 2021, which had $76 million remaining at the end of the quarter Issuer Purchases of Equity Securities (Q1 2025) | (In millions, except per share data) | Total Number of Shares Purchased | Average Price Paid per Share | Total Value ($) | | :--- | :--- | :--- | :--- | | January 2025 | 0.8 | $13.75 | $11.0 | | February 2025 | 1.2 | $13.80 | $16.6 | | March 2025 | 0.6 | $13.48 | $8.1 | | Total Q1 2025 | 2.6 | $13.71 | $35.0 | - As of March 31, 2025, approximately $76 million remained available for repurchase under the company's publicly announced plan[149] Controls and Procedures Based on an evaluation as of March 31, 2025, Navient's management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting occurring during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2025[151] - No material changes to the company's internal control over financial reporting occurred during the first quarter of 2025[152] Financial Statements This section presents Navient's consolidated financial statements, including balance sheets, income statements, comprehensive income, changes in stockholders' equity, cash flows, and detailed notes, providing a comprehensive view of the company's financial position and performance Consolidated Balance Sheets As of March 31, 2025, Navient reported total assets of $51.0 billion, a decrease from $51.8 billion at year-end 2024, with total liabilities of $48.4 billion and total stockholders' equity of $2.6 billion, primarily consisting of $30.2 billion in net FFELP Loans and $15.7 billion in net Private Education Loans Consolidated Balance Sheet Summary | (In millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $50,950 | $51,789 | | FFELP Loans, net | $30,244 | $30,852 | | Private Education Loans, net | $15,690 | $15,716 | | Total Liabilities | $48,361 | $49,148 | | Total Borrowings | $47,727 | $48,318 | | Total Equity | $2,589 | $2,641 | Consolidated Statements of Income For the first quarter of 2025, Navient reported a net loss of $2 million, or ($0.02) per diluted share, a significant downturn from the same period in 2024 which saw a net income of $73 million, or $0.64 per diluted share, driven by lower net interest income, reduced other income following divestitures, and losses on derivatives Consolidated Income Statement Summary | (In millions, except per share data) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net interest income | $130 | $152 | | Provisions for loan losses | $30 | $12 | | Total other income | $26 | $135 | | Total expenses | $131 | $187 | | Net income (loss) | $(2) | $73 | | Diluted earnings (loss) per share | $(.02) | $0.64 | Consolidated Statements of Comprehensive Income For the first quarter of 2025, Navient reported a total comprehensive loss of $3 million, comprising the $2 million net loss and an additional $1 million loss from net changes in cash flow hedges, net of tax, compared to a total comprehensive income of $69 million in the first quarter of 2024 Consolidated Comprehensive Income Summary | (In millions) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income (loss) | $(2) | $73 | | Net changes in cash flow hedges, net of tax | $(1) | $(4) | | Total comprehensive income (loss) | $(3) | $69 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased from $2.641 billion at the end of 2024 to $2.589 billion at the end of Q1 2025, primarily due to capital returns, including $35 million in common stock repurchases and $16 million in cash dividends, partially offset by stock-based compensation expense - Total equity decreased by $52 million during Q1 2025, from $2,641 million to $2,589 million[167] - Key drivers of the equity decrease were common stock repurchases ($35 million) and cash dividends paid ($16 million)[167] Consolidated Statements of Cash Flows In Q1 2025, Navient generated $71 million in cash from operating activities and $661 million from investing activities, largely due to loan repayments, while using $780 million in financing activities primarily for debt repayment and capital returns, resulting in a net decrease in total cash and cash equivalents of $48 million for the quarter Consolidated Cash Flow Summary | (In millions) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $71 | $182 | | Net cash provided by investing activities | $661 | $2,330 | | Net cash used in financing activities | $(780) | $(2,357) | | Net (decrease) in cash and equivalents | $(48) | $155 | Notes to Consolidated Financial Statements The notes provide detailed disclosures underpinning the consolidated financial statements, covering topics such as the basis of presentation, allowance for loan losses, borrowings, fair value measurements, segment reporting, and legal contingencies, with a significant event being the completion of the Business Processing segment divestiture in February 2025 - Note 2 (Allowance for Loan Losses) provides detailed credit quality indicators, showing a year-over-year increase in 90+ day delinquency rates for both FFELP (6.6% to 10.2%) and Private Education Loans (2.1% to 2.6%)[183][192] - Note 3 (Borrowings) details the company's $47.7 billion in total borrowings as of March 31, 2025, the majority of which are secured borrowings related to securitizations and ABCP facilities[208] - Note 4 (Divestitures) confirms the sale of the government services businesses in February 2025 for net consideration of $44 million, completing the exit from the Business Processing segment[214] - Note 11 (Segment Reporting) provides a full reconciliation of GAAP net income to Core Earnings net income, showing the impact of derivative accounting and goodwill adjustments[276][278][280]