Navient(NAVI) - 2023 Q3 - Quarterly Report

FORM 10-Q Filing Information This section outlines Navient Corporation's Form 10-Q filing details, registrant information, and filing status Basic Filing Details This section confirms the filing as a Quarterly Report on Form 10-Q for the period ended September 30, 2023, indicating the registrant, Navient Corporation, is a large accelerated filer and has met all filing requirements - Navient Corporation filed its Quarterly Report on Form 10-Q for the period ended September 30, 2023[2] - The registrant is a large accelerated filer and has filed all required reports and interactive data files[3] Registrant Information Navient Corporation is incorporated in Delaware with its principal executive offices in Herndon, Virginia, and its common stock and 6% Senior Notes are traded on The NASDAQ Global Select Market - Navient Corporation is incorporated in Delaware[2] - The company's common stock (NAVI) and 6% Senior Notes due December 15, 2043 (JSM) are registered on The NASDAQ Global Select Market[4] - As of September 30, 2023, there were 117,571,091 shares of common stock outstanding[4] FORWARD-LOOKING AND CAUTIONARY STATEMENTS This section details the forward-looking nature of the report, emphasizing inherent risks and uncertainties that could cause actual results to differ materially Forward-Looking Statements Disclosure This section highlights that the report contains forward-looking statements based on management's current expectations, which involve significant risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements based on management's current expectations, which are subject to risks and uncertainties[9] - Readers are cautioned not to place undue reliance on forward-looking statements and are urged to review the 'Risk Factors' section[10] - The company does not undertake any obligation to update or revise these statements, except as required by law[11] Key Risks and Uncertainties Key risks include general economic conditions, increased education loan defaults, funding costs, interest rate environment changes, and operational vulnerabilities - Key risks include general economic conditions, increased defaults on education loans, cost and availability of funding, and changes in the interest rate environment[13] - Unanticipated repayment trends on education loans, including prepayments or deferrals from new laws or debt forgiveness programs, pose a significant risk[13] - Operational risks include potential failures or breaches of operating systems, reliance on third-party service providers, and the impact of expanded regulatory and governmental oversight[13] USE OF NON-GAAP FINANCIAL MEASURES Navient utilizes non-GAAP financial measures, primarily "Core Earnings," to evaluate business segments and present financial results, aligning with internal management decisions and external stakeholder presentations Non-GAAP Financial Measures Overview Navient uses non-GAAP financial measures, primarily 'Core Earnings,' to evaluate business segments and present financial results, as this aligns with internal management decisions and external presentations to stakeholders - Navient uses 'Core Earnings' as a non-GAAP financial measure to evaluate business segments and present financial results, aligning with internal management decisions and external stakeholder presentations[15] - Other non-GAAP measures include Tangible Equity, Adjusted Tangible Equity Ratio, EBITDA (for Business Processing), and Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans[16] - Reconciliations for forward-looking non-GAAP measures are not provided due to the inherent difficulty in predicting certain items like mark-to-market gains/losses from derivatives[16] BUSINESS Navient provides technology-enabled education finance and business processing solutions, focusing on operational performance, customer service, compliance, and capital return to shareholders Overview and Fundamentals of Our Business Navient provides technology-enabled education finance and business processing solutions, leveraging data-driven insights and scalable infrastructure to serve education, healthcare, and government clients - Navient provides technology-enabled education finance and business processing solutions, serving millions of people and delivering results for clients in education, health care, and government[18] - The company's business includes Federal Education Loans ($39.6 billion portfolio), Consumer Lending ($17.3 billion Private Education Loan portfolio, $382 million originated in Q3 2023), and Business Processing solutions for public sector and healthcare organizations[20][21] - Navient emphasizes superior operational performance, customer service, compliance, and a commitment to corporate social responsibility, including energy efficiency and diversity initiatives[22][23][28] - The company generates significant capital, enabling strong capital returns to investors through dividends and share repurchases, with $360 million remaining in share repurchase authorization as of September 30, 2023[25][27] How We Organize Our Business Navient operates through three primary segments: Federal Education Loans, Consumer Lending, and Business Processing, with an 'Other' segment for corporate liquidity and unallocated expenses - Navient operates in three primary segments: Federal Education Loans, Consumer Lending, and Business Processing, plus an 'Other' segment[29] Federal Education Loans Segment This segment owns and services a portfolio of Federal Family Education Loan Program (FFELP) Loans, generating revenue primarily from net interest income and servicing-related fee income - This segment owns and services a portfolio of Federal Family Education Loan Program (FFELP) Loans and generates revenue primarily from net interest income and servicing-related fee income[30] Consumer Lending Segment This segment owns, originates, and services in-school and refinance Private Education Loans, generating revenue primarily through net interest income on its portfolio - This segment owns, originates, and services in-school and refinance Private Education Loans, generating revenue primarily through net interest income on its portfolio[31] - Navient offers digital tools for college planning and sees meaningful growth opportunities in originating Private Education Loans[32] Business Processing Segment This segment provides business processing solutions, including omnichannel contact center services and revenue cycle optimization, to government and healthcare clients - This segment provides business processing solutions, including omnichannel contact center services and revenue cycle optimization, to government and healthcare clients[33][34] Other Segment This segment includes the corporate liquidity portfolio, gains/losses on debt repurchases, unallocated shared services expenses (including regulatory expenses), and restructuring/reorganization expenses - This segment includes the corporate liquidity portfolio, gains/losses on debt repurchases, unallocated shared services expenses (including regulatory expenses), and restructuring/reorganization expenses[34] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides a comprehensive analysis of Navient's financial performance and condition, including selected historical data, quarterly reviews, results of operations, segment performance, and liquidity management Selected Historical Financial Information and Ratios This section provides a snapshot of Navient's key financial performance indicators and portfolio balances for the three and nine months ended September 30, 2023 and 2022, presented on both GAAP and Core Earnings bases Selected Historical Financial Information and Ratios | Metric | Q3-23 (GAAP) | Q3-22 (GAAP) | 9M-23 (GAAP) | 9M-22 (GAAP) | |:---|:---|:---|:---|:---|\n| Net income | $79 million | $105 million | $256 million | $540 million | | Diluted EPS | $0.65 | $0.75 | $2.04 | $3.67 | | Weighted average shares (diluted) | 121 million | 141 million | 125 million | 147 million | | Return on assets | 0.51% | 0.57% | 0.53% | 0.96% | | Metric | Q3-23 (Core Earnings) | Q3-22 (Core Earnings) | 9M-23 (Core Earnings) | 9M-22 (Core Earnings) | |:---|:---|:---|:---|:---|\n| Net income | $57 million | $87 million | $278 million | $356 million | | Diluted EPS | $0.47 | $0.62 | $2.22 | $2.42 | | Weighted average shares (diluted) | 121 million | 141 million | 125 million | 147 million | | Net interest margin (FFELP) | 1.52% | 0.94% | 1.20% | 1.03% | | Net interest margin (Consumer Lending) | 3.17% | 2.90% | 3.09% | 2.78% | | Return on assets | 0.37% | 0.47% | 0.58% | 0.63% | | Portfolio | Sep 30, 2023 | Sep 30, 2022 | |:---|:---|:---|\n| Ending FFELP Loans, net | $39.58 billion | $46.89 billion | | Ending Private Education Loans, net | $17.33 billion | $19.15 billion | | Ending total education loans, net | $56.91 billion | $66.04 billion | | Average FFELP Loans | $40.55 billion | $48.44 billion | | Average Private Education Loans | $18.17 billion | $20.31 billion | | Average total education loans | $58.72 billion | $68.75 billion | The Quarter in Review Navient reported a decrease in GAAP net income and Core Earnings net income for Q3 2023 compared to the prior year, primarily due to increased loan loss provisions, regulatory-related and restructuring expenses, partially offset by benefits from FFELP loan portfolio extension and decreased Private Education Loan premium amortization Q3 2023 vs Q3 2022 Net Income and EPS | Metric | Q3 2023 | Q3 2022 | Change (YoY) | |:---|:---|:---|:---|\n| GAAP Net Income | $79 million | $105 million | -$26 million (-25%) | | GAAP Diluted EPS | $0.65 | $0.75 | -$0.10 (-13%) | | Core Earnings Net Income | $57 million | $87 million | -$30 million (-34.5%) | | Core Earnings Diluted EPS | $0.47 | $0.62 | -$0.15 (-24.2%) | - GAAP and Core Earnings results included a net reduction to pre-tax income of $58 million ($0.37 diluted loss per share) due to: $12 million benefit from FFELP Loan portfolio extension, $10 million benefit from Private Education Loan net interest income (lower premium amortization), $29 million provision for loan losses (lowering expected recovery on defaulted Private Education Loans), and $51 million in regulatory-related and restructuring expenses[39][40] Q3 2023 Financial Highlights | Segment/Metric | Q3 2023 | |:---|:---|\n| Federal Education Loans Net Income | $94 million | | Federal Education Loans Net Interest Margin | 1.52% | | Consumer Lending Net Income | $56 million | | Consumer Lending Net Interest Margin | 3.17% | | Private Education Loans Originated | $382 million | | Business Processing Revenue | $85 million | | Business Processing Net Income | $9 million | | Business Processing EBITDA | $13 million | | GAAP Equity-to-Asset Ratio | 4.6% | | Adjusted Tangible Equity Ratio | 8.7% | | Shares Repurchased | $75 million | | Dividends Paid | $19 million | | Operating Expenses (excl. regulatory) | $186 million | Results of Operations Navient's GAAP net income decreased significantly for both the three and nine months ended September 30, 2023, compared to the prior year, driven by increased provisions for loan losses, decreased servicing revenue, lower net gains on derivative activities, and higher operating expenses GAAP Income Statement Summary (Q3 2023 vs Q3 2022) | Metric | Q3 2023 ($M) | Q3 2022 ($M) | Change ($M) | Change (%) | |:---|:---|:---|:---|:---|\n| Total interest income | $1.17 billion | $881 million | $289 million | 33% | | Total interest expense | $879 million | $641 million | $238 million | 37% | | Net interest income | $291 million | $240 million | $51 million | 21% | | Provisions for loan losses | $72 million | $28 million | $44 million | 157% | | Net interest income after provisions | $219 million | $212 million | $7 million | 3% | | Total other income | $131 million | $150 million | ($19 million) | (13%) | | Total expenses | $240 million | $225 million | $15 million | 7% | | Income before income tax expense | $110 million | $137 million | ($27 million) | (20%) | | Income tax expense | $31 million | $32 million | ($1 million) | (3%) | | Net income | $79 million | $105 million | ($26 million) | (25%) | | Diluted EPS | 0.65 | 0.75 | (0.10) | (13%) | GAAP Income Statement Summary (9M 2023 vs 9M 2022) | Metric | 9M 2023 ($M) | 9M 2022 ($M) | Change ($M) | Change (%) | |:---|:---|:---|:---|:---|\n| Total interest income | $3.34 billion | $2.20 billion | $1.14 billion | 52% | | Total interest expense | $2.64 billion | $1.30 billion | $1.34 billion | 103% | | Net interest income | $702 million | $898 million | ($196 million) | (22%) | | Provisions for loan losses | $68 million | $62 million | $6 million | 10% | | Net interest income after provisions | $634 million | $836 million | ($202 million) | (24%) | | Total other income | $347 million | $507 million | ($160 million) | (32%) | | Total expenses | $632 million | $630 million | $2 million | — | | Income before income tax expense | $349 million | $713 million | ($364 million) | (51%) | | Income tax expense | $93 million | $173 million | ($80 million) | (46%) | | Net income | $256 million | $540 million | ($284 million) | (53%) | | Diluted EPS | 2.04 | 3.67 | (1.63) | (44%) | GAAP Comparison of Third-Quarter 2023 Results with Third-Quarter 2022 Navient's Q3 2023 GAAP net income decreased compared to Q3 2022, primarily due to higher provisions for loan losses and increased operating expenses, partially offset by an increase in net interest income - Net interest income increased by $51 million, primarily due to a $48 million benefit from decreased FFELP Loan premium amortization and a $25 million increase in mark-to-market gains on fair value hedges, partially offset by portfolio paydown and increased interest rates[47] - Provisions for loan losses increased by $44 million to $72 million, driven by a $36 million increase in FFELP Loan provisions (due to portfolio extension and expected future defaults) and an $8 million increase in Private Education Loan provisions (due to changes in net charge-off rates and originations)[44][45][47] - Operating expenses increased by $39 million, primarily due to a $45 million contingency loss related to CFPB matters, partially offset by a $6 million decrease in overall servicing costs[48] - The company repurchased 4.2 million shares for $75 million in Q3 2023, reducing average outstanding diluted shares by 14% YoY[28][46] GAAP Comparison of Nine Months Ended September 30, 2023 Results with Nine Months Ended September 30, 2022 Navient's GAAP net income for the nine months ended September 30, 2023, significantly decreased compared to the prior year, primarily due to lower net interest income, increased loan loss provisions, and reduced asset recovery revenue - Net interest income decreased by $196 million, primarily due to a $108 million decrease in mark-to-market gains on fair value hedges and portfolio paydowns, partially offset by increased interest rates[53] - Provisions for loan losses increased by $6 million to $68 million, with a $51 million increase for FFELP Loans and a $45 million decrease for Private Education Loans (influenced by ASU 2022-02 adoption and a $63 million reserve reduction)[50][51][52][53] - Asset recovery and business processing revenue decreased by $24 million, mainly due to a $79 million reduction from winding down pandemic-related contracts, partially offset by a $59 million increase from traditional Business Processing clients[54] - Operating expenses increased by $13 million, including a $45 million regulatory-related contingency loss, partially offset by a $32 million decline in servicing costs and exiting the FFELP asset recovery business[54] - The company repurchased 13.9 million shares in 9M 2023, reducing average outstanding diluted shares by 15% YoY[55] Segment Results Navient's segment results for Q3 2023 show Federal Education Loans net income unchanged at $94 million with improved net interest margin, while Consumer Lending net income decreased to $56 million despite a higher net interest margin Core Earnings Net Income by Segment (Q3 2023 vs Q3 2022) | Segment | Q3 2023 ($M) | Q3 2022 ($M) | Change ($M) | Change (%) | |:---|:---|:---|:---|:---|\n| Federal Education Loans | $94 million | $94 million | $0 million | 0% | | Consumer Lending | $56 million | $65 million | ($9 million) | (14%) | | Business Processing | $9 million | $9 million | $0 million | 0% | | Other | ($102 million) | ($81 million) | ($21 million) | 26% | | Total Core Earnings Net Income | $57 million | $87 million | ($30 million) | (34%) | Core Earnings Net Income by Segment (9M 2023 vs 9M 2022) | Segment | 9M 2023 ($M) | 9M 2022 ($M) | Change ($M) | Change (%) | |:---|:---|:---|:---|:---|\n| Federal Education Loans | $256 million | $310 million | ($54 million) | (17%) | | Consumer Lending | $241 million | $215 million | $26 million | 12% | | Business Processing | $19 million | $33 million | ($14 million) | (42%) | | Other | ($238 million) | ($202 million) | ($36 million) | 18% | | Total Core Earnings Net Income | $278 million | $356 million | ($78 million) | (22%) | Federal Education Loans Segment The Federal Education Loans segment reported unchanged net income in Q3 2023, benefiting from decreased loan premium amortization but facing increased provisions for loan losses and potential impacts from new income-driven repayment regulations - Net interest income increased $41 million in Q3 2023, primarily due to a $48 million benefit from decreased loan premium amortization related to the FFELP loan portfolio extension[59][62] - Provision for loan losses increased by $36 million in Q3 2023, driven by the continued extension of the portfolio and increased expected future defaults[59] Federal Education Loans Key Metrics (Q3 2023 vs Q3 2022) | Metric | Q3 2023 | Q3 2022 | |:---|:---|:---|\n| Net interest margin | 1.52% | 0.94% | | FFELP Loan spread | 1.63% | 1.05% | | Net charge-off rate | 0.19% | 0.12% | | >90-days delinquency rate | 9.2% | 10.1% | | Forbearance rate | 16.4% | 16.4% | | Average FFELP Loans | $40.55 billion | $48.44 billion | | Ending FFELP Loans, net | $39.58 billion | $46.89 billion | - The Supreme Court ruled against the Biden-Harris Administration's Student Debt Relief Plan, and student loan payments on ED-held loans resumed in October 2023[73] - New income-driven repayment plan regulations effective July 1, 2024, may increase consolidation activity into the Direct Loan Program, potentially impacting the company's future results[74] Consumer Lending Segment The Consumer Lending segment experienced a decrease in net income to $56 million in Q3 2023, primarily due to reduced Private Education Loan originations and increased loan loss provisions, despite an improved net interest margin - Private Education Loan originations decreased to $382 million in Q3 2023 from $447 million in Q3 2022, primarily due to reduced incentive for refinancing fixed-rate loans amid rising interest rates[79] - Net income decreased to $56 million in Q3 2023 from $65 million in Q3 2022, primarily due to a $3 million decrease in net interest income (portfolio paydown offset by improved funding spreads) and an $8 million increase in provision for loan losses[79] Consumer Lending Key Metrics (Q3 2023 vs Q3 2022) | Metric | Q3 2023 | Q3 2022 | |:---|:---|:---|\n| Segment net interest margin | 3.17% | 2.90% | | Private Education Loan spread | 3.29% | 3.03% | | Provision for loan losses | $36 million | $28 million | | Net charge-offs | $73 million | $99 million | | Net charge-off rate | 1.66% | 2.01% | | >90-days delinquency rate | 1.9% | 2.0% | | Forbearance rate | 2.0% | 1.9% | | Average Private Education Loans | $18.17 billion | $20.31 billion | | Ending Private Education Loans, net | $17.33 billion | $19.15 billion | | Private Education Refinance Loan originations | $178 million | $231 million | - The increase in net interest margin from the prior year is primarily a result of improved funding spreads[82] Business Processing Segment The Business Processing segment's revenue increased by $6 million to $85 million in Q3 2023, driven by growth from traditional clients, while net income remained stable at $9 million - Revenue increased by $6 million to $85 million in Q3 2023, driven by a $21 million increase from traditional Business Processing clients, partially offset by a $15 million reduction from winding down pandemic-related contracts[90] Business Processing Key Metrics (Q3 2023 vs Q3 2022) | Metric | Q3 2023 ($M) | Q3 2022 ($M) | |:---|:---|:---|\n| Business processing revenue | $85 million | $79 million | | Net income | $9 million | $9 million | | EBITDA | $13 million | $13 million | | EBITDA margin | 15% | 16% | | Revenue from government services | $57 million | $47 million | | Revenue from healthcare services | $28 million | $32 million | Other Segment The 'Other' segment reported an increased net loss of $102 million in Q3 2023, primarily due to a significant rise in regulatory-related expenses, including a $45 million contingency loss related to CFPB matters - The 'Other' segment reported a net loss of $102 million in Q3 2023, an increase of $21 million from Q3 2022, primarily due to a $44 million increase in regulatory-related expenses, including a $45 million contingency loss related to CFPB matters[92][94] - Restructuring/other reorganization expenses decreased by $17 million to $4 million in Q3 2023, compared to $21 million in Q3 2022, which included costs for exiting the FFELP asset recovery business and other efficiency initiatives[96] Financial Condition Navient's total education loan portfolio, net, decreased to $56.9 billion as of September 30, 2023, from $66.0 billion a year prior, driven by paydowns in both FFELP and Private Education Loans Ending Education Loan Balances, Net (September 30, 2023 vs December 31, 2022 vs September 30, 2022) | Loan Type | Sep 30, 2023 ($M) | Dec 31, 2022 ($M) | Sep 30, 2022 ($M) | |:---|:---|:---|:---|\n| FFELP Loans, net | $39.58 billion | $43.53 billion | $46.89 billion | | Private Education Loans, net | $17.33 billion | $18.73 billion | $19.15 billion | | Total education loan portfolio, net | $56.91 billion | $62.25 billion | $66.04 billion | | Allowance for loan losses | ($845 million) | ($1.02 billion) | ($1.09 billion) | Education Loan Activity (9M 2023 vs 9M 2022) | Activity | 9M 2023 ($M) | 9M 2022 ($M) | |:---|:---|:---|\n| Beginning balance | $62.25 billion | $72.81 billion | | Acquisitions (originations and purchases) | $741 million | $1.77 billion | | Capitalized interest and premium/discount amortization | $1.05 billion | $1.21 billion | | Refinancings and consolidations to third parties | ($1.96 billion) | ($4.09 billion) | | Repayments and other | ($5.17 billion) | ($5.66 billion) | | Ending balance | $56.91 billion | $66.04 billion | FFELP Loan Portfolio Performance FFELP loan delinquencies improved as of September 30, 2023, with a decrease in the >90-days delinquency rate, while the forbearance rate remained stable FFELP Loan Delinquencies and Forbearance (September 30, 2023 vs December 31, 2022 vs September 30, 2022) | Metric | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | |:---|:---|:---|:---|\n| Loans in repayment | $31.92 billion | $34.37 billion | $37.73 billion | | Loans current (%) | 83.2% | 84.4% | 81.4% | | Delinquent 31-60 days (%) | 4.6% | 3.6% | 5.1% | | Delinquent 61-90 days (%) | 3.0% | 2.4% | 3.4% | | Delinquent >90 days (%) | 9.2% | 9.6% | 10.1% | | Total delinquencies as % of loans in repayment | 16.8% | 15.6% | 18.6% | | Loans in forbearance | $6.25 billion | $7.60 billion | $7.41 billion | | Forbearance rate (as % of loans in repayment and forbearance) | 16.4% | 18.1% | 16.4% | Private Education Loan Portfolio Performance Private Education Loan delinquencies slightly increased as of September 30, 2023, with a higher percentage of loans in the 31-60 and 61-90 day categories, while the forbearance rate remained stable Private Education Loan Delinquencies and Forbearance (September 30, 2023 vs December 31, 2022 vs September 30, 2022) | Metric | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | |:---|:---|:---|:---|\n| Loans in repayment | $17.25 billion | $18.77 billion | $19.28 billion | | Loans current (%) | 95.3% | 95.0% | 95.6% | | Delinquent 31-60 days (%) | 1.8% | 1.8% | 1.6% | | Delinquent 61-90 days (%) | 1.0% | 1.0% | 0.8% | | Delinquent >90 days (%) | 1.9% | 2.2% | 2.0% | | Total delinquencies as % of loans in repayment | 4.7% | 5.0% | 4.4% | | Loans in forbearance | $344 million | $401 million | $371 million | | Forbearance rate (as % of loans in repayment and forbearance) | 2.0% | 2.1% | 1.9% | | Percentage of loans with a cosigner | 33% | 33% | 33% | Allowance for Loan Losses The allowance for loan losses decreased to $845 million as of September 30, 2023, reflecting portfolio changes and the adoption of ASU 2022-02, which impacted Private Education Loan loss reserves Allowance for Loan Losses Roll Forward (Q3 2023) | Metric | FFELP Loans ($M) | Private Education Loans ($M) | Total ($M) | |:---|:---|:---|:---|\n| Beginning balance | $200 million | $657 million | $857 million | | Total provision | $36 million | $36 million | $72 million | | Net charge-offs | ($16 million) | ($98 million) | ($114 million) | | Decrease in expected future recoveries on previously fully charged-off loans | — | $30 million | $30 million | | Allowance at end of period (GAAP) | $220 million | $625 million | $845 million | | Net charge-offs as % of average loans in repayment (annualized) | 0.19% | 2.22% | | - The allowance for Private Education Loan losses decreased due to the adoption of ASU 2022-02 on January 1, 2023, which eliminated TDR recognition guidance and resulted in a $63 million release of the allowance related to interest rate concessions[52][200] Allowance for Loan Losses Metrics - Private Education Loans (Q3 2023 vs Q3 2022) | Metric | Q3 2023 (Non-GAAP) | Q3 2022 (Non-GAAP) | |:---|:---|:---|\n| Allowance at end of period excluding expected future recoveries on previously fully charged-off loans | $857 million | $1.13 billion | | Allowance coverage of charge-offs (annualized) | 2.2 | 2.2 | | Allowance as % of ending total loan balance | 4.8% | 5.7% | | Allowance as % of ending loans in repayment | 5.0% | 5.9% | Liquidity and Capital Resources Navient manages liquidity to meet debt obligations and operational needs, maintaining diverse funding sources including unsecured and secured debt, with total Tangible Equity at $2.2 billion as of September 30, 2023 - Navient's primary liquidity needs are servicing debt and meeting operational cash requirements, including derivative collateral[106] - Secondary liquidity needs include Private Education Loan originations, portfolio acquisitions, dividends, and share repurchases[106] - The company's ability to access capital markets is influenced by general market conditions, credit ratings (currently below investment grade for long-term unsecured debt), and funding availability[107][108] Sources of Primary Liquidity (September 30, 2023 vs December 31, 2022 vs September 30, 2022) | Metric | Sep 30, 2023 ($M) | Dec 31, 2022 ($M) | Sep 30, 2022 ($M) | |:---|:---|:---|:---|\n| Total unrestricted cash and liquid investments | $977 million | $1.54 billion | $1.36 billion | | Unencumbered FFELP Loans | $88 million | $68 million | $151 million | | Unencumbered Private Education Refinance Loans | $49 million | $55 million | $270 million | | Total Primary Liquidity | $1.11 billion | $1.66 billion | $1.79 billion | Total Tangible Equity (September 30, 2023 vs December 31, 2022) | Metric | Sep 30, 2023 ($B) | Dec 31, 2022 ($B) | |:---|:---|:---|\n| Net assets of consolidated VIEs (encumbered assets) – FFELP Loans | $3.5 billion | $3.7 billion | | Net assets of consolidated VIEs (encumbered assets) – Private Education Loans | $2.0 billion | $1.5 billion | | Tangible unencumbered assets | $3.1 billion | $4.1 billion | | Senior unsecured debt | ($6.2 billion) | ($7.0 billion) | | Mark-to-market on unsecured hedged debt | $0.3 billion | $0.3 billion | | Other liabilities, net | ($0.5 billion) | ($0.3 billion) | | Total Tangible Equity | $2.2 billion | $2.3 billion | Funding and Liquidity Risk Management Navient manages liquidity risk to ensure it can meet obligations and invest in growth without unacceptable losses, with primary risk related to debt servicing and business operations - Navient manages liquidity risk to avoid inability to meet obligations or invest in growth without unacceptable losses, with primary risk related to debt servicing and business operations[107] - The company expects to fund $0.9 billion of short-term and $5.3 billion of long-term senior unsecured notes through cash on hand, unencumbered loan portfolios, operating cash flows, and securitization trust distributions[109] Sources of Primary Liquidity Navient's primary liquidity sources include unrestricted cash, liquid investments, and unencumbered FFELP and Private Education Refinance Loans, totaling $1.34 billion in Q3 2023 Average Balances of Primary Liquidity Sources (Q3 2023 vs Q3 2022) | Metric | Q3 2023 ($M) | Q3 2022 ($M) | |:---|:---|:---|\n| Total unrestricted cash and liquid investments | $1.14 billion | $1.36 billion | | Unencumbered FFELP Loans | $85 million | $123 million | | Unencumbered Private Education Refinance Loans | $118 million | $165 million | | Total | $1.34 billion | $1.65 billion | Sources of Additional Liquidity Additional liquidity is available through secured credit facilities, including FFELP Loan and Private Education Loan ABCP facilities, totaling $1.73 billion as of September 30, 2023 Additional Borrowing Capacity (September 30, 2023 vs December 31, 2022 vs September 30, 2022) | Facility | Sep 30, 2023 ($M) | Dec 31, 2022 ($M) | Sep 30, 2022 ($M) | |:---|:---|:---|:---|\n| FFELP Loan ABCP facilities | $28 million | $101 million | $200 million | | Private Education Loan ABCP facilities | $1.70 billion | $1.25 billion | $2.20 billion | | Total | $1.73 billion | $1.35 billion | $2.40 billion | - As of September 30, 2023, Navient had $3.1 billion of unencumbered tangible assets, including $1.2 billion in unencumbered education loans, and $5.5 billion of encumbered net assets (overcollateralization) in financing facilities[114] Borrowings Navient's total GAAP basis borrowings decreased to $59.57 billion as of September 30, 2023, from $66.90 billion at December 31, 2022, reflecting reductions in both unsecured and secured debt Borrowings Ending Balances (September 30, 2023 vs December 31, 2022) | Borrowing Type | Sep 30, 2023 ($M) | Dec 31, 2022 ($M) | |:---|:---|:---|:---|\n| Unsecured borrowings | $6.21 billion | $7.01 billion | | Secured borrowings | $53.90 billion | $60.38 billion | | Total GAAP basis borrowings | $59.57 billion | $66.90 billion | Borrowings Average Balances and Rates (Q3 2023 vs Q3 2022) | Borrowing Type | Q3 2023 Avg Balance ($M) | Q3 2023 Avg Rate (%) | Q3 2022 Avg Balance ($M) | Q3 2022 Avg Rate (%) | |:---|:---|:---|:---|:---|\n| Unsecured borrowings | $6.49 billion | 9.02 | $7.01 billion | 6.08 | | Secured borrowings | $54.74 billion | 5.39 | $64.74 billion | 3.24 | | Core Earnings basis borrowings | $61.23 billion | 5.77 | $71.74 billion | 3.52 | Critical Accounting Policies and Estimates This section refers to the 2022 Form 10-K for a detailed discussion of critical accounting policies and estimates, including the allowance for loan losses, goodwill impairment, premium and discount amortization, and the impact of the Student Debt Relief (SDR) Plan - Critical accounting policies and estimates, such as allowance for loan losses, goodwill impairment, and premium/discount amortization, are discussed in the 2022 Form 10-K[119] - An update on the Student Debt Relief (SDR) Plan's impact on accounting policies and estimates is provided in the Federal Education Loans Segment section[119] Non-GAAP Financial Measures Navient provides several non-GAAP financial measures, including Core Earnings, Tangible Equity, Adjusted Tangible Equity Ratio, EBITDA for Business Processing, and Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans - Navient uses Core Earnings to manage business segments by adjusting GAAP results for mark-to-market gains/losses on derivatives and goodwill/acquired intangible asset accounting, which can create significant volatility[121][123] - Core Earnings are not a substitute for GAAP results but provide additional information for management, board of directors, credit rating agencies, lenders, and investors[122] Summary of Core Earnings Adjustments to GAAP Net Income (Q3 2023 vs Q3 2022) | Metric | Q3 2023 ($M) | Q3 2022 ($M) | |:---|:---|:---|\n| GAAP net income | $79 million | $105 million | | Net impact of derivative accounting | ($37 million) | ($33 million) | | Net impact of goodwill and acquired intangible assets | $3 million | $10 million | | Net income tax effect | $12 million | $5 million | | Total Core Earnings adjustments to GAAP | ($22 million) | ($18 million) | | Core Earnings net income | $57 million | $87 million | Core Earnings Core Earnings is a non-GAAP measure that excludes mark-to-market gains/losses from derivatives and the accounting for goodwill and acquired intangible assets, providing a clearer view of operational performance - Core Earnings exclude mark-to-market gains/losses from derivatives that do not qualify for hedge accounting or result in ineffectiveness, and the accounting for goodwill and acquired intangible assets[123] Net Impact of Derivative Accounting (Q3 2023 vs Q3 2022) | Metric | Q3 2023 ($M) | Q3 2022 ($M) | |:---|:---|:---|\n| Total (gains) losses in GAAP net income | ($45 million) | ($34 million) | | Plus: Reclassification of settlement income (expense) on derivative and hedging activities, net | $7 million | ($1 million) | | Mark-to-market (gains) losses on derivative and hedging activities, net | ($38 million) | ($35 million) | | Amortization of net premiums on Floor Income Contracts in net interest income for Core Earnings | — | $2 million | | Other derivative accounting adjustments | $1 million | — | | Total net impact of derivative accounting | ($37 million) | ($33 million) | - As of September 30, 2023, derivative accounting increased GAAP equity by approximately $73 million due to cumulative net mark-to-market gains (after tax) not recognized in Core Earnings[138] Hedged Floor Income (September 30, 2023 vs September 30, 2022) | Metric | Sep 30, 2023 ($M) | Sep 30, 2022 ($M) | |:---|:---|:---|\n| Total hedged Floor Income, net of tax | $115 million | $224 million | | Expected recognition in remainder of 2023 | $21 million | | Tangible Equity and Adjusted Tangible Equity Ratio The Adjusted Tangible Equity Ratio measures Navient's Tangible Equity to its tangible assets, excluding FFELP Loan portfolio assets and equity due to their federal guaranty and non-origination status - The Adjusted Tangible Equity Ratio measures the ratio of Navient's Tangible Equity to its tangible assets, excluding FFELP Loan portfolio assets and equity due to their federal guaranty and non-origination status[143] Adjusted Tangible Equity Ratio Calculation (September 30, 2023 vs September 30, 2022) | Metric | Sep 30, 2023 ($M) | Sep 30, 2022 ($M) | |:---|:---|:---|:---|\n| Navient Corporation's stockholders' equity | $2.90 billion | $2.97 billion | | Less: Goodwill and acquired intangible assets | $697 million | $708 million | | Tangible Equity | $2.20 billion | $2.27 billion | | Less: Equity held for FFELP Loans | $198 million | $234 million | | Adjusted Tangible Equity | $2.00 billion | $2.03 billion | | Total assets | $63.41 billion | $73.63 billion | | Less: Goodwill and acquired intangible assets | $697 million | $708 million | | Less: FFELP Loans | $39.58 billion | $46.89 billion | | Adjusted tangible assets | $23.14 billion | $26.03 billion | | Adjusted Tangible Equity Ratio | 8.7% | 7.8% | Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA) EBITDA is utilized as a non-GAAP measure to assess the operating performance of Navient's Business Processing segment - EBITDA is used to measure the operating performance of the Business Processing segment[144] Business Processing Segment EBITDA (Q3 2023 vs Q3 2022) | Metric | Q3 2023 ($M) | Q3 2022 ($M) | |:---|:---|:---|\n| Pre-tax income | $12 million | $12 million | | Plus: Depreciation and amortization expense | $1 million | $1 million | | EBITDA | $13 million | $13 million | | Total revenue | $85 million | $79 million | | EBITDA margin | 15% | 16% | Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans This non-GAAP measure for Private Education Loans excludes expected future recoveries on previously fully charged-off loans to better reflect current expected credit losses on the balance sheet portfolio - This non-GAAP measure for Private Education Loans excludes expected future recoveries on previously fully charged-off loans to better reflect current expected credit losses on the balance sheet portfolio[145] Allowance for Loan Losses Metrics – Private Education Loans (Q3 2023 vs Q3 2022) | Metric | Q3 2023 ($M) | Q3 2022 ($M) | |:---|:---|:---|\n| Allowance at end of period (GAAP) | $625 million | $852 million | | Plus: expected future recoveries on previously fully charged-off loans | $232 million | $280 million | | Allowance at end of period excluding expected future recoveries on previously fully charged-off loans (Non-GAAP) | $857 million | $1.13 billion | | Allowance coverage of charge-offs (annualized) (Non-GAAP) | 2.2 | 2.2 | | Allowance as % of ending total loan balance (Non-GAAP) | 4.8% | 5.7% | | Allowance as % of ending loans in repayment (Non-GAAP) | 5.0% | 5.9% | LEGAL PROCEEDINGS Navient is involved in various legal and regulatory proceedings, including claims related to consumer protection statutes and inquiries from government agencies, with a recent $45 million accrual for a CFPB matter Legal and Regulatory Matters Navient is involved in various legal and regulatory proceedings, including claims related to consumer protection statutes and inquiries from government agencies, and has accrued a $45 million probable incurred loss in Q3 2023 for a CFPB matter - Navient is subject to various claims, lawsuits, and regulatory actions, including alleged violations of consumer protection statutes[304] - The company accrues liabilities for probable and reasonably estimable loss contingencies[310] - Due to recent developments in a CFPB matter, Navient accrued a $45 million probable incurred loss in Q3 2023[312] - The estimated range of reasonably possible losses for the CFPB matter is $0 to $250 million, and an adverse outcome could materially impact the company[316] RISK FACTORS This section directs readers to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, for a comprehensive discussion of risk factors affecting the business Reference to Annual Report on Form 10-K This section directs readers to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, for a comprehensive discussion of risk factors affecting the business - Readers should consider risk factors disclosed in the 2022 Form 10-K and the Q1 2023 Form 10-Q[148] QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details Navient's management of market risks, including the successful LIBOR transition and interest rate sensitivity analysis, aiming to limit the impact of rate movements on earnings and financial position LIBOR Transition Navient successfully transitioned all LIBOR-indexed financial instruments to SOFR by June 30, 2023, aligning with ARRC recommendations and the LIBOR Act - Navient successfully transitioned all LIBOR-indexed financial instruments to SOFR by June 30, 2023, following the cessation of LIBOR publication[150][151] - The transition involved modifying existing contracts and relying on the LIBOR Act for instruments without clear fallback provisions, such as FFELP Loans and certain ABS contracts[152][153] - FFELP Loans transitioned to 30-day Average SOFR, LIBOR-indexed FFELP ABS to 30-day or 90-day Average SOFR, and Private Education Loan ABS and Private Education Loans to 1-month or 3-month Term SOFR[153] Interest Rate Sensitivity Analysis Navient's interest rate risk management aims to limit the impact of rate movements on earnings and financial position, primarily by matching floating-rate assets with floating-rate debt and fixed-rate assets with fixed-rate debt - Navient's interest rate risk management strategy involves matching floating-rate education loan portfolios with floating-rate debt and fixed-rate portfolios with fixed-rate debt[157] Impact on Annual Earnings from 100 Basis Point Interest Rate Change (September 30, 2023 vs September 30, 2022) | Metric | Sep 30, 2023 (Increase 100 bps) | Sep 30, 2023 (Decrease 100 bps) | Sep 30, 2022 (Increase 100 bps) | Sep 30, 2022 (Decrease 100 bps) | |:---|:---|:---|:---|:---|\n| Change in pre-tax net income (excl. mark-to-market) | $30 million | $9 million | $53 million | -$38 million | | Mark-to-market gains (losses) on derivative and hedging activities | $36 million | -$33 million | $22 million | -$22 million | | Increase (decrease) in income before taxes | $66 million | -$24 million | $75 million | -$60 million | | Increase (decrease) in net income after taxes | $51 million | -$18 million | $58 million | -$46 million | | Increase (decrease) in diluted EPS | $0.43 | -$0.16 | $0.42 | -$0.34 | - The change in pre-tax net income is primarily influenced by unhedged FFELP Loans in fixed-rate mode, FFELP fixed-rate loans becoming variable when rates rise, and variable-rate assets funded with fixed-rate liabilities[158] Asset and Liability Funding Gap Navient analyzes its asset and liability funding gap on a Core Earnings basis to assess interest rate risk, specifically basis risk and repricing risk, using derivatives to match asset and debt characteristics - The asset and liability funding gap is presented on a Core Earnings basis to analyze interest rate risk, including basis risk and repricing risk[161][163] Asset and Liability Funding Gap by Index (September 30, 2023) | Index | Assets ($B) | Funding ($B) | Funding Gap ($B) | |:---|:---|:---|:---|\n| 3 month Treasury bill (weekly) | $2.1 billion | — | $2.1 billion | | 3 month Treasury bill (annual) | $0.1 billion | — | $0.1 billion | | Prime (annual) | $0.1 billion | — | $0.1 billion | | Prime (quarterly) | $1.1 billion | — | $1.1 billion | | Prime (monthly) | $3.6 billion | — | $3.6 billion | | 3 month Term SOFR (quarterly) | $0.5 billion | $1.4 billion | ($0.9 billion) | | 1 month Term SOFR (monthly) | $2.2 billion | $1.2 billion | $1.0 billion | | Overnight SOFR (daily) | $37.2 billion | $35.6 billion | $1.6 billion | | Non Discrete reset (monthly) | — | $5.0 billion | ($5.0 billion) | | Non Discrete reset (daily/weekly) | $2.9 billion | — | $2.9 billion | | Fixed Rate | $13.8 billion | $19.9 billion | ($6.1 billion) | | Total | $63.6 billion | $63.6 billion | — | - Interest earned on FFELP Loans is primarily indexed to 30-day average overnight SOFR, while Private Education Refinance Loans are generally fixed rate[163] PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS This section details Navient's share repurchase program, including the remaining authorization and execution methods, alongside information on Rule 10b5-1 trading arrangements by executive officers Share Repurchase Program Navient's Board approved a $1 billion share repurchase program in December 2021, with $360 million remaining as of September 30, 2023, executed through open-market transactions and Rule 10b5-1 trading arrangements - Navient's Board approved a $1 billion share repurchase program in December 2021, with no expiration date[165] - As of September 30, 2023, $360 million remained in share repurchase authorization[165] - The company repurchases shares through open-market transactions and Rule 10b5-1 trading arrangements, with the goal of returning excess capital to shareholders[166][167] - On September 14, 2023, the company entered into a Rule 10b5-1 trading arrangement to purchase up to $37.6 million in common stock, having purchased 685,451 shares under this plan by September 30, 2023[168] Director and Officer Trading Arrangements During Q3 2023, two executive officers, Mark Heleen and John Kane, adopted Rule 10b5-1 trading plans for the sale of company shares, with specified durations and aggregate share amounts Director and Officer Rule 10b5-1 Trading Arrangements (Q3 2023) | Name (Title) | Adoption Date | Duration of Trading Arrangement | Aggregate Number of Shares to be Purchased or Sold | |:---|:---|:---|:---|\n| Mark Heleen (EVP and Chief Legal Officer) | Aug 9, 2023 | Aug 9, 2023 – May 15, 2024 | Sale of up to 30,000 shares | | John Kane (EVP and Group President, Business Processing Solutions) | Aug 23, 2023 | Aug 23, 2023 – Nov 21, 2024 | Sale of up to 150,132 shares | CONTROLS AND PROCEDURES This section confirms the effectiveness of Navient's disclosure controls and procedures as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter Disclosure Controls and Procedures As of September 30, 2023, Navient's management, including its Principal Executive and Principal Financial Officers, concluded that the company's disclosure controls and procedures were effective in ensuring timely and accurate reporting of required information - As of September 30, 2023, Navient's disclosure controls and procedures were deemed effective by management and principal officers[173] - These controls ensure that information required for SEC reports is recorded, processed, summarized, and reported within specified time periods and communicated to management for timely disclosure decisions[173] Changes in Internal Control over Financial Reporting No material changes to Navient's internal control over financial reporting occurred during the fiscal quarter ended September 30, 2023 - No material changes to internal control over financial reporting occurred during the quarter ended September 30, 2023[174] EXHIBITS This section lists the exhibits filed or furnished with the Form 10-Q, including certifications, XBRL documents, and information on purchases of equity securities List of Exhibits This section lists the exhibits filed or furnished with the Form 10-Q, including certifications, XBRL documents, and information on purchases of equity securities Key Exhibits Filed with Form 10-Q | Exhibit Number | Description | |:---|:---|\n| 26* | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | | 31.1* | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 31.2* | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 32.1** | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 32.2** | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101.INS* | Inline XBRL Instance Document | | 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | FINANCIAL STATEMENTS This section presents Navient's consolidated financial statements, including balance sheets, statements of income, comprehensive income, changes in stockholders' equity, cash flows, and detailed notes on accounting policies and key financial items Consolidated Balance Sheets Navient's consolidated balance sheets show a decrease in total assets and liabilities from December 31, 2022, to September 30, 2023, primarily driven by reductions in FFELP and Private Education Loans, as well as cash and restricted cash Consolidated Balance Sheets Summary (September 30, 2023 vs December 31, 2022) | Metric | Sep 30, 2023 ($M) | Dec 31, 2022 ($M) | |:---|:---|:---|\n| FFELP Loans (net) | $39.58 billion | $43.53 billion | | Private Education Loans (net) | $17.33 billion | $18.73 billion | | Cash and cash equivalents | $977 million | $1.54 billion | | Restricted cash and cash equivalents | $1.82 billion | $3.27 billion | | Goodwill and acquired intangible assets, net | $697 million | $705 million | | Other assets | $2.85 billion | $2.87 billion | | Total assets | $63.41 billion | $70.80 billion | | Short-term borrowings | $4.66 billion | $5.87 billion | | Long-term borrowings | $54.91 billion | $61.03 billion | | Other liabilities | $947 million | $922 million | | Total liabilities | $60.52 billion | $67.82 billion | | Total equity | $2.90 billion | $2.98 billion | | Total liabilities and equity | $63.41 billion | $70.80 billion | Supplemental Information – Assets and Liabilities of Consolidated Variable Interest Entities (September 30, 2023 vs December 31, 2022) | Metric | Sep 30, 2023 ($M) | Dec 31, 2022 ($M) | |:---|:---|:---|\n| FFELP Loans | $39.49 billion | $43.47 billion | | Private Education Loans | $16.19 billion | $17.21 billion | | Restricted cash | $1.80 billion | $3.23 billion | | Other assets, net | $1.62 billion | $1.36 billion | | Short-term borrowings | $3.77 billion | $4.46 billion | | Long-term borrowings | $49.85 billion | $55.60 billion | | Net assets of consolidated variable interest entities | $5.47 billion | $5.21 billion | Consolidated Statements of Income Navient's consolidated statements of income show a significant decrease in net income for both the three and nine months ended September 30, 2023, compared to the prior year, primarily driven by higher interest expense, increased provisions for loan losses, and lower other income Consolidated Statements of Income Summary (Q3 2023 vs Q3 2022) | Metric | Q3 2023 ($M) | Q3 2022 ($M) | |:---|:---|:---|\n| Total interest income | $1.17 billion | $881 million | | Total interest expense | $879 million | $641 million | | Net interest income | $291 million | $240 million | | Provisions for loan losses | $72 million | $28 million | | Net interest income after provisions for loan losses | $219 million | $212 million | | Total other income | $131 million | $150 million | | Total operating expenses | $233 million | $194 million | | Goodwill and acquired intangible asset impairment and amortization expense | $3 million | $10 million | | Restructuring/other reorganization expenses | $4 million | $21 million | | Total expenses | $240 million | $225 million | | Income before income tax expense | $110 million | $137 million | | Income tax expense | $31 million | $32 million | | Net income | $79 million | $105 million | | Basic earnings per common share | 0.66 | 0.75 | | Diluted earnings per common share | 0.65 | 0.75 | | Dividends per common share | 0.16 | 0.16 | Consolidated Statements of Income Summary (9M 2023 vs 9M 2022) | Metric | 9M 2023 ($M) | 9M 2022 ($M) | |:---|:---|:---|\n| Total interest income | $3.34 billion | $2.20 billion | | Total interest expense | $2.64 billion | $1.30 billion | | Net interest income | $702 million | $898 million | | Provisions for loan losses | $68 million | $62 million | | Net interest income after provisions for loan losses | $634 million | $836 million | | Total other income | $347 million | $507 million | | Total operating expenses | $601 million | $588 million | | Goodwill and acquired intangible asset impairment and amortization expense | $8 million | $17 million | | Restructuring/other reorganization expenses | $23 million | $25 million | | Total expenses | $632 million | $630 million | | Income before income tax expense | $349 million | $713 million | | Income tax expense | $93 million | $173 million | | Net income | $256 million | $540 million | | Basic earnings per common share | 2.06 | 3.71 | | Diluted earnings per common share | 2.04 | 3.67 | | Dividends per common share | 0.48 | 0.48 | Consolidated Statements of Comprehensive Income Navient's total comprehensive income decreased for both the three and nine months ended September 30, 2023, compared to the prior year, primarily due to lower net income and negative net changes in cash flow hedges Consolidated Statements of Comprehensive Income Summary (Q3 2023 vs Q3 2022) | Metric | Q3 2023 ($M) | Q3 2022 ($M) | |:---|:---|:---|\n| Net income | $79 million | $105 million | | Net changes in cash flow hedges, net of taxes | ($22 million) | $54 million | | Total comprehensive income | $57 million | $159 million | Consolidated Statements of Comprehensive Income Summary (9M 2023 vs 9M 2022) | Metric | 9M 2023 ($M) | 9M 2022 ($M) | |:---|:---|:---|\n| Net income | $256 million | $540 million | | Net changes in cash flow hedges, net of taxes | ($44 million) | $217 million | | Total comprehensive income | $212 million | $757 million | Consolidated Statements of Changes in Stockholders' Equity Navient's consolidated stockholders' equity decreased slightly from December 31, 2022, to September 30, 2023, primarily influenced by common stock repurchases and negative changes in accumulated other comprehensive income Changes in Stockholders' Equity (9M 2023) | Metric | Amount ($M) | |:---|:---|\n| Balance at December 31, 2022 | $2.98 billion | | Net income | $256 million | | Other comprehensive income (loss), net of tax | ($44 million) | | Cash dividends | ($59 million) | | Dividend equivalent units related to employee stock-based compensation plans | ($2 million) | | Issuance of common shares | $15 million | | Stock-based compensation expense | $21 million | | Common stock repurchased | ($240 million) | | Shares repurchased related to employee stock-based compensation plans | ($24 million) | | Other | ($2 million) | | Balance at September 30, 2023 | $2.90 billion | Consolidated Statements of Cash Flows Navient experienced a net decrease in cash, cash equivalents, and restricted cash for the nine months ended September 30, 2023, primarily due to significant cash used in financing activities, which outweighed cash provided by operating and investing activities Consolidated Statements of Cash Flows Summary (9M 2023 vs 9M 2022) | Cash Flow Activity | 9M 2023 ($M) | 9M 2022 ($M) | |:---|:---|:---|\n| Net cash provided by operating activities | $366 million | $98 million | | Net cash provided by investing activities | $5.33 billion | $6.81 billion | | Net cash used in financing activities | ($7.71 billion) | ($6.58 billion) | | Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents | ($2.01 billion) | $334 million | | Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period | $4.81 billion | $3.58 billion | | Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $2.80 billion | $3.91 billion | | Interest paid | $2.57 billion | $1.21 billion | | Income taxes paid | $33 million | $29 million | Notes to Consolidated Financial Statements The notes provide detailed disclosures on Navient's significant accounting policies, loan loss allowances, borrowings, derivative instruments, equity, fair value measurements, commitments, contingencies, and segment reporting - The financial statements are prepared in accordance with GAAP for interim financial information, with estimates and assumptions affecting reported amounts[198] - Navient adopted ASU No. 2022-02, 'Financial Instruments – Credit Losses: Troubled Debt Restructurings and Vintage Disclosures,' on January 1, 2023, which eliminated TDR recognition guidance and resulted in a $63 million allowance release in 9M 2023[200] - The company utilized hedge accounting expedients for LIBOR-indexed hedging instruments that transitioned to SOFR on July 1, 2023, preventing discontinuation of existing hedge accounting relationships[199] Significant Accounting Policies The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information, requiring management estimates and assumptions, and reflect the adoption of ASU No. 2022-02 and hedge accounting expedients for the LIBOR to SOFR transition - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information, requiring management estimates and assumptions[198] - Navient adopted ASU No. 2022-02 on January 1, 2023, eliminating TDR recognition guidance and resulting in a $63 million allowance release in 9M 2023 related to Private Education Loan modification programs[200] - The company used hedge accounting expedients for the LIBOR to SOFR transition on July 1, 2023, for $12 billion of debt in hedge relationships, preventing discontinuation of existing hedge accounting[199] [Allowance for Loan Losses