Navient(NAVI) - 2024 Q1 - Quarterly Report

Forward-Looking and Cautionary Statements This section outlines forward-looking statements and associated risks that could cause actual results to differ materially from expectations - This Form 10-Q contains forward-looking statements based on management's current expectations, which involve many risks and uncertainties that could cause actual results to differ materially[9][10][11] - Key risks and uncertainties include general economic conditions (inflation, interest rates), increased defaults on education loans, unanticipated repayment trends due to policy changes, credit rating reductions, changes in laws/regulations, interest rate environment shifts, and operational failures[13] Use of Non-GAAP Financial Measures Navient utilizes non-GAAP financial measures, such as Core Earnings and Tangible Equity, for internal evaluation and external reporting to provide additional business insights - Navient evaluates its business segments and presents financial results using non-GAAP measures, referred to as Core Earnings, which are reviewed internally for management decisions and resource allocation[15] - Other non-GAAP financial measures presented include Tangible Equity, Adjusted Tangible Equity Ratio, EBITDA (for Business Processing segment), and Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans[16] Business Navient provides education finance and business processing solutions across three segments, emphasizing operational performance and customer service Overview and Fundamentals of Our Business Navient provides technology-enabled education finance and business processing solutions, focusing on data-driven insights, service, compliance, and innovative support across its Federal Education Loans, Consumer Lending, and Business Processing segments - Navient's business consists of three main segments: Federal Education Loans ($35.9 billion portfolio), Consumer Lending ($16.6 billion Private Education Loan portfolio), and Business Processing (serving ~500 public sector and healthcare organizations)[20][21][22] - The company generated significant earnings in Q1 2024, enabling strong capital return to investors through dividends and share repurchases, with $247 million remaining in share repurchase authorization as of March 31, 2024[25][26][28] Capital Return and Equity Ratios (Q1 2024 vs. Q1 2023) | (Dollars and shares in millions) | Q1-24 | Q1-23 | | :------------------------------- | :---- | :---- | | Shares repurchased | 2.6 | 4.9 | | Reduction in shares outstanding | 1 % | 3 % | | Total repurchases in dollars | $ 43 | $ 85 | | Dividends paid | $ 18 | $ 21 | | Total Capital Returned | $ 61 | $ 106 | | GAAP equity-to-asset ratio | 4.7 % | 4.4 % | | Adjusted Tangible Equity Ratio | 8.4 % | 8.5 % | Recent Business Developments Navient announced strategic actions in January 2024 to simplify the company, reduce expenses, and enhance flexibility, including outsourcing student loan servicing to MOHELA, exploring divestment options for the business processing segment, and streamlining shared services infrastructure - Navient plans to transition student loan servicing to MOHELA, aiming for a variable cost structure and seamless customer transition, with nearly 900 employees expected to join MOHELA[30][32] - The company is exploring strategic options, including potential divestment, for its business processing segment to increase shared cost reduction opportunities[30][32] - Navient also plans to streamline its shared services functions and corporate footprint to align with a more focused, flexible, and streamlined company, with these strategic actions expected to be largely complete by mid to end of 2025[30][32] How We Organize Our Business Navient operates through three primary segments: Federal Education Loans, Consumer Lending, and Business Processing, along with an 'Other' segment for corporate liquidity and unallocated expenses - The company's business is organized into three primary segments: Federal Education Loans, Consumer Lending, and Business Processing, plus an 'Other' segment[31] Federal Education Loans Segment This segment manages a portfolio of federally guaranteed FFELP Loans, generating revenue primarily from net interest income - This segment owns and services a portfolio of federally guaranteed FFELP Loans, generating revenue primarily through net interest income[32] Consumer Lending Segment This segment focuses on originating and servicing private education loans, with revenue primarily derived from net interest income and growth opportunities through its Earnest brand - This segment owns, originates, and services refinance and in-school Private Education Loans, with revenue primarily from net interest income on its portfolio[33] - Through its Earnest brand, Navient offers planning tools, student loans, and refinancing products, aiming for meaningful growth opportunities in Private Education Loan originations[34] Business Processing Segment This segment delivers business processing solutions, including contact center services and revenue cycle optimization, to government and healthcare clients - This segment provides business processing solutions, including omnichannel contact center services, workflow processing, and revenue cycle optimization, to government and healthcare clients[35][37] Other Segment The 'Other' segment encompasses corporate liquidity, debt repurchase impacts, unallocated shared services, and restructuring expenses - The 'Other' segment includes the corporate liquidity portfolio, gains/losses from debt repurchases, unallocated shared services expenses (including regulatory expenses), and restructuring/reorganization expenses[36] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an in-depth analysis of Navient's financial performance, condition, and operational results, including key trends and segment-specific insights Selected Historical Financial Information and Ratios Navient's Q1 2024 financial performance showed a decrease in GAAP and Core Earnings net income and EPS compared to Q1 2023, alongside a reduction in education loan portfolios and net interest margins for both Federal Education Loans and Consumer Lending segments Selected Historical Financial Information and Ratios (Q1 2024 vs. Q1 2023) | (In millions, except per share data) | 2024 | 2023 | | :---------------------------------- | :------ | :------ | | GAAP Basis | | | | Net income | $ 73 | $ 111 | | Diluted earnings per common share | $ .64 | $ .86 | | Core Earnings Basis | | | | Net income | $ 54 | $ 133 | | Diluted earnings per common share | $ .47 | $ 1.02 | | Net interest margin, Federal Education Loans segment | .55 % | 1.12 % | | Net interest margin, Consumer Lending segment | 2.99 % | 3.12 % | | Ending FFELP Loans, net | $ 35,879 | $ 42,148 | | Ending Private Education Loans, net | 16,608 | 18,275 | | Ending total education loans, net | $ 52,487 | $ 60,423 | The Quarter in Review Navient reported a decrease in both GAAP and Core Earnings net income for Q1 2024 compared to the prior year, with specific highlights including segment net income and capital return activities Q1 2024 Financial Highlights (GAAP & Core Earnings) | Metric | Q1 2024 (GAAP) | Q1 2023 (GAAP) | Q1 2024 (Core Earnings) | Q1 2023 (Core Earnings) | | :-------------------------------------- | :------------- | :------------- | :---------------------- | :---------------------- | | Net income | $73 million | $111 million | $54 million | $133 million | | Diluted earnings per share | $0.64 | $0.86 | $0.47 | $1.02 | - Key highlights for Q1 2024 include: Federal Education Loans net income of $40 million with a 0.55% net interest margin; Consumer Lending net income of $73 million with a 2.99% net interest margin and $259 million in Private Education Loan originations; Business Processing revenue of $77 million, net income of $6 million, and EBITDA of $9 million[43] - Capital, funding, and liquidity highlights include a GAAP equity-to-asset ratio of 4.7% and an adjusted tangible equity ratio of 8.4%, with $43 million in common shares repurchased and $18 million in common stock dividends paid[43] Results of Operations (GAAP) Navient's GAAP net income decreased by $38 million to $73 million in Q1 2024 compared to Q1 2023, primarily due to a significant reduction in net interest income and an increase in provisions for loan losses, partially offset by higher gains on derivative activities and lower operating expenses GAAP Income Statement (Q1 2024 vs. Q1 2023) | (In millions, except per share data) | 2024 | 2023 | Increase (Decrease) $ | Increase (Decrease) % | | :---------------------------------- | :------ | :------ | :-------------------- | :-------------------- | | Total interest income | $ 1,027 | $ 1,071 | $ (44) | (4)% | | Total interest expense | 875 | 837 | 38 | 5 | | Net interest income | 152 | 234 | (82) | (35) | | Less: provisions for loan losses | 12 | (14) | 26 | 186 | | Net interest income after provisions for loan losses | 140 | 248 | (108) | (44) | | Total other income | 135 | 88 | 47 | 53 | | Total expenses | 187 | 192 | (5) | (3) | | Income before income tax expense | 88 | 144 | (56) | (39) | | Income tax expense | 15 | 33 | (18) | (55) | | Net income | $ 73 | $ 111 | $ (38) | (34)% | | Diluted earnings per common share | $ .64 | $ .86 | $ (.22) | (26)% | - Net interest income decreased by $82 million primarily due to increased interest rates and the paydown of loan portfolios, including higher FFELP Loan prepayments[50] - Provisions for loan losses increased by $26 million, driven by a $35 million increase in Private Education Loan provisions, partially offset by a $9 million decrease in FFELP Loan provisions[50] - Total other income increased by $47 million, mainly due to a $40 million increase in net gains on derivative and hedging activities and a $5 million increase in asset recovery and business processing revenue[51] - Operating expenses decreased by $2 million, primarily from lower servicing costs and marketing spend, despite a $12 million contingency loss accrual related to CFPB matters[51] Segment Results (Core Earnings) Navient's segment results on a Core Earnings basis for Q1 2024 show varied performance: Federal Education Loans net income decreased significantly due to interest rate impacts and portfolio paydown, Consumer Lending net income also declined despite increased originations, while Business Processing saw growth in revenue and EBITDA Federal Education Loans Segment The Federal Education Loans segment experienced a significant decrease in net interest income and net income in Q1 2024, primarily due to rising interest rates and portfolio paydown Federal Education Loans Segment Core Earnings (Q1 2024 vs. Q1 2023) | (Dollars in millions) | 2024 | 2023 | % Increase (Decrease) | | :-------------------- | :--- | :--- | :-------------------- | | Net interest income | $ 53 | $ 125 | (58)% | | Net income | $ 40 | $ 87 | (54)% | - Net interest income decreased by $72 million primarily due to increased interest rates impacting asset and debt index resets, and the paydown of the loan portfolio, including higher prepayments[55] Federal Education Loans Key Performance Metrics (Q1 2024 vs. Q1 2023) | Metric | 2024 | 2023 | | :----------------------------------- | :------ | :------ | | Segment net interest margin | .55 % | 1.12 % | | Net charge-off rate | .13 % | .22 % | | Greater than 90-days delinquency rate | 6.6 % | 7.9 % | | Forbearance rate | 16.0 % | 16.9 % | | Ending FFELP Loans, net | $ 35,879 | $ 42,148 | - The decrease in net interest margin is primarily due to increased interest rates, lower Floor Income, and higher amortization of loan premium from increased prepayments[58] - New income-driven repayment plans and proposed debt relief regulations are expected to increase consolidation activity, potentially impacting the FFELP Loan portfolio[69][140][141] Consumer Lending Segment The Consumer Lending segment saw increased private education loan originations in Q1 2024, but net income declined due to higher provisions for loan losses Consumer Lending Segment Core Earnings (Q1 2024 vs. Q1 2023) | (Dollars in millions) | 2024 | 2023 | % Increase (Decrease) | | :-------------------- | :--- | :--- | :-------------------- | | Net interest income | $ 134 | $ 153 | (12)% | | Net income | $ 73 | $ 110 | (34)% | - Private Education Loan originations increased to $259 million in Q1 2024 from $168 million in Q1 2023, driven by higher refinance loan originations[73] - Provision for loan losses increased by $35 million, including $5 million for originations and $6 million for a general reserve build in Q1 2024, compared to a negative provision in Q1 2023 due to accounting standard adoption and bankruptcy resolutions[73][77] Consumer Lending Key Performance Metrics (Q1 2024 vs. Q1 2023) | Metric | 2024 | 2023 | | :----------------------------------- | :------ | :------ | | Segment net interest margin | 2.99 % | 3.12 % | | Net charge-offs | $ 99 | $ 75 | | Net charge-off rate | 2.40 % | 1.63 % | | Greater than 90-days delinquency rate | 2.1 % | 2.0 % | | Forbearance rate | 1.8 % | 1.9 % | | Ending Private Education Loans, net | $ 16,608 | $ 18,275 | Business Processing Segment The Business Processing segment achieved revenue growth and a significant increase in EBITDA and EBITDA margin in Q1 2024, driven by organic expansion Business Processing Segment Core Earnings (Q1 2024 vs. Q1 2023) | (Dollars in millions) | 2024 | 2023 | % Increase (Decrease) | | :-------------------- | :--- | :--- | :-------------------- | | Business processing revenue | $ 77 | $ 72 | 7 % | | Net income | $ 6 | $ 4 | 50 % | | EBITDA | $ 9 | $ 5 | | | EBITDA margin | 11 % | 7 % | | - Revenue increased by $5 million due to continued organic growth, leading to a $4 million increase in EBITDA and a rise in EBITDA margin from 7% to 11%[83] Other Segment The Other segment reported a net interest loss and net loss in Q1 2024, primarily impacted by increased regulatory-related expenses, including a CFPB contingency accrual Other Segment Core Earnings (Q1 2024 vs. Q1 2023) | (Dollars in millions) | 2024 | 2023 | % Increase (Decrease) | | :-------------------- | :---- | :---- | :-------------------- | | Net interest loss after provision for loan losses | $ (24) | $ (25) | (4)% | | Net income (loss) | $ (65) | $ (68) | (4)% | - Unallocated shared services operating expenses increased by $1 million, primarily due to an $11 million increase in regulatory-related expenses, including a $12 million contingency loss accrual related to CFPB matters in Q1 2024[87] Financial Condition Navient's financial condition as of March 31, 2024, reflects a decrease in total education loan portfolios compared to prior periods, with detailed breakdowns of loan activity, credit performance metrics for both FFELP and Private Education Loans, and the allowance for loan losses Summary of Our Education Loan Portfolio Navient's education loan portfolio, net of allowance for loan losses, decreased to $52.487 billion as of March 31, 2024, reflecting reductions in both FFELP and Private Education Loans Ending Education Loan Balances, Net (March 31, 2024 vs. December 31, 2023 vs. March 31, 2023) | (Dollars in millions) | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------- | :------------- | :---------------- | :------------- | | Total FFELP Loans | $ 36,085 | $ 38,140 | $ 42,362 | | Private Education Loans | 17,146 | 17,519 | 18,981 | | Total | $ 53,231 | $ 55,659 | $ 61,343 | | Allowance for loan losses | (744) | (832) | (920) | | Total education loan portfolio, net | $ 52,487 | $ 54,827 | $ 60,423 | Education Loan Activity Education loan activity in Q1 2024 showed a net decrease in the portfolio balance, driven by significant refinancings, consolidations, and repayments, partially offset by new originations Education Loan Activity (Q1 2024 vs. Q1 2023) | (Dollars in millions) | Q1 2024 | Q1 2023 | | :-------------------- | :------ | :------ | | Beginning balance | $ 54,827 | $ 62,250 | | Acquisitions (originations and purchases) | 363 | 274 | | Refinancings and consolidations to third parties | (1,321) | (759) | | Repayments and other | (1,716) | (1,700) | | Ending balance | $ 52,487 | $ 60,423 | FFELP Loan Portfolio Performance FFELP Loan portfolio performance as of March 31, 2024, indicates a decrease in loans in forbearance and delinquent loans compared to prior periods FFELP Loan Delinquencies and Forbearance (March 31, 2024 vs. December 31, 2023 vs. March 31, 2023) | (Dollars in millions) | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------- | :------------- | :---------------- | :------------- | | Loans in forbearance | $ 5,538 | $ 6,147 | $ 6,844 | | Loans current | 25,162 | 26,204 | 28,886 | | Loans delinquent greater than 90 days | 1,913 | 2,293 | 2,682 | | Delinquencies as a percentage of FFELP Loans in repayment | 13.2 % | 13.9 % | 14.4 % | | FFELP Loans in forbearance as a percentage of loans in repayment and forbearance | 16.0 % | 16.8 % | 16.9 % | Private Education Loan Portfolio Performance Private Education Loan portfolio performance as of March 31, 2024, shows stable delinquency and forbearance rates, with a consistent percentage of loans having a cosigner Private Education Loan Delinquencies and Forbearance (March 31, 2024 vs. December 31, 2023 vs. March 31, 2023) | (Dollars in millions) | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------- | :------------- | :---------------- | :------------- | | Loans in forbearance | $ 297 | $ 363 | $ 354 | | Loans current | 15,661 | 15,935 | 17,439 | | Loans delinquent greater than 90 days | 351 | 380 | 364 | | Delinquencies as a percentage of Private Education Loans in repayment | 5.0 % | 5.1 % | 4.5 % | | Loans in forbearance as a percentage of loans in repayment and forbearance | 1.8 % | 2.1 % | 1.9 % | | Percentage of Private Education Loans with a cosigner | 33 % | 33 % | 33 % | Allowance for Loan Losses The allowance for loan losses decreased to $744 million at the end of Q1 2024, reflecting total provisions and net charge-offs during the period Allowance for Loan Losses Roll Forward (Q1 2024 vs. Q1 2023) | (Dollars in millions) | Q1 2024 Total | Q1 2023 Total | | :-------------------- | :------------ | :------------ | | Beginning balance | $ 832 | $ 1,022 | | Total provision | 12 | (14) | | Net charge-offs | (109) | (93) | | Decrease in expected future recoveries on previously fully charged-off loans | 9 | 5 | | Allowance at end of period (GAAP) | $ 744 | $ 920 | | Net charge-offs as a percentage of average loans in repayment (annualized) | 2.40 % | 1.63 % | Liquidity and Capital Resources Navient manages liquidity to meet debt obligations and operational needs through diverse funding sources, including unsecured and secured debt. The company's credit ratings and access to capital markets are crucial, with ongoing efforts to maintain appropriate leverage and return capital to shareholders - Navient's primary liquidity needs are servicing debt and meeting operational cash requirements, with secondary needs including loan originations, acquisitions, dividends, and share repurchases[99] - The company's ability to access capital markets is influenced by general market conditions, credit ratings (currently below investment grade for unsecured debt), and the overall availability of funding sources[100][101] Sources of Primary Liquidity Navient's primary liquidity sources, including unrestricted cash and unencumbered loans, totaled $1.044 billion as of March 31, 2024 Sources of Primary Liquidity (March 31, 2024 vs. December 31, 2023 vs. March 31, 2023) | (Dollars in millions) | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------- | :------------- | :---------------- | :------------- | | Total unrestricted cash and liquid investments | $ 823 | $ 839 | $ 570 | | Unencumbered FFELP Loans | 133 | 92 | 62 | | Unencumbered Private Education Refinance Loans | 88 | 236 | 37 | | Total | $ 1,044 | $ 1,167 | $ 669 | Sources of Additional Liquidity Additional liquidity is available through ABCP facilities for FFELP and Private Education Loans, totaling $1.749 billion in borrowing capacity as of March 31, 2024 Additional Borrowing Capacity (March 31, 2024 vs. December 31, 2023 vs. March 31, 2023) | (Dollars in millions) | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------- | :------------- | :---------------- | :------------- | | FFELP Loan ABCP facilities | $ 409 | $ 408 | $ 57 | | Private Education Loan ABCP facilities | 1,340 | 1,719 | 1,028 | | Total | $ 1,749 | $ 2,127 | $ 1,085 | - As of March 31, 2024, Navient had $2.8 billion in unencumbered tangible assets, including $1.1 billion in unencumbered education loans, and $5.5 billion of encumbered net assets (overcollateralization) in financing facilities[107] Borrowings Navient's total borrowings on a GAAP basis decreased to $55.275 billion as of March 31, 2024, with average rates for unsecured and secured borrowings increasing in Q1 2024 Borrowings (Ending Balances - March 31, 2024 vs. December 31, 2023) | (Dollars in millions) | March 31, 2024 Total | December 31, 2023 Total | | :-------------------- | :------------------- | :---------------------- | | Unsecured borrowings | $ 5,859 | $ 5,857 | | Secured borrowings | 49,791 | 52,058 | | Core Earnings basis borrowings | 55,650 | 57,915 | | GAAP basis borrowings | $ 55,275 | $ 57,628 | Borrowings (Average Balances & Rates - Q1 2024 vs. Q1 2023) | (Dollars in millions) | Q1 2024 Average Balance | Q1 2024 Average Rate | Q1 2023 Average Balance | Q1 2023 Average Rate | | :-------------------- | :---------------------- | :------------------- | :---------------------- | :------------------- | | Unsecured borrowings | $ 5,858 | 9.25 % | $ 6,279 | 8.14 % | | Secured borrowings | 51,013 | 5.75 % | 58,773 | 4.79 % | | Core Earnings basis borrowings | 56,871 | 6.11 % | 65,052 | 5.11 % | | GAAP basis borrowings | $ 56,871 | 6.19 % | $ 65,052 | 5.22 % | Critical Accounting Policies and Estimates Navient's critical accounting policies and estimates, including allowance for loan losses and goodwill impairment, are detailed in the 2023 Form 10-K, with an update on the Student Debt Relief Plan - Critical accounting policies and estimates, such as the allowance for loan losses, goodwill impairment assessment, and premium and discount amortization, are detailed in the 2023 Form 10-K[112] - An update on the Student Debt Relief (SDR) Plan is provided, referencing the Federal Education Loans Segment discussion[112] Non-GAAP Financial Measures Navient provides detailed definitions and reconciliations for its non-GAAP financial measures, including Core Earnings, Tangible Equity, EBITDA for the Business Processing segment, and Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans, to offer additional insights into operational performance - Navient uses non-GAAP financial measures like Core Earnings, Tangible Equity, Adjusted Tangible Equity Ratio, EBITDA (for Business Processing), and Allowance for Loan Losses Excluding Expected Future Recoveries to evaluate business segments and provide additional information to stakeholders[113] Core Earnings Core Earnings adjust GAAP results for derivative accounting and goodwill/intangible asset impacts, providing a clearer view of Navient's ongoing operational performance - Core Earnings adjust GAAP financial results for mark-to-market gains/losses on derivatives that don't qualify for hedge accounting or result in ineffectiveness, and for goodwill and acquired intangible asset accounting, to provide a clearer view of ongoing operations[115][116] GAAP to Core Earnings Reconciliation (Q1 2024 vs. Q1 2023) | (Dollars in millions) | 2024 | 2023 | | :-------------------- | :--- | :--- | | GAAP net income | $ 73 | $ 111 | | Net impact of derivative accounting | (21) | 27 | | Net impact of goodwill and acquired intangible assets | 3 | 3 | | Net income tax effect | (1) | (8) | | Total Core Earnings adjustments to GAAP | (19) | 22 | | Core Earnings net income | $ 54 | $ 133 | Cumulative Impact of Derivative Accounting on GAAP Equity (Q1 2024 vs. Q1 2023) | (Dollars in millions) | 2024 | 2023 | | :-------------------- | :--- | :--- | | Beginning impact of derivative accounting on GAAP equity | $ (1) | $ 122 | | Net impact of net mark-to-market gains (losses) under derivative accounting | 12 | (41) | | Ending impact of derivative accounting on GAAP equity | $ 11 | $ 81 | Tangible Equity and Adjusted Tangible Equity Ratio The Adjusted Tangible Equity Ratio measures Navient's Tangible Equity relative to tangible assets, excluding FFELP Loans, to aid capital allocation decisions - 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, to enhance usefulness for capital allocation decisions[133] Adjusted Tangible Equity Ratio Calculation (March 31, 2024 vs. March 31, 2023) | (Dollars in millions) | March 31, 2024 | March 31, 2023 | | :-------------------- | :------------- | :------------- | | Navient Corporation's stockholders' equity | $ 2,766 | $ 2,958 | | Less: Goodwill and acquired intangible assets | 692 | 703 | | Tangible Equity | 2,074 | 2,255 | | Less: Equity held for FFELP Loans | 179 | 211 | | Adjusted Tangible Equity | $ 1,895 | $ 2,044 | | Total assets | $ 59,029 | $ 66,913 | | Less: Goodwill and acquired intangible assets | 692 | 703 | | Less: FFELP Loans | 35,879 | 42,148 | | Adjusted tangible assets | $ 22,458 | $ 24,062 | | Adjusted Tangible Equity Ratio | 8.4 % | 8.5 % | Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA) EBITDA is utilized to assess the operating performance of the Business Processing segment, offering key insights for management and investors - EBITDA is used to measure the operating performance of the Business Processing segment, providing insights for management and equity investors[134] Business Processing Segment EBITDA (Q1 2024 vs. Q1 2023) | (Dollars in millions) | 2024 | 2023 | | :-------------------- | :--- | :--- | | Pre-tax income | $ 8 | $ 5 | | Plus: Depreciation and amortization expense | 1 | — | | EBITDA | $ 9 | $ 5 | | Total revenue | $ 77 | $ 72 | | EBITDA margin | 11 % | 7 % | Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans This non-GAAP measure for Private Education Loans provides a more accurate representation of current expected credit losses by excluding future recoveries on previously 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, providing a more meaningful view of credit loss coverage[135] Allowance for Loan Losses Metrics – Private Education Loans (Q1 2024 vs. Q1 2023) | (Dollars in millions) | 2024 | 2023 | | :-------------------- | :--- | :--- | | Allowance at end of period (GAAP) | $ 538 | $ 706 | | Plus: expected future recoveries on previously fully charged-off loans | 217 | 268 | | Allowance at end of period excluding expected future recoveries on previously fully charged-off loans (Non-GAAP) | $ 755 | $ 974 | | Allowance coverage of charge-offs (annualized) (Non-GAAP) | 1.8 | 3.2 | | Allowance as a percentage of the ending total loan balance (Non-GAAP) | 4.4 % | 5.1 % | | Allowance as a percentage of the ending loans in repayment (Non-GAAP) | 4.6 % | 5.4 % | Legal Proceedings Navient is involved in various legal and regulatory actions, including consumer protection claims, with a significant contingency loss accrued for a CFPB matter - Navient is subject to various claims, lawsuits, and regulatory actions in the normal course of business, including those alleging violations of consumer protection statutes[137][255] - Due to developments in late 2023 and Q1 2024 regarding the CFPB matter, Navient accrued a contingency loss liability of $85 million as of March 31, 2024, with an estimated range of reasonably possible losses from $0 to $250 million[263][265] - In Q1 2023, Navient reached a settlement for certain bankruptcy adversary actions, resulting in a $23 million additional private loan provision for estimated future charge-offs and an anticipated cash contribution of up to $44 million, fully covered by insurance[269] Risk Factors Navient faces risks from education loan prepayment rates, influenced by borrower behavior, market conditions, and government policy changes, which can materially impact financial performance - Prepayment rates on education loans can materially impact profitability, financial condition, and cash flows, influenced by borrower activity, market conditions, interest rate movements, and government-sponsored initiatives[139] - New interpretations of laws, executive orders, or policy initiatives (like the new income-driven repayment plan and proposed debt relief regulations) could increase prepayment rates on existing education loan portfolios, potentially having a material adverse impact[140][141] - Unanticipated prepayment levels in securitization trusts can cause bonds to be repaid faster or slower than anticipated, affecting net interest income and future cash flows, and potentially leading to an event of default if repayment is too slow[144] Quantitative and Qualitative Disclosures about Market Risk Navient manages interest rate risk to mitigate the impact of market movements on earnings and financial position, primarily through asset-liability matching strategies - Navient's interest rate risk management aims to limit the impact of interest 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[146][148][155] Interest Rate Sensitivity Analysis (Impact on Annual Earnings - March 31, 2024 vs. March 31, 2023) | (Dollars in millions) | March 31, 2024 (Increase 100 bps) | March 31, 2024 (Decrease 100 bps) | March 31, 2023 (Increase 100 bps) | March 31, 2023 (Decrease 100 bps) | | :-------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Change in pre-tax net income before mark-to-market gains (losses) on derivative and hedging activities | $ 16 | $ 2 | $ 39 | $ (26) | | Mark-to-market gains (losses) on derivative and hedging activities | 58 | (60) | 32 | (33) | | Increase (decrease) in income before taxes | $ 74 | $ (58) | $ 71 | $ (59) | | Increase (decrease) in net income after taxes | $ 57 | $ (45) | $ 55 | $ (45) | | Increase (decrease) in diluted earnings per common share | $ .51 | $ (.40) | $ .43 | $ (.36) | Asset and Liability Funding Gap by Index (March 31, 2024) | Index | Frequency of Resets | Assets (Dollars in billions) | Funding (Dollars in billions) | Funding Gap (Dollars in billions) | | :------------------ | :------------------ | :--------------------------- | :---------------------------- | :-------------------------------- | | 3 month Treasury bill | weekly | $ 1.9 | $ — | $ 1.9 | | Prime | monthly | 3.4 | — | 3.4 | | 1 month Term SOFR | monthly | 2.3 | 1.0 | 1.3 | | Overnight SOFR | daily | 33.7 | 34.7 | (1.0) | | Fixed Rate | | 13.5 | 17.2 | (3.7) | | Total | | $ 59.2 | $ 59.2 | $ — | Purchases of Equity Securities by the Issuer and Affiliated Purchasers Navient repurchased 2.6 million shares for $43 million in Q1 2024, with $247 million remaining in its multi-year share repurchase program - Navient repurchased 2.6 million shares of common stock for $43 million in Q1 2024, at an average price of $16.84 per share[157] - As of March 31, 2024, $247 million remained in the $1 billion multi-year share repurchase program approved in December 2021[157] Controls and Procedures Navient's management confirmed the effectiveness of disclosure controls and procedures as of March 31, 2024, with no material changes in internal control over financial reporting - Navient's management, including Principal Executive and Financial Officers, concluded that disclosure controls and procedures were effective as of March 31, 2024[161] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended March 31, 2024[162] Exhibits The report includes various exhibits such as Sarbanes-Oxley Act certifications, incentive plan agreements, and Inline XBRL documents - The report includes various exhibits such as certifications (Sarbanes-Oxley Act), the 2014 Omnibus Incentive Plan Performance Stock Unit Agreement, and Inline XBRL documents[165] Financial Statements This section presents Navient's consolidated financial statements, including balance sheets, income statements, comprehensive income, changes in equity, and cash flows, along with detailed notes Consolidated Balance Sheets The consolidated balance sheets show Navient's financial position as of March 31, 2024, compared to December 31, 2023, indicating a decrease in total assets and liabilities, while total equity remained relatively stable Consolidated Balance Sheets (March 31, 2024 vs. December 31, 2023) | (In millions) | March 31, 2024 | December 31, 2023 | | :------------ | :------------- | :---------------- | | Total assets | $ 59,029 | $ 61,375 | | Total liabilities | 56,263 | 58,615 | | Total equity | 2,766 | 2,760 | | FFELP Loans (net) | 35,879 | 37,925 | | Private Education Loans (net) | 16,608 | 16,902 | | Short-term borrowings | 4,427 | 4,226 | | Long-term borrowings | 50,848 | 53,402 | Consolidated Statements of Income Navient's consolidated statements of income for Q1 2024 show a decrease in net income to $73 million from $111 million in Q1 2023, primarily driven by lower net interest income and higher provisions for loan losses, despite an increase in other income Consolidated Statements of Income (Q1 2024 vs. Q1 2023) | (In millions, except per share amounts) | 2024 | 2023 | | :-------------------------------------- | :------ | :------ | | Total interest income | $ 1,027 | $ 1,071 | | Total interest expense | 875 | 837 | | Net interest income | 152 | 234 | | Less: provisions for loan losses | 12 | (14) | | Net interest income after provisions for loan losses | 140 | 248 | | Total other income | 135 | 88 | | Total expenses | 187 | 192 | | Income before income tax expense | 88 | 144 | | Income tax expense | 15 | 33 | | Net income | $ 73 | $ 111 | | Diluted earnings per common share | $ .64 | $ .86 | Consolidated Statements of Comprehensive Income Navient's total comprehensive income for Q1 2024 was $69 million, a decrease from $90 million in Q1 2023, reflecting lower net income and a smaller negative impact from net changes in cash flow hedges Consolidated Statements of Comprehensive Income (Q1 2024 vs. Q1 2023) | (In millions) | 2024 | 2023 | | :------------ | :--- | :--- | | Net income | $ 73 | $ 111 | | Net changes in cash flow hedges, net of tax | (4) | (21) | | Total comprehensive income | $ 69 | $ 90 | Consolidated Statements of Changes in Stockholders' Equity The consolidated statements of changes in stockholders' equity show a slight increase in total equity to $2,766 million as of March 31, 2024, from $2,760 million at December 31, 2023, influenced by net income, cash dividends, and common stock repurchases - Total equity increased from $2,760 million at December 31, 2023, to $2,766 million at March 31, 2024[167] - Key activities affecting equity in Q1 2024 included $73 million in net income, $18 million in cash dividends paid, and $43 million in common stock repurchases[176] Consolidated Statements of Cash Flows Navient's consolidated statements of cash flows for Q1 2024 show a net increase in cash, cash equivalents, and restricted cash of $155 million, a significant improvement from a net decrease of $2,029 million in Q1 2023, driven by increased cash from investing activities and reduced cash used in financing activities Consolidated Statements of Cash Flows (Q1 2024 vs. Q1 2023) | (In millions) | 2024 | 2023 | | :------------ | :------ | :------ | | Net cash provided by operating activities | $ 182 | $ 145 | | Net cash provided by investing activities | 2,330 | 1,848 | | Net cash used in financing activities | (2,357) | (4,022) | | Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents | 155 | (2,029) | | Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $ 2,948 | $ 2,778 | Notes to Consolidated Financial Statements The notes to the consolidated financial statements provide detailed disclosures on significant accounting policies, allowance for loan losses, borrowings, derivative financial instruments, and segment reporting Significant Accounting Policies The unaudited consolidated financial statements are prepared under GAAP, relying on management estimates, and incorporate new FASB ASU guidance on segment reporting - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information, requiring management estimates and assumptions[182] - The FASB issued ASU No. 2023-07, 'Segment Reporting – Improvements to Reportable Segment Disclosures,' effective for fiscal years after January 1, 2024, requiring expanded disclosures on significant segment expenses[183] Allowance for Loan Losses This section details the allowance for loan losses roll forward, along with delinquency and forbearance rates for both FFELP and Private Education Loans Allowance for Loan Losses Roll Forward (Q1 2024 vs. Q1 2023) | (Dollars in millions) | Q1 2024 Total | Q1 2023 Total | | :-------------------- | :------------ | :------------ | | Beginning balance | $ 832 | $ 1,022 | | Total provision | 12 | (14) | | Net charge-offs | (109) | (93) | | Decrease in expected future recoveries on previously fully charged-off loans | 9 | 5 | | Allowance at end of period | $ 744 | $ 920 | FFELP Loan Delinquencies and Forbearance (March 31, 2024 vs. December 31, 2023 vs. March 31, 2023) | (Dollars in millions) | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------- | :------------- | :---------------- | :------------- | | Loans in forbearance | $ 5,538 | $ 6,147 | $ 6,844 | | Loans delinquent greater than 90 days | 1,913 | 2,293 | 2,682 | | Delinquencies as a percentage of FFELP Loans in repayment | 13.2 % | 13.9 % | 14.4 % | Private Education Loan Delinquencies and Forbearance (March 31, 2024 vs. December 31, 2023 vs. March 31, 2023) | (Dollars in millions) | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------- | :------------- | :---------------- | :------------- | | Loans in forbearance | $ 297 | $ 363 | $ 354 | | Loans delinquent greater than 90 days | 351 | 380 | 364 | | Delinquencies as a percentage of loans in repayment | 5.0 % | 5.1 % | 4.5 % | - Private Education Loan modifications for borrowers experiencing financial difficulty include temporary interest rate reductions, payment delays, and term extensions, with the effect already included in the allowance for credit losses[203][204] Borrowings This section summarizes Navient's unsecured and secured borrowings, including details on FFELP and Private Education Loan securitizations and ABCP facilities Summary of Borrowings (March 31, 2024 vs. December 31, 2023) | (Dollars in millions) | March 31, 2024 Total | December 31, 2023 Total | | :-------------------- | :------------------- | :---------------------- | | Unsecured borrowings | $ 5,859 | $ 5,857 | | Secured borrowings | 49,791 | 52,058 | | Total | $ 55,275 | $ 57,628 | - FFELP Loan securitizations include $1.5 billion of defaulted secured debt tranches as of March 31, 2024, which are expected to be paid in full between 2031 and 2037[217] Secured Borrowings – VIEs and Assets Securing Debt (March 31, 2024 vs. December 31, 2023) | (Dollars in millions) | March 31, 2024 Debt Outstanding Total | March 31, 2024 Carrying Amount of Assets Securing Debt Outstanding Total | | :-------------------- | :------------------------------------ | :------------------------------------------------------------------- | | FFELP Loan securitizations | $ 33,842 | $ 37,127 | | Private Education Loan securitizations | 11,597 | 13,318 | | FFELP Loan ABCP facilities | 1,808 | 1,913 | | Private Education Loan ABCP facilities | 2,443 | 2,903 | | Total | $ 49,540 | $ 55,037 | Derivative Financial Instruments This section details the impact of derivative financial instruments on the balance sheet and income statement, including notional values and collateral positions Impact of Derivatives on Balance Sheet (Fair Values - March 31, 2024 vs. December 31, 2023) | (Dollars in millions) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Total derivative assets | $ 37 | $ 55 | | Total derivative liabilities | (224) | (190) | | Net total derivatives | $ (187) | $ (135) | Notional Values of Derivatives (March 31, 2024 vs. December 31, 2023) | (Dollars in billions) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Interest rate swaps | $ 7.8 | $ 8.7 | | Cross-currency interest rate swaps | 1.5 | 1.6 | | Total derivatives | $ 9.3 | $ 10.3 | Mark-to-Market Impact of Derivatives on Statements of Income (Q1 2024 vs. Q1 2023) | (Dollars in millions) | 2024 | 2023 | | :-------------------- | :--- | :--- | | Net fair value hedge ineffectiveness gains (losses) | $ 0 | $ (6) | | Total trading derivatives | 32 | (8) | | Mark-to-market gains (losses) recognized | $ 32 | $ (14) | - As of March 31, 2024, Navient held $28 million in cash collateral and pledged $37 million in cash collateral related to derivative exposures[231] Other Assets This section provides a detailed breakdown of Navient's other assets, including accrued interest receivable, investments, and income tax assets Detail of Other Assets (March 31, 2024 vs. December 31, 2023) | (Dollars in millions) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Accrued interest receivable | $ 1,972 | $ 2,081 | | Benefit and insurance-related investments | 452 | 460 | | Income tax asset, net | 117 | 122 | | Derivatives at fair value | 37 | 55 | | Accounts receivable | 91 | 101 | | Fixed assets | 61 | 62 | | Other | 43 | 33 | | Total | $ 2,773 | $ 2,914 | Stockholders' Equity This section details common share repurchases and dividends paid, along with the remaining share repurchase authority, impacting stockholders' equity Common Share Repurchases and Dividends (Q1 2024 vs. Q1 2023) | (Dollars and shares in millions, except per share amounts) | 2024 | 2023 | | :--------------------------------------------------------- | :---- | :---- | | Common stock repurchased (shares) | 2.6 | 4.9 | | Common stock repurchased (in dollars) | $ 43 | $ 85 | | Average purchase price per share | $ 16.84 | $ 17.40 | | Remaining common stock repurchase authority | $ 247 | $ 515 | | Dividends paid | $ 18 | $ 21 | | Dividends per share | $ .16 | $ .16 | Earnings (Loss) per Common Share This section presents the calculation of basic and diluted earnings per common share for Q1 2024 and Q1 2023 Basic and Diluted EPS Calculation (Q1 2024 vs. Q1 2023) | (In millions, except per share data) | 2024 | 2023 | | :----------------------------------- | :--- | :--- | | Net income | $ 73 | $ 111 | | Weighted average shares used to compute basic EPS | 113 | 129 | | Weighted average shares used to compute diluted EPS | 114 | 130 | | Basic earnings per common share | $ .65 | $ .87 | | Diluted earnings per common share | $ .64 | $ .86 | Fair Value Measurements This section provides fair value measurements for financial instruments, including derivatives, and details changes in Level 3 financial instruments Fair Value Measurements on a Recurring Basis (March 31, 2024 vs. December 31, 2023) | (Dollars in millions) | March 31, 2024 Total | December 31, 2023 Total | | :-------------------- | :------------------- | :---------------------- | | Total derivative assets | $ 37 | $ 55 | | Total derivative liabilities | (224) | (190) | | Total | $ (187) | $ (135) | Change in Level 3 Financial Instruments (Q1 2024 vs. Q1 2023) | (Dollars in millions) | Q1 2024 Total Derivative Instruments | Q1 2023 Total Derivative Instruments | | :-------------------- | :----------------------------------- | :----------------------------------- | | Balance, beginning of period | $ (190) | $ (255) | | Total gains/(losses) included in earnings | (44) | 15 | | Settlements | 10 | 14 | | Balance, end of period | $ (224) | $ (226) | Fair Values of Financial Assets and Liabilities (March 31, 2024 vs. December 31, 2023) | (Dollars in millions) | March 31, 2024 Fair Value | March 31, 2024 Carrying Value | December 31, 2023 Fair Value | December 31, 2023 Carrying Value | | :-------------------- | :------------------------ | :---------------------------- | :--------------------------- | :------------------------------- | | Total earning assets | $ 54,420 | $ 55,564 | $ 55,816 | $ 57,766 | | Total interest-bearing liabilities | 53,882 | 55,275 | 55,803 | 57,628 | | Derivative financial instruments (net) | (187) | (187) | (135) | (135) | Commitments, Contingencies and Guarantees This section outlines Navient's legal and regulatory commitments, including a significant contingency loss liability for the CFPB matter and details of a bankruptcy settlement - Navient is involved in various legal and regulatory matters, including civil actions by the CFPB and State Attorneys General alleging consumer protection violations[255][267] - As of March 31, 2024, the contingency loss liability for the CFPB matter was $85 million, with a reasonably possible loss range of $0 to $250 million[263][265] - A settlement was reached in April 2023 for bankruptcy adversary actions, involving the cancellation of approximately $1.7 billion in private loan balances and a $145 million payment to states, with an additional $23 million provision for loan losses[267][269] Revenue from Contracts with Customers Accounted for in Accordance with ASC 606 This section details revenue from contracts with customers, broken down by service type (government, healthcare) and client type (federal, state, hospitals) Revenue by Service Type (Q1 2024 vs. Q1 2023) | (Dollars in millions) | 2024 Business Processing | 2023 Business Processing | | :-------------------- | :----------------------- | :----------------------- | | Government services | $ 48 | $ 40 | | Healthcare services | 29 | 32 | | Total | $ 77 | $ 72 | Revenue by Client Type (Q1 2024 vs. Q1 2023) | (Dollars in millions) | 2024 Business Processing | 2023 Business Processing | | :-------------------- | :----------------------- | :----------------------- | | Federal government | $ 15 | $ 2 | | State and local government | 17 | 22 | | Tolling authorities | 16 | 16 | | Hospitals and other healthcare providers | 29 | 32 | | Total | $ 77 | $ 72 | Segment Reporting This section provides detailed financial information for Navient's four reportable operating segments: Federal Education Loans, Consumer Lending, Business Processing, and Other - Navient's four reportable operating segments are Federal Education Loans, Consumer Lending, Business Processing, and Other, with profitability measured on a Core Earnings basis[282][283][294] Federal Education Loans Segment Assets (March 31, 2024 vs. December 31, 2023) | (Dollars in millions) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | FFELP Loans, net | $ 35,879 | $ 37,925 | | Total assets | $ 39,580 | $ 41,573 | Consumer Lending Segment Assets (March 31, 2024 vs. December 31, 2023) | (Dollars in millions) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Private Education Loans, net | $ 16,608 | $ 16,902 | | Total assets | $ 17,685 | $ 17,976 | - The Business Processing segment had total assets of $366 million at March 31, 2024, and the Other segment had total assets of $1.4 billion[289][292] Summary of Core Earnings Adjustments to GAAP (Q1 2024 vs. Q1 2023) | (Dollars in millions) | 2024 | 2023 | | :-------------------- | :--- | :--- | | GAAP net income | $ 73 | $ 111 | | Net impact of derivative accounting | (21) | 27 | | Net impact of goodwill and acquired intangible assets | 3 | 3 | | Net income tax effect | (1) | (8) | | Total Core Earnings adjustments to GAAP | (19) | 22 | | Core Earnings net income | $ 54 | $ 133 | Signatures The report was duly signed on behalf of Navient Corporation by Joe Fisher, Chief Financial Officer, on April 24, 2024 - The report was duly signed on behalf of Navient Corporation by Joe Fisher, Chief Financial Officer, on April 24, 2024[308] Appendix A – Form 10-Q Cross-Reference Index Appendix A provides a cross-reference index to the traditional SEC Form 10-Q format, detailing where each item can be found within the report - Appendix A provides a cross-reference index to the traditional SEC Form 10-Q format, detailing where each item can be found within the report[309][310]