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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36228

Navient Corporation

(Exact name of registrant as specified in its charter)

Delaware

46-4054283

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

13865 Sunrise Valley Drive, Herndon, Virginia 20171

(703) 810-3000

(Address of principal executive offices)

(Telephone Number)

(703) 810-3000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Securities registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $.01 per share

 

NAVI

 

The NASDAQ Global Select Market

6% Senior Notes due December 15, 2043

 

JSM

 

The NASDAQ Global Select Market

Preferred Stock Purchase Rights

 

None

 

The NASDAQ Global Select Market

As of March 31, 2024, there were 111,824,749 shares of common stock outstanding.

 

 

 

 


 

img127487720_0.jpg 

TABLE OF CONTENTS

Organization of Our Form 10-Q

The order and presentation of content in our Quarterly Report on Form 10-Q (Form 10-Q) differs from the traditional Securities and Exchange Commission (SEC) Form 10-Q format. Our format is designed to improve readability and to better present how we organize and manage our business. See Appendix A, "Form 10-Q Cross-Reference Index" for a cross-reference index to the traditional SEC Form 10-Q format.

 

Page

Number

 

Forward-Looking and Cautionary Statements

1

Use of Non-GAAP Financial Measures

2

 

 

Business

3

Overview and Fundamentals of Our Business

3

Recent Business Developments

5

How We Organize Our Business

5

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

7

Selected Historical Financial Information and Ratios

7

The Quarter in Review

8

Results of Operations

9

Segment Results

11

Financial Condition

18

Liquidity and Capital Resources

22

Critical Accounting Policies and Estimates

25

Non-GAAP Financial Measures

25

 

 

Legal Proceedings

33

Risk Factors

33

Quantitative and Qualitative Disclosures about Market Risk

35

 

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

38

Controls and Procedures

40

Exhibits

41

Financial Statements

42

Signatures

76

Appendix A – Form 10-Q Cross-Reference Index

77

 

 

 

 

 


 

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

This Form 10-Q contains “forward-looking” statements and other information that is based on management’s current expectations as of the date of this report. Statements that are not historical facts, including statements about our beliefs, opinions, or expectations and statements that assume or are dependent upon future events, are forward-looking statements and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “may,” “could,” “should,” “goals,” or “target.” Such statements are based on management's expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties are discussed more fully under the section titled “Risk Factors” and include, but are not limited to the following:

general economic conditions, including the potential impact of inflation and interest rates on Navient and its clients and customers and on the creditworthiness of third parties;
increased defaults on education loans held by us;
unanticipated repayment trends on education loans including prepayments or deferrals resulting from new interpretations or the timing of the execution and implementation of current laws, rules or regulations or future laws, executive orders or other policy initiatives that operate to encourage or require consolidation, abolish existing or create additional income-based repayment or debt forgiveness programs or establish other policies and programs or extensions of previously announced deadlines which may increase or decrease the prepayment rates on education loans and accelerate or slow down the repayment of the bonds in our securitization trusts;
a reduction in our credit ratings;
changes to applicable laws, rules, regulations and government policies and expanded regulatory and governmental oversight;
changes in the general interest rate environment, including the availability of any relevant money-market index rate or the relationship between the relevant money-market index rate and the rate at which our assets are priced;
the interest rate characteristics of our assets do not always match those of our funding arrangements;
adverse market conditions or an inability to effectively manage our liquidity risk or access liquidity could negatively impact us;
the cost and availability of funding in the capital markets;
our ability to earn Floor Income and our ability to enter into hedges relative to that Floor Income are dependent on the future interest rate environment and therefore is variable;
our use of derivatives exposes us to credit and market risk;
our ability to continually and effectively align our cost structure with our business operations;
a failure or breach of our operating systems, infrastructure or information technology systems;
failure by any third party providing us material services or products or a breach or violation of law by one of these third parties;
our work with government clients exposes us to additional risks inherent in the government contracting environment;
acquisitions, strategic initiatives and investments or divestitures that we pursue;
shareholder activism; and
reputational risk and social factors.

 

 

Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business.

The preparation of our consolidated financial statements also requires management to make certain estimates and assumptions including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect and actual results could differ materially. All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this report. We do not undertake any obligation to update or revise these forward-looking statements except as required by law.

Through this discussion and analysis, we intend to provide the reader with some narrative context for how our management views our consolidated financial statements, additional context within which to assess our operating results, and information on the quality and variability of our earnings, liquidity and cash flows.

 

 

1


 

USE OF NON-GAAP FINANCIAL MEASURES

We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present our financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings, which is a non-GAAP financial measure. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also include this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation is our measure of profit or loss for our segments, we are required by GAAP to provide Core Earnings disclosures in the notes to our consolidated financial statements for our business segments.

In addition to Core Earnings, we present the following other non-GAAP financial measures: Tangible Equity, Adjusted Tangible Equity Ratio, Earnings before Interest, Taxes, Depreciation and Amortization Expense (EBITDA) (for the Business Processing segment), and Allowance for Loan Losses Excluding Expected Future Recoveries on Previously Fully Charged-off Loans. Definitions for the non-GAAP financial measures and reconciliations are provided below, except that reconciliations of forward-looking non-GAAP financial measures are not provided because the Company is unable to provide such reconciliations without unreasonable effort due to the uncertainty and inherent difficulty of predicting the occurrence and financial impact of certain items, including, but not limited to, the impact of any mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures” for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.

 

2


 

Business

Overview and Fundamentals of Our Business

Navient (Nasdaq: NAVI) provides technology-enabled education finance and business processing solutions that simplify complex programs and help millions of people achieve success. Our customer-focused, data-driven services deliver exceptional results for clients in education, health care and government. Learn more at navient.com.

With a focus on data-driven insights, service, compliance and innovative support, Navient’s business consists of:

 

img127487720_1.jpg 

 

Federal Education Loans

We own a portfolio of $35.9 billion of federally guaranteed Federal Family Education Loan Program (FFELP) Loans. As a servicer on our own portfolio and for third parties, we deploy data-driven approaches to support the success of our customers. Our flexible and scalable infrastructure manages large volumes of complex transactions, simplifying the customer experience and continually improving efficiency.

Consumer Lending

We help students and families succeed through the college journey with innovative planning tools, student loans and refinancing products. Our $16.6 billion Private Education Loan portfolio demonstrates high customer success rates. In the first quarter of 2024, we originated approximately $259 million of Private Education Loans.

Business Processing

We leverage our loan servicing expertise to provide business processing solutions for approximately 500 public sector and healthcare organizations, and their tens of millions of clients, patients, and constituents. Our suite of omnichannel customer experience, digital processing and revenue cycle solutions enables our clients to deliver better results for the people they serve.

 

Superior Operational Performance with a Strong Customer Service and Compliance Commitment

 

We help our customers — both individuals and institutions — navigate the path to financial success through proactive, data-driven, simplified service and innovative solutions.

Delivering superior performance. Whether supporting student loan borrowers in successfully managing their loans, designing and implementing omnichannel contact center solutions for public sector agencies, generating additional revenue for hospitals and medical systems, or helping a state manage communications or recover revenue that funds essential services, Navient delivers value for our clients and customers.

We leverage our customer service expertise, data-driven insights, technology platforms, and scale to maximize value for our clients.

Scalable, data-driven solutions. Annually, we support tens of millions of people in conducting hundreds of millions of transactions and interactions. Our systems are built for scale and rapid implementation. We harness the power of data to build tailored programs with analytics that optimize our clients’ results.

3


 

Simplify complex processes. On our clients’ behalf, we help individuals successfully navigate a broad spectrum of complex transactions. Our people and platforms simplify complex programs to help customers and constituents achieve their goals.
Improving customer experience and success. We continually make enhancements to improve the customer experience, drawing from a variety of inputs including customer surveys, analysis of customer inquiries and activities, complaint data, and regulator commentary. Across our businesses, our customer-facing representatives are trained to provide empathetic, accurate support.
Commitment to compliance. We maintain a robust, multi-layered compliance management system and thoroughly understand and comply with applicable federal, state, and local laws. We follow the industry-leading “Three Lines Model” compliance framework. This framework and other compliance protocols ensure we adhere to key industry laws and regulations including but not limited to: Fair and Accurate Credit Transactions Act (FACTA); Fair Credit Reporting Act (FCRA); Fair Debt Collection Practices Act (FDCPA); Electronic Funds Transfer Act (EFTA); Equal Credit Opportunity Act (ECOA); Gramm-Leach-Bliley Act (GLBA); Health Insurance Portability and Accountability Act (HIPAA); IRS Publication 1075; Servicemembers Civil Relief Act (SCRA); Military Lending Act (MLA); Telephone Consumer Protection Act (TCPA); Truth in Lending Act (TILA); Unfair, Deceptive, or Abusive Acts and Practices (UDAAP); state laws; and state and city licensing.
Corporate social responsibility. We are committed to contributing to the social and economic wellbeing of our communities; fostering the success of our customers; supporting a culture of integrity, inclusion and equality in our workforce; and embracing sustainable business practices. Navient has earned recognition from a variety of leading organizations for our continued commitment to fostering diversity. Our employees are engaged in our communities through company-sponsored volunteering and philanthropic programs.

Navient is committed to a sustainable future. We leverage technologies that minimize energy use in our office buildings and promote widespread adoption of “paperless” digital customer communications. Navient prioritizes the usage of power-saving features to our buildings to reduce energy usage. Energy efficiency and reducing carbon dioxide (CO2) and CO2 equivalents are among the many factors considered in our real estate decisions.

 

Strong Financial Performance Resulting in a Strong Capital Return

 

Our first-quarter 2024 results continue to demonstrate the strength of our business model and our ability to deliver predictable and meaningful cash flow and earnings in a variety of economic environments.

 

Our significant earnings generate significant capital which allows for a strong capital return to our investors. Navient expects to continue to return excess capital to shareholders through dividends and share repurchases in accordance with our capital allocation policy.

 

By optimizing capital adequacy and allocating capital to highly accretive opportunities, including organic growth and acquisitions, we remain well positioned to pay dividends and repurchase stock, while maintaining appropriate leverage that supports our credit ratings and ensures ongoing access to capital markets.

 

In December 2021, our Board of Directors approved a share repurchase program authorizing the purchase of up to $1 billion of the Company’s outstanding common stock. At March 31, 2024, $247 million remained in share repurchase authorization.

 

To inform our capital allocation decisions, we use the Adjusted Tangible Equity Ratio(1) in addition to other metrics. Our GAAP equity-to-asset ratio was 4.7% and our Adjusted Tangible Equity Ratio(1) was 8.4% as of March 31, 2024.

 

 

(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(2)

 

$

61

 

 

$

106

 

GAAP equity-to-asset ratio

 

 

4.7

%

 

 

4.4

%

Adjusted Tangible Equity Ratio(1)

 

 

8.4

%

 

 

8.5

%

 

(1)
Item is a non-GAAP financial measure. For a description and reconciliation, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.”
(2)
Capital Returned is defined as share repurchases and dividends paid.

4


 

Recent Business Developments

On January 30, 2024, as a result of an in-depth review of our business, Navient announced strategic actions to simplify our company, reduce our expense base, and enhance our flexibility. The three strategic actions are:

Adopt a variable, outsourced servicing model. Navient entered into a binding letter of intent on January 29, 2024 that will transition our student loan servicing to MOHELA, a leading provider of student loan servicing for government and commercial enterprises. This transaction is intended to create a variable cost structure for the servicing of our student loan portfolios and provides attractive unit economics across a wide range of servicing volume scenarios. Navient and MOHELA will work toward ensuring a seamless transition in the coming months and providing customers with uninterrupted servicing of their loans. This transition is expected to include nearly 900 employees becoming employees of MOHELA and utilize the same servicing system provider currently used by Navient.
Explore strategic options for the business processing segment, including potential divestment. Navient has launched a process to explore a range of value-creating options for our business processing segment. Through various subsidiary brands, this segment provides high-quality business processing services to a variety of government and healthcare clients, including hospitals, toll-road authorities, state revenue divisions, and federal agencies. In conjunction with the decision to outsource student loan servicing, exploring options for the business processing segment increases the opportunities for shared cost reduction. Navient is working with financial and legal advisors to assist the Company in exploring strategic options for this segment, which may include a sale of the segment in whole or in part.
Streamline shared services infrastructure and corporate footprint. As we implement the above actions, we also plan to reshape our shared services functions and corporate footprint to align with the needs of a more focused, flexible and streamlined company.

Since the announcement on January 30, 2024, we have made substantial progress on the above strategic actions. We are nearing completion of a final outsourcing agreement with MOHELA. Further, we expect to learn much more about the possible range of outcomes from the business processing segment divestment process during the second quarter. We are beginning to execute our plans for a leaner company. We continue to expect to be largely complete with these strategic actions by mid to end of 2025.

How We Organize Our Business

We operate our business in three primary segments: Federal Education Loans, Consumer Lending and Business Processing.

img127487720_2.jpg 

 

Federal Education Loans Segment

Navient owns FFELP Loans and performs servicing on this portfolio. We also service FFELP Loans owned by other institutions. Our servicing quality, data-driven strategies and omnichannel education about federal repayment options translate into positive results for the millions of borrowers we serve. We generate revenue primarily through net interest income on our FFELP Loans.

 

5


 

Consumer Lending Segment

Navient owns, originates and services refinance and in-school Private Education Loans. "Refinance" Private Education Loans are loans where a borrower has refinanced their education loans, and "In-school" Private Education Loans are loans originally made to borrowers while they are attending school. We generate revenue primarily through net interest income on our Private Education Loan portfolio.

Through our Earnest brand, we help students and families on the planning and paying for college journey. Our digital tools empower people to find scholarships and compare financial aid offers. We believe our 50 years of experience, product design, digital marketing strategies, and origination and servicing platform provide a unique competitive advantage. We see meaningful growth opportunities in originating Private Education Loans, generating attractive long-term, risk-adjusted returns.

Business Processing Segment

Navient provides business processing solutions such as omnichannel contact center services, workflow processing, and revenue cycle optimization. We leverage the same expertise and intelligent tools we use to deliver successful results for portfolios we own. Our support enables our clients to ensure better constituent outcomes, meet rapidly changing needs, improve technology, reduce operating expenses, manage risk and optimize revenue opportunities. Our clients include:

Government: We offer our solutions to federal agencies, state governments, tolling and parking authorities, and other public sector clients.
Healthcare: Our clients include hospitals, hospital systems, medical centers, large physician groups, other healthcare providers and public health departments.

Other Segment

This segment consists of our corporate liquidity portfolio, gains and losses incurred on the repurchase of debt, unallocated expenses of shared services (which includes regulatory expenses) and restructuring/other reorganization expenses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6


 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Selected Historical Financial Information and Ratios

 

 

Three Months Ended March 31,

 

(In millions, except per share data)

 

2024

 

 

2023

 

GAAP Basis

 

 

 

 

 

 

Net income

 

$

73

 

 

$

111

 

Diluted earnings per common share

 

$

.64

 

 

$

.86

 

Weighted average shares used to compute diluted earnings per share

 

 

114

 

 

 

130

 

Return on common stockholders' equity

 

 

.51

%

 

 

.68

%

 

 

 

 

 

 

 

Core Earnings Basis(1)

 

 

 

 

 

 

Net income(1)

 

$

54

 

 

$

133

 

Diluted earnings per common share(1)

 

$

.47

 

 

$

1.02

 

Weighted average shares used to compute diluted earnings per share

 

 

114

 

 

 

130

 

Net interest margin, Federal Education Loans segment

 

 

.55

%

 

 

1.12

%

Net interest margin, Consumer Lending segment

 

 

2.99

%

 

 

3.12

%

Return on assets

 

 

.37

%

 

 

.82

%

 

 

 

 

 

 

 

Education Loan Portfolios

 

 

 

 

 

 

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

 

Average FFELP Loans

 

$

37,158

 

 

$

43,263

 

Average Private Education Loans

 

 

17,385

 

 

 

19,289

 

Average total education loans

 

$

54,543

 

 

$

62,552

 

(1)
Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures — Core Earnings.”

 

7


 

The Quarter in Review

We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also include this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide certain Core Earnings disclosures in the notes to our consolidated financial statements for our business segments. See “Non-GAAP Financial Measures — Core Earnings” for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.

First-quarter 2024 GAAP net income was $73 million ($0.64 diluted earnings per share), compared with $111 million ($0.86 diluted earnings per share) for the year-ago quarter. See “Results of Operations – GAAP Comparison of First-Quarter 2024 Results with First-Quarter 2023" for a discussion of the primary contributors to the change in GAAP earnings between periods.

First-quarter 2024 Core Earnings net income was $54 million ($0.47 diluted Core Earnings per share), compared with $133 million ($1.02 diluted Core Earnings per share) for the year-ago quarter. See “Segment Results” for a discussion of the primary contributors to the change in Core Earnings between periods.

GAAP and Core Earnings results included a net reduction to pre-tax income of $23 million ($0.16 diluted loss per share) comprised of the following items:

$14 million ($0.10 diluted loss per share) of regulatory-related and restructuring expenses, of which $12 million is due to an accrual in connection with recent developments related to CFPB matters.
FFELP Loan prepayments were $1.6 billion (compared to approximately $700 million in the year-ago quarter). This resulted in the write-off of an additional $9 million ($0.06 diluted loss per share) of loan premium, a non-cash reduction to net interest income.

Financial highlights of first-quarter 2024 include:

Federal Education Loans segment:

Net income of $40 million.
Net interest margin of 0.55%.

Consumer Lending segment:

Net income of $73 million.
Net interest margin of 2.99%.
Originated $259 million of Private Education Loans.

Business Processing segment:

Revenue of $77 million.
Net income of $6 million and EBITDA(1) of $9 million.

Capital, funding and liquidity:

GAAP equity-to-asset ratio of 4.7% and adjusted tangible equity ratio(1) of 8.4%.
Repurchased $43 million of common shares. $247 million common share repurchase authority remains outstanding.
Paid $18 million in common stock dividends.

Operating Expenses:

Operating expenses of $170 million, excluding $13 million of regulatory-related expenses.

(1)
Item is a non-GAAP financial measure. For a description and reconciliation, see “Non-GAAP Financial Measures.”

 

 

8


 

Results of Operations

GAAP Income Statements (Unaudited)

 

 

Three Months Ended March 31,

 

 

Increase
(Decrease)

 

(In millions, except per share data)

 

2024

 

 

2023

 

 

$

 

 

%

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loans

 

$

661

 

 

$

693

 

 

$

(32

)

 

 

(5

)%

Private Education Loans

 

 

328

 

 

 

344

 

 

 

(16

)

 

 

(5

)

Cash and investments

 

 

38

 

 

 

34

 

 

 

4

 

 

 

12

 

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

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

17

 

 

 

17

 

 

 

 

 

 

 

Asset recovery and business processing
   revenue

 

 

77

 

 

 

72

 

 

 

5

 

 

 

7

 

Other income

 

 

9

 

 

 

7

 

 

 

2

 

 

 

29

 

Gains (losses) on derivative and hedging
   activities, net

 

 

32

 

 

 

(8

)

 

 

40

 

 

 

500

 

Total other income

 

 

135

 

 

 

88

 

 

 

47

 

 

 

53

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

   Operating expenses

 

 

183

 

 

 

185

 

 

 

(2

)

 

 

(1

)

   Goodwill and acquired intangible assets
      impairment and amortization expense

 

 

3

 

 

 

3

 

 

 

 

 

 

 

   Restructuring/other reorganization expenses

 

 

1

 

 

 

4

 

 

 

(3

)

 

 

(75

)

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

)%

Basic earnings per common share

 

$

.65

 

 

$

.87

 

 

$

(.22

)

 

 

(25

)%

Diluted earnings per common share

 

$

.64

 

 

$

.86

 

 

$

(.22

)

 

 

(26

)%

Dividends per common share

 

$

.16

 

 

$

.16

 

 

$

 

 

 

 

 

9


 

GAAP Comparison of First-Quarter 2024 Results with First-Quarter 2023

For the three months ended March 31, 2024, net income was $73 million, or $0.64 diluted earnings per common share, compared with net income of $111 million, or $0.86 diluted earnings per common share, for the year-ago period.

The primary contributors to the change in net income are as follows:

Net interest income decreased by $82 million primarily as a result of increased interest rates and the paydown of the FFELP and Private Education Loan portfolios, which includes an increase in prepayments of the FFELP Loan portfolio. This was partially offset by a $6 million decrease in mark-to-market losses on fair value hedges recorded in interest expense.
Provisions for loan losses increased $26 million from $(14) million to $12 million:
o
The provision for FFELP Loan losses decreased $9 million from $10 to $1 million.
o
The provision for Private Education Loan losses increased $35 million from $(24) million to $11 million.

The FFELP Loan provision for loan losses of $1 million in the current period was the result of relatively stable credit trends.

The Private Education Loan provision for loan losses of $11 million in the current period included $5 million in connection with loan originations and $6 million related to a general reserve build. The provision of $(24) million in the year-ago period included $(52) million in connection with the adoption of Accounting Standards Update (ASU) No. 2022-02, "Financial Instruments – Credit Losses: Troubled Debt Restructurings and Vintage Disclosures," $5 million in connection with loan originations and $23 million in connection with the resolution of certain private legacy loans in bankruptcy. See our Annual Report on Form 10-K for the year ended December 31, 2023 (the 2023 Form 10-K) for further discussion on the adoption of ASU No. 2022-02, as well as the resolution of certain private legacy loans in bankruptcy.

Asset recovery and business processing revenue increased $5 million primarily due to continued organic growth in our Business Processing segment.
Net gains on derivative and hedging activities increased $40 million. The primary factors affecting the change were interest rate fluctuations. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates and other market factors. As a result, net gains and losses on derivative and hedging activities may vary significantly in future periods.
Operating expenses decreased $2 million primarily a result of a decline in overall servicing costs as well as lower in-school loan marketing spend. This was partially offset by a $12 million contingency loss accrual (regulatory-related expense) recorded in the current period related to recent developments in connection with CFPB matters.
Restructuring expenses decreased $3 million due to a decline in severance-related costs and facility lease terminations.
The effective income tax rates for the current and year-ago periods were 17% and 23%, respectively. The movement in the effective income tax rate was primarily driven by the reduction of tax and interest on state uncertain tax positions in the current period.

We repurchased 2.6 million and 4.9 million shares of our common stock during the first quarters of 2024 and 2023, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 16 million common shares (or 12%) from the year-ago period.

 

 

10


 

Segment Results

Federal Education Loans Segment

The following table presents Core Earnings results for our Federal Education Loans segment.

 

 

Three Months Ended March 31,

 

 

% Increase
(Decrease)

 

(Dollars in millions)

 

2024

 

 

2023

 

 

2024 vs. 2023

 

Interest income:

 

 

 

 

 

 

 

 

 

FFELP Loans

 

$

661

 

 

$

695

 

 

 

(5

)%

Cash and investments

 

 

23

 

 

 

20

 

 

 

15

 

Total interest income

 

 

684

 

 

 

715

 

 

 

(4

)

Total interest expense

 

 

631

 

 

 

590

 

 

 

7

 

Net interest income

 

 

53

 

 

 

125

 

 

 

(58

)

Less: provision for loan losses

 

 

1

 

 

 

10

 

 

 

(90

)

Net interest income after provision for
   loan losses

 

 

52

 

 

 

115

 

 

 

(55

)

Other income (loss):

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

13

 

 

 

14

 

 

 

(7

)

Other income

 

 

4

 

 

 

5

 

 

 

(20

)

Total other income

 

 

17

 

 

 

19

 

 

 

(11

)

Direct operating expenses

 

 

17

 

 

 

20

 

 

 

(15

)

Income before income tax expense

 

 

52

 

 

 

114

 

 

 

(54

)

Income tax expense

 

 

12

 

 

 

27

 

 

 

(56

)

Net income

 

$

40

 

 

$

87

 

 

 

(54

)%

Comparison of First-Quarter 2024 Results with First-Quarter 2023

 

Net income was $40 million compared to $87 million.
Net interest income decreased $72 million primarily due to the impact of increased interest rates on the different index resets for the segment’s assets and debt, as well as the paydown of the loan portfolio which included an increase in prepayments.
Provision for loan losses decreased $9 million. The $1 million of provision for loan losses in first-quarter 2024 was the result of relatively stable credit trends.
o
Net charge-offs were $10 million compared to $18 million.
o
Delinquencies greater than 90 days were $1.9 billion compared to $2.7 billion.
o
Forbearances were $5.5 billion compared to $6.8 billion.
Other income decreased $2 million primarily due to the paydown of the loan portfolio serviced for third parties.
Expenses were $3 million lower primarily as a result of the paydown of the loan portfolio.

 

 

11


 

Key performance metrics are as follows:

 

 

Three Months Ended March 31,

 

(Dollars in millions)

 

2024

 

 

2023

 

Segment net interest margin

 

 

.55

%

 

 

1.12

%

FFELP Loans:

 

 

 

 

 

 

      FFELP Loan spread

 

 

.66

%

 

 

1.25

%

      Provision for loan losses

 

$

1

 

 

$

10

 

      Net charge-offs

 

$

10

 

 

$

18

 

      Net charge-off rate

 

 

.13

%

 

 

.22

%

      Greater than 30-days delinquency rate

 

 

13.2

%

 

 

14.4

%

      Greater than 90-days delinquency rate

 

 

6.6

%

 

 

7.9

%

      Forbearance rate

 

 

16.0

%

 

 

16.9

%

      Average FFELP Loans

 

$

37,158

 

 

$

43,263

 

      Ending FFELP Loans, net

 

$

35,879

 

 

$

42,148

 

 

 

 

 

 

 

 

(Dollars in billions)

 

 

 

 

 

 

Total federal loans serviced

 

$

42

 

 

$

49

 

Net Interest Margin

The following table details the net interest margin.

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

FFELP Loan yield

 

 

6.91

%

 

 

6.07

%

Floor Income

 

 

.24

 

 

 

.45

 

FFELP Loan net yield

 

 

7.15

 

 

 

6.52

 

FFELP Loan cost of funds

 

 

(6.49

)

 

 

(5.27

)

FFELP Loan spread

 

 

.66

 

 

 

1.25

 

Other interest-earning asset spread impact

 

 

(.11

)

 

 

(.13

)

Net interest margin(1)

 

 

.55

%

 

 

1.12

%

(1)
The average balances of the interest-earning assets for the respective periods are:

 

 

Three Months Ended March 31,

 

(Dollars in millions)

 

2024

 

 

2023

 

FFELP Loans

 

$

37,158

 

 

$

43,263

 

Other interest-earning assets

 

 

1,861

 

 

 

1,972

 

Total FFELP Loan interest-earning assets

 

$

39,019

 

 

$

45,235

 

The decrease in the net interest margin is primarily due to the impact of increased interest rates on the different index resets for the segment's assets and debt which resulted in a decrease of floor income and an increased cost of funds. In addition, there was an increase in prepayments which contributed to an increase in the amortization of loan premium, a non-cash reduction to interest margin.

As of March 31, 2024, our FFELP Loan portfolio totaled $35.9 billion, comprised of $12.7 billion of FFELP Stafford Loans and $23.2 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of March 31, 2024 was 7 years and 8 years, respectively, assuming a Constant Prepayment Rate (CPR) of 7% and 5%, respectively.

Floor Income

The following table analyzes on a Core Earnings basis the ability of the FFELP Loans in our portfolio to earn Floor Income after March 31, 2024 and 2023, based on interest rates as of those dates.

 

 

 

 

 

 

 

(Dollars in billions)

 

March 31, 2024

 

 

March 31, 2023

 

Education loans eligible to earn Floor Income

 

$

35.6

 

 

$

41.8

 

Less: post-March 31, 2006 disbursed loans required to rebate
   Floor Income

 

 

(16.9

)

 

 

(19.9

)

Less: economically hedged Floor Income

 

 

(2.0

)

 

 

(9.1

)

Education loans eligible to earn Floor Income after rebates and
   economically hedged

 

$

16.7

 

 

$

12.8

 

Education loans earning Floor Income

 

$

1.1

 

 

$

 

 

12


 

The following table presents a projection of the average balance of FFELP Consolidation Loans for which Fixed Rate Floor Income has been economically hedged with derivatives for the period April 1, 2024 to December 31, 2028.

(Dollars in billions)

 

April 1, 2024
to
December 31, 2024

 

 

2025

 

 

2026

 

 

2027

 

 

2028

 

Average balance of FFELP Consolidation Loans
   whose Floor Income is economically hedged

 

$

1.7

 

 

$

.9

 

 

$

.7

 

 

$

.3

 

 

$

.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

Operating expenses for the Federal Education Loans segment primarily include costs incurred to perform servicing on our FFELP Loan portfolio and federal education loans held by other institutions. Expenses were $3 million lower as a result of the paydown of the loan portfolio.

 

Various Federal Loan Forgiveness Plans

On August 24, 2022, the Biden-Harris Administration announced its Student Debt Relief (SDR) Plan. The SDR Plan would have provided up to $20,000 in one-time debt relief to income-qualified recipients with ED held student loans and a repayment pause on ED held loans. Privately held FFELP Loans, like ours, were not eligible for debt forgiveness.

A number of states and private organizations initiated legal challenges to the SDR Plan in various courts throughout the country. On June 30, 2023, the Supreme Court ruled that ED was prohibited from implementing the SDR Plan, and student loan payments on ED held loans resumed in October 2023. After the invalidation of the SDR Plan, ED announced that it had begun a new rulemaking process to consider other ways to provide debt relief to borrowers, which could include borrowers with privately held FFELP Loans. ED held several public meeting sessions with a negotiated rulemaking committee in the fourth quarter of 2023 and in the first quarter of 2024. ED is expected to publish proposed regulations for public comment in May 2024.

In addition, on July 10, 2023, ED issued final regulations on income-driven repayment plans for Direct loans, which are student loans held by ED. Eligible FFELP borrowers can access the new changes by consolidating their loans into the Direct Loan Program. The new regulations are effective July 1, 2024; however, ED has elected early implementation for some features starting July 30, 2023. The regulations provide a lower monthly loan payment on a Direct loan by decreasing discretionary income (i.e., taxable income over 225% of the federal poverty guideline), decreasing the percentage of discretionary income that must be paid toward a Direct loan to 5% (for undergraduates), and providing the option for married borrowers to exclude their spouse’s income from being factored by filing a separate tax return. Other changes provide for the elimination of accrued interest that is not covered by the monthly payment amount, provide credit towards loan forgiveness that counts certain periods of deferment and forbearance, a shorter loan forgiveness period (10-years) for borrowers with an original principal balance less than or equal to $12,000, and credit toward loan forgiveness for eligible payments on a Direct or FFELP loan that is repaid by a Direct Consolidation loan.

Several lawsuits have been filed or announced (which Navient is not party to) looking to overturn these regulations.

The proposed borrower debt relief regulations as well as the new income-driven repayment plan have increased, and may continue to increase, consolidation activity in the future as FFELP borrowers consolidate their loans into the Direct Loan Program in order to be eligible for potential debt relief and the new income-driven repayment plan. This consolidation activity could have a material impact on the Company’s results.

 

13


 

Consumer Lending Segment

The following table presents Core Earnings results for our Consumer Lending segment.

 

 

Three Months Ended March 31,

 

 

% Increase
(Decrease)

 

(Dollars in millions)

 

2024

 

 

2023

 

 

2024 vs. 2023

 

Interest income:

 

 

 

 

 

 

 

 

 

Private Education Loans

 

$

328

 

 

$

344

 

 

 

(5

)%

Cash and investments

 

 

7

 

 

 

6

 

 

 

17

 

Interest income

 

 

335

 

 

 

350

 

 

 

(4

)

Interest expense

 

 

201

 

 

 

197

 

 

 

2

 

Net interest income

 

 

134

 

 

 

153

 

 

 

(12

)

Less: provision for loan losses

 

 

11

 

 

 

(24

)

 

 

146

 

Net interest income after provision for loan losses

 

 

123

 

 

 

177

 

 

 

(31

)

Other income (loss):

 

 

 

 

 

 

 

 

 

   Servicing revenue

 

 

4

 

 

 

3

 

 

 

33

 

   Other revenue

 

 

 

 

 

 

 

 

 

Total other income

 

 

4

 

 

 

3

 

 

 

33

 

Direct operating expenses

 

 

32

 

 

 

37

 

 

 

(14

)

Income before income tax expense

 

 

95

 

 

 

143

 

 

 

(34

)

Income tax expense

 

 

22

 

 

 

33

 

 

 

(33

)

Net income

 

$

73

 

 

$

110

 

 

 

(34

)%

Comparison of First-Quarter 2024 Results with First-Quarter 2023

Originated $259 million of Private Education Loans compared to $168 million.
o
Refinance Loan originations were $228 million compared to $135 billion.
o
In-school loan originations were $31 million compared to $33 million.
Net income was $73 million compared to $110 million.
Net interest income decreased $19 million primarily due to the paydown of the loan portfolio.
Provision for loan losses increased $35 million. The provision for loan losses of $11 million in first quarter 2024 included $5 million in connection with loan originations and $6 million related to a general reserve build. The negative provision of $(24) million in the year-ago period included $(52) million in connection with the adoption of a new accounting standard (ASU No. 2022-02), $5 million in connection with loan originations and $23 million in connection with the resolution of certain private legacy loans in bankruptcy.
o
Net charge-offs were $99 million, up $24 million from $75 million.
o
Private Education Loan delinquencies greater than 90 days: $351 million, down $13 million from $364 million.
o
Private Education Loan forbearances: $297 million, down $57 million from $354 million.
Expenses decreased $5 million due to lower in-school loan marketing spend.

 

 

14


 

Key performance metrics are as follows:

 

 

Three Months Ended March 31,

 

(Dollars in millions)

 

2024

 

 

2023

 

Segment net interest margin

 

 

2.99

%

 

 

3.12

%

Private Education Loans (including Refinance Loans):

 

 

 

 

 

 

   Private Education Loan spread

 

 

3.10

%

 

 

3.28

%

   Provision for loan losses

 

$

11

 

 

$

(24

)

   Net charge-offs

 

$

99

 

 

$

75

 

   Net charge-off rate

 

 

2.40

%

 

 

1.63

%

   Greater than 30-days delinquency rate

 

 

5.0

%

 

 

4.5

%

   Greater than 90-days delinquency rate

 

 

2.1

%

 

 

2.0

%

   Forbearance rate

 

 

1.8

%

 

 

1.9

%

   Average Private Education Loans

 

$

17,385

 

 

$

19,289

 

   Ending Private Education Loans, net

 

$

16,608

 

 

$

18,275

 

Private Education Refinance Loans:

 

 

 

 

 

 

   Net charge-offs

 

$

11

 

 

$

8

 

   Greater than 90-day delinquency rate

 

 

.5

%

 

 

.3

%

   Average balance of Private Education Refinance Loans

 

$

8,796

 

 

$

9,521

 

   Ending balance of Private Education Refinance Loans

 

$

8,619

 

 

$

9,274

 

   Private Education Refinance Loan originations

 

$

228

 

 

$

135

 

Net Interest Margin

The following table details the net interest margin.

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Private Education Loan yield

 

 

7.58

%

 

 

7.24

%

Private Education Loan cost of funds

 

 

(4.48

)

 

 

(3.96

)

Private Education Loan spread

 

 

3.10

 

 

 

3.28

 

Other interest-earning asset spread impact

 

 

(.11

)

 

 

(.16

)

Net interest margin(1)

 

 

2.99

%

 

 

3.12

%

 

 

 

(1)
The average balances of the interest-earning assets for the respective periods are:

 

 

Three Months Ended March 31,

 

(Dollars in millions)

 

2024

 

 

2023

 

Private Education Loans

 

$

17,385

 

 

$

19,289

 

Other interest-earning assets

 

 

543