Acquires $830 Million in Student Loans during the
Quarter Repurchases $300 Million of Common Shares during the
Quarter Completes Acquisition of Gila
Navient (Nasdaq:NAVI) today released first-quarter 2015 financial
results that include $830 million of student loan purchases, $300
million of common share repurchases, and the acquisition of a new
asset recovery and business process outsourcing firm focused on
state and local public sector markets.
"We're pleased to begin our first full year as Navient by
helping more recent college graduates successfully transition into
repayment," said Jack Remondi, president and CEO, Navient. "Private
credit quality also continued to improve, leading to a lower loan
loss provision. During the quarter, we continued to make
investments to enhance our service to clients and customers, and we
continue to deliver on our growth plan by welcoming Gila to our
family of top-performing asset recovery firms, adding 600 clients
and accelerating our growth in business process outsourcing."
For the first-quarter 2015, GAAP net income was $292 million
($0.72 diluted earnings per share), compared with $219 million
($0.49 diluted earnings per share) for the year-ago
quarter.
Core earnings for the quarter were $194 million ($0.48 diluted
earnings per share), compared with $142 million ($0.33 diluted
earnings per share) for the year-ago quarter. Excluding expenses
associated with regulatory matters, first-quarter 2015 and 2014
diluted core earnings per share were $0.48 and $0.49,
respectively.
Navient reports core earnings because management makes its
financial decisions based on such measures. The changes in GAAP net
income are impacted by the same core earnings items discussed
below, as well as changes in net income attributable to
(1) the financial results attributable to the operations of
the consumer banking business prior to the April 30, 2014
spin-off of Navient from SLM Corporation, and related restructuring
and reorganization expense incurred in connection with the
spin-off, (2) unrealized, mark-to-market gains/losses on
derivatives and (3) goodwill and acquired intangible asset
amortization and impairment. These items are recognized in GAAP but
have not been included in core earnings results. First-quarter 2015
GAAP results included gains of $166 million from derivative
accounting treatment that are excluded from core earnings results,
compared with gains of $99 million in the year-ago period. See
"Differences between Core Earnings and GAAP" for a complete
reconciliation between GAAP net income and core earnings.
Federally Guaranteed Student Loans (FFELP)
In its FFELP loans segment, Navient acquires and finances FFELP
loans.
Core earnings for the segment were $85 million in first-quarter
2015, compared with the year-ago quarter's $64 million. This
increase was primarily the result of $7 million more net interest
income due to an increase in the balance of, and net interest
margin on, the portfolio, a $7 million increase in servicing fees
and a $5 million decline in the provision for FFELP loan
losses.
The company acquired $824 million of FFELP loans in the
first-quarter 2015. At March 31, 2015, Navient held
$102.4 billion of FFELP loans, compared with $101.2 billion of
FFELP loans held at March 31, 2014.
Private Education Loans
In its private education loans segment, Navient acquires,
finances and services private education loans.
Core earnings for the segment were $77 million in first-quarter
2015, compared with the year-ago quarter's $74 million. This
increase is primarily the result of a $16 million decrease in the
provision for private education loan losses, a $6 million increase
in servicing fees and a $9 million reduction in expenses. This
was partially offset by a $26 million decrease in net interest
income due to a decline in the net interest margin and the balance
of the portfolio.
Core earnings first-quarter 2015 private education loan
portfolio results vs. first-quarter 2014 are as follows:
- Delinquencies of 90 days or more of 3.6 percent of loans in
repayment, down from 3.9 percent.
- Total delinquencies of 6.9 percent of loans in repayment, down
from 7.8 percent.
- Annualized charge-off rate of 2.9 percent of average loans in
repayment, down from 3.3 percent.
- Net interest margin of 3.74 percent, down from 3.91
percent.
- Provision for private education loan losses of $120 million,
down from $136 million.
At March 31, 2015, Navient held $29.0 billion of private
education loans, compared with $30.9 billion of private education
loans held at March 31, 2014.
Business Services
Navient's business services segment includes fees primarily from
servicing and asset recovery activities.
Business services core earnings were $86 million in
first-quarter 2015, compared with $116 million in the year-ago
quarter. The decrease in core earnings was primarily the result of
lower asset recovery revenue, primarily related to a legislative
reduction in certain fees earned and a lower balance of FFELP loans
serviced.
The company services student loans for more than 12 million
customers, including 6.2 million customers on behalf of the
U.S. Department of Education (ED).
In February 2015, Navient completed the acquisition of Gila LLC,
an asset recovery and business process outsourcing firm serving
more than 600 clients in 39 states. The firm provides
receivables management services and account processing solutions
for state governments, court systems and municipalities.
Operating Expenses
First-quarter 2015 core earnings operating expenses were $230
million, compared with $207 million in the year-ago quarter
(excluding $111 million of core earnings operating expenses related
to regulatory matters recognized in first-quarter 2014). This $23
million increase over the year-ago quarter was primarily due to
incremental costs resulting from operating as a new separate
company, costs related to the Gila LLC acquisition this quarter, as
well as incremental third-party servicing expenses related to an
$8.5 billion loan acquisition in fourth-quarter 2014.
Funding and Liquidity
During the first-quarter 2015, Navient issued $1.0 billion in
FFELP asset-backed securities (ABS), $689 million in private
education loan ABS and $500 million in unsecured debt.
During the first-quarter 2015, Navient repurchased $530 million
in senior unsecured debt. At March 31, 2015, senior unsecured
debt outstanding was $17.3 billion, compared with $17.9 billion
outstanding at March 31, 2014.
Shareholder Distributions
In the first-quarter 2015, Navient paid a common stock dividend
of $0.16 per share, up from $0.15 per share in the prior
quarter.
Navient repurchased 14.7 million shares of common stock for
$300 million in the first quarter of 2015. The shares were
repurchased under the company's January 2015 share repurchase
program that authorizes up to $1 billion of share repurchases.
Navient reports financial results on a GAAP basis and also
provides certain core earnings performance measures. The difference
between the company's core earnings and GAAP results for the
periods presented were (1) the financial results attributable
to the operations of the consumer banking business prior to the
spin-off on April 30, 2014, and related restructuring and
reorganization expense incurred in connection with the spin-off,
(2) unrealized, mark-to-market gains/losses on derivatives and
(3) goodwill and acquired intangible asset amortization and
impairment. These items are recognized in GAAP but have not been
included in core earnings results. Navient provides core earnings
measures because this is what management uses when making
management decisions regarding the company's performance and the
allocation of corporate resources. In addition, Navient's equity
investors, credit rating agencies and debt capital providers use
these core earnings measures to monitor the company's business
performance. See "'Core Earnings' — Definition and Limitations" for
a further discussion and a complete reconciliation between GAAP net
income and core earnings.
Definitions for capitalized terms in this document can be found
in Navient's Annual Report on Form 10-K for the year ended December
31, 2014 (filed with the SEC on February 27, 2015). Certain
reclassifications have been made to the balances as of and for the
three months ended March 31, 2014, to be consistent with
classifications adopted for 2015, and had no effect on net income,
total assets or total liabilities.
Navient will host an earnings conference call tomorrow,
April 22, at 8 a.m. EDT. Navient executives will be on hand to
discuss various highlights of the quarter and to answer questions
related to the company's performance. Individuals interested in
participating in the call should dial 855-838-4156 (USA and Canada)
or dial 267-751-3600 (international) and use access code 15216207
starting at 7:45 a.m. EDT. A live audio webcast of the conference
call may be accessed at www.navient.com/investors. A replay of the
conference call will be available via Navient's website
approximately two hours after the call's conclusion. A telephone
replay may be accessed approximately two hours after the call's
conclusion through May 6, by dialing 855-859-2056 (USA and
Canada) or 404-537-3406 (international) with access code
15216207.
Presentation slides for the conference call, as well as
additional information about the company's loan portfolios,
operating segments, and other details, may be accessed at
www.navient.com/investors under the webcasts tab.
This press release contains
"forward-looking statements" and information based on management's
current expectations as of the date of this release.
Statements that are not historical facts, including statements
about the company's beliefs or expectations and statements that
assume or are dependent upon future events, are forward-looking
statements. Forward-looking statements are subject to risks,
uncertainties, assumptions and other factors that may cause actual
results to be materially different from those reflected in such
forward-looking statements. These factors include, among others,
the risks and uncertainties set forth in Item 1A "Risk
Factors" and elsewhere in Navient's Annual Report on Form 10-K for
the year ended Dec. 31, 2014 and subsequent filings with the
Securities and Exchange Commission; increases in financing costs;
limits on liquidity; increases in costs associated with compliance
with laws and regulations; changes in accounting standards and the
impact of related changes in significant accounting estimates; any
adverse outcomes in any significant litigation to which the company
is a party; credit risk associated with the company's exposure to
third parties, including counterparties to the company's derivative
transactions; risks inherent in the government contracting
environment, including the possible loss of government contracts
and potential civil and criminal penalties as a result of
governmental investigations or audits; and changes in the terms of
student loans and the educational credit marketplace (including
changes resulting from new laws and the implementation of existing
laws). The company could also be affected by, among other things:
changes in its funding costs and availability; reductions to its
credit ratings or the credit ratings of the United States of
America; failures of its operating systems or infrastructure, or
those of third-party vendors; risks related to cybersecurity
including the potential disruption of its systems or potential
disclosure of confidential customer information; damage to its
reputation; failures to successfully implement cost-cutting and
adverse effects of such initiatives on its business; failures or
delays in the planned conversion to our servicing platform of the
recently acquired Wells Fargo portfolio of FFELP loans or any other
FFELP or private education loan portfolio acquisitions; risks
associated with restructuring initiatives, including the April 30,
2014 separation of Navient from SLM Corporation, including failure
to achieve the expected benefits of the separation; changes in the
demand for educational financing or in financing preferences of
lenders, educational institutions, students and their families;
changes in law and regulations with respect to the student lending
business and financial institutions generally; increased
competition from other loan servicers; the creditworthiness of its
customers; changes in the general interest rate environment,
including the rate relationships among relevant money-market
instruments and those of its earning assets versus its funding
arrangements; changes in general economic conditions; the company's
ability to successfully effectuate any acquisitions and other
strategic initiatives; and changes in the demand for debt
management services. The preparation of the company's 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. All forward-looking statements contained in this release
are qualified by these cautionary statements and are made only as
of the date of this release. The company does not undertake any
obligation to update or revise these forward-looking statements to
conform the statement to actual results or changes in its
expectations.
About Navient
As the nation's leading loan management, servicing and asset
recovery company, Navient (Nasdaq:NAVI) helps customers navigate
the path to financial success. Servicing more than $300 billion in
student loans, the company supports the educational and economic
achievements of more than 12 million Americans. A growing
number of government and higher education clients rely on Navient
for proven solutions to meet their financial goals. Learn more at
navient.com. Navient began trading on Nasdaq as an independent
company on May 1, 2014.
Spin-Off of Navient
On April 30, 2014, the spin-off of Navient from SLM Corporation
(the "Spin-Off") was completed and Navient is an independent,
publicly traded company focused on loan management, servicing and
asset recovery. The separation was completed through the
distribution of 100 percent of the outstanding shares of Navient
common stock, on the basis of one share of Navient common stock for
each share of SLM Corporation common stock. SLM Corporation
continues operation as a separate publicly traded company and
includes Sallie Mae Bank and its Private Education Loan
originations business and the Private Education Loans the bank held
at the time of the separation.
Due to the relative significance of Navient to SLM Corporation
prior to the Spin-Off, for financial reporting purposes, Navient is
treated as the "accounting spinnor" and therefore is the
"accounting successor" to SLM Corporation as constituted prior to
the Spin-Off, notwithstanding the legal form of the Spin-Off. Since
Navient is the accounting successor, the historical financial
statements of SLM Corporation prior to the distribution on April
30, 2014, are the historical financial statements of Navient. As a
result, the GAAP financial results reported in this earnings
release include the historical financial results of SLM Corporation
prior to the Spin-Off on April 30, 2014 (i.e., such consolidated
results include both the loan management, servicing and asset
recovery business (Navient) and the consumer banking business ("SLM
BankCo")) and reflect the deemed distribution of SLM BankCo to SLM
Corporation's stockholders on April 30, 2014. See " 'Core Earnings'
– Definitions and Limitations" for a discussion of the exclusion of
the pre-Spin-Off financial results of the consumer banking business
from our "Core Earnings" results.
|
Selected Historical
Financial Information and Ratios |
|
|
|
|
|
Quarters
Ended |
(In millions, except per share
data) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
GAAP Basis |
|
|
|
Net income attributable to Navient
Corporation |
$ 292 |
$ 263 |
$ 219 |
Diluted earnings per common share
attributable to Navient Corporation |
$ .72 |
$ .64 |
$ .49 |
Weighted average shares used to compute
diluted earnings per share |
405 |
413 |
435 |
Net interest margin, FFELP Loans |
1.25% |
1.31% |
1.31% |
Net interest margin, Private Education
Loans |
3.71% |
3.85% |
4.31% |
Return on assets |
.85% |
.76% |
.59% |
Ending FFELP Loans, net |
$ 102,424 |
$ 104,521 |
$ 102,635 |
Ending Private Education Loans,
net |
28,990 |
29,796 |
38,157 |
|
|
|
|
Ending total student loans, net |
$ 131,414 |
$ 134,317 |
$ 140,792 |
|
|
|
|
Average FFELP Loans |
$ 103,617 |
$ 99,323 |
$ 103,734 |
Average Private Education Loans |
30,105 |
30,869 |
38,945 |
|
|
|
|
Average total student loans |
$ 133,722 |
$ 130,192 |
$ 142,679 |
|
|
|
|
|
|
|
|
"Core Earnings"
Basis(1) |
|
|
|
Net income attributable to
Navient Corporation |
$ 194 |
$ 217 |
$ 142 |
Diluted earnings per common share
attributable to Navient Corporation |
$ .48 |
$ .53 |
$ .33 |
Weighted average shares used to compute
diluted earnings per share |
405 |
413 |
435 |
Net interest margin, FFELP Loans |
.88% |
.91% |
.86% |
Net interest margin, Private
Education Loans |
3.74% |
3.89% |
3.91% |
Return on assets |
.56% |
.63% |
.41% |
Ending FFELP Loans, net |
$ 102,424 |
$ 104,521 |
$ 101,240 |
Ending Private Education Loans,
net |
28,990 |
29,796 |
30,949 |
|
|
|
|
Ending total student loans, net |
$ 131,414 |
$ 134,317 |
$ 132,189 |
|
|
|
|
Average FFELP Loans |
$ 103,617 |
$ 99,323 |
$ 102,329 |
Average Private Education Loans |
30,105 |
30,869 |
31,525 |
|
|
|
|
Average total student loans |
$ 133,722 |
$ 130,192 |
$ 133,854 |
|
|
|
|
(1) "Core Earnings"
are non-GAAP financial measures and do not represent a
comprehensive basis of accounting. For a greater explanation of
"Core Earnings," see the section titled "'Core Earnings' —
Definition and Limitations" and subsequent sections. |
FFELP Loan Segment Performance Metrics — "Core Earnings"
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
FFELP Loan spread |
.96% |
1.00% |
.95% |
Net interest margin |
.88% |
.91% |
.86% |
Provision for loan losses |
$ 5 |
$ 10 |
$ 10 |
Charge-offs |
$ 7 |
$ 9 |
$ 22 |
Charge-off rate |
.03% |
.05% |
.12% |
Total delinquency rate |
15.9% |
16.6% |
13.8% |
Greater than 90-day delinquency
rate |
8.4% |
8.5% |
7.3% |
Forbearance rate |
15.5% |
15.5% |
17.6% |
Private Education Loan Segment Performance Metrics — "Core
Earnings"
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Private Education Loan spread |
3.87% |
3.99% |
4.01% |
Net interest margin |
3.74% |
3.89% |
3.91% |
Provision for loan losses |
$ 120 |
$ 128 |
$ 136 |
Charge-offs |
$ 190 |
$ 174 |
$ 218 |
Charge-off rate |
2.9% |
2.5% |
3.3% |
Total delinquency rate |
6.9% |
8.1% |
7.8% |
Greater than 90-day delinquency
rate |
3.6% |
3.8% |
3.9% |
Forbearance rate |
3.8% |
3.8% |
4.3% |
Loans in repayment with more than 12 payments
made |
92.6% |
91.5% |
90.3% |
Cosigner rate |
64% |
64% |
64% |
Average FICO |
719 |
719 |
718 |
Business Services Segment Performance Metrics — "Core
Earnings"
(Dollars in
billions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Contingent asset recovery
receivables |
$ 20.2 |
$ 15.4 |
$ 15.9 |
Number of accounts serviced for ED (in
millions) |
6.2 |
6.2 |
5.8 |
Total federal loans serviced |
$ 297 |
$ 276 |
$ 271 |
Results of Operations
We present the results of operations below first on a
consolidated basis in accordance with GAAP. Following our
discussion of consolidated earnings results on a GAAP basis, we
present our results on a segment basis. We have four business
segments: FFELP Loans, Private Education Loans, Business Services
and Other. Since these segments operate in distinct business
environments and we manage and evaluate the financial performance
of these segments using non-GAAP financial measures, these segments
are presented on a "Core Earnings" basis (see "'Core Earnings' —
Definition and Limitations").
|
GAAP Statements of
Income (Unaudited) |
|
|
|
|
March 31, 2015 vs. December 31,
2014 |
March 31, 2015 vs. March
31, 2014 |
|
Quarters
Ended |
Increase
(Decrease) |
Increase
(Decrease) |
(In millions, except per share
data) |
March 31, 2015 |
December 31,
2014 |
March 31,
2014 |
$ |
% |
$ |
% |
Interest income: |
|
|
|
|
|
|
|
FFELP Loans |
$ 637 |
$ 640 |
$ 646 |
$ (3) |
—% |
$ (9) |
(1)% |
Private Education
Loans |
456 |
483 |
644 |
(27) |
(6) |
(188) |
(29) |
Other loans |
2 |
2 |
3 |
— |
— |
(1) |
(33) |
Cash and investments |
2 |
2 |
3 |
— |
— |
(1) |
(33) |
|
|
|
|
|
|
|
|
Total interest income |
1,097 |
1,127 |
1,296 |
(30) |
(3) |
(199) |
(15) |
Total interest expense |
514 |
513 |
530 |
1 |
— |
(16) |
(3) |
|
|
|
|
|
|
|
|
Net interest income |
583 |
614 |
766 |
(31) |
(5) |
(183) |
(24) |
Less: provisions for loan losses |
125 |
138 |
185 |
(13) |
(9) |
(60) |
(32) |
|
|
|
|
|
|
|
|
Net interest income after provisions for loan
losses |
458 |
476 |
581 |
(18) |
(4) |
(123) |
(21) |
Other income (loss): |
|
|
|
|
|
|
|
Gains (losses) on sales of
loans and investments |
5 |
— |
— |
5 |
100 |
5 |
100 |
Gains (losses) on derivative
and hedging activities, net |
71 |
(22) |
(8) |
93 |
423 |
79 |
988 |
Servicing revenue |
77 |
82 |
61 |
(5) |
(6) |
16 |
26 |
Asset recovery
revenue |
89 |
80 |
111 |
9 |
11 |
(22) |
(20) |
Gains on debt
repurchases |
— |
— |
— |
— |
— |
— |
— |
Other income |
7 |
32 |
6 |
(25) |
(78) |
1 |
17 |
|
|
|
|
|
|
|
|
Total other income (loss) |
249 |
172 |
170 |
77 |
45 |
79 |
46 |
Expenses: |
|
|
|
|
|
|
|
Operating expenses |
230 |
215 |
366 |
15 |
7 |
(136) |
(37) |
Goodwill and acquired
intangible asset impairment and amortization expense |
1 |
2 |
4 |
(1) |
(50) |
(3) |
(75) |
Restructuring and other
reorganization expenses |
3 |
10 |
26 |
(7) |
(70) |
(23) |
(88) |
|
|
|
|
|
|
|
|
Total expenses |
234 |
227 |
396 |
7 |
3 |
(162) |
(41) |
|
|
|
|
|
|
|
|
Income from continuing operations before
income tax expense |
473 |
421 |
355 |
52 |
12 |
118 |
33 |
Income tax expense |
181 |
159 |
136 |
22 |
14 |
45 |
33 |
|
|
|
|
|
|
|
|
Net income from continuing
operations |
292 |
262 |
219 |
30 |
11 |
73 |
33 |
Income (loss) from discontinued operations,
net of tax expense (benefit) |
— |
1 |
— |
(1) |
(100) |
— |
— |
|
|
|
|
|
|
|
|
Net income |
292 |
263 |
219 |
29 |
11 |
73 |
33 |
Less: net loss attributable to noncontrolling
interest |
— |
— |
— |
— |
— |
— |
— |
|
|
|
|
|
|
|
|
Net income attributable to Navient
Corporation |
292 |
263 |
219 |
29 |
11 |
73 |
33 |
Preferred stock dividends |
— |
— |
5 |
— |
— |
(5) |
(100) |
|
|
|
|
|
|
|
|
Net income attributable to Navient
Corporation common stock |
$ 292 |
$ 263 |
$ 214 |
$ 29 |
11 |
$ 78 |
36 |
|
|
|
|
|
|
|
|
Basic earnings per common share
attributable to Navient Corporation |
$ .73 |
$ .65 |
$ .50 |
$ .08 |
12% |
$ .23 |
46% |
|
|
|
|
|
|
|
|
Diluted earnings per common share
attributable to Navient Corporation |
$ .72 |
$ .64 |
$ .49 |
$ .08 |
13% |
$ .23 |
47% |
|
|
|
|
|
|
|
|
Dividends per common share attributable to
Navient Corporation |
$ .16 |
$ .15 |
$ .15 |
$ .01 |
7% |
$ .01 |
7% |
|
|
|
|
|
|
|
|
|
|
GAAP Balance Sheet
(Unaudited) |
|
(In millions, except share and
per share data) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Assets |
|
|
|
FFELP Loans (net of allowance for losses of
$91, $93 and $107, respectively) |
$ 102,424 |
$ 104,521 |
$ 102,635 |
Private Education Loans (net of allowance for
losses of $1,849, $1,916 and $2,059, respectively) |
28,990 |
29,796 |
38,157 |
Cash and investments |
2,654 |
2,076 |
4,529 |
Restricted cash and investments |
3,799 |
3,926 |
3,794 |
Goodwill and acquired intangible assets,
net |
549 |
369 |
421 |
Other assets |
5,456 |
5,664 |
6,936 |
|
|
|
|
Total assets |
$ 143,872 |
$ 146,352 |
$ 156,472 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
Short-term borrowings |
$ 4,090 |
$ 2,663 |
$ 11,626 |
Long-term borrowings |
132,330 |
136,866 |
136,177 |
Other liabilities |
3,361 |
2,625 |
3,071 |
|
|
|
|
Total liabilities |
139,781 |
142,154 |
150,874 |
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
Equity |
|
|
|
Preferred stock, par value $0.20 per share,
20 million shares authorized: |
|
|
|
Series A: 0 million,
0 million and 3.3 million shares, respectively, issued at
stated value of $50 per share |
— |
— |
165 |
Series B: 0 million,
0 million and 4 million shares, respectively, issued at
stated value of $100 per share |
— |
— |
400 |
Common stock, par value $0.01, $0.01 and
$0.20 per share, respectively; 1.125 billion shares authorized:
429 million, 426 million and 549 million shares,
respectively, issued |
4 |
4 |
110 |
Additional paid-in capital |
2,935 |
2,893 |
4,461 |
Accumulated other comprehensive income, net
of tax expense |
(36) |
9 |
7 |
Retained earnings |
1,951 |
1,724 |
2,733 |
|
|
|
|
Total Navient Corporation stockholders'
equity before treasury stock |
4,854 |
4,630 |
7,876 |
Less: Common stock held in treasury:
40 million, 24 million and 127 million shares,
respectively |
(767) |
(432) |
(2,283) |
|
|
|
|
Total Navient Corporation stockholders'
equity |
4,087 |
4,198 |
5,593 |
Noncontrolling interest |
4 |
— |
5 |
|
|
|
|
Total equity |
4,091 |
4,198 |
5,598 |
|
|
|
|
Total liabilities and equity |
$ 143,872 |
$ 146,352 |
$ 156,472 |
|
|
|
|
Consolidated Earnings Summary — GAAP
basis
Three Months Ended March 31, 2015 Compared with
Three Months Ended March 31, 2014
For the three months ended March 31, 2015, net income was
$292 million, or $0.72 diluted earnings per common share, compared
with net income of $219 million, or $0.49 diluted earnings per
common share, for the three months ended March 31, 2014. The
increase in net income was primarily due to a $136 million decrease
in operating expenses, a $23 million decrease in restructuring and
other reorganization expenses, a $79 million increase in net gains
on derivative and hedging activities and a $60 million decline in
the provisions for loan losses. This was partially offset by a
$183 million decline in net interest income.
The primary contributors to each of the identified drivers of
changes in net income for the current quarter compared with the
year-ago quarter are as follows:
- Net interest income decreased by $183 million, of which $140
million related to the deemed distribution of SLM BankCo on
April 30, 2014. Also contributing to the decrease was a
reduction in Private Education Loan net interest income due to a
decline in the balance and net interest margin.
- Provisions for loan losses declined $60 million, of which $39
million related to the deemed distribution of SLM BankCo on
April 30, 2014. Also contributing to the decrease was the
overall improvement in Private Education Loans' credit quality,
delinquency and charge-off trends leading to decreases in expected
future charge-offs.
- Gains (losses) on derivative and hedging activities, net,
increased $79 million. The primary factors affecting the change
were interest rate and foreign currency fluctuations, which
primarily affected the valuations of our Floor Income Contracts,
basis swaps and foreign currency hedges during each period.
Valuations of derivative instruments vary based upon many factors
including changes in interest rates, credit risk, foreign currency
fluctuations and other market factors. As a result, net gains and
losses on derivative and hedging activities may continue to vary
significantly in future periods.
- Servicing and asset recovery revenue decreased $6 million in
total. Asset recovery revenue decreased $22 million primarily as a
result of the Bipartisan Budget Act (the "Budget Act") enacted on
December 26, 2013 and effective on July 1, 2014, which
reduced the amount paid to Guarantor agencies for defaulted FFELP
Loans that are rehabilitated. This legislative reduction in fees
represents $40 million of the decrease in asset recovery revenue.
This reduction was partially offset by higher asset recovery volume
and revenue from the Gila LLC acquisition.
- In the first quarter of 2014, we recorded $103 million of
expenses related to the settlement of regulatory matters. Excluding
these expenses, operating expenses decreased $33 million. This
decrease was primarily due to $48 million related to the deemed
distribution of SLM BankCo on April 30, 2014, partially offset
by incremental costs resulting from operating as a new separate
company, costs related to the Gila LLC acquisition this quarter, as
well as incremental third-party servicing expenses related to an
$8.5 billion loan acquisition in fourth-quarter 2014.
- Restructuring and other reorganization expenses decreased $23
million to $3 million. These expenses were primarily related to
costs incurred in connection with the Spin-Off.
We repurchased 14.7 million and 8.4 million shares of
our common stock during the three months ended March 31, 2015
and 2014, respectively, as part of our common share repurchase
programs. Primarily as a result of ongoing common share
repurchases, our average outstanding diluted shares decreased by
30 million common shares from the year-ago quarter.
"Core Earnings" — Definition and
Limitations
We prepare financial statements in accordance with GAAP.
However, we also evaluate our business segments 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 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 refer to 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 "Core Earnings"
disclosure in the notes to our consolidated financial statements
for our business segments.
"Core Earnings" are not a substitute for reported results under
GAAP. We use "Core Earnings" to manage each business segment
because "Core Earnings" reflect adjustments to GAAP financial
results for three items, discussed below, that are either related
to the Spin-Off or create significant volatility mostly due to
timing factors generally beyond the control of management.
Accordingly, we believe that "Core Earnings" provide management
with a useful basis from which to better evaluate results from
ongoing operations against the business plan or against results
from prior periods. Consequently, we disclose this information
because we believe it provides investors with additional
information regarding the operational and performance indicators
that are most closely assessed by management. When compared to GAAP
results, the three items we remove to result in our "Core Earnings"
presentations are:
1. The financial results
attributable to the operations of SLM BankCo prior to the Spin-Off
and related restructuring and reorganization expense incurred in
connection with the Spin-Off. For GAAP purposes, Navient reflected
the deemed distribution of SLM BankCo on April 30, 2014. For
"Core Earnings," we exclude the consumer banking business as if it
had never been a part of Navient's historical results prior to the
deemed distribution of SLM BankCo on April 30, 2014;
2. Unrealized mark-to-market
gains/losses resulting from our use of derivative instruments to
hedge our economic risks that do not qualify for hedge accounting
treatment or do qualify for hedge accounting treatment but result
in ineffectiveness; and
3. The accounting for goodwill
and acquired intangible assets.
While GAAP provides a uniform, comprehensive basis of
accounting, for the reasons described above, our "Core Earnings"
basis of presentation does not. "Core Earnings" are subject to
certain general and specific limitations that investors should
carefully consider. For example, there is no comprehensive,
authoritative guidance for management reporting. Our "Core
Earnings" are not defined terms within GAAP and may not be
comparable to similarly titled measures reported by other
companies. Accordingly, our "Core Earnings" presentation does not
represent a comprehensive basis of accounting. Investors,
therefore, may not be able to compare our performance with that of
other financial services companies based upon "Core Earnings."
"Core Earnings" results are only meant to supplement GAAP results
by providing additional information regarding the operational and
performance indicators that are most closely used by management,
our board of directors, credit rating agencies, lenders and
investors to assess performance.
|
Quarter Ended
March 31, 2015 |
|
|
|
|
|
|
|
Adjustments |
|
(Dollars in
millions) |
FFELP Loans |
Private Education
Loans |
Business
Services |
Other |
Eliminations(1) |
Total "Core
Earnings" |
Reclassifications |
Additions/
(Subtractions) |
Total
Adjustments(2) |
Total GAAP |
Interest income: |
|
|
|
|
|
|
|
|
|
|
Student loans |
$ 534 |
$ 456 |
$ — |
$ — |
$ — |
$ 990 |
$ 162 |
$ (59) |
$ 103 |
$ 1,093 |
Other loans |
— |
— |
— |
2 |
— |
2 |
— |
— |
— |
2 |
Cash and investments |
1 |
— |
— |
1 |
— |
2 |
— |
— |
— |
2 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
535 |
456 |
— |
3 |
— |
994 |
162 |
(59) |
103 |
1,097 |
Total interest expense |
302 |
173 |
— |
30 |
— |
505 |
9 |
— |
9 |
514 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) |
233 |
283 |
— |
(27) |
— |
489 |
153 |
(59) |
94 |
583 |
Less: provisions for loan losses |
5 |
120 |
— |
— |
— |
125 |
— |
— |
— |
125 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions
for loan losses |
228 |
163 |
— |
(27) |
— |
364 |
153 |
(59) |
94 |
458 |
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
Gains (losses) on sales of
loans and investments |
5 |
— |
— |
— |
— |
5 |
— |
— |
— |
5 |
Servicing revenue |
18 |
7 |
163 |
— |
(111) |
77 |
— |
— |
— |
77 |
Asset recovery revenue |
— |
— |
89 |
— |
— |
89 |
— |
— |
— |
89 |
Gains on debt repurchases |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
Other income (loss) |
— |
— |
2 |
4 |
— |
6 |
(153) |
225 |
72 |
78 |
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss) |
23 |
7 |
254 |
4 |
(111) |
177 |
(153) |
225 |
72 |
249 |
Expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
115 |
46 |
116 |
4 |
(111) |
170 |
— |
— |
— |
170 |
Overhead expenses |
— |
— |
— |
60 |
— |
60 |
— |
— |
— |
60 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
115 |
46 |
116 |
64 |
(111) |
230 |
— |
— |
— |
230 |
Goodwill and acquired
intangible asset impairment and amortization |
— |
— |
— |
— |
— |
— |
— |
1 |
1 |
1 |
Restructuring and other
reorganization expenses |
— |
— |
— |
— |
— |
— |
— |
3 |
3 |
3 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
115 |
46 |
116 |
64 |
(111) |
230 |
— |
4 |
4 |
234 |
Income (loss) from continuing operations,
before income tax expense (benefit) |
136 |
124 |
138 |
(87) |
— |
311 |
— |
162 |
162 |
473 |
Income tax expense (benefit)(3) |
51 |
47 |
52 |
(33) |
— |
117 |
— |
64 |
64 |
181 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
$ 85 |
$ 77 |
$ 86 |
$ (54) |
$ — |
$ 194 |
$ — |
$ 98 |
$ 98 |
$ 292 |
Income (loss) from discontinued operations,
net of tax expense (benefit) |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ 85 |
$ 77 |
$ 86 |
$ (54) |
$ — |
$ 194 |
$ — |
$ 98 |
$ 98 |
$ 292 |
|
|
|
|
|
|
|
|
|
|
|
(1) The eliminations in servicing
revenue and direct operating expense represent the elimination of
intercompany servicing revenue where the Business Services segment
performs the loan servicing function for the FFELP Loans segment.
|
(2) "Core Earnings"
adjustments to GAAP: |
|
|
|
|
|
|
Quarter Ended
March 31, 2015 |
(Dollars in
millions) |
Net Impact from
Spin-Off of SLM BankCo |
Net Impact of
Derivative Accounting |
Net Impact of
Acquired Intangibles |
Total |
Net interest income after
provisions for loan losses |
$ — |
$ 94 |
$ — |
$ 94 |
Total other income |
— |
72 |
— |
72 |
Operating expenses |
— |
— |
— |
— |
Goodwill and acquired
intangible asset impairment and amortization |
— |
— |
1 |
1 |
Restructuring and other
reorganization expenses |
3 |
— |
— |
3 |
|
|
|
|
|
Total "Core Earnings"
adjustments to GAAP |
$ (3) |
$ 166 |
$ (1) |
162 |
|
|
|
|
|
Income tax expense |
|
|
|
64 |
|
|
|
|
|
Net income |
|
|
|
$ 98 |
|
|
|
|
|
(3) Income taxes are
based on a percentage of net income before tax for the individual
reportable segment. |
|
|
|
Quarter Ended
December 31, 2014 |
|
|
|
|
|
|
|
Adjustments |
|
(Dollars in millions) |
FFELP Loans |
Private Education
Loans |
Business
Services |
Other |
Eliminations(1) |
Total "Core
Earnings" |
Reclassifications |
Additions/
(Subtractions) |
Total
Adjustments(2) |
Total GAAP |
Interest income: |
|
|
|
|
|
|
|
|
|
|
Student loans |
$ 533 |
$ 483 |
$ — |
$ — |
$ — |
$ 1,016 |
$ 167 |
$ (60) |
$ 107 |
$ 1,123 |
Other loans |
— |
— |
— |
2 |
— |
2 |
— |
— |
— |
2 |
Cash and investments |
1 |
— |
— |
1 |
— |
2 |
— |
— |
— |
2 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
534 |
483 |
— |
3 |
— |
1,020 |
167 |
(60) |
107 |
1,127 |
Total interest expense |
297 |
176 |
— |
30 |
— |
503 |
9 |
1 |
10 |
513 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) |
237 |
307 |
— |
(27) |
— |
517 |
158 |
(61) |
97 |
614 |
Less: provisions for loan losses |
10 |
128 |
— |
— |
— |
138 |
— |
— |
— |
138 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions
for loan losses |
227 |
179 |
— |
(27) |
— |
379 |
158 |
(61) |
97 |
476 |
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
Gains (losses) on sales of
loans and investments |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
Servicing revenue |
20 |
7 |
166 |
— |
(111) |
82 |
— |
— |
— |
82 |
Asset recovery revenue |
— |
— |
80 |
— |
— |
80 |
— |
— |
— |
80 |
Gains on debt repurchases |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
Other income (loss) |
— |
— |
2 |
7 |
— |
9 |
(158) |
159 |
1 |
10 |
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss) |
20 |
7 |
248 |
7 |
(111) |
171 |
(158) |
159 |
1 |
172 |
Expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
115 |
43 |
103 |
14 |
(111) |
164 |
— |
— |
— |
164 |
Overhead expenses |
— |
— |
— |
51 |
— |
51 |
— |
— |
— |
51 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
115 |
43 |
103 |
65 |
(111) |
215 |
— |
— |
— |
215 |
Goodwill and acquired intangible asset
impairment and amortization |
— |
— |
— |
— |
— |
— |
— |
2 |
2 |
2 |
Restructuring and other
reorganization expenses |
— |
— |
— |
— |
— |
— |
— |
10 |
10 |
10 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
115 |
43 |
103 |
65 |
(111) |
215 |
— |
12 |
12 |
227 |
Income (loss) from continuing operations,
before income tax expense (benefit) |
132 |
143 |
145 |
(85) |
— |
335 |
— |
86 |
86 |
421 |
Income tax expense (benefit)(3) |
47 |
51 |
51 |
(30) |
— |
119 |
— |
40 |
40 |
159 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
$ 85 |
$ 92 |
$ 94 |
$ (55) |
$ — |
$ 216 |
$ — |
$ 46 |
$ 46 |
$ 262 |
Income (loss) from discontinued operations,
net of tax expense (benefit) |
— |
— |
1 |
— |
— |
1 |
— |
— |
— |
1 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ 85 |
$ 92 |
$ 95 |
$ (55) |
$ — |
$ 217 |
$ — |
$ 46 |
$ 46 |
$ 263 |
|
|
|
|
|
|
|
|
|
|
|
(1) The eliminations
in servicing revenue and direct operating expense represent the
elimination of intercompany servicing revenue where the Business
Services segment performs the loan servicing function for the FFELP
Loans segment. |
(2) "Core Earnings"
adjustments to GAAP: |
|
|
|
|
|
|
Quarter Ended
December 31, 2014 |
(Dollars in
millions) |
Net Impact from
Spin-Off of SLM BankCo |
Net Impact of
Derivative Accounting |
Net Impact of
Acquired Intangibles |
Total |
Net interest income after
provisions for loan losses |
$ — |
$ 97 |
$ — |
$ 97 |
Total other income |
— |
1 |
— |
1 |
Operating expenses |
— |
— |
— |
— |
Goodwill and acquired
intangible asset impairment and amortization |
— |
— |
2 |
2 |
Restructuring and other
reorganization expenses |
10 |
— |
— |
10 |
|
|
|
|
|
Total "Core Earnings"
adjustments to GAAP |
$ (10) |
$ 98 |
$ (2) |
86 |
|
|
|
|
|
Income tax expense |
|
|
|
40 |
|
|
|
|
|
Net income |
|
|
|
$ 46 |
|
|
|
|
|
(3) Income taxes are
based on a percentage of net income before tax for the individual
reportable segment. |
|
Quarter Ended
March 31, 2014 |
|
|
|
|
|
|
|
Adjustments |
|
(Dollars in
millions) |
FFELP
Loans |
Private Education
Loans |
Business
Services |
Other |
Eliminations(1) |
Total "Core
Earnings" |
Reclassifications |
Additions/
(Subtractions) |
Total
Adjustments(2) |
Total GAAP |
Interest income: |
|
|
|
|
|
|
|
|
|
|
Student loans |
$ 512 |
$ 494 |
$ — |
$ — |
$ — |
$ 1,006 |
$ 198 |
$ 86 |
$ 284 |
$ 1,290 |
Other loans |
— |
— |
— |
3 |
— |
3 |
— |
— |
— |
3 |
Cash and investments |
1 |
— |
— |
1 |
— |
2 |
— |
1 |
1 |
3 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
513 |
494 |
— |
4 |
— |
1,011 |
198 |
87 |
285 |
1,296 |
Total interest expense |
287 |
185 |
— |
24 |
— |
496 |
10 |
24 |
34 |
530 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) |
226 |
309 |
— |
(20) |
— |
515 |
188 |
63 |
251 |
766 |
Less: provisions for loan losses |
10 |
136 |
— |
— |
— |
146 |
— |
39 |
39 |
185 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions
for loan losses |
216 |
173 |
— |
(20) |
— |
369 |
188 |
24 |
212 |
581 |
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
Gains on sales of loans and
investments |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
Servicing revenue |
11 |
1 |
167 |
— |
(118) |
61 |
— |
— |
— |
61 |
Asset recovery revenue |
— |
— |
111 |
— |
— |
111 |
— |
— |
— |
111 |
Gains on debt repurchases |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
Other income (loss) |
— |
— |
1 |
3 |
— |
4 |
(188) |
182 |
(6) |
(2) |
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss) |
11 |
1 |
279 |
3 |
(118) |
176 |
(188) |
182 |
(6) |
170 |
Expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
124 |
55 |
95 |
113 |
(118) |
269 |
— |
25 |
25 |
294 |
Overhead expenses |
— |
— |
— |
49 |
— |
49 |
— |
23 |
23 |
72 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
124 |
55 |
95 |
162 |
(118) |
318 |
— |
48 |
48 |
366 |
Goodwill and acquired
intangible asset impairment and amortization |
— |
— |
— |
— |
— |
— |
— |
4 |
4 |
4 |
Restructuring and other
reorganization expenses |
— |
— |
— |
— |
— |
— |
— |
26 |
26 |
26 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
124 |
55 |
95 |
162 |
(118) |
318 |
— |
78 |
78 |
396 |
Income (loss) from continuing operations,
before income tax expense (benefit) |
103 |
119 |
184 |
(179) |
— |
227 |
— |
128 |
128 |
355 |
Income tax expense (benefit)(3) |
39 |
45 |
69 |
(67) |
— |
86 |
— |
50 |
50 |
136 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
$ 64 |
$ 74 |
$ 115 |
$ (112) |
$ — |
$ 141 |
$ — |
$ 78 |
$ 78 |
$ 219 |
Income (loss) from discontinued operations,
net of tax expense (benefit) |
— |
— |
1 |
— |
— |
1 |
— |
(1) |
(1) |
— |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ 64 |
$ 74 |
$ 116 |
$ (112) |
$ — |
$ 142 |
$ — |
$ 77 |
$ 77 |
$ 219 |
|
|
|
|
|
|
|
|
|
|
|
(1) The eliminations
in servicing revenue and direct operating expense represent the
elimination of intercompany servicing revenue where the Business
Services segment performs the loan servicing function for the FFELP
Loans segment. |
(2) "Core Earnings"
adjustments to GAAP: |
|
Quarter Ended
March 31, 2014 |
(Dollars in
millions) |
Net Impact from
Spin-Off of SLM BankCo |
Net Impact
of Derivative
Accounting |
Net Impact of
Acquired Intangibles |
Total |
Net interest income after
provisions for loan losses |
$ 100 |
$ 112 |
$ — |
$ 212 |
Total other income
(loss) |
7 |
(13) |
— |
(6) |
Operating expenses |
48 |
— |
— |
48 |
Goodwill and acquired
intangible asset impairment and amortization |
— |
— |
4 |
4 |
Restructuring and other
reorganization expenses |
26 |
— |
— |
26 |
|
|
|
|
|
Total "Core Earnings"
adjustments to GAAP |
$ 33 |
$ 99 |
$ (4) |
128 |
|
|
|
|
|
Income tax expense |
|
|
|
50 |
Loss from discontinued
operations, net of tax benefit |
|
|
|
(1) |
|
|
|
|
|
Net income |
|
|
|
$ 77 |
|
|
|
|
|
(3) Income taxes are
based on a percentage of net income before tax for the individual
reportable segment. |
Differences between "Core Earnings" and
GAAP
The following discussion summarizes the differences between
"Core Earnings" and GAAP net income and details each specific
adjustment required to reconcile our "Core Earnings" segment
presentation to our GAAP earnings.
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
"Core Earnings" net income
attributable to Navient Corporation |
$ 194 |
$ 217 |
$ 142 |
"Core Earnings" adjustments to GAAP: |
|
|
|
Net impact of the removal of SLM BankCo's
operations and related restructuring and reorganization expense in
connection with the Spin-Off |
(3) |
(10) |
33 |
Net impact of derivative
accounting |
166 |
98 |
99 |
Net impact of goodwill and acquired
intangible assets |
(1) |
(2) |
(4) |
Net tax effect |
(64) |
(40) |
(50) |
Net impact of discontinued operations and
noncontrolling interest |
— |
— |
(1) |
Total "Core Earnings" adjustments to
GAAP |
98 |
46 |
77 |
GAAP net income attributable to
Navient Corporation |
$ 292 |
$ 263 |
$ 219 |
|
|
|
|
(1) SLM BankCo's operations and related
restructuring and reorganization expense in connection with the
Spin-Off: On April 30, 2014, the Spin-Off of Navient
from SLM Corporation was completed and Navient is now an
independent, publicly-traded company. Due to the relative
significance of Navient to SLM Corporation prior to the Spin-Off,
among other factors, for financial reporting purposes Navient is
treated as the "accounting spinnor" and therefore is the
"accounting successor" to SLM Corporation as constituted prior to
the Spin-Off, notwithstanding the legal form of the Spin-Off. Since
Navient is treated for accounting purposes as the "accounting
spinnor," the GAAP financial statements of Navient reflect the
deemed distribution of SLM BankCo to SLM BankCo's stockholders on
April 30, 2014.
For "Core Earnings," we have assumed the consumer banking
business (SLM BankCo) was never a part of Navient's historical
results prior to the deemed distribution of SLM BankCo on
April 30, 2014 and we have removed the restructuring and
reorganization expense incurred in connection with the Spin-Off.
Excluding these items provides management with a useful basis from
which to better evaluate results from ongoing operations against
results from prior periods. The adjustment relates to the exclusion
of the consumer banking business and represents the operations,
assets, liabilities and equity of SLM BankCo, which is comprised of
Sallie Mae Bank, Upromise Rewards, the Insurance Business, and the
Private Education Loan origination functions. Included in these
amounts are also certain general corporate overhead expenses
related to the consumer banking business. General corporate
overhead consists of costs primarily associated with accounting,
finance, legal, human resources, certain information technology
costs, stock compensation, and executive management and the board
of directors. These costs were generally allocated to the consumer
banking business based on the proportionate level of effort
provided to the consumer banking business relative to SLM
Corporation using a relevant allocation driver (e.g., in proportion
to the number of employees by function that were being transferred
to SLM BankCo as opposed to remaining at Navient). All intercompany
transactions between SLM BankCo and Navient have been eliminated.
In addition, all prior preferred stock dividends have been removed
as SLM BankCo succeeded SLM Corporation as the issuer of the
preferred stock in connection with the Spin-Off.
|
Quarters
Ended |
(Dollars in
millions) |
March 31, |
December 31, |
March 31, |
|
2015 |
2014 |
2014 |
SLM BankCo net income, before income tax
expense |
$ — |
$ — |
$59 |
Restructuring and reorganization expense in
connection with the Spin-Off |
(3) |
(10) |
(26) |
Total net impact, before income tax
expense |
($3) |
($10) |
$33 |
(2) Derivative
Accounting: "Core Earnings" exclude periodic unrealized
gains and losses that are caused by the mark-to-market valuations
on derivatives that do not qualify for hedge accounting treatment
under GAAP, as well as the periodic unrealized gains and losses
that are a result of ineffectiveness recognized related to
effective hedges under GAAP. These unrealized gains and losses
occur in our FFELP Loans, Private Education Loans and Other
business segments. Under GAAP, for our derivatives that are held to
maturity, the cumulative net unrealized gain or loss over the life
of the contract will equal $0 except for Floor Income Contracts,
where the cumulative unrealized gain will equal the amount for
which we sold the contract. In our "Core Earnings" presentation, we
recognize the economic effect of these hedges, which generally
results in any net settlement cash paid or received being
recognized ratably as an interest expense or revenue over the
hedged item's life.
The table below quantifies the adjustments for derivative
accounting between GAAP and "Core Earnings" net income.
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
"Core Earnings" derivative
adjustments: |
|
|
|
Gains (losses) on derivative and hedging
activities, net, included in other income(1) |
$ 71 |
$ (22) |
$ (8) |
Plus: Realized losses on derivative and
hedging activities, net(1) |
153 |
158 |
188 |
Unrealized gains (losses) on derivative and
hedging activities, net(2) |
224 |
136 |
180 |
Amortization of net premiums on Floor Income
Contracts in net interest income for "Core Earnings" |
(59) |
(60) |
(75) |
Other derivative accounting
adjustments(3) |
1 |
22 |
(6) |
Total net impact of derivative
accounting(4) |
$ 166 |
$ 98 |
$ 99 |
|
|
|
|
(1) See
"Reclassification of Realized Gains (Losses) on Derivative and
Hedging Activities" below for a detailed breakdown of the
components of realized losses on derivative and hedging
activities. |
(2) "Unrealized gains
on derivative and hedging activities, net" comprises the following
unrealized mark-to-market gains (losses): |
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Floor Income Contracts |
$ 72 |
$ 125 |
$ 181 |
Basis swaps |
— |
(7) |
(1) |
Foreign currency hedges |
145 |
— |
(39) |
Other |
7 |
18 |
39 |
Total unrealized gains (losses) on derivative
and hedging activities, net |
$ 224 |
$ 136 |
$ 180 |
|
(3) Other derivative
accounting adjustments consist of adjustments related to:
(1) foreign currency denominated debt that is adjusted to spot
foreign exchange rates for GAAP where such adjustments are reversed
for "Core Earnings" and (2) certain terminated derivatives
that did not receive hedge accounting treatment under GAAP but were
economic hedges under "Core Earnings" and, as a result, such gains
or losses are amortized into "Core Earnings" over the life of the
hedged item. |
(4) Negative amounts
are subtracted from "Core Earnings" net income to arrive at GAAP
net income and positive amounts are added to "Core Earnings" net
income to arrive at GAAP net income. |
Reclassification of Realized Gains (Losses) on Derivative and
Hedging Activities
Derivative accounting requires net settlement income/expense on
derivatives and realized gains/losses related to derivative
dispositions (collectively referred to as "realized gains (losses)
on derivative and hedging activities") that do not qualify as
hedges to be recorded in a separate income statement line item
below net interest income. Under our "Core Earnings" presentation,
these gains and losses are reclassified to the income statement
line item of the economically hedged item. For our "Core Earnings"
net interest margin, this would primarily include:
(a) reclassifying the net settlement amounts related to our
Floor Income Contracts to student loan interest income; and
(b) reclassifying the net settlement amounts related to
certain of our basis swaps to debt interest expense. The table
below summarizes the realized losses on derivative and hedging
activities and the associated reclassification on a "Core Earnings"
basis.
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Reclassification of realized gains
(losses) on derivative and hedging activities: |
|
|
|
Net settlement expense on Floor Income
Contracts reclassified to net interest income |
$ (162) |
$ (167) |
$ (198) |
Net settlement income on interest rate swaps
reclassified to net interest income |
9 |
9 |
10 |
Net realized gains on terminated derivative
contracts reclassified to other income |
— |
— |
— |
Total reclassifications of realized losses on
derivative and hedging activities |
$ (153) |
$ (158) |
$ (188) |
Cumulative Impact of Derivative Accounting under GAAP compared
to "Core Earnings"
As of March 31, 2015, derivative accounting has reduced
GAAP equity by approximately $505 million as a result of
cumulative net unrealized losses (after tax) recognized under GAAP,
but not in "Core Earnings." The following table rolls forward the
cumulative impact to GAAP equity due to these unrealized after tax
net losses related to derivative accounting.
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Beginning impact of derivative accounting on
GAAP equity |
$ (553) |
$ (617) |
$ (926) |
Net impact of net unrealized gains (losses)
under derivative accounting(1) |
48 |
64 |
72 |
Ending impact of derivative accounting on
GAAP equity |
$ (505) |
$ (553) |
$ (854) |
|
|
|
|
(1) Net impact of net
unrealized gains (losses) under derivative accounting is composed
of the following: |
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Total pre-tax net impact of derivative
accounting recognized in net income(a) |
$ 166 |
$ 98 |
$ 99 |
Tax impact of derivative accounting
adjustments recognized in net income |
(73) |
(36) |
(22) |
Change in unrealized gain (losses) on
derivatives, net of tax recognized in other comprehensive
income |
(45) |
2 |
(5) |
Net impact of net unrealized gains (losses)
under derivative accounting |
$ 48 |
$ 64 |
$ 72 |
|
|
|
|
(a) See "'Core
Earnings' derivative adjustments" table above. |
Hedging FFELP Loan Embedded Floor Income
Net Floor premiums received on Floor Income Contracts that have
not been amortized into "Core Earnings" as of the respective
period-ends are presented in the table below. These net premiums
will be recognized in "Core Earnings" in future periods and are
presented net of tax. As of March 31, 2015, the remaining
amortization term of the net floor premiums was approximately 4.8
years for existing contracts. Historically, we have sold Floor
Income Contracts on a periodic basis and depending upon market
conditions and pricing, we may enter into additional Floor Income
Contracts in the future. The balance of unamortized Floor Income
Contracts will increase as we sell new contracts and decline due to
the amortization of existing contracts.
In addition to using Floor Income Contracts, we also use pay
fixed interest rate swaps to hedge the embedded Floor Income within
FFELP Loans. These interest rate swaps qualify as GAAP hedges and
are accounted for as cash flow hedges of variable rate debt. For
GAAP, gains and losses on the effective portion of these hedges are
recorded in accumulated other comprehensive income and gains and
losses on the ineffective portion are recorded immediately to
earnings. Hedged Floor Income from these cash flow hedges that has
not been recognized into "Core Earnings" and GAAP as of the
respective period-ends is presented in the table below. This hedged
Floor Income will be recognized in "Core Earnings" and GAAP in
future periods and is presented net of tax. As of March 31,
2015, the hedged period is from April 2016 through December 2019.
Historically, we have used pay fixed interest rate swaps on a
periodic basis to hedge embedded Floor Income and depending upon
market conditions and pricing, we may enter into swaps in the
future. The balance of unrecognized hedged Floor Income will
increase as we enter into new swaps and decline as revenue is
recognized.
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Unamortized net Floor premiums (net of
tax) |
$ (258) |
$ (295) |
$ (308) |
Unrecognized hedged Floor Income related to
pay fixed interest rate swaps (net of tax) |
(320) |
(320) |
— |
Total(1) |
$ (578) |
$ (615) |
$ (308) |
|
|
|
|
(1) $(916) million, $(974)
and $(492) on a pre-tax basis as of March 31, 2015,
December 31, 2014 and March 31, 2014, respectively. |
|
|
|
3) Goodwill and Acquired Intangible
Assets: Our "Core Earnings" exclude goodwill and
intangible asset impairment and the amortization of acquired
intangible assets. The following table summarizes the goodwill and
acquired intangible asset adjustments.
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
"Core Earnings" goodwill and acquired
intangible asset adjustments(1) |
$ (1) |
$ (2) |
$ (4) |
|
(1) Negative amounts
are subtracted from "Core Earnings" net income to arrive at GAAP
net income. |
Financial Condition
This section provides additional information regarding the
credit quality and performance indicators related to our Private
Education Loan portfolio.
Private Education Loans Portfolio
Performance
Private Education Loan Delinquencies and Forbearance — GAAP
Basis
|
|
|
|
|
|
|
|
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
(Dollars in
millions) |
Balance |
% |
Balance |
% |
Balance |
% |
Loans in-school/grace/deferment(1) |
$ 2,894 |
|
$ 3,053 |
|
$ 7,075 |
|
Loans in forbearance(2) |
1,030 |
|
1,059 |
|
1,216 |
|
Loans in repayment and percentage of each
status: |
|
|
|
|
|
|
Loans current |
24,451 |
93.1% |
24,761 |
91.9% |
29,156 |
93.1% |
Loans delinquent 31-60 days(3) |
528 |
2.0 |
734 |
2.7 |
655 |
2.1 |
Loans delinquent 61-90 days(3) |
341 |
1.3 |
436 |
1.6 |
430 |
1.4 |
Loans delinquent greater than
90 days(3) |
940 |
3.6 |
1,018 |
3.8 |
1,068 |
3.4 |
Total Private Education Loans in
repayment |
26,260 |
100% |
26,949 |
100% |
31,309 |
100% |
Total Private Education Loans, gross |
30,184 |
|
31,061 |
|
39,600 |
|
Private Education Loan unamortized
discount |
(581) |
|
(594) |
|
(681) |
|
Total Private Education Loans |
29,603 |
|
30,467 |
|
38,919 |
|
Private Education Loan receivable for
partially charged-off loans |
1,236 |
|
1,245 |
|
1,297 |
|
Private Education Loan allowance for
losses |
(1,849) |
|
(1,916) |
|
(2,059) |
|
Private Education Loans, net |
$ 28,990 |
|
$ 29,796 |
|
$ 38,157 |
|
Percentage of Private Education Loans in
repayment |
|
87.0% |
|
86.8% |
|
79.1% |
Delinquencies as a percentage of Private
Education Loans in repayment |
|
6.9% |
|
8.1% |
|
6.9% |
Loans in forbearance as a percentage of loans
in repayment and forbearance |
|
3.8% |
|
3.8% |
|
3.7% |
Loans in repayment with more than 12 payments
made |
|
92.6% |
|
91.5% |
|
84.2% |
Cosigner rate |
|
64% |
|
64% |
|
68% |
Average FICO |
|
719 |
|
719 |
|
723 |
|
|
|
|
|
|
|
(1) Deferment includes
customers who have returned to school or are engaged in other
permitted educational activities and are not yet required to make
payments on the loans, e.g., residency periods for medical students
or a grace period for bar exam preparation. |
|
|
|
|
|
|
(2) Loans for
customers who have requested extension of grace period generally
during employment transition or who have temporarily ceased making
full payments due to hardship or other factors, consistent with
established loan program servicing policies and procedures. |
|
|
|
|
|
|
(3) The period of
delinquency is based on the number of days scheduled payments are
contractually past due. |
|
|
|
|
|
|
Private Education Loan Delinquencies and Forbearance — "Core
Earnings" Basis
|
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
(Dollars in
millions) |
Balance |
% |
Balance |
% |
Balance |
% |
Loans in-school/grace/deferment(1) |
$ 2,894 |
|
$ 3,053 |
|
$ 4,090 |
|
Loans in forbearance(2) |
1,030 |
|
1,059 |
|
1,205 |
|
Loans in repayment and percentage of each
status: |
|
|
|
|
|
|
Loans current |
24,451 |
93.1% |
24,761 |
91.9% |
24,912 |
92.2% |
Loans delinquent 31-60 days(3) |
528 |
2.0 |
734 |
2.7 |
634 |
2.4 |
Loans delinquent 61-90 days(3) |
341 |
1.3 |
436 |
1.6 |
416 |
1.5 |
Loans delinquent greater than
90 days(3) |
940 |
3.6 |
1,018 |
3.8 |
1,068 |
3.9 |
Total Private Education Loans in
repayment |
26,260 |
100% |
26,949 |
100% |
27,030 |
100% |
Total Private Education Loans, gross |
30,184 |
|
31,061 |
|
32,325 |
|
Private Education Loan unamortized
discount |
(581) |
|
(594) |
|
(686) |
|
Total Private Education Loans |
29,603 |
|
30,467 |
|
31,639 |
|
Private Education Loan receivable for
partially charged-off loans. |
1,236 |
|
1,245 |
|
1,297 |
|
Private Education Loan allowance for
losses |
(1,849) |
|
(1,916) |
|
(1,987) |
|
Private Education Loans, net |
$ 28,990 |
|
$ 29,796 |
|
$ 30,949 |
|
Percentage of Private Education Loans in
repayment |
|
87.0% |
|
86.8% |
|
83.6% |
Delinquencies as a percentage of Private
Education Loans in repayment |
|
6.9% |
|
8.1% |
|
7.8% |
Loans in forbearance as a percentage of loans
in repayment and forbearance |
|
3.8% |
|
3.8% |
|
4.3% |
Loans in repayment with more than 12 payments
made |
|
92.6% |
|
91.5% |
|
90.3% |
Cosigner rate |
|
64% |
|
64% |
|
64% |
Average FICO |
|
719 |
|
719 |
|
718 |
|
(1) Deferment includes
customers who have returned to school or are engaged in other
permitted educational activities and are not yet required to make
payments on the loans, e.g., residency periods for medical students
or a grace period for bar exam preparation. |
(2) Loans for
customers who have requested extension of grace period generally
during employment transition or who have temporarily ceased making
full payments due to hardship or other factors, consistent with
established loan program servicing policies and procedures. |
(3) The period of
delinquency is based on the number of days scheduled payments are
contractually past due. |
Allowance for Private Education Loan Losses — GAAP
Basis
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Allowance at beginning of period |
$ 1,916 |
$ 1,959 |
$ 2,097 |
Provision for Private Education Loan
losses |
120 |
128 |
175 |
Charge-offs(1) |
(190) |
(174) |
(218) |
Reclassification of interest reserve(2) |
3 |
3 |
5 |
Allowance at end of period |
$ 1,849 |
$ 1,916 |
$ 2,059 |
Charge-offs as a percentage of average loans
in repayment (annualized) |
2.9% |
2.5% |
2.8% |
Allowance as a percentage of the ending total
loan balance |
5.9% |
5.9% |
5.0% |
Allowance as a percentage of ending loans in
repayment |
7.0% |
7.1% |
6.6% |
Average coverage of charge-offs
(annualized) |
2.4 |
2.8 |
2.3 |
Ending total loans(3) |
$ 31,420 |
$ 32,306 |
$ 40,897 |
Average loans in repayment |
$ 26,644 |
$ 27,127 |
$ 31,416 |
Ending loans in repayment |
$ 26,260 |
$ 26,949 |
$ 31,309 |
|
(1) Charge-offs are
reported net of expected recoveries. The expected recovery amount
is transferred to the receivable for partially charged-off loan
balance. Charge-offs include charge-offs against the receivable for
partially charged-off loans which represents the difference between
what was expected to be collected and any shortfalls in what was
actually collected in the period. See "Receivable for Partially
Charged-Off Private Education Loans" for further discussion. |
(2) Represents the
additional allowance related to the amount of uncollectible
interest reserved within interest income that is transferred in the
period to the allowance for loan losses when interest is
capitalized to a loan's principal balance. |
(3) Ending total loans
represents gross Private Education Loans, plus the receivable for
partially charged-off loans. |
Allowance for Private Education Loan Losses — "Core Earnings"
Basis
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Allowance at beginning of period |
$ 1,916 |
$ 1,959 |
$ 2,035 |
Provision for Private Education Loan
losses |
120 |
128 |
136 |
Charge-offs(1) |
(190) |
(174) |
(218) |
Reclassification of interest reserve(2) |
3 |
3 |
5 |
Loan sales and other transactions |
— |
— |
29 |
Allowance at end of period |
$ 1,849 |
$ 1,916 |
$ 1,987 |
Charge-offs as a percentage of average loans
in repayment (annualized) |
2.9% |
2.5% |
3.3% |
Allowance as a percentage of the ending total
loan balance |
5.9% |
5.9% |
5.9% |
Allowance as a percentage of ending loans in
repayment |
7.0% |
7.1% |
7.4% |
Average coverage of charge-offs
(annualized) |
2.4 |
2.8 |
2.2 |
Ending total loans(3) |
$ 31,420 |
$ 32,306 |
$ 33,622 |
Average loans in repayment |
$ 26,644 |
$ 27,127 |
$ 27,028 |
Ending loans in repayment |
$ 26,260 |
$ 26,949 |
$ 27,030 |
|
|
|
|
(1) Charge-offs are
reported net of expected recoveries. The expected recovery amount
is transferred to the receivable for partially charged-off loan
balance. Charge-offs include charge-offs against the receivable for
partially charged-off loans which represents the difference between
what was expected to be collected and any shortfalls in what was
actually collected in the period. See "Receivable for Partially
Charged-Off Private Education Loans" for further discussion. |
(2) Represents the
additional allowance related to the amount of uncollectible
interest reserved within interest income that is transferred in the
period to the allowance for loan losses when interest is
capitalized to a loan's principal balance. |
(3) Ending total loans
represents gross Private Education Loans, plus the receivable for
partially charged-off loans. |
In establishing the allowance for Private Education Loan losses
as of March 31, 2015, we considered several factors with
respect to our Private Education Loan portfolio. In particular, we
continue to see improvement in credit quality and continuing
positive delinquency and charge-off trends in connection with this
portfolio. On a "Core Earnings" basis, total loans delinquent (as a
percentage of loans in repayment) have decreased to 6.9 percent
from 7.8 percent in the year-ago quarter. Loans greater than
90 days delinquent (as a percentage of loans in repayment) have
decreased to 3.6 percent from 3.9 percent in the year-ago quarter.
The "Core Earnings" charge-off rate decreased to 2.9 percent from
3.3 percent in the year-ago quarter. Loans in forbearance (as a
percentage of loans in repayment and forbearance) decreased to 3.8
percent from 4.3 percent in the year-ago quarter.
The Private Education Loan provision for loan losses on a "Core
Earnings" basis was $120 million in the first quarter of 2015, down
$16 million from the first quarter of 2014. The decline from the
year-ago period was a result of the overall improvement in credit
quality and performance trends discussed above, leading to
decreases in expected future charge-offs.
Receivable for Partially Charged-Off Private Education Loans
At the end of each month, for loans that are 212 days past
due, we charge off the estimated loss of a defaulted loan balance.
Actual recoveries are applied against the remaining loan balance
that was not charged off. We refer to this remaining loan balance
as the "receivable for partially charged-off loans." If actual
periodic recoveries are less than expected, the difference is
immediately charged off through the allowance for Private Education
Loan losses with an offsetting reduction in the receivable for
partially charged-off Private Education Loans. If actual periodic
recoveries are greater than expected, they will be reflected as a
recovery through the allowance for Private Education Loan losses
once the cumulative recovery amount exceeds the cumulative amount
originally expected to be recovered. Private Education Loans which
have defaulted since 2007 for which we have previously charged off
estimated losses have, to varying degrees, not met our post-default
recovery expectations to date and may continue not to do so.
According to our policy, we have been charging off these periodic
shortfalls in expected recoveries against our allowance for Private
Education Loan losses and the related receivable for partially
charged-off Private Education Loans and we will continue to do so.
There was $380 million and $334 million in the allowance for
Private Education Loan losses at March 31, 2015 and 2014,
respectively, providing for possible additional future charge-offs
related to the receivable for partially charged-off Private
Education Loans.
The following table summarizes the activity in the receivable
for partially charged-off Private Education Loans (GAAP-basis and
"Core Earnings"-basis are the same).
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Receivable at beginning of period |
$ 1,245 |
$ 1,253 |
$ 1,313 |
Expected future recoveries of current period
defaults(1) |
62 |
58 |
71 |
Recoveries(2) |
(52) |
(48) |
(61) |
Charge-offs(3) |
(19) |
(18) |
(26) |
Receivable at end of period |
1,236 |
1,245 |
1,297 |
Allowance for estimated recovery
shortfalls(4) |
(380) |
(385) |
(334) |
Net receivable at end of period |
$ 856 |
$ 860 |
$ 963 |
|
|
|
|
(1) Represents the
difference between the defaulted loan balance and our estimate of
the amount to be collected in the future. |
(2) Current period
cash collections. |
(3) Represents the
current period recovery shortfall — the difference between what was
expected to be collected and what was actually collected. These
amounts are included in total charge-offs as reported in the
"Allowance for Private Education Loan Losses" table. |
(4) The allowance for
estimated recovery shortfalls of the receivable for partially
charged-off Private Education Loans is a component of the $1.8
billion, $1.9 billion and $2.1 billion overall allowance for
Private Education Loan losses as of March 31, 2015,
December 31, 2014 and March 31, 2014, respectively. |
Liquidity and Capital Resources
We expect to fund our ongoing liquidity needs, including the
repayment of $2.5 billion of senior unsecured notes that
mature in the next twelve months, primarily through our current
cash and investment portfolio, the predictable operating cash flows
provided by operating activities, the repayment of principal on
unencumbered student loan assets, the distributions from our
securitization trusts (including servicing fees which are priority
payments within the trusts) and the issuance of additional
unsecured debt. We may also draw down on our secured FFELP and
Private Education facilities or issue term asset-backed securities
("ABS").
We no longer originate Private Education Loans or FFELP Loans
and therefore no longer have liquidity requirements for new
originations, but we will continue to opportunistically purchase
Private Education Loan and FFELP Loan portfolios from others.
Sources of Liquidity and Available Capacity
Ending Balances
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Sources of primary
liquidity: |
|
|
|
Total unrestricted cash and liquid
investments |
$ 2,058 |
$ 1,449 |
$ 2,516 |
Unencumbered FFELP Loans |
1,800 |
1,909 |
1,441 |
Total "Core Earnings" basis |
3,858 |
3,358 |
$ 3,957 |
SLM BankCo(1) |
— |
— |
2,756 |
Total GAAP basis |
$ 3,858 |
$ 3,358 |
$ 6,713 |
|
|
|
|
(1) As of
March 31, 2014, includes $1.4 billion of cash and $1.4 billion
of FFELP Loans. |
|
Quarters
Ended |
(Dollars in
millions) |
March 31,
2015 |
December 31,
2014 |
March 31,
2014 |
Sources of primary
liquidity: |
|
|
|
Total unrestricted cash and liquid
investments |
$ 1,817 |
$ 2,139 |
$ 2,180 |
Unencumbered FFELP Loans |
2,032 |
1,856 |
1,670 |
Total "Core Earnings" basis |
3,849 |
3,995 |
3,850 |
SLM BankCo(1) |
— |
— |
2,910 |
Total GAAP basis |
$ 3,849 |
$ 3,995 |
$ 6,760 |
|
|
|
|
(1) For the quarter
ended March 31, 2014, includes $1.5 billion of cash and $1.4
billion of FFELP Loans. |
Liquidity may also be available under secured credit facilities
to the extent we have eligible collateral and capacity available.
Maximum borrowing capacity under the FFELP Loan–other facilities
will vary and be subject to each agreement's borrowing conditions,
including, among others, facility size, current usage and
availability of qualifying collateral from unencumbered FFELP
Loans. As of March 31, 2015, December 31, 2014 and March 31,
2014, the maximum additional capacity under these facilities was
$12.5 billion, $13.2 billion and $12.7 billion, respectively. For
the three months ended March 31, 2015, December 31, 2014 and
March 31, 2014, the average maximum additional capacity under these
facilities was $12.9 billion, $14.0 billion and
$12.3 billion, respectively.
In addition to the FFELP Loan–other facilities, liquidity may
also be available from our Private Education Loan asset-backed
commercial paper facility ("ABCP"). This facility provides
liquidity for Private Education Loan acquisitions and for the
refinancing of loans presently on our balance sheet or in other
short-term facilities. The maximum capacity under this
facility is $1 billion and it matures in June 2015. At
March 31, 2015, the available capacity under this facility was
$653 million.
We also hold a number of other unencumbered assets, consisting
primarily of Private Education Loans and other assets. Total
unencumbered student loans comprised $6.3 billion of our
unencumbered assets of which $4.5 billion and
$1.8 billion related to Private Education Loans and FFELP
Loans, respectively. At March 31, 2015, we had a total of
$11.9 billion of unencumbered assets inclusive of those
described above as sources of primary liquidity and exclusive of
goodwill and acquired intangible assets.
For further discussion of our various sources of liquidity, our
continued access to the ABS market, our asset-backed financing
facilities, and our issuance of unsecured debt, see "Note 6 —
Borrowings" in our Annual Report on Form 10-K for the year ended
December 31, 2014.
The following table reconciles encumbered and unencumbered
assets and their net impact on GAAP total tangible equity.
|
March 31, |
December 31, |
March 31, |
(Dollars in
billions) |
2015 |
2014 |
2014 |
Net assets of consolidated variable interest
entities (encumbered assets) — FFELP Loans |
$4.9 |
$4.9 |
$4.6 |
Net assets of consolidated variable interest
entities (encumbered assets) — Private Education
Loans |
6.7 |
6.5 |
6.5 |
Tangible unencumbered assets(1) |
11.9 |
12.4 |
24.2 |
Senior unsecured debt |
(17.3) |
(17.4) |
(17.9) |
Bank deposits |
— |
— |
(8.7) |
Mark-to-market on unsecured hedged
debt(2) |
(1.0) |
(0.9) |
(0.8) |
Other liabilities, net |
(1.7) |
(1.7) |
(2.7) |
Total tangible equity — GAAP
Basis |
$3.5 |
$3.8 |
$5.2 |
|
|
|
|
(1) Excludes goodwill and
acquired intangible assets. |
(2) At March 31, 2015,
December 31, 2014 and March 31, 2014, there were $913 million,
$794 million and $640 million, respectively, of net gains on
derivatives hedging this debt in unencumbered assets, which
partially offset these losses. |
CONTACT: Media: Patricia Nash Christel, 302-283-4076, patricia.christel@navient.com
Investors: Joe Fisher, 302-283-4075, joe.fisher@navient.com
Customers: 888-272-5543
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