Completes over $900 Million of New Financings
during the Fourth QuarterRepurchases $691 Million of Unsecured Debt
during the Fourth Quarter Approves Additional $700 Million
Share Repurchase Authorization in December 2015Total Delinquency
Rates at Lowest Year-Ending Levels for both FFELP and Private
Education Loans since 2005
Navient (Nasdaq:NAVI) today released fourth-quarter and full-year
2015 financial results that include over $900 million of new
financings and $691 million repurchases of unsecured debt during
the fourth-quarter 2015. Total delinquency rates are at the
lowest levels for both FFELP and private education loans since
2005.
“This quarter’s and full year’s results demonstrate that the
foundation of our enterprise value remains intact and strong,” said
Jack Remondi, president and CEO. “Even with financial market
turmoil, we continued to generate earnings and cash flow in-line
with our expectations, allowing us to repurchase or retire over
$2.3 billion in unsecured debt, acquire over $3.7 billion in loans,
and return $1.2 billion to shareholders through dividends and share
repurchases in 2015. These capabilities remain in place as we
begin 2016.”
For the fourth-quarter 2015, GAAP net income was $286 million
($0.79 diluted earnings per share), compared with $263 million
($0.64 diluted earnings per share) for the year-ago quarter.
For 2015, GAAP net income was $997 million ($2.61 diluted earnings
per share), compared with $1.1 billion ($2.69 diluted earnings per
share) for 2014.
Core earnings for the quarter were $172 million ($0.48 diluted
earnings per share), compared with $217 million ($0.53 diluted
earnings per share) for the year-ago quarter. The decrease is
primarily the result of a $72 million reduction in net interest
income, partially offset by a $23 million decline in provision for
loan losses. Excluding expenses associated with regulatory-related
costs, fourth-quarter 2015 and 2014 diluted core earnings per share
were $0.49 and $0.54, respectively. Fourth-quarter 2015 and 2014
operating expenses included $7 million ($0.01 diluted earnings per
share) and $9 million ($0.01 diluted earnings per share) of
regulatory-related costs, respectively.
Core earnings for the year were $694 million ($1.82 diluted
earnings per share), compared with $818 million ($1.93 diluted
earnings per share) for 2014. Excluding expenses associated
with regulatory-related costs, 2015 and 2014 diluted core earnings
per share were $1.85 and $2.10, respectively. Full-year 2015 and
2014 operating expenses included $19 million ($0.03 diluted
earnings per share) and $120 million ($0.17 diluted earnings per
share) of regulatory-related costs, 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
results but have not been included in core earnings results.
Fourth-quarter 2015 GAAP results included gains of $186 million
from derivative accounting treatment that are excluded from core
earnings results, compared with gains of $98 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 $74 million in fourth-quarter
2015, compared with the year-ago quarter’s $85 million. This
decrease was primarily the result of a $22 million decrease in net
interest income due to a decline in the net interest margin. This
was partially offset by a decline in expenses.
Full-year 2015 core earnings for this segment were $321 million
compared with $299 million in 2014. This increase was primarily the
result of a $33 million increase in servicing revenue and a $14
million decline in the provision for loan losses.
The company acquired $792 million of FFELP loans in the
fourth-quarter 2015 for a total of $3.7 billion of FFELP loans
acquired during the full-year 2015. At Dec. 31, 2015, Navient
held $96.5 billion of FFELP loans, compared with $104.5
billion of FFELP loans held at Dec. 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 $56 million in fourth-quarter
2015, compared with the year-ago quarter’s $92 million. This
decrease is primarily the result of a $51 million decrease in net
interest income due to a decline in the balance of the portfolio
and the net interest margin and a $21 million loss on the sale of
$178 million of loans, partially offset by an $18 million decline
in the provision for loan losses.
Core earnings fourth-quarter 2015 private education loan
portfolio results vs. fourth-quarter 2014 are as follows:
- Delinquencies of 90 days or more of 3.4 percent of loans in
repayment, down from 3.8 percent.
- Total delinquencies of 7.2 percent of loans in repayment, down
from 8.1 percent.
- Annualized charge-off rate of 2.3 percent of average loans in
repayment, down from 2.5 percent.
- Net interest margin of 3.61 percent, down from 3.89
percent.
- Provision for private education loan losses of $110 million,
down from $128 million.
Full-year 2015 core earnings for this segment were $233 million
compared with $351 million in 2014. This decrease was primarily the
result of a $174 million decrease in net interest income due to a
decline in the balance of the portfolio and net interest margin,
partially offset by a decline in expenses.
At Dec. 31, 2015, Navient held $26.4 billion of
private education loans, compared with $29.8 billion of private
education loans held at Dec. 31, 2014.
Business Services
Navient’s business services segment includes revenue primarily
from servicing and asset recovery activities.
Business services core earnings were $81 million in
fourth-quarter 2015, compared with $95 million in the year-ago
quarter. This decrease was primarily the result of an $8
million reduction in asset recovery revenue related to legislative
reductions in certain fees earned as well as a decrease in
education loan-related asset recovery volume.
Full-year core earnings for this segment were $338 million
compared with $425 million in 2014. This decrease was primarily the
result of a $93 million reduction in asset recovery revenue related
to legislative reductions in certain fees earned and a $23 million
increase in third-party servicing and conversion expenses related
to an $8.5 billion FFELP loan acquisition in the fourth quarter of
2014.
The company services student loans for more than 12 million
customers, including 6.3 million customers on behalf of the
U.S. Department of Education (ED).
On Oct. 20, 2015, Navient completed the acquisition of Xtend
Healthcare, a health care payments company based in Hendersonville,
Tenn. The firm provides health insurance claims billing and account
resolution, as well as patient billing and customer service to more
than 130 hospitals. The acquisition expands Navient’s asset
recovery and business process outsourcing capabilities into the
health care payments sector.
Operating Expenses
The company recognized core earnings regulatory-related costs of
$7 million and $9 million for fourth-quarter 2015 and 2014,
respectively, and $19 million and $120 million for full-year 2015
and 2014, respectively. Excluding these regulatory-related costs,
fourth-quarter 2015 core earnings operating expenses were $228
million compared with $206 million in the year-ago quarter, and
full-year 2015 operating expenses were $899 million, compared with
$804 million in 2014. The respective increases over the
prior-year periods are primarily due to operating costs related to
Gila LLC, which was acquired in first-quarter 2015, and to Xtend
Healthcare, acquired in fourth-quarter 2015. Additionally,
incremental third-party servicing and conversion expenses related
to an $8.5 billion loan acquisition in fourth-quarter 2014
contributed to the full-year increase.
Funding and Liquidity
During the fourth-quarter 2015, Navient completed over $900
million of new financings which included a private education loan
ABS repurchase facility and the securitization of non-traditional
private education loans. In addition, Navient sold $178
million of private education loans which raised approximately $157
million.
During the fourth-quarter 2015, Navient repurchased $691 million
of senior unsecured debt resulting in a $21 million gain.
During 2015, Navient issued $2.8 billion in FFELP ABS, $1.7
billion in private education loan ABS and $500 million in unsecured
debt. During 2015, Navient repurchased $1.7 billion of senior
unsecured debt.
In the fourth-quarter 2015, Navient extended the legal final
maturity dates for 6 Navient-sponsored FFELP securitization trusts
totaling $1.1 billion of bonds. The amendments were made at
the request of the investors in these trusts.
Additionally, the company amended the transaction agreements
for 16 Navient-sponsored FFELP securitization trusts which had
$14.2 billion of bonds outstanding to give Navient the option (in
addition to the existing 10 percent cleanup call option) to
purchase trust student loans aggregating up to 10 percent of the
trust’s initial pool balance.
During 2015, Navient exercised cleanup call options related to
12 FFELP ABS trusts which had $1.1 billion of bonds outstanding and
exercised loan repurchase rights on 10 FFELP ABS trusts totaling
$400 million of FFELP loans from those trusts.
Shareholder Distributions
In the fourth-quarter 2015, Navient paid a common stock dividend
of $0.16 per share.
Navient repurchased 14.1 million shares of common stock for
$170 million in the fourth quarter of 2015, and an aggregate of
56.0 million shares for $945 million in full-year 2015. In Dec.
2015, the company’s board of directors authorized an additional
$700 million to be added to the company’s previously announced $1
billion authorization announced by the company in Dec. 2014.
As of Dec. 31, 2015, the remaining repurchase authority
was $755 million. Navient repurchased 8.7 million shares of
common stock for $168 million in the year-ago quarter, and an
aggregate of 30.4 million shares for $600 million in full-year
2014.
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 attributable to (1) the financial
results attributable to the operations of the consumer banking
business prior to the spin-off of Navient from SLM Corporation on
April 30, 2014, and related restructuring and reorganization
expense incurred in connection with the spin-off, including the
restructuring initiated in the second quarter of 2015,
(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 release 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 and year ended Dec. 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,
Jan. 27, at 8 a.m. EST. Navient executives will be on hand to
discuss various highlights of the quarter and to answer questions
related to the company’s performance. To participate, join a live
audio webcast at navient.com/investors or dial 855-838-4156 (USA
and Canada) or dial 267-751-3600 (international) and use access
code 20405446 starting at 7:45 a.m. EST.
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.
A replay of the conference call will be available approximately
two hours after the call’s conclusion through Feb. 9 at
navient.com/investors or by dialing 855-859-2056 (USA and Canada)
or 404-537-3406 (international) with access code 20405446.
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,
opinions 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
initiatives and adverse effects of such initiatives on its
business; failures or delays in the planned conversion to Navient’s
servicing platform of the Wells Fargo portfolio of FFELP loans or
any other FFELP or private education loan portfolio acquisitions;
risks associated with restructuring initiatives; risks associated
with the April 30, 2014 separation of Navient and SLM
Corporation into two distinct, publicly traded companies, 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 including from banks, other consumer lenders and 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 public and private sector clients rely on Navient for
proven solutions to meet their financial goals. Learn more at
navient.com.
Spin-Off of Navient
On April 30, 2014, the spin-off of Navient from SLM
Corporation (the “Spin-Off”) was completed and Navient became 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, 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 Spin-Off, 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 |
Years
Ended |
(In millions, except per
share data) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
GAAP
Basis |
|
|
|
|
|
Net income attributable to
Navient Corporation |
$ |
286 |
|
$ |
237 |
|
$ |
263 |
|
$ |
997 |
|
$ |
1,149 |
|
Diluted earnings per
common share attributable to Navient Corporation |
$ |
.79 |
|
$ |
.63 |
|
$ |
.64 |
|
$ |
2.61 |
|
$ |
2.69 |
|
Weighted average shares
used to compute diluted earnings per share |
|
361 |
|
|
375 |
|
|
413 |
|
|
382 |
|
|
425 |
|
Net interest margin, FFELP
Loans |
|
1.23 |
% |
|
1.20 |
% |
|
1.31 |
% |
|
1.22 |
% |
|
1.30 |
% |
Net interest margin,
Private Education Loans |
|
3.53 |
% |
|
3.68 |
% |
|
3.85 |
% |
|
3.61 |
% |
|
4.06 |
% |
Return on assets |
|
.87 |
% |
|
.70 |
% |
|
.76 |
% |
|
.74 |
% |
|
.81 |
% |
Ending FFELP Loans,
net |
$ |
96,498 |
|
$ |
98,468 |
|
$ |
104,521 |
|
$ |
96,498 |
|
$ |
104,521 |
|
Ending Private Education
Loans, net |
|
26,394 |
|
|
27,323 |
|
|
29,796 |
|
|
26,394 |
|
|
29,796 |
|
|
|
|
|
|
|
Ending total student
loans, net |
$ |
122,892 |
|
$ |
125,791 |
|
$ |
134,317 |
|
$ |
122,892 |
|
$ |
134,317 |
|
|
|
|
|
|
|
Average FFELP Loans |
$ |
97,472 |
|
$ |
99,367 |
|
$ |
99,323 |
|
$ |
100,421 |
|
$ |
100,662 |
|
Average Private Education
Loans |
|
27,551 |
|
|
28,383 |
|
|
30,869 |
|
|
28,803 |
|
|
33,672 |
|
|
|
|
|
|
|
Average total student
loans |
$ |
125,023 |
|
$ |
127,750 |
|
$ |
130,192 |
|
$ |
129,224 |
|
$ |
134,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
“Core Earnings”
Basis(1) |
|
|
|
|
|
Net income attributable to
Navient Corporation |
$ |
172 |
|
$ |
174 |
|
$ |
217 |
|
$ |
694 |
|
$ |
818 |
|
Diluted earnings per
common share attributable to Navient Corporation |
$ |
.48 |
|
$ |
.47 |
|
$ |
.53 |
|
$ |
1.82 |
|
$ |
1.93 |
|
Weighted average shares
used to compute diluted earnings per share |
|
361 |
|
|
375 |
|
|
413 |
|
|
382 |
|
|
425 |
|
Net interest margin, FFELP
Loans |
|
.84 |
% |
|
.81 |
% |
|
.91 |
% |
|
.84 |
% |
|
.90 |
% |
Net interest margin,
Private Education Loans |
|
3.61 |
% |
|
3.77 |
% |
|
3.89 |
% |
|
3.67 |
% |
|
3.94 |
% |
Return on assets |
|
.52 |
% |
|
.52 |
% |
|
.63 |
% |
|
.51 |
% |
|
.59 |
% |
Ending FFELP Loans,
net |
$ |
96,498 |
|
$ |
98,468 |
|
$ |
104,521 |
|
$ |
96,498 |
|
$ |
104,521 |
|
Ending Private Education
Loans, net |
|
26,394 |
|
|
27,323 |
|
|
29,796 |
|
|
26,394 |
|
|
29,796 |
|
|
|
|
|
|
|
Ending total student
loans, net |
$ |
122,892 |
|
$ |
125,791 |
|
$ |
134,317 |
|
$ |
122,892 |
|
$ |
134,317 |
|
|
|
|
|
|
|
Average FFELP Loans |
$ |
97,472 |
|
$ |
99,367 |
|
$ |
99,323 |
|
$ |
100,421 |
|
$ |
100,202 |
|
Average Private Education
Loans |
|
27,551 |
|
|
28,383 |
|
|
30,869 |
|
|
28,803 |
|
|
31,243 |
|
|
|
|
|
|
|
Average total student
loans |
$ |
125,023 |
|
$ |
127,750 |
|
$ |
130,192 |
|
$ |
129,224 |
|
$ |
131,445 |
|
|
|
|
|
|
|
(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 |
Years
Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
FFELP Loan spread |
|
.93 |
% |
|
.90 |
% |
|
1.00 |
% |
|
.92 |
% |
|
.99 |
% |
Net interest margin |
|
.84 |
% |
|
.81 |
% |
|
.91 |
% |
|
.84 |
% |
|
.90 |
% |
Provision for loan
losses |
$ |
7 |
|
$ |
7 |
|
$ |
10 |
|
$ |
26 |
|
$ |
40 |
|
Charge-offs |
$ |
13 |
|
$ |
12 |
|
$ |
9 |
|
$ |
41 |
|
$ |
60 |
|
Charge-off rate |
|
.07 |
% |
|
.06 |
% |
|
.05 |
% |
|
.05 |
% |
|
.08 |
% |
Total delinquency
rate |
|
15.3 |
% |
|
15.9 |
% |
|
16.6 |
% |
|
15.3 |
% |
|
16.6 |
% |
Greater than 90-day
delinquency rate |
|
8.3 |
% |
|
8.5 |
% |
|
8.5 |
% |
|
8.3 |
% |
|
8.5 |
% |
Forbearance rate |
|
15.2 |
% |
|
14.7 |
% |
|
15.5 |
% |
|
15.2 |
% |
|
15.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loan Segment Performance Metrics — “Core
Earnings”
|
|
|
|
Quarters
Ended |
Years
Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
Private Education Loan
spread |
|
3.73 |
% |
|
3.88 |
% |
|
3.99 |
% |
|
3.79 |
% |
|
4.04 |
% |
Net interest margin |
|
3.61 |
% |
|
3.77 |
% |
|
3.89 |
% |
|
3.67 |
% |
|
3.94 |
% |
Provision for loan
losses |
$ |
110 |
|
$ |
117 |
|
$ |
128 |
|
$ |
538 |
|
$ |
539 |
|
Net adjustment resulting
from the change in the charge-off rate(1) |
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
330 |
|
$ |
— |
|
Net charge-offs
remaining |
|
141 |
|
|
148 |
|
|
174 |
|
|
659 |
|
|
717 |
|
|
|
|
|
|
|
Total net charge-offs |
$ |
141 |
|
$ |
148 |
|
$ |
174 |
|
$ |
989 |
|
$ |
717 |
|
Net charge-offs as a
percentage of average loans in repayment, excluding the net
adjustment resulting from the change in the charge-off rate
(annualized)(1) |
|
2.3 |
% |
|
2.3 |
% |
|
2.5 |
% |
|
2.6 |
% |
|
2.6 |
% |
Net adjustment resulting
from the change in the charge-off rate as a percentage of average
loans in repayment (annualized)(1) |
|
— |
% |
|
— |
% |
|
— |
% |
|
1.3 |
% |
|
— |
% |
Total delinquency
rate |
|
7.2 |
% |
|
7.4 |
% |
|
8.1 |
% |
|
7.2 |
% |
|
8.1 |
% |
Greater than 90-day
delinquency rate |
|
3.4 |
% |
|
3.4 |
% |
|
3.8 |
% |
|
3.4 |
% |
|
3.8 |
% |
Forbearance rate |
|
3.8 |
% |
|
4.0 |
% |
|
3.8 |
% |
|
3.8 |
% |
|
3.8 |
% |
Loans in repayment with
more than 12 payments made |
|
94.1 |
% |
|
93.8 |
% |
|
91.5 |
% |
|
94.1 |
% |
|
91.5 |
% |
Cosigner rate |
|
64 |
% |
|
65 |
% |
|
64 |
% |
|
64 |
% |
|
64 |
% |
Average FICO |
|
718 |
|
|
718 |
|
|
719 |
|
|
718 |
|
|
719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) In the second quarter of 2015, the portion of the loan
amount charged off at default increased from 73 percent to 79
percent. This did not impact the provision for loan losses as
previously this had been reserved through the allowance for loan
losses. This change resulted in a $330 million reduction to the
balance of the receivable for partially charged-off loans.
Business Services Segment Performance Metrics — “Core
Earnings”
|
|
|
As
of |
(Dollars in
billions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
Number of accounts
serviced for ED (in millions) |
|
6.3 |
|
|
6.3 |
|
|
6.2 |
|
Total federal loans
serviced |
$ |
288 |
|
$ |
289 |
|
$ |
276 |
|
Contingent collections
receivables inventory: |
|
|
|
Education loans |
$ |
10.3 |
|
$ |
10.6 |
|
$ |
12.5 |
|
Other(1) |
|
9.9 |
|
|
15.2 |
|
|
2.9 |
|
|
|
|
|
Total contingent
collections receivables inventory |
$ |
20.2 |
|
$ |
25.8 |
|
$ |
15.4 |
|
|
|
|
|
(1) $0.1 billion, $5.9 billion and $0 billion as of
December 31, 2015, September 30, 2015 and December 31, 2014,
respectively, relate to a short-term 3-month collection
contract.
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) |
|
|
|
|
|
December 31, 2015 vs. September 30,
2015 |
December 31, 2015 vs.
December 31, 2014 |
|
Quarters
Ended |
Increase
(Decrease) |
Increase
(Decrease) |
(In millions, except per
share data) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
$ |
% |
$ |
% |
Interest income: |
|
|
|
|
|
|
|
FFELP Loans |
$ |
631 |
|
$ |
630 |
|
$ |
640 |
|
$ |
1 |
|
|
— |
% |
$ |
(9 |
) |
|
(1 |
) % |
Private Education Loans |
|
421 |
|
|
444 |
|
|
483 |
|
|
(23 |
) |
|
(5 |
) |
|
(62 |
) |
|
(13 |
) |
Other loans |
|
2 |
|
|
1 |
|
|
2 |
|
|
1 |
|
|
100 |
|
|
— |
|
|
— |
|
Cash and investments |
|
3 |
|
|
2 |
|
|
2 |
|
|
1 |
|
|
50 |
|
|
1 |
|
|
50 |
|
|
|
|
|
|
|
|
|
Total interest income |
|
1,057 |
|
|
1,077 |
|
|
1,127 |
|
|
(20 |
) |
|
(2 |
) |
|
(70 |
) |
|
(6 |
) |
Total interest
expense |
|
521 |
|
|
524 |
|
|
513 |
|
|
(3 |
) |
|
(1 |
) |
|
8 |
|
|
2 |
|
|
|
|
|
|
|
|
|
Net interest income |
|
536 |
|
|
553 |
|
|
614 |
|
|
(17 |
) |
|
(3 |
) |
|
(78 |
) |
|
(13 |
) |
Less: provisions for loan
losses |
|
115 |
|
|
123 |
|
|
138 |
|
|
(8 |
) |
|
(7 |
) |
|
(23 |
) |
|
(17 |
) |
|
|
|
|
|
|
|
|
Net interest income after
provisions for loan losses |
|
421 |
|
|
430 |
|
|
476 |
|
|
(9 |
) |
|
(2 |
) |
|
(55 |
) |
|
(12 |
) |
Other income (loss): |
|
|
|
|
|
|
|
Servicing revenue |
|
82 |
|
|
76 |
|
|
82 |
|
|
6 |
|
|
8 |
|
|
— |
|
|
— |
|
Asset recovery revenue |
|
92 |
|
|
85 |
|
|
80 |
|
|
7 |
|
|
8 |
|
|
12 |
|
|
15 |
|
Other income |
|
4 |
|
|
— |
|
|
32 |
|
|
4 |
|
|
100 |
|
|
(28 |
) |
|
(88 |
) |
Losses on sales of loans and
investments |
|
(21 |
) |
|
— |
|
|
— |
|
|
(21 |
) |
|
100 |
|
|
(21 |
) |
|
100 |
|
Gains on debt repurchases |
|
21 |
|
|
— |
|
|
— |
|
|
21 |
|
|
100 |
|
|
21 |
|
|
100 |
|
Gains (losses) on derivative and
hedging activities, net |
|
93 |
|
|
20 |
|
|
(22 |
) |
|
73 |
|
|
365 |
|
|
115 |
|
|
523 |
|
|
|
|
|
|
|
|
|
Total other income
(loss) |
|
271 |
|
|
181 |
|
|
172 |
|
|
90 |
|
|
50 |
|
|
99 |
|
|
58 |
|
Expenses: |
|
|
|
|
|
|
|
Operating expenses |
|
235 |
|
|
228 |
|
|
215 |
|
|
7 |
|
|
3 |
|
|
20 |
|
|
9 |
|
Goodwill and acquired intangible
asset impairment and amortization expense |
|
5 |
|
|
3 |
|
|
2 |
|
|
2 |
|
|
67 |
|
|
3 |
|
|
150 |
|
Restructuring and other
reorganization expenses |
|
— |
|
|
— |
|
|
10 |
|
|
— |
|
|
— |
|
|
(10 |
) |
|
(100 |
) |
|
|
|
|
|
|
|
|
Total expenses |
|
240 |
|
|
231 |
|
|
227 |
|
|
9 |
|
|
4 |
|
|
13 |
|
|
6 |
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income tax expense |
|
452 |
|
|
380 |
|
|
421 |
|
|
72 |
|
|
19 |
|
|
31 |
|
|
7 |
|
Income tax expense |
|
166 |
|
|
144 |
|
|
159 |
|
|
22 |
|
|
15 |
|
|
7 |
|
|
4 |
|
|
|
|
|
|
|
|
|
Net income from continuing
operations |
|
286 |
|
|
236 |
|
|
262 |
|
|
50 |
|
|
21 |
|
|
24 |
|
|
9 |
|
Income from discontinued
operations, net of tax expense |
|
— |
|
|
1 |
|
|
1 |
|
|
(1 |
) |
|
(100 |
) |
|
(1 |
) |
|
(100 |
) |
|
|
|
|
|
|
|
|
Net
income |
|
286 |
|
|
237 |
|
|
263 |
|
|
49 |
|
|
21 |
|
|
23 |
|
|
9 |
|
Less: net income (loss)
attributable to noncontrolling interest |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
Net income
attributable to Navient Corporation |
|
286 |
|
|
237 |
|
|
263 |
|
|
49 |
|
|
21 |
|
|
23 |
|
|
9 |
|
Preferred stock
dividends |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
Net income attributable to
Navient Corporation common stock |
$ |
286 |
|
$ |
237 |
|
$ |
263 |
|
$ |
49 |
|
|
21 |
|
$ |
23 |
|
|
9 |
|
|
|
|
|
|
|
|
|
Basic earnings per
common share attributable to Navient Corporation |
$ |
.80 |
|
$ |
.64 |
|
$ |
.65 |
|
$ |
.16 |
|
|
25 |
% |
$ |
.15 |
|
|
23 |
% |
|
|
|
|
|
|
|
|
Diluted earnings
per common share attributable to Navient Corporation |
$ |
.79 |
|
$ |
.63 |
|
$ |
.64 |
|
$ |
.16 |
|
|
25 |
% |
$ |
.15 |
|
|
23 |
% |
|
|
|
|
|
|
|
|
Dividends per common share
attributable to Navient Corporation |
$ |
.16 |
|
$ |
.16 |
|
$ |
.15 |
|
$ |
— |
|
|
— |
% |
$ |
.01 |
|
|
7 |
% |
|
|
|
|
|
|
|
|
GAAP Statements of Income
(Unaudited) |
|
|
Years Ended December 31, |
Increase
(Decrease) |
(In millions, except per
share data) |
|
2015 |
|
|
2014 |
|
$
|
%
|
Interest income: |
|
|
|
|
FFELP Loans |
$ |
2,524 |
|
$ |
2,556 |
|
$ |
(32 |
) |
|
(1 |
)% |
Private Education Loans |
|
1,756 |
|
|
2,156 |
|
|
(400 |
) |
|
(19 |
) |
Other loans |
|
7 |
|
|
9 |
|
|
(2 |
) |
|
(22 |
) |
Cash and investments |
|
8 |
|
|
9 |
|
|
(1 |
) |
|
(11 |
) |
|
|
|
|
|
Total interest income |
|
4,295 |
|
|
4,730 |
|
|
(435 |
) |
|
(9 |
) |
Total interest
expense |
|
2,074 |
|
|
2,063 |
|
|
11 |
|
|
1 |
|
|
|
|
|
|
Net interest income |
|
2,221 |
|
|
2,667 |
|
|
(446 |
) |
|
(17 |
) |
Less: provisions for loan
losses |
|
561 |
|
|
628 |
|
|
(67 |
) |
|
(11 |
) |
|
|
|
|
|
Net interest income after
provisions for loan losses |
|
1,660 |
|
|
2,039 |
|
|
(379 |
) |
|
(19 |
) |
Other income (loss): |
|
|
|
|
Servicing revenue |
|
340 |
|
|
298 |
|
|
42 |
|
|
14 |
|
Asset recovery revenue |
|
367 |
|
|
388 |
|
|
(21 |
) |
|
(5 |
) |
Other income |
|
17 |
|
|
82 |
|
|
(65 |
) |
|
(79 |
) |
Losses on sales of loans and
investments |
|
(9 |
) |
|
— |
|
|
(9 |
) |
|
100 |
|
Gains on debt repurchases |
|
21 |
|
|
— |
|
|
21 |
|
|
100 |
|
Gains (losses) on derivative and
hedging activities, net |
|
166 |
|
|
139 |
|
|
27 |
|
|
19 |
|
|
|
|
|
|
Total other income
(loss) |
|
902 |
|
|
907 |
|
|
(5 |
) |
|
(1 |
) |
Expenses: |
|
|
|
|
Operating expenses |
|
918 |
|
|
987 |
|
|
(69 |
) |
|
(7 |
) |
Goodwill and acquired intangible
asset impairment and amortization expense |
|
12 |
|
|
9 |
|
|
3 |
|
|
33 |
|
Restructuring and other
reorganization expenses |
|
32 |
|
|
113 |
|
|
(81 |
) |
|
(72 |
) |
|
|
|
|
|
Total expenses |
|
962 |
|
|
1,109 |
|
|
(147 |
) |
|
(13 |
) |
|
|
|
|
|
Income from continuing
operations, before income tax expense |
|
1,600 |
|
|
1,837 |
|
|
(237 |
) |
|
(13 |
) |
Income tax expense |
|
604 |
|
|
688 |
|
|
(84 |
) |
|
(12 |
) |
|
|
|
|
|
Net income from continuing
operations |
|
996 |
|
|
1,149 |
|
|
(153 |
) |
|
(13 |
) |
Income from discontinued
operations, net of tax expense |
|
1 |
|
|
— |
|
|
1 |
|
|
100 |
|
|
|
|
|
|
Net
income |
|
997 |
|
|
1,149 |
|
|
(152 |
) |
|
(13 |
) |
Less: net income (loss)
attributable to noncontrolling interest |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
Net income
attributable to Navient Corporation |
|
997 |
|
|
1,149 |
|
|
(152 |
) |
|
(13 |
) |
Preferred stock
dividends |
|
— |
|
|
6 |
|
|
(6 |
) |
|
(100 |
) |
|
|
|
|
|
Net income attributable to
Navient Corporation common stock |
$ |
997 |
|
$ |
1,143 |
|
$ |
(146 |
) |
|
(13 |
)% |
|
|
|
|
|
Basic earnings per
common share attributable to Navient Corporation |
$ |
2.66 |
|
$ |
2.74 |
|
$ |
(.08 |
) |
|
(3 |
)% |
|
|
|
|
|
Diluted earnings per common share
attributable to Navient Corporation |
$ |
2.61 |
|
$ |
2.69 |
|
$ |
(.08 |
) |
|
(3 |
)% |
|
|
|
|
|
Dividends per common share
attributable to Navient Corporation |
$ |
.64 |
|
$ |
.60 |
|
$ |
.04 |
|
|
7 |
% |
|
|
|
|
|
GAAP Balance Sheet (Unaudited) |
|
(In millions, except
share and per share data) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
Assets |
|
|
|
FFELP Loans (net of
allowance for losses of $78, $84 and $93, respectively) |
$ |
96,498 |
|
$ |
98,468 |
|
$ |
104,521 |
|
Private Education Loans
(net of allowance for losses of $1,471, $1,505 and $1,916,
respectively) |
|
26,394 |
|
|
27,323 |
|
|
29,796 |
|
Cash and investments |
|
2,095 |
|
|
1,990 |
|
|
2,076 |
|
Restricted cash and
investments |
|
3,738 |
|
|
4,296 |
|
|
3,926 |
|
Goodwill and acquired
intangible assets, net |
|
705 |
|
|
544 |
|
|
369 |
|
Other assets |
|
4,682 |
|
|
5,045 |
|
|
5,664 |
|
|
|
|
|
Total assets |
$ |
134,112 |
|
$ |
137,666 |
|
$ |
146,352 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
Short-term borrowings |
$ |
2,570 |
|
$ |
2,816 |
|
$ |
2,663 |
|
Long-term borrowings |
|
124,833 |
|
|
128,293 |
|
|
136,866 |
|
Other liabilities |
|
2,710 |
|
|
2,670 |
|
|
2,625 |
|
|
|
|
|
Total liabilities |
|
130,113 |
|
|
133,779 |
|
|
142,154 |
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
Equity |
|
|
|
Common stock, par value
$0.01 per share; 1.125 billion shares authorized: 431 million,
430 million and 426 million shares, respectively,
issued |
|
4 |
|
|
4 |
|
|
4 |
|
Additional paid-in
capital |
|
2,967 |
|
|
2,964 |
|
|
2,893 |
|
Accumulated other
comprehensive income (loss), net of tax expense (benefit) |
|
(51 |
) |
|
(82 |
) |
|
9 |
|
Retained earnings |
|
2,480 |
|
|
2,251 |
|
|
1,724 |
|
|
|
|
|
Total Navient Corporation
stockholders’ equity before treasury stock |
|
5,400 |
|
|
5,137 |
|
|
4,630 |
|
Less: Common stock held in
treasury: 82 million, 68 million and 24 million
shares, respectively |
|
(1,425 |
) |
|
(1,254 |
) |
|
(432 |
) |
|
|
|
|
Total Navient Corporation
stockholders’ equity |
|
3,975 |
|
|
3,883 |
|
|
4,198 |
|
Noncontrolling
interest |
|
24 |
|
|
4 |
|
|
— |
|
|
|
|
|
Total equity |
|
3,999 |
|
|
3,887 |
|
|
4,198 |
|
|
|
|
|
Total liabilities and
equity |
$ |
134,112 |
|
$ |
137,666 |
|
$ |
146,352 |
|
|
|
|
|
Consolidated Earnings Summary — GAAP
basis
Three Months Ended December 31, 2015 Compared with
Three Months Ended December 31, 2014
For the three months ended December 31, 2015, net income
was $286 million, or $0.79 diluted earnings per common share,
compared with net income of $263 million, or $0.64 diluted earnings
per common share, for the three months ended December 31,
2014. The increase in net income was primarily due to a $115
million increase in net gains on derivative and hedging activities,
a $23 million decrease in the provision for loan losses, a $21
million increase in gains on debt repurchases, $12 million increase
in asset recovery revenue and a $10 million decrease in
restructuring and other reorganization expenses. This was partially
offset by a $78 million decrease in net interest income, a $28
million decrease in other income, a $21 million increase in losses
on sales of loans and investments, and a $20 million increase in
operating expenses.
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 $78 million, primarily due to
a reduction in Private Education Loan net interest income resulting
from a decline in the loan balance and net interest margin, as well
as a reduction in the net interest margin on the FFELP Loans.
- Provisions for loan losses decreased $23 million primarily as a
result of the overall improvement in Private Education Loans’
credit quality, delinquency and charge-off trends leading to
decreases in expected future charge-offs.
- Asset recovery revenue increased $12 million primarily as
a result of $30 million of additional revenue from Gila LLC,
acquired in first-quarter 2015, and Xtend Healthcare, acquired in
October 2015. This was partially offset by an $8 million
reduction in revenue related to a legislative reduction in certain
education loan-related fees earned as well as a decrease in
education loan-related asset recovery volume.
- Other income decreased $28 million primarily due to a reduction
in foreign currency translation gains. The foreign currency
translation gains relate to a portion of our foreign currency
denominated debt that does not receive hedge accounting treatment.
These gains were partially offset by the “gains (losses) on
derivative and hedging activities, net” line item on the income
statement related to the derivatives used to economically hedge
these debt instruments.
- There was a $21 million loss on the sale of $178 million of
Private Education Loans in 2015. There were no loan sales in
the year-ago period.
- Gains on debt repurchases increased $21 million. Debt
repurchase activity will fluctuate based on market fundamentals and
our liability management strategy.
- Net gains on derivative and hedging activities increased $115
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 fluctuate 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.
- Operating expenses increased $20 million. This increase was
primarily due to operating costs related to Gila LLC, which was
acquired in first-quarter 2015 and to Xtend Healthcare, acquired in
October 2015.
- Restructuring and other reorganization expenses decreased from
$10 million in the year-ago quarter to $0 million. The year-ago
quarter’s expenses were primarily related to third-party costs
incurred in connection with the Spin-Off.
We repurchased 14.1 million shares and 8.7 million
shares of our common stock during the three months ended
December 31, 2015 and 2014, respectively, as part of our
common share repurchase program. Primarily as a result of ongoing
common share repurchases, our average outstanding diluted shares
decreased by 52 million common shares from the year-ago
quarter.
Year Ended December 31, 2015 Compared with Year
Ended December 31, 2014
For the year ended December 31, 2015, net income was $997
million, or $2.61 diluted earnings per common share, compared with
net income of $1.1 billion, or $2.69 diluted earnings per common
share, for the year ended December 31, 2014. The decrease in
net income was primarily due to a $446 million decline in net
interest income, a $65 million decrease in other income, and a $21
million decrease in asset recovery revenue. This was partially
offset by an $81 million decrease in restructuring and other
reorganization expenses, a $69 million decrease in operating
expenses, a $67 million decrease in the provision for loan losses,
a $42 million increase in servicing revenue, a $27 million increase
in net gains on derivative and hedging activities, and a $21
million increase in gains on debt repurchases.
The primary contributors to each of the identified drivers of
changes in net income for the current year-end period compared with
the year-ago period are as follows:
- Net interest income decreased by $446 million, of which $186
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 loan balance and net interest margin, as well as a
reduction in the net interest margin on the FFELP Loans.
- Provisions for loan losses declined $67 million, of which $49
million related to the deemed distribution of SLM BankCo on
April 30, 2014.
- Servicing revenue increased $42 million primarily as a result
of increasing our recovery expectation on previously assessed late
fees, as well as a general increase in third-party servicing
revenue, primarily related to servicing for ED.
- Asset recovery revenue decreased $21 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 $79 million of the decrease in asset recovery revenue.
This reduction was partially offset by $69 million of additional
revenue from Gila LLC, acquired in first-quarter 2015, and Xtend
Healthcare, acquired in October 2015.
- Other income decreased $65 million due in part to a reduction
in foreign currency translation gains. The foreign currency
translation gains relate to a portion of our foreign currency
denominated debt that does not receive hedge accounting treatment.
These gains were partially offset by the “gains (losses) on
derivative and hedging activities, net” line item on the income
statement related to the derivatives used to economically hedge
these debt instruments.
- Losses on sales of loans and investments increased $9 million
due to a $21 million loss on the sale of $178 million of Private
Education Loans, partially offset by $12 million in gains on the
sale of $412 million of FFELP Loans. There were no loan sales in
the prior year.
- Gains on debt repurchases increased $21 million. Debt
repurchase activity will fluctuate based on market fundamentals and
our liability management strategy.
- Net gains on derivative and hedging activities increased $27
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 fluctuate 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.
- In 2015 and 2014, we recorded $19 million and $112 million,
respectively, of regulatory-related costs. Excluding these
expenses, operating expenses increased $24 million. This increase
was primarily due to operating costs related to Gila LLC, which was
acquired in first-quarter 2015, and to Xtend Healthcare, which was
acquired in October 2015, and incremental third-party servicing
expenses related to an $8.5 billion loan acquisition in
fourth-quarter 2014 (including $11 million of one-time conversion
costs to move $4.9 billion of FFELP Loans to our servicing system).
This was partially offset by $63 million related to the deemed
distribution of SLM BankCo on April 30, 2014.
- Restructuring and other reorganization expenses decreased $81
million, from $113 million to $32 million. The year-ago period’s
expenses were primarily related to third-party costs incurred in
connection with the Spin-Off. In second-quarter 2015, the Company
launched a restructuring initiative to simplify and streamline its
management structure post-Spin-Off to improve the operating
efficiency and effectiveness of the organization, and as a result
recorded $29 million of restructuring expense primarily related to
expected severance and other related costs.
We repurchased 56.0 million shares and 30.4 million
shares of our common stock during the years ended December 31,
2015 and 2014, respectively, as part of our common share repurchase
program. Primarily as a result of ongoing common share repurchases,
our average outstanding diluted shares decreased by 43 million
common shares from the year-ago period.
“Core Earnings” — Definition and
Limitations
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 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,
including the restructuring expenses related to the restructuring
initiative launched in second-quarter 2015 to simplify and
streamline the Company’s management structure post-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 December 31, 2015 |
(Dollars in
millions) |
FFELP Loans |
Private Education Loans |
Business Services |
Other |
Eliminations(1) |
Total “Core Earnings” |
Adjustments |
Total GAAP |
Reclassifications |
Additions/
(Subtractions) |
Total
Adjustments(2) |
Interest income: |
|
|
|
|
|
|
|
|
|
|
Student loans |
$ |
530 |
|
$ |
421 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
951 |
|
$ |
161 |
|
$ |
(60 |
) |
$ |
101 |
|
$ |
1,052 |
|
Other loans |
|
— |
|
|
— |
|
|
— |
|
|
2 |
|
|
— |
|
|
2 |
|
|
— |
|
|
— |
|
|
— |
|
|
2 |
|
Cash and investments |
|
2 |
|
|
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
3 |
|
|
— |
|
|
— |
|
|
— |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
532 |
|
|
421 |
|
|
— |
|
|
3 |
|
|
— |
|
|
956 |
|
|
161 |
|
|
(60 |
) |
|
101 |
|
|
1,057 |
|
Total interest
expense |
|
317 |
|
|
165 |
|
|
— |
|
|
29 |
|
|
— |
|
|
511 |
|
|
10 |
|
|
— |
|
|
10 |
|
|
521 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
(loss) |
|
215 |
|
|
256 |
|
|
— |
|
|
(26 |
) |
|
— |
|
|
445 |
|
|
151 |
|
|
(60 |
) |
|
91 |
|
|
536 |
|
Less: provisions for loan
losses |
|
7 |
|
|
110 |
|
|
— |
|
|
(2 |
) |
|
— |
|
|
115 |
|
|
— |
|
|
— |
|
|
— |
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
after provisions for loan losses |
|
208 |
|
|
146 |
|
|
— |
|
|
(24 |
) |
|
— |
|
|
330 |
|
|
151 |
|
|
(60 |
) |
|
91 |
|
|
421 |
|
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
Servicing revenue |
|
16 |
|
|
4 |
|
|
165 |
|
|
— |
|
|
(103 |
) |
|
82 |
|
|
— |
|
|
— |
|
|
— |
|
|
82 |
|
Asset recovery revenue |
|
— |
|
|
— |
|
|
92 |
|
|
— |
|
|
— |
|
|
92 |
|
|
— |
|
|
— |
|
|
— |
|
|
92 |
|
Other income |
|
— |
|
|
— |
|
|
— |
|
|
2 |
|
|
— |
|
|
2 |
|
|
(151 |
) |
|
246 |
|
|
95 |
|
|
97 |
|
Gains (losses) on sales of loans
and investments |
|
— |
|
|
(21 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(21 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(21 |
) |
Gains on debt repurchases |
|
— |
|
|
— |
|
|
— |
|
|
21 |
|
|
— |
|
|
21 |
|
|
— |
|
|
— |
|
|
— |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(loss) |
|
16 |
|
|
(17 |
) |
|
257 |
|
|
23 |
|
|
(103 |
) |
|
176 |
|
|
(151 |
) |
|
246 |
|
|
95 |
|
|
271 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
|
106 |
|
|
41 |
|
|
130 |
|
|
10 |
|
|
(103 |
) |
|
184 |
|
|
— |
|
|
— |
|
|
— |
|
|
184 |
|
Overhead expenses |
|
— |
|
|
— |
|
|
— |
|
|
51 |
|
|
— |
|
|
51 |
|
|
— |
|
|
— |
|
|
— |
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
106 |
|
|
41 |
|
|
130 |
|
|
61 |
|
|
(103 |
) |
|
235 |
|
|
— |
|
|
— |
|
|
— |
|
|
235 |
|
Goodwill and acquired intangible
asset impairment and amortization |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5 |
|
|
5 |
|
|
5 |
|
Restructuring and other
reorganization expenses |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
106 |
|
|
41 |
|
|
130 |
|
|
61 |
|
|
(103 |
) |
|
235 |
|
|
— |
|
|
5 |
|
|
5 |
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations, before income tax expense (benefit) |
|
118 |
|
|
88 |
|
|
127 |
|
|
(62 |
) |
|
— |
|
|
271 |
|
|
— |
|
|
181 |
|
|
181 |
|
|
452 |
|
Income tax expense
(benefit)(3) |
|
44 |
|
|
32 |
|
|
46 |
|
|
(23 |
) |
|
— |
|
|
99 |
|
|
— |
|
|
67 |
|
|
67 |
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from
continuing operations |
|
74 |
|
|
56 |
|
|
81 |
|
|
(39 |
) |
|
— |
|
|
172 |
|
|
— |
|
|
114 |
|
|
114 |
|
|
286 |
|
Income (loss) from
discontinued operations, net of tax expense (benefit) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
74 |
|
$ |
56 |
|
$ |
81 |
|
$ |
(39 |
) |
$ |
— |
|
$ |
172 |
|
$ |
— |
|
$ |
114 |
|
$ |
114 |
|
$ |
286 |
|
|
|
|
|
|
|
|
|
|
|
|
(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, 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 |
$ |
— |
$ |
91 |
|
$ |
— |
|
$ |
91 |
|
Total other income |
|
— |
|
95 |
|
|
— |
|
|
95 |
|
Operating expenses |
|
— |
|
— |
|
|
— |
|
|
— |
|
Goodwill and acquired
intangible asset impairment and amortization |
|
— |
|
— |
|
|
5 |
|
|
5 |
|
Restructuring and other
reorganization expenses |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
Total “Core Earnings”
adjustments to GAAP |
$ |
— |
$ |
186 |
|
$ |
(5 |
) |
|
181 |
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
67 |
|
|
|
|
|
|
|
Net income |
|
|
|
|
$ |
114 |
|
|
|
|
|
|
|
(3) Income taxes are based on a percentage of net income
before tax for the individual reportable segment.
|
|
|
Quarter
Ended September 30, 2015 |
(Dollars in
millions) |
FFELP Loans |
Private Education Loans |
Business Services |
Other |
Eliminations(1) |
Total “Core Earnings” |
Adjustments |
Total GAAP |
Reclassifications |
Additions/
(Subtractions) |
Total
Adjustments(2) |
Interest income: |
|
|
|
|
|
|
|
|
|
|
Student loans |
$ |
526 |
|
$ |
444 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
970 |
|
$ |
164 |
|
$ |
(60 |
) |
$ |
104 |
|
$ |
1,074 |
|
Other loans |
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
Cash and investments |
|
2 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2 |
|
|
— |
|
|
— |
|
|
— |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
528 |
|
|
444 |
|
|
— |
|
|
1 |
|
|
— |
|
|
973 |
|
|
164 |
|
|
(60 |
) |
|
104 |
|
|
1,077 |
|
Total interest
expense |
|
317 |
|
|
170 |
|
|
— |
|
|
26 |
|
|
— |
|
|
513 |
|
|
11 |
|
|
— |
|
|
11 |
|
|
524 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
(loss) |
|
211 |
|
|
274 |
|
|
— |
|
|
(25 |
) |
|
— |
|
|
460 |
|
|
153 |
|
|
(60 |
) |
|
93 |
|
|
553 |
|
Less: provisions for loan
losses |
|
7 |
|
|
117 |
|
|
— |
|
|
(1 |
) |
|
— |
|
|
123 |
|
|
— |
|
|
— |
|
|
— |
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
after provisions for loan losses |
|
204 |
|
|
157 |
|
|
— |
|
|
(24 |
) |
|
— |
|
|
337 |
|
|
153 |
|
|
(60 |
) |
|
93 |
|
|
430 |
|
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
Servicing revenue |
|
16 |
|
|
5 |
|
|
161 |
|
|
— |
|
|
(106 |
) |
|
76 |
|
|
— |
|
|
— |
|
|
— |
|
|
76 |
|
Asset recovery revenue |
|
— |
|
|
— |
|
|
85 |
|
|
— |
|
|
— |
|
|
85 |
|
|
— |
|
|
— |
|
|
— |
|
|
85 |
|
Other income |
|
— |
|
|
— |
|
|
2 |
|
|
3 |
|
|
— |
|
|
5 |
|
|
(153 |
) |
|
168 |
|
|
15 |
|
|
20 |
|
Gains (losses) on sales of loans
and investments |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Gains on debt repurchases |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(loss) |
|
16 |
|
|
5 |
|
|
248 |
|
|
3 |
|
|
(106 |
) |
|
166 |
|
|
(153 |
) |
|
168 |
|
|
15 |
|
|
181 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
|
109 |
|
|
39 |
|
|
123 |
|
|
9 |
|
|
(106 |
) |
|
174 |
|
|
— |
|
|
— |
|
|
— |
|
|
174 |
|
Overhead expenses |
|
— |
|
|
— |
|
|
— |
|
|
54 |
|
|
— |
|
|
54 |
|
|
— |
|
|
— |
|
|
— |
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
109 |
|
|
39 |
|
|
123 |
|
|
63 |
|
|
(106 |
) |
|
228 |
|
|
— |
|
|
— |
|
|
— |
|
|
228 |
|
Goodwill and acquired intangible
asset impairment and amortization |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3 |
|
|
3 |
|
|
3 |
|
Restructuring and other
reorganization expenses |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
109 |
|
|
39 |
|
|
123 |
|
|
63 |
|
|
(106 |
) |
|
228 |
|
|
— |
|
|
3 |
|
|
3 |
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations, before income tax expense (benefit) |
|
111 |
|
|
123 |
|
|
125 |
|
|
(84 |
) |
|
— |
|
|
275 |
|
|
— |
|
|
105 |
|
|
105 |
|
|
380 |
|
Income tax expense
(benefit)(3) |
|
41 |
|
|
46 |
|
|
46 |
|
|
(31 |
) |
|
— |
|
|
102 |
|
|
— |
|
|
42 |
|
|
42 |
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from
continuing operations |
|
70 |
|
|
77 |
|
|
79 |
|
|
(53 |
) |
|
— |
|
|
173 |
|
|
— |
|
|
63 |
|
|
63 |
|
|
236 |
|
Income from discontinued
operations, net of tax expense |
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
70 |
|
$ |
77 |
|
$ |
79 |
|
$ |
(52 |
) |
$ |
— |
|
$ |
174 |
|
$ |
— |
|
$ |
63 |
|
$ |
63 |
|
$ |
237 |
|
|
|
|
|
|
|
|
|
|
|
|
(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 September 30, 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 |
$ |
— |
$ |
93 |
|
$ |
— |
|
$ |
93 |
|
Total other income |
|
— |
|
15 |
|
|
— |
|
|
15 |
|
Operating expenses |
|
— |
|
— |
|
|
— |
|
|
— |
|
Goodwill and acquired
intangible asset impairment and amortization |
|
— |
|
— |
|
|
3 |
|
|
3 |
|
Restructuring and other
reorganization expenses |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
Total “Core Earnings”
adjustments to GAAP |
$ |
— |
$ |
108 |
|
$ |
(3 |
) |
|
105 |
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
42 |
|
|
|
|
|
|
|
Net income |
|
|
|
|
$ |
63 |
|
|
|
|
|
|
|
(3) Income taxes are based on a percentage of net income
before tax for the individual reportable segment.
|
|
|
Quarter
Ended December 31, 2014 |
(Dollars in
millions) |
FFELP Loans |
Private Education Loans |
Business Services |
Other |
Eliminations(1) |
Total “Core Earnings” |
Adjustments |
Total GAAP |
Reclassifications |
Additions/
(Subtractions) |
Total
Adjustments(2) |
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): |
|
|
|
|
|
|
|
|
|
|
Servicing revenue |
|
20 |
|
|
7 |
|
|
166 |
|
|
— |
|
|
(111 |
) |
|
82 |
|
|
— |
|
|
— |
|
|
— |
|
|
82 |
|
Asset recovery revenue |
|
— |
|
|
— |
|
|
80 |
|
|
— |
|
|
— |
|
|
80 |
|
|
— |
|
|
— |
|
|
— |
|
|
80 |
|
Other income |
|
— |
|
|
— |
|
|
2 |
|
|
7 |
|
|
— |
|
|
9 |
|
|
(158 |
) |
|
159 |
|
|
1 |
|
|
10 |
|
Gains (losses) on sales of loans
and investments |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Gains on debt repurchases |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
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 from discontinued
operations, net of tax expense |
|
— |
|
|
— |
|
|
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.
|
|
|
Year Ended
December 31, 2015 |
(Dollars in
millions) |
FFELP Loans |
Private Education Loans |
Business Services |
Other |
Eliminations(1) |
Total “Core Earnings” |
Adjustments |
Total GAAP |
Reclassifications |
Additions/
(Subtractions) |
Total
Adjustments(2) |
Interest income: |
|
|
|
|
|
|
|
|
|
|
Student loans |
$ |
2,112 |
|
$ |
1,756 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
3,868 |
|
$ |
650 |
|
$ |
(238 |
) |
$ |
412 |
|
$ |
4,280 |
|
Other loans |
|
— |
|
|
— |
|
|
— |
|
|
7 |
|
|
— |
|
|
7 |
|
|
— |
|
|
— |
|
|
— |
|
|
7 |
|
Cash and investments |
|
6 |
|
|
— |
|
|
— |
|
|
2 |
|
|
— |
|
|
8 |
|
|
— |
|
|
— |
|
|
— |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
2,118 |
|
|
1,756 |
|
|
— |
|
|
9 |
|
|
— |
|
|
3,883 |
|
|
650 |
|
|
(238 |
) |
|
412 |
|
|
4,295 |
|
Total interest
expense |
|
1,245 |
|
|
680 |
|
|
— |
|
|
112 |
|
|
— |
|
|
2,037 |
|
|
37 |
|
|
— |
|
|
37 |
|
|
2,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
(loss) |
|
873 |
|
|
1,076 |
|
|
— |
|
|
(103 |
) |
|
— |
|
|
1,846 |
|
|
613 |
|
|
(238 |
) |
|
375 |
|
|
2,221 |
|
Less: provisions for loan
losses |
|
26 |
|
|
538 |
|
|
— |
|
|
(3 |
) |
|
— |
|
|
561 |
|
|
— |
|
|
— |
|
|
— |
|
|
561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
after provisions for loan losses |
|
847 |
|
|
538 |
|
|
— |
|
|
(100 |
) |
|
— |
|
|
1,285 |
|
|
613 |
|
|
(238 |
) |
|
375 |
|
|
1,660 |
|
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
Servicing revenue |
|
95 |
|
|
21 |
|
|
651 |
|
|
— |
|
|
(427 |
) |
|
340 |
|
|
— |
|
|
— |
|
|
— |
|
|
340 |
|
Asset recovery revenue |
|
— |
|
|
— |
|
|
367 |
|
|
— |
|
|
— |
|
|
367 |
|
|
— |
|
|
— |
|
|
— |
|
|
367 |
|
Other income |
|
— |
|
|
— |
|
|
4 |
|
|
11 |
|
|
— |
|
|
15 |
|
|
(613 |
) |
|
781 |
|
|
168 |
|
|
183 |
|
Gains (losses) on sales of loans
and investments |
|
12 |
|
|
(21 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(9 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(9 |
) |
Gains on debt repurchases |
|
— |
|
|
— |
|
|
— |
|
|
21 |
|
|
— |
|
|
21 |
|
|
— |
|
|
— |
|
|
— |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(loss) |
|
107 |
|
|
— |
|
|
1,022 |
|
|
32 |
|
|
(427 |
) |
|
734 |
|
|
(613 |
) |
|
781 |
|
|
168 |
|
|
902 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
|
443 |
|
|
168 |
|
|
485 |
|
|
30 |
|
|
(427 |
) |
|
699 |
|
|
— |
|
|
— |
|
|
— |
|
|
699 |
|
Overhead expenses |
|
— |
|
|
— |
|
|
— |
|
|
219 |
|
|
— |
|
|
219 |
|
|
— |
|
|
— |
|
|
— |
|
|
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
443 |
|
|
168 |
|
|
485 |
|
|
249 |
|
|
(427 |
) |
|
918 |
|
|
— |
|
|
— |
|
|
— |
|
|
918 |
|
Goodwill and acquired intangible
asset impairment and amortization |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
12 |
|
|
12 |
|
|
12 |
|
Restructuring and other
reorganization expenses... |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
32 |
|
|
32 |
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
443 |
|
|
168 |
|
|
485 |
|
|
249 |
|
|
(427 |
) |
|
918 |
|
|
— |
|
|
44 |
|
|
44 |
|
|
962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations, before income tax expense (benefit) |
|
511 |
|
|
370 |
|
|
537 |
|
|
(317 |
) |
|
— |
|
|
1,101 |
|
|
— |
|
|
499 |
|
|
499 |
|
|
1,600 |
|
Income tax expense
(benefit)(3) |
|
190 |
|
|
137 |
|
|
199 |
|
|
(118 |
) |
|
— |
|
|
408 |
|
|
— |
|
|
196 |
|
|
196 |
|
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from
continuing operations |
|
321 |
|
|
233 |
|
|
338 |
|
|
(199 |
) |
|
— |
|
|
693 |
|
|
— |
|
|
303 |
|
|
303 |
|
|
996 |
|
Income (loss) from
discontinued operations, net of tax expense (benefit) |
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
321 |
|
$ |
233 |
|
$ |
338 |
|
$ |
(198 |
) |
$ |
— |
|
$ |
694 |
|
$ |
— |
|
$ |
303 |
|
$ |
303 |
|
$ |
997 |
|
|
|
|
|
|
|
|
|
|
|
|
(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:
|
|
|
Year Ended
December 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 |
$ |
— |
|
$ |
375 |
|
$ |
— |
|
$ |
375 |
|
Total other income |
|
— |
|
|
168 |
|
|
— |
|
|
168 |
|
Operating expenses |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Goodwill and acquired
intangible asset impairment and amortization |
|
— |
|
|
— |
|
|
12 |
|
|
12 |
|
Restructuring and other
reorganization expenses |
|
32 |
|
|
— |
|
|
— |
|
|
32 |
|
|
|
|
|
|
Total “Core Earnings”
adjustments to GAAP |
$ |
(32 |
) |
$ |
543 |
|
$ |
(12 |
) |
|
499 |
|
|
|
|
|
|
Income tax expense |
|
|
|
|
196 |
|
|
|
|
|
|
Net income |
|
|
|
$ |
303 |
|
|
|
|
|
|
(3) Income taxes are based on a percentage of net income
before tax for the individual reportable segment.
|
|
|
Year Ended
December 31, 2014 |
(Dollars in
millions) |
FFELP Loans |
Private Education Loans |
Business Services |
Other |
Eliminations(1) |
Total “Core Earnings” |
Adjustments |
Total GAAP |
Reclassifications |
Additions/
(Subtractions) |
Total
Adjustments(2) |
Interest income: |
|
|
|
|
|
|
|
|
|
|
Student loans |
$ |
2,097 |
|
$ |
1,958 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
4,055 |
|
$ |
699 |
|
$ |
(42 |
) |
$ |
657 |
|
$ |
4,712 |
|
Other loans |
|
— |
|
|
— |
|
|
— |
|
|
9 |
|
|
— |
|
|
9 |
|
|
— |
|
|
— |
|
|
— |
|
|
9 |
|
Cash and investments |
|
4 |
|
|
— |
|
|
— |
|
|
4 |
|
|
— |
|
|
8 |
|
|
— |
|
|
1 |
|
|
1 |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
2,101 |
|
|
1,958 |
|
|
— |
|
|
13 |
|
|
— |
|
|
4,072 |
|
|
699 |
|
|
(41 |
) |
|
658 |
|
|
4,730 |
|
Total interest
expense |
|
1,168 |
|
|
708 |
|
|
— |
|
|
114 |
|
|
— |
|
|
1,990 |
|
|
42 |
|
|
31 |
|
|
73 |
|
|
2,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
(loss) |
|
933 |
|
|
1,250 |
|
|
— |
|
|
(101 |
) |
|
— |
|
|
2,082 |
|
|
657 |
|
|
(72 |
) |
|
585 |
|
|
2,667 |
|
Less: provisions for loan
losses |
|
40 |
|
|
539 |
|
|
— |
|
|
— |
|
|
— |
|
|
579 |
|
|
— |
|
|
49 |
|
|
49 |
|
|
628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
after provisions for loan losses |
|
893 |
|
|
711 |
|
|
— |
|
|
(101 |
) |
|
— |
|
|
1,503 |
|
|
657 |
|
|
(121 |
) |
|
536 |
|
|
2,039 |
|
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
Servicing revenue |
|
62 |
|
|
25 |
|
|
668 |
|
|
— |
|
|
(456 |
) |
|
299 |
|
|
— |
|
|
(1 |
) |
|
(1 |
) |
|
298 |
|
Asset recovery revenue |
|
— |
|
|
— |
|
|
388 |
|
|
— |
|
|
— |
|
|
388 |
|
|
— |
|
|
— |
|
|
— |
|
|
388 |
|
Other income |
|
— |
|
|
— |
|
|
6 |
|
|
26 |
|
|
— |
|
|
32 |
|
|
(657 |
) |
|
846 |
|
|
189 |
|
|
221 |
|
Gains (losses) on sales of loans
and investments |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Gains on debt repurchases |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(loss) |
|
62 |
|
|
25 |
|
|
1,062 |
|
|
26 |
|
|
(456 |
) |
|
719 |
|
|
(657 |
) |
|
845 |
|
|
188 |
|
|
907 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
|
478 |
|
|
181 |
|
|
389 |
|
|
132 |
|
|
(456 |
) |
|
724 |
|
|
— |
|
|
36 |
|
|
36 |
|
|
760 |
|
Overhead expenses |
|
— |
|
|
— |
|
|
— |
|
|
200 |
|
|
— |
|
|
200 |
|
|
— |
|
|
27 |
|
|
27 |
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
478 |
|
|
181 |
|
|
389 |
|
|
332 |
|
|
(456 |
) |
|
924 |
|
|
— |
|
|
63 |
|
|
63 |
|
|
987 |
|
Goodwill and acquired intangible
asset impairment and amortization |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
9 |
|
|
9 |
|
|
9 |
|
Restructuring and other
reorganization expenses |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
113 |
|
|
113 |
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
478 |
|
|
181 |
|
|
389 |
|
|
332 |
|
|
(456 |
) |
|
924 |
|
|
— |
|
|
185 |
|
|
185 |
|
|
1,109 |
|
Income (loss) from
continuing operations, before income tax expense (benefit) |
|
477 |
|
|
555 |
|
|
673 |
|
|
(407 |
) |
|
— |
|
|
1,298 |
|
|
— |
|
|
539 |
|
|
539 |
|
|
1,837 |
|
Income tax expense
(benefit)(3) |
|
178 |
|
|
204 |
|
|
248 |
|
|
(150 |
) |
|
— |
|
|
480 |
|
|
— |
|
|
208 |
|
|
208 |
|
|
688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from
continuing operations |
$ |
299 |
|
$ |
351 |
|
$ |
425 |
|
$ |
(257 |
) |
$ |
— |
|
$ |
818 |
|
$ |
— |
|
$ |
331 |
|
$ |
331 |
|
$ |
1,149 |
|
Income (loss) from
discontinued operations, net of tax expense (benefit) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
299 |
|
$ |
351 |
|
$ |
425 |
|
$ |
(257 |
) |
$ |
— |
|
$ |
818 |
|
$ |
— |
|
$ |
331 |
|
$ |
331 |
|
$ |
1,149 |
|
|
|
|
|
|
|
|
|
|
|
|
(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:
|
|
|
Year 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 |
$ |
136 |
|
$ |
400 |
|
$ |
— |
|
$ |
536 |
|
Total other income |
|
15 |
|
|
173 |
|
|
— |
|
|
188 |
|
Operating expenses |
|
63 |
|
|
— |
|
|
— |
|
|
63 |
|
Goodwill and acquired
intangible asset impairment and amortization |
|
— |
|
|
— |
|
|
9 |
|
|
9 |
|
Restructuring and other
reorganization expenses |
|
113 |
|
|
— |
|
|
— |
|
|
113 |
|
|
|
|
|
|
Total “Core Earnings”
adjustments to GAAP |
$ |
(25 |
) |
$ |
573 |
|
$ |
(9 |
) |
|
539 |
|
|
|
|
|
|
Income tax expense |
|
|
|
|
208 |
|
|
|
|
|
|
Net income |
|
|
|
$ |
331 |
|
|
|
|
|
|
(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 |
Years Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
“Core Earnings”
net income attributable to Navient Corporation |
$ |
172 |
|
$ |
174 |
|
$ |
217 |
|
$ |
694 |
|
$ |
818 |
|
“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 |
|
— |
|
|
— |
|
|
(10 |
) |
|
(32 |
) |
|
(25 |
) |
Net impact of derivative
accounting |
|
186 |
|
|
108 |
|
|
98 |
|
|
543 |
|
|
573 |
|
Net impact of goodwill and
acquired intangible assets |
|
(5 |
) |
|
(3 |
) |
|
(2 |
) |
|
(12 |
) |
|
(9 |
) |
Net tax effect |
|
(67 |
) |
|
(42 |
) |
|
(40 |
) |
|
(196 |
) |
|
(208 |
) |
|
|
|
|
|
|
Total “Core Earnings”
adjustments to GAAP |
|
114 |
|
|
63 |
|
|
46 |
|
|
303 |
|
|
331 |
|
|
|
|
|
|
|
GAAP net income
attributable to Navient Corporation |
$ |
286 |
|
$ |
237 |
|
$ |
263 |
|
$ |
997 |
|
$ |
1,149 |
|
|
|
|
|
|
|
(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,
including the restructuring initiated in second-quarter 2015.
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 |
Years Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
SLM BankCo net income,
before income tax expense |
$ |
— |
$ |
— |
$ |
— |
|
$ |
— |
|
$ |
88 |
|
Restructuring and
reorganization expense in connection with the Spin-Off |
|
— |
|
— |
|
(10 |
) |
|
(32 |
) |
|
(113 |
) |
|
|
|
|
|
|
|
|
Total net impact, before
income tax expense |
$ |
— |
$ |
— |
$ |
(10 |
) |
$ |
(32 |
) |
$ |
(25 |
) |
|
|
|
|
|
|
|
|
(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 |
Years Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
“Core Earnings”
derivative adjustments: |
|
|
|
|
|
Gains (losses) on
derivative and hedging activities, net, included in other
income |
$ |
93 |
|
$ |
20 |
|
$ |
(22 |
) |
$ |
166 |
|
$ |
139 |
|
Plus: Realized losses on
derivative and hedging activities, net(1) |
|
151 |
|
|
153 |
|
|
158 |
|
|
613 |
|
|
657 |
|
|
|
|
|
|
|
Unrealized gains on
derivative and hedging activities, net(2) |
|
244 |
|
|
173 |
|
|
136 |
|
|
779 |
|
|
796 |
|
Amortization of net
premiums on Floor Income Contracts in net interest income for “Core
Earnings” |
|
(60 |
) |
|
(60 |
) |
|
(60 |
) |
|
(238 |
) |
|
(255 |
) |
Other derivative
accounting adjustments(3) |
|
2 |
|
|
(5 |
) |
|
22 |
|
|
2 |
|
|
32 |
|
|
|
|
|
|
|
Total net impact of
derivative accounting(4) |
$ |
186 |
|
$ |
108 |
|
$ |
98 |
|
$ |
543 |
|
$ |
573 |
|
|
|
|
|
|
|
(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 |
Years Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
Floor Income
Contracts |
$ |
245 |
|
$ |
69 |
|
$ |
125 |
|
$ |
557 |
|
$ |
633 |
|
Basis swaps |
|
(4 |
) |
|
40 |
|
|
(7 |
) |
|
42 |
|
|
(5 |
) |
Foreign currency
hedges |
|
(9 |
) |
|
36 |
|
|
— |
|
|
129 |
|
|
72 |
|
Other |
|
12 |
|
|
28 |
|
|
18 |
|
|
51 |
|
|
96 |
|
|
|
|
|
|
|
Total unrealized gains on
derivative and hedging activities, net |
$ |
244 |
|
$ |
173 |
|
$ |
136 |
|
$ |
779 |
|
$ |
796 |
|
|
|
|
|
|
|
(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 |
Years Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
Reclassification
of realized gains (losses) on derivative and hedging
activities: |
|
|
|
|
|
Net settlement expense on
Floor Income Contracts reclassified to net interest income |
$ |
(161 |
) |
$ |
(164 |
) |
$ |
(167 |
) |
$ |
(650 |
) |
$ |
(699 |
) |
Net settlement income on
interest rate swaps reclassified to net interest income |
|
10 |
|
|
11 |
|
|
9 |
|
|
37 |
|
|
42 |
|
Net realized gains on
terminated derivative contracts reclassified to other income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
Total reclassifications of
realized losses on derivative and hedging activities |
$ |
(151 |
) |
$ |
(153 |
) |
$ |
(158 |
) |
$ |
(613 |
) |
$ |
(657 |
) |
|
|
|
|
|
|
Cumulative Impact of Derivative Accounting under GAAP compared
to “Core Earnings”
As of December 31, 2015, derivative accounting has reduced
GAAP equity by approximately $281 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 |
Years Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
Beginning impact of
derivative accounting on GAAP equity |
$ |
(429 |
) |
$ |
(443 |
) |
$ |
(617 |
) |
$ |
(553 |
) |
$ |
(926 |
) |
Net impact of net
unrealized gains (losses) under derivative accounting(1) |
|
148 |
|
|
14 |
|
|
64 |
|
|
272 |
|
|
373 |
|
|
|
|
|
|
|
Ending impact of
derivative accounting on GAAP equity |
$ |
(281 |
) |
$ |
(429 |
) |
$ |
(553 |
) |
$ |
(281 |
) |
$ |
(553 |
) |
|
|
|
|
|
|
(1) Net impact of net unrealized gains (losses) under
derivative accounting is composed of the following:
|
|
|
|
Quarters
Ended |
Years Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
Total pre-tax net impact
of derivative accounting recognized in net income(a) |
$ |
186 |
|
$ |
108 |
|
$ |
98 |
|
$ |
543 |
|
$ |
573 |
|
Tax impact of derivative
accounting adjustment recognized in net income |
|
(69 |
) |
|
(38 |
) |
|
(36 |
) |
|
(211 |
) |
|
(195 |
) |
Change in unrealized gains
(losses) on derivatives, net of tax recognized in other
comprehensive income |
|
31 |
|
|
(56 |
) |
|
2 |
|
|
(60 |
) |
|
(5 |
) |
|
|
|
|
|
|
Net impact of net
unrealized gains (losses) under derivative accounting |
$ |
148 |
|
$ |
14 |
|
$ |
64 |
|
$ |
272 |
|
$ |
373 |
|
|
|
|
|
|
|
(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 December 31, 2015, the remaining
amortization term of the net floor premiums was approximately 4.0
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 December 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) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
Unamortized net Floor
premiums (net of tax) |
$ |
(145 |
) |
$ |
(183 |
) |
$ |
(295 |
) |
Unrecognized hedged Floor
Income related to pay fixed interest rate swaps (net of tax) |
|
(342 |
) |
|
(342 |
) |
|
(320 |
) |
|
|
|
|
Total(1) |
$ |
(487 |
) |
$ |
(525 |
) |
$ |
(615 |
) |
|
|
|
|
(1) $(773) million, $(833) million and $(974) million on a
pre-tax basis as of December 31, 2015, September 30, 2015
and December 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 |
Years Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
“Core Earnings” goodwill
and acquired intangible asset adjustments(1) |
$ |
(5 |
) |
$ |
(3 |
) |
$ |
(2 |
) |
$ |
(12 |
) |
$ |
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 Loan Portfolio
Performance
Private Education Loan Delinquencies and Forbearance — GAAP and
“Core Earnings” Basis
|
|
|
|
|
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
(Dollars in
millions) |
Balance |
%
|
Balance |
%
|
Balance |
%
|
Loans
in-school/grace/deferment(1) |
$ |
2,040 |
|
|
$ |
2,335 |
|
|
$ |
3,053 |
|
|
Loans in
forbearance(2) |
|
973 |
|
|
|
1,046 |
|
|
|
1,059 |
|
|
Loans in repayment and
percentage of each status: |
|
|
|
|
|
|
Loans current |
|
22,731 |
|
|
92.8 |
% |
|
23,258 |
|
|
92.6 |
% |
|
24,761 |
|
|
91.9 |
% |
Loans delinquent
31-60 days(3) |
|
577 |
|
|
2.4 |
|
|
589 |
|
|
2.4 |
|
|
734 |
|
|
2.7 |
|
Loans delinquent
61-90 days(3) |
|
348 |
|
|
1.4 |
|
|
403 |
|
|
1.6 |
|
|
436 |
|
|
1.6 |
|
Loans delinquent greater than
90 days(3) |
|
846 |
|
|
3.4 |
|
|
854 |
|
|
3.4 |
|
|
1,018 |
|
|
3.8 |
|
|
|
|
|
|
|
|
Total Private Education
Loans in repayment |
|
24,502 |
|
|
100 |
% |
|
25,104 |
|
|
100 |
% |
|
26,949 |
|
|
100 |
% |
|
|
|
|
|
|
|
Total Private Education
Loans, gross |
|
27,515 |
|
|
|
28,485 |
|
|
|
31,061 |
|
|
Private Education Loan
unamortized discount |
|
(531 |
) |
|
|
(549 |
) |
|
|
(594 |
) |
|
|
|
|
|
|
|
|
Total Private Education
Loans |
|
26,984 |
|
|
|
27,936 |
|
|
|
30,467 |
|
|
Private Education Loan
receivable for partially charged-off loans |
|
881 |
|
|
|
892 |
|
|
|
1,245 |
|
|
Private Education Loan
allowance for losses |
|
(1,471 |
) |
|
|
(1,505 |
) |
|
|
(1,916 |
) |
|
|
|
|
|
|
|
|
Private Education Loans,
net |
$ |
26,394 |
|
|
$ |
27,323 |
|
|
$ |
29,796 |
|
|
|
|
|
|
|
|
|
Percentage of Private
Education Loans in repayment |
|
|
89.0 |
% |
|
|
88.1 |
% |
|
|
86.8 |
% |
|
|
|
|
|
|
|
Delinquencies as a
percentage of Private Education Loans in repayment |
|
|
7.2 |
% |
|
|
7.4 |
% |
|
|
8.1 |
% |
|
|
|
|
|
|
|
Loans in forbearance as a
percentage of loans in repayment and forbearance |
|
|
3.8 |
% |
|
|
4.0 |
% |
|
|
3.8 |
% |
|
|
|
|
|
|
|
Loans in repayment with
more than 12 payments made |
|
|
94.1 |
% |
|
|
93.8 |
% |
|
|
91.5 |
% |
|
|
|
|
|
|
|
Cosigner rate |
|
|
64 |
% |
|
|
65 |
% |
|
|
64 |
% |
|
|
|
|
|
|
|
Average FICO |
|
|
718 |
|
|
|
718 |
|
|
|
719 |
|
|
|
|
|
|
|
|
(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 |
Years
Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
Allowance at beginning of
period |
$ |
1,505 |
|
$ |
1,533 |
|
$ |
1,959 |
|
$ |
1,916 |
|
$ |
2,097 |
|
Provision for Private
Education Loan losses |
|
110 |
|
|
117 |
|
|
128 |
|
|
538 |
|
|
588 |
|
Net adjustment resulting
from the change in the charge-off rate(1) |
|
— |
|
|
— |
|
|
— |
|
|
(330 |
) |
|
— |
|
Net charge-offs
remaining(2) |
|
(141 |
) |
|
(148 |
) |
|
(174 |
) |
|
(659 |
) |
|
(717 |
) |
|
|
|
|
|
|
Total net charge-offs |
|
(141 |
) |
|
(148 |
) |
|
(174 |
) |
|
(989 |
) |
|
(717 |
) |
Reclassification of
interest reserve(3) |
|
2 |
|
|
3 |
|
|
3 |
|
|
11 |
|
|
17 |
|
Loans sales |
|
(5 |
) |
|
— |
|
|
— |
|
|
(5 |
) |
|
— |
|
Distribution of SLM
BankCo |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(69 |
) |
|
|
|
|
|
|
Allowance at end of
period |
$ |
1,471 |
|
$ |
1,505 |
|
$ |
1,916 |
|
$ |
1,471 |
|
$ |
1,916 |
|
|
|
|
|
|
|
Net charge-offs as a
percentage of average loans in repayment, excluding the net
adjustment resulting from the change in the charge-off rate
(annualized)(1) |
|
2.3 |
% |
|
2.3 |
% |
|
2.5 |
% |
|
2.6 |
% |
|
2.5 |
% |
Net adjustment resulting
from the change in the charge-off rate as a percentage of average
loans in repayment (annualized)(1) |
|
— |
% |
|
— |
% |
|
— |
% |
|
1.3 |
% |
|
— |
% |
Average coverage of net
charge-offs, excluding the net adjustment resulting from the change
in the charge-off rate (annualized)(1) |
|
2.6 |
|
|
2.6 |
|
|
2.8 |
|
|
2.2 |
|
|
2.7 |
|
Allowance as a percentage
of the ending total loan balance |
|
5.2 |
% |
|
5.1 |
% |
|
5.9 |
% |
|
5.2 |
% |
|
5.9 |
% |
Allowance as a percentage
of ending loans in repayment |
|
6.0 |
% |
|
6.0 |
% |
|
7.1 |
% |
|
6.0 |
% |
|
7.1 |
% |
Ending total loans(4) |
$ |
28,396 |
|
$ |
29,377 |
|
$ |
32,306 |
|
$ |
28,396 |
|
$ |
32,306 |
|
Average loans in
repayment |
$ |
24,915 |
|
$ |
25,546 |
|
$ |
27,127 |
|
$ |
25,802 |
|
$ |
28,577 |
|
Ending loans in
repayment |
$ |
24,502 |
|
$ |
25,104 |
|
$ |
26,949 |
|
$ |
24,502 |
|
$ |
26,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) In the second quarter of 2015, the portion of the loan
amount charged off at default increased from 73 percent to 79
percent. This did not impact the provision for loan losses as
previously this had been reserved through the allowance for loan
losses. This change resulted in a $330 million reduction to the
balance of the receivable for partially charged-off loans.
(2) 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. (3) 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. (4) 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 |
Years
Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
Allowance at beginning of
period |
$ |
1,505 |
|
$ |
1,533 |
|
$ |
1,959 |
|
$ |
1,916 |
|
$ |
2,035 |
|
Provision for Private
Education Loan losses |
|
110 |
|
|
117 |
|
|
128 |
|
|
538 |
|
|
539 |
|
Net adjustment resulting
from the change in the charge-off rate(1) |
|
— |
|
|
— |
|
|
— |
|
|
(330 |
) |
|
— |
|
Net charge-offs
remaining(2) |
|
(141 |
) |
|
(148 |
) |
|
(174 |
) |
|
(659 |
) |
|
(717 |
) |
|
|
|
|
|
|
Total net charge-offs |
|
(141 |
) |
|
(148 |
) |
|
(174 |
) |
|
(989 |
) |
|
(717 |
) |
Reclassification of
interest reserve(3) |
|
2 |
|
|
3 |
|
|
3 |
|
|
11 |
|
|
17 |
|
Loan sales |
|
(5 |
) |
|
— |
|
|
— |
|
|
(5 |
) |
|
42 |
|
|
|
|
|
|
|
Allowance at end of
period |
$ |
1,471 |
|
$ |
1,505 |
|
$ |
1,916 |
|
$ |
1,471 |
|
$ |
1,916 |
|
|
|
|
|
|
|
Net charge-offs as a
percentage of average loans in repayment, excluding the net
adjustment resulting from the change in the charge-off rate
(annualized)(1) |
|
2.3 |
% |
|
2.3 |
% |
|
2.5 |
% |
|
2.6 |
% |
|
2.6 |
% |
Net adjustment resulting
from the change in the charge-off rate as a percentage of average
loans in repayment (annualized)(1) |
|
— |
% |
|
— |
% |
|
— |
% |
|
1.3 |
% |
|
— |
% |
Average coverage of net
charge-offs, excluding the net adjustment resulting from the change
in the charge-off rate (annualized)(1) |
|
2.6 |
|
|
2.6 |
|
|
2.8 |
|
|
2.2 |
|
|
2.7 |
|
Allowance as a percentage
of the ending total loan balance |
|
5.2 |
% |
|
5.1 |
% |
|
5.9 |
% |
|
5.2 |
% |
|
5.9 |
% |
Allowance as a percentage
of ending loans in repayment |
|
6.0 |
% |
|
6.0 |
% |
|
7.1 |
% |
|
6.0 |
% |
|
7.1 |
% |
Ending total loans(4) |
$ |
28,396 |
|
$ |
29,377 |
|
$ |
32,306 |
|
$ |
28,396 |
|
$ |
32,306 |
|
Average loans in
repayment |
$ |
24,915 |
|
$ |
25,546 |
|
$ |
27,127 |
|
$ |
25,802 |
|
$ |
27,145 |
|
Ending loans in
repayment |
$ |
24,502 |
|
$ |
25,104 |
|
$ |
26,949 |
|
$ |
24,502 |
|
$ |
26,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) In the second quarter of 2015, the portion of the loan
amount charged off at default increased from 73 percent to 79
percent. This did not impact the provision for loan losses as
previously this had been reserved through the allowance for loan
losses. This change resulted in a $330 million reduction to the
balance of the receivable for partially charged-off loans.
(2) 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. (3) 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. (4) 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 December 31, 2015, we considered several factors with
respect to our Private Education Loan portfolio. On a “Core
Earnings” basis, total loans delinquent (as a percentage of loans
in repayment) have decreased to 7.2 percent from 8.1 percent
in the year-ago quarter. Loans greater than 90 days delinquent
(as a percentage of loans in repayment) have decreased to 3.4
percent from 3.8 percent in the year-ago quarter. The “Core
Earnings” charge-off rate decreased to 2.3 percent from 2.5 percent
in the year-ago quarter. Loans in forbearance (as a percentage of
loans in repayment and forbearance) remained at 3.8 percent for the
both the current and year-ago quarters.
The Private Education Loan provision for loan losses on a “Core
Earnings” basis was $110 million in the fourth quarter of 2015,
down $18 million from the fourth quarter of 2014. This decrease in
provision is primarily a result of the overall improvement in
Private Education Loans’ credit quality, delinquency and charge-off
trends leading to decreases in expected future charge-offs.
The Private Education Loan provision for loan losses on a “Core
Earnings” basis was $538 million in the year ended
December 31, 2015 compared with $539 million in the year-ago
period. The provision remained relatively consistent with the prior
year due to an increase in the amount of loans exiting deferment
status in 2014 over prior years and those loans experiencing
unfavorable credit trends compared to loans that exited deferment
in prior years. This segment of borrowers returned to school during
the recession, deferred payment on their existing loans, and exited
deferment status in 2014. This issue resulted in the second-quarter
2015 provision being elevated at $191 million versus $110 million
for fourth-quarter 2015, $117 million for third-quarter 2015 and
$120 million for first-quarter 2015. The remainder of the portfolio
continues to perform as expected and is experiencing positive
credit trends.
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. The financial crisis, which
began in 2007, impacted our collections on defaulted loans and as a
result, Private Education Loans which defaulted from 2007 through
March 31, 2015, experienced collection performance below our
pre-financial crisis experience. As a result, until we gained
enough data and experience to determine the long-term, post-default
recovery rate of 21 percent in second-quarter 2015, we established
a reserve for potential shortfalls in recoveries. In the second
quarter of 2015, the portion of the loan amount charged off at
default increased from 73 percent to 79 percent. This did not
impact the provision for loan losses as previously this had been
reserved through the allowance for loan losses. This change
resulted in a $330 million reduction to the balance of the
receivable for partially charged-off loans. We no longer expect to
have significant periodic recovery shortfalls as a result of this
change; however, it is possible we may continue to experience such
shortfalls.
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 |
Years Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
Receivable at beginning of
period |
$ |
892 |
|
$ |
902 |
|
$ |
1,253 |
|
$ |
1,245 |
|
$ |
1,313 |
|
Expected future recoveries
of current period defaults(1) |
|
36 |
|
|
38 |
|
|
58 |
|
|
183 |
|
|
233 |
|
Recoveries(2) |
|
(47 |
) |
|
(48 |
) |
|
(48 |
) |
|
(198 |
) |
|
(215 |
) |
Net adjustment resulting
from the change in the charge-off rate(3) |
|
— |
|
|
— |
|
|
— |
|
|
(330 |
) |
|
— |
|
Net charge-offs
remaining(3) |
|
— |
|
|
— |
|
|
(18 |
) |
|
(19 |
) |
|
(86 |
) |
|
|
|
|
|
|
Total net charge-offs |
|
— |
|
|
— |
|
|
(18 |
) |
|
(349 |
) |
|
(86 |
) |
|
|
|
|
|
|
Receivable at end of
period |
|
881 |
|
|
892 |
|
|
1,245 |
|
|
881 |
|
|
1,245 |
|
Allowance for estimated
recovery shortfalls(4) |
|
— |
|
|
— |
|
|
(385 |
) |
|
— |
|
|
(385 |
) |
|
|
|
|
|
|
Net receivable at end of
period |
$ |
881 |
|
$ |
892 |
|
$ |
860 |
|
$ |
881 |
|
$ |
860 |
|
|
|
|
|
|
|
(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) Prior to
second-quarter 2015, charge-offs represent the current period
recovery shortfall — the difference between what was expected to be
collected and what was actually collected. In the second quarter of
2015, the portion of the loan amount charged off at default
increased from 73 percent to 79 percent. This change resulted in a
$330 million reduction to the balance of the receivable for
partially charged-off loans. 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 $1.9 billion overall
allowance for Private Education Loan losses as of December 31,
2014. This component of the allowance was removed in the second
quarter of 2015 due to the increase in the charge-off rate
discussed above.
Liquidity and Capital Resources
We expect to fund our ongoing liquidity needs, including the
repayment of $1.1 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, and the distributions from our
securitization trusts (including servicing fees which are priority
payments within the trusts). We may also draw down on our secured
FFELP Loan and Private Education Loan facilities, issue term
asset-backed securities (“ABS”), enter into additional Private
Education Loan ABS repurchase facilities, or issue additional
unsecured debt.
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) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
Sources of primary
liquidity: |
|
|
|
Total unrestricted cash
and liquid investments |
$ |
1,598 |
|
$ |
1,310 |
|
$ |
1,449 |
|
Unencumbered FFELP
Loans |
|
1,005 |
|
|
1,175 |
|
|
1,909 |
|
|
|
|
|
Total GAAP and “Core
Earnings” basis |
$ |
2,603 |
|
$ |
2,485 |
|
$ |
3,358 |
|
|
|
|
|
Average Balances
|
|
|
|
Quarters
Ended |
Years Ended |
(Dollars in
millions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
December 31, 2015 |
December 31, 2014 |
Sources of primary
liquidity: |
|
|
|
|
|
Total unrestricted cash
and liquid investments |
$ |
1,458 |
|
$ |
1,473 |
|
$ |
2,139 |
|
$ |
1,546 |
|
$ |
2,066 |
|
Unencumbered FFELP
Loans |
|
1,159 |
|
|
1,253 |
|
|
1,856 |
|
|
1,506 |
|
|
1,810 |
|
|
|
|
|
|
|
Total “Core Earnings”
basis |
|
2,617 |
|
|
2,726 |
|
|
3,995 |
|
|
3,052 |
|
|
3,876 |
|
SLM BankCo(1) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
976 |
|
|
|
|
|
|
|
Total GAAP basis |
$ |
2,617 |
|
$ |
2,726 |
|
$ |
3,995 |
|
$ |
3,052 |
|
$ |
4,852 |
|
|
|
|
|
|
|
(1) For the year ended December 31, 2014, includes
$515 million of cash and $461 million 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 December 31, 2015, September 30, 2015 and
December 31, 2014, the maximum additional capacity under these
facilities was $3.6 billion, $10.1 billion and $13.2 billion,
respectively. For the three months ended December 31, 2015,
September 30, 2015 and December 31, 2014, the average
maximum additional capacity under these facilities was $8.8
billion, $11.0 billion and $14.0 billion, respectively.
For the years ended December 31, 2015 and 2014, the average
maximum additional capacity under these facilities was $11.2
billion and $12.2 billion, respectively. The $6.5 billion
reduction in the maximum additional capacity between September 30,
2015 and December 31, 2015 primarily related to a $5.7 billion
reduction in the availability under the facility with the Federal
Home Loan Bank of Des Moines (“FHLB”). On December 22, 2015,
we received notice from FHLB that availability under the facility
would be reduced from approximately $10.7 billion to approximately
$5 billion from December 22, 2015 to October 31, 2016, and to
approximately $3.6 billion thereafter. In addition, in
January 2016 we were informed this facility will mature in the
first quarter of 2021. Borrowing under this facility
will vary and is subject to the rules and regulations of the FHLB
and their regulator and the availability of qualifying
collateral.
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 2016. At
December 31, 2015, the available capacity under this facility
was $290 million. Borrowing under this facility will vary and is
subject to the availability of qualifying collateral from
unencumbered Private Education Loans.
At December 31, 2015, we had a total of $8.8 billion
of unencumbered assets inclusive of those listed in the table above
as sources of primary liquidity and exclusive of goodwill and
acquired intangible assets. Total unencumbered student loans
comprised $4.3 billion of our unencumbered assets of which
$3.3 billion and $1.0 billion related to Private
Education Loans and FFELP Loans, respectively. In addition,
as of December 31, 2015, we had $11.3 billion of encumbered net
assets in our various financing facilities (consolidated variable
interest entities). See discussion below related to the repurchase
facility used to generate liquidity in fourth-quarter 2015 from
certain of these encumbered net assets.
In fourth-quarter 2015, we completed over $900 million of new
financings which included a $550 million Private Education Loan ABS
repurchase facility (“Repurchase Facility”) and a $359 million
financing related to the securitization of non-traditional Private
Education Loans. In addition, we sold $178 million of Private
Education Loans which raised $157 million. The Repurchase
Facility is collateralized by the Residual Interests (i.e.,
encumbered net assets) we retained in three Private Education Loan
ABS previously issued. This is an example of how we can
effectively finance previously encumbered assets to generate
additional liquidity in addition to the unencumbered assets we
traditionally have encumbered in the past. Additionally, this
Repurchase Facility has a cost of funds lower than what our
unsecured debt new issuance cost of funds would be.
For further discussion of our various sources of liquidity, our
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.
|
|
|
|
(Dollars in
billions) |
December 31, 2015 |
September 30, 2015 |
December 31, 2014 |
Net assets of consolidated
variable interest entities (encumbered assets) — FFELP
Loans |
$ |
5.0 |
|
$ |
5.0 |
|
$ |
4.9 |
|
Net assets of consolidated
variable interest entities (encumbered assets) — Private
Education Loans |
|
6.3 |
|
|
6.5 |
|
|
6.5 |
|
Tangible unencumbered
assets(1) |
|
8.8 |
|
|
9.9 |
|
|
12.4 |
|
Senior unsecured debt |
|
(15.1 |
) |
|
(15.8 |
) |
|
(17.4 |
) |
Mark-to-market on
unsecured hedged debt(2) |
|
(.7 |
) |
|
(1.0 |
) |
|
(.9 |
) |
Other liabilities,
net |
|
(1.0 |
) |
|
(1.3 |
) |
|
(1.7 |
) |
|
|
|
|
Total tangible equity — GAAP
Basis |
$ |
3.3 |
|
$ |
3.3 |
|
$ |
3.8 |
|
|
|
|
|
(1) Excludes goodwill and acquired intangible assets.
(2) At December 31, 2015, September 30, 2015 and
December 31, 2014, there were $670 million, $881 million and
$794 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
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