Item 1.
|
Financial Statements
|
NAVIENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share
amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
FFELP Loans (net of allowance for losses of $70 and $78, respectively)
|
|
$
|
95,018
|
|
|
$
|
96,498
|
|
Private Education Loans (net of allowance for losses of $1,434 and $1,471 respectively)
|
|
|
25,547
|
|
|
|
26,394
|
|
Investments
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
5
|
|
|
|
5
|
|
Other
|
|
|
422
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
427
|
|
|
|
501
|
|
Cash and cash equivalents
|
|
|
1,168
|
|
|
|
1,594
|
|
Restricted cash and investments
|
|
|
3,818
|
|
|
|
3,738
|
|
Goodwill and acquired intangible assets, net
|
|
|
702
|
|
|
|
705
|
|
Other assets
|
|
|
4,697
|
|
|
|
4,682
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
131,377
|
|
|
$
|
134,112
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
2,363
|
|
|
$
|
2,570
|
|
Long-term borrowings
|
|
|
122,920
|
|
|
|
124,833
|
|
Other liabilities
|
|
|
2,255
|
|
|
|
2,710
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
127,538
|
|
|
|
130,113
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share, 1.125 billion shares authorized: 433 million and 431 million shares issued,
respectively
|
|
|
4
|
|
|
|
4
|
|
Additional paid-in capital
|
|
|
2,975
|
|
|
|
2,967
|
|
Accumulated other comprehensive loss (net of tax benefit of $77 and $30, respectively)
|
|
|
(132
|
)
|
|
|
(51
|
)
|
Retained earnings
|
|
|
2,604
|
|
|
|
2,480
|
|
|
|
|
|
|
|
|
|
|
Total Navient Corporation stockholders equity before treasury stock
|
|
|
5,451
|
|
|
|
5,400
|
|
Less: Common stock held in treasury at cost: 103 million and 82 million shares, respectively
|
|
|
(1,636
|
)
|
|
|
(1,425
|
)
|
|
|
|
|
|
|
|
|
|
Total Navient Corporation stockholders equity
|
|
|
3,815
|
|
|
|
3,975
|
|
Noncontrolling interest
|
|
|
24
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
3,839
|
|
|
|
3,999
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
131,377
|
|
|
$
|
134,112
|
|
|
|
|
|
|
|
|
|
|
Supplemental information assets and liabilities of consolidated variable interest entities:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
FFELP Loans
|
|
$
|
90,241
|
|
|
$
|
91,516
|
|
Private Education Loans
|
|
|
22,487
|
|
|
|
23,124
|
|
Restricted cash
|
|
|
3,630
|
|
|
|
3,553
|
|
Other assets
|
|
|
642
|
|
|
|
293
|
|
Short-term borrowings
|
|
|
369
|
|
|
|
710
|
|
Long-term borrowings
|
|
|
105,292
|
|
|
|
106,510
|
|
|
|
|
|
|
|
|
|
|
Net assets of consolidated variable interest entities
|
|
$
|
11,339
|
|
|
$
|
11,266
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
1
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Interest income:
|
|
|
|
|
|
|
|
|
FFELP Loans
|
|
$
|
634
|
|
|
$
|
637
|
|
Private Education Loans
|
|
|
411
|
|
|
|
456
|
|
Other loans
|
|
|
1
|
|
|
|
2
|
|
Cash and investments
|
|
|
5
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
1,051
|
|
|
|
1,097
|
|
Total interest expense
|
|
|
565
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
486
|
|
|
|
583
|
|
Less: provisions for loan losses
|
|
|
111
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provisions for loan losses
|
|
|
375
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
Other income (loss):
|
|
|
|
|
|
|
|
|
Servicing revenue
|
|
|
82
|
|
|
|
77
|
|
Asset recovery and business processing revenue
|
|
|
90
|
|
|
|
89
|
|
Other income (loss)
|
|
|
(13
|
)
|
|
|
7
|
|
Gains on sales of loans and investments
|
|
|
|
|
|
|
5
|
|
Gains on debt repurchases
|
|
|
|
|
|
|
|
|
Gains (losses) on derivative and hedging activities, net
|
|
|
1
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
160
|
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
132
|
|
|
|
123
|
|
Other operating expenses
|
|
|
115
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
247
|
|
|
|
230
|
|
Goodwill and acquired intangible asset impairment and amortization expense
|
|
|
4
|
|
|
|
1
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
251
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, before income tax expense
|
|
|
284
|
|
|
|
473
|
|
Income tax expense
|
|
|
103
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
181
|
|
|
|
292
|
|
Income (loss) from discontinued operations, net of tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
181
|
|
|
|
292
|
|
Less: net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Navient Corporation
|
|
$
|
181
|
|
|
$
|
292
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to Navient Corporation:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.53
|
|
|
$
|
.73
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
.53
|
|
|
$
|
.73
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
339
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share attributable to Navient Corporation:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.53
|
|
|
$
|
.72
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
.53
|
|
|
$
|
.72
|
|
|
|
|
|
|
|
|
|
|
Average common and common equivalent shares outstanding
|
|
|
343
|
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share attributable to Navient Corporation
|
|
$
|
.16
|
|
|
$
|
.16
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
2
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net income
|
|
$
|
181
|
|
|
$
|
292
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivatives:
|
|
|
|
|
|
|
|
|
Unrealized hedging losses on derivatives
|
|
|
(129
|
)
|
|
|
(71
|
)
|
Reclassification adjustments for derivative (gains) losses included in net income (interest expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized losses on derivatives
|
|
|
(129
|
)
|
|
|
(71
|
)
|
Income tax benefit
|
|
|
48
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax
|
|
|
(81
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to Navient Corporation
|
|
$
|
100
|
|
|
$
|
247
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Dollars in millions, except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Retained
Earnings
|
|
|
Treasury
Stock
|
|
|
Total
Stockholders
Equity
|
|
|
Noncontrolling
Interest
|
|
|
Total
Equity
|
|
|
|
Issued
|
|
|
Treasury
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
425,637,635
|
|
|
|
(23,902,829
|
)
|
|
|
401,734,806
|
|
|
$
|
4
|
|
|
$
|
2,893
|
|
|
$
|
9
|
|
|
$
|
1,724
|
|
|
$
|
(432
|
)
|
|
$
|
4,198
|
|
|
$
|
|
|
|
$
|
4,198
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
|
|
|
|
|
|
292
|
|
|
|
|
|
|
|
292
|
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247
|
|
|
|
|
|
|
|
247
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock ($.16 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63
|
)
|
|
|
|
|
|
|
(63
|
)
|
|
|
|
|
|
|
(63
|
)
|
Dividend equivalent units related to employee stock-based compensation plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
Issuance of common shares
|
|
|
3,585,238
|
|
|
|
|
|
|
|
3,585,238
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
21
|
|
Tax benefit related to employee stock-based compensation plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Common stock repurchased
|
|
|
|
|
|
|
(14,653,835
|
)
|
|
|
(14,653,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(300
|
)
|
|
|
(300
|
)
|
|
|
|
|
|
|
(300
|
)
|
Shares repurchased related to employee stock-based compensation plans
|
|
|
|
|
|
|
(1,644,764
|
)
|
|
|
(1,644,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
(35
|
)
|
Noncontrolling interests in businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2015
|
|
|
429,222,873
|
|
|
|
(40,201,428
|
)
|
|
|
389,021,445
|
|
|
$
|
4
|
|
|
$
|
2,935
|
|
|
$
|
(36
|
)
|
|
$
|
1,951
|
|
|
$
|
(767
|
)
|
|
$
|
4,087
|
|
|
$
|
4
|
|
|
$
|
4,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
430,561,656
|
|
|
|
(82,350,868
|
)
|
|
|
348,210,788
|
|
|
$
|
4
|
|
|
$
|
2,967
|
|
|
$
|
(51
|
)
|
|
$
|
2,480
|
|
|
$
|
(1,425
|
)
|
|
$
|
3,975
|
|
|
$
|
24
|
|
|
$
|
3,999
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181
|
|
|
|
|
|
|
|
181
|
|
|
|
|
|
|
|
181
|
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
100
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock ($.16 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
(54
|
)
|
Dividend equivalent units related to employee stock-based compensation plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
Issuance of common shares
|
|
|
2,499,585
|
|
|
|
|
|
|
|
2,499,585
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Tax benefit related to employee stock-based compensation plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Common stock repurchased
|
|
|
|
|
|
|
(19,210,281
|
)
|
|
|
(19,210,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
(200
|
)
|
Shares repurchased related to employee stock-based compensation plans
|
|
|
|
|
|
|
(986,273
|
)
|
|
|
(986,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2016
|
|
|
433,061,241
|
|
|
|
(102,547,422
|
)
|
|
|
330,513,819
|
|
|
$
|
4
|
|
|
$
|
2,975
|
|
|
$
|
(132
|
)
|
|
$
|
2,604
|
|
|
$
|
(1,636
|
)
|
|
$
|
3,815
|
|
|
$
|
24
|
|
|
$
|
3,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
NAVIENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
181
|
|
|
$
|
292
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Gains on loans and investments, net
|
|
|
|
|
|
|
(5
|
)
|
Goodwill and acquired intangible asset impairment and amortization expense
|
|
|
4
|
|
|
|
1
|
|
Stock-based compensation expense
|
|
|
12
|
|
|
|
12
|
|
Unrealized gains on derivative and hedging activities
|
|
|
(131
|
)
|
|
|
(224
|
)
|
Provisions for loan losses
|
|
|
111
|
|
|
|
125
|
|
Increase in restricted cash other
|
|
|
(5
|
)
|
|
|
(7
|
)
|
Decrease in accrued interest receivable
|
|
|
71
|
|
|
|
148
|
|
Decrease in accrued interest payable
|
|
|
(145
|
)
|
|
|
(60
|
)
|
Decrease in other assets
|
|
|
308
|
|
|
|
153
|
|
(Decrease) increase in other liabilities
|
|
|
(64
|
)
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
Total net cash provided by operating activities
|
|
|
342
|
|
|
|
499
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Education loans acquired
|
|
|
(1,537
|
)
|
|
|
(830
|
)
|
Reduction of education loans:
|
|
|
|
|
|
|
|
|
Installment payments, claims and other
|
|
|
3,734
|
|
|
|
3,407
|
|
Proceeds from sales of education loans
|
|
|
|
|
|
|
193
|
|
Other investing activities, net
|
|
|
69
|
|
|
|
24
|
|
Purchases of other securities
|
|
|
(42
|
)
|
|
|
|
|
Proceeds from maturities of other securities
|
|
|
41
|
|
|
|
1
|
|
(Increase) decrease in restricted cash variable interest entities
|
|
|
(80
|
)
|
|
|
126
|
|
Purchase of subsidiary, net of cash acquired
|
|
|
|
|
|
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
Total net cash provided by investing activities
|
|
|
2,185
|
|
|
|
2,740
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Borrowings collateralized by loans in trust issued
|
|
|
1,545
|
|
|
|
1,678
|
|
Borrowings collateralized by loans in trust repaid
|
|
|
(3,228
|
)
|
|
|
(3,369
|
)
|
Asset-backed commercial paper conduits, net
|
|
|
(155
|
)
|
|
|
(539
|
)
|
Other long-term borrowings issued
|
|
|
|
|
|
|
493
|
|
Other long-term borrowings repaid
|
|
|
(974
|
)
|
|
|
(590
|
)
|
Other financing activities, net
|
|
|
113
|
|
|
|
59
|
|
Common stock repurchased
|
|
|
(200
|
)
|
|
|
(300
|
)
|
Common stock dividends paid
|
|
|
(54
|
)
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(2,953
|
)
|
|
|
(2,631
|
)
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(426
|
)
|
|
|
608
|
|
Cash and cash equivalents at beginning of period
|
|
|
1,594
|
|
|
|
1,443
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,168
|
|
|
$
|
2,051
|
|
|
|
|
|
|
|
|
|
|
Cash disbursements made (refunds received) for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
515
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
20
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
Income taxes received
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)
1.
|
Significant Accounting Policies
|
Basis of Presentation
The accompanying unaudited, consolidated financial statements of Navient have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP)
for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements include the accounts of Navient and its
majority-owned and controlled subsidiaries and those Variable Interest Entities (VIEs) for which we are the primary beneficiary, after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all
adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three-month period ended March 31, 2016 are not necessarily indicative of the results
for the year ending December 31, 2016 or for any other period. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year
ended December 31, 2015 (the 2015 Form 10-K). Definitions for certain capitalized terms used but not otherwise defined in this Quarterly Report on Form 10-Q can be found in our 2015 Form 10-K.
Reclassifications
Certain reclassifications have been made to the balances as of and for the three months ended March 31, 2015 to be consistent with classifications adopted for 2016, and had no effect on net income,
total assets, or total liabilities.
Recently Issued Accounting Pronouncements
Revenue Recognition
On May 28, 2014, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with
Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when
it becomes effective. In July 2015, the FASB agreed to defer the mandatory effective date by one year. Accordingly, the new standard is effective for the Company as of January 1, 2018. Early application is permitted as of January 2017. The
standard permits the use of either the retrospective or cumulative effect transition method. We continue to evaluate the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We do not expect it to have
a material impact.
Classification and Measurement
On January 5, 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial
Liabilities, which reconsiders the classification and measurement of financial instruments. The objective of this project is to significantly improve the usefulness of financial instrument reporting for users of financial statements. It will
be effective for public companies in fiscal years beginning after December 15, 2017. We do not expect this update to have a material impact on the Company.
Leases
On February 25, 2016, the FASB issued ASU No. 2016-02,
Leases, which requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a
6
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.
|
Significant Accounting Policies (Continued)
|
twelve-month term, these arrangements must be recognized as assets and liabilities on the balance sheet of the lessee. A right-of-use asset and lease obligation will be recorded for all leases,
whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption must be
calculated using the applicable incremental borrowing rate at the date of adoption. The standard requires the use of the modified retrospective transition method, which will require adjustment to all comparative periods presented. It will be
effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. We are currently assessing the impact that adopting this new accounting standard will have on our consolidated financial statements and footnote
disclosures, but expect it to be immaterial.
Stock Compensation
On March 30, 2016, the FASB issued ASU No. 2016-09, Compensation Stock Compensation, which
identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock
compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The new standard is effective for the Company in fiscal years beginning after December 15, 2016. Early
application is permitted. We are currently assessing the impact that adopting this new accounting standard will have on our consolidated financial statements and footnote disclosures, but expect it to be immaterial.
2.
|
Allowance for Loan Losses
|
Our provisions for loan losses represent the periodic expense of maintaining an allowance sufficient to absorb incurred
probable losses, net of expected recoveries, in the held-for-investment loan portfolios. The evaluation of the provisions for loan losses is inherently subjective, as it requires material estimates that may be susceptible to significant changes. We
believe that the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios.
We
segregate our Private Education Loan portfolio into two classes of loans traditional and non-traditional. Non-traditional loans are loans to (i) customers attending for-profit schools with an original Fair Isaac and Company
(FICO) score of less than 670 and (ii) customers attending not-for-profit schools with an original FICO score of less than 640. The FICO score used in determining whether a loan is non-traditional is the greater of the customer or
cosigner FICO score at origination. Traditional loans are defined as all other Private Education Loans that are not classified as non-traditional.
7
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
Allowance for Loan Losses Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
(Dollars in millions)
|
|
FFELP Loans
|
|
|
Private Education
Loans
|
|
|
Other
Loans
|
|
|
Total
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
78
|
|
|
$
|
1,471
|
|
|
$
|
15
|
|
|
$
|
1,564
|
|
Total provision
|
|
|
7
|
|
|
|
104
|
|
|
|
|
|
|
|
111
|
|
Charge-offs
(1)
|
|
|
(15
|
)
|
|
|
(144
|
)
|
|
|
|
|
|
|
(159
|
)
|
Reclassification of interest reserve
(2)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
70
|
|
|
$
|
1,434
|
|
|
$
|
15
|
|
|
$
|
1,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
1,185
|
|
|
$
|
11
|
|
|
$
|
1,196
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
70
|
|
|
$
|
249
|
|
|
$
|
4
|
|
|
$
|
323
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
(3)
|
|
$
|
|
|
|
$
|
11,088
|
|
|
$
|
33
|
|
|
$
|
11,121
|
|
Ending balance: collectively evaluated for impairment
(3)
|
|
$
|
94,074
|
|
|
$
|
16,408
|
|
|
$
|
50
|
|
|
$
|
110,532
|
|
Charge-offs as a percentage of average loans in repayment (annualized)
|
|
|
.08
|
%
|
|
|
2.39
|
%
|
|
|
2.04
|
%
|
|
|
|
|
Allowance coverage of charge-offs (annualized)
|
|
|
1.2
|
|
|
|
2.5
|
|
|
|
8.6
|
|
|
|
|
|
Allowance as a percentage of the ending total loan balance
|
|
|
.07
|
%
|
|
|
5.22
|
%
|
|
|
17.91
|
%
|
|
|
|
|
Allowance as a percentage of the ending loans in repayment
|
|
|
.10
|
%
|
|
|
6.03
|
%
|
|
|
17.91
|
%
|
|
|
|
|
Ending total loans
(3)
|
|
$
|
94,074
|
|
|
$
|
27,496
|
|
|
$
|
83
|
|
|
|
|
|
Average loans in repayment
|
|
$
|
73,689
|
|
|
$
|
24,180
|
|
|
$
|
85
|
|
|
|
|
|
Ending loans in repayment
|
|
$
|
73,699
|
|
|
$
|
23,786
|
|
|
$
|
83
|
|
|
|
|
|
(1)
|
Charge-offs are reported net of expected recoveries. For Private Education Loans, 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 recovered and any shortfalls in what was actually recovered in
the period. See Receivable for Partially Charged-Off Private Education Loans for further discussion.
|
(2)
|
Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period
to the allowance for loan losses when interest is capitalized to a loans principal balance.
|
(3)
|
Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.
|
8
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
(Dollars in millions)
|
|
FFELP Loans
|
|
|
Private Education
Loans
|
|
|
Other
Loans
|
|
|
Total
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
93
|
|
|
$
|
1,916
|
|
|
$
|
24
|
|
|
$
|
2,033
|
|
Total provision
|
|
|
5
|
|
|
|
120
|
|
|
|
|
|
|
|
125
|
|
Charge-offs
(1)
|
|
|
(7
|
)
|
|
|
(190
|
)
|
|
|
(1
|
)
|
|
|
(198
|
)
|
Reclassification of interest reserve
(2)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
91
|
|
|
$
|
1,849
|
|
|
$
|
23
|
|
|
$
|
1,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
1,077
|
|
|
$
|
18
|
|
|
$
|
1,095
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
91
|
|
|
$
|
772
|
|
|
$
|
5
|
|
|
$
|
868
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
10,859
|
|
|
$
|
43
|
|
|
$
|
10,902
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
101,347
|
|
|
$
|
20,561
|
|
|
$
|
59
|
|
|
$
|
121,967
|
|
Charge-offs as a percentage of average loans in repayment (annualized)
|
|
|
.03
|
%
|
|
|
2.89
|
%
|
|
|
3.43
|
%
|
|
|
|
|
Allowance coverage of charge-offs (annualized)
|
|
|
3.6
|
|
|
|
2.4
|
|
|
|
6.3
|
|
|
|
|
|
Allowance as a percentage of the ending total loan balance
|
|
|
.09
|
%
|
|
|
5.88
|
%
|
|
|
22.30
|
%
|
|
|
|
|
Allowance as a percentage of the ending loans in repayment
|
|
|
.12
|
%
|
|
|
7.04
|
%
|
|
|
22.30
|
%
|
|
|
|
|
Ending total loans
(3)
|
|
$
|
101,347
|
|
|
$
|
31,420
|
|
|
$
|
102
|
|
|
|
|
|
Average loans in repayment
|
|
$
|
77,474
|
|
|
$
|
26,644
|
|
|
$
|
105
|
|
|
|
|
|
Ending loans in repayment
|
|
$
|
76,755
|
|
|
$
|
26,260
|
|
|
$
|
102
|
|
|
|
|
|
(1)
|
Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for
partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in
the period. See Receivable for Partially Charged-Off Private Education Loans for further discussion.
|
(2)
|
Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period
to the allowance for loan losses when interest is capitalized to a loans principal balance.
|
(3)
|
Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.
|
Key Credit Quality Indicators
FFELP Loans are substantially insured and guaranteed as to their principal and accrued interest in the event of default; therefore, the key credit quality indicator for this portfolio is loan status. The
impact of changes in loan status is incorporated quarterly into the allowance for loan losses calculation.
9
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
For Private Education Loans, the key credit quality indicators are school type, FICO
scores, the existence of a cosigner, the loan status and loan seasoning. The school type/FICO score are assessed at origination and maintained through the traditional/non-traditional loan designation. The other Private Education Loan key quality
indicators can change and are incorporated quarterly into the allowance for loan losses calculation. The following table highlights the principal balance (excluding the receivable for partially charged-off loans) of our Private Education Loan
portfolio stratified by the key credit quality indicators.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans
Credit Quality Indicators
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
(Dollars in millions)
|
|
Balance
(3)
|
|
|
% of Balance
|
|
|
Balance
(3)
|
|
|
% of Balance
|
|
Credit Quality Indicators
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
School Type/FICO Scores:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
|
|
$
|
24,466
|
|
|
|
92
|
%
|
|
$
|
25,280
|
|
|
|
92
|
%
|
Non-Traditional
(1)
|
|
|
2,163
|
|
|
|
8
|
|
|
|
2,235
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,629
|
|
|
|
100
|
%
|
|
$
|
27,515
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cosigners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With cosigner
|
|
$
|
17,172
|
|
|
|
64
|
%
|
|
$
|
17,738
|
|
|
|
64
|
%
|
Without cosigner
|
|
|
9,457
|
|
|
|
36
|
|
|
|
9,777
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,629
|
|
|
|
100
|
%
|
|
$
|
27,515
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seasoning
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-12 payments
|
|
$
|
1,434
|
|
|
|
6
|
%
|
|
$
|
1,776
|
|
|
|
7
|
%
|
13-24 payments
|
|
|
1,692
|
|
|
|
6
|
|
|
|
1,977
|
|
|
|
7
|
|
25-36 payments
|
|
|
2,617
|
|
|
|
10
|
|
|
|
2,982
|
|
|
|
11
|
|
37-48 payments
|
|
|
3,574
|
|
|
|
13
|
|
|
|
3,787
|
|
|
|
14
|
|
More than 48 payments
|
|
|
15,385
|
|
|
|
58
|
|
|
|
14,953
|
|
|
|
54
|
|
Not yet in repayment
|
|
|
1,927
|
|
|
|
7
|
|
|
|
2,040
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,629
|
|
|
|
100
|
%
|
|
$
|
27,515
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Defined as loans to customers attending for-profit schools (with a FICO score of less than 670 at origination) and customers attending not-for-profit
schools (with a FICO score of less than 640 at origination).
|
(2)
|
Number of months in active repayment for which a scheduled payment was received.
|
(3)
|
Balance represents gross Private Education Loans.
|
10
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
The following tables provide information regarding the loan status and aging of past due
loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loan Delinquencies
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
Loans in-school/grace/deferment
(1)
|
|
$
|
7,986
|
|
|
|
|
|
|
$
|
8,257
|
|
|
|
|
|
Loans in forbearance
(2)
|
|
|
12,389
|
|
|
|
|
|
|
|
13,298
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
63,333
|
|
|
|
85.9
|
%
|
|
|
62,651
|
|
|
|
84.7
|
%
|
Loans delinquent 31-60 days
(3)
|
|
|
3,559
|
|
|
|
4.8
|
|
|
|
3,285
|
|
|
|
4.5
|
|
Loans delinquent 61-90 days
(3)
|
|
|
1,657
|
|
|
|
2.3
|
|
|
|
1,856
|
|
|
|
2.5
|
|
Loans delinquent greater than 90 days
(3)
|
|
|
5,150
|
|
|
|
7.0
|
|
|
|
6,142
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP Loans in repayment
|
|
|
73,699
|
|
|
|
100
|
%
|
|
|
73,934
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP Loans, gross
|
|
|
94,074
|
|
|
|
|
|
|
|
95,489
|
|
|
|
|
|
FFELP Loan unamortized premium
|
|
|
1,014
|
|
|
|
|
|
|
|
1,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP Loans
|
|
|
95,088
|
|
|
|
|
|
|
|
96,576
|
|
|
|
|
|
FFELP Loan allowance for losses
|
|
|
(70
|
)
|
|
|
|
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loans, net
|
|
$
|
95,018
|
|
|
|
|
|
|
$
|
96,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of FFELP Loans in repayment
|
|
|
|
|
|
|
78.3
|
%
|
|
|
|
|
|
|
77.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of FFELP Loans in repayment
|
|
|
|
|
|
|
14.1
|
%
|
|
|
|
|
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loans in forbearance as a percentage of loans in repayment and forbearance
|
|
|
|
|
|
|
14.4
|
%
|
|
|
|
|
|
|
15.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments
on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic
hardships.
|
(2)
|
Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who
have temporarily ceased making full payments due to hardship or other factors.
|
(3)
|
The period of delinquency is based on the number of days scheduled payments are contractually past due.
|
11
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional Private Education Loan
Delinquencies
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
Loans in-school/grace/deferment
(1)
|
|
$
|
1,756
|
|
|
|
|
|
|
$
|
1,859
|
|
|
|
|
|
Loans in forbearance
(2)
|
|
|
809
|
|
|
|
|
|
|
|
863
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
20,673
|
|
|
|
94.4
|
%
|
|
|
21,085
|
|
|
|
93.5
|
%
|
Loans delinquent 31-60 days
(3)
|
|
|
371
|
|
|
|
1.7
|
|
|
|
491
|
|
|
|
2.2
|
|
Loans delinquent 61-90 days
(3)
|
|
|
245
|
|
|
|
1.1
|
|
|
|
292
|
|
|
|
1.3
|
|
Loans delinquent greater than 90 days
(3)
|
|
|
612
|
|
|
|
2.8
|
|
|
|
690
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total traditional loans in repayment
|
|
|
21,901
|
|
|
|
100
|
%
|
|
|
22,558
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total traditional loans, gross
|
|
|
24,466
|
|
|
|
|
|
|
|
25,280
|
|
|
|
|
|
Traditional loans unamortized discount
|
|
|
(455
|
)
|
|
|
|
|
|
|
(470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total traditional loans
|
|
|
24,011
|
|
|
|
|
|
|
|
24,810
|
|
|
|
|
|
Traditional loans receivable for partially charged-off loans
|
|
|
553
|
|
|
|
|
|
|
|
560
|
|
|
|
|
|
Traditional loans allowance for losses
|
|
|
(1,203
|
)
|
|
|
|
|
|
|
(1,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional loans, net
|
|
$
|
23,361
|
|
|
|
|
|
|
$
|
24,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of traditional loans in repayment
|
|
|
|
|
|
|
89.5
|
%
|
|
|
|
|
|
|
89.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of traditional loans in repayment
|
|
|
|
|
|
|
5.6
|
%
|
|
|
|
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in forbearance as a percentage of loans in repayment and forbearance
|
|
|
|
|
|
|
3.6
|
%
|
|
|
|
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 their 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.
|
12
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Traditional Private Education
Loan
Delinquencies
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
Loans in-school/grace/deferment
(1)
|
|
$
|
171
|
|
|
|
|
|
|
$
|
181
|
|
|
|
|
|
Loans in forbearance
(2)
|
|
|
107
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
1,640
|
|
|
|
87.0
|
%
|
|
|
1,646
|
|
|
|
84.7
|
%
|
Loans delinquent 31-60 days
(3)
|
|
|
63
|
|
|
|
3.3
|
|
|
|
86
|
|
|
|
4.4
|
|
Loans delinquent 61-90 days
(3)
|
|
|
45
|
|
|
|
2.4
|
|
|
|
56
|
|
|
|
2.9
|
|
Loans delinquent greater than 90 days
(3)
|
|
|
137
|
|
|
|
7.3
|
|
|
|
156
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-traditional loans in repayment
|
|
|
1,885
|
|
|
|
100
|
%
|
|
|
1,944
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-traditional loans, gross
|
|
|
2,163
|
|
|
|
|
|
|
|
2,235
|
|
|
|
|
|
Non-traditional loans unamortized discount
|
|
|
(60
|
)
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-traditional loans
|
|
|
2,103
|
|
|
|
|
|
|
|
2,174
|
|
|
|
|
|
Non-traditional loans receivable for partially charged-off loans
|
|
|
314
|
|
|
|
|
|
|
|
321
|
|
|
|
|
|
Non-traditional loans allowance for losses
|
|
|
(231
|
)
|
|
|
|
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-traditional loans, net
|
|
$
|
2,186
|
|
|
|
|
|
|
$
|
2,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of non-traditional loans in repayment
|
|
|
|
|
|
|
87.1
|
%
|
|
|
|
|
|
|
87.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of non-traditional loans in repayment
|
|
|
|
|
|
|
13.0
|
%
|
|
|
|
|
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in forbearance as a percentage of loans in repayment and forbearance
|
|
|
|
|
|
|
5.4
|
%
|
|
|
|
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 their 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.
|
Receivable for Partially Charged-Off Private Education Loans
At the end of each month, for loans that are 212 or more 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. For that reason, 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.
13
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
The following table summarizes the activity in the receivable for partially charged-off
Private Education Loans.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Receivable at beginning of period
|
|
$
|
881
|
|
|
$
|
1,245
|
|
Expected future recoveries of current period defaults
(1)
|
|
|
36
|
|
|
|
62
|
|
Recoveries
(2)
|
|
|
(50
|
)
|
|
|
(52
|
)
|
Charge-offs
(3)
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Receivable at end of period
|
|
|
867
|
|
|
|
1,236
|
|
Allowance for estimated recovery shortfalls
(4)
|
|
|
|
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
|
|
Net receivable at end of period
|
|
$
|
867
|
|
|
$
|
856
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the difference between the 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 the Allowance for Private Education Loan Losses table.
|
|
(4)
|
The allowance for estimated recovery shortfalls of the receivable for partially charged-off Private Education Loans is a component of the $1.8 billion
overall allowance for Private Education Loan losses as of March 31, 2015. This component of the allowance was removed in the second quarter of 2015 due to the increase in the charge-off rate discussed above.
|
Troubled Debt Restructurings (TDRs)
We sometimes modify the terms of loans for certain customers when we believe such modifications may increase the ability and willingness of a customer to make payments and thus increase the ultimate
overall amount collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. For customers experiencing financial difficulty, certain Private Education Loans for
which we have granted either a forbearance of greater than three months, an interest rate reduction or an extended repayment plan are classified as TDRs. Approximately 57 percent and 56 percent of the loans granted forbearance have qualified as a
TDR loan at March 31, 2016 and December 31, 2015, respectively. The unpaid principal balance of TDR loans that were in an interest rate reduction plan as of March 31, 2016 and December 31, 2015 was $2.7 billion and $2.5 billion,
respectively.
14
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
At March 31, 2016 and December 31, 2015, all of our TDR loans had a related
allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our TDR loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDR Loans
|
|
(Dollars in millions)
|
|
Recorded
Investment
(1)
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans Traditional
|
|
$
|
9,276
|
|
|
$
|
9,325
|
|
|
$
|
978
|
|
Private Education Loans Non-Traditional
|
|
|
1,425
|
|
|
|
1,429
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,701
|
|
|
$
|
10,754
|
|
|
$
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans Traditional
|
|
$
|
9,134
|
|
|
$
|
9,200
|
|
|
$
|
995
|
|
Private Education Loans Non-Traditional
|
|
|
1,441
|
|
|
|
1,442
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,575
|
|
|
$
|
10,642
|
|
|
$
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The recorded investment is equal to the unpaid principal balance and accrued interest receivable net of unamortized deferred fees and costs.
|
The following table provides the average recorded investment and interest income recognized for our TDR
loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
(Dollars in millions)
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Private Education Loans Traditional
|
|
$
|
9,221
|
|
|
$
|
138
|
|
|
$
|
8,856
|
|
|
$
|
132
|
|
Private Education Loans Non-Traditional
|
|
|
1,434
|
|
|
|
27
|
|
|
|
1,476
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,655
|
|
|
$
|
165
|
|
|
$
|
10,332
|
|
|
$
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
The following table provides information regarding the loan status and aging of TDR
loans that are past due.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDR Loan Delinquencies
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
Loans in deferment
(1)
|
|
$
|
697
|
|
|
|
|
|
|
$
|
706
|
|
|
|
|
|
Loans in forbearance
(2)
|
|
|
665
|
|
|
|
|
|
|
|
695
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
8,228
|
|
|
|
87.6
|
%
|
|
|
7,885
|
|
|
|
85.3
|
%
|
Loans delinquent 31-60 days
(3)
|
|
|
326
|
|
|
|
3.5
|
|
|
|
414
|
|
|
|
4.5
|
|
Loans delinquent 61-90 days
(3)
|
|
|
228
|
|
|
|
2.4
|
|
|
|
263
|
|
|
|
2.8
|
|
Loans delinquent greater than 90 days
(3)
|
|
|
610
|
|
|
|
6.5
|
|
|
|
679
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDR loans in repayment
|
|
|
9,392
|
|
|
|
100
|
%
|
|
|
9,241
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDR loans, gross
|
|
$
|
10,754
|
|
|
|
|
|
|
$
|
10,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 their 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.
|
The following table provides the amount of loans modified in the periods presented that resulted in a TDR. Additionally, the table
summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the current period within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this
disclosure. The majority of our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan or do not involve an extended repayment plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
(Dollars in millions)
|
|
Modified
Loans
(1)
|
|
|
Charge-
Offs
(2)
|
|
|
Payment
Default
|
|
|
Modified
Loans
(1)
|
|
|
Charge-
Offs
(2)
|
|
|
Payment
Default
|
|
Private Education Loans Traditional
|
|
$
|
341
|
|
|
$
|
80
|
|
|
$
|
62
|
|
|
$
|
430
|
|
|
$
|
91
|
|
|
$
|
100
|
|
Private Education Loans Non-Traditional
|
|
|
27
|
|
|
|
22
|
|
|
|
11
|
|
|
|
42
|
|
|
|
28
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
368
|
|
|
$
|
102
|
|
|
$
|
73
|
|
|
$
|
472
|
|
|
$
|
119
|
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents period ending balance of loans that have been modified during the period and resulted in a TDR.
|
(2)
|
Represents loans that charged off that were classified as TDRs.
|
16
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
Accrued Interest Receivable
The following table provides information regarding accrued interest receivable on our Private Education Loans.
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Accrued
Interest
Receivable
|
|
|
Allowance for
Uncollectible
Interest
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Private Education Loans Traditional
|
|
$
|
407
|
|
|
$
|
26
|
|
Private Education Loans Non-Traditional
|
|
|
53
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
460
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Private Education Loans Traditional
|
|
$
|
433
|
|
|
$
|
26
|
|
Private Education Loans Non-Traditional
|
|
|
57
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
490
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes our borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
(Dollars in millions)
|
|
Short
Term
|
|
|
Long
Term
|
|
|
Total
|
|
|
Short
Term
|
|
|
Long
Term
|
|
|
Total
|
|
Unsecured borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured debt
|
|
$
|
1,137
|
|
|
$
|
12,987
|
|
|
$
|
14,124
|
|
|
$
|
1,120
|
|
|
$
|
13,976
|
|
|
$
|
15,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unsecured borrowings
|
|
|
1,137
|
|
|
|
12,987
|
|
|
|
14,124
|
|
|
|
1,120
|
|
|
|
13,976
|
|
|
|
15,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loan securitizations
|
|
|
|
|
|
|
76,411
|
|
|
|
76,411
|
|
|
|
|
|
|
|
77,764
|
|
|
|
77,764
|
|
Private Education Loan securitizations
(1)
|
|
|
|
|
|
|
16,557
|
|
|
|
16,557
|
|
|
|
|
|
|
|
16,900
|
|
|
|
16,900
|
|
FFELP Loan other facilities
|
|
|
|
|
|
|
16,446
|
|
|
|
16,446
|
|
|
|
|
|
|
|
16,276
|
|
|
|
16,276
|
|
Private Education Loan other facilities
|
|
|
369
|
|
|
|
|
|
|
|
369
|
|
|
|
710
|
|
|
|
|
|
|
|
710
|
|
Other
(2)
|
|
|
877
|
|
|
|
|
|
|
|
877
|
|
|
|
760
|
|
|
|
|
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total secured borrowings
|
|
|
1,246
|
|
|
|
109,414
|
|
|
|
110,660
|
|
|
|
1,470
|
|
|
|
110,940
|
|
|
|
112,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before hedge accounting adjustments
|
|
|
2,383
|
|
|
|
122,401
|
|
|
|
124,784
|
|
|
|
2,590
|
|
|
|
124,916
|
|
|
|
127,506
|
|
Hedge accounting adjustments
|
|
|
(20
|
)
|
|
|
519
|
|
|
|
499
|
|
|
|
(20
|
)
|
|
|
(83
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,363
|
|
|
$
|
122,920
|
|
|
$
|
125,283
|
|
|
$
|
2,570
|
|
|
$
|
124,833
|
|
|
$
|
127,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes $546 million of long-term debt related to the Private Education Loan asset-backed securitization repurchase facility (Repurchase
Facility) as of both March 31, 2016 and December 31, 2015.
|
(2)
|
Other primarily consists of the obligation to return cash collateral held related to derivative exposure.
|
17
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.
|
Borrowings (Continued)
|
Variable Interest Entities
We consolidated the following financing VIEs as of March 31, 2016 and December 31, 2015, as we are the primary beneficiary. As a
result, these VIEs are accounted for as secured borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
Debt Outstanding
|
|
|
Carrying Amount of Assets Securing
Debt Outstanding
|
|
(Dollars in millions)
|
|
Short
Term
|
|
|
Long
Term
|
|
|
Total
|
|
|
Loans
|
|
|
Cash
|
|
|
Other
Assets
|
|
|
Total
|
|
Secured Borrowings VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loan securitizations
|
|
$
|
|
|
|
$
|
76,411
|
|
|
$
|
76,411
|
|
|
$
|
76,941
|
|
|
$
|
2,783
|
|
|
$
|
668
|
|
|
$
|
80,392
|
|
Private Education Loan securitizations
(1)
|
|
|
|
|
|
|
16,557
|
|
|
|
16,557
|
|
|
|
21,936
|
|
|
|
520
|
|
|
|
300
|
|
|
|
22,756
|
|
FFELP Loan other facilities
|
|
|
|
|
|
|
12,846
|
|
|
|
12,846
|
|
|
|
13,300
|
|
|
|
317
|
|
|
|
178
|
|
|
|
13,795
|
|
Private Education Loan other facilities
|
|
|
369
|
|
|
|
|
|
|
|
369
|
|
|
|
551
|
|
|
|
10
|
|
|
|
17
|
|
|
|
578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before hedge accounting adjustments
|
|
|
369
|
|
|
|
105,814
|
|
|
|
106,183
|
|
|
|
112,728
|
|
|
|
3,630
|
|
|
|
1,163
|
|
|
|
117,521
|
|
Hedge accounting adjustments
|
|
|
|
|
|
|
(522
|
)
|
|
|
(522
|
)
|
|
|
|
|
|
|
|
|
|
|
(521
|
)
|
|
|
(521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
369
|
|
|
$
|
105,292
|
|
|
$
|
105,661
|
|
|
$
|
112,728
|
|
|
$
|
3,630
|
|
|
$
|
642
|
|
|
$
|
117,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Debt Outstanding
|
|
|
Carrying Amount of Assets Securing
Debt Outstanding
|
|
(Dollars in millions)
|
|
Short
Term
|
|
|
Long
Term
|
|
|
Total
|
|
|
Loans
|
|
|
Cash
|
|
|
Other
Assets
|
|
|
Total
|
|
Secured Borrowings VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loan securitizations
|
|
$
|
|
|
|
$
|
77,764
|
|
|
$
|
77,764
|
|
|
$
|
78,358
|
|
|
$
|
2,760
|
|
|
$
|
682
|
|
|
$
|
81,800
|
|
Private Education Loan securitizations
(1)
|
|
|
|
|
|
|
16,900
|
|
|
|
16,900
|
|
|
|
22,014
|
|
|
|
452
|
|
|
|
323
|
|
|
|
22,789
|
|
FFELP Loan other facilities
|
|
|
|
|
|
|
12,676
|
|
|
|
12,676
|
|
|
|
13,158
|
|
|
|
324
|
|
|
|
168
|
|
|
|
13,650
|
|
Private Education Loan other facilities
|
|
|
710
|
|
|
|
|
|
|
|
710
|
|
|
|
1,110
|
|
|
|
17
|
|
|
|
31
|
|
|
|
1,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before hedge accounting adjustments
|
|
|
710
|
|
|
|
107,340
|
|
|
|
108,050
|
|
|
|
114,640
|
|
|
|
3,553
|
|
|
|
1,204
|
|
|
|
119,397
|
|
Hedge accounting adjustments
|
|
|
|
|
|
|
(830
|
)
|
|
|
(830
|
)
|
|
|
|
|
|
|
|
|
|
|
(911
|
)
|
|
|
(911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
710
|
|
|
$
|
106,510
|
|
|
$
|
107,220
|
|
|
$
|
114,640
|
|
|
$
|
3,553
|
|
|
$
|
293
|
|
|
$
|
118,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes $546 million of long-term debt related to the Repurchase Facility as of both March 31, 2016 and December 31, 2015. Includes
$36 million and $41 million of restricted cash related to the Repurchase Facility as of March 31, 2016 and December 31, 2015, respectively.
|
4.
|
Derivative Financial Instruments
|
Our risk management strategy and use of and accounting for derivatives have not materially changed from that discussed
in our 2015 Form 10-K. Please refer to Note 7 Derivative Financial Instruments in our 2015 Form 10-K for a full discussion.
18
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.
|
Derivative Financial Instruments (Continued)
|
Summary of Derivative Financial Statement Impact
The following tables summarize the fair values and notional amounts of all derivative instruments at March 31, 2016 and
December 31, 2015, and their impact on other comprehensive income and earnings for the three months ended March 31, 2016 and 2015.
Impact of Derivatives on Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
|
|
|
Fair Value
|
|
|
Trading
|
|
|
Total
|
|
(Dollars in millions)
|
|
Hedged Risk
Exposure
|
|
Mar. 31,
2016
|
|
|
Dec. 31,
2015
|
|
|
Mar. 31,
2016
|
|
|
Dec. 31,
2015
|
|
|
Mar. 31,
2016
|
|
|
Dec. 31,
2015
|
|
|
Mar. 31,
2016
|
|
|
Dec. 31,
2015
|
|
Fair Values
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest rate
|
|
$
|
|
|
|
$
|
|
|
|
$
|
935
|
|
|
$
|
694
|
|
|
$
|
79
|
|
|
$
|
32
|
|
|
$
|
1,014
|
|
|
$
|
726
|
|
Cross-currency interest rate swaps
|
|
Foreign currency
and interest rate
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
2
|
|
Other
(2)
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
963
|
|
|
|
696
|
|
|
|
80
|
|
|
|
32
|
|
|
|
1,043
|
|
|
|
728
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest rate
|
|
|
(218
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(62
|
)
|
|
|
(68
|
)
|
|
|
(280
|
)
|
|
|
(160
|
)
|
Floor Income Contracts
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(349
|
)
|
|
|
(365
|
)
|
|
|
(349
|
)
|
|
|
(365
|
)
|
Cross-currency interest rate swaps
|
|
Foreign currency
and interest rate
|
|
|
|
|
|
|
|
|
|
|
(578
|
)
|
|
|
(926
|
)
|
|
|
(42
|
)
|
|
|
(62
|
)
|
|
|
(620
|
)
|
|
|
(988
|
)
|
Other
(2)
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
(3)
|
|
|
|
|
(218
|
)
|
|
|
(89
|
)
|
|
|
(578
|
)
|
|
|
(929
|
)
|
|
|
(458
|
)
|
|
|
(497
|
)
|
|
|
(1,254
|
)
|
|
|
(1,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net total derivatives
|
|
|
|
$
|
(218
|
)
|
|
$
|
(89
|
)
|
|
$
|
385
|
|
|
$
|
(233
|
)
|
|
$
|
(378
|
)
|
|
$
|
(465
|
)
|
|
$
|
(211
|
)
|
|
$
|
(787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Fair values reported are exclusive of collateral held and pledged and accrued interest. Assets and liabilities are presented without consideration of
master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements, and classified in other assets or other liabilities depending on whether in a net positive or negative
position.
|
(2)
|
Other includes embedded derivatives bifurcated from securitization debt as well as derivatives related to our Total Return Swap Facility.
|
(3)
|
The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
Other Liabilities
|
|
(Dollar in millions)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Gross position
|
|
$
|
1,043
|
|
|
$
|
728
|
|
|
$
|
(1,254
|
)
|
|
$
|
(1,515
|
)
|
Impact of master netting agreements
|
|
|
(26
|
)
|
|
|
(50
|
)
|
|
|
26
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative values with impact of master netting
agreements (as carried on balance sheet)
|
|
|
1,017
|
|
|
|
678
|
|
|
|
(1,228
|
)
|
|
|
(1,465
|
)
|
Cash collateral (held) pledged
|
|
|
(875
|
)
|
|
|
(759
|
)
|
|
|
392
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net position
|
|
$
|
142
|
|
|
$
|
(81
|
)
|
|
$
|
(836
|
)
|
|
$
|
(999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.
|
Derivative Financial Instruments (Continued)
|
The above fair values include adjustments for counterparty credit risk both for when we
are exposed to the counterparty, net of collateral postings, and when the counterparty is exposed to us, net of collateral postings. The net adjustments decreased the overall net asset positions at March 31, 2016 and December 31, 2015 by
$12 million and $1 million, respectively. In addition, the above fair values reflect adjustments for illiquid derivatives as indicated by a wide bid/ask spread in the interest rate indices to which the derivatives are indexed. These adjustments
decreased the overall net asset positions at March 31, 2016 and December 31, 2015 by $23 million and $31 million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
|
|
|
Fair Value
|
|
|
Trading
|
|
|
Total
|
|
(Dollars in billions)
|
|
Mar. 31,
2016
|
|
|
Dec. 31,
2015
|
|
|
Mar. 31,
2016
|
|
|
Dec. 31,
2015
|
|
|
Mar. 31,
2016
|
|
|
Dec. 31,
2015
|
|
|
Mar. 31,
2016
|
|
|
Dec. 31,
2015
|
|
Notional Values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
16.6
|
|
|
$
|
9.5
|
|
|
$
|
11.7
|
|
|
$
|
12.6
|
|
|
$
|
33.4
|
|
|
$
|
33.8
|
|
|
$
|
61.7
|
|
|
$
|
55.9
|
|
Floor Income Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.2
|
|
|
|
35.1
|
|
|
|
25.2
|
|
|
|
35.1
|
|
Cross-currency interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
8.9
|
|
|
|
9.1
|
|
|
|
.3
|
|
|
|
.3
|
|
|
|
9.2
|
|
|
|
9.4
|
|
Other
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
|
3.2
|
|
|
|
3.1
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
$
|
16.6
|
|
|
$
|
9.5
|
|
|
$
|
20.6
|
|
|
$
|
21.7
|
|
|
$
|
62.0
|
|
|
$
|
72.4
|
|
|
$
|
99.2
|
|
|
$
|
103.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Other includes embedded derivatives bifurcated from securitization debt as well as derivatives related to our Total Return Swap Facility.
|
Impact of Derivatives on Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
Unrealized Gain
(Loss) on
Derivatives
(1)(2)
|
|
|
Realized Gain
(Loss) on
Derivatives
(3)
|
|
|
Unrealized Gain
(Loss) on
Hedged Item
(1)
|
|
|
Total Gain (Loss)
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
244
|
|
|
$
|
121
|
|
|
$
|
71
|
|
|
$
|
95
|
|
|
$
|
(280
|
)
|
|
$
|
(130
|
)
|
|
$
|
35
|
|
|
$
|
86
|
|
Cross-currency interest rate swaps
|
|
|
374
|
|
|
|
(842
|
)
|
|
|
(16
|
)
|
|
|
2
|
|
|
|
(306
|
)
|
|
|
988
|
|
|
|
52
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value derivatives
|
|
|
618
|
|
|
|
(721
|
)
|
|
|
55
|
|
|
|
97
|
|
|
|
(586
|
)
|
|
|
858
|
|
|
|
87
|
|
|
|
234
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flow derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
53
|
|
|
|
18
|
|
|
|
10
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
29
|
|
Floor Income Contracts
|
|
|
27
|
|
|
|
72
|
|
|
|
(138
|
)
|
|
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
(90
|
)
|
Cross-currency interest rate swaps
|
|
|
20
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
(2
|
)
|
Other
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading derivatives
|
|
|
98
|
|
|
|
87
|
|
|
|
(129
|
)
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
716
|
|
|
|
(634
|
)
|
|
|
(74
|
)
|
|
|
(56
|
)
|
|
|
(586
|
)
|
|
|
858
|
|
|
|
56
|
|
|
|
168
|
|
Less: realized gains (losses) recorded in interest expense
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on derivative and hedging activities, net
|
|
$
|
716
|
|
|
$
|
(634
|
)
|
|
$
|
(129
|
)
|
|
$
|
(153
|
)
|
|
$
|
(586
|
)
|
|
$
|
858
|
|
|
$
|
1
|
|
|
$
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Recorded in Gains (losses) on derivative and hedging activities, net in the consolidated statements of income.
|
(2)
|
Represents ineffectiveness related to cash flow hedges.
|
(3)
|
For fair value and cash flow hedges, recorded in interest expense. For trading derivatives, recorded in Gains (losses) on derivative and hedging
activities, net.
|
20
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.
|
Derivative Financial Instruments (Continued)
|
Collateral
Collateral held and pledged related to derivative exposures between us and our derivative counterparties are detailed in the following
table:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Collateral held:
|
|
|
|
|
|
|
Cash (obligation to return cash collateral is recorded in short-term borrowings)
(1)
|
|
$
|
875
|
|
|
$
|
759
|
|
Securities at fair value on-balance sheet securitization derivatives (not recorded in financial statements)
(2)
|
|
|
398
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
Total collateral held
|
|
$
|
1,273
|
|
|
$
|
1,060
|
|
|
|
|
|
|
|
|
|
|
Derivative asset at fair value including accrued interest
|
|
$
|
1,160
|
|
|
$
|
896
|
|
|
|
|
|
|
|
|
|
|
Collateral pledged to others:
|
|
|
|
|
|
|
|
|
Cash (right to receive return of cash collateral is recorded in investments)
|
|
$
|
392
|
|
|
$
|
466
|
|
|
|
|
|
|
|
|
|
|
Total collateral pledged
|
|
$
|
392
|
|
|
$
|
466
|
|
|
|
|
|
|
|
|
|
|
Derivative liability at fair value including accrued interest and premium receivable
|
|
$
|
1,201
|
|
|
$
|
1,395
|
|
|
|
|
|
|
|
|
|
|
(1)
|
At March 31, 2016 and December 31, 2015, $0 million and $2 million, respectively, were held in restricted cash accounts.
|
(2)
|
The trusts do not have the ability to sell or re-pledge securities they hold as collateral.
|
Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully collateralized our
corporate derivative liability position (including accrued interest and net of premiums receivable) of $631 million with our counterparties. Downgrades in our unsecured credit rating would not result in any additional collateral requirements, except
to increase the frequency of collateral calls. Two counterparties have the right to terminate the contracts based on our current unsecured credit rating. We are currently in an asset position with these derivative counterparties (including accrued
interest and net of premiums receivable). Trust related derivatives do not contain credit contingent features related to our or the trusts credit ratings.
The following table provides the detail of our other assets.
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Accrued interest receivable, net
|
|
$
|
1,575
|
|
|
$
|
1,646
|
|
Derivatives at fair value
|
|
|
1,017
|
|
|
|
678
|
|
Income tax asset, net current and deferred
|
|
|
860
|
|
|
|
906
|
|
Benefit and insurance-related investments
|
|
|
484
|
|
|
|
491
|
|
Accounts receivable
|
|
|
169
|
|
|
|
329
|
|
Fixed assets, net
|
|
|
161
|
|
|
|
162
|
|
Other loans, net
|
|
|
68
|
|
|
|
70
|
|
Other
|
|
|
363
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,697
|
|
|
$
|
4,682
|
|
|
|
|
|
|
|
|
|
|
21
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.
|
Business Combinations Acquisition of Gila LLC and Xtend Healthcare
|
Acquisitions are accounted for under the acquisition method of accounting as defined in ASC 805, Business
Combinations. The Company allocates the purchase price to the fair value of the acquired tangible assets, liabilities and identifiable intangible assets as of the acquisition date as determined by an independent appraiser.
During 2015, Navient completed acquisitions of Gila LLC and Xtend Healthcare. Navient has not disclosed the pro forma impact of these
acquisitions to the results of operations for the three months ended March 31, 2015, as the pro forma impact was deemed immaterial.
Acquisition of Gila LLC
During February 2015, the Company acquired a 98 percent majority controlling interest in Gila LLC for approximately $185 million. Gila LLC is an asset recovery and business processing firm. The firm
provides receivables management services and account processing solutions for state governments, agencies, court systems and municipalities. The results of operations of Gila LLC have been included in Navients consolidated financial statements
since the acquisition date and are reflected in Navients Business Services segment.
As of September 2015, the Company
finalized its purchase price allocation for Gila LLC which resulted in an excess purchase price over the fair value of net assets acquired, or goodwill, of $97 million.
Identifiable intangible assets at the acquisition date included the Gila LLC trade name, an indefinite life intangible asset, with an aggregate estimated fair value of approximately $13 million as of the
acquisition date as well as definite life intangible assets with an estimated aggregate fair value of approximately $71 million as of the acquisition date. These definite life intangible assets consist primarily of customer relationships which will
be amortized over 2 to 16 years depending on the economic benefit derived from each of the underlying assets.
Acquisition of Xtend
Healthcare
During October 2015, Navient acquired a 91 percent controlling interest in Xtend Healthcare for
approximately $164 million. Xtend Healthcare is a health care revenue cycle management company that provides health insurance claims billing and account resolution, as well as patient billing and customer service. The results of operations of Xtend
Healthcare have been included in Navients consolidated financial statements since the acquisition date and are reflected in Navients Business Services segment.
The Companys purchase price allocation as of March 31, 2016 is preliminary as the Company is awaiting the final results of a valuation that is being performed by an independent appraiser. We
anticipate the purchase price allocation will be completed by the end of the second quarter of 2016. The preliminary estimate of goodwill is $101 million.
Identifiable intangible assets at the acquisition date include the Xtend Healthcare trade name, an indefinite life intangible asset, with a preliminary estimated aggregate fair value of approximately $15
million as of the acquisition date. Definite life intangible assets with preliminary estimated aggregate fair values of approximately $51 million as of the acquisition date consist primarily of customer relationships.
During the first-quarter 2016, there were no other changes or adjustments to goodwill and intangible assets.
22
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes common share repurchases and issuances.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Common shares repurchased
(1)
|
|
|
19,210,281
|
|
|
|
14,653,835
|
|
Average purchase price per share
|
|
$
|
10.42
|
|
|
$
|
20.49
|
|
Shares repurchased related to employee stock-based compensation plans
(2)
|
|
|
986,273
|
|
|
|
1,644,764
|
|
Average purchase price per share
|
|
$
|
9.96
|
|
|
$
|
20.86
|
|
Common shares issued
(3)
|
|
|
2,499,585
|
|
|
|
3,585,238
|
|
|
(1)
|
Common shares purchased under our share repurchase programs.
|
|
(2)
|
Comprises shares withheld from stock option exercises and vesting of restricted stock for employees tax withholding obligations and shares
tendered by employees to satisfy option exercise costs.
|
|
(3)
|
Common shares issued under our various compensation and benefit plans.
|
The closing price of our common stock on March 31, 2016 was $11.97.
Dividend and Share Repurchase Program
In March 2016, we paid a common stock dividend of $0.16 per share.
We
repurchased 19.2 million shares of common stock for $200 million in the first quarter of 2016. The shares were repurchased under our previously disclosed share repurchase programs. As of March 31, 2016, the remaining repurchase authority
was $555 million. In the first quarter of 2015, we repurchased 14.7 million shares for $300 million.
23
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.
|
Earnings per Common Share
|
Basic earnings per common share (EPS) are calculated using the weighted average number of shares of common
stock outstanding during each period. A reconciliation of the numerators and denominators of the basic and diluted EPS calculations follows.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(In millions, except per share data)
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to Navient Corporation
|
|
$
|
181
|
|
|
$
|
292
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute basic EPS
|
|
|
339
|
|
|
|
398
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options, non-vested restricted stock, restricted stock units and Employee Stock Purchase Plans
(ESPPs)
(1)
|
|
|
4
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
(2)
|
|
|
4
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute diluted EPS
|
|
|
343
|
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share attributable to Navient Corporation:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.53
|
|
|
$
|
.73
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
.53
|
|
|
$
|
.73
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share attributable to Navient Corporation:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.53
|
|
|
$
|
.72
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
.53
|
|
|
$
|
.72
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options, non-vested restricted
stock, restricted stock units, and the outstanding commitment to issue shares under applicable ESPPs, determined by the treasury stock method.
|
(2)
|
For the three months ended March 31, 2016 and 2015, stock options covering approximately 9 million and 4 million shares, respectively,
were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.
|
24
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.
|
Fair Value Measurements
|
We use estimates of fair value in applying various accounting standards in our financial statements. We categorize our
fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. Please refer to Note 12 Fair Value Measurements in our 2015
Form 10-K for a full discussion.
During the three months ended March 31, 2016, there were no significant transfers of
financial instruments between levels, or changes in our methodology or assumptions used to value our financial instruments.
The following table summarizes the valuation of our financial instruments that are marked-to-market on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements on a Recurring Basis
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
(Dollars in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage-backed securities
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
Other
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale investments
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Derivative instruments:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
985
|
|
|
|
29
|
|
|
|
1,014
|
|
|
|
|
|
|
|
709
|
|
|
|
17
|
|
|
|
726
|
|
Cross-currency interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
(3)
|
|
|
|
|
|
|
985
|
|
|
|
58
|
|
|
|
1,043
|
|
|
|
|
|
|
|
709
|
|
|
|
19
|
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
990
|
|
|
$
|
58
|
|
|
$
|
1,048
|
|
|
$
|
|
|
|
$
|
714
|
|
|
$
|
19
|
|
|
$
|
733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
(219
|
)
|
|
$
|
(61
|
)
|
|
$
|
(280
|
)
|
|
$
|
|
|
|
$
|
(99
|
)
|
|
$
|
(61
|
)
|
|
$
|
(160
|
)
|
Floor Income Contracts
|
|
|
|
|
|
|
(349
|
)
|
|
|
|
|
|
|
(349
|
)
|
|
|
|
|
|
|
(365
|
)
|
|
|
|
|
|
|
(365
|
)
|
Cross-currency interest rate swaps
|
|
|
|
|
|
|
(64
|
)
|
|
|
(556
|
)
|
|
|
(620
|
)
|
|
|
|
|
|
|
(83
|
)
|
|
|
(905
|
)
|
|
|
(988
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
(3)
|
|
|
|
|
|
|
(632
|
)
|
|
|
(622
|
)
|
|
|
(1,254
|
)
|
|
|
|
|
|
|
(547
|
)
|
|
|
(968
|
)
|
|
|
(1,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
(632
|
)
|
|
$
|
(622
|
)
|
|
$
|
(1,254
|
)
|
|
$
|
|
|
|
$
|
(547
|
)
|
|
$
|
(968
|
)
|
|
$
|
(1,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Fair value of derivative instruments excludes accrued interest and the value of collateral.
|
(2)
|
Borrowings which are the hedged items in a fair value hedge relationship and which are adjusted for changes in value due to benchmark interest rates
only are not carried at full fair value and are not reflected in this table.
|
(3)
|
See Note 4 Derivative Financial Instruments for a reconciliation of gross positions without the impact of master netting
agreements to the balance sheet classification.
|
25
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.
|
Fair Value Measurements (Continued)
|
The following tables summarize the change in balance sheet carrying value associated
with level 3 financial instruments carried at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Derivative instruments
|
|
|
Derivative instruments
|
|
(Dollars in millions)
|
|
Interest
Rate Swaps
|
|
|
Cross
Currency
Interest
Rate Swaps
|
|
|
Other
|
|
|
Total
Derivative
Instruments
|
|
|
Interest
Rate Swaps
|
|
|
Cross
Currency
Interest
Rate Swaps
|
|
|
Other
|
|
|
Total
Derivative
Instruments
|
|
Balance, beginning of period
|
|
$
|
(44
|
)
|
|
$
|
(903
|
)
|
|
$
|
(2
|
)
|
|
$
|
(949
|
)
|
|
$
|
(88
|
)
|
|
$
|
(117
|
)
|
|
$
|
(11
|
)
|
|
$
|
(216
|
)
|
Total gains/(losses) (realized and unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
(1)
|
|
|
11
|
|
|
|
358
|
|
|
|
(2
|
)
|
|
|
367
|
|
|
|
1
|
|
|
|
(840
|
)
|
|
|
(3
|
)
|
|
|
(842
|
)
|
Included in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
1
|
|
|
|
17
|
|
|
|
|
|
|
|
18
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
Transfers in and/or out of level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(32
|
)
|
|
$
|
(528
|
)
|
|
$
|
(4
|
)
|
|
$
|
(564
|
)
|
|
$
|
(88
|
)
|
|
$
|
(958
|
)
|
|
$
|
(13
|
)
|
|
$
|
(1,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains/(losses) relating to instruments still held at the reporting date
(2)
|
|
$
|
12
|
|
|
$
|
375
|
|
|
$
|
(2
|
)
|
|
$
|
385
|
|
|
$
|
|
|
|
$
|
(838
|
)
|
|
$
|
(2
|
)
|
|
$
|
(840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in earnings is comprised of the following amounts recorded in the specified line item in the consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Gains (losses) on derivative and hedging activities, net
|
|
$
|
384
|
|
|
$
|
(843
|
)
|
Interest expense
|
|
|
(17
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
367
|
|
|
$
|
(842
|
)
|
|
|
|
|
|
|
|
|
|
(2)
|
Recorded in gains (losses) on derivative and hedging activities, net in the consolidated statements of income.
|
The following table presents the significant inputs that are unobservable or from inactive markets used in
the recurring valuations of the level 3 financial instruments detailed above.
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Fair Value at
March 31, 2016
|
|
|
Valuation
Technique
|
|
Input
|
|
Range
(Weighted Average)
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
Consumer Price Index/LIBOR basis swaps
|
|
$
|
11
|
|
|
Discounted cash flow
|
|
Bid/ask adjustment
to
discount rate
|
|
.02% .05%
(.05%)
|
|
|
|
|
|
Prime/LIBOR basis swaps
|
|
|
(43
|
)
|
|
Discounted cash flow
|
|
Constant prepayment rate
|
|
4.9%
|
|
|
|
|
|
|
|
|
Bid/ask adjustment to
discount rate
|
|
.03% .05%
(.03%)
|
|
|
|
|
|
Cross-currency interest rate swaps
|
|
|
(528
|
)
|
|
Discounted cash flow
|
|
Constant prepayment rate
|
|
2.8%
|
Other
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.
|
Fair Value Measurements (Continued)
|
The significant inputs that are unobservable or from inactive markets related to our
level 3 derivatives detailed in the table above would be expected to have the following impacts to the valuations:
|
|
|
Consumer Price Index/LIBOR basis swaps These swaps do not actively trade in the markets as indicated by a wide bid/ask spread. A wider
bid/ask spread will result in a decrease in the overall valuation.
|
|
|
|
Prime/LIBOR basis swaps These swaps do not actively trade in the markets as indicated by a wide bid/ask spread. A wider bid/ask spread will
result in a decrease in the overall valuation. In addition, the unobservable inputs include Constant Prepayment Rates of the underlying securitization trust the swap references. A decrease in this input will result in a longer weighted average life
of the swap which will increase the value for swaps in a gain position and decrease the value for swaps in a loss position, everything else equal. The opposite is true for an increase in the input.
|
|
|
|
Cross-currency interest rate swaps The unobservable inputs used in these valuations are Constant Prepayment Rates of the underlying
securitization trust the swap references. A decrease in this input will result in a longer weighted average life of the swap. All else equal in a typical currency market, this will result in a decrease to the valuation due to the delay in the cash
flows of the currency exchanges as well as diminished liquidity in the forward exchange markets as you increase the term. The opposite is true for an increase in the input.
|
The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
(Dollars in millions)
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Difference
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Difference
|
|
Earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loans
|
|
$
|
92,550
|
|
|
$
|
95,018
|
|
|
$
|
(2,468
|
)
|
|
$
|
94,377
|
|
|
$
|
96,498
|
|
|
$
|
(2,121
|
)
|
Private Education Loans
|
|
|
24,716
|
|
|
|
25,547
|
|
|
|
(831
|
)
|
|
|
25,772
|
|
|
|
26,394
|
|
|
|
(622
|
)
|
Cash and investments
(1)
|
|
|
5,413
|
|
|
|
5,413
|
|
|
|
|
|
|
|
5,833
|
|
|
|
5,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
122,679
|
|
|
|
125,978
|
|
|
|
(3,299
|
)
|
|
|
125,982
|
|
|
|
128,725
|
|
|
|
(2,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
2,370
|
|
|
|
2,363
|
|
|
|
(7
|
)
|
|
|
2,569
|
|
|
|
2,570
|
|
|
|
1
|
|
Long-term borrowings
|
|
|
115,815
|
|
|
|
122,920
|
|
|
|
7,105
|
|
|
|
118,471
|
|
|
|
124,833
|
|
|
|
6,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
118,185
|
|
|
|
125,283
|
|
|
|
7,098
|
|
|
|
121,040
|
|
|
|
127,403
|
|
|
|
6,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor Income Contracts
|
|
|
(349
|
)
|
|
|
(349
|
)
|
|
|
|
|
|
|
(365
|
)
|
|
|
(365
|
)
|
|
|
|
|
Interest rate swaps
|
|
|
734
|
|
|
|
734
|
|
|
|
|
|
|
|
566
|
|
|
|
566
|
|
|
|
|
|
Cross-currency interest rate swaps
|
|
|
(592
|
)
|
|
|
(592
|
)
|
|
|
|
|
|
|
(986
|
)
|
|
|
(986
|
)
|
|
|
|
|
Other
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of net asset fair value over carrying value
|
|
|
|
|
|
|
|
|
|
$
|
3,799
|
|
|
|
|
|
|
|
|
|
|
$
|
3,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Cash and investments includes available-for-sale investments that consist of investments that are primarily agency securities whose cost
basis is $4 million and $4 million at March 31, 2016 and December 31, 2015, respectively, versus a fair value of $5 million and $5 million at March 31, 2016 and December 31, 2015, respectively.
|
27
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10.
|
Commitments and Contingencies
|
Regulatory Matters
On May 2, 2014, Navient Solutions, Inc. (NSI), a wholly-owned subsidiary of Navient, and Sallie Mae Bank entered into consent orders with the Federal Deposit Insurance Corporation (the
FDIC) (respectively, the NSI Order and the Bank Order; collectively, the FDIC Orders) to resolve matters related to certain cited violations of Section 5 of the Federal Trade Commission Act,
including the disclosures and assessments of certain late fees, as well as alleged violations under the Servicemembers Civil Relief Act (the SCRA). The FDIC Orders, which became effective upon the signing of the consent order with the
United States Department of Justice (the DOJ) by NSI and SLM BankCo on May 13, 2014, required NSI to pay $3.3 million in civil monetary penalties. NSI paid its civil monetary penalties. In addition, the FDIC Orders required the
establishment of a restitution reserve account totaling $30 million to provide restitution with respect to loans owned or originated by Sallie Mae Bank, from November 28, 2005 until the effective date of the FDIC Orders. Pursuant to the
Separation and Distribution Agreement among SLM Corporation, SLM BankCo and Navient dated as of April 28, 2014 (the Separation Agreement), Navient funded the restitution reserve account in May 2014.
The NSI Order also required NSI to ensure proper servicing for service members and proper application of SCRA benefits under a revised
and broader definition of eligibility than previously required by the statute and regulatory guidance and to make changes to billing statements and late fee practices. These changes to billing statements and late fee practices have already been
implemented. NSI also decided to voluntarily make restitution of certain late fees to all other customers whose loans were neither owned nor originated by Sallie Mae Bank. They were calculated in the same manner as that which was required under the
FDIC Orders and are estimated to be $42 million. The process to refund these fees as well as amounts from the restitution fund is substantially complete.
With respect to alleged civil violations of the SCRA, NSI and Sallie Mae Bank entered into a consent order with the DOJ in May 2014. The DOJ consent order (the DOJ Order) covers all loans
either owned by Sallie Mae Bank or serviced by NSI from November 28, 2005 until the effective date of the settlement. The DOJ Order required NSI to fund a $60 million settlement fund, which represents the total amount of compensation due to
service members under the DOJ agreement, and to pay $55,000 in civil penalties. The DOJ Order was approved by the United States District Court in Delaware on September 29, 2014. Shortly thereafter, Navient funded the settlement fund and paid
the civil penalties pursuant to the terms of the order. On April 15, 2015, the DOJ approved the distribution plan for the settlement fund and the funds were disbursed in the second quarter of 2015.
The total reserves established by the Company in 2013 and 2014 to cover these costs were $177 million, and as of March 31, 2016,
substantially all of this amount had been paid or credited or refunded to customer accounts. The final cost of these proceedings will remain uncertain until all of the work under the various consent orders has been completed and the consent orders
are lifted.
As previously disclosed, the Company and various of its subsidiaries are subject to the following investigations
and inquiries:
|
|
|
In December 2013, Navient received Civil Investigative Demands (CIDs) issued by the State of Illinois Office of Attorney General and the
State of Washington Office of the Attorney General and multiple other state Attorneys General. According to the CIDs, the investigations were initiated to ascertain whether any practices declared to be unlawful under the Consumer Fraud and Deceptive
Business Practices Act have occurred or are about to occur.
|
|
|
|
In April 2014, NSI received a CID from the Consumer Financial Protection Bureau (the CFPB) as part of the CFPBs separate
investigation regarding allegations relating to Navients disclosures and
|
28
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10.
|
Commitments and Contingencies (Continued)
|
|
assessment of late fees and other matters. Navient has received a series of supplemental CIDs on these matters. On August 19, 2015, NSI received a letter from the CFPB notifying NSI that, in
accordance with the CFPBs discretionary Notice and Opportunity to Respond and Advise (NORA) process, the CFPBs Office of Enforcement is considering recommending that the CFPB take legal action against NSI. The NORA letter
relates to a previously disclosed investigation into NSIs disclosures and assessment of late fees and other matters and states that, in connection with any action, the CFPB may seek restitution, civil monetary penalties and corrective action
against NSI. The Company responded to the NORA letter on September 10, 2015.
|
|
|
|
In November 2014, Navients subsidiary, Pioneer Credit Recovery, Inc. (Pioneer), received a CID from the CFPB as part of the
CFPBs investigation regarding Pioneers activities relating to rehabilitation loans and collection of defaulted student debt. The CFPB has informed the Company that they have combined this matter with the aforementioned servicing matter.
|
|
|
|
In December 2014, NSI received a subpoena from the New York Department of Financial Services (the NY DFS) as part of the NY DFSs
inquiry with regard to whether persons or entities have engaged in fraud or misconduct with respect to a financial product or service under New York Financial Services Law or other laws.
|
We have been in discussions with each of these regulatory entities or bodies and are cooperating with these investigations, inquiries or
examinations and are committed to resolving any potential concerns. It is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection with these matters and reserves have not been
established.
In addition, Navient and its subsidiaries are subject to examination by the CFPB, FDIC, ED and various state
agencies as part of its ordinary course of business. Items or matters similar to or different from those described above may arise during the course of those examinations. We also routinely receive inquiries or requests from various regulatory
entities or bodies or government agencies concerning our business or our assets. The Company endeavors to cooperate with each such inquiry or request.
Under the terms of the Separation Agreement, Navient has agreed to be responsible and indemnify SLM BankCo for all claims, actions, damages, losses or expenses that may arise from the conduct of all
activities of pre-Spin-Off SLM BankCo occurring prior to the Spin-Off other than those specifically excluded in the Separation and Distribution Agreement. As a result, all liabilities arising out of the regulatory matters mentioned above, other than
fines or penalties directly levied against Sallie Mae Bank, are the responsibility of, or assumed by, Navient or one of its subsidiaries, and Navient has agreed to indemnify and hold harmless Sallie Mae and its subsidiaries, including Sallie Mae
Bank, therefrom. Navient has no additional reserves related to indemnification matters with SLM BankCo as of March 31, 2016.
OIG Audit
The Office of the Inspector General (the OIG)
of ED commenced an audit regarding Special Allowance Payments (SAP) on September 10, 2007. On September 25, 2013, we received the final audit determination of Federal Student Aid (the Final Audit Determination) on
the final audit report issued by the OIG on August 3, 2009 related to this audit. The Final Audit Determination concurred with the final audit report issued by the OIG and instructed us to make adjustment to our government billing to reflect
the policy determination. Navient remains in active discussions with ED on this matter and we also have the right to appeal the Final Audit Determination to the Administrative Actions and Appeals Service Group of ED. The period to file an appeal in
this matter has not expired. We continue to believe that our SAP billing practices were proper, considering then-existing ED guidance and lack of applicable regulations. The Company established a reserve for this matter in 2014 as part of the total
reserve for pending regulatory matters discussed previously.
29
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10.
|
Commitments and Contingencies (Continued)
|
Contingencies
In the ordinary course of business, we and our subsidiaries are defendants in or parties to pending and threatened legal actions and
proceedings including actions brought on behalf of various classes of claimants. These actions and proceedings may be based on alleged violations of consumer protection, securities, employment and other laws. In certain of these actions and
proceedings, claims for substantial monetary damage are asserted against us and our subsidiaries.
In the ordinary course of
business, we and our subsidiaries are subject to regulatory examinations, information gathering requests, inquiries and investigations. In connection with formal and informal inquiries in these cases, we and our subsidiaries receive numerous
requests, subpoenas and orders for documents, testimony and information in connection with various aspects of our regulated activities.
In view of the inherent difficulty of predicting the outcome of such litigation and regulatory matters, we cannot predict what the eventual outcome of the pending matters will be, what the timing or the
ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter may be.
We are required to establish reserves for litigation and regulatory matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both
probable and estimable, we do not establish reserves.
Based on current knowledge, reserves have been established for certain
litigation or regulatory matters where the loss is both probable and estimable. Based on current knowledge, management does not believe that loss contingencies, if any, arising from pending investigations, litigation or regulatory matters will have
a material adverse effect on our consolidated financial position, liquidity, results of operations or cash flows.
FFELP Loans Segment
In the FFELP Loans segment, we acquire and finance FFELP Loans. Even though FFELP Loans are no longer originated due to changes in federal law that took effect in 2010, we continue to pursue acquisitions
of FFELP Loan portfolios that leverage our servicing scale and generate incremental earnings and cash flow. In this segment, we primarily earn net interest income on the FFELP Loan portfolio (after provision for loan losses). This segment is
expected to generate significant amounts of earnings and cash flow as the portfolio amortizes.
The following table includes
GAAP basis asset information for our FFELP Loans segment.
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
FFELP Loans, net
|
|
$
|
95,018
|
|
|
$
|
96,498
|
|
Cash and investments
(1)
|
|
|
3,500
|
|
|
|
3,572
|
|
Other
|
|
|
1,918
|
|
|
|
2,015
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
100,436
|
|
|
$
|
102,085
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes restricted cash and investments.
|
30
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11.
|
Segment Reporting (Continued)
|
Private Education Loans Segment
In this segment, we acquire, finance and service Private Education Loans. Even though we no longer originate Private Education Loans, we
continue to pursue acquisitions of Private Education Loan portfolios that leverage our servicing scale and generate incremental earnings and cash flow. In this segment, we primarily earn net interest income on the Private Education Loan portfolio
(after provision for loan losses). This segment is expected to generate significant amounts of earnings and cash flow as the portfolio amortizes.
The following table includes GAAP basis asset information for our Private Education Loans segment.
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Private Education Loans, net
|
|
$
|
25,547
|
|
|
$
|
26,394
|
|
Cash and investments
(1)
|
|
|
672
|
|
|
|
596
|
|
Other
|
|
|
2,074
|
|
|
|
1,988
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
28,293
|
|
|
$
|
28,978
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes restricted cash and investments.
|
Business Services Segment
Our Business Services segment generates
revenue from servicing, asset recovery and business processing activities. Within this segment, we primarily generate revenue from servicing our FFELP Loan portfolio as well as servicing education loans for Guarantors of FFELP Loans and other
institutions, including ED. We provide asset recovery services for loans and receivables on behalf of Guarantors of FFELP Loans, higher education institutions and federal, state, court and municipal clients. In addition, we provide business
processing services on behalf of municipalities, public authorities and hospitals.
At March 31, 2016 and
December 31, 2015, the Business Services segment had total assets of $654 million and $657 million, respectively, on a GAAP basis.
Other Segment
Our Other segment primarily consists of activities of
our holding company, including the repurchase of debt, our corporate liquidity portfolio, unallocated overhead and regulatory-related costs. We also include results from certain smaller wind-down operations within this segment. Overhead expenses
include costs related to executive management, the board of directors, accounting, finance, legal, human resources, stock-based compensation expense and certain information technology costs related to infrastructure and operations.
Regulatory-related costs include actual settlement amounts as well as third-party professional fees we incur in connection with regulatory matters.
At March 31, 2016 and December 31, 2015, the Other segment had total assets of $2.0 billion and $2.4 billion, respectively, on a GAAP basis.
Measure of Profitability
We prepare financial statements in accordance with GAAP. However, we also evaluate our business segments on a basis that differs from GAAP. We refer to this different basis of presentation as Core
Earnings. We provide this Core Earnings basis of presentation on a consolidated basis for each business segment because this is what we review internally when making management decisions regarding our performance and how we
allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and
31
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11.
|
Segment Reporting (Continued)
|
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 other 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 Companys 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 Navients 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.
32
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11.
|
Segment Reporting (Continued)
|
Segment Results and Reconciliations to GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education loans
|
|
$
|
555
|
|
|
$
|
411
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
966
|
|
|
$
|
138
|
|
|
$
|
(59
|
)
|
|
$
|
79
|
|
|
$
|
1,045
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Cash and investments
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
558
|
|
|
|
412
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
972
|
|
|
|
138
|
|
|
|
(59
|
)
|
|
|
79
|
|
|
|
1,051
|
|
Total interest expense
|
|
|
358
|
|
|
|
172
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
556
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
200
|
|
|
|
240
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
416
|
|
|
|
129
|
|
|
|
(59
|
)
|
|
|
70
|
|
|
|
486
|
|
Less: provisions for loan losses
|
|
|
7
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
193
|
|
|
|
136
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
305
|
|
|
|
129
|
|
|
|
(59
|
)
|
|
|
70
|
|
|
|
375
|
|
Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing revenue
|
|
|
16
|
|
|
|
4
|
|
|
|
163
|
|
|
|
|
|
|
|
(101
|
)
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
Asset recovery and business processing revenue
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
(129
|
)
|
|
|
113
|
|
|
|
(16
|
)
|
|
|
(12
|
)
|
Gains (losses) on sales of loans and investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on debt repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
16
|
|
|
|
4
|
|
|
|
254
|
|
|
|
3
|
|
|
|
(101
|
)
|
|
|
176
|
|
|
|
(129
|
)
|
|
|
113
|
|
|
|
(16
|
)
|
|
|
160
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
104
|
|
|
|
43
|
|
|
|
134
|
|
|
|
6
|
|
|
|
(101
|
)
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
Overhead expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
104
|
|
|
|
43
|
|
|
|
134
|
|
|
|
67
|
|
|
|
(101
|
)
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
104
|
|
|
|
43
|
|
|
|
134
|
|
|
|
67
|
|
|
|
(101
|
)
|
|
|
247
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, before income tax expense (benefit)
|
|
|
105
|
|
|
|
97
|
|
|
|
120
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
234
|
|
|
|
|
|
|
|
50
|
|
|
|
50
|
|
|
|
284
|
|
Income tax expense (benefit)
(3)
|
|
|
39
|
|
|
|
36
|
|
|
|
45
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
66
|
|
|
|
61
|
|
|
|
75
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
34
|
|
|
|
34
|
|
|
|
181
|
|
Income (loss) from discontinued operations, net of tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
66
|
|
|
$
|
61
|
|
|
$
|
75
|
|
|
$
|
(55
|
)
|
|
$
|
|
|
|
$
|
147
|
|
|
$
|
|
|
|
$
|
34
|
|
|
$
|
34
|
|
|
$
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
(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
|
|
$
|
|
|
|
$
|
70
|
|
|
$
|
|
|
|
$
|
70
|
|
Total other income (loss)
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
|
|
|
$
|
54
|
|
|
$
|
(4
|
)
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
|
33
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11.
|
Segment Reporting (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education loans
|
|
$
|
534
|
|
|
$
|
456
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
990
|
|
|
$
|
162
|
|
|
$
|
(59
|
)
|
|
$
|
103
|
|
|
$
|
1,093
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Cash and investments
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
535
|
|
|
|
456
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
994
|
|
|
|
162
|
|
|
|
(59
|
)
|
|
|
103
|
|
|
|
1,097
|
|
Total interest expense
|
|
|
302
|
|
|
|
173
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
505
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
233
|
|
|
|
283
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
489
|
|
|
|
153
|
|
|
|
(59
|
)
|
|
|
94
|
|
|
|
583
|
|
Less: provisions for loan losses
|
|
|
5
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
228
|
|
|
|
163
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
364
|
|
|
|
153
|
|
|
|
(59
|
)
|
|
|
94
|
|
|
|
458
|
|
Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing revenue
|
|
|
18
|
|
|
|
7
|
|
|
|
163
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
Asset recovery and business processing revenue
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
6
|
|
|
|
(153
|
)
|
|
|
225
|
|
|
|
72
|
|
|
|
78
|
|
Gains on sales of loans and investments
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Gains on debt repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
23
|
|
|
|
7
|
|
|
|
254
|
|
|
|
4
|
|
|
|
(111
|
)
|
|
|
177
|
|
|
|
(153
|
)
|
|
|
225
|
|
|
|
72
|
|
|
|
249
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
115
|
|
|
|
46
|
|
|
|
116
|
|
|
|
4
|
|
|
|
(111
|
)
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
Overhead expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
115
|
|
|
|
46
|
|
|
|
116
|
|
|
|
64
|
|
|
|
(111
|
)
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
115
|
|
|
|
46
|
|
|
|
116
|
|
|
|
64
|
|
|
|
(111
|
)
|
|
|
230
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
234
|
|
Income (loss) from continuing operations, before income tax expense (benefit)
|
|
|
136
|
|
|
|
124
|
|
|
|
138
|
|
|
|
(87
|
)
|
|
|
|
|
|
|
311
|
|
|
|
|
|
|
|
162
|
|
|
|
162
|
|
|
|
473
|
|
Income tax expense (benefit)
(3)
|
|
|
51
|
|
|
|
47
|
|
|
|
52
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
64
|
|
|
|
64
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
85
|
|
|
$
|
77
|
|
|
$
|
86
|
|
|
$
|
(54
|
)
|
|
$
|
|
|
|
$
|
194
|
|
|
$
|
|
|
|
$
|
98
|
|
|
$
|
98
|
|
|
$
|
292
|
|
Income (loss) from discontinued operations, net of tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
85
|
|
|
$
|
77
|
|
|
$
|
86
|
|
|
$
|
(54
|
)
|
|
$
|
|
|
|
$
|
194
|
|
|
$
|
|
|
|
$
|
98
|
|
|
$
|
98
|
|
|
$
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business
Services segment performs the loan servicing function for the FFELP Loans segment.
|
(2)
|
Core Earnings adjustments to GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
(Dollars in millions)
|
|
Net Impact from
Spin-Off of
SLM BankCo
|
|
|
Net Impact of
Derivative
Accounting
|
|
|
Net Impact of
Acquired
Intangibles
|
|
|
Total
|
|
Net interest income after provisions for loan losses
|
|
$
|
|
|
|
$
|
94
|
|
|
$
|
|
|
|
$
|
94
|
|
Total other income (loss)
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
72
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Restructuring and other reorganization expenses
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
(3
|
)
|
|
$
|
166
|
|
|
$
|
(1
|
)
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
|
34
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11.
|
Segment Reporting (Continued)
|
Summary of Core Earnings Adjustments to GAAP
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Core Earnings adjustments to GAAP:
|
|
|
|
|
|
|
|
|
Net impact of the removal of SLM BankCos operations and restructuring and reorganization expense in connection with the
Spin-Off
(1)
|
|
$
|
|
|
|
$
|
(3
|
)
|
Net impact of derivative accounting
(2)
|
|
|
54
|
|
|
|
166
|
|
Net impact of goodwill and acquired intangibles assets
(3)
|
|
|
(4
|
)
|
|
|
(1
|
)
|
Net tax effect
(4)
|
|
|
(16
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
34
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
SLM BankCos operations and restructuring and reorganization expense in connection with the Spin-Off:
For Core Earnings, we
have assumed the consumer banking business (SLM BankCo) was never a part of Navients historical results prior to the deemed distribution of SLM BankCo on April 30, 2014 and we have removed the restructuring and other 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 Companys management structure post-Spin-Off.
Excluding these items provides management with a useful basis from which to better evaluate results from ongoing operations against results from prior periods. The adjustment relates to the exclusion of the consumer banking business and represents
the operations, assets, liabilities and equity of SLM BankCo, which is comprised of Sallie Mae Bank, Upromise Rewards, the Insurance Business, and the Private Education Loan origination functions. Included in these amounts are also certain general
corporate overhead expenses related to the consumer banking business. General corporate overhead consists of costs primarily associated with accounting, finance, legal, human resources, certain information technology costs, stock compensation, and
executive management and the board of directors. These costs were generally allocated to the consumer banking business based on the proportionate level of effort provided to the consumer banking business relative to SLM Corporation using a relevant
allocation driver (e.g., in proportion to the number of employees by function that were being transferred to SLM BankCo as opposed to remaining at Navient). All intercompany transactions between SLM BankCo and Navient have been eliminated. In
addition, all 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. The restructuring and other reorganization expense incurred in connection with
the Spin-Off includes the restructuring expenses related to the restructuring initiative launched in second-quarter 2015 to simplify and streamline the Companys management structure post-Spin-Off.
|
|
(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 items life.
|
|
(3)
|
Goodwill and acquired intangible assets:
Our Core Earnings exclude goodwill and intangible asset impairment and amortization of
acquired intangible assets.
|
|
(4)
|
Net tax effect:
Such tax effect is based upon our Core Earnings effective tax rate for the year.
|
35
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
This report contains forward-looking statements and other information that is based on managements current expectations
as of the date of this report. Statements that are not historical facts, including statements about our beliefs, opinions, or expectations and statements that assume or are dependent upon future events, are forward-looking statements and often
contain words such as expect, anticipate, intend, plan, believe, seek, see, will, would, or target. 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.
For us, these factors include, among others, the risks and uncertainties associated with:
|
|
|
increases in financing costs;
|
|
|
|
the availability of financing;
|
|
|
|
limits on liquidity resulting from disruptions in the capital markets or other factors;
|
|
|
|
unanticipated increases in costs associated with compliance with laws and regulations;
|
|
|
|
changes in the marketplaces in which we compete (including changes in demand or changes resulting from new laws and regulations);
|
|
|
|
changes in accounting standards pertaining to loan loss reserves and estimates or other accounting standards that may impact our operations;
|
|
|
|
adverse outcomes in any significant litigation to which we are a party;
|
|
|
|
credit risk associated with our exposure to third parties, including counterparties to hedging or other derivative transactions; and
|
|
|
|
changes in the terms of education loans and the educational credit marketplace (including changes resulting from new laws and the implementation of
existing laws).
|
We could also be affected by, among other things:
|
|
|
unanticipated deferrals in our FFELP securitization trusts that would delay repayment of the bonds beyond their legal final maturity date;
|
|
|
|
reductions to our credit ratings, the credit ratings of asset-backed securitizations we sponsor or the credit ratings of the United States of America;
|
|
|
|
failures of our operating systems or infrastructure, or those of third-party vendors;
|
|
|
|
risks related to cybersecurity including the potential disruption of our systems or potential disclosure of confidential customer information;
|
|
|
|
damage to our reputation resulting from the politicization of student loan servicing;
|
|
|
|
failures to successfully implement cost-cutting initiatives and adverse effects of such initiatives on our business;
|
|
|
|
delays or errors in converting portfolio acquisitions to our servicing platform;
|
|
|
|
risks associated with restructuring initiatives;
|
|
|
|
changes in law and regulations with respect to the student lending business and financial institutions generally;
|
|
|
|
increased competition from banks and other consumer lenders who are not subject to the same level of regulation;
|
|
|
|
the creditworthiness of our customers;
|
36
|
|
|
changes in the general interest rate environment, including the relationship between the relevant money-market index rate and the rate at which our
assets are priced;
|
|
|
|
our ability to successfully effectuate any acquisitions and other strategic initiatives;
|
|
|
|
changes in the demand for debt management services;
|
|
|
|
changes in general economic conditions; and
|
|
|
|
the other factors that are described in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2015
(the 2015 Form 10-K) and in our other reports filed with the Securities and Exchange Commission (SEC).
|
The preparation of our consolidated financial statements also requires management to make certain estimates and assumptions including estimates and assumptions about future events. These estimates or
assumptions may prove to be incorrect and actual results could differ materially. All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this document. We do not
undertake any obligation to update or revise these forward-looking statements except as required by law.
Definitions for
certain capitalized terms used but not otherwise defined in this Quarterly Report on
Form 10-Q
can be found in the Glossary section of our 2015 Form 10-K.
Through this discussion and analysis, we intend to provide the reader with some narrative context for how our management views our
consolidated financial statements, additional context within which to assess our operating results, and information on the quality and variability of our earnings, liquidity and cash flows.
Navients Business
Navient is the nations leading loan
management, servicing and asset recovery company, committed to helping customers navigate the path to financial success. Servicing more than $300 billion in education loans, Navient supports the educational and economic achievements of more than
12 million customers. A growing number of public and private sector clients rely on Navient for proven solutions to meet their financial goals. Navient began trading on NASDAQ as an independent company on May 1, 2014. Our website is
navient.com. Information contained or referenced on our website is not incorporated by reference into and does not form a part of this Quarterly Report on Form 10-Q.
Navient holds the largest portfolio of education loans insured or guaranteed under the Federal Family Education Loan Program (FFELP), as well as the largest portfolio of Private Education
Loans. FFELP Loans are insured or guaranteed by state or not-for-profit agencies based on guaranty agreements among the United States Department of Education (ED) and these agencies. Private Education Loans are education loans to
students or their families that bear the full credit risk of the customer and any cosigner. Private Education Loans are made primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans
or students and families resources.
Navient services its own portfolio of education loans, as well as education
loans owned by banks, credit unions, other financial institutions, non-profit education lenders and ED. Navient is one of four Title IV Additional Servicers (TIVAS) to ED under its Direct Student Loan Program (DSLP). Navient
also provides asset recovery services on its own portfolio (consisting of both education loans and other asset classes), and on behalf of guaranty agencies, higher education institutions, and federal, state, court and municipal clients. In addition,
we provide business processing services on behalf of municipalities, public authorities and hospitals.
As of March 31,
2016, Navients principal assets consisted of:
|
|
|
$95.0 billion in FFELP Loans, with a net interest margin of 0.81 percent for the quarter ended March 31, 2016 on a Core Earnings basis
and a weighted average life of 7.2 years;
|
37
|
|
|
$25.5 billion in Private Education Loans, with a net interest margin of 3.56 percent for the quarter ended March 31, 2016 on a Core
Earnings basis and a weighted average life of 6.9 years;
|
|
|
|
a leading education loan servicing platform that services loans for more than 12 million DSLP Loan, FFELP Loan and Private Education Loan
customers (including cosigners), including 6.3 million customer accounts serviced under Navients contract with ED; and
|
|
|
|
a leading asset recovery and business processing platform where we currently provide services for over 1,000 public and private sector clients.
|
Strengths and Opportunities
Navient possesses a number of competitive advantages that distinguish it from its competitors, including:
Large, high quality asset base generating significant and predictable cash flows.
At March 31, 2016, Navients $120.6 billion education loan portfolio is 74 percent funded to term
and is expected to produce consistent and predictable cash flows over the remaining life of the portfolio. Navients $95.0 billion portfolio of FFELP Loans bears a maximum 3 percent loss exposure due to the federal guaranty. Navients
$25.5 billion portfolio of Private Education Loans bears the full credit risk of the borrower and any cosigner. Navient expects that cash flows from its FFELP Loan and Private Education Loan portfolios will significantly exceed future debt service
obligations.
Efficient and large scale operating platforms.
Navient is the largest servicer of education loans,
servicing over $300 billion in education loans for more than 12 million customers. Navients inventory of contingent asset recovery receivables is $19.2 billion as of March 31, 2016 and provides services to over 1,000 public and
private sector clients. Navient has demonstrated scalable infrastructure with capacity to add volume at a low cost. Navients premier market share and tested infrastructure make it well-positioned to expand its businesses to additional clients
and asset types.
Superior performance.
Navient has demonstrated superior default prevention performance and
industry leading asset recovery services. The combined portfolio of federal loans serviced by Navient experienced a Cohort Default Rate (CDR) of 8 percent, which is 38 percent lower than their peers, as calculated from the most recent
CDR released by ED in September 2015. We are consistently a top performer in our asset recovery business and deliver superior service to our public and private sector clients.
Commitment to compliance and customer centricity.
Navient fosters a robust compliance culture driven by a customer first approach. We invest in rigorous training programs,
internal and external auditing, escalated service tracking and analysis, and customer research to enhance our compliance and customer service.
Strong capital return.
As a result of our significant cash flow and capital generation, Navient expects to return excess capital to stockholders through dividends and share repurchases. In
December 2014, Navients board of directors authorized $1 billion to be utilized in a new common share repurchase program effective January 1, 2015, and in December 2015, our board authorized an additional $700 million for common share
repurchases. Navient increased its quarterly dividend amount from $0.15 per share to $0.16 per share effective for its first-quarter 2015 dividends. For the quarter ended March 31, 2016, we paid $54 million in dividends on shares of our common
stock and repurchased $200 million of shares of our common stock. As of March 31, 2016, the remaining common share repurchase authority was $555 million.
Meaningful growth opportunities.
Navient will pursue opportunistic acquisitions of FFELP and Private Education Loan portfolios. During the quarter ended March 31, 2016, Navient acquired
$1.5 billion of education loans. Navient will also pursue additional third-party servicing, asset recovery and business processing contracts. In February 2015, Navient completed the acquisition of Gila LLC (commonly known as Municipal Services
Bureau, or MSB), an asset recovery and business processing firm. The firm provides receivables management services and account processing solutions for state governments, agencies, court systems and municipalities. In
38
October 2015, Navient completed the acquisition of Xtend Healthcare, a health care revenue cycle management company. The firm provides health insurance claims billing and account resolution, as
well as patient billing and customer service. The acquisition leverages Navients asset recovery and business processing capabilities into the health care payments sector. Navient intends to leverage its large-scale operating platforms,
superior default prevention and asset recovery performance, operating efficiency and regulatory compliance and risk management infrastructure in growing these businesses and in pursuing other growth opportunities.
Navients Approach to Helping Education Loan Borrowers Achieve Success
Navient services loans for more than 12 million DSLP Loan, FFELP Loan and Private Education Loan customers, including
6.3 million customers whose accounts are serviced under Navients contract with ED. We help our customers navigate the path to financial success through proactive outreach and emphasis on identifying the payment plan that best fits their
individual budgets and financial goals.
We understand managing repayment of education loans is critical for students to
achieve their educational goals, recognize their full earning potential and develop a strong credit profile.
In our
experience, customer success means making steady progress toward repayment, instead of falling behind on or putting off payments. This experience has taught us that the transition from school to full repayment requires customer contact and
counseling. For many customers, education loans are their first borrowing experience. For new graduates, salaries grow over time, typically making payments easier to handle as their career progresses. It is also not uncommon for some borrowers to
seek payment deferments if they return to school or encounter temporary interruptions in earnings.
To help customers manage
these realities, Navient makes customer success and default prevention top priorities. We customize our outreach using data-driven approaches that draw from our more than 40 years of experience in helping customers successfully manage their loans.
As a result, our customers experience higher rates of repayment success as evidenced by lower delinquencies and defaults.
We
have been a partner in EDs campaign to inform federal education loan customers about various income-driven repayment (IDR) plans, and have played a leadership role in helping customers understand their options so they can make an
informed choice. We promote awareness of federal repayment plan options through more than 170 million communications annually, including mail, email, phone calls, videos, and text messages. At the end of 2015, nearly one in five federal
borrowers and more than one-third of dollar volume serviced by Navient (excluding Parent PLUS loans that are not eligible for IDR) were enrolled in an IDR plan.
We also find that customers who have fallen behind benefit from our outreach and assistance. In fact, nine times out of ten when we can reach federal loan customers who have missed payments, we can
identify a solution to help them avoid default.
For those who need it, Navient launched its highly successful private loan
modification program in 2009. As of March 31, 2016, $2.7 billion of our Private Education Loans were enrolled in the interest rate reduction component of our modification program, helping customers have a more affordable monthly payment while
making progress in repaying the principal loan balance. Approximately 81 percent of enrolled borrowers successfully complete the program.
As of December 31, 2015, Navients total delinquency rates were at the lowest year-ending levels for both FFELP and Private Education Loans since 2005.
We continually make enhancements designed to help our customers, drawing from a variety of inputs including customer surveys, analysis of
customer inquiries and complaint data, regulator commentary, and website activity. For example, in 2015, we launched a new customer website making it easier for customers to manage their loans. In addition, beginning in 2015, customers who need to
renew their income-driven repayment plans have access to the services of a specially trained group of service representatives to assist them. We also established customer and employee research panels to gather real-time feedback to inform
enhancements underway.
39
Our Office of the Customer Advocate, established in 1997, offers escalated assistance to
customers who need it. We are committed to working with customers and appreciate customer comments, which, combined with our own customer communication channels, help us improve the ways we assist our customers.
Navient takes seriously its commitment to serve military customers and has developed what it believes is a best-in-class approach to
assist them. Navient was the first student loan servicer to launch a dedicated military benefits customer service team, and was also the first student loan servicer to launch a dedicated military benefits website, Navient.com/military, and a
toll-free number dedicated to military customers. Navients military benefits team offers a single point of contact for all calls from service members and their families to help them access the benefits designed for them, including interest
rate benefits, deferment and other options.
We also continue to offer free resources to help customers and the general public
build knowledge on personal finance topics. In 2015, for example, we released the top habits of successful student loan borrowers and added online resources to encourage financial literacy including such topics as military financial education,
income-driven repayment plans, and budgeting. We also launched a signature national research study, Money Under 35, to study and promote financial wellness among Americans ages 22 to 35.
Selected Historical Financial Information and Ratios
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(In millions, except per share data)
|
|
2016
|
|
|
2015
|
|
GAAP Basis
|
|
|
|
|
|
|
|
|
Net income attributable to Navient Corporation
|
|
$
|
181
|
|
|
$
|
292
|
|
Diluted earnings per common share attributable to Navient Corporation
|
|
$
|
.53
|
|
|
$
|
.72
|
|
Weighted average shares used to compute diluted earnings per common share
|
|
|
343
|
|
|
|
405
|
|
Net interest margin, FFELP Loans
|
|
|
1.12
|
%
|
|
|
1.25
|
%
|
Net interest margin, Private Education Loans
|
|
|
3.49
|
%
|
|
|
3.71
|
%
|
Return on assets
|
|
|
.57
|
%
|
|
|
.85
|
%
|
Ending FFELP Loans, net
|
|
$
|
95,018
|
|
|
$
|
102,424
|
|
Ending Private Education Loans, net
|
|
|
25,547
|
|
|
|
28,990
|
|
|
|
|
|
|
|
|
|
|
Ending total education loans, net
|
|
$
|
120,565
|
|
|
$
|
131,414
|
|
|
|
|
|
|
|
|
|
|
Average FFELP Loans
|
|
$
|
95,721
|
|
|
$
|
103,617
|
|
Average Private Education Loans
|
|
|
26,577
|
|
|
|
30,105
|
|
|
|
|
|
|
|
|
|
|
Average total education loans
|
|
$
|
122,298
|
|
|
$
|
133,722
|
|
|
|
|
|
|
|
|
|
|
Core Earnings Basis
(1)
|
|
|
|
|
|
|
|
|
Net income attributable to Navient Corporation
|
|
$
|
147
|
|
|
$
|
194
|
|
Diluted earnings per common share attributable to Navient Corporation
|
|
$
|
.43
|
|
|
$
|
.48
|
|
Weighted average shares used to compute diluted earnings per common share
|
|
|
343
|
|
|
|
405
|
|
Net interest margin, FFELP Loans
|
|
|
.81
|
%
|
|
|
.88
|
%
|
Net interest margin, Private Education Loans
|
|
|
3.56
|
%
|
|
|
3.74
|
%
|
Return on assets
|
|
|
.46
|
%
|
|
|
.56
|
%
|
Ending FFELP Loans, net
|
|
$
|
95,018
|
|
|
$
|
102,424
|
|
Ending Private Education Loans, net
|
|
|
25,547
|
|
|
|
28,990
|
|
|
|
|
|
|
|
|
|
|
Ending total education loans, net
|
|
$
|
120,565
|
|
|
$
|
131,414
|
|
|
|
|
|
|
|
|
|
|
Average FFELP Loans
|
|
$
|
95,721
|
|
|
$
|
103,617
|
|
Average Private Education Loans
|
|
|
26,577
|
|
|
|
30,105
|
|
|
|
|
|
|
|
|
|
|
Average total education loans
|
|
$
|
122,298
|
|
|
$
|
133,722
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Core Earnings are non-GAAP financial measures and do not represent a comprehensive basis of accounting. For a more detailed explanation of
Core Earnings, see the section titled Core Earnings Definition and Limitations and subsequent sections.
|
40
Overview
The following discussion and analysis presents a review of our business and operations as of and for the three months ended March 31, 2016.
We monitor and assess our ongoing operations and results based on the following four reportable segments: (1) FFELP Loans
(2) Private Education Loans, (3) Business Services and (4) Other.
FFELP Loans Segment
In the FFELP Loans segment, we acquire and finance FFELP Loans. Even though FFELP Loans are no longer originated due
to changes in federal law that took effect in 2010, we continue to pursue acquisitions of FFELP Loan portfolios that leverage our servicing scale to generate incremental earnings and cash flow. In this segment, we primarily earn net interest income
on the FFELP Loan portfolio (after provision for loan losses). This segment is expected to generate significant amounts of earnings and cash flow as the portfolio amortizes.
Private Education Loans Segment
In this segment, we acquire,
finance and service our Private Education Loans. Even though we no longer originate Private Education Loans, we continue to pursue acquisitions of Private Education Loan portfolios that leverage our servicing scale to generate incremental earnings
and cash flow. In this segment, we primarily earn net interest income on the Private Education Loan portfolio (after provision for loan losses). This segment is expected to generate significant amounts of earnings and cash flow as the portfolio
amortizes.
Business Services Segment
Our Business Services segment generates revenue from servicing, asset recovery and business processing activities. Within this segment, we primarily generate revenue from servicing our FFELP Loan
portfolio as well as servicing education loans for Guarantors of FFELP Loans and other institutions, including ED. We provide asset recovery services for loans and receivables on behalf of Guarantors of FFELP Loans, higher education institutions and
federal, state, court and municipal clients. In addition, we provide business processing services on behalf of municipalities, public authorities and hospitals.
Other
Our Other segment primarily consists of activities of our
holding company, including the repurchase of debt, our corporate liquidity portfolio, unallocated overhead and regulatory-related costs. We also include results from certain smaller wind-down operations within this segment.
Key Financial Measures
Our operating results are primarily driven by net interest income from our education loan portfolios, provisions for loan losses, the
revenues and expenses generated by our servicing and asset recovery businesses, and gains and losses on loan sales and debt repurchases. We manage and assess the performance of each business segment separately as each is focused on different
customers and each derives its revenue from different activities and services. A brief summary of our key financial measures (net interest income; provisions for loan losses; charge-offs and delinquencies; servicing, asset recovery and business
processing revenues; other income (loss); and operating expenses) can be found in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations in our 2015 Form 10-K.
First-Quarter 2016 Summary of Results
We report financial results on a GAAP basis and also present certain Core Earnings performance measures. Our management, equity investors, credit rating agencies and debt capital providers use
these Core
41
Earnings measures to monitor our business performance. See Core Earnings Definition and Limitations for a further discussion and a complete
reconciliation between GAAP net income and Core Earnings.
First-quarter 2016 GAAP net income was $181 million
($0.53 diluted earnings per share), versus net income of $292 million ($0.72 diluted earnings per share) in the first-quarter 2015. 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) restructuring and reorganization expense incurred in connection with the Spin-Off of Navient from SLM Corporation on April 30, 2014, including the restructuring expenses related to the
restructuring initiative launched in second-quarter 2015 to simplify and streamline the Companys management structure post-Spin-Off, (2) unrealized, mark-to-market gains/losses on derivatives and (3) goodwill and acquired intangible
asset amortization and impairment. These items are recognized in GAAP but have not been included in Core Earnings results. First-quarter 2016 GAAP results included gains of $54 million from derivative accounting treatment that are
excluded from Core Earnings results, compared with gains of $166 million in the year-ago period. See Core Earnings Definition and Limitations Differences between Core Earnings
and GAAP for a complete reconciliation between GAAP net income and Core Earnings.
Core Earnings
for the quarter were $147 million ($0.43 diluted earnings per share), compared with $194 million ($0.48 diluted earnings per share) for the year-ago quarter. The decrease is primarily the result of a $73 million reduction in net interest income.
Excluding expenses associated with regulatory-related costs, first-quarter 2016 and 2015 diluted Core Earnings per share were $0.44 and $0.48, respectively. First-quarter 2016 operating expenses included $4 million ($0.01 diluted
earnings per share) of regulatory-related costs. There were no regulatory-related costs in the first quarter of 2015.
During
the first three months of 2016, we:
|
|
|
acquired $1.5 billion of education loans;
|
|
|
|
issued $1.1 billion of FFELP asset-backed securities (ABS) and $488 million of Private Education Loan ABS;
|
|
|
|
increased our FFELP asset-backed commercial paper facility from $7.0 billion to $7.5 billion and extended its maturity date from March 2017 to March
2018;
|
|
|
|
retired or repurchased $1.0 billion of our senior unsecured debt;
|
|
|
|
repurchased 19.2 million common shares for $200 million on the open market; and
|
|
|
|
paid $54 million in common dividends.
|
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).
42
GAAP Statements of Income (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
Increase
(Decrease)
|
|
(In millions, except per share data)
|
|
2016
|
|
|
2015
|
|
|
$
|
|
|
%
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loans
|
|
$
|
634
|
|
|
$
|
637
|
|
|
$
|
(3
|
)
|
|
|
|
%
|
Private Education Loans
|
|
|
411
|
|
|
|
456
|
|
|
|
(45
|
)
|
|
|
(10
|
)
|
Other loans
|
|
|
1
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(50
|
)
|
Cash and investments
|
|
|
5
|
|
|
|
2
|
|
|
|
3
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
1,051
|
|
|
|
1,097
|
|
|
|
(46
|
)
|
|
|
(4
|
)
|
Total interest expense
|
|
|
565
|
|
|
|
514
|
|
|
|
51
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
486
|
|
|
|
583
|
|
|
|
(97
|
)
|
|
|
(17
|
)
|
Less: provisions for loan losses
|
|
|
111
|
|
|
|
125
|
|
|
|
(14
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provisions for loan losses
|
|
|
375
|
|
|
|
458
|
|
|
|
(83
|
)
|
|
|
(18
|
)
|
Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing revenue
|
|
|
82
|
|
|
|
77
|
|
|
|
5
|
|
|
|
6
|
|
Asset recovery and business processing revenue
|
|
|
90
|
|
|
|
89
|
|
|
|
1
|
|
|
|
1
|
|
Other income (loss)
|
|
|
(13
|
)
|
|
|
7
|
|
|
|
(20
|
)
|
|
|
(286
|
)
|
Gains on sales of loans and investments
|
|
|
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
(100
|
)
|
Gains on debt repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on derivative and hedging activities, net
|
|
|
1
|
|
|
|
71
|
|
|
|
(70
|
)
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
160
|
|
|
|
249
|
|
|
|
(89
|
)
|
|
|
(36
|
)
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
247
|
|
|
|
230
|
|
|
|
17
|
|
|
|
7
|
|
Goodwill and acquired intangible asset impairment and amortization expense
|
|
|
4
|
|
|
|
1
|
|
|
|
3
|
|
|
|
300
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
251
|
|
|
|
234
|
|
|
|
17
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, before income tax expense
|
|
|
284
|
|
|
|
473
|
|
|
|
(189
|
)
|
|
|
(40
|
)
|
Income tax expense
|
|
|
103
|
|
|
|
181
|
|
|
|
(78
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
181
|
|
|
|
292
|
|
|
|
(111
|
)
|
|
|
(38
|
)
|
Income from discontinued operations, net of tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
181
|
|
|
|
292
|
|
|
|
(111
|
)
|
|
|
(38
|
)
|
Less: net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Navient Corporation
|
|
$
|
181
|
|
|
$
|
292
|
|
|
$
|
(111
|
)
|
|
|
(38
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to Navient Corporation
|
|
$
|
.53
|
|
|
$
|
.73
|
|
|
$
|
(.20
|
)
|
|
|
(27
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share attributable to Navient Corporation
|
|
$
|
.53
|
|
|
$
|
.72
|
|
|
$
|
(.19
|
)
|
|
|
(26
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share attributable to Navient Corporation
|
|
$
|
.16
|
|
|
$
|
.16
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Earnings Summary GAAP-basis
Three Months Ended March 31, 2016 Compared with Three Months Ended March 31, 2015
For the three months ended March 31, 2016, net income was $181 million, or $0.53 diluted earnings per common share, compared with net income of $292 million, or $0.72 diluted earnings per common
share, for the three months ended March 31, 2015. The decrease in net income was primarily due to a $97 million decrease in net interest income, a $70 million decrease in net gains on derivative and hedging activities, a $20 million decrease in
other income and a $17 million increase in operating expenses. This was partially offset by a $14 million decrease in the provision for loan losses, a $6 million increase in servicing, asset recovery and business processing revenue, and a $3 million
decrease in restructuring and other reorganization expenses.
43
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 $97 million, as a result of a decline in the loan balance and net interest margin.
|
|
|
|
Provisions for loan losses decreased $14 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.
|
|
|
|
Servicing revenue increased by $5 million primarily due to an increase in the number of accounts serviced for ED.
|
|
|
|
Asset recovery and business processing revenue increased $1 million. This increase was primarily due to additional revenue from Gila LLC (acquired in
February 2015) and from Xtend Healthcare (acquired in October 2015), which was offset by a 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 $20 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.
|
|
|
|
Net gains on derivative and hedging activities decreased $70 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.
|
|
|
|
First-quarter 2016 expenses included regulatory-related costs of $4 million. There were no regulatory-related costs in the first quarter of 2015.
Excluding these regulatory-related costs, first-quarter 2016 operating expenses were $243 million, a $13 million increase from the year-ago quarter. This increase was due to an increase in operating costs related to Gila LLC (acquired in February
2015) and to Xtend Healthcare (acquired in October 2015). Excluding these acquisitions, operating expenses would have decreased 6 percent as a result of a general reduction in costs related to the implementation of various operating cost
initiatives, including the successful conversion of loans to our servicing system in the third quarter of 2015 related to $8.5 billion of FFELP loans acquired in the fourth quarter of 2014.
|
|
|
|
Restructuring and other reorganization expenses decreased from $3 million in the year-ago quarter to $0 million. The year-ago quarters expenses
were primarily related to third-party costs incurred in connection with the Spin-Off.
|
We repurchased
19.2 million and 14.7 million shares of our common stock during the three months ended March 31, 2016 and 2015, respectively, as part of our common share repurchase programs. Primarily as a result of ongoing common share repurchases,
our average outstanding diluted shares decreased by 62 million common shares from the year-ago quarter.
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
44
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 Companys 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 Navients 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.
45
The following tables show Core Earnings for each business segment and our
business as a whole along with the adjustments made to the income/expense items to reconcile the amounts to our reported GAAP results as required by GAAP and reported in Note 11 Segment Reporting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education loans
|
|
$
|
555
|
|
|
$
|
411
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
966
|
|
|
$
|
138
|
|
|
$
|
(59
|
)
|
|
$
|
79
|
|
|
$
|
1,045
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Cash and investments
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
558
|
|
|
|
412
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
972
|
|
|
|
138
|
|
|
|
(59
|
)
|
|
|
79
|
|
|
|
1,051
|
|
Total interest expense
|
|
|
358
|
|
|
|
172
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
556
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
200
|
|
|
|
240
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
416
|
|
|
|
129
|
|
|
|
(59
|
)
|
|
|
70
|
|
|
|
486
|
|
Less: provisions for loan losses
|
|
|
7
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
193
|
|
|
|
136
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
305
|
|
|
|
129
|
|
|
|
(59
|
)
|
|
|
70
|
|
|
|
375
|
|
Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing revenue
|
|
|
16
|
|
|
|
4
|
|
|
|
163
|
|
|
|
|
|
|
|
(101
|
)
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
Asset recovery and business processing revenue
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
(129
|
)
|
|
|
113
|
|
|
|
(16
|
)
|
|
|
(12
|
)
|
Gains (losses) on sales of loans and investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on debt repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
16
|
|
|
|
4
|
|
|
|
254
|
|
|
|
3
|
|
|
|
(101
|
)
|
|
|
176
|
|
|
|
(129
|
)
|
|
|
113
|
|
|
|
(16
|
)
|
|
|
160
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
104
|
|
|
|
43
|
|
|
|
134
|
|
|
|
6
|
|
|
|
(101
|
)
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
Overhead expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
104
|
|
|
|
43
|
|
|
|
134
|
|
|
|
67
|
|
|
|
(101
|
)
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
104
|
|
|
|
43
|
|
|
|
134
|
|
|
|
67
|
|
|
|
(101
|
)
|
|
|
247
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, before income tax expense (benefit)
|
|
|
105
|
|
|
|
97
|
|
|
|
120
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
234
|
|
|
|
|
|
|
|
50
|
|
|
|
50
|
|
|
|
284
|
|
Income tax expense (benefit)
(3)
|
|
|
39
|
|
|
|
36
|
|
|
|
45
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
66
|
|
|
|
61
|
|
|
|
75
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
34
|
|
|
|
34
|
|
|
|
181
|
|
Income (loss) from discontinued operations, net of tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
66
|
|
|
$
|
61
|
|
|
$
|
75
|
|
|
$
|
(55
|
)
|
|
$
|
|
|
|
$
|
147
|
|
|
$
|
|
|
|
$
|
34
|
|
|
$
|
34
|
|
|
$
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
(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
|
|
$
|
|
|
|
$
|
70
|
|
|
$
|
|
|
|
$
|
70
|
|
Total other income (loss)
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
|
|
|
$
|
54
|
|
|
$
|
(4
|
)
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education loans
|
|
$
|
534
|
|
|
$
|
456
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
990
|
|
|
$
|
162
|
|
|
$
|
(59
|
)
|
|
$
|
103
|
|
|
$
|
1,093
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Cash and investments
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
535
|
|
|
|
456
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
994
|
|
|
|
162
|
|
|
|
(59
|
)
|
|
|
103
|
|
|
|
1,097
|
|
Total interest expense
|
|
|
302
|
|
|
|
173
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
505
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
233
|
|
|
|
283
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
489
|
|
|
|
153
|
|
|
|
(59
|
)
|
|
|
94
|
|
|
|
583
|
|
Less: provisions for loan losses
|
|
|
5
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
228
|
|
|
|
163
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
364
|
|
|
|
153
|
|
|
|
(59
|
)
|
|
|
94
|
|
|
|
458
|
|
Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing revenue
|
|
|
18
|
|
|
|
7
|
|
|
|
163
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
Asset recovery and business processing revenue
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
6
|
|
|
|
(153
|
)
|
|
|
225
|
|
|
|
72
|
|
|
|
78
|
|
Gains on sales of loans and investments
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Gains on debt repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
23
|
|
|
|
7
|
|
|
|
254
|
|
|
|
4
|
|
|
|
(111
|
)
|
|
|
177
|
|
|
|
(153
|
)
|
|
|
225
|
|
|
|
72
|
|
|
|
249
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
115
|
|
|
|
46
|
|
|
|
116
|
|
|
|
4
|
|
|
|
(111
|
)
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
Overhead expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
115
|
|
|
|
46
|
|
|
|
116
|
|
|
|
64
|
|
|
|
(111
|
)
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
115
|
|
|
|
46
|
|
|
|
116
|
|
|
|
64
|
|
|
|
(111
|
)
|
|
|
230
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
234
|
|
Income (loss) from continuing operations, before income tax expense (benefit)
|
|
|
136
|
|
|
|
124
|
|
|
|
138
|
|
|
|
(87
|
)
|
|
|
|
|
|
|
311
|
|
|
|
|
|
|
|
162
|
|
|
|
162
|
|
|
|
473
|
|
Income tax expense (benefit)
(3)
|
|
|
51
|
|
|
|
47
|
|
|
|
52
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
64
|
|
|
|
64
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
85
|
|
|
$
|
77
|
|
|
$
|
86
|
|
|
$
|
(54
|
)
|
|
$
|
|
|
|
$
|
194
|
|
|
$
|
|
|
|
$
|
98
|
|
|
$
|
98
|
|
|
$
|
292
|
|
Income (loss) from discontinued operations, net of tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
85
|
|
|
$
|
77
|
|
|
$
|
86
|
|
|
$
|
(54
|
)
|
|
$
|
|
|
|
$
|
194
|
|
|
$
|
|
|
|
$
|
98
|
|
|
$
|
98
|
|
|
$
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business
Services segment performs the loan servicing function for the FFELP Loans segment.
|
(2)
|
Core Earnings adjustments to GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
(Dollars in millions)
|
|
Net Impact from
Spin-Off of
SLM BankCo
|
|
|
Net Impact of
Derivative
Accounting
|
|
|
Net Impact of
Acquired
Intangibles
|
|
|
Total
|
|
Net interest income after provisions for loan losses
|
|
$
|
|
|
|
$
|
94
|
|
|
$
|
|
|
|
$
|
94
|
|
Total other income (loss)
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
72
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Restructuring and other reorganization expenses
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
(3
|
)
|
|
$
|
166
|
|
|
$
|
(1
|
)
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
|
47
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.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Core Earnings net income attributable to Navient Corporation
|
|
$
|
147
|
|
|
$
|
194
|
|
Core Earnings adjustments to GAAP:
|
|
|
|
|
|
|
|
|
Net impact of the removal of SLM BankCos operations and restructuring and reorganization expense in connection with the
Spin-Off
|
|
|
|
|
|
|
(3
|
)
|
Net impact of derivative accounting
|
|
|
54
|
|
|
|
166
|
|
Net impact of goodwill and acquired intangible assets
|
|
|
(4
|
)
|
|
|
(1
|
)
|
Net tax effect
|
|
|
(16
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
|
34
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
GAAP net income attributable to Navient Corporation
|
|
$
|
181
|
|
|
$
|
292
|
|
|
|
|
|
|
|
|
|
|
1)
SLM BankCos operations and 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 became 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 BankCos stockholders on April 30,
2014.
For Core Earnings, we have assumed SLM BankCo was never a part of Navients historical results prior
to the deemed distribution of SLM BankCo on April 30, 2014 and we have removed the restructuring and other 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 Companys management structure post-Spin-Off. Excluding these items provides management with a useful basis from which to better evaluate results from ongoing operations
against results from prior periods. The adjustment relates to the exclusion of the consumer banking business and represents the operations, assets, liabilities and equity of SLM BankCo, which is comprised of Sallie Mae Bank, Upromise Rewards, the
Insurance Business, and the Private Education Loan origination functions. Included in these amounts are also certain general corporate overhead expenses related to the consumer banking business. General corporate overhead consists of costs primarily
associated with accounting, finance, legal, human resources, certain information technology costs, stock compensation, and executive management and the board of directors. These costs were generally allocated to the consumer banking business based
on the proportionate level of effort provided to the consumer banking business relative to SLM Corporation using a relevant allocation driver (e.g., in proportion to the number of employees by function that were being transferred to SLM BankCo as
opposed to remaining at Navient). All intercompany transactions between SLM BankCo and Navient have been eliminated. In addition, all prior preferred stock dividends have been removed as SLM BankCo succeeded SLM Corporation as the issuer of the
preferred stock in connection with the Spin-Off.
48
The restructuring and other reorganization expense incurred in connection with the Spin-Off
includes the restructuring expenses related to the restructuring initiative launched in second-quarter 2015 to simplify and streamline the Companys management structure post-Spin-Off.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
SLM BankCo net income, before income tax expense
|
|
$
|
|
|
|
$
|
|
|
Restructuring and reorganization expense in connection with the Spin-Off
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Total net impact of SLM BankCo, before income tax expense
|
|
$
|
|
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
2)
Derivative Accounting:
Core Earnings exclude periodic unrealized gains and
losses that are caused by the fair value adjustments 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 items life.
The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific
hedge accounting criteria are met. We believe that our derivatives are effective economic hedges, and as such, are a critical element of our interest rate and foreign currency risk management strategy. However, some of our derivatives, primarily
Floor Income Contracts and certain basis swaps, do not qualify for hedge accounting treatment and the stand-alone derivative must be adjusted to fair value in the income statement with no consideration for the corresponding change in fair value of
the hedged item. These gains and losses recorded in Gains (losses) on derivative and hedging activities, net are primarily caused by interest rate and foreign currency exchange rate volatility and changing credit spreads during the
period as well as the volume and term of derivatives not receiving hedge accounting treatment.
Our Floor Income Contracts are
written options that must meet more stringent requirements than other hedging relationships to achieve hedge effectiveness. Specifically, our Floor Income Contracts do not qualify for hedge accounting treatment because the pay down of principal of
the education loans underlying the Floor Income embedded in those education loans does not exactly match the change in the notional amount of our written Floor Income Contracts. Additionally, the term, the interest rate index, and the interest rate
index reset frequency of the Floor Income Contract can be different than that of the education loans. Under derivative accounting treatment, the upfront contractual payment is deemed a liability and changes in fair value are recorded through income
throughout the life of the contract. The change in the fair value of Floor Income Contracts is primarily caused by changing interest rates that cause the amount of Floor Income paid to the counterparties to vary. This is economically offset by the
change in the amount of Floor Income earned on the underlying education loans but that offsetting change in fair value is not recognized. We believe the Floor Income Contracts are economic hedges because they effectively fix the amount of Floor
Income earned over the contract period, thus eliminating the timing and uncertainty that changes in interest rates can have on Floor Income for that period. Therefore, for purposes of Core Earnings, we have removed the unrealized gains
and losses related to these contracts and added back the amortization of the net contractual premiums received on the Floor Income Contracts. The amortization of the net contractual premiums received on the Floor Income Contracts for Core
Earnings is reflected in education loan interest income. Under GAAP accounting, the premiums received on the Floor Income Contracts are recorded as revenue in the gains (losses) on derivative and hedging activities, net line item
by the end of the contracts lives.
49
Basis swaps are used to convert floating rate debt from one floating interest rate index to
another to better match the interest rate characteristics of the assets financed by that debt. We primarily use basis swaps to hedge our education loan assets that are primarily indexed to LIBOR or Prime. The accounting for derivatives requires that
when using basis swaps, the change in the cash flows of the hedge effectively offset both the change in the cash flows of the asset and the change in the cash flows of the liability. Our basis swaps hedge variable interest rate risk; however, they
generally do not meet this effectiveness test because the index of the swap does not exactly match the index of the hedged assets as required for hedge accounting treatment. Additionally, some of our FFELP Loans can earn at either a variable or a
fixed interest rate depending on market interest rates and therefore swaps economically hedging these FFELP Loans do not meet the criteria for hedge accounting treatment. As a result, under GAAP, these swaps are recorded at fair value with changes
in fair value reflected currently in the income statement.
The table below quantifies the adjustments for derivative
accounting between GAAP and Core Earnings net income.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Core Earnings derivative adjustments:
|
|
|
|
|
|
|
|
|
Gains (losses) on derivative and hedging activities, net, included in other income
|
|
$
|
1
|
|
|
$
|
71
|
|
Plus: Realized losses on derivative and hedging activities, net
(1)
|
|
|
129
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on derivative and hedging activities, net
(2)
|
|
|
130
|
|
|
|
224
|
|
Amortization of net premiums on Floor Income Contracts in net interest income for Core Earnings
|
|
|
(59
|
)
|
|
|
(59
|
)
|
Other derivative accounting adjustments
(3)
|
|
|
(17
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total net impact of derivative accounting
(4)
|
|
$
|
54
|
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
See the section titled 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):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Floor Income Contracts
|
|
$
|
27
|
|
|
$
|
72
|
|
Basis swaps
|
|
|
12
|
|
|
|
|
|
Foreign currency hedges
|
|
|
88
|
|
|
|
145
|
|
Other
|
|
|
3
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total unrealized gains on derivative and hedging activities, net
|
|
$
|
130
|
|
|
$
|
224
|
|
|
|
|
|
|
|
|
|
|
|
(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 adjustment 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 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
50
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 education 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.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Reclassification of realized gains (losses) on derivative and hedging activities:
|
|
|
|
|
|
|
|
|
Net settlement expense on Floor Income Contracts reclassified to net interest income
|
|
$
|
(138
|
)
|
|
$
|
(162
|
)
|
Net settlement income on interest rate swaps reclassified to net interest income
|
|
|
9
|
|
|
|
9
|
|
Net realized gains on terminated derivative contracts reclassified to other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications of realized losses on derivative and hedging activities
|
|
$
|
(129
|
)
|
|
$
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
Cumulative Impact of Derivative Accounting under GAAP compared to Core Earnings
As of March 31, 2016, derivative accounting has reduced GAAP equity by approximately $329 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.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Beginning impact of derivative accounting on GAAP equity
|
|
$
|
(281
|
)
|
|
$
|
(553
|
)
|
Net impact of net unrealized gains (losses) under derivative accounting
(1)
|
|
|
(48
|
)
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
Ending impact of derivative accounting on GAAP equity
|
|
$
|
(329
|
)
|
|
$
|
(505
|
)
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net impact of net unrealized gains (losses) under derivative accounting is composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Total pre-tax net impact of derivative accounting recognized in net
income
(a)
|
|
$
|
54
|
|
|
$
|
166
|
|
Tax impact of derivative accounting adjustments recognized in net income
|
|
|
(20
|
)
|
|
|
(73
|
)
|
Change in unrealized gain (losses) on derivatives, net of tax recognized in other comprehensive income
|
|
|
(82
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
Net impact of net unrealized gains (losses) under derivative accounting
|
|
$
|
(48
|
)
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
(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 year-ends are presented in the table below. These net premiums will
be recognized in Core Earnings in future periods. As of March 31, 2016, the remaining amortization term of the net floor premiums was approximately 3.75 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
51
Contracts in the future. The balance of unamortized Floor Income Contracts will increase as we sell new contracts and decline due to the amortization of existing contracts.
In addition to using Floor Income Contracts, we also use pay fixed interest rate swaps to hedge the embedded Floor Income within FFELP
Loans. These interest rate swaps qualify as GAAP hedges and are accounted for as cash flow hedges of variable rate debt. For GAAP, gains and losses on the effective portion of these hedges are recorded in accumulated other comprehensive income and
gains and losses on the ineffective portion are recorded immediately to earnings. Hedged Floor Income from these cash flow hedges that has not been recognized into Core Earnings and GAAP as of the respective period-ends is presented in
the table below. This hedged Floor Income will be recognized in Core Earnings and GAAP in future periods and is presented net of tax. As of March 31, 2016, the hedged period is from April 2016 through December 2021. Historically, we
have used pay fixed interest rate swaps on a periodic basis to hedge embedded Floor Income and depending upon market conditions and pricing, we may enter into swaps in the future. The balance of unrecognized hedged Floor Income will increase as we
enter into new swaps and decline as revenue is recognized.
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Unamortized net Floor premiums (net of tax)
|
|
$
|
(114
|
)
|
|
$
|
(258
|
)
|
Unrecognized hedged Floor Income related to pay fixed interest rate swaps (net of tax)
|
|
|
(524
|
)
|
|
|
(320
|
)
|
|
|
|
|
|
|
|
|
|
Total
(1)
|
|
$
|
(638
|
)
|
|
$
|
(578
|
)
|
|
|
|
|
|
|
|
|
|
|
(1)
|
$(1.0) billion and $(916) million on a pre-tax basis as of March 31, 2016 and 2015, 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.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Core Earnings goodwill and acquired intangible asset adjustments
(1)
|
|
$
|
(4
|
)
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Negative amounts are subtracted from Core Earnings net income to arrive at GAAP net income.
|
52
Business Segment Earnings Summary Core Earnings Basis
FFELP Loans Segment
The following table includes Core Earnings results for our FFELP Loans segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
% Increase (Decrease)
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
Core Earnings interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loans
|
|
$
|
555
|
|
|
$
|
534
|
|
|
|
4
|
%
|
Cash and investments
|
|
|
3
|
|
|
|
1
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings interest income
|
|
|
558
|
|
|
|
535
|
|
|
|
4
|
|
Total Core Earnings interest expense
|
|
|
358
|
|
|
|
302
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Core Earnings interest income
|
|
|
200
|
|
|
|
233
|
|
|
|
(14
|
)
|
Less: provision for loan losses
|
|
|
7
|
|
|
|
5
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Core Earnings interest income after provision for loan losses
|
|
|
193
|
|
|
|
228
|
|
|
|
(15
|
)
|
Servicing revenue
|
|
|
16
|
|
|
|
18
|
|
|
|
(11
|
)
|
Gains on sales of loans and investments
|
|
|
|
|
|
|
5
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
16
|
|
|
|
23
|
|
|
|
(30
|
)
|
Direct operating expenses
|
|
|
104
|
|
|
|
115
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
105
|
|
|
|
136
|
|
|
|
(23
|
)
|
Income tax expense
|
|
|
39
|
|
|
|
51
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings
|
|
$
|
66
|
|
|
$
|
85
|
|
|
|
(22
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings for the segment were $66 million in first-quarter 2016, compared with the
year-ago quarters $85 million. This decrease was primarily the result of a $33 million decrease in net interest income due to declines in the balance of the portfolio and the net interest margin. This was partially offset by a decline in
expenses. Core Earnings key performance metrics are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
FFELP Loan spread
|
|
|
.89
|
%
|
|
|
.96
|
%
|
Net interest margin
|
|
|
.81
|
%
|
|
|
.88
|
%
|
Provision for loan losses
|
|
$
|
7
|
|
|
$
|
5
|
|
Charge-offs
|
|
$
|
15
|
|
|
$
|
7
|
|
Charge-off rate
|
|
|
.08
|
%
|
|
|
.03
|
%
|
Total delinquency rate
|
|
|
14.1
|
%
|
|
|
15.9
|
%
|
Greater than 90-day delinquency rate
|
|
|
7.0
|
%
|
|
|
8.4
|
%
|
Forbearance rate
|
|
|
14.4
|
%
|
|
|
15.5
|
%
|
53
FFELP Loan Net Interest Margin
The following table includes the Core Earnings basis FFELP Loan net interest margin along with reconciliation to the GAAP
basis FFELP Loan net interest margin.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Core Earnings basis FFELP Loan yield
|
|
|
2.86
|
%
|
|
|
2.58
|
%
|
Hedged Floor Income
|
|
|
.25
|
|
|
|
.23
|
|
Unhedged Floor Income
|
|
|
.13
|
|
|
|
.14
|
|
Consolidation Loan Rebate Fees
|
|
|
(.65
|
)
|
|
|
(.64
|
)
|
Repayment Borrower Benefits
|
|
|
(.11
|
)
|
|
|
(.11
|
)
|
Premium amortization
|
|
|
(.15
|
)
|
|
|
(.11
|
)
|
|
|
|
|
|
|
|
|
|
Core Earnings basis FFELP Loan net yield
|
|
|
2.33
|
|
|
|
2.09
|
|
Core Earnings basis FFELP Loan cost of funds
|
|
|
(1.44
|
)
|
|
|
(1.13
|
)
|
|
|
|
|
|
|
|
|
|
Core Earnings basis FFELP Loan spread
|
|
|
.89
|
|
|
|
.96
|
|
Core Earnings basis other interest-earning asset spread impact
|
|
|
(.08
|
)
|
|
|
(.08
|
)
|
|
|
|
|
|
|
|
|
|
Core Earnings basis FFELP Loan net interest margin
(1)
|
|
|
.81
|
%
|
|
|
.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings basis FFELP Loan net interest margin
(1)
|
|
|
.81
|
%
|
|
|
.88
|
%
|
Adjustment for GAAP accounting treatment
(2)
|
|
|
.31
|
|
|
|
.37
|
|
|
|
|
|
|
|
|
|
|
GAAP-basis FFELP Loan net interest margin
(1)
|
|
|
1.12
|
%
|
|
|
1.25
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The average balances of our FFELP Loan Core Earnings basis interest-earning assets for the respective periods are:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
FFELP Loans
|
|
$
|
95,721
|
|
|
$
|
103,617
|
|
Other interest-earning assets
|
|
|
3,603
|
|
|
|
3,893
|
|
|
|
|
|
|
|
|
|
|
Total FFELP Loan Core Earnings basis interest-earning assets
|
|
$
|
99,324
|
|
|
$
|
107,510
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
Represents the reclassification of periodic interest accruals on derivative contracts from net interest income to other income and other derivative
accounting adjustments. For further discussion of these adjustments, see section titled Core Earnings Definition and Limitations Differences between Core Earnings and GAAP above.
|
The decrease in the net interest margin is primarily the result of an increase in the cost of funds.
The Company acquired $1.5 billion of FFELP Loans in first-quarter 2016. As of March 31, 2016, our FFELP Loan portfolio
totaled $95.0 billion, composed of $35.7 billion of FFELP Stafford and Other Education Loans and $59.3 billion of FFELP Consolidation Loans. The weighted average life of these portfolios as of March 31, 2016 was 4.8 years and 8.7 years,
respectively, assuming a Constant Prepayment Rate (CPR) of 3 percent for each portfolio.
54
Floor Income
The following table analyzes on a Core Earnings basis the ability of the FFELP Loans in our portfolio to earn Floor Income
after March 31, 2016 and 2015, based on interest rates as of those dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
(Dollars in billions)
|
|
Fixed
Borrower
Rate
|
|
|
Variable
Borrower
Rate
|
|
|
Total
|
|
|
Fixed
Borrower
Rate
|
|
|
Variable
Borrower
Rate
|
|
|
Total
|
|
Education loans eligible to earn Floor Income
|
|
$
|
82.3
|
|
|
$
|
11.4
|
|
|
$
|
93.7
|
|
|
$
|
88.4
|
|
|
$
|
12.8
|
|
|
$
|
101.2
|
|
Less: post-March 31, 2006 disbursed loans required to rebate Floor Income
|
|
|
(42.7
|
)
|
|
|
(.8
|
)
|
|
|
(43.5
|
)
|
|
|
(46.0
|
)
|
|
|
(.9
|
)
|
|
|
(46.9
|
)
|
Less: economically hedged Floor Income
|
|
|
(26.2
|
)
|
|
|
|
|
|
|
(26.2
|
)
|
|
|
(27.2
|
)
|
|
|
|
|
|
|
(27.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education loans eligible to earn Floor Income
|
|
$
|
13.4
|
|
|
$
|
10.6
|
|
|
$
|
24.0
|
|
|
$
|
15.2
|
|
|
$
|
11.9
|
|
|
$
|
27.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education loans earning Floor Income
|
|
$
|
6.4
|
|
|
$
|
.4
|
|
|
$
|
6.8
|
|
|
$
|
15.1
|
|
|
$
|
.5
|
|
|
$
|
15.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a projection of the average balance of FFELP Consolidation Loans for which
Fixed Rate Floor Income has been economically hedged with derivatives for the period April 1, 2016 to December 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in billions)
|
|
April 1,
2016 to
December 31,
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
Average balance of FFELP Consolidation Loans whose Floor Income is economically hedged
|
|
$
|
19.9
|
|
|
$
|
19.9
|
|
|
$
|
16.7
|
|
|
$
|
8.3
|
|
|
$
|
2.6
|
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses FFELP Loans
Operating expenses for our FFELP Loans segment primarily include the contractual rates we pay to service loans in term asset-backed
securitization trusts or a similar rate if a loan is not in a term financing facility (which is presented as an intercompany charge from the Business Services segment who services the loans), the fees we pay for third-party loan servicing and costs
incurred to acquire loans. The intercompany revenue charged by the Business Services segment and included in those amounts was $101 million and $111 million for the quarters ended March 31, 2016 and 2015, respectively. These amounts exceed the
actual cost of servicing the loans. Operating expenses were 44 basis points and 45 basis points of average FFELP Loans in the quarters ended March 31, 2016 and 2015, respectively. The decrease in operating expenses from the year-ago quarter was
primarily the result of the decrease in the balance of the portfolio and the average servicing rate paid.
55
Private Education Loans Segment
The following table includes Core Earnings results for our Private Education Loans segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
% Increase (Decrease)
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
Core Earnings interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans
|
|
$
|
411
|
|
|
$
|
456
|
|
|
|
(10
|
)%
|
Cash and investments
|
|
|
1
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings interest income
|
|
|
412
|
|
|
|
456
|
|
|
|
(10
|
)
|
Total Core Earnings interest expense
|
|
|
172
|
|
|
|
173
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Core Earnings interest income
|
|
|
240
|
|
|
|
283
|
|
|
|
(15
|
)
|
Less: provision for loan losses
|
|
|
104
|
|
|
|
120
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Core Earnings interest income after provision for loan losses
|
|
|
136
|
|
|
|
163
|
|
|
|
(17
|
)
|
Servicing revenue
|
|
|
4
|
|
|
|
7
|
|
|
|
(43
|
)
|
Direct operating expenses
|
|
|
43
|
|
|
|
46
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
97
|
|
|
|
124
|
|
|
|
(22
|
)
|
Income tax expense
|
|
|
36
|
|
|
|
47
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings
|
|
$
|
61
|
|
|
$
|
77
|
|
|
|
(21
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Core Earnings were $61 million in the first quarter of 2016, compared with $77
million in the year-ago quarter. This decrease is primarily the result of a $43 million decrease in net interest income due to declines in the balance of the portfolio and the net interest margin, partially offset by a $16 million decline in the
provision for loan losses. Core Earnings key performance metrics are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Private Education Loan spread
|
|
|
3.70
|
%
|
|
|
3.87
|
%
|
Net interest margin
|
|
|
3.56
|
%
|
|
|
3.74
|
%
|
Provision for loan losses
|
|
$
|
104
|
|
|
$
|
120
|
|
Charge-offs
|
|
$
|
144
|
|
|
$
|
190
|
|
Charge-off rate
|
|
|
2.4
|
%
|
|
|
2.9
|
%
|
Total delinquency rate
|
|
|
6.2
|
%
|
|
|
6.9
|
%
|
Greater than 90-day delinquency rate
|
|
|
3.2
|
%
|
|
|
3.6
|
%
|
Forbearance rate
|
|
|
3.7
|
%
|
|
|
3.8
|
%
|
Loans in repayment with more than 12 payments made
|
|
|
95.2
|
%
|
|
|
92.6
|
%
|
Cosigner rate
|
|
|
64
|
%
|
|
|
64
|
%
|
56
Private Education Loan Net Interest Margin
The following table shows the Core Earnings basis Private Education Loan net interest margin along with reconciliation to the
GAAP basis Private Education Loan net interest margin before provision for loan losses.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Core Earnings basis Private Education Loan yield
|
|
|
6.22
|
%
|
|
|
6.15
|
%
|
Core Earnings basis Private Education Loan cost of funds
|
|
|
(2.52
|
)
|
|
|
(2.28
|
)
|
|
|
|
|
|
|
|
|
|
Core Earnings basis Private Education Loan spread
|
|
|
3.70
|
|
|
|
3.87
|
|
Core Earnings basis other interest-earning asset spread impact
|
|
|
(.14
|
)
|
|
|
(.13
|
)
|
|
|
|
|
|
|
|
|
|
Core Earnings basis Private Education Loan net interest
margin
(1)
|
|
|
3.56
|
%
|
|
|
3.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings basis Private Education Loan net interest
margin
(1)
|
|
|
3.56
|
%
|
|
|
3.74
|
%
|
Adjustment for GAAP accounting treatment
(2)
|
|
|
(.07
|
)
|
|
|
(.03
|
)
|
|
|
|
|
|
|
|
|
|
GAAP basis Private Education Loan net interest margin
(1)
|
|
|
3.49
|
%
|
|
|
3.71
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The average balances of our Private Education Loan Core Earnings basis interest-earning assets for the respective periods are:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Private Education Loans
|
|
$
|
26,577
|
|
|
$
|
30,105
|
|
Other interest-earning assets
|
|
|
601
|
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loan Core Earnings basis interest-earning assets
|
|
$
|
27,178
|
|
|
$
|
30,698
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
Represents the reclassification of periodic interest accruals on derivative contracts from net interest income to other income and other derivative
accounting adjustments. For further discussion of these adjustments, see section titled Core Earnings Definition and Limitations Differences between Core Earnings and GAAP above.
|
The decrease in the net interest margin is primarily a result of an increase in the cost of funds.
Private Education Loan Provision for Loan Losses
In establishing the allowance for Private Education Loan losses as of March 31, 2016, we considered several factors with respect to
our Private Education Loan portfolio. In particular, we continue to see improvement in credit quality and continuing positive delinquency and charge-off trends in connection with this portfolio. On a Core Earnings basis, total loans
delinquent (as a percentage of loans in repayment) have decreased to 6.2 percent from 6.9 percent in the year-ago quarter. Loans greater than 90 days delinquent (as a percentage of loans in repayment) have decreased to 3.2 percent from 3.6 percent
in the year-ago quarter. The Core Earnings charge-off rate decreased to 2.4 percent from 2.9 percent in the year-ago quarter. Loans in forbearance (as a percentage of loans in repayment and forbearance) decreased to 3.7 percent from 3.8
percent in the year-ago quarter.
The Private Education Loan provision for loan losses on a Core Earnings basis
was $104 million in the first quarter of 2016, down $16 million from the first quarter of 2015. 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.
Operating Expenses Private Education Loans Segment
Operating expenses for our Private Education Loans segment include costs incurred to service and collect on our
Private Education Loan portfolio. Operating expenses were $43 million and $46 million for the three months
57
ended March 31, 2016 and 2015, respectively. The decrease in operating expenses from the year-ago period is primarily due to a decline in the Private Education Loan portfolio balance.
Business Services Segment
The following table includes Core Earnings results for our Business Services segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
% Increase (Decrease)
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
Net interest income
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
Servicing revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany loan servicing
|
|
|
101
|
|
|
|
111
|
|
|
|
(9
|
)
|
Third-party loan servicing
|
|
|
54
|
|
|
|
44
|
|
|
|
23
|
|
Guarantor servicing
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total servicing revenue
|
|
|
163
|
|
|
|
163
|
|
|
|
|
|
Asset recovery and business processing revenue
|
|
|
90
|
|
|
|
89
|
|
|
|
1
|
|
Other Business Services revenue
|
|
|
1
|
|
|
|
2
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
254
|
|
|
|
254
|
|
|
|
|
|
Direct operating expenses
|
|
|
134
|
|
|
|
116
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, before income tax expense
|
|
|
120
|
|
|
|
138
|
|
|
|
(13
|
)
|
Income tax expense
|
|
|
45
|
|
|
|
52
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
75
|
|
|
|
86
|
|
|
|
(13
|
)
|
Income from discontinued operations, net of tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings
|
|
$
|
75
|
|
|
$
|
86
|
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings were $75 million in the first quarter of 2016, compared with $86 million in the
year-ago quarter. This decrease was primarily the result of lower education loan-related asset recovery revenue primarily in connection with a legislated reduction in certain fees as well as lower volumes. Key segment metrics are:
|
|
|
|
|
|
|
|
|
|
|
As of
March 31,
|
|
(Dollars in billions)
|
|
2016
|
|
|
2015
|
|
Number of accounts serviced for ED (in millions)
|
|
|
6.3
|
|
|
|
6.2
|
|
Total federal loans serviced
|
|
$
|
291
|
|
|
$
|
297
|
|
Contingent collections receivables inventory:
|
|
|
|
|
|
|
|
|
Education loans
|
|
$
|
10.1
|
|
|
$
|
11.0
|
|
Other
|
|
|
9.1
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
Total contingent collections receivables inventory
|
|
$
|
19.2
|
|
|
$
|
20.2
|
|
|
|
|
|
|
|
|
|
|
Revenues related to services performed on FFELP Loans accounted for 64 percent and 74 percent,
respectively, of total Business Services segment revenues for the quarters ended March 31, 2016 and 2015.
Servicing
Revenue
Our Business Services segment includes intercompany loan servicing fees from servicing the FFELP Loans in our
FFELP Loans segment. The average balance of this portfolio was $94 billion and $101 billion for the quarters ended March 31, 2016 and 2015, respectively. The decline in the intercompany loan servicing revenue from the year-ago quarter was due
to the decrease in the average servicing rate paid and the decline in the average balance of FFELP Loans serviced.
58
Third-party loan servicing income increased $10 million from the year-ago quarter primarily
due to an increase in revenue related to the accounts serviced for ED.
The Company services education loans for more than
12 million DSLP Loan, FFELP Loan and Private Education Loan customers (including cosigners), including 6.3 million customer accounts under the ED Servicing Contract as of March 31, 2016, compared with 6.2 million customer
accounts serviced at March 31, 2015. Third-party loan servicing fees in the quarters ended March 31, 2016 and 2015 included $37 million and $31 million, respectively, of servicing revenue related to the ED Servicing Contract. On
June 13, 2014, ED extended its servicing contract with us to service Direct Student Loan Program federal loans for five more years.
Asset Recovery and Business Processing Revenue
Our asset recovery and
business processing revenue consists of fees we receive for asset recovery of delinquent and defaulted debt on behalf of third-party clients performed on a contingent basis. Business processing revenue consists of fees we earn processing
transactions on behalf of our municipal, public authority and hospital clients. Asset recovery and business processing revenue increased $1 million. This increase was primarily due to additional revenue from Gila LLC (acquired in February 2015) and
from Xtend Healthcare (acquired in October 2015), which was offset by a 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.
Since 1997, Navient has provided asset recovery services on defaulted education loans to ED. This contract expired by its
terms on February 21, 2015 and our Pioneer Credit Recovery (Pioneer) subsidiary received no new account placements under the contract. We engaged with ED to learn more about their decision and address any questions or concerns they
may have. In addition, on March 9, 2015, Pioneer filed a bid protest with the U.S. Government Accountability Office (GAO). This bid protest was dismissed on March 13, 2015 from the GAO based upon overlapping jurisdiction.
Following the bid protest dismissal, Pioneer filed its own complaint with the U.S. Court of Federal Claims, which complaint was consolidated with several similar cases filed by other private collection agencies. On April 16, 2015,
Pioneers complaint, together with the other plaintiffs consolidated complaints, was dismissed for lack of jurisdiction. We have appealed this decision. Pioneers appeal was heard on November 5, 2015 and no ruling has been
issued.
Separately, we have submitted a response to EDs request for proposals (RFP) in relation to a new
contract for similar services. There can be no assurances that Pioneer will be awarded an extension of the existing contract, or a new contract awarded to Pioneer or any other Navient subsidiary.
Operating Expenses Business Services Segment
Operating expenses for our Business Services segment primarily include costs incurred to service our FFELP Loan portfolio, third-party
servicing and asset recovery and business processing costs, and other operating costs. The $18 million increase in operating expenses in the first quarter of 2016 compared with the year-ago quarter was due to operating costs related to Gila LLC,
which was acquired in February 2015, and to Xtend Healthcare, acquired in October 2015. This increase was partially offset by a general reduction in costs related to the implementation of various operating cost initiatives, including the successful
conversion of loans to our servicing system in the third quarter of 2015 related to $8.5 billion of FFELP loans acquired in the fourth quarter of 2014.
59
Other Segment
The following table includes Core Earnings results of our Other segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
% Increase (Decrease)
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
|
2016 vs. 2015
|
|
Net interest loss after provision for loan losses
|
|
$
|
(24
|
)
|
|
$
|
(27
|
)
|
|
|
(11
|
)%
|
Other income
|
|
|
3
|
|
|
|
4
|
|
|
|
(25
|
)
|
Direct operating expenses
|
|
|
6
|
|
|
|
4
|
|
|
|
50
|
|
Overhead expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate overhead
|
|
|
34
|
|
|
|
32
|
|
|
|
6
|
|
Unallocated information technology costs
|
|
|
27
|
|
|
|
28
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total overhead expenses
|
|
|
61
|
|
|
|
60
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
67
|
|
|
|
64
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(88
|
)
|
|
|
(87
|
)
|
|
|
1
|
|
Income tax benefit
|
|
|
(33
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings (loss)
|
|
$
|
(55
|
)
|
|
$
|
(54
|
)
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Loss after Provision for Loan Losses
Net interest loss after provision for loan losses includes net interest loss related to our corporate liquidity portfolio, partially
offset by net interest income related to our mortgage and consumer loan portfolios.
Overhead Other Segment
Unallocated corporate overhead is comprised of costs related to executive management, the board of directors,
accounting, finance, legal, human resources and stock-based compensation expense. Unallocated information technology costs are related to infrastructure and operations.
Financial Condition
This section provides additional information
regarding the changes in our loan portfolio assets and related liabilities as well as credit quality and performance indicators related to our loan portfolio.
60
Average Balance Sheets GAAP
The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities and reflects our net
interest margin on a consolidated basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
(Dollars in millions)
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
Average Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loans
|
|
$
|
95,721
|
|
|
|
2.66
|
%
|
|
$
|
103,617
|
|
|
|
2.49
|
%
|
Private Education Loans
|
|
|
26,577
|
|
|
|
6.22
|
|
|
|
30,105
|
|
|
|
6.15
|
|
Other loans
|
|
|
69
|
|
|
|
8.50
|
|
|
|
81
|
|
|
|
8.96
|
|
Cash and investments
|
|
|
5,418
|
|
|
|
.39
|
|
|
|
6,307
|
|
|
|
.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
127,785
|
|
|
|
3.31
|
%
|
|
|
140,110
|
|
|
|
3.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets
|
|
|
4,208
|
|
|
|
|
|
|
|
4,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
131,993
|
|
|
|
|
|
|
$
|
144,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
2,433
|
|
|
|
2.62
|
%
|
|
$
|
3,931
|
|
|
|
2.30
|
%
|
Long-term borrowings
|
|
|
123,107
|
|
|
|
1.80
|
|
|
|
133,557
|
|
|
|
1.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
125,540
|
|
|
|
1.81
|
%
|
|
|
137,488
|
|
|
|
1.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities
|
|
|
2,571
|
|
|
|
|
|
|
|
2,709
|
|
|
|
|
|
Equity
|
|
|
3,882
|
|
|
|
|
|
|
|
4,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
131,993
|
|
|
|
|
|
|
$
|
144,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
1.53
|
%
|
|
|
|
|
|
|
1.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate/Volume Analysis GAAP
The following rate/volume analysis shows the relative contribution of changes in interest rates and asset volumes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease)
|
|
|
Change Due
To
(1)
|
|
(Dollars in millions)
|
|
|
Rate
|
|
|
Volume
|
|
Three Months Ended March 31, 2016 vs. 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(46
|
)
|
|
$
|
45
|
|
|
$
|
(91
|
)
|
Interest expense
|
|
|
51
|
|
|
|
95
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
(97
|
)
|
|
$
|
(52
|
)
|
|
$
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Changes in income and expense due to both rate and volume have been allocated in proportion to the relationship of the absolute dollar amounts of the
change in each. The changes in income and expense are calculated independently for each line in the table. The totals for the rate and volume columns are not the sum of the individual lines.
|
61
Summary of our Education Loan Portfolio
Ending Education Loan Balances, net GAAP and Core Earnings Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
(Dollars in millions)
|
|
FFELP
Stafford and
Other
|
|
|
FFELP
Consolidation
Loans
|
|
|
Total
FFELP
Loans
|
|
|
Private
Education
Loans
|
|
|
Total
Portfolio
|
|
Total education loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-school
(1)
|
|
$
|
244
|
|
|
$
|
|
|
|
$
|
244
|
|
|
$
|
189
|
|
|
$
|
433
|
|
Grace, repayment and other
(2)
|
|
|
34,939
|
|
|
|
58,891
|
|
|
|
93,830
|
|
|
|
26,440
|
|
|
|
120,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, gross
|
|
|
35,183
|
|
|
|
58,891
|
|
|
|
94,074
|
|
|
|
26,629
|
|
|
|
120,703
|
|
Unamortized premium/(discount)
|
|
|
602
|
|
|
|
412
|
|
|
|
1,014
|
|
|
|
(515
|
)
|
|
|
499
|
|
Receivable for partially charged-off loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
867
|
|
|
|
867
|
|
Allowance for loan losses
|
|
|
(43
|
)
|
|
|
(27
|
)
|
|
|
(70
|
)
|
|
|
(1,434
|
)
|
|
|
(1,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total education loan portfolio
|
|
$
|
35,742
|
|
|
$
|
59,276
|
|
|
$
|
95,018
|
|
|
$
|
25,547
|
|
|
$
|
120,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total FFELP
|
|
|
38
|
%
|
|
|
62
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of total
|
|
|
30
|
%
|
|
|
49
|
%
|
|
|
79
|
%
|
|
|
21
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
(Dollars in millions)
|
|
FFELP
Stafford and
Other
|
|
|
FFELP
Consolidation
Loans
|
|
|
Total
FFELP
Loans
|
|
|
Private
Education
Loans
|
|
|
Total
Portfolio
|
|
Total education loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-school
(1)
|
|
$
|
259
|
|
|
$
|
|
|
|
$
|
259
|
|
|
$
|
216
|
|
|
$
|
475
|
|
Grace, repayment and other
(2)
|
|
|
36,112
|
|
|
|
59,118
|
|
|
|
95,230
|
|
|
|
27,299
|
|
|
|
122,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, gross
|
|
|
36,371
|
|
|
|
59,118
|
|
|
|
95,489
|
|
|
|
27,515
|
|
|
|
123,004
|
|
Unamortized premium/(discount)
|
|
|
627
|
|
|
|
460
|
|
|
|
1,087
|
|
|
|
(531
|
)
|
|
|
556
|
|
Receivable for partially charged-off loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
881
|
|
|
|
881
|
|
Allowance for loan losses
|
|
|
(48
|
)
|
|
|
(30
|
)
|
|
|
(78
|
)
|
|
|
(1,471
|
)
|
|
|
(1,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total education loan portfolio
|
|
$
|
36,950
|
|
|
$
|
59,548
|
|
|
$
|
96,498
|
|
|
$
|
26,394
|
|
|
$
|
122,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total FFELP
|
|
|
38
|
%
|
|
|
62
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of total
|
|
|
30
|
%
|
|
|
48
|
%
|
|
|
78
|
%
|
|
|
22
|
%
|
|
|
100
|
%
|
(1)
|
Loans for customers still attending school and are not yet required to make payments on the loan.
|
(2)
|
Includes loans in deferment or forbearance.
|
Average Education Loan Balances (net of unamortized premium/discount) GAAP and Core Earnings Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
(Dollars in millions)
|
|
FFELP
Stafford and
Other
|
|
|
FFELP
Consolidation
Loans
|
|
|
Total
FFELP
Loans
|
|
|
Private
Education
Loans
|
|
|
Total
Portfolio
|
|
Total
|
|
$
|
36,492
|
|
|
$
|
59,229
|
|
|
$
|
95,721
|
|
|
$
|
26,577
|
|
|
$
|
122,298
|
|
% of FFELP
|
|
|
38
|
%
|
|
|
62
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of total
|
|
|
30
|
%
|
|
|
48
|
%
|
|
|
78
|
%
|
|
|
22
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
(Dollars in millions)
|
|
FFELP
Stafford and
Other
|
|
|
FFELP
Consolidation
Loans
|
|
|
Total
FFELP
Loans
|
|
|
Private
Education
Loans
|
|
|
Total
Portfolio
|
|
Total
|
|
$
|
40,634
|
|
|
$
|
62,983
|
|
|
$
|
103,617
|
|
|
$
|
30,105
|
|
|
$
|
133,722
|
|
% of FFELP
|
|
|
39
|
%
|
|
|
61
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
% of total
|
|
|
30
|
%
|
|
|
47
|
%
|
|
|
77
|
%
|
|
|
23
|
%
|
|
|
100
|
%
|
62
Education Loan Activity GAAP and Core Earnings Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
(Dollars in millions)
|
|
FFELP
Stafford and
Other
|
|
|
FFELP
Consolidation
Loans
|
|
|
Total
FFELP
Loans
|
|
|
Total Private
Education
Loans
|
|
|
Total
Portfolio
|
|
Beginning balance
|
|
$
|
36,950
|
|
|
$
|
59,548
|
|
|
$
|
96,498
|
|
|
$
|
26,394
|
|
|
$
|
122,892
|
|
Acquisitions
|
|
|
273
|
|
|
|
1,258
|
|
|
|
1,531
|
|
|
|
6
|
|
|
|
1,537
|
|
Capitalized interest and premium/discount amortization
|
|
|
270
|
|
|
|
262
|
|
|
|
532
|
|
|
|
114
|
|
|
|
646
|
|
Consolidations to third parties
|
|
|
(679
|
)
|
|
|
(470
|
)
|
|
|
(1,149
|
)
|
|
|
(121
|
)
|
|
|
(1,270
|
)
|
Loan sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments and other
|
|
|
(1,072
|
)
|
|
|
(1,322
|
)
|
|
|
(2,394
|
)
|
|
|
(846
|
)
|
|
|
(3,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
35,742
|
|
|
$
|
59,276
|
|
|
$
|
95,018
|
|
|
$
|
25,547
|
|
|
$
|
120,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
(Dollars in millions)
|
|
FFELP
Stafford and
Other
|
|
|
FFELP
Consolidation
Loans
|
|
|
Total
FFELP
Loans
|
|
|
Total Private
Education
Loans
|
|
|
Total
Portfolio
|
|
Beginning balance
|
|
$
|
41,065
|
|
|
$
|
63,456
|
|
|
$
|
104,521
|
|
|
$
|
29,796
|
|
|
$
|
134,317
|
|
Acquisitions
|
|
|
406
|
|
|
|
418
|
|
|
|
824
|
|
|
|
6
|
|
|
|
830
|
|
Capitalized interest and premium/discount amortization
|
|
|
308
|
|
|
|
279
|
|
|
|
587
|
|
|
|
136
|
|
|
|
723
|
|
Consolidations to third parties
|
|
|
(657
|
)
|
|
|
(487
|
)
|
|
|
(1,144
|
)
|
|
|
(23
|
)
|
|
|
(1,167
|
)
|
Loan sales
|
|
|
(151
|
)
|
|
|
(36
|
)
|
|
|
(187
|
)
|
|
|
|
|
|
|
(187
|
)
|
Repayments and other
|
|
|
(1,104
|
)
|
|
|
(1,073
|
)
|
|
|
(2,177
|
)
|
|
|
(925
|
)
|
|
|
(3,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
39,867
|
|
|
$
|
62,557
|
|
|
$
|
102,424
|
|
|
$
|
28,990
|
|
|
$
|
131,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education Loan Allowance for Loan Losses Activity GAAP and Core Earnings Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
(Dollars in millions)
|
|
FFELP
Loans
|
|
|
Private
Education
Loans
|
|
|
Total
Portfolio
|
|
|
FFELP
Loans
|
|
|
Private
Education
Loans
|
|
|
Total
Portfolio
|
|
Beginning balance
|
|
$
|
78
|
|
|
$
|
1,471
|
|
|
$
|
1,549
|
|
|
$
|
93
|
|
|
$
|
1,916
|
|
|
$
|
2,009
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
(1)
|
|
|
(15
|
)
|
|
|
(144
|
)
|
|
|
(159
|
)
|
|
|
(7
|
)
|
|
|
(190
|
)
|
|
|
(197
|
)
|
Loan sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
7
|
|
|
|
104
|
|
|
|
111
|
|
|
|
5
|
|
|
|
120
|
|
|
|
125
|
|
Reclassification of interest reserve
(2)
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
70
|
|
|
$
|
1,434
|
|
|
$
|
1,504
|
|
|
$
|
91
|
|
|
$
|
1,849
|
|
|
$
|
1,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total
|
|
|
5
|
%
|
|
|
95
|
%
|
|
|
100
|
%
|
|
|
5
|
%
|
|
|
95
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructuring
(3)
|
|
$
|
|
|
|
$
|
10,701
|
|
|
$
|
10,701
|
|
|
$
|
|
|
|
$
|
10,426
|
|
|
$
|
10,426
|
|
(1)
|
Charge-offs are reported net of expected recoveries. For Private Education Loans, 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 Private Education Loan Portfolio Performance Receivable for Partially Charged-Off Private Education Loans for further discussion.
|
(2)
|
Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period
to the allowance for loan losses when interest is capitalized to a loans principal balance.
|
(3)
|
Represents the recorded investment of loans identified as troubled debt restructuring.
|
63
FFELP Loan Portfolio Performance
FFELP Loan Delinquencies and Forbearance GAAP and Core Earnings Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loan Delinquencies
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
Loans in-school/grace/deferment
(1)
|
|
$
|
7,986
|
|
|
|
|
|
|
$
|
10,555
|
|
|
|
|
|
Loans in forbearance
(2)
|
|
|
12,389
|
|
|
|
|
|
|
|
14,037
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
63,333
|
|
|
|
85.9
|
%
|
|
|
64,522
|
|
|
|
84.1
|
%
|
Loans delinquent 31-60 days
(3)
|
|
|
3,559
|
|
|
|
4.8
|
|
|
|
3,656
|
|
|
|
4.8
|
|
Loans delinquent 61-90 days
(3)
|
|
|
1,657
|
|
|
|
2.3
|
|
|
|
2,087
|
|
|
|
2.7
|
|
Loans delinquent greater than 90 days
(3)
|
|
|
5,150
|
|
|
|
7.0
|
|
|
|
6,490
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP Loans in repayment
|
|
|
73,699
|
|
|
|
100
|
%
|
|
|
76,755
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP Loans, gross
|
|
|
94,074
|
|
|
|
|
|
|
|
101,347
|
|
|
|
|
|
FFELP Loan unamortized premium
|
|
|
1,014
|
|
|
|
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP Loans
|
|
|
95,088
|
|
|
|
|
|
|
|
102,515
|
|
|
|
|
|
FFELP Loan allowance for losses
|
|
|
(70
|
)
|
|
|
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loans, net
|
|
$
|
95,018
|
|
|
|
|
|
|
$
|
102,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of FFELP Loans in repayment
|
|
|
|
|
|
|
78.3
|
%
|
|
|
|
|
|
|
75.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of FFELP Loans in repayment
|
|
|
|
|
|
|
14.1
|
%
|
|
|
|
|
|
|
15.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loans in forbearance as a percentage of loans in repayment and forbearance
|
|
|
|
|
|
|
14.4
|
%
|
|
|
|
|
|
|
15.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Loans for customers who may still be attending school or engaging 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, as well as loans for customers who have requested extension of grace period during employment transition or who have temporarily ceased making
payments due to hardship or other factors.
|
(2)
|
Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who
have temporarily ceased making payments due to hardship or other factors.
|
(3)
|
The period of delinquency is based on the number of days scheduled payments are contractually past due.
|
Allowance for FFELP Loan Losses GAAP and Core Earnings Basis
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Allowance at beginning of period
|
|
$
|
78
|
|
|
$
|
93
|
|
Provision for FFELP Loan losses
|
|
|
7
|
|
|
|
5
|
|
Charge-offs
|
|
|
(15
|
)
|
|
|
(7
|
)
|
Loan sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of period
|
|
$
|
70
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
Charge-offs as a percentage of average loans in repayment (annualized)
|
|
|
.08
|
%
|
|
|
.03
|
%
|
Allowance coverage of charge-offs (annualized)
|
|
|
1.2
|
|
|
|
3.6
|
|
Allowance as a percentage of ending total loans, gross
|
|
|
.07
|
%
|
|
|
.09
|
%
|
Allowance as a percentage of ending loans in repayment
|
|
|
.10
|
%
|
|
|
.12
|
%
|
Ending total loans, gross
|
|
$
|
94,074
|
|
|
$
|
101,347
|
|
Average loans in repayment
|
|
$
|
73,689
|
|
|
$
|
77,474
|
|
Ending loans in repayment
|
|
$
|
73,699
|
|
|
$
|
76,755
|
|
64
Private Education Loan Portfolio Performance
Private Education Loan Delinquencies and Forbearance GAAP and Core Earnings Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loan Delinquencies
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
Loans in-school/grace/deferment
(1)
|
|
$
|
1,927
|
|
|
|
|
|
|
$
|
2,894
|
|
|
|
|
|
Loans in forbearance
(2)
|
|
|
916
|
|
|
|
|
|
|
|
1,030
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
22,313
|
|
|
|
93.8
|
%
|
|
|
24,451
|
|
|
|
93.1
|
%
|
Loans delinquent 31-60 days
(3)
|
|
|
434
|
|
|
|
1.8
|
|
|
|
528
|
|
|
|
2.0
|
|
Loans delinquent 61-90 days
(3)
|
|
|
290
|
|
|
|
1.2
|
|
|
|
341
|
|
|
|
1.3
|
|
Loans delinquent greater than 90 days
(3)
|
|
|
749
|
|
|
|
3.2
|
|
|
|
940
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans in repayment
|
|
|
23,786
|
|
|
|
100
|
%
|
|
|
26,260
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans, gross
|
|
|
26,629
|
|
|
|
|
|
|
|
30,184
|
|
|
|
|
|
Private Education Loan unamortized discount
|
|
|
(515
|
)
|
|
|
|
|
|
|
(581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans
|
|
|
26,114
|
|
|
|
|
|
|
|
29,603
|
|
|
|
|
|
Private Education Loan receivable for partially charged-off loans
|
|
|
867
|
|
|
|
|
|
|
|
1,236
|
|
|
|
|
|
Private Education Loan allowance for losses
|
|
|
(1,434
|
)
|
|
|
|
|
|
|
(1,849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans, net
|
|
$
|
25,547
|
|
|
|
|
|
|
$
|
28,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Private Education Loans in repayment
|
|
|
|
|
|
|
89.3
|
%
|
|
|
|
|
|
|
87.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of Private Education Loans in repayment
|
|
|
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in forbearance as a percentage of loans in repayment and forbearance
|
|
|
|
|
|
|
3.7
|
%
|
|
|
|
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in repayment with more than 12 payments made
|
|
|
|
|
|
|
95.2
|
%
|
|
|
|
|
|
|
92.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Private Education Loans with a cosigner
|
|
|
|
|
|
|
64
|
%
|
|
|
|
|
|
|
64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 their 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.
|
65
Allowance for Private Education Loan Losses GAAP and Core Earnings
Basis
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Allowance at beginning of period
|
|
$
|
1,471
|
|
|
$
|
1,916
|
|
Provision for Private Education Loan losses
|
|
|
104
|
|
|
|
120
|
|
Charge-offs
(1)
|
|
|
(144
|
)
|
|
|
(190
|
)
|
Reclassification of interest reserve
(2)
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of period
|
|
$
|
1,434
|
|
|
$
|
1,849
|
|
|
|
|
|
|
|
|
|
|
Charge-offs as a percentage of average loans in repayment (annualized)
|
|
|
2.4
|
%
|
|
|
2.9
|
%
|
Allowance coverage of charge-offs (annualized)
|
|
|
2.5
|
|
|
|
2.4
|
|
Allowance as a percentage of ending total loans
|
|
|
5.2
|
%
|
|
|
5.9
|
%
|
Allowance as a percentage of ending loans in repayment
|
|
|
6.0
|
%
|
|
|
7.0
|
%
|
Ending total loans
(3)
|
|
$
|
27,496
|
|
|
$
|
31,420
|
|
Average loans in repayment
|
|
$
|
24,180
|
|
|
$
|
26,644
|
|
Ending loans in repayment
|
|
$
|
23,786
|
|
|
$
|
26,260
|
|
(1)
|
Charge-offs are reported net of expected recoveries. The expected recovery amount is transferred to the receivable for partially charged-off loan
balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See
Receivable for Partially Charged-Off Private Education Loans for further discussion.
|
(2)
|
Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period
to the allowance for loan losses when interest is capitalized to a loans principal balance.
|
(3)
|
Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans.
|
As part of determining the adequacy of the allowance for loan losses, we review key allowance and loan metrics. The most significant of
these metrics considered are the charge-off rate and delinquency and forbearance percentages and the resulting allowance coverage of charge-offs ratio, and the allowance as a percentage of total loans and of loans in repayment.
Receivable for Partially Charged-Off Private Education Loans
At the end of each month, for loans that are 212 or more 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. For that reason, 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.
66
The following table summarizes the activity in the receivable for partially charged-off
loans.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Receivable at beginning of period
|
|
$
|
881
|
|
|
$
|
1,245
|
|
Expected future recoveries of current period defaults
(1)
|
|
|
36
|
|
|
|
62
|
|
Recoveries
(2)
|
|
|
(50
|
)
|
|
|
(52
|
)
|
Charge-offs
(3)
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Receivable at end of period
|
|
|
867
|
|
|
|
1,236
|
|
Allowance for estimated recovery shortfalls
(4)
|
|
|
|
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
|
|
Net receivable at end of period
|
|
$
|
867
|
|
|
$
|
856
|
|
|
|
|
|
|
|
|
|
|
|
(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 the Allowance for Private Education Loan Losses table.
|
|
(4)
|
The allowance for estimated recovery shortfalls of the receivable for partially charged-off Private Education Loans is a component of the $1.8 billion
overall allowance for Private Education Loan losses as of March 31, 2015. This component of the allowance was removed in the second quarter of 2015 due to the increase in the charge-off rate discussed above.
|
Use of Forbearance as a Private Education Loan Collection Tool
Forbearance involves granting the customer a temporary cessation of payments (or temporary acceptance of smaller than scheduled payments)
for a specified period of time. Using forbearance extends the original term of the loan. Forbearance does not grant any reduction in the total repayment obligation (principal or interest). While in forbearance status, interest continues to accrue
and is capitalized to principal when the loan re-enters repayment status. Our forbearance policies include limits on the number of forbearance months granted consecutively and the total number of forbearance months granted over the life of the loan.
In some instances, we require good-faith payments before granting forbearance. Exceptions to forbearance policies are permitted when such exceptions are judged to increase the likelihood of recovery of the loan. Forbearance as a recovery tool is
used most effectively when applied based on a customers unique situation, including historical information and judgments. We leverage updated customer information and other decision support tools to best determine who will be granted
forbearance based on our expectations as to a customers ability and willingness to repay their obligation. This strategy is aimed at mitigating the overall risk of the portfolio as well as encouraging cash resolution of delinquent loans.
Forbearance may be granted to customers who are exiting their grace period to provide additional time to obtain employment
and income to support their obligations, or to current customers who are faced with a hardship and request forbearance time to provide temporary payment relief. In these circumstances, a customers loan is placed into a forbearance status in
limited monthly increments and is reflected in the forbearance status at month-end during this time. At the end of their granted forbearance period, the customer will enter repayment status as current and is expected to begin making their scheduled
monthly payments on a go-forward basis.
Forbearance may also be granted to customers who are delinquent in their payments. In
these circumstances, the forbearance cures the delinquency and the customer is returned to a current repayment status. In more limited instances, delinquent customers will also be granted additional forbearance time.
The tables below show the composition and status of the Private Education Loan portfolio aged by the number of months for which a
scheduled monthly payment was received. As indicated in the tables, the percentage of loans that are in forbearance status, are delinquent greater than 90 days or that are charged off decreases the longer the loans have been making scheduled monthly
payments.
67
At March 31, 2016, loans in forbearance status as a percentage of loans in repayment
and forbearance were 13.6 percent for loans that have made less than 25 monthly payments. The percentage drops to 1.7 percent for loans that have made more than 48 monthly payments. Approximately 46 percent of our Private Education Loans in
forbearance status have made less than 25 monthly payments.
At March 31, 2016, loans in repayment that are delinquent
greater than 90 days as a percentage of loans in repayment were 9.9 percent for loans that have made less than 25 monthly payments. The percentage drops to 1.6 percent for loans that have made more than 48 monthly payments. Approximately 36 percent
of our Private Education Loans in repayment that are delinquent greater than 90 days have made less than 25 monthly payments.
For the three months ended March 31, 2016, charge-offs as a percentage of loans in repayment were 9 percent for loans that have made
less than 25 monthly payments. The percentage drops to 1 percent for loans that have made more than 48 monthly payments. Approximately 47 percent of our Private Education Loan charge-offs occurring in first-quarter 2016 made less than 25 monthly
payments.
GAAP and Core Earnings Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Monthly Scheduled Payments Received
|
|
|
Not Yet in
Repayment
|
|
|
|
|
March 31, 2016
|
|
0 to 12
|
|
|
13 to 24
|
|
|
25 to 36
|
|
|
37 to 48
|
|
|
More than 48
|
|
|
|
Total
|
|
Loans in-school/grace/deferment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,927
|
|
|
$
|
1,927
|
|
Loans in forbearance
|
|
|
301
|
|
|
|
125
|
|
|
|
123
|
|
|
|
111
|
|
|
|
256
|
|
|
|
|
|
|
|
916
|
|
Loans in repayment current
|
|
|
859
|
|
|
|
1,360
|
|
|
|
2,242
|
|
|
|
3,247
|
|
|
|
14,605
|
|
|
|
|
|
|
|
22,313
|
|
Loans in repayment delinquent 31-60 days
|
|
|
67
|
|
|
|
51
|
|
|
|
70
|
|
|
|
63
|
|
|
|
183
|
|
|
|
|
|
|
|
434
|
|
Loans in repayment delinquent 61-90 days
|
|
|
52
|
|
|
|
42
|
|
|
|
49
|
|
|
|
42
|
|
|
|
105
|
|
|
|
|
|
|
|
290
|
|
Loans in repayment delinquent greater than 90 days
|
|
|
155
|
|
|
|
114
|
|
|
|
133
|
|
|
|
111
|
|
|
|
236
|
|
|
|
|
|
|
|
749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,434
|
|
|
$
|
1,692
|
|
|
$
|
2,617
|
|
|
$
|
3,574
|
|
|
$
|
15,385
|
|
|
$
|
1,927
|
|
|
|
26,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(515
|
)
|
Receivable for partially charged-off loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
867
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in forbearance as a percentage of loans in repayment and forbearance
|
|
|
21.0
|
%
|
|
|
7.4
|
%
|
|
|
4.7
|
%
|
|
|
3.1
|
%
|
|
|
1.7
|
%
|
|
|
|
%
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in repayment delinquent greater than 90 days as a percentage of loans in repayment
|
|
|
13.6
|
%
|
|
|
7.3
|
%
|
|
|
5.4
|
%
|
|
|
3.2
|
%
|
|
|
1.6
|
%
|
|
|
|
%
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs as a percentage of loans in repayment
|
|
|
14.0
|
%
|
|
|
5.2
|
%
|
|
|
3.4
|
%
|
|
|
2.0
|
%
|
|
|
1.0
|
%
|
|
|
|
%
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Monthly Scheduled Payments Received
|
|
|
Not Yet in
Repayment
|
|
|
|
|
March 31, 2015
|
|
0 to 12
|
|
|
13 to 24
|
|
|
25 to 36
|
|
|
37 to 48
|
|
|
More than 48
|
|
|
|
Total
|
|
Loans in-school/grace/deferment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,894
|
|
|
$
|
2,894
|
|
Loans in forbearance
|
|
|
419
|
|
|
|
157
|
|
|
|
141
|
|
|
|
121
|
|
|
|
192
|
|
|
|
|
|
|
|
1,030
|
|
Loans in repayment current
|
|
|
1,482
|
|
|
|
2,315
|
|
|
|
3,584
|
|
|
|
3,846
|
|
|
|
13,224
|
|
|
|
|
|
|
|
24,451
|
|
Loans in repayment delinquent 31-60 days
|
|
|
111
|
|
|
|
85
|
|
|
|
94
|
|
|
|
79
|
|
|
|
159
|
|
|
|
|
|
|
|
528
|
|
Loans in repayment delinquent 61-90 days
|
|
|
86
|
|
|
|
60
|
|
|
|
57
|
|
|
|
47
|
|
|
|
91
|
|
|
|
|
|
|
|
341
|
|
Loans in repayment delinquent greater than 90 days
|
|
|
257
|
|
|
|
184
|
|
|
|
167
|
|
|
|
125
|
|
|
|
207
|
|
|
|
|
|
|
|
940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,355
|
|
|
$
|
2,801
|
|
|
$
|
4,043
|
|
|
$
|
4,218
|
|
|
$
|
13,873
|
|
|
$
|
2,894
|
|
|
|
30,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(581
|
)
|
Receivable for partially charged-off loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,236
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Education Loans, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in forbearance as a percentage of loans in repayment and forbearance
|
|
|
17.8
|
%
|
|
|
5.6
|
%
|
|
|
3.5
|
%
|
|
|
2.9
|
%
|
|
|
1.4
|
%
|
|
|
|
%
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in repayment delinquent greater than 90 days as a percentage of loans in repayment
|
|
|
13.3
|
%
|
|
|
7.0
|
%
|
|
|
4.3
|
%
|
|
|
3.1
|
%
|
|
|
1.5
|
%
|
|
|
|
%
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs as a percentage of loans in repayment
|
|
|
15.2
|
%
|
|
|
5.0
|
%
|
|
|
2.7
|
%
|
|
|
1.9
|
%
|
|
|
.9
|
%
|
|
|
|
%
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
Private Education Loan Repayment Options
Certain loan programs allow customers to select from a variety of repayment options depending on their loan type and their
enrollment/loan status, which include the ability to extend their repayment term or change their monthly payment. The chart below provides the optional repayment offerings in addition to the standard level principal and interest payments as of
March 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Program
|
|
(Dollars in millions)
|
|
Signature and Other
|
|
Smart
Option
|
|
Career Training
|
|
Total
|
|
$ in repayment
|
|
$19,129
|
|
$3,920
|
|
$737
|
|
$
|
23,786
|
|
$ in total
|
|
$21,535
|
|
$4,330
|
|
$764
|
|
$
|
26,629
|
|
Payment method by enrollment status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-school/grace
|
|
Deferred
(1)
|
|
Deferred
(1)
,
interest-only or fixed
$25/month
|
|
Interest-only or fixed
$25/month
|
|
|
|
|
|
|
|
|
|
Repayment
|
|
Level principal and interest or graduated
|
|
Level principal and
interest
|
|
Level principal and
interest
|
|
|
|
|
(1)
|
Deferred includes loans for which no payments are required and interest charges are capitalized into the loan balance.
|
The graduated repayment program that is part of Signature and Other Loans includes an interest-only payment
feature that may be selected at the option of the customer. Customers elect to participate in this program at the time they enter repayment following their grace period. This program is available to customers in repayment, after their grace period,
who would like a temporary lower payment from the required principal and interest payment amount. Customers participating in this program pay monthly interest with no amortization of their principal balance for up to 48 payments after entering
repayment (dependent on the loan product type). The maturity date of the loan is not extended when a customer participates in this program. On a Core Earnings basis, as of March 31, 2016 and 2015, customers in repayment owing
approximately $1.5 billion (6 percent of loans in repayment) and $2.9 billion (11 percent of loans in repayment), respectively, were enrolled in the interest-only program.
Liquidity and Capital Resources
Funding and Liquidity Risk
Management
The following Liquidity and Capital Resources discussion concentrates on our FFELP Loans and
Private Education Loans segments. Our Business Services and Other segments require minimal capital and funding.
We define
liquidity as cash and high-quality liquid assets that we can use to meet our cash requirements. Our two primary liquidity needs are: (1) servicing our debt and (2) our ongoing ability to meet our cash needs for running the operations of
our businesses (including derivative collateral requirements) throughout market cycles, including during periods of financial stress. Secondary liquidity needs, which can be adjusted as needed, include acquisitions of Private Education Loan and
FFELP Loan portfolios, acquisitions of companies, the payment of common stock dividends and the repurchase of common stock under common share repurchase programs. To achieve these objectives, we analyze and monitor our liquidity needs, maintain
excess liquidity and access diverse funding sources including the issuance of unsecured debt and the issuance of secured debt primarily through asset-backed securitizations and/or other financing facilities.
We define liquidity risk as the potential inability to meet our obligations when they become due without incurring unacceptable losses or
invest in future asset growth and business operations at reasonable market rates. Our primary liquidity risk relates to our ability to service our debt, meet our other business obligations and to
69
continue to grow our business. The ability to access the capital markets is impacted by general market and economic conditions, our credit ratings, as well as the overall availability of funding
sources in the marketplace. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter derivatives.
Credit ratings and outlooks are opinions subject to ongoing review by the ratings agencies and may change, from time to time, based on
our financial performance, industry and market dynamics and other factors. Other factors that influence our credit ratings include the ratings agencies assessment of the general operating environment, our relative positions in the markets in
which we compete, reputation, liquidity position, the level and volatility of earnings, corporate governance and risk management policies, capital position and capital management practices. A negative change in our credit rating could have a
negative effect on our liquidity because it might raise the cost and availability of funding and potentially require additional cash collateral or restrict cash currently held as collateral on existing borrowings or derivative collateral
arrangements. It is our objective to improve our credit ratings so that we can continue to efficiently access the capital markets even in difficult economic and market conditions.
We have unsecured debt that totaled $14.1 billion at March 31, 2016. Three credit rating agencies currently rate our long-term
unsecured debt at below investment grade. From May 1, 2014 (Spin-Off) to March 31, 2016, we issued $1.5 billion of unsecured debt at an average all-in cost of one-month LIBOR plus 3.88 percent and an average term to maturity of 7.3 years.
Recent market conditions and other factors have adversely impacted the cost and availability of new unsecured debt financing.
In June 2015, Moodys and Fitch placed $34 billion of non-recourse FFELP ABS sponsored by our affiliates on credit watch due to
concerns that trust cash flows may not be sufficient to pay all bonds by the legal final maturity date. As of March 31, 2016, there was a total of $53 billion of FFELP ABS sponsored by our affiliates on credit watch by either Moodys or
Fitch. The credit watch actions have created dislocation in the FFELP ABS market, which has impacted the cost and availability of FFELP ABS financing. Navient issued a FFELP ABS in both March and April 2016, our first issuances since June 2015. In
the first-quarter 2016, Navient extended the legal final maturity dates for Navient-sponsored FFELP securitizations totaling $2.2 billion of bonds. Since quarter end, Navient has extended an additional $1.6 billion of bonds through
April 27, 2016. In total, Navient has extended the legal final maturity dates for $4.9 billion of bonds. The amendments were made at the request of investors in these trusts.
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, investments and unencumbered FFELP Loan portfolio, the predictable operating cash flows provided by operating activities ($360 million in the three months ended March 31, 2016), the repayment
of principal on unencumbered education loan assets, and the distribution of overcollateralization from our securitization trusts. We may also draw down on our secured FFELP Loan and Private Education Loan facilities, issue term 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 may purchase Private Education Loan and FFELP Loan portfolios from third parties.
Sources of Liquidity and Available Capacity
Ending Balances
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Sources of primary liquidity:
|
|
|
|
|
|
|
|
|
Total unrestricted cash and liquid investments
|
|
$
|
1,173
|
|
|
$
|
1,598
|
|
Unencumbered FFELP Loans
|
|
|
736
|
|
|
|
1,005
|
|
|
|
|
|
|
|
|
|
|
Total GAAP and Core Earnings basis
|
|
$
|
1,909
|
|
|
$
|
2,603
|
|
|
|
|
|
|
|
|
|
|
70
Average Balances
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
Sources of primary liquidity:
|
|
|
|
|
|
|
|
|
Total unrestricted cash and liquid investments
|
|
$
|
1,186
|
|
|
$
|
1,817
|
|
Unencumbered FFELP Loans
|
|
|
1,108
|
|
|
|
2,032
|
|
|
|
|
|
|
|
|
|
|
Total GAAP and Core Earnings basis
|
|
$
|
2,294
|
|
|
$
|
3,849
|
|
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 agreements borrowing conditions, including, among others, facility size, current usage and availability
of qualifying collateral from unencumbered FFELP Loans. As of March 31, 2016 and 2015, the maximum additional capacity under these facilities was $1.2 billion and $12.5 billion, respectively. For the three months ended March 31, 2016 and
2015, the average maximum additional capacity under these facilities was $1.9 billion and $12.9 billion, respectively. The $11.3 billion reduction in the maximum additional capacity between March 31, 2015 and March 31, 2016 primarily
related to a $7.1 billion reduction in the availability under the facility with the Federal Home Loan Bank of Des Moines (FHLB). As previously disclosed, we received notice from FHLB that availability under the facility would be reduced
and will mature in the first quarter of 2021. Both of these actions were taken by the FHLB in relation to the publication in January 2016 of new rules by the Federal Home Finance Agency, the primary regulator of the FHLB, governing eligibility of,
and borrowing capacity for, certain insurance companies who are existing members of the Federal Home Loan Bank system. As of March 31, 2016, the maximum capacity and the amount outstanding under this facility was $3.6 billion and we do not
expect to borrow more than this amount in the future.
In addition to the FFELP Loan other facilities,
liquidity may also be available from our Private Education Loan asset-backed commercial paper (ABCP) facility. 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 March 31, 2016, the available capacity under this facility was $630 million. Borrowing under this facility
will vary and is subject to the availability of qualifying collateral from unencumbered Private Education Loans.
At
March 31, 2016, we had a total of $7.7 billion of unencumbered tangible assets inclusive of those listed in the table above as sources of primary liquidity. Total unencumbered education loans comprised $3.8 billion of our unencumbered tangible
assets of which $3.1 billion and $0.7 billion related to Private Education Loans and FFELP Loans, respectively. In addition, as of March 31, 2016, we had $11.3 billion of encumbered net assets (i.e., overcollateralization) in our various
financing facilities (consolidated variable interest entities). In fourth-quarter 2015, we closed on a $550 million Private Education Loan ABS repurchase facility (Repurchase Facility). On April 15, 2016, the Company completed a
second Private Education Loan ABS repurchase agreement, resulting in the issuance of $478 million collateralized by Residual Interests in three previously issued Private Education Loan ABS trusts. These are examples 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 2015 Form 10-K.
71
The following table reconciles encumbered and unencumbered assets and their net impact on
GAAP total tangible equity.
|
|
|
|
|
|
|
|
|
(Dollars in billions)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Net assets of consolidated variable interest entities (encumbered assets) FFELP Loans
|
|
$
|
4.9
|
|
|
$
|
5.0
|
|
Net assets of consolidated variable interest entities (encumbered assets) Private Education Loans
|
|
|
6.4
|
|
|
|
6.3
|
|
Tangible unencumbered assets
(1)
|
|
|
7.7
|
|
|
|
8.8
|
|
Senior unsecured debt
|
|
|
(14.1
|
)
|
|
|
(15.1
|
)
|
Mark-to-market on unsecured hedged debt
(2)
|
|
|
(1.0
|
)
|
|
|
(.7
|
)
|
Other liabilities, net
|
|
|
(.8
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
Total tangible equity GAAP Basis
|
|
$
|
3.1
|
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes goodwill and acquired intangible assets.
|
|
(2)
|
At March 31, 2016 and December 31, 2015, there were $913 million and $670 million, respectively, of net gains on derivatives hedging this
debt in unencumbered assets, which partially offset these losses.
|
First-Quarter 2016 Financing
Transactions
During the first-quarter 2016, Navient issued $1.1 billion in FFELP asset-backed securities (ABS) and $488
million in Private Education Loan ABS.
In the first-quarter 2016, Navient increased and extended its FFELP ABCP facility with
seven global financial institutions. The facilitys maturity date was extended to March 2018 from March 2017 and its maximum financing amount, which was originally scheduled to step down to $7 billion in March 2016, was increased to $7.5
billion with a step down to $6.75 billion in March 2017. This facility provides liquidity for refinancing and acquisitions of FFELP loans.
Shareholder Distributions
In March 2016, we paid a common stock dividend
of $0.16 per share.
We repurchased 19.2 million shares of common stock for $200 million in the first quarter of 2016.
The shares were repurchased under our previously disclosed share repurchase programs. As of March 31, 2016, the remaining repurchase authority was $555 million. In the first quarter of 2015, we repurchased 14.7 million shares for $300
million. Since the Spin-Off, we repurchased 97.3 million shares.
Recent Second-Quarter 2016 Transactions
In April 2016, we issued $497 million in FFELP Loan ABS and completed a second Private Education Loan ABS repurchase
agreement, resulting in the issuance of $478 million collateralized by Residual Interests in three previously issued Private Education Loan ABS trusts.
Counterparty Exposure
Counterparty exposure related to financial
instruments arises from the risk that a lending, investment or derivative counterparty will not be able to meet its obligations to us. Risks associated with our lending portfolio are discussed in the section titled Financial Condition
FFELP Loan Portfolio Performance and Private Education Loan Portfolio Performance.
72
Our investment portfolio is composed of very short-term securities issued by a diversified
group of highly rated issuers, limiting our counterparty exposure. Additionally, our investing activity is governed by board of director approved limits on the amount that is allowed to be invested with any one issuer based on the credit rating of
the issuer, further minimizing our counterparty exposure. Counterparty credit risk is considered when valuing investments and considering impairment.
Related to derivative transactions, protection against counterparty risk is generally provided by International Swaps and Derivatives Association, Inc. (ISDA) Credit Support Annexes
(CSAs). CSAs require a counterparty to post collateral if a potential default would expose the other party to a loss. All corporate derivative contracts entered into by Navient are covered under such agreements and require collateral to
be exchanged based on the net fair value of derivatives with each counterparty. Our securitization trusts require collateral in all cases if the counterpartys credit rating is withdrawn or downgraded below a certain level. Additionally,
securitizations involving foreign currency notes issued after November 2005 also require the counterparty to post collateral to the trust based on the fair value of the derivative, regardless of credit rating. The trusts are not required to post
collateral to the counterparties. In all cases, our exposure is limited to the value of the derivative contracts in a gain position net of any collateral we are holding. We consider counterparties credit risk when determining the fair value of
derivative positions on our exposure net of collateral.
We have liquidity exposure related to collateral movements between us
and our derivative counterparties. Movements in the value of the derivatives, which are primarily affected by changes in interest rate and foreign exchange rates, may require us to return cash collateral held or may require us to access primary
liquidity to post collateral to counterparties. See Note 7 Derivative Financial Instruments in our 2015 Form 10-K for more information on the amount of cash that has been received and delivered to derivative counterparties.
The table below highlights exposure related to our derivative counterparties at March 31, 2016.
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Corporate
Contracts
|
|
|
Securitization Trust
Contracts
|
|
Exposure, net of collateral
|
|
$
|
93
|
|
|
$
|
36
|
|
Percent of exposure to counterparties with credit ratings below S&P AA- or Moodys Aa3
|
|
|
71
|
%
|
|
|
13
|
%
|
Percent of exposure to counterparties with credit ratings below S&P A- or Moodys A3
|
|
|
21
|
%
|
|
|
0
|
%
|
Core Earnings Basis Borrowings
The following tables present the ending balances of our Core Earnings basis borrowings at March 31, 2016 and
December 31, 2015, and average balances and average interest rates of our Core Earnings basis borrowings for the three months ended March 31, 2016 and 2015. The average interest rates include derivatives that are economically
hedging the underlying debt but do not qualify for hedge accounting treatment. (See Core Earnings Definition and Limitations Differences between Core Earnings and GAAP
Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities of this Item 2.)
73
Ending Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
(Dollars in millions)
|
|
Short
Term
|
|
|
Long
Term
|
|
|
Total
|
|
|
Short
Term
|
|
|
Long
Term
|
|
|
Total
|
|
Unsecured borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured debt
|
|
$
|
1,137
|
|
|
$
|
12,987
|
|
|
$
|
14,124
|
|
|
$
|
1,120
|
|
|
$
|
13,976
|
|
|
$
|
15,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unsecured borrowings
|
|
|
1,137
|
|
|
|
12,987
|
|
|
|
14,124
|
|
|
|
1,120
|
|
|
|
13,976
|
|
|
|
15,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loan securitizations
|
|
|
|
|
|
|
76,411
|
|
|
|
76,411
|
|
|
|
|
|
|
|
77,764
|
|
|
|
77,764
|
|
Private Education Loan
securitizations
(1)
|
|
|
|
|
|
|
16,557
|
|
|
|
16,557
|
|
|
|
|
|
|
|
16,900
|
|
|
|
16,900
|
|
FFELP Loan other facilities
|
|
|
|
|
|
|
16,446
|
|
|
|
16,446
|
|
|
|
|
|
|
|
16,276
|
|
|
|
16,276
|
|
Private Education Loan other facilities
|
|
|
369
|
|
|
|
|
|
|
|
369
|
|
|
|
710
|
|
|
|
|
|
|
|
710
|
|
Other
(2)
|
|
|
877
|
|
|
|
|
|
|
|
877
|
|
|
|
760
|
|
|
|
|
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total secured borrowings
|
|
|
1,246
|
|
|
|
109,414
|
|
|
|
110,660
|
|
|
|
1,470
|
|
|
|
110,940
|
|
|
|
112,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings basis borrowings
|
|
|
2,383
|
|
|
|
122,401
|
|
|
|
124,784
|
|
|
|
2,590
|
|
|
|
124,916
|
|
|
|
127,506
|
|
Adjustment for GAAP accounting treatment
|
|
|
(20
|
)
|
|
|
519
|
|
|
|
499
|
|
|
|
(20
|
)
|
|
|
(83
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP basis borrowings
|
|
$
|
2,363
|
|
|
$
|
122,920
|
|
|
$
|
125,283
|
|
|
$
|
2,570
|
|
|
$
|
124,833
|
|
|
$
|
127,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes $546 million of long-term debt related to the Private Education Loan asset-backed securitization repurchase facility (Repurchase
Facility) as of both March 31, 2016 and December 31, 2015.
|
(2)
|
Other primarily consists of the obligation to return cash collateral held related to derivative exposure.
|
Secured borrowings comprised 89 percent and 88 percent of our Core Earnings basis debt outstanding at March 31, 2016 and
December 31, 2015, respectively.
Average Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
(Dollars in millions)
|
|
Average
Balance
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Average
Rate
|
|
Unsecured borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured debt
|
|
$
|
14,392
|
|
|
|
4.29
|
%
|
|
$
|
17,177
|
|
|
|
3.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unsecured borrowings
|
|
|
14,392
|
|
|
|
4.29
|
|
|
|
17,177
|
|
|
|
3.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loan securitizations
|
|
|
76,735
|
|
|
|
1.33
|
|
|
|
85,225
|
|
|
|
.99
|
|
Private Education Loan securitizations
(1)
|
|
|
16,668
|
|
|
|
2.43
|
|
|
|
18,164
|
|
|
|
2.12
|
|
FFELP Loan other facilities
|
|
|
16,341
|
|
|
|
1.10
|
|
|
|
15,269
|
|
|
|
.88
|
|
Private Education Loan other facilities
|
|
|
484
|
|
|
|
2.25
|
|
|
|
645
|
|
|
|
1.96
|
|
Other
(2)
|
|
|
920
|
|
|
|
.86
|
|
|
|
1,008
|
|
|
|
.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total secured borrowings
|
|
|
111,148
|
|
|
|
1.46
|
|
|
|
120,311
|
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings basis borrowings
|
|
$
|
125,540
|
|
|
|
1.78
|
%
|
|
$
|
137,488
|
|
|
|
1.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings basis borrowings
|
|
$
|
125,540
|
|
|
|
1.78
|
%
|
|
$
|
137,488
|
|
|
|
1.49
|
%
|
Adjustment for GAAP accounting treatment
|
|
|
|
|
|
|
.03
|
|
|
|
|
|
|
|
.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP basis borrowings
|
|
$
|
125,540
|
|
|
|
1.81
|
%
|
|
$
|
137,488
|
|
|
|
1.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes $546 million and $0 of long-term debt related to the Private Education Loan asset-backed securitization repurchase facility (Repurchase
Facility) for the three months ended March 31, 2016 and 2015, respectively.
|
(2)
|
Other primarily consists of the obligation to return cash collateral held related to derivative exposure.
|
74
Critical Accounting Policies and Estimates
Managements Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial
statements, which have been prepared in accordance with GAAP. A discussion of our critical accounting policies, which include allowance for loan losses, premium and discount amortization related to our loan portfolio, fair value measurement,
transfers of financial assets and the VIE consolidation model, and derivative accounting can be found in our 2015 Form 10-K. There were no significant changes to these critical accounting policies during the first three months of 2016.