NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 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 and six months ended June 30, 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 and six months ended June 30, 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 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.
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 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.
9
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
1.
|
Significant Accounting Policies (Continued)
|
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 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.
Allowance for Loan Losses
On June 16, 2016, the FASB issued ASU
No. 2016-13, Financial Instruments Credit Losses, which requires measurement and recognition of an allowance for loan loss that estimates remaining expected credit losses for financial assets held at the reporting
date. Our current allowance for loan loss is an incurred loss model (see Note 2 Significant Accounting Policies in our 2015 Form 10-K for further discussion of our current policy). The standard is to be applied through a
cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard update is effective for the Company on January 1, 2020, and will primarily impact the allowance
for loan losses related to our Private Education Loans and FFELP Loans. Early adoption is permitted on January 1, 2019 for the Company. We are currently evaluating the impact of adopting this update on our consolidated financial statements and
footnote disclosures.
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.
10
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
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.
Allowance for Loan Losses Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
(Dollars in millions)
|
|
FFELP Loans
|
|
|
Private Education
Loans
|
|
|
Other
Loans
|
|
|
Total
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
70
|
|
|
$
|
1,434
|
|
|
$
|
15
|
|
|
$
|
1,519
|
|
Total provision
|
|
|
10
|
|
|
|
100
|
|
|
|
|
|
|
|
110
|
|
Charge-offs
(1)
|
|
|
(18
|
)
|
|
|
(127
|
)
|
|
|
|
|
|
|
(145
|
)
|
Reclassification of interest reserve
(2)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
62
|
|
|
$
|
1,410
|
|
|
$
|
15
|
|
|
$
|
1,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
1,163
|
|
|
$
|
11
|
|
|
$
|
1,174
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
62
|
|
|
$
|
247
|
|
|
$
|
4
|
|
|
$
|
313
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
(3)
|
|
$
|
|
|
|
$
|
11,162
|
|
|
$
|
33
|
|
|
$
|
11,195
|
|
Ending balance: collectively evaluated for impairment
(3)
|
|
$
|
91,719
|
|
|
$
|
15,478
|
|
|
$
|
47
|
|
|
$
|
107,244
|
|
Charge-offs as a percentage of average loans in repayment (annualized)
|
|
|
.10
|
%
|
|
|
2.17
|
%
|
|
|
1.32
|
%
|
|
|
|
|
Allowance coverage of charge-offs (annualized)
|
|
|
.9
|
|
|
|
2.8
|
|
|
|
13.5
|
|
|
|
|
|
Allowance as a percentage of the ending total loan balance
|
|
|
.07
|
%
|
|
|
5.29
|
%
|
|
|
18.18
|
%
|
|
|
|
|
Allowance as a percentage of the ending loans in repayment
|
|
|
.09
|
%
|
|
|
6.06
|
%
|
|
|
18.18
|
%
|
|
|
|
|
Ending total loans
(3)
|
|
$
|
91,719
|
|
|
$
|
26,640
|
|
|
$
|
80
|
|
|
|
|
|
Average loans in repayment
|
|
$
|
72,973
|
|
|
$
|
23,561
|
|
|
$
|
82
|
|
|
|
|
|
Ending loans in repayment
|
|
$
|
72,058
|
|
|
$
|
23,265
|
|
|
$
|
80
|
|
|
|
|
|
|
(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.
|
11
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015
|
|
(Dollars in millions)
|
|
FFELP Loans
|
|
|
Private Education
Loans
|
|
|
Other
Loans
|
|
|
Total
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
91
|
|
|
$
|
1,849
|
|
|
$
|
23
|
|
|
$
|
1,963
|
|
Total provision
|
|
|
7
|
|
|
|
191
|
|
|
|
|
|
|
|
198
|
|
Net adjustment resulting from the change in the charge-off rate
(1)
|
|
|
|
|
|
|
(330
|
)
|
|
|
|
|
|
|
(330
|
)
|
Net charge-offs remaining
(2)
|
|
|
(9
|
)
|
|
|
(179
|
)
|
|
|
(2
|
)
|
|
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs
|
|
|
(9
|
)
|
|
|
(509
|
)
|
|
|
(2
|
)
|
|
|
(520
|
)
|
Reclassification of interest reserve
(3)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
89
|
|
|
$
|
1,533
|
|
|
$
|
21
|
|
|
$
|
1,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
1,257
|
|
|
$
|
17
|
|
|
$
|
1,274
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
89
|
|
|
$
|
276
|
|
|
$
|
4
|
|
|
$
|
369
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
(4)
|
|
$
|
|
|
|
$
|
10,769
|
|
|
$
|
41
|
|
|
$
|
10,810
|
|
Ending balance: collectively evaluated for impairment
(4)
|
|
$
|
99,207
|
|
|
$
|
19,435
|
|
|
$
|
55
|
|
|
$
|
118,697
|
|
Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in the
charge-off rate (annualized)
(1)
|
|
|
.05
|
%
|
|
|
2.74
|
%
|
|
|
8.68
|
%
|
|
|
|
|
Net adjustment resulting from the change in the charge-off rate as a percentage of average loans in repayment (annualized)
(1)
|
|
|
|
%
|
|
|
5.07
|
%
|
|
|
|
%
|
|
|
|
|
Allowance coverage of net charge-offs, excluding the net adjustment resulting from the change in the charge-off rate
(annualized)
(1)
|
|
|
2.3
|
|
|
|
2.1
|
|
|
|
2.4
|
|
|
|
|
|
Allowance as a percentage of the ending total loan balance
|
|
|
.09
|
%
|
|
|
5.08
|
%
|
|
|
21.50
|
%
|
|
|
|
|
Allowance as a percentage of the ending loans in repayment
|
|
|
.12
|
%
|
|
|
5.93
|
%
|
|
|
21.50
|
%
|
|
|
|
|
Ending total loans
(4)
|
|
$
|
99,207
|
|
|
$
|
30,204
|
|
|
$
|
96
|
|
|
|
|
|
Average loans in repayment
|
|
$
|
76,325
|
|
|
$
|
26,122
|
|
|
$
|
101
|
|
|
|
|
|
Ending loans in repayment
|
|
$
|
75,244
|
|
|
$
|
25,865
|
|
|
$
|
96
|
|
|
|
|
|
|
(1)
|
In the second quarter of 2015, the portion of the loan amount charged off at default on Private Education Loans increased from 73 percent to 79
percent. This did not impact the provision for loan losses as previously this had been reserved through the allowance for loan losses. This change resulted in a $330 million reduction to the balance of the receivable for partially charged-off loans.
|
|
(2)
|
Charge-offs are reported net of expected recoveries. 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.
|
|
(3)
|
Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period
to the allowance for loan losses when interest is capitalized to a loans principal balance.
|
|
(4)
|
Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.
|
12
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 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
|
|
|
17
|
|
|
|
204
|
|
|
|
|
|
|
|
221
|
|
Charge-offs
(1)
|
|
|
(33
|
)
|
|
|
(271
|
)
|
|
|
|
|
|
|
(304
|
)
|
Reclassification of interest reserve
(2)
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
62
|
|
|
$
|
1,410
|
|
|
$
|
15
|
|
|
$
|
1,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
1,163
|
|
|
$
|
11
|
|
|
$
|
1,174
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
62
|
|
|
$
|
247
|
|
|
$
|
4
|
|
|
$
|
313
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
(3)
|
|
$
|
|
|
|
$
|
11,162
|
|
|
$
|
33
|
|
|
$
|
11,195
|
|
Ending balance: collectively evaluated for impairment
(3)
|
|
$
|
91,719
|
|
|
$
|
15,478
|
|
|
$
|
47
|
|
|
$
|
107,244
|
|
Charge-offs as a percentage of average loans in repayment (annualized)
|
|
|
.09
|
%
|
|
|
2.28
|
%
|
|
|
1.69
|
%
|
|
|
|
|
Allowance coverage of charge-offs (annualized)
|
|
|
1.0
|
|
|
|
2.6
|
|
|
|
10.4
|
|
|
|
|
|
Allowance as a percentage of the ending total loan balance
|
|
|
.07
|
%
|
|
|
5.29
|
%
|
|
|
18.18
|
%
|
|
|
|
|
Allowance as a percentage of the ending loans in repayment
|
|
|
.09
|
%
|
|
|
6.06
|
%
|
|
|
18.18
|
%
|
|
|
|
|
Ending total loans
(3)
|
|
$
|
91,719
|
|
|
$
|
26,640
|
|
|
$
|
80
|
|
|
|
|
|
Average loans in repayment
|
|
$
|
73,331
|
|
|
$
|
23,871
|
|
|
$
|
83
|
|
|
|
|
|
Ending loans in repayment
|
|
$
|
72,058
|
|
|
$
|
23,265
|
|
|
$
|
80
|
|
|
|
|
|
|
(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.
|
13
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 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
|
|
|
12
|
|
|
|
311
|
|
|
|
|
|
|
|
323
|
|
Net adjustment resulting from the change in the charge-off rate
(1)
|
|
|
|
|
|
|
(330
|
)
|
|
|
|
|
|
|
(330
|
)
|
Net charge-offs remaining
(2)
|
|
|
(16
|
)
|
|
|
(369
|
)
|
|
|
(3
|
)
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs
|
|
|
(16
|
)
|
|
|
(699
|
)
|
|
|
(3
|
)
|
|
|
(718
|
)
|
Reclassification of interest reserve
(3)
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
89
|
|
|
$
|
1,533
|
|
|
$
|
21
|
|
|
$
|
1,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
1,257
|
|
|
$
|
17
|
|
|
$
|
1,274
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
89
|
|
|
$
|
276
|
|
|
$
|
4
|
|
|
$
|
369
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
(4)
|
|
$
|
|
|
|
$
|
10,769
|
|
|
$
|
41
|
|
|
$
|
10,810
|
|
Ending balance: collectively evaluated for impairment
(4)
|
|
$
|
99,207
|
|
|
$
|
19,435
|
|
|
$
|
55
|
|
|
$
|
118,697
|
|
Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in the
charge-off rate (annualized)
(1)
|
|
|
.04
|
%
|
|
|
2.82
|
%
|
|
|
6.01
|
%
|
|
|
|
|
Net adjustment resulting from the change in the charge-off rate as a percentage of average loans in repayment (annualized)
(1)
|
|
|
|
%
|
|
|
2.53
|
%
|
|
|
|
%
|
|
|
|
|
Allowance coverage of net charge-offs, excluding the net adjustment resulting from the change in the charge-off rate
(annualized)
(1)
|
|
|
2.8
|
|
|
|
2.1
|
|
|
|
3.3
|
|
|
|
|
|
Allowance as a percentage of the ending total loan balance
|
|
|
.09
|
%
|
|
|
5.08
|
%
|
|
|
21.50
|
%
|
|
|
|
|
Allowance as a percentage of the ending loans in repayment
|
|
|
.12
|
%
|
|
|
5.93
|
%
|
|
|
21.50
|
%
|
|
|
|
|
Ending total loans
(4)
|
|
$
|
99,207
|
|
|
$
|
30,204
|
|
|
$
|
96
|
|
|
|
|
|
Average loans in repayment
|
|
$
|
76,896
|
|
|
$
|
26,382
|
|
|
$
|
103
|
|
|
|
|
|
Ending loans in repayment
|
|
$
|
75,244
|
|
|
$
|
25,865
|
|
|
$
|
96
|
|
|
|
|
|
|
(1)
|
In the second quarter of 2015, the portion of the loan amount charged off at default on Private Education Loans increased from 73 percent to 79
percent. This did not impact the provision for loan losses as previously this had been reserved through the allowance for loan losses. This change resulted in a $330 million reduction to the balance of the receivable for partially charged-off loans.
|
|
(2)
|
Charge-offs are reported net of expected recoveries. 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.
|
|
(3)
|
Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period
to the allowance for loan losses when interest is capitalized to a loans principal balance.
|
|
(4)
|
Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.
|
14
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
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.
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
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
(Dollars in millions)
|
|
Balance
(3)
|
|
|
% of Balance
|
|
|
Balance
(3)
|
|
|
% of Balance
|
|
Credit Quality Indicators
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
School Type/FICO Scores:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
|
|
$
|
23,697
|
|
|
|
92
|
%
|
|
$
|
25,280
|
|
|
|
92
|
%
|
Non-Traditional
(1)
|
|
|
2,096
|
|
|
|
8
|
|
|
|
2,235
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,793
|
|
|
|
100
|
%
|
|
$
|
27,515
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cosigners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With cosigner
|
|
$
|
16,621
|
|
|
|
64
|
%
|
|
$
|
17,738
|
|
|
|
64
|
%
|
Without cosigner
|
|
|
9,172
|
|
|
|
36
|
|
|
|
9,777
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,793
|
|
|
|
100
|
%
|
|
$
|
27,515
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seasoning
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-12 payments
|
|
$
|
1,448
|
|
|
|
6
|
%
|
|
$
|
1,776
|
|
|
|
7
|
%
|
13-24 payments
|
|
|
1,596
|
|
|
|
6
|
|
|
|
1,977
|
|
|
|
7
|
|
25-36 payments
|
|
|
2,486
|
|
|
|
10
|
|
|
|
2,982
|
|
|
|
11
|
|
37-48 payments
|
|
|
3,431
|
|
|
|
13
|
|
|
|
3,787
|
|
|
|
14
|
|
More than 48 payments
|
|
|
15,196
|
|
|
|
59
|
|
|
|
14,953
|
|
|
|
54
|
|
Not yet in repayment
|
|
|
1,636
|
|
|
|
6
|
|
|
|
2,040
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,793
|
|
|
|
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.
|
15
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (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
|
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
Loans in-school/grace/deferment
(1)
|
|
$
|
7,149
|
|
|
|
|
|
|
$
|
8,257
|
|
|
|
|
|
Loans in forbearance
(2)
|
|
|
12,512
|
|
|
|
|
|
|
|
13,298
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
62,581
|
|
|
|
86.8
|
%
|
|
|
62,651
|
|
|
|
84.7
|
%
|
Loans delinquent 31-60 days
(3)
|
|
|
2,668
|
|
|
|
3.7
|
|
|
|
3,285
|
|
|
|
4.5
|
|
Loans delinquent 61-90 days
(3)
|
|
|
1,605
|
|
|
|
2.3
|
|
|
|
1,856
|
|
|
|
2.5
|
|
Loans delinquent greater than 90 days
(3)
|
|
|
5,204
|
|
|
|
7.2
|
|
|
|
6,142
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP Loans in repayment
|
|
|
72,058
|
|
|
|
100
|
%
|
|
|
73,934
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP Loans, gross
|
|
|
91,719
|
|
|
|
|
|
|
|
95,489
|
|
|
|
|
|
FFELP Loan unamortized premium
|
|
|
961
|
|
|
|
|
|
|
|
1,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFELP Loans
|
|
|
92,680
|
|
|
|
|
|
|
|
96,576
|
|
|
|
|
|
|
|
|
|
|
FFELP Loan allowance for losses
|
|
|
(62
|
)
|
|
|
|
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loans, net
|
|
$
|
92,618
|
|
|
|
|
|
|
$
|
96,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of FFELP Loans in repayment
|
|
|
|
|
|
|
78.6
|
%
|
|
|
|
|
|
|
77.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of FFELP Loans in repayment
|
|
|
|
|
|
|
13.2
|
%
|
|
|
|
|
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loans in forbearance as a percentage of loans in repayment and forbearance
|
|
|
|
|
|
|
14.8
|
%
|
|
|
|
|
|
|
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.
|
16
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional Private Education Loan
Delinquencies
|
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
Loans in-school/grace/deferment
(1)
|
|
$
|
1,489
|
|
|
|
|
|
|
$
|
1,859
|
|
|
|
|
|
Loans in forbearance
(2)
|
|
|
792
|
|
|
|
|
|
|
|
863
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
20,225
|
|
|
|
94.4
|
%
|
|
|
21,085
|
|
|
|
93.5
|
%
|
Loans delinquent 31-60 days
(3)
|
|
|
401
|
|
|
|
1.9
|
|
|
|
491
|
|
|
|
2.2
|
|
Loans delinquent 61-90 days
(3)
|
|
|
242
|
|
|
|
1.1
|
|
|
|
292
|
|
|
|
1.3
|
|
Loans delinquent greater than 90 days
(3)
|
|
|
548
|
|
|
|
2.6
|
|
|
|
690
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total traditional loans in repayment
|
|
|
21,416
|
|
|
|
100
|
%
|
|
|
22,558
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total traditional loans, gross
|
|
|
23,697
|
|
|
|
|
|
|
|
25,280
|
|
|
|
|
|
Traditional loans unamortized discount
|
|
|
(431
|
)
|
|
|
|
|
|
|
(470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total traditional loans
|
|
|
23,266
|
|
|
|
|
|
|
|
24,810
|
|
|
|
|
|
Traditional loans receivable for partially charged-off loans
|
|
|
541
|
|
|
|
|
|
|
|
560
|
|
|
|
|
|
Traditional loans allowance for losses
|
|
|
(1,186
|
)
|
|
|
|
|
|
|
(1,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional loans, net
|
|
$
|
22,621
|
|
|
|
|
|
|
$
|
24,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of traditional loans in repayment
|
|
|
|
|
|
|
90.4
|
%
|
|
|
|
|
|
|
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.
|
17
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Traditional Private Education
Loan Delinquencies
|
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
Loans in-school/grace/deferment
(1)
|
|
$
|
147
|
|
|
|
|
|
|
$
|
181
|
|
|
|
|
|
Loans in forbearance
(2)
|
|
|
100
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
1,618
|
|
|
|
87.5
|
%
|
|
|
1,646
|
|
|
|
84.7
|
%
|
Loans delinquent 31-60 days
(3)
|
|
|
66
|
|
|
|
3.6
|
|
|
|
86
|
|
|
|
4.4
|
|
Loans delinquent 61-90 days
(3)
|
|
|
45
|
|
|
|
2.4
|
|
|
|
56
|
|
|
|
2.9
|
|
Loans delinquent greater than 90 days
(3)
|
|
|
120
|
|
|
|
6.5
|
|
|
|
156
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-traditional loans in repayment
|
|
|
1,849
|
|
|
|
100
|
%
|
|
|
1,944
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-traditional loans, gross
|
|
|
2,096
|
|
|
|
|
|
|
|
2,235
|
|
|
|
|
|
Non-traditional loans unamortized discount
|
|
|
(58
|
)
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-traditional loans
|
|
|
2,038
|
|
|
|
|
|
|
|
2,174
|
|
|
|
|
|
Non-traditional loans receivable for partially charged-off loans
|
|
|
306
|
|
|
|
|
|
|
|
321
|
|
|
|
|
|
Non-traditional loans allowance for losses
|
|
|
(224
|
)
|
|
|
|
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-traditional loans, net
|
|
$
|
2,120
|
|
|
|
|
|
|
$
|
2,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of non-traditional loans in repayment
|
|
|
|
|
|
|
88.2
|
%
|
|
|
|
|
|
|
87.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies as a percentage of non-traditional loans in repayment
|
|
|
|
|
|
|
12.5
|
%
|
|
|
|
|
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in forbearance as a percentage of loans in repayment and forbearance
|
|
|
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
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
18
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
portion of the loan amount charged off at default increased from 73 percent to 79 percent. This did not impact the provision for loan losses as previously this had been reserved through the
allowance for loan losses. This change resulted in a $330 million reduction to the balance of the receivable for partially charged-off loans. We no longer expect to have significant periodic recovery shortfalls as a result of this change; however,
it is possible we may continue to experience such shortfalls.
The following table summarizes the activity in the receivable
for partially charged-off Private Education Loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Receivable at beginning of period
|
|
$
|
867
|
|
|
$
|
1,236
|
|
|
$
|
881
|
|
|
$
|
1,245
|
|
Expected future recoveries of current period defaults
(1)
|
|
|
32
|
|
|
|
46
|
|
|
|
68
|
|
|
|
108
|
|
Recoveries
(2)
|
|
|
(52
|
)
|
|
|
(50
|
)
|
|
|
(102
|
)
|
|
|
(102
|
)
|
Net adjustment resulting from the change in the charge-off rate
(3)
|
|
|
|
|
|
|
(330
|
)
|
|
|
|
|
|
|
(330
|
)
|
Net charge-offs remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs
|
|
|
|
|
|
|
(330
|
)
|
|
|
|
|
|
|
(349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable at end of period
|
|
$
|
847
|
|
|
$
|
902
|
|
|
$
|
847
|
|
|
$
|
902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the difference between the defaulted loan balance and our estimate of the amount to be collected in the future.
|
|
(2)
|
Current period cash collections.
|
|
(3)
|
Prior to second-quarter 2015, charge-offs represent the current period recovery shortfall the difference between what was expected to be
collected and what was actually collected. In the second quarter of 2015, the portion of the loan amount charged off at default increased from 73 percent to 79 percent. This change resulted in a $330 million reduction to the balance of the
receivable for partially charged-off loans. These amounts are included in total charge-offs as reported in the Allowance for Private Education Loan Losses table.
|
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 58 percent and 56 percent of the loans granted forbearance have qualified as a
TDR loan at June 30, 2016 and December 31, 2015, respectively. The unpaid principal balance of TDR loans that were in an interest rate reduction plan as of June 30, 2016 and December 31, 2015 was $2.8 billion and $2.5 billion,
respectively.
19
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
2.
|
Allowance for Loan Losses (Continued)
|
At June 30, 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
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Education Loans Traditional
|
|
$
|
9,351
|
|
|
$
|
9,404
|
|
|
$
|
964
|
|
Private Education Loans Non-Traditional
|
|
|
1,409
|
|
|
|
1,415
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,760
|
|
|
$
|
10,819
|
|
|
$
|
1,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 tables provide the average recorded investment and interest income recognized for our TDR
loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
(Dollars in millions)
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Private Education Loans Traditional
|
|
$
|
9,320
|
|
|
$
|
138
|
|
|
$
|
8,943
|
|
|
$
|
135
|
|
Private Education Loans Non-Traditional
|
|
|
1,418
|
|
|
|
27
|
|
|
|
1,466
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,738
|
|
|
$
|
165
|
|
|
$
|
10,409
|
|
|
$
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
(Dollars in millions)
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Private Education Loans Traditional
|
|
$
|
9,271
|
|
|
$
|
276
|
|
|
$
|
8,900
|
|
|
$
|
267
|
|
Private Education Loans Non-Traditional
|
|
|
1,425
|
|
|
|
54
|
|
|
|
1,471
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,696
|
|
|
$
|
330
|
|
|
$
|
10,371
|
|
|
$
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (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
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
(Dollars in millions)
|
|
Balance
|
|
|
%
|
|
|
Balance
|
|
|
%
|
|
Loans in deferment
(1)
|
|
$
|
609
|
|
|
|
|
|
|
$
|
706
|
|
|
|
|
|
Loans in forbearance
(2)
|
|
|
648
|
|
|
|
|
|
|
|
695
|
|
|
|
|
|
Loans in repayment and percentage of each status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans current
|
|
|
8,424
|
|
|
|
88.1
|
%
|
|
|
7,885
|
|
|
|
85.3
|
%
|
Loans delinquent 31-60 days
(3)
|
|
|
356
|
|
|
|
3.7
|
|
|
|
414
|
|
|
|
4.5
|
|
Loans delinquent 61-90 days
(3)
|
|
|
228
|
|
|
|
2.4
|
|
|
|
263
|
|
|
|
2.8
|
|
Loans delinquent greater than 90 days
(3)
|
|
|
554
|
|
|
|
5.8
|
|
|
|
679
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDR loans in repayment
|
|
|
9,562
|
|
|
|
100
|
%
|
|
|
9,241
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDR loans, gross
|
|
$
|
10,819
|
|
|
|
|
|
|
$
|
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 June 30,
|
|
|
|
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
|
|
$
|
286
|
|
|
$
|
74
|
|
|
$
|
56
|
|
|
$
|
339
|
|
|
$
|
101
|
|
|
$
|
83
|
|
Private Education Loans Non-Traditional
|
|
|
25
|
|
|
|
20
|
|
|
|
10
|
|
|
|
36
|
|
|
|
30
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
311
|
|
|
$
|
94
|
|
|
$
|
66
|
|
|
$
|
375
|
|
|
$
|
131
|
|
|
$
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
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
|
|
$
|
628
|
|
|
$
|
154
|
|
|
$
|
118
|
|
|
$
|
768
|
|
|
$
|
192
|
|
|
$
|
183
|
|
Private Education Loans Non-Traditional
|
|
|
52
|
|
|
|
42
|
|
|
|
21
|
|
|
|
79
|
|
|
|
58
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
680
|
|
|
$
|
196
|
|
|
$
|
139
|
|
|
$
|
847
|
|
|
$
|
250
|
|
|
$
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
21
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (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
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
Private Education Loans Traditional
|
|
$
|
385
|
|
|
$
|
25
|
|
Private Education Loans Non-Traditional
|
|
|
49
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
434
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
(Dollars in millions)
|
|
Short
Term
|
|
|
Long
Term
|
|
|
Total
|
|
|
Short
Term
|
|
|
Long
Term
|
|
|
Total
|
|
Unsecured borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured debt
|
|
$
|
1,077
|
|
|
$
|
12,801
|
|
|
$
|
13,878
|
|
|
$
|
1,120
|
|
|
$
|
13,976
|
|
|
$
|
15,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unsecured borrowings
|
|
|
1,077
|
|
|
|
12,801
|
|
|
|
13,878
|
|
|
|
1,120
|
|
|
|
13,976
|
|
|
|
15,096
|
|
Secured borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loan securitizations
|
|
|
|
|
|
|
75,698
|
|
|
|
75,698
|
|
|
|
|
|
|
|
77,764
|
|
|
|
77,764
|
|
Private Education Loan securitizations
(1)
|
|
|
|
|
|
|
16,168
|
|
|
|
16,168
|
|
|
|
|
|
|
|
16,900
|
|
|
|
16,900
|
|
FFELP Loan other facilities
|
|
|
|
|
|
|
14,609
|
|
|
|
14,609
|
|
|
|
|
|
|
|
16,276
|
|
|
|
16,276
|
|
Private Education Loan other facilities
|
|
|
361
|
|
|
|
|
|
|
|
361
|
|
|
|
710
|
|
|
|
|
|
|
|
710
|
|
Other
(2)
|
|
|
955
|
|
|
|
|
|
|
|
955
|
|
|
|
760
|
|
|
|
|
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total secured borrowings
|
|
|
1,316
|
|
|
|
106,475
|
|
|
|
107,791
|
|
|
|
1,470
|
|
|
|
110,940
|
|
|
|
112,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before hedge accounting adjustments
|
|
|
2,393
|
|
|
|
119,276
|
|
|
|
121,669
|
|
|
|
2,590
|
|
|
|
124,916
|
|
|
|
127,506
|
|
Hedge accounting adjustments
|
|
|
(23
|
)
|
|
|
361
|
|
|
|
338
|
|
|
|
(20
|
)
|
|
|
(83
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,370
|
|
|
$
|
119,637
|
|
|
$
|
122,007
|
|
|
$
|
2,570
|
|
|
$
|
124,833
|
|
|
$
|
127,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes $1.0 billion and $546 million of long-term debt related to the Private Education Loan asset-backed securitization repurchase facility
(Repurchase Facility) as of June 30, 2016 and December 31, 2015, respectively.
|
(2)
|
Other includes the obligation to return cash collateral held related to derivative exposures.
|
22
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
3.
|
Borrowings (Continued)
|
Variable Interest Entities
We consolidated the following financing VIEs as of June 30, 2016 and December 31, 2015, as we are the primary beneficiary. As a
result, these VIEs are accounted for as secured borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
|
$
|
|
|
|
$
|
75,698
|
|
|
$
|
75,698
|
|
|
$
|
76,330
|
|
|
$
|
2,649
|
|
|
$
|
754
|
|
|
$
|
79,733
|
|
Private Education Loan securitizations
(1)
|
|
|
|
|
|
|
16,168
|
|
|
|
16,168
|
|
|
|
21,213
|
|
|
|
477
|
|
|
|
284
|
|
|
|
21,974
|
|
FFELP Loan other facilities
|
|
|
|
|
|
|
11,009
|
|
|
|
11,009
|
|
|
|
11,283
|
|
|
|
285
|
|
|
|
171
|
|
|
|
11,739
|
|
Private Education Loan other facilities
|
|
|
361
|
|
|
|
|
|
|
|
361
|
|
|
|
534
|
|
|
|
8
|
|
|
|
16
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before hedge accounting adjustments
|
|
|
361
|
|
|
|
102,875
|
|
|
|
103,236
|
|
|
|
109,360
|
|
|
|
3,419
|
|
|
|
1,225
|
|
|
|
114,004
|
|
Hedge accounting adjustments
|
|
|
|
|
|
|
(772
|
)
|
|
|
(772
|
)
|
|
|
|
|
|
|
|
|
|
|
(793
|
)
|
|
|
(793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
361
|
|
|
$
|
102,103
|
|
|
$
|
102,464
|
|
|
$
|
109,360
|
|
|
$
|
3,419
|
|
|
$
|
432
|
|
|
$
|
113,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $1.0 billion and $546 million of long-term debt related to the Repurchase Facility as of June 30, 2016 and December 31, 2015,
respectively. Includes $69 million and $41 million of restricted cash related to the Repurchase Facility as of June 30, 2016 and December 31, 2015, respectively.
|
23
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
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.
Summary of Derivative Financial Statement Impact
The following tables summarize the fair values and notional amounts of all derivative instruments at June 30,
2016 and December 31, 2015, and their impact on other comprehensive income and earnings for the three and six months ended June 30, 2016 and 2015.
Impact of Derivatives on Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
|
|
|
Fair Value
|
|
|
Trading
|
|
|
Total
|
|
(Dollars in millions)
|
|
Hedged Risk
Exposure
|
|
June 30,
2016
|
|
|
Dec. 31,
2015
|
|
|
June 30,
2016
|
|
|
Dec. 31,
2015
|
|
|
June 30,
2016
|
|
|
Dec. 31,
2015
|
|
|
June 30,
2016
|
|
|
Dec. 31,
2015
|
|
Fair Values
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest rate
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,006
|
|
|
$
|
694
|
|
|
$
|
92
|
|
|
$
|
32
|
|
|
$
|
1,098
|
|
|
$
|
726
|
|
Cross-currency interest rate swaps
|
|
Foreign currency
& interest rate
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
2
|
|
Other
(2)
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,016
|
|
|
|
696
|
|
|
|
93
|
|
|
|
32
|
|
|
|
1,109
|
|
|
|
728
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest rate
|
|
|
(280
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(65
|
)
|
|
|
(68
|
)
|
|
|
(345
|
)
|
|
|
(160
|
)
|
Floor Income Contracts
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(406
|
)
|
|
|
(365
|
)
|
|
|
(406
|
)
|
|
|
(365
|
)
|
Cross-currency interest rate swaps
|
|
Foreign currency
& interest rate
|
|
|
|
|
|
|
|
|
|
|
(835
|
)
|
|
|
(926
|
)
|
|
|
(17
|
)
|
|
|
(62
|
)
|
|
|
(852
|
)
|
|
|
(988
|
)
|
Other
(2)
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
(3)
|
|
|
|
|
(280
|
)
|
|
|
(89
|
)
|
|
|
(835
|
)
|
|
|
(929
|
)
|
|
|
(496
|
)
|
|
|
(497
|
)
|
|
|
(1,611
|
)
|
|
|
(1,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net total derivatives
|
|
|
|
$
|
(280
|
)
|
|
$
|
(89
|
)
|
|
$
|
181
|
|
|
$
|
(233
|
)
|
|
$
|
(403
|
)
|
|
$
|
(465
|
)
|
|
$
|
(502
|
)
|
|
$
|
(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)
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Gross position
|
|
$
|
1,109
|
|
|
$
|
728
|
|
|
$
|
(1,611
|
)
|
|
$
|
(1,515
|
)
|
Impact of master netting agreements
|
|
|
(26
|
)
|
|
|
(50
|
)
|
|
|
26
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative values with impact of master netting agreements (as carried on balance sheet)
|
|
|
1,083
|
|
|
|
678
|
|
|
|
(1,585
|
)
|
|
|
(1,465
|
)
|
Cash collateral (held) pledged
|
|
|
(451
|
)
|
|
|
(759
|
)
|
|
|
511
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net position
|
|
$
|
632
|
|
|
$
|
(81
|
)
|
|
$
|
(1,074
|
)
|
|
$
|
(999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (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 June 30, 2016 and December 31, 2015 by $1
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 June 30, 2016 and December 31, 2015 by $29 million and $31 million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
|
|
|
Fair Value
|
|
|
Trading
|
|
|
Total
|
|
(Dollars in billions)
|
|
Jun. 30,
2016
|
|
|
Dec. 31,
2015
|
|
|
Jun. 30,
2016
|
|
|
Dec. 31,
2015
|
|
|
Jun. 30,
2016
|
|
|
Dec. 31,
2015
|
|
|
Jun. 30,
2016
|
|
|
Dec. 31,
2015
|
|
Notional Values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
14.7
|
|
|
$
|
9.5
|
|
|
$
|
11.5
|
|
|
$
|
12.6
|
|
|
$
|
32.0
|
|
|
$
|
33.8
|
|
|
$
|
58.2
|
|
|
$
|
55.9
|
|
Floor Income Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.5
|
|
|
|
35.1
|
|
|
|
16.5
|
|
|
|
35.1
|
|
Cross-currency interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
8.8
|
|
|
|
9.1
|
|
|
|
.3
|
|
|
|
.3
|
|
|
|
9.1
|
|
|
|
9.4
|
|
Other
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
|
3.2
|
|
|
|
3.0
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
$
|
14.7
|
|
|
$
|
9.5
|
|
|
$
|
20.3
|
|
|
$
|
21.7
|
|
|
$
|
51.8
|
|
|
$
|
72.4
|
|
|
$
|
86.8
|
|
|
$
|
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 June 30,
|
|
|
|
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
|
|
$
|
71
|
|
|
$
|
(235
|
)
|
|
$
|
68
|
|
|
$
|
86
|
|
|
$
|
(68
|
)
|
|
$
|
252
|
|
|
$
|
71
|
|
|
$
|
103
|
|
Cross-currency interest rate swaps
|
|
|
(275
|
)
|
|
|
302
|
|
|
|
(20
|
)
|
|
|
3
|
|
|
|
252
|
|
|
|
(340
|
)
|
|
|
(43
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value derivatives
|
|
|
(204
|
)
|
|
|
67
|
|
|
|
48
|
|
|
|
89
|
|
|
|
184
|
|
|
|
(88
|
)
|
|
|
28
|
|
|
|
68
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flow derivatives
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
11
|
|
|
|
(5
|
)
|
|
|
11
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
4
|
|
Floor Income Contracts
|
|
|
7
|
|
|
|
171
|
|
|
|
(56
|
)
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
8
|
|
Cross-currency interest rate swaps
|
|
|
25
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
(6
|
)
|
Other
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading derivatives
|
|
|
39
|
|
|
|
159
|
|
|
|
(47
|
)
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(165
|
)
|
|
|
226
|
|
|
|
(10
|
)
|
|
|
(67
|
)
|
|
|
184
|
|
|
|
(88
|
)
|
|
|
9
|
|
|
|
71
|
|
Less: realized gains (losses) recorded in interest expense
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on derivative and hedging activities, net
|
|
$
|
(165
|
)
|
|
$
|
226
|
|
|
$
|
(47
|
)
|
|
$
|
(156
|
)
|
|
$
|
184
|
|
|
$
|
(88
|
)
|
|
$
|
(28
|
)
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
25
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
4.
|
Derivative Financial Instruments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
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
|
|
$
|
315
|
|
|
$
|
(115
|
)
|
|
$
|
139
|
|
|
$
|
182
|
|
|
$
|
(347
|
)
|
|
$
|
123
|
|
|
$
|
107
|
|
|
$
|
190
|
|
Cross-currency interest rate swaps
|
|
|
99
|
|
|
|
(540
|
)
|
|
|
(36
|
)
|
|
|
4
|
|
|
|
(54
|
)
|
|
|
647
|
|
|
|
9
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value derivatives
|
|
|
414
|
|
|
|
(655
|
)
|
|
|
103
|
|
|
|
186
|
|
|
|
(401
|
)
|
|
|
770
|
|
|
|
116
|
|
|
|
301
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flow derivatives
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
63
|
|
|
|
13
|
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
33
|
|
Floor Income Contracts
|
|
|
34
|
|
|
|
243
|
|
|
|
(194
|
)
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
|
(160
|
)
|
|
|
(82
|
)
|
Cross-currency interest rate swaps
|
|
|
45
|
|
|
|
(5
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
(7
|
)
|
Other
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading derivatives
|
|
|
137
|
|
|
|
247
|
|
|
|
(177
|
)
|
|
|
(309
|
)
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
551
|
|
|
|
(408
|
)
|
|
|
(85
|
)
|
|
|
(123
|
)
|
|
|
(401
|
)
|
|
|
770
|
|
|
|
65
|
|
|
|
239
|
|
Less: realized gains (losses) recorded in interest expense
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on derivative and hedging activities, net
|
|
$
|
551
|
|
|
$
|
(408
|
)
|
|
$
|
(177
|
)
|
|
$
|
(309
|
)
|
|
$
|
(401
|
)
|
|
$
|
770
|
|
|
$
|
(27
|
)
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
26
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (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)
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Collateral held:
|
|
|
|
|
|
|
|
|
Cash (obligation to return cash collateral is recorded in short-term borrowings)
(1)
|
|
$
|
451
|
|
|
$
|
759
|
|
Securities at fair value corporate derivatives (not recorded in the financial statements)
(2)
|
|
|
503
|
|
|
|
|
|
Securities at fair value on-balance sheet securitization derivatives (not recorded in financial statements)
(3)
|
|
|
391
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
Total collateral held
|
|
$
|
1,345
|
|
|
$
|
1,060
|
|
|
|
|
|
|
|
|
|
|
Derivative asset at fair value including accrued interest
|
|
$
|
1,272
|
|
|
$
|
896
|
|
|
|
|
|
|
|
|
|
|
Collateral pledged to others:
|
|
|
|
|
|
|
|
|
Cash (right to receive return of cash collateral is recorded in investments)
|
|
$
|
511
|
|
|
$
|
466
|
|
|
|
|
|
|
|
|
|
|
Total collateral pledged
|
|
$
|
511
|
|
|
$
|
466
|
|
|
|
|
|
|
|
|
|
|
Derivative liability at fair value including accrued interest and premium receivable
|
|
$
|
1,610
|
|
|
$
|
1,395
|
|
|
|
|
|
|
|
|
|
|
(1)
|
At June 30, 2016 and December 31, 2015, $11 million and $2 million, respectively, were held in restricted cash accounts.
|
(2)
|
The Company has the ability to sell or re-pledge securities it holds as collateral.
|
(3)
|
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 $781 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)
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Accrued interest receivable, net
|
|
$
|
1,596
|
|
|
$
|
1,646
|
|
Derivatives at fair value
|
|
|
1,083
|
|
|
|
678
|
|
Income tax asset, net current and deferred
|
|
|
871
|
|
|
|
906
|
|
Benefit and insurance-related investments
|
|
|
483
|
|
|
|
491
|
|
Fixed assets, net
|
|
|
160
|
|
|
|
162
|
|
Accounts receivable
|
|
|
92
|
|
|
|
329
|
|
Other loans, net
|
|
|
65
|
|
|
|
70
|
|
Other
|
|
|
432
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,782
|
|
|
$
|
4,682
|
|
|
|
|
|
|
|
|
|
|
27
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (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 and six months
ended June 30, 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 an 89 percent controlling interest in Xtend Healthcare for approximately $164 million. Xtend Healthcare is a healthcare 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.
As of June 2016, the Company finalized its purchase price allocation for Xtend Healthcare which resulted in an excess
purchase price over the fair value of net assets acquired, or goodwill, of $102 million.
Identifiable intangible assets at
the acquisition date included definite life intangible assets with an estimated aggregate fair value of approximately $65 million primarily including customer relationships, developed technology, and the Xtend Healthcare trade name. These intangible
assets will be amortized over a period of 10 to 15 years based on the economic benefit derived from each of the underlying assets.
28
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
The following table summarizes common share repurchases and issuances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Common shares repurchased
(1)
|
|
|
13,579,381
|
|
|
|
15,190,685
|
|
|
|
32,789,662
|
|
|
|
29,844,520
|
|
Average purchase price per share
|
|
$
|
12.90
|
|
|
$
|
19.76
|
|
|
$
|
11.45
|
|
|
$
|
20.12
|
|
Shares repurchased related to employee stock-based compensation plans
(2)
|
|
|
368,439
|
|
|
|
431,168
|
|
|
|
1,354,712
|
|
|
|
2,075,932
|
|
Average purchase price per share
|
|
$
|
13.05
|
|
|
$
|
19.83
|
|
|
$
|
10.80
|
|
|
$
|
20.65
|
|
Common shares issued
(3)
|
|
|
467,007
|
|
|
|
633,170
|
|
|
|
2,966,592
|
|
|
|
4,218,408
|
|
(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 June 30, 2016 was $11.95.
Dividend and Share Repurchase Program
In June 2016 and March 2016, we paid a common stock dividend of $0.16 per share.
We repurchased 32.8 million shares of common stock for $375 million in the six months ended June 30, 2016. The shares were
repurchased under our previously disclosed share repurchase programs. As of June 30, 2016, the remaining repurchase authority was $380 million. In the six months ended June 30, 2015, we repurchased 29.8 million shares for $600
million.
29
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (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
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(In millions, except per share data)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Navient Corporation
|
|
$
|
125
|
|
|
$
|
182
|
|
|
$
|
305
|
|
|
$
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute basic EPS
|
|
|
322
|
|
|
|
381
|
|
|
|
331
|
|
|
|
389
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options, non-vested restricted stock, restricted stock units and Employee Stock Purchase Plans
(ESPPs)
(1)
|
|
|
6
|
|
|
|
6
|
|
|
|
4
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
(2)
|
|
|
6
|
|
|
|
6
|
|
|
|
4
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute diluted EPS
|
|
|
328
|
|
|
|
387
|
|
|
|
335
|
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share attributable to Navient Corporation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.39
|
|
|
$
|
.48
|
|
|
$
|
.92
|
|
|
$
|
1.22
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
.39
|
|
|
$
|
.48
|
|
|
$
|
.92
|
|
|
$
|
1.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share attributable to Navient Corporation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.38
|
|
|
$
|
.47
|
|
|
$
|
.91
|
|
|
$
|
1.20
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
.38
|
|
|
$
|
.47
|
|
|
$
|
.91
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 June 30, 2016 and 2015, stock options covering approximately 5 million and 3 million shares, respectively,
were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive. For the six months ended June 30, 2016 and 2015, stock options covering approximately 5 million and 3 million shares,
respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.
|
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 and six months ended June 30, 2016, there were no significant transfers of
financial instruments between levels, or changes in our methodology or assumptions used to value our financial instruments.
30
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
9.
|
Fair Value Measurements (Continued)
|
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
|
|
|
|
June 30, 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
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale investments
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Derivative instruments:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
1,070
|
|
|
|
28
|
|
|
|
1,098
|
|
|
|
|
|
|
|
709
|
|
|
|
17
|
|
|
|
726
|
|
Cross-currency interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
(3)
|
|
|
|
|
|
|
1,070
|
|
|
|
39
|
|
|
|
1,109
|
|
|
|
|
|
|
|
709
|
|
|
|
19
|
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
1,074
|
|
|
$
|
39
|
|
|
$
|
1,113
|
|
|
$
|
|
|
|
$
|
714
|
|
|
$
|
19
|
|
|
$
|
733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
(280
|
)
|
|
$
|
(65
|
)
|
|
$
|
(345
|
)
|
|
$
|
|
|
|
$
|
(99
|
)
|
|
$
|
(61
|
)
|
|
$
|
(160
|
)
|
Floor Income Contracts
|
|
|
|
|
|
|
(406
|
)
|
|
|
|
|
|
|
(406
|
)
|
|
|
|
|
|
|
(365
|
)
|
|
|
|
|
|
|
(365
|
)
|
Cross-currency interest rate swaps
|
|
|
|
|
|
|
(41
|
)
|
|
|
(811
|
)
|
|
|
(852
|
)
|
|
|
|
|
|
|
(83
|
)
|
|
|
(905
|
)
|
|
|
(988
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
(3)
|
|
|
|
|
|
|
(727
|
)
|
|
|
(884
|
)
|
|
|
(1,611
|
)
|
|
|
|
|
|
|
(547
|
)
|
|
|
(968
|
)
|
|
|
(1,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
(727
|
)
|
|
$
|
(884
|
)
|
|
$
|
(1,611
|
)
|
|
$
|
|
|
|
$
|
(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.
|
31
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (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 June 30,
|
|
|
|
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
|
|
$
|
(32
|
)
|
|
$
|
(528
|
)
|
|
$
|
(4
|
)
|
|
$
|
(564
|
)
|
|
$
|
(88
|
)
|
|
$
|
(958
|
)
|
|
$
|
(13
|
)
|
|
$
|
(1,059
|
)
|
Total gains/(losses) (realized and unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
(1)
|
|
|
(5
|
)
|
|
|
(293
|
)
|
|
|
(4
|
)
|
|
|
(302
|
)
|
|
|
5
|
|
|
|
306
|
|
|
|
(3
|
)
|
|
|
308
|
|
Included in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
20
|
|
|
|
1
|
|
|
|
21
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
|
|
Transfers in and/or out of level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(37
|
)
|
|
$
|
(801
|
)
|
|
$
|
(7
|
)
|
|
$
|
(845
|
)
|
|
$
|
(82
|
)
|
|
$
|
(654
|
)
|
|
$
|
(15
|
)
|
|
$
|
(751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains/(losses) relating to instruments still held at the reporting date
(2)
|
|
$
|
(4
|
)
|
|
$
|
(273
|
)
|
|
$
|
(4
|
)
|
|
$
|
(281
|
)
|
|
$
|
6
|
|
|
$
|
304
|
|
|
$
|
(2
|
)
|
|
$
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
9.
|
Fair Value Measurements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
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)
|
|
|
6
|
|
|
|
65
|
|
|
|
(6
|
)
|
|
|
65
|
|
|
|
6
|
|
|
|
(534
|
)
|
|
|
(6
|
)
|
|
|
(534
|
)
|
Included in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
1
|
|
|
|
37
|
|
|
|
1
|
|
|
|
39
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
2
|
|
|
|
(1
|
)
|
Transfers in and/or out of level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(37
|
)
|
|
$
|
(801
|
)
|
|
$
|
(7
|
)
|
|
$
|
(845
|
)
|
|
$
|
(82
|
)
|
|
$
|
(654
|
)
|
|
$
|
(15
|
)
|
|
$
|
(751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains/(losses) relating to instruments still held at the reporting date
(2)
|
|
$
|
8
|
|
|
$
|
102
|
|
|
$
|
(6
|
)
|
|
$
|
104
|
|
|
$
|
6
|
|
|
$
|
(534
|
)
|
|
$
|
(4
|
)
|
|
$
|
(532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Gains (losses) on derivative and hedging activities, net
|
|
$
|
(282
|
)
|
|
$
|
306
|
|
|
$
|
102
|
|
|
$
|
(537
|
)
|
Interest expense
|
|
|
(20
|
)
|
|
|
2
|
|
|
|
(37
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(302
|
)
|
|
$
|
308
|
|
|
$
|
65
|
|
|
$
|
(534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
June 30, 2016
|
|
|
Valuation
Technique
|
|
Input
|
|
Range
(Weighted Average)
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
Consumer Price Index/ LIBOR basis swaps
|
|
$
|
10
|
|
|
Discounted cash flow
|
|
Bid/ask adjustment
to discount
rate
|
|
.02% .05%
(.05%)
|
Prime/LIBOR basis swaps
|
|
|
(47
|
)
|
|
Discounted cash flow
|
|
Constant prepayment rate
|
|
4.9%
|
|
|
|
|
|
|
|
|
Bid/ask adjustment to
discount
rate
|
|
.03% .05%
(.05%)
|
Cross-currency interest rate swaps
|
|
|
(801
|
)
|
|
Discounted cash flow
|
|
Constant prepayment rate
|
|
2.8%
|
Other
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
(Dollars in millions)
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Difference
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Difference
|
|
Earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFELP Loans
|
|
$
|
90,723
|
|
|
$
|
92,618
|
|
|
$
|
(1,895
|
)
|
|
$
|
94,377
|
|
|
$
|
96,498
|
|
|
$
|
(2,121
|
)
|
Private Education Loans
|
|
|
24,126
|
|
|
|
24,741
|
|
|
|
(615
|
)
|
|
|
25,772
|
|
|
|
26,394
|
|
|
|
(622
|
)
|
Cash and investments
(1)
|
|
|
5,535
|
|
|
|
5,535
|
|
|
|
|
|
|
|
5,833
|
|
|
|
5,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
120,384
|
|
|
|
122,894
|
|
|
|
(2,510
|
)
|
|
|
125,982
|
|
|
|
128,725
|
|
|
|
(2,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
2,376
|
|
|
|
2,370
|
|
|
|
(6
|
)
|
|
|
2,569
|
|
|
|
2,570
|
|
|
|
1
|
|
Long-term borrowings
|
|
|
113,665
|
|
|
|
119,637
|
|
|
|
5,972
|
|
|
|
118,471
|
|
|
|
124,833
|
|
|
|
6,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
116,041
|
|
|
|
122,007
|
|
|
|
5,966
|
|
|
|
121,040
|
|
|
|
127,403
|
|
|
|
6,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor Income Contracts
|
|
|
(406
|
)
|
|
|
(406
|
)
|
|
|
|
|
|
|
(365
|
)
|
|
|
(365
|
)
|
|
|
|
|
Interest rate swaps
|
|
|
753
|
|
|
|
753
|
|
|
|
|
|
|
|
566
|
|
|
|
566
|
|
|
|
|
|
Cross-currency interest rate swaps
|
|
|
(842
|
)
|
|
|
(842
|
)
|
|
|
|
|
|
|
(986
|
)
|
|
|
(986
|
)
|
|
|
|
|
Other
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of net asset fair value over carrying value
|
|
|
|
|
|
|
|
|
|
$
|
3,456
|
|
|
|
|
|
|
|
|
|
|
$
|
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 June 30, 2016 and December 31, 2015, respectively, versus a fair value of $4 million and $5 million at June 30, 2016 and December 31, 2015, respectively.
|
34
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (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 June 30, 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.
|
35
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
10.
|
Commitments and Contingencies (Continued)
|
|
|
|
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 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 June 30, 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
36
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
10.
|
Commitments and Contingencies (Continued)
|
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.
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.
37
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
11.
|
Segment Reporting (Continued)
|
The following table includes GAAP basis asset information for our FFELP Loans segment.
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
FFELP Loans, net
|
|
$
|
92,618
|
|
|
$
|
96,498
|
|
Cash and investments
(1)
|
|
|
3,263
|
|
|
|
3,572
|
|
Other
|
|
|
1,983
|
|
|
|
2,015
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
97,864
|
|
|
$
|
102,085
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes restricted cash and investments.
|
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)
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Private Education Loans, net
|
|
$
|
24,741
|
|
|
$
|
26,394
|
|
Cash and investments
(1)
|
|
|
787
|
|
|
|
596
|
|
Other
|
|
|
2,140
|
|
|
|
1,988
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
27,668
|
|
|
$
|
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 June 30, 2016 and
December 31, 2015, the Business Services segment had total assets of $640 million and $657 million, respectively, on a GAAP basis.
38
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
11.
|
Segment Reporting (Continued)
|
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 June 30, 2016 and December 31, 2015, the Other segment had total
assets of $2.2 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 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.
|
39
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
11.
|
Segment Reporting (Continued)
|
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.
40
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
11.
|
Segment Reporting (Continued)
|
Segment Results and Reconciliations to GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
(Dollars in millions)
|
|
FFELP
Loans
|
|
|
Private
Education
Loans
|
|
|
Business
Services
|
|
|
Other
|
|
|
Elimina-
tions
(1)
|
|
|
Total
Core
Earnings
|
|
|
Adjustments
|
|
|
Total
GAAP
|
|
|
|
|
|
|
|
|
Reclassi-
fications
|
|
|
Additions/
(Subtractions)
|
|
|
Total
Adjustments
(2)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education loans
|
|
$
|
588
|
|
|
$
|
402
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
990
|
|
|
$
|
56
|
|
|
$
|
(26
|
)
|
|
$
|
30
|
|
|
$
|
1,020
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Cash and investments
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
593
|
|
|
|
402
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
998
|
|
|
|
56
|
|
|
|
(26
|
)
|
|
|
30
|
|
|
|
1,028
|
|
Total interest expense
|
|
|
388
|
|
|
|
173
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
590
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
205
|
|
|
|
229
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
408
|
|
|
|
47
|
|
|
|
(26
|
)
|
|
|
21
|
|
|
|
429
|
|
Less: provisions for loan losses
|
|
|
10
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
195
|
|
|
|
129
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
298
|
|
|
|
47
|
|
|
|
(26
|
)
|
|
|
21
|
|
|
|
319
|
|
Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing revenue
|
|
|
14
|
|
|
|
3
|
|
|
|
153
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
Asset recovery and business processing revenue
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
(47
|
)
|
|
|
(6
|
)
|
|
|
(53
|
)
|
|
|
(49
|
)
|
Gains on sales of loans and investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on debt repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
14
|
|
|
|
3
|
|
|
|
254
|
|
|
|
4
|
|
|
|
(99
|
)
|
|
|
176
|
|
|
|
(47
|
)
|
|
|
(6
|
)
|
|
|
(53
|
)
|
|
|
123
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
101
|
|
|
|
41
|
|
|
|
125
|
|
|
|
7
|
|
|
|
(99
|
)
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
Overhead expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
101
|
|
|
|
41
|
|
|
|
125
|
|
|
|
62
|
|
|
|
(99
|
)
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
101
|
|
|
|
41
|
|
|
|
125
|
|
|
|
62
|
|
|
|
(99
|
)
|
|
|
230
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, before income tax expense (benefit)
|
|
|
108
|
|
|
|
91
|
|
|
|
129
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
(38
|
)
|
|
|
206
|
|
Income tax expense (benefit)
(3)
|
|
|
40
|
|
|
|
34
|
|
|
|
48
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
68
|
|
|
|
57
|
|
|
|
81
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
(29
|
)
|
|
|
125
|
|
Income (loss) from discontinued operations, net of tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
68
|
|
|
$
|
57
|
|
|
$
|
81
|
|
|
$
|
(52
|
)
|
|
$
|
|
|
|
$
|
154
|
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
$
|
(29
|
)
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 June 30, 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
|
|
$
|
|
|
|
$
|
21
|
|
|
$
|
|
|
|
$
|
21
|
|
Total other income (loss)
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
(53
|
)
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
|
|
|
$
|
(32
|
)
|
|
$
|
(6
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
|
41
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
11.
|
Segment Reporting (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015
|
|
(Dollars in millions)
|
|
FFELP
Loans
|
|
|
Private
Education
Loans
|
|
|
Business
Services
|
|
|
Other
|
|
|
Elimina-
tions
(1)
|
|
|
Total
Core
Earnings
|
|
|
Adjustments
|
|
|
Total
GAAP
|
|
|
|
|
|
|
|
|
Reclassi-
fications
|
|
|
Additions/
(Subtractions)
|
|
|
Total
Adjustments
(2)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education loans
|
|
$
|
522
|
|
|
$
|
434
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
956
|
|
|
$
|
163
|
|
|
$
|
(59
|
)
|
|
$
|
104
|
|
|
$
|
1,060
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Cash and investments
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
523
|
|
|
|
434
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
960
|
|
|
|
163
|
|
|
|
(59
|
)
|
|
|
104
|
|
|
|
1,064
|
|
Total interest expense
|
|
|
309
|
|
|
|
171
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
508
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
214
|
|
|
|
263
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
452
|
|
|
|
156
|
|
|
|
(59
|
)
|
|
|
97
|
|
|
|
549
|
|
Less: provisions for loan losses
|
|
|
7
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
207
|
|
|
|
72
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
254
|
|
|
|
156
|
|
|
|
(59
|
)
|
|
|
97
|
|
|
|
351
|
|
Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing revenue
|
|
|
45
|
|
|
|
6
|
|
|
|
163
|
|
|
|
|
|
|
|
(108
|
)
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
|
|
Asset recovery and business processing revenue
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
(156
|
)
|
|
|
142
|
|
|
|
(14
|
)
|
|
|
(11
|
)
|
Gains on sales of loans and investments
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Gains on debt repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
52
|
|
|
|
6
|
|
|
|
262
|
|
|
|
3
|
|
|
|
(108
|
)
|
|
|
215
|
|
|
|
(156
|
)
|
|
|
142
|
|
|
|
(14
|
)
|
|
|
201
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
112
|
|
|
|
43
|
|
|
|
117
|
|
|
|
6
|
|
|
|
(108
|
)
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
Overhead expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
112
|
|
|
|
43
|
|
|
|
117
|
|
|
|
61
|
|
|
|
(108
|
)
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
29
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
112
|
|
|
|
43
|
|
|
|
117
|
|
|
|
61
|
|
|
|
(108
|
)
|
|
|
225
|
|
|
|
|
|
|
|
32
|
|
|
|
32
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, before income tax expense (benefit)
|
|
|
147
|
|
|
|
35
|
|
|
|
145
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
51
|
|
|
|
51
|
|
|
|
295
|
|
Income tax expense (benefit)
(3)
|
|
|
54
|
|
|
|
13
|
|
|
|
54
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
23
|
|
|
|
23
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
93
|
|
|
$
|
22
|
|
|
$
|
91
|
|
|
$
|
(52
|
)
|
|
$
|
|
|
|
$
|
154
|
|
|
$
|
|
|
|
$
|
28
|
|
|
$
|
28
|
|
|
$
|
182
|
|
Income (loss) from discontinued operations, net of tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
93
|
|
|
$
|
22
|
|
|
$
|
91
|
|
|
$
|
(52
|
)
|
|
$
|
|
|
|
$
|
154
|
|
|
$
|
|
|
|
$
|
28
|
|
|
$
|
28
|
|
|
$
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 June 30, 2015
|
|
(Dollars in millions)
|
|
Net Impact from
Spin-Off of
SLM BankCo
|
|
|
Net Impact of
Derivative
Accounting
|
|
|
Net Impact of
Acquired
Intangibles
|
|
|
Total
|
|
Net interest income after provisions for loan losses
|
|
$
|
|
|
|
$
|
97
|
|
|
$
|
|
|
|
$
|
97
|
|
Total other income (loss)
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(14
|
)
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Restructuring and other reorganization expenses
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
(29
|
)
|
|
$
|
83
|
|
|
$
|
(3
|
)
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
|
42
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
11.
|
Segment Reporting (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
(Dollars in millions)
|
|
FFELP
Loans
|
|
|
Private
Education
Loans
|
|
|
Business
Services
|
|
|
Other
|
|
|
Elimina-
tions
(1)
|
|
|
Total
Core
Earnings
|
|
|
Adjustments
|
|
|
Total
GAAP
|
|
|
|
|
|
|
|
|
Reclassi-
fications
|
|
|
Additions/
(Subtractions)
|
|
|
Total
Adjustments
(2)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education loans
|
|
$
|
1,143
|
|
|
$
|
813
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,956
|
|
|
$
|
195
|
|
|
$
|
(86
|
)
|
|
$
|
109
|
|
|
$
|
2,065
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Cash and investments
|
|
|
8
|
|
|
|
1
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
1,151
|
|
|
|
814
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
1,971
|
|
|
|
195
|
|
|
|
(86
|
)
|
|
|
109
|
|
|
|
2,080
|
|
Total interest expense
|
|
|
746
|
|
|
|
345
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
1,147
|
|
|
|
18
|
|
|
|
|
|
|
|
18
|
|
|
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
405
|
|
|
|
469
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
824
|
|
|
|
177
|
|
|
|
(86
|
)
|
|
|
91
|
|
|
|
915
|
|
Less: provisions for loan losses
|
|
|
17
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
388
|
|
|
|
265
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
603
|
|
|
|
177
|
|
|
|
(86
|
)
|
|
|
91
|
|
|
|
694
|
|
Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing revenue
|
|
|
31
|
|
|
|
8
|
|
|
|
315
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
Asset recovery and business processing revenue
|
|
|
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191
|
|
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
(177
|
)
|
|
|
108
|
|
|
|
(69
|
)
|
|
|
(62
|
)
|
Gains on sales of loans and investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on debt repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
31
|
|
|
|
8
|
|
|
|
506
|
|
|
|
7
|
|
|
|
(200
|
)
|
|
|
352
|
|
|
|
(177
|
)
|
|
|
108
|
|
|
|
(69
|
)
|
|
|
283
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
206
|
|
|
|
84
|
|
|
|
258
|
|
|
|
14
|
|
|
|
(200
|
)
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362
|
|
Overhead expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
206
|
|
|
|
84
|
|
|
|
258
|
|
|
|
130
|
|
|
|
(200
|
)
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
206
|
|
|
|
84
|
|
|
|
258
|
|
|
|
130
|
|
|
|
(200
|
)
|
|
|
478
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, before income tax expense (benefit)
|
|
|
213
|
|
|
|
189
|
|
|
|
248
|
|
|
|
(173
|
)
|
|
|
|
|
|
|
477
|
|
|
|
|
|
|
|
12
|
|
|
|
12
|
|
|
|
489
|
|
Income tax expense (benefit)
(3)
|
|
|
79
|
|
|
|
70
|
|
|
|
91
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
176
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
134
|
|
|
|
119
|
|
|
|
157
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
301
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
305
|
|
Income (loss) from discontinued operations, net of tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
134
|
|
|
$
|
119
|
|
|
$
|
157
|
|
|
$
|
(109
|
)
|
|
$
|
|
|
|
$
|
301
|
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 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
|
|
$
|
|
|
|
$
|
91
|
|
|
$
|
|
|
|
$
|
91
|
|
Total other income (loss)
|
|
|
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
(69
|
)
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
|
|
|
$
|
22
|
|
|
$
|
(10
|
)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
|
43
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
11.
|
Segment Reporting (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015
|
|
(Dollars in millions)
|
|
FFELP
Loans
|
|
|
Private
Education
Loans
|
|
|
Business
Services
|
|
|
Other
|
|
|
Elimina-
tions
(1)
|
|
|
Total
Core
Earnings
|
|
|
Adjustments
|
|
|
Total
GAAP
|
|
|
|
|
|
|
|
|
Reclassi-
fications
|
|
|
Additions/
(Subtractions)
|
|
|
Total
Adjustments
(2)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education loans
|
|
$
|
1,055
|
|
|
$
|
891
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,946
|
|
|
$
|
325
|
|
|
$
|
(118
|
)
|
|
$
|
207
|
|
|
$
|
2,153
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Cash and investments
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
1,058
|
|
|
|
891
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
1,954
|
|
|
|
325
|
|
|
|
(118
|
)
|
|
|
207
|
|
|
|
2,161
|
|
Total interest expense
|
|
|
611
|
|
|
|
345
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
1,013
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
|
|
1,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
447
|
|
|
|
546
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
941
|
|
|
|
309
|
|
|
|
(118
|
)
|
|
|
191
|
|
|
|
1,132
|
|
Less: provisions for loan losses
|
|
|
12
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provisions for loan losses
|
|
|
435
|
|
|
|
235
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
618
|
|
|
|
309
|
|
|
|
(118
|
)
|
|
|
191
|
|
|
|
809
|
|
Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing revenue
|
|
|
63
|
|
|
|
12
|
|
|
|
326
|
|
|
|
|
|
|
|
(219
|
)
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182
|
|
Asset recovery and business processing revenue
|
|
|
|
|
|
|
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188
|
|
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
8
|
|
|
|
|
|
|
|
10
|
|
|
|
(309
|
)
|
|
|
367
|
|
|
|
58
|
|
|
|
68
|
|
Gains on sales of loans and investments
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Gains on debt repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss)
|
|
|
75
|
|
|
|
12
|
|
|
|
516
|
|
|
|
8
|
|
|
|
(219
|
)
|
|
|
392
|
|
|
|
(309
|
)
|
|
|
367
|
|
|
|
58
|
|
|
|
450
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
227
|
|
|
|
89
|
|
|
|
233
|
|
|
|
8
|
|
|
|
(219
|
)
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338
|
|
Overhead expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
227
|
|
|
|
89
|
|
|
|
233
|
|
|
|
126
|
|
|
|
(219
|
)
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
456
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
Restructuring and other reorganization expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
32
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
227
|
|
|
|
89
|
|
|
|
233
|
|
|
|
126
|
|
|
|
(219
|
)
|
|
|
456
|
|
|
|
|
|
|
|
36
|
|
|
|
36
|
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, before income tax expense (benefit)
|
|
|
283
|
|
|
|
158
|
|
|
|
283
|
|
|
|
(170
|
)
|
|
|
|
|
|
|
554
|
|
|
|
|
|
|
|
213
|
|
|
|
213
|
|
|
|
767
|
|
Income tax expense (benefit)
(3)
|
|
|
106
|
|
|
|
58
|
|
|
|
106
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
206
|
|
|
|
|
|
|
|
87
|
|
|
|
87
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
177
|
|
|
$
|
100
|
|
|
$
|
177
|
|
|
$
|
(106
|
)
|
|
$
|
|
|
|
$
|
348
|
|
|
$
|
|
|
|
$
|
126
|
|
|
$
|
126
|
|
|
$
|
474
|
|
Income (loss) from discontinued operations, net of tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
177
|
|
|
$
|
100
|
|
|
$
|
177
|
|
|
$
|
(106
|
)
|
|
$
|
|
|
|
$
|
348
|
|
|
$
|
|
|
|
$
|
126
|
|
|
$
|
126
|
|
|
$
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015
|
|
(Dollars in millions)
|
|
Net Impact from
Spin-Off of
SLM BankCo
|
|
|
Net Impact of
Derivative
Accounting
|
|
|
Net Impact of
Acquired
Intangibles
|
|
|
Total
|
|
Net interest income after provisions for loan losses
|
|
$
|
|
|
|
$
|
191
|
|
|
$
|
|
|
|
$
|
191
|
|
Total other income (loss)
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
58
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and acquired intangible asset impairment and amortization
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Restructuring and other reorganization expenses
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
(32
|
)
|
|
$
|
249
|
|
|
$
|
(4
|
)
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Income taxes are based on a percentage of net income before tax for the individual reportable segment.
|
44
NAVIENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2016 and for the three and six months ended
June 30, 2016 and 2015 is unaudited) (Continued)
11.
|
Segment Reporting (Continued)
|
Summary of Core Earnings Adjustments to GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in millions)
|
|
2016
|
|
|
2015
|
|
|
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)
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
$
|
|
|
|
$
|
(32
|
)
|
Net impact of derivative accounting
(2)
|
|
|
(32
|
)
|
|
|
83
|
|
|
|
22
|
|
|
|
249
|
|
Net impact of goodwill and acquired intangibles assets
(3)
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
|
(10
|
)
|
|
|
(4
|
)
|
Net tax effect
(4)
|
|
|
9
|
|
|
|
(23
|
)
|
|
|
(8
|
)
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Earnings adjustments to GAAP
|
|
$
|
(29
|
)
|
|
$
|
28
|
|
|
$
|
4
|
|
|
$
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
SLM BankCos operations and restructuring and other 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.
|
45